AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 29, 1994
Washington, D.C. 20549
------------------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 24 /X/
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 /X/
Amendment No. 25 /X/
(Check appropriate box or boxes)
------------------------------------
MERRILL LYNCH PACIFIC FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
|
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
|
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (609) 282-2800
Copies to:
COUNSEL FOR THE FUND:
BROWN & WOOD
ONE WORLD TRADE CENTER
NEW YORK, N.Y. 10048-0557
ATTENTION: THOMAS R. SMITH, JR., ESQ.
PHILIP L. KIRSTEIN, ESQ.
MERRILL LYNCH ASSET MANAGEMENT
BOX 9011
PRINCETON, N.J. 08543-9011
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX)
The Registrant has registered an indefinite number of its shares of Common Stock under the Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act of 1940. The notice required by such rule for the Registrant's most recent fiscal year was filed on February 24, 1994.
MERRILL LYNCH PACIFIC FUND, INC.
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
N-1A ITEM NO. LOCATION
- --------------- -------------------------------------
PART A
Item 1. Cover Page........................... Cover Page
Item 2. Synopsis............................. Fee Table
Item 3. Condensed Financial Information...... Financial Highlights; Performance
Data
Item 4. General Description of Registrant.... Investment Objective and Policies;
Additional Information
Item 5. Management of the Fund............... Fee Table; Management of the Fund;
Portfolio Transactions and
Brokerage; Inside Back Cover Page
Item 5A. Management's Discussion of Fund
Performance........................ Not Applicable
Item 6. Capital Stock and Other Securities... Cover Page; Additional Information
Item 7. Purchase of Securities Being Cover Page; Fee Table; Alternative
Offered............................ Sales Arrangements; Purchase of
Shares; Shareholder Services;
Additional Information; Inside Back
Cover Page
Item 8. Redemption or Repurchase............. Fee Table; Alternative Sales
Arrangements; Shareholder Services;
Purchase of Shares; Redemption of
Shares
Item 9. Pending Legal Proceedings............ Not Applicable
PART B
Item 10. Cover Page........................... Cover Page
Item 11. Table of Contents.................... Back Cover Page
Item 12. General Information and History...... Not Applicable
Item 13. Investment Objectives and Policies... Investment Objective and Policies
Item 14. Management of the Fund............... Management of the Fund
Item 15. Control Persons and Principal Holders
of Securities...................... Management of the Fund
Item 16. Investment Advisory and Other Management of the Fund; Purchase of
Services........................... Shares; General Information
Item 17. Brokerage Allocation and Other
Practices.......................... Portfolio Transactions and Brokerage
Item 18. Capital Stock and Other Securities... General Information
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered............. Purchase of Shares; Redemption of
Shares; Determination of Net Asset
Value; Shareholder Services;
General Information
Item 20. Tax Status........................... Dividends, Distributions and Taxes
-- Taxes
Item 21. Underwriters......................... Purchase of Shares
Item 22. Calculation of Performance Data...... Performance Data
Item 23. Financial Statements................. Financial Statements
|
PART C
Information required to be included in Part C is set forth under the appropriate Item, so numbered, in Part C to this Registration Statement.
PROSPECTUS
APRIL 29, 1994
The Fund offers two classes of shares which may be purchased at a price equal to the next determined net asset value per share, plus a sales charge which, at the election of the purchaser, may be imposed (i) at the time of purchase (the "Class A shares") or (ii) on a deferred basis (the "Class B shares"). The original charges to which the Class B shares are subject shall consist of a contingent deferred sales charge which may be imposed on redemptions made within four years of purchase and an ongoing account maintenance fee and distribution fee. These alternatives permit an investor to choose the method of purchasing shares that is most beneficial given the amount of the purchase, the length of time the investor expects to hold the shares and other circumstances. Investors should understand that the purpose and function of the deferred sales charges with respect to the Class B shares are the same as those of the initial sales charge with respect to the Class A shares. Investors should also understand that over time the deferred sales charges related to Class B shares may exceed the initial sales charge with respect to Class A shares. See "Alternative Sales Arrangements" on page 3.
Each Class A and Class B share represents identical interests in the investment portfolio of the Fund and has the same rights, except that Class B shares bear the expenses of the account maintenance fee and distribution fee and certain other costs resulting from the deferred sales charge arrangement, which will cause Class B shares to have a higher expense ratio and to pay lower dividends than Class A shares and that Class B shares have exclusive voting rights with respect to the account maintenance fee and distribution fee. The two classes also have different exchange privileges.
Shares may be purchased directly from Merrill Lynch Funds Distributor, Inc.
(the "Distributor"), Box 9011, Princeton, New Jersey 08543-9011 [(609)
282-2800], or from securities dealers which have entered into dealer agreements
with the Distributor, including Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch"). The minimum initial purchase is $1,000, and the
minimum subsequent purchase is $50, except that for retirement plans, the
minimum initial purchase is $250, and the minimum subsequent purchase is $1.
Merrill Lynch may charge its customers a processing fee (presently $4.85) for
confirming purchases and repurchases. Purchases and redemptions directly through
the Fund's transfer agent are not subject to the processing fee. See "Purchase
of Shares" and "Redemption of Shares".
This Prospectus is a concise statement of information about the Fund that is relevant to making an investment in the Fund. This Prospectus should be retained for future reference. A statement containing additional information about the Fund, dated April 29, 1994 (the "Statement of Additional Information"), has been filed with the Securities and Exchange Commission and can be obtained, without charge, by calling or by writing the Fund at the above telephone number or address. The Statement of Additional Information is hereby incorporated by reference into this Prospectus.
MERRILL LYNCH ASSET MANAGEMENT -- MANAGER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC. -- DISTRIBUTOR
FEE TABLE
A general comparison of the sales arrangements and other nonrecurring and recurring expenses applicable to Class A and Class B shares follows:
CLASS A SHARES
INITIAL SALES CLASS B SHARES
CHARGE DEFERRED SALES
SHAREHOLDER TRANSACTION EXPENSES: ALTERNATIVE CHARGE ALTERNATIVE
---------------- ---------------------------------
Maximum Sales Charge Imposed on Purchases (as a percentage
of offering price)....................................... 6.50%(a) None
Sales Charge Imposed on Dividend Reinvestments............. None None
Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, whichever is lower)........ None(f) 4.0% during the first year,
decreasing 1.0% annually to
0.0% after the fourth year(b)
Exchange Fee............................................... None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET
ASSETS) FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993:
Management Fees(c)......................................... 0.60% 0.60%
12b-1 Fees................................................. None 1.00 d)
Other Expenses
Custodial Fees........................................... 0.10% 0.10%
Shareholder Servicing Costs(e)........................... 0.12% 0.14%
Other.................................................... 0.08% 0.08%
----- -----
Total Other Expenses................................... 0.30% 0.32%
----- ------
Total Fund Operating Expenses.................................. 0.90% 1.92%
----- ------
----- ------
|
(a) Reduced for purchases of $10,000 and over, decreasing to 0.75% for purchases of $1,000,000 and over. Certain investors making purchases of $1,000,000 and over may, however, pay a contingent deferred sales charge ranging from a high of 1.00% to a low of 0.25% of amounts redeemed within the first year after purchase in lieu of the 0.75% initial sales charge. See "Purchase of Shares -- Initial Sales Charge Alternative -- Class A Shares" -- page 17.
(b) See "Purchase of Shares -- Deferred Sales Charge Alternative -- Class B Shares" -- page 18.
(c) See "Management of the Fund -- Management and Advisory Arrangements" -- page 14.
(d) See "Purchase of Shares -- Deferred Sales Charge Alternative -- Class B Shares -- Distribution Plan" -- page 20. This amount represents the 0.25% account maintenance fee and the 0.75% distribution fee applicable to Class B shares of the Fund.
(e) See "Management of the Fund -- Transfer Agency Services" -- page 15.
(f) Certain investors making purchases of $1,000,000 and over may, however, pay a contingent deferred sales charge ranging from a high of 1.00% to a low of 0.25% of amounts redeemed within the first year after purchase in lieu of the 0.75% initial sales charge. See "Purchase of Shares -- Initial Sales Charge Alternative -- Class A Shares" -- page 17.
CUMULATIVE EXPENSES PAID FOR THE PERIOD OF:
----------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
EXAMPLE:
An investor would pay the following expenses on a $1,000 investment
including, for Class A shares, the maximum $65 front-end sales
charge and assuming (1) an operating expense ratio of 0.90% for
Class A shares and 1.92% for Class B shares, (2) a 5% annual
return throughout the periods and (3) redemption at the end of the
period:
Class A......................................................... $73.59 $91.83 $111.61 $168.58
Class B......................................................... $59.50 $80.31 $103.67 $224.32
An investor would pay the following expenses on the same $1,000
investment assuming no redemption at the end of the period:
Class A......................................................... $73.59 $91.83 $111.61 $168.58
Class B......................................................... $19.50 $60.31 $103.67 $224.32
|
The foregoing Fee Table is intended to assist investors in understanding the costs and expenses that a shareholder in the Fund will bear directly or indirectly. The Example set forth above assumes reinvestment of all dividends and distributions and utilizes a 5% annual rate of return as mandated by Securities and Exchange
Commission regulations. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL RATES OF RETURN, AND ACTUAL EXPENSES OR ANNUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE ASSUMED FOR PURPOSES OF THE EXAMPLE. Class B shareholders who hold their shares for an extended period of time may pay more in Rule 12b-1 distribution fees than the economic equivalent of the maximum front-end sales charges permitted under the Rules of Fair Practice of the National Association of Securities Dealers, Inc. Merrill Lynch may charge its customers a processing fee (presently $4.85) for confirming purchases and repurchases. Purchases and redemptions directly through the Fund's transfer agent are not subject to the processing fee. See "Purchase of Shares" and "Redemption of Shares".
ALTERNATIVE SALES ARRANGEMENTS
Shares of the Fund may be purchased at a price equal to the next determined net asset value per share, plus a sales charge which, at the election of the purchaser, may be imposed either (i) at the time of the purchase (the "initial sales charge alternative") or (ii) on a deferred basis (the "deferred sales charge alternative").
Class A Shares. An investor who elects the initial sales charge alternative acquires Class A shares. Although Class A shares incur a sales charge when they are purchased, they enjoy the benefit of not being subject to any ongoing account maintenance fee or distribution fee or any sales charge when they are redeemed. Certain purchases of Class A shares qualify for reduced initial sales charges. See "Purchase of Shares -- Initial Sales Charge Alternative -- Class A Shares".
Class B Shares. An investor who elects the deferred sales charge alternative acquires Class B shares. Class B shares do not incur a sales charge when they are purchased, but they are subject to ongoing account maintenance and distribution fees and a sales charge if they are redeemed within four years of purchase. Class B shares provide the benefit of permitting all of the investor's dollars to work from the time the investment is made. The ongoing account maintenance and distribution fees paid by Class B shares will cause such shares to have a higher expense ratio and to pay lower dividends than Class A shares. Payment of the distribution fee is subject to certain limits as set forth under "Purchase of Shares -- Deferred Sales Charge Alternative -- Class B shares".
As an illustration, investors who qualify for significantly reduced sales charges might elect the initial sales charge alternative because similar sales charge reductions are not available for purchases under the deferred sales charge alternative. Moreover, shares acquired under the initial sales charge alternative would not be subject to ongoing account maintenance and distribution fees. However, because initial sales charges are deducted at the time of purchase, such investors would not have all their funds invested initially. Investors not qualifying for reduced initial sales charges who expect to maintain their investment for an extended period of time might also elect the initial sales charge alternative because over time the accumulated continuing account maintenance and distribution fees may exceed the initial sales charge. Again, however, such investors must weigh this consideration against the fact that not all their funds will be invested initially. Furthermore, the ongoing account maintenance and distribution fees will be offset to the extent any return is realized on the additional funds initially invested under the deferred sales charge alternative. However, there can be no assurance as to the return, if any, which will be realized on such additional funds. Certain other investors might determine it to be more advantageous to have all their funds invested initially, although remaining subject to continued account maintenance and distribution fees and, for a four-year period of time, a contingent deferred sales charge.
The distribution expenses incurred by the Distributor and dealers (primarily Merrill Lynch) in connection with the sale of the shares will be paid, in the case of the Class A shares, from the proceeds of the
initial sales charge and, in the case of the Class B shares, from the proceeds of the ongoing account maintenance and distribution fees and the contingent deferred sales charge incurred upon redemption within four years of purchase. Sales personnel may receive different compensation for selling Class A or Class B shares. Investors should understand that the purpose and function of the deferred sales charges with respect to the Class B shares are the same as those of the initial sales charge with respect to the Class A shares.
Dividends paid by the Fund with respect to Class A and Class B shares, to the extent any dividends are paid, will be calculated in the same manner at the same time on the same day and will be in the same amount, except that account maintenance and distribution fees and any incremental transfer agency costs relating to Class B shares will be borne exclusively by that class. See "Additional Information -- Determination of Net Asset Value". Class A and Class B shareholders of the Fund each have an exchange privilege for Class A and Class B shares, respectively, of certain other mutual funds sponsored by Merrill Lynch. Class A and Class B shareholders of the Fund also may exchange their shares for shares of certain money market funds sponsored by Merrill Lynch. See "Shareholder Services -- Exchange Privilege".
The Directors of the Fund have determined that currently no conflict of interest exists between the Class A and Class B shares. On an ongoing basis, the Directors of the Fund, pursuant to their fiduciary duties under the Investment Company Act of 1940, as amended (the "Investment Company Act"), and state laws, will seek to assure that no such conflict arises.
THE ALTERNATIVE SALES ARRANGEMENTS PERMIT AN INVESTOR TO CHOOSE THE METHOD OF PURCHASING SHARES THAT IS MOST BENEFICIAL GIVEN THE AMOUNT OF THE PURCHASE, THE LENGTH OF TIME THE INVESTOR EXPECTS TO HOLD THE SHARES AND OTHER CIRCUMSTANCES. INVESTORS SHOULD DETERMINE WHETHER UNDER THEIR PARTICULAR CIRCUMSTANCES IT IS MORE ADVANTAGEOUS TO INCUR AN INITIAL SALES CHARGE AND NOT BE SUBJECT TO ONGOING
ACCOUNT MAINTENANCE AND DISTRIBUTION FEES OR TO HAVE THE ENTIRE INITIAL PURCHASE
PRICE INVESTED IN THE FUND WITH THE INVESTMENT THEREAFTER BEING SUBJECT TO ONGOING ACCOUNT MAINTENANCE AND DISTRIBUTION FEES. TO ASSIST INVESTORS IN MAKING
THIS DETERMINATION, THE FEE TABLE ON PAGE 2 SETS FORTH THE CHARGES APPLICABLE TO EACH CLASS OF SHARES, AND A DISCUSSION OF FACTORS RELEVANT TO MAKING SUCH DETERMINATION IS SET FORTH UNDER "PURCHASE OF SHARES -- ALTERNATIVE SALES ARRANGEMENTS" ON PAGE 16.
FINANCIAL HIGHLIGHTS
The financial information in the table below has been audited in conjunction with the annual audits of the financial statements of the Fund by Deloitte & Touche, independent auditors. Financial statements for the fiscal year ended December 31, 1993, and the independent auditors' report thereon are included in the Statement of Additional Information. Further information about the performance of the Fund is contained in the Fund's most recent annual report to shareholders which may be obtained, without charge, by calling or by writing the Fund at the telephone number or address on the front cover of this Prospectus.
The following per share data and ratios have been derived from information provided in the financial statements.
CLASS A
---------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------------
1993 1992 1991 1990 1989 1988 1987 1986
-------- -------- -------- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year...... $ 15.80 $ 18.34 $ 16.52 $ 20.65 $ 19.11 $ 16.15 $ 34.32 $ 19.59
-------- -------- -------- -------- -------- -------- -------- --------
Investment income (loss)--net........... .07 .05 .04 .10 .07 .20 .00 .09
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net..................... 5.37 (1.63) 2.73 (1.80) 2.57 5.02 4.16 14.94
-------- -------- -------- -------- -------- -------- -------- --------
Total from investment operations........ 5.44 (1.58) 2.77 (1.70) 2.64 5.22 4.16 15.03
-------- -------- -------- -------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net................ -- (.01) (.11) (.11) (.06) (.19) (.18) (.11)
In excess of investment income--net... (.03) -- -- -- -- -- -- --
Realized gain on investments--net..... -- (.95) (.84) (2.32) (1.04) (2.07) (22.15) (.19)
-------- -------- -------- -------- -------- -------- -------- --------
Total dividends and distributions....... (.03) (.96) (.95) (2.43) (1.10) (2.26) (22.33) (.30)
-------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of year............ $ 21.21 $ 15.80 $ 18.34 $ 16.52 $ 20.65 $ 19.11 $ 16.15 $ 34.32
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
TOTAL INVESTMENT RETURN:**
Based on net asset value per share...... 34.41% (8.75%) 17.04% (8.39%) 14.49% 34.38% 10.77% 77.78%
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
RATIOS TO AVERAGE NET ASSETS:
Expenses, excluding distribution fees... .90% .98% 1.02% 1.07% 1.06% 1.02% .94% .98%
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
Expenses................................ .90% .98% 1.02% 1.07% 1.06% 1.02% .94% .98%
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
Investment income (loss)--net........... .47% .40% .43% .94% .36% .95% .02% .47%
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
SUPPLEMENTAL DATA:
Net assets, end of year (in
thousands)............................ $472,322 $284,674 $304,712 $242,104 $318,613 $288,065 $283,984 $422,670
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
Portfolio turnover...................... 13.25% 7.62% 5.91% 31.06% 18.14% 39.22% 29.41% 44.45%
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
CLASS B
-----------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1985 1984 1993++ 1992++ 1991++ 1990++ 1989 1988+
-------- -------- -------- -------- -------- ------- ------- -------
<
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year...... $ 15.43 $ 16.04 $ 15.34 $ 18.01 $ 16.30 $ 20.49 $ 19.09 $ 17.93
-------- -------- -------- -------- -------- ------- ------- -------
Investment income (loss)--net........... .11 .12 (.10) (.12) (.14) (.09) (.06) (.02)
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net..................... 5.59 .31 5.17 (1.60) 2.69 (1.78) 2.50 2.38
-------- -------- -------- -------- -------- ------- ------- -------
Total from investment operations........ 5.70 .43 5.07 (1.72) 2.55 (1.87) 2.44 2.36
-------- -------- -------- -------- -------- ------- ------- -------
Less dividends and distributions:
Investment income--net................ (.16) (.09) -- -- -- -- -- (.17)
In excess of investment income--net... -- -- -- -- -- -- -- --
Realized gain on investments--net..... (1.38) (.95) -- (.95) (.84) (2.32) (1.04) (1.03)
-------- -------- -------- -------- -------- ------- ------- -------
Total dividends and distributions....... (1.54) (1.04) -- (.95) (.84) (2.32) (1.04) (1.20)
-------- -------- -------- -------- -------- ------- ------- -------
Net asset value, end of year............ $ 19.59 $ 15.43 $ 20.41 $ 15.34 $ 18.01 $ 16.30 $ 20.49 $ 19.09
-------- -------- -------- -------- -------- ------- ------- -------
-------- -------- -------- -------- -------- ------- ------- -------
TOTAL INVESTMENT RETURN:**
Based on net asset value per share...... 40.96% 2.92% 33.05% (9.72%) 15.87% (9.29%) 13.39% 13.37%
-------- -------- -------- -------- -------- ------- ------- -------
-------- -------- -------- -------- -------- ------- ------- -------
RATIOS TO AVERAGE NET ASSETS:
Expenses, excluding distribution fees... 1.12% 1.15% .92% 1.00% 1.04% 1.10% 1.10% 1.17%*
-------- -------- -------- -------- -------- ------- ------- -------
-------- -------- -------- -------- -------- ------- ------- -------
Expenses................................ 1.12% 1.15% 1.92% 2.00% 2.04% 2.10% 2.10% 2.17%*
-------- -------- -------- -------- -------- ------- ------- -------
-------- -------- -------- -------- -------- ------- ------- -------
Investment income (loss)--net........... .73% 1.26% (.56%) (.61%) (.60%) (.05%) (.64%) (1.64%)*
-------- -------- -------- -------- -------- ------- ------- -------
-------- -------- -------- -------- -------- ------- ------- -------
SUPPLEMENTAL DATA:
Net assets, end of year (in
thousands)............................ $151,374 $105,279 $508,008 $165,015 $105,669 $58,013 $59,090 $ 5,952
-------- -------- -------- -------- -------- ------- ------- -------
-------- -------- -------- -------- -------- ------- ------- -------
Portfolio turnover...................... 30.79% 75.59% 13.25% 7.62% 5.91% 31.06% 18.14% 39.22%
-------- -------- -------- -------- -------- ------- ------- -------
-------- -------- -------- -------- -------- ------- ------- -------
|
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Initially offered on October 21, 1988.
++ Based on average number of shares outstanding during the period.
SPECIAL CONSIDERATIONS
Investments on an international basis involve certain risks not typically involved in domestic investments, including fluctuations in foreign exchange rates, future foreign political and economic developments, and the possible imposition of exchange controls or other foreign governmental laws or restrictions applicable to such investments. Securities prices in different countries are subject to different economic, financial, political and social factors. Since the Fund will invest primarily in securities denominated in currencies other than the U.S. dollar, changes in foreign currency exchange rates will affect the values of securities in the Fund's portfolio and the unrealized appreciation or depreciation of investments so far 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 Fund's assets denominated in those currencies and the Fund's yield on such assets. The rates of exchange between the dollar and other currencies 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 product, rate of inflation, capital reinvestment, resources, self-sufficiency and balance of payments position. Also, many of the securities held by the Fund will not be registered with the Securities and Exchange Commission nor will the issuers thereof be subject to the reporting requirements of such agency.
With respect to certain countries, there is the possibility of expropriation of assets, confiscatory taxation, political or social instability or diplomatic developments which could affect investments in those countries. There may be less publicly available information about a foreign company than about a U.S. company, and foreign companies may not be subject to accounting, auditing and financial reporting standards and requirements comparable to those to which U.S. entities are subject. In addition, certain foreign investments may be subject to foreign withholding taxes. See "Additional Information -- Taxes".
Foreign financial markets, while generally growing in volume, typically 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. The foreign markets also have different clearance and settlement procedures, and in certain markets there have been times when settlements have been unable to keep pace with the volume of securities transactions making it difficult to conduct such transactions. Delays in settlement could result in temporary periods when assets of the Fund are uninvested and no return is earned thereon. The 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 either could result in losses to the Fund due to subsequent declines in value of such portfolio security or, if the Fund has entered into a contract to sell the security, could result in possible liability to the purchaser. Brokerage commissions and other transaction costs on foreign securities exchanges are generally higher than in the United States. There is generally less government supervision and regulation of exchanges, brokers and issuers in foreign countries than there is in the United States.
The Fund anticipates that under normal conditions at least 80% of its net assets will consist of Far Eastern or Western Pacific corporate securities. Because of its emphasis on the economies of Far Eastern and Western Pacific countries and the potential for substantial volatility in many of those countries' markets, the Fund should be considered as a vehicle for diversification and not as a balanced investment program.
INVESTMENT OBJECTIVE AND POLICIES
The Fund is designed for U.S. investors seeking diversification of investments by participation in the economies of Far Eastern and Western Pacific countries. The Fund has been structured as a long-term capital appreciation mutual fund, offering shareholder services and investment plans typical of other U.S. mutual funds. Investors in the Fund obtain professional investment management as to Far Eastern and Western Pacific securities and the liquidity resulting from redeemable shares.
The Fund's investment objective is to seek long-term capital appreciation primarily through investment in equities of corporations domiciled in Far Eastern or Western Pacific countries, including Japan, Australia, Hong Kong and Singapore. Current income from dividends and interest will not be an important consideration in selecting portfolio securities. The Fund anticipates that under normal conditions at least 80% of its assets will consist of Far Eastern or Western Pacific corporate securities, primarily common stocks and debt securities convertible into common stock. The Fund reserves the right as a defensive measure to hold other types of securities, including non-convertible debt securities, government and money market securities of U.S. and non-U.S. issuers, or cash (foreign currencies or U.S. dollars) in such proportions as, in the opinion of management, prevailing market, economic or political conditions warrant. A portion of the portfolio normally will be held in dollars or short-term interest-bearing dollar-denominated securities to provide for possible redemptions. The investment objective of the Fund described in this paragraph is a fundamental policy of the Fund and may not be changed without the approval of the holders of a majority of the Fund's outstanding voting securities.
The Fund has the ability to invest in debt securities, although it does not presently intend to do so to any significant degree. Consequently, it has established no rating criteria for the debt securities in which it may invest, and such securities may not be rated at all for creditworthiness. Securities rated in the medium to lower rating categories of nationally recognized statistical rating organizations and unrated securities of comparable quality, sometimes referred to as "junk bonds", are predominantly speculative with respect to the capacity to pay interest and repay principal in accordance with the terms of the security and generally involve a greater volatility of price than securities in higher rating categories. See "Investment Objective and Policies" in the Statement of Additional Information for additional information regarding ratings of debt securities. In purchasing such securities, the Fund will rely on the Manager's judgment, analysis and experience in evaluating the creditworthiness of an issuer of such securities. The Manager will take into consideration, among other things, the issuer's financial resources, its sensitivity to economic conditions and trends, its operating history, the quality of the issuer's management and regulatory matters. The Fund does not intend to purchase debt securities that are in default or which the Manager believes will be in default.
In addition to purchasing equity securities of Far Eastern or Western Pacific issuers in Far Eastern or other markets, the Fund may invest in American Depositary Receipts (ADRs), European Depositary Receipts (EDRs), Global Depositary Receipts (GDRs) or other securities convertible into securities of corporations domiciled in Far Eastern or Western Pacific countries. These securities may not necessarily be denominated in the same currency as the securities into which they may be converted. Generally, ADRs, in registered form, are designed for use in the U.S. securities markets, and EDRs, in bearer form, are designed for use in European securities markets. GDRs are tradeable both in the U.S. and Europe and are designed for use throughout the world.
The Fund may invest up to 10% of its net assets in warrants. A warrant gives the holder thereof the right to subscribe by a specified date to a stated number of shares of stock of the issuer at a fixed price. Warrants tend to be more volatile than the underlying stock, and if at a warrant's expiration date the stock is trading at a price below the price set in the warrant, the warrant will expire worthless. Conversely, if at the expiration date
the underlying stock is trading at a price higher than the price set in the warrant, the Fund can acquire the stock at a price below its market value.
HEDGING TECHNIQUES
The Fund may engage in various portfolio strategies to hedge its portfolio against investment, interest rate and currency risks. These strategies include the use of options on portfolio securities, stock index options, stock index futures, financial futures, currency futures, options on such futures and forward foreign exchange transactions. The Fund may enter into such transactions only in connection with its hedging strategies. While the net asset value of the Fund's shares will continue to fluctuate and no assurance can be given that the Fund's hedging transactions will be effective, the Manager believes that the ability of the Fund to engage in these hedging transactions will enhance the Fund's ability to reduce the volatility of the net asset value of its shares. 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 markets, interest rates or currency exchange rates occur. Reference is made to the Statement of Additional Information for further information concerning these strategies.
Although certain risks are involved in options and futures transactions (as discussed below in "Risk Factors in Options, Futures and Currency Transactions"), the Manager believes that, because the Fund will only engage in these transactions for hedging purposes, the options and futures portfolio strategies of the Fund will not subject the Fund to the risks frequently associated with the speculative use of options and futures transactions. Tax requirements may limit the Fund's ability to engage in the hedging transactions and strategies described below.
Set forth below is a description of the hedging instruments that the Fund may utilize with respect to investment, interest rate and currency risks.
Hedging Investment and Interest Rate Risks. The Fund may write (i.e., sell) covered call options on its portfolio securities, purchase put options on securities and engage in transactions in stock index options, stock index futures and financial futures, and related options on such futures, as described below.
The Fund may write call options with respect to securities it owns which provide the holder of the option with the right to buy the underlying security covered by the option at the stated exercise price until the option expires. The Fund will write only covered call options, which means that so long as the Fund is obligated as the writer of a call option, it will own the underlying securities subject to the option. The Fund may also purchase put options, which will provide it with the right to sell the underlying securities at the stated exercise price, thus limiting the Fund's risk of loss through a decline in the market value of the security until the put expires. The Fund may write call options on securities with respect to which it has purchased a put option. By purchasing a put option on a security, the Fund limits its risk of loss on that security. By writing a call option on the security, the Fund will offset, in whole or in part, the cost of purchasing such put option, but limits its opportunity to profit from an increase in value. There is no percentage limitation with respect to portfolio securities on which the Fund may write call options or purchase put options. Although there is no specific time limit on the duration of the options on the Fund's portfolio securities, the Manager does not anticipate entering into any such transactions with a duration of longer than one year.
The Fund may purchase or write call options and purchase put options on stock indexes to hedge against the risks of market-wide price movements in the Far Eastern and Western Pacific securities in which the Fund invests. The effectiveness of the hedge will depend on the degree of diversification of the Fund's portfolio and the sensitivity of the securities comprising the portfolio to factors influencing the market as a whole. Because the value of an index option depends upon movements in the level of the index rather than the price of a
particular stock, whether the Fund realizes a gain or loss on the purchase or sale of an option on an index depends upon movements in the level of prices in the stock market generally or in an industry or market segment rather than movements in the price of a particular stock.
The Fund also may purchase and sell stock index futures contracts and financial futures contracts ("futures contracts") as a hedge against adverse changes in the market value of its portfolio securities and interest rates, as described below. 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 security for a set price on a future date. Unlike most other futures contracts, a stock index futures contract would not require actual delivery of securities, but would result in 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 Far Eastern and Western Pacific securities and financial futures contracts in U.S., Far Eastern and Western Pacific government and agency securities and corporate debt securities. It is anticipated that the underlying securities involved in stock index futures contracts will be securities listed on exchanges. Transactions by the Fund in stock index futures and financial futures are subject to limitations as described below under "Restrictions on the Use of Futures Transactions". There is no percentage limitation with respect to portfolio securities on which the Fund may purchase or sell futures contracts.
The Fund may sell stock index futures contracts in anticipation of or during a market decline to attempt to offset the decrease in market value of the Fund's securities portfolio that might otherwise result. When the Fund is not fully invested in the Far Eastern and Western Pacific securities markets and anticipates a significant market advance, it may purchase stock index futures in order to gain rapid market exposure that may in part or entirely offset increases in the cost of securities that the Fund intends to purchase. As such purchases are made, an equivalent amount of stock index 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 stock index futures contract or the purchase of a call option on a stock index 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 may sell financial futures contracts in anticipation of an increase in the general level of interest rates. Generally, as interest rates rise, the market value of debt securities held by the Fund will fall, thus reducing the net asset value of the Fund. However, as interest rates rise, the value of the Fund's short position in the futures contract will also tend to increase, thus offsetting all or a portion of the depreciation in the market value of the Fund's investments which are being hedged. While the Fund will incur commission expenses in selling and closing out futures positions, these commissions are generally less than the transaction expenses which would have been incurred had the Fund sold portfolio securities in order to reduce its exposure to increases in interest rates. The Fund also may purchase financial futures contracts in anticipation of a decline in interest rates when it is not fully invested in a particular market in which it intends to make investments to gain market exposure that may in part or entirely offset an increase in the cost of securities it intends to purchase. It is anticipated that, in a substantial majority of these transactions, the Fund will purchase securities upon termination of the futures contract.
The Fund also may purchase and write call and put options on futures contracts in connection with its 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 would be able to 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 a security or an increase in interest rates. Similarly, the Fund may purchase call options, or write put options on futures contracts, as a substitute for the purchase of such futures to hedge against the increased cost resulting from an increase in the market value or a decline in interest rates of securities that the Fund intends to purchase. Limitations on transactions in options on futures contracts are described below.
The Fund may engage in options and futures transactions on exchanges and in the over-the-counter ("OTC") markets. 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 transactions are two-party contracts with prices and terms negotiated by the buyer and seller. The Fund will acquire only those OTC options for which management believes the Fund can receive on each business day at least two independent bids or offers (one of which will be from an entity other than a party to the option). The Fund will engage in OTC options only with member banks of the Federal Reserve System and primary dealers in U.S. Government securities or with affiliates of such banks and 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 Securities and Exchange 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 transactions, the sum of the market value of OTC options currently outstanding which are held by the Fund, the market value of the underlying securities covered by OTC call options currently outstanding which were sold by the Fund and margin deposits on the Fund's existing OTC options on futures contracts exceeds 5% 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 option's strike price). The repurchase price with the primary dealers is typically a formula price which is generally based on a multiple of the premium received for the option, plus the amount by which the option is "in-the-money". This policy is not a fundamental policy of the Fund and may be amended by the Directors of the Fund without the approval of the Fund's shareholders. The Fund will not change or modify this policy, however, prior to the change or modification by the Securities and Exchange Commission staff of its position.
Hedging Foreign Currency Risks. The Fund is authorized to deal in forward foreign exchange transactions between currencies of Far Eastern and Western Pacific countries and the U.S. dollar as a hedge against possible variations in the foreign exchange rates between these currencies. The Fund's 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 and distributions 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. All dealings in forward foreign exchange will be limited to contracts involving currencies of Far Eastern and Western Pacific countries and the U.S. dollar. The Fund may not position hedge with respect to the currency of a particular country to an extent greater than the aggregate market value (at the time of making such sale) of the securities held in
its portfolio denominated or quoted in that particular foreign currency. If the Fund enters into a position hedging transaction, its custodian will place cash or liquid equity or debt securities in a separate account of the Fund in an amount equal to the value of the Fund's total assets committed to the consummation of such forward contract. If the value of the securities placed in the separate account declines, additional cash or securities will be placed in the account so that the value of the account will equal the amount of the Fund's commitment with respect to such contracts. The Fund will not attempt to hedge all of its portfolio positions and will enter into such transactions only to the extent, if any, deemed appropriate by the Manager of the Fund. 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 is also authorized to purchase and sell listed or OTC foreign currency options, futures and related options on such futures as a short or long hedge against possible variations in foreign exchange rates. Unlike forward foreign exchange transactions, which are accomplished by entering into private contractual arrangements, the options and futures which the Fund will purchase and sell will be either exchange or OTC traded, providing a greater degree of market access and liquidity than forward foreign exchange transactions. The Fund may purchase and/or sell listed or OTC foreign currency options, foreign currency futures and related options on foreign currency futures as a short (i.e., the Fund does not hold the currency) or long (i.e., the Fund does hold the currency) hedge against possible variations in foreign exchange rates. Such transactions may be effected with respect to hedges on Far Eastern and Western Pacific currency 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 Japanese 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 Manager 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. Listed options are third-party contracts (i.e., performance of the parties' obligations is guaranteed by an exchange or clearing corporation) which are issued by a clearing corporation, are traded on an exchange and have standardized strike prices and expiration dates. OTC options are two-party contracts and have negotiated strike prices and expiration dates. The Fund will engage in OTC options only with member banks of the Federal Reserve System or primary dealers in U.S. Government securities or with affiliates of 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 Fund will acquire only those OTC options for which management believes the Fund can receive on each business day at least two independent bids or offers (one of which will be from an entity other than a party to the option). 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 generally 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 the securities denominated in such currency which it owns, the expected acquisition price 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. Further, the Fund will segregate at its custodian U.S. Government or other high quality securities having a market value substantially representing any subsequent net decrease in the market value of such hedged positions, including net positions with respect to cross-currency hedges. The Fund may not incur potential net liabilities of more than 33 1/3% of its total assets from foreign currency options, futures or related options.
Restrictions on the Use of Futures Transactions. Regulations of the Commodity Futures Trading Commission 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 Fund's portfolio, after taking into account unrealized profits and unrealized losses on any such contracts and options.
When the Fund purchases a futures contract, or writes a put option or purchases a call option thereon, an amount of cash or cash equivalents will be deposited in a segregated account with the Fund's 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.
An order has been obtained from the Securities and Exchange Commission which exempts the Fund from certain provisions of the Investment Company Act in connection with transactions involving futures contracts and options thereon.
Risk Factors in Options, Futures and Currency Transactions. Utilization of futures transactions involves the risk of imperfect correlation in movements in the price of futures contracts and movements in the price of the securities and currencies which are the subject of the hedge. If the price of the futures contract moves more or less than the price of the securities or currencies, the Fund will experience a gain or loss which will not be completely offset by movements in the price of the securities or currencies which are the subject of the hedge. There is also a risk of imperfect correlations where the securities or currencies underlying futures contracts have different maturities than the portfolio securities or currencies being hedged. Transactions in options and options on futures contracts involve similar risks.
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 OTC transactions, management believes the Fund can receive on each business day at least two independent bids or offers (one of which will be from an entity other than a party to the option). 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 transaction. 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 the 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 related option.
The exchanges on which options on portfolio securities and currency options are traded have generally established limitations governing the maximum number of call or put options on the same underlying security
and 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 Manager does not believe that these trading and position limits will have any adverse impact on the portfolio strategies for hedging the Fund's portfolio.
