<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 2, 1998
SECURITIES ACT FILE NO. 33-41622
INVESTMENT COMPANY ACT FILE NO. 811-6349
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [_]
[X]
POST-EFFECTIVE AMENDMENT NO. 8
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
[X]
AMENDMENT NO. 10
(CHECK APPROPRIATE BOX OR BOXES)
----------------
MERRILL LYNCH LATIN AMERICA FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (609) 282-2800
ARTHUR ZEIKEL
MERRILL LYNCH LATIN AMERICA 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:
PHILIP L. KIRSTEIN, ESQ. COUNSEL FOR THE FUND:
MERRILL LYNCH ASSET MANAGEMENT BROWN & WOOD LLP
P.O. BOX 9011 ONE WORLD TRADE CENTER
PRINCETON, NEW JERSEY 08543-9011 NEW YORK, NEW YORK 10048-0557
ATTENTION: THOMAS R. SMITH JR., ESQ.
FRANK P. BRUNO, ESQ.
----------------
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX)
[X] immediately upon filing pursuant to paragraph (b)
[_] on (date) pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(1)
[_] on (date) pursuant to paragraph (a)(1)
[_] 75 days after filing pursuant to paragraph (a)(2)
[_] on (date) pursuant to paragraph (a)(2) of Rule 485.
IF APPROPRIATE, CHECK THE FOLLOWING BOX:
[_] this post-effective amendment designates a new
effective date for a previously filed post-effective
amendment.
----------------
TITLE OF SECURITIES BEING REGISTERED: Shares of Common Stock, par value $0.10
per share.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
MERRILL LYNCH LATIN AMERICA FUND, INC.
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A
ITEM NO. LOCATION
-------- --------
PART A
<C> <S> <C>
Item 1. Cover Page................. Cover Page
Item 2. Synopsis................... Prospectus Summary; Fee Table; Merrill
Lynch Select Pricing SM System
Item 3. Condensed Financial Consolidated Financial Highlights
Information...............
Item 4. General Description of
Registrant................ Investment Objective and Policies;
Additional Information
Item 5. Management of the Fund..... Prospectus Summary; Fee Table;
Investment Objective and Policies;
Management of the Fund; 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 Cover Page; Prospectus Summary; Fee
Being Offered............. Table; Merrill Lynch Select Pricing SM
System; Purchase of Shares;
Shareholder Services; Additional
Information; Inside Back Cover Page
Item 8. Redemption or Repurchase... Prospectus Summary; Fee Table; Merrill
Lynch Select Pricing SM System;
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 Objective 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--Description of
Shares
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................. Additional Information--Dividends and
Distributions; Additional
Information--Taxes
Item 21. Underwriters............... Purchase of Shares
Item 22. Calculation of Performance
Data...................... Performance Data
Item 23. Financial Statements....... Consolidated 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>
PROSPECTUS
MARCH 2, 1998
MERRILL LYNCH LATIN AMERICA FUND, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 . PHONE NO. (609) 282-2800
----------------
Merrill Lynch Latin America Fund, Inc. (the "Fund") is a non-diversified,
open-end management investment company that seeks long-term capital
appreciation by investing primarily in Latin American equity and debt
securities. This objective of the Fund reflects the belief that investment
opportunities may result in Latin America from an evolving long-term
international trend encouraging greater market orientation and diminishing
governmental intervention in economic affairs. It is expected that under
normal conditions at least 65% of the Fund's total assets will be invested in
Latin American securities. The Fund may attempt to hedge against market and
currency risk. There can be no assurance that the Fund's investment objective
will be achieved. Investments on an international basis in Latin American
securities involve certain risk factors, and the Fund has established no
rating criteria for the debt securities in which it may invest. See "Risk
Factors and Special Considerations." For more information on the Fund's
investment objective and policies, please see "Investment Objective and
Policies" on page 18.
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. As a
result of the implementation of the Merrill Lynch Select Pricing SM System,
Class A shares of the Fund outstanding prior to October 21, 1994, were
redesignated Class D shares. The Class A shares offered by this Prospectus
differ from the Class A shares offered prior to October 21, 1994, in many
respects, including sales charges, exchange privilege and the classes of
persons to whom such shares are offered. See "Merrill Lynch Select Pricing SM
System" on page 6.
