SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [_]
[X]
POST-EFFECTIVE AMENDMENT NO. 27
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
[X]
AMENDMENT NO. 28
(Check appropriate box or boxes)
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MERRILL LYNCH PACIFIC FUND, INC.
(Exact Name of Registrant as Specified in Charter)
800 SCUDDERS MILL ROAD 08536
PLAINSBORO, NEW JERSEY (Zip Code)
(Address of Principal Executive
Offices)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (609) 282-2800
ARTHUR ZEIKEL
MERRILL LYNCH PACIFIC FUND, INC.
800 SCUDDERS MILL ROAD, PLAINSBORO, NEW JERSEY
MAILING ADDRESS: P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(Name and Address of Agent for Service)
COPIES TO:
COUNSEL FOR THE FUND: PHILIP L. KIRSTEIN, ESQ.
BROWN & WOOD MERRILL LYNCH ASSET MANAGEMENT
ONE WORLD TRADE CENTER P.O. BOX 9011
NEW YORK, N.Y. 10048-0557 PRINCETON, N.J. 08543-9011
ATTENTION: THOMAS R. SMITH, JR., ESQ.
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IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK
APPROPRIATE BOX)
[X]immediately upon filing pursuant to paragraph (b)
[_]on (date) pursuant to paragraph (b)
[_]60 days after filing pursuant to paragraph (a)(1)
[_]on (date) pursuant to paragraph (a)(1)
[_]75 days after filing pursuant to paragraph (a)(2)
[_]on (date) pursuant to paragraph (a)(2) of Rule 485.
IF APPROPRIATE, CHECK THE FOLLOWING BOX:
[_]this post-effective amendment designates a new
effective date for a previously filed post-effective
amendment.
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 22, 1996.
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; Merrill Lynch Select
Pricing SM System
Item 3.Condensed Financial Informa- Financial Highlights; Performance Data
tion......................
Item 4.General Description of Regis- Investment Objective and Policies;
trant..................... Additional Information
Item 5.Management of the Fund......... Fee Table; Investment Objective and
Policies; 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 Securi- Cover Page; Additional Information
ties......................
Item 7.Purchase of Securities Being Cover Page; Fee Table; Merrill Lynch
Offered................... Select Pricing SM System; Purchase of
Shares; Shareholder Services;
Additional Information; Inside Back
Cover Page
Item 8.Redemption or Repurchase....... Fee Table; Merrill Lynch Select
Pricing SM System; 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 Histo- Not Applicable
ry........................
Item 13.Investment Objectives and Poli- Investment Objective and Policies
cies......................
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 Portfolio Transactions and Brokerage
Practices.................
Item 18.Capital Stock and Other Securi- General Information
ties......................
Item 19.Purchase, Redemption and
Pricing of Securities Being Purchase of Shares; Redemption of
Offered...................... Shares; Determination of Net Asset
Value; Shareholder Services; General
Information
Item 20.Tax Status..................... Additional Information--Dividends,
Distributions and Taxes
Item 21.Underwriters................... Purchase of Shares
Item 22.Calculation of Performance Da- Performance Data
ta...........................
Item 23.Financial Statements........... Financial Statements
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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 26, 1996
MERRILL LYNCH PACIFIC FUND, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 . PHONE NO. (609) 282-2800
Merrill Lynch Pacific Fund, Inc. (the "Fund") is a non-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, Malaysia, Singapore and Thailand. 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. Investments on an international basis involve special considerations. See "Risk Factors and Special Considerations". For more information on the Fund's investment objective and policies, please see "Investment Objective and Policies" on page 12.
Shares may be purchased directly from Merrill Lynch Funds Distributor, Inc.
(the "Distributor"), P.O. Box 9081, Princeton, New Jersey 08543-9081 [(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 26, 1996 (the "Statement of Additional Information"), has been filed with the Securities and Exchange Commission (the "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 shares of the Fund follows:
CLASS A(a) CLASS B(b) CLASS C CLASS D
---------- ---------- ------- -------
SHAREHOLDER
TRANSACTION
EXPENSES:
Maximum Sales
Charge
Imposed on
Purchases (as
a percentage
of offering
price)....... 5.25%(c) None None 5.25%(c)
Sales Charge
Imposed on
Dividend
Reinvestments. None None None None
Deferred Sales
Charge (as a
percentage of
original None(d) 4.0% during the first 1% for one year None(d)
purchase year,
price or decreasing 1.0% annually
redemption thereafter to 0.0% after
proceeds, the
whichever is fourth year
lower).......
Exchange Fee.. None None None None
ANNUAL FUND OP-
ERATING EX-
PENSES (AS A
PERCENTAGE OF
AVERAGE NET
ASSETS):
Management
Fees(e)...... 0.60% 0.60% 0.60% 0.60%
12b-1 Fees(f):
Account Main-
tenance Fees. None 0.25% 0.25% 0.25%
Distribution None 0.75% 0.75% None
Fees......... (Class B shares convert
to
Class D shares
automatically
after approximately
eight years
and cease being subject
to
distribution fees)
OTHER EX-
PENSES:
Custodial
Fees......... 0.09% 0.09% 0.09% 0.09%
Shareholder
Servicing
Costs(g)..... 0.19% 0.22% 0.23% 0.19%
Other......... 0.05% 0.05% 0.05% 0.05%
----- ----- ----- -----
Total Other 0.33% 0.36% 0.37% 0.33%
Expenses.... ----- ----- ----- -----
Total Fund Op-
erating Ex- 0.93% 1.96% 1.97% 1.18%
penses....... ===== ===== ===== =====
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(a) Class A shares are sold to a limited group of investors including existing Class A shareholders, certain retirement plans and certain investment programs. See "Purchase of Shares--Initial Sales Charge Alternatives-- Class A and Class D Shares"--page 26.
(b) Class B shares convert to Class D shares automatically approximately eight years after initial purchase. See "Purchase of Shares--Deferred Sales Charge Alternatives--Class B and Class C Shares"--page 29.
(c) Reduced for purchases of $25,000 and over, and waived for purchases of Class A shares by certain retirement plans in connection with certain investment programs. Class A or Class D purchases of $1,000,000 or more are not subject to an initial sales charge. See "Purchase of Shares-- Initial Sales Charge Alternatives--Class A and Class D Shares"--page 26.
(d) Class A and Class D shares are not subject to a contingent deferred sales charge ("CDSC"), except that certain purchases of $1,000,000 or more which are not subject to an initial sales charge may instead be subject to a CDSC of 1.0% of amounts redeemed within the first year of purchase.
(e) See "Management of the Fund--Management and Advisory Arrangements"--page 23.
(f) See "Purchase of Shares--Distribution Plans"--page 32.
(g) See "Management of the Fund--Transfer Agency Services"--page 24.
EXAMPLE:
CUMULATIVE EXPENSES PAID
FOR THE PERIOD OF:
-------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
An investor would pay the following expenses
on a $1,000 investment including the maximum
$52.50 initial sales charge (Class A and
Class D shares only) and assuming (1) the
Total Fund Operating Expenses for each class
set forth above, (2) a 5% annual return
throughout the periods and (3) redemption at
the end of the period:
Class A..................................... $61 $81 $101 $161
Class B..................................... $60 $82 $106 $209*
Class C..................................... $30 $62 $106 $230
Class D..................................... $64 $88 $114 $188
An investor would pay the following expenses
on the same $1,000 investment assuming no
redemption at the end of the period:
Class A..................................... $61 $81 $101 $161
Class B..................................... $20 $62 $106 $209*
Class C..................................... $20 $62 $106 $230
Class D..................................... $64 $88 $114 $188
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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 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 and Class C 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. (the "NASD"). 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".
MERRILL LYNCH SELECT PRICING SM SYSTEM
The Fund offers four classes of shares under the Merrill Lynch Select Pricing SM System. The shares of each class may be purchased at a price equal to the next determined net asset value per share subject to the sales charges and ongoing fee arrangements described below. Shares of Class A and Class D are sold to investors choosing the initial sales charge alternatives, and shares of Class B and Class C are sold to investors choosing the deferred sales charge alternatives. The Merrill Lynch Select Pricing SM System is used by more than 50 mutual funds advised by Merrill Lynch Asset Management, L.P. ("MLAM" or the "Manager") or its affiliate, Fund Asset Management, L.P. ("FAM"). Funds advised by MLAM or FAM which utilize the Merrill Lynch Select PricingSM System are referred to herein as "MLAM-advised mutual funds".
Each Class A, Class B, Class C or Class D share of the Fund represents an identical interest in the investment portfolio of the Fund and has the same rights, except that Class B, Class C and Class D shares bear the expenses of the ongoing account maintenance fees and Class B and Class C shares bear the expenses of the ongoing distribution fees and the additional incremental transfer agency costs resulting from the deferred sales charge arrangements. The deferred sales charges, distribution and account maintenance fees that are imposed on Class B and Class C shares, as well as the account maintenance fees that are imposed on Class D shares, are imposed directly against those classes and not against all assets of the Fund and, accordingly, such charges do not affect the net asset value of any other class or have any impact on investors choosing another sales charge option. Dividends paid by the Fund for each class of shares are calculated in the same manner at the same time and will differ only to the extent that account maintenance and distribution fees and any incremental transfer agency costs relating to a particular class are borne exclusively by that class. Each class has different exchange privileges. See "Shareholder Services--Exchange Privilege".
Investors should understand that the purpose and function of the initial sales charges with respect to the Class A and Class D shares are the same as those of the deferred sales charges with respect to the Class B and Class C shares in that the sales charges applicable to each class provide for the financing of the distribution of the shares of the Fund. The distribution- related revenues paid with respect to a class will not be used to finance the distribution expenditures of another class. Sales personnel may receive different compensation for selling different classes of shares.
The following table sets forth a summary of the distribution arrangements for each class of shares under the Merrill Lynch Select Pricing SM System, followed by a more detailed description of each class and a discussion of the factors that investors should consider in determining the method of purchasing shares under the Merrill Lynch Select Pricing SM System that the investor believes is most beneficial under his particular circumstances. More detailed information as to each class of shares is set forth under "Purchase of Shares".
ACCOUNT
MAINTENANCE DISTRIBUTION
CLASS SALES CHARGE(/1/) FEE FEE CONVERSION FEATURE
- ---------------------------------------------------------------------------------------
A Maximum 5.25% initial sales No No No
charge(/2/)(/3/)
- ---------------------------------------------------------------------------------------
B CDSC for a period of four years, 0.25% 0.75% B shares convert to
at a rate of 4.0% during the D shares automatically
first year, decreasing 1.0% after approximately
annually to 0.0% eight years(/4/)
- ---------------------------------------------------------------------------------------
C 1.0% CDSC for one year 0.25% 0.75% No
- ---------------------------------------------------------------------------------------
D Maximum 5.25% initial 0.25% No No
sales charge(/3/)
|
(2) Offered only to eligible investors. See "Purchase of Shares--Initial Sales Charge Alternatives--Class A and Class D Shares--Eligible Class A Investors".
(3) Reduced for purchases of $25,000 or more and waived for purchases of Class A shares by certain retirement plans in connection with certain investment programs. Class A and Class D share purchases of $1,000,000 or more may not be subject to an initial sales charge but instead will be subject to a 1.0% CDSC for one year. See "Class A" and "Class D" below.
(4) The conversion period for dividend reinvestment shares and certain retirement plans was modified. Also, Class B shares of certain other MLAM- advised mutual funds into which exchanges may be made have a ten year conversion period. If Class B shares of the Fund are exchanged for Class B shares of another MLAM-advised mutual fund, the conversion period applicable to the Class B shares acquired in the exchange will apply, and the holding period for the shares exchanged will be tacked onto the holding period for the shares acquired.
Class A: Class A shares incur an initial sales charge when they are purchased and bear no ongoing distribution or account maintenance fees. Class A shares of the Fund are offered to a limited group of investors and also will be issued upon reinvestment of dividends on outstanding Class A shares. Investors that currently own Class A shares of the Fund in a shareholder account are entitled to purchase additional Class A shares of the Fund in that account. Other eligible investors include certain retirement plans and participants in certain investment programs. In addition, Class A shares will be offered at net asset value to Merrill Lynch & Co., Inc. ("ML&Co.") and its subsidiaries (the term "subsidiaries", when used herein with respect to ML&Co., includes MLAM, FAM and certain other entities directly or indirectly wholly-owned and controlled by ML&Co.) and their directors and employees and to members of the Boards of MLAM-advised mutual funds. The maximum initial sales charge is 5.25%, which is reduced for purchases of $25,000 and over and waived for purchases by certain retirement plans in connection with certain investment programs. Purchases of $1,000,000 or more may not be subject to an initial sales charge but if the initial sales charge is waived, such purchases will be subject to a 1% CDSC if the shares are redeemed within one year after purchase. Sales charges also are reduced under a right of accumulation which takes into account the investor's holdings of all classes of all MLAM-advised mutual funds. See "Purchase of Shares--Initial Sales Charge Alternatives--Class A and Class D Shares".
Class B: Class B shares do not incur a sales charge when they are purchased, but they are subject to an ongoing account maintenance fee of 0.25% and an ongoing distribution fee of 0.75% of the Fund's average net assets attributable to the Class B shares, and a CDSC if they are redeemed within four years of purchase. Approximately eight years after issuance, Class B shares will convert automatically into Class D shares of the Fund, which are subject to an account maintenance fee but no distribution fee; Class B shares of certain other MLAM-advised mutual funds into which exchanges may be made convert into Class D shares automatically after approximately ten years. If Class B shares of the Fund are exchanged for Class B shares of another MLAM-advised mutual fund, the conversion period applicable to the Class B shares acquired in the exchange will apply, and the holding period for the shares exchanged will be tacked onto the holding period for the shares acquired. Automatic conversion of Class B shares into Class D shares will occur at least once a month on the basis of the relative net asset values of the shares of the two classes on the conversion date, without the imposition of any sales load, fee or other charge. Conversion of Class B shares to Class D shares will not be deemed a purchase or sale of the shares for Federal income tax purposes. Shares purchased through reinvestment of dividends on Class B shares also will convert automatically to Class D shares. The conversion period for dividend reinvestment shares, and the conversion and holding periods for certain retirement plans, are modified as described under
"Purchase of Shares--Deferred Sales Charge Alternatives--Class B and Class C Shares--Conversion of Class B Shares to Class D Shares".
Class C: Class C shares do not incur a sales charge when they are purchased, but they are subject to an ongoing account maintenance fee of 0.25% and an ongoing distribution fee of 0.75% of the Fund's average net assets attributable to Class C shares. Class C shares are also subject to a CDSC if they are redeemed within one year of purchase. Although Class C shares are subject to a 1.0% CDSC for only one year (as compared to four years for Class B), Class C shares have no conversion feature and, accordingly, an investor that purchases Class C shares will be subject to distribution fees that will be imposed on Class C shares for an indefinite period subject to annual approval by the Fund's Board of Directors and regulatory limitations.
Class D: Class D shares incur an initial sales charge when they are purchased and are subject to an ongoing account maintenance fee of 0.25% of the Fund's average net assets attributable to Class D shares. Class D shares are not subject to an ongoing distribution fee or any CDSC when they are redeemed. Purchases of $1,000,000 or more may not be subject to an initial sales charge but if the initial sales charge is waived, such purchase will be subject to a CDSC of 1.0% if the shares are redeemed within one year after purchase. The schedule of initial sales charges and reductions for Class D shares is the same as the schedule for Class A shares, except that there is no waiver for purchases by retirement plans in connection with certain investment programs. Class D shares also will be issued upon conversion of Class B shares as described above under "Class B". See "Purchase of Shares--Initial Sales Charge Alternatives--Class A and Class D Shares".
The following is a discussion of the factors that investors should consider in determining the method of purchasing shares under the Merrill Lynch Select Pricing SM System that the investor believes is most beneficial under his or her particular circumstances.
Initial Sales Charge Alternatives. Investors who prefer an initial sales charge alternative may elect to purchase Class D shares or, if an eligible investor, Class A shares. Investors choosing the initial sales charge alternative who are eligible to purchase Class A shares should purchase Class A shares rather than Class D shares because there is an account maintenance fee imposed on Class D shares. Investors qualifying for significantly reduced initial sales charges may find the initial sales charge alternative particularly attractive because similar sales charge reductions are not available with respect to the deferred sales charges imposed in connection with purchases of Class B or Class C shares. Investors not qualifying for reduced initial sales charges who expect to maintain their investment for an extended period of time also may elect to purchase Class A or Class D shares, because over time the accumulated ongoing account maintenance and distribution fees on Class B or Class C shares may exceed the initial sales charge and, in the case of Class D shares, the account maintenance fee. Although some investors that previously purchased Class A shares may no longer be eligible to purchase Class A shares of other MLAM-advised mutual funds, those previously purchased Class A shares, together with Class B, Class C and Class D share holdings, will count toward a right of accumulation which may qualify the investor for reduced initial sales charges on new initial sales charge purchases. In addition, the ongoing Class B and Class C account maintenance and distribution fees will cause Class B and Class C shares to have higher expense ratios, pay lower dividends and have lower total returns than the initial sales charge shares. The ongoing Class D account maintenance fees will cause Class D shares to have a higher expense ratio, pay lower dividends and have a lower total return than Class A shares.
Deferred Sales Charge Alternatives. Because no initial sales charges are deducted at the time of purchase, Class B and Class C shares provide the benefit of putting all of the investor's dollars to work from the time the investment is made. The deferred sales charge alternatives may be particularly appealing to investors who do not qualify for a reduction in initial sales charges. Both Class B and Class C shares are subject to ongoing account maintenance fees and distribution fees; however, the ongoing account maintenance and distribution fees potentially may be offset to the extent any return is realized on the additional funds initially invested in Class B or Class C shares. In addition, Class B shares will be converted into Class D shares of the Fund after a conversion period of approximately eight years, and thereafter investors will be subject to lower ongoing fees.
Certain investors may elect to purchase Class B shares if they determine it to be most advantageous to have all their funds invested initially and intend to hold their shares for an extended period of time. Investors in Class B shares should take into account whether they intend to redeem their shares within the CDSC period and, if not, whether they intend to remain invested until the end of the conversion period and thereby take advantage of the reduction in ongoing fees resulting from the conversion into Class D shares. Other investors, however, may elect to purchase Class C shares if they determine that it is advantageous to have all their assets invested initially and they are uncertain as to the length of time they intend to hold their assets in MLAM-advised mutual funds. Although Class C shareholders are subject to a shorter CDSC period at a lower rate, they forgo the Class B conversion feature, making their investment subject to account maintenance and distribution fees for an indefinite period of time. In addition, while both Class B and Class C distribution fees are subject to the limitations on asset- based sales charges imposed by the NASD, the Class B distribution fees are further limited under a voluntary waiver of asset-based sales charges. See "Purchase of Shares--Limitations on the Payment of Deferred Sales Charges".
FINANCIAL HIGHLIGHTS
The financial information in the tables below has been audited in conjunction with the annual audits of the financial statements of the Fund by Deloitte & Touche llp, independent auditors. Financial statements and the independent auditors' report thereon for the year ended December 31, 1995, 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,
----------------------------------------------------------------------------------------------------
1995++ 1994++ 1993 1992 1991 1990 1989 1988 1987 1986
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
INCREASE (DECREASE) IN
NET ASSET
VALUE:
PER SHARE OPERATING PER-
FORMANCE:
Net asset value,
beginning of year....... $ 21.12 $ 21.21 $ 15.80 $ 18.34 $ 16.52 $ 20.65 $ 19.11 $ 16.15 $ 34.32 $ 19.59
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Investment income--net.. .11 .10 .07 .05 .04 .10 .07 .20 .00 .09
Realized and unrealized
gain (loss) on invest-
ments and foreign cur-
rency transactions--net. 1.61 .50 5.37 (1.63) 2.73 (1.80) 2.57 5.02 4.16 14.94
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations.............. 1.72 .60 5.44 (1.58) 2.77 (1.70) 2.64 5.22 4.16 15.03
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less dividends and dis-
tributions:
Investment income--net. -- -- -- (.01) (.11) (.11) (.06) (.19) (.18) (.11)
In excess of investment
income--net............ -- (.22) (.03) -- -- -- -- -- -- --
Realized gain--net..... (.55) (.33) -- (.95) (.84) (2.32) (1.04) (2.07) (22.15) (.19)
In excess of realized
gain--net.............. (.13) (.14) -- -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total dividends and dis-
tributions.............. (.68) (.69) (.03) (.96) (.95) (2.43) (1.10) (2.26) (22.33) (.30)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of
year.................... $ 22.16 $ 21.12 $ 21.21 $ 15.80 $ 18.34 $ 16.52 $ 20.65 $ 19.11 $ 16.15 $ 34.32
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
TOTAL INVESTMENT RE-
TURN:*
Based on net asset value
per share............... 8.20% 2.90% 34.41% (8.75)% 17.04% (8.39)% 14.49% 34.38% 10.77% 77.78%
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
RATIOS TO AVERAGE NET
ASSETS:
Expenses................ .93% .91% .90% .98% 1.02% 1.07% 1.06% 1.02% .94% .98%
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Investment income--net.. .53% .47% .47% .40% .43% .94% .36% .95% .02% .47%
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
SUPPLEMENTAL DATA:
Net assets, end of year
(in thousands).......... $607,598 $587,107 $472,322 $284,674 $304,712 $242,104 $318,613 $288,065 $283,984 $422,670
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Portfolio turnover...... 26.73% 23.84% 13.25% 7.62% 5.91% 31.06% 18.14% 39.22% 29.41% 44.45%
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
|
* Total investment returns exclude the effects of sales loads.
++ Based on average shares outstanding during the period.
FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS B
------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------
1995++ 1994++ 1993++ 1992++ 1991++ 1990++ 1989 1988+
---------- -------- -------- -------- -------- ------- ------- -------
INCREASE (DECREASE) IN
NET ASSET VALUE:
PER SHARE OPERATING PER-
FORMANCE:
Net asset value, begin-
ning of period........... $ 20.27 $ 20.41 $ 15.34 $ 18.01 $ 16.30 $ 20.49 $ 19.09 $ 17.93
---------- -------- -------- -------- -------- ------- ------- -------
Investment loss--net..... (.10) (.12) (.10) (.12) (.14) (.09) (.06) (.02)
Realized and unrealized
gain (loss) on invest-
ments and foreign cur-
rency transactions--net.. 1.53 .49 5.17 (1.60) 2.69 (1.78) 2.50 2.38
---------- -------- -------- -------- -------- ------- ------- -------
Total from investment op-
erations................. 1.43 .37 5.07 (1.72) 2.55 (1.87) 2.44 2.36
---------- -------- -------- -------- -------- ------- ------- -------
Less dividends and dis-
tributions:
Investment income--net.. -- -- -- -- -- -- -- (.17)
In excess of investment
income--net............. -- (.04) -- -- -- -- -- --
Realized gain--net...... (.38) (.33) -- (.95) (.84) (2.32) (1.04) (1.03)
In excess of realized
gain--net............... (.10) (.14) -- -- -- -- -- --
---------- -------- -------- -------- -------- ------- ------- -------
Total dividends and dis-
tributions............... (.48) (.51) -- (.95) (.84) (2.32) (1.04) (1.20)
---------- -------- -------- -------- -------- ------- ------- -------
Net asset value, end of
period................... $ 21.22 $ 20.27 $ 20.41 $ 15.34 $ 18.01 $ 16.30 $ 20.49 $ 19.09
========== ======== ======== ======== ======== ======= ======= =======
TOTAL INVESTMENT RE-
TURN:**
Based on net asset value
per share................ 7.10% 1.87% 33.05% (9.72)% 15.87% (9.29)% 13.39% 13.37%#
========== ======== ======== ======== ======== ======= ======= =======
RATIOS TO AVERAGE NET AS-
SETS:
Expenses, excluding ac-
count maintenance and/or
distribution fees........ .96% .94% .92% 1.00% 1.04% 1.10% 1.10% 1.17%*
========== ======== ======== ======== ======== ======= ======= =======
Expenses................. 1.96% 1.94% 1.92% 2.00% 2.04% 2.10% 2.10% 2.17%*
========== ======== ======== ======== ======== ======= ======= =======
Investment loss--net..... (.50)% (.56)% (.56)% (.61)% (.60)% (.05)% (.64)% (1.64)%*
========== ======== ======== ======== ======== ======= ======= =======
SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands)........... $1,041,763 $915,351 $508,008 $165,015 $105,669 $58,013 $59,090 $ 5,952
========== ======== ======== ======== ======== ======= ======= =======
Portfolio turnover....... 26.73% 23.84% 13.25% 7.62% 5.91% 31.06% 18.14% 39.22%
========== ======== ======== ======== ======== ======= ======= =======
|
+ Class B shares commenced operations on October 21, 1988.
++ Based on average shares outstanding during the period. # Aggregate total investment return.
FINANCIAL HIGHLIGHTS (CONCLUDED)
CLASS C CLASS D
------------------------------------------ ------------------------------------------
FOR THE FOR THE
FOR THE YEAR PERIOD FOR THE YEAR PERIOD
ENDED OCTOBER 21, 1994+ ENDED OCTOBER 21, 1994+
DECEMBER 31, 1995++ TO DECEMBER 31, 1994++ DECEMBER 31, 1995++ TO DECEMBER 31, 1994++
------------------- ---------------------- ------------------- ----------------------
INCREASE (DECREASE) IN
NET ASSET VALUE:
PER SHARE OPERATING PER-
FORMANCE:
Net asset value, begin-
ning of period......... $ 20.12 $21.67 $ 21.11 $ 22.70
------- ------ ------- -------
Investment income
(loss)--net............ (.12) (.03) .07 --
Realized and unrealized
gain (loss) on invest-
ments and foreign cur-
rency transactions--
net.................... 1.53 (.86) 1.60 (.91)
------- ------ ------- -------
Total from investment
operations............. 1.41 (.89) 1.67 (.91)
------- ------ ------- -------
Less dividends and dis-
tributions:
In excess of investment
income--net........... -- (.19) -- (.21)
Realized gain--net..... (.45) (.33) (.51) (.33)
In excess of realized
gain--net............. (.11) (.14) (.13) (.14)
------- ------ ------- -------
Total dividends and dis-
tributions............. (.56) (.66) (.64) (.68)
------- ------ ------- -------
Net asset value, end of
period................. $ 20.97 $20.12 $ 22.14 $ 21.11
======= ====== ======= =======
TOTAL INVESTMENT RE-
TURN:**
Based on net asset value
per share.............. 7.07% (4.04)%# 7.95% (3.93)%#
======= ====== ======= =======
RATIOS TO AVERAGE NET
ASSETS:
Expenses, excluding ac-
count maintenance
and/or distribution
fees................... .97% 1.17%* .93% 1.17%*
======= ====== ======= =======
Expenses................ 1.97% 2.17%* 1.18% 1.42%*
======= ====== ======= =======
Investment income
(loss)--net............ (.59)% (.79)%* .31% .12%*
======= ====== ======= =======
SUPPLEMENTAL DATA:
Net assets, end of pe-
riod (in thousands).... $46,092 $7,841 $97,946 $22,012
======= ====== ======= =======
Portfolio turnover...... 26.73% 23.84% 26.73% 23.84%
======= ====== ======= =======
|
* Annualized
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
++ Based on average shares outstanding during the period.
# Aggregate total investment return.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Investments on an international basis involve certain risks not typically involved in domestic investments, including, but not limited to, 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 balance of payments between countries 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 Commission nor will the issuers thereof be subject to the reporting requirements of the Commission.
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. 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 or other problems 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.
In early 1995, the Fund's shareholders approved a proposal to change the status of the Fund from a diversified to a non-diversified investment company. As a non-diversified investment company, the Fund may invest a larger percentage of its assets in individual issuers than a diversified investment company. In this regard, the Fund is not subject to the general limitation that it may not invest more than 5% of its total assets in the securities of any one issuer. To the extent the Fund makes investments in excess of 5% of its assets in a particular issuer, its exposure to credit and market risks associated with that issuer is increased. Also, as a non-diversified investment company, since a relatively high percentage of the Fund's assets may be invested in the securities of a limited number of issuers, the Fund may be more susceptible to any single economic, political or regulatory occurrence than a diversified investment company. The financial information included in "Financial Highlights" above presents information relating to the operations of the Fund as a diversified investment company.
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, Malaysia, Singapore and Thailand. 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 (or other security) 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 options, 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. When the Fund engages in transactions denominated in foreign currencies, it will be subject to the risks of adverse changes in the exchange rates between such foreign currencies and the U.S. dollar, the currency used to value the Fund's assets. 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 values of fixed-income securities which may be held by the Fund as a temporary defensive measure 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 the Fund would have 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 write call and purchase 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 or any other bank or dealer having capital of at least $150 million or whose obligations are guaranteed by an entity having capital of at least $150 million.
To trade futures contracts, the Fund is not required to deposit funds equal to the value of the futures contract. The Fund need only make a deposit, called an "initial margin deposit", equal to a small percentage (typically between 2% and 15%) of the value of the futures contract. As a result, a relatively small adverse move in the price of a futures contract may result in immediate and substantial losses to the Fund. For example, if at the time of purchase 10% of the price of a futures contract is deposited as margin, a 10% decrease in the price of that contract would, if the contract were then closed out, result in a total loss of the initial margin deposit before any deduction for brokerage commissions and other transaction costs. A decrease of more than 10% would result in a loss of more than the total initial margin deposit.
To some extent, options on futures contracts are even more highly leveraged
than futures contracts. For example, if an in-the-money call (put) option is
sold for its intrinsic value plus a premium representing the time value of that
option, a 10% rise (drop) in the value of the underlying futures contract does
not create a loss equal to just 10% of the value of the option. Such a rise
(drop) creates a loss approximately equal to 10% of the value of the underlying
interest, less the time value, which loss may be many times greater than the
price for which the Fund sold the option. In addition, investors who sell
options are required only to deposit a percentage of the value of the option at
the time of sale as margin, thereby leveraging the investment even further.
