As filed with the Securities and Exchange Commission on February
1, 2000
Securities Act File No. 333-53887
Investment Company Act File No. 811-7177
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
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REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
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x
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Post-Effective
Amendment No. 10
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¨
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Post-Effective
Amendment No.
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x
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and/or
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REGISTRATION
STATEMENT UNDER THE
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INVESTMENT
COMPANY ACT OF 1940
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x
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(Check appropriate box or boxes)
MERRILL LYNCH ASSET BUILDER PROGRAM, INC.*
Fundamental Value Portfolio
U.S. Government Securities Portfolio
Growth Opportunity Portfolio
(Exact name of Registrant as specified in charter)
800 Scudders Mill Road, Plainsboro, New Jersey
08536
(Address of Principal Executive Offices)
Registrants Telephone Number, Including Area Code:
609-282-2800
TERRY K. GLENN
Merrill Lynch Asset Builder Program, Inc.
P.O. Box 9011
Princeton, New Jersey 08543-9011
(Name and Address of Agent for Service)
Approximate Date
of Proposed Public Offering: As soon as practicable after the effective
date of the Registration Statement.
Copies to:
Counsel for
the Fund:
FRANK P. BRUNO, Esq.
Brown & Wood LLP
One World Trade Center
New York, New York 10048
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MICHAEL J.
HENNEWINKEL, Esq.
Fund 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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immediately upon filing
pursuant to paragraph (b)
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¨
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on (date) pursuant to
paragraph (b)
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x
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60 days after filing
pursuant to paragraph (a)(1)
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¨
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on (date) pursuant to
paragraph (a)(1)
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¨
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75 days after filing
pursuant to paragraph (a)(2)
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¨
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on (date) pursuant to
paragraph (a)(2) of Rule 485.
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If appropriate, check the following box:
¨
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this post-effective
amendment designates a new effective date for a previously filed
post-effective amendment.
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Title of Securities Being Registered:
Shares of Common Stock, par value $.10 per share.
*
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The Registrant is in the
process of changing its name to The Asset Program, Inc. and certain of its
portfolios are in the process of changing their names.
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EXPLANATORY NOTE:
This Registration
Statement contains three separate prospectuses and statements of additional
information for the following portfolios of the Registrant:
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Merrill Lynch Mid Cap Value Fund, formerly the
Fundamental Value Portfolio
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Mercury Growth Opportunity Fund, formerly the
Growth Opportunity Portfolio
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Mercury U.S. Government Bond Fund, formerly the
U.S. Government Securities Portfolio
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No prospectus or
statement of additional information is included in this filing for the
Global Opportunity Portfolio and the Quality Bond Portfolio, also portfolios
of the Registrant.
The information in this prospectus is not complete and may be
changed. We may not use this prospectus to sell securities until the
registration statement containing this prospectus, which has been filed with
the Securities and Exchange Commission, is effective. This prospectus is not
an offer to sell these securities and is not soliciting an offer to buy
these securities in any state where the offer is not permitted.
Prospectus
[LOGO] Merrill Lynch
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED February 1, 2000
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Merrill Lynch Mid Cap
Value Fund
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April , 2000
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This prospectus
contains information you should know before investing, including
information about risks. Please read it before you invest and keep it for
future reference.
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The Securities and
Exchange Commission has not approved or disapproved these securities or
passed upon the adequacy of this prospectus. Any representation to the
contrary is a criminal offense.
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[GRAPHIC] Table of Contents
MERRILL LYNCH MID CAP VALUE FUND
[GRAPHIC] Key Facts
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.
Equity Securities
securities representing ownership of a corporation or securities
whose price is linked to the value of securities that represent company
ownership.
Common Stocks shares of
ownership in a corporation.
Mid Cap Companies the
definition of mid cap companies will change over time in response to
market conditions; for the Fund, mid cap companies typically have total
market capitalization, at the time of initial purchase by the Fund, in
the same range as the companies in the S&P 400 Index, a widely
known mid cap investment benchmark.
MERRILL LYNCH MID CAP VALUE FUND AT A GLANCE
What is the Funds investment objective?
The investment objective of the Fund is to seek capital
appreciation and secondarily, income by investing in securities,
primarily in equity securities that Fund management
believes are undervalued and therefore represent an investment
value.
What are the Funds main investment
strategies?
In trying to meet its objective, the Fund normally invests at
least 65% of its total assets in common stocks of
mid cap companies. The Fund purchases securities which
its management believes are undervalued, which means that their prices
are less than management believes they are worth. Fund management
places particular emphasis on stocks trading at the low-end of their
historical price/book value or enterprise/sales ratios. The Fund
purchases primarily common stocks of U.S. companies in trying to meet
its objective. The Fund may also invest in securities issued by foreign
companies and in securities denominated in currencies other than the
U.S. dollar.
What are the main risks of investing in the
Fund?
As with any fund, the value of the Funds investments
and therefore the value of Fund sharesmay fluctuate. These
changes may occur because a particular stock market is rising or
falling. At other times, there are specific factors that may affect the
value of a particular investment.
The Fund may invest in foreign securities. Foreign investing
involves special risks, including foreign currency risk and the
possibility of substantial volatility due to adverse political,
economic or other developments. Foreign securities may also be less
liquid and harder to value than U.S. securities. These risks are
greater for investments in emerging markets.
Since foreign markets may differ significantly from U.S. markets
in terms of both economic conditions and government regulation,
investment in foreign securities involves special risks. If the value
of the Funds 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 in mind, such as retirement or funding
a childs 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 capital appreciation and income
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Are not
looking for a significant amount of current income
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MERRILL LYNCH MID CAP VALUE FUND
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 B shares for each complete calendar year
since the Funds 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 Funds 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]
17.86% 18.53% 6.78% 0%
------ ------ ------ ------
1996 1997 1998 1999
During the period shown in the bar chart, the highest return
for a quarter was % (quarter ended
,
) and the lowest return for a
quarter was % (quarter ended
, ). The
year-to-date return as of
, 2000 was
%.
Average Annual Total
Returns (as of the
calendar year ended
December 31, 1999) |
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Past
One Year |
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Since
Inception |
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Merrill
Lynch
Mid Cap Value Fund*
A |
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% |
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% |
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Merrill
Lynch
Mid Cap Value Fund* B |
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% |
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% |
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Merrill
Lynch
Mid Cap Value Fund* C |
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% |
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% |
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Merrill
Lynch
Mid Cap Value Fund* D |
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% |
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% |
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S&P
500** |
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% |
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% |
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* Includes sales
charges. |
** The S&P 500® is the Standard
& Poors 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 February 1, 1995. |
MERRILL LYNCH MID CAP VALUE FUND
4
UNDERSTANDING EXPENSES
Fund investors pay various expenses, either directly or
indirectly. Listed below are some of the main types of expenses,
which all mutual funds may charge:
Expenses paid directly by the
shareholder:
Shareholder Fees these fees include
sales charges, which you may pay when you buy or sell shares of the
Fund.
Expenses paid indirectly by the shareholder:
Annual Fund Operating Expenses
expenses that cover the costs of operating the
Fund.
Management Fee a fee paid to the
Investment Adviser for managing the Fund.
Distribution Fees fees used to
support the Funds marketing and distribution efforts, such as
compensating Financial Consultants, advertising and
promotion.
Service (Account Maintenance) Fees
fees used to compensate securities dealers for account
maintenance activities.
The Fund offers four different classes of shares.
Although your money will be invested the same way no matter which
class of shares you buy, there are differences among the fees and
expenses associated with each class. Not everyone is eligible to buy
every class. After determining which classes you are eligible to
buy, decide which class best suits your needs. Your Merrill Lynch
Financial Consultant can help you with this decision.
This table shows the different fees and expenses that
you may pay if you buy and hold the different classes of shares of
the Fund. Future expenses may be greater or less than those
indicated below.
Shareholder
Fees (Fees paid directly from your
investment)(a): |
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Class A |
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Class B(b)
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Class C |
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Class D |
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Maximum Sales Charge (Load) imposed
on purchases (as a percentage of offering
price) |
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5.25%(c) |
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None |
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None |
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5.25%(c) |
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Maximum Deferred Sales Charge (Load) (as a
percentage of original purchase price or
redemption proceeds, whichever is lower)
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None(d) |
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4.0%(c) |
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1.0%(c) |
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None(d) |
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Maximum Sales Charge (Load) imposed on
Dividend Reinvestments |
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None |
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None |
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None |
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None |
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Redemption Fee |
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None |
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None |
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None |
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None |
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Exchange Fee |
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None |
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None |
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None |
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None |
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Annual Fund Operating Expenses (Expenses that
are deducted from the Funds total
assets)(e): |
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Management Fee |
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0.65% |
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0.65% |
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0.65% |
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0.65% |
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Distribution and/or Service (12b-1)
Fees(e) |
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None |
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1.00% |
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1.00% |
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0.25% |
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Other Expenses (including transfer agency
fees)(f) |
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% |
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% |
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% |
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% |
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Total Annual Fund Operating Expenses |
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% |
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% |
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% |
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% |
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(a)
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In
addition, Merrill Lynch may charge a processing fee (currently
$5.35) when a client buys or sells shares.
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(b)
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Class B
shares automatically convert to Class D shares about eight years
after you buy them and will no longer be subject to distribution
fees.
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(c)
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Some
investors may qualify for reductions in the sales charge
(load).
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(d)
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You may
pay a deferred sales charge if you purchase $1 million or more and
you redeem within one year.
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(e)
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The Fund
calls the Service Fee an Account Maintenance Fee.
Account Maintenance Fee is the term used elsewhere in this
Prospectus and in all other Fund materials. If you hold Class B or
C shares for a long time, it may cost you more in distribution
(12b-1) fees than the maximum sales charge that you would have
paid if you had bought one of the other classes.
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(f)
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The Fund
pays the Transfer Agent $11.00 for each Class A and Class D
shareholder account and $14.00 for each Class B and Class C
shareholders account and reimburses the Transfer Agents
out-of-pocket expenses. The Fund pays a 0.10% fee for certain
accounts that participate in the Merrill Lynch Mutual Fund Advisor
program. The Fund also pays $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 January 31, 2000, the Fund paid the Transfer Agent fees
totaling $
. The Investment Adviser provides accounting
services to the Fund at its cost. For the fiscal year ended
January 31, 2000, the Fund reimbursed the Investment Adviser $
for these services.
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MERRILL LYNCH MID CAP VALUE FUND
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 $10,000 in the
Fund for the time periods indicated, that your investment has a 5%
return each year, that you pay the sales charges, if any, that apply
to the particular class and that the Funds operating expenses
remain the same. This assumption is not meant to indicate you will
receive a 5% annual rate of return. Your annual return may be more
or less than the 5% used in these examples. Although your actual
costs may be higher or lower, based on these assumptions, your costs
would be:
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EXPENSES IF YOU DID REDEEM YOUR
SHARES: |
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1 Year |
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3 Years |
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5 Years |
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10
Years |
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Class A |
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$
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$
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$
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$
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Class B |
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$
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$
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$
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$
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* |
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Class C |
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$
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$
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$
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$
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Class D |
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$
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$
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$
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$
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EXPENSES IF YOU DID NOT REDEEM
YOUR SHARES: |
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1 Year |
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3
Years |
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5
Years |
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10
Years |
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Class A |
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$
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$
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$
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$
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Class B |
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$
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$
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$
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$
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* |
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Class C |
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$
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$
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$
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$
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Class D |
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$
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$
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$
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$
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*
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Assumes
conversion of Class D shares approximately eight years after
purchase. See note (b) to the Fees and Expenses table
above.
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MERRILL LYNCH MID CAP VALUE FUND
6
[GRAPHIC] Details About the Fund
ABOUT THE
PORTFOLIO MANAGER
R. Elise Baum is the portfolio manager of the Fund. Ms.
Baum was Vice President of the Investment Adviser from 1995 to
1997 and Director from 1997 to 1999 and has been First Vice
President since 1999.
ABOUT THE INVESTMENT ADVISER
The Fund is managed by Merrill Lynch Asset
Management.
The investment objective of the Fund is to seek
capital appreciation and secondarily, income by investing in
securities, primarily in equity securities that Fund management
believes are undervalued and therefore represent an investment
value. The Fund tries to achieve its objective by investing
primarily in a diversified portfolio of equity securities.
Normally, the Fund invests at least 65% of its total assets in mid
cap companies.
In selecting securities, Fund management emphasizes
common stocks and, to a lesser extent, securities convertible into
common stocks, that it believes are undervalued. Fund management
places particular emphasis on undervalued companies. Fund
management may also determine a company is undervalued if its
stock price is down because of temporary factors that Fund
management believes the company will recover from.
The Fund follows a value-oriented investment style.
Fund management believes that favorable changes in market prices
are more likely to occur when:
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Stocks
are out of favor
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Company
earnings are depressed
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Price/earnings ratios are relatively low
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Investment expectations are limited
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There
is no general interest in a security or industry
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On the other hand, Fund management believes that
negative developments are more likely to occur when:
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Investment expectations are generally high
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Stock
prices are advancing or have advanced rapidly
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Price/earnings ratios have been inflated
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An
industry or security continues to become popular among
investors
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In other words, Fund management believes that
stocks with relatively high price/earnings ratios are more
vulnerable to price declines from unexpected adverse developments.
At the same time, stocks with relatively low price/earnings ratios
are more likely to benefit from favorable but generally
unanticipated events. Thus, the Fund may invest a large part of
its net assets in stocks that have weak research
ratings.
The Fund may also invest in preferred stocks and
non-convertible debt securities. The Fund may invest up to 30% of
its total assets in the securities of foreign
companies.
MERRILL LYNCH MID CAP VALUE FUND
7
[GRAPHIC] Details About the Fund
The Fund may invest up to 35% of its total assets
in equity securities of large cap or small cap companies. The Fund
may also lend its securities and may borrow up to 33
1
/3% of its total assets from banks as a temporary
measure for extraordinary or emergency purposes or to meet
redemptions.
The Fund may use derivatives to increase returns or
to hedge the portfolio against interest rate and currency risks.
The derivatives that the Fund may use include indexed and inverse
securities, options, futures and forward foreign exchange
transactions.
As a temporary measure for defensive purposes, the
Fund may invest without limit in short-term investment grade debt
securities, such as commercial paper or Treasury bill agreements.
The Fund may also increase its investment in these securities when
Fund management is unable to find enough attractive long-term
investments, to reduce exposure to long-term investments when Fund
management believes it is advisable to do so on a temporary basis,
or to meet redemptions. Short-term investments may, therefore,
limit the potential for the Fund to achieve its investment
objective.
This section contains a summary discussion of the
general risks of investing in the Fund. As with any fund, there
can be no guarantee that the Fund will meet its objective, or that
the Funds performance will be positive over any period of
time.
Market Risk and Selection Risk
Market risk is the risk that the equity markets
will go down in value, including the possibility that the equity
markets will go down sharply and unpredictably. Selection risk is
the risk that the stocks that the Investment Adviser selects will
underperform the markets or other funds with similar investment
objectives and investment strategies.
Foreign Market Risk
Since the Fund may invest in foreign securities,
they offer 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. Such investments,
however, involve special risks not present in U.S. investments
that can increase the chances that the Fund will lose money. For
example, 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, diplomatic developments, the
imposition of economic sanctions, changes in international trading
patterns, trade barriers and other protectionist or retaliatory
measures. The governments of certain countries may prohibit or
impose substantial restrictions on foreign investing in their
capital markets or in certain industries. Other foreign market
risks include foreign exchange controls, difficulties in pricing
securities, defaults on foreign government securities,
difficulties in enforcing favorable legal judgments in foreign
courts and political and social instability. Legal remedies
available to investors in some foreign countries may be less
extensive than those available to investors in the United States.
Foreign markets may have different clearance and settlement
procedures, which may delay settlement of transactions involving
foreign securities. The Fund may miss investment opportunities or
be unable to sell an investment because of these delays. The risks
of investing in foreign securities are generally greater for
investments in emerging markets.
The Fund also may be subject to risks associated
with the following investment strategies.
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
convertibles value usually reflects both the stream of
current income payments and the value of the underlying common
stock. The market value of a convertible performs like that of 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 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.
MERRILL LYNCH MID CAP VALUE FUND
9
[GRAPHIC] Details About the Fund
Small Cap and Emerging Growth
Securities
The Funds equity investment risks may be
heightened by investments in small capital markets. Small cap or
emerging growth companies may have limited product lines or
markets. They may be less financially secure than larger, more
established companies. They may depend on a small number of key
personnel. If a product fails, or if management changes, or there
are other adverse developments, the Funds investment in
small cap or emerging growth companies may lose substantial
value.
Small cap or emerging growth securities generally
trade in lower volumes and are subject to greater and more
unpredictable price changes than larger cap securities or the
stock market as a whole. Investing in small caps and emerging
growth securities requires a long-term view.
Depositary Receipts
The Fund may invest in securities of foreign
issuers in the form of Depositary Receipts. American Depositary
Receipts are receipts typically issued by an American bank or
trust company that show evidence of underlying securities issued
by a foreign corporation. European Depositary Receipts evidence a
similar ownership arrangement. The Fund may also invest in
unsponsored Depositary Receipts. The issuers of such unsponsored
Depositary Receipts are not obligated to disclose material
information in the United States, and therefore, there may be less
information available regarding such issuers.
Indexed Securities
The Fund may invest in securities whose potential
returns are directly related to changes in an underlying index or
interest rate, known as indexed securities. The return on indexed
securities will rise when the underlying index or interest rate
rises and fall when the index or interest rate falls. The Fund may
also invest in securities whose return is inversely related to
changes in an interest rate (inverse floaters). In general, income
on inverse floaters will decrease when interest rates increase and
increase when interest rates decrease. Investments in inverse
floaters may subject the Fund to the risks of reduced or
eliminated interest payments and losses of principal. In addition,
certain indexed securities and inverse floaters may increase or
decrease in value at a greater rate than the underlying interest
rate, which effectively leverages the Funds investment.
Indexed securities and inverse floaters are derivative securities
and can be considered speculative. Indexed and inverse securities
involve credit risk and certain indexed and inverse securities may
involve currency risk, leverage risk and liquidity
risk.
MERRILL LYNCH MID CAP VALUE FUND
10
When Issued and Delayed Delivery Securities and
Forward Commitments
When issued and delayed delivery securities and
forward commitments involve the risk that a security the Fund buys
will lose value prior to its delivery. There also is the risk that
the security will not be issued or that the other party will not
meet its obligation. If this occurs, the Fund both loses the
investment opportunity for the assets it has set aside to pay for
the security and any gain in the securitys
price.
Borrowing and Leverage
The Fund may borrow for temporary emergency
purposes including to meet redemptions. Borrowing may exaggerate
changes in the net asset value of Fund shares and in the yield on
the Funds portfolio. Borrowing will cost the Fund interest
expense and other fees. The costs of borrowing may reduce the Fund
s return. Certain securities that the Fund buys may create
leverage including, for example, derivatives, when issued
securities, forward commitments and options.
Illiquid Securities
The Fund may invest up to 15% of its net assets in
illiquid securities that it cannot easily resell within seven days
at current value or that have contractual or legal restrictions on
resale. If the Fund buys illiquid securities it may be unable to
quickly resell them or may be able to sell them only at a price
below current value.
Restricted Securities
Restricted securities have contractual or legal
restrictions on their resale. They include private placement
securities that the Fund buys directly from the issuer. Private
placement and other restricted securities may not be listed on an
exchange and may have no active trading market.
Restricted securities may be illiquid. The Fund may
be unable to sell them on short notice or may be able to sell them
only at a price below current value. The Fund may get only limited
information about the issuer, so it may be less able to predict a
loss. In addition, if Fund management receives material adverse
nonpublic information about the issuer, the Fund will not be able
to sell the security.
Rule 144A Securities
Rule 144A securities are restricted securities that
can be resold to qualified institutional buyers but not to the
general public. Rule 144A securities may have an active trading
market, but carry the risk that the active trading market may not
continue.
MERRILL LYNCH MID CAP VALUE FUND
11
[GRAPHIC] Details About the Fund
Securities Lending
The Fund may lend securities with a value not
exceeding 33 1
/3% of its assets to financial institutions that
provide government securities as collateral. Securities lending
involves the risk that the borrower may fail to return the
securities in a timely manner or at all. As a result, the Fund may
lose money and there may be a delay in recovering the loaned
securities. The Fund could also lose money if it does not recover
the securities and the value of the collateral falls. These events
could trigger adverse tax consequences to the Fund.
Repurchase Agreements
The Fund may invest in repurchase agreements. A
repurchase agreement involves the purchase of a security together
with a simultaneous agreement to resell the security to the seller
at a later date at approximately the purchase price less an amount
that represents interest to the buyer. Repurchase agreements are
considered relatively safe, liquid investments for short term
cash, but involve the risk that the seller will fail to repurchase
the security and that the Fund will have to attempt to sell the
security in the market for its current value, which may be less
than the amount the Fund paid for the security. Repurchase
agreements involve credit risk.
Covered Call Options
The Fund can sell covered call options which are
options that give the purchaser the right to require the Fund to
sell a security owned by the Fund to the purchaser at a specified
price within a limited time period. The Fund may also sell the
purchaser a right to require the Fund to make a payment based on
the level of an index that is closely correlated with some of the
holdings. The Fund will receive a premium (an upfront payment) for
selling a covered call option, and if the option expires
unexercised because the price of the underlying security has gone
down the premium received by the Fund will partially offset any
losses on the underlying security. By writing a covered call
option, however, the Fund limits its ability to sell the
underlying security and gives up the opportunity to profit from
any increase in the value of the underlying security beyond the
sale price specified in the option.
Futures and Options
The Fund may use futures and options. Futures are
exchange-traded contracts involving the obligation of the seller
to deliver, and the buyer to receive, certain assets (or a money
payment based on the change in value of certain assets or an
index) at a specified time. Futures involve leverage risk and
correlation risk and may involve currency risk and political risk.
Options are
exchange-traded or private contracts involving the right of a holder
to deliver (a put) or receive (a call)
certain assets (or a money payment based on the change of certain
assets or an index) from another party at a specified price within
a specified time period. Options involve leverage risk and
correlation risk. Private options also involve credit risk,
valuation risk and liquidity risk. Options may involve currency
risk and political risk. Both futures and options involve market
risk.
The Fund will use futures and options primarily for
hedging purposesthat is, to offset the risk that other
holdings may decrease in value or that potential investment
opportunities may increase in value before the Fund can fully
implement its investment strategy. The Fund may use options,
however, to enhance total return as well as for hedging purposes.
While hedging can reduce losses, it can also reduce or eliminate
gains if markets move in a different manner than anticipated by
the Fund or if the cost of the future or option outweighs the
benefit of the hedge. Hedging also involves the risk that changes
in the value of the future or option will not match those of the
holdings being hedged as expected by the Fund, in which case
losses on the holdings being hedged may not be
reduced.
STATEMENT OF ADDITIONAL INFORMATION
If you would like further information about the
Fund, including how the Fund invests, please see the Statement of
Additional Information.
MERRILL LYNCH MID CAP VALUE FUND
13
[LOGO] Your Account
MERRILL LYNCH SELECT PRICING
SM
SYSTEM
The Fund offers four classes of shares, 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 a Funds assets on
an ongoing basis, over time these fees increase the cost of your
investment and may cost you more than paying an initial sales
charge. In addition, you may be subject to a deferred sales charge
when you sell Class B or C shares.
The Funds shares are distributed by Merrill
Lynch Funds Distributor, a division of Princeton Funds
Distributor, Inc., an affiliate of Merrill Lynch.
MERRILL LYNCH MID CAP VALUE FUND
14
The table below summarizes key features of the
Merrill Lynch Select Pricing
SM
System.
|
|
Class
A |
|
Class
B |
|
Class
C |
|
Class
D |
|
Availability |
|
Limited to certain
investors including:
Current Class A
shareholders
Certain Retirement
Plans
Participants in
certain Merrill
Lynch-sponsored
programs
Certain affiliates of
Merrill Lynch. |
|
Generally available
through Merrill Lynch.
Limited availability
through other
securities dealers. |
|
Generally available
through Merrill Lynch.
Limited availability
through other
securities dealers. |
|
Generally available
through Merrill Lynch.
Limited availability
through other
securities dealers. |
|
|
Initial Sales
Charge? |
|
Yes. Payable at time
of purchase. Lower
sales charges available
for larger
investments. |
|
No. Entire purchase
price is invested in
shares of the Fund. |
|
No. Entire purchase
price is invested in
shares of the Fund. |
|
Yes. Payable at time
of purchase. Lower
sales charges available
for larger
investments. |
|
Deferred Sales
Charge? |
|
No. (May be charged
for purchases over
$1 million that are
redeemed within
one year.) |
|
Yes. Payable if you
redeem within four
years of purchase. |
|
Yes. Payable if you
redeem within one
year of purchase. |
|
No. (May be charged
for purchases over
$1 million that are
redeemed within one
year.) |
|
|
Account
Maintenance and
Distribution Fees? |
|
No. |
|
0.25% Account
Maintenance Fee
0.75% Distribution
Fee. |
|
0.25% Account
Maintenance Fee
0.75% Distribution
Fee. |
|
0.25% Account
Maintenance Fee
No Distribution Fee. |
|
Conversion to
Class D shares? |
|
No. |
|
Yes, automatically
after approximately
eight years. |
|
No. |
|
No. |
|
|
MERRILL LYNCH MID CAP VALUE FUND
15
[GRAPHIC] Your Account
Right of Accumulation
permits you to pay the sales charge that would apply to the
cost or value (whichever is higher) of all shares you own in the
Merrill Lynch mutual funds that offer Select Pricing
options.
Letter of Intent
permits you to pay the sales charge that would be
applicable if you add up all shares of Merrill Lynch Select
Pricing
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 as shown in the
following table.
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 D
shares, you may not pay an initial sales charge. In that case,
the Investment Adviser compensates the selling dealer from its
own funds. 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 $1,000,000,000 or more of
Class A and 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 D shares may apply for:
|
|
Purchases under a Right of Accumulation
or Letter of Intent
|
|
|
Merrill Lynch Blueprint
SM
Program participants
|
|
|
Certain Merrill Lynch investment or central
asset accounts
|
|
|
Certain employer-sponsored retirement or savings
plans
|
|
|
Purchases using proceeds from the sale of
certain Merrill Lynch closed-end funds under certain
circumstances
|
MERRILL LYNCH MID CAP VALUE FUND
16
|
|
Certain investors, including directors or
trustees of Merrill Lynch mutual funds and Merrill Lynch
employees
|
|
|
Certain Merrill Lynch fee-based
programs
|
Only certain investors are eligible to buy Class A
shares. Your 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 shares 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 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 charge 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 your decision in purchasing Fund
shares.
Class B Shares
If you redeem Class B shares within four years
after purchase, you may be charged a deferred sales charge. The
amount of the charge gradually decreases as you hold your shares
over time, according to the following schedule:
MERRILL LYNCH MID CAP VALUE FUND
17
[GRAPHIC] Your Account
Years Since
Purchase |
|
Sales
Charge* |
|
0 1 |
|
4.00% |
|
1 2 |
|
3.00% |
|
2 3 |
|
2.00% |
|
3 4 |
|
1.00% |
|
4 and thereafter |
|
0.00% |
|
*
|
The percentage charge will apply to the lesser
of the original cost of the shares being redeemed or the
proceeds of your redemption. Shares acquired by dividend
reinvestment are not subject to a deferred sales charge.
Merrill Lynch funds may not all have identical deferred sales
charge schedules. In the event of an exchange for the shares of
another Merrill Lynch fund, the higher charge would
apply.
|
The deferred sales charge relating to Class B
shares may be reduced or waived in certain circumstances, such
as:
|
|
Certain post-retirement withdrawals from an IRA
or other retirement plan if you are over 59
1
/2 years old
|
|
|
Redemption by certain eligible 401(a) and 401(k)
plans, certain related accounts, group plans participating in
the Merrill Lynch Blueprint
SM
Program and certain retirement plan
rollovers
|
|
|
Redemption in connection with participation in
certain Merrill Lynch fee-based programs
|
|
|
Withdrawals resulting from shareholder death or
disability as long as the waiver request is made within one
year after death or disability or, if later, reasonably
promptly following completion of probate, or in connection with
involuntary termination of an account in which Fund shares are
held
|
|
|
Withdrawal through the Merrill Lynch Systematic
Withdrawal Plan of up to 10% per year of your Class B account
value at the time the plan is established
|
Your Class B shares convert automatically into
Class D shares approximately eight years after purchase. Any
Class B shares received through reinvestment of dividends 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 shares to Class D shares is not a taxable
event for Federal income tax purposes.
MERRILL LYNCH MID CAP VALUE FUND
18
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 Funds eight year conversion schedule will
apply. If you exchange your Class B shares in the Fund for Class
B shares of a fund with a longer conversion schedule, the other
funds conversion schedule will apply. The length of time
that you hold 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 below summarizes how to buy, sell,
transfer and exchange shares through Merrill Lynch or other
securities dealers. You may also buy shares through the Transfer
Agent. To learn more about buying shares through the Transfer
Agent, call 1-800-MER-FUND. Because the selection of a mutual
fund involves many considerations, your Merrill Lynch Financial
Consultant may help you with this decision.
MERRILL LYNCH MID CAP VALUE FUND
19
[GRAPHIC] Your Account
If You Want
To |
|
Your
Choices |
|
Information
Important for You to Know |
|
Buy Shares |
|
First, select the share
class appropriate for you |
|
Please refer to the
Merrill Lynch Select Pricing table on page 15.
Be sure to read this Prospectus carefully. |
|
|
|
Next, determine the
amount of your investment |
|
The minimum initial
investment for the Fund is $1,000 for all
accounts except:
$250 for certain Merrill Lynch
fee-based programs
$100 for retirement
plans |
|
|
|
|
|
(The minimums for
initial investments may be waived under
certain circumstances.) |
|
|
|
Have your Merrill Lynch
Financial Consultant or
securities dealer submit
your purchase order |
|
The price of your
shares is based on the next calculation of net
asset value after your order is placed. Any purchase orders placed
prior to the close of business on the New York Stock Exchange
(generally, 4:00 p.m. Eastern time) will be priced at the net
asset
value determined that day. |
|
|
|
|
|
Purchase orders placed
after that time will be priced at the net
asset value determined on the next business day. The Fund may
reject any order to buy shares and may suspend the sale of shares
at any time. Merrill Lynch may charge a processing fee to confirm
a purchase. This fee is currently $5.35. |
|
|
|
Or contact the Transfer
Agent |
|
To purchase shares
directly, call the Transfer Agent at 1-800
MER-FUND and request a purchase application. Mail the completed
purchase application to the Transfer Agent at the address on the
inside back cover of this Prospectus. |
|
Add to Your
Investment |
|
Purchase additional
shares |
|
The minimum investment
for additional purchases is generally $50
except that retirement plans have a minimum additional purchase
of $1 and certain programs, such as automatic investment plans,
may have higher minimums. |
|
|
|
|
|
(The minimums for
additional purchases may be waived under
certain circumstances.) |
|
|
|
Acquire additional
shares through the
automatic dividend
reinvestment plan |
|
All dividends are
automatically reinvested without a sales charge. |
|
|
|
Participate in the
automatic
investment plan |
|
You may invest a
specific amount on a periodic basis through
certain Merrill Lynch investment or central asset
accounts. |
|
Transfer Shares
To Another
Securities Dealer |
|
Transfer to a
participating
securities dealer |
|
You may transfer your
Fund shares only to another securities
dealer that has entered into an agreement with Merrill Lynch.
Certain shareholder services may not be available for the
transferred shares. You may only purchase additional shares of
funds previously owned before the transfer. All future trading of
these shares must be coordinated by the receiving
firm. |
|
|
|
Transfer to a non-
participating securities
dealer |
|
You must either:
Transfer your shares to an
account with the Transfer Agent; or
Sell your shares, paying any
applicable deferred sales charge. |
|
|
MERRILL LYNCH MID CAP VALUE FUND
20
If You Want
To |
|
Your
Choices |
|
Information
Important for You to Know |
|
Sell Your
Shares |
|
Have your Merrill Lynch
Financial Consultant or
securities dealer submit
your sales order |
|
The price of your
shares is based on the next calculation of net
asset value after your order is placed. For your redemption
request
to be priced at the net asset value on the day of your request,
you
must submit your request to your dealer prior to the 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 generally will be required but may be waived
in certain limited circumstances. You can obtain a signature
guarantee from a bank, securities dealer, securities broker,
credit
union, savings and loan association, national securities exchange
and registered securities association. A notary public seal will
not
be acceptable. If you hold stock certificates, return the
certificates
with the letter. The Transfer Agent will normally mail redemption
proceeds within seven days following receipt of a properly
completed request. If you make a redemption request before the
Fund has collected payment for the purchase of shares, the Fund
or the Transfer Agent may delay mailing your proceeds. This delay
usually will not exceed ten days. |
|
|
|
|
|
If you hold share
certificates, they must be delivered to the
Transfer Agent before they can be converted. Check with the
Transfer Agent or your Merrill Lynch Financial Consultant for
details. |
|
|
Sell Shares
Systematically |
|
Participate in the Fund
s
Systematic Withdrawal Plan |
|
You can choose to
receive systematic payments from your Fund
account either by check or through direct deposit to your bank
account on a monthly or quarterly basis. If you hold your Fund
shares in a Merrill Lynch CMA®, CBA® or Retirement
Account you
can arrange for systematic redemptions of a fixed dollar amount
on a monthly, bi-monthly, quarterly, semi-annual or annual basis,
subject to certain conditions. Under either method you must have
dividends automatically reinvested. For Class B and C shares your
total annual withdrawals cannot be more than 10% per year of
the value of your shares at the time your plan is established.
The
deferred sales charge is waived for systematic redemptions. Ask
your Merrill Lynch Financial Consultant for details. |
MERRILL LYNCH MID CAP VALUE FUND
21
[GRAPHIC] Your Account
If You Want
To |
|
Your
Choices |
|
Information
Important for You to Know |
|
Exchange Your
Shares |
|
Select the fund into
which
you want to exchange. Be
sure to read that funds
prospectus |
|
You can exchange your
shares of the Fund for shares of many
other Merrill Lynch mutual funds. You must have held the shares
used in the exchange for at least 15 calendar days before you can
exchange to another fund. |
|
|
|
|
|
Each class of Fund
shares is generally exchangeable for shares of
the same class of another Merrill Lynch fund. If you own Class A
shares and wish to exchange into a fund in which you have no
Class A shares (and you 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
Class
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
a 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 MID CAP VALUE FUND
22
Net Asset
Value the market value of the Funds
total assets after deducting liabilities, divided by the number
of shares outstanding.
HOW SHARES ARE PRICED
When you buy shares, you pay the net asset
value, plus any applicable sales charge. This is the
offering price. Shares are also redeemed at their net asset
value, minus any applicable deferred sales charge. The Fund
calculates its net asset value (generally by using market
quotations) each day the New York Stock Exchange is open after
the close of business on the Exchange (the Exchange generally
closes at 4:00 p.m. Eastern time). The net asset value used in
determining your price is the next one calculated after your
purchase or redemption order is placed. Foreign securities owned
by the Fund may trade on weekends or other days when the Fund
does not price its shares. As a result, the Funds net
asset value may change on days when you will not be able to
purchase or redeem Fund 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 MID CAP VALUE FUND
23
[GRAPHIC] Your Account
Dividends
ordinary income and capital gains paid to
shareholders. Dividends may be reinvested in additional Fund
shares as they are paid.
BUYING A DIVIDEND
Unless your investment is in a tax-deferred account,
you may want to avoid buying shares shortly before the Fund pays
a dividend. The reason? If you buy shares when a fund has
realized but not yet distributed 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 or short-term
capital gains. The Fund may also pay a special distribution at
the end of the calendar year to comply with Federal tax
requirements. Dividends may be reinvested
automatically in shares of the Fund at net asset value without a
sales charge or may be taken in cash. If your account is with a
securities dealer that has an agreement with the Fund, contact
your Merrill Lynch Financial Consultant about which option you
would like. 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
Funds ordinary income dividends (which include
distributions of net short-term capital gains) will generally be
subject to a 30% U.S. withholding tax, unless a lower treaty
rate applies.
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 redemption 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 MID CAP VALUE FUND
24
[GRAPHIC] Management of the Fund
MERRILL LYNCH ASSET MANAGEMENT
Merrill Lynch Asset Management, the Funds
Investment Adviser, manages the Funds investments under
the overall supervision of the Programs Board of
Directors. The Investment Adviser has the responsibility for
making all investment decisions for the Fund. The Investment
Adviser has a sub-advisory agreement with Merrill Lynch Asset
Management U.K. Limited, an affiliate, under which the
Investment Adviser may pay a fee for services it receives. The
Fund pays the Investment Adviser a fee at the annual rate of
0.65% of the average daily net assets of the Fund.
Merrill Lynch Asset Management was organized as
an investment adviser in 1977 and offers investment advisory
services to more than 40 registered investment companies.
Merrill Lynch Asset Management U.K. Limited was organized as an
investment adviser in 1986 and acts as sub-adviser to more than
50 registered investment companies. Merrill Lynch Asset
Management is part of the Asset Management Group of ML &
Co., which had approximately $
billion in investment
company and other portfolio assets under management as of
, 2000. This amount includes assets managed
for Merrill Lynch affiliates.
A Note About Year 2000
As the year 2000 began, there were few problems
caused by the inability of certain computer systems to tell the
difference between the year 2000 and the year 1900 (commonly
known as the Year 2000 Problem). It is still
possible that some computer systems could malfunction in the
future because of the Year 2000 Problem or as a result of
actions taken to address the Year 2000 Problem. Fund management
does not anticipate that its services or those of the Fund
s other service providers will be adversely affected, but
Fund management will continue to monitor the situation. If
malfunctions related to the Year 2000 Problem do arise, the Fund
and its investments could be negatively affected.
MERRILL LYNCH MID CAP VALUE FUND
25
[GRAPHIC] Management of the Fund
The Financial Highlights table is intended to
help you understand the Funds financial performance for
the periods shown. Certain information reflects financial
results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned on an
investment in the Fund (assuming reinvestment of all dividends).
This information has been audited by Deloitte & Touche
LLP
, whose report, along with the Funds financial statements,
is included in the Programs annual report to shareholders,
which is available upon request.
|
|
Class
A*
|
|
Class
B*
|
Increase (Decrease)
in |
|
For the
Year Ended January 31,
|
|
For the
Year Ended January 31,
|
Net Asset
Value: |
|
2000 |
|
1999 |
|
1998 |
|
1997 |
|
1996
|
|
2000 |
|
1999 |
|
1998 |
|
1997 |
|
1996
|
|
Per Share
Operating Performance: |
|
Net asset
value, beginning of period |
|
|
|
$13.98 |
|
|
$13.58 |
|
|
$11.67 |
|
|
$10.00 |
|
|
|
|
$
13.75 |
|
|
$
13.39 |
|
|
$
11.55 |
|
|
$
10.00 |
|
|
Investment
income (loss) net |
|
|
|
.11 |
|
|
.07 |
|
|
(.01 |
) |
|
.25 |
|
|
|
|
(.05 |
) |
|
(.09 |
) |
|
(.15 |
) |
|
(.07 |
) |
|
Realized and
unrealized gain on investments net |
|
|
|
1.05 |
|
|
2.22 |
|
|
2.70 |
|
|
1.76 |
|
|
|
|
1.03 |
|
|
2.19 |
|
|
2.65 |
|
|
1.96 |
|
|
Total from
investment operations |
|
|
|
1.16 |
|
|
2.29 |
|
|
2.69 |
|
|
2.01 |
|
|
|
|
.98 |
|
|
2.10 |
|
|
2.50 |
|
|
1.89 |
|
|
Less
distributions: |
Realized gain on investments net |
|
|
|
(.96 |
) |
|
(1.89 |
) |
|
(.78 |
) |
|
(.20 |
) |
|
|
|
(.81 |
) |
|
(1.74 |
) |
|
(.66 |
) |
|
(.20 |
) |
In excess of realized gain on investments
net |
|
|
|
|
|
|
|
|
|
|
|
|
(.11 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
(.11 |
) |
Return of capital net |
|
|
|
|
|
|
|
|
|
|
|
|
(.03 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
(.03 |
) |
|
Total
distributions |
|
|
|
(.96 |
) |
|
(1.89 |
) |
|
(.78 |
) |
|
(.34 |
) |
|
|
|
(.81 |
) |
|
(1.74 |
) |
|
(.66 |
) |
|
(.34 |
) |
|
Net asset
value, end of period |
|
|
|
$14.18 |
|
|
$13.98 |
|
|
$13.58 |
|
|
$11.67 |
|
|
|
|
$
13.92 |
|
|
$
13.75 |
|
|
$
13.39 |
|
|
$
11.55 |
|
|
Total Investment
Return:** |
|
Based on net
asset value per share |
|
|
|
8.51 |
% |
|
17.12 |
% |
|
23.20 |
% |
|
20.10 |
%# |
|
|
|
7.32 |
% |
|
15.91 |
% |
|
21.79 |
% |
|
18.89 |
%# |
|
Ratios to Average
Net Assets: |
|
Expenses, net
of reimbursement |
|
|
|
1.45 |
% |
|
1.63 |
% |
|
2.03 |
% |
|
1.54 |
% |
|
|
|
2.55 |
% |
|
2.72 |
% |
|
3.11 |
% |
|
3.29 |
% |
Expenses |
|
|
|
1.45 |
% |
|
1.63 |
% |
|
2.03 |
% |
|
2.00 |
% |
|
|
|
2.55 |
% |
|
2.72 |
% |
|
3.11 |
% |
|
3.39 |
% |
|
Investment
Income (loss) net |
|
|
|
.75 |
% |
|
.48 |
% |
|
(.07) |
% |
|
1.99 |
% |
|
|
|
(.35) |
% |
|
(.60) |
% |
|
(1.15) |
% |
|
(.61) |
% |
|
Supplemental
Data: |
|
Net assets,
end of period (in thousands) |
|
|
|
$
359 |
|
|
$
317 |
|
|
$
209 |
|
|
$
121 |
|
|
|
|
$62,419 |
|
|
$48,073 |
|
|
$34,828 |
|
|
$20,989 |
|
|
Portfolio
turnover |
|
|
|
40.10 |
% |
|
68.75 |
% |
|
80.60 |
% |
|
51.37 |
% |
|
|
|
40.10 |
% |
|
68.75 |
% |
|
80.60 |
% |
|
51.37 |
% |
|
*
|
Based on average shares
outstanding.
|
**
|
Total investment returns exclude the effects of
sales charges.
|
|
The Fund commenced operations on February 1,
1995.
|
#
|
Aggregate total investment return.
|
MERRILL LYNCH MID CAP VALUE FUND
26
FINANCIAL HIGHLIGHTS (concluded)
|
|
*
|
|
|
Class
C*
|
|
Class
D*
|
Increase (Decrease)
in |
|
For the
Year Ended January 31,
|
|
For the
Year Ended January 31,
|
Net Asset
Value: |
|
2000 |
|
1999 |
|
1998 |
|
1997 |
|
1996
|
|
2000 |
|
1999 |
|
1998 |
|
1997 |
|
1996
|
|
Per Share
Operating Performance: |
|
Net asset
value, beginning of period |
|
|
|
$
13.75 |
|
|
$ 13.39 |
|
|
$ 11.55 |
|
|
$10.00 |
|
|
|
|
$13.94 |
|
|
$13.54 |
|
|
$11.65 |
|
|
$10.00 |
|
|
Investment
income (loss) net |
|
|
|
(.06 |
) |
|
(.09 |
) |
|
(.15 |
) |
|
(.09 |
) |
|
|
|
.07 |
|
|
.03 |
|
|
(.04 |
) |
|
.03 |
|
|
Realized and
unrealized gain on investments net |
|
|
|
1.03 |
|
|
2.19 |
|
|
2.66 |
|
|
1.98 |
|
|
|
|
1.04 |
|
|
2.22 |
|
|
2.68 |
|
|
1.96 |
|
|
Total from
investment operations |
|
|
|
.97 |
|
|
2.10 |
|
|
2.51 |
|
|
1.89 |
|
|
|
|
1.11 |
|
|
2.25 |
|
|
2.64 |
|
|
1.99 |
|
|
Less
distributions: |
Realized gain on investments net |
|
|
|
(.81 |
) |
|
(1.74 |
) |
|
(.67 |
) |
|
(.20 |
) |
|
|
|
(.92 |
) |
|
(1.85 |
) |
|
(.75 |
) |
|
(.20 |
) |
In excess of realized gain on Investments
net |
|
|
|
|
|
|
|
|
|
|
|
|
(.11 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
(.11 |
) |
Return of capital net |
|
|
|
|
|
|
|
|
|
|
|
|
(.03 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
(.03 |
) |
|
Total
distributions |
|
|
|
(.81 |
) |
|
(1.74 |
) |
|
(.67 |
) |
|
(.34 |
) |
|
|
|
(.92 |
) |
|
(1.85 |
) |
|
(.75 |
) |
|
(.34 |
) |
|
Net asset
value, end of period |
|
|
|
$
13.91 |
|
|
$ 13.75 |
|
|
$ 13.39 |
|
|
$11.55 |
|
|
|
|
$14.13 |
|
|
$13.94 |
|
|
$13.54 |
|
|
$11.65 |
|
|
Total Investment
Return:** |
|
Based on net
asset value per share |
|
|
|
7.23 |
% |
|
15.93 |
% |
|
21.82 |
% |
|
18.89 |
%# |
|
|
|
8.19 |
% |
|
16.89 |
% |
|
22.82 |
% |
|
19.90 |
%# |
|
Ratios to Average
Net Assets: |
|
Expenses, net
of reimbursement |
|
|
|
2.58 |
% |
|
2.75 |
% |
|
3.15 |
% |
|
3.38 |
% |
|
|
|
1.70 |
% |
|
1.89 |
% |
|
2.27 |
% |
|
2.45 |
% |
Expenses |
|
|
|
2.58 |
% |
|
2.75 |
% |
|
3.15 |
% |
|
3.46 |
% |
|
|
|
1.70 |
% |
|
1.89 |
% |
|
2.27 |
% |
|
2.56 |
% |
|
Investment
Income (loss) net |
|
|
|
(.39) |
% |
|
(.63) |
% |
|
(1.19) |
% |
|
(.75) |
% |
|
|
|
.50 |
% |
|
.23 |
% |
|
(.31) |
% |
|
.24 |
% |
|
Supplemental
Data: |
|
Net assets,
end of period (in thousands) |
|
|
|
$31,188 |
|
|
$22,896 |
|
|
$15,022 |
|
|
$7,990 |
|
|
|
|
$6,236 |
|
|
$5,314 |
|
|
$4,180 |
|
|
$2,471 |
|
|
Portfolio
turnover |
|
|
|
40.10 |
% |
|
68.75 |
% |
|
80.60 |
% |
|
51.37 |
% |
|
|
|
40.10 |
% |
|
68.75 |
% |
|
80.60 |
% |
|
51.37 |
% |
|
*
|
Based on average shares
outstanding.
|
**
|
Total investment returns exclude the effects of
sales charges.
|
|
The Fund commenced operations on February 1,
1995.
|
#
|
Aggregate total investment return.
|
MERRILL LYNCH MID CAP VALUE FUND
27
[FLOW CHART]
POTENTIAL
INVESTORS
Open an account (two options).
1 2
MERRILL LYNCH TRANSFER AGENT
FINANCIAL CONSULTANT
OR SECURITIES DEALER Financial Data Services, Inc.
Advises shareholders on their ADMINISTRATIVE OFFICES
Fund investments. 4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
MAILING ADDRESS
P.O. Box 45289
Jacksonville, Florida 32232-5289
DISTRIBUTOR
Merrill Lynch Funds Distributor,
a division of Princeton Funds Distributor, Inc.
P.O. Box 9081
Princeton, New Jersey 08543-9081
Arranges for the sale of Fund shares.
COUNSEL THE FUND CUSTODIAN
Brown & Wood LLP The Board of The Bank of New York
One World Trade Center Directors 90 Washington Street
New York, New York 10048-0557 oversees the 12th Floor
Fund. New York, New York 10286
Provides legal advice
to the Fund. Holds the Fund's assets
for safekeeping.
INDEPENDENT AUDITORS MANAGER
Deloitte & Touche LLP Merrill Lynch
Princeton Forrestal Village Asset Management, L.P.
116-300 Village Boulevard
Princeton, New Jersey 08540-6400 ADMINISTRATIVE OFFICES
800 Scudders Mill Road
Audits the financial Plainsboro, New Jersey 08536
statements of the Fund on behalf of
the shareholders. MAILING ADDRESS
P.O. Box 9011
Princeton, New Jersey 08543-9011
TELEPHONE NUMBER
1-800-MER-FUND
Manages the Fund's day-to-day
activities.
MERRILL LYNCH MID CAP VALUE FUND
[GRAPHIC] For More Information
Additional information about the Funds
investments will be available in the Programs annual and
semi-annual reports to shareholders. In the Programs
annual report you will find a discussion of the market
conditions and investment strategies that significantly affected
the Funds performance during its last fiscal year. You may
obtain these reports at no cost by calling
1-800-MER-FUND.
The Fund will send you one copy of each shareholder
report and certain other mailings, regardless of the number of
Fund accounts you have. To receive separate shareholder reports
for each account, call your Merrill Lynch Financial Consultant
or write to the Transfer Agent at its mailing address. Include
your name, address, tax identification number and Merrill Lynch
brokerage or mutual fund account number. If you have any
questions, please call your Merrill Lynch Financial Consultant
or the Transfer Agent at 1-800-MER-FUND.
Statement of Additional Information
The Funds Statement of Additional Information
contains further information about the Fund and is incorporated
by reference (legally considered to be part of this Prospectus).
You may request a free copy by writing the Fund at Financial
Data Services, Inc., P.O. Box 45289, Jacksonville, Florida
32232-5289 or by calling 1-800-MER-FUND.
Contact your Merrill Lynch Financial Consultant or
the Funds 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
7177.
Code # 18471-04-00
©
Merrill Lynch Asset Management, L.P.
[LOGO] Merrill Lynch
Prospectus
January ,
2000
SUBJECT TO COMPLETION
PRELIMINARY STATEMENT OF ADDITIONAL
INFORMATION
DATED FEBRUARY 1, 2000
STATEMENT OF ADDITIONAL
INFORMATION
Merrill Lynch Mid Cap Value
Fund
P.O. Box 9011, Princeton, New Jersey
08543-9011 Phone No. (609)
282-2800
The Merrill Lynch Mid Cap Value Fund (the Fund
) is a series of The Asset Program, Inc. (the Program
), a professionally managed open-end management investment
company organized as a Maryland corporation. The Fund seeks
capital appreciation and, secondarily, income by investing in a
diversified portfolio of securities, primarily equities, that
the management of the Fund believes are undervalued and
therefore represent investment value. There can be no assurance
that the investment objective of the Fund will be realized. For
more information on the Funds investment objective 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 is not a
prospectus and should be read in conjunction with the Prospectus
of the Fund, dated April
, 2000 (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 your Merrill Lynch
Financial Consultant, or by writing to the address listed above.
The Prospectus is incorporated by reference into this Statement
of Additional Information, and this Statement of Additional
Information is incorporated by reference into the Prospectus.
The Funds audited financial statements are incorporated in
this Statement of Additional Information by reference to the
Programs 1999 annual report to shareholders. You may
request a copy of the annual report or the Prospectus 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.
Merrill Lynch Asset Management
Investment Adviser
Merrill Lynch Funds Distributor
Distributor
The date of this Statement of Additional
Information is April , 2000.
The information in this statement of
additional information is not complete and may be changed. This
statement of additional information is not an offer to sell
these securities in any state where the offer or sale is not
permitted.
TABLE OF CONTENTS
INVESTMENT OBJECTIVE AND POLICIES
The Merrill Lynch Mid Cap Value Fund (the Fund
) seeks capital appreciation and, secondarily, income by
investing in securities, with at least 65% of the Funds
assets being invested in equities. These objectives are
fundamental policies of the Fund and may not be changed without
the approval of a majority of the Funds outstanding voting
securities. The Fund invests primarily in equity securities of
companies that typically have total market capitalizations at
the time of purchase in the same range as companies in the S
&P 400 Index. The Fund seeks special opportunities in
securities that the Investment Adviser believes are undervalued
and therefore represent investment value, including securities
that are selling at a discount, either from book value or
historical price-earnings ratios, or seem capable of recovering
from temporarily out-of-favor considerations. Particular
emphasis is placed on securities which provide an above-average
dividend return and sell at a below-average price-earnings
ratio. There can be no assurance that the objectives of the Fund
will be achieved.
Investment emphasis is on equities, primarily common stock
and, to a lesser extent, securities convertible into common
stocks. The Fund also may invest in preferred stocks and
non-convertible debt securities. The Fund may invest up to 30%
of its total assets, taken at market value at the time of
acquisition, in the securities of foreign issuers.
The Fund will invest primarily (at least 65% of the Fund
s total assets) in equity securities of companies that
typically have total capitalizations at the time of purchase in
the same range as companies in the S&P 400 Index. In
purchasing equity securities for the Fund, the Investment
Adviser will seek to identify the securities of companies and
industry sectors which are expected to provide high total return
relative to alternative equity investments. The Fund generally
will seek to invest in securities the Investment Adviser
believes to be undervalued. Undervalued issues include
securities selling at a discount from the price-to-book value
ratios and enterprise/sales ratios computed with respect to the
relevant stock market averages. The Fund also may consider as
undervalued securities selling at a discount from their historic
price-to-book value or enterprise/sales ratios, even though
these ratios may be above the ratios for the stock market
averages. Securities offering dividend yields higher than the
yields for the relevant stock market averages or higher than
such securities historic yields may also be considered to
be undervalued. The Fund may also invest in the securities of
small and emerging growth companies when such companies are
expected to provide a higher total return than other equity
investments. Such companies are characterized by rapid
historical growth rates, above-average returns on equity or
special investment value in terms of their products or services,
research capabilities or other unique attributes. The Investment
Adviser will seek to identify small and emerging growth
companies that possess superior management, marketing ability,
research and product development skills and sound balance
sheets.
Investment in the securities of small and emerging growth
companies involves greater risk than investment in larger, more
established companies. Such risks include the fact that
securities of small or emerging growth companies may be subject
to more abrupt or erratic market movements than larger, more
established companies or the market average in general. Also,
these companies may have limited product lines, markets or
financial resources, or they may be dependent on a limited
management group.
There may be periods when market and economic conditions
exist that favor certain types of tangible assets as compared to
other types of investments.
The Fund may invest up to 30% of its total assets in the
securities of foreign issuers. 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
U.S. governmental laws or restrictions applicable to such
investments. Since the Fund may invest in securities denominated
or quoted in currencies other than the U.S. 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 U.S. investors are
concerned. 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 U.S.
investors are concerned. Changes in foreign currency exchange
rates relative to the U.S. dollar will affect the U.S. dollar
value of the Funds assets denominated in those currencies
and the corresponding Funds yields 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 U.S. economy in such respects as growth of gross
national products, 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 U.S. instrument, and foreign entities
may not be subject to accounting, auditing and financial
reporting standards and requirements comparable to those to
which U.S. entities are subject. Foreign financial markets,
while growing in volume, generally have substantially less
volume than U.S. markets, and securities of many foreign
companies are less liquid and their prices more volatile than
securities of comparable domestic companies. 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
inability 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 securities in
the Fund due to settlement problems could result either in
losses to the Fund due to subsequent declines in value of the
Funds portfolio securities 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 generally are higher than costs associated
with transactions in U.S. 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 operating expense ratios of the Fund can be expected
to be higher than those of an investment company investing
exclusively in U.S. securities because the expenses of the Fund,
such as custodial costs, may be higher.
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. See Dividends and Taxes.
European Economic and Monetary
Union
For a number of years, certain European countries have
been seeking economic unification that would, among other
things, reduce barriers between countries, increase competition
among companies, reduce government subsidies in certain
industries, and reduce or eliminate currency fluctuations among
these European countries. The Treaty on European Union (the
Maastricht Treaty) set out a framework for the
European Economic and Monetary Union (EMU) among the
countries that comprise the European Union (EU). EMU
established a single common European currency (the euro
) that was introduced on January 1, 1999 and is expected
to replace the existing national currencies of all EMU
participants by July 1, 2002. EMU took effect for the initial
EMU participants on January 1, 1999. Certain securities issued
in participating EU countries (beginning with government and
corporate bonds) were redenominated in the euro, and are listed,
traded, and make dividend and other payments only in
euros.
No assurance can be given that EMU will take 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 could diminish its credibility and influence. Any of these
occurrences could have adverse effects on the markets of both
participating and non-participating countries, including sharp
appreciation or depreciation of participants national
currencies and a significant increase in exchange rate
volatility, a resurgence in economic protectionism, an
undermining of confidence in the European
markets, an undermining of European economic stability, the
collapse or slowdown of the drive toward European economic
unity, and/or reversion of the attempts to lower government debt
and inflation rates that were introduced in anticipation of EMU.
Also, withdrawal from EMU by an initial participant could cause
disruption of the financial markets as securities redenominated
in euros are transferred back into that countrys national
currency, particularly if the withdrawing country is a major
economic power. Such developments could have an adverse impact
on the Funds investments in Europe generally or in
specific countries participating in EMU. Gains or losses from
euro conversion may be taxable to Fund shareholders under
foreign or, in certain limited circumstances, U.S. tax
laws.
International Investing in Countries with Smaller Capital
Markets
The risks associated with investments in foreign
securities discussed above are often heightened for investments
in small capital markets.
There may be less publicly available information about an
issuer in a smaller capital market than would be available about
a U.S. company, and it may not be subject to accounting,
auditing and financial reporting standards and requirements
comparable to those to which U.S. companies are subject. As a
result, traditional investment measurements, such as
price-earnings ratios, as used in the United States, may not be
applicable in certain capital markets.
Smaller capital markets, while often growing in trading
volume, typically have substantially less volume than U.S.
markets, and securities in many smaller capital markets are less
liquid and their prices may be more volatile than securities of
comparable U.S. companies. Brokerage commissions, custodial
services, and other costs relating to investment in smaller
capital markets are generally more expensive than in the United
States. Such markets 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. Further, satisfactory custodial services for
investment securities may not be available in some countries
having smaller capital markets, which may result in the Fund
s incurring additional costs and delays in transporting
and custodying such securities outside such countries. Delays in
settlement problems could result in temporary periods when Fund
assets are uninvested and no return is earned thereon. The
inability 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 a portfolio
security 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. There is generally less government supervision and
regulation of exchanges, brokers and issuers in countries having
smaller capital markets than there are in the United
States.
As a result, Fund management may determine that,
notwithstanding otherwise favorable investment criteria, it may
not be practicable or appropriate to invest in a particular
country. The Fund may invest in countries in which foreign
investors, including Fund management, have had no or limited
prior experience.
Investments in Securities Denominated in Foreign
Currencies
The Fund may invest in securities denominated in
currencies other than the U.S. dollar. In selecting securities
denominated in foreign currencies, the Investment Adviser will
consider, among other factors, the effect of movement in
currency exchange rates on the U.S. dollar value of such
securities. An increase in the value of a currency will increase
the total return to the Fund of securities denominated in such
currency. Conversely, a decline in the value of the currency
will reduce the total return. The Investment Adviser may seek to
hedge all or a portion of the Funds foreign securities
through the use of forward foreign currency contracts, currency
options, futures contracts and options thereon or derivative
securities. See Indexed and Inverse Securities and
Options and Futures Transactions below.
For temporary or defensive purposes or in anticipation of
redemptions, the Fund is authorized to invest up to 100% of its
assets in money market instruments (short term, high quality
debt instruments), including obligations
of or guaranteed by the U.S. Government or its instrumentalities
or agencies, certificates of deposit, bankers acceptances
and other bank obligations, commercial paper rated in the
highest category by a nationally recognized rating agency or
other fixed income securities deemed by the Investment Adviser
to be consistent with the objectives of the Fund, or the Fund
may hold its assets in cash.
The Fund is authorized to invest in fixed income
securities. To the extent the Fund invests in fixed income
securities, the net asset value of its shares will be affected
by changes in the general level of interest rates. Typically,
when interest rates decline, the value of a portfolio of fixed
income securities can be expected to rise. Conversely, when
interest rates rise typically the value of a portfolio of fixed
income securities can be expected to decline.
When Issued and Delayed Delivery Securities and Forward
Commitments
The Fund may purchase or sell securities that it is
entitled to receive on a when issued or delayed delivery basis.
The Fund may also purchase or sell securities through a forward
commitment. These transactions involve the purchase or sale of
securities by the Fund at an established price with payment and
delivery taking place in the future. The Fund enters into these
transactions to obtain what is considered an advantageous price
to the Fund at the time of entering into the transaction. The
Fund has not established any limit on the percentage of their
assets that may be committed in connection with these
transactions. When the Fund is purchasing securities in these
transactions, it maintains a segregated account with its
custodian of cash, cash equivalents, U.S. Government securities
or other liquid securities in an amount equal to the amount of
its purchase commitments.
There can be no assurance that a security purchased on a
when issued basis will be issued, or a security purchased or
sold through a forward commitment will be delivered. The value
of securities in these transactions on the delivery date may be
more or less than the Funds purchase price. The Fund may
bear the risk of a decline in the value of the security in these
transactions and may not benefit from an appreciation in the
value of the security during the commitment period.
Standby Commitment Agreements
The Fund may enter into standby commitment agreements.
These agreements commit the Fund, for a stated period of time,
to purchase a stated amount of securities which may be issued
and sold to that Fund at the option of the issuer. The price of
the security is fixed at the time of the commitment. At the time
of entering into the agreement the Fund is paid a commitment
fee, regardless of whether or not the security is ultimately
issued. The Fund will enter into such agreements for the purpose
of investing in the security underlying the commitment at a
price that it considers advantageous. The Fund will not enter
into a standby commitment with a remaining term in excess of 45
days and will limit its investment in such commitments so that
the aggregate purchase price of securities subject to such
commitments, together with the value of portfolio securities
subject to legal restrictions on resale that affect their
marketability, will not exceed 15% of its net assets taken at
the time of the commitment. The Fund will maintain a segregated
account with its custodian of cash, cash equivalents, U.S.
Government securities or other liquid securities in an aggregate
amount equal to the purchase price of the securities underlying
the commitment.
There can be no assurance that the securities subject to a
standby commitment will be issued, and the value of the
security, if issued, on the delivery date may be more or less
than its purchase price. Since the issuance of the security
underlying the commitment is at the option of the issuer, the
Fund may bear the risk of a decline in the value of such
security and may not benefit from an appreciation in the value
of the security during the commitment period.
The purchase of a security subject to a standby commitment
agreement and the related commitment fee will be recorded on the
date on which the security can reasonably be expected to be
issued, and the value of the security thereafter will be
reflected in the calculation of the Funds net asset value.
