<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 17, 1994.
SECURITIES ACT FILE NO. 2-56978
INVESTMENT COMPANY ACT FILE NO. 811-2661
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 25 /X/
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 /X/
Amendment No. 26 /X/
(Check appropriate box or boxes)
------------------------------------
MERRILL LYNCH PACIFIC FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
<TABLE>
<S> <C>
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (609) 282-2800
ARTHUR ZEIKEL
MERRILL LYNCH PACIFIC FUND, INC.
800 SCUDDERS MILL ROAD, PLAINSBORO, NEW JERSEY
MAILING ADDRESS: P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(NAME AND ADDRESS OF AGENT FOR SERVICE)
------------------------------------
Copies to:
<TABLE>
<S> <C>
COUNSEL FOR THE FUND:
BROWN & WOOD PHILIP L. KIRSTEIN, ESQ.
ONE WORLD TRADE CENTER MERRILL LYNCH ASSET MANAGEMENT
NEW YORK, N.Y. 10048-0557 P.O. BOX 9011
ATTENTION: THOMAS R. SMITH, JR., ESQ. PRINCETON, N.J. 08543-9011
</TABLE>
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX)
/ / immediately upon filing pursuant to paragraph (b)
/X/ on (October 21) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)
/ / on (date) pursuant to paragraph (a)(i)
/ / 75 days after filing pursuant to paragraph (a)(ii)
/ / on (date) pursuant to paragraph (a)(ii) of rule 485.
If appropriate, check the following box:
/ / this post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
------------------------------------
The Registrant has registered an indefinite number of its shares of Common
Stock under the Securities Act of 1933 pursuant to Rule 24f-2 under the
Investment Company Act of 1940. The notice required by such rule for the
Registrant's most recent fiscal year was filed on February 24, 1994.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
MERRILL LYNCH PACIFIC FUND, INC.
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
- --------------- -------------------------------------
<C> <S> <C>
PART A
Item 1. Cover Page........................... Cover Page
Item 2. Synopsis............................. Fee Table
Item 3. Condensed Financial Information...... Financial Highlights; Performance
Data
Item 4. General Description of Registrant.... Investment Objective and Policies;
Additional Information
Item 5. Management of the Fund............... Fee Table; Management of the Fund;
Portfolio Transactions and
Brokerage; Inside Back Cover Page
Item 5A. Management's Discussion of Fund
Performance........................ Not Applicable
Item 6. Capital Stock and Other Securities... Cover Page; Additional Information
Item 7. Purchase of Securities Being Cover Page; Fee Table; Merrill Lynch
Offered............................ Select Pricing(SM) System; Purchase
of Shares; Shareholder Services;
Additional Information; Inside Back
Cover Page
Item 8. Redemption or Repurchase............. Fee Table; Merrill Lynch Select
Pricing(SM) System; Shareholder
Services; Purchase of Shares;
Redemption of Shares
Item 9. Pending Legal Proceedings............ Not Applicable
PART B
Item 10. Cover Page........................... Cover Page
Item 11. Table of Contents.................... Back Cover Page
Item 12. General Information and History...... Not Applicable
Item 13. Investment Objectives and Policies... Investment Objective and Policies
Item 14. Management of the Fund............... Management of the Fund
Item 15. Control Persons and Principal Holders
of Securities...................... Management of the Fund
Item 16. Investment Advisory and Other Management of the Fund; Purchase of
Services........................... Shares; General Information
Item 17. Brokerage Allocation and Other
Practices.......................... Portfolio Transactions and Brokerage
Item 18. Capital Stock and Other Securities... General Information
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered............. Purchase of Shares; Redemption of
Shares; Determination of Net Asset
Value; Shareholder Services;
General Information
Item 20. Tax Status........................... Dividends, Distributions and Taxes
-- Taxes
Item 21. Underwriters......................... Purchase of Shares
Item 22. Calculation of Performance Data...... Performance Data
Item 23. Financial Statements................. Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
<PAGE> 3
PROSPECTUS
OCTOBER 21, 1994
MERRILL LYNCH PACIFIC FUND, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 - PHONE NO. (609) 282-2800
------------------------
Merrill Lynch Pacific Fund, Inc. (the "Fund") is a diversified, open-end,
management investment company seeking long-term capital appreciation primarily
through investment in equities of corporations domiciled in Far Eastern or
Western Pacific countries, including Japan, Australia, Hong Kong and Singapore.
Current income from dividends and interest will not be an important
consideration in selecting portfolio securities. It is expected that under
normal conditions at least 80% of the Fund's net assets will be invested in Far
Eastern or Western Pacific corporate securities, primarily common stocks and
debt securities convertible into common stocks. The Fund is designed for U.S.
investors desiring to achieve diversification of investments by participation in
the economies of Far Eastern and Western Pacific countries. The Fund may seek to
hedge against investment, interest rate and currency risks through the use of
options, futures and foreign currency transactions. Investments on an
international basis involve special considerations. See "Special
Considerations".
------------------------
Pursuant to the Merrill Lynch Select PricingSM System, the Fund offers four
classes of shares, each with a different combination of sales charges, ongoing
fees and other features. The Merrill Lynch Select PricingSM System permits an
investor to choose the method of purchasing shares that the investor believes is
most beneficial given the amount of the purchase, the length of time the
investor expects to hold the shares and other relevant circumstances. See
"Merrill Lynch Select PricingSM System" on page 3.
Shares may be purchased directly from Merrill Lynch Funds Distributor, Inc.
(the "Distributor"), P.O. Box 9011, Princeton, New Jersey 08543-9011 [(609)
282-2800], or from securities dealers which have entered into dealer agreements
with the Distributor, including Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch"). The minimum initial purchase is $1,000, and the
minimum subsequent purchase is $50, except that for retirement plans, the
minimum initial purchase is $250, and the minimum subsequent purchase is $1.
Merrill Lynch may charge its customers a processing fee (presently $4.85) for
confirming purchases and repurchases. Purchases and redemptions directly through
the Fund's transfer agent are not subject to the processing fee. See "Purchase
of Shares" and "Redemption of Shares".
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
This Prospectus is a concise statement of information about the Fund that
is relevant to making an investment in the Fund. This Prospectus should be
retained for future reference. A statement containing additional information
about the Fund, dated October 21, 1994 (the "Statement of Additional
Information"), has been filed with the Securities and Exchange Commission and
can be obtained, without charge, by calling or by writing the Fund at the above
telephone number or address. The Statement of Additional Information is hereby
incorporated by reference into this Prospectus.
------------------------
MERRILL LYNCH ASSET MANAGEMENT -- MANAGER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC. -- DISTRIBUTOR
<PAGE> 4
FEE TABLE
A general comparison of the sales arrangements and other nonrecurring and
recurring expenses applicable to shares of the Fund follows:
<TABLE>
<CAPTION>
CLASS A(A) CLASS B(B) CLASS C(C) CLASS D(D)
----------- ---------------- ----------- -----------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price)...................... 5.25%(d) None None 5.25%(d)
Sales Charge Imposed on Dividend
Reinvestments........................ None None None None
Deferred Sales Charge (as a percentage
of original purchase price or
redemption proceeds, whichever is
lower)............................... None(e) 4.0% during the first year, 1% for one None(e)
decreasing 1.0% annually year
thereafter to 0.0% after the
fourth year
Exchange Fee........................... None None None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET
ASSETS)(F):
Management Fees(g)..................... 0.60% 0.60% 0.60% 0.60%
12b-1 Fees(h):
Account Maintenance Fees............. None 0.25% 0.25% 0.25%
Distribution Fees.................... None 0.75% 0.75% None
(Class B shares convert to
Class D shares automatically
after approximately eight years
and cease being subject to
distribution fees)
OTHER EXPENSES:
Custodial Fees....................... 0.10% 0.10% 0.10% 0.10%
Shareholder Servicing Costs(i)....... 0.12% 0.14% 0.14% 0.12%
Other................................ 0.08% 0.08% 0.08% 0.08%
---- ---- ---- ----
Total Other Expenses............. 0.30% 0.32% 0.32% 0.30%
---- ---- ---- ----
Total Fund Operating Expenses........ 0.90% 1.92% 1.92% 1.15%
---- ---- ---- ----
---- ---- ---- ----
</TABLE>
- ------------
(a) Class A shares are sold to a limited group of investors including existing
Class A shareholders, certain retirement plans and investment programs. See
"Purchase of Shares -- Initial Sales Charge Alternatives -- Class A and
Class D Shares" -- page 23.
(b) Class B shares convert to Class D shares automatically approximately eight
years after initial purchase. See "Purchase of Shares -- Deferred Sales
Charge Alternatives -- Class B and Class C Shares" -- page 25.
(c) Prior to the date of this Prospectus, the Fund has not offered its Class C
and Class D shares to the public.
(d) Reduced for purchases of $25,000 and over. Class A or Class D purchases of
$1,000,000 or more may not be subject to an initial sales charge. See
"Purchase of Shares -- Initial Sales Charge Alternatives -- Class A and
Class D Shares" -- page 23.
(e) Class A and Class D shares are not subject to a contingent deferred sales
charge ("CDSC"), except that purchases of $1,000,000 or more which may not
be subject to an initial sales charge may instead be subject to a CDSC of
1.0% of amounts redeemed within the first year of purchase.
(f) Information for Class A and Class B shares is stated for the fiscal year
ended December 31, 1993. Information under "Other Expenses" for Class C and
Class D shares is estimated for the fiscal year ending December 31, 1994.
(g) See "Management of the Fund -- Management and Advisory Arrangements" -- page
20.
(h) See "Purchase of Shares -- Distribution Plans" -- page 28.
(i) See "Management of the Fund -- Transfer Agency Services" -- page 21.
2
<PAGE> 5
EXAMPLE:
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES PAID FOR THE PERIOD OF:
-------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a $1,000
investment including the maximum $52.50 initial sales charge
(Class A and Class D shares only) and assuming (1) the Total
Fund Operating Expenses for each class set forth above; (2) a
5% annual return throughout the periods and (3) redemption at
the end of the period:
Class A.................................................... $ 61 $80 $ 100 $157
Class B.................................................... $ 60 $80 $ 104 $205*
Class C.................................................... $ 30 $60 $ 104 $224
Class D.................................................... $ 64 $87 $ 112 $185
An investor would pay the following expenses on the same $1,000
investment assuming no redemption at the end of the period:
Class A.................................................... $ 61 $80 $ 100 $157
Class B.................................................... $ 20 $60 $ 104 $205*
Class C.................................................... $ 20 $60 $ 104 $224
Class D.................................................... $ 64 $87 $ 112 $185
</TABLE>
- ---------------
* Assumes conversion to Class D shares approximately eight years after purchase.
The foregoing Fee Table is intended to assist investors in understanding
the costs and expenses that a shareholder in the Fund will bear directly or
indirectly. The Example set forth above assumes reinvestment of all dividends
and distributions and utilizes a 5% annual rate of return as mandated by
Securities and Exchange Commission regulations. THE EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL RATES OF
RETURN, AND ACTUAL EXPENSES OR ANNUAL RATES OF RETURN MAY BE MORE OR LESS THAN
THOSE ASSUMED FOR PURPOSES OF THE EXAMPLE. Class B and Class C shareholders who
hold their shares for an extended period of time may pay more in Rule 12b-1
distribution fees than the economic equivalent of the maximum front-end sales
charges permitted under the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. ("NASD"). Merrill Lynch may charge its customers a
processing fee (presently $4.85) for confirming purchases and redemptions.
Purchases and redemptions directly through the Fund's transfer agent are not
subject to the processing fee. See "Purchase of Shares" and "Redemption of
Shares".
MERRILL LYNCH SELECT PRICING(SM) SYSTEM
The Fund offers four classes of shares under the Merrill Lynch Select
Pricing(SM) System. The shares of each class may be purchased at a price equal
to the next determined net asset value per share subject to the sales charges
and ongoing fee arrangements described below. Shares of Class A and Class D
are sold to investors choosing the initial sales charge alternatives, and
shares of Class B and Class C are sold to investors choosing the deferred
sales charge alternatives. The Merrill Lynch Select Pricing(SM) System is used
by more than 50 mutual funds advised by Merrill Lynch Asset Management, L.P.
("MLAM" or the "Manager") or an affiliate of MLAM, Fund Asset Management, L.P.
("FAM"). Funds advised by MLAM or FAM are referred to herein as "MLAM-advised
mutual funds".
Each Class A, Class B, Class C or Class D share of the Fund represents an
identical interest in the investment portfolio of the Fund and has the same
rights, except that Class B, Class C and Class D shares bear the expenses of the
ongoing account maintenance fees and Class B and Class C shares bear the
expenses of the ongoing distribution fees and the additional incremental
transfer agency costs resulting from the
3
<PAGE> 6
deferred sales charge arrangements. The deferred sales charges and account
maintenance fees that are imposed on Class B and Class C shares, as well as the
account maintenance fees that are imposed on the Class D shares, will be imposed
directly 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. Dividends
paid by the Fund for each class of shares will be calculated in the same manner
at the same time and will differ only to the extent that account maintenance and
distribution fees and any incremental transfer agency costs relating to a
particular class are borne exclusively by that class. Each class has different
exchange privileges. See "Shareholder Services -- Exchange Privilege".
Investors should understand that the purpose and function of the initial
sales charges with respect to the Class A and Class D shares are the same as
those of the deferred sales charges with respect to the Class B and Class C
shares in that the sales charges applicable to each class provide for the
financing of the distribution of the shares of the Fund. The
distribution-related revenues paid with respect to a class will not be used to
finance the distribution expenditures of another class. Sales personnel may
receive different compensation for selling different classes of shares.
The following table sets forth a summary of the distribution arrangements
for each class of shares under the Merrill Lynch Select Pricing(SM) System,
followed by a more detailed description of each class and a discussion of the
factors that investors should consider in determining the method of purchasing
shares under the Merrill Lynch Select Pricing(SM) System that the investor
believes is most beneficial under his particular circumstances. More detailed
information as to each class of shares is set forth under "Purchase of Shares".
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
ACCOUNT
MAINTENANCE DISTRIBUTION
CLASS SALES CHARGE(1) FEE FEE CONVERSION FEATURE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A Maximum 5.25% initial sales No No No
charge(2)(3)
- ---------------------------------------------------------------------------------------------------------------
B CDSC for a period of 4 years, at a 0.25% 0.75% B shares convert to D shares
rate of 4.0% during the first automatically after
year, decreasing 1.0% annually approximately eight years(4)
to 0.0%
- ---------------------------------------------------------------------------------------------------------------
C 1.0% CDSC for one year 0.25% 0.75% No
- ---------------------------------------------------------------------------------------------------------------
D Maximum 5.25% initial sales 0.25% No No
charge(3)
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Initial sales charges are imposed at the time of purchase as a percentage of
the offering price. Contingent deferred sales charges ("CDSCs") are imposed
if the redemption occurs within the applicable CDSC time period. The charge
will be assessed on an amount equal to the lesser of the proceeds of
redemption or the cost of the shares being redeemed.
(2) Offered only to eligible investors. See "Purchase of Shares -- Initial Sales
Charge Alternatives -- Class A and Class D Shares -- Eligible Class A
Investors".
(3) Reduced for purchases of $25,000 or more. Class A and Class D share
purchases of $1,000,000 or more may not be subject to an initial sales
charge but instead will be subject to a 1.0% CDSC for one year. See "Class
A" and "Class D" below.
(continued on next page)
4
<PAGE> 7
(4) The conversion period for dividend reinvestment shares and certain
retirement plans is modified. Also, Class B shares of certain other
MLAM-advised mutual funds into which exchanges may be made have a ten year
conversion period. If Class B shares of the Fund are exchanged for Class B
shares of another MLAM-advised mutual fund, the conversion period applicable
to the Class B shares acquired in the exchange will apply, and the holding
period for the shares exchanged will be tacked onto the holding period for
the shares acquired.
Class A: Class A shares incur an initial sales charge when they are
purchased and bear no ongoing distribution or account maintenance
fees. Class A shares are offered to a limited group of investors
and also will be issued upon reinvestment of dividends on
outstanding Class A shares. Investors that currently own Class A
shares in a shareholder account are entitled to purchase
additional Class A shares in that account. Other eligible
investors include certain retirement plans and participants in
certain investment programs. In addition, Class A shares will be
offered to directors and employees of Merrill Lynch & Co., Inc.
and its subsidiaries (the term "subsidiaries", when used herein
with respect to Merrill Lynch & Co., Inc., includes MLAM, FAM and
certain other entities directly or indirectly wholly-owned and
controlled by Merrill Lynch & Co., Inc.) and to members of the
Boards of MLAM-advised mutual funds. The maximum initial sales
charge is 5.25%, which is reduced for purchases of $25,000 and
over. Purchases of $1,000,000 or more may not be subject to an
initial sales charge but if the initial sales charge is waived,
such purchases will be subject to a CDSC of 1.0% if the shares are
redeemed within one year after purchase. Sales charges also are
reduced under a right of accumulation which takes into account the
investor's holdings of all classes of all MLAM-advised mutual
funds. See "Purchase of Shares -- Initial Sales Charge
Alternatives -- Class A and Class D Shares".
Class B: Class B shares do not incur a sales charge when they are
purchased, but they are subject to an ongoing account maintenance
fee of 0.25%, an ongoing distribution fee of 0.75% of the Fund's
average net assets attributable to the Class B shares, and a CDSC
if they are redeemed within four years of purchase. Approximately
eight years after issuance, Class B shares will convert
automatically into Class D shares of the Fund, which are subject
to an account maintenance fee but no distribution fee; Class B
shares of certain other MLAM-advised mutual funds into which
exchanges may be made convert into Class D shares automatically
after approximately ten years. If Class B shares of the Fund are
exchanged for Class B shares of another MLAM-advised mutual fund,
the conversion period applicable to the Class B shares acquired in
the exchange will apply, and the holding period for the shares
exchanged will be tacked onto the holding period for the shares
acquired. Automatic conversion of Class B shares into Class D
shares will occur at least once a month on the basis of the
relative net asset values of the shares of the two classes on the
conversion date, without the imposition of any sales load, fee or
other charge. Conversion of Class B shares to Class D shares will
not be deemed a purchase or sale of the shares for Federal income
tax purposes. Shares purchased through reinvestment of dividends
on Class B shares also will convert automatically to Class D
shares. The conversion period for dividend reinvestment shares and
for certain retirement plans is modified as described under
"Purchase of Shares -- Deferred Sales Charge Alternatives -- Class
B and Class C Shares -- Conversion of Class B Shares to Class D
Shares".
Class C: Class C shares do not incur a sales charge when they are
purchased, but they are subject to an ongoing account maintenance
fee of 0.25% and an ongoing distribution fee of 0.75% of the
Fund's average net assets attributable to Class C shares. Class C
shares are also subject to a
5
<PAGE> 8
CDSC if they are redeemed within one year of purchase. Although
Class C shares are subject to a 1.0% CDSC for only one year (as
compared to four years for Class B), Class C shares have no
conversion feature and, accordingly, an investor that purchases
Class C shares will be subject to distribution fees that will be
imposed on Class C shares for an indefinite period subject to
annual approval by the Fund's Board of Directors and regulatory
limitations.
Class D: Class D shares incur an initial sales charge when they are
purchased and are subject to an ongoing account maintenance fee of
0.25% of the Fund's average net assets attributable to Class D
shares. Class D shares are not subject to an ongoing distribution
fee or any CDSC when they are redeemed. Purchases of $1,000,000 or
more may not be subject to an initial sales charge but if the
initial sales charge is waived, such purchase will be subject to a
CDSC of 1.0% if the shares are redeemed within one year after
purchase. The schedule of initial sales charges and reductions for
Class D shares is the same as the schedule for Class A shares.
Class D shares also will be issued upon conversion of Class B
shares as described above under "Class B". See "Purchase of
Shares -- Initial Sales Charge Alternatives -- Class A and Class D
Shares".
The following is a discussion of the factors that investors should consider
in determining the method of purchasing shares under the Merrill Lynch Select
Pricing(SM) System that the investor believes is most beneficial under his
particular circumstances.
Initial Sales Charge Alternatives. Investors who prefer an initial sales
charge alternative may elect to purchase Class D shares or, if an eligible
investor, Class A shares. Investors choosing the initial sales charge
alternative who are eligible to purchase Class A shares should purchase Class A
shares rather than Class D shares because of the account maintenance fee imposed
on Class D shares. Investors qualifying for significantly reduced initial sales
charges may find the initial sales charge alternative particularly attractive
because similar sales charge reductions are not available with respect to the
deferred sales charges imposed in connection with purchases of Class B or Class
C shares. Investors not qualifying for reduced initial sales charges who expect
to maintain their investment for an extended period of time also may elect to
purchase Class A or Class D shares, because over time the accumulated ongoing
account maintenance and distribution fees on Class B or Class C shares may
exceed the initial sales charge and, in the case of Class D shares, the account
maintenance fee. Although some investors that previously purchased Class A
shares may no longer be eligible to purchase Class A shares of other
MLAM-advised mutual funds, those previously purchased Class A shares, together
with Class B, Class C and Class D share holdings, will count toward a right of
accumulation which may qualify the investor for reduced initial sales charges on
new initial sales charge purchases. In addition, the ongoing Class B and Class C
account maintenance and distribution fees will cause Class B and Class C shares
to have higher expense ratios, pay lower dividends and have lower total returns
than the initial sales charge shares. The ongoing Class D account maintenance
fees will cause Class D shares to have a higher expense ratio, pay lower
dividends and have a lower total return than Class A shares.
Deferred Sales Charge Alternatives. Because no initial sales charges are
deducted at the time of purchase, Class B and Class C shares provide the benefit
of putting all of the investor's dollars to work from the time the investment is
made. The deferred sales charge alternatives may be particularly appealing to
investors who do not qualify for a reduction in initial sales charges. Both
Class B and Class C shares are subject to ongoing account maintenance fees and
distribution fees; however, the ongoing account maintenance and distribution
fees potentially may be offset to the extent any return is realized on the
additional funds
6
<PAGE> 9
initially invested in Class B or Class C shares. In addition, Class B shares
will be converted into Class D shares of the Fund after a conversion period of
approximately eight years, and thereafter investors will be subject to lower
ongoing fees.
Certain investors may elect to purchase Class B shares if they determine it
to be most advantageous to have all their funds invested initially and intend to
hold their shares for an extended period of time. Investors in Class B shares
should take into account whether they intend to redeem their shares within the
CDSC period and, if not, whether they intend to remain invested until the end of
the conversion period and thereby take advantage of the reduction in ongoing
fees resulting from the conversion into Class D shares. Other investors,
however, may elect to purchase Class C shares if they determine that it is
advantageous to have all their assets invested initially and they are uncertain
as to the length of time they intend to hold their assets in MLAM-advised mutual
funds. Although Class C shareholders are subject to a shorter CDSC period at a
lower rate, they forgo the Class B conversion feature, making their investment
subject to account maintenance and distribution fees for an indefinite period of
time. In addition, while both Class B and Class C distribution fees are subject
to the limitations on asset-based sales charges imposed by the NASD, the Class B
distribution fees are further limited under a voluntary waiver of asset-based
sales charges. See "Purchase of Shares -- Limitations on the Payment of Deferred
Sales Charges".
7
<PAGE> 10
FINANCIAL HIGHLIGHTS
The financial information in the table below, other than for the six month
period ended June 30, 1994, which is unaudited, has been audited in conjunction
with the annual audits of the financial statements of the Fund by Deloitte &
Touche LLP, independent auditors. Financial statements for the fiscal year ended
December 31, 1993, and the independent auditors' report thereon are included in
the Statement of Additional Information; unaudited financial statements for the
six months ended June 30, 1994, are also included in the Statement of Additional
Information. Financial information is not presented for Class C or for Class D
shares since no shares of those classes are publicly issued before the date of
this Prospectus. Further information about the performance of the Fund is
contained in the Fund's most recent annual report to shareholders which may be
obtained, without charge, by calling or by writing the Fund at the telephone
number or address on the front cover of this Prospectus.
The following per share data and ratios have been derived from information
provided in the financial statements.
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------------------------------------
FOR THE
SIX MONTHS
ENDED FOR THE YEAR ENDED DECEMBER 31,
JUNE 30, 1994+ -------------------------------------------------------------------------
(UNAUDITED) 1993 1992 1991 1990 1989 1988
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of period................. $ 21.21 $ 15.80 $ 18.34 $ 16.52 $ 20.65 $ 19.11 $ 16.15
-------- -------- -------- -------- -------- -------- --------
Investment income--net...... .06 .07 .05 .04 .10 .07 .20
Realized and unrealized gain
(loss) on investments and
foreign currency
transactions--net......... 2.02 5.37 (1.63) 2.73 (1.80) 2.57 5.02
-------- -------- -------- -------- -------- -------- --------
Total from investment
operations................ 2.08 5.44 (1.58) 2.77 (1.70) 2.64 5.22
-------- -------- -------- -------- -------- -------- --------
Less dividends and
distributions:
Investment income--net.... -- -- (.01) (.11) (.11) (.06) (.19)
In excess of investment
income--net.............. -- (.03) -- -- -- -- --
Realized gain on
investments--net......... -- -- (.95) (.84) (2.32) (1.04) (2.07)
-------- -------- -------- -------- -------- -------- --------
Total dividends and
distributions............. -- (.03) (.96) (.95) (2.43) (1.10) (2.26)
-------- -------- -------- -------- -------- -------- --------
Net asset value, end of
period.................... $ 23.29 $ 21.21 $ 15.80 $ 18.34 $ 16.52 $ 20.65 $ 19.11
======== ======== ======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN:**
Based on net asset value per
share..................... 9.81%++ 34.41% (8.75%) 17.04% (8.39%) 14.49% 34.38%
======== ======== ======== ======== ======== ======== ========
RATIOS TO AVERAGE NET ASSETS:
Expenses, excluding
distribution fees......... .85%* .90% .98% 1.02% 1.07% 1.06% 1.02%
======== ======== ======== ======== ======== ======== ========
Expenses.................... .85%* .90% .98% 1.02% 1.07% 1.06% 1.02%
======== ======== ======== ======== ======== ======== ========
Investment income--net...... .56%* .47% .40% .43% .94% .36% .95%
======== ======== ======== ======== ======== ======== ========
SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands)............ $611,022 $472,322 $284,674 $304,712 $242,104 $318,613 $288,065
======== ======== ======== ======== ======== ======== ========
Portfolio turnover.......... 11.90% 13.25% 7.62% 5.91% 31.06% 18.14% 39.22%
======== ======== ======== ======== ======== ======== ========
<CAPTION>
1987 1986 1985 1984
-------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of period................. $ 34.32 $ 19.59 $ 15.43 $ 16.04
-------- -------- -------- --------
Investment income--net...... .00 .09 .11 .12
Realized and unrealized gain
(loss) on investments and
foreign currency
transactions--net......... 4.16 14.94 5.59 .31
-------- -------- -------- --------
Total from investment
operations................ 4.16 15.03 5.70 .43
-------- -------- -------- --------
Less dividends and
distributions:
Investment income--net.... (.18) (.11) (.16) (.09)
In excess of investment
income--net.............. -- -- -- --
Realized gain on
investments--net......... (22.15) (.19) (1.38) (.95)
-------- -------- -------- --------
Total dividends and
distributions............. (22.33) (.30) (1.54) (1.04)
-------- -------- -------- --------
Net asset value, end of
period.................... $ 16.15 $ 34.32 $ 19.59 $ 15.43
======== ======== ======== ========
TOTAL INVESTMENT RETURN:**
Based on net asset value per
share..................... 10.77% 77.78% 40.96% 2.92%
======== ======== ======== ========
RATIOS TO AVERAGE NET ASSETS:
Expenses, excluding
distribution fees......... .94% .98% 1.12% 1.15%
======== ======== ======== ========
Expenses.................... .94% .98% 1.12% 1.15%
======== ======== ======== ========
Investment income--net...... .02% .47% .73% 1.26%
======== ======== ======== ========
SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands)............ $283,984 $422,670 $151,374 $105,279
======== ======== ======== ========
Portfolio turnover.......... 29.41% 44.45% 30.79% 75.59%
======== ======== ======== ========
</TABLE>
- ---------------
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Based on average number of shares outstanding during the period.
++ Aggregate total investment return.
8
<PAGE> 11
<TABLE>
<CAPTION>
CLASS B
-------------------------------------------------------
FOR THE SIX
MONTHS ENDED FOR THE YEAR ENDED DECEMBER 31,
JUNE 30, 1994 ----------------------------------
(UNAUDITED)++ 1993++ 1992++ 1991++
---------------- -------- -------- --------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................................ $ 20.41 $ 15.34 $ 18.01 $ 16.30
------ -------- -------- --------
Investment income (loss)--net....................................... (.05) (.10) (.12) (.14)
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net................................................. 1.94 5.17 (1.60) 2.69
------ -------- -------- --------
Total from investment operations.................................... 1.89 5.07 (1.72) 2.55
------ -------- -------- --------
Less dividends and distributions:
Investment income--net............................................ (--) -- -- --
In excess of investment income--net............................... -- -- -- --
Realized gain on investments--net................................. (--) -- (.95) (.84)
------ -------- -------- --------
Total dividends and distributions................................... (--) -- (.95) (.84)
------ -------- -------- --------
Net asset value, end of period...................................... $ 22.30 $ 20.41 $ 15.34 $ 18.01
================ ======== ======== ========
TOTAL INVESTMENT RETURN:**
Based on net asset value per share.................................. 9.26%+++ 33.05% (9.72%) 15.87%
================ ======== ======== ========
RATIOS TO AVERAGE NET ASSETS:
Expenses, excluding distribution fees............................... .87%* .92% 1.00% 1.04%
================ ======== ======== ========
Expenses............................................................ 1.87%* 1.92% 2.00% 2.04%
================ ======== ======== ========
Investment loss--net................................................ (.46%)* (.56%) (.61%) (.60%)
================ ======== ======== ========
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)............................ $829,022 $508,008 $165,015 $105,669
================ ======== ======== ========
Portfolio turnover.................................................. 11.90% 13.25% 7.62% 5.91%
================ ======== ======== ========
<CAPTION>
1990++ 1989 1988+
------- ------- -------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................................ $ 20.49 $ 19.09 $ 17.93
------- ------- -------
Investment income (loss)--net....................................... (.09) (.06) (.02)
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net................................................. (1.78) 2.50 2.38
------- ------- -------
Total from investment operations.................................... (1.87) 2.44 2.36
------- ------- -------
Less dividends and distributions:
Investment income--net............................................ -- -- (.17)
In excess of investment income--net............................... -- -- --
Realized gain on investments--net................................. (2.32) (1.04) (1.03)
------- ------- -------
Total dividends and distributions................................... (2.32) (1.04) (1.20)
------- ------- -------
Net asset value, end of period...................................... $ 16.30 $ 20.49 $ 19.09
======= ======= =======
TOTAL INVESTMENT RETURN:**
Based on net asset value per share.................................. (9.29%) 13.39% 13.37%+++
======= ======= =======
RATIOS TO AVERAGE NET ASSETS:
Expenses, excluding distribution fees............................... 1.10% 1.10% 1.17%*
======= ======= =======
Expenses............................................................ 2.10% 2.10% 2.17%*
======= ======= =======
Investment loss--net................................................ (.05%) (.64%) (1.64%)*
======= ======= =======
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)............................ $58,013 $59,090 $ 5,952
======= ======= =======
Portfolio turnover.................................................. 31.06% 18.14% 39.22%
======= ======= =======
</TABLE>
- ---------------
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
++ Based on average number of shares outstanding during the period.
+++ Aggregate total investment return.
9
<PAGE> 12
SPECIAL CONSIDERATIONS
Investments on an international basis involve certain risks not
typically involved in domestic investments, including fluctuations in
foreign exchange rates, future foreign political and economic
developments, and the possible imposition of exchange controls or other
foreign governmental laws or restrictions applicable to such investments.
Securities prices in different countries are subject to different
economic, financial, political and social factors. Since the Fund will
invest primarily in securities denominated in currencies other than the
U.S. dollar, changes in foreign currency exchange rates will affect the
values of securities in the Fund's portfolio and the unrealized
appreciation or depreciation of investments so far as U.S. investors are
concerned. Changes in foreign currency exchange rates relative to the U.S.
dollar will affect the U.S. dollar value of the Fund's assets denominated
in those currencies and the Fund's yield on such assets. The rates of
exchange between the dollar and other currencies are determined by forces
of supply and demand on the foreign exchange markets. These forces are, in
turn, affected by the international balance of payments and other economic
and financial conditions, government intervention, speculation and other
factors. Moreover, individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross
national product, rate of inflation, capital reinvestment, resources,
self-sufficiency and balance of payments position. Also, many of the
securities held by the Fund will not be registered with the Securities and
Exchange Commission nor will the issuers thereof be subject to the
reporting requirements of such agency.
With respect to certain countries, there is the possibility of
expropriation of assets, confiscatory taxation, political or social
instability or diplomatic developments which could affect investments in
those countries. There may be less publicly available information about a
foreign company than about a U.S. company, and foreign companies may not
be subject to accounting, auditing and financial reporting standards and
requirements comparable to those to which U.S. entities are subject. In
addition, certain foreign investments may be subject to foreign
withholding taxes. See "Additional Information -- Taxes".
Foreign financial markets, while generally growing in volume,
typically have substantially less volume than U.S. markets, and securities
of many foreign companies are less liquid and their prices more volatile
than securities of comparable domestic companies. The foreign markets also
have different clearance and settlement procedures, and in certain markets
there have been times when settlements have been unable to keep pace with
the volume of securities transactions making it difficult to conduct such
transactions. Delays in settlement could result in temporary periods when
assets of the Fund are uninvested and no return is earned thereon. The
inability of the Fund to make intended security purchases due to
settlement problems could cause the Fund to miss attractive investment
opportunities. Inability to dispose of a portfolio security due to
settlement problems either could result in losses to the Fund due to
subsequent declines in value of such portfolio security or, if the Fund
has entered into a contract to sell the security, could result in possible
liability to the purchaser. Brokerage commissions and other transaction
costs on foreign securities exchanges are generally higher than in the
United States. There is generally less government supervision and
regulation of exchanges, brokers and issuers in foreign countries than
there is in the United States.
The Fund anticipates that under normal conditions at least 80% of its
net assets will consist of Far Eastern or Western Pacific corporate
securities. Because of its emphasis on the economies of Far Eastern and
Western Pacific countries and the potential for substantial volatility in
many of those countries' markets, the Fund should be considered as a
vehicle for diversification and not as a balanced investment program.
10
<PAGE> 13
INVESTMENT OBJECTIVE AND POLICIES
The Fund is designed for U.S. investors seeking diversification of
investments by participation in the economies of Far Eastern and Western Pacific
countries. The Fund has been structured as a long-term capital appreciation
mutual fund, offering shareholder services and investment plans typical of other
U.S. mutual funds. Investors in the Fund obtain professional investment
management as to Far Eastern and Western Pacific securities and the liquidity
resulting from redeemable shares.
The Fund's investment objective is to seek long-term capital appreciation
primarily through investment in equities of corporations domiciled in Far
Eastern or Western Pacific countries, including Japan, Australia, Hong Kong and
Singapore. Current income from dividends and interest will not be an important
consideration in selecting portfolio securities. The Fund anticipates that under
normal conditions at least 80% of its assets will consist of Far Eastern or
Western Pacific corporate securities, primarily common stocks and debt
securities convertible into common stock. The Fund reserves the right as a
defensive measure to hold other types of securities, including non-convertible
debt securities, government and money market securities of U.S. and non-U.S.
issuers, or cash (foreign currencies or U.S. dollars) in such proportions as, in
the opinion of management, prevailing market, economic or political conditions
warrant. A portion of the portfolio normally will be held in dollars or
short-term interest-bearing dollar-denominated securities to provide for
possible redemptions. The investment objective of the Fund described in this
paragraph is a fundamental policy of the Fund and may not be changed without the
approval of the holders of a majority of the Fund's outstanding voting
securities.
The Fund has the ability to invest in debt securities, although it does not
presently intend to do so to any significant degree. Consequently, it has
established no rating criteria for the debt securities in which it may invest,
and such securities may not be rated at all for creditworthiness. Securities
rated in the medium to lower rating categories of nationally recognized
statistical rating organizations and unrated securities of comparable quality,
sometimes referred to as "junk bonds", are predominantly speculative with
respect to the capacity to pay interest and repay principal in accordance with
the terms of the security and generally involve a greater volatility of price
than securities in higher rating categories. See "Investment Objective and
Policies" in the Statement of Additional Information for additional information
regarding ratings of debt securities. In purchasing such securities, the Fund
will rely on the Manager's judgment, analysis and experience in evaluating the
creditworthiness of an issuer of such securities. The Manager will take into
consideration, among other things, the issuer's financial resources, its
sensitivity to economic conditions and trends, its operating history, the
quality of the issuer's management and regulatory matters. The Fund does not
intend to purchase debt securities that are in default or which the Manager
believes will be in default.
In addition to purchasing equity securities of Far Eastern or Western
Pacific issuers in Far Eastern or other markets, the Fund may invest in American
Depositary Receipts (ADRs), European Depositary Receipts (EDRs), Global
Depositary Receipts (GDRs) or other securities convertible into securities of
corporations domiciled in Far Eastern or Western Pacific countries. These
securities may not necessarily be denominated in the same currency as the
securities into which they may be converted. Generally, ADRs, in registered
form, are designed for use in the U.S. securities markets, and EDRs, in bearer
form, are designed for use in European securities markets. GDRs are tradeable
both in the U.S. and Europe and are designed for use throughout the world.
11
<PAGE> 14
The Fund may invest up to 10% of its net assets in warrants. A warrant
gives the holder thereof the right to subscribe by a specified date to a stated
number of shares of stock of the issuer at a fixed price. Warrants tend to be
more volatile than the underlying stock, and if at a warrant's expiration date
the stock is trading at a price below the price set in the warrant, the warrant
will expire worthless. Conversely, if at the expiration date the underlying
stock is trading at a price higher than the price set in the warrant, the Fund
can acquire the stock at a price below its market value.
HEDGING TECHNIQUES
The Fund may engage in various portfolio strategies to hedge its portfolio
against investment, interest rate and currency risks. These strategies include
the use of options on portfolio securities, stock index options, stock index
futures, financial futures, currency futures, options on such futures and
forward foreign exchange transactions. The Fund may enter into such transactions
only in connection with its hedging strategies. While the net asset value of the
Fund's shares will continue to fluctuate and no assurance can be given that the
Fund's hedging transactions will be effective, the Manager believes that the
ability of the Fund to engage in these hedging transactions will enhance the
Fund's ability to reduce the volatility of the net asset value of its shares.
Furthermore, the Fund will only engage in hedging activities from time to time
and may not necessarily be engaging in hedging activities when movements in the
equity markets, interest rates or currency exchange rates occur. Reference is
made to the Statement of Additional Information for further information
concerning these strategies.
Although certain risks are involved in options and futures transactions (as
discussed below in "Risk Factors in Options, Futures and Currency
Transactions"), the Manager believes that, because the Fund will only engage in
these transactions for hedging purposes, the options and futures portfolio
strategies of the Fund will not subject the Fund to the risks frequently
associated with the speculative use of options and futures transactions. Tax
requirements may limit the Fund's ability to engage in the hedging transactions
and strategies described below.
Set forth below is a description of the hedging instruments that the Fund
may utilize with respect to investment, interest rate and currency risks.
Hedging Investment and Interest Rate Risks. The Fund may write (i.e.,
sell) covered call options on its portfolio securities, purchase put options on
securities and engage in transactions in stock index options, stock index
futures and financial futures, and related options on such futures, as described
below.
The Fund may write call options with respect to securities it owns which
provide the holder of the option with the right to buy the underlying security
covered by the option at the stated exercise price until the option expires. The
Fund will write only covered call options, which means that so long as the Fund
is obligated as the writer of a call option, it will own the underlying
securities subject to the option. The Fund may also purchase put options, which
will provide it with the right to sell the underlying securities at the stated
exercise price, thus limiting the Fund's risk of loss through a decline in the
market value of the security until the put expires. The Fund may write call
options on securities with respect to which it has purchased a put option. By
purchasing a put option on a security, the Fund limits its risk of loss on that
security. By writing a call option on the security, the Fund will offset, in
whole or in part, the cost of purchasing such put option, but limits its
opportunity to profit from an increase in value. There is no percentage
limitation with respect to portfolio securities on which the Fund may write call
options or purchase put options. Although there is no specific time
12
<PAGE> 15
limit on the duration of the options on the Fund's portfolio securities, the
Manager does not anticipate entering into any such transactions with a duration
of longer than one year.
The Fund may purchase or write call options and purchase put options on
stock indexes to hedge against the risks of market-wide price movements in the
Far Eastern and Western Pacific securities in which the Fund invests. The
effectiveness of the hedge will depend on the degree of diversification of the
Fund's portfolio and the sensitivity of the securities comprising the portfolio
to factors influencing the market as a whole. Because the value of an index
option depends upon movements in the level of the index rather than the price of
a particular stock, whether the Fund realizes a gain or loss on the purchase or
sale of an option on an index depends upon movements in the level of prices in
the stock market generally or in an industry or market segment rather than
movements in the price of a particular stock.
The Fund also may purchase and sell stock index futures contracts and
financial futures contracts ("futures contracts") as a hedge against adverse
changes in the market value of its portfolio securities and interest rates, as
described below. A futures contract is an agreement between two parties which
obligates the purchaser of the futures contract to buy and the seller of a
futures contract to sell a security for a set price on a future date. Unlike
most other futures contracts, a stock index futures contract would not require
actual delivery of securities, but would result in cash settlement based upon
the difference in value of the index between the time the contract was entered
into and the time of its settlement. The Fund may effect transactions in stock
index futures contracts in Far Eastern and Western Pacific securities and
financial futures contracts in U.S., Far Eastern and Western Pacific government
and agency securities and corporate debt securities. It is anticipated that the
underlying securities involved in stock index futures contracts will be
securities listed on exchanges. Transactions by the Fund in stock index futures
and financial futures are subject to limitations as described below under
"Restrictions on the Use of Futures Transactions". There is no percentage
limitation with respect to portfolio securities on which the Fund may purchase
or sell futures contracts.
The Fund may sell stock index futures contracts in anticipation of or
during a market decline to attempt to offset the decrease in market value of the
Fund's securities portfolio that might otherwise result. When the Fund is not
fully invested in the Far Eastern and Western Pacific securities markets and
anticipates a significant market advance, it may purchase stock index futures in
order to gain rapid market exposure that may in part or entirely offset
increases in the cost of securities that the Fund intends to purchase. As such
purchases are made, an equivalent amount of stock index futures contracts will
be terminated by offsetting sales. The Fund does not consider purchases of
futures contracts to be a speculative practice under these circumstances. It is
anticipated that, in a substantial majority of these transactions, the Fund will
purchase such securities upon termination of the long futures position, whether
the long position is the purchase of a stock index futures contract or the
purchase of a call option on a stock index future, but under unusual
circumstances (e.g., the Fund experiences a significant amount of redemptions),
a long futures position may be terminated without the corresponding purchase of
securities.
The Fund may sell financial futures contracts in anticipation of an
increase in the general level of interest rates. Generally, as interest rates
rise, the market value of debt securities held by the Fund will fall, thus
reducing the net asset value of the Fund. However, as interest rates rise, the
value of the Fund's short position in the futures contract will also tend to
increase, thus offsetting all or a portion of the depreciation in the market
value of the Fund's investments which are being hedged. While the Fund will
incur commission expenses in selling and closing out futures positions, these
commissions are generally less than the transaction
13
<PAGE> 16
expenses which would have been incurred had the Fund sold portfolio securities
in order to reduce its exposure to increases in interest rates. The Fund also
may purchase financial futures contracts in anticipation of a decline in
interest rates when it is not fully invested in a particular market in which it
intends to make investments to gain market exposure that may in part or entirely
offset an increase in the cost of securities it intends to purchase. It is
anticipated that, in a substantial majority of these transactions, the Fund will
purchase securities upon termination of the futures contract.
The Fund also may purchase and write call and put options on futures
contracts in connection with its hedging activities. Generally, these strategies
are utilized under the same market and market sector conditions (i.e.,
conditions relating to specific types of investments) in which the Fund enters
into futures transactions. The Fund would be able to purchase put options or
write call options on futures contracts rather than selling the underlying
futures contract in anticipation of a decrease in the market value of a security
or an increase in interest rates. Similarly, the Fund may purchase call options,
or write put options on futures contracts, as a substitute for the purchase of
such futures to hedge against the increased cost resulting from an increase in
the market value or a decline in interest rates of securities that the Fund
intends to purchase. Limitations on transactions in options on futures contracts
are described below.
The Fund may engage in options and futures transactions on exchanges and in
the over-the-counter ("OTC") markets. In general, exchange-traded contracts are
third-party contracts (i.e., performance of the parties' obligations is
guaranteed by an exchange or clearing corporation) with standardized strike
prices and expiration dates. OTC transactions are two-party contracts with
prices and terms negotiated by the buyer and seller. The Fund will acquire only
those OTC options for which management believes the Fund can receive on each
business day at least two independent bids or offers (one of which will be from
an entity other than a party to the option). The Fund will engage in OTC options
only with member banks of the Federal Reserve System and primary dealers in U.S.
Government securities or with affiliates of such banks and dealers which have
capital of at least $50 million or whose obligations are guaranteed by an entity
having capital of at least $50 million.
The staff of the Securities and Exchange Commission has taken the position
that purchased OTC options and the assets used as cover for written OTC options
are illiquid securities. Therefore, the Fund has adopted an investment policy
pursuant to which it will not purchase or sell OTC options (including OTC
options on futures contracts) if, as a result of such transactions, the sum of
the market value of OTC options currently outstanding which are held by the
Fund, the market value of the underlying securities covered by OTC call options
currently outstanding which were sold by the Fund and margin deposits on the
Fund's existing OTC options on futures contracts exceeds 5% of the total assets
of the Fund, taken at market value, together with all other assets of the Fund
which are illiquid or are not otherwise readily marketable. However, if the OTC
option is sold by the Fund to a primary U.S. Government securities dealer
recognized by the Federal Reserve Bank of New York and if the Fund has the
unconditional contractual right to repurchase such OTC option from the dealer at
a predetermined price, then the Fund will treat as illiquid such amount of the
underlying securities as is equal to the repurchase price less the amount by
which the option is "in-the-money" (i.e., current market value of the underlying
security minus the option's strike price). The repurchase price with the primary
dealers is typically a formula price which is generally based on a multiple of
the premium received for the option, plus the amount by which the option is
"in-the-money". This policy is not a fundamental policy of the Fund and may be
amended by the Directors of the Fund without the approval of the
14
<PAGE> 17
Fund's shareholders. The Fund will not change or modify this policy, however,
prior to the change or modification by the Securities and Exchange Commission
staff of its position.
Hedging Foreign Currency Risks. The Fund is authorized to deal in forward
foreign exchange transactions between currencies of Far Eastern and Western
Pacific countries and the U.S. dollar as a hedge against possible variations in
the foreign exchange rates between these currencies. The Fund's dealings in
forward foreign exchange will be limited to hedging involving either specific
transactions or portfolio positions. Transaction hedging is the purchase or sale
of forward foreign currency with respect to specific receivables or payables of
the Fund accruing in connection with the purchase and sale of its portfolio
securities, the sale and redemption of shares of the Fund or the payment of
dividends and distributions by the Fund. Position hedging is the sale of forward
foreign currency with respect to portfolio security positions denominated or
quoted in such foreign currency. The Fund will not speculate in forward foreign
exchange. All dealings in forward foreign exchange will be limited to contracts
involving currencies of Far Eastern and Western Pacific countries and the U.S.
dollar. The Fund may not position hedge with respect to the currency of a
particular country to an extent greater than the aggregate market value (at the
time of making such sale) of the securities held in its portfolio denominated or
quoted in that particular foreign currency. If the Fund enters into a position
hedging transaction, its custodian will place cash or liquid equity or debt
securities in a separate account of the Fund in an amount equal to the value of
the Fund's total assets committed to the consummation of such forward contract.
If the value of the securities placed in the separate account declines,
additional cash or securities will be placed in the account so that the value of
the account will equal the amount of the Fund's commitment with respect to such
contracts. The Fund will not attempt to hedge all of its portfolio positions and
will enter into such transactions only to the extent, if any, deemed appropriate
by the Manager of the Fund. Hedging against a decline in the value of a currency
does not eliminate fluctuations in the prices of portfolio securities or prevent
losses if the prices of such securities decline. Such transactions also preclude
the opportunity for gain if the value of the hedged currency should rise.
Moreover, it may not be possible for the Fund to hedge against a devaluation
that is so generally anticipated that the Fund is not able to contract to sell
the currency at a price above the devaluation level it anticipates.
The Fund is also authorized to purchase and sell listed or OTC foreign
currency options, futures and related options on such futures as a short or long
hedge against possible variations in foreign exchange rates. Unlike forward
foreign exchange transactions, which are accomplished by entering into private
contractual arrangements, the options and futures which the Fund will purchase
and sell will be either exchange or OTC traded, providing a greater degree of
market access and liquidity than forward foreign exchange transactions. The Fund
may purchase and/or sell listed or OTC foreign currency options, foreign
currency futures and related options on foreign currency futures as a short
(i.e., the Fund does not hold the currency) or long (i.e., the Fund does hold
the currency) hedge against possible variations in foreign exchange rates. Such
transactions may be effected with respect to hedges on Far Eastern and Western
Pacific currency denominated securities owned by the Fund, sold by the Fund but
not yet delivered, or committed or anticipated to be purchased by the Fund. As
an illustration, the Fund may use such techniques to hedge the stated value in
U.S. dollars of an investment in a Japanese yen-denominated security. In such
circumstances, for example, the Fund may purchase a foreign currency put option
enabling it to sell a specified amount of yen for dollars at a specified price
by a future date. To the extent the hedge is successful, a loss in the value of
the yen relative to the dollar will tend to be offset by an increase in the
value of the put option. To offset, in whole or in part, the cost of acquiring
such a put option, the Fund may also sell a call option which, if exercised,
requires it to sell a specified amount of yen for dollars at a specified price
by a future date (a technique called a "straddle"). By
15
<PAGE> 18
selling such a call option in this illustration, the Fund gives up the
opportunity to profit without limit from increases in the relative value of the
yen to the dollar. The Manager believes that "straddles" of the type which may
be utilized by the Fund constitute hedging transactions and are consistent with
the policies described above.
Certain differences exist between these foreign currency hedging
instruments. Foreign currency options provide the holder thereof the right to
buy or sell a currency at a fixed price on a future date. Listed options are
third-party contracts (i.e., performance of the parties' obligations is
guaranteed by an exchange or clearing corporation) which are issued by a
clearing corporation, are traded on an exchange and have standardized strike
prices and expiration dates. OTC options are two-party contracts and have
negotiated strike prices and expiration dates. The Fund will engage in OTC
options only with member banks of the Federal Reserve System or primary dealers
in U.S. Government securities or with affiliates of such banks or dealers which
have capital of at least $50 million or whose obligations are guaranteed by an
entity having capital of at least $50 million. The Fund will acquire only those
OTC options for which management believes the Fund can receive on each business
day at least two independent bids or offers (one of which will be from an entity
other than a party to the option). A futures contract on a foreign currency is
an agreement between two parties to buy and sell a specified amount of a
currency for a set price on a future date. Futures contracts and options on
futures contracts are generally traded on boards of trade or futures exchanges.
The Fund will not speculate in foreign currency options, futures or related
options. Accordingly, the Fund will not hedge a currency substantially in excess
of the market value of the securities denominated in such currency which it
owns, the expected acquisition price of securities which it has committed or
anticipates to purchase which are denominated in such currency and, in the case
of securities which have been sold by the Fund but not yet delivered, the
proceeds thereof in its denominated currency. Further, the Fund will segregate
at its custodian U.S. Government or other high quality securities having a
market value substantially representing any subsequent net decrease in the
market value of such hedged positions, including net positions with respect to
cross-currency hedges. The Fund may not incur potential net liabilities of more
than 33 1/3% of its total assets from foreign currency options, futures or
related options.
Restrictions on the Use of Futures Transactions. Regulations of the
Commodity Futures Trading Commission applicable to the Fund provide that the
futures trading activities described herein will not result in the Fund being
deemed a "commodity pool" as defined under such regulations if the Fund adheres
to certain restrictions. In particular, the Fund may purchase and sell futures
contracts and options thereon (i) for bona fide hedging purposes and (ii) for
non-hedging purposes, if the aggregate initial margin and premiums required to
establish positions in such contracts and options does not exceed 5% of the
liquidation value of the Fund's portfolio, after taking into account unrealized
profits and unrealized losses on any such contracts and options.
When the Fund purchases a futures contract, or writes a put option or
purchases a call option thereon, an amount of cash or cash equivalents will be
deposited in a segregated account with the Fund's custodian so that the amount
so segregated, plus the amount of initial and variation margin held in the
account of its broker, equals the market value of the futures contract, thereby
ensuring that the use of such futures contract is unleveraged.
An order has been obtained from the Securities and Exchange Commission
which exempts the Fund from certain provisions of the Investment Company Act in
connection with transactions involving futures contracts and options thereon.
16
<PAGE> 19
Risk Factors in Options, Futures and Currency Transactions. Utilization of
futures transactions involves the risk of imperfect correlation in movements in
the price of futures contracts and movements in the price of the securities and
currencies which are the subject of the hedge. If the price of the futures
contract moves more or less than the price of the securities or currencies, the
Fund will experience a gain or loss which will not be completely offset by
movements in the price of the securities or currencies which are the subject of
the hedge. There is also a risk of imperfect correlations where the securities
or currencies underlying futures contracts have different maturities than the
portfolio securities or currencies being hedged. Transactions in options and
options on futures contracts involve similar risks.
The Fund intends to enter into options and futures transactions on an
exchange or in the OTC market only if there appears to be a liquid secondary
market for such options or futures or, in the case of OTC transactions,
management believes the Fund can receive on each business day at least two
independent bids or offers (one of which will be from an entity other than a
party to the option). However, there can be no assurance that a liquid secondary
market will exist at any specific time. Thus, it may not be possible to close an
options or futures transaction. The inability to close options and futures
positions also could have an adverse impact on the Fund's ability to hedge
effectively its portfolio. There is also the risk of loss by the Fund of margin
deposits or collateral in the event of bankruptcy of a broker with whom the Fund
has an open position in an option, a futures contract or related option.
The exchanges on which options on portfolio securities and currency options
are traded have generally established limitations governing the maximum number
of call or put options on the same underlying security and currency (whether or
not covered) which may be written by a single investor, whether acting alone or
in concert with others (regardless of whether such options are written on the
same or different exchanges or are held or written on one or more accounts or
through one or more brokers). "Trading Limits" are imposed on the maximum number
of contracts which any person may trade on a particular trading day. The Manager
does not believe that these trading and position limits will have any adverse
impact on the portfolio strategies for hedging the Fund's portfolio.
Because the Fund will engage in the options and futures transactions
described above solely in connection with its hedging activities, the Manager
does not believe that such options and futures transactions necessarily will
have any significant effect on the Fund's portfolio turnover.
INVESTMENT RESTRICTIONS
The Fund has adopted a number of restrictions and policies relating to the
investment of its assets and its activities which are fundamental policies and
may not be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities as defined in the Investment Company Act.
Among the more significant restrictions, the Fund may not:
-- Invest in securities of any one issuer (other than the Government
of Japan, the United States Government, their agencies and
instrumentalities) if immediately after and as a result of such investment
the market value of the holdings of the Fund in the securities of such
issuer exceeds 5% of the Fund's total assets, taken at market value;
-- Invest in the securities of any single issuer, if immediately after
and as a result of such investment, the Fund owns more than 10% of the
outstanding securities, or more than 10% of the outstanding voting
securities, of such issuer; or
17
<PAGE> 20
-- Invest more than 25% of its total assets (taken at market value at
the time of each investment) in the securities of issuers in any particular
industry;
provided, however, that nothing in the foregoing investment restrictions shall
be deemed to prohibit the Fund from purchasing the securities of any issuer
pursuant to the exercise of subscription rights distributed to the Fund by the
issuer, except that no such purchase may be made if as a result the Fund will no
longer be a diversified investment company as defined in the Investment Company
Act.
The Fund may from time to time lend securities from its portfolio, with a
value not exceeding 20% of its total assets, to brokers, dealers and financial
institutions and receive collateral in cash (or cash equivalents consisting of
securities issued or guaranteed by the governments of the U.S. or Japan or other
Far Eastern or Western Pacific countries or their agencies or instrumentalities)
which will be maintained in an amount equal to at least 100% of the current
market value of the loaned securities. During the period of the loan, the Fund
receives income on the loaned securities and a loan fee and thereby increases
the current income of the Fund. With respect to the lending of portfolio
securities, there is the risk of the failure of the parties involved to return
the securities involved in such transactions in which event the Fund may suffer
time delays and incur costs or possible losses in connection with such
transactions.
The Board of Directors of the Fund, at a meeting held on August 4, 1994,
approved (i) a change in the Fund's fundamental investment policy from being a
diversified fund to being a non-diversified fund (the "status change") and (ii)
certain additional changes to the fundamental and non-fundamental investment
restrictions of the Fund (the "uniform investment restrictions"). As explained
in greater detail below, the status change, if approved by shareholders, would
increase the flexibility with which the Manager could manage the Fund's assets
but may make the Fund more susceptible than a more widely diversified mutual
fund to certain changes. The uniform investment restrictions were proposed in
connection with the creation of a set of standard fundamental and
non-fundamental investment restrictions that would be adopted, subject to
shareholder approval, by substantially all of the non-money market MLAM-advised
mutual funds.
Uniform Investment Restrictions. The proposed uniform investment
restrictions are designed to provide each of these funds, including the Fund,
with as much investment flexibility as possible under the Investment Company Act
and applicable state securities regulations, help promote operational
efficiencies and facilitate monitoring of compliance. The investment objective
and policies of the Fund will be unaffected by the adoption of the proposed
uniform investment restrictions.
The full text of the proposed uniform investment restrictions is set forth
under "Investment Objective and Policies -- Proposed Uniform Investment
Restrictions" in the Statement of Additional Information.
Status Change. As noted above, the Fund currently is subject to an
investment restriction prohibiting investment in securities of any one issuer
(other than the Government of Japan, the United States Government, their
agencies and instrumentalities) if immediately after and as a result of such
investment the market value of the holdings of the Fund in the securities of
such issuer exceeds 5% of the Fund's total assets, taken at market value. As a
result, the Fund is classified as a diversified company under the Investment
Company Act.
