<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 28, 1995
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. 26 /X/
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 /X/
Amendment No. 27 /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)
/X/ immediately upon filing pursuant to paragraph (b)
/ / on (date) 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 28, 1995.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
MERRILL LYNCH PACIFIC FUND, INC.
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
- --------------- -------------------------------------
<S> <C> <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
Offered............................ Cover Page; Fee Table; Merrill Lynch
Select PricingSM 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
Services........................... Management of the Fund; Purchase of
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
APRIL 28, 1995
MERRILL LYNCH PACIFIC FUND, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 - PHONE NO. (609) 282-2800
------------------------
Merrill Lynch Pacific Fund, Inc. (the "Fund") is a non-diversified,
open-end, management investment company seeking long-term capital appreciation
primarily through investment in equities of corporations domiciled in Far
Eastern or Western Pacific countries, including Japan, Australia, Hong Kong 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". For more information on the Fund's investment objective and
policies, please see "Investment Objective and Policies" on page 12.
------------------------
Pursuant to the Merrill Lynch Select Pricing(SM) System, the Fund offers
four classes of shares, each with a different combination of sales charges,
ongoing fees and other features. The Merrill Lynch Select Pricing(SM) System
permits an investor to choose the method of purchasing shares that the
investor believes is most beneficial given the amount of the purchase, the
length of time the investor expects to hold the shares and other relevant
circumstances. See "Merrill Lynch Select Pricing(SM) 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 April 28, 1995 (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 CLASS D
----------- ---------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price)...................... 5.25%(c) None None 5.25%(c)
Sales Charge Imposed on Dividend
Reinvestments........................ None None None None
Deferred Sales Charge (as a percentage
of original purchase price or
redemption proceeds, whichever is
lower)............................... None(d) 4.0% during the first year, 1% for one None(d)
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)(E):
Management Fees(f)..................... 0.60% 0.60% 0.60% 0.60%
12b-1 Fees(g):
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....................... 0.09% 0.09% 0.09% 0.09%
Shareholder Servicing Costs(h)....... 0.13% 0.16% 0.16% 0.13%
Other................................ 0.09% 0.09% 0.09% 0.09%
Total Other Expenses............. 0.31% 0.34% 0.34% 0.31%
Total Fund Operating Expenses........ 0.91% 1.94 % 1.94% 1.16%
</TABLE>
- ------------
(a) Class A shares are sold to a limited group of investors including existing
Class A shareholders, certain retirement plans and certain investment
programs. See "Purchase of Shares -- Initial Sales Charge
Alternatives -- Class A and Class D Shares" -- page 24.
(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 26.
(c) Reduced for purchases of $25,000 and over. Class A or Class D purchases of
$1,000,000 or more are not subject to an initial sales charge. See "Purchase
of Shares -- Initial Sales Charge Alternatives -- Class A and Class D
Shares" -- page 24.
(d) 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 are not
subject to an initial sales charge may instead be subject to a CDSC of 1.0%
of amounts redeemed within the first year of purchase.
(e) Information for Class A and Class B shares is stated for the fiscal year
ended December 31, 1994. Information under "Other Expenses" for Class C and
Class D shares is estimated for the fiscal year ending December 31, 1995.
(f) See "Management of the Fund -- Management and Advisory Arrangements" -- page
21.
(g) See "Purchase of Shares -- Distribution Plans" -- page 29.
(h) See "Management of the Fund -- Transfer Agency Services" -- page 22.
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 $159
Class B.................................................... $ 60 $81 $ 105 $207*
Class C.................................................... $ 30 $61 $ 105 $226
Class D.................................................... $ 64 $87 $ 113 $186
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 $159
Class B.................................................... $ 20 $61 $ 105 $207*
Class C.................................................... $ 20 $61 $ 105 $226
Class D.................................................... $ 64 $87 $ 113 $186
</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, are imposed
directly against those classes and not against all assets of the Fund and,
accordingly, such charges do not affect the net asset value of any other class
or have any impact on investors choosing another sales charge option. Dividends
paid by the Fund for each class of shares are calculated in the same manner at
the same time and will differ only to the extent that account maintenance and
distribution fees and any incremental transfer agency costs relating to a
particular class are borne exclusively by that class. Each class has different
exchange privileges. See "Shareholder Services -- Exchange Privilege".
Investors should understand that the purpose and function of the initial
sales charges with respect to the Class A and Class D shares are the same as
those of the deferred sales charges with respect to the Class B and Class C
shares in that the sales charges applicable to each class provide for the
financing of the distribution of the shares of the Fund. The
distribution-related revenues paid with respect to a class will not be used to
finance the distribution expenditures of another class. Sales personnel may
receive different compensation for selling different classes of shares.
The following table sets forth a summary of the distribution arrangements
for each class of shares under the Merrill Lynch Select PricingSM 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 PricingSM 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>
<S> <C> <C> <C> <C>
ACCOUNT
MAINTENANCE DISTRIBUTION
CLASS SALES CHARGE(1) FEE FEE CONVERSION FEATURE
- ---------------------------------------------------------------------------------------------------------------
A Maximum 5.25% initial sales No No No
charge(2)(3)
- ---------------------------------------------------------------------------------------------------------------
B CDSC for a period of 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.
(footnotes 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 of the Fund are offered to a limited group of
investors and also will be issued upon reinvestment of dividends
on outstanding Class A shares. Investors that currently own Class
A shares in a shareholder account are entitled to purchase
additional Class A shares of the Fund in that account. Other
eligible investors include certain retirement plans and
participants in certain investment programs. In addition, Class A
shares will be offered to Merrill Lynch & Co., Inc. ("ML&Co.") and
its subsidiaries (the term "subsidiaries", when used herein with
respect to ML&Co., includes MLAM, FAM and certain other entities
directly or indirectly wholly-owned and controlled by ML&Co.) and
their directors and employees and to members of the Boards of
MLAM-advised mutual funds. The maximum initial sales charge is
5.25%, which is reduced for purchases of $25,000 and over.
Purchases of $1,000,000 or more may not be subject to an initial
sales charge but if the initial sales charge is waived, such
purchases will be subject to a 1% CDSC if the shares are redeemed
within one year after purchase. Sales charges also are reduced
under a right of accumulation which takes into account the
investor's holdings of all classes of all MLAM-advised mutual
funds. See "Purchase of Shares -- Initial Sales Charge
Alternatives -- Class A and Class D Shares".
Class B: Class B shares do not incur a sales charge when they are
purchased, but they are subject to an ongoing account maintenance
fee of 0.25% and an ongoing distribution fee of 0.75% of the
Fund's average net assets attributable to the Class B shares, and
a CDSC if they are redeemed within four years of purchase.
Approximately eight years after issuance, Class B shares will
convert automatically into Class D shares of the Fund, which are
subject to an account maintenance fee but no distribution fee;
Class B shares of certain other MLAM-advised mutual funds into
which exchanges may be made convert into Class D shares
automatically after approximately ten years. If Class B shares of
the Fund are exchanged for Class B shares of another MLAM-advised
mutual fund, the conversion period applicable to the Class B
shares acquired in the exchange will apply, and the holding period
for the shares exchanged will be tacked onto the holding period
for the shares acquired. Automatic conversion of Class B shares
into Class D shares will occur at least once a month on the basis
of the relative net asset values of the shares of the two classes
on the conversion date, without the imposition of any sales load,
fee or other charge. Conversion of Class B shares to Class D
shares will not be deemed a purchase or sale of the shares for
Federal income tax purposes. Shares purchased through reinvestment
of dividends on Class B shares also will convert automatically to
Class D shares. The conversion period for dividend reinvestment
shares and 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 there is an account maintenance fee
imposed on Class D shares. Investors qualifying for significantly reduced
initial sales charges may find the initial sales charge alternative particularly
attractive because similar sales charge reductions are not available with
respect to the deferred sales charges imposed in connection with purchases of
Class B or Class C shares. Investors not qualifying for reduced initial sales
charges who expect to maintain their investment for an extended period of time
also may elect to purchase Class A or Class D shares, because over time the
accumulated ongoing account maintenance and distribution fees on Class B or
Class C shares may exceed the initial sales charge and, in the case of Class D
shares, the account maintenance fee. Although some investors that previously
purchased Class A shares may no longer be eligible to purchase Class A shares of
other MLAM-advised mutual funds, those previously purchased Class A shares,
together with Class B, Class C and Class D share holdings, will count toward a
right of accumulation which may qualify the investor for reduced initial sales
charges on new initial sales charge purchases. In addition, the ongoing Class B
and Class C account maintenance and distribution fees will cause Class B and
Class C shares to have higher expense ratios, pay lower dividends and have lower
total returns than the initial sales charge shares. The ongoing Class D account
maintenance fees will cause Class D shares to have a higher expense ratio, pay
lower dividends and have a lower total return than Class A shares.
Deferred Sales Charge Alternatives. Because no initial sales charges are
deducted at the time of purchase, Class B and Class C shares provide the benefit
of putting all of the investor's dollars to work from the time the investment is
made. The deferred sales charge alternatives may be particularly appealing to
investors who do not qualify for a reduction in initial sales charges. Both
Class B and Class C shares are subject to ongoing account maintenance fees and
distribution fees; however, the ongoing account maintenance and distribution
fees potentially may be offset to the extent any return is realized on the
additional funds
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 tables below has been audited in
conjunction with the annual audits of the financial statements of the Fund by
Deloitte & Touche LLP, independent auditors. Financial statements for the year
ended December 31, 1994, and the independent auditors' report thereon are
included in the Statement of Additional Information. Further information about
the performance of the Fund is contained in the Fund's most recent annual report
to shareholders which may be obtained, without charge, by calling or by writing
the Fund at the telephone number or address on the front cover of this
Prospectus.
The following per share data and ratios have been derived from information
provided in the financial statements.
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
1994+ 1993 1992 1991 1990 1989
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in Net Asset Value:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.............. $ 21.21 $ 15.80 $ 18.34 $ 16.52 $ 20.65 $ 19.11
-------- -------- -------- -------- -------- --------
Investment income--net............................ .10 .07 .05 .04 .10 .07
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net.......... .50 5.37 (1.63) 2.73 (1.80) 2.57
-------- -------- -------- -------- -------- --------
Total from investment operations.................. .60 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............. (.22) (.03) -- -- -- --
Realized gain on investments--net............... (.33) -- (.95) (.84) (2.32) (1.04)
In excess of realized gain on
investments--net............................... (.14) -- -- -- -- --
-------- -------- -------- -------- -------- --------
Total dividends and distributions................. (.69) (.03) (.96) (.95) (2.43) (1.10)
-------- -------- -------- -------- -------- --------
Net asset value, end of period.................... $ 21.12 $ 21.21 $ 15.80 $ 18.34 $ 16.52 $ 20.65
======== ======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN:*
Based on net asset value per share................ 2.90% 34.41% (8.75%) 17.04% (8.39%) 14.49%
======== ======== ======== ======== ======== ========
RATIOS TO AVERAGE NET ASSETS:
Expenses, excluding distribution fees............. .91% .90% .98% 1.02% 1.07% 1.06%
======== ======== ======== ======== ======== ========
Expenses.......................................... .91% .90% .98% 1.02% 1.07% 1.06%
======== ======== ======== ======== ======== ========
Investment income--net............................ .47% .47% .40% .43% .94% .36%
======== ======== ======== ======== ======== ========
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands).......... $587,107 $472,322 $284,674 $304,712 $242,104 $318,613
======== ======== ======== ======== ======== ========
Portfolio turnover................................ 23.84% 13.25% 7.62% 5.91% 31.06% 18.14%
======== ======== ======== ======== ======== ========
<CAPTION>
1988 1987 1986 1985
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Asset Value:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.............. $ 16.15 $ 34.32 $ 19.59 $ 15.43
-------- -------- -------- --------
Investment income--net............................ .20 .00 .09 .11
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net.......... 5.02 4.16 14.94 5.59
-------- -------- -------- --------
Total from investment operations.................. 5.22 4.16 15.03 5.70
-------- -------- -------- --------
Less dividends and distributions:
Investment income--net.......................... (.19) (.18) (.11) (.16)
In excess of investment income--net............. -- -- -- --
Realized gain on investments--net............... (2.07) (22.15) (.19) (1.38)
In excess of realized gain on
investments--net............................... -- -- -- --
-------- -------- -------- --------
Total dividends and distributions................. (2.26) (22.33) (.30) (1.54)
-------- -------- -------- --------
Net asset value, end of period.................... $ 19.11 $ 16.15 $ 34.32 $ 19.59
======== ======== ======== ========
TOTAL INVESTMENT RETURN:*
Based on net asset value per share................ 34.38% 10.77% 77.78% 40.96%
======== ======== ======== ========
RATIOS TO AVERAGE NET ASSETS:
Expenses, excluding distribution fees............. 1.02% .94% .98% 1.12%
======== ======== ======== ========
Expenses.......................................... 1.02% .94% .98% 1.12%
======== ======== ======== ========
Investment income--net............................ .95% .02% .47% .73%
======== ======== ======== ========
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands).......... $288,065 $283,984 $422,670 $151,374
======== ======== ======== ========
Portfolio turnover................................ 39.22% 29.41% 44.45% 30.79%
======== ======== ======== ========
</TABLE>
- ---------------
* Total investment returns exclude the effects of sales loads.
+ Based on average number of shares outstanding during the period.
8
<PAGE> 11
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
CLASS B
-------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1994++ 1993++ 1992++ 1991++
---------------- -------- -------- --------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Asset Value:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................................ $ 20.41 $ 15.34 $ 18.01 $ 16.30
------ -------- -------- --------
Investment loss -- net.............................................. (.12) (.10) (.12) (.14)
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net................................................. .49 5.17 (1.60) 2.69
------ -------- -------- --------
Total from investment operations.................................... .37 5.07 (1.72) 2.55
------ -------- -------- --------
Less dividends and distributions:
Investment income--net............................................ -- -- -- --
In excess of investment income--net............................... (.04) -- -- --
Realized gain on investments -- net............................... (.33) -- (.95) (.84)
In excess of realized gain on investments--net.................... (.14) -- -- --
------ -------- -------- --------
Total dividends and distributions................................... (.51) -- (.95) (.84)
------ -------- -------- --------
Net asset value, end of period...................................... $ 20.27 $ 20.41 $ 15.34 $ 18.01
================ ======== ======== ========
TOTAL INVESTMENT RETURN:**
Based on net asset value per share.................................. 1.87% 33.05% (9.72%) 15.87%
================ ======== ======== ========
RATIOS TO AVERAGE NET ASSETS:
Expenses, excluding account maintenance and/or distribution fees.... .94% .92% 1.00% 1.04%
================ ======== ======== ========
Expenses............................................................ 1.94% 1.92% 2.00% 2.04%
================ ======== ======== ========
Investment loss -- net.............................................. (.56%) (.56%) (.61%) (.60%)
================ ======== ======== ========
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)............................ $915,351 $508,008 $165,015 $105,669
================ ======== ======== ========
Portfolio turnover.................................................. 23.84% 13.25% 7.62% 5.91%
================ ======== ======== ========
<CAPTION>
1990++ 1989 1988+
------- ------- -------
<S> <C> <C> <C>
Increase (Decrease) in Net Asset Value:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................................ $ 20.49 $ 19.09 $ 17.93
------- ------- -------
Investment 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)
In excess of realized gain on investments--net.................... -- -- --
------- ------- -------
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 account maintenance and/or 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.
+ The Fund's Class B shares commenced operations on October 21, 1988.
++ Based on average number of shares outstanding during the period.
+++ Aggregate total investment return.
9
<PAGE> 12
FINANCIAL HIGHLIGHTS (CONCLUDED)
<TABLE>
<CAPTION>
FOR THE PERIOD OCTOBER 21,
1994+
TO DECEMBER 31, 1994++
------------------------------
CLASS C CLASS D
------- -------
<S> <C> <C>
Increase (Decrease) in Net Asset Value:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............................................................ $21.67 $ 22.70
------ -------
Investment income (loss)--net................................................................... (.03) --
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net............................................................................. (.86) (.91)
------ -------
Total from investment operations................................................................ (.89) (.91)
------ -------
Less dividends and distributions:
In excess of investment income--net........................................................... (.19) (.21)
Realized gain on investments--net............................................................. (.33) (.33)
In excess of realized gain on investments--net................................................ (.14) (.14)
------ -------
Total dividends and distributions............................................................... (.66) (.68)
------ -------
Net asset value, end of period.................................................................. $20.12 $ 21.11
====== =======
TOTAL INVESTMENT RETURN:**
Based on net asset value per share.............................................................. (4.04%)+++ (3.93%)+++
====== =======
RATIOS TO AVERAGE NET ASSETS:
Expenses, excluding account maintenance and/or distribution fees................................ 1.17%* 1.17%*
====== =======
Expenses........................................................................................ 2.17%* 1.42%*
====== =======
Investment income (loss)--net................................................................... (.79%)* .12%*
====== =======
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)........................................................ $7,841 $22,012
====== =======
Portfolio turnover.............................................................................. 23.84% 23.84%
====== =======
</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.
10
<PAGE> 13
SPECIAL CONSIDERATIONS
Investments on an international basis involve certain risks not
typically involved in domestic investments, including, but not limited to,
fluctuations in foreign exchange rates, future foreign political and
economic developments, and the possible imposition of exchange controls or
other foreign governmental laws or restrictions applicable to such
investments. Securities prices in different countries are subject to
different economic, financial, political and social factors. Since the
Fund will invest primarily in securities denominated in currencies other
than the U.S. dollar, changes in foreign currency exchange rates will
affect the values of securities in the Fund's portfolio and the unrealized
appreciation or depreciation of investments so far as U.S. investors are
concerned. Changes in foreign currency exchange rates relative to the U.S.
dollar will affect the U.S. dollar value of the Fund's assets denominated
in those currencies and the Fund's yield on such assets. The rates of
exchange between the dollar and other currencies are determined by forces
of supply and demand on the foreign exchange markets. These forces are, in
turn, affected by the 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 or other problems in settlement could result in
temporary periods when assets of the Fund are uninvested and no return is
earned thereon. The inability of the Fund to make intended security
purchases due to settlement problems could cause the Fund to miss
attractive investment opportunities. Inability to dispose of a portfolio
security due to settlement problems either could result in losses to the
Fund due to subsequent declines in value of such portfolio security or, if
the Fund has entered into a contract to sell the security, could result in
possible liability to the purchaser. Brokerage commissions and other
transaction costs on foreign securities exchanges are generally higher
than in the United States. There is generally less government supervision
and regulation of exchanges, brokers and issuers in foreign countries than
there is in the United States.
The Fund anticipates that under normal conditions at least 80% of its
net assets will consist of Far Eastern or Western Pacific corporate
securities. Because of its emphasis on the economies of Far Eastern and
Western Pacific countries and the potential for substantial volatility in
many of those countries' markets, the Fund should be considered as a
vehicle for diversification and not as a balanced investment program.
In early 1995, the Fund's shareholders approved a proposal to change
the status of the Fund from a diversified to a non-diversified investment
company. As a non-diversified investment company, the Fund may invest a
larger percentage of its assets in individual issuers than a diversified
investment company. In this regard, the Fund is not subject to the general
limitation that it may not invest more than 5% of its total assets in the
securities of any one issuer. To the extent the Fund makes investments in
excess of 5% of its assets in a particular issuer, its exposure to credit
and market risks associated with that issuer is increased. Also, as a
non-diversified investment company, since a relatively high percentage of
the Fund's assets may be invested in the securities of a limited number of
issuers, the Fund may be more susceptible to any single economic,
political or regulatory occurrence than a diversified investment company.
The Financial Highlights above present information relating to the
operations of the Fund as a diversified investment company.
11
<PAGE> 14
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.
12
<PAGE> 15
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 options, currency futures, options on such
futures and forward foreign exchange transactions. The Fund may enter into such
transactions only in connection with its hedging strategies. While the net asset
value of the Fund's shares will continue to fluctuate and no assurance can be
given that the Fund's hedging transactions will be effective, the Manager
believes that the ability of the Fund to engage in these hedging transactions
will enhance the Fund's ability to reduce the volatility of the net asset value
of its shares. Furthermore, the Fund will only engage in hedging activities from
time to time and may not necessarily be engaging in hedging activities when
movements in the equity markets, interest rates or currency exchange rates
occur. When the Fund engages in transactions denominated in foreign currencies,
it will be subject to the risks of adverse changes in the exchange rates between
such foreign currencies and the U.S. dollar, the currency used to value the
Fund's assets. Reference is made to the Statement of Additional Information for
further information concerning these strategies.
Although certain risks are involved in options and futures transactions (as
discussed below in "Risk Factors in Options, Futures and Currency
Transactions"), the Manager believes that, because the Fund will only engage in
these transactions for hedging purposes, the options and futures portfolio
strategies of the Fund will not subject the Fund to the risks frequently
associated with the speculative use of options and futures transactions. Tax
requirements may limit the Fund's ability to engage in the hedging transactions
and strategies described below.
Set forth below is a description of the hedging instruments that the Fund
may utilize with respect to investment, interest rate and currency risks.
Hedging Investment and Interest Rate Risks. The Fund may write (i.e.,
sell) covered call options on its portfolio securities, purchase put options on
securities and engage in transactions in stock index options, stock index
futures and financial futures, and related options on such futures, as described
below.
The Fund may write call options with respect to securities it owns which
provide the holder of the option with the right to buy the underlying security
covered by the option at the stated exercise price until the option expires. The
Fund will write only covered call options, which means that so long as the Fund
is obligated as the writer of a call option, it will own the underlying
securities subject to the option. The Fund may also purchase put options, which
will provide it with the right to sell the underlying securities at the stated
exercise price, thus limiting the Fund's risk of loss through a decline in the
market value of the security until the put expires. The Fund may write call
options on securities with respect to which it has purchased a put option. By
purchasing a put option on a security, the Fund limits its risk of loss on that
security. By writing a call option on the security, the Fund will offset, in
whole or in part, the cost of purchasing such put option, but limits its
13
<PAGE> 16
opportunity to profit from an increase in value. There is no percentage
limitation with respect to portfolio securities on which the Fund may write call
options or purchase put options. Although there is no specific time limit on the
duration of the options on the Fund's portfolio securities, the Manager does not
anticipate entering into any such transactions with a duration of longer than
one year.
The Fund may purchase or write call options and purchase put options on
stock indexes to hedge against the risks of market-wide price movements in the
Far Eastern and Western Pacific securities in which the Fund invests. The
effectiveness of the hedge will depend on the degree of diversification of the
Fund's portfolio and the sensitivity of the securities comprising the portfolio
to factors influencing the market as a whole. Because the value of an index
option depends upon movements in the level of the index rather than the price of
a particular stock, whether the Fund realizes a gain or loss on the purchase or
sale of an option on an index depends upon movements in the level of prices in
the stock market generally or in an industry or market segment rather than
movements in the price of a particular stock.
The Fund also may purchase and sell stock index futures contracts and
financial futures contracts ("futures contracts") as a hedge against adverse
changes in the market value of its portfolio securities and interest rates, as
described below. A futures contract is an agreement between two parties which
obligates the purchaser of the futures contract to buy and the seller of a
futures contract to sell a security for a set price on a future date. Unlike
most other futures contracts, a stock index futures contract would not require
actual delivery of securities, but would result in cash settlement based upon
the difference in value of the index between the time the contract was entered
into and the time of its settlement. The Fund may effect transactions in stock
index futures contracts in Far Eastern and Western Pacific securities and
financial futures contracts in U.S., Far Eastern and Western Pacific government
and agency securities and corporate debt securities. It is anticipated that the
underlying securities involved in stock index futures contracts will be
securities listed on exchanges. Transactions by the Fund in stock index futures
and financial futures are subject to limitations as described below under
"Restrictions on the Use of Futures Transactions". There is no percentage
limitation with respect to portfolio securities on which the Fund may purchase
or sell futures contracts.
The Fund may sell stock index futures contracts in anticipation of or
during a market decline to attempt to offset the decrease in market value of the
Fund's securities portfolio that might otherwise result. When the Fund is not
fully invested in the Far Eastern and Western Pacific securities markets and
anticipates a significant market advance, it may purchase stock index futures in
order to gain rapid market exposure that may in part or entirely offset
increases in the cost of securities that the Fund intends to purchase. As such
purchases are made, an equivalent amount of stock index futures contracts will
be terminated by offsetting sales. The Fund does not consider purchases of
futures contracts to be a speculative practice under these circumstances. It is
anticipated that, in a substantial majority of these transactions, the Fund will
purchase such securities upon termination of the long futures position, whether
the long position is the purchase of a stock index futures contract or the
purchase of a call option on a stock index future, but under unusual
circumstances (e.g., the Fund experiences a significant amount of redemptions),
a long futures position may be terminated without the corresponding purchase of
securities.
The Fund may sell financial futures contracts in anticipation of an
increase in the general level of interest rates. Generally, as interest rates
rise, the market values of fixed-income securities which may be held by the Fund
as a temporary defensive measure will fall, thus reducing the net asset value of
the Fund. However, as interest rates rise, the value of the Fund's short
position in the futures contract will also tend to increase, thus
14
<PAGE> 17
offsetting all or a portion of the depreciation in the market value of the
Fund's investments which are being hedged. While the Fund will incur commission
expenses in selling and closing out futures positions, these commissions are
generally less than the transaction expenses which the Fund would have incurred
had the Fund sold portfolio securities in order to reduce its exposure to
increases in interest rates. The Fund also may purchase financial futures
contracts in anticipation of a decline in interest rates when it is not fully
invested in a particular market in which it intends to make investments to gain
market exposure that may in part or entirely offset an increase in the cost of
securities it intends to purchase. It is anticipated that, in a substantial
majority of these transactions, the Fund will purchase securities upon
termination of the futures contract.
The Fund also may 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.
To trade futures contracts, the Fund is not required to deposit funds equal
to the value of the futures contract. The Fund need only make a deposit, called
an "initial margin deposit", equal to a small percentage (typically between 2%
and 15%) of the value of the futures contract. As a result, a relatively small
adverse move in the price of a futures contract may result in immediate and
substantial losses to the Fund. For example, if at the time of purchase 10% of
the price of a futures contract is deposited as margin, a 10% decrease in the
price of that contract would, if the contract were then closed out, result in a
total loss of the initial margin deposit before any deduction for brokerage
commissions and other transaction costs. A decrease of more than 10% would
result in a loss of more than the total initial margin deposit.
To some extent, options on futures contracts are even more highly leveraged
than futures contracts. For example, if an in-the-money call (put) option is
sold for its intrinsic value plus a premium representing the time value of that
option, a 10% rise (drop) in the value of the underlying futures contract does
not create a loss equal to just 10% of the value of the option. Such a rise
(drop) creates a loss approximately equal to 10% of the value of the underlying
interest, less the time value, which loss may be many times greater than the
price for which the Fund sold the option. In addition, investors who sell
options are required only to deposit a
15
<PAGE> 18
percentage of the value of the option at the time of sale as margin, thereby
leveraging the investment even further.
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 15% (10% to the extent
required by certain state laws) of the total assets of the Fund, taken at market
value, together with all other assets of the Fund which are illiquid or are not
otherwise readily marketable. However, if the OTC option is sold by the Fund to
a primary U.S. Government securities dealer recognized by the Federal Reserve
Bank of New York and if the Fund has the unconditional contractual right to
repurchase such OTC option from the dealer at a predetermined price, then the
Fund will treat as illiquid such amount of the underlying securities as is equal
to the repurchase price less the amount by which the option is "in-the-money"
(i.e., current market value of the underlying security minus the option's strike
price). The repurchase price with the primary dealers is typically a formula
price which is generally based on a multiple of the premium received for the
option, plus the amount by which the option is "in-the-money". This policy is
not a fundamental policy of the Fund and may be amended by the Directors of the
Fund without the approval of the Fund's shareholders. The Fund will not change
or modify this policy, however, prior to the change or modification by the
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
16
<PAGE> 19
Fund to hedge against a devaluation that is so generally anticipated that the
Fund is not able to contract to sell the currency at a price above the
devaluation level it anticipates.
In connection with its trading in forward foreign currency contracts, the
Fund will contract with a foreign or domestic bank, or foreign or domestic
securities dealer, to make or take future delivery of a specified amount of a
particular currency. There are no limitations on daily price moves in such
forward contracts, and banks and dealers are not required to continue to make
markets in such contracts. There have been periods during which certain banks or
dealers have refused to quote prices for such forward contracts or have quoted
prices with an unusually wide spread between the price at which the bank or
dealer is prepared to buy and that at which it is prepared to sell. Governmental
imposition of credit controls might limit any such forward contract trading.
With respect to its trading of forward contracts, if any, the Fund will be
subject to the risk of bank or dealer failure and the inability of, or refusal
by, a bank or dealer to perform with respect to such contracts. Any such default
would deprive the Fund of any profit potential or force the Fund to cover its
commitments for resale, if any, at the then-market price and could result in a
loss to the Fund.
The Fund is also authorized to purchase and sell listed or OTC foreign
currency options, futures and related options on such futures as a short or long
hedge against possible variations in foreign exchange rates. Unlike forward
foreign exchange transactions, which are accomplished by entering into private
contractual arrangements, the options and futures which the Fund will purchase
and sell will be either exchange or OTC traded, providing a greater degree of
market access and liquidity than forward foreign exchange transactions. The Fund
may purchase and/or sell listed or OTC foreign currency options, foreign
currency futures and related options on foreign currency futures as a short
(i.e., the Fund does not hold the currency) or long (i.e., the Fund does hold
the currency) hedge against possible variations in foreign exchange rates. Such
transactions may be effected with respect to hedges on Far Eastern and Western
Pacific currency denominated securities owned by the Fund, sold by the Fund but
not yet delivered, or committed or anticipated to be purchased by the Fund. As
an illustration, the Fund may use such techniques to hedge the stated value in
U.S. dollars of an investment in a Japanese yen-denominated security. In such
circumstances, for example, the Fund may purchase a foreign currency put option
enabling it to sell a specified amount of yen for dollars at a specified price
by a future date. To the extent the hedge is successful, a loss in the value of
the yen relative to the dollar will tend to be offset by an increase in the
value of the put option. To offset, in whole or in part, the cost of acquiring
such a put option, the Fund may also sell a call option which, if exercised,
requires it to sell a specified amount of yen for dollars at a specified price
by a future date (a technique called a "straddle"). By selling such a call
option in this illustration, the Fund gives up the opportunity to profit without
limit from increases in the relative value of the yen to the dollar. The Manager
believes that "straddles" of the type which may be utilized by the Fund
constitute hedging transactions and are consistent with the policies described
above.
Certain differences exist between these foreign currency hedging
instruments. Foreign currency options provide the holder thereof the right to
buy or sell a currency at a fixed price on a future date. Listed options are
third-party contracts (i.e., performance of the parties' obligations is
guaranteed by an exchange or clearing corporation) which are issued by a
clearing corporation, are traded on an exchange and have standardized strike
prices and expiration dates. OTC options are two-party contracts and have
negotiated strike prices and expiration dates. The Fund will engage in OTC
options only with member banks of the Federal Reserve System or primary dealers
in U.S. Government securities or with affiliates of such banks or dealers which
have capital of at least $50 million or whose obligations are guaranteed by an
entity having capital of at least
17
<PAGE> 20
$50 million. The Fund will acquire only those OTC options for which management
believes the Fund can receive on each business day at least two independent bids
or offers (one of which will be from an entity other than a party to the
option). A futures contract on a foreign currency is an agreement between two
parties to buy and sell a specified amount of a currency for a set price on a
future date. Futures contracts and options on futures contracts are generally
traded on boards of trade or futures exchanges. The Fund will not speculate in
foreign currency options, futures or related options. Accordingly, the Fund will
not hedge a currency substantially in excess of the market value of the
securities denominated in such currency which it owns, the expected acquisition
price of securities which it has committed or anticipates to purchase which are
denominated in such currency and, in the case of securities which have been sold
by the Fund but not yet delivered, the proceeds thereof in its denominated
currency. Further, the Fund will segregate at its custodian U.S. Government or
other high quality securities having a market value substantially representing
any subsequent net decrease in the market value of such hedged positions,
including net positions with respect to cross-currency hedges. The Fund may not
incur potential net liabilities of more than 33 1/3% of its total assets from
foreign currency options, futures or related options.
Restrictions on the Use of Futures Transactions. Regulations of the
Commodity Futures Trading Commission applicable to the Fund provide that the
futures trading activities described herein will not result in the Fund being
deemed a "commodity pool" as defined under such regulations if the Fund adheres
to certain restrictions. In particular, the Fund may purchase and sell futures
contracts and options thereon (i) for bona fide hedging purposes and (ii) for
non-hedging purposes, if the aggregate initial margin and premiums required to
establish positions in such contracts and options does not exceed 5% of the
liquidation value of the Fund's portfolio, after taking into account unrealized
profits and unrealized losses on any such contracts and options.
When the Fund purchases a futures contract, or writes a put option or
purchases a call option thereon, an amount of cash or cash equivalents will be
deposited in a segregated account with the Fund's custodian so that the amount
so segregated, plus the amount of initial and variation margin held in the
account of its broker, equals the market value of the futures contract, thereby
ensuring that the use of such futures contract is unleveraged.
An order has been obtained from the Securities and Exchange Commission
which exempts the Fund from certain provisions of the Investment Company Act in
connection with transactions involving futures contracts and options thereon.
Risk Factors in Options, Futures and Currency Transactions. Utilization of
futures transactions involves the risk of imperfect correlation in movements in
the price of futures contracts and movements in the price of the securities and
currencies which are the subject of the hedge. If the price of the futures
contract moves more or less than the price of the securities or currencies, the
Fund will experience a gain or loss which will not be completely offset by
movements in the price of the securities or currencies which are the subject of
the hedge. There is also a risk of imperfect correlations where the securities
or currencies underlying futures contracts have different maturities than the
portfolio securities or currencies being hedged. Transactions in options and
options on futures contracts involve similar risks.
The Fund intends to enter into options and futures transactions on an
exchange or in the OTC market only if there appears to be a liquid secondary
market for such options or futures or, in the case of OTC transactions,
management believes the Fund can receive on each business day at least two
independent bids or
18
<PAGE> 21
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 of
1940, as amended (the "Investment Company Act"). Among the more significant
restrictions, the Fund may not:
-- Invest more than 25% of its total assets, taken at market value, in
the securities of issuers in any particular industry (excluding the U.S.
Government and its agencies and instrumentalities).
-- Make investments for the purpose of exercising control or
management.
Non-diversified Status. As noted above, in early 1995, the Fund's
shareholders approved a proposal to change the status of the Fund from a
diversified to a non-diversified investment company. Previously, the Fund was
subject to an investment restriction prohibiting investment in securities of any
one issuer (other than the Government of Japan, the United States Government,
their agencies and instrumentalities) if immediately after and as a result of
such investment the market value of the holdings of the Fund in the securities
of such issuer exceeded 5% of the Fund's total assets, taken at market value.
Under present law, a mutual fund can be classified as a diversified company
yet meet less stringent conditions. Current applicable law regarding
diversification of assets requires that with respect to 75% of its total assets,
a diversified mutual fund may not invest more than 5% of its total assets (taken
at market value at the time of each investment) in the securities of any one
issuer or acquire more than 10% of the voting securities of any one issuer. The
U.S. Government, its agencies and instrumentalities are not included within the
definition of "issuer" for purposes of these limitations. At one time,
applicable state securities regulations applied the diversification restriction
to 100% of a mutual fund's assets, thereby prohibiting an investment
19
<PAGE> 22
company from investing more than 5% of total assets in a single issuer or from
holding more than 10% of the voting securities of a single issuer; however,
these state regulation imposed limitations have been eliminated.
As a non-diversified fund, the Fund is not subject to the above described
investment restriction. A "non-diversified" mutual fund is able to invest more
than 5% of the value of its assets in the obligations of a single issuer subject
to the diversification requirements of Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"). To qualify for the special treatment afforded
regulated investment companies 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.
Although changing from a diversified to a non-diversified fund increased
the flexibility with which the Manager can manage the Fund's assets, to the
extent the Fund invests a relatively high percentage of its assets in
obligations of a limited number of issuers, the Fund may be more susceptible
than would be a more widely diversified fund to any single economic, political
or regulatory occurrence or to changes in an issuer's financial condition or in
the market's assessment of the issuers.
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
The Board of Directors of the Fund consists of six individuals, five of
whom are not "interested persons" of the Fund as defined in the Investment
Company Act. The Directors of the Fund are responsible for the overall
supervision of the operations of the Fund and perform the various duties imposed
on the directors of investment companies by the Investment Company Act.
The Directors of the Fund are:
ARTHUR ZEIKEL* -- President 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.
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.
20
<PAGE> 23
EDWARD D. ZINBARG -- Former Executive Vice President of The Prudential
Insurance Company of America.
- ---------------
*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 130 other registered investment companies. The Manager also offers
portfolio management and portfolio analysis services to individuals and
institutions. As of March 31, 1995, the Manager and FAM had a total of
approximately $170.3 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, 1994, the management
fee paid by the Fund to the Manager aggregated $8,074,688 (based on average net
assets of approximately $1.4 billion). At March 31, 1995, the net assets of the
Fund aggregated approximately $1.5 billion. At this asset level, the annual
management fee would aggregate approximately $9.3 million.