The staff of the Commission has taken the position that purchased OTC options and the assets used as cover for written OTC options are illiquid securities. Therefore, the Fund has adopted an investment policy pursuant to which it will not purchase or sell OTC options (including OTC options on futures contracts) if, as a result of such 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 15% (10% to the extent required by certain state laws) of the total assets of the Fund, taken at market value, together with all other assets of the Fund which are illiquid or are not otherwise readily marketable. However, if the OTC option is sold by the Fund to a primary U.S. Government securities dealer recognized by the Federal Reserve Bank of New York and if the Fund has the unconditional contractual right to repurchase such OTC option from the dealer at a predetermined price, then the Fund will treat as illiquid such amount of the underlying securities as is equal to the repurchase price less the amount by which the option is "in-the-money" (i.e., current market value of the underlying security minus the 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 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.
In connection with its trading in forward foreign currency contracts, the Fund will contract with a foreign or domestic bank, or foreign or domestic securities dealer, to make or take future delivery of a specified amount of a particular currency. There are no limitations on daily price moves in such forward contracts, and banks and dealers are not required to continue to make markets in such contracts. There have been periods during which certain banks or dealers have refused to quote prices for such forward contracts or have quoted prices with an unusually wide spread between the price at which the bank or dealer is prepared to buy and that at which it is prepared to sell. Governmental imposition of credit controls might limit any such forward contract trading. With respect to its trading of forward contracts, if any, the Fund will be subject to the risk of bank or dealer failure and the inability of, or refusal by, a bank or dealer to perform with respect to such contracts. Any such default would deprive the Fund of any profit potential or force the Fund to cover its commitments for resale, if any, at the then-market price and could result in a loss to the Fund.
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., hedge against a decline in value of the foreign
currency) or long (i.e., participate in appreciation of the foreign 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 "spread"). 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 "spreads" 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 or any other bank or dealer having capital of at least $150 million or whose obligations are guaranteed by an entity having capital of at least $150 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 Commission which exempts the Fund from certain provisions of the Investment Company Act of 1940, as amended (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.
OTHER INVESTMENT POLICIES AND PRACTICES
Swap Agreements. The Fund is authorized to enter into equity swap agreements, which are generally contracts in which one party agrees to make periodic payments based on the change in market value of a specified equity security, basket of equity securities or equity index in return for periodic payments based on a fixed or variable interest rate or the change in market value of a different equity security, basket of equity securities or equity index. For example, swap agreements may be used to invest in a market without owning or taking physical custody of securities in circumstances in which direct investment is restricted for legal reasons or is otherwise impractical. The swap agreement will be structured to provide for early termination in the event, for example, that the Fund desires to lock in appreciation. If the Fund were to enter into a swap agreement, the Fund would typically receive periodic equity-based payments and make payments based on a variable interest rate.
Swap agreements entail the risk that a party will default on its payment obligations to the Fund thereunder. The Fund will seek to lessen the risk to some extent by entering into a transaction only if the counterparty meets the current credit requirement for OTC option counterparties. Swap agreements also bear the risk that the Fund will not be able to meet its obligation to the counterparty. The Fund, however, will deposit in a segregated account with its custodian high quality liquid fixed income instruments or cash or cash equivalents or other assets permitted to be so segregated by the Commission in an amount equal to or greater than the market value of the liabilities under the swap agreement or the amount it would have cost the Fund initially to make an equivalent direct investment, plus or minus any amount the Fund is obligated to pay or is to receive under the swap agreement. The Fund will enter into a swap transaction only if, immediately following the time the Fund enters into the transaction, the aggregate notional principal amount of swap transactions to which the Fund is a party would not exceed 5% of the Fund's net assets.
Indexed and Inverse Securities. The Fund may invest in securities whose potential return is based on the change in particular measurements of value or rate (an "index"). As an illustration, the Fund may invest in a security that pays interest and returns principal based on the change in the value of a securities index or a basket of securities. Interest and principal payable on a security also may be based on relative changes among particular indices. In addition, the Fund may invest in securities whose potential investment return is inversely based on the change in particular indices. For example, the Fund may invest in securities that pay a higher rate of interest and principal when a particular index decreases and pay a lower rate of interest and principal when the value of the index increases. To the extent that the Fund invests in such types of securities, it will be subject to the risks associated with changes in the particular indices, which may include reduced or eliminated interest payments and losses of invested principal. Examples of such types of securities are indexed or inverse securities issued with respect to a stock market index in a particular Far Eastern or Western Pacific country.
Certain indexed securities, including certain inverse securities, may have the effect of providing a degree of investment leverage because they may increase or decrease in value at a rate that is a multiple of the
changes in applicable indices. As a result, the market value of such securities generally will be more volatile than the market values of fixed-rate securities. Management of the Fund believes that indexed securities, including inverse securities, represent flexible portfolio management instruments that may allow the Fund to seek potential investment rewards, hedge other portfolio positions, or vary the degree of portfolio leverage relatively efficiently under different market conditions.
Lending of Portfolio Securities. The Fund may from time to time lend securities from its portfolio with a value not exceeding 20% of its total assets to banks, brokers and other 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). Such collateral will be maintained at all times in an amount equal to at least 100% of the current market value of the loaned securities. During the period of such a loan, the Fund typically receives the income on the loaned securities and receives either the income on the collateral or other compensation, i.e., negotiated loan premium or fee, for entering into the loan and thereby increases its yield. Such loans are terminable at any time, and the borrower, after notice, will be required to return borrowed securities within five business days. In the event that the borrower defaults on its obligation to return borrowed securities, because of insolvency or otherwise, the Fund could experience delays and costs in gaining access to the collateral and could suffer a loss to the extent that the value of the collateral falls below the market value of the borrowed securities.
INVESTMENT RESTRICTIONS
The Fund's investment activities are subject to further restrictions that are described in the Statement of Additional Information. Investment restrictions and policies which are fundamental policies 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 (a) 67% of the shares represented at a meeting at which more than 50% of the outstanding shares are represented or (b) more than 50% of the outstanding shares). Among its fundamental policies, the Fund may not invest more than 25% of its assets, taken at market value, in the securities of issuers in any particular industry (excluding the U.S. Government and its agencies or instrumentalities). In addition, the Fund has adopted non- fundamental restrictions which may be changed by the Board of Directors without shareholder approval. As a non-fundamental policy, the Fund may not borrow amounts in excess of 5% of its total assets (taken at acquisition cost or market value) and then only from banks as a temporary measure for extraordinary or emergency purposes.
As a non-fundamental policy, the Fund will not invest in securities which cannot be readily resold because of legal or contractual restrictions or which cannot otherwise be marketed, redeemed or put to the issuer or a third party, if, regarding all such securities, more than 15% of its total assets (or 10% of its total assets as presently required by certain state laws) taken at market value would be invested in such securities. Not-withstanding the foregoing, the Fund may purchase without regard to this limitation securities that are not registered under the Securities Act of 1933, as amended (the "Securities Act"), but that can be offered and sold to "qualified institutional buyers" under Rule 144A under the Securities Act, provided that the Fund's Board of Directors continuously determines, based on the trading markets for the specific Rule 144A security that it is liquid. The Board of Directors may adopt guidelines and delegate to the Manager the daily function of determining and monitoring liquidity of restricted securities. The Board has determined that securities which are freely tradeable in their primary market offshore should be deemed liquid. The Board, however, will retain sufficient oversight and be ultimately responsible for the determinations.
Non-diversified Status. As noted above, in early 1995, the Fund's shareholders approved a proposal to change the status of the Fund from a diversified to a non-diversified investment company. Previously, the
Fund was subject to an investment restriction prohibiting investment 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 exceeded 5% of the Fund's total assets, taken at market value.
Under present law, a mutual fund can be classified as a diversified company yet meet less stringent conditions. Current applicable law regarding diversification of assets requires that with respect to 75% of its total assets, a diversified mutual fund may not invest more than 5% of its total assets (taken at market value at the time of each investment) in the securities of any one issuer or acquire more than 10% of the voting securities of any one issuer. The U.S. Government, its agencies and instrumentalities are not included within the definition of "issuer" for purposes of these limitations. At one time, applicable state securities regulations applied the diversification restriction to 100% of a mutual fund's assets, thereby prohibiting an investment company from investing more than 5% of total assets in a single issuer or from holding more than 10% of the voting securities of a single issuer; however, these state regulation imposed limitations have been eliminated.
As a non-diversified fund, the Fund is not subject to the above-described investment restriction. A "non-diversified" mutual fund is able to invest more than 5% of the value of its assets in the obligations of a single issuer. The Fund's investments will be limited, however, in order to qualify for the special tax treatment afforded regulated investment companies under the Internal Revenue Code of 1986, as amended (the "Code"). To qualify, the Fund must comply with certain requirements, including limiting its investments so that at the close of each quarter of the taxable year (i) not more than 25% of the market value of the Fund's total assets will be invested in the securities of a single issuer, and (ii) with respect to 50% of the market value of its total assets, not more than 5% of the market value of its total assets will be invested in the securities of a single issuer, and the Fund will not own more than 10% of the outstanding voting securities of a single issuer. Foreign government securities (unlike U.S. Government securities) are not exempt from these diversification requirements.
Although changing from a diversified to a non-diversified fund increased the flexibility with which the Manager can manage the Fund's assets, to the extent the Fund invests a relatively high percentage of its assets in obligations of a limited number of issuers, the Fund may be more susceptible than would be a more widely diversified fund to any single economic, political or regulatory occurrence or to changes in an issuer's financial condition or in the market's assessment of the issuers.
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
The Board of Directors of the Fund consists of six individuals, five of whom are not "interested persons" of the Fund as defined in the Investment Company Act. The 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:
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.
Richard R. West--Dean Emeritus, New York University Leonard N. Stern School of Business Administration.
Edward D. Zinbarg--Former Executive Vice President of The Prudential Insurance Company of America.
MANAGEMENT AND ADVISORY ARRANGEMENTS
The Manager acts as the Fund's investment adviser. The Manager is owned and controlled by ML & Co., 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 its affiliate, FAM, acts as the investment adviser for more than 130 other registered investment companies. The Manager also offers portfolio management and portfolio analysis services to individuals and institutions. As of March 31, 1996, the Manager and FAM had a total of approximately $207.7 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, subject to review by the Board of Directors. 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, 1995, the management fee paid by the Fund to the Manager aggregated $9,381,493 (based on average net assets of approximately $1.6 billion). At March 31, 1996, the net assets of the Fund aggregated approximately $2.2 billion. At this asset level, the annual management fee would aggregate approximately $13.1 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, 1995, the amount of such reimbursement was $133,747. For the fiscal year ended December 31, 1995, the ratio of total expenses to average net assets for each class of shares was .93% for Class A shares; 1.96% for Class B shares; 1.97% for Class C shares; and 1.18% for Class D shares.
CODE OF ETHICS
The Board of Directors of the Fund has adopted a Code of Ethics under Rule 17j-1 of the Investment Company Act which incorporates the Code of Ethics of the Manager (together, the "Codes"). The Codes significantly restrict the personal investing activities of all employees of the Manager and, as described below, impose additional, more onerous, restrictions on fund investment personnel.
The Codes require that all employees of the Manager preclear any personal securities investment (with limited exceptions, such as government securities). The preclearance requirement and associated procedures are designed to identify any substantive prohibition or limitation applicable to the proposed investment. The substantive restrictions applicable to all employees of the Manager include a ban on acquiring any securities in a "hot" initial public offering and a prohibition from profiting on short-term trading in securities. In addition, no employee may purchase or sell any security which at the time is being purchased or sold (as the case may be), or to the knowledge of the employee is being considered for purchase or sale, by any fund advised by the Manager. Furthermore, the Codes provide for trading "blackout periods" which prohibit trading by investment personnel of the Fund within periods of trading by the Fund in the same (or equivalent) security (15 or 30 days depending upon the transaction).
TRANSFER AGENCY SERVICES
Merrill Lynch Financial Data Services, Inc. (the "Transfer Agent"), which is a wholly-owned subsidiary of ML & Co., acts as the Fund's transfer agent pursuant to a Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing Agency Agreement (the "Transfer Agency Agreement"). Pursuant to the Transfer Agency Agreement, the Transfer Agent is responsible for the issuance, transfer and redemption of shares and the opening and maintenance of shareholder accounts. Pursuant to the Transfer Agency Agreement, the Transfer Agent receives a fee of $11.00 per Class A or Class D shareholder account and $14.00 per Class B or Class C 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, 1995, the Fund paid $3,281,511 to the Transfer Agent pursuant to the Transfer Agency Agreement. At March 31, 1996, the Fund had 66,314 Class A shareholder accounts, 118,664 Class B shareholder accounts (including certain subaccounts on which the standard annual transfer agency fees are assessed), 9,814 Class C shareholder accounts and 10,991 Class D shareholder accounts. At this level of accounts, the annual fee payable to the Transfer Agent would aggregate approximately $2.6 million, plus miscellaneous and out-of-pocket expenses.
PURCHASE OF SHARES
The Distributor, an affiliate of both the Manager and Merrill Lynch, 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 $100, and the minimum subsequent purchase is $1.
The Fund is offering its shares in four classes at a public offering price equal to the next determined net asset value per share plus sales charges imposed either at the time of purchase or on a deferred basis, depending upon the class of shares selected by the investor under the Merrill Lynch Select PricingSM System, as described below. As to purchase orders received by securities dealers prior to the close of business on the New York Stock Exchange (the "NYSE") (generally, 4:00 p.m., New York time), which includes orders received after the close of business on the previous day, the applicable offering price will be based on the net asset value determined as of 15 minutes after the close of business on the NYSE on that day, provided the Distributor in turn receives the orders from the securities dealer prior to 30 minutes after the close of business on the NYSE 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 30 minutes after the close of business on the NYSE, 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 of any class at any time in response to conditions in the securities markets or otherwise and may thereafter resume such offering from time to time. Any order may be rejected by the Distributor or the Fund. 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 four classes of shares under the Merrill Lynch Select PricingSM System, which permits each investor to choose the method of purchasing shares that the investor believes is most beneficial given the amount of the purchase, the length of time the investor expects to hold the shares and other relevant circumstances. Shares of Class A and Class D are sold to investors choosing the initial sales charge alternatives and shares of Class B and Class C are sold to investors choosing the deferred sales charge alternatives. Investors should determine whether under their particular circumstances it is more advantageous to incur an initial sales charge or to have the entire initial purchase price invested in the Fund with the investment thereafter being subject to a CDSC and ongoing distribution fees. A discussion of the factors that investors should consider in determining the method of purchasing shares under the Merrill Lynch Select Pricing SM System is set forth under "Merrill Lynch Select Pricing SM System" on page 3.
Each Class A, Class B, Class C and Class D share of the Fund represents identical interests in the investment portfolio of the Fund and has the same rights, except that Class B, Class C and Class D shares bear the expenses of the ongoing account maintenance fees, and Class B and Class C shares bear the expenses of the ongoing distribution fees and the additional incremental transfer agency costs resulting from the deferred sales charge arrangements. The deferred sales charges, distribution and account maintenance fees that are imposed on Class B and Class C shares, as well as the account maintenance fees that are imposed on Class D shares, are imposed directly against those classes and not against all assets of the Fund and, accordingly, such charges do not affect the net asset value of any other class or have any impact on investors choosing another sales charge option. Dividends paid by the Fund for each class of shares are calculated in the same manner at the same time and will differ only to the extent that account maintenance and distribution fees and any incremental transfer agency costs relating to a particular class are borne exclusively by that
class. Class B, Class C and Class D shares each have exclusive voting rights with respect to the Rule 12b-1 distribution plan adopted with respect to such class pursuant to which account maintenance and/or distribution fees are paid. See "Distribution Plans" below. Each class has different exchange privileges. See "Shareholder Services--Exchange Privilege".
Investors should understand that the purpose and function of the initial sales charges with respect to Class A and Class D shares are the same as those of the deferred sales charges with respect to Class B and Class C shares in that the sales charges applicable to each class provide for the financing of the distribution of the shares of the Fund. The distribution-related revenues paid with respect to a class will not be used to finance the distribution expenditures of another class. Sales personnel may receive different compensation for selling different classes of shares. Investors are advised that only Class A and Class D shares may be available for purchase through securities dealers, other than Merrill Lynch, which are eligible to sell shares.
The following table sets forth a summary of the distribution arrangements for each class of shares under the Merrill Lynch Select Pricing SM System.
ACCOUNT
MAINTENANCE DISTRIBUTION CONVERSION
CLASS SALES CHARGE(/1/) FEE FEE FEATURE
- ------------------------------------------------------------------------------------------
A Maximum 5.25% initial sales No No No
charge(/2/)(/3/)
- ------------------------------------------------------------------------------------------
B CDSC for a period of four years, 0.25% 0.75% B shares convert to
at a rate of 4.0% during the D shares automatically
first year, decreasing 1.0% after approximately
annually to 0.0% eight years(/4/)
- ------------------------------------------------------------------------------------------
C 1.0% CDSC for one year 0.25% 0.75% No
- ------------------------------------------------------------------------------------------
D Maximum 5.25% initial 0.25% No No
sales charge(/3/)
|
(1) Initial sales charges are imposed at the time of purchase as a percentage
of the offering price. CDSCs are imposed if the redemption occurs within
the applicable CDSC time period. The charge will be assessed on an amount
equal to the lesser of the proceeds of redemption or the cost of the
shares being redeemed.
(2) Offered only to eligible investors. See "Initial Sales Charge
Alternatives--Class A and Class D Shares--Eligible Class A Investors".
(3) Reduced for purchases of $25,000 or more and waived for purchases of Class A shares by certain retirement plans in connection with certain investment programs. Class A and Class D share purchases of $1,000,000 or more may not be subject to an initial sales charge but instead will be subject to a 1.0% CDSC for one year.
(4) The conversion period for dividend reinvestment shares and certain retirement plans was modified. Also, Class B shares of certain other MLAM-advised mutual funds into which exchanges may be made have a ten- year conversion period. If Class B shares of the Fund are exchanged for Class B shares of another MLAM-advised mutual fund, the conversion period applicable to the Class B shares acquired in the exchange will apply, and the holding period for the shares exchanged will be tacked onto the holding period for the shares acquired.
INITIAL SALES CHARGE ALTERNATIVES--CLASS A AND CLASS D SHARES
Investors choosing the initial sales charge alternatives who are eligible to purchase Class A shares should purchase Class A shares rather than Class D shares because there is an account maintenance fee imposed on Class D shares.
The public offering price of Class A and Class D shares for purchasers choosing the initial sales charge alternatives is the next determined net asset value plus varying sales charges (i.e., sales loads), as set forth below.
SALES LOAD AS DISCOUNT TO
SALES LOAD AS PERCENTAGE* OF SELECTED DEALERS
PERCENTAGE OF THE NET AMOUNT AS PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE INVESTED THE OFFERING PRICE
- ------------------ -------------- -------------- ------------------
Less than $25,000............. 5.25% 5.54% 5.00%
$25,000 but less than $50,000. 4.75 4.99 4.50
$50,000 but less than
$100,000..................... 4.00 4.17 3.75
$100,000 but less than
$250,000..................... 3.00 3.09 2.75
$250,000 but less than
$1,000,000................... 2.00 2.04 1.80
$1,000,000 and over**......... 0.00 0.00 0.00
|
* Rounded to the nearest one-hundredth percent.
** The initial sales charge may be waived on Class A and Class D purchases of $1,000,000 or more made on or after October 21, 1994, and on Class A purchases by certain retirement plan investors in connection with certain investment programs. If the sales charge is waived in connection with a purchase of $1,000,000 or more, such purchases will be subject to a CDSC of 1.0% if the shares are redeemed within one year after purchase. Class A purchases made prior to October 21, 1994 might have been subject to a CDSC if the shares were redeemed within one year of purchase at the following annual rates: 1.00% on purchases of $1,000,000 to $2,500,000; 0.60% on purchases of $2,500,001 to $3,500,000; 0.40% on purchases of $3,500,001 to $5,000,000; and 0.25% on purchases of more than $5,000,000 in lieu of paying an initial sales charge. The charge is assessed on an amount equal to the lesser of the proceeds of redemption or the cost of the shares being redeemed. A sales charge of 0.75% will be charged on purchases of $1,000,000 or more of Class A or Class D shares by certain employer sponsored retirement or savings plans.
The Distributor may reallow discounts to selected dealers and retain the balance over such discounts. At times the Distributor may reallow the entire sales charge to such dealers. Since securities dealers selling Class A and Class D shares of the Fund will receive a concession equal to most of the sales charge, they may be deemed to be underwriters under the Securities Act.
During the fiscal year ended December 31, 1995, the Fund sold 8,478,331 of its Class A shares for aggregate net proceeds to the Fund of $178,519,975. The gross sales charges for the sale of its Class A shares for the period were $267,481, of which $22,264 and $245,217 were received by the Distributor and Merrill Lynch, respectively. During the fiscal year ended December 31, 1995, the Distributor received CDSCs of $112, all of which was paid to Merrill Lynch, with respect to redemptions within one year after purchase of Class A shares purchased subject to front-end sales charge waivers. During the fiscal year ended December 31, 1995, the Fund sold 7,041,007 of its Class D shares for aggregate net proceeds to the Fund of $150,994,718. The gross sales charges for the sale of its Class D shares for the period were $1,047,900, of which $74,607 and $973,293 were received by the Distributor and Merrill Lynch, respectively. During the fiscal year ended December 31, 1995, the Distributor received CDSCs of $999, all of which was paid to Merrill Lynch with respect to redemptions within one year after purchase of Class D shares purchased subject to front-end sales charge waivers.
Eligible Class A Investors. Class A shares are offered to a limited group of investors and also will be issued upon reinvestment of dividends on outstanding Class A shares. Investors that currently own Class A shares of the Fund in a shareholder account, including participants in the Merrill Lynch Blueprint SM Program, are entitled to purchase additional Class A shares of the Fund in that account. Certain employer
sponsored retirement or savings plans, including eligible 401(k) plans, may purchase Class A shares at net asset value provided such plans meet the required minimum number of eligible employees or required amount of assets advised by MLAM or any of its affiliates. Class A shares are available at net asset value to corporate warranty insurance reserve fund programs provided that the program has $3 million or more initially invested in MLAM-advised mutual funds. Also eligible to purchase Class A shares at net asset value are participants in certain investment programs including TMA SM Managed Trusts to which Merrill Lynch Trust Company provides discretionary trustee services and certain purchases made in connection with the Merrill Lynch Mutual Fund Adviser ("MFA") program. In addition, Class A shares will be offered to ML & Co. and its subsidiaries and their directors and employees and to members of the Boards of MLAM-advised investment companies, including the Fund. Certain persons who acquired shares of certain MLAM-advised closed-end funds in their initial offerings who wish to reinvest the net proceeds from a sale of their closed-end fund shares of common stock in shares of the Fund also may purchase Class A shares of the Fund if certain conditions set forth in the Statement of Additional Information are met. In addition, Class A shares of the Fund and certain other MLAM-advised mutual funds are offered at net asset value to shareholders of Merrill Lynch Senior Floating Rate Fund, Inc. and, if certain conditions set forth in the Statement of Additional Information are met, to shareholders of Merrill Lynch Municipal Strategy Fund, Inc. and Merrill Lynch High Income Municipal Bond Fund, Inc. who wish to reinvest the net proceeds from a sale of certain of their shares of common stock pursuant to a tender offer conducted by such funds in shares of the Fund and certain other MLAM- advised mutual funds.
Reduced Initial Sales Charges. No initial sales charges are imposed upon Class A and Class D shares issued as a result of the automatic reinvestment of dividends or capital gains distributions. Class A and Class D sales charges also may be reduced under a Right of Accumulation and a Letter of Intention. Class A shares are offered at net asset value to certain eligible Class A investors as set forth above under "Eligible Class A Investors".
Class A and D shares are offered at net asset value to certain employer- sponsored retirement or savings plans, to Employee Access Accounts SM available through employers which provide such plans and to shareholders of Merrill Lynch Municipal Strategy Fund, Inc. and Merrill Lynch High Income Municipal Bond Fund, Inc. who wish to reinvest in shares of the Fund the net proceeds from a sale of certain of their shares of common stock, pursuant to tender offers conducted by those funds.
Class D shares are offered at net asset value without sales charge to an investor who has a business relationship with a Merrill Lynch financial consultant, if certain conditions set forth in the Statement of Additional Information are met. Class D shares may be offered at net asset value in connection with the acquisition of assets of other investment companies.
Class D shares are offered with reduced sales charges and, in certain circumstances, at net asset value, to participants in the Merrill Lynch Blueprint SM Program.
Additional information concerning these reduced initial sales charges is set forth in the Statement of Additional Information.
DEFERRED SALES CHARGE ALTERNATIVES--CLASS B AND CLASS C SHARES
Investors choosing the deferred sales charge alternatives should consider Class B shares if they intend to hold their shares for an extended period of time and Class C shares if they are uncertain as to the length of time they intend to hold their assets in MLAM-advised mutual funds.
The public offering price of Class B and Class C shares for investors choosing the deferred sales charge alternatives is the next determined net asset value per share without the imposition of a sales charge at the time of purchase. As discussed below, Class B shares are subject to a four-year CDSC, while Class C shares are subject only to a one-year 1.0% CDSC. On the other hand, approximately eight years after Class B shares are issued, such Class B shares, together with shares issued upon dividend reinvestment with respect to those shares, are automatically converted into Class D shares of the Fund and thereafter will be subject to lower continuing fees. See "Conversion of Class B Shares to Class D Shares" below. Both Class B and Class C shares are subject to an account maintenance fee of 0.25% of net assets and a distribution fee of 0.75% of net assets as discussed below under "Distribution Plans".
Class B and Class C shares are 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 and Class C shares at the time of purchase from its own funds. See "Distribution Plans" below.
Proceeds from the CDSC and the distribution fee are paid to the Distributor and are used in whole or in part by the Distributor to defray the expenses of dealers (including Merrill Lynch) related to providing distribution-related services to the Fund in connection with the sale of Class B and Class C shares, such as the payment of compensation to financial consultants for selling Class B and Class C shares from its own funds. The combination of the CDSC and the ongoing distribution fee facilitates the ability of the Fund to sell the Class B and Class C shares without a sales charge being deducted at the time of purchase. Approximately eight years after issuance, Class B shares will convert automatically into Class D shares of the Fund, which are subject to an account maintenance fee but no distribution fee; Class B shares of certain other MLAM- advised mutual funds into which exchanges may be made convert into Class D shares automatically after approximately ten years. If Class B shares of the Fund are exchanged for Class B shares of another MLAM-advised mutual fund, the conversion period applicable to the Class B shares acquired in the exchange will apply, and the holding period for the shares exchanged will be tacked onto the holding period for the shares acquired.
Imposition of the CDSC and the distribution fee on Class B and Class C shares is limited by the NASD asset-based sales charge rule. See "Limitations on the Payment of Deferred Sales Charges" below. The proceeds from the ongoing account maintenance fee are used to compensate Merrill Lynch for providing continuing account maintenance activities. Class B shareholders of the Fund exercising the exchange privilege described under "Shareholder Services--Exchange Privilege" will continue to be subject to the Fund's CDSC schedule if such schedule is higher than the CDSC schedule relating to the Class B shares acquired as a result of the exchange.
Contingent Deferred Sales Charges--Class B Shares. Class B shares which are redeemed within four years of purchase may be subject to a CDSC at the rates set forth below charged as a percentage of the dollar amount subject thereto. The charge will be assessed on an amount equal to the lesser of the proceeds of
redemption or the cost of the shares being redeemed. Accordingly, no CDSC will be imposed on increases in net asset value above the initial purchase price. In addition, no CDSC will be assessed on shares derived from reinvestment of dividends or capital gains distributions.
The following table sets forth the rates of the Class B CDSC:
CLASS B CDSC
AS A PERCENTAGE
YEAR SINCE PURCHASE OF DOLLAR AMOUNT
PAYMENT MADE SUBJECT TO CHARGE
------------------- -----------------
0-1...................................................... 4.00%
1-2...................................................... 3.00
2-3...................................................... 2.00
3-4...................................................... 1.00
4 and thereafter......................................... 0.00
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For the fiscal year ended December 31, 1995, the Distributor received CDSCs of $3,023,322 with respect to redemptions of Class B shares, all of which was paid to Merrill Lynch.
In determining whether a CDSC 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 purchases 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 or her first redemption of 50 shares (proceeds of $600), 10 shares will not be subject to a CDSC because of dividend reinvestment. With respect to the remaining 40 shares, the CDSC 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 for shares purchased on or after October 21, 1994).
In the event that Class B shares are exchanged by certain retirement plans for Class A shares in connection with a transfer to the MFA program, the time period that such Class A shares are held in the MFA program will be included in determining the holding period of Class B shares reacquired upon termination of participation in the MFA program (see "Shareholder Services-- Exchange Privilege").
The Class B CDSC 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 Code) of a shareholder. The Class B CDSC 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 Blueprint SM Program. The CDSC 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. The Class B CDSC also is waived for any Class B shares which are purchased by a Merrill Lynch rollover IRA that was funded by a rollover from a terminated 401(k) plan managed by the MLAM Private Portfolio Group and held in such account at the time of redemption. Additional information concerning the waiver of the Class B CDSC is set forth in the Statement of Additional Information.
Contingent Deferred Sales Charges--Class C Shares. Class C shares which are redeemed within one year after purchase may be subject to a 1.0% CDSC charged as a percentage of the dollar amount subject thereto. The charge will be assessed on an amount equal to the lesser of the proceeds of redemption or the cost of the shares being redeemed. Accordingly, no Class C CDSC will be imposed on increases in net asset value above the initial purchase price. In addition, no Class C CDSC will be assessed on shares derived from reinvestment of dividends or capital gains distributions. For the fiscal year ended December 31, 1995, the Distributor received CDSCs of $18,089 with respect to redemptions of Class C shares, all of which was paid to Merrill Lynch.