Under present law, a mutual fund can still be classified as a diversified
company yet meet less stringent conditions. Current applicable law regarding
diversification of assets requires that with respect to 75% of its total assets,
a diversified mutual fund may not invest more than 5% of its total assets (taken
at market value at
18
<PAGE> 21
the time of each investment) in the securities of any one issuer or acquire more
than 10% of the voting securities of any one issuer. The U.S. Government, its
agencies and instrumentalities are not included within the definition of
"issuer" for purposes of these limitations. At one time, applicable state
securities regulations applied the diversification restriction to 100% of a
mutual fund's assets, thereby prohibiting an investment company, such as the
Fund, from investing more than 5% of total assets in a single issuer or from
holding more than 10% of the voting securities of a single issuer; however,
these state regulation imposed limitations have been eliminated.
If the Fund's shareholders approve changing the Fund's investment policy
from being a diversified fund to being a non-diversified fund for purposes of
the Investment Company Act, as a non-diversified fund, the Fund would not be
subject to the above described investment restriction. A "non-diversified"
mutual fund is able to invest more than 5% of the value of its assets in the
obligations of a single issuer subject to the diversification requirements of
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). To
qualify under the Code, the Fund must comply with certain requirements,
including limiting its investments so that at the close of each quarter of the
taxable year (i) not more than 25% of the market value of the Fund's total
assets will be invested in the securities of a single issuer, and (ii) with
respect to 50% of the market value of its total assets, not more than 5% of the
market value of its total assets will be invested in the securities of a single
issuer, and the Fund will not own more than 10% of the outstanding voting
securities of a single issuer. Foreign government securities (unlike U.S.
Government securities) are not exempt from the diversification requirements of
the Code.
Changing from a diversified to a non-diversified fund would increase the
flexibility with which the Manager could manage the Fund's assets. However, to
the extent the Fund invests a relatively high percentage of its assets in
obligations of a limited number of issuers, the Fund may be more susceptible
than would be a more widely diversified fund to any single economic, political
or regulatory occurrence or to changes in an issuer's financial condition or in
the market's assessment of the issuers.
Shareholders of the Fund are currently considering whether to approve the
proposed status change and uniform investment restrictions. If such shareholder
approval is obtained, the Fund's current policy as to diversification and
investment restrictions will be replaced by the proposed diversification policy
and restrictions, and the Fund's Prospectus and Statement of Additional
Information will be supplemented to reflect such changes.
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
The Board of Directors of the Fund consists of five individuals, four of
whom are not "interested persons" of the Fund as defined in the Investment
Company Act. The Directors of the Fund are responsible for the overall
supervision of the operations of the Fund and perform the various duties imposed
on the directors of investment companies by the Investment Company Act.
The Directors of the Fund are:
ARTHUR ZEIKEL* -- President and Chief Investment Officer of the Manager;
President and Director of Princeton Services, Inc.; Executive Vice
President of Merrill Lynch & Co., Inc. ("ML & Co."); Executive Vice
President of Merrill Lynch; Director of the Distributor.
19
<PAGE> 22
DONALD CECIL -- Special Limited Partner of Cumberland Partners (an
investment partnership).
EDWARD H. MEYER -- Chairman of the Board, President and Chief Executive
Officer of Grey Advertising Inc.
CHARLES C. REILLY -- Self-employed financial consultant; former President
and Chief Investment Officer of Verus Capital, Inc.; former Senior Vice
President of Arnhold and S. Bleichroeder, Inc.; Adjunct Professor,
Columbia University Graduate School of Business.
RICHARD R. WEST -- Professor of Finance, and Dean from 1984 to 1993, New
York University Leonard N. Stern School of Business Administration.
- ---------------
*Interested person, as defined in the Investment Company Act, of the Fund.
MANAGEMENT AND ADVISORY ARRANGEMENTS
The Manager, Merrill Lynch Asset Management, L.P., which does business as
Merrill Lynch Asset Management, is owned and controlled by ML & Co., a financial
services holding company and the parent of Merrill Lynch. The Manager provides
the Fund with management and investment advisory services. The Manager or an
affiliate, Fund Asset Management, L.P. ("FAM"), acts as the investment adviser
for more than 100 other registered investment companies. The Manager also offers
portfolio management and portfolio analysis services to individuals and
institutions. As of August 31, 1994, the Manager and FAM had a total of
approximately $165.7 billion in investment company and other portfolio assets
under management, including accounts of certain affiliates of the Manager.
Pursuant to the management agreement between the Fund and the Manager (the
"Management Agreement"), and subject to the direction of the Board of Directors,
the Manager is responsible for the actual management of the Fund's portfolio and
constantly reviews the Fund's holdings in light of its own research analysis and
that from other relevant sources. The responsibility for making decisions to
buy, sell or hold a particular security rests with the Manager. The Manager
performs certain other administrative services and provides all the office
space, facilities, equipment and necessary personnel for management of the Fund.
As compensation for its services, the Manager receives a fee from the Fund
at the end of each month at the annual rate of 0.60% of the average daily net
assets of the Fund. For the fiscal year ended December 31, 1993, the management
fee paid by the Fund to the Manager aggregated $4,179,008 (based on average net
assets of approximately $696.5 million). At August 31, 1994, the net assets of
the Fund aggregated approximately $1.5 billion. At this asset level, the annual
management fee would aggregate approximately $9.2 million.
Stephen I. Silverman, Vice President of the Fund, is the Fund's Portfolio
Manager. Mr. Silverman has been a Vice President and Portfolio Manager of the
Manager and its predecessor since 1983. Mr. Silverman has been primarily
responsible for the management of the Fund's portfolio since 1983.
The Management Agreement obligates the Fund to pay certain expenses
incurred in its operations, including, among other things, the management fee;
legal and audit fees; unaffiliated Directors' fees and expenses; registration
fees; custodian and transfer agency fees; accounting and pricing costs; the
costs of printing proxies; and certain of the costs of printing shareholder
reports, prospectuses and statements of additional information.
20
<PAGE> 23
Accounting services are provided to the Fund by the Manager, and the Fund
reimburses the Manager for its costs in connection with such services on a
semi-annual basis. For the fiscal year ended December 31, 1993, the amount of
such reimbursement was $68,896. For the fiscal year ended December 31, 1993, for
the Class A shares, the ratio of total expenses to average net assets was 0.90%,
and for the Class B shares, the ratio of total expenses excluding account
maintenance and distribution fees to average net assets was 0.92%, and the ratio
of total expenses including account maintenance and distribution fees to average
net assets was 1.92%; no Class C shares or Class D shares had been issued during
that year.
TRANSFER AGENCY SERVICES
Financial Data Services, Inc. (the "Transfer Agent"), which is a
wholly-owned subsidiary of ML & Co., acts as the Fund's transfer agent pursuant
to a Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing
Agency Agreement (the "Transfer Agency Agreement"). Pursuant to the Transfer
Agency Agreement, the Transfer Agent is responsible for the issuance, transfer
and redemption of shares and the opening and maintenance of shareholder
accounts. Pursuant to the Transfer Agency Agreement, the Transfer Agent receives
a fee of $11.00 per Class A or Class D shareholder account and $14.00 per Class
B or Class C shareholder account, nominal miscellaneous fees (e.g., account
closing fees) and is entitled to reimbursement for out-of-pocket expenses
incurred by it under the Transfer Agency Agreement. For the fiscal year ended
December 31, 1993, the Fund paid the Transfer Agent $916,795 pursuant to the
Transfer Agency Agreement. At August 31, 1994, the Fund had 72,912 Class A
shareholder accounts and 81,394 Class B shareholder accounts (including certain
subaccounts on which the standard annual transfer agency fees are assessed), no
Class C shareholder accounts and no Class D shareholder accounts. At this level
of accounts, the annual fee payable to the Transfer Agent would aggregate
approximately $1.9 million, plus miscellaneous and out-of-pocket expenses.
PURCHASE OF SHARES
Merrill Lynch Funds Distributor, Inc. (the "Distributor"), an affiliate of
both the Manager and Merrill Lynch, acts as the distributor of the shares of the
Fund. Shares of the Fund are offered continuously for sale by the Distributor
and other eligible securities dealers (including Merrill Lynch). Shares of the
Fund may be purchased from securities dealers or by mailing a purchase order
directly to the Transfer Agent. The minimum initial purchase is $1,000, and the
minimum subsequent purchase is $50, except that for retirement plans, the
minimum initial purchase is $100, and the minimum subsequent purchase is $1.
The Fund is offering its shares in four classes at a public offering price
equal to the next determined net asset value per share plus sales charges
imposed either at the time of purchase or on a deferred basis, depending upon
the class of shares selected by the investor under the Merrill Lynch Select
PricingSM System, as described below. As to purchase orders received by
securities dealers prior to 4:15 p.m., New York time, which includes orders
received after the determination of the net asset value on the previous day, the
applicable offering price will be based on the net asset value determined as of
4:15 p.m., New York time, on the day the orders are placed with the Distributor,
provided the orders are received by the Distributor prior to 4:30 p.m., New York
time, on that day. The applicable offering price for purchase orders is based on
the net asset value of the Fund next determined after receipt of the purchase
orders by the Distributor. If the purchase orders are not received by the
Distributor prior to 4:30 p.m., New York time, such orders shall be deemed
received on the next business day. Any order may be rejected by the Distributor
or the Fund. The Fund or the
21
<PAGE> 24
Distributor may suspend the continuous offering of the Fund's shares of any
class at any time in response to conditions in the securities markets or
otherwise and may thereafter resume such offering from time to time. Any order
may be rejected by the Distributor or the Fund. Neither the Distributor nor the
dealers are permitted to withhold placing orders to benefit themselves by a
price change. Merrill Lynch may charge its customers a processing fee (presently
$4.85) to confirm a sale of shares to such customers. Purchases directly through
the Transfer Agent are not subject to the processing fee.
The Fund issues four classes of shares under the Merrill Lynch Select
Pricing(SM) System, which permits each investor to choose the method of
purchasing shares that the investor believes is most beneficial given the
amount of the purchase, the length of time the investor expects to hold the
shares and other relevant circumstances. Shares of Class A and Class D are
sold to investors choosing the initial sales charge alternatives and shares of
Class B and Class C are sold to investors choosing the deferred sales charge
alternatives. Investors should determine whether under their particular
circumstances it is more advantageous to incur an initial sales charge or to
have the entire initial purchase price invested in the Fund with the
investment thereafter being subject to a contingent deferred sales charge and
ongoing distribution fees. A discussion of the factors that investors should
consider in determining the method of purchasing shares under the Merrill
Lynch Select Pricing(SM) System is set forth under "Merrill Lynch Select
Pricing(SM) System" on page 3.
Each Class A, Class B, Class C and Class D share of the Fund represents
identical interests in the investment portfolio of the Fund and has the same
rights, except that Class B, Class C and Class D shares bear the expenses of the
ongoing account maintenance fees, and Class B and Class C shares bear the
expenses of the ongoing distribution fees and the additional incremental
transfer agency costs resulting from the deferred sales charge arrangements. The
deferred sales charges and account maintenance fees that are imposed on Class B
and Class C shares, as well as the account maintenance fees that are imposed on
Class D shares, will be imposed directly 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. Dividends paid by the Fund for each class of shares will be
calculated in the same manner at the same time and will differ only to the
extent that account maintenance and distribution fees and any incremental
transfer agency costs relating to a particular class are borne exclusively by
that class. Class B, Class C and Class D shares each have exclusive voting
rights with respect to the Rule 12b-1 distribution plan adopted with respect to
such class pursuant to which account maintenance and/or distribution fees are
paid. See "Distribution Plans" below. Each class has different exchange
privileges. See "Shareholder Services -- Exchange Privilege".
Investors should understand that the purpose and function of the initial
sales charges with respect to Class A and Class D shares are the same as those
of the deferred sales charges with respect to Class B and Class C shares in that
the sales charges applicable to each class provide for the financing of the
distribution of the shares of the Fund. The distribution-related revenues paid
with respect to a class will not be used to finance the distribution
expenditures of another class. Sales personnel may receive different
compensation for selling different classes of shares. Investors are advised that
only Class A and Class D shares may be available for purchase through securities
dealers, other than Merrill Lynch, which are eligible to sell shares.
22
<PAGE> 25
The following table sets forth a summary of the distribution arrangements
for each class of shares under the Merrill Lynch Select Pricing(SM) System.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
ACCOUNT
MAINTENANCE DISTRIBUTION
CLASS SALES CHARGE(1) FEE FEE CONVERSION FEATURES
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A Maximum 5.25% initial sales No No No
charge(2)(3)
- ---------------------------------------------------------------------------------------------------------------
B CDSC for a period of 4 years, at a 0.25% 0.75% B shares convert to D shares
rate of 4.0% during the first automatically after
year, decreasing 1.0% annually approximately eight years(4)
to 0.0%
- ---------------------------------------------------------------------------------------------------------------
C 1.0% CDSC for one year 0.25% 0.75% No
- ---------------------------------------------------------------------------------------------------------------
D Maximum 5.25% initial sales 0.25% No No
charge(3)
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Initial sales charges are imposed at the time of purchase as a percentage of
the offering price. CDSCs may be imposed if the redemption occurs within the
applicable CDSC time period. The charge will be assessed on an amount equal
to the lesser of the proceeds of redemption or the cost of the shares being
redeemed.
(2) Offered only to eligible investors. See "Initial Sales Charge
Alternatives -- Class A and Class D Shares -- Eligible Class A Investors".
(3) Reduced for purchases of $25,000 or more. Class A and Class D share
purchases of $1,000,000 or more may not be subject to an initial sales
charge but instead will be subject to a 1.0% CDSC for one year.
(4) The conversion period for dividend reinvestment shares and certain
retirement plans is modified. Also, Class B shares of certain other
MLAM-advised mutual funds into which exchanges may be made have a ten year
conversion period. If Class B shares of the Fund are exchanged for Class B
shares of another MLAM-advised mutual fund, the conversion period applicable
to the Class B shares acquired in the exchange will apply, and the holding
period for the shares exchanged will be tacked onto the holding period for
the shares acquired.
INITIAL SALES CHARGE ALTERNATIVES -- CLASS A AND CLASS D SHARES
Investors choosing the initial sales charge alternatives who are eligible
to purchase Class A shares should purchase Class A shares rather than Class D
shares because there is an account maintenance fee imposed on Class D shares.
The public offering price of Class A and Class D shares for purchasers
choosing the initial sales charge alternatives is the next determined net asset
value plus varying sales charges (i.e., sales loads), as set forth below.
<TABLE>
<CAPTION>
SALES LOAD AS SALES LOAD AS DISCOUNT TO
PERCENTAGE OF PERCENTAGE* OF SELECTED DEALERS
OFFERING THE NET AMOUNT AS PERCENTAGE OF
AMOUNT OF PURCHASE PRICE INVESTED THE OFFERING PRICE
- ----------------------------------------------------- ------------- -------------- ------------------
<S> <C> <C> <C>
Less than $25,000.................................... 5.25% 5.54% 5.00%
$25,000 but less than $50,000........................ 4.75 4.99 4.50
$50,000 but less than $100,000....................... 4.00 4.17 3.75
$100,000 but less than $250,000...................... 3.00 3.09 2.75
$250,000 but less than $1,000,000.................... 2.00 2.04 1.80
$1,000,000 and over** ............................... 0.00 0.00 0.00
</TABLE>
23
<PAGE> 26
- ---------------
* Rounded to the nearest one-hundredth percent.
** Class A and Class D purchases of $1,000,000 or more made on or after October
21, 1994, will be subject to a CDSC of 1.0% if the shares are redeemed within
one year after purchase. Class A purchases made prior to October 21, 1994 may
be subject to a CDSC if the shares are redeemed within one year of purchase
at the following annual rates: 1.00% on purchases of $1,000,000 to
$2,500,000; 0.60% on purchases of $2,500,001 to $3,500,000; 0.40% on
purchases of $3,500,001 to $5,000,000; and 0.25% on purchases of more than
$5,000,000 in lieu of paying an initial sales charge. The charge will be
assessed on an amount equal to the lesser of the proceeds of redemption or
the cost of the shares being redeemed. A sales charge of 0.75% will be
charged on purchases of $1 million or more of Class A or Class D shares by
certain 401(k) plans.
The Distributor may reallow discounts to selected dealers and retain the
balance over such discounts. At times the Distributor may reallow the entire
sales charge to such dealers. Since securities dealers selling Class A and Class
D shares of the Fund will receive a concession equal to most of the sales
charge, they may be deemed to be underwriters under the Securities Act. During
the fiscal year ended December 31, 1993, the Fund sold 10,009,773 Class A shares
for aggregate net proceeds of $199,420,932. The gross sales charges for the sale
of Class A shares of the Fund for that year were $3,636,042, of which $223,158
and $3,412,884 were received by the Distributor and Merrill Lynch, respectively.
For the fiscal year ended December 31, 1993, the Distributor received CDSCs of
$4,280, all of which were paid to Merrill Lynch, with respect to redemption
within one year after purchase of Class A shares purchased subject to front-end
sales charge waivers.
Eligible Class A Investors. Class A shares are offered to a limited group
of investors and also will be issued upon reinvestment of dividends on
outstanding Class A shares. Investors that currently own Class A shares in a
shareholder account, including participants in the Merrill Lynch BlueprintSM
Program, are entitled to purchase additional Class A shares in that account.
Certain employer sponsored retirement or savings plans, including eligible
401(k) plans, may purchase Class A shares at net asset value provided such plans
meet the required minimum number of eligible employees or required amount of
assets advised by MLAM or any of its affiliates. Class A shares are available at
net asset value to corporate warranty insurance reserve fund programs provided
that the program has $3 million or more initially invested in MLAM-advised
mutual funds. Also eligible to purchase Class A shares at net asset value are
participants in certain investment programs including TMASM Managed Trusts to
which Merrill Lynch Trust Company provides discretionary trustee services and
certain purchases made in connection with the Merrill Lynch Mutual Fund Adviser
program. In addition, Class A shares will be offered at net asset value to ML &
Co. and its subsidiaries and their directors and employees and to members of the
Boards of MLAM-advised investment companies, including the Fund. Certain persons
who acquired shares of certain MLAM-advised closed-end funds who wish to
reinvest the net proceeds from a sale of their closed-end fund shares of common
stock in shares of the Fund also may purchase Class A shares of the Fund if
certain conditions set forth in the Statement of Additional Information are met.
For example, Class A shares of the Fund and certain other MLAM-advised mutual
funds are offered at net asset value to shareholders of Merrill Lynch Senior
Floating Rate Fund, Inc. who wish to reinvest the net proceeds from a sale of
certain of their shares of common stock of Merrill Lynch Senior Floating Rate
Fund, Inc. in shares of such funds.
Reduced Initial Sales Charges. No initial sales charges are imposed upon
Class A and Class D shares issued as a result of the automatic reinvestment of
dividends or capital gains distributions. Class A and Class D sales charges also
may be reduced under a Right of Accumulation and a Letter of Intention.
Class A shares are offered at net asset value to certain eligible Class A
investors as set forth above under "Eligible Class A Investors".
24
<PAGE> 27
Class D shares are offered at net asset value without sales charge to an
investor who has a business relationship with a Merrill Lynch financial
consultant, if certain conditions set forth in the Statement of Additional
Information are met. Class D shares may be offered at net asset value in
connection with the acquisition of assets of other investment companies.
Class D shares are offered with reduced sales charges and, in certain
circumstances, at net asset value, to participants in the Merrill Lynch
Blueprint(SM) Program.
Additional information concerning these reduced initial sales charges,
including information regarding investments by Employee Sponsored Retirement and
Savings Plans is set forth in the Statement of Additional Information.
DEFERRED SALES CHARGE ALTERNATIVES -- CLASS B AND CLASS C SHARES
Investors choosing the deferred sales charge alternatives should consider
Class B shares if they intend to hold their shares for an extended period of
time and Class C shares if they are uncertain as to the length of time they
intend to hold their assets in MLAM-advised mutual funds.
The public offering price of Class B and Class C shares for investors
choosing the deferred sales charge alternatives is the next determined net asset
value per share without the imposition of a sales charge at the time of
purchase. As discussed below, Class B shares are subject to a four year CDSC,
while Class C shares are subject only to a one year 1.0% CDSC. On the other
hand, approximately eight years after Class B shares are issued, such Class B
shares, together with shares issued upon dividend reinvestment with respect to
those shares, are automatically converted into Class D shares of the Fund and
thereafter will be subject to lower continuing fees. See "Conversion of Class B
Shares to Class D Shares" below. Both Class B and Class C shares are subject to
an account maintenance fee of 0.25% of net assets and a distribution fee of
0.75% of net assets as discussed below under "Distribution Plans". The proceeds
from the account maintenance fees are used to compensate Merrill Lynch for
providing continuing account maintenance activities.
Class B and Class C shares are sold without an initial sales charge so that
the Fund will receive the full amount of the investor's purchase payment.
Merrill Lynch compensates its financial consultants for selling Class B and
Class C shares at the time of purchase from its own funds. See "Distribution
Plans" below.
Proceeds from the CDSC and the distribution fee are paid to the Distributor
and are used in whole or in part by the Distributor to defray the expenses of
dealers (including Merrill Lynch) related to providing distribution-related
services to the Fund in connection with the sale of the Class B and Class C
shares, such as the payment of compensation to financial consultants for selling
Class B and Class C shares, from its own funds. The combination of the CDSC and
the ongoing distribution fee facilitates the ability of the Fund to sell the
Class B and Class C shares without a sales charge being deducted at the time of
purchase. Approximately eight years after issuance, Class B shares will convert
automatically into Class D shares of the Fund, which are subject to an account
maintenance fee but no distribution fee; Class B shares of certain other
MLAM-advised mutual funds into which exchanges may be made convert into Class D
shares automatically after approximately ten years. If Class B shares of the
Fund are exchanged for Class B shares of another MLAM-advised mutual fund, the
conversion period applicable to the Class B shares acquired in the exchange will
apply, and the holding period for the shares exchanged will be tacked onto the
holding period for the shares acquired.
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<PAGE> 28
Imposition of the CDSC and the distribution fee on Class B and Class C
shares is limited by the NASD asset-based sales charge rule. See "Limitations on
the Payment of Deferred Sales Charges" below. The proceeds from the ongoing
account maintenance fee are used to compensate Merrill Lynch for providing
continuing account maintenance activities. Class B shareholders of the Fund
exercising the exchange privilege described under "Shareholder
Services -- Exchange Privilege" will continue to be subject to the Fund's CDSC
schedule if such schedule is higher than the CDSC schedule relating to the Class
B shares acquired as a result of the exchange.
Contingent Deferred Sales Charges -- Class B Shares. Class B shares which
are redeemed within four years of purchase may be subject to a CDSC at the rates
set forth below charged as a percentage of the dollar amount subject thereto.
The charge will be assessed on an amount equal to the lesser of the proceeds of
redemption or the cost of the shares being redeemed. Accordingly, no CDSC will
be imposed on increases in net asset value above the initial purchase price. In
addition, no CDSC will be assessed on shares derived from reinvestment of
dividends or capital gains distributions.
The following table sets forth the rates of the Class B CDSC:
<TABLE>
<CAPTION>
CLASS B CDSC
AS A PERCENTAGE
YEAR SINCE PURCHASE OF DOLLAR AMOUNT
PAYMENT MADE SUBJECT TO CHARGE
------------------------------------------------------------ -----------------
<S> <C>
0-1......................................................... 4.00%
1-2......................................................... 3.00
2-3......................................................... 2.00
3-4......................................................... 1.00
4 and thereafter............................................ 0.00
</TABLE>
For the fiscal year ended December 31, 1993, the Distributor received CDSCs of
$1,036,912 with respect to redemptions of Class B shares, all of which were paid
to Merrill Lynch.
In determining whether a CDSC is applicable to a redemption, the
calculation will be determined in the manner that results in the lowest possible
rate being charged. Therefore, it will be assumed that the redemption is first
of shares held for over four years or shares acquired pursuant to reinvestment
of dividends or distributions and then of shares held longest during the
four-year period. The charge will not be applied to dollar amounts representing
an increase in the net asset value since the time of purchase. A transfer of
shares from a shareholder's account to another account will be assumed to be
made in the same order as a redemption.
To provide an example, assume an investor purchases 100 shares at $10 per
share (at a cost of $1,000) and in the third year after purchase, the net asset
value per share is $12 and, during such time, the investor has acquired 10
additional shares through dividend reinvestment. If at such time the investor
makes his or her first redemption of 50 shares (proceeds of $600), 10 shares
will not be subject to the CDSC because of dividend reinvestment. With respect
to the remaining 40 shares, the CDSC is applied only to the original cost of $10
per share and not to the increase in net asset value of $2 per share. Therefore,
$400 of the $600 redemption proceeds will be charged at a rate of 2.0% (the
applicable rate in the third year after purchase).
The Class B CDSC is waived on redemptions of shares in connection with
certain post-retirement withdrawals from an Individual Retirement Account
("IRA") or other retirement plan or following the death
26
<PAGE> 29
or disability (as defined in the Internal Revenue Code of 1986, as amended) of a
shareholder. The Class B CDSC also is waived on redemptions of shares by certain
eligible 401(a) and eligible 401(k) plans and in connection with certain group
plans placing orders through the Merrill Lynch Blueprint(SM) Program. The CDSC
also is waived for any Class B shares which are purchased by eligible 401(k) or
eligible 401(a) plans which are rolled over into a Merrill Lynch or Merrill
Lynch Trust Company custodied IRA and held in such account at the time of
redemption. The Class B CDSC also is waived for any Class B shares which are
purchased by a Merrill Lynch rollover IRA that was funded by a rollover from a
terminated 401(k) plan managed by the MLAM Private Portfolio Group and held in
such account at the time of redemption. Additional information concerning the
waiver of the Class B CDSC is set forth in the Statement of Additional
Information.
Contingent Deferred Sales Charges--Class C Shares. Class C shares which
are redeemed within one year after purchase may be subject to a 1.0% CDSC
charged as a percentage of the dollar amount subject thereto. The charge will be
assessed on an amount equal to the lesser of the proceeds of redemption or the
cost of the shares being redeemed. Accordingly, no Class C CDSC will be imposed
on increases in net asset value above the initial purchase price. In addition,
no Class C CDSC will be assessed on shares derived from reinvestment of
dividends or capital gains distributions.
In determining whether a Class C CDSC is applicable to a redemption, the
calculation will be determined in the manner that results in the lowest possible
rate being charged. Therefore, it will be assumed that the redemption is first
of shares held for over one year or shares acquired pursuant to reinvestment of
dividends or distributions and then of shares held longest during the one-year
period. The charge will not be applied to dollar amounts representing an
increase in the net asset value since the time of purchase. A transfer of shares
from a shareholder's account to another account will be assumed to be made in
the same order as a redemption.
Conversion of Class B Shares to Class D Shares. After approximately eight
years (the "Conversion Period"), Class B shares will be converted automatically
into Class D shares of the Fund. Class D shares are subject to an ongoing
account maintenance fee of 0.25% of net assets but are not subject to the
distribution fee that is borne by Class B shares. Automatic conversion of Class
B shares into Class D shares will occur at least once each month (on the
"Conversion Date") on the basis of the relative net asset values of the shares
of the two classes on the Conversion Date, without the imposition of any sales
load, fee or other charge. Conversion of Class B shares to Class D shares will
not be deemed a purchase or sale of the shares for Federal income tax purposes.
In addition, shares purchased through reinvestment of dividends on Class B
shares also will convert automatically to Class D shares. The Conversion Date
for dividend reinvestment shares will be calculated taking into account the
length of time the shares underlying such dividend reinvestment shares were
outstanding. If at a Conversion Date the conversion of Class B shares to Class D
shares of the Fund in a single account will result in less than $50 worth of
Class B shares being left in the account, all of the Class B shares of the Fund
held in the account on the Conversion Date will be converted to Class D shares
of the Fund.
Share certificates for Class B shares of the Fund to be converted must be
delivered to the Transfer Agent at least one week prior to the Conversion Date
applicable to those shares. In the event such certificates are not received by
the Transfer Agent at least one week prior to the Conversion Date, the related
Class B shares will convert to Class D shares on the next scheduled Conversion
Date after such certificates are delivered.
27
<PAGE> 30
In general, Class B shares of equity MLAM-advised mutual funds will convert
approximately eight years after initial purchase, and Class B shares of taxable
and tax-exempt fixed income MLAM-advised mutual funds will convert approximately
ten years after initial purchase. If, during the Conversion Period, a
shareholder exchanges Class B shares with an eight-year Conversion Period for
Class B shares with a ten-year Conversion Period, or vice versa, the Conversion
Period applicable to the Class B shares acquired in the exchange will apply, and
the holding period for the shares exchanged will be tacked onto the holding
period for the shares acquired.
The Conversion Period is modified for shareholders who purchased Class B
shares through certain retirement plans which qualified for a waiver of the CDSC
normally imposed on purchases of Class B shares ("Class B Retirement Plans").
When the first share of any MLAM-advised mutual fund purchased by a Class B
Retirement Plan has been held for ten years (i.e., ten years from the date the
relationship between MLAM-advised mutual funds and the Class B Retirement Plan
was established), all Class B shares of all MLAM-advised mutual funds held in
that Class B Retirement Plan will be converted into Class D shares of the
appropriate Funds. Subsequent to such conversion, that Class B Retirement Plan
will be sold Class D shares of the appropriate funds at net asset value.
DISTRIBUTION PLANS
The Fund has adopted separate distribution plans for Class B, Class C and
Class D shares pursuant to Rule 12b-1 under the Investment Company Act (each a
"Distribution Plan") with respect to the account maintenance and/or distribution
fees paid by the Fund to the Distributor with respect to such classes. The Class
B and Class C Distribution Plans provide for the payment of account maintenance
fees and distribution fees, and the Class D Distribution Plan provides for the
payment of account maintenance fees.
The Distribution Plans for Class B, Class C and Class D shares each provide
that the Fund pays the Distributor an account maintenance fee relating to the
shares of the relevant class, accrued daily and paid monthly, at the annual rate
of 0.25% of the average daily net assets of the Fund attributable to shares of
the relevant class in order to compensate the Distributor and Merrill Lynch
(pursuant to a sub-agreement) in connection with account maintenance activities.
The Distribution Plans for Class B and Class C shares each provide that the
Fund also pays the Distributor a distribution fee relating to the shares of the
relevant class, accrued daily and paid monthly, at the annual rate of 0.75% of
the average daily net assets of the Fund attributable to the shares of the
relevant class in order to compensate the Distributor and Merrill Lynch
(pursuant to a sub-agreement) for providing shareholder and distribution
services, and bearing certain distribution-related expenses of the Fund,
including payments to financial consultants for selling Class B and Class C
shares of the Fund. The Distribution Plans relating to Class B and Class C
shares are designed to permit an investor to purchase Class B and Class C shares
through dealers without the assessment of an initial sales charge and at the
same time permit the dealer to compensate its financial consultants in
connection with the sale of the Class B and Class C shares. In this regard, the
purpose and function of the ongoing distribution fees and the CDSC are the same
as those of the initial sales charge with respect to the Class A and Class D
shares of the Fund in that the deferred sales charges provide for the financing
of the distribution of the Fund's Class B and Class C shares.
Prior to July 7, 1993, the Fund paid the Distributor an ongoing
distribution fee, accrued daily and paid monthly, at the annual rate of 1.00% of
average daily net assets of the Class B shares of the Fund under a
28
<PAGE> 31
distribution plan previously adopted by the Fund (the "Prior Plan") to
compensate the Distributor and Merrill Lynch for providing account maintenance
and distribution-related activities and services to Class B shareholders. The
fee rate payable and the services provided under the Prior Plan are identical to
the aggregate fee rate payable and the services provided under the Class B
Distribution Plan, the difference being that the account maintenance and
distribution services have been unbundled.
For the fiscal year ended December 31, 1993, the Fund paid the Distributor
$3,135,389 pursuant to the Prior Plan and the Class B Distribution Plan (based
on average net assets subject to the Prior Plan and the Class B Distribution
Plan of approximately $313.5 million), all of which was paid to Merrill Lynch
for providing account maintenance and distribution-related activities and
services in connection with Class B shares. The Fund did not begin to offer
shares of Class C or Class D publicly until the date of this Prospectus.
Accordingly, no payments have been made pursuant to the Class C or Class D
Distribution Plans prior to the date of this Prospectus. At August 31, 1994, the
net assets of the Fund subject to the Class B Distribution Plan aggregated
approximately $901.9 million. At this asset level, the annual fee payable
pursuant to the Class B Distribution Plan would aggregate approximately $9.0
million.
The payments under the Distribution Plans are based on a percentage of
average daily net assets attributable to the shares regardless of the amount of
expenses incurred, and accordingly, distribution-related revenues from the
Distribution Plans may be more or less than distribution-related expenses.
Information with respect to the distribution-related revenues and expenses is
presented to the Directors for their consideration in connection with their
deliberations as to the continuance of the Class B and Class C Distribution
Plans. This information is presented annually as of December 31 of each year on
a "fully allocated accrual" basis and quarterly on a "direct expense and
revenue/cash" basis. On the fully allocated accrual basis, revenues consist of
the account maintenance fees, distribution fees, the CDSCs and certain other
related revenues, and expenses consist of financial consultant compensation,
branch office and regional operation center selling and transaction processing
expenses, advertising, sales promotion and marketing expenses, corporate
overhead and interest expense. On the direct expense and revenue/cash basis,
revenues consist of the account maintenance fees, distribution fees and CDSCs,
and the expenses consist of financial consultant compensation.
As of December 31, 1993, direct cash revenues for the period since
commencement of the offering of Class B shares exceeded direct cash expenses by
$709,416 (0.14% of Class B net assets at that date). At such date, the fully
allocated accrual expenses incurred by the Distributor and Merrill Lynch for the
period since commencement of operations exceeded fully allocated accrual
revenues for such period by approximately $10,054,000 (1.98% of Class B net
assets at that date).
The Fund has no obligation with respect to distribution and/or account
maintenance-related expenses incurred by the Distributor and Merrill Lynch in
connection with Class B, Class C and Class D shares, and there is no assurance
that the Directors of the Fund will approve the continuance of the Distribution
Plans from year to year. However, the Distributor intends to seek annual
continuation of the Distribution Plans. In their review of the Distribution
Plans, the Directors will be asked to take into consideration expenses incurred
in connection with the account maintenance and/or distribution of each class of
shares separately. The initial sales charges, the account maintenance fee, the
distribution fee and/or the CDSCs received with respect to one class will not be
used to subsidize the sale of shares of another class. Payments of the
distribution fee on Class B shares will terminate upon conversion of those Class
B shares into Class D shares as set forth under "Deferred Sales Charge
Alternatives -- Class B and Class C Shares -- Conversion of Class B Shares to
Class D Shares."
29
<PAGE> 32
LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES
The maximum sales charge rule in the Rules of Fair Practice of the NASD
imposes a limitation on certain asset-based sales charges such as the Fund's
distribution fee and the CDSC borne by the Class B and Class C shares but not
the account maintenance fee. The maximum sales charge rule is applied separately
to each class. As applicable to the Fund, the maximum sales charge rule limits
the aggregate of distribution fee payments and CDSCs payable by the Fund to (1)
6 1/4% of eligible gross sales of Class B shares and Class C shares, computed
separately (defined to exclude shares issued pursuant to dividend reinvestments
and exchanges) plus (2) interest on the unpaid balance for the respective class,
computed separately, at the prime rate plus 1% (the unpaid balance being the
maximum amount payable minus amounts received from the payment of the
distribution fee and the CDSC). In connection with the Class B shares, the
Distributor has voluntarily agreed to waive interest charges on the unpaid
balance in excess of 0.50% of eligible gross sales. Consequently, the maximum
amount payable to the Distributor (referred to as the "voluntary maximum") in
connection with the Class B shares is 6.75% of eligible gross sales. The
Distributor retains the right to stop waiving interest charges at any time. To
the extent payments would exceed the voluntary maximum, the Fund will not make
further payments of the distribution fee with respect to Class B shares, and any
CDSCs will be paid to the Fund rather than to the Distributor; however, the Fund
will continue to make payments of the account maintenance fee. In certain
circumstances the amount payable pursuant to the voluntary maximum may exceed
the amount payable under the NASD formula. In such circumstances payment in
excess of the amount payable under the NASD formula will not be made.
REDEMPTION OF SHARES
The Fund is required to redeem for cash all shares of the Fund on receipt
of a written request in proper form. The redemption price is the net asset value
per share next determined after the initial receipt of proper notice of
redemption. Except for any CDSC which may be applicable, there will be no charge
for redemption if the redemption request is sent directly to the Transfer Agent.
Shareholders liquidating their holdings will receive upon redemption all
dividends reinvested through the date of redemption. The value of shares at the
time of redemption may be more or less than the shareholder's cost, depending on
the market value of the securities held by the Fund at such time.
REDEMPTION
A shareholder wishing to redeem shares may do so without charge by
tendering the shares directly to the Transfer Agent, Financial Data Services,
Inc., Transfer Agency Mutual Fund Operations, P.O. Box 45289, Jacksonville,
Florida 32232-5289. Redemption requests delivered other than by mail should be
delivered to Financial Data Services, Inc., Transfer Agency Mutual Fund
Operations, 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484. Proper
notice of redemption in the case of shares deposited with the Transfer Agent may
be accomplished by a written letter requesting redemption. Proper notice of
redemption in the case of shares for which certificates have been issued may be
accomplished by a written letter as noted above accompanied by certificates for
the shares to be redeemed. The notice in either event requires the signatures of
all persons in whose names the shares are registered, signed exactly as their
names appear on the Transfer Agent's register or on the certificates, as the
case may be. The signatures on the notice must be guaranteed by an "eligible
guarantor institution" (including, for example, Merrill Lynch branch offices and
certain other financial institutions) as such is defined in Rule 17Ad-15 under
the Securities Exchange Act of
30
<PAGE> 33
1934, as amended, the existence and validity of which may be verified by the
Transfer Agent through the use of industry publications. Notarized signatures
are not sufficient. In certain instances, the Transfer Agent may require
additional documents, such as, but not limited to, trust instruments, death
certificates, appointments as executor or administrator, or certificates of
corporate authority. For shareholders redeeming directly with the Transfer
Agent, payment will be mailed within seven days of receipt of a proper notice of
redemption.
At various times the Fund may be requested to redeem shares for which it
has not yet received good payment. The Fund may delay or cause to be delayed the
mailing of a redemption check until such time as it has assured itself that good
payment (e.g., cash or certified check drawn on a U.S. bank) has been collected
for the purchase of such shares. Normally, this delay will not exceed 10 days.
REPURCHASE
The Fund also will repurchase shares through a shareholder's listed
securities dealer. The Fund normally will accept orders to repurchase shares by
wire or telephone from dealers for their customers at the net asset value next
computed after receipt of the order by the dealer, provided that the request for
repurchase is received by the dealer prior to the close of business on the New
York Stock Exchange on the day received and that such request is received by the
Fund from such dealer not later than 4:30 p.m., New York time, on the same day.
Dealers have the responsibility of submitting such repurchase requests to the
Fund not later than 4:30 p.m., New York time, in order to obtain that day's
closing price.
The foregoing repurchase arrangements are for the convenience of
shareholders and do not involve a charge by the Fund (other than any applicable
CDSC). Securities firms which do not have selected dealer agreements with the
Distributor, however, may impose a transaction charge on the shareholder for
transmitting the notice of repurchase to the Fund. Merrill Lynch may charge its
customers a processing fee (presently $4.85) to confirm a repurchase of shares
to such customers. Redemptions directly through the Transfer Agent are not
subject to the processing fee. The Fund reserves the right to reject any order
for repurchase, which right of rejection might adversely affect shareholders
seeking redemption through the repurchase procedure. A shareholder whose order
for repurchase is rejected by the Fund may redeem shares as set forth above.
REINSTATEMENT PRIVILEGE -- CLASS A AND CLASS D SHARES
Shareholders who have redeemed their Class A or Class D shares have a
one-time privilege to reinstate their accounts by purchasing Class A or Class D
shares of the Fund, as the case may be, at net asset value without a sales
charge up to the dollar amount redeemed. The reinstatement privilege may be
exercised by sending a notice of exercise along with a check for the amount to
be reinstated to the Transfer Agent within 30 days after the date the request
for redemption was accepted by the Transfer Agent or the Distributor. The
reinstatement will be made at the net asset value per share next determined
after the notice of reinstatement is received and cannot exceed the amount of
the redemption proceeds. The reinstatement privilege is a one-time privilege and
may be exercised by the Class A or Class D shareholder only the first time such
shareholder makes a redemption.
31
<PAGE> 34
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services and investment plans
described below which are designed to facilitate investment in shares of the
Fund. Certain of such services are not available to investors who place purchase
orders for the Fund's shares through the Merrill Lynch BlueprintSM Program. Full
details as to each of such services, copies of the various plans described below
and instructions as to how to participate in the various services or plans, or
how to change options with respect thereto can be obtained from the Fund by
calling the telephone number on the cover page hereof or from the Distributor or
Merrill Lynch. Certain of these services are available only to U.S. investors.
Investment Account. Each shareholder whose account is maintained at the
Transfer Agent has an Investment Account and will receive, at least quarterly,
statements from the Transfer Agent. These statements will serve as transaction
confirmations for automatic investment purchases and the reinvestment of
ordinary income dividends and long-term capital gain distributions. The
statements will also show any other activity in the account since the preceding
statement. Shareholders will receive separate transaction confirmations for each
purchase or sale transaction other than automatic investment purchases and the
reinvestment of ordinary income dividends and long-term capital gain
distributions. A shareholder may make additions to his Investment Account at any
time by mailing a check directly to the Transfer Agent. Shareholders also may
maintain their accounts through Merrill Lynch. Upon the transfer of shares out
of a Merrill Lynch brokerage account, an Investment Account in the transferring
shareholder's name will be opened automatically, without charge, at the Transfer
Agent. Shareholders considering transferring their Class A or Class D shares
from Merrill Lynch to another brokerage firm or financial institution should be
aware that, if the firm to which the Class A or Class D shares are to be
transferred will not take delivery of shares of the Fund, a shareholder either
must redeem the Class A or Class D shares (paying any applicable CDSC) so that
the cash proceeds can be transferred to the account at the new firm or such
shareholder must continue to maintain an Investment Account at the Transfer
Agent for those Class A or Class D shares. Shareholders interested in
transferring their Class B or Class C shares from Merrill Lynch and who do not
wish to have an Investment Account maintained for such shares at the Transfer
Agent may request their new brokerage firm to maintain such shares in an account
registered in the name of the brokerage firm for the benefit of the shareholder
at the Transfer Agent. Shareholders considering transferring a tax-deferred
retirement account such as an individual retirement account from Merrill Lynch
to another brokerage firm or financial institution should be aware that, if the
firm to which the retirement account is to be transferred will not take delivery
of shares of the Fund, a shareholder must either redeem the shares (paying any
applicable CDSC) so that the cash proceeds can be transferred to the account at
the new firm, or such shareholder must continue to maintain a retirement account
at Merrill Lynch for those shares. Redemption payments will be made within seven
days of the proper tender of the certificates, if any, and stock power or letter
requesting redemption, in each instance with signatures guaranteed as noted
above.
EXCHANGE PRIVILEGE
Shareholders of each class of shares of the Fund have an exchange privilege
with certain other MLAM-advised mutual funds. There is currently no limitation
on the number of times a shareholder may exercise the exchange privilege. The
exchange privilege may be modified or terminated in accordance with the rules of
the Commission.
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<PAGE> 35
Under the Merrill Lynch Select Pricing(SM) System, Class A shareholders may
exchange Class A shares of the Fund for Class A shares of a second MLAM-advised
mutual fund if the shareholder holds any Class A shares of the second fund in
his account in which the exchange is made at the time of the exchange or is
otherwise eligible to purchase Class A shares of the second fund. If the Class A
shareholder wants to exchange Class A shares for shares of a second MLAM-advised
mutual fund, and the shareholder does not hold Class A shares of the second fund
in his account at the time of the exchange and is not otherwise eligible to
acquire Class A shares of the second fund, the shareholder will receive Class D
shares of the second fund as a result of the exchange. Class D shares also may
be exchanged for Class A shares of a second MLAM-advised mutual fund at any time
as long as, at the time of the exchange, the shareholder holds Class A shares of
the second fund in the account in which the exchange is made or is otherwise
eligible to purchase Class A shares of the second fund.
Exchanges of Class A and Class D shares are made on the basis of the
relative net asset values per Class A or Class D share, respectively, plus an
amount equal to the difference, if any, between the sales charge previously paid
on the Class A or Class D shares being exchanged and the sales charge payable at
the time of the exchange on the shares being acquired.
Class B, Class C and Class D shares will be exchangeable with shares of the
same class of other MLAM-advised mutual funds.
Shares of the Fund which are subject to a CDSC will be exchangeable on the
basis of relative net asset value per share without the payment of any CDSC that
might otherwise be due upon redemption of the shares of the Fund. For purposes
of computing the CDSC that may be payable upon a disposition of the shares
acquired in the exchange, the holding period for the previously owned shares of
the Fund is "tacked" to the holding period of the newly acquired shares of the
other Fund.
Class A, Class B, Class C and Class D shares also will be exchangeable for
shares of certain MLAM-advised money market funds specifically designated as
available for exchange by holders of Class A, Class B, Class C or Class D
shares. The period of time that Class A, Class B, Class C or Class D shares are
held in a money market fund, however, will not count toward satisfaction of the
holding period requirement for reduction of any CDSC imposed on such shares, if
any, and, with respect to Class B shares, toward satisfaction of the Conversion
Period.
Class B shareholders of the Fund exercising the exchange privilege will
continue to be subject to the Fund's CDSC schedule if such schedule is higher
than the CDSC schedule relating to the new Class B shares. In addition, Class B
shares of the Fund acquired through use of the exchange privilege will be
subject to the Fund's CDSC schedule if such schedule is higher than the CDSC
schedule relating to the Class B shares of the MLAM-advised mutual fund from
which the exchange has been made.
Exercise of the exchange privilege is treated as a sale for Federal income
tax purposes. For further information, see "Shareholder Services -- Exchange
Privilege" in the Statement of Additional Information.
The Fund's exchange privilege is modified with respect to purchases of
Class A and Class D shares under the Merrill Lynch Mutual Fund Adviser ("MFA")
program. First, the initial allocation of assets is made under the MFA program.
Then, any subsequent exchange under the MFA program of Class A or Class D shares
of a MLAM-advised mutual fund for Class A or Class D shares of the Fund will be
made solely on the basis of the relative net asset values of the shares being
exchanged. Therefore, there will not be a charge for
33
<PAGE> 36
any difference between the sales charge previously paid on the shares of the
other MLAM-advised mutual fund and the sales charge payable on the shares of the
Fund being acquired in the exchange under the MFA program.
Automatic Reinvestment of Dividends and Distributions. All dividends and
capital gains distributions are automatically reinvested in full and fractional
shares of the Fund, without sales charge, at the net asset value per share next
determined after the close of the New York Stock Exchange on the ex-dividend
date of such dividend or distribution. A shareholder may at any time, by written
notification or by telephone (1-800-MER-FUND) to the Transfer Agent, elect to
have subsequent dividends, or both dividends and capital gains distributions,
paid in cash rather than reinvested, in which event payment will be mailed on
the payment date. Cash payments can also be directly deposited to the
shareholder's bank account. No CDSC will be imposed on redemption of shares
issued as a result of the automatic reinvestment of dividends or capital gains
distributions.
Systematic Withdrawal Plans. A Class A or Class D shareholder may elect to
receive systematic withdrawal payments from his Investment Account in the form
of payments by check or through automatic payment by direct deposit to his bank
account on either a monthly or quarterly basis. A Class A or Class D shareholder
whose shares are held within a CMA(R), CBA(R) or Retirement Account may elect to
have shares redeemed on a monthly, bimonthly, quarterly, semiannual or annual
basis through the Systematic Redemption Program, subject to certain conditions.
Automatic Investment Plans. Regular additions of Class A, Class B, Class C
or Class D shares may be made to an investor's Investment Account by prearranged
charges of $50 or more to his regular bank account. Investors who maintain
CMA(R) accounts may arrange to have periodic investments made in the Fund in
their CMA(R) accounts or in certain related accounts in amounts of $100 or more
through the CMA(R) Automated Investment Program.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to policies established by the Board of Directors of the Fund, the
Manager is primarily responsible for the execution of the Fund's portfolio
transactions and the allocation of brokerage. In executing such transactions,
the Manager seeks to obtain the best net results for the Fund, taking into
account such factors as price (including the applicable brokerage commission or
dealer spread), size of order, difficulty of execution and operational
facilities of the firm involved and the firm's risk in positioning a block of
securities. While the Manager generally seeks reasonably competitive commission
rates, the Fund does not necessarily pay the lowest commission or spread
available. The Fund has no obligation to deal with any broker or group of
brokers in the execution of transactions in portfolio securities. The Fund
contemplates that, consistent with the above policy of obtaining the best net
results, a portion of its brokerage transactions with respect to equities may be
conducted through Merrill Lynch and its affiliates. Subject to obtaining the
best price and execution, brokers who provide supplemental investment research
to the Manager may receive orders for transactions by the Fund. Information so
received will be in addition to and not in lieu of the services required to be
performed by the Manager under the Management Agreement, and the expenses of the
Manager will not necessarily be reduced as a result of the receipt of such
supplemental information. It is possible that certain of the supplementary
investment research so received will primarily benefit one or more other
investment companies or other accounts for which investment discretion is
exercised. Conversely, the Fund may be the primary
34
<PAGE> 37
beneficiary of the research or services received as a result of portfolio
transactions effected for such other accounts or investment companies.
Consistent with the Rules of Fair Practices of the National Association of
Securities Dealers, Inc., the Manager may consider sales of shares of the Fund
as a factor in the selection of brokers or dealers to execute portfolio
transactions for the Fund.
The Fund anticipates that its brokerage transactions involving securities
of corporations domiciled in Far Eastern or Western Pacific countries will be
conducted primarily on the principal stock exchanges of such countries.
Brokerage commissions and other transaction costs on foreign securities
exchanges are generally higher than commissions on U.S. transactions, although
the Fund will endeavor to achieve the best net results in effecting its
portfolio transactions. There is generally less government supervision and
regulation of foreign stock exchanges and brokers than in the United States.
The Fund may invest in securities traded in the OTC markets and deals
directly with the dealers who make markets in the securities involved except in
those circumstances where better prices and execution are available elsewhere.
PERFORMANCE DATA
From time to time the Fund may include its average annual total return for
various specified time periods in advertisements or information furnished to
present or prospective shareholders. Average annual total return is computed
separately for Class A, Class B, Class C and Class D shares in accordance with a
formula specified by the Commission.
Average annual total return quotations for the specified periods will be
computed by finding the average annual compounded rates of return (based on net
investment income and any capital gains or losses on portfolio investments over
such periods) that would equate the initial amount invested to the redeemable
value of such investment at the end of each period. Average annual total return
will be computed assuming all dividends and distributions are reinvested and
taking into account all applicable recurring and nonrecurring expenses,
including any CDSC that would be applicable to a complete redemption of the
investment at the end of the specified period such as in the case of Class B and
Class C shares and the maximum sales charge in the case of Class A and Class D
shares. Dividends paid by the Fund with respect to all shares, to the extent any
dividends are paid, will be calculated in the same manner at the same time on
the same day and will be in the same amount, except that account maintenance and
distribution fees and any incremental transfer agency costs relating to each
class of shares will be borne exclusively by that class. The Fund will include
performance data for all classes of shares of the Fund in any advertisement or
information including performance data of the Fund.
The Fund also may quote total return and aggregate total return performance
data for various specified time periods. Such data will be calculated
substantially as described above, except that (1) the rates of return calculated
will not be average annual rates, but rather, actual annual, annualized or
aggregate rates of return, and (2) the maximum applicable sales charges will not
be included with respect to annual or annualized rates of return calculations.
Aside from the impact on the performance data calculations of including or
excluding the maximum applicable sales charges, actual annual or annualized
total return data generally will be lower than average annual total return data
since the average annual rates of return reflect compounding; aggregate total
return data generally will be higher than average annual total return data since
the aggregate rates of return reflect compounding over longer periods of time.
In advertisements directed to investors whose
35
<PAGE> 38
purchases are subject to reduced sales charges in the case of Class A or Class D
shares or waiver of the CDSC in the case of Class B and Class C shares (such as
investors in certain retirement plans) or to reduced sales charges in the case
of Class A and Class D shares, performance data may take into account the
reduced, and not the maximum, sales charge or may not take into account the CDSC
and therefore may reflect greater total return since, due to the reduced sales
charges or waiver of the CDSC, a lower amount of expenses may be deducted. See
"Purchase of Shares". The Fund's total return may be expressed either as a
percentage or as a dollar amount in order to illustrate the effect of such total
return on a hypothetical $1,000 investment in the Fund at the beginning of each
specified period.
Total return figures are based on the Fund's historical performance and are
not intended to indicate future performance. The Fund's total return will vary
depending on market conditions, the securities comprising the Fund's portfolio,
the Fund's operating expenses and the amount of realized and unrealized net
capital gains or losses during the period. The value of an investment in the
Fund will fluctuate, and an investor's shares, when redeemed, may be worth more
or less than their original cost.
On occasion, the Fund may compare its performance to the Standard & Poor's
500 Composite Stock Price Index, the Dow Jones Industrial Average, or
performance data published by Lipper Analytical Services, Inc., Morningstar
Publications, Inc., Money Magazine, U.S. News & World Report, Business Week, CDA
Investment Technology, Inc., Forbes Magazine, Fortune Magazine or other industry
publications. In addition, from time to time the Fund may include the Fund's
risk-adjusted performance ratings assigned by Morningstar Publications, Inc. in
advertising or supplemental sales literature. As with other performance data,
performance comparisons should not be considered representative of the Fund's
relative performance for any future period.
ADDITIONAL INFORMATION
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to distribute all of its net investment income and net
realized long-or short-term capital gains, if any, to the Fund's shareholders at
least annually. The per share dividends and distributions on each class of
shares will be reduced as a result of any account maintenance, distribution and
transfer agency fees applicable to that class. See "Additional
Information -- Determination of Net Asset Value". Dividends and distributions
are automatically reinvested in full and fractional shares of the Fund, without
a sales charge, at the net asset value per share next determined after the close
of the New York Stock Exchange on the ex-dividend date of such dividend or
distribution. A shareholder may at any time, by written notification or by
telephone (1-800-MER-FUND) to the Transfer Agent, elect to have subsequent
dividends, or both dividends and capital gains distributions, paid in cash
rather than reinvested. Dividends and distributions are taxable to investors
whether received in cash or reinvested in additional shares of the Fund. The per
share dividends and distributions on each class of shares will be reduced as a
result of any account maintenance, distribution and transfer agency fees
applicable to that class. See "Determination of Net Asset Value" below.
Certain gains or losses attributable to foreign currency gains or losses
from certain forward contracts may increase or decrease the amount of the Fund's
income available for distribution to shareholders. If such losses exceed other
income during a taxable year, (a) the Fund would not be able to make any
ordinary dividend distributions, and (b) distributions made before the losses
were realized would be recharacterized as a return of capital to shareholders,
rather than as an ordinary dividend, reducing each shareholder's tax basis in
his Fund shares for Federal income tax purposes. See "Additional Information --
Taxes".
36
<PAGE> 39
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of all classes of the Fund is determined
once daily as of 4:15 p.m., New York time, on each day during which the New York
Stock Exchange is open for trading. Any assets or liabilities initially
expressed in terms of non-U.S. dollar currencies are translated into U.S.
dollars at the prevailing market rates as quoted by one or more banks or dealers
on the day of valuation.
The net asset value is computed by dividing the value of the securities
held by the Fund plus any cash or other assets (including interest and dividends
accrued but not yet received) minus all liabilities (including accrued expenses)
by the total number of shares outstanding at such time. Expenses, including the
fees payable to the Manager and any account maintenance and/or distribution fees
payable to the Distributor, are accrued daily. The per share net asset value of
the Class A shares generally will be higher than the per share net asset value
of the other classes, reflecting the daily expense accruals of the account
maintenance, distribution and higher transfer agency fees applicable with
respect to the Class B and Class C shares and the daily expense accruals of the
account maintenance fees applicable with respect to Class D shares; moreover,
the per share net asset value of Class D shares generally will be higher than
the per share net asset value of Class B and Class C shares, reflecting the
daily expense accruals of the distribution and higher transfer agency fees
applicable with respect to Class B and Class C shares. It is expected, however,
that the per share net asset value of the classes will tend to converge
immediately after the payment of dividends or distributions which will differ by
approximately the amount of the expense accrual differential between the
classes.
Portfolio securities which are traded on stock exchanges are valued at the
last sale price (regular way) on the exchange on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where
securities are traded on more than one exchange, the securities are valued on
the exchange designated by or under the authority of the Board of Directors as
the primary market. However, in certain circumstances, the Fund will value a
security traded on a Japanese stock exchange based upon the last bid or ask
price as reported on such exchange after trading in such security has been
halted for the day. Japanese stock exchanges may impose limits, based on a
percentage of a security's value, on the amount such security may move in a
single day. If the security reaches its limit during the day, further trading is
halted. However, a bid or ask quotation may be reported following the suspension
of trading. Management of the Fund believes such bid or ask quotation is more
indicative of where trading in the security will open on the following business
day and is more representative of the security's value at the close of trading
on the exchange than is the last sale. In situations where both a bid and ask
price are reported following a trading suspension due to the circumstances
described above, the Fund will utilize the bid price for valuation purposes.
Securities traded in the over-the-counter market are valued at the last
available bid price in the over-the-counter market prior to the time of
valuation. When the Fund writes a call option, the amount of the premium
received is recorded on the books of the Fund as an asset and an equivalent
liability. The amount of the liability is subsequently valued to reflect the
current market value of the option written, based upon the last sale price in
the case of exchange-traded options or, in the case of options traded in the
over-the-counter market, the last asked price. Options purchased by the Fund are
valued at their last sale price in the case of exchange-traded options or, in
the case of options traded in the over-the-counter market, the last bid price.
Securities and assets for which market quotations are not readily available
(including restricted securities which are subject to limitations as to their
sale) are valued at fair value as determined in good faith by or under the
direction of the Board of Directors of the Fund.
37
<PAGE> 40
TAXES
The Fund intends to continue to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Internal Revenue Code
of 1986, as amended (the "Code"). If it so qualifies, the Fund (but not its
shareholders) will not be subject to Federal income tax on the part of its net
ordinary income and net realized capital gains which it distributes to Class A,
Class B, Class C and Class D shareholders (together, the "shareholders"). The
Fund intends to distribute substantially all of such income.
Dividends paid by the Fund from its ordinary income and distributions of
the Fund's net realized short-term capital gains (together referred to hereafter
as "ordinary income dividends") are taxable to shareholders as ordinary income.
Distributions made from the Fund's net realized long-term capital gains
(including long-term gains from certain transactions in futures and options)
("capital gain dividends") are taxable to shareholders as long-term capital
gains, regardless of the length of time the shareholder has owned Fund shares.
Distributions in excess of the Fund's earnings and profits will first reduce the
adjusted tax basis of a holder's shares and, after such adjusted tax basis is
reduced to zero, will constitute capital gains to such holder (assuming the
shares are held as a capital asset).
Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Fund. Not later than 60 days after the close of its
taxable year, the Fund will provide its shareholders with a written notice
designating the amounts of any ordinary income dividends or capital gain
dividends. Distributions by the Fund, whether from ordinary income or capital
gains, generally will not be eligible for the dividends received deduction
allowed to corporations under the Code. If the Fund pays a dividend in January
which was declared in the previous October, November or December to shareholders
of record on a specified date in one of such months, then such dividend will be
treated for tax purposes as being paid by the Fund and received by its
shareholders on December 31 of the year in which such dividend was declared.
Ordinary income dividends paid by the Fund to shareholders who are
nonresident aliens or foreign entities will be subject to a 30% U.S. withholding
tax under existing provisions of the Code applicable to foreign individuals and
entities unless a reduced rate of withholding or a withholding exemption is
provided under applicable treaty law. Nonresident shareholders are urged to
consult their own tax advisers concerning the applicability of the U.S.
withholding tax.
Dividends and interest received by the Fund may give rise to withholding
and other taxes imposed by foreign countries. Tax conventions between certain
countries and the U.S. may reduce or eliminate such taxes. Shareholders may be
able to claim U.S. foreign tax credits with respect to such taxes, subject to
certain conditions and limitations contained in the Code. For example, certain
retirement accounts cannot claim foreign tax credits on investments in foreign
securities held in the Fund. If more than 50% in value of the Fund's total
assets at the close of its taxable year consists of securities of foreign
corporations, the Fund will be eligible, and intends, to file an election with
the Internal Revenue Service pursuant to which shareholders of the Fund will be
required to include their proportionate shares of such withholding taxes on
their U.S. income tax returns as gross income, treat such proportionate shares
as taxes paid by them, and deduct such proportionate shares in computing their
taxable incomes or, alternatively, use them as foreign tax credits against their
U.S. income taxes. No deductions for foreign taxes, however, may be claimed by
noncorporate shareholders who do not itemize deductions. A shareholder that is a
nonresident alien individual or a foreign corporation may be subject to U.S.
withholding tax on the income resulting from the Fund's election described in
this paragraph but may not be able to claim a credit or deduction against such
U.S. tax for the foreign taxes treated as having been paid by such shareholder.
The Fund will report annually to its shareholders the amount per share of such
withholding taxes.
38
<PAGE> 41
Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on ordinary income dividends, capital gain dividends and
redemption payments ("backup withholding"). Generally, shareholders subject to
backup withholding will be those for whom no certified taxpayer identification
number is on file with the Fund or who, to the Fund's knowledge, have furnished
an incorrect number. When establishing an account, an investor must certify
under penalty of perjury that such number is correct and that such investor is
not otherwise subject to backup withholding.
Under Code Section 988, foreign currency gains or losses from certain debt
instruments, from certain forward contracts, from futures contracts that are not
"regulated futures contracts" and from unlisted options will generally be
treated as ordinary income or loss. Such Code Section 988 gains or losses will
generally increase or decrease the amount of the Fund's investment company
taxable income available to be distributed to shareholders as ordinary income.
Additionally, if Code Section 988 losses exceed other investment company taxable
income during a taxable year, the Fund would not be able to make any ordinary
income dividend distributions, and any distributions made before the losses were
realized but in the same taxable year would be recharacterized as a return of
capital to shareholders, thereby reducing the basis of each shareholder's Fund
shares and resulting in a capital gain for any shareholder who received a
distribution greater than the shareholder's tax basis in Fund shares (assuming
the shares are held as a capital asset).
No gain or loss will be recognized by Class B shareholders on the
conversion of their Class B shares into Class D shares. A shareholder's basis in
the Class D shares acquired will be the same as such shareholder's basis in the
Class B shares converted, and the holding period of the acquired Class D shares
will include the holding period for the converted Class B shares.
If a shareholder exercises an exchange privilege within 90 days of
acquiring the shares, then the loss the shareholder can recognize on the
exchange will be reduced (or the gain increased) to the extent any sales charge
paid to the Fund on the exchanged shares reduces any sales charge the
shareholder would have owed upon purchase of the new shares in the absence of
the exchange privilege. Instead, such sales charge will be treated as an amount
paid for the new shares.
A loss realized on a sale or exchange of shares of the Fund will be
disallowed if other Fund shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30 days
before and ending 30 days after the date that the shares are disposed of. In
such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative or administrative action either
prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state and
local taxes.
Certain states exempt from state income taxation dividends paid by RICs
which are derived from interest on U.S. Government obligations. State law varies
as to whether dividend income attributable to U.S. Government obligations is
exempt from state income tax.
Shareholders are urged to consult their tax advisers regarding specific
questions as to Federal, foreign, state or local taxes. Foreign investors should
consider applicable foreign taxes in their evaluation of an investment in the
Fund.
39
<PAGE> 42
ORGANIZATION OF THE FUND
The Fund was incorporated under Maryland law on August 5, 1976. It has an
authorized capital of 400,000,000 shares of Common Stock, par value $0.10 per
share, divided into four classes designated Class A, Class B, Class C and Class
D Common Stock, each of which consists of 100,000,000 shares. Shares of Class A,
Class B, Class C and Class D Common Stock represent an interest in the same
assets of the Fund and are identical in all respects except that Class B, Class
C and Class D shares bear certain expenses related to the account maintenance
associated with such shares, and Class B and Class C shares bear certain
expenses related to the distribution of such shares. Each class has exclusive
voting rights with respect to matters relating to account maintenance and
distribution expenditures, as applicable. See "Purchase of Shares". The Fund has
received an order from the Commission permitting the issuance and sale of
multiple classes of Common Stock. The Directors of the Fund may classify and
reclassify the shares of the Fund into additional classes of Common Stock at a
future date.
Shareholders are entitled to one vote for each share held and fractional
votes for fractional shares held and will vote on the election of Directors and
any other matter submitted to a shareholder vote. The Fund does not intend to
hold meetings of shareholders in any year in which the Investment Company Act
does not require shareholders to act on any of the following matters: (i)
election of Directors; (ii) approval of an investment advisory agreement; (iii)
approval of a distribution agreement; and (iv) ratification of selection of
independent auditors. Also, the by-laws of the Fund require that a special
meeting of stockholders be held upon the written request of at least 10% of the
outstanding shares of the Fund entitled to vote at such meeting. Voting rights
for Directors are not cumulative. Shares issued are fully paid and
non-assessable and have no preemptive rights. Shares have the conversion rights
described in this Prospectus. Each share of Common Stock is entitled to
participate equally in dividends and distributions declared by the Fund and in
the net assets of the Fund on liquidation or dissolution after satisfaction of
outstanding liabilities, and except as noted above, the Class B, Class C and
Class D shares bear certain additional expenses.
SHAREHOLDER REPORTS
Only one copy of each shareholder report and certain shareholder
communications will be mailed to each identified shareholder regardless of the
number of accounts such shareholder has. If a shareholder wishes to receive
separate copies of each report and communication for each of the shareholder's
related accounts, the shareholder should notify in writing:
Financial Data Services, Inc.
Attn: TAMFO
P.O. Box 45289
Jacksonville, FL 32232-5289
The written notification should include the shareholder's name, address, tax
identification number and Merrill Lynch and/or mutual fund account numbers. If
you have any questions regarding this, please call your Merrill Lynch financial
consultant or Financial Data Services, Inc. at 1-800-637-3863.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to the Fund at the address or
telephone number set forth on the cover page of this Prospectus.
40
<PAGE> 43
MERRILL LYNCH PACIFIC FUND, INC. -- AUTHORIZATION FORM (PART 1)
- --------------------------------------------------------------------------------
NOTE: THIS FORM MAY NOT BE USED FOR PURCHASES THROUGH THE MERRILL LYNCH
BLUEPRINT(SM) PROGRAM. YOU MAY REQUEST A MERRILL LYNCH BLUEPRINT(SM)
PROGRAM APPLICATION BY CALLING (800) 637-3766.
- --------------------------------------------------------------------------------
1. SHARE PURCHASE APPLICATION
I, being of legal age, wish to purchase: (choose one)
/ / Class A shares / / Class B shares / / Class C shares / / Class D shares
of Merrill Lynch Pacific Fund, Inc. and establish an Investment Account as
described in the Prospectus. In the event that I am not eligible to purchase
Class A share, I understand that Class D shares will be purchased.
Basis for establishing an Investment Account:
A. I enclose a check for $.......... payable to Financial Data Services,
Inc. as an initial investment (minimum $1,000). I understand that this
purchase will be executed at the applicable offering price next to be
determined after this Application is received by you.
B. I already own shares of the following Merrill Lynch mutual funds that
would qualify for the Right of Accumulation as outlined in the Statement of
Additional Information: (Please list all funds. Use a separate sheet of paper
if necessary.)
1. ............................... 4. ..................................
2. ............................... 5. ..................................
3. ............................... 6. ..................................
Name ..........................................................................
First Name Initial Last Name
Name of Co-Owner (if any)......................................................
First Name Initial Last Name
Address........................................................................
........................................................ Date................
(Zip Code)
<TABLE>
<S> <C>
Occupation ....................................... Name and Address of Employer.................................................
.............................................................................
.............................................................................
................................................... .............................................................................
Signature of Owner Signature of Co-Owner (if any)
</TABLE>
(In the case of co-owners, a joint tenancy with right of survivorship will be
presumed unless otherwise specified.)
- --------------------------------------------------------------------------------
2. DIVIDEND AND CAPITAL GAIN DISTRIBUTION OPTIONS
<TABLE>
<S> <C>
Ordinary Income Dividends Long-Term Capital Gains
--------------------------------- ---------------------------------
SELECT / / Reinvest SELECT / / Reinvest
ONE: / / Cash ONE: / / Cash
--------------------------------- ---------------------------------
</TABLE>
If no election is made, dividends and capital gains will be automatically
reinvested at net asset value without a sales charge.
IF CASH, SPECIFY HOW YOU WOULD LIKE YOUR DISTRIBUTIONS PAID TO YOU: / / Check
or / / Direct Deposit to bank account
IF DIRECT DEPOSIT TO BANK ACCOUNT IS SELECTED, PLEASE COMPLETE BELOW:
I hereby authorize payment of dividend and capital gain distributions by direct
deposit to my bank account and, if necessary, debit entries and adjustments for
any credit entries made to my account in accordance with the terms I have
selected on the Merrill Lynch Pacific Fund, Inc. Authorization Form.
Specify type of account (check one): / / checking / / savings
Name on your account............................................................
Bank Name.......................................................................
Bank Number ............................... Account Number......................
Bank Address....................................................................
I agree that this authorization will remain in effect until I provide written
notification to Financial Data Services, Inc. amending or terminating this
service.
Signature of Depositor..........................................................
Signature of Depositor ........................... Date......................
(if joint account, both must sign)
NOTE: If direct deposit to bank account is selected, your blank, unsigned check
marked "VOID" or a deposit slip from your savings account should accompany this
application.
A-1
<PAGE> 44
MERRILL LYNCH PACIFIC FUND, INC. -- AUTHORIZATION FORM (PART 1) -- (CONTINUED)
- --------------------------------------------------------------------------------
NOTE: THIS FORM MAY NOT BE USED FOR PURCHASES THROUGH THE MERRILL LYNCH
BLUEPRINT(SM) PROGRAM. YOU MAY REQUEST A MERRILL LYNCH BLUEPRINT(SM)
PROGRAM APPLICATION BY CALLING (800) 637-3766.
- --------------------------------------------------------------------------------
3. SOCIAL SECURITY NUMBER OR TAXPAYER IDENTIFICATION NUMBER
--------------------------------------------------------
Social Security Number or Taxpayer Identification Number
Under penalty of perjury, I certify (1) that the number set forth above is my
correct Social Security Number or Taxpayer Identification Number and (2) that I
am not subject to backup withholding (as discussed under "Additional
Information--Taxes") either because I have not been notified that I am subject
thereto as a result of a failure to report all interest or dividends, or the
Internal Revenue Service ("IRS") has notified me that I am no longer subject
thereto.
INSTRUCTION: YOU MUST STRIKE OUT THE LANGUAGE IN (2) ABOVE IF YOU HAVE BEEN
NOTIFIED THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING DUE TO UNDER-REPORTING AND
IF YOU HAVE NOT RECEIVED A NOTICE FROM THE IRS THAT BACKUP WITHHOLDING HAS BEEN
TERMINATED. THE UNDERSIGNED AUTHORIZES THE FURNISHING OF THIS CERTIFICATION TO
OTHER MERRILL LYNCH SPONSORED MUTUAL FUNDS.
<TABLE>
<S> <C>
............................................................. ............................................................
Signature of Owner Signature of Co-Owner (if any)
</TABLE>
- --------------------------------------------------------------------------------
4. LETTER OF INTENTION -- CLASS A AND D SHARES ONLY (See terms and conditions in
the Statement of Additional Information)
......................, 19....
Dear Sir/Madam: Date of initial purchase
Although I am not obligated to do so, I intend to purchase shares of Merrill
Lynch Pacific Fund, Inc. or any other investment company with an initial sales
charge or deferred sales charge for which Merrill Lynch Funds Distributor, Inc.
acts as distributor over the next 13 month period which will equal or exceed:
/ / $25,000 / / $50,000 / / $100,000 / / $250,000 / / $1,000,000
Each purchase will be made at the then reduced offering price applicable to
the amount checked above, as described in the Merrill Lynch Basic Value Fund,
Inc. Prospectus.
I agree to the terms and conditions of this Letter of Intention. I hereby
irrevocably constitute and appoint Merrill Lynch Funds Distributor, Inc., my
attorney, with full power of substitution, to surrender for redemption any or
all shares of Merrill Lynch Pacific Fund, Inc. held as security.
<TABLE>
<S> <C>
By:.............................................................. ...............................................................
Signature of Owner Signature of Co-Owner
(If registered in joint names, both must sign)
</TABLE>
In making purchases under this letter, the following are the related accounts
on which reduced offering prices are to apply:
<TABLE>
<S> <C>
(1) Name ................................................... (2) Name....................................................
Account Number ............................................ Account Number..............................................
</TABLE>
- --------------------------------------------------------------------------------
5. FOR DEALER ONLY
<TABLE>
<S> <C>
Branch Office, Address, Stamp We hereby authorize Merrill Lynch Funds Distributor, Inc. to act as
our agent in connection with transactions under this authorization
form and agree to notify the Distributor of any purchases made
under a Letter of Intention or Systematic Withdrawal Plan. We
guarantee the Shareholder's signature.
...............................................................
This form when completed should be mailed to: Dealer Name and Address
Merrill Lynch Pacific Fund, Inc. By ...........................................................
c/o Financial Data Services, Inc. Authorized Signature of Dealer
Transfer Agency Mutual Fund Operations
P.O. Box 45289 / / / / / / / / / ............................
Jacksonville, Florida 32232-5289 Branch-Code F/C No. F/C Last Name
/ / / / / / / / /
Dealer's Customer A/C No.
</TABLE>
A-2
<PAGE> 45
MERRILL LYNCH PACIFIC FUND, INC. -- AUTHORIZATION FORM (PART 2)
- --------------------------------------------------------------------------------
NOTE: THIS FORM IS REQUIRED TO APPLY FOR THE SYSTEMATIC WITHDRAWAL OF AUTOMATIC
INVESTMENT PLANS ONLY.
- --------------------------------------------------------------------------------
1. ACCOUNT REGISTRATION
<TABLE>
<S> <C>
(PLEASE PRINT)
Name................................................................................ ------------------------------------
First Name Initial Last Name Social Security No.
or Taxpayer Identification No.
Name of Co-Owner (if any)...........................................................
First Name Initial Last Name
Address.............................................................................
.................................................................................... Account Number...........................
(Zip Code) (if existing account)
</TABLE>
- --------------------------------------------------------------------------------
2. SYSTEMATIC WITHDRAWAL PLAN -- CLASS A AND D SHARES ONLY (See terms and
conditions in the Statement of Additional Information)
MINIMUM REQUIREMENTS: $10,000 for monthly disbursements, $5,000 for
quarterly, of / / Class A or / / Class D shares in Merrill Lynch Pacific Fund,
Inc. at cost or current offering price. Withdrawals to be made either (check
one) / / Monthly on the 24th day of each month, or / / Quarterly on the 24th day
of March, June, September and December. If the 24th falls on a weekend or
holiday, the next succeeding business day will be utilized. Begin systematic
withdrawals on ______________ or as soon as possible thereafter.
(month)
SPECIFY HOW YOU WOULD LIKE YOUR WITHDRAWAL PAID TO YOU (CHECK ONE): / / $
or / / $ % of the current value of / / Class A or / / Class D shares in the
account.
SPECIFY WITHDRAWAL METHOD: / / check or / / direct deposit to bank account
(check one and complete part (a) or (b) below):
DRAW CHECKS PAYABLE (CHECK ONE)
(a) I hereby authorize payment by check
/ / as indicated in Item 1.
/ / to the order of..........................................................
Mail to (check one)
/ / the address indicated in Item 1.
/ / Name (please print)......................................................
Address.........................................................................
.........................................................................
Signature of Owner ........................... Date...........................
Signature of Co-Owner (if any)..................................................
(B) I HEREBY AUTHORIZE PAYMENT BY DIRECT DEPOSIT TO BANK ACCOUNT AND, IF
NECESSARY, DEBIT ENTRIES AND ADJUSTMENTS FOR ANY CREDIT ENTRIES MADE TO MY
ACCOUNT. I AGREE THAT THIS AUTHORIZATION WILL REMAIN IN EFFECT UNTIL I PROVIDE
WRITTEN NOTIFICATION TO FINANCIAL DATA SERVICES, INC. AMENDING OR TERMINATING
THIS SERVICE.
Specify type of account (check one): / / checking / / savings
Name on your Account............................................................
Bank Name.......................................................................
Bank Number ............................. Account Number.......................
Bank Address....................................................................
....................................................................
Signature of Depositor........................ Date...........................
Signature of Depositor..........................................................
(if joint account, both must sign)
NOTE: IF DIRECT DEPOSIT IS ELECTED, YOUR BLANK, UNSIGNED CHECK MARKED "VOID" OR
A DEPOSIT SLIP FROM YOUR SAVINGS ACCOUNT SHALL ACCOMPANY THIS APPLICATION.
A-3
<PAGE> 46
MERRILL LYNCH PACIFIC FUND, INC. -- AUTHORIZATION FORM (PART 2) -- (CONTINUED)
- --------------------------------------------------------------------------------
3. APPLICATION FOR AUTOMATIC INVESTMENT PLAN
I hereby request that Financial Data Services, Inc. draw an automated
clearing house ("ACH") debit on my checking account as described below each
month to purchase: (choose one)
/ / Class A shares / / Class B shares / / Class C shares / / Class D shares
of Merrill Lynch Pacific Fund, Inc. subject to the terms set forth below. In the
event that I am not eligible to purchase Class A shares, I understand that Class
D shares will be purchased.
<TABLE>
<S> <C>
FINANCIAL DATA SERVICES, INC. AUTHORIZATION TO HONOR ACH DEBITS
You are hereby authorized to draw an ACH debit each month on my DRAWN BY FINANCIAL DATA SERVICES, INC.
bank account for investment in Merrill Lynch Pacific Fund, Inc.,
as indicated below: To........................................................Bank
(Investor's Bank)
Amount of each ACH debit $...................................
Bank Address..................................................
Account No...................................................
Please date and invest ACH debits on the 20th of each month City .......... State .......... Zip..........................
beginning ______________ or as soon as thereafter as possible. As a convenience to me, I hereby request and authorize you to
(month) pay and charge to my account ACH debits drawn on my account by
and payable to Financial Data Services, Inc., I agree that your
I agree that you are drawing these ACH debits voluntarily at rights in respect to each such debit shall be the same as if it
my request and that you shall not be liable for any loss arising were a check drawn on you and signed personally by me. This
from any delay in preparing or failure to prepare any such debit. authority is to remain in effect until revoked by me in writing
If I change banks or desire to terminate or suspend this program, Until you receive such notice, you shall be fully protected in
I agree to notify you promptly in writing. I hereby authorize you honoring any such debit. I further agree that if any such debit
to take any action to correct erroneous ACH debits of my bank be dishonored, whether with or without cause and whether
account or purchases of fund shares including liquidating shares intentionally or inadvertently, you shall be under no
of the Fund and crediting my bank account. I further agree that liability.
if a debit is not honored upon presentation, Financial Data
Services, Inc. is authorized to discontinue immediately the ................. .......................................
Automatic Investment Plan and to liquidate sufficient shares Date Signature of Depositor
held in my account to offset the purchase made with the
dishonored debit. ................. .......................................
Bank Account Signature of Depositor
................. ....................................... Number (If joint account, both must sign)
Date Signature of Depositor
.......................................
Signature of Depositor
(If joint account, both must sign)
</TABLE>
NOTE: IF AUTOMATIC INVESTMENT PLAN IS ELECTED, YOUR BLANK, UNSIGNED CHECK MARKED
"VOID" SHOULD ACCOMPANY THIS APPLICATION.
A-4
<PAGE> 47
[THIS PAGE IS INTENTIONALLY LEFT BLANK.]
<PAGE> 48
[THIS PAGE IS INTENTIONALLY LEFT BLANK.]
<PAGE> 49
MANAGER
Merrill Lynch Asset Management
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9011
Princeton, New Jersey 08543-9011
DISTRIBUTOR
Merrill Lynch Funds Distributor, Inc.
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9011
Princeton, New Jersey 08543-9011
TRANSFER AGENT
Financial Data Services, Inc.
Administrative Offices:
Transfer Agency Mutual Fund Operations
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
Mailing Address:
P.O. Box 45289
Jacksonville, Florida 32232-5289
CUSTODIAN
Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109
INDEPENDENT AUDITORS
Deloitte & Touche LLP
117 Campus Drive
Princeton, New Jersey 08540
COUNSEL
Brown & Wood
One World Trade Center
New York, New York 10048-0557
<PAGE> 50
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION
WITH THE OFFER CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE FUND, THE MANAGER OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFERING IN ANY STATE IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fee Table......................................... 2
Merrill Lynch Select Pricing(SM) System........... 3
Financial Highlights.............................. 8
Special Considerations............................ 10
Investment Objective and Policies................. 11
Hedging Techniques.............................. 12
Investment Restrictions......................... 17
Management of the Fund............................ 19
Board of Directors.............................. 19
Management and Advisory Arrangements............ 20
Transfer Agency Services........................ 21
Purchase of Shares................................ 21
Initial Sales Charge Alternatives -- Class A and
Class D Shares................................ 23
Deferred Sales Charge Alternatives -- Class B
and Class C Shares............................ 25
Distribution Plans.............................. 28
Limitations on the Payment of Deferred
Sales Charges................................. 30
Redemption of Shares.............................. 30
Redemption...................................... 30
Repurchase...................................... 31
Reinstatement Privilege -- Class A
and Class D Shares............................ 31
Shareholder Services.............................. 32
Portfolio Transactions and Brokerage.............. 34
Performance Data.................................. 35
Additional Information............................ 36
Dividends and Distributions..................... 36
Determination of Net Asset Value................ 37
Taxes........................................... 38
Organization of the Fund........................ 40
Shareholder Reports............................. 40
Shareholder Inquiries........................... 40
Authorization Form................................ A-1
</TABLE>
Code #10073-1094
[LOGO]
MERRILL LYNCH
PACIFIC FUND, INC.
[ART WORK]
PROSPECTUS
October 21, 1994
Distributor:
Merrill Lynch
Funds Distributor, Inc.
This prospectus should be
retained for future reference.
<PAGE> 51
STATEMENT OF ADDITIONAL INFORMATION
MERRILL LYNCH PACIFIC FUND, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 - PHONE NO. (609) 282-2800
------------------------
Merrill Lynch Pacific Fund, Inc. (the "Fund") is a diversified, open-end,
management investment company seeking long-term capital appreciation primarily
through investment in equities of corporations domiciled in Far Eastern or
Western Pacific countries, including Japan, Australia, Hong Kong and Singapore.
Current income from dividends and interest will not be an important
consideration in selecting portfolio securities. It is expected that under
normal conditions at least 80% of the Fund's net assets will be invested in Far
Eastern or Western Pacific corporate securities, primarily common stocks and
debt securities convertible into common stocks. The Fund is designed for U.S.
investors desiring to achieve diversification of investments by participation in
the economies of Far Eastern and Western Pacific countries. The Fund may seek to
hedge against investment, interest rate and currency risks through the use of
options, futures and foreign currency transactions.
------------------------
Pursuant to the Merrill Lynch Select Pricing(SM) System, the Fund offers
four classes of shares each with a different combination of sales charges,
ongoing fees and other features. The Merrill Lynch Select Pricing(SM) System
permits an investor to choose the method of purchasing shares that the
investor believes is most beneficial given the amount of the purchase, the
length of time the investor expects to hold the shares and other relevant
circumstances.
------------------------
This Statement of Additional Information of the Fund is not a prospectus
and should be read in conjunction with the prospectus of the Fund, dated October
21, 1994 (the "Prospectus"), which has been filed with the Securities and
Exchange Commission and can be obtained, without charge, by calling or by
writing the Fund at the above telephone number or address. This Statement of
Additional Information has been incorporated by reference into the Prospectus.
------------------------
MERRILL LYNCH ASSET MANAGEMENT -- MANAGER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC. -- DISTRIBUTOR
------------------------
The date of this Statement of Additional Information is October 21, 1994.
<PAGE> 52
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to seek long-term capital appreciation
primarily through investment in equities of corporations domiciled in Far
Eastern or Western Pacific countries, including Japan, Australia, Hong Kong and
Singapore. Reference is made to "Investment Objective and Policies" in the
Prospectus for a discussion of the investment objective and policies of the
Fund.
It is anticipated that the Japanese common stocks in which the Fund will
invest will primarily be those listed on the First Section of the Tokyo Stock
Exchange and that common stocks of corporations in other Far Eastern and Western
Pacific countries will be listed on the principal stock exchanges in such
countries.
Many of the securities held by the Fund will not be registered with the
Securities and Exchange Commission nor will the issuers thereof be subject to
the reporting requirements of such agency. Accordingly, there may be less
publicly available information concerning certain of the issuers of securities
held by the Fund than is available concerning U.S. companies. Foreign companies
are not generally subject to uniform accounting and auditing and financial
reporting standards or to practices and requirements comparable to those
applicable to domestic companies. Securities of many foreign companies may be
less liquid and more volatile than securities of comparable domestic companies.
In addition, with respect to certain foreign countries, there is the possibility
of expropriation or confiscatory taxation, limitations on the removal of funds
or other assets of the Fund, political or social instability, or diplomatic
developments which could affect U.S. investment in those countries. Moreover,
individual foreign economies may differ favorably or unfavorably from the U.S.
economy in such respects as growth of gross national product, rate of inflation,
capital reinvestment, resources, self-sufficiency and balance of payments
position.
While it is the policy of the Fund generally not to engage in trading for
short-term gains, Merrill Lynch Asset Management, L.P., doing business as
Merrill Lynch Asset Management (the "Manager"), will effect portfolio
transactions without regard to the holding period if, in its judgment, such
transactions are advisable in light of a change in circumstances of a particular
company or within a particular industry or in general market, economic or
political conditions. While the Fund anticipates that its annual portfolio
turnover rate should not exceed 100% under normal conditions, it is impossible
to predict portfolio turnover rates. Portfolio turnover rate is calculated by
dividing the lesser of the Fund's annual sales or purchases of portfolio
securities (exclusive of purchases or sales of all securities whose maturities
at the time of acquisition were one year or less) by the monthly average value
of the securities in the portfolio during the year. For the fiscal years ended
December 31, 1993 and 1992, the Fund's portfolio turnover rates were 13.25% and
7.62%, respectively.
The Fund's ability and decisions to purchase or sell portfolio securities
may be affected by laws or regulations relating to the convertibility and
repatriation of assets. Because the shares of the Fund are redeemable on a daily
basis in U.S. dollars, the Fund intends to manage its portfolio so as to give
reasonable assurance that it will be able to obtain U.S. dollars to the extent
necessary to meet anticipated redemptions. Under present conditions, management
of the Fund does not believe that these considerations will have any significant
effect on its portfolio strategy.
HEDGING TECHNIQUES
Reference is made to the discussion under the caption "Investment Objective
and Policies -- Hedging Techniques" in the Prospectus for information with
respect to various portfolio strategies involving options and futures. The Fund
may seek to hedge its portfolio against movements in the equity markets,
interest rates and
2
<PAGE> 53
exchange rates between currencies through the use of options and futures
transactions and forward foreign exchange transactions. The Fund has authority
to write (i.e., sell) covered call options on its portfolio securities, purchase
put options on securities and engage in transactions in stock index options,
stock index futures and financial futures, and related options on such futures.
The Fund may also deal in forward foreign exchange transactions and foreign
currency options and futures and related options on such futures. The Fund is
authorized to enter into such options and futures transactions either on
exchanges or in the over-the-counter ("OTC") markets. Each of such portfolio
strategies is described in the Prospectus. Although certain risks are involved
in options and futures transactions (as discussed in the Prospectus and below),
the Manager believes that, because the Fund will only engage in these
transactions for hedging purposes, the options and futures portfolio strategies
of the Fund will not subject the Fund to the risks frequently associated with
the speculative use of option and futures transactions. While the Fund's use of
hedging strategies is intended to reduce the volatility of the net asset value
of its shares, the net asset value of the Fund's shares will fluctuate. There
can be no assurance that the Fund's hedging transactions will be effective. The
following is further information relating to portfolio strategies involving
options and futures that the Fund may utilize.
Hedging Investment and Interest Rate Risks. The Fund may write (i.e.,
sell) covered call options on the equity securities in which it may invest and
may enter into closing purchase transactions with respect to certain of such
options. Covered call options serve as a partial hedge against the decline in
price of the underlying security. A covered call option is an option where the
Fund, in return for a premium, gives another party a right to buy specified
securities owned by the Fund at a specified future date and price set at the
time of the contract. By writing covered call options, the Fund gives up the
opportunity, while the option is in effect, to profit from any price increase in
the underlying security above the option exercise price. In addition, the Fund's
ability to sell the underlying security will be limited while the option is in
effect unless the Fund effects a closing purchase transaction. A closing
purchase transaction cancels out the Fund's position as the writer of an option
by means of an offsetting purchase of an identical option prior to the
expiration of the option it has written. The writer of a covered call option has
no control over when he may be required to sell his securities since he may be
assigned an exercise notice at any time prior to the termination of his
obligation as a writer. If an option expires unexercised, the writer realizes a
gain in the amount of the premium. Such a gain, of course, may be offset by a
decline in the market value of the underlying security during the option period.
If a call option is exercised, the writer realizes a gain or loss from the sale
of the underlying security.
The Fund may also purchase put options to hedge against a decline in the
market value of its equity holdings. By buying a put the Fund has a right to
sell the underlying security at the exercise price, thus limiting the Fund's
risk of loss through a decline in the market value of the security until the put
option expires. The amount of any appreciation in the value of the underlying
security will be offset partially by the amount of the premium paid for the put
option and any related transaction costs. Prior to its expiration, a put option
may be sold in a closing sale transaction, and profit or loss from the sale will
depend on whether the amount received is more or less than the premium paid for
the put option plus the related transaction cost. A closing sale transaction
cancels out the Fund's position as the purchaser of an option by means of an
offsetting sale of an identical option prior to the expiration of the option it
has purchased.
The Fund also may engage in transactions in stock index options and
futures, financial futures in U.S. and foreign agency and government securities
and corporate debt securities, and related options on such futures. A futures
contract is an agreement between two parties to buy and sell a security or, in
the case of an index-based futures contract, to make and accept a cash
settlement for a set price on a future date. A majority of
3
<PAGE> 54
transactions in futures contracts, however, do not result in the actual delivery
of the underlying instrument or cash settlement, but are settled through
liquidation, i.e., by entering into an offsetting transaction. Futures contracts
have been designed by boards of trade which have been designated "contracts
markets" by the Commodity Futures Trading Commission ("CFTC").
The purchase or sale of a futures contract differs from the purchase or
sale of a security in that no price or premium is paid or received. Instead, an
amount of cash or securities acceptable to the broker and the relevant contract
market, which varies, but is generally about 5% of the contract amount, must be
deposited with the broker. This amount is known as "initial margin" and
represents a "good faith" deposit assuring the performance of both the purchaser
and seller under the futures contract. Subsequent payments to and from the
broker, called "variation margin", are required to be made on a daily basis as
the price of the futures contracts fluctuates making the long and short
positions in the futures contracts more or less valuable, a process known as
"mark to the market". At any time prior to the settlement date of the futures
contract, the position may be closed out by taking an opposite position which
will operate to terminate the position in the futures contract. A final
determination of variation margin is then made, additional cash is required to
be paid to or released by the broker and the purchaser realizes a loss or gain.
In addition, a nominal commission is paid on each completed sale transaction.
The Fund has received an order from the Securities and Exchange Commission
exempting it from the provisions of Section 17(f) and Section 18(f) of the
Investment Company Act of 1940, as amended (the "Investment Company Act"), in
connection with its strategy of investing in futures contracts. Section 17(f)
relates to the custody of securities and other assets of an investment company
and may be deemed to prohibit certain arrangements between the Fund and
commodities brokers with respect to initial and variation margin. Section 18(f)
of the Investment Company Act prohibits an open-end investment company such as
the Fund from issuing a "senior security" other than a borrowing from a bank.
The staff of the Securities and Exchange Commission has in the past indicated
that a futures contract may be "senior security" under the Investment Company
Act.
Risk Factors in Options and Futures Transactions. Utilization of options
and futures transactions involves the risk of imperfect correlation in movements
in the prices of options and futures contracts and movements in the price of the
securities and currencies which are the subject of the hedge. If the price of
the options and futures contract moves more or less than the prices of the
hedged securities or currencies, the Fund will experience a gain or loss which
will not be completely offset by movements in the prices of the securities or
currencies which are the subject of the hedge.
Prior to exercise or expiration, an exchange-traded option position can
only be terminated by entering into a closing purchase or sale transaction. This
requires a secondary market on an exchange for call or put options of the same
series. The Fund will enter into an option or futures transaction on an exchange
only if there appears to be a liquid secondary market for such options or
futures. However, there can be no assurance that a liquid secondary market will
exist for any particular call or put option or futures contract at any specific
time. Thus, it may not be possible to close an option or futures position. The
Fund will acquire only OTC options for which management believes the Fund can
receive on each business day at least two independent bids or offers (one of
which will be from an entity other than a party to the option). In the case of a
futures position or an option on a futures position written by the Fund, in the
event of adverse price movements, the Fund would continue to be required to make
daily cash payments of variation margin. In such situations, if the Fund has
insufficient cash, it may have to sell portfolio securities to meet daily
variation margin requirements at a time
4
<PAGE> 55
when it may be disadvantageous to do so. In addition, the Fund may be required
to take or make delivery of the security or currency underlying futures
contracts it holds. The inability to close options and futures positions also
could have an adverse impact on the Fund's ability to effectively hedge its
portfolio. There is also the risk of loss by the Fund of margin deposits in the
event of bankruptcy of a broker with whom the Fund has an open position in a
futures contract or related option. The risk of loss from investing in futures
transactions is theoretically unlimited.
The exchanges on which the Fund intends to conduct options transactions
have generally established limitations governing the maximum number of call or
put options on the same underlying currency (whether or not covered) which may
be written by a single investor, whether acting alone or in concert with others
(regardless of whether such options are written on the same or different
exchanges or are held or written on one or more accounts or through one or more
brokers). "Trading limits" are imposed on the maximum number of contracts which
any person may trade on a particular trading day. An exchange may order the
liquidation of positions found to be in violation of these limits, and it may
impose other sanctions or restrictions. The Manager does not believe that these
trading and position limits will have any adverse impact on the portfolio
strategies for hedging the Fund's portfolio.
Hedging Foreign Currency Risks. Generally, the foreign exchange
transactions of the Fund will be conducted on a spot, i.e., cash, basis at the
spot rate then prevailing for purchasing or selling currency in the foreign
exchange market. This rate under normal market conditions differs from the
prevailing exchange rate in an amount generally less than 1/10 of 1% due to the
costs of converting from one currency to another. However, the Fund has
authority to deal in forward foreign exchange between currencies of Far Eastern
and Western Pacific countries and the dollar as a hedge against possible
variations in the foreign exchange rates between these currencies. This is
accomplished through contractual agreements to purchase or to sell a specified
currency at a specified future date and price set at the time of the contract.
The Fund's dealings in forward foreign exchange will be limited to hedging
involving either specific transactions or portfolio positions. Transaction
hedging is the purchase or sale of forward foreign currency with respect to
specific receivables or payables of the Fund accruing in connection with the
purchase and sale of its portfolio securities, the sale and redemption of shares
of the Fund or the payment of dividends and distributions by the Fund. Position
hedging is the sale of forward currency with respect to portfolio security
positions denominated or quoted in such foreign currency. The Fund will not
speculate in forward foreign exchange. All dealings in forward exchange will be
limited to contracts involving currencies of Far Eastern and Western Pacific
countries and the dollar. The Fund may not position hedge with respect to the
currency of a particular country to an extent greater than the aggregate market
value (at the time of making such sale) of the securities held in its portfolio
denominated or quoted in that particular foreign currency. If the Fund enters
into a position hedging transaction, its custodian will place cash or liquid
equity or debt securities in a separate account of the Fund in an amount equal
to the value of the Fund's total assets committed to the consummation of such
forward contract. If the value of the securities placed in the separate account
declines, additional cash or securities will be placed in the account so that
the value of the account will equal the amount of the Fund's commitment with
respect to such contracts. The Fund will not attempt to hedge all of its
portfolio positions and will enter into such transactions only to the extent, if
any, deemed appropriate by the Manager. The Fund will not enter into a position
hedging commitment if, as a result thereof, the Fund would have more than 15% of
the value of its assets committed to such contracts. The Fund will not enter
into a forward contract with a term of more than one year.
5
<PAGE> 56
As discussed in the Prospectus, the Fund may also purchase or sell listed
or OTC foreign currency options, foreign currency futures and related options on
foreign currency futures as a short or long hedge against possible variations in
foreign exchange rates.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the price of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise. Moreover,
it may not be possible for the Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to sell the currency
at a price above the devaluation level it anticipates. It is possible that,
under certain circumstances, the Fund may have to limit its currency
transactions to qualify as a regulated investment company under the Internal
Revenue Code of 1986, as amended; in this regard, the Fund presently intends to
limit its gross income from currency hedging transactions to less than 10% of
its gross income in any taxable year until such time as the Fund determines that
income from the transaction is not subject to this restriction. The cost to the
Fund of engaging in foreign currency transactions varies with such factors as
the currencies involved, the length of the contract period and the market
conditions then prevailing. Since transactions in foreign currency exchange
usually are conducted on a principal basis, no fees or commissions are involved.
Debt Securities. The Fund may hold convertible debt securities and, from
time to time as a temporary defensive measure, may also hold non-convertible
debt securities. The Fund has established no rating criteria for the debt
securities in which it may invest. Therefore, the Fund may invest in debt
securities either (a) rated in one of the top four rating categories by a
nationally recognized rating organization or which, in the Manager's judgment,
possess similar credit characteristics ("investment grade securities") or (b)
rated below the top four rating categories or which, in the Manager's judgment,
possess similar credit characteristics ("high yield securities"). The Manager
considers ratings as one of several factors in its independent credit analysis
of issuers.
Issuers of high yield securities may be highly leveraged and may not have
available to them more traditional methods of financing. Therefore, the risks
associated with acquiring the securities of such issuers generally are greater
than is the case with higher rated securities. For example, during an economic
downturn or a sustained period of rising interest rates, issuers of high yield
securities may be more likely to experience financial stress, especially if such
issuers are highly leveraged. During such periods, such issuers may not have
sufficient revenues to meet their interest payment obligations. The issuer's
ability to service its debt obligations also may be adversely affected by
specific issuer developments or the issuer's inability to meet specific
projected business forecasts or the unavailability of additional financing. The
risk of loss due to default by the issuer is significantly greater for the
holders of high yield securities because such securities may be unsecured and
may be subordinated to other creditors of the issuer.
High yield securities frequently have call or redemption features which
would permit issuers to repurchase such securities from the Fund. If a call were
exercised by an issuer during a period of declining interest rates, the Fund
likely would have to replace such called security with a lower yielding
security, thus decreasing the net investment income to the Fund and dividends to
shareholders.
The Fund may have difficulty disposing of certain high yield securities
because there may be a thin trading market for such securities. The secondary
trading market for high yield securities is generally not as liquid as the
secondary market for higher rated securities. Reduced secondary market liquidity
may have an adverse impact on market price and the Fund's ability to dispose of
particular issues when necessary to meet
6
<PAGE> 57
the Fund's liquidity needs or in response to a specific economic event such as a
deterioration in the creditworthiness of the issuer.
Adverse publicity and investor perceptions, which may not be based on
fundamental analysis, also may decrease the value and liquidity of high yield
securities, particularly in a thinly traded market. Factors adversely affecting
the market value of high yield securities are likely to affect adversely the
Fund's net asset value. In addition, the Fund may incur additional expenses to
the extent it is required to seek recovery upon a default on a portfolio holding
or to participate in the restructuring of an obligation.
CURRENT INVESTMENT RESTRICTIONS
In addition to the investment restrictions set forth in the Prospectus, the
Fund has adopted the following restrictions and policies relating to the
investment of its assets and its activities, which are fundamental policies and
may not be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities (which for this purpose and under the
Investment Company Act means the lesser of (i) 67% of the shares represented at
a meeting at which more than 50% of the outstanding shares are represented or
(ii) more than 50% of the outstanding shares). The Fund may not:
1. Make investments for the purpose of exercising control or
management.
2. Purchase securities of other investment companies, except in
connection with a merger, consolidation, acquisition or reorganization, or
by purchase in the open market of securities of closed-end investment
companies where no underwriter's or dealer's commission or profit, other
than customary broker's commission, is involved and only if immediately
thereafter not more than (i) 3% of the total outstanding voting stock of
such company is owned by the Fund, (ii) 5% of the Fund's total assets,
taken at market value, would be invested in any one such company, or (iii)
10% of the Fund's total assets, taken at market value, would be invested in
such securities.
3. Purchase or sell real estate; provided that the Fund may invest in
securities secured by real estate or interests therein or issued by
companies which invest in real estate or interests therein.
4. Purchase or sell commodities or commodity contracts, except that
the Fund may deal in forward foreign exchange between currencies of the
different countries in which it may invest and the Fund may purchase or
sell stock index and currency options, stock index futures, interest rate
futures and currency futures contracts and related options on such futures.
5. Purchase securities on margin (except for short-term credit
necessary for clearance of portfolio transactions) or sell securities short
or write, sell or buy puts or calls, or any combination thereof. [Except as
otherwise discussed under "Investment Objective and Policies -- Hedging
Techniques" in the Prospectus and herein.]
6. Make loans to other persons (except as provided in (11) below);
provided that for purposes of this restriction the acquisition of bonds,
debentures, or other corporation debt securities and investment in
government obligations, short-term commercial paper, certificates of
deposit and bankers' acceptances shall not be deemed to be the making of a
loan (the acquisition of bonds, debentures or other corporate debt
securities which are not publicly distributed is considered to be the
making of a loan under the Investment Company Act of 1940).
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<PAGE> 58
7. Borrow amounts in excess of 5% of its total assets, taken at
acquisition cost or market value, whichever is lower, and then only from
banks as a temporary measure for extraordinary or emergency purposes. (See
restriction (8) below regarding the exclusion from this restriction of
arrangements with respect to options, futures contracts and options on
futures contracts).
8. Mortgage, pledge, hypothecate or in any manner transfer, as
security for indebtedness, any securities owned or held by the Fund except
as may be necessary in connection with borrowings, mentioned in (7) above,
and then such mortgaging, pledging or hypothecating may not exceed 15% of
the Fund's total assets, taken at market value. [In order to comply with
certain statutes, the Fund will not, as a matter of operating policy,
mortgage, pledge or hypothecate its portfolio securities to the extent that
at any time the percentage of the value of pledged securities plus the
maximum sales charge will exceed 10% of the value of the Fund's shares at
the maximum offering price.] (For the purpose of this restriction and
restriction (7) above, collateral arrangements with respect to the writing
of options, futures contracts, options on futures contracts, and collateral
arrangements with respect to initial and variation margin are not deemed to
be a pledge of assets, and neither such arrangements nor the purchase and
sale of options, futures or related options are deemed to be the issuance
of a senior security.)
9. Invest in securities which cannot be readily resold to the public
because of legal or contractual restrictions or for which no readily
available market exists or in securities of issuers having a record,
together with predecessors, of less than three years of continuous
operation if, regarding all such securities, more than 5% of its total
assets taken at market value, would be invested in such securities.
10. Underwrite securities of other issuers except insofar as the Fund
may be deemed an underwriter under the Securities Act of 1933 in selling
portfolio securities.
11. Lend its portfolio securities, except that it may lend up to 20%
of its total assets, taken at market value, in accordance with the
guidelines set forth below.
The staff of the Securities and Exchange Commission has taken the position
that purchased OTC options and the assets used as cover for written OTC options
are illiquid securities. Therefore, the Fund has adopted an investment policy
pursuant to which it will not purchase or sell OTC options (including OTC
options on futures contracts) if, as a result of such transactions, the sum of
the market value of OTC options currently outstanding which are held by the
Fund, the market value of the underlying securities covered by OTC call options
currently outstanding which were sold by the Fund and margin deposits on the
Fund's existing OTC options on futures contracts exceeds 5% of the total assets
of the Fund, taken at market value, together with all other assets of the Fund
which are illiquid or are not otherwise readily marketable. However, if an OTC
option is sold by the Fund to a primary U.S. Government securities dealer
recognized by the Federal Reserve Bank of New York and if the Fund has the
unconditional contractual right to repurchase such OTC option from the dealer at
a predetermined price, then the Fund will treat as illiquid such amount of the
underlying securities as is equal to the repurchase price less the amount by
which the option is "in-the-money" (i.e., current market value of the underlying
securities minus the option's strike price). The repurchase price with the
primary dealers is typically a formula price which is generally based on a
multiple of the premium received for the option, plus the amount by which the
option is "in-the-money". This policy is not a fundamental policy of the Fund
and may be amended by the Board of Directors without the approval of the Fund's
shareholders. The Fund will not change or modify this policy, however, prior to
the change or modification by the Securities and Exchange Commission staff of
its position.
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<PAGE> 59
Subject to investment restriction (11) above, the Fund may from time to
time lend securities from its portfolio to brokers, dealers and financial
institutions and receive collateral in cash (or cash equivalents consisting of
securities issued or guaranteed by the governments of the U.S. or Japan or other
Far Eastern or Western Pacific countries or their agencies or instrumentalities)
which will be maintained in an amount equal to at least 100% of the current
market value of the loaned securities. During the period of the loan, the Fund
receives income on the loaned securities and a loan fee and thereby increases
the current income of the Fund. Such loans will be terminable at any time. The
Fund will have the right to regain record ownership of loaned securities to
exercise beneficial rights such as voting rights, subscription rights and rights
to dividends, interest or other distributions. The Fund may pay reasonable fees
to persons unaffiliated with the Fund for services in arranging such loans.
The Board of Directors has established the policy that the Fund will not
purchase or retain the securities of any issuer if those individual officers and
directors of the Fund, the officers and general partner of the Manager, the
directors of such general partner or the officers and directors of the
Distributor each owning beneficially more than one-half of 1% of the securities
of such issuer own in the aggregate more than 5% of the securities of such
issuer. Portfolio securities of the Fund may not be purchased from, sold or
loaned to the Manager or its affiliates or any of its directors, general
partners, officers or employees, acting as principal.
Because of the affiliation of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") with the Fund, the Fund is prohibited from
engaging in certain transactions involving Merrill Lynch or its subsidiaries
except pursuant to an exemptive order under the Investment Company Act. Without
such an order, the Fund would be prohibited from engaging in portfolio
transactions with Merrill Lynch or its subsidiaries acting as principal and from
purchasing securities in public offerings which are not registered under the
Securities Act of 1933, as amended, in which Merrill Lynch or any of its
affiliates participates as an underwriter or dealer.
The investment restrictions set forth in the Prospectus contain an
exception that permits the Fund to purchase securities pursuant to the exercise
of subscription rights, subject to the condition that such purchase will not
result in the Fund ceasing to be a diversified investment company. Japanese
corporations frequently issue additional capital stock by means of subscription
rights offerings to existing shareholders at a price substantially below the
market price of the shares. The failure to exercise such rights would result in
the Fund's interest in the issuing company being diluted. Therefore, the
exception applies in cases where the limits set forth in the investment
restrictions in the Prospectus would otherwise be exceeded by exercising rights
or have already been exceeded as a result of fluctuations in the market value of
the Fund's portfolio securities with the result that the Fund would otherwise be
forced either to sell securities at a time when it might not otherwise have done
so, or to forego exercising the rights.
Proposed Uniform Investment Restrictions. As discussed in the Prospectus
under "Investment Objective and Policies -- Investment Restrictions", the Board
of Directors of the Fund has approved the replacement of the Fund's existing
investment restrictions with the fundamental and non-fundamental investment
restrictions set forth below. These uniform investment restrictions have been
proposed for adoption by all of the non-money market mutual funds advised by the
Manager or its affiliate, Fund Asset Management L.P. ("FAM"). The investment
objective and policies of the Fund will be unaffected by the adoption of the
proposed investment restrictions. However, as discussed in the Prospectus, it is
also proposed that the Fund change its status from diversified to
non-diversified under the Investment Company Act; the effects of such a policy
change are discussed in the Prospectus.
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<PAGE> 60
Shareholders of the Fund are currently considering whether to approve the
proposed revised investment restrictions and status change. If such shareholder
approval is obtained, the Fund's current investment restrictions will be
replaced by the proposed restrictions, and the Fund's Prospectus and Statement
of Additional Information will be supplemented to reflect such change.
Under the proposed fundamental investment restrictions, the Fund may not:
1. Invest more than 25% of its assets, taken at market value, in the
securities of issuers in any particular industry (excluding the U.S.
Government and its agencies and instrumentalities).
2. Make investments for the purpose of exercising control or
management.
3. Purchase or sell real estate, except that, to the extent permitted
by applicable law, the Fund may invest in securities directly or indirectly
secured by real estate or interests therein or issued by companies which
invest in real estate or interests therein.
4. Make loans to other persons, except that the acquisition of bonds,
debentures or other corporate debt securities and investment in government
obligations, commercial paper, pass-through instruments, certificates of
deposit, bankers acceptances, repurchase agreements or any similar
instruments shall not be deemed to be the making of a loan, and except
further that the Fund may lend its portfolio securities, provided that the
lending of portfolio securities may be made only in accordance with
applicable law and the guidelines set forth in the Fund's Prospectus and
Statement of Additional Information, as they may be amended from time to
time.
5. Issue senior securities to the extent such issuance would violate
applicable law.
6. Borrow money, except that (i) the Fund may borrow from banks (as
defined in the Investment Company Act) in amounts up to 33 1/3% of its
total assets (including the amount borrowed), (ii) the Fund may borrow up
to an additional 5% of its total assets from temporary purposes, (iii) the
Fund may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities and (iv) the Fund
may purchase securities on margin to the extent permitted by applicable
law. The Fund may not pledge its assets other than to secure such
borrowings or, to the extent permitted by the Fund's investment policies as
set forth in its Prospectus and Statement of Additional Information, as
they may be amended from time to time, in connection with hedging
transactions, short sales, when-issued and forward commitment transactions
and similar investment strategies.
7. Underwrite securities of other issuers except insofar as the Fund
technically may be deemed an underwriter under the Securities Act of 1933,
as amended (the "Securities Act"), in selling portfolio securities.
8. Purchase or sell commodities or contracts on commodities, except to
the extent that the Fund may do so in accordance with applicable law and
the Fund's Prospectus and Statement of Additional Information, as they may
be amended from time to time, and without registering as a commodity pool
operator under the Commodity Exchange Act.
Under the proposed non-fundamental investment restrictions, the Fund may
not:
a. Purchase securities of other investment companies, except to the
extent such purchases are permitted by applicable law.
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<PAGE> 61
b. Make short sales of securities or maintain a short position, except
to the extent permitted by applicable law. The Fund currently does not
intend to engage in short sales, except short sales "against the box".
c. Invest in securities which cannot be readily resold because of
legal or contractual restrictions or which cannot otherwise be marketed,
redeemed or put to the issuer or a third party, if at the time of
acquisition more than 15% of its total assets would be invested in such
securities. This restriction shall not apply to securities which mature
within seven days or securities which the Board of Directors of the Fund
has otherwise determined to be liquid pursuant to applicable law.
Notwithstanding the 15% limitation herein, to the extent the laws of any
state in which the Fund's shares are registered or qualified for sale
require a lower limitation, the Fund will observe such limitation. As of
the date hereof, therefore, the Fund will not invest more than 10% of its
total assets in securities which are subject to this investment restriction
(c).
d. Invest in warrants if, at the time of acquisition, its investment
in warrants, valued at the lower of cost or market value, would exceed 10%
of the Fund's net assets.
e. Invest in securities of companies having a record, together with
predecessors, of less than three years of continuous operation, if more
than 5% of the Fund's total assets would be invested in such securities.
This restriction shall not apply to mortgage-backed securities,
asset-backed securities or obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
f. Purchase or retain the securities of any issuer, if those
individual officers and directors of the Fund, the officers and general
partner of the Manager, the directors of such general partner or the
officers and directors of any subsidiary thereof each owning beneficially
more than one-half of one percent of the securities of such issuer own in
the aggregate more than 5% of the securities of such issuer.
g. Invest in real estate limited partnership interests or interests in
oil, gas or other mineral leases, or exploration or development programs,
except that the Fund may invest in securities issued by companies that
engage in oil, gas or other mineral exploration or development activities.
h. Write, purchase or sell puts, calls, straddles, spreads or
combinations thereof, except to the extent permitted in the Fund's
Prospectus and Statement of Additional Information, as they may be amended
from time to time.
i. Notwithstanding fundamental investment restriction (6) above,
borrow amounts in excess of 5% of its total assets, taken at acquisition
cost or market value, whichever is lower, and then only from banks as a
temporary measure for extraordinary or emergency purposes.
Nothing in the foregoing investment restrictions shall be deemed to
prohibit the Fund from purchasing the securities of any issuer pursuant to the
exercise of subscription rights distributed to the fund by the issuer, except
that no such purchase may be made if as a result the Fund would not satisfy the
diversification requirements of the Internal Revenue Code of 1986, as amended.
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<PAGE> 62
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
The Directors and principal executive officers of the Fund and their
principal occupations for at least the past five years are set forth below.
Unless otherwise noted, the address of each Director and officer is P.O. Box
9011, Princeton, New Jersey 08543-9011.
ARTHUR ZEIKEL -- President and Director(1)(2) -- President of the Manager
(which term as used herein includes its corporate predecessors) since 1977 and
Chief Investment Officer since 1976; President of FAM (which term as used herein
includes its corporate predecessors) since 1977 and Chief Investment Officer
since 1976; President and Director of Princeton Services, Inc. ("Princeton
Services") since 1993; Executive Vice President of Merrill Lynch since 1990 and
a Senior Vice President thereof from 1985 to 1990; Executive Vice President of
Merrill Lynch & Co., Inc. ("ML & Co.") since 1990; Director of the Distributor.
DONALD CECIL -- Director(2) -- 1114 Avenue of the Americas, New York, New
York 10036. Special Limited Partner of Cumberland Partners (an investment
partnership) since 1982; Member of Institute of Chartered Financial Analysts;
Member and Chairman of Westchester County (N.Y.) Board of Transportation.
EDWARD H. MEYER -- Director(2) -- 777 Third Avenue, New York, New York
10017. President of Grey Advertising Inc. since 1968, Chief Executive Officer
since 1970 and Chairman of the Board of Directors since 1972; Director of The
May Department Stores Company, Bowne & Co., Inc. (financial printers), Ethan
Allen Interiors Inc. and Harman International Industries, Inc.
CHARLES C. REILLY -- Director(2) -- 9 Hampton Harbor Road, Hampton Bays,
N.Y. 11946. Self-employed financial consultant since 1990; President and Chief
Investment Officer of Verus Capital, Inc. from 1979 to 1990; former Senior Vice
President of Arnhold and S. Bleichroeder, Inc. from 1973 to 1990; Adjunct
Professor, Columbia University Graduate School of Business since 1990; Adjunct
Professor, Wharton School, University of Pennsylvania, 1990; Director, Harvard
Business School Alumni Association.
RICHARD R. WEST -- Director(2) -- 482 Tepi Drive, Southbury, Connecticut
06488. Professor of Finance since 1984, and Dean from 1984 to 1993, of New York
University Leonard N. Stern School of Business Administration; Director of Re
Capital Corp. (reinsurance holding company), Bowne & Co., Inc. (financial
printers), Vornado, Inc. (real estate holding company), Smith-Corona Corporation
(manufacturer of typewriters and word processors) and Alexander's, Inc. (real
estate company).
TERRY K. GLENN -- Executive Vice President(1)(2) -- Executive Vice
President of the Manager and FAM since 1983; Executive Vice President and
Director of Princeton Services since 1993; President and Director of the
Distributor since 1986.
NORMAN R. HARVEY -- Executive Vice President(1)(2) -- Senior Vice President
of the Manager and FAM since 1982; Senior Vice President of Princeton Services
since 1993.
DONALD C. BURKE -- Vice President(1)(2) -- Vice President and Director of
Taxation of the Manager since 1990; employee of Deloitte & Touche LLP from 1982
to 1990.
STEPHEN I. SILVERMAN -- Vice President(1) -- Vice President of the Manager
since 1983.
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<PAGE> 63
GERALD M. RICHARD -- Treasurer(1)(2) -- Senior Vice President and Treasurer
of the Manager and FAM since 1984; Senior Vice President and Treasurer of
Princeton Services since 1993; Vice President of the Distributor since 1981 and
Treasurer since 1984.
ROBERT HARRIS -- Secretary(1)(2) -- Vice President of the Manager since
1984 and attorney associated with the Manager since 1980; Secretary of the
Distributor since 1982.
- ---------------
(1) Interested person, as defined in the Investment Company Act, of the Fund.
(2) Such Director or officer is a director, trustee or officer of one or more
other investment companies for which the Manager, or its affiliate FAM, acts
as investment adviser or manager.
At September 30, 1994, the Directors and officers of the Fund as a group
(11 persons) owned an aggregate of less than 1% of the outstanding shares of the
Fund. At such date, Mr. Zeikel, a Director of the Fund, and the other officers
of the Fund owned less than 1% of the outstanding shares of common stock of
ML&Co. The Fund pays each Director not affiliated with the Manager an annual
retainer of $3,500 per year plus $500 per Board meeting attended, together with
such Director's actual out-of-pocket expenses relating to attendance at
meetings. The Fund also compensates members of its audit committee, which
consists of all of the non-affiliated Directors, at a rate of $500 per committee
meeting attended. The Chairman of the audit committee receives an additional fee
of $250 per meeting attended.