Stephen I. Silverman, Vice President of the Fund, is the Fund's Portfolio
Manager. Mr. Silverman has been a Vice President and Portfolio Manager of the
Manager and its predecessor since 1983. Mr. Silverman has been primarily
responsible for the management of the Fund's portfolio since 1983.
The Management Agreement obligates the Fund to pay certain expenses
incurred in its operations, including, among other things, the management fee;
legal and audit fees; unaffiliated Directors' fees and expenses; registration
fees; custodian and transfer agency fees; accounting and pricing costs; the
costs of printing proxies; and certain of the costs of printing shareholder
reports, prospectuses and statements of additional information.
Accounting services are provided to the Fund by the Manager, and the Fund
reimburses the Manager for its costs in connection with such services on a
semi-annual basis. For the fiscal year ended December 31, 1994, the amount of
such reimbursement was $157,585. For the fiscal year ended December 31, 1994,
for Class A shares, the ratio of total expenses to average net assets was 0.91%,
and for Class B shares, the ratio of total expenses to average net assets was
1.94%. For the fiscal period October 21, 1994 (commencement of operations for
Class C and Class D shares) to December 31, 1994, the ratio of total expenses to
average net assets for Class C shares was 2.17% (annualized), and the ratio of
total expenses to average net assets for Class D shares was 1.42% (annualized).
21
<PAGE> 24
CODE OF ETHICS
The Board of Directors of the Fund has adopted a Code of Ethics under Rule
17j-1 of the Investment Company Act which incorporates the Code of Ethics of the
Manager (together, the "Codes"). The Codes significantly restrict the personal
investing activities of all employees of the Manager and, as described below,
impose additional, more onerous, restrictions on fund investment personnel.
The Codes require that all employees of the Manager preclear any personal
securities investment (with limited exceptions, such as government securities).
The preclearance requirement and associated procedures are designed to identify
any substantive prohibition or limitation applicable to the proposed investment.
The substantive restrictions applicable to all employees of the Manager include
a ban on acquiring any securities in a "hot" initial public offering and a
prohibition from profiting on short-term trading in securities. In addition, no
employee may purchase or sell any security which at the time is being purchased
or sold (as the case may be), or to the knowledge of the employee is being
considered for purchase or sale, by any fund advised by the Manager.
Furthermore, the Codes provide for trading "blackout periods" which prohibit
trading by investment personnel of the Fund within periods of trading by the
Fund in the same (or equivalent) security (15 or 30 days depending upon the
transaction).
TRANSFER AGENCY SERVICES
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, 1994, the Fund paid $2,018,398 to the Transfer Agent pursuant to
the Transfer Agency Agreement. At March 31, 1995, the Fund had 78,397 Class A
shareholder accounts, 98,734 Class B shareholder accounts (including certain
subaccounts on which the standard annual transfer agency fees are assessed),
2,455 Class C shareholder accounts and 4,371 Class D shareholder accounts. At
this level of accounts, the annual fee payable to the Transfer Agent would
aggregate approximately $2.3 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,
22
<PAGE> 25
depending upon the class of shares selected by the investor under the Merrill
Lynch Select Pricing(SM) System, as described below. As to purchase orders
received by securities dealers prior to the close of business on the New York
Stock Exchange (generally, 4:00 p.m. New York time), which includes orders
received after the close of business on the previous day, the applicable
offering price will be based on the net asset value determined as of 15 minutes
after the close of business on the New York Stock Exchange on that day, provided
the Distributor in turn receives the orders from the securities dealer prior to
30 minutes after the close of business on the New York Stock Exchange 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 prior to 30 minutes after
the close of business on the New York Stock Exchange, such orders shall be
deemed received on the next business day. Any order may be rejected by the
Distributor or the Fund. The Fund or the Distributor may suspend the continuous
offering of the Fund's shares of any class at any time in response to conditions
in the securities markets or otherwise and may thereafter resume such offering
from time to time. Any order may be rejected by the Distributor or the Fund.
Neither the Distributor nor the dealers are permitted to withhold placing orders
to benefit themselves by a price change. Merrill Lynch may charge its customers
a processing fee (presently $4.85) to confirm a sale of shares to such
customers. Purchases directly through the Transfer Agent are not subject to the
processing fee.
The Fund issues four classes of shares under the Merrill Lynch Select
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, are imposed directly against those classes and not against all
assets of the Fund and, accordingly, such charges do not affect the net asset
value of any other class or have any impact on investors choosing another sales
charge option. Dividends paid by the Fund for each class of shares are
calculated in the same manner at the same time and will differ only to the
extent that account maintenance and distribution fees and any incremental
transfer agency costs relating to a particular class are borne exclusively by
that class. Class B, Class C and Class D shares each have exclusive voting
rights with respect to the Rule 12b-1 distribution plan adopted with respect to
such class pursuant to which account maintenance and/or distribution fees are
paid. See "Distribution Plans" below. Each class has different exchange
privileges. See "Shareholder Services -- Exchange Privilege".
23
<PAGE> 26
Investors should understand that the purpose and function of the initial
sales charges with respect to Class A and Class D shares are the same as those
of the deferred sales charges with respect to Class B and Class C shares in that
the sales charges applicable to each class provide for the financing of the
distribution of the shares of the Fund. The distribution-related revenues paid
with respect to a class will not be used to finance the distribution
expenditures of another class. Sales personnel may receive different
compensation for selling different classes of shares. Investors are advised that
only Class A and Class D shares may be available for purchase through securities
dealers, other than Merrill Lynch, which are eligible to sell shares.
The following table sets forth a summary of the distribution arrangements
for each class of shares under the Merrill Lynch Select Pricing(SM) System.
<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. 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.
24
<PAGE> 27
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>
- ---------------
* 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 Employer Sponsored Retirement or Savings Plans.
The Distributor may reallow discounts to selected dealers and retain the
balance over such discounts. At times the Distributor may reallow the entire
sales charge to such dealers. Since securities dealers selling Class A and Class
D shares of the Fund will receive a concession equal to most of the sales
charge, they may be deemed to be underwriters under the Securities Act. During
the fiscal year ended December 31, 1994, the Fund sold 10,984,489 Class A shares
for aggregate net proceeds of $247,288,984. The gross sales charges for the sale
of Class A shares of the Fund for that year were $3,046,441, of which $200,828
and $2,845,613 were received by the Distributor and Merrill Lynch, respectively.
For the fiscal year ended December 31, 1994, the Distributor received CDSCs of
$26,322, 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. During the fiscal period October 21, 1994 (commencement of
operations for Class D shares) to December 31, 1994, the Fund sold 624,623 Class
D shares for aggregate net proceeds of $13,638,511. The gross sales charges for
the sale of Class D shares of the Fund for that period were $195,085, of which
$11,704 and $183,381 were received by the Distributor and Merrill Lynch,
respectively. During such period, the Distributor did not receive CDSCs with
respect to redemption within one year after purchase of Class D shares purchased
subject to front-end sales charge waivers.
Eligible Class A Investors. Class A shares are offered to a limited group
of investors and also will be issued upon reinvestment of dividends on
outstanding Class A shares. Investors that currently own Class A shares of the
Fund in a shareholder account, including participants in the Merrill Lynch
Blueprint(SM) Program, are entitled to purchase additional Class A shares of the
Fund in that account. Certain employer sponsored retirement or savings plans,
including eligible 401(k) plans, may purchase Class A shares at net asset value
provided such plans meet the required minimum number of eligible employees or
required amount of assets advised by MLAM or any of its affiliates. Class A
shares are available at net asset value to corporate warranty insurance reserve
fund programs provided that the program has $3 million or more initially
invested in MLAM-advised mutual funds. Also eligible to purchase Class A shares
at net asset value are participants in
25
<PAGE> 28
certain investment programs including TMA(SM) Managed Trusts to which Merrill
Lynch Trust Company provides discretionary trustee services and certain
purchases made in connection with the Merrill Lynch Mutual Fund Adviser program.
In addition, Class A shares will be offered to ML & Co. and its subsidiaries and
their directors and employees and to members of the Boards of MLAM-advised
investment companies, including the Fund. Certain persons who acquired shares of
certain MLAM-advised closed-end funds 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".
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.
26
<PAGE> 29
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.
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, 1994, the Distributor received CDSCs of
$1,830,114 with respect to redemptions of Class B shares, all of which were paid
to Merrill Lynch. For the fiscal period October 21, 1994
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<PAGE> 30
(commencement of operations for Class C shares) to December 31, 1994, the
Distributor received $1 in CDSCs with respect to the redemption of Class C
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 a CDSC because of dividend reinvestment. With respect to
the remaining 40 shares, the CDSC is applied only to the original cost of $10
per share and not to the increase in net asset value of $2 per share. Therefore,
$400 of the $600 redemption proceeds will be charged at a rate of 2.0% (the
applicable rate in the third year after purchase for shares purchased on or
after October 21, 1994).
The Class B CDSC is waived on redemptions of shares in connection with
certain post-retirement withdrawals from an Individual Retirement Account
("IRA") or other retirement plan or following the death or disability (as
defined in the 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
28
<PAGE> 31
of shares from a shareholder's account to another account will be assumed to be
made in the same order as a redemption.
Conversion of Class B Shares to Class D Shares. After approximately eight
years (the "Conversion Period"), Class B shares will be converted automatically
into Class D shares of the Fund. Class D shares are subject to an ongoing
account maintenance fee of 0.25% of net assets but are not subject to the
distribution fee that is borne by Class B shares. Automatic conversion of Class
B shares into Class D shares will occur at least once each month (on the
"Conversion Date") on the basis of the relative net asset values of the shares
of the two classes on the Conversion Date, without the imposition of any sales
load, fee or other charge. Conversion of Class B shares to Class D shares will
not be deemed a purchase or sale of the shares for Federal income tax purposes.
In addition, shares purchased through reinvestment of dividends on Class B
shares also will convert automatically to Class D shares. The Conversion Date
for dividend reinvestment shares will be calculated taking into account the
length of time the shares underlying such dividend reinvestment shares were
outstanding. If at a Conversion Date the conversion of Class B shares to Class D
shares of the Fund in a single account will result in less than $50 worth of
Class B shares being left in the account, all of the Class B shares of the Fund
held in the account on the Conversion Date will be converted to Class D shares
of the Fund.
Share certificates for Class B shares of the Fund to be converted must be
delivered to the Transfer Agent at least one week prior to the Conversion Date
applicable to those shares. In the event such certificates are not received by
the Transfer Agent at least one week prior to the Conversion Date, the related
Class B shares will convert to Class D shares on the next scheduled Conversion
Date after such certificates are delivered.
In general, Class B shares of equity MLAM-advised mutual funds will convert
approximately eight years after initial purchase, and Class B shares of taxable
and tax-exempt fixed income MLAM-advised mutual funds will convert approximately
ten years after initial purchase. If, during the Conversion Period, a
shareholder exchanges Class B shares with an eight-year Conversion Period for
Class B shares with a ten-year Conversion Period, or vice versa, the Conversion
Period applicable to the Class B shares acquired in the exchange will apply, and
the holding period for the shares exchanged will be tacked onto the holding
period for the shares acquired.
The Conversion Period is modified for shareholders who purchased Class B
shares through certain retirement plans which qualified for a waiver of the CDSC
normally imposed on purchases of Class B shares ("Class B Retirement Plans").
When the first share of any MLAM-advised mutual fund purchased by a Class B
Retirement Plan has been held for ten years (i.e., ten years from the date the
relationship between MLAM-advised mutual funds and the Class B Retirement Plan
was established), all Class B shares of all MLAM-advised mutual funds held in
that Class B Retirement Plan will be converted into Class D shares of the
appropriate Funds. Subsequent to such conversion, that Class B Retirement Plan
will be sold Class D shares of the appropriate funds at net asset value.
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
29
<PAGE> 32
Class B and Class C Distribution Plans provide for the payment of account
maintenance fees and distribution fees, and the Class D Distribution Plan
provides for the payment of account maintenance fees.
The Distribution Plans for Class B, Class C and Class D shares each provide
that the Fund pays the Distributor an account maintenance fee relating to the
shares of the relevant class, accrued daily and paid monthly, at the annual rate
of 0.25% of the average daily net assets of the Fund attributable to shares of
the relevant class in order to compensate the Distributor and Merrill Lynch
(pursuant to a sub-agreement) in connection with account maintenance activities.
The Distribution Plans for Class B and Class C shares each provide that the
Fund also pays the Distributor a distribution fee relating to the shares of the
relevant class, accrued daily and paid monthly, at the annual rate of 0.75% of
the average daily net assets of the Fund attributable to the shares of the
relevant class in order to compensate the Distributor and Merrill Lynch
(pursuant to a sub-agreement) for providing shareholder and distribution
services, and bearing certain distribution-related expenses of the Fund,
including payments to financial consultants for selling Class B and Class C
shares of the Fund. The Distribution Plans relating to Class B and Class C
shares are designed to permit an investor to purchase Class B and Class C shares
through dealers without the assessment of an initial sales charge and at the
same time permit the dealer to compensate its financial consultants in
connection with the sale of the Class B and Class C shares. In this regard, the
purpose and function of the ongoing distribution fees and the CDSC are the same
as those of the initial sales charge with respect to the Class A and Class D
shares of the Fund in that the deferred sales charges provide for the financing
of the distribution of the Fund's Class B and Class C shares.
For the fiscal year ended December 31, 1994, the Fund paid the Distributor
$7,682,093 pursuant to the Class B Distribution Plan (based on average net
assets subject to the Class B Distribution Plan of approximately $770.3
million), all of which was paid to Merrill Lynch for providing account
maintenance and distribution-related activities and services in connection with
Class B shares. For the fiscal period October 21, 1994 (commencement of
operations for Class C shares) to December 31, 1994, the Fund paid the
Distributor $9,800 pursuant to the Class C Distribution Plan (based on average
net assets subject to the Class C Distribution Plan of approximately $5.3
million, all of which was paid to Merrill Lynch for providing account
maintenance and distribution-related activities and services in connection with
Class C shares. For the fiscal period October 21, 1994 (commencement of
operations for Class D shares) to December 31, 1994, the Fund paid the
Distributor $5,837 pursuant to the Class D Distribution Plan (based on average
net assets subject to such Distribution Plan of approximately $12.5 million),
all of which was paid to Merrill Lynch for providing account maintenance
services in connection with Class D shares. At March 31, 1995, the net assets of
the Fund subject to the Class B Distribution Plan aggregated approximately
$919.6 million. At this asset level, the annual fee payable pursuant to the
Class B Distribution Plan would aggregate approximately $9.2 million. At March
31, 1995, the net assets of the Fund subject to the Class C Distribution Plan
aggregated approximately $15.6 million. At this asset level, the annual fee
payable pursuant to the Class C Distribution Plan would aggregate approximately
$155,937. At March 31, 1995, the net assets of the Fund subject to the Class D
Distribution Plan aggregated approximately $34.4 million. At this asset level,
the annual fee payable pursuant to the Class D Distribution Plan would aggregate
approximately $85,883.
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
30
<PAGE> 33
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, 1994, direct cash revenues for the period since
commencement of the offering of Class B shares exceeded direct cash expenses by
$3,770,144 (0.41% of Class B net assets at that date). At such date, for Class B
shares, 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 $16,249,000 (1.78%
of Class B net assets at that date). Similar fully allocated accrual data is not
yet available with respect to Class C shares which the Fund commenced offering
to the public on October 21, 1994. As of December 31, 1994, for Class C shares,
direct cash expenses for the period since commencement of the offering of Class
C shares exceeded direct cash revenues by $26,607 (0.34% of Class C net assets
at the date).
The Fund has no obligation with respect to distribution and/or account
maintenance-related expenses incurred by the Distributor and Merrill Lynch in
connection with Class B, Class C and Class D shares, and there is no assurance
that the Directors of the Fund will approve the continuance of the Distribution
Plans from year to year. However, the Distributor intends to seek annual
continuation of the Distribution Plans. In their review of the Distribution
Plans, the Directors will be asked to take into consideration expenses incurred
in connection with the account maintenance and/or distribution of each class of
shares separately. The initial sales charges, the account maintenance fee, the
distribution fee and/or the CDSCs received with respect to one class will not be
used to subsidize the sale of shares of another class. Payments of the
distribution fee on Class B shares will terminate upon conversion of those Class
B shares into Class D shares as set forth under "Deferred Sales Charge
Alternatives -- Class B and Class C Shares -- Conversion of Class B Shares to
Class D Shares".
LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES
The maximum sales charge rule in the Rules of Fair Practice of the NASD
imposes a limitation on certain asset-based sales charges such as the Fund's
distribution fee and the CDSC borne by the Class B and Class C shares but not
the account maintenance fee. The maximum sales charge rule is applied separately
to each class. As applicable to the Fund, the maximum sales charge rule limits
the aggregate of distribution fee payments and CDSCs payable by the Fund to (1)
6 1/4% of eligible gross sales of Class B shares and Class C shares, computed
separately (defined to exclude shares issued pursuant to dividend reinvestments
and exchanges), plus (2) interest on the unpaid balance for the respective
class, computed separately, at the prime rate plus 1% (the unpaid balance being
the maximum amount payable minus amounts received from the payment of the
distribution 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
31
<PAGE> 34
waiving interest charges at any time. To the extent payments would exceed the
voluntary maximum, the Fund will not make further payments of the distribution
fee with respect to Class B shares, and any CDSCs will be paid to the Fund
rather than to the Distributor; however, the Fund will continue to make payments
of the account maintenance fee. In certain circumstances the amount payable
pursuant to the voluntary maximum may exceed the amount payable under the NASD
formula. In such circumstances payment in excess of the amount payable under the
NASD formula will not be made.
REDEMPTION OF SHARES
The Fund is required to redeem for cash all shares of the Fund on receipt
of a written request in proper form. The redemption price is the net asset value
per share next determined after the initial receipt of proper notice of
redemption. Except for any CDSC which may be applicable, there will be no charge
for redemption if the redemption request is sent directly to the Transfer Agent.
Shareholders liquidating their holdings will receive upon redemption all
dividends reinvested through the date of redemption. The value of shares at the
time of redemption may be more or less than the shareholder's cost, depending on
the market value of the securities held by the Fund at such time.
REDEMPTION
A shareholder wishing to redeem shares may do so by tendering the shares
directly to the Transfer Agent, Financial Data Services, Inc., Transfer Agency
Mutual Fund Operations, P.O. Box 45289, Jacksonville, Florida 32232-5289.
Redemption requests delivered other than by mail should be delivered to
Financial Data Services, Inc., Transfer Agency Mutual Fund Operations, 4800 Deer
Lake Drive East, Jacksonville, Florida 32246-6484. Proper notice of redemption
in the case of shares deposited with the Transfer Agent may be accomplished by a
written letter requesting redemption. Proper notice of redemption in the case of
shares for which certificates have been issued may be accomplished by a written
letter as noted above accompanied by certificates for the shares to be redeemed.
The notice in either event requires the signatures of all persons in whose names
the shares are registered, signed exactly as their names appear on the Transfer
Agent's register or on the certificates, as the case may be. The signatures on
the notice must be guaranteed by an "eligible guarantor institution" (including,
for example, Merrill Lynch branch offices and certain other financial
institutions) as such is defined in Rule 17Ad-15 under the Securities Exchange
Act of 1934, as amended, the existence and validity of which may be verified by
the Transfer Agent through the use of industry publications. Notarized
signatures are not sufficient. In certain instances, the Transfer Agent may
require additional documents, such as, but not limited to, trust instruments,
death certificates, appointments as executor or administrator, or certificates
of corporate authority. For shareholders redeeming directly with the Transfer
Agent, payment will be mailed within seven days of receipt of a proper notice of
redemption.
At various times the Fund may be requested to redeem shares for which it
has not yet received good payment. The Fund may delay or cause to be delayed the
mailing of a redemption check until such time as it has assured itself that good
payment (e.g., cash or certified check drawn on a U.S. bank) has been collected
for the purchase of such shares. Normally, this delay will not exceed 10 days.
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<PAGE> 35
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 30 minutes after the close of business on
the New York Stock Exchange (generally, 4:00 p.m., New York time) on the same
day. Dealers have the responsibility of submitting such repurchase requests to
the Fund not later than 30 minutes after the close of business on the New York
Stock Exchange 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.
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 Blueprint(SM) Program.
Full details as to each of such services, copies of the various plans
described below and instructions as to how to participate in the various
services or plans, or how to change options with respect thereto can be
obtained from the Fund by calling the telephone number on the cover page
hereof or from the Distributor or Merrill Lynch. 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
33
<PAGE> 36
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.
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.
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<PAGE> 37
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 are exchangeable with shares of the
same class of other MLAM-advised mutual funds.
Shares of the Fund which are subject to a CDSC are exchangeable on the
basis of relative net asset value per share without the payment of any CDSC that
might otherwise be due upon redemption of the shares of the Fund. For purposes
of computing the CDSC that may be payable upon a disposition of the shares
acquired in the exchange, the holding period for the previously owned shares of
the Fund is "tacked" to the holding period of the newly acquired shares of the
other Fund.
Class A, Class B, Class C and Class D shares also are exchangeable for
shares of certain MLAM-advised money market funds specifically designated as
available for exchange by holders of Class A, Class B, Class C or Class D
shares. The period of time that Class A, Class B, Class C or Class D shares are
held in a money market fund, however, will not count toward satisfaction of the
holding period requirement for reduction of any CDSC imposed on such shares, if
any, and, with respect to Class B shares, toward satisfaction of the Conversion
Period.
Class B shareholders of the Fund exercising the exchange privilege will
continue to be subject to the Fund's CDSC schedule if such schedule is higher
than the CDSC schedule relating to the new Class B shares. In addition, Class B
shares of the Fund acquired through use of the exchange privilege will be
subject to the Fund's CDSC schedule if such schedule is higher than the CDSC
schedule relating to the Class B shares of the MLAM-advised mutual fund from
which the exchange has been made.
Exercise of the exchange privilege is treated as a sale for Federal income
tax purposes. For further information, see "Shareholder Services -- Exchange
Privilege" in the Statement of Additional Information.
The 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 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
35
<PAGE> 38
be imposed on redemption of shares issued as a result of the automatic
reinvestment of dividends or capital gains distributions.
Systematic Withdrawal Plans. A Class A or Class D shareholder may elect to
receive systematic withdrawal payments from his Investment Account in the form
of payments by check or through automatic payment by direct deposit to his bank
account on either a monthly or quarterly basis. A Class A or Class D shareholder
whose shares are held within a CMA(R), CBA(R) or Retirement Account may elect to
have shares redeemed on a monthly, bimonthly, quarterly, semiannual or annual
basis through the CMA(R)/CBA(R) Systematic Redemption Program, subject to
certain conditions.
Automatic Investment Plans. Regular additions of Class A, Class B, Class C
and Class D shares may be made to an investor's Investment Account by
prearranged charges of $50 or more to his regular bank account. Investors who
maintain CMA(R) or CBA(R) accounts may arrange to have periodic investments made
in the Fund in their CMA(R) or CBA(R) accounts or in certain related accounts in
amounts of $100 or more through the CMA(R)/CBA(R) Automated Investment Program.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to policies established by the Board of Directors of the Fund, the
Manager is primarily responsible for the execution of the Fund's portfolio
transactions and the allocation of brokerage. In executing such transactions,
the Manager seeks to obtain the best net results for the Fund, taking into
account such factors as price (including the applicable brokerage commission or
dealer spread), size of order, difficulty of execution and operational
facilities of the firm involved and the firm's risk in positioning a block of
securities. While the Manager generally seeks reasonably competitive commission
rates, the Fund does not necessarily pay the lowest commission or spread
available. The Fund has no obligation to deal with any broker or group of
brokers in the execution of transactions in portfolio securities. The Fund
contemplates that, consistent with the above policy of obtaining the best net
results, a portion of its brokerage transactions with respect to equities may be
conducted through Merrill Lynch and its affiliates. Subject to obtaining the
best price and execution, brokers who provide supplemental investment research
to the Manager may receive orders for transactions by the Fund. Information so
received will be in addition to and not in lieu of the services required to be
performed by the Manager under the Management Agreement, and the expenses of the
Manager will not necessarily be reduced as a result of the receipt of such
supplemental information. It is possible that certain of the supplementary
investment research so received will primarily benefit one or more other
investment companies or other accounts for which investment discretion is
exercised. Conversely, the Fund may be the primary beneficiary of the research
or services received as a result of portfolio transactions effected for such
other accounts or investment companies. Consistent with the Rules of Fair
Practices of the 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.
36
<PAGE> 39
The Fund may invest in securities traded in the OTC markets and deals
directly with the dealers who make markets in the securities involved except in
those circumstances where better prices and execution are available elsewhere.
PERFORMANCE DATA
From time to time the Fund may include its average annual total return for
various specified time periods in advertisements or information furnished to
present or prospective shareholders. Average annual total return is computed
separately for Class A, Class B, Class C and Class D shares in accordance with a
formula specified by the Commission.
Average annual total return quotations for the specified periods will be
computed by finding the average annual compounded rates of return (based on net
investment income and any capital gains or losses on portfolio investments over
such periods) that would equate the initial amount invested to the redeemable
value of such investment at the end of each period. Average annual total return
will be computed assuming all dividends and distributions are reinvested and
taking into account all applicable recurring and nonrecurring expenses,
including any CDSC that would be applicable to a complete redemption of the
investment at the end of the specified period such as in the case of Class B and
Class C shares and the maximum sales charge in the case of Class A and Class D
shares. Dividends paid by the Fund with respect to all shares, to the extent any
dividends are paid, will be calculated in the same manner at the same time on
the same day and will be in the same amount, except that account maintenance and
distribution fees and any incremental transfer agency costs relating to each
class of shares will be borne exclusively by that class. The Fund will include
performance data for all classes of shares of the Fund in any advertisement or
information including performance data of the Fund.
The Fund also may quote total return and aggregate total return performance
data for various specified time periods. Such data will be calculated
substantially as described above, except that (1) the rates of return calculated
will not be average annual rates, but rather, actual annual, annualized or
aggregate rates of return, and (2) the maximum applicable sales charges will not
be included with respect to annual or annualized rates of return calculations.
Aside from the impact on the performance data calculations of including or
excluding the maximum applicable sales charges, actual annual or annualized
total return data generally will be lower than average annual total return data
since the average annual rates of return reflect compounding; aggregate total
return data generally will be higher than average annual total return data since
the aggregate rates of return reflect compounding over longer periods of time.
In advertisements directed to investors whose purchases are subject to reduced
sales charges in the case of Class A or Class D shares or waiver of the CDSC in
the case of Class B shares (such as investors in certain retirement plans) or to
reduced sales charges in the case of Class A and Class D shares, performance
data may take into account the reduced, and not the maximum, sales charge or may
not take into account the CDSC and therefore may reflect greater total return
since, due to the reduced sales charges or waiver of the CDSC, a lower amount of
expenses may be deducted. See "Purchase of Shares". The Fund's total return may
be expressed either as a percentage or as a dollar amount in order to illustrate
the effect of such total return on a hypothetical $1,000 investment in the Fund
at the beginning of each specified period.
Total return figures are based on the Fund's historical performance and are
not intended to indicate future performance. The Fund's total return will vary
depending on market conditions, the securities comprising the
37
<PAGE> 40
Fund's portfolio, the Fund's operating expenses and the amount of realized and
unrealized net capital gains or losses during the period. The value of an
investment in the Fund will fluctuate, and an investor's shares, when redeemed,
may be worth more or less than their original cost.
On occasion, the Fund may compare its performance to the Standard & Poor's
500 Composite Stock Price Index, the Dow Jones Industrial Average, or
performance data published by Lipper Analytical Services, Inc., Morningstar
Publications, Inc., Money Magazine, U.S. News & World Report, Business Week, CDA
Investment Technology, Inc., Forbes Magazine, Fortune Magazine or other industry
publications. In addition, from time to time the Fund may include its
risk-adjusted performance ratings assigned by Morningstar Publications, Inc. in
advertising or supplemental sales literature. As with other performance data,
performance comparisons should not be considered indicative of the Fund's
relative performance for any future period.
ADDITIONAL INFORMATION
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to distribute all of its net investment income and net
realized long- or short-term capital gains, if any, to the Fund's shareholders
at least annually. The per share dividends and distributions on each class of
shares will be reduced as a result of any account maintenance, distribution and
transfer agency fees applicable to that class. See "Additional
Information -- Determination of Net Asset Value". Dividends and distributions
are automatically reinvested in full and fractional shares of the Fund, without
a sales charge, at the net asset value per share next determined after the close
of 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 income 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 income dividend, reducing each
shareholder's tax basis in the Fund shares for Federal income tax purposes. See
"Additional Information -- Taxes".
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of all classes of the Fund is determined
once daily as of 15 minutes after the close of business on the New York Stock
Exchange (generally, 4:00 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
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<PAGE> 41
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 (although not necessarily meet)
immediately after the payment of dividends or distributions which will differ by
approximately the amount of the expense accrual differential between the
classes.
Portfolio securities which are traded on stock exchanges are valued at the
last sale price (regular way) on the exchange on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where
securities are traded on more than one exchange, the securities are valued on
the exchange designated by or under the authority of the Board of Directors as
the primary market. However, in certain circumstances, the Fund will value a
security traded on a Japanese stock exchange based upon the last bid or ask
price as reported on such exchange after trading in such security has been
halted for the day. Japanese stock exchanges may impose limits, based on a
percentage of a security's value, on the amount such security may move in a
single day. If the security reaches its limit during the day, further trading is
halted. However, a bid or ask quotation may be reported following the suspension
of trading. Management of the Fund believes such bid or ask quotation is more
indicative of where trading in the security will open on the following business
day and is more representative of the security's value at the close of trading
on the exchange than is the last sale. In situations where both a bid and ask
price are reported following a trading suspension due to the circumstances
described above, the Fund will utilize the bid price for valuation purposes.
Securities traded in the 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.
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
39
<PAGE> 42
as ordinary income. Distributions made from the Fund's net realized long-term
capital gains (including long-term gains from certain transactions in warrants,
futures and options) ("capital gain dividends") are taxable to shareholders as
long-term capital gains, regardless of the length of time the shareholder has
owned Fund shares. 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.
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.
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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 were held as a capital asset).
No gain or loss will be recognized by Class B shareholders on the
conversion of their Class B shares into Class D shares. A shareholder's basis in
the Class D shares acquired will be the same as such shareholder's basis in the
Class B shares converted, and the holding period of the acquired Class D shares
will include the holding period for the converted Class B shares.
If a shareholder exercises an exchange privilege within 90 days of
acquiring the shares, then the loss the shareholder can recognize on the
exchange will be reduced (or the gain increased) to the extent any sales charge
paid to the Fund on the exchanged shares reduces any sales charge the
shareholder would have owed upon purchase of the new shares in the absence of
the exchange privilege. Instead, such sales charge will be treated as an amount
paid for the new shares.
A loss realized on a sale or exchange of shares of the Fund will be
disallowed if other Fund shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30 days
before and ending 30 days after the date that the shares are disposed of. In
such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative or administrative action either
prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state and
local taxes.
Certain states exempt from state income taxation dividends paid by RICs
which are derived from interest on U.S. Government obligations. State law varies
as to whether dividend income attributable to U.S. Government obligations is
exempt from state income tax.
Shareholders are urged to consult their tax advisers regarding specific
questions as to Federal, foreign, state or local taxes. Foreign investors should
consider applicable foreign taxes in their evaluation of an investment in the
Fund.
ORGANIZATION OF THE FUND
The Fund was incorporated under Maryland law on August 5, 1976. 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
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<PAGE> 44
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.
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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 shares, 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.)
<TABLE>
<S> <C>
1. .......................................................... 4. ..........................................................
2. .......................................................... 5. ..........................................................
3. .......................................................... 6. ..........................................................
</TABLE>
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>
<CAPTION>
Ordinary Income Dividends Long-term Capital Gains
--------------------------------- ---------------------------------
<S> <C> <C>
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> 46
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)
<TABLE>
<S> <C>
......................, 19....
Date of initial purchase
</TABLE>
Dear Sir/Madam:
Although I am not obligated to do so, I intend to purchase shares of Merrill
Lynch Pacific Fund, Inc. or any other investment company with an initial sales
charge or deferred sales charge for which Merrill Lynch Funds Distributor, Inc.
acts as distributor over the next 13 month period which will equal or exceed:
/ / $25,000 / / $50,000 / / $100,000 / / $250,000 / / $1,000,000
Each purchase will be made at the then reduced offering price applicable to
the amount checked above, as described in the Merrill Lynch Pacific Fund, Inc.
Prospectus.
I agree to the terms and conditions of this Letter of Intention. I hereby
irrevocably constitute and appoint Merrill Lynch Funds Distributor, Inc., my
attorney, with full power of substitution, to surrender for redemption any or
all shares of Merrill Lynch Pacific Fund, Inc. held as security.
<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
Branch Office, Address, Stamp
This form when completed should be mailed to:
Merrill Lynch Pacific Fund, Inc.
c/o Financial Data Services, Inc.
Transfer Agency Mutual Fund Operations
P.O. Box 45289
Jacksonville, Florida 32232-5289
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.
................................................................................
Dealer Name and Address
By .............................................................................
Authorized Signature of Dealer
- --------- ------------
- --------- ------------ ..............................
Branch-Code F/C No. F/C Last Name
- --------- ---------------
- --------- ---------------
Dealer's Customer A/C No.
A-2
<PAGE> 47
MERRILL LYNCH PACIFIC FUND, INC. -- AUTHORIZATION FORM (PART 2)
- --------------------------------------------------------------------------------
NOTE: THIS FORM IS REQUIRED TO APPLY FOR THE SYSTEMATIC WITHDRAWAL OR 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> 48
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.
FINANCIAL DATA SERVICES, INC.
You are hereby authorized to draw an ACH debit each month on my bank account for
investment in Merrill Lynch Pacific Fund, Inc., as indicated below:
Amount of each ACH debit $...................................................
Account No...................................................................
Please date and invest ACH debits on the 20th of each month
beginning_______________or as soon as thereafter as possible.
(month)
I agree that you are drawing these ACH debits voluntarily at my request and
that you shall not be liable for any loss arising from any delay in preparing or
failure to prepare any such debit. If I change banks or desire to terminate or
suspend this program, I agree to notify you promptly in writing. I hereby
authorize you to take any action to correct erroneous ACH debits of my bank
account or purchases of fund shares including liquidating shares of the Fund and
crediting my bank account. I further agree that 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
held in my account to offset the purchase made with the dishonored debit.
................. .......................................
Date Signature of Depositor
.......................................
Signature of Depositor
(If joint account, both must sign)
AUTHORIZATION TO HONOR ACH DEBITS
DRAWN BY FINANCIAL DATA SERVICES, INC.
To..........................................................................Bank
(Investor's Bank)
Bank Address....................................................................
City .......... State .......... Zip............................................
As a convenience to me, I hereby request and authorize you to pay and charge to
my account ACH debits drawn on my account by and payable to Financial Data
Services, Inc., I agree that your rights in respect to each such debit shall be
the same as if it were a check drawn on you and signed personally by me. This
authority is to remain in effect until revoked by me in writing. Until you
receive such notice, you shall be fully protected in honoring any such debit. I
further agree that if any such debit be dishonored, whether with or without
cause and whether intentionally or inadvertently, you shall be under no
liability.
................. .......................................
Date Signature of Depositor
................. .......................................
Bank Account Signature of Depositor
Number (If joint account, both must sign)
NOTE: IF AUTOMATIC INVESTMENT PLAN IS ELECTED, YOUR BLANK, UNSIGNED CHECK MARKED
"VOID" SHOULD ACCOMPANY THIS APPLICATION.
A-4
<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 08540-6400
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 PricingSM System............. 3
Financial Highlights.............................. 8
Special Considerations............................ 11
Investment Objective and Policies................. 12
Hedging Techniques.............................. 13
Investment Restrictions......................... 19
Management of the Fund............................ 20
Board of Directors.............................. 20
Management and Advisory Arrangements............ 21
Code of Ethics.................................. 22
Transfer Agency Services........................ 22
Purchase of Shares................................ 22
Initial Sales Charge Alternatives -- Class A and
Class D Shares................................ 24
Deferred Sales Charge Alternatives -- Class B
and Class C Shares............................ 26
Distribution Plans.............................. 29
Limitations on the Payment of Deferred
Sales Charges................................. 31
Redemption of Shares.............................. 32
Redemption...................................... 32
Repurchase...................................... 33
Reinstatement Privilege -- Class A
and Class D Shares............................ 33
Shareholder Services.............................. 33
Portfolio Transactions and Brokerage.............. 36
Performance Data.................................. 37
Additional Information............................ 38
Dividends and Distributions..................... 38
Determination of Net Asset Value................ 38
Taxes........................................... 39
Organization of the Fund........................ 41
Shareholder Reports............................. 42
Shareholder Inquiries........................... 42
Authorization Form................................ A-1
</TABLE>
Code #10073-0495
[LOGO]
MERRILL LYNCH
PACIFIC FUND, INC.