In determining whether a Class C CDSC is applicable to a redemption, the calculation will be determined in the manner that results in the lowest possible rate being charged. Therefore, it will be assumed that the redemption is first of shares held for over one year or shares acquired pursuant to reinvestment of dividends or distributions and then of shares held longest during the one-year period. The charge will not be applied to dollar amounts representing an increase in the net asset value since the time of purchase. A transfer of shares from a shareholder's account to another account will be assumed to be made in the same order as a redemption.
Conversion of Class B Shares to Class D Shares. After approximately eight years (the "Conversion Period"), Class B shares will be converted automatically into Class D shares of the Fund. Class D shares are subject to an ongoing account maintenance fee of 0.25% of net assets but are not subject to the distribution fee that is borne by Class B shares. Automatic conversion of Class B shares into Class D shares will occur at least once each month (on the "Conversion Date") on the basis of the relative net asset values of the shares of the two classes on the Conversion Date, without the imposition of any sales load, fee or other charge. Conversion of Class B shares to Class D shares will not be deemed a purchase or sale of the shares for Federal income tax purposes.
In addition, shares purchased through reinvestment of dividends on Class B shares also will convert automatically to Class D shares. The Conversion Date for dividend reinvestment shares will be calculated taking into account the length of time the shares underlying such dividend reinvestment shares were outstanding. If at a Conversion Date the conversion of Class B shares to Class D shares of the Fund in a single account will result in less than $50 worth of Class B shares being left in the account, all of the Class B shares of the Fund held in the account on the Conversion Date will be converted to Class D shares of the Fund.
Share certificates for Class B shares of the Fund to be converted must be delivered to the Transfer Agent at least one week prior to the Conversion Date applicable to those shares. In the event such certificates are not received by the Transfer Agent at least one week prior to the Conversion Date, the related Class B shares will convert to Class D shares on the next scheduled Conversion Date after such certificates are delivered.
In general, Class B shares of equity MLAM-advised mutual funds will convert approximately eight years after initial purchase, and Class B shares of taxable and tax-exempt fixed income MLAM-advised mutual funds will convert approximately ten years after initial purchase. If, during the Conversion Period, a shareholder exchanges Class B shares with an eight-year Conversion Period for Class B shares with a ten-year Conversion Period, or vice versa, the Conversion Period applicable to the Class B shares acquired in the exchange will apply, and the holding period for the shares exchanged will be tacked onto the holding period for the shares acquired.
The Conversion Period is modified for shareholders who purchased Class B shares through certain retirement plans which qualified for a waiver of the CDSC normally imposed on purchases of Class B shares ("Class B Retirement Plans"). When the first share of any MLAM-advised mutual fund purchased by a Class B Retirement Plan has been held for ten years (i.e., ten years from the date the relationship between MLAM-advised mutual funds and the Class B Retirement Plan was established), all Class B shares of all MLAM-advised mutual funds held in that Class B Retirement Plan will be converted into Class D shares of the appropriate funds. Subsequent to such conversion, that Class B Retirement Plan will be sold Class D shares of the appropriate funds at net asset value.
The Conversion Period is also modified for retirement plan investors who participate in the MFA program. While participating in the MFA program, such investors will hold Class A shares. If these Class A shares were acquired through exchange of Class B shares (see "Shareholder Services--Exchange Privilege"), then the holding period for such Class A shares will be "tacked" to the holding period for the Class B shares originally held for purposes of calculating the Conversion Period of Class B shares acquired upon termination of participation in the MFA program.
DISTRIBUTION PLANS
The Fund has adopted separate distribution plans for Class B, Class C and Class D shares pursuant to Rule 12b-1 under the Investment Company Act (each a "Distribution Plan") with respect to the account maintenance and/or distribution fees paid by the Fund to the Distributor with respect to such classes. The Class B and Class C Distribution Plans provide for the payment of account maintenance fees and distribution fees, and the Class D Distribution Plan provides for the payment of account maintenance fees.
The Distribution Plans for Class B, Class C and Class D shares each provide that the Fund pays the Distributor an account maintenance fee relating to the shares of the relevant class, accrued daily and paid monthly, at the annual rate of 0.25% of the average daily net assets of the Fund attributable to shares of the relevant class in order to compensate the Distributor and Merrill Lynch (pursuant to a sub-agreement) in connection with account maintenance activities.
The Distribution Plans for Class B and Class C shares each provide that the Fund also pays the Distributor a distribution fee relating to the shares of the relevant class, accrued daily and paid monthly, at the annual rate of 0.75% of the average daily net assets of the Fund attributable to the shares of the relevant class in order to compensate the Distributor and Merrill Lynch (pursuant to a sub-agreement) for providing shareholder and distribution services, and bearing certain distribution-related expenses of the Fund, including payments to financial consultants for selling Class B and Class C shares of the Fund. The Distribution Plans relating to Class B and Class C shares are designed to permit an investor to purchase Class B and Class C shares through dealers without the assessment of an initial sales charge and at the same time permit the dealer
to compensate its financial consultants in connection with the sale of the Class B and Class C shares. In this regard, the purpose and function of the ongoing distribution fees and the CDSC are the same as those of the initial sales charge with respect to the Class A and Class D shares of the Fund in that the deferred sales charges provide for the financing of the distribution of the Fund's Class B and Class C shares.
For the fiscal year ended December 31, 1995, the Fund paid the Distributor $9,131,372 pursuant to the Class B Distribution Plan (based on average net assets subject to such Distribution Plan of approximately $915.6 million), all of which was paid to Merrill Lynch for providing account maintenance and distribution-related activities and services in connection with Class B shares. For the fiscal year ended December 31, 1995, the Fund paid the Distributor $228,521 pursuant to the Class C Distribution Plan (based on average net assets subject to such Distribution Plan of approximately $22.9 million, all of which was paid to Merrill Lynch for providing account maintenance and distribution- related activities and services in connection with Class C shares. For the fiscal year ended December 31, 1995, the Fund paid the Distributor $142,796 pursuant to the Class D Distribution Plan (based on average net assets subject to such Distribution Plan of approximately $57.3 million), all of which was paid to Merrill Lynch for providing account maintenance services in connection with Class D shares. At March 31, 1996, the net assets of the Fund subject to the Class B Distribution Plan aggregated approximately $1.3 billion. At this asset level, the annual fee payable pursuant to the Class B Distribution Plan would aggregate approximately $12.6 million. At March 31, 1996, the net assets of the Fund subject to the Class C Distribution Plan aggregated approximately $84.6 million. At this asset level, the annual fee payable pursuant to the Class C Distribution Plan would aggregate $845,734. At March 31, 1996, the net assets of the Fund subject to the Class D Distribution Plan aggregated approximately $148.9 million. At this asset level, the annual fee payable pursuant to the Class D Distribution Plan would aggregate $372,294.
The payments under the Distribution Plans are based on a percentage of average daily net assets attributable to the shares regardless of the amount of expenses incurred, and accordingly, distribution-related revenues from the Distribution Plans may be more or less than distribution-related expenses. Information with respect to the distribution-related revenues and expenses is presented to the Directors for their consideration in connection with their deliberations as to the continuance of the Class B and Class C Distribution Plans. 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, distribution fees, the CDSCs and certain other related revenues, and expenses consist of financial consultant compensation, branch office and regional operation center selling and transaction processing expenses, advertising, sales promotion and marketing expenses, corporate overhead and interest expense. On the direct expense and revenue/cash basis, revenues consist of the account maintenance fees, distribution fees and CDSCs, and the expenses consist of financial consultant compensation.
As of December 31, 1995, with respect to Class B shares, the fully allocated accrual expenses incurred by the Distributor and Merrill Lynch for the period since October 21, 1988 (commencement of operations) exceeded fully allocated accrual revenues by approximately $14,075,000 (1.35% of Class B net assets at that date). As of December 31, 1995, with respect to Class B shares, direct cash revenues for the period since October 21, 1988 (commencement of operations) exceeded direct cash expenses by $12,438,458 (1.19% of Class B net assets at that date). Similar fully allocated accrual data for Class C shares is not presented because such revenues and expenses for the period from October 21, 1994 (commencement of operations) to December 31, 1995 are de minimis. As of December 31, 1995, with respect to Class C shares, direct cash revenues for
the period since October 21, 1994 (commencement of operations) exceeded direct cash expenses by $68,938 (1.50% of Class C net assets at that date).
The Fund has no obligation with respect to distribution and/or account maintenance-related expenses incurred by the Distributor and Merrill Lynch in connection with Class B, Class C and Class D shares, and there is no assurance that the Directors of the Fund will approve the continuance of the Distribution Plans from year to year. However, the Distributor intends to seek annual continuation of the Distribution Plans. In their review of the Distribution Plans, the Directors will be asked to take into consideration expenses incurred in connection with the account maintenance and/or distribution of each class of shares separately. The initial sales charges, the account maintenance fee, the distribution fee and/or the CDSCs received with respect to one class will not be used to subsidize the sale of shares of another class. Payments of the distribution fee on Class B shares will terminate upon conversion of those Class B shares into Class D shares as set forth under "Deferred Sales Charge Alternatives--Class B and Class C Shares--Conversion of Class B Shares to Class D Shares".
LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES
The maximum sales charge rule in the Rules of Fair Practice of the NASD imposes a limitation on certain asset-based sales charges such as the Fund's distribution fee and the CDSC borne by the Class B and Class C shares but not the account maintenance fee. The maximum sales charge rule is applied separately to each class. As applicable to the Fund, the maximum sales charge rule limits the aggregate of distribution fee payments and CDSCs payable by the Fund to (1) 6 1/4% of eligible gross sales of Class B shares and Class C shares, computed separately (defined to exclude shares issued pursuant to dividend reinvestments and exchanges), plus (2) interest on the unpaid balance for the respective class, computed separately, at the prime rate plus 1% (the unpaid balance being the maximum amount payable minus amounts received from the payment of the distribution fees and the CDSCs). In connection with the Class B shares, the Distributor has voluntarily agreed to waive interest charges on the unpaid balance in excess of 0.50% of eligible gross sales. Consequently, the maximum amount payable to the Distributor (referred to as the "voluntary maximum") in connection with the Class B shares is 6.75% of eligible gross sales. The Distributor retains the right to stop waiving interest charges at any time. To the extent payments would exceed the voluntary maximum, the Fund will not make further payments of the distribution fee with respect to Class B shares, and any CDSCs will be paid to the Fund rather than to the Distributor; however, the Fund will continue to make payments of the account maintenance fee. In certain circumstances the amount payable pursuant to the voluntary maximum may exceed the amount payable under the NASD formula. In such circumstances payment in excess of the amount payable under the NASD formula will not be made.
REDEMPTION OF SHARES
The Fund is required to redeem for cash all 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 CDSC which may be applicable, there will be no charge for redemption if the redemption request is sent directly to the Transfer Agent. Shareholders liquidating their holdings will receive upon redemption all dividends reinvested through the date of redemption. The 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 by tendering the shares directly to the Transfer Agent, Merrill Lynch Financial Data Services, Inc., P.O. Box 45289, Jacksonville, Florida 32232-5289. Redemption requests delivered other than by mail should be delivered to Merrill Lynch Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484. Proper notice of redemption in the case of shares deposited with the Transfer Agent may be accomplished by a written letter requesting redemption. Proper notice of redemption in the case of shares for which certificates have been issued may be accomplished by a written letter as noted above accompanied by certificates for the shares to be redeemed. 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 NYSE (generally, 4:00 p.m., New York time) on the day received and that such request is received by the Fund from such dealer not later than 30 minutes after the close of business on the NYSE on the same day. Dealers have the responsibility of submitting such repurchase requests to the Fund not later than 30 minutes after the close of business on the NYSE in order to obtain that day's closing price.
The foregoing repurchase arrangements are for the convenience of shareholders and do not involve a charge by the Fund (other than any applicable CDSC). Securities firms 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. Repurchases 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 AND CLASS D SHARES
Shareholders who have redeemed their Class A or Class D shares have a one- time privilege to reinstate their accounts by purchasing Class A or Class D shares of the Fund, as the case may be, at net asset value without a sales charge up to the dollar amount redeemed. The reinstatement privilege may be exercised by sending a notice of exercise along with a check for the amount to be reinstated to the Transfer Agent within 30 days after the date the request for redemption was accepted by the Transfer Agent or the Distributor. 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 or Class D shareholder only the first time such shareholder makes a redemption. Alternatively, the reinstatement privilege may be exercised through the investor's Merrill Lynch financial consultant within 30 days after the date the request for redemption was accepted by the Transfer Agent or the Distributor.
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services and investment plans described below which are designed to facilitate investment in shares of the Fund. 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, at least quarterly, statements from the Transfer Agent. These statements will serve as transaction confirmations for automatic investment purchases and the reinvestment of ordinary income dividends and long-term capital gain distributions. The 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 or her Investment Account at any time by mailing a check directly to the Transfer Agent. Shareholders also may 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 or Class D shares from Merrill Lynch to another brokerage firm or financial institution should be aware that, if the firm to which the Class A or Class D shares are to be transferred will not take delivery of shares of the Fund, a shareholder either must redeem the Class A or Class D shares (paying any applicable CDSC) so that the cash proceeds can be transferred to the account at the new firm or such shareholder must continue to maintain an Investment Account at the Transfer Agent for those Class A or Class D shares. Shareholders interested in transferring their Class B or Class C 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 at the Transfer Agent. 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 CDSC) so that the cash proceeds can be transferred to the account at the new firm, or such shareholder must continue to maintain a retirement account at Merrill Lynch for those shares. Redemption payments will be made within seven days of the proper tender of the certificates, if any, and stock power or letter requesting redemption, in each instance with signatures guaranteed as noted above.
Exchange Privilege. U.S. shareholders of each class of shares of the Fund have an exchange privilege with certain other MLAM-advised mutual funds. 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 Commission.
Under the Merrill Lynch Select Pricing SM System, Class A shareholders may exchange Class A shares of the Fund for Class A shares of a second MLAM- advised mutual fund if the shareholder holds any Class A shares of the second fund in his account in which the exchange is made at the time of the exchange or is otherwise eligible to purchase Class A shares of the second fund. If the Class A shareholder wants to exchange Class A shares for shares of a second MLAM-advised mutual fund, and the shareholder does not hold Class A shares of the second fund in his account at the time of the exchange and is not otherwise eligible to acquire Class A shares of the second fund, the shareholder will receive Class D shares of the second fund as a result of the exchange. Class D shares also may be exchanged for Class A shares of a second MLAM-advised mutual fund at any time as long as, at the time of the exchange, the shareholder holds Class A shares of the second fund in the account in which the exchange is made or is otherwise eligible to purchase Class A shares of the second fund.
Exchanges of Class A and Class D shares are made on the basis of the relative net asset values perClass A or Class D share, respectively, plus an amount equal to the difference, if any, between the sales charge previously paid on the Class A or Class D shares being exchanged and the sales charge payable at the time of the exchange on the shares being acquired.
Class B, Class C and Class D shares are exchangeable with shares of the same class of other MLAM-advised mutual funds.
Shares of the Fund which are subject to a CDSC are exchangeable on the basis of relative net asset value per share without the payment of any CDSC that might otherwise be due upon redemption of the shares of the Fund. For purposes of computing the CDSC that may be payable upon a disposition of the shares acquired in the exchange, the holding period for the previously owned shares of the Fund is "tacked" to the holding period for the newly acquired shares of the other fund.
Class A, Class B, Class C and Class D shares also are exchangeable for shares of certain MLAM-advised money market funds specifically designated as available for exchange by holders of Class A, Class B, Class C or Class D shares. The period of time that Class A, Class B, Class C or Class D shares are held in a money market fund, however, will not count toward satisfaction of the holding period requirement for reduction of
any CDSC imposed on such shares, if any, and, with respect to Class B shares, toward satisfaction of the Conversion Period.
Class B shareholders of the Fund exercising the exchange privilege will continue to be subject to the Fund's CDSC schedule if such schedule is higher than the CDSC schedule relating to the new Class B shares. In addition, Class B shares of the Fund acquired through use of the exchange privilege will be subject to the Fund's CDSC schedule if such schedule is higher than the CDSC schedule relating to the Class B shares of the MLAM-advised mutual fund from which the exchange has been made.
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.
The exchange privilege is modified with respect to certain retirement plans which participate in the MFA program. Such retirement plans may exchange Class B, Class C or Class D shares that have been held for at least one year for Class A shares of the same fund on the basis of relative net asset values in connection with the commencement of participation in the MFA program, i.e., no CDSC will apply. The one year holding period does not apply to shares acquired through reinvestment of dividends. Upon termination of participation in the MFA program, Class A shares will be re-exchanged for the class of shares originally held. For purposes of computing any CDSC that may be payable upon redemption of Class B or Class C shares so reacquired, or the Conversion Period for Class B shares so reacquired, the holding period for the Class A shares will be "tacked" to the holding period for the Class B or Class C shares originally held. The Fund's exchange privilege is also modified with respect to purchases of Class A and Class D shares by non-retirement plan investors under the MFA program. First, the initial allocation of assets is made under the MFA program. Then, any subsequent exchange under the MFA program of Class A or Class D shares of a MLAM-advised mutual fund for Class A or Class D shares of the Fund will be made solely on the basis of the relative net asset values of the shares being exchanged. Therefore, there will not be a charge for any difference between the sales charge previously paid on the shares of the other MLAM- advised mutual fund and the sales charge payable on the shares of the Fund being acquired in the exchange under the MFA program.
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 business on the NYSE on the ex-dividend date of such dividend or distribution. A shareholder may at any time, by written notification or by telephone (1-800-MER-FUND) to 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. Cash payments can also be directly deposited to the shareholder's bank account. No CDSC will be imposed on redemption of shares issued as a result of the automatic reinvestment of dividends or capital gains distributions.
Systematic Withdrawal Plans. A Class A or Class D 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 or Class D 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 CMA (R)/CBA (R) Systematic Redemption Program, subject to certain conditions.
Automatic Investment Plans. Regular additions of Class A, Class B, Class C and Class D 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) or CBA (R) accounts may arrange to have periodic investments made in the Fund in their CMA (R) or CBA (R) accounts or in certain related accounts in amounts of $100 or more through the CMA (R)/CBA (R) Automated Investment Program.
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 NASD, 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, Class B, Class C and Class D shares in accordance with a formula specified by the Commission.
Average annual total return quotations for the specified periods 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 any CDSC that would be applicable to a complete redemption of the investment at the end of the specified period such as in the case of Class B and Class C shares and the maximum sales charge in the case of Class A and Class D shares. Dividends paid by the Fund with respect to all shares, to the extent any dividends are paid, will be calculated in the same manner at the same time on the same day and will be in the same amount, except that account maintenance and distribution fees and any incremental transfer agency costs relating to each class of shares will be borne exclusively by that class. The Fund will include performance data for all classes of shares of the Fund in any advertisement or information including performance data of the Fund.
The Fund also may quote 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 or Class D shares or waiver of the CDSC in the case of Class B shares (such as investors in certain retirement plans) or to reduced sales charges in the case of Class A and Class D shares, performance data may take into account the reduced, and not the maximum, sales charge or may not take into account the CDSC and therefore may reflect greater total return since, due to the reduced sales charges or waiver of the CDSC, a lower amount of expenses 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 its 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 indicative 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 each class of shares will be reduced as a result of any account maintenance, distribution and transfer agency fees applicable to that class. See "Additional Information-- Determination of Net Asset Value". 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 business on the NYSE on the ex-dividend date of such dividend or distribution. A shareholder may at any time, by written notification or by telephone (1-800-MER-FUND) 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. The per share dividends and distributions on each class of shares will be reduced as a result of any account maintenance, distribution and transfer agency fees applicable to that class. See "Determination of Net Asset Value" below.
Gains or losses attributable to certain foreign currency transactions 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 income dividend distributions, and (b) all or a portion of distributions made before the losses were realized but in the same taxable year would be recharacterized as returns of capital to shareholders, rather than as ordinary income dividends, reducing each shareholder's tax basis in the Fund shares for Federal income tax purposes and resulting in a capital gain for any shareholder who received such a distribution greater than the shareholder's tax basis in Fund shares (assuming the shares were held as a capital asset). See "Additional Information--Taxes".
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of all classes of the Fund is determined once daily as of 15 minutes after the close of business on the NYSE (generally, 4:00 p.m., New York time), on each day during which the NYSE 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 per share 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 any account maintenance and/or distribution fees payable to the Distributor, are accrued daily. The per share net asset value of the Class A shares generally will be higher than the per share net asset value of the other classes, reflecting the daily expense accruals of the account maintenance, distribution and higher transfer agency fees applicable with respect to Class B and Class C shares and the daily expense accruals of the account maintenance fees applicable with respect to Class D shares; moreover, the per share net asset value of Class D shares generally will be higher than the per share net asset value of Class B and Class C shares, reflecting the daily expense accruals of the distribution and higher transfer agency fees applicable with respect to Class B and Class C shares. It is expected, however, that the per share net asset value of the classes will tend to converge (although not necessarily meet) immediately after the payment of dividends or distributions which will differ by approximately the amount of the expense accrual differential between the classes.
Portfolio securities which are traded on stock exchanges are valued at the last sale price (regular way) on the exchange on which such securities are traded, as of the close of business on the day the securities are being valued or, lacking any sales, at the last available bid price. 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. 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. Securities traded in the OTC market are valued at the last available bid price in the OTC market prior to the time of valuation. Securities which are traded both in the OTC market and on a stock exchange will be valued according to the broadest and most representative market. 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 sale price in the case of exchange-traded options or, in the case of options traded in the OTC market, the last asked price. Options purchased by the Fund are valued at their last sale price in the case of exchange-traded options or, in the case of options traded in the OTC market, the last bid price. Other investments, including futures contracts and related options, will be stated at market value.
Securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith by or under the direction of the Board of Directors of the Fund.
TAXES
The Fund intends to continue to qualify for the special tax treatment afforded regulated investment companies ("RICs") under 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, Class B, Class C and Class D shareholders (together, the "shareholders"). The Fund intends to distribute substantially all of such income.
Dividends paid by the Fund from its ordinary income or from an excess of net short-term capital gains over net long-term capital losses (together referred to hereafter as "ordinary income dividends") are taxable to shareholders as ordinary income. Distributions made from an excess of net long-term capital gains over net short-term capital losses (including gains or losses from certain transactions in warrants, futures and options) ("capital gain dividends") are taxable to shareholders as long-term capital gains, regardless of the length of time the shareholder has owned Fund shares. Any loss upon the sale or exchange of Fund shares held for six months or less, however, will be treated as long-term capital loss to the extent of any capital gain dividends received by the shareholder. Distributions in excess of the Fund's earnings and profits will first reduce the adjusted tax basis of a holder's shares and, after such adjusted tax basis is reduced to zero, will constitute capital gains to such holder (assuming the shares are held as a capital asset).
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, generally 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 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 ordinary income dividends, capital gain dividends and redemption payments ("backup withholding").
Generally, shareholders subject to backup withholding will be those for whom no certified taxpayer identification number is on file with the Fund or who, to the Fund's knowledge, have furnished an incorrect number. When establishing an account, an investor must certify under penalty of perjury that such number is correct and that such investor is not otherwise subject to backup withholding.
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 income dividend distributions, and all or a portion of distributions made before the losses were realized but in the same taxable year would be recharacterized as a return of capital to shareholders, thereby reducing the basis of each shareholder's Fund shares and resulting in a capital gain for any shareholder who received a distribution greater than the shareholder's tax basis in Fund shares (assuming the shares were held as a capital asset).
No gain or loss will be recognized by Class B shareholders on the conversion of their Class B shares into Class D shares. A shareholder's basis in the Class D shares acquired will be the same as such shareholder's basis in the Class B shares converted, and the holding period of the acquired Class D shares will include the holding period for the converted Class B shares.
If a shareholder exercises an exchange privilege within 90 days of acquiring the shares, then the loss the shareholder can recognize on the exchange will be reduced (or the gain increased) to the extent any sales charge paid to the Fund on the exchanged shares reduces any sales charge the shareholder would have owed upon purchase of the new shares in the absence of the exchange privilege. Instead, such sales charge will be treated as an amount paid for the new shares.
A loss realized on a sale or exchange of shares of the Fund will be disallowed if other Fund shares are acquired (whether through the automatic reinvestment of dividends or otherwise) within a 61-day period beginning 30 days before and ending 30 days after the date that the shares are disposed of. In such a case, the basis of the shares acquired will be adjusted to reflect the disallowed loss.
The foregoing is a general and abbreviated summary of the applicable provisions of the Code and Treasury regulations presently in effect. For the complete provisions, reference should be made to the pertinent Code sections and the Treasury regulations promulgated thereunder. The Code and the Treasury regulations are subject to change by legislative, judicial or administrative action either prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state and local taxes.
Certain states exempt from state income taxation dividends paid by RICs which are derived from interest on 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. As of the date of this Prospectus, the Fund has an authorized capital of 500,000,000 shares of Common Stock, par value $0.10 per share, divided into four classes designated Class A, Class B, Class C and Class D Common Stock. Class A, Class C and Class D each consists of 100,000,000 shares and Class B consists of 200,000,000 shares. Shares of Class A, Class B, Class C and Class D Common Stock represent an interest in the same assets of the Fund and are identical in all respects except that Class B, Class C and Class D shares bear certain expenses related to the account maintenance associated with such shares, and Class B and Class C shares bear certain expenses related to the distribution of such shares. Each class has exclusive voting rights with respect to matters relating to account maintenance and distribution expenditures, as applicable. See "Purchase of Shares". 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 rights. Shares have the conversion rights described in this Prospectus. Each share of 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, Class C and Class D shares bear certain additional expenses.
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:
Merrill Lynch Financial Data Services, Inc.
P.O. Box 45289
Jacksonville, FL 32232-5289
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 Merrill Lynch 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.
[This page is intentionally left blank]
of Merrill Lynch Pacific Fund, Inc. and establish an Investment Account as described in the Prospectus. In the event that I am not eligible to purchase Class A shares, I understand that Class D shares will be purchased.
Basis for establishing an Investment Account:
A. I enclose a check for $............ payable to Merrill Lynch Financial Data Services, Inc. as an initial investment (minimum $1,000). 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: (Please list all funds. Use a separate sheet of
paper if necessary.)
1. ................................... 4. ...................................
2. ................................... 5. ...................................
3. ................................... 6. ...................................
Name............................................................................
First Name Initial Last Name
Name of Co-Owner (if any).......................................................
First Name Initial Last Name
Address.........................................................................
.................................................. Date.........................
(Zip Code)
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Occupation............................ Name and Address of Employer .........
......................................
......................................
...................................... ......................................
Signature of Owner Signature of Co-Owner (if any)
Ordinary Income Dividends Long-Term Capital Gains
SELECT ONE: SELECT ONE:
[_] Reinvest [_] Reinvest
[_] Cash [_] Cash
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If no election is made, dividends and capital gains will be automatically
reinvested at net asset value without a sales charge.
IF CASH, SPECIFY HOW YOU WOULD LIKE YOUR DISTRIBUTIONS PAID TO YOU: [_] Check
or [_] Direct Deposit to bank account
IF DIRECT DEPOSIT TO BANK ACCOUNT IS SELECTED, PLEASE COMPLETE BELOW:
I hereby authorize payment of dividend and capital gain distributions by direct deposit to my bank account and, if necessary, debit entries and adjustments for any credit entries made to my account in accordance with the terms I have selected on the Merrill Lynch Pacific Fund, Inc. Authorization Form. Specify type of account (check one): [_] checking [_] savings Name on your account ........................................................... Bank Name ...................................................................... Bank Number ....................... Account Number ............................. Bank Address ...................................................................
Social Security Number or Taxpayer Identification Number
Under penalty of perjury, I certify (1) that the number set forth above is my correct Social Security Number or Taxpayer Identification Number and (2) that I am not subject to backup withholding (as discussed 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 UNDER-REPORTING 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.
...................., 19.... Dear Sir/Madam: 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:
[_] $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 this 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)
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In making purchases under this letter, the following are the related accounts on which reduced offering prices are to apply:
(1) Name.............................. (2) Name..............................
Account Number........................
Account Number........................
- --------------------------------------------------------------------------------
5. FOR DEALER ONLY
Branch Office, Address, Stamp We hereby authorize Merrill Lynch
Funds Distributor, Inc. to 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.
This form when completed, should be ......................................
mailed to: Dealer Name and Address
By: ..................................
Authorized Signature of Dealer
Merrill Lynch Pacific Fund, Inc.
[ ][ ][ ] [ ][ ][ ][ ]
c/o Merrill Lynch Financial Data Services, Branch Code F/C No.
Inc.
P.O. Box 45289 ....................
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Jacksonville, FL 32232-5289 F/C Last Name
[ ][ ][ ] [ ][ ][ ][ ][ ] Dealer's Customer A/C No.
1. ACCOUNT REGISTRATION
(Please Print)
Name...................................... Social Security Number or
First Name Initial Last Name Taxpayer Identification Number
Name of Co-Owner (if any)........................
First Name Initial Last Name
Address............................. Account Number .....................
(if existing account)
....................................
(Zip Code)
- --------------------------------------------------------------------------------
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2. SYSTEMATIC WITHDRAWAL PLAN--CLASS A AND D SHARES ONLY (SEE TERMS AND CONDITIONS IN THE STATEMENT OF ADDITIONAL INFORMATION)
MINIMUM REQUIREMENTS: $10,000 for monthly disbursements, $5,000 for quarterly,
of [_] Class A or [_] Class D shares in Merrill Lynch Pacific Fund, Inc. at
cost or current offering price. Withdrawals to be made either (check one)
[_] monthly on the 24th day of each month, or [_] quarterly on the 24th day
of March, June, September and December. If the 24th falls on a weekend or
holiday, the next succeeding business day will be utilized. Begin systematic
withdrawal on ___________________ or as soon as possible thereafter.