Shares may be purchased directly from Merrill Lynch Funds Distributor, Inc.
(the "Distributor"), P.O. Box 9081, Princeton, New Jersey 08543-9081 [(609)
282-2800], and other securities dealers that have entered into selected
dealers 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 $100 and the minimum subsequent
purchase is $1, and for participants in certain fee-based programs, the
minimum initial purchase is $500 and the minimum subsequent purchase is $50.
Merrill Lynch may charge its customers a processing fee (presently $5.35) for
confirming purchases and repurchases. Purchases and redemptions made directly
through Merrill Lynch Financial Data Services, Inc. (the "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 NOR HAS THE 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 March 2, 1998 (the "Statement of Additional
Information"), has been filed with the Securities and Exchange Commission (the
"Commission") and is available, without charge, by calling or by writing the
Fund at the above telephone number or address. The Commission maintains a Web
site (http://www.sec.gov) that contains the Statement of Additional
Information, material incorporated by reference and other information
regarding the Fund. 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>
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>
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) 1.0% for one None(d)
4.0% during the first year, year(f)
decreasing 1.0% annually
thereafter to 0.0% after the
fourth year(e)
Exchange Fee.. None None None None
ANNUAL FUND
OPERATING
EXPENSES (AS A
PERCENTAGE OF
AVERAGE NET
ASSETS):
Management
Fees(g)...... 1.00% 1.00% 1.00% 1.00%
Rule 12b-1
Fees(h):
Account
Maintenance
Fees......... None 0.25% 0.25% 0.25%
Distribution
Fees......... None 0.75% 0.75% None
(Class B shares convert to Class D
shares automatically after
approximately eight years and cease
being subject to distribution fees)
Other
Expenses:
Shareholder
Servicing
Costs(i)..... 0.18% 0.22% 0.22% 0.18%
Other......... 0.28% 0.28% 0.28% 0.28%
----- ----- ----- -----
Total Other
Expenses.... 0.46% 0.50% 0.50% 0.46%
----- ----- ----- -----
Total Fund Op-
erating Ex-
penses....... 1.46% 2.50% 2.50% 1.71%
===== ===== ===== =====
</TABLE>
- --------
(a) Class A shares are sold to a limited group of investors including certain
retirement plans and certain participants in fee-based programs. See
"Purchase of Shares--Initial Sales Charge Alternatives--Class A and Class
D Shares"--page 37 and "Shareholder Services--Fee-Based Programs"--page
48.
(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 39.
(c) Reduced for purchases of $25,000 and over and waived for purchases of
Class A shares by certain retirement plans and participants in connection
with certain fee-based programs. Class A or Class D purchases of
$1,000,000 or more may not be subject to an initial sales charge. See
"Purchase of Shares--Initial Sales Charge Alternatives--Class A and Class
D Shares"--page 37.
(d) Class A and Class D shares are not subject to a contingent deferred sales
charge ("CDSC"), except that certain purchases of $1,000,000 or more that
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 after purchase.
Such CDSC may be waived in connection with certain fee-based programs. See
"Shareholder Services--Fee-Based Programs"--page 48.
(e) The CDSC may be modified in connection with certain fee-based programs.
See "Shareholder Services--Fee-Based Programs"--page 48.
(f) The CDSC may be waived in connection with certain fee-based programs. See
"Shareholder Services--Fee-Based Programs"--page 48.
(g) See "Management of the Fund--Management and Advisory Arrangements"--page
32.
(h) See "Purchase of Shares--Distribution Plans"--page 42.
(i) See "Management of the Fund--Transfer Agency Services"--page 33.