ART WORK
PROSPECTUS
April 28, 1995
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 non-diversified,
open-end, management investment company seeking long-term capital appreciation
primarily through investment in equities of corporations domiciled in Far
Eastern or Western Pacific countries, including Japan, Australia, Hong Kong and
Singapore. Current income from dividends and interest will not be an important
consideration in selecting portfolio securities. It is expected that under
normal conditions at least 80% of the Fund's net assets will be invested in Far
Eastern or Western Pacific corporate securities, primarily common stocks and
debt securities convertible into common stocks. The Fund is designed for U.S.
investors desiring to achieve diversification of investments by participation in
the economies of Far Eastern and Western Pacific countries. The Fund may seek to
hedge against investment, interest rate and currency risks through the use of
options, futures and foreign currency transactions.
------------------------
Pursuant to the Merrill Lynch Select Pricing(SM) System, the Fund offers
four classes of shares each with a different combination of sales charges,
ongoing fees and other features. The Merrill Lynch Select Pricing(SM) System
permits an investor to choose the method of purchasing shares that the
investor believes is most beneficial given the amount of the purchase, the
length of time the investor expects to hold the shares and other relevant
circumstances.
------------------------
This Statement of Additional Information of the Fund is not a prospectus
and should be read in conjunction with the prospectus of the Fund, dated April
28, 1995 (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 April 28, 1995.
<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, 1994 and 1993, the Fund's portfolio turnover rates were 23.84% and
13.25%, 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 securities holdings. By buying a put the Fund has a right to
sell the underlying security at the exercise price, thus limiting the Fund's
risk of loss through a decline in the market value of the security until the put
option expires. The amount of any appreciation in the value of the underlying
security will be offset partially by the amount of the premium paid for the put
option and any related transaction costs. Prior to its expiration, a put option
may be sold in a closing sale transaction, and profit or loss from the sale will
depend on whether the amount received is more or less than the premium paid for
the put option plus the related transaction cost. A closing sale transaction
cancels out the Fund's position as the purchaser of an option by means of an
offsetting sale of an identical option prior to the expiration of the option it
has purchased.
The Fund also may engage in transactions in stock index options and
futures, financial futures in U.S. and foreign agency and government securities
and corporate debt securities, and related options on such futures. A futures
contract is an agreement between two parties to buy and sell a particular
commodity, such as a security, or, in the case of an index-based futures
contract, to make and accept a cash settlement for a set price
3
<PAGE> 54
on a future date. A majority of transactions in futures contracts, however, do
not result in the actual delivery of the underlying instrument or cash
settlement, but are settled through liquidation, i.e., by entering into an
offsetting transaction. Futures contracts have been designed by boards of trade
which have been designated "contracts markets" by the Commodity Futures Trading
Commission ("CFTC").
The purchase or sale of a futures contract differs from the purchase or
sale of a security in that no price or premium is paid or received. Instead, an
amount of cash or securities acceptable to the broker and the relevant contract
market, which varies, but is typically between 2% to 15% of the contract amount,
must be deposited with the broker. This amount is known as "initial margin" and
represents a "good faith" deposit assuring the performance of both the purchaser
and seller under the futures contract. Subsequent payments to and from the
broker, called "variation margin", are required to be made on a daily basis as
the price of the futures contract fluctuates making the long and short positions
in the futures contracts more or less valuable, a process known as "mark to the
market". At any time prior to the settlement date of the futures contract, the
position may be closed out by taking an opposite position which will operate to
terminate the position in the futures contract. A final determination of
variation margin is then made, additional cash is required to be paid to or
released by the broker and the purchaser realizes a loss or gain. In addition, a
nominal commission is paid on each completed sale transaction.
The Fund has received an order from the 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 for the special tax treatment afforded regulated
investment companies 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 need not
be subject to this restriction. The cost to the Fund of engaging in foreign
currency transactions varies with such factors as the currencies involved, the
length of the contract period and the market conditions then prevailing. Since
transactions in foreign currency exchange usually are conducted on a principal
basis, no fees or commissions are involved.
Debt Securities. The Fund may hold convertible debt securities and, 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
6
<PAGE> 57
adverse impact on market price and the Fund's ability to dispose of particular
issues when necessary to meet the Fund's liquidity needs or in response to a
specific economic event such as a deterioration in the creditworthiness of the
issuer.
Adverse publicity and investor perceptions, which may not be based on
fundamental analysis, also may decrease the value and liquidity of high yield
securities, particularly in a thinly traded market. Factors adversely affecting
the market value of high yield securities are likely to affect adversely the
Fund's net asset value. In addition, the Fund may incur additional expenses to
the extent it is required to seek recovery upon a default on a portfolio holding
or to participate in the restructuring of an obligation.
INVESTMENT RESTRICTIONS
The Fund has adopted a number of fundamental and non-fundamental
restrictions and policies relating to the investment of its assets and its
activities. The fundamental policies set forth below may not be changed without
the approval of the holders of a majority of the Fund's outstanding voting
securities (which for this purpose and under the Investment Company Act means
the lesser of (i) 67% of the shares represented at a meeting at which more than
50% of the outstanding shares are represented or (ii) more than 50% of the
outstanding shares).
Under the fundamental investment restrictions, the Fund may not:
1. Invest more than 25% of its assets, taken at market value, in the
securities of issuers in any particular industry (excluding the U.S.
Government and its agencies and instrumentalities).
2. Make investments for the purpose of exercising control or
management.
3. Purchase or sell real estate, except that, to the extent permitted
by applicable law, the Fund may invest in securities directly or indirectly
secured by real estate or interests therein or issued by companies which
invest in real estate or interests therein.
4. Make loans to other persons, except that the acquisition of bonds,
debentures or other corporate debt securities and investment in government
obligations, commercial paper, pass-through instruments, certificates of
deposit, bankers acceptances, repurchase agreements or any similar
instruments shall not be deemed to be the making of a loan, and except
further that the Fund may lend its portfolio securities, provided that the
lending of portfolio securities may be made only in accordance with
applicable law and the guidelines set forth in the Fund's Prospectus and
Statement of Additional Information, as they may be amended from time to
time.
5. Issue senior securities to the extent such issuance would violate
applicable law.
6. Borrow money, except that (i) the Fund may borrow from banks (as
defined in the Investment Company Act) in amounts up to 33 1/3% of its
total assets (including the amount borrowed), (ii) the Fund may borrow up
to an additional 5% of its total assets 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
7
<PAGE> 58
may be amended from time to time, in connection with hedging transactions,
short sales, when-issued and forward commitment transactions and similar
investment strategies.
7. Underwrite securities of other issuers except insofar as the Fund
technically may be deemed an underwriter under the Securities Act of 1933,
as amended (the "Securities Act"), in selling portfolio securities.
8. Purchase or sell commodities or contracts on commodities, except to
the extent that the Fund may do so in accordance with applicable law and
the Fund's Prospectus and Statement of Additional Information, as they may
be amended from time to time, and without registering as a commodity pool
operator under the Commodity Exchange Act.
In addition, the Fund has adopted non-fundamental restrictions which may be
changed by the Board of Directors. Under the non-fundamental investment
restrictions, the Fund may not:
a. Purchase securities of other investment companies, except to the
extent such purchases are permitted by applicable law.
b. Make short sales of securities or maintain a short position, except
to the extent permitted by applicable law. The Fund currently does not
intend to engage in short sales, except short sales "against the box".
c. Invest in securities which cannot be readily resold because of
legal or contractual restrictions or which cannot otherwise be marketed,
redeemed or put to the issuer or a third party, if at the time of
acquisition more than 15% of its total assets would be invested in such
securities. This restriction shall not apply to securities which mature
within seven days or securities which the Board of Directors of the Fund
has otherwise determined to be liquid pursuant to applicable law.
Notwithstanding the 15% limitation herein, to the extent the laws of any
state in which the Fund's shares are registered or qualified for sale
require a lower limitation, the Fund will observe such limitation. As of
the date hereof, therefore, the Fund will not invest more than 10% of its
total assets in securities which are subject to this investment restriction
(c). Securities purchased in accordance with Rule 144A under the Securities
Act (a "Rule 144A security") and determined to be liquid by the Fund's
Board of Directors are not subject to the limitations set forth in this
investment restriction (c). Notwithstanding the fact that the Board may
determine that a Rule 144A security is liquid and not subject to
limitations set forth in this investment restriction (c), the State of Ohio
does not recognize Rule 144A securities as securities that are free of
restrictions as to resale. To the extent required by Ohio law, the Fund
will not invest more than 50% of its total assets in securities of issuers
that are restricted as to disposition, including Rule 144A securities, or
in securities of issuers having a record, together with predecessors, of
less that three years of continuous operation.
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.
8
<PAGE> 59
f. Purchase or retain the securities of any issuer, if those
individual officers and directors of the Fund, the officers and general
partner of the Manager, the directors of such general partner or the
officers and directors of any subsidiary thereof each owning beneficially
more than one-half of one percent of the securities of such issuer own in
the aggregate more than 5% of the securities of such issuer.
g. Invest in real estate limited partnership interests or interests in
oil, gas or other mineral leases, or exploration or development programs,
except that the Fund may invest in securities issued by companies that
engage in oil, gas or other mineral exploration or development activities.
h. Write, purchase or sell puts, calls, straddles, spreads or
combinations thereof, except to the extent permitted in the Fund's
Prospectus and Statement of Additional Information, as they may be amended
from time to time.
i. Notwithstanding fundamental investment restriction (6) above,
borrow amounts in excess of 5% of its total assets, taken at acquisition
cost or market value, whichever is lower, and then only from banks as a
temporary measure for extraordinary or emergency purposes.
The staff of the 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 15% of the total assets
of the Fund (10% to the extent required by certain state laws), taken at market
value, together with all other assets of the Fund which are illiquid or are not
otherwise readily marketable. However, if an OTC option is sold by the Fund to a
primary U.S. Government securities dealer recognized by the Federal Reserve Bank
of New York and if the Fund has the unconditional contractual right to
repurchase such OTC option from the dealer at a predetermined price, then the
Fund will treat as illiquid such amount of the underlying securities as is equal
to the repurchase price less the amount by which the option is "in-the-money"
(i.e., current market value of the underlying securities minus the option's
strike price). The repurchase price with the primary dealers is typically a
formula price which is generally based on a multiple of the premium received for
the option, plus the amount by which the option is "in-the-money". This policy
is not a fundamental policy of the Fund and may be amended by the Board of
Directors without the approval of the Fund's shareholders. The Fund will not
change or modify this policy, however, prior to the change or modification by
the Securities and Exchange Commission staff of its position.
Because of the affiliation of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") with the Fund, the Fund is prohibited from
engaging in certain transactions involving 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 in which Merrill Lynch or any of its affiliates participates as
an underwriter or dealer.
Nothing in the foregoing investment restrictions shall be deemed to
prohibit the Fund from purchasing the securities of any issuer pursuant to the
exercise of subscription rights distributed to the Fund by the issuer, except
that no such purchase may be made if as a result the Fund would not satisfy the
diversification requirements of the Internal Revenue Code of 1986, as amended.
9
<PAGE> 60
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
The Directors and principal executive officers of the Fund, their ages 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 (62)-- President and Director(1)(2) -- President of the
Manager (which term as used herein includes its corporate predecessors) since
1977; President of Fund Asset Management, L.P. ("FAM") (which term as used
herein includes its corporate predecessors) since 1977; President and Director
of Princeton Services, Inc. ("Princeton Services") since 1993; Executive Vice
President of Merrill Lynch 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 (68)-- 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 (68) -- 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(63)-- 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 (57)-- 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).
EDWARD D. ZINBARG (60)-- Director(2) -- 5 Hardwell Road, Short Hills, New
Jersey 07078-2117. Executive Vice President of The Prudential Insurance Company
of America from 1988 to 1994; former Director of Prudential Reinsurance Company
and former Trustee of the Prudential Foundation.
TERRY K. GLENN (54)-- 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 (61)-- Executive Vice President(1)(2) -- Senior Vice
President of the Manager and FAM since 1982; Senior Vice President of Princeton
Services since 1993.
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<PAGE> 61
DONALD C. BURKE (34)-- 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 (44)-- Vice President(1) -- Vice President of the
Manager since 1983.
GERALD M. RICHARD (45)-- 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 (43)-- 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 March 31, 1995, the Directors and officers of the Fund as a group (12
persons) owned an aggregate of less than 1% of the outstanding shares of the
Fund. At such date, Mr. Zeikel, a Director of the Fund, and the other officers
of the Fund owned less than 1% of the outstanding shares of common stock of
ML&Co.
COMPENSATION OF DIRECTORS
The Fund pays each Director not affiliated with the Manager a fee of $3,500
per year plus $500 per Board meeting attended, together with such Director's
actual out-of-pocket expenses relating to attendance at meetings. The Fund also
compensates members of its Audit Committee (the "Committee"), which consists of
all of the non-affiliated Directors, at a rate of $500 per committee meeting
attended. The Chairman of the Committee receives an additional fee of $250 per
meeting attended. Fees and expenses paid to the unaffiliated Directors
aggregated $45,734+ for the fiscal year ended December 31, 1994.
The following table sets forth for the year ended December 31, 1994,
compensation paid by the Fund to the non-interested Directors and for the year
ended December 31, 1994, the aggregate compensation paid by all investment
companies advised by the Manager and its affiliate, FAM ("MLAM/FAM Advised
Funds") to the non-interested Directors.
- ---------------
+During most of the fiscal year ended December 31, 1994, the Board consisted of
five Directors, four of whom were non-interested.
11
<PAGE> 62
<TABLE>
<CAPTION>
PENSION OR TOTAL COMPENSATION
RETIREMENT FROM FUND AND OTHER
AGGREGATE BENEFITS ACCRUED MLAM/FAM ADVISED
NAME OF COMPENSATION AS PART OF FUND FUNDS PAID TO
DIRECTOR FROM FUND EXPENSES DIRECTORS(1)
- ------------------------------------------------- ------------ ---------------- ---------------------
<S> <C> <C> <C>
Donald Cecil..................................... $ 12,250 None $ 276,350
Edward H. Meyer.................................. $ 11,000 None $ 251,600
Charles C. Reilly................................ $ 11,000 None $ 276,900
Richard R. West.................................. $ 11,000 None $ 300,900
Edward D. Zinbarg*............................... $ 11,000 None $ 125,500
</TABLE>
- ---------------
* Projected annual compensation for the Fund's current fiscal year. Mr. Zinbarg
was elected to the Fund's Board of Directors effective October 25, 1994.
(1) In addition to the Fund, the Directors serve on the boards of other MLAM/FAM
Advised Funds as follows: Mr. Cecil (34 boards); Mr. Meyer (34 boards); Mr.
Reilly (40 boards); Mr. West (40 boards); and Mr. Zinbarg (16 boards).
MANAGEMENT AND ADVISORY ARRANGEMENTS
Reference is made to "Management of the Fund -- Management and Advisory
Arrangements" in the Prospectus for certain information concerning the
management and advisory arrangements of the Fund.
Pursuant to the Fund's management agreement (the "Management Agreement"),
and subject to the direction of the Board of Directors, the Manager is
responsible for the actual management of the Fund's portfolio and constantly
reviews the Fund's holdings in light of its own research analysis and that from
other relevant sources. The responsibility for making decisions to buy, sell or
hold a particular security rests with the Manager. The Manager performs certain
other administrative services and provides all the office space, facilities,
equipment and necessary personnel for management of the Fund.
Securities held by the Fund may also be held by other clients to which the
Manager or its affiliate, FAM, provides investment advice. Transactions based
upon such advice during the same period by more than one client of the Manager
or FAM may increase the demand for securities being purchased or the supply of
securities being sold and thereby may have an adverse effect on price.
As compensation for its services, the Manager receives a fee from the Fund
at the end of each month at the annual rate of 0.60% of the average daily net
assets of the Fund. For the fiscal years ended December 31, 1992, 1993 and 1994,
the total management fees paid by the Fund to the Manager aggregated $2,542,910,
$4,179,008 and $8,074,688, 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, 1992, 1993 and 1994, no reimbursement of expenses was required
pursuant to the applicable expense limitation provisions discussed above.
12
<PAGE> 63
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 years ended
December 31, 1994, 1993 and 1992 the amounts of such reimbursement were
$157,585, $68,896 and $30,423, respectively. 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., and Princeton Services are "controlling persons" of the Manager
as defined under the Investment Company Act because of their ownership of its
voting securities or their power to exercise a controlling influence over its
management or policies.
Duration and Termination. Unless earlier terminated as described herein,
the Management Agreement will remain in effect from year to year if approved
annually (a) by the vote of the holders of a majority of the Fund's voting
securities (as defined in the Investment Company Act) or by its Board of
Directors and (b) by a majority of Directors who are not parties to such
agreement or interested persons of any such party. Such agreement will terminate
upon assignment and may be terminated without penalty on 60 days' written notice
at the option of either party thereto or by the vote of the shareholders of the
Fund.
PURCHASE OF SHARES
Reference is made to "Purchase of Shares" in the Prospectus for certain
information as to the purchase of Fund shares.
The Fund issues four classes of shares under the Merrill Lynch Select
PricingSM System: shares of Class A and Class D are sold to investors choosing
the initial sales charge alternatives, and shares of Class B and Class C are
sold to investors choosing the deferred sales charge alternatives. Each Class A,
Class B, Class C and Class D share of the Fund represents identical interests in
the investment portfolio of the Fund and has the same rights, except that Class
B, Class C and Class D shares bear the expenses of the ongoing account
maintenance fees, and Class B and Class C shares bear the expenses of the
ongoing distribution fees and the additional incremental transfer agency costs
resulting from the deferred sales charge arrangements. Class B, Class C and
Class D shares each have exclusive voting rights with respect to the Rule 12b-1
distribution plan adopted with respect to such class pursuant to which account
maintenance and/or
13
<PAGE> 64
distribution fees are paid. Each class has different exchange privileges. See
"Shareholder Services -- Exchange Privilege".
The Merrill Lynch Select Pricing(SM) System is used by more than 50 mutual
funds advised by the Manager, or an affiliate of the Manager, 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, 1992, 1993 and 1994, the Fund sold
its shares through the Distributor and Merrill Lynch, as dealers. The gross
sales charges for the sale of Class A shares of the Fund for the fiscal year
ended December 31, 1992, were $1,824,089, of which $61,995 and $1,762,094 were
received by the Distributor and Merrill Lynch, respectively. The gross sales
charges for the sale of Class A shares of the Fund for the fiscal year ended
December 31, 1993, were $3,636,042, of which $223,158 and $3,412,884 were
received by the Distributor and Merrill Lynch, respectively. The gross sales
charges for the sale of Class A shares of the Fund for the fiscal year ended
December 31, 1994, were $3,046,441, of which $200,828 and $2,845,613 were
received by the Distributor and Merrill Lynch, respectively. The gross sales
charges for the sale of its Class D shares for the fiscal period October 21,
1994 (commencement of operations) to December 31, 1994, were $195,085 of which
$183,381 was received by Merrill Lynch, and $11,704 was received by the
Distributor. During such periods, the Distributor received $26,322 in contingent
deferred sales charges with respect to redemptions within one year after
purchase of Class A shares purchased subject to front-end sales charge waivers,
all of which was paid to Merrill Lynch and no contingent deferred sales charges
with respect to redemptions within one year after purchase of Class D shares
purchased subject to front-end sales charge waivers.
The term "purchase" as used in the Prospectus and this Statement of
Additional Information refers to a single purchase by an individual, or to
concurrent purchases, which in the aggregate are at least equal to the
prescribed amounts, by an individual, his spouse and their children under the
age of 21 years purchasing shares for his or their own account and to single
purchases by a trustee or other fiduciary purchasing shares for a single trust
estate or single fiduciary account (including a pension, profit-sharing or other
employee benefit trust created pursuant to a plan qualified under Section 401 of
the 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
14
<PAGE> 65
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 Manager
who purchased such closed-end fund shares prior to October 21, 1994 (the date
the Merrill Lynch Select Pricing(SM) System commenced operations), and wish to
reinvest the net proceeds from a sale of their closed-end fund shares of common
stock in Eligible Class A Shares, if the conditions set forth below are
satisfied. Alternatively, closed-end fund shareholders who purchased such shares
on or after October 21, 1994, and wish to reinvest the Net proceeds from a sale
of their closed-end fund shares are offered Class A shares (if eligible to buy
Class A shares) or Class D shares of the Fund and other MLAM-advised mutual
funds ("Eligible Class D Shares"), if the following conditions are met. First,
the sale of the closed-end fund shares must be made through Merrill Lynch, and
the net proceeds therefrom must be immediately reinvested in Eligible Class A or
Class D Shares. Second, the closed-end fund shares must either have been
acquired in the initial public offering or be shares representing dividends from
shares of common stock acquired in such offering. Third, the closed-end fund
shares must have been continuously maintained in a Merrill Lynch securities
account. Fourth, there must be a minimum purchase of $250 to be eligible for the
investment option. 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.
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
15
<PAGE> 66
such confirmation. The right of accumulation may be amended or terminated at any
time. Shares held in the name of a nominee or custodian under pension,
profit-sharing, or other employee benefit plans may not be combined with other
shares to qualify for the right of accumulation.
Letter of Intention. Reduced sales charges are applicable to purchases
aggregating $25,000 or more of Class A or Class D shares of the Fund or any
other MLAM-advised mutual funds made within a 13-month period starting with the
first purchase pursuant to a Letter of Intention in the form provided in the
Prospectus. The Letter of Intention is available only to investors whose
accounts are maintained at the Fund's transfer agent. The Letter of Intention is
not available to employee benefit plans for which Merrill Lynch provides
plan-participant record-keeping services. The Letter of Intention is not a
binding obligation to purchase any amount of Class A or Class D shares; however,
its execution will result in the purchaser paying a lower sales charge at the
appropriate quantity purchase level. A purchase not originally made pursuant to
a Letter of Intention may be included under a subsequent Letter of Intention
executed within 90 days of such purchase if the Distributor is informed in
writing of this intent within such 90-day period. The value of Class A and Class
D shares of the Fund and of other MLAM-advised mutual funds presently held, at
cost or maximum offering price (whichever is higher), on the date of the first
purchase under the Letter of Intention, may be included as a credit toward
completion of such Letter but the reduced sales charge applicable to the amount
covered by such Letter will be applied only to new purchases. If the total
amount of shares does not equal the amount stated in the Letter of Intention
(minimum of $25,000), the investor will be notified and must pay, within 20 days
of the expiration of such Letter, the difference between the sales charge on the
Class A or Class D shares purchased at the reduced rate and the sales charge
applicable to the shares actually purchased through the Letter. Class A or Class
D shares equal to five percent of the intended amount will be held in escrow
during the 13-month period (while remaining registered in the name of the
purchaser) for this purpose. The first purchase under the Letter of Intention
must be at least five percent of the dollar amount of such Letter. If a purchase
during the term of such Letter would otherwise be subject to a further reduced
sales charge based on the right of accumulation, the purchaser will be entitled
on that purchase and subsequent purchases to the reduced percentage sales charge
which would be applicable to a single purchase equal to the total dollar value
of the Class A or Class D shares then being purchased under such Letter, but
there will be no retroactive reduction of the sales charges on any previous
purchase. The value of any shares redeemed or otherwise disposed of by the
purchaser prior to termination or completion of the Letter of Intention will be
deducted from the total purchases made under such Letter. An exchange from a
MLAM-advised money market fund into the Fund that creates a sales charge will
count toward completing a new or existing Letter of Intention from the Fund.
Merrill Lynch Blueprint(SM) Program. Class D shares of the Fund are
offered to participants in the Merrill Lynch Blueprint(SM) Program
("Blueprint"). In addition, participants in Blueprint who own Class A shares
of the Fund may purchase additional Class A shares of the Fund through
Blueprint. Blueprint is directed to small investors, group IRAs and
participants in certain affinity groups such as credit unions, trade
associations and benefit plans. Investors placing orders to purchase Class A
or Class D shares of the Fund through Blueprint will acquire the Class A or
Class D shares at net asset value plus a sales charge calculated in accordance
with the Blueprint sales charge schedule (i.e., up to $300 at 4.25%, from
$300.01 to $5,000 at 3.25% plus $3.00 and $5,000.01 or more at the standard
sales charge rates disclosed in the Prospectus). In addition, Class A or Class
D shares of the Fund are offered at net asset value plus a sales charge of 1/2
of 1% for corporate or group IRA programs placing orders to purchase their
Class A or Class D shares through
16
<PAGE> 67
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 BlueprintSM 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 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 or Class D shares at net asset value has the
option of (i) purchasing Class D shares at the initial sales charge schedule
disclosed in the Prospectus for purchases of up to $1,000,000 and at 0.75% for
purchases of $1,000,000 or more, (ii) 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 (iii) if
17
<PAGE> 68
the Employer Sponsored Retirement or Savings Plan does not qualify to purchase
Class B shares with a waiver upon redemption, purchasing Class B or Class C
shares at their respective CDSC schedule disclosed in the Prospectus.
Certain Employer Sponsored Retirement or Savings Plans, which were
permitted prior to October 21, 1994, to purchase Class A shares at the initial
sales charge schedule in the then current prospectus for purchases up to
$1,000,000 and at 0.75% for purchases of $1,000,000 or more, may purchase Class
A shares at the initial sales charge schedule disclosed in the Prospectus for
purchases of up to $1,000,000 and at 0.75% for purchases of $1,000,000 or more.
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 ML & Co. includes MLAM, FAM and certain other entities directly or
indirectly wholly-owned and controlled by ML & Co.), and any trust, pension,
profit-sharing or other benefit plan for such persons may purchase Class A
shares of the Fund at net asset value.
Class D shares of the Fund are offered at net asset value, without a sales
charge, to an investor who has a business relationship with a financial
consultant who joined Merrill Lynch from another investment firm within six
months prior to the date of purchase by such investor if the following
conditions are satisfied. First, the investor must advise Merrill Lynch that it
will purchase Class D shares of the Fund with proceeds from a redemption of a
mutual fund that was sponsored by the financial consultant's previous firm and
was subject to a sales charge either at the time of purchase or on a deferred
basis. 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 the shares of such other
fund were 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 are offered at net asset value, without a sales
charge, to an investor who has a business relationship with a Merrill Lynch
financial consultant and who has invested in a mutual fund for which Merrill
Lynch has not served as a selected dealer if the following conditions are
satisfied: First, the investor must advise Merrill Lynch that it will purchase
Class D shares of the Fund with proceeds from the redemption of shares of such
other mutual fund and that such shares have been outstanding for a period of no
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
18
<PAGE> 69
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.
Payments of the account maintenance fees and/or distribution fees are
subject to the provisions of Rule 12b-1 under the Investment Company Act. Among
other things, each Distribution Plan provides that the Distributor shall provide
and the Directors shall review quarterly reports of the disbursement of the
account maintenance fees and/or distribution fees paid to the Distributor. In
their consideration of each Distribution Plan, the Directors must consider all
factors they deem relevant, including information as to the benefits of the
Distribution Plan to the Fund and to its related class of shareholders. Each
Distribution Plan further provides that, so long as the Distribution Plan
remains in effect, the selection and nomination of Directors who are not
"interested persons" of the Fund, as defined in the Investment Company Act (the
"Independent Directors"), shall be committed to the discretion of the
Independent Directors then in office. In approving each Distribution Plan in
accordance with Rule 12b-1, the Independent Directors concluded that there is
reasonable likelihood that such Distribution Plan will benefit the Fund and its
related class of shareholders. Each Distribution Plan can be terminated at any
time, without penalty, by the vote of a majority of the Independent Directors or
by the vote of the holders of a majority of the related class of voting
securities of the Fund. A Distribution Plan cannot be amended to increase
materially the amount to be spent by the Fund without the approval of the
related class of shareholder, and all material amendments are required to be
approved by the vote of Directors, including a majority of the Independent
Directors who have no direct or indirect financial interest in such Distribution
Plan, cast in person at a meeting called for that purpose. Rule 12b-1 further
requires that the Fund preserve copies of each Distribution Plan and any report
made pursuant to such plan for a period of not less than six years from the date
of such Distribution Plan or such report, the first two years in an easily
accessible place.
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<PAGE> 70
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 December 31,
1994 with respect to the Class B and Class C shares of the Fund indicating the
maximum allowable payments that can be made under the NASD maximum sales charge
rule and, with respect to Class B shares, the Distributor's voluntary maximum.
<TABLE>
<CAPTION>
DATA CALCULATED AS OF DECEMBER 31, 1994
------------------------------------------------------------------------------------------------
(IN THOUSANDS)
ANNUAL
ALLOWABLE DISTRIBUTION
ALLOWABLE INTEREST AMOUNTS FEE AT
ELIGIBLE AGGREGATE ON MAXIMUM PREVIOUSLY AGGREGATE CURRENT
GROSS SALES UNPAID AMOUNT PAID TO UNPAID NET ASSET
SALES(1) CHARGES BALANCE(2) PAYABLE DISTRIBUTOR(3) BALANCE LEVEL(4)
---------- --------- ---------- -------- -------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Class B Shares (for the fiscal
period October 21, 1988
(commencement of public
offering) to December 31,
1994):
Under NASD Rule as Adopted.... $ 950,570 $ 59,411 $6,575 $65,986 $ 14,608 $ 51,378 $ 6,865
---------- --------- ---------- -------- ------- --------- ------------
Under Distributor's
Voluntary Waiver............ $ 950,570 $ 59,411 $4,753 $64,164 $ 14,608 $ 49,556 $ 6,865
---------- --------- ---------- -------- ------- --------- ------------
(NOT IN THOUSANDS)
Class C Shares (for the fiscal
period October 21, 1994
(commencement of public
offering) to December 31,
1994):
Under NASD Rule As Adopted.... $6,809,470 $ 425,592 $3,484 $429,076 $ 7,351 $ 421,725 $ 58,804
---------- --------- ---------- -------- ------- --------- ------------
</TABLE>
- ---------------
(1) Purchase price of all eligible Class B or Class C shares sold during period
indicated other than shares acquired through dividend reinvestment and the
exchange privilege.
(footnotes continued on next page)
20
<PAGE> 71
(footnotes continued from previous page)
(2) Interest is computed on a monthly basis based upon the prime rate, as
reported in The Wall Street Journal, plus 1%, as permitted under the NASD
Rule.
(3) Consists of CDSC payments, distribution fee payments and accruals. Of the
distribution fee payments made with respect to Class B shares prior to July
7, 1993, under the distribution plan in effect at that time, at the 1.0%
rate, 0.75% of average daily net assets has been treated as a distribution
fee and 0.25% of average daily net assets has been deemed to have been a
service fee and not subject to the NASD maximum sales charge rule.
(4) Provided to illustrate the extent to which the current level of distribution
fee payments (not including any CDSC payments) is amortizing the unpaid
balance. No assurance can be given that payments of the distribution fee
will reach either the NASD maximum or, with respect to Class B shares, the
voluntary maximum.
REDEMPTION OF SHARES
Reference is made to "Redemption of Shares" in the Prospectus for certain
information as to the redemption and repurchase of Fund shares.
The right to receive payment with respect to any redemption of shares may
be suspended by the Fund for a period of up to seven days. Suspensions of more
than seven days may not be made except (1) for any period (a) during which the
New York Stock Exchange is closed other than customary weekend and holiday
closings or (b) during which trading on the New York Stock Exchange is
restricted; (2) for any period during which an emergency exists as a result of
which (a) disposal by the Fund of securities owned by it is not reasonably
practicable or (b) it is not reasonably practicable for the Fund fairly to
determine the value of its net assets; or (3) for such other periods as the
Securities and Exchange Commission (the "Commission") may by order permit for
the protection of security holders of the Fund. The Commission shall by rules
and regulations determine the conditions under which (i) trading shall be deemed
to be restricted and (ii) an emergency shall be deemed to exist within the
meaning of clause (2) above.
DEFERRED SALES CHARGES -- CLASS B AND CLASS C SHARES
As discussed in the Prospectus under "Purchase of Shares -- Deferred Sales
Charge Alternatives -- Class B and Class C Shares", while Class B shares
redeemed within four years of purchase are subject to a CDSC under most
circumstances, the charge is waived (i) on redemptions of Class B shares in
connection with certain post-retirement withdrawals from an Individual
Retirement Account ("IRA") or other retirement plan or (ii) on redemptions of
Class B shares following the death or disability of a Class B shareholder.
Redemptions for which the waiver applies are: (a) any partial or complete
redemption in connection with a distribution following retirement under a
tax-deferred retirement plan or attaining age 59 1/2 in the case of an IRA or
other retirement plan, or part of a series of equal periodic payments (not less
frequently than annually) made for the life (or life expectancy) or any
redemption resulting from the tax-free return of an excess contribution to an
IRA; or (b) any partial or complete redemption following the death or disability
(as defined in the Code) of a Class B shareholder (including one who owns the
Class B shares as joint tenant with his or her spouse), provided the redemption
is requested within one year of the death or initial determination of
disability. For the fiscal years ended December 31, 1992, 1993 and 1994, the
Distributor received CDSCs of $475,469, $1,036,912 and $1,830,114, respectively,
with regard to redemptions of Class B shares, all of which was paid to Merrill
Lynch. For the fiscal period October 21, 1994 (commencement of operations) to
December 31, 1994, the Distributor received CDSCs of $1 with regard to
redemptions of Class C shares, all of which was paid to Merrill Lynch.
21
<PAGE> 72
Merrill Lynch Blueprint(SM) Program. Class B shares are offered to
certain participants in Blueprint. Blueprint is directed to small investors,
group IRAs and participants in certain affinity groups such as trade
associations and credit unions. Class B shares of the Fund are offered through
Blueprint only to members of certain affinity groups. The CDSC is waived in
connection with purchase orders placed through Blueprint. Services, including
the exchange privilege, available to Class B investors through Blueprint,
however, may differ from those available to other investors in Class B shares.
Orders for purchases and redemptions of Class B shares of the Fund will be
grouped for execution purposes which, in some circumstances, may involve the
execution of such orders two business days following the day such orders are
placed. The minimum initial purchase price is $100, with a $50 minimum for
subsequent purchases through Blueprint. There is no minimum initial or
subsequent purchase requirement for investors who are part of the Blueprint
automatic investment plan. Additional information concerning these Blueprint
programs, including any annual fees or transaction charges, is available from
Merrill Lynch, Pierce, Fenner & Smith Incorporated, The Blueprint(SM) Program,
P.O. Box 30441, New Brunswick, New Jersey 08989-0441.
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
22
<PAGE> 73
the above policy of obtaining the best net results, a portion of its brokerage
transactions with respect to equities may be conducted through Merrill Lynch and
its affiliates. Subject to obtaining the best price and execution, brokers who
provide supplemental investment research to the Manager may receive orders for
transactions by the Fund. Information so received will be in addition to and not
in lieu of the services required to be performed by the Manager under its
agreement, and the expenses of the Manager will not necessarily be reduced as a
result of the receipt of such supplemental information. It is possible that
certain of the supplementary investment research so received will primarily
benefit one or more other investment companies or other accounts for which
investment discretion is exercised. Conversely, the Fund may be the primary
beneficiary of the research or services received as a result of portfolio
transactions effected for such other accounts or investment companies. In
addition, consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. and policies established by the Directors of the
Fund, the Manager may consider sales of shares of the Fund as a factor in the
selection of brokers or dealers to execute portfolio transactions for the Fund.
The Fund anticipates that its brokerage transactions involving securities
of corporations domiciled in Far Eastern or Western Pacific countries will be
conducted primarily on the principal stock exchanges of such countries.
Brokerage commissions and other transaction costs on foreign securities
exchanges are generally higher than commissions on U.S. transactions, although
the Fund will endeavor to achieve the best net results in effecting its
portfolio transactions. There is generally less government supervision and
regulations of foreign stock exchanges and brokers than in the United States.
Foreign equity securities may be held by the Fund in the form of American
Depositary Receipts (ADRs), European Depositary Receipts (EDRs), Global
Depositary Receipts (GDRs) or securities convertible into foreign equity
securities. ADRs, EDRs and GDRs may be listed on stock exchanges or traded in
the over-the-counter markets. ADRs and GDRs traded in the U.S., like other
securities traded in the U.S., will be subject to negotiated commission rates.
The Fund may invest in securities traded in the OTC markets and intends to
deal directly with the dealers who make markets in the securities involved,
except in those circumstances where better prices and execution are available
elsewhere. Under the Investment Company Act, persons affiliated with the Fund
and persons who are affiliated with such affiliated persons are prohibited from
dealing with the Fund as principal in the purchase and sale of securities unless
a permissive order allowing such transactions is obtained from the Commission.
Since transactions in the OTC market usually involve transactions with dealers
acting as principal for their own account, the Fund will not deal with
affiliated persons, including Merrill Lynch and its affiliates, in connection
with such transactions. However, affiliated persons of the Fund may serve as its
broker in listed or over-the-counter transactions conducted on an agency basis
provided that, among other things, the fee or commission received by such
affiliated broker is reasonable and fair compared to the fee or commission
received by non-affiliated brokers in connection with comparable transactions.
See "Investment Objective and Policies -- Investment Restrictions".
The Board of Directors has considered the possibilities of seeking to
recapture for the benefit of the Fund brokerage commissions and other expenses
of possible portfolio transactions by conducting portfolio transactions through
affiliated entities. For example, brokerage commissions received by affiliated
brokers could be offset against the management fee paid by the Fund. After
considering all factors deemed relevant, the Board of Directors made a
determination not to seek such recapture. The Board will reconsider this matter
from time to time.