Pursuant to the terms of the Fund's management agreement (the "Management
Agreement"), the Manager pays all compensation of officers and employees of the
Fund as well as the fees of all Directors of the Fund who are affiliated persons
of the Manager. Each unaffiliated Director is paid an annual fee for serving as
a Director plus a fee for each meeting of the Board attended. The Fund also pays
each member of its Audit and Nominating Committee, which consists of the
unaffiliated Directors, an annual fee. The Fund reimburses each unaffiliated
Director for his out-of-pocket expenses relating to attendance at Board and
Committee meetings. In addition, the Chairman of the Committee receives an
annual fee for serving as Chairman of the Committee. Fees and expenses paid to
the unaffiliated Directors aggregated $39,408 for the fiscal year ended December
31, 1993.
MANAGEMENT AND ADVISORY ARRANGEMENTS
Reference is made to "Management of the Fund -- Management and Advisory
Arrangements" in the Prospectus for certain information concerning the
management and advisory arrangements of the Fund.
Pursuant to the Management Agreement, and subject to the direction of the
Board of Directors, the Manager is responsible for the actual management of the
Fund's portfolio and constantly reviews the Fund's holdings in light of its own
research analysis and that from other relevant sources. The responsibility for
making decisions to buy, sell or hold a particular security rests with the
Manager. The Manager performs certain other administrative services and provides
all the office space, facilities, equipment and necessary personnel for
management of the Fund.
Securities held by the Fund may also be held by other clients to which the
Manager or its affiliate, FAM, provides investment advice. Transactions based
upon such advice during the same period by more than one client of the Manager
or FAM may increase the demand for securities being purchased or the supply of
securities being sold and thereby may have an adverse effect on price.
As compensation for its services, the Manager receives a fee from the Fund
at the end of each month at the annual rate of 0.60% of the average daily net
assets of the Fund. For the fiscal years ended December 31,
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<PAGE> 64
1991, 1992 and 1993, the total management fees paid by the Fund to the Manager
aggregated $2,195,739, $2,542,910 and $4,179,008, respectively.
California imposes limitations on the expenses of the Fund. These expense
limitations require that the Manager reimburse the Fund in an amount necessary
to prevent the ordinary operating expenses of the Fund (excluding interest,
taxes, distribution fees, brokerage fees and commissions and extraordinary
charges such as litigation costs) from exceeding 2.5% of the Fund's first $30
million of average daily net assets, 2.0% of the next $70 million of average
daily net assets and 1.5% of the remaining average daily net assets. The
Manager's obligation to reimburse the Fund is limited to the amount of the
management fee. No fee payment will be made to the Manager during any fiscal
year which will cause such expenses to exceed the most restrictive expense
limitation applicable at the time of such payment. For the fiscal years ended
December 31, 1991, 1992 and 1993, no reimbursement of expenses was required
pursuant to the applicable expense limitation provisions discussed above.
Under the Management Agreement, the Manager agrees to furnish the Fund with
administrative services, office space, equipment and facilities for management
of the Fund's affairs and to pay all compensation of officers of the Fund as
well as all Directors of the Fund who are affiliated persons of the Manager. The
Fund pays all other expenses incurred in its operation including, among other
things, taxes; expenses for legal and auditing services; accounting services;
allocated portions of clerical salaries related to Fund activities; the expense
of preparing (including typesetting), printing and mailing reports,
prospectuses, statements of additional information (except to the extent paid by
the Distributor) and notices to its shareholders; costs of printing stock
certificates; charges of the custodian and transfer agent; expenses of
redemption of shares; the cost of issuing shares of the Fund and registering
shares of the Fund under Federal, state and foreign laws; shareholder meeting
and related proxy solicitation expenses; costs of conducting shareholder
relations; fees and actual out-of-pocket expenses of Directors who are not
affiliated persons of the Manager; insurance; interest; brokerage costs;
litigation and other extraordinary or non-recurring expenses; and other like
expenses properly payable by the Fund. Accounting services are provided to the
Fund by the Manager, and the Fund reimburses the Manager for its costs in
connection with such services on a semi-annual basis. For the fiscal year ended
December 31, 1993, the amount of such reimbursement was $68,896. Certain
expenses in connection with the offering of the Fund's shares will be financed
by the Fund pursuant to distribution plans in compliance with Rule 12b-1 under
the Investment Company Act. See "Purchase of Shares -- Distribution Plan".
ML & Co., Merrill Lynch Investment Management, Inc. and Princeton Services
are "controlling persons" of the Manager as defined under the Investment Company
Act because of their ownership of its voting securities or their power to
exercise a controlling influence over its management or policies.
Duration and Termination. Unless earlier terminated as described herein,
the Management Agreement will remain in effect from year to year if approved
annually (a) by the vote of the holders of a majority of the Fund's voting
securities (as defined in the Investment Company Act) or by its Board of
Directors and (b) by a majority of Directors who are not parties to such
agreement or interested persons of any such party. Such agreement will terminate
upon assignment and may be terminated without penalty on 60 days' written notice
at the option of either party thereto or by the vote of the shareholders of the
Fund.
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<PAGE> 65
PURCHASE OF SHARES
Reference is made to "Purchase of Shares" in the Prospectus for certain
information as to the purchase of Fund shares.
The Fund issues four classes of shares under the Merrill Lynch Select
PricingSM System: shares of Class A and Class D are sold to investors choosing
the initial sales charge alternatives, and shares of Class B and Class C are
sold to investors choosing the deferred sales charge alternatives. Each Class A,
Class B, Class C and Class D share of the Fund represents identical interests in
the investment portfolio of the Fund and has the same rights, except that Class
B, Class C and Class D shares bear the expenses of the ongoing account
maintenance fees, and Class B and Class C shares bear the expenses of the
ongoing distribution fees and the additional incremental transfer agency costs
resulting from the deferred sales charge arrangements. Class B, Class C and
Class D shares each have exclusive voting rights with respect to the Rule 12b-1
distribution plan adopted with respect to such class pursuant to which account
maintenance and/or distribution fees are paid. Each class has different exchange
privileges. See "Shareholder Services -- Exchange Privilege".
The Merrill Lynch Select PricingSM System is used by more than 50 mutual
funds advised by the Manager or its affiliate, FAM. Funds advised by the Manager
or FAM are referred to herein as "MLAM-advised mutual funds".
The Fund has entered into separate distribution agreements with the
Distributor in connection with the continuous offering of each class of shares
of the Fund (the "Distribution Agreements"). The Distribution Agreements
obligate the Distributor to pay certain expenses in connection with the offering
of each class of shares of the Fund. After the prospectuses, statements of
additional information and periodic reports have been prepared, set in type and
mailed to shareholders, the Distributor pays for the printing and distribution
of copies thereof used in connection with the offering to dealers and investors.
The Distributor also pays for other supplementary sales literature and
advertising costs. The Distribution Agreements are subject to the same renewal
requirements and termination provisions as the Management Agreement described
above.
INITIAL SALES CHARGE ALTERNATIVES -- CLASS A AND CLASS D SHARES
For the fiscal years ended December 31, 1991, 1992 and 1993, the Fund sold
its shares through the Distributor and Merrill Lynch, as a dealer. During the
fiscal year ended December 31, 1991, the Fund sold 3,901,289 Class A shares for
aggregate net proceeds to the Fund of $71,402,204. The gross sales charges for
the sale of Class A shares of the Fund during that year were $1,051,757, of
which $52,398 and $999,359 were received by the Distributor and Merrill Lynch,
respectively. During the fiscal year ended December 31, 1992, the Fund sold
4,746,853 Class A shares for aggregate net proceeds to the Fund of $80,862,615.
The gross sales charges for the sale of Class A shares of the Fund during that
year were $1,824,089, of which $61,995 and $1,762,094 were received by the
Distributor and Merrill Lynch, respectively. During the fiscal year ended
December 31, 1993, the Fund sold 10,009,773 Class A shares for aggregate net
proceeds to the Fund of $199,420,932. The gross sales charges for the sale of
Class A shares of the Fund during that year were $3,636,042, of which $223,158
and $3,412,884 were received by the Distributor and Merrill Lynch, respectively.
The term "purchase" as used in the Prospectus and this Statement of
Additional Information refers to a single purchase by an individual, or to
concurrent purchases, which in the aggregate are at least equal to the
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<PAGE> 66
prescribed amounts, by an individual, his spouse and their children under the
age of 21 years purchasing shares for his or their own account and to single
purchases by a trustee or other fiduciary purchasing shares for a single trust
estate or single fiduciary account (including a pension, profit-sharing or other
employee benefit trust created pursuant to a plan qualified under Section 401 of
the Internal Revenue Code of 1986, as amended (the "Code")) although more than
one beneficiary is involved. The term "purchase" also includes purchases by any
"company", as that term is defined in the Investment Company Act, but does not
include purchases by any such company which has not been in existence for at
least six months or which has no purpose other than the purchase of shares of
the Fund or shares of other registered investment companies at a discount. The
term "purchase" shall not include purchases by any group of individuals whose
sole organizational nexus is that the participants therein are credit
cardholders of a company, policyholders of an insurance company, customers of
either a bank or broker-dealer or clients of an investment adviser. The term
"purchase" also includes purchases by employee benefit plans not qualified under
Section 401 of the Code, including purchases by employees or by employers on
behalf of employees, by means of a payroll deduction plan or otherwise, of
shares of the Fund. Purchases by such a company or non-qualified employee
benefit plan will qualify for the above quantity discounts only if the Fund and
the Distributor are able to realize economies of scale in sales effort and sales
related expense by means of the company, employer or plan making the Fund's
Prospectus available to individual investors or employees and forwarding
investments by such persons to the Fund and by any such employer or plan bearing
the expense of any payroll deduction plan.
Closed-End Fund Investment Option. Class A shares of the Fund and other
MLAM-advised mutual funds ("Eligible Class A Shares") are offered at net asset
value to shareholders of certain closed-end funds advised by MLAM or the
Investment Adviser who purchased such closed-end fund shares prior to October
21, 1994, and wish to reinvest the net proceeds from a sale of their closed-end
fund shares of common stock in Eligible Class A Shares, if the conditions set
forth below are satisfied. Alternatively, closed-end fund shareholders who
purchased such shares on or after October 21, 1994, and wish to reinvest the net
proceeds from a sale of their closed-end fund shares are offered Class A Shares
(if eligible to buy Class A Shares) or Class D shares of the Fund and other
MLAM-advised mutual funds ("Eligible Class D Shares"), if the following
conditions are met. First, the sale of the closed-end fund shares must be made
through Merrill Lynch, and the net proceeds therefrom must be immediately
reinvested in Eligible Class A or Class D Shares. Second, the closed-end fund
shares must either have been acquired in the initial public offering or be
shares representing dividends from shares of common stock acquired in such
offering. Third, the closed-end fund shares must have been continuously
maintained in a Merrill Lynch securities account. Fourth, there must be a
minimum purchase of $250 to be eligible for the investment option. Class A
shares of the Fund are offered at net asset value to shareholders of Merrill
Lynch Senior Floating Rate Fund, Inc. ("Senior Floating Rate Fund") who wish to
reinvest the net proceeds from a sale of certain of their shares of common stock
of Senior Floating Rate Fund in shares of the Fund. In order to exercise this
investment option, Senior Floating Rate Fund shareholders must sell their Senior
Floating Rate Fund shares to the Senior Floating Rate Fund in connection with a
tender offer conducted by the Senior Floating Rate Fund and reinvest the
proceeds immediately in the Fund. This investment option is available only with
respect to the proceeds of Senior Floating Rate Fund shares as to which no Early
Withdrawal Charge (as defined in the Senior Floating Rate Fund prospectus) is
applicable. Purchase orders from Senior Floating Rate Fund shareholders wishing
to exercise this investment option will be accepted only on the day that the
related Senior Floating Rate Fund tender offer terminates and will be effected
at the net asset value of the Fund at such day.
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<PAGE> 67
REDUCED INITIAL SALES CHARGES
Right of Accumulation. The Fund offers a right of accumulation under which
investors are permitted to purchase shares of the Fund subject to an initial
sales charge at the offering price applicable to the total of (a) the public
offering price of the shares then being purchased plus (b) an amount equal to
the then current net asset value or cost, whichever is higher, of the
purchaser's combined holdings of all classes of shares of the Fund and of other
MLAM-advised mutual funds. For any such right of accumulation to be made
available, the Distributor (in the case of a purchase made through a securities
dealer) must be provided at the time of purchase, by the purchaser or the
purchaser's securities dealer, with sufficient information to permit
confirmation of qualification for such right of accumulation. Acceptance of the
purchase order is subject to such confirmation. The right of accumulation may be
amended or terminated at any time. Shares held in the name of a nominee or
custodian under pension, profit-sharing, or other employee benefit plans may not
be combined with other shares to qualify for the right of accumulation.
Letter of Intention. Reduced sales charges are applicable to purchases
aggregating $25,000 or more of Class A or Class D shares of the Fund or any
other MLAM-advised mutual funds made within a 13-month period starting with the
first purchase pursuant to a Letter of Intention in the form provided in the
Prospectus. The Letter of Intention is available only to investors whose
accounts are maintained at the Fund's transfer agent. The Letter of Intention is
not available to employee benefit plans for which Merrill Lynch provides
plan-participant record-keeping services. The Letter of Intention is not a
binding obligation to purchase any amount of Class A or Class D shares; however,
its execution will result in the purchaser paying a lower sales charge at the
appropriate quantity purchase level. A purchase not originally made pursuant to
a Letter of Intention may be included under a subsequent Letter of Intention
executed within 90 days of such purchase if the Distributor is informed in
writing of this intent within such 90-day period. The value of Class A and Class
D shares of the Fund and of other MLAM-advised mutual funds presently held, at
cost or maximum offering price (whichever is higher), on the date of the first
purchase under the Letter of Intention, may be included as a credit toward
completion of such Letter but the reduced sales charge applicable to the amount
covered by such Letter will be applied only to new purchases. If the total
amount of shares does not equal the amount stated in the Letter of Intention
(minimum of $25,000), the investor will be notified and must pay, within 20 days
of the expiration of such Letter, the difference between the sales charge on the
Class A or Class D shares purchased at the reduced rate and the sales charge
applicable to the shares actually purchased through the Letter. Class A or Class
D shares equal to five percent of the intended amount will be held in escrow
during the 13-month period (while remaining registered in the name of the
purchaser) for this purpose. The first purchase under the Letter of Intention
must be at least five percent of the dollar amount of such Letter. If a purchase
during the term of such Letter would otherwise be subject to a further reduced
sales charge based on the right of accumulation, the purchaser will be entitled
on that purchase and subsequent purchases to the reduced percentage sales charge
which would be applicable to a single purchase equal to the total dollar value
of the Class A or Class D shares then being purchased under such Letter, but
there will be no retroactive reduction of the sales charges on any previous
purchase. The value of any shares redeemed or otherwise disposed of by the
purchaser prior to termination or completion of the Letter of Intention will be
deducted from the total purchases made under such Letter. An exchange from a
MLAM-advised money market fund into the Fund that creates a sales charge will
count toward completing a new or existing Letter of Intention from the Fund.
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<PAGE> 68
Merrill Lynch Blueprint(SM) Program. Class D shares of the Fund are
offered to participants in the Merrill Lynch Blueprint(SM) Program
("Blueprint"). In addition, participants in Blueprint who own Class A shares
of the Fund may purchase additional Class A shares of the Fund through
Blueprint. Blueprint is directed to small investors, group IRAs and
participants in certain affinity groups such as credit unions, trade
associations and benefit plans. Investors placing orders to purchase Class A
or Class D shares of the Fund through Blueprint will acquire the Class A or
Class D shares at net asset value plus a sales charge calculated in accordance
with the Blueprint sales charge schedule (i.e., up to $300 at 4.25%, from
$300.01 to $5,000 at 3.25% plus $3.00 and $5,000.01 or more at the standard
sales charge rates disclosed in the Prospectus). In addition, Class A or Class
D shares of the Fund are offered at net asset value plus a sales charge of 1/2
of 1% for corporate or group IRA programs placing orders to purchase their
Class A or Class D shares through Blueprint. Services, including the exchange
privilege, available to Class A and Class D investors through Blueprint,
however, may differ from those available to other investors in Class A or
Class D shares.
Class A and Class D shares are offered at net asset value to Blueprint
participants through the Merrill Lynch Directed IRA Rollover Program ("IRA
Rollover Program") available from Merrill Lynch Business Financial Services, a
business unit of Merrill Lynch. The IRA Rollover Program is available to
custodian rollover assets from Employer Sponsored Retirement and Savings Plans
(as defined below) whose Trustee and/or Plan Sponsor offers the Merrill Lynch
Directed IRA Rollover Program.
Orders for purchases and redemptions of Class A or Class D shares of the
Fund may be grouped for execution purposes which, in some circumstances, may
involve the execution of such orders two business days following the day such
orders are placed. The minimum initial purchase price is $100, with a $50
minimum for subsequent purchases through Blueprint. There are no minimum initial
or subsequent purchase requirements for participants who are part of an
automatic investment plan. Additional information concerning purchases through
Blueprint, including any annual fees and transaction charges, is available from
Merrill Lynch, Pierce, Fenner & Smith Incorporated, The Blueprint(SM) Program,
P.O. Box 30441, New Brunswick, New Jersey 08989-0441.
TMA(SM) Managed Trusts. Class A shares are offered to TMA(SM) Managed
Trusts to which Merrill Lynch Trust Company provides discretionary trustee
services at net asset value.
Employer Sponsored Retirement and Savings Plans. Class A and Class D
shares are offered at net asset value to employer sponsored retirement or
savings plans, such as tax qualified retirement plans within the meaning of
Section 401(a) of the Code, deferred compensation plans within the meaning of
Sections 403(b) and 457 of the Code, other deferred compensation arrangements,
Voluntary Employee Benefits Association ("VEBA") plans, and non-qualified After
Tax Savings and Investment programs, maintained on the Merrill Lynch Group
Employee Services system, herein referred to as "Employer Sponsored Retirement
or Savings Plans", provided the plan has accumulated $20 million or more in
MLAM-advised mutual funds (in the case of Class A shares) or $5 million or more
in MLAM-advised mutual funds (in the case of Class D shares). Class D shares may
be offered at net asset value to new Employer Sponsored Retirement or Savings
Plans, provided the plan has $3 million or more initially invested in
MLAM-advised mutual funds. Assets of Employer Sponsored Retirement or Savings
Plans sponsored by the same sponsor or an affiliated sponsor may be aggregated.
Class A shares and Class D shares also are offered at net asset value to
Employer Sponsored Retirement or Savings Plans that have at least 1,000
employees eligible to participate in the plan (in the case of Class A shares) or
between 500 and 999 employees eligible to participate in the plan (in the case
of Class D shares). Employees eligible to participate in an Employer Sponsored
Retirement or Savings Plans of the same
18
<PAGE> 69
sponsoring employer or its affiliates may be aggregated. Tax qualified
retirement plans within the meaning of Section 401(a) of the Code meeting any of
the foregoing requirements and which are provided specialized services (e.g.,
plans whose participants may direct on a daily basis their plan allocations
among a wide range of investments including individual corporate equities and
other securities in addition to mutual fund shares) by Blueprint, are offered
Class A shares at a price equal to net asset value per share plus a reduced
sales charge of 0.50%. Any Employer Sponsored Retirement or Savings Plan which
does not meet the above described qualifications to purchase Class A shares at
net asset value has the option of (i) purchasing Class A shares at the initial
sales charge schedule and possible CDSC schedule disclosed in the Prospectus if
it is otherwise eligible to purchase Class A shares, (ii) purchasing Class D
shares at the initial sales charge and possible CDSC schedule disclosed in the
Prospectus, (iii) if the Employer Sponsored Retirement or Savings Plan meets the
specified requirements, purchasing Class B shares with a waiver of the CDSC upon
redemption, or if the Employer Sponsored Retirement or Savings Plan does not
qualify to purchase Class B shares with a waiver of the CDSC upon redemption,
purchasing Class C shares at the CDSC schedule disclosed in the Prospectus. The
minimum initial and subsequent purchase requirements are waived in connection
with all the above referenced Employer Sponsored Retirement or Savings Plans.
Purchase Privilege of Certain Persons. Directors of the Fund, members of
the Boards of other MLAM-advised investment companies, directors and employees
of ML & Co. and its subsidiaries (the term "subsidiaries", when used herein with
respect to Merrill Lynch & Co., Inc., includes MLAM, FAM and certain other
entities directly or indirectly wholly-owned and controlled by Merrill Lynch &
Co., Inc.), and any trust, pension, profit-sharing or other benefit plan for
such persons may purchase Class A shares of the Fund at net asset value.
Class D shares of the Fund will be offered at net asset value, without a
sales charge, to an investor who has a business relationship with a financial
consultant who joined Merrill Lynch from another investment firm within six
months prior to the date of purchase by such investor if the following
conditions are satisfied. First, the investor must advise Merrill Lynch that it
will purchase Class D shares of the Fund with proceeds from a redemption of a
mutual fund that was sponsored by the financial consultant's previous firm and
was subject to a sales charge either at the time of purchase or on a deferred
basis. Second, the investor also must establish that such redemption had been
made within 60 days prior to the investment in the Fund, and the proceeds from
the redemption had been maintained in the interim in cash or a money market
fund.
Class D shares of the Fund are also offered at net asset value, without
sales charge, to an investor who has a business relationship with a Merrill
Lynch financial consultant and who has invested in a mutual fund sponsored by a
non-Merrill Lynch company for which Merrill Lynch has served as a selected
dealer and where Merrill Lynch has either received or given notice that such
arrangement will be terminated, if the following conditions are satisfied:
first, the investor must purchase Class D shares of the Fund with proceeds from
a redemption of shares of such other mutual fund and such fund was subject to a
sales charge either at the time of purchase or on a deferred basis; second, such
purchase of Class D shares must be made within 90 days after such notice of
termination.
Class D shares of the Fund will be offered at net asset value, without a
sales charge, to an investor who has a business relationship with a Merrill
Lynch financial consultant and who has invested in a mutual fund for which
Merrill Lynch has not served as a selected dealer if the following conditions
are satisfied: First, the investor must advise Merrill Lynch that it will
purchase Class D shares of the Fund with proceeds from the redemption of such
shares of other mutual funds and that such shares have been outstanding for a
period of no
19
<PAGE> 70
less than six months. Second, such purchase of Class D shares must be made
within 60 days after the redemption and the proceeds from the redemption must be
maintained in the interim in cash or a money market fund.
Acquisition of Assets of Certain Investment Companies. The public offering
price of Class D shares may be reduced to the net asset value per Class D share
in connection with the acquisition of the assets of or merger or consolidation
with a public or private investment company. The value of the assets or company
acquired in a tax-free transaction may in appropriate cases be adjusted to
reduce possible adverse tax consequences to the Fund which might result from an
acquisition of assets having net unrealized appreciation which is
disproportionately higher at the time of acquisition than the realized or
unrealized appreciation of the Fund. The issuance of Class D shares for
consideration other than cash is limited to bona fide reorganizations, statutory
mergers or other acquisitions of portfolio securities which (i) meet the
investment objectives and policies of the Fund; (ii) are acquired for investment
and not for resale (subject to the understanding that the disposition of the
Fund's portfolio securities shall at all times remain within its control); and
(iii) are liquid securities, the value of which is readily ascertainable, which
are not restricted as to transfer either by law or liquidity of market (except
that the Fund may acquire through such transactions restricted or illiquid
securities to the extent the Fund does not exceed the applicable limits on
acquisition of such securities set forth under "Investment Objective and
Policies" herein).
Reductions in or exemptions from the imposition of a sales load are due to
the nature of the investors and/or the reduced sales efforts that will be needed
in obtaining such investments.
DISTRIBUTION PLANS
Reference is made to "Purchase of Shares -- Distribution Plans" in the
Prospectus for certain information with respect to the separate distribution
plans for Class B, Class C and Class D shares pursuant to Rule 12b-1 under the
Investment Company Act (each a "Distribution Plan") with respect to the account
maintenance and/or distribution fees paid by the Fund to the Distributor with
respect to such classes (the "Distribution Plan").
Payments of the account maintenance fees and/or distribution fees are
subject to the provisions of Rule 12b-1 under the Investment Company Act. Among
other things, each Distribution Plan provides that the Distributor shall provide
and the Directors shall review quarterly reports of the disbursement of the
account maintenance fees and/or distribution fees paid to the Distributor. In
their consideration of each Distribution Plan, the Directors must consider all
factors they deem relevant, including information as to the benefits of the
Distribution Plan to the Fund and to its related class of shareholders. Each
Distribution Plan further provides that, so long as the Distribution Plan
remains in effect, the selection and nomination of Directors who are not
"interested persons" of the Fund, as defined in the Investment Company Act (the
"Independent Directors"), shall be committed to the discretion of the
Independent Directors then in office. In approving each Distribution Plan in
accordance with Rule 12b-1, the Independent Directors concluded that there is
reasonable likelihood that such Distribution Plan will benefit the Fund and its
related class of shareholders. Each Distribution Plan can be terminated at any
time, without penalty, by the vote of a majority of the Independent Directors or
by the vote of the holders of a majority of the related class of voting
securities of the Fund. A Distribution Plan cannot be amended to increase
materially the amount to be spent by the Fund without the approval of the
related class of shareholder, and all material amendments are required to be
approved by the vote of Directors, including a majority of the Independent
Directors who have no direct or
20
<PAGE> 71
indirect financial interest in such Distribution Plan, cast in person at a
meeting called for that purpose. Rule 12b-1 further requires that the Fund
preserve copies of each Distribution Plan and any report made pursuant to such
plan for a period of not less than six years from the date of such Distribution
Plan or such report, the first two years in an easily accessible place.
LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES
The maximum sales charge rule in the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. ("NASD") imposes a limitation on certain
asset-based sales charges such as the distribution fee and the CDSC borne by the
Class B and Class C shares but not the account maintenance fee. The maximum
sales charge rule is applied separately to each class. As applicable to the
Fund, the maximum sales charge rule limits the aggregate of distribution fee
payments and CDSCs payable by the Fund to (1) 6.25% of eligible gross sales of
Class B shares and Class C shares, computed separately (defined to exclude
shares issued pursuant to dividend reinvestments and exchanges), plus (2)
interest on the unpaid balance for the respective class, computed separately, at
the prime rate plus 1% (the unpaid balance being the maximum amount payable
minus amounts received from the payment of the distribution fee and the CDSC).
In connection with the Class B shares, the Distributor has voluntarily agreed to
waive interest charges on the unpaid balance in excess of 0.50% of eligible
gross sales. Consequently, the maximum amount payable to the Distributor
(referred to as the "voluntary maximum") in connection with the Class B shares
is 6.75% of eligible gross sales. The Distributor retains the right to stop
waiving the interest charges at any time. To the extent payments would exceed
the voluntary maximum, the Fund will not make further payments of the
distribution fee with respect to Class B shares, and any CDSCs will be paid to
the Fund rather than to the Distributor; however, the Fund will continue to make
payments of the account maintenance fee. In certain circumstances the amount
payable pursuant to the voluntary maximum may exceed the amount payable under
the NASD formula. In such circumstances payment in excess of the amount payable
under the NASD formula will not be made.
The following table sets forth comparative information as of June 30, 1994
with respect to the Class B shares of the Fund indicating the maximum allowable
payments that can be made under the NASD maximum sales charge rule and the
Distributor's voluntary maximum for the period October 21, 1988 (commencement of
the public offering of Class B shares) to June 30, 1994. Since Class C shares of
the Fund had not been publicly issued prior to the date of this Statement of
Additional Information, information concerning Class C shares is not yet
provided below.
<TABLE>
<CAPTION>
DATA CALCULATED AS OF JUNE 30, 1994
----------------------------------------------------------------------------------
(IN THOUSANDS)
ANNUAL
DISTRIBUTION
ALLOWABLE FEE AT
INTEREST AMOUNTS CURRENT
ELIGIBLE AGGREGATE ON MAXIMUM PREVIOUSLY AGGREGATE NET
GROSS SALES UNPAID AMOUNT PAID TO UNPAID ASSET
SALES(1) CHARGES BALANCE(2) PAYABLE DISTRIBUTOR(3) BALANCE LEVEL(4)
-------- -------- -------- -------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Under NASD Rule as Adopted............. $769,594 $ 48,100 $ 4,451 $ 52,551 $ 10,120 $ 42,431 $ 6,218
Under Distributor's
Voluntary Waiver..................... $769,594 $ 48,100 $ 3,848 $ 51,948 $ 10,120 $ 41,828 $ 6,218
</TABLE>
- ---------------
(1) Purchase price of all eligible Class B shares sold since October 21, 1988
(commencement of the public offering of Class B shares) other than shares
acquired through dividend reinvestment and the exchange privilege.
(2) Interest is computed on a monthly basis based upon the prime rate, as
reported in The Wall Street Journal, plus 1.0% as permitted under the NASD
Rule.
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<PAGE> 72
(3) Consists of CDSC payments, distribution fee payments and accruals. Of the
distribution fee payments made prior to July 7, 1993, under a prior plan at
the 1.0% rate, 0.75% of average daily net assets has been treated as a
distribution fee and 0.25% of average daily net assets has been deemed to
have been a service fee and not subject to the NASD maximum sales charge
rule. See "Purchase of Shares -- Distribution Plans" in the Prospectus.
(4) Provided to illustrate the extent to which the current level of distribution
fee payments (not including any CDSC payments) is amortizing the unpaid
balance. No assurance can be given that payments of the distribution fee
will reach either the voluntary maximum or the NASD maximum.
REDEMPTION OF SHARES
Reference is made to "Redemption of Shares" in the Prospectus for certain
information as to the redemption and repurchase of Fund shares.
The right to receive payment with respect to any redemption of shares may
be suspended by the Fund for a period of up to seven days. Suspensions of more
than seven days may not be made except (1) for any period (a) during which the
New York Stock Exchange is closed other than customary weekend and holiday
closings or (b) during which trading on the New York Stock Exchange is
restricted; (2) for any period during which an emergency exists as a result of
which (a) disposal by the Fund of securities owned by it is not reasonably
practicable or (b) it is not reasonably practicable for the Fund fairly to
determine the value of its net assets; or (3) for such other periods as the
Commission may by order permit for the protection of security holders of the
Fund. The Commission shall by rules and regulations determine the conditions
under which (i) trading shall be deemed to be restricted and (ii) an emergency
shall be deemed to exist within the meaning of clause (2) above.
DEFERRED SALES CHARGES -- CLASS B SHARES
As discussed in the Prospectus under "Purchase of Shares -- Deferred Sales
Charge Alternative -- Class B and Class C Shares", while Class B shares redeemed
within four years of purchase are subject to a CDSC under most circumstances,
the charge is waived (i) on redemptions of Class B shares in connection with
certain post-retirement withdrawals from an Individual Retirement Account
("IRA") or other retirement plan or (ii) on redemptions of Class B shares
following the death or disability of a Class B shareholder. Redemptions for
which the waiver applies are: (a) any partial or complete redemption in
connection with a distribution following retirement under a tax-deferred
retirement plan or attaining age 59 1/2 in the case of an IRA or other
retirement plan, or part of a series of equal periodic payments (not less
frequently than annually) made for the life (or life expectancy) or any
redemption resulting from the tax-free return of an excess contribution to an
IRA; or (b) any partial or complete redemption following the death or disability
(as defined in the Code) of a Class B shareholder (including one who owns the
Class B shares as joint tenant with his or her spouse), provided the redemption
is requested within one year of the death or initial determination of
disability. For the fiscal years ended December 31, 1991, 1992 and 1993, the
Distributor received CDSCs of $305,147, $475,469 and $1,036,912, respectively,
all of which was paid to Merrill Lynch.
Merrill Lynch Blueprint(SM) Program. Class B shares are offered to certain
participants in Blueprint. Blueprint is directed to small investors, group IRAs
and participants in certain affinity groups such as trade associations and
credit unions. Class B shares of the Fund are offered through Blueprint only to
members of certain affinity groups. The CDSC is waived in connection with
purchase orders placed through Blueprint. Services, including the exchange
privilege, available to Class B investors through Blueprint, however, may
22
<PAGE> 73
differ from those available to other investors in Class B shares. Orders for
purchases and redemptions of Class B shares of the Fund will be grouped for
execution purposes which, in some circumstances, may involve the execution of
such orders two business days following the day such orders are placed. The
minimum initial purchase price is $100, with a $50 minimum for subsequent
purchases through Blueprint. There is no minimum initial or subsequent purchase
requirement for investors who are part of the Blueprint automatic investment
plan. Additional information concerning these Blueprint programs, including any
annual fees or transaction charges, is available from Merrill Lynch, Pierce,
Fenner & Smith Incorporated, The Blueprint(SM) Program, P.O. Box 30441, New
Brunswick, New Jersey 08989-0441.
Retirement Plans. Any Retirement Plan which does not meet the
qualifications to purchase Class A or Class D shares at net asset value has the
option of purchasing Class A or Class D shares at the sales charge schedule
disclosed in the Prospectus, or if the Retirement Plan meets the following
requirements, then it may purchase Class B shares with a waiver of the CDSC upon
redemption. The CDSC is waived for any Eligible 401(k) Plan redeeming Class B
shares. "Eligible 401(k) Plan" is defined as a retirement plan qualified under
Section 401(k) of the Code with a salary reduction feature offering a menu of
investments to plan participants. The CDSC is also waived for redemptions from a
401(a) plan qualified under the Code, provided, however, that each such plan has
the same or an affiliated sponsoring employer as an Eligible 401(k) Plan
purchasing Class B shares of MLAM-advised mutual funds ("Eligible 401(a) Plan").
Other tax qualified retirement plans within the meaning of Section 401(a) and
403(b) of the Code which are provided specialized services (e.g., plans whose
participants may direct on a daily basis their plan allocations among a menu of
investments) by independent administration firms contracted through Merrill
Lynch also may purchase Class B shares with a waiver of the CDSC. The CDSC also
is waived for any Class B shares which are purchased by an Eligible 401(k) Plan
or Eligible 401(a) Plan and are rolled over into a Merrill Lynch or Merrill
Lynch Trust Company custodied IRA and held in such account at the time of
redemption. The Class B CDSC also is waived for any Class B shares which are
purchased by a Merrill Lynch rollover IRA that was funded by a rollover from a
terminated 401(k) plan managed by the MLAM Private Portfolio Group and held in
such account at the time of redemption. The minimum initial and subsequent
purchase requirements are waived in connection with all the above referenced
Retirement Plans.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to policies established by the Board of Directors of the Fund, the
Manager is primarily responsible for the execution of the Fund's portfolio
transactions and the allocation of brokerage. In executing such transactions,
the Manager seeks to obtain the best net results for the Fund, taking into
account such factors as price (including the applicable brokerage commissions or
dealer spread), size of order, difficulty of execution and operational
facilities of the firm involved and the firm's risk in positioning a block of
securities. While the Manager generally seeks reasonably competitive commission
rates, the Fund does not necessarily pay the lowest commissions or spread
available. The Fund has no obligation to deal with any broker or group of
brokers in the execution of transactions in portfolio securities. The Fund
contemplates that, consistent with the above policy of obtaining the best net
results, a portion of its brokerage transactions with respect to equities may be
conducted through Merrill Lynch and its affiliates. Subject to obtaining the
best price and execution, brokers who provide supplemental investment research
to the Manager may receive orders for transactions by the Fund. Information so
received will be in addition to and not in lieu of the services required to be
performed by the Manager under its agreement, and the expenses of the Manager
will not necessarily be reduced as a
23
<PAGE> 74
result of the receipt of such supplemental information. It is possible that
certain of the supplementary investment research so received will primarily
benefit one or more other investment companies or other accounts for which
investment discretion is exercised. Conversely, the Fund may be the primary
beneficiary of the research or services received as a result of portfolio
transactions effected for such other accounts or investment companies. In
addition, consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. and policies established by the Directors of the
Fund, the Manager may consider sales of shares of the Fund as a factor in the
selection of brokers or dealers to execute portfolio transactions for the Fund.
The Fund anticipates that its brokerage transactions involving securities
of corporations domiciled in Far Eastern or Western Pacific countries will be
conducted primarily on the principal stock exchanges of such countries.
Brokerage commissions and other transaction costs on foreign securities
exchanges are generally higher than commissions on U.S. transactions, although
the Fund will endeavor to achieve the best net results in effecting its
portfolio transactions. There is generally less government supervision and
regulations of foreign stock exchanges and brokers than in the United States.
Foreign equity securities may be held by the Fund in the form of American
Depositary Receipts (ADRs), European Depositary Receipts (EDRs), Global
Depositary Receipts (GDRs) or securities convertible into foreign equity
securities. ADRs, EDRs and GDRs may be listed on stock exchanges or traded in
the over-the-counter markets. ADRs and GDRs traded in the U.S., like other
securities traded in the U.S., will be subject to negotiated commission rates.
The Fund may invest in securities traded in the OTC markets and intends to
deal directly with the dealers who make markets in the securities involved,
except in those circumstances where better prices and execution are available
elsewhere. Under the Investment Company Act, persons affiliated with the Fund
and persons who are affiliated with such affiliated persons are prohibited from
dealing with the Fund as principal in the purchase and sale of securities unless
a permissive order allowing such transactions is obtained from the Commission.
Since transactions in the OTC market usually involve transactions with dealers
acting as principal for their own account, the Fund will not deal with
affiliated persons, including Merrill Lynch and its affiliates, in connection
with such transactions. However, affiliated persons of the Fund may serve as its
broker in listed or over-the-counter transactions conducted on an agency basis
provided that, among other things, the fee or commission received by such
affiliated broker is reasonable and fair compared to the fee or commission
received by non-affiliated brokers in connection with comparable transactions.
See "Investment Objective and Policies -- Current Investment Restrictions".
The Board of Directors has considered the possibilities of seeking to
recapture for the benefit of the Fund brokerage commissions and other expenses
of possible portfolio transactions by conducting portfolio transactions through
affiliated entities. For example, brokerage commissions received by affiliated
brokers could be offset against the management fee paid by the Fund. After
considering all factors deemed relevant, the Board of Directors made a
determination not to seek such recapture. The Board will reconsider this matter
from time to time.
Section 11(a) of the Securities Exchange Act of 1934, as amended, generally
prohibits members of the U.S. national securities exchanges from executing
exchange transactions for their affiliates and institutional accounts which they
manage unless the member (i) has obtained prior express authorization from the
account to effect such transactions, (ii) at least annually furnishes the
account with a statement disclosing the
24
<PAGE> 75
aggregate compensation received by the member in effecting such transactions,
and (iii) complies with any rules the Securities and Exchange Commission has
prescribed with respect to the requirements of clauses (i) and (ii). To the
extent Section 11(a) would apply to Merrill Lynch acting as a broker for the
Fund in any of its portfolio transactions executed on any such securities
exchange of which it is a member, appropriate consents have been obtained from
the Fund and annual statements as to aggregate compensation will be provided to
the Fund.
For the fiscal year ended December 31, 1991, the Fund paid brokerage
commissions of $378,296. Merrill Lynch received $8,617, or 2.28% of such amount
for effecting transactions involving 2.25% of the aggregate dollar amount of
transactions in which the Fund paid brokerage commissions. For the fiscal year
ended December 31, 1992, the Fund paid brokerage commissions of $463,296.
Merrill Lynch received $3,912, or .84% of such amount for effecting transactions
involving 1.17% of the aggregate dollar amount of transactions in which the Fund
paid brokerage commissions. For the fiscal year ended December 31, 1993, the
Fund paid brokerage commissions of $1,891,212. Merrill Lynch received $27,267,
or 1.4% of such amount for effecting transactions involving 1.6% of the
aggregate dollar amount of transactions in which the Fund paid brokerage
commissions.
DETERMINATION OF NET ASSET VALUE
Net asset value per share is determined once daily as of 4:15 p.m., New
York time, on each day during which the New York Stock Exchange is open for
trading. The New York Stock Exchange is not open on New Year's Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day. Any assets or liabilities initially expressed in terms of
non-U.S. dollar currencies are translated into U.S. dollars at the prevailing
market rates as quoted by one or more banks or dealers on the day of valuation.
Net asset value is computed by dividing the value of the securities held by
the Fund plus any cash or other assets (including interest and dividends accrued
but not yet received) minus all liabilities (including accrued expenses) by the
total number of shares outstanding at such time. Expenses, including the fees
payable to the Manager and any account maintenance and/or distribution fees are
accrued daily. The per share net asset value of the Class B, Class C and Class D
shares generally will be lower than the per share net asset value of the Class A
shares reflecting the daily expense accruals of the account maintenance,
distribution and higher transfer agency fees applicable with respect to the
Class B and Class C shares and the daily expense accruals of the account
maintenance fees applicable with respect to the Class D shares; moreover the per
share net asset value of the Class B and Class C shares generally will be lower
than the per share net asset value of its Class D shares reflecting the daily
expense accruals of the distribution fees and higher transfer agency fees
applicable with respect to the Class B and Class C shares of the Fund. It is
expected, however, that the per share net asset value of the four classes will
tend to converge immediately after the payment of dividends or distributions,
which will differ by approximately the amount of the expense accrual
differential between the classes.
Portfolio securities which are traded on stock exchanges are valued at the
last sale price (regular way) on the exchange on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where
securities are traded on more than one exchange, the securities are valued on
the exchange designated by or under the authority of the Board of
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<PAGE> 76
Directors as the primary market. However, in certain circumstances, the Fund
will value a security traded on a Japanese stock exchange based upon the last
bid or ask price as reported on such exchange after trading in such security has
been halted for the day. Japanese stock exchanges may impose limits, based on a
percentage of a security's value, on the amount such security may move in a
single day. If the security reaches its limit during the day, further trading is
halted. However, a bid or ask quotation may be reported following the suspension
of trading. Management of the Fund believes such bid or ask quotation is more
indicative of where trading in the security will open on the following business
day and is more representative of the security's value at the close of trading
on the exchange than is the last sale. In situations where both a bid and ask
price are reported following a trading suspension due to the circumstances
described above, the Fund will utilize the bid price for valuation purposes.
Securities traded in the over-the-counter market are valued at the last
available bid price in the over-the-counter market prior to the time of
valuation. When the Fund writes a call option, the amount of the premium
received is recorded on the books of the Fund as an asset and an equivalent
liability. The amount of the liability is subsequently valued to reflect the
current market value of the option written, based upon the last sale price in
the case of exchange-traded options or, in the case of options traded in the
over-the-counter market, the last asked price. Options purchased by the Fund are
valued at their last sale price in the case of exchange-traded options or, in
the case of options traded in the over-the-counter market, the last bid price.
Securities and assets for which market quotations are not readily available
(including restricted securities which are subject to limitations as to their
sale) are valued at fair value as determined in good faith by or under the
direction of the Board of Directors of the Fund.
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services described below which are
designed to facilitate investment in its shares. Certain of such services are
not available to investors who place orders for the Fund's shares through the
Merrill Lynch BlueprintSM Program. Full details as to each of such services,
copies of the various plans described below and instructions as to how to
participate in the various services or plans, or how to change options with
respect thereto, can be obtained from the Fund by calling the telephone number
on the cover page hereof or from the Distributor or Merrill Lynch.
INVESTMENT ACCOUNT
Each shareholder whose account is maintained at the transfer agent has an
Investment Account and will receive statements at least quarterly, from the
transfer agent. These statements will serve as transaction confirmations for
automatic investment purchases and the reinvestment of ordinary income dividends
and long-term capital gain distributions. The statements will also show any
other activity in the account since the preceding statement. Shareholders will
receive separate transaction confirmations for each purchase or sale transaction
other than automatic investment purchases and the reinvestment of ordinary
income dividends and long-term capital gain distributions.
Share certificates are issued only for full shares and only upon the
specific request of the shareholder. Issuance of certificates representing all
or only part of the full shares in an Investment Account may be requested by a
shareholder directly from the transfer agent.
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<PAGE> 77
Shareholders considering transferring their Class A or Class D shares from
Merrill Lynch to another brokerage firm or financial institution should be aware
that, if the firm to which the Class A or Class D shares are to be transferred
will not take delivery of shares of the Fund, a shareholder either must redeem
the Class A or Class D shares so that the cash proceeds can be transferred to
the account at the new firm or such shareholder must continue to maintain an
Investment Account at the transfer agent for those Class A or Class D shares.
Shareholders interested in transferring their Class B or Class C shares from
Merrill Lynch and who do not wish to have an Investment Account maintained for
such shares at the transfer agent may request their new brokerage firm to
maintain such shares in an account registered in the name of the brokerage firm
for the benefit of the shareholder.
AUTOMATIC INVESTMENT PLANS
A U.S. shareholder may make additions to an Investment Account at any time
by purchasing Class A shares (if he or she is an eligible Class A investor as
described in the Prospectus) or Class B, Class C or Class D shares at the
applicable public offering price either through the shareholder's securities
dealer or by mail directly to the transfer agent, acting as agent for his
securities dealer. Voluntary accumulation also can be made through a service
known as the Automatic Investment Plan whereby the Fund is authorized through
pre-authorized checks or automated clearing house debits of $50 or more to
charge the regular bank account of the shareholder on a regular basis to provide
systematic additions to the Investment Account of such shareholder. For
investors who buy shares of the Fund through Blueprint no minimum charge to the
investor's bank account is required. Investors who maintain CMA(R) accounts may
arrange to have periodic investments made in the Fund in their CMA(R) accounts
or in certain related accounts in amounts of $100 or more ($1 for retirement
accounts) through the CMA(R) Automated Investment Program.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Unless specific instructions to the contrary are given as to the method of
payment of dividends and capital gains distributions, dividends and
distributions are automatically reinvested in full and fractional shares of the
Fund at the net asset value per share next determined after the close of the New
York Stock Exchange on the ex-dividend date of such dividend or distribution. A
shareholder may at any time, by written notification to the Fund's transfer
agent, elect to have subsequent dividends, or both dividends and capital gains
distributions, paid in cash rather than reinvested. To be effective as to a
particular distribution, such notification must be received by the transfer
agent sufficiently in advance of the record date (approximately ten days) to
permit the change to be entered in the shareholder records.
Shareholders may, at any time, notify the transfer agent in writing or by
telephone (1-800-MER-FUND) that they no longer wish to have their dividends
and/or distributions reinvested in shares of the Fund or vice versa, and
commencing ten days after receipt by the transfer agent of such notice, those
instructions will be effected.
SYSTEMATIC WITHDRAWAL PLANS -- CLASS A AND CLASS D SHARES
A Class A or Class D shareholder may elect to make systematic withdrawals
from an Investment Account on either a monthly or quarterly basis as provided
below. Quarterly withdrawals are available for
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<PAGE> 78
shareholders who have acquired Class A or Class D shares of the Fund having a
value, based upon cost or the current offering price, of $5,000 or more, and
monthly withdrawals are available for shareholders with Class A or Class D
shares with such a value of $10,000 or more.
At the time of each withdrawal payment, sufficient Class A or Class D
shares are redeemed from those on deposit in the shareholder's Investment
Account to provide the withdrawal payment specified by the shareholder. The
shareholder may specify either a dollar amount or a percentage of the value of
his Class A or Class D shares. Redemptions will be made at the net asset value
next determined after the close of the New York Stock Exchange (currently 4:00
p.m., New York time) on the 22nd day of each month or the 22nd day of the last
month of each quarter, whichever is applicable. If the New York Stock Exchange
is not open for business on such date, the shares will be redeemed at the net
asset value next determined after the close of the New York Stock Exchange on
the preceding business day. The check for the withdrawal payment will be mailed,
or the direct deposit of the withdrawal payment will be made, on the next
business day following redemption. When a Class A or Class D shareholder is
making systematic withdrawals, dividends and distributions on all shares in the
Investment Account are automatically reinvested in Fund Class A or Class D
shares of the Fund, respectively. A shareholder's Systematic Withdrawal Plan may
be terminated at any time, without charge or penalty, by the shareholder, the
Fund, the Fund's transfer agent or the Distributor.
Withdrawal payments should not be considered as dividends, yield, or
income. If periodic withdrawals continuously exceed reinvested dividends and
capital gains distributions, the shareholder's original investment may be
correspondingly reduced. Purchases of additional Class A or Class D shares
concurrent with withdrawals are ordinarily disadvantageous to the shareholder
because of sales charges and tax liabilities. The Fund will accept additions of
Class A or Class D shares to an Investment Account in which an election has been
made to receive systematic withdrawals only if such addition is equal to at
least one year's scheduled withdrawals or $1,200, whichever is greater. Periodic
investments may not be made into an Investment Account in which the shareholder
has elected to make systematic withdrawals.
A Class A or Class D shareholder whose shares are held with a CMA(R),
CBA(R) or Retirement Account may elect to have shares redeemed on a monthly,
bimonthly, quarterly, semiannual or annual basis through the Systematic
Redemption Program. The minimum fixed dollar amount redeemable is $25. The
proceeds of systematic redemptions will be posted to the shareholder's account
five business days after the date the shares are redeemed. Monthly systematic
redemptions will be made at net asset value on the first Monday of each month;
bimonthly systematic redemptions will be made at net asset value on the first
Monday of every other month; and quarterly, semiannual or annual redemptions are
made at net asset value on the first Monday of months selected at the
shareholder's option. If the first Monday of the month is a holiday, the
redemption will be processed at net asset value on the next business day. The
Systematic Redemption Program is not available if Fund shares are being
purchased within the account pursuant to the Automatic Investment Program. For
more information on the Systematic Redemption Program, eligible shareholders
should contact their financial consultant.
EXCHANGE PRIVILEGE
Shareholders of each class of shares of the Fund have an exchange privilege
with certain other MLAM-advised mutual funds listed below. Under the Merrill
Lynch Select Pricing(SM) System, Class A shareholders may exchange Class A
shares of the Fund for Class A shares of a second MLAM-advised mutual fund if
the shareholder holds any Class A shares of the second fund in his account in
which the exchange is made at the
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<PAGE> 79
time of the exchange or is otherwise eligible to purchase Class A shares of the
second fund. If the Class A shareholder wants to exchange Class A shares for
shares of a second MLAM-advised mutual fund, but does not hold Class A shares of
the second fund in his account at the time of the exchange and is not otherwise
eligible to acquire Class A shares of the second fund, the shareholder will
receive Class D shares of the second fund as a result of the exchange. Class D
shares also may be exchanged for Class A shares of a second MLAM-advised mutual
fund at any time as long as, at the time of the exchange, the shareholder holds
Class A shares of the second fund in the account in which the exchange is made
or is otherwise eligible to purchase Class A shares of the second fund. Class B,
Class C and Class D shares will be exchangeable with shares of the same class of
other MLAM-advised mutual funds. For purposes of computing the CDSC that may be
payable upon a disposition of the shares acquired in the exchange, the holding
period for the previously owned shares of the Fund is "tacked" to the holding
period of the newly acquired shares of the other fund as more fully described
below. Class A, Class B, Class C and Class D shares also will be exchangeable
for shares of certain MLAM-advised money market funds specifically designated
below as available for exchange by holders of Class A, Class B, Class C or Class
D shares. Shares with a net asset value of at least $100 are required to qualify
for the exchange privilege, and any shares utilized in an exchange must have
been held by the shareholder for 15 days. It is contemplated that the exchange
privilege may be applicable to other new mutual funds whose shares may be
distributed by the Distributor.
Exchanges of Class A or Class D shares outstanding ("outstanding Class A or
Class D shares") for Class A or Class D shares of another MLAM-advised mutual
fund ("new Class A or Class D shares") are transacted on the basis of relative
net asset value per Class A or Class D share, respectively, plus an amount equal
to the difference, if any, between the sales charge previously paid on the
outstanding Class A or Class D shares and the sales charge payable at the time
of the exchange on the new Class A or Class D shares. With respect to
outstanding Class A or Class D shares as to which previous exchanges have taken
place, the "sales charge previously paid" shall include the aggregate of the
sales charge paid with respect to such Class A or Class D shares in the initial
purchase and any subsequent exchange. Class A or Class D shares issued pursuant
to dividend reinvestment are sold on a no-load basis in each of the funds
offering Class A or Class D shares. For purposes of the exchange privilege,
Class A and Class D shares acquired through dividend reinvestment shall be
deemed to have been sold with a sales charge equal to the sales charge
previously paid on the Class A or Class D shares on which the dividend was paid.
Based on this formula, Class A and Class D shares of the Fund generally may be
exchanged into the Class A or Class D shares of the other funds or into shares
of the Class A and Class D money market funds with a reduced or without a sales
charge.
In addition, each of the funds with Class B and Class C shares outstanding
("outstanding Class B or Class C shares") offers to exchange its Class B or
Class C shares for Class B or Class C shares, respectively, of another
MLAM-advised mutual fund ("new Class B or Class C shares") on the basis of
relative net asset value per Class B or Class C share, without the payment of
any CDSC that might otherwise be due on redemption of the outstanding shares.
Class B shareholders of the Fund exercising the exchange privilege will continue
to be subject to the Fund's CDSC schedule if such schedule is higher than the
CDSC schedule relating to the new Class B shares acquired through use of the
exchange privilege. In addition, Class B shares of the Fund acquired through use
of the exchange privilege will be subject to the Fund's CDSC schedule if such
schedule is higher than the CDSC schedule relating to the Class B shares of the
fund from which the exchange has been made. For purposes of computing the sales
charge that may be payable on a disposition of the new Class B or Class C
shares, the holding period for the outstanding Class B or Class C shares is
"tacked" to the holding period of the new Class B or Class C shares. For
example, an investor may exchange
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<PAGE> 80
Class B shares of the Fund for those of Merrill Lynch Special Value Fund, Inc.
("Special Value Fund") after having held the Fund Class B shares for two and a
half years. The 2% sales charge that generally would apply to a redemption would
not apply to the exchange. Three years later the investor may decide to redeem
the Class B shares of Special Value Fund and receive cash. There will be no CDSC
due on this redemption, since by "tacking" the two and a half year holding
period of Fund Class B shares to the three year holding period for the Special
Value Fund Class B shares, the investor will be deemed to have held the new
Class B shares for more than five years.
Shareholders also may exchange shares of the Fund into shares of a money
market fund advised by the Manager or its affiliates, but the period of time
that Class B or Class C shares are held in a money market fund will not count
towards satisfaction of the holding period requirement for purposes of reducing
the CDSC or with respect to Class B shares, towards satisfaction of the
conversion period. However, shares of a money market fund which were acquired as
a result of an exchange for Class B or Class C shares of the Fund may, in turn,
be exchanged back into Class B or Class C shares, respectively, of any fund
offering such shares, in which event the holding period for Class B or Class C
shares of the Fund will be aggregated with previous holding periods for purposes
of reducing the CDSC. Thus, for example, an investor may exchange Class B shares
of the Fund for shares of Merrill Lynch Institutional Fund ("Institutional
Fund") after having held the Fund Class B shares for two and a half years and
three years later decide to redeem the shares of Institutional Fund for cash. At
the time of this redemption, the 2% CDSC that would have been due had the Class
B shares of the Fund been redeemed for cash rather than exchanged for shares of
Institutional Fund will be payable. If, instead of such redemption the
shareholder exchanged such shares for Class B shares of a fund which the
shareholder continued to hold for an additional two and a half years, any
subsequent redemption will not incur a CDSC.
Set forth below is a description of the investment objectives of the other
funds into which exchanges can be made:
Funds Issuing Class A, Class B, Class C and Class D Shares:
<TABLE>
<S> <C>
MERRILL LYNCH ADJUSTABLE RATE
SECURITIES FUND, INC. ......... High current income consistent with a policy of limiting
the degree of fluctuation in net asset value by investing
primarily in a portfolio of adjustable rate securities,
consisting principally of mortgage-backed and
asset-backed securities.
MERRILL LYNCH AMERICAS INCOME
FUND, INC........................ A high level of current income, consistent with prudent
investment risk, by investing primarily in debt securities
denominated in a currency of a country located in the
Western Hemisphere (i.e., North and South America and
the surrounding waters).
</TABLE>
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<PAGE> 81
<TABLE>
<S> <C>
MERRILL LYNCH ARIZONA LIMITED
MATURITY MUNICIPAL BOND FUND... A portfolio of Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust, a series fund, whose objective is
to provide as high a level of income exempt from Federal
and Arizona income taxes as is consistent with prudent
investment management through investment in a portfolio
primarily of intermediate-term investment grade Arizona
Municipal Bonds.
MERRILL LYNCH ARIZONA MUNICIPAL
BOND FUND........................ A portfolio of Merrill Lynch Multi-State Municipal Series
Trust, a series fund, whose objective is to provide as
high a level of income exempt from Federal and Arizona
income taxes as is consistent with prudent investment
management.
MERRILL LYNCH ARKANSAS MUNICIPAL
BOND FUND...................... A portfolio of Merrill Lynch Multi-State Municipal Series
Trust, a series fund, whose objective is to provide as
high a level of income exempt from Federal and Arkansas
income taxes as is consistent with prudent investment
management.
MERRILL LYNCH ASSET GROWTH FUND,
INC............................ High total investment return, consistent with prudent
risk, from investment in United States and foreign equity,
debt and money market securities the combination of
which will be varied both with respect to types of
securities and markets in response to changing market
and economic trends.
MERRILL LYNCH ASSET INCOME FUND,
INC............................ A high level of current income through investment
primarily in United States fixed income securities.
MERRILL LYNCH BALANCED FUND FOR
INVESTMENT AND RETIREMENT...... As high a level of total investment return as is
consistent with reasonable risk by investing in common
stocks and other types of securities, including fixed
income securities and convertible securities.
MERRILL LYNCH BASIC VALUE FUND,
INC............................ Capital appreciation and, secondarily, income through
investment in securities, primarily equities, that are
undervalued and therefore represent basic investment
value.
</TABLE>
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<PAGE> 82
<TABLE>
<S> <C>
MERRILL LYNCH CALIFORNIA INSURED
MUNICIPAL BOND FUND............ A portfolio of Merrill Lynch California Municipal Series
Trust, a series fund, whose objective is to provide as
high a level of income exempt from Federal and
California income taxes as is consistent with prudent
investment management through investment in a portfolio
consisting primarily of insured California Municipal
Bonds.
MERRILL LYNCH CALIFORNIA LIMITED
MATURITY MUNICIPAL BOND FUND..... A portfolio of Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust, a series fund, whose objective is
to provide as high a level of income exempt from Federal
and California income taxes as is consistent with
prudent investment management through investment in a
portfolio primarily of intermediate-term investment
grade California Municipal Bonds.
MERRILL LYNCH CALIFORNIA
MUNICIPAL BOND FUND.............. A portfolio of Merrill Lynch California Municipal Series
Trust, a series fund, whose objective is to provide as
high a level of income exempt from Federal and
California income taxes as is consistent with prudent
investment management.
MERRILL LYNCH CAPITAL
FUND, INC........................ The highest total investment return consistent with
prudent risk through a fully managed investment policy
utilizing equity, debt and convertible securities.