The cost basis of the security will be
adjusted by the amount of the commitment fee. In the event the
security is not issued, the commitment fee will be recorded as
income on the expiration date of the standby
commitment.
Repurchase Agreements and Purchase and Sale
Contracts.
The Fund may invest in securities pursuant to repurchase
agreements or purchase and sale contracts. Repurchase agreements
and purchase and sale contracts may be entered into only with
financial institutions which have capital of at least $50
million or whose obligations are guaranteed by an entity having
capital of at least $50 million. Under such agreements, the
other party agrees, upon entering into the contract with the
Fund, to repurchase the security at a mutually agreed upon time
and price in a specified currency, 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,
although such return may be affected by currency fluctuations.
In the case of repurchase agreements, the prices at which the
trades are conducted do not reflect accrued interest on the
underlying obligation; whereas, in the case of purchase and sale
contracts, the prices take into account accrued interest. Such
agreements usually cover short periods, such as under one week.
Repurchase agreements may be construed to be collateralized
loans by the purchaser to the seller secured by the securities
transferred to the purchaser. In the case of a repurchase
agreement, as a purchaser, the Fund will require the seller to
provide additional collateral if the market value of the
securities falls below the repurchase price at any time during
the term of the repurchase agreement; the Fund does not have the
right to seek additional collateral in the case of purchase and
sale contracts. In the event of default by the seller under a
repurchase agreement constructed to be a collateralized loan,
the underlying securities are not owned by the Fund but only
constitute collateral for the sellers obligation to pay
the repurchase price. Therefore, the Fund may suffer time delays
and incur costs or possible losses in connection with
disposition of the collateral.
A
purchase and sale contract differs from a repurchase agreement
in that the contract arrangements stipulate that securities are
owned by the Fund. In the event of a default under such a
repurchase agreement or under a purchase and sale contract,
instead of the contractual fixed rate, the rate of return to the
Fund would be dependent upon intervening fluctuations of the
market values 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 not invest in repurchase
agreements or purchase and sale contracts maturing in more than
seven days if such investments, together with the Funds
other illiquid investments, would exceed 15% of the Funds
total assets.
The Fund may use instruments referred to as
Derivatives. Derivatives are financial instruments
the value of which is derived from another security, a commodity
(such as gold or oil) or an index (a measure of value or rates,
such as the Standard & Poors 500 Index or the prime
lending rate). Derivatives allow the Fund to increase or
decrease the level of risk to which the Fund is exposed more
quickly and efficiently than transactions in other types of
instruments.
The Fund may use the following types of derivatives
instruments and trading strategies:
Indexed and Inverse Securities
The Fund may invest in securities the potential return of
which is based on an index. As an illustration, the Fund may
invest in a debt security that pays interest based on the
current value of an interest rate index, such as the prime rate.
The Fund may also invest in a debt security which returns
principal at maturity based on the level of a securities index
or a basket of securities, or based on the relative changes of
two indices. In addition, the Fund may invest in securities the
potential return of which is based inversely on the change in an
index (that is, a security the value of which will move in the
opposite direction of changes to an index). For example, the
Fund may invest in securities that pay a higher rate of interest
when a particular index decreases and pay a lower rate of
interest (or do not fully return principal) when the value of
the index increases. If the Fund invests in such securities, it
may be subject to reduced or eliminated interest payments or
loss of principal in the event of an adverse movement in the
relevant index or indices. Indexed and inverse securities
involve credit risk, and certain
indexed and inverse securities may involve leverage risk,
liquidity risk, and currency risk. The Fund may invest in
indexed and inverse securities for hedging purposes only. When
used for hedging purposes, indexed and inverse securities
involve correlation risk.
Options and Futures
Transactions
The Fund may engage in various portfolio strategies to
seek to increase its return through the use of listed or
over-the-counter (OTC) options on its portfolio
securities and to hedge its portfolio against adverse movements
in the markets in which it invests. The Fund is authorized to
write (i.e., sell) covered put and call options on its
portfolio securities or securities in which it anticipates
investing and purchase put and call options on securities. In
addition, the Fund may engage in transactions in stock index
options, stock index futures and related options on such futures
and may deal in forward foreign exchange transactions and
foreign currency options and futures and related options on such
futures. The Fund may engage in transactions in interest rate
futures and related options on such futures. Each of these
portfolio strategies is described in more detail below. Although
certain risks are involved in options and futures transactions,
the Investment Adviser believes that, because the Fund will (i)
write only covered options on portfolio securities or securities
in which they anticipate investing and (ii) engage in other
options and futures transactions only for hedging purposes, the
options and portfolio strategies of the Fund will not subject it
to the risks frequently associated with the speculative use of
options and futures transactions. While the Funds use of
hedging strategies is intended to reduce the volatility of the
net asset value of its shares, its net asset value will
fluctuate. There can be no assurance that the Funds
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 when movements
in the equity or debt markets, interest rates or currency
exchange rates occur.
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
reasons 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 exercise 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 Funds 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 partial hedge against the price of the underlying
security declining. The Fund may not write covered options on
underlying securities exceeding 15% of its total
assets.
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 Funds
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 or equity 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 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.
Purchasing Options. The Fund
is authorized to purchase put options to hedge against a decline
in the market value of its securities. By buying a put option,
the Fund has a right to sell the underlying security at the
exercise price, thus limiting the Funds 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 partially offset 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, and 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 costs. A closing sale transaction
cancels out the Funds 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
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 Funds
total assets.
Stock Index Options. The
Fund is authorized to engage in transactions in stock index
options. The Fund may purchase or write put and call options on
stock indexes to hedge against the risks of market-wide stock
price movements in the securities in which the Fund invests.
Options on indexes are similar to options on securities, except
that on exercise or assignment, the parties to the contract pay
or receive an amount of cash equal to the difference between the
closing value of the index and the exercise price of the option
times a specified multiple. The Fund may invest in stock index
options based on a broad market index, e.g., the Standard
& Poors Composite 500 Index, or on a narrow index
representing an industry or market segment, e.g., the
AMEX Oil & Gas Index.
Stock Index Futures and Interest Futures Contracts.
The Fund may purchase and sell stock
index futures contracts and the interest rate futures contracts,
as a hedge against adverse changes in the market value of
portfolio securities, as described below. Stock index futures
contracts and interest rate futures contracts are herein
together referred to as futures contracts.
A
futures contract is an agreement between two parties which
obligates the purchaser of the futures contract to buy and the
seller of a futures contract to sell a financial instrument for
a set price on a future date. The terms of a futures contract
require either actual delivery of the financial instrument
underlying the contract or, in the case of a stock index futures
contract, a cash settlement based upon the difference in value
of the index between the time the contract was entered into and
the time of its settlement. The Fund may effect transactions in
stock index futures contracts in connection with the equity
securities it invests; the Fund may invest in interest rate
futures contracts in connection with the debt securities in
which it invests. Transactions by the Fund in futures contracts
are subject to limitations as described below under
Restrictions on the Use of Futures Transactions.
The Fund may sell futures contracts in anticipation of or
during a market decline to attempt to offset the decrease in
market value of its securities that might otherwise result. When
the Fund is not fully invested in the securities markets and
anticipates a significant advance, it may purchase futures in
order to gain rapid market exposure. This technique generally
will allow the Fund to gain exposure to a market in a manner
which is more efficient than purchasing individual securities
and may in part or entirely offset increases in the cost of
securities in such market that the Fund ultimately purchases. As
such purchases are made, an equivalent amount of futures
contracts will be terminated by offsetting sales. The Program
does not consider purchases of futures contracts by the Fund to
be a speculative practice under these circumstances. It is
anticipated that, in a substantial majority of these
transactions, the Fund will purchase such securities upon
termination of the long futures position, whether the long
position is the purchase of a futures contract or the purchase
of a call option or the writing of a put option on a future, but
under unusual circumstances (e.g., the Fund experiences a
significant amount of redemptions), a long futures position may
be terminated without the corresponding purchase of
securities.
The Fund also has authority to purchase and write call and
put options on futures contracts and in connection with its
hedging (including anticipatory hedging) activities. Generally,
these strategies are utilized under the same market and market
sector conditions (i.e., conditions relating to specific
types of investments) in which the Fund enters into futures
transactions. The Fund may purchase put options or write call
options on futures contracts or stock indexes rather than
selling the underlying futures contract in anticipation of a
decrease in the market value of its securities. Similarly, the
Fund may purchase call options, or write put options on futures
contracts or stock indexes, as a substitute for the purchase of
such futures contract to hedge against the increased cost
resulting from an increase in the market value of securities
which the Fund intends to purchase.
The Fund may engage in options and futures transactions on
U.S. and foreign exchanges and in the over-the-counter markets (
OTC options). In general, exchange-traded contracts
are third-party contracts (i.e., performance of the
parties obligations is guaranteed by an exchange or
clearing corporation) with standardized
strike prices and expiration dates. OTC options are two-party
contracts with prices and terms negotiated by the buyer and
seller. See Restrictions on OTC Options below for
information as to restrictions on the use of OTC
options.
Foreign Currency Hedging.
The Fund is authorized to deal in forward foreign exchange
among currencies of the different countries in which it will
invest and multinational currency units as a hedge against
possible variations in the foreign exchange rates among these
currencies. Foreign currency hedging is accomplished through
contractual agreements to purchase or sell a specified currency
at a specified future date (up to one year) and price set at the
time of the contract. The Funds dealings in forward
foreign exchange will be limited to hedging involving either
specific transactions or portfolio positions.
Transaction hedging is the purchase or sale of forward
foreign currency with respect to specific receivables or
payables of the Fund accruing in connection with the purchase
and sale of its portfolio securities, the sale and redemption of
shares of the Fund or the payment of dividends by the Fund.
Position hedging is the sale of forward foreign currency with
respect to portfolio security positions denominated or quoted in
such foreign currency. The Fund will not speculate in forward
foreign exchange.
Hedging against a decline in the value of a currency does
not eliminate fluctuations in the prices of portfolio securities
or prevent losses if the prices of such securities decline. Such
transactions also preclude the opportunity for gain if the value
of the hedged currency should rise. Moreover, it may not be
possible for the Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to
sell the currency at a price above the devaluation level it
anticipates.
The Fund also is authorized to purchase or sell listed or
OTC foreign currency options, foreign currency futures and
related options on foreign currency futures as a short or long
hedge against possible variations in foreign exchange rates.
Such transactions may be effected with respect to hedges on
non-U.S. dollar denominated securities owned by the Fund sold by
the Fund but not yet delivered, or committed or anticipated to
be purchased by the Fund. As an illustration, the Fund may use
such techniques to hedge the stated value in U.S. dollars of an
investment in a yen denominated security. In such circumstances,
for example, the Fund may purchase a foreign currency put option
enabling it to sell a specified amount of yen for dollars at a
specified price by a future date. To the extent the hedge is
successful, a loss in the value of the yen relative to the
dollar will tend to be offset by an increase in the value of the
put option. To offset, in whole or in part, the cost of
acquiring such a put option, the Fund may also sell a call
option which, if exercised, requires it to sell a specified
amount of yen for dollars at a specified price by a future date
(a technique called a straddle). By selling such a
call option in this illustration, the Fund gives up the
opportunity to profit without limit from increases in the
relative value of the yen to the dollar. The Investment Adviser
believes that straddles of the type which may be
utilized by the Fund constitute hedging transactions and are
consistent with the policies described above.
Certain differences exist between these foreign currency
hedging instruments. Foreign currency options provide the holder
thereof the right to buy or sell a currency at a fixed price on
a future date. A futures contract on a foreign currency is an
agreement between two parties to buy and sell a specified amount
of a currency for a set price on a future date. Futures contacts
and options on futures contracts are traded on boards of trade
or futures exchanges. The Fund will not speculate in foreign
currency options, futures or related options. Accordingly, the
Fund will not hedge a currency substantially in excess of the
market value of securities which it has committed or anticipates
to purchase which are denominated in such currency and, in the
case of securities which have been sold by the Fund but not yet
delivered, the proceeds thereof in its denominated currency. The
fund is limited regarding potential net liabilities from foreign
currency options, futures or related options to no more than 20%
of its total assets.
Restrictions on the Use of Futures Transactions.
Regulations of the Commodity Futures
Trading Commission (the CFTC) applicable to the Fund
provide that the futures trading activities described herein
will not result in the Fund being deemed a commodity pool
as defined under such regulations if the Fund adheres to
certain restrictions. In particular, the Fund may purchase and
sell futures contracts and options thereon (i) for bona
fide hedging purposes and (ii) for non-hedging purposes, if
the aggregate initial margin and premiums required to establish
positions in such contracts and options does not exceed 5% of
the liquidation value of the
Funds holdings, after taking into account unrealized profits
and unrealized losses on any such contracts and options. Margin
deposits may consist of cash or securities acceptable to the
broker and the relevant contract market.
When the Fund purchases a futures contract, or writes a
put option or purchases a call option thereon, an amount of cash
and cash equivalents will be deposited in a segregated account
in the name of the Fund with the Funds custodian so that
the amount so segregated, plus the amount of initial and
variation margin held in the account of its broker, equals the
market value of the futures contract, thereby ensuring that the
use of such futures contract is unleveraged.
Restrictions on OTC Options.
The Fund may engage in OTC options, including OTC stock
index options, OTC foreign currency options and options on
foreign currency futures, only with such banks or dealers which
have capital of at least $50 million or whose obligations are
guaranteed by an entity having capital of at least $50
million.
The staff of the SEC 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 (including OTC options on futures contracts) if, as
a result of such transaction, 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 Funds existing OTC options on
futures contracts exceed 15% (10% to the extent required by
certain state laws) of the total 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 the 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 security minus the options 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 Directors of the Fund without the approval of its
shareholders. However, the Fund will not change or modify this
policy prior to the change or modification by the SEC staff of
its position.
Risk Factors in Options and Futures Transactions.
Utilization of options and futures
transactions to hedge the Fund involves the risk of imperfect
correlation in movements in the price of options and futures and
movements in the price of the securities or currencies which are
the subject of the hedge. If the price of the options or futures
moves more or less than the price of the hedged securities or
currencies, the Fund will experience a gain or loss which will
not be completely offset by movements in the price of the
subject of the hedge. The successful use of options and futures
also depends on the Investment Advisers ability to
correctly predict price movements in the market involved in a
particular options or futures transactions. To compensate for
imperfect correlations, the Fund may purchase or sell index
options or futures contracts in a greater dollar amount than the
hedged securities if the volatility of the hedged securities is
historically greater than the volatility of the stock index
options or futures contracts. Conversely, the Fund may purchase
or sell fewer stock index options or futures contracts if the
volatility of the price of the hedged securities is historically
less than that of the stock index options or futures contracts.
The risk of imperfect correlation generally tends to diminish as
the maturity date of the stock index option or futures contract
approaches.
The Fund intends to enter into options and futures
transactions, on an exchange or in the OTC market, only if there
appears to be a liquid secondary market for such options or
futures or, in the case of over-the-counter transactions, the
Investment Adviser believes the Fund can receive in each
business day at least two independent bids or offers. However,
there can be no assurance that a liquid secondary market will
exist at any specific time. Thus, it may be possible to close an
options or futures position. The inability to close options and
futures positions also could have an adverse impact on the Fund
s ability to hedge effectively its portfolio. There is
also a risk of loss by the Fund of margin deposits or collateral
in the event of bankruptcy of a broker with whom the Fund has an
open position in an option, a futures contract or a related
option.
The exchanges on which the Fund intends to conduct options
transactions have generally 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. The
Investment Adviser does not believe that these trading and
position limits will have any adverse impact on the portfolio
strategies for hedging the Funds holdings.
All options referred to herein and in the Funds
Prospectus are options issued by the Options Clearing
Corporation (the Clearing Corporation) which are
currently traded on the Chicago Board Options Exchange, American
Stock Exchange, Philadelphia Stock Exchange, Pacific Stock
Exchange or New York Stock Exchange (NYSE). An
option gives the purchaser of the option the right to buy, and
obligates the writer (seller) to sell the underlying security at
the exercise price during the option period. The option period
normally ranges from three to nine months from the date the
option is written. For writing an option, the Program receives a
premium, which is the price of such option on the exchange on
which it is traded. The exercise price of the option may be
below, equal to, or above the current market value of the
underlying security at the time the option is
written.
The writer may terminate its obligation prior to the
expiration date of the option by executing a closing purchase
transaction which is effected by purchasing on an exchange an
option of the same series (i.e., same underlying
security, exercise price and expiration date) as the option
previously written. Such a purchase does not result in the
ownership of an option. A closing purchase transaction
ordinarily will be effected to realize a profit on an
outstanding call option, to prevent an underlying security from
being called, to permit the sale of the underlying security or
to permit the writing of a new call option containing different
terms on such underlying security. The cost of such a
liquidation purchase plus transaction costs may be greater than
the premium received upon the original option, in which event
the Fund will have incurred a loss in the transaction. An option
may be closed out only on an exchange which provides a secondary
market for an option of the same series and there is no
assurance that a liquid secondary market on an exchange will
exist for any particular option. A covered option writer unable
to effect a closing purchase transaction will not be able to
sell the underlying security until the option expires or the
underlying security is delivered upon exercise, with the result
that the writer will be subject to the risk of market decline in
the underlying security during such period. The Fund will write
an option on a particular security only if management believes
that a liquid secondary market will exist on an exchange for
options of the same series which will permit the Fund to make a
closing purchase transaction in order to close out its
position.
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 Investment Adviser 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 Investment
Adviser will consider both the yield on the convertible security
and the potential capital appreciation that is offered by the
underlying common stock.
Convertible securities are issued and traded in a number
of securities markets. 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 Investment Adviser 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 (convertibility 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, 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.
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.
The Fund may lend securities with a value not exceeding
33 1
/3% of its total assets. In
return, the Fund receives collateral in an amount equal to at
least 100% of the current market value of the loaned securities
in cash or securities issued or guaranteed by the U.S.
Government. This limitation is a fundamental policy and it may
not be changed without the approval of the holders of a majority
of the Funds outstanding voting securities, as defined in
the Investment Company Act of 1940, as amended (the
Investment Company Act). The Fund receives
securities as collateral for the loaned securities and the Fund
and the borrower negotiate a rate for the loan premium to be
received by the Fund for the loaned securities, which increases
the Funds yield. The Fund may receive a flat fee for its
loans. The loans are terminable at any time and the borrower,
after notice, is required to return borrowed securities within
five business days. The Fund may pay reasonable finders,
administrative and custodial fees in connection with its loans.
In the event that the borrower defaults on its obligation to
return borrowed securities because of insolvency or for any
other reason, the Fund could experience delays and costs in
gaining access to the collateral and could suffer a loss to the
extent the value of the collateral falls below the market value
of the borrowed securities.
Illiquid or Restricted Securities
The Fund may invest up to 15% of its net assets in
securities that lack an established secondary trading market or
otherwise are considered illiquid. Liquidity of a security
relates to the ability to dispose easily of the security and the
price to be obtained upon disposition of the security, which may
be less than would be obtained for a comparable more liquid
security. Illiquid securities may trade at a discount from
comparable, more liquid investments. Investment of the Fund
s assets in illiquid securities may restrict the ability
of the Fund to dispose of that investment 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 Funds 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 or 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 more
difficult to value than publicly traded securities and may be
less liquid, or illiquid, and therefore may be subject to the
risks associated with illiquid securities, as described in the
preceding paragraph. Some restricted securities, however, may be
liquid. To the extent that privately placed securities may be
resold in privately negotiated transactions, the prices realized
from the sales, due to illiquidity, could be less than those
originally paid by the Fund or less than their fair market
value. In addition, issuers whose securities are not publicly
traded may not be subject to the disclosure and other investor
protection requirements that may be applicable if their
securities were publicly traded. If any privately placed
securities held by the Fund are required to be registered under
the securities laws of one or more jurisdictions before being
resold, the Fund may be required to bear the expenses of
registration. Certain of the Funds investments in private
placements may consist of direct investments and may include
investments in smaller, less-seasoned issuers, which may involve
greater risks. These issuers may have limited product lines,
markets or financial resources, or they may be dependent on a
limited management group. In making investments in such
securities, the Fund may obtain access to material nonpublic
information which may restrict its ability to conduct portfolio
transactions in such 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 Funds Board. The Board has
adopted guidelines and delegated to the Investment Adviser the
daily function of determining and monitoring liquidity of
restricted securities. The Board, however, will retain
sufficient oversight and be ultimately responsible for the
determinations. Since it is not possible to predict with
assurance exactly how this market for restricted securities sold
and offered under Rule 144A will continue to develop, the Board
will carefully monitor the Funds investments in these
securities. This investment practice could have the effect of
increasing the level of illiquidity in the Fund to the extent
that qualified institutional buyers become for a time
uninterested in purchasing these securities.
The Fund may borrow up to 33
1
/3% of its total assets, taken at
market value, but only from banks as a temporary measure for
extraordinary or emergency purposes, including to meet
redemptions (so as not to force the Program to liquidate
securities at a disadvantageous time) or to settle securities
transactions. The Fund will not purchase securities at any time
when borrowings exceed 5% of its total assets, except (a) to
honor prior commitments or (b) to exercise subscription rights
when outstanding borrowings have been obtained exclusively for
settlements of other securities transactions. The purchase of
securities while borrowings are outstanding will have the effect
of leveraging the Fund. Such leveraging increases the Program
s exposure to capital risk, and borrowed funds are subject
to interest costs that will reduce net income.
The use of leverage by the Fund creates an opportunity for
greater total return, but, at the same time, creates special
risks. For example, leveraging may exaggerate changes in the net
asset value of the Funds shares and in the yield on the
Fund. Although the principal of such borrowings will be fixed,
the Funds assets may change in value during the time the
borrowings are outstanding. Borrowings will create interest
expenses for the Fund which can exceed the income from the
assets purchased with the borrowings. To the extent the income
or capital appreciation derived from securities purchased with
borrowed funds exceeds the interest the Fund will have to pay on
the borrowings, the Funds return will be greater than if
leverage had not been used. Conversely, if the income or capital
appreciation from the securities purchased with such borrowed
funds is not sufficient to cover the cost of borrowing, the
return to the Fund will be less than if leverage had not been
used, and therefore the amount available for distribution to
shareholders as dividends and other distributions will be
reduced. In the latter case, the Investment Adviser in its best
judgment nevertheless may determine to maintain the Funds
leveraged position if it expects that the benefits to the Fund
s shareholders of maintaining the leveraged position will
outweigh the current reduced return.
Certain types of borrowings by the Fund may result in the
Fund being subject to covenants in credit agreements relating to
asset coverage, portfolio composition requirements and other
matters. It is not anticipated that observance of such covenants
would impede the Investment Adviser from managing the Fund in
accordance with the Funds investment objectives and
policies. However, a breach of any such covenants not cured
within the specified cure period may result in acceleration of
outstanding indebtedness and require the Fund to dispose of
portfolio investments at a time when it may be disadvantageous
to do so.
The Fund at times may borrow from affiliates of the
Investment Adviser, provided that the terms of such borrowings
are no less favorable than those available from comparable
sources of funds in the marketplace.
The Fund has adopted the following restrictions and
policies relating to the investment of the Funds assets
and its activities. The fundamental restrictions set forth below
may not be changed without the approval of the holders of a
majority of the Funds outstanding voting securities (which
for this purpose and under the Investment Company Act means the
lesser of (i) 67% of the 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 Funds assets below are in terms of current market
value. The Fund may not:
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1. Make any investment inconsistent with the
Funds classification as a diversified company under the
Investment Company Act.
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2. Invest more than 25% of its total assets,
taken at market value at the time of each investment, 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 that 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 governmental obligations,
commercial paper, pass-through instruments, certificates of
deposit, bankers acceptances, repurchase agreements,
purchase and sale contracts 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 Programs 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 Funds 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. The Fund will not purchase securities
while borrowings exceed 5% of its assets. The Fund does not
intend to borrow money in amounts exceeding 5% of its assets.
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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 Funds
Prospectus and this Statement of Additional Information, as
they may be amended from time to time, and without registering
as a commodity pool operator under the Commodity Exchange
Act.
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In addition, the Fund has adopted non-fundamental
restrictions that may be changed by the Board of Directors of
the Program without shareholder approval, provided the Fund may
not:
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a. Purchase securities of other investment
companies, except to the extent such purchases are permitted
by applicable law. As a matter of policy, however, the Fund
will not purchase shares of any registered open-end investment
company or registered unit investment trust, in reliance on
Section 12(d)(1)(F) or (G) (the fund of funds
provisions) of the Investment Company Act, at any time its
shares are owned by another investment company that is part of
the same group of investment companies as the
Program.
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b. Make short sales of securities or maintain
a short position, except to the extent permitted by applicable
law.
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c. Invest in securities that cannot be
readily resold because of legal or contractual restrictions or
that cannot otherwise be marketed, redeemed or put to the
issuer or a third party, if at the time of acquisition
more than 15% of its net assets would be invested in such
securities. This restriction shall not apply to securities
that mature within seven days or securities that the Directors
of the Fund have otherwise determined to be liquid pursuant to
applicable law. Securities purchased in accordance with Rule
144A under the Securities Act (which are restricted securities
that can be resold to qualified institutional buyers, but not
to the general public) and determined to be liquid by the
Board of Directors of the Fund are not subject to the
limitations set forth in this investment
restriction.
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d. Notwithstanding fundamental investment
restriction (7) above, borrow amounts in excess of 10% of its
total assets taken at market value, and then only from a bank
as a temporary measure for extraordinary or emergency purposes
such as redemption of Fund shares. The Fund will not purchase
securities while borrowing exceeds 5% (taken at market value)
of its total assets.
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Portfolio securities of the Fund generally may not be
purchased from, sold or loaned to the Investment Adviser or its
affiliates or any of their directors, officers or employees,
acting as principal, unless pursuant to rule or exemptive order
under the Investment Company Act.
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
transaction, the sum of the market value of OTC options
currently outstanding that are held by the Fund, the market
value of the underlying securities covered by OTC call options
currently outstanding that were sold by the Fund and margin
deposits on the Funds existing OTC options on futures
contracts exceeds 15% of the net assets of the Fund taken at
market value, together with all other Fund assets that are
illiquid or are not otherwise readily marketable. However, if
the 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 options strike price). The repurchase price with
the primary dealers is typically a formula price that 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 Directors without the
approval of the shareholders. However, the Directors 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, Pierce,
Fenner & Smith Incorporated (Merrill Lynch) with
the Investment Adviser, the Fund is prohibited from engaging in
certain transactions involving Merrill Lynch or its affiliates
except for brokerage transactions permitted under the Investment
Company Act involving only usual and customary commissions or
transactions pursuant to an exemptive order under the Investment
Company Act. See Portfolio Transactions and Brokerage.
Without such an exemptive order, the Fund would be
prohibited from engaging in portfolio transactions with Merrill
Lynch or any of its affiliates acting as principal.
The rate of portfolio turnover is not a limiting factor
and, given the Funds investment policies, it is
anticipated that there may be periods when high portfolio
turnover will exist. The use of covered call options at times
when the underlying securities are appreciating in value may
result in higher portfolio turnover. The Fund pays brokerage
commissions in connection with writing call options and
effecting closing purchase transactions, as well as in
connection with purchases and sales of portfolio securities. The
portfolio turnover rate for the Fund is calculated by dividing
the lesser of the Funds annual sales or purchases of
portfolio securities (exclusive of purchases or sales of all
securities with maturities at the time of acquisition of one
year or less) by the monthly average value of the securities in
the portfolio during the year.
MANAGEMENT OF THE PROGRAM
The Directors of the Program consist of seven individuals,
five of whom are not interested persons of the
Program as defined in the Investment Company Act. The Directors
are responsible for the overall supervision of the operations of
the Program and perform the various duties imposed on the
directors of investment companies by the Investment Company
Act.
Information about the Directors, executive officers and
portfolio managers of the Program, 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
executive officer, Director and 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 Investment Adviser and Merrill Lynch Asset
Management, L.P. (MLAM) (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 CIEBAs 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 1997; Member of the
Investment Advisory Committee of the Virginia Retirement System
since 1998; Director, Montpelier Foundation since December
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 RPP Corporation
(manufacturing) since 1978; Director of International Mobile
Communications, Inc. (telecommunications) since
1998.
ARTHUR
ZEIKEL
(67)Director (1)(2)300 Woodland Avenue,
Westfield, New Jersey 07090. Chairman of the Investment Adviser
and MLAM from 1997 to 1999 and President thereof from 1977 to
1997; Chairman of Princeton Services from 1997 to 1999, Director
thereof from 1993 to 1999 and President thereof from 1993 to
1997; Executive Vice President of Merrill Lynch & Co., Inc. (
ML & Co.) from 1990 to 1999.
JOSEPH
T. MONAGLE
, JR
. (49)Senior Vice President(1)(2)Senior Vice
President of the Investment Adviser and MLAM since 1990;
Department Head of the Global Fixed Income Division of the
Investment Adviser and MLAM since 1997; Senior Vice President of
Princeton Services since 1993.
LAWRENCE
R. FULLER
(58)Senior Vice President and Portfolio Manager(1)
First Vice President of the Investment Adviser since 1997
and Vice President of the Investment Adviser from 1992 to
1997.
ROBERT
C. DOLL
(45)Senior Vice President(1)(2)Senior Vice
President of the Investment Adviser and MLAM since 1999; Senior
Vice President of Princeton Services since 1999; Chief
Investment Officer of Oppenheimer Funds, Inc. in 1999 and
Executive Vice President thereof from 1991 to 1999.
THOMAS
R. ROBINSON
(54)Senior Vice President(1)(2)First Vice
President of the Investment Adviser since 1997; Vice President
of the Investment Adviser from 1995 to 1997; Senior Portfolio
Manager of the Investment Adviser since November 1995; Manager
of International Equity Strategy of ML & Co.s Global
Securities Research and Economics Group from 1989 to
1995.
CHRISTOPHER
G. AYOUB
(41)Senior Vice President(1)(2)First Vice
President of the Investment Adviser since 1998; Vice President
of the Investment Adviser from 1985 to 1997; Assistant Vice
President of the Investment Adviser from 1984 to 1985 and
employee since 1982.
GREGORY
MARK
MAUNZ
(45)Senior Vice President(1)(2)First Vice
President of the Investment Adviser since 1997; Vice President
of the Investment Adviser from 1985 to 1997 and Portfolio
Manager since 1984.
DONALD
C. BURKE
(39)Vice President and Treasurer(1)(2)Senior
Vice President and Treasurer of the Investment Adviser and FAM
since 1999; Senior Vice President and Treasurer of Princeton
Services since 1999; Vice President of PFD since 1999; First
Vice President of The Investment Adviser from 1997 to 1999; Vice
President of The Investment Adviser from 1990 to 1997; Director
of Taxation of The Investment Adviser since 1990.
BARBARA
G. FRASER
(56)Secretary(1)(2)First Vice President of the
Investment Adviser since 1996; Vice President of the Investment
Adviser from 1994 to 1996; Attorney in private practice from
1991 to 1994.
(1)
|
Interested person, as defined in the Investment
Company Act, of the Program.
|
(2)
|
Such Director or officer is a trustee, director
or officer of other investment companies for which the
Investment Adviser, or one of its affiliates, acts as
investment adviser or manager.
|
(3)
|
Member of the Programs 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 January 1, 2000, the officers and Directors of the
Program as a group (15 persons) owned an aggregate of less than
1% of the outstanding shares of common stock of ML & Co. and
owned an aggregate of less than 1% of the outstanding shares of
the Program.
Compensation of Directors
The Program pays each non-interested Director, for service
to the Program, a fee of $1,500 per year plus $250 per in-person
meeting attended, together with such individuals actual
out-of-pocket expenses relating to attendance at meetings. The
Program also compensates members of the Audit and Nominating
Committee, which consists of all of the non-affiliated Directors
at the rate of $1,500 annually for service to the Program plus
$250 per committee meeting attended.
The following table sets forth the compensation earned by
the non-interested Directors for the fiscal year ended January
31, 2000 and the aggregate compensation paid to them from all
investment companies advised by the Investment Adviser or its
affiliates (MLAM/FAM-Advised Funds) for the calendar
year ended December 31, 1999.
Name
|
|
Position
with
Program
|
|
Compensation
from Program
|
|
Pension or
Retirement Benefits
Accrued as Part of
Program Expense
|
|
Estimated Annual
Benefits upon
Retirement
|
|
Aggregate
Compensation from
Program and Other
MLAM/FAM-Advised
Funds(1)
|
Joe
Grills |
|
Director |
|
$5,000 |
|
None |
|
None |
|
198,333 |
Walter Mintz |
|
Director |
|
$5,000 |
|
None |
|
None |
|
178,583 |
Robert S. Salomon, Jr. |
|
Director |
|
$5,000 |
|
None |
|
None |
|
178,583 |
Melvin R. Seiden |
|
Director |
|
$5,000 |
|
None |
|
None |
|
178,583 |
Stephen B. Swensrud |
|
Director |
|
$5,000 |
|
None |
|
None |
|
195,583 |
(1)
|
The Directors serve on the boards of
MLAM/FAM-advised funds as follows: Joe Grills (31 registered
investment companies consisting of 45 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 61 portfolios).
|
The Directors of the Program may be eligible for reduced
sales charges on purchases of Class A shares. See Reduced
Initial Sales ChargesPurchase Privileges of Certain
Persons.
Management and Advisory Arrangements
Investment Advisory Services.
The Investment Adviser provides the Program with
investment advisory and management services. Subject to the
supervision of the Board of Directors, the Investment Adviser is
responsible for the actual management of the Programs
portfolio and constantly reviews the Programs holdings in
light of its own research analysis and that from other relevant
sources. The responsibility for making decisions to buy, sell or
hold a particular security rests with the Investment Adviser.
The Investment Adviser performs certain of the other
administrative services and provides all the office space,
facilities, equipment and necessary personnel for management of
the Program.
Investment Advisory Fee. As
compensation for its services to the Fund, the Investment
Adviser will receive a monthly fee based on the average daily
value of that Funds net assets at the annual rate of
0.65%.
The table below sets forth for the periods indicated the
total advisory fee paid by the Fund to the Investment
Adviser:
Fiscal Year
Ended January 31,
|
|
Investment
Advisory Fee
|
2000 |
|
|
1999 |
|
$606,626 |
1998 |
|
$428,666 |
Payment of Program Expenses.
The Investment Advisory Agreement obligates the
Investment Adviser to provide investment advisory services and
to pay all compensation of and furnish office space for officers
and employees of the Program connected with investment and
economic research, trading and investment management of the
Program, as well as the fees of all Directors of the Program who
are affiliated persons of ML & Co. or any of its affiliates.
The Program pays all other expenses incurred in the operation of
the Program, including among other things: taxes, expenses for
legal and auditing services, costs of printing proxies, stock
certificates, shareholder reports, prospectuses and statements
of additional information, except to the extent paid by Merrill
Lynch Funds Distributor, a division of PFD (the Distributor
); charges of the custodian and the transfer agent;
expenses of redemption of shares; Commission fees; expenses of
registering the shares under Federal and state securities laws;
fees and expenses of unaffiliated 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 Program. Accounting services
are provided for the Program by the Investment Adviser and the
Program reimburses the Investment Adviser for its costs in
connection with such services. See Purchase of Shares
Distribution Plans.
Organization of the Investment Adviser.
Merrill Lynch Asset Management, L.P. is a limited
partnership, the partners of which are ML & Co., a financial
services holding company and the parent of Merrill Lynch, and
Princeton Services. ML & Co. and Princeton Services are
controlling persons of the Investment Adviser as
defined under the Investment Company Act because of their
ownership of its voting securities and their power to exercise a
controlling influence over its management or
policies.
Duration and Termination.
Unless earlier terminated as described below, the
Investment Advisory Agreement will remain in effect for two
years from its effective date. Thereafter, it will remain in
effect from year to year if approved annually (a) by the Board
of Directors of the Program 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
contract is not assignable and may be terminated without penalty
on 60 days written notice at the option of either party
thereto or by the vote of the shareholders of the
Fund.
Transfer Agency Services.
Financial Data Services, Inc. (the Transfer Agent
), a subsidiary of ML & Co., acts as the Funds
Transfer Agent pursuant to a Transfer Agency, Dividend
Disbursing Agency and Shareholder
Servicing Agency Agreement (the Transfer Agency Agreement
). Pursuant to the Transfer Agency Agreement, the Transfer
Agent is responsible for the issuance, transfer and redemption
of shares and the opening and maintenance of shareholder
accounts. Pursuant to the Transfer Agency Agreement, the
Transfer Agent receives a fee of $11.00 per Class A or Class D
account and $14.00 per Class B or Class C account and is
entitled to reimbursement for certain transaction charges and
out-of-pocket expenses incurred by the Transfer Agent under the
Transfer Agency Agreement. Additionally, a $.20 monthly closed
account charge will be assessed on all accounts that close
during the calendar year. Application of this fee will commence
the month following the month the account is closed. At the end
of the calendar year, no further fee 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 separate distribution agreements with the
Distributor in connection with the continuous offering of each
class of shares of the Fund (the Distribution Agreements
). The Distribution Agreements obligate the Distributor to
pay certain expenses in connection with the offering of each
class of shares of the Fund. After the prospectuses, statements
of additional information and periodic reports have been
prepared, set in type and mailed to shareholders, the
Distributor pays for the printing and distribution of copies
thereof used in connection with the offering to dealers and
investors. The Distributor also pays for other supplementary
sales literature and advertising costs. The Distribution
Agreements are subject to the same renewal requirements and
termination provisions as the Investment Advisory Agreement
described above.
The Board of Directors of the Program each have adopted a
Code of Ethics under Rule 17j-1 of the Investment Company Act
that incorporates the Code of Ethics of the Investment Adviser
(together, the Codes). The Codes significantly
restrict the personal investing activities of all employees of
the Investment Adviser and, as described below, impose
additional, more onerous, restrictions on fund investment
personnel.
The Codes require that all employees of the Investment
Adviser pre-clear any personal securities investment (with
limited exceptions, such as government securities). The
pre-clearance requirement and associated procedures are designed
to identify any substantive prohibition or limitation applicable
to the proposed investment. The substantive restrictions
applicable to all employees of the Investment Adviser include a
ban on acquiring any securities in a hot initial
public offering and a prohibition from profiting on short-term
trading in securities. In addition, no employee may purchase or
sell any security that at the time is being purchased or sold
(as the case may be), or to the knowledge of the employee is
being considered for purchase or sale, by any fund advised by
the Investment Adviser. Furthermore, the Codes provide for
trading blackout periods that prohibit trading by
investment personnel of the Program within periods of trading by
the Program 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 for certain information
as to the purchase of Fund shares.
The Fund issues 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 and 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. Class B, Class C and Class
D shares each have exclusive voting rights with respect to the
Rule 12b-1 distribution plan adopted with respect to such class
pursuant to which the account maintenance and/or distribution
fees are paid (except that Class B shareholders may vote upon
any material changes to expenses charged under the distribution
plan for Class D shares). Each class has different exchange
privileges. See Shareholder ServicesExchange
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 offers its shares at a public offering price
equal to the next determined net asset value per share plus any
sales charge applicable to the class of shares selected by the
investor. The applicable offering price for purchase orders is
based upon the net asset value of the Fund next determined after
receipt of the purchase order by the Distributor. As to purchase
orders received by securities dealers prior to the close of
business on the NYSE (generally 4:00 p.m., Eastern time) which
includes orders received after the determination of net asset
value on the previous day, the applicable offering price will be
based on the net asset value on the day the order is placed with
the Distributor, provided that the orders are received by the
Distributor prior to 30 minutes after the close of business on
the NYSE on that day. If the purchase orders are not received
prior to 30 minutes after the close of business on the NYSE on
that day, such orders shall be deemed received on the next
business day. Dealers have the responsibility of submitting
purchase orders to the Fund not later than 30 minutes after the
close of business on the NYSE in order to purchase shares at
that days offering price.
The Fund or the Distributor may suspend the continuous
offering of the Funds shares of any class at any time in
response to conditions in the securities markets or otherwise
and may thereafter resume such offering from time to time. Any
order may be rejected by the Fund or the Distributor. Neither
the Distributor nor the dealers are permitted to withhold
placing orders to benefit themselves by a price change. Certain
securities dealers may charge a processing fee to confirm a sale
of shares to such customers. For example, the fee currently
charged by Merrill Lynch is $5.35. Purchases made directly
through the Transfer Agent are not subject to the processing
fee.
Initial Sales Charge AlternativesClass A and Class D
Shares
Investors choosing the initial sales charge alternatives
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.
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 are entitled to purchase
additional Class A shares of the Fund in that account. In
addition, Class A shares are offered at net asset value to ML
& Co. and its subsidiaries and their directors and
employees, to members of the Boards of Merrill Lynch and
MLAM/FAM-advised investment companies including the Fund, and to
employees of certain selected dealers. 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.
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 or 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.
The following table sets forth information regarding Class
A and Class D sales charge information.
Class A and Class D Sales Charge
Information
Class A Shares
For the
fiscal year
ended
January 31,
|
|
Gross Sales
Charges
Collected
|
|
Sales
Charges
Retained by
Distributor
|
|
Sales
Charges
Paid to
Merrill Lynch
|
|
CDSCs
Received on
Redemption of
Load-Waived Shares
|
2000 |
|
|
|
|
|
|
|
|
1999 |
|
$326 |
|
$16 |
|
$310 |
|
$0 |
1998 |
|
$368 |
|
$18 |
|
$350 |
|
$0 |
Class D Shares
For the
fiscal year
ended
January 31,
|
|
Gross Sales
Charges
Collected
|
|
Sales
Charges
Retained by
Distributor
|
|
Sales
Charges
Paid to
Merrill Lynch
|
|
CDSCs
Received on
Redemption of
Load-Waived Shares
|
2000 |
|
|
|
|
|
|
|
|
1999 |
|
$41,048 |
|
$2,085 |
|
$38,963 |
|
$0 |
1998 |
|
$35,731 |
|
$1,745 |
|
$33,986 |
|
$0 |
The Distributor may reallow discounts to selected dealers
and retain the balance over such discounts. At times the
Distributor may reallow the entire sales charge to such dealers.
Since securities dealers selling Class A and Class D shares of
the Fund will receive a concession equal to most of the sales
charge, they may be deemed to be underwriters under the
Securities Act.
Reduced Initial Sales Charges
Reductions in or exemptions from the imposition of a sales
load are due to the nature of the investors and/or the reduced
sales efforts that will be needed to obtain such
investments.
Reinvested Dividends. No
initial sales charges are imposed upon Class A and Class D
shares issued as a result of the automatic reinvestment of
dividends.
Rights of Accumulation.
Reduced sales charges are applicable through a right of
accumulation under which eligible investors are permitted to
purchase shares of the Fund subject to an initial sales charge
at the offering price applicable to the total of (a) the public
offering price of the shares then being purchased plus (b) an
amount equal to the then current net asset value or cost,
whichever is higher, of the purchasers combined holdings
of all classes of shares of the Fund and of any other Select
Pricing Funds. For any such right of accumulation to be
made available, the Distributor must be provided at the time of
purchase, by the purchaser or the purchasers securities
dealer, with sufficient information to permit confirmation of
qualification. Acceptance of the purchase order is subject to
such confirmation. The right of accumulation may be amended or
terminated at any time. Shares held in the name of a nominee or
custodian under pension, profit-sharing or other employee
benefit plans may not be combined with other shares to qualify
for the right of accumulation.
Letter of Intent. Reduced sales
charges are applicable to purchases aggregating $25,000 or more
of Class A or Class D shares of the Fund or any other Merrill
Lynch mutual funds made within a 13-month period starting with
the first purchase pursuant to the Letter of Intent. The Letter
of Intent is available only to investors whose accounts are
established and maintained at the Funds Transfer Agent.
The Letter of Intent is not available to employee benefit plans
for which affiliates of the Investment Adviser provide plan
participant record-keeping 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 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 execution 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 B 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 that
further reduced percentage sales charge but there will be no
retroactive reduction of the sales charge on any previous
purchase.
The value of any shares redeemed or otherwise disposed of
by the purchaser prior to termination or completion of the
Letter of Intent will be deducted from the total purchases made
under such Letter. An exchange from the Summit Cash Reserves
Fund into the Fund that creates a sales charge will count toward
completing a new or existing Letter of Intent from the
Fund.
TMA
SM
Managed Trusts. Class A
shares are offered at net asset value to TMA
SM
Managed Trusts to which Merrill Lynch Trust Company
provides discretionary trustee services.
Employee Access
SM
Accounts. Provided
applicable threshold requirements are met, either Class A or
Class D shares are offered at net asset value to Employee
Access
SM
Accounts available through authorized employers. The
initial minimum investment for such accounts is $500, except
that the initial minimum investment for shares purchased for
such accounts pursuant to the Automatic Investment Program is
$50.
Employer-Sponsored Retirement or Savings Plans and
Certain Other Arrangements. Certain
employer-sponsored retirement or savings plans and certain other
arrangements may purchase Class A or Class D shares at net asset
value, based on the number of employees or number of employees
eligible to participate in the plan, the aggregate amount
invested by the plan in specified investments and/or the
services provided by Merrill Lynch to the plan. Additional
information regarding purchases by employer-sponsored retirement
or savings plans and certain other arrangements is available
toll-free from Merrill Lynch Business Financial Services at
1-800-237-7777.
Purchase Privileges of Certain Persons.
Directors of the Program, 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 the Investment
Adviser, MLAM 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 Consultants 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 are offered Class A shares, if the conditions set forth
below are satisfied.
Alternatively, closed-end fund shareholders who purchased
such shares on or after October 21, 1994 and wish to reinvest
the net proceeds from a sale of their closed-end fund shares are
offered Class A shares (if eligible to buy Class A shares) or
Class D shares of the Fund and other Select Pricing Funds (
Eligible Class D Shares), if the following
conditions are met. First, the sale of closed-end fund shares
must be made through Merrill Lynch, and the net proceeds
therefrom must be immediately reinvested in Eligible Class A or
Eligible Class D Shares. Second, the closed-end fund shares must
either have been acquired in the initial public offering or be
shares representing dividends from shares of common stock
acquired in such offering. Third, the closed-end fund shares
must have been continuously maintained in a Merrill Lynch
securities account. Fourth, there must be a minimum purchase of
$250 to be eligible for the investment option.
Shareholders of certain MLAM-advised continuously offered
closed-end funds may reinvest at net asset value the net
proceeds from a sale of certain shares of common stock of such
funds in shares of the Fund. Upon exercise of this investment
option, shareholders of Merrill Lynch Senior Floating Rate Fund,
Inc. will receive Class A shares of the Fund and shareholders of
Merrill Lynch Municipal Strategy Fund, Inc. and Merrill Lynch
High Income Municipal Bond Fund, Inc. will receive Class D
shares of the Fund, except that shareholders already owning
Class A shares of the Fund will be eligible to purchase
additional Class A shares pursuant to this option, if such
additional Class A shares will be held in the same account as
the existing Class A shares and the other requirements
pertaining to the reinvestment privilege are met. In order to
exercise this investment option, a shareholder of one of the
above-referenced continuously offered closed-end funds (an
eligible fund) must sell
his or her shares of common stock of the eligible fund (the
eligible shares) back to the eligible fund in
connection with a tender offer conducted by the eligible fund
and reinvest the proceeds immediately in the designated class of
shares of the Fund. This investment option is available only
with respect to eligible shares as to which no Early Withdrawal
charge or CDSC (each as defined in the eligible funds
prospectus) is applicable. Purchase orders from eligible fund
shareholders wishing to exercise this investment option will be
accepted only on the day that the related tender offer
terminates and will be effected at the net asset value of the
designated class of the Fund on such day.
Acquisition of Certain Investment Companies.
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.
Reductions in or exemptions from the imposition of a sales
load are due to the nature of the investors and/or the reduced
sales efforts that will be needed in obtaining such
investments.
Deferred Sales ChargeClass 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 investors dollars to work from the
time the investment is made. The deferred sales charge
alternatives may be particularly appealing to investors that do
not qualify for the reduction in initial sales charges. Both
Class B and Class C shares are subject to ongoing account
maintenance fees and distribution fees; however, the ongoing
account maintenance and distribution fees potentially may be
offset to the extent any return is realized on the additional
funds initially invested in Class B or Class C shares. In
addition, Class B shares will be converted into Class D shares
of the Fund after a conversion period of approximately eight
years, and thereafter investors will be subject to lower ongoing
fees.
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 SharesDetermination of Net Asset Value
below.
Contingent Deferred Sales ChargesClass 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 shareholders account to another account will
be assumed to be made in the same order as a
redemption.
The following table sets forth the Class B
CDSC:
Year Since
Purchase Payment Made
|
|
CDSC as a
Percentage
of Dollar Amount
Subject to Charge
|
0-1 |
|
4.0% |
1-2 |
|
3.0% |
2-3 |
|
2.0% |
3-4 |
|
1.0% |
4 and
thereafter |
|
None |
To provide an example, assume an investor purchased 100
shares at $10 per share (at a cost of $1,000) and in the third
year after purchase, the net asset value per share is $12 and,
during such time, the investor has acquired 10 additional shares
upon dividend reinvestment. If at such time the investor makes
his or her first redemption of 50 shares (proceeds of $600), 10
shares will not be subject to a CDSC because of dividend
reinvestment. With respect to the remaining 40 shares, the
charge is applied only to the original cost of $10 per share and
not to the increase in net asset value of $2 per share.
Therefore, $400 of the $600 redemption proceeds will be charged
at a rate of 2.0% (the applicable rate in the third year after
purchase).
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 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 be waived for any Class B
shares that were acquired and held at the time of the redemption
in an Employee Access Account available through employers
providing eligible 401(k) plans. The Class B CDSC may also be
waived for any Class B shares that are purchased by a Merrill
Lynch rollover IRA that was funded by a rollover from a
terminated 401(k) plan managed by the MLAM Private Portfolio
Group and held in such account at the time of redemption. The
Class B CDSC may 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 redemptions through
the Merrill Lynch Systematic Redemption Plan. See
Shareholder ServicesSystematic Redemption Plans
or Systematic Redemption Program. See
Shareholder ServicesFee-Based Programs.
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.
Conversion of Class B Shares to Class D Shares.
After approximately eight years (the
Conversion Period), Class B shares will be converted
automatically into Class D shares of the Fund. Class D shares
are subject to an ongoing account maintenance fee of 0.25% of
the average daily net assets but are not subject to the
distribution fee that is borne by Class B shares. Automatic
conversion of Class B shares into Class D shares will occur at
least once each month (on the Conversion Date) on
the basis of the relative net asset value of the shares of the
two classes on the Conversion Date, without the imposition of
any sales load, fee or other charge. Conversion of Class B
shares to Class D shares will not be deemed a purchase or sale
of the shares for Federal income tax purposes.
In addition, shares purchased through reinvestment of
dividends on Class B shares also will convert automatically to
Class D shares. The Conversion Date for dividend reinvestment
shares will be calculated taking into account the length of time
the shares underlying such dividend reinvestment shares were
outstanding. If at the Conversion Date the conversion of Class B
shares to Class D shares of the Fund in a single account will
result in less than $50 worth of Class B shares being left in
the account, all of the Class B shares of the Fund held in the
account on the Conversion Date will be converted to Class D
shares of the Fund.
In general, Class B shares of equity Select Pricing Funds
will convert approximately eight years after initial purchase
and Class B shares of taxable and tax-exempt fixed income Select
Pricing Funds will convert approximately ten years after initial
purchase. If, during the Conversion Period, a shareholder
exchanges Class B
shares with an eight-year Conversion Period for Class B shares
with a ten-year Conversion Period, or vice versa, the Conversion
Period applicable to the Class B shares acquired in the exchange
will apply and the holding period for the shares exchanged will
be tacked on to the holding period for the shares acquired. The
Conversion Period also may be modified for investors that
participate in certain fee-based programs. See Shareholder
Services Fee-Based Programs.
Class B shareholders of the Fund exercising the exchange
privilege described under Shareholder Services
Exchange Privilege will continue to be subject to
the Funds CDSC schedule if such schedule is higher than
the CDSC schedule relating to the Class B shares acquired as a
result of the exchange.
Share certificates for Class B shares of the Fund to be
converted must be delivered to the Transfer Agent at least one
week prior to the Conversion Date applicable to those shares. In
the event such certificates are not received by the Transfer
Agent at least one week prior to the Conversion Date, the
related Class B shares will convert to Class D shares on the
next scheduled Conversion Date after such certificates are
delivered.
Contingent Deferred Sales ChargesClass C
Shares. Class C shares that are
redeemed within one year of purchase may be subject to a 1.0%
CDSC charged as a percentage of the dollar amount subject
thereto. In determining whether a Class C CDSC is applicable to
a redemption, the calculation will be determined in the manner
that results in the lowest possible rate being charged. The
charge will be assessed on an amount equal to the lesser of the
proceeds of redemption or the cost of the shares being redeemed.
Accordingly, no Class C CDSC will be imposed on increases in net
asset value above the initial purchase price. In addition, no
Class C CDSC will be assessed on shares derived from
reinvestment of dividends. It will be assumed that the
redemption is first of shares held for over one year or shares
acquired pursuant to reinvestment of dividends and then of
shares held longest during the one-year period. The charge will
not be applied to dollar amounts representing an increase in net
asset value since the time of purchase. A transfer of shares
from a shareholders account to another account will be
assumed to be made in the same order as a redemption. The Class
C CDSC 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
Plans. See Shareholder ServicesSystematic Withdrawal
Plan. The Class C CDSC of the Fund and certain other
MLAM-advised mutual funds may be waived with respect to Class C
shares purchased by an investor with the net proceeds of a
tender offer made by certain MLAM-advised closed end funds,
including Merrill Lynch Senior Floating Rate Fund II, Inc. Such
waiver is subject to the requirement that the tendered shares
shall have been held by the investor for a minimum of one year
and to such other conditions as are set forth in the prospectus
for the related closed-end fund.
Class B and Class C Sales Charge
Information
Class B Shares*
For the
fiscal year
ended
January 31,
|
|
CDSCs
Received
by Distributor
|
|
CDSCs Paid
to
Merrill Lynch
|
2000 |
|
|
|
|
1999 |
|
$94,426 |
|
$94,426 |
1998 |
|
$82,799 |
|
$82,799 |
|
*
|
Additional Class B CDSCs payable to the
Distributor with respect to the fiscal years ended January 31,
1998, 1999 and 2000 may have been waived or converted to a
contingent obligation in connection with a shareholders
participation in certain fee-based programs.
|
Class C Shares
For the
fiscal year
ended
January 31,
|
|
CDSCs
Received
by Distributor
|
|
CDSCs Paid
to
Merrill Lynch
|
2000 |
|
|
|
|
1999 |
|
$8,806 |
|
$8,806 |
1998 |
|
$5,816 |
|
$5,816 |
Class B and Class C Sales Charge Information.
Merrill Lynch compensates its Financial
Consultants for selling Class B and Class C shares at the time
of purchase from its own funds. Proceeds from the CDSC and the
distribution fee are paid to the Distributor and are used in
whole or in part by the Distributor to defray the expenses of
dealers (including Merrill Lynch) related to providing
distribution-related services to the Fund in connection with the
sale of the Class B and Class C shares, such as the payment of
compensation to financial consultants for selling Class B and
Class C shares from the dealers own funds. The combination
of the CDSC and the ongoing distribution fee facilitates the
ability of the Fund to sell the Class B and Class C shares
without a sales charge being deducted at the time of purchase.
See Distribution Plans below. Imposition of the CDSC
and the distribution fee on Class B and Class C shares is
limited by the National Association of Securities Dealers, Inc.
(the NASD) asset-based sales charge rule. See
Limitations on the Payment of Deferred Sales Charges
below.
Reference is made to Fees and Expenses in the
Prospectus for certain information with respect to the separate
distribution plans for Class B, Class C and Class D shares of
the Fund pursuant to Rule 12b-1 under the Investment Company Act
(each a Distribution Plan) with respect to the
account maintenance and/or distribution fees paid by the Fund to
the Distributor with respect to such classes.
The Distribution Plan for each of the Class B, Class C and
Class D shares provides that the Fund pays the Distributor an
account maintenance fee relating to the shares of the relevant
class, accrued daily and paid monthly, at the annual rate of
0.25% of the average daily net assets of the Fund attributable
to shares of the relevant class in order to compensate the
Distributor and Merrill Lynch (pursuant to a sub-agreement) in
connection with account maintenance activities with respect to
Class B, Class C and Class D shares. Each of those classes has
exclusive voting rights with respect to the Distribution Plan
adopted with respect to such class pursuant to which account
maintenance and/or distribution fees are paid (except that Class
B shareholders may vote upon any material changes to expenses
charged under the Class D Distribution Plan).
The Distribution Plan for each of the Class B and Class C
shares provides that the Fund also pays the Distributor a
distribution fee relating to the shares of the relevant class,
accrued daily and paid monthly, at the annual rate of 0.75% of
the average daily net assets of the Fund attributable to the
shares of the relevant class in order to compensate the
Distributor and Merrill Lynch (pursuant to a sub-agreement) for
providing shareholder and distribution services and bearing
certain distribution-related expenses of the Fund, including
payments to financial consultants for selling Class B and Class
C shares of the Fund. The Distribution Plans relating to Class B
and Class C shares are designed to permit an investor to
purchase Class B and Class C shares through dealers without the
assessment of an initial sales charge and at the same time
permit the dealer to compensate its financial consultants in
connection with the sale of the Class B and Class C shares. In
this regard, the purpose and function of the ongoing
distribution fees and the CDSC are the same as those of the
initial sales charge with respect to the Class A and Class D
shares of the Fund in that the ongoing distribution fees and
deferred sales charges provide for the financing of the
distribution of the Funds Class B and Class C
shares.
The Funds Distribution Plans are subject to the
provisions of Rule 12b-1 under the Investment Company Act. In
their consideration of each Distribution Plan, the Directors
must consider all factors they deem relevant, including
information as to the benefits of the Distribution Plan to the
Fund and the 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 of the related
class. 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. This
information is presented 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, the 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, the distribution fees and CDSCs and the expenses consist
of financial consultant compensation.
For the fiscal year ended January 31, 2000, the Fund paid
the Distributor based on the average net assets of the Fund, the
amounts set forth below under the Plans.
Class B
Distribution Plan
|
|
Class C
Distribution Plan
|
|
Class D
Distribution Plan
|
Account
Maintenance
and Distribution Fees
|
|
Account
Maintenance
and Distribution Fees
|
|
Account
Maintenance
Fees
|
$
|
|
$
|
|
$
|
As of December 31, 1999, the last date for which fully
allocated accrual data is available, the fully allocated accrual
expenses of the Distributor and Merrill Lynch for the period
since the commencement of operations of Class B shares of the
Fund exceeded fully allocated accrual revenues by approximately $
( %
of Class B net assets at that date). As of January 31, 2000,
direct cash revenues for the period since the commencement of
operations of Class B shares exceeded direct cash expenses by $
(
% of Class B net assets at
that date). As of December 31, 1999, 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 $
( % of
Class C net assets at that date). As of January 31, 2000, direct
cash revenues for the period since the commencement of
operations of Class C shares exceeded direct cash expenses by $
(
% of Class C net assets at that
date).
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 circumstance payment in excess of the amount
payable under the NASD formula will not be made.
The following table sets forth comparative information as
of January 31, 2000 with respect to the Class B and Class C
shares indicating the maximum allowable payments that can be
made under the NASD maximum sales charge rule and, with respect
to the Class B shares, the Distributors voluntary maximum
for the periods indicated.
|
|
Data Calculated as of January 31,
2000
|
|
|
(In thousands) |
|
|
Eligible
Gross
Sales(1)
|
|
Allowable
Aggregate
Sales
Charges(2)
|
|
Allowable
Interest
on
Unpaid
Balance(3)
|
|
Maximum
Amount
Payable
|
|
Amounts
Previously
Paid to
Distributor(4)
|
|
Aggregate
Unpaid
Balance
|
|
Annual
Distribution
Fee at
Current
Net Asset
Level(5)
|
Class B Shares, for the period
February 1, 1995 (commencement of
operations) to January 31,
2000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under
NASD Rule as Adopted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class C Shares, for the period
February 1, 1995 (commencement of
operations) to January 31,
2000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under
NASD Rule as Adopted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Purchase price of all eligible Class B or Class
C shares sold during the periods indicated other than shares
acquired through dividend reinvestment and the exchange
privilege.
|
(2)
|
Includes amounts attributable to exchanges from
Summit Cash Reserves Fund (Summit) which are not
reflected in Eligible Gross Sales. Shares of Summit can only
be purchased by exchange from another fund (the redeemed
fund). Upon such an exchange, the maximum allowable
sales charge payment to the redeemed fund is reduced in
accordance with the amount of the redemption. This amount is
then added to the maximum allowable sales charge payment with
respect to Summit. Upon an exchange out of Summit, the
remaining balance of this amount is deducted from the maximum
allowable sales charge payment to Summit and added to the
maximum allowable sales charge payment to the fund into which
the exchange is made.
|
(3)
|
Interest is computed on a monthly basis based
upon the prime rate, as reported in The Wall Street
Journal, plus 1.0%, as permitted under the NASD
Rule.
|
(4)
|
Consists of CDSC payments, distribution fee
payments and accruals. Of the distribution fee payments made
with respect to Class B shares prior to July 6, 1993 under the
distribution plan in effect at that time, at a 1.0% rate,
0.75% of average daily net assets has been treated as a
distribution fee and 0.25% of average daily net assets has
been deemed to have been a service fee and not subject to the
NASD maximum sales charge rule. See What are the Program
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
shareholders participation in the Merrill Lynch Mutual
Fund Advisor (Merrill Lynch MFA
SM
) Program (the MFA Program). The CDSC is
booked as a contingent obligation that may be payable if the
shareholder terminates participation in the MFA
Program.
|
(5)
|
Provided to illustrate the extent to which the
current level of distribution fee payments (not including any
CDSC payments) is amortizing the unpaid balance. No assurance
can be given that payments of the distribution fee will reach
either the voluntary maximum (with respect to Class B shares)
or the NASD maximum (with respect to Class B and Class C
shares).
|
Reference is made to How to Buy, Sell, Transfer and
Exchange Shares in the Prospectus for certain information
as to the redemption and purchase of Fund shares.
The Fund is required to redeem for cash all shares of the
Fund upon receipt of a written request in proper form. The
redemption price is the net asset value per share next
determined after the initial receipt of proper notice of
redemption. Except for any CDSC that may be applicable, there
will be no charge for redemption if the redemption request is
sent directly to the Transfer Agent. Shareholders liquidating
their holdings will receive upon redemption all dividends
reinvested through the date of redemption.