Because the Fund will engage in the options and futures transactions described above solely in connection with its hedging activities, the Manager does not believe that such options and futures transactions necessarily will have any significant effect on the Fund's portfolio turnover.
INVESTMENT RESTRICTIONS
The Fund has adopted a number of restrictions and policies relating to the investment of its assets and its activities which are fundamental policies and may not be changed without the approval of the holders of a majority of the Fund's outstanding voting securities as defined in the Investment Company Act. Among the more significant restrictions, the Fund may not:
-- Invest in securities of any one issuer (other than the Government of Japan, the United States Government, their agencies and instrumentalities) if immediately after and as a result of such investment the market value of the holdings of the Fund in the securities of such issuer exceeds 5% of the Fund's total assets, taken at market value;
-- Invest in the securities of any single issuer, if immediately after and as a result of such investment, the Fund owns more than 10% of the outstanding securities, or more than 10% of the outstanding voting securities, of such issuer; or
-- 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;
provided, however, that nothing in the foregoing investment restrictions shall be deemed to prohibit the Fund from purchasing the securities of any issuer pursuant to the exercise of subscription rights distributed to the Fund by the issuer, except that no such purchase may be made if as a result the Fund will no longer be a diversified investment company as defined in the Investment Company Act.
The Fund may from time to time lend securities from its portfolio, with a value not exceeding 20% of its total assets, to brokers, dealers and financial institutions and receive collateral in cash (or cash equivalents consisting of securities issued or guaranteed by the governments of the U.S. or Japan or other Far Eastern or Western Pacific countries or their agencies or instrumentalities) which will be maintained in an amount equal to at least 100% of the current market value of the loaned securities. During the period of the loan, the Fund receives income on the loaned securities and a loan fee and thereby increases the current income of the Fund. With respect to the lending of portfolio securities, there is the risk of the failure of the parties involved to return the securities involved in such transactions in which event the Fund may suffer time delays and incur costs or possible losses in connection with such transactions.
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
The Board of Directors of the Fund consists of five individuals, four of whom are not "interested persons" of the Fund as defined in the Investment Company Act. The Directors of the Fund are responsible for the
overall supervision of the operations of the Fund and perform the various duties imposed on the directors of investment companies by the Investment Company Act.
The Directors of the Fund are:
ARTHUR ZEIKEL* -- President and Chief Investment Officer of the Manager; President and Director of Princeton Services, Inc.; Executive Vice President of Merrill Lynch & Co., Inc.; Executive Vice President of Merrill Lynch; Director of the Distributor.
DONALD CECIL -- Special Limited Partner of Cumberland Partners (an investment partnership).
EDWARD H. MEYER -- Chairman of the Board, President and Chief Executive Officer of Grey Advertising Inc.
CHARLES C. REILLY -- Self-employed financial consultant; former President and Chief Investment Officer of Verus Capital, Inc.; former Senior Vice President of Arnhold and S. Bleichroeder, Inc.; Adjunct Professor, Columbia University Graduate School of Business.
RICHARD R. WEST -- Professor of Finance, and Dean from 1984 to 1993, New York University Leonard N. Stern School of Business Administration.
MANAGEMENT AND ADVISORY ARRANGEMENTS
The Manager, Merrill Lynch Asset Management, L.P., which does business as Merrill Lynch Asset Management, is owned and controlled by Merrill Lynch & Co., Inc., a financial services holding company and the parent of Merrill Lynch. The Manager provides the Fund with management and investment advisory services. The Manager or an affiliate, Fund Asset Management, L.P. ("FAM"), acts as the investment adviser for more than 90 other registered investment companies. The Manager also offers portfolio management and portfolio analysis services to individuals and institutions. As of January 31, 1994, the Manager and FAM had a total of approximately $167.1 billion in investment company and other portfolio assets under management, including accounts of certain affiliates of the Manager.
Pursuant to the management agreement between the Fund and the Manager (the "Management Agreement"), and subject to the direction of the Board of Directors, the Manager is responsible for the actual management of the Fund's portfolio and constantly reviews the Fund's holdings in light of its own research analysis and that from other relevant sources. The responsibility for making decisions to buy, sell or hold a particular security rests with the Manager. The Manager performs certain other administrative services and provides all the office space, facilities, equipment and necessary personnel for management of the Fund.
As compensation for its services, the Manager receives a fee from the Fund at the end of each month at the annual rate of 0.60% of the average daily net assets of the Fund. For the fiscal year ended December 31, 1993, the management fee paid by the Fund to the Manager aggregated $4,179,008 (based on average net assets of approximately $696.5 million). At March 31, 1994, the net assets of the Fund aggregated approximately $1.2 billion. At this asset level, the annual management fee would aggregate approximately $7.2 million.
Stephen I. Silverman, Vice President of the Fund, is the Fund's Portfolio Manager. Mr. Silverman has been a Vice President and Portfolio Manager of the Manager and its predecessor since 1983. Mr. Silverman has been primarily responsible for the management of the Fund's Portfolio since 1983.
The Management Agreement obligates the Fund to pay certain expenses incurred in its operations, including, among other things, the management fee; legal and audit fees; unaffiliated Directors' fees and expenses; registration fees; custodian and transfer agency fees; accounting and pricing costs; the costs of printing proxies; and certain of the costs of printing shareholder reports, prospectuses and statements of additional information.
Accounting services are provided to the Fund by the Manager, and the Fund reimburses the Manager for its costs in connection with such services on a semi-annual basis. For the fiscal year ended December 31, 1993, the amount of such reimbursement was $68,896. For the fiscal year ended December 31, 1993, for the Class A shares, the ratio of total expenses to average net assets was 0.90%, and for the Class B shares, the ratio of total expenses excluding account maintenance and distribution fees to average net assets was 0.92%, and the ratio of total expenses including account maintenance and distribution fees to average net assets was 1.92%.
TRANSFER AGENCY SERVICES
Financial Data Services, Inc. (the "Transfer Agent"), which is a wholly-owned subsidiary of Merrill Lynch & Co., Inc., acts as the Fund's transfer agent pursuant to a Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing Agency Agreement (the "Transfer Agency Agreement"). Pursuant to the Transfer Agency Agreement, the Transfer Agent is responsible for the issuance, transfer and redemption of shares and the opening and maintenance of shareholder accounts. Pursuant to the Transfer Agency Agreement, the Transfer Agent receives a fee of $7.00 per Class A shareholder account and $9.00 per Class B shareholder account, nominal miscellaneous fees (e.g., account closing fees) and is entitled to reimbursement for out-of-pocket expenses incurred by it under the Transfer Agency Agreement. For the fiscal year ended December 31, 1993, the Fund paid the Transfer Agent $916,795 pursuant to the Transfer Agency Agreement. At February 28, 1994, the Fund had 66,281 Class A shareholder accounts and 53,047 Class B shareholder accounts (including certain subaccounts on which the standard annual transfer agency fees are assessed). At this level of accounts, the annual fee payable to the Transfer Agent would aggregate approximately $941,390, plus miscellaneous and out-of-pocket expenses.
PURCHASE OF SHARES
The Distributor, a subsidiary of the Manager, acts as the distributor of the shares of the Fund. Shares of the Fund are offered continuously for sale by the Distributor and other eligible securities dealers (including Merrill Lynch). Shares of the Fund may be purchased from securities dealers or by mailing a purchase order directly to the Transfer Agent. The minimum initial purchase is $1,000, and the minimum subsequent purchase is $50, except that for retirement plans, the minimum initial purchase is $250, and the minimum subsequent purchase is $1.
The Fund is offering its shares at a public offering price equal to the next determined net asset value per share plus sales charges which, at the option of the purchaser, may be imposed either at the time of purchase (the "initial sales charge alternative") or on a deferred basis (the "deferred sales charge alternative"), as described below. As to purchase orders received by securities dealers prior to 4:15 p.m., New York time, which includes orders received after the determination of the net asset value on the previous day, the applicable offering price will be based on the net asset value determined as of 4:15 p.m., New York time, on the day the orders are placed with the Distributor, provided the orders are received by the Distributor prior to 4:30 p.m., New York time, on that day. The applicable offering price for purchase orders is based on the net asset value of the Fund next determined after receipt of the purchase orders by the Distributor. If the purchase orders are not received by the Distributor prior to 4:30 p.m., New York time, such orders shall be deemed
received on the next business day. Any order may be rejected by the Distributor or the Fund. The Fund or the Distributor may suspend the continuous offering of the Fund's shares at any time in response to conditions in the securities markets or otherwise and may thereafter resume such offering from time to time. Neither the Distributor nor the dealers are permitted to withhold placing orders to benefit themselves by a price change. Merrill Lynch may charge its customers a processing fee (presently $4.85) to confirm a sale of shares to such customers. Purchases directly through the Transfer Agent are not subject to the processing fee.
The Fund issues two classes of shares: Class A shares are sold to investors
choosing the initial sales charge alternative, and Class B shares are sold to
investors choosing the deferred sales charge alternative. The two classes of
shares each represent interests in the same portfolio of investments of the
Fund, have the same rights and are identical in all respects, except that Class
B shares bear the expenses of the deferred sales arrangements, any expenses
(including incremental transfer agency costs) resulting from such sales
arrangements and the expenses paid by the account maintenance fee and have
exclusive voting rights with respect to the Rule 12b-1 distribution plan
pursuant to which the account maintenance and distribution fees are paid. The
two classes also have different exchange privileges. See "Shareholder Services
- -- Exchange Privilege". The net income attributable to Class B shares and the
dividends payable on Class B shares will be reduced by the amount of the account
maintenance and distribution fees and incremental transfer agency costs relating
to Class B shares; accordingly, the net asset value of the Class B shares will
be reduced by such amount to the extent the Fund has undistributed net income.
Sales personnel may receive different compensation for selling Class A or Class
B shares. Investors are advised that only Class A shares may be available for
purchase through securities dealers, other than Merrill Lynch, which are
eligible to sell shares.
ALTERNATIVE SALES ARRANGEMENTS
The alternative sales arrangements of the Fund permit investors to choose the method of purchasing shares that is most beneficial given the amount of the purchase, the length of time the investor expects to hold the shares and other relevant circumstances. Investors should determine whether under their particular circumstances it is more advantageous to incur an initial sales charge and not be subject to ongoing charges, as discussed below, or to have the entire initial purchase price invested in the Fund with the investment thereafter being subject to ongoing charges.
As an illustration, investors who qualify for significantly reduced sales charges, as described below, might elect the initial sales charge alternative because similar sales charge reductions are not available for purchases under the deferred sales charge alternative. Moreover, shares acquired under the initial sales charge alternative would not be subject to an ongoing account maintenance fee and distribution fee as described below. However, because initial sales charges are deducted at the time of purchase, such investors would not have all their funds invested initially.
Investors not qualifying for reduced initial sales charges who expect to maintain their investment for an extended period of time might also elect the initial sales charge alternative because over time the accumulated continuing account maintenance and distribution fees may exceed the initial sales charge. Again, however, such investors must weigh this consideration against the fact that not all their funds will be invested initially. Furthermore, the ongoing account maintenance and distribution fees will be offset to the extent any return is realized on the additional funds initially invested under the deferred alternative. Another factor that may be applicable under certain circumstances is that the payment of the Class B distribution fee and contingent deferred sales charge is subject to certain limits as set forth below under "Purchase of Shares -- Deferred Sales Charge Alternative -- Class B Shares".
Certain other investors might determine it to be more advantageous to have all their funds invested initially, although remaining subject to continuing account maintenance and distribution fees and, for a four-year period of time, a contingent deferred sales charge as described below. For example, an investor subject to the 6.50% initial sales charge will have to hold his investment at least 6 1/2 years for the ongoing 0.25% account maintenance fee and 0.75% distribution fee to exceed the initial sales charge. This example does not take into account the time value of money, which further reduces the impact of the ongoing account maintenance and distribution fees on the investment, fluctuations in net asset value, the effect of the return on the investment over this period of time or the effect of any limits that may be imposed upon the payment of the distribution fee and the contingent deferred sales charge.
INITIAL SALES CHARGE ALTERNATIVE -- CLASS A SHARES
The public offering price of Class A shares for purchasers choosing the initial sales charge alternative is the next determined net asset value plus varying sales charges (i.e., sales loads), as set forth below.
SALES CHARGE AS DISCOUNT TO
SALES CHARGE AS PERCENTAGE* OF SELECTED DEALERS
PERCENTAGE OF THE NET AMOUNT AS PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE INVESTED THE OFFERING PRICE
- ------------------------------------------------ --------------- --------------- ------------------
Less than $10,000............................... 6.50% 6.95% 6.25%
$10,000 but less than $25,000................... 6.00 6.38 5.75
$25,000 but less than $50,000................... 5.00 5.26 4.75
$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............................. .75 .76 .65
|
*Rounded to the nearest one-hundredth percent.
Initial sales charges may be waived for shareholders purchasing $1 million or more in a single transaction (other than an employer sponsored retirement or savings plan, such as a tax qualified retirement plan under Section 401 of the Internal Revenue Code of 1986, as amended (the "Code"), a deferred compensation plan under Section 403(b) and Section 457 of the Code, other deferred compensation arrangements, VEBA plans and non-qualified After Tax Savings and Investment programs maintained on the Merrill Lynch Group Employee Services system, herein referred to as "Employer Sponsored Retirement or Savings Plans"), or a purchase by a TMASM Managed Trust, of Class A shares of the Fund. In addition, purchases of Class A shares of the Fund made in connection with a single investment of $1 million or more under the Merrill Lynch Mutual Fund Adviser Program will not be subject to an initial sales charge. Purchases described in this paragraph will be subject to a contingent deferred sales charge if the shares are redeemed within one year after purchase at the following rates:
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE OF
AMOUNT OF PURCHASE DOLLAR AMOUNT SUBJECT TO CHARGE
- ----------------------------------------------------------------- -------------------------------
$1 million up to $2.5 million.................................... 1.00%
Over $2.5 million up to $3.5 million............................. 0.60%
Over $3.5 million up to $5 million............................... 0.40%
Over $5 million.................................................. 0.25%
|
The Distributor may reallow discounts to such 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 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 of 1933, as amended. During the fiscal year ended December 31, 1993, the Fund sold 10,009,773 Class A shares for aggregate net proceeds of $199,420,932. The gross sales charges for the sale of Class A shares of the Fund for that year were $3,636,042, of which $223,158 and $3,412,884 were received by the Distributor and Merrill Lynch, respectively.
Reduced Initial Sales Charges. Sales charges are reduced under a Right of Accumulation and a Letter of Intention. Class A shares of the Fund are offered at net asset value to Directors of the Fund, to Directors of Merrill Lynch & Co., Inc., to directors and trustees of certain other Merrill Lynch sponsored investment companies, to participants in certain benefit plans, to an investor who 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 if certain conditions set forth in the Statement of Additional Information are met and to employees of Merrill Lynch & Co., Inc. and its subsidiaries. Class A shares may be offered at net asset value in connection with the acquisition of assets of other investment companies. No initial sales charges are imposed upon Class A shares issued as a result of the automatic reinvestment of dividends or capital gains distributions. Class A shares of the Fund are also offered at net asset value, without sales charge, to an investor who has a business relationship with a Merrill Lynch financial consultant and who 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 if the following conditions are satisfied: first, the investor must purchase Class A shares of the Fund with proceeds from a redemption of shares of such other mutual fund and such fund imposed a sales charge either at the time of purchase or on a deferred basis; second, such purchase of Class A shares must be made within 90 days after such notice of termination. Class A shares are offered with reduced sales charges and, in certain circumstances, at net asset value, to participants in the Merrill Lynch BlueprintSM Program. Class A shares are offered at net asset value to (i) certain retirement plans, including eligible 401(k) plans, provided such plans meet the required minimum number of eligible employees or required amount of assets advised by the Manager or any of its affiliates and (ii) certain Employer Sponsored Retirement or Savings Plans, provided such plans meet the required minimum number of eligible employees or required amount of assets advised by the Manager or any of its affiliates. Class A shares of the Fund are also offered at net asset value to shareholders of certain closed-end funds advised by the Manager or FAM who wish to reinvest the net proceeds from a sale of their closed-end fund shares of common stock in shares of the Fund, provided certain conditions are met. For example, Class A shares of the Fund and certain other mutual funds advised by the Manager or FAM are offered at net asset value to shareholders of Merrill Lynch Senior Floating Rate Fund, Inc. (formerly known as Merrill Lynch Prime Fund, Inc.) who wish to reinvest the net proceeds from a sale of certain of their shares of common stock of Merrill Lynch Senior Floating Rate Fund, Inc. in shares of such funds.
Additional information concerning these reduced initial sales charges is set forth in the Statement of Additional Information.
DEFERRED SALES CHARGE ALTERNATIVE -- CLASS B SHARES
Investors choosing the deferred sales charge alternative purchase Class B shares at net asset value per share without the imposition of a sales charge at the time of purchase. The Class B shares are being sold without an initial sales charge so that the Fund will receive the full amount of the investor's purchase payment. Merrill Lynch compensates its financial consultants for selling Class B shares at the time of purchase from its
own funds. The proceeds of the contingent deferred sales charge and the ongoing distribution fee discussed below are used to defray Merrill Lynch's expenses, including compensating its financial consultants. The proceeds from the ongoing account maintenance fee are used to compensate Merrill Lynch for providing continuing account maintenance activities.
Proceeds from the contingent deferred sales charge 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 shares, such as the payment of compensation to financial consultants for selling Class B shares. Payments by the Fund to the Distributor of the distribution fee under the distribution plan described below also may be used in whole or in part by the Distributor for this purpose. The combination of the contingent deferred sales charge and the ongoing distribution fee facilitates the ability of the Fund to sell the Class B shares without a sales charge being deducted at the time of purchase. Class B shareholders of the Fund exercising the exchange privilege described under "Shareholder Services -- Exchange Privilege" will continue to be subject to the Fund's contingent deferred sales charge schedule if such schedule is higher than the deferred sales charge schedule relating to the Class B shares acquired as a result of the exchange. For the fiscal year ended December 31, 1993, the Distributor received contingent deferred sales charges of $1,036,912 with respect to the redemption of Class B shares, all of which was paid to Merrill Lynch.
Contingent Deferred Sales Charge. Class B shares which are redeemed within four years of purchase may be subject to a contingent deferred sales charge at the rates set forth below charged as a percentage of the dollar amount subject thereto. The charge will be assessed on an amount equal to the lesser of the current market value or the cost of the shares being redeemed. Accordingly, no sales charge will be imposed on increases in net asset value above the initial purchase price. In addition, no charge will be assessed on shares derived from reinvestment of dividends or capital gains distributions.
The following table sets forth the rates of the contingent deferred sales charge:
CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE PAYMENT MADE SUBJECT TO CHARGE
----------------------------------------------------- -------------------
0-1.................................................. 4.0%
1-2.................................................. 3.0%
2-3.................................................. 2.0%
3-4.................................................. 1.0%
4 and thereafter..................................... None
|
In determining whether a contingent deferred sales charge is applicable to a redemption, the calculation will be determined in the manner that results in the lowest possible rate being charged. Therefore, it will be assumed that the redemption is first of shares held for over four years or shares acquired pursuant to reinvestment of dividends or distributions and then of shares held longest during the four-year period. The charge will not be applied to dollar amounts representing an increase in the net asset value since the time of purchase. A transfer of shares from a shareholder's account to another account will be assumed to be made in the same order as a redemption.
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 through dividend reinvestment. If at such time the investor makes his first redemption of 50 shares (proceeds of $600), 10 shares will not be subject to the charge 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 contingent deferred sales charge is 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. The contingent deferred sales charge also is waived on redemptions of shares by certain eligible 401(a) and eligible 401(k) plans and in connection with certain group plans placing orders through the Merrill Lynch BlueprintSM Program. The contingent deferred sales charge also is waived for any Class B shares which are purchased by eligible 401(k) or eligible 401(a) plans which are rolled over into a Merrill Lynch or Merrill Lynch Trust Company custodied IRA and held in such account at the time of redemption. Additional information concerning the waiver of the contingent deferred sales charge is set forth in the Statement of Additional Information.
Distribution Plan. Pursuant to a distribution plan (the "Distribution Plan") adopted by the Fund as of July 7, 1993, pursuant to Rule 12b-1 under the Investment Company Act, the Fund pays the Distributor an ongoing account maintenance fee and a distribution fee, which are accrued daily and paid monthly, at the annual rates of 0.25% and 0.75%, respectively, of the average daily net assets of the Class B shares of the Fund. Pursuant to a sub-agreement with the Distributor, Merrill Lynch also provides account maintenance and distribution services to the Fund. The ongoing account maintenance fee compensates the Distributor and Merrill Lynch for providing account maintenance services to Class B shareholders. The ongoing distribution fee compensates the Distributor and Merrill Lynch for providing shareholder and distribution services and bearing certain distribution-related expenses of the Fund, including payments to financial consultants for selling Class B shares of the Fund.
Prior to July 7, 1993, the Fund paid the Distributor an ongoing distribution fee, accrued daily and paid monthly, at the annual rate of 1.00% of average daily net assets of the Class B shares of the Fund under a distribution plan previously adopted by the Fund (the "Prior Plan") to compensate the Distributor and Merrill Lynch for providing account maintenance and distribution-related activities and services to Class B shareholders. The fee rate payable and the services provided under the Prior Plan are identical to the aggregate fee rate payable and the services provided under the Distribution Plan, the difference being that the account maintenance and distribution services have been unbundled. For the fiscal year ended December 31, 1993, the Fund paid the Distributor $3,135,389 pursuant to the Prior Plan and the Distribution Plan (based on average net assets subject to the Prior Plan and the Distribution Plan of approximately $696.5 million), all of which was paid to Merrill Lynch for providing account maintenance and distribution-related activities and services in connection with Class B shares. At March 31, 1994, the net assets of the Fund subject to the Distribution Plan aggregated approximately $1.2 billion. At this asset level, the annual fee payable pursuant to the Distribution Plan would aggregate approximately $5.2 million. Both the Distribution Plan and the Prior Plan were designed to permit an investor to purchase Class B shares through dealers without the assessment of a front-end sales charge and at the same time permit the dealer to compensate its financial consultants in connection with the sale of the Class B shares. In this regard, the purpose and function of the distribution fee under either the Distribution Plan or the Prior Plan and the contingent deferred sales charge are the same as those of the initial sales charge with respect to the Class A shares of the Fund in that the deferred sales charges provide for the financing of the distribution of the Fund's Class B shares.
The payments under the Distribution Plan, as was the case with the Prior Plan, are based on a percentage of average daily net assets regardless of the amount of expenses incurred, and accordingly, distribution-related revenues may be more or less than distribution-related expenses. Information with respect to the distribution-related revenues and expenses is presented to the Directors for their consideration in connection with their
deliberations as to the continuance of the Distribution Plan. 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 contingent deferred sales charges 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 contingent deferred sales charges, and the expenses consist of financial consultant compensation. As of December 31, 1993, direct cash revenues for the period since commencement of the offering of Class B shares exceeded direct cash expenses by $709,416 (0.14% of Class B net assets at that date). At such date, the fully allocated accrual expenses incurred by the Distributor and Merrill Lynch for the period since commencement of operations exceeded fully allocated accrual revenues for such period by approximately $10,054,000 (1.98% of Class B net assets at that date).
The Fund has no obligation with respect to the distribution-related expenses incurred by the Distributor and Merrill Lynch in connection with the Class B shares, and there is no assurance that the Board of Directors of the Fund will approve the continuance of the Distribution Plan from year to year. However, the Distributor intends to seek annual continuation of the Distribution Plan. In their review of the Distribution Plan, the Directors will not be asked to take into consideration expenses incurred in connection with the distribution of Class A shares or of shares of other funds for which the Distributor acts as distributor. The account maintenance fee, the distribution fee and the contingent deferred sales charge in the case of Class B shares will not be used to subsidize the sale of Class A shares.
Limitations on the Payment of Deferred Sales Charges. The maximum sales charge rule in the Rules of Fair Practice of the National Association of Securities Dealers, Inc. ("NASD") imposes a limitation on certain asset-based sales charges such as the Fund's distribution fee and the contingent deferred sales charge but not the account maintenance fee. As applicable to the Fund, the maximum sales charge rule limits the aggregate of distribution fee payments and contingent deferred sales charges payable by the Fund to (1) 6 1/4% of eligible gross sales of Class B shares (defined to exclude shares issued pursuant to dividend reinvestments and exchanges) plus (2) interest on the unpaid balance 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 contingent deferred sales charge). 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") is 6.75% of eligible gross sales. The Distributor retains the right to stop waiving 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, and any contingent deferred sales charges will be paid to the Fund rather than to the Distributor; however, the Fund will continue to make payments of the account maintenance fee. In certain circumstances the amount payable pursuant to the voluntary maximum may exceed the amount payable under the NASD formula. In such circumstances payment in excess of the amount payable under the NASD formula will not be made.
The following table sets forth comparative information as of December 31, 1993, with respect to the Class B shares of the Fund indicating the maximum allowable payments that can be made under the NASD maximum sales charge rule and the Distributor's voluntary maximum for the fiscal period October 21, 1988 (Class B shares commencement of public offering) to December 31, 1993.
DATA CALCULATED AS OF DECEMBER 31, 1993
(IN THOUSANDS)
ALLOWABLE ANNUAL
ALLOWABLE INTEREST AMOUNTS DISTRIBUTION
ELIGIBLE AGGREGATE ON MAXIMUM PREVIOUSLY AGGREGATE FEE AT CURRENT
GROSS SALES UNPAID AMOUNT PAID TO UNPAID NET ASSET
SALES(1) CHARGES BALANCE PAYABLE DISTRIBUTOR(3) BALANCE LEVEL(4)
-------- ---------- --------- -------- -------------- --------- --------------
Under NASD Rule As
Adopted............. $537,949 $ 33,622 $ 3,130(2) $ 36,752 $7,017 $29,735 $3,805
Under Distributor's
Voluntary Waiver.... $537,949 $ 33,622 $ 2,690 $ 36,312 $7,017 $29,295 $3,805
|
(1) Purchase price of all eligible Class B shares sold since October 21, 1988, other than shares acquired through dividend reinvestment and the exchange privilege.
(2) Interest is computed on a monthly basis based upon the prime rate, as reported in The Wall Street Journal, plus 1%, as permitted under the NASD Rule.
(3) Consists of contingent deferred sales charge payments, distribution fee payments and accruals. Of the distribution fee payments made prior to July 7, 1993, under the Prior Plan at the 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.
(4) Provided to illustrate the extent to which the current level of distribution fee payments (not including any contingent deferred sales charge payments) is amortizing the unpaid balance. No assurance can be given that payments of the distribution fee will reach either the voluntary maximum or the NASD maximum.
REDEMPTION OF SHARES
The Fund is required to redeem for cash all full and fractional shares of the Fund on 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 contingent deferred sales charge which may be applicable to Class B shares, 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 value of shares at the time of redemption may be more or less than the shareholder's cost, depending on the market value of the securities held by the Fund at such time.
REDEMPTION
A shareholder wishing to redeem shares may do so without charge by tendering the shares directly to the Transfer Agent, Financial Data Services, Inc., Transfer Agency Mutual Fund Operations, P.O. Box 45289, Jacksonville, Florida 32232-5289. Redemption requests delivered other than by mail should be delivered to Financial Data Services, Inc., Transfer Agency Mutual Fund Operations, 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. The notice in either event requires the signatures of all persons in whose names the shares are registered, signed exactly as their names appear on the Transfer Agent's register or on the certificates, as the case may be. The signatures on the notice must be guaranteed by an "eligible guarantor institution" (including, for example, Merrill Lynch branch offices and certain other financial institutions) as such is defined in Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended, the existence and validity of which may be verified by the Transfer Agent through the use of industry publications. Notarized signatures are not sufficient. In certain instances, the Transfer Agent may
require additional documents, such as, but not limited to, trust instruments, death certificates, appointments as executor or administrator, or certificates of corporate authority. For shareholders redeeming directly with the Transfer Agent, payment 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. The Fund may delay or cause to be delayed the mailing of a redemption check until such time as it has assured itself that good payment (e.g., cash or certified check drawn on a U.S. bank) has been collected for the purchase of such shares. Normally, this delay will not exceed 10 days.
REPURCHASE
The Fund also will repurchase shares through a shareholder's 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 receipt of the order by the dealer, provided that the request for repurchase is received by the dealer prior to the close of business on the New York Stock Exchange on the day received and that such request is received by the Fund from such dealer not later than 4:30 p.m., New York time, on the same day. Dealers have the responsibility of submitting such repurchase requests to the Fund not later than 4:30 p.m., New York time, 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 contingent deferred sales charge in the case of Class B shares). Securities firms which 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 $4.85) to confirm a repurchase of shares to such customers. Redemptions directly through 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 may redeem shares as set forth above.
REINSTATEMENT PRIVILEGE -- CLASS A SHARES
Shareholders who have redeemed their Class A shares have a one-time privilege to reinstate their accounts by purchasing Class A shares 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. 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. The reinstatement privilege is a one-time privilege and may be exercised by the Class A shareholder only the first time such shareholder makes a redemption.
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services and investment plans described below which are designed to facilitate investment in its shares. Certain of such services are not available to investors who place purchase orders for the Fund's shares through the Merrill Lynch BlueprintSM Program. Full details as to each of such services, copies of the various plans described below and instructions as to how to participate in the various services or plans, or how to change options with respect thereto can be obtained from the Fund by calling the telephone number on the cover page hereof or from the Distributor or Merrill Lynch. Certain of these services are available only to U.S. investors.
Investment Account. Each shareholder whose account is maintained at the Transfer Agent has an Investment Account and will receive quarterly statements from the Transfer Agent. These quarterly statements will serve as transaction confirmations for automatic investment purchases and the reinvestment of ordinary income dividends and long-term capital gain distributions. The quarterly statements will also show any other activity in the account since the preceding statement. Shareholders will receive separate transaction confirmations for each purchase or sale transaction other than automatic investment purchases and the reinvestment of ordinary income dividends and long-term capital gain distributions. A shareholder may make additions to his Investment Account at any time by mailing a check directly to the Transfer Agent. Shareholders may also maintain their accounts through Merrill Lynch. Upon the transfer of shares out of a Merrill Lynch brokerage account, an Investment Account in the transferring shareholder's name will be opened automatically, without charge, at the Transfer Agent. Shareholders considering transferring their Class A shares from Merrill Lynch to another brokerage firm or financial institution should be aware that, if the firm to which the Class A shares are to be transferred will not take delivery of shares of the Fund, a shareholder either must redeem the 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 A shares. Shareholders interested in transferring their Class B shares from Merrill Lynch 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. If the new brokerage firm is willing to accommodate the shareholder in this manner, the shareholder must request that he be issued certificates for his shares and then must turn the certificates over to the new firm for re-registration as described in the preceding sentence. Shareholders considering transferring a tax-deferred retirement account such as an individual retirement account from Merrill Lynch 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 contingent deferred sales charge) so that the cash proceeds can be transferred to the account at the new firm, or such shareholder must continue to maintain a retirement account at Merrill Lynch for those shares.
Exchange Privilege. U.S. Class A and Class B shareholders of the Fund each have an exchange privilege with certain other mutual funds sponsored by Merrill Lynch. There is currently no limitation on the number of times a shareholder may exercise the exchange privilege. The exchange privilege may be modified or terminated in accordance with the rules of the Securities and Exchange Commission. Class A shareholders of the Fund may exchange their shares ("outstanding Class A shares") for Class A shares of another fund ("new Class A shares") on the basis of relative net asset value per Class A share, plus an amount equal to the difference, if any, between the sales charge previously paid on the outstanding Class A shares and the sales charge payable at the time of the exchange on the new Class A shares. The Fund's exchange privilege is modified with respect to purchases of Class A shares under the Merrill Lynch Mutual Fund Adviser program. First, the initial allocation of assets is made under the program. Then, any subsequent exchange under the program of Class A shares of a fund for Class A shares of the Fund will be made solely on the basis of the relative net asset values of the shares being exchanged. Therefore, there will not be a charge for any difference between the sales charge previously paid on the shares of the other fund and the sales charge payable on the shares of the Fund being acquired in the exchange under this program.
Class B shareholders of the Fund may exchange their shares ("outstanding Class B shares") for Class B shares of another fund ("new Class B shares") on the basis of relative net asset value per share without the payment of any contingent deferred sales charge that might otherwise be due upon redemption of the outstanding Class B shares. Class B shareholders of the Fund exercising the exchange privilege will continue to be subject to the Fund's contingent deferred sales charge schedule if such schedule is higher than the
deferred sales charge schedule relating to the new Class B shares. In addition, Class B shares of the Fund acquired through use of the exchange privilege will be subject to the Fund's contingent deferred sales charge schedule if such schedule is higher than the deferred sales charge schedule relating to the Class B shares of the fund from which the exchange has been made. For purposes of computing the contingent deferred sales charge that may be payable upon a disposition of the new Class B shares, the holding period for the outstanding Class B shares is "tacked" to the holding period of the new Class B shares. Class A and Class B shareholders of the Fund may also exchange their shares for shares of certain money market funds, but in the case of an exchange from Class B shares, the period of time that shares are held in a money market fund will not count toward satisfaction of the holding period requirement for purposes of reducing the contingent deferred sales charge. Exercise of the exchange privilege is treated as a sale for Federal income tax purposes. For further information, see "Shareholder Services -- Exchange Privilege" in the Statement of Additional Information.
Automatic Reinvestment of Dividends and Distributions. All dividends and capital gains distributions are automatically reinvested in full and fractional shares of the Fund, without sales charge, at the net asset value per share next determined after the close of the New York Stock Exchange on the ex-dividend date of such dividend or distribution. A shareholder may at any time, by written notification to Merrill Lynch if the shareholder's account is maintained with Merrill Lynch or by written notification or telephone call (1-800-MER-FUND) to the Transfer Agent if the shareholder's account is maintained with the Transfer Agent, elect to have subsequent dividends, or both dividends and capital gains distributions, paid in cash rather than reinvested, in which event payment will be mailed on the payment date. No contingent deferred sales charge will be imposed on redemption of shares issued as a result of the automatic reinvestment of dividends or capital gains distributions. The Automatic Investment Program is not available to shareholders whose shares are held in a brokerage account with Merrill Lynch other than a CMA(R) account.
Systematic Withdrawals and Automatic Investment Plans. A Class A shareholder may elect to receive systematic withdrawal payments from his Investment Account in the form of payments by check or through automatic payment by direct deposit to his bank account on either a monthly or quarterly basis. A Class A shareholder whose shares are held within a CMA(R), CBA(R) or Retirement Account may elect to have shares redeemed on a monthly, bimonthly, quarterly, semiannual or annual basis through the Systematic Redemption Program, subject to certain conditions. Regular additions of Class A shares may be made to an investor's Investment Account by prearranged charges of $50 or more to his regular bank account. Investors who maintain CMA(R) accounts may arrange to have periodic investments made in the Fund in their CMA(R) accounts or in certain related accounts in amounts of $250 or more through the CMA Automatic Investment Program. The Automatic Investment Program is not available to shareholders whose shares are held in a brokerage account with Merrill Lynch (other than a CMA(R) account).
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to policies established by the Board of Directors of the Fund, the Manager is primarily responsible for the execution of the Fund's portfolio transactions and the allocation of brokerage. In executing such transactions, the Manager seeks to obtain the best net results for the Fund, taking into account such factors as price (including the applicable brokerage commission or dealer spread), size of order, difficulty of execution and operational facilities of the firm involved and the firm's risk in positioning a block of securities. While the Manager generally seeks reasonably competitive commission rates, the Fund does not necessarily pay the lowest commission or spread available. The Fund has no obligation to deal with any broker or group of brokers in the execution of transactions in portfolio securities. The Fund contemplates that, consistent with the above policy of obtaining the best net results, a portion of its brokerage transactions with respect to equities may be conducted through Merrill Lynch and its affiliates. Subject to obtaining the best price and execution,
brokers who provide supplemental investment research to the Manager may receive orders for transactions by the Fund. Information so received will be in addition to and not in lieu of the services required to be performed by the Manager under the Management Agreement, and the expenses of the Manager will not necessarily be reduced as a result of the receipt of such supplemental information. It is possible that certain of the supplementary investment research so received will primarily benefit one or more other investment companies or other accounts for which investment discretion is exercised. Conversely, the Fund may be the primary beneficiary of the research or services received as a result of portfolio transactions effected for such other accounts or investment companies. Consistent with the Rules of Fair Practices of the National Association of Securities Dealers, Inc., the Manager may consider sales of shares of the Fund as a factor in the selection of brokers or dealers to execute portfolio transactions for the Fund.