23
<PAGE> 74
Section 11(a) of the Securities Exchange Act of 1934, as amended, generally
prohibits members of the U.S. national securities exchanges from executing
exchange transactions for their affiliates and institutional accounts which they
manage unless the member (i) has obtained prior express authorization from the
account to effect such transactions, (ii) at least annually furnishes the
account with a statement disclosing the aggregate compensation received by the
member in effecting such transactions, and (iii) complies with any rules the
Securities and Exchange Commission has prescribed with respect to the
requirements of clauses (i) and (ii). To the extent Section 11(a) would apply to
Merrill Lynch acting as a broker for the Fund in any of its portfolio
transactions executed on any such securities exchange of which it is a member,
appropriate consents have been obtained from the Fund and annual statements as
to aggregate compensation will be provided to the Fund.
For the fiscal year ended December 31, 1992, the Fund paid brokerage
commissions of $463,296. Merrill Lynch received $3,912, or 0.84% 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. For the fiscal year ended December
31, 1994, the Fund paid brokerage commissions of $3,851,175. Merrill Lynch
received $21,610 or 0.6% of such amount for effecting transactions involving
0.9% of the aggregate dollar amount of transactions in which the Fund paid
brokerage commissions.
DETERMINATION OF NET ASSET VALUE
Net asset value per share is determined once daily as of 15 minutes after
the close of business on the New York Stock Exchange (generally, 4:00 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 Class D shares; moreover the per
share net asset value of Class B and Class C shares generally will be lower than
the per share net asset value of its Class D shares reflecting the daily expense
accruals of the distribution fees and higher transfer agency fees applicable
with respect to Class B and Class C shares of the Fund. It is expected, however,
that the per share net asset value of the four classes will tend to converge
(although not necessarily meet) immediately after the payment of dividends or
distributions, which will differ by approximately the amount of the expense
accrual differential among the classes.
24
<PAGE> 75
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.
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services described below which are
designed to facilitate investment in its shares. Certain of such services are
not available to investors who place orders for the Fund's shares through the
Merrill Lynch Blueprint(SM) Program. Full details as to each of such services,
copies of the various plans described below and instructions as to how to
participate in the various services or plans, or how to change options with
respect thereto, can be obtained from the Fund by calling the telephone number
on the cover page hereof or from the Distributor or Merrill Lynch.
INVESTMENT ACCOUNT
Each shareholder whose account is maintained at the transfer agent has an
Investment Account and will receive 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. A shareholder may
make additions to his Investment Account at any time by mailing a check directly
to the Fund's transfer agent.
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<PAGE> 76
Share certificates are issued only for full shares and only upon the
specific request of the shareholder. Issuance of certificates representing all
or only part of the full shares in an Investment Account may be requested by a
shareholder directly from the transfer agent.
Shareholders considering transferring their Class A or Class D shares from
Merrill Lynch to another brokerage firm or financial institution should be aware
that, if the firm to which the Class A or Class D shares are to be transferred
will not take delivery of shares of the Fund, a shareholder either must redeem
the Class A or Class D shares (paying any applicable CDSC) so that the cash
proceeds can be transferred to the account at the new firm or such shareholder
must continue to maintain an Investment Account at the transfer agent for those
Class A or Class D shares. Shareholders interested in transferring their Class B
or Class C shares from Merrill Lynch and who do not wish to have an Investment
Account maintained for such shares at the transfer agent may request their new
brokerage firm to maintain such shares in an account registered in the name of
the brokerage firm for the benefit of the shareholder at the transfer agent. If
the new brokerage firm is willing to accommodate the shareholder in this manner,
the shareholder must request that he be issued certificates for his shares, and
then must turn the certificates over to the new firm for re-registration as
described in the preceding sentence. Shareholders considering transferring a
tax-deferred retirement account such as an individual retirement account from
Merrill Lynch to another brokerage firm or financial institution should be aware
that, if the firm to which the retirement account is to be transferred will not
take delivery of shares of the Fund, a shareholder must either redeem the shares
(paying any applicable CDSC) so that the cash proceeds can be transferred to the
account at the new firm, or such shareholder must continue to maintain a
retirement account at Merrill Lynch for those shares.
AUTOMATIC INVESTMENT PLANS
A U.S. shareholder may make additions to an Investment Account at any time
by purchasing Class A shares (if he or she is an eligible Class A investor as
described in the Prospectus) or Class B, Class C or Class D shares at the
applicable public offering price either through the shareholder's securities
dealer or by mail directly to the transfer agent, acting as agent for his
securities dealer. Voluntary accumulation also can be made through a service
known as the Fund's Automatic Investment Plan whereby the Fund is authorized
through pre-authorized checks or automated clearing house debits of $50 or more
to charge the regular bank account of the shareholder on a regular basis to
provide systematic additions to the Investment Account of such shareholder. For
investors who buy shares of the Fund through Blueprint no minimum charge to the
investor's bank account is required. Investors who maintain CMA(R) or CBA(R)
accounts may arrange to have periodic investments made in the Fund in their
CMA(R) or CBA(R) accounts or in certain related accounts in amounts of $100 or
more ($1 for retirement accounts) through the CMA(R)/CBA(R) Automated Investment
Program.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Unless specific instructions to the contrary are given as to the method of
payment of dividends and capital gains distributions, dividends and
distributions are automatically reinvested in full and fractional shares of the
Fund at the net asset value per share next determined after the close of 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
26
<PAGE> 77
received by the transfer agent sufficiently in advance of the record date
(approximately ten days) to permit the change to be entered in the shareholder
records.
Shareholders may, at any time, notify the transfer agent in writing or by
telephone (1-800-MER-FUND) that they no longer wish to have their dividends
and/or distributions reinvested in shares of the Fund or vice versa, and
commencing ten days after receipt by the transfer agent of such notice, those
instructions will be effected.
SYSTEMATIC WITHDRAWAL PLANS -- CLASS A AND CLASS D SHARES
A Class A or Class D shareholder may elect to make systematic withdrawals
from an Investment Account on either a monthly or quarterly basis as provided
below. Quarterly withdrawals are available for shareholders who have acquired
Class A or Class D shares of the Fund having a value, based upon cost or the
current offering price, of $5,000 or more, and monthly withdrawals are available
for shareholders with Class A or Class D shares with such a value of $10,000 or
more.
At the time of each withdrawal payment, sufficient Class A or Class D
shares are redeemed from those on deposit in the shareholder's Investment
Account to provide the withdrawal payment specified by the shareholder. The
shareholder may specify either a dollar amount or a percentage of the value of
his Class A or Class D shares. Redemptions will be made at the net asset value
next determined as of 15 minutes after the close of the New York Stock Exchange
(generally, 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.
Alternatively, a Class A or Class D shareholder whose shares are held with
a CMA(R), CBA(R) or Retirement Account may elect to have shares redeemed on a
monthly, bimonthly, quarterly, semiannual or annual basis through the
CMA(R)/CBA(R) Systematic Redemption Program. The minimum fixed dollar amount
redeemable is $25. The proceeds of systematic redemptions will be posted to the
shareholder's account five business days after the date the shares are redeemed.
Monthly systematic redemptions will be made at net asset value on the first
Monday of each month; bimonthly systematic redemptions will be made at net asset
27
<PAGE> 78
value on the first Monday of every other month; and quarterly, semiannual or
annual redemptions are made at net asset value on the first Monday of months
selected at the shareholder's option. If the first Monday of the month is a
holiday, the redemption will be processed at net asset value on the next
business day. The CMA(R)/CBA(R) Systematic Redemption Program is not available
if Fund shares are being purchased within the account pursuant to the Automatic
Investment Program. For more information on the CMA(R)/CBA(R) 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 time of the exchange or is
otherwise eligible to purchase Class A shares of the second fund. If the Class
A shareholder wants to exchange Class A shares for shares of a second
MLAM-advised mutual fund, but does not hold Class A shares of the second fund
in his account at the time of the exchange and is not otherwise eligible to
acquire Class A shares of the second fund, the shareholder will receive Class D
shares of the second fund as a result of the exchange. Class D shares also may
be exchanged for Class A shares of a second MLAM-advised mutual fund at any
time as long as, at the time of the exchange, the shareholder holds Class A
shares of the second fund in the account in which the exchange is made or is
otherwise eligible to purchase Class A shares of the second fund. Class B,
Class C and Class D shares are exchangeable with shares of the same class of
other MLAM-advised mutual funds. For purposes of computing the CDSC that may be
payable upon a disposition of the shares acquired in the exchange, the holding
period for the previously owned shares of the Fund is "tacked" to the holding
period 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 are 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 at least 15 days. It is contemplated that the
exchange privilege may be applicable to other new mutual funds whose shares may
be distributed by the Distributor.
Exchanges of Class A or Class D shares outstanding ("outstanding Class A or
Class D shares") for Class A or Class D shares of another MLAM-advised mutual
fund ("new Class A or Class D shares") are transacted on the basis of relative
net asset value per Class A or Class D share, respectively, plus an amount equal
to the difference, if any, between the sales charge previously paid on the
outstanding Class A or Class D shares and the sales charge payable at the time
of the exchange on the new Class A or Class D shares. With respect to
outstanding Class A or Class D shares as to which previous exchanges have taken
place, the "sales charge previously paid" shall include the aggregate of the
sales charge paid with respect to such Class A or Class D shares in the initial
purchase and any subsequent exchange. Class A or Class D shares issued pursuant
to dividend reinvestment are sold on a no-load basis in each of the funds
offering Class A or Class D shares. For purposes of the exchange privilege,
Class A and Class D shares acquired through dividend reinvestment shall be
deemed to have been sold with a sales charge equal to the sales charge
previously paid on the Class A or Class D shares on which the dividend was paid.
Based on this formula, Class A and Class D shares of the Fund generally may be
exchanged into the Class A or Class D shares of the other funds or into shares
of the Class A and Class D money market funds with a reduced or without a sales
charge.
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<PAGE> 79
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 Class B shares of the Fund for those of
Merrill Lynch Special Value Fund, Inc. ("Special Value Fund") after having held
the Fund Class B shares for two and a half years. The 2% CDSC that generally
would apply to a redemption would not apply to the exchange. Three years later
the investor may decide to redeem the Class B shares of Special Value Fund and
receive cash. There will be no CDSC due on this redemption, since by "tacking"
the two and a half year holding period of Fund Class B shares to the three year
holding period for the Special Value Fund Class B shares, the investor will be
deemed to have held the new 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.
</TABLE>
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<PAGE> 80
<TABLE>
<S> <C>
MERRILL LYNCH AMERICAS INCOME
FUND, INC...................... A high level of current income, consistent with prudent
investment risk, by investing primarily in debt securities
denominated in a currency of a country located in the
Western Hemisphere (i.e., North and South America and
the surrounding waters).
MERRILL LYNCH ARIZONA LIMITED
MATURITY MUNICIPAL BOND FUND..... A portfolio of Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust, a series fund, whose objective is
to provide as high a level of income exempt from Federal
and Arizona income taxes as is consistent with prudent
investment management through investment in a portfolio
primarily of intermediate-term investment grade Arizona
Municipal Bonds.
MERRILL LYNCH ARIZONA MUNICIPAL
BOND FUND........................ A portfolio of Merrill Lynch Multi-State Municipal Series
Trust, a series fund, whose objective is to provide 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 FU..ND...................... 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,
INC.............................. 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.
</TABLE>
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<PAGE> 81
<TABLE>
<S> <C>
MERRILL LYNCH BASIC VALUE FUND,
INC.............................. Capital appreciation and, secondarily, income through
investment in securities, primarily equities, that are
undervalued and therefore represent basic investment
value.
MERRILL LYNCH CALIFORNIA INSURED
MUNICIPAL BOND FUND.............. A portfolio of Merrill Lynch California Municipal Series
Trust, a series fund, whose objective is to provide 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.
</TABLE>
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<PAGE> 82
<TABLE>
<S> <C>
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 capital appreciation through investments in
securities, principally equities, of issuers in countries
having smaller capital markets.
MERRILL LYNCH DRAGON
FUND, INC........................ Capital appreciation primarily through investment in
equity and debt securities of issuers domiciled in
developing countries located in Asia and the Pacific
Basin, other than Japan, Australia and New Zealand.
MERRILL LYNCH EUROFUND........... Capital appreciation primarily through investment in
equity securities of corporations domiciled in Europe.
MERRILL LYNCH FEDERAL SECURITIES
TRUST............................ High current return through investments in U.S. Government
and Government agency securities, including GNMA
mortgage-backed certificates and other mortgage-backed
Government securities.
MERRILL LYNCH FLORIDA LIMITED
MATURITY MUNICIPAL BOND FUND..... A portfolio of Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust, a series fund, whose objective is
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.
</TABLE>
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<PAGE> 83
<TABLE>
<S> <C>
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.
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 FUNDAMENTAL VALUE
PORTFOLIO (available only for
exchanges by certain individual
retirement accounts for which
Merrill Lynch acts as
custodian)....................... A portfolio of Merrill Lynch Retirement Asset Builder
Program, Inc., a series fund, whose objective is to
provide capital appreciation and income by investing in
securities, with at least 65% of the portfolio's assets
being invested in equities.
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 OPPORTUNITY
PORTFOLIO (available only for
exchanges by certain individual
retirement accounts for which
Merrill Lynch acts as
custodian)....................... A portfolio of Merrill Lynch Retirement Asset Builder
Program, Inc., a series fund, whose objective is to
provide a high total investment return through an
investment policy utilizing United States and foreign
equity, debt and money market securities, the
combination of which will vary depending upon changing
market and economic trends.
</TABLE>
33
<PAGE> 84
<TABLE>
<S> <C>
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.
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.
</TABLE>
34
<PAGE> 85
<TABLE>
<S> <C>
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.
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 investment 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.
</TABLE>
35
<PAGE> 86
<TABLE>
<S> <C>
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.
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.
</TABLE>
36
<PAGE> 87
<TABLE>
<S> <C>
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.
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.
</TABLE>
37
<PAGE> 88
<TABLE>
<S> <C>
MERRILL LYNCH QUALITY BOND
PORTFOLIO (available only for
exchanges by certain individual
retirement accounts for which
Merrill Lynch acts as
custodian)..... ................ A portfolio of Merrill Lynch Retirement Asset Builder
Program, Inc., a series fund, whose objective is to
provide a high level of current income through
investment in a diversified portfolio of debt
obligations, such as corporate bonds and notes,
convertible securities, preferred stocks and
governmental obligations.
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 U.S. GOVERNMENT
SECURITIES PORTFOLIO (available
only for exchanges by certain
individual retirement accounts
for which Merrill Lynch acts as
custodian)....................... A portfolio of Merrill Lynch Retirement Asset Builder
Program, Inc., a series fund, whose objective is to
provide a 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 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.
</TABLE>
39
<PAGE> 90
<TABLE>
<S> <C>
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.
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.
40
<PAGE> 91
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to distribute all of its net investment income and net
realized long- or short-term capital gains, if any, to the Fund's shareholders
at least annually. See "Shareholder Services" for information concerning the
manner in which dividends and distributions are automatically reinvested in
shares of the Fund. Shareholders may elect in writing to receive any such
dividends or distributions, or both, in cash. Dividends and distributions are
taxable to investors whether received in cash or reinvested in additional shares
of the Fund. The per share dividends and distributions on Class B and Class C
shares will be lower than the per share dividends and distributions on Class A
and Class D shares as a result of the account maintenance, distribution and
higher transfer agency fees applicable with respect to the Class B and Class C
shares; similarly, the per share dividends and distributions on Class D shares
will be lower than the per share dividends and distributions on Class A shares
as a result of the account maintenance fees applicable with respect to the Class
D shares. See "Determination of Net Asset Value".
TAXES
The Fund intends to continue to qualify for the special tax treatment
afforded 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 warrants, futures and
options) ("capital gain dividends") are taxable to shareholders as long-term
capital gains, regardless of the length of time the shareholder has owned Fund
shares. Any loss upon the sale or exchange of Fund shares held for six months or
less, however, will be treated as long-term capital loss to the extent of any
capital gain dividends received by the shareholder. Distributions in excess of
the Fund's earnings and profits will first reduce the adjusted tax basis of a
holder's shares and, after such adjusted tax basis is reduced to zero, will
constitute capital gains to such holder (assuming the shares are held as a
capital asset).
Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Fund. Not later than 60 days after the close of its
taxable year, the Fund will provide its shareholders with a written notice
designating the amounts of any ordinary income dividends or capital gain
dividends. Distributions by the Fund, whether from ordinary income or capital
gains, generally will not be eligible for the dividends received deduction
allowed to corporations under the Code. If the Fund pays a dividend in January
which was declared in the previous October, November or December to shareholders
of record on a specified date in one of such months, then such dividend will be
treated for tax purposes as being paid by the Fund and received by its
shareholders on December 31 of the year in which such dividend was declared.
Ordinary income dividends paid 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
41
<PAGE> 92
applicable treaty law. Nonresident shareholders are urged to consult their own
tax advisers concerning the applicability of the U.S. withholding tax.
Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on ordinary income dividends, capital gain dividends and
redemption payments ("backup withholding"). Generally, shareholders subject to
backup withholding will be those for whom no certified taxpayer identification
number is on file with the Fund or who, to the Fund's knowledge, have furnished
an incorrect number. When establishing an account, an investor must certify
under penalty of perjury that such number is correct and that such investor is
not otherwise subject to backup withholding.
Dividends and interest received by the Fund may give rise to withholding
and other taxes imposed by foreign countries. Tax conventions between certain
countries and the U.S. may reduce or eliminate such taxes. Shareholders may be
able to claim U.S. foreign tax credits with respect to such taxes, subject to
certain conditions and limitations contained in the Code. For example, certain
retirement accounts cannot claim foreign tax credits on investments in foreign
securities held in the Fund. If more than 50% in value of the Fund's total
assets at the close of its fiscal year consists of securities of foreign
corporations, the Fund will be eligible, and intends, to file an election with
the Internal Revenue Service pursuant to which shareholders of the Fund will be
required to include their proportionate shares of such withholding taxes on
their U.S. income tax returns as gross income, treat such proportionate shares
as taxes paid by them and deduct such proportionate shares in computing their
taxable incomes or, alternatively, use them as foreign tax credits against their
U.S. income taxes. No deductions for foreign taxes, however, may be claimed by
noncorporate shareholders who do not itemize deductions. A shareholder that is a
nonresident alien individual or a foreign corporation may be subject to U.S.
withholding tax on the income resulting from the Fund's election described in
this paragraph but may not be able to claim a credit or deduction against such
U.S. tax for the foreign taxes treated as having been paid by such shareholder.
The Fund will report annually to its shareholders the amount per share of such
withholding taxes. For this purpose, the Fund will allocate foreign taxes and
foreign source income among the Class A, Class B, Class C and Class D
shareholders according to a method (which it believes is consistent with the
Securities and Exchange Commission 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
42
<PAGE> 93
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.
The Fund may invest in securities rated in the medium to lower rating
categories of nationally recognized rating organizations, and in unrated
securities ("high yield securities"), as described in the Prospectus. Some of
these high yield securities may be purchased at a discount and may therefore
cause the Fund to accrue income before amounts due under the obligations are
paid. In addition, a portion of the interest payments on such high yield
securities may be treated as dividends for Federal income tax purposes; in such
case, if the issuer of such high yield securities is a domestic corporation,
dividend payments by the Fund will be eligible for the dividends received
deduction to the extent of the deemed dividend portion of such interest
payments.
TAX TREATMENT OF OPTIONS, FUTURES AND FORWARD FOREIGN EXCHANGE TRANSACTIONS
The Fund may write, purchase or sell options, futures and forward foreign
exchange contracts. Options and futures contracts that are "Section 1256
contracts" will be "marked to market" for Federal income tax purposes at the end
of each taxable year, i.e., each such option or futures contract will be treated
as sold for its fair market value on the last day of the taxable year. Unless
such contract is a forward foreign exchange contract, or is a non-equity option
or a regulated futures contract for a non-U.S. currency for which the Fund
elects to have gain or loss treated as ordinary gain or loss under Code Section
988 (as described below), gain or loss from Section 1256 contracts will be 60%
long-term and 40% short-term capital gain or loss. 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 option or futures contract.
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<PAGE> 94
SPECIAL RULES FOR CERTAIN FOREIGN CURRENCY TRANSACTIONS
In general, gains from "foreign currencies" and from foreign currency
options, foreign currency futures and forward foreign exchange contracts
relating to investments in stock, securities or foreign currencies will be
qualifying income for purposes of determining whether the Fund qualifies as a
RIC. It is currently unclear, however, who will be treated as the issuer of a
foreign currency instrument or how foreign currency options, foreign currency
futures and forward foreign exchange contracts will be valued for purposes of
the RIC diversification requirements applicable to the Fund.
Under Code Section 988, special rules are provided for certain transactions
in a currency other than the taxpayer's functional currency (i.e., unless
certain special rules apply, currencies other than the U.S. dollar). In general,
foreign currency gains or losses from certain debt instruments, from certain
forward contracts, from futures contracts that are not "regulated futures
contracts" and from unlisted options will be treated as ordinary income or loss
under Code Section 988. In certain circumstances, the Fund may elect capital
gain or loss treatment for such transactions. Regulated futures contracts, as
described above, will be taxed under Code Section 1256 unless application of
Section 988 is elected by the Fund. In general, however, Code Section 988 gains
or losses will increase or decrease the amount of the Fund's investment company
taxable income available to be distributed to shareholders as ordinary income.
Additionally, if Code Section 988 losses exceed other investment company taxable
income during a taxable year, the Fund would not be able to make any ordinary
income dividend distributions, and 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 (assuming the
shares were held as a capital asset). These rules and mark-to-market rules
described above, however, will not apply to certain transactions entered into by
the Fund solely to reduce the risk of currency fluctuations with respect to its
investments.
The Treasury Department has authority to issue regulations concerning the
recharacterization of principal and interest payments with respect to debt
obligations issued in hyperinflationary currencies, which may include the
currencies of certain developing Asia-Pacific countries in which the Fund
intends to invest. No such regulations have been issued.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative 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.
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<PAGE> 95
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 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.
45
<PAGE> 96
Set forth below is total return information for Class A, Class B, Class C
and Class D shares of the Fund for the periods indicated.
<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 December 31, 1994......... (2.51)% $ 974.90 (2.11)% $ 978.90
Five Years Ended December 31, 1994....... 5.09 % $1,282.00 5.16 % $1,286.10
Ten Years Ended December 31, 1994........ 18.53 % $5,474.90
Inception (October 21, 1988) to
December 31, 1994...................... 8.45 % $1,653.10
</TABLE>
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURN
YEAR ENDED DECEMBER 31, (excluding maximum applicable sales charges)
- -----------------------------------------
<S> <C> <C> <C> <C>
1994..................................... 2.90 % $1,029.00 1.87 % $1,018.70
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
Inception (October 21, 1988) to
December 31, 1988...................... 13.37 % $1,133.70
</TABLE>
<TABLE>
<CAPTION>
AGGREGATE TOTAL RETURN
(including maximum applicable sales charges)
<S> <C> <C> <C> <C>
Inception (September 23, 1976) to
December 31, 1994...................... 1,506.38 % $16,063.80
Inception (October 21, 1988) to
December 31, 1994...................... 65.31 % $1,653.10
</TABLE>
46
<PAGE> 97
<TABLE>
<CAPTION>
CLASS C SHARES CLASS D 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>
Inception (October 21, 1994) to
December 31, 1994.................... (23.04)% $950.30 (38.34)% $910.20
</TABLE>
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURN
(excluding maximum applicable sales charges)
<S> <C> <C> <C> <C>
Inception (October 21, 1994) to
December 31, 1994.................... (4.04)% $959.60 (3.93)% $960.70
</TABLE>
<TABLE>
<CAPTION>
AGGREGATE TOTAL RETURN
(including maximum applicable sales charges)
<S> <C> <C> <C> <C>
Inception (October 21, 1994) to
December 31, 1994.................... (4.97)% $950.30 (8.98)% $910.20
</TABLE>
In order to reflect the reduced sales charges in the case of Class A or
Class D shares, or the waiver of the CDSC in the case of Class B shares
applicable to certain investors, as described under "Purchase of Shares" and
"Redemption of Shares", respectively, the total return data quoted by the Fund
in advertisements directed to such investors may take into account the reduced,
and not the maximum, sales charge or may not take into account the CDSC and
therefore may reflect greater total return since, due to the reduced sales
charges or the waiver of 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
47
<PAGE> 98
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.
COMPUTATION OF OFFERING PRICE PER SHARE
An illustration of the computation of the offering price for Class A, Class
B, Class C and Class D shares of the Fund based on the value of the Fund's net
assets on December 31, 1994, and its shares outstanding on that date is as
follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Assets.......................... $587,107,434 $915,351,139 $ 7,840,572 $22,011,727
=========== =========== =========== ===========
Number of Shares Outstanding........ 27,805,085 45,166,524 389,766 1,042,548
=========== =========== =========== ===========
Net Asset Value Per Share (net
assets divided by number of shares
outstanding)...................... $ 21.12 $ 20.27 $ 20.12 $ 21.11
Sales Charge (for Class A and Class
D shares: 5.25% of offering price
(5.54% of net amount
invested*))....................... 1.17 ** ** 1.17
----------- ----------- ----------- -----------
Offering Price...................... $ 22.29 $ 20.27 $ 20.12 $ 22.28
=========== =========== =========== ===========
</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 Charges -- Class B
and Class C Shares" herein.
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
48
<PAGE> 99
any office of approved subcustodians outside of the U.S. and with certain
foreign banks and securities depositories. The Custodian and subcustodians are
responsible for safeguarding and controlling the Fund's cash and securities,
handling the receipt and delivery of securities and collecting dividends on the
Fund's investments.
TRANSFER AGENT
Financial Data Services, Inc., Transfer Agency Mutual Fund Operations, 4800
Deer Lake Drive East, Jacksonville, Florida 32246-6484 acts as the Fund's
transfer agent (the "Transfer Agent"). The Transfer Agent is responsible for the
issuance, transfer and redemption of shares and the opening, maintenance and
servicing of shareholder accounts. See "Management of the Fund -- Transfer
Agency Services" in the Prospectus.
LEGAL COUNSEL
Brown & Wood, One World Trade Center, New York, New York 10048-0557, is
counsel for the Fund.
REPORTS TO SHAREHOLDERS
The fiscal year of the Fund ends on December 31 of each year. The Fund
sends to its shareholders at least semi-annually reports showing the Fund's
portfolio and other information. An annual report, containing financial
statements audited by independent auditors is sent to shareholders each year.
After the end of each year, shareholders will receive Federal income tax
information regarding dividends and capital gains distributions.
ADDITIONAL INFORMATION
The Prospectus and this Statement of Additional Information do not contain
all the information set forth in the Registration Statement and the exhibits
relating thereto, which the Fund has filed with the Securities and Exchange
Commission, Washington, D.C., under the Securities Act of 1933, as amended, and
the Investment Company Act, to which reference is hereby made.
Under a separate agreement Merrill Lynch has granted the Fund the right to
use the "Merrill Lynch" name and has reserved the right to withdraw its consent
to the use of such name by the Fund at any time or to grant the use of such name
to any other company, and the Fund has granted Merrill Lynch, under certain
conditions, the use of any other name it might assume in the future, with
respect to any corporation organized by Merrill Lynch.
To the knowledge of the Fund, no person or entity owned beneficially 5% or
more of the Fund's shares on March 31, 1995.
49
<PAGE> 100
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, 1994, 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, 1994, by correspondence with the custodian. 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, 1994, 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 3, 1995
50
<PAGE> 101
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES HELD/ VALUE PERCENT OF
INDUSTRY FACE AMOUNT INVESTMENTS COST (NOTE 1a) NET ASSETS
JAPANESE SECURITIES
<S> <C> <C> <C> <C> <C>
AUTOMOBILE 4,392,000 Suzuki Motor Corp. $ 46,151,997 $ 51,644,623 3.4%
- ---------------------------------------------------------------------------------------------------------------------------
BEVERAGE 380,000 Chukyo Coca-Cola Bottling Co., Ltd. 5,420,506 4,315,578 0.3
424,000 Hokkaido Coca-Cola Bottling Co., Ltd. 6,399,350 5,752,764 0.4
386,000 Kinki Coca-Cola Bottling Co., Ltd. 7,430,096 5,275,980 0.3
476,000 Mikuni Coca-Cola Bottling Co., Ltd. 8,487,431 6,506,131 0.4
470,800 Sanyo Coca-Cola Bottling Co., Ltd. 7,040,767 7,050,171 0.5
-------------- -------------- ------
34,778,150 28,900,624 1.9
- ---------------------------------------------------------------------------------------------------------------------------
CAPITAL GOODS 9,565,000 Mitsubishi Heavy Industries, Ltd. 67,715,158 73,059,296 4.8
720 Mitsubishi Heavy Industries, Ltd., #3 US$
(Warrants) (a) 588,000 243,000 0.0
-------------- -------------- ------
68,303,158 73,302,296 4.8
- ---------------------------------------------------------------------------------------------------------------------------
CHEMICALS 1,400,000 Shin-Etsu Chemical Co., Ltd. 24,090,347 27,859,296 1.8
- ---------------------------------------------------------------------------------------------------------------------------
CONSUMER YEN409,000,000 Matsushita Electric Works, Ltd.--C.E.W. #8,
ELECTRONICS 2.70% due 5/31/2002 4,543,869 4,398,291 0.3
561,000 Sony Corp. 30,521,041 31,855,779 2.1
-------------- -------------- ------
35,064,910 36,254,070 2.4
- ---------------------------------------------------------------------------------------------------------------------------
CONTAINERS 2,104,000 Toyo Seikan Kaisha, Ltd. 41,434,948 70,203,819 4.6
- ---------------------------------------------------------------------------------------------------------------------------
ELECTRIC 876,000 Chudenko Corp. 27,256,705 32,134,673 2.1
CONSTRUCTION 895,000 Taihei Dengyo Kaisha, Ltd. 22,583,118 21,408,040 1.4
-------------- -------------- ------
49,839,823 53,542,713 3.5
- ---------------------------------------------------------------------------------------------------------------------------
ELECTRIC EQUIPMENT 4,950,000 Hitachi, Ltd. 47,713,215 49,201,508 3.2
1,934,900 Murata Manufacturing Co., Ltd. 64,070,617 74,867,990 4.9
923,000 The Nippon Signal Co., Ltd. 13,935,321 9,461,910 0.6
832,000 Rohm Co., Ltd. 31,590,712 35,286,834 2.3
2,045,000 Sumitomo Electric Industries, Ltd. 23,549,160 29,184,925 1.9
169 Sumitomo Electric Industries, Ltd., #1 YEN
(Warrants) (a) 185,351 246,281 0.0
-------------- -------------- ------
181,044,376 198,249,448 12.9
- ---------------------------------------------------------------------------------------------------------------------------
IRON & STEEL 475,000 Maruichi Steel Tube, Ltd. 6,023,843 8,545,226 0.6
- ---------------------------------------------------------------------------------------------------------------------------
OFFICE EQUIPMENT 3,150,000 Canon, Inc. 46,249,334 53,502,513 3.5
14,250 Canon, Inc., #2 DM (Warrants) (a) 1,741,131 1,656,977 0.1
2,250 Canon, Inc., #4 US$ (Warrants) (a) 2,434,375 2,221,875 0.1
-------------- -------------- ------
50,424,840 57,381,365 3.7
- ---------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS 1,740,000 Sankyo Co., Ltd. 43,294,016 43,368,844 2.8
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
51
<PAGE> 102
SCHEDULE OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
SHARES HELD/ VALUE PERCENT OF
INDUSTRY FACE AMOUNT INVESTMENTS COST (NOTE 1a) NET ASSETS
JAPANESE SECURITIES (CONCLUDED)
<S> <C> <C> <C> <C>
PROPERTY & CASUALTY 6,685,000 Dai-Tokyo Fire & Marine Insurance Co., Ltd. $ 39,575,762 $ 48,776,985 3.2%
INSURANCE 4,492,000 Fuji Fire & Marine Insurance Co., Ltd. 16,261,457 28,757,829 1.9
5,313,000 Koa Fire & Marine Insurance Co., Ltd. 32,096,047 36,630,332 2.4
5,448,000 Nichido Fire & Marine Insurance Co., Ltd. 27,852,857 47,252,503 3.1
2,980,000 Sumitomo Marine & Fire Insurance Co., Ltd. 27,945,240 25,756,784 1.7
3,868,000 Tokio Marine & Fire Insurance Co., Ltd. 38,194,544 47,426,734 3.1
-------------- -------------- ------
181,925,907 234,601,167 15.4
- ---------------------------------------------------------------------------------------------------------------------------
RETAILING 1,429,000 Ito-Yokado Co., Ltd. 63,832,756 76,548,442 5.0
364,000 Sangetsu Co., Ltd. 8,382,717 10,974,874 0.7
389,400 Senshukai Co., Ltd. 6,286,430 9,431,698 0.6
246,000 Shimachu Co., Ltd. 6,415,141 8,875,779 0.6
-------------- -------------- ------
84,917,044 105,830,793 6.9
- ---------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION 2,444,000 Nippon Express Co., Ltd. 24,955,299 24,562,814 1.6
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN JAPAN 872,248,658 1,014,247,098 66.3
- ---------------------------------------------------------------------------------------------------------------------------
AUSTRAILIAN SECURITIES
DIVERSIFIED 3,900,000 BTR Nylex Ltd. 8,805,671 7,255,872 0.5
- ---------------------------------------------------------------------------------------------------------------------------
LEISURE 12,247,500 Village Roadshow Ltd. 'A' (Preferred) 21,068,668 25,159,794 1.6
- ---------------------------------------------------------------------------------------------------------------------------
FOOD & BEVERAGE 8,335,574 Burns Philp & Co., Ltd. 23,185,133 19,708,298 1.3
5,336,632 Coca-Cola Amatil, Ltd. 24,300,694 33,923,048 2.2
-------------- -------------- ------
47,485,827 53,631,346 3.5
- ---------------------------------------------------------------------------------------------------------------------------
PAPER & PACKAGING 2,689,039 AMCOR Ltd. 19,394,022 19,427,941 1.3
- ---------------------------------------------------------------------------------------------------------------------------
PROPERTY 5,148,655 Lend Lease Corp. 64,409,391 63,700,148 4.2
$ 1,500,000 Lend Lease Finance International, 4.75% due
6/01/2003 1,736,250 1,567,500 0.1
-------------- -------------- ------
66,145,641 65,267,648 4.3
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN AUSTRALIA 162,899,829 170,742,601 11.2
- ---------------------------------------------------------------------------------------------------------------------------
HONG KONG SECURITIES
DIVERSIFIED 4,410,500 Swire Pacific Ltd. 'A' 36,772,778 27,480,106 1.8
- ---------------------------------------------------------------------------------------------------------------------------
PROPERTY 225,000 Hang Lung Development Co., Ltd. 345,537 319,933 0.0
22,500 Hang Lung Development Co., Ltd. (Warrants)(a) 0 3,374 0.0
-------------- -------------- ------
345,537 323,307 0.0
- ---------------------------------------------------------------------------------------------------------------------------
UTILITIES 14,482,300 China Light & Power Co., Ltd. 46,079,050 61,778,167 4.0
13,133,200 Hong Kong & China Gas Co., Ltd. 23,440,091 21,220,915 1.4
868,600 Hong Kong & China Gas Co., Ltd. (Warrants) (a) 0 165,052 0.0
15,741,800 Hong Kong Telecommunications, Ltd. 29,991,994 30,014,420 2.0
670,500 Hong Kong Telecommunications, Ltd. (ADR) (b) 4,896,660 12,823,312 0.8
-------------- -------------- ------
104,407,795 126,001,866 8.2
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN HONG KONG 141,526,110 153,805,279 10.0
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
52
<PAGE> 103
SCHEDULE OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
SHARES HELD/ VALUE PERCENT OF
INDUSTRY FACE AMOUNT INVESTMENTS COST (NOTE 1a) NET ASSETS
INDIAN SECURITIES
<S> <C> <C> <C>
BANKING 9,800 SCICI, Ltd. $ 44,127 $ 29,683 0.0%
- ---------------------------------------------------------------------------------------------------------------------------
BROADCAST/MEDIA 620,000 Shivalik Projects Ltd. 3,557,823 3,360,434 0.2
- ---------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED MUTUAL 1,500,000 Master Plus (d) 979,549 896,700 0.1
FUND
- ---------------------------------------------------------------------------------------------------------------------------
SHIPPING 3,050 Great Eastern Shipping 972 6,758 0.0
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN INDIA 4,582,471 4,293,575 0.3
- ---------------------------------------------------------------------------------------------------------------------------
INDONESIAN SECURITIES
PHARMACEUTICALS 1,634,000 PT Kalbe Farma 5,525,626 6,730,860 0.4
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN INDONESIA 5,525,626 6,730,860 0.4
- ---------------------------------------------------------------------------------------------------------------------------
MALAYSIAN SECURITIES
DIVERSIFIED 14,896,800 Sime Darby BHD 35,217,136 34,141,540 2.2
- ---------------------------------------------------------------------------------------------------------------------------
LEISURE 1,125,000 Genting BHD 1,759,320 9,732,235 0.6
1,450,000 Resorts World BHD 2,382,084 8,521,058 0.5
-------------- -------------- ------
4,141,404 18,253,293 1.1
- ---------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION 3,661,000 Malaysian International Shipping BHD 12,515,710 10,470,245 0.7
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN MALAYSIA 51,874,250 62,865,078 4.0
- ---------------------------------------------------------------------------------------------------------------------------
PAKISTAN SECURITIES
UTILITIES 43,298 ++Pakistan Telecommunications (GDR) (c) (d) 7,783,681 5,628,740 0.4
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN PAKISTAN 7,783,681 5,628,740 0.4
- ---------------------------------------------------------------------------------------------------------------------------
SINGAPOREAN SECURITIES
ELECTRONICS 610,000 Creative Technology, Ltd. 7,609,990 8,616,250 0.6
- ---------------------------------------------------------------------------------------------------------------------------
FOOD 3,600,000 Cerebos Pacific Ltd. 5,153,632 19,773,429 1.3
- ---------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION 300,000 Singapore Bus Co. Ltd.--Foreign Registered 1,060,285 2,368,692 0.1
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SINGAPORE 13,823,907 30,758,371 2.0
- ---------------------------------------------------------------------------------------------------------------------------
SOUTH KOREAN SECURITIES
TEXTILES 3,080 Taekwang Industries Co. 716,353 1,855,657 0.1
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SOUTH KOREA 716,353 1,855,657 0.1
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
53
<PAGE> 104
SCHEDULE OF INVESTMENTS (CONCLUDED)
<TABLE>
<CAPTION>
FACE VALUE PERCENT OF
AMOUNT INVESTMENTS COST (NOTE 1a) NET ASSETS
SHORT-TERM SECURITIES
<S> <C> <C> <C> <C> <C>
COMMERCIAL PAPER* $ 3,483,000 General Electric Capital Corp., 5.80%
due 1/03/1995 $ 3,481,317 $ 3,481,317 0.2%
30,000,000 IBM Associates, L.P., 5.92% due 1/09/1995 29,955,900 29,955,900 2.0
40,000,000 Morgan (J.P.) & Co. Inc., 5.95% due 1/09/1995 39,940,500 39,940,500 2.6
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SHORT-TERM SECURITIES 73,377,717 73,377,717 4.8
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE PREMIUMS
AMOUNT ISSUE PAID
CURRENCY PUT OPTIONS PURCHASED
<S> <C> <C> <C> <C> <C>
US$600,000,000 Japanese Yen expiring March 1995 at YEN106.5 16,002,000 720,000 0.0
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENCY PUT OPTIONS PURCHASED 16,002,000 720,000 0.0
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS $1,350,360,602 1,525,024,976 99.5
==============
OTHER ASSETS LESS LIABILITIES 7,285,896 0.5
-------------- ------
NET ASSETS $1,532,310,872 100.0%
============== ======
- ---------------------------------------------------------------------------------------------------------------------------
(a) Warrants entitle the Fund to purchase a predetermined number of
shares of Common Stock. The purchase price and number of shares are
subject to adjustment under certain conditions until the expiration
date.