MERRILL LYNCH COLORADO MUNICIPAL
BOND FUND...................... A portfolio of Merrill Lynch Multi-State Municipal Series
Trust, a series fund, whose objective is to provide as
high a level of income exempt from Federal and Colorado
income taxes as is consistent with prudent investment
management.
MERRILL LYNCH CONNECTICUT
MUNICIPAL BOND FUND............ A portfolio of Merrill Lynch Multi-State Municipal Series
Trust, a series fund, whose objective is to provide as
high a level of income exempt from Federal and
Connecticut income taxes as is consistent with prudent
investment management.
MERRILL LYNCH CORPORATE BOND
FUND, INC...................... Current income from three separate diversified portfolios
of fixed income securities.
MERRILL LYNCH DEVELOPING CAPITAL
MARKETS FUND, INC.............. Long-term appreciation through investments in securities,
principally equities, of issuers in countries having
smaller capital markets.
</TABLE>
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<PAGE> 83
<TABLE>
<S> <C>
MERRILL LYNCH DRAGON
FUND, INC........................ Capital appreciation primarily through investment in
equity and debt securities of issuers domiciled in
developing countries located in Asia and the Pacific
Basin, other than Japan, Australia and New Zealand.
MERRILL LYNCH EUROFUND........... Capital appreciation primarily through investment in
equity securities of corporations domiciled in Europe.
MERRILL LYNCH FEDERAL SECURITIES
TRUST.......................... High current return through investments in U.S. Government
and Government agency securities, including GNMA
mortgage-backed certificates and other mortgage-backed
Government securities.
MERRILL LYNCH FLORIDA LIMITED
MATURITY MUNICIPAL BOND FUND... A portfolio of Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust, a series fund, whose objective is
to provide as high a level of income exempt from Federal
income taxes as is consistent with prudent investment
management while serving to offer shareholders the
opportunity to own securities exempt from Florida
intangible personal property taxes through investment in
a portfolio primarily of intermediate-term investment
grade Florida Municipal Bonds.
MERRILL LYNCH FLORIDA MUNICIPAL
BOND FUND...................... A portfolio of Merrill Lynch Multi-State Municipal Series
Trust, a series fund, whose objective is to provide as
high a level of income exempt from Federal income taxes
as is consistent with prudent investment management
while seeking to offer shareholders the opportunity to
own securities exempt from Florida intangible personal
property taxes.
MERRILL LYNCH FUND FOR TOMORROW,
INC............................ Long-term growth through investment in a portfolio of good
quality securities, primarily common stock, potentially
positioned to benefit from demographic and cultural
changes as they affect consumer markets.
MERRILL LYNCH FUNDAMENTAL GROWTH
FUND, INC...................... Long-term growth of capital through investment in a
diversified portfolio of equity securities placing
particular emphasis on companies that have exhibited an
above-average growth rate in earnings.
</TABLE>
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<PAGE> 84
<TABLE>
<S> <C>
MERRILL LYNCH GLOBAL ALLOCATION
FUND, INC...................... High total return consistent with prudent risk, through a
fully managed investment policy utilizing U.S. and foreign
equity, debt and money market securities, the
combination of which will be varied from time to time
both with respect to the types of securities and markets
in response to changing market and economic trends.
MERRILL LYNCH GLOBAL BOND FUND
FOR INVESTMENT AND RETIREMENT.... High total investment return from investment in a global
portfolio of debt instruments denominated in various
currencies and multinational currency units.
MERRILL LYNCH GLOBAL CONVERTIBLE
FUND, INC...................... High total return from investment primarily in an
internationally diversified portfolio of convertible debt
securities, convertible preferred stock and "synthetic"
convertible securities consisting of a combination of
debt securities or preferred stock and warrants or
options.
MERRILL LYNCH GLOBAL HOLDINGS,
INC. (residents of
Arizona must meet investor
suitability standards)........... The highest total investment return consistent with
prudent risk through worldwide investment in an
internationally diversified portfolio of securities.
MERRILL LYNCH GLOBAL
RESOURCES TRUST.................. Long-term growth and protection of capital from investment
in securities of domestic and foreign companies that
possess substantial natural resource assets.
MERRILL LYNCH GLOBAL SMALLCAP
FUND, INC...................... Long-term growth of capital by investing primarily in
equity securities of companies with relatively small
market capitalizations located in various foreign
countries and in the United States.
MERRILL LYNCH GLOBAL UTILITY
FUND, INC........................ Capital appreciation and current income through investment
of at least 65% of its total assets in equity and debt
securities issued by domestic and foreign companies
which are primarily engaged in the ownership or
operation of facilities used to generate, transmit or
distribute electricity, telecommunications, gas or
water.
</TABLE>
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<PAGE> 85
<TABLE>
<S> <C>
MERRILL LYNCH GROWTH FUND FOR
INVESTMENT AND RETIREMENT...... Growth of capital and, secondarily, income from investment
in a diversified portfolio of equity securities placing
principal emphasis on those securities which management
of the fund believes to be undervalued.
MERRILL LYNCH HEALTHCARE FUND,
INC. (residents of Wisconsin must
meet investor suitability
standards)....................... Capital appreciation through worldwide investment in
equity securities of companies that derive or are expected
to derive a substantial portion of their sales from
products and services in healthcare.
MERRILL LYNCH INTERNATIONAL
EQUITY FUND...................... Capital appreciation and, secondarily, income by investing
in a diversified portfolio of equity securities of issuers
located in countries other than the United States.
MERRILL LYNCH LATIN AMERICA
FUND, INC........................ Capital appreciation by investing primarily in Latin
American equity and debt securities.
MERRILL LYNCH MARYLAND
MUNICIPAL BOND FUND.............. A portfolio of Merrill Lynch Multi-State Municipal Series
Trust, a series fund, whose objective is to provide as
high a level of income exempt from Federal and Maryland
income taxes as is consistent with prudent investment
management.
MERRILL LYNCH MASSACHUSETTS
LIMITED MATURITY MUNICIPAL
BOND FUND........................ A portfolio of Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust, a series fund, whose objective is
to provide as high a level of income exempt from Federal
and Massachusetts income taxes as is consistent with
prudent investment management through investment in a
portfolio primarily of intermediate-term investment
grade Massachusetts Municipal Bonds.
MERRILL LYNCH MASSACHUSETTS
MUNICIPAL BOND FUND.............. A portfolio of Merrill Lynch Multi-State Municipal Series
Trust, a series fund, whose objective is to provide as
high a level of income exempt from Federal and
Massachusetts income taxes as is consistent with prudent
investment management.
</TABLE>
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<PAGE> 86
<TABLE>
<S> <C>
MERRILL LYNCH MICHIGAN
LIMITED MATURITY MUNICIPAL
BOND FUND........................ A portfolio of Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust, a series fund, whose objective is
to provide as high a level of income exempt from Federal
and Michigan income taxes as is consistent with prudent
investment management through investment in a portfolio
primarily of intermediate-term grade Michigan Municipal
Bonds.
MERRILL LYNCH MICHIGAN MUNICIPAL
BOND FUND...................... A portfolio of Merrill Lynch Multi-State Municipal Series
Trust, a series fund, whose objective is to provide as
high a level of income exempt from Federal and Michigan
income taxes as is consistent with prudent investment
management.
MERRILL LYNCH MINNESOTA MUNICIPAL
BOND FUND...................... A portfolio of Merrill Lynch Multi-State Municipal Series
Trust, a series fund, whose objective is to provide as
high a level of income exempt from Federal and Minnesota
income taxes as is consistent with prudent investment
management.
MERRILL LYNCH MUNICIPAL BOND
FUND, INC...................... Tax-exempt income from three separate diversified
portfolios of municipal bonds.
MERRILL LYNCH MUNICIPAL
INTERMEDIATE TERM FUND........... Currently the only portfolio of Merrill Lynch Municipal
Series Trust, a series fund, whose objective is to provide
as high a level as possible of income exempt from
Federal income taxes by investing in investment grade
obligations with a dollar weighted average maturity of
five to twelve years.
MERRILL LYNCH NEW JERSEY
LIMITED MATURITY MUNICIPAL
BOND FUND........................ A portfolio of Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust, a series fund, whose objective is
to provide as high a level of income exempt from Federal
and New Jersey income taxes as is consistent with
prudent investment management through a portfolio
primarily of intermediate-term investment grade New
Jersey Municipal Bonds.
MERRILL LYNCH NEW JERSEY
MUNICIPAL BOND FUND.............. A portfolio of Merrill Lynch Multi-State Municipal Series
Trust, a series fund, whose objective is to provide as
high a level of income exempt from Federal and New
Jersey income taxes as is consistent with prudent
investment management.
</TABLE>
36
<PAGE> 87
<TABLE>
<S> <C>
MERRILL LYNCH NEW MEXICO
MUNICIPAL BOND FUND.............. A portfolio of Merrill Lynch Multi-State Municipal Series
Trust, a series fund, whose objective is to provide as
high a level of income exempt from Federal and New
Mexico income taxes as is consistent with prudent
investment management.
MERRILL LYNCH NEW YORK
LIMITED MATURITY MUNICIPAL
BOND FUND........................ A portfolio of Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust, a series fund, whose objective is
to provide as high a level of income exempt from
Federal, New York State and New York City income taxes
as is consistent with prudent investment management
through investment in a portfolio primarily of
intermediate-term investment grade New York Municipal
Bonds.
MERRILL LYNCH NEW YORK MUNICIPAL
BOND FUND...................... A portfolio of Merrill Lynch Multi-State Municipal Series
Trust, a series fund, whose objective is to provide as
high a level of income exempt from Federal, New York
State and New York City income taxes as is consistent
with prudent investment management.
MERRILL LYNCH NORTH CAROLINA
MUNICIPAL BOND FUND.............. A portfolio of Merrill Lynch Multi-State Municipal Series
Trust, a series fund, whose objective is to provide as
high a level of income exempt from Federal and North
Carolina income taxes as is consistent with prudent
investment management.
MERRILL LYNCH OHIO MUNICIPAL BOND
FUND........................... A portfolio of Merrill Lynch Multi-State Municipal Series
Trust, a series fund, whose objective is to provide as
high a level of income exempt from Federal and Ohio
income taxes as is consistent with prudent investment
management.
MERRILL LYNCH OREGON MUNICIPAL
BOND FUND...................... A portfolio of Merrill Lynch Multi-State Municipal Series
Trust, a series fund, whose objective is to provide as
high a level of income exempt from Federal and Oregon
income taxes as is consistent with prudent investment
management.
MERRILL LYNCH PENNSYLVANIA
LIMITED MATURITY MUNICIPAL
BOND FUND........................ A portfolio of Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust, a series fund, whose objective is
to provide as high a level of income exempt from Federal
and Pennsylvania income taxes as is consistent with
prudent investment management through investment in a
portfolio of intermediate-term investment grade
Pennsylvania Municipal Bonds.
</TABLE>
37
<PAGE> 88
<TABLE>
<S> <C>
MERRILL LYNCH PENNSYLVANIA
MUNICIPAL BOND FUND.............. A portfolio of Merrill Lynch Multi-State Municipal Series
Trust, a series fund, whose objective is to provide as
high a level of income exempt from Federal and
Pennsylvania income taxes as is consistent with prudent
investment management.
MERRILL LYNCH PHOENIX FUND,
INC............................ Long-term growth of capital by investing in equity and
fixed income securities, including tax-exempt securities,
of issuers in weak financial condition or experiencing
poor operating results believed to be undervalued
relative to the current or prospective condition of such
issuer.
MERRILL LYNCH SHORT-TERM GLOBAL
INCOME FUND, INC............... As high a level of current income as is consistent with
prudent investment management from a global portfolio of
high quality debt securities denominated in various
currencies and multinational currency units and having
remaining maturities not exceeding three years.
MERRILL LYNCH SPECIAL VALUE FUND,
INC............................ Long-term growth of capital from investments in
securities, primarily common stocks, of relatively small
companies believed to have special investment value and
emerging growth companies regardless of size.
MERRILL LYNCH STRATEGIC
DIVIDEND FUND.................... Long-term total return from investment in dividend paying
common stocks which yield more than Standard & Poor's 500
Composite Stock Price Index.
MERRILL LYNCH TECHNOLOGY FUND,
INC............................ Capital appreciation through worldwide investment in
equity securities of companies that derive or are expected
to derive a substantial portion of their sales from
products and services in technology.
MERRILL LYNCH TEXAS MUNICIPAL
BOND FUND...................... A portfolio of Merrill Lynch Multi-State Municipal Series
Trust, a series fund, whose objective is to provide as
high a level of income exempt from Federal income taxes
as is consistent with prudent investment management by
investing primarily in a portfolio of long-term,
investment grade obligations issued by the State of
Texas, its political subdivisions, agencies and
instrumentalities.
</TABLE>
38
<PAGE> 89
<TABLE>
<S> <C>
MERRILL LYNCH UTILITY INCOME
FUND, INC........................ High current income through investment in equity and debt
securities issued by companies which are primarily engaged
in the ownership or operation of facilities used to
generate, transmit or distribute electricity,
telecommunications, gas or water.
MERRILL LYNCH WORLD INCOME FUND,
INC............................ High current income by investing in a global portfolio of
fixed income securities denominated in various currencies,
including multinational currencies.
Class A Share Money Market Funds:
MERRILL LYNCH READY ASSETS
TRUST............................ Preservation of capital, liquidity and the highest
possible current income consistent with the foregoing
objectives from the short-term money market securities
in which the Trust invests.
MERRILL LYNCH RETIREMENT RESERVES
MONEY FUND (available only for
exchanges within certain
retirement plans)................ Currently the only portfolio of Merrill Lynch Retirement
Series Trust, a series fund, whose objectives are current
income, preservation of capital and liquidity available
from investing in a diversified portfolio of short-term
money market securities.
MERRILL LYNCH U.S.A. GOVERNMENT
RESERVES....................... Preservation of capital, current income and liquidity
available from investing in direct obligations of the U.S.
Government and repurchase agreements relating to such
securities.
MERRILL LYNCH U.S. TREASURY MONEY
FUND........................... Preservation of capital, liquidity and current income
through investment exclusively in a diversified portfolio
of short-term marketable securities which are direct
obligations of the U.S. Treasury.
Class B, Class C and Class D Share Money Market Funds:
MERRILL LYNCH GOVERNMENT FUND.... A portfolio of Merrill Lynch Funds for Institutions
Series, a series fund, whose objective is to provide
current income consistent with liquidity and security of
principal from investment in securities issued or
guaranteed by the U.S. Government, its agencies and
instrumentalities and in repurchase agreements secured
by such obligations.
</TABLE>
39
<PAGE> 90
<TABLE>
<S> <C>
MERRILL LYNCH INSTITUTIONAL
FUND............................. A portfolio of Merrill Lynch Funds for Institutions
Series, a series fund, whose objective is to provide
maximum current income consistent with liquidity and the
maintenance of a high quality portfolio of money market
securities.
MERRILL LYNCH INSTITUTIONAL
TAX-EXEMPT FUND.................. A portfolio of Merrill Lynch Funds for Institutions
Series, a series fund, whose objective is to provide
current income exempt from Federal income taxes,
preservation of capital and liquidity available from
investing in a diversified portfolio of short-term, high
quality municipal bonds.
MERRILL LYNCH TREASURY
FUND............................. A portfolio of Merrill Lynch Funds for Institutions
Series, a series fund, whose objective is to provide
current income consistent with liquidity and security of
principal from investment in direct obligations of the
U.S. Treasury and up to 10% of its total assets in
repurchase agreements secured by such obligations.
</TABLE>
Before effecting an exchange, shareholders should obtain a currently
effective prospectus of the fund into which the exchange is to be made.
To exercise the exchange privilege, shareholders should contact their
Merrill Lynch financial consultant, who will advise the Fund of the exchange.
Shareholders of the Fund, and shareholders of the other funds described above
with shares for which certificates have not been issued, may exercise the
exchange privilege by wire through their securities dealers. The Fund reserves
the right to require a properly completed Exchange Application. This exchange
privilege may be modified or terminated in accordance with the rules of the
Securities and Exchange Commission. The Fund reserves the right to limit the
number of times an investor may exercise the exchange privilege. Certain funds
may suspend the continuous offering of their shares at any time and thereafter
may resume such offering from time to time. The exchange privilege is available
only to U.S. shareholders in states where the exchange legally may be made.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to distribute all of its net investment income and net
realized long-or short-term capital gains, if any, to the Fund's shareholders at
least annually. See "Shareholder Services" for information concerning the manner
in which dividends and distributions are automatically reinvested in shares of
the Fund. Shareholders may elect in writing to receive any such dividends or
distributions, or both, in cash. Dividends and distributions are taxable to
investors whether received in cash or reinvested in additional shares of the
Fund. The per share dividends and distributions on Class B and Class C shares
will be lower than the per share dividends and distributions on Class A and
Class D shares as a result of the account maintenance, distribution and higher
transfer agency fees applicable with respect to the Class B and Class C shares;
similarly, the per share dividends and distributions on Class D shares will be
lower than the per share
40
<PAGE> 91
dividends and distributions on Class A shares as a result of the account
maintenance fees applicable with respect to the Class D shares. See
"Determination of Net Asset Value".
TAXES
The Fund intends to continue to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Internal Revenue Code
of 1986, as amended (the "Code"). If it so qualifies, the Fund (but not its
shareholders) will not be subject to Federal income tax on the part of its net
ordinary income and net realized capital gains which it distributes to Class A,
Class B, Class C and Class D shareholders (together, the "shareholders"). The
Fund intends to distribute substantially all of such income.
Dividends paid by the Fund from its ordinary income and distributions of
the Fund's net realized short-term capital gains (together referred to hereafter
as "ordinary income dividends") are taxable to shareholders as ordinary income.
Distributions made from the Fund's net realized long-term capital gains
(including long-term gains from certain transactions in options) ("capital gain
dividends") are taxable to shareholders as long-term capital gains, regardless
of the length of time the shareholder has owned Fund shares. Any loss upon the
sale or exchange of Fund shares held for six months or less, however, will be
treated as long-term capital loss to the extent of any capital gain dividends
received by the shareholder. Distributions in excess of the Fund's earnings and
profits will first reduce the adjusted tax basis of a holder's shares and, after
such adjusted tax basis is reduced to zero, will constitute capital gains to
such holder (assuming the shares are held as a capital asset).
Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Fund. Not later than 60 days after the close of its
taxable year, the Fund will provide its shareholders with a written notice
designating the amounts of any ordinary income dividends or capital gain
dividends. Distributions by the Fund, whether from ordinary income or capital
gains, generally will not be eligible for the dividends received deduction
allowed to corporations under the Code. If the Fund pays a dividend in January
which was declared in the previous October, November or December to shareholders
of record on a specified date in one of such months, then such dividend will be
treated for tax purposes as being paid by the Fund and received by its
shareholders on December 31 of the year in which such dividend was declared.
Ordinary income dividends paid by the Fund to shareholders who are
nonresident aliens or foreign entities will be subject to a 30% U.S. withholding
tax under existing provisions of the Code applicable to foreign individuals and
entities unless a reduced rate of withholding or a withholding exemption is
provided under applicable treaty law. Nonresident shareholders are urged to
consult their own tax advisers concerning the applicability of the U.S.
withholding tax.
Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on ordinary income dividends, capital gain dividends and
redemption payments ("backup withholding"). Generally, shareholders subject to
backup withholding will be those for whom no certified taxpayer identification
number is on file with the Fund or who, to the Fund's knowledge, have furnished
an incorrect number. When establishing an account, an investor must certify
under penalty of perjury that such number is correct and that such investor is
not otherwise subject to backup withholding.
Dividends and interest received by the Fund may give rise to withholding
and other taxes imposed by foreign countries. Tax conventions between certain
countries and the U.S. may reduce or eliminate such taxes. Shareholders may be
able to claim U.S. foreign tax credits with respect to such taxes, subject to
certain
41
<PAGE> 92
conditions and limitations contained in the Code. For example, certain
retirement accounts cannot claim foreign tax credits on investments in foreign
securities held in the Fund. If more than 50% in value of the Fund's total
assets at the close of its fiscal year consists of securities of foreign
corporations, the Fund will be eligible, and intends, to file an election with
the Internal Revenue Service pursuant to which shareholders of the Fund will be
required to include their proportionate shares of such withholding taxes on
their U.S. income tax returns as gross income, treat such proportionate shares
as taxes paid by them and deduct such proportionate shares in computing their
taxable incomes or, alternatively, use them as foreign tax credits against their
U.S. income taxes. No deductions for foreign taxes, however, may be claimed by
noncorporate shareholders who do not itemize deductions. A shareholder that is a
nonresident alien individual or a foreign corporation may be subject to U.S.
withholding tax on the income resulting from the Fund's election described in
this paragraph but may not be able to claim a credit or deduction against such
U.S. tax for the foreign taxes treated as having been paid by such shareholder.
The Fund will report annually to its shareholders the amount per share of such
withholding taxes. For this purpose, the Fund will allocate foreign taxes and
foreign source income among the Class A, Class B, Class C and Class D
shareholders according to a method (which it believes is consistent with the
Commission's exemptive order permitting the issuance and sale of multiple
classes of stock) that is based on the gross income allocable to the Class A,
Class B, Class C and Class D shareholders during the taxable year, or such other
method as the Internal Revenue Service may prescribe.
No gain or loss will be recognized by Class B shareholders on the
conversion of their Class B shares into Class D shares. A shareholder's basis in
the Class D shares acquired will be the same as such shareholder's basis in the
Class B shares converted, and the holding period of the acquired Class D shares
will include the holding period for the converted Class B shares.
If a shareholder exercises an exchange privilege within 90 days of
acquiring the shares, then the loss the shareholder can recognize on the
exchange will be reduced (or the gain increased) to the extent any sales charge
paid to the Fund on the exchanged shares reduces the sales charge the
shareholder would have owed upon purchase of the new shares in the absence of
the exchange privilege. Instead, such sales charge will be treated as an amount
paid for the new shares.
A loss realized on a sale or exchange of shares of the Fund will be
disallowed if other Fund shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30 days
before and ending 30 days after the date that the shares are disposed of. In
such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
The Code requires a RIC to pay a nondeductible 4% excise tax to the extent
the RIC does not distribute, during each calendar year, 98% of its ordinary
income, determined on a calendar year basis, and 98% of its capital gains,
determined, in general, on an October 31 year end, plus certain undistributed
amounts from previous years. While the Fund intends to distribute its income and
capital gains in the manner necessary to avoid imposition of the 4% excise tax,
there can be no assurance that sufficient amounts of the Fund's taxable income
and capital gains will be distributed to avoid entirely the imposition of the
tax. In such event, the Fund will be liable for the tax only on the amount by
which it does not meet the foregoing distribution requirements.
42
<PAGE> 93
TAX TREATMENT OF OPTIONS, FUTURES AND FORWARD FOREIGN EXCHANGE TRANSACTIONS
The Fund may write, purchase or sell options, futures and forward foreign
exchange contracts. Options and futures contracts that are "Section 1256
contracts" will be "marked to market" for Federal income tax purposes at the end
of each taxable year, i.e., each such option or futures contract will be treated
as sold for its fair market value on the last day of the taxable year. Unless
such contract is a forward foreign exchange contract, or is a non-equity option
or a regulated futures contract for a non-U.S. currency for which the Fund
elects to have gain or loss treated as ordinary gain or loss under Code Section
988 (as described below), gain or loss from Section 1256 contracts will be 60%
long-term and 40% short-term capital gain or loss. The mark-to-market rules
outlined above, however, will not apply to certain transactions entered into by
the Fund solely to reduce the risk of changes in price or interest or currency
exchange rates with respect to its investments.
A forward foreign exchange contract that is a Section 1256 contract will be
marked to market, as described above. However, the character of gain or loss
from such a contract will generally be ordinary under Code Section 988. The Fund
may, nonetheless, elect to treat the gain or loss from certain forward foreign
exchange contracts as capital. In this case, gain or loss realized in connection
with a forward foreign exchange contract that is a Section 1256 contract will be
characterized as 60% long-term and 40% short-term capital gain or loss.
Code Section 1092, which applies to certain "straddles", may affect the
taxation of the Fund's transactions in options, futures and forward foreign
exchange contracts. Under Section 1092, the Fund may be required to postpone
recognition for tax purposes of losses incurred in certain closing transactions
in options, futures and forward foreign exchange contracts.
One of the requirements for qualification as a RIC is that less than 30% of
the Fund's gross income be derived from gains from the sale or other disposition
of securities held for less than three months. Accordingly, the Fund may be
restricted in effecting closing transactions within three months after entering
into an options or futures contract.
SPECIAL RULES FOR CERTAIN FOREIGN CURRENCY TRANSACTIONS
In general, gains from "foreign currencies" and from foreign currency
options, foreign currency futures and forward foreign exchange contracts
relating to investments in stock, securities or foreign currencies will be
qualifying income for purposes of determining whether the Fund qualifies as a
RIC. It is currently unclear, however, who will be treated as the issuer of a
foreign currency instrument or how foreign currency options, foreign currency
futures and forward foreign exchange contracts will be valued for purposes of
the RIC diversification requirements applicable to the Fund.
Under Code Section 988, special rules are provided for certain transactions
in a currency other than the taxpayer's functional currency (i.e., unless
certain special rules apply, currencies other than the U.S. dollar). In general,
foreign currency gains or losses from certain debt instruments, from certain
forward contracts, from futures contracts that are not "regulated futures
contracts" and from unlisted options will be treated as ordinary income or loss
under Code Section 988. In certain circumstances, the Fund may elect capital
gain or loss treatment for such transactions. Regulated futures contracts, as
described above, will be taxed under Code Section 1256 unless application of
Section 988 is elected by the Fund. In general, however, Code Section 988 gains
or losses will increase or decrease the amount of the Fund's investment company
taxable income available to be distributed to shareholders as ordinary income.
Additionally, if Code Section 988 losses exceed
43
<PAGE> 94
other investment company taxable income during a taxable year, the Fund would
not be able to make any ordinary income dividend distributions, and any
distributions made before the losses were realized but in the same taxable year
would be recharacterized as a return of capital to shareholders, thereby
reducing the basis of each shareholder's Fund shares and resulting in a capital
gain for any shareholder who received a distribution greater than the
shareholder's basis in Fund shares. These rules and mark-to-market rules
described above, however, will not apply to certain transactions entered into by
the Fund solely to reduce the risk of currency fluctuations with respect to its
investments.
The Treasury Department has authority to issue regulations concerning the
recharacterization of principal and interest payments with respect to debt
obligations issued in hyperinflationary currencies, which may include the
currencies of certain developing Asia-Pacific countries in which the Fund
intends to invest. No such regulations have been issued.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative or administrative action either
prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state and
local taxes.
Certain states exempt from state income taxation dividends paid by RICs
which are derived from interest on U.S. Government obligations. State law varies
as to whether dividend income attributable to U.S. Government obligations is
exempt from state income tax.
Shareholders are urged to consult their own tax advisers regarding specific
questions as to Federal, foreign, state or local taxes. Foreign investors should
consider applicable foreign taxes in their evaluation of an investment in the
Fund.
PERFORMANCE DATA
From time to time the Fund may include its average annual total return and
other total return data in advertisements or information furnished to present or
prospective shareholders. Total return figures are based on the Fund's
historical performance and are not intended to indicate future performance.
Average annual total return is determined separately for Class A, Class B, Class
C and Class D shares in accordance with a formula specified by the Securities
and Exchange Commission.
Average annual total return quotations for the specified periods are
computed by finding the average annual compounded rates of return (based on net
investment income and any realized and unrealized capital gains or losses on
portfolio investments over such periods) that would equate the initial amount
invested to the redeemable value of such investment at the end of each period.
Average annual total return is computed assuming all dividends and distributions
are reinvested and taking into account all applicable recurring and nonrecurring
expenses, including the maximum sales charge in the case of Class A and Class D
shares and the CDSC that would be applicable to a complete redemption of the
investment at the end of the specified period in the case of Class B and Class C
shares.
The Fund also may quote annual, average annual and annualized total return
and aggregate total return performance data, both as a percentage and as a
dollar amount based on a hypothetical $1,000 investment for
44
<PAGE> 95
various periods other than those noted below. Such data will be computed as
described above, except that (1) as required by the periods of the quotations,
actual annual, annualized or aggregate data, rather than average annual data,
may be quoted, and (2) the maximum applicable sales charges will not be included
with respect to annual or annualized rates of return calculations. Aside from
the impact on the performance data calculations of including or excluding the
maximum applicable sales charges, actual annual or annualized total return data
generally will be lower than average annual total return data since the average
rates of return reflect compounding of return; aggregate total return data
generally will be higher than average annual total return data since the
aggregate rates of return reflect compounding over longer periods of time.
Set forth below is total return information for the Class A and Class B
shares of the Fund for the periods indicated. Since Class C and Class D shares
have not been issued prior to the date of the Statement of Additional
Information, performance information concerning Class C and Class D shares is
not yet provided.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES*
---------------------- --------------------
REDEEMABLE REDEEMABLE
VALUE OF VALUE OF
EXPRESSED A EXPRESSED A
AS A HYPOTHETICAL AS A HYPOTHETICAL
PERCENTAGE $1,000 PERCENTAGE $1,000
BASED INVESTMENT BASED INVESTMENT
ON A AT THE ON A AT THE
HYPOTHETICAL END OF HYPOTHETICAL END OF
$1,000 THE $1,000 THE
PERIOD INVESTMENT PERIOD INVESTMENT PERIOD
- ---------------------------------------- --------- --------- ------- --------
AVERAGE ANNUAL TOTAL RETURN
(including maximum applicable sales charges)
<S> <C> <C> <C> <C>
One Year Ended June 30, 1994............ 13.89% $1,138.90 14.93% $1,149.30
Five Years Ended June 30, 1994.......... 11.44% $1,718.40 11.50% $1,723.40
Ten Years Ended June 30, 1994........... 20.70% $6,561.10
October 21, 1988 to June 30, 1994....... 10.58% $1,773.10
</TABLE>
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURN
(excluding maximum applicable sales charges)
<S> <C> <C> <C> <C>
For the six months ended June 30,
1994.................................. 9.81 % $1,098.10 9.26 % $1,092.60
YEAR ENDED DECEMBER 31,
- ----------------------------------------
1993.................................... 34.41 % $1,344.10 33.05 % $1,330.50
1992.................................... (8.75)% $ 912.50 (9.72)% $ 902.80
1991.................................... 17.04 % $1,170.40 15.87 % $1,158.70
1990.................................... (8.39)% $ 916.10 (9.29)% $ 907.10
1989.................................... 14.49 % $1,144.90 13.39 % $1,133.90
1988.................................... 34.38 % $1,343.80
1987.................................... 10.77 % $1,107.70
1986.................................... 77.78 % $1,777.80
1985.................................... 40.96 % $1,409.60
1984.................................... 2.92 % $1,029.20
1983.................................... 38.54 % $1,385.40
1982.................................... 0.46 % $1,004.60
1981.................................... 22.22 % $1,222.20
1980.................................... 38.49 % $1,384.90
October 21, 1988 to December 31, 1988... 13.37%* $1,133.70
</TABLE>
45
<PAGE> 96
<TABLE>
<CAPTION>
AGGREGATE TOTAL RETURN
(including maximum applicable sales charges)
<S> <C> <C> <C> <C>
Inception (September 23, 1976) to
June 30, 1994......................... 1,614.26% $17,142.60
October 21, 1988 to June 30, 1994....... 77.31% $1,773.10
</TABLE>
- ---------------
* Information as to Class B shares is presented only for the period October
21, 1988, to June 30, 1994. Prior to October 21, 1988, no Class B shares
were publicly issued.
In order to reflect the reduced sales charges in the case of Class A or
Class D shares, or the waiver of the CDSC in the case of Class B or Class C
shares applicable to certain investors, as described under "Purchase of Shares"
and "Redemption of Shares", respectively, the total return data quoted by the
Fund in advertisements directed to such investors may take into account the
reduced, and not the maximum, sales charge or may not take into account the CDSC
and therefore may reflect greater total return since, due to the reduced sales
charges or the waiver of sales charges, a lower amount of expenses may be
deducted.
GENERAL INFORMATION
DESCRIPTION OF SHARES
The Fund was incorporated under Maryland law on August 5, 1976. It has an
authorized capital of 400,000,000 shares of Common Stock, par value $0.10 per
share, divided into four classes, designated Class A, Class B, Class C and Class
D Common Stock, each of which consists of 100,000,000 shares. Class A, Class B,
Class C and Class D Common Stock represent an interest in the same assets of the
Fund and are identical in all respects except that the Class B, Class C and
Class D shares bear certain expenses related to the account maintenance and/or
distribution of such shares and that they have exclusive voting rights with
respect to matters relating to such account maintenance and/or distribution
expenditures. The Fund has received an order from the Securities and Exchange
Commission permitting the issuance and sale of multiple classes of Common Stock.
The Board of Directors of the Fund may classify and reclassify the shares of the
Fund into additional classes of Common Stock at a future date.
Shareholders are entitled to one vote for each share held and fractional
votes for fractional shares held and will vote on the election of Directors and
any other matter submitted to a shareholder vote. The Fund does not intend to
hold meetings of shareholders in any year in which the Investment Company Act
does not require shareholders to act upon any of the following matters: (i)
election of Directors; (ii) approval of an investment advisory agreement; (iii)
approval of a distribution agreement; and (iv) ratification of selection of
independent accountants. Also, the by-laws of the Fund require that a special
meeting of stockholders be held upon the written request of at least 10% of the
outstanding shares of the Fund entitled to vote at such meeting. Voting rights
for Directors are not cumulative. Shares issued are fully paid and
non-assessable and have no preemptive rights. Redemption and conversion rights
are discussed elsewhere herein and in the Prospectus. Each share is entitled to
participate equally in dividends and distributions declared by the Fund and in
the net assets of the Fund upon liquidation or dissolution after satisfaction of
outstanding liabilities. Stock certificates are issued by the transfer agent
only on specific request. Certificates for fractional shares are not issued in
any case. Shareholders may, in accordance with Maryland law, cause a meeting of
shareholders to be held for the purpose of voting on the removal of Directors at
the request of 25% of the outstanding shares of the Fund. A Director may be
removed at a special meeting of shareholders by a vote of a majority of the
votes entitled to be cast for the election of Directors.
46
<PAGE> 97
COMPUTATION OF OFFERING PRICE PER SHARE
An illustration of the computation of the offering price for Class A and
Class B shares of the Fund based on the value of the Fund's net assets on June
30, 1994, and its shares outstanding on that date is as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B
----------- -----------
<S> <C> <C>
Net Assets...................................................... $611,022,333 $829,022,039
============ ============
Number of Shares Outstanding.................................... 26,236,634 37,172,465
============ ============
Net Asset Value Per Share (net assets divided by number of
shares outstanding)........................................... $ 23.29 $ 22.30
Sales Charge (for Class A shares: 5.25% of offering price (5.54%
of net amount invested*))..................................... 1.29 **
------------ ------------
Offering Price.................................................. $ 24.58 $ 22.30
============ ============
</TABLE>
- ---------------
* Rounded to the nearest one-hundredth percent; assumes maximum sales charge
is applicable.
** Class B and Class C shares are not subject to an initial sales charge but
may be subject to a CDSC on redemption of shares. See "Purchase of Shares --
Deferred Sales Charge Alternatives -- Class B and Class C Shares" in the
Prospectus and "Redemption of Shares -- Deferred Sales Charge -- Class B
Shares" herein.
As of June 30, 1994, no Class C or Class D shares of the Fund had been
publicly offered.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey 08540, has
been selected as the independent auditors of the Fund. The selection of
independent auditors is subject to ratification by the Fund's shareholders. The
independent auditors are responsible for auditing the annual financial
statements of the Fund.
CUSTODIAN
Brown Brothers Harriman & Co., 40 Water Street, Boston, Massachusetts 02109
(the "Custodian"), acts as custodian of the Fund's assets. The Custodian, under
its contract with the Fund, is authorized to establish separate accounts in
foreign currencies and to cause securities of the Fund to be held in separate
accounts in any office of approved subcustodians outside of the U.S. and with
certain foreign banks and securities depositories. The Custodian and
subcustodians are responsible for safeguarding and controlling the Fund's cash
and securities, handling the receipt and delivery of securities and collecting
dividends on the Fund's investments.
TRANSFER AGENT
Financial Data Services, Inc., Transfer Agency Mutual Fund Operations, 4800
Deer Lake Drive East, Jacksonville, Florida 32246-6484 acts as the Fund's
transfer agent (the "Transfer Agent"). The Transfer Agent is responsible for the
issuance, transfer and redemption of shares and the opening, maintenance and
servicing of shareholder accounts. See "Management of the Fund -- Transfer
Agency Services" in the Prospectus.
47
<PAGE> 98
LEGAL COUNSEL
Brown & Wood, One World Trade Center, New York, New York 10048-0557, is
counsel for the Fund.
REPORTS TO SHAREHOLDERS
The fiscal year of the Fund ends on December 31 of each year. The Fund
sends to its shareholders at least semi-annually reports showing the Fund's
portfolio and other information. An annual report, containing financial
statements audited by independent auditors is sent to shareholders each year.
After the end of each year, shareholders will receive Federal income tax
information regarding dividends and capital gains distributions.
ADDITIONAL INFORMATION
The Prospectus and this Statement of Additional Information do not contain
all the information set forth in the Registration Statement and the exhibits
relating thereto, which the Fund has filed with the Securities and Exchange
Commission, Washington, D.C., under the Securities Act of 1933, as amended, and
the Investment Company Act, to which reference is hereby made.
Under a separate agreement Merrill Lynch has granted the Fund the right to
use the "Merrill Lynch" name and has reserved the right to withdraw its consent
to the use of such name by the Fund at any time or to grant the use of such name
to any other company, and the Fund has granted Merrill Lynch, under certain
conditions, the use of any other name it might assume in the future, with
respect to any corporation organized by Merrill Lynch.
To the knowledge of the Fund, no person or entity owned beneficially 5% or
more of the Fund's shares on September 30, 1994.
48
<PAGE> 99
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
MERRILL LYNCH PACIFIC FUND, INC.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Merrill Lynch Pacific Fund, Inc. as of December
31, 1993, the related statements of operations for the year then ended and
changes in net assets for each of the years in the two-year period then ended,
and the financial highlights for each of the years in the five-year period then
ended. These financial statements and the financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at December
31, 1993, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Merrill Lynch
Pacific Fund, Inc. as of December 31, 1993, the results of its operations, the
changes in its net assets, and the financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Princeton, New Jersey
February 4, 1994
49
<PAGE> 100
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Shares Held/ Value Percent of
Industry Face Amount Investments Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Japanese Securities
Automobile 2,276,000 Suzuki Motor Corp. $ 20,103,059 $ 21,402,472 2.18%
840,000 Toyota Motor Corp. 10,216,818 13,390,650 1.37
------------ ------------ ------
30,319,877 34,793,122 3.55
Beverage 363,000 Chukyo Coca-Cola Bottling Co., Ltd. 5,223,326 4,063,675 0.41
421,000 Hokkaido Coca-Cola Bottling Co., Ltd. 6,354,142 5,806,376 0.59
381,000 Kinki Coca-Cola Bottling Co., Ltd. 7,350,583 6,244,224 0.64
433,000 Mikuni Coca-Cola Bottling Co., Ltd. 7,892,009 6,669,891 0.68
428,000 Sanyo Coca-Cola Bottling Co., Ltd. 7,040,767 6,132,903 0.63
------------ ------------ ------
33,860,827 28,917,069 2.95
Capital Goods 3,774,000 Mitsubishi Heavy Industries, Ltd. 24,110,222 20,786,405 2.12
36,000 Mitsubishi Heavy Industries, Ltd. #3 US$
(Warrants) (a) 588,000 189,000 0.02
------------ ------------ ------
24,698,222 20,975,405 2.14
Chemicals 644,000 Shin-Etsu Chemical Co., Ltd. 7,686,564 9,516,389 0.97
Construction 135,000 Daiwa House #4 US$ (Warrants) (a) 2,201,890 489,375 0.05
Consumer 1,862,000 Matsushita Electric Industrial Co., Ltd. 23,194,345 24,846,677 2.53
Electronics yen 409,000,000 Matsushita Electric Works, Ltd.--C.E.W. #8,
2.70% due 5/30/2002 4,543,869 4,157,397 0.42
115,000 Nintendo Co., Ltd. 10,087,145 7,394,770 0.76
------------ ------------ ------
37,825,359 36,398,844 3.71
Containers 1,271,000 Toyo Seikan Kaisha, Ltd. 15,986,597 31,871,754 3.25
Electric 610,000 Chudenko Corp. 17,010,002 19,120,545 1.95
Construction 159,000 Kyudenko Corp. 2,802,952 2,378,023 0.24
539,000 Sanki Engineering Co., Ltd. 6,161,337 5,744,313 0.59
713,000 Taihei Dengyo Kaisha, Ltd. 17,365,061 15,388,949 1.57
------------ ------------ ------
43,339,352 42,631,830 4.35
Electric Equipment 1,010,000 Hitachi, Ltd. 9,589,494 7,435,250 0.76
1,845,000 Sumitomo Electric Industries, Ltd. 20,873,045 21,480,387 2.19
169,000,000 Sumitomo Electric Industries #1 Yen (Warrants) (a) 185,351 195,245 0.02
923,000 The Nippon Signal Co., Ltd. 13,935,321 11,159,323 1.14
------------ ------------ ------
44,583,211 40,270,205 4.11
Electronics 744,000 Murata Manufacturing Co., Ltd. 19,570,980 25,519,613 2.60
Iron & Steel 450,000 Maruichi Steel Tube, Ltd. 5,588,979 7,052,660 0.72
Leisure 200,000 Heiwa Corp. 9,445,110 4,459,968 0.45
Office Equipment 1,563,000 Canon, Inc. 19,004,087 21,556,690 2.20
14,250 Canon, Inc. #2 DM (Warrants) (a) 1,741,131 1,172,131 0.12
112,500 Canon, Inc. #4 US$ (Warrants) (a) 2,434,375 1,617,187 0.16
------------ ------------ ------
23,179,593 24,346,008 2.48
Pharmaceuticals 1,100,000 Sankyo Co., Ltd. 27,248,940 21,771,449 2.22
672,000 Taisho Pharmaceutical Co., Ltd. 9,783,498 12,939,280 1.32
------------ ------------ ------
37,032,438 34,710,729 3.54
</TABLE>
50
<PAGE> 101
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Held/ Value Percent of
Industry Face Amount Investments Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Japanese Securities
(concluded)
Photography 885,000 Fuji Photo Film Co., Ltd. $ 20,866,376 $ 19,576,840 2.00%
Property &
Casualty
Insurance 4,495,000 Dai-Tokyo Fire & Marine Insurance Co., Ltd. 22,835,890 29,105,185 2.97
4,467,000 Fuji Fire & Marine Insurance Co., Ltd. 16,116,389 23,803,197 2.43
4,633,000 Koa Fire & Marine Insurance Co., Ltd. 27,152,420 25,974,010 2.65
4,582,000 Nichido Fire & Marine Insurance Co., Ltd. 20,766,227 26,262,583 2.67
2,359,000 Tokio Marine & Fire Insurance Co., Ltd. 19,718,607 25,774,494 2.63
------------ ------------ ------
106,589,533 130,919,469 13.35
Retailing 554,000 Ito-Yokado Co., Ltd. 17,758,652 25,303,600 2.58
362,000 Sangetsu Co., Ltd. 8,312,345 12,027,763 1.23
354,000 Senshukai Co., Ltd. 6,286,430 10,715,744 1.09
208,000 Shimachu Co., Ltd. 3,046,441 7,451,191 0.76
------------ ------------ ------
35,403,868 55,498,298 5.66
Textile 603,000 Nisshinbo Industries, Inc. 3,301,761 4,428,264 0.45
Total Investments in Japan 501,480,537 552,375,842 56.33
Australian Securities
Food & Beverage 4,200,670 Burns Philp & Co., Ltd. 11,696,127 13,627,755 1.39
2,239,001 Coca-Cola Amatil, Ltd. 8,469,439 17,475,515 1.78
------------ ------------ ------
20,165,566 31,103,270 3.17
Property 621,772 Lend Lease Corp. 8,038,708 7,469,341 0.76
Utilities 310,273 The Australian Gas Light Company 635,559 947,620 0.10
Total Investments in Australia 28,839,833 39,520,231 4.03
Hong Kong Securities
Construction 7,500,000 Paul Y-ITC Construction Holdings, Inc. 2,595,588 2,354,979 0.24
Diversified 7,736,000 Citic Pacific, Ltd. 19,732,726 25,542,924 2.61
Property 4,874,000 Hang Lung Development Co., Ltd. 3,852,318 11,927,826 1.22
400,000 Hang Lung Development Co., Ltd. (Warrants) (a) 0 403,988 0.04
------------ ------------ ------
3,852,318 12,331,814 1.26
Services 917,400 Hong Kong Aircraft Engineering 5,499,090 5,701,826 0.58
Utilities 7,143,800 China Light & Power Co., Ltd. 7,606,117 52,262,683 5.33
157,669 Consolidated Electric Power, Ltd. 257,747 273,568 0.03
8,804,000 Hong Kong & China Gas Co. 18,640,984 25,535,362 2.60
6,446,800 Hong Kong Telecommunications, Ltd. 11,199,792 13,606,479 1.39
223,500 Hong Kong Telecommunications, Ltd. (ADR) (b) 4,896,660 13,912,875 1.42
------------ ------------ ------
42,601,300 105,590,967 10.77
Total Investments in Hong Kong 74,281,022 151,522,510 15.46
</TABLE>
51
<PAGE> 102
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Held/ Value Percent of
Industry Face Amount Investments Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Indian Securities
Non-Ferrous Metals $ 480,000 Sterlite Industries, Ltd., 3.50% due 6/30/1999 $ 480,000 $ 571,200 0.06%
Total Investments in India 480,000 571,200 0.06
Indonesian Securities
Pharmaceuticals 742,000 Kalbe Farma, PT 5,070,605 5,800,995 0.59
Total Investments in Indonesia 5,070,605 5,800,995 0.59
Malaysian Securities
Building & 266,000 Malayan Cement BHD 430,035 543,361 0.05
Construction 1,350,000 Sungei Way Holdings BHD 4,718,897 5,966,574 0.61
------------ ------------ ------
5,148,932 6,509,935 0.66
Building Materials 1,410,000 Aokam Perdana BHD (Ordinary) 11,324,720 15,186,630 1.55
Diversified 2,000,000 Sime Darby BHD 4,726,798 5,608,171 0.57
Leisure 800,000 Genting BHD 1,876,683 11,194,030 1.14
1,000,000 Granite Industries BHD 4,807,897 5,756,732 0.59
4,470,000 Magnum Corp. BHD 4,762,131 13,281,337 1.36
2,300,000 Resorts World BHD 3,704,646 14,778,087 1.51
------------ ------------ ------
15,151,357 45,010,186 4.60
Retail 2,300,000 Berjaya Singer BHD 6,338,321 6,064,995 0.62
MYR 1,387,000 Berjaya Singer BHD, 5.00% due 9/15/1998 437,533 414,683 0.04
295,000 Berjaya Singer TSR 326,647 321,021 0.03
------------ ------------ ------
7,102,501 6,800,699 0.69
Total Investments in Malaysia 43,454,308 79,115,621 8.07
Singaporean Securities
Airlines 1,260,000 Singapore Airlines, Ltd.--Foreign Registered 6,673,879 10,578,358 1.08
Banking 317,500 Development Bank of Singapore, Ltd.--
Foreign Registered 2,411,221 3,593,595 0.37
Electronics 305,000 Creative Technology, Ltd. 7,609,990 9,531,250 0.97
Food 3,600,000 Cerebos Pacific Ltd. 5,153,632 17,910,448 1.83
Property 888,000 City Developments Ltd. 4,164,079 4,335,075 0.44
905,000 First Capital Corp. Ltd. 3,465,885 3,348,725 0.34
------------ ------------ ------
7,629,964 7,683,800 0.78
Publishing 200,000 Times Publishing, Ltd. 334,576 547,264 0.06
Transportation 300,000 Singapore Bus Co. Ltd.--Foreign Registered 1,060,285 2,089,553 0.21
Total Investments in Singapore 30,873,547 51,934,268 5.30
</TABLE>
52
<PAGE> 103
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Shares Held/ Value Percent of
Industry Face Amount Investments Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
South Korean Securities
Automobile 61,547 ++Kia Motors Corp. (GDS) (c) $ 2,034,000 $ 2,154,145 0.22%
Banking 294,660 Hanil Bank 4,295,682 3,796,883 0.39
410,000 Korea First Bank 6,491,192 6,095,899 0.62
58,040 Shin Han Bank 1,020,073 978,000 0.10
------------ ------------ ------
11,806,947 10,870,782 1.11
Textiles 3,080 Taekwang Industrial Co. 716,353 1,747,788 0.18
Total Investments in South Korea 14,557,300 14,772,715 1.51
Taiwanese Securities
Steel 135,000 ++China Steel Corp. (ADR) (b) 2,457,000 3,391,875 0.35
Total Investments in Taiwan 2,457,000 3,391,875 0.35
Thai Securities
Banking 822,100 Bangkok Bank Co., Ltd. 5,873,326 8,114,736 0.83
509,400 Thai Farmers Bank Limited 2,262,452 2,793,419 0.28
------------ ------------ ------
8,135,778 10,908,155 1.11
Communications 650,000 TelecomAsia Corp. 1,420,109 3,895,417 0.40
Total Investments in Thailand 9,555,887 14,803,572 1.51
Short-Term Securities
Commercial Paper*
$35,928,000 General Electric Capital Corp.,
3.22% due 1/03/1994 35,921,573 35,921,573 3.67
Total Investments in Short-Term Securities 35,921,573 35,921,573 3.67
Total Investments $746,971,612 949,730,402 96.88
============
Put Options Purchased
(Cost-$2,872,000)** 8,000 0.00
Unrealized Appreciation
on Forward Foreign
Exchange Contracts*** 6,076,070 0.62
Other Assets Less
Liabilities 24,514,895 2.50
------------ ------
Net Assets $980,329,367 100.00%
============ ======
<FN>
(a) Warrants entitle the Fund to purchase a predetermined number of shares of Common Stock. The purchase price and number of shares
are subject to adjustment under certain conditions until the expiration date.
(b) ADR--American Depositary Receipts.
(c) GDS--Global Depositary Shares.
++ Restricted securities as to resale. At December 31, 1993, the value of the Fund's investment in restricted securities was
approximately $5,546,000, representing 0.57% of net assets.
</TABLE>
<TABLE>
<CAPTION>
Acquisition Value
Issue Date Cost (Note 1a)
<S> <C> <C> <C>
China Steel Corp. (ADR) May 21, 1992 $ 2,457,000 $ 3,391,875
Kia Motors Corp. (GDS) Jan. 15, 1991 2,034,000 2,154,145
Total $ 4,491,000 $ 5,546,020
=========== ===========
</TABLE>
*Commercial Paper is traded on a discount basis; the interest rates shown are
the discount rates paid at the time of purchase by the Fund.
**Put options purchased as of December 31, 1993 are as follows:
<TABLE>
<CAPTION>
Market Value Value
Subject to Put Issue (Notes 1a & 1g)
<S> <C> <C>
Yen 80,000,000 Yen currency put option, strike price
Yen 127, expiring January 14, 1994 $ 4,000
Yen 80,000,000 Yen currency put option, strike price
Yen 124, expiring February 18, 1994 4,000
Total Put Options
Purchased (Cost--$2,872,000) $ 8,000
==========
</TABLE>
***Forward foreign exchange contracts as of December 31, 1993 are as follows:
<TABLE>
<CAPTION>
Expiration Unrealized
Date Appreciation
<S> <C> <C>
Foreign Currency Sold
Yen 20,999,550,000 May 1994 $6,076,070
Total (US$ Commitment-- $195,000,000) $6,076,070
==========
</TABLE>
See Notes to Financial Statements.
53
<PAGE> 104
<TABLE>
FINANCIAL INFORMATION
<CAPTION>
Statement of Assets and Liabilities as of December 31, 1993
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$746,971,612) (Note 1a) $949,730,402
Put options purchased, at value (identified cost--$2,872,000) (Notes 1a & 1g) 8,000
Unrealized appreciation on forward foreign exchange contracts (Note 1b) 6,076,070
Foreign cash 27,458,095
Cash 419,140
Receivables:
Capital shares sold $ 9,901,277
Securities sold 1,450,714
Dividends 594,707
Interest 11,909 11,958,607
------------
Prepaid registration fees and other assets (Note 1e) 31,300
------------
Total assets 995,681,614
------------
Liabilities: Payables:
Capital shares redeemed 12,980,642
Securities purchased 901,920
Investment adviser (Note 2) 490,095
Distributor (Note 2) 416,880
Dividends to shareholders 5,832 14,795,369
------------
Accrued expenses and other liabilities 556,878
------------
Total liabilities 15,352,247
------------
Net Assets: Net assets $980,329,367
============
Net Assets Class A Shares of Common Stock, $0.10 par value, 50,000,000 shares authorized $ 2,226,777
Consist of: Class B Shares of Common Stock, $0.10 par value, 50,000,000 shares authorized 2,488,423
Paid-in capital in excess of par 777,415,888
Accumulated realized capital losses and foreign currency
transactions--net (7,754,541)
Unrealized appreciation on investments and foreign currency
transactions--net 205,952,820
------------
Net assets $980,329,367
============
Net Asset Value: Class A--Based on net assets of $472,321,833 and 22,267,767 shares outstanding $ 21.21
============
Class B--Based on net assets of $508,007,534 and 24,884,228 shares outstanding $ 20.41
============
</TABLE>
See Notes to Financial Statements.
54
<PAGE> 105
<TABLE>
FINANCIAL INFORMATION (continued)
<CAPTION>
Statement of Operations for the Year Ended December 31, 1993
<S> <S> <C> <C>
Investment Dividends (net of $820,306 foreign withholding tax) $ 7,835,757
Income Interest and discount earned (net of $6,787 foreign withholding tax) 1,684,980
(Notes 1c & 1d): ------------
Total income 9,520,737
------------
Expenses: Investment advisory fees (Note 2) 4,179,008
Distribution fees--Class B (Note 2) 3,135,389
Custodian fees 682,510
Transfer agent fees--Class A (Note 2) 469,771
Transfer agent fees--Class B (Note 2) 447,024
Registration fees (Note 1e) 209,175
Printing and shareholder reports 144,395
Accounting services (Note 2) 68,896
Professional fees 67,845
Directors' fees and expenses 39,408
Amortization of organization expenses (Note 1e) 13,172
Other 19,854
------------
Total expenses 9,476,447
------------
Investment income--net 44,290
------------
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net $ (1,960,363)
(Loss) on Foreign currency transactions (95,945) (2,056,308)
Investments & ------------
Foreign Currency Change in unrealized appreciation on:
Transactions--Net Investments--net 146,329,573
Notes 1b, 1c & 3): Foreign currency transactions 21,971,841 168,301,414
------------ ------------
Net realized and unrealized gain on investments and foreign currency
transactions 166,245,106
------------
Net Increase in Net Assets Resulting from Operations $166,289,396
============
</TABLE>
See Notes to Financial Statements.
55
<PAGE> 106
<TABLE>
FINANCIAL INFORMATION (continued)
<CAPTION>
Statements of Changes in Net Assets
For the Year Ended December 31,
Increase (Decrease) in Net Assets: 1993 1992
<S> <S> <C> <C>
Operations: Investment income (loss)--net $ 44,290 $ (34,597)
Realized gain (loss) on investments and foreign currency transactions--net (2,056,308) 25,659,845
Change in unrealized appreciation/depreciation on investments and foreign
currency transactions--net 168,301,414 (63,981,580)
------------ ------------
Net increase (decrease) in net assets resulting from operations 166,289,396 (38,356,332)
------------ ------------
Dividends & Investment income--net:
Distributions to Class A (44,290) (256,888)
Shareholders In excess of investment income--net:
(Note 1f): Class A (559,299) --
Realized gain on investments--net:
Class A -- (16,280,294)
Class B -- (9,723,817)
------------ ------------
Net decrease in net assets resulting from dividends and distributions
to shareholders (603,589) (26,260,999)
------------ ------------
Capital Share Net increase in net assets derived from capital share transactions 364,954,305 103,926,145
Transactions ------------ ------------
(Note 4):
Net Assets: Total increase in net assets 530,640,112 39,308,814
Beginning of year 449,689,255 410,380,441
------------ ------------
End of year $980,329,367 $449,689,255
============ ============
</TABLE>
See Notes to Financial Statements.
56
<PAGE> 107
<TABLE>
FINANCIAL INFORMATION (continued)
<CAPTION>
Financial Highlights
Class A
The following per share data and ratios have been derived For the Year Ended December 31,
from information provided in the financial statements. 1993 1992 1991 1990 1989
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 15.80 $ 18.34 $ 16.52 $ 20.65 $ 19.11
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .07 .05 .04 .10 .07
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net 5.37 (1.63) 2.73 (1.80) 2.57
-------- -------- -------- -------- --------
Total from investment operations 5.44 (1.58) 2.77 (1.70) 2.64
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net -- (.01) (.11) (.11) (.06)
In excess of investment income--net (.03) -- -- -- --
Realized gain on investments--net -- (.95) (.84) (2.32) (1.04)
-------- -------- -------- -------- --------
Total dividends and distributions (.03) (.96) (.95) (2.43) (1.10)
-------- -------- -------- -------- --------
Net asset value, end of year $ 21.21 $ 15.80 $ 18.34 $ 16.52 $ 20.65
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 34.41% (8.75%) 17.04% (8.39%) 14.49%
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses .90% .98% 1.02% 1.07% 1.06%
Net Assets: ======== ======== ======== ======== ========
Investment income--net .47% .40% .43% .94% .36%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $472,322 $284,674 $304,712 $242,104 $318,613
Data: ======== ======== ======== ======== ========
Portfolio turnover 13.25% 7.62% 5.91% 31.06% 18.14%
======== ======== ======== ======== ========
<FN>
*Total investment returns exclude the effects of sales loads.
</TABLE>
See Notes to Financial Statements.
