<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 5, 1994
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/X/ Preliminary proxy statement
/ / Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
Merrill Lynch Basic Value Fund, Inc., Merrill Lynch Capital Fund, Inc.,
Merrill Lynch Special Value Fund, Inc.
and Merrill Lynch Global Resources Trust
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
Same as above
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:1
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registrations statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
- ---------------
1Set forth the amount on which the filing fee is calculated and state how it
was determined.
<PAGE> 2
PRELIMINARY COPY
MERRILL LYNCH BASIC VALUE FUND, INC.
MERRILL LYNCH CAPITAL FUND, INC.
MERRILL LYNCH SPECIAL VALUE FUND, INC.
MERRILL LYNCH GLOBAL RESOURCES TRUST
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
DEAR SHAREHOLDER:
The enclosed proxy statement requests that you consider and approve (i) the
election of the Board of Directors or Trustees, (ii) the selection of the
independent auditors, (iii) certain changes to the fundamental investment
restrictions for each of the above-referenced mutual funds (each a "Fund") of
which you own shares, and (iv) an amendment to the Fund's Articles of
Incorporation or Declaration of Trust in connection with the implementation by
the Funds of the Merrill Lynch Select PricingSM System (the "Select Pricing
System").
As you are aware, many of the mutual funds advised by Merrill Lynch Asset
Management, L.P. ("MLAM") or its affiliate, Fund Asset Management, L.P. ("FAM"),
and distributed by Merrill Lynch Funds Distributor, Inc. ("MLFD"), offer two
classes of shares which may be purchased at a price equal to the next determined
net asset value per share plus a sales charge which, at the election of the
purchaser, may be imposed (i) at the time of purchase (the "Class A shares") or
(ii) on a deferred basis (the "Class B shares") (the "Dual Distribution
System"). In order to provide additional distribution alternatives tailored more
specifically to an investor's needs, the Funds, as well as all of the other
mutual funds advised by MLAM or FAM that are currently operating under the Dual
Distribution System, intend to implement the Select Pricing System, a new
distribution system under which each Fund will offer four classes of shares,
each with a different combination of sales charges, ongoing fees and other
features. The implementation of the Select Pricing System will not adversely
affect the net asset value of a current shareholder's investment in the Fund nor
will the two new classes of shares have an adverse effect on the shares that are
currently issued and outstanding.
An amendment to the Articles of Incorporation or Declaration of Trust of
each of the Funds is being proposed in connection with the implementation of the
Select Pricing System. This amendment, as well as the election of the Boards of
Directors and Trustees, the selection of independent auditors and the proposed
investment restriction changes require the separate approval of the outstanding
shareholders of each of the
<PAGE> 3
Funds. When we have solicited proxies in the past, you have received a proxy
statement directed solely to shareholders of your Fund. Because all of the
mutual funds currently operating under the Dual Distribution System intend to
begin operating under the Select Pricing System, and since much of the
information required to be included in the proxy materials for each Fund is
substantially identical, we believe it is more efficient to prepare a single
"omnibus" proxy statement for use by the shareholders of all Funds having a
common Board of Directors or Trustees. Specific information pertaining to your
Fund or Funds is attached hereto as Exhibits A and C. If you own more than one
Fund, the term "Fund" refers to each Fund in which you own shares.
EACH SHAREHOLDER WILL VOTE ONLY ON PROPOSALS THAT APPLY TO THAT
SHAREHOLDER'S FUND. THE ENCLOSED PROXY CARD(S) SOLICITS YOUR VOTE ON EACH
PROPOSAL AS A SHAREHOLDER OF EACH OF THE FUNDS THAT YOU OWN. YOU WILL BE SENT A
SEPARATE PROXY STATEMENT AND PROXY CARD FOR EACH ACCOUNT IN WHICH YOU HOLD
SHARES OF THE FUNDS COVERED BY THIS PROXY STATEMENT; IN ADDITION, IF YOU OWN
SHARES OF OTHER MLAM-ADVISED FUNDS, YOU WILL BE SENT FOR EACH ACCOUNT IN WHICH
YOU OWN SHARES AN ADDITIONAL COMBINED PROXY STATEMENT AND PROXY CARD FOR EACH
GROUP OF FUNDS WITH A COMMON BOARD. EACH VOTE IS IMPORTANT; PLEASE REVIEW EACH
PROXY STATEMENT CAREFULLY AND CAST YOUR VOTE ON EACH PROXY CARD YOU RECEIVE.
MANAGEMENT AND THE BOARD RECOMMEND THAT YOU VOTE "FOR" EACH PROPOSAL. If you
have any questions, please call 1-609-282-2800.
Sincerely,
ARTHUR ZEIKEL
President
2
<PAGE> 4
PRELIMINARY COPY
MERRILL LYNCH BASIC VALUE FUND, INC.
MERRILL LYNCH CAPITAL FUND, INC.
MERRILL LYNCH SPECIAL VALUE FUND, INC.
MERRILL LYNCH GLOBAL RESOURCES TRUST
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
------------------------
NOTICE OF MEETINGS OF SHAREHOLDERS
SEPTEMBER 26, 1994
------------------------
TO THE SHAREHOLDERS:
Notice is hereby given that Meetings of Shareholders (the "Meetings") of
the above-listed mutual funds (each a "Fund") advised by Merrill Lynch Asset
Management, L.P. ("MLAM") and Fund Asset Management, L.P. ("FAM") will be held
at the offices of MLAM, 800 Scudders Mill Road, Plainsboro, New Jersey, on
September 26, 1994 at the time specified in Exhibit A hereto. The Meetings will
be held for the following purposes:
(1) To elect members of the Boards of Directors or Trustees to serve
for an indefinite term until their successors are duly elected
and qualified;
(2) To consider and act upon a proposal to ratify the selection of the
independent auditors of each Fund for its current fiscal year;
(3) To consider and act upon a proposal to amend the fundamental
investment restrictions of each Fund (which for Merrill Lynch
Basic Value Fund, Inc. will also require amending its By-laws to
delete Article XIV in its entirety);
(4) To consider and act upon a proposal to amend the Articles of
Incorporation or Declaration of Trust of each Fund in connection
with the implementation of the Merrill Lynch Select PricingSM
System (the "Select Pricing System"), a multiclass distribution
system for the offer and sale of shares of the Fund (this
proposal must be approved by the shareholders of both classes of
the Fund voting as a single class and also by the Class B
shareholders of the Fund voting as a separate class); and
<PAGE> 5
(5) To transact such other business as may properly come before the
Meetings or any adjournment thereof.
The Board has fixed the close of business on August 5, 1994 as the record
date for the determination of shareholders entitled to notice of and to vote at
the Meetings or any adjournment thereof.
A complete list of the shareholders of each Fund entitled to vote at each
Meeting will be available and open to the examination of any shareholder of that
Fund for any purpose germane to the Fund's Meeting during ordinary business
hours from and after September 6, 1994 at the office of the Fund, 800 Scudders
Mill Road, Plainsboro, New Jersey 08536. You are cordially invited to attend
your Fund's Meeting. Shareholders who do not expect to attend the Meeting in
person are requested to complete, date and sign the enclosed form of proxy, as
well as any other proxies you may receive from the Funds in connection with
these Meetings, and return them promptly. Each proxy you receive from the Funds
in connection with these meetings is being solicited on behalf of the Board.
By Order of the Board
MARK B. GOLDFUS
Secretary
Plainsboro, New Jersey
Dated: August 10, 1994
2
<PAGE> 6
PRELIMINARY COPY
COMBINED PROXY STATEMENT
------------------------
MERRILL LYNCH BASIC VALUE FUND, INC.
MERRILL LYNCH CAPITAL FUND, INC.
MERRILL LYNCH SPECIAL VALUE FUND, INC.
MERRILL LYNCH GLOBAL RESOURCES TRUST
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
------------------------
MEETINGS OF SHAREHOLDERS
SEPTEMBER 26, 1994
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Boards of the above-listed funds (each a "Fund", and
collectively, the "Funds"), to be voted at the Meeting of Shareholders of each
Fund (the "Meeting"), to be held at the offices of Merrill Lynch Asset
Management, L.P. ("MLAM"), 800 Scudders Mill Road, Plainsboro, New Jersey, on
September 26, 1994 at the time specified in Exhibit A hereto. The approximate
mailing date of this Proxy Statement is August 16, 1994.
Each Fund is organized either as a Maryland corporation or a Massachusetts
business trust. In each jurisdiction, nomenclature varies. For ease and clarity
of presentation, throughout the proxy statement shares of common stock or
beneficial interest of a Fund are referred to as "shares", holders of shares are
referred to as "shareholders", the Board of Directors or Trustees of each of the
Funds is referred to as the "Board", the directors or trustees of each Fund are
referred to as "Board members", the investment adviser of each Fund is referred
to as the "Investment Adviser" or "MLAM" and each Fund's Articles of
Incorporation or Declaration of Trust is referred to as its "charter". Unless
otherwise indicated, MLAM and Fund Asset Management, L.P. ("FAM") are together
referred to as "MLAM" and Merrill Lynch Funds Distributor, Inc. is referred to
as "MLFD".
All properly executed proxies received prior to the Meeting will be voted
at the Meeting in accordance with the instructions marked thereon or otherwise
as provided therein. Unless instructions to the contrary are marked, proxies
will be voted "FOR" the election of the Board, "FOR" the ratification of the
selection of independent auditors to serve for the Fund's current fiscal year,
"FOR" the proposal to amend the fundamental invest-
<PAGE> 7
ment restrictions of the Fund (which for Merrill Lynch Basic Value Fund,
Inc. only will also be a vote "FOR" amending its by-laws to delete Article XIV)
and "FOR" the charter amendment in connection with the implementation of the
Merrill Lynch Select PricingSM System (the "Select Pricing System"). Any proxy
may be revoked at any time prior to the exercise thereof by giving written
notice to the Secretary of the Fund.
The Board has fixed the close of business on August 5, 1994 (the "Record
Date") for the determination of shareholders entitled to notice of and to vote
at the Meetings and at any adjournment thereof. Shareholders on the Record Date
will be entitled to one vote for each share held and fractional votes for
fractional shares held, with no shares having cumulative voting rights.
Shareholders of each Fund will vote as a single class, and will vote separately
on each proposal on which shareholders of that Fund are entitled to vote. As
noted, with respect to Proposal 4, Class B shareholders of each Fund voting
together as a separate class also will be required to approve the charter
amendment.
As of the Record Date, your Fund had outstanding the number of shares
indicated in Exhibit A. To the knowledge of the Fund, no person owned
beneficially more than five percent of the outstanding shares of the Fund at
such date [except as set forth in Exhibit A].
The Board knows of no business other than that mentioned in Proposals 1
through 4 of the Notice of Meeting which will be presented for consideration at
the Meeting. If any other matter is properly presented, it is the intention of
the persons named in the enclosed proxy, as well as any other proxy sent by the
Funds in connection with the Meetings, to vote in accordance with their best
judgment.
Proposal 1
ELECTION OF BOARD MEMBERS
At the Meeting, each Board member will be elected to serve for an
indefinite term until his successor is elected and qualified, until his death,
until he resigns or is otherwise removed under the charter or until December 31
of the year in which he reaches age 72. It is the intention of the persons named
in the enclosed proxy to nominate and vote in favor of the election of the
persons listed below.
The Board knows of no reason why any of these nominees will be unable to
serve, but in the event of any such unavailability, the proxies received will be
voted for such substitute nominee or nominees as the Board may recommend.
2
<PAGE> 8
Certain information concerning the nominees is set forth below. Additional
information concerning the nominees and other information relevant to the
election of Board members is set forth in Exhibit A.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
DURING
PAST FIVE YEARS AND PUBLIC
NAME AND ADDRESS OF NOMINEE AGE DIRECTORSHIPS(1)
--------------------------- --- ---------------------------
<S> <C> <C>
Donald Cecil(1)(2)............... 67 Special Limited Partner of
Cumberland Associates Cumberland Partners (an
1114 Avenue of the Americas investment partnership)
New York, New York since 1982 and General
10036 Partner of Cumberland
Associates (an asset
management company) from
1970 to 1982; Member of
Institute of Chartered
Financial Analysts;
Member and Chairman of
Westchester County (N.Y.)
Board of Transportation.
M. Colyer Crum(1)(2)............. 62 James R. Williston
Soldiers Field Road Professor of Investment
Boston, Massachusetts Management, Harvard
02163 Business School, since
1971; Director of
Cambridge Bancorp, Copley
Properties, Inc. and Sun
Life Assurance Company of
Canada.
Edward H. Meyer(1)(2)............ 67 President of Grey
Grey Advertising Inc. Advertising Inc. since
777 Third Avenue 1968, Chief Executive
New York, New York Officer since 1970 and
10017 Chairman of the Board of
Directors since 1972;
Director of The May
Department Stores
Company, Bowne & Co.,
Inc., Harman
International Industries,
Inc. and Ethan Allen
Interiors, Inc.
</TABLE>
3
<PAGE> 9
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
DURING
PAST FIVE YEARS AND PUBLIC
NAME AND ADDRESS OF NOMINEE AGE DIRECTORSHIPS(1)
--------------------------- --- ---------------------------
<S> <C> <C>
Jack B. Sunderland(1)(2)......... 66 President and Director of
P.O. Box 1177 American Independent Oil
Scarsdale, New York Company, Inc. (an energy
10583 company) since 1987;
Chairman of Murexco
Petroleum, Inc. (an
energy company) from 1981
to 1988; Member of
Council on Foreign
Relations since 1971;
President, Director and
Chief Executive Officer
of Coroil, Inc. (an
energy company) from 1979
to 1985.
J. Thomas Touchton(1)(2)......... 55 Managing Partner of The
Suite 3405 Witt-Touchton Company and
One Tampa City Center its predecessor, The Witt
Tampa, Florida Co. (a private investment
33602 partnership) since 1972;
Trustee Emeritus of
Washington and Lee
University; Director of
TECO Energy Inc. (an
electric utility holding
company).
</TABLE>
4
<PAGE> 10
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
DURING
PAST FIVE YEARS AND PUBLIC
NAME AND ADDRESS OF NOMINEE AGE DIRECTORSHIPS(1)
- --------------------------------- --- ---------------------------
<S> <C> <C>
Arthur Zeikel(1)(3).............. 62 President of MLAM and its
P.O.Box 9011 predecessor since 1977
Princeton, New Jersey and Chief Investment
08543-9011 Officer since 1976;
President and Chief
Investment Officer of FAM
and its predecessor 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;
Executive Vice President
of Merrill Lynch, Pierce,
Fenner & Smith
Incorporated ("Merrill
Lynch") since 1990;
Senior Vice President of
Merrill Lynch from 1985
to 1990; Director of
MLFD.
</TABLE>
- ---------------
(1) Each of the nominees is a director, trustee or member of an advisory board
of certain other investment companies for which FAM or MLAM acts as
investment adviser. See "Merrill Lynch Investment Company Board
Memberships" below.
(2) Member of the Audit and Nominating Committee of the Board.
(3) Interested person, as defined in the Investment Company Act of 1940, as
amended (the "Investment Company Act"), of the Funds.
Committees and Board Meetings. The Board has a standing Audit and
Nominating Committee (the "Committee"), which consists of the Board members who
are not "interested persons" of the Fund within the meaning of the Investment
Company Act. The principal purpose of the Committee is to review the scope of
the annual audit conducted by the Fund's independent auditors and the evaluation
by such auditors of the accounting procedures followed by the Fund. The
Committee will also select and nominate the Board members who are not
"interested persons" of the Fund within the meaning of the Investment Company
Act. The Committee generally will not consider nominees recommended by share-
5
<PAGE> 11
holders of the Fund. The non-interested Board members have retained independent
legal counsel to assist them in connection with these duties.
During the Fund's last fiscal year, each of the Board members then in
office attended at least 75% of the aggregate of (i) the total number of
meetings of the Board held during the fiscal year and (ii) if a member, the
total number of meetings of the Committee held during the fiscal year.
Compensation of Board Members. The Investment Adviser pays all
compensation of all officers of the Fund and all Board members who are
affiliated with ML & Co. or its subsidiaries. The Fund pays each Board member
not affiliated with the Investment Adviser an annual fee plus a fee for each
meeting attended, and the Fund also pays each member of its Committee an annual
fee, together with such Board member's out-of-pocket expenses relating to
attendance at such meetings. Information with respect to fees and expenses paid
to the Board members for each Fund's most recently completed fiscal year is set
forth in Exhibit A.
Merrill Lynch Investment Company Board Memberships. MLAM and FAM act as
the investment adviser for more than 100 registered investment companies. Mr.
Zeikel is a trustee or director of each of these companies except for Merrill
Lynch Series Fund, Inc., Merrill Lynch Institutional Intermediate Fund and
Merrill Lynch Funds for Institutions Series. Messrs. Cecil, Crum, Meyer,
Sunderland and Touchton are trustees or directors of Merrill Lynch Basic Value
Fund, Inc., Merrill Lynch Capital Fund, Inc., Merrill Lynch Global Resources
Trust, Merrill Lynch Ready Assets Trust, Merrill Lynch Special Value Fund, Inc.,
Merrill Lynch U.S.A. Government Reserves, Merrill Lynch U.S. Treasury Money
Fund, MuniVest California Insured Fund, Inc., MuniVest Florida Fund, MuniVest
Michigan Insured Fund, Inc., MuniVest New Jersey Fund, Inc., MuniVest New York
Insured Fund, Inc., MuniYield Florida Insured Fund, MuniYield Insured Fund II,
Inc., MuniYield New Jersey Insured Fund, Inc., MuniYield New York Insured Fund
III, Inc., MuniYield Pennsylvania Fund and MuniYield Michigan Insured Fund, Inc.
Messrs. Sunderland and Touchton are also directors of Merrill Lynch Series Fund,
Inc. Messrs. Cecil and Meyer are also trustees or directors of Emerging Tigers
Fund, Inc., Merrill Lynch Americas Income Fund, Inc., Merrill Lynch Developing
Capital Markets Fund, Inc., Merrill Lynch Dragon Fund, Inc., Merrill Lynch
EuroFund, Merrill Lynch Global Allocation Fund, Inc., Merrill Lynch Global Bond
Fund for Investment and Retirement, Merrill Lynch Global Holdings, Merrill Lynch
Global SmallCap Fund, Inc., Merrill Lynch Healthcare Fund, Inc., Merrill Lynch
International Equity Fund, Merrill Lynch Latin America Fund, Inc., Merrill Lynch
Pacific Fund, Inc., Merrill Lynch Short-Term Global Income Fund, Inc., Merrill
Lynch Technology Fund, Inc. and Worldwide DollarVest Fund, Inc.