The Fund anticipates that its brokerage transactions involving securities of corporations domiciled in Far Eastern or Western Pacific countries will be conducted primarily on the principal stock exchanges of such countries. Brokerage commissions and other transaction costs on foreign securities exchanges are generally higher than commissions on U.S. transactions, although the Fund will endeavor to achieve the best net results in effecting its portfolio transactions. There is generally less government supervision and regulation of foreign stock exchanges and brokers than in the United States.
The Fund may invest in securities traded in the OTC markets and deals directly with the dealers who make markets in the securities involved except in those circumstances where better prices and execution are available elsewhere.
PERFORMANCE DATA
From time to time the Fund may include its average annual total return for various specified time periods in advertisements or information furnished to present or prospective shareholders. Average annual total return is computed separately for Class A and Class B shares in accordance with a formula specified by the Securities and Exchange Commission.
Average annual total return quotations for the specified periods will be computed by finding the average annual compounded rates of return (based on net investment income and any 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 will be 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 shares and the contingent deferred sales charge that would be applicable to a complete redemption of the investment at the end of the specified period in the case of Class B shares. Dividends paid by the Fund with respect to Class A and Class B shares, to the extent any dividends are paid, will be calculated in the same manner at the same time on the same day and will be in the same amount, except that account maintenance and distribution fees and any incremental transfer agency costs relating to Class B shares will be borne exclusively by that class. The Fund will include performance data for both Class A and Class B shares of the Fund in any advertisement or information including performance data of the Fund.
The Fund also may quote total return and aggregate total return performance data for various specified time periods. Such data will be calculated substantially as described above, except that (1) the rates of return calculated will not be average annual rates, but rather, actual annual, annualized or aggregate rates of return, 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 annual rates of return reflect compounding; aggregate total return data generally will be higher than average annual total return data since the aggregate rates of return reflect compounding over longer periods of time. In advertisements directed to investors whose purchases are subject to reduced sales charges in the case of Class A shares or waiver of the contingent deferred sales charge in the case of Class B shares (such as investors in certain retirement plans), performance data may take into account the reduced, and not the maximum, sales charge or may not take into account the contingent deferred sales charge and therefore may reflect greater total return since, due to the reduced sales charges or waiver of the contingent deferred sales charge, a lower amount of expenses may be deducted. See "Purchase of Shares". The Fund's total return may be expressed either as a percentage or as a dollar amount in order to illustrate the effect of such total return on a hypothetical $1,000 investment in the Fund at the beginning of each specified period.
Total return figures are based on the Fund's historical performance and are not intended to indicate future performance. The Fund's total return will vary depending on market conditions, the securities comprising the Fund's portfolio, the Fund's operating expenses and the amount of realized and unrealized net capital gains or losses during the period. The value of an investment in the Fund will fluctuate, and an investor's shares, when redeemed, may be worth more or less than their original cost.
On occasion, the Fund may compare its performance to the Standard & Poor's 500 Composite Stock Price Index, the Dow Jones Industrial Average, or performance data published by Lipper Analytical Services, Inc., Morningstar Publications, Inc., Money Magazine, U.S. News & World Report, Business Week, CDA Investment Technology, Inc., Forbes Magazine, Fortune Magazine or other industry publications. In addition, from time to time the Fund may include the Fund's risk-adjusted performance ratings assigned by Morningstar Publications, Inc. in advertising or supplemental sales literature. As with other performance data, performance comparisons should not be considered representative of the Fund's relative performance for any future period.
ADDITIONAL INFORMATION
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to distribute all of its net investment income and net realized long-or short-term capital gains, if any, to the Fund's shareholders at least annually. The per share dividends and distributions on Class B shares will be lower than the per share dividends and distributions on Class A shares as a result of the account maintenance, distribution and higher transfer agency fees applicable to the Class B shares. See "Additional Information -- Determination of Net Asset Value". All dividends and distributions are automatically reinvested in full and fractional shares of the Fund, without a sales charge, at the net asset value per share next determined after the close of the New York Stock Exchange on the ex-dividend date of such dividend or distribution. A shareholder may at any time, by written notification to the Transfer Agent, elect to have subsequent dividends, or both dividends and capital gains distributions, paid in cash rather than reinvested. Dividends and distributions are taxable to investors whether received in cash or reinvested in additional shares of the Fund.
Certain gains or losses attributable to foreign currency gains or losses from certain forward contracts may increase or decrease the amount of the Fund's income available for distribution to shareholders. If such losses exceed other income during a taxable year, (a) the Fund would not be able to make any ordinary dividend distributions, and (b) distributions made before the losses were realized would be recharacterized as a return of capital to shareholders, rather than as an ordinary dividend, reducing each shareholder's tax basis in his Fund shares for Federal income tax purposes. See "Additional Information -- Taxes".
DETERMINATION OF NET ASSET VALUE
Net asset value per share is determined once daily as of 4:15 p.m., New York time, on each day during which the New York Stock Exchange is open for trading. 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 net asset value is computed by dividing the value of the securities held by the Fund plus any cash or other assets (including interest and dividends accrued but not yet received) minus all liabilities (including accrued expenses) by the total number of shares outstanding at such time. Expenses, including the fees payable to the Manager and the account maintenance and distribution fees payable to the Distributor, are accrued daily. The per share net asset value of the Class B shares generally will be lower than the per share net asset value of the Class A shares reflecting the daily expense accruals of the account maintenance, distribution and higher transfer agency fees applicable with respect to the Class B shares. It is expected, however, that the per share net asset value of the two classes will tend to converge immediately after the payment of dividends or distributions which will differ by approximately the amount of the expense accrual differential between the classes.
TAXES
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"). If it so qualifies, the Fund (but not its shareholders) will not be subject to Federal income tax on the part of its net ordinary income and net realized capital gains which it distributes to Class A and Class B shareholders (together, the "shareholders"). The Fund intends to distribute substantially all of such income.
Dividends paid by the Fund from its ordinary income and distributions of
the Fund's net realized short-term capital gains (together referred to hereafter
as "ordinary income dividends") are taxable to shareholders as ordinary income.
Distributions made from the Fund's net realized long-term capital gains
(including long-term gains 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.
Distributions in excess of the Fund's earnings and profits will first reduce the
adjusted tax basis of a holder's shares and, after such adjusted tax basis is
reduced to zero, will constitute capital gains to such holder (assuming the
shares are held as a capital asset).
Dividends are taxable to shareholders even though they are reinvested in additional shares of the Fund. Not later than 60 days after the close of its taxable year, the Fund will provide its shareholders with a written notice designating the amounts of any ordinary income dividends or capital gain dividends. Distributions by the Fund, whether from ordinary income or capital gains, will not be eligible for the dividends received deduction allowed to corporations under the Code. If the Fund pays a dividend in January which 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.
Ordinary income dividends paid by the Fund to shareholders who are nonresident aliens or foreign entities will be subject to a 30% U.S. withholding tax under existing provisions of the Code applicable to foreign individuals and entities unless a reduced rate of withholding or a withholding exemption is provided under applicable treaty law. Nonresident shareholders are urged to consult their own tax advisers concerning the applicability of the U.S. withholding tax.
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.
Shareholders may be able to claim U.S. foreign tax credits with respect to such taxes, subject to certain conditions and limitations contained in the Code. For example, certain retirement accounts cannot claim foreign tax credits on investments in foreign securities held in the Fund. If more than 50% in value of the Fund's total assets at the close of its taxable year consists of securities of foreign corporations, the Fund will be eligible, and intends, to file an election with the Internal Revenue Service pursuant to which shareholders of the Fund will be required to include their proportionate shares of such withholding taxes on their U.S. income tax returns as gross income, treat such proportionate shares as taxes paid by them, and deduct such proportionate shares in computing their taxable incomes or, alternatively, use them as foreign tax credits against their U.S. income taxes. No deductions for foreign taxes, however, may be claimed by noncorporate shareholders who do not itemize deductions. A shareholder that is a nonresident alien individual or a foreign corporation may be subject to U.S. withholding tax on the income resulting from the Fund's election described in this paragraph but may not be able to claim a credit or deduction against such U.S. tax for the foreign taxes treated as having been paid by such shareholder. The Fund will report annually to its shareholders the amount per share of such withholding taxes.
Under certain provisions of the Code, some shareholders may be subject to a 31% withholding tax on certain ordinary income dividends and capital gain dividends and on redemption payments ("backup withholding"). Generally, shareholders subject to backup withholding will be those for whom a certified taxpayer identification number is not on file with the Fund or who, to the Fund's knowledge, have furnished an incorrect number. When establishing an account, an investor must certify under penalty of perjury that such number is correct and that such investor is not otherwise subject to backup withholding.
Under Code Section 988, 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 generally be treated as ordinary income or loss. Such Code Section 988 gains or losses will generally increase or decrease the amount of the Fund's investment company taxable income available to be distributed to shareholders as ordinary income. Additionally, if Code Section 988 losses exceed other investment company taxable income during a taxable year, the Fund would not be able to make any ordinary dividend distributions, and any distributions made before the losses were realized but in the same taxable year would be recharacterized as a return of capital to shareholders, thereby reducing the basis of each shareholder's Fund shares.
If a Class A shareholder exercises the 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 the sales charge paid to the Fund reduces any sales charge the shareholder would have owed upon purchase of the new Class A shares in the absence of the exchange privilege. Instead, such sales charge will be treated as an amount paid for the new Class A shares.
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 or administrative action either prospectively or retroactively.
Ordinary income dividends and capital gain dividends may also be subject to state and local taxes.
Certain states exempt from state income taxation dividends paid by RICs which are derived from interest on 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.
ORGANIZATION OF THE FUND
The Fund was incorporated under Maryland law on August 5, 1976. It has an authorized capital of 200,000,000 shares of Common Stock, par value $0.10 per share, divided into two classes designated Class A Common Stock and Class B Common Stock, each of which consists of 100,000,000 shares. Both Class A Common Stock and Class B Common Stock represent an interest in the same assets of the Fund and are identical in all respects except that the Class B shares bear certain expenses related to the account maintenance and distribution of such shares and have exclusive voting rights with respect to matters relating to such account maintenance and distribution expenditures. See "Purchase of Shares". The Fund has received an order from the Securities and Exchange Commission permitting the issuance and sale of an unlimited number of classes of Common Stock. The Directors of the Fund may classify and reclassify the shares of the Fund into additional classes of Common Stock at a future date.
Shareholders are entitled to one vote for each share held and fractional votes for fractional shares held and will vote on the election of Directors and any other matter submitted to a shareholder vote. The Fund does not intend to hold 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. Also, the by-laws of the Fund require that a special meeting of stockholders be held upon the written request of at least 10% of the outstanding shares of the Fund entitled to vote at such meeting. Voting rights for Directors are not cumulative. Shares issued are fully paid and non-assessable and have no preemptive or conversion rights. Each share of Class A Common Stock and Class B Common Stock is entitled to participate equally in dividends and distributions declared by the Fund and in the net assets of the Fund on liquidation or dissolution after satisfaction of outstanding liabilities, and except as noted above, the Class B shares bear certain expenses related to the distribution of such shares.
SHAREHOLDER REPORTS
Only one copy of each shareholder report and certain shareholder communications will be mailed to each identified shareholder regardless of the number of accounts such shareholder has. If a shareholder wishes to receive separate copies of each report and communication for each of the shareholder's related accounts, the shareholder should notify in writing:
Financial Data Services, Inc. Attn: Document Evaluation Unit P.O. Box 45290
Jacksonville, FL 32232-5290
The written notification should include the shareholder's name, address, tax identification number and Merrill Lynch and/or mutual fund account numbers. If you have any questions regarding this, please call your Merrill Lynch financial consultant or Financial Data Services, Inc. at 1-800-637-3863.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to the Fund at the address or telephone number set forth on the cover page of this Prospectus.
Basis for establishing an Investment Account:
A. I enclose a check for $...... payable to Financial Data Services, Inc., as an initial investment (minimum $1,000) (subsequent investments $50 or more). I understand that this purchase will be executed at the applicable offering price next to be determined after this application is received by you.
B. I already own shares of the following Merrill Lynch mutual funds that would qualify for the right of accumulation as outlined in the Statement of Additional Information:
1. ................................................... 4. ................................................... 2. ................................................... 5. ................................................... 3. ................................................... 6. ................................................... |
(Please list all Funds. Use a separate sheet of paper if necessary.)
Until you are notified by me in writing, the following options with respect to dividends and distributions are elected:
------------------------------------- -------------------------------------
Distribution Elect / / reinvest dividends Elect / / reinvest capital gains
Options One / / pay dividends in cash One / / pay capital gains in cash
------------------------------------- -------------------------------------
|
If no election is made, dividends and capital gains will be reinvested automatically at net asset value without a sales charge.
(PLEASE PRINT)
Name ................................................ ---------------------------
First Name Initial Last ---------------------------
Name Social Security No.
or Taxpayer Identification
Name of Co-Owner No.
(if any).............................................
First Name Initial Last Name ................. , 19..
Date
|
Address .............................................. Name and address of employer.........................
...................................................... ......................................................
(Zip Code)
Occupation .......................................... ......................................................
|
Under penalty of perjury, I certify (1) that the number set forth above is my correct Social Security No. or Taxpayer Identification No. and (2) that I am not subject to backup withholding (as discussed in the Prospectus under "Additional Information--Taxes") either because I have not been notified that I am subject thereto as a result of a failure to report all interest or dividends, or the Internal Revenue Service ("IRS") has notified me that I am no longer subject thereto.
INSTRUCTION: YOU MUST STRIKE OUT THE LANGUAGE IN (2) ABOVE IF YOU HAVE BEEN NOTIFIED THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING DUE TO UNDERREPORTING AND IF YOU HAVE NOT RECEIVED A NOTICE FROM THE IRS THAT BACKUP WITHHOLDING HAS BEEN TERMINATED. THE UNDERSIGNED AUTHORIZES THE FURNISHING OF THIS CERTIFICATION TO OTHER MERRILL LYNCH SPONSORED MUTUAL FUNDS.
Signature of Owner .................................... Signature of Co-Owner
(if any) ..............................
In the case of co-owners, a joint tenancy with right of
|
2. LETTER OF INTENTION--CLASS A SHARES ONLY (SEE TERMS AND CONDITIONS IN THE STATEMENT OF ADDITIONAL INFORMATION)......... , 19...
Gentlemen: Date of Initial Purchase
Although I am not obligated to do so, I intend to purchase shares of Merrill Lynch Pacific Fund, Inc. or any other investment company with an initial sales charge or deferred sales charge for which Merrill Lynch Funds Distributor, Inc. acts as distributor over the next 13-month period which will equal or exceed:
/ / $10,000 / / $25,000 / / $50,000 / / $100,000 / / $250,000 / / $1,000,000
Each purchase will be made at the then reduced offering price applicable to the amount checked above, as described in the Merrill Lynch Pacific Fund, Inc. prospectus.
I agree to the terms and conditions of the Letter of Intention. I hereby irrevocably constitute and appoint Merrill Lynch Funds Distributor, Inc. my attorney, with full power of substitution, to surrender for redemption any or all shares of Merrill Lynch Pacific Fund, Inc. held as security.
By....................................................... .........................................................
Signature of Owner Signature of Co-Owner (If registered in joint names, both
must sign)
|
In making purchases under this letter, the following are the related accounts on which reduced offering prices are to apply:
(1) Name................................................. (2) Name................................................. |
MERRILL LYNCH PACIFIC FUND, INC.--AUTHORIZATION FORM
3. SYSTEMATIC WITHDRAWAL PLAN--CLASS A SHARES ONLY (See terms and conditions in the Statement of Additional Information)
Minimum Requirements: $10,000 for monthly disbursements, $5,000 for quarterly, of shares in Merrill Lynch Pacific Fund, Inc., at cost or current offering price. Begin systematic withdrawal on ......... 19... Withdrawals to be made either (check one) / / Monthly / / Quarterly*
[Date]
*Quarterly withdrawals are made on the 24th day of March, June, September and December.
Specify withdrawal amount (check one): / / $............... or / /.......% of the current value of Class A shares in the account.
Specify withdrawal method: / / check or / / direct deposit to bank account (check one and complete part (a) or (b) below):
- ----------------------------------------------------------------------------------------------------------------------------------
(A) I HEREBY AUTHORIZE PAYMENT BY CHECK (B) I HEREBY AUTHORIZE PAYMENT BY DIRECT DEPOSIT TO BANK
Draw checks payable ACCOUNT AND (IF NECESSARY) DEBIT ENTRIES AND ADJUSTMENTS
(check one) FOR ANY CREDIT ENTRIES MADE IN ERROR TO MY ACCOUNT.
/ / as indicated in Item 1 Specify type of account (check one): / / checking / / savings
/ / to the order of...................................... I agree that this authorization will remain in effect
until I provide written notification to Financial Data
Mail to (check one) Services, Inc. amending or terminating this service.
/ / the address indicated in Item 1 Name on your Account......................................
/ / Name (Please Print).................................. Bank......................................................
Bank # ................ Account #.........................
Address................................................... Bank Address..............................................
Signature of Depositor ................ Date..............
Signature of Owner........................................ Signature of Depositor (if joint account).................
NOTE: If Automatic Direct Deposit is elected, your blank,
Signature of Co-Owner (if any)............................ unsigned check marked "VOID" or a deposit slip from your
savings account should accompany this Application.
- ----------------------------------------------------------------------------------------------------------------------------------
|
4. APPLICATION FOR AUTOMATIC INVESTMENT PLAN
I hereby request that Financial Data Services, Inc. draw a check or an automated clearing house ("ACH") debit on my checking account described below each month to purchase .... Class A shares or .... Class B shares (choose one) of Merrill Lynch Pacific Fund, Inc., subject to the terms set forth below.
- ----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL DATA SERVICES, INC. AUTHORIZATION TO HONOR CHECKS OR ACH DEBITS
DRAWN BY FINANCIAL DATA SERVICES, INC.
You are hereby authorized to draw a check or an ACH debit
each month on my bank account for investment in Merrill To................................................... Bank
Lynch Pacific Fund, Inc. as indicated below: (Investor's Bank)
Amount of each check or ACH debit $...................... Bank Address..............................................
Account No. ............................................. City............ State........................ Zip......
Please date and invest checks or draw ACH debits on the 20th As a convenience to me, I hereby request and authorize you
of each month beginning ................................. to pay and charge to my account checks or ACH debits drawn
(Month) on my account by and payable to Financial Data Services,
or as soon thereafter as possible. Inc., Transfer Agency Mutual Fund Operations,
I agree that you are preparing these checks or drawing Jacksonville, Florida 32232-5289. I agree that your rights
these debits voluntarily at my request and that you shall in respect to each such check or debit shall be the same
not be liable for any loss arising from any delay in as if it were a check drawn on you and signed personally
preparing or failure to prepare any such check or debit. by me. This authority is to remain in effect until revoked
If I change banks or desire to terminate or suspend this personally by me in writing. Until you receive such
program, I agree to notify you promptly in writing. notice, you shall be fully protected in honoring any such
I further agree that if a check or debit is not honored check or debit. I further agree that if any such check or
upon presentation, Financial Data Services, Inc. is debit be dishonored, whether with or without cause and
authorized to discontinue immediately the Automatic whether intentionally or inadvertently, you shall be under
Investment Plan and to liquidate sufficient shares held in no liability.
my account to offset the purchase made with the returned .................... .....................................
check or dishonored debit. Date Signature of Depositor
................... ...................................... .................... .....................................
Date Signature of Depositor Bank Account Number Signature of Depositor
...................................................... (If joint account, both must sign)
Signature of Depositor NOTE: IF AUTOMATIC INVESTMENT PLAN IS ELECTED, YOUR BLANK,
(If joint account, both must sign) UNSIGNED CHECK MARKED "VOID" SHOULD ACCOMPANY THIS
APPLICATION.
|
- ----------------------------------------------------------------------------------------------------------------------------------
5. FOR DEALER ONLY
We hereby authorize Merrill Lynch Funds Distributor, Inc. to
Branch Office, Address, Stamp act as our agent in connection with transactions under this
--- --- authorization form and agree to notify the Distributor of any
purchases made under a Letter of Intention or Systematic
Withdrawal Plan. We guarantee the shareholder's signature.
--- ---
.............................................................
Dealer Name and Address
By...........................................................
Authorized Signature of Dealer
This form when completed should be mailed to:
|
Merrill Lynch Pacific Fund, Inc. ---------- -------------
c/o Financial Data Services, Inc. ---------- ------------- -------------
Transfer Agency Mutual Fund Operations Branch-Code F/C No. F/C Last Name
P.O. Box 45289 ---------- -----------------
Jacksonville, Florida 32232-5289. ---------- -----------------
Dealer's Customer A/C No.
|
[This page is intentionally left blank.]
[This page is intentionally left blank.]
MANAGER
Merrill Lynch Asset Management
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
Box 9011
Princeton, New Jersey 08543-9011
DISTRIBUTOR
Merrill Lynch Funds Distributor, Inc.
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
Box 9011
Princeton, New Jersey 08543-9011
TRANSFER AGENT
Financial Data Services, Inc.
Administrative Offices:
Transfer Agency Mutual Fund Operations
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
Mailing Address:
P.O. Box 45289
Jacksonville, Florida 32232-5289
CUSTODIAN
Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109
INDEPENDENT AUDITORS
Deloitte & Touche
117 Campus Drive
Princeton, New Jersey 08540
COUNSEL
Brown & Wood
One World Trade Center
New York, New York 10048-0557
TABLE OF CONTENTS
PAGE
------
Fee Table.............................. 2
Alternative Sales Arrangements......... 3
Financial Highlights................... 5
Special Considerations................. 6
Investment Objective and Policies...... 7
Hedging Techniques................... 8
Investment Restrictions.............. 13
Management of the Fund................. 13
Board of Directors................... 13
Management and Advisory
Arrangements...................... 14
Transfer Agency Services............. 15
Purchase of Shares..................... 15
Alternative Sales Arrangements....... 16
Initial Sales Charge Alternative --
Class A Shares.................... 17
Deferred Sales Charge Alternative --
Class B Shares.................... 18
Redemption of Shares................... 22
Redemption........................... 22
Repurchase........................... 23
Reinstatement Privilege -- Class A
Shares............................ 23
Shareholder Services................... 23
Portfolio Transactions and Brokerage... 25
Performance Data....................... 26
Additional Information................. 27
Dividends and Distributions.......... 27
Determination of Net Asset Value..... 28
Taxes................................ 28
Organization of the Fund............. 30
Shareholder Reports.................. 30
Shareholder Inquiries................ 30
Authorization Form..................... 31
Code#10073
|
Prospectus
ARTWORK
April 29, 1994
Distributor:
Merrill Lynch
Funds Distributor, Inc.
This prospectus should be retained
for future reference.
STATEMENT OF ADDITIONAL INFORMATION
Merrill Lynch Pacific Fund, Inc. (the "Fund") is a diversified, open-end, management investment company seeking long-term capital appreciation primarily through investment in equities of corporations domiciled in Far Eastern or Western Pacific countries, including Japan, Australia, Hong Kong and Singapore. Current income from dividends and interest will not be an important consideration in selecting portfolio securities. It is expected that under normal conditions at least 80% of the Fund's net assets will be invested in Far Eastern or Western Pacific corporate securities, primarily common stocks and debt securities convertible into common stocks. The Fund is designed for U.S. investors desiring to achieve diversification of investments by participation in the economies of Far Eastern and Western Pacific countries. The Fund may seek to hedge against investment, interest rate and currency risks through the use of options, futures and foreign currency transactions.
The Fund offers two classes of shares which may be purchased at a price equal to the next determined net asset value per share, plus a sales charge which, at the election of the purchaser, may be imposed (i) at the time of purchase (the "Class A shares") or (ii) on a deferred basis (the "Class B shares"). These alternatives permit an investor to choose the method of purchasing shares that is most beneficial given the amount of the purchase, the length of time the investor expects to hold the shares and other circumstances. Investors should understand that the purpose and function of the deferred sales charges with respect to the Class B shares are the same as those of the initial sales charge with respect to the Class A shares. Each share of Class A and Class B represents identical interests in the investment portfolio of the Fund and has the same rights, except that Class B shares bear the expenses of the account maintenance fee and distribution fee and certain other costs resulting from the deferred sales charge arrangement and have exclusive voting rights with respect to the account maintenance and distribution fees. The two classes also have different exchange privileges.
This Statement of Additional Information of the Fund is not a prospectus and should be read in conjunction with the prospectus of the Fund, dated April 29, 1994 (the "Prospectus"), which has been filed with the Securities and Exchange Commission and can be obtained, without charge, by calling or by writing the Fund at the above telephone number or address. This Statement of Additional Information has been incorporated by reference into the Prospectus.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to seek long-term capital appreciation primarily through investment in equities of corporations domiciled in Far Eastern or Western Pacific countries, including Japan, Australia, Hong Kong and Singapore. Reference is made to "Investment Objective and Policies" in the Prospectus for a discussion of the investment objective and policies of the Fund.
It is anticipated that the Japanese common stocks in which the Fund will invest will primarily be those listed on the First Section of the Tokyo Stock Exchange and that common stocks of corporations in other Far Eastern and Western Pacific countries will be listed on the principal stock exchanges in such countries.
Many of the securities held by the Fund will not be registered with the Securities and Exchange Commission nor will the issuers thereof be subject to the reporting requirements of such agency. Accordingly, there may be less publicly available information concerning certain of the issuers of securities held by the Fund than is available concerning U.S. companies. Foreign companies are not generally subject to uniform accounting and auditing and financial reporting standards or to practices and requirements comparable to those applicable to domestic companies. Securities of many foreign companies may be less liquid and more volatile than securities of comparable domestic companies. In addition, with respect to certain foreign countries, there is the possibility of expropriation or confiscatory taxation, limitations on the removal of funds or other assets of the Fund, political or social instability, or diplomatic developments which could affect U.S. investment in those countries. Moreover, individual foreign economies may differ favorably or unfavorably from the U.S. economy in such respects as growth of gross national product, rate of inflation, capital reinvestment, resources, self-sufficiency and balance of payments position.
While it is the policy of the Fund generally not to engage in trading for short-term gains, Merrill Lynch Asset Management, L.P., doing business as Merrill Lynch Asset Management (the "Manager"), will effect portfolio transactions without regard to the holding period if, in its judgment, such transactions are advisable in light of a change in circumstances of a particular company or within a particular industry or in general market, economic or political conditions. While the Fund anticipates that its annual portfolio turnover rate should not exceed 100% under normal conditions, it is impossible to predict portfolio turnover rates. Portfolio turnover rate is calculated by dividing the lesser of the Fund's annual sales or purchases of portfolio securities (exclusive of purchases or sales of all securities whose maturities at the time of acquisition were one year or less) by the monthly average value of the securities in the portfolio during the year. For the fiscal years ended December 31, 1993 and 1992, the Fund's portfolio turnover rates were 13.25% and 7.62%, respectively.
The Fund's ability and decisions to purchase or sell portfolio securities may be affected by laws or regulations relating to the convertibility and repatriation of assets. Because the shares of the Fund are redeemable on a daily basis in U.S. dollars, the Fund intends to manage its portfolio so as to give reasonable assurance that it will be able to obtain U.S. dollars to the extent necessary to meet anticipated redemptions. Under present conditions, management of the Fund does not believe that these considerations will have any significant effect on its portfolio strategy.
HEDGING TECHNIQUES
Reference is made to the discussion under the caption "Investment Objective and Policies -- Hedging Techniques" in the Prospectus for information with respect to various portfolio strategies involving options and futures. The Fund may seek to hedge its portfolio against movements in the equity markets, interest rates and exchange rates between currencies through the use of options and futures transactions and forward foreign exchange transactions. The Fund has authority to write (i.e., sell) covered call options on its portfolio securities, purchase put options on securities and engage in transactions in stock index options, stock index
futures and financial futures, and related options on such futures. The Fund may also deal in forward foreign exchange transactions and foreign currency options and futures and related options on such futures. The Fund is authorized to enter into such options and futures transactions either on exchanges or in the over-the-counter ("OTC") markets. Each of such portfolio strategies is described in the Prospectus. Although certain risks are involved in options and futures transactions (as discussed in the Prospectus and below), the Manager believes that, because the Fund will only engage in these transactions for hedging purposes, the options and futures portfolio strategies of the Fund will not subject the Fund to the risks frequently associated with the speculative use of option and futures transactions. While the Fund's use of hedging strategies is intended to reduce the volatility of the net asset value of its shares, the net asset value of the Fund's shares will fluctuate. There can be no assurance that the Fund's hedging transactions will be effective. The following is further information relating to portfolio strategies involving options and futures that the Fund may utilize.
Hedging Investment and Interest Rate Risks. The Fund may write (i.e., sell) covered call options on the equity securities in which it may invest and may enter into closing purchase transactions with respect to certain of such options. Covered call options serve as a partial hedge against the decline in price of the underlying security. 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. 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 Fund's position as the writer of an option by means of an offsetting purchase of an identical option prior to the expiration of the option it has written. The writer of a covered call option has no control over when he may be required to sell his securities since he may be assigned an exercise notice at any time prior to the termination of his obligation as a writer. If an option expires unexercised, the writer realizes a gain in the amount of the premium. Such a gain, of course, may be offset by a decline in the market value of the underlying security during the option period. If a call option is exercised, the writer realizes a gain or loss from the sale of the underlying security.
The Fund may also purchase put options to hedge against a decline in the market value of its equity holdings. By buying a put the Fund has a right to sell the underlying security at the exercise price, thus limiting the Fund's risk of loss through a decline in the market value of the security until the put option expires. The amount of any appreciation in the value of the underlying security will be offset partially by the amount of the premium paid for the put option and any related transaction costs. Prior to its expiration, a put option may be sold in a closing sale transaction, 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 cost. A closing sale transaction cancels out the Fund's position as the purchaser of an option by means of an offsetting sale of an identical option prior to the expiration of the option it has purchased.
The Fund also may engage in transactions in stock index options and
futures, financial futures in U.S. and foreign agency and government securities
and corporate debt securities, and related options on such futures. A futures
contract is an agreement between two parties to buy and sell a security or, in
the case of an index-based futures contract, to make and accept a cash
settlement for a set price on a future date. A majority of transactions in
futures contracts, however, do not result in the actual delivery of the
underlying instrument or cash settlement, but are settled through liquidation,
i.e., by entering into an offsetting transaction. Futures contracts have been
designed by boards of trade which have been designated "contracts markets" by
the Commodity Futures Trading Commission ("CFTC").
The purchase or sale of a futures contract differs from the purchase or sale of a security in that no price or premium is paid or received. Instead, an amount of cash or securities acceptable to the broker and the relevant
contract market, which varies, but is generally about 5% of the contract amount, must be deposited with the broker. This amount is known as "initial margin" and represents a "good faith" deposit assuring the performance of both the purchaser and seller under the futures contract. Subsequent payments to and from the broker, called "variation margin", are required to be made on a daily basis as the price of the futures contracts fluctuates making the long and short positions in the futures contracts more or less valuable, a process known as "mark to the market". At any time prior to the settlement date of the futures contract, the position may be closed out by taking an opposite position which will operate to terminate the position in the futures contract. A final determination of variation margin is then made, additional cash is required to be paid to or released by the broker and the purchaser realizes a loss or gain. In addition, a nominal commission is paid on each completed sale transaction.
The Fund has received an order from the Securities and Exchange Commission exempting it from the provisions of Section 17(f) and Section 18(f) of the Investment Company Act of 1940, as amended (the "Investment Company Act"), in connection with its strategy of investing in futures contracts. Section 17(f) relates to the custody of securities and other assets of an investment company and may be deemed to prohibit certain arrangements between the Fund and commodities brokers with respect to initial and variation margin. Section 18(f) of the Investment Company Act prohibits an open-end investment company such as the Fund from issuing a "senior security" other than a borrowing from a bank. The staff of the Securities and Exchange Commission has in the past indicated that a futures contract may be "senior security" under the Investment Company Act.
Risk Factors in Options and Futures Transactions. Utilization of options and futures transactions involves the risk of imperfect correlation in movements in the prices of options and futures contracts and movements in the price of the securities and currencies which are the subject of the hedge. If the price of the options and futures contract moves more or less than the prices of the hedged securities or currencies, the Fund will experience a gain or loss which will not be completely offset by movements in the prices of the securities or currencies which are the subject of the hedge.
Prior to exercise or expiration, an exchange-traded option position can only be terminated by entering into a closing purchase or sale transaction. This requires a secondary market on an exchange for call or put options of the same series. The Fund will enter into an option or futures transaction on an exchange only if there appears to be a liquid secondary market for such options or futures. However, there can be no assurance that a liquid secondary market will exist for any particular call or put option or futures contract at any specific time. Thus, it may not be possible to close an option or futures position. The Fund will acquire only OTC options for which management believes the Fund can receive on each business day at least two independent bids or offers (one of which will be from an entity other than a party to the option). In the case of a futures position or an option on a futures position written by the Fund, in the event of adverse price movements, the Fund would continue to be required to make daily cash payments of variation margin. In such situations, if the Fund has insufficient cash, it may have to sell portfolio securities to meet daily variation margin requirements at a time when it may be disadvantageous to do so. In addition, the Fund may be required to take or make delivery of the security or currency underlying futures contracts it holds. The inability to close options and futures positions also could have an adverse impact on the Fund's ability to effectively hedge its portfolio. There is also the risk of loss by the Fund of margin deposits in the event of bankruptcy of a broker with whom the Fund has an open position in a futures contract or related option. The risk of loss from investing in futures transactions is theoretically unlimited.
The exchanges on which the Fund intends to conduct options transactions have generally established limitations governing the maximum number of call or put options on the same underlying currency (whether or not covered) which may be written by a single investor, whether acting alone or in concert with others
(regardless of whether such options are written on the same or different exchanges or are held or written on one or more accounts or through one or more brokers). "Trading limits" are imposed on the maximum number of contracts which any person may trade on a particular trading day. An exchange may order the liquidation of positions found to be in violation of these limits, and it may impose other sanctions or restrictions. The Manager does not believe that these trading and position limits will have any adverse impact on the portfolio strategies for hedging the Fund's portfolio.
Hedging Foreign Currency Risks. Generally, the foreign exchange transactions of the Fund will be conducted on a spot, i.e., cash, basis at the spot rate then prevailing for purchasing or selling currency in the foreign exchange market. This rate under normal market conditions differs from the prevailing exchange rate in an amount generally less than 1/10 of 1% due to the costs of converting from one currency to another. However, the Fund has authority to deal in forward foreign exchange between currencies of Far Eastern and Western Pacific countries and the dollar as a hedge against possible variations in the foreign exchange rates between these currencies. This is accomplished through contractual agreements to purchase or to sell a specified currency at a specified future date and price set at the time of the contract. The Fund's 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 and distributions by the Fund. Position hedging is the sale of forward currency with respect to portfolio security positions denominated or quoted in such foreign currency. The Fund will not speculate in forward foreign exchange. All dealings in forward exchange will be limited to contracts involving currencies of Far Eastern and Western Pacific countries and the dollar. The Fund may not position hedge with respect to the currency of a particular country to an extent greater than the aggregate market value (at the time of making such sale) of the securities held in its portfolio denominated or quoted in that particular foreign currency. If the Fund enters into a position hedging transaction, its custodian will place cash or liquid equity or debt securities in a separate account of the Fund in an amount equal to the value of the Fund's total assets committed to the consummation of such forward contract. If the value of the securities placed in the separate account declines, additional cash or securities will be placed in the account so that the value of the account will equal the amount of the Fund's commitment with respect to such contracts. The Fund will not attempt to hedge all of its portfolio positions and will enter into such transactions only to the extent, if any, deemed appropriate by the Manager. The Fund will not enter into a position hedging commitment if, as a result thereof, the Fund would have more than 15% of the value of its assets committed to such contracts. The Fund will not enter into a forward contract with a term of more than one year.
As discussed in the Prospectus, the Fund may also 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.
Hedging against a decline in the value of a currency does not eliminate fluctuations in the price 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. It is possible that, under certain circumstances, the Fund may have to limit its currency transactions to qualify as a regulated investment company under the Internal Revenue Code of 1986, as amended; in this regard, the Fund presently intends to limit its gross income from currency hedging transactions to less than 10% of its gross income in any taxable year until such time as the Fund determines that income from the transaction is not subject to this restriction.
The cost to the Fund of engaging in foreign currency transactions varies with such factors as the currencies involved, the length of the contract period and the market conditions then prevailing. Since transactions in foreign currency exchange usually are conducted on a principal basis, no fees or commissions are involved.
Debt Securities. The Fund may hold convertible debt securities and, from time to time as a temporary defensive measure, may also hold non-convertible debt securities. The Fund has established no rating criteria for the debt securities in which it may invest. Therefore, the Fund may invest in debt securities either (a) rated in one of the top four rating categories by a nationally recognized rating organization or which, in the Manager's judgment, possess similar credit characteristics ("investment grade securities") or (b) rated below the top four rating categories or which, in the Manager's judgment, possess similar credit characteristics ("high yield securities"). The Manager considers ratings as one of several factors in its independent credit analysis of issuers.