2
<PAGE>
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
on page 2, (2) a 5% annual
return throughout the
periods and (3) redemption
at the end of the period
(including any applicable
CDSC for Class B and
Class C shares):
Class A.................. $67 $ 96 $128 $218
Class B.................. $65 $ 98 $133 $265*
Class C.................. $35 $ 78 $133 $284
Class D.................. $69 $104 $140 $244
An investor would pay the
following expenses on the
same $1,000 investment
assuming no redemption at
the end of the period:
Class A.................. $67 $ 96 $128 $218
Class B.................. $25 $ 78 $133 $265*
Class C.................. $25 $ 78 $133 $284
Class D.................. $69 $104 $140 $244
</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
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
Conduct Rules of the National Association of Securities Dealers, Inc. (the
"NASD"). Merrill Lynch may charge its customers a processing fee (presently
$5.35) for confirming purchases and repurchases. Purchases and redemptions
made directly through the Fund's Transfer Agent are not subject to the
processing fee. See "Purchase of Shares" and "Redemption of Shares."
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information included elsewhere in this Prospectus and in the
Statement of Additional Information.
THE FUND
The Fund is a non-diversified, open-end management investment company.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek long-term capital
appreciation by investing primarily in Latin American equity and debt
securities. The Fund seeks to benefit from economic and other developments in
Latin America. The investment objective of the Fund reflects the belief that
investment opportunities may result in Latin America from an evolving long-
term international trend encouraging greater market orientation and
diminishing governmental intervention in economic affairs. This trend may be
facilitated by local or international political, economic or financial
developments that could benefit the capital markets of certain Latin American
countries. There can be no assurance that the Fund's investment objective will
be achieved. See "Investment Objective and Policies."
In recent years, there has been a significant trend in Latin America towards
democracy and market-oriented economic reform. While there have been distinct
differences in the approaches taken by the various countries and the degrees
of success in accomplishing the economic objectives, the countries have
generally sought to reduce the government's role in economic affairs and
implement policy initiatives designed to control inflation, reduce financial
deficits and external debt, establish stable currency exchange rates,
liberalize trade restrictions, increase foreign investment, privatize state-
owned companies and develop and modernize the securities markets. While
considerable difficulties remain, the economies of certain Latin American
countries have improved, and these improvements have been reflected in the
performance of the securities markets and the reversal of the capital flight
which prevailed in the early 1980's. The Fund presently contemplates that it
will emphasize investments in the equity and debt markets of Argentina,
Brazil, Chile, Colombia, Mexico, Peru and Venezuela.
The Fund may also seek capital appreciation through investment in Latin
American debt securities. Capital appreciation in debt securities may arise as
a result of a favorable change in relative foreign exchange rates, in relative
interest rate levels, or in the creditworthiness of issuers. The receipt of
income from such debt securities is incidental to the Fund's objective of
long-term capital appreciation.
The Fund is authorized to employ a variety of investment techniques to hedge
against market and currency risk, although at the present time suitable
hedging instruments may not be available with respect to Latin American
securities on a timely basis and on acceptable terms. Furthermore, even if
hedging techniques are available, the Fund will only engage in hedging
activities from time to time and may not necessarily be engaging in hedging
activities when market or currency movements occur.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Investments in securities of Latin American issuers involve special
considerations and risks not typically associated with investments in
securities of U.S. issuers, including the risks associated with international
4
<PAGE>
investing generally, such as currency fluctuations, the risks of investing in
countries with smaller capital markets, such as limited liquidity, price
volatility and restrictions on foreign investment, and the risks associated
with Latin American economies, including high inflation and interest rates,
large amounts of external debt and political and social uncertainties.
Although there have been significant improvements in recent years, the Latin
American economies continue to experience significant problems, including high
inflation rates and high interest rates. The emergence of the Latin American
economies and securities markets will require economic and fiscal discipline,
which has been lacking at times in the past, as well as stable political and
social conditions. Recovery may also be influenced by international economic
conditions, particularly those in the United States, and by world prices for
oil and other commodities. There is no assurance that the economic initiatives
will be successful.
THE MANAGER
Merrill Lynch Asset Management, L.P. ("MLAM" or the "Manager"), which is
owned and controlled by Merrill Lynch & Co., Inc. ("ML & Co."), acts as the
manager for the Fund and provides the Fund with management and investment
advisory services. The Manager, or its affiliate, Fund Asset Management, L.P.