The right to redeem shares or to receive payment with
respect to any such redemption may be suspended for more than
seven days only for any period during which trading on the NYSE
is restricted as determined by the Commission or during which
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 of the Fund at the time of redemption
may be more or less than the shareholders 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 Funds Transfer Agent, Financial Data Services,
Inc., P.O. Box 45289, Jacksonville, Florida 32232-5289. Proper
notice of redemption in the case of shares deposited with the
Transfer Agent may be accomplished by a written letter
requesting redemption. 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 Program or the Fund. A redemption
request in either event requires the signature(s) of all persons
in whose name(s) the shares are registered, signed exactly as
such name(s) appear(s) on the Transfer Agents register.
The signature(s) on the redemption request may require a
guarantee by an eligible guarantor institution as
defined in Rule 17Ad-15 under the Securities Exchange Act of
1934 (the Exchange Act), the existence and validity
of which may be verified by the Transfer Agent through the use
of industry publications. In the event a signature guarantee is
required, notarized signatures are not sufficient. In general,
signature guarantees are waived on redemptions of less than
$50,000 as long as the following requirements are met: (i) all
requests require the signature(s) of all persons in whose
name(s) shares are recorded on the Transfer Agents
register; (ii) all checks must be mailed to the stencil address
of record on the Transfer Agents 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 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 its shares through a
shareholders listed securities dealer. The Fund normally
will accept orders to repurchase shares by wire or telephone
from dealers for their customers at the net asset value next
computed after the order is placed. Shares will be priced at the
net asset value calculated on the day the request is received,
provided that the request for repurchase is submitted to the
dealer prior to the regular close of business on the NYSE
(generally, the NYSE closes at 4:00 p.m., Eastern time) and such
request is received by the Fund from such dealer not later than
30 minutes after the close of business on the NYSE on the same
day. Dealers have the responsibility of submitting such
repurchase requests to the Fund not later than 30 minutes after
the close of business on the NYSE in order to obtain that day
s closing price.
The foregoing repurchase arrangements are for the
convenience of shareholders and do not involve a charge by the
Fund (other than any applicable CDSC). Securities firms that do
not have selected dealer agreements with the Distributor,
however, may impose a transaction charge on the shareholder for
transmitting the notice of repurchase to the Fund. Merrill Lynch
may charge its customers a processing fee (presently, $5.35) to
confirm a repurchase of shares to such customers. Repurchases
made directly through the Transfer Agent, on accounts held at
the Transfer Agent, are not subject to the processing fee. The
Fund reserves the right to reject any order for
repurchase, which right of rejection might adversely affect
shareholders seeking redemption through the repurchase
procedure. A shareholder whose order for repurchase is rejected
by the Fund, however, may redeem shares as set forth
above.
Reinstatement PrivilegeClass A and Class D
Shares
Shareholders of the Fund who have redeemed their Class A
or Class D shares have a privilege to reinstate their accounts
by purchasing Class A or Class D shares, as the case may be, of
the Fund at net asset value without a sales charge up to the
dollar amount redeemed. The reinstatement privilege may be
exercised by sending a notice of exercise along with a check for
the amount to be reinstated to the Transfer Agent within 30 days
after the date the request for redemption was accepted by the
Transfer Agent or the Distributor. Alternatively, the
reinstatement privilege may be exercised through the investor
s Merrill Lynch Financial Consultant within 30 days after
the date the request for redemption was accepted by the Transfer
Agent or the Distributor. The reinstatement will be made at the
net asset value per share next determined after the notice of
reinstatement is received and cannot exceed the amount of the
redemption proceeds.
Determination of Net Asset Value
Reference is made to How Shares Are Priced in
the Prospectus.
The net asset value of the shares of all classes of the
Fund is determined once daily Monday through Friday as of the
close of business on the NYSE on each day the NYSE is open for
trading based on prices at the time of closing. The NYSE
generally closes at 4:00 p.m., Eastern time. Any assets or
liabilities initially expressed in terms of non-U.S. dollar
currencies are translated into U.S. dollars at the prevailing
market rates as quoted by one or more banks or dealers on the
day of valuation. The NYSE is not open for trading on New Year
s Day, Martin Luther King, Jr. Day, Presidents Day,
Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Net asset value is computed by dividing the value of the
securities held by the Fund plus any cash or other assets
(including interest and dividends accrued but not yet received)
minus all liabilities (including accrued expenses) by the total
number of shares of the Fund outstanding at such time, rounded
to the nearest cent. Expenses, including the fees payable to the
Investment Adviser and the 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 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 of the Fund will tend to converge (although not
necessarily meet) immediately after the payment of dividends of
distributions, which will differ by approximately the amount of
the expense accrual differentials between the
classes.
Securities that are held in the portfolio, including ADRs,
EDRs or GDRs, that are traded on stock exchanges are valued at
the last sale price (regular way) on the exchange on which such
securities are traded, as of the close of business on the day
the securities are being valued or, lacking any sales, at the
last available bid price for long positions, and at the last
available ask price for short positions. In cases where
securities are traded on more than one exchange, the securities
are valued on the exchange designated by or under the authority
of the Board of Directors of the Program as the primary market.
Long positions in securities traded in the OTC market are valued
at the last available bid price in the OTC market prior to the
time of valuation. Portfolio securities that are traded both in
the OTC market and on a stock exchange are valued according to
the broadest and most representative market. Short positions in
securities traded in the OTC market are valued at the last
available ask price in the OTC market prior to the time of
valuation. 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 on the last sale price in the
case of exchange-traded options or, in the case of options
traded in the OTC market, the last ask 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 Board of
Directors of the Program. Such valuations and procedures will be
reviewed periodically by the Board of Directors of the
Program.
[The Fund values debt securities on the basis of
valuations provided by dealers or by a pricing service which
uses information with respect to transactions in such
securities, quotations from dealers, market transactions in
comparable securities, various relationships between securities
and yield to maturity. Portfolio securities (other than
short-term obligations but including listed issues) may be
valued on the basis of prices furnished by one or more pricing
services which determine prices for normal, institutional-size
trading units of such securities using market information,
transactions for comparable securities and various relationships
between securities which are generally recognized by
institutional traders. Obligations with remaining maturities of
60 days or less are valued at amortized cost unless this method
no longer produces fair valuations.]
Generally, trading in non-U.S. securities, as well as U.S.
Government securities and money market instruments, is
substantially completed each day at various times prior to the
close of business on the NYSE. The values of such securities
used in computing the net asset value of the Funds shares
are determined as of such times. Foreign currency exchange rates
also are generally determined prior to the close of business on
the NYSE. Occasionally, events affecting the values of such
securities and such exchange rates may occur between the times
at which they are determined and the close of business on the
NYSE that may not be reflected in the computation of the Fund
s net asset value.
[Option Accounting Principles. When the Fund sells
an option, an amount equal to the premium received by the Fund
is included in that Funds Statement of Assets and
Liabilities as a deferred credit. The amount of such liability
subsequently will be marked-to-market to reflect the current
market value of the option written. If current market value
exceeds the premium received there is an unrealized loss;
conversely, if the premium exceeds current market value there is
an unrealized gain. The current market value of a traded option
is the last sale price or, in the absence of a sale, the last
offering price. If an option expires on its stipulated
expiration date or if the Fund enters into a closing purchasing
transaction, the affected Fund will realize a gain (or loss if
the cost of a closing purchase transaction exceeds the premium
received when the option was sold) without regard to any
unrealized gain or loss on the underlying security, and the
liability related to such option will be extinguished. If an
option is exercised, the Fund will realize a gain or loss from
the sale of the underlying security and the proceeds of sales
are increased by the premium originally received.]
Each investor in the Fund may add to or reduce its
investment in the Fund on each day the NYSE is open for trading.
The value of each investors interest in the Fund will be
determined after the close of business on the NYSE by
multiplying the net asset value of the Fund by the percentage,
effective for that day, that represents that investors
share of the aggregate interests in the Fund. The close of
business on the NYSE is generally 4:00 p.m., Eastern time. Any
additions or withdrawals to be effected on that day will then be
effected. The investors percentage of the aggregate
beneficial interests in the Fund will then be recomputed as the
percentage equal to the fraction (i) the numerator of which is
the value of such investors investment in the Fund as of
the time of determination on such day plus or minus, as the case
may be, the amount of any additions to or withdrawals from the
investors investment in the Fund effected on such day, and
(ii) the denominator of which is the aggregate net asset value
of the Fund as of such time on such day plus or minus, as the
case may be, the amount of the net additions to or withdrawals
from the aggregate investments in the Fund by all investors in
the Fund. The percentage so determined will then be applied to
determine the value of the investors interest in the Fund
after the close of business of the NYSE on the next
determination of net asset value of the Fund.
Computation of Offering Price Per Share
An illustration of the computation of the offering price
for Class A, Class B, Class C and Class D shares of the Fund
based on the value of the Funds net assets and number of
shares outstanding on January 31, 2000 is set forth
below.
|
|
Class
A
|
|
Class
B
|
|
Class
C
|
|
Class
D
|
Net
Assets |
|
$
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
Number of Shares Outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Asset Value Per Share (net assets divided by number of shares
outstanding) |
|
$
|
|
$
|
|
$
|
|
$
|
|
Sales
Charge (Class A and Class D shares: 5.25% of offering price;
5.54% of net asset value)
|
|
|
|
** |
|
** |
|
|
|
|
|
|
|
|
|
|
|
Offering Price |
|
$
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
PORTFOLIO TRANSACTIONS AND BROKERAGE
Transactions in Portfolio Securities
Subject to policies established by the Board of Directors
of the Program, the Investment Adviser is primarily responsible
for the execution of the Programs portfolio transactions
and the allocation of brokerage. The Program has no obligation
to deal with any broker or group of brokers in the execution of
transactions in portfolio securities and does not use any
particular broker or dealer. In executing transactions with
brokers and dealers, the Investment Adviser seeks to obtain the
best net results for the Fund, taking into account such factors
as price (including the applicable brokerage commission or
dealer spread), size of order, difficulty of execution and
operational facilities of the firm and the firms risk in
positioning a block of securities. While the Investment Adviser
generally seeks reasonably competitive commission rates, the
Fund does not necessarily pay the lowest spread or commission
available. In addition, consistent with the Conduct Rules of the
NASD and policies established by the Board of Directors of the
Program, the Investment Adviser may consider sales of Fund
shares as a factor in the selection of brokers or dealers to
execute portfolio transactions for the Program; 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 Program.
Subject to obtaining the best net results, brokers who
provide supplemental investment research to the Investment
Adviser may receive orders for transactions by the Program. Such
supplemental research services ordinarily consist of assessments
and analyses of the business or prospects of a company, industry
or economic sector. Information so received will be in addition
to and not in lieu of the services required to be performed by
the Investment Adviser under the Investment Advisory Agreements,
and the expenses of the Investment Adviser will not necessarily
be reduced as a result of the receipt of such supplemental
information. If in the judgment of the Investment Adviser the
Program will benefit from supplemental research services, the
Investment Adviser is authorized to pay brokerage commissions to
a broker furnishing such services that are in excess of
commission that another broker may have charged for effecting
the same transactions. Certain supplemental research services
may primarily benefit one or more other investment companies or
other accounts for which the Investment Adviser exercises
investment discretion. Conversely, the Program 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 Program anticipates that its brokerage transactions
involving securities of issuers domiciled in countries other
than the United States generally will be conducted primarily on
the principal stock exchanges of such countries. Brokerage
commissions and other transaction costs on foreign stock
exchange transactions generally are higher than in the United
States, although the Program will endeavor to achieve the best
net results in effecting its portfolio transactions. There
generally is less governmental supervision and regulation of
foreign stock exchanges and brokers than in the United
States.
Foreign equity securities may be held by the Program in
the form of ADRs, EDRs, GDRs or other securities convertible
into foreign equity securities. ADRs, EDRs and GDRs may be
listed on stock exchanges, or traded in over-the-counter markets
in the United States or Europe, as the case may be. ADRs, like
other securities traded in the United States, will be subject to
negotiated commission rates. The Programs ability and
decisions to purchase or sell portfolio securities of foreign
issuers may be affected by laws or regulations relating to the
convertibility and repatriation of assets. Because the shares of
the Fund are redeemable on a daily basis in U.S. dollars, the
Program intends to manage the Fund so as to give reasonable
assurance that it will be able to obtain U.S. dollars to the
extent necessary to meet anticipated redemptions. Under present
conditions, it is not believed that these considerations will
have significant effect on the Programs portfolio
strategies.
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 Program and persons who are affiliated with such
affiliated persons are prohibited from dealing with the Program
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 program will not deal with affiliated persons,
including Merrill Lynch and its affiliates, in connection with
such transactions. However, an affiliated person of the Program
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 program 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 Program 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 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
Program 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 Program and annual
statements as to aggregate compensation will be provided to the
Program. Securities may be held by, or be appropriate
investments for, the Program as well as other funds or
investment advisory clients of the Investment Adviser or its
affiliates.
The Board of Directors of the Program 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 Program on behalf of a portfolio to the Investment
Adviser. After considering all factors deemed relevant, the
Board of Directors made a determination not to seek such
recapture. The Board will reconsider this matter from time to
time.
For the fiscal year ended January 31, 2000, the brokerage
commissions paid to Merrill Lynch represented
% of the aggregate brokerage
commissions paid and involved
% of the Funds dollar amount of
transactions involving payment of brokerage commissions.
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
January 31,
|
|
Aggregate
Brokerage
Commissions Paid
|
|
Commissions
Paid
to Merrill Lynch
|
2000 |
|
|
|
|
1999 |
|
$76,819 |
|
|
1998 |
|
$39,108 |
|
|
Because of different objectives or other factors, a
particular security may be bought for one or more clients of the
Investment Adviser or its affiliates when one or more clients of
the Investment Adviser or its affiliates are selling the same
security. If purchases or sales of securities arise for
consideration at or about the same time that would involve the
Program or other clients or funds for which the Investment
Adviser or an affiliate act as investment adviser, transactions
in such securities will be made, insofar as feasible, for the
respective funds and clients in a manner deemed equitable to
all. To the extent that transactions on behalf of more than one
client of the Investment Adviser or its affiliates 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 described
below that are designed to facilitate investment in its shares.
Full details as to each such service and copies of the various
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.
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 also will show any other activity in the account
since the preceding statement. Shareholders also will 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. Upon the
transfer of shares out of a Merrill Lynch brokerage account, an
Investment Account in the transferring shareholders name
may be opened automatically at the Transfer Agent.
Share certificates are issued only for full shares and
only upon the specific request of a shareholder who has an
Investment Account. Issuance of certificates representing all or
only part of the full shares in an Investment Account may be
requested by a shareholder directly from the Transfer
Agent.
Shareholders may transfer their Fund shares from Merrill
Lynch to another securities dealer that has entered into a
selected dealer agreement with Merrill Lynch. Certain
shareholder services may not be available for the transferred
shares. After the transfer, the shareholder may purchase
additional shares of funds owned before the transfer and all
future trading of these assets must be coordinated by the new
firm. If a shareholder wishes to transfer his or her shares to a
securities dealer that has not entered into a selected dealer
agreement with Merrill Lynch, the shareholder must either (i)
redeem his or her shares, paying any applicable CDSC or (ii)
continue to maintain an Investment Account at the Transfer Agent
for those shares. The shareholder also may 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 a selected dealer 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 Select Pricing Funds. Shares with a net asset
value of at least $100
are required to qualify for the exchange privilege, and any shares
used 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 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 another Select Pricing Fund, 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 and 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 of the Fund 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 and 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 Funds CDSC schedule if such schedule is
higher than the CDSC schedule relating to the Class B shares of
the fund from which the exchange was 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 shares is tacked to the holding
period of the new Class B shares 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 Funds 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
the 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 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. 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
Funds 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 of the Fund received in
exchange for such money market fund shares will be aggregated
with the holding period for the fund shares originally exchanged
for such money market fund shares for purposes of reducing the
CDSC or satisfying the Conversion Period.
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 described above
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 certain Programs may result in
the redemption of shares held therein or the automatic exchange
thereof to another class at net asset value. 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 on 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 the
Programs client agreement and from the Transfer Agent at
1-800-MER-FUND (1-800-637-3863).
Retirement and Educational Savings Plans
Individual retirement accounts and other retirement and
education savings plans are available from Merrill Lynch. Under
these plans, investments may be made in the Fund and certain of
the other mutual funds sponsored
by Merrill Lynch as well as in other securities. Merrill Lynch may
charge an initial establishment fee and an annual fee for each
account. Information with respect to these plans is available on
request from Merrill Lynch.
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 consider 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 shareholders securities dealer or by
mail directly to the Transfer Agent, acting as agent for such
securities dealer. Voluntary accumulation also can be made
through a service known as the Funds Automatic Investment
Plan. The Fund would be authorized, on a regular basis, to
provide systematic additions to the Investment Account of such
shareholder through charges of $50 or more to the regular bank
account of the shareholder by either pre-authorized checks or
automated clearing house debits. Alternatively, an investor that
maintains a CMA® or CBA® account may arrange to have
periodic investments made in the Fund in amounts of $100 ($1 for
retirement accounts) or more through the CMA® or CBA®
Automated Investment Program.
Automatic Dividend Reinvestment Plan
Unless specific instructions are given as to the method of
payment, dividends will be automatically reinvested, without
sales charge, in additional full and fractional shares of the
Fund. Such reinvestment will be at the net asset value of shares
of the Fund as 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 of ordinary
income and/or capital gains paid in cash, rather than reinvested
in shares of the Fund (provided that, in the event that a
payment on an account maintained at the Transfer Agent would
amount to $10.00 or less, a shareholder will not receive such
payment in cash and such payment will automatically be
reinvested in additional shares). Commencing ten days after the
receipt by the Transfer Agent of such notice, those instructions
will be effected. The Fund is not responsible for any failure of
delivery to the shareholders address of record and no
interest will accrue on amounts represented by uncashed dividend
checks. Cash payments can also be directly deposited to the
shareholders bank account.
Systematic Withdrawal Plans
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 who have acquired shares of the Fund
having a value, based on cost or the current offering price, of
$5,000 or more, and monthly withdrawals are available for
shareholders with shares having a value of $10,000 or
more.
At the time of each withdrawal payment, sufficient shares
are redeemed from those on deposit in the shareholders
account to provide the withdrawal payment specified by the
shareholder. The shareholder may specify the dollar amount and
class of shares to be redeemed. Redemptions will be made at net
asset value as determined after the close of business on the
NYSE (generally, the NYSE closes at 4:00 p.m., Eastern time) on
the 24th day of each month or the 24th day of the last month of
each quarter, whichever is applicable. If the NYSE is not open
for business on such date, the shares will be redeemed at the
net asset value determined at the close of business on the
following business day. The check for the withdrawal payment
will be mailed, or the direct deposit
for withdrawal payment will be made on the next business day
following redemption. When a shareholder is making systematic
withdrawals, dividends and distributions on all shares in the
Investment Account are reinvested automatically in Fund shares.
A shareholders Systematic Withdrawal Plan may be
terminated at any time, without a charge or penalty, by the
shareholder, the Fund, the Transfer Agent or the
Distributor.
With respect to redemptions of Class B and 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
SharesDeferred Sales Charge AlternativesClass 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, a shareholder must make
a new election to join the systematic withdrawal program with
respect to the Class D shares. See Purchase of Shares
Deferred Sales Charge AlternativesConversion 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 shareholders
original investment may be reduced correspondingly. Purchases of
additional shares concurrent with withdrawals are ordinarily
disadvantageous to the shareholder because of sales charges and
tax liabilities. The Fund will not knowingly accept purchase
orders for shares of the Fund from investors who maintain a
systematic withdrawal plan unless such purchase is equal to at
least one years scheduled withdrawals or $1,200, whichever
is greater. Periodic 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 net
investment income will be paid at least annually. All net
realized capital gains, if any, will be distributed to the Fund
s shareholders at least annually. From time to time, the
Fund may declare a special distribution at or about the end of
the calendar year in order to comply with Federal tax
requirements that certain percentages of its ordinary income and
capital gains be distributed during the year. If in any fiscal
year, the Fund have net income from certain foreign currency
transactions, such income will be distributed at least
annually.
See Shareholder ServicesAutomatic Dividend
Reinvestment Plan for information concerning the manner in
which dividends may be reinvested automatically in shares of the
Fund. A shareholder whose account is maintained at the Transfer
Agent or whose account is maintained through his or her selected
dealer may elect in writing to receive any such dividends in
cash. Dividends are taxable to shareholders, as discussed below,
whether
they are reinvested in shares of the Fund or received in cash. The
per share dividends on Class B and 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 elect and to qualify for the special
tax treatment afforded regulated investment companies (RICs
) under the Internal Revenue Code of 1986, as amended (the
Code). As long as the Fund so qualifies, the Fund
(but not its shareholders) will not be subject to Federal income
tax on the part of its net ordinary income and net realized
capital gains that it distributes to Class A, Class B, Class C
and Class D shareholders (together, the shareholders
). The Fund intends to distribute substantially all of
such income.
The Code requires a RIC to pay a nondeductible 4% excise
tax to the extent the RIC does not distribute, during each
calendar year, 98% of its ordinary income, determined on a
calendar year basis, and 98% of its capital gains, determined,
in general on a October 31 year end, plus certain undistributed
amounts from previous years. While the Fund intends to
distribute its income and capital gains in the manner necessary
to minimize imposition of the 4% excise tax, there can be no
assurance that sufficient amounts of the Funds taxable
income and capital gains will be distributed to avoid entirely
the imposition of the tax. In such event, the Fund will be
liable for the tax only on the amount by which it does not meet
the foregoing distribution requirements.
Dividends paid by the Fund from its ordinary income or
from an excess of net short term capital gains over net long
term capital losses (together referred to hereafter as
ordinary income dividends) are taxable to
shareholders as ordinary income. Distributions made from an
excess of net long term capital gains over net short term
capital losses (including gains or losses from certain
transactions in warrants, futures and options) (capital
gain dividends) are taxable to shareholders as long term
capital gains, regardless of the length of time the shareholder
has owned Fund shares. Any loss upon the sale or exchange of
Fund shares held for six months or less will be treated as long
term capital loss to the extent of any capital gain dividends
received by the shareholder. Distributions in excess of the Fund
s earnings and profits will first reduce the adjusted tax
basis of a holders shares and, after such adjusted tax
basis is reduced to zero, will constitute capital gains to such
holder (assuming the shares are held as a capital asset).
Certain categories of capital gains are taxable at different
rates. Generally not later than 60 days after the close of its
taxable year, the Fund will provide its shareholders with a
written notice designating the amount of any capital gain
dividends as well as any amount of capital gain dividends in the
different categories of capital gain referred to
above.
Dividends are taxable to shareholders even though they are
reinvested in additional shares of the Fund. A portion of the
Funds ordinary income dividends may be eligible for the
dividends received deduction allowed to corporations under the
Code, if certain requirements are met. For this purpose, the
Fund will allocate dividends eligible for the dividends received
deduction 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
shareholders basis in the Class D shares acquired will be
the same as such shareholders basis in the Class B shares
converted, and the holding period of the acquired Class D shares
will include the holding period for the converted Class B
shares.
If a shareholder exercises an exchange privilege within 90
days of acquiring the shares, then the loss the shareholder can
recognize on the exchange will be reduced (or the gain
increased) to the extent any sales charge paid on the exchanged
shares reduces any sales charge the shareholder would have owed
upon the purchase of the new shares in the absence of the
exchange privilege. Instead, such sales charge will be treated
as an amount paid for the new shares.
A
loss realized on a sale or exchange of shares of the Fund will
be disallowed if such 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
non-resident aliens or foreign entities will be subject to a 30%
U.S. withholding tax under existing provisions of the Code
applicable to foreign individuals and entities unless a reduced
rate of withholding or a withholding exemption is provided under
applicable treaty law. Nonresident shareholders are urged to
consult their own tax advisers concerning the applicability of
the United States withholding tax.
Under certain provisions of the Code, some shareholders
may be subject to a 31% withholding tax on ordinary income
dividends, capital gain dividends and redemption payments (
backup withholding). Generally, shareholders subject
to backup withholding will be those for whom no certified
taxpayer identification number is on file with the Fund or who,
to the Funds knowledge, have furnished an incorrect
number. When establishing an account, an investor must certify
under penalty of perjury that such number is correct and that
such 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 U.S. may reduce or
eliminate such taxes.
Tax Treatment of Options, Futures and Forward Foreign Exchange
Transactions
The Fund may write, purchase or sell options, futures and
forward foreign exchange contracts. Options and futures
contracts that are Section 1256 contracts will be
marked to market for Federal income tax purposes at
the end of each taxable year, i.e., each such option or
futures contract will be treated as sold for its fair market
value on the last day of the taxable year. Unless such contract
is a forward foreign exchange contract, or is a non-equity
option or a regulated futures contract for a non-U.S. currency
for which the Fund elects to have gain or loss treated as
ordinary gain or loss under Code Section 988 (as described
below), gain or loss from Section 1256 contracts will be 60%
long-term and 40% short-term capital gain or loss. Application
of these rules to Section 1256 contracts held by the Fund may
alter the timing and character of distributions to shareholders.
The mark-to-market rules outlined above, however, will not apply
to certain transactions entered into by the Fund solely to
reduce the risk of changes in price or interest or currency
exchange rates with respect to its investments.
A
forward foreign exchange contract that is a Section 1256
contract will be marked to market, as described above. However,
the character of gain or loss from such a contract will
generally be ordinary under Code Section 988. In certain
instances, the Fund may, nonetheless, elect to treat the gain or
loss from certain forward foreign exchange contracts as capital.
In this case, gain or loss realized in connection with a forward
foreign exchange contract that is a Section 1256 contract will
be characterized as 60% long-term and 40% short-term capital
gain or loss.
Code Section 1092, which applies to certain
straddles, may affect the taxation of the Fund
s sales of securities and transactions in options, futures
and forward foreign exchange contracts. Under Section 1092, the
Fund may be required to postpone recognition for tax purposes of
losses incurred in certain sales of securities and certain
closing transactions in options, futures and forward foreign
exchange contracts.
Special Rules for Certain Foreign Currency
Transactions
In general, gains from foreign currencies and
from foreign currency options, foreign currency futures and
forward foreign exchange contracts relating to investments in
stocks, securities or foreign currencies will be
qualifying income for purposes of determining whether the Fund
qualifies as a RIC. It is currently unclear, however, who will
be treated as the issuer of a foreign currency instrument or how
foreign currency options, futures or forward foreign exchange
contracts will be valued for purposes of the RIC diversification
requirements applicable to the Fund.
Under Code Section 988, special rules are provided for
certain transactions in a foreign currency other than the
taxpayers functional currency (i.e., unless certain
special rules apply, currencies other than the U.S. dollar). In
general, foreign currency gains or losses from certain debt
instruments, from certain forward contracts, from futures
contracts that are not regulated futures contracts
and from unlisted options will be treated as ordinary income or
loss under Code Section 988. In certain circumstances, the Fund
may elect capital gain or loss treatment for such transactions.
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 investment
company taxable income of the Fund 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
shareholders Fund shares and resulting in a capital gain
for any shareholder who received a distribution greater than
such shareholders basis in Fund shares (assuming the
shares were held as a capital asset). These rules and the
mark-to-market rules described above, however, will not apply to
certain transactions entered into by the Fund solely to reduce
the risk of currency fluctuations with respect to its
investments.
The foregoing is a general and abbreviated summary of the
applicable provisions of the Code and Treasury regulations
presently in effect. For the complete provisions, reference
should be made to the pertinent Code sections and the Treasury
regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative, judicial or
administrative action either prospectively or
retroactively.
Ordinary income and capital gain dividends may also be
subject to state and local taxes.
Certain states exempt from state income taxation dividends
paid by RICs that are derived from interest on U.S. Government
obligations. State law varies as to whether dividend income
attributable to U.S. Government obligations is exempt from state
income tax.
Shareholders are urged to consult their tax advisers
regarding specific questions as to Federal, foreign, state or
local taxes. Foreign investors should consider applicable
foreign taxes in their evaluation of an investment in the
Fund.
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 is based on the Funds historical performance
and is 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 a formula
specified by the Commission.
Average annual total return quotations for the specified
periods are computed by finding the average annual compounded
rates of return (based on net investment income and any realized
and unrealized capital gains or losses on portfolio investments
over such periods) that would equate the initial amount invested
to the redeemable value of such investment at the end of each
period. Average annual total return is computed assuming all
dividends and distributions are reinvested and taking into
account all applicable recurring and nonrecurring expenses,
including the maximum sales charge in the case of Class A and
Class D shares and the CDSC that would be applicable to a
complete redemption of the investment at the end of the
specified period in the case of Class B and Class C
shares.
Yield quotations will be computed based on a 30-day period
by dividing (a) the net income based on the yield of each
security earned during the period by (b) the average daily
number of shares outstanding during the
period that were entitled to receive dividends multiplied by the
maximum offering price per share on the last day of the period.
Tax equivalent yield quotations will be computed by dividing (a)
the part of the Funds yield that is tax-exempt by (b) one
minus a stated tax rate and (c) adding the result to that part,
if any, of the Funds yield that is not
tax-exempt.
The Fund also may quote annual, average annual and
annualized total return and aggregate total return performance
data, both as a percentage and a dollar amount based on a
hypothetical $1,000 investment, for various periods other than
those noted below. Such data will be computed as described
above, except that (1) as required by the periods of the
quotations, actual annual, annualized or aggregate data, rather
than average annual data, may be quoted and (2) the maximum
applicable sales charges will not be included with respect to
annual or annualized rates of return calculations. Aside from
the impact on the performance data calculations of including or
excluding the maximum applicable sales charges, actual annual or
annualized total return data generally will be lower than
average annual total return data since the average rates of
return reflect compounding of return; aggregate total return
data generally will be higher than average annual total return
data since the aggregate rates of return reflect compounding
over a longer period of time. In advertisements distributed to
investors whose purchases are subject to waiver of the CDSC in
the case of Class B and Class C shares (such as investors in
certain retirement plans) or to reduced sales loads in the case
of Class A and Class D shares, the performance data may take
into account the reduced, and not the maximum, sales charge or
may not take into account the CDSC and therefore may reflect
greater total return since, due to the reduced sales charges or
waiver of the CDSC, a lower amount of expenses is deducted. See
Purchase of Shares. The Funds total return may
be expressed either as a percentage or as a dollar amount in
order to illustrate such total return on a hypothetical $1,000
investment in the Fund at the beginning of each specified
period.
Set forth below is total return information for the Class
A, Class B, Class C and Class D shares of the Fund for the
periods indicated.
|
|
Class A Shares
|
|
Class B Shares
|
|
|
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 January 31,
2000 |
|
|
|
|
|
|
|
|
Inception (February 2, 1996)
through the fiscal year ended
January 31, 2000 |
|
|
Average Annual Total Return
(including maximum applicable sales charges) |
Year
Ended January 31, |
2000 |
|
|
|
|
|
|
|
|
1999 |
|
|
|
|
|
|
|
|
1998 |
|
|
|
|
|
|
|
|
Inception (February 1, 1995)
through the fiscal year ended
January 31, 1997 |
|
|
|
|
|
|
|
|
|
|
Average Annual Total Return
(including maximum applicable sales charges) |
Inception (February 1, 1995)
through the fiscal year ended
January 31, 2000 |
|
|
|
|
|
|
|
|
|
|
Class C Shares
|
|
Class D Shares
|
|
|
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 January 31,
2000 |
|
|
|
|
|
|
|
|
Inception (February 1, 1995)
through the fiscal year ended
January 31, 2000 |
|
|
|
|
|
|
|
|
|
|
Average Annual Total Return
(including maximum applicable sales charges) |
Year
Ended January 31, |
2000 |
|
|
|
|
|
|
|
|
1999 |
|
|
|
|
|
|
|
|
1998 |
|
|
|
|
|
|
|
|
Inception (February 1, 1995)
through the fiscal year ended
January 31, 1997 |
|
|
|
|
|
|
|
|
|
|
Average Annual Total Return
(including maximum applicable sales charges) |
Inception (February 1, 1995)
through the fiscal year ended
January 31, 2000 |
|
|
|
|
|
|
|
|
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 and
Redemption of Shares, respectively, the total return
data quoted by the Fund in advertisements directed to such
investors may take into account the reduced, and not the
maximum, sales charge or may take into account the CDSC and
therefore may reflect greater total return since, due to the
reduced sales charges or the waiver of sales charges, a lower
amount of expenses is deducted.
On occasion, the Fund may compare its performance to,
among other things, the Standard & Poors 500 Index,
the Value Line Composite Index, the Dow Jones Industrial
Average, or to other published indices, or to data contained in
publications published by Lipper Analytical Services, Inc.,
Morningstar Publications, Inc. (Morningstar), or to
data contained in publications such as Money Magazine, U.S.
News & World Report, Business Week, Forbes Magazine, Fortune
Magazine and CDA Investment Technology, Inc. When comparing
its performance to a market index, the Fund may refer to various
statistical measures derived from the historic performance of
the Fund and the index, such as standard deviation and beta. As
with other performance data, performance comparisons should not
be considered indicative of the Funds relative performance
for any future period. From time to time the Fund may include
the Funds Morningstar risk-adjusted performance ratings
assigned by Morningstar in advertising or supplemental sales
literature. From time to time the Fund may quote in
advertisements or other materials other applicable measures of
performance and may also make reference to awards that may be
given to the Investment Adviser.
The Program was incorporated under Maryland law on May 12,
1994. As of the date of this Statement of Additional
Information, the Program has an authorized capital of
200,000,000 shares of Common Stock, par value $0.10 per share,
of which 44,500,000 has been designated to the Fund as follows:
6,250,000 Class A shares, 25,000,000 Class B shares, 6,250,000
Class C shares and 6,250,000 Class D shares. The Board of
Directors of the Program 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 Program does not intend to hold meetings
of shareholders in any year in which the Investment Company Act
does not require shareholders to act on any of the following
matters: (i) election of Directors; (ii) approval of an
investment advisory agreement; (iii) approval of a distribution
agreement; and (iv) ratification of selection of independent
auditors. Generally, under Maryland law, a meeting of
shareholders may be called for any purpose on the written
request of the holders of at least 10% of the outstanding shares
of the Program. Voting rights for Directors are not cumulative.
Shares issued are fully paid and non-assessable and have no
preemptive or conversion rights. Redemption rights are discussed
elsewhere herein and in the Prospectus. Each share is entitled
to participate equally in dividends and distributions declared
by the Program and in the net assets of the Program on
liquidation or dissolution after satisfaction of outstanding
liabilities. Stock certificates are issued by the Transfer Agent
only on specific request. Certificates for fractional shares are
not issued in any case.
Deloitte & Touche LLP
, Princeton Forrestal Village, 116-300 Village Boulevard,
Princeton, New Jersey 08540-6400, has been selected as the
independent auditors of the Program. The independent auditors
are responsible for auditing the annual financial statements of
the Program.
The Bank of New York, 100 Church Street, New York, New
York 10286 (the Custodian), acts as the Custodian of
the Programs assets. Under its contract with the Program,
the Custodian is authorized to establish separate accounts in
foreign currencies and to cause foreign securities owned by the
Program 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
Programs cash and securities, handling the receipt and
delivery of securities and collecting interest and dividends on
the Programs investments.
Financial Data Services, Inc., 4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484, which is a wholly owned
subsidiary of ML & Co., acts as the Funds Transfer
Agent pursuant to a transfer agency, dividend disbursing agency
and shareholder servicing agency agreement (the Transfer
Agency Agreement). The Transfer Agent is responsible for
the issuance, transfer and redemption of shares and the opening,
maintenance and servicing of shareholder accounts.
Brown & Wood LLP, One World
Trade Center, New York, New York 10048-0557, is counsel for the
Program and the Fund.
The fiscal year of the Fund ends on January 31 of each
year. The Fund sends to its shareholders at least semi-annually
reports showing information related to the Funds portfolio
and other information. An annual report,
containing financial statements audited by independent auditors,
is sent to shareholders each year. After the end of each year,
shareholders will receive Federal income tax information
regarding dividends and capital gains distributions.
Shareholder inquiries may be addressed to the Fund at the
address or telephone number set forth on the cover page of this
Statement of Additional Information.
The Prospectus and this Statement of Additional
Information do not contain all the information set forth in the
Registration Statement and the exhibits relating thereto, which
the Fund has filed with the 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 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, no persons or entities owned
beneficially 5% or more of any class of stock of the Fund as of
January 1, 2000.
CODE #18472-04-00
The information in this prospectus is not
complete and may be changed. We may not use this prospectus to
sell securities until the registration statement containing this
prospectus, which has been filed with the Securities and
Exchange Commission, is effective. This prospectus is not an
offer to sell these securities and is not soliciting an offer to
buy these securities in any state where the offer or sale is not
permitted.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED FEBRUARY 1,
2000
Mercury Growth Opportunity
Fund
PROSPECTUS
April , 2000
[ARTWORK TO COME]
This Prospectus contains information you should know
before investing, including information about risks. please read
it before you invest and keep it for future
reference.
The Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the
adequacy of this Prospectus. Any representation to the contrary
is a criminal offense.
Table of Contents
MERCURY GROWTH OPPORTUNITY FUND
[GRAPHIC] Fund Facts
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.
Equity Securities
securities representing ownership of a corporation or
securities whose price is linked to the value of securities that
represent company ownership.
ABOUT THE MERCURY GROWTH OPPORTUNITY FUND
What is the Funds investment
objective?
The investment objective of the Fund is to seek
long term capital growth.
What are the Funds main investment
strategies?
The Fund invests primarily in equity
securities of growth companies. The Fund selects
companies on the basis of their long term potential for
expanding their earnings, profitability and size. The Fund also
selects companies on the basis of their long term potential for
gaining increased market recognition for their securities. The
Fund does not select companies with the objective of providing
current income. The Fund may also invest in securities issued by
foreign entities and in securities denominated in currencies
other than the U.S. dollar.
What are the main risks of investing in the
Fund?
As with any fund, the value of the Funds
investmentsand therefore the value of Fund sharesmay
fluctuate. These changes may occur because a particular stock
market is rising or falling. At other times, there are specific
factors that may affect the value of a particular investment. If
the value of your Funds investments goes down, you may
lose money.
The Fund may invest in foreign securities.
Foreign investing involves special risks, including foreign
currency risk and the possibility of substantial volatility due
to adverse political, economic or other developments. Foreign
securities may also be less liquid and harder to value than U.S.
securities. These risks are greater for investments in emerging
markets.
The Fund is a non-diversified fund, which means
that it may invest more of its assets in fewer companies than if
it were a diversified fund. By concentrating in a smaller number
of investments, the Funds risk is increased because each
investment has a greater effect on the Funds performance.
This helps the Funds performance when its investments are
successful, but hurts the Funds performance when its
investments are unsuccessful.
Who should invest?
The Fund may be an appropriate investment for you
if you:
|
|
Are investing with long term goals in mind,
such as retirement or funding a childs
education
|
|
|
Want a professionally managed
portfolio
|
MERCURY GROWTH OPPORTUNITY FUND
[GRAPHIC] Fund Facts
|
|
Are willing to accept the risk that the value
of your investment may decline in order to seek long term
capital growth
|
|
|
Are not looking for a significant amount of
current income
|
MERCURY GROWTH OPPORTUNITY FUND
[GRAPHIC] Fund Facts
The bar chart and table shown below provide an
indication of the risks if investing in the Fund. The bar chart
shows changes in the Funds performance for Class B shares
for each complete calendar year since the Funds 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 Funds shares for the periods shown with those
of the S&P 500 Index and the Lipper Growth Fund Index. How
the Fund performed in the past is not necessarily an indication
of how the Fund will perform in the future.
[BAR CHART]
1997 1998
------ ------
27.19% 32.05%
During the period shown in the bar chart, the
highest return for a quarter was in
(quarter ended
) and the lowest return for
a quarter was %
(quarter ended
). The year-to-date return
as of
was
%.
Average Annual Total
Returns (for
the calendar year ended December 31,
1999) |
|
Past
One Year |
|
Since
Inception |
|
Mercury Growth Opportunity Fund I |
|
|
|
|
|
Mercury Growth Opportunity Fund A |
|
|
|
|
|
Mercury Growth Opportunity Fund B |
|
|
|
|
|
Mercury Growth Opportunity Fund C |
|
|
|
|
|
S&P 500 Index** |
|
|
|
|
|
Lipper Growth Fund Index*** |
|
|
|
|
*
|
Includes sales
charges.
|
**
|
The S&P 500 is the Standard &
Poors Composite Index of 500 stocks, a widely
recognized, unmanaged Index of common stock prices. Past
performance is not predictive of future
performance.
|
***
|
Lipper Growth Fund Index is an
equally weighted Index of the largest mutual funds which
normally invest in companies whose long term earnings are
expected to grow significantly faster than the earnings of the
stocks represented in the major unmanaged stock indexes. Past
performance is not predictive of future
performance.
|
|
Inception date is February 2,
1996.
|
|
Since February 1,
1996.
|
MERCURY GROWTH OPPORTUNITY FUND
[GRAPHIC] Fund Facts
UNDERSTANDING EXPENSES
Fund investors pay various expenses, either directly
or indirectly. Listed below are some of the main types of
expenses, which all mutual funds may charge:
Expenses paid directly by the
shareholder:
Shareholder Fees these
fees include sales charges which you may pay when you buy or
sell shares of the Fund.
Expenses paid indirectly by the
shareholder:
Annual Fund Operating Expenses
expenses that cover the costs of operating the
Fund.
Management Fee a fee
paid to the Investment Adviser for managing the
Fund.
Distribution Fees fees used
to support the Funds marketing and distribution efforts,
such as compensating financial consultants, advertising and
promotion.
Service (Account Maintenance) Fees
fees used to compensate securities dealers for
account maintenance activities.
The Fund offers four different classes of shares.
Although your money will be invested the same way no matter
which class of shares you buy, there are differences among the
fees and expenses associated with each class. Not everyone is
eligible to buy every class. After determining which classes you
are eligible to buy, decide which class best suits your needs.
Your 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
I |
|
Class
A |
|
Class
B(b) |
|
Class
C |
|
Maximum Sales
Charge (Load) imposed on purchases (as a
percentage of offering price) |
|
5.25 |
%(c) |
|
5.25 |
%(c) |
|
None |
|
|
None |
|
|
Maximum
Deferred Sales Charge (Load) (as a percentage of
original purchase price or redemption proceeds, whichever is
lower) |
|
None |
(d) |
|
None |
(d) |
|
4.00 |
%(c) |
|
1.00 |
%(c) |
|
Maximum Sales
Charge (Load) imposed on Dividend
Reinvestments |
|
None |
|
|
None |
|
|
None |
|
|
None |
|
|
Redemption
Fee |
|
None |
|
|
None |
|
|
None |
|
|
None |
|
|
Exchange
Fee |
|
None |
|
|
None |
|
|
None |
|
|
None |
|
|
Annual
Fund Operating Expenses (Expenses that are
deducted from the Funds total assets): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Management Fee |
|
0.65 |
% |
|
0.65 |
% |
|
0.65 |
% |
|
0.65 |
% |
|
Distribution and/or Service (12b-1)
Fees(e) |
|
None |
|
|
0.25 |
% |
|
1.00 |
% |
|
1.00 |
% |
|
Other
Expenses (including transfer agency fees)(f) |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
Total
Annual Fund Operating Expenses |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
(a)
|
Certain securities dealers may charge
a fee to process a purchase or sale of shares.
|
(b)
|
Class B shares automatically convert
to Class A shares about eight years after you buy them and
will no longer be subject to distribution
fees.
|
(c)
|
Some investors may qualify for
reductions in the sales charge (load).
|
(d)
|
You may pay a deferred sales charge
if you purchase $1 million or more and you redeem within one
year.
|
(e)
|
The Fund calls the Service Fee
an Account Maintenance Fee. Account
Maintenance Fee is the term used elsewhere in this Prospectus
and in all other Fund materials. If you hold Class B or C
shares for a long time, it may cost you more in distribution
(12b-1) fees than the maximum sales charge that you would have
paid if you had bought one of the other
classes.
|
(f)
|
The Fund pays the Transfer Agent a
fee for each shareholder account and reimburses it for
out-of-pocket expenses. The fee ranges from $11.00 to $23.00
per account (depending on the level of services required), but
is set at 0.10% for certain accounts that participate in
certain fee-based programs. The Fund also pays a $0.20 monthly
closed account charge, which is assessed upon all accounts
that close during the calendar year. The 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 January 31,
2000, the fee paid by the Fund to the Transfer Agent was $
. The Investment Adviser
provides accounting services to the Fund at its cost. For the
fiscal year ended January 31, 2000, the Fund reimbursed the
Investment Adviser $
for
these services.
|
MERCURY GROWTH OPPORTUNITY FUND
[GRAHIC] Fund Facts
Example:
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 Funds
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 these
examples. Although your actual costs may be higher or lower,
based on these assumptions, your costs would be:
|
|
|
|
|
|
|
|
|
Expenses if you did
redeem your shares:* |
|
|
|
Class
I |
|
Class
A |
|
Class
B |
|
Class
C |
|
One
Year |
|
|
|
|
|
|
|
|
|
Three
Years |
|
|
|
|
|
|
|
|
|
Five
Years |
|
|
|
|
|
|
|
|
|
Ten
Years |
|
|
|
|
|
* |
|
|
|
|
Expenses if you did not
redeem your shares:* |
|
|
|
Class
I |
|
Class
A |
|
Class
B |
|
Class
C |
|
One
Year |
|
|
|
|
|
|
|
|
|
Three
Years |
|
|
|
|
|
|
|
|
|
Five
Years |
|
|
|
|
|
|
|
|
|
Ten
Years |
|
|
|
|
|
* |
|
|
|
*
|
Assumes conversion to Class A shares
approximately eight years after purchase. See note (b) to the
Fees and Expenses table above.
|
MERCURY GROWTH OPPORTUNITY FUND
[GRAPHIC] About the Details
About the Portfolio Manager
Lawrence R. Fuller is the Portfolio Manager.
Mr. Fuller was a Senior Vice President and Director of Benefit
Capital Management from 1984 to 1992. He was a Vice President of
the Investment Adviser from 1992 to 1997 and has been a First
Vice President since 1997.
About the Investment Adviser
The Fund is managed by Fund Asset
Management.
The Fund tries to choose investments for capital
appreciation that is, investments that will
increase in value. The Fund will invest in a diversified
portfolio primarily consisting of equity securities of U.S.
companies. Equity securities consist of:
|
|
securities convertible into common
stock
|
|
|
rights to subscribe for common
stock
|
The Fund also can invest in non-convertible
preferred stock and fixed income securities of growth companies
during temporary periods if warranted by market or economic
conditions. Normally, the Fund will invest at least 65% of its
total assets in equity securities.
Fund management emphasizes growth companies which
possess 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. Fund management 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 valuation. Emphasis also will be given to companies
having medium to large stock market capitalizations ($500
million or more). Fund management may also select growth
companies on the basis of their long term potential for gaining
increased market recognition. The Fund does not select companies
with the objective of providing current income.
To analyze a security, Fund management focuses on
the long range view of a companys prospects including a
fundamental analysis of:
Fund managements fundamental analysis of a
company does not guarantee successful results. Additionally,
full realization of the market potential of aggressive growth
companies takes time and, for this reason, the Fund should be
considered a long term investment and not as a vehicle for seeking
short term profits.
Fund management will select the percentages of
the total portfolio invested in equity, fixed income and other
types of securities based on its view of market or economic
conditions. Fund management may consider general economic and
financial trends in various industries, such as inflation,
commodity prices, interest movements, estimates of growth in
industrial output and profits, and government fiscal policies.
Fund management will seek to allocate the Funds
investments among the various types of securities in which the
Fund may invest in a manner that it believes will best
capitalize on the economic and financial trends that it
perceives. There is no guarantee the Fund management will be
able to correctly forecast economic or financial trends or be
able to select investments that will benefit from the trends it
perceives.
The Fund may invest up to 20% of its total assets
in equity securities of foreign issuers. There are no limits on
the geographical allocations of these investments. Investments
in American Depository Receipts are not subject to the 20%
restriction.
The Fund will normally invest a portion of its
assets in short term debt securities, such as commercial paper
or Treasury bills. As a temporary measure for defensive
purposes, the Fund may invest more heavily in these securities,
without limitation. The Fund may also increase its investment in
these securities when Fund management is unable to find enough
attractive long term investments, to reduce exposure to long
term investments when management believes it is advisable to do
so on a temporary basis, or to meet redemptions. Investments in
short-term debt securities can be sold easily and have limited
risk of loss but earn only limited returns. Short term
investments may, therefore limit the potential for the Fund to
achieve its investment objective.
This section contains a summary discussion of the
general risks of investing in the Fund. As with any fund, there
can be no guarantee that the Fund will meet its objective, or
that the Funds performance will be positive over 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.
Concentration Risk
The Fund is a non-diversified portfolio. By
concentrating in a smaller number of investments, the Fund
s risk is increased because each investment has a greater
effect on the Funds performance.
Foreign Market Risk
Since the Fund may invest in foreign securities,
they offer 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. Such
investments, however, involve special risks not present in U.S.
investments that can increase the chances that the Fund will
lose money. For example, 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, diplomatic developments,
the imposition of economic sanctions, changes in international
trading patterns, trade barriers, and other protectionist or
retaliatory measures. The governments of certain countries may
prohibit or impose substantial restrictions on foreign investing
in their capital markets or in certain industries. Other foreign
market risks include foreign exchange controls, difficulties in
pricing securities, defaults on foreign government securities,
difficulties in enforcing favorable legal judgments in foreign
courts and political and social instability. Legal remedies
available to investors in some foreign countries may be less
extensive than those available to investors in the United
States. Foreign markets may have different clearance and
settlement procedures, which may delay settlement of
transactions involving foreign securities. The Fund may miss
investment opportunities or be unable to sell an investment
because of these delays. The risks of investing in foreign
securities are generally greater for investments in emerging
markets.
The Fund also may be subject to risks associated
with the following investment strategies.
Convertibles
The Fund may invest in convertible securities.
Convertibles are generally debt securities or preferred stocks
that may be converted into common stock. Convertibles typically
pay current income as either interest (debt security
convertibles) or dividends (preferred stocks). A convertible
s value usually reflects both the stream of current income
payments and the value of the underlying common stock. The
market value of a convertible performs like regular debt
securities, that is, if market interest rates rise, the value of
a convertible usually falls. Since it is convertible into common
stock, the convertible also has the same types of market and
issuer risk as the value of the underlying common
stock.
|
|
Conversion and Call Risk
For some convertibles, the issuer can choose when
to convert to common stock, or can call (redeem)
the convertible security. An issuer may convert or call a
convertible when it is disadvantageous for the Fund, causing
the Fund to lose an opportunity for gain. For other
convertibles, the Fund can choose when to convert the security
to common stock or put (sell) the convertible back to the
issuer. Some convertibles may convert only certain
circumstances and carry the additional risk that conversion
may never occur. Others may convert into a cash payment, which
is generally based on the underlying stocks
value.
|
|
|
Synthetics
The Fund can invest in convertibles that may combine
fixed income securities (fixed income components) with a right
to acquire equities (convertibility component) to create
synthetic convertible securities. Synthetic convertible
securities provide the flexibility to create an investment
that is not available in the market directly. The separate
components of synthetic convertibles trade separately; each
has its own trading market and value. The value of the
synthetic convertible is the sum of the value of the fixed
income and convertibility components. However, because its
components trade separately, often in different markets, the
value of a synthetic convertible may respond differently to
market movements and other events than a traditional
convertible. The convertibility component in a synthetic
convertible may be a warrant or option to purchase common
stock at a set price (exercise price), or an option on a stock
index. If the price of the underlying common stock falls below
the exercise price, the warrant or option may lose all
value.
|
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.
Depositary Receipts
The Fund may invest in securities of foreign
issuers in the form of Depositary Receipts. American Depositary
Receipts are receipts typically issued by an American bank or
trust company that show evidence of underlying securities issued
by a foreign corporation. European Depositary Receipts evidence
a similar ownership arrangement. The Fund may also invest in
unsponsored Depositary Receipts. The issuers of such unsponsored
Depositary Receipts are not obligated to disclose material
information in the United States, and therefore, there may be
less information available regarding such issuers.
Derivatives
The Fund may use derivative instruments including
futures, forwards, options indexed securities and inverse
securities. Derivatives allow the Fund to increase or decrease
its risk exposure more quickly and efficiently than other types
of instruments.
Derivatives are volatile and involve significant
risks, including:
|
|
Credit risk the risk
that the counterparty (the party on the other side of the
transaction) on a derivative transaction will be unable to
honor its financial obligation to the Fund.
|
|
|
Currency risk the risk
that changes in the exchange rate between currencies will
adversely affect the value (in U.S. dollar terms) of an
investment.
|
|
|
Leverage risk the risk
associated with certain types of investments or trading
strategies (such as borrowing money to increase the amount of
investments) that relatively small market movements may result
in large changes in the value of an investment. Certain
investments or trading strategies that involve leverage can
result in losses that greatly exceed the amount originally
invested.
|
|
|
Liquidity Risk the risk
that certain securities may be difficult or impossible to sell
at the time that the seller would like or at the price that
the seller believes the security is currently
worth.
|
MERCURY GROWTH OPPORTUNITY FUND
[GRAPHIC] About the Details
The Fund may use derivatives for hedging
purposes, including anticipatory hedges. Hedging is a strategy
in which the Fund uses a derivative to offset the risk that
other Fund holdings may decrease in value. While hedging can
reduce losses, it can also reduce or eliminate gains if the
market moves in a different manner than anticipated by the Fund
or if the cost of the derivative outweighs the benefit of the
hedge. Hedging also involves the risk that changes in the value
of the derivative will not match those of the holdings being
hedged as expected by the Fund, in which case any losses on the
holdings being hedged may not be reduced. There can be no
assurance that the Funds hedging strategy will reduce risk
or that hedging transactions will be either available or cost
effective. The Fund is not required to use hedging and may
choose not to do so.
Short Term Trading
The Fund can buy and sell securities whenever it
sees a market opportunity, and therefore the Fund may engage in
short-term trading. Short term trading may increase the Fund
s expenses and have tax consequences.
Repurchase Agreements
The Fund may invest in repurchase agreements. A
repurchase agreement involves the purchase of a security
together with a simultaneous agreement to resell the security to
the seller at a later date at approximately the purchase price
less an amount that represents interest to the buyer. Repurchase
agreements are considered relatively safe, liquid investments
for short-term cash, but involve the risk that the seller will
fail to repurchase the security and that the Fund will have to
attempt to sell the security in the market for its current
value, which may be less than the amount the Fund paid for the
security. Repurchase agreements involve credit risk.
When Issued Securities, Delayed Delivery Securities
and Forward Commitments
When issued and delayed delivery securities and
forward commitments involve the risk that the security the Fund
buys will lose value prior to its delivery to the Fund. There
also is the risk that the security will not be issued or that
the other party will not meet its obligation, in which case the
Fund loses the investment opportunity of the assets it has set
aside to pay for the security and any gain in the security
s price.
Borrowing and Leverage
The Fund may borrow for temporary emergency
purposes including to meet redemptions. Borrowings may
exaggerate changes in the net asset value of the
Funds shares and in the yield on the Funds portfolio.
Borrowing will cost the Fund interest expense and other fees.
The cost of borrowing may reduce the Funds return. Certain
securities that the Fund buys may create leverage including, for
example, when issued securities, forward commitments and
options.
Securities Lending
The Fund may lend a portion of its securities to
financial institutions in return for collateral in the form of
government securities or cash. The Fund making a securities loan
will either receive a fee from the borrower or pay the borrower
interest in return for the right to seek to invest cash
collateral at a higher rate. If a borrower fails to return the
Funds security, the Fund will have to attempt to liquidate
the borrowers collateral, which may be worth less than the
Funds security. Securities loans involve leverage risk and
credit risk.
Illiquid Securities
The Fund may invest up to 15% of its net assets
in illiquid securities that it cannot easily resell within seven
days at current value or that have contractual or legal
restrictions on resale. If the Fund buys illiquid securities it
may be unable to quickly resell them or may be able to sell them
only at a price below current value.
Restricted Securities
Restricted securities have contractual or legal
restrictions on their resale. They include private placement
securities that the Fund buys directly from the issuer. Private
placement and other restricted securities may not be listed on
an exchange and may have no active trading market.
Restricted securities may be illiquid. The Fund
may be unable to sell them on short notice or may be able to
sell them only at a price below current value. The Fund may get
only limited information about the issuer, so it may be less
able to predict a loss. In addition, if Fund management receives
material adverse nonpublic information about the issuer, the
Fund will not be able to sell the security.
Rule 144A Securities
Rule 144A securities are restricted securities
that can be resold to qualified institutional buyers but not to
the general public. Rule 144A securities may have an active
trading market, but carry the risk that the active trading
market may not continue.
MERCURY GROWTH OPPORTUNITY FUND
[GRAPHIC] About the Details
STATEMENT OF ADDITIONAL INFORMATION
If you would like further information about the
Fund, including how it invests, please see the Statement of
Additional Information.
MERCURY GROWTH OPPORTUNITY FUND
[GRAPHIC] Account Choices
The Fund offers four classes of shares, 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 financial consultant can help you
determine which share class is best suited to your personal
financial goals.
For example, if you select Class I or A shares,
you generally pay a sales charge at the time of purchase. If you
buy Class A 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
Funds assets on an ongoing basis, over time these fees
increase the cost of your investment and may cost you more than
paying an initial sales charge. In addition, you may be subject
to a deferred sales charge when you sell Class B or C
shares.
The Funds shares are distributed by Mercury
Funds Distributor, a division of Princeton Funds Distributor,
Inc.
MERCURY GROWTH OPPORTUNITY FUND
[GRAPHIC] Account Choices
To better understand the pricing of the Fund
s shares, we have summarized the information
below:
|
|
Class
I |
|
Class
A |
|
Class
B |
|
Class
C |
|
Availability? |
|
Limited to certain
investors including: |
|
Generally available
through selected |
|
Generally available
through selected |
|
Generally available
through selected |
|
|
Current Class I
shareholders |
|
securities
dealers. |
|
securities
dealers. |
|
securities
dealers. |
|
|
Certain Retirement
Plans |
|
|
|
|
|
|
|
|
Participants in
certain sponsored
programs |
|
|
|
|
|
|
|
|
Certain affiliates or
customers of
selected securities
dealers |
|
|
|
|
|
|
|
|
Initial Sales
Charge? |
|
Yes. Payable at time of
purchase. Lower sales
charges available for
certain larger
investments. |
|
Yes. Payable at time of
purchase. Lower sales
charges available for
certain larger
investments. |
|
No. Entire purchase
price is invested in
shares of the Fund. |
|
No. Entire purchase
price is invested in
shares of the Fund. |
|
|
Deferred Sales
Charge? |
|
No. (May be charged
for purchases over $1
million that are
redeemed within one
year.) |
|
No. (May be charged
for purchases over $1
million that are
redeemed within one
year.) |
|
Yes. Payable if you
redeem within six years
of purchase. |
|
Yes. Payable if you
redeem within one
year of purchase. |
|
|
Account
Maintenance and
Distribution Fees |
|
No. |
|
0.25% Account
Maintenance Fee. No
Distribution Fee. |
|
0.25% Account
Maintenance Fee.
0.75% Distribution Fee. |
|
0.25% Account
Maintenance Fee.
0.75% Distribution Fee. |
|
|
Conversion to
Class A Shares? |
|
No. |
|
No. |
|
Yes, automatically
after
approximately eight
years. |
|
No. |
|
MERCURY GROWTH OPPORTUNITY FUND
[GRAPHIC] Account Choices
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 Mercury
mutual funds.
Letter of Intent permits
you to pay the sales charge that would be applicable if you add
up all shares of Mercury mutual funds that you agree to buy
within a 13 month period. Certain restrictions
apply.
Class I and A Shares Initial Sales
Charge Options
If you select Class I or A shares, you will pay a
sales charge at the time of purchase as shown in the following
table.
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 I or A 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 I and A shares by certain employer sponsored retirement
or savings plans.
|
No initial sales charge applies to Class I or
Class A shares that you buy through reinvestment of
dividends.
A reduced or waived sales charge on a purchase of
Class I or A shares may apply for:
|
|
Purchases under a Right of
Accumulation or Letter of
Intent
|
|
|
Certain trusts managed by banks, thrifts or
trust companies including those affiliated with the Investment
Adviser or its affiliates
|
|
|
Certain employer-sponsored retirement or
savings plans
|
|
|
Certain investors, including directors or
trustees of mutual funds sponsored by the Investment Adviser
or its affiliates, employees of the Investment Adviser and its
affiliates and employees or customers of selected
dealers
|
|
|
Certain fee-based programs managed by the
Investment Adviser or its affiliates
|
MERCURY GROWTH OPPORTUNITY FUND
[GRAPHIC] Account Choices
|
|
Certain fee-based programs managed by selected
dealers that have an agreement with the
Distributor
|
|
|
Purchases through certain financial advisers
that meet and adhere to standards established by the
Investment Adviser
|
|
|
Purchases through certain accounts over which
the Investment Adviser or an affiliate exercises investment
discretion
|
Only certain investors are eligible to buy Class
I shares, including existing Class I shareholders of the Fund,
certain retirement plans and participants in certain programs
sponsored by the Investment Adviser or its affiliates. Your
financial consultant can help you determine whether you are
eligible to buy Class I 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
I and Class A shares, you should buy Class I shares since Class
A shares are subject to a 0.25% account maintenance fee, while
Class I shares are not.
If you redeem Class I or Class A 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 financial consultant or the Funds
Transfer Agent at 1-888-763-2260.
Class B and 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 six years
after purchase or 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
Funds assets on an ongoing basis, over time these fees
increase the cost of your investment and may cost you more than
paying an initial sales charge. The Distributor uses the money
that it receives from the deferred sales charge and the
distribution fees to cover the costs of marketing, advertising
and compensating the financial consultant or other dealer who
assists you in your decision in purchasing Fund
shares.
MERCURY GROWTH OPPORTUNITY FUND
[GRAPHIC] Account Choices
Class B Shares
If you redeem Class B shares within six 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:
Year Since
Purchase |
|
Sales
Charge* |
|
0-1 |
|
4.00% |
|
1-2 |
|
4.00% |
|
2-3 |
|
3.00% |
|
3-4 |
|
3.00% |
|
4-5 |
|
2.00% |
|
5-6 |
|
1.00% |
|
6 and after |
|
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 by
dividend reinvestment are not subject to a deferred sales
charge. Mercury funds may not all have identical deferred
sales charge schedules. In the event of an exchange for the
shares of another Mercury fund, the higher charge, if any,
would apply.
|
The deferred sales charge relating to Class B
shares may be reduced or waived in certain circumstances, such
as:
|
|
Certain post-retirement withdrawals from an IRA
or other retirement plan if you are over 59
1
/2 years old
|
|
|
Redemption by certain eligible 401(a) and
401(k) plans and certain retirement plan rollovers
|
|
|
Redemption in connection with participation in
certain fee-based programs managed by the Investment Adviser
or its affiliates
|
|
|
Redemption in connection with participation in
certain fee-based programs managed by selected dealers that
have agreements with the Distributor
|
|
|
Withdrawals resulting from shareholder death or
disability as long as the waiver request is made within one
year after death or disability or, if later, reasonably
promptly following completion of probate, or in connection
with involuntary termination of an account in which Fund
shares are held
|
|
|
Withdrawal through the Systematic Withdrawal
Plan of up to 10% per year of your Class B account value at
the time the plan is established
|
MERCURY GROWTH OPPORTUNITY FUND
[GRAPHIC] Account Choices
Your Class B shares convert automatically into
Class A 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 A
shares are subject to lower annual expenses than Class B shares.