(month)
SPECIFY HOW YOU WOULD LIKE YOUR WITHDRAWAL PAID TO YOU (CHECK ONE): [_] $ or [_] % of the current value of [_] Class A or [_] Class D shares in the account.
SPECIFY WITHDRAWAL METHOD: [_] check or [_] direct deposit to bank account (check one and complete part (a) or (b) below):
DRAW CHECKS PAYABLE (CHECK ONE)
(a)I hereby authorize payment by check
[_] as indicated in Item 1.
[_] to the order of..........................................................
Mail to (check one)
[_] the address indicated in Item 1.
[_] Name (please print)......................................................
Address ........................................................................
..........................................................................
Signature of Owner................................ Date...................
Signature of Co-Owner (if any)............................................
(B) I HEREBY AUTHORIZE PAYMENT BY DIRECT DEPOSIT TO MY BANK ACCOUNT AND, IF NECESSARY, DEBIT ENTRIES AND ADJUSTMENTS FOR ANY CREDIT ENTRIES MADE TO MY ACCOUNT. I AGREE THAT THIS AUTHORIZATION WILL REMAIN IN EFFECT UNTIL I PROVIDE WRITTEN NOTIFICATION TO MERRILL LYNCH FINANCIAL DATA SERVICES, INC. AMENDING OR TERMINATING THIS SERVICE.
Specify type of account (check one): [_] checking [_] savings
Name on your Account............................................................
Bank Name.......................................................................
Bank Number......................... Account Number.............................
Bank Address....................................................................
........................................................................
Signature of Depositor.................................. Date...................
Signature of Depositor..........................................................
(If joint account, both must sign)
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NOTE: IF DIRECT DEPOSIT IS ELECTED, YOUR BLANK, UNSIGNED CHECK MARKED "VOID" OR A DEPOSIT SLIP FROM YOUR SAVINGS ACCOUNT SHOULD ACCOMPANY THIS APPLICATION.
3. APPLICATION FOR AUTOMATIC INVESTMENT PLAN
I hereby request that Merrill Lynch Financial Data Services, Inc. draw an automated clearing house ("ACH") debit on my checking account as described below each month to purchase: (choose one)
[_] Class A shares [_] Class B shares [_] Class C shares [_] Class D shares
of Merrill Lynch Pacific Fund, Inc. subject to the terms set forth below. In the event that I am not eligible to purchase Class A shares, I understand that Class D shares will be purchased.
MERRILL LYNCH FINANCIAL DATA
SERVICES, INC. AUTHORIZATION TO HONOR ACH DEBITS
You are hereby authorized to draw an DRAWN BY MERRILL LYNCH FINANCIAL
ACH debit each month on my bank DATA SERVICES, INC.
account for investment in Merrill
Lynch Pacific Fund, Inc. as
indicated below:
Amount of each ACH debit $........ To.............................. Bank
(Investor's Bank)
Account No. ......................
Bank Address ........................
Please date and invest ACH debits on
the 20th of each month beginning.. or
as soon thereafter as possible. City...... State...... Zip Code......
(Month)
I agree that you are drawing these
ACH debits voluntarily at my request As a convenience to me, I hereby
and that you shall not be liable for request and authorize you to pay and
any loss arising from any delay in charge to my account ACH debits
preparing or failure to prepare any drawn on my account by and payable
such debit. If I change banks or to Merrill Lynch Financial Data
desire to terminate or suspend this Services, Inc. I agree that your
program, I agree to notify you rights in respect to each such debit
promptly in writing. I hereby shall be the same as if it were a
authorize you to take any action to check drawn on you and signed
correct erroneous ACH debits of my personally by me. This authority is
bank account or purchases of Fund to remain in effect until revoked by
shares including liquidating shares me in writing. Until you receive
of the Fund and credit my bank such notice, you shall be fully
account. I further agree that if a protected in honoring any such
check or debit is not honored upon debit. I further agree that if any
presentation, Merrill Lynch Financial such debit be dishonored, whether
Data Services, Inc. is authorized to with or without cause and whether
discontinue immediately the Automatic intentionally or inadvertently, you
Investment Plan and to liquidate shall be under no liability.
sufficient shares held in my account
to offset the purchase made with the
dishonored debit.
............ ..................... ............ .....................
Date Signature of Date Signature of
Depositor Depositor
...................... ............ .....................
Signature of Depositor Bank Signature of Depositor
(If joint account, Account (If joint account,
both must sign) Number both must sign)
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NOTE: IF AUTOMATIC INVESTMENT PLAN IS ELECTED, YOUR BLANK, UNSIGNED CHECK MARKED "VOID" SHOULD ACCOMPANY THIS APPLICATION.
MANAGER
Merrill Lynch Asset Management
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. 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:
P.O. Box 9081
Princeton, New Jersey 08543-9081
TRANSFER AGENT
Merrill Lynch Financial Data Services, Inc.
Administrative Offices:
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 LLP
117 Campus Drive
Princeton, New Jersey 08540-6400
COUNSEL
Brown & Wood
One World Trade Center
New York, New York 10048-0557
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESEN- TATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER INFORMA- TION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND, THE MANAGER OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY STATE IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
TABLE OF CONTENTS
PAGE
----
Fee Table................................................................. 2
Merrill Lynch Select Pricing SM System.................................... 3
Financial Highlights...................................................... 8
Risk Factors and Special Considerations................................... 11
Investment Objective and Policies......................................... 12
Hedging Techniques....................................................... 13
Other Investment Policies and Practices.................................. 20
Investment Restrictions.................................................. 21
Management of the Fund.................................................... 22
Board of Directors....................................................... 22
Management and Advisory Arrangements..................................... 23
Code of Ethics........................................................... 24
Transfer Agency Services................................................. 24
Purchase of Shares........................................................ 24
Initial Sales Charge Alternatives--Class A and Class D Shares............ 26
Deferred Sales Charge Alternatives--Class B and Class C Shares........... 29
Distribution Plans....................................................... 32
Limitations on the Payment of Deferred Sales Charges..................... 34
Redemption of Shares...................................................... 34
Redemption............................................................... 35
Repurchase............................................................... 35
Reinstatement Privilege--Class A and Class D Shares...................... 36
Shareholder Services...................................................... 36
Portfolio Transactions and Brokerage...................................... 39
Performance Data.......................................................... 40
Additional Information.................................................... 41
Dividends and Distributions.............................................. 41
Determination of Net Asset Value......................................... 41
Taxes.................................................................... 42
Organization of the Fund................................................. 45
Shareholder Reports...................................................... 45
Shareholder Inquiries.................................................... 45
Authorization Form........................................................ 47
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Code #10073-0496
[LOGO] MERRILL LYNCH
Merrill Lynch
Pacific Fund, Inc.
[ART]
Prospectus
April 26, 1996
Distributor:
Merrill Lynch
Funds Distributor
This prospectus should be
retained for future reference.
STATEMENT OF ADDITIONAL INFORMATION
MERRILL LYNCH PACIFIC FUND, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 . PHONE NO. (609) 282-2800
Merrill Lynch Pacific Fund, Inc. (the "Fund") is a non-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, Malaysia 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.
Pursuant to the Merrill Lynch Select Pricing SM System, the Fund offers four classes of shares each with a different combination of sales charges, ongoing fees and other features. The Merrill Lynch Select Pricing SM System permits an investor to choose the method of purchasing shares that the investor believes is most beneficial given the amount of the purchase, the length of time the investor expects to hold the shares and other relevant circumstances.
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 26, 1996 (the "Prospectus"), which has been filed with the Securities and Exchange Commission (the "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.
MERRILL LYNCH ASSET MANAGEMENT -- MANAGER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC. -- DISTRIBUTOR
The date of this Statement of Additional Information is April 26, 1996.
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, Malaysia, Singapore and Thailand. 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 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. ("MLAM" or 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, 1995 and 1994, the Fund's portfolio turnover rates were 26.73% and 23.84%, 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.
Lending of Portfolio Securities. Subject to the investment restrictions set forth in the Prospectus and herein, the Fund may lend securities from its portfolio to approved borrowers 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 and instrumentalities) which are maintained at all times in an amount equal to at least 100% of the current market value of the loaned securities. During the period of such a loan, the Fund typically receives the income on the loaned securities and receives either
the income on the collateral or other compensation, i.e., negotiated loan premium or fee, for entering into the loan and thereby increases its yield. 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 and other distributions. Such loans are terminable at any time, and the borrower, after notice, will be required to return borrowed securities within five business days. The Fund may pay reasonable finder's, administrative and custodial fees in connection with such loans. With respect to the lending of portfolio securities, there is the risk of failure by borrower to return the securities involved in such transactions.
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 securities 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 particular commodity, such as a security, or, in the case of an index-based futures contract, to make and accept a cash settlement for a set price on a future date. A majority of transactions in futures contracts, however, do not result in the actual delivery of the underlying instrument or cash settlement, but are settled through liquidation, i.e., by entering into an offsetting transaction.
The purchase or sale of a futures contract differs from the purchase or sale of a security in that no price or premium is paid or received. Instead, an amount of cash or securities acceptable to the broker and the relevant contract market, which varies, but is typically between 2% to 15% of the contract amount, must be deposited with the broker. This amount is known as "initial margin" and represents a "good faith" deposit assuring the performance of both the purchaser and seller under the futures contract. Subsequent payments to and from the broker, called "variation margin", are required to be made on a daily basis as the price of the futures contract fluctuates making the long and short positions in the futures 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 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 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. Alternatively, no such segregation of funds
need be made when the Fund "covers" its open positions. The position is considered "covered" if the Fund holds securities denominated in the currency underlying the forward contract, or in a demonstrably correlated currency, having a value equal to or greater than the Fund's obligation under the forward contract. 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 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 for the special tax treatment afforded regulated investment companies ("RICs") under the Internal Revenue Code of 1986, as amended (the "Code"); 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 such transactions need not be 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 may also invest in other debt securities, although it does not presently intend to do so to any significant degree. 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 a number of fundamental and non-fundamental restrictions and policies relating to the investment of its assets and its activities. The fundamental policies set forth below may not be changed without the approval of the holders of a majority of the Fund's outstanding voting securities (which for this purpose and under the Investment Company Act means the lesser of (i) 67% of the 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).
Under the fundamental investment restrictions, the Fund may not:
1. Invest more than 25% of its assets, taken at market value, in the securities of issuers in any particular industry (excluding the U.S. Government and its agencies and instrumentalities).
2. Make investments for the purpose of exercising control or management.
3. Purchase or sell real estate, except that, to the extent permitted by applicable law, the Fund may invest in securities directly or indirectly secured by real estate or interests therein or issued by companies which invest in real estate or interests therein.
4. Make loans to other persons, except that the acquisition of bonds, debentures or other corporate debt securities and investment in government obligations, commercial paper, pass-through instruments, certificates of deposit, bankers acceptances, repurchase agreements or any similar instruments shall not be deemed to be the making of a loan, and except further that the Fund may lend its portfolio securities, provided that the lending of portfolio securities may be made only in accordance with applicable law and the guidelines set forth in the Fund's Prospectus and Statement of Additional Information, as they may be amended from time to time.
5. Issue senior securities to the extent such issuance would violate applicable law.
6. Borrow money, except that (i) the Fund may borrow from banks (as defined in the Investment Company Act) in amounts up to 33 1/3% of its total assets (including the amount borrowed), (ii) the Fund may borrow up to an additional 5% of its total assets for temporary purposes, (iii) the Fund may obtain such short-term credit as may be necessary for the clearance of purchases and sales of portfolio securities and (iv) the Fund may purchase securities on margin to the extent permitted by applicable law. The Fund may not pledge its assets other than to secure such borrowings or, to the extent permitted by the Fund's investment policies as set forth in its Prospectus and Statement of Additional Information, as they may be amended from time to time, in connection with hedging transactions, short sales, when-issued and forward commitment transactions and similar investment strategies.
7. Underwrite securities of other issuers except insofar as the Fund technically may be deemed an underwriter under the Securities Act of 1933, as amended (the "Securities Act"), in selling portfolio securities.
8. Purchase or sell commodities or contracts on commodities, except to the extent that the Fund may do so in accordance with applicable law and the Fund's Prospectus and Statement of Additional Information, as they may be amended from time to time, and without registering as a commodity pool operator under the Commodity Exchange Act.
In addition, the Fund has adopted non-fundamental restrictions which may be changed by the Board of Directors without approval of the Fund's shareholders. Under the non-fundamental investment restrictions, the Fund may not:
a. Purchase securities of other investment companies, except to the extent such purchases are permitted by applicable law.
b. Make short sales of securities or maintain a short position, except to the extent permitted by applicable law. The Fund currently does not intend to engage in short sales, except short sales "against the box".
c. Invest in securities which cannot be readily resold because of legal or contractual restrictions or which cannot otherwise be marketed, redeemed or put to the issuer or a third party, if at the time of acquisition more than 15% of its total assets would be invested in such securities. This restriction shall not apply to securities which mature within seven days or securities which the Board of Directors of the Fund has otherwise determined to be liquid pursuant to applicable law. Notwithstanding the 15% limitation herein, to the extent the laws of any state in which the Fund's shares are registered or qualified for sale require a lower limitation, the Fund will observe such limitation. As of the date hereof, therefore, the Fund will not invest more than 10% of its total assets in securities which are subject to this investment restriction (c). Securities purchased in accordance with Rule 144A under the Securities Act and determined to be liquid by the Fund's Board of Directors are not subject to the limitations set forth in this investment restriction (c).
d. Invest in warrants if, at the time of acquisition, its investment in warrants, valued at the lower of cost or market value, would exceed 10% of the Fund's net assets.
e. Invest in securities of companies having a record, together with predecessors, of less than three years of continuous operation, if more than 5% of the Fund's total assets would be invested in such securities. This restriction shall not apply to mortgage-backed securities, asset- backed securities or obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
f. 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 any subsidiary thereof each owning beneficially more than one- half of one percent of the securities of such issuer own in the aggregate more than 5% of the securities of such issuer.
g. Invest in real estate limited partnership interests or interests in oil, gas or other mineral leases, or exploration or development programs, except that the Fund may invest in securities issued by companies that engage in oil, gas or other mineral exploration or development activities.
h. Write, purchase or sell puts, calls, straddles, spreads or combinations thereof, except to the extent permitted in the Fund's Prospectus and Statement of Additional Information, as they may be amended from time to time.
i. Notwithstanding fundamental investment restriction (6) above, 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.
The staff of the Commission has taken the position that purchased OTC options and the assets used as cover for written OTC options are illiquid securities. Therefore, the Fund has adopted an investment policy pursuant to which it will not purchase or sell OTC options (including OTC options on futures contracts) if, as a result of such 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 15% of the total assets of the Fund (10% to the extent required by certain state laws), 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 Commission staff of its position.
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 such firm or its affiliates except for brokerage transactions permitted under the Investment Company Act involving only usual and customary commissions or transactions pursuant to an exemptive order under the Investment Company Act. Without such an order, the Fund would be prohibited from engaging in portfolio transactions with Merrill Lynch or any of its affiliates acting as principal and from purchasing securities in public offerings which are not registered under the Securities Act in which such firm or any of its affiliates participates as an underwriter or dealer.
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 would not satisfy requirements applicable to RICs under the Code.
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
Information about the Directors and principal executive officers of the Fund, including their ages and their principal occupations for at least the past five years, is set forth below. Unless otherwise noted, the address of each Director and officer is P.O. Box 9011, Princeton, New Jersey 08543-9011.
Arthur Zeikel (63)--President and Director(1)(2)--President of the Manager (which term as used herein includes its corporate predecessors) since 1977; President of Fund Asset Management, L.P. ("FAM") (which term as used herein includes its corporate predecessors) since 1977; President and Director of Princeton Services, Inc. ("Princeton Services") since 1993; Executive Vice President of Merrill Lynch & Co., Inc. ("ML & Co.") since 1990; Director of Merrill Lynch Funds Distributor, Inc. (the "Distributor").
Donald Cecil (69)--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 (69)--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 (64)--Director(2)--9 Hampton Harbor Road, Hampton Bays, New York. 11946. Self-employed financial consultant since 1990; President and Chief Investment Officer of Verus Capital, Inc. from 1979 to 1990; former Senior Vice President of Arnhold and S. Bleichroeder, Inc. from 1973 to 1990; Adjunct Professor, Columbia University Graduate School of Business, 1990; Adjunct Professor, Wharton School, University of Pennsylvania, 1990; Partner, Small Cities Cablevision, Inc.
Richard R. West (58)--Director(2)--Box 604, Genoa, Nevada 89491. Professor of Finance since 1984, Dean from 1984 to 1993 and currently Dean Emeritus, 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. (real estate company).
Edward D. Zinbarg (61)--Director(2)--5 Hardwell Road, Short Hills, New Jersey 07078-2117. Executive Vice President of The Prudential Insurance Company of America from 1988 to 1994; former Director of Prudential Reinsurance Company and former Trustee of the Prudential Foundation.
Terry K. Glenn (55)--Executive Vice President(1)(2)--Executive Vice President of the Manager and FAM since 1983; Executive Vice President and Director of Princeton Services since 1993; President of the Distributor since 1986 and Director thereof since 1991; President of Princeton Administrators, L.P. since 1988.
Norman R. Harvey (62)--Executive Vice President(1)(2)--Senior Vice President of the Manager and FAM since 1982; Senior Vice President of Princeton Services since 1993.
Donald C. Burke (35)--Vice President(1)(2)--Vice President and Director of Taxation of the Manager since 1990; employee of Deloitte & Touche LLP from 1982 to 1990.
Stephen I. Silverman (45)--Vice President(1)(2)--Vice President of the Manager and Portfolio Manager since 1983.
Gerald M. Richard (46)--Treasurer(1)(2)--Senior Vice President and Treasurer of the Manager and FAM since 1984; Senior Vice President and Treasurer of Princeton Services since 1993; Vice President of the Distributor since 1981 and Treasurer since 1984.
(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 affiliate, FAM, acts as investment adviser or manager.
At March 31, 1996, the Directors and officers of the Fund as a group (12 persons) owned an aggregate of less than 1% of the outstanding shares of the Fund. At such date, Mr. Zeikel, a Director and officer of the Fund, and the other officers of the Fund owned less than 1% of the outstanding shares of common stock of ML&Co.
COMPENSATION OF DIRECTORS
The Fund pays each Director who is not affiliated with the Manager (each, a "non-affiliated Director") a fee of $3,500 per year plus $500 per Board meeting attended, together with such Director's actual out-of-pocket expenses relating to attendance at meetings. The Fund also compensates members of its Audit and Nominating Committee (the "Committee"), which consists of all of the non- affiliated Directors, at a rate of $500 per meeting attended. The Chairman of the Committee receives an additional fee of $250 per meeting attended. Fees and expenses paid to the non-affiliated Directors aggregated $48,782 for the fiscal year ended December 31, 1995.
The following table sets forth for the fiscal year ended December 31, 1995, compensation paid by the Fund to the non-affiliated Directors and for the year ended December 31, 1995, the aggregate compensation paid by all registered investment companies advised by the Manager and its affiliate, FAM ("MLAM/FAM Advised Funds") to the non-affiliated Directors.
PENSION OR AGGREGATE COMPENSATION
RETIREMENT FROM FUND AND OTHER
BENEFITS ACCRUED MLAM/FAM ADVISED
NAME OF COMPENSATION AS PART OF FUND FUNDS PAID TO
DIRECTOR FROM FUND EXPENSES DIRECTORS(1)
-------- ------------ ---------------- ----------------------
Donald Cecil.............. $10,500 None $271,850
Edward H. Meyer........... $ 9,500 None $239,225
Charles C. Reilly......... $ 9,500 None $269,600
Richard R. West........... $ 9,500 None $294,600
Edward D. Zinbarg......... $10,083 None $155,063
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(1) In addition to the Fund, the Directors serve on the boards of other MLAM/FAM Advised Funds as follows: Mr. Cecil (35 funds and portfolios); Mr. Meyer (35 funds and portfolios); Mr. Reilly (54 funds and portfolios); Mr. West (54 funds and portfolios); and Mr. Zinbarg (17 funds and portfolios).
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 Fund's management agreement (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, 1993, 1994 and 1995, the total management fees paid by the Fund to the Manager aggregated $4,179,008, $8,074,688 and $9,381,493, 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, 1993, 1994 and 1995, 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; Commission fees; 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 years ended December 31, 1993, 1994 and 1995 the amounts of such reimbursement were $68,896, $157,585 and $133,747, respectively. Certain expenses in connection with the distribution of Class B, Class C and Class D shares will be financed by the Fund pursuant to distribution plans in compliance with Rule 12b-1 under the Investment Company Act. See "Purchase of Shares--Distribution Plans".
The Manager is a limited partnership, the partners of which are ML & Co. and Princeton Services. ML & Co. and Princeton Services are "controlling persons" of the Manager as defined under the Investment Company Act because of their ownership of its voting securities or their power to exercise a controlling influence over its management or policies.
Duration and Termination. Unless earlier terminated as described herein, 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.
The Fund issues four classes of shares under the Merrill Lynch Select PricingSM System: shares of Class A and Class D are sold to investors choosing the initial sales charge alternatives, and shares of Class B and Class C are sold to investors choosing the deferred sales charge alternatives. Each Class A, Class B, Class C and Class D share of the Fund represents identical interests in the investment portfolio of the Fund and has the same rights, except that Class B, Class C and Class D shares bear the expenses of the ongoing account maintenance fees, and Class B and Class C shares bear the expenses of the ongoing distribution fees and the additional incremental transfer agency costs resulting from the deferred sales charge arrangements. Class B, Class C and Class D shares each have exclusive voting rights with respect to the Rule 12b-1 distribution plan adopted with respect to such class pursuant to which account maintenance and/or distribution fees are paid. Each class has different exchange privileges. See "Shareholder Services--Exchange Privilege".
The Merrill Lynch Select PricingSM System is used by more than 50 mutual funds advised by the Manager, or its affiliate, FAM. Funds advised by the Manager or FAM which utilize the Merrill Lynch Select Pricing SM System are referred to herein as "MLAM-advised mutual funds".
The Fund has entered into separate distribution agreements with the Distributor in connection with the continuous offering of each class of shares of the Fund (the "Distribution Agreements"). The Distribution Agreements obligate the Distributor to pay certain expenses in connection with the offering of each class of shares of the Fund. After the prospectuses, statements of additional information and periodic reports have been prepared, set in type and mailed to shareholders, the Distributor pays for the printing and distribution
of copies thereof used in connection with the offering to dealers and investors. The Distributor also pays for other supplementary sales literature and advertising costs. The Distribution Agreements are subject to the same renewal requirements and termination provisions as the Management Agreement described above.
INITIAL SALES CHARGE ALTERNATIVES -- CLASS A AND CLASS D SHARES
For the fiscal years ended December 31, 1993, 1994 and 1995, the Fund sold its shares through the Distributor and Merrill Lynch, as dealers. The gross sales charges for the sale of Class A shares of the Fund for the fiscal year ended December 31, 1993, were $3,636,042, of which $223,158 and $3,412,884 were received by the Distributor and Merrill Lynch, respectively. The gross sales charges for the sale of Class A shares of the Fund for the fiscal year ended December 31, 1994, were $3,046,441, of which $200,828 and $2,845,613 were received by the Distributor and Merrill Lynch, respectively. The gross sales charges for the sale of Class A shares of the Fund for the fiscal year ended December 31, 1995, were $267,481, of which $22,264 and $245,217 were received by the Distributor and Merrill Lynch, respectively. The gross sales charges for the sale of Class D shares for the period October 21, 1994 (commencement of operations) to December 31, 1994, were $195,085, of which $183,381 and $11,704 were received by the Distributor and Merrill Lynch, respectively. The gross sales charges for the sale of Class D shares for the fiscal year ended December 31, 1995, were $1,047,900, of which $74,607 and $973,293 were received by the Distributor and Merrill Lynch, respectively. For the fiscal year ended December 31, 1995, the Distributor received contingent deferred sales charges ("CDSCs") of $112, all of which was paid to Merrill Lynch, with respect to redemptions within one year after purchase of Class A shares purchased subject to front-end sales charge waivers. For the fiscal year ended December 31, 1995, the Distributor received CDSCs of $999, all of which was paid to Merrill Lynch, with respect to redemptions within one year after purchase of Class D shares purchased subject to front-end sales charge waivers.
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 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.
Closed-End Fund Investment Option. Class A shares of the Fund and other MLAM-advised mutual funds ("Eligible Class A Shares") are offered at net asset value to shareholders of certain closed-end funds advised by MLAM or its affiliate, FAM, who purchased such closed-end fund shares prior to October 21, 1994 (the date the Merrill Lynch Select Pricing SM System commenced operations), and wish to reinvest the net proceeds from a sale of their closed-end fund shares of common stock in Eligible Class A Shares, if the conditions set forth below are satisfied. Alternatively, closed-end fund shareholders who purchased such shares on or after October 21, 1994, and wish to reinvest the net proceeds from a sale of their closed-end fund shares are offered Class A shares (if eligible to buy Class A shares) or Class D shares of the Fund and other MLAM-advised mutual funds ("Eligible Class D Shares"), if the following conditions are met. First, the sale of the closed-end fund shares must be made through Merrill Lynch, and the net proceeds therefrom must be immediately reinvested in Eligible Class A or Class D Shares. Second, the closed-end fund shares must either have been acquired in the initial public offering or be shares representing dividends from shares of common stock acquired in such offering. Third, the closed-end fund shares must have been continuously maintained in a Merrill Lynch securities account. Fourth, there must be a minimum purchase of $250 to be eligible for the investment option. Shareholders of certain MLAM-advised continuously offered closed-end funds may reinvest at net asset value the net proceeds from a sale of certain shares of common stock of such funds in shares of the Fund. Upon exercise of this investment option, shareholders of Merrill Lynch Senior Floating Rate Fund, Inc. will receive Class A shares of the Fund and shareholders of Merrill Lynch Municipal Strategy Fund, Inc. and Merrill Lynch High Income Municipal Bond Fund, Inc. will receive Class D shares of the Fund, except that shareholders already owning Class A shares of the Fund will be eligible to purchase additional Class A shares pursuant to this option, if such additional Class A shares will be held in the same account as the existing Class A shares and the other requirements pertaining to the reinvestment privilege are met. In order to exercise this investment option, a shareholder of one of the above- referenced continuously offered closed-end funds (an "eligible fund") must sell his or her shares of common stock of the eligible fund (the "eligible shares") back to the eligible fund in connection with a tender offer conducted by the eligible fund and reinvest the proceeds immediately in the designated class of shares of the Fund. This investment option is available only with respect to eligible shares as to which no Early Withdrawal Charge or CDSC (each as defined in the eligible fund's prospectus) is applicable. Purchase orders from eligible fund shareholders wishing to exercise this investment option will be accepted only on the day that the related tender offer terminates and will be effected at the net asset value of the designated class of the Fund on such day.
REDUCED INITIAL SALES CHARGES
Right of Accumulation. The Fund offers a right of accumulation under which investors are permitted to purchase shares of the Fund subject to an initial sales charge at the offering price applicable to the total of (a) the public offering price of the shares then being purchased plus (b) an amount equal to the then current net asset value or cost, whichever is higher, of the purchaser's combined holdings of all classes of shares of the Fund and of other MLAM-advised mutual funds. 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 $25,000 or more of Class A or Class D shares of the Fund or any other MLAM-advised mutual funds made within a 13-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 or Class D shares; however, its execution will result in the purchaser paying a lower sales charge at the appropriate quantity purchase level. A purchase not originally made pursuant to a Letter of 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 and Class D shares of the Fund and of other MLAM-advised mutual funds 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 $25,000), the investor will be notified and must pay, within 20 days of the expiration of such Letter, the difference between the sales charge on the Class A or Class D shares purchased at the reduced rate and the sales charge applicable to the shares actually purchased through the Letter. Class A or Class D shares equal to five percent of the intended amount will be held in escrow during the 13-month period (while remaining registered in the name of the purchaser) for this purpose. The first purchase under the Letter of 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 or Class D 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 a MLAM-advised money market fund 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 D shares of the Fund are offered to participants in the Merrill Lynch Blueprint SM Program ("Blueprint"). In addition, participants in Blueprint who own Class A shares of the Fund may purchase additional Class A shares of the Fund through Blueprint. Blueprint is directed to small investors, group IRAs and participants in certain affinity groups such as credit unions, trade associations and benefit plans. Investors placing orders to purchase Class A or Class D shares of the Fund through Blueprint will acquire the Class A or Class D shares at net asset value plus a sales charge calculated in accordance with the Blueprint sales charge schedule (i.e., up to $300 at 4.25%, from $300.01 to $5,000 at 3.25% plus $3.00 and $5,000.01 or more at the standard sales charge rates disclosed in the Prospectus). In addition, Class A or Class D shares of the Fund are 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 or Class D shares through Blueprint. Services, including the exchange privilege, available to Class A and Class D investors through Blueprint, however, may differ from those available to other investors in Class A or Class D shares.
Class A and Class D shares are offered at net asset value to Blueprint participants through the Merrill Lynch Directed IRA Rollover Program ("IRA Rollover Program") available from Merrill Lynch Business
Financial Services, a business unit of Merrill Lynch. The IRA Rollover Program is available to custodian rollover assets from employer sponsored retirement and savings plans whose trustee and/or plan sponsor has entered into a Merrill Lynch Directed IRA Rollover Program Service Agreement.
Orders for purchases and redemptions of Class A or Class D shares of the Fund may be grouped for execution purposes which, in some circumstances, may involve the execution of such orders two business days following the day such orders are placed. The minimum initial purchase price is $100, with a $50 minimum for subsequent purchases through Blueprint. There are no minimum initial or subsequent purchase requirements for participants who are part of an automatic investment plan. Additional information concerning purchases through Blueprint, including any annual fees and transaction charges, is available from Merrill Lynch, Pierce, Fenner & Smith Incorporated, The Blueprint SM Program, P.O. Box 30441, New Brunswick, New Jersey 08989-0441.