Issuers of high yield securities may be highly leveraged and may not have available to them more traditional methods of financing. Therefore, the risks associated with acquiring the securities of such issuers generally are greater than is the case with higher rated securities. For example, during an economic downturn or a sustained period of rising interest rates, issuers of high yield securities may be more likely to experience financial stress, especially if such issuers are highly leveraged. During such periods, such issuers may not have sufficient revenues to meet their interest payment obligations. The issuer's ability to service its debt obligations also may be adversely affected by specific issuer developments or the issuer's inability to meet specific projected business forecasts or the unavailability of additional financing. The risk of loss due to default by the issuer is significantly greater for the holders of high yield securities because such securities may be unsecured and may be subordinated to other creditors of the issuer.
High yield securities frequently have call or redemption features which would permit issuers to repurchase such securities from the Fund. If a call were exercised by an issuer during a period of declining interest rates, the Fund likely would have to replace such called security with a lower yielding security, thus decreasing the net investment income to the Fund and dividends to shareholders.
The Fund may have difficulty disposing of certain high yield securities because there may be a thin trading market for such securities. The secondary trading market for high yield securities is generally not as liquid as the secondary market for higher rated securities. Reduced secondary market liquidity may have an adverse impact on market price and the Fund's ability to dispose of particular issues when necessary to meet the Fund's liquidity needs or in response to a specific economic event such as a deterioration in the creditworthiness of the issuer.
Adverse publicity and investor perceptions, which may not be based on fundamental analysis, also may decrease the value and liquidity of high yield securities, particularly in a thinly traded market. Factors adversely affecting the market value of high yield securities are likely to affect adversely the Fund's net asset value. In addition, the Fund may incur additional expenses to the extent it is required to seek recovery upon a default on a portfolio holding or to participate in the restructuring of an obligation.
INVESTMENT RESTRICTIONS
In addition to the investment restrictions set forth in the Prospectus, the Fund has adopted the following restrictions and policies relating to the investment of its assets and its activities, which are fundamental policies and may not be changed without the approval of the holders of a majority of the Fund's outstanding voting securities (which for this purpose and under the Investment Company Act means the lesser of (i) 67%
of the 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). The Fund may not:
1. Make investments for the purpose of exercising control or management.
2. Purchase securities of other investment companies, except in connection with a merger, consolidation, acquisition or reorganization, or by purchase in the open market of securities of closed-end investment companies where no underwriter's or dealer's commission or profit, other than customary broker's commission, is involved and only if immediately thereafter not more than (i) 3% of the total outstanding voting stock of such company is owned by the Fund, (ii) 5% of the Fund's total assets, taken at market value, would be invested in any one such company, or (iii) 10% of the Fund's total assets, taken at market value, would be invested in such securities.
3. Purchase or sell real estate; provided that the Fund may invest in securities secured by real estate or interests therein or issued by companies which invest in real estate or interests therein.
4. Purchase or sell commodities or commodity contracts, except that the Fund may deal in forward foreign exchange between currencies of the different countries in which it may invest and the Fund may purchase or sell stock index and currency options, stock index futures, interest rate futures and currency futures contracts and related options on such futures.
5. Purchase securities on margin (except for short-term credit necessary for clearance of portfolio transactions) or sell securities short or write, sell or buy puts or calls, or any combination thereof. [Except as otherwise discussed under "Investment Objective and Policies -- Hedging Techniques" in the Prospectus and herein.]
6. Make loans to other persons (except as provided in (11) below); provided that for purposes of this restriction the acquisition of bonds, debentures, or other corporation debt securities and investment in government obligations, short-term commercial paper, certificates of deposit and bankers' acceptances shall not be deemed to be the making of a loan (the acquisition of bonds, debentures or other corporate debt securities which are not publicly distributed is considered to be the making of a loan under the Investment Company Act of 1940).
7. Borrow amounts in excess of 5% of its total assets, taken at acquisition cost or market value, whichever is lower, and then only from banks as a temporary measure for extraordinary or emergency purposes. (See restriction (8) below regarding the exclusion from this restriction of arrangements with respect to options, futures contracts and options on futures contracts).
8. Mortgage, pledge, hypothecate or in any manner transfer, as security for indebtedness, any securities owned or held by the Fund except as may be necessary in connection with borrowings, mentioned in (7) above, and then such mortgaging, pledging or hypothecating may not exceed 15% of the Fund's total assets, taken at market value. [In order to comply with certain statutes, the Fund will not, as a matter of operating policy, mortgage, pledge or hypothecate its portfolio securities to the extent that at any time the percentage of the value of pledged securities plus the maximum sales charge will exceed 10% of the value of the Fund's shares at the maximum offering price.] (For the purpose of this restriction and restriction (7) above, collateral arrangements with respect to the writing of options, futures contracts, options on futures contracts, and collateral arrangements with respect to initial and variation margin are not deemed to be a pledge of assets, and neither such arrangements nor the purchase and sale of options, futures or related options are deemed to be the issuance of a senior security.)
9. Invest in securities which cannot be readily resold to the public because of legal or contractual restrictions or for which no readily available market exists or in securities of issuers having a record, together with predecessors, of less than three years of continuous operation if, regarding all such securities, more than 5% of its total assets taken at market value, would be invested in such securities.
10. Underwrite securities of other issuers except insofar as the Fund may be deemed an underwriter under the Securities Act of 1933 in selling portfolio securities.
11. Lend its portfolio securities, except that it may lend up to 20% of its total assets, taken at market value, in accordance with the guidelines set forth below.
The staff of the Securities and Exchange 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 transactions, the sum of the market value of OTC options currently outstanding which are held by the Fund, the market value of the underlying securities covered by OTC call options currently outstanding which were sold by the Fund and margin deposits on the Fund's existing OTC options on futures contracts exceeds 5% 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 an OTC option is sold by the Fund to a primary U.S. Government securities dealer recognized by the Federal Reserve Bank of New York and if the Fund has the unconditional contractual right to repurchase such OTC option from the dealer at a predetermined price, then the Fund will treat as illiquid such amount of the underlying securities as is equal to the repurchase price less the amount by which the option is "in-the-money" (i.e., current market value of the underlying securities minus the option's strike price). The repurchase price with the primary dealers is typically a formula price which is generally based on a multiple of the premium received for the option, plus the amount by which the option is "in-the-money". This policy is not a fundamental policy of the Fund and may be amended by the Board of Directors without the approval of the Fund's shareholders. The Fund will not change or modify this policy, however, prior to the change or modification by the Securities and Exchange Commission staff of its position.
Subject to investment restriction (11) above, the Fund may from time to time lend securities from its portfolio to brokers, dealers and financial institutions and receive collateral in cash (or cash equivalents consisting of securities issued or guaranteed by the governments of the U.S. or Japan or other Far Eastern or Western Pacific countries or their agencies or instrumentalities) which will be maintained in an amount equal to at least 100% of the current market value of the loaned securities. During the period of the loan, the Fund receives income on the loaned securities and a loan fee and thereby increases the current income of the Fund. Such loans will be terminable at any time. The Fund will have the right to regain record ownership of loaned securities to exercise beneficial rights such as voting rights, subscription rights and rights to dividends, interest or other distributions. The Fund may pay reasonable fees to persons unaffiliated with the Fund for services in arranging such loans.
The Board of Directors has established the policy that the Fund will not purchase or retain the securities of any issuer if those individual officers and directors of the Fund, the officers and general partner of the Manager, the directors of such general partner or the officers and directors of the Distributor each owning beneficially more than one-half of 1% of the securities of such issuer own in the aggregate more than 5% of the securities of such issuer. Portfolio securities of the Fund may not be purchased from, sold or loaned to the Manager or its affiliates or any of its directors, general partners, officers or employees, acting as principal.
Because of the affiliation of Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") with the Fund, the Fund is prohibited from engaging in certain transactions involving Merrill Lynch or its
subsidiaries except pursuant to an exemptive order under the Investment Company Act. Without such an order, the Fund would be prohibited from engaging in portfolio transactions with Merrill Lynch or its subsidiaries acting as principal and from purchasing securities in public offerings which are not registered under the Securities Act of 1933, as amended, in which Merrill Lynch or any of its affiliates participates as an underwriter or dealer.
The investment restrictions set forth in the Prospectus contain an exception that permits the Fund to purchase securities pursuant to the exercise of subscription rights, subject to the condition that such purchase will not result in the Fund ceasing to be a diversified investment company. Japanese corporations frequently issue additional capital stock by means of subscription rights offerings to existing shareholders at a price substantially below the market price of the shares. The failure to exercise such rights would result in the Fund's interest in the issuing company being diluted. Therefore, the exception applies in cases where the limits set forth in the investment restrictions in the Prospectus would otherwise be exceeded by exercising rights or have already been exceeded as a result of fluctuations in the market value of the Fund's portfolio securities with the result that the Fund would otherwise be forced either to sell securities at a time when it might not otherwise have done so, or to forego exercising the rights.
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
The Directors and principal executive officers of the Fund and their principal occupations for at least the past five years are set forth below. Unless otherwise noted, the address of each Director and officer is Box 9011, Princeton, New Jersey 08543-9011.
ARTHUR ZEIKEL -- President and Director(1)(2) -- President of the Manager and its predecessor since 1977 and Chief Investment Officer since 1976; President of Fund Asset Management, L.P. ("FAM") and its predecessor since 1977 and Chief Investment Officer since 1976; President and Director of Princeton Services, Inc. ("Princeton Services") since 1993; Executive Vice President of Merrill Lynch since 1990 and a Senior Vice President thereof from 1985 to 1990; Executive Vice President of Merrill Lynch & Co., Inc. since 1990; Director of the Distributor.
DONALD CECIL -- Director(2) -- 1114 Avenue of the Americas, New York, New York 10036. Special Limited Partner of Cumberland Partners (an investment partnership) since 1982; Member of Institute of Chartered Financial Analysts; Member and Chairman of Westchester County (N.Y.) Board of Transportation.
EDWARD H. MEYER -- Director(2) -- 777 Third Avenue, New York, New York 10017. President of Grey Advertising Inc. since 1968, Chief Executive Officer since 1970 and Chairman of the Board of Directors since 1972; Director of The May Department Stores Company, Bowne & Co., Inc. (financial printers), Ethan Allen Interiors Inc. and Harman International Industries, Inc.
CHARLES C. REILLY -- Director(2) -- 9 Hampton Harbor Road, Hampton Bays, N.Y. 11946. Self-employed financial consultant since 1990; President and Chief Investment Officer of Verus Capital, Inc. from 1979 to 1990; former Senior Vice President of Arnhold and S. Bleichroeder, Inc. from 1973 to 1990; Adjunct Professor, Columbia University Graduate School of Business since 1990; Adjunct Professor, Wharton School, University of Pennsylvania, 1990; Director, Harvard Business School Alumni Association.
RICHARD R. WEST -- Director(2) -- 482 Tepi Drive, Southbury, Connecticut 06488. Professor of Finance since 1984, and Dean from 1984 to 1993, of New York University Leonard N. Stern School of
Business Administration, Director of Bowne & Co., Inc. (financial printers), Vornado, Inc. (real estate holding company), Smith-Corona Corporation (manufacturer of typewriters and word processors) and Alexander's, Inc.
TERRY K. GLENN -- Executive Vice President(1)(2) -- Executive Vice President of the Manager and FAM and their predecessors since 1983; Executive Vice President and Director of Princeton Services since 1993; President and Director of the Distributor since 1986.
NORMAN R. HARVEY -- Executive Vice President(1)(2) -- Senior Vice President of the Manager and FAM and their predecessors since 1982; Senior Vice President of Princeton Services since 1993.
DONALD C. BURKE -- Vice President(1)(2) -- Vice President and Director of Taxation of the Manager and its predecessor since 1990; employee of Deloitte & Touche from 1982 to 1990.
STEPHEN I. SILVERMAN -- Vice President(1) -- Vice President of the Manager and its predecessor since 1983.
GERALD M. RICHARD -- Treasurer(1)(2) -- Senior Vice President and Treasurer of the Manager and FAM and their predecessors since 1984; Senior Vice President and Treasurer of Princeton Services since 1993; Vice President of the Distributor since 1981 and Treasurer since 1984.
ROBERT HARRIS -- Secretary(1)(2) -- Vice President of the Manager and its predecessor since 1984 and attorney associated with the Manager and its predecessor since 1980; Secretary of the Distributor since 1982.
(1) Interested person, as defined in the Investment Company Act, of the Fund.
(2) Such Director or officer is a director, trustee or officer of one or more other investment companies for which the Manager, or its subsidiary FAM, acts as investment adviser or manager.
At April 15, 1994, the Directors and officers of the Fund as a group (11 persons) owned an aggregate of less than 1% of the outstanding shares of the Fund. At such date, Mr. Zeikel, a Director of the Fund, and the other officers of the Fund owned less than 1% of the outstanding shares of common stock of Merrill Lynch & Co., Inc.
Pursuant to the terms of the Fund's management agreement (the "Management Agreement"), the Manager pays all compensation of officers and employees of the Fund as well as the fees of all Directors of the Fund who are affiliated persons of the Manager. The Fund pays each unaffiliated Director a fee for each meeting attended and pays all Directors' actual out-of-pocket expenses relating to attendance at meetings. The Fund also compensates members of the Audit Committee of the Directors, which consists of the unaffiliated Directors. Fees and expenses paid to the unaffiliated Directors aggregated $39,408 for the fiscal year ended December 31, 1993.
MANAGEMENT AND ADVISORY ARRANGEMENTS
Reference is made to "Management of the Fund -- Management and Advisory Arrangements" in the Prospectus for certain information concerning the management and advisory arrangements of the Fund.
Pursuant to the Management Agreement, and subject to the direction of the Board of Directors, the Manager is responsible for the actual management of the Fund's portfolio and constantly reviews the Fund's holdings in light of its own research analysis and that from other relevant sources. The responsibility for making decisions to buy, sell or hold a particular security rests with the Manager. The Manager performs certain other administrative services and provides all the office space, facilities, equipment and necessary personnel for management of the Fund.
Securities held by the Fund may also be held by other clients to which the Manager or its affiliate, FAM, provides investment advice. Transactions based upon such advice during the same period by more than one client of the Manager or FAM may increase the demand for securities being purchased or the supply of securities being sold and thereby may have an adverse effect on price.
As compensation for its services, the Manager receives a fee from the Fund at the end of each month at the annual rate of 0.60% of the average daily net assets of the Fund. For the fiscal years ended December 31, 1991, 1992 and 1993, the total management fees paid by the Fund to the Manager aggregated $2,195,739, $2,542,910 and $4,179,008, respectively.
California imposes limitations on the expenses of the Fund. These expense limitations require that the Manager reimburse the Fund in an amount necessary to prevent the ordinary operating expenses of the Fund (excluding interest, taxes, distribution fees, brokerage fees and commissions and extraordinary charges such as litigation costs) from exceeding 2.5% of the Fund's first $30 million of average daily net assets, 2.0% of the next $70 million of average daily net assets and 1.5% of the remaining average daily net assets. The Manager's obligation to reimburse the Fund is limited to the amount of the management fee. No fee payment will be made to the Manager during any fiscal year which will cause such expenses to exceed the most restrictive expense limitation applicable at the time of such payment. For the fiscal years ended December 31, 1991, 1992 and 1993, no reimbursement of expenses was required pursuant to the applicable expense limitation provisions discussed above.
Under the Management Agreement, the Manager agrees to furnish the Fund with administrative services, office space, equipment and facilities for management of the Fund's affairs and to pay all compensation of officers of the Fund as well as all Directors of the Fund who are affiliated persons of the Manager. The Fund pays all other expenses incurred in its operation including, among other things, taxes; expenses for legal and auditing services; accounting services; allocated portions of clerical salaries related to Fund activities; the expense of preparing (including typesetting), printing and mailing reports, prospectuses, statements of additional information (except to the extent paid by the Distributor) and notices to its shareholders; costs of printing stock certificates; charges of the custodian and transfer agent; expenses of redemption of shares; the cost of issuing shares of the Fund and registering shares of the Fund under Federal, state and foreign laws; shareholder meeting and related proxy solicitation expenses; costs of conducting shareholder relations; fees and actual out-of-pocket expenses of Directors who are not affiliated persons of the Manager; insurance; interest; brokerage costs; litigation and other extraordinary or non-recurring expenses; and other like expenses properly payable by the Fund. Accounting services are provided to the Fund by the Manager, and the Fund reimburses the Manager for its costs in connection with such services on a semi-annual basis. For the fiscal year ended December 31, 1993, the amount of such reimbursement was $68,896. Certain expenses in connection with the distribution of Class B shares will be financed by the Fund pursuant to a distribution plan in compliance with Rule 12b-1 under the Investment Company Act. See "Purchase of Shares -- Deferred Sales Charge Alternative -- Class B Shares -- Distribution Plan".
Merrill Lynch & Co., Inc., Merrill Lynch Investment Management, Inc. and Princeton Services are "controlling persons" of the Manager as defined under the Investment Company Act because of their ownership of its voting securities or their power to exercise a controlling influence over its management or policies.
Duration and Termination. Unless earlier terminated as described below, the Management Agreement will remain in effect from year to year if approved annually (a) by the vote of the holders of a majority of the Fund's voting securities (as defined in the Investment Company Act) or by its Board of Directors and (b) by a majority of Directors who are not parties to such agreement or interested persons of any such party. Such
agreement will terminate upon assignment 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.
PURCHASE OF SHARES
Reference is made to "Purchase of Shares" in the Prospectus for certain information as to the purchase of Fund shares.
ALTERNATIVE SALES ARRANGEMENTS
The Fund issues two classes of shares: Class A shares are sold to investors choosing the initial sales charge alternative, and Class B shares are sold to investors choosing the deferred sales charge alternative. The two classes of shares each represent interests in the same portfolio of investments of the Fund, have the same rights and are identical in all respects, except that Class B shares bear the expenses of the deferred sales arrangements, any expenses (including incremental transfer agency costs) resulting from such sales arrangements and the expenses of the account maintenance fee and have exclusive voting rights with respect to the Rule 12b-1 distribution plan pursuant to which the account maintenance and distribution fees are paid. The two classes also have different exchange privileges. See "Shareholder Services -- Exchange Privilege".
The Fund has entered into separate distribution agreements with the Distributor in connection with the continuous offering of Class A and Class B shares of the Fund (the "Distribution Agreements"). The Distribution Agreements obligate the Distributor to pay certain expenses in connection with the offering of the Class A and Class B shares of the Fund. After the prospectuses, statements of additional information and periodic reports have been prepared, set in type and mailed to shareholders, the Distributor pays for the printing and distribution of copies thereof used in connection with the offering to dealers and investors. The Distributor also pays for other supplementary sales literature and advertising costs. The Distribution Agreements are subject to the same renewal requirements and termination provisions as the Management Agreement described above.
INITIAL SALES CHARGE ALTERNATIVE -- CLASS A SHARES
For the fiscal years ended December 31, 1991, 1992 and 1993, the Fund sold its shares through the Distributor and Merrill Lynch, as a dealer. During the fiscal year ended December 31, 1991, the Fund sold 3,901,289 Class A shares for aggregate net proceeds to the Fund of $71,402,204. The gross sales charges for the sale of Class A shares of the Fund during that year were $1,051,757, of which $52,398 and $999,359 were received by the Distributor and Merrill Lynch, respectively. During the fiscal year ended December 31, 1992, the Fund sold 4,746,853 Class A shares for aggregate net proceeds to the Fund of $80,862,615. The gross sales charges for the sale of Class A shares of the Fund during that year were $1,824,089, of which $61,995 and $1,762,094 were received by the Distributor and Merrill Lynch, respectively. During the fiscal year ended December 31, 1993, the Fund sold 10,009,773 Class A shares for aggregate net proceeds to the Fund of $199,420,932. The gross sales charges for the sale of Class A shares of the Fund during that year were $3,636,042, of which $223,158 and $3,412,884 were received by the Distributor and Merrill Lynch, respectively.
The term "purchase" as used in the Prospectus and this Statement of Additional Information 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 spouse and their children under the age of 21 years purchasing shares for his 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 (including a pension, profit-sharing or other employee benefit
trust created pursuant to a plan qualified under Section 401 of the Internal
Revenue Code of 1986, as amended (the "Code")) 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 which 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. The
term "purchase" 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 term
"purchase" also includes purchases by employee benefit plans not qualified under
Section 401 of the Code, including purchases by employees or by employers on
behalf of employees, by means of a payroll deduction plan or otherwise, of
shares of the Fund. Purchases by such a company or non-qualified employee
benefit plan will qualify for the above quantity discounts only if the Fund and
the Distributor are able to realize economies of scale in sales effort and sales
related expense by means of the company, employer or plan making the Fund's
Prospectus available to individual investors or employees and forwarding
investments by such persons to the Fund and by any such employer or plan bearing
the expense of any payroll deduction plan.
REDUCED INITIAL SALES CHARGES -- CLASS A SHARES
Right of Accumulation. The Fund offers a right of accumulation under which investors are permitted to purchase Class A shares of the Fund at the offering price applicable to the total of (a) the public offering price of the Class A shares then being purchased plus (b) an amount equal to the then current net asset value or cost, whichever is higher, of the purchaser's combined holdings of the Class A shares and Class B shares of the Fund and of any other investment company with an initial sales charge or deferred sales charges for which the Distributor acts as the distributor. For any such right of accumulation to be made available, the Distributor (in the case of a purchase made through a securities dealer) must be provided at the time of purchase, by the purchaser or the purchaser's securities dealer, with sufficient information to permit confirmation of qualification for such right of accumulation. 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 Intention. Reduced sales charges are applicable to purchases aggregating $10,000 or more of Class A shares of the Fund or any other investment company with an initial sales charge or a deferred sales charge for which the Distributor acts as the distributor made within a thirteen-month period starting with the first purchase pursuant to a Letter of Intention in the form provided in the Prospectus. The Letter of Intention is available only to investors whose accounts are maintained at the Fund's transfer agent. The Letter of Intention is not available to employee benefit plans for which Merrill Lynch provides plan-participant record-keeping services. The Letter of Intention is not a binding obligation to purchase any amount of 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 Intention may be included under a subsequent Letter of Intention 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 shares of the Fund and of other investment companies with a sales charge for which the Distributor acts as the distributor presently held, at cost or maximum offering price (whichever is higher), on the date of the first purchase under the Letter of Intention, may be included as a credit toward 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 Intention (minimum of $10,000), the investor will be notified and must pay, within 20 days of the expiration of such Letter, the difference between the sales charge
on the Class A shares purchased at the reduced rate and the sales charge applicable to the shares actually purchased through the Letter. Class A shares equal to five percent of the intended amount will be held in escrow during the thirteen-month period (while remaining registered in the name of the purchaser) for this purpose. The first purchase under the Letter of Intention must be at least five percent of the dollar amount of such Letter. If a purchase during the term of such Letter would otherwise be subject to a further reduced sales charge based on the right of accumulation, the purchaser will be entitled on that purchase and subsequent purchases to the reduced percentage sales charge which would be applicable to a single purchase equal to the total dollar value of the Class A shares then being purchased under such Letter, 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 Intention will be deducted from the total purchases made under such Letter. An exchange from Merrill Lynch U.S. Treasury Money Fund, Merrill Lynch Ready Assets Trust, Merrill Lynch Retirement Reserves Money Fund or Merrill Lynch U.S.A. Government Reserves into the Fund that creates a sales charge will count toward completing a new or existing Letter of Intention from the Fund.
Merrill Lynch Blueprint(SM) Program. Class A shares of the Fund are offered to participants in the Merrill Lynch Blueprint(SM) Program ("Blueprint"). Blueprint is directed to small investors, group IRAs and participants in certain affinity groups such as credit unions, trade associations and benefit plans. Investors placing orders to purchase Class A shares of the Fund through Blueprint will acquire the Class A shares at net asset value plus a sales charge calculated in accordance with the Blueprint sales charge schedule (i.e., up to $300 at 5.5%, from $300.01 to $5,000 at 4.5% plus $3.00 and $5,000.01 or more at the standard sales charge rates disclosed in the Prospectus). In addition, Class A shares of the Fund are offered at net asset value plus a sales charge of 1/2 of 1% for corporate or group IRA programs placing orders to purchase their Class A shares through Blueprint. Services, including the exchange privilege,available to Class A shareholders through Blueprint, however, may differ from those available to other Class A share investors.
Class A shares are offered at net asset value, with a waiver of the
front-end sales charge, to Blueprint participants through the Merrill Lynch
Directed IRA Rollover Program ("IRA Rollover Program") available from Merrill
Lynch Business Financial Services, a business unit of Merrill Lynch. The IRA
Rollover Program is available to custodian rollover assets from Eligible
Retirement Plans (as defined below) whose Trustee and/or Plan Sponsor offers the
Merrill Lynch Directed IRA Rollover Program. Eligible Retirement Plans include:
(a) plans qualified under Section 401(k) of the Code with a salary reduction
feature offering a menu of investments to plan participants, provided such plan
initially has 1,000 or more employees eligible to participate in the plan
(employees eligible to participate in retirement plans of the same sponsoring
employer or its affiliates may be aggregated); or (b) tax qualified retirement
plans within the meaning of Section 401(a) of the Code or deferred compensation
plans within the meaning of Section 403(b) of the Code, provided the plan (i)
initially invested $5 million or more in existing plan assets in portfolios,
mutual funds or trusts advised by the Manager or its subsidiaries or (ii) has
accumulated $5 million or more in existing plan assets invested in mutual funds
advised by the Manager or its subsidiaries, which charge a front-end sales
charge or contingent deferred sales charge (assets of retirement plans with the
same sponsor or an affiliated sponsor may be aggregated).
Orders for purchases and redemptions of Class A shares of the Fund may be grouped for execution purposes which, in some circumstances, may involve the execution of such orders two business days following the day such orders are placed. The minimum initial purchase price is $100, with a $50 minimum for subsequent purchases through Blueprint. There are no minimum initial or subsequent purchase requirements for participants who are part of an automatic investment plan. Additional information concerning purchases through Blueprint, including any annual fees and transaction charges, is available from Merrill Lynch, Pierce,
Fenner & Smith Incorporated, The BlueprintSM Program, P.O. Box 30441, New Brunswick, New Jersey 08989-0441.
TMA(SM) Managed Trusts. Class A shares are offered to TMASM Managed Trusts to which Merrill Lynch Trust Company provides discretionary trustee services at net asset value plus a reduced sales charge of 0.50% of the offering price, which is 0.50% of the net amount invested.
Employer Sponsored Retirement and Savings Plans. Class A shares are offered at net asset value to employer sponsored retirement or savings plans, such as tax qualified retirement plans within the meaning of Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"), deferred compensation plans within the meaning of Sections 403(b) and 457 of the Code, other deferred compensation arrangements, VEBA plans, and non-qualified After Tax Savings and Investment programs, maintained on the Merrill Lynch Group Employee Services system, herein referred to as "Employer Sponsored Retirement or Savings Plans", provided the plan has $5 million or more in existing plan assets initially invested in portfolios, mutual funds or trusts advised by the Manager either directly or through an affiliate. Class A shares are being offered at net asset value to Employer Sponsored Retirement or Savings Plans, provided the plan has accumulated $5 million or more in existing plan assets invested in mutual funds advised by the Manager charging a front-end sales charge or contingent deferred sales charge. Assets of Employer Sponsored Retirement or Savings Plans sponsored by the same sponsor or an affiliated sponsor may be aggregated. The Class A share reduced load breakpoints also apply to these aggregated assets. Class A shares may be offered at net asset value to multiple plans sponsored by the same sponsor or an affiliated sponsor provided that the addition of one or more of the multiple plans results in aggregate assets of $5 million or more invested in portfolios, mutual funds or trusts advised by the Manager either directly or through an affiliate. Employer Sponsored Retirement or Savings Plans are also offered Class A shares at net asset value, provided such plan initially has 1,000 or more employees eligible to participate in the plan. Employees eligible to participate in an Employer Sponsored Retirement or Savings Plans of the same sponsoring employer or its affiliates may be aggregated. Tax qualified retirement plans within the meaning of Section 401(a) of the Code meeting any of the foregoing requirements and which are provided specialized services (e.g., plans whose participants may direct on a daily basis their plan allocations among a wide range of investments including individual corporate equities and other securities in addition to mutual fund shares) by the Merrill Lynch BlueprintSM Program, are offered Class A shares at a price equal to net asset value per share plus a reduced sales charge of 0.50%. Any Employer Sponsored Retirement or Savings Plan which does not meet the above described qualifications to purchase Class A shares at net asset value has the option of purchasing Class A shares at the sales charge schedule disclosed in the Prospectus, or if the Employer Sponsored Retirement or Savings Plan is a qualified retirement plan and meets the specified requirements, then it may purchase Class B shares with a waiver of the contingent deferred sales charge upon redemption. The minimum initial and subsequent purchase requirements are waived in connection with all the above referenced Employer Sponsored Retirement or Savings Plans.
Purchase Privilege of Certain Persons. Directors of the Fund, directors and trustees of certain other Merrill Lynch sponsored investment companies, directors of Merrill Lynch & Co., Inc., employees of Merrill Lynch & Co., Inc. and its subsidiaries 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.
Class A shares of the Fund are offered at net asset value to shareholders of Merrill Lynch Senior Floating Rate Fund, Inc. (formerly known as Merrill Lynch Prime Fund, Inc.) who wish to reinvest the net proceeds from a sale of certain of their shares of common stock of Merrill Lynch Senior Floating Rate Fund, Inc. in shares of the Fund. In order to exercise this investment option, Merrill Lynch Senior Floating Rate Fund, Inc. shareholders must sell their Merrill Lynch Senior Floating Rate Fund, Inc. shares to Merrill Lynch Senior Floating Rate Fund, Inc. in connection with a tender offer conducted by Merrill Lynch Senior Floating Rate
Fund, Inc. and reinvest the proceeds immediately in the Fund. This investment option is available only with respect to the proceeds of Merrill Lynch Senior Floating Rate Fund, Inc. shares as to which no Early Withdrawal Charge (as defined in the Merrill Lynch Senior Floating Rate Fund, Inc. prospectus) is applicable. Purchase orders from Merrill Lynch Senior Floating Rate Fund, Inc. shareholders wishing to exercise this investment option will be accepted only on the day that the related Merrill Lynch Senior Floating Rate Fund, Inc. tender offer terminates and will be effected at the net asset value of the Fund at such day.
Class A shares of the Fund are offered at net asset value to shareholders of certain closed-end funds advised by the Manager or FAM who wish to reinvest the net proceeds from a sale of their closed-end fund shares of common stock in shares of the Fund. In order to exercise this investment option, closed-end fund shareholders must (i) sell their closed-end fund shares through Merrill Lynch and reinvest the proceeds immediately in the Fund, (ii) have acquired the shares in the closed-end fund's initial public offering or through reinvestment of dividends earned on shares purchased in such offering, (iii) have maintained their closed-end fund shares continuously in a Merrill Lynch account, and (iv) purchase a minimum of $250 worth of Fund shares.
Class A shares of the Fund will be offered at net asset value, without a sales charge, to an investor who 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 purchase Class A shares of the Fund with proceeds from a redemption of shares of a mutual fund that was sponsored by the financial consultant's previous firm and imposed a sales charge either at the time of purchase or on a deferred basis. Second, such redemption must have been made within 60 days prior to the investment in the Fund, and the proceeds from the redemption must have been maintained in the interim in cash or a money market fund.
Class A shares of the Fund are also offered at net asset value, without
sales charge, to an investor who has a business relationship with a Merrill
Lynch financial consultant and who 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, if the following conditions are satisfied:
first, the investor must purchase Class A shares of the Fund with proceeds from
a redemption of shares of such other mutual fund and such fund imposed a sales
charge either at the time of purchase or on a deferred basis; second, such
purchase of Class A shares must be made within 90 days after such notice of
termination.
Acquisition of Assets of Certain Investment Companies. The public offering price of Class A shares may be reduced to the net asset value per Class A share in connection with the acquisition of the assets of or merger or consolidation with a public or private investment company. The value of the assets or company acquired in a tax-free transaction may in appropriate cases be adjusted to reduce possible adverse tax consequences to the Fund which might result from an acquisition of assets having net unrealized appreciation which is disproportionately higher at the time of acquisition than the realized or unrealized appreciation of the Fund.
Reductions in or exemptions from the imposition of a sales load are due to the nature of the investors and/or the reduced sales efforts that will be needed in obtaining such investments.
DEFERRED SALES CHARGE ALTERNATIVE -- CLASS B SHARES
Distribution Plan. Reference is made to "Purchase of Shares -- Deferred Sales Charge Alternative -- Class B Shares -- Distribution Plan" in the Prospectus for certain information with respect to the distribution plan of the Fund (the "Distribution Plan").
The payment of the account maintenance and distribution fees is subject to the provisions of Rule 12b-1 under the Investment Company Act. Among other things, the Distribution Plan provides that the Distributor shall provide and the Directors shall review quarterly reports of the disbursement of the account maintenance and distribution fees paid to the Distributor. In their consideration of the 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 to its Class B shareholders. The Distribution Plan further provides that, so long as the Distribution Plan remains in effect, the selection and nomination of Directors who are not "interested persons" of the Fund, as defined in the Investment Company Act (the "Independent Directors"), shall be committed to the discretion of the Independent Directors then in office. In approving the Distribution Plan in accordance with Rule 12b-1, the Independent Directors concluded that there is reasonable likelihood that the Distribution Plan will benefit the Fund and its Class B shareholders. The Distribution Plan can be terminated at any time, without penalty, by the vote of a majority of the Independent Directors or by the vote of the holders of a majority of the outstanding Class B voting securities of the Fund. The Distribution Plan cannot be amended to increase materially the amount to be spent by the Fund without Class B shareholder approval, and all material amendments are required to be approved by the vote of Directors, including a majority of the Independent Directors who have no direct or indirect financial interest in the Distribution Plan, cast in person at a meeting called for that purpose. Rule 12b-1 further requires that the Fund preserve copies of the Distribution Plan and any report made pursuant to such plan for a period of not less than six years from the date of the Distribution Plan or such report, the first two years in an easily accessible place.
REDEMPTION OF SHARES
Reference is made to "Redemption of Shares" in the Prospectus for certain information as to the redemption and repurchase of Fund shares.
The right to receive payment with respect to any redemption of shares may be suspended by the Fund for a period of up to seven days. Suspensions of more than seven days may not be made except (1) for any period (a) during which the New York Stock Exchange is closed other than customary weekend and holiday closings or (b) during which trading on the New York Stock Exchange is restricted; (2) for any period during which an emergency exists as a result of which (a) disposal by the Fund of securities owned by it is not reasonably practicable or (b) it is not reasonably practicable for the Fund fairly to determine the value of its net assets; or (3) for such other periods as the Securities and Exchange Commission may by order permit for the protection of security holders of the Fund. The Commission shall by rules and regulations determine the conditions under which (i) trading shall be deemed to be restricted and (ii) an emergency shall be deemed to exist within the meaning of clause (2) above.
CONTINGENT DEFERRED SALES CHARGE -- CLASS B SHARES
As discussed in the Prospectus under "Purchase of Shares -- Deferred Sales Charge Alternative -- Class B Shares", while Class B shares redeemed within four years of purchase are subject to a contingent deferred sales charge under most circumstances, the charge is waived on redemptions of Class B shares in connection with certain post-retirement withdrawals from an Individual Retirement Account ("IRA") or other retirement plan or following the death or disability of a Class B shareholder. Redemptions for which the waiver applies are: (a) any partial or complete redemption in connection with a distribution following retirement under a tax-deferred retirement plan or attaining age 59 1/2 in the case of an IRA or other retirement plan, or any redemption resulting from the tax-free return of an excess contribution to an IRA; or (b) any partial or complete redemption following the death or disability (as defined in the Code) of a Class B shareholder (including one who owns the Class B shares as joint tenant with his or her spouse), provided the
redemption is requested within one year of the death or initial determination of disability. For the fiscal years ended December 31, 1991, 1992 and 1993, the Distributor received contingent deferred sales charges of $305,147, $475,469 and $1,036,912, respectively, all of which was paid to Merrill Lynch.