57
<PAGE> 108
<TABLE>
FINANCIAL INFORMATION (concluded)
<CAPTION>
Financial Highlights (concluded)
Class B
The following per share data and ratios have been derived For the Year Ended December 31,
from information provided in the financial statements. 1993++ 1992++ 1991++ 1990++ 1989
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 15.34 $ 18.01 $ 16.30 $ 20.49 $ 19.09
Operating -------- -------- -------- -------- --------
Performance: Investment loss--net (.10) (.12) (.14) (.09) (.06)
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net 5.17 (1.60) 2.69 (1.78) 2.50
-------- -------- -------- -------- --------
Total from investment operations 5.07 (1.72) 2.55 (1.87) 2.44
-------- -------- -------- -------- --------
Less distributions:
Realized gain on investments--net -- (.95) (.84) (2.32) (1.04)
-------- -------- -------- -------- --------
Total distributions -- (.95) (.84) (2.32) (1.04)
-------- -------- -------- -------- --------
Net asset value, end of year $ 20.41 $ 15.34 $ 18.01 $ 16.30 $ 20.49
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 33.05% (9.72%) 15.87% (9.29%) 13.39%
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses, excluding distribution fees .92% 1.00% 1.04% 1.10% 1.10%
Net Assets: ======== ======== ======== ======== ========
Expenses 1.92% 2.00% 2.04% 2.10% 2.10%
======== ======== ======== ======== ========
Investment loss--net (.56%) (.61%) (.60%) (.05%) (.64%)
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $508,008 $165,015 $105,669 $58,013 $59,090
Data: ======== ======== ======== ======== ========
Portfolio turnover 13.25% 7.62% 5.91% 31.06% 18.14%
======== ======== ======== ======== ========
<FN>
*Total investment returns exclude the effects of sales loads.
++Based on average number of shares outstanding during the period.
</TABLE>
See Notes to Financial Statements.
58
<PAGE> 109
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES:
Merrill Lynch Pacific Fund, Inc. (the "Fund") is registered under the Investment
Company Act of 1940 as a diversified, open-end management investment company.
The Fund offers both Class A and Class B Shares. Class A Shares are sold with a
front-end sales charge. Class B Shares may be subject to a contingent deferred
sales charge. Both classes of shares have identical voting, dividend,
liquidation and other rights and the same terms and conditions, except that
Class B Shares bear certain expenses related to the distribution of such shares
and have exclusive voting rights with respect to matters relating to such
distribution expenditures. The following is a summary of significant accounting
policies followed by the Fund:
(a) Valuation of investments--Portfolio securities which are traded on stock
exchanges are valued at the last sale price on the exchange on which such
securities are traded as of the close of business on the day the securities are
being valued or, lacking any sales, at the last available bid price. However, in
certain circumstances, the Fund will value a security traded on a Japanese stock
exchange based upon the last bid or ask price as reported on such exchange after
trading in such security has been halted for the day. Japanese stock exchanges
may impose limits, based on a percentage of a security's value, on the amount
such security may move in a single day. If the security reaches its limit during
the day, further trading is halted. However, a bid or ask quotation may be
reported following the suspension of trading. In situations where both a bid and
ask price are reported following a trading suspension due to the circumstances
described above, the Fund will utilize the bid price for valuation purposes. In
cases where securities are traded on more than one exchange, the securities are
valued on the exchange designated by or under the authority of the Board of
Directors as the primary market. Securities traded in the over-the-counter
market are valued at the last available bid price in the over-the-counter market
prior to the time of valuation. Options written by the Company are based upon
the last asked price in the case of exchange-traded options or, in the case of
options traded in the over-the-counter market, the average of the last asked
price as obtained from two or more dealers unless there is only one dealer, in
which case that dealer's price is used. Options purchased by the Fund are valued
at their last bid price in the case of exchange-traded options or, in the case
of options traded in the over-the-counter market, the average of the last bid
price as obtained from one or more dealers unless there is only one dealer, in
which case that dealer's price is used. Short-term securities are valued at
amortized cost, which approximates market. Securities and assets for which
market quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Board of Directors of
the Fund.
(b) Foreign currency transactions--Transactions denominated in foreign
currencies are recorded at the exchange rate prevailing when recognized. Assets
and liabilities denominated in foreign currencies are valued at the exchange
rate at the end of the period. Foreign currency transactions are the result of
settling (realized) or valuing (unrealized) such transactions expressed in
foreign currencies into US dollars. Realized and unrealized gains or losses from
investments include the effects of foreign exchange rates on investments.
The Fund is authorized to enter into forward foreign exchange contracts as a
hedge against either specific transactions or portfolio positions. Such
contracts are not entered on the Fund's records. However, the effect on
operations is recorded from the date the Fund enters into such contracts.
Premium or discount is amortized over the life of the contracts.
(c) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates). Divi-
dend income is recorded on the ex-dividend date, except that if the ex-dividend
date has passed, certain dividends from foreign securities are recorded as soon
as the funds are informed of the ex-dividend date. Interest income (including
amortization of discount) is recognized on the accrual basis. Realized gains
and losses on security transactions are determined on the identified cost
basis.
(d) Income taxes--It is the Fund's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required. Under the applicable
foreign tax law, a withholding tax may be imposed on dividends and interest at
various rates. There is no tax imposed on capital gains arising from the sale of
foreign investments.
(e) Prepaid registration fees and deferred organization expenses--Prepaid
registration fees are charged to expense as the related shares are issued.
Expenses
59
<PAGE> 110
related to the organization of the second class of shares are charged
to expense over a five-year period.
(f) Dividends and distributions to shareholders--Dividends and distributions
paid by the Fund are recorded on the ex-dividend dates. Dividends in the
amount of approximately $600,000 were paid due to the recognition of taxable
income relating to hedging transactions.
(g) Options--The Fund can write covered call options and purchase put options.
When the Fund writes an option, an amount equal to the premium received by the
Fund is reflected as an asset and an equivalent liability. The amount of the
liability is subsequently marked to market to reflect the current value of the
option written.
When a security is sold through an exercise of an option, the related premium
received (or paid) is deducted from (or added to) the basis of the security
sold. When an option expires (or the Fund enters into a closing transaction),
the Fund realizes a gain or loss on the option to the extent of the premiums
received or paid (or gain or loss to the premium paid or received).
Written and purchased options are non-income producing investments.
(h) Reclassifications--Certain 1992 amounts have been reclassified to conform to
the 1993 presentation.
2. INVESTMENT ADVISORY AGREEMENT AND TRANSACTIONS WITH AFFILIATES:
The Fund has entered into an Investment Advisory Agreement with Merrill Lynch
Asset Management ("MLAM"). MLAM is the name under which Merrill Lynch Investment
Management, Inc. ("MLIM") does business. MLIM is an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. The Fund has also entered into a
Distribution Agreement and a Distribution Plan with Merrill Lynch Funds
Distributor, Inc. ("MLFD" or "Distributor"), a wholly-owned subsidiary of MLIM.
MLAM is responsible for the management of the Fund's portfolio and provides the
necessary personnel, facilities, equipment and certain other services
necessary to the operations of the Fund. For such services, the Fund pays a
monthly fee of 0.60% of the average daily net assets of the Fund. The Management
Agreement obligates MLAM to reimburse the Fund to the extent the Fund's
expenses (excluding interest, taxes, distribution fees, brokerage fees and
commissions, and extraordinary items) exceed 2.5% of the Fund's first $30
million of average daily net assets, 2.0% of the next $70 million of average
daily net assets and 1.5% of the average daily net assets in excess thereof.
MLAM's obligation to reimburse the Fund is limited to the amount of the
management fee. No fee payment will be made to MLAM during any fiscal year
which will cause such expenses to exceed the most restrictive expense limitation
applicable at the time of such payment.
Effective January 1, 1994, the investment advisory business of MLAM
reorganized from a corporation to a limited partnership. The general partner of
MLAM is Princeton Services, Inc., an indirect wholly-owned subsidiary of Merrill
Lynch & Co.
The Fund has adopted a Plan of Distribution (the "Plan") pursuant to Rule 12b-1
under the Investment Company Act of 1940 pursuant to which MLFD receives a fee
from the Fund at the end of each month at an annual rate of 1.0% of the average
daily net assets of the Class B Shares of the Fund. This fee is to compensate
the Distributor for the services it provides and the expenses borne by the
Distributor under the Distribution Agreement. As authorized by the Plan, the
Distributor has entered into an agreement with Merrill Lynch, Pierce, Fenner &
Smith Inc. ("MLPF&S"), an affiliate of MLIM, which provides for the compensation
of MLPF&S for providing distribution-related services to the Fund. For the year
ended December 31, 1993, MLFD earned $3,135,389 under the Plan, all of which was
paid to MLPF&S pursuant to the agreement.
For the year ended December 31, 1993, MLFD earned underwriting discounts of
$223,158, and MLPF&S earned dealer concessions of $3,412,884 on the sale of the
Fund's Class A Shares.
MLPF&S received contingent deferred sales charges of $1,036,912 relating to
capital share transactions for the sale of Class B Shares and $27,267 in
commissions on the execution of portfolio security transactions for the Fund
during the year.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of Merrill
Lynch & Co., Inc., is the Fund's transfer agent.
60
<PAGE> 111
Accounting services are provided to the Fund by MLAM at cost.
Certain officers and/or directors of the Fund are officers and/or directors of
MLIM, MLPF&S, FDS, MLFD and/or Merrill Lynch & Co., Inc.
3. INVESTMENTS: Purchases and sales of investments, excluding short-term
securities, for the year ended December 31, 1993 were $412,294,367 and
$83,872,660, respectively.
Transactions in foreign currency put options purchased for the year ended
December 31, 1993 were as follows:
<TABLE>
<CAPTION>
Premiums
Par Value Paid
<S> <C> <C>
Outstanding put options purchased
at beginning of year $152,070,000 $ 19,743,012
Options purchased 160,000,000 2,872,000
Options terminated in closing sale
transactions (152,070,000) (19,743,012)
------------ ------------
Outstanding put options purchased
at end of year $160,000,000 $ 2,872,000
============ ============
</TABLE>
Net realized and unrealized gains (losses) as of December 31, 1993 were as
follows:
<TABLE>
<CAPTION>
Realized Unrealized
Gains (Losses) Gains (Losses)
<S> <C> <C>
Long-term investments $ 16,248,149 $202,758,790
Put options purchased (18,208,512) (2,864,000)
Foreign currency transactions (95,945) 6,058,030
------------ ------------
Total $ (2,056,308) $205,952,820
============ ============
</TABLE>
As of December 31, 1993, net unrealized appreciation for Federal income tax
purposes aggregated $202,758,790, of which $240,446,901 related to appreciated
securities and $37,688,111 related to depreciated securities. At December 31,
1993, the aggregate cost of investments, including put options purchased, for
Federal income tax purposes was $746,971,612.
4. CAPITAL SHARE TRANSACTIONS:
Net increase in net assets derived from capital share transactions was
$364,954,305 and $103,926,145 for the years ended December 31, 1993 and
December 31, 1992, respectively.
Transactions in capital shares for Class A and Class B Shares were as follows:
<TABLE>
<CAPTION>
Class A Shares for the Dollar
Year Ended December 31, 1993 Shares Amount
<S> <C> <C>
Shares sold 10,009,773 $199,420,932
Shares issued to shareholders in
reinvestment of dividends 24,089 502,981
------------ ------------
Total issued 10,033,862 199,923,913
Shares redeemed (5,781,892) (111,793,605)
------------ ------------
Net increase 4,251,970 $ 88,130,308
============ ============
</TABLE>
<TABLE>
<CAPTION>
Class A Shares for the Dollar
Year Ended December 31, 1992 Shares Amount
<S> <C> <C>
Shares sold 4,746,853 $ 80,862,615
Shares issued to shareholders in
reinvestment of dividends and
distributions 832,079 13,537,922
------------ ------------
Total issued 5,578,932 94,400,537
Shares redeemed (4,175,238) (71,318,655)
------------ ------------
Net increase 1,403,694 $ 23,081,882
============ ============
</TABLE>
<TABLE>
<CAPTION>
Class B Shares for the Dollar
Year Ended December 31, 1993 Shares Amount
<S> <C> <C>
Shares sold 20,303,772 $393,836,066
Shares redeemed (6,173,424) (117,012,069)
------------ ------------
Net increase 14,130,348 $276,823,997
============ ============
</TABLE>
<TABLE>
<CAPTION>
Class B Shares for the Dollar
Year Ended December 31, 1992 Shares Amount
<S> <C> <C>
Shares sold 6,958,286 $115,698,519
Shares issued to shareholders in
reinvestment 505,287 7,983,533
------------ ------------
Total issued 7,463,573 123,682,052
Shares redeemed (2,576,860) (42,837,789)
------------ ------------
Net increase 4,886,713 $ 80,844,263
============ ============
</TABLE>
5. Capital Loss Carryforward:
At December 31, 1993, the Fund had a net capital loss carryforward of
approximately $3,332,000, all of which expires in 2001. This amount will be
available to offset like amounts of any future taxable gains.
61
<PAGE> 112
THE FOLLOWING SEMI-ANNUAL FINANCIAL
STATEMENTS FOR THE FUND FOR THE PERIOD
ENDED JUNE 30, 1994, ARE UNAUDITED.
THESE UNAUDITED INTERIM FINANCIAL STATEMENTS
REFLECT ALL ADJUSTMENTS WHICH ARE, IN
THE OPINION OF MANAGEMENT, NECESSARY TO
A FAIR STATEMENT OF THE RESULTS FOR
THE INTERIM PERIOD PRESENTED. ALL SUCH
ADJUSTMENTS ARE OF A NORMAL RECURRING NATURE.
62
<PAGE> 113
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
SHARES HELD/ VALUE PERCENT OF
INDUSTRY FACE AMOUNT INVESTMENTS COST (NOTE 1a) NET ASSETS
JAPANESE SECURITIES
<S> <C> <S> <C> <C> <C>
AUTOMOBILE 2,376,000 Suzuki Motor Corp. $ 21,327,773 $ 31,583,562 2.2%
1,150,000 Toyota Motor Corp. 16,537,556 25,788,940 1.8
-------------- -------------- ------
37,865,329 57,372,502 4.0
BEVERAGE 363,000 Chukyo Coca-Cola Bottling Co., Ltd. 5,223,326 5,083,105 0.4
421,000 Hokkaido Coca-Cola Bottling Co., Ltd. 6,354,142 6,749,670 0.5
381,000 Kinki Coca-Cola Bottling Co., Ltd. 7,350,583 7,732,116 0.5
433,000 Mikuni Coca-Cola Bottling Co., Ltd. 7,892,009 7,205,682 0.5
428,000 Sanyo Coca-Cola Bottling Co., Ltd. 7,040,767 6,861,898 0.5
-------------- -------------- ------
33,860,827 33,632,471 2.4
CAPITAL GOODS 5,500,000 Mitsubishi Heavy Industries, Ltd. 36,111,275 44,033,486 3.1
720 Mitsubishi Heavy Industries, Ltd.,
#3 US$(Warrants)(a) 588,000 580,500 0.0
-------------- -------------- ------
36,699,275 44,613,986 3.1
CHEMICALS 1,400,000 Shin-Etsu Chemical Co., Ltd. 24,090,347 29,974,632 2.1
CONSUMER 1,894,000 Matsushita Electric Industrial Co., Ltd. 23,636,780 34,785,794 2.4
ELECTRONICS Yen 409,000,000 Matsushita Electric Works, Ltd.--C.E.W.
#8, 2.70% due 5/31/2002 4,543,869 5,200,173 0.4
489,000 Sony Corp. 26,242,474 30,019,787 2.1
-------------- -------------- ------
54,423,123 70,005,754 4.9
CONTAINERS 1,800,000 Toyo Seikan Kaisha, Ltd. 31,538,847 58,447,489 4.1
ELECTRIC 611,000 Chudenko Corp. 17,046,408 25,357,585 1.8
CONSTRUCTION 365,000 Sanki Engineering Co., Ltd. 4,364,800 4,962,963 0.4
800,000 Taihei Dengyo Kaisha, Ltd. 19,865,480 23,378,995 1.6
-------------- -------------- ------
41,276,688 53,699,543 3.8
ELECTRIC 4,000,000 Hitachi, Ltd. 37,996,786 41,806,190 2.9
EQUIPMENT 854,000 Murata Manufacturing Co., Ltd. 24,295,689 40,208,625 2.8
520,000 Rohm Co., Ltd. 17,691,365 24,166,413 1.7
2,045,000 Sumitomo Electric Industries, Ltd. 23,549,160 31,333,841 2.2
169 Sumitomo Electric Industries, Ltd., #1 Yen
(Warrants)(a) 185,351 363,551 0.0
923,000 The Nippon Signal Co., Ltd. 13,935,321 11,988,229 0.8
-------------- -------------- ------
117,653,672 149,866,849 10.4
IRON & STEEL 470,000 Maruichi Steel Tube, Ltd. 5,931,543 8,584,475 0.6
OFFICE 1,955,000 Canon, Inc. 25,478,614 34,319,127 2.4
EQUIPMENT 14,250 Canon, Inc. #2 DM (Warrants)(a) 1,741,131 1,949,538 0.1
2,250 Canon, Inc. #4 US$ (Warrants)(a) 2,434,375 2,714,063 0.2
-------------- -------------- ------
29,654,120 38,982,728 2.7
</TABLE>
63
<PAGE> 114
<TABLE>
SCHEDULE OF INVESTMENTS (CONTINUED)
<CAPTION>
SHARES HELD/ VALUE PERCENT OF
INDUSTRY FACE AMOUNT INVESTMENTS COST (NOTE 1a) NET ASSETS
JAPANESE SECURITIES (CONCLUDED)
<S> <C> <S> <C> <C> <C>
PHARMACEUTICALS 1,164,000 Sankyo Co., Ltd. $ 28,615,316 $ 25,984,779 1.8%
672,000 Taisho Pharmaceutical Co., Ltd. 9,783,498 13,433,181 0.9
-------------- -------------- ------
38,398,814 39,417,960 2.7
PHOTOGRAPHY 885,000 Fuji Photo Film Co., Ltd. 20,866,376 19,756,469 1.4
PROPERTY & 5,700,000 Dai-Tokyo Fire & Marine Insurance Co.,
CASUALTY Ltd. 32,260,159 44,709,285 3.1
INSURANCE 4,492,000 Fuji Fire & Marine Insurance Co., Ltd. 16,261,457 32,134,551 2.2
4,796,000 Koa Fire & Marine Insurance Co., Ltd. 28,347,268 35,525,926 2.5
5,338,000 Nichido Fire & Marine Insurance Co., Ltd. 26,925,257 48,098,874 3.3
2,680,000 Sumitomo Marine & Fire Insurance Co. Ltd. 25,396,350 26,188,128 1.8
3,293,000 Tokio Marine & Fire Insurance Co., Ltd. 31,567,953 42,436,428 3.0
-------------- -------------- ------
160,758,444 229,093,192 15.9
RETAILING 896,000 Ito-Yokado Co., Ltd. 35,333,284 49,550,482 3.4
362,000 Sangetsu Co., Ltd. 8,312,345 12,819,685 0.8
389,400 Senshukai Co., Ltd. 6,286,430 13,631,963 0.9
208,000 Shimachu Co., Ltd. 3,046,441 8,379,097 0.5
-------------- -------------- ------
52,978,500 84,381,227 5.6
TRANSPORTATION 2,444,000 Nippon Express Co., Ltd. 24,955,299 26,039,574 1.8
TOTAL INVESTMENTS IN JAPAN 710,951,204 943,868,851 65.5
AUSTRALIAN
SECURITIES
DIVERSIFIED 2,250,000 BTR Nylex Ltd. 4,919,240 4,732,344 0.3
FOOD & BEVERAGE 5,941,989 Burns Philp & Co., Ltd. 17,073,413 15,188,021 1.0
3,791,273 Coca-Cola Amatil, Ltd. 14,483,725 22,980,763 1.6
2,271,400 Goodman Fielder Ltd. 2,855,888 2,139,856 0.2
-------------- -------------- ------
34,413,026 40,308,640 2.8
PAPER & PACKAGING 2,589,618 AMCOR Ltd. 18,728,076 17,134,254 1.2
PROPERTY 2,195,328 Lend Lease Corp. 27,759,501 26,132,943 1.8
A$ 1,500,000 Lend Lease Finance International, 4.75%
due 6/01/2003 1,736,250 1,612,500 0.1
-------------- -------------- ------
29,495,751 27,745,443 1.9
TOTAL INVESTMENTS IN AUSTRALIA 87,556,093 89,920,681 6.2
</TABLE>
64
<PAGE> 115
<TABLE>
SCHEDULE OF INVESTMENTS (CONTINUED)
<CAPTION>
SHARES HELD/ VALUE PERCENT OF
INDUSTRY FACE AMOUNT INVESTMENTS COST (NOTE 1a) NET ASSETS
HONG KONG SECURITIES
<S> <C> <S> <C> <C> <C>
CONSTRUCTION 3,066,000 Paul Y-ITC Construction Holdings, Inc. $ 1,070,608 $ 662,469 0.0%
PROPERTY 4,407,000 Hang Lung Development Co., Ltd. 3,560,209 6,842,282 0.5
SERVICE 433,100 Hong Kong Aircraft Engineering Co. Ltd. 2,670,089 2,381,518 0.1
UTILITIES 6,623,800 China Light & Power Co., Ltd. 7,321,120 33,851,740 2.4
10,423,200 Hong Kong & China Gas Co., Ltd. 18,409,415 19,959,032 1.4
868,600 Hong Kong & China Gas Co., Ltd.
(Warrants)(a) 0 382,099 0.0
6,446,800 Hong Kong Telecommunications, Ltd. 11,199,792 12,177,938 0.9
670,500 Hong Kong Telecommunications, Ltd.
(ADR)(b) 4,896,660 12,571,875 0.9
-------------- -------------- ------
41,826,987 78,942,684 5.6
TOTAL INVESTMENTS IN HONG KONG 49,127,893 88,828,953 6.2
INDIAN SECURITIES
BROADCAST/MEDIA 700,000 Shivalik Projects Ltd. 4,016,896 4,017,217 0.3
SHIPPING 250,000 Great Eastern Shipping 1,057,768 637,653 0.0
70,000 Great Eastern Shipping (New) 22,316 178,543 0.0
-------------- -------------- ------
1,080,084 816,196 0.0
TOTAL INVESTMENTS IN INDIA 5,096,980 4,833,413 0.3
INDONESIAN
SECURITIES
FOOD 136,000 PT Charoen Pokphand Indonesian 622,002 589,206 0.0
PHARMACEUTICALS 1,634,000 PT Kalbe Farma 5,525,626 5,572,936 0.4
TOTAL INVESTMENTS IN INDONESIA 6,147,628 6,162,142 0.4
MALAYSIAN
SECURITIES
BUILDING & 2,400,000 Sungei Way Holdings BHD 5,728,884 7,191,149 0.5
CONSTRUCTION 400,000 Sungei Way Holdings BHD (Rights)(d) 0 0 0.0
400,000 Sungei Way Holdings BHD TSR (Rights)(d) 0 0 0.0
-------------- -------------- ------
5,728,884 7,191,149 0.5
DIVERSIFIED 3,000,000 Sime Darby BHD 7,022,934 7,606,023 0.5
FOREST PRODUCTS 412,000 Aokam Perdana BHD ("A") 2,121,509 2,374,001 0.2
1,030,000 Aokam Perdana BHD (Ordinary) 6,864,359 6,488,937 0.5
-------------- -------------- ------
8,985,868 8,862,938 0.7
LEISURE 750,000 Genting BHD 1,759,320 9,058,090 0.6
1,450,000 Resorts World BHD 2,382,084 8,355,101 0.6
-------------- -------------- ------
4,141,404 17,413,191 1.2
TOTAL INVESTMENTS IN MALAYSIA 25,879,090 41,073,301 2.9
</TABLE>
65
<PAGE> 116
<TABLE>
SCHEDULE OF INVESTMENTS (CONTINUED)
<CAPTION>
VALUE PERCENT OF
INDUSTRY SHARES HELD INVESTMENTS COST (NOTE 1a) NET ASSETS
SINGAPOREAN SECURITIES
<S> <C> <S> <C> <C> <C>
AIRLINES 1,168,000 Singapore Airlines, Ltd.--Foreign
Registered $ 6,389,427 $ 9,659,862 0.7%
BANKING 317,500 Development Bank of Singapore, Ltd.--
Foreign Registered 2,411,221 3,042,665 0.2
ELECTRONICS 610,000 Creative Technology, Ltd. 7,609,990 10,522,500 0.7
FOOD 3,600,000 Cerebos Pacific Ltd. 5,153,632 18,313,095 1.2
PROPERTY 888,000 City Development 4,164,079 3,759,501 0.3
177,600 City Development (Rights)(e) 0 0 0.0
905,000 First Capital Corp. Ltd. 3,465,885 2,934,493 0.2
-------------- -------------- ------
7,629,964 6,693,994 0.5
TRANSPORTATION 300,000 Singapore Bus Co. Ltd.--Foreign
Registered 1,060,285 2,579,587 0.2
TOTAL INVESTMENTS IN SINGAPORE 30,254,519 50,811,703 3.5
SOUTH KOREAN
SECURITIES
AUTOMOBILE 8,286 ++Kia Motors Corp.(GDS)(c) 267,155 229,936 0.0
TEXTILES 3,080 Taekwang Industries Co. 716,353 1,701,843 0.1
TOTAL INVESTMENTS IN SOUTH KOREA 983,508 1,931,779 0.1
TAIWANESE SECURITIES
STEEL 76,400 ++China Steel Corp. (ADR)(b) 1,390,480 1,413,400 0.1
TOTAL INVESTMENTS IN TAIWAN 1,390,480 1,413,400 0.1
THAI SECURITIES
BANKING 59,100 Bangkok Bank Public Co., Ltd. 419,378 448,622 0.3
TOTAL INVESTMENTS IN THAILAND 419,378 448,622 0.3
<CAPTION>
FACE
AMOUNT
SHORT-TERM SECURITIES
<S> <C> <S> <C> <C> <C>
COMMERCIAL PAPER* $15,000,000 CSW Credit Inc., 4.35% due 7/01/1994 15,000,000 15,000,000 1.0
62,423,000 General Electric Capital Corp., 4.30%
due 7/01/1994 62,423,000 62,423,000 4.3
20,000,000 Miles Inc., 4.25% due 7/12/1994 19,974,028 19,974,028 1.4
30,000,000 Nomura Holding America Inc., 4.30%
due 7/29/1994 29,899,667 29,899,667 2.1
20,000,000 Preferred Receivables Funding Corp.,
4.32% due 7/11/1994 19,976,000 19,976,000 1.4
10,000,000 USL Capital Corp., 4.30% due 7/25/1994 9,971,333 9,971,333 0.7
-------------- -------------- ------
157,244,028 157,244,028 10.9
US GOVERNMENT & 4,000,000 United States Treasury Bills, 4.12%
AGENCY due 9/15/1994 3,965,209 3,963,923 0.2
OBLIGATIONS*
TOTAL INVESTMENTS IN SHORT-TERM
SECURITIES 161,209,237 161,207,951 11.1
</TABLE>
66
<PAGE> 117
<TABLE>
SCHEDULE OF INVESTMENTS (CONCLUDED)
<CAPTION>
PAR PREMIUMS VALUE PERCENT OF
INDUSTRY VALUE ISSUE PAID (NOTE 1a) NET ASSETS
CURRENCY PUT OPTIONS PURCHASED
<S> <C> <S> <C> <C> <C>
$600,000,000 Japanese Yen Expiring March 1995 at
Yen 106.5 $ 16,002,000 $ 5,913,000 0.4%
TOTAL CURRENCY PUT OPTIONS PURCHASED 16,002,000 5,913,000 0.4
TOTAL INVESTMENTS $1,095,018,010 1,396,413,796 97.0
==============
UNREALIZED APPRECIATION ON FORWARD FOREIGN EXCHANGE CONTRACTS** 5,026,958 0.3
VARIATION MARGIN ON STOCK INDEX FUTURES CONTRACTS*** 868,167 0.1
OTHER ASSETS LESS LIABILITIES 37,735,451 2.6
-------------- ------
NET ASSETS $1,440,044,372 100.0%
============== ======
<FN>
(a)Warrants entitle the Fund to purchase a predetermined
number of shares of Common Stock. The purchase price and
number of shares are subject to adjustment under certain
conditions until the expiration date.
(b)ADR--American Depositary Receipts.
(c)GDS--Global Depositary Shares.
(d)The rights may be exercised until August 3, 1994.
(e)The rights may be exercised until July 24, 1994.
*Commercial Paper and certain US Government & Agency
Obligations are traded on a discount basis; the interest
rates shown are the discount rates paid at the time of
purchase by the Fund.
**Forward foreign exchange contracts as of June 30, 1994 are as follows:
FOREIGN EXPIRATION UNREALIZED
CURRENCY PURCHASED DATE APPRECIATION
Yen 14,493,846,800 September 1994 $ 5,026,958
TOTAL UNREALIZED APPRECIATION ON FORWARD
FOREIGN EXCHANGE CONTRACTS--NET
(US$ COMMITMENT--$142,677,037) $ 5,026,958
===========
***Stock index futures contracts as of June 30, 1994 are as follows:
NUMBER OF EXPIRATION VALUE
CONTRACTS ISSUE DATE (NOTE 1h)
423 Simex Nikkei September 1994 $42,054,507
TOTAL STOCK INDEX FUTURES CONTRACTS PURCHASED
(TOTAL CONTRACT PRICE--$43,344,812) $42,054,507
===========
++Restricted securities pursuant to Rule 144A. The value of the Fund's
investment in restricted securities was approximately $1,643,000,
representing 0.1% of net assets.
See Notes to Financial Statements.
</TABLE>
67
<PAGE> 118
FINANCIAL INFORMATION
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES AS OF JUNE 30, 1994
<CAPTION>
<S> <S> <C> <C>
ASSETS: Investments, at value (identified cost--$1,079,016,010) (Note 1a) $1,390,500,796
Put options purchased, at value (cost--$16,002,000) (Notes 1a & 1g) 5,913,000
Unrealized appreciation on forward foreign exchange contracts (Note 1b) 5,026,958
Variation margin on stock index futures contracts (Note 1h) 868,167
Foreign cash 17,151,514
Cash 42
Receivables:
Capital shares sold $ 14,987,130
Securities sold 12,947,853
Dividends 3,440,035
Interest 14,405 31,389,423
--------------
Prepaid registration fees and other assets (Note 1e) 31,300
--------------
Total assets 1,450,881,200
--------------
LIABILITIES: Payables:
Securities purchased 4,863,388
Capital shares redeemed 4,209,066
Investment adviser (Note 2) 683,006
Distributor (Note 2) 648,377 10,403,837
--------------
Accrued expenses and other liabilities 432,991
--------------
Total liabilities 10,836,828
--------------
NET ASSETS: Net assets $1,440,044,372
==============
NET ASSETS Class A Shares of Common Stock, $0.10 par value, 100,000,000
CONSIST OF: shares authorized $ 2,623,663
Class B Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 3,717,247
Paid-in capital in excess of par 1,130,005,052
Undistributed investment income--net 34,493
Accumulated realized capital losses on investments and foreign
currency transactions--net (1,703,444)
Unrealized appreciation on investments and foreign currency
transactions--net 305,367,361
--------------
Net assets $1,440,044,372
==============
NET ASSET VALUE: Class A--Based on net assets of $611,022,333 and 26,236,634 shares
outstanding $ 23.29
==============
Class B--Based on net assets of $829,022,039 and 37,172,465 shares
outstanding $ 22.30
==============
See Notes to Financial Statements.
</TABLE>
68
<PAGE> 119
FINANCIAL INFORMATION (CONTINUED)
<TABLE>
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1994
<CAPTION>
<S> <S> <C> <C>
INVESTMENT Dividends (net of $770,948 foreign withholding tax) $ 6,451,587
INCOME Interest and discount earned (net of $7,487 foreign withholding tax) 1,791,625
(NOTES 1c & 1d): --------------
Total income 8,243,212
--------------
EXPENSES: Investment advisory fees (Note 2) 3,512,804
Distribution fees--Class B (Note 2) 3,183,500
Custodian fees 574,146
Transfer agent fees--Class B (Note 2) 363,505
Transfer agent fees--Class A (Note 2) 259,800
Registration fees (Note 1e) 105,419
Printing and shareholder reports 90,965
Accounting services (Note 2) 54,596
Professional fees 32,302
Directors' fees and expenses 17,470
Other 14,212
--------------
Total expenses 8,208,719
--------------
Investment income--net 34,493
--------------
REALIZED & Realized gain (loss) from:
UNREALIZED GAIN Investments--net $ 12,492,271
(LOSS) ON Foreign currency transactions--net (6,441,174) 6,051,097
INVESTMENTS & --------------
FOREIGN CURRENCY Change in unrealized appreciation/depreciation on:
TRANSACTIONS Investments--net 107,435,691
- --NET Foreign currency transactions--net (8,021,150) 99,414,541
(NOTES 1b, -------------- --------------
1c & 3): Net realized and unrealized gain on investments and foreign
currency transactions 105,465,638
--------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 105,500,131
==============
See Notes to Financial Statements.
</TABLE>
69
<PAGE> 120
FINANCIAL INFORMATION (CONTINUED)
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
INCREASE (DECREASE) IN NET ASSETS: JUNE 30,1994 DEC. 31, 1993
<S> <S> <C> <C>
OPERATIONS: Investment income--net $ 34,493 $ 44,290
Realized gain (loss) on investments and foreign currency
transactions--net 6,051,097 (2,056,308)
Change in unrealized appreciation/depreciation on investments and
foreign currency transactions--net 99,414,541 168,301,414
-------------- --------------
Net increase in net assets resulting from operations 105,500,131 166,289,396
-------------- --------------
DIVIDENDS TO Investment income--net:
SHAREHOLDERS Class A -- (44,290)
(NOTE 1f): In excess of investment income--net:
Class A -- (559,299)
-------------- --------------
Net decrease in net assets resulting from dividends to shareholders -- (603,589)
-------------- --------------
CAPITAL SHARE Net increase in net assets derived from capital share transactions 354,214,874 364,954,305
TRANSACTIONS -------------- --------------
(NOTE 4):
NET ASSETS: Total increase in net assets 459,715,005 530,640,112
Beginning of period 980,329,367 449,689,255
-------------- --------------
End of period* $1,440,044,372 $ 980,329,367
============== ==============
*Undistributed investment income--net $ 34,493 $ 0
============== ==============
See Notes to Financial Statements.
</TABLE>
70
<PAGE> 121
FINANCIAL INFORMATION (CONTINUED)
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
CLASS A
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE BEEN DERIVED FOR THE SIX
FROM INFORMATION PROVIDED IN THE FINANCIAL STATEMENTS. MONTHS ENDED
JUNE 30, FOR THE YEAR ENDED DECEMBER 31,
INCREASE (DECREASE) IN NET ASSET VALUE: 1994+++ 1993 1992 1991 1990
<S> <S> <C> <C> <C> <C> <C>
PER SHARE Net asset value, beginning of period $ 21.21 $ 15.80 $ 18.34 $ 16.52 $ 20.65
OPERATING -------- -------- -------- -------- --------
PERFORMANCE: Investment income--net .06 .07 .05 .04 .10
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net 2.02 5.37 (1.63) 2.73 (1.80)
-------- -------- -------- -------- --------
Total from investment operations 2.08 5.44 (1.58) 2.77 (1.70)
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net -- -- (.01) (.11) (.11)
In excess of investment income--net -- (.03) -- -- --
Realized gain on investments--net -- -- (.95) (.84) (2.32)
-------- -------- -------- -------- --------
Total dividends and distributions -- (.03) (.96) (.95) (2.43)
-------- -------- -------- -------- --------
Net asset value, end of period $ 23.29 $ 21.21 $ 15.80 $ 18.34 $ 16.52
======== ======== ======== ======== ========
TOTAL Based on net asset value per share 9.81%++ 34.41% (8.75%) 17.04% (8.39%)
INVESTMENT ======== ======== ======== ======== ========
RETURN:**
RATIOS TO Expenses .85%* .90% .98% 1.02% 1.07%
AVERAGE ======== ======== ======== ======== ========
NET ASSETS: Investment income--net .56%* .47% .40% .43% .94%
======== ======== ======== ======== ========
SUPPLEMENTAL Net assets, end of period (in thousands) $611,022 $472,322 $284,674 $304,712 $242,104
DATA: ======== ======== ======== ======== ========
Portfolio turnover 11.90% 13.25% 7.62% 5.91% 31.06%
======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Aggregate total investment return.
+++Based on average number of shares outstanding during the period.
See Notes to Financial Statements.
</TABLE>
71
<PAGE> 122
FINANCIAL INFORMATION (CONCLUDED)
<TABLE>
FINANCIAL HIGHLIGHTS (CONCLUDED)
<CAPTION>
CLASS B
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE BEEN DERIVED FOR THE SIX
FROM INFORMATION PROVIDED IN THE FINANCIAL STATEMENTS. MONTHS ENDED
JUNE 30, FOR THE YEAR ENDED DECEMBER 31,
INCREASE (DECREASE) IN NET ASSET VALUE: 1994+++ 1993+++ 1992+++ 1991+++ 1990+++
<S> <S> <C> <C> <C> <C> <C>
PER SHARE Net asset value, beginning of period $ 20.41 $ 15.34 $ 18.01 $ 16.30 $ 20.49
OPERATING -------- -------- -------- -------- --------
PERFORMANCE: Investment income--net (.05) (.10) (.12) (.14) (.09)
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net 1.94 5.17 (1.60) 2.69 (1.78)
-------- -------- -------- -------- --------
Total from investment operations 1.89 5.07 (1.72) 2.55 (1.87)
-------- -------- -------- -------- --------
Less distributions:
Realized gain on investments--net -- -- (.95) (.84) (2.32)
-------- -------- -------- -------- --------
Total distributions -- -- (.95) (.84) (2.32)
-------- -------- -------- -------- --------
Net asset value, end of period $ 22.30 $ 20.41 $ 15.34 $ 18.01 $ 16.30
======== ======== ======== ======== ========
TOTAL
INVESTMENT Based on net asset value per share 9.26%++ 33.05% (9.72%) 15.87% (9.29%)
RETURN:** ======== ======== ======== ======== ========
RATIOS TO Expenses, excluding distribution fees .87%* .92% 1.00% 1.04% 1.10%
AVERAGE ======== ======== ======== ======== ========
NET ASSETS: Expenses 1.87%* 1.92% 2.00% 2.04% 2.10%
======== ======== ======== ======== ========
Investment income--net (.46%)* (.56%) (.61%) (.60%) (.05%)
======== ======== ======== ======== ========
SUPPLEMENTAL Net assets, end of period (in thousands) $829,022 $508,008 $165,015 $105,669 $ 58,013
DATA: ======== ======== ======== ======== ========
Portfolio turnover 11.90% 13.25% 7.62% 5.91% 31.06%
======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Aggregate total investment return.
+++Based on average number of shares outstanding.
See Notes to Financial Statements.
</TABLE>
72
<PAGE> 123
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES:
Merrill Lynch Pacific Fund, Inc. (the "Fund") is registered under
the Investment Company Act of 1940 as a diversified, open-end
management investment company. The Fund offers both Class A and
Class B Shares. Class A Shares are sold with a front-end sales
charge. Class B Shares may be subject to a contingent deferred sales
charge. Both classes of shares have identical voting, dividend,
liquidation and other rights and the same terms and conditions,
except that Class B Shares bear certain expenses related to the
distribution of such shares and have exclusive voting rights with
respect to matters relating to such distribution expenditures. The
following is a summary of significant accounting policies followed
by the Fund.
(a) Valuation of investments--Portfolio securities which are traded
on stock exchanges are valued at the last sale price on the exchange
on which such securities are traded, as of the close of business on
the day the securities are being valued or, lacking any sales, at
the last available bid price. However, in certain circumstances, the
Fund will value a security traded on a Japanese stock exchange based
upon the last bid or ask price as reported on such exchange after
trading in such security has been halted for the day. Japanese stock
exchanges may impose limits, based on a percentage of a security's
value, on the amount such security may move in a single day. If the
security reaches its limit during the day, further trading is
halted. However, a bid or ask quotation may be reported following
the suspension of trading. In situations where both a bid and ask
price are reported following a trading suspension due to the
circumstances described above, the Fund will utilize the bid price
for valuation purposes. In cases where securities are traded on more
than one exchange, the securities are valued on the exchange
designated by or under the authority of the Board of Directors as
the primary market. Securities traded in the over-the-counter market
are valued at the last available bid price in the over-the-counter
market prior to the time of valuation. Options written by the
Company are based upon the last asked price in the case of exchange-
traded options, or in the case of options traded in the over-the-
counter market, the average of the last asked price as obtained from
two or more dealers unless there is only one dealer, in which case,
that dealer's price is used. Options purchased by the Fund are
valued at their last bid price in the case of exchange-traded options
or, in the case of options traded in over-the-counter market, the
average of the last bid price as obtained from two or more dealers
unless there is only one dealer, in which case that dealer's price
is used. Short-term securities are valued at amortized cost, which
approximates market value. Securities and assets for which market
quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Board
of Directors of the Fund.
(b) Foreign currency transactions--Transactions denominated in
foreign currencies are recorded at the exchange rate prevailing when
recognized. Assets and liabilities denominated in foreign currencies
are valued at the exchange rate at the end of the period. Foreign
currency transactions are the result of settling (realized) or
valuing (unrealized) assets or liabilities expressed in foreign
currencies into US dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates on
investments.
The Fund is authorized to enter into forward foreign exchange
contracts as a hedge against either specific transactions or
portfolio positions. Such contracts are not entered on the Fund's
records. However, the effect on operations is recorded from the date
the Fund enters into such contracts. Premium or discount is
amortized over the life of the contracts.
The Fund may also purchase or sell listed or over-the-counter
foreign currency options, foreign currency futures and related
options on foreign currency futures as a short or long hedge against
possible variations in foreign exchanges rates. Such transactions
may be effected with respect to hedges on non-US dollar denominated
securities owned by the Fund, sold by the Fund but not yet
delivered, or committed or anticipated to be purchased by the Fund.
(c) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Dividend income is recorded on the ex-
dividend date, except that if the ex-dividend date has passed,
certain dividends from foreign securities are recorded as soon as
the funds are informed of the ex-dividend date. Interest income
(including amortization of discount) is recognized on the accrual
basis. Realized gains and losses on security transactions are
determined on the identified cost basis.
73
<PAGE> 124
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
(d) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required. Under the applicable foreign tax law, a
withholding tax may be imposed on dividends and interest at various
rates. There is no tax imposed on capital gains arising from the
sale of foreign investments.
(e) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
(f) Dividends and distributions to shareholders--Dividends and
distributions paid by the Fund are recorded on the ex-dividend
dates.
(g) Options--The Fund can write covered call options and purchase
put options. When the Fund writes an option, an amount equal to the
premium received by the Fund is reflected as an asset and an
equivalent liability. The amount of the liability is subsequently
marked to market to reflect the current market value of the option
written.
When a security is sold through an exercise of an option, the
related premium received (or paid) is deducted from (or added to)
the basis of the security sold. When an option expires (or the Fund
enters into a closing transaction), the Fund realizes a gain or loss
on the option to the extent of the premiums received or paid (or
gain or loss the premium paid or received).
Written and purchased options are non-income producing investments.
(h) Financial futures contracts--The Fund may purchase or sell stock
index futures contracts and options on such futures contracts. Upon
entering into a contract, the Fund deposits and maintains as
collateral such initial margin as required by the exchange on which
transaction is effected. Pursuant to the contract, the Fund agrees
to receive from or pay to the broker an amount of cash equal to the
daily fluctuation in value of the contract. Such receipts or
payments are known as variation margin and are recorded by the Fund
as unrealized gains or losses. When the contract is closed, the Fund
records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the
time it was closed.
2. INVESTMENT ADVISORY AGREEMENT AND
TRANSACTIONS WITH AFFILIATES:
The Fund has entered into an Investment Advisory Agreement with
Merrill Lynch Asset Management, L.P. ("MLAM"). The general partner
of MLAM is Princeton Services, Inc., an indirect wholly-owned
subsidiary of Merrill Lynch & Co. ("ML & Co."). The limited partners
are ML & Co. and Merrill Lynch Investment Management, Inc. ("MLIM"),
which is also an indirect wholly-owned subsidiary of ML & Co. The
Fund has also entered into a Distribution Agreement and a
Distribution Plan with Merrill Lynch Funds Distributor, Inc. ("MLFD"
or "Distributor"), a wholly-owned subsidiary of MLIM. MLAM is respon-
sible for the management of the Fund's portfolio and provides the
necessary personnel, facilities, equipment and certain other
services necessary to the operations of the Fund. For such services,
the Fund pays a monthly fee of 0.60% of the average daily net assets
of the Fund. The Management Agreement obligates MLAM to reimburse
the Fund to the extent the Fund's expenses (excluding interest,
taxes, distribution fees, brokerage fees and commissions, and
extraordinary items) exceed 2.5% of the Fund's first $30 million of
average daily net assets, 2.0% of the next $70 million of average
daily net assets, and 1.5% of the average daily net assets in excess
thereof. MLAM's obligation to reimburse the Fund is limited to the
amount of the management fee. No fee payment will be made to MLAM
during any fiscal year which will cause such expenses to exceed the
most restrictive expense limitation applicable at the time of such
payment.
Pursuant to a distribution plan (the "Distribution Plan") in
accordance with Rule 12b-1 under the Investment Company Act of 1940,
the Fund pays the Distributor an ongoing account maintenance fee and
a distribution fee, which are accrued daily and paid monthly, at the
annual rates of 0.25% and 0.75%, respectively, of the average daily
net assets of the Class B Shares of the Fund. This fee is to
compensate the Distributor for the services it provides and the
expenses borne by the Distributor under the Distribution Agreement.
As authorized by the Plan, the Distributor has entered into an
agreement with Merrill Lynch, Pierce, Fenner & Smith Inc.
("MLPF&S"), an affiliate of MLIM, which provides for the
compensation of MLPF&S for providing distribution-related services
to the Fund. For the six months ended June 30, 1994, MLFD earned
$3,183,500 under the Plan, all of which was paid to MLPF&S pursuant
to the agreement.
74
<PAGE> 125
For the six months ended June 30, 1994, MLFD earned underwriting
discounts of $43,246, and MLPF&S earned dealer concessions of
$1,989,927 on the sale of the Fund's Class A Shares.
MLPF&S received contingent deferred sales charges of $715,653
relating to capital share transactions for the sale of Class B
Shares and $20,914 in commissions on the execution of portfolio
security transactions for the Fund during the period.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of MLIM, MLPF&S, FDS, MLFD, and/or ML & Co.
3. INVESTMENTS:
Purchases and sales of investments, excluding short-term securities,
for the six months ended June 30, 1994 were $327,356,458 and
$127,756,357, respectively.
Net realized and unrealized gains (losses) as of June
30, 1994 were as follows:
REALIZED UNREALIZED
GAINS GAINS
(LOSSES) (LOSSES)
Long-term investments $ 7,156,634 $311,486,071
Short-term investments -- (1,285)
Stock index future contracts 5,335,637 (1,290,305)
Foreign currency
transactions (732,679) 234,922
Forward foreign exchange
contracts (2,836,495) 5,026,958
Currency put options
purchased (2,872,000) (10,089,000)
----------- ------------
Total $ 6,051,097 $305,367,361
=========== ============
As of June 30, 1994, net unrealized appreciation for Federal income
tax purposes aggregated $311,484,786, of which $326,817,204 related
to appreciated securities and $15,332,418 related to depreciated
securities. At June 30, 1994, the aggregate cost of investments,
including put options purchased, for Federal income tax purposes was
$1,079,016,010.
4. CAPITAL SHARE TRANSACTIONS:
Net increase in net assets derived from capital share transactions
was $354,214,874 and $364,954,305 for the six months ended June 30,
1994 and the year ended December 31, 1993, respectively.
Transactions in capital shares for Class A and Class B Shares were
as follows:
CLASS A SHARES FOR THE SIX MONTHS DOLLAR
ENDED JUNE 30, 1994 SHARES AMOUNT
Shares sold 7,206,105 $161,316,992
Shares issued to shareholders
in reinvestment of dividends
to shareholders 28 572
----------- ------------
Total issued 7,206,133 161,317,564
Shares redeemed (3,237,266) (72,319,131)
----------- ------------
Net increase 3,968,867 $ 88,998,433
=========== ============
CLASS A SHARES FOR THE YEAR DOLLAR
ENDED DECEMBER 31, 1993 SHARES AMOUNT
Shares sold 10,009,773 $199,420,932
Shares issued to shareholders
in reinvestment of dividends
to shareholders 24,089 502,981
----------- ------------
Total issued 10,033,862 199,923,913
Shares redeemed (5,781,892) (111,793,605)
----------- ------------
Net increase 4,251,970 $ 88,130,308
=========== ============
CLASS B SHARES FOR THE SIX MONTHS DOLLAR
ENDED JUNE 30, 1994 SHARES AMOUNT
Shares sold 15,919,181 $342,550,811
Shares issued to shareholders
in reinvestment of dividends
to shareholders -- --
----------- ------------
Total issued 15,919,181 342,550,811
Shares redeemed (3,630,944) (77,334,370)
----------- ------------
Net increase 12,288,237 $265,216,441
=========== ============
CLASS B SHARES FOR THE YEAR DOLLAR
ENDED DECEMBER 31, 1993 SHARES AMOUNT
Shares sold 20,303,772 $393,836,066
Shares redeemed (6,173,424) (117,012,069)
----------- ------------
Net increase 14,130,348 $276,823,997
=========== ============
5. COMMITMENTS:
At June 30, 1994, the Fund had entered into forward exchange
contracts under which it had agreed to purchase and sell various
foreign currencies with an approximate value of $394,000 and
$10,990,000, respectively.
6. CAPITAL LOSS CARRYFORWARD:
At December 31, 1993, the Fund had a net capital loss carryforward
of approximately $3,332,000, all of which expires in 2001. This
amount will be available to offset like amounts of any future
taxable gains.
75
<PAGE> 126
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objective and Policies.... 2
Management of the Fund............... 12
Purchase of Shares................... 15
Redemption of Shares................. 22
Portfolio Transactions and
Brokerage.......................... 23
Determination of Net Asset Value..... 25
Shareholder Services................. 26
Dividends, Distributions and Taxes... 40
Performance Data..................... 44
General Information.................. 46
Description of Shares.............. 46
Computation of Offering Price Per
Share........................... 47
Independent Auditors............... 47
Custodian.......................... 47
Transfer Agent..................... 47
Legal Counsel...................... 48
Reports to Shareholders............ 48
Additional Information............. 48
Independent Auditors' Report......... 49
Financial Statements (audited)....... 50
Financial Statements (unaudited)..... 62
</TABLE>
Code#10241-1094
[LOGO]
MERRILL LYNCH
PACIFIC FUND, INC.
ARTWORK
STATEMENT OF
ADDITIONAL
INFORMATION
October 21, 1994
Distributor:
Merrill Lynch
Funds Distributor, Inc.
<PAGE> 127
APPENDIX FOR GRAPHIC AND IMAGE MATERIAL
Pursuant to Rule 304 of Regulation S-T, the following table presents
fair and accurate narrative descriptions of graphic and image material omitted
from this EDGAR Submission File due to ASCII-incompatibility and
cross-references this material to the location of each occurrence in the text.
DESCRIPTION OF OMITTED LOCATION OF GRAPHIC
GRAPHIC OR IMAGE OR IMAGE IN TEXT
- ---------------------- -------------------
Compass plate, circular Back cover of Prospectus and
graph paper and Merrill Lynch back cover of Statement of
logo including stylized market Additional Information
bull
<PAGE> 128
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS
Contained in Part A:
Financial Highlights for the six months ended June 30, 1994
(unaudited) and for each of the periods in the ten year period ended
December 31, 1993 (audited).
Contained in Part B:
Financial Statements:
Schedules of Investments as of December 31,
1993 (audited) and June 30, 1994 (unaudited).
Statements of Assets and Liabilities as of
December 31, 1993 (audited) and June 30, 1994
(unaudited).
Statements of Operations for the year ended
December 31, 1993 (audited) and for the six
months ended June 30, 1994 (unaudited).
Statements of Changes in Net Assets for the
years ended December 31, 1993 and 1992
(audited) and for the six months ended June
30, 1994 (unaudited).
Financial Highlights for the six months ended
June 30, 1994 (unaudited) and for each of the
years in the five-year period ended December
31, 1993 (audited).
(B) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ ---------------------------------------------------------------------------
<C> <C> <S>
1(a) -- Articles of Incorporation of Registrant, as amended.(g)
(b) -- Articles of Amendment to Articles of Incorporation of Registrant.(g)
(c) -- Articles of Amendment to Articles of Incorporation of Registrant, dated
October 3, 1988.(g)
(d) -- Articles Supplementary to the Articles of Incorporation.(g)
2 -- By-Laws of Registrant.(e)
3 -- None.
4 -- Copies of instruments defining the rights of shareholders, including the
relevant portions of the Articles of Incorporation, as amended, and By-Laws
of Registrant.(b)
5(a) -- Management Agreement between Registrant and Merrill Lynch Asset Management,
Inc.(c)
(b) -- Supplement to Management Agreement between Registrant and Merrill Lynch
Asset Management, L.P., dated January 3, 1994.(g)
6(a) -- Class A Distribution Agreement between Registrant and Merrill Lynch Funds
Distributor, Inc.(c)
(b) -- Class B Distribution Agreement between Registrant and Merrill Lynch Funds
Distributor, Inc.(e)
(c) -- Letter Agreement between the Registrant and Merrill Lynch Fund's
Distributor, Inc. with respect to the Merrill Lynch Mutual Fund Advisor
Program.(g)
(d) -- Form of new Class A Shares Distribution Agreement between Registrant and
Merrill Lynch Funds Distributor, Inc.
(e) -- Form of Class C Shares Distribution Agreement between Registrant and
Merrill Lynch Funds Distributor, Inc.
(f) -- Form of Class D Shares Distribution Agreement between Registrant and
Merrill Lynch Funds, Inc.
7 -- None.
</TABLE>
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<PAGE> 129
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ ---------------------------------------------------------------------------
<C> <C> <S>
8(a) -- Custodian Agreement between Registrant and Brown Brothers Harriman & Co.,
as Custodian.(a)
(b) -- Master Subcustodian Agreement of Brown Brothers Harriman & Co.(a)
9(a) -- Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing
Agency Agreement between the Registrant and Merrill Lynch Financial Data
Service, Inc. (now known as Financial Data Services, Inc.)(d)
(b) -- Agreement relating to use of name among Registrant, Merrill Lynch Asset
Management, Inc., and Merrill Lynch, Pierce, Fenner & Smith
Incorporated.(a)
10 -- None.
11 -- Consent of Deloitte & Touche LLP, independent auditors for Registrant.
12 -- None.
13 -- None.
14 -- None.
15(a) -- Class B Distribution Plan of the Registrant and Distribution Plan
Sub-Agreement.(g)
(b) -- Form of Class C Shares Distribution Plan and Class C Shares Distribution
Plan Sub-Agreement of the Registrant.
(c) -- Form of Class D Shares Distribution Plan and Class D Shares Distribution
Plan Sub-Agreement of the Registrant.
16(a) -- Schedule for computation of each performance quotation relating to Class A
shares provided in the Registration Statement response to Item 22.(e)
(b) -- Schedule for computation of each performance quotation relating to Class B
shares provided in the Registration Statement in response to Item 22.(f)
17(a) -- Financial Data Schedule for Class A shares for the twelve months ended
December 31, 1993.
(b) -- Financial Data Schedule for Class A shares for six months ended June 30,
1994.
(c) -- Financial Data Schedule for Class B shares for the twelve months ended
December 31, 1993.
(d) -- Financial Data Schedule for Class B shares for six months ended June 30,
1994.
</TABLE>
- ------------------------
(a) Filed as an Exhibit to Post-Effective Amendment No. 13 to Registrant's
Registration Statement under the Securities Act of 1933 on Form N-1A.
(b) Reference is made to Article III (Sections 3, 4 and 5), Article V, Article
VI (Sections 2, 3, 4 and 5), Article VII, Article VIII and Article X of the
Registrant's Articles of Incorporation, as amended, filed as Exhibit (1)(a)
to the Registrant's Registration Statement; and Article II, Article III
(Sections 1, 2, 3, 5, 6 and 17), Article VI, Article VII, Article XII,
Article XIII and Article XV of the Registrant's By-Laws previously filed as
Exhibit (2) to the Registrant's Registration Statement.
(c) Filed as an Exhibit to Post-Effective Amendment No. 14 to Registrant's
Registration Statement under the Securities Act of 1933 on Form N-1A.
(d) Filed as an Exhibit to Post-Effective Amendment No. 16 to Registrant's
Registration Statement under the Securities Act of 1933 on Form N-1A.
(e) Filed as an Exhibit to Post-Effective Amendment No. 17 to Registrant's
Registration Statement under the Securities Act of 1933 on Form N-1A.
(f) Filed as an Exhibit to Post-Effective Amendment No. 19 to Registrant's
Registration Statement under the Securities Act of 1933 on Form N-1A.
(g) Filed as an Exhibit to Post-Effective Amendment No. 24 to Registrant's
Registration Statement under the Securities Act of 1933 on Form N-1A.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Registrant is not controlled by or under common control with any other
person.
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<PAGE> 130
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
NUMBER OF RECORD
HOLDERS AT
SEPTEMBER 30,
TITLE OF CLASS 1994
-----------------
<S> <C>
Class A Common Stock, par value $0.10 per share....................... 4,398
Class B Common Stock, par value $0.10 per share....................... 1,430
Class C Common Stock, par value $0.10 per share....................... 0
Class D Common Stock, par value $0.10 per share....................... 0
</TABLE>
ITEM 27. INDEMNIFICATION.
Reference is made to Article VI of Registrant's Articles of Incorporation,
Article VI of Registrant's By-Laws, Section 2-418 of the Maryland General
Corporation Law and Section 9 of the Distribution Agreement.
Article VI of the By-Laws provides that each officer and director of the
Registrant shall be indemnified by the Registrant to the full extent permitted
under the General Laws of the State of Maryland, except that such indemnity
shall not protect any such person against any liability to the Registrant or any
stockholder thereof to which such person would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office. Absent a court determination that
an officer or director seeking indemnification was not liable on the merits or
guilty of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office, the decision by the
Registrant to indemnify such person must be based upon the reasonable
determination of independent counsel or non-party independent directors, after
review of the facts, that such officer or director is not guilty of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
Each officer and director of the Registrant claiming indemnification within
the scope of Article VI of the By-Laws shall be entitled to advances from the
Registrant for payment of the reasonable expenses incurred by him in connection
with proceedings to which he is a party in the manner and to the full extent
permitted under the General Laws of the State of Maryland; provided, however,
that the person seeking indemnification shall provide to the Registrant a
written affirmation of his good faith belief that the standard of conduct
necessary for indemnification by the Registrant has been met and a written
undertaking to repay any such advance, if it should ultimately be determined
that the standard of conduct has not been met, and provided further that at
least one of the following additional conditions is met: (a) the person seeking
indemnification shall provide a security in form and amount acceptable to the
Registrant for his undertaking; (b) the Registrant is insured against losses
arising by reason of the advance; (c) a majority of a quorum of non-party
independent directors, or independent legal counsel in a written opinion, shall
determine, based on a review of facts readily available to the Registrant at the
time the advance is proposed to be made, that there is reason to believe that
the person seeking indemnification will ultimately be found to be entitled to
indemnification.