Purchase Privilege of Certain Persons. Directors of the Fund, members of the Boards of other MLAM-advised investment companies, ML & Co. and its subsidiaries (the term "subsidiaries", when used herein with respect to ML & Co. includes MLAM, FAM and certain other entities directly or indirectly wholly-owned and controlled by ML & Co.) and their directors and employees, and any trust, pension, profit-sharing or other benefit plan for such persons may purchase Class A shares of the Fund at net asset value.
Class D shares of the Fund are 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 advise Merrill Lynch that it will purchase Class D shares of the Fund with proceeds from a redemption of a mutual fund that was sponsored by the financial consultant's previous firm and was subject to a sales charge either at the time of purchase or on a deferred basis; and second, the investor also must establish that such redemption had been made within 60 days prior to the investment in the Fund, and the proceeds from the redemption had been maintained in the interim in cash or a money market fund.
Class D shares of the Fund are also offered at net asset value, without
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 D shares of the Fund with proceeds
from a redemption of shares of the other mutual fund, and such shares of such
other fund were subject to a sales charge either at the time of purchase or on
a deferred basis; and second, such purchase of Class D shares must be made
within 90 days after such notice of termination.
Class D shares of the Fund are offered at net asset value, without a sales charge, to an investor who has a business relationship with a Merrill Lynch financial consultant and who has invested in a mutual fund for which Merrill Lynch has not served as a selected dealer if the following conditions are satisfied: first, the investor must advise Merrill Lynch that it will purchase Class D shares of the Fund with proceeds from the redemption of such shares of the other mutual fund and such shares have been outstanding for a period of no less than six months; and second, such purchase of Class D shares must be made within 60 days after the
redemption, and the proceeds from the redemption must be maintained in the interim in cash or a money market fund.
TMA SM Managed Trusts. Class A shares are offered to TMA SM Managed Trusts to which Merrill Lynch Trust Company provides discretionary trustee services at net asset value.
Employee Access Accounts SM. Class A or Class D shares are offered at net asset value to Employee Access Accounts available through employers that provide employer sponsored retirement or savings plans that are eligible to purchase such shares at net asset value. The initial minimum for such accounts is $500 except that the initial minimum for shares purchased for such accounts pursuant to the Automatic Investment Program is $50.
Acquisition of Assets of Certain Investment Companies. The public offering
price of Class D shares may be reduced to the net asset value per Class D
share in connection with the acquisition of the assets of or merger or
consolidation with a 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. The issuance of Class D
shares for consideration other than cash is limited to bona fide
reorganizations, statutory mergers or other acquisitions of portfolio
securities which (i) meet the investment objectives and policies of the Fund;
(ii) are acquired for investment and not for resale (subject to the
understanding that the disposition of the Fund's portfolio securities shall at
all times remain within its control); and (iii) are liquid securities, the
value of which is readily ascertainable, which are not restricted as to
transfer either by law or liquidity of market (except that the Fund may
acquire through such transactions restricted or illiquid securities to the
extent the Fund does not exceed the applicable limits on acquisition of such
securities set forth under "Investment Objective and Policies" herein).
Reductions in or exemptions from the imposition of a sales load are due to the nature of the investors and/or the reduced sales efforts that will be needed in obtaining such investments.
EMPLOYER-SPONSORED RETIREMENT OR SAVINGS PLANS AND CERTAIN OTHER ARRANGEMENTS
Certain employer-sponsored retirement or savings plans and certain other arrangements may purchase Class A or Class D shares at net asset value, based on the number of employees or number of employees eligible to participate in the plan, the aggregate amount invested by the plan in specified investments and/or the services provided by Merrill Lynch to the plan. Certain other plans may purchase Class B shares with a waiver of the CDSC upon redemption, based on similar criteria. Such Class B shares will convert into Class D shares approximately ten years after the plan purchases the first share of any MLAM- advised mutual fund. Minimum purchase requirements may be waived or varied for such plans. Additional information regarding purchases by employer-sponsored retirement or savings plans and certain other arrangements is available toll- free from Merrill Lynch Business Financial Services at (800) 237-7777.
DISTRIBUTION PLANS
Reference is made to "Purchase of Shares--Distribution Plans" in the Prospectus for certain information with respect to the separate distribution plans for Class B, Class C and Class D shares pursuant to Rule 12b-1 under the Investment Company Act (each a "Distribution Plan") with respect to the account maintenance and/or distribution fees paid by the Fund to the Distributor with respect to such classes.
Payments of the account maintenance fees and/or distribution fees are subject to the provisions of Rule 12b-1 under the Investment Company Act. Among other things, each Distribution Plan provides that the Distributor shall provide and the Directors shall review quarterly reports of the disbursement of the account maintenance fees and/or distribution fees paid to the Distributor. In their consideration of each Distribution Plan, the Directors must consider all factors they deem relevant, including information as to the benefits of the Distribution Plan to the Fund and to its related class of shareholders. Each 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 each Distribution Plan in accordance with Rule 12b-1, the Independent Directors concluded that there is reasonable likelihood that such Distribution Plan will benefit the Fund and its related class of shareholders. Each Distribution Plan can be terminated at any time, without penalty, by the vote of a majority of the Independent Directors or by the vote of the holders of a majority of the related class of voting securities of the Fund. A Distribution Plan cannot be amended to increase materially the amount to be spent by the Fund without the approval of the related class of shareholder, 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 such Distribution Plan, cast in person at a meeting called for that purpose. Rule 12b-1 further requires that the Fund preserve copies of each Distribution Plan and any report made pursuant to such plan for a period of not less than six years from the date of such Distribution Plan or such report, the first two years in an easily accessible place.
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. (the "NASD") imposes a limitation on certain asset-based sales charges such as the distribution fee and the CDSC borne by the Class B and Class C shares but not the account maintenance fee. The maximum sales charge rule is applied separately to each class. As applicable to the Fund, the maximum sales charge rule limits the aggregate of distribution fee payments and CDSCs payable by the Fund to (1) 6.25% of eligible gross sales of Class B shares and Class C shares, computed separately (defined to exclude shares issued pursuant to dividend reinvestments and exchanges), plus (2) interest on the unpaid balance for the respective class, computed separately, at the prime rate plus 1% (the unpaid balance being the maximum amount payable minus amounts received from the payment of the distribution fees and the CDSCs). In connection with the Class B shares, the Distributor has voluntarily agreed to waive interest charges on the unpaid balance in excess of 0.50% of eligible gross sales. Consequently, the maximum amount payable to the Distributor (referred to as the "voluntary maximum") in connection with the Class B shares is 6.75% of eligible gross sales. The Distributor retains the right to stop waiving the interest charges at any time. To the extent payments would exceed the voluntary maximum, the Fund will not make further payments of the distribution fee with respect to Class B shares, and any CDSCs will be paid to the Fund rather than to the Distributor; however, the Fund will continue to make payments of the account maintenance fee. In certain circumstances the amount payable pursuant to the voluntary maximum may exceed the amount payable under the NASD formula. In such circumstances payment in excess of the amount payable under the NASD formula will not be made.
The following table sets forth comparative information as of December 31, 1995 indicating the maximum allowable payments that can be made under the NASD maximum sales charge rule with respect to Class B and Class C shares and the Distributor's voluntary maximum with respect to Class B shares, for the periods indicated.
DATA CALCULATED AS OF DECEMBER 31, 1995
-----------------------------------------------------------------------------
(IN THOUSANDS)
ANNUAL
ALLOWABLE DISTRIBUTION
ALLOWABLE INTEREST AMOUNTS FEE AT
ELIGIBLE AGGREGATE ON MAXIMUM PREVIOUSLY AGGREGATE CURRENT
GROSS SALES UNPAID AMOUNT PAID TO UNPAID NET ASSET
SALES(1) CHARGES BALANCE(2) PAYABLE DISTRIBUTOR(3) BALANCE LEVEL(4)
---------- --------- ---------- ------- -------------- --------- ------------
CLASS B SHARES, FOR THE
PERIOD OCTOBER 21, 1988
(COMMENCEMENT OF
OPERATIONS) TO DECEMBER
31, 1995:
Under NASD Rule as Adopted. $1,149,298 $71,831 $11,877 $83,708 $24,480 $59,228 $7,813
Under Distributor's
Voluntary Waiver.......... $1,149,298 $71,831 $ 5,746 $77,577 $24,480 $53,097 $7,813
CLASS C SHARES, FOR THE
PERIOD OCTOBER 21, 1994
(COMMENCEMENT OF
OPERATIONS) TO DECEMBER
31, 1995:
Under NASD Rule As Adopted. $ 39,908 $ 2,494 $ 129 $ 2,623 $ 197 $ 2,426 $ 346
|
(1) Purchase price of all eligible Class B or Class C shares sold during
periods indicated 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 CDSC payments, distribution fee payments and accruals. Of the
distribution fee payments made with respect to Class B shares prior to
July 7, 1993, under the distribution plan in effect at that time, 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. See "Purchase of Shares--Distribution Plans" in the Prospectus.
(4) Provided to illustrate the extent to which the current level of
distribution fee payments (not including any CDSC payments) is amortizing
the unpaid balance. No assurance can be given that payments of the
distribution fee will reach either the NASD maximum or, with respect to
Class B shares, the voluntary maximum.
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
NYSE is closed other than customary weekend and holiday closings or (b) during
which trading on the NYSE 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 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.
DEFERRED SALES CHARGES--CLASS B AND CLASS C SHARES
As discussed in the Prospectus under "Purchase of Shares--Deferred Sales Charge Alternatives--Class B and Class C Shares", while Class B shares redeemed within four years of purchase are subject to a CDSC under most circumstances, the charge is waived (i) on redemptions of Class B shares in connection with certain post-retirement withdrawals from an Individual Retirement Account ("IRA") or other retirement plan or (ii) on redemptions of Class B shares 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 part of a series of equal periodic payments (not less frequently than annually) made for the life (or life expectancy) or any redemption resulting from the tax-free return of an excess contribution to an IRA; or (b) any partial or complete redemption following the death or disability (as defined in the Code) of a Class B shareholder (including one who owns the Class B shares as joint tenant with his or her spouse), provided the redemption is requested within one year of the death or initial determination of disability. For the fiscal years ended December 31, 1993, 1994 and 1995, the Distributor received CDSCs of $1,036,912, $1,830,114 and $3,023,322, respectively, with respect to redemptions of Class B shares, all of which was paid to Merrill Lynch. For the period October 21, 1994 (commencement of operations) to December 31, 1994 and for the fiscal year ended December 31, 1995, the Distributor received CDSCs of $1 and $18,089, respectively, with respect to redemptions of Class C shares, 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 CDSC is waived in connection with purchase orders placed through Blueprint. Services, including the exchange privilege, available to Class B investors through Blueprint, however, may differ from those available to other 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.
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 NASD and policies established by the Directors of the Fund, the Manager may consider sales of shares of the Fund as a factor in the selection of brokers or dealers to execute portfolio transactions for the Fund.
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.
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 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 any of 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
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, 1995, the Fund paid total brokerage commissions of $2,622,844, of which $95,598, or 3.6%, was paid to Merrill Lynch for effecting 3.7% of the aggregate dollar amount of transactions in which the Fund paid brokerage commissions. For the fiscal year ended December 31, 1994, the Fund paid total brokerage commissions of $3,851,175, of which $21,610, or 0.6%, was paid to Merrill Lynch for effecting 0.9% 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 total brokerage commissions of $1,891,212, of which $27,267, or 1.4%, was paid to Merrill Lynch for effecting 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 15 minutes after the close of business on the NYSE (generally, 4:00 p.m., New York time), on each day during which the NYSE is open for trading. The NYSE 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 any account maintenance and/or distribution fees are accrued daily. The per share net asset value of the Class B, Class C and Class D 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 and Class C shares and the daily expense accruals of the account maintenance fees applicable with respect to Class D shares; moreover the per share net asset value of Class B and Class C shares generally will be lower than the per share net asset value of its Class D shares reflecting the daily expense accruals of the distribution fees and higher transfer agency fees applicable with respect to Class B and Class C shares of the Fund. It is expected, however, that the per share net asset value of the four classes will tend to converge (although not necessarily meet) immediately after the payment of dividends or distributions, which will differ by approximately the amount of the expense accrual differentials among the classes.
Portfolio securities which are traded on stock exchanges are valued at the last sale price (regular way) on the exchange on which such securities are traded, as of the close of business on the day the securities are being valued or, lacking any sales, at the last available bid price. 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. 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. Securities traded in the OTC market are valued at the last available bid price in the OTC market prior to the time of valuation. Securities which are traded both in the OTC market and on a stock exchange will be valued according to the broadest and most representative market. 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 sale price in the case of exchange-traded options or, in the case of options traded in the OTC market, the last asked price. Options purchased by the Fund are valued at their last sale price in the case of exchange-traded options or, in the case of options traded in the OTC market, the last bid price. Other investments, including future contracts and related options, will be stated at market value.
Securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith by or under the direction of the Board of Directors of the 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 BlueprintSM Program. Certain of these services are available only to U.S. investors. 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 statements, at least quarterly, from the transfer agent. These statements will serve as transaction confirmations for automatic investment purchases and the reinvestment of ordinary income dividends and long-term capital gain distributions. The 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, 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 Fund's transfer agent.
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 Fund's transfer agent.
Shareholders considering transferring their Class A or Class D shares from Merrill Lynch to another brokerage firm or financial institution should be aware that, if the firm to which the Class A or Class D shares are to be transferred will not take delivery of shares of the Fund, a shareholder either must redeem the Class A or Class D shares (paying any applicable CDSC) so that the cash proceeds can be transferred to the account at the new firm or such shareholder must continue to maintain an Investment Account at the transfer agent for those Class A or Class D shares. Shareholders interested in transferring their Class B or Class C 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 at the transfer agent. 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 CDSC) so that the cash proceeds can be transferred to the account at the new firm, or such shareholder must continue to maintain a retirement account at Merrill Lynch for those shares.
AUTOMATIC INVESTMENT PLANS
A U.S. shareholder may make additions to an Investment Account at any time by purchasing Class A shares (if he or she is an eligible Class A investor as described in the Prospectus) or Class B, Class C or Class D 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 Fund's 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. For investors who buy shares of the Fund through Blueprint no minimum charge to the investor's bank account is required. Investors who maintain CMA (R) or CBA (R) accounts may arrange to have periodic investments made in the Fund in their CMA (R) or CBA (R) accounts or in certain related accounts in amounts of $100 or more ($1 for retirement accounts) through the CMA (R) or CBA (R) Automated Investment Program.
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 at the net asset value per share next determined after the close of business on the NYSE 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 AND CLASS D SHARES
A Class A or Class D 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 or Class D shares of the Fund having a value, based upon cost or the current offering price, of $5,000 or more, and monthly withdrawals are available for shareholders with Class A or Class D shares with such a value of $10,000 or more.
At the time of each withdrawal payment, sufficient Class A or Class D 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 or Class D shares. Redemptions will be made at the net asset value next determined as of 15 minutes after the close of business on the NYSE (generally, 4:00 p.m., New York time) on the 24th day of each month or the 24th day of the last month of each quarter, whichever is applicable. If the NYSE is not open for business on such date, the shares will be redeemed at the net asset value next determined after the close of business on
the NYSE on the following business day. The check for the withdrawal payment will be mailed, or the direct deposit of the withdrawal payment will be made, on the next business day following redemption. When a Class A or Class D shareholder is making systematic withdrawals, dividends and distributions on all shares in the Investment Account are automatically reinvested in Class A or Class D shares of the Fund, respectively. A shareholder's Systematic Withdrawal Plan may be terminated at any time, without charge or penalty, by the shareholder, the Fund, the Fund's 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 or Class D 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 or Class D 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 shareholder has elected to make systematic withdrawals.
Alternatively, a Class A or Class D 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 CMA (R) or CBA (R) 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 CMA (R) or CBA (R) Systematic Redemption Program is not available if Fund shares are being purchased within the account pursuant to the Automatic Investment Program. For more information on the CMA (R) or CBA (R) Systematic Redemption Program, eligible shareholders should contact their Merrill Lynch financial consultant.
EXCHANGE PRIVILEGE
Shareholders of each class of shares of the Fund have an exchange privilege with certain other MLAM-advised mutual funds. Under the Merrill Lynch Select Pricing SM System, Class A shareholders may exchange Class A shares of the Fund for Class A shares of a second MLAM-advised mutual fund if the shareholder holds any Class A shares of the second fund in his account in which the exchange is made at the time of the exchange or is otherwise eligible to purchase Class A shares of the second fund. If the Class A shareholder wants to exchange Class A shares for shares of a second MLAM- advised mutual fund, but does not hold Class A shares of the second fund in his account at the time of the exchange and is not otherwise eligible to acquire Class A shares of the second fund, the shareholder will receive Class D shares of the second fund as a result of the exchange. Class D shares also may be exchanged for Class A shares of a second MLAM-advised mutual fund at any time as long as, at the time of the exchange, the shareholder holds Class A shares of the second fund in the account in which the exchange is made or is otherwise eligible to purchase Class A shares of the second fund. Class B, Class C and Class D shares are exchangeable with shares of the same class of other MLAM-advised mutual funds. For purposes of computing the CDSC that may be payable
upon a disposition of the shares acquired in the exchange, the holding period for the previously owned shares of the Fund is "tacked" to the holding period for the newly acquired shares of the other fund as more fully described below. Class A, Class B, Class C and Class D shares also are exchangeable for shares of certain MLAM-advised money market funds as follows: Class A shares may be exchanged for shares of Merrill Lynch Ready Assets Trust, Merrill Lynch Retirement Reserves Money Fund (available only for exchanges within certain retirement plans), Merrill Lynch U.S.A. Government Reserves and Merrill Lynch U.S. Treasury Money Fund; Class B, Class C and Class D shares may be exchanged for shares of Merrill Lynch Government Fund, Merrill Lynch Institutional Fund, Merrill Lynch Institutional Tax-Exempt Fund and Merrill Lynch Treasury Fund. Shares with a net asset value of at least $100 are required to qualify for the exchange privilege, and any shares utilized in an exchange must have been held by the shareholder for at least 15 days. It is contemplated that the exchange privilege may be applicable to other new mutual funds whose shares may be distributed by the Distributor.
Exchanges of Class A or Class D shares outstanding ("outstanding Class A or Class D shares") for Class A or Class D shares of another MLAM-advised mutual fund ("new Class A or Class D shares") are transacted on the basis of relative net asset value per Class A or Class D share, respectively, plus an amount equal to the difference, if any, between the sales charge previously paid on the outstanding Class A or Class D shares and the sales charge payable at the time of the exchange on the new Class A or Class D shares. With respect to outstanding Class A or Class D shares as to which previous exchanges have taken place, the "sales charge previously paid" shall include the aggregate of the sales charge paid with respect to such Class A or Class D shares in the initial purchase and any subsequent exchange. Class A or Class D shares issued pursuant to dividend reinvestment are sold on a no-load basis in each of the funds offering Class A or Class D shares. For purposes of the exchange privilege, Class A and Class D shares acquired through dividend reinvestment shall be deemed to have been sold with a sales charge equal to the sales charge previously paid on the Class A or Class D shares on which the dividend was paid. Based on this formula, Class A and Class D shares of the Fund generally may be exchanged into the Class A or Class D shares of the other funds or into shares of the Class A and Class D money market funds with a reduced or without a sales charge.
In addition, each of the funds with Class B and Class C shares outstanding ("outstanding Class B or Class C shares") offers to exchange its Class B or Class C shares for Class B or Class C shares, respectively ("new Class B or Class C shares"), of another MLAM-advised mutual fund on the basis of relative net asset value per Class B or Class C share, without the payment of any CDSC that might otherwise be due on redemption of the outstanding shares. Class B shareholders of the Fund exercising the exchange privilege will continue to be subject to the Fund's CDSC schedule if such schedule is higher than the CDSC schedule relating to the new Class B shares acquired through use of the exchange privilege. In addition, Class B shares of the Fund acquired through use of the exchange privilege will be subject to the Fund's CDSC schedule if such schedule is higher than the CDSC schedule relating to the Class B shares of the fund from which the exchange has been made. For purposes of computing the sales charge that may be payable on a disposition of the new Class B or Class C shares, the holding period for the outstanding Class B or Class C shares is "tacked" to the holding period for the new Class B or Class C shares. For example, an investor may exchange Class B shares of the Fund for those of Merrill Lynch Special Value Fund, Inc. ("Special Value Fund") after having held the Fund Class B shares for two and a half years. The 2% CDSC that generally would apply to a redemption would not apply to the exchange. Three years later the investor may decide to redeem the Class B shares of Special Value Fund and receive cash. There will be no CDSC due on this redemption, since
by "tacking" the two and a half year holding period of Fund Class B shares to the three year holding period for the Special Value Fund Class B shares, the investor will be deemed to have held the new Special Value Fund Class B shares for more than five years.
The exchange privilege is modified with respect to certain retirement plans which participate in the Merrill Lynch Mutual Fund Adviser ("MFA") program. Such retirement plans may exchange Class B, Class C or Class D shares that have been held for at least one year for Class A shares of the same fund on the basis of relative net asset values in connection with the commencement of participation in the MFA program, i.e., no CDSC will apply. The one year holding period does not apply to shares acquired through reinvestment of dividends. Upon termination of participation in the MFA program, Class A shares will be re-exchanged for the class of shares originally held. For purposes of computing any CDSC that may be payable upon redemption of Class B or Class C shares so reacquired, or the conversion period for Class B shares so reacquired, the holding period for the Class A shares will be "tacked" to the holding period for the Class B or Class C shares originally held.
Shareholders also may exchange shares of the Fund into shares of a money market fund advised by the Manager or its affiliates, but the period of time that Class B or Class C shares are held in a money market fund will not count towards satisfaction of the holding period requirement for purposes of reducing the CDSC or with respect to Class B shares, towards satisfaction of the conversion period. However, shares of a money market fund which were acquired as a result of an exchange for Class B or Class C shares of the Fund may, in turn, be exchanged back into Class B or Class C shares, respectively, of any fund offering such shares, in which event the holding period for Class B or Class C shares of that fund will be aggregated with previous holding periods for purposes of reducing the CDSC. Thus, for example, an investor may exchange Class B shares of the Fund for shares of Merrill Lynch Institutional Fund ("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 Institutional Fund for cash. At the time of this redemption, the 2% CDSC that would have been due had the Class B shares of the Fund been redeemed for cash rather than exchanged for shares of 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 continued to hold for an additional two and a half years, any subsequent redemption would not incur a CDSC.
Before effecting an exchange, shareholders should obtain a currently effective prospectus of the fund into which the exchange is to be made.
To exercise the exchange privilege, shareholders should contact their Merrill Lynch financial consultant, who will advise the Fund of the exchange. Shareholders of the Fund, and shareholders of the other funds described above with shares for which certificates have not been issued, may exercise the exchange privilege by wire through their securities dealers. The Fund reserves the right to require a properly completed exchange application. This exchange privilege may be modified or terminated in accordance with the rules of the Commission. The Fund reserves the right to limit the number of times an investor may exercise the exchange privilege. Certain funds may suspend the continuous offering of their shares at any time and thereafter may 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 and Class C shares will be lower than the per share dividends and distributions on Class A and Class D shares as a result of the account maintenance, distribution and higher transfer agency fees applicable with respect to the Class B and Class C shares; similarly, the per share dividends and distributions on Class D shares will be lower than the per share dividends and distributions on Class A shares as a result of the account maintenance fees applicable with respect to the Class D shares. See "Determination of Net Asset Value".
TAXES
The Fund intends to continue to qualify for the special tax treatment afforded RICs under 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, Class B, Class C and Class D shareholders (together, the "shareholders"). The Fund intends to distribute substantially all of such income.
Dividends paid by the Fund from its ordinary income or from an excess of net short-term capital gains over net long-term capital losses (together referred to hereafter as "ordinary income dividends") are taxable to shareholders as ordinary income. Distributions made from an excess of net long-term capital gains over net short-term capital losses (including gains or losses from certain transactions in warrants, futures and options) ("capital gain dividends") are taxable to shareholders as long-term capital gains, regardless of the length of time the shareholder has owned Fund shares. Any loss upon the sale or exchange of Fund shares held for six months or less, however, will be treated as long-term capital loss to the extent of any capital gain dividends received by the shareholder. Distributions in excess of the Fund's earnings and profits will first reduce the adjusted tax basis of a holder's shares and, after such adjusted tax basis is reduced to zero, will constitute capital gains to such holder (assuming the shares are held as a capital asset).
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, generally 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 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, capital gain dividends and redemption payments ("backup withholding"). Generally, shareholders subject to backup withholding will be those for whom no certified taxpayer identification number is on file with the Fund or who, to the Fund's knowledge, have furnished an incorrect number. When establishing an account, an investor must certify under penalty of perjury that such number is correct and that such investor is not otherwise subject to backup withholding.
Dividends and interest received by the Fund may give rise to withholding and other taxes imposed by foreign countries. Tax conventions between certain countries and the 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 among the Class A, Class B, Class C and Class D shareholders according to a method (which it believes is consistent with the Commission rule permitting the issuance and sale of multiple classes of stock) that is based on the gross income allocable to the Class A, Class B, Class C and Class D shareholders during the taxable year, or such other method as the Internal Revenue Service may prescribe.
No gain or loss will be recognized by Class B shareholders on the conversion of their Class B shares into Class D shares. A shareholder's basis in the Class D shares acquired will be the same as such shareholder's basis in the Class B shares converted, and the holding period of the acquired Class D shares will include the holding period for the converted Class B shares.
If a shareholder exercises an exchange privilege within 90 days of acquiring the shares, then the loss the shareholder can recognize on the exchange will be reduced (or the gain increased) to the extent any sales charge paid to the Fund on the exchanged shares reduces any sales charge the shareholder would have owed upon purchase of the new shares in the absence of the exchange privilege. Instead, such sales charge will be treated as an amount paid for the new shares.
A loss realized on a sale or exchange of shares of the Fund will be disallowed if other Fund shares are acquired (whether through the automatic reinvestment of dividends or otherwise) within a 61-day period beginning 30 days before and ending 30 days after the date that the shares are disposed of. In such a case, the basis of the shares acquired will be adjusted to reflect the disallowed loss.
The Code requires a RIC to pay a nondeductible 4% excise tax to the extent the RIC does not distribute, during each calendar year, 98% of its ordinary income, determined on a calendar year basis, and 98% of its capital gains, determined, in general, on an October 31 year end, plus certain undistributed amounts from previous years. While the Fund intends to distribute its income and capital gains in the manner necessary to minimize imposition of the 4% excise tax, there can be no assurance that sufficient amounts of the Fund's taxable income and capital gains will be distributed to avoid entirely the imposition of the tax. In such event, the Fund will be liable for the tax only on the amount by which it does not meet the foregoing distribution requirements.
The Fund may invest in securities rated in the medium to lower rating categories of nationally recognized rating organizations, and in unrated securities ("high yield securities"), as previously described. Some of these high yield securities may be purchased at a discount and may therefore cause the Fund to accrue income before amounts due under the obligations are paid. In addition, a portion of the interest payments on such high yield securities may be treated as dividends for Federal income tax purposes; in such case, if the issuer of such high yield securities is a domestic corporation, dividend payments by the Fund will be eligible for the dividends received deduction to the extent of the deemed dividend portion of such interest payments.
TAX TREATMENT OF OPTIONS, FUTURES AND FORWARD FOREIGN EXCHANGE TRANSACTIONS
The Fund may write, purchase or sell options, futures and forward foreign
exchange contracts. Options and futures contracts that are "Section 1256
contracts" will be "marked to market" for Federal income tax purposes at the
end of each taxable year, i.e., each such option or futures contract will be
treated as sold for its fair market value on the last day of the taxable year.
Unless such contract is a forward foreign exchange contract, or is a non-equity
option or a regulated futures contract for a non-U.S. currency for which the
Fund elects to have gain or loss treated as ordinary gain or loss under Code
Section 988 (as described below), gain or loss from Section 1256 contracts will
be 60% long-term and 40% short-term capital gain or loss. Application of these
rules to Section 1256 contracts held by the Fund may alter the timing and
character of distributions to shareholders. The mark-to-market rules outlined
above, however, will not apply to certain transactions entered into by the Fund
solely to reduce the risk of changes in price or interest or currency exchange
rates with respect to its investments.
A forward foreign exchange contract that is a Section 1256 contract will be marked to market, as described above. However, the character of gain or loss from such a contract will generally be ordinary under Code Section 988. The Fund may, nonetheless, elect to treat the gain or loss from certain forward foreign exchange contracts as capital. In this case, gain or loss realized in connection with a forward foreign exchange contract that is a Section 1256 contract will be characterized as 60% long-term and 40% short-term capital gain or loss.
Code Section 1092, which applies to certain "straddles", may affect the taxation of the Fund's sales of securities and transactions in options, futures and forward foreign exchange contracts. Under Section 1092,
the Fund may be required to postpone recognition for tax purposes of losses incurred in certain sales of securities and certain closing transactions in options, futures and forward foreign exchange contracts.
One of the requirements for qualification as a RIC is that less than 30% of the Fund's gross income 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 option 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.
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 income dividend distributions, and all or a portion
of distributions made before the losses were realized but in the same taxable
year would be recharacterized as a return of capital to shareholders, thereby
reducing the basis of each shareholder's Fund shares and resulting in a capital
gain for any shareholder who received a distribution greater than the
shareholder's basis in Fund shares (assuming the shares were held as a capital
asset). 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, judicial or administrative action either prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state and local taxes.
Certain states exempt from state income taxation dividends paid by RICs which are derived from interest on 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, Class B, Class C and Class D shares in accordance with a formula specified by the Commission.