6
<PAGE> 12
Officers of the Fund. Information regarding the officers of the Fund is
set forth in Exhibit A.
Stock Ownership. As of July 29, 1994, the nominees held shares of the
Funds as follows:
<TABLE>
<CAPTION>
NO. OF
NOMINEE FUND AND CLASS SHARES HELD
------- -------------- -----------
<S> <C> <C>
Mr. Cecil
Mr. Crum
Mr. Meyer
Mr. Sunderland
Mr. Touchton
Mr. Zeikel
</TABLE>
At the Record Date, the Board members and officers of the Fund as a group
owned an aggregate of less than 1% of the shares of the Fund outstanding at such
date. At such date, Mr. Zeikel, an officer of the Fund and a member of the
Board, and the other officers of the Fund owned an aggregate of less than 1% of
the outstanding shares of common stock of ML & Co.
Proposal 2
SELECTION OF INDEPENDENT AUDITORS
The Board, including a majority of the Board members who are not interested
persons of the Fund, has selected independent auditors to examine the financial
statements of the Fund for the current fiscal year. The Fund knows of no direct
or indirect financial interest of such auditors in the Fund. Such appointment is
subject to ratification or rejection by the shareholders of the Fund. Unless a
contrary specification is made, the accompanying proxy will be voted in favor of
ratifying the selection of such auditors.
Deloitte & Touche ("D&T") acts as independent auditors for all of the
Funds. D&T also acts as independent auditors for ML & Co. and all of its
subsidiaries and for most other investment companies for which MLAM or FAM acts
as investment adviser. The fees received by D&T from these other entities are
substantially greater, in the aggregate, than the total fees received by it from
the Fund. The Board considered the fact that D&T has been retained as the
independent auditors for ML & Co. and the other entities described above in its
evaluation of the independence of D&T with respect to each Fund.
7
<PAGE> 13
Representatives of the Fund's independent auditors are expected to be
present at the Meeting and will have the opportunity to make a statement if they
so desire and to respond to questions from shareholders.
Proposal 3
PROPOSAL TO AMEND THE FUNDAMENTAL
INVESTMENT RESTRICTIONS OF THE FUND
Each Fund advised by MLAM or FAM (collectively, the "MLAM Funds") has
adopted investment restrictions that govern generally the operations of the
Fund. Investment restrictions that are deemed fundamental may not be changed
without a vote of the outstanding shares of the Fund, while non-fundamental
investment restrictions may be changed by the Fund's Board if it deems it in the
best interest of the Fund and its shareholders to do so. For Merrill Lynch Basic
Value Fund, Inc. only, the Fund's fundamental investment restrictions are set
forth in its By-laws and amending its fundamental investment restrictions
requires an amendment to its By-laws to delete Article XIV in its entirety. In
addition to investment restrictions, each of the Funds operates pursuant to
investment objectives and policies, described in the Fund's Prospectus and
Statement of Additional Information, that govern the investment activities of
the Fund and further limit its ability to invest in certain types of securities
or engage in certain types of transactions. These investment objectives and
policies will be unaffected by the adoption of the proposed investment
restrictions. Generally the investment objective of a Fund is a fundamental
policy of the Fund that may be changed only by shareholder vote. The investment
policies of a Fund are non-fundamental and may not be changed unless and until
(i) the Board of the Fund explicitly authorizes, by resolution, a change in the
investment policy and (ii) the Prospectus of the Fund is amended to reflect the
change in policy and, if appropriate, to include additional disclosure.
Investment restrictions may differ among Funds depending on prevailing
regulations and the nature of the securities markets at the time the particular
Fund commenced operations. As a result, similar Funds in the MLAM complex have
different investment restrictions, which may disadvantage one Fund over another
in the current marketplace and make administration and compliance monitoring
unnecessarily difficult.
To address this problem, MLAM has analyzed the various fundamental and
non-fundamental investment restrictions of the Funds covered by this proxy
statement, as well as the investment restrictions of all of the other
MLAM-advised non-money market mutual funds, in light of each Fund's investment
objectives and policies, and has created a set of standard
8
<PAGE> 14
fundamental and non-fundamental investment restrictions. The proposed uniform
restrictions are designed to provide each Fund with as much investment
flexibility as possible under the Investment Company Act and applicable state
securities regulations ("state blue sky regulations"), help promote operational
efficiencies and facilitate monitoring of compliance. Several recently created
funds in the MLAM complex operate under investment restrictions substantially
similar to the proposed restrictions.
The proposed changes to the investment restrictions are not expected to
affect materially the current operations of the Funds. Although adoption of new
or revised investment restrictions is not likely to have any effect on the
current investment techniques employed by a Fund, it will contribute to the
overall goal of uniformity and standardization, as well as provide the Funds
with a greater ability to make future changes in investment restrictions through
Board action. In this regard, the Boards propose that each Fund adopt, as
described below, the uniform, updated investment restrictions.
The proposed restrictions restate many of the fundamental and non-
fundamental restrictions currently in effect for each Fund. In some instances,
certain fundamental or non-fundamental restrictions have been modified or
eliminated in accordance with developments in Federal or state blue sky
regulations or in the securities markets since the inception of the Fund. In
other instances, certain restrictions previously deemed fundamental have been
redesignated non-fundamental. Fundamental investment restrictions may not be
changed without a vote of the shareholders of the Fund, and the costs of
shareholder meetings for these purposes generally are borne by the Fund and its
shareholders. By making certain restrictions non-fundamental, the Board may
amend a restriction as it deems appropriate and in the best interest of the Fund
and its shareholders, without incurring the costs of seeking a shareholder vote.
Each Fund's current investment restrictions are set forth in Exhibit C. Set
forth below is each proposed restriction, followed by a commentary describing
the proposed restriction and detailing the significance, if any, of the proposed
changes for the MLAM Funds.
9
<PAGE> 15
Proposed Fundamental Investment Restrictions. Under the proposed
fundamental investment restrictions, a Fund may not:
1. MAKE ANY INVESTMENT INCONSISTENT WITH THE FUND'S CLASSIFICATION AS A
DIVERSIFIED COMPANY UNDER THE INVESTMENT COMPANY ACT.1
Commentary: Current applicable law regarding diversification of assets
requires that with respect to 75% of its total assets, a 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. Certain MLAM Funds apply
this diversification restriction to 100% of total assets.
At one time, state blue sky 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. These state blue sky limitations, however, have been eliminated.
If the uniform restrictions are approved, each Fund currently classified as
"diversified" would be subject, as a matter of investment policy, to the
diversification restriction described above only with respect to 75% of its
total assets. As to the remaining 25% of total assets, there would be no
fundamental investment limitation on the amount of (i) total assets the
Fund could invest in a single issuer or (ii) voting securities of a single
issuer that could be held by the Fund. A Fund could, for example, invest up
to 25% of its assets in a single issuer without limitation as to the
percentage ownership of that issuer's outstanding securities. The primary
purpose of the proposal is to give the MLAM Funds that presently have a
diversification restriction with respect to 100% of their assets the same
investment flexibility as MLAM Funds that have a diversification
restriction with respect to 75% of their assets, as well as to enable the
Funds to comply with any future changes in applicable law regarding
diversification requirements without incurring the costs of soliciting a
shareholder vote.
- ---------------
1Not applicable to Merrill Lynch Global Resources Trust which is a non-
diversified Fund.
10
<PAGE> 16
2. INVEST MORE THAN 25% OF ITS ASSETS, TAKEN AT MARKET VALUE, IN THE
SECURITIES OF ISSUERS IN ANY PARTICULAR INDUSTRY (EXCLUDING THE U.S. GOVERNMENT
AND ITS AGENCIES AND INSTRUMENTALITIES).2
Commentary: The proposed restriction, which addresses concentration in a
particular industry, is in substance identical to the applicable
restriction in effect for each MLAM Fund. Certain MLAM Funds currently do
not exclude explicitly the U.S. Government, its agencies and
instrumentalities from the definition of "industry". However, such entities
have not been considered to constitute "industries" for purposes of
concentration, and therefore explicit reference to such entities in the
proposed restriction does not change a MLAM Fund's concentration policy. In
addition for purposes of this restriction, states, municipalities and their
political subdivisions are not considered to be part of any industry.
3. MAKE INVESTMENTS FOR THE PURPOSE OF EXERCISING CONTROL OR MANAGEMENT.
Commentary: The proposed restriction is in substance identical to the
applicable restriction in effect for each MLAM Fund. Certain MLAM Funds
currently include the restriction in their non-fundamental, rather than
their fundamental, investment restrictions. Certain MLAM Funds that invest
on an international basis go on to state in this restriction that
investment by the Funds in wholly-owned investment entities created under
the laws of certain countries will not be deemed the making of investments
for the purpose of exercising control or management. This language, which
is considered by the
- ---------------
2A MLAM Fund that concentrates in a particular industry (i.e., more than 25%)
will continue to use its present concentration restriction. A typical
restriction in this regard reads as follows:
The Fund will 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, its agencies and instrumentalities), except that,
under normal circumstances, the Fund will invest more than 25% of its
total assets in the securities of issuers in the [name of industry].
None of the Funds covered by this proxy statement concentrate in a particular
industry, except that during periods when management of the Fund anticipates
significant economic, political or financial instability, Merrill Lynch Global
Resources Trust may concentrate its investments in gold-related companies.
11
<PAGE> 17
MLAM Funds to be explanatory in nature, will continue to be set forth in
the investment restrictions.
4. PURCHASE OR SELL REAL ESTATE, EXCEPT THAT A 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.
Commentary: The proposed restriction is substantially similar to the
applicable restriction in effect for each MLAM Fund, except that certain
MLAM Funds also prohibit investment in real estate limited partnerships in
the fundamental restriction. Prohibition on investments in real estate
limited partnerships is required under current applicable law, however such
law does not require this restriction to be fundamental. Accordingly, under
the proposed uniform restrictions, investment in real estate limited
partnerships is prohibited in non-fundamental investment restriction (g) to
provide the flexibility to the Board to modify the restriction in response
to future changes in applicable law without incurring the expense of a
shareholder vote.
In addition, the applicable restrictions currently in effect for certain
MLAM Funds do not contain any exception to the general prohibition on
investments in real estate. The proposed restriction clarifies that these
Funds have the flexibility, consistent with other MLAM Funds, to invest in
securities secured by real estate or issued by companies investing in real
estate, such as real estate investment trusts.
5. MAKE LOANS TO OTHER PERSONS, EXCEPT THAT THE ACQUISITION OF BONDS,
DEBENTURES OR OTHER CORPORATE DEBT SECURITIES AND INVESTMENT IN GOVERNMENT
OBLIGATIONS, SHORT-TERM COMMERCIAL PAPER, CERTIFICATES OF DEPOSIT, BANKERS
ACCEPTANCES AND REPURCHASE AGREEMENTS 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.
Commentary: The proposed restriction, with respect to the making of loans,
is in substance similar to the applicable restrictions in effect for each
MLAM Fund. Certain MLAM Funds address loans to other persons and securities
lending in two separate restrictions. A Fund may, as an investment policy,
restrict investment in the instruments specifically permitted in the
exception beyond the limitations set forth in the proposed restriction.
12
<PAGE> 18
Each MLAM Fund is permitted to engage in securities lending but the MLAM
Funds have a variety of different investment restrictions in this regard.
For example, certain MLAM Funds have a fundamental investment restriction
limiting securities lending to less than 20% of total assets. In addition
to investment restrictions, certain MLAM Funds have imposed limitations on
securities lending as an investment policy.
Applicable law generally permits the lending of a Fund's portfolio
securities in an amount up to 33 1/3% of the Fund's total assets, provided
that such loans are made in accordance with prescribed guidelines which
typically are set forth in the Statement of Additional Information of the
Fund. Each Fund will continue to be subject to the lending limitations set
forth as an investment policy in its Prospectus and Statement of Additional
Information following approval of the proposed uniform investment
restrictions, unless and until the Board determines that an amendment to
such investment policy is in the best interest of the Fund and its
shareholders and the Prospectus of the Fund is amended.
6. ISSUE SENIOR SECURITIES TO THE EXTENT SUCH ISSUANCE WOULD VIOLATE
APPLICABLE LAW.
Commentary: Certain MLAM Funds currently limit the extent to which the
Fund may issue senior securities, while other MLAM Funds have no
restriction on the issuance of senior securities. The proposed restriction
substitutes instead a limitation on the issuance of senior securities based
upon applicable law.
Applicable law currently prohibits the issuance of senior securities,
defined as any bond, debenture, note or similar obligation or instrument
evidencing indebtedness, and any stock of any class having priority as to
any other class as to distribution of assets or payment of dividends, but
not including (i) bank borrowings provided that immediately thereafter the
Fund has 300% asset coverage for all borrowings, or (ii) any note or other
evidence of indebtedness representing a loan made to the Fund for temporary
purposes (i.e., to be repaid in 60 days without extension or renewal) in an
amount not exceeding 5% of the Fund's total assets when the loan is made.
Certain other investment techniques, which involve leverage or establish a
prior claim to the Fund's assets, may be considered senior securities,
absent appropriate segregation of assets or exemptive relief. These
techniques include standby commitment agreements, contracts
13
<PAGE> 19
for the purchase of securities on a delayed delivery basis (i.e., firm
commitment agreements), reverse repurchase agreements, engaging in
financial futures and options thereon, forward foreign currency contracts,
put and call options, the purchase of securities on a when-issued basis and
short sales. The manner and extent to which a Fund can issue senior
securities is governed by applicable law, must be set forth in the Fund's
Prospectus and Statement of Additional Information and may be changed only
upon resolution of the Board.
Investments in interest rate swaps, to the extent permitted, are not
treated as senior securities.
7. BORROW MONEY, EXCEPT THAT (I) THE FUND MAY BORROW FROM BANKS (AS
DEFINED IN THE INVESTMENT COMPANY ACT) IN AMOUNTS UP TO 33 1/3% OF ITS TOTAL
ASSETS (INCLUDING THE AMOUNT BORROWED), (II) THE FUND MAY BORROW UP TO AN
ADDITIONAL 5% OF ITS TOTAL ASSETS FOR TEMPORARY PURPOSES, (III) THE FUND MAY
OBTAIN SUCH SHORT-TERM CREDIT AS MAY BE NECESSARY FOR THE CLEARANCE OF PURCHASES
AND SALES OF PORTFOLIO SECURITIES AND (IV) THE FUND MAY PURCHASE SECURITIES ON
MARGIN TO THE EXTENT PERMITTED BY APPLICABLE LAW. THE FUND MAY NOT PLEDGE ITS
ASSETS OTHER THAN TO SECURE SUCH BORROWINGS OR, TO THE EXTENT PERMITTED BY THE
FUND'S INVESTMENT POLICIES AS SET FORTH IN ITS PROSPECTUS AND STATEMENT OF
ADDITIONAL INFORMATION, AS THEY MAY BE AMENDED FROM TIME TO TIME, IN CONNECTION
WITH HEDGING TRANSACTIONS, SHORT SALES, WHEN-ISSUED AND FORWARD COMMITMENT
TRANSACTIONS AND SIMILAR INVESTMENT STRATEGIES.
Commentary: Each MLAM Fund has an express limitation on borrowings, a
number of which are more restrictive than the limitations set forth in the
proposed restriction. For example, a number of MLAM Funds limit borrowings
to 5% of total assets. To the extent the Fund's investment policies, as
stated in the Fund's Prospectus and Statement of Additional Information,
include a limitation on borrowing, or on the pledging of assets to secure
borrowings, that is more restrictive than the restrictions in proposed
restriction (7), the Fund will continue to be limited by such investment
policy on a non-fundamental basis. Moreover, if a Fund intends to borrow
from a bank or to offer debt securities privately as part of its investment
policies, it will so state in its Prospectus. If the Fund limits borrowing
to 5% of total assets, a statement to that effect in the Prospectus will
suffice. On the other hand, if the Fund intends as an investment policy to
engage in a higher level of borrowing for investment purposes, additional
disclosure with respect to the purposes of such borrowing and the
consequences of leverage will be included in the Fund's Prospectus and
Statement of Additional Information.
14
<PAGE> 20
With regard to purchases on margin, under current applicable law, a Fund
may not establish or use a margin account with a broker for the purpose of
effecting securities transactions on margin, except that a Fund may obtain
such short term credit as necessary for the clearance of transactions.
However, a Fund may pay initial or variation margin in connection with
futures and related options transactions, as set forth in investment
restriction (9) below, without regard to this prohibition.
8. UNDERWRITE SECURITIES OF OTHER ISSUERS EXCEPT INSOFAR AS THE FUND
TECHNICALLY MAY BE DEEMED AN UNDERWRITER UNDER THE SECURITIES ACT OF 1933 IN
SELLING PORTFOLIO SECURITIES.
Commentary: The proposed restriction is in substance identical to the
applicable restriction in effect for each Fund.
9. PURCHASE OR SELL COMMODITIES OR CONTRACTS ON COMMODITIES, EXCEPT TO THE
EXTENT 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.
Commentary: Certain MLAM Funds prohibit investment in commodities; others
have no restriction on investment in commodities. Under the Investment
Company Act, a Fund must state its policy relating to the purchase and sale
of commodities. In general, the MLAM Funds currently do not anticipate
investment directly in tangible commodities and would be greatly restricted
from making such direct investments by the provisions of the Federal tax
laws; however, the Funds may invest in financial instruments linked to
commodities as described below. Adoption of the proposed uniform
restrictions will enable a Fund to invest in commodities only in accordance
with applicable law and with the Fund's investment policies as stated in
the Fund's Prospectus and Statement of Additional Information.
The MLAM Funds have obtained an exemptive order from the Securities and
Exchange Commission (the "SEC") which, among other things, permits
investment in the commodities markets to the extent such investment is
limited to financial futures and options thereon for hedging purposes only.
The terms of the exemptive order are slightly more restrictive than
currently applicable law.