The conversion of Class B shares to Class A shares is not a
taxable event for Federal income tax purposes.
Different conversion schedules may apply to Class
B shares of different Mercury mutual funds. If you acquire your
Class B shares in an exchange from another fund with a shorter
conversion schedule, the Funds eight year conversion
schedule will apply. If you exchange your Class B shares for
Class B shares of a fund with a longer conversion schedule, the
other funds conversion schedule will apply. The length of
time that you hold 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 Systematic Withdrawal Plan.
Class C shares do not offer a conversion
privilege.
HOW TO BUY, SELL, TRANSFER AND EXCHANGE SHARES
The chart below summarizes how to buy, sell,
transfer and exchange shares through certain securities dealers.
You may also buy shares through the Transfer Agent. To learn
more about buying shares through the Transfer Agent, call
1-888-763-2260. Because the selection of a mutual fund involves
many considerations, your financial consultant may help you with
this decision. The Fund does not issue share
certificates.
MERCURY GROWTH OPPORTUNITY FUND
[GRAPHIC] Account Choices
If you want
to |
|
Your
choices |
|
Information important
for you to know |
|
Buy shares |
|
First, select the
share class
appropriate for you |
|
Please refer to the
pricing of shares table on page 16. Be sure to read
this Prospectus carefully. |
|
|
|
Next, determine the
amount of
your investment |
|
The minimum initial
investment for the Fund is $1,000 for all accounts
except: |
|
|
|
|
$500 for certain fee-based
programs |
|
|
|
|
$100 for retirement plans |
|
|
|
|
|
(The minimum for
initial investments may be waived or reduced under
certain circumstances.) |
|
|
|
Have your 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.
Certain securities dealers may charge a fee to process a
purchase. For
example, the fee charged by Merrill Lynch, Pierce, Fenner &
Smith
Incorporated is currently $5.35. The fees charged by other
securities
dealers may be higher or lower. |
|
|
|
Or contact the
Transfer Agent |
|
To purchase shares
directly, call the Transfer Agent at 1-888-763-2260
and request a purchase application. Mail the completed purchase
application to the Transfer Agent at the address on the inside
back
cover of this Prospectus. |
|
Add to your
investment |
|
Purchase additional
shares |
|
The minimum investment
for additional purchases is $100 for all
accounts except: |
|
|
|
|
$50 for certain fee-based programs |
|
|
|
|
$1 for retirement plans |
|
|
|
|
|
(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 your
securities dealer. |
|
MERCURY GROWTH OPPORTUNITY FUND
[GRAPHIC] Account Choices
If you want
to |
|
Your
choices |
|
Information important
for you to know |
|
Transfer shares to
another securities
dealer |
|
Transfer to a
participating
securities dealer |
|
You may transfer your
Fund shares to another securities dealer if
authorized dealer agreements are in place between the
Distributor and
the transferring securities dealer and the Distributor and the
receiving
securities dealer. Certain shareholder services may not be
available for
all transferred shares. All future trading of these shares must
be
coordinated by the receiving securities dealer. |
|
|
|
Transfer to a
non-participating
securities dealer |
|
You must either:
Transfer your shares to an
account with the Transfer Agent; or
Sell your shares, paying any
applicable Deferred Sales Charge. |
|
Sell your
shares |
|
Have your financial
consultant
or securities dealer submit your
sales order |
|
The price of your
shares is based on the next calculation of net asset
value after your order is placed. For your redemption request to
be
priced at the net asset value on the day of your request, you
must
submit your request to your dealer prior to the 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. |
|
|
|
|
|
Certain securities
dealers may charge a fee to process a sale of shares.
For example, the fee charged by Merrill Lynch, Pierce, Fenner
& Smith
Incorporated is currently $5.35. The fees charged by other
securities
dealers may be higher or lower. |
|
|
|
|
|
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 generally will 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. 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 usually will not exceed ten
days. |
|
MERCURY GROWTH OPPORTUNITY FUND
[GRAPHIC] Account Choices
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 generally
arrange through your selected dealer for systematic
sales of shares 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 financial consultant for
details. |
|
Exchange your
shares |
|
Select the fund into
which you
want to exchange. Be sure to
read that funds prospectus |
|
You can exchange your
Fund shares for shares of other Mercury mutual
funds or for shares of the Summit Cash Reserves Fund. 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 Mercury fund. If you own Class I shares
and wish
to exchange into a fund in which you have no Class I shares (and
you
are not eligible to buy Class I shares), you will exchange into
Class A
shares. If you own Class I or Class A shares and wish to
exchange into
Summit, you will exchange into Class A shares of Summit. Class B
or
Class C shares can be exchanged for Class B shares of
Summit. |
|
|
|
|
|
Some of the Mercury
mutual funds may impose a different initial or
deferred sales charge schedule. If you exchange Class I or Class
A
shares for shares of a fund with a higher initial sales charge
than you
originally paid, you may be charged the difference at the time of
exchange. If you exchange Class B or Class C 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 Class C shares
in both
funds will count when determining your holding period for
calculating a
deferred sales charge at redemption. Your time in both funds
will also
count when determining the holding period for a conversion from
Class
B to Class A shares. |
|
|
|
|
|
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. |
|
MERCURY GROWTH OPPORTUNITY FUND
[GRAPHIC] Account Choices
Net Asset Value the
market value in U.S. dollars of the Funds 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 as of
the close of business on the Exchange based on prices at the
time of closing. The Exchange generally closes at 4:00 p.m.
Eastern time. The net asset value used in determining your price
is the next one calculated after your purchase or redemption
order is placed. Foreign securities owned by the Funds may trade
on weekends or other days when the Fund does not price its
shares. As a result, the Funds net asset value may change
on days when you will not be able to purchase or redeem Fund
shares.
Generally, Class I shares will have the highest
net asset value because that class has the lowest expenses, and
Class A shares will have a higher net asset value than Class B
or Class C shares. Also, dividends paid on Class I and Class A
shares will generally be higher than dividends paid on Class B
and Class C shares because Class I and Class A shares have lower
expenses.
MERCURY GROWTH OPPORTUNITY FUND
[GRAPHIC] Account Choices
Dividends ordinary income
and capital gains paid to shareholders. Dividends may be
reinvested in additional Fund shares as they are
paid
If you participate in certain fee-based programs
offered by the Investment Adviser or an affiliate of the
Investment Adviser, or by selected dealers that have an
agreement with the Distributor, you may be able to buy Class I
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
the Funds shares or into the Summit 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 A shares may be modified. Any redemption or exchange will
be at net asset value. However, if you participate in the
program for less than a specified period, you may be charged a
fee in accordance with the terms of the program.
Details about these features and the relevant
charges are included in the client agreement for each fee-based
program and are available from your financial consultant or your
selected dealer.
The Fund will distribute at least annually any
net investment income and any net realized long or short-term
capital gains. The Fund may also pay a special distribution at
the end of the calendar year to comply with Federal tax
requirements. Dividends may be reinvested
automatically in shares of the Fund at net asset value without a
sales charge or may be taken in cash. If your account is with a
securities dealer that has an agreement with the Fund, contact
your financial consultant about which option you would like. 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
Funds ordinary income dividends (which include
distributions of net short-term capital gains) will generally be
subject to a 30% U.S. withholding tax, unless a lower treaty
rate applies.
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 redemption 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.
MERCURY GROWTH OPPORTUNITY FUND
[GRAPHIC] The Management Team
Fund Asset Management, the Funds Investment
Adviser, manages the Funds investments under the overall
supervision of the Funds Board of Directors. The
Investment Adviser has the responsibility for making all
investment decisions for the Fund. The Investment Adviser has a
sub-advisory agreement with Merrill Lynch Asset Management U.K.
Limited, an affiliate, under which the Investment Adviser may
pay a fee for services it receives. The Fund pays the Investment
Adviser a fee at the annual rate of 0.65% of the average daily
net assets of the Fund.
Fund Asset Management was organized as an
investment adviser in 1977 and offers investment advisory
services to more than 50 registered investment companies.
Merrill Lynch Asset Management U.K. Limited was organized as an
investment adviser in 1986 and acts as sub-adviser to more than
50 registered investment companies. Fund Asset Management is
part of the Asset Management Group of ML & Co., which had
approximately $
billion in investment company and other portfolio assets under
management as of January 2000. This amount includes assets
managed for affiliates of the Investment Adviser.
A Note About Year 2000
As the year 2000 began, there were few problems
caused by the inability of certain computer systems to tell the
difference between the year 2000 and the year 1900 (commonly
known as the Year 2000 Problem). It is still
possible that some computer systems could malfunction in the
future because of the Year 2000 Problem or as a result of
actions taken to address the Year 2000 Problem. Fund management
does not anticipate that its services or those of the Fund
s other service providers will be adversely affected, but
Fund management will continue to monitor the situation. If
malfunctions related to the Year 2000 Problem do arise, the Fund
and its investments could be negatively affected.
MERCURY GROWTH OPPORTUNITY FUND
[GRAPHIC] The Management Team
|
|
Class
A(1)
|
|
Class
D(2)
|
Increase
(Decrease) in |
|
For
the Year Ended January
31,
|
|
For
the Year Ended January
31,
|
Net Asset
Value |
|
2000 |
|
1999 |
|
1998 |
|
2000 |
|
1999 |
|
1998 |
|
Per Share
Operating Performance |
|
Net asset
value, beginning of period |
|
|
|
$13.42 |
|
|
$11.79 |
|
|
|
|
$13.42 |
|
|
$11.78 |
|
|
Investment
income (loss) net |
|
|
|
(.06 |
) |
|
(.07 |
) |
|
|
|
(.10 |
) |
|
(.11 |
) |
|
Realized and
unrealized gain on investments net |
|
|
|
5.63 |
|
|
2.83 |
|
|
|
|
5.62 |
|
|
2.84 |
|
|
Total from
investment operations |
|
|
|
5.57 |
|
|
2.76 |
|
|
|
|
5.52 |
|
|
2.73 |
|
|
Less
distributions from realized gain on investments
net |
|
|
|
(.46 |
) |
|
(1.13 |
) |
|
|
|
(.43 |
) |
|
(1.09 |
) |
|
Net asset
value, end of period |
|
|
|
$18.53 |
|
|
$13.42 |
|
|
|
|
$18.51 |
|
|
$13.42 |
|
|
Total Investment
Return:** |
|
Based on net
asset value per share |
|
|
|
42.02 |
% |
|
23.52 |
% |
|
|
|
41.59 |
% |
|
23.30 |
% |
|
Ratios to Average
Net Assets: |
|
Expenses, net
of reimbursement |
|
|
|
1.56 |
% |
|
1.98 |
% |
|
|
|
1.80 |
% |
|
2.23 |
% |
|
Expenses |
|
|
|
1.56 |
% |
|
1.98 |
% |
|
|
|
1.80 |
% |
|
2.23 |
% |
|
Investment
income (loss) net |
|
|
|
(.39 |
)% |
|
(.55 |
)% |
|
|
|
(.64 |
)% |
|
(.80 |
)% |
|
Supplemental
Date: |
|
Net assets,
end of period (in thousands) |
|
|
|
$
582 |
|
|
$
207 |
|
|
|
|
$3,700 |
|
|
$1,612 |
|
|
Portfolio
turnover |
|
|
|
40.59 |
% |
|
60.24 |
% |
|
|
|
40.59 |
% |
|
60.24 |
% |
|
(1)
|
As of
, 2000,
Class A shares were redesignated Class I
shares.
|
(2)
|
As of
, 2000,
Class D shares were redesignated Class A
shares.
|
**
|
Total investment returns exclude the
effects of sales loads.
|
|
Commencement of
operations.
|
|
Based on average shares
outstanding.
|
#
|
Aggregate total investment
return.
|
MERCURY GROWTH OPPORTUNITY FUND
[GRAPHIC] The Management Team
FINANCIAL HIGHLIGHTS (CONCLUDED)
|
|
Class
B
|
|
Class
C
|
Increase (Decrease)
in |
|
For
the Year Ended January
31,
|
|
For
the Year Ended January
31,
|
Net Asset
Value |
|
2000 |
|
1999 |
|
1998 |
|
2000 |
|
1999 |
|
1998 |
|
Per Share
Operating Performance |
|
Net asset
value, beginning of period |
|
|
|
$
13.27 |
|
|
$
11.68 |
|
|
|
|
$
13.26 |
|
|
$11.78 |
|
|
Investment
income (loss) net |
|
|
|
(.23 |
) |
|
(.22 |
) |
|
|
|
(.24 |
) |
|
(.11 |
) |
|
Realized and
unrealized gain on investments net |
|
|
|
5.54 |
|
|
2.80 |
|
|
|
|
5.55 |
|
|
2.84 |
|
|
Total from
investment operations |
|
|
|
5.31 |
|
|
2.58 |
|
|
|
|
5.31 |
|
|
2.73 |
|
|
Less
distributions from realized gain on investments
net |
|
|
|
(.32 |
) |
|
(.99 |
) |
|
|
|
(.33 |
) |
|
(1.09 |
) |
|
Net asset
value, end of period |
|
|
|
$
18.26 |
|
|
$
13.27 |
|
|
|
|
$
18.24 |
|
|
$13.42 |
|
|
Total Investment
Return:** |
|
Based on net
asset value per share |
|
|
|
40.41 |
% |
|
22.16 |
% |
|
|
|
40.39 |
% |
|
23.30 |
% |
|
Ratios to Average
Net Assets: |
|
Expenses, net
of reimbursement |
|
|
|
2.66 |
% |
|
3.09 |
% |
|
|
|
2.71 |
% |
|
2.23 |
% |
|
Expenses |
|
|
|
2.66 |
% |
|
3.09 |
% |
|
|
|
2.71 |
% |
|
2.23 |
% |
|
Investment
income (loss) net |
|
|
|
(1.50 |
)% |
|
(1.66 |
)% |
|
|
|
(1.55 |
)% |
|
(.80 |
)% |
|
Supplemental
Date: |
|
Net assets,
end of period (in thousands) |
|
|
|
$69,601 |
|
|
$25,752 |
|
|
|
|
$40,710 |
|
|
$1,612 |
|
|
Portfolio
turnover |
|
|
|
40.59 |
% |
|
60.24 |
% |
|
|
|
40.59 |
% |
|
60.24 |
% |
|
**
|
Total investment returns exclude the
effects of sales loads.
|
|
Commencement of
operations.
|
|
Based on average shares
outstanding.
|
#
|
Aggregate total investment
return.
|
MERCURY GROWTH OPPORTUNITY FUND
Fund
Mercury Growth Opportunity Fund
P.O. Box 9011
Princeton, New Jersey 08543-9011
(888-763-2260)
Investment Adviser
Administrative Offices:
Fund Asset Management, L.P.
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9011
Princeton, New Jersey 08543-9011
Sub-Adviser
Merrill Lynch Asset Management U.K.
Limited
33 King William Street
London, EC 4R9AS
England
Transfer Agent
Financial Data Services, Inc.
P.O. Box 44062
Jacksonville, Florida 32232-4062
(888-763-2260)
Independent Auditors
Deloitte & Touche LLP
Princeton Forrestal Village
116-300 Village Boulevard
Princeton, New Jersey 08540-6400
Distributor
Mercury Funds Distributor,
a division of Princeton Funds Distributor,
Inc.
P.O. Box 9081
Princeton, New Jersey 08543-9081
Custodian
The Bank of New York
100 Church Street
New York, New York 10286
Counsel
Brown & Wood LLP
One World Trade Center
New York, New York 10048-0557
MERCURY GROWTH OPPORTUNITY FUND
[GRAPHIC] TO LEARN MORE
Additional information about the Funds
investments will be available in the Programs annual and
semi-annual reports to shareholders. In the Programs
annual report you will find a discussion of the market
conditions and investment strategies that significantly affected
the Funds performance during its last fiscal year. You may
obtain these reports at no cost by calling
1-888-763-2260.
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 financial
consultant or write to the Transfer Agent at its mailing
address. Include your name, address, tax identification number
and brokerage or mutual fund account number. If you have any
questions, please call your financial consultant or the Transfer
Agent at 1-888-763-2260.
ADDITIONAL INFORMATION
The Funds Statement of Additional
Information contains further information about the Fund and is
incorporated by reference (legally considered to be part of this
Prospectus). You may request a free copy by writing or calling
the Fund at Financial Data Services, Inc., P.O. Box 44062,
Jacksonville, Florida 32232-4062 or by calling
1-888-763-2260.
Contact your financial consultant or the Fund at
the telephone number or address indicated above if you have any
questions.
Information about the Fund (including the
Statement of Additional Information) can be reviewed and copied
at the SECs Public Reference Room in Washington, D.C. Call
1-800-SEC-0330 for information on the operation of the public
reference room. This information is also available on the SEC
s Internet Site at http://www.sec.gov and copies may be
obtained upon payment of a duplicating fee by writing the Public
Reference Section of the SEC, Washington, D.C.
20549-6009.
You should rely only on the information contained
in this Prospectus. No one is authorized to provide you with
information that is different from the information in this
Prospectus.
Investment Company Act File #811
7177.
Code #18471-04-00
©Fund Asset Management, L.P.
Mercury Growth Opportunity
Fund
[ARTWORK TO COME]
PROSPECTUS ·
April , 2000
The information in this statement of
additional information is not complete and may be changed. This
statement of additional information is not an offer to sell
these securities in any state where the offer or sale is not
permitted.
SUBJECT TO COMPLETION
PRELIMINARY STATEMENT OF ADDITIONAL
INFORMATION
DATED FEBRUARY 1, 2000
STATEMENT OF ADDITIONAL
INFORMATION
Mercury Growth Opportunity
Fund
P.O. Box 9011, Princeton, New Jersey
08543-9011 Phone
No. (888) 763-2260
The Mercury Growth Opportunity Fund (the Fund)
is a series of The Asset Program, Inc. (the Program
), a professionally-managed open-end management investment
company organized as a Maryland corporation. The Fund seeks
growth of capital and, secondarily, income by investing in a
portfolio of equity securities placing principal emphasis on
those securities which management of the Fund believes to be
undervalued. For more information on the Funds investment
objective and policies, see Investment Objective and
Policies.
The Fund offers four classes of shares, each with a
different combination of sales charges, ongoing fees and other
features. These alternatives permit 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 is not a
prospectus and should be read in conjunction with the Prospectus
of the Funds, dated April , 2000 (the
Prospectus), which has been filed with the
Securities and Exchange Commission (the Commission)
and can be obtained, without charge, by calling the Funds at
1-888-763-2260 or your financial consultant, or by writing to
the address listed above. The Prospectus is incorporated by
reference into this Statement of Additional Information, and
this Statement of Additional Information is incorporated by
reference into the Prospectus. The Funds audited financial
statements are incorporated in this Statement of Additional
Information by reference to the Programs 1999 annual
report to shareholders. You may request a copy of the annual
report or the Prospectus at no charge by calling 1-800-456-4587
ext. 789 between 8:00 a.m. and 8 p.m. on any business
day.
Fund Asset Management
Investment Adviser
Mercury Funds Distributor
Distributor
The date of this Statement of Additional
Information is April , 2000.
TABLE OF CONTENTS
INVESTMENT OBJECTIVE AND POLICIES
The Mercury Growth Opportunity Fund seeks long term growth
of capital. The Fund will seek to achieve its investment
objective by investing in a portfolio of equity securities
placing particular emphasis on companies that have exhibited
above-average growth rates in earnings. The investment objective
of the Fund set forth in the first sentence of this paragraph is
a fundamental policy of the Fund that may not be changed without
approval of a majority of the Funds outstanding voting
securities.
The Fund will give particular emphasis to companies which
possess 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. Fund management 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 emphasis will be on equities, primarily common
stocks and, to a lesser extent, securities convertible into
common stocks. The Fund also may invest in nonconvertible
preferred stocks and debt securities during temporary periods as
market or economic conditions may warrant. Up to 5% of the Fund
s total assets may be invested in debt securities rated
below investment grade (i.e., Ba or lower by Moodys
or BB or lower by Standard & Poors or Fitch), or which
possess, in the judgment of the Investment Adviser, similar
credit characteristics. See Debt SecuritiesCredit
Quality.
The Fund may invest up to 20% of its total assets in
equity securities of foreign issuers with the foregoing
characteristics. Except as otherwise set forth herein, there are
no prescribed limits on the geographical allocation of the Fund
s assets. (Purchases of American Depositary Receipts (
ADRs), however, will not be subject to this
restriction.) The Fund may invest in securities of foreign
issuers in the form of ADRs, European Depositary Receipts (
EDRs), Global Depositary Receipts (GDRs)
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 used 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 European securities markets. GDRs are
tradable both in the United States and Europe and are designed
for use throughout the world.
The Fund is classified as non-diversified within the
meaning of the Investment Company Act, which means that the Fund
is not limited by such Act in the proportion of its assets that
it may invest in securities of a single issuer. The Funds
investments will be limited, however, in order to qualify for
the special tax treatment afforded regulated investment
companies under the Code. See Dividends and Taxes.
To qualify, the Fund will comply with certain requirements,
including limiting its investments so that at the close of each
quarter of the taxable year (i) not more than 25% of the market
value of the Funds total assets will be invested in the
securities of a single issuer and (ii) with respect to 50% of
the market value of its total assets, not more than 5% of the
market value of its total assets will be invested in the
securities of a single issuer. A fund which elects to be
classified as diversified under the Investment
Company Act must satisfy the foregoing 5% and 10% requirements
with respect to 75% of its total assets. To the extent that the
Fund assumes large positions in the securities of a small number
of issuers, the Funds net asset value may fluctuate to a
greater extent than that of another diversified company as a
result of changes in the financial condition or in the market
s assessment of the issuers, and the Fund may be more
susceptible to any single economic, political or regulatory
occurrence than a diversified company.
For purposes of the diversification requirements set forth
above with respect to regulated investment companies, and to the
extent required by the Commission, the Fund, as a
non-fundamental policy, will consider securities issued or
guaranteed by the government of any one foreign country as the
obligations of a single issuer.
The Fund will, except during temporary periods as market
or economic conditions may warrant, maintain at least 65% of its
total assets invested in equity securities. In purchasing equity
securities for the Fund, the Investment Adviser will seek to
identify the securities of companies and industry sectors which
are expected to provide high total return relative to
alternative equity investments. The Fund generally will seek to
invest in securities the Investment Adviser believes to be
undervalued. Undervalued issues include securities selling at a
discount from the price-to-book value ratios and price-earnings
ratios computed with respect to the relevant stock market
averages. The Fund also may consider as undervalued securities
selling at a discount from their historic price-to-book value or
price-earnings ratios, even though these ratios may be above the
ratios for the stock market averages. Securities offering
dividend yields higher than the yields for the relevant stock
market averages or higher than such securities historic
yields may also be considered to be undervalued. The Fund may
also invest in the securities of small and emerging growth
companies when such companies are expected to provide a higher
total return than other equity investments. Such companies are
characterized by rapid historical growth rates, above-average
returns on equity or special investment value in terms of their
products or services, research capabilities or other unique
attributes. The Investment Adviser will seek to identify small
and emerging growth companies that possess superior management,
marketing ability, research and product development skills and
sound balance sheets.
Investment in the securities of small and emerging growth
companies involves greater risk than investment in larger, more
established companies. Such risks include the fact that
securities of small or emerging growth companies may be subject
to more abrupt or erratic market movements that larger, more
established companies or the market average in general. Also,
these companies may have limited products lines, markets or
financial resources, or they may be dependent on a limited
management group.
There may be periods when market and economic conditions
exist that favor certain types of tangible assets as compared to
other types of investments.
The Fund may invest up to 20% of its total assets in
companies located in countries other than the United States. As
a result, the Funds investments may include companies
organized, traded or having substantial operations outside the
United States. This may expose the Fund to risks associated with
foreign investments. Foreign investments involve certain risks
not typically involved in domestic investments, including
fluctuations in foreign exchange rates, future political and
economic developments, different legal systems and the existence
or possible imposition of exchange controls or other U.S. or
non-U.S. governmental laws or restrictions applicable to such
investments. Securities prices in different countries are
subject to different economic, financial and social factors.
Because the Fund may invest in securities denominated or quoted
in currencies other than the U.S. dollar, changes in foreign
currency exchange rates may affect the value of securities in
the portfolio and the unrealized appreciation or depreciation of
investments insofar as U.S. investors are concerned. Foreign
currency exchange rates are determined by forces of supply and
demand in the foreign exchange markets. These forces are, in
turn, affected by international balance of payments and other
economic and financial conditions, government intervention,
speculation and other factors. With respect to certain
countries, there may be the possibility of expropriation of
assets, confiscatory taxation, high rates of inflation,
political or social instability or diplomatic developments that
could affect investment in those countries. In addition, certain
investments may be subject to non-U.S. withholding
taxes.
European Economic and Monetary Union.
A number of European countries entered into the
European Economic and Monetary Union (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.
International Investing in Countries with Smaller Capital
Markets
The risks associated with investments in foreign
securities discussed above are often heightened for investments
in small capital markets.
There may be less publicly available information about an
issuer in a smaller capital market than would be available about
a U.S. company, and it may not be subject to accounting,
auditing and financial reporting standards and requirements
comparable to those to which U.S. companies are subject. As a
result, traditional investment measurements, such as
price-earnings ratios, as used in the United States, may not be
applicable in certain capital markets.
Smaller capital markets, while often growing in trading
volume, typically have substantially less volume than U.S.
markets, and securities in many smaller capital markets are less
liquid and their prices may be more volatile than securities of
comparable U.S. companies. Brokerage commissions, custodial
services, and other costs relating to investment in smaller
capital markets are generally more expensive than in the United
States. Such markets 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. Further, satisfactory custodial services for
investment securities may not be available in some countries
having smaller capital markets, which may result in the Fund
s incurring additional costs and delays in transporting
and custodying such securities outside such countries. Delays in
settlement problems could result in temporary periods when Fund
assets are uninvested and no return is earned thereon. The
inability 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 a portfolio
security 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. There is generally less government supervision and
regulation of exchanges, brokers and issuers in countries having
smaller capital markets than there are in the United
States.
As a result, Fund management may determine that,
notwithstanding otherwise favorable investment criteria, it may
not be practicable or appropriate to invest in a particular
country. The Fund may invest in countries in which foreign
investors, including Fund management, have had no or limited
prior experience.
The Fund may invest up to 5% of its total assets in debt
securities. Debt securities, such as bonds, involve credit risk.
This is the risk that the borrower will not make timely payments
of principal and interest. The degree of credit risk depends on
the issuers financial condition and on the terms of the
bonds. This risk is minimized to the extent the Fund limits its
debt investments to U.S. Government securities. All debt
securities, however, are subject to interest rate risk. This is
the risk that the value of the security may fall when interest
rates rise. In general, the market price of debt securities with
longer maturities will go up or down more in response to changes
in interest rates than the market price of shorter term
securities.
Portfolio Maturity. The
portion of the Fund invested in debt securities is not limited
as to the maturities of its portfolio investments. The
Investment Adviser may adjust the average maturity of the Fund
s investments from time to time, depending on its
assessment of the relative yields available on securities of
different maturities and its assessment of future interest rate
patterns. Thus, at various times the average maturity of the
Fund may be relatively short (from under one year to five years,
for example) and at other times may be relatively long (over 10
years, for example).
Credit Quality. The Fund is
authorized to invest up to 5% of its total assets in fixed
income securities rated below Ba by Moodys or BB by
Standard & Poors or Fitch or in unrated securities
which, in the Investment Advisers judgment, possess
similar credit characteristics (high yield bonds).
Investment in high yield bonds (which are sometimes referred to
as junk bonds) involves substantial risk.
Investments in high yield bonds will be made only when, in the
judgment of the Investment Adviser, such securities provide
attractive total return
potential, relative to the risk of such securities, as compared to
higher quality debt securities. Securities rated BB or lower by
Standard & Poors or Fitch or Ba or lower by Moody
s are considered by those rating agencies to have varying
degrees of speculative characteristics. Consequently, although
high yield bonds can be expected to provide higher yields, such
securities may be subject to greater market price fluctuations
and risk of loss of principal than lower yielding, higher rated
fixed income securities. The Fund will not invest in debt
securities in the lowest rating categories (CC or lower for
Standard & Poors or Fitch or Ca or lower for Moody
s) unless the Investment Adviser believes that the
financial condition of the issuer or the protection afforded the
particular securities is stronger than would otherwise be
indicated by such low ratings. See AppendixLong Term
and Short Term Obligation Ratings for additional
information regarding high yield bonds.
High yield bonds may be issued by less creditworthy
companies or by larger, highly leveraged companies and are
frequently issued in corporate restructurings such as mergers
and leveraged buyouts. Such securities are particularly
vulnerable to adverse changes in the issuers industry and
in general economic conditions. High yield bonds frequently are
junior obligations of their issuers, so that in the event of the
issuers bankruptcy, claims of the holders of high yield
bonds will be satisfied only after satisfaction of the claims of
senior security holders. While the high yield bonds in which the
portfolios may invest normally do not include securities which,
at the time of investment, are in default or the issuers of
which are in bankruptcy, there can be no assurance that such
events will not occur after the Fund purchases a particular
security, in which case the Fund may experience losses and incur
costs.
High yield bonds tend to be more volatile than higher
rated fixed income securities so that adverse economic events
may have a greater impact on the prices of high yield bonds than
on higher rated fixed income securities. Like higher rated fixed
income securities, high yield bonds are generally purchased and
sold through dealers who make a market in such securities for
their own accounts. However, there are fewer dealers in the high
yield bond market which may be less liquid than the market for
higher rated fixed income securities even under normal economic
conditions. Also, there may be significant disparities in the
prices quoted for high yield bonds by various dealers. Adverse
economic conditions or investor perceptions (whether or not
based on economic fundamentals) may impair the liquidity of this
market and may cause the prices the Fund receives for its high
yield bonds to be reduced, or the Fund may experience difficulty
in liquidating a portion of its portfolio. Under such
conditions, judgment may play a greater role in valuing certain
of the Funds securities than in the case of securities
trading in a more liquid market.
Investments in Securities Denominated in Foreign
Currencies
The Fund may invest in securities denominated in
currencies other than the U.S. dollar. In selecting securities
denominated in foreign currencies, the Investment Adviser will
consider, among other factors, the effect of movement in
currency exchange rates on the U.S. dollar value of such
securities. An increase in the value of a currency will increase
the total return to the Fund of securities denominated in such
currency. Conversely, a decline in the value of the currency
will reduce the total return. The Investment Adviser may seek to
hedge all or a portion of the Funds foreign securities
through the use of forward foreign currency contracts, currency
options, futures contracts and options thereon or derivative
securities. See Indexed and Inverse Securities, and
Options and Futures Transactions
below.
The Fund is authorized to invest in fixed income
securities. To the extent the Fund invests in fixed income
securities, the net asset value of its shares will be affected
by changes in the general level of interest rates. Typically,
when interest rates decline, the value of a portfolio of fixed
income securities can be expected to rise. Conversely, when
interest rates rise typically the value of a portfolio of fixed
income securities can be expected to decline.
For temporary or defensive purposes or in anticipation of
redemptions, the Fund is authorized to invest up to 100% of its
assets in money market instruments (short term, high quality
debt instruments), including obligations
of or guaranteed by the U.S. Government or its instrumentalities
or agencies, certificates of deposit, bankers acceptances
and other bank obligations, commercial paper rated in the
highest category by a nationally recognized rating agency or
other fixed income securities deemed by the Investment Adviser
to be consistent with the objectives of the Fund, or the Fund
may hold its assets in cash. The obligations of commercial banks
may be issued by U.S. banks, foreign branches of U.S. banks (
Eurodollar obligations) or U.S. branches of foreign
banks (Yankeedollar obligations). Except during
extraordinary periods, the Fund would not expect that such
securities or cash held for redemptions would exceed 20% of its
total assets.
The Fund may borrow up to 33
1
/3% of its total assets, taken at
market value, but only from banks as a temporary measure for
extraordinary or emergency purposes, including to meet
redemptions or to settle securities transactions. The Fund will
not purchase securities at any time when borrowings exceed 5% of
its total assets, except (a) to honor prior commitments or (b)
to exercise subscription rights when outstanding borrowings have
been obtained exclusively for settlements of other securities
transactions. The purchase of securities while borrowings are
outstanding will have the effect of leveraging the Fund. Such
leveraging increases the Funds exposure to capital risk,
and borrowed funds are subject to interest costs that will
reduce net income. The use of leverage by the Fund creates an
opportunity for greater total return, but, at the same time,
creates special risks. For example, leveraging may exaggerate
changes in the net asset value of Fund shares and in the yield
on the Funds portfolio. Although the principal of such
borrowings will be fixed, the Funds assets may change in
value during the time the borrowings are outstanding. Borrowings
will create interest expenses for the Fund which can exceed the
income from the assets purchased with the borrowings. To the
extent the income or capital appreciation derived from
securities purchased with borrowed funds exceeds the interest
the Fund will have to pay on the borrowings, the Funds
return will be greater than if leverage had not been used.
Conversely, if the income or capital appreciation from the
securities purchased with such borrowed funds is not sufficient
to cover the cost of borrowing, the return to the Fund will be
less than if leverage had not been used, and therefore the
amount available for distribution to shareholders as dividends
will be reduced. In the latter case, the Investment Adviser in
its best judgment nevertheless may determine to maintain the Fund
s leveraged position if it expects that the benefits to
the Funds shareholders of maintaining the leveraged
position will outweigh the current reduced return.
Certain types of borrowings by the Fund may result in the
Fund being subject to covenants in credit agreements relating to
asset coverage, portfolio composition requirements and other
matters. It is not anticipated that observance of such covenants
would impede the Investment Adviser from managing the Fund
s portfolio in accordance with the Funds investment
objectives and policies. However, a breach of any such covenants
not cured within the specified cure period may result in
acceleration of outstanding indebtedness and require the Fund to
dispose of portfolio investments at a time when it may be
disadvantageous to do so.
The Fund at times may borrow from affiliates of the
Investment Adviser, provided that the terms of such borrowings
are no less favorable than those available from comparable
sources of funds in the marketplace.
The Fund may use instruments referred to as
Derivatives. Derivatives are financial instruments
the value of which is derived from another security, a commodity
(such as gold or oil) or an index (a measure of value or rates,
such as the S&P 500 or the prime lending rate). Derivatives
allow the Fund to increase or decrease the level of risk to
which the Fund is exposed more quickly and efficiently than
transactions in other types of instruments.
Hedging. The Fund may use
Derivatives for hedging purposes. Hedging is a strategy in which
a Derivative is used to offset the risk that other Fund holdings
may decrease in value. Losses on the other investment may be
substantially reduced by gains on a Derivative that reacts in an
opposite manner to market movements. While hedging can reduce
losses, it can also reduce or eliminate gains if the market
moves in a different manner than anticipated by the fund
investing in the Derivative or if the cost of the Derivative
outweighs the benefit of the hedge. Hedging also involves the
risk that changes in the value of the Derivative will not match
those of the holdings being hedged as expected by the Fund, in
which case any losses on the holdings being hedged may not be
reduced. The Fund is not required to use hedging and may choose
not to do so.
The Fund may use the following types of derivative
investments and trading strategies:
Indexed and Inverse Securities
The Fund may invest in securities the potential return of
which is based on an index. As an illustration, the Fund may
invest in a debt security that pays interest based on the
current value of an interest rate index, such as the prime rate.
The Fund may also invest in a debt security which returns
principal at maturity based on the level of a securities index
or a basket of securities, or based on the relative changes of
two indices. In addition, the Fund may invest in securities the
potential return of which is based inversely on the change in an
index (that is, a security the value of which will move in the
opposite direction of changes to an index). For example, the
Fund may invest in securities that pay a higher rate of interest
when a particular index decreases and pay a lower rate of
interest (or do not fully return principal) when the value of
the index increases. If the Fund invests in such securities, it
may be subject to reduced or eliminated interest payments or
loss of principal in the event of an adverse movement in the
relevant index or indices. Indexed and inverse securities
involve credit risk, and certain indexed and inverse securities
may involve leverage risk, liquidity risk, and currency risk.
The Fund may invest in indexed and inverse securities for
hedging purposes only. When used for hedging purposes, indexed
and inverse securities involve correlation risk.
Options and Futures
Transactions
The Fund may engage in various portfolio strategies to
seek to increase its return through the use of listed or
over-the-counter (OTC) options on its portfolio
securities and to hedge its portfolio against adverse movements
in the markets in which it invests. The Fund is authorized to
write (i.e., sell) covered put and call options on its
portfolio securities or securities in which it anticipates
investing and purchase put and call options on securities. In
addition, the Fund may engage in transactions in stock index
options, stock index futures and related options on such futures
and may deal in forward foreign exchange transactions and
foreign currency options and futures and related options on such
futures. The Fund may engage in transactions in interest rate
futures and related options on such futures. Each of these
portfolio strategies is described in more detail below. Although
certain risks are involved in options and futures transactions,
the Investment Adviser believes that, because the Fund will (i)
write only covered options on portfolio securities or securities
in which they anticipate investing and (ii) engage in other
options and futures transactions only for hedging purposes, the
options and portfolio strategies of the Fund will not subject it
to the risks frequently associated with the speculative use of
options and futures transactions. While the Funds use of
hedging strategies is intended to reduce the volatility of the
net asset value of its shares, its net asset value will
fluctuate. There can be no assurance that the Funds
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 when movements
in the equity or debt markets, interest rates or currency
exchange rates occur.
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 a 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
reasons 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, a Fund gives up the opportunity, while the option is in
effect, to profit from any price increase in the underlying
security above the option exercise 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 Funds 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 partial hedge against the price of the underlying
security declining. The Fund may not write covered options on
underlying securities exceeding 15% of its total
assets.
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 Funds
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 or equity 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 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.
Purchasing Options. The Fund
is authorized to purchase put options to hedge against a decline
in the market value of its securities. By buying a put option,
the Fund has a right to sell the underlying security at the
exercise price, thus limiting the Funds 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 partially offset 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, and 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 costs. A closing sale transaction cancels out the
Funds 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 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 Funds total
assets.
Stock Index Options. The
Fund is authorized to engage in transactions in stock index
options. The Fund may purchase or write put and call options on
stock indexes to hedge against the risks of market-wide stock
price movements in the securities in which the Fund invests.
Options on indexes are similar to options on securities, except
that on exercise or assignment, the parties to the contract pay
or receive an amount of cash equal to the difference between the
closing value of the index and the exercise price of the option
times a specified multiple. The Fund may invest in stock index
options based on a broad market index, e.g., the Standard
& Poors Composite 500 Index, or on a narrow index
representing an industry or market segment, e.g., the
AMEX Oil & Gas Index.
Stock Index Futures and Interest Futures Contracts.
The Fund may purchase and sell stock
index futures contracts and the interest rate futures contracts,
as a hedge against adverse changes in the market value of
portfolio securities, as described below. Stock index futures
contracts and interest rate futures contracts are herein
together referred to as futures contracts.
A
futures contract is an agreement between two parties which
obligates the purchaser of the futures contract to buy and the
seller of a futures contract to sell a financial instrument for
a set price on a future date. The terms of a futures contract
require either actual delivery of the financial instrument
underlying the contract or, in the case of a stock index futures
contract, a cash settlement based upon the difference in value
of the index between the time the contract was entered into and
the time of its settlement. The Fund may effect transactions in
stock index futures contracts in connection with the equity
securities it invests; the Fund may invest in interest rate
futures contracts in connection with the debt securities in
which it invests. Transactions by the Fund in futures contracts
are subject to limitations as described below under
Restrictions on the Use of Futures Transactions.
The Fund may sell futures contracts in anticipation of or
during a market decline to attempt to offset the decrease in
market value of its securities that might otherwise result. When
the Fund is not fully invested in the securities markets and
anticipates a significant advance, it may purchase futures in
order to gain rapid market exposure. This technique generally
will allow the Fund to gain exposure to a market in a manner
which is more efficient than purchasing individual securities
and may in part or entirely offset increases in the cost of
securities in such market that the Fund ultimately purchases. As
such purchases are made, an equivalent amount of futures
contracts will be terminated by offsetting sales. The Program
does not consider purchases of futures contracts by the Fund to
be a speculative practice under these circumstances. It is
anticipated that, in a substantial majority of these
transactions, the Fund will purchase such securities upon
termination of the long futures position, whether the long
position is the purchase of a futures contract or the purchase
of a call option or the writing of a put option on a future, but
under unusual circumstances (e.g., the Fund experiences a
significant amount of redemptions), a long futures position may
be terminated without the corresponding purchase of
securities.
The Fund also has authority to purchase and write call and
put options on futures contracts and in connection with its
hedging (including anticipatory hedging) activities. Generally,
these strategies are utilized under the same market and market
sector conditions (i.e., conditions relating to specific
types of investments) in which the Fund enters into futures
transactions. The Fund may purchase put options or write call
options on futures contracts or stock indexes rather than
selling the underlying futures contract in anticipation of a
decrease in the market value of its securities. Similarly, the
Fund may purchase call options, or write put options on futures
contracts or stock indexes, as a substitute for the purchase of
such futures contract to hedge against the increased cost
resulting from an increase in the market value of securities
which the Fund intends to purchase.
The Fund may engage in options and futures transactions on
U.S. and foreign exchanges and in the over-the-counter markets (
OTC options). In general, exchange-traded contracts
are third-party contracts (i.e., performance of the
parties obligations is guaranteed by an exchange or
clearing corporation) with standardized strike prices and
expiration dates. OTC options are two-party contracts with
prices and terms negotiated by the buyer and seller. See
Restrictions on OTC Options below for information as
to restrictions on the use of OTC options.
Foreign Currency Hedging.
The Fund is authorized to deal in forward foreign exchange
among currencies of the different countries in which it will
invest and multinational currency units as a hedge against
possible variations in the foreign exchange rates among these
currencies. Foreign currency hedging is accomplished through
contractual agreements to purchase or sell a specified currency
at a specified future date (up to one year) and price set at the
time of the contract. The Funds dealings in forward
foreign exchange will be limited to hedging involving either
specific transactions or portfolio positions.
Transaction hedging is the purchase or sale of forward
foreign currency with respect to specific receivables or
payables of the Fund accruing in connection with the purchase
and sale of its portfolio securities, the sale and redemption of
shares of the Fund or the payment of dividends by the Fund.
Position hedging is the sale of forward foreign currency with
respect to portfolio security positions denominated or quoted in
such foreign currency. The Fund will not speculate in forward
foreign exchange.
Hedging against a decline in the value of a currency does
not eliminate fluctuations in the prices of portfolio securities
or prevent losses if the prices of such securities decline. Such
transactions also preclude the opportunity for gain if the value
of the hedged currency should rise. Moreover, it may not be
possible for a Portfolio to hedge against a devaluation that is
so generally anticipated that the Portfolio is not able to
contract to sell the currency at a price above the devaluation
level it anticipates.
The Fund also is authorized to purchase or sell listed or
OTC foreign currency options, foreign currency futures and
related options on foreign currency futures as a short or long
hedge against possible variations in foreign exchange rates.
Such transactions may be effected with respect to hedges on
non-U.S. dollar denominated securities owned by the Fund sold by
the Fund but not yet delivered, or committed or anticipated to
be purchased by the Fund. As an illustration, the Fund may use
such techniques to hedge the stated value in U.S. dollars of an
investment in a yen denominated security. In such circumstances,
for example, the Fund may purchase a foreign currency put option
enabling it to sell a specified amount of yen for dollars at a
specified price by a future date. To the extent the hedge is
successful, a loss in the value of the yen relative to the
dollar will tend to be offset by an increase in the value of the
put option. To offset, in whole or in part, the cost of
acquiring such a put option, the Fund may also sell a call
option which, if exercised, requires it to sell a specified
amount of yen for dollars at a specified price by a future date
(a technique called a straddle). By selling such a
call option in this illustration, the Fund gives up the
opportunity to profit without limit from increases in the
relative value of the yen to the dollar. The Investment Adviser
believes that straddles of the type which may be
utilized by the Fund constitute hedging transactions and are
consistent with the policies described above.
Certain differences exist between these foreign currency
hedging instruments. Foreign currency options provide the holder
thereof the right to buy or sell a currency at a fixed price on
a future date. A futures contract on a foreign currency is an
agreement between two parties to buy and sell a specified amount
of a currency for a set price on a future date. Futures
contracts and options on futures contracts are traded on boards
of trade or futures exchanges. The Fund will not speculate in
foreign currency options, futures or related options.
Accordingly, the
Fund will not hedge a currency substantially in excess of the
market value of securities which it has committed or anticipates
to purchase which are denominated in such currency and, in the
case of securities which have been sold by the Fund but not yet
delivered, the proceeds thereof in its denominated currency. The
Fund is limited regarding potential net liabilities from foreign
currency options, futures or related options to no more than 20%
of its total assets.
Restrictions on the Use of Futures Transactions.
Regulations of the Commodity Futures Trading
Commission (the CFTC) applicable to the Fund provide
that the futures trading activities described herein will not
result in the Fund being deemed a commodity pool as
defined under such regulations if the Fund adheres to certain
restrictions. In particular, the Fund may purchase and sell
futures contracts and options thereon (i) for bona fide
hedging purposes and (ii) for non-hedging purposes, if the
aggregate initial margin and premiums required to establish
positions in such contracts and options does not exceed 5% of
the liquidation value of the Funds holdings, after taking
into account unrealized profits and unrealized losses on any
such contracts and options. Margin deposits may consist of cash
or securities acceptable to the broker and the relevant contract
market.
When the Fund purchases a futures contract, or writes a
put option or purchases a call option thereon, an amount of cash
and cash equivalents will be deposited in a segregated account
in the name of the Fund with the Funds custodian so that
the amount so segregated, plus the amount of initial and
variation margin held in the account of its broker, equals the
market value of the futures contract, thereby ensuring that the
use of such futures contract is unleveraged.
Restrictions on OTC Options.
The Fund may engage in OTC options, including OTC stock
index options, OTC foreign currency options and options on
foreign currency futures, only with such banks or dealers which
have capital of at least $50 million or whose obligations are
guaranteed by an entity having capital of at least $50
million.
The staff of the SEC 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 (including OTC options on futures contracts) if, as
a result of such transaction, 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 Funds existing OTC options on
futures contracts exceed 15% (10% to the extent required by
certain state laws) of the total 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 the 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 security minus the options 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 Directors of the Fund without the approval of its
shareholders. However, the Fund will not change or modify this
policy prior to the change or modification by the SEC staff of
its position.
Risk Factors in Options and Futures Transactions.
Utilization of options and futures
transactions to hedge the Fund involves the risk of imperfect
correlation in movements in the price of options and futures and
movements in the price of the securities or currencies which are
the subject of the hedge. If the price of the options or futures
moves more or less than the price of the hedged securities or
currencies, the Fund will experience a gain or loss which will
not be completely offset by movements in the price of the
subject of the hedge. The successful use of options and futures
also depends on the Investment Advisers ability to
correctly predict price movements in the market involved in a
particular options or futures transaction. To compensate for
imperfect correlations, the Fund may purchase or sell index
options or futures contracts in a greater dollar amount than the
hedged securities if the volatility of the hedged securities is
historically greater than the volatility of the stock index
options or futures contracts. Conversely, the Fund may purchase
or sell fewer stock index options or futures
contracts if the volatility of the price of the hedged securities
is historically less than that of the stock index options or
futures contracts. The risk of imperfect correlation generally
tends to diminish as the maturity date of the stock index option
or futures contract approaches.
The Fund intends to enter into options and futures
transactions, on an exchange or in the over-the-counter market,
only if there appears to be a liquid secondary market for such
options or futures or, in the case of over-the-counter
transactions, the Investment Adviser believes the Fund can
receive in each business day at least two independent bids or
offers. However, there can be no assurance that a liquid
secondary market will exist at any specific time. Thus, it may
be possible to close an options or futures position. The
inability to close options and futures positions also could have
an adverse impact on the Funds ability to hedge
effectively its portfolio. There is also a risk of loss by the
Fund of margin deposits or collateral in the event of bankruptcy
of a broker with whom the Fund has an open position in an
option, a futures contract or a related option.
The exchanges on which the Fund intends to conduct options
transactions have generally 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. The
Investment Adviser does not believe that these trading and
position limits will have any adverse impact on the portfolio
strategies for hedging the Portfolios
holdings.
All options referred to herein and in the Funds
Prospectus are options issued by the Options Clearing
Corporation (the Clearing Corporation) which are
currently traded on the Chicago Board Options Exchange, American
Stock Exchange, Philadelphia Stock Exchange, Pacific Stock
Exchange or New York Stock Exchange (NYSE). An
option gives the purchaser of the option the right to buy, and
obligates the writer (seller) to sell the underlying security at
the exercise price during the option period. The option period
normally ranges from three to nine months from the date the
option is written. For writing an option, the Program receives a
premium, which is the price of such option on the exchange on
which it is traded. The exercise price of the option may be
below, equal to, or above the current market value of the
underlying security at the time the option is
written.
The writer may terminate its obligation prior to the
expiration date of the option by executing a closing purchase
transaction which is effected by purchasing on an exchange an
option of the same series (i.e., same underlying
security, exercise price and expiration date) as the option
previously written. Such a purchase does not result in the
ownership of an option. A closing purchase transaction
ordinarily will be effected to realize a profit on an
outstanding call option, to prevent an underlying security from
being called, to permit the sale of the underlying security or
to permit the writing of a new call option containing different
terms on such underlying security. The cost of such a
liquidation purchase plus transaction costs may be greater than
the premium received upon the original option, in which event
the Fund will have incurred a loss in the transaction. An option
may be closed out only on an exchange which provides a secondary
market for an option of the same series and there is no
assurance that a liquid secondary market on an exchange will
exist for any particular option. A covered option writer unable
to effect a closing purchase transaction will not be able to
sell the underlying security until the option expires or the
underlying security is delivered upon exercise, with the result
that the writer will be subject to the risk of market decline in
the underlying security during such period. The Fund will write
an option on a particular security only if management believes
that a liquid secondary market will exist on an exchange for
options of the same series which will permit the Fund to make a
closing purchase transaction in order to close out its
position.
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 Investment
Adviser 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 Investment
Adviser will consider both the yield on the convertible security
and the potential capital appreciation that is offered by the
underlying common stock.
Convertible securities are issued and traded in a number
of securities markets. 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 Investment Adviser 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 (convertibility 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, 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.
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.
Other Investment Policies and Practices
When Issued and Delayed Delivery Securities and Forward
Commitments. The Fund may purchase or
sell securities that it is entitled to receive on a when issued
or delayed delivery basis. The Fund may also purchase or sell
securities through a forward commitment. These transactions
involve the purchase or sale of securities by the Fund at an
established price with payment and delivery taking place in the
future. The Fund enters into these transactions to obtain what
is considered an advantageous price to the Fund at the time of
entering into the transaction. The Fund has not established any
limit on the percentage of their assets that may be committed in
connection with these transactions. When the Fund is purchasing
securities in these transactions, it maintains a segregated
account with its custodian of cash, cash equivalents, U.S.
Government securities or other liquid securities in an amount
equal to the amount of its purchase commitments.
There can be no assurance that a security purchased on a
when-issued basis will be issued, or a security purchased or
sold through a forward commitment will be delivered. The value
of securities in these transactions on the delivery date may be
more or less than the Funds purchase price. The Fund may
bear the risk of a decline in the value of the security in these
transactions and may not benefit from an appreciation in the
value of the security during the commitment period.
Standby Commitment Agreements.
The Fund may enter into standby commitment agreements.
These agreements commit the Fund, for a stated period of time,
to purchase a stated amount of securities which may be issued
and sold to that Fund at the option of the issuer. The price of
the security is fixed at the time of the commitment. At the time
of entering into the agreement the Fund is paid a commitment
fee, regardless of whether or not the security is ultimately
issued. The Fund will enter into such agreements for the purpose
of investing in the security underlying the commitment at a
price that it considers advantageous. The Fund will not enter
into a standby commitment with a remaining term in excess of 45
days and will limit its investment in such commitments so that
the aggregate purchase price of securities subject to such
commitments, together with the value of portfolio securities
subject to legal restrictions on resale that affect their
marketability, will not exceed 15% of its net assets taken at
the time of the commitment. The Fund will maintain a segregated
account with its custodian of cash, cash equivalents, U.S.
Government securities or other liquid securities in an aggregate
amount equal to the purchase price of the securities underlying
the commitment.
There can be no assurance that the securities subject to a
standby commitment will be issued, and the value of the
security, if issued, on the delivery date may be more or less
than its purchase price. Since the issuance of the security
underlying the commitment is at the option of the issuer, the
Fund may bear the risk of a decline in
the value of such security and may not benefit from an
appreciation in the value of the security during the commitment
period.
The purchase of a security subject to a standby commitment
agreement and the related commitment fee will be recorded on the
date on which the security can reasonably be expected to be
issued, and the value of the security thereafter will be
reflected in the calculation of the Funds net asset value.
The cost basis of the security will be adjusted by the amount of
the commitment fee. In the event the security is not issued, the
commitment fee will be recorded as income on the expiration date
of the standby commitment.
Repurchase Agreements and Purchase and Sale
Contracts. The Fund may invest in
securities pursuant to repurchase agreements or purchase and
sale contracts. Repurchase agreements and purchase and sale
contracts may be entered into only with financial institutions
which have capital of at least $50 million or whose obligations
are guaranteed by an entity having capital of at least $50
million. Under such agreements, the other party agrees, upon
entering into the contract with the Fund, to repurchase the
security at a mutually agreed upon time and price in a specified
currency, 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, although such return may
be affected by currency fluctuations. In the case of repurchase
agreements, the prices at which the trades are conducted do not
reflect accrued interest on the underlying obligation; whereas,
in the case of purchase and sale contracts, the prices take into
account accrued interest. Such agreements usually cover sort
periods, such as under one week. Repurchase agreements may be
construed to be collateralized loans by the purchaser to the
seller secured by the securities transferred to the purchaser.
In the case of a repurchase agreement, as a purchaser, the Fund
will require the seller to provide additional collateral if the
market value of the securities falls below the repurchase price
at any time during the term of the repurchase agreement; the
Fund does not have the right to seek additional collateral in
the case of purchase and sale contracts. In the event of default
by the seller under a repurchase agreement construed to be a
collateralized loan, the underlying securities are not owned by
the Fund but only constitute collateral for the sellers
obligation to pay the repurchase price. Therefore, the Fund may
suffer time delays and incur costs or possible losses in
connection with disposition of the collateral.
A
purchase and sale contract differs from a repurchase agreement
in that the contract arrangements stipulate that securities are
owned by the Fund. In the event of a default under such a
repurchase agreement or under a purchase and sale contract,
instead of the contractual fixed rate, the rate of return to the
Fund would be dependent upon intervening fluctuations of the
market values 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 not invest in repurchase
agreements or purchase and sale contracts maturing in more than
seven days if such investments, together with the Funds
other illiquid investments, would exceed 15% of the Funds
total assets.
Securities Lending. The Fund
may lend securities with a value not exceeding 33
1
/3% of its total assets. In
return, the Fund receives collateral in an amount equal to at
least 100% of the current market value of the loaned securities
in cash or securities issued or guaranteed by the U.S.
Government. This limitation is a fundamental policy and it may
not be changed without the approval of the holders of a majority
of the Funds outstanding voting securities, as defined in
the Investment Company Act of 1940. The Fund receives securities
as collateral for the loaned securities and the Fund and the
borrower negotiate a rate for the loan premium to be received by
the Fund for the loaned securities, which increases the Fund
s yield. The Fund may receive a flat fee for its loans.
The loans are terminable at any time and the borrower, after
notice, is required to return borrowed securities within five
business days. The Fund may pay reasonable finders,
administrative and custodial fees in connection with its loans.
In the event that the borrower defaults on its obligation to
return borrowed securities because of insolvency or for any
other reason, the Fund could experience delays and costs in
gaining access to the collateral and could suffer a loss to the
extent the value of the collateral falls below the market value
of the borrowed securities.
Illiquid or Restricted Securities.
The Fund may invest up to 15% of its net assets in
securities that lack an established secondary trading market or
otherwise are considered illiquid. Liquidity of a security
relates to the ability to dispose easily of the security and the
price to be obtained upon disposition of the security, which may
be less than would be obtained for a comparable more liquid
security. Illiquid securities may trade at a discount from
comparable, more liquid investments. Investment of the Fund
s assets in illiquid securities may restrict the ability
of the Fund to dispose of that investment 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 Funds 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 or 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 more
difficult to value than publicly traded securities and may be
less liquid, or illiquid, and therefore may be subject to the
risks associated with illiquid securities, as described in the
preceding paragraph. Some restricted securities, however, may be
liquid. To the extent that privately placed securities may be
resold in privately negotiated transactions, the prices realized
from the sales, due to illiquidity, could be less than those
originally paid by the Fund or less than their fair market
value. In addition, issuers whose securities are not publicly
traded may not be subject to the disclosure and other investor
protection requirements that may be applicable if their
securities were publicly traded. If any privately placed
securities held by the Fund are required to be registered under
the securities laws of one or more jurisdictions before being
resold, the Fund may be required to bear the expenses of
registration. Certain of the Funds investments in private
placements may consist of direct investments and may include
investments in smaller, less-seasoned issuers, which may involve
greater risks. These issuers may have limited product lines,
markets or financial resources, or they may be dependent on a
limited management group. In making investments in such
securities, the Fund may obtain access to material nonpublic
information which may restrict its 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 Funds Board. The Board has
adopted guidelines and delegated to the Investment Adviser the
daily function of determining and monitoring liquidity of
restricted securities. The Board, however, will retain
sufficient oversight and be ultimately responsible for the
determinations. Since it is not possible to predict with
assurance exactly how this market for restricted securities sold
and offered under Rule 144A will continue to develop, the Board
will carefully monitor the Funds investments in these
securities. This investment practice could have the effect of
increasing the level of illiquidity in the Fund to the extent
that qualified institutional buyers become for a time
uninterested in purchasing these securities.
Suitability. The economic
benefit of an investment in the Fund depends upon many factors
beyond the control of the Fund, the Investment Adviser and its
affiliates. The Fund should be considered a vehicle for
diversification and not as a balanced investment program. The
suitability for any particular investor of a purchase of shares
in the Fund will depend on, among other things, such investor
s investment objectives and such investors ability
to accept the risks associated with investing in securities,
including the risk of loss of principal.
The Fund is classified as non-diversified within the
meaning of the Investment Company Act of 1940, as amended (the
Investment Company Act), which means that the Fund
is not limited by such Act in the proportion of its assets that
it may invest in securities of a single issuer. The Funds
investments are limited, however, in order to qualify for the
special tax treatment afforded regulated investment companies
under the Internal Revenue Code of 1986, as amended (the
Code). See Taxes. To qualify, the Fund
will comply with certain requirements, including limiting its
investments so that at the close of each quarter of the taxable
year (i) not more than 25% of the market value of the Fund
s total assets will be invested in the securities of a
single issuer and (ii) with respect to 50% of the market value
of its total assets, not more than 5% of the market value of its
total assets will be invested in the securities of a single
issuer, and the Fund will not own more than 10% of the
outstanding voting securities of a single issuer. A fund which
elects to be classified as diversified under the
Investment Company Act must satisfy the foregoing 5% and 10%
requirements with respect to 75% of its total assets. To the
extent that the Fund assumes large positions in the securities
of a small number of issuers, the Funds net asset value
may fluctuate to a greater extent than that of a diversified
company as a result of changes in the financial condition or in
the markets assessment of the issuers, and the Fund may be
more susceptible to any single economic, political or regulatory
occurrence than a diversified company.
The Program has adopted the following restrictions and
policies relating to the investment of the Funds assets
and its activities. The fundamental restrictions set forth below
may not be changed with respect to the Fund without the approval
of the holders of a majority of the Funds outstanding
voting securities (which for this purpose and under the
Investment Company Act means the lesser of (i) 67% of the 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
Funds 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 that 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 governmental 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 Funds 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 Funds investment
policies as set forth in the Funds 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. The Fund will not purchase
securities while borrowings exceed 5% of its assets. The Fund
has no present intention to borrow money in amounts exceeding
5% of its assets.
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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 Funds
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.
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Additional investment restrictions adopted by the Fund
that may be changed by the Programs Board of Directors
without shareholder approval, provide that the Fund may
not:
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(a) Purchase securities of other investment
companies, except to the extent such purchases are permitted
by applicable law. As a matter of policy, however, the Fund
will not purchase shares of any registered open-end investment
company or registered unit investment trust, in reliance on
Section 12(d)(1)(F) or (G) (the fund of funds
provisions) of the Investment Company Act, at any time the Fund
s shares are owned by another investment company that is
part of the same group of investment companies as the
Program.
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(b) Make short sales of securities or
maintain a short position, except to the extent permitted by
applicable law.
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(c) Invest in securities that cannot be
readily resold because of legal or contractual restrictions or
that cannot otherwise be marketed, redeemed or put to the
issuer or a third party, if at the time of acquisition more
than 15% of its net assets would be invested in such
securities. This restriction shall not apply to securities
that mature within seven days or securities that the Directors
of the Program have otherwise determined to be liquid pursuant
to applicable law. Securities purchased in accordance with
Rule 144A under the Securities Act and determined to be liquid
by the Programs Board of Directors are not subject to
the limitations set forth in this investment
restriction.
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(d) Notwithstanding fundamental investment
restriction (7) above, borrow amounts in excess of 10% of its
total assets, taken at market value, and then only from banks
as a temporary measure for extraordinary or emergency purposes
such as redemption of Fund shares. The Fund will not purchase
securities while borrowing exceeds 5% (taken at market value)
of its total assets.
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Portfolio securities of the Fund generally may not be
purchased from, sold or loaned to the Investment Adviser or its
affiliates or any of their directors, officers or employees,
acting as principal, unless pursuant to a rule or exemptive
order under the Investment Company Act.