("FAM"), acts as the investment adviser for more than 100 registered
investment companies and offers portfolio management services to individuals
and institutions. As of January 31, 1998, the Manager and FAM had a total of
approximately $287.0 billion in investment company and other portfolio assets
under management, including accounts of certain affiliates of MLAM. See
"Management of the Fund--Management and Advisory Arrangements."
PURCHASE AND REDEMPTION OF SHARES
Shares of the Fund 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. See "Merrill Lynch Select Pricing SM System" and
"Purchase of Shares."
Shareholders may redeem their Class A, Class B, Class C and Class D shares
at any time at the next determined net asset value, except that the redemption
price for shares will be subject to any applicable contingent deferred sales
charge. See "Redemption of Shares."
DIVIDENDS AND DISTRIBUTIONS
It is the Fund's intention to distribute all its net investment income.
Dividends from such net investment income are paid at least annually. All net
realized capital gains, if any, will be distributed to the Fund's shareholders
at least annually. See "Additional Information--Dividends and Distributions."
DETERMINATION OF NET ASSET VALUE
The net asset value of the Fund is determined by the Manager once daily as
of 15 minutes after the close of business on the New York Stock Exchange (the
"NYSE") (generally, 4:00 p.m., New York time) on each day during which such
exchange is open for business. See "Additional Information--Determination of
Net Asset Value."
5
<PAGE>
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 registered investment companies advised by MLAM or its
affiliate, FAM. Funds advised by MLAM or FAM that utilize the Merrill Lynch
Select Pricing SM System are referred to herein as "MLAM-advised mutual
funds."
Each Class A, Class B, Class C or Class D share of the Fund represents an
identical interest in the investment portfolio of the Fund and has the same
rights, except that Class B, Class C and Class D shares bear the expenses of
the ongoing account maintenance fees and Class B and Class C shares bear the
expenses of the ongoing distribution fees and the additional incremental
transfer agency costs resulting from the deferred sales charge arrangements.
The CDSCs, distribution and account maintenance fees that are imposed on Class
B and Class C shares, as well as the account maintenance fees that are imposed
on Class D shares, are imposed directly against those classes and not against
all assets of the Fund and, accordingly, such charges will not affect the net
asset value of any other class or have any impact on investors choosing
another sales charge option. Dividends paid by the Fund for each class of
shares will be calculated in the same manner at the same time and will differ
only to the extent that account maintenance and distribution fees and any
incremental transfer agency costs relating to a particular class are borne
exclusively by that class. Each class has different exchange privileges. See
"Shareholder Services--Exchange Privilege."
Investors should understand that the purpose and function of the initial
sales charges with respect to Class A and Class D shares are the same as those
of the CDSCs and distribution fees with respect to Class B and Class C shares
in that the sales charges and distribution fees 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.
6
<PAGE>
The following table sets forth a summary of the distribution arrangements
for each class of shares under the Merrill Lynch Select Pricing SM System,
followed by a more detailed description of each class and a discussion of the
factors that investors should consider in determining the method of purchasing
shares under the Merrill Lynch Select Pricing SM System that the investor
believes is most beneficial under his or her particular circumstances. More
detailed information as to each class of shares is set forth under "Purchase
of Shares."
<TABLE>
<CAPTION>
ACCOUNT
MAINTENANCE DISTRIBUTION CONVERSION
CLASS SALES CHARGE(/1/) FEE FEE FEATURE
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A Maximum 5.25% initial No No No
sales charge(/2/)(/3/)
- -----------------------------------------------------------------------------------------
B CDSC for a period of four 0.25% 0.75% B shares convert to
years at a rate of 4.0% during D shares automatically
the first year, decreasing 1.0% after approximately
annually to 0.0%(/4/) eight years(/5/)
- -----------------------------------------------------------------------------------------
C 1.0% CDSC for one year(/6/) 0.25% 0.75% No
- -----------------------------------------------------------------------------------------
D Maximum 5.25% initial 0.25% No No
sales charge(/3/)
</TABLE>
- --------
(1) Initial sales charges are imposed at the time of purchase as a percentage
of the offering price. CDSCs are imposed if the redemption occurs within
the applicable CDSC time period. The charge will be assessed on an amount
equal to the lesser of the proceeds of redemption or the cost of the
shares being redeemed.