Regulations of the Commodity Futures Trading Commission applicable to the
Funds provide that futures trading activities, as described in a Fund's
Prospectus and Statement of Additional Information, will not
15
<PAGE> 21
result in the Fund being deemed a "commodity pool operator" as defined
under such regulations if the Fund adheres to certain restrictions. In
particular, a MLAM Fund that may, as a matter of investment policy,
purchase and sell futures contracts and options thereon may do so (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 do not exceed 5% of the liquidation value of
such Fund's portfolio, after taking into account unrealized profits and
unrealized losses on any such contracts and options. In addition, certain
of the MLAM Funds may invest in securities whose potential investment
returns are based on the change in value of specific commodities.
--------------------------
If approved by the shareholders, the above-listed restrictions will replace
the fundamental investment restrictions for each Fund and, accordingly, will
become the only fundamental investment restrictions under which each Fund will
operate. If approved, the above restrictions may not be changed without the
approval of the holders of a majority of the Fund's outstanding shares (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).
Proposed Non-Fundamental Investment Restrictions. The Boards have adopted
the following non-fundamental investment restrictions, subject to approval of
the fundamental investment restrictions described above. Certain of the proposed
non-fundamental restrictions are in substance similar or identical to current
fundamental investment restrictions. Redesignating a restriction as
non-fundamental allows the Board the flexibility to modify the restriction in
response to changes in the securities markets or applicable law if the Board
deems it in the best interest of the Fund and its shareholders to do so.
Although future modification of a non-fundamental investment restriction would
not require a shareholder vote, modification of these restrictions would require
both (i) authorization by resolution by the Board and (ii) amendment of the
Fund's Prospectus.
Under the proposed non-fundamental investment restrictions, each Fund may
not:
A. PURCHASE SECURITIES OF OTHER INVESTMENT COMPANIES, EXCEPT TO THE EXTENT
SUCH PURCHASES ARE PERMITTED BY APPLICABLE LAW.
Commentary: A number of MLAM Funds currently state this restriction as a
fundamental, rather than a non-fundamental, restriction. In
16
<PAGE> 22
addition, a number of the restrictions currently in effect set forth
specifically the applicable law. Applicable law currently allows a Fund to
purchase the securities of other investment companies if immediately
thereafter not more than (i) 3% of the total outstanding voting stock of
such company is owned by the Fund, (ii) 5% of the Fund's total assets,
taken at market value, would be invested in any one such company, (iii) 10%
of the Fund's total assets, taken at market value, would be invested in
such securities, and (iv) the Fund, together with other investment
companies having the same investment adviser and companies controlled by
such companies, owns not more than 10% of the total outstanding stock of
any one closed-end investment company.
Certain state blue sky regulations have excepted from the prohibition on
purchases of securities of other investment companies purchases made in
connection with a plan of merger, consolidation, reorganization, or
acquisition, or purchases made in the open market of securities of
closed-end investment companies where no underwriter or dealer's commission
or profit, other than the customary broker's commission, is involved. This
restriction is no longer required and has therefore been deleted from the
proposed restriction.
B. MAKE SHORT SALES OF SECURITIES OR MAINTAIN A SHORT POSITION EXCEPT TO
THE EXTENT PERMITTED BY APPLICABLE LAW.
Commentary: In a short sale, an investor sells a borrowed security and has
a corresponding obligation to "cover" by delivering at a later date the
identical security. In a short sale "against the box", an investor sells
the securities short while either owning the same securities in the same
amount or having the right to obtain securities to cover through, for
example, the investor's ownership of warrants, options, or convertible
securities. Certain MLAM Funds currently prohibit short sales under any
circumstances; others are specifically authorized to engage in short sales
"against the box".
Under current applicable law, short sales are considered to involve the
creation of senior securities. A Fund that includes short sales in its
investment policies must secure its obligation to replace the borrowed
security by depositing collateral in a segregated account in compliance
with SEC guidelines which are described in the Fund's Prospectus. In
addition, under the current blue sky laws of a certain state, Funds that
sell short are limited so that the dollar amount of short sales at any one
time may not exceed 25% of the net equity of the Fund and the value of
securities of any one issuer in which the Fund is short may not exceed the
lesser of 2.0% of the value of the Fund's net assets or 2.0% of the
securities of any class of any issuer.
17
<PAGE> 23
Short sales "against the box" are not considered speculative sales and do
not create senior securities. Funds that are not specifically authorized to
engage in short sales "against the box" have not considered short sales
"against the box" to be short sales for purposes of their investment
restrictions.
The majority of the MLAM Funds, as a matter of investment policy, do not
enter into short sales of any kind. If the proposed investment restrictions
are adopted, the MLAM Funds that currently are authorized to make short
sales will continue to have that ability within the confines of applicable
law; the MLAM Funds that are not currently authorized to make short sales
will not make short sales unless and until such policy is amended by
resolution of the Board and the Fund's Prospectus is amended.
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 OR TRUSTEES] OF THE FUND HAS OTHERWISE DETERMINED TO BE
LIQUID PURSUANT TO APPLICABLE LAW.
Commentary: Certain MLAM Funds limit investment in restricted and illiquid
securities to 5% or 10% of Fund assets. Under the Investment Company Act,
open-end investment companies are required to determine net asset value and
offer redemption on a daily basis with payment to follow within seven days.
In order to ensure that adequate cash is available at all times to cover
redemptions, a Fund is required to limit its investments in securities
deemed illiquid to 15% of the Fund's net assets.
Under current applicable law, an illiquid asset is any asset which may not
be sold or disposed of in the ordinary course of business within seven days
at approximately the value at which a Fund has valued the investment. The
types of securities that will be considered illiquid will vary over time
based on changing market conditions and regulatory interpretations.
In accordance with the most restrictive state blue sky regulations
currently in effect, a Fund whose shares are registered or qualified for
sale in such state may invest no more than 10% of its total assets in
illiquid securities. It is possible that such state interpretation will be
relaxed in the future to enable a Fund to invest up to 15% of its total
assets in illiquid securities. In addition, certain states consider
investment of more than 5% of a Fund's total assets in illiquid securities
to
18
<PAGE> 24
be speculative and require special disclosure in a Fund's Prospectus with
respect thereto.
Under current SEC interpretations, a Fund may purchase, without regard to
the foregoing 10% (or 15%) limitation, securities which are not registered
under the Securities Act of 1933, as amended (the "Securities Act"),
provided that they are determined to be liquid pursuant to guidelines and
procedures established by the Board. Included among such securities are
foreign securities traded in a foreign securities market and securities
which can be offered and sold to "qualified institutional buyers," as
defined in Rule 144A under the Securities Act ("Rule 144A Securities").
Certain MLAM Funds do not permit the Board discretion with respect to Rule
144A Securities.
The proposed investment restriction would increase the Funds' flexibility
with respect to the amount of securities deemed illiquid in which the Fund
may invest up to the current SEC limit, assuming that the Fund is not
otherwise limited with respect to investment in illiquid securities. A
Fund, in its Prospectus and Statement of Additional Information, may limit
investment in illiquid securities to a percentage of less than 15%,
pursuant to state blue sky regulations or for other reasons.
Current applicable law does not require a Fund to state its limitation on
investment in illiquid securities as a fundamental policy; however, a
number of MLAM Funds currently state their limitations on illiquid
securities as a fundamental, rather than a non-fundamental, restriction.
D. INVEST IN WARRANTS IF, AT THE TIME OF ACQUISITION, ITS INVESTMENTS IN
WARRANTS, VALUED AT THE LOWER OF COST OR MARKET VALUE, WOULD EXCEED 5% OF THE
FUND'S TOTAL ASSETS; INCLUDED WITHIN SUCH LIMITATION, BUT NOT TO EXCEED 2% OF
THE FUND'S TOTAL ASSETS, ARE WARRANTS WHICH ARE NOT LISTED ON THE NEW YORK STOCK
EXCHANGE OR AMERICAN STOCK EXCHANGE OR A MAJOR FOREIGN EXCHANGE. FOR PURPOSES OF
THIS RESTRICTION, WARRANTS ACQUIRED BY THE FUND IN UNITS OR ATTACHED TO
SECURITIES MAY BE DEEMED TO BE WITHOUT VALUE.
Commentary: Certain MLAM Funds currently prohibit investment in warrants;
others impose limitations that are as restrictive or more restrictive than
the proposed restriction. If a Fund is otherwise authorized to invest in
warrants as a matter of investment policy, such Fund will now be subject to
the limitation set forth in proposed non-fundamental investment restriction
(d). A Fund that is currently prohibited from investing in warrants as a
matter of investment policy will not invest in warrants unless and until
such policy is amended by resolution of the Board and the Fund's Prospectus
is amended.
19
<PAGE> 25
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.
Commentary: The proposed restriction, which addresses investment by a Fund
in "unseasoned issuers", is in substance identical to the applicable
restriction in effect for certain MLAM Funds; however, a number of MLAM
Funds state this restriction as a fundamental, rather than a
non-fundamental, restriction.
Restrictions on unseasoned issuers are determined primarily by state blue
sky regulations. While several states have more lenient restrictions
concerning investment in the securities of unseasoned issuers (i.e., up to
15%), the most restrictive state limitation is currently 5%. Applicable
state blue sky regulations do not require that entities with less than
three years of continuous operation that issue mortgage-backed securities,
asset-backed securities or obligations supported by the U.S. Government,
its agencies or instrumentalities be included in the definition of
"unseasoned issuers". There is no federal limitation concerning investment
in unseasoned issuers.
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
INVESTMENT ADVISER, THE DIRECTORS OF SUCH GENERAL PARTNER OR THE OFFICERS AND
DIRECTORS OF ANY SUBSIDIARY THEREOF EACH OWNING 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.
Commentary: The proposed restriction, which addresses investment by a Fund
in securities of an issuer in which management of the Fund owns shares, is
in substance similar to the applicable restriction in effect for certain
MLAM Funds; however, a number of MLAM Funds currently state this
restriction as a fundamental, rather than a non-fundamental, restriction.
Restrictions on these types of investments are determined primarily by
state blue sky regulations. Certain MLAM Funds' current investment
restrictions apply to the Investment Adviser or any "affiliate" thereof,
which would make the restriction applicable to ML & Co. and any entity
controlled by ML & Co. The proposed restriction reflects currently
applicable law and applies only to MLAM and certain affiliates.
20
<PAGE> 26
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.
Commentary: Restrictions with respect to these types of investments are
determined primarily by state blue sky regulations. The proposed
restriction is in substance similar to the applicable restriction in effect
for each MLAM Fund; however, a number of MLAM Funds state this restriction,
in whole or in part, as a fundamental, rather than a non-fundamental,
restriction.
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.
Commentary: The proposed restriction is in substance similar to the
applicable restriction in effect for each MLAM Fund authorized to engage in
these types of transactions, except that certain MLAM Funds impose specific
percentage limitations in the investment restriction on the investments. A
number of MLAM Funds state this restriction as a fundamental, rather than a
non-fundamental, restriction.
If the proposed restrictions are approved, MLAM Funds that currently are
authorized to engage in puts, calls, straddles, spreads and combinations
thereof will be subject to the proposed restriction. MLAM Funds that are
not currently authorized to engage in these types of transactions would not
be permitted to engage in such transactions unless and until the Board
determines to establish an investment policy in this regard and the Fund's
Prospectus is amended.
---------------------
Elimination of Restrictions Applicable to Foreign Securities. Investment
restrictions relating to investment in foreign securities have been eliminated
in the proposed uniform restrictions. Certain MLAM Funds that commenced
operations more than 10 years ago were required by state blue sky regulations
then in effect to include an investment restriction limiting or prohibiting
investment in foreign securities. More recently, funds are no longer required to
state this policy as an investment restriction but instead include investment
policies with respect to foreign securities in their Prospectuses and Statements
of Additional Information.
21
<PAGE> 27
Proposal 4
APPROVAL OR DISAPPROVAL OF A CHARTER AMENDMENT
IN CONNECTION WITH THE IMPLEMENTATION OF
THE MERRILL LYNCH SELECT PRICINGSM SYSTEM
DESCRIPTION OF THE SELECT PRICING SYSTEM
General. In 1988, MLAM developed a two-class distribution system pursuant
to which investors may choose to purchase Class A shares of a Fund with a
front-end sales charge or Class B shares with a contingent deferred sales charge
("CDSC") and ongoing distribution fees (the "Dual Distribution System"). The
Dual Distribution System was among the first in the mutual fund industry to
offer investors alternative sales charge arrangements within the same Fund.
On April 12, 1994, the SEC issued an exemptive order permitting certain
MLAM-advised mutual funds to issue multiple classes of shares (the "Order"). The
Order permits each Fund to create an unlimited number of classes of shares to
expand the types of sales charge arrangements available to Fund investors
without otherwise affecting investment in the Fund. In this regard, the Funds
intend to implement the Select Pricing System, under which eligible investors
may choose from different sales charge alternatives in four classes of shares.
At its meeting held August 4, 1994, the Board approved the manner in which
shares of each class will be offered and sold under the Select Pricing System,
as described in detail below. The specific amounts of the sales charges, and
account maintenance and distribution fees for each Fund are set forth in Exhibit
A. Although the Funds currently intend to implement the Select Pricing System as
described herein, changes may be made to the distribution arrangements of any
class at any time; however, changes will not be made to the terms of the Select
Pricing System as it applies to any Fund unless and until (i) the Board of the
Fund explicitly authorizes, by resolution, any change in the terms and (ii) the
Prospectus of the Fund is amended to reflect the change. Changes to the Select
Pricing System ordinarily would not require a vote of the shareholders of a
Fund, except in certain circumstances necessitating a charter amendment or in
which fees paid by existing shareholders pursuant to Rule 12b-1 under the
Investment Company Act ("Rule 12b-1") are increased.
22
<PAGE> 28
The following table sets forth a summary of the distribution arrangements
for each class of shares under the Select Pricing System, followed by a more
detailed description of each class.
- ------------------------------------------------------------------------------
[CAPTION]
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ACCOUNT
MAINTENANCE DISTRIBUTION CONVERSION
CLASS SALES CHARGE FEE FEE FEATURE
- ----------------------------------------------------------------------------
<C> <S> <C> <C> <C>
A* Maximum 5.25% No No No
front-end
sales charge**
- ----------------------------------------------------------------------------
B CDSC for periods Maximum Maximum B shares convert
of up to 4 0.25% 0.75% to D shares
years, at a automatically
maximum rate after
of 4.0% during Conversion
the first Period
year,
decreasing
1.0% annually
to 0.0%
- ----------------------------------------------------------------------------
C 1.0% CDSC for Maximum Maximum No
one year 0.25% 0.75%
- ----------------------------------------------------------------------------
D Maximum 5.25% Maximum No No
front-end 0.25%
sales charge**
- ----------------------------------------------------------------------------
</TABLE>
- ------------------------------------------------------------------------------
* Offered only to eligible investors. See "Class A" below.
** Certain Class A and Class D purchases will be subject to a maximum 1.0% CDSC
for one year. See "Class A" and "Class D" below.
Class A: Class A shares will be sold subject to a front-end sales charge and
will bear no ongoing distribution or account maintenance fees. For
most Funds, the front-end sales charge on purchases of Class A
shares under the Select Pricing System will be lower than the
front-end sales charge currently imposed on Class A shares. Class A
shares will be offered to a limited group of investors. Investors
that currently own Class A shares of a Fund in an account will be
entitled to purchase additional Class A shares of that Fund in that
account. Class A shares also will be offered to certain retirement
plans. In addition, Class A shares will be offered to directors of
ML & Co. and employees of ML & Co. and its subsidiaries, Board
members and members of the Boards of other MLAM-advised mutual funds
and participants in certain investment programs. Class A shares also
will be issued on reinvestment of dividends paid on Class A shares.
23
<PAGE> 29
Exchange Privilege. THE EXCHANGE PRIVILEGE FOR CLASS A SHAREHOLDERS
WILL BE MODIFIED UNDER THE SELECT PRICING SYSTEM MAKING IT MORE
RESTRICTIVE THAN PRESENTLY EXISTS. Under the Select Pricing System,
Class A shareholders may exchange Class A shares of one 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.
If the Class A shareholder wants to exchange his Class A shares for
shares of a second Fund, and the shareholder does not hold Class A
shares of the second Fund in his account at the time of the
exchange, the shareholder will receive Class D shares of the second
Fund as a result of the exchange. Class A or Class D shares may be
exchanged for Class A shares of a second 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.
For example, a shareholder owns 50 Class A shares of Merrill Lynch
Basic Value Fund, Inc. ("Basic Value") and 50 Class A shares of
Merrill Lynch World Income Fund, Inc. ("World Income") in his
personal account and 50 Class A shares of Merrill Lynch Pacific
Fund, Inc. ("Pacific") in his individual retirement account ("IRA").
In his personal account, the shareholder eliminates his position in
Basic Value by exchanging 25 shares of Basic Value for shares of
equivalent value of World Income and 25 shares of Basic Value for
shares of equivalent value of Pacific. The shareholder will receive
Class A shares of World Income, because he holds World Income Class
A shares in his personal account at the time of the exchange, and he
will receive Class D shares of Pacific, because although he owns
Pacific Class A shares, he does not hold them in his personal
account. Similarly, if the shareholder decides to exchange back into
Basic Value, he will receive Class D shares, because he no longer
holds Class A shares of Basic Value in his personal account.
In his IRA, if the investor decides to exchange 25 Class A shares of
Pacific for shares of equivalent value of Merrill Lynch Fund for
Tomorrow, Inc. ("Fund for Tomorrow"), he will receive Class D shares
of Fund for Tomorrow, because he holds no Class A shares of Fund for
Tomorrow in his IRA. If he decides, however, to exchange back into
Pacific, he can receive Class A shares of Pacific as long as he
still holds any
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Class A shares of Pacific in his IRA at the time of the exchange.
Class A shareholders also may exchange Class A shares for shares of
certain MLAM-advised money market funds. For further information
regarding the Select Pricing System exchange privilege, see
"Exchange Privilege" below.
Reduced initial sales charges. Class A investors may qualify for
reduced initial sales charges through a right of accumulation taking
into account an investor's holdings in both Class A and Class D
shares of any MLAM-advised Fund. Under the Select Pricing System,
Class B shares will no longer be counted toward the right of
accumulation. See "Right of Accumulation" below. Under a right of
accumulation, certain Class A shareholders who purchase or
accumulate at least $1 million in Class A and/or Class D shares of
any MLAM-advised Fund also qualify to add to their investment in
Class A shares of a Fund without the imposition of a front-end sales
charge. Although these investors will not be subject to a front-end
sales charge, they will be subject to a CDSC of 1.0% if the shares
are redeemed within one year after purchase.