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
transaction, the sum of the market value of OTC options
currently outstanding that are held by the Fund, the market
value of the underlying securities covered by OTC call options
currently outstanding that were sold by the Fund and margin
deposits on the Funds existing OTC options on futures
contracts exceeds 15% of the net assets of the Fund taken at
market value, together with all other Fund assets that are
illiquid or are not otherwise readily marketable. However, if
the 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 options strike price). The repurchase price with the
primary dealers is typically a formula price that 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 Directors without the approval of the
shareholders. However, the Directors 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, Pierce,
Fenner & Smith Incorporated (Merrill Lynch) with
the Investment Adviser, the Fund is prohibited from engaging in
certain transactions involving Merrill Lynch or its affiliates
except for brokerage transactions permitted under the Investment
Company Act involving only usual and customary commissions or
transactions pursuant to an exemptive order under the Investment
Company Act. See Portfolio Transactions and Brokerage.
Without such an exemptive order, the Fund would be
prohibited from engaging in portfolio transactions with Merrill
Lynch or any of its affiliates acting as principal.
While the Fund generally does not expect to engage in
trading for short term gains, it will effect portfolio
transactions without regard to holding period if, in Fund
managements judgement, 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. A high rate of portfolio turnover results
in correspondingly greater transaction costs in the form of
dealer spreads and brokerage commissions, which are borne
directly by the Fund.
MANAGEMENT OF THE PROGRAM
The Directors of the Program consist of seven
individuals, five of whom are not interested persons
of the Program as defined in the Investment Company Act. The
Directors are responsible for the overall supervision of the
operations of the Program 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 Program, 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
executive officer, Director 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 Investment Adviser and Merrill Lynch Asset
Management, L.P. (MLAM) (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 CIEBAs Executive
Committee since 1988 and its Chairman from 1991to 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 1997; Member of the
Investment Advisory Committee of the Virginia Retirement System
since 1998; Director, Montpelier Foundation since December
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 RPP Corporation
(manufacturing) since 1978; Director of International Mobile
Communications, Inc. (telecommunications) since
1998.
ARTHUR
ZEIKEL
(67) Director (1)(2) 300 Woodland Avenue,
Westfield, New Jersey 07090. Chairman of the Investment Adviser
and MLAM from 1997 to 1999 and President thereof from 1977 to
1997; Chairman of Princeton Services from 1997 to 1999, Director
thereof from 1993 to 1999 and President thereof from 1993 to
1997; Executive Vice President of Merrill Lynch & Co., Inc. (
ML & Co.) from 1990 to 1999.
JOSEPH
T. MONAGLE
, JR
. (51) Senior Vice President(1)(2) Senior
Vice President of the Investment Adviser and MLAM since 1990;
Department Head of the Global Fixed Income Division of the
Investment Adviser and MLAM since 1997; Senior Vice President of
Princeton Services since 1993.
LAWRENCE
R. FULLER
(58) Senior Vice President and Portfolio
Manager(1)(2) First Vice President of the Investment
Adviser since 1997 and Vice President of the Investment Adviser
from 1992 to 1997.
ROBERT
C. DOLL
(45) Senior Vice President(1)(2) Senior Vice
President of the Investment Adviser and MLAM since 1999; Senior
Vice President of Princeton Services since 1999; Chief
Investment Officer of Oppenheimer Funds, Inc. in 1999 and
Executive Vice President thereof from 1991 to 1999.
THOMAS
R. ROBINSON
(54) Senior Vice President(1)(2) First Vice
President of the Investment Adviser since 1997; Vice President
of the Investment Adviser from 1995 to 1997; Senior Portfolio
Manager of the Investment Adviser since November 1995; Manager
of International Equity Strategy of ML & Co.s Global
Securities Research and Economics Group from 1989 to
1995.
CHRISTOPHER
G. AYOUB
(41) Senior Vice President(1)(2) First Vice
President of the Investment Adviser since 1998; Vice President
of the Investment Adviser from 1985 to 1997; Assistant Vice
President of the Investment Adviser from 1984 to 1985 and
employee since 1982.
GREGORY
MARK
MAUNZ
(45) Senior Vice President(1)(2) First Vice
President of the Investment Adviser since 1997; Vice President
of the Investment Adviser from 1985 to 1997 and Portfolio
Manager since 1984.
DONALD
C. BURKE
(39) Vice President and Treasurer (1)(2)
Senior Vice President and Treasurer of the Investment Adviser
and MLAM since 1999; Senior Vice President and Treasurer of
Princeton Services since 1999; Vice President of PFD since 1999;
First Vice President of MLAM from 1997 to 1999; Vice President
of MLAM from 1990 to 1997; Director of Taxation of MLAM since
1990.
BARBARA
G. FRASER
(56) Secretary (1)(2) First Vice President of
the Investment Adviser since 1996; Vice President of the
Investment Adviser from 1994 to 1996; Attorney in private
practice from 1991 to 1994.
(1)
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Interested person, as defined in the Investment
Company Act, of the Program.
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(2)
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Such Director or officer is a trustee, director
or officer of other investment companies for which the
Investment Adviser, or one of its affiliates, acts as
investment adviser or manager.
|
(3)
|
Member of the Programs 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 January 1, 2000, the officers and Directors of the
Program as a group (15 persons) owned an aggregate of less than
1% of the outstanding shares of common stock of ML & Co. and
owned an aggregate of less than 1% of the outstanding shares of
the Program.
Compensation of Directors
The Program pays each non-interested Director, for service
to the Program, a fee of $1,500 per year plus $250 per in-person
meeting attended, together with such individuals actual
out-of-pocket expenses relating to attendance at meetings. The
Program also compensates members of the Audit and Nominating
Committee, which consists of all of the non-affiliated Directors
at the rate of $1,500 annually for service to the Program plus
$250 per Committee meeting attended.
The following table sets forth the compensation earned by
the non-interested Directors for the fiscal year ended January
31, 2000 and the aggregate compensation paid to them from all
investment companies advised by the Investment Adviser or its
affiliates (Affiliate-Advised Funds) for the
calendar year ended December 31, 1999.
Name
|
|
Position
with
Program
|
|
Compensation
from
Program
|
|
Pension or
Retirement Benefits
Accrued as Part of
Program Expense
|
|
Estimated Annual
Benefits upon
Retirement
|
|
Aggregate
Compensation from
Program and
Other Affiliate-
Advised Funds(1)
|
Joe
Grills |
|
Director |
|
$5,000 |
|
None |
|
None |
|
$198,333 |
Walter Mintz |
|
Director |
|
$5,000 |
|
None |
|
None |
|
$178,583 |
Robert S. Salomon, Jr. |
|
Director |
|
$5,000 |
|
None |
|
None |
|
$178,583 |
Melvin R. Seiden |
|
Director |
|
$5,000 |
|
None |
|
None |
|
$178,583 |
Stephen B. Swensrud |
|
Director |
|
$5,000 |
|
None |
|
None |
|
$195,583 |
(1)
|
The Directors serve on the boards of
Affiliate-advised funds as follows: Joe Grills (31 registered
investment companies consisting of 45 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 61 portfolios).
|
The Directors of the Program may be eligible for reduced
sales charges on purchases of Class I shares. See Reduced
Initial Sales ChargesPurchase Privileges of Certain
Persons.
Management and Advisory Arrangements
Investment Advisory Services.
The Investment Adviser provides the Program with
investment advisory and management services. Subject to the
supervision of the Board of Directors, the Investment Adviser is
responsible for the actual management of the Programs
portfolio and constantly reviews the Programs holdings in
light of its own research analysis and that from other relevant
sources. The responsibility for making decisions to buy, sell or
hold a particular security rests with the Investment Adviser.
The Investment Adviser performs certain of the other
administrative services and provides all the office space,
facilities, equipment and necessary personnel for management of
the Program.
Investment Advisory Fee. As
compensation for its services to the Fund, the Investment
Adviser will receive a fee at the annual rate of 0.65% of the
average daily net assets of the Fund.
The table below sets forth for the periods indicated the
total advisory fee paid by the Fund to MLAM:
Prior to
, 2000, Merrill Lynch Asset Management,
L.P. (MLAM), an affiliate of the Investment Adviser
under common control and management as the Investment Adviser,
acted as investment adviser to the Fund. The table below sets
forth for the periods indicated the total advisory fee paid by
the Fund to MLAM.
For the
fiscal year ended January 31,
|
|
Fee
Amount($)
|
2000 |
|
|
1999 |
|
$475,238 |
1998 |
|
$176,230 |
Payment of Program Expenses.
The Investment Advisory Agreement obligates the Investment
Adviser to provide investment advisory services and to pay all
compensation of and furnish office space for officers and
employees of the Program connected with investment and economic
research, trading and investment management of the Program, as
well as the fees of all Directors of the Program who are
affiliated persons of ML & Co. or any of its affiliates. The
Program pays all other expenses incurred in the operation of the
Program, 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 Mercury
Funds Distributor, a division of PFD (the Distributor
); charges of the custodian and the transfer agent;
expenses of redemption of shares; Commission fees; expenses of
registering the shares under Federal and state securities laws;
fees and expenses of unaffiliated 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 Program. Accounting services
are provided for the Program by the Investment Adviser and the
Program reimburses the Investment Adviser for its costs in
connection with such services. See Purchase of Shares
Distribution Plans.
Organization of the Investment Adviser.
The Investment Adviser is a limited partnership, the
partners of which are ML & Co., a financial services holding
company and the parent of Merrill Lynch, and Princeton Services.
ML & Co. and Princeton Services are controlling persons
of the Investment Adviser as defined under the Investment
Company Act because of their ownership of its voting securities
or their power to exercise a controlling influence over its
management or policies.
The Investment Adviser has also entered into sub-advisory
agreements with Merrill Lynch Asset Management U.K. Limited (
MLAM U.K.) pursuant to which the Investment Adviser
pays MLAM U.K. a fee for providing investment advisory services
to the Investment Adviser with respect to the Fund in an amount
to be determined from time to time by the Investment Adviser and
MLAM U.K. but in no event in excess of the amount that the
Investment Adviser actually receives for providing services to
the Program pursuant to the Investment Advisory Agreement. The
following entities may be considered controlling persons
of MLAM U.K.: Merrill Lynch Europe PLC (MLAM U.K.s
parent), a subsidiary of Merrill Lynch International Holdings,
Inc., a subsidiary of Merrill Lynch International Holdings,
Inc., a subsidiary of ML & Co.
Duration and Termination.
Unless earlier terminated as described herein, the
Investment Advisory Agreement for the Fund will remain in effect
from year to year if approved annually (a) by the Board of
Directors of the Program or by a majority of the outstanding
shares of the subject 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 Program
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
ranging from $11.00 to $20.00 per Class I or Class A account and
$14.00 to $23.00 per Class B or Class C account and is entitled
to reimbursement for certain transaction charges and
out-of-pocket expenses incurred by the Transfer Agent under the
Transfer Agency Agreement. Additionally, a $.20 monthly closed
account charge will be assessed on all accounts that close
during the calendar year. Application of this fee will commence
the month following the month the account is closed. At the end
of the calendar year, no further fee 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 separate distribution agreements with the
Distributor in connection with the continuous offering of each
class of shares of the Fund (the Distribution Agreements
). The Distribution Agreements obligate the Distributor to
pay certain expenses in connection with the offering of each
class of shares of the Fund. After the prospectuses, statements
of additional information and periodic reports have been
prepared, set in type and mailed to shareholders, the
Distributor pays for the printing and distribution of copies
thereof used in connection with the offering to dealers and
investors. The Distributor also pays for other supplementary
sales literature and advertising costs. The Distribution
Agreements are subject to the same renewal requirements and
termination provisions as the Investment Advisory Agreement
described above.
The Board of Directors of the Program has adopted a Code
of Ethics under Rule 17j-1 of the Investment Company Act that
incorporates the Code of Ethics of the Investment Adviser
(together, the Codes). The Codes significantly
restrict the personal investing activities of all employees of
the Investment Adviser and, as described below, impose
additional, more onerous, restrictions on fund investment
personnel.
The Codes require that all employees of the Investment
Adviser pre-clear any personal securities investment (with
limited exceptions, such as government securities). The
pre-clearance requirement and associated procedures are designed
to identify any substantive prohibition or limitation applicable
to the proposed investment. The substantive restrictions
applicable to all employees of the Investment Adviser include a
ban on acquiring any securities in a hot initial
public offering and a prohibition from profiting on short-term
trading in securities. In addition, no employee may purchase or
sell any security that at the time is being purchased or sold
(as the case may be), or to the knowledge of the employee is
being considered for purchase or sale, by any fund advised by
the Investment Adviser. Furthermore, the Codes provide for
trading blackout periods that 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 Account ChoicesHow to
Buy, Sell, Transfer and Exchange Shares in the Prospectus
for certain information as to the purchase of Fund
shares.
The Fund issues four classes of shares: shares of Class I
and Class A 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 I, Class A, Class B and Class C share of the Fund
represents an identical interest in the investment portfolio of
the Fund, and has the same rights, except that Class A, Class B
and Class C 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 A 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. Class A, Class B and Class C shares
each have exclusive voting rights with respect to the Rule 12b-1
distribution plan adopted with respect to such class pursuant to
which the account maintenance and/or distribution fees are paid
(except that Class B shareholders may vote upon any material
changes to expenses charged under the distribution plan for
Class A shares). Each class has different exchange privileges.
See Shareholder ServicesExchange Privilege.
Investors should understand that the purpose and function
of the initial sales charges with respect to the Class I and
Class A 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 Fund offers its shares at a public offering price
equal to the next determined net asset value per share plus any
sales charge applicable to the class of shares selected by the
investor. The applicable offering price for purchase orders is
based upon the net asset value of the Fund next determined after
receipt of the purchase order by the Distributor. As to purchase
orders received by securities dealers prior to the close of
business on the New York Stock Exchange (the NYSE)
(generally 4:00 p.m., Eastern time) which includes orders
received after the
determination of net asset value on the previous day, the
applicable offering price will be based on the net asset value
on the day the order is placed with the Distributor, provided
that the orders are received by the Distributor prior to 30
minutes after the close of business on the NYSE on that day. If
the purchase orders are not received prior to 30 minutes after
the close of business on the NYSE on that day, such orders shall
be deemed received on the next business day. Dealers have the
responsibility of submitting purchase orders to the Fund not
later than 30 minutes after the close of business on the NYSE in
order to purchase shares at that days offering
price.
A
Fund or the Distributor may suspend the continuous offering of
Fund 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. Certain securities dealers may
charge a processing fee to confirm a sale of shares to such
customers. For example, the fee currently charged by Merrill
Lynch is $5.35. Purchases made directly through the Transfer
Agent are not subject to the processing fee.
Initial Sales Charge AlternativesClass I and Class A
Shares
Investors choosing the initial sales charge alternatives
who are eligible to purchase Class I shares should purchase
Class I shares rather than Class A shares because there is an
account maintenance fee imposed on Class A shares.
Class I shares are offered to a limited group of investors
and also will be issued upon reinvestment of dividends paid on
outstanding Class I shares. Investors who currently own Class I
shares in a shareholder account are entitled to purchase
additional Class I shares of a Fund in that account. Certain
employer sponsored retirement or savings plans, including
eligible 401(k) plans, may purchase Class I shares at net asset
value provided such plans meet the required minimum number of
eligible employees or required amount of assets advised by
Mercury or any of its affiliates. Also eligible to purchase
Class I shares at net asset value are participants in certain
investment programs including certain managed accounts for which
a trust institution, thrift, or bank trust department provides
discretionary trustee services, certain collective investment
trusts for which a trust institution, thrift, or bank trust
department serves as trustee, certain purchases made in
connection with certain fee-based programs and certain purchases
made through certain financial advisers that meet and adhere to
standards established by Mercury. In addition, Class I shares
are offered at net asset value to ML & Co. and its
subsidiaries and their directors and employees, to members of
the Boards of Mercury and Affiliate-Advised investment
companies, including the Corporation, and to employees of
certain selected dealers. Class I shares may also be offered at
net asset value to certain accounts over which the Investment
Adviser or an affiliate exercises investment
discretion.
The term purchase, as used in the Prospectus
and this Statement of Additional Information in connection with
an investment in Class I and Class A 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 or 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 a 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.
The following table sets forth information regarding Class
I and Class A sales charge information for the Fund.
Class I Shares
For the
Fiscal year
ended January 31,
|
|
Gross Sales
Charges
Collected
|
|
Sales
Charges
Retained by
Distributor
|
|
Sales
Charges
Paid to
Merrill Lynch
|
|
CDSCs
Received on
Redemption of
Load-Waived
Shares
|
2000 |
|
|
|
|
|
|
|
|
1999 |
|
$171 |
|
$8 |
|
$163 |
|
$0 |
1998 |
|
$
25 |
|
$1 |
|
$
24 |
|
$0 |
Class A Shares
For the
Fiscal year
ended January 31,
|
|
Gross Sales
Charges
Collected
|
|
Sales
Charges
Retained by
Distributor
|
|
Sales
Charges
Paid to
Merrill Lynch
|
|
CDSCs
Received on
Redemption of
Load-Waived
Shares
|
2000 |
|
|
|
|
|
|
|
|
1999 |
|
$43,620 |
|
$2,177 |
|
$41,443 |
|
$0 |
1998 |
|
$24,165 |
|
$1,165 |
|
$23,000 |
|
$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 I and Class A shares of
the Fund will receive a concession equal to most of the sales
charge, they may be deemed to be underwriters under the
Securities Act.
Reduced Initial Sales Charges
Reductions in or exemptions from the imposition of a sales
load are due to the nature of the investors and/or the reduced
sales efforts that will be needed to obtain such
investments.
Reinvested Dividends. No
initial sales charges are imposed upon Class I and Class A
shares issued as a result of the automatic reinvestment of
dividends.
Rights of Accumulation.
Reduced sales charges are applicable through a right of
accumulation under which eligible investors are permitted to
purchase shares of the Fund subject to an initial sales charge
at the offering price applicable to the total of (a) the public
offering price of the shares then being purchased plus (b) an
amount equal to the then current net asset value or cost,
whichever is higher, of the purchasers combined holdings
of all classes of shares of the Fund and of other Mercury mutual
funds. For any such right of accumulation to be made available,
the Distributor must be provided at the time of purchase, by the
purchaser or the purchasers securities dealer, with
sufficient information to permit confirmation of qualification.
Acceptance of the purchase order is subject to such
confirmation. The right of accumulation may be amended or
terminated at any time. Shares held in the name of a nominee or
custodian under pension, profit-sharing, or other employee
benefit plans may not be combined with other shares to qualify
for the right of accumulation.
Letter of Intent. Reduced
sales charges are applicable to purchases aggregating $25,000 or
more of Class I or Class A shares of the Fund or any other
Mercury mutual funds made within a 13-month period starting with
the first purchase pursuant to the Letter of Intent. The Letter
of Intent is available only to investors whose accounts are
established and maintained at the Funds Transfer Agent.
The Letter of Intent is not available to employee benefit plans
for which affiliates of the Investment Adviser provide plan
participant record-keeping services. The Letter of Intent is not
a binding obligation to purchase any amount of Class I or Class
A 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 I and Class A shares of the Fund and of other
Mercury mutual 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 execution of such Letter, the difference between the
sales charge on the Class I or Class A shares purchased at the
reduced rate and the sales charge applicable to the shares
actually purchased through the Letter. Class I or Class A shares
equal to 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 that
further reduced percentage sales charge but there will be no
retroactive reduction of the sales charges 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 (Summit), a series of Financial Institutions
Series Trust, into the Fund that creates a sales charge will
count toward completing a new or existing Letter of Intent from
the Fund.
Employer-Sponsored Retirement or Savings Plans and
Certain Other Arrangements. Certain
employer-sponsored retirement or savings plans and certain other
arrangements may purchase Class I or Class A 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. Certain other
plans may purchase Class B shares with a waiver of the CDSC upon
redemption, based on similar criteria. Such Class B shares will
convert into Class A shares approximately ten years after the
plan purchases the first share of any Mercury mutual fund.
Minimum purchase requirements may be waived or varied for such
plans. For additional information regarding purchases by
employer-sponsored retirement or savings plans and certain other
arrangements, call your plan administrator or your selected
dealer.
Managed Trusts. Class I
shares are offered at net asset value to certain trusts to which
trust institutions, thrifts, and bank trust departments provide
discretionary trustee services.
Purchase Privileges of Certain Persons.
Directors of the Program, members of the Boards of
other investment companies advised by the Investment Adviser or
its affiliates, directors and employees of ML & Co. and its
subsidiaries (the term subsidiaries, when used
herein with respect to ML & Co., includes the Investment
Adviser, MLAM, Mercury Asset Management International, Ltd. and
certain other entities directly or indirectly wholly owned and
controlled by ML & Co.), employees of certain selected
dealers, and any trust, pension, profit-sharing or other benefit
plan for such persons, may purchase Class I 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
Funds suitability standards.
Class I and Class A shares may also be offered at net
asset value to certain accounts over which the Investment
Adviser or an affiliate exercises investment
discretion.
Acquisition of Certain Investment Companies.
Class A 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.
Purchases Through Certain Financial Advisers.
Reduced sales charges may be applicable for
purchases of Class I or Class A shares of the Fund through
certain financial advisers that meet and adhere to standards
established by the Investment Adviser from time to
time.
Deferred Sales ChargesClass 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 Mercury mutual 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 investors dollars to work from the
time the investment is made. The deferred sales charge
alternatives may be particularly appealing to investors that do
not qualify for the reduction in initial sales charges. Both
Class B and Class C shares are subject to ongoing account
maintenance fees and distribution fees; however, the ongoing
account maintenance and distribution fees potentially may be
offset to the extent any return is realized on the additional
funds initially invested in Class B or Class C shares. In
addition, Class B shares will be converted into Class A 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 SharesDetermination of Net Asset Value
below.
Class B shares that are redeemed within six 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 six years or shares acquired pursuant to
reinvestment of dividends and then of shares held longest during
the six-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 |
|
4.0% |
2-3 |
|
3.0% |
3-4 |
|
3.0% |
4-5 |
|
2.0% |
5-6 |
|
1.0% |
6 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 3.0% (the applicable rate in the third year after
purchase).
As discussed in the Prospectus under Account Choices
Pricing of SharesClass B and C SharesDeferred
Sales Charge Options, while Class B shares redeemed within
six years of purchase are subject to a CDSC under most
circumstances, the charge may be reduced or waived in certain
instances. These include certain post-retirement withdrawals
from an individual retirement account (IRA) or other
retirement plan or redemption of Class B shares in certain
circumstances following the death of a Class B shareholder. In
the case of such withdrawal, the reduction or waiver applies to:
(a) any partial or complete redemption in connection with a
distribution following retirement under a tax-deferred retirement
plan on attaining age 59 1
/2 in the case of an IRA or other
retirement plan, or part of a series of equal periodic payments
(not less frequently than annually) made for life (or life
expectancy) or any redemption resulting from the tax-free return
of an excess contribution to an IRA (certain legal documentation
may be required at the time of liquidation establishing
eligibility for qualified distribution); or (b) any partial or
complete redemption following the death or disability (as
defined in the Internal Revenue Code of 1986, as amended (the
Code)) of a Class B shareholder (including one who
owns the Class B shares as joint tenant with his or her spouse),
provided the redemption is requested within one year of the
death or initial determination of disability, or if later,
reasonably promptly following completion of probate or in
connection with involuntary termination of an account in which
Fund shares are held (certain legal documentation may be
required at the time of liquidation establishing eligibility for
qualified distribution).
The change may also be reduced or waived in other
instances, such as: (a) redemptions by certain eligible 401(a)
and 401(k) plans and certain retirement plan rollovers; (b)
redemptions in connection with participation in certain
fee-based programs managed by the Investment Adviser or its
affiliates; (c) redemptions in connection with participation in
certain fee-based programs managed by selected dealers that have
agreements with the Investment Adviser; or (d) withdrawals
through the Systematic Withdrawal Plan of up to 10% per year of
your account value at the time the plan is established. See
Shareholder ServicesFee-Based Programs and
Systematic Withdrawal Plan.
Conversion of Class B Shares to Class A Shares.
After approximately eight years (the
Conversion Period), Class B shares of the Fund will
be converted automatically into Class A shares of that Fund.
Class A shares are subject to an ongoing account maintenance fee
of 0.25% of the average daily net assets of a Fund but are not
subject to the distribution fee that is borne by Class B shares.
Automatic conversion of Class B shares into Class A 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 A 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 A 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 A 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 A
shares of the Fund.
The Conversion Period may be modified for investors that
participate in certain fee-based programs. See Shareholder
ServicesFee-Based Programs.
Class B shareholders of the Fund exercising the exchange
privilege described under Shareholder Services
Exchange Privilege will continue to be subject to
the Funds CDSC schedule if such schedule is higher than
the CDSC schedule relating to the Class B shares acquired as a
result of the exchange.
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 shareholders 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 Systematic Withdrawal Plans.
See Shareholder ServicesSystematic Withdrawal Plan.
Class B and Class C Sales Charge
Information.
For the
fiscal year
ended January 31,
|
|
CDSCs
Paid to by
Distributor
|
|
CDSCs Paid
to
Merrill Lynch
|
2000 |
|
|
|
|
1999 |
|
$71,336 |
|
$71,336 |
1998 |
|
$28,794 |
|
$28,794 |
|
*
|
Additional Class B CDSCs payable to the
Distributor with respect to the fiscal years ended January 31,
1998, 1999 and 2000 may have been waived or converted to a
contingent obligation in connection with a shareholders
participation in certain fee-based programs.
|
For the
fiscal year
ended January 31,
|
|
CDSCs
Paid to by
Distributor
|
|
CDSCs Paid
to
Merrill Lynch
|
2000 |
|
|
|
|
1999 |
|
$8,019 |
|
$8,019 |
1998 |
|
$3,019 |
|
$3,019 |
Proceeds from the CDSC and the distribution fee are paid
to the Distributor and are used in whole or in part by the
Distributor to defray the expenses of dealers (including Merrill
Lynch) related to providing distribution-related services to the
Fund in connection with the sale of the Class B and Class C
shares, such as the payment of compensation to financial
consultants for selling Class B and Class C shares from the
dealers own funds. The combination of the CDSC and the
ongoing distribution fee facilitates the ability of the Fund to
sell the Class B and Class C shares without a sales charge being
deducted at the time of purchase. See Distribution Plans
below. Imposition of the CDSC and the distribution fee on
Class B and Class C shares is limited by the National
Association of Securities Dealers, Inc. (the NASD)
asset-based sales charge rule. See Limitations on the
Payment of Deferred Sales Charges below.
Reference is made to Account ChoicesPricing of
Shares in the Prospectus for certain information with
respect to separate distribution plans for Class A, Class B, and
Class C 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
Funds to the Distributor with respect to such
classes.
The Distribution Plan for each of the Class A, Class B and
Class C shares provides that the Fund pays the Distributor an
account maintenance fee relating to the shares of the relevant
class, accrued daily and paid monthly, at the annual rate of
0.25% of the average daily net assets of the Fund attributable
to shares of the relevant class in order to compensate the
Distributor and selected dealers (pursuant to sub-agreements) in
connection with account maintenance activities with respect to
Class A, Class B and Class C 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 on any material changes to expenses
charged under the Class A Distribution Plan).
The Distribution Plans for Class B and Class C shares
provide 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 1.00% of the average
daily net assets of the Fund attributable to the shares of the
relevant class in order to compensate the Distributor and
selected dealers (pursuant to sub-agreements) 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. In
this regard, the purpose and function of the ongoing
distribution fees and the CDSC are the same as those of the
initial sales charge with respect to the Class I and Class A
shares of the Fund in that the ongoing distribution fees and
deferred sales charges provide for the financing of the
distribution of the Funds Class B and Class C
shares.
The Funds Distribution Plans are subject to the
provisions of Rule 12b-1 under the Investment Company Act. In
their consideration of each Distribution Plan, the Directors
must consider all factors they deem relevant, including
information as to the benefits of each Distribution Plan to the
Fund and the 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 such 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 such
Distribution Plan, cast in person at a meeting called for that
purpose. Rule 12b-1 further requires that the Fund preserve
copies of its Distribution Plans and any report made pursuant to
such plan for a period of not less than six years from the date
of such 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 each Distribution Plan may be
more or less than distribution-related expenses of the related
class. 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. This
information is presented 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 basis, revenues consist of the account
maintenance fees, the 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, the
distribution fees and CDSCs and the expenses consist of
financial consultant compensation.
For the fiscal year ended January 31, 2000, the Fund paid
the Distributor based on the average net assets of the Fund, the
amounts set forth below under the Plans.
Class A
Distribution Plan
|
|
Class B
Distribution Plan
|
|
Class C
Distribution Plan
|
Account
Maintenance
and Distribution Fees
|
|
Account
Maintenance
and Distribution Fees
|
|
Account
Maintenance
Fees
|
$
|
|
$
|
|
$
|
As of December 31, 1999, the last date for which fully
allocated accrual data is available, the fully allocated accrual
expenses of the Distributor and Merrill Lynch for the period
since the commencement of operations of Class B shares of the
Fund exceeded fully allocated accrual revenues by approximately $
(
% of Class B net assets at
that date). As of January 31, 2000, direct cash revenues for the
period since the commencement of operations of Class B shares
exceeded direct cash expenses by $
(
% of Class B net assets at that
date). As of December 31, 1999, 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 $
( % of
Class C net assets at that date). As of January 31, 2000, direct
cash revenues for the period since the commencement of
operations of Class C shares exceeded direct cash expenses by $
(
% of Class C net
assets at that date).
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 circumstance payment in excess
of the amount payable under the NASD formula will not be
made.
The following table sets forth comparative information as
of January 31, 2000 with respect to the Class B and Class C
shares indicating the maximum allowable payments that can be
made under the NASD maximum sales charge rule and, with respect
to the Class B shares, the Distributors voluntary maximum
for the periods indicated.
|
|
Data Calculated as of January 31,
2000
|
|
|
(In thousands) |
|
|
Eligible
Gross
Sales(1)
|
|
Aggregate
Sales
Charges(2)
|
|
Allowable
Interest
on Unpaid
Balance(3)
|
|
Maximum
Amount
Payable
|
|
Amounts
Previously
Paid to
Distributor(4)
|
|
Aggregate
Unpaid
Balance
|
|
Annual
Distribution
Fee at
Current
Net Asset
Level(5)
|
Class B Shares, for the period
February 1, 1995 (commencement
of operations) to January 31,
2000: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under NASD Rule as
Adopted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under Distributor
s Voluntary
Waiver |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class C Shares, for the period
February 1, 1995 (commencement
of operations) to January 31,
2000: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under NASD Rule as
Adopted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under Distributor
s Voluntary
Waiver |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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)
|
Included 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 Program
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 shareholders participation in the
Merrill Lynch Mutual Fund Advisor (Merrill Lynch MFA
SM
) Program (the MFA Program). The CDSC is
booked as a contingent obligation that may be payable if the
shareholder terminates participation in the MFA
Program.
|
(5)
|
Provided to illustrate the extent to which the
current level of distribution fee payments (not including any
CDSC payments) is amortizing the unpaid balance. No assurance
can be given that payments of the distribution fee will reach
either the voluntary maximum (with respect to Class B shares)
or the NASD maximum (with respect to Class B and Class C
shares).
|
Reference is made to How to Buy, Sell, Transfer and
Exchange Shares in the Prospectus.
The Fund is required to redeem for cash all shares upon
receipt of a written request in proper form. The redemption
price is the net asset value per share next determined after the
initial receipt of proper notice of redemption. Except for any
CDSC that may be applicable, there will be no charge for
redemption if the redemption request is sent directly to the
Transfer Agent. Shareholders liquidating their holdings will
receive upon redemption all dividends reinvested through the
date of redemption.
The right to redeem shares or to receive payment with
respect to any such redemption may be suspended for more than
seven days only for any period during which trading on the NYSE
is restricted as determined by the Commission or during which
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.
The value of shares of the Fund at the time of redemption
may be more or less than the shareholders 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 Funds Transfer Agent, Financial Data Services,
Inc., P.O. Box 44062, Jacksonville, Florida 32232-4062.
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. Redemption requests should not be sent to the
Program or the Fund. A redemption request in either event
requires the signature(s) of all persons in whose name(s) the
shares are registered, signed exactly as such name(s) appear(s)
on the Transfer Agents register. The signature(s) on the
redemption request may require a guarantee by an eligible
guarantor institution as defined in Rule 17Ad-15 under the
Securities Exchange Act of 1934 (the Exchange Act),
the existence and validity of which may be verified by the
Transfer Agent through the use of industry publications. In the
event a signature guarantee is required, notarized signatures
are not sufficient. In general, signature guarantees are waived
on redemptions of less than $50,000 as long as the following
requirements are met: (i) all requests require the signature(s)
of all persons in whose name(s) shares are recorded on the
Transfer Agents register; (ii) all checks must be mailed
to the stencil address of record on the Transfer Agents
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 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 not usually exceed 10 days.
The Fund also will repurchase its shares through a
shareholders listed securities dealer. The Fund normally
will accept orders to repurchase shares by wire or telephone
from dealers for their customers at the net asset value next
computed after the order is placed. Shares will be priced at the
net asset value calculated on the day the request is received,
provided that the request for repurchase is submitted to the
dealer prior to the close of business on the NYSE (generally,
the NYSE closes at 4:00 p.m., Eastern time) and such request is
received by the Fund from such dealer not later than 30 minutes
after the close of business on the NYSE on the same
day.
Dealers have the responsibility of submitting such
repurchase requests to the Fund not later than 30 minutes after
the close of business on the NYSE in order to obtain that day
s closing price.
The foregoing repurchase arrangements are for the
convenience of shareholders and do not involve a charge by the
Fund (other than any applicable CDSC). Securities firms that do
not have selected dealer agreements with the Distributor,
however, may impose a transaction charge on the shareholder for
transmitting the notice of repurchase to the Fund. Certain
securities dealers may charge a processing fee to confirm a
repurchase of shares. For example, the fee currently charged by
Merrill Lynch is $5.35. Fees charged by other securities dealers
may be higher or lower. Repurchases made through the Funds
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. A shareholder whose order for repurchase
is rejected by the Fund, however, may redeem Fund shares as set
forth above.
Reinstatement PrivilegeClass I and Class A
Shares
Shareholders of the Fund who have redeemed their Class I
and Class A shares have a privilege to reinstate their accounts
by purchasing Class I or Class A shares, as the case may be, at
net asset value without a sales charge up to the dollar amount
redeemed. The reinstatement privilege may be exercised by
sending a notice of exercise along with a check for the amount
to be reinstated to the Transfer Agent within 30 days after the
date the request for redemption was accepted by the Transfer
Agent or the Distributor. Alternatively, the reinstatement
privilege may be exercised through the investors financial
consultant within 30 days after the date the request for
redemption was accepted by the Transfer Agent or the
Distributor. The reinstatement will be made at the net asset
value per share next determined after the notice of
reinstatement is received and cannot exceed the amount of the
redemption proceeds.
Determination of Net Asset Value
Reference is made to How Shares are Priced in
the Prospectus.
The net asset value of the shares of all classes of the
Fund is determined once daily Monday through Friday as of the
close of business on the NYSE on each day the NYSE is open for
trading based on prices at the time of closing. The NYSE
generally closes at 4:00 p.m., Eastern time. The Fund also will
determine its net asset value on any day in which there is
sufficient trading in the Funds portfolio securities that
the net asset value might be affected materially, but only if on
any such day the Fund is required to sell or redeem shares. Any
assets or liabilities initially expressed in terms of non-U.S.
dollar currencies are translated into U.S. dollars at the
prevailing market rates as quoted by one or more banks or
dealers on the day of valuation. The NYSE is not open for
trading on New Years Day, Martin Luther King, Jr. Day,
Presidents Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.
Net asset value is computed by dividing the value of the
securities held by the 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 of the Fund outstanding at such time, rounded
to the nearest cent. Expenses, including the fees payable to the
Investment Adviser and Distributor, are accrued
daily.
The per share net asset value of Class A, Class B and
Class C shares generally will be lower than the per share net
asset value of Class I 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 Class A shares. Moreover, the per share net asset value of
the Class B and Class C shares of the Fund generally will be
lower than the per share net asset value of Class A 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. It is expected, however, that the per
share net asset value of the four classes of the Fund 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, including ADRs, EDRs or GDRs, that
are traded on stock exchanges are valued at the last sale price
(regular way) on the exchange on which such securities are
traded, as of the close of business on the day the securities
are being valued or, lacking any sales, at the last available
bid price for long positions, and at the last available ask
price for short positions. In cases where securities are traded
on more than one exchange, the securities are valued on the
exchange designated by or under the authority of the Board of
Directors of the Program 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 its books 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 on
the last sale price in the case of exchange-traded options or,
in the case of options traded in the OTC market, the last ask
price. Options purchased by the Fund are valued at their last
sale price in the case of exchange-traded options or, in the
case of options traded in the OTC market, the last bid price.
Other investments, including financial futures contracts and
related options, are stated at market value. Securities and
assets for which market quotations are not readily available are
stated at fair value as determined in good faith by or under the
direction of the Board of Directors of the Program. Such
valuations and procedures will be reviewed periodically by the
Board of 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 Funds shares
are determined as of such times. Foreign currency exchange rates
also are generally determined prior to the close of business on
the NYSE. Occasionally, events affecting the values of such
securities and such exchange rates may occur between the times
at which they are determined and the close of business on the
NYSE that may not be reflected in the computation of the Fund
s net asset value.
Each investor in the Program may add to or reduce its
investment in the Fund on each day the NYSE is open for trading.
The value of each investors interest in the Fund will be
determined after the close of business on the NYSE by
multiplying the net asset value of the Fund by the percentage,
effective for that day, that represents that investors
share of the aggregate interests in the Fund. Any additions or
withdrawals to be effected on that day will then be effected.
The investors percentage of the aggregate beneficial
interests in the Fund will then be recomputed as the percentage
equal to the fraction (i) the numerator of which is the value of
such investors investment in the Fund as of the time of
determination on such day plus or minus, as the case may be, the
amount of any additions to or withdrawals from the investor
s investment in the Fund effected on such day, and (ii)
the denominator of which is the aggregate net asset value of the
Fund as of such time on such day plus or minus, as the case may
be, the amount of the net additions to or withdrawals from the
aggregate investments in the Fund by all its investors. The
percentage so determined will then be applied to determine the
value of the investors interest in the Fund after the
close of business of the NYSE on the next determination of net
asset value of the Fund.
Computation of Offering Price Per Share
An illustration of the computation of the offering price
for Class I, Class A, Class B and Class C shares of the Fund
based on the value of its estimated net assets and number of
shares outstanding on January 31, 2000 is as
follows:
|
|
Class
I
|
|
Class
A
|
|
Class
B
|
|
Class
C
|
Net
Assets |
|
$
|
|
$
|
|
$
|
|
$
|
Number of Shares Outstanding |
|
|
|
|
|
|
|
|
Net
Asset Value Per Share (net assets divided by number of shares
outstanding) |
|
$
|
|
$
|
|
$
|
|
$
|
Sales
Charge (for Class I and Class A Shares: 5.25% of Offering
Price (5.54% of net amount
invested))* |
|
|
|
|
|
** |
|
** |
Offering Price |
|
$
|
|
$
|
|
$
|
|
$
|
*
|
Rounded to the nearest one-hundredth percent;
assumes maximum sales charge is applicable.
|
**
|
Class B and Class C shares are not subject to
an initial sales charge but may be subject to a CDSC on
redemption. See Purchase of SharesDeferred Sales
ChargesClass 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 Program, the Investment Adviser is primarily responsible
for the execution of the Programs portfolio transactions
and the allocation of brokerage. The Program has no obligation
to deal with any broker or group of brokers in the execution of
transactions in portfolio securities and does not use any
particular broker or dealer. In executing transactions with
brokers and dealers, the Investment Adviser seeks to obtain the
best net results for the Fund, taking into account such factors
as price (including the applicable brokerage commission or
dealer spread), size of order, difficulty of execution and
operational facilities of the firm and the firms risk in
positioning a block of securities. While the Investment Adviser
generally seeks reasonably competitive commission rates, the
Fund does not necessarily pay the lowest spread or commission
available. In addition, consistent with the Conduct Rules of the
NASD and policies established by the Board of Directors of the
Program, the Investment Adviser may consider sales of Fund
shares as a factor in the selection of brokers or dealers to
execute portfolio transactions for the Fund; however, whether or
not a particular broker or dealer sells shares of the Fund
neither qualifies nor disqualifies such broker or dealer to
execute transactions for the Fund.
Subject to obtaining the best net results, brokers who
provide supplemental investment research to the Investment
Adviser may receive orders for transactions by the Fund. Such
supplemental research services ordinarily consist of assessments
and analyses of the business or prospects of a company, industry
or economic sector. Information so received will be in addition
to and not in lieu of the services required to be performed by
the Investment Adviser under the Investment Advisory Agreements,
and the expenses of the Investment Adviser will not necessarily
be reduced as a result of the receipt of such supplemental
information. If in the judgment of the Investment Adviser the
Fund will benefit from supplemental research services, the
Investment Adviser is authorized to pay brokerage commissions to
a broker furnishing such services that are in excess of
commission that another broker may have charged for effecting
the same transactions. Certain supplemental research services
may primarily benefit one or more other investment companies or
other accounts for which the Investment Adviser exercises
investment discretion. Conversely, the Fund may be the primary
beneficiary of the supplemental research services received as a
result of portfolio transactions effected for such other
accounts or investment companies.
The Program anticipates that its brokerage transactions
involving securities of issuers domiciled in countries other
than the United States generally will be conducted primarily on
the principal stock exchanges of such countries. Brokerage
commissions and other transaction costs on foreign stock
exchange transactions generally are higher than in the United
States, although the Program will endeavor to achieve the best
net results in effecting its portfolio transactions. There
generally is less governmental supervision and regulation of
foreign stock exchanges and brokers than in the United
States.
Foreign equity securities may be held by the Program in
the form of ADRs, EDRs, GDRs or other securities convertible
into foreign equity securities. ADRs, EDRs and GDRs may be
listed on stock exchanges, or traded in over-the-counter markets
in the United States or Europe, as the case may be. ADRs, like
other securities traded in the United States, will be subject to
negotiated commission rates. The Programs ability and
decisions to purchase
or sell portfolio securities of foreign issuers may be affected by
laws or regulations relating to the convertibility and
repatriation of assets. Because the shares of each Fund are
redeemable on a daily basis in U.S. dollars, the Program intends
to manage each Fund so as to give reasonable assurance that it
will be able to obtain U.S. dollars to the extent necessary to
meet anticipated redemptions. Under present conditions, it is
not believed that these considerations will have significant
effect on the Programs portfolio strategies.
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 program 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 Program that either
comply with rules adopted by the Commission or with
interpretations of the Commission staff. See Investment
Objective and PoliciesInvestment 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
Program 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 Program and annual
statements as to aggregate compensation will be provided to the
Program. Securities may be held by, or be appropriate
investments for, the Program as well as other funds or
investment advisory clients of the Investment Adviser or its
affiliates.
The Board of Directors 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 to the Investment Adviser. After considering all factors
deemed relevant, the Board of Directors made a determination not
to seek such recapture. The Board will reconsider this matter
from time to time.
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 January 31,
|
|
Aggregate
Brokerage
Commissions Paid
|
|
Commissions
Paid
to Merrill Lynch
|
|
|
2000 |
|
|
|
|
1999 |
|
$76,819 |
|
|
1998 |
|
$39,108 |
|
|
For the fiscal year ended January 31, 2000, the brokerage
commissions paid to Merrill Lynch represented
% of the aggregate brokerage
commissions paid and involved
% of the Funds dollar amount of
transactions involving payment of brokerage
commissions.
Because of different objectives or other factors, a
particular security may be bought for one or more clients of the
Investment Adviser or its affiliates when one or more clients of
the Investment Adviser or its affiliates are selling the same
security. If purchases or sales of securities arise for
consideration at or about the same time that
would involve the Fund or other clients or funds for which the
Investment Adviser or an affiliate act as investment adviser,
transactions in such securities will be made, insofar as
feasible, for the respective funds and clients in a manner
deemed equitable to all. To the extent that transactions on
behalf of more than one client of the Investment Adviser or its
affiliates 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 described
below that are designed to facilitate investment in its shares.
Full details as to each such service and copies of the various
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 your selected
dealer. Certain of these services are available only to U.S.
investors.
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 also will show any other activity in the account
since the preceding statement. Shareholders also will 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. The Fund
does not issue share certificates.
Shareholders considering transferring their Class I or
Class A shares from a selected dealer to another brokerage firm
or financial institution should be aware that, if the firm to
which the Class I or Class A shares are to be transferred will
not take delivery of Fund shares, a shareholder either must
redeem the Class I or Class A shares so that the cash proceeds
can be transferred to the account at the new firm or such
shareholder must continue to maintain an Investment Account at
the Transfer Agent for those Class I or Class A
shares.
Shareholders interested in transferring their Class B or
Class C shares from a selected dealer and who do not wish to
have an Investment Account maintained for such shares at the
Transfer Agent may request their new brokerage firm to maintain
such shares in an account registered in the name of the
brokerage firm for the benefit of the shareholder at the
Transfer Agent.
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.
Shareholders considering transferring a tax-deferred
retirement account, such as an individual retirement account,
from a selected dealer to another brokerage firm or financial
institution should be aware that, if the firm to which the
retirement account is to be transferred will not take delivery
of shares of each 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 a
selected dealer for those shares.
U.S. shareholders of each class of shares of the Fund have
an exchange privilege with certain other Mercury mutual funds
and 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 I, Class A, Class B and Class C shares. Shares with a net
asset value of at least $100 are required to qualify for the
exchange privilege and any shares used 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 I and Class A Shares.
Under the Funds pricing system, Class I
shareholders may exchange Class I shares of the Fund for Class I
shares of a second Mercury mutual fund. If the Class I
shareholder wants to exchange Class I shares for shares of a
second Mercury mutual fund, but does not hold Class I shares of
the second fund in his or her account at the time of exchange
and is not otherwise eligible to acquire Class I shares of the
second fund, the shareholder will receive Class A shares of the
second fund as a result of the exchange. Class A shares also may
be exchanged for Class I shares of a second Mercury mutual fund
at any time as long as, at the time of the exchange, the
shareholder is eligible to acquire Class I shares of any Mercury
mutual fund.
Exchanges of Class I or Class A shares outstanding (
outstanding Class I or Class A shares) for Class I
or Class A shares of another Mercury mutual fund, or for Class A
shares of Summit (new Class I or Class A shares) are
transacted on the basis of relative net asset value per Class I
or Class A share, respectively, plus an amount equal to the
difference, if any, between the sales charge previously paid on
the outstanding Class I or Class A shares and the sales charge
payable at the time of the exchange on the new Class I or Class
A shares. With respect to outstanding Class I or Class A 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 I or Class A
shares in the initial purchase and any subsequent exchange.
Class I or Class A shares issued pursuant to dividend
reinvestment are sold on a no-load basis in each of the funds
offering Class I or Class A shares. For purposes of the exchange
privilege, Class I and Class A 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 I
or Class A shares on which the dividend was paid. Based on this
formula, Class I and Class A shares of each Fund generally may
be exchanged into the Class I and Class A shares, respectively,
of the other funds with a reduced or without a sales
charge.
Exchanges of Class B and Class C Shares.
In addition, outstanding Class B or Class C shares
can be exchanged for Class B or Class C shares, respectively, of
another Mercury mutual fund or for Class B shares of Summit (
new Class B or Class C shares) on the basis of
relative net asset value per Class B or Class C share, without
the payment of any CDSC that might otherwise be due on
redemption of the outstanding shares. Class B shareholders of
the Fund exercising the exchange privilege will continue to be
subject to the Funds CDSC schedule if such schedule is
higher than the CDSC schedule relating to the new Class B shares
acquired through use of the exchange privilege. In addition,
Class B shares of the Fund acquired through use of the exchange
privilege will be subject to the Funds CDSC schedule if
such schedule is higher than the CDSC schedule relating to the
Class B shares of the fund from which the exchange was 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 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 another Mercury fund (new Mercury Fund)
after having held the Funds Class B shares for
two-and-a-half years. The 3% CDSC that generally would apply to
a redemption would not apply to the exchange. Four years later
the investor may decide to redeem the Class B shares of new
Mercury 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 the Funds Class B shares to the four
year holding period for the new Mercury Fund Class B shares, the
investor will be deemed to have held the new Mercury Fund Class
B shares for more than six years.
Exchanges for Shares of a Money Market Fund.
Class I and Class A 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 I or Class A
shares of Affiliate-Advised Funds; Class B shares of Summit have
an exchange privilege back into Class B or Class C shares of
Affiliate-Advised 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 fee-based programs for which alternative
exchange arrangements may exist. Please see your financial
consultant for further information.
Prior to October 12, 1998, exchanges from the Fund and
other Affiliated-Advised Funds into a money market fund were
directed to certain Affiliate-Advised money market funds other
than Summit. Shareholders who exchanged Affiliate-Advised 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 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 of the Fund received in exchange for such
money market fund shares will be aggregated with the holding
period for the fund shares originally exchanged for such money
market fund shares for purposes of reducing the CDSC or
satisfying the Conversion Period.
Exercise of the Exchange Privilege.
To exercise the exchange privilege, a shareholder
should contact his or her financial consultant, who will advise
the Fund of the exchange. Shareholders of the Fund and
shareholders of the other funds described above 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 fee-based programs, including pricing alternatives
for securities transactions (each referred to in this paragraph
as a program), may permit the purchase of Class I
shares at net asset value. Under specified circumstances,
participants in certain Programs may deposit other classes of
shares, which will be exchanged for Class I 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 certain programs may result in the redemption
of shares held therein or the automatic exchange thereof to
another class at net asset value. 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 on the current value of such shares. These
programs also generally prohibit such shares from being
transferred to another account, 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 certain specific programs offered through
particular selected dealers (including charges and limitations
on transferability applicable to shares that may be held in such
programs) is available in each such programs client
agreement and from the Transfer Agent at
1-888-763-2260.
The minimum initial purchase to establish a retirement
plan is $100. Dividends received in retirement plans are exempt
from Federal taxation until distributed from the plans.
Different tax rules apply to Roth IRA plans and educational
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 I shares (if he or she is an eligible
Class I investor) or Class A, Class B or Class C shares at the
applicable public offering price.
These purchases may be made either through the shareholders
securities dealer or by mail directly to the Transfer Agent,
acting as agent for such securities dealer. You may also add to
your account by automatically investing a specific amount in the
Fund on a periodic basis through your selected dealer. The
current minimum for such automatic additional investments is
$100. This minimum may be waived or revised under certain
circumstances.
Automatic Dividend Reinvestment Plan
Dividends paid by the Fund may be taken in cash or
automatically reinvested in shares of the Fund at net asset
value without a sales charge. You should consult with your
financial consultant about which option you would like. If you
choose the reinvestment option, dividends paid with respect to
Fund shares will be automatically reinvested, without sales
charge, in additional full and fractional shares of the Fund.
Such reinvestment will be at the net asset value of shares of
the Fund as 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
their selected dealer if their account is maintained with a
selected dealer, or by written notification or by telephone
(1-888-763-2260) to the Transfer Agent, if their account is
maintained with the Transfer Agent, elect to have subsequent
dividends of ordinary income and/or capital gains paid with
respect to shares of the Fund in cash, rather than reinvested in
Fund shares (provided that, in the event that a payment on an
account maintained at the Transfer Agent would amount to $10.00
or less, a shareholder will not receive such payment in cash and
such payment will automatically be reinvested in additional
shares). Commencing ten days after the receipt by the Transfer
Agent of such notice, those instructions will be effected. The
Fund is not responsible for any failure of delivery to the
shareholders address of records 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 Plans
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 who have acquired Fund shares having
a value, based on cost or the current offering price, of $5,000
or more, and monthly withdrawals are available for shareholders
with shares having a value of $10,000 or more.
At the time of each withdrawal payment, sufficient shares
are redeemed from those on deposit in the shareholders
account to provide the withdrawal payment specified by the
shareholder. The shareholder may specify the dollar amount and
class of shares to be redeemed. Redemptions will be made at net
asset value as determined after the close of business on the
NYSE (generally, the NYSE closes at 4:00 p.m., Eastern time) on
the 24th day of each month or the 24th day of the last month of
each quarter, whichever is applicable. If the NYSE is not open
for business on such date, the shares will be redeemed at the
net asset value determined after the close of business on the
following business day. The check for the withdrawal payment
will be mailed, or the direct deposit for withdrawal payment
will be made on the next business day following redemption. When
a shareholder is making systematic withdrawals, dividends and
distributions on all shares in the Investment Account are
reinvested automatically in Fund shares. A shareholders
systematic withdrawal plan may be terminated at any time,
without a charge or penalty, by the shareholder, the Fund, the
Transfer Agent or the Distributor.
With respect to redemptions of Class B and 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
SharesDeferred Sales Charge AlternativesClass B and
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 A shares, a shareholder must make a new
election to join the systematic
withdrawal program with respect to the Class A shares. If an
investor wishes to change the amount being withdrawn in a
systematic withdrawal plan the investor should contact his or
her financial consultant.
Withdrawal payments should not be considered as dividends.
Each withdrawal is a taxable event. If periodic withdrawals
continuously exceed reinvested dividends, the shareholders
original investment may be reduced correspondingly. Purchases of
additional shares concurrent with withdrawals are ordinarily
disadvantageous to the shareholder because of sales charges and
tax liabilities. The Fund will not knowingly accept purchase
orders for shares of the Fund from investors who maintain a
systematic withdrawal plan unless such purchase is equal to at
least one years scheduled withdrawals or $1,200, whichever
is greater. Periodic investments may not be made into an
Investment Account in which the shareholder has elected to make
systematic withdrawals.
The Fund intends to distribute substantially all of its
net investment income, if any. Dividends from such net
investment income will be paid at least annually. All net
realized capital gains, if any, will be distributed to the Fund
s shareholders at least annually. From time to time, the
Fund may declare a special distribution at or about the end of
the calendar year in order to comply with Federal tax
requirements that certain percentages of its ordinary income and
capital gains be distributed during the year. If in any fiscal
year, the Fund has net income from certain foreign currency
transactions, such income will be distributed at least
annually.
See Shareholder ServicesAutomatic Dividend
Reinvestment Plan for information concerning the manner in
which dividends may be reinvested automatically in shares of the
Fund. A shareholder whose account is maintained at the Transfer
Agent or whose account is maintained through his or her selected
dealer may elect in writing to receive any such dividends in
cash. Dividends are taxable to shareholders, as discussed below,
whether they are reinvested in shares of the Fund or received in
cash. The per share dividends on Class B and Class C shares will
be lower than the per share dividends on Class I and Class A
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 A shares will be lower than the per share dividends on
Class I shares as a result of the account maintenance fees
applicable with respect to the Class A shares. See Pricing
of SharesDetermination 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 I, Class A, Class B
and Class C 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 Funds
taxable income and capital gains will be distributed to avoid
entirely the imposition of the tax. In such event, the Fund will
be liable for the tax only on the amount by which it does not
meet the foregoing distribution requirements.
Dividends paid by the Fund from its ordinary income or
from an excess of net short term capital gains over net long
term capital losses (together referred to hereafter as
ordinary income dividends) are taxable to
shareholders as ordinary income. Distributions made from an
excess of net long term capital gains over net short term
capital losses (including gains or losses from certain
transactions in warrants, futures and options) (capital
gain dividends) are taxable to shareholders as long term
capital gains, regardless of the length of time the shareholder
has owned Fund shares. Any loss upon the sale or exchange of
Fund shares held for six months or
less will be treated as long term capital loss to the extent of
any capital gain dividends received by the shareholder.
Distributions in excess of the Funds earnings and profits
will first reduce the adjusted tax basis of a holders
shares and, after such adjusted tax basis is reduced to zero,
will constitute capital gains to such holder (assuming the
shares are held as a capital asset). Certain categories of
capital gains are taxable at different rates. Generally not
later than 60 days after the close of its taxable year, the Fund
will provide its shareholders with a written notice designating
the amount of any capital gain dividends as well as any amount
of capital gain dividends in the different categories of capital
gain referred to above.
Dividends are taxable to shareholders even though they are
reinvested in additional shares of the Fund. A portion of the
Funds ordinary income dividends may be eligible for the
dividends received deduction allowed to corporations under the
Code, if certain requirements are met. For this purpose, the
Fund will allocate dividends eligible for the dividends received
deductions among the Class I, Class A, Class B and Class C
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 I, Class A, Class B and Class C
shareholders during the taxable year, or such other method as
the Internal Revenue Service (IRS) 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 A shares. A
shareholders basis in the Class A shares acquired will be
the same as such shareholders basis in the Class B shares
converted, and the holding period of the acquired Class A shares
will include the holding period for the converted Class B
shares.
If a shareholder exercises an exchange privilege within 90
days of acquiring the shares, then the loss the shareholder can
recognize on the exchange will be reduced (or the gain
increased) to the extent any sales charge paid on the exchanged
shares reduces any sales charge the shareholder would have owed
upon the purchase of the new shares in the absence of the
exchange privilege. Instead, such sales charge will be treated
as an amount paid for the new shares.
A
loss realized on a sale or exchange of shares of the Fund will
be disallowed if such 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
non-resident aliens or foreign entities will be subject to a 30%
U.S. withholding tax under existing provisions of the Code
applicable to foreign individuals and entities unless a reduced
rate of withholding or a withholding exemption is provided under
applicable treaty law. Nonresident shareholders are urged to
consult their own tax advisers concerning the applicability of
the U.S. withholding tax.
Under certain provisions of the Code, some shareholders
may be subject to a 31% withholding tax on ordinary income
dividends, capital gain dividends and redemption payments (
backup withholding). Generally, shareholders subject
to backup withholding will be those for whom no certified
taxpayer identification number is on file with the Fund or who,
to such Funds knowledge, have furnished an incorrect
number. When establishing an account, an investor must certify
under penalty of perjury that such number is correct and that
such 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, Futures and Forward Foreign Exchange
Transactions
The Fund may write, purchase or sell options, futures and
forward foreign exchange contracts. Options and futures
contracts that are Section 1256 Contracts will be
marked to market for Federal income tax purposes at
the end of each taxable year, i.e., each such option or
futures contract will be treated as sold for its fair market
value on the last day of the taxable year. Unless such contract is
a forward foreign exchange contract, or is a non-equity option
or a regulated futures contract for a non-U.S. currency for
which the Fund elects to have gain or loss treated as ordinary
gain or loss under Code Section 988 (as described below), gain
or loss from Section 1256 contracts will be 60% long-term and
40% short-term capital gain or loss. Application of these rules
to Section 1256 contracts held by the Fund may alter the timing
and character of distributions to shareholders. The
mark-to-market rules outlined above, however, will not apply to
certain transactions entered into by the Fund solely to reduce
the risk of changes in price or interest or currency exchange
rates with respect to its investments.
A
forward foreign exchange contract that is a Section 1256
contract will be marked to market, as described above. However,
the character of gain or loss from such a contract will
generally be ordinary under Code Section 988. The Fund may,
nonetheless, elect to treat the gain or loss from certain
forward foreign exchange contracts as capital. In this case,
gain or loss realized in connection with a forward foreign
exchange contract that is a Section 1256 contract will be
characterized as 60% long-term and 40% short-term capital gain
or loss.
Code Section 1092, which applies to certain
straddles, may affect the taxation of the Fund
s sales of securities and transactions in options, futures
and forward foreign exchange contracts. Under Section 1092, the
Fund may be required to postpone recognition for tax purposes of
losses incurred in certain sales of securities and certain
closing transactions in options, futures and forward foreign
exchange contracts.
Special Rules for Certain Foreign Currency
Transactions
In general, gains from foreign currencies and
from foreign currency options, foreign currency futures and
forward foreign exchange contracts relating to investments in
stocks, securities or foreign currencies will be qualifying
income for purposes of determining whether the Fund qualifies as
a RIC. It is currently unclear, however, who will be treated as
the issuer of a foreign currency instrument or how foreign
currency options or futures will be valued for purposes of the
RIC diversification requirements applicable to the
Fund.
Under Code Section 988, special rules are provided for
certain transactions in a foreign currency other than the
taxpayers functional currency (i.e., unless certain
special rules apply, currencies other than the U.S. dollar). In
general, foreign currency gains or losses from certain debt
instruments, from certain forward contracts, from futures
contracts that are not regulated futures contracts
and from unlisted options will be treated as ordinary income or
loss under Code Section 988. In certain circumstances, the Fund
may elect capital gain or loss treatment for such transactions.
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 of the Fund 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 shareholders Fund shares and resulting in a
capital gain for any shareholder who received a distribution
greater than such shareholders basis in Fund shares
(assuming the shares were held as a capital asset). These rules
and the mark-to-market rules described above, however, will not
apply to certain transactions entered into by the Fund solely to
reduce the risk of currency fluctuations with respect to its
investments.
The foregoing is a general and abbreviated summary of the
applicable provisions of the Code and Treasury regulations
presently in effect. For the complete provisions, reference
should be made to the pertinent Code sections and the Treasury
regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative, judicial or
administrative action either prospectively or
retroactively.
Ordinary income and capital gain dividends may also be
subject to state and local taxes.
Certain states exempt from state income taxation dividends
paid by RICs that are derived from interest on U.S. Government
obligations. State law varies as to whether dividend income
attributable to U.S. Government obligations is exempt from state
income tax.
Shareholders are urged to consult their tax advisers
regarding specific questions as to Federal, foreign, state or
local taxes. Foreign investors should consider applicable
foreign taxes in their evaluation of an investment in the
Funds.
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 is based on the Funds historical performance
and is not intended to indicate future performance. Average
annual total return is determined separately for Class I, Class
A, Class B and Class C shares in accordance with a formula
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 I and
Class A 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 I and A
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 the
distribution charges and any incremental transfer agency cost
relating to each class of shares will be borne exclusively by
that class. The Fund will include performance data for all
classes of shares 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 Funds total return may
be expressed either as a percentage or as a dollar amount in
order to illustrate such total return on a hypothetical $1,000
investment in the Fund at the beginning of each specified
period.