(2) Offered only to eligible investors. See "Purchase of Shares--Initial Sales
Charge Alternatives--Class A and Class D Shares--Eligible Class A
Investors."
(3) Reduced for purchases of $25,000 or more and waived for purchases of Class
A shares by certain retirement plans and participants in connection with
certain fee-based programs. Certain Class A and Class D share purchases of
$1,000,000 or more may not be subject to an initial sales charge but
instead may be subject to a 1.0% CDSC if redeemed within one year. Such
CDSC may be waived in connection with certain fee-based programs. A 0.75%
sales charge for 401(k) purchases over $1,000,000 will apply. See "Class
A" and "Class D" below.
(4) The CDSC may be modified in connection with certain fee-based programs.
(5) The conversion period for dividend reinvestment shares, certain retirement
plans and certain fee-based programs was modified. Also, Class B shares of
certain other MLAM-advised mutual funds into which exchanges may be made
have a ten year conversion period. If Class B shares of the Fund are
exchanged for Class B shares of another MLAM-advised mutual fund, the
conversion period applicable to the Class B shares acquired in the
exchange will apply, and the holding period for the shares exchanged will
be tacked onto the holding period for the shares acquired.
(6) The CDSC may be waived in connection with certain fee-based programs.
Class A: Class A shares incur an initial sales charge when they are purchased
and bear no ongoing distribution or account maintenance fees. Class
A shares of the Fund are offered to a limited group of investors and
also will be issued upon reinvestment of dividends on outstanding
Class A shares. Investors that currently own Class A shares of the
Fund in a shareholder account are entitled to purchase additional
Class A shares of the Fund in that account. Other eligible investors
include certain retirement plans and participants in certain fee-
based programs. In addition, Class A shares will be offered at net
asset value to ML & Co. and its subsidiaries (the term
"subsidiaries," when used herein with respect to ML & Co., includes
the Manager, FAM and certain other entities directly or indirectly
wholly owned
7
<PAGE>
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 of 5.25% is reduced for purchases of $25,000 and over and
waived for purchases by certain retirement plans and participants in
connection with certain fee-based programs. Purchases of $1,000,000 or
more may not be subject to an initial sales charge but if the initial
sales charge is waived, such purchases may be subject to a 1.0% CDSC if
the shares are redeemed within one year after purchase. Such CDSC may
be waived in connection with certain fee-based programs. Sales charges
also are reduced under a right of accumulation that 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 Class B shares, as well as a CDSC if they are
redeemed within four years of purchase. Such CDSC may be modified in
connection with certain fee-based programs. Approximately eight years
after issuance, Class B shares will convert automatically into Class
D shares of the Fund, which are subject to an account maintenance fee
but no distribution fee; Class B shares of certain other MLAM-advised
mutual funds into which exchanges may be made convert into Class D
shares automatically after approximately ten years. If Class B shares
of the Fund are exchanged for Class B shares of another MLAM-advised
mutual fund, the conversion period applicable to the Class B shares
acquired in the exchange will apply, and the holding period for the
shares exchanged will be tacked onto the holding period for the
shares acquired. Automatic conversion of Class B shares into Class D
shares will occur at least once a month on the basis of the relative
net asset values of the shares of the two classes on the conversion
date, without the imposition of any sales load, fee or other charge.
Conversion of Class B shares to Class D shares will not be deemed a
purchase or sale of the shares for Federal income tax purposes.
Shares purchased through reinvestment of dividends on Class B shares
also will convert automatically to Class D shares. The conversion
period for dividend reinvestment shares and the conversion and
holding periods for certain retirement plans 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 1.0% CDSC if they are redeemed within one year after
purchase. Such CDSC may be waived in connection with certain fee-
based programs. Although Class C shares are subject to a CDSC for
only one year (as compared to four years for Class B shares), Class C
shares have no conversion feature and, accordingly, an investor who
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.
8
<PAGE>
The maximum initial sales charge of 5.25% 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 may be subject to a 1.0% CDSC if the shares are redeemed
within one year after purchase. Such CDSC may be waived in connection
with certain fee-based programs. The schedule of initial sales charges
and reductions for