Redesignation of Class A Shares. Class A shares outstanding on the
date of the implementation of the Select Pricing System (the
"Implementation Date") that are subject to ongoing account
maintenance fees automatically will be redesignated Class D shares.
None of the Funds covered by this Proxy Statement currently have
Class A shares that will be redesignated as Class D shares on the
Implementation Date. The redesignation of the Class A shares to
Class D shares will not be deemed a purchase or sale of the shares
for Federal income tax purposes. See "Redesignation of Shares of
Certain MLAM-Advised Funds" below.
Class B: Class B shares will be sold on a deferred sales charge basis. Class B
shares do not incur a front-end sales charge, but they are subject
to a maximum ongoing 0.25% account maintenance fee, an ongoing
distribution fee and a CDSC for periods of up to four years.
Conversion of Class B Shares to Class D Shares. After a set time
period (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 but no distribution
fee. Automatic conversion of Class B
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shares into Class D shares will occur at least once a 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.
In general, Class B shares of equity Funds will convert
approximately eight years after initial purchase, and Class B shares
of taxable and tax-exempt fixed income Funds will convert
approximately ten years after initial purchase. Specific Conversion
Periods for each Fund are set forth in Exhibit A. If during the
Conversion Period a shareholder exchanges Class B shares with a
ten-year Conversion Period for Class B shares with an eight-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 for
certain retirement plans will be modified as described under
"Proposed Charter Amendment--Class B Retirement Plans" below.
The Class B distribution fee is subject to the limitations on
asset-based sales charges imposed by the National Association of
Securities Dealers, Inc. (the "NASD"), as voluntarily modified by
MLFD. See "Limitations on Asset-Based Sales Charges" below.
Exchange Privilege. Class B shareholders may exchange Class B
shares of the Fund for Class B shares of any MLAM-advised mutual
fund as well as shares of certain MLAM-advised money market funds.
See "Exchange Privilege" below.
Redesignation of Class B Shares. Class B shares of Merrill Lynch
Fundamental Growth Fund, Inc. outstanding on the Implementation Date
automatically will be redesignated Class C shares. This
redesignation of Class B shares to Class C shares will not be deemed
a purchase or sale of the shares for
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<PAGE> 32
Federal income tax purposes. See "Redesignation of Shares of Certain
MLAM-Advised Funds" below.
Class C: Class C shares will not incur a front-end sales charge when
purchased, but Class C shares are subject to a maximum ongoing 0.25%
account maintenance fee and an ongoing distribution fee. In the case
of fixed income Funds, the Class C distribution fees will be
different from the Class B distribution fees of a particular Fund.
In the case of equity Funds, Class C distribution fees will equal
Class B distribution fees. Class C shares are sold subject to a CDSC
of 1.0% for one year. The Class C distribution fee will be charged
indefinitely subject to approval of the continuance of the Fund's
Class C Distribution Plan pursuant to Rule 12b-1 and the limitations
on asset-based sales charges imposed by the NASD. See "Limitations
on Asset-Based Sales Charges" below.
Exchange Privilege. Class C shareholders may exchange Class C
shares of the Fund for Class C shares of any MLAM-advised mutual
fund as well as shares of certain MLAM-advised money market funds.
See "Exchange Privilege" below.
Class D: Class D shares will be sold subject to a front-end sales charge
which will be identical to the front-end sales charge imposed on
Class A shares under the Select Pricing System. Class D shares are
charged a maximum ongoing 0.25% account maintenance fee but are not
subject to an ongoing distribution fee.
Reduced Initial Sales Charges. Class D investors may qualify for
reduced initial sales charges through a right of accumulation taking
into account each investor's holdings in both Class A and Class D
shares of any MLAM-advised Fund. See "Right of Accumulation" below.
Under a right of accumulation, certain investors who purchase or
accumulate at least $1 million in Class A and/or Class D shares of
any MLAM-advised Fund will not be subject to a front-end sales
charge upon the purchase of Class D shares; however, they will be
subject to a CDSC of 1.0% if the shares are redeemed within one year
after purchase.
Exchange Privilege. Class D shareholders may exchange Class D
shares of one Fund for Class D shares of any MLAM-advised mutual
fund. If the shareholder holds any Class A shares of the second Fund
in his account at the time of the exchange, he may exchange Class D
shares for Class A shares of the second Fund. Class D shareholders
also may exchange
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<PAGE> 33
Class D shares of the Fund for shares of certain MLAM-advised money
market funds. See "Exchange Privilege" below.
Class D shares also will be issued upon conversion of Class B shares
after the Class B Conversion Period, as more fully described below.
MLAM developed the Dual Distribution System to provide investors with the
alternatives within the same Fund of purchasing shares pursuant to either the
front-end sales charge method or the deferred sales charge method. The Select
Pricing System was developed to expand the alternatives available under the Dual
Distribution System by providing investors with additional distribution
alternatives. These alternative sales arrangements permit the investor to choose
the method of purchasing shares that is most beneficial given the amount of the
investor's purchase, the length of time the investor expects to hold the shares
and other relevant circumstances.
Front-End Sales Charge Alternatives. Investors who prefer a front-end
sales charge alternative may elect to purchase Class D shares or, if an eligible
investor, Class A shares. Investors choosing the front-end sales charge
alternative who are eligible to purchase Class A shares should purchase Class A
shares rather than Class D shares because of the account maintenance fee imposed
on Class D shares. Investors qualifying for significantly reduced front-end
sales charges may find the front-end 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 front-end 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 Funds, those previously purchased Class A shares, as well as
any new Class D shares acquired, will count toward a right of accumulation which
may qualify the investor for reduced initial sales charges on new front-end
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
front-end 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.
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<PAGE> 34
The benefit of an initial sales charge waiver for investors who purchase at
least $1 million in Class A or Class D shares of any MLAM-advised Fund may be
offset to the extent the shareholder must pay a CDSC on shares redeemed in less
than one year.
Deferred Sales Charge Alternatives. Investors that do not qualify for a
reduction of front-end sales charges may prefer the deferred sales charge
alternatives, because while Class A and Class D 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. Both Class B and Class C shares are subject to ongoing account maintenance
fees and distribution fees; however, the ongoing account maintenance and
distribution charges 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 the Conversion Period and thereafter will be subject to significantly
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. In making this decision, Class
B purchasers will 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. Other investors, however, may elect to purchase Class C shares if
they determine that it is advantageous to have all their funds invested
initially and they are uncertain as to the amount of time they intend to hold
the shares. 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, Class B shares are further limited under a MLFD voluntary
waiver of asset-based sales charges. See "Limitations on Asset-Based Sales
Charges" below.
---------------------
Each Class A, Class B, Class C and Class D share of a Fund will represent
identical interests in the investment portfolio of the Fund and have the same
rights, except that Class B, Class C and Class D shares bear the expenses of the
ongoing account maintenance fee and Class B and Class C shares also bear the
expenses of the ongoing distribution fee and the additional incremental transfer
agency costs resulting from the deferred sales charge arrangement. Class B,
Class C and Class D shares have exclusive voting rights with respect to the
distribution plan adopted
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<PAGE> 35
pursuant to Rule 12b-1 under the Investment Company Act applicable to each
respective class. Each class also has different exchange privileges. The
deferred sales charges that are imposed on Class B and Class C shares will be
imposed directly and respectively against those classes and not against all
assets of the Fund and, accordingly, such charges will not affect the net asset
value of any other class or have any impact on investors choosing another sales
charge option.
The implementation of the Select Pricing System will not adversely affect
the net asset value of a current shareholder's investment in the Fund.
Outstanding shares will not be subject to any charge as a result of the
reclassification. Two new and separate classes will be added, having no adverse
effect on the shares that are issued and outstanding; however, the creation of
Class D will provide a significant benefit to Class B shareholders as described
herein.
Exchange Privilege. As previously stated, investors who hold Class A
shares of a Fund in an account will be entitled, subsequent to the
Implementation Date, to purchase additional Class A shares of that Fund in that
account only. Current Class A shareholders that do not qualify to purchase Class
A shares under the Select Pricing System and wish to exchange their Class A
shares for shares of a second Fund will receive Class A shares of that Fund only
if such shareholder owned Class A shares of the second Fund on the date of the
exchange. Otherwise, shareholders that do not qualify to purchase Class A shares
under the Select Pricing System will receive Class D shares in exchange for
Class A shares after the Implementation Date. Investors will have the right to
exchange Class D shares for Class A shares of any Fund held in the account,
provided that Class A shares of the Fund acquired in the exchange are held in
the account at the time of the exchange.
Class A and Class D shares also will be exchangeable for shares of certain
money market funds specifically designated as available for exchange by holders
of Class A or Class D shares. The period of time that Class A 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 in connection
with a reduced initial sales charge purchase.
Class B and Class C shares will be exchangeable only with shares of the
same class of other mutual funds advised by MLAM as well as certain money market
funds specifically designated as available for exchange by holders of Class B or
Class C shares. The period of time that Class B or Class C shares are held in a
money market fund, however, will not count toward satisfaction of the holding
period requirement for reduction of the CDSC for Class B or Class C shares or
the Conversion Period for Class B shares.
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<PAGE> 36
Right of Accumulation. Under the Select Pricing System, reduced sales
charges will be applicable through a right of accumulation under which eligible
investors are permitted to purchase Class A or Class D shares of a Fund at the
offering price applicable to the total of (a) the dollar amount then being
purchased plus (b) an amount equal to the then net asset value or cost,
whichever is higher, of the purchaser's combined holdings of Class A and Class D
shares of the Fund and of any other Fund with an initial sales charge for which
MLFD is the distributor. Class B and Class C shares owned will not count toward
this right of accumulation.
Redesignation of Shares of Certain MLAM-Advised Funds. The following nine
Funds currently offer Class A shares subject to an account maintenance fee:
Merrill Lynch Americas Income Fund, Inc., Merrill Lynch Adjustable Rate
Securities Fund, Inc., Merrill Lynch Dragon Fund, Inc., Merrill Lynch Federal
Securities Trust, Merrill Lynch Fundamental Growth Fund, Inc., Merrill Lynch
Global SmallCap Fund, Inc., Merrill Lynch International Equity Fund, Merrill
Lynch Latin America Fund, Inc. and Merrill Lynch Short-Term Global Income Fund,
Inc. In order to continue the same sales charge and account maintenance fee
arrangements on these Class A shares, on the Implementation Date, Class A shares
of those Funds will be automatically redesignated Class D shares. Subsequent to
the Implementation Date, reinvestment of dividends paid on these redesignated
Class A shares will be in Class D shares.
Outstanding Class B shares of Merrill Lynch Fundamental Growth Fund, Inc.
("Fundamental Growth"), which currently are subject to the same CDSC, account
maintenance fee and distribution fee as Class C shares will be under the Select
Pricing System, will be automatically redesignated Class C shares on the
Implementation Date. Subsequent to the Implementation Date, reinvestment of
dividends paid on these redesignated Class B shares of Fundamental Growth will
be in Class C shares.
Redesignation of shares of any Fund in connection with the implementation
of the Select Pricing System will not be deemed a purchase or sale of the shares
for Federal income tax purposes.
Limitations on Asset-Based Sales Charges. Class B and Class C distribution
fees are subject to the limitations on asset-based sales charges imposed by the
NASD. As applicable to the Funds, the NASD rule limits the aggregate of
distribution fee payments and CDSCs payable by a Fund to (1) 6.25% of eligible
gross sales of Class B or Class C shares (defined to exclude shares issued
pursuant to dividend reinvestments and exchanges) plus (2) interest on the
unpaid balance at the prime rate plus 1% (the unpaid balance being the maximum
amount payable minus amounts received from the payment of the distribution fee
and the CDSC). The
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<PAGE> 37
maximum allowable payments under the NASD rule is referred to as the
"NASD maximum". Aggregate distribution fee payments on Class C shares will be
limited in accordance with the NASD maximum.
With respect to Class B shares, MLFD has agreed voluntarily to waive
interest charges on the unpaid balance in excess of 0.50% of eligible gross
sales. Consequently, the maximum amount payable to MLFD (referred to as the
"Class B voluntary maximum") is 6.75% of eligible gross sales. MLFD retains the
right to stop waiving the interest charges at any time. To the extent payments
would exceed the Class B voluntary maximum, in the case of Class B shares, or
the NASD maximum, in the case of Class C shares, the Fund will not make further
payments of the distribution fee and any CDSCs will be paid to the Fund rather
than to MLFD; however, the Fund will continue to make payments of the account
maintenance fee. In certain circumstances the amount payable pursuant to the
Class B voluntary maximum may exceed the amount payable under the NASD formula.
In such circumstances payments in excess of the amount payable under the NASD
maximum will not be made.
PROPOSED CHARTER AMENDMENT
On August 4, 1994, the Board approved the Select Pricing System and a
related amendment to the Fund's charter. The proposed amendment to the charter,
among other things, will enable each Fund to institute the Class B to Class D
automatic conversion feature which is integral to the implementation of the
Select Pricing System. In addition, while the Fund's charter permits the Board
to reclassify unissued shares into additional classes, the proposed amendment to
the Fund's charter also will permit the Board to institute automatic conversion
features with respect to all classes by reclassifying issued shares of the Fund
into additional classes at a future date.
Class B Retirement Plans. Certain shareholders of the Fund purchased Class
B shares through retirement plans. These purchases qualified for a waiver of the
CDSC normally imposed on purchases of Class B shares under exemptive orders and
a no-action letter granted by the SEC. Retirement plans holding Class B shares
purchased without a CDSC are herein referred to as "Class B Retirement Plans."
Since these Class B shares were sold without a CDSC, there was heretofore no
reason to track the length of time that such shares were held, and therefore
Class B Retirement Plan shares cannot be converted to Class D shares in the same
manner as other Class B shares.
To ensure that both the Class B Retirement Plan shareholders and the other
Class B shareholders are treated fairly under the Select Pricing System, the
proposed charter amendment provides that rather than impos-
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<PAGE> 38
ing the usual Class B Conversion Periods which apply to the shares, a ten-year
Conversion Period will be applied to each Class B Retirement Plan. After the
Implementation Date, the Class B Retirement Plans will continue to purchase
Class B shares without a CDSC. When the first share purchased by a Class B
Retirement Plan has been held for ten years (i.e., ten years from the date the
relationship between the Funds and the plan was established), all Class B shares
of all Funds held in that Class B Retirement Plan will be converted into Class D
shares of the appropriate Funds. Subsequent to such conversion, that retirement
plan will be sold Class D shares of the appropriate Funds.
Text of Proposed Charter Amendment. Each Fund's state of organization is
set forth in Exhibit A. With respect to the Funds that are Maryland
corporations, the charter will be amended to add the following provision:
The Board of Directors may classify and reclassify any issued shares
of capital stock into one or more additional or other classes or series as
may be established from time to time by setting or changing in any one or
more respects the designations, preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends, qualifications or
terms or conditions of redemption of such shares of stock and pursuant to
such classification or reclassification to increase or decrease the number
of authorized shares of any existing class or series; provided, however,
that any such classification or reclassification shall not substantially
adversely affect the rights of holders of such issued shares. The Board's
authority pursuant to this paragraph shall include, but not be limited to,
the power to vary among all the holders of a particular class or series (a)
the length of time shares must be held prior to reclassification to shares
of another class or series (the "Holding Period(s)"), (b) the manner in
which the time for such Holding Period(s) is determined and (c) the class
or series into which the particular class or series is being reclassified;
provided, however, that, subject to the first sentence of this section,
with respect to holders of the Corporation's shares issued on or after the
date of the Corporation's first effective prospectus which sets forth
Holding Period(s) (the "First Holding Period Prospectus"), the Holding
Period(s), the manner in which the time for such Holding Period(s) is
determined and the class or series into which the particular class or
series is being reclassified shall be disclosed in the Corporation's
prospectus or statement of additional information in effect at the time
such shares, which are the subject of the reclassification, were issued;
and provided, further, that, subject to the first sentence of this section,
with respect to holders of the Corporation's Class B shares issued prior to
the date of the Corporation's First Holding Period Prospectus, the Holding
33
<PAGE> 39
Period shall be ten (10) years for retirement plan (as recognized by the
Internal Revenue Code of 1986, as amended from time to time) holders of
issued Class B shares purchased without a contingent deferred sales charge
(a "CDSC-Waived Retirement Plan") and shall be the Holding Period set forth
in the Corporation's First Holding Period Prospectus for all other holders
of issued Class B shares; Class B shares held by a CDSC-Waived Retirement
Plan shall be reclassified to Class D shares in the month following the
month in which the first Class B share of any mutual fund advised by
Merrill Lynch Asset Management, L.P., Fund Asset Management, L.P., or their
affiliates or successors, held by such CDSC-Waived Retirement Plan has been
held for the ten (10) year Holding Period established by the Corporation's
Board of Directors for such CDSC-Waived Retirement Plan Class B
shareholder; and the Class B shares of every shareholder other than
CDSC-Waived Retirement Plans shall be reclassified to Class D shares in the
month following the month in which such shares have been held for the
Holding Period established by the Corporation's Board of Directors for
shareholders other than CDSC-Waived Retirement Plans in the Corporation's
First Holding Period Prospectus.
With respect to the Funds that are Massachusetts business trusts, Sections
6.1, 6.2 and 10.1 of the charters generally will be amended as follows (changes
are underlined):
6.1. Beneficial Interest. The interest of the beneficiaries
hereunder shall be divided into transferable shares of beneficial interest,
par value $0.10 per share. The number of such shares of beneficial interest
authorized hereunder is unlimited. The Trustees, in their discretion,
without a vote of the Shareholders, may divide the shares of beneficial
interest into classes. In such event, each class shall represent interests
in the Trust property and have identical voting, dividend, liquidation and
other rights and the same terms and conditions except that expenses related
directly or indirectly to the distribution of the shares of a class may be
borne solely by such class (as shall be determined by the Trustees) and, as
provided in Section 10.1, a class may have exclusive voting rights with
respect to matters relating to the expenses being borne solely by such
class. The bearing of such expenses solely by a class of Shares shall be
appropriately reflected (in the manner determined by the Trustees) in the
net asset value, dividend and liquidation rights of the Shares of such
class. The Trustees may provide that shares of a class will be exchanged
for shares of another class without any act or deed on the part of the
holder of shares of the class being exchanged, whether or not shares of
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<PAGE> 40
such class are issued and outstanding, all on terms and conditions as the
Trustees may specify. The Trustees may redesignate a class or series of
shares of beneficial interest or a portion of a class or series of shares
of beneficial interest whether or not shares of such class or series are
issued and outstanding, provided that such redesignation does not
substantially adversely affect the preference, conversion or other rights,
voting powers, restrictions, limitations as to dividends, qualifications or
terms or conditions of redemption of such shares of beneficial interest.