Average annual total return quotations for the specified periods are computed by finding the average annual compounded rates of return (based on net investment income and any realized and unrealized capital gains or losses on portfolio investments over such periods) that would equate the initial amount invested to the redeemable value of such investment at the end of each period. Average annual total return is computed assuming all dividends and distributions are reinvested and taking into account all applicable recurring and nonrecurring expenses, including the maximum sales charge in the case of Class A and Class D shares and the CDSC that would be applicable to a complete redemption of the investment at the end of the specified period in the case of Class B and Class C shares.
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 in the tables following is total return information for Class A, Class B, Class C and Class D shares of the Fund for the periods indicated.
CLASS A SHARES CLASS B SHARES
------------------------- -------------------------
REDEEMABLE REDEEMABLE
EXPRESSED VALUE OF A EXPRESSED VALUE OF A
AS A HYPOTHETICAL AS A HYPOTHETICAL
PERCENTAGE $1,000 PERCENTAGE $1,000
BASED INVESTMENT BASED INVESTMENT
ON A AT THE ON A AT THE
HYPOTHETICAL END OF HYPOTHETICAL END OF
$1,000 THE $1,000 THE
ERIODP INVESTMENT PERIOD INVESTMENT PERIOD
- ------ ------------ ------------ ------------ ------------
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
One Year Ended December 31,
1995...................... 2.52 % $ 1,025.20 3.10 % $ 1,031.00
Five Years Ended December
31, 1995.................. 8.65 % $ 1,514.30 8.71 % $ 1,518.60
Ten Years Ended December
31, 1995.................. 15.44 % $ 4,202.70
Inception (October 21,
1988) to
December 31, 1995......... 8.26 % $ 1,770.60
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Year Ended December 31,
1995...................... 8.20 % $ 1,082.00 7.10 % $ 1,071.00
Year Ended December 31,
1994...................... 2.90 % $ 1,029.00 1.87 % $ 1,018.70
Year Ended December 31,
1993...................... 34.41 % $ 1,344.10 33.05 % $ 1,330.50
Year Ended December 31,
1992...................... (8.75)% $ 912.50 (9.72)% $ 902.80
Year Ended December 31,
1991...................... 17.04 % $ 1,170.40 15.87 % $ 1,158.70
Year Ended December 31,
1990...................... (8.39)% $ 916.10 (9.29)% $ 907.10
Year Ended December 31,
1989...................... 14.49 % $ 1,144.90 13.39 % $ 1,133.90
Year Ended December 31,
1988...................... 34.38 % $ 1,343.80
Year Ended December 31,
1987...................... 10.77 % $ 1,107.70
Year Ended December 31,
1986...................... 77.78 % $ 1,777.80
Year Ended December 31,
1985...................... 40.96 % $ 1,409.60
Year Ended December 31,
1984...................... 2.92 % $ 1,029.20
Year Ended December 31,
1983...................... 38.54 % $ 1,385.40
Year Ended December 31,
1982...................... 0.46 % $ 1,004.60
Year Ended December 31,
1981...................... 22.22 % $ 1,222.20
Year Ended December 31,
1980...................... 38.49 % $ 1,384.90
Inception (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, 1995......... 1,638.17 % $17,381.70
Inception (October 21,
1988) to
December 31, 1995......... 77.06 % $ 1,770.60
|
CLASS C SHARES CLASS D SHARES
------------------------- -------------------------
REDEEMABLE REDEEMABLE
EXPRESSED VALUE OF A EXPRESSED VALUE OF A
AS A HYPOTHETICAL AS A HYPOTHETICAL
PERCENTAGE $1,000 PERCENTAGE $1,000
BASED INVESTMENT BASED INVESTMENT
ON A AT THE ON A AT THE
HYPOTHETICAL END OF HYPOTHETICAL END OF
$1,000 THE $1,000 THE
PERIOD INVESTMENT PERIOD INVESTMENT PERIOD
------ ------------ ------------ ------------ ------------
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
One Year Ended December 31,
1995...................... 6.07% $1,060.70 2.29 % $1,022.90
Inception (October 21,
1994) to
December 31, 1995......... 2.29% $1,027.40 (1.46)% $ 982.60
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
One Year Ended December 31,
1995...................... 7.07 % $1,070.70 7.95 % $1,079.50
Inception (October 21,
1994) to
December 31, 1994......... (4.04)% $ 959.60 (3.93)% $ 960.70
AGGREGATE TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Inception (October 21,
1994) to
December 31, 1995......... 2.74% $1,027.40 (1.74)% $ 982.60
|
In order to reflect the reduced sales charges in the case of Class A or Class D shares, or the waiver of the CDSC in the case of Class B 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 CDSC and therefore may reflect greater total return since, due to the reduced sales charges or the waiver of CDSCs, a lower amount of expenses may be deducted.
GENERAL INFORMATION
DESCRIPTION OF SHARES
The Fund was incorporated under Maryland law on August 5, 1976. As of the date of this Statement of Additional Information, the Fund has an authorized capital of 500,000,000 shares of Common Stock, par value $0.10 per share, divided into four classes, designated Class A, Class B, Class C and Class D Common Stock. Class A, Class C and Class D each consists of 100,000,000 shares and Class B consists of 200,000,000 shares. Each share of Class A, Class B, Class C and Class D Common Stock represents an interest in the same assets of the Fund and is identical in all respects except that the Class B, Class C and Class D shares bear certain expenses related to the account maintenance and/or distribution of such shares and have exclusive voting rights with respect to matters relating to such account maintenance and/or distribution expenditures. 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 shareholders 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 rights. Redemption and conversion 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, Class B, Class C and Class D shares of the Fund based on the value of the Fund's net assets on December 31, 1995, and its shares outstanding on that date follows:
CLASS A CLASS B CLASS C CLASS D
------------ -------------- ------------ -----------
Net Assets................ $607,598,154 $1,041,762,957 $ 46,091,959 $97,945,663
============ ============== ============ ===========
Number of Shares Outstand-
ing...................... 27,423,514 49,103,338 2,197,882 4,424,454
============ ============== ============ ===========
Net Asset Value Per Share
(net assets divided by
number of shares
outstanding)............. $ 22.16 $ 21.22 $ 20.97 $ 22.14
Sales Charge (for Class A
and Class D shares: 5.25%
of offering price (5.54%
of net asset value per
share))*................. 1.23 ** ** 1.23
------------ -------------- ------------ -----------
Offering Price............ $ 23.39 $ 21.22 $ 20.97 $ 23.37
============ ============== ============ ===========
|
(footnotes on next page)
INDEPENDENT AUDITORS
Deloitte & Touche LLP, 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 approval by the independent Directors of the Fund. 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
Merrill Lynch Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484 acts as the Fund's transfer agent (the "Transfer Agent"). The Transfer Agent is responsible for the issuance, transfer and redemption of shares and the opening, maintenance and servicing of shareholder accounts. See "Management of the Fund--Transfer Agency Services" in the Prospectus.
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 Commission, Washington, D.C., under the Securities Act and the Investment Company Act, to which reference is hereby made.
Under a separate agreement Merrill Lynch has granted the Fund the right to use the "Merrill Lynch" name and has reserved the right to withdraw its consent to the use of such name by the Fund at any time or to grant the use of such name to any other company, and the Fund has granted Merrill Lynch, under certain conditions, the use of any other name it might assume in the future, with respect to any corporation organized by Merrill Lynch.
To the knowledge of the Fund, no person or entity owned beneficially 5% or more of the Fund's shares on March 31, 1996.
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, 1995, 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, 1995 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, 1995, 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 LLP
Princeton, New Jersey
February 2, 1996
SCHEDULE OF INVESTMENTS
Shares Held/ Value Percent of
Industry Face Amount Investments Cost (Note 1a) Net Assets
Japanese Securities
Automobile 4,861,000 Suzuki Motor Corp. $ 51,258,498 $ 54,147,133 3.0%
Beverage 380,000 Chukyo Coca-Cola Bottling Co., Ltd. 5,420,506 3,717,551 0.2
424,000 Hokkaido Coca-Cola Bottling Co., Ltd. 6,399,350 5,133,669 0.3
386,000 Kinki Coca-Cola Bottling Co., Ltd. 7,430,096 5,234,405 0.3
476,000 Mikuni Coca-Cola Bottling Co., Ltd. 8,487,431 6,500,969 0.4
470,000 Sanyo Coca-Cola Bottling Co., Ltd. 7,028,799 6,828,749 0.4
-------------- -------------- ------
34,766,182 27,415,343 1.6
Capital Goods 10,275,000 Mitsubishi Heavy Industries, Ltd. 72,860,934 81,909,386 4.6
Chemicals 2,403,000 Shin-Etsu Chemical Co., Ltd. 44,008,434 49,810,345 2.8
Consumer Electronics YEN 409,000,000 Matsushita Electric Works, Ltd.-
C.E.W. #8, 2.70% due 5/31/2002 4,543,869 4,841,128 0.3
Containers 2,926,000 Toyo Seikan Kaisha, Ltd. 66,781,229 87,575,940 4.9
Electric Construction 1,377,000 Chudenko Corp. 44,034,570 47,216,001 2.6
2,299,000 Kinden Corp. 40,928,144 39,860,616 2.2
1,120,000 Taihei Dengyo Kaisha, Ltd. 24,789,475 17,683,069 1.0
-------------- -------------- ------
109,752,189 104,759,686 5.8
Electric Equipment 3,200,000 Murata Manufacturing Co., Ltd. 110,654,033 117,783,805 6.6
2,557,000 NEC Corporation 37,256,072 31,207,090 1.7
857,000 The Nippon Signal Co., Ltd. 12,946,455 7,014,384 0.4
1,062,000 Rohm Co., Ltd. 44,672,431 59,971,523 3.3
169 Sumitomo Electric Industries,
Ltd., #1 Y (Warrants)(a) 185,351 137,505 0.0
-------------- -------------- ------
205,714,342 216,114,307 12.0
Iron & Steel 475,000 Maruichi Steel Tube, Ltd. 6,023,843 8,695,757 0.5
Office Equipment 5,139,000 Canon, Inc. 81,282,305 93,083,398 5.2
Pharmaceuticals 2,377,000 Sankyo Co., Ltd. 53,325,831 53,415,730 3.0
Property & Casualty 8,338,000 Dai-Tokyo Fire & Marine Insurance
Insurance Co., Ltd. 50,642,574 63,641,457 3.5
4,492,000 Fuji Fire & Marine Insurance Co.,
Ltd. 16,261,457 23,669,585 1.3
6,843,000 Koa Fire & Marine Insurance Co.,
Ltd. 41,125,130 41,890,507 2.3
6,210,000 Nichido Fire & Marine Insurance
Co., Ltd. 33,868,984 49,925,417 2.8
5,038,000 Sumitomo Marine & Fire Insurance
Co., Ltd. 44,246,350 41,381,480 2.3
4,550,000 Tokio Marine & Fire Insurance Co.,
Ltd. 45,703,327 59,497,288 3.3
-------------- -------------- ------
231,847,822 280,005,734 15.5
Retailing 1,243,000 Ito-Yokado Co., Ltd. 59,932,061 76,573,809 4.3
364,000 Sangetsu Co., Ltd. 8,382,717 9,166,989 0.5
352,000 Senshukai Co., Ltd. 5,696,494 5,762,108 0.3
-------------- -------------- ------
74,011,272 91,502,906 5.1
Total Investments in Japan 1,036,176,750 1,153,276,793 64.3
|
SCHEDULE OF INVESTMENTS (continued)
Shares Held/ Value Percent of
Industry Face Amount Investments Cost (Note 1a) Net Assets
Australian Securities
Food & Beverage 7,542,057 Coca-Cola Amatil, Ltd. $ 36,058,150 $ 60,176,776 3.4%
Leisure 13,840,684 Village Roadshow Ltd. 'A'
(Preferrred) 24,574,258 43,226,117 2.4
Property 5,425,378 Lend Lease Corp. 67,977,434 78,669,066 4.4
US$ 1,500,000 Lend Lease Finance International,
4.75% due 6/01/2003 1,736,250 1,869,150 0.1
-------------- -------------- ------
69,713,684 80,538,216 4.5
Total Investments in Australia 130,346,092 183,941,109 10.3
Hong Kong Securities
Banking 5,975,094 HSBC Holdings PLC 75,810,267 90,414,640 5.0
Conglomerates 12,407,035 Hutchison Whampoa Limited 65,495,149 75,578,291 4.2
Diversified 5,462,500 Swire Pacific Ltd. 'A' 44,702,320 42,388,774 2.4
Total Investments in Hong Kong 186,007,736 208,381,705 11.6
Indian Securities
Banking 5,100 SCICI, Ltd. 15,309 5,405 0.0
4,900 ++SCICI, Ltd. (Rights) 0 0 0.0
-------------- -------------- ------
15,309 5,405 0.0
Broadcast/Media 620,000 ++Shivalik Projects Ltd. 3,557,823 3,174,964 0.2
Diversified Mutual 1,705,000 ++Master Plus 1,083,668 509,317 0.0
Fund
Financial Services 72,000 ++Housing Development Finance
Corp. Limited 5,781,901 5,561,309 0.3
Total Investments in India 10,438,701 9,250,995 0.5
Indonesian Securities
Pharmaceuticals 1,634,000 P.T. Kalbe Farma 5,525,626 5,544,440 0.3
Total Investments in Indonesia 5,525,626 5,544,440 0.3
Malaysian Securities
Diversified 4,739,000 Renong BHD 6,981,270 7,019,358 0.4
Transportation 3,661,000 Malaysian International Shipping BHD 12,515,710 9,590,565 0.5
Total Investments in Malaysia 19,496,980 16,609,923 0.9
|
SCHEDULE OF INVESTMENTS (continued)
Value Percent of
Industry Shares Held Investments Cost (Note 1a) Net Assets
New Zealand Securities
Diversified 36,600,000 ++Guiness Peat Group PLC $ 15,917,954 $ 19,131,552 1.1%
Total Investments in New Zealand 15,917,954 19,131,552 1.1
Pakistan Securities
Utilities 43,298 ++Pakistan Telecommunications
(GDR)(b)++++ 7,783,681 3,680,330 0.2
Total Investments in Pakistan 7,783,681 3,680,330 0.2
Singaporean Securities
Food 3,600,000 Cerebos Pacific Ltd. 5,153,632 24,950,495 1.4
Transportation 300,000 Singapore Bus Co. Ltd.-Foreign
Registered 1,060,285 2,142,857 0.1
Total Investments in Singapore 6,213,917 27,093,352 1.5
South Korean Securities
Textiles 3,080 Taekwang Industries Co. 716,353 2,017,068 0.1
Total Investments in South Korea 716,353 2,017,068 0.1
Face Amount
Short-Term Securities
Commercial Paper* US$ 28,913,000 General Electric Capital Corp.,
5.90% due 1/02/1996 28,898,784 28,898,784 1.6
45,000,000 Goldman Sachs Group L.P., 6.10% due
1/05/1996 44,954,250 44,954,250 2.5
45,000,000 UBS Finance Delaware Inc., 6.00% due
1/03/1996 44,970,000 44,970,000 2.5
Total Investments in Short-Term
Securities 118,823,034 118,823,034 6.6
Premiums
Issue Paid
Currency Put Options Purchased
YEN 323,000,000 Japanese Yen, expiring January 1996
at YEN 102 5,963,200 5,071,100 0.3
156,010,000 Japanese Yen, expiring January 1996
at YEN 102 2,752,016 2,925,187 0.2
120,848,684 Japanese Yen, expiring Februaury 1996
at YEN 102 1,836,900 2,610,332 0.1
275,641,027 Japanese Yen, expiring March 1996 at
YEN 92 6,450,000 30,003,526 1.7
Total Currency Put Options Purchased 17,002,116 40,610,145 2.3
Total Investments 1,554,448,940 1,788,360,446 99.7
|
SCHEDULE OF INVESTMENTS (concluded)
Number of Contracts/ Value Percent of
Face Amount Issue Cost (Note 1a) Net Assets
Call Options Written
4,263 HSBC Holdings PLC, expiring January
1996 at HK$12,356 $ (57,605) $ (14,335) 0.0%
4,263 HSBC Holdings PLC, expiring January
1996 at HK$12,239 (56,423) (19,850) 0.0
4,263 HSBC Holdings PLC, expiring January
1996 at HK$12,313 (49,371) (50,175) 0.0
4,263 HSBC Holdings PLC, expiring January
1996 at HK$12,346 (50,112) (56,792) 0.0
4,263 HSBC Holdings PLC, expiring January
1996 at HK$12,279 (50,445) (73,884) 0.0
4,263 HSBC Holdings PLC, expiring January
1996 at HK$12,291 (50,502) (72,230) 0.0
Total Call Options Written (314,458) (287,266) 0.0
Total Investments, Net of Options Written $1,554,134,482 1,788,073,180 99.7
==============
Unrealized Appreciation on Forward Foreign Exchange Contracts** 9,847,257 0.6
Liabilities in Excess of Other Assets (4,521,704) (0.3)
-------------- ------
Net Assets $1,793,398,733 100.0%
============== ======
(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)GDR--Global Depositary Receipts.
*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.
**Forward foreign exchange contracts as of December 31, 1995 were as
follows:
Unrealized
Expiration Appreciation
Foreign Currency Sold Date (Note 1b)
YEN 36,012,098,761 July 1996 $9,847,257
Total Unrealized Appreciation on
Forward Foreign Exchange Contracts
(US Commitment--$368,236,564) $9,847,257
==========
++Non-Income producing security.
++++Restricted security as to resale. The value of the Fund's
investment in restricted securities was approximately $3,680,000,
representing 0.2% of net assets.
Acquisition Value
Issue Date Cost (Note 1a)
Pakistan Telecommunications
(GDR) 9/16/1994 $7,783,681 $3,680,330
Total $7,783,681 $3,680,330
========== ==========
See Notes to Financial Statements.
|
FINANCIAL INFORMATION
Statement of Assets and Liabilities as of December 31, 1995
Assets: Investments, at value (identified cost--$1,537,446,824) (Note 1a) $1,747,750,301
Options purchased, at value (premiums paid--$17,002,116)
(Notes 1a & 1b) 40,610,145
Unrealized appreciation on forward foreign exchange contracts
(Note 1b) 9,847,257
Foreign cash (Note 1c) 3,757,770
Cash 1,021
Receivables:
Capital shares sold $ 9,625,282
Dividends 403,024
Interest 13,558
Securities sold 501 10,042,365
--------------
Prepaid registration fees and other assets (Note 1f) 99,521
--------------
Total assets 1,812,108,380
--------------
Liabilities: Options written, at value (premiums received--$314,458)
(Notes 1a & 1b) 287,266
Payables:
Securities purchased 13,040,586
Capital shares redeemed 2,944,699
Distributor (Note 2) 859,934
Investment adviser (Note 2) 833,826 17,679,045
--------------
Accrued expenses and other liabilities 743,336
--------------
Total liabilities 18,709,647
--------------
Net Assets: Net assets $1,793,398,733
==============
Net Assets Class A Shares of Common Stock, $0.10 par value, 100,000,000 shares
Consist of: authorized $ 2,742,351
Class B Shares of Common Stock, $0.10 par value, 100,000,000 shares
authorized 4,910,334
Class C Shares of Common Stock, $0.10 par value, 100,000,000 shares
authorized 219,788
Class D Shares of Common Stock, $0.10 par value, 100,000,000 shares
authorized 442,445
Paid-in capital in excess of par 1,550,045,045
Accumulated distributions in excess of realized capital gains on
investments and foreign currency transactions--net (8,718,743)
Unrealized appreciation on investments and foreign currency
transactions--net 243,757,513
--------------
Net assets $1,793,398,733
==============
Net Asset Value: Class A--Based on net assets of $607,598,154 and 27,423,514 shares
outstanding $ 22.16
==============
Class B--Based on net assets of $1,041,762,957 and 49,103,338 shares
outstanding $ 21.22
==============
Class C--Based on net assets of $46,091,959 and 2,197,882 shares
outstanding $ 20.97
==============
Class D--Based on net assets of $97,945,663 and 4,424,454 shares
outstanding $ 22.14
==============
See Notes to Financial Statements.
|
FINANCIAL INFORMATION (continued)
Statement of Operations for the Year Ended December 31, 1995
Investment Dividends (net of $1,452,909 foreign withholding tax) $ 18,636,335
Income Interest and discount earned (net of $6,289 foreign
(Notes 1d & 1e): withholding tax) 4,194,289
--------------
Total income 22,830,624
--------------
Expenses: Investment advisory fees (Note 2) $ 9,381,493
Account maintenance and distribution fees--Class B (Note 2) 9,131,372
Transfer agent fees--Class B (Note 2) 2,030,445
Custodian fees 1,368,188
Transfer agent fees--Class A (Note 2) 1,089,887
Printing and shareholder reports 315,385
Account maintenance and distribution fees--Class C (Note 2) 228,521
Account maintenance fees--Class D (Note 2) 142,796
Accounting services (Note 2) 133,747
Registration fees (Note 1f) 127,667
Transfer agent fees--Class D (Note 2) 108,592
Professional fees 108,252
Transfer agent fees--Class C (Note 2) 52,587
Directors' fees and expenses 48,782
Pricing fees 8,059
Other 40,404
--------------
Total expenses 24,316,177
--------------
Investment loss--net (1,485,553)
--------------
Realized & Realized gain from:
Unrealized Gain on Investments--net 30,613,219
Investments & Foreign currency transactions--net 24,573,057 55,186,276
Foreign Currency --------------
Transactions--Net Change in unrealized appreciation/depreciation on:
(Notes 1b, 1c, Investments--net 20,384,295
1d & 3): Foreign currency transactions--net 48,721,522 69,105,817
-------------- --------------
Net realized and unrealized gain on investments and
foreign currency transactions 124,292,093
--------------
Net Increase in Net Assets Resulting from Operations $ 122,806,540
==============
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: 1995 1994
Operations: Investment loss--net $ (1,485,553) $ (1,579,329)
Realized gain on investments and foreign currency
transactions--net 55,186,276 33,063,391
Change in unrealized appreciation/depreciation on
investments and foreign currency transactions--net 69,105,817 (31,301,124)
-------------- --------------
Net increase in net assets resulting from operations 122,806,540 182,938
-------------- --------------
Dividends & In excess of investment income--net:
Distributions to Class A -- (5,944,755)
Shareholders Class B -- (1,798,546)
(Note 1g): Class C -- (67,122)
Class D -- (185,967)
Realized gain--net:
Class A (14,499,563) (8,886,236)
Class B (18,356,327) (14,441,473)
Class C (910,272) (115,222)
Class D (1,710,133) (286,591)
In excess of realized gain--net:
Class A (3,585,642) (3,830,198)
Class B (4,539,392) (6,224,649)
Class C (225,104) (49,664)
Class D (422,904) (123,527)
-------------- --------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (44,249,337) (41,953,950)
-------------- --------------
Capital Share Net increase in net assets derived from capital share
Transactions transactions 182,530,658 593,752,517
(Note 4): -------------- --------------
Net Assets: Total increase in net assets 261,087,861 551,981,505
Beginning of year 1,532,310,872 980,329,367
-------------- --------------
End of year $1,793,398,733 $1,532,310,872
============== ==============
See Notes to Financial Statements.
|
FINANCIAL INFORMATION (continued)
Financial Highlights
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,
Increase (Decrease) in Net Asset Value: 1995++ 1994++ 1993 1992 1991
Per Share Net asset value, beginning of year $ 21.12 $ 21.21 $ 15.80 $ 18.34 $ 16.52
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income--net .11 .10 .07 .05 .04
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net 1.61 .50 5.37 (1.63) 2.73
---------- ---------- ---------- ---------- ----------
Total from investment operations 1.72 .60 5.44 (1.58) 2.77
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net -- -- -- (.01) (.11)
In excess of investment income--net -- (.22) (.03) -- --
Realized gain--net (.55) (.33) -- (.95) (.84)
In excess of realized gain--net (.13) (.14) -- -- --
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (.68) (.69) (.03) (.96) (.95)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 22.16 $ 21.12 $ 21.21 $ 15.80 $ 18.34
========== ========== ========== ========== ==========
Total Investment Based on net asset value per share 8.20% 2.90% 34.41% (8.75%) 17.04%
Return:* ========== ========== ========== ========== ==========
Ratios to Average Expenses .93% .91% .90% .98% 1.02%
Net Assets: ========== ========== ========== ========== ==========
Investment income--net .53% .47% .47% .40% .43%
========== ========== ========== ========== ==========
Supplemental Net assets, end of year
Data: (in thousands) $ 607,598 $ 587,107 $ 472,322 $ 284,674 $ 304,712
========== ========== ========== ========== ==========
Portfolio turnover 26.73% 23.84% 13.25% 7.62% 5.91%
========== ========== ========== ========== ==========
*Total investment returns exclude the effect of sales loads.
++Based on average shares outstanding during the year.
See Notes to Financial Statements.
|
FINANCIAL INFORMATION (continued)
Financial Highlights (continued)
The following per share data and ratios have been derived
from information provided in the financial statements. Class B
For the Year Ended December 31,
Increase (Decrease) in Net Asset Value: 1995++ 1994++ 1993 1992 1991
Per Share Net asset value, beginning of year $ 20.27 $ 20.41 $ 15.34 $ 18.01 $ 16.30
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment loss--net (.10) (.12) (.10) (.12) (.14)
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net 1.53 .49 5.17 (1.60) 2.69
---------- ---------- ---------- ---------- ----------
Total from investment operations 1.43 .37 5.07 (1.72) 2.55
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
In excess of investment income--net -- (.04) -- -- --
Realized gain--net (.38) (.33) -- (.95) (.84)
In excess of realized gain--net (.10) (.14) -- -- --
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (.48) (.51) -- (.95) (.84)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 21.22 $ 20.27 $ 20.41 $ 15.34 $ 18.01
========== ========== ========== ========== ==========
Total Investment Based on net asset value per share 7.10% 1.87% 33.05% (9.72%) 15.87%
Return:* ========== ========== ========== ========== ==========
Ratios to Average Expenses, excluding account
Net Assets: maintenance and distribution fees .96% .94% .92% 1.00% 1.04%
========== ========== ========== ========== ==========
Expenses 1.96% 1.94% 1.92% 2.00% 2.04%
========== ========== ========== ========== ==========
Investment loss--net (.50%) (.56%) (.56%) (.61%) (.60%)
========== ========== ========== ========== ==========
Supplemental Net assets, end of year
Data: (in thousands) $1,041,763 $ 915,351 $ 508,008 $ 165,015 $ 105,669
========== ========== ========== ========== ==========
Portfolio turnover 26.73% 23.84% 13.25% 7.62% 5.91%
========== ========== ========== ========== ==========
*Total investment returns exclude the effect of sales loads.
++Based on average shares outstanding during the year.
|
See Notes to Financial Statements.
FINANCIAL INFORMATION (concluded)
Financial Highlights (concluded)
Class C Class D
For the For the
For the Period For the Period
The following per share data and ratios have been derived Year Oct. 21, Year Oct. 21,
from information provided in the financial statements. Ended 1994++ to Ended 1994++ to
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
Increase (Decrease) in Net Asset Value: 1995++++ 1994++++ 1995++++ 1994++++
Per Share Net asset value, beginning of period $ 20.12 $ 21.67 $ 21.11 $ 22.70
Operating ---------- ---------- ---------- ----------
Performance: Investment income (loss)--net (.12) (.03) .07 --
Realized and unrealized gain (loss) on
investments income and foreign currency
transactions--net 1.53 (.86) 1.60 (.91)
---------- ---------- ---------- ----------
Total from investment operations 1.41 (.89) 1.67 (.91)
---------- ---------- ---------- ----------
Less dividends and distributions:
In excess of investment income--net -- (.19) -- (.21)
Realized gain--net (.45) (.33) (.51) (.33)
In excess of realized gain--net (.11) (.14) (.13) (.14)
---------- ---------- ---------- ----------
Total dividends and distributions (.56) (.66) (.64) (.68)
---------- ---------- ---------- ----------
Net asset value, end of period $ 20.97 $ 20.12 $ 22.14 $ 21.11
========== ========== ========== ==========
Total Investment Based on net asset value per share 7.07% (4.04%)+++ 7.95% (3.93%)+++
Return:** ========== ========== ========== ==========
Ratios to Average Expenses, excluding account maintenance and
Net Assets: distribution fees .97% 1.17%* .93% 1.17%*
========== ========== ========== ==========
Expenses 1.97% 2.17%* 1.18% 1.42%*
========== ========== ========== ==========
Investment income (loss)--net (.59%) (.79%)* .31% .12%*
========== ========== ========== ==========
Supplemental Net assets, end of period (in thousands) $ 46,092 $ 7,841 $ 97,946 $ 22,012
Data: ========== ========== ========== ==========
Portfolio turnover 26.73% 23.84% 26.73% 23.84%
========== ========== ========== ==========
*Annualized.
**Total investment returns exclude the effect of sales loads.
++Commencement of Operations.
++++Based on average shares outstanding during the period.
+++Aggregate total investment return.
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 non-diversified, open-end
management investment company. The Fund offers four classes of
shares under the Merrill Lynch Select Pricing SM System. Shares of
Class A and Class D are sold with a front-end sales charge. Shares
of Class B and Class C may be subject to a contingent deferred sales
charge. All classes of shares have identical voting, dividend,
liquidation and other rights and the same terms and conditions,
except that Class B, Class C and Class D Shares bear certain
expenses related to the account maintenance of such shares, and
Class B and Class C Shares also bear certain expenses related to the
distribution of such shares. Each class has exclusive voting rights
with respect to matters relating to its account maintenance and
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 prior to the time of valuation. Securities which are traded both in the over-the-counter market and on a stock exchange are valued according to the broadest and most representative market. Options written are valued at the last sale price in the case of exchange-traded options or, in the case of options traded in the over-the-counter market, the last asked price. Options purchased are valued at the last sale price in the case of exchange-traded options or, in the case of options traded in the over-the-counter market, the last bid price. Short- term securities are valued at amortized cost, which approximates market value. Other investments, including futures contracts and related options, are stated at market value. Securities and assets for which market quotations are not readily available are valued at their fair value as determined in good faith by or under the direction of the Fund's Board of Directors.