(b) ADR--American Depositary Receipts.
(c) GDR--Global Depositary Receipts.
(d) Non-income producing security.
*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.
++ Restricted securities as to resale. The value of the Fund's
investment in restricted securities was approximately $5,629,000,
representing 0.4% of net assets.
- ------------------------------------------------------------
ACQUISITION VALUE
ISSUE DATE COST (NOTE 1a)
- ------------------------------------------------------------
Pakistan
Telecommunications
(GDR) 9/16/1994 $7,783,681 $5,628,740
- ------------------------------------------------------------
TOTAL $7,783,681 $5,628,740
========== ==========
- ------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
54
<PAGE> 105
FINANCIAL INFORMATION
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES AS OF DECEMBER 31, 1994
<S> <C> <C> <C>
ASSETS: Investments, at value (identified cost--$1,334,358,602) (Note 1a) $1,524,304,976
Put options purchased, at value (cost--$16,002,000) (Notes 1a & 1b) 720,000
Foreign cash 8,093,697
Receivables:
Capital shares sold $ 5,723,519
Dividends 1,699,416
Interest 14,356
Securities sold 904 7,438,195
-------------
Prepaid registration fees and other assets (Note 1f) 51,366
--------------
Total assets 1,540,608,234
--------------
- ------------------------------------------------------------------------------------------------------------------------
LIABILITIES: Payables:
Capital shares redeemed 5,300,060
Distributor (Note 2) 745,298
Investment adviser (Note 2) 739,491 6,784,849
-------------
Accrued expenses and other liabilities 1,512,513
--------------
Total liabilities 8,297,362
--------------
- ------------------------------------------------------------------------------------------------------------------------
NET ASSETS: Net assets $1,532,310,872
==============
- ------------------------------------------------------------------------------------------------------------------------
NET ASSETS Class A Shares of Common Stock, $0.10 par value, 100,000,000
CONSIST OF: shares authorized $ 2,780,509
Class B Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 4,516,652
Class C Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 38,977
Class D Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 104,255
Paid-in capital in excess of par 1,368,443,211
Distributions in excess of realized capital gains on investments and
foreign currency transactions--net (18,224,428)
Unrealized appreciation on investments and foreign currency
transactions--net 174,651,696
--------------
Net assets $1,532,310,872
==============
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE: Class A--Based on net assets of $587,107,434 and 27,805,085 shares
outstanding $ 21.12
==============
Class B--Based on net assets of $915,351,139 and 45,166,524 shares
outstanding $ 20.27
==============
Class C--Based on net assets of $7,840,572 and 389,766 shares
outstanding $ 20.12
==============
Class D--Based on net assets of $22,011,727 and 1,042,548 shares
outstanding $ 21.11
==============
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
55
<PAGE> 106
FINANCIAL INFORMATION (CONTINUED)
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<S> <C> <C> <C>
INVESTMENT Dividends (net of $1,496,020 foreign withholding tax) $ 13,639,664
INCOME Interest and discount earned (net of $35,633 foreign withholding tax) 4,923,832
(NOTES 1d & 1e): --------------
Total income 18,563,496
--------------
- ------------------------------------------------------------------------------------------------------------------------
EXPENSES: Investment advisory fees (Note 2) $ 8,074,688
Distribution fees--Class B (Note 2) 7,682,093
Custodian fees 1,287,267
Transfer agent fees--Class B (Note 2) 1,233,012
Transfer agent fees--Class A (Note 2) 776,891
Registration fees (Note lf) 416,507
Printing and shareholder reports 336,714
Accounting services (Note 2) 157,585
Professional fees 83,128
Directors' fees and expenses 45,734
Pricing fees 10,085
Distribution fees--Class C (Note 2) 9,800
Transfer agent fees--Class D (Note 2) 5,898
Account maintenance fees--Class D (Note 2) 5,837
Transfer agent fees--Class C (Note 2) 2,597
Other 14,989
------------
Total expenses 20,142,825
--------------
Investment loss--net (1,579,329)
--------------
- ------------------------------------------------------------------------------------------------------------------------
REALIZED & Realized gain (loss) from:
UNREALIZED GAIN Investments--net 37,414,098
(LOSS) ON Foreign currency transactions--net (4,350,707) 33,063,391
INVESTMENTS & ------------
FOREIGN CURRENCY Change in unrealized appreciation/depreciation on:
TRANSACTIONS--NET Investments--net (12,812,416)
(NOTES 1b, 1c, Foreign currency transactions--net (18,488,708) (31,301,124)
1d & 3): ------------ --------------
Net realized and unrealized gain on investments and
foreign currency transactions 1,762,267
--------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 182,938
==============
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
56
<PAGE> 107
FINANCIAL INFORMATION (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-------------------------------
INCREASE (DECREASE) IN NET ASSETS: 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATIONS: Investment income (loss)--net $ (1,579,329) $ 44,290
Realized gain (loss) on investments and foreign currency
transactions--net 33,063,391 (2,056,308)
Change in unrealized appreciation/depreciation on
investments and foreign currency transactions--net (31,301,124) 168,301,414
-------------- -------------
Net increase in net assets resulting from operations 182,938 166,289,396
-------------- -------------
- ------------------------------------------------------------------------------------------------------------------------
DIVIDENDS & Investment income--net:
DISTRIBUTIONS TO Class A -- (44,290)
SHAREHOLDERS In excess of investment income--net:
(NOTE 1g): Class A (5,944,755) (559,299)
Class B (1,798,546) --
Class C (67,122) --
Class D (185,967) --
Realized gain on investments--net:
Class A (8,886,236) --
Class B (14,441,473) --
Class C (115,222) --
Class D (286,591) --
In excess of realized gain on investments--net:
Class A (3,830,198) --
Class B (6,224,649) --
Class C (49,664) --
Class D (123,527) --
-------------- -------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (41,953,950) (603,589)
-------------- -------------
- ------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE Net increase in net assets derived from capital share transactions 593,752,517 364,954,305
TRANSACTIONS -------------- -------------
(NOTE 4):
- ------------------------------------------------------------------------------------------------------------------------
Net Assets: Total increase in net assets 551,981,505 530,640,112
Beginning of year 980,329,367 449,689,255
-------------- -------------
End of year $1,532,310,872 $ 980,329,367
============== =============
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
57
<PAGE> 108
FINANCIAL INFORMATION (CONTINUED)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE BEEN DERIVED -----------------------------------------------------
FROM INFORMATION PROVIDED IN THE FINANCIAL STATEMENTS. FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------
INCREASE (DECREASE) IN NET ASSET VALUE: 1994++ 1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE Net asset value, beginning of year $ 21.21 $ 15.80 $ 18.34 $ 16.52 $ 20.65
OPERATING -------- -------- -------- -------- --------
PERFORMANCE: Investment income--net .10 .07 .05 .04 .10
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net .50 5.37 (1.63) 2.73 (1.80)
-------- -------- -------- -------- --------
Total from investment operations .60 5.44 (1.58) 2.77 (1.70)
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net -- -- (.01) (.11) (.11)
In excess of investment income--net (.22) (.03) -- -- --
Realized gain on investments--net (.33) -- (.95) (.84) (2.32)
In excess of realized gain on
investments--net (.14) -- -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.69) (.03) (.96) (.95) (2.43)
-------- -------- -------- -------- --------
Net asset value, end of year $ 21.12 $ 21.21 $ 15.80 $ 18.34 $ 16.52
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT Based on net asset value per share 2.90% 34.41% (8.75%) 17.04% (8.39%)
RETURN:* ======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE Expenses .91% .90% .98% 1.02% 1.07%
NET ASSETS: ======== ======== ======== ======== ========
Investment income--net .47% .47% .40% .43% .94%
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL Net assets, end of year (in thousands) $587,107 $472,322 $284,674 $304,712 $242,104
DATA: ======== ======== ======== ======== ========
Portfolio turnover 23.84% 13.25% 7.62% 5.91% 31.06%
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Total investment return excludes the effects of sales loads.
++Based on average shares outstanding during the period.
See Notes to Financial Statements.
58
<PAGE> 109
FINANCIAL INFORMATION (CONTINUED)
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
CLASS B
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE BEEN DERIVED -----------------------------------------------------
FROM INFORMATION PROVIDED IN THE FINANCIAL STATEMENTS. FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------
INCREASE (DECREASE) IN NET ASSET VALUE: 1994++ 1993++ 1992++ 1991++ 1990++
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE Net asset value, beginning of year $ 20.41 $ 15.34 $ 18.01 $ 16.30 $ 20.49
OPERATING -------- -------- -------- -------- --------
PERFORMANCE: Investment loss--net (.12) (.10) (.12) (.14) (.09)
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net .49 5.17 (1.60) 2.69 (1.78)
-------- -------- -------- -------- --------
Total from investment operations .37 5.07 (1.72) 2.55 (1.87)
-------- -------- -------- -------- --------
Less dividends and distributions:
In excess of investment income--net (.04) -- -- -- --
Realized gain on investments--net (.33) -- (.95) (.84) (2.32)
In excess of realized gain on
investments--net (.14) -- -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.51) -- (.95) (.84) (2.32)
-------- -------- -------- -------- --------
Net asset value, end of year $ 20.27 $ 20.41 $ 15.34 $ 18.01 $ 16.30
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT Based on net asset value per share 1.87% 33.05% (9.72%) 15.87% (9.29%)
RETURN:* ======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE Expenses, excluding distribution fees .94% .92% 1.00% 1.04% 1.10%
NET ASSETS: ======== ======== ======== ======== ========
Expenses 1.94% 1.92% 2.00% 2.04% 2.10%
======== ======== ======== ======== ========
Investment loss--net (.56%) (.56%) (.61%) (.60%) (.05%)
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL Net assets, end of year (in thousands) $915,351 $508,008 $165,015 $105,669 $ 58,013
DATA: ======== ======== ======== ======== ========
Portfolio turnover 23.84% 13.25% 7.62% 5.91% 31.06%
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Total investment return excludes the effects of sales loads.
++Based on average shares outstanding during the period.
See Notes to Financial Statements.
59
<PAGE> 110
FINANCIAL INFORMATION (CONCLUDED)
FINANCIAL HIGHLIGHTS (CONCLUDED)
<TABLE>
<CAPTION>
FOR THE PERIOD
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE BEEN DERIVED OCTOBER 21, 1994++ TO
FROM INFORMATION PROVIDED IN THE FINANCIAL STATEMENTS. DECEMBER 31, 1994++++
------------------------------
INCREASE (DECREASE) IN NET ASSET VALUE: CLASS C CLASS D
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE Net asset value, beginning of period $ 21.67 $ 22.70
OPERATING ------------- -------------
PERFORMANCE: Investment income--net (.03) --
Realized and unrealized gain on investments and foreign currency
transactions--net (.86) (.91)
------------- -------------
Total from investment operations (.89) (.91)
------------- -------------
Less dividends and distributions:
In excess of investment income--net (.19) (.21)
Realized gain on investments--net (.33) (.33)
In excess of realized gain on investments--net (.14) (.14)
------------- -------------
Total dividends and distributions (.66) (.68)
------------- -------------
Net asset value, end of period $ 20.12 $ 21.11
============= =============
- ------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT Based on net asset value per share (4.04%)+++ (3.93%)+++
RETURN:** ============= =============
- ------------------------------------------------------------------------------------------------------------------------
RATIOS TO Expenses, excluding account maintenance and distribution fees 1.17%* 1.17%*
AVERAGE NET ============= =============
ASSETS: Expenses 2.17%* 1.42%*
============= =============
Investment income (loss)--net (.79%)* .12%*
============= =============
- ------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL Net assets, end of period (in thousands) $ 7,841 $ 22,012
DATA: ============= =============
Portfolio turnover 23.84% 23.84%
============= =============
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
**Total investment return excludes the effect of sales loads.
++Commencement of Operations.
++++Based on average shares outstanding during the period.
+++Aggregate total investment return.
See Notes to Financial Statements.
60
<PAGE> 111
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES:
Merrill Lynch Pacific Fund, Inc. (the "Fund") is registered under
the Investment Company Act of 1940 as a non-diversified, open-end
management investment company. The Fund offers four classes of
shares under the Merrill Lynch Select Pricing(SM) System. Shares of
Class A and Class D are sold with a front-end sales charge. Shares
of Class B and Class C may be subject to a contingent deferred sales
charge. All classes of shares have identical voting, dividend,
liquidation and other rights and the same terms and conditions,
except that Class B, Class C and Class D Shares bear certain
expenses related to the account maintenance of such shares, and
Class B and Class C Shares also bear certain expenses related to the
distribution of such shares. Each class has exclusive voting rights
with respect to matters relating to its account maintenance and
distribution expenditures. The following is a summary of significant
accounting policies followed by the Fund.
(a) Valuation of investments--Portfolio securities which are traded
on stock exchanges are valued at the last sale price on the exchange
on which such securities are traded, as of the close of business on
the day the securities are being valued or, lacking any sales, at
the last available bid price. However, in certain circumstances, the
Fund will value a security traded on a Japanese stock exchange based
upon the last bid or ask price as reported on such exchange after
trading in such security has been halted for the day. Japanese stock
exchanges may impose limits, based on a percentage of a security's
value, on the amount such security may move in a single day. If the
security reaches its limit during the day, further trading is
halted. However, a bid or ask quotation may be reported following
the suspension of trading. In situations where both a bid and ask
price are reported following a trading suspension due to the
circumstances described above, the Fund will utilize the bid price
for valuation purposes. In cases where securities are traded on more
than one exchange, the securities are valued on the exchange
designated by or under the authority of the Board of Directors as
the primary market. Securities traded in the over-the-counter market
are valued at the last available bid price in the over-the-counter
market prior to the time of valuation. Options written by the
Company are 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 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 sale price in the case of exchange-traded
options or, in the case of options traded in the over-the-counter
market, the average of the last bid price as obtained from two or
more dealers unless there is only one dealer, in which case that
dealer's price is used. 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) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the equity, debt and currency
markets. Losses may arise due to changes in the value of the
contract or if the counterparty does not perform under the contract.
* Forward foreign exchange contracts--The Fund is authorized to
enter into forward foreign exchange contracts as a hedge against
either specific transactions or portfolio positions. Such contracts
are not entered on the Fund's records. However, the effect on
operations is recorded from the date the Fund enters into such
contracts. Premium or discount is amortized over the life of the
contracts.
* Options--The Fund can write and purchase call options and put
options. When the Fund writes an option, an amount equal to the
premium received by the Fund is reflected as an asset and an
equivalent liability. The amount of the liability is subsequently
marked to market to reflect the current value of the option written.
When a security is 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.
* Financial futures contracts--The Fund may purchase or sell stock index futures
contracts and options on such futures contracts. Upon entering into a contract,
the Fund deposits and maintains as collateral such initial margin as required by
the exchange on which the transaction is effected. Pursuant to the contract, the
Fund agrees to receive from or pay to the broker an amount of cash
61
<PAGE> 112
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
equal to the daily fluctuation in value of the contract. Such receipts
or payments are known as variation margin and are recorded by the Fund as
unrealized gains or losses. When the contract is closed, the Fund records a
realized gain or loss equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed.
(c) Foreign currency transactions--Transactions denominated in
foreign currencies are recorded at the exchange rate prevailing when
recognized. Assets and liabilities denominated in foreign currencies
are valued at the exchange rate at the end of the period. Foreign
currency transactions are the result of settling (realized) or
valuing (unrealized) assets or liabilities expressed in foreign
currencies into US dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates on
investments.
(d) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Dividend income is recorded on the ex-
dividend date, except that if the ex-dividend date has passed,
certain dividends from foreign securities are recorded as soon as
the Fund is informed of the ex-dividend date. Interest income
(including amortization of discount) is recognized on the accrual
basis. Realized gains and losses on security transactions are
determined on the identified cost basis.
(e) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required. Under the applicable foreign tax law, a
withholding tax may be imposed on dividends and interest at various
rates. There is no tax imposed on capital gains arising from the
sale of foreign investments.
(f) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
(g) Dividends and distributions to shareholders--Dividends and
distributions paid by the Fund are recorded on the ex-dividend
dates.
(h) Reclassifications--Generally accepted accounting principles
require that certain differences between accumulated net realized
capital losses for financial reporting and tax purposes, if
permanent, be reclassified to accumulated net investment
losses. Accordingly, current year's permanent book/tax differences of
approximately $9.6 million have been reclassified from accumulated
net realized losses to accumulated net investment losses. These
reclassifications have no effect on net assets or net asset values
per share.
2. INVESTMENT ADVISORY AGREEMENT AND
TRANSACTIONS WITH AFFILIATES:
The Fund has entered into an Investment Advisory Agreement with
Merrill Lynch Asset Management, L.P. ("MLAM"). The general partner
of MLAM is Princeton Services, Inc. ("PSI"), an indirect wholly-
owned subsidiary of Merrill Lynch & Co. ("ML & Co."), which is the
limited partner. The Fund has also entered into a Distribution
Agreement and Distribution Plans with Merrill Lynch Funds
Distributor, Inc. ("MLFD" or "Distributor"), a wholly-owned
subsidiary of Merrill Lynch Group, Inc.
MLAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee of 0.60% of the average daily
net assets of the Fund. The Management Agreement obligates MLAM to
reimburse the Fund to the extent the Fund's expenses (excluding
interest, taxes, distribution fees, brokerage fees and commissions,
and extraordinary items) exceed 2.5% of the Fund's first $30 million
of average daily net assets, 2.0% of the next $70 million of average
daily net assets and 1.5% of the average daily net assets in excess
thereof. MLAM's obligation to reimburse the Fund is limited to the
amount of the management fee. No fee payment will be made to MLAM
during any fiscal year which will cause such expenses to exceed the
most restrictive expense limitation applicable at the time of such
payment.
Pursuant to the distribution plans ("the Distribution Plans")
adopted by the Fund in accordance with Rule 12b-1 under the
Investment Company Act of 1940, the Fund pays the Distributor
ongoing account maintenance and distribution fees. The fees are
accrued daily and paid monthly at annual rates based upon the
average daily net assets of the shares as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------
ACCOUNT DISTRIBUTION
MAINTENANCE FEE FEE
- ---------------------------------------------------
<S> <C> <C>
Class B 0.25% 0.75%
Class C 0.25% 0.75%
Class D 0.25% --
- ---------------------------------------------------
</TABLE>
62
<PAGE> 113
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), a subsidiary of ML & Co.,
also provides account maintenance and distribution services to the
Fund. The ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account maintenance services to
Class B, Class C and Class D shareholders. The ongoing distribution
fee compensates the Distributor and MLPF&S for providing shareholder
and distribution-related services to Class B and Class C
shareholders.
For the year ended December 31, 1994, MLFD earned underwriting
discounts and MLPF&S earned dealer concessions on sales of the
Fund's Class A and Class D shares as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------
MLFD MLPF&S
- -----------------------------------------------------
<S> <C> <C>
Class A $200,828 $2,845,613
Class D $ 11,704 $ 183,381
- -----------------------------------------------------
</TABLE>
MLPF&S received contingent deferred sales charges of $1,830,114
relating to capital share transactions for the sale of Class B
Shares, $1 relating to capital share transactions for the sale of
Class C Shares, and $21,422 in commissions on the execution of
portfolio security transactions for the Fund for the year ended
December 31, 1994.
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 MLAM, PSI, MLPF&S, FDS, MLFD and/or ML & Co.
3. INVESTMENTS:
Purchases and sales of investments, excluding short-term securities,
for the year ended December 31, 1994 were $805,414,831 and
$289,945,173, respectively.
Net realized and unrealized gains (losses) as of December 31, 1994
were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
REALIZED UNREALIZED
GAINS (LOSSES) GAINS (LOSSES)
- -----------------------------------------------------------------
<S> <C> <C>
Long-term investments $34,461,189 $189,946,374
Short-term investments 2,511 --
Stock index future contracts 2,950,398 --
Currency options purchased -- (15,282,000)
Foreign currency transactions (4,742,872) (12,678)
Forward foreign exchange
contracts 392,165 --
----------- ------------
Total $33,063,391 $174,651,696
=========== ============
- -----------------------------------------------------------------
</TABLE>
As of December 31, 1994, net unrealized appreciation for Federal
income tax purposes aggregated $189,946,374, of which $227,862,731,
related to areciated securities and $37,916,357 related to
depreciated securities. At December 31, 1994, the aggregate cost of
investments for Federal income tax purposes was $1,334,358,602.
4. CAPITAL SHARE TRANSACTIONS:
Net increase in net assets derived from capital share transactions
was $593,752,517 and $364,954,305 for the years ended December 31,
1994 and December 31, 1993, respectively.
Transactions in capital shares for each class were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
CLASS A SHARES FOR THE
YEAR ENDED DOLLAR
DECEMBER 31, 1994 SHARES AMOUNT
- -----------------------------------------------------------------
<S> <C> <C>
Shares sold 10,984,489 $247,288,984
Shares issued to shareholders
in reinvestment of
dividends & distributions to
shareholders 768,428 15,860,370
----------- ------------
Total issued 11,752,917 263,149,354
Shares redeemed (6,215,599) (138,930,148)
----------- ------------
Net increase 5,537,318 $124,219,206
=========== ============
- -----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
CLASS A SHARES FOR THE
YEAR ENDED DOLLAR
DECEMBER 31, 1993 SHARES AMOUNT
- -----------------------------------------------------------------
<S> <C> <C>
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
=========== ============
- -----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
CLASS B SHARES FOR THE
YEAR ENDED DOLLAR
DECEMBER 31, 1994 SHARES AMOUNT
- -----------------------------------------------------------------
<S> <C> <C>
Shares sold 28,150,808 $607,930,382
Shares issued to shareholders
in reinvestment of
dividends & distributions to
shareholders 983,066 19,484,381
---------- ------------
Total issued 29,133,874 627,414,763
Shares redeemed (8,356,463) (178,494,709)
Conversion of shares (495,115) (10,418,140)
---------- ------------
Net increase 20,282,296 $438,501,914
========== ============
- -----------------------------------------------------------------
</TABLE>
63
<PAGE> 114
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
CLASS B SHARES FOR THE YEAR DOLLAR
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 C SHARES FOR THE PERIOD DOLLAR
OCT. 21, 1994++ TO DEC. 31, 1994 SHARES AMOUNT
- -----------------------------------------------------------------
<S> <C> <C>
Shares sold 405,281 $ 8,528,274
Shares issued to shareholders
in reinvestment of dividends &
distributions to shareholders 10,503 205,553
------- ------------
Total issued 415,784 8,733,827
Shares redeemed (26,018) (537,293)
------- ------------
Net increase 389,766 $ 8,196,534
======= ============
- -----------------------------------------------------------------
</TABLE>
++Commencement of Operations.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
CLASS D SHARES FOR THE PERIOD DOLLAR
OCT. 21, 1994++ TO DEC. 31, 1994 SHARES AMOUNT
- -----------------------------------------------------------------
<S> <C> <C>
Shares sold 624,623 $ 13,638,511
Conversion of shares 472,533 10,418,140
Shares issued to shareholders
in reinvestment of dividends &
distributions to shareholders 26,192 537,989
---------- ------------
Total issued 1,123,348 24,594,640
Shares redeemed (80,800) (1,759,777)
---------- ------------
Net increase 1,042,548 $ 22,834,863
========== ============
- -----------------------------------------------------------------
</TABLE>
++Commencement of Operations.
64
<PAGE> 115
[This page is intentionally left blank.]
<PAGE> 116
[This page is intentionally left blank.]
<PAGE> 117
[This page is intentionally left blank.]
<PAGE> 118
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objective and Policies.... 2
Management of the Fund............... 10
Purchase of Shares................... 13
Redemption of Shares................. 21
Portfolio Transactions and
Brokerage.......................... 22
Determination of Net Asset Value..... 24
Shareholder Services................. 25
Dividends, Distributions and Taxes... 41
Performance Data..................... 45
General Information.................. 47
Description of Shares.............. 47
Computation of Offering Price Per
Share........................... 48
Independent Auditors............... 48
Custodian.......................... 48
Transfer Agent..................... 49
Legal Counsel...................... 49
Reports to Shareholders............ 49
Additional Information............. 49
Independent Auditors' Report......... 50
Financial Statements................. 51
</TABLE>
Code#10241-0495
[LOGO]
MERRILL LYNCH
PACIFIC FUND, INC.
ARTWORK
STATEMENT OF
ADDITIONAL
INFORMATION
April 28, 1995
Distributor:
Merrill Lynch
Funds Distributor, Inc.
<PAGE> 119
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> 120
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS
Contained in Part A:
Financial Highlights for each of the periods in the ten year period
ended December 31, 1994.
Contained in Part B:
Financial Statements:
Schedule of Investments as of December 31, 1994.
Statement of Assets and Liabilities as of December 31, 1994.
Statement of Operations for the year ended December 31, 1994.
Statements of Changes in Net Assets for the years ended December
31, 1994 and 1993.
Financial Highlights for each of the periods in the five-year
period ended December 31, 1994.
(B) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ ---------------------------------------------------------------------------
<C> <C> <S>
1(a) -- Articles of Incorporation of Registrant, as amended.(b)
(b) -- Articles of Amendment to Articles of Incorporation of Registrant.(b)
(c) -- Articles of Amendment to Articles of Incorporation of Registrant.(b)
(d) -- Articles Supplementary to the Articles of Incorporation.(b)
(e) -- Articles of Amendment to the Articles of Incorporation of the Registrant.
(f) -- Articles Supplementary to the Articles of Incorporation of the Registrant.
2 -- By-Laws of Registrant.(d)
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.(a)
5(a) -- Management Agreement between Registrant and Merrill Lynch Asset Management,
Inc.(d)
(b) -- Supplement to Management Agreement between Registrant and Merrill Lynch
Asset Management, L.P., dated January 3, 1994.(b)
6(a) -- Class A Distribution Agreement between Registrant and Merrill Lynch Funds
Distributor, Inc.(d)
(b) -- Class B Distribution Agreement between Registrant and Merrill Lynch Funds
Distributor, Inc.(d)
(c) -- Letter Agreement between the Registrant and Merrill Lynch Funds
Distributor, Inc. with respect to the Merrill Lynch Mutual Fund Advisor
Program.(b)
(d) -- Class C Shares Distribution Agreement between Registrant and Merrill Lynch
Funds Distributor, Inc.(d)
(e) -- Class D Shares Distribution Agreement between Registrant and Merrill Lynch
Funds, Inc.(d)
7 -- None.
8(a) -- Custodian Agreement between Registrant and Brown Brothers Harriman & Co.,
as Custodian.(d)
(b) -- Master Subcustodian Agreement of Brown Brothers Harriman & Co.(d)
9(a) -- Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing
Agency Agreement between the Registrant and Merrill Lynch Financial Data
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.(e)
</TABLE>
C-1
<PAGE> 121
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ ---------------------------------------------------------------------------
<C> <C> <S>
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.(b)
(b) -- Class C Shares Distribution Plan and Class C Shares Distribution Plan
Sub-Agreement of the Registrant.(d)
(c) -- Class D Shares Distribution Plan and Class D Shares Distribution Plan
Sub-Agreement of the Registrant.(d)
16(a) -- Schedule for computation of each performance quotation relating to Class A
shares provided in the Registration Statement response to Item 22.(f)
(b) -- Schedule for computation of each performance quotation relating to Class B
shares provided in the Registration Statement in response to Item 22.(g)
(c) -- Schedule for computation of each performance quotation relating to Class C
shares provided in the Registration Statement in response to Item 22.
(d) -- Schedule for computation of each performance quotation relating to Class D
shares provided in the Registration Statement in response to Item 22.
17(a) -- Financial Data Schedule for Class A shares for the year ended December 31,
1994.
(b) -- Financial Data Schedule for Class B shares for the year ended December 31,
1994.
(c) -- Financial Data Schedule for Class C shares for the year ended December 31,
1994.
(d) -- Financial Data Schedule for Class D shares for the year ended December 31,
1994.
18 -- Power of Attorney for Edward D. Zinbarg.
</TABLE>
- ------------------------
(a) 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; Articles of Amendment filed as
Exhibit (1)(b) to the Registrant's Registration Statement; Articles of
Amendment filed as Exhibit 1(c) to the Registrant's Registration Statement;
Articles Supplementary filed as Exhibit 1(d) to the Registrant's
Registration Statement; Articles of Amendment filed as Exhibit 1(e) to the
Registrant's Registration Statement; Articles Supplementary filed as
Exhibit 1(f) 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.
(b) 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.
(c) Filed as an Exhibit to Post-Effective Amendment No. 25 to Registrant's
Registration Statement under the Securities Act of 1933 on Form N-1A.
(d) Refiled pursuant to the Electronic Data Gathering, Analysis, and Retrieval
(EDGAR) phase-in requirements.
(e) 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.
(f) 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.
(g) 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.
C-2
<PAGE> 122
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Registrant is not controlled by or under common control with any other
person.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
NUMBER OF RECORD
HOLDERS AT
TITLE OF CLASS MARCH 31, 1995
-----------------
<S> <C>
Class A Common Stock, par value $0.10 per share....................... 4,167
Class B Common Stock, par value $0.10 per share....................... 1,776
Class C Common Stock, par value $0.10 per share....................... 15
Class D Common Stock, par value $0.10 per share....................... 62
</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 Agreements.
Article VI of the By-Laws provides that each officer and director of the
Registrant shall be indemnified by the Registrant to the full extent permitted
under the General Laws of the State of Maryland, except that such indemnity
shall not protect any such person against any liability to the Registrant or any
stockholder thereof to which such person would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office. Absent a court determination that
an officer or director seeking indemnification was not liable on the merits or
guilty of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office, the decision by the
Registrant to indemnify such person must be based upon the reasonable
determination of independent counsel or non-party independent directors, after
review of the facts, that such officer or director is not guilty of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
Each officer and director of the Registrant claiming indemnification within
the scope of Article VI of the By-Laws shall be entitled to advances from the
Registrant for payment of the reasonable expenses incurred by him in connection
with proceedings to which he is a party in the manner and to the full extent
permitted under the General Laws of the State of Maryland; provided, however,
that the person seeking indemnification shall provide to the Registrant a
written affirmation of his good faith belief that the standard of conduct
necessary for indemnification by the Registrant has been met and a written
undertaking to repay any such advance, if it should ultimately be determined
that the standard of conduct has not been met, and provided further that at
least one of the following additional conditions is met: (a) the person seeking
indemnification shall provide a security in form and amount acceptable to the
Registrant for his undertaking; (b) the Registrant is insured against losses
arising by reason of the advance; (c) a majority of a quorum of non-party
independent directors, or independent legal counsel in a written opinion, shall
determine, based on a review of facts readily available to the Registrant at the
time the advance is proposed to be made, that there is reason to believe that
the person seeking indemnification will ultimately be found to be entitled to
indemnification.
The Registrant may purchase insurance on behalf of an officer or director
protecting such person to the full extent permitted under the General Laws of
the State of Maryland from liability arising from his activities as officer or
director of the Registrant. The Registrant, however, may not purchase insurance
on behalf of any officer or director of the Registrant that protects or purports
to protect such person from liability to the Registrant or to its stockholders
to which such officer or director would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of his office.
The Registrant may indemnify, make advances or purchase insurance to the
extent provided in Article VI of the By-Laws on behalf of an employee or agent
who is not an officer or director of the Registrant.
C-3
<PAGE> 123
In Section 9 of the Distribution Agreements relating to the securities
being offered hereby, the Registrant agrees to indemnify the Distributor and
each person, if any, who controls the Distributor within the meaning of the
Securities Act of 1933 (the "Act"), against certain types of civil liabilities
in connection with the Registration Statement or Prospectus and Statement of
Additional Information.
Insofar as indemnification for liabilities arising under the Act may be
permitted to Directors, officers and controlling persons of the Registrant and
the principal underwriter pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a Director, officer or controlling person of the Registrant
and the principal underwriter in connection with the successful defense of any
action, suit or proceeding) is asserted by such Director, officer or controlling
person or the principal underwriter in connection with the shares being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF 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 Middle East/Africa 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 Asset
Builder Program, Inc., Merrill Lynch Retirement Series Trust, Merrill Lynch
Series Fund, Inc., Merrill Lynch Short-Term Global Income Fund, Inc., Merrill
Lynch Strategic Dividend Fund, Merrill Lynch 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,
C-4
<PAGE> 124
Inc., MuniYield California Insured Fund II, Inc., MuniYield Florida Fund,
MuniYield Florida Insured Fund, MuniYield Fund, Inc., MuniYield Insured Fund,
Inc., MuniYield Insured Fund II, Inc., MuniYield Michigan Fund, Inc., MuniYield
Michigan Insured Fund, Inc., MuniYield New Jersey Fund, Inc., MuniYield New
Jersey Insured Fund, Inc., MuniYield New York Insured Fund, Inc., MuniYield New
York Insured Fund II, Inc., MuniYield New York Insured Fund III, Inc., MuniYield
Pennsylvania Fund, MuniYield Quality Fund, Inc., MuniYield Quality Fund II,
Inc., Senior High Income Portfolio, Inc., Senior High Income Portfolio II, Inc.,
Senior Strategic Income Fund, Inc., Taurus MuniCalifornia Holdings, Inc., Taurus
MuniNew York Holdings, Inc. and Worldwide DollarVest Fund, Inc. The address of
each of these investment companies is 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
January 1, 1993, 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
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
N. John Hewitt.......... Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
</TABLE>
C-5
<PAGE> 125
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
NAME POSITION(S) WITH THE MANAGER PROFESSION, VOCATION OR EMPLOYMENT
- ------------------------ ----------------------------- ------------------------------------------
<S> <C> <C>
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, Senior Vice President Senior Vice President of FAM; Senior Vice
Jr.................... President of Princeton Services
Gerald M. Richard....... Senior Vice President and Senior Vice President and Treasurer of
Treasurer FAM; Senior Vice President and Treasurer
of Princeton Services; Vice President
and Treasurer of MLFD
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.
(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.
C-6
<PAGE> 126
<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
</TABLE>
<TABLE>
<S> <C> <C>
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
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.
C-7
<PAGE> 127
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 27th day of April 1995.