The division of the Shares into classes and the terms and conditions
pursuant to which the Shares of the classes will be issued must be made in
compliance with the 1940 Act. All shares issued hereunder including,
without limitation, Shares issued in connection with a dividend in Shares
or a split of Shares, shall be fully paid and nonassessable.
6.2. Rights of Shareholders. The ownership of the Trust Property of
every description and the right to conduct any business hereinbefore
described are vested exclusively in the Trustees, and the Shareholders
shall have no interest therein other than the beneficial interest conferred
by their Shares, and they shall have no right to call for any partition or
division of any property, profits, rights or interests of the Trust nor can
they be called upon to share or assume any losses of the Trust or suffer an
assessment of any kind by virtue of their ownership of Shares. The Shares
shall be personal property giving only the rights in this Declaration
specifically set forth. The Shares shall not entitle the holder to
preference, preemptive, appraisal, conversion or exchange rights (except
for rights of appraisal specified in Section 11.4 and except as may be
specified by the Trustees in connection with the division of shares into
classes or the redesignation of classes or portions of classes in
accordance with Section 6.1).
10.1. Voting Powers. The Shareholders shall have power to vote (i)
for the removal of Trustees as provided in Section 2.3; (ii) with respect
to any advisory or management contract as provided in Section 4.1; (iii)
with respect to the amendment of this Declaration as provided in Section
11.3; (iv) with respect to such additional matters relating to the Trust as
may be required or authorized by the 1940 Act, the laws of the Commonwealth
of Massachusetts or other applicable law or by this Declaration or the
By-Laws of the Trust; and (v) with respect to such additional matters
relating to the Trust as may be properly submitted for Shareholder
approval. If the Shares of a Series shall be divided into classes as
provided in Article VI hereof, the Shares of each class shall have
identical voting rights except that the Trustees, in their discretion, may
provide a class with exclusive voting rights with respect to matters
related to expenses being borne
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<PAGE> 41
solely by such class whether or not shares of such class are issued and
outstanding.
Implementation of the Select Pricing System is conditioned upon approval of
the charter amendment by all shareholders of the Fund, voting as a single class,
as well as by existing Class B shareholders, voting as a separate class. On
August 4, 1994, the Board approved the proposed charter amendment. The Board
recommends that the shareholders approve the charter amendment.
* * *
OTHER PERTINENT INFORMATION REGARDING THE FUND
INFORMATION CONCERNING MLAM AND FAM
Effective January 1, 1994, MLAM and FAM were reorganized as Delaware
limited partnerships. Both MLAM and FAM are owned and controlled by ML & Co.,
and the general partner of both MLAM and FAM is Princeton Services, a
wholly-owned subsidiary of ML & Co. The reorganization did not result in a
change of management of either MLAM or FAM, in any of its personnel, or in an
adverse change in its financial condition. Prior to the reorganization, MLAM
(which was known as Merrill Lynch Investment Management, Inc. and which did
business as Merrill Lynch Asset Management) and FAM (which was known as Fund
Asset Management, Inc.) were Delaware corporations. MLAM was a wholly-owned
subsidiary of ML & Co. and FAM was a wholly-owned subsidiary of MLAM.
MLFD, an affiliate of MLAM and FAM, acts as distributor of the Fund's
shares. MLAM, FAM, Princeton Services and MLFD are located at 800 Scudders Mill
Road, Plainsboro, New Jersey 08536. ML & Co. is located at 250 Vesey Street, New
York, New York 10281.
MLAM and FAM act as the investment adviser to more than 100 registered
investment companies. In addition, MLAM offers portfolio management and
portfolio analysis services to individuals and institutions.
The audited balance sheet of each of MLAM and FAM for the fiscal year ended
December 31, 1993 is set forth in Exhibit B.
Securities held by the Fund also may be held by or be appropriate
investments for other funds or clients (collectively referred to as "clients")
for which MLAM or FAM acts as an adviser. Because of different investment
objectives or other factors, a particular security may be bought for one or more
clients when one or more clients are selling the security. If
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<PAGE> 42
purchases or sales of securities for the Fund or other clients arise for
consideration at or about the same time, transactions in such securities will be
made, insofar as feasible, for the respective clients in a manner deemed
equitable to all by MLAM or FAM. To the extent that transactions on behalf of
more than one client of MLAM or FAM during the same period may increase the
demand for securities being purchased or the supply of securities being sold,
there may be an adverse effect on price.
The following table sets forth the name, title and principal occupation of
the principal executive officer of MLAM and FAM and the directors of Princeton
Services, the general partner of both MLAM and FAM.
<TABLE>
<CAPTION>
NAME* TITLE PRINCIPAL OCCUPATION
----- ----- --------------------
<S> <C> <C>
Arthur Zeikel....... President and Chief President and Chief
Investment Officer of Investment Officer of
MLAM and FAM and MLAM and FAM;
Director of Princeton Executive Vice
Services President of ML & Co.;
President of Princeton
Services
Terry K. Glenn...... Executive Vice President Executive Vice President
of MLAM and FAM and of MLAM and FAM;
Director of Princeton Executive Vice
Services President of Princeton
Services
Philip L. Senior Vice President Senior Vice President
Kirstein.......... and General Counsel of and General Counsel of
MLAM and FAM and MLAM and FAM; Senior
Director of Princeton Vice President of
Services Princeton Services
</TABLE>
- ---------------
* Mr. Zeikel is presently a Board member of the Fund. The address of Messrs.
Zeikel, Glenn and Kirstein is P.O. Box 9011, Princeton, New Jersey 08543-9011,
which is also the address of MLAM and FAM.
TERMS OF INVESTMENT ADVISORY AGREEMENT
The Investment Advisory Agreement provides that, subject to the direction
of the Board, the Investment Adviser is responsible for the actual management of
the Fund's portfolio and for the review of the Fund's holdings in light of its
own research analysis and analyses from other relevant sources. The
responsibility for making decisions to buy, sell or hold a particular security
rests with the Investment Adviser, subject to review by the Board. The
Investment Adviser provides the portfolio managers for the Fund who consider
analyses from various sources (including brokerage firms with which the Fund
does business), make the necessary investment decisions and place transactions
accordingly. The Investment Adviser is also obligated to perform certain
administrative and management services for the Fund and is obligated to provide
all the office space, facilities,
37
<PAGE> 43
equipment and personnel necessary to perform its duties under the Investment
Advisory Agreement.
Investment Advisory Fee. The Investment Advisory Agreement provides that
as compensation for its services to the Fund, the Investment Adviser receives
from the Fund at the end of each month a fee calculated as an annual percentage
of the Fund's average daily net assets (i.e., the average daily value of the
total assets of the Fund minus the sum of accrued liabilities of the Fund).
Information pertaining to the Fund's investment advisory fee is set forth in
Exhibit A.
Payment of Expenses. The Investment Advisory Agreement obligates the
Investment Adviser to provide investment advisory services and to pay all
compensation of and furnish office space for officers and employees of the Fund
connected with the investment and economic research, trading and investment
management of the Fund, as well as the fees of all Board members of the Fund who
are affiliated persons of the Investment Adviser or any of its affiliates. The
Fund pays all other expenses incurred in its operation, including, among other
things, expenses for legal and auditing services; taxes; costs of printing
proxies, stock certificates and shareholder reports; charges of the custodian
and transfer agent, dividend disbursing agent and registrar fees; SEC fees; fees
and expenses of unaffiliated Board members; accounting and pricing costs;
insurance; interest; brokerage costs; litigation and other extraordinary or
non-recurring expenses; mailing and other expenses properly payable by the Fund.
Accounting services are provided to the Fund by the Investment Adviser, and
the Fund reimburses the Investment Adviser for its costs in connection with such
services. Information with respect to such reimbursement is set forth in Exhibit
A.
California imposes limitations on the expenses of those Funds whose shares
are registered or qualified for sale in California. At the date of this proxy
statement, these annual expense limitations require that the Investment Adviser
reimburse the Fund in an amount necessary to prevent the aggregate ordinary
operating expenses (excluding taxes, brokerage fees and commissions,
distribution fees and extraordinary charges such as litigation costs) from
exceeding in any fiscal year 2.5% of the Fund's first $30 million of average net
assets, 2.0% of the next $70 million and 1.5% of the remaining average net
assets. The Investment Adviser's obligation to reimburse the Fund is limited to
the amount of the investment advisory fee. No payment will be made to the
Investment Adviser during any fiscal year which will cause expenses to exceed
the most restrictive expense limitation at the time of such payment. Additional
information with respect to the Fund's reimbursement pursuant to such expense
limitations, if any, is set forth in Exhibit A.
38
<PAGE> 44
Duration and Termination. The Investment Advisory Agreement will continue
in effect from year to year if approved annually (a) by the Board or by a
majority of the outstanding shares of the Fund and (b) by a majority of the
Board members who are not parties to such agreement or interested persons (as
defined in the Investment Company Act) of any such party. Such agreement is not
assignable and may be terminated without penalty on 60 days' written notice at
the option of either party thereto or by the vote of the shareholders of the
Fund.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to policies established by the Board, the Investment Adviser is
primarily responsible for the execution of each Fund's portfolio transactions
and the allocation of brokerage. In executing such transactions, the Investment
Adviser seeks to obtain the best results for the Fund, taking into account such
factors as price (including the applicable brokerage commission or dealer
spread), size of order, difficulty of execution and operational facilities of
the firm involved and the firm's risk in positioning a block of securities.
While the Investment Adviser generally seeks reasonably competitive commission
rates, the Fund does not necessarily pay the lowest 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. Subject to obtaining the
best price and execution, brokers or dealers who provided supplemental
investment research (such as information concerning money market securities,
economic data and market forecasts) to the Investment Adviser, including Merrill
Lynch, 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 Investment Adviser under the Investment Advisory Agreement, and the
expenses of the Investment Adviser will not necessarily be reduced as a result
of the receipt of such supplemental information.
Each Fund invests in securities traded in the over-the-counter markets, and
where possible, deals directly with 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, except as permitted by
exemptive order, persons affiliated with a Fund are prohibited from dealing with
the Fund as principal in the purchase and sale of securities. Since transactions
in the over-the-counter market usually involve transactions with dealers acting
as principal for their own account, a Fund will not deal with affiliated
persons, including Merrill Lynch and its affiliates, in connection with such
transactions except that pursuant to an exemptive order, obtained by the
Investment Adviser, certain Funds may
39
<PAGE> 45
engage in principal transactions with Merrill Lynch in high-quality short-
term, tax-exempt securities. For information about transactions with and
brokerage commissions paid to Merrill Lynch see Exhibit A.
The Board has considered the possibility of recapturing for the benefit of
the Fund brokerage commissions, dealer spreads and other expenses of possible
portfolio transactions, such as underwriting commissions, by conducting
portfolio transactions through affiliated entities, including Merrill Lynch. For
example, brokerage commissions received by Merrill Lynch could be offset against
the investment advisory fee paid by the Fund to the Investment Adviser. After
considering all factors deemed relevant, the Board members made a determination
not to seek such recapture. The Board members will reconsider this matter from
time to time.
ADDITIONAL INFORMATION
The expenses of preparation, printing and mailing by the Fund of the proxy
materials in connection with the matters to be considered at the meeting will be
borne by the Fund. The Fund will reimburse banks, brokers and others for their
reasonable expenses in forwarding proxy solicitation material to the beneficial
owners of the shares of the Fund. The Fund also may hire proxy solicitors at the
expense of the Fund.
The proposal to elect the Fund's Board (Proposal 1) may be approved by a
plurality of the Fund's shareholders, voting in person or by proxy, at a meeting
at which a quorum is duly constituted.
The proposal to ratify the selection of the Fund's independent auditors
(Proposal 2), may be approved at a meeting at which a quorum is duly constituted
as follows: (i) for each of the Maryland corporations, by a majority of the
votes cast by the Fund's shareholders, voting in person or by proxy and (ii) for
the Massachusetts business trust, by the affirmative vote of a majority of the
Fund's shares represented at the meeting, voting in person or by proxy.
The proposal to amend the fundamental investment restrictions of the Fund
(Proposal 3) requires the affirmative vote of the lesser of (i) 67% of the
shares represented at the Meeting at which more than 50% of the outstanding
shares are represented or (ii) more than 50% of the outstanding shares.
The proposal to amend the Fund's charter (Proposal 4) must be approved by
the affirmative vote of (i) at least 66 2/3% of the outstanding shares of the
Fund for the Maryland corporations, or (ii) a majority of the
40
<PAGE> 46
outstanding shares of the Fund for the Massachusetts business trust. The charter
amendment also must be approved separately by the affirmative vote of the
outstanding Class B shares of the Fund in the same percentages as set forth in
(i) and (ii) immediately above.
In order to obtain the necessary quorum at the Meeting, supplementary
solicitation may be made by mail, telephone, telegraph or personal interview by
officers of the Fund. It is anticipated that the cost of such supplementary
solicitation, if any, will be nominal. For the Maryland corporations, a quorum
consists of a majority of the shares entitled to vote at the Meeting, present in
person or by proxy; for the Massachusetts business trust, a quorum consists of
33 1/3% of the shares entitled to vote at the Meeting, present in person or by
proxy. Class B quorum requirements for the separate Class B vote on Proposal 4
will be identical to the overall quorum requirements for each Fund.
All shares represented by properly executed proxies, unless such proxies
have previously been revoked, will be voted at the Meeting in accordance with
the directions on the proxies; if no direction is indicated, the shares will be
voted "FOR" the Board member nominees, "FOR" the ratification of the independent
auditors, "FOR" the amendments to the fundamental investment restrictions of the
Fund and "FOR" the charter amendment.
With respect to each Fund whose fiscal year ended subsequent to June 30,
1994, the Board represents that there has been no material adverse change in the
financial operations of the Fund since the date of the unaudited financial
statements contained in the Fund's most recent semi-annual report. Also, with
respect to each Fund whose fiscal year ended subsequent to June 30, 1994, shares
will not be voted for Proposal 1 unless the Fund has received a certificate from
its President, dated the Meeting Date, that, to his knowledge, there has been no
material adverse change in the Fund's financial operations since the date of the
unaudited financial statements included in the Fund's most recent semi-annual
report, unless such material adverse change has been disclosed to shareholders
in additional proxy material. If you wish to receive a copy of the Fund's most
recent annual report and any semi-annual report, without charge, please call
1-609-282-2800 and one will be sent to you.
Broker-dealer firms, including Merrill Lynch, holding Fund shares in
"street name" for the benefit of their customers and clients will request the
instructions of such customers and clients on how to vote their shares on each
Proposal before the Meeting. The Fund understands that, under the rules of the
New York Stock Exchange, such broker-dealer firms may,
41
<PAGE> 47
without instructions from their customers and clients, grant authority to the
proxies designated to vote on the election of Board members (Proposal 1), the
ratification of the selection of independent auditors (Proposal 2) and the
proposed charter amendment (Proposal 4) if no instructions have been received
prior to the date specified in the broker-dealer firm's request for voting
instructions. Broker-dealer firms, including Merrill Lynch, will not be
permitted to grant voting authority without instructions with respect to the
amendments to the fundamental investment restrictions (Proposal 3). The Fund
will include shares held of record by broker-dealers as to which such authority
has been granted in its tabulation of the total number of votes present for
purposes of determining whether the necessary quorum of shareholders exists.
Proxies which are returned but which are marked "abstain" or on which a
broker-dealer has declined to vote on any proposal ("broker non-votes") will be
counted as present for the purposes of a quorum. Merrill Lynch has advised the
Fund that it intends to exercise discretion over shares held in its name for
which no instructions have been received by voting such shares on Proposals 1, 2
and 4 in the same proportion as it has voted shares for which it has received
instructions. However, abstentions and broker non-votes will not be counted as
votes cast. Abstentions and broker non-votes will not have an effect on the vote
on Proposals 1 and 2 (in the case of Maryland corporations) or on Proposal 1
only (in the case of Massachusetts business trusts); however, abstentions and
broker non-votes will have the same effect as a vote against Proposals 3 and 4
(in the case of Maryland corporations) or Proposals 2, 3 and 4 (in the case of
Massachusetts business trusts).
With respect to Funds organized in Massachusetts: The charter, which is on
file with the Secretary of State of the Commonwealth of Massachusetts, provides
that the name of the Fund refers to the Board members under the charter
collectively as Board members, but not as individuals or personally; and no
Board member, shareholder, officer, employee or agent of the Fund shall be held
to any personal liability, nor shall resort be had to their private property for
the satisfaction of any obligation or claim of the Fund but the Fund Estate only
shall be liable.
MEETINGS OF SHAREHOLDERS
The Fund's charter does not require that the Fund hold an annual meeting of
shareholders. The Fund will be required, however, to call special meetings of
shareholders in accordance with the requirements of the Investment Company Act
to seek approval of new management and advisory arrangements or of a change in
the fundamental policies, objectives or restrictions of the Fund. The Fund also
would be required to hold a special shareholders' meeting to elect new Board
members at such time as
42
<PAGE> 48
less than a majority of the Board members holding office have been elected
by shareholders. The charter or by-laws of each Fund provides that a
shareholders' meeting may be called at the request of 10% of the outstanding
shares of each of the Funds covered by this proxy statement, entitled to vote at
such meeting, or by a majority of the Board members.
By Order of the Board
MARK B. GOLDFUS
Secretary
Dated: August 10, 1994
43
<PAGE> 49
EXHIBIT A
INFORMATION PERTAINING TO EACH FUND
- - GENERAL INFORMATION PERTAINING TO THE FUNDS
[CAPTION]
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
DEFINED TERM STATE OF
FUND USED IN EXHIBIT A FISCAL YEAR END ORGANIZATION MEETING TIME
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Merrill Lynch Basic Value Fund, Inc. Basic Value 6/30 MD 10:00 a.m.