(b) Derivative financial instruments--The Fund may engage in various portfolio strategies to seek to increase its return by hedging its portfolio against adverse movements in the equity, debt and currency markets. Losses may arise due to changes in the value of the contract or if the counterparty does not perform under the contract.
* Forward foreign exchange contracts--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.
* Options--The Fund can write and purchase call and 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 purchased or sold through an exercise of an option, the related premium paid (or received) is added to (or deducted from) the basis of the security acquired or deducted from (or added to) the proceeds 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 extent the cost of the closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
NOTES TO FINANCIAL STATEMENTS (continued)
* Financial futures contracts--The Fund may purchase or sell stock index futures contracts and options on such futures contracts. Upon entering into a contract, the Fund deposits and maintains as collateral such initial margin as required by the exchange on which the transaction is effected. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as variation margin and are recorded by the Fund as unrealized gains or losses. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed.
(c) 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) assets or liabilities expressed in foreign currencies into US dollars. Realized and unrealized gains or losses from investments include the effects of foreign exchange rates on investments.
(d) Security transactions and investment income--Security transactions are recorded on the dates the transactions are entered into (the trade dates). Dividend 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 Fund is 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.
(e) 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.
(f) Prepaid registration fees--Prepaid registration fees are charged to expense as the related shares are issued.
(g) Dividends and distributions to shareholders--Dividends and distributions paid by the Fund are recorded on the ex-dividend dates. Dividends in excess of net investment income and distributions in excess of realized capital gains are due primarily to differing tax treatments for futures transactions and post- October losses.
(h) Reclassification-- Generally accepted accounting principles require that certain components of net assets be reclassified to reflect permanent differences between financial reporting and tax purposes. Accordingly, current year's permanent book/tax differences of $54,299 have been reclassified from paid-in capital in excess of par to accumulated net realized capital losses. These reclassifi- cations have no effect on net assets or net asset values per share.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Merrill Lynch Asset Management, L.P. ("MLAM"). The general partner
of MLAM is Princeton Services, Inc. ("PSI"), an indirect wholly-
owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is
the limited partner. The Fund has also entered into a Distribution
Agreement and Distribution Plans with Merrill Lynch Funds
Distributor, Inc. ("MLFD" or "Distributor"), a wholly-owned
subsidiary of Merrill Lynch Group, Inc.
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.
Pursuant to the distribution plans ("the Distribution Plans") adopted by the Fund in accordance with Rule 12b-1 under the Investment Company Act of 1940, the Fund pays the Distributor ongoing account maintenance and distribution fees. The fees are accrued daily and paid monthly at annual rates based upon the average daily net assets of the shares as follows:
Account Distribution
Maintenance Fee Fee
Class B 0.25% 0.75%
Class C 0.25% 0.75%
Class D 0.25% --
|
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce, Fenner & Smith Inc. ("MLPF&S"), a subsidiary of ML & Co., also provides account maintenance and distribution services to the Fund. The ongoing account maintenance fee compensates the Distributor and MLPF&S for providing account maintenance services to Class B, Class C and Class D shareholders. The ongoing distribution fee compensates the Distributor and MLPF&S for providing shareholder and distribution-related services to Class B and Class C shareholders.
For the year ended December 31, 1995, MLFD earned underwriting discounts and direct commissions and MLPF&S earned dealer concessions on sales of the Fund's Class A and Class D Shares as follows:
MLFD MLPF&S
Class A $22,264 $245,217
Class D $74,607 $973,293
|
For the year ended December 31, 1995 MLPF&S received contingent deferred sales charges of $3,023,322 and $18,089 relating to transactions in Class B and Class C Shares, respectively.
In addition, MLPF&S received $95,598 in commissions on the execution of portfolio security transactions for the Fund for the year ended December 31, 1995.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly- owned subsidiary of ML & Co., 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 MLAM, PSI, MLPF&S, MLFDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended December 31, 1995 were $519,394,744 and
$392,365,590, respectively.
Net realized and unrealized gains (losses) as of December 31, 1995 were as follows:
Realized Unrealized
Gains Gains
(Losses) (Losses)
Long-term investments $ 30,613,750 $210,303,477
Short-term investments (531) --
Options written -- 27,192
Currency options purchased (16,928,250) 23,608,029
Forward foreign exchange
contracts 40,356,683 9,847,257
Foreign currency
transactions 1,144,624 (28,442)
------------ ------------
Total $ 55,186,276 $243,757,513
============ ============
|
As of December 31, 1995, net unrealized appreciation for Federal income tax purposes aggregated $210,316,429, of which $251,331,610 related to appreciated securities and $41,015,181 related to depreciated securities. At December 31, 1995, the aggregate cost of investments for Federal income tax purposes was $1,537,461,064.
Transactions in options written for the year ended December 31, 1995 were as follows:
Number of Premiums
Call Options Written Contracts/Face Amount Received
Outstanding call options
written, beginning of year -- $ --
Options written 25,578 $ 314,458
----------- ------------
Outstanding call options
written, end of year 25,578 $ 314,458
=========== ============
|
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions
was $182,530,658 and $593,752,517 for the years ended December 31,
1995 and December 31, 1994, respectively.
NOTES TO FINANCIAL STATEMENTS (concluded)
Transactions in capital shares for each class were as follows:
Class A Shares for the
Year Ended Dollar
December 31, 1995 Shares Amount
Shares sold 8,478,331 $178,519,975
Shares issued to shareholders
in reinvestment of dividends
and distributions 726,709 15,820,443
------------ ------------
Total issued 9,205,040 194,340,418
Shares redeemed (9,586,611) (201,845,917)
------------ ------------
Net decrease (381,571) $ (7,505,499)
============ ============
|
Class A Shares for the
Year Ended Dollar
December 31, 1994 Shares Amount
Shares sold 10,984,489 $247,288,984
Shares issued to shareholders
in reinvestment of dividends
and distributions 768,428 15,860,370
------------ ------------
Total issued 11,752,917 263,149,354
Shares redeemed (6,215,599) (138,930,148)
------------ ------------
Net increase 5,537,318 $124,219,206
============ ============
|
Class B Shares for the
Year Ended Dollar
December 31, 1995 Shares Amount
Shares sold 19,257,866 $389,172,718
Shares issued to shareholders
in reinvestment of dividends
and distributions 953,264 19,875,556
------------ ------------
Total issued 20,211,130 409,048,274
Shares redeemed (15,730,552) (315,601,539)
Automatic conversion of
shares (543,764) (10,926,453)
------------ ------------
Net increase 3,936,814 $ 82,520,282
============ ============
|
Class B Shares for the
Year Ended Dollar
December 31, 1994 Shares Amount
Shares sold 28,150,808 $607,930,382
Shares issued to shareholders
in reinvestment of dividends
and distributions 983,066 19,484,381
------------ ------------
Total issued 29,133,874 627,414,763
Shares redeemed (8,356,463) (178,494,709)
Automatic conversion of
shares (495,115) (10,418,140)
------------ ------------
Net increase 20,282,296 $438,501,914
============ ============
|
Class C Shares for the Year Dollar
Ended December 31, 1995 Shares Amount
Shares sold 2,790,493 $ 56,351,329
Shares issued to shareholders
in reinvestment of dividends
and distributions 49,346 1,017,019
------------ ------------
Total issued 2,839,839 57,368,348
Shares redeemed (1,031,723) (20,975,963)
------------ ------------
Net increase 1,808,116 $ 36,392,385
============ ============
|
Class C Shares for the Period Dollar
Oct. 21, 1994++ to Dec. 31, 1994 Shares Amount
Shares sold 405,281 $ 8,528,274
Shares issued to shareholders
in reinvestment of dividends
and distributions 10,503 205,553
------------ ------------
Total issued 415,784 8,733,827
Shares redeemed (26,018) (537,293)
------------ ------------
Net increase 389,766 $ 8,196,534
============ ============
++Commencement of Operations.
Class D Shares for the Year Dollar
Ended December 31, 1995 Shares Amount
Shares sold 7,041,007 $150,994,718
Shares issued to shareholders
in reinvestment of dividends
and distributions 87,778 1,909,163
Automatic conversion of
shares 520,220 10,926,453
------------ ------------
Total issued 7,649,005 163,830,334
Shares redeemed (4,267,099) (92,706,844)
------------ ------------
Net increase 3,381,906 $ 71,123,490
============ ============
|
Class D Shares for the Period Dollar
Oct. 21, 1994++ to Dec. 31, 1994 Shares Amount
Shares sold 624,623 $ 13,638,511
Shares issued to shareholders
in reinvestment of dividends
and distributions 26,192 537,989
Automatic conversion of
shares 472,533 10,418,140
------------ ------------
Total issued 1,123,348 24,594,640
Shares redeemed (80,800) (1,759,777)
------------ ------------
Net increase 1,042,548 $ 22,834,863
============ ============
++Commencement of Operations.
|
6. Commitments:
At December 31, 1995, the Fund had entered into foreign exchange
contracts, in addition to the contracts listed on the Schedule of
Investments, under which it had agreed to purchase various foreign
currencies with approximate values of $8,838,000.
[This page is intentionally left blank]
TABLE OF CONTENTS
PAGE
----
Investment Objective and Policies......................................... 2
Hedging Techniques....................................................... 3
Investment Restrictions.................................................. 7
Management of the Fund.................................................... 10
Directors and Officers................................................... 10
Compensation of Directors................................................ 11
Management and Advisory Arrangements..................................... 12
Purchase of Shares........................................................ 13
Initial Sales Charge Alternatives--Class A and Class D Shares............ 14
Reduced Initial Sales Charges............................................ 15
Employer-Sponsored Retirement or Savings Plans and Certain Other
Arrangements............................................................ 18
Distribution Plans....................................................... 18
Limitations on the Payment of Deferred Sales Charges..................... 19
Redemption of Shares...................................................... 21
Deferred Sales Charges--Class B and Class C Shares....................... 21
Portfolio Transactions and Brokerage...................................... 22
Determination of Net Asset Value.......................................... 23
Shareholder Services...................................................... 25
Investment Account....................................................... 25
Automatic Investment Plans............................................... 26
Automatic Reinvestment of Dividends and Capital Gains Distributions...... 26
Systematic Withdrawal Plans--Class A and Class D Shares.................. 26
Exchange Privilege....................................................... 27
Dividends, Distributions and Taxes........................................ 30
Dividends and Distributions.............................................. 30
Taxes.................................................................... 30
Tax Treatment of Options, Futures and Forward Foreign Exchange
Transactions............................................................ 32
Special Rules for Certain Foreign Currency Transactions.................. 33
Performance Data.......................................................... 34
General Information....................................................... 37
Description of Shares.................................................... 37
Computation of Offering Price Per Share.................................. 37
Independent Auditors..................................................... 38
Custodian................................................................ 38
Transfer Agent........................................................... 38
Legal Counsel............................................................ 38
Reports to Shareholders.................................................. 38
Additional Information................................................... 38
Independent Auditors' Report.............................................. 40
Financial Statements...................................................... 41
|
Code # 10241-0496
[LOGO] MERRILL LYNCH
MERRILL LYNCH
PACIFIC FUND, INC.
[ART]
STATEMENT OF
ADDITIONAL
INFORMATION
APRIL 26, 1996
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 years in the ten-year period ended December 31, 1995.
Contained in Part B:
Schedule of Investments as of December 31, 1995.
Statement of Assets and Liabilities as of December 31, 1995.
Statement of Operations for the year ended December 31, 1995.
Statements of Changes in Net Assets for each of the years in the two- year period ended December 31, 1995.
Financial Highlights for each of the years in the five-year period ended December 31, 1995.
(B)EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
1(a) --Articles of Incorporation of the Registrant, as amended, dated
August 5, 1976.(c)
(b) --Articles of Amendment to Articles of Incorporation of the
Registrant, dated October 14, 1986.(c)
(c) --Articles of Amendment to Articles of Incorporation of the
Registrant, dated October 3, 1988.(c)
(d) --Articles Supplementary to the Articles of Incorporation of the
Registrant, dated February 1, 1994.(c)
(e) --Articles of Amendment to the Articles of Incorporation of the
Registrant, dated October 21, 1994.(d)
(f) --Articles Supplementary to the Articles of Incorporation of the
Registrant, dated October 21, 1994.(d)
(g) --Articles Supplementary to the Articles of Incorporation of the
Registrant, dated April 15, 1996.
2 --By-Laws of the Registrant, as amended.
3 --None.
4 --Copies of instruments defining the rights of shareholders, including
the relevant portions of the Articles of Incorporation, as amended
and supplemented, and By-Laws of Registrant.(b)
5(a) --Management Agreement between the Registrant and Merrill Lynch Asset
Management, Inc.(d)
(b) --Supplement to Management Agreement between the Registrant and
Merrill Lynch Asset Management, L.P.(c)
6(a) --Class A Shares Distribution Agreement between the Registrant and
Merrill Lynch Funds Distributor, Inc.(d)
(b) --Class B Shares Distribution Agreement between the Registrant and
Merrill Lynch Funds Distributor, Inc.(d)
(c) --Letter Agreement between the Registrant and Merrill Lynch Funds
Distributor, Inc. with respect to the Merrill Lynch Mutual Fund
Adviser Program.(c)
(d) --Class C Shares Distribution Agreement between the Registrant and
Merrill Lynch Funds Distributor, Inc.(d)
(e) --Class D Shares Distribution Agreement between the Registrant and
Merrill Lynch Funds Distributor, Inc.(d)
7 --None.
8(a) --Form of Custodian Agreement between the Registrant and Brown
Brothers Harriman & Co.(d)
(b) --Form of Master Subcustodian Agreement of Brown Brothers Harriman &
Co.(d)
9(a) --Transfer Agency, Dividend Disbursing Agency and Shareholder
Servicing Agency Agreement between the Registrant and Merrill Lynch
Financial Data Services, Inc.(d)
|
EXHIBIT
NUMBER DESCRIPTION
------- -----------
(b) --Form of Agreement relating to use of name among the Registrant,
Merrill Lynch Asset Management, Inc., and Merrill Lynch, Pierce,
Fenner & Smith Incorporated.(a)
10 --None.
11 --Consent of Deloitte & Touche LLP, independent auditors for the
Registrant.
12 --None.
13 --None.
14 --None.
15(a) --Amended and Restated Class B Shares Distribution Plan and Class B
Shares Distribution Plan Sub-Agreement of the Registrant.(c)
(b) --Class C Shares Distribution Plan and Class C Shares Distribution
Plan Sub-Agreement of the Registrant.(d)
(c) --Class D Shares Distribution Plan and Class D Shares Distribution
Plan Sub-Agreement of the Registrant.(d)
16(a) --Schedule for computation of each performance quotation provided in
the Registration Statement in response to Item 22 relating to Class A
shares.(a)
(b) --Schedule for computation of each performance quotation provided in
the Registration Statement in response to Item 22 relating to Class B
shares.(a)
(c) --Schedule for computation of each performance quotation provided in
the Registration Statement in response to Item 22 relating to Class C
shares.(d)
(d) --Schedule for computation of each performance quotation provided in
the Registration Statement in response to Item 22 relating to Class D
shares.(d)
17(a) --Financial Data Schedule for Class A Shares.
(b) --Financial Data Schedule for Class B Shares.
(c) --Financial Data Schedule for Class C Shares.
(d) --Financial Data Schedule for Class D Shares.
18 --Merrill Lynch Select Pricing SM System Plan pursuant to Rule 18f-
3.(e)
|
(a) Refiled pursuant to the Electronic Data Gathering, Analysis, and Retrieval (EDGAR) phase-in requirements.
(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 and supplemented, filed as Exhibit 1(a), 1(b), 1(c), 1(d), 1(e), 1(f) and l(g) to the Registrant's Registration Statement on Form N-1A; 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 filed as Exhibit 2 to the Registrant's Registration Statement on Form N-1A.
(c) Filed on April 29, 1994, as an Exhibit to Post-Effective Amendment No. 24 to the Registrant's Registration Statement under the Securities Act of 1933, on Form N-1A.
(d) Filed on April 28, 1995, as an Exhibit to Post-Effective Amendment No. 26 to the Registrant's Registration Statement under the Securities Act of 1933, on Form N-1A.
(e) Incorporated by reference to Post-Effective Amendment No. 13 to the Registration Statement on Form N-1A of Merrill Lynch New York Municipal Bond Fund of Merrill Lynch Multi-State Municipal Series Trust (File No. 2- 99473), filed on January 25, 1996.
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
HOLDERS AT
TITLE OF CLASS MARCH 31, 1996
-------------- --------------
Class A Shares of Common Stock, par value $0.10 per
share................................................... 66,314
Class B Shares of Common Stock, par value $0.10 per
share................................................... 118,664
Class C Shares of Common Stock, par value $0.10 per
share................................................... 9,814
Class D Shares of Common Stock, par value $0.10 per
share................................................... 10,991
|
Note: The number of holders shown above includes holders of record plus beneficial owners whose shares are held of record by Merrill Lynch, Pierce, Fenner & Smith Incorporated.
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 Class A, Class B, Class C and Class D Distribution Agreements.
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, Class B, Class C and Class D 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 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 THE INVESTMENT ADVISER.
Merrill Lynch Asset Management, L.P., ("MLAM" or the "Manager"), acts as investment adviser for the following open-end investment companies: Merrill Lynch Adjustable Rate Securities Fund, Inc., Merrill Lynch Americas Income Fund, Inc., Merrill Lynch Asset Builder Program, Inc., Merrill Lynch Asset Growth Fund, Inc., Merrill Lynch Asset Income Fund, Inc., Merrill Lynch Capital Fund, Inc., Merrill Lynch 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 Bond Fund for Investment and Retirement, Merrill Lynch Global Convertible Fund, Inc., Merrill Lynch Global Holdings, Inc., Merrill Lynch Global Resources Trust, Merrill Lynch Global SmallCap Fund, Inc., Merrill Lynch Global Utility Fund, Inc., Merrill Lynch Growth Fund for Investment and Retirement, Merrill Lynch Healthcare Fund, Inc., Merrill Lynch Institutional Intermediate Fund, Merrill Lynch International Equity Fund, Merrill Lynch Latin America Fund, Inc., Merrill Lynch Middle East/Africa Fund, Inc., Merrill Lynch Municipal Series Trust, Merrill Lynch Pacific Fund, Inc., Merrill Lynch Ready Assets Trust, Merrill Lynch Retirement Series Trust, Merrill Lynch Series Fund, Inc., Merrill Lynch Short-Term Global Income Fund, Inc., Merrill Lynch Strategic Dividend Fund, Merrill Lynch Technology Fund, Inc., Merrill Lynch U.S. Treasury Money Fund, Merrill Lynch U.S.A. Government Reserves, Merrill Lynch Utility Income Fund, Inc. and Merrill Lynch Variable Series Funds, Inc. and for the following closed-end investment companies: Convertible Holdings, Inc., Merrill Lynch High Income Municipal Bond Fund, Inc. and Merrill Lynch Senior Floating Rate Fund, Inc.
Fund Asset Management, L.P. ("FAM"), an affiliate of MLAM, acts as the investment adviser for the following open-end investment companies: CBA Money Fund, CMA Government Securities Fund, CMA Money Fund, CMA Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The Corporate Fund Accumulation Program, Inc., Financial Institutions Series Trust, Merrill Lynch Basic Value Fund, Inc., Merrill Lynch California Municipal Series Trust, Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch Federal Securities Trust, Merrill Lynch Funds for Institutions Series, Merrill Lynch Multi-State Limited Maturity Municipal Series Trust, Merrill Lynch Multi-State Municipal Series Trust, Merrill Lynch Municipal Bond Fund, Inc., Merrill Lynch Phoenix Fund, Inc., Merrill Lynch Special Value Fund, Inc., Merrill Lynch World Income Fund, Inc., and The Municipal Fund Accumulation Program, Inc.; and for the following closed-end investment companies: Apex Municipal Fund, 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., Merrill Lynch Municipal Strategy Fund, Inc., MuniAssets Fund, 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 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., Taurus MuniCalifornia Holdings, Inc., Taurus MuniNewYork Holdings, Inc. and Worldwide DollarVest Fund, Inc.
The address of each of these investment companies is P.O. Box 9011, Princeton, New Jersey 08543-9011, except that the address of Merrill Lynch Funds for Institutions Series and Merrill Lynch Institutional Intermediate Fund is One Financial Center, 15th Floor, Boston, Massachusetts 02111-2646. The address of the Manager, FAM, Princeton Services, Inc. ("Princeton Services") and Princeton Administrators L.P. is also P.O. Box 9011, Princeton, New Jersey 08543-9011. The address of Merrill Lynch Funds Distributor, Inc. ("MLFD") is P.O. Box 9081, Princeton, New Jersey 08543-9081. The address of Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and Merrill Lynch & Co., Inc. ("ML & Co.") is World Financial Center, North Tower, 250 Vesey Street, New York, New York 10281. The address of Merrill Lynch Financial Data Services, Inc. ("MLFDS") is 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484.
Set forth below is a list of each executive officer and partner of the Manager indicating each business profession, vocation or employment of a substantial nature in which each such person or entity has been engaged since January 1, 1994 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 listed in the first two paragraphs of this Item 28 and Messrs. Giordano, Harvey, Hewitt, Kirstein and Monagle 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; Limited Partner of
FAM
Princeton Services...... General Partner General Partner of FAM
Arthur Zeikel........... President President of FAM; President
and Director of Princeton
Services; Director of MLFD;
Executive Vice President of
ML & Co.
Terry K. Glenn.......... Executive Vice Executive Vice President of
President FAM; Executive Vice
President and Director of
Princeton Services;
President and Director of
MLFD; Director of MLFDS;
President of Princeton
Administrators, L.P.
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
Norman R. Harvey........ Senior Vice President Senior Vice President of FAM;
Senior Vice President of
Princeton Services
Michael J. Hennewinkel.. Senior Vice President Senior Vice President of FAM
|
OTHER SUBSTANTIAL BUSINESS,
NAME POSITION(S) WITH THE MANAGER PROFESSION, VOCATION OR EMPLOYMENT
---- ---------------------------- ----------------------------------
N. John Hewitt.......... Senior Vice President Senior Vice President of FAM;
Senior Vice President of
Princeton Services
Philip L. Kirstein...... Senior Vice Senior Vice President,
President, General General Counsel and
Counsel and Secretary of FAM; Senior
Secretary Vice President, General
Counsel, Director and
Secretary of Princeton
Services; Director of MLFD
Ronald M. Kloss......... Senior Vice President Senior Vice President and
and Controller Controller of FAM; Senior
Vice President and
Controller of Princeton
Services
Stephen M.M. Miller..... Senior Vice President Executive Vice President of
Princeton Administrators,
L.P.
Joseph T. Monagle, Jr. . Senior Vice President Senior Vice President of FAM;
Senior Vice President of
Princeton Services
Richard L. Reller....... Senior Vice President Senior Vice President of FAM;
Senior Vice President of
Princeton Services
Gerald M. Richard....... Senior Vice President Senior Vice President and
and Treasurer Treasurer of FAM; Senior
Vice President and Treasurer
of Princeton Services; Vice
President and Treasurer of
MLFD
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 FAM;
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 open-end investment companies referred to in the first two paragraphs of Item 28 except CBA Money Fund, CMA Government Securities Fund, CMA Money Fund, CMA Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The Corporate Fund Accumulation Program, Inc., and The Municipal Fund Accumulation Program, Inc., and MLFD also acts as the principal underwriter for the following closed-end investment companies: Merrill Lynch High Income Municipal Bond Fund, Inc., Merrill Lynch Municipal Strategy Fund, Inc. and Merrill Lynch Senior Floating Rate Fund, Inc.
(b) Set forth below is information concerning each director and officer of MLFD. The principal business address of each such person is P.O. Box 9081, Princeton, New Jersey 08543-9081, except that the address of Messrs. Aldrich, Brady, Breen, Crook, 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
Kevin P. Boman............. Vice President None
Michael J. Brady........... Vice President None
|
(2) (3)
(1) POSITION(S) AND OFFICE(S) POSITION(S) AND OFFICE(S)
NAME WITH MLFD WITH REGISTRANT
---- ------------------------- -------------------------
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
Debra W. Landsman-Yaros. Vice President None
Michelle T. Lau......... Vice President None
Gerald M. Richard....... Vice President and Treasurer Treasurer
Salvatore Venezia....... Vice President None
William Wasel........... 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 its transfer agent, Merrill Lynch 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.
(a) Not applicable.
(b) Not applicable.
(c) Registrant undertakes to furnish each person to whom a prospectus is delivered with a copy of the Registrant's latest 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 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 25th day of April 1996.
Merrill Lynch Pacific Fund, Inc.
(Registrant)
/s/ Terry K. Glenn
By: _______________________________
(TERRY K. GLENN, EXECUTIVE VICE
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 DATES
President and
Arthur Zeikel* Director (Principal
- ------------------------------------- Executive Officer)
(ARTHUR ZEIKEL)
Treasurer (Principal
Gerald M. Richard* Financial and
- ------------------------------------- Accounting Officer)
(GERALD M. RICHARD)
Donald Cecil* Director
- -------------------------------------
(DONALD CECIL)
Edward H. Meyer* Director
- -------------------------------------
(EDWARD H. MEYER)
Charles C. Reilly* Director
- -------------------------------------
(CHARLES C. REILLY)
Richard R. West* Director
- -------------------------------------
(RICHARD R. WEST)
Edward D. Zinbarg* Director
- -------------------------------------
(EDWARD D. ZINBARG)
/s/ Terry K. Glenn April 25, 1996
*By: ___________________________
(TERRY K. GLENN, ATTORNEY-IN-FACT)
|
EXHIBIT INDEX
EXHIBIT
NUMBER
-------
1(g) --Articles Supplementary to the Articles of Incorporation of the
Registrant, dated April 15, 1996.
2 --By-Laws of the Registrant, as amended.
9(b) --Form of Agreement relating to use of name among the Registrant,
Merrill Lynch Asset Management, Inc., and Merrill Lynch, Pierce,
Fenner & Smith Incorporated.(a)
11 --Consent of Deloitte & Touche llp, independent auditors for the
Registrant.
16(a) --Schedule for computation of each performance quotation provided in
the Registration Statement in response to Item 22 relating to Class A
shares.(a)
(b) --Schedule for computation of each performance quotation provided in
the Registration Statement in response to Item 22 relating to Class B
shares.(a)
17(a) --Financial Data Schedule for Class A Shares.
(b) --Financial Data Schedule for Class B Shares.
(c) --Financial Data Schedule for Class C Shares.
(d) --Financial Data Schedule for Class D Shares.
|
(a) Refiled pursuant to the Electronic Data Gathering, Analysis, and Retrieval (EDGAR) phase-in requirements.