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 April 27, 1995
- ------------------------------------------ (Principal Executive
(Arthur Zeikel) Officer)
/s/ GERALD M. RICHARD Treasurer (Principal April 27, 1995
- ------------------------------------------ Financial
(Gerald M. Richard) and Accounting Officer)
DONALD CECIL* Director April 27, 1995
- ------------------------------------------
(Donald Cecil)
EDWARD H. MEYER* Director April 27, 1995
- ------------------------------------------
(Edward H. Meyer)
CHARLES C. REILLY* Director April 27, 1995
- ------------------------------------------
(Charles C. Reilly)
RICHARD R. WEST* Director April 27, 1995
- ------------------------------------------
(Richard R. West)
EDWARD D. ZINBARG* Director April 27, 1995
- ------------------------------------------
(Edward D. Zinbarg)
*By /s/ ARTHUR ZEIKEL April 27, 1995
- ------------------------------------------
(Arthur Zeikel,
Attorney-in-Fact)
</TABLE>
C-8
<PAGE> 128
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -------------------------------------------------------------------------------------
<C> <C> <S>
1(a) -- Articles of Incorporation of Registrant, as amended.(b)
(b) -- Articles of Amendment to Articles of Incorporation of Registrant.(b)
(c) -- Articles of Amendment to Articles of Incorporation of Registrant.(b)
(d) -- Articles Supplementary to the Articles of Incorporation.(b)
(e) -- Articles of Amendment to the Articles of Incorporation of the Registrant.
(f) -- Articles Supplementary to the Articles of Incorporation of the Registrant.
2 -- By-Laws of Registrant.(d)
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.(a)
5(a) -- Management Agreement between Registrant and Merrill Lynch Asset Management, Inc.(d)
(b) -- Supplement to Management Agreement between Registrant and Merrill Lynch Asset
Management, L.P., dated January 3, 1994.(b)
6(a) -- Class A Distribution Agreement between Registrant and Merrill Lynch Funds
Distributor, Inc.(d)
(b) -- Class B Distribution Agreement between Registrant and Merrill Lynch Funds
Distributor, Inc.(d)
(c) -- Letter Agreement between the Registrant and Merrill Lynch Funds Distributor, Inc.
with respect to the Merrill Lynch Mutual Fund Advisor Program.(b)
(d) -- Class C Shares Distribution Agreement between Registrant and Merrill Lynch Funds
Distributor, Inc.(d)
(e) -- Class D Shares Distribution Agreement between Registrant and Merrill Lynch Funds,
Inc.(d)
7 -- None.
8(a) -- Custodian Agreement between Registrant and Brown Brothers Harriman & Co., as
Custodian.(d)
(b) -- Master Subcustodian Agreement of Brown Brothers Harriman & Co.(d)
9(a) -- Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing Agency
Agreement between the Registrant and Merrill Lynch Financial Data 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.(e)
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.(b)
(b) -- Class C Shares Distribution Plan and Class C Shares Distribution Plan Sub-Agreement
of the Registrant.(d)
(c) -- Class D Shares Distribution Plan and Class D Shares Distribution Plan Sub-Agreement
of the Registrant.(d)
</TABLE>
<PAGE> 129
<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.(f)
(b) -- Schedule for computation of each performance quotation relating to Class B shares
provided in the Registration Statement in response to Item 22.(g)
(c) -- Schedule for computation of each performance quotation relating to Class C shares
provided in the Registration Statement in response to Item 22.
(d) -- Schedule for computation of each performance quotation relating to Class D shares
provided in the Registration Statement in response to Item 22.
17(a) -- Financial Data Schedule for Class A shares for the year ended December 31, 1994.
(b) -- Financial Data Schedule for Class B shares for the year ended December 31, 1994.
(c) -- Financial Data Schedule for Class C shares for the year ended December 31, 1994.
(d) -- Financial Data Schedule for Class D shares for the year ended December 31, 1994.
18 -- Power of Attorney for Edward D. Zinbarg.
</TABLE>
- ------------------------
(a) 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; Articles of Amendment filed as
Exhibit (1)(b) to the Registrant's Registration Statement; Articles of
Amendment filed as Exhibit 1(c) to the Registrant's Registration Statement;
Articles Supplementary filed as Exhibit 1(d) to the Registrant's
Registration Statement; Articles of Amendment filed as Exhibit 1(e) to the
Registrant's Registration Statement; Articles Supplementary filed as
Exhibit 1(f) 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.
(b) 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.
(c) Filed as an Exhibit to Post-Effective Amendment No. 25 to Registrant's
Registration Statement under the Securities Act of 1933 on Form N-1A.
(d) Refiled pursuant to the Electronic Data Gathering, Analysis, and Retrieval
(EDGAR) phase-in requirements.
(e) 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.
(f) 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.
(g) 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.
<PAGE> 1
99.1(e)
MERRILL LYNCH PACIFIC FUND, INC.
ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION
MERRILL LYNCH PACIFIC FUND, INC., a Maryland corporation having its
principal Maryland office c/o The Corporation Trust Incorporated, 32 South
Street, Baltimore, Maryland 21202 (hereinafter called the "Corporation"), hereby
certifies to the State Department of Assessments and Taxation of Maryland that:
FIRST: The charter of the Corporation is hereby amended by adding the
following provision at the end of Article V:
(8) The Board of Directors may classify and reclassify any issued
shares of capital stock into one or more additional or other classes or series
as may be established from time to time by setting or changing in any one or
more respects the designations, preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications or terms or
conditions of redemption of such shares of stock and pursuant to such
classification or reclassification to increase or decrease the number of
authorized shares of any existing class or series; provided, however, that any
such classification or reclassification shall not substantially adversely affect
the rights of holders of such issued shares. The Board's authority pursuant to
this paragraph shall include, but not be limited to, the power to vary among all
the holders of a particular class or series (a) the length of time shares must
be held prior to reclassification to shares of another class or series (the
"Holding Period(s)"), (b) the manner in which the time for such Holding
Period(s) is determined and (c) the class or series into which the particular
class or series is being reclassified; provided, however, that, subject to the
first sentence of this section, with respect to holders of the Corporation's
shares issued on or after the date of the Corporation's first effective
prospectus which sets forth Holding Period(s) (the "First Holding Period
Prospectus"), the Holding Period(s), the manner in which the time for such
Holding Period(s) is determined and the class or series into which the
particular class or series is being reclassified shall be disclosed in the
Corporation's prospectus or statement of additional information in effect at the
time such shares, which are the subject of the reclassification, were issued;
and provided, further, that, subject to the first sentence of this section, with
respect to holders of the Corporation's Class B shares issued prior to the date
of the Corporation's First Holding Period Prospectus, the Holding Period
<PAGE> 2
shall be ten (10) years for retirement plan (as recognized by the Internal
Revenue Code of 1986, as amended from time to time) holders of issued Class B
shares purchased without a contingent deferred sales charge (a "CDSC-Waived
Retirement Plan") and shall be the Holding Period set forth in the Corporation's
First Holding Period Prospectus, for all other holders of issued Class B shares;
Class B shares held by a CDSC-Waived Retirement Plan shall be reclassified to
Class D shares in the month following the month in which the first Class B share
of any mutual fund advised by Merrill Lynch Asset Management, L.P., Fund Asset
Management, L.P., or their affiliates or successors, held by such CDSC-Waived
Retirement Plan has been held for the ten (10) year Holding Period established
by the Corporation's Board of Directors for such CDSC-Waived Retirement Plan
Class B shareholder; and the Class B shares of every shareholder other than
CDSC-Waived Retirement Plans shall be reclassified to Class D shares in the
month following the month in which such shares have been held for the Holding
Period established by the Corporation's Board of Directors for shareholders
other than CDSC-Waived Retirement Plans in the Corporation's First Holding
Period Prospectus.
SECOND: The foregoing Articles of Amendment have been effected in the
manner and by the vote required by the Corporation's charter and the laws of the
State of Maryland. Pursuant to Section 2-604 of the Maryland Corporations and
Associations Code, the amendment was advised by the Board of Directors of the
Corporation and approved by the stockholders.
THIRD: Except as amended hereby, the Corporation's charter shall
remain in full force and effect.
FOURTH: The authorized capital stock of the Corporation has not been
increased by these Articles of Amendment.
FIFTH: These Articles of Amendment shall be effective at the very
beginning of the day on October 21, 1994.
The President acknowledges these Articles of Amendment to be the
corporate act of the Corporation and states that to the best of his knowledge,
information and belief, the matters set forth in these Articles of Amendment
with respect to the authorization and approval of the amendment of the
Corporation's charter are true in all material respects, and that this statement
is made under the penalties for perjury.
<PAGE> 3
IN WITNESS WHEREOF, MERRILL LYNCH PACIFIC FUND, INC. has caused these
Articles of Amendment to be signed in its name and on its behalf by its
President, a duly authorized officer of the Corporation, and attested by its
Secretary as of the day of October, 1994.
MERRILL LYNCH PACIFIC FUND, INC.
-------------------------------------
Arthur Zeikel
President
Attest:
- --------------------------
Robert Harris, Secretary
3
<PAGE> 1
EXHIBIT 1(f)
MERRILL LYNCH PACIFIC FUND, INC.
ARTICLES SUPPLEMENTARY TO ARTICLES OF INCORPORATION
INCREASING THE AUTHORIZED CAPITAL STOCK OF THE
CORPORATION AND CREATING TWO ADDITIONAL CLASSES
OF COMMON STOCK
MERRILL LYNCH PACIFIC FUND, INC., a Maryland corporation having its
principal Maryland office c/o The Corporation Trust Incorporated, 32 South
Street, Baltimore, Maryland 21202 (hereinafter called the "Corporation"), hereby
certifies to the State Department of Assessments and Taxation, that:
FIRST: The Corporation is registered as an open-end company under the
Investment Company Act of 1940, as amended, with authority to issue TWO HUNDRED
MILLION (200,000,000) shares of capital stock. The Corporation has two classes
of capital stock consisting of ONE HUNDRED MILLION (100,000,000) shares of
Class A Common Stock and ONE HUNDRED MILLION (100,000,000) shares of Class B
Common Stock. All shares of all classes and series of the Corporation's capital
stock have a par value of Ten Cents ($.10) per share and an aggregate par value
of TWENTY MILLION Dollars ($20,000,000).
SECOND: The Board of Directors of the Corporation, acting in
accordance with Section 2-105(c) of the Maryland Corporations and Associations
Code, hereby increases the total number of authorized shares of Class B Common
Stock of the Corporation by TWO HUNDRED MILLION (200,000,000) shares.
THIRD: After this increase in the number of authorized shares of
capital stock of the Corporation, the Corporation will have authority to issue
FOUR HUNDRED MILLION (400,000,000) shares of capital stock and the capital
stock will consist of ONE HUNDRED MILLION (100,000,000) shares of Class A
Common Stock and THREE HUNDRED MILLION (300,000,000) shares of Class B Common
Stock.
FOURTH: After this increase in the number of authorized shares of
capital stock of the Corporation, all shares of all classes and series of the
Corporation's capital stock will have a par value of Ten Cents ($.10) per share
and an aggregate par value of FORTY MILLION Dollars ($40,000,000).
FIFTH: Pursuant to authority expressly vested in the Board of
Directors of the Corporation by its charter, the Board of Directors has
reclassified ONE HUNDRED MILLION (100,000,000) authorized and unissued shares
of the Class B Common Stock of the Corporation as Class C Common Stock of par
value of Ten Cents
<PAGE> 2
($.10) per share and of the aggregate par value of TEN MILLION Dollars
($10,000,000).
SIXTH: The preferences, designations, conversion or other rights,
voting powers, restrictions, limitations as to dividends, qualifications or
terms or conditions of redemption of Class C Common Stock are as follows:
The Class C Common Stock of the Corporation shall represent the same
interest in the Corporation and have identical preferences, designations,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications, or terms or conditions of redemption as the Class B
Common Stock as of the date of these Articles Supplementary, except as
otherwise set forth in the Corporation's charter and further except that:
(i) Expenses related to the distribution of the Class C Common Stock
shall be borne solely by such class and such class shall have exclusive voting
rights with respect to matters relating to the expenses being borne solely by
such class;
(ii) Such distribution expenses borne solely by Class C Common Stock
shall be appropriately reflected (in the manner determined by the Board of
Directors) in the net asset value, dividends, distribution and liquidation
rights of the shares of such class; and
(iii) Class C Common Stock shall not be reclassified into Class D shares.
SEVENTH: Pursuant to authority expressly vested in the Board of
Directors of the Corporation by its charter, the Board of Directors has
reclassified ONE HUNDRED MILLION (100,000,000) authorized and unissued shares
of the Class B Common Stock of the Corporation as Class D Common Stock of par
value of Ten Cents ($.10) per share and of the aggregate par value of TEN
MILLION Dollars ($10,000,000).
EIGHTH: The preferences, designations, conversion or other rights,
voting powers, restrictions, limitations as to dividends, qualifications or
terms or conditions of redemption of Class D Common Stock are as follows:
The Class D Common Stock of the Corporation shall represent the same
interest in the Corporation and have identical preferences, designations,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications, or terms or conditions of redemption as the Class B
Common Stock as of the date of these Articles Supplementary,
2
<PAGE> 3
except as otherwise set forth in the Corporation's charter and further except
that:
(i) Expenses related to the distribution of the Class D Common Stock
shall be borne solely by such class and such class shall have exclusive voting
rights with respect to matters relating to the expenses being borne by such
class; and
(ii) Such distribution expenses borne solely by Class D Common Stock
shall be appropriately reflected (in the manner determined by the Board of
Directors) in the net asset value, dividends, distribution and liquidation
rights of the shares of such class.
3
<PAGE> 4
IN WITNESS WHEREOF, MERRILL LYNCH PACIFIC FUND, INC. has caused these
Articles Supplementary to be signed in its name and on its behalf by its
President and attested by its Secretary on October 17th, 1994.
MERRILL LYNCH PACIFIC FUND, INC.
By /s/ ARTHUR ZEIKEL
-----------------------------------------
Arthur Zeikel
President
Attest:
/s/ ROBERT HARRIS
- ------------------------
Robert Harris, Secretary
THE UNDERSIGNED, President of MERRILL LYNCH PACIFIC FUND, INC., who
executed on behalf of said Corporation the foregoing Articles Supplementary, of
which this certificate is made a part, hereby acknowledges, in the name and on
behalf of said Corporation, the foregoing Articles Supplementary to be the
corporate act of said Corporation and further certifies that, to the best of his
knowledge, information and belief, the matters and facts set forth therein with
respect to the authorization and approval thereof are true in all material
respects, and that this statement is made under the penalties for perjury.
/s/ ARTHUR ZEIKEL
---------------------------
Arthur Zeikel
President
4
<PAGE> 1
EXHIBIT 11
INDEPENDENT AUDITORS' CONSENT
MERRILL LYNCH PACIFIC FUND, INC.:
We consent to the use in Post-Effective Amendment No. 26 to Registration
Statement No. 2-56978 of our report dated February 3, 1995 appearing in the
Statement of Additional Information, which is a part of such Registration
Statement, and to the reference to us under the caption "Financial Highlights"
appearing in the Prospectus, which also is a part of such Registration
Statement.
DELOITTE & TOUCHE LLP
Princeton, New Jersey
April 24, 1995
<PAGE> 1
EXHIBIT 16(c)
Pacific Fund -- Class C
10/21/94 -- 12/31/94
<TABLE>
<CAPTION>
Since Since
Inception Inception
Avg Annual Total
Return Return*
---------- ----------
<S> <C> <C>
Initial Investment $1,000.00 $1,000.00
Divided by Net Asset Value 21.67 21.67
--------- ---------
Equals Shares Purchased 46.15 46.15
Plus Shares Acquired through
Dividend Reinvestment 1.55 1.55
--------- ---------
Equals Shares Held at 12/31/94 47.70 47.70
Multiplied by Net Asset Value at 12/31/94 20.12 20.12
--------- ---------
Equals Ending Value before deduction for
contingent deferred sales charge 959.62 959.62
--------- ---------
Less deferred sales charge (9.29) 0.00
--------- ---------
Equals Ending Redeemable Value at
$1000 Investment (ERV) at 12/31/93 $959.33 $959.62
--------- ---------
Divided by $1,000 (P) 0.9503 0.9596
Subtract 1 -0.0497 -0.0404
Expressed as a percentage equals the
Aggregate Total Return for the Period (T) -4.97%
=========
Expressed as a percentage equals the
Aggregate Total Return for the Period -4.04%
=========
ERV divided by P 0.9503
Raise to the power of 5.1414
Equals 0.7696
Subtract 1 -0.2304
Expressed as a percentage equals the
Average Annualized Total Return -23.04%
=========
</TABLE>
* Does not include sales charge for the period.
<PAGE> 1
EXHIBIT 16(d)
Pacific Fund -- Class D
10/21/94 -- 12/31/94
<TABLE>
<CAPTION>
Since Since
Inception Inception
Avg Annual Total
Return Return*
---------- ----------
<S> <C> <C>
Initial Investment $1,000.00 $1,000.00
Divided by Initial Maximum Offering Price 23.96
---------
Divided by Net Asset Value 22.70
---------
Equals Shares Purchased 41.74 44.05
Plus Shares Acquired through
Dividend Reinvestment 1.37 1.46
--------- ---------
Equals Shares Held at 12/31/94 43.12 45.51
Multiplied by Net Asset Value at 12/31/94 21.11 21.11
--------- ---------
Equals Ending Redeemable Value at
$1000 Investment (ERV) at 12/31/93 $910.16 $960.67
Divided by $1,000 (P) 0.9102 0.9607
Subtract 1 -0.0898 -0.0393
Expressed as a percentage equals the
Aggregate Total Return for the Period (T) -8.98%
=========
Expressed as a percentage equals the
Aggregate Total Return for the Period -3.93%
=========
ERV divided by P 0.9102
Raise to the power of 5.1372
Equals 0.6166
Subtract 1 -0.3834
Expressed as a percentage equals the
Average Annualized Total Return -38.34%
=========
</TABLE>
* Does not include sales charge for the period.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<PER-SHARE-NII> (.12)
<PER-SHARE-GAIN-APPREC> .49
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE> 1
EXHIBIT 99.18
POWER OF ATTORNEY
I, Edward D. Zinbarg, hereby authorize Arthur Zeikel, Terry K.
Glenn, Gerald M. Richard, Mark B. Goldfus, Robert Harris or Michael J.
Hennewinkel, or any of them, as attorney-in-fact, to sign on my behalf any
amendments to the Registration Statement for each of the following registered
investment companies and to file the same, with all exhibits thereto, with the
Securities and Exchange Commission: Emerging Tigers Fund, Inc.; Merrill Lynch
Americas Income Fund, Inc.; Merrill Lynch Developing Capital Markets Fund, Inc.;
Merrill Lynch Dragon Fund, Inc.; Merrill Lynch EuroFund; Merrill Lynch Global
Allocation Fund, Inc.; Merrill Lynch Global Bond Fund for Investment and
Retirement; Merrill Lynch Global Holdings, Inc.; Merrill Lynch Global SmallCap
Fund, Inc.; Merrill Lynch Healthcare Fund, Inc.; Merrill Lynch International
Equity Fund; Merrill Lynch Latin America Fund, Inc.; Merrill Lynch Middle
East/Africa Fund, Inc.; Merrill Lynch Pacific Fund, Inc.; Merrill Lynch
Short-Term Global Income Fund, Inc.; Merrill Lynch Technology Fund, Inc.; and
Worldwide DollarVest Fund, Inc.
Dated: February 21, 1995 /s/ Edward D. Zinbarg
----------------------------------
Edward D. Zinbarg
(Director of each above referenced
Maryland corporation and Trustee
of each above referenced
Massachusetts business trust)
<PAGE> 1
99.2
BY-LAWS
OF
MERRILL LYNCH PACIFIC FUND, INC.
ARTICLE I
Offices
Section 1. Principal Office. The principal office of the
Corporation shall be in the City of Baltimore, State of Maryland.
Section 2. Principal Executive Office. The principal
executive office of the Corporation shall be at 800 Scudders Mill
Road, Plainsboro, New Jersey 08536.
Section 3. Other Offices. The Corporation may have such
other offices in such places as the Board of Directors may from
time to time determine.
ARTICLE II
Meetings of Stockholders
section 1. Annual Meeting. The Corporation shall not be required to hold an
annual meeting of its stockholders in any year in which none of the following is
required to be acted on by the holders of the capital stock under the Investment
Company Act of 1940, as amended: (a) election of directors, (b) approval of the
Corporation's investment advisory agreement; (c) ratification of the selection
of independent public accountants; and (d)
<PAGE> 2
approval of the Corporation's distribution agreement. In the event that the
Corporation shall be required to hold an annual meeting of stockholders by the
Investment Company Act of 1940, as amended, such meeting shall be held: (a) at a
date and time set by the Board of Directors in accordance with the Investment
Company Act of 1940, as amended if the purpose of the meeting is to elect
directors or to approve an investment advisory agreement or distribution
agreement; and (b) on a date fixed by the board of directors during the month of
June (i) in the fiscal year immediately following the fiscal year in which
independent accountants were appointed if the purpose of the meeting is to
ratify the selection of such independent accountants, or (ii) in any fiscal year
if an annual meeting is to be held for any reason other than as specified in the
foregoing. Any stockholders' meeting held in accordance with the preceding
sentence shall for all purposes constitute the annual meeting of stockholders
for the fiscal year of the Corporation in which the meeting is held. At any such
meeting, the stockholders shall elect directors to hold the offices of any
directors who have held office for more than one year or who have been elected
by the board of directors to fill vacancies which result from any cause.
Section 2. Special Meetings. Special meetings of the
stockholders, unless otherwise provided by law or by the Articles
of Incorporation, may be called for any purpose or purposes by a
majority of the Board of Directors, the President, or on the
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written request of the holders of the outstanding capital stock of the
Corporation entitled to vote at such meeting to the extent permitted by Maryland
law and the Investment Company Act of 1940, as amended.
Section 3. Place of Meetings. Meetings of stockholders shall be held at
such place within the United States as the Board of Directors may from time to
time determine.
Section 4. Notice of Meetings; Waiver of Notice. Notice of the place, date
and time of the holding of each stockholders' meeting and, if the meeting is a
special meeting, the purpose or purposes of the meeting, shall be given
personally or by mail, not less than ten nor more than ninety days before the
date of such meeting, to each stockholder entitled to vote at such meeting and
to each other stockholder entitled to notice of the meeting. Notice by mail
shall be deemed to be duly given when deposited in the United States mail
addressed to the stockholder at his address as it appears on the records of the
Corporation, with postage thereon prepaid.
Notice of any meeting of stockholders shall be deemed waived by any
stockholder who shall attend such meeting in person or by proxy, or who shall,
either before or after the meeting, submit a signed waiver of notice which is
filed with the records of the meeting. When a meeting is adjourned to another
time and place, unless the Board of Directors, after the adjournment, shall fix
a new record date for an adjourned meeting, or the adjournment is
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for more than one hundred and twenty days after the original record date, notice
of such adjourned meeting need not be given if the time and place to which the
meeting shall be adjourned were announced at the meeting at which the
adjournment is taken.
Section 5. Quorum. At all meetings of the stockholders, the holders of a
majority of the shares of stock of the Corporation entitled to vote at the
meeting, present in person or by proxy, shall constitute a quorum for the
transaction of any business except as otherwise provided by statute or by the
Articles of incorporation. In the absence of a quorum no business may be
transacted, except that the holders of a majority of the shared of stock present
in person or by proxy and entitled to vote may adjourn the meeting from time to
time, without notice other than announcement thereat except as otherwise
required by these By-Laws, until the holders of the requisite amount of shares
of stock shall be so present. At any such adjourned meeting at which a quorum
may be present any business may be transacted which might have been transacted
at the meeting as originally called. The absence from any meeting, in person or
by proxy, of holders of the number of shares of stock of the Corporation in
excess of a majority thereof which may be required by the laws of the State of
Maryland, the Investment Company Act of 1940, as amended, or other applicable
statute, the Articles of Incorporation, or these By-Laws, for action upon any
given matter shall not prevent action at such meeting upon any other matter or
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matters which may properly come before the meeting, if there shall be
present thereat, in person or by proxy, holders of the number of shares of
stock of the Corporation required for action in respect of such other matter or
matters.
Section 6. Organization. At each meeting of the stockholders, the
Chairman of the Board (if one has been designated by he Board), or in his
absence or inability to act, the President, or in the absence or inability to
act of the Chairman of the Board and the President, a Vice President, shall act
as chairman if of the meeting. The Secretary, or in his absence or inability to
act, any person appointed by the chairman of the meeting, shall act as secretary
of the meeting and keep the minutes thereof.
Section 7. Order of Business. The order of business at all meetings of the
stockholders shall be as determined by the chairman of the meeting.
Section 8. Voting. Except as otherwise provided by statute or the Articles
of Incorporation, each holder of record of shares of stock of the Corporation
having voting power shall be entitled at each meeting of the stockholders to one
vote for every share of such stock standing in his name on the record of
stockholders of the Corporation as of the record date determined pursuant to
Section 9 of this Article or if such record date shall not have been so fixed,
then at the later of (i) the close of business on the day on which notice of the
meeting is mailed or (ii) the thirtieth day before the meeting.
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Each stockholder entitled to vote at any meeting of stockholders may
authorize another person or persons to act for him by a proxy signed by such
stockholder or his attorney-in-fact. No proxy shall be valid after the
expiration of eleven months from the date thereof, unless otherwise provided in
the proxy. Every proxy shall be revocable at the pleasure of the stockholder
executing it, except in those cases where such proxy states that it is
irrevocable and where an irrevocable proxy is permitted by law. Except as
otherwise provided by statute, the Articles of Incorporation or these By-Laws,
any corporate action to be taken by vote of the stockholders shall be authorized
by a majority of the total votes cast at a meeting of stockholders by the
holders of shares present in person or represented by proxy and entitled to vote
on such action.
If a vote shall be taken on any question other than the election of
directors, which shall be by written ballot, then unless required by statute or
these By-Laws, or determined by the chairman of the meeting to be advisable, any
such vote need not be by ballot. on a vote by ballot, each ballot shall be
signed by the stockholder voting, or by his proxy, if there be such proxy, and
shall state the number of shares voted.
Section 9. Fixing of Record Date. The Board of Directors may set a record
date for the purpose of determining stockholders entitled to vote at any meeting
of the stockholders. The record date, which may not be prior to the close of
business on the day
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the record date is fixed, shall be not more than ninety nor less than ten days
before the date of the meeting of the stockholders. All persons who were holders
of record of shares at such time, and no others, shall be entitled to vote at
such meeting and any adjournment thereof.
Section 10. Inspectors. The Board may, in advance of any meeting of
stockholders, appoint one or more inspectors to act at such meeting or any
adjournment thereof. If the inspectors shall not be so appointed or if any of
them shall fail to appear or act, the chairman of the meeting may, and on the
request of any stockholder entitled to vote thereat shall, appoint inspectors.
Each inspector, before entering upon the discharge of his duties, shall take and
sign an oath to execute faithfully the duties of inspector at such meeting with
strict impartiality and according to the best of his ability. The inspectors
shall determine the number of shares outstanding and the voting power of each,
the number of shares represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or consents, determine the
result, and do such acts as are proper to conduct the election or vote with
fairness to all stockholders. On request of the chairman of the meeting or any
stockholder entitled to vote thereat, the inspectors shall make a report in
writing of any challenge,
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request or matter determined by them and shall execute a certificate of any fact
found by them. No director or candidate for the office of director shall act as
inspector of an election of directors. Inspectors need not be stockholders.
Section 11. Consent of Stockholders in Lieu of Meeting. Except as otherwise
provided by statute or the Articles of Incorporation, any action required to be
taken at any meeting of stockholders, or any action which may be taken at any
meeting of such stockholders, may be taken without a meeting, without prior
notice and without a vote, if the following are filed with the records of
stockholders meetings: (i) a unanimous written consent which sets forth the
action and is signed by each stockholder entitled to vote on the matter and (ii)
a written waiver of any right to dissent signed by each stockholder entitled to
notice of the meeting but not entitled to vote thereat.
ARTICLE III
Board of Directors
Section 1. General Powers. Except as otherwise provided in the Articles of
Incorporation, the business and affairs of the Corporation shall be managed
under the direction of the Board of Directors. All powers of the Corporation may
be exercised by or under authority of the Board of Directors except as conferred
on
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<PAGE> 9
or reserved to the stockholders by law or by the Articles of incorporation or
these By-Laws.
Section 2. Number of Directors. The number of directors shall be fixed from
time to time by resolution of the Board of Directors adopted by a majority of
the Directors then in office; provided, however, that the number of directors
shall in no event be less than three nor more than fifteen except that the
Corporation may have two directors if there is no stock outstanding, or so long
as there are less than three stockholders. Any vacancy created by an increase in
Directors may be filled in accordance with Section 6 of this Article III. No
reduction in the number of directors shall have the effect of removing any
director from office prior to the expiration of his term unless such director is
specifically removed pursuant to Section 5 of this Article III at the time of
such decrease. Directors need not be stockholders.
Section 3. Election and Term of Directors. Directors shall be elected
annually, by written ballot at a meeting of stockholders held for that purpose;
provided, however, that if no meeting of the stockholders of the Corporation is
required to be held in a particular year pursuant to Section 1 of Article II of
these By-laws, Directors shall be elected at the next meeting held. The term of
office of each director shall be from the time of his election and qualification
until the election of directors next succeeding his election and until his
successor shall have
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been elected and shall have qualified, or until his death, or until he shall
have resigned, or have been removed as hereinafter provided in these By-Laws, or
as otherwise provided by statute or the Articles of Incorporation.
Section 4. Resignation. A director of the Corporation may resign at any time
by giving written notice of his resignation to the Board or the Chairman of the
Board or the President or the Secretary. Any such resignation shall take effect
at the time specified therein or, if the time when it shall become effective
shall not be specified therein, immediately upon its receipt; and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
Section 5. Removal of Directors. Any director of the Corporation may be
removed by the stockholders by a vote of a majority of the votes entitled to be
cast for the election of directors.
Section 6. Vacancies. Any vacancies in the Board, whether arising from
death, resignation, removal, an increase in the number of directors or any other
cause, shall be filled by a vote of the majority of the Board of Directors then
in office even though such majority is less than a quorum, provided that no
vacancies shall be filled by action of the remaining directors, if after the
filling of said vacancy or vacancies, less than two-thirds of the directors then
holding office shall have been elected by the stockholders of the Corporation.
In the event
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that at any time there is a vacancy in any office of a director which vacancy
may not be filled by the remaining directors, a special meeting of the
stockholders shall be held as promptly as possible and in any event within sixty
days, for the purpose of filling said vacancy or vacancies. Any directors
elected or appointed to fill a vacancy shall hold office only until the next
meeting of stockholders of the Corporation and until a successor shall have been
chosen and qualifies or until his earlier resignation or removal.
Section 7. Place of Meetings. Meetings of the Board may be held at such
place as the Board may from time to time determine or as shall be specified in
the notice of such meeting.
Section 8. Regular Meetings. Regular meetings of the Board may be held
without notice at such time and place as may be determined by the Board of
Directors.
Section 9. Special Meetings. Special meetings of the Board may be called by
two or more directors of the Corporation or by the Chairman of the Board or the
President.
Section 10. Telephone Meetings. Members of the Board of Directors or of any
committee thereof may participate in a meeting by means of a conference
telephone or similar communications equipment if all persons participating in
the meeting can hear each other at the same time. Subject to the provisions of
the Investment Company Act of 1940, as amended,
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participation in a meeting by these means constitutes presence in person at the
meeting.
Section 11. Notice of Special Meetings. Notice of each special meeting of
the Board shall be given by the Secretary as hereinafter provided, in which
notice shall be stated the time and place of the meeting. Notice of each such
meeting shall be delivered to each director, either personally or by telephone
or any standard form of telecommunication, at least twenty-four hours before the
time at which such meeting is to be held, or by first-class mail, postage
prepaid, addressed to him at his residence or usual place of business, at least
three days before the day on which such meeting is to be held.
Section 12. Waiver of Notice of Meetings. Notice of any special meeting
need not be given to any director who shall, either before or after the meeting,
sign a written waiver of notice which is filed with the records of the meeting
or who shall attend such meeting. Except as otherwise specifically required by
these By-Laws, a notice or waiver of notice of any meeting need not state the
purposes of such meeting.
Section 13. Quorum and Voting. One-third, but not less than two, of the
members of the entire Board shall be present in person at any meeting of the
Board in order to constitute a quorum for the transaction of business at such
meeting, and except as otherwise expressly required by statute, the Articles of
Incorporation, these By-Laws, the Investment Company Act of
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1940, as amended, or other applicable statute, the act of a majority of the
directors present at any meeting at which a quorum is present shall be the act
of the Board. In the absence quorum at any meeting of the Board, a majority of
the of a directors present thereat may adjourn such meeting to another time and
place until a quorum shall be present thereat. Notice of the time and place of
any such adjourned meeting shall be given to the directors who were not present
at the time of the adjournment and, unless such time and place were announced at
the meeting it which the adjournment was taken, to the other directors. At any
adjourned meeting at which a quorum is present, any business may be transacted
which might have been transacted at the meeting as originally called.
Section 14. Organization. The Board may, by resolution adopted by a majority
of the entire Board, designate a Chairman of the Board, who shall preside at
each meeting of the Board. In the absence or inability of the Chairman of the
Board to preside at a meeting, the President, or, in his absence or inability to
act, another director chosen by a majority of the directors present, shall act
as chairman of the meeting and preside thereat. The Secretary (or, in his
absence or inability to act, any person appointed by the Chairman) shall act as
secretary of the meeting and keep the minutes thereof.
Section 15. Written Consent of Directors in Lieu of a Meeting. Subject to
the provisions of the Investment Company Act
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of 1940, as amended, any action required or permitted to be taken at any meeting
of the Board of Directors or of any committee thereof may be taken without a
meeting if all members of the Board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
the proceedings of the Board or committee.
Section 16. Compensation. Directors may receive compensation for services to
the Corporation in their capacities as directors or otherwise in such manner and
in such amounts as may be fixed from time to time by the Board.
Section 17. Investment Policies. It shall be the duty of the Board of
Directors to ensure that the purchase, sale, retention and disposal of portfolio
securities and the other investment practices of the Corporation are at all
times consistent with the investment policies and restrictions with respect to
securities investments and otherwise of the Corporation, as recited in the
current Prospectus and Statement of Additional Information of the Corporation
included in the Registration Statement of the Corporation, as filed from time to
time with the securities and Exchange commission and as required by the
Investment Company Act of 1940, as amended. The Board, however. may delegate the
duty of management of the assets and the administration of its day to day
operations to an individual or corporate management company and/or investment
adviser pursuant to a written contract or contracts which have obtained the
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requisite approvals, including the requisite approvals of renewals thereof, of
the Board of Directors and/or the stockholders of the Corporation in accordance
with the provisions of the Investment Company Act of 1940, as amended.
ARTICLE IV
Committees
Section 1. Executive Committee. The Board may, by resolution adopted by a
majority of the entire board, designate an Executive Committee consisting of two
or more of the directors of the Corporation, which committee shall have and may
exercise all the powers and authority of the Board with respect to all matters
other than:
(a) the submission to stockholders of any action requiring
authorization of stockholders pursuant to statute or the Articles
of Incorporation;
(b) the filling of vacancies on the Board of Directors;
(c) the fixing of compensation of the directors for serving on the Board
or on any committee of the Board, including the Executive Committee;
(d) the approval or termination of any contract with an investment adviser
manager or principal underwriter, as such terms are defined in the Investment
Company Act of 1940, as amended, or the taking of any other action required to
be taken
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by the Board of Directors by the Investment Company Act of 1940, as amended;
(e) the amendment or repeal of these By-Laws or the adoption of new
By-Laws;
(f) the amendment or repeal of any resolution of the Board which by its
terms may be amended or repealed only by the Board;
(g) the declaration of dividends and the issuance of capital stock of the
Corporation; and
(h) the approval of any merger or share exchange which does not requite
stockholder approval.
The Executive Committee shall keep written minutes of its proceedings and
shall report such minutes to the Board. All such proceedings shall be subject to
revision or alteration by the Board; provided, however, that third parties shall
not be prejudiced by such revision or alteration.
Section 2. Other Committees of the Board. The Board of Directors may from
time to time, by resolution adopted by a majority of the whole Board, designate
one or more other committees of the Board, each such committee to consist of two
or more directors and to have such powers and duties as the Board of Directors
may, by resolution, prescribe.
Section 3. General. One-third, but not less than two, of the members of
any committee shall be present in person at any meeting of such committee in
order to constitute a quorum for the transaction of business at such meeting,
and the act of a major-
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ity present shall be the act of such committee. The Board may designate a
chairman of any committee and such chairman or any two members of any committee
may fix the time and place of its meetings unless the Board shall otherwise
provide. In the absence or disqualification of any member of any committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. The Board shall have the power at any
time to change the membership of any committee, to fill all vacancies, to
designate alternate members to replace any absent or disqualified member, or to
dissolve any such committee. Nothing herein shall be deemed to prevent the Board
from appointing one or more committees consisting in whole or in part of persons
who are not directors of the Corporation; provided, however, that no such
committee shall have or may exercise any authority or power of the Board in the
management of the business or affairs of the Corporation.
ARTICLE V
Officers, Agents and Employees
Section 1. Number and Qualifications. The officers of the Corporation shall
be a President, a Secretary and a Treasurer, each of whom shall be elected by
the Board of Directors. The
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Board of Directors may elect one or more Vice Presidents and may also appoint
such other officers, agents and employees as it may deem necessary or proper.