- ---------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Capital Fund, Inc. Capital 3/31 MD 9:00 a.m.
- ---------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Special Value Fund,
Inc. Special Value 3/31 MD 9:30 a.m.
- ---------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Global Resources Trust Global Resources 7/31 MA 10:30 a.m.
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
[CAPTION]
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING AS OF THE RECORD DATE
----------------------------------------------------------------------------
FUND CLASS A CLASS B
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
Basic Value
- ------------------------------------------------------------------------------------------------------------------------
Capital
- ------------------------------------------------------------------------------------------------------------------------
Special Value
- ------------------------------------------------------------------------------------------------------------------------
Global Resources
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
A-1
<PAGE> 50
- - INFORMATION PERTAINING TO OFFICERS AND BOARD MEMBERS
[CAPTION]
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
YEAR IN WHICH EACH NOMINEE
BECAME A MEMBER OF THE BOARD
-----------------------------------------------------------------------------------------------------
FUND CECIL CRUM MEYER SUNDERLAND TOUCHTON ZEIKEL
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic Value 1977 1977 1981 1981 1977 1977
- ---------------------------------------------------------------------------------------------------------------------------
Capital 1981 1981 1981 1981 1981 1977
- ---------------------------------------------------------------------------------------------------------------------------
Special Value 1981 1981 1978 1978 1981 1978
- ---------------------------------------------------------------------------------------------------------------------------
Global Resources 1985 1985 1985 1985 1985 1985
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Set forth in the table below is information regarding board and committee
meetings held and compensation paid to independent Board members during each
Fund's most recently completed fiscal year.
[CAPTION]
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
BOARD AUDIT AND NOMINATING COMMITTEE
------------------------------------------- --------------------------------------------
------------------------------------------- --------------------------------------------
CHAIRMAN AGGREGATE FEES
# MEETINGS ANNUAL FEE PER MEETING FEE # MEETINGS ANNUAL FEE ANNUAL FEE AND
FUND HELD ($) ($) HELD ($) ($) EXPENSES ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Basic Value 4 3,500 500 4 2,500 1,000 41,369
- ------------------------------------------------------------------------------------------------------------------------------
Capital 4 3,500 500 4 2,500 1,000 40,535
- ------------------------------------------------------------------------------------------------------------------------------
Special Value 4 2,000 500 4 2,100 750 43,898
- ------------------------------------------------------------------------------------------------------------------------------
Global Resources 4 3,500 500 4 2,500 1,000 42,284
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
A-2
<PAGE> 51
Set forth in the table below are the officers of all of the Funds; specific
officers of each Fund are indicated according to the year in which he became an
officer.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
OFFICER INFORMATION
--------------------------------------------------------------------------------------------------------------------------------
OFFICER SINCE
----------------------------------
NAME AND BASIC SPECIAL GLOBAL
BIOGRAPHY AGE OFFICE VALUE CAPITAL VALUE RESOURCES
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Arthur Zeikel................................................ 62 President 1977 1977 1978 1985
President of MLAM since 1977 and Chief Investment Officer
since 1976; President and Chief Investment Officer of FAM
since 1977; President and Director of Princeton Services
since 1993; Executive Vice President of ML & Co. since
1990; Executive Vice President of Merrill Lynch since 1990
and Senior Vice President from 1985 to 1990; Director of
MLFD.
--------------------------------------------------------------------------------------------------------------------------------
Terry K. Glenn............................................... 53 Executive 1983 1983 1983 1987
Vice President
Executive Vice President of MLAM and FAM since 1983;
Executive Vice President and Director of Princeton Services
since 1993; President of MLFD since 1986 and Director since
1991; President of Princeton Administrators, L.P. since
1988.
--------------------------------------------------------------------------------------------------------------------------------
Gerald M. Richard............................................ 45 Treasurer 1984 1984 1984 1985
Senior Vice President and Treasurer of MLAM and FAM since
1984; Senior Vice President and Treasurer of Princeton
Services since 1993; Treasurer of MLFD since 1984 and Vice
President since 1981.
--------------------------------------------------------------------------------------------------------------------------------
Norman R. Harvey............................................. 61 Senior 1982 1982 1983 1985
Vice President
Senior Vice President of MLAM since 1982; Senior Vice
President of Princeton Services since 1993.
--------------------------------------------------------------------------------------------------------------------------------
Paul M. Hoffman.............................................. 64 Vice President 1977 - - -
Vice President of MLAM since 1976.
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
A-3
<PAGE> 52
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
OFFICER INFORMATION
--------------------------------------------------------------------------------------------------------------------------------
OFFICER SINCE
----------------------------------
NAME AND BASIC SPECIAL GLOBAL
BIOGRAPHY AGE OFFICE VALUE CAPITAL VALUE RESOURCES
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Donald C. Burke.............................................. 34 Vice President 1993 1993 1993 1993
Vice President and Director of Taxation of MLAM since 1990;
Employee of Deloitte & Touche from 1982 to 1990.
--------------------------------------------------------------------------------------------------------------------------------
Mark B. Goldfus.............................................. 47 Secretary 1985 1985 1985 1985
Vice President of MLAM and FAM since 1985.
--------------------------------------------------------------------------------------------------------------------------------
Ernest S. Watts.............................................. 61 Vice President - 1983 - -
Vice President of MLAM since 1983.
--------------------------------------------------------------------------------------------------------------------------------
Peter A. Lehman.............................................. 35 Vice President - - - 1994
Vice President of MLAM since 1994; senior fund analyst for
MLAM since 1992; prior thereto, a global natural resources
portfolio manager and basic industry analyst for Prudential
Insurance Company.
--------------------------------------------------------------------------------------------------------------------------------
Edward P. Ix, Jr............................................. 61 Vice President - - - 1993
Vice President of MLAM since 1987 and employee of MLAM
since 1985.
--------------------------------------------------------------------------------------------------------------------------------
Dennis W. Stattman........................................... 43 Vice President - - 1989 -
Vice President of MLAM since 1989; Vice President of
Meridian Management Company from 1984 to 1989.
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
A-4
<PAGE> 53
- - INFORMATION PERTAINING TO THE SELECT PRICING SYSTEM
SALES CHARGES
For all Funds:
<TABLE>
=====================================================================================================
<CAPTION>
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DUAL DISTRIBUTION SELECT PRICING
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS A CLASS B CLASS C CLASS D
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Maximum 4.0% Maximum 5.25%** 4.0% 1.0% CDSC during Maximum 5.25%**
6.5%* CDSC CDSC the first year,
during during decreasing to 0.0%
the the after the first
first first year
year, year,
decreasing decreasing
1.0% 1.0%
annually annually
to 0.0% to 0.0%
after after
the the
fourth fourth
year year
<CAPTION>
=====================================================================================================
</TABLE>
* 6.5% for purchases less than $10,000; 6.0% for purchases between $10,000 and
$25,000; 5.0% for purchases between $25,000 and $50,000; 4.0% for purchases
between $50,000 and $100,000; 3.0% for purchases between $100,000 and
$250,000; 2.0% for purchases between $250,000 and $1,000,000; 0.75% for
purchases of $1,000,000 and greater.
** 5.25% for purchases less than $25,000; 4.75% for purchases between $25,000
and $50,000; 4.0% for purchases between $50,000 and $100,000; 3.0% for
purchases between $100,000 and $250,000; 2.0% for purchases between $250,000
and $1,000,000; and 0% for purchases of $1,000,000 and greater.
A-5
<PAGE> 54
DISTRIBUTION AND ACCOUNT MAINTENANCE FEES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
For all Funds:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
DUAL DISTRIBUTION SELECT PRICING
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS A CLASS B CLASS C
-------------------------------------------------------------------------------------------------------------
ACCOUNT ACCOUNT ACCOUNT
DISTRIBUTION MAINTENANCE DISTRIBUTION MAINTENANCE DISTRIBUTION MAINTENANCE
FEE FEE FEE FEE FEE FEE
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
None .75% .25% None 0.75% 0.25% 0.75% 0.25%
<CAPTION>
<S> <C>
- ----------------------------
- ----------------------------
CLASS D
- ----------------------------
ACCOUNT
DISTRIBUTION MAINTENANCE
FEE FEE
- ----------------------------
<S> <C>
None 0.25%
- ----------------------------
</TABLE>
CLASS B CONVERSION PERIODS
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Basic Value 8 years
---------------------------------------------------------------------------
Capital 8 years
---------------------------------------------------------------------------
Special Value 8 years
---------------------------------------------------------------------------
Global Resources 8 years
---------------------------------------------------------------------------
</TABLE>
A-6
<PAGE> 55
- - INFORMATION PERTAINING TO THE FUND'S INVESTMENT ADVISORY ARRANGEMENTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
FEE INFORMATION
-----------------------------------------
ADVISORY FEE
PAYABLE
BASED ON NET
INVESTMENT ADVISORY FEE ASSETS
INVESTMENT ADVISORY PAID FOR FUND'S MOST AT RECORD
AGREEMENT RECENT FISCAL YEAR DATE
---------------------------------------------------
MOST MOST BASED ON
RECENT RECENT AVERAGE BASED ON
INVESTMENT DATE ANNUAL DIRECTOR SHAREHOLDER FEE NET ASSETS FEE NET ASSETS OF
FUND ADVISER EXECUTED FEE RATE APPROVAL APPROVAL AMOUNT($) OF APPROX.($) AMOUNT($) APPROX.($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Basic Value FAM 5/27/77 0.60%* 8/4/94 9/30/88 15,452,148 3,788,036,930
- ------------------------------------------------------------------------------------------------------------------------------------
Capital MLAM 6/16/76 0.50%** 8/4/94 9/30/88 20,844,212 5,136,052,981
- ------------------------------------------------------------------------------------------------------------------------------------
Special Value FAM 3/27/78 0.75% 8/4/94 9/10/93 1,179,244 157,231,025
- ------------------------------------------------------------------------------------------------------------------------------------
Global Resources MLAM 6/10/85 0.60% 11/5/93 9/30/88 1,391,524 232,557,787
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
REIMBURSEMENTS
DURING FISCAL YEAR
PURSUANT TO
FOR CALIFORNIA
ACCOUNTING EXPENSE
SERVICES($) LIMITATIONS($)
<S> <C> <C>
- -----------------------------------------------------------------------
Basic Value 185,215 0
- -----------------------------------------------------------------------
Capital 0 0
- -----------------------------------------------------------------------
Special Value 48,221 0
- -----------------------------------------------------------------------
Global Resources 54,219 0
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
</TABLE>
* For that portion of average net assets not exceeding $100 million; 0.50% of
that portion of average net assets in excess of $100 million but not
exceeding $200 million; and 0.40% of that portion of average net assets in
excess of $200 million.
** For that portion of total net assets not exceeding $500 million; 0.45% of
that portion of total net assets in excess of $500 million but not exceeding
$750 million; and 0.40% of that portion of total net assets in excess of $750
million.
A-7
<PAGE> 56
Set forth in the table below is information regarding portfolio
transactions and brokerage commissions for each Fund's most recent fiscal year:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BROKERAGE COMMISSIONS % OF AGGREGATE DOLLAR
-------------------------------------------------- AMOUNT OF TRANSACTIONS
AMOUNT IN WHICH BROKERAGE
PAID TO % PAID TO COMMISSIONS PAID EFFECTED
FUND AMOUNT($) MERRILL LYNCH($) MERRILL LYNCH THROUGH MERRILL LYNCH
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Basic Value 2,617,266 109,200 4.17% 4.42%
--------------------------------------------------------------------------------------------------------------
Capital 8,838,842 255,039 2.89% 2.90%
--------------------------------------------------------------------------------------------------------------
Special Value 354,950 15,386 4.33% 5.14%
--------------------------------------------------------------------------------------------------------------
Global Resources 520,434 31,459 6.04% 6.49%
--------------------------------------------------------------------------------------------------------------
</TABLE>
A-8
<PAGE> 57
EXHIBIT B
MERRILL LYNCH INVESTMENT MANAGEMENT, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF
DECEMBER 31, 1993 AND INDEPENDENT AUDITORS' REPORT
B-1
<PAGE> 58
INDEPENDENT AUDITORS' REPORT
MERRILL LYNCH INVESTMENT MANAGEMENT, INC.:
We have audited the accompanying consolidated balance sheet of Merrill
Lynch Investment Management, Inc. and its subsidiaries (the "Company") as of
December 31, 1993. This consolidated balance sheet is the responsibility of the
Company's management. Our responsibility is to express an opinion on the
consolidated balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated balance sheet presents fairly, in all
material respects, the financial position of the Company at December 31, 1993 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE
Parsippany, New Jersey
February 28, 1994
B-2
<PAGE> 59
MERRILL LYNCH INVESTMENT MANAGEMENT, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
1993
------------
<S> <C>
ASSETS
Cash and cash equivalents....................... $ 1,664,075
Receivable from affiliated companies:
Lease transactions............................ 708,616,571
Sale of leased investment..................... 48,312,532
Investments in affiliated limited partnership... 62,218,528
Investments in leases:
Leveraged leases.............................. 57,431,668
Sales-type lease.............................. 3,362,521
Investments in affiliated investment
companies--(market: $26,066,372).............. 24,610,184
Fund management and administrative fees
receivable.................................... 49,098,914
Fixed assets (net of $11,457,912 accumulated
depreciation)................................. 10,406,280
Prepaid expenses and other assets............... 15,376,412
------------
TOTAL ASSETS.................................... $981,097,685
===========
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Payable to affiliates........................... $759,321,639
Accrued liabilities and other payables.......... 8,432,888
Deferred income--unearned fees.................. 7,007,406
Deferred income taxes:
Arising from leveraged leases................. 52,938,886
Arising from sales-type lease................. 1,351,622
Other......................................... 43,685,367
------------
Total liabilities............................... 872,737,808
------------
STOCKHOLDER'S EQUITY:
Common stock, par value $1.00 per
share--authorized 25,000 shares; outstanding
10,000 shares................................. 10,000
Additional paid-in capital...................... 23,266,792
Accumulated translation adjustment.............. 642,388
Retained earnings............................... 84,440,697
------------
Total stockholder's equity...................... 108,359,877
------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY...... $981,097,685
===========
</TABLE>
See notes to consolidated balance sheet.
B-3
<PAGE> 60
MERRILL LYNCH INVESTMENT MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET,
DECEMBER 31, 1993
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Merrill Lynch Investment Management, Inc. and its subsidiaries (the
"Company"), serve as investment adviser to certain registered investment
companies, and provide investment advisory services for individuals and
institutions. Merrill Lynch Investment Management, Inc., a wholly-owned
subsidiary of Merrill Lynch Group, Inc., is an indirect wholly-owned subsidiary
of Merrill Lynch & Co., Inc. ("ML&Co.").
The Company's consolidated balance sheet reflects its 100 percent ownership
of Merrill Lynch Funds Distributor, Inc., a distributor of shares of various
affiliated managed registered investment companies, Fund Asset Management, Inc.,
an investment adviser to various registered investment companies and a lessor
participant in leveraged lease agreements, Merrill Lynch International Asset
Management, Ltd., a Channel Islands based investment adviser and Princeton
Administrators, Inc., an administrator to certain non-affiliated investment
companies, and its 60% ownership of Merrill Lynch International Capital
Management Co., a Japan based investment adviser.
CASH AND CASH EQUIVALENTS
For purposes of the consolidated balance sheet, cash and cash equivalents
include marketable securities with initial maturity dates of less than three
months. The carrying amount approximates fair value because of the short
maturity of those instruments.
FIXED ASSETS
Fixed assets are recorded at cost and consist principally of furniture and
equipment. Depreciation is calculated using the straight-line method over a
period ranging from 3 to 10 years.
DEFERRED INCOME--UNEARNED FEES
Investment advisory services are billed at the beginning of the period for
which services are to be rendered. The fee is deferred and credited to income on
a pro rata basis over the period of the contract, which normally does not exceed
one year.
B-4
<PAGE> 61
MERRILL LYNCH INVESTMENT MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET,
DECEMBER 31, 1993--(CONTINUED)
INCOME TAXES
The results of operations of the Company are included in the consolidated
Federal and combined state and local income tax returns filed by ML&Co. It is
the policy of ML&Co. to allocate the tax associated with such operating results
to each respective subsidiary in a manner which approximates the separate
company method. In 1992, ML&Co. adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS 109") which requires an
asset and liability method in recording income taxes on all transactions that
have been recognized in the financial statements. SFAS 109 provides that
deferred taxes be adjusted to reflect tax rates at which future tax liabilities
or assets are expected to be settled or realized.
TRANSACTIONS WITH AFFILIATES
The Company serves as an investment adviser for certain investment
companies. In addition, the Company, through its 100% owned subsidiary,
Princeton Administrators, Inc., serves as an administrator for certain non-
affiliated investment companies. Management fees earned as adviser and
administrator are based on a percentage of the net assets of each investment
company. Such fees are recognized in the period earned.
The Company maintains investments in certain of these investment companies.
Such investments are carried at the lower of cost or market value. Market value
is determined based upon quoted market prices.
The Company has an arrangement with Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("MLPF&S"), an affiliate which provides that the Company, which
receives revenue as investment adviser to certain investment companies (the
"Funds"), reimburse MLPF&S for certain costs incurred in processing transactions
involving shares of the Funds.
In connection with the formation of certain affiliated investment companies
(the "Investment Companies"), the Company has reimbursed MLPF&S for subscription
expenses incurred in offering the Investment Companies' shares for sale. The
unamortized balance included in prepaid expenses and other assets totalled
$5,276,842 as of December 31, 1993.
The Company has unsecured note agreements with ML&Co. for $700,000,000.
These amounts bear interest at a floating rate approximating
B-5
<PAGE> 62
MERRILL LYNCH INVESTMENT MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET,
DECEMBER 31, 1993--(CONTINUED)
ML&Co's. average borrowing rate, of which $650,000,000 is payable on demand and
$50,000,000 is due August 26, 1994. In addition, the Company has certain other
amounts payable to affiliates.
During 1992, the Company's investments in Merrill Lynch Interfunding, Inc.
and Merlease Leasing Corp. were sold to an affiliate at book value. Receivable
from affiliated companies-lease transactions represents the proceeds from this
transaction.