Merrill Lynch Blueprint(SM) Program. Class B shares are offered to certain participants in Blueprint. Blueprint is directed to small investors, group IRAs and participants in certain affinity groups such as trade associations and credit unions. Class B shares of the Fund are offered through Blueprint only to members of certain affinity groups. The contingent deferred sales charge is waived in connection with purchase orders placed through Blueprint. Services, including the exchange privilege, available to Class B investors through Blueprint, however, may differ from those available to other investors in Class B shares. Orders for purchases and redemptions of Class B shares of the Fund will be grouped for execution purposes which, in some circumstances, may involve the execution of such orders two business days following the day such orders are placed. The minimum initial purchase price is $100, with a $50 minimum for subsequent purchases through Blueprint. There is no minimum initial or subsequent purchase requirement for investors who are part of the Blueprint automatic investment plan. Additional information concerning these Blueprint programs, including any annual fees or transaction charges, is available from Merrill Lynch, Pierce, Fenner & Smith Incorporated, The Blueprint(SM) Program, P.O. Box 30441, New Brunswick, New Jersey 08989-0441.OP
Retirement Plans. Any Retirement Plan which does not meet the qualifications to purchase Class A shares at net asset value has the option of purchasing Class A shares at the sales charge schedule disclosed in the Prospectus, or if the Retirement Plan meets the following requirements, then it may purchase Class B shares with a waiver of the contingent deferred sales charge upon redemption. The contingent deferred sales charge is waived for any Eligible 401(k) Plan redeeming Class B shares. The contingent deferred sales charge is also waived for redemptions from a 401(a) plan qualified under the Code, provided, however, that each such plan has the same or an affiliated sponsoring employer as an Eligible 401(k) Plan purchasing Class B shares of a mutual fund advised by the Manager or FAM ("Eligible 401(a) Plan"). The contingent deferred sales charge is waived for any Class B shares which are purchased by an Eligible 401(k) Plan or Eligible 401(a) Plan and 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 minimum initial and subsequent purchase requirements are waived in connection with all the above referenced Retirement Plans.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to policies established by the Board of Directors of the Fund, the Manager is primarily responsible for the execution of the Fund's portfolio transactions and the allocation of brokerage. In executing such transactions, the Manager seeks to obtain the best net results for the Fund, taking into account such factors as price (including the applicable brokerage commissions or dealer spread), size of order, difficulty of execution and operational facilities of the firm involved and the firm's risk in positioning a block of securities. While the Manager generally seeks reasonably competitive commission rates, the Fund does not necessarily pay the lowest commissions or spread available. The Fund has no obligation to deal with any broker or group of brokers in the execution of transactions in portfolio securities. The Fund contemplates that, consistent with the above policy of obtaining the best net results, a portion of its brokerage transactions with respect to equities may be conducted through Merrill Lynch and its affiliates. Subject to obtaining the best price and execution, brokers who provide supplemental investment research to the Manager may receive orders for transactions by the Fund. Information so received will be in addition to and not in lieu of the services required to be performed by the Manager under its agreement, and the expenses of the Manager will not necessarily be reduced as a result of the receipt of such supplemental information. It is possible that certain of the supplementary investment research so received will primarily benefit one or more other investment companies or other
accounts for which investment discretion is exercised. Conversely, the Fund may be the primary beneficiary of the research or services received as a result of portfolio transactions effected for such other accounts or investment companies. In addition, consistent with the Rules of Fair Practice of the National Association of Securities Dealers, Inc. and policies established by the Directors of the Fund, the Manager may consider sales of shares of the Fund as a factor in the selection of brokers or dealers to execute portfolio transactions for the Fund.
The Fund anticipates that its brokerage transactions involving securities of corporations domiciled in Far Eastern or Western Pacific countries will be conducted primarily on the principal stock exchanges of such countries. Brokerage commissions and other transaction costs on foreign securities exchanges are generally higher than commissions on U.S. transactions, although the Fund will endeavor to achieve the best net results in effecting its portfolio transactions. There is generally less government supervision and regulations of foreign stock exchanges and brokers than in the United States.
Foreign equity securities may be held by the Fund in the form of American Depositary Receipts (ADRs), European Depositary Receipts (EDRs), Global Depositary Receipts (GDRs) or securities convertible into foreign equity securities. ADRs, EDRs and GDRs may be listed on stock exchanges or traded in the over-the-counter markets. ADRs and GDRs traded in the U.S., like other securities traded in the U.S., will be subject to negotiated commission rates.
The Fund may invest in securities traded in the OTC markets and intends to deal directly with the dealers who make markets in the securities involved, except in those circumstances where 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 Securities and Exchange Commission. Since transactions in the OTC market usually involve transactions with dealers acting as principal for their own account, the Fund will not deal with affiliated persons, including Merrill Lynch and its affiliates, in connection with such transactions. However, affiliated persons of the Fund may serve as its broker in listed or over-the-counter transactions conducted on an agency basis provided that, among other things, the fee or commission received by such affiliated broker is reasonable and fair compared to the fee or commission received by non-affiliated brokers in connection with comparable transactions. See "Investment Objective and Policies -- Investment Restrictions".
The Board of Directors has considered the possibilities 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 management fee paid by the Fund. 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.
Section 11(a) of the Securities Exchange Act of 1934, as amended, generally prohibits members of the U.S. national securities exchanges from executing exchange transactions for their affiliates and institutional accounts which 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 disclosing the aggregate compensation received by the member in effecting such transactions, and (iii) complies with any rules the Securities and Exchange 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.
For the fiscal year ended December 31, 1991, the Fund paid brokerage commissions of $378,296. Merrill Lynch received $8,617, or 2.28% of such amount for effecting transactions involving 2.25% of the aggregate dollar amount of transactions in which the Fund paid brokerage commissions. For the fiscal year ended December 31, 1992, the Fund paid brokerage commissions of $463,296. Merrill Lynch received $3,912, or .84% of such amount for effecting transactions involving 1.17% of the aggregate dollar amount of transactions in which the Fund paid brokerage commissions. For the fiscal year ended December 31, 1993, the Fund paid brokerage commissions of $1,891,212. Merrill Lynch received $27,267, or 1.4% of such amount for effecting transactions involving 1.6% of the aggregate dollar amount of transactions in which the Fund paid brokerage commissions.
DETERMINATION OF NET ASSET VALUE
Net asset value per share is determined once daily as of 4:15 p.m., New York time, on each day during which the New York Stock Exchange is open for trading. The New York Stock Exchange is not open on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. 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.
Net asset value is computed by dividing the value of the securities held by the Fund plus any cash or other assets (including interest and dividends accrued but not yet received) minus all liabilities (including accrued expenses) by the total number of shares outstanding at such time. Expenses, including the fees payable to the Manager and the account maintenance and distribution fees payable to the Distributor, are accrued daily. The per share net asset value of the Class B shares generally will be lower than the per share net asset value of the Class A shares reflecting the daily expense accruals of the account maintenance, distribution and higher transfer agency fees applicable with respect to the Class B shares. It is expected, however, that the per share net asset value of the two classes will tend to converge immediately after the payment of dividends or distributions, which will differ by approximately the amount of the expense accrual differential between the classes.
Portfolio securities, including ADRs, EDRs or GDRs which are traded on stock exchanges, are usually 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. However, in certain circumstances, the Fund will value a security traded on a Japanese stock exchange based upon the last bid or ask price as reported on such exchange after trading in such security has been halted for the day. Japanese stock exchanges may impose limits, based on a percentage of a security's value, on the amount such security may move in a single day. If the security reaches its limit during the day, further trading is halted. However, a bid or ask quotation may be reported following the suspension of trading. Management of the Fund believes such bid or ask quotation is more indicative of where trading in the security will open on the following business day and is more representative of the security's value at the close of trading on the exchange than is the last sale. In situations where both a bid and ask price are reported following a trading suspension due to the circumstances described above, the Fund will utilize the bid price for valuation purposes. 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 as a primary market. Securities traded in the over-the-counter market are valued at the last available bid price in the over-the-counter market prior to
the time of valuation. When the Fund writes a call option, the amount of the premium received is recorded on the books of the Fund as an asset and an equivalent liability. The amount of the liability is subsequently valued to reflect the current market value of the option written, based upon the last asked price in the case of exchange-traded options or, in the case of options traded in the over-the-counter market, the average of the last asked price as obtained from one or more dealers. Options purchased by the Fund are valued at their last bid price in the case of exchange-traded options or, in the case of options traded in the over-the-counter market, the average of the last bid price as obtained from two or more dealers unless there is only one dealer, in which case that dealer's price is used. Securities and assets for which market quotations are not readily available (including restricted securities which are subject to limitations as to their sale) are valued at fair value as determined in good faith by or under the direction of the Board of Directors of the Fund.
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services described below which are designed to facilitate investment in its shares. Certain of such services are not available to investors who place orders for the Fund's shares through the Merrill Lynch Blueprint(SM) Program. Full details as to each of such services, copies of the various plans described below and instructions as to how to participate in the various services or plans, or how to change options with respect thereto, can be obtained from the Fund by calling the telephone number on the cover page hereof or from the Distributor or Merrill Lynch.
INVESTMENT ACCOUNT
Each shareholder whose account is maintained at the transfer agent has an Investment Account and will receive quarterly statements from the transfer agent. These quarterly statements will serve as transaction confirmations for automatic investment purchases and the reinvestment of ordinary income dividends and long-term capital gain distributions. The quarterly statements will also show any other activity in the account since the preceding statement. Shareholders will receive separate transaction confirmations for each purchase or sale transaction other than automatic investment purchases and the reinvestment of ordinary income dividends and long-term capital gain distributions.
Share certificates are issued only for full shares and only upon the specific request of the shareholder. 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 considering transferring their Class A shares from Merrill Lynch to another brokerage firm or financial institution should be aware that, if the firm to which the Class A shares are to be transferred will not take delivery of shares of the Fund, a shareholder either must redeem the 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 A shares. Shareholders interested in transferring their Class B shares from Merrill Lynch 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. If the new brokerage firm is willing to accommodate the shareholder in this manner, the shareholder must request that he be issued certificates for his shares and then must turn the certificates over to the new firm for re-registration as described in the preceding sentence.
AUTOMATIC INVESTMENT PLAN
A U.S. shareholder may make additions to an Investment Account at any time by purchasing shares at the applicable public offering price either through the shareholder's securities dealer or by mail directly to the transfer agent, acting as agent for his securities dealer. Voluntary accumulation also can be made through a service known as the Automatic Investment Plan whereby the Fund is authorized through pre-authorized checks or automated clearing house debits of $50 or more to charge the regular bank account of the shareholder on a regular basis to provide systematic additions to the Investment Account of such shareholder. An investor whose shares of the Fund are held within a CMA(R) account may arrange to have periodic investments made in the Fund in amounts of $250 or more through the CMA Automatic Investment Program. The Automatic Investment Program is not available to shareholders whose shares are held in a brokerage account with Merrill Lynch other than a CMA(R) account.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Unless specific instructions to the contrary are given as to the method of payment of dividends and capital gains distributions, dividends and distributions are automatically reinvested in full and fractional shares of the Fund, without sales charge, at the net asset value per share next determined after the close of the New York Stock Exchange on the ex-dividend date of such dividend or distribution. A shareholder may at any time, by written notification to the Fund's transfer agent, elect to have subsequent dividends, or both dividends and capital gains distributions, paid in cash rather than reinvested. To be effective as to a particular distribution, such notification must be received by the transfer agent sufficiently in advance of the record date (approximately ten days) to permit the change to be entered in the shareholder records. Shareholders may, at any time, notify the transfer agent in writing or by telephone (1-800-MER-FUND) that they no longer wish to have their dividends and/or distributions reinvested in shares of the Fund or vice versa, and commencing ten days after receipt by the transfer agent of such notice, those instructions will be effected.
SYSTEMATIC WITHDRAWAL PLANS -- CLASS A SHARES
A Class A shareholder may elect to make systematic withdrawals from an Investment Account on either a monthly or quarterly basis as provided below. Quarterly withdrawals are available for shareholders who have acquired Class A shares of the Fund having a value, based upon cost or the current offering price, of $5,000 or more, and monthly withdrawals for shareholders with Class A shares with such a value of $10,000 or more.
At the time of each withdrawal payment, sufficient Class A shares are redeemed from those on deposit in the shareholder's Investment Account to provide the withdrawal payment specified by the shareholder. The shareholder may specify either a dollar amount or a percentage of the value of his Class A shares. Redemptions will be made at the net asset value next determined after the close of the New York Stock Exchange on the 22nd day of each month or the 22nd day of the last month of each quarter, whichever is applicable. If the New York Stock Exchange is not open for business on such date, the shares will be redeemed at the net asset value next determined after the close of the New York Stock Exchange on the preceding business day. The check for the withdrawal payment will be mailed, or the direct deposit of the withdrawal payment will be made, on the next business day following redemption. When a Class A shareholder is making systematic withdrawals, dividends and distributions on all shares in the Investment Account are automatically reinvested in Fund Class A shares. A Class A shareholder's Systematic Withdrawal Plan may be terminated at any time, without charge or penalty, by the shareholder, the Fund, the transfer agent or the Distributor.
Withdrawal payments should not be considered as dividends, yield, or income. If periodic withdrawals continuously exceed reinvested dividends and capital gains distributions, the shareholder's original investment may be correspondingly reduced. Purchases of additional Class A shares concurrent with withdrawals are ordinarily disadvantageous to the shareholder because of sales charges and tax liabilities. The Fund will accept additions of Class A shares to an Investment Account in which an election has been made to receive systematic withdrawals only if such addition is equal to at least one year's scheduled withdrawals or $1,200, whichever is greater. Periodic investments may not be made into an Investment Account in which the Class A shareholder has elected to make systematic withdrawals.
A Class A shareholder whose shares are held with a CMA(R), CBA(R) or Retirement Account may elect to have shares redeemed on a monthly, bimonthly, quarterly, semiannual or annual basis through the Systematic Redemption Program. The minimum fixed dollar amount redeemable is $25. The proceeds of systematic redemptions will be posted to the shareholder's account five business days after the date the shares are redeemed. Monthly systematic redemptions will be made at net asset value on the first Monday of each month; bimonthly systematic redemptions will be made at net asset value on the first Monday of every other month; and quarterly, semiannual or annual redemptions are made at net asset value on the first Monday of months selected at the shareholder's option. If the first Monday of the month is a holiday, the redemption will be processed at net asset value on the next business day. The Systematic Redemption Program is not available if Fund shares are being purchased within the account pursuant to the Automatic Investment Program. For more information on the Systematic Redemption Program, eligible shareholders should contact their financial consultant.
EXCHANGE PRIVILEGE
U.S. Class A or Class B shareholders of the Fund may exchange their Class A or Class B shares of the Fund for shares of the same class of Merrill Lynch Adjustable Rate Securities Fund, Inc., Merrill Lynch Americas Income Fund, Inc., Merrill Lynch Arizona Limited Maturity Municipal Bond Fund, Merrill Lynch Arizona Municipal Bond Fund, Merrill Lynch Balanced Fund for Investment and Retirement, Merrill Lynch Basic Value Fund, Inc., Merrill Lynch California Insured Municipal Bond Fund, Merrill Lynch California Limited Maturity Municipal Bond Fund, Merrill Lynch California Municipal Bond Fund, Merrill Lynch Capital Fund, Inc., Merrill Lynch Colorado Municipal Bond Fund, Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch Developing Capital Markets Fund, Inc. (shares of which are deemed Class A shares for purposes of the exchange privilege), Merrill Lynch Dragon Fund, Inc., Merrill Lynch EuroFund, Merrill Lynch Federal Securities Trust, Merrill Lynch Florida Limited Maturity Municipal Bond Fund, Merrill Lynch Florida Municipal Bond Fund, Merrill Lynch Fund For Tomorrow, Inc., Merrill Lynch Fundamental Growth Fund, Inc., Merrill Lynch Global Allocation Fund, Inc., Merrill Lynch Global Bond Fund for Investment and Retirement, Merrill Lynch Global Convertible Fund, Inc., Merrill Lynch Global Holdings (residents of Arizona must meet investor suitability standards), Merrill Lynch Global Resources Trust, Merrill Lynch Global Utility Fund, Inc., Merrill Lynch Growth Fund for Investment and Retirement, Merrill Lynch Healthcare Fund, Inc. (residents of Wisconsin must meet investor suitability standards), Merrill Lynch International Equity Fund, Merrill Lynch Latin America Fund, Inc., Merrill Lynch Maryland Municipal Bond Fund, Merrill Lynch Massachusetts Limited Maturity Municipal Bond Fund, Merrill Lynch Massachusetts Municipal Bond Fund, Merrill Lynch Michigan Limited Maturity Municipal Bond Fund, Merrill Lynch Michigan Municipal Bond Fund, Merrill Lynch Minnesota Municipal Bond Fund, Merrill Lynch Municipal Bond Fund, Inc., Merrill Lynch Municipal Intermediate Term Fund, Merrill Lynch New Jersey Limited Maturity Municipal Bond Fund, Merrill Lynch New Jersey Municipal Bond Fund, Merrill Lynch New York Limited Maturity Municipal Bond Fund, Merrill Lynch New York Municipal Bond Fund, Merrill Lynch North Carolina Municipal Bond Fund, Merrill Lynch Ohio Municipal Bond Fund,
Merrill Lynch Oregon Municipal Bond Fund, Merrill Lynch Pennsylvania Limited Maturity Municipal Bond Fund, Merrill Lynch Pennsylvania Municipal Bond Fund, Merrill Lynch Phoenix Fund, Inc., Merrill Lynch Short-Term Global Income Fund, Inc., Merrill Lynch Special Value Fund, Inc., Merrill Lynch Strategic Dividend Fund, Merrill Lynch Technology Fund, Inc., Merrill Lynch Texas Municipal Bond Fund, Merrill Lynch Utility Income Fund, Inc. and Merrill Lynch World Income Fund, Inc. on the basis described below. In addition, Class A shareholders of the Fund may exchange their Class A shares for shares of Merrill Lynch U.S.A. Government Reserves, Merrill Lynch U.S. Treasury Money Fund and Merrill Lynch Ready Assets Trust (or Merrill Lynch Retirement Reserves Money Fund if the exchange occurs within certain retirement plans) (together, the "Class A money market funds"), and Class B shareholders of the Fund may exchange their Class B shares for shares of Merrill Lynch Government Fund, Merrill Lynch Institutional Fund, Merrill Lynch Institutional Tax-Exempt Fund and Merrill Lynch Treasury Fund (together, the "Class B money market funds") on the basis described below. Shares with a net asset value of at least $250 are required to qualify for the exchange privilege, and any shares utilized in an exchange must have been held by the shareholder for at least 15 days. Certain funds into which exchanges may be made may impose a redemption fee (not in excess of 2.00% of the amount redeemed) on shares purchased through the exchange privilege when such shares are subsequently redeemed, including redemption through subsequent exchanges. Such redemption fee would be in addition to any contingent deferred sales charge otherwise applicable to a redemption of Class B shares. It is contemplated that the exchange privilege may be applicable to other new mutual funds whose shares may be distributed by the Distributor. The exchange privilege available to participants in the Merrill Lynch BlueprintSM Program may be different from that available to other investors.
Under the exchange privilege, each of the funds with Class A shares outstanding offers to exchange its Class A shares ("new Class A shares") for Class A shares ("outstanding Class A shares") of any of the other funds, on the basis of relative net asset value per Class A share, plus an amount equal to the difference, if any, between the sales charge previously paid on the outstanding Class A shares and the sales charge payable at the time of the exchange on the new Class A shares. With respect to outstanding 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 A shares in the initial purchase and any subsequent exchange. Class A shares issued pursuant to dividend reinvestment are sold on a no-load basis in each of the funds offering Class A shares. For purposes of the exchange privilege, 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 A shares on which the dividend was paid. Based on this formula, Class A shares of the Fund generally may be exchanged into the Class A shares of the other funds or into shares of the Class A money market funds with a reduced or without a sales charge.
In addition, each of the funds with Class B shares outstanding offers to exchange its Class B shares ("new Class B shares") for Class B shares ("outstanding Class B shares") of any of the other funds on the basis of relative net asset value per Class B share, without the payment of any contingent deferred sales charge 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 contingent deferred sales charge schedule if such schedule is higher than the deferred sales charge schedule relating to the new Class B shares acquired through use of the exchange privilege. In addition, Class B shares of the Fund acquired through use of the exchange privilege will be subject to the Fund's contingent deferred sales charge schedule if such schedule is higher than the deferred sales charge schedule relating to the Class B shares of the fund from which the exchange has been made. For purposes of computing the sales charge that may be payable on a disposition of the new Class B shares, the holding period for the outstanding Class B shares is "tacked" to the holding period of the new Class B shares. For example, an investor may exchange Class B shares of the Fund for those of Merrill Lynch Global Resources Trust (formerly Merrill Lynch Natural Resources Trust) after having held
the Fund's Class B shares for two and a half years. The 2% sales charge 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 Merrill Lynch Global Resources Trust and receive cash. There will be no contingent deferred sales charge due on this redemption, since by "tacking" the two and a half year holding period of the Fund's Class B shares to the three year holding period for the Merrill Lynch Global Resources Trust Class B shares, the investor will be deemed to have held the new Class B shares for more than five years.
Shareholders also may exchange Class A shares and Class B shares from any of the funds into shares of the Class A money market funds and Class B money market funds, respectively, but the period of time that Class B shares are held in a Class B money market fund will not count towards satisfaction of the holding period requirement for purposes of reducing the contingent deferred sales charge. However, shares of a Class B money market fund which were acquired as a result of an exchange for Class B shares of a fund may, in turn, be exchanged back into Class B shares of any fund offering such shares, in which event the holding period for Class B shares of the fund will be aggregated with previous holding periods for purposes of reducing the contingent deferred sales charge. Thus, for example, an investor may exchange Class B shares of the Fund for shares of Merrill Lynch Institutional Fund after having held the Fund Class B shares for two and a half years and three years later decide to redeem the shares of Merrill Lynch Institutional Fund for cash. At the time of this redemption, the 2% contingent deferred sales charge that would have been due had the Class B shares of the Fund been redeemed for cash rather than exchanged for shares of Merrill Lynch Institutional Fund will be payable. If instead of such redemption the shareholder exchanged such shares for Class B shares of a fund which the shareholder continues to hold for an additional two and a half years, any subsequent redemption will not incur a contingent deferred sales charge.
Below is a description of the investment objectives of the other funds into which exchanges can be made:
MERRILL LYNCH ADJUSTABLE RATE
SECURITIES FUND, INC. ......... High current income consistent with a policy of limiting
the degree of fluctuation in net asset value by investing
primarily in a portfolio of adjustable rate securities,
consisting principally of mortgage-backed and
asset-backed securities.
MERRILL LYNCH AMERICAS INCOME
FUND, INC........................ A high level of current income, consistent with prudent
investment risk, by investing primarily in debt securities
denominated in a currency of a country located in the
Western Hemisphere (i.e., North and South America and
the surrounding waters).
MERRILL LYNCH ARIZONA LIMITED
MATURITY MUNICIPAL BOND FUND... A portfolio of Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust, a series fund, whose objective is
to provide as high a level of income exempt from Federal
and Arizona income taxes as is consistent with prudent
investment management through investment in a portfolio
primarily of intermediate-term investment grade Arizona
Municipal Bonds.
|
MERRILL LYNCH ARIZONA MUNICIPAL
BOND FUND...................... A portfolio of Merrill Lynch Multi-State Municipal Series
Trust, a series fund, whose objective is to provide
investors with as high a level of income exempt from
Federal and Arizona income taxes as is consistent with
prudent investment management.
MERRILL LYNCH BALANCED FUND FOR
INVESTMENT AND RETIREMENT........ As high a level of total investment return as is
consistent with reasonable risk by investing in common
stocks and other types of securities, including fixed
income securities and convertible securities.
MERRILL LYNCH BASIC VALUE FUND,
INC............................ Capital appreciation and, secondarily, income through
investment in securities, primarily equities, that are
undervalued and therefore represent basic investment
value.
MERRILL LYNCH CALIFORNIA INSURED
MUNICIPAL BOND FUND............ A portfolio of Merrill Lynch California Municipal Series
Trust, a series fund, whose objective is to provide
shareholders with as high a level of income exempt from
Federal and California income taxes as is consistent
with prudent investment management through investment in
a portfolio consisting primarily of insured California
Municipal Bonds.
MERRILL LYNCH CALIFORNIA LIMITED
MATURITY MUNICIPAL BOND FUND... A portfolio of Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust, a series fund, whose objective is
to provide shareholders with as high a level of income
exempt from Federal and California income taxes as is
consistent with prudent investment management through
investment in a portfolio primarily of intermediate-term
investment grade California Municipal Bonds.
MERRILL LYNCH CALIFORNIA
MUNICIPAL BOND FUND.............. A portfolio of Merrill Lynch California Municipal Series
Trust, a series fund, whose objective is to provide
investors with as high a level of income exempt from
Federal and California income taxes as is consistent
with prudent investment management.
MERRILL LYNCH CAPITAL
FUND, INC........................ The highest total investment return consistent with
prudent risk through a fully managed investment policy
utilizing equity, debt and convertible securities.
|
MERRILL LYNCH COLORADO MUNICIPAL
BOND FUND...................... A portfolio of Merrill Lynch Multi-State Municipal Series
Trust, a series fund, whose objective is as high a level
of income exempt from Federal and Colorado income taxes
as is consistent with prudent investment management.
MERRILL LYNCH CORPORATE BOND
FUND, INC........................ Current income from three separate diversified portfolios
of fixed income securities.
MERRILL LYNCH DEVELOPING CAPITAL
MARKETS FUND, INC.............. Long-term appreciation through investments in securities,
principally equities, of issuers in countries having
smaller capital markets.
MERRILL LYNCH DRAGON
FUND, INC........................ Capital appreciation primarily through investment in
equity and debt securities of issuers domiciled in
developing countries located in Asia and the Pacific
Basin, other than Japan, Australia and New Zealand.
MERRILL LYNCH EUROFUND........... Capital appreciation primarily through investment in
equity securities of corporations domiciled in Europe.
MERRILL LYNCH FEDERAL SECURITIES
TRUST.......................... High current return through investments in U.S. Government
and Government agency securities, including GNMA
mortgage-backed certificates and other mortgage-backed
Government securities.
MERRILL LYNCH FLORIDA LIMITED
MATURITY MUNICIPAL BOND FUND... A portfolio of Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust, a series fund, whose objective is
as high a level of income exempt from Federal income
taxes as is consistent with prudent investment
management while serving to offer shareholders the
opportunity to own securities exempt from Florida
intangible personal property taxes through investment in
a portfolio primarily of intermediate-term investment
grade Florida Municipal Bonds.
MERRILL LYNCH FLORIDA MUNICIPAL
BOND FUND...................... A portfolio of Merrill Lynch Multi-State Municipal Series
Trust, a series fund, whose objective is as high a level
of income exempt from Federal income taxes as is
consistent with prudent investment management while
seeking to offer shareholders the opportunity to own
securities exempt from Florida intangible personal
property taxes.
MERRILL LYNCH FUND FOR TOMORROW,
INC............................ Long-term growth through investment in a portfolio of good
quality securities, primarily common stock, potentially
positioned to benefit from demographic and cultural
changes as they affect consumer markets.
|
MERRILL LYNCH FUNDAMENTAL GROWTH
FUND, INC...................... Long-term growth through investment in a diversified
portfolio of equity securities placing particular emphasis
on companies that have exhibited above-average growth
rates in earnings.
MERRILL LYNCH GLOBAL ALLOCATION
FUND, INC........................ High total return consistent with prudent risk, through a
fully managed investment policy utilizing U.S. and foreign
equity, debt and money market securities, the
combination of which will be varied from time to time
both with respect to the types of securities and markets
in response to changing market and economic trends.
MERRILL LYNCH GLOBAL BOND FUND
FOR INVESTMENT AND
RETIREMENT....................... High total investment return from investment in a global
portfolio of debt instruments denominated in various
currencies and multinational currency units.
MERRILL LYNCH GLOBAL CONVERTIBLE
FUND, INC...................... High total return from investment primarily in an
internationally diversified portfolio of convertible debt
securities, convertible preferred stock and "synthetic"
convertible securities consisting of a combination of
debt securities or preferred stock and warrants or
options.
MERRILL LYNCH GLOBAL HOLDINGS
(residents of
Arizona must meet investor
suitability standards)........... The highest total investment return consistent with
prudent risk through worldwide investment in an
internationally diversified portfolio of securities.
MERRILL LYNCH GLOBAL
RESOURCES TRUST.................. Long-term growth and protection of capital from investment
in securities of domestic and foreign companies that
possess substantial natural resource assets.
MERRILL LYNCH GLOBAL UTILITY
FUND, INC........................ Capital appreciation and current income through investment
of at least 65% of its total assets in equity and debt
securities issued by domestic and foreign companies
which are primarily engaged in the ownership or
operation of facilities used to generate, transmit or
distribute electricity, telecommunications, gas or
water.
|
MERRILL LYNCH GOVERNMENT FUND.... A portfolio of Merrill Lynch Funds For Institutions
Series, a series fund, whose objective is to provide
current income consistent with liquidity and security of
principal from investment in securities issued or
guaranteed by the U.S. Government, its agencies and
instrumentalities and in repurchase agreements secured
by such obligations.
MERRILL LYNCH GROWTH FUND FOR
INVESTMENT AND RETIREMENT...... Growth of capital and, secondarily, income from investment
in a diversified portfolio of equity securities placing
principal emphasis on those securities which management
of the fund believes to be undervalued.
MERRILL LYNCH HEALTHCARE FUND,
INC. (residents of Wisconsin
must meet investor suitability
standards)....................... Capital appreciation through worldwide investment in
equity securities of companies that derive or are expected
to derive a substantial portion of their sales from
products and services in healthcare.
MERRILL LYNCH INSTITUTIONAL
FUND............................. A portfolio of Merrill Lynch Funds for Institutions
Series, a series fund, whose objective is to provide
maximum current income consistent with liquidity and the
maintenance of a high quality portfolio of money market
securities.
MERRILL LYNCH INSTITUTIONAL
TAX-EXEMPT FUND.................. A portfolio of Merrill Lynch Funds for Institutions
Series, a series fund, whose objective is to provide
current income exempt from Federal income taxes,
preservation of capital and liquidity available from
investing in a diversified portfolio of short-term, high
quality municipal bonds.
MERRILL LYNCH INTERNATIONAL
EQUITY FUND...................... Capital appreciation and, secondarily, income by investing
in a diversified portfolio of equity securities of issuers
located in countries other than the United States.
MERRILL LYNCH LATIN AMERICA
FUND, INC........................ Capital appreciation by investing primarily in Latin
American equity and debt securities.
MERRILL LYNCH MARYLAND
MUNICIPAL BOND FUND.............. A portfolio of Merrill Lynch Multi-State Municipal Series
Trust, a series fund, whose objective is as high a level
of income exempt from Federal and Maryland income taxes
as is consistent with prudent investment management.
|
MERRILL LYNCH MASSACHUSETTS
LIMITED MATURITY MUNICIPAL
BOND FUND........................ A portfolio of Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust, a series fund, whose objective is
as high a level of income exempt from Federal and
Massachusetts income taxes as is consistent with prudent
investment management through investment in a portfolio
primarily of intermediate-term investment grade
Massachusetts Municipal Bonds.
MERRILL LYNCH MASSACHUSETTS
MUNICIPAL BOND FUND.............. A portfolio of Merrill Lynch Multi-State Municipal Series
Trust, a series fund, whose objective is as high a level
of income exempt from Federal and Massachusetts income
taxes as is consistent with prudent investment
management.
MERRILL LYNCH MICHIGAN
LIMITED MATURITY MUNICIPAL
BOND FUND........................ A portfolio of Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust, a series fund, whose objective is
as high a level of income exempt from Federal and
Michigan income taxes as is consistent with prudent
investment management through investment in a portfolio
primarily of intermediate-term grade Michigan Municipal
Bonds.
MERRILL LYNCH MICHIGAN MUNICIPAL
BOND FUND...................... A portfolio of Merrill Lynch Multi-State Municipal Series
Trust, a series fund, whose objective is as high a level
of income exempt from Federal and Michigan income taxes
as is consistent with prudent investment management.
MERRILL LYNCH MINNESOTA MUNICIPAL
BOND FUND...................... A portfolio of Merrill Lynch Multi-State Municipal Series
Trust, a series fund, whose objective is as high a level
of income exempt from Federal and Minnesota income taxes
as is consistent with prudent investment management.
MERRILL LYNCH MUNICIPAL BOND
FUND, INC...................... Tax-exempt income from three separate diversified
portfolios of municipal bonds.
MERRILL LYNCH MUNICIPAL
INTERMEDIATE TERM FUND........... Currently the only portfolio of Merrill Lynch Municipal
Series Trust, a series fund, whose objective is to provide
as high a level as possible of income exempt from
Federal income taxes by investing in investment grade
obligations with a dollar weighted average maturity of
five to twelve years.
|
MERRILL LYNCH NEW JERSEY
LIMITED MATURITY MUNICIPAL
BOND FUND........................ A portfolio of Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust, a series fund, whose objective is
as high a level of income exempt from Federal and New
Jersey income taxes as is consistent with prudent
investment management through a portfolio primarily of
intermediate-term investment grade New Jersey Municipal
Bonds.
MERRILL LYNCH NEW JERSEY
MUNICIPAL BOND FUND.............. A portfolio of Merrill Lynch Multi-State Municipal Series
Trust, a series fund, whose objective is as high a level
of income exempt from Federal and New Jersey income
taxes as is consistent with prudent investment
management.
MERRILL LYNCH NEW YORK
LIMITED MATURITY MUNICIPAL
BOND FUND........................ A portfolio of Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust, a series fund, whose objective is
as high a level of income exempt from Federal, New York
State and New York City income taxes as is consistent
with prudent investment management through investment in
a portfolio primarily of intermediate-term investment
grade New York Municipal Bonds.
MERRILL LYNCH NEW YORK MUNICIPAL
BOND FUND...................... A portfolio of Merrill Lynch Multi-State Municipal Series
Trust, a series fund, whose objective is as high a level
of income exempt from Federal, New York State and New
York City income taxes as is consistent with prudent
investment management.
MERRILL LYNCH NORTH CAROLINA
MUNICIPAL BOND FUND.............. A portfolio of Merrill Lynch Multi-State Municipal Series
Trust, a series fund, whose objective is as high a level
of income exempt from Federal and North Carolina income
taxes as is consistent with prudent investment
management.
MERRILL LYNCH OHIO MUNICIPAL BOND
FUND........................... A portfolio of Merrill Lynch Multi-State Municipal Series
Trust, a series fund, whose objective is as high a level
of income exempt from Federal and Ohio income taxes as
is consistent with prudent investment management.
MERRILL LYNCH OREGON MUNICIPAL
BOND FUND...................... A portfolio of Merrill Lynch Multi-State Municipal Series
Trust, a series fund, whose objective is as high a level
of income exempt from Federal and Oregon income taxes as
is consistent with prudent investment management.
|
MERRILL LYNCH PENNSYLVANIA
LIMITED MATURITY MUNICIPAL
BOND FUND........................ A portfolio of Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust, a series fund, whose objective is
to provide as high a level of income exempt from Federal
and Pennsylvania income taxes as is consistent with
prudent investment management through investment in a
portfolio of intermediate-term investment grade
Pennsylvania Municipal Bonds.
MERRILL LYNCH PENNSYLVANIA
MUNICIPAL BOND FUND.............. A portfolio of Merrill Lynch Multi-State Municipal Series
Trust, a series fund, whose objective is as high a level
of income exempt from Federal and Pennsylvania income
taxes as is consistent with prudent investment
management.
MERRILL LYNCH PHOENIX FUND,
INC............................ Long-term growth of capital by investing in equity and
fixed income securities, including tax-exempt securities,
of issuers in weak financial condition or experiencing
poor operating results believed to be undervalued
relative to the current or prospective condition of such
issuer.
MERRILL LYNCH READY ASSETS
TRUST............................ Preservation of capital, liquidity and the highest
possible current income consistent with the foregoing
objectives from the short-term money market securities
in which the Trust invests.
MERRILL LYNCH RETIREMENT RESERVES
MONEY FUND (available only if
the exchange occurs within
certain retirement plans)........ Currently the only portfolio of Merrill Lynch Retirement
Series Trust, a series fund, whose objectives are current
income, preservation of capital and liquidity available
from investing in a diversified portfolio of short-term
money market securities.
MERRILL LYNCH SHORT-TERM GLOBAL
INCOME FUND, INC............... As high a level of current income as is consistent with
prudent investment management from a global portfolio of
high quality debt securities denominated in various
currencies and multinational currency units and having
remaining maturities not exceeding three years.
MERRILL LYNCH SPECIAL VALUE FUND,
INC............................ Long-term growth of capital from investments in
securities, primarily common stocks, of relatively small
companies believed to have special investment value and
emerging growth companies regardless of size.
|
MERRILL LYNCH STRATEGIC DIVIDEND
FUND........................... Long-term total return from investment in dividend paying
common stocks which yield more than Standard & Poor's 500
Composite Stock Price Index.
MERRILL LYNCH TECHNOLOGY FUND,
INC.............................. Capital appreciation through worldwide investment in
equity securities of companies that derive or are expected
to derive a substantial portion of their sales from
products and services in technology.
MERRILL LYNCH TEXAS MUNICIPAL
BOND FUND...................... A portfolio of Merrill Lynch Multi-State Municipal Series
Trust, a series fund, whose objective is as high a level
of income exempt from Federal income taxes as is
consistent with prudent investment management by
investing primarily in a portfolio of long-term,
investment grade obligations issued by the State of
Texas, its political subdivisions, agencies and
instrumentalities.