Any two or more offices may be held by the same person, except the offices of
President and Vice President, but no officer shall execute, acknowledge or
verify any instrument in more than one capacity. Such officers shall be elected
by the Board of Directors each year at a meeting of the Board of Directors,
each-to hold office for the ensuing year and until his successor shall have been
duly elected and shall have qualified, or until his death, or until he shall
have resigned, or have been removed, as hereinafter provided in these By-Laws.
The Board may from time to time elect, or delegate to the President the power to
appoint, such officers (including one or more Assistant Vice Presidents, one or
more Assistant Treasurers and one or more Assistant Secretaries) and such
agents, as may be necessary or desirable for the business of the Corporation.
Such other officers and agents shall have such duties and shall hold their
offices for such terms as may be prescribed by the Board or by the appointing
authority.
Section 2. Resignations. Any officer of the Corporation may resign at any
time by giving written notice of his resignation to the Board, the Chairman of
the Board, the President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its
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receipt; and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Section 3. Removal of Officer, Agent or Employee. Any officer, agent or
employee of the Corporation may be removed by the Board of Directors with or
without cause at any time, and the Board may delegate such power of removal as
to agents and employees not elected or appointed by the Board of Directors. Such
removal shall be without prejudice to such person's contract rights, if any, but
the appointment of any person as an officer, agent or employee of the
Corporation shall not of itself create contract rights.
Section 4. Vacancies. A vacancy in any office, whether arising from death,
resignation, removal or any other cause, may be filled for the unexpired portion
of the term of the office which shall be vacant, in the manner prescribed in
these By-Laws for the regular election or appointment to such office.
Section 5. Compensation. The compensation of the officers of the
Corporation shall be fixed by the Board of Directors, but this power may be
delegated to any officer in respect of other officers under his control.
Section 6. Bonds or Other Security. If required by the Board, any officer,
agent or employee of the Corporation shall give a bond or other security for the
faithful performance of his duties, in such amount and with such surety or
sureties as the Board may require.
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Section 7. President. The President shall be the chief executive officer of
the Corporation. In the absence of the Chairman of the Board (or if there is
none), the President shall preside at meetings of the stockholders and the Board
of Directors. The President shall have, subject to the control of the Board of
Directors, general charge of the business and affairs of the Corporation. He may
employ and discharge employees and agents of the Corporation, except such as
shall be appointed by the Board, and he may delegate these powers.
Section 8. Vice President. Each Vice President shall have such powers and
perform such duties as the Board of Directors or the President may from time to
time prescribe.
Section 9. Treasurer. The Treasurer shall
(a) have charge and custody of, and be responsible for, all the funds and
securities of the Corporation, except those which the Corporation has placed in
the custody of a bank or trust company or member of a national securities
exchange (as that term is defined in the Securities Exchange Act of 1934)
pursuant to a written agreement designating such bank or trust company or member
of a national securities exchange as custodian of the property of the
Corporation;
(b) keep full and accurate accounts of receipts and disbursements in
books belonging to the Corporation;
(c) cause all moneys and other valuable to be deposited to the credit of
the Corporation;
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(d) receive, and give receipts for, moneys due and payable to the
Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and supervise the investment of
its funds as ordered or authorized by the Board, taking proper vouchers
therefor; and
(f) in general, perform all the duties incident to the office of Treasurer
and such other duties as from time to time may be assigned to him by the Board
or the President.
Section 10. Secretary. The Secretary shall
(a) keep or cause to be kept in one or more books provided for the purpose,
the minutes of all meetings of the Board, the committees 'of the Board and the
stockholders;
(b) see that all notices are duly given in accordance with the provisions
of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the Corporation and affix
and attest the seal to all stock certificates of the Corporation (unless the
seal of the Corporation on such certificates shall be a facsimile, as
hereinafter provided) and affix and attest the seal to all other documents to be
executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed are properly kept and
filed; and
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(e) in general, perform all the duties incident to the office of Secretary
and such other duties as from time to time may be assigned to him by the Board
or the President.
Section 11. Delegation of Duties. In case of the absence of any officer of
the Corporation, or for any other reason that the Board may deem sufficient, the
Board may confer for the time being the powers or duties, or any of them, of
such officer upon any other officer or upon any director.
ARTICLE VI
Indemnification
Each officer and director of the Corporation shall be indemnified by the
Corporation to the full extent permitted under the General Laws of the State of
Maryland, except that such indemnity shall not protect any such person against
any liability to the Corporation or any stockholder thereof to which such person
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office. Absent a court determination that an officer or director seeking
indemnification was not liable on the merits or guilty of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office, the decision by the Corporation to indemnify such person
must be based upon the reasonable determination of independent counsel or
non-party independent directors, after review
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of the facts, that such officer or director is not guilty of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
The Corporation may purchase insurance on behalf of an officer or director
protecting such person to the full extent permitted under the General Laws of
the State of Maryland, from liability arising from his activities as officer or
director of the Corporation. The Corporation, however, may not purchase
insurance on behalf of any officer or director of the Corporation that protects
or purports to protect such person from liability to the corporation or to its
stockholders to which such officer or director would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office.
The Corporation may indemnify or purchase insurance to the extent provided
in this Article VI on behalf of an employee or agent who is not an officer or
director of the Corporation.
ARTICLE VII
Capital Stock
Section 1. Stock Certificates. Each holder of stock of the Corporation
shall be entitled upon request to have a certificate or certificates, in such
form as shall be approved by the Board, representing the number of shares of
stock of the Corporation owned by him, provided, however, that certificates for
fractional
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<PAGE> 24
shares will not be delivered in any case. The certificates representing shares
of stock shall be signed by or in the name of the Corporation by the President
or a Vice President a d by the secretary or an Assistant Secretary or the
Treasurer or an Assistant Treasurer and sealed with the seal of the Corporation.
Any or all of the signatures or the seal on the certificate may be a facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate shall be
issued, it may be issued by the Corporation with the same effect as if such
officer, transfer agent or registrar were still in office at the date of issue.
Section 2. Books of Account and Record of Stockholders. There shall be kept
at the principal executive office of the Corporation correct and complete books
and records of account of all the business and transactions of the Corporation.
There shall be made available upon request of any stockholder, in accordance
with Maryland law, a record containing the number of shares of stock issued
during a specified period not to exceed twelve months and the consideration
received by the Corporation for each such share.
Section 3. Transfers of Shares. Transfers of shares of stock of the
Corporation shall be made on the stock records of the Corporation only by the
registered holder thereof, or by his
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<PAGE> 25
attorney thereunto authorized by power of attorney duly executed and filed with
the Secretary or with a transfer agent or transfer clerk, and on surrender of
the certificate or certificates, if issued, for such shares properly endorsed or
accompanied by a duly executed stock transfer power and the payment of all taxes
thereon. Except as otherwise provided by law, the Corporation shall be entitled
to recognize the exclusive right of a person in whose name any share or shares
stand on the record of stockholders as the owner of such share or shares for all
purposes, including, without limitation, the rights to receive dividends or
other distributions, and to vote as such owner, and the Corporation shall not be
bound to recognize any equitable or legal claim to or interest in any such share
or shares on the part of any other person.
Section 4. Regulations. The Board may make such additional rules and
regulations, not inconsistent with these By-Laws, as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
stock of the Corporation. It may appoint, or authorize any officer or officers
to appoint, one or more transfer agents or one or more transfer clerks and one
or more registrars and may require all certificates for shares of stock to bear
the signature or signatures of any of them.
Section 5. Lost, Destroyed or Mutilated Certificates. The holder of any
certificates representing shares of stock of the Corporation shall immediately
notify the Corporation of any loss,
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<PAGE> 26
destruction or mutilation of such certificate, and the Corporation may issue a
new certificate of stock in the place of any certificate theretofore issued by
it which the owner thereof shall allege to have been lost or destroyed or which
shall have been mutilated, and the Board may, in its discretion, require such
owner or his legal representatives to give to the Corporation a bond in such
sum, limited or unlimited, and in such form and with such surety or sureties, as
the Board in its absolute discretion shall determine, to indemnify the
Corporation against any claim that may be made against it on account of the
alleged loss or destruction of any such certificate, or issuance of a new
certificate. Anything herein to the contrary notwithstanding, the Board, in its
absolute discretion, may refuse to issue any such new certificate, except
pursuant to legal proceedings under the laws of the State of Maryland.
Section 6. Fixing of a Record Date for Dividends and Distributions. The
Board may fix, in advance, a date not more than ninety days preceding the date
fixed for the payment of any dividend or the making of any distribution or the
allotment of rights to subscribe for securities of the Corporation, or for the
delivery of evidences of rights or evidences of interests arising out of any
change, conversion or exchange of common stock or other securities, as the
record date for the determination of the stockholders entitled to receive any
such dividend, distribution, allotment, rights on interests, and in such case
only the stock-
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<PAGE> 27
holders of record at the time so fixed shall be entitled to receive such
dividend, distribution, allotment, rights or interests.
Section 7. Information to Stockholders and Others. Any stockholder of the
Corporation or his agent may inspect and copy during usual business hours the
Corporation's By-Laws, minutes of the proceedings of its stockholders, annual
statements of its affairs, and voting trust agreements on file at its principal
office.
ARTICLE VIII
Seal
The seal of the Corporation shall be circular in form and shall bear, in
addition to any other emblem or device approved by the Board of Directors, the
name of the Corporation, the year of its incorporation and the words "Corporate
Seal" and "Maryland." Said seal may be used by causing it or a facsimile thereof
to be impressed or affixed or in any other manner reproduced.
ARTICLE IX
Fiscal Year
Unless otherwise determined by the Board, the fiscal year of the
Corporation shall end on the 31st day of December.
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ARTICLE X
Depositories and Custodians
Section 1. Depositories. The funds of the Corporation shall be deposited
with such banks or other depositories as the Board of Directors of the
Corporation may from time to time determine.
Section 2. Custodians. All securities and other investments shall be
deposited in the safe keeping of such banks or other companies as the Board of
Directors of the Corporation may from time to time determine. Every arrangement
entered into with any bank or other company-for the safe keeping of the
securities and investments of the Corporation shall contain provisions complying
with the Investment Company Act of 1940, as amended, and the general rules and
regulations thereunder.
ARTICLE XI
Execution of Instruments
Section 1. Checks, Notes, Drafts, etc. Checks, notes, drafts, acceptances,
bills of exchange and other orders obligations for the payment of money shall be
signed by such officer or officers or person or persons as the Board of
Directors by resolution shall from time to time designate.
Section 2. Sale or Transfer of Securities. Stock certificates, bonds or
other securities at any time owned by the Corporation may be held on behalf of
the Corporation or sold, trans-
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ferred or otherwise disposed of subject to any limits imposed by these By-Laws
and pursuant to authorization by the Board and, when so authorized to be held on
behalf of the Corporation or sold, transferred or otherwise disposed of, may be
transferred from the name of the Corporation by the signature of the President
or a Vice President or the Treasurer or pursuant to any procedure approved by
the Board of Directors, subject to applicable law.
ARTICLE XII
Independent Public Accountants
The firm of independent public accountants which shall sign or certify the
financial statements of the Corporation which are filed with the Securities and
Exchange Commission shall be selected annually by the Board of Directors and, if
required by the provisions of the Investment Company Act of 1940, as amended,
ratified by the stockholders.
ARTICLE XIII
Annual Statement
The books of account of the Corporation shall be examined by an independent
firm of public accountants at the close of each annual period of the Corporation
and at such other times as may be directed by the Board. A report to the
stockholders based upon each such examination shall be mailed to each
stockholder of
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the Corporation of record on such date with respect to each report as may be
determined by the Board, at his address as the same appears on the books of the
Corporation. Such annual statement shall also be available at the annual meeting
of stockholders, if any, and, within 20 days after the meeting (or, in the
absence of an annual meeting, within 20 days after the end of the month of June
following the end of the fiscal year), be placed on file at the Corporation's
principal office. Each such report shall show the assets and liabilities of the
Corporation as of the close of the annual or quarterly period covered by the
report and the securities in which the funds of the Corporation were then
invested. Such report shall also show the corporation's income and expenses for
the period from the end of the Corporation's preceding fiscal year to the close
of the annual or quarterly period covered by the report and any other
information required by the Investment Company Act of 1940, as amended, and
shall set forth such other matters as the Board or such firm of independent
public accountants shall determine.
ARTICLE XIV
Fundamental Policies
It is the fundamental policy of the Corporation not to:
1. Invest in securities of any one issuer (other than the United States
or its agencies or instrumentalities), if immediately after and as a result of
such investment more than 5%
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of the total assets of the Corporation, taken at market value, would be invested
in the securities of such issuer, or more than 10% of the outstanding
securities, or more than 10% of the outstanding voting securities, of such
issuer would be owned by the Corporation.
2. Invest more than 25% of its total assets (taken at market value at the
time of each investment) in the securities of issuers in any particular
industry.
3. Make investments for the purpose of exercising control or management.
4. Purchase securities of other investment companies, except in connection
with a merger, consolidation, acquisition or reorganization, or by purchase in
the open market of securities of closed-end investment companies where no
underwriter or dealer's commission or profit, other than customary broker's
commission, is involved and only if immediately thereafter not more than 10% of
the Corporation's total assets, taken at market value, would be invested in such
securities.
5. Purchase or sell real estate; provided that the Corporation may invest
in securities secured by real estate or interests therein or issued by companies
which invest in real estate or interests therein.
6. Purchase or sell commodities or commodity contracts.
7. Purchase any securities on margin, except that the Corporation may
obtain such short-term credit as may be necessary
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<PAGE> 32
for the clearance of purchases and sales of portfolio securities, or make short
sales of securities or maintain a short position.
8. Make loans to other persons (except as provided in section 9 below);
provided that for purposes of this restriction the acquisition of a portion of
an issue of bonds, debentures, or other corporate debt securities and investment
in 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, as amended).
9. Lend its portfolio securities in excess of 20% of its total assets,
taken at market value; provided that such loans shall be made in accordance with
the guidelines set forth in the Prospectus and Statement of Additional
Information of the Corporation currently effective under the Securities Act of
1933, as amended.
10. Borrow amounts in excess of 5% of its total assets, taken at market
value, and then only from banks as a temporary measure for extraordinary or
emergency purposes.
11. Mortgage, pledge, hypothecate or in any manner transfer (except as
provided in Section 9 above), as security for indebtedness, any securities owned
or held by the Corporation except as may be necessary in connection with
borrowings
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mentioned in Section 10 above, and then such mortgaging, pledging or
hypothecating may not.exceed 10% of the Corporation's total assets, taken at
market value.
12. Invest in securities which cannot be readily resold to the public
because of legal or contractual restrictions or for which no readily available
market exists or in securities of issuers having a record, together with
predecessors, of less than three years of continuous operation if, regarding all
such securities, more than 5% of its total assets, taken at market value, would
be invested in such securities.
13. Underwrite securities of other issuers except insofar as the
Corporation may be deemed an underwriter under the Securities Act of 1933 in
selling portfolio securities.
14. Write, purchase or sell puts, calls or combinations thereof, except
that the Corporation may write covered call options with respect to its
portfolio securities, and enter into closing purchase transactions with respect
to such options, if at the time of the writing of such option not more than 15%
of its total assets, taken at market value, would be subject to being purchased
upon the exercise of an option.
15. invest in securities of foreign issuers if at the time of acquisition
more than 10% of its total assets, taken at market value, would be invested in
such securities.
16. Purchase or sell interests in oil, gas or other mineral exploration or
development programs.
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<PAGE> 34
17. Purchase or retain the securities of any issuer, if those individual
officers and directors of the Corporation, Merrill Lynch Asset Management, Inc.
or any subsidiary thereof each owning beneficially more than 1/2 of 1% of the
securities of such issuer own in the aggregate more than 5% of the securities of
such issuer.
ARTICLE XV
Amendments
These By-Laws or any of them may be amended, altered or repealed at any
regular meeting of the stockholders or at any special meeting of the
stockholders at which a quorum is present or represented, provided that notice
of the proposed amendment, contained in the notice of such special alteration or
repeal be meeting. These By-Laws, except Article XIV hereof, may also be
amended, altered or repealed by the affirmative vote of a majority of the Board
of Directors at any regular or special meeting of the Board of Directors. The
By-Laws, or any of them, set forth in Article XIV of these By-Laws, may be
amended, altered or repealed only by the affirmative vote of a majority (as
defined below) of the outstanding shares of capital stock of the Corporation at
a regular meeting or special meeting of the stockholders, the notice of which
contains the proposed amendment, alteration or repeal. For the purpose of
amending Article XIV of these By-Laws, a majority shall be the lesser of
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<PAGE> 35
(i) 67% of the shares represented at a meeting at which more than 50% of the
outstanding shares are represented or (ii) more than 50% of the outstanding
shares. A certified copy of these ByLaws, as they may be amended from time to
time, shall be kept at the principal office of the Corporation in the State of
Maryland.
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<PAGE> 1
5(a)
MANAGEMENT AGREEMENT
AGREEMENT made this 29th day of July, 1985, by and between MERRILL LYNCH
PACIFIC FUND, INC., a Maryland corporation (hereinafter referred to as the
"Fund"), and MERRILL LYNCH ASSET MANAGEMENT, INC., a Delaware corporation
(hereinafter referred to as the "Manager").
W I T N E S S E T H:
WHEREAS, the Fund is engaged in business as a diversified open-end
investment company registered under the Investment Company Act of 1940, as
amended (hereinafter referred to as the investment Company Act"); and
WHEREAS, the Manager is engaged principally in rendering investment
advisory and management service and is registered as an investment adviser under
the Investment Advisers Act of 1940; and
WHEREAS, the Fund desires to retain the Manager to provide certain
investment advisory and management services to the Fund in the manner and on the
terms hereinafter set forth; and the Manager is willing to provide such
investment advisory and management services to the Fund on the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Fund and the Manager hereby agree as follows:
<PAGE> 2
ARTICLE I
DUTIES OF THE MANAGER
The Fund hereby employs the manager to act as an investment adviser and
manager of the Fund and to furnish, or arrange for affiliates to furnish, the
management and investment advisory services described below, subject to the
policies of, review by and overall control of the Board of Directors of the
Fund, for the period and on the terms and conditions set forth in this
Agreement. The Manager hereby accepts such employment and agrees during such
period, at its own expense, to render, or arrange for the rendering of, such
services and to assume the obligations herein set forth for the compensation
provided for herein. The Manager and its affiliates sha11 for all purposes
herein be deemed to be an independent contractor and shall, unless otherwise
expressly provided or authorized, have no authority to act for or represent the
Fund in any way or otherwise be deemed an agent of the Fund.
(a) Management Services. The Manager shall perform (or arrange for the
performance by affiliates of) the management and administrative services
necessary for the operation of the Fund including administering shareholder
accounts and handling shareholder relations. The Manager shall provide the Fund
with office space, equipment and facilities and such other services as the
Manager, subject to review by the Board of Directors of the Fund, shall from
time to time determine to be necessary or useful to perform its obligations
under this Agreement. The Manager
2
<PAGE> 3
shall also, on behalf of the Fund, conduct relations with custodians,
depositories, transfer agents, dividend disbursing agents, other shareholder
servicing agents, accountants, attorneys, underwriters, brokers and dealers,
corporate fiduciaries, insurers, banks and such other persons in any such other
capacity deemed to be necessary or desirable. The Manager shall generally
monitor the Fund's compliance with investment policies and restrictions as set
forth in the currently effective prospectus and statement of additional
information relating to the shares of the Fund under the Securities Act of 1933,
as amended (the "Prospectus" and "Statement of Additional Information",
respectively). The Manager shall make reports to the Board of Directors of the
Fund of its performance of obligations hereunder and furnish advice and
recommendations with respect to such other aspects of the business and affairs
of the Fund as it shall determine to be desirable.
(b) Investment Advisory Services. The Manager shall provide the Fund with
such investment research, advice and supervision as the latter may from time to
time consider necessary for the proper supervision of the assets of the Fund,
shall furnish continuously an investment program for the Fund and shall
determine from time to time which securities shall be purchased, sold or
exchanged and what portion of the assets of the Fund shall be held in the
various securities in which the Fund invests or cash, subject always to the
restrictions of the Articles of Incorporation and By-Laws of the Fund, as
amended
3
<PAGE> 4
from time to time, the provisions of the Investment Company Act and the
statements relating to the Fund's investment objectives, investment policies and
investment restrictions as the same are set forth in the Prospectus and
Statement of Additional Information. The Manager shall make decisions for the
Fund as to foreign currency matters and make determinations as to foreign
exchange contracts. The Manager shall make decisions for the Fund as to the
manner in which voting rights, rights to consent to corporate action and any
other rights pertaining to the Fund's portfolio securities shall be exercised.
Should the Board of Directors of the Fund at any time, however, make any
definite determination as to investment policy and notify the Manager thereof in
writing, the Manager shall be bound by such determination for the period, if
any, specified in such notice or until similarly notified that such
determination has been revoked, The Manager shall take, on behalf of the Fund,
all actions which it deems necessary to implement the investment policies
determined as provided above, and in particular to place all orders for the
purchase or sale of portfolio securities for the Fund's account with brokers or
dealers selected by it, and to that end, the Manager is authorized as the agent
of the Fund to give instructions to the Custodian of the Fund as to deliveries
of securities and payments and payments of cash for the account of the Fund. In
connection with the selection of such brokers or dealers and the placing of such
orders, the Manager is directed at all times to seek to obtain execution and
price within the
4
<PAGE> 5
policy guidelines determined by the Board of directors of the Fund as set forth
in the Prospectus and Statement of Additional Information. Subject to this
requirement and the provisions of the Investment Company Act, the Securities
Exchange Act of 1934, as amended, and other applicable provisions of law, the
Manager may select brokers or dealers with which it or the Fund is affiliated.
ARTICILE II
ALLOCATION OF CHARGES AND EXPENSES
(a) The Manager. The Manager assumes and shall pay for maintaining the
staff and personnel necessary to perform its obligations under this Agreement,
and sha11, at its own expense, provide the office space, equipment and
facilities which it is obligated to provide under Article I hereof, and shall
pay all compensation of officers of the Fund and all directors of the Fund who
are affiliated persons of the manager.
(b) The Fund. The Fund assumes and shall pay or cause to be paid all other
expenses of the Fund (except for the expenses paid by the Fund's underwriters;),
including, without limitation: taxes, expenses for legal and auditing services,
costs of printing proxies, share certificates shareholder reports, prospectus
and statements of additional information, charges of the Custodian, any
Sub-Custodian and Transfer Agent, expenses of redemption of shares, Securities
and Exchange Commission fees, expenses of registering the shares under Federal,
state and
5
<PAGE> 6
foreign laws, fees and accrual out-of-pocket expenses of directors who are not
affiliated persons of the Manager, accounting and pricing costs (including the
daily calculation of the net asset value), insurance, interest, brokerage costs,
litigation and other extraordinary or non-recurring expenses, and other expenses
properly payable by the Fund. It is also understood that the Fund will reimburse
the manager for its costs in providing accounting services to the Fund.
ARTICLE III
COMPENSATION OF THE MANAGER
(a) Management Fee. For the services rendered, the facilities furnished and
expenses assumed by the Manager, the Fund shall pay to the Manager at the end of
each calendar month a fee based upon the average daily value of the net assets
of the Fund, as determined and computed in accordance with the description of
the determination of net asset value contained in the Prospectus and Statement
of Additional Information, at the annual rate of .60 of 1.00% (.60%) of the
average daily net assets of the Fund, commencing on the day following
effectiveness hereof. During any period when the determination of net asset
value is suspended by the Board of Directors of the Fund, the net asset value of
a share as of the last business day prior to such suspension shall for this
purpose be deemed to be the net asset value at the close of each succeeding
business day until it is again determined.
6
<PAGE> 7
(b) Expense Limitation. In the event the operating expenses of the Fund,
including amounts payable to the Manager pursuant to subsection (a) hereof, for
any fiscal year ending on a date on which this Agreement is in effect exceed the
expense limitations applicable to the Fund imposed by applicable state
securities laws or regulations thereunder, as ouch limitations may be raised or
lowered from time to time, the Manager shall reduce its fee by the extent of
such excess and, if required pursuant to any such laws or regulations, will
reimburse the Fund in the amount of such excess; provided, however, to the
extent permitted by law, there shall be excluded from such expenses the amount
of any interest, taxes, brokerage commissions, distribution fees and
extraordinary expenses (including but not limited to legal claims and
liabilities and litigation costs and any indemnification related thereto) paid
or payable by the Fund. Whenever the expenses of the Fund exceed a pro rata
portion of the applicable annual expense limitations, the estimated amount of
reimbursement under such limitations shall be applicable as an offset against
the monthly payment of the fee due to the Manager. Should two or more such
expense limitations be applicable as at the end of the last business day of the
month, that expense limitation which results in the largest reduction in the
Manager's fee shall be applicable.
7
<PAGE> 8
ARTICLE IV
LIMITATION OF LIABILITY OF THE MANAGER
The Manager shall not be liable for any error of judgment or mistake of law
or for any loss arising out of any investment or for any act or omission in the
management of the Fund, except for willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of reckless disregard
of its obligations and duties hereunder. As used in this Article IV, the term
"Manager" shall include any affiliates of the Manager performing services for
the Fund contemplated hereby and directors, officers and employees of the
Manager and such affiliates.
ARTICLE V
ACTIVITIES OF THE MANAGER
The services of the Manager to the Fund are not to be deemed to be
exclusive, the Manager and any person controlled by or under common control with
the Manager (for purposes of this Article V referred to as "affiliates") being
free to render services to others. It is understood that directors, officers,
employees, and shareholders of the Fund are or may become interested in the
manager and its affiliates, as directors, officers, employees, partners, and
shareholders or otherwise and that directors, officers, employees, partners, and
shareholders of the Manager and its affiliates are or may become similarly
interested in the Fund, and that the Manager and directors,
8
<PAGE> 9
officers, employees, partners, and shareholders of its affiliates may become
interested in the Fund as shareholder or otherwise.
ARTICLE VI
DURATION AND TERMINATION OF THIS AGREEMENT
This Agreement shall become effective as of the date first above written
and shall remain in force until September 30, 1986 and thereafter, but only so
long as such continuance is specifically approved at least annually by (i) the
Board of Directors of the Fund, or by the vote of a majority of the outstanding
voting securities of the Fund, and (ii) 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 Board of Directors of the Fund or by vote of a majority of the
outstanding voting securities of the Fund, or by the Manager, on sixty days'
written notice to the other party. This Agreement shall automatically terminate
in the event of its assignment.
ARTICLE VII
AMENDMENTS OF THIS AGREEEMENT
This Agreement may be amended by the parties only if such amendment is
specifically approved by (i) the vote of a majority of outstanding voting
securities of the Fund, and (ii) a majority
9
<PAGE> 10
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.
ARTICLE VIII
DEFINITIONS OF CERTAIN TERMS
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 of 1940 and the Rules and Regulations thereunder, subject, however,
to such exemptions as may be granted by the Securities and Exchange Commission
under said Act.
ARTICLE IX
GOVERNING LAW
This Agreement sha11 be construed in accordance with laws of the State of
New York and the applicable provisions of the Investment Company Act. To the
extent that the applicable laws 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.
10
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
MERRILL LYNCH PACIFIC FUND, INC.
By: /s/ Arthur Zeikel
--------------------------------
MERRILL LYNCH ASSET MANAGEMENT, INC.
By: /s/ Robert Harris
--------------------------------
11
<PAGE> 1
99.6(a)
CLASS A SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the 21st 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, de fendant 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 21, 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.
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: /s/ Arthur Zeikel
---------------------------------
Title: President
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By: /s/ Terry K. Glenn
---------------------------------
Title: President
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 $25,000 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.
S. 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 of this paragraph shall not in any way
whatsoever constitute, provisions 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: /s/ Terry K. Glenn
---------------------------------
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: October 21, 1994
------------------------------------------------
6
<PAGE> 1
99.6(b)
CLASS B SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the 3rd day of October, 1988, 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 to date (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 B shares of
common stock of the Fund (the "Class B Shares") in order to promote the growth
of the Fund and facilitate the distribution of its Class B shares.
NOW, THEREFORE, the parties agree as follows:
<PAGE> 2
Section 1. Appointment of the Distributor. The Fund hereby appoints the
Distributor as the principal underwriter and distributor of the Fund to sell
Class B shares to the public and hereby agrees during the term of this Agreement
to sell Class B shares of the Fund to the Distributor upon the terms and condi-
tions 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 its Class B
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 B 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 rights granted to the Distributor to purchase Class B
shares from the Fund shall not apply to shares of the Fund issued in connection
with the merger or consolidation of any other investment company or personal
holding company with
2.
<PAGE> 3
the Fund or the acquisition by purchase or otherwise of all (or substantially
all) the assets or the outstanding shares of any such company by the Fund.
(c) such exclusive rights also shall not apply to Class B shares issued
by the Fund pursuant to reinvestment of dividends or capital gains
distributions.
(d) such exclusive rights also shall not apply to Class B shares issued
by the Fund pursuant to any reinstatement privilege afforded redeeming
shareholders.
Section 3. Purchase of Shares from the Fund.
(a) The Fund will commence an offering of its Class B shares and
thereafter the Distributor shall have the right to buy from the Fund the Class B
shares needed, but not more than the Class B shares needed (except for clerical
errors in transmission) to fill unconditional orders for Class B shares of the
Fund placed with the Distributor by investors or securities dealers. The price
which the Distributor shall pay for the Class B shares so purchased from the
Fund shall be the net asset value, determined as set forth in Section 3(c)
hereof.
(b) The Class B 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.
3.
<PAGE> 4
(c) The net asset value of Class B 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 of the Fund
and guidelines established by the Board of Directors.
(d) The Fund shall have the right to suspend the sale of its Class B
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 B 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 B 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 B 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 B 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 B shares pursuant to the instructions of
the Distributor. Payment shall be made to the Fund in New
4.
<PAGE> 5
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 Shares by the Fund.
(a) Any of the outstanding Class B shares may be tendered for redemption
at any time, and the Fund agrees to repurchase or redeem the Class B 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 B shares shall be equal to the net asset value calculated
in accordance with the provisions of Section 3(c) hereof, less the redemption
fee or other charge, 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 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 Class B shares
shall be paid by the Fund as follows: (i) any applicable contingent deferred
sales charge shall be paid to the Distributor and (ii) the
5.
<PAGE> 6
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 B shares or payment may be suspended at times
when the New York Stock Exchange is closed, when trading on said Exchange is
closed, 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 B 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 its prospectus and statement of additional information as the
Distributor shall reasonably request.
6.
<PAGE> 7
(b) The Fund shall take, from time to time, but subject to the necessary
approval of the shareholders, all necessary action to fix the number of
authorized Class B shares and such steps as may be necessary to register the
same under the Securities Act of 1933, as amended (the "Securities Act"), to the
end that there will be available for sale such number of Class B 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 B 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 B shares of the Fund, but shall not be obligated to sell any
specific number of Class B shares. The services of the Distributor to the Fund
hereunder are not to
7.
<PAGE> 8
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 B 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 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 neces-
sary to comply with the requirements of the National Association of Securities
Dealers, Inc. (the "NASD"), as such requirements may from time to time exist.
8.
<PAGE> 9
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 B shares; provided, that the Fund shall approve the forms of
agreements with dealers. 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 initial form of agreement with selected dealers to be used in the
offering of the Class B shares is attached hereto as Exhibit A.
(b) Within the United States, the Distributor shall offer and sell Class
B 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
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).
9.
<PAGE> 10
(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 B 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 B 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 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 B 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
10.
<PAGE> 11
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) arising by reason of any person acquiring
any Class B 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
11.
<PAGE> 12
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
12.
<PAGE> 13
such counsel, the 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 B 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 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,
13.
<PAGE> 14
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. Duration and Termination of this Agreement. This Agreement
shall become effective as of the date first above written and shall remain in
force until September 30, 1990 and thereafter, but only 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 Class B 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 Class B
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.
14.
<PAGE> 15
Section 11. 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 Class B 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 12. 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.
15.
<PAGE> 16
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: /s/ Arthur Zeikel
-------------------------------
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By: /s/ Terry K. Glenn
--------------------------------
16.
<PAGE> 17
EXHIBIT A
MERRILL LYNCH PACIFIC FUND, INC.
CLASS B 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 B shares of
common stock, par value $0.10 per share, of the Fund (the "Class B Shares"), and
as such has the right to distribute Class B 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 B shares being offered to the public are
registered under the Securities Act of 1933, as amended. You have received a
copy of 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. As principal, we offer to sell to you, as a member of the Selected
Dealers Group, Class B shares of the Fund upon the following terms and
conditions:
1. In all sales of these Class B 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.
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 initial and subsequent purchase
requirements are as set forth in the current Prospectus and Statement of
Additional Information of the Fund.
<PAGE> 18
3. You shall not place orders for any of the Class B shares unless you
have already received purchase orders for such Class B 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 B 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 B 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 B 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 B 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 B 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 B
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 B
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 are 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.
2.
<PAGE> 19
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 B shares entirely. 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 B 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 B shares
in any jurisdiction. We will file with the Department of State in New York a
Further State Notice with respect to the Class B 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 B shares of the Fund will represent your acceptance of this Agreement.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By /s/ TERRY K. GLENN
---------------------------------
(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: 860 Scudders Mill Road
-----------------------------------------------
Plainsboro, NJ 08536
--------------------------------------------------------
Date: October 21, 1994
--------------------------------------------------
4.
<PAGE> 1
99.6(d)
CLASS C SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the 21st 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 the public and hereby agrees during the term of this
Agreement to
<PAGE> 2
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 B(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 cf 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 Addi-
tional 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 Addi- tional 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: October 21, 1994
-----------------------------------------------
4
<PAGE> 1
99.6(e)
CLASS D SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the 21st 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 public and hereby agrees during the term of this
Agreement to
<PAGE> 2
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
(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
1
<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 a-e 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 08543-9013
Accepted:
Firm Name: Merrill Lynch, Pierce, Fenner & Smith Inc.
------------------------------------------
By:
-------------------------------------------------
Address: 800 Scudders Mill Road
--------------------------------------------
Plainsboro, New Jersey 08536
-----------------------------------------------------
Date: October 21, 1994
-----------------------------------------------
6
<PAGE> 1
99.8(a)
CUSTODIAN AGREEMENT
AGREEMENT made this day of between Merrill Lynch
Pacific Fund, Inc. (the "Fund",) and Brown Brothers Harriman & Co. (The
"Custodian").
WITNESSETH: That in consideration of the mutual covenants and agreements
herein contained the parties hereto agree as follows:
1. The Fund hereby employs and appoints the Custodian as a custodian for
the term and subject to the provisions of this Agreement. The Custodian shall
not be under any duty or obligation to require the Fund to deliver to it any
securities or funds owned by the Fund and shall have no responsibility or
liability for or on account of securities or funds not so delivered. The Fund
will deposit with the Custodian copies of the Articles of Organization of the
Fund and of all amendments thereto, and of such votes and other proceedings of
the Fund as may be necessary for or convenient to the Custodian in the
performance of its duties.
2. All securities delivered to and accepted by the custodian (other than
bearer securities) shall be registered in the name of the Fund or of a nominee
of the Custodian or shall be properly endorsed and in form for transfer
satisfactory to the Custodian.
3. Except for securities and funds held by subcustodians appointed
pursuant to the provisions of Section 4 hereof, the Custodian shall have and
perform the following powers and duties:
<PAGE> 2
A. Safekeeping. To keep safely the securities of the Fund that have
been delivered to the Custodian and on behalf of the Fund from time to time to
receive delivery of securities for safekeeping.
B. Registered Name - Nominee. To hold stocks and other registered
securities of the Fund registered in the name of the Fund or of any nominee of
the Custodian or in street certificate form, so-called, or in book-entry form by
a securities system of which the Custodian is a direct or indirect member
provided the Fund has previously approved use of such securities system, and in
any case with or without any indication of fiduciary capacity.
C. Purchases. Upon receipt of proper instructions, and insofar as
funds are available for the purpose, to pay for and receive securities purchased
for the account of the Fund, payment being made only upon receipt of the
securities (1) by the Custodian or (2) by a clearing corporation of a national
securities exchange of which the Custodian is a member or (3) by a securities
system which the Custodian is a direct or indirect member provided the Fund has
previously approved use of such securities system.
D. Exchanges. Upon receipt of proper instructions, to exchange
securities held by it for the account of the Fund for other securities in
connection with any reorganization, recapitalization, split-up of shares, change
of par value, conversion or other event, and to deposit any such securities in
2
<PAGE> 3
accordance with the terms of any reorganization or protective plan. Without
such instructions, the Custodian may surrender securities in temporary form for
definitive securities.
E. Sales of Securities. Upon receipt of proper instructions, to make
delivery of securities which have been sold for the account of the Fund, but
only against payment therefor (1) in cash, by a certified check, bank cashier's
check or bank credit, or (2) by credit to the account of the Custodian with a
clearing corporation of a national securities exchange of which the Custodian is
a member, or (3) by bank wire transfer through the Federal Reserve Wire System,
or (4) by credit to the account of the Custodian or an agent of the Custodian
with a Securities System provided the Fund has previously approved the use of
such Securities System.