Set forth below is total return information for the Class
I, Class A, Class B and Class C shares of the Fund for the
periods indicated.
|
|
Class I Shares
|
|
Class A Shares
|
|
|
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 January 31,
2000 |
|
|
|
|
|
|
|
|
Inception (February 2, 1996)
through the fiscal year ended
January 31, 2000 |
|
|
|
|
|
|
|
|
|
|
Class I Shares
|
|
Class A Shares
|
|
|
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) |
Year
Ended January 31, |
|
|
|
|
|
|
|
|
2000 |
|
|
|
|
|
|
|
|
1999 |
|
|
|
|
|
|
|
|
1998 |
|
|
|
|
|
|
|
|
Inception (February 2, 1996)
through the fiscal year ended
January 31, 1997 |
|
|
|
|
|
|
|
|
|
|
|
|
Average Annual Total Return
(including maximum applicable sales charges) |
Inception (February 2, 1996)
through the fiscal year ended
January 31, 2000 |
|
|
|
|
|
|
|
|
|
|
|
|
Class B Shares
|
|
Class C Shares
|
|
|
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 January 31,
2000 |
|
|
|
|
|
|
|
|
Inception (February 2, 1996)
through the fiscal year ended
January 31, 2000 |
|
|
|
|
|
|
|
|
|
|
|
|
Average Annual Total Return
(including maximum applicable sales charges) |
Year
Ended January 31, |
|
|
|
|
|
|
|
|
2000 |
|
|
|
|
|
|
|
|
1999 |
|
|
|
|
|
|
|
|
1998 |
|
|
|
|
|
|
|
|
Inception (February 2, 1996)
through the fiscal year ended
January 31, 1997 |
|
|
|
|
|
|
|
|
|
|
|
|
Average Annual Total Return
(including maximum applicable sales charges) |
Inception (February 2, 1996)
through the fiscal year ended
January 31, 2000 |
|
|
|
|
|
|
|
|
|
In order to reflect the reduced sales charges in the case
of Class I or Class A 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 and
Redemption of Shares, respectively, the total return
data quoted by the Fund in advertisements directed to such
investors may take into account the reduced, and not the
maximum, sales charge or may take into account the CDSC and
therefore may reflect greater total return since, due to the
reduced sales charges or the waiver of sales charges, a lower
amount of expenses is deducted.
On occasion, the Fund may compare its performance to
various indices including, among other things, the Standard
& Poors 500 Index, the Value Line Composite Index, the
Dow Jones Industrial Average, or other published indices, or to
data contained in publications such as Lipper Analytical
Services, Inc., Morningstar Publications, Inc. (Morningstar
), other competing universes, Money Magazine, U.S. News
& World Report, Business Week, Forbes Magazine, Fortune
Magazine and CDA Investment Technology, Inc. When comparing
its
performance to a market index, the Fund may refer to various
statistical measures derived from the historic performance of
the Fund and the index, such as standard deviation and beta. As
with other performance data, performance comparisons should not
be considered indicative of the Funds relative performance
for any future period. From time to time, the Fund may include
its Morningstar risk-adjusted performance rating in
advertisements or supplemental sales literature. The Fund may
from time to time quote in advertisements or other materials
other applicable measures of performance and may also make
reference to awards that may be given to the Investment
Adviser.
The Program was incorporated under Maryland law on May 12,
1994. As of the date of this Statement of Additional
Information, the Program has an authorized capital of
200,000,000 shares of Common Stock par, value $0.10 per share,
of which 47,500,000 has been designated to the Fund as follows:
6,250,000 Class I shares, 6,250,000 Class A shares, 25,000,000
Class B shares, and 10,000,000 Class C shares. The Board of
Directors of the Program may classify and reclassify the shares
of a 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 Program does not intend to hold meetings
of shareholders in any year in which the Investment Company Act
does not require shareholders to act on any of the following
matters: (i) election of Directors; (ii) approval of an
investment advisory agreement; (iii) approval of a distribution
agreement; and (iv) ratification of selection of independent
auditors. Generally, under Maryland law, a meeting of
shareholders may be called for any purpose on the written
request of the holders of at least 10% of the outstanding shares
of the Program. Voting rights for Directors are not cumulative.
Shares issued are fully paid and non-assessable and have no
preemptive or conversion rights. Redemption rights are discussed
elsewhere herein and in the Prospectus. Each share is entitled
to participate equally in dividends and distributions declared
by the Program and in the net assets of the Program on
liquidation or dissolution after satisfaction of outstanding
liabilities. Stock certificates are issued by the Transfer Agent
only on specific request. Certificates for fractional shares are
not issued in any case.
Deloitte & Touche LLP,
Princeton Forrestal Village, 116-300 Village Boulevard,
Princeton, New Jersey 08540-6400, has been selected as the
independent auditors of the Program. The independent auditors
are responsible for auditing the annual financial statements of
the Fund.
The Bank of New York, 100 Church Street, New York, New
York 10286, (the Custodian) acts as the Custodian of
the Programs assets. Under its contract with the Program,
the Custodian is authorized to establish separate accounts in
foreign currencies and to cause foreign securities owned by the
Program 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
Programs cash and securities, handling the receipt and
delivery of securities and collecting interest and dividends on
the Programs investments.
Financial Data Services, Inc., 4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484, which is a wholly owned
subsidiary of ML & Co., acts as the Funds Transfer
Agent pursuant to a transfer agency, dividend disbursing agency
and shareholder servicing agency agreement (the Transfer
Agency Agreement). The Transfer Agent is responsible for
the issuance, transfer and redemption of shares and the opening,
maintenance and servicing of shareholder accounts.
Brown & Wood LLP
, One World Trade Center, New York, New York 10048-0557, is
counsel for the Program and the Fund.
The fiscal year of the Fund ends on January 31 of each
year. The Fund sends to its shareholders at least semi-annually
reports showing its 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 Corporation has filed with the Commission, Washington, D.C.,
under the Securities Act and the Investment Company Act, to
which reference is hereby made.
Under a separate agreement, Mercury Asset Management
International Ltd. and Mercury Asset Management Group Ltd. (
Mercury) has granted the Fund the right to use the
Mercury 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 Mercury under certain conditions, the use of any
other name it might assume in the future, with respect to any
corporation organized by Mercury.
To the knowledge of the Fund, no persons or entities owned
beneficially 5% or more of any class of the stock of the Fund as
of January 1, 2000.
CODE #18472-04-00
The information in this prospectus is not
complete and may be changed. We may not use this prospectus to
sell securities until the registration statement containing this
prospectus, which has been filed with the Securities and
Exchange Commission, is effective. This prospectus is not an
offer to sell these securities and is not soliciting an offer to
buy these securities in any state where the offer or sale is not
permitted.
PROSPECTUS
· April
, 2000
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED FEBRUARY 1,
2000
Mercury U.S. Government
Bond Fund
[Art work to come]
This Prospectus contains information you should
know before investing, including information about risks. Please
read it before you invest and keep it for future
reference.
The Securities And Exchange Commission has not
approved or disapproved these securities or passed upon the
adequacy of this Prospectus. Any representation to the contrary
is a criminal offense.
Table of Contents
[GRAPHIC]
[GRAPHIC]
[GRAPHIC]
[GRAPHIC]
[GRAPHIC]
MERCURY U.S. GOVERNMENT BOND FUND
.
[GRAPHIC] Fund Facts
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.
Government Agencies
entities that are part of or
sponsored by the federal government, such as the Government
National Mortgage Administration (Ginnie Mae), the
Tennessee Valley Authority or the Federal Housing
Administration.
Government sponsored enterprises
private corporations sponsored by
the federal government that have the legal status of government
agencies, such as the Federal Home Loan Mortgage Corporation (
Freddie Mac), the Student Loan Marketing Association
(Sallie Mae) or Fannie Mae.
Mortgage backed securities
securities backed by pools of mortgages
that, in many cases, are guaranteed by government agencies such
as Ginnie Mae.
Maturity the
time at which the principal amount of a bond is scheduled to be
returned to investors.
Prepayment Risk
the risk that certain obligations will be paid off by the
obligor more quickly than anticipated and the proceeds may be
invested in securities with lower yields.
Extension Risk
the risk that certain obligations will be paid off more
slowly by the obligor than anticipated and the value of these
securities will fall.
Volatility
the amount and frequency of changes to a securitys
value.
ABOUT THE MERCURY U.S. GOVERNMENT BOND FUND
What is the Funds investment
objective?
The Mercury U.S. Government Bond Funds
investment objective is to seek a high current return through
investments in securities issued or guaranteed by the U.S.
government, government agencies or
government-sponsored enterprises, including GNMA
mortgage backed certificates and other mortgage-backed
securities.
What are the Funds main investment
strategies?
The Fund invests in a portfolio of bonds and
other debt securities that are issued or guaranteed by the U.S.
government or U.S. government agencies or government sponsored
enterprises. The Fund may invest a substantial portion of its
portfolio in mortgage backed securities issued or guaranteed by
government sponsored enterprises. The Fund invests in securities
of any maturity. The Investment Adviser selects securities
depending on its assessment of the relative yields available on
securities of different maturities and its assessment of future
interest rate patterns. Thus, at various times the average
maturity may be relatively short, (under five
years, for example) or relatively long (over ten years, for
example).
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 fluctuate. Although government
securities involve minimal credit risk, changes in the value of
government securities may occur in response to interest rate
movements generally, when interest rates go up,
the value of most government securities, like other fixed income
investments, goes down. If the value of the Funds
investments goes down, you may lose money.
The Fund may invest a substantial portion of its
portfolio in mortgage backed securities. Mortgage backed
securities involve special risks, including prepayment
risk and extension risk, and may involve
more volatility than other fixed income securities
of similar maturities.
Who should invest?
The Fund may be an appropriate investment for you
if you:
|
|
Are looking for an investment that provides
income
|
|
|
Want a professionally managed
portfolio
|
MERCURY U.S. GOVERNMENT BOND FUND
[GRAPHIC] Fund Facts
|
|
Are willing to accept the risk that the value
of your investment may decline as the result of interest rate
movements in order to seek high current return
|
|
|
Are looking for an investment that provides
current return with relatively minimal credit risk
|
MERCURY U.S. GOVERNMENT BOND FUND
[GRAPHIC] Fund Facts
The bar chart and table shown below provide an
indication of the risk of investing in the Fund. The bar chart
shows changes in the Funds performance for Class B shares
for the complete calendar year since the Funds 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 Funds shares for the periods shown with those
of the Salomon Brothers Mortgage Index. How the Fund performed
in the past is not necessarily an indication of how the Fund
will perform in the future.
[BAR CHART]
1996 1997 1998 1999
---- ---- ---- ----
4.57% 8.95% 8.42%
During the period shown in the bar chart, the
highest return for a quarter was
% (quarter ended
) and the lowest return for a
quarter was %
(quarter ended
). The year-to-date return as of
was
%.
Average
Annual Total Returns
(as of the calendar year ended
December 31, 1999) |
|
Past One
Year |
|
Since
Inception |
|
Mercury U.S. Government Bond Fund* I |
|
% |
|
% |
|
Mercury U.S. Government Bond Fund* A |
|
% |
|
% |
|
Mercury U.S. Government Bond Fund* B |
|
% |
|
% |
|
Mercury U.S. Government Bond Fund* C |
|
% |
|
% |
|
Salomon Brothers Mortgage Index** |
|
% |
|
% |
|
*
|
Includes sales
charges.
|
**
|
This unmanaged Index reflects the
performance of a capital market weighting of the outstanding
agency issued mortgage backed securities. Past performance is
not predictive of future performance.
|
|
Inception date is February 1,
1995.
|
MERCURY U.S. GOVERNMENT BOND FUND
[GRAPHIC] Fund Facts
UNDERSTANDING EXPENSES
Fund investors pay various expenses, either
directly or indirectly. Listed below are some of the main types
of expenses, which all mutual funds may charge:
Expenses paid directly by the
shareholder:
Shareholder Fees
these fees include sales charges which you may pay when
you buy or sell shares of the Fund.
Expenses paid indirectly by the
shareholder:
Annual Fund Operating Expenses
expenses that cover the costs of operating
the Fund.
Management Fee a
fee paid to the Investment Adviser for managing the
Fund.
Distribution Fees
fees used to support the Funds marketing and
distribution efforts, such as compensating financial
consultants, advertising and promotion.
Service (Account Maintenance) Fees
fees used to compensate securities dealers
for account maintenance activities.
The Fund offers four different classes of shares.
Although your money will be invested the same way no matter
which class of shares you buy, there are differences among the
fees and expenses associated with each class. Not everyone is
eligible to buy every class. After determining which classes you
are eligible to buy, decide which class best suits your needs.
Your 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
I |
|
Class
A |
|
Class
B(b) |
|
Class
C |
|
Maximum Sales Charge (Load) imposed on purchases
(as a percentage of offering price) |
|
4.00 |
%(c) |
|
4.00 |
%(c) |
|
None |
|
|
None |
|
|
Maximum Deferred Sales Charge (Load) (as a
percentage of original purchase price or redemption
proceeds, whichever is lower) |
|
None |
(d) |
|
None |
(d) |
|
4.00 |
%(c) |
|
1.00 |
%(c) |
|
Maximum Sales Charge (Load) imposed on Dividend
Reinvestments |
|
None |
|
|
None |
|
|
None |
|
|
None |
|
|
Redemption Fee |
|
None |
|
|
None |
|
|
None |
|
|
None |
|
|
Exchange Fee |
|
None |
|
|
None |
|
|
None |
|
|
None |
|
|
Annual Fund Operating Expenses (Expenses that
are deducted from the Funds total assets): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Management Fee |
|
0.50 |
% |
|
0.50 |
% |
|
0.50 |
% |
|
0.50 |
% |
|
Distribution and/or Service (12b-1)
Fees(e) |
|
None |
|
|
0.25 |
% |
|
0.75 |
% |
|
0.80 |
% |
|
Other
Expenses (including transfer agency fees)(f) |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
Total Annual Fund Operating Expenses |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
(a)
|
Certain securities dealers may charge
a fee to process a purchase or sale of shares.
|
(b)
|
Class B shares automatically convert
to Class A shares about ten years after you buy them and will
no longer be subject to distribution fees.
|
(c)
|
Some investors may qualify for
reductions in the sales charge (load).
|
(d)
|
You may pay a deferred sales charge
if you purchase $1 million or more and you redeem within one
year.
|
(e)
|
The Fund calls the Service Fee
an Account Maintenance Fee. Account
Maintenance Fee is the term used elsewhere in this Prospectus
and in all other Fund materials. If you hold Class B or C
shares for a long time, it may cost you more in distribution
(12b-1) fees than the maximum sales charge that you would have
paid if you had bought one of the other
classes.
|
(f)
|
The Fund pays the Transfer Agent a
fee for each shareholder account and reimburses it for
out-of-pocket expenses. The fee ranges from $11.00 to $23.00
per account (depending on the level of services required), but
is set at 0.10% for certain accounts that participate in
certain fee-based programs. The Fund also pays a $0.20 monthly
closed account charge, which is assessed upon all accounts
that close during the calendar year. The 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 January 31,
2000, the Fund paid the Transfer Agent fees totaling $
. The Investment Adviser
provides accounting services to the Fund at its cost. For
fiscal year ended January 31, 2000, the Fund reimbursed the
Investment Adviser $
for these
services.
|
MERCURY U.S. GOVERNMENT BOND FUND
[GRAPHIC] Fund Facts
Example:
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 Funds
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 these
examples. Although your actual costs may be higher or lower,
based on these assumptions, your costs would be:
|
|
|
|
|
|
|
|
|
Expenses if you did
redeem your shares: |
|
|
|
Class
I |
|
Class
A |
|
Class
B |
|
Class
C |
|
One
Year |
|
$
|
|
$
|
|
$
|
|
$
|
|
Three
Years |
|
$
|
|
$
|
|
$
|
|
$
|
|
Five
Years |
|
$
|
|
$
|
|
$
|
|
$
|
|
Ten
Years |
|
$
|
|
$
|
|
$
|
|
$
|
|
|
Expenses if you did not
redeem your shares: |
|
|
|
Class
I |
|
Class
A |
|
Class
B |
|
Class
C |
|
One
Year |
|
$
|
|
$
|
|
$
|
|
$
|
|
Three
Years |
|
$
|
|
$
|
|
$
|
|
$
|
|
Five
Years |
|
$
|
|
$
|
|
$
|
|
$
|
|
Ten
Years |
|
$
|
|
$
|
|
$
|
|
$
|
|
MERCURY U.S. GOVERNMENT BOND FUND
[GRAPHIC] About the Details
About the Portfolio Manager
Gregory Mark Maunz is the Portfolio
Manager. Mr. Maunz was a Vice President of the Investment
Adviser from 1985 to 1997. He has been a First Vice President of
the Investment Adviser since 1997 and Portfolio Manager since
1984.
About the Investment Adviser
The Fund is managed by Fund Asset
Management.
The Fund seeks a high current return through
investments in a portfolio of bonds and other debt securities
that are issued or guaranteed by the U.S. government, government
agencies or government sponsored enterprises, including GNMA
mortgage backed certificates and other mortgage backed
government securities.
The Fund may invest in all securities issued or
guaranteed by the U.S. government or its agencies of any
maturity. Certain securities, such as U.S. Treasury obligations
are direct obligations of the U.S. government. The Fund also
invests in securities that are issued by government sponsored
enterprises or agencies but that are not direct obligations of
the U.S. government. These securities are, however, backed by
the credit of the particular agency or government sponsored
enterprise that issued the securities and are generally
considered to have a relatively low risk of default.
It is anticipated that under certain
circumstances, a significant portion of the Funds assets
may consist of GNMA mortgage backed certificates and other U.S.
government securities representing ownership interests in
mortgage pools.
The Fund will normally invest a portion of its
assets in short term U.S. government and government agency debt
securities, such as Treasury bills. As a temporary measure for
defensive purposes, the Fund may invest more heavily in these
securities, without limitation. The Fund may also increase its
investment in these securities when Fund management is unable to
find enough attractive longer term investments, to reduce
exposure to longer term investments when management believes it
is advisable to do so on a temporary basis, or to meet
redemptions. Investments in short term securities can be sold
easily and have limited risk of loss but earn only limited
returns. Short term investments may, therefore, limit the
potential for the Fund to achieve its investment
objective.
MERCURY U.S. GOVERNMENT BOND FUND
[GRAPHIC] About the Details
This section contains a summary discussion of the
general risks of investing in the Fund. As with any fund, there
can be no guarantee that the Fund will meet its objective, or
that the Funds performance will be positive over any
period of time.
Market and Selection Risk
Market risk is the risk that bond market will go
down in value, including the possibility that the market will go
down sharply and unpredictably. Selection risk is the risk that
the investments that Fund management selects will underperform
the bond market or other funds with similar investment
objectives and investment strategies.
Interest Rate Risk
Interest rate risk is the risk that prices of
bonds generally increase when interest rates decline and
decrease when interest rates increase. Prices of longer term
securities generally change more in response to interest rate
changes than prices of shorter term securities.
Credit Risk
Credit risk is the risk that the issuer will be
unable to pay the interest or principal when due. The degree of
credit risk depends on both the financial condition of the
issuer and the terms of the obligation. Because the obligations
in which the Fund invests are typically guaranteed by the U.S.
government or government agencies, there is minimal credit
risk.
Call and Redemption Risk
A bonds issuer may call a bond for
redemption before it matures. If this happens to a bond the Fund
holds, the Fund may lose income and may have to invest the
proceeds in bonds with lower yields.
The Fund also may be subject to risks associated
with the following investment strategies.
Mortgage backed securities
Mortgage backed securities represent the right to
receive a portion of principal and/or interest payments made on
a pool of residential or commercial mortgage loans. When
interest rates fall, borrowers may refinance or otherwise repay
principal on their mortgages earlier than scheduled. When this
happens, certain
types of mortgage backed securities will be paid off more quickly
than originally anticipated and the Fund has to invest the
proceeds in securities with lower yields. This risk is known as
prepayment risk. When interest rates rise, certain
types of mortgage backed securities will be paid off more slowly
than originally anticipated and the value of these securities
will fall. This risk is known as extension risk
.
Because of prepayment risk and extension risk,
mortgage backed securities react differently to changes in
interest rates than other fixed income securities. Small
movements in interest rates (both increases and decreases) may
quickly and significantly reduce the value of certain mortgage
backed securities.
Most mortgage backed securities are issued by
Federal government agencies, such as the Government National
Mortgage Association (Ginnie Mae), the Federal Home Loan
Mortgage Corporation (Freddie Mac) or Federal National Mortgage
Association (Fannie Mae). Principal and interest payments on
mortgage backed securities issued by Federal government agencies
are guaranteed by either the Federal government or the
government agency. Such securities have very little credit risk,
but may be subject to substantial interest rate
risk.
Mortgage backed securities may be either
pass-through securities or collateralized mortgage obligations
(CMOs). Pass-through securities represent a right to receive
principal and interest payment collected on a pool of mortgage
payments. Certain CMO tranches may represent a right to receive
interest only (IOs), principal only (POs) or an amount that
remains after other floating-rate tranches are paid (an inverse
floater). These securities are frequently referred to as
mortgage derivatives and may be extremely sensitive
to changes in interest rates. If the Fund invests in CMO
tranches (including CMO tranches issued by government agencies)
and interest rates move in a manner not anticipated by Fund
Management, it is possible that the Fund could lose all or
substantially all of its investment.
Derivatives
The Fund may use derivative instruments including
futures, forwards, options, indexed securities and inverse
securities. Derivatives are financial instruments whose value is
derived from another security, a commodity (such as oil or
gold), or an index, such as the prime lending rate. Derivatives
allow the Fund to increase or decrease its risk exposure more
quickly and efficiently than other types of
instruments.
MERCURY U.S. GOVERNMENT BOND FUND
[GRAPHIC] About the Details
Derivatives are volatile and involve significant
risks, including:
|
|
Credit Risk
the risk that the counterparty (the party on the
other side of the transaction) on a derivative transaction
will be unable to honor its financial obligations to the
Fund.
|
|
|
Leverage Risk
the risk associated with certain types of
investments or trading strategies that relatively small market
movements may result in large changes in the value of an
investment. Certain investments or trading strategies that
involve leverage can result in losses that greatly exceed the
amount originally invested.
|
|
|
Liquidity Risk
the risk that certain securities may be difficult
or impossible to sell at the time that the seller would like
or at the price that the seller believes the security is
currently worth.
|
The Fund may use derivatives such as futures and
options for hedging purposes, including anticipatory hedges and
cross-hedges. Hedging is a strategy in which the Fund uses a
derivative to offset the risk that other Fund holdings may
decrease in value. While hedging can reduce losses, it can also
reduce or eliminate gains if the market moves in a different
manner than anticipated by the Fund or if the cost of the
derivative outweighs the benefit of the hedge. Hedging also
involves the risk that changes in the value of the derivative
will not match those of the holdings being hedged as expected by
the Fund, in which case any losses on the holdings being hedged
may not be reduced. There can be no assurance that the Fund
s hedging strategy will reduce risk or that hedging
transactions will be either available or cost effective. The
Fund is not required to use hedging and may choose not to do
so.
Covered Call Options
The Fund can sell covered call options, which are
options that give the purchaser the right to require the Fund to
sell a security owned by the Fund to the purchaser at a
specified price within a limited time period. The Fund may also
sell the purchaser a right to require the Fund to make a payment
based on the level of an index that is closely correlated with
some of the Funds holdings. The Fund will receive a
premium (an upfront payment) for selling a covered call option,
and if the option expires unexercised because the price of the
underlying security has gone down the premium received by the
Fund will partially offset any losses on the underlying
security. By writing a covered call option, however, the Fund
limits its ability to sell the underlying security and gives up
the opportunity to profit from any increase in the value of the
underlying security beyond the sale price specified in the
option.
MERCURY U.S. GOVERNMENT BOND FUND
[GRAPHIC] About the Details
Indexed Derivative Securities
The Fund may invest in debt securities the
potential returns of which are directly related to changes in an
underlying index or interest rate, known as indexed securities.
The return on indexed securities will rise when the underlying
index or interest rate rises and fall when the index or interest
rate falls. The Fund may also invest in securities whose return
is inversely related to changes in an index or interest rate. In
general, inverse securities change in value in a manner that is
opposite to most securitiesthat is, the return of inverse
securities will decreases. Investments in indexed and inverse
securities may subject the Fund to the risks of reduced or
eliminated interest payments and losses of principal. In
addition, certain indexed and inverse securities may increase or
decrease in value at a greater rate than the underlying index,
which effectively leverages the Funds investment. As a
result, the market value of such securities will generally be
more volatile than that of other securities.
Repurchase Agreements
The Fund may enter into repurchase agreements.
Under a repurchase agreement, the seller agrees to repurchase a
security at a mutually agreed upon time and price. If the other
party to a repurchase agreement defaults on its obligation, the
Fund may suffer delays and incur costs or even lose money in
exercising its rights under the agreement.
When Issued and Delayed Delivery Securities and
Forward Commitments
When issued and delayed delivery securities and
forward commitments involve the risk that a security the Fund
buys will lose value prior to its delivery. There also is the
risk that the security will not be issued or that the other
party will not meet its obligation. If this occurs, the Fund
both loses the investment opportunity for the assets it has set
aside to pay for the security and any gain in the security
s price.
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 the Funds shares and in
the yield on the Funds portfolio. Borrowing will cost the
Fund interest expense and other fees. The costs of borrowing may
reduce the Funds return. Certain securities that the Fund
buys may create leverage including, for example, derivatives,
when issued securities, forward commitments and options. The use
of investments that create leverage subjects the Fund to the
risk that relatively small market movement may result in large
changes in the value of an investment and may result in losses
that greatly exceed the amount invested.
MERCURY U.S. GOVERNMENT BOND FUND
[GRAPHIC] About the Details
Securities Lending
The Fund may lend securities with a value not
exceeding 33 1
/3% of its assets to financial
institutions that provide government securities as collateral.
Securities lending involves the risk that the borrower may fail
to return the securities in a timely manner or at all. As a
result, the Fund may lose money and there may be a delay in
recovering the loaned securities. The Fund could also lose money
if it does not recover the securities and the value of the
collateral falls. These events could trigger adverse tax
consequences to the Fund.
Illiquid securities
The Fund may invest up to 15% of its assets in
illiquid securities that it cannot easily resell within seven
days at current value or that have contractual or legal
restrictions on resale. If the Fund buys illiquid securities it
may be unable to quickly resell them or may be able to sell them
only at a price below current value.
Restricted securities
Restricted securities have contractual or legal
restrictions on their resale. They include private placement
securities that the Fund buys directly from the issuer. Private
placement and other restricted securities may not be listed on
an exchange and may have no active trading market.
Restricted securities may be illiquid. The Fund
may be unable to sell them on short notice or may be able to
sell them only at a price below current value. The Fund may get
only limited information about the issuer, so it may be less
able to predict a loss. In addition, if Fund management receives
material adverse nonpublic information about the issuer, the
Fund will not be able to sell the security.
Rule 144A Securities
Rule 144A securities are restricted securities
that can be resold to qualified institutional buyers but not to
the general public. Rule 144A securities may have an active
trading market, but carry the risk that the active trading
market may not continue.
STATEMENT OF ADDITIONAL INFORMATION
If you would like further information about the
Fund, including how the Fund invests, please see the Statement
of Additional Information.
MERCURY U.S. GOVERNMENT BOND FUND
[GRAPHIC] Account Choices
The Fund offers four classes of shares, 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 financial consultant can help you
determine which share class is best suited to your personal
financial goals.
For example, if you select Class I or A shares,
you generally pay a sales charge at the time of purchase. If you
buy Class A 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 0.50% for Class B shares and
0.55% for Class C shares and an account maintenance fee of
0.25%. Because these fees are paid out of the Funds assets
on an ongoing basis, over time these fees increase the cost of
your investment and may cost you more than paying an initial
sales charge. In addition, you may be subject to a deferred
sales charge when you sell Class B or C shares.
The Funds shares are distributed by Mercury
Funds Distributor, a division of Princeton Funds Distributor,
Inc.
MERCURY U.S. GOVERNMENT BOND FUND
[GRAPHIC] Account Choices
To better understand the pricing of the Fund
s shares, we have summarized the information
below:
|
|
Class
I |
|
Class
A |
|
Class
B |
|
Class
C |
|
Availability? |
|
Limited to
certain
investors including: |
|
Generally
available
through selected |
|
Generally
available
through selected |
|
Generally
available
through selected |
|
|
Current Class I
shareholders |
|
securities
dealers. |
|
securities
dealers. |
|
securities
dealers. |
|
|
Certain Retirement
Plans |
|
|
|
|
|
|
|
|
Participants in
certain sponsored
programs. |
|
|
|
|
|
|
|
|
Certain affiliates or
customers of
selected securities
dealers |
|
|
|
|
|
|
|
|
Initial Sales
Charge? |
|
Yes. Payable
at time of
purchase. Lower sales
charges available for
certain larger
investments. |
|
Yes. Payable
at time of
purchase. Lower sales
charges available for
certain larger
investments. |
|
No. Entire
purchase
price is invested in
shares of the Fund. |
|
No. Entire
purchase
price is invested in
shares of the Fund. |
|
|
Deferred Sales
Charge? |
|
No. (May be
charged
for purchases over $1
million that are
redeemed within one
year.) |
|
No. (May be
charged
for purchases over $1
million that are
redeemed within one
year.) |
|
Yes. Payable
if you
redeem within six years
of purchase. |
|
Yes. Payable
if you
redeem within one
year of purchase. |
|
|
Account
Maintenance and
Distribution Fees |
|
No. |
|
0.25% Account
Maintenance Fee. No
Distribution Fee. |
|
0.25% Account
Maintenance Fee.
0.50% Distribution Fee. |
|
0.25% Account
Maintenance Fee.
0.55% Distribution Fee. |
|
|
Conversion to
Class A Shares? |
|
No. |
|
No. |
|
Yes,
automatically after
approximately ten
years. |
|
No. |
|
MERCURY U.S. GOVERNMENT BOND FUND
[GRAPHIC] Account Choices
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 Mercury mutual funds.
Letter of Intent
permits you to pay the sales charge that would be
applicable if you add up all shares of Mercury mutual funds that
you agree to buy within a 13 month period. Certain restrictions
apply.
Class I and A Shares Initial
Sales Charge Options
If you select Class I or A shares, you will pay a
sales charge at the time of purchase as shown in the following
table.
Your
Investment |
|
As a
% of
Offering Price |
|
As a
% of
Your
Investment* |
|
Dealer
Compensation
as a % of
Offering Price |
|
Less
than $25,000 |
|
4.00% |
|
4.17% |
|
3.75% |
|
$25,000 but less
than $50,000 |
|
3.75% |
|
3.90% |
|
3.50% |
|
$50,000 but less
than $100,000 |
|
3.25% |
|
3.36% |
|
3.00% |
|
$100,000 but less
than $250,000 |
|
2.50% |
|
2.56% |
|
2.25% |
|
$250,000 but less
than $1,000,000 |
|
1.50% |
|
1.52% |
|
1.25% |
|
$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 I or A 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 I and A shares by certain employer sponsored retirement
or savings plans.
|
No initial sales charge applies to Class I or
Class A shares that you buy through reinvestment of
dividends.
A reduced or waived sales charge on a purchase of
Class I or A shares may apply for:
|
|
Purchases under a Right of
Accumulation or Letter of
Intent
|
|
|
Certain trusts managed by banks, thrifts or
trust companies including those affiliated with the Investment
Adviser or its affiliates
|
|
|
Certain employer-sponsored retirement or
savings plans
|
|
|
Certain investors, including directors or
trustees of mutual funds sponsored by the Investment Adviser
or its affiliates, employees of the Investment Adviser and its
affiliates and employees or customers of selected
dealers
|
|
|
Certain fee-based programs managed by the
Investment Adviser or its affiliates
|
MERCURY U.S. GOVERNMENT BOND FUND
[GRAPHIC] Account Choices
|
|
Certain fee-based programs managed by selected
dealers that have an agreement with the
Distributor
|
|
|
Purchases through certain financial advisers
that meet and adhere to standards established by the
Investment Adviser
|
|
|
Purchases through certain accounts over which
the Investment Adviser or an affiliate exercises investment
discretion
|
Only certain investors are eligible to buy Class
I shares, including existing Class I shareholders of the Fund,
certain retirement plans and participants in certain programs
sponsored by the Investment Adviser or its affiliates. Your
financial consultant can help you determine whether you are
eligible to buy Class I 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
I and Class A shares, you should buy Class I shares since Class
A shares are subject to a 0.25% account maintenance fee, while
Class I shares are not.
If you redeem Class I or Class A 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 financial consultant or the Funds
Transfer Agent at 1-888-763-2260.
Class B and C SharesDeferred 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 six years
after purchase or 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 0.50% for Class B shares and 0.55%
for Class C shares 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 Funds
assets on an ongoing basis, over time these fees increase the
cost of your investment and may cost you more than paying an
initial sales charge. The Distributor uses the money that it
receives from the deferred sales charge and the distribution
fees to cover the costs of marketing, advertising and
compensating the financial consultant or other dealer who
assists you in your decision in purchasing Fund
shares.
MERCURY U.S. GOVERNMENT BOND FUND
[GRAPHIC] Account Choices
Class B Shares
If you redeem Class B shares within six 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:
Year Since
Purchase |
|
Sales
Charge* |
|
0-1 |
|
4.00% |
|
1-2 |
|
4.00% |
|
2-3 |
|
3.00% |
|
3-4 |
|
3.00% |
|
4-5 |
|
2.00% |
|
5-6 |
|
1.00% |
|
6 and after |
|
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 by
dividend reinvestment are not subject to a deferred sales
charge. Mercury funds may not all have identical deferred
sales charge schedules. In the event of an exchange for the
shares of another Mercury fund, the higher charge, if any,
would apply.
|
The deferred sales charge relating to Class B
shares may be reduced or waived in certain circumstances, such
as:
|
|
Certain post-retirement withdrawals from an IRA
or other retirement plan if you are over 59
1
/2 years old
|
|
|
Redemption by certain eligible 401(a) and
401(k) plans and certain retirement plan rollovers
|
|
|
Redemption in connection with participation in
certain fee-based programs managed by the Investment Adviser
or its affiliates
|
|
|
Redemption in connection with participation in
certain fee-based programs managed by selected dealers that
have agreements with the Distributor
|
|
|
Withdrawals resulting from shareholder death or
disability as long as the waiver request is made within one
year after death or disability or, if later, reasonably
promptly following completion of probate, or in connection
with involuntary termination of an account in which Fund
shares are held
|
|
|
Withdrawal through the Systematic Withdrawal
Plan of up to 10% per year of your Class B account value at
the time the plan is established
|
MERCURY U.S. GOVERNMENT BOND FUND
[GRAPHIC] Account Choices
Your Class B shares convert automatically into
Class A shares approximately ten years after purchase. Any Class
B shares received through reinvestment of dividends paid on
converting shares will also convert at that time. Class A shares
are subject to lower annual expenses than Class B shares. The
conversion of Class B shares to Class A shares is not a taxable
event for Federal income tax purposes.
Different conversion schedules may apply to Class
B shares of different Mercury mutual funds. If you acquire your
Class B shares in an exchange from another fund with a shorter
conversion schedule, the Funds eight year conversion
schedule will apply. If you exchange your Class B shares in a
Fund for Class B shares of a fund with a longer conversion
schedule, the other funds conversion schedule will apply.
The length of time that you hold 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 Systematic Withdrawal Plan.
Class C shares do not offer a conversion
privilege.
HOW TO BUY, SELL, TRANSFER AND EXCHANGE SHARES
The chart below summarizes how to buy, sell,
transfer and exchange shares through certain securities dealers.
You may also buy shares through the Transfer Agent. To learn
more about buying shares through the Transfer Agent, call
1-888-763-2260. Because the selection of a mutual fund involves
many considerations, your financial consultant may help you with
this decision. The Fund does not issue share
certificates.
MERCURY U.S. GOVERNMENT BOND FUND
[GRAPHIC] Account Choices
If you
want to |
|
Your
choices |
|
Information
important for you to know |
|
Buy
shares |
|
First, select
the share class
appropriate for you |
|
Please refer
to the pricing of shares 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: |
|
|
|
|
$500 for certain fee-based programs |
|
|
|
|
$100 for retirement plans |
|
|
|
|
|
(The minimum
for initial investments may be waived or
reduced under certain circumstances.) |
|
|
|
Have your
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. Certain securities dealers may
charge a fee to process a purchase. For example, the fee
charged by Merrill Lynch, Pierce, Fenner & Smith Incorporated
is currently $5.35. The fees charged by other securities
dealers may be higher or lower. |
|
|
|
Or contact the
Transfer Agent |
|
To purchase
shares directly, call the Transfer Agent at 1-888-
763-2260 and request a purchase application. Mail the
completed purchase application to the Transfer Agent at the
address on the inside back cover of this Prospectus. |
|
Add to your
investment |
|
Purchase
additional shares |
|
The minimum
investment for additional purchases is $100 for
all accounts except: |
|
|
|
|
$50 for certain fee-based programs |
|
|
|
|
$1 for retirement plans |
|
|
|
|
|
(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
your securities dealer. |
|
MERCURY U.S. GOVERNMENT BOND FUND
[GRAPHIC] Account Choices
If you
want to |
|
Your
choices |
|
Information
important for you to know |
|
Transfer
shares to
another securities
dealer |
|
Transfer to a
participating
securities dealer |
|
You may
transfer your Fund shares to another securities
dealer if authorized dealer agreements are in place between
the Distributor and the transferring securities dealer and the
Distributor and the receiving securities dealer. Certain
shareholder services may not be available for all transferred
shares. All future trading of these shares must be coordinated
by the receiving securities dealer. |
|
|
|
Transfer to a
non-participating |
|
You must
either: |
|
|
securities
dealer |
|
Transfer your shares to an account with the Transfer
Agent;
or |
|
|
|
|
Sell your shares, paying any applicable Deferred Sales
Charge. |
|
Sell your
shares |
|
Have your
financial consultant
or securities dealer submit your
sales order |
|
The price of
your shares is based on the next calculation of
net asset value after your order is placed. For your redemption
request to be priced at the net asset value on the day of your
request, you must submit your request to your dealer prior to
the 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. |
|
|
|
|
|
Certain
securities dealers may charge a fee to process a sale
of shares. For example, the fee charged by Merrill Lynch,
Pierce, Fenner & Smith Incorporated is currently $5.35. The
fees charged by other securities dealers may be higher or
lower. |
|
|
|
|
|
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 generally will 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. 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 usually will
not exceed ten days. |
|
MERCURY U.S. GOVERNMENT BOND FUND
[GRAPHIC] Account Choices
If you
want to |
|
Your
choices |
|
Information
important for you to know |
|
Sell shares
systematically |
|
Participate in
the Funds
Systematic Withdrawal Plan |
|
You can
generally arrange through your selected dealer for
systematic sales of shares 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
financial consultant for details. |
|
Exchange your
shares |
|
Select the
fund into which you
want to exchange. Be sure to
read that funds prospectus |
|
You can
exchange your shares of the Fund for shares of other
Mercury mutual funds or for shares of the Summit Cash
Reserves Fund. 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 Mercury fund. If you own Class I
shares and wish to exchange into a fund in which you have
no Class I shares (and you are not eligible to buy Class I
shares), you will exchange into Class A shares. If you own
Class I or Class A shares and wish to exchange into Summit,
you will exchange into Class A shares of Summit. Class B or
Class C shares can be exchanged for Class B shares of
Summit. |
|
|
|
|
|
Some of the
Mercury mutual funds may impose a different
initial or deferred sales charge schedule. If you exchange Class
I or Class A shares for shares of a fund with a higher initial
sales charge than you originally paid, you may be charged the
difference at the time of exchange. If you exchange Class B or
Class C 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 Class C shares in both funds will count
when determining your holding period for calculating a
deferred sales charge at redemption. Your time in both funds
will also count when determining the holding period for a
conversion from Class B to Class A shares. |
|
|
|
|
|
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. |
|
MERCURY U.S. GOVERNMENT BOND FUND
[GRAPHIC] Account Choices
Net Asset Value
the market value in U.S. dollars of the Funds 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 as of the close of business on
the Exchange based on prices at the time of closing. The
Exchange generally closes at 4:00 p.m. Eastern time. The net
asset value used in determining your price is the next one
calculated after your purchase or redemption order is placed. As
a result, the Funds net asset value may change on days
when you will not be able to purchase or redeem Fund
shares.
Generally, Class I shares will have the highest
net asset value because that class has the lowest expenses, and
Class A shares will have a higher net asset value than Class B
or Class C shares. Also, dividends paid on Class I and Class A
shares will generally be higher than dividends paid on Class B
and Class C shares because Class I and Class A shares have lower
expenses.
MERCURY U.S. GOVERNMENT BOND FUND
[GRAPHIC] Account Choices
Dividends ordinary
income and capital gains paid to shareholders. Dividends may be
reinvested in additional Fund shares as they are
paid.
If you participate in certain fee-based programs
offered by the Investment Adviser or an affiliate of the
Investment Adviser, or by selected dealers that have an
agreement with the Distributor, you may be able to buy Class I
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
the Funds shares or into the Summit 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 A shares may be modified. Any redemption or exchange will
be at net asset value. However, if you participate in the
program for less than a specified period, you may be charged a
fee in accordance with the terms of the program.
Details about these features and the relevant
charges are included in the client agreement for each fee-based
program and are available from your financial consultant or your
selected dealer.
The Fund will distribute any net investment
income monthly. The Fund may also pay a special distribution at
the end of the calendar year to comply with Federal tax
requirements. Dividends may be reinvested
automatically in shares of the Fund at net asset value without a
sales charge or may be taken in cash. If your account is with a
securities dealer that has an agreement with the Fund, contact
your financial consultant about which option you would like. If
your account is with the Transfer Agent, and you would like to
receive dividends in cash, contact the Transfer Agent. The Fund
anticipates that the majority of its dividends, if any, will
consist of ordinary income.
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
Funds ordinary income dividends (which include
distributions of net short-term capital gains) will generally be
subject to a 30% U.S. withholding tax, unless a lower treaty
rate applies.
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 redemption 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.
MERCURY U.S. GOVERNMENT BOND FUND
[GRAPHIC] The Management Team
Fund Asset Management, the Funds Investment
Adviser, manages the Funds investments under the overall
supervision of the Board of Directors of The Asset Program, Inc.
The Investment Adviser has the responsibility for making all
investment decisions for the Fund. The Fund pays the Investment
Adviser a fee at the annual rate of 0.50% of the average daily
net assets of the Fund.
Fund Asset Management was organized as an
investment adviser in 1977 and offers investment advisory
services to more than 50 registered investment companies. Fund
Asset Management is part of the Asset Management Group of ML
& Co., which had approximately $
billion in
investment company and other portfolio assets under management
as of
, 2000. This amount includes
assets managed for affiliates of the Investment
Adviser.
A Note About Year 2000
As the year 2000 began, there were few problems
caused by the inability of certain computers to tell the
difference between the year 2000 and the year 1900 (commonly
known as the Year 2000 Problem). It is still
possible that some computer systems could malfunction in the
future because of the Year 2000 Problem or as a result of
actions taken to address the Year 2000 Problem. Fund management
does not anticipate that its services or those of the Fund
s other service providers will be adversely affected, but
Fund management will continue to monitor the situation. If
malfunctions related to the Year 2000 Problem do arise, the Fund
and its investments could be negatively affected.
MERCURY U.S. GOVERNMENT BOND FUND
[GRAPHIC] The Management Team
FINANCIAL HIGHLIGHTS
The Financial Highlights table is intended to
help you understand the Funds financial performance for
the period since the Funds inception. Certain information
reflects financial results for a single Fund share. The total
return 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 Deloitte
& Touche LLP, whose report, along with the
Funds financial statements, is included in the Funds
annual report to shareholders, which is available upon
request.
|
|
Class A(1)
|
|
Class D(2)
|
Increase
(Decrease) in |
|
For
the Year Ended January
31,
|
|
For
the Year Ended January
31,
|
Net
Asset Value |
|
2000 |
|
1999 |
|
1998 |
|
1997 |
|
1996 |
|
2000 |
|
1999 |
|
1998 |
|
1997 |
|
1996 |
|
Per Share Operating Performance |
|
Net
asset value, beginning of period |
|
|
|
$10.48 |
|
|
$10.20 |
|
|
$10.48 |
|
|
$10.00 |
|
|
|
|
$10.48 |
|
|
$10.20 |
|
|
$10.48 |
|
|
$10.00 |
|
|
Investment income (loss)
net |
|
|
|
.64 |
|
|
.69 |
|
|
.69 |
|
|
.76 |
|
|
|
|
.61 |
|
|
.67 |
|
|
.66 |
|
|
.74 |
|
|
Realized and unrealized gain (loss) on investments
net |
|
|
|
.21 |
|
|
.35 |
|
|
(.21 |
) |
|
.74 |
|
|
|
|
.21 |
|
|
.35 |
|
|
(.21 |
) |
|
.74 |
|
|
Total
from investment operations |
|
|
|
.85 |
|
|
1.04 |
|
|
.48 |
|
|
1.50 |
|
|
|
|
.82 |
|
|
1.02 |
|
|
.45 |
|
|
1.48 |
|
|
Less dividends
and distributions: |
Investment income
net |
|
|
|
(.64 |
) |
|
(.69 |
) |
|
(.69 |
) |
|
(.76 |
) |
|
|
|
(.61 |
) |
|
(.67 |
) |
|
(.66 |
) |
|
(.74 |
) |
Realized Gain on Investments
net |
|
|
|
(.17 |
) |
|
(.07 |
) |
|
(.07 |
) |
|
(.26 |
) |
|
|
|
(.17 |
) |
|
(.07 |
) |
|
(.07 |
) |
|
(.26 |
) |
In Excess of Realized Gain on Investments
net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
dividends and distributions |
|
|
|
(.81 |
) |
|
(.76 |
) |
|
(.76 |
) |
|
(1.02 |
) |
|
|
|
(.78 |
) |
|
(.74 |
) |
|
(.73 |
) |
|
(1.00 |
) |
|
Net
asset value, end of period |
|
|
|
$10.52 |
|
|
$10.48 |
|
|
$10.20 |
|
|
$10.48 |
|
|
|
|
$10.52 |
|
|
$10.48 |
|
|
$10.20 |
|
|
$10.48 |
|
|
Total
Investment Return:** |
|
Based
on net asset value per share |
|
|
|
8.39 |
% |
|
10.66 |
% |
|
4.76 |
% |
|
15.47 |
% |
|
|
|
8.12 |
% |
|
10.38 |
% |
|
4.49 |
% |
|
15.13 |
%# |
|
Ratios to
Average Net Assets: |
|
Expenses, net of reimbursement |
|
|
|
.00 |
% |
|
.00 |
% |
|
.00 |
% |
|
.00 |
% |
|
|
|
.25 |
% |
|
.25 |
% |
|
.21 |
% |
|
.22 |
% |
|
Expenses |
|
|
|
1.73 |
% |
|
2.00 |
% |
|
2.92 |
% |
|
2.54 |
% |
|
|
|
1.67 |
% |
|
2.25 |
% |
|
3.14 |
% |
|
2.77 |
% |
|
Investment income (loss)
net |
|
|
|
6.13 |
% |
|
6.80 |
% |
|
6.69 |
% |
|
7.30 |
% |
|
|
|
5.73 |
% |
|
6.53 |
% |
|
6.42 |
% |
|
6.90 |
% |
|
Supplemental Date: |
|
Net
assets, end of period (in thousands) |
|
|
|
$1,278 |
|
|
$3,233 |
|
|
$4,486 |
|
|
$5,463 |
|
|
|
|
$1,701 |
|
|
$
315 |
|
|
$
313 |
|
|
$
182 |
|
|
Portfolio turnover |
|
|
|
310.91 |
% |
|
361.31 |
% |
|
27.32 |
% |
|
113.05 |
% |
|
|
|
310.91 |
% |
|
361.31 |
% |
|
27.32 |
% |
|
113.05 |
% |
|
(1)
|
As of
, 2000,
Class A shares were redesignated Class I
shares.
|
(2)
|
As of
, 2000
Class D shares were redesignated Class A
shares.
|
**
|
Total investment returns exclude the
effects of sales charges.
|
|
Commencement of
operations.
|
|
Based on average shares
outstanding.
|
#
|
Aggregate total investment
return.
|
MERCURY U.S. GOVERNMENT BOND FUND
[GRAPHIC] The Management Team
FINANCIAL HIGHLIGHTS
(concluded)
|
|
Class B
|
|
Class C
|
Increase
(Decrease) in |
|
For
the Year Ended January
31,
|
|
For
the Year Ended January
31,
|
Net Asset
Value: |
|
2000 |
|
1999 |
|
1998 |
|
1997 |
|
1996 |
|
2000 |
|
1999 |
|
1998 |
|
1997 |
|
1996 |
|
Per Share Operating Performance |
|
Net
asset value, beginning of period |
|
|
|
$
10.48 |
|
|
$10.20 |
|
|
$10.48 |
|
|
$10.00 |
|
|
|
|
$10.48 |
|
|
$10.19 |
|
|
$10.47 |
|
|
$10.00 |
|
|
Investment income (loss)
net |
|
|
|
.56 |
|
|
.61 |
|
|
.60 |
|
|
.68 |
|
|
|
|
.55 |
|
|
.60 |
|
|
.59 |
|
|
.67 |
|
|
Realized and unrealized gain on investments
net |
|
|
|
.20 |
|
|
.35 |
|
|
(.21 |
) |
|
.74 |
|
|
|
|
.20 |
|
|
.36 |
|
|
(.21 |
) |
|
.73 |
|
|
Total
from investment operations |
|
|
|
.76 |
|
|
.96 |
|
|
.39 |
|
|
1.42 |
|
|
|
|
.75 |
|
|
.96 |
|
|
.38 |
|
|
1.40 |
|
|
Less
distributions from realized gain on
investments net |
|
|
|
(.56 |
) |
|
(.61 |
) |
|
(.60 |
) |
|
(.68 |
) |
|
|
|
(.55 |
) |
|
(.60 |
) |
|
(.59 |
) |
|
(.67 |
) |
Realized gain on investments
net |
|
|
|
(.17 |
) |
|
(.07 |
) |
|
(.07 |
) |
|
(.26 |
) |
|
|
|
(.17 |
) |
|
(.07 |
) |
|
(.07 |
) |
|
(.26 |
) |
In excess of realized gain on
investments
net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
dividends and distributions |
|
|
|
(.73 |
) |
|
(.68 |
) |
|
(.67 |
) |
|
(.94 |
) |
|
|
|
(.72 |
) |
|
(.67 |
) |
|
(.66 |
) |
|
(.93 |
) |
|
Net
asset value, end of period |
|
|
|
$
10.51 |
|
|
$10.48 |
|
|
$10.20 |
|
|
$10.48 |
|
|
|
|
$10.51 |
|
|
$10.48 |
|
|
$10.19 |
|
|
$10.47 |
|
|
Total
Investment Return:** |
|
Based
on net asset value per share |
|
|
|
7.48 |
% |
|
9.76 |
% |
|
3.90 |
% |
|
14.53 |
%# |
|
|
|
7.43 |
% |
|
9.79 |
% |
|
3.83 |
% |
|
14.36 |
%# |
|
Ratios to
Average Net Assets: |
|
Expenses, net of reimbursement |
|
|
|
.75 |
% |
|
.75 |
% |
|
.78 |
% |
|
.81 |
% |
|
|
|
.80 |
% |
|
.80 |
% |
|
.85 |
% |
|
.86 |
% |
|
Expenses |
|
|
|
2.34 |
% |
|
2.82 |
% |
|
3.72 |
% |
|
3.35 |
% |
|
|
|
2.47 |
% |
|
2.90 |
% |
|
3.78 |
% |
|
3.41 |
% |
|
Investment income (loss)
net |
|
|
|
5.26 |
% |
|
5.94 |
% |
|
5.85 |
% |
|
6.28 |
% |
|
|
|
5.21 |
% |
|
5.88 |
% |
|
5.78 |
% |
|
6.21 |
% |
|
Supplemental Date: |
|
Net
assets, end of period (in thousands) |
|
|
|
$14,817 |
|
|
$6,627 |
|
|
$4,514 |
|
|
$3,043 |
|
|
|
|
$4,679 |
|
|
$2,057 |
|
|
$1,757 |
|
|
$1,089 |
|
|
Portfolio turnover |
|
|
|
310.91 |
% |
|
361.31 |
% |
|
27.32 |
% |
|
113.05 |
% |
|
|
|
310.91 |
% |
|
361.31 |
% |
|
27.32 |
% |
|
113.05 |
% |
|
**
|
Total investment returns exclude the
effects of sales loads.
|
|
Commencement of
operations.
|
|
Based on average shares
outstanding.
|
#
|
Aggregate total investment
return.
|
MERCURY U.S. GOVERNMENT BOND FUND
Fund
Mercury U.S. Government Bond Fund
P.O. Box 9011
Princeton, New Jersey 08543-9011
(888-763-2260)
Investment Adviser
Administrative Offices:
Fund Asset Management, L.P.
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9011
Princeton, New Jersey 08543-9011
Transfer Agent
Financial Data Services, Inc.
P.O. Box 44062
Jacksonville, Florida 32232-4062
(888-763-2260)
Independent Auditors
Deloitte & Touche LLP
Princeton Forrestal Village
116-300 Village Boulevard
Princeton, New Jersey 08540-6400
Distributor
Mercury Funds
Distributor, a division of
Princeton Funds Distributor, Inc.
P.O. Box 9081
Princeton, New Jersey 08543-9081
Custodian
The Bank of New York
100 Church Street
New York, New York 10286
Counsel
Brown & Wood LLP
One World Trade Center
New York, New York 10048-0557
MERCURY U.S. GOVERNMENT BOND FUND
[GRAPHIC] To Learn More
Additional information about the Funds
investments will be available in the Programs annual and
semi-annual reports to shareholders. In the Programs
annual report you will find a discussion of the market
conditions and investment strategies that significantly affected
the Funds performance during its last fiscal year. You may
obtain these reports at no cost by calling
1-888-763-2260.
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 financial
consultant or write to the Transfer Agent at its mailing
address. Include your name, address, tax identification number
and brokerage or mutual fund account number. If you have any
questions, please call your financial consultant or the Transfer
Agent at 1-888-763-2260.
STATEMENT OF
ADDITIONAL INFORMATION
The Funds Statement of Additional
Information contains further information about the Fund and is
incorporated by reference (legally considered to be part of this
Prospectus). You may request a free copy by writing or calling
the Fund at Financial Data Services, Inc., P.O. Box 44062,
Jacksonville, Florida 32232-4062 or by calling
1-888-763-2260.
Contact your financial consultant or the Fund at
the telephone number or address indicated above if you have any
questions.
Information about the Fund (including the
Statement of Additional Information) can be reviewed and copied
at the SECs Public Reference Room in Washington, D.C. Call
1-800-SEC-0330 for information on the operation of the public
reference room. This information is also available on the SEC
s Internet Site at http://www.sec.gov and copies may be
obtained upon payment of a duplicating fee by writing the Public
Reference Section of the SEC, Washington, D.C.
20549-6009.
You should rely only on the information contained
in this prospectus. No one is authorized to provide you with
information that is different from the information in this
prospectus.
Investment Company Act File #811
7177.
Code #18471-04-00
©Fund Asset Management, L.P.
Mercury U.S. Government
Bond Fund
[GRAPHIC]
PROSPECTUS ·
April , 2000
The information in this statement of
additional information is not complete and may be changed. This
statement of additional information is not an offer to sell
these securities in any state where the offer or sale is not
permitted.
SUBJECT TO COMPLETION
PRELIMINARY STATEMENT OF ADDITIONAL
INFORMATION
DATED FEBRUARY 1, 2000
STATEMENT OF ADDITIONAL
INFORMATION
Mercury U.S. Government Bond
Fund
P.O. Box 9011, Princeton, New Jersey
08543-9011
Phone No. (888) 763-2260
The Mercury U.S. Government Bond Fund (the Fund
) is a series of The Asset Program, Inc. (the Program
), a professionally-managed open-end management investment
company organized as a Maryland corporation. The Fund seeks high
current return by investing in a diversified portfolio of U.S.
Government and Government agency securities, including
Government National Mortgage Association (GNMA)
mortgage backed securities and other mortgage backed government
securities. There can be no assurance that the investment
objective of the Fund will be realized. For more information on
the Funds investment objective and policies, see
Investment Objective and Policies.
The Fund offers four classes of shares, each with a
different combination of sales charges, ongoing fees and other
features. These alternatives permit 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 is not a
prospectus and should be read in conjunction with the Prospectus
of the Fund, dated April , 2000 (the
Prospectus), which has been filed with the
Securities and Exchange Commission (the Commission)
and can be obtained, without charge, by calling the Fund at
1-888-763-2260 or your financial consultant, or by writing to
the address listed above. The Prospectus is incorporated by
reference into this Statement of Additional Information, and
this Statement of Additional Information is incorporated by
reference into the Prospectus. The Funds audited financial
statements are incorporated in this Statement of Additional
Information by reference to the Programs 1999 annual
report to shareholders. You may request a copy of the annual
report or the Prospectus 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.
Fund Asset Management Investment
Adviser
Mercury Funds Distributor
Distributor
The date of this Statement of Additional
Information is April , 2000.
TABLE OF CONTENTS
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek high
current return through investments in U.S. Government and
Government agency securities, including Government National
Mortgage Association (GNMA) mortgage backed
certificates and other mortgage backed government securities.
This investment objective is a fundamental policy of the Fund
which may not be changed without a vote of a majority of the Fund
s outstanding voting securities. 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). There can be
no assurance that the objective of the Fund will be
achieved.
The Fund invests in a portfolio of bonds and other debt
securities that are issued or guaranteed by the U.S. Government,
by various agencies of the U.S. Government and by various
instrumentalities which have been established or sponsored by
the U.S. Government (U.S. Government securities).
Certain of these obligations, including U.S. Treasury bills,
notes and bonds and securities of GNMA and the Federal Housing
Administration (FHA), are issued or guaranteed by
the U.S. Government and supported by the full faith and credit
of the United States. Other U.S. Government securities are
issued or guaranteed by Federal agencies or government-sponsored
enterprises and are not direct obligations of the United States
but involve sponsorship or guarantees by Government agencies or
enterprises. The guarantee by Federal agencies or
government-sponsored enterprises of their securities does not
extend to the Programs shares. These obligations include
securities that are supported by the right of the issuer to
borrow from the Treasury, such as obligations of Federal Home
Loan Banks, and securities that are supported only by the credit
of the instrumentality, such as Federal National Mortgage
Association (FNMA) bonds. Because the U.S.
Government is not obligated to provide support to its
instrumentalities, the Fund will invest in obligations issued by
these instrumentalities where the Fund is satisfied that the
credit risk with respect to the issuers is minimal. In addition,
the Fund may invest up to 5% of its assets in obligations issued
or guaranteed by the International Bank for Reconstruction and
Development (the World Bank), an international
organization of which the United States is a member
country.
The Fund has authority to invest in all U.S. Government
securities. A significant portion of its portfolio of U.S.
Government securities may consist of GNMA mortgaged backed
certificates (GNMA Certificates) and other U.S.
Government securities representing ownership interests in
mortgage pools. For a description of GNMA Certificates and other
eligible securities representing interests in mortgage pools,
see GNMA Certificates and Other Mortgage-Backed Government
Securities below. Determinations as to the types of U.S.
Government securities held by the Fund will be made by the
Investment Adviser. The Investment Advisers decisions will
be based on, among other factors, the relative yields of the
various types of U.S. Government securities, its assessment of
future interest rate patterns and the desirability of holding
U.S. Government securities on which it may write covered
options, as described below.
The Investment Adviser will effect portfolio transactions
without regard to any holding period if, in its judgment, such
transactions are advisable in light of a change in general
market, economic or financial conditions. A high portfolio
turnover rate involves correspondingly greater transaction costs
in the form of dealer spreads and brokerage commissions, which
are borne directly by the Fund. Such turnover also has certain
tax consequences for the Fund.
The average maturity of the Funds holdings will vary
based on the Investment Advisers assessment of pertinent
economic and market conditions. As with all debt securities,
changes in market yields will affect the value of such
securities. Prices generally increase when interest rates
decline and decrease when interest rates rise. Prices of longer
term securities generally fluctuate more in response to interest
rate changes than do shorter term securities. In as much as the
Fund invests in mortgage-backed securities, however, it is also
important to note that the Funds net asset value may also
fall when interest rates fall to the extent the Funds
holdings expose the Fund to losses from prepayment risk. See
GNMA Certificates and Other Mortgage-Backed Government
Securities below.
GNMA Certificates and Other Mortgage Backed Government
Securities
The Fund will invest a significant portion of its assets
in GNMA Certificates and other mortgage backed government
securities. GNMA Certificates are mortgage backed securities of
the modified pass-through type,
which means that both interest and principal payments (including
prepayments) are passed through monthly to the holder of the
Certificate. The National Housing Act provides that the full
faith and credit of the United States is pledged to the timely
payment of principal and interest by GNMA of amounts due on
these GNMA Certificates. Each Certificate evidences an interest
in a specific pool of mortgage loans insured by the FHA or the
Farmers Home Administration or guaranteed by the Veterans
Administration (VA). GNMA is a wholly-owned
corporate instrumentality of the United States within the
Department of Housing and Urban Development.
The average life of GNMA Certificates varies with the
maturities of the underlying mortgage instruments which have
maximum maturities of 30 years. The average life is likely to be
substantially less than the original maturity of the mortgage
pools underlying the securities as a result of prepayments or
refinancing of such mortgages. Such prepayments are passed
through to the registered holder with the regular monthly
payments of principal and interest. In addition, GNMA offers a
pass-through security backed by adjustable-rate mortgages. As
prepayment rates vary widely, it is not possible to predict
accurately the average life of a particular pool. The actual
yield of each GNMA Certificate is influenced by the prepayment
experience of the mortgage pool underlying the
certificate.
In addition to GNMA Certificates, the Fund may invest in
mortgage backed securities issued by FNMA and by the Federal
Home Loan Mortgage Corporation (FHLMC). FNMA, a
federally-chartered and privately-owned corporation, issues
pass-through securities and certificates representing an
interest in a pool of FNMA pass-through securities which are
guaranteed as to payment of principal and interest by FNMA.
FHLMC, a corporate instrumentality of the United States, issues
participation certificates which represent an interest in
mortgages from FHLMCs portfolio and securities
representing an interest in a pool of FHLMC participation
certificates. FHLMC guarantees the timely payment of interest
and the ultimate collection of principal. As is the case with
GNMA Certificates, the actual maturity of and realized yield on
particular FNMA and FHLMC mortgage backed securities will vary
based on the prepayment experience of the underlying pool of
mortgages. Securities guaranteed by FNMA and FHLMC are not
backed by the full faith and credit of the United
States.
Mortgage backed U.S. Government securities typically
provide a higher potential for current income than other types
of U.S. Government securities; however, U.S. Treasury bills,
notes and bonds typically provide a higher potential for capital
appreciation than mortgage backed securities.
Payments of principal of and interest on mortgage backed
securities are made more frequently than are payments on
conventional debt securities. In addition, holders of mortgage
backed securities may receive unscheduled payments of principal
at any time representing prepayments on the underlying mortgage
loans or financial assets. Such prepayments may usually be made
by the relating obligor without penalty. Prepayment rates are
affected by changes in prevailing interest rates and numerous
other economic, geographic, social and other factors. Changes in
the rate of prepayments will generally affect the yield to
maturity of the security. Moreover, when the holder of the
security attempts to reinvest prepayments or even the scheduled
payments of principal and interest, it may receive a rate of
interest which is higher or lower than the rate on the mortgage
backed securities originally held. To the extent that mortgage
backed securities are purchased at a premium, mortgage
foreclosures and principal prepayments may result in a loss to
the extent of the premium paid. If such securities are bought at
a discount, both scheduled payments of principal and unscheduled
prepayments will increase current and total returns of the Fund
and will accelerate the recognition of income, which, when
distributed to shareholders, will be taxable as ordinary
income.