MERRILL LYNCH TREASURY FUND...... A portfolio of Merrill Lynch Funds for Institutions
Series, a series fund, whose objective is to provide
current income consistent with liquidity and security of
principal from investment in direct obligations of the
U.S. Treasury and up to 10% of its total assets in
repurchase agreements secured by such obligations.
MERRILL LYNCH U.S.A. GOVERNMENT
RESERVES....................... Preservation of capital, current income and liquidity
available from investing in direct obligations of the U.S.
Government and repurchase agreements relating to such
securities.
MERRILL LYNCH U.S. TREASURY MONEY
FUND........................... Preservation of capital, liquidity and current income
through investment exclusively in a diversified portfolio
of short-term marketable securities which are direct
obligations of the U.S. Treasury.
MERRILL LYNCH UTILITY INCOME
FUND, INC........................ High current income through investment in equity and debt
securities issued by companies which are primarily engaged
in the ownership or operation of facilities used to
generate, transmit or distribute electricity,
telecommunications, gas or water.
MERRILL LYNCH WORLD INCOME FUND,
INC............................ High current income by investing in a global portfolio of
fixed income securities denominated in various currencies,
including multinational currencies.
|
Before effecting an exchange, shareholders of the Fund 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 for Federal income tax purposes and, depending on the circumstances, a short- or long-term capital gain or loss may be realized. In addition, a shareholder exchanging shares of any of the funds may be subject to a backup withholding tax unless such shareholder certifies under penalty of perjury that the taxpayer identification
number on file with any such fund is correct and that such shareholder is not
otherwise subject to backup withholding. See "Dividends, Distributions and Taxes
- -- Taxes" below.
To exercise the exchange privilege, shareholders should contact their Merrill Lynch financial consultant, who will advise the Fund of the exchange, or if the exchange does not involve a money market fund, shareholders may write to the transfer agent requesting that the exchange be effected. Such letter must be signed exactly as the account is registered with signatures guaranteed by an "eligible guarantor institution" (including, for example, Merrill Lynch branch offices and certain other financial institutions) as such is defined in Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended, the existence and validity of which may be verified by the transfer agent through the use of industry publications. 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 Securities and Exchange 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.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to distribute all of its net investment income and net realized long-or short-term capital gains, if any, to the Fund's shareholders at least annually. See "Shareholder Services" for information concerning the manner in which dividends and distributions are automatically reinvested in shares of the Fund. Shareholders may elect in writing to receive any such dividends or distributions, or both, in cash. Dividends and distributions are taxable to investors whether received in cash or reinvested in additional shares of the Fund. The per share dividends and distributions on Class B shares will be lower than the per share dividends and distributions on Class A shares as a result of the account maintenance, distribution and higher transfer agency fees applicable with respect to the Class B shares. See "Determination of Net Asset Value".
TAXES
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"). If it so qualifies, the Fund (but not its shareholders) will not be subject to Federal income tax on the part of its net ordinary income and net realized capital gains which it distributes to Class A and Class B shareholders (together, the "shareholders"). The Fund intends to distribute substantially all of such income.
Dividends paid by the Fund from its ordinary income and distributions of
the Fund's net realized short-term capital gains (together referred to hereafter
as "ordinary income dividends") are taxable to shareholders as ordinary income.
Distributions made from the Fund's net realized long-term capital gains
(including long-term gains 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.
Distributions in excess of the Fund's earnings and profits will first reduce the
adjusted tax basis of a holder's shares and, after such adjusted tax basis is
reduced to zero, will constitute capital gains to such holder (assuming the
shares are held as a capital asset). 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.
Dividends are taxable to shareholders even though they are reinvested in additional shares of the Fund. Not later than 60 days after the close of its taxable year, the Fund will provide its shareholders with a written notice designating the amounts of any ordinary income dividends or capital gain dividends. Distributions by the Fund, whether from ordinary income or capital gains, will not be eligible for the dividends received deduction allowed to corporations under the Code. If the Fund pays a dividend in January which 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.
Ordinary income dividends paid by the Fund to shareholders who are nonresident aliens or foreign entities will be subject to a 30% U.S. withholding tax under existing provisions of the Code applicable to foreign individuals and entities unless a reduced rate of withholding or a withholding exemption is provided under applicable treaty law. Nonresident shareholders are urged to consult their own tax advisers concerning 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 and capital gain dividends and on redemption payments ("backup withholding"). Generally, shareholders subject to backup withholding will be those for whom a certified taxpayer identification number is not on file with the Fund or who, to the Fund's knowledge, have furnished an incorrect number. When establishing an account, an investor must certify under penalty of perjury that such number is correct and that such 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. Shareholders may be able to claim U.S. foreign tax credits with respect to such taxes, subject to certain conditions and limitations contained in the Code. For example, certain retirement accounts cannot claim foreign tax credits on investments in foreign securities held in the Fund. If more than 50% in value of the Fund's total assets at the close of its fiscal year consists of securities of foreign corporations, the Fund will be eligible, and intends, to file an election with the Internal Revenue Service pursuant to which shareholders of the Fund will be required to include their proportionate shares of such withholding taxes on their U.S. income tax returns as gross income, treat such proportionate shares as taxes paid by them and deduct such proportionate shares in computing their taxable incomes or, alternatively, use them as foreign tax credits against their U.S. income taxes. No deductions for foreign taxes, however, may be claimed by noncorporate shareholders who do not itemize deductions. A shareholder that is a nonresident alien individual or a foreign corporation may be subject to U.S. withholding tax on the income resulting from the Fund's election described in this paragraph but may not be able to claim a credit or deduction against such U.S. tax for the foreign taxes treated as having been paid by such shareholder. The Fund will report annually to its shareholders the amount per share of such withholding taxes. For this purpose, the Fund will allocate foreign taxes and foreign source income between the Class A and Class B shareholders according to a method (which it believes is consistent with the Securities and Exchange Commission exemptive order permitting the issuance and sale of different classes of stock) that is based on the gross income allocable to the Class A and Class B shareholders during the taxable year or such other method as the Internal Revenue Service may prescribe.
If a Class A shareholder exercises the 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 the sales charge paid to the Fund reduces any sales charge the shareholder would have owed upon purchase of the
new Class A shares in the absence of the exchange privilege. Instead, such sales charge will be treated as an amount paid for the new Class A shares.
The Code requires a RIC to pay a nondeductible 4% excise tax to the extent the RIC does not distribute, during each calendar year, 98% of its ordinary income, determined on a calendar year basis, and 98% of its capital gains, determined, in general, on an October 31 year end, plus certain undistributed amounts from previous years. While the Fund intends to distribute its income and capital gains in the manner necessary to avoid imposition of the 4% excise tax, there can be no assurance that sufficient amounts of the Fund's taxable income and capital gains will be distributed to avoid entirely the imposition of the tax. In such event, the Fund will be liable for the tax only on the amount by which it does not meet the foregoing distribution requirements.
TAX TREATMENT OF OPTIONS, FUTURES AND FORWARD FOREIGN EXCHANGE TRANSACTIONS
The Fund may write, purchase or sell options, futures or 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. 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 transactions in options, futures and forward foreign exchange contracts. Under Section 1092, the Fund may be required to postpone recognition for tax purposes of losses incurred in certain closing transactions in options, futures and forward foreign exchange contracts.
One of the requirements for qualification as a RIC is that less than 30% of the Fund's gross income may be derived from gains from the sale or other disposition of securities held for less than three months. Accordingly, the Fund may be restricted in effecting closing transactions within three months after entering into an options or futures contract.
SPECIAL RULES FOR CERTAIN FOREIGN CURRENCY TRANSACTIONS
In general, gains from "foreign currencies" and from foreign currency options, foreign currency futures and forward foreign exchange contracts relating to investments in stock, securities or foreign currencies will be qualifying income for purposes of determining whether the Fund qualifies as a RIC. It is currently unclear, however, who will be treated as the issuer of a foreign currency instrument or how foreign currency options, foreign currency futures and forward foreign exchange contracts will be valued for purposes of the RIC diversification requirements applicable to the Fund. The Fund may request a private letter ruling from the Internal Revenue Service on some or all of these issues.
Under Code Section 988, special rules are provided for certain transactions in a currency other than the taxpayer's functional currency (i.e., unless certain special rules apply, currencies other than the U.S. dollar).
In general, foreign currency gains or losses from certain debt instruments, from
certain forward contracts, from 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 during a taxable year, the Fund would not be
able to make any ordinary dividend distributions, and any distributions made
before the losses were realized but in the same taxable year would be
recharacterized as a return of capital to shareholders, thereby reducing the
basis of each shareholder's Fund shares and resulting in a capital gain for any
shareholder who received a distribution greater than the shareholder's basis in
Fund shares. These rules and 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 Treasury Department has authority to issue regulations concerning the recharacterization of principal and interest payments with respect to debt obligations issued in hyperinflationary currencies, which may include the currencies of certain developing Asia-Pacific countries in which the Fund intends to invest. No such regulations have been issued.
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 or administrative action either prospectively or retroactively.
Ordinary income dividends and capital gain dividends may also be subject to state and local taxes.
Certain states exempt from state income taxation dividends paid by RICs which are derived from interest on 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 own 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.
PERFORMANCE DATA
From time to time the Fund may include its average annual total return and other total return data in advertisements or information furnished to present or prospective shareholders. Total return figures are based on the Fund's historical performance and are not intended to indicate future performance. Average annual total return is determined separately for Class A and Class B shares in accordance with a formula specified by the Securities and Exchange 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 shares and the contingent deferred sales charge that would be applicable to a complete redemption of the investment at the end of the specified period in the case of Class B shares.
The Fund also may quote annual, average annual and annualized total return and aggregate total return performance data, both as a percentage and as a dollar amount based on a hypothetical $1,000 investment for various periods other than those noted below. Such data will be computed as described above, except that (1) as required by the periods of the quotations, actual annual, annualized or aggregate data, rather than average annual data, may be quoted, and (2) the maximum applicable sales charges will not be included with respect to annual or annualized rates of return calculations. Aside from the impact on the performance data calculations of including or excluding the maximum applicable sales charges, actual annual or annualized total return data generally will be lower than average annual total return data since the average rates of return reflect compounding of return; aggregate total return data generally will be higher than average annual total return data since the aggregate rates of return reflect compounding over longer periods of time.
Set forth below is total return information for the Class A and Class B shares of the Fund for the periods indicated.
CLASS A SHARES CLASS B SHARES*
------------------------------------- -------------------------------------
REDEEMABLE REDEEMABLE
VALUE OF A VALUE OF A
EXPRESSED AS A HYPOTHETICAL EXPRESSED AS A HYPOTHETICAL
PERCENTAGE BASED $1,000 INVESTMENT PERCENTAGE BASED $1,000 INVESTMENT
ON A HYPOTHETICAL AT THE END OF ON A HYPOTHETICAL AT THE END OF
PERIOD $1,000 INVESTMENT THE PERIOD $1,000 INVESTMENT THE PERIOD
- ----------------------------------------- ----------------- ----------------- ----------------- -----------------
AVERAGE ANNUAL TOTAL RETURN
(including maximum applicable sales charges)
One Year Ended December 31, 1993......... 25.67% $1,256.70 29.05% $1,290.50
Five Years Ended December 31, 1993....... 7.08% $1,407.60 7.44% $1,431.50
Ten Years Ended December 31, 1993........ 18.38% $5,403.60
October 21, 1988 to December 31, 1993.... 9.76% $1,622,80
|
ANNUAL TOTAL RETURN
(excluding maximum applicable sales charges)
YEAR ENDED DECEMBER 31,
- -----------------------------------------
1993..................................... 34.41 % $1,344.10 33.05 % $1,330.50
1992..................................... (8.75)% $ 912.50 (9.72)% $ 902.80
1991..................................... 17.04 % $1,170.40 15.87 % $1,158.70
1990..................................... (8.39)% $ 916.10 (9.29)% $ 907.10
1989..................................... 14.49 % $1,144.90 13.39 % $1,133.90
1988..................................... 34.38 % $1,343.80
1987..................................... 10.77 % $1,107.70
1986..................................... 77.78 % $1,777.80
1985..................................... 40.96 % $1,409.60
1984..................................... 2.92 % $1,029.20
1983..................................... 38.54 % $1,385.40
1982..................................... 0.46 % $1,004.60
1981..................................... 22.22 % $1,222.20
1980..................................... 38.49 % $1,384.90
October 21, 1988 to December 31, 1988.... 13.37%* $1,133.70
|
AGGREGATE TOTAL RETURN
(including maximum applicable sales charges)
Inception (September 23, 1976) to
December 31, 1993...................... 1,440.57% $15,405.70
October 21, 1988 to December 31, 1993.... 62.28% $1,622.80
|
* Information as to Class B shares is presented only for the period October 21, 1988, to December 31, 1993. Prior to October 21, 1988, no Class B shares were publicly issued.
In order to reflect the reduced sales charges in the case of Class A shares, or the waiver of the contingent deferred sales charge in the case of Class B 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 not take into account the contingent deferred sales charge 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 may be deducted.
GENERAL INFORMATION
DESCRIPTION OF SHARES
The Fund was incorporated under Maryland law on August 5, 1976. It has an authorized capital of 200,000,000 shares of Common Stock, par value $0.10 per share, divided into two classes, designated Class A and Class B Common Stock, each of which consists of 100,000,000 shares. Both Class A and Class B Common Stock represent an interest in the same assets of the Fund and are identical in all respects except that the Class B shares bear certain expenses related to the account maintenance and distribution of such shares and that they have exclusive voting rights with respect to matters relating to such account maintenance and distribution expenditures. The Fund has received an order from the Securities and Exchange Commission permitting the issuance and sale of an unlimited number of classes of Common Stock. The Board of Directors of the Fund may classify and reclassify the shares of the Fund into additional classes of Common Stock at a future date.
Shareholders are entitled to one vote for each share held and fractional votes for fractional shares held and will vote on the election of Directors and any other matter submitted to a shareholder vote. The Fund does not intend to hold meetings of shareholders in any year in which the Investment Company Act does not require shareholders to act upon 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 accountants. Also, the by-laws of the Fund require that a special meeting of stockholders be held upon the written request of at least 10% of the outstanding shares of the Fund entitled to vote at such meeting. 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 Fund and in the net assets of the Fund upon 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. Shareholders may, in accordance with Maryland law, cause a meeting of shareholders to be held for the purpose of voting on the removal of Directors at the request of 25% of the outstanding shares of the Fund. A Director may be removed at a special meeting of shareholders by a vote of a majority of the votes entitled to be cast for the election of Directors.
COMPUTATION OF OFFERING PRICE PER SHARE
An illustration of the computation of the offering price for Class A and Class B shares of the Fund based on the value of the Fund's net assets on December 31, 1993, and its shares outstanding on that date is as follows:
CLASS A CLASS B
----------- -----------
Net Assets...................................................... $472,321,833 $508,007,534
----------- -----------
----------- -----------
Number of Shares Outstanding.................................... 22,267,767 24,884,228
----------- -----------
----------- -----------
Net Asset Value Per Share (net assets divided by number of
shares outstanding)........................................... $ 21.21 $ 20.41
Sales Charge (for Class A shares: 6.50% of offering price (6.95%
of net amount invested*))..................................... $ 1.47 **
----------- -----------
Offering Price.................................................. $ 22.68 $ 20.41
----------- -----------
----------- -----------
|
* Rounded to the nearest one-hundredth percent; assumes maximum sales charge is applicable.
** Class B shares are not subject to an initial sales charge but may be subject to a contingent deferred sales charge on redemption of shares within four years of purchase. See "Purchase of Shares -- Deferred Sales Charge Alternative -- Class B Shares" in the Prospectus and "Redemption of Shares -- Contingent Deferred Sales Charge -- Class B Shares" herein.
INDEPENDENT AUDITORS
Deloitte & Touche, 117 Campus Drive, Princeton, New Jersey 08540, has been selected as the independent auditors of the Fund. The selection of independent auditors is subject to ratification by the Fund's shareholders. The independent auditors are responsible for auditing the annual financial statements of the Fund.
CUSTODIAN
Brown Brothers Harriman & Co., 40 Water Street, Boston, Massachusetts 02109 (the "Custodian"), acts as custodian of the Fund's assets. The Custodian, under its contract with the Fund, is authorized to establish separate accounts in foreign currencies and to cause securities of the Fund to be held in separate accounts in any office of approved subcustodians outside of the U.S. and with certain foreign banks and securities depositories. The Custodian and subcustodians are responsible for safeguarding and controlling the Fund's cash and securities, handling the receipt and delivery of securities and collecting dividends on the Fund's investments.
TRANSFER AGENT
Financial Data Services, Inc., Transfer Agency Mutual Fund Operations, 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484 acts as the Fund's transfer agent (the "Transfer Agent"). The Transfer Agent is responsible for the issuance, transfer and redemption of shares and the opening, maintenance and servicing of shareholder accounts. See "Management of the Fund -- Transfer Agency Services" in the Prospectus.
LEGAL COUNSEL
Brown & Wood, One World Trade Center, New York, New York 10048-0557, is counsel for the Fund.
REPORTS TO SHAREHOLDERS
The fiscal year of the Fund ends on December 31 of each year. The Fund sends to its shareholders at least semi-annually reports showing the Fund's portfolio and other information. An annual report, containing financial statements audited by independent auditors is sent to shareholders each year. After the end of each
year, shareholders will receive Federal income tax information regarding dividends and capital gains distributions.
ADDITIONAL INFORMATION
The Prospectus and this Statement of Additional Information do not contain all the information set forth in the Registration Statement and the exhibits relating thereto, which the Fund has filed with the Securities and Exchange Commission, Washington, D.C., under the Securities Act of 1933, as amended, and the Investment Company Act, to which reference is hereby made.
Under a separate agreement Merrill Lynch has granted the Fund the right to use the "Merrill Lynch" name and has reserved the right to withdraw its consent to the use of such name by the Fund at any time or to grant the use of such name to any other company, and the Fund has granted Merrill Lynch, under certain conditions, the use of any other name it might assume in the future, with respect to any corporation organized by Merrill Lynch.
To the knowledge of the Fund, no person or entity owned beneficially 5% or more of the Fund's shares on April 15, 1994.
[This page is intentionally left blank.]
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
MERRILL LYNCH PACIFIC FUND, INC.:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Merrill Lynch Pacific Fund, Inc. as of December 31, 1993, the related statements of operations for the year then ended and changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and the financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned at December 31, 1993, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present fairly, in all material respects, the financial position of Merrill Lynch Pacific Fund, Inc. as of December 31, 1993, the results of its operations, the changes in its net assets, and the financial highlights for the respective stated periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE
Princeton, New Jersey
February 4, 1994
SCHEDULE OF INVESTMENTS
Shares Held/ Value Percent of
Industry Face Amount Investments Cost (Note 1a) Net Assets
Japanese Securities
Automobile 2,276,000 Suzuki Motor Corp. $ 20,103,059 $ 21,402,472 2.18%
840,000 Toyota Motor Corp. 10,216,818 13,390,650 1.37
------------ ------------ ------
30,319,877 34,793,122 3.55
Beverage 363,000 Chukyo Coca-Cola Bottling Co., Ltd. 5,223,326 4,063,675 0.41
421,000 Hokkaido Coca-Cola Bottling Co., Ltd. 6,354,142 5,806,376 0.59
381,000 Kinki Coca-Cola Bottling Co., Ltd. 7,350,583 6,244,224 0.64
433,000 Mikuni Coca-Cola Bottling Co., Ltd. 7,892,009 6,669,891 0.68
428,000 Sanyo Coca-Cola Bottling Co., Ltd. 7,040,767 6,132,903 0.63
------------ ------------ ------
33,860,827 28,917,069 2.95
Capital Goods 3,774,000 Mitsubishi Heavy Industries, Ltd. 24,110,222 20,786,405 2.12
36,000 Mitsubishi Heavy Industries, Ltd. #3 US$
(Warrants) (a) 588,000 189,000 0.02
------------ ------------ ------
24,698,222 20,975,405 2.14
Chemicals 644,000 Shin-Etsu Chemical Co., Ltd. 7,686,564 9,516,389 0.97
Construction 135,000 Daiwa House #4 US$ (Warrants) (a) 2,201,890 489,375 0.05
Consumer 1,862,000 Matsushita Electric Industrial Co., Ltd. 23,194,345 24,846,677 2.53
Electronics yen 409,000,000 Matsushita Electric Works, Ltd.--C.E.W. #8,
2.70% due 5/30/2002 4,543,869 4,157,397 0.42
115,000 Nintendo Co., Ltd. 10,087,145 7,394,770 0.76
------------ ------------ ------
37,825,359 36,398,844 3.71
Containers 1,271,000 Toyo Seikan Kaisha, Ltd. 15,986,597 31,871,754 3.25
Electric 610,000 Chudenko Corp. 17,010,002 19,120,545 1.95
Construction 159,000 Kyudenko Corp. 2,802,952 2,378,023 0.24
539,000 Sanki Engineering Co., Ltd. 6,161,337 5,744,313 0.59
713,000 Taihei Dengyo Kaisha, Ltd. 17,365,061 15,388,949 1.57
------------ ------------ ------
43,339,352 42,631,830 4.35
Electric Equipment 1,010,000 Hitachi, Ltd. 9,589,494 7,435,250 0.76
1,845,000 Sumitomo Electric Industries, Ltd. 20,873,045 21,480,387 2.19
169,000,000 Sumitomo Electric Industries #1 Yen (Warrants) (a) 185,351 195,245 0.02
923,000 The Nippon Signal Co., Ltd. 13,935,321 11,159,323 1.14
------------ ------------ ------
44,583,211 40,270,205 4.11
Electronics 744,000 Murata Manufacturing Co., Ltd. 19,570,980 25,519,613 2.60
Iron & Steel 450,000 Maruichi Steel Tube, Ltd. 5,588,979 7,052,660 0.72
Leisure 200,000 Heiwa Corp. 9,445,110 4,459,968 0.45
Office Equipment 1,563,000 Canon, Inc. 19,004,087 21,556,690 2.20
14,250 Canon, Inc. #2 DM (Warrants) (a) 1,741,131 1,172,131 0.12
112,500 Canon, Inc. #4 US$ (Warrants) (a) 2,434,375 1,617,187 0.16
------------ ------------ ------
23,179,593 24,346,008 2.48
Pharmaceuticals 1,100,000 Sankyo Co., Ltd. 27,248,940 21,771,449 2.22
672,000 Taisho Pharmaceutical Co., Ltd. 9,783,498 12,939,280 1.32
------------ ------------ ------
37,032,438 34,710,729 3.54
|
SCHEDULE OF INVESTMENTS (continued)
Shares Held/ Value Percent of
Industry Face Amount Investments Cost (Note 1a) Net Assets
Japanese Securities
(concluded)
Photography 885,000 Fuji Photo Film Co., Ltd. $ 20,866,376 $ 19,576,840 2.00%
Property &
Casualty
Insurance 4,495,000 Dai-Tokyo Fire & Marine Insurance Co., Ltd. 22,835,890 29,105,185 2.97
4,467,000 Fuji Fire & Marine Insurance Co., Ltd. 16,116,389 23,803,197 2.43
4,633,000 Koa Fire & Marine Insurance Co., Ltd. 27,152,420 25,974,010 2.65
4,582,000 Nichido Fire & Marine Insurance Co., Ltd. 20,766,227 26,262,583 2.67
2,359,000 Tokio Marine & Fire Insurance Co., Ltd. 19,718,607 25,774,494 2.63
------------ ------------ ------
106,589,533 130,919,469 13.35
Retailing 554,000 Ito-Yokado Co., Ltd. 17,758,652 25,303,600 2.58
362,000 Sangetsu Co., Ltd. 8,312,345 12,027,763 1.23
354,000 Senshukai Co., Ltd. 6,286,430 10,715,744 1.09
208,000 Shimachu Co., Ltd. 3,046,441 7,451,191 0.76
------------ ------------ ------
35,403,868 55,498,298 5.66
Textile 603,000 Nisshinbo Industries, Inc. 3,301,761 4,428,264 0.45
Total Investments in Japan 501,480,537 552,375,842 56.33
Australian Securities
Food & Beverage 4,200,670 Burns Philp & Co., Ltd. 11,696,127 13,627,755 1.39
2,239,001 Coca-Cola Amatil, Ltd. 8,469,439 17,475,515 1.78
------------ ------------ ------
20,165,566 31,103,270 3.17
Property 621,772 Lend Lease Corp. 8,038,708 7,469,341 0.76
Utilities 310,273 The Australian Gas Light Company 635,559 947,620 0.10
Total Investments in Australia 28,839,833 39,520,231 4.03
Hong Kong Securities
Construction 7,500,000 Paul Y-ITC Construction Holdings, Inc. 2,595,588 2,354,979 0.24
Diversified 7,736,000 Citic Pacific, Ltd. 19,732,726 25,542,924 2.61
Property 4,874,000 Hang Lung Development Co., Ltd. 3,852,318 11,927,826 1.22
400,000 Hang Lung Development Co., Ltd. (Warrants) (a) 0 403,988 0.04
------------ ------------ ------
3,852,318 12,331,814 1.26
Services 917,400 Hong Kong Aircraft Engineering 5,499,090 5,701,826 0.58
Utilities 7,143,800 China Light & Power Co., Ltd. 7,606,117 52,262,683 5.33
157,669 Consolidated Electric Power, Ltd. 257,747 273,568 0.03
8,804,000 Hong Kong & China Gas Co. 18,640,984 25,535,362 2.60
6,446,800 Hong Kong Telecommunications, Ltd. 11,199,792 13,606,479 1.39
223,500 Hong Kong Telecommunications, Ltd. (ADR) (b) 4,896,660 13,912,875 1.42
------------ ------------ ------
42,601,300 105,590,967 10.77
Total Investments in Hong Kong 74,281,022 151,522,510 15.46
|
SCHEDULE OF INVESTMENTS (continued)
Shares Held/ Value Percent of
Industry Face Amount Investments Cost (Note 1a) Net Assets
Indian Securities
Non-Ferrous Metals $ 480,000 Sterlite Industries, Ltd., 3.50% due 6/30/1999 $ 480,000 $ 571,200 0.06%
Total Investments in India 480,000 571,200 0.06
Indonesian Securities
Pharmaceuticals 742,000 Kalbe Farma, PT 5,070,605 5,800,995 0.59
Total Investments in Indonesia 5,070,605 5,800,995 0.59
Malaysian Securities
Building & 266,000 Malayan Cement BHD 430,035 543,361 0.05
Construction 1,350,000 Sungei Way Holdings BHD 4,718,897 5,966,574 0.61
------------ ------------ ------
5,148,932 6,509,935 0.66
Building Materials 1,410,000 Aokam Perdana BHD (Ordinary) 11,324,720 15,186,630 1.55
Diversified 2,000,000 Sime Darby BHD 4,726,798 5,608,171 0.57
Leisure 800,000 Genting BHD 1,876,683 11,194,030 1.14
1,000,000 Granite Industries BHD 4,807,897 5,756,732 0.59
4,470,000 Magnum Corp. BHD 4,762,131 13,281,337 1.36
2,300,000 Resorts World BHD 3,704,646 14,778,087 1.51
------------ ------------ ------
15,151,357 45,010,186 4.60
Retail 2,300,000 Berjaya Singer BHD 6,338,321 6,064,995 0.62
MYR 1,387,000 Berjaya Singer BHD, 5.00% due 9/15/1998 437,533 414,683 0.04
295,000 Berjaya Singer TSR 326,647 321,021 0.03
------------ ------------ ------
7,102,501 6,800,699 0.69
Total Investments in Malaysia 43,454,308 79,115,621 8.07
Singaporean Securities
Airlines 1,260,000 Singapore Airlines, Ltd.--Foreign Registered 6,673,879 10,578,358 1.08
Banking 317,500 Development Bank of Singapore, Ltd.--
Foreign Registered 2,411,221 3,593,595 0.37
Electronics 305,000 Creative Technology, Ltd. 7,609,990 9,531,250 0.97
Food 3,600,000 Cerebos Pacific Ltd. 5,153,632 17,910,448 1.83
Property 888,000 City Developments Ltd. 4,164,079 4,335,075 0.44
905,000 First Capital Corp. Ltd. 3,465,885 3,348,725 0.34
------------ ------------ ------
7,629,964 7,683,800 0.78
Publishing 200,000 Times Publishing, Ltd. 334,576 547,264 0.06
Transportation 300,000 Singapore Bus Co. Ltd.--Foreign Registered 1,060,285 2,089,553 0.21
Total Investments in Singapore 30,873,547 51,934,268 5.30
|
SCHEDULE OF INVESTMENTS (concluded)
Shares Held/ Value Percent of
Industry Face Amount Investments Cost (Note 1a) Net Assets
South Korean Securities
Automobile 61,547 ++Kia Motors Corp. (GDS) (c) $ 2,034,000 $ 2,154,145 0.22%
Banking 294,660 Hanil Bank 4,295,682 3,796,883 0.39
410,000 Korea First Bank 6,491,192 6,095,899 0.62
58,040 Shin Han Bank 1,020,073 978,000 0.10
------------ ------------ ------
11,806,947 10,870,782 1.11
Textiles 3,080 Taekwang Industrial Co. 716,353 1,747,788 0.18
Total Investments in South Korea 14,557,300 14,772,715 1.51
Taiwanese Securities
Steel 135,000 ++China Steel Corp. (ADR) (b) 2,457,000 3,391,875 0.35
Total Investments in Taiwan 2,457,000 3,391,875 0.35
Thai Securities
Banking 822,100 Bangkok Bank Co., Ltd. 5,873,326 8,114,736 0.83
509,400 Thai Farmers Bank Limited 2,262,452 2,793,419 0.28
------------ ------------ ------
8,135,778 10,908,155 1.11
Communications 650,000 TelecomAsia Corp. 1,420,109 3,895,417 0.40
Total Investments in Thailand 9,555,887 14,803,572 1.51
Short-Term Securities
Commercial Paper*
$35,928,000 General Electric Capital Corp.,
3.22% due 1/03/1994 35,921,573 35,921,573 3.67
Total Investments in Short-Term Securities 35,921,573 35,921,573 3.67
Total Investments $746,971,612 949,730,402 96.88
============
Put Options Purchased
(Cost-$2,872,000)** 8,000 0.00
Unrealized Appreciation
on Forward Foreign
Exchange Contracts*** 6,076,070 0.62
Other Assets Less
Liabilities 24,514,895 2.50
------------ ------
Net Assets $980,329,367 100.00%
============ ======
(a) Warrants entitle the Fund to purchase a predetermined number of shares of Common Stock. The purchase price and number of shares
are subject to adjustment under certain conditions until the expiration date.
(b) ADR--American Depositary Receipts.
(c) GDS--Global Depositary Shares.
++ Restricted securities as to resale. At December 31, 1993, the value of the Fund's investment in restricted securities was
approximately $5,546,000, representing 0.57% of net assets.
|
Acquisition Value
Issue Date Cost (Note 1a)
China Steel Corp. (ADR) May 21, 1992 $ 2,457,000 $ 3,391,875
Kia Motors Corp. (GDS) Jan. 15, 1991 2,034,000 2,154,145
Total $ 4,491,000 $ 5,546,020
=========== ===========
|
*Commercial Paper is traded on a discount basis; the interest rates shown are the discount rates paid at the time of purchase by the Fund. **Put options purchased as of December 31, 1993 are as follows:
Market Value Value
Subject to Put Issue (Notes 1a & 1g)
Yen 80,000,000 Yen currency put option, strike price
Yen 127, expiring January 14, 1994 $ 4,000
Yen 80,000,000 Yen currency put option, strike price
Yen 124, expiring February 18, 1994 4,000
Total Put Options
Purchased (Cost--$2,872,000) $ 8,000
==========
|
***Forward foreign exchange contracts as of December 31, 1993 are as follows:
Expiration Unrealized
Date Appreciation
Foreign Currency Sold
Yen 20,999,550,000 May 1994 $6,076,070
Total (US$ Commitment-- $195,000,000) $6,076,070
==========
|
See Notes to Financial Statements.
FINANCIAL INFORMATION
Statement of Assets and Liabilities as of December 31, 1993
Assets: Investments, at value (identified cost--$746,971,612) (Note 1a) $949,730,402
Put options purchased, at value (identified cost--$2,872,000) (Notes 1a & 1g) 8,000
Unrealized appreciation on forward foreign exchange contracts (Note 1b) 6,076,070
Foreign cash 27,458,095
Cash 419,140
Receivables:
Capital shares sold $ 9,901,277
Securities sold 1,450,714
Dividends 594,707
Interest 11,909 11,958,607
------------
Prepaid registration fees and other assets (Note 1e) 31,300
------------
Total assets 995,681,614
------------
Liabilities: Payables:
Capital shares redeemed 12,980,642
Securities purchased 901,920
Investment adviser (Note 2) 490,095
Distributor (Note 2) 416,880
Dividends to shareholders 5,832 14,795,369
------------
Accrued expenses and other liabilities 556,878
------------
Total liabilities 15,352,247
------------
Net Assets: Net assets $980,329,367
============
Net Assets Class A Shares of Common Stock, $0.10 par value, 50,000,000 shares authorized $ 2,226,777
Consist of: Class B Shares of Common Stock, $0.10 par value, 50,000,000 shares authorized 2,488,423
Paid-in capital in excess of par 777,415,888
Accumulated realized capital losses and foreign currency
transactions--net (7,754,541)
Unrealized appreciation on investments and foreign currency
transactions--net 205,952,820
------------
Net assets $980,329,367
============
Net Asset Value: Class A--Based on net assets of $472,321,833 and 22,267,767 shares outstanding $ 21.21
============
Class B--Based on net assets of $508,007,534 and 24,884,228 shares outstanding $ 20.41
============
|
See Notes to Financial Statements.
FINANCIAL INFORMATION (continued)
Statement of Operations for the Year Ended December 31, 1993
Investment Dividends (net of $820,306 foreign withholding tax) $ 7,835,757
Income Interest and discount earned (net of $6,787 foreign withholding tax) 1,684,980
(Notes 1c & 1d): ------------
Total income 9,520,737
------------
Expenses: Investment advisory fees (Note 2) 4,179,008
Distribution fees--Class B (Note 2) 3,135,389
Custodian fees 682,510
Transfer agent fees--Class A (Note 2) 469,771
Transfer agent fees--Class B (Note 2) 447,024
Registration fees (Note 1e) 209,175
Printing and shareholder reports 144,395
Accounting services (Note 2) 68,896
Professional fees 67,845
Directors' fees and expenses 39,408
Amortization of organization expenses (Note 1e) 13,172
Other 19,854
------------
Total expenses 9,476,447
------------
Investment income--net 44,290
------------
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net $ (1,960,363)
(Loss) on Foreign currency transactions (95,945) (2,056,308)
Investments & ------------
Foreign Currency Change in unrealized appreciation on:
Transactions--Net Investments--net 146,329,573
Notes 1b, 1c & 3): Foreign currency transactions 21,971,841 168,301,414
------------ ------------
Net realized and unrealized gain on investments and foreign currency
transactions 166,245,106
------------
Net Increase in Net Assets Resulting from Operations $166,289,396
============
|
See Notes to Financial Statements.
FINANCIAL INFORMATION (continued)
Statements of Changes in Net Assets
For the Year Ended December 31,
Increase (Decrease) in Net Assets: 1993 1992
Operations: Investment income (loss)--net $ 44,290 $ (34,597)
Realized gain (loss) on investments and foreign currency transactions--net (2,056,308) 25,659,845
Change in unrealized appreciation/depreciation on investments and foreign
currency transactions--net 168,301,414 (63,981,580)
------------ ------------
Net increase (decrease) in net assets resulting from operations 166,289,396 (38,356,332)
------------ ------------
Dividends & Investment income--net:
Distributions to Class A (44,290) (256,888)
Shareholders In excess of investment income--net:
(Note 1f): Class A (559,299) --
Realized gain on investments--net:
Class A -- (16,280,294)
Class B -- (9,723,817)
------------ ------------
Net decrease in net assets resulting from dividends and distributions
to shareholders (603,589) (26,260,999)
------------ ------------
Capital Share Net increase in net assets derived from capital share transactions 364,954,305 103,926,145
Transactions ------------ ------------
(Note 4):
Net Assets: Total increase in net assets 530,640,112 39,308,814
Beginning of year 449,689,255 410,380,441
------------ ------------
End of year $980,329,367 $449,689,255
============ ============
|
See Notes to Financial Statements.