F. Depositary Receipts. Upon receipt of proper instructions, to
instruct a subcustodian appointed pursuant to Section 4 of this Agreement or an
agent of the Custodian appointed pursuant to Section 6D of this Agreement to
surrender securities to the depositary used by an issuer of American Depositary
Receipts or International Depositary Receipts (hereinafter collectively referred
to as "ADRs") for such securities against a written receipt therefor adequately
describing such securities and written evidence satisfactory to the subcustodian
or agent that the depositary has acknowledged receipt of instructions to issue
with respect to such securities ADRs in the name of the Custodian, or a nominee
of the Custodian,
3
<PAGE> 4
for delivery to the Custodian in Boston, Massachusetts or at such other place as
the Custodian may from time to time designate.
Upon receipt of proper instructions, to surrender ADRs to the issuer
thereof against a written receipt therefor adequately describing the ADRs
surrendered and written evidence satisfactory to the Custodian that the issuer
of the ADRs has acknowledged receipt of instructions to cause its depositary to
deliver the securities underlying such ADRs to a subcustodian appointed pursuant
to Section 4 of this Agreement or an agent of the Custodian appointed pursuant
to Section 6D of this Agreement.
G. Miscellaneous In general, to attend to all nondiscretionary
details in connection with the sale, exchange, substitution, purchase, transfer
or other dealings with such securities or property of the Fund except as
otherwise directed from time to time by the Directors of the Fund.
H. Bank Account. To open and maintain an account or accounts with
the Custodian in the name of the Fund, subject only to draft or order by the
Custodian. All funds received by the Custodian from or for the account of the
Fund shall be deposited in said account or accounts. if and when authorized by
proper instructions, the Custodian may open and maintain an additional account
or accounts in such other banks or trust companies as may be designated in such
instructions, such account or accounts, however, to be in the name of the
Custodian and subject only to its draft or order.
4
<PAGE> 5
I. Collections. To collect, receive and deposit in said account or
accounts all income and other payments with respect to the securities held
hereunder, and to execute ownership and other certificates and affidavits for
all Federal and State tax purposes in connection with the collection of bond and
note coupons, and to do all other things necessary ox-proper in connection with
the collection of such income and, without limiting the generality of the
foregoing, to:
(1) Present for payment all coupons and other income items
requiring presentation;
(2) Present for payment all securities which may mature or be
called, redeemed, retired or otherwise become payable; and
(3) Endorse for collection, in the name of the Fund, checks,
drafts or other negotiable instruments.
J. Dividends and Distributions. Upon receipt of proper
instructions, to release to the Shareholder Servicing Agent or otherwise apply
funds, insofar as available, for the payment of dividends or other dividends to
shareholders.
K. Stock Dividends, Rights, etc. To receive and collect all stock
dividends, rights and other items of like nature; and to deal with the same
pursuant to proper instructions relative thereto.
L. Proxies, Notices, etc. Promptly to deliver or mail to the Fund
all forms of proxies and all notices of meetings and any other notices or
announcements affecting or relating to
5
<PAGE> 6
securities owned by the Fund that are received by the Custodian. Upon receipt of
proper instructions to execute and deliver or cause its nominee to execute and
deliver such proxies or other authorizations as may be required. Neither the
Custodian nor its nominee shall vote upon any of such securities or execute any
proxy to vote thereon or give any consent or take any other action with respect
thereto (except as otherwise herein provided) unless ordered to do so by proper
instructions.
M. Bills. Upon receipt of proper instructions, to pay or cause to be
paid, insofar as funds are available for the purpose, bills, statements, or
other obligations of the Fund.
N. Proper instructions. Proper instructions shall mean a written
request, direction, instruction or certification signed on behalf of the Fund by
the President, Treasurer or any vice President of the Fund or by such one or
more person or persons as the Directors shall from time to time have authorized
by resolution to give instructions of the particular character involved.
Different persons may be authorized to give instructions for different purposes.
The Clerk or Assistant Clerk of the Fund shall certify to the Custodian the
names, signatures and scope of authority of all persons authorized to give
instructions on behalf of the Fund. the names and signatures of the officers of
the Fund, and the name and address of the Shareholder Servicing Agent. such
certificate may be accepted as conclusive evidence of the facts set forth and
may be considered
6
<PAGE> 7
in full force and effect until receipt of a similar certificate to the contrary.
O. investment Limitations. In performing its duties generally, and
more particularly in connection with the purchase, sale and exchange of
securities made by or for the Fund, the Custodian may assume unless and until
notified in writing to the contrary that proper instructions received by it are
not in conflict with or in any way contrary to any provisions of the Articles of
organization, or votes or proceedings of the shareholders or the Directors.
4. Securities and funds to be held outside the United States shall be
held by subcustodians appointed pursuant to the provisions of this Section 4.
The Custodian may, at any time and from time to time, appoint any bank or trust
company (meeting the requirements of a custodian under the Investment Company
Act of 1940 and the rules and regulations thereunder) to act as subcustodian for
the Fund for the purpose of holding securities and funds outside of the United
States, provided, that (1) any such bank or trust company and the subcustodian
agreement to be entered into between such bank or trust company and the
custodian shall have been approved in writing by the Fund and (2) the foreign
countries in which such subcustodian is authorized to act shall have been agreed
to in writing between the Fund and the Custodian. The Custodian may, at any
time in its discretion, remove any bank or trust company that has been appointed
as a subcustodian.
7
<PAGE> 8
With respect to the securities and funds held by a subcustodian
appointed pursuant to the provisions of this Section 4, the Custodian shall be
liable to the Fund if and only to the extent that such subcustodian is liable to
the Custodian under the applicable custodian agreement (including the
applicable law as indicated in such agreement). The Custodian shall
nevertheless be liable to the Fund for its own negligent received by it from the
Fund and for its own negligence in connection with the delivery of any
securities or funds by it to any such subcustodian. The provisions of this
Agreement that limit the Custodian's liability hereunder shall otherwise remain
in full force and effect.
In the event that any subcustodian appointed pursuant to the
provisions of this Section 4 fails to perform any of its obligations under the
terms and conditions of the applicable subcustodian agreement, the Custodian
shall use its best efforts to cause such subcustodian to perform such
obligations. In the event that the Custodian is unable to cause such
subcustodian to perform fully its obligations thereunder, the Custodian shall
forthwith terminate the subcustodian agreement and, if necessary or desirable,
appoint another subcustodian in accordance with the provisions of this Section
4.
At the written request of the Fund, the Custodian will terminate any
subcustodian appointed pursuant to the provisions of this Section 4 in
accordance with the termination provisions under the applicable subcustodian
agreement. The Custodian will
8
<PAGE> 9
not amend any subcustodian agreement or agree to change or permit any changes
thereunder except upon the prior written approval of the Fund.
5. The Custodian may also assist generally in the preparation of reports
to shareholders and others, audits of accounts, and other ministerial matters of
like nature.
6. A. The Custodian shall be entitled to receive and act upon advice of
counsel, who may be counsel for the Fund, at the expense of the Fund. The
Custodian shall not be liable for any action taken or omitted in reliance upon
any written request, direction, instruction or certification, or other
instrument or paper believed by it to be signed by a person authorized to act on
behalf of the Fund based on the most recent certificate of the Clerk or
Assistant Clerk, referred to in Section 3(N), that has been received by the
Custodian. The Custodian shall be entitled to receive as conclusive proof of
any fact or matter required to be ascertained by it hereunder a certificate
signed by such persons.
B. The Custodian shall be held only to the exercise of reasonable
care and diligence in carrying out the provisions of this Agreement. However,
nothing herein shall exempt the Custodian from liability due to its own gross
negligence or willful misconduct. The Custodian shall not be held accountable
for any delays or losses resulting from the Custodian's failure to receive
timely and suitable notification concerning income, redemptions, exchanges and
other developments concerning
9
<PAGE> 10
securities held by the Custodian. The Fund agrees to indemnify and hold
harmless the Custodian and its nominee from all claims and liabilities
(including counsel fees) incurred by or assessed against it or its nominee in
connection with the performance of this Agreement, except such as may arise from
it or its nominee's own negligent action, negligent failure to act or willful
misconduct.
C. The Custodian shall be entitled to receive from the Fund or
demand reimbursement, in the manner provided in Section 7, for its cash
disbursements, expenses and charges (including counsel fees and expenses of any
subcustodian appointed pursuant to the provisions of Section 4 or of any agent
appointed pursuant to the provisions of Section 6D or of any additional
subcustodian appointed by such subcustodian) in connection with this Agreement,
but excluding salaries and usual overhead expenses.
D. The Custodian may at any time or times in its discretion appoint
(and may at any time remove) any other bank or trust company as its agent to
carry out such of the provisions of this Agreement as the Custodian may from
time to time direct, provided, however, that the appointment of such agent shall
not relieve the Custodian of any of its responsibilities under this Agreement.
E. Upon request, the Fund shall deliver to the Custodian such
proxies, powers of attorney or other instruments as may be reasonable and
necessary or desirable in connection
10
<PAGE> 11
with the performance by the Custodian or any such subcustodian of their
respective obligations under this Agreement or any applicable subcustodian
agreement.
7. The Fund shall pay the Custodian a custody fee based on such fee
schedule as may from time to time be agreed upon in writing by the Custodian and
the Fund. Such fee, together with all amounts for which the Custodian is to be
reimbursed in accordance with Section 6C, shall be billed to the Fund in such a
manner as to permit payment either by a direct cash payment to the Custodian or
by placing Fund portfolio transactions with the Custodian resulting in an agreed
upon amount of commissions being paid to the Custodian within an agreed upon
period of time.
8. This Agreement shall continue in full force and effect until
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid, to the other party, such termination to take effect not sooner
than fifteen (IS) days after the date of such delivery or mailing. This
Agreement may be amended from time to time by written agreement of the parties
hereto.
In the event of the appointment of a successor custodian, it is agreed that
the funds and securities owned by the Fund and held by the Custodian or any
subcustodian appointed pursuant to the provisions of Section 4 hereof shall be
delivered to the successor custodian, and the Custodian agrees to cooperate with
the Fund in execution of documents and other action necessary or
11
<PAGE> 12
desirable in order to substitute the successor custodian for the Custodian under
this Agreement.
In connection with the operation of this Agreement, the Custodian and the
Fund may agree in writing from time to time on such provisions interpretative of
or in addition to the provisions of this Agreement as may in their joint opinion
be consistent with the general tenor of this Agreement. No interpretative or
additional provisions made as provided in the preceding sentence shall be deemed
to be an amendment of this Agreement.
9. This instrument is executed and delivered in The Commonwealth of
Massachusetts and shall be subject to and construed according to the laws of
said commonwealth.
10. Notices and other writings delivered or mailed postage prepaid to the
Fund addressed to the Fund at
or at such other address as
the Fund may have designated to the Custodian in writing or to the Custodian at
40 Water Street, Boston, Massachusetts 02109, Attention: Manager Securities
Department, or to such other address as the Custodian may have designated to the
Fund in writing shall be deemed to have been properly delivered or given
hereunder to the respective addresses.
11. This Agreement shall be binding on and shall inure to the benefit of
the Fund and the Custodian and their respective successors.
12
<PAGE> 13
12. This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
IN WITNESS WHEREOF each of the parties hereto has caused this Agreement to
be executed in its name and behalf on the day and year first above written.
(Client) (Custodian)
BROWN BROTHERS HARRIMAN & CO.
BY per pro
13
<PAGE> 1
99.8(b)
MASTER SUSCUSTODIAN AGREEMENT
AGREEMENT DATED AS OF November 15, 1976, between Brown Brothers Harriman &
Co., a limited partnership organized under the laws of the State of New York
(the "Custodian"), and
(the
"Subcustodian").
W I T N E S S E T H:
WHEREAS, THE Custodian has entered into certain custodian agreements and
may in the future enter into additional custodian agreements whereby cash and
securities will be held outside the United States;
WHEREAS, the Custodian desires to utilize subcustodians for the purpose of
holding cash and securities outside the United States; and
WHEREAS, the Subcustodian is willing to enter into an agreement whereby it
may, from time to time, be appointed as subcustodian for the Custodian's
customers (each such customer shall hereinafter be referred to as a "Customer");
NOW, THEREFORE, the Custodian and Subcustodian hereby agree as follows:
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<PAGE> 2
I. Upon the terms and conditions set forth in this Agreement and subject
in each case to acceptance by the Subcustodian, the Subcustodian may, at any
time and from time to time, be appointed as subcustodian for a Customer by
delivery to the Subcustodian of a letter substantially in the form of Exhibit A
hereto.
II. The Custodian may from time to time deposit securities or cash with
the Subcustodian. The Subcustodian shall not be responsible for any property
of the Customer not delivered to the Subcustodian.
III. The Subcustodian shall hold and dispose of the securities hereafter
held by or deposited with the Subcustodian as follows:
A. The Subcustodian shall bold in a separate account, and physically
segregated at all times from those of any other persons, firms or
corporations, pursuant to the provisions hereof, all securities received by
it for the account of the Custodian as custodian for the Customer. All such
securities are to be held or disposed of by the Subcustodian for, and
subject at all times to the instructions of, the Custodian pursuant to the
terms of this Agreement.
B. Upon receipt of instructions from the
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<PAGE> 3
Custodian, the Subcustodian shall release or deliver securities owned by the
Customer only for the following purposes:
(1) upon sale of securities for the account of the Customer
against receipt of payment therefor by cash, certified or cashier's
check, or bank credit;
(2) to the issuer thereof or its agent when securities are
called, redeemed, retired or otherwise become payable, provided that
the cash is to be delivered to the Subcustodian;
(3) for exchange for a different number of bonds or certificates
representing the same aggregate face amount or number of units, for
exchange or conversion pursuant to any plan of merger, consolidation,
recapitalization, reorganization or readjustment of the securities of
the issuer of such securities, or pursuant to provisions for
conversion contained in such securities, or pursuant to any deposit
agreement; provided that, in any such case, the new securities and
cash, if any, are to be delivered to the Subcustodian;
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<PAGE> 4
(4) in the case of warrants, rights or similar securities the
surrender thereof in the exercise of such warrants, rights or similar
securities; provided that the surrender of interim receipts or
temporary securities for definitive securities may be made at any
time; provided that, in any such case, the now securities are to be
delivered to the Subcustodian;
(5) in the case of tender offers or similar offers to purchase
received in writing, the delivery of securities to the designated
depository or other receiving agent. The Subcustodian shall have full
responsibility for transmitting to the Custodian any such offers
received by it. Thereafter, the Custodian, if it desires to respond to
such offer, shall have full responsibility for providing the
Subcustodian with all necessary instructions in timely enough fashion
for the Subcustodian to act thereon prior to any expiration time for
such offer;
(6) upon receipt from the Custodian of instructions directing
disposition of securities in a manner other than or for purposes other
than the manner& and purposes enumerated in the foregoing
- 4 -
<PAGE> 5
five items; provided, however, that disposition pursuant to this item
(6) shall be made by the Subcustodian only upon receipt of
instructions from the Custodian specifying the amount of such
securities to be delivered, the purpose for which the delivery is to
be made, and the name of the person or persons to whom such delivery
is to be made.
IV. The Subcustodian shall hold and dispose of cash hereafter held by or
deposited with the Subcustodian as follows:
A. The Subcustodian shall open and maintain with the Brussels Office
of Morgan Guaranty Trust Company of New York a separate account or accounts
in the name of the Custodian as custodian for the Customer, subject only to
draft or order by the Subcustodian acting pursuant to the terms of this
Agreement. The Subcustodian shall hold in such account or accounts,
subject to the provisions hereof, all cash received by it for the account
of the Custodian as custodian for the Customer.
B. Upon receipt of instructions from the Custodian, the Subcustodian
shall make payments of cash for the account of the Customer from such cash
only for the following purposes:
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<PAGE> 6
(1) upon the purchase of securities for the account of the
Customer but only against the delivery of such securities to the
Subcustodian;
(2) in connection with the subscription conversion, exchanger
tender or surrender of securities owned by the Customer as set forth
in Paragraph IIIB hereof; and
(3) for deposit with the Custodian or with such other banking
institutions as may from time to time be approved by the Customer.
V. All instructions shall be in writing executed by the Custodian, and
the Subcustodian shall not be required to act on instructions otherwise
communicated; provided* however, that the Subcustodian may in its discretion act
on the basis of instructions received via telecommunications facilities if the
Subcustodian reasonably believes such instructions to have been dispatched by
the Custodian. The Subcustodian may require that instructions received via
telecommunications facilities be authenticated. The Subcustodian shall be
protected in acting upon any instructions, notice, request, consent, certificate
or other instrument or paper reasonably believed by it to be genuine and to have
been properly executed. The Subcustodian may receive and accept a certificate
signed by a partner of the Custodian as
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<PAGE> 7
conclusive evidence of the authority of any person to act on behalf of the
Custodian, and such certificate may be considered as in full force and effect
until receipt by the Subcustodian of written notice to the contrary.
VI. Unless and until the Subcustodian receives instructions from the
Custodian to the contrary, the Subcustodian shall:
A. Present for payment all coupons and other income items held by it
for the account of the Custodian as custodian for the Customer which call
for payment upon presentation and hold the cash received by it upon such
payment for the account of the Custodian as custodian for the Customer;
B. Collect interest and cash dividends received, with notice to the
Custodian, for the account of the Custodian as custodian for the Customer;
C. Hold for the account of the Custodian as custodian for the Customer
hereunder all stock dividends, rights and similar securities issued with
respect to any securities held by it hereunder.
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<PAGE> 8
VII. The Subcustodian shall execute on behalf of the Custodian, in
the Customer's name, any declarations, affidavits, or certificates of ownership
which may be necessary or useful from time to time for the Subcustodian to
perform any or several of its obligations &rising under the provisions of this
Agreement.
VIII. If the Subcustodian shall receive any notices or reports in
respect of securities held by it hereunder, it shall promptly upon receipt
thereof transmit to the Custodian by airmail, telecommunications facilities, or
comparable means any such notices or reports.
IX. The Subcustodian may, from time to time, appoint other offices of
Morgan Guaranty Trust Company of New York (located outside the United States)
and such other persons as are approved in advance by the Custodian and the
Customer ("Additional Subcustodians") for purposes of acquiring, holding or
disposing of securities outside of Belgium. The Subcustodian shall be fully
liable to the Custodian for the acts or omissions of such Additional
Subcustodians to the same extent as if the acts or omissions of the Additional
Subcustodians were the acts or omissions of the Subcustodian. Upon receipt of
instructions from the Custodian, the Subcustodian shall terminate any Additional
Subcustodians appointed pursuant to the provisions of this paragraph in the
manner provided in the applicable agreement.
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<PAGE> 9
The Subcustodian shall transmit to Additional Subcustodians any
instructions received from the Custodian concerning the acquisition, custody or
disposition of securities by Additional Subcustodians and shall transmit to the
Custodian any notices or reports received from Additional Subcustodians in
respect of securities held by such Additional Subcustodian.
X. The Subcustodian may, from time to time, appoint (and may at any
time remove) any bank or trust company as its agent for purposes of acquiring or
disposing of securities or carrying out such provisions of this Agreement as the
Subcustodian may, from time to time, direct; provided that the Subcustodian
shall be fully liable to the Custodian for the acts or omissions of such agents
to the same extent as if the acts or omissions of the agents were the acts or
omissions of the Subcustodian.
XI. On each day on which there is a cash or securities transaction
over the account of the Custodian as custodian for the Customer, the
Subcustodian shall dispatch to the Custodian (and to the Customer if requested)
separate cash and securities advices. The Subcustodian shall furnish the
Custodian at the end of every month with a statement of the cash and securities
held by the Subcustodian and any Additional Subcustodians. Such statements
shall be sent by air mail, telecommunications facilities or comparable means to
the Custodian within 15 days after the and of each month. The Subcustodian
shall furnish the Custodian with
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<PAGE> 10
such additional statements as the Custodian may reasonably request.
XII. As compensation for the services rendered pursuant to this
Agreement, the Custodian shall pay the Subcustodian a fee computed in accordance
with the schedule attached hereto as Exhibit B, as such schedule may be amended
from time to time by written agreement between the Custodian and the
Subcustodian. The Custodian shall reimburse the Subcustodian for any reasonable
out-of-pocket expenses incurred by the Subcustodian in connection with its
obligations hereunder (including the fees and reasonable out-of-pocket expenses
of Additional Subcustodians and agents).
XIII. Upon request, the Custodian shall deliver, or shall request the
Customer to deliver# to the Subcustodian, such proxies, powers-of-attorney or
other instruments as may be necessary or desirable in connection with the
performance by the Subcustodian of its obligations under this Agreement.
XIV. So long as and to the extent that it is in the exercise of
reasonable care, the Subcustodian shall not be responsible for the title,
validity or genuineness of any property or evidence of title thereto received by
it or delivered by it pursuant to this Agreement. The Subcustodian shall not be
liable for any action taken or omitted in good faith upon any notice, request,
certificate or other instrument reasonably believed by it to be genuine and to
be signed by the proper party or parties.
- 10 -
<PAGE> 11
The Subcustodian shall be obligated to exercise-reasonable care and diligence in
carrying out the provisions of this Agreement; provided that the Subcustodian
shall not thereby be required to take any action which is in contravention of
the laws of Belgium or any other applicable law. Notwithstanding the foregoing,
the Subcustodian shall not be liable for (a) any violation by the Customer of
any limitation applicable to its powers to make expenditures, to invest in or
pledge securities or to borrow which does not involve action by the
Subcustodians and (b) any violation by the Customer of any limitation applicable
to its powers to make investments, to invest in or pledge securities or to
borrow which involves action by the Subcustodian, provided that such action was
authorized in accordance with Paragraph III, IV or V hereof. The Subcustodian
shall be entitled to and may act upon advice of counsel (who may be counsel for
the Customer) on all matters, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice.
XV. This Agreement may be terminated at any time by the Custodian
or the Subcustodian by giving written notice to the other party at least thirty
(30) days prior to the date on which such termination is to become effective.
Such termination shall, inter alia, constitute a revocation of the
Subcustodian's authority to act on behalf of all Customers (including all
authority granted to the Subcustodian under any power-of-attorney executed in
connection with this Agreement). In the event of
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<PAGE> 12
termination, the Subcustodian will deliver any securities hold by it or any
Additional Subcustodians to the Custodian or to such successor subcustodian as
the Custodian shall instruct in a manner to be mutually agreed upon by the
parties hereto or in the failure of such agreement in a reasonable manner.
Further in the event of termination, the Subcustodian shall be entitled to
receive prior to the delivery of the securities held by it or any Additional
Subcustodians all accrued fees and unreimbursed expenses the payment of which is
contemplated by Paragraph XII hereof upon receipt by the Custodian of a final
statement setting forth such fees and expenses.
XVI. Except as the parties shall from time to time otherwise agree,
all instructions, notices, reports and other communications contemplated by this
Agreement shall be dispatched as follows:
If to the Custodian:
Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109
Attention: Manager Securities Department
Telex No. WUD 940709
If to the Subcustodian:
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<PAGE> 13
XVII. This Agreement constitutes the-entire understanding and
agreement of the parties hereto, and neither this Agreement nor any provisions
hereof may be changed, waived, discharged or terminated except by a statement in
writing signed by the party against which enforcement of the changes waiver,
discharge or termination is sought.
XVIII. This Agreement shall be binding upon and shall inure to the
benefit of the Custodian and the Subcustodian and their successors and assignees
provided that neither the Custodian nor the Subcustodian may assign this
Agreement or any of the rights or obligations hereunder without the prior
written consent of the other party.
XIX. This Agreement shall be construed in accordance with and
governed by the laws of the State of New York. The parties hereto agree that
notwithstanding any provision or provisions of this Agreement of apparent
contrary effect, the Subcustodian shall have no obligation to take any action
which is contrary to any or several provisions of the laws, orders or
regulations of Belgium. The Subcustodian shall not be liable for any expense or
damage to the Custodian or the Customer that may result from violation of any or
several of the foregoing laws, orders and regulations except as such expense or
damage is caused by the wilful misconduct or negligence of the Subcustodian.
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<PAGE> 14
XX. This Agreement may be executed in one or more counterparts each
of which shall be deemed an original but all of which shall constitute one and
the same instrument. This Agreement shall become effective when one or more
counterparts have been signed and delivered by each of the parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
BROWN BROTHERS HARRIMAN & CO.
(The "Custodian")
per pro
(the "Subcustodian")
By
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<PAGE> 1
99.9(a)
TRANSFER AGENCY, DIVIDEND DISBURSING AGENCY
AND SHAREHOLDER SERVICING AGENCY AGREEMENT
THIS AGREEMENT made as of the lst day of September, 1987 by and
between Merrill Lynch Pacific Fund, Inc. (the "Fund") and Merrill Lynch
Financial Data Service, Inc. ("MLFDS"), a New Jersey corporation.
WITNESSETH:
WHEREAS,, the Fund wishes to appoint MLFDS to be the Transfer Agent,
Dividend Disbursing Agent and Shareholder Servicing Agent upon, and subject to,
the terms and provisions of this Agreement, and MLFDS is desirous of accepting
such appointment upon, and subject to, such terms and provisions:
NOW THEREFORE, in consideration of mutual covenants contained in this
Agreement, the Fund and MLFDS agree as follows:
1. Appointment of MLFDS as Transfer Agent# Dividend Disbursing Agent and
Shareholder Servicing Agent.
(a) The Fund hereby appoints MLFDS to act as Transfer Agent, Dividend
Disbursing Agent and Shareholder Servicing Agent for the Fund upon, and subject
to, the terms and provisions of this Agreement.
(b) MLFDS hereby accepts the appointment as Transfer Agent, Dividend
Disbursing Agent and Shareholder Servicing Agent for the Fund, and agrees to act
as such upon, and subject top the terms and provisions of the Agreement.
2. Definitions.
(a) In this Agreement:
(I) The term "Act" means the Investment Company Act of 1940 as
amended from time to time and any rule or regulation thereunder;
(II) The term "Account" means any account of a Shareholder, or, if
the shares are held in an account in the name of MLPF&S for benefit of an
identified customer such account, including a Plan Account, any account under a
plan (by whatever name referred to in the Prospectus) pursuant to the
Self-Employed Individuals Retirement Act of 1962 ("Keogh Act Plan") and any plan
(by whatever name referred to in the Prospectus) in conjunction with Section 401
of the Internal Revenue Code ("Corporation Master Plan");
<PAGE> 2
(III) The term "application" means an application made by a
Shareholder or prospective Shareholder respecting the opening of an Account;
(IV) The term "MLFD" means Merrill Lynch Funds Distributor, Inc., a
Delaware corporation;
(V) The term "MLPF&S" means Merrill Lynch, Pierce, Fenner & Smith
Incorporated a Delaware corporation;
(VI) The term "officer's instruction" means an instruction in
writing given on behalf of the Fund to MLFDS, and signed on behalf of the Fund
by the President,, any Vice President, the Secretary or the Treasurer of the
Fund;
(VII) The term "Prospectus" means the Prospectus and the Statement of
Additional Information of the Fund as from time to time in effect;
(VIII) The term "Shares" means shares of stock or beneficial interest
as the case may be, of the Fund, irrespective of class or series;
(IX) The term "Shareholder" means the holder of record of Shares;
(X) The term "Plan Account" means an account opened by a
Shareholder or prospective Shareholder in respect to an open accounts monthly
payment or withdrawal plan (in each case by whatever name referred to in the
Prospectus), and may also include an account relating to any other Plan if and
when provision is made for such plan in the Prospectus.
3. Duties of MLFDS an Transfer Agent, Dividend Disbursing Agent and
Shareholder Servicing Agent.
(a) Subject to the succeeding provisions of the Agreement, MLPDS hereby
agrees to perform the following functions as Transfer Agent, Dividend Disbursing
Agent and Shareholder Servicing Agent for the Fund;
(I) Issuing, transferring and redeeming Shares;
(II) Opening, maintaining, servicing and closing Accounts;
- 2 -
<PAGE> 3
(III) Acting as agent for the Fund Shareholders and/or customers of
MLPF&S in connection with Plan Accounts, upon the terms and subject to the
conditions contained in the Prospectus and application relating to the specific
Plan Account;
(IV) Acting as agent of the Fund and/or MLPF&S, maintaining such
records as may permit the imposition of such contingent deferred sales charges
as may be described in the Prospectus# including such reports as may be
reasonably requested by the Fund with respect to such Shares as may be subject
to a contingent deferred sales charge;
(V) Upon the redemption of Shares subject to such a contingent
deferred sales charge, calculating and deducting from the redemption proceeds
thereof the amount of such charge in the manner set forth in the Prospectus.
MLFDS shall pay# on behalf of MLFD to MLPF&S such deducted contingent deferred
sales charges imposed upon all Shares maintained in the name of MLPF&S, or
maintained in the name of an account identified as a customer account of MLPF&S.
Sales charges imposed upon any other Shares shall be paid by MLFDS to MLFD.
(VI) Exchanging the investment of an investor into or from the
shares of other open-end investment companies or other series portfolios of the
Fund, if any, if and to the extent permitted by the Prospectus at the direction
of such investor.
(VII) Processing redemptions;
(VIII) Examining and approving legal transfers;
(IX) Replacing lost, stolen or destroyed certificates representing
Shares, in accordance with, and subject to, procedures and conditions adopted by
the Fund;
(X) Furnishing such confirmations of transactions relating to their
Shares as required by applicable law;
(XI) Acting an agent for the Fund and/or MLPF&S, furnishing such
appropriate periodic statements relating to Accounts# together with additional
enclosures, including appropriate income tax information and income tax for=
duly completed, as required by applicable law;
(XII) Acting as agent for the Fund and/or MLPF&S, mailing annuals
semi-annual and quarterly reports prepared by or on behalf of the Fund# and
mailing now Prospectuses upon their issue to Shareholders as required by
applicable law;
(XIII) Furnishing such periodic statements of transactions effected by
MLFDS, reconciliations, balances and summaries as the Fund may reasonably
request;
- 3 -
<PAGE> 4
(XIV) Maintaining such books and records relating to transactions
effected by MLFDS as are required by the Act, or by any other applicable
provision of law, rule or regulation, to be maintained by the Fund or its
transfer agent with respect to such transactions, and preserving or causing to
be preserved any such books and records for such periods as may be required by
any such law, rule or regulation and an may be agreed upon from time to time
between MLFDS and the Fund. in addition, MLFDS agrees to maintain and preserve
master files and historical computer tapes on a daily basis in multiple separate
locations a sufficient distance apart to insure preservation of at least one
copy of such information;
(XV) Withholding taxes on non-resident alien Accounts, preparing and
filing U.S. Treasury Department Form 1099 and other appropriate forms as
required by applicable law with respect to dividends and distributions; and
(XVI) Reinvesting dividends for full and fractional shares and
disbursing cash dividends, as applicable.
(b) MLFDS agrees to act as proxy agent in connection with the holding
of annual, if any, and special meetings of Shareholders, mailing such notices,
proxies and proxy statements in connection with the holding of such meetings as
may be required by applicable law, receiving and tabulating votes cast by proxy
and communicating to the Fund the results of such tabulation accompanied by
appropriate certifications, and preparing and furnishing to the Fund certified
lists of Shareholders as of such dates in such form and containing such
information as may be required by the Fund.
(c) MLFDS agrees to deal with, and answer in a timely manner, all
correspondence and inquiries relating to the functions of MLFDS under this
Agreement with respect to Accounts.
(d) MLFDS agrees to furnish to the Fund such information and at such
intervals as is necessary for the Fund to comply with the registration and/or
the reporting requirements (including applicable escheat laws) of the Securities
and Exchange Commission, Blue Sky authorities or other governmental authorities.
- 4 -
<PAGE> 5
(e) MLFDS agrees to provide to the Fund such information as may
reasonably be required to enable the Fund to reconcile the number of outstanding
Shares between MLFDS's records and the account books of the Fund.
(f) Notwithstanding anything in the foregoing provisions of this
paragraph, MLFDS agrees to perform its functions thereunder subject to such
modification (whether in respect of particular cases or in any particular class
of cases) as may from time to time be contained in an officer's instruction.
4. Compensation.
The charges for services described in this Agreement, including
"out-of-pocket" expenses, will be set forth in the Schedule of Fees attached
hereto.
5. Right of inspection.
MLFDS agrees that it will in a timely manner make available to, and
permit, any officer, accountant, attorney or authorized agent of the Fund to
examine and make transcripts and copies (including photocopies and computer or
other electronical information storage media and print-outs) of any and all of
its books and records which relate to any transaction or function performed by
MLFDS under or pursuant to this Agreement.
6. Confidential Relationship.
MLFDS agrees that it will, on behalf of itself and its officers and
employees, treat all transactions contemplated by this Agreement, and all
information germane thereto, as confidential and not to be disclosed to any
person (other than the Shareholder concerned or the Funds or as may be disclosed
in the examination of any books or records by any person lawfully entitled to
examine the same) except as may be authorized by the Fund by way of an Officer's
instruction.
7. Indemnification.
The Fund shall indemnify and bold MLFDS harmless from any loss,
costs, damage and reasonable expenses including reasonable attorney's fees
(provided that such attorney is appointed with the Fund's consent, which consent
shall not be unreasonably withheld), incurred by it resulting from any claim,
demands action, or suit in connection with the performance of its duties
hereunder,
- 5 -
<PAGE> 6
provided that this indemnification shall not apply to actions or omissions of
MLFDS in cases of willful misconduct failure to act in good faith or negligence
by MLPDS, it's officers, employees or agents, and further provided that prior to
confessing any claim against it which may be subject to this indemnification
MLFDS shall give the Fund reasonable opportunity to defend against said claim in
its own name or in the name of MLFDS. An action taken by MLFDS upon any
Officer's Instruction reasonably believed by it to have been properly executed
shall not constitute willful misconduct, failure to act in good faith or
negligence under this Agreement.
8. Regarding MLFDS.
(a) MLFDS hereby agrees to hire purchase develop and maintain such
dedicated personnel, facilities, equipment, software, resources and
capabilities as may be reasonably determined by the Fund to be necessary for the
satisfactory performance of the duties and responsibilities of MLPDS. MLFDS
warrants and represents that its officers and supervisory personnel charged with
carrying out its functions as Transfer Agent, Dividend Disbursing Agent and
Shareholder Servicing Agent for the Fund possess the special skill and technical
knowledge appropriate for that purpose. MLPDS shall at all times exorcise due
care and diligence in the performance of its functions as Transfer Agent,
Dividend Disbursing Agent and Shareholder Servicing Agent for the Fund. MLFDS
agrees that, in determining whether it has exercised due care and diligence, its
conduct shall be measured by the standard applicable to persons possessing such
special skill and technical knowledge.
(b) MLFDS warrants and represents that is duly authorized and permitted
to act as Transfer Agent, Dividend Disbursing Agent, and Shareholder Servicing
Agent under all applicable laws and that it will immediately notify the Fund of
any revocation of such authority or permission or of the commencement of any
proceeding or other action which may lead to such revocation.
9. Termination.
(a) This Agreement shall become effective as of the date first above
written and shall thereafter continue from year to year. This Agreement may be
terminated by the Fund or MLPDS (without penalty to the fund or MLPDS) provided
that the terminating party gives the other party written notice of such
termination at least sixty (60) days in advance, except that the Fund may
terminate this Agreement immediately upon written notice to MLPDS if the
authority or permission of MLPDS to act as Transfer Agent, Dividend Disbursing
Agent and Shareholder Servicing Agent has been revoked or if any proceeding or
other action which the Fund reasonably believes will lead to such revocation has
been commenced.
- 6 -
<PAGE> 7
(b) Upon termination of this Agreements, MLFDS shall deliver all
unissued and canceled stock certificates representing Shares remaining in its
possession, and all Shareholder records, books, stock ledgers, instruments and
other documents (including computerized or other electronically stored
information) made or accumulated in the performance of its duties as Transfer
Agent, Disbursing Agent and Shareholder Servicing Agent for the Fund along with
a certified locator document clearly indicating the complete contents therein,
to such successor as may be specified in a notice of termination or Officer's
Instruction; and the Fund assumes all responsibility for failure thereafter to
produce any papers record or documents so delivered and identified in the
locator document, if and when required to be produced.
10. Amendment.
Except to the extent that the performance by MLFDS or its functions
under this Agreement may from time to time be modified by an officer's
Instruction, this Agreement may be amended or modified only by further written
Agreement between the parties.
11. Governing Law.
This Agreement shall be governed by the laws of the State of
New Jersey.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be signed by their respective duly authorized officers and their respective
corporate seals hereunto duly affixed and attested, as of the day and year above
written.
MERRILL LYNCH PACIFIC FUND, INC.
By : /s/ Terry K. Glenn
--------------------------
Title: Executive Vice President
--------------------------
MERRILL LYNCH FINANCIAL DATA SERVICE, INC.
By: /s/
-----------------------------------
Title: President
-----------------------------------
- 7 -
<PAGE> 1
99.15(b)
CLASS C DISTRIBUTION PLAN
OF
MERRILL LYNCH PACIFIC FUND, INC.
PURSUANT TO RULE 12b-1
DISTRIBUTION PLAN made as of the 21st 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 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-I 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 ouststanding 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 21st 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 O.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
99.15(c)
CLASS D DISTRIBUTION PLAN
OF
MERRILL LYNCH PACIFIC FUND, INC.
PURSUANT TO RULE 12b-1
DISTRIBUTION PLAN made as of the 21st 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 21st 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