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 - ---------------------- ------------------- Compass plate, circular Back cover of Prospectus and graph paper and Merrill Lynch back cover of Statement of logo including stylized market Additional Information bull |
| ARTICLE 6 |
| SERIES: |
| NAME: MERRILL LYNCH PACIFIC FUND, INC. CLASS A |
| NUMBER: 1 |
| PERIOD TYPE | 12 MOS |
| FISCAL YEAR END | DEC 31 1995 |
| PERIOD START | JAN 01 1995 |
| PERIOD END | DEC 31 1995 |
| INVESTMENTS AT COST | 1554134482 |
| INVESTMENTS AT VALUE | 1788073180 |
| RECEIVABLES | 10042365 |
| ASSETS OTHER | 13705569 |
| OTHER ITEMS ASSETS | 0 |
| TOTAL ASSETS | 1811821114 |
| PAYABLE FOR SECURITIES | 13040586 |
| SENIOR LONG TERM DEBT | 0 |
| OTHER ITEMS LIABILITIES | 5381795 |
| TOTAL LIABILITIES | 18422381 |
| SENIOR EQUITY | 0 |
| PAID IN CAPITAL COMMON | 1558359963 |
| SHARES COMMON STOCK | 27423514 |
| SHARES COMMON PRIOR | 27805085 |
| ACCUMULATED NII CURRENT | 0 |
| OVERDISTRIBUTION NII | 0 |
| ACCUMULATED NET GAINS | 0 |
| OVERDISTRIBUTION GAINS | 8718743 |
| ACCUM APPREC OR DEPREC | 243757513 |
| NET ASSETS | 607598154 |
| DIVIDEND INCOME | 18636335 |
| INTEREST INCOME | 4194289 |
| OTHER INCOME | 0 |
| EXPENSES NET | 24316177 |
| NET INVESTMENT INCOME | (1485553) |
| REALIZED GAINS CURRENT | 55186276 |
| APPREC INCREASE CURRENT | 69105817 |
| NET CHANGE FROM OPS | 122806540 |
| EQUALIZATION | 0 |
| DISTRIBUTIONS OF INCOME | 0 |
| DISTRIBUTIONS OF GAINS | 18085205 |
| DISTRIBUTIONS OTHER | 0 |
| NUMBER OF SHARES SOLD | 8478331 |
| NUMBER OF SHARES REDEEMED | 9586611 |
| SHARES REINVESTED | 726709 |
| NET CHANGE IN ASSETS | 261087861 |
| ACCUMULATED NII PRIOR | 0 |
| ACCUMULATED GAINS PRIOR | 0 |
| OVERDISTRIB NII PRIOR | 0 |
| OVERDIST NET GAINS PRIOR | 18224428 |
| GROSS ADVISORY FEES | 9381493 |
| INTEREST EXPENSE | 0 |
| GROSS EXPENSE | 24316177 |
| AVERAGE NET ASSETS | 572041866 |
| PER SHARE NAV BEGIN | 21.12 |
| PER SHARE NII | .11 |
| PER SHARE GAIN APPREC | 1.61 |
| PER SHARE DIVIDEND | 0 |
| PER SHARE DISTRIBUTIONS | .68 |
| RETURNS OF CAPITAL | 0 |
| PER SHARE NAV END | 22.16 |
| EXPENSE RATIO | .93 |
| AVG DEBT OUTSTANDING | 0 |
| AVG DEBT PER SHARE | 0 |
| ARTICLE 6 |
| SERIES: |
| NAME: MERRILL LYNCH PACIFIC FUND, INC. CLASS B |
| NUMBER: 2 |
| PERIOD TYPE | 12 MOS |
| FISCAL YEAR END | DEC 31 1995 |
| PERIOD START | JAN 01 1995 |
| PERIOD END | DEC 31 1995 |
| INVESTMENTS AT COST | 1554134482 |
| INVESTMENTS AT VALUE | 1788073180 |
| RECEIVABLES | 10042365 |
| ASSETS OTHER | 13705569 |
| OTHER ITEMS ASSETS | 0 |
| TOTAL ASSETS | 1811821114 |
| PAYABLE FOR SECURITIES | 13040586 |
| SENIOR LONG TERM DEBT | 0 |
| OTHER ITEMS LIABILITIES | 5381795 |
| TOTAL LIABILITIES | 18422381 |
| SENIOR EQUITY | 0 |
| PAID IN CAPITAL COMMON | 1558359963 |
| SHARES COMMON STOCK | 49103338 |
| SHARES COMMON PRIOR | 45166524 |
| ACCUMULATED NII CURRENT | 0 |
| OVERDISTRIBUTION NII | 0 |
| ACCUMULATED NET GAINS | 0 |
| OVERDISTRIBUTION GAINS | 8718743 |
| ACCUM APPREC OR DEPREC | 243757513 |
| NET ASSETS | 1041762957 |
| DIVIDEND INCOME | 18636335 |
| INTEREST INCOME | 4194289 |
| OTHER INCOME | 0 |
| EXPENSES NET | 24316177 |
| NET INVESTMENT INCOME | (1485553) |
| REALIZED GAINS CURRENT | 55186276 |
| APPREC INCREASE CURRENT | 69105817 |
| NET CHANGE FROM OPS | 122806540 |
| EQUALIZATION | 0 |
| DISTRIBUTIONS OF INCOME | 0 |
| DISTRIBUTIONS OF GAINS | 22895719 |
| DISTRIBUTIONS OTHER | 0 |
| NUMBER OF SHARES SOLD | 19257866 |
| NUMBER OF SHARES REDEEMED | 16274316 |
| SHARES REINVESTED | 953264 |
| NET CHANGE IN ASSETS | 261087861 |
| ACCUMULATED NII PRIOR | 0 |
| ACCUMULATED GAINS PRIOR | 0 |
| OVERDISTRIB NII PRIOR | 0 |
| OVERDIST NET GAINS PRIOR | 18224428 |
| GROSS ADVISORY FEES | 9381493 |
| INTEREST EXPENSE | 0 |
| GROSS EXPENSE | 24316177 |
| AVERAGE NET ASSETS | 915645817 |
| PER SHARE NAV BEGIN | 20.27 |
| PER SHARE NII | (.10) |
| PER SHARE GAIN APPREC | 1.53 |
| PER SHARE DIVIDEND | 0 |
| PER SHARE DISTRIBUTIONS | .48 |
| RETURNS OF CAPITAL | 0 |
| PER SHARE NAV END | 21.22 |
| EXPENSE RATIO | 1.96 |
| AVG DEBT OUTSTANDING | 0 |
| AVG DEBT PER SHARE | 0 |
| ARTICLE 6 |
| SERIES: |
| NAME: MERRILL LYNCH PACIFIC FUND, INC. CLASS C |
| NUMBER: 3 |
| PERIOD TYPE | 12 MOS |
| FISCAL YEAR END | DEC 31 1995 |
| PERIOD START | JAN 01 1995 |
| PERIOD END | DEC 31 1995 |
| INVESTMENTS AT COST | 1554134482 |
| INVESTMENTS AT VALUE | 1788073180 |
| RECEIVABLES | 10042365 |
| ASSETS OTHER | 13705569 |
| OTHER ITEMS ASSETS | 0 |
| TOTAL ASSETS | 1811821114 |
| PAYABLE FOR SECURITIES | 13040586 |
| SENIOR LONG TERM DEBT | 0 |
| OTHER ITEMS LIABILITIES | 5381795 |
| TOTAL LIABILITIES | 18422381 |
| SENIOR EQUITY | 0 |
| PAID IN CAPITAL COMMON | 1558359963 |
| SHARES COMMON STOCK | 2197882 |
| SHARES COMMON PRIOR | 389766 |
| ACCUMULATED NII CURRENT | 0 |
| OVERDISTRIBUTION NII | 0 |
| ACCUMULATED NET GAINS | 0 |
| OVERDISTRIBUTION GAINS | 8718743 |
| ACCUM APPREC OR DEPREC | 243757513 |
| NET ASSETS | 46091959 |
| DIVIDEND INCOME | 18636335 |
| INTEREST INCOME | 4194289 |
| OTHER INCOME | 0 |
| EXPENSES NET | 24316177 |
| NET INVESTMENT INCOME | (1485553) |
| REALIZED GAINS CURRENT | 55186276 |
| APPREC INCREASE CURRENT | 69105817 |
| NET CHANGE FROM OPS | 122806540 |
| EQUALIZATION | 0 |
| DISTRIBUTIONS OF INCOME | 0 |
| DISTRIBUTIONS OF GAINS | 1135376 |
| DISTRIBUTIONS OTHER | 0 |
| NUMBER OF SHARES SOLD | 2790493 |
| NUMBER OF SHARES REDEEMED | 1031723 |
| SHARES REINVESTED | 49346 |
| NET CHANGE IN ASSETS | 261087861 |
| ACCUMULATED NII PRIOR | 0 |
| ACCUMULATED GAINS PRIOR | 0 |
| OVERDISTRIB NII PRIOR | 0 |
| OVERDIST NET GAINS PRIOR | 18224428 |
| GROSS ADVISORY FEES | 9381493 |
| INTEREST EXPENSE | 0 |
| GROSS EXPENSE | 24316177 |
| AVERAGE NET ASSETS | 22914859 |
| PER SHARE NAV BEGIN | 20.12 |
| PER SHARE NII | (.12) |
| PER SHARE GAIN APPREC | 1.53 |
| PER SHARE DIVIDEND | 0 |
| PER SHARE DISTRIBUTIONS | .56 |
| RETURNS OF CAPITAL | 0 |
| PER SHARE NAV END | 20.97 |
| EXPENSE RATIO | 1.97 |
| AVG DEBT OUTSTANDING | 0 |
| AVG DEBT PER SHARE | 0 |
| ARTICLE 6 |
| SERIES: |
| NAME: MERRILL LYNCH PACIFIC FUND, INC. CLASS D |
| NUMBER: 4 |
| PERIOD TYPE | 12 MOS |
| FISCAL YEAR END | DEC 31 1995 |
| PERIOD START | JAN 01 1995 |
| PERIOD END | DEC 31 1995 |
| INVESTMENTS AT COST | 1554134482 |
| INVESTMENTS AT VALUE | 1788073180 |
| RECEIVABLES | 10042365 |
| ASSETS OTHER | 13705569 |
| OTHER ITEMS ASSETS | 0 |
| TOTAL ASSETS | 1811821114 |
| PAYABLE FOR SECURITIES | 13040586 |
| SENIOR LONG TERM DEBT | 0 |
| OTHER ITEMS LIABILITIES | 5381795 |
| TOTAL LIABILITIES | 18422381 |
| SENIOR EQUITY | 0 |
| PAID IN CAPITAL COMMON | 1558359963 |
| SHARES COMMON STOCK | 4424454 |
| SHARES COMMON PRIOR | 1042548 |
| ACCUMULATED NII CURRENT | 0 |
| OVERDISTRIBUTION NII | 0 |
| ACCUMULATED NET GAINS | 0 |
| OVERDISTRIBUTION GAINS | 8718743 |
| ACCUM APPREC OR DEPREC | 243757513 |
| NET ASSETS | 97945663 |
| DIVIDEND INCOME | 18636335 |
| INTEREST INCOME | 4194289 |
| OTHER INCOME | 0 |
| EXPENSES NET | 24316177 |
| NET INVESTMENT INCOME | (1485553) |
| REALIZED GAINS CURRENT | 55186276 |
| APPREC INCREASE CURRENT | 69105817 |
| NET CHANGE FROM OPS | 122806540 |
| EQUALIZATION | 0 |
| DISTRIBUTIONS OF INCOME | 0 |
| DISTRIBUTIONS OF GAINS | 2133037 |
| DISTRIBUTIONS OTHER | 0 |
| NUMBER OF SHARES SOLD | 7561227 |
| NUMBER OF SHARES REDEEMED | 4267099 |
| SHARES REINVESTED | 87778 |
| NET CHANGE IN ASSETS | 261087861 |
| ACCUMULATED NII PRIOR | 0 |
| ACCUMULATED GAINS PRIOR | 0 |
| OVERDISTRIB NII PRIOR | 0 |
| OVERDIST NET GAINS PRIOR | 18224428 |
| GROSS ADVISORY FEES | 9381493 |
| INTEREST EXPENSE | 0 |
| GROSS EXPENSE | 24316177 |
| AVERAGE NET ASSETS | 57275240 |
| PER SHARE NAV BEGIN | 21.11 |
| PER SHARE NII | .07 |
| PER SHARE GAIN APPREC | 1.60 |
| PER SHARE DIVIDEND | 0 |
| PER SHARE DISTRIBUTIONS | .64 |
| RETURNS OF CAPITAL | 0 |
| PER SHARE NAV END | 22.14 |
| EXPENSE RATIO | 1.18 |
| AVG DEBT OUTSTANDING | 0 |
| AVG DEBT PER SHARE | 0 |
EXHIBIT 99.1(g)
MERRILL LYNCH PACIFIC FUND, INC.
ARTICLES SUPPLEMENTARY TO ARTICLES OF INCORPORATION
INCREASING THE AUTHORIZED CAPITAL STOCK OF THE
CORPORATION
MERRILL LYNCH PACIFIC FUND, INC., a Maryland corporation having its principal Maryland 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, that:
FIRST: The Corporation is registered as an open-end company under the Investment Company Act of 1940, as amended, with authority to issue FOUR HUNDRED MILLION (400,000,000) shares of capital stock. The Corporation has four classes of capital stock consisting of ONE HUNDRED MILLION (100,000,000) shares of Class A Common Stock, ONE HUNDRED MILLION (100,000,000) shares of Class B Common Stock, ONE HUNDRED MILLION (100,000,000) shares of Class C Common Stock and ONE HUNDRED MILLION (100,000,000) shares of Class D Common Stock. All shares of all classes and series of the Corporation's capital stock have a par value of Ten Cents ($.10) per share and an aggregate par value of FORTY MILLION Dollars ($40,000,000).
SECOND: The Board of Directors of the Corporation, acting in accordance with Section 2-105(c) of the Maryland Corporations and Associations Code, hereby increases the total number of authorized shares of Class B Common Stock of the Corporation by ONE HUNDRED MILLION (100,000,000) shares.
THIRD: After this increase in the number of authorized shares of capital stock of the Corporation, the Corporation will have authority to issue FIVE HUNDRED MILLION (500,000,000) shares of capital stock and the capital stock will consist of ONE HUNDRED MILLION (100,000,000) shares of Class A Common Stock, TWO HUNDRED MILLION (200,000,000) shares of Class B Common Stock, ONE HUNDRED MILLION (100,000,000) shares of Class C Common Stock and ONE HUNDRED MILLION (100,000,000) shares of Class D Common Stock.
FOURTH: After this increase in the number of authorized shares of capital stock of the Corporation, all shares of all classes and series of the Corporation's capital stock will have a par value of Ten Cents ($.10) per share and an aggregate par value of FIFTY MILLION Dollars ($50,000,000).
IN WITNESS WHEREOF, MERRILL LYNCH PACIFIC FUND, INC. has caused these Articles Supplementary to be signed in its name and on its behalf by a duly authorized officer and attested by its Secretary on April 15, 1996.
MERRILL LYNCH PACIFIC FUND, INC.
By /s/ Terry K. Glenn
--------------------------------
Name: Terry K. Glenn
Title: Executive Vice President
Attest:
/s/ Robert Harris
- -------------------------
Robert Harris, Secretary
|
THE UNDERSIGNED officer 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 authorization and approval thereof are true in all material respects, and that this statement is made under the penalties for perjury.
/s/ Terry K. Glenn --------------------------------- Name: Terry K. Glenn Title: Executive Vice President |
EXHIBIT 99.2
Adopted October 14, 1994
BY-LAWS
OF
MERRILL LYNCH PACIFIC FUND, INC.
approval of the Corporation's distribution agreement. In the event that the Corporation shall be required to hold an annual meeting of stockholders by the Investment Company Act of 1940, as amended, such meeting shall be held: (a) at a date and time set by the Board of Directors in accordance with the Investment Company Act of 1940, as amended, if the purpose of the meeting is to elect directors or to approve an investment advisory agreement or distribution agreement; and (b) on a date fixed by the board of directors during the month of June (i) in the fiscal year immediately following the fiscal year in which independent accountants were appointed if the purpose of the meeting is to ratify the selection of such independent accountants, or (ii) in any fiscal year if an annual meeting is to be held for any reason other than as specified in the foregoing. Any stockholders' meeting held in accordance with the preceding sentence shall for all purposes constitute the annual meeting of stockholders for the fiscal year of the Corporation in which the meeting is held. At any such meeting, the stockholders shall elect directors to hold the offices of any directors who have held office for more than one year or who have been elected by the board of directors to fill vacancies which result from any cause.
written request of the holders of the outstanding capital stock of the Corporation entitled to vote at such meeting to the extent permitted by Maryland law and the Investment Company Act of 1940, as amended.
Notice of any meeting of stockholders shall be deemed waived by any stockholder who shall attend such meeting in person or by proxy, or who shall, either before or after the meeting, submit a signed waiver of notice which is filed with the records of the meeting. When a meeting is adjourned to another time and place, unless the Board of Directors, after the adjournment, shall fix a new record date for an adjourned meeting, or the adjournment is
for more than one hundred and twenty days after the original record date, notice of such adjourned meeting need not be given if the time and place to which the meeting shall be adjourned were announced at the meeting at which the adjournment is taken.
matters which may properly come before the meeting, if there shall be present thereat, in person or by proxy, holders of the number of shares of stock of the Corporation required for action in respect of such other matter or matters.
the day on which notice of the meeting is mailed or (ii) the thirtieth day before the meeting.
Each stockholder entitled to vote at any meeting of stockholders may authorize another person or persons to act for him by a proxy signed by such stockholder or his attorney-in-fact. No proxy shall be valid after the expiration of eleven months from the date thereof, unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the stockholder executing it, except in those cases where such proxy states that it is irrevocable and where an irrevocable proxy is permitted by law. Except as otherwise provided by statute, the Articles of Incorporation or these By-Laws, any corporate action to be taken by vote of the stockholders shall be authorized by a majority of the total votes cast at a meeting of stockholders by the holders of shares present in person or represented by proxy and entitled to vote on such action.
If a vote shall be taken on any question other than the election of directors, which shall be by written ballot, then unless required by statute or these By-Laws, or determined by the chairman of the meeting to be advisable, any such vote need not be by ballot. On a vote by ballot, each ballot shall be signed by the stockholder voting, or by his proxy, if there be such proxy, and shall state the number of shares voted.
entitled to vote at any meeting of the stockholders. The record date, which may not be prior to the close of business on the day the record date is fixed, shall be not more than ninety nor less than ten days before the date of the meeting of the stockholders. All persons who were holders of record of shares at such time, and no others, shall be entitled to vote at such meeting and any adjournment thereof.
the meeting or any stockholder entitled to vote thereat, the inspectors shall make a report in writing of any challenge, request or matter determine by them and shall execute a certificate of any fact found by them. No director or candidate for the office of director shall act as inspector of an election of directors. Inspectors need not be stockholders.
under authority of the Board of Directors except as conferred on or reserved to the stockholders by law or by the Articles of Incorporation or these By-Laws.
next succeeding his election and until his successor shall have been elected and shall have qualified, or until his death, or until he shall have resigned, or have been removed as hereinafter provided in these By-Laws, or as otherwise provided by statute or the Articles of Incorporation.
elected by the stockholders of the Corporation. In the event that at any time there is a vacancy in any office of a director which vacancy may not be filled by the remaining directors, a special meeting of the stockholders shall be held as promptly as possible and in any event within sixty days, for the purpose of filling said vacancy or vacancies. Any directors elected or appointed to fill a vacancy shall hold office only until the next meeting of stockholders of the Corporation and until a successor shall have been chosen and qualifies or until his earlier resignation or removal.
participation in a meeting by these means constitutes presence in person at the meeting.
1940, as amended, or other applicable statute, the act of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board. In the absence of a quorum at any meeting of the Board, a majority of the directors present thereat may adjourn such meeting to another time and place until a quorum shall be present thereat. Notice of the time and place of any such adjourned meeting shall be given to the directors who were not present at the time of the adjournment and, unless such time and place were announced at the meeting at which the adjournment was taken, to the other directors. At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called.
of 1940, as amended, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of the Board or committee.
the requisite approvals, including the requisite approvals of renewals thereof, of the Board of Directors and/or the stockholders of the Corporation in accordance with the provisions of the Investment Company Act of 1940, as amended.
(a) the submission to stockholders of any action requiring authorization of stockholders pursuant to statute or the Articles of Incorporation;
(b) the filling of vacancies on the Board of Directors;
(c) the fixing of compensation of the directors for serving on the Board or on any committee of the Board, including the Executive Committee;
(d) the approval or termination of any contract with an investment adviser, manager or principal underwriter, as such terms are defined in the Investment Company Act of 1940, as amended, or the taking of any other action required to be taken
by the Board of Directors by the Investment Company Act of 1940, as amended;
(e) the amendment or repeal of these By-Laws or the adoption of new By- Laws;
(f) the amendment or repeal of any resolution of the Board which by its terms may be amended or repealed only by the Board;
(g) the declaration of dividends and the issuance of capital stock of the Corporation; and
(h) the approval of any merger or share exchange which does not require stockholder approval.
The Executive Committee shall keep written minutes of its proceedings and shall report such minutes to the Board. All such proceedings shall be subject to revision or alteration by the Board; provided, however, that third parties shall not be prejudiced by such revision or alteration.
majority present shall be the act of such committee. The Board may designate a chairman of any committee and such chairman or any two members of any committee may fix the time and place of its meetings unless the Board shall otherwise provide. In the absence or disqualification of any member of any committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. The Board shall have the power at any time to change the membership of any committee, to fill all vacancies, to designate alternate members to replace any absent or disqualified member, or to dissolve any such committee. Nothing herein shall be deemed to prevent the Board from appointing one or more committees consisting in whole or in part of persons who are not directors of the Corporation; provided, however, that no such committee shall have or may exercise any authority or power of the Board in the management of the business or affairs of the Corporation.
Board of Directors may elect or appoint one or more Vice Presidents and may also appoint such other officers, agents and employees as it may deem necessary or proper. Any two or more offices may be held by the same person, except the offices of President and Vice President, but no officer shall execute, acknowledge or verify any instrument in more than one capacity. Such officers shall be elected by the Board of Directors each year at a meeting of the Board of Directors, each to hold office for the ensuing year and until his successor shall have been duly elected and shall have qualified, or until his death, or until he shall have resigned, or have been removed, as hereinafter provided in these By-Laws. The Board may from time to time elect such officers (including one or more Assistant Vice Presidents, one or more Assistant Treasurers and one or more Assistant Secretaries) and such agents, as may be necessary or desirable for the business of the Corporation. The President shall also have the power to appoint such assistant officers (including one or more Assistant Vice Presidents, one or more Assistant Treasurers and one or more Assistant Secretaries) as may be necessary or appropriate to facilitate the management of the Corporation's affairs. Such officers and agents shall have such duties and shall hold their offices for such terms as may be prescribed by the Board or by the appointing authority.
resignation to the Board, the Chairman of the Board, President or the Secretary. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.
member of a national securities exchange as custodian of the property of the Corporation;
(b) keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation;
(c) cause all moneys and other valuables to be deposited to the credit of the Corporation;
(d) receive, and give receipts for, moneys due and payable to the Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and supervise the investment of its funds as ordered or authorized by the Board, taking proper vouchers therefor; and
(f) in general, perform all the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the Board or the President.
(b) see that all notices are duly given in accordance with the provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the Corporation and affix and attest the seal to all stock certificates of the Corporation (unless the seal of the Corporation on such certificates shall be a facsimile, as hereinafter provided) and affix and attest the seal to all other
documents to be executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements, certificates and other documents and records required by law to be kept and filed are properly kept and filed; and
(e) in general, perform all the duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by the Board or the President.
Each officer and director of the Corporation shall be indemnified by the Corporation 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 Corporation 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 Corporation 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.
The Corporation 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 Corporation. The Corporation, however, may not purchase insurance on behalf of any officer or director of the Corporation that protects or purports to protect such person from liability to the Corporation 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 Corporation may indemnify or purchase insurance to the extent provided in this Article VI on behalf of an employee or agent who is not an officer or director of the Corporation.
accordance with Maryland law, a record containing the number of shares of stock issued during a specified period not to exceed twelve months and the consideration received by the Corporation for each such share.
may appoint, or authorize any officer or officers to appoint, one or more transfer agents or one or more transfer clerks and one or more registrars and may require all certificates for shares of stock to bear the signature or signatures of any of them.
dividend or the making of any distribution or the allotment of rights to subscribe for securities of the Corporation, or for the delivery of evidences of rights or evidences of interests arising out of any change, conversion or exchange of common stock or other securities, as the record date for the determination of the stockholders entitled to receive any such dividend, distribution, allotment, rights or interests, and in such case only the stockholders of record at the time so fixed shall be entitled to receive such dividend, distribution, allotment, rights or interests.
The seal of the Corporation shall be circular in form and shall bear, in addition to any other emblem or device approved by the Board of Directors, the name of the Corporation, the year of its incorporation and the words "Corporate Seal" and "Maryland." Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced.
Unless otherwise determined by the Board, the fiscal year of the Corporation shall end on the 31st day of December.
obligations for the payment of money shall be signed by such officer or officers or person or persons as the Board of Directors by resolution shall from time to time designate.
The firm of independent public accountants which shall sign or certify the financial statements of the Corporation which are filed with the Securities and Exchange Commission shall be selected annually by the Board of Directors and, if required by the provisions of the Investment Company Act of 1940, as amended, ratified by the stockholders.
These By-Laws or any of them may be amended, altered or repealed at any regular meeting of the stockholders or at any special meeting of the stockholders at which a quorum is present or represented, provided that notice of the proposed amendment, alteration or repeal be contained in the notice of such special meeting. These By-Laws, except Article XIV hereof, may also be amended, altered or repealed by the affirmative vote of a majority of the Board of Directors at any regular or special meeting of the Board of Directors. The By-Laws, or any of them,
set forth in Article XIV of these By-Laws, may be amended, altered or repealed only by the affirmative vote of a majority (as defined below) of the outstanding shares of capital stock of the Corporation at a regular meeting or special meeting of the stockholders, the notice of which contains the proposed amendment, alteration or repeal. For the purpose of amending Article XIV of these By-Laws, a majority shall be 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. A certified copy of these By-Laws, as they may be amended from time to time, shall be kept at the principal office of the Corporation in the State of Maryland.
EXHIBIT 99.9(b)
LICENSE AGREEMENT RELATING TO USE OF NAME
AGREEMENT made as of the day of , by and between MERRILL LYNCH & CO., INC., a Delaware corporation ("ML&Co."), and MERRILL LYNCH PACIFIC FUND, INC., a Maryland corporation (the "Fund");
WHEREAS, ML&Co. was incorporated under the laws of the State of Delaware on March 27, 1973 under the corporate name "Merrill Lynch & Co., Inc." and has used such name at all times thereafter;
WHEREAS, ML&Co. was duly qualified as a foreign corporation under the laws of the State of New York on April 25, 1973 and has remained so qualified at all times thereafter;
WHEREAS, the Fund was incorporated under the laws of the State of Maryland on August 5, 1976; and
WHEREAS, the Fund desires to qualify as a foreign corporation under the laws of the State of New York and has requested ML&Co. to give its consent to the use of the name "Merrill Lynch" in the Fund's corporate name.
NOW, THEREFORE, in consideration of the premises and of the covenants hereinafter contained, ML&Co. and the Fund hereby agree as follows:
1. ML&Co. hereby grants the Fund a non-exclusive license to use the words "Merrill Lynch" in its corporate name.
2. ML&Co. hereby consents to the qualification of the Fund as a foreign corporation under the laws of the State of New York with the words "Merrill Lynch" in its corporate name and agrees to execute such formal consents as may be necessary in connection with such filing.
3. The non-exclusive license hereinabove referred to has been given and is given by ML&Co. on the condition that it may at any time, in its sole and absolute discretion, withdraw the non-exclusive license to the use of the words "Merrill Lynch" in the name of the Fund; and, as soon as practicable after receipt by the Fund of written notice of the withdrawal of such non-exclusive license, and in no event later than ninety days thereafter, the Fund will change its name so that such name will not thereafter include the words "Merrill Lynch" or any variation thereof.
4. ML&Co. reserves and shall have the right to grant to any other company, including without limitation, any other investment company, the right to use the words "Merrill Lynch" or variations thereof in its name and no consent or permission of the Fund shall be necessary; but, if required by an applicable law of any state, the Fund will forthwith grant all requisite consents.
5. The Fund will not grant to any other company the right to use a name similar to that of the Fund or ML&Co. without the written consent of ML&Co.
6. Regardless of whether the Fund should hereafter change its name and eliminate the words "Merrill Lynch" or any variation
thereof from such name, the Fund hereby grants to ML&Co. the right to cause the incorporation of other corporations or the organization of voluntary associations which may have names similar to that of the Fund or to that to which the Fund may change its name and to own all or any portion of the shares of such other corporations or associations and to enter into contractual relationships with such other corporations or associations, subject to any requisite approval of a majority of the Fund's shareholders and the Securities and Exchange Commission and subject to the payment of a reasonable amount to be determined at the time of use, and the Fund agrees to give and execute any such formal consents or agreements as may be necessary in connection therewith.
7. This Agreement may be amended at any time by a writing signed by the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
MERRILL LYNCH & CO., INC.
By________________________
MERRILL LYNCH PACIFIC FUND, INC.
By___________________________
EXHIBIT 11
INDEPENDENT AUDITORS' CONSENT
Merrill Lynch Pacific Fund, Inc.:
We consent to the use in Post-Effective Amendment No. 27 to Registration Statement No. 2-56978 of our report dated February 2, 1996 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 LLP
Princeton, New Jersey
April 23, 1996
EXHIBIT 99.16(a)
PACIFIC FUND
TOTAL RETURN
1 YEAR 5 YEARS 10 YEARS
----------- ---------- ----------
Initial Investment $ 1,000.00 $1,000.00 $1,000.00
Divided by Maximum
Offering Price 36.71 12.91 9.84
---------- --------- ---------
Equals Shares
Purchased 27.241 77.459 101.626
Plus Shares Acquired
through Dividend
Reinvestment 36.889 151.668 372.529
---------- --------- ---------
Equals Shares Held at
12/31/87 64.130 229.127 474.155
Multiplied by Net
Asset Value at
12/31/87 16.15 16.15 16.15
---------- --------- ---------
Equals Ending Redeemable
Value of a $1,000
Investment (ERV)
12/31/87 $1,035.709 $3,700.40 $7,657.60
Divided by $1,000 (P) 1.0357 3.7004 7.6576
Subtract 1 .0357 2.7004 6.6576
Expressed as a
percentage equals the
Aggregate Total Return
for the Period 3.57% 270.04% 665.76%
---------- --------- ---------
ERV divided by P 1.0357 3.7004 7.6576
Raise to the power of 1 5 1/10
Subtract 1 .0357 .2991 .2258
Expressed as a
percentage equals the
Average Annualized
Total Return 3.57% 29.91% 22.58%
========== ========= =========
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EXHIBIT 99.16(b)
MERRILL LYNCH PACIFIC FUND
CLASS B
TOTAL RETURN
ANNUAL
TOTAL
1 YEAR SI RETURN*
---------- ----------- ---------
Initial Investment $1,000.00 $ 1,000.00 $1,000.00
Divided by Net Asset Value 19.09 17.30 19.09
--------- ---------- ---------
Equals Shares Purchased 52.38 57.80 52.38
Plus Shares Acquired through
Dividend Reinvestment 2.98 7.22 2.99
--------- ---------- ---------
Equals Shares Held at 12/31/89 55.36 65.02 55.37
Multiplied by Net Asset Value
at 12/31/89 20.49 20.49 20.49
--------- ---------- ---------
Equals Ending Value before
deduction for contingent
deferred sales charge 1,134.40 1,332.20 1,134.60
Less deferred sales charge (40.00) (30.00) 0.00
--------- ---------- ---------
Equals Ending Redeemable
Value of a $1,000
Investment (ERV) $1,094.40 $ 1,302.20 $1,134.60
--------- ---------- ---------
Divided by $1,000 (P) 1.0944 1.3022 1.1346
Subtract 1 0.0944 0.3022 0.1346
Expressed as a percentage
equals the Aggregate Total
Return for the Period (T) 9.44% 30.22%
========= ==========
Expressed as a percentage
equals the Aggregate Total 13.46%
Return for the Period =========
ERV divided by P 1.0944 1.3022
Raise to the power of 1 1/1.19178
Equals 1.0944 1.2480
Subtract 1 0.0944 0.2480
Expressed as a percentage
equals the Average Annualized
Total Return 9.44% 24.80%
========= ==========
|
* Does not include sales charge for the period.