FINANCIAL INFORMATION (continued)
Financial Highlights
Class A
The following per share data and ratios have been derived For the Year Ended December 31,
from information provided in the financial statements. 1993 1992 1991 1990 1989
Per Share Net asset value, beginning of year $ 15.80 $ 18.34 $ 16.52 $ 20.65 $ 19.11
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .07 .05 .04 .10 .07
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net 5.37 (1.63) 2.73 (1.80) 2.57
-------- -------- -------- -------- --------
Total from investment operations 5.44 (1.58) 2.77 (1.70) 2.64
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net -- (.01) (.11) (.11) (.06)
In excess of investment income--net (.03) -- -- -- --
Realized gain on investments--net -- (.95) (.84) (2.32) (1.04)
-------- -------- -------- -------- --------
Total dividends and distributions (.03) (.96) (.95) (2.43) (1.10)
-------- -------- -------- -------- --------
Net asset value, end of year $ 21.21 $ 15.80 $ 18.34 $ 16.52 $ 20.65
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 34.41% (8.75%) 17.04% (8.39%) 14.49%
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses .90% .98% 1.02% 1.07% 1.06%
Net Assets: ======== ======== ======== ======== ========
Investment income--net .47% .40% .43% .94% .36%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $472,322 $284,674 $304,712 $242,104 $318,613
Data: ======== ======== ======== ======== ========
Portfolio turnover 13.25% 7.62% 5.91% 31.06% 18.14%
======== ======== ======== ======== ========
*Total investment returns exclude the effects of sales loads.
|
See Notes to Financial Statements.
FINANCIAL INFORMATION (concluded)
Financial Highlights (concluded)
Class B
The following per share data and ratios have been derived For the Year Ended December 31,
from information provided in the financial statements. 1993++ 1992++ 1991++ 1990++ 1989
Per Share Net asset value, beginning of year $ 15.34 $ 18.01 $ 16.30 $ 20.49 $ 19.09
Operating -------- -------- -------- -------- --------
Performance: Investment loss--net (.10) (.12) (.14) (.09) (.06)
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net 5.17 (1.60) 2.69 (1.78) 2.50
-------- -------- -------- -------- --------
Total from investment operations 5.07 (1.72) 2.55 (1.87) 2.44
-------- -------- -------- -------- --------
Less distributions:
Realized gain on investments--net -- (.95) (.84) (2.32) (1.04)
-------- -------- -------- -------- --------
Total distributions -- (.95) (.84) (2.32) (1.04)
-------- -------- -------- -------- --------
Net asset value, end of year $ 20.41 $ 15.34 $ 18.01 $ 16.30 $ 20.49
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 33.05% (9.72%) 15.87% (9.29%) 13.39%
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses, excluding distribution fees .92% 1.00% 1.04% 1.10% 1.10%
Net Assets: ======== ======== ======== ======== ========
Expenses 1.92% 2.00% 2.04% 2.10% 2.10%
======== ======== ======== ======== ========
Investment loss--net (.56%) (.61%) (.60%) (.05%) (.64%)
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $508,008 $165,015 $105,669 $58,013 $59,090
Data: ======== ======== ======== ======== ========
Portfolio turnover 13.25% 7.62% 5.91% 31.06% 18.14%
======== ======== ======== ======== ========
*Total investment returns exclude the effects of sales loads.
++Based on average number of shares outstanding during the period.
|
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES:
Merrill Lynch Pacific Fund, Inc. (the "Fund") is registered under the Investment
Company Act of 1940 as a diversified, open-end management investment company.
The Fund offers both Class A and Class B Shares. Class A Shares are sold with a
front-end sales charge. Class B Shares may be subject to a contingent deferred
sales charge. Both classes of shares have identical voting, dividend,
liquidation and other rights and the same terms and conditions, except that
Class B Shares bear certain expenses related to the distribution of such shares
and have exclusive voting rights with respect to matters relating to such
distribution expenditures. The following is a summary of significant accounting
policies followed by the Fund:
(a) Valuation of investments--Portfolio securities which are traded on stock exchanges are valued at the last sale price 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. However, in certain circumstances, the Fund will value a security traded on a Japanese stock exchange based upon the last bid or ask price as reported on such exchange after trading in such security has been halted for the day. Japanese stock exchanges may impose limits, based on a percentage of a security's value, on the amount such security may move in a single day. If the security reaches its limit during the day, further trading is halted. However, a bid or ask quotation may be reported following the suspension of trading. In situations where both a bid and ask price are reported following a trading suspension due to the circumstances described above, the Fund will utilize the bid price for valuation purposes. 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 as the primary market. Securities traded in the over-the-counter market are valued at the last available bid price in the over-the-counter market prior to the time of valuation. Options written by the Company are based upon the last asked price in the case of exchange-traded options or, in the case of options traded in the over-the-counter market, the average of the last asked price as obtained from two or more dealers unless there is only one dealer, in which case that dealer's price is used. Options purchased by the Fund are valued at their last bid price in the case of exchange-traded options or, in the case of options traded in the over-the-counter market, the average of the last bid price as obtained from one or more dealers unless there is only one dealer, in which case that dealer's price is used. Short-term securities are valued at amortized cost, which approximates market. 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 Fund.
(b) Foreign currency transactions--Transactions denominated in foreign currencies are recorded at the exchange rate prevailing when recognized. Assets and liabilities denominated in foreign currencies are valued at the exchange rate at the end of the period. Foreign currency transactions are the result of settling (realized) or valuing (unrealized) such transactions expressed in foreign currencies into US dollars. Realized and unrealized gains or losses from investments include the effects of foreign exchange rates on investments.
The Fund is authorized to enter into forward foreign exchange contracts as a hedge against either specific transactions or portfolio positions. Such contracts are not entered on the Fund's records. However, the effect on operations is recorded from the date the Fund enters into such contracts. Premium or discount is amortized over the life of the contracts.
(c) Security transactions and investment income--Security transactions are recorded on the dates the transactions are entered into (the trade dates). Divi- dend income is recorded on the ex-dividend date, except that if the ex-dividend date has passed, certain dividends from foreign securities are recorded as soon as the funds are informed of the ex-dividend date. Interest income (including amortization of discount) is recognized on the accrual basis. Realized gains and losses on security transactions are determined on the identified cost basis.
(d) Income taxes--It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no Federal income tax provision is required. Under the applicable foreign tax law, a withholding tax may be imposed on dividends and interest at various rates. There is no tax imposed on capital gains arising from the sale of foreign investments.
(e) Prepaid registration fees and deferred organization expenses--Prepaid registration fees are charged to expense as the related shares are issued. Expenses
related to the organization of the second class of shares are charged to expense over a five-year period.
(f) Dividends and distributions to shareholders--Dividends and distributions paid by the Fund are recorded on the ex-dividend dates. Dividends in the amount of approximately $600,000 were paid due to the recognition of taxable income relating to hedging transactions.
(g) Options--The Fund can write covered call options and purchase put options. When the Fund writes an option, an amount equal to the premium received by the Fund is reflected as an asset and an equivalent liability. The amount of the liability is subsequently marked to market to reflect the current value of the option written.
When a security is sold through an exercise of an option, the related premium received (or paid) is deducted from (or added to) the basis of the security sold. When an option expires (or the Fund enters into a closing transaction), the Fund realizes a gain or loss on the option to the extent of the premiums received or paid (or gain or loss to the premium paid or received).
Written and purchased options are non-income producing investments.
(h) Reclassifications--Certain 1992 amounts have been reclassified to conform to the 1993 presentation.
2. INVESTMENT ADVISORY AGREEMENT AND TRANSACTIONS WITH AFFILIATES:
The Fund has entered into an Investment Advisory Agreement with Merrill Lynch
Asset Management ("MLAM"). MLAM is the name under which Merrill Lynch Investment
Management, Inc. ("MLIM") does business. MLIM is an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. The Fund has also entered into a
Distribution Agreement and a Distribution Plan with Merrill Lynch Funds
Distributor, Inc. ("MLFD" or "Distributor"), a wholly-owned subsidiary of MLIM.
MLAM is responsible for the management of the Fund's portfolio and provides the
necessary personnel, facilities, equipment and certain other services
necessary to the operations of the Fund. For such services, the Fund pays a
monthly fee of 0.60% of the average daily net assets of the Fund. The Management
Agreement obligates MLAM to reimburse the Fund to the extent the Fund's
expenses (excluding interest, taxes, distribution fees, brokerage fees and
commissions, and extraordinary items) exceed 2.5% of the Fund's first $30
million of average daily net assets, 2.0% of the next $70 million of average
daily net assets and 1.5% of the average daily net assets in excess thereof.
MLAM's obligation to reimburse the Fund is limited to the amount of the
management fee. No fee payment will be made to MLAM during any fiscal year
which will cause such expenses to exceed the most restrictive expense limitation
applicable at the time of such payment.
Effective January 1, 1994, the investment advisory business of MLAM reorganized from a corporation to a limited partnership. The general partner of MLAM is Princeton Services, Inc., an indirect wholly-owned subsidiary of Merrill Lynch & Co.
The Fund has adopted a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940 pursuant to which MLFD receives a fee from the Fund at the end of each month at an annual rate of 1.0% of the average daily net assets of the Class B Shares of the Fund. This fee is to compensate the Distributor for the services it provides and the expenses borne by the Distributor under the Distribution Agreement. As authorized by the Plan, the Distributor has entered into an agreement with Merrill Lynch, Pierce, Fenner & Smith Inc. ("MLPF&S"), an affiliate of MLIM, which provides for the compensation of MLPF&S for providing distribution-related services to the Fund. For the year ended December 31, 1993, MLFD earned $3,135,389 under the Plan, all of which was paid to MLPF&S pursuant to the agreement.
For the year ended December 31, 1993, MLFD earned underwriting discounts of $223,158, and MLPF&S earned dealer concessions of $3,412,884 on the sale of the Fund's Class A Shares.
MLPF&S received contingent deferred sales charges of $1,036,912 relating to capital share transactions for the sale of Class B Shares and $27,267 in commissions on the execution of portfolio security transactions for the Fund during the year.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of Merrill Lynch & Co., Inc., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM at cost.
Certain officers and/or directors of the Fund are officers and/or directors of MLIM, MLPF&S, FDS, MLFD and/or Merrill Lynch & Co., Inc.
3. INVESTMENTS: Purchases and sales of investments, excluding short-term securities, for the year ended December 31, 1993 were $412,294,367 and $83,872,660, respectively.
Transactions in foreign currency put options purchased for the year ended December 31, 1993 were as follows:
Premiums
Par Value Paid
Outstanding put options purchased
at beginning of year $152,070,000 $ 19,743,012
Options purchased 160,000,000 2,872,000
Options terminated in closing sale
transactions (152,070,000) (19,743,012)
------------ ------------
Outstanding put options purchased
at end of year $160,000,000 $ 2,872,000
============ ============
|
Net realized and unrealized gains (losses) as of December 31, 1993 were as follows:
Realized Unrealized
Gains (Losses) Gains (Losses)
Long-term investments $ 16,248,149 $202,758,790
Put options purchased (18,208,512) (2,864,000)
Foreign currency transactions (95,945) 6,058,030
------------ ------------
Total $ (2,056,308) $205,952,820
============ ============
|
As of December 31, 1993, net unrealized appreciation for Federal income tax purposes aggregated $202,758,790, of which $240,446,901 related to appreciated securities and $37,688,111 related to depreciated securities. At December 31, 1993, the aggregate cost of investments, including put options purchased, for Federal income tax purposes was $746,971,612.
4. CAPITAL SHARE TRANSACTIONS:
Net increase in net assets derived from capital share transactions was
$364,954,305 and $103,926,145 for the years ended December 31, 1993 and
December 31, 1992, respectively.
Transactions in capital shares for Class A and Class B Shares were as follows:
Class A Shares for the Dollar
Year Ended December 31, 1993 Shares Amount
Shares sold 10,009,773 $199,420,932
Shares issued to shareholders in
reinvestment of dividends 24,089 502,981
------------ ------------
Total issued 10,033,862 199,923,913
Shares redeemed (5,781,892) (111,793,605)
------------ ------------
Net increase 4,251,970 $ 88,130,308
============ ============
|
Class A Shares for the Dollar
Year Ended December 31, 1992 Shares Amount
Shares sold 4,746,853 $ 80,862,615
Shares issued to shareholders in
reinvestment of dividends and
distributions 832,079 13,537,922
------------ ------------
Total issued 5,578,932 94,400,537
Shares redeemed (4,175,238) (71,318,655)
------------ ------------
Net increase 1,403,694 $ 23,081,882
============ ============
|
Class B Shares for the Dollar
Year Ended December 31, 1993 Shares Amount
Shares sold 20,303,772 $393,836,066
Shares redeemed (6,173,424) (117,012,069)
------------ ------------
Net increase 14,130,348 $276,823,997
============ ============
|
Class B Shares for the Dollar
Year Ended December 31, 1992 Shares Amount
Shares sold 6,958,286 $115,698,519
Shares issued to shareholders in
reinvestment 505,287 7,983,533
------------ ------------
Total issued 7,463,573 123,682,052
Shares redeemed (2,576,860) (42,837,789)
------------ ------------
Net increase 4,886,713 $ 80,844,263
============ ============
|
5. Capital Loss Carryforward:
At December 31, 1993, the Fund had a net capital loss carryforward of
approximately $3,332,000, all of which expires in 2001. This amount will be
available to offset like amounts of any future taxable gains.
TABLE OF CONTENTS
PAGE
------
Investment Objective and Policies...... 2
Management of the Fund................. 9
Purchase of Shares..................... 12
Redemption of Shares................... 17
Portfolio Transactions and Brokerage... 18
Determination of Net Asset Value....... 20
Shareholder Services................... 21
Dividends, Distributions and Taxes..... 34
Performance Data....................... 37
General Information.................... 39
Description of Shares................ 39
Computation of Offering Price Per
Share............................. 40
Independent Auditors................. 40
Custodian............................ 40
Transfer Agent....................... 40
Legal Counsel........................ 40
Reports to Shareholders.............. 40
Additional Information............... 41
Independent Auditors' Report........... 43
Financial Statements................... 44
|
Code#10241
Statement of
Additional Information
ARTWORK
Shares of Common Stock
April 29, 1994
Distributor:
Merrill Lynch
Funds Distributor, Inc.
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS
Contained in Part A:
Financial Highlights for each of the ten years in the period ended December 31, 1993.
Contained in Part B:
Financial Statements:
Schedule of Investments, December 31, 1993.
Statement of Assets and Liabilities as of
December 31, 1993.
Statement of Operations for the year ended
December 31, 1993.
Statements of Changes in Net Assets for the
years ended December 31, 1993 and 1992.
Financial Highlights for each of the five
years in the period ended December 31, 1993.
(B) EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------ ---------------------------------------------------------------------------
1(a) -- Articles of Incorporation of Registrant, as amended.
(b) -- Articles of Amendment to Articles of Incorporation of Registrant.
(c) -- Articles of Amendment to Articles of Incorporation of Registrant, dated
October 3, 1988.
(d) -- Articles Supplementary to the Articles of Incorporation.
2 -- By-Laws of Registrant.(e)
3 -- None.
4 -- Copies of instruments defining the rights of shareholders, including the
relevant portions of the Articles of Incorporation, as amended, and By-Laws
of Registrant.(b)
5(a) -- Management Agreement between Registrant and Merrill Lynch Asset Management,
Inc.(c)
(b) -- Supplement to Management Agreement between Registrant and Merrill Lynch
Asset Management, L.P., dated January 3, 1994.
6(a) -- Class A Distribution Agreement between Registrant and Merrill Lynch Funds
Distributor, Inc., including form of Selected Dealers Agreement.(c)
(b) -- Class B Distribution Agreement between Registrant and Merrill Lynch Funds
Distributor, Inc., including form of Selected Dealers Agreement.(e)
(c) -- Letter Agreement between the Registrant and Merrill Lynch Fund's
Distributor, Inc. with respect to the Merrill Lynch Mutual Fund Advisor
Program.
7 -- None.
8(a) -- Custodian Agreement between Registrant and Brown Brothers Harriman & Co.,
as Custodian.(a)
(b) -- Master Subcustodian Agreement of Brown Brothers Harriman & Co.(a)
9(a) -- Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing
Agency Agreement between the Registrant and Merrill Lynch Financial Data
Service, Inc. (now known as Financial Data Services, Inc.)(d)
(b) -- Agreement relating to use of name among Registrant, Merrill Lynch Asset
Management, Inc., and Merrill Lynch, Pierce, Fenner & Smith
Incorporated.(a)
10 -- None.
11 -- Consent of Deloitte & Touche, independent auditors for Registrant.
12 -- None.
13 -- None.
|
EXHIBIT
NUMBER DESCRIPTION
------ ---------------------------------------------------------------------------
14(a) -- None.
15 -- Amended and Restated Class B Distribution Plan of the Registrant and
Distribution Plan Sub-Agreement.
16(a) -- Schedule for computation of each performance quotation relating to Class A
shares provided in the Registration Statement response to Item 22.(e)
(b) -- Schedule for computation of each performance quotation relating to Class B
shares provided in the Registration Statement in response to Item 22.(f)
|
(a) Filed as an Exhibit to Post-Effective Amendment No. 13 to Registrant's Registration Statement under the Securities Act of 1933 on Form N-1A.
(b) Reference is made to Article III (Sections 3, 4 and 5), Article V, Article VI (Sections 2, 3, 4 and 5), Article VII, Article VIII and Article X of the Registrant's Articles of Incorporation, as amended, filed as Exhibit (1)(a) to the Registrant's Registration Statement; and Article II, Article III (Sections 1, 2, 3, 5, 6 and 17), Article VI, Article VII, Article XII, Article XIII and Article XV of the Registrant's By-Laws previously filed as Exhibit (2) to the Registrant's Registration Statement.
(c) Filed as an Exhibit to Post-Effective Amendment No. 14 to Registrant's Registration Statement under the Securities Act of 1933 on Form N-1A.
(d) Filed as an Exhibit to Post-Effective Amendment No. 16 to Registrant's Registration Statement under the Securities Act of 1933 on Form N-1A.
(e) Filed as an Exhibit to Post-Effective Amendment No. 17 to Registrant's Registration Statement under the Securities Act of 1933 on Form N-1A.
(f) Filed as an Exhibit to Post-Effective Amendment No. 19 to Registrant's Registration Statement under the Securities Act of 1933 on Form N-1A.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Registrant is not controlled by or under common control with any other person.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
NUMBER OF RECORD
HOLDERS AT
TITLE OF CLASS MARCH 31, 1994
-----------------
Class A Common Stock, par value $0.10 per share....................... 4,436
Class B Common Stock, par value $0.10 per share....................... 1,117
|
ITEM 27. INDEMNIFICATION.
Reference is made to Article VI of Registrant's Articles of Incorporation, Article VI of Registrant's By-Laws, Section 2-418 of the Maryland General Corporation Law and Section 9 of the Distribution Agreement.
Article VI of the By-Laws provides that each officer and director of the Registrant shall be indemnified by the Registrant to the full extent permitted under the General Laws of the State of Maryland, except that such indemnity shall not protect any such person against any liability to the Registrant or any stockholder thereof to which such person would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office. Absent a court determination that an officer or director seeking indemnification was not liable on the merits or guilty of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office, the decision by the Registrant to indemnify such person must be based upon the reasonable determination of independent counsel or non-party independent directors, after review of the facts, that such officer or director is not guilty of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office.
Each officer and director of the Registrant claiming indemnification within the scope of Article VI of the By-Laws shall be entitled to advances from the Registrant for payment of the reasonable expenses incurred by him in connection with proceedings to which he is a party in the manner and to the full extent permitted under the General Laws of the State of Maryland; provided, however, that the person seeking indemnification shall provide to the Registrant a written affirmation of his good faith belief that the standard of conduct necessary for indemnification by the Registrant has been met and a written undertaking to repay any such advance, if it should ultimately be determined that the standard of conduct has not been met, and provided further that at least one of the following additional conditions is met: (a) the person seeking indemnification shall provide a security in form and amount acceptable to the Registrant for his undertaking; (b) the Registrant is insured against losses arising by reason of the advance; (c) a majority of a quorum of non-party independent directors, or independent legal counsel in a written opinion, shall determine, based on a review of facts readily available to the Registrant at the time the advance is proposed to be made, that there is reason to believe that the person seeking indemnification will ultimately be found to be entitled to indemnification.
The Registrant may purchase insurance on behalf of an officer or director protecting such person to the full extent permitted under the General Laws of the State of Maryland from liability arising from his activities as officer or director of the Registrant. The Registrant, however, may not purchase insurance on behalf of any officer or director of the Registrant that protects or purports to protect such person from liability to the Registrant or to its stockholders to which such officer or director would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his office.
The Registrant may indemnify, make advances or purchase insurance to the extent provided in Article VI of the By-Laws on behalf of an employee or agent who is not an officer or director of the Registrant.
In Section 9 of the Class A and Class B 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 (the "Act"), against certain types of civil liabilities keeping in connection with the Registration Statement or Prospectus and Statement of Additional Information.
Insofar as indemnification for liabilities arising under the 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 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 Act and will be governed by the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Merrill Lynch Asset Management, L.P., doing business as Merrill Lynch Asset Management (the "Manager"), acts as investment adviser for the following registered investment companies: Convertible Holdings, Inc., Merrill Lynch Adjustable Rate Securities Fund, Inc., Merrill Lynch Americas Income Fund, Inc., Merrill Lynch Balanced Fund for Investment and Retirement, Merrill Lynch Capital Fund, Inc., Merrill Lynch Developing Capital Markets Fund, Inc., Merrill Lynch Dragon Fund, Inc., Merrill Lynch EuroFund, Merrill Lynch Fundamental Growth Fund, Inc., Merrill Lynch Fund For Tomorrow, Inc., Merrill Lynch Global Bond Fund for Investment and Retirement, Merrill Lynch Global Allocation Fund, Inc., Merrill Lynch Global Convertible Fund, Inc., Merrill Lynch Global Holdings, Merrill Lynch Global Resources Trust, Merrill Lynch Global Utility Fund, Inc., Merrill Lynch Growth Fund for Investment and Retirement, Merrill Lynch Healthcare Fund, Inc., Merrill Lynch High Income Municipal Bond Fund, Inc., Merrill Lynch
Institutional Intermediate Fund, Merrill Lynch International Equity Fund, Merrill Lynch Latin America Fund, Inc., Merrill Lynch Municipal Series Trust, Merrill Lynch Pacific Fund, Inc., Merrill Lynch Ready Assets Trust, Merrill Lynch Retirement Series Trust, Merrill Lynch Series Fund, Inc., Merrill Lynch Short-Term Global Income Fund, Inc., Merrill Lynch Strategic Dividend Fund, Merrill Lynch Technology Fund, Inc., Merrill Lynch U.S. Treasury Money Fund, Merrill Lynch Utility Income Fund, Inc., Merrill Lynch Variable Series Funds, Inc. and Senior Floating Rate Fund. Fund Asset Management, L.P. ("FAM"), an affiliate of the Manager, acts as the investment adviser for the following investment companies: Apex Municipal Fund, Inc., 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., Corporate High Yield Fund, Inc., Corporate High Yield Fund II, Inc., Emerging Tigers Fund, Inc., Financial Institutions Series Trust, Income Opportunities Fund 1999, Inc., Income Opportunities Fund 2000, Inc., Merrill Lynch Basic Value Fund, Inc., Merrill Lynch California Municipal Series Trust, Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch Federal Securities Trust, Merrill Lynch Funds for Institutions Series, Merrill Lynch Multi-State Municipal Series Trust, Merrill Lynch Multi-State Limited Maturity 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., MuniAssets Fund, Inc., MuniBond Income Fund, Inc., The Municipal Fund Accumulation Program, Inc., MuniEnhanced Fund, Inc., MuniInsured Fund, Inc., MuniVest Fund, Inc., MuniVest Fund II, Inc., MuniVest California Insured Fund, Inc., MuniVest Florida Fund, MuniVest Michigan Insured Fund, Inc., MuniVest New Jersey Fund, Inc., MuniVest New York Insured Fund, Inc., MuniVest Pennsylvania Insured Fund, MuniYield Arizona Fund, Inc., MuniYield Arizona Fund II, 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 Insured Fund II, 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 New York Insured Fund III, Inc., MuniYield Pennsylvania Fund, MuniYield Quality Fund, Inc., MuniYield Quality Fund II, Inc., Senior High Income Portfolio, Inc., Senior High Income Portfolio II, Inc., Senior Strategic Income Fund, Inc., Taurus MuniCalifornia Holdings, Inc., Taurus MuniNew York Holdings, Inc. and Worldwide DollarVest Fund, Inc. The address of each of these investment companies is Box 9011, Princeton, New Jersey 08543-9011, except that the address of Merrill Lynch Funds for Institutions Series and Merrill Lynch Institutional Intermediate Fund is One Financial Center, 15th Floor, Boston, Massachusetts 02111-2646. The address of the Manager, FAM, Merrill Lynch Funds Distributor, Inc. ("MLFD") and Princeton Administrators, Inc. is also Box 9011, Princeton, New Jersey 08543-9011. 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. The address of 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 director of the Manager indicating each business, profession, vocation or employment of a substantial nature in which each such person or entity has been engaged since December 31, 1991, for his or its own account or in the capacity of director, officer, partner or trustee. In addition, Mr. Zeikel is President, Mr. Richard is Treasurer and Mr. Glenn is Executive Vice President of substantially all of the investment companies described in the preceding paragraph, and Messrs. Durnin, Giordano, Harvey and Kirstein are directors, trustees or officers of one or more of such companies.
OTHER SUBSTANTIAL BUSINESS,
NAME POSITION(S) WITH THE MANAGER PROFESSION, VOCATION OR EMPLOYMENT
- ------------------------ ----------------------------- ------------------------------------------
ML & Co................. Limited Partner Financial Services Holding Company
Merrill Lynch Investment
Management, Inc....... Limited Partner Investment Advisory Services; Limited
Partner of FAM
Princeton Services, Inc.
("Princeton General Partner General Partner of FAM
Services")............
Arthur Zeikel........... President President of FAM; President and Director
of Princeton Services; Director of MLFD;
Executive Vice President of ML&Co.;
Executive Vice President of Merrill
Lynch
Terry K. Glenn.......... Executive Vice President Executive Vice President of FAM; Executive
Vice President and Director of Princeton
Services; President and Director of
MLFD; Director of FDS; President of
Princeton Administrators
Bernard J. Durnin....... Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
Vincent R. Giordano..... Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
Elizabeth Griffin....... Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
Norman R. Harvey........ Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
N. John Hewitt.......... Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
Philip L. Kirstein...... Senior Vice President, Senior Vice President, General Counsel and
General Counsel and Secretary of FAM; Senior Vice President,
Secretary General Counsel, Director and Secretary
of Princeton Services; Director of MLFD
Ronald M. Kloss......... Senior Vice President and Senior Vice President and Controller of
Controller FAM; Senior Vice President and Controller
of Princeton Services
Stephen M.M. Miller..... Senior Vice President Executive Vice President of Princeton
Administrators; Senior Vice President of
Princeton Services
Joseph T. Monagle, Senior Vice President Senior Vice President of FAM; Senior Vice
Jr.................... President of Princeton Services
Gerald M. Richard....... Senior Vice President and Senior Vice President and Treasurer of
Treasurer FAM; Senior Vice President and Treasurer
of Princeton Services; Vice President
and Treasurer of MLFD
Richard L. Rufener...... Senior Vice President Vice President of MLFD; Senior Vice
President of Princeton Services
Ronald L. Welburn....... Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
Anthony Wiseman......... Senior Vice President Senior Vice President of Princeton
Services
|
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) MLFD acts as the principal underwriter for the Registrant and for each of the investment companies referred to in the first paragraph of Item 28 except Apex Municipal Fund, Inc., CBA Money Fund, CMA Government Securities Fund, CMA Money Fund, CMA Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, Convertible Holdings, Inc., The Corporate Fund Accumulation Program, Inc., Corporate High Yield Fund, Inc., Corporate High Yield Fund II, Inc., Emerging Tigers Fund,
Inc., Income Opportunities Fund 1999, Inc., Income Opportunities Fund 2000, Inc., MuniAssets Fund, Inc., MuniBond Income Fund, Inc., The Municipal Fund Accumulation Program, Inc., MuniEnhanced Fund, Inc., MuniInsured Fund, Inc., MuniVest Fund, Inc., MuniVest Fund II, Inc., MuniVest California Insured Fund, Inc., MuniVest Florida Fund, MuniVest Michigan Insured Fund, Inc., MuniVest New Jersey Fund, Inc., MuniVest New York Insured Fund, Inc., MuniVest Pennsylvania Fund, MuniYield Arizona Fund, MuniYield Arizona Fund II, Inc., MuniYield California Fund, Inc., MuniYield California Fund, Inc., MuniYield California Insured Fund, Inc., MuniYield Florida Fund, MuniYield Florida Insured Fund, MuniYield Fund, Inc., MuniYield Insured Fund, Inc., MuniYield Insured Fund II, 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 New York Insured Fund III, Inc., MuniYield Pennsylvania Fund, MuniYield Quality Fund, Inc., MuniYield Quality Fund II, Inc., Senior High Income Portfolio, Inc., Senior High Income Portfolio II, Inc., Senior Strategic Income Fund, Inc., Taurus MuniCalifornia Holdings, Inc., Taurus MuniNew York Holdings, Inc. and Worldwide DollarVest Fund, Inc.
(b) Set forth below is information concerning each director and officer of MLFD. The principal business address of each such person is Box 9011, Princeton, New Jersey 08543-9011, except that the address of Messrs. Crook, Aldrich, Breen, Graczyk, Fatseas and Wasel is One Financial Center, Boston, Massachusetts 02111-2646.
(2) (3)
(1) POSITION(S) AND OFFICE(S) POSITION(S) AND OFFICE(S)
NAME WITH MLFD WITH REGISTRANT
-------------------------------- ----------------------------- -------------------------
Terry K. Glenn.................. President and Director Executive Vice President
Arthur Zeikel................... Director President and Director
Philip L. Kirstein.............. Director None
William E. Aldrich.............. Senior Vice President None
Robert W. Crook................. Senior Vice President None
Michael J. Brady................ Vice President None
William M. Breen................ Vice President None
Sharon Creveling................ Vice President and Assistant None
Treasurer
Mark A. DeSario................. Vice President None
James T. Fatseas................ Vice President None
Stanley Graczyk................. Vice President None
Michelle T. Lau................. Vice President None
Debra W. Landsman-Yaros......... Vice President None
Gerald M. Richard............... Vice President and Treasurer Treasurer
Richard L. Rufener.............. Vice President None
Salvatore Venezia............... Vice President None
William Wasel................... Assistant Vice President None
Robert Harris................... Secretary Secretary
|
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940, as amended, and the rules
thereunder are maintained at the offices of the Registrant, 800 Scudders Mill
Road, Plainsboro, New Jersey 08536, and Financial Data Services, Inc., 4800 Deer
Lake Drive East, Jacksonville, Florida 32246-6484.
ITEM 31. MANAGEMENT SERVICES.
Other than as set forth under the caption "Management of the Fund--Management and Advisory Arrangements" in the Prospectus constituting Part A of the Registration Statement and under "Management of the Fund--Management and Advisory Arrangements" in the Statement of Additional Information constituting Part B of the Registration Statement, Registrant is not a party to any management related service contract.
ITEM 32. UNDERTAKINGS.
The Registrant undertakes to furnish to each person to whom a prospectus is delivered a copy of the Registrant's annual report to shareholders, upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets all of the requirements for effectiveness of this Post-Effective Amendment to its Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this Post-Effective Amendment to its Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the Township of Plainsboro, and the State of New Jersey, on the 27th day of April 1994.
MERRILL LYNCH PACIFIC FUND, INC.
(Registrant)
By /s/ ARTHUR ZEIKEL
__________________________________
(Arthur Zeikel, President)
|
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment to Registrant's Registration Statement has been signed below by the following persons in the capacities and on the date(s) indicated.
SIGNATURE TITLE DATE(S)
- ------------------------------------------ -------------------------------- ---------------
/S/ ARTHUR ZEIKEL President and Director April 27, 1994
- ------------------------------------------ (Principal Executive Officer)
(Arthur Zeikel)
/S/ GERALD M. RICHARD Treasurer (Principal Financial April 27, 1994
- ------------------------------------------ and Accounting Officer)
(Gerald M. Richard)
DONALD CECIL* Director April 27, 1994
- ------------------------------------------
(Donald Cecil)
EDWARD H. MEYER* Director April 27, 1994
- ------------------------------------------
(Edward H. Meyer)
CHARLES C. REILLY* Director April 27, 1994
- ------------------------------------------
(Charles C. Reilly)
RICHARD R. WEST* Director April 27, 1994
- ------------------------------------------
(Richard R. West)
*By /S/ ARTHUR ZEIKEL April 27, 1994
- ------------------------------------------
(Arthur Zeikel, Attorney-in-Fact)
|
EXHIBIT INDEX
(B) EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------ -------------------------------------------------------------------------------------
1(a) -- Articles of Incorporation of Registrant, as amended.
(b) -- Articles of Amendment to Articles of Incorporation of Registrant.
(c) -- Articles of Amendment to Articles of Incorporation of Registrant, dated October 3,
1988.
(d) -- Articles Supplementary to the Articles of Incorporation.
2 -- By-Laws of Registrant.(e)
3 -- None.
4 -- Copies of instruments defining the rights of shareholders, including the relevant
portions of the Articles of Incorporation, as amended, and By-Laws of Registrant.(b)
5(a) -- Management Agreement between Registrant and Merrill Lynch Asset Management, Inc.(c)
(b) -- Supplement to Management Agreement between Registrant and Merrill Lynch Asset
Management, L.P. dated January 3, 1994.
6(a) -- Class A Distribution Agreement between Registrant and Merrill Lynch Funds
Distributor, Inc., including form of Selected Dealers Agreement.(c)
(b) -- Class B Distribution Agreement between Registrant and Merrill Lynch Funds
Distributor, Inc., including form of Selected Dealers Agreement.(e)
(c) -- Letter Agreement between the Registrant and Merrill Lynch Fund's Distributor, Inc.
with respect to the Merrill Lynch Mutual Fund Advisor Program.
7 -- None.
8(a) -- Custodian Agreement between Registrant and Brown Brothers Harriman & Co., as
Custodian.(a)
(b) -- Master Subcustodian Agreement of Brown Brothers Harriman & Co.(a)
9(a) -- Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing Agency
Agreement between the Registrant and Merrill Lynch Financial Data Service, Inc. (now
known as Financial Data Services, Inc.)(d)
(b) -- Agreement relating to use of name among Registrant, Merrill Lynch Asset Management,
Inc., and Merrill Lynch, Pierce, Fenner & Smith Incorporated.(a)
10 -- None.
11 -- Consent of Deloitte & Touche, independent auditors for Registrant.
12 -- None.
13 -- None.
14(a) -- None.
15 -- Amended and Restated Class B Distribution Plan of the Registrant and Distribution
Plan Sub-Agreement.
16(a) -- Schedule for computation of each performance quotation relating to Class A shares
provided in the Registration Statement response to Item 22.(e)
(b) -- Schedule for computation of each performance quotation relating to Class B shares
provided in the Registration Statement in response to Item 22.(f)
|
(a) Filed as an Exhibit to Post-Effective Amendment No. 13 to Registrant's Registration Statement under the Securities Act of 1933 on Form N-1A.
(b) Reference is made to Article III (Sections 3, 4 and 5), Article V, Article VI (Sections 2, 3, 4 and 5), Article VII, Article VIII and Article X of the Registrant's Articles of Incorporation, as amended, filed as Exhibit (1)(a) to the Registrant's Registration Statement; and Article II, Article III (Sections 1, 2, 3, 5, 6 and 17), Article VI, Article VII, Article XII, Article XIII and Article XV of the Registrant's By-Laws previously filed as Exhibit (2) to the Registrant's Registration Statement.
(c) Filed as an Exhibit to Post-Effective Amendment No. 14 to Registrant's Registration Statement under the Securities Act of 1933 on Form N-1A.
(d) Filed as an Exhibit to Post-Effective Amendment No. 16 to Registrant's Registration Statement under the Securities Act of 1933 on Form N-1A.
(e) Filed as an Exhibit to Post-Effective Amendment No. 17 to Registrant's Registration Statement under the Securities Act of 1933 on Form N-1A.
(f) Filed as an Exhibit to Post-Effective Amendment No. 19 to Registrant's Registration Statement under the Securities Act of 1933 on Form N-1A.
APPENDIX FOR GRAPHIC AND IMAGE MATERIAL
Pursuant to Rule 304 of Regulation S-T, the following table presents fair and accurate narrative descriptions of graphic and image material omitted from this EDGAR Submission File due to ASCII-incompatibility and cross-references this material to the location of each occurrence in the text.
DESCRIPTION OF OMITTED LOCATION OF GRAPHIC
GRAPHIC OR IMAGE OR IMAGE IN TEXT
----------------------- -------------------
Geological map of Pacific region Back cover of Prospectus and
back cover of Statement of
Additional Information
|
ARTICLES OF INCORPORATION
OF
NOMURA CAPITAL FUND OF JAPAN, INC.