The Company has a 98 percent limited partnership interest in ML Plainsboro
Limited Partnership ("MLP"), whose general partner is an affiliate. Profits and
losses are allocated to the Company based on its percentage interest.
The "Receivable from affiliated companies" arising from lease transactions
is summarized as follows:
<TABLE>
<S> <C>
Monies advanced to fund lease
transactions............... $(103,476,954)
Tax benefits allocated to the
Company by ML&Co........... 88,699,254
Proceeds from sale of
subsidiaries............... 684,115,048
Other........................ 39,279,223
------------
Total........................ $708,616,571
============
</TABLE>
ML&Co. is the holder of the Company's excess cash, which is available on
demand to meet current liabilities. ML&Co. credits the Company for interest at a
floating rate approximating ML&Co.'s average borrowing rate based on the
Company's average daily balance due to/from ML&Co.
B-6
<PAGE> 63
MERRILL LYNCH INVESTMENT MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET,
DECEMBER 31, 1993--(CONTINUED)
INVESTMENTS IN LEASES
The Company is a lessor participant in leveraged lease agreements.
Pertinent information relating to the Company's investments in leveraged leases
is summarized as follows:
<TABLE>
<CAPTION>
ESTIMATED
LENGTH OF RESIDUAL VALUE
TYPE OF LEASE EQUITY OF LEASED
PROPERTY (YEARS) INVESTMENT PROPERTY
------- --------- ---------- -----------------
<S> <C> <C> <C>
Generating
plant.. 24-25 34.06% 15.0%
</TABLE>
Financing beyond the Company's equity interest in the purchase price of the
properties was furnished by outside parties in the form of long-term debt that
provides for no recourse against the Company and is collateralized by a first
lien on the properties and related rentals. At the end of the respective lease
terms, ownership of the properties remains with the Company.
The Company's net investment in leveraged leases is summarized as follows:
<TABLE>
<S> <C>
Rentals receivable (net of
principal and interest on
nonrecourse debt)........... $66,075,030
Estimated residual values of
leased assets............... 18,964,143
Less:
Unearned and deferred
income................... (26,617,505)
Allowance for
uncollectibles........... (990,000)
-----------
Investment in leveraged
leases...................... 57,431,668
Less deferred taxes arising
from leveraged leases....... (52,938,886)
-----------
Net investment in leveraged
leases...................... $ 4,492,782
===========
</TABLE>
In 1993, one of the Company's subsidiaries sold its equity interest in a
chemical tanker previously accounted for as a leverage lease. The sale resulted
in an after-tax gain of $112,000.
B-7
<PAGE> 64
MERRILL LYNCH INVESTMENT MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET,
DECEMBER 31, 1993--(CONTINUED)
The Company's investment in the sales-type lease consisted of the following
elements at December 31, 1993:
<TABLE>
<S> <C>
Minimum lease payments
receivable.................. $ 3,672,000
Less:
Unearned income............. (59,479)
Allowance for
uncollectibles........... (250,000)
-----------
Investment in sales-type
financing leases............ $ 3,362,521
===========
</TABLE>
At December 31, 1993, minimum lease payments receivable are $3,672,000 for
1994.
For Federal income tax purposes, the Company receives the investment tax
credit and has the benefit of tax deductions for (i) depreciation on the entire
amount of leased assets and (ii) interest on the outstanding long-term debt. For
state and local tax purposes, the Company also receives the benefits of tax
deductions from (i) and (ii) above. Since, during the early years of the leases,
those deductions exceed the Company's lease rental income, substantial excess
deductions are available to be applied against the Company's other income and
the consolidated income of ML&Co. In the later years of these leases, rental
income will exceed the related deductions and taxes will be payable (to the
extent that net deductions arising from additional leveraged lease transactions
do not offset such lease income). Deferred taxes have been provided to reflect
these temporary differences.
INCOME TAXES
As part of the consolidated group, the Company transfers its current
Federal and state tax liabilities to the Parent. At December 31, 1993, the
Company had a current Federal tax receivable of $1,015,000 and current state tax
payable of $2,900,000 to the Parent.
PENSION PLAN
The Company participates in the ML&Co. Comprehensive Retirement Program
(the "Program"), consisting of the Retirement Accumulation Plan ("RAP") and the
Employee Stock Ownership Plan (the "ESOP"). Both plans became effective January
1, 1989. Under the
B-8
<PAGE> 65
MERRILL LYNCH INVESTMENT MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET,
DECEMBER 31, 1993--(CONCLUDED)
Program, cash contributions made by the Company and the ML&Co. stock held by the
ESOP are allocated quarterly to participant's accounts. Allocations are based on
years of service, age and eligible compensation. Actuarial data regarding the
Company's Plan participants is not separately available.
NAME CHANGE
Effective December 28, 1991, the Company, through an amendment of its
certificate of incorporation, changed its name to Merrill Lynch Investment
Management, Inc., ("MLIM"). MLIM does business under the name "Merrill Lynch
Asset Management".
LITIGATION
The Company is a party to certain lawsuits arising from the normal conduct
of its business. While the ultimate result of the lawsuits against the Company
cannot be predicted with certainty, management does not expect that these
matters will have a material adverse effect on the Company's financial position
or the results of its operations.
SUBSEQUENT EVENT
Effective January 1, 1994, the Company contributed certain net investment
advisory assets to Merrill Lynch Asset Management, L.P., a newly formed Delaware
limited partnership, in exchange for a 99% limited partnership interest. The
general partner, Princeton Services, Inc. (a wholly-owned subsidiary of Merrill
Lynch & Co., Inc.) contributed 1% of the value of the net investment advisory
assets in exchange for its 1% general partnership interest. The partnership's
profits and losses are to be allocated in proportion to the capital
contributions of the partners.
B-9
<PAGE> 66
FUND ASSET MANAGEMENT, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET AS OF
DECEMBER 31, 1993 AND INDEPENDENT AUDITORS' REPORT
B-10
<PAGE> 67
INDEPENDENT AUDITORS' REPORT
FUND ASSET MANAGEMENT, INC.:
We have audited the accompanying consolidated balance sheet of Fund Asset
Management, Inc. and subsidiary (the "Company") as of December 31, 1993. This
balance sheet is the responsibility of the Company's management. Our
responsibility is to express an opinion on the balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated balance sheet presents fairly, in all
material respects, the financial position of the Company at December 31, 1993 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE
Parsippany, New Jersey
February 28, 1994
B-11
<PAGE> 68
FUND ASSET MANAGEMENT, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
1993
------------
<S> <C>
ASSETS
Cash........................................... $ 996,680
Receivable from affiliated companies:
Lease transactions........................... 24,501,523
Sale of leased investment.................... 48,312,532
Fund management fees receivable................ 28,927,938
Investments in leases:
Leveraged leases............................. 57,431,668
Sales-type lease............................. 3,362,521
Investments in affiliated investment
companies--(market: $19,731,088)............. 18,181,262
Investment in affiliated limited partnership... 31,109,264
------------
TOTAL ASSETS................................... $212,823,388
============
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Payable to Merrill Lynch & Co., Inc. and
affiliates................................... $ 21,554,955
Deferred income taxes:
Arising from leveraged leases................ 52,938,886
Arising from sales-type lease................ 1,351,622
Other........................................ 15,838,124
Other.......................................... 8,501
------------
Total liabilities.............................. 91,692,088
------------
STOCKHOLDER'S EQUITY:
Common stock, par value $1.00 per
share--authorized 25,000 shares; outstanding
1,000 shares................................. 1,000
Additional paid-in capital..................... 686,215,876
Retained earnings.............................. 119,029,472
Proceeds receivable from Merrill Lynch & Co.,
Inc. from sale of subsidiary................. (684,115,048)
------------
Total stockholder's equity..................... 121,131,300
------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY..... $212,823,388
============
</TABLE>
See notes to consolidated balance sheet.
B-12
<PAGE> 69
FUND ASSET MANAGEMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED BALANCE SHEET,
DECEMBER 31, 1993
ORGANIZATION
Fund Asset Management, Inc. and subsidiary (the "Company"), a wholly-owned
subsidiary of Merrill Lynch Investment Management, Inc. (the "Parent"), or
"MLIM" which is an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc.
("ML&Co."), serves as an investment adviser to various registered open-end
investment companies. The Company is also a lessor participant in certain
leveraged and sales-type lease agreements.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Income Taxes--The results of the operations of the Company are included in
the consolidated Federal and combined state and local income tax returns filed
by ML&Co. It is the policy of ML&Co. to allocate the tax associated with such
operating results to each respective subsidiary in a manner which approximates
the separate company method. In 1992, ML&Co. adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109") which
requires an asset and liability method in recording income taxes on all
transactions that have been recognized in the financial statements. SFAS 109
provides that deferred taxes be adjusted to reflect tax rates at which future
tax liabilities or assets are expected to be settled or realized.
TRANSACTIONS WITH AFFILIATES
The Company serves as an investment adviser for certain affiliated
investment companies. The Company maintains investments in certain of these
investment companies. Such investments are carried at the lower of cost or
market value. Market value is determined based upon quoted market prices.
The Company has an arrangement with Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("MLPF&S") an affiliate which provides that the Company, which
receives revenue as investment adviser to certain investment companies (the
"Funds"), reimburse MLPF&S for certain costs incurred in processing transactions
involving shares of the Funds.
ML&Co. is the holder of the Company's excess cash, which is available on
demand to meet current liabilities. ML&Co. credits the Company for interest, at
a floating rate approximating ML&Co.'s average borrowing rate, based on the
Company's average daily balances due to/from ML&Co.
B-13
<PAGE> 70
FUND ASSET MANAGEMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED BALANCE SHEET,
DECEMBER 31, 1993--(CONTINUED)
The "Receivable from affiliated companies" arising from lease transactions
is summarized as follows:
<TABLE>
<S> <C>
Monies advanced to fund lease
transactions............... $(103,476,954)
Tax benefits allocated to the
Company by ML&Co........... 88,699,254
Other........................ 39,279,223
------------
Total........................ $ 24,501,523
============
</TABLE>
The Company has a 49 percent limited partnership interest in ML Plainsboro
Limited Partnership ("MLP") whose general partner is an affiliate. Profits and
losses are allocated to the Company based on its percentage interest.
During 1992, the Company sold its investment in Merrill Lynch Interfunding,
Inc. and Merlease Leasing Corp. to an affiliate at book value, resulting in a
receivable from ML&Co. This receivable is reflected as a reduction to
stockholder's equity.
INVESTMENTS IN LEASES
The Company is a lessor participant in leveraged leases.
Pertinent information relating to the Company's investments in leveraged
leases is summarized as follows:
<TABLE>
<CAPTION>
ESTIMATED
LENGTH OF RESIDUAL VALUE
TYPE OF LEASE EQUITY OF LEASED
PROPERTY (YEARS) INVESTMENT PROPERTY
------- --------- ---------- -----------------
<S> <C> <C> <C>
Generating
plant.. 24-25 34.06% 15.0%
</TABLE>
Financing beyond the Company's equity interest in the purchase price of the
properties was furnished by outside parties in the form of long-term debt that
provides for no recourse against the Company and is secured by a first lien on
the properties and related rentals. At the end of the respective lease terms,
ownership of the properties remains with the Company.
B-14
<PAGE> 71
FUND ASSET MANAGEMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED BALANCE SHEET,
DECEMBER 31, 1993--(CONTINUED)
The Company's net investment in leveraged leases is summarized as follows:
<TABLE>
<S> <C>
Rentals receivable (net of
principal and interest on
nonrecourse debt)........... $66,075,030
Estimated residual values of
leased assets............... 18,964,143
Less:
Unearned and deferred
income................... (26,617,505)
Allowance for
uncollectibles........... (990,000)
-----------
Investment in leveraged
leases...................... 57,431,668
Less deferred taxes arising
from leveraged leases....... (52,938,886)
-----------
Net investment in leveraged
leases...................... $ 4,492,782
===========
</TABLE>
During 1993, the Company sold its equity interest in the chemical tanker
previously accounted for as a leveraged lease. The sale resulted in an after-tax
gain of $112,000.
The Company's investment in the sales-type leases consisted of the
following elements at December 31, 1993:
<TABLE>
<S> <C>
Minimum lease payments
receivable.................. $ 3,672,000
Less:
Unearned income............. (59,479)
Allowance for
uncollectibles........... (250,000)
-----------
Investment in sales type
financing leases............ $ 3,362,521
===========
</TABLE>
At December 31, 1993 minimum lease payments receivable are $3,672,000 for
1994.
For Federal income tax purposes, the Company receives the investment tax
credit and has the benefit of tax deductions for (i) depreciation on the entire
amount of leased assets and (ii) interest on the outstanding long-term debt. For
state and local tax purposes, the Company also receives the benefits of tax
deductions from (i) and (ii) above. Since, during the early years of the leases,
those deductions exceed the Company's lease rental income, substantial excess
deductions are available to be applied against the Company's other income and
the consolidated income of ML&Co. In the later years of these leases, rental
income will exceed the related deductions and taxes will be payable (to the
extent that net deductions
B-15
<PAGE> 72
FUND ASSET MANAGEMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED BALANCE SHEET,
DECEMBER 31, 1993--(CONCLUDED)
arising from additional leveraged lease transactions do not offset such net
lease income). Deferred taxes have been provided to reflect these temporary
differences.
INCOME TAXES
As part of the consolidated group, the Company transfers its current
Federal and state tax liabilities to MLIM. No such amounts were due to MLIM at
December 31, 1993.
PENSION PLAN
The Company participates in the ML&Co. Comprehensive Retirement Program
(the "Program") consisting of the Retirement Accumulation Plan ("RAP") and the
Employee Stock Ownership Plan (the "ESOP"). Under the Program, cash
contributions made by the Company and the ML&Co. stock held by the ESOP will be
allocated quarterly to participants' accounts. Allocations will be based on
years of service, age and eligible compensation. Actuarial data regarding the
Company's Plan participants is not separately available.
NAME CHANGE
Effective December 28, 1991, the Company's Parent, through an amendment of
its certificate of incorporation, changed its name to Merrill Lynch Investment
Management, Inc. ("MLIM"). MLIM does business under the name "Merrill Lynch
Asset Management".
SUBSEQUENT EVENT
Effective January 1, 1994, Fund Asset Management, Inc. contributed certain
net investment advisory assets to Fund Asset Management, L.P., a newly formed
Delaware limited partnership, in exchange for a 99% limited partnership
interest. The general partner, Princeton Services, Inc. (a wholly-owned
subsidiary of Merrill Lynch & Co., Inc.) contributed 1% of the value of the net
investment advisory assets in exchange for its 1% general partnership interest.
The partnership's profits and losses are to be allocated in proportion to the
capital contributions of the partners.
B-16
<PAGE> 73
EXHIBIT C
EXISTING INVESTMENT RESTRICTIONS
RELATING TO EACH FUND
I. MERRILL LYNCH BASIC VALUE FUND, INC.
(a) Fundamental Investment Restrictions
The Fund may not:
1. Invest in securities of any one issuer (other than the United
States or its agencies or instrumentalities), if immediately after and as a
result of such investment more than 5% of the total assets of the Fund,
taken at market value, would be invested in the securities of such issuer,
or more than 10% of the outstanding securities, or more than 10% of the
outstanding voting securities, of such issuer would be owned by the Fund.
2. Invest more than 25% of its total assets (taken at market value at
the time of each investment) in the securities of issuers in any particular
industry.
3. Make investments for the purpose of exercising control or
management.
4. Purchase securities of other investment companies, except in
connection with a merger, consolidation, acquisition or reorganization, or
by purchase in the open market of securities of closed-end investment
companies where no underwriter or dealer's commission or profit, other than
customary broker's commission, is involved and only if immediately
thereafter not more than 10% of the Fund's total assets, taken at market
value, would be invested in such securities.
5. Purchase or sell real estate; provided that the Fund may invest in
securities secured by real estate or interests therein or issued by
companies which invest in real estate or interests therein.
6. Purchase or sell commodities or commodity contracts.
7. Purchase any securities on margin, except that the Fund may obtain
such short-term credit as may be necessary for the clearance of purchases
and sales of portfolio securities, or make short sales of securities or
maintain a short position.
8. Make loans to other persons (except as provided in Section 9
below); provided that for purposes of this restriction the acquisition of a
portion of an issue of bonds, debentures, or other corporate debt
securities and investment in United States Government obligations,
C-1
<PAGE> 74
short-term commercial paper, certificates of deposit and bankers'
acceptances shall not be deemed to be the making of a loan (the acquisition
of bonds, debentures or other corporate debt securities which are not
publicly distributed is considered to be the making of a loan under the
Investment Company Act).
9. Lend its portfolio securities in excess of 20% of its total assets,
taken at market value; provided that such loans shall be made in accordance
with the guidelines set forth in the prospectus of the Fund effective under
the Securities Act of 1933.
10. Borrow amounts in excess of 5% of its total assets, taken at
market value, and then only from banks as a temporary measure for
extraordinary or emergency purposes.
11. Mortgage, pledge, hypothecate or in any manner transfer (except as
provided in Section 9 above), as security for indebtedness, any securities
owned or held by the Fund except as may be necessary in connection with
borrowings mentioned in Section 10 above, and then such mortgaging,
pledging or hypothecating may not exceed 10% of the Fund's total assets,
taken at market value. (The deposit in escrow of underlying securities in
connection with the writing of call options is not deemed to be a pledge.)
[In order to comply with certain state statutes, the Fund will not, as a
matter of operating policy, mortgage, pledge or hypothecate its portfolio
securities to the extent that at any time the value of pledged securities
plus the maximum sales charge will exceed 10% of the Fund's shares at the
maximum offering price.]
12. Invest in securities which cannot be readily resold to the public
because of legal or contractual restrictions or for which no readily
available market exists or in securities of issuers having a record,
together with predecessors, of less than three years of continuous
operation if, regarding all such securities, more than 5% of its total
assets, taken at market value, would be invested in such securities.
13. Underwrite securities of other issuers except insofar as the Fund
may be deemed an underwriter under the Securities Act of 1933 in selling
portfolio securities.
14. Write, purchase or sell puts, calls or combinations thereof,
except that the Fund may write covered call options with respect to its
portfolio securities, and enter into closing purchase transactions with
respect to such options, if at the time of the writing of such option not
more than 15% of its total assets, taken at market value, would be subject
to being purchased upon the exercise of an option.