The Registrant may purchase insurance on behalf of an officer or director
protecting such person to the full extent permitted under the General Laws of
the State of Maryland from liability arising from his activities as officer or
director of the Registrant. The Registrant, however, may not purchase insurance
on behalf of any officer or director of the Registrant that protects or purports
to protect such person from liability to the Registrant or to its stockholders
to which such officer or director would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of his office.
The Registrant may indemnify, make advances or purchase insurance to the
extent provided in Article VI of the By-Laws on behalf of an employee or agent
who is not an officer or director of the Registrant.
In Section 9 of the Class A and Class B Distribution Agreements relating to
the securities being offered hereby, the Registrant agrees to indemnify the
Distributor and each person, if any, who controls the
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<PAGE> 131
Distributor within the meaning of the Securities Act of 1933 (the "Act"),
against certain types of civil liabilities keeping in connection with the
Registration Statement or Prospectus and Statement of Additional Information.
Insofar as indemnification for liabilities arising under the Act may be
permitted to Directors, officers and controlling persons of the Registrant and
the principal underwriter pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a Director, officer or controlling person of the Registrant
and the principal underwriter in connection with the successful defense of any
action, suit or proceeding) is asserted by such Director, officer or controlling
person or the principal underwriter in connection with the shares being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Merrill Lynch Asset Management, L.P., doing business as Merrill Lynch Asset
Management (the "Manager"), acts as investment adviser for the following
registered investment companies: Convertible Holdings, Inc., Merrill Lynch
Adjustable Rate Securities Fund, Inc., Merrill Lynch Americas Income Fund, Inc.,
Merrill Lynch Asset Growth Fund, Inc., Merrill Lynch Asset Income Fund, Inc.,
Merrill Lynch Balanced Fund for Investment and Retirement, Merrill Lynch Capital
Fund, Inc., Merrill Lynch Developing Capital Markets Fund, Inc., Merrill Lynch
Dragon Fund, Inc., Merrill Lynch EuroFund, Merrill Lynch Fundamental Growth
Fund, Inc., Merrill Lynch Fund For Tomorrow, Inc., Merrill Lynch Global Bond
Fund for Investment and Retirement, Merrill Lynch Global Allocation Fund, Inc.,
Merrill Lynch Global Convertible Fund, Inc., Merrill Lynch Global Holdings Inc.,
Merrill Lynch Global Resources Trust, Merrill Lynch Global Utility Fund, Inc.,
Merrill Lynch Global SmallCap Fund, Inc., Merrill Lynch Growth Fund for
Investment and Retirement, Merrill Lynch Healthcare Fund, Inc., Merrill Lynch
High Income Municipal Bond Fund, Inc., Merrill Lynch Institutional Intermediate
Fund, Merrill Lynch International Equity Fund, Merrill Lynch Latin America Fund,
Inc., Merrill Lynch Senior Floating Rate Fund, Inc., Merrill Lynch Municipal
Series Trust, Merrill Lynch Pacific Fund, Inc., Merrill Lynch Ready Assets
Trust, Merrill Lynch Retirement Series Trust, Merrill Lynch Series Fund, Inc.,
Merrill Lynch Short-Term Global Income Fund, Inc., Merrill Lynch Strategic
Dividend Fund, Merrill Lynch Technology Fund, Inc., Merrill Lynch U.S. Treasury
Money Fund, Merrill Lynch U.S.A. Government Reserves, Merrill Lynch Utility
Income Fund, Inc. and Merrill Lynch Variable Series Funds, Inc. Fund Asset
Management, L.P. ("FAM"), an affiliate of the Manager, acts as the investment
adviser for the following investment companies: Apex Municipal Fund, Inc., CBA
Money Fund, CMA Government Securities Fund, CMA Money Fund, CMA Multi-State
Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The Corporate
Fund Accumulation Program, Inc., Corporate High Yield Fund, Inc., Corporate High
Yield Fund II, Inc., Emerging Tigers Fund, Inc., Financial Institutions Series
Trust, Income Opportunities Fund 1999, Inc., Income Opportunities Fund 2000,
Inc., Merrill Lynch Basic Value Fund, Inc., Merrill Lynch California Municipal
Series Trust, Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch Federal
Securities Trust, Merrill Lynch Funds for Institutions Series, Merrill Lynch
Multi-State Municipal Series Trust, Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust, Merrill Lynch Municipal Bond Fund, Inc., Merrill Lynch
Phoenix Fund, Inc., Merrill Lynch Special Value Fund, Inc., Merrill Lynch World
Income Fund, Inc., MuniAssets Fund, Inc., MuniBond Income Fund, Inc., The
Municipal Fund Accumulation Program, Inc., MuniEnhanced Fund, Inc., MuniInsured
Fund, Inc., MuniVest Fund, Inc., MuniVest Fund II, Inc., MuniVest California
Insured Fund, Inc., MuniVest Florida Fund, MuniVest Michigan Insured Fund, Inc.,
MuniVest New Jersey Fund, Inc., MuniVest New York Insured Fund, Inc., MuniVest
Pennsylvania Insured Fund, MuniYield Arizona Fund, Inc., MuniYield Arizona Fund
II, Inc., MuniYield California Fund, Inc., MuniYield California Insured Fund,
Inc., MuniYield California Insured Fund II, Inc., MuniYield Florida Fund,
MuniYield Florida Insured Fund, MuniYield Fund, Inc., MuniYield Insured Fund,
Inc., MuniYield Insured Fund II, Inc., MuniYield
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<PAGE> 132
Michigan Fund, Inc., MuniYield Michigan Insured Fund, Inc., MuniYield New Jersey
Fund, Inc., MuniYield New Jersey Insured Fund, Inc., MuniYield New York Insured
Fund, Inc., MuniYield New York Insured Fund II, Inc., MuniYield New York Insured
Fund III, Inc., MuniYield Pennsylvania Fund, MuniYield Quality Fund, Inc.,
MuniYield Quality Fund II, Inc., Senior High Income Portfolio, Inc., Senior High
Income Portfolio II, Inc., Senior Strategic Income Fund, Inc., Taurus
MuniCalifornia Holdings, Inc., Taurus MuniNew York Holdings, Inc. and Worldwide
DollarVest Fund, Inc. The address of each of these investment companies is P.O.
Box 9011, Princeton, New Jersey 08543-9011, except that the address of Merrill
Lynch Funds for Institutions Series and Merrill Lynch Institutional Intermediate
Fund is One Financial Center, 15th Floor, Boston, Massachusetts 02111-2646. The
address of the Manager, FAM, Merrill Lynch Funds Distributor, Inc. ("MLFD") and
Princeton Administrators, Inc. is also P.O. Box 9011, Princeton, New Jersey
08543-9011. The address of Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch") and Merrill Lynch & Co., Inc. ("ML&Co.") is World Financial
Center, North Tower, 250 Vesey Street, New York, New York 10281. The address of
Financial Data Services, Inc. ("FDS") is 4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484.
Set forth below is a list of each executive officer and partner of the
Manager indicating each business, profession, vocation or employment of a
substantial nature in which each such person or entity has been engaged since
December 31, 1991, for his or its own account or in the capacity of director,
officer, partner or trustee. In addition, Mr. Zeikel is President, Mr. Richard
is Treasurer and Mr. Glenn is Executive Vice President of substantially all of
the investment companies described in the preceding paragraph, and Messrs.
Durnin, Giordano, Harvey, Hewitt, Kirstein, Monagle and Ms. Griffin are
directors, trustees or officers of one or more of such companies.
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
NAME POSITION(S) WITH THE MANAGER PROFESSION, VOCATION OR EMPLOYMENT
- ------------------------ ----------------------------- ------------------------------------------
<S> <C> <C>
ML & Co................. Limited Partner Financial Services Holding Company
Merrill Lynch Investment
Management, Inc....... Limited Partner Investment Advisory Services; Limited
Partner of FAM
Princeton Services, Inc.
("Princeton General Partner General Partner of FAM
Services")............
Arthur Zeikel........... President and Director President of FAM; President and Director
of Princeton Services; Director of Merrill
Lynch Funds Distributor, Inc. ("MLFD");
Executive Vice President of ML&Co.;
Executive Vice President of Merrill
Lynch
Terry K. Glenn.......... Executive Vice President Executive Vice President of FAM; Executive
Vice President and Director of Princeton
Services; President and Director of
MLFD; Director of Financial Data
Services, Inc. ("FDS"); President of
Princeton Administrators, L.P.
Bernard J. Durnin....... Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
Vincent R. Giordano..... Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
Elizabeth Griffin....... Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
Norman R. Harvey........ Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
</TABLE>
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<PAGE> 133
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
NAME POSITION(S) WITH THE MANAGER PROFESSION, VOCATION OR EMPLOYMENT
- ------------------------ ----------------------------- ------------------------------------------
<S> <C> <C>
N. John Hewitt.......... Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
Philip L. Kirstein...... Senior Vice President, Senior Vice President, General Counsel and
General Counsel and Secretary of FAM; Senior Vice President,
Secretary General Counsel, Director and Secretary
of Princeton Services; Director of MLFD
Ronald M. Kloss......... Senior Vice President and Senior Vice President and Controller of
Controller FAM; Senior Vice President and Controller
of Princeton Services
Stephen M.M. Miller..... Senior Vice President Executive Vice President of Princeton
Administrators, L.P.; Senior Vice
President of Princeton Services
Joseph T. Monagle, Jr... Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
Gerald M. Richard....... Senior Vice President and Senior Vice President and Treasurer of
Treasurer FAM; Senior Vice President and Treasurer
of Princeton Services; Vice President
and Treasurer of MLFD
Richard L. Rufener...... Senior Vice President Senior Vice President of FAM; Vice
President of MLFD; Senior Vice President
of Princeton Services
Ronald L. Welburn....... Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
Anthony Wiseman......... Senior Vice President Senior Vice President of Princeton
Services
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) MLFD acts as the principal underwriter for the Registrant and for each
of the investment companies referred to in the first paragraph of Item 28 except
Apex Municipal Fund, Inc., CBA Money Fund, CMA Government Securities Fund, CMA
Money Fund, CMA Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA
Treasury Fund, Convertible Holdings, Inc., The Corporate Fund Accumulation
Program, Inc., Corporate High Yield Fund, Inc., Corporate High Yield Fund II,
Inc., Emerging Tigers Fund, Inc., Income Opportunities Fund 1999, Inc., Income
Opportunities Fund 2000, Inc., MuniAssets Fund, Inc., MuniBond Income Fund,
Inc., The Municipal Fund Accumulation Program, Inc., MuniEnhanced Fund, Inc.,
MuniInsured Fund, Inc., MuniVest Fund, Inc., MuniVest Fund II, Inc., MuniVest
California Insured Fund, Inc., MuniVest Florida Fund, MuniVest Michigan Insured
Fund, Inc., MuniVest New Jersey Fund, Inc., MuniVest New York Insured Fund,
Inc., MuniVest Pennsylvania Fund, MuniYield Arizona Fund, MuniYield Arizona Fund
II, Inc., MuniYield California Fund, Inc., MuniYield California Insured Fund,
Inc., MuniYield Florida Fund, MuniYield Florida Insured Fund, MuniYield Fund,
Inc., MuniYield Insured Fund, Inc., MuniYield Insured Fund II, Inc., MuniYield
Michigan Fund, Inc., MuniYield Michigan Insured Fund, Inc., MuniYield New Jersey
Fund, Inc., MuniYield New Jersey Insured Fund, Inc., MuniYield New York Insured
Fund, Inc., MuniYield New York Insured Fund II, Inc., MuniYield New York Insured
Fund III, Inc., MuniYield Pennsylvania Fund, MuniYield Quality Fund, Inc.,
MuniYield Quality Fund II, Inc., Senior High Income Portfolio, Inc., Senior High
Income Portfolio II, Inc., Senior Strategic Income Fund, Inc., Taurus
MuniCalifornia Holdings, Inc., Taurus MuniNew York Holdings, Inc. and Worldwide
DollarVest Fund, Inc.
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<PAGE> 134
(b) Set forth below is information concerning each director and officer of
MLFD. The principal business address of each such person is P.O. Box 9011,
Princeton, New Jersey 08543-9011, except that the address of Messrs. Crook,
Aldrich, Breen, Graczyk, Fatseas and Wasel is One Financial Center, Boston,
Massachusetts 02111-2646.
<TABLE>
<CAPTION>
(2) (3)
(1) POSITION(S) AND OFFICE(S) POSITION(S) AND OFFICE(S)
NAME WITH MLFD WITH REGISTRANT
-------------------------------- ----------------------------- -------------------------
<S> <C> <C>
Terry K. Glenn.................. President and Director Executive Vice President
Arthur Zeikel................... Director President and Director
Philip L. Kirstein.............. Director None
William E. Aldrich.............. Senior Vice President None
Robert W. Crook................. Senior Vice President None
Kevin P. Boman.................. Vice President None
Michael J. Brady................ Vice President None
William M. Breen................ Vice President None
Sharon Creveling................ Vice President and Assistant None
Treasurer
Mark A. DeSario................. Vice President None
James T. Fatseas................ Vice President None
Stanley Graczyk................. Vice President None
Debra W. Landsman-Yaros......... Vice President None
Michelle T. Lau................. Vice President None
Gerald M. Richard............... Vice President and Treasurer Treasurer
Richard L. Rufener.............. Vice President None
Salvatore Venezia............... Vice President None
William Wasel................... Vice President None
Robert Harris................... Secretary Secretary
</TABLE>
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940, as amended, and the rules
thereunder are maintained at the offices of the Registrant, 800 Scudders Mill
Road, Plainsboro, New Jersey 08536, and Financial Data Services, Inc., 4800 Deer
Lake Drive East, Jacksonville, Florida 32246-6484.
ITEM 31. MANAGEMENT SERVICES.
Other than as set forth under the caption "Management of the
Fund--Management and Advisory Arrangements" in the Prospectus constituting Part
A of the Registration Statement and under "Management of the Fund--Management
and Advisory Arrangements" in the Statement of Additional Information
constituting Part B of the Registration Statement, Registrant is not a party to
any management related service contract.
ITEM 32. UNDERTAKINGS.
(a) Not applicable.
(b) Not applicable.
(c)Registrant undertakes to furnish each person to whom a prospectus was
delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
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<PAGE> 135
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the Township of Plainsboro, and
the State of New Jersey, on the 14th day of October 1994.
MERRILL LYNCH PACIFIC FUND, INC.
(Registrant)
By /s/ ARTHUR ZEIKEL
-------------------------------
(Arthur Zeikel, President)
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to Registrant's Registration Statement has been signed
below by the following persons in the capacities and on the date(s) indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE(S)
- ------------------------------------------ --------------------------- -------------------
<S> <C> <C>
/S/ ARTHUR ZEIKEL President and Director October 14, 1994
- ------------------------------------------ (Principal Executive
(Arthur Zeikel) Officer)
/S/ GERALD M. RICHARD Treasurer (Principal October 14, 1994
- ------------------------------------------ Financial
(Gerald M. Richard) and Accounting Officer)
DONALD CECIL* Director October 14, 1994
- ------------------------------------------
(Donald Cecil)
EDWARD H. MEYER* Director October 14, 1994
- ------------------------------------------
(Edward H. Meyer)
CHARLES C. REILLY* Director October 14, 1994
- ------------------------------------------
(Charles C. Reilly)
RICHARD R. WEST* Director October 14, 1994
- ------------------------------------------
(Richard R. West)
*By /S/ ARTHUR ZEIKEL October 14, 1994
- ------------------------------------------
(Arthur Zeikel, Attorney-in-Fact)
</TABLE>
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<PAGE> 136
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -------------------------------------------------------------------------------------
<C> <C> <S>
1(a) -- Articles of Incorporation of Registrant, as amended.(g)
(b) -- Articles of Amendment to Articles of Incorporation of Registrant.(g)
(c) -- Articles of Amendment to Articles of Incorporation of Registrant, dated October 3,
1988.(g)
(d) -- Articles Supplementary to the Articles of Incorporation.(g)
2 -- By-Laws of Registrant.(e)
3 -- None.
4 -- Copies of instruments defining the rights of shareholders, including the relevant
portions of the Articles of Incorporation, as amended, and By-Laws of Registrant.(b)
5(a) -- Management Agreement between Registrant and Merrill Lynch Asset Management, Inc.(c)
(b) -- Supplement to Management Agreement between Registrant and Merrill Lynch Asset
Management, L.P., dated January 3, 1994.(g)
6(a) -- Class A Distribution Agreement between Registrant and Merrill Lynch Funds
Distributor, Inc.(c)
(b) -- Class B Distribution Agreement between Registrant and Merrill Lynch Funds
Distributor, Inc.(e)
(c) -- Letter Agreement between the Registrant and Merrill Lynch Fund's Distributor, Inc.
with respect to the Merrill Lynch Mutual Fund Advisor Program.(g)
(d) -- Form of new Class A Shares Distribution Agreement between Registrant and Merrill
Lynch Funds Distributor, Inc.
(e) -- Form of Class C Shares Distribution Agreement between Registrant and Merrill Lynch
Funds Distributor, Inc.
(f) -- Form of Class D Shares Distribution Agreement between Registrant and Merrill Lynch
Funds, Inc.
7 -- None.
8(a) -- Custodian Agreement between Registrant and Brown Brothers Harriman & Co., as
Custodian.(a)
(b) -- Master Subcustodian Agreement of Brown Brothers Harriman & Co.(a)
9(a) -- Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing Agency
Agreement between the Registrant and Merrill Lynch Financial Data Service, Inc. (now
known as Financial Data Services, Inc.)(d)
(b) -- Agreement relating to use of name among Registrant, Merrill Lynch Asset Management,
Inc., and Merrill Lynch, Pierce, Fenner & Smith Incorporated.(a)
10 -- None.
11 -- Consent of Deloitte & Touche LLP, independent auditors for Registrant.
12 -- None.
13 -- None.
14 -- None.
15(a) -- Class B Distribution Plan of the Registrant and Distribution Plan Sub-Agreement.(g)
(b) -- Form of Class C Shares Distribution Plan and Class C Shares Distribution Plan
Sub-Agreement of the Registrant.
(c) -- Form of Class D Shares Distribution Plan and Class D Shares Distribution Plan
Sub-Agreement of the Registrant.
</TABLE>
<PAGE> 137
<TABLE>
<C> <C> <S>
16(a) -- Schedule for computation of each performance quotation relating to Class A shares
provided in the Registration Statement response to Item 22.(e)
(b) -- Schedule for computation of each performance quotation relating to Class B shares
provided in the Registration Statement in response to Item 22.(f)
17(a) -- Financial Data Schedule for Class A shares for the twelve months ended December 31,
1993.
(b) -- Financial Data Schedule for Class A shares for six months ended June 30, 1994.
(c) -- Financial Data Schedule for Class B shares for the twelve months ended December 31,
1993.
(d) -- Financial Data Schedule for Class B shares for six months ended June 30, 1994.
</TABLE>
- ------------------------
(a) Filed as an Exhibit to Post-Effective Amendment No. 13 to Registrant's
Registration Statement under the Securities Act of 1933 on Form N-1A.
(b) Reference is made to Article III (Sections 3, 4 and 5), Article V, Article
VI (Sections 2, 3, 4 and 5), Article VII, Article VIII and Article X of the
Registrant's Articles of Incorporation, as amended, filed as Exhibit (1)(a)
to the Registrant's Registration Statement; and Article II, Article III
(Sections 1, 2, 3, 5, 6 and 17), Article VI, Article VII, Article XII,
Article XIII and Article XV of the Registrant's By-Laws previously filed as
Exhibit (2) to the Registrant's Registration Statement.
(c) Filed as an Exhibit to Post-Effective Amendment No. 14 to Registrant's
Registration Statement under the Securities Act of 1933 on Form N-1A.
(d) Filed as an Exhibit to Post-Effective Amendment No. 16 to Registrant's
Registration Statement under the Securities Act of 1933 on Form N-1A.
(e) Filed as an Exhibit to Post-Effective Amendment No. 17 to Registrant's
Registration Statement under the Securities Act of 1933 on Form N-1A.
(f) Filed as an Exhibit to Post-Effective Amendment No. 19 to Registrant's
Registration Statement under the Securities Act of 1933 on Form N-1A.
(g) Filed as an Exhibit to Post-Effective Amendment No. 24 to Registrant's
Registration Statement under the Securities Act of 1933 on Form N-1A.
<PAGE> 1
CLASS A SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the ____ day of October 1994 between MERRILL
LYNCH PACIFIC FUND, INC., a Maryland corporation (the "Fund"), and MERRILL
LYNCH FUNDS DISTRIBUTOR, INC., a Delaware corporation (the "Distributor").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Fund is registered under the Investment Company Act
of 1940, as amended (the "Investment Company Act"), as an open-end investment
company, and it is affirmatively in the interest of the Fund to offer its
shares for sale continuously; and
WHEREAS, the Distributor is a securities firm engaged in the
business of selling shares of investment companies either directly to
purchasers or through other securities dealers; and
WHEREAS, the Fund and the Distributor wish to enter into an
agreement with each other with respect to the continuous offering of the Class
A shares of common stock in the Fund.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor. The Fund hereby
appoints the Distributor as the principal underwriter and distributor of the
Fund to sell Class A shares of common stock in the Fund (sometimes herein
referred to as "Class A shares") to eligible investors (as defined below) and
hereby agrees during
<PAGE> 2
the term of this Agreement to sell Class A shares of the Fund to the
Distributor upon the terms and conditions herein set forth.
Section 2. Exclusive Nature of Duties. The Distributor shall be
the exclusive representative of the Fund to act as principal underwriter and
distributor, except that:
(a) The Fund may, upon written notice to the Distributor, from
time to time designate other principal underwriters and distributors of Class A
shares with respect to areas other than the United States as to which the
Distributor may have expressly waived in writing its right to act as such. If
such designation is deemed exclusive, the right of the Distributor under this
Agreement to sell Class A shares in the areas so designated shall terminate,
but this Agreement shall remain otherwise in full effect until terminated in
accordance with the other provisions hereof.
(b) The exclusive right granted to the Distributor to purchase
Class A shares from the Fund shall not apply to Class A shares issued in
connection with the merger or consolidation of any other investment company or
personal holding company with the Fund or the acquisition by purchase or
otherwise of all (or substantially all) the assets or the outstanding Class A
shares of any such company by the Fund.
(c) Such exclusive right also shall not apply to Class A shares
issued by the Fund pursuant to reinvestment of dividends or capital gains
distributions.
2
<PAGE> 3
(d) Such exclusive right also shall not apply to Class A shares
issued by the Fund pursuant to any conversion, exchange or reinstatement
privilege afforded redeeming shareholders or to any other Class A shares as
shall be agreed between the Fund and the Distributor from time to time.
Section 3. Purchase of Class A shares from the Fund.
(a) The Distributor shall have the right to buy from the Fund the
Class A shares needed, but not more than the Class A shares needed (except for
clerical errors in transmission) to fill unconditional orders for Class A
shares of the Fund placed with the Distributor by eligible investors or
securities dealers. Investors eligible to purchase Class A shares shall be
those persons so identified in the currently effective prospectus and statement
of additional information of the Fund (the "prospectus" and "statement of
additional information", respectively) under the Securities Act of 1933, as
amended (the "Securities Act"), relating to such Class A shares ("eligible
investors"). The price which the Distributor shall pay for the Class A shares
so purchased from the Fund shall be the net asset value, determined as set
forth in Section 3(d) hereof, used in determining the public offering price on
which such orders were based.
(b) The Class A shares are to be resold by the Distributor to
eligible investors at the public offering price, as set forth in Section 3(c)
hereof, or to securities dealers having agreements with the Distributor upon
the terms and conditions set forth in Section 7 hereof.
3
<PAGE> 4
(c) The public offering price(s) of the Class A shares, i.e., the
price per share at which the Distributor or selected dealers may sell Class A
shares to eligible investors, shall be the public offering price as set forth
in the prospectus and statement of additional information relating to such
Class A shares, but not to exceed the net asset value at which the Distributor
is to purchase the Class A shares, plus a sales charge not to exceed 5.25% of
the public offering price (5.54% of the net amount invested), subject to
reductions for volume purchases. Class A shares may be sold to certain
Directors, officers and employees of the Fund, directors and employees of
Merrill Lynch & Co., Inc. and its subsidiaries, and to certain other persons
described in the prospectus and statement of additional information, without a
sales charge or at a reduced sales charge, upon terms and conditions set forth
in the prospectus and statement of additional information. If the public
offering price does not equal an even cent, the public offering price may be
adjusted to the nearest cent. All payments to the Fund hereunder shall be made
in the manner set forth in Section 3(f).
(d) The net asset value of Class A shares shall be determined by
the Fund or any agent of the Fund in accordance with the method set forth in
the prospectus and statement of additional information of the Fund and
guidelines established by the Directors.
4
<PAGE> 5
(e) The Fund shall have the right to suspend the sale of its
Class A shares at times when redemption is suspended pursuant to the conditions
set forth in Section 4(b) hereof. The Fund shall also have the right to
suspend the sale of its Class A shares if trading on the New York Stock
Exchange shall have been suspended, if a banking moratorium shall have been
declared by Federal or New York authorities, or if there shall have been some
other event, which, in the judgment of the Fund, makes it impracticable or
inadvisable to sell the Class A shares.
(f) The Fund, or any agent of the Fund designated in writing by
the Fund, shall be promptly advised of all purchase orders for Class A shares
received by the Distributor. Any order may be rejected by the Fund; provided,
however, that the Fund will not arbitrarily or without reasonable cause refuse
to accept or confirm orders for the purchase of Class A shares from eligible
investors. The Fund (or its agent) will confirm orders upon their receipt,
will make appropriate book entries and, upon receipt by the Fund (or its agent)
of payment therefor, will deliver deposit receipts or certificates for such
Class A shares pursuant to the instructions of the Distributor. Payment shall
be made to the Fund in New York Clearing House funds. The Distributor agrees
to cause such payment and such instructions to be delivered promptly to the
Fund (or its agent).
Section 4. Repurchase or Redemption of Class A shares by the
Fund.
5
<PAGE> 6
(a) Any of the outstanding Class A shares may be tendered for
redemption at any time, and the Fund agrees to repurchase or redeem the Class A
shares so tendered in accordance with its obligations as set forth in Article
VII of its Articles of Incorporation, as amended from time to time, and in
accordance with the applicable provisions set forth in the prospectus and
statement of additional information. The price to be paid to redeem or
repurchase the Class A shares shall be equal to the net asset value calculated
in accordance with the provisions of Section 3(d) hereof, less any contingent
deferred sales charge ("CDSC"), redemption fee or other charge(s), if any, set
forth in the prospectus and statement of additional information of the Fund.
All payments by the Fund hereunder shall be made in the manner set forth below.
The redemption or repurchase by the Fund of any of the Class A shares purchased
by or through the Distributor will not affect the sales charge secured by the
Distributor or any selected dealer in the course of the original sale, except
that if any Class A shares are tendered for redemption or repurchase within
seven business days after the date of the confirmation of the original
purchase, the right to the sales charge shall be forfeited by the Distributor
and the selected dealer which sold such Class A shares.
The Fund shall pay the total amount of the redemption price as
defined in the above paragraph pursuant to the instructions of the Distributor
in New York Clearing House funds on or before the seventh business day
subsequent to its having received the notice
6
<PAGE> 7
of redemption in proper form. The proceeds of any redemption of shares shall
be paid by the Fund as follows: (i) any applicable CDSC shall be paid to the
Distributor, and (ii) the balance shall be paid to or for the account of the
shareholder, in each case in accordance with the applicable provisions of the
prospectus and statement of additional information.
(b) Redemption of Class A shares or payment may be suspended at
times when the New York Stock Exchange is closed, when trading on said Exchange
is suspended, when trading on said Exchange is restricted, when an emergency
exists as a result of which disposal by the Fund of securities owned by it is
not reasonably practicable or it is not reasonably practicable for the Fund
fairly to determine the value of its net assets, or during any other period
when the Securities and Exchange Commission, by order, so permits.
Section 5. Duties of the Fund.
(a) The Fund shall furnish to the Distributor copies of all
information, financial statements and other papers which the Distributor may
reasonably request for use in connection with the distribution of Class A
shares of the Fund, and this shall include, upon request by the Distributor,
one certified copy of all financial statements prepared for the Fund by
independent public accountants. The Fund shall make available to the
Distributor such number of copies of the prospectus and statement of additional
information as the Distributor shall reasonably request.
7
<PAGE> 8
(b) The Fund shall take, from time to time, but subject to any
necessary approval of the Class A shareholders, all necessary action to fix the
number of authorized Class A shares and such steps as may be necessary to
register the same under the Securities Act, to the end that there will be
available for sale such number of Class A shares as the Distributor may
reasonably be expected to sell.
(c) The Fund shall use its best efforts to qualify and maintain
the qualification of an appropriate number of its Class A shares for sale under
the securities laws of such states as the Distributor and the Fund may approve.
Any such qualification may be withheld, terminated or withdrawn by the Fund at
any time in its discretion. As provided in Section 8(c) hereof, the expense of
qualification and maintenance of qualification shall be borne by the Fund. The
Distributor shall furnish such information and other material relating to its
affairs and activities as may be required by the Fund in connection with such
qualification.
(d) The Fund will furnish, in reasonable quantities upon request
by the Distributor, copies of annual and interim reports of the Fund.
8
<PAGE> 9
Section 6. Duties of the Distributor.
(a) The Distributor shall devote reasonable time and effort to
effect sales of Class A shares of the Fund but shall not be obligated to sell
any specific number of Class A shares. The services of the Distributor to the
Fund hereunder are not to be deemed exclusive and nothing herein contained
shall prevent the Distributor from entering into like arrangements with other
investment companies so long as the performance of its obligations hereunder is
not impaired thereby.
(b) In selling the Class A shares of the Fund, the Distributor
shall use its best efforts in all respects duly to conform with the
requirements of all Federal and state laws relating to the sale of such
securities. Neither the Distributor nor any selected dealer, as defined in
Section 7 hereof, nor any other person is authorized by the Fund to give any
information or to make any representations, other than those contained in the
registration statement or related prospectus and statement of additional
information and any sales literature specifically approved by the Fund.
(c) The Distributor shall adopt and follow procedures, as
approved by the officers of the Fund, for the confirmation of sales to eligible
investors and selected dealers, the collection of amounts payable by eligible
investors and selected dealers on such sales, and the cancellation of unsettled
transactions, as may be necessary to comply with the requirements of the
National
9
<PAGE> 10
Association of Securities Dealers, Inc. (the "NASD"), as such requirements may
from time to time exist.
Section 7. Selected Dealers Agreements.
(a) The Distributor shall have the right to enter into selected
dealers agreements with securities dealers of its choice ("selected dealers")
for the sale of Class A shares and fix therein the portion of the sales charge
which may be allocated to the selected dealers; provided that the Fund shall
approve the forms of agreements with dealers and the dealer compensation set
forth therein. Class A shares sold to selected dealers shall be for resale by
such dealers only at the public offering price(s) set forth in the prospectus
and statement of additional information. The form of agreement with selected
dealers to be used during the continuous offering of the Class A shares is
attached hereto as Exhibit A.
(b) Within the United States, the Distributor shall offer and
sell Class A shares only to such selected dealers as are members in good
standing of the NASD.
Section 8. Payment of Expenses.
(a) The Fund shall bear all costs and expenses of the Fund,
including fees and disbursements of its counsel and auditors, in connection
with the preparation and filing of any required registration statements and/or
prospectuses and statements of additional information under the Investment
Company Act, the Securities Act, and all amendments and supplements thereto,
and preparing and mailing annual and interim reports and proxy
10
<PAGE> 11
materials to Class A shareholders (including but not limited to the expense of
setting in type any such registration statements, prospectuses, statements of
additional information, annual or interim reports or proxy materials).
(b) The Distributor shall be responsible for any payments made to
selected dealers as reimbursement for their expenses associated with payments
of sales commissions to financial consultants. In addition, after the
prospectuses, statements of additional information and annual and interim
reports have been prepared and set in type, the Distributor shall bear the
costs and expenses of printing and distributing any copies thereof which are to
be used in connection with the offering of Class A shares to selected dealers
or eligible investors pursuant to this Agreement. The Distributor shall bear
the costs and expenses of preparing, printing and distributing any other
literature used by the Distributor or furnished by it for use by selected
dealers in connection with the offering of the Class A shares for sale to
eligible investors and any expenses of advertising incurred by the Distributor
in connection with such offering.
(c) The Fund shall bear the cost and expenses of qualification of
the Class A shares for sale pursuant to this Agreement and, if necessary or
advisable in connection therewith, of qualifying the Fund as a broker or dealer
in such states of the United States or other jurisdictions as shall be selected
by the Fund and the Distributor pursuant to Section 5(c) hereof and the cost
and expenses payable to each such state for continuing
11
<PAGE> 12
qualification therein until the Fund decides to discontinue such qualification
pursuant to Section 5(c) hereof.
Section 9. Indemnification.
(a) The Fund shall indemnify and hold harmless the Distributor
and each person, if any, who controls the Distributor against any loss,
liability, claim, damage or expense (including the reasonable cost of
investigating or defending any alleged loss, liability, claim, damage or
expense and reasonable counsel fees incurred in connection therewith), as
incurred, arising by reason of any person acquiring any Class A shares, which
may be based upon the Securities Act, or on any other statute or at common law,
on the ground that the registration statement or related prospectus and
statement of additional information, as from time to time amended and
supplemented, or an annual or interim report to shareholders of the Fund,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary in order to make the
statements therein not misleading, unless such statement or omission was made
in reliance upon, and in conformity with, information furnished to the Fund in
connection therewith by or on behalf of the Distributor; provided, however,
that in no case (i) is the indemnity of the Fund in favor of the Distributor
and any such controlling persons to be deemed to protect such Distributor or
any such controlling persons thereof against any liability to the Fund or its
security holders to which the Distributor or any such controlling persons would
otherwise be subject by reason of
12
<PAGE> 13
willful misfeasance, bad faith or gross negligence in the performance of their
duties or by reason of the reckless disregard of their obligations and duties
under this Agreement; or (ii) is the Fund to be liable under its indemnity
agreement contained in this paragraph with respect to any claim made against
the Distributor or any such controlling persons, unless the Distributor or such
controlling persons, as the case may be, shall have notified the Fund in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon the
Distributor or such controlling persons (or after the Distributor or such
controlling persons shall have received notice of such service on any
designated agent), but failure to notify the Fund of any such claim shall not
relieve it from any liability which it may have to the person against whom such
action is brought otherwise than on account of its indemnity agreement
contained in this paragraph. The Fund will be entitled to participate at its
own expense in the defense or, if it so elects, to assume the defense of any
suit brought to enforce any such liability, but if the Fund elects to assume
the defense, such defense shall be conducted by counsel chosen by it and
satisfactory to the Distributor or such controlling person or persons,
defendant or defendants in the suit. In the event the Fund elects to assume
the defense of any such suit and retain such counsel, the Distributor or such
controlling person or persons, defendant or defendants in the suit shall bear
the fees and expenses of any
13
<PAGE> 14
additional counsel retained by them, but in case the Fund does not elect to
assume the defense of any such suit, it will reimburse the Distributor or such
controlling person or persons, defendant or defendants in the suit, for the
reasonable fees and expenses of any counsel retained by them. The Fund shall
promptly notify the Distributor of the commencement of any litigation or
proceedings against it or any of its officers or Directors in connection with
the issuance or sale of any of the Class A shares.
(b) The Distributor shall indemnify and hold harmless the Fund
and each of its Directors and officers and each person, if any, who controls
the Fund against any loss, liability, claim, damage or expense described in the
foregoing indemnity contained in subsection (a) of this Section, but only with
respect to statements or omissions made in reliance upon, and in conformity
with, information furnished to the Fund in writing by or on behalf of the
Distributor for use in connection with the registration statement or related
prospectus and statement of additional information, as from time to time
amended, or the annual or interim reports to Class A shareholders. In case any
action shall be brought against the Fund or any person so indemnified, in
respect of which indemnity may be sought against the Distributor, the
Distributor shall have the rights and duties given to the Fund, and the Fund
and each person so indemnified shall have the rights and duties given to the
Distributor by the provisions of subsection (a) of this Section 9.
14
<PAGE> 15
Section 10. Merrill Lynch Mutual Fund Adviser Program. In
connection with the Merrill Lynch Mutual Fund Adviser Program, the Distributor
and its affiliate, Merrill Lynch, Pierce, Fenner & Smith Incorporated, are
authorized to offer and sell shares of the Fund, as agent for the Fund, to
participants in such program. The terms of this Agreement shall apply to such
sales, including terms as to the offering price of shares, the proceeds to be
paid to the Fund, the duties of the Distributor, the payment of expenses and
indemnification obligations of the Fund and the Distributor.
Section 11. Duration and Termination of this Agreement. This
Agreement shall become effective as of the date first above written and shall
remain in force until October __, 1995 and thereafter, but only for so long as
such continuance is specifically approved at least annually by (i) the
Directors or by the vote of a majority of the outstanding voting securities of
the Fund and (ii) by the vote of a majority of those Directors who are not
parties to this Agreement or interested persons of any such party cast in
person at a meeting called for the purpose of voting on such approval.
This Agreement may be terminated at any time, without the payment
of any penalty, by the Directors or by vote of a majority of the outstanding
voting securities of the Fund, or by the Distributor, on sixty days' written
notice to the other party. This Agreement shall automatically terminate in
the event of its assignment.
15
<PAGE> 16
The terms "vote of a majority of the outstanding voting
securities", "assignment", "affiliated person" and "interested person", when
used in this Agreement, shall have the respective meanings specified in the
Investment Company Act.
Section 12. Amendments of this Agreement. This Agreement may be
amended by the parties only if such amendment is specifically approved by (i)
the Directors or by the vote of a majority of outstanding voting securities of
the Fund and (ii) by the vote of a majority of those Directors of the Fund who
are not parties to this Agreement or interested persons of any such party cast
in person at a meeting called for the purpose of voting on such approval.
Section 13. Governing Law. The provisions of this Agreement
shall be construed and interpreted in accordance with the laws of the State of
New York as at the time in effect and the applicable provisions of the
Investment Company Act. To the extent that the applicable law of the State of
New York, or any of the provisions herein, conflict with the applicable
provisions of the Investment Company Act, the latter shall control.
Section 14. This Agreement supersedes the prior Distribution
Agreement entered into by the parties hereto with respect to the Class A shares
of the Fund.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
16
<PAGE> 17
MERRILL LYNCH PACIFIC FUND, INC.
By
-------------------------------------
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By
-------------------------------------
Title:
17
<PAGE> 18
EXHIBIT A
MERRILL LYNCH PACIFIC FUND, INC.
CLASS A SHARES OF COMMON STOCK
SELECTED DEALERS AGREEMENT
Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor") has an
agreement with Merrill Lynch Pacific Fund, Inc., a Maryland Corporation (the
"Fund"), pursuant to which it acts as the distributor for the sale of Class A
shares of common stock, par value $0.10 per share (herein referred to as "Class
A shares"), of the Fund and as such has the right to distribute Class A shares
of the Fund for resale. The Fund is an open-end investment company registered
under the Investment Company Act of 1940, as amended, and its Class A shares
are registered under the Securities Act of 1933, as amended. You have received
a copy of the Class A shares Distribution Agreement (the "Distribution
Agreement") between ourself and the Fund and reference is made herein to
certain provisions of such Distribution Agreement. The terms "Prospectus" and
"Statement of Additional Information" used herein refer to the prospectus and
statement of additional information, respectively, on file with the Securities
and Exchange Commission which is part of the most recent effective registration
statement pursuant to the Securities Act of 1933, as amended. We offer to sell
to you, as a member of the Selected Dealers Group, Class A shares of the Fund
for resale to investors identified in the Prospectus and Statement of
Additional Information as eligible to purchase Class A shares ("eligible
investors") upon the following terms and conditions:
1. In all sales of these Class A shares to eligible
investors, you shall act as dealer for your own account and in no transaction
shall you have any authority to act as agent for the Fund, for us or for any
other member of the Selected Dealers Group, except in connection with the
Merrill Lynch Mutual Fund Adviser program and such other special programs as we
from time to time agree, in which case you shall have authority to offer and
sell shares, as agent for the Fund, to participants in such program.
2. Orders received from you will be accepted through us only
at the public offering price applicable to each order, as set forth in the
current Prospectus and Statement of Additional Information of the Fund. The
procedure relating to the handling
1
<PAGE> 19
of orders shall be subject to Section 5 hereof and instructions which we or the
Fund shall forward from time to time to you. All orders are subject to
acceptance or rejection by the Distributor or the Fund in the sole discretion
of either. The minimum initial and subsequent purchase requirements are as set
forth in the current Prospectus and Statement of Additional Information of the
Fund.
3. The sales charges for sales to eligible investors,
computed as percentages of the public offering price and the amount invested,
and the related discount to Selected Dealers are as follows:
<TABLE>
<CAPTION>
Discount to
Selected
Sales Charge Dealers as
Sales Charge as Percentage* Percentage
as Percentage of the Net of the
of the Amount Offering
Amount of Purchase Offering Price Invested Price
- ------------------ -------------- ---------- --------------
<S> <C> <C> <C>
Less than $25,000................ 5.25% 5.54% 5.00%
$25,000 but less
than $50,000.................... 4.75% 4.99% 4.50%
$50,000 but less
than $100,000................... 4.00% 4.17% 3.75%
$100,000 but less
than $250,000................... 3.00% 3.09% 2.75%
$250,000 but less
than $1,000,000................. 2.00% 2.04% 1.80%
$1,000,000 and over**............ 0.00% 0.00% 0.00%
</TABLE>
- -----------------------
* Rounded to the nearest one-hundredth percent.
** Initial sales charges may be waived for certain classes of offerees as set
forth in the current Prospectus and Statement of Additional Information of the
Fund. Such purchases may be subject to a contingent deferred sales charge as
set forth in the current Prospectus and Statement of Additional Information.
2
<PAGE> 20
The term "purchase" refers to a single purchase by an individual,
or to concurrent purchases, which in the aggregate are at least equal to the
prescribed amounts, by an individual, his spouse and their children under the
age of 21 years purchasing Class A shares for his or their own account and to
single purchases by a trustee or other fiduciary purchasing Class A shares for
a single trust estate or single fiduciary account although more than one
beneficiary is involved. The term "purchase" also includes purchases by any
"company" as that term is defined in the Investment Company Act of 1940, as
amended, but does not include purchases by any such company which has not been
in existence for at least six months or which has no purpose other than the
purchase of Class A shares of the Fund or Class A shares of other registered
investment companies at a discount; provided, however, that it shall not
include purchases by any group of individuals whose sole organizational nexus
is that the participants therein are credit cardholders of a company,
policyholders of an insurance company, customers of either a bank or
broker-dealer or clients of an investment adviser.
The reduced sales charges are applicable through a right of
accumulation under which certain eligible investors are permitted to purchase
Class A shares of the Fund at the offering price applicable to the total of (a)
the public offering price of the shares then being purchased plus (b) an amount
equal to the then current net asset value or cost, whichever is higher, of the
purchaser's combined holdings of Class A, Class B, Class C and Class D shares
of the Fund and of any other investment company with an initial sales charge
for which the Distributor acts as the distributor. For any such right of
accumulation to be made available, the Distributor must be provided at the time
of purchase, by the purchaser or you, with sufficient information to permit
confirmation of qualification, and acceptance of the purchase order is subject
to such confirmation.
The reduced sales charges are applicable to purchases aggregating
$10,000 or more of Class A shares or of Class D shares of any other investment
company with an initial sales charge for which the Distributor acts as the
distributor made through you within a thirteen-month period starting with the
first purchase pursuant to a Letter of Intention in the form provided in the
Prospectus. A purchase not originally made pursuant to a Letter of Intention
may be included under a subsequent letter executed within 90 days of such
purchase if the Distributor is informed in writing of this intent within such
90-day period. If the intended amount of shares is not purchased within the
thirteen-month period, an appropriate price adjustment will be made pursuant to
the terms of the Letter of Intention.
You agree to advise us promptly at our request as to amounts of
any sales made by you to eligible investors qualifying for reduced sales
charges. Further information as to the reduced sales charges pursuant
3
<PAGE> 21
to the right of accumulation or a Letter of Intention is set forth in the
Prospectus and Statement of Additional Information.
4. You shall not place orders for any of the Class A shares
unless you have already received purchase orders for such Class A shares at the
applicable public offering prices and subject to the terms hereof and of the
Distribution Agreement. You agree that you will not offer or sell any of the
Class A shares except under circumstances that will result in compliance with
the applicable Federal and state securities laws and that in connection with
sales and offers to sell Class A shares you will furnish to each person to whom
any such sale or offer is made a copy of the Prospectus and, if requested, the
Statement of Additional Information (as then amended or supplemented) and will
not furnish to any person any information relating to the Class A shares of the
Fund which is inconsistent in any respect with the information contained in the
Prospectus and Statement of Additional Information (as then amended or
supplemented) or cause any advertisement to be published in any newspaper or
posted in any public place without our consent and the consent of the Fund.
5. As a selected dealer, you are hereby authorized (i) to
place orders directly with the Fund for Class A shares of the Fund to be resold
by us to you subject to the applicable terms and conditions governing the
placement of orders by us set forth in Section 3 of the Distribution Agreement
and subject to the compensation provisions of Section 3 hereof and (ii) to
tender Class A shares directly to the Fund or its agent for redemption subject
to the applicable terms and conditions set forth in Section 4 of the
Distribution Agreement.
6. You shall not withhold placing orders received from your
customers so as to profit yourself as a result of such withholding: e.g., by a
change in the "net asset value" from that used in determining the offering
price to your customers.
7. If any Class A shares sold to you under the terms of this
Agreement are repurchased by the Fund or by us for the account of the Fund or
are tendered for redemption within seven business days after the date of the
confirmation of the original purchase by you, it is agreed that you shall
forfeit your right to, and refund to us, any discount received by you on such
Class A shares.
8. No person is authorized to make any representations concerning
Class A shares of the Fund except those contained in the current Prospectus and
Statement of Additional Information of the Fund and in such printed information
subsequently issued by us or the Fund as information supplemental to such
Prospectus and Statement of Additional Information. In purchasing Class A
shares through us you shall rely solely on the representations contained in the
Prospectus and Statement of Additional Information and supplemental information
above mentioned. Any printed information which we furnish you other than the
Fund's
4
<PAGE> 22
Prospectus, Statement of Additional Information, periodic reports and proxy
solicitation material is our sole responsibility and not the responsibility of
the Fund, and you agree that the Fund shall have no liability or responsibility
to you in these respects unless expressly assumed in connection therewith.
9. You agree to deliver to each of the purchasers making
purchases from you a copy of the then current Prospectus and, if requested, the
Statement of Additional Information at or prior to the time of offering or sale
and you agree thereafter to deliver to such purchasers copies of the annual and
interim reports and proxy solicitation materials of the Fund. You further
agree to endeavor to obtain proxies from such purchasers. Additional copies of
the Prospectus and Statement of Additional Information, annual or interim
reports and proxy solicitation materials of the Fund will be supplied to you in
reasonable quantities upon request.
10. We reserve the right in our discretion, without notice, to
suspend sales or withdraw the offering of Class A shares entirely or to certain
persons or entities in a class or classes specified by us. Each party hereto
has the right to cancel this agreement upon notice to the other party.
11. We shall have full authority to take such action as we may
deem advisable in respect of all matters pertaining to the continuous offering.
We shall be under no liability to you except for lack of good faith and for
obligations expressly assumed by us herein. Nothing contained in this
paragraph is intended to operate as, and the provisions of this paragraph shall
not in any way whatsoever constitute, a waiver by you of compliance with any
provision of the Securities Act of 1933, as amended, or of the rules and
regulations of the Securities and Exchange Commission issued thereunder.
12. You represent that you are a member of the National
Association of Securities Dealers, Inc. and, with respect to any sales in the
United States, we both hereby agree to abide by the Rules of Fair Practice of
such Association.
13. Upon application to us, we will inform you as to the states
in which we believe the Class A shares have been qualified for sale under, or
are exempt from the requirements of, the respective securities laws of such
states, but we assume no responsibility or obligation as to your right to sell
Class A shares in any jurisdiction. We will file with the Department of State
in New York a Further State Notice with respect to the Class A shares, if
necessary.
14. All communications to us should be sent to the address below.
Any notice to you shall be duly given if mailed or telegraphed to you at the
address specified by you below.
5
<PAGE> 23
15. Your first order placed pursuant to this Agreement for the
purchase of Class A shares of the Fund will represent your acceptance of this
Agreement.
16. This Agreement supersedes any prior Selected Dealers
Agreement entered into by the parties hereto with respect to the Class A shares
of the Fund.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By
--------------------------------
(Authorized Signature)
Please return one signed copy
of this agreement to:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
Box 9011
Princeton, New Jersey 08543-9011
Accepted:
Firm Name: Merrill Lynch, Pierce, Fenner & Smith Inc.
--------------------------------------------
By:
---------------------------------------------------
Address: 800 Scudders Mill Road
----------------------------------------------
Plainsboro, New Jersey 08536
------------------------------------------------------
Date: , 1994
-------------------------------------------------
6
<PAGE> 1
CLASS C SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the ______ day of October 1994, between MERRILL
LYNCH PACIFIC FUND, INC., a Maryland corporation (the "Fund"), and MERRILL
LYNCH FUNDS DISTRIBUTOR, INC., a Delaware corporation (the "Distributor").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the "Investment Company Act"), as an open-end investment
company, and it is affirmatively in the interest of the Fund to offer its
shares for sale continuously; and
WHEREAS, the Distributor is a securities firm engaged in the business
of selling shares of investment companies either directly to purchasers or
through other securities dealers; and
WHEREAS, the Fund and the Distributor wish to enter into an agreement
with each other with respect to the continuous offering of the Fund's Class C
shares in order to promote the growth of the Fund and facilitate the
distribution of its Class C shares.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor. The Fund hereby appoints
the Distributor as the principal underwriter and distributor of the Fund to
sell Class C shares of common stock in the Fund (sometimes herein referred to
as "Class C shares") to
<PAGE> 2
the public and hereby agrees during the term of this Agreement to sell shares
of the Fund to the Distributor upon the terms and conditions herein set forth.
Section 2. Exclusive Nature of Duties. The Distributor shall be the
exclusive representative of the Fund to act as principal underwriter and
distributor of the Class C shares, except that:
(a) The Fund may, upon written notice to the Distributor, from time
to time designate other principal underwriters and distributors of Class C
shares with respect to areas other than the United States as to which the
Distributor may have expressly waived in writing its right to act as such. If
such designation is deemed exclusive, the right of the Distributor under this
Agreement to sell Class C shares in the areas so designated shall terminate,
but this Agreement shall remain otherwise in full effect until terminated in
accordance with the other provisions hereof.
(b) The exclusive right granted to the Distributor to purchase Class
C shares from the Fund shall not apply to Class C shares of the Fund issued in
connection with the merger or consolidation of any other investment company or
personal holding company with the Fund or the acquisition by purchase or
otherwise of all (or substantially all) the assets or the outstanding Class C
shares of any such company by the Fund.
2
<PAGE> 3
(c) Such exclusive right also shall not apply to Class C shares
issued by the Fund pursuant to reinvestment of dividends or capital gains
distributions.
(d) Such exclusive right also shall not apply to Class C shares
issued by the Fund pursuant to any conversion, exchange or reinstatement
privilege afforded redeeming shareholders or to any other Class C shares as
shall be agreed between the Fund and the Distributor from time to time.
Section 3. Purchase of Class C Shares from the Fund.
(a) It is contemplated that the Fund will commence an offering of its
Class C shares, and thereafter the Distributor shall have the right to buy from
the Fund the Class C shares needed, but not more than the Class C shares needed
(except for clerical errors in transmission) to fill unconditional orders for
Class C shares of the Fund placed with the Distributor by eligible investors or
securities dealers. Investors eligible to purchase Class C shares shall be
those persons so identified in the currently effective prospectus and statement
of additional information of the Fund (the "prospectus" and "statement of
additional information", respectively) under the Securities Act of 1933, as
amended (the "Securities Act"), relating to such Class C shares. The price
which the Distributor shall pay for the Class C shares so purchased from the
Fund shall be the net asset value, determined as set forth in Section 3(c)
hereof.
3
<PAGE> 4
(b) The Class C shares are to be resold by the Distributor to
investors at net asset value, as set forth in Section 3(c) hereof, or to
securities dealers having agreements with the Distributor upon the terms and
conditions set forth in Section 7 hereof.
(c) The net asset value of Class C shares of the Fund shall be
determined by the Fund or any agent of the Fund in accordance with the method
set forth in the prospectus and statement of additional information and
guidelines established by the Board of Directors.
(d) The Fund shall have the right to suspend the sale of its Class C
shares at times when redemption is suspended pursuant to the conditions set
forth in Section 4(b) hereof. The Fund shall also have the right to suspend
the sale of its Class C shares if trading on the New York Stock Exchange shall
have been suspended, if a banking moratorium shall have been declared by
Federal or New York authorities, or if there shall have been some other event,
which, in the judgment of the Fund, makes it impracticable or inadvisable to
sell the Class C shares.
(e) The Fund, or any agent of the Fund designated in writing by the
Fund, shall be promptly advised of all purchase orders for Class C shares
received by the Distributor. Any order may be rejected by the Fund; provided,
however, that the Fund will not arbitrarily or without reasonable cause refuse
to accept or confirm orders for the purchase of Class C shares. The Fund
4
<PAGE> 5
(or its agent) will confirm orders upon their receipt, will make appropriate
book entries and, upon receipt by the Fund (or its agent) of payment therefor,
will deliver deposit receipts or certificates for such Class C shares pursuant
to the instructions of the Distributor. Payment shall be made to the Fund in
New York Clearing House funds. The Distributor agrees to cause such payment
and such instructions to be delivered promptly to the Fund (or its agent).
Section 4. Repurchase or Redemption of Class C Shares by the Fund.
(a) Any of the outstanding Class C shares may be tendered for
redemption at any time, and the Fund agrees to repurchase or redeem the Class C
shares so tendered in accordance with its obligations as set forth in Article
VII of its Articles of Incorporation, as amended from time to time, and in
accordance with the applicable provisions set forth in the prospectus and
statement of additional information of the Fund. The price to be paid to
redeem or repurchase the Class C shares shall be equal to the net asset value
calculated in accordance with the provisions of Section 3(c) hereof, less any
contingent deferred sales charge ("CDSC"), redemption fee or other charge(s),
if any, set forth in the prospectus and statement of additional information of
the Fund. All payments by the Fund hereunder shall be made in the manner set
forth below.
5
<PAGE> 6
The Fund shall pay the total amount of the redemption price as defined
in the above paragraph pursuant to the instructions of the Distributor on or
before the seventh business day subsequent to its having received the notice of
redemption in proper form. The proceeds of any redemption of shares shall be
paid by the Fund as follows: (i) any applicable CDSC shall be paid to the
Distributor, and (ii) the balance shall be paid to or for the account of the
shareholder, in each case in accordance with the applicable provisions of the
prospectus and statement of additional information.
(b) Redemption of Class C shares or payment may be suspended at times
when the New York Stock Exchange is closed, when trading on said Exchange is
suspended, when trading on said Exchange is restricted, when an emergency
exists as a result of which disposal by the Fund of securities owned by it is
not reasonably practicable or it is not reasonably practicable for the Fund
fairly to determine the value of its net assets, or during any other period
when the Securities and Exchange Commission, by order, so permits.
Section 5. Duties of the Fund.
(a) The Fund shall furnish to the Distributor copies of all
information, financial statements and other papers which the Distributor may
reasonably request for use in connection with the distribution of Class C
shares of the Fund, and this shall include, upon request by the Distributor,
one certified copy of all
6
<PAGE> 7
financial statements prepared for the Fund by independent public accountants.
The Fund shall make available to the Distributor such number of copies of its
prospectus and statement of additional information as the Distributor shall
reasonably request.
(b) The Fund shall take, from time to time, but subject to any
necessary approval of the shareholders, all necessary action to fix the number
of authorized shares and such steps as may be necessary to register the same
under the Securities Act to the end that there will be available for sale such
number of Class C shares as the Distributor reasonably may be expected to sell.
(c) The Fund shall use its best efforts to qualify and maintain the
qualification of an appropriate number of its Class C shares for sale under the
securities laws of such states as the Distributor and the Fund may approve.
Any such qualification may be withheld, terminated or withdrawn by the Fund at
any time in its discretion. As provided in Section 8(c) hereof, the expense of
qualification and maintenance of qualification shall be borne by the Fund. The
Distributor shall furnish such information and other material relating to its
affairs and activities as may be required by the Fund in connection with such
qualification.
(d) The Fund will furnish, in reasonable quantities upon request by
the Distributor, copies of annual and interim reports of the Fund.
7
<PAGE> 8
Section 6. Duties of the Distributor.
(a) The Distributor shall devote reasonable time and effort to effect
sales of Class C shares of the Fund but shall not be obligated to sell any
specific number of shares. The services of the Distributor to the Fund
hereunder are not to be deemed exclusive and nothing herein contained shall
prevent the Distributor from entering into like arrangements with other
investment companies so long as the performance of its obligations hereunder is
not impaired thereby.
(b) In selling the Class C shares of the Fund, the Distributor shall
use its best efforts in all respects duly to conform with the requirements of
all Federal and state laws relating to the sale of such securities. Neither
the Distributor nor any selected dealer, as defined in Section 7 hereof, nor
any other person is authorized by the Fund to give any information or to make
any representations, other than those contained in the registration statement
or related prospectus and statement of additional information and any sales
literature specifically approved by the Fund.
(c) The Distributor shall adopt and follow procedures, as approved by
the officers of the Fund, for the confirmation of sales to investors and
selected dealers, the collection of amounts payable by investors and selected
dealers on such sales, and the cancellation of unsettled transactions, as may
be necessary to comply with the requirements of the National Association
8
<PAGE> 9
of Securities Dealers, Inc. (the "NASD"), as such requirements may from time to
time exist.
Section 7. Selected Dealer Agreements.
(a) The Distributor shall have the right to enter into selected
dealer agreements with securities dealers of its choice ("selected dealers")
for the sale of Class C shares; provided, that the Fund shall approve the forms
of agreements with dealers. Class C shares sold to selected dealers shall be
for resale by such dealers only at net asset value determined as set forth in
Section 3(c) hereof. The form of agreement with selected dealers to be used
during the continuous offering of the shares is attached hereto as Exhibit A.
(b) Within the United States, the Distributor shall offer and sell
Class C shares only to such selected dealers that are members in good standing
of the NASD.
Section 8. Payment of Expenses.
(a) The Fund shall bear all costs and expenses of the Fund, including
fees and disbursements of its counsel and auditors, in connection with the
preparation and filing of any required registration statements and/or
prospectuses and statements of additional information under the Investment
Company Act, the Securities Act, and all amendments and supplements thereto,
and preparing and mailing annual and interim reports and proxy materials to
Class C shareholders (including but not limited to the expense of setting in
type any such registration statements,
9
<PAGE> 10
prospectuses, statements of additional information, annual or interim reports
or proxy materials).