Stripped Mortgage Backed Securities.
The Fund may invest in stripped mortgage backed
securities (SMBSs) issued by agencies or
instrumentalities of the United States. SMBSs are derivative
multiclass mortgage backed securities. SMBS arrangements
commonly involve two classes of securities that receive
different proportions of the interest and principal
distributions on a pool of mortgage assets. A common variety of
SMBS is where one class (the principal-only or PO
class) receives some of the interest and most of the principal
from the underlying assets, while the other class (the
interest-only or IO class) receives most of the
interest and the remainder of the principal. In the most extreme
case, the IO class receives all of the interest, while the PO
class receives all of the principal. The yield to maturity of an
IO class is extremely sensitive to the rate of principal
payments (including prepayments) on the related underlying
assets, and a rapid rate of principal payments in excess of that
considered in pricing the securities will have a material
adverse effect on an IO securitys yield to
maturity. If the underlying mortgage assets experience greater
than anticipated payments of principal, the Fund may fail to
recoup fully its initial investment in IOs. In addition, there
are certain types of IOs which represent the interest portion of
a particular class as opposed to the interest portion of the
entire pool. The sensitivity of this type of IO to interest rate
fluctuations may be increased because of the characteristics of
the principal portion to which they relate. As a result of the
above factors, the Fund generally will purchase IOs only as a
component of so-called synthetic securities. This
means that purchases of IOs will be matched with certain
purchases of other securities such as POs, inverse floating rate
collateralized mortgage obligations (CMOs) or fixed
rate securities; as interest rates fall, presenting a greater
risk of unanticipated prepayments of principal, the negative
effect on the Fund because of its holdings of IOs should be
diminished somewhat because of the increased yield on the
inverse floating rate CMOs or the increased appreciation on the
POs or fixed rate securities. IOs and POs of SMBSs are
considered by the staff of the Commission to be illiquid
securities and, consequently, as long as the staff maintains
this position, the Fund will not invest in IOs or POs in an
amount which, taken together with the Funds other
investments in illiquid securities, exceeds 15% (10% to the
extent required by certain state laws) of the Funds total
assets.
Other Investment Policies and Practices
For temporary or defensive purposes or in anticipation of
redemptions, the Fund is authorized to invest up to 100% of its
assets in money market instruments (short term, high quality
debt instruments), including obligations of or guaranteed by the
U.S. Government or its instrumentalities or agencies,
certificates of deposit, bankers acceptances and other
bank obligations, commercial paper rated in the highest category
by a nationally recognized rating agency or other fixed income
securities deemed by the Investment Adviser to be consistent
with the objectives of the Fund, or the Fund may hold its assets
in cash.
When Issued and Delayed Delivery Securities and Forward
Commitments
The Fund may purchase or sell securities that it is
entitled to receive on a when issued or delayed delivery basis.
The Fund may also purchase or sell securities through a forward
commitment. These transactions involve the purchase or sale of
securities by the Fund at an established price with payment and
delivery taking place in the future. The Fund enters into these
transactions to obtain what is considered an advantageous price
to the Fund at the time of entering into the transaction. The
Fund has not established any limit on the percentage of their
assets that may be committed in connection with these
transactions. When the Fund is purchasing securities in these
transactions, it maintains a segregated account with its
custodian of cash, cash equivalents, U.S. Government securities
or other liquid securities in an amount equal to the amount of
its purchase commitments.
There can be no assurance that a security purchased on a
when-issued basis will be issued, or a security purchased or
sold through a forward commitment will be delivered. The value
of securities in these transactions on the delivery date may be
more or less than the Funds purchase price. The Fund may
bear the risk of a decline in the value of the security in these
transactions and may not benefit from an appreciation in the
value of the security during the commitment period.
Standby Commitment Agreements
The Fund may enter into standby commitment agreements.
These agreements commit the Fund, for a stated period of time,
to purchase a stated amount of securities which may be issued
and sold to that Fund at the option of the issuer. The price of
the security is fixed at the time of the commitment. At the time
of entering into the agreement the Fund is paid a commitment
fee, regardless of whether or not the security is ultimately
issued. The Fund will enter into such agreements for the purpose
of investing in the security underlying the commitment at a
price that it considers advantageous. The Fund will not enter
into a standby commitment with a remaining term in excess of 45
days and will limit its investment in such commitments so that
the aggregate purchase price of securities subject to such
commitments, together with the value of portfolio securities
subject to legal restrictions on resale that affect their
marketability, will not exceed 15% of its net assets taken at
the time of the commitment. The Fund will maintain a segregated
account with its custodian of cash, cash equivalents, U.S.
Government securities or other liquid securities in an aggregate
amount equal to the purchase price of the securities underlying
the commitment.
There can be no assurance that the securities subject to a
standby commitment will be issued, and the value of the
security, if issued, on the delivery date may be more or less
than its purchase price. Since the issuance of the security
underlying the commitment is at the option of the issuer, the
Fund may bear the risk of a decline in the value of such
security and may not benefit from an appreciation in the value
of the security during the commitment period.
The purchase of a security subject to a standby commitment
agreement and the related commitment fee will be recorded on the
date on which the security can reasonably be expected to be
issued, and the value of the security thereafter will be
reflected in the calculation of the Funds net asset value.
The cost basis of the security will be adjusted by the amount of
the commitment fee. In the event the security is not issued, the
commitment fee will be recorded as income on the expiration date
of the standby commitment.
Repurchase Agreements and Purchase and Sale
Contracts
The Fund may invest in U.S. Government securities pursuant
to repurchase agreements or purchase and sale contracts.
Repurchase agreements and purchase and sale contracts may be
entered into only with a member bank of the Federal Reserve
System or primary dealer in U.S. Government securities or an
affiliate thereof. Under such agreements, the other party
agrees, upon entering into the contract with the Fund, 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. In the case of
repurchase agreements, the prices at which the trades are
conducted do not reflect accrued interest on the underlying
obligation; whereas, in the case of purchase and sale contracts,
the prices take into account accrued interest. Such agreements
usually cover short periods, such as under one week. Repurchase
agreements may be construed to be collateralized loans by the
purchaser to the seller secured by the securities transferred to
the purchaser. In the case of a repurchase agreement, as a
purchaser, the Fund will require the seller to provide
additional collateral if the market value of the securities
falls below the repurchase price at any time during the term of
the repurchase agreement; the Fund does not have the right to
seek additional collateral in the case of purchase and sale
contracts. In the event of default by the seller under a
repurchase agreement construed to be a collateralized loan, the
underlying securities are not owned by the Fund but only
constitute collateral for the sellers obligation to pay
the repurchase price. Therefore, the Fund may suffer time delays
and incur costs or possible losses in connection with
disposition of the collateral.
A
purchase and sale contract differs from a repurchase agreement
in that the contract arrangements stipulate that the securities
are owned by the Fund. In the event of a default under such a
repurchase agreement or under a purchase and sale contract,
instead of the contractual fixed rate, the rate of return to the
Fund would be dependent upon intervening fluctuations of the
market values 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 not invest in repurchase
agreements or purchase and sale contracts maturing in more than
seven days if such investments, together with the Funds
other illiquid investments, would exceed 15% of the Funds
total assets.
The Fund may use instruments referred to as
Derivatives. Derivatives are financial instruments
the value of which is derived from another security, a commodity
(such as gold or oil) or an index (a measure of rates, such as
the prime lending rate). Derivatives allow the Fund to increase
or decrease the level of risk to which the Fund is exposed more
quickly and efficiently than transactions in other types of
instruments.
Hedging. The Fund may use
Derivatives for hedging purposes. Hedging is a strategy in which
a Derivative is used to offset the risk that other Fund holdings
may decrease in value. Losses on the other investment may be
substantially reduced by gains on a Derivative that reacts in an
opposite manner to market movements. While hedging can reduce
losses, it can also reduce or eliminate gains if the market
moves in a different manner than anticipated by the fund
investing in the Derivative or if the cost of the Derivative
outweighs the benefit of the hedge. Hedging also involves the
risk that changes in the value of the Derivative will not match
those of the holdings being hedged as expected by the Fund, in
which case any losses on the holdings being hedged may not be
reduced. The Fund is not required to use hedging and may choose
not to do so.
The Fund may use the following types of derivative
investments and trading strategies:
Indexed and Inverse Securities
The Fund may invest in securities the potential return of
which is based on an index. As an illustration, the Fund may
invest in a debt security that pays interest based on the
current value of an interest rate index, such as the prime rate.
The Fund may also invest in a debt security which returns
principal at maturity based on the level of a securities index
or a basket of securities, or based on the relative changes of
two indices. In addition, the Fund may invest in securities the
potential return of which is based inversely on the change in an
index (that is, a security the value of which will move in the
opposite direction of changes to an index). For example, the
Fund may invest in securities that pay a higher rate of interest
when a particular index decreases and pay a lower rate of
interest (or do not fully return principal) when the value of
the index increases. If the Fund invests in such securities, it
may be subject to reduced or eliminated interest payments or
loss of principal in the event of an adverse movement in the
relevant index or indices. Indexed and inverse securities
involve credit risk, and certain indexed and inverse securities
may involve leverage risk, liquidity risk, and currency risk.
The Fund may invest in indexed and inverse securities for
hedging purposes only. When used for hedging purposes, indexed
and inverse securities involve correlation risk.
Portfolio Strategies Involving Options and
Futures
The Fund may engage in various portfolio strategies to
seek to increase its return through the use of listed or
over-the-counter (OTC) options on its portfolio
securities and to hedge its portfolio against adverse movements
in the markets in which it invests. The Fund is authorized to
write (i.e., sell) covered put and call options on its
portfolio securities or securities in which it anticipates
investing and purchase put and call options on securities. The
Fund may also engage in transactions in interest rate futures
and related options on such futures. Although certain risks are
involved in options and futures transactions, the Investment
Adviser believes that, because the Fund will (i) write only
covered options on portfolio securities or securities in which
they anticipate investing and (ii) engage in other options and
futures transactions only for hedging purposes, the options and
portfolio strategies of the Fund will not subject it to the
risks frequently associated with the speculative use of options
and futures transactions. While the Funds use of hedging
strategies is intended to reduce the volatility of the net asset
value of its shares, its net asset value will fluctuate. There
can be no assurance that the Funds 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 when movements in the equity or
debt markets, interest rates or currency exchange rates
occur.
Writing of Covered Options. The
Fund may from time to time write (i.e., sell) covered
call options on its portfolio securities and may 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. A call option is
considered covered where the writer of the option owns the
underlying securities. The principal reason for writing covered
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 a covered call option, the Fund, in
return for the premium income realized from the sale of the
option, may give up the opportunity to profit from a price
increase in the underlying security above the option exercise
price. In addition, the Fund will not be able to sell the
underlying security until the option expires, is exercised or
the Fund effects a closing purchase transaction as described
below. A closing purchase transaction cancels out the Fund
s position as the writer of an option by means of an
offsetting purchaser of an identical option prior to the
expiration of the option it has written. If the option expires
unexercised, the Fund realizes a gain in the amount of the
premium received for the option which may be offset by a decline
in the market price of the underlying security during the option
period. The use of covered call options is not a primary
investment technique of the Fund and such options normally will
be written on underlying securities as to which management does
not anticipate significant short term capital appreciation.
Covered call options serve as a partial hedge against the price
of the underlying security declining. The Fund may not write
covered options on underlying securities exceeding 15% of its
total assets.
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 Funds 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 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 exercise for so long as the option is outstanding. The Fund
may engage in closing transactions in order to terminate put
options that it has written.
A
closing purchase transaction is effected by purchasing on an
exchange an option of the same series (i.e., same
underlying security, exercise price and expiration date) as the
option previously written. Such a purchase does not result in
the ownership of an option. A closing purchase transaction
ordinarily will be effected to realize a profit on an
outstanding call option, to prevent an underlying security from
being called, to permit the sale of the underlying security or
to permit the writing of a new call option containing different
terms on such underlying security. The cost of such a
liquidation purchase plus transaction costs may be greater than
the premium received upon the original option, in which event
the Fund will have incurred a loss in the transaction. An option
may be closed out only on an exchange which provides a secondary
market for an option of the same series and there is no
assurance that a liquid secondary market on an exchange will
exist for any particular option. A covered option writer unable
to effect a closing purchase transaction will not be able to
sell the underlying security until the option expires or the
underlying security is delivered upon exercise, with the result
that the writer will be subject to the risk of market decline in
the underlying security during such period. The Fund will write
an option on a particular security only if management believes
that a liquid secondary market will exist on an exchange for
options of the same series which will permit the Fund to make a
closing purchase transaction in order to close out its
position.
Purchasing Options. The Fund is
authorized to purchase put options to hedge against a decline in
the market value of its securities. By buying a put option, the
Fund has a right to sell the underlying security at the exercise
price, thus limiting the Funds 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 partially offset 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, and 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
costs. A closing sale transaction cancels out the Funds
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 will not purchase options on
securities if, as a result of such purchase, the aggregate cost
of all outstanding options on securities held by the Fund would
exceed 5% of the market value of the Funds total
assets.
Interest Rate Futures Contracts.
The Fund may purchase and sell interest rate futures
contracts as a hedge against adverse changes in the market value
of portfolio securities, as described below. Interest rate
futures contracts are herein referred to as futures
contracts.
A
futures contract is an agreement between two parties which
obligates the purchaser of the futures contract to buy and
seller of a futures contract to sell a financial instrument for
a set price on a future date. The terms of a futures contract
require actual delivery of the financial instrument underlying
the contract. The Fund may invest in interest rate futures
contracts in connection with the debt securities in which it
invests. Transactions by the Fund in futures contracts are
subject to limitations as described below under
Restrictions on the Use of Futures Transactions.
The Fund may sell futures contracts in anticipation of or
during a market decline to attempt to offset the decrease in
market value of the securities that might otherwise result. When
the Fund is not fully invested in the securities markets and
anticipates a significant advance, it may purchase futures in
order to gain rapid market exposure. This technique generally
will allow the Fund to gain exposure to a market in a manner
which is more efficient than purchasing individual securities
and may in part or entirely offset increases in the cost of
securities in such market that the Fund ultimately purchases. As
such purchases are made, an equivalent amount of futures
contracts will be terminated by offsetting sales. The Fund does
not consider purchases of futures contracts to be a speculative
practice under these circumstances. It is anticipated that, in a
substantial majority of these transactions, the Fund will
purchase such securities upon termination of the long futures
position, whether the long position is the purchase of a futures
contract or the purchase of a call option or the writing of a
put option on a future, but under unusual circumstances
(e.g., a Fund experiences a significant amount of
redemptions), a long futures position may be terminated without
the corresponding purchase of securities.
The Fund also has authority to purchase and write call and
put options on futures contracts in connection with its hedging
(including anticipatory hedging) activities. Generally, these
strategies are utilized under the same market and market sector
conditions (i.e., conditions relating to specific types
of investments) in which the Fund enters into futures
transactions. The Fund may purchase put options or write call
options on futures contracts rather than selling the underlying
futures contract in anticipation of a decrease in the market
value of its securities. Similarly, the Fund may purchase call
options, or write put options on futures contracts, as a
substitute for the purchase of such futures contract to hedge
against the increased cost resulting from an increase in the
market value of securities which the Fund intends to
purchase.
The Fund may engage in options and futures transactions on
U.S. exchanges and in the over-the-counter markets (OTC
options). In general, exchange-traded contracts are
third-party contracts (i.e., performance of the parties
obligations is guaranteed by an exchange or clearing
corporation) with standardized strike prices and expiration
dates. OTC options are two-party contracts with prices and terms
negotiated by the buyer and seller. See Restrictions on
OTC Options below for information as to restrictions on
the use of OTC options.
Restrictions on the Use of Futures Transactions.
Regulations of the Commodity Futures
Trading Commission (the CFTC) applicable to the Fund
provide that the futures trading activities described herein
will not result in the Fund being deemed a commodity pool
as defined under such regulations if the Fund adheres to
certain restrictions. In particular, the Fund may purchase and
sell futures contracts and options thereon (i) for bona
fide hedging purposes and (ii) for non-hedging purposes, if
the aggregate initial margin and premiums required to establish
positions in such contracts and options does not exceed 5% of
the liquidation value of the Funds holdings, after taking
into account unrealized profits and unrealized losses on any
such contracts and options. Margin deposits may consist of cash
or securities acceptable to the broker and the relevant contract
market.
When the Fund purchases a futures contract, or writes a
put option or purchases a call option thereon, an amount of cash
and cash equivalents will be deposited in a segregated account
in the name of the Fund with the Funds custodian so that
the amount so segregated, plus the amount of initial and
variation margin held in the account of its broker, equals the
market value of the futures contracts, thereby ensuring that the
use of such futures contract is unleveraged.
Restrictions on OTC Options.
The Fund may engage in OTC options only with such
banks or dealers which have capital of at least $50 million or
whose obligations are guaranteed by an entity having capital of
at least $50 million.
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 (including OTC options on futures
contracts) if, as a result of such transaction, 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 market deposits on the Funds existing
OTC options of futures contracts exceed 15% (10% to the extent
required by certain state laws) of the total 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 the 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 security minus the options 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 Directors of the Program without the approval of
the Funds shareholders. However, the Fund will not change
or modify this policy prior to the change or modification by the
SEC staff of its position.
Options on GNMA Certificates.
The following information relates to unique
characteristics of options on GNMA Certificates. Since the
remaining principal balance of GNMA Certificates declines each
month as a result of mortgage payments, the Fund, as a writer of
a GNMA call holding GNMA Certificates as cover to
satisfy its delivery obligation in the event of exercise, may
find that the GNMA Certificates it holds no longer have a
sufficient remaining principal balance for this purpose. Should
this occur, the Fund will purchase additional GNMA Certificates
from the same pool (if obtainable) of other GNMA Certificates in
the cash market in order to maintain its cover.
A
GNMA Certificate held by the Fund to cover an options position
in any but the nearest expiration month may cease to represent
cover for the option in the event of a decline in the GNMA
coupon rate at which new pools are originated under the FHA/VA
loan ceiling in effect at any given time. If this should occur,
the Fund will no longer be covered, and the Fund will either
enter into a closing purchase transaction or replace such
Certificate with a certificate which represents cover. When the
Fund closes its position or replaces such Certificate, it may
realize an unanticipated loss and incur transaction
costs.
Risks Factors in Options and Futures Transactions.
Utilization of options and futures
transactions to hedge a Fund involves the risk of imperfect
correlation in movements in the price of options and futures and
movements in the price of the securities which are the subject
of the hedge. If the price of the options or futures moves more
or less than the price of the hedged securities, the Fund will
experience a gain or loss which will not be completely offset by
movements in the price of the subject of the hedge. The
successful use of options and futures also depends on the
Investment Advisers ability to correctly predict price
movements in the market involved in a particular options or
futures transaction. To compensate for imperfect correlations,
the Fund may purchase or sell options or futures contracts in a
greater dollar amount than the hedged securities if the
volatility of the hedged securities is historically greater than
the volatility of the options or futures contracts. Conversely,
the Fund may purchase or sell fewer options or futures contracts
if the volatility of the price of the hedged securities is
historically less than that of the options or futures contracts.
The risk of imperfect correlation generally tends to diminish as
the maturity date of the options or futures contract
approaches.
The Fund intends to enter into options and futures
transactions, on an exchange or in the over-the-counter market,
only if there appears to be a liquid secondary market for such
options or futures or, in the case of over-the-counter
transactions, the Investment Adviser believes the Fund can
receive in each business day at least two independent bids or
offers. However, there can be no assurance that a liquid
secondary market will exist at any specific time. Thus, it may
not be possible to close an options or futures position. The
inability to close options and futures positions also could have
an adverse impact on the Funds ability to hedge
effectively its portfolio. There is also a risk of loss by the
Fund of margin deposits or collateral in the event of bankruptcy
of a broker with whom the Fund has an open position in an
option, a futures contract or a related option.
The exchanges on which the Fund intends to conduct options
transactions have generally 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. The
Investment Adviser does not believe that these trading and
position limits will have any adverse impact of the portfolio
strategies for hedging the Funds holdings.
All options referred to herein and in the Funds
Prospectus are options issued by the Options Clearing
Corporation (the Clearing Corporation) which are
currently traded on the Chicago Board Options Exchange, American
Stock Exchange, Philadelphia Stock Exchange, Pacific Stock
Exchange or New York Stock Exchange (NYSE
).
The Fund may lend securities with a value not exceeding
33 1
/3% of its total assets. In
return, the Fund receives collateral in an amount equal to at
least 100% of the current market value of the loaned securities
in cash or securities issued or guaranteed by the U.S.
Government. This limitation is a fundamental policy and it may
not be changed without the approval of the holders of a majority
of the Funds outstanding voting securities, as defined in
the Investment Company Act of 1940. The Fund receives securities
as collateral for the loaned securities and the Fund and the
borrower negotiate a rate for the loan premium to be received by
the Fund for the loaned securities, which increases the Fund
s yield. The Fund may receive a flat fee for its loans.
The loans are terminable at any time and the borrower, after
notice, is required to return borrowed securities within five
business days. The Fund may pay reasonable finders,
administrative and custodial fees in connection with its loans.
In the event that the borrower defaults on its obligation to
return borrowed securities because of insolvency or for any
other reason, the Fund could experience delays and costs in
gaining access to the collateral and could suffer a loss to the
extent the value of the collateral falls below the market value
of the borrowed securities.
Illiquid or Restricted Securities
The Fund may invest up to 15% of its net assets in
securities that lack an established secondary trading market or
otherwise are considered illiquid. Liquidity of a security
relates to the ability to dispose easily of the security and the
price to be obtained upon disposition of the security, which may
be less than would be obtained for a comparable more liquid
security. Illiquid securities may trade at a discount from
comparable, more liquid investments. Investment of the Fund
s assets in illiquid securities may restrict the ability
of the Fund to dispose of that investment 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 Funds 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 or 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 more
difficult to value than publicly traded securities and may be
less liquid, or illiquid, and therefore may be subject to the
risks associated with illiquid securities, as described in the
preceding paragraph. Some restricted securities, however, may be
liquid. To the extent that privately placed securities may be
resold in privately negotiated transactions, the prices realized
from the sales, due to illiquidity, could be less than those
originally paid by the Fund or less than their fair market
value. In addition, issuers whose securities are not publicly
traded may not be subject to the disclosure and other investor
protection requirements that may be applicable if their
securities were publicly traded. If any privately placed
securities held by the Fund are required to be registered under
the securities laws of one or more jurisdictions before being
resold, the Fund may be required to bear the expenses of
registration. Certain of the Funds investments in private
placements may consist of direct investments and may include
investments in smaller, less-seasoned issuers, which may involve
greater risks. These issuers may have limited product lines,
markets or financial resources, or they may be dependent on a
limited management group. In making investments in such
securities, the Fund may obtain access to material nonpublic
information which may restrict its ability to conduct portfolio
transactions in such securities.
Although not a fundamental policy, the Fund will include
OTC options and securities underlying such options in
calculating the amount of its assets subject to the limitation
on restricted securities. The Fund will not change or modify
this policy prior to the change or modification by the
Commission staff of its positions regarding OTC
options.
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 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 Programs Board. The Board has
adopted guidelines and delegated to the Investment Adviser the
daily function of determining and monitoring liquidity of
restricted securities. The Board, however, will retain
sufficient oversight and be ultimately responsible for the
determinations. Since it is not possible to predict with
assurance exactly how this market for restricted securities sold
and offered under Rule 144A will continue to develop, the Board
will carefully monitor the Funds investments in these
securities. This investment practice could have the effect of
increasing the level of illiquidity in the Fund to the extent
that qualified institutional buyers become for a time
uninterested in purchasing these securities.
The Fund may borrow up to 33
1
/3% of its total assets, taken at
market value, but only from banks as a temporary measure for
extraordinary or emergency purposes, including to meet
redemptions or to settle securities transactions. The Fund will
not purchase securities at any time when borrowings exceed 5% of
its total assets, except (a) to honor prior commitments or (b)
to exercise subscription rights when outstanding borrowings have
been obtained exclusively for settlements of other securities
transactions. The purchase of securities while borrowings are
outstanding will have the effect of leveraging the Fund. Such
leveraging increases the Funds exposure to capital risk,
and borrowed funds are subject to interest costs that will
reduce net income. The use of leverage by the Fund creates an
opportunity for greater total return, but, at the same time,
creates special risks. For example, leveraging may exaggerate
changes in the net asset value of Fund shares and in the yield
on the Funds portfolio. Although the principal of such
borrowings will be fixed, the Funds assets may change in
value during the time the borrowings are outstanding. Borrowings
will create interest expenses for the Fund which can exceed the
income from the assets purchased with the borrowings. To the
extent the income or capital appreciation derived from
securities purchased with borrowed funds exceeds the interest
the Fund will have to pay on the borrowings, the Funds
return will be greater than if leverage had not been used.
Conversely, if the income or capital appreciation from the
securities purchased with such borrowed funds is not sufficient
to cover the cost of borrowing, the return to the Fund will be
less than if leverage had not been used, and therefore the
amount available for distribution to shareholders as dividends
will be reduced. In the latter case, the Investment Adviser in
its best judgment nevertheless may determine to maintain the Fund
s leveraged position if it expects that the benefits to
the Funds shareholders of maintaining the leveraged
position will outweigh the current reduced return.
Certain types of borrowings by the Fund may result in the
Fund being subject to covenants in credit agreements relating to
asset coverage, portfolio composition requirements and other
matters. It is not anticipated that observance of such covenants
would impede the Investment Adviser from managing the Fund
s portfolio in accordance with the Funds investment
objectives and policies. However, a breach of any such covenants
not cured within the specified cure period may result in
acceleration of outstanding indebtedness and require the Fund to
dispose of portfolio investments at a time when it may be
disadvantageous to do so.
The Fund at times may borrow from affiliates of the
Investment Adviser, provided that the terms of such borrowings
are no less favorable than those available from comparable
sources of funds in the marketplace.
The Program has adopted the following restrictions and
policies relating to the investment of the Funds assets
and its activities. The fundamental restrictions set forth below
may not be changed with respect to the Fund without the approval
of the holders of a majority of the Funds outstanding
voting securities (which for this purpose and under the
Investment Company Act means the lesser of (i) 67% of the 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
Funds 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 that 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 governmental 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 Funds 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 Funds investment
policies as set forth in the Funds 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. The Fund will not purchase
securities while borrowings exceed 5% of its assets. The Fund
has no present intention to borrow money in amounts exceeding
5% of its assets.
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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 Funds
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.
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Additional investment restrictions adopted by the Fund
that may be changed by the Programs Board of Directors
without shareholder approval, provide that the Fund may
not:
|
(a) Purchase securities of other investment
companies, except to the extent such purchases are permitted
by applicable law. As a matter of policy, however, the Fund
will not purchase shares of any registered open-end investment
company or registered unit investment trust, in reliance on
Section 12(d)(1)(F) or (G) (the fund of funds
provisions) of the Investment Company Act, at any time the Fund
s shares are owned by another investment company that is
part of the same group of investment companies as the
Program.
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(b) Make short sales of securities or
maintain a short position, except to the extent permitted by
applicable law.
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(c) Invest in securities that cannot be
readily resold because of legal or contractual restrictions or
that cannot otherwise be marketed, redeemed or put to the
issuer or a third party, if at the time of acquisition more
than 15% of its net assets would be invested in such
securities. This restriction shall not apply to securities
that mature within seven days or securities that the Directors
of the Program have otherwise determined to be liquid pursuant
to applicable law. Securities purchased in accordance with
Rule 144A under the Securities Act and determined to be liquid
by the Programs Board of Directors are not subject to
the limitations set forth in this investment
restriction.
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(d) Notwithstanding fundamental investment
restriction (7) above, borrow amounts in excess of 10% of its
total assets, taken at market value, and then only from banks
as a temporary measure for extraordinary or emergency purposes
such as redemption of Fund shares. The Fund will not purchase
securities while borrowing exceeds 5% (taken at market value)
of its total assets.
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Portfolio securities of the Fund generally may not be
purchased from, sold or loaned to the Investment Adviser or its
affiliates or any of their directors, officers or employees,
acting as principal, unless pursuant to a rule or exemptive
order under the Investment Company Act.
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
transaction, the sum of the market value of OTC options
currently outstanding that are held by the Fund, the market
value of the underlying securities covered by OTC call options
currently outstanding that were sold by the Fund and margin
deposits on the Funds existing OTC options on futures
contracts exceeds 15% of the net assets of the Fund taken at
market value, together with all other assets of the Fund that
are illiquid or are not otherwise readily marketable. However,
if the 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 options strike price).
The repurchase price with the primary dealers is typically a
formula price that 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 Directors without the approval of the
shareholders. However, the Directors 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, Pierce,
Fenner & Smith Incorporated (Merrill Lynch) with
the Investment Adviser, the Fund is prohibited from engaging in
certain transactions involving Merrill Lynch or its affiliates
except for brokerage transactions permitted under the Investment
Company Act involving only usual and customary commissions or
transactions pursuant to an exemptive order under the Investment
Company Act. See Portfolio Transactions. Without
such an exemptive order, the Fund would be prohibited from
engaging in portfolio transactions with Merrill Lynch or any of
its affiliates acting as principal.
The Investment Adviser will effect portfolio transactions
without regard to any holding period if, in its judgment, such
transactions are advisable in light of a change in general
market, economic or financial conditions. A high portfolio
turnover rate involves correspondingly greater transaction costs
in the form of dealer spreads and brokerage commissions, which
are borne directly by the Fund. See Portfolio Transactions.
MANAGEMENT OF THE PROGRAM
The Directors of the Program consist of seven individuals,
five of whom are not interested persons of the
Program as defined in the Investment Company Act. The Directors
are responsible for the overall supervision of the operations of
the Program 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 managers of the Program, 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
executive officer, Director and 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 Investment Adviser and Merrill Lynch Asset
Management, L.P. (MLAM) (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 CIEBAs 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 Vice
Chairman since 1998; Director, LaSalle Street Fund since 1995;
Director, Hotchkis and Wiley Mutual Funds since 1996; Director,
Kimco Realty Corporation since 1997; Member of the Investment
Advisory Committee of the Virginia Retirement System since 1998;
Director, Montpelier Foundation since December 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 RPP Corporation
(manufacturing) since 1978; Director of International Mobile
Communications, Inc. (telecommunications) since
1998.
ARTHUR
ZEIKEL
(67)Director (1)(2)300 Woodland Avenue,
Westfield, New Jersey 07090. Chairman of the Investment Adviser
and MLAM from 1997 to 1999 and President thereof from 1977 to
1997; Chairman of Princeton Services from 1997 to 1999, Director
thereof from 1993 to 1999 and President thereof from 1993 to
1997; Executive Vice President of Merrill Lynch & Co., Inc. (
ML & Co.) from 1990 to 1999.
JOSEPH
T. MONAGLE
, JR
. (51)Senior Vice President(1)(2)Senior Vice
President of the Investment Adviser and FAM since 1990;
Department Head of the Global Fixed Income Division of the
Investment Adviser and FAM since 1997; Senior Vice President of
Princeton Services since 1993.
LAWRENCE
R. FULLER
(58)Senior Vice President and Portfolio Manager(1)(2)
First Vice President of the Investment Adviser since 1997
and Vice President of the Investment Adviser from 1992 to
1997.
ROBERT
C. DOLL
(45)Senior Vice President(1)(2)Senior Vice
President of the Investment Adviser and MLAM since 1999; Senior
Vice President of Princeton Services since 1999; Chief
Investment Officer of Oppenheimer Funds, Inc. in 1999 and
Executive Vice President thereof from 1991 to 1999.
THOMAS
R. ROBINSON
(54)Senior Vice President(1)(2)First Vice
President of the Investment Adviser since 1997; Vice President
of the Investment Adviser from 1995 to 1997; Senior Portfolio
Manager of the Investment Adviser since November 1995; Manager
of International Equity Strategy of ML & Co.s Global
Securities Research and Economics Group from 1989 to
1995.
CHRISTOPHER
G. AYOUB
(41)Senior Vice President(1)(2)First Vice
President of the Investment Adviser since 1998; Vice President
of the Investment Adviser from 1985 to 1997; Assistant Vice
President of the Investment Adviser from 1984 to 1985 and
employee since 1982.
GREGORY
MARK
MAUNZ
(45)Senior Vice President and Portfolio Manager(1)(2)
First Vice President of the Investment Adviser since 1997;
Vice President of the Investment Adviser from 1985 to 1997 and
Portfolio Manager since 1984.
DONALD
C. BURKE
(39)Vice President and Treasurer (1)(2)Senior
Vice President and Treasurer of the Investment Adviser and MLAM
since 1999; Senior Vice President and Treasurer of Princeton
Services since 1999; Vice President of PFD since 1999; First
Vice President of MLAM from 1997 to 1999; Vice President of MLAM
from 1990 to 1997; Director of Taxation of MLAM since
1990.
BARBARA
G. FRASER
(56)Secretary (1)(2)First Vice President of the
Investment Adviser since 1996; Vice President of the Investment
Adviser from 1994 to 1996; Attorney in private practice from
1991 to 1994.
(1)
|
Interested person, as defined in the Investment
Company Act, of the Trust and the Corporation.
|
(2)
|
Such Director or officer is a trustee, director
or officer of other investment companies for which the
Investment Adviser, or one of its affiliates, acts as
investment adviser or manager.
|
(3)
|
Member of the Programs 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 January 1, 2000, the officers and Directors of the
Program as a group (15 persons) owned an aggregate of less than
1% of the outstanding shares of common stock of ML & Co. and
owned an aggregate of less than 1% of the outstanding shares of
the Program.
Compensation of Directors/Trustees
The Program pays each non-interested Director, for service
to the Program, a fee of $1,500 per year plus $250 per in-person
meeting attended, together with such individuals actual
out-of-pocket expenses relating to attendance at meetings. The
Program also compensates members of the Audit and Nominating
Committee, which consists of all of the non-affiliated Directors
at the rate of $1,500 annually for service to the Program plus
$250 per Committee meeting attended.
The following table sets forth the compensation earned by
the non-interested Directors for the fiscal year ended January
31, 2000 and the aggregate compensation paid to them from all
investment companies advised by the Investment Adviser or its
affiliates (Affiliate-Advised Funds) for the
calendar year ended December 31, 1999.
Name
|
|
Position
with
Program
|
|
Compensation
from Program
|
|
Pension or
Retirement Benefits
Accrued as Part of
Program Expense
|
|
Estimated
Annual
Benefits upon
Retirement
|
|
Aggregate
Compensation from
Program and Other
Affiliate-Advised
Funds(1)
|
Joe
Grills |
|
Director |
|
$5,000 |
|
None |
|
None |
|
$198,333 |
Walter Mintz |
|
Director |
|
$5,000 |
|
None |
|
None |
|
$178,583 |
Robert S. Salomon, Jr. |
|
Director |
|
$5,000 |
|
None |
|
None |
|
$178,583 |
Melvin R. Seiden |
|
Director |
|
$5,000 |
|
None |
|
None |
|
$178,583 |
Stephen B. Swensrud |
|
Director |
|
$5,000 |
|
None |
|
None |
|
$195,583 |
(1)
|
The Directors serve on the boards of
Affiliate-advised funds as follows: Joe Grills (31 registered
investment companies consisting of 45 portfolios), Walter
Mintz (21 registered investment companies consisting of 42
portfolios), Robert S. Salomon, Jr. (21 registered investment
companies consisting of 42 portfolios), Melvin R. Seiden (21
registered investment companies consisting of 42 portfolios),
Stephen B. Swensrud (25 registered investment companies
consisting of 61 portfolios).
|
The Directors of the Program may be eligible for reduced
sales charges on purchases of Class I shares. See Reduced
Initial Sales ChargesPurchase Privileges of Certain
Persons.
Management and Advisory Arrangements
Investment Advisory Services.
The Investment Adviser provides the Program with
investment advisory and management services. Subject to the
supervision of the Board of Directors, the Investment Adviser is
responsible for the actual management of the Programs
portfolio and constantly reviews the Programs holdings in
light of its own research analysis and that from other relevant
sources. The responsibility for making decisions to buy, sell or
hold a particular security rests with the Investment Adviser.
The Investment Adviser performs certain of the other
administrative services and provides all the office space,
facilities, equipment and necessary personnel for management of
the Program.
Investment Advisory Fee. As
compensation for its services to the Fund, the Investment
Adviser will receive from the Fund a fee at an annual rate of
0.50% of the average daily net assets of the Fund.
Prior to
, 2000, Merrill Lynch Asset Management, L.P. (
MLAM), an affiliate of the Investment Adviser under
common control and management as the Investment Adviser, acted
as investment adviser to the Fund. The table below sets forth
for the periods indicated the total advisory fee paid by the
Fund to MLAM.
For the
fiscal year ended
|
|
Fee Amount
($)
|
2000 |
|
$
|
1999 |
|
$75,332 |
1998 |
|
$55,861 |
Payment of Program Expenses.
The Investment Advisory Agreement obligates the Investment
Adviser to provide investment advisory services and to pay all
compensation of and furnish office space for officers and
employees of the Program connected with investment and economic
research, trading and investment management of the Program, as
well as the fees of all Directors of the Program who are
affiliated persons of ML & Co. or any of its affiliates. The
Program pays all other expenses incurred in the operation of the
Program, 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 Mercury
Funds Distributor, a division of PFD (the Distributor
); charges of the custodian and the transfer agent;
expenses of redemption of shares; Commission fees; expenses of
registering the shares under Federal and state securities laws;
fees and expenses of unaffiliated 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 Program. Accounting services
are provided for the Program by the Investment Adviser and the
Program reimburses the Investment Adviser for its costs in
connection with such services. See Purchase of Shares
Distribution Plans.
Organization of the Investment Adviser.
The Investment Adviser is a limited partnership, the
partners of which are ML & Co., a financial services holding
company and the parent of Merrill Lynch and Princeton Services.
ML & Co. and Princeton Services are controlling persons
of the Investment Adviser as defined under the Investment
Company Act because of their ownership of its voting securities
or their power to exercise a controlling influence over its
management or policies.
Duration and Termination.
Unless earlier terminated as described herein, the
Investment Advisory Agreement for the Fund will remain in effect
from year to year if approved annually (a) by the Board of
Directors of the Program or by a majority of the outstanding
shares of the subject 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 Program
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
ranging from $11.00 to $20.00 per Class I or Class A account and
$14.00 to $23.00 per Class B or Class C account and is entitled
to reimbursement for certain transaction charges and
out-of-pocket expenses incurred by the Transfer Agent under the
Transfer Agency Agreement. Additionally, a $.20 monthly closed
account charge will be assessed on all accounts that close
during the calendar year. Application of this fee will commence
the month following the month the account is closed. At the end
of the calendar year, no further fee 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 separate distribution agreements with the
Distributor in connection with the continuous offering of each
class of shares of the Fund (the Distribution Agreements
). The Distribution Agreements obligate the Distributor to
pay certain expenses in connection with the offering of each
class of shares of the Fund. After the prospectuses, statements
of additional information and periodic reports have been
prepared, set in type and mailed to shareholders, the
Distributor pays for the printing and distribution of copies
thereof used in connection with the offering to dealers and
investors. The Distributor also pays for other supplementary
sales literature and advertising costs. The Distribution
Agreements are subject to the same renewal requirements and
termination provisions as the Investment Advisory Agreement
described above.
The Board of Directors of the Program has adopted a Code
of Ethics under Rule 17j-1 of the Investment Company Act that
incorporates the Code of Ethics of the Investment Adviser
(together, the Codes). The Codes significantly
restrict the personal investing activities of all employees of
the Investment Adviser and, as described below, impose
additional, more onerous, restrictions on fund investment
personnel.
The Codes require that all employees of the Investment
Adviser pre-clear any personal securities investment (with
limited exceptions, such as government securities). The
pre-clearance requirement and associated procedures are designed
to identify any substantive prohibition or limitation applicable
to the proposed investment. The substantive restrictions
applicable to all employees of the Investment Adviser include a
ban on acquiring any securities in a hot initial
public offering and a prohibition from profiting on short-term
trading in securities. In addition, no employee may purchase or
sell any security that at the time is being purchased or sold
(as the case may be), or to the knowledge of the employee is
being considered for purchase or sale, by any fund advised by
the Investment Adviser. Furthermore, the Codes provide for
trading blackout periods that 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 Account ChoicesHow to
Buy, Sell, Transfer and Exchange Shares in the Prospectus
for certain information as to the purchase of Fund
shares.
The Fund issues four classes of shares: shares of Class I
and Class A 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 I, Class A, Class B and Class C share of the Fund
represents an identical interest in the investment portfolio of
the Fund, and has the same rights, except that Class A, Class B
and Class C 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 A 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. Class A, Class B and Class C shares
each have exclusive voting rights with respect to the Rule 12b-1
distribution plan adopted with respect to such class pursuant to
which the account maintenance and/or distribution fees are paid
(except that Class B shareholders may vote upon any material
changes to expenses charged under the distribution plan for
Class A Shares). Each class has different exchange privileges.
See Shareholder ServicesExchange Privilege.
Investors should understand that the purpose and function
of the initial sales charges with respect to the Class I and
Class A 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 Fund offers its shares at a public offering price
equal to the next determined net asset value per share plus any
sales charge applicable to the class of shares selected by the
investor. The applicable offering price for purchase orders is
based upon the net asset value of the Fund next determined after
receipt of the purchase order by the Distributor. As to purchase
orders received by securities dealers prior to the close of
business on the New York Stock Exchange (the NYSE)
(generally 4:00 p.m., Eastern time) which includes orders
received after the determination of net asset value on the
previous day, the applicable offering price will be based on the
net asset value on the day the order is placed with the
Distributor, provided that the orders are received by the
Distributor prior to 30 minutes after the close of business on
the NYSE on that day. If the purchase orders are not received
prior to 30 minutes after the close of business on the NYSE on
that day, such orders shall be deemed received on the next
business day. Dealers have the responsibility of submitting
purchase orders to the Fund not later than 30 minutes after the
close of business on the NYSE in order to purchase shares at
that days offering price.
A
Fund or the Distributor may suspend the continuous offering of
the Funds shares of any class at any time in response to
conditions in the securities markets or otherwise and may
thereafter resume such offering from time to time. Any order may
be rejected by the Fund or the Distributor. Neither the
Distributor nor the dealers are permitted to withhold placing
orders to benefit themselves by a price change. Certain
securities dealers may charge a processing fee to confirm a sale
of shares to such customers. For example, the fee currently
charged by Merrill Lynch is $5.35. Purchases made directly
through the Transfer Agent are not subject to the processing
fee.
Initial Sales Charge AlternativesClass I and Class A
Shares
Investors choosing the initial sales charge alternatives
who are eligible to purchase Class I shares should purchase
Class I shares rather than Class A shares because there is an
account maintenance fee imposed on Class A shares.
Class I shares are offered to a limited group of investors
and also will be issued upon reinvestment of dividends paid on
outstanding Class I shares. Investors who currently own Class I
shares in a shareholder account are entitled to purchase
additional Class I shares of a Fund in that account. Certain
employer sponsored retirement or savings plans, including
eligible 401(k) plans, may purchase Class I shares at net asset
value provided such plans meet the required minimum number of
eligible employees or required amount of assets advised by
Mercury or any of its affiliates. Also eligible to purchase
Class I shares at net asset value are participants in certain
investment programs including certain managed accounts for which
a trust institution, thrift, or bank trust department provides
discretionary trustee services, certain collective investment
trusts for which a trust institution, thrift, or bank trust
department serves as trustee, certain purchases made in
connection with certain fee-based programs and certain purchases
made through certain financial advisers that meet and adhere to
standards established by Mercury. In addition, Class I shares
are offered at net asset value to ML & Co. and its
subsidiaries and their directors and employees, to members of
the Boards of Mercury and Affiliate-Advised investment
companies, including the Program, and to employees of certain
selected dealers. Class I shares may also be offered at net
asset value to certain accounts over which the Investment
Adviser or an affiliate exercises investment
discretion.
The term purchase, as used in the Prospectus
and this Statement of Additional Information in connection with
an investment in Class I and Class A 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 or 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.
The following table sets forth information regarding Class
I and Class A sales charge information for the Fund.
Class I Shares
|
For the
Fiscal year
ended
January 31,
|
|
Gross
Sales
Charges
Collected
|
|
Sales
Charges
Retained by
Distributor
|
|
Sales
Charges
Paid to
Merrill Lynch
|
|
CDSCs
Received
on
Redemption of
Load-Waived Shares
|
2000 |
|
$
|
|
|
|
|
|
|
1999 |
|
$0 |
|
$0 |
|
$0 |
|
$0 |
1998 |
|
$0 |
|
$0 |
|
$0 |
|
$0 |
|
|
|
Class A Shares
|
For the
Fiscal year
ended
January 31,
|
|
Gross
Sales
Charges
Collected
|
|
Sales
Charges
Retained by
Distributor
|
|
Sales
Charges
Paid to
Merrill Lynch
|
|
CDSCs
Received
on
Redemption of
Load-Waived Shares
|
2000 |
|
|
|
|
|
|
|
|
1999 |
|
$2,465 |
|
$207 |
|
$2,258 |
|
$0 |
1998 |
|
$611 |
|
$38 |
|
$578 |
|
$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 I and Class A shares of
the Fund will receive a concession equal to most of the sales
charge, they may be deemed to be underwriters under the
Securities Act.
Reduced Initial Sales Charges
Reductions in or exemptions from the imposition of a sales
load are due to the nature of the investors and/or the reduced
sales efforts that will be needed to obtain such
investments.
Reinvested Dividends. No
initial sales charges are imposed upon Class I and Class A
shares issued as a result of the automatic reinvestment of
dividends.
Rights of Accumulation.
Reduced sales charges are applicable through a right of
accumulation under which eligible investors are permitted to
purchase shares of the Fund subject to an initial sales charge
at the offering price applicable to the total of (a) the public
offering price of the shares then being purchased plus (b) an
amount equal to the then current net asset value or cost,
whichever is higher, of the purchasers combined holdings
of all classes of shares of the Fund and of other Mercury mutual
funds. For any such right of accumulation to be made available,
the Distributor must be provided at the time of purchase, by the
purchaser or the purchasers securities dealer, with
sufficient information to permit confirmation of qualification.
Acceptance of the purchase order is subject to such
confirmation. The right of accumulation may be amended or
terminated at any time. Shares held in the name of a nominee or
custodian under pension, profit-sharing, or other employee
benefit plans may not be combined with other shares to qualify
for the right of accumulation.
Letter of Intent. Reduced
sales charges are applicable to purchases aggregating $25,000 or
more of Class I or Class A shares of the Fund or any other
Mercury mutual funds made within a 13-month period starting with
the first purchase pursuant to the Letter of Intent. The Letter
of Intent is available only to investors whose accounts are
established and maintained at the Funds Transfer Agent.
The Letter of Intent is not available to employee benefit plans
for which affiliates of the Investment Adviser provide plan
participant record-keeping services. The Letter of Intent is not
a binding obligation to purchase any amount of Class I or Class
A 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 I and Class A shares of the Fund and of other
Mercury mutual 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 execution of such Letter,
the difference between the sales charge on the Class I or Class
A shares purchased at the reduced rate and the sales charge
applicable to the shares actually purchased through the Letter.
Class I or Class A shares equal to 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 that further reduced percentage sales charge but
there will be no retroactive reduction of the sales charges 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 (Summit), a series of Financial Institutions
Series Trust, into the Fund that creates a sales charge will
count toward completing a new or existing Letter of Intent from
the Fund.
Employer-Sponsored Retirement or Savings Plans and
Certain Other Arrangements. Certain
employer-sponsored retirement or savings plans and certain other
arrangements may purchase Class I or Class A 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. Certain other
plans may purchase Class B shares with a waiver of the CDSC upon
redemption, based on similar criteria. Such Class B shares will
convert into Class A shares approximately ten years after the
plan purchases the first share of any Mercury mutual fund.
Minimum purchase requirements may be waived or varied for such
plans. For additional information regarding purchases by
employer-sponsored retirement or savings plans and certain other
arrangements, call your plan administrator or your selected
dealer.
Managed Trusts. Class I
shares are offered at net asset value to certain trusts to which
trust institutions, thrifts, and bank trust departments provide
discretionary trustee services.
Purchase Privileges of Certain Persons.
Directors of the Program, members of the Boards of
other investment companies advised by the Investment Adviser or
its affiliates, directors and employees of ML & Co. and its
subsidiaries (the term subsidiaries, when used
herein with respect to ML & Co., includes the Investment
Adviser, MLAM, Mercury Asset Management International, Ltd. and
certain other entities directly or indirectly wholly owned and
controlled by ML & Co.), employees of certain selected
dealers, and any trust, pension, profit-sharing or other benefit
plan for such persons, may purchase Class I 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
Funds suitability standards.
Class I and Class A shares may also be offered at net
asset value to certain accounts over which the Investment
Adviser or an affiliate exercises investment
discretion.
Acquisition of Certain Investment Companies.
Class A 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.
Purchases Through Certain Financial Advisers.
Reduced sales charges may be applicable for
purchases of Class I or Class A shares of the Fund through
certain financial advisers that meet and adhere to standards
established by the Investment Adviser from time to
time.
Deferred Sales ChargesClass 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 Mercury mutual 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 investors dollars to work from the
time the investment is made. The deferred sales charge
alternatives may be particularly appealing to investors that do
not qualify for the reduction in initial sales charges. Both
Class B and Class C shares are subject to ongoing account
maintenance fees and distribution fees; however, the ongoing
account maintenance and distribution fees potentially may be
offset to the extent any return is realized on the additional
funds initially invested in Class B or Class C shares. In
addition, Class B shares will be converted into Class A shares
of the Fund after a conversion period of approximately ten
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 SharesDetermination of Net Asset Value
below.
Class B shares that are redeemed within six 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 six years or shares acquired pursuant to
reinvestment of dividends and then of shares held longest during
the six-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 |
|
4.0% |
2-3 |
|
3.0% |
3-4 |
|
3.0% |
4-5 |
|
2.0% |
5-6 |
|
1.0% |
6 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 3.0% (the applicable rate in the third year after
purchase).
As discussed in the Prospectus under Account Choices
Pricing of SharesClass B and C SharesDeferred
Sales Charge Options, while Class B shares redeemed within
six years of purchase are subject to a CDSC under most
circumstances, the charge may be reduced or waived in certain
instances. These include certain post-retirement withdrawals
from an individual retirement account (IRA) or other
retirement plan or redemption of Class B shares in certain
circumstances following the death of a Class B shareholder. In
the case of such withdrawal, the reduction or waiver applies to:
(a) any partial or complete redemption in connection with a
distribution following retirement under a tax-deferred
retirement plan on attaining age 59
1
/2 in the case of an IRA or other
retirement plan, or part of a series of equal periodic payments
(not less frequently than annually) made for life (or life
expectancy) or any redemption resulting from the tax-free return
of an excess contribution to an IRA (certain legal documentation
may be required at the time of liquidation establishing
eligibility for qualified distribution); or (b) any partial or
complete redemption following the death or disability (as
defined in the Internal Revenue Code of 1986, as amended (the
Code)) of a Class B shareholder (including one who
owns the Class B
shares as joint tenant with his or her spouse), provided the
redemption is requested within one year of the death or initial
determination of disability, or if later, reasonably promptly
following completion of probate or in connection with
involuntary termination of an account in which Fund shares are
held (certain legal documentation may be required at the time of
liquidation establishing eligibility for qualified
distribution).
The change may also be reduced or waived in other
instances, such as: (a) redemptions by certain eligible 401(a)
and 401(k) plans and certain retirement plan rollovers; (b)
redemptions in connection with participation in certain
fee-based programs managed by the Investment Adviser or its
affiliates; (c) redemptions in connection with participation in
certain fee-based programs managed by selected dealers that have
agreements with the Investment Adviser; or (d) withdrawals
through the Systematic Withdrawal Plan of up to 10% per year of
your account value at the time the plan is established. See
Shareholder ServicesFee-Based Programs and
Systematic Withdrawal Plan.
Conversion of Class B Shares to Class A Shares.
After approximately ten years (the
Conversion Period), Class B shares of the Fund will
be converted automatically into Class A shares of that Fund.
Class A shares are subject to an ongoing account maintenance fee
of 0.25% of the average daily net assets of a Fund but are not
subject to the distribution fee that is borne by Class B shares.
Automatic conversion of Class B shares into Class A 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 A 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 A 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 A 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 A
shares of the Fund.
The Conversion Period may be modified for investors that
participate in certain fee-based programs. See Shareholder
ServicesFee-Based Programs.
Class B shareholders of the Fund exercising the exchange
privilege described under Shareholder Services
Exchange Privilege will continue to be subject to
the Funds CDSC schedule if such schedule is higher than
the CDSC schedule relating to the Class B shares acquired as a
result of the exchange.
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 shareholders 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 Systematic Withdrawal Plans.
See Shareholder ServicesSystematic Withdrawal Plan.
Class B and Class C Sales Charge
Information.
Class B Shares*
|
For the
fiscal year
ended January 31,
|
|
CDSCs
Received
by Distributor
|
|
CDSCs Paid
to
Merrill Lynch
|
2000 |
|
$
|
|
$
|
1999 |
|
$23,267 |
|
$23,267 |
1998 |
|
$12,110 |
|
$12,110 |
|
*
|
Additional Class B CDSCs payable to the
Distributor with respect to the fiscal years ended January 31,
1998, 1999 and 2000 may have been waived or converted to a
contingent obligation in connection with a shareholders
participation in certain fee-based programs.
|
Class C Shares
|
For the
fiscal year
ended January 31,
|
|
CDSCs
Received
by Distributor
|
|
CDSCs Paid
to
Merrill Lynch
|
2000 |
|
$
|
|
$
|
1999 |
|
$1,694 |
|
$1,694 |
1998 |
|
$
432 |
|
$
432 |
Proceeds from the CDSC and the distribution fee are paid
to the Distributor and are used in whole or in part by the
Distributor to defray the expenses of dealers (including Merrill
Lynch) related to providing distribution-related services to the
Fund in connection with the sale of the Class B and Class C
shares, such as the payment of compensation to financial
consultants for selling Class B and Class C shares from the
dealers own funds. The combination of the CDSC and the
ongoing distribution fee facilitates the ability of the Fund to
sell the Class B and Class C shares without a sales charge being
deducted at the time of purchase. See Distribution Plans
below. Imposition of the CDSC and the distribution fee on
Class B and Class C shares is limited by the National
Association of Securities Dealers, Inc. (the NASD)
asset-based sales charge rule. See Limitations on the
Payment of Deferred Sales Charges below.
Reference is made to Account ChoicesPricing of
Shares in the Prospectus for certain information with
respect to separate distribution plans for Class A, Class B, and
Class C 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
Funds to the Distributor with respect to such
classes.
The Distribution Plan for each of the Class A, Class B and
Class C shares provides that the Fund pays the Distributor an
account maintenance fee relating to the shares of the relevant
class, accrued daily and paid monthly, at the annual rate of
0.25% of the average daily net assets of the Fund attributable
to shares of the relevant class in order to compensate the
Distributor and selected dealers (pursuant to sub-agreements) in
connection with account maintenance activities with respect to
Class A, Class B and Class C 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 on any material changes to expenses
charged under the Class A Distribution Plan).
The Distribution Plans for Class B and Class C shares
provide 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 0.50% for Class B shares
and 0.55% for Class C shares of the average daily net assets of
the Fund attributable to the shares of the relevant class in
order to compensate the Distributor and selected dealers
(pursuant to sub-agreements) 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. In this regard, the purpose
and function of the ongoing distribution fees and the CDSC are
the same as those of the
initial sales charge with respect to the Class I and Class A
shares of the Fund in that the ongoing distribution fees and
deferred sales charges provide for the financing of the
distribution of the Funds Class B and Class C
shares.
The Funds Distribution Plans are subject to the
provisions of Rule 12b-1 under the Investment Company Act. In
their consideration of each Distribution Plan, the Directors
must consider all factors they deem relevant, including
information as to the benefits of each Distribution Plan to the
Fund and the 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 such 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 such
Distribution Plan, cast in person at a meeting called for that
purpose. Rule 12b-1 further requires that the Fund preserve
copies of its Distribution Plans and any report made pursuant to
such plan for a period of not less than six years from the date
of such 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 each Distribution Plan may be
more or less than distribution-related expenses of the related
class. 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. This
information is presented 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 basis, revenues consist of the account
maintenance fees, the 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, the
distribution fees and CDSCs and the expenses consist of
financial consultant compensation.
As of December 31, 1999,the last date for which fully
allocated accrual data is available, the fully allocated accrual
expenses of the Distributor and Merrill Lynch for the period
since the commencement of operations of Class B shares of the
Fund exceeded fully allocated accrual revenues by approximately $
(
% of Class B net assets at
that date). As of January 31, 2000, direct cash revenues for the
period since the commencement of operations of Class B shares
exceeded direct cash expenses by $
(
% of Class B net assets at that
date). As of December 31, 1999, 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 $
( % of
Class C net assets at that date). As of January 31, 2000, direct
cash revenues for the period since the commencement of
operations of Class C shares exceeded direct cash expenses by $
(
% of Class C net
assets at that date).
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 circumstance payment in
excess of the amount payable under the NASD formula will not be
made.
The following table sets forth comparative information as
of January 31, 2000 with respect to the Class B and Class C
shares indicating the maximum allowable payments that can be
made under the NASD maximum sales charge rule and, with respect
to the Class B shares, the Distributors voluntary maximum
for the periods indicated.
|
|
Data Calculated as of January 31,
2000
|
|
|
(In thousands) |
|
|
Eligible
Gross
Sales(1)
|
|
Allowable
Aggregate
Sales
Charges(2)
|
|
Allowable
Interest on
Unpaid
Balance(3)
|
|
Maximum
Amount
Payable
|
|
Amounts
Previously
Paid to
Distributor(4)
|
|
Aggregate
Unpaid
Balance
|
|
Annual
Distribution
Fee at
Current
Net Asset
Level(5)
|
Class
B Shares, for the period
February 1, 1995 (commencement of
operations) to January 31,
2000 |
Under NASD Rule as
Adopted |
|
|
|
Class
C Shares, for the period
February 1, 1995 (commencement of
operations) to January 31, 2000
|
Under NASD Rule as
Adopted |
|
|
(1)
|
Purchase price of all eligible Class B or Class
C shares sold during the periods indicated other than shares
acquired through dividend reinvestment and the exchange
privilege.
|
(2)
|
Includes amounts attributable to exchanges from
Summit Cash Reserves Fund (Summit) which are not
reflected in Eligible Gross Sales. Shares of Summit can only
be purchased by exchange from another fund (the redeemed
fund). Upon such an exchange, the maximum allowable
sales charge payment to the redeemed fund is reduced in
accordance with the amount of the redemption. This amount is
then added to the maximum allowable sales charge payment with
respect to Summit. Upon an exchange out of Summit, the
remaining balance of this amount is deducted from the maximum
allowable sales charge payment to Summit and added to the
maximum allowable sales charge payment to the fund into which
the exchange is made.
|
(3)
|
Interest is computed on a monthly basis based
upon the prime rate, as reported in The Wall Street
Journal, plus 1.0%, as permitted under the NASD
Rule.
|
(4)
|
Consists of CDSC payments, distribution fee
payments and accruals. Of the distribution fee payments made
with respect to Class B shares prior to July 6, 1993 under the
distribution plan in effect at that time, at a 1.0% rate,
0.75% of average daily net assets has been treated as a
distribution fee and 0.25% of average daily net assets has
been deemed to have been a service fee and not subject to the
NASD maximum sales charge rule. See What are the Program
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
shareholders participation in the Merrill Lynch Mutual
Fund Advisor (Merrill Lynch MFA) 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 upon
receipt of a written request in proper form. The redemption
price is the net asset value per share next determined after the
initial receipt of proper notice of
redemption. Except for any CDSC that may be applicable, there will
be no charge for redemption if the redemption request is sent
directly to the Transfer Agent. Shareholders liquidating their
holdings will receive upon redemption all dividends reinvested
through the date of redemption.
The right to redeem shares or to receive payment with
respect to any such redemption may be suspended for more than
seven days only for any period during which trading on the NYSE
is restricted as determined by the Commission or during which
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.
The value of shares of the Fund at the time of redemption
may be more or less than the shareholders 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 Funds Transfer Agent, Financial Data Services,
Inc., P.O. Box 44062, Jacksonville, Florida 32232-4062.
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. Redemption requests should not be sent to the
Program or the Fund. A redemption request in either event
requires the signature(s) of all persons in whose name(s) the
shares are registered, signed exactly as such name(s) appear(s)
on the Transfer Agents register. The signature(s) on the
redemption request may require a guarantee by an eligible
guarantor institution as defined in Rule 17Ad-15 under the
Securities Exchange Act of 1934 (the Exchange Act),
the existence and validity of which may be verified by the
Transfer Agent through the use of industry publications. In the
event a signature guarantee is required, notarized signatures
are not sufficient. In general, signature guarantees are waived
on redemptions of less than $50,000 as long as the following
requirements are met: (i) all requests require the signature(s)
of all persons in whose name(s) shares are recorded on the
Transfer Agents register; (ii) all checks must be mailed
to the stencil address of record on the Transfer Agents
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 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 not usually exceed 10 days.
The Fund also will repurchase its shares through a
shareholders listed securities dealer. The Fund normally
will accept orders to repurchase shares by wire or telephone
from dealers for their customers at the net asset value next
computed after the order is placed. Shares will be priced at the
net asset value calculated on the day the request is received,
provided that the request for repurchase is submitted to the
dealer prior to the close of business on the NYSE (generally,
the NYSE closes at 4:00 p.m., Eastern time) and such request is
received by the Fund from such dealer not later than 30 minutes
after the close of business on the NYSE on the same
day.
Dealers have the responsibility of submitting such
repurchase requests to the Fund not later than 30 minutes after
the close of business on the NYSE in order to obtain that day
s closing price.
The foregoing repurchase arrangements are for the
convenience of shareholders and do not involve a charge by the
Fund (other than any applicable CDSC). Securities firms that do
not have selected dealer agreements with the Distributor,
however, may impose a transaction charge on the shareholder for
transmitting the notice of repurchase to the Fund. Certain
securities dealers may charge a processing fee to confirm a
repurchase of shares. For example, the fee currently charged by
Merrill Lynch is $5.35. Fees charged by other securities dealers
may be higher or lower. Repurchases made through the Funds
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. A shareholder whose order for repurchase
is rejected by the Fund, however, may redeem Fund shares as set
forth above.