C-2
<PAGE> 75
15. Invest in securities of foreign issuers if at the time of
acquisition more than 10% of its total assets, taken at market value, would
be invested in such securities.
16. Purchase or sell interests in oil, gas or other mineral
exploration or development programs.
17. Purchase or retain the securities of any issuer, if those
individual officers and directors of the Fund, MLAM or any affiliate
thereof each owning beneficially more than 1/2 of 1% of the securities of
such issuer own in the aggregate more than 5% of the securities of such
issuer.
(b) Non-fundamental Investment Restrictions
The Fund may not:
a. Write call options with respect to underlying securities which are
not traded on a national securities exchange.
b. Invest in warrants if at the time of acquisition more than 2% of
its total assets, taken at market value, would be invested in warrants. For
purposes of this restriction, warrants acquired by the Fund in units or
attached to securities may be deemed to be without value.
c. Invest in oil, gas or other mineral leases or in real estate
limited partnerships.
II. MERRILL LYNCH CAPITAL FUND, INC.
(a) Fundamental Investment Restrictions
The Fund may not:
1. Make investments for the purpose of exercising control or
management.
2. Purchase securities of other investment companies, except in
connection with a merger, consolidation, acquisition or reorganization, or
by purchase in the open market of securities of closed-end investment
companies where no underwriter or dealer's commission or profit, other than
customary broker's commission, is involved and only if immediately
thereafter no more than 10% of the Fund's total assets, taken at market
value, would be invested in such securities.
3. Purchase or sell real estate; provided that the Fund may invest in
securities secured by real estate or interests therein or issued by
companies, including real estate investment trusts, which invest in real
estate or interests therein.
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4. Purchase or sell commodities or commodity contracts.
5. Purchase any securities on margin, except that the Fund may obtain
such short-term credit as may be necessary for the clearance of purchases
and sales of portfolio securities.
6. Make short sales of securities or maintain a short position.
7. Make loans to other persons; provided that the acquisition of
bonds, debentures, or other corporate debt securities and investment in
government obligations, short-term commercial paper, certificates of
deposit, bankers' acceptances and variable amount notes which are a portion
of an issue to the public shall not be deemed to be the making of a loan
and provided further that the Fund may lend its portfolio securities as set
forth in (8) below.
8. Lend its portfolio securities in excess of 20% of its total assets,
taken at market value; provided that such loans may be made only to New
York Stock Exchange member firms, other brokerage firms having net capital
of at least $10 million and financial institutions, such as registered
investment companies, banks and insurance companies, having at least $10
million in capital and surplus, and provided further that such loans shall
be in accordance with the guidelines established by the Securities and
Exchange Commission for such loans and by the Board of Directors of the
Fund, including maintaining collateral from borrowers equal at all times to
the current market value of the securities loaned.
9. 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.
10. Mortgage, pledge, hypothecate or in any manner transfer (except as
provided in (8) above), as security for indebtedness, any securities owned
or held by the Fund except as may be necessary in connection with
borrowings mentioned in (9) above, and then such mortgaging, pledging or
hypothecating may not exceed 15% of the Fund's total assets, taken at
acquisition cost or market value, whichever is lower. (The deposit in
escrow of underlying securities in connection with the writing of call
options is not deemed to be a pledge.) [In order to comply with certain
statutes, the Fund will not, as a matter of operating policy, mortgage,
pledge or hypothecate its portfolio securities to the extent that at any
time the percentage of pledged securities plus the sales charge will exceed
10% of the offering price of the Fund's shares.]
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11. Invest in securities for which there are legal or contractual
restrictions on resale.
12. Invest in securities for which there is no readily available
market, if at the time of acquisition more than 5% of its total assets
would be invested in such securities.
13. Underwrite securities of other issuers except insofar as the Fund
may technically be deemed an underwriter under the Securities Act of 1933,
as amended, in selling portfolio securities.
(b) Non-Fundamental Investment Restrictions
The Fund may not:
a. Invest in securities of foreign issuers if at the time of
acquisition more than 25% of its total assets, taken at market value, would
be invested in such securities.
b. Purchase or sell interests in oil, gas or other mineral exploration
or development programs.
c. Write, purchase or sell puts, calls, straddles, spreads or
combinations thereof, provided however, the Fund may write "covered call
options".
d. Invest in warrants if at the time of acquisition more than 2% of
its total assets, taken at market value, would be invested in warrants. For
purposes of this restriction, warrants acquired by the Fund in units or
attached to securities may be deemed to be without value.
e. Invest in securities of companies having a record, together with
predecessors, of less than three years of continuous operation if at the
time of acquisition more than 5% of its total assets, taken at market
value, would be invested in such securities.
f. Purchase or retain the securities of any issuer, if those
individual officers and directors of the Fund, Merrill Lynch & Co., Inc. or
any subsidiary thereof each owning beneficially more than 1/2 of 1% of the
securities of such issuer own in the aggregate more than 5% of the
securities of such issuer.
In addition to (f) above, the Fund also has a policy of not purchasing
securities of companies in which directors or management personnel of the Fund,
Merrill Lynch & Co., Inc. or any subsidiary thereof have a substantial
beneficial interest. Portfolio securities of the Fund may not be purchased from
or sold or loaned to Merrill Lynch & Co., Inc. or any subsidiary thereof or any
of their directors, officers or employees.
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III. MERRILL LYNCH SPECIAL VALUE FUND, INC.
(a) Fundamental Investment Restrictions
The Fund may not:
1. Invest in securities of any one issuer (other than the United
States or its agencies or instrumentalities), if immediately after and as a
result of such investment, more than 5% of the total assets of the Fund,
taken at market value, would be invested in the securities of such issuer,
or more than 10% of the outstanding securities, or more than 10% of any
class of securities, of such issuer would be owned by the Fund.
2. Invest more than 25% of its total assets (taken at market value at
the time of each investment) in the securities of issuers in any particular
industry.
3. Make investments for the purpose of exercising control or
management.
4. Purchase securities of other investment companies, except in
connection with a merger, consolidation, acquisition or reorganization, or
by purchase in the open market of securities of closed-end investment
companies where no underwriter or dealer's commission or profit, other than
customary broker's commission, is involved and only if immediately
thereafter not more than 10% of the Fund's total assets, taken at market
value, would be invested in such securities.
5. Purchase or sell real estate, provided that the Fund may invest in
securities secured by real estate or interests therein or issued by
companies which invest in real estate or interests therein.
6. Purchase or sell commodities or commodity contracts, except that
the Fund may deal in forward foreign exchange between currencies of the
different countries in which it may invest and purchase and sell stock
index and currency options, stock index futures, financial futures and
currency futures contracts and related options on such futures.
7. Purchase any securities on margin, except that the Fund may obtain
such short-term credit as may be necessary for the clearance of purchases
and sales of portfolio securities. (The deposit or payment by the Fund of
initial or variation margin in connection with futures or related options
transactions, if applicable, is not considered the purchase of a security
on margin.)
8. Make loans to other persons (except as provided in (9) below);
provided that for purposes of this restriction the acquisition of
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a portion of an issue of publicly distributed bonds, debentures, or other
corporate debt securities and investment in Government obligations,
short-term commercial paper, certificates of deposit and bankers'
acceptances shall not be deemed to be the making of a loan (the acquisition
of bonds, debentures, or other corporate debt securities which are not
publicly distributed is considered to be the making of a loan under the
Investment Company Act).
9. Lend its portfolio securities in excess of 20% of its total assets,
taken at market value; provided that such loans shall be made in accordance
with the guidelines set forth below.
10. Borrow amounts in excess of 5% of its total assets, taken at
market value, and then only from banks as a temporary measure for
extraordinary or emergency purposes.
11. Mortgage, pledge, hypothecate or in any manner transfer as
security for indebtedness any securities owned or held by the Fund except
as may be necessary in connection with borrowings mentioned in (10) above,
and then such mortgaging, pledging or hypothecating may not exceed 10% of
its total assets, taken at market value. [In order to comply with certain
state statutes the Fund will not, as a matter of operating policy,
mortgage, pledge or hypothecate its portfolio securities to the extent that
at any time the percentage of the value of pledged securities plus the
maximum sales charge will exceed 10% of the value of the Fund's shares at
the maximum offering price.] (For the purpose of this restriction and
restriction (10) above, collateral arrangements with respect to the writing
of options, futures contracts, options on futures contracts, and collateral
arrangements with respect to initial and variation margin are not deemed to
be a pledge of assets, and neither such arrangements nor the purchase and
sale of options, futures or related options are deemed to be the issuance
of a senior security.)
12. Invest in securities which cannot be readily resold to the public
because of legal or contractual restrictions or for which no readily
available market exists if, regarding all such securities, more than 5% of
its total assets, taken at market value, would be invested in such
securities.
13. Underwrite securities of other issuers, except insofar as the Fund
may be deemed an underwriter under the Securities Act of 1933 in selling
portfolio securities.
14. Purchase or sell interests in oil, gas or other mineral
exploration or development programs.
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15. Invest in securities of issuers having a record, together with
predecessors, of less than three years of continuous operation if more than
5% of the total assets, taken at market value, would be invested in such
securities.
16. Invest in warrants if at the time of acquisition such investments
valued at the lower of cost or market value, would exceed 5% of its total
assets taken at market value, provided that for purposes of this investment
restriction, investments in warrants that are not listed on the New York or
American Stock Exchange may not exceed 2% of the Fund's total assets. In
addition, for purposes of this restriction, warrants acquired by the Fund
in units or attached to securities may be deemed to be without value.
17. Purchase or retain the securities of an issuer, if those
individual officers and directors of the Fund, MLAM, or any affiliate
thereof each owning beneficially more than 1/2 of 1% of the securities of
such issuer own in the aggregate more than 5% of the securities of such
issuer.
IV. MERRILL LYNCH GLOBAL RESOURCES TRUST.
(a) Fundamental Investment Restrictions
The Fund may not:
1. Invest in the securities of any one issuer if, immediately after
and as a result of such investment, the value of the holdings of the Fund
in the securities of such issuer exceed 5% of the Fund's total assets,
taken at market value, except that such restriction shall not apply to
securities issued or guaranteed by the U.S. Government or any of its
agencies or instrumentalities.
2. Invest in securities of any single issuer if, immediately after and
as a result of such investment, the Fund owns more than 10% of the
outstanding voting securities of such issuer.
3. Invest more than 25% of its total assets, taken at market value at
the time of each investment, in the securities of issuers in any particular
industry.
4. Make investments for the purpose of exercising control or
management.
5. Purchase securities of other investment companies, except in
connection with a merger, consolidation, acquisition or reorganization, or
by purchase in the open market of securities of closed-end investment
companies where no underwriter's or dealer's commission or
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profit, other than customary broker's commission, is involved and only if
immediately thereafter not more than 10% of the Fund's total assets would
be invested in such securities.
6. Purchase or sell real estate, except that the Fund may invest in
securities secured by real estate or interests therein or issued by
companies, including real estate investment trusts, which invest in real
estate or interests therein.
7. Purchase any securities on margin, except that the Fund may obtain
such short-term credit as may be necessary for the clearance of purchases
and sales of portfolio securities. The payment by the Fund of initial or
variation margin in connection with futures or related options
transactions, if applicable, shall not be considered the purchase of a
security on margin.
8. Make short sales of securities or maintain a short position.
9. Make loans to other persons, except that the acquisition of bonds,
debentures or other corporate debt securities and investment in government
obligations, short-term commercial paper, certificates of deposit, bankers'
acceptances and repurchase agreements shall not be deemed to be the making
of a loan, and except further that the Fund may lend its portfolio
securities as set forth in restriction (10) below.
10. Lend its portfolio securities in excess of 33 1/3% of its total
assets, taken at market value; provided that such loans may only be made in
accordance with the guidelines set forth above.
11. Issue senior securities, borrow money or pledge its assets except
that the Fund may borrow from a bank as a temporary measure for
extraordinary or emergency purposes or to meet redemptions in amounts not
exceeding 10% (taken at the market value) of its total assets and pledge
its assets to secure such borrowings. (For the purpose of this restriction,
collateral arrangements with respect to the writing of options, and, if
applicable, interest rate futures contracts, options on interest rate
futures contracts, and collateral arrangements with respect to initial and
variation margin are not deemed to be a pledge of assets and neither such
arrangements nor the purchase or sale of futures or related options are
deemed to be the issuance of a senior security.) The Fund will not purchase
securities while borrowings exceed 5% (taken at market value) of its total
assets.
12. Invest in securities which cannot be readily resold because of
legal or contractual restrictions or which are not otherwise readily
marketable, if at the time of acquisition more than 5% of its net assets
would be invested in such securities. Asset-based securities which the
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Fund has the option to put to the issuer or a stand-by bank or broker
and receive the principal amount of redemption price thereof less
transaction costs on no more than seven days' notice or when the Fund has
the right to convert such securities into a readily marketable security in
which it could otherwise invest upon not less than seven days' notice are
not subject to this restriction.
13. Underwrite securities of other issuers, except insofar as the Fund
technically may be deemed an underwriter under the Securities Act of 1933,
as amended, in selling portfolio securities.
14. Purchase or sell interest in oil, gas or other mineral 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.
(b) Non-Fundamental Investment Restrictions
The Fund may not:
a. Invest in warrants if at the time of acquisition more than 2% of
its total assets, taken at market value, would be invested in warrants. For
purposes of this restriction, warrants acquired by the Fund in units or
attached to securities may be deemed to be without value.
b. Purchase or sell commodities or commodity contracts, except that
the Fund may deal in forward foreign exchange between currencies of the
different countries in which it may invest.
c. Invest in securities of companies having a record, together with
predecessors, of less than three years of continuous operation, if more
than 5% of its total assets would be invested in such securities.
d. Write, purchase or sell puts, calls, straddles, spreads or
combinations thereof, except that the Fund may write covered call options
and purchase put options on the equity securities in which it may invest.
e. Purchase or retain the securities of any issuer, if those
individual Board members, officers and directors of the Fund, the
Investment Adviser or any subsidiary thereof each owning beneficially more
than 1/2 of 1% of the securities of such issuer own in the aggregate more
than 5% of securities of such issuer.
f. Invest in real estate limited partnership interests or in oil, gas
or mineral leases.
In addition to (e) above, the Fund also has a policy of not purchasing
securities of companies in which directors or management personnel of the
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Fund, Merrill Lynch & Co., Inc. or any subsidiary thereof have a substantial
beneficial interest. Portfolio securities of the Fund may not be purchased from
or sold or loaned to Merrill Lynch & Co., Inc. or any subsidiary thereof or any
of their directors, officers or employees.
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PROXY
<TABLE>
<S> <C>
Meeting of the Shareholders of Please mark your choices below in blue or black ink.
MERRILL LYNCH BASIC VALUE FUND, INC. This Proxy has been personalized to reflect those shares of
MERRILL LYNCH CAPITAL FUND, INC. the indicated Funds that are held within a single account.
MERRILL LYNCH GLOBAL RESOURCES TRUST If a shareholder holds shares in multiple accounts, it will be
MERRILL LYNCH SPECIAL VALUE FUND, INC. necessary to execute a proxy for each such account. With respect to
P.O. Box 9011, Princeton, NJ 08543-9011 proposal 4, a separate vote is required for Class A and Class B shares
owned.
</TABLE>
THIS PROXY IS SOLICITED ON BEHALF OF THE DIRECTORS/TRUSTEES
The undersigned hereby appoints ___________________________________ as proxies,
each with the power to appoint his substitute, and hereby authorizes each to
represent and to vote, as designated below, all shares in one or more of the
above-mentioned Funds held of record by the undersigned on August 5, 1994, at
the Meeting of Shareholders of such Fund to be held on September 26, 1994, or
any adjournment thereof. Such proxies are also authorized to vote on such other
matters as may properly come before such meeting or any adjournment thereof.
This Proxy when properly executed will be voted in the manner directed herein by
the undersigned shareholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR PROPOSALS 1, 2, 3 AND 4.
<TABLE>
<S> <C>
SHARES HELD IN ACCOUNT 1. ELECTION OF DIRECTORS/TRUSTEES. Nominees: Donald Cecil, M. Colyer Crum, Edward H. Meyer,
Jack B. Sunderland, J. Thomas Touchton and
Arthur Zeikel
FOR WITHHOLD FOR ALL
CLASS A CLASS B ALL ALL EXCEPT*
000000000 000000000 Merrill Lynch Basic Value Fund, Inc. / / / / / /
000000000 000000000 Merrill Lynch Capital Fund, Inc. / / / / / /
000000000 000000000 Merrill Lynch Global Resources Trust / / / / / /
000000000 000000000 Merrill Lynch Special Value Fund, Inc. / / / / / /
*To withhold authority for a Nominee for a particular
Fund, check the "FOR ALL EXCEPT" box and print name
of Nominee on the appropriate line below.
---------------------------------------------------
---------------------------------------------------
---------------------------------------------------
---------------------------------------------------
<S> <C>
2. Ratify the selection of independent 3. Amend the fundamental investment
auditors. restrictions.
FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
Merrill Lynch Basic Value Fund, Inc. / / / / / / / / / / / /
Merrill Lynch Capital Fund, Inc. / / / / / / / / / / / /
Merrill Lynch Global Resources Trust / / / / / / / / / / / /
Merrill Lynch Special Value Fund, Inc. / / / / / / / / / / / /
4. Amend the charter of the Fund in connection with the
implementation of Merrill Lynch Select Pricing(SM)
---CLASS A SHARES--- ---CLASS B SHARES---
FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
Merrill Lynch Basic Value Fund, Inc. / / / / / / / / / / / /
Merrill Lynch Capital Fund, Inc. / / / / / / / / / / / /
Merrill Lynch Global Resources Trust / / / / / / / / / / / /
Merrill Lynch Special Value Fund, Inc. / / / / / / / / / / / /
5. In the discretion of such proxies, upon such other
business as may properly come before the meeting or any
adjournment thereof.
</TABLE>
PLEASE MARK, SIGN, DATE, AND MAIL YOUR PROXY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE.
Signature Date
------------------------------------------------- ---------------
If joint owner, each should sign. When signing as executor, trustee,
etc., give full title as such.
[CLUSTER A 8/1/94]