* * * *
ARTICLE I
I, THE UNDERSIGNED, JOHN A. MacKINNON, whose post-office address is One Liberty Plaza, New York, New York, 10006 being at least eighteen years of age, does hereby act as an incorporator, under and by virtue of the General Laws of the State of Maryland authorizing the formation of corporations and with the intention of forming a corporation.
ARTICLE II
NAME
The name of the corporation is
NOMURA CAPITAL FUND OF JAPAN, INC.
ARTICLE III
PURPOSES AND POWERS
The purpose or purposes for which the Corporation is formed and the business or objects to be transacted, carried on and promoted by it are as follows:
(1) To conduct and carry on the business of an investment company of the management type.
(2) To hold, invest and reinvest its assets in securities, and in connection therewith to hold part or all of its assets in cash.
(3) To issue and sell shares of its own capital stock in such amounts and on such terms and conditions, for such purposes and for such amount or kind of consideration now or hereafter permitted by the General Laws of the State of Maryland and by these Articles of Incorporation, as its Board of Directors may determine; provided, however, that the value of the consideration per share to be received by the Corporation upon the sale or other disposition of any shares of its capital stock shall not be less than the net asset value per share of such capital stock outstanding at the time of such event.
(4) To redeem, purchase or otherwise acquire, hold, dispose of, resell, transfer, reissue or cancel (all without the vote or consent of the stockholders of the Corporation) shares of its capital stock, in any manner and to the extent now or hereafter permitted by the General Laws of the State of Maryland and by these Articles of Incorporation.
(5) To do any and all such further acts or things and to exercise any and all such further powers or rights as may be necessary, incidental, relative, conducive, appropriate or desirable for the accomplishment, carrying out or attainment of all or any of the foregoing purposes or objects.
The Corporation shall be authorized to exercise and enjoy all of the powers, rights and privileges granted to, or conferred upon, corporations by the General Laws of the State of Maryland now or hereafter in force, and the enumeration of the foregoing shall not be deemed to exclude any powers, rights or privileges so granted or conferred.
ARTICLE IV
PRINCIPAL OFFICE AND RESIDENT AGENT
The post-office address of the principal office of the Corporation in the State of Maryland is c/o The Corporation Trust Incorporated, First Maryland Building, 25 South Charles Street, Baltimore, Maryland 21201. The name of the resident agent of the Corporation in this State is The Corporation Trust Incorporated, a corporation of this State, and the post-office address of the resident agent is First Maryland Building, 25 South Charles Street, Baltimore, Maryland 21201.
ARTICLE V
CAPITAL STOCK
(1) The total number of shares of capital stock which the Corporation shall have authority to issue is Twenty-five Million (25,000,000) shares, all of one class, of the par value of One Dollar ($1.00) per share and of the aggregate par value of Twenty-five Million Dollars ($25,000,000).
(2) Any fractional share shall carry proportionately all the rights of a whole share, excepting any right to receive a certificate evidencing such fractional share, but including, without limitation, the right to vote and the right to receive dividends.
(3) All persons who shall acquire stock in the Corporation shall acquire the same subject to the provisions of these Articles of Incorporation and the by-laws of the Corporation.
ARTICLE VI
PROVISIONS FOR DEFINING, LIMITING AND REGULATING CERTAIN POWERS OF THE
CORPORATION AND OF THEDIRECTORS AND STOCKHOLDERS
(1) The number of directors of the Corporation shall be three (3), which number may be increased pursuant to the by-laws of the Corporation and shall never be less than three (3). The names of the directors who shall act until the first annual meeting or until their successors are duly chosen and qualify are:
Harvey E. Mole Keisuke Egashira Winthrop C. Lenz
(2) The Board of Directors of the Corporation is hereby empowered to authorize the issuance from time to time of shares of capital stock, whether now or hereafter authorized, for
such consideration as the Board of Directors may deem advisable, subject to
such limitations as may be set forth in these Articles of Incorporation or in
the by-laws of the Corporation or in the General Laws of the State of Maryland.
(3) No holder of stock of the Corporation shall, as such
holder, have any right to purchase or subscribe for any shares of the capital
stock of the Corporation or any other security of the Corporation which it may
issue or sell (whether out of the number of shares authorized by these Articles
of Incorporation, or out of any shares of the capital stock of the Corporation
acquired by it after the issue thereof, or otherwise) other than such right, if
any, as the Board of Directors, in its discretion, may determine.
(4) Each director and each officer of the Corporation
shall be indemnified by the Corporation to the full extent permitted by the
General Laws of the State of Maryland.
(5) The Board of Directors of the Corporation may make,
alter or repeal from time to time any of the by-laws of the Corporation except
any particular by-law which is specified as not subject to alteration or repeal
by the Board and which is subject to alteration or repeal only by the
affirmative vote at a meeting of the holders of the majority of the shares of
capital stock of the Corporation outstanding or by the written consent of the
holders of a majority of such shares. When alteration or repeal of a by-law is
only possible by stockholder vote, 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 shall be required to constitute the requisite majority vote for such alteration or repeal.
ARTICLE VII
REDEMPTION
Each holder of shares of capital stock of the Corporation shall be entitled to require the Corporation to redeem all or any part of the shares of capital stock of the Corporation standing in the name of such holder on the books of the Corporation, and all shares of capital stock issued by the Corporation shall be subject to redemption by the Corporation, at the redemption price of such shares as in effect from time to time as may be determined by the Board of Directors of the Corporation in accordance with the provisions hereof, subject to the right of the Board of Directors of the Corporation to suspend the right of redemption of shares of capital stock of the Corporation or postpone the date of payment of such redemption price in accordance with provisions of applicable law. The redemption price of shares of capital stock of the Corporation shall be the net asset value thereof as determined by the Board of Directors of the Corporation from time to time in accordance with the provisions of applicable law, less such redemption fee or other
charge, if any, as may be fixed by resolution of the Board of Directors of the Corporation. Payment of the redemption price shall be made in cash by the Corporation at such time and in such manner as may be determined from time to time by the Board of Directors of the Corporation.
ARTICLE VIII
DETERMINATION BINDING
Any determination made in good faith, so far as accounting matters are involved, in accordance with accepted accounting practice by or pursuant to the direction of the Board of Directors, as to the amount of assets, obligations or liabilities of the Corporation, as to the amount of net income of the Corporation from dividends and interest for any period or amounts at any time legally available for the payment of dividends, as to the amount of any reserves or charges set up and the propriety thereof, as to the time of or purpose for creating reserves or as to the use, alteration or cancellation of any reserves or charges (whether or not any obligation or liability for which such reserves or charges shall have been created shall have been paid or discharged or shall be then or thereafter required to be paid or discharged), as to the price of any security owned by the Corporation or as to any other matters relating to the issuance, sale, redemption or other acquisition or disposition or securities or shares of capital stock of the
Corporation, and any reasonable determination made in good faith by the Board of Directors as to whether any transaction constitutes a purchase of securities on "margin", a sale of securities "short", or an underwriting of the sale of, or a participation in any underwriting or selling group in connection with the public distribution of, any securities, shall be final and conclusive, and shall be binding upon the Corporation and all holders of its capital stock, past, present and future, and shares of the capital stock of the Corporation are issued and sold on the condition and understanding, evidenced by the purchase of shares of capital stock or acceptance of share certificates, that any and all such determinations shall be binding as aforesaid. No provision of these Articles of Incorporation shall be effective to (a) require a waiver of compliance with any provision of the Securities Act of 1933, as amended, or the Investment Company Act of 1940, as amended, or of any valid rule, regulation or order of the Securities and Exchange Commission thereunder or (b) protect or purport to protect any director or officer of the Corporation against any liability to the Corporation or its security holders to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office.
ARTICLE IX
PERPETUAL EXISTENCE
The duration of the Corporation shall be perpetual.
ARTICLE X
AMENDMENT
The Corporation reserves the right from time to time to make any amendment of its charter, now or hereafter authorized by law, including any amendment which alters the contract rights, as expressly set forth in its charter, of any outstanding stock.
IN WITNESS WHEREOF, the undersigned incorporator of NOMURA CAPITAL FUND OF JAPAN, INC. who executed the foregoing Articles of Incorporation hereby acknowledges the same to be his act and further acknowledges that, to the best of his knowledge, the matters and facts set forth therein are true and in all material respects under the penalties of perjury.
Dated the 5th day of August, 1976
/s/ John A. MacKinnon
John A. MacKinnon
|
NOMURA CAPITAL FUND OF JAPAN, INC.
ARTICLES OF AMENDMENT
NOMURA CAPITAL FUND OF JAPAN, INC., a Maryland corporation having its principal office c/o The Corporation Trust Incorporated, First Maryland Building, 25 South Charles Street, Baltimore, Maryland 21201 (hereinafter called the Corporation), hereby certifies to the State Department of Assessments and Taxation of Maryland that:
FIRST: The charter of the Corporation is hereby amended by striking out Article II of the Articles of Incorporation and inserting in lieu thereof the following:
ARTICLE II
NAME
The name of the Corporation is
MERRILL LYNCH PACIFIC FUND, INC.
SECOND: The Board of Directors of the Corporation on May 1, 1980 duly adopted a resolution which set forth the foregoing amendment and declared it to be advisable and directed that it be submitted for consideration by the stockholders of the Corporation at an annual meeting of such stockholders.
THIRD: Notice setting forth the foregoing amendment and stating that a purpose of the meeting of stockholders would be to take action thereon was given, as required by law, to all stockholders entitled to vote thereon. The amendment of the charter of the Corporation as hereinabove set forth was approved by the stockholders of the Corporation on July 25, 1980 at an adjournment of an annual meeting by the affirmative vote of two-thirds of all the votes entitled to be cast thereon.
IN WITNESS WHEREOF, Nomura Capital Fund of Japan, Inc. has caused these articles to be signed in its name and on its behalf by its Vice President and attested by its Secretary on July 25, 1980.
NOMURA CAPITAL FUND OF JAPAN, INC.
By: /s/ James P. Ruf
James P. Ruf, Vice President
Attest:
/s/ Stephen M. M. Miller
Stephen M. M. Miller
Secretary
|
THE UNDERSIGNED, Vice President of Nomura Capital Fund of Japan, Inc., who executed on behalf of said Corporation the foregoing Articles of Amendment, of which this Certificate is made a part, hereby acknowledges, in the name and on behalf of said Corporation, the foregoing Articles of Amendment to be the corporate act of said Corporation and further certifies that, to the best of his knowledge, information and belief, the matters and facts set forth therein with respect to the approval thereof are true in all material respects, under the penalties of perjury.
/s/ James P. Ruf
James P. Ruf
|
MERRILL LYNCH PACIFIC FUND, INC.
ARTICLES OF AMENDMENT
MERRILL LYNCH PACIFIC FUND, INC., a Maryland corporation, having its principal office c/o The Corporation Trust Incorporated, 32 South Street, Baltimore, Maryland 21202 (hereinafter called the Corporation), hereby certifies to the State Department of Assessments and Taxation of Maryland that:
FIRST: The Charter of the Corporation, as heretofore amended, is hereby amended by striking out in its entirety Article V and inserting in lieu thereof the following:
ARTICLE V
CAPITAL STOCK
(1) The total number of shares of capital stock which the Corporation shall have authority to issue is One Hundred Million (100,000,000) shares, all of one class, of the par value of One Dollar ($1.00) per share and of the aggregate par value of One Hundred Million Dollars ($100,000,000).
(2) Any fractional share shall carry proportionately all the rights of a whole share, excepting any right to receive a certificate evidencing such fractional share, but including, without limitation, the right to vote and the right to receive dividends.
(3) All persons who shall acquire stock in the Corporation shall acquire the same subject to the provisions of these Articles of Incorporation and the by-laws of the Corporation.
SECOND: The amendment of the charter of the Corporation as hereinabove set forth has been duly advised by the Board of Directors and approved by the stockholders of the Corporation.
THIRD:
(a) The total number of shares of the only class of stock of the Corporation heretofore authorized, and the par value of such shares individually and in the aggregate was as follows:
Twenty-five Million (25,000,000) shares, of the par value of One Dollar ($1.00) per share and of the aggregate par value of Twenty-five Million Dollars ($25,000,000).
(b) The total number of shares of the only class of stock of the Corporation has increased, and the par value of such shares individually and in the aggregate is as follows:
One Hundred Million (100,000,000) shares, of the par value of One Dollar ($1.00) per share and of the aggregate par value of One Hundred Million Dollars ($100,000,000).
(c) The information required pursuant to Section 2-607(b)(2)(i) of the General Corporation Law of Maryland was not changed by the foregoing amendment.
In witness whereof: MERRILL LYNCH PACIFIC FUND, INC. has caused these presents to be signed in its name and on its behalf by its President and attested by its secretary on October 2, 1986.
MERRILL LYNCH PACIFIC FUND, INC.
By: /s/ Arthur Zeikel
Arthur Zeikel
President
Attest:
/s/ Robert Harris
Robert Harris, Secretary
|
The undersigned, President of MERRILL LYNCH PACIFIC FUND, INC., who executed on behalf of said Corporation the foregoing Article of Amendment, of which this certificate is made a part, hereby acknowledges, in the name and on behalf of said Corporation, the foregoing Article of Amendment to be the corporate act of said corporation and further certifies that, to the best of his knowledge, information and belief, the matters and facts set forth therein with respect to the approval thereof are true in all material respects, under the penalties of perjury.
/s/ Arthur Zeikel
Arthur Zeikel
President
|
MERRILL LYNCH PACIFIC FUND, INC.
ARTICLES OF AMENDMENT
MERRILL LYNCH PACIFIC FUND, INC., a Maryland corporation having its principal office c/o The Corporation Trust Incorporated, 32 South Street, Baltimore, Maryland 21202 (hereinafter called the "Corporation"), hereby certifies to the State Department of Assessments and Taxation of Maryland that:
FIRST: The charter of the Corporation is hereby amended by amending ARTICLE V thereof in its entirety to read as follows:
Capital Stock
1. The total number of shares of capital stock which the Corporation shall have authority to issue is One Hundred Million (100,000,000) shares of the par value of Ten Cents ($0.10) per share and of the aggregate par value of Ten Million Dollars ($10,000,000). The capital stock initially is classified into two classes, consisting of Fifty Million (50,000,000) shares of Class A Common Stock and Fifty Million Hundred (50,000,000) shares of Class B Common Stock.
2. The Board of Directors may classify and reclassify any unissued shares of capital stock into one or more additional or other classes or series as may be established from time to time by setting or changing in any one or more respects the designations, conversion or other rights, restrictions, limitations as to dividends, qualifications or terms or conditions of redemption of such shares or stock and pursuant to such classification or reclassification to increase or decrease the number of authorized shares of any existing class or series; provided, however, that no such classification or reclassification shall result in the creation of a class or series of capital stock having a preference as to dividends or distributions or a preference in the event of any liquidation, dissolution or winding up of the Corporation.
3. Unless otherwise expressly provided in the charter of the Corporation, including any Articles Supplementary creating any class or series of capital stock, the holders of each class or series of capital stock shall be entitled to dividends and distributions in such amounts and at such times as may be determined by the Board of Directors, and the dividends and distributions paid with respect to the various classes or series of capital stock may vary among
such classes and series. Expenses related to the distribution of, and other identified expenses that should properly be allocated to, the shares of a particular class or series of capital stock may be charged to and borne solely by such class or series and the bearing of expenses solely by a class or series of capital stock may be appropriately reflected (in a manner determined by the Board of Directors) and cause differences in the net asset value attributable to, and the dividend, redemption and liquidations rights of, the shares of each class or series of capital stock.
4. On each matter submitted to a vote of stockholders, each holder of a share of capital stock of the Corporation shall be entitled to one vote for each share standing in such holder's name on the books of the Corporation, irrespective of the class or series thereof, and all shares of all classes and series shall vote together as a single class; provided, however, that (a) as to any matter with respect to which a separate vote of any class or series is required by the Investment Company Act of 1940, as amended, and in effect from time to time, or any rules, regulations or orders issued thereunder, or by the Maryland General Corporation Law, such requirement as to a separate vote by that class or series shall apply in lieu of a general vote of all classes and series as described above, (b) in the event that the separate vote requirements referred to in (a) above apply with respect to one or more classes or series, then, subject to paragraph (c) below, the shares of all other classes and series not entitled to a separate class vote shall vote as a single class, and (c) as to any matter which does not affect the interest of a particular class or series, such class or series shall not be entitled to any vote and only the holders of shares of the one or more affected classes and series shall be entitled to vote.
5. Unless otherwise expressly provided in the charter of the Corporation, including any Articles Supplementary creating any class or series of capital stock, in the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of all classes and series of capital stock of the Corporation shall be entitled, after payment or provision for payment of the debts and other liabilities of the Corporation, to share ratably in the remaining net assets of the Corporation.
6. Any fractional shares shall carry proportionately all the rights of a whole share, excepting any right to receive a certificate evidencing such fractional share, but
including, without limitation, the right to vote and the right to receive dividends.
7. All persons who shall acquire stock in the Corporation shall acquire the same subject to the provisions of the charter and By-Laws of the Corporation. All shares of Common Stock of the Corporation issued on or before October 3, 1988 shall without further act be considered Class A Common Stock. As used in the charter of the Corporation, the terms "charter" and "Articles of Incorporation" shall mean and include the Articles of Incorporation of the Corporation as amended, supplemented and restated from time to time by Articles of Amendment, Articles Supplementary, Articles of Restatement or otherwise.
SECOND: The foregoing amendment does not increase the authorized capital stock of the Corporation.
THIRD: The foregoing amendment to the charter of the Corporation has been advised by the Board of Directors and approved by the stockholders of the Corporation.
IN WITNESS WHEREOF, Merrill Lynch Pacific Fund, Inc. has caused these Articles of Amendment to be signed in its name and on its behalf by its President and attested by its Secretary on October 3, 1988.
ATTEST: MERRILL LYNCH PACIFIC FUND, INC. /s/ Robert Harris By /s/ Arthur Zeikel Robert Harris, Secretary Arthur Zeikel, President |
THE UNDERSIGNED, President of Merrill Lynch Pacific Fund, Inc., who executed on behalf of said Corporation the foregoing Articles of Amendment, of which this certificate is made a part, hereby acknowledges, in the name and on behalf of said Corporation, the foregoing Articles of Amendment to be the corporate act of said Corporation, and further certifies that, to the best of his knowledge, information and belief, the matters and facts set forth therein with respect to the approval thereof are true in all material respects, under the penalties of perjury.
/s/ Arthur Zeikel Arthur Zeikel, President |
ARTICLES SUPPLEMENTARY TO THE
ARTICLES OF INCORPORATION OF
MERRILL LYNCH PACIFIC FUND, INC.
MERRILL LYNCH PACIFIC FUND, INC. (hereinafter called the "Corporation"), a Maryland corporation, registered as an open-end investment company under the Investment Company Act of 1940 and having its principal office in the City of Baltimore, Maryland, hereby certifies to the State Department of Assessments and Taxation of Maryland that:
FIRST:The Board of Directors of the Corporation at a meeting duly convened and held on February 1, 1994, adopted a resolution in accordance with Section 2-105(c) of the General Corporation Law of Maryland, to increase the total number of shares of capital stock of the Corporation. The capital stock shall be classified into two classes, consisting of ONE HUNDRED MILLION (100,000,000) shares of Class A Common Stock with the par value of Ten Cents ($0.10) per share and of the aggregate par value of Ten Million Dollars ($10,000,000) and ONE HUNDRED MILLION (100,000,000) shares of Class B Common Stock with the par value of Ten Cents ($0.10) per share and of the aggregate par value of Ten Million Dollars ($10,000,000).
SECOND:The total number of shares of all classes of capital stock of the corporation heretofore authorized, and the number and par value of the shares of each class, are as follows:
One Hundred Million (100,000,000) shares of capital stock of the par value of Ten Cents ($0.10) per share and of the aggregate par value of Ten Million Dollars ($10,000,000), classified into two classes consisting of FIFTY MILLION (50,000,000) shares of Class A Common Stock with the par value of Ten Cents ($0.10) per share and of the aggregate par value of Five Million Dollars ($5,000,000) and FIFTY MILLION (50,000,000) shares of Class B Common Stock with the par value
of Ten Cents ($0.10) per share and of the aggregate par value of Five Million Dollars ($5,000,000).
THIRD: The total number of shares of all classes of capital stock of the Corporation as increased, and the number and par value of the shares of each class, are as follows:
The total number of shares of capital stock which the Corporation shall have the authority to issue shall consist of TWO HUNDRED MILLION (200,000,000) shares of the par value of Ten Cents ($0.10) per share and of the aggregate par value of Twenty Million Dollars divided into ONE HUNDRED MILLION (100,000,000) shares of Class
A Common Stock with the par value of Ten Cents ($0.10) per share and of the aggregate par value of Ten Million Dollars ($10,000,000) and ONE HUNDRED MILLION (100,000,000) shares of Class B Common Stock with the par value of Ten Cents ($0.10) per share and of the aggregate par value of Ten Million Dollars ($10,000,000).
FOURTH:The aforesaid action by the Board of Directors was taken pursuant to authority and power contained in the Articles of Incorporation, as amended, of the Corporation.
IN WITNESS WHEREOF, MERRILL LYNCH PACIFIC FUND, INC. has caused these presents to be signed in its name and on its behalf by its President and attested by its Secretary on February 1, 1994.
MERRILL LYNCH PACIFIC
FUND, INC.
By: /s/ Arthur Zeikel
Arthur Zeikel
President
Attest:
/s/ Robert Harris
Robert Harris
Secretary
|
The undersigned, President of MERRILL LYNCH PACIFIC FUND, INC., who executed on behalf of said Corporation the foregoing Articles Supplementary, of which this certificate is made a part, hereby acknowledges, in the name and on behalf of said Corporation, the foregoing Articles Supplementary to be the corporate act of said corporation and further certifies that, to the best of his knowledge, information and belief, the matters and facts set forth therein with respect to the approval thereof are true in all material respects, under the penalties of perjury.
/s/ Arthur Zeikel
Arthur Zeikel
President
|
SUPPLEMENT TO INVESTMENT ADVISORY AGREEMENT
WITH
MERRILL LYNCH ASSET MANAGEMENT
As of January 1, 1994 Merrill Lynch Investment Management, Inc. d/b/a Merrill
Lynch Asset Management was reorganized as a limited partnership, formally known
as Merrill Lynch Asset Management, L.P. and continuing to do business under the
name Merrill Lynch Asset Management ("MLAM"). The general partner of MLAM is
Princeton Services, Inc. and the limited partners are Merrill Lynch Investment
Management, Inc. and Merrill Lynch & Co., Inc. Pursuant to Rule 202(a)(1)-1
under the Investment Advisers Act of 1940 and Rule 2a-6 under the Investment
Company Act of 1940 such reorganization did not constitute an assignment of
this investment advisory agreement since it did not involve a change of control
or management of the investment adviser. Pursuant to the requirements of
Section 205 of the Investment Advisers Act of 1940, however, Merrill Lynch
Asset Management hereby supplements this investment advisory agreement by
undertaking to advise you of any change in the membership of the partnership
within a reasonable time after any such change occurs.
By /s/ Arthur Zeikel
Dated: January 3, 1994
|
September 15, 1993
Merrill Lynch Funds Distributor, Inc.
Post Office Box 9011
Princeton, New Jersey 08543-9011
Each of the undersigned open-end investment companies (the "Funds") has entered into a Distribution Agreement with Merrill Lynch Funds Distributor, Inc. (the "Distributor"). Under the terms of such agreements, the Distributor is authorized to offer shares of each Fund and to purchase, as principal, such number of shares from each of the Funds as are needed to fill unconditional orders for shares of such Fund placed with the Distributor by investors or by securities dealers.
This letter confirms the agreement by each Fund with the Distributor that, in connection with the Merrill Lynch Mutual Fund Adviser program, the Distributor and its affiliate, Merrill Lynch, Pierce, Fenner & Smith Incorporated, are also authorized
to offer and sell shares of such Fund, as agent for the Fund, to participants in such program. This letter further confirms that the terms of the Distribution Agreement between each Fund and the Distributor shall apply to such sales, including terms as to the offering price of shares, the proceeds to be paid to each Fund, the duties of the Distributor, the payment of expenses and indemnification obligations of each Fund and the Distributor.
If the foregoing is consistent with your understanding of our agreement, please sign and return one copy of the enclosed agreement.
Very truly yours,
The Investment Companies listed on Schedule A hereto
By: /s/ Terry K. Glenn
Authorized Signatory
|
Accepted as of the date
set forth above
Merrill Lynch Funds Distributor, Inc.
By: /s/ Gerald M. Richard
Authorized Signatory
|
The Declaration of Trust establishing each investment company listed on Schedule A hereto which has been organized as a Massachusetts trust (each, a "Fund"), a copy of which, together with all amendments thereto, is on file in the office of the Secretary of the Commonwealth of Massachusetts, provides that the name of the Fund refers to the Trustees under the Declaration collectively as Trustees, but not as individuals or personally; and no Trustee, shareholder, officer, employee or agent of the Fund shall be held to any personal liability, nor shall resort be had to their private property for the satisfaction of any obligation or claim or otherwise in connection with the affairs of the Fund, but the Fund estate only shall be liable.
SCHEDULE A
EQUITY FUNDS:
Merrill Lynch Balanced Fund for Investment and Retirement
Merrill Lynch Basic Value Fund, Inc.
Merrill Lynch Capital Fund, Inc.
Merrill Lynch Developing Capital Markets Fund, Inc.
Merrill Lynch Dragon Fund, Inc.
Merrill Lynch EuroFund
Merrill Lynch Fundamental Growth Fund, Inc.
Merrill Lynch Fund for Tomorrow, Inc.
Merrill Lynch Global Allocation Fund, Inc.
Merrill Lynch Global Utility Fund, Inc.
Merrill Lynch Growth Fund for Investment and Retirement
Merrill Lynch Healthcare Fund, Inc.
Merrill Lynch International Equity Fund
Merrill Lynch International Holdings, Inc.
Merrill Lynch Latin America Fund, Inc.
Merrill Lynch Natural Resources Trust
Merrill Lynch Pacific Fund, Inc.
Merrill Lynch Phoenix Fund, Inc.
Merrill Lynch Special Value Fund, Inc.
Merrill Lynch Strategic Dividend Fund
Merrill Lynch Technology Fund, Inc.
FIXED INCOME FUNDS:
Merrill Lynch Adjustable Rate Securities Fund, Inc.
Merrill Lynch Americas Income Fund, Inc.
Merrill Lynch Corporate Bond Fund, Inc.
Merrill Lynch Federal Securities Trust
Merrill Lynch Global Bond Fund for Investment and Retirement
Merrill Lynch Global Convertible Fund, Inc.
Merrill Lynch Short-Term Global Income Fund, Inc.
Merrill Lynch World Income Fund, Inc.
TAX-EXEMPT FIXED INCOME FUNDS:
Merrill Lynch Arizona Municipal Bond Fund Merrill Lynch California Municipal Bond Fund Merrill Lynch California Insured Municipal Bond Fund Merrill Lynch Florida Municipal Bond Fund Merrill Lynch Massachusetts Municipal Bond Fund Merrill Lynch Michigan Municipal Bond Fund Merrill Lynch Minnesota Municipal Bond Fund Merrill Lynch Municipal Bond Fund, Inc.
Merrill Lynch Municipal Income Fund
Merrill Lynch New Jersey Municipal Bond Fund
Merrill Lynch New York Municipal Bond Fund
Merrill Lynch North Carolina Municipal Bond Fund
Merrill Lynch Ohio Municipal Bond Fund
Merrill Lynch Pennsylvania Municipal Bond Fund
Merrill Lynch Texas Municipal Bond Fund
INSTITUTIONAL MONEY MARKET FUNDS:
Merrill Lynch Institutional Fund
Merrill Lynch Government Fund
Merrill Lynch Treasury Fund
Merrill Lynch Institutional Tax-Exempt Fund
EXHIBIT 11
INDEPENDENT AUDITORS' CONSENT
MERRILL LYNCH PACIFIC FUND, INC.:
We consent to the use in Post-Effective Amendment No. 24 to Registration Statement No. 2-56978 of our report dated February 4, 1994 appearing in the Statement of Additional Information, which is a part of such Registration Statement, and to the reference to us under the caption "Financial Highlights" appearing in the Prospectus, which also is a part of such Registration Statement.
DELOITTE & TOUCHE
Princeton, New Jersey
April 28, 1994
AMENDED AND RESTATED
CLASS B DISTRIBUTION PLAN
OF
MERRILL LYNCH PACIFIC FUND, INC.
PURSUANT TO RULE 12b-1
DISTRIBUTION PLAN made as of the 3rd day of October 1988, and amended and restated as of July 7, 1993, by and between Merrill Lynch Pacific Fund Inc., a Maryland corporation (the "Fund"), and Merrill Lynch Funds Distributor, Inc., a Delaware corporation ("MLFD").
W I T N E S S E T H :
WHEREAS, the Fund engages in business as an open-end investment company registered under the Investment Company Act of 1940, as amended (the "Investment Company Act");
WHEREAS, MLFD is a securities firm engaged in the business of selling shares of investment companies either directly to purchasers or through other securities dealers;
WHEREAS, the Fund has entered into a Class B Shares Distribution Agreement with MLFD, pursuant to which MLFD acts as the exclusive distributor and representative of the Fund in the offer and sale of Class B shares (the "Class B shares") of the Fund to the public;
WHEREAS, the Fund has entered into a Class B Distribution Plan (the "Prior Plan") pursuant to Rule 12b-1 under the Investment Company Act; and
WHEREAS, the Fund desires to adopt this Amended and Restated Class B Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Investment Company Act, pursuant to which the Fund will pay an account maintenance fee and a distribution fee to MLFD with respect to the Fund's Class B shares; and
WHEREAS, the Directors of the Fund have determined that there is a reasonable likelihood that adoption of the Plan will benefit the Fund and its shareholders.
NOW, THEREFORE, the Fund hereby adopts, and MLFD hereby agrees to the terms of, the Plan in accordance with Rule 12b-1 under the Investment Company Act on the following terms and conditions:
1. The Fund shall pay MLFD an account maintenance fee under the Plan at the end of each month at the annual rate of 0.25% of average daily net assets of the Fund relating to Class B shares to compensate MLFD and securities firms with which MLFD enters into related agreements pursuant to Paragraph 3 hereof ("Sub-Agreements") for account maintenance activities with respect to Class B shareholders of the Fund.
2. The Fund shall pay MLFD a distribution fee under the Plan at the end of each month at the annual rate of 0.75% of average daily net assets of the Fund relating to Class B shares to compensate MLFD and securities firms with which MLFD enters into related Sub-Agreements for providing sales and promotional activities and services. Such activities and services will relate to the sale, promotion and marketing of the Class B shares of the Fund. Such expenditures may consist of sales commissions to financial consultants for selling Class B shares of the Fund, compensation, sales incentives and payments to sales and marketing personnel, and the payment of expenses incurred in its sales and promotional activities, including advertising expenditures related to the Fund and the costs of preparing and distributing promotional materials. The distribution fee may also be used to pay the financing costs of carrying the unreimbursed expenditures described in this Paragraph 2. Payment of the distribution fee described in this Paragraph 2 shall be subject to any limitations set forth in any applicable regulation of the National Association of Securities Dealers, Inc.
3. The Fund hereby authorizes MLFD to enter into Sub-Agreements with certain securities firms ("Securities Firms"), including Merrill Lynch, Pierce, Fenner & Smith Incorporated, to provide compensation to such Securities Firms for activities and services of the type referred to in Paragraphs 1 and 2 hereof. MLFD may reallocate all or a portion of its account maintenance fee or distribution fee to such Securities Firms as compensation for the above-mentioned activities and services. Such Sub-Agreement shall provide that the Securities Firms shall provide MLFD with such information as is reasonably necessary to permit MLFD to comply with the reporting requirements set forth in Paragraph 4 hereof.
4. MLFD shall provide the Fund for review by the Board of Directors, and the Directors shall review, at least quarterly, a written report complying with the requirements of Rule 12b-1 regarding the disbursement of the account maintenance fee and the distribution fee during such period.
5. The Prior Plan has been approved by a vote of at least a majority, as defined in the Investment Company Act, of the outstanding Class B voting securities of the Fund. The Plan has
not been submitted to the Class B shareholders because the amendments do not materially increase the rate of payments by the Fund provided for in the Prior Plan.
6. The Plan shall not take effect until it has been approved, together with any related agreements, by votes of a majority of both (a) the Directors of the Fund and (b) those Directors of the Fund who are not "interested persons" of the Fund, as defined in the Investment Company Act, and have no direct or indirect financial interest in the operation of this Plan or any agreements related to it (the "Rule 12b-1 Directors"), cast in person at a meeting or meetings called for the purpose of voting on the Plan and such related agreements.
7. The Plan shall continue in effect for so long as such continuance is specifically approved at least annually in the manner provided for approval of the Plan in Paragraph 6.
8. The Plan may be terminated at any time by vote of a majority of the Rule 12b-1 Directors, or by vote of a majority of the outstanding Class B voting securities of the Fund.
9. The Plan may not be amended to increase materially the rate of payments provided for herein unless such amendment is approved by at least a majority, as defined in the Investment Company Act, of the outstanding Class B voting securities of the Fund, and by the Directors of the Fund in the manner provided for in Paragraph 6 hereof, and no material amendment to the Plan shall be made unless approved in the manner provided for approval and annual renewal in Paragraph 6 hereof.
10. While the Plan is in effect, the selection and nomination of Directors who are not interested persons, as defined in the Investment Company Act, of the Fund shall be committed to the discretion of the Directors who are not interested persons.
11. The Fund shall preserve copies of the Plan and any related agreements and all reports made pursuant to Paragraph 4 hereof, for a period of not less than six years from the date of the Plan, or the agreements or such report, as the case may be, the first two years in an easily accessible place.
IN WITNESS WHEREOF, the parties hereto have executed this Plan as of the date first above written.
MERRILL LYNCH PACIFIC FUND, INC.
By /s/ Arthur Zeikel
Title: President
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By /s/ Terry K. Glenn
Title: President
|
CLASS B SHARES DISTRIBUTION PLAN SUB-AGREEMENT
AGREEMENT made as of the 7th day of July 1993, by and between Merrill Lynch Funds Distributor, Inc., a Delaware corporation ("MLFD"), and Merrill Lynch, Pierce, Fenner & Smith Incorporated, a Delaware corporation (the "Securities Firm").
W I T N E S S E T H :
WHEREAS, MLFD has entered into an agreement with Merrill Lynch Pacific Fund, Inc., a Maryland corporation (the "Fund"), pursuant to which it acts as the exclusive distributor for the sale of Class B shares (the "Class B shares"), of the Fund;
WHEREAS, MLFD and the Fund have entered into an Amended and Restated Class B Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended (the "Act"), pursuant to which MLFD receives an account maintenance fee from the Fund at the annual rate of 0.25% of average daily net assets of the Fund relating to Class B shares for account maintenance activities related to Class B shares of the Fund and a distribution fee from the Fund at the annual rate of 0.75% of average daily net assets of the Fund relating to Class B shares for providing sales and promotional activities and services related to the distribution of Class B shares; and
WHEREAS, MLFD desires the Securities Firm to perform certain account maintenance activities and sales and promotional activities and services for the Fund's Class B shareholders and the Securities Firm is willing to perform such activities and services;
NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties hereby agree as follows:
1. The Securities Firm shall provide account maintenance activities with respect to the Class B shares of the Fund of the types referred to in Paragraph 1 of the Plan.
2. The Securities Firm shall provide sales and promotional activities and services with respect to the sale of the Class B shares of the Fund, and incur distribution expenditures, of the types referred to in Paragraph 2 of the Plan.
3. As compensation for its activities and services performed under this Agreement, MLFD shall pay the Securities Firm an account maintenance fee and a distribution fee at the end of each calendar month in an amount agreed upon by the parties hereto.
4. The Securities Firm shall provide MLFD, at least quarterly, such information as reasonably requested by MLFD to enable MLFD to comply with the reporting requirements of Rule 12b-1 regarding the disbursement of the account maintenance fee and the distribution fee during such period referred to in Paragraph 4 of the Plan.
5. This Agreement shall not take effect until it has been approved by votes of a majority of both (a) the Directors of the Fund and (b) those Directors of the Fund who are not "interested persons" of the Fund, as defined in the Act, and have no direct or indirect financial interest in the operation of the Plan, this Agreement or any agreements related to the Plan or this Agreement (the "Rule 12b-1 Directors"), cast in person at a meeting or meetings called for the purpose of voting on this Agreement.
6. This Agreement shall continue in effect for as long as such continuance is specifically approved at least annually in the manner provided for approval of the Plan in Paragraph 6.
7. This Agreement shall automatically terminate in the event of its assignment or in the event of the termination of the Plan or any amendment to the Plan that requires such termination.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date first above written.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By /s/ Terry K. Glenn
Title: President
|
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By /s/ Arthur Zeikel
Title: Executive Vice President
|