Reinstatement PrivilegeClass I and Class A
Shares
Shareholders of the Fund who have redeemed their Class I
and Class A shares have a privilege to reinstate their accounts
by purchasing Class I or Class A shares, as the case may be, at
net asset value without a sales charge up to the dollar amount
redeemed. The reinstatement privilege may be exercised by
sending a notice of exercise along with a check for the amount
to be reinstated to the Transfer Agent within 30 days after the
date the request for redemption was accepted by the Transfer
Agent or the Distributor. Alternatively, the reinstatement
privilege may be exercised through the investors financial
consultant within 30 days after the date the request for
redemption was accepted by the Transfer Agent or the
Distributor. The reinstatement will be made at the net asset
value per share next determined after the notice of
reinstatement is received and cannot exceed the amount of the
redemption proceeds.
Determination of Net Asset Value
Reference is made to How Shares are Priced in
the Prospectus.
The net asset value of the shares of all classes of the
Fund is determined once daily Monday through Friday as of the
close of business on the NYSE on each day the NYSE is open for
trading based on prices at the time of closing. The NYSE
generally closes at 4:00 p.m., Eastern time. The Fund also will
determine its net asset value on any day in which there is
sufficient trading in the Funds portfolio securities that
the net asset value might be affected materially, but only if on
any such day the Fund is required to sell or redeem shares. The
NYSE is not open for trading on New Years Day, Martin
Luther King, Jr. Day, Presidents Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
Net asset value is computed by dividing the value of the
securities held by the 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 of the Fund outstanding at such time, rounded
to the nearest cent. Expenses, including the fees payable to the
Investment Adviser and Distributor, are accrued
daily.
The per share net asset value of Class A, Class B and
Class C shares generally will be lower than the per share net
asset value of Class I 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 Class A shares.
Moreover, the per share net asset value of the Class B and Class
C shares of the Fund generally will be lower than the per share
net asset value of Class A 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. It
is expected, however, that the per share net asset value of the
four classes of the Fund 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 Board of Directors of the
Program 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 its
books 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 on the last sale price in the
case of exchange-traded options or, in the case of options
traded in the OTC market, the last ask price. Options purchased
by the Fund are valued at their last sale price in the case of
exchange-traded options or, in the case of options traded in the
OTC market, the last bid price. Other investments, including
financial futures contracts and related options, are stated at
market value. Securities and assets for which market quotations
are not readily available are stated at fair value as determined
in good faith by or under the direction of the Board of
Directors of the Program. Such valuations and procedures will be
reviewed periodically by the Board of Directors.
Generally, trading in U.S. Government securities and money
market instruments, is substantially completed each day at
various times prior to the close of business on the NYSE. The
values of such securities used in computing the net asset value
of the Funds shares are determined as of such times.
Occasionally, events affecting the values of such securities and
such exchange rates may occur between the times at which they
are determined and the close of business on the NYSE that may
not be reflected in the computation of the Funds net asset
value.
Each investor in the Program may add to or reduce its
investment in the Fund on each day the NYSE is open for trading.
The value of each investors (including the Funds)
interest in the Fund will be determined after the close of
business on the NYSE by multiplying the net asset value of the
Fund by the percentage, effective for that day, that represents
that investors share of the aggregate interests in the
Fund. Any additions or withdrawals to be effected on that day
will then be effected. The investors percentage of the
aggregate beneficial interests in the Fund will then be
recomputed as the percentage equal to the fraction (i) the
numerator of which is the value of such investors
investment in the Fund as of the time of determination on such
day plus or minus, as the case may be, the amount of any
additions to or withdrawals from the investors investment
in the Fund effected on such day, and (ii) the denominator of
which is the aggregate net asset value of the Fund as of such
time on such day plus or minus, as the case may be, the amount
of the net additions to or withdrawals from the aggregate
investments in the Fund by all its investors. The percentage so
determined will then be applied to determine the value of the
investors interest in the Fund after the close of business
of the NYSE on the next determination of net asset value of the
Fund.
Computation of Offering Price Per Share
An illustration of the computation of the offering price
for Class I, Class A, Class B and Class C shares of the Fund
based on the value of its estimated net assets and number of
shares outstanding on January 31, 2000 is as
follows:
|
|
Class
I
|
|
Class
A
|
|
Class
B
|
|
Class
C
|
Net
Assets |
|
$
|
|
$
|
|
$
|
|
$
|
Number of Shares Outstanding |
|
|
|
|
|
|
|
|
Net
Asset Value Per Share (net assets divided by number
of shares outstanding) |
|
$
|
|
$
|
|
$
|
|
$
|
Sales
Charge (for Class I and Class A Shares: 4.00% of
Offering Price (4.17% of net
amount invested))* |
|
|
|
|
|
** |
|
** |
|
|
|
|
|
|
|
|
|
Offering Price |
|
$
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
*
|
Rounded to the nearest one-hundredth percent;
assumes maximum sales charge is applicable.
|
**
|
Class B and Class C shares are not subject to
an initial sales charge but may be subject to a CDSC on
redemption. See Purchase of SharesDeferred Sales
ChargesClass B and Class C Shares
herein.
|
Transactions in Portfolio Securities
Subject to policies established by the Board of Directors
of the Program, the Investment Adviser is primarily responsible
for the execution of the Programs portfolio transactions
and the allocation of brokerage. The Program has no obligation
to deal with any broker or group of brokers in the execution of
transactions in portfolio securities and does not use any
particular broker or dealer. In executing transactions with
brokers and dealers, the Investment Adviser seeks to obtain the
best net results for the Fund in the Program, taking into
account such factors as price (including the applicable
brokerage commission or dealer spread), size of order,
difficulty of execution and operational facilities of the firm
and the firms risk in positioning a block of securities.
While the Investment Adviser generally seeks reasonably
competitive commission rates, the Fund does not necessarily pay
the lowest spread or commission available. In addition,
consistent with the Conduct Rules of the NASD and policies
established by the Board of Directors of the Program, the
Investment Adviser may consider sales of Fund shares as a factor
in the selection of brokers or dealers to execute portfolio
transactions for the Fund; however, whether or not a particular
broker or dealer sells shares of the Fund neither qualifies nor
disqualifies such broker or dealer to execute transactions for
the Fund.
Subject to obtaining the best net results, brokers who
provide supplemental investment research to the Investment
Adviser may receive orders for transactions by the Fund. Such
supplemental research services ordinarily consist of assessments
and analyses of the business or prospects of a company, industry
or economic sector. Information so received will be in addition
to and not in lieu of the services required to be performed by
the Investment Adviser under the Investment Advisory Agreements,
and the expenses of the Investment Adviser will not necessarily
be reduced as a result of the receipt of such supplemental
information. If in the judgment of the Investment Adviser the
Fund will benefit from supplemental research services, the
Investment Adviser is authorized to pay brokerage commissions to
a broker furnishing such services that are in excess of
commission that another broker may have charged for effecting
the same transactions. Certain supplemental research services
may primarily benefit one or more other investment companies or
other accounts for which the Investment Adviser exercises
investment discretion. Conversely, the Fund may be the primary
beneficiary of the supplemental research services received as a
result of portfolio transactions effected for such other
accounts or investment companies.
The Fund invests primarily in U.S. Government 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 Program and persons who are affiliated with
such affiliated persons are prohibited from dealing with the
Program 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 program will not deal with
affiliated persons, including Merrill Lynch and its affiliates,
in connection with such transactions. However, an affiliated
person of the Program 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 program 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 Program 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 has obtained prior
express authorization from the account to effect such
transactions, (ii) at least annually furnishes the account with
a statement setting forth the aggregate compensation received by
the member in effecting such transactions, and (iii) complies
with any rules the Commission has prescribed with respect to the
requirements of clauses (i) and (ii). To the extent Section
11(a) would apply to Merrill Lynch acting as a broker for the
Fund in any of its portfolio transactions executed on any such
securities exchange of which it is a member, appropriate
consents have been obtained from the Fund and annual statements as
to aggregate compensation will be provided to the Fund.
Securities may be held by, or be appropriate investments for,
the Fund as well as other funds or investment advisory clients
of the Investment Adviser or its affiliates.
The Board of Directors of the Program has considered the
possibility of seeking to recapture for the benefit of the Fund
brokerage commissions and other expenses of possible portfolio
transactions by conducting portfolio transactions through
affiliated entities. For example, brokerage commissions received
by affiliated brokers could be offset against the advisory fee
paid by the Fund to the Investment Adviser. After considering
all factors deemed relevant, the Board of Directors made a
determination not to seek such recapture. The Board will
reconsider this matter from time to time.
Because of different objectives or other factors, a
particular security may be bought for one or more clients of the
Investment Adviser or its affiliates when one or more clients of
the Investment Adviser or its affiliates are selling the same
security. If purchases or sales of securities arise for
consideration at or about the same time that would involve the
Fund or other clients or funds for which the Investment Adviser
or an affiliate act as investment adviser, transactions in such
securities will be made, insofar as feasible, for the respective
funds and clients in a manner deemed equitable to all. To the
extent that transactions on behalf of more than one client of
the Investment Adviser or its affiliates 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 described
below that are designed to facilitate investment in its shares.
Full details as to each such service and copies of the various
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 your selected
dealer. Certain of these services are available only to U.S.
investors.
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 also will show any other activity in the account
since the preceding statement. Shareholders also will 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. The Fund
does not issue share certificates.
Shareholders considering transferring their Class I or
Class A shares from a selected dealer to another brokerage firm
or financial institution should be aware that, if the firm to
which the Class I or Class A shares are to be transferred will
not take delivery of Fund shares, a shareholder either must
redeem the Class I or Class A shares so that the cash proceeds
can be transferred to the account at the new firm or such
shareholder must continue to maintain an Investment Account at
the Transfer Agent for those Class I or Class A
shares.
Shareholders interested in transferring their Class B or
Class C shares from a selected dealer and who do not wish to
have an Investment Account maintained for such shares at the
Transfer Agent may request their new brokerage firm to maintain
such shares in an account registered in the name of the
brokerage firm for the benefit of the shareholder at the
Transfer Agent.
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.
Shareholders considering transferring a tax-deferred
retirement account, such as an individual retirement account,
from a selected dealer to another brokerage firm or financial
institution 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 a selected dealer for those shares.
U.S. shareholders of each class of shares of the Fund have
an exchange privilege with certain other Mercury mutual funds
and 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 I, Class A, Class B and Class C shares. Shares with a net
asset value of at least $100 are required to qualify for the
exchange privilege and any shares used 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 I and Class A Shares.
Under the Funds pricing system, Class I
shareholders may exchange Class I shares of the Fund for Class I
shares of a second Mercury mutual fund. If the Class I
shareholder wants to exchange Class I shares for shares of a
second Mercury mutual fund, but does not hold Class I shares of
the second fund in his or her account at the time of exchange
and is not otherwise eligible to acquire Class I shares of the
second fund, the shareholder will receive Class A shares of the
second fund as a result of the exchange. Class A shares also may
be exchanged for Class I shares of a second Mercury mutual fund
at any time as long as, at the time of the exchange, the
shareholder is eligible to acquire Class I shares of any Mercury
mutual fund.
Exchanges of Class I or Class A shares outstanding (
outstanding Class I or Class A shares) for Class I
or Class A shares of another Mercury mutual fund, or for Class A
shares of Summit (new Class I or Class A shares) are
transacted on the basis of relative net asset value per Class I
or Class A share, respectively, plus an amount equal to the
difference, if any, between the sales charge previously paid on
the outstanding Class I or Class A shares and the sales charge
payable at the time of the exchange on the new Class I or Class
A shares. With respect to outstanding Class I or Class A 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 I or Class A
shares in the initial purchase and any subsequent exchange.
Class I or Class A shares issued pursuant to dividend
reinvestment are sold on a no-load basis in each of the funds
offering Class I or Class A shares. For purposes of the exchange
privilege, Class I and Class A 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 I
or Class A shares on which the dividend was paid. Based on this
formula, Class I and Class A shares of the Fund generally may be
exchanged into the Class I and Class A shares, respectively, of
the other funds with a reduced or without a sales
charge.
Exchanges of Class B and Class C Shares.
In addition, each of the funds with Class B and
Class C shares outstanding (outstanding Class B or Class C
shares) offers to exchange its Class B or Class C shares
for Class B or Class C shares, respectively, of another Mercury
mutual fund or for Class B shares of Summit (new Class B
or Class C shares) on the basis of relative net asset
value per Class B or Class C share, without the payment of any
CDSC that might otherwise be due on redemption of the
outstanding shares. Class B shareholders of the Fund exercising
the exchange privilege will continue to be subject to the 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 Funds CDSC schedule if such schedule is
higher than the CDSC schedule relating to the Class B shares of
the fund from which the exchange was 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 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
another Mercury fund (new Mercury Fund) after having
held the Funds Class B shares for two-and-a-half years.
The 3% CDSC that generally would apply to a redemption would not
apply to the exchange. Four years later the investor may decide
to redeem the Class B shares of the new Mercury 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 the Funds Class B shares to the four year holding
period for the new Mercury Fund Class B shares, the investor
will be deemed to have held the new Mercury Fund Class B shares
for more than six years.
Exchanges for Shares of a Money Market Fund.
Class I and Class A 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 I or Class A
shares of Affiliate-Advised Funds; Class B shares of Summit have
an exchange privilege back into Class B or Class C shares of
Affiliate-Advised 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 fee-based programs for which alternative exchange
arrangements may exist. Please see your financial consultant for
further information.
Prior to October 12, 1998, exchanges from the Fund and
other Affiliated-Advised Funds into a money market fund were
directed to certain Affiliate-Advised money market funds other
than Summit. Shareholders who exchanged Affiliate-Advised 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 of the Fund received in
exchange for such money market fund shares will be aggregated
with the holding period for the fund shares originally exchanged
for such money market fund shares for purposes of reducing the
CDSC or satisfying the Conversion Period.
Exercise of the Exchange Privilege.
To exercise the exchange privilege, a shareholder
should contact his or her financial consultant, who will advise
the Fund of the exchange. Shareholders of the Fund and
shareholders of the other funds described above 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 fee-based programs, including pricing alternatives
for securities transactions (each referred to in this paragraph
as a program), may permit the purchase of Class I
shares at net asset value. Under specified circumstances,
participants in certain Programs may deposit other classes of
shares, which will be exchanged for Class I 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 certain programs may result in the redemption
of shares held therein or the automatic exchange thereof to
another class at net asset value. 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 on the current value of such shares. These
programs also generally prohibit such shares from being
transferred to another account, 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 certain specific programs offered through
particular selected dealers (including charges and limitations
on transferability applicable to shares that may be held in such
programs) is available in each such programs client
agreement and from the Transfer Agent at
1-888-763-2260.
The minimum initial purchase to establish a retirement
plan is $100. Dividends received in retirement plans are exempt
from Federal taxation until distributed from the plans.
Different tax rules apply to Roth IRA plans and educational
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 I shares (if he or she is an eligible
Class I investor) or Class A, Class B or Class C shares at the
applicable public offering price. These purchases may be made
either through the shareholders securities dealer or by
mail directly to the Transfer Agent, acting as agent for such
securities dealer. You may also add to your account by
automatically investing a specific amount in the Fund on a
periodic basis through your selected dealer. The current minimum
for such automatic additional investments is $100. This minimum
may be waived or revised under certain
circumstances.
Automatic Dividend Reinvestment Plan
Dividends paid by the Fund may be taken in cash or
automatically reinvested in shares of the Fund at net asset
value without a sales charge. You should consult with your
financial consultant about which option you would like. If you
choose the reinvestment option, dividends paid with respect to
the Funds shares will be automatically reinvested, without
sales charge, in additional full and fractional shares of the
Fund. Such reinvestment will be at the net asset value of shares
of the Fund as 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
their selected dealer if their account is maintained with a
selected dealer, or by written notification or by telephone
(1-888-763-2260) to the Transfer Agent, if their account is
maintained with the Transfer Agent, elect to have subsequent
dividends of ordinary income and/or capital gains paid with
respect to shares of the Fund in cash, rather than reinvested in
shares of the Fund (provided that, in the event that a payment
on an account maintained at the Transfer Agent would amount to
$10.00 or less, a shareholder will not receive such payment in
cash and such payment will automatically be reinvested in
additional shares). Commencing ten days after the receipt by the
Transfer Agent of such notice, those instructions will be
effected. The Fund is not responsible for any failure of
delivery to the shareholders address of records and no
interest will accrue on amounts represented by uncashed dividend
checks. Cash payments can also be directly deposited to the
shareholders bank account.
Systematic Withdrawal Plans
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 who have acquired Fund shares having
a value, based on cost or the current offering price, of $5,000
or more, and monthly withdrawals are available for shareholders
with shares having a value of $10,000 or more.
At the time of each withdrawal payment, sufficient shares
are redeemed from those on deposit in the shareholders
account to provide the withdrawal payment specified by the
shareholder. The shareholder may specify the dollar amount and
class of shares to be redeemed. Redemptions will be made at net
asset value as determined after the close of business on the
NYSE (generally, the NYSE closes at 4:00 p.m., Eastern time) on
the 24th day of each month or the 24th day of the last month of
each quarter, whichever is applicable. If the NYSE is not open
for business on such date, the shares will be redeemed at the
net asset value determined after the close of business on the
following business day. The check for the withdrawal payment
will be mailed, or the direct deposit for withdrawal payment
will be made on the next business day following redemption. When
a shareholder is making systematic withdrawals, dividends and
distributions on all shares in the Investment Account are
reinvested automatically in Fund shares. A shareholders
systematic withdrawal plan may be terminated at any time,
without a charge or penalty, by the shareholder, the Fund, the
Transfer Agent or the Distributor.
With respect to redemptions of Class B and 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
SharesDeferred Sales Charge AlternativesClass B and
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 A shares, a shareholder must make a new
election to join the systematic withdrawal program with respect
to the Class A shares. If an investor wishes to change the
amount being withdrawn in a systematic withdrawal plan the
investor should contact his or her financial
consultant.
Withdrawal payments should not be considered as dividends.
Each withdrawal is a taxable event. If periodic withdrawals
continuously exceed reinvested dividends, the shareholders
original investment may be reduced correspondingly. Purchases of
additional shares concurrent with withdrawals are ordinarily
disadvantageous to the shareholder because of sales charges and
tax liabilities. The Fund will not knowingly accept purchase
orders for shares of the Fund from investors who maintain a
systematic withdrawal plan unless such purchase is equal to at
least one years scheduled withdrawals or $1,200, whichever
is greater. Periodic investments may not be made into an
Investment Account in which the shareholder has elected to make
systematic withdrawals.
The Fund intends to distribute substantially all of its
net investment income, if any. Dividends from such net
investment income will be paid at least annually. All net
realized capital gains, if any, will be distributed to the Fund
s shareholders at least annually. From time to time, the
Fund may declare a special distribution at or about the end of
the calendar year in order to comply with Federal tax
requirements that certain percentages of its ordinary income and
capital gains be distributed during the year. If in any fiscal
year, the Fund has net income from certain foreign currency
transactions, such income will be distributed at least
annually.
See Shareholder ServicesAutomatic Dividend
Reinvestment Plan for information concerning the manner in
which dividends may be reinvested automatically in shares of the
Fund. A shareholder whose account is maintained at the Transfer
Agent or whose account is maintained through his or her selected
dealer may elect in writing to receive any such dividends in
cash. Dividends are taxable to shareholders, as discussed below,
whether they are reinvested in shares of the Fund or received in
cash. The per share dividends on Class B and Class C shares will
be lower than the per share dividends on Class I and Class A
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 A shares will be lower than the per share dividends on
Class I shares as a result of the account maintenance fees
applicable with respect to the Class A shares. See Pricing
of SharesDetermination 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 I, Class A, Class B
and Class C 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 Funds 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 futures and options) (capital gain
dividends) are taxable to shareholders as long term
capital gains, regardless of the length of time the shareholder
has owned Fund shares. Any loss upon the sale or exchange of
Fund shares held for six months or less will be treated as long
term capital loss to the extent of any capital gain dividends
received by the shareholder. Distributions in excess of the Fund
s earnings and profits will first reduce the adjusted tax
basis of a holders shares and, after such adjusted tax
basis is reduced to zero, will constitute capital gains to such
holder (assuming the shares are held as a capital asset).
Certain categories of capital gains are taxable at different
rates. Generally not later than 60 days after the close of its
taxable year, the Fund will provide its shareholders with a
written notice designating the amount of any capital gain
dividends as well as any amount of capital gain dividends in the
different categories of capital gain referred to
above.
Dividends are taxable to shareholders even though they are
reinvested in additional shares of the Fund. Distributions by
the Fund, whether from ordinary income or capital gains,
generally will not be eligible for the dividends received
deduction allowed to corporations under the Code. If the Fund
pays a dividend in January that was declared in the previous
October, November or December to shareholders of record on a
specified date in one of such months, then such dividend will be
treated for tax purposes as being paid by the Fund and received
by its shareholders on December 31 of the year in which such
dividend was declared.
No gain or loss will be recognized by Class B shareholders
on the conversion of their Class B shares into Class A shares. A
shareholders basis in the Class A shares acquired will be
the same as such shareholders basis in the Class B shares
converted, and the holding period of the acquired Class A shares
will include the holding period for the converted Class B
shares.
If a shareholder exercises an exchange privilege within 90
days of acquiring the shares, then the loss the shareholder can
recognize on the exchange will be reduced (or the gain
increased) to the extent any sales charge paid on the exchanged
shares reduces any sales charge the shareholder would have owed
upon the purchase of the new shares in the absence of the
exchange privilege. Instead, such sales charge will be treated
as an amount paid for the new shares.
A
loss realized on a sale or exchange of shares of the Fund will
be disallowed if such 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
non-resident aliens or foreign entities will be subject to a 30%
U.S. withholding tax under existing provisions of the Code
applicable to foreign individuals and entities unless a reduced
rate of withholding or a withholding exemption is provided under
applicable treaty law. Nonresident shareholders are urged to
consult their own tax advisers concerning the applicability of
the U.S. withholding tax.
Under certain provisions of the Code, some shareholders
may be subject to a 31% withholding tax on ordinary income
dividends, capital gain dividends and redemption payments (
backup withholding). Generally, shareholders subject
to backup withholding will be those for whom no certified
taxpayer identification number is on file with the Fund or who,
to such Funds knowledge, have furnished an incorrect
number. When establishing an account, an investor must certify
under penalty of perjury that such number is correct and that
such 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.
The Fund may make investments that produce taxable income
that is not matched by a corresponding receipt of cash or an
offsetting loss deduction. Such investments would include
obligations that have original issue discount or that accrue
discount and obligations which are subordinated in the
mortgaged-backed or asset-backed securities structure. Such
taxable income would be treated as income earned by the Fund and
would be subject to the distribution requirements of the Code.
Because such income may not be matched by a corresponding
receipt of cash by the Fund or an offsetting deduction, the Fund
may be required to borrow money or dispose of other securities
to be able to make distributions to shareholders. The Fund
intends to make sufficient and timely distributions to
shareholders so as to qualify for treatment as a RIC at all
times.
Tax Treatment of Options and Futures Transactions
The Fund may write, purchase or sell options and futures.
In general, unless an election is available to the Fund or an
exception applies, options and futures contracts that are
Section 1256 Contracts will be marked to market
for Federal income tax purposes at the end of each
taxable year (i.e., each such option or futures contract will be
treated as sold for its fair market value on the last day of the
taxable year), and any gain or loss attributable to Section 1256
contracts will be 60% long-term and 40% short-term capital gain
or loss. Application of these rules to Section 1256 contracts
held by the Fund may alter the timing and character of
distributions to shareholders. The mark-to-market rules outlined
above, however, will not apply to certain transactions entered
into by the Fund solely to reduce the risk of changes in price
or interest or currency exchange rates with respect to its
investments.
Code Section 1092, which applies to certain
straddles, may affect the taxation of the Fund
s sales of securities and transactions in options and
futures. Under Section 1092, the Fund may be required to
postpone recognition for tax purposes of losses incurred in
certain sales of securities and certain closing transactions in
options and futures.
The foregoing is a general and abbreviated summary of the
applicable provisions of the Code and Treasury regulations
presently in effect. For the complete provisions, reference
should be made to the pertinent Code sections and the Treasury
regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative, judicial or
administrative action either prospectively or
retroactively.
Ordinary income and capital gain dividends may also be
subject to state and local taxes.
Certain states exempt from state income taxation dividends
paid by RICs that are derived from interest on U.S. Government
obligations. State law varies as to whether dividend income
attributable to U.S. Government obligations is exempt from state
income tax.
Shareholders are urged to consult their tax advisers
regarding specific questions as to Federal, foreign, state or
local taxes. Foreign investors should consider applicable
foreign taxes in their evaluation of an investment in the
Fund.
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 is based on the Funds historical performance
and is not intended to indicate future performance. Average
annual total return is determined separately for Class I, Class
A, Class B and Class C shares in accordance with a formula
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 I and
Class A 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 I and A
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 the
distribution charges and any incremental transfer agency cost
relating to each class of shares will be borne exclusively by
that
class. The Fund will include performance data for all classes of
shares 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 Funds total return may
be expressed either as a percentage or as a dollar amount in
order to illustrate such total return on a hypothetical $1,000
investment in the Fund at the beginning of each specified
period.
Set forth below is total return information for the Class
I, Class A, Class B and Class C shares of the Fund for the
periods indicated.
|
|
Class I Shares
|
|
Class A Shares
|
|
|
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 January 31, 2000 |
|
|
|
|
|
|
|
|
Inception (February 1, 1995)
through the fiscal year ended
January 31, 2000 |
|
|
|
|
|
|
|
|
|
|
Average Annual Total Return
(including maximum applicable sales charges) |
Year
Ended January 31, |
|
|
|
|
|
|
|
|
2000 |
|
|
|
|
|
|
|
|
1999 |
|
|
|
|
|
|
|
|
1998 |
|
|
|
|
|
|
|
|
1997 |
|
|
|
|
|
|
|
|
Inception (February 1, 1995)
through the fiscal year ended
January 31, 1996 |
|
|
|
|
|
|
|
|
|
|
Average Annual Total Return
(including maximum applicable sales charges) |
Inception (February 1, 1995)
through the fiscal year ended
January 31, 2000 |
|
|
|
|
|
|
|
|
|
|
|
|
Class B Shares
|
|
Class C Shares
|
|
|
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 January 31, 2000 |
|
|
|
|
|
|
|
|
Inception (February 1, 1995)
through the fiscal year ended
January 31, 2000 |
|
|
|
|
|
|
|
|
|
|
Average Annual Total Return
(including maximum applicable sales charges) |
Year
Ended January 31, |
|
|
|
|
|
|
|
|
2000 |
|
|
|
|
|
|
|
|
1999 |
|
|
|
|
|
|
|
|
1998 |
|
|
|
|
|
|
|
|
1997 |
|
|
|
|
|
|
|
|
Inception (February 1, 1995)
through the fiscal year ended
January 31, 1996 |
|
|
|
|
|
|
|
|
|
|
Average Annual Total Return
(including maximum applicable sales charges) |
Inception (February 1, 1995)
through the fiscal year ended
January 31, 2000 |
|
|
|
|
|
|
|
|
In order to reflect the reduced sales charges in the case
of Class I or Class A 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 and
Redemption of Shares, respectively, the total return
data quoted by the Fund in advertisements directed to such
investors may take into account the reduced, and not the
maximum, sales charge or may take into account the CDSC and
therefore may reflect greater total return since, due to the
reduced sales charges or the waiver of sales charges, a lower
amount of expenses is deducted.
On occasion, the Fund may compare its performance to
various indices including, among other things, the Standard
& Poors 500 Index, the Value Line Composite Index, the
Dow Jones Industrial Average, or other published indices, or to
data contained in publications such as Lipper Analytical
Services, Inc., Morningstar Publications, Inc. (Morningstar
), other competing universes, Money Magazine, U.S. News
& World Report, Business Week, Forbes Magazine, Fortune
Magazine and CDA Investment Technology, Inc. When comparing its
performance to a market index, the Fund may refer to various
statistical measures derived from the historic performance of
the Fund and the index, such as standard deviation and beta. As
with other performance data, performance comparisons should not
be considered indicative of the Funds relative performance
for any future period. From time to time, the Fund may include
its Morningstar risk-adjusted performance rating in
advertisements or supplemental sales literature. The Fund may
from time to time quote in advertisements or other materials
other applicable measures of performance and may also make
reference to awards that may be given to the Investment
Adviser.
The Program was incorporated under Maryland law on May 12,
1994. As of the date of this Statement of Additional
Information, the Program has an authorized capital of
200,000,000 shares of Common Stock par, value $0.10 per shares,
of which 43,750,000 have been designated to the Fund as follows:
6,250,000 Class I shares, 6,250,000 Class A shares, 25,000,000
Class B shares and 6,250,000 Class C shares. The Board of
Directors of the Program may classify and reclassify the shares
of a 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 Program does not intend to hold meetings
of shareholders in any year in which the Investment Company Act
does not require shareholders to act on any of the following
matters: (i) election of Directors; (ii) approval of an
investment advisory agreement; (iii) approval of a distribution
agreement; and (iv) ratification of selection of independent
auditors. Generally, under Maryland law, a meeting of
shareholders may be called for any purpose on the written
request of the holders of at least 10% of the outstanding shares
of the Program. Voting rights for Directors are not cumulative.
Shares issued are fully paid and non-assessable and have no
preemptive or conversion rights. Redemption rights are discussed
elsewhere herein and in the Prospectus. Each share is entitled
to participate equally in dividends and distributions declared
by the Program and in the net assets of the Program on
liquidation or dissolution after satisfaction of outstanding
liabilities. Stock certificates are issued by the Transfer Agent
only on specific request. Certificates for fractional shares are
not issued in any case.
Deloitte & Touche LLP
, Princeton Forrestal Village, 116-300 Village Boulevard,
Princeton, New Jersey 08540-6400, has been selected as the
independent auditors of the Program. The independent auditors
are responsible for auditing the annual financial statements of
the Fund.
The Bank of New York, 100 Church Street, New York, New
York 10286, (the Custodian) acts as the Custodian of
the Programs assets. Under its contract with the Program,
the Custodian is authorized to establish separate accounts in
foreign currencies and to cause foreign securities owned by the
Program 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
Programs cash and securities, handling the receipt and
delivery of securities and collecting interest and dividends on
the Programs investments.
Financial Data Services, Inc., 4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484, which is a wholly owned
subsidiary of ML & Co., acts as the Funds Transfer
Agent pursuant to a transfer agency, dividend disbursing agency
and shareholder servicing agency agreement (the Transfer
Agency Agreement). The Transfer Agent is responsible for
the issuance, transfer and redemption of shares and the opening,
maintenance and servicing of shareholder accounts.
Brown & Wood LLP
, One World Trade Center, New York, New York 10048-0557, is
counsel for the Program and the Fund.
The fiscal year of the Fund ends on January 31 of each
year. The Fund sends to its shareholders at least semi-annually
reports showing its 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 Corporation has filed with the Commission, Washington, D.C.,
under the Securities Act and the Investment Company Act, to
which reference is hereby made.
Under a separate agreement, Mercury Asset Management
International Ltd. and Mercury Asset Management Group Ltd. (
Mercury) has granted the Fund the right to use the
Mercury 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
have granted Mercury under certain conditions, the use of any
other name it might assume in the future, with respect to any
corporation organized by Mercury.
To the knowledge of the Fund, the following persons or
entities owned beneficially 5% or more of any class of the stock
of the Fund as of January 1, 2000:
Name
|
|
Address
|
|
Percent and
Class
|
MLPF&S
Cust FPO
Edward G. Stacy IRRA
FBO Edward G. Stacy |
|
1380 Butter
Churn Dr.
Herndon, VA 20170 |
|
29.15% Class
A |
|
|
MLPF&S
Cust FPO
Francis J. Murphy Jr. IRRA
FBO Francis J. Murphy Jr. |
|
1630
Timberlake Manor Pkwy.
Chesterfield, MO 63017 |
|
23.13% Class
A |
|
|
MLPF&S
Cust FPO
Mr. Raymond C. Thompson IRRA
FBO Mr. Raymond C. Thompson |
|
2 Windsor Rd.
Molford, MA 01757 |
|
15.28% Class
A |
Name
|
|
Address
|
|
Percent and
Class
|
MLPF&S
Cust FPO
Salvatore G. Camera IRRA
FBO Salvatore G. Camera IRRA |
|
19761 Le Mans
Cir.
Yorba Linda, CA 92886 |
|
10.72% Class
A |
|
|
MLPF&S
Cust FPO
Kathleen D. Morris IRA
FBO Kathleen D. Morris |
|
74 Smithtown
Rd.
Budd Lake, NJ 07828 |
|
6.88% Class
A |
|
|
MLPF&S
Cust FPO
Francisco Nebot IRRA
FBO Francisco Nebot |
|
23572 Mary Kay
Cir.
Laguna Niguel, CA 92677 |
|
5.68% Class
A |
|
|
MLPF&S S
Cust FPO
Peter S. Deck IRRA
FBO Peter S. Deck |
|
600A Revere
Blvd.
Sinking Spg., PA 19608 |
|
9.12% Class
D |
|
|
MLPF&S S
Cust FPO
Ronald N. Hayes IRA
FBO Ronald N. Hayes |
|
900 Cascades
Trl.
San Marcos, TX 78666 |
|
6.33% Class
D |
|
|
MLPF&S S
Cust FPO
Godfred Hennig III IRA
FBO Godfred Hennig III |
|
172 Acacia Ave.
Biloxi, MS 39530 |
|
6.27% Class
D |
CODE NO. 18472-04-00
PART C. OTHER
INFORMATION
Item 23.
Exhibits.
Exhibit
Number
|
|
|
|
|
1(a) |
|
|
|
Articles of
Incorporation of the Registrant.(a) |
|
|
(b) |
|
|
|
Articles of
Amendment of Incorporation of the Registrant filed on November
9, 1994.(a) |
|
|
(c) |
|
|
|
Articles of
Amendment of Articles of Incorporation, filed on December 19,
1994.(d) |
|
|
(d) |
|
|
|
Articles of
Amendment of Articles of Incorporation of the Registrant filed
on July 20, 1995.(e) |
|
|
(e) |
|
|
|
Articles
Supplementary to Articles of Incorporation of the Registrant
filed on July 20, 1995.(e) |
|
|
(f) |
|
|
|
Articles of
Amendment of Articles of Incorporation of the Registrant filed
on May 21, 1996.(f) |
|
|
(g) |
|
|
|
Articles
Supplementary to the Articles of Incorporation of the
Registrant filed on December 22,
1997.(i) |
|
|
(h) |
|
|
|
Articles
Supplementary to the Articles of Incorporation of the
Registrant filed on December 28,
1998.(j) |
|
|
(i) |
|
|
|
Articles of
Amendment to the Articles of Incorporation of the Registrant
filed on
, 2000*. |
|
|
2 |
|
|
|
By-Laws of the
Registrant.(b) |
|
|
3(a) |
|
|
|
Portions of
the Articles of Incorporation and By-Laws of the Registrant
defining the rights of holders
of shares of common stock of the Registrant.(c) |
|
|
4(a) |
|
|
|
Form of
Investment Advisory Agreement between Merrill Lynch Mid Cap
Value Fund and Merrill
Lynch Asset Management, L.P. (MLAM). |
|
|
(b) |
|
|
|
Form of
Investment Advisory Agreement between Mercury Growth
Opportunity Fund and Fund
Asset Management, L.P. (FAM). |
|
|
(c) |
|
|
|
Form of
Investment Advisory Agreement between Mercury U.S. Government
Bond Fund and FAM. |
|
|
(d) |
|
|
|
Form of
Sub-Advisory Agreement between MLAM and Merrill Lynch Asset
Management U.K.
Limited. |
|
|
(e) |
|
|
|
Form of
Sub-Advisory Agreement between FAM and Merrill Lynch Asset
Management U.K.
Limited. |
|
|
5(a) |
|
|
|
Form of Class
A Distribution Agreement between Merrill Lynch Mid Cap Value
Fund and Princeton
Funds Distributor, Inc. (the Distributor) (including
Form of Selected Dealers Agreement). |
|
|
(b) |
|
|
|
Form of Class
B Distribution Agreement between Merrill Lynch Mid Cap Value
Fund and the
Distributor. |
|
|
(c) |
|
|
|
Form of Class
C Distribution Agreement between Merrill Lynch Mid Cap Value
Fund and the
Distributor. |
|
|
(d) |
|
|
|
Form of Class
D Distribution Agreement between Merrill Lynch Mid Cap Value
Fund and the
Distributor. |
|
|
(e) |
|
|
|
Form of Class
I Distribution Agreement between Mercury Growth Opportunity
Fund and the
Distributor. |
|
|
(f) |
|
|
|
Form of Class
A Distribution Agreement between Mercury Growth Opportunity
Fund and the
Distributor. |
|
|
(g) |
|
|
|
Form of Class
B Distribution Agreement between Mercury Growth Opportunity
Fund and the
Distributor. |
|
|
(h) |
|
|
|
Form of Class
C Distribution Agreement between Mercury Growth Opportunity
Fund and the
Distributor. |
|
|
(i) |
|
|
|
Form of Class
I Distribution Agreement between Mercury U.S. Government Bond
Fund and the
Distributor. |
(j) |
|
|
|
Form of Class
A Distribution Agreement between Mercury U.S. Government Bond
Fund and the
Distributor. |
|
|
(k) |
|
|
|
Form of Class
B Distribution Agreement between Mercury U.S. Government Bond
Fund and the
Distributor. |
|
|
(l) |
|
|
|
Form of Class
C Distribution Agreement between Mercury U.S. Government Bond
Fund and the
Distributor. |
|
|
6 |
|
|
|
None. |
|
|
7 |
|
|
|
Custody
Agreement between the Registrant and The Bank of New
York.(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.)(d) |
|
|
(b) |
|
|
|
Agreement
between Merrill Lynch & Co., Inc. and Registrant relating
to Registrants use of Merrill
Lynch name.(a) |
|
(c) |
|
|
|
Amended
Transfer Agency, Dividend Disbursing Agency and Shareholder
Servicing Agency
Agreement between the Registrant and Financial Data Services,
Inc.* |
|
(d) |
|
|
|
Agreement
between Merrill Lynch & Co., Inc. and Registrant relating
to Registrants use of Mercury
name. |
|
|
9(a) |
|
|
|
Opinion of
Brown & Wood LLP, counsel for
the Registrant.(a) |
|
|
(b) |
|
|
|
Consent of
Brown & Wood LLP, counsel for
the Registrant. (j) |
|
|
10 |
|
|
|
Consent of
Deloitte & Touche LLP, independent
auditors for the Registrant.* |
|
|
11 |
|
|
|
None. |
|
|
12 |
|
|
|
Certificate of
Merrill Lynch Asset Management, L.P.(a) |
|
|
13(a) |
|
|
|
Form of Class
B Distribution Plan of Merrill Lynch Mid Cap Value Fund and
Class B Distribution
Plan Sub-Agreement. |
|
|
(b) |
|
|
|
Form of Class
C Distribution Plan of Merrill Lynch Mid Cap Value Fund and
Class C Distribution
Plan Sub-Agreement. |
|
|
(c) |
|
|
|
Form of Class
D Distribution Plan of Merrill Lynch Mid Cap Value Fund and
Class D Distribution
Plan Sub-Agreement. |
|
|
(d) |
|
|
|
Form of Class
A Distribution Plan of Mercury Growth Opportunity Fund and
Class A Distribution
Plan Sub-Agreement. |
|
|
(e) |
|
|
|
Form of Class
B Distribution Plan of Mercury Growth Opportunity Fund and
Class B Distribution
Plan Sub-Agreement. |
|
|
(f) |
|
|
|
Form of Class
C Distribution Plan of Mercury Growth Opportunity Fund and
Class C Distribution
Plan Sub-Agreement. |
|
|
(g) |
|
|
|
Form of Class
A Distribution Plan of Mercury U.S. Government Bond Fund and
Class A Distribution
Plan Sub-Agreement. |
|
|
(h) |
|
|
|
Form of Class
B Distribution Plan of Mercury U.S. Government Bond Fund and
Class B Distribution
Plan Sub-Agreement. |
|
|
(i) |
|
|
|
Form of Class
C Distribution Plan of Mercury U.S. Government Bond Fund and
Class C Distribution
Plan Sub Agreement. |
|
|
14 |
|
|
|
Merrill Lynch
Select Pricing System Plan pursuant to Rule
18f-3.(h) |
*
|
To be filed by amendment.
|
(a)
|
Filed on December 16, 1994 as an Exhibit to
Pre-Effective Amendment No. 1 to Registrants
Registration Statement on Form N-1A (File No. 333-53887) under
the Securities Act of 1933 (the Registration Statement
).
|
(b)
|
Filed on May 27, 1994, as an Exhibit to the
Pre-Effective Registration Statement.
|
(c)
|
Reference is made to Articles IV, V (Sections
2, 3, 4, 5 and 6), VI, VII and IX of the Registrants
Articles of Incorporation, as amended, filed as Exhibits 1(a),
1(b) and 1(c) to this Registration Statement; and to Articles
II, III (Sections 1, 3, 5, 6 and 17), VI, VII, XII, XIII and
XIV of the Registrants By-Laws filed as Exhibit 2 to
this Registration Statement.
|
(d)
|
Filed on May 30, 1995, as an Exhibit to
Post-Effective Amendment No. 1 to the Registration
Statement.
|
(e)
|
Filed on August 9, 1995, as an Exhibit to
Post-Effective Amendment No. 2 to the Registration
Statement.
|
(f)
|
Filed on May 29, 1996, as an Exhibit to
Post-Effective Amendment No. 5 to the Registration
Statement.
|
(g)
|
Filed on May 23, 1997, as an Exhibit to
Post-Effective Amendment No. 6 to the Registration
Statement.
|
(h)
|
Incorporated by reference to Exhibit 18 to
Post-Effective Amendment No. 13 to the Registration Statement
on Form N-1A under the Securities Act of 1933, as amended,
filed on January 25, 1996 relating to shares of Merrill Lynch
New York Municipal Bond Fund series of Merrill Lynch
Multi-State Municipal Series Trust (File No.
2-99473).
|
(i)
|
Filed on May 19, 1998, as an Exhibit to
Post-Effective Amendment No. 7 to the Registration
Statement.
|
(j)
|
Filed on April 1, 1999, as an Exhibit to
Post-Effective Amendment No. 8 to the 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 V of the Registrants
Articles of Incorporation, Article VI of the Registrants
By-Laws, Section 2-418 of the Maryland General Corporation Law
and Section 9 of the Class I, 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 Registrants 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 Registrants 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 I, 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 Investment
Advisers.
Fund Asset Management, L.P. (FAM) acts as the
investment adviser for the following open-end registered
investment companies: CBA Money Fund, CMA Government Securities
Fund, CMA Money Fund, CMA Multi-State Municipal Series Trust,
CMA Tax-Exempt Fund, CMA Treasury Fund, The Corporate Fund
Accumulation Program, Inc., Financial Institutions Series Trust,
Merrill Lynch Basic Value Fund, Inc., Merrill Lynch California
Municipal Series Trust, Merrill Lynch Corporate Bond Fund, Inc.,
Merrill Lynch Corporate High Yield Fund, Inc., Merrill Lynch
Emerging Tigers Fund, Inc., Merrill Lynch Federal Securities
Trust, Merrill Lynch Funds for
Institutions Series, Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust, Merrill Lynch Multi-State Municipal
Series Trust, Merrill Lynch Municipal Bond Fund, Inc., Merrill
Lynch Phoenix Fund, Inc., Merrill Lynch Special Value Fund,
Inc., Merrill Lynch World Income Fund, Inc., and The Municipal
Fund Accumulation Program, Inc.; and for the following
closed-end registered investment companies: Apex Municipal Fund,
Inc., Corporate High Yield Fund, Inc., Corporate High Yield Fund
II, Inc., Corporate High Yield Fund III, Inc., Debt Strategies
Fund, Inc., Debt Strategies Fund II, Inc., Debt Strategies Fund
III, Inc., Income Opportunities Fund 1999, Inc., Income
Opportunities Fund 2000, Inc., Merrill Lynch Municipal Strategy
Fund, Inc., MuniAssets Fund, Inc., MuniEnhanced Fund, Inc.,
MuniHoldings Fund, Inc., MuniHoldings Fund II, Inc.,
MuniHoldings California Insured Fund, Inc., MuniHoldings
California Insured Fund II, Inc., MuniHoldings California
Insured Fund III, Inc., MuniHoldings California Insured Fund IV,
Inc., MuniHoldings California Insured Fund V, Inc., MuniHoldings
Florida Insured Fund, MuniHoldings Florida Insured Fund II,
MuniHoldings Florida Insured Fund III, MuniHoldings Florida
Insured Fund IV, MuniHoldings Florida Insured Fund V,
MuniHoldings Insured Fund, Inc., MuniHoldings Insured Fund II,
Inc., MuniHoldings Insured Fund III, Inc., MuniHoldings Insured
Fund IV, Inc., MuniHoldings Michigan Insured Fund, Inc.,
MuniHoldings Michigan Insured Fund II, Inc., MuniHoldings New
Jersey Insured Fund, Inc., MuniHoldings New Jersey Insured Fund
II, Inc., MuniHoldings New Jersey Insured Fund III, Inc.,
MuniHoldings New Jersey Insured Fund IV, Inc., MuniHoldings New
York Fund, Inc., MuniHoldings New York Insured Fund, Inc.,
MuniHoldings New York Insured Fund II, Inc., MuniHoldings New
York Insured Fund III, Inc., MuniHoldings New York Insured Fund
IV, Inc., MuniHoldings Pennsylvania Insured Fund, MuniInsured
Fund, Inc., MuniVest Fund, Inc., MuniVest Fund II, Inc.,
MuniVest Florida Fund, MuniVest Michigan Insured Fund, Inc.,
MuniVest New Jersey Fund, Inc., MuniVest Pennsylvania Insured
Fund, MuniYield Arizona Fund, Inc., MuniYield California Fund,
Inc., MuniYield California Insured Fund, Inc., MuniYield
California Insured Fund II, Inc., MuniYield Florida Fund,
MuniYield Florida Insured Fund, MuniYield Fund, Inc., MuniYield
Insured Fund, Inc., MuniYield Michigan Fund, Inc., MuniYield
Michigan Insured Fund, Inc., MuniYield New Jersey Fund, Inc.,
MuniYield New Jersey Insured Fund, Inc., MuniYield New York
Insured Fund, Inc., MuniYield New York Insured Fund II, Inc.,
MuniYield Pennsylvania Fund, MuniYield Quality Fund, Inc.,
MuniYield Quality Fund II, Inc., Senior High Income Portfolio,
Inc. and Worldwide DollarVest Fund, Inc.
Merrill Lynch Asset Management, L.P. (MLAM)
acts as the investment adviser for the following open-end
registered investment companies: Master Global Financial
Services Trust, Merrill Lynch Adjustable Rate Securities Fund,
Inc., Merrill Lynch Americas Income Fund, Inc., Merrill Lynch
Asset Builder Program, Inc., Merrill Lynch Asset Growth Fund,
Inc., Merrill Lynch Asset Income Fund, Inc., Merrill Lynch
Capital Fund, Inc., Merrill Lynch Convertible Fund, Inc.,
Merrill Lynch Developing Capital Markets Fund, Inc., Merrill
Lynch Disciplined Equity Fund, Inc., Merrill Lynch Dragon Fund,
Inc., Merrill Lynch Euro Fund, 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
Small Cap 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. and Merrill Lynch
Senior Floating Rate Fund, Inc., and Merrill Lynch Senior
Floating Rate Fund II, Inc. MLAM also acts as sub-adviser to
Merrill Lynch World Strategy Portfolio and Merrill Lynch Basic
Value Equity Portfolio, two investment portfolios of EQ Advisors
Trust.
The address of each of these registered investment
companies is P.O. Box 9011, Princeton, New Jersey 08543-9011,
except that the address of Merrill Lynch Funds for Institutions
Series and Merrill Lynch Intermediate Government Bond Fund is
One Financial Center, 23rd Floor, Boston, Massachusetts
02111-2665. The address of
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), of Mercury Funds Distributor (MFD
) and of Merrill Lynch Funds Distributor (MLFD
) is P.O. Box 9081, Princeton, New Jersey 08543-9081. The
address of Merrill Lynch, Pierce, Fenner & Smith
Incorporated (Merrill Lynch) and Merrill Lynch &
Co., Inc. (ML & Co.) is World Financial Center,
North Tower, 250 Vesey Street, New York, New York 10281-1201.
The address of the Funds transfer agent, Financial Data
Services, Inc. (FDS), is 4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484.
Set forth below is a list of each executive officer and
partner of MLAM and FAM (collectively, referred to herein as the
Manager) indicating each business, profession,
vocation or employment of a substantial nature in which each
such person or entity has been engaged since November 1, 1996
for his, her or its own account or in the capacity of director,
officer, partner or trustee. In addition Mr. Glenn is President
and Mr. Burke is Vice President and Treasurer of substantially
all of the investment companies described in the first two
paragraphs of this Item 26, and Messrs. Giordano and Monagle are
officers of one or more of such companies.
Name
|
|
Position(s)
with the Manager
|
|
Other
Substantial Business, Profession,
Vocation or Employment
|
ML &
Co |
|
Limited
Partner
Financial Services Holding
Company |
|
|
|
|
Princeton
Services |
|
General
Partner |
|
|
|
|
Jeffrey M.
Peek |
|
President |
|
President and
Director of Princeton
Services; Executive Vice President of ML
& Co.; Managing Director and Co-Head of
the Investment Banking Division of Merrill
Lynch (in 1997); Senior Vice President and
Director of the Global Securities and
Economics Division of Merrill Lynch
(from 1995 to 1997) |
|
|
Terry K.
Glenn |
|
Executive Vice
President |
|
Executive Vice
President and Director of
Princeton Services; President and Director
of PFD; Director of FDS; President of
Princeton Administrators; Senior Vice
President of Princeton Services |
|
|
Donald C.
Burke |
|
Senior Vice
President and
Treasurer and Director of
Taxation |
|
Senior Vice
President and Treasurer of
Princeton Services; Vice President of PFD;
First Vice President of the Manager from
1997 to 1999; Vice President of the
Manager from 1990 to 1997 |
|
|
Michael G.
Clark |
|
Senior Vice
President |
|
Senior Vice
President of Princeton
Services; Director and Treasurer of PFD;
First Vice President of the Manager from
1997 to 1999; Vice President of the
Manager from 1996 to 1997 |
|
|
Mark A.
Desario |
|
Senior Vice
President |
|
Senior Vice
President of Princeton Services |
|
|
Linda L.
Federici |
|
Senior Vice
President |
|
Senior Vice
President of Princeton Services |
|
|
Vincent R.
Giordano |
|
Senior Vice
President |
|
Senior Vice
President of Princeton Services |
|
|
Michael J.
Hennewinkel |
|
Senior Vice
President, Secretary
and General Counsel |
|
Senior Vice
President of Princeton Services |
|
|
Philip L.
Kirstein |
|
Senior Vice
President |
|
Senior Vice
President, Director and
Secretary of Princeton Services |
|
|
Ronald M.
Kloss |
|
Senior Vice
President |
|
Senior Vice
President of Princeton Services |
Name
|
|
Position(s)
with the Manager
|
|
Other
Substantial Business, Profession,
Vocation or Employment
|
Debra W.
Landsman-Yaros |
|
Senior Vice
President |
|
Senior Vice
President of 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 Princeton Services |
|
|
Brian A.
Murdock |
|
Senior Vice
President |
|
Senior Vice
President of Princeton Services |
|
|
Gregory D.
Upah |
|
Senior Vice
President |
|
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 Accumulation Program, Inc.,
Corporate High Yield Fund, Inc., Corporate High Yield Fund II,
Inc., Corporate High Yield Fund III, Inc., Debt Strategies
Funds, Inc., Debt Strategies Fund II, Inc., Debt Strategies Fund
III, Inc., Income Opportunities Fund 1999, Inc., Income
Opportunities Fund 2000, Inc., Merrill Lynch Americas Income
Fund, Inc., Merrill Lynch Asset Builder Program, Inc., Merrill
Lynch Asset Growth Fund, Inc., Merrill Lynch Asset Income Fund,
Inc., Merrill Lynch Basic Value Fund, Inc., Merrill Lynch
Capital Fund, Inc., Merrill Lynch Consults International
Portfolio, Merrill Lynch Convertible Fund, Inc., Merrill Lynch
Corporate Bond Fund, Inc., Merrill Lynch Corporate High Yield
Fund, Inc., Merrill Lynch Developing Capital Markets Fund, Inc.,
Merrill Lynch Dragon Fund, Inc., Merrill Lynch Emerging Tigers
Fund, Inc., Merrill Lynch EuroFund, Merrill Lynch Fundamental
Growth Fund, Inc., Merrill Lynch Global Allocation Fund, Inc.,
Merrill Lynch Global Bond Fund for Investment and Retirement,
Merrill Lynch Global Growth Fund, Inc., Merrill Lynch Global
Holdings, Inc., Merrill Lynch Global Resources Trust, Merrill
Lynch Global SmallCap Fund, Inc., Merrill Lynch Global
Technology Fund, Inc., Merrill Lynch Global Utility Fund, Inc.,
Merrill Lynch Global Value Fund, Inc., Merrill Lynch Growth
Fund, Merrill Lynch Healthcare Fund, Inc., Merrill Lynch
International Equity Fund, Merrill Lynch Latin America Fund,
Inc., Merrill Lynch Middle East/Africa Fund, Inc., Merrill Lynch
Pacific Fund, Inc., Merrill Lynch Phoenix Fund, Inc., Merrill
Lynch Real Estate Fund, Inc., Merrill Lynch Series Fund, Inc.,
Merrill Lynch Special Value Fund, Inc., Merrill Lynch Strategic
Dividend Fund, Merrill Lynch Technology Fund, Inc., Merrill
Lynch Utility Income Fund, Inc., Merrill Lynch Variable Series
Funds, Inc., Merrill Lynch World Income Fund, Inc., The
Municipal Fund Accumulation Program, Inc., and Worldwide
DollarVest Fund, Inc. The address of each of these registered
investment companies is P.O. Box 9011, Princeton, New Jersey
08543-9011. The address of MLAM U.K. 33 King William Street,
London EC4R 9AS, England.
Set forth below is a list of each executive officer and
dirct 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, 1996, for his or her
own account or in the capacity of director, officer, partner or
trustee. In addition, Messrs. Glenn and Burke are officers of
one or more of the registered investment companies listed in the
first two paragraphs of this Item 26:
Name
|
|
Position(s)
with
MLAM U.K.
|
|
Other
Substantial Business,
Profession, Vocation or Employment
|
Terry K.
Glenn |
|
Chairman and
Director |
|
Executive Vice
President of MLAM and FAM;
Executive Vice President and Director of Princeton
Services; President and Director of PFD; Director of
FDS; President of Princeton Administrators |
|
|
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) 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.; PFD also acts as the principal underwriter for
the following closed-end registered investment companies:
Merrill Lynch High Income Municipal Bond Fund, Inc., Merrill
Lynch Municipal Strategy Fund, Inc. and Merrill Lynch Senior
Floating Rate Fund, Inc. It also acts as principal underwriter
for Mercury Global Balanced Fund, Mercury Gold & Mining
Fund, Mercury International Fund, Mercury Pan-European Growth
Fund, Mercury U.S. Large Cap Fund, Mercury U.S. Small Cap Growth
Fund and Mercury VI: U.S. Large Cap Fund.
(b) Set forth below is information concerning
each director and officer of PFD. The principal business address
of each such persons P.O. Box 9081, Princeton, New Jersey
0843-9081, 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 |
|
Director and
Treasurer |
|
None |
|
|
Thomas J.
Verage |
|
Director |
|
None |
|
|
Robert W.
Crook |
|
Senior Vice
President |
|
None |
|
|
Michael J.
Brady |
|
Vice
President |
|
None |
|
|
William M.
Breen |
|
Vice
President |
|
None |
|
|
James T.
Fatseas |
|
Vice
President |
|
None |
|
|
Debra W.
Landsman-Yaros |
|
Vice
President |
|
None |
|
|
Michelle T.
Lau |
|
Vice
President |
|
None |
|
|
Salavatore
Venezia |
|
Vice
President |
|
None |
|
|
William
Wasel |
|
Vice
President |
|
None |
|
|
Donald C.
Burke |
|
Vice
President |
|
Vice President
and Treasurer |
|
|
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 ProgramMerrill Lynch Asset Management for the
Merrill Lynch Mid Cap Value Fund or Management of the
ProgramFund Asset Management for the Mercury Growth
Opportunity Fund and Mercury U.S. Government Bond Fund in their
Prospectuses constituting Part A of the Registration Statement
and under Management of the ProgramManagement and
Advisory Arrangements in the Statement of Additional
Information constituting Part B of the Registration Statement,
the Registrant is not a party to any management-related service
contract.
Item 30.
Undertakings.
Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act and the
Investment Company Act, the Registrant has duly caused this
registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Township of
Plainsboro, and the State of New Jersey, on the 1st day of
February 2000.
|
MERRILL
LYNCH
ASSET
BUILDER
PROGRAM
, INC
. (Registrant)
|
|
(Terry K. Glenn, President)
|
Pursuant to the requirements of the Securities Act, this
registration statement has been signed below by the following
persons in the capacities and on the date(s)
indicated.
Signatures
|
|
Title
|
|
Date
|
|
|
/S
/ TERRY
K. GLENN
(Terry K. Glenn) |
|
President
(Principal Executive
Officer) |
|
February 1,
2000 |
|
|
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 |
|
|
|
|
By:*
/S
/ TERRY
K. GLENN
|
|
|
|
February 1,
2000 |
|
|
|
|
|
(Terry K. Glenn,
Attorney-in-Fact) |
|
|
|
|
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.
Signatures
|
|
Title
|
|
Date
|
|
|
/S
/ TERRY
K. GLENN
(Terry K. Glenn) |
|
President
(Principal Executive
Officer) and Director |
|
April 13,
1999 |
|
|
/S
/ DONALD
C. BURKE
(Donald C. Burke) |
|
Vice President
and Treasurer
(Principal Financial and
Accounts 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
(Robert S. Salomon) |
|
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
|
|
|
|
|
4(a) |
|
|
|
Form of
Investment Advisory Agreement between Merrill Lynch Mid Cap
Value Fund and Merrill
Lynch Asset Management, L.P. (MLAM). |
|
|
(b) |
|
|
|
Form of
Investment Advisory Agreement between Mercury Growth
Opportunity Fund and Fund
Asset Management, L.P. (FAM). |
|
|
(c) |
|
|
|
Form of
Investment Advisory Agreement between Mercury U.S.
Intermediate Government Bond
Fund and FAM. |
|
|
(d) |
|
|
|
Form of
Sub-Advisory Agreement between MLAM and Merrill Lynch Asset
Management U.K.
Limited. |
|
|
(e) |
|
|
|
Form of
Sub-Advisory Agreement between FAM and Merrill Lynch Asset
Management U.K.
Limited. |
|
|
5(a) |
|
|
|
Form of Class
A Distribution Agreement between Merrill Lynch Mid Cap Value
Fund and Merrill
Lynch Funds Distributor, Inc. (now known as Princeton Funds
Distributor, Inc.)
(the Distributor) (including Form of Selected
Dealers Agreement). |
|
|
(b) |
|
|
|
Form of Class
B Distribution Agreement between Merrill Lynch Mid Cap Value
Fund and the
Distributor. |
|
|
(c) |
|
|
|
Form of Class
C Distribution Agreement between Merrill Lynch Mid Cap Value
Fund and the
Distributor. |
|
|
(d) |
|
|
|
Form of Class
D Distribution Agreement between Merrill Lynch Mid Cap Value
Fund and the
Distributor. |
|
|
(e) |
|
|
|
Form of Class
I Distribution Agreement between Mercury Growth Opportunity
Fund and the
Distributor. |
|
|
(f) |
|
|
|
Form of Class
A Distribution Agreement between Mercury Growth Opportunity
Fund and the
Distributor. |
|
|
(g) |
|
|
|
Form of Class
B Distribution Agreement between Mercury Growth Opportunity
Fund and the
Distributor. |
|
|
(h) |
|
|
|
Form of Class
C Distribution Agreement between Mercury Growth Opportunity
Fund and the
Distributor. |
|
|
(i) |
|
|
|
Form of Class
I Distribution Agreement between Mercury U.S. Intermediate
Government Bond Fund
and the Distributor. |
|
|
(j) |
|
|
|
Form of Class
A Distribution Agreement between Mercury U.S. Intermediate
Government Bond
Fund and the Distributor. |
|
|
(k) |
|
|
|
Form of Class
B Distribution Agreement between Mercury U.S. Intermediate
Government Bond
Fund and the Distributor. |
|
|
(l) |
|
|
|
Form of Class
C Distribution Agreement between Mercury U.S. Intermediate
Government Bond
Fund and the Distributor. |
Exhibit
Number
|
|
|
|
|
8 |
|
(d) |
|
|
|
Agreement
between Merrill Lynch & Co., Inc. and Registrant relating
to Registrants use of Mercury
name. |
|
|
13 |
|
(a) |
|
|
|
Form of Class
B Distribution Plan of Merrill Lynch Mid Cap Value Fund and
Class B Distribution
Plan Sub-Agreement. |
|
|
|
|
(b) |
|
|
|
Form of Class
C Distribution Plan of Merrill Lynch Mid Cap Value Fund and
Class C Distribution
Plan Sub-Agreement. |
|
|
|
|
(c) |
|
|
|
Form of Class
D Distribution Plan of Merrill Lynch Mid Cap Value Fund and
Class D Distribution
Plan Sub-Agreement. |
|
|
|
|
(d) |
|
|
|
Form of Class
A Distribution Plan of Mercury Growth Opportunity Fund and
Class A Distribution
Plan Sub-Agreement. |
|
|
|
|
(e) |
|
|
|
Form of Class
B Distribution Plan of Mercury Growth Opportunity Fund and
Class B Distribution
Plan Sub-Agreement. |
|
|
|
|
(f) |
|
|
|
Form of Class
C Distribution Plan of Mercury Growth Opportunity Fund and
Class C Distribution
Plan Sub-Agreement. |
|
|
|
|
(g) |
|
|
|
Form of Class
A Distribution Plan of Mercury U.S. Government Bond Fund and
Class A Distribution
Plan Sub-Agreement. |
|
|
|
|
(h) |
|
|
|
Form of Class
B Distribution Plan of Mercury U.S. Government Bond Fund and
Class B Distribution
Plan Sub-Agreement. |
|
|
|
|
(i) |
|
|
|
Form of Class
C Distribution Plan of Mercury U.S. Government Bond Fund and
Class C Distribution
Plan Sub Agreement. |
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