(b) The Distributor shall be responsible for any payments made to
selected dealers as reimbursement for their expenses associated with payments
of sales commissions to financial consultants. In addition, after the
prospectuses, statements of additional information and annual and interim
reports have been prepared and set in type, the Distributor shall bear the
costs and expenses of printing and distributing any copies thereof which are to
be used in connection with the offering of Class C shares to selected dealers
or investors pursuant to this Agreement. The Distributor shall bear the costs
and expenses of preparing, printing and distributing any other literature used
by the Distributor or furnished by it for use by selected dealers in connection
with the offering of the Class C shares for sale to the public and any expenses
of advertising incurred by the Distributor in connection with such offering.
It is understood and agreed that so long as the Fund's Class C Shares
Distribution Plan pursuant to Rule 12b-1 under the Investment Company Act
remains in effect, any expenses incurred by the Distributor hereunder may be
paid from amounts recovered by it from the Fund under such Plan.
(c) The Fund shall bear the cost and expenses of qualification of the
Class C shares for sale pursuant to this Agreement and, if necessary or
advisable in connection therewith, of quali-
10
<PAGE> 11
fying the Fund as a broker or dealer in such states of the United States or
other jurisdictions as shall be selected by the Fund and the Distributor
pursuant to Section 5(c) hereof and the cost and expenses payable to each such
state for continuing qualification therein until the Fund decides to
discontinue such qualification pursuant to Section 5(c) hereof.
Section 9. Indemnification.
(a) The Fund shall indemnify and hold harmless the Distributor and
each person, if any, who controls the Distributor against any loss, liability,
claim, damage or expense (including the reasonable cost of investigating or
defending any alleged loss, liability, claim, damage or expense and reasonable
counsel fees incurred in connection therewith), as incurred, arising by reason
of any person acquiring any Class C shares, which may be based upon the
Securities Act, or on any other statute or at common law, on the ground that
the registration statement or related prospectus and statement of additional
information, as from time to time amended and supplemented, or an annual or
interim report to Class C shareholders of the Fund, includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary in order to make the statements therein not
misleading, unless such statement or omission was made in reliance upon, and
in conformity with, information furnished to the Fund in connection therewith
by or on behalf of the Distributor; provided, however, that in no case (i)
11
<PAGE> 12
is the indemnity of the Fund in favor of the Distributor and any such
controlling persons to be deemed to protect such Distributor or any such
controlling persons thereof against any liability to the Fund or its security
holders to which the Distributor or any such controlling persons would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of their duties or by reason of the reckless
disregard of their obligations and duties under this Agreement; or (ii) is the
Fund to be liable under its indemnity agreement contained in this paragraph
with respect to any claim made against the Distributor or any such controlling
persons, unless the Distributor or such controlling persons, as the case may
be, shall have notified the Fund in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
claim shall have been served upon the Distributor or such controlling persons
(or after the Distributor or such controlling persons shall have received
notice of such service on any designated agent), but failure to notify the Fund
of any such claim shall not relieve it from any liability which it may have to
the person against whom such action is brought otherwise than on account of its
indemnity agreement contained in this paragraph. The Fund will be entitled to
participate at its own expense in the defense or, if it so elects, to assume
the defense of any suit brought to enforce any such liability, but if the Fund
elects to assume the defense, such defense shall be
12
<PAGE> 13
conducted by counsel chosen by it and satisfactory to the Distributor or such
controlling person or persons, defendant or defendants in the suit. In the
event the Fund elects to assume the defense of any such suit and retain such
counsel, the Distributor or such controlling person or persons, defendant or
defendants in the suit shall bear the fees and expenses, as incurred, of any
additional counsel retained by them, but in case the Fund does not elect to
assume the defense of any such suit, it will reimburse the Distributor or such
controlling person or persons, defendant or defendants in the suit, for the
reasonable fees and expenses, as incurred, of any counsel retained by them.
The Fund shall promptly notify the Distributor of the commencement of any
litigation or proceedings against it or any of its officers or Directors in
connection with the issuance or sale of any of the Class C shares.
(b) The Distributor shall indemnify and hold harmless the Fund and
each of its Directors and officers and each person, if any, who controls the
Fund against any loss, liability, claim, damage or expense, as incurred,
described in the foregoing indemnity contained in subsection (a) of this
Section, but only with respect to statements or omissions made in reliance
upon, and in conformity with, information furnished to the Fund in writing by
or on behalf of the Distributor for use in connection with the registration
statement or related prospectus and statement of additional information, as
from time to time amended, or the
13
<PAGE> 14
annual or interim reports to shareholders. In case any action shall be brought
against the Fund or any person so indemnified, in respect of which indemnity
may be sought against the Distributor, the Distributor shall have the rights
and duties given to the Fund, and the Fund and each person so indemnified shall
have the rights and duties given to the Distributor by the provisions of
subsection (a) of this Section 9.
Section 10. Merrill Lynch Mutual Fund Adviser Program. In connection
with the Merrill Lynch Mutual Fund Adviser Program, the Distributor and its
affiliate, Merrill Lynch, Pierce, Fenner & Smith Incorporated, are authorized
to offer and sell shares of the Fund, as agent for the Fund, to participants in
such program. The terms of this Agreement shall apply to such sales, including
the terms as to the offering price of shares, the proceeds to be paid to the
Fund, the duties of the Distributor, the payment of expenses and
indemnification obligations of the Fund and the Distributor.
Section 11. Duration and Termination of this Agreement.
This Agreement shall become effective as of the date first above
written and shall remain in force until October __, 1995 and thereafter, but
only for so long as such continuance is specifically approved at least annually
by (i) the Directors or by the vote of a majority of the outstanding voting
securities of the Fund and (ii) by the vote of a majority of those Directors
who are not parties to this Agreement or interested persons of
14
<PAGE> 15
any such party cast in person at a meeting called for the purpose of voting on
such approval.
This Agreement may be terminated at any time, without the payment of
any penalty, by the Directors or by vote of a majority of the outstanding
voting securities of the Fund, or by the Distributor, on sixty days' written
notice to the other party. This Agreement shall automatically terminate in the
event of its assignment.
The terms "vote of a majority of the outstanding voting securities",
"assignment", "affiliated person" and "interested person", when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act.
Section 12. Amendments of this Agreement. This Agreement may be
amended by the parties only if such amendment is specifically approved by (i)
the Directors or by the vote of a majority of outstanding voting securities of
the Fund and (ii) by the vote of a majority of those Directors of the Fund who
are not parties to this Agreement or interested persons of any such party cast
in person at a meeting called for the purpose of voting on such approval.
Section 13. Governing Law. The provisions of this Agreement shall be
construed and interpreted in accordance with the laws of the State of New York
as at the time in effect and the applicable provisions of the Investment
Company Act. To the extent that the applicable law of the State of New York,
or any
15
<PAGE> 16
of the provisions herein, conflict with the applicable provisions of the
Investment Company Act, the latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
MERRILL LYNCH PACIFIC FUND, INC.
By
------------------------------------
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By
------------------------------------
Title:
16
<PAGE> 17
EXHIBIT A
MERRILL LYNCH PACIFIC FUND, INC.
CLASS C SHARES OF COMMON STOCK
SELECTED DEALER AGREEMENT
Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor") has an
agreement with Merrill Lynch Pacific Fund, Inc., a Maryland corporation (the
"Fund"), pursuant to which it acts as the distributor for the sale of Class C
shares of common stock, par value $0.10 per share (herein referred to as the
"Class C shares"), of the Fund and as such has the right to distribute Class C
shares of the Fund for resale. The Fund is an open-end investment company
registered under the Investment Company Act of 1940, as amended, and its Class
C shares being offered to the public are registered under the Securities Act of
1933, as amended. You have received a copy of the Class C Shares Distribution
Agreement (the "Distribution Agreement") between ourself and the Fund and
reference is made herein to certain provisions of such Distribution Agreement.
The terms "Prospectus" and "Statement of Additional Information" as used herein
refer to the prospectus and statement of additional information, respectively,
on file with the Securities and Exchange Commission which is part of the most
recent effective registration statement pursuant to the Securities Act of 1933,
as amended. We offer to sell to you, as a member of the Selected Dealers
Group, Class C shares of the Fund upon the following terms and conditions:
1. In all sales of these Class C shares to the public, you shall act
as dealer for your own account and in no transaction shall you have any
authority to act as agent for the Fund, for us or for any other member of the
Selected Dealers Group, except in connection with the Merrill Lynch Mutual Fund
Adviser program and such other special programs as we from time to time agree,
in which case you shall have authority to offer and sell shares, as agent for
the Fund, to participants in such program.
2. Orders received from you will be accepted through us only at the
public offering price applicable to each order, as set forth in the current
Prospectus and Statement of Additional Information of the Fund. The procedure
relating to the handling of orders shall be subject to Section 4 hereof and
instructions which we or the Fund shall forward from time to time to you. All
orders are subject to acceptance or rejection by the Distributor or the Fund in
the sole discretion of either. The minimum ini-
1
<PAGE> 18
tial and subsequent purchase requirements are as set forth in the current
Prospectus and Statement of Additional Information of the Fund.
3. You shall not place orders for any of the Class C shares unless
you have already received purchase orders for such Class C shares at the
applicable public offering prices and subject to the terms hereof and of the
Distribution Agreement. You agree that you will not offer or sell any of the
Class C shares except under circumstances that will result in compliance with
the applicable Federal and state securities laws and that in connection with
sales and offers to sell Class C shares you will furnish to each person to whom
any such sale or offer is made a copy of the Prospectus and, if requested, the
Statement of Additional Information (as then amended or supplemented) and will
not furnish to any person any information relating to the Class C shares of the
Fund which is inconsistent in any respect with the information contained in the
Prospectus and Statement of Additional Information (as then amended or
supplemented) or cause any advertisement to be published in any newspaper or
posted in any public place without our consent and the consent of the Fund.
4. As a selected dealer, you are hereby authorized (i) to place
orders directly with the Fund for Class C shares of the Fund to be resold by us
to you subject to the applicable terms and conditions governing the placement
of orders by us set forth in Section 3 of the Distribution Agreement and (ii)
to tender Class C shares directly to the Fund or its agent for redemption
subject to the applicable terms and conditions set forth in Section 4 of the
Distribution Agreement.
5. You shall not withhold placing orders received from your customers
so as to profit yourself as a result of such withholding: e.g., by a change in
the "net asset value" from that used in determining the offering price to your
customers.
6. No person is authorized to make any representations concerning
Class C shares of the Fund except those contained in the current Prospectus and
Statement of Additional Information of the Fund and in such printed information
subsequently issued by us or the Fund as information supplemental to such
Prospectus and Statement of Additional Information. In purchasing Class C
shares through us you shall rely solely on the representations contained in the
Prospectus and Statement of Additional Information and supplemental information
above mentioned. Any printed information which we furnish you other than the
Fund's Prospectus, Statement of Additional Information, periodic reports and
proxy solicitation material is our sole responsibility and not the
responsibility of the Fund, and you agree that the Fund shall
2
<PAGE> 19
have no liability or responsibility to you in these respects unless expressly
assumed in connection therewith.
7. You agree to deliver to each of the purchasers making purchases from
you a copy of the then current Prospectus and, if requested, the Statement of
Additional Information at or prior to the time of offering or sale and you
agree thereafter to deliver to such purchasers copies of the annual and interim
reports and proxy solicitation materials of the Fund. You further agree to
endeavor to obtain proxies from such purchasers. Additional copies of the
Prospectus and Statement of Additional Information, annual or interim reports
and proxy solicitation materials of the Fund will be supplied to you in
reasonable quantities upon request.
8. We reserve the right in our discretion, without notice, to suspend
sales or withdraw the offering of Class C shares entirely or to certain persons
or entities in a class or classes specified by us. Each party hereto has the
right to cancel this Agreement upon notice to the other party.
9. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the continuous offering. We
shall be under no liability to you except for lack of good faith and for
obligations expressly assumed by us herein. Nothing contained in this
paragraph is intended to operate as, and the provisions of this paragraph shall
not in any way whatsoever constitute, a waiver by you of compliance with any
provision of the Securities Act of 1933, as amended, or of the rules and
regulations of the Securities and Exchange Commission issued thereunder.
10. You represent that you are a member of the National Association of
Securities Dealers, Inc. and, with respect to any sales in the United States,
we both hereby agree to abide by the Rules of Fair Practice of such
Association.
11. Upon application to us, we will inform you as to the states in
which we believe the Class C shares have been qualified for sale under, or are
exempt from the requirements of, the respective securities laws of such
states, but we assume no responsibility or obligation as to your right to sell
Class C shares in any jurisdiction. We will file with the Department of State
in New York a Further State Notice with respect to the Class C shares, if
necessary.
12. All communications to us should be sent to the address below. Any
notice to you shall be duly given if mailed or telegraphed to you at the
address specified by you below.
3
<PAGE> 20
13. Your first order placed pursuant to this Agreement for the purchase of
Class C shares of the Fund will represent your acceptance of this Agreement.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By
----------------------------------
(Authorized Signature)
Please return one signed copy
of this Agreement to:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
Box 9011
Princeton, New Jersey 08543-9011
Accepted:
Firm Name: Merrill Lynch, Pierce, Fenner & Smith Inc.
------------------------------------------
By:
---------------------------------------------------
Address: 800 Scudders Mill Road
---------------------------------------------
Plainsboro, New Jersey 08536
------------------------------------------------------
Date: , 1994
------------------------------------------------
4
<PAGE> 1
CLASS D SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the ____ day of October 1994 between MERRILL
LYNCH PACIFIC FUND, INC., a Maryland corporation (the "Fund"), and MERRILL
LYNCH FUNDS DISTRIBUTOR, INC., a Delaware corporation (the "Distributor").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the "Investment Company Act"), as an open-end investment
company, and it is affirmatively in the interest of the Fund to offer its
shares for sale continuously; and
WHEREAS, the Distributor is a securities firm engaged in the business
of selling shares of investment companies either directly to purchasers or
through other securities dealers; and
WHEREAS, the Fund and the Distributor wish to enter into an agreement
with each other with respect to the continuous offering of the Class D shares
of common stock in the Fund.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor. The Fund hereby appoints
the Distributor as the principal underwriter and distributor of the Fund to
sell Class D shares of common stock in the Fund (sometimes herein referred to
as "Class D shares") to the
<PAGE> 2
public and hereby agrees during the term of this Agreement to sell Class D
shares of the Fund to the Distributor upon the terms and conditions herein set
forth.
Section 2. Exclusive Nature of Duties. The Distributor shall be the
exclusive representative of the Fund to act as principal underwriter and
distributor, except that:
(a) The Fund may, upon written notice to the Distributor, from time
to time designate other principal underwriters and distributors of Class D
shares with respect to areas other than the United States as to which the
Distributor may have expressly waived in writing its right to act as such. If
such designation is deemed exclusive, the right of the Distributor under this
Agreement to sell Class D shares in the areas so designated shall terminate,
but this Agreement shall remain otherwise in full effect until terminated in
accordance with the other provisions hereof.
(b) The exclusive right granted to the Distributor to purchase Class
D shares from the Fund shall not apply to Class D shares issued in connection
with the merger or consolidation of any other investment company or personal
holding company with the Fund or the acquisition by purchase or otherwise of
all (or substantially all) the assets or the outstanding Class D shares of any
such company by the Fund.
(c) Such exclusive right also shall not apply to Class D shares
issued by the Fund pursuant to reinvestment of dividends or capital gains
distributions.
2
<PAGE> 3
(d) Such exclusive right also shall not apply to Class D shares
issued by the Fund pursuant to any conversion, exchange or reinstatement
privilege afforded redeeming shareholders or to any other Class D shares as
shall be agreed between the Fund and the Distributor from time to time.
Section 3. Purchase of Class D Shares from the Fund.
(a) It is contemplated that the Fund will commence an offering of its
Class D shares, and thereafter the Distributor shall have the right to buy from
the Fund the Class D shares needed, but not more than the Class D shares needed
(except for clerical errors in transmission) to fill unconditional orders for
Class D shares of the Fund placed with the Distributor by eligible investors or
securities dealers. Investors eligible to purchase Class D shares shall be
those persons so identified in the currently effective prospectus and statement
of additional information of the Fund (the "prospectus" and "statement of
additional information", respectively) under the Securities Act of 1933, as
amended (the "Securities Act"), relating to such Class D shares. The price
which the Distributor shall pay for the Class D shares so purchased from the
Fund shall be the net asset value, determined as set forth in Section 3(d)
hereof, used in determining the public offering price on which such orders were
based.
(b) The Class D shares are to be resold by the Distributor to
investors at the public offering price, as set forth in Section 3(c) hereof, or
to securities dealers having agreements
3
<PAGE> 4
with the Distributor upon the terms and conditions set forth in Section 7
hereof.
(c) The public offering price(s) of the Class D shares, i.e., the
price per share at which the Distributor or selected dealers may sell Class D
shares to the public, shall be the public offering price as set forth in the
prospectus and statement of additional information relating to such Class D
shares, but not to exceed the net asset value at which the Distributor is to
purchase the Class D shares, plus a sales charge not to exceed 5.25% of the
public offering price (5.54% of the net amount invested), subject to reductions
for volume purchases. Class D shares may be sold to certain Directors,
officers and employees of the Fund, directors and employees of Merrill Lynch &
Co., Inc. and its subsidiaries, and to certain other persons described in the
prospectus and statement of additional information, without a sales charge or
at a reduced sales charge, upon terms and conditions set forth in the
prospectus and statement of additional information. If the public offering
price does not equal an even cent, the public offering price may be adjusted to
the nearest cent. All payments to the Fund hereunder shall be made in the
manner set forth in Section 3(f).
(d) The net asset value of Class D shares shall be determined by the
Fund or any agent of the Fund in accordance with the method set forth in the
prospectus and statement of additional
4
<PAGE> 5
information of the Fund and guidelines established by the Directors.
(e) The Fund shall have the right to suspend the sale of its Class D
shares at times when redemption is suspended pursuant to the conditions set
forth in Section 4(b) hereof. The Fund shall also have the right to suspend
the sale of its Class D shares if trading on the New York Stock Exchange shall
have been suspended, if a banking moratorium shall have been declared by
Federal or New York authorities, or if there shall have been some other event,
which, in the judgment of the Fund, makes it impracticable or inadvisable to
sell the Class D shares.
(f) The Fund, or any agent of the Fund designated in writing by the
Fund, shall be promptly advised of all purchase orders for Class D shares
received by the Distributor. Any order may be rejected by the Fund; provided,
however, that the Fund will not arbitrarily or without reasonable cause refuse
to accept or confirm orders for the purchase of Class D shares. The Fund (or
its agent) will confirm orders upon their receipt, will make appropriate book
entries and, upon receipt by the Fund (or its agent) of payment therefor, will
deliver deposit receipts or certificates for such Class D shares pursuant to
the instructions of the Distributor. Payment shall be made to the Fund in New
York Clearing House funds. The Distributor agrees to cause such payment and
such instructions to be delivered promptly to the Fund (or its agent).
5
<PAGE> 6
Section 4. Repurchase or Redemption of Class D Shares by the Fund.
(a) Any of the outstanding Class D shares may be tendered for
redemption at any time, and the Fund agrees to repurchase or redeem the Class D
shares so tendered in accordance with its obligations as set forth in Article
VII of its Articles of Incorporation, as amended from time to time, and in
accordance with the applicable provisions set forth in the prospectus and
statement of additional information. The price to be paid to redeem or
repurchase the Class D shares shall be equal to the net asset value calculated
in accordance with the provisions of Section 3(d) hereof, less any contingent
deferred sales charge ("CDSC"), redemption fee or other charge(s), if any, set
forth in the prospectus and statement of additional information of the Fund.
All payments by the Fund hereunder shall be made in the manner set forth below.
The redemption or repurchase by the Fund of any of the Class D shares purchased
by or through the Distributor will not affect the sales charge secured by the
Distributor or any selected dealer in the course of the original sale, except
that if any Class D shares are tendered for redemption or repurchase within
seven business days after the date of the confirmation of the original
purchase, the right to the sales charge shall be forfeited by the Distributor
and the selected dealer which sold such Class D shares.
The Fund shall pay the total amount of the redemption price as defined
in the above paragraph pursuant to the instructions of
6
<PAGE> 7
the Distributor in New York Clearing House funds on or before the seventh
business day subsequent to its having received the notice of redemption in
proper form. The proceeds of any redemption of shares shall be paid by the
Fund as follows: (i) any applicable CDSC shall be paid to the Distributor, and
(ii) the balance shall be paid to or for the account of the shareholder, in
each case in accordance with the applicable provisions of the prospectus and
statement of additional information.
(b) Redemption of Class D shares or payment may be suspended at times
when the New York Stock Exchange is closed, when trading on said Exchange is
suspended, when trading on said Exchange is restricted, when an emergency
exists as a result of which disposal by the Fund of securities owned by it is
not reasonably practicable or it is not reasonably practicable for the Fund
fairly to determine the value of its net assets, or during any other period
when the Securities and Exchange Commission, by order, so permits.
Section 5. Duties of the Fund.
(a) The Fund shall furnish to the Distributor copies of all
information, financial statements and other papers which the Distributor may
reasonably request for use in connection with the distribution of Class D
shares of the Fund, and this shall include, upon request by the Distributor,
one certified copy of all financial statements prepared for the Fund by
independent public accountants. The Fund shall make available to the
Distributor
7
<PAGE> 8
such number of copies of the prospectus and statement of additional information
as the Distributor shall reasonably request.
(b) The Fund shall take, from time to time, but subject to any
necessary approval of the Class D shareholders, all necessary action to fix the
number of authorized Class D shares and such steps as may be necessary to
register the same under the Securities Act, to the end that there will be
available for sale such number of Class D shares as the Distributor may
reasonably be expected to sell.
(c) The Fund shall use its best efforts to qualify and maintain the
qualification of an appropriate number of its Class D shares for sale under the
securities laws of such states as the Distributor and the Fund may approve.
Any such qualification may be withheld, terminated or withdrawn by the Fund at
any time in its discretion. As provided in Section 8(c) hereof, the expense of
qualification and maintenance of qualification shall be borne by the Fund. The
Distributor shall furnish such information and other material relating to its
affairs and activities as may be required by the Fund in connection with such
qualification.
(d) The Fund will furnish, in reasonable quantities upon request by
the Distributor, copies of annual and interim reports of the Fund.
Section 6. Duties of the Distributor.
(a) The Distributor shall devote reasonable time and effort to effect
sales of Class D shares of the Fund but shall not be obligated to sell any
specific number of Class D shares. The
8
<PAGE> 9
services of the Distributor to the Fund hereunder are not to be deemed
exclusive and nothing herein contained shall prevent the Distributor from
entering into like arrangements with other investment companies so long as the
performance of its obligations hereunder is not impaired thereby.
(b) In selling the Class D shares of the Fund, the Distributor shall
use its best efforts in all respects duly to conform with the requirements of
all Federal and state laws relating to the sale of such securities. Neither
the Distributor nor any selected dealer, as defined in Section 7 hereof, nor
any other person is authorized by the Fund to give any information or to make
any representations, other than those contained in the registration statement
or related prospectus and statement of additional information and any sales
literature specifically approved by the Fund.
(c) The Distributor shall adopt and follow procedures, as approved by
the officers of the Fund, for the confirmation of sales to investors and
selected dealers, the collection of amounts payable by investors and selected
dealers on such sales, and the cancellation of unsettled transactions, as may
be necessary to comply with the requirements of the National Association of
Securities Dealers, Inc. (the "NASD"), as such requirements may from time to
time exist.
Section 7. Selected Dealers Agreements.
(a) The Distributor shall have the right to enter into selected
dealers agreements with securities dealers of its choice
9
<PAGE> 10
("selected dealers") for the sale of Class D shares and fix therein the portion
of the sales charge which may be allocated to the selected dealers; provided
that the Fund shall approve the forms of agreements with dealers and the dealer
compensation set forth therein. Class D shares sold to selected dealers shall
be for resale by such dealers only at the public offering price(s) set forth in
the prospectus and statement of additional information. The form of agreement
with selected dealers to be used during the continuous offering of the Class D
shares is attached hereto as Exhibit A.
(b) Within the United States, the Distributor shall offer and sell
Class D shares only to such selected dealers as are members in good standing of
the NASD.
Section 8. Payment of Expenses.
(a) The Fund shall bear all costs and expenses of the Fund, including
fees and disbursements of its counsel and auditors, in connection with the
preparation and filing of any required registration statements and/or
prospectuses and statements of additional information under the Investment
Company Act, the Securities Act, and all amendments and supplements thereto,
and preparing and mailing annual and interim reports and proxy materials to
Class D shareholders (including but not limited to the expense of setting in
type any such registration statements, prospectuses, statements of additional
information, annual or interim reports or proxy materials).
10
<PAGE> 11
(b) The Distributor shall be responsible for any payments made to
selected dealers as reimbursement for their expenses associated with payments
of sales commissions to financial consultants. In addition, after the
prospectuses, statements of additional information and annual and interim
reports have been prepared and set in type, the Distributor shall bear the
costs and expenses of printing and distributing any copies thereof which are to
be used in connection with the offering of Class D shares to selected dealers
or investors pursuant to this Agreement. The Distributor shall bear the costs
and expenses of preparing, printing and distributing any other literature used
by the Distributor or furnished by it for use by selected dealers in connection
with the offering of the Class D shares for sale to the public and any expenses
of advertising incurred by the Distributor in connection with such offering.
It is understood and agreed that so long as the Fund's Class D Shares
Distribution Plan pursuant to Rule 12b-1 under the Investment Company Act
remains in effect, any expenses incurred by the Distributor hereunder in
connection with account maintenance activities may be paid from amounts
recovered by it from the Fund under such plan.
(c) The Fund shall bear the cost and expenses of qualification of the
Class D shares for sale pursuant to this Agreement and, if necessary or
advisable in connection therewith, of qualifying the Fund as a broker or dealer
in such states of the United States or other jurisdictions as shall be selected
by the Fund
11
<PAGE> 12
and the Distributor pursuant to Section 5(c) hereof and the cost and expenses
payable to each such state for continuing qualification therein until the Fund
decides to discontinue such qualification pursuant to Section 5(c) hereof.
Section 9. Indemnification.
(a) The Fund shall indemnify and hold harmless the Distributor and
each person, if any, who controls the Distributor against any loss, liability,
claim, damage or expense (including the reasonable cost of investigating or
defending any alleged loss, liability, claim, damage or expense and reasonable
counsel fees incurred in connection therewith), as incurred, arising by reason
of any person acquiring any Class D shares, which may be based upon the
Securities Act, or on any other statute or at common law, on the ground that
the registration statement or related prospectus and statement of additional
information, as from time to time amended and supplemented, or an annual or
interim report to shareholders of the Fund, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein
or necessary in order to make the statements therein not misleading, unless
such statement or omission was made in reliance upon, and in conformity with,
information furnished to the Fund in connection therewith by or on behalf of
the Distributor; provided, however, that in no case (i) is the indemnity of the
Fund in favor of the Distributor and any such controlling persons to be deemed
to protect such Distributor or any such controlling persons thereof against any
liability to the
12
<PAGE> 13
Fund or its security holders to which the Distributor or any such controlling
persons would otherwise be subject by reason of willful misfeasance, bad faith
or gross negligence in the performance of their duties or by reason of the
reckless disregard of their obligations and duties under this Agreement; or
(ii) is the Fund to be liable under its indemnity agreement contained in this
paragraph with respect to any claim made against the Distributor or any such
controlling persons, unless the Distributor or such controlling persons, as the
case may be, shall have notified the Fund in writing within a reasonable time
after the summons or other first legal process giving information of the nature
of the claim shall have been served upon the Distributor or such controlling
persons (or after the Distributor or such controlling persons shall have
received notice of such service on any designated agent), but failure to notify
the Fund of any such claim shall not relieve it from any liability which it may
have to the person against whom such action is brought otherwise than on
account of its indemnity agreement contained in this paragraph. The Fund will
be entitled to participate at its own expense in the defense or, if it so
elects, to assume the defense of any suit brought to enforce any such
liability, but if the Fund elects to assume the defense, such defense shall be
conducted by counsel chosen by it and satisfactory to the Distributor or such
controlling person or persons, defendant or defendants in the suit. In the
event the Fund elects to assume the defense of any such suit and retain such
counsel, the
13
<PAGE> 14
Distributor or such controlling person or persons, defendant or defendants in
the suit shall bear the fees and expenses of any additional counsel retained by
them, but in case the Fund does not elect to assume the defense of any such
suit, it will reimburse the Distributor or such controlling person or persons,
defendant or defendants in the suit, for the reasonable fees and expenses of
any counsel retained by them. The Fund shall promptly notify the Distributor
of the commencement of any litigation or proceedings against it or any of its
officers or Directors in connection with the issuance or sale of any of the
Class D shares.
(b) The Distributor shall indemnify and hold harmless the Fund and
each of its Directors and officers and each person, if any, who controls the
Fund against any loss, liability, claim, damage or expense described in the
foregoing indemnity contained in subsection (a) of this Section, but only with
respect to statements or omissions made in reliance upon, and in conformity
with, information furnished to the Fund in writing by or on behalf of the
Distributor for use in connection with the registration statement or related
prospectus and statement of additional information, as from time to time
amended, or the annual or interim reports to Class D shareholders. In case any
action shall be brought against the Fund or any person so indemnified, in
respect of which indemnity may be sought against the Distributor, the
Distributor shall have the rights and duties given to the Fund, and the Fund
and each person so indemnified
14
<PAGE> 15
shall have the rights and duties given to the Distributor by the provisions of
subsection (a) of this Section 9.
Section 10. Merrill Lynch Mutual Fund Adviser Program. In connection
with the Merrill Lynch Mutual Fund Adviser Program, the Distributor and its
affiliate, Merrill Lynch, Pierce, Fenner & Smith Incorporated, are authorized
to offer and sell shares of the Fund, as agent for the Fund, to participants in
such program. The terms of this Agreement shall apply to such shares,
including terms as to the offering price of shares, the proceeds to be paid to
the Fund, the duties of the Distributor, the payment of expenses and
indemnification obligations of the Fund and the Distributor.
Section 11. Duration and Termination of this Agreement. This
Agreement shall become effective as of the date first above written and shall
remain in force until October __, 1995 and thereafter, but only for so long as
such continuance is specifically approved at least annually by (i) the
Directors or by the vote of a majority of the outstanding voting securities of
the Fund and (ii) by the vote of a majority of those Directors who are not
parties to this Agreement or interested persons of any such party cast in
person at a meeting called for the purpose of voting on such approval.
This Agreement may be terminated at any time, without the payment of
any penalty, by the Directors or by vote of a majority of the outstanding
voting securities of the Fund, or by the Distributor, on sixty days' written
notice to the other party. This
15
<PAGE> 16
Agreement shall automatically terminate in the event of its assignment.
The terms "vote of a majority of the outstanding voting securities",
"assignment", "affiliated person" and "interested person", when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act.
Section 12. Amendments of this Agreement. This Agreement may be
amended by the parties only if such amendment is specifically approved by (i)
the Directors or by the vote of a majority of outstanding voting securities of
the Fund and (ii) by the vote of a majority of those Directors of the Fund who
are not parties to this Agreement or interested persons of any such party cast
in person at a meeting called for the purpose of voting on such approval.
Section 13. Governing Law. The provisions of this Agreement shall be
construed and interpreted in accordance with the laws of the State of New York
as at the time in effect and the applicable provisions of the Investment
Company Act. To the extent that the applicable law of the State of New York,
or any of the provisions herein, conflict with the applicable provisions of the
Investment Company Act, the latter shall control.
16
<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
MERRILL LYNCH PACIFIC FUND, INC.
By
-----------------------------------
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By
-----------------------------------
Title:
17
<PAGE> 18
EXHIBIT A
MERRILL LYNCH PACIFIC FUND, INC.
CLASS D SHARES OF COMMON STOCK
SELECTED DEALERS AGREEMENT
Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor") has an
agreement with Merrill Lynch Pacific Fund, Inc., a Maryland corporation (the
"Fund"), pursuant to which it acts as the distributor for the sale of Class D
shares of common stock, par value $0.10 per share (herein referred to as "Class
D shares"), of the Fund and as such has the right to distribute Class D shares
of the Fund for resale. The Fund is an open-end investment company registered
under the Investment Company Act of 1940, as amended, and its Class D shares
being offered to the public are registered under the Securities Act of 1933, as
amended. You have received a copy of the Class D Shares Distribution Agreement
(the "Distribution Agreement") between ourself and the Fund and reference is
made herein to certain provisions of such Distribution Agreement. The terms
"Prospectus" and "Statement of Additional Information" used herein refer to the
prospectus and statement of additional information, respectively, on file with
the Securities and Exchange Commission which is part of the most recent
effective registration statement pursuant to the Securities Act of 1933, as
amended. We offer to sell to you, as a member of the Selected Dealers Group,
Class D shares of the Fund upon the following terms and conditions:
1. In all sales of these Class D shares to the public, you shall act
as dealer for your own account and in no transaction shall you have any
authority to act as agent for the Fund, for us or for any other member of the
Selected Dealers Group, except in connection with the Merrill Lynch Mutual Fund
Adviser program and such other special programs as we from time to time agree,
in which case you shall have authority to offer and sell shares, as agent for
the Fund, to participants in such program.
2. Orders received from you will be accepted through us only at the
public offering price applicable to each order, as set forth in the current
Prospectus and Statement of Additional Information of the Fund. The procedure
relating to the handling of orders shall be subject to Section 5 hereof and
instructions which we or the Fund shall forward from time to time to you. All
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<PAGE> 19
orders are subject to acceptance or rejection by the Distributor or the Fund in
the sole discretion of either. The minimum initial and subsequent purchase
requirements are as set forth in the current Prospectus and Statement of
Additional Information of the Fund.
3. The sales charges for sales to the public, computed as
percentages of the public offering price and the amount invested, and the
related discount to Selected Dealers are as follows:
<TABLE>
<CAPTION>
Discount to
Selected
Sales Charge Dealers as
Sales Charge as Percentage* Percentage
as Percentage of the Net of the
of the Amount Offering
Amount of Purchase Offering Price Invested Price
------------------ -------------- ---------- -----------
<S> <C> <C> <C>
Less than $25,000.......... 5.25% 5.54% 5.00%
$25,000 but less
than $50,000.............. 4.75% 4.99% 4.50%
$50,000 but less
than $100,000............. 4.00% 4.17% 3.75%
$100,000 but less
than $250,000............. 3.00% 3.09% 2.75%
$250,000 but less
than $1,000,000........... 2.00% 2.04% 1.80%
$1,000,000 and over**...... 0.00% 0.00% 0.00%
</TABLE>
- -----------------------
* Rounded to the nearest one-hundredth percent.
** Initial sales charges will be waived for certain classes of offerees as set
forth in the current Prospectus and Statement of Additional Information of the
Fund. Such purchases may be subject to a contingent deferred sales charge as
set forth in the current Prospectus and Statement of Additional Information.
2
<PAGE> 20
The term "purchase" refers to a single purchase by an individual, or to
concurrent purchases, which in the aggregate are at least equal to the
prescribed amounts, by an individual, his spouse and their children under the
age of 21 years purchasing Class D shares for his or their own account and to
single purchases by a trustee or other fiduciary purchasing Class D shares for
a single trust estate or single fiduciary account although more than one
beneficiary is involved. The term "purchase" also includes purchases by any
"company" as that term is defined in the Investment Company Act of 1940, as
amended, but does not include purchases by any such company which has not been
in existence for at least six months or which has no purpose other than the
purchase of Class D shares of the Fund or Class D shares of other registered
investment companies at a discount; provided, however, that it shall not
include purchases by any group of individuals whose sole organizational nexus
is that the participants therein are credit cardholders of a company,
policyholders of an insurance company, customers of either a bank or
broker-dealer or clients of an investment adviser.
The reduced sales charges are applicable through a right of accumulation
under which eligible investors are permitted to purchase Class D shares of the
Fund at the offering price applicable to the total of (a) the public offering
price of the shares then being purchased plus (b) an amount equal to the then
current net asset value or cost, whichever is higher, of the purchaser's
combined holdings of Class A, Class B, Class C and Class D shares of the Fund
and of any other investment company with an initial sales charge for which the
Distributor acts as the distributor. For any such right of accumulation to be
made available, the Distributor must be provided at the time of purchase, by
the purchaser or you, with sufficient information to permit confirmation of
qualification, and acceptance of the purchase order is subject to such
confirmation.
The reduced sales charges are applicable to purchases aggregating
$10,000 or more of Class A shares or of Class D shares of any other investment
company with an initial sales charge for which the Distributor acts as the
distributor made through you within a thirteen-month period starting with the
first purchase pursuant to a Letter of Intention in the form provided in the
Prospectus. A purchase not originally made pursuant to a Letter of Intention
may be included under a subsequent letter executed within 90 days of such
purchase if the Distributor is informed in writing of this intent within such
90-day period. If the intended amount of shares is not purchased within the
thirteen-month period, an appropriate price adjustment will be made pursuant to
the terms of the Letter of Intention.
You agree to advise us promptly at our request as to amounts of any
sales made by you to the public qualifying for reduced sales charges. Further
information as to the reduced sales charges pursuant to the
3
<PAGE> 21
right of accumulation or a Letter of Intention is set forth in the Prospectus
and Statement of Additional Information.
4. You shall not place orders for any of the Class D shares unless
you have already received purchase orders for such Class D shares at the
applicable public offering prices and subject to the terms hereof and of the
Distribution Agreement. You agree that you will not offer or sell any of the
Class D shares except under circumstances that will result in compliance with
the applicable Federal and state securities laws and that in connection with
sales and offers to sell Class D shares you will furnish to each person to whom
any such sale or offer is made a copy of the Prospectus and, if requested, the
Statement of Additional Information (as then amended or supplemented) and will
not furnish to any person any information relating to the Class D shares of the
Fund which is inconsistent in any respect with the information contained in the
Prospectus and Statement of Additional Information (as then amended or
supplemented) or cause any advertisement to be published in any newspaper or
posted in any public place without our consent and the consent of the Fund.
5. As a selected dealer, you are hereby authorized (i) to place
orders directly with the Fund for Class D shares of the Fund to be resold by us
to you subject to the applicable terms and conditions governing the placement
of orders by us set forth in Section 3 of the Distribution Agreement and
subject to the compensation provisions of Section 3 hereof and (ii) to tender
Class D shares directly to the Fund or its agent for redemption subject to the
applicable terms and conditions set forth in Section 4 of the Distribution
Agreement.
6. You shall not withhold placing orders received from your
customers so as to profit yourself as a result of such withholding: e.g., by a
change in the "net asset value" from that used in determining the offering
price to your customers.
7. If any Class D shares sold to you under the terms of this
Agreement are repurchased by the Fund or by us for the account of the Fund or
are tendered for redemption within seven business days after the date of the
confirmation of the original purchase by you, it is agreed that you shall
forfeit your right to, and refund to us, any discount received by you on such
Class D shares.
8. No person is authorized to make any representations concerning Class
D shares of the Fund except those contained in the current Prospectus and
Statement of Additional Information of the Fund and in such printed information
subsequently issued by us or the Fund as information supplemental to such
Prospectus and Statement of Additional Information. In purchasing Class D
shares through us you shall rely solely on the representations contained in the
Prospectus and Statement of Additional Information and supplemental information
above mentioned. Any printed information which we furnish you other than the
Fund's
4
<PAGE> 22
Prospectus, Statement of Additional Information, periodic reports and proxy
solicitation material is our sole responsibility and not the responsibility of
the Fund, and you agree that the Fund shall have no liability or responsibility
to you in these respects unless expressly assumed in connection therewith.
9. You agree to deliver to each of the purchasers making purchases
from you a copy of the then current Prospectus and, if requested, the Statement
of Additional Information at or prior to the time of offering or sale and you
agree thereafter to deliver to such purchasers copies of the annual and interim
reports and proxy solicitation materials of the Fund. You further agree to
endeavor to obtain proxies from such purchasers. Additional copies of the
Prospectus and Statement of Additional Information, annual or interim reports
and proxy solicitation materials of the Fund will be supplied to you in
reasonable quantities upon request.
10. We reserve the right in our discretion, without notice, to suspend
sales or withdraw the offering of Class D shares entirely or to certain persons
or entities in a class or classes specified by us. Each party hereto has the
right to cancel this agreement upon notice to the other party.
11. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the continuous offering. We
shall be under no liability to you except for lack of good faith and for
obligations expressly assumed by us herein. Nothing contained in this
paragraph is intended to operate as, and the provisions of this paragraph shall
not in any way whatsoever constitute, a waiver by you of compliance with any
provision of the Securities Act of 1933, as amended, or of the rules and
regulations of the Securities and Exchange Commission issued thereunder.
12. You represent that you are a member of the National Association of
Securities Dealers, Inc. and, with respect to any sales in the United States,
we both hereby agree to abide by the Rules of Fair Practice of such
Association.
13. Upon application to us, we will inform you as to the states in
which we believe the Class D shares have been qualified for sale under, or are
exempt from the requirements of, the respective securities laws of such states,
but we assume no responsibility or obligation as to your right to sell Class D
shares in any jurisdiction. We will file with the Department of State in New
York a Further State Notice with respect to the Class D shares, if necessary.
14. All communications to us should be sent to the address below. Any
notice to you shall be duly given if mailed or telegraphed to you at the
address specified by you below.
5
<PAGE> 23
15. Your first order placed pursuant to this Agreement for the purchase
of Class D shares of the Fund will represent your acceptance of this Agreement.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By
----------------------------------
(Authorized Signature)
Please return one signed copy
of this agreement to:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
Box 9011
Princeton, New Jersey 08543-9011
Accepted:
Firm Name: Merrill Lynch, Pierce, Fenner & Smith Inc.
--------------------------------------------
By:
---------------------------------------------------
Address: 800 Scudders Mill Road
----------------------------------------------
Plainsboro, New Jersey 08536
------------------------------------------------------
Date: , 1994
-------------------------------------------------
6
<PAGE> 1
EXHIBIT 11
INDEPENDENT AUDITORS' CONSENT
MERRILL LYNCH PACIFIC FUND, INC.:
We consent to the use in Post-Effective Amendment No. 25 to Registration
Statement No. 2-56978 of our report dated February 4, 1994 appearing in the
Statement of Additional Information, which is a part of such Registration
Statement, and to the reference to us under the caption "Financial Highlights"
appearing in the Prospectus, which also is a part of such Registration
Statement.
DELOITTE & TOUCHE LLP
Princeton, New Jersey
October 12, 1994
<PAGE> 1
CLASS C DISTRIBUTION PLAN
OF
MERRILL LYNCH PACIFIC FUND, INC.
PURSUANT TO RULE 12b-1
DISTRIBUTION PLAN made as of the ______ day of October 1994, by and
between Merrill Lynch Pacific Fund, Inc., a Maryland corporation (the "Fund"),
and Merrill Lynch Funds Distributor, Inc., a Delaware corporation ("MLFD").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Fund is engaged in business as an open-end investment
company registered under the Investment Company Act of 1940, as amended (the
"Investment Company Act"); and
WHEREAS, MLFD is a securities firm engaged in the business of selling
shares of investment companies either directly to purchasers or through other
securities dealers; and
WHEREAS, the Fund proposes to enter into a Class C Shares
Distribution Agreement with MLFD, pursuant to which MLFD will act as the
exclusive distributor and representative of the Fund in the offer and sale of
Class C shares of common stock, par value $0.10 per share (the "Class C
shares"), of the Fund to the public; and
WHEREAS, the Fund desires to adopt this Class C Distribution Plan
(the "Plan") pursuant to Rule 12b-1 under the Investment Company Act, pursuant
to which the Fund will pay an account maintenance fee and a distribution fee to
MLFD with respect to the Fund's Class C shares; and
WHEREAS, the Directors of the Fund have determined that there is a
reasonable likelihood that adoption of the Plan will benefit the Fund and its
shareholders.
NOW, THEREFORE, the Fund hereby adopts, and MLFD hereby agrees to the
terms of, the Plan in accordance with Rule 12b-1 under the Investment Company
Act on the following terms and conditions:
1. The Fund shall pay MLFD an account maintenance fee under the Plan
at the end of each month at the annual rate of 0.25% of average daily net
assets of the Fund relating to Class C shares to compensate MLFD and securities
firms with which MLFD enters
<PAGE> 2
into related agreements pursuant to Paragraph 3 hereof ("Sub-Agreements") for
providing account maintenance activities with respect to Class C shareholders
of the Fund. Expenditures under the Plan may consist of payments to financial
consultants for maintaining accounts in connection with Class C shares of the
Fund and payment of expenses incurred in connection with such account
maintenance activities including the costs of making services available to
shareholders including assistance in connection with inquiries related to
shareholder accounts.
2. The Fund shall pay MLFD a distribution fee under the Plan at the
end of each month at the annual rate of 0.75% of average daily net assets of
the Fund relating to Class C shares to compensate MLFD and securities firms
with which MLFD enters into related Sub-Agreements for providing sales and
promotional activities and services. Such activities and services will relate
to the sale, promotion and marketing of the Class C shares of the Fund. Such
expenditures may consist of sales commissions to financial consultants for
selling Class C shares of the Fund, compensation, sales incentives and payments
to sales and marketing personnel, and the payment of expenses incurred in its
sales and promotional activities, including advertising expenditures related to
the Fund and the costs of preparing and distributing promotional materials.
The distribution fee may also be used to pay the financing costs of carrying
the unreimbursed expenditures described in this Paragraph 2. Payment of the
distribution fee described in this Paragraph 2 shall be subject to any
limitations set forth in any applicable regulation of the National Association
of Securities Dealers, Inc.
3. The Fund hereby authorizes MLFD to enter into Sub-Agreements with
certain securities firms ("Securities Firms"), including Merrill Lynch, Pierce,
Fenner & Smith Incorporated, to provide compensation to such Securities Firms
for activities and services of the type referred to in Paragraphs 1 and 2
hereof. MLFD may reallocate all or a portion of its account maintenance fee or
distribution fee to such Securities Firms as compensation for the
above-mentioned activities and services. Such Sub-Agreement shall provide that
the Securities Firms shall provide MLFD with such information as is reasonably
necessary to permit MLFD to comply with the reporting requirements set forth in
Paragraph 4 hereof.
4. MLFD shall provide the Fund for review by the Board of Directors,
and the Directors shall review, at least quarterly, a written report complying
with the requirements of Rule 12b-1 regarding the disbursement of the account
maintenance fee and the distribution fee during such period.
2
<PAGE> 3
5. This Plan shall not take effect until it has been approved by a
vote of at least a majority, as defined in the Investment Company Act, of the
outstanding Class C voting securities of the Fund.
6. This Plan shall not take effect until it has been approved,
together with any related agreements, by votes of a majority of both (a) the
Directors of the Fund and (b) those Directors of the Fund who are not
"interested persons" of the Fund, as defined in the Investment Company Act, and
have no direct or indirect financial interest in the operation of this Plan or
any agreements related to it (the "Rule 12b-1 Directors"), cast in person at a
meeting or meetings called for the purpose of voting on the Plan and such
related agreements.
7. The Plan shall continue in effect for so long as such continuance
is specifically approved at least annually in the manner provided for approval
of the Plan in Paragraph 6.
8. The Plan may be terminated at any time by vote of a majority of
the Rule 12b-1 Directors, or by vote of a majority of the outstanding Class C
voting securities of the Fund.
9. The Plan may not be amended to increase materially the rate of
payments provided for herein unless such amendment is approved by at least a
majority, as defined in the Investment Company Act, of the outstanding Class C
voting securities of the Fund, and by the Directors of the Fund in the manner
provided for in Paragraph 6 hereof, and no material amendment to the Plan shall
be made unless approved in the manner provided for approval and annual renewal
in Paragraph 6 hereof.
10. While the Plan is in effect, the selection and nomination of
Directors who are not interested persons, as defined in the Investment Company
Act, of the Fund shall be committed to the discretion of the Directors who are
not interested persons.
11. The Fund shall preserve copies of the Plan and any related
agreements and all reports made pursuant to Paragraph 4 hereof, for a period of
not less than six years from the date of the Plan, or the agreements or such
report, as the case may be, the first two years in an easily accessible place.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have executed this
Distribution Plan as of the date first above written.
MERRILL LYNCH PACIFIC FUND, INC.
By
------------------------------------
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By
-----------------------------------
Title:
4
<PAGE> 5
CLASS C SHARES DISTRIBUTION PLAN SUB-AGREEMENT
AGREEMENT made as of the ____ day of October 1994, by and between
Merrill Lynch Funds Distributor, Inc., a Delaware corporation ("MLFD"), and
Merrill Lynch, Pierce, Fenner & Smith Incorporated, a Delaware corporation
("Securities Firm").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, MLFD has entered into an agreement with Merrill Lynch Pacific
Fund, Inc., a Maryland corporation (the "Fund"), pursuant to which it acts as
the exclusive distributor for the sale of Class C shares of common stock, par
value $0.10 per share (the "Class C shares"), of the Fund; and
WHEREAS, MLFD and the Fund have entered into a Class C Shares
Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Investment
Company Act of 1940, as amended (the "Act"), pursuant to which MLFD receives an
account maintenance fee from the Fund at the annual rate of 0.25% of average
daily net assets of the Fund relating to Class C shares for account maintenance
activities related to Class C shares of the Fund and a distribution fee from
the Fund at the annual rate of 0.75% of average daily net assets of the Fund
relating to Class C shares for providing sales and promotional activities and
services related to the distribution of Class C shares; and
WHEREAS, MLFD desires the Securities Firm to perform certain account
maintenance activities and sales and promotional activities and services for
the Fund's Class C shareholders and the Securities Firm is willing to perform
such activities and services;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereby agree as follows:
1. The Securities Firm shall provide account maintenance activities
and services with respect to the Class C shares of the Fund and incur
expenditures in connection with such activities and services of the types
referred to in Paragraph 1 of the Plan.
2. The Securities Firm shall provide sales and promotional activities
and services with respect to the sale of the Class C shares of the Fund, and
incur distribution expenditures, of the types referred to in Paragraph 2 of the
Plan.
<PAGE> 6
3. As compensation for its activities and services performed under
this Agreement, MLFD shall pay the Securities Firm an account maintenance fee
and a distribution fee at the end of each calendar month in an amount agreed
upon by the parties hereto.
4. The Securities Firm shall provide MLFD, at least quarterly, such
information as reasonably requested by MLFD to enable MLFD to comply with the
reporting requirements of Rule 12b-1 regarding the disbursement of the account
maintenance fee and the distribution fee during such period referred to in
Paragraph 4 of the Plan.
5. This Agreement shall not take effect until it has been approved by
votes of a majority of both (a) the Directors of the Fund and (b) those
Directors of the Fund who are not "interested persons" of the Fund, as defined
in the Act, and have no direct or indirect financial interest in the operation
of the Plan, this Agreement or any agreements related to the Plan or this
Agreement (the "Rule 12b-1 Directors"), cast in person at a meeting or meetings
called for the purpose of voting on this Agreement.
6. This Agreement shall continue in effect for as long as such
continuance is specifically approved at least annually in the manner provided
for approval of the Plan in Paragraph 6.
7. This Agreement shall automatically terminate in the event of its
assignment or in the event of the termination of the Plan or any amendment to
the Plan that requires such termination.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the date first above written.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By
------------------------------------
Title:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By
------------------------------------
Title:
2
<PAGE> 1
CLASS D DISTRIBUTION PLAN
OF
MERRILL LYNCH PACIFIC FUND, INC.
PURSUANT TO RULE 12b-1
DISTRIBUTION PLAN made as of the ____ day of October 1994, by and
between Merrill Lynch Pacific Fund, Inc., a Maryland corporation (the "Fund"),
and Merrill Lynch Funds Distributor, Inc., a Delaware corporation ("MLFD").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Fund is engaged in business as an open-end investment
company registered under the Investment Company Act of 1940, as amended (the
"Investment Company Act"); and
WHEREAS, MLFD is a securities firm engaged in the business of selling
shares of investment companies either directly to purchasers or through other
securities dealers; and
WHEREAS, the Fund proposes to enter into a Class D Shares Distribution
Agreement with MLFD, pursuant to which MLFD will act as the exclusive
distributor and representative of the Fund in the offer and sale of Class D
shares of common stock, par value $0.10 per share (the "Class D shares"), of
the Fund to the public; and
WHEREAS, the Fund desires to adopt this Class D Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Investment Company Act, pursuant to
which the Fund will pay an account maintenance fee to MLFD with respect to the
Fund's Class D shares; and
WHEREAS, the Directors of the Fund have determined that there is a
reasonable likelihood that adoption of the Plan will benefit the Fund and its
shareholders.
NOW, THEREFORE, the Fund hereby adopts, and MLFD hereby agrees to the
terms of, the Plan in accordance with Rule 12b-1 under the Investment Company
Act on the following terms and conditions:
1. The Fund shall pay MLFD an account maintenance fee under the Plan
at the end of each month at the annual rate of 0.25% of average daily net
assets of the Fund relating to Class D shares to compensate MLFD and securities
firms with which MLFD enters
<PAGE> 2
into related agreements ("Sub-Agreements") pursuant to Paragraph 2 hereof for
providing account maintenance activities with respect to Class D shareholders
of the Fund. Expenditures under the Plan may consist of payments to financial
consultants for maintaining accounts in connection with Class D shares of the
Fund and payment of expenses incurred in connection with such account
maintenance activities including the costs of making services available to
shareholders including assistance in connection with inquiries related to
shareholder accounts.
2. The Fund hereby authorizes MLFD to enter into Sub-Agreements with
certain securities firms ("Securities Firms"), including Merrill Lynch, Pierce,
Fenner & Smith Incorporated, to provide compensation to such Securities Firms
for activities of the type referred to in Paragraph 1. MLFD may reallocate all
or a portion of its account maintenance fee to such Securities Firms as
compensation for the above-mentioned activities. Such Sub-Agreement shall
provide that the Securities Firms shall provide MLFD with such information as
is reasonably necessary to permit MLFD to comply with the reporting
requirements set forth in Paragraph 3 hereof.
3. MLFD shall provide the Fund for review by the Board of Directors,
and the Directors shall review, at least quarterly, a written report complying
with the requirements of Rule 12b-1 regarding the disbursement of the account
maintenance fee during such period.
4. This Plan shall not take effect until it has been approved by a
vote of at least a majority, as defined in the Investment Company Act, of the
outstanding Class D voting securities of the Fund.
5. This Plan shall not take effect until it has been approved,
together with any related agreements, by votes of a majority of both (a) the
Directors of the Fund and (b) those Directors of the Fund who are not
"interested persons" of the Fund, as defined in the Investment Company Act, and
have no direct or indirect financial interest in the operation of this Plan or
any agreements related to it (the "Rule 12b-1 Directors"), cast in person at a
meeting or meetings called for the purpose of voting on the Plan and such
related agreements.
6. The Plan shall continue in effect for so long as such continuance
is specifically approved at least annually in the manner provided for approval
of the Plan in Paragraph 5.
7. The Plan may be terminated at any time by vote of a majority of
the Rule 12b-1 Directors, or by vote of a majority of the outstanding Class D
voting securities of the Fund.
2
<PAGE> 3
8. The Plan may not be amended to increase materially the rate of
payments provided for in Paragraph 1 hereof unless such amendment is approved
by at least a majority, as defined in the Investment Company Act, of the
outstanding Class D voting securities of the Fund, and by the Directors of the
Fund in the manner provided for in Paragraph 5 hereof, and no material
amendment to the Plan shall be made unless approved in the manner provided for
approval and annual renewal in Paragraph 5 hereof.
9. While the Plan is in effect, the selection and nomination of
Directors who are not interested persons, as defined in the Investment Company
Act, of the Fund shall be committed to the discretion of the Directors who are
not interested persons.
10. The Fund shall preserve copies of the Plan and any related
agreements and all reports made pursuant to Paragraph 3 hereof, for a period of
not less than six years from the date of the Plan, or the agreements or such
report, as the case may be, the first two years in an easily accessible place.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have executed this Distribution
Plan as of the date first above written.
MERRILL LYNCH PACIFIC FUND, INC.
By
-----------------------------------
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By
-----------------------------------
Title:
4
<PAGE> 5
CLASS D SHARES DISTRIBUTION PLAN SUB-AGREEMENT
AGREEMENT made as of the ____ day of October 1994, by and between
Merrill Lynch Funds Distributor, Inc. a Delaware corporation ("MLFD"), and
Merrill Lynch, Pierce, Fenner & Smith Incorporated, a Delaware corporation
("Securities Firm").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, MLFD has entered into an agreement with Merrill Lynch Pacific
Fund, Inc., a Maryland corporation (the "Fund"), pursuant to which it acts as
the exclusive distributor for the sale of Class D shares of common stock, par
value $0.10 per share (the "Class D shares"), of the Fund; and
WHEREAS, MLFD and the Fund have entered into a Class D Shares
Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Investment
Company Act of 1940, as amended (the "Act"), pursuant to which MLFD receives an
account maintenance fee from the Fund at the annual rate of 0.25% of average
daily net assets of the Fund relating to Class D shares for providing account
maintenance activities and services with respect to Class D shares; and
WHEREAS, MLFD desires the Securities Firm to perform certain account
maintenance activities and services, including assistance in connection with
inquiries related to shareholder accounts, for the Fund's Class D shareholders
and the Securities Firm is willing to perform such services;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereby agree as follows:
1. The Securities Firm shall provide account maintenance activities
and services with respect to the Class D shares of the Fund and incur
expenditures in connection with such activities and services, of the types
referred to in Paragraph 1 of the Plan.
2. As compensation for its services performed under this Agreement,
MLFD shall pay the Securities Firm a fee at the end of each calendar month in
an amount agreed upon by the parties hereto.
3. The Securities Firm shall provide MLFD, at least quarterly, such
information as reasonably requested by MLFD to enable MLFD to comply with the
reporting requirements of Rule
<PAGE> 6
12b-1 regarding the disbursement of the fee during such period referred to in
Paragraph 3 of the Plan.
4. This Agreement shall not take effect until it has been approved by
votes of a majority of both (a) the Directors of the Fund and (b) those
Directors of the Fund who are not "interested persons" of the Fund, as defined
in the Act, and have no direct or indirect financial interest in the operation
of the Plan, this Agreement or any agreements related to the Plan or this
Agreement (the "Rule 12b-1 Directors"), cast in person at a meeting or meetings
called for the purpose of voting on this Agreement.
5. This Agreement shall continue in effect for as long as such
continuance is specifically approved at least annually in the manner provided
for approval of the Plan in Paragraph 5.
6. This Agreement shall automatically terminate in the event of its
assignment or in the event of the termination of the Plan or any amendment to
the Plan that requires such termination.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the date first above written.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By
-------------------------------------
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By
-------------------------------------
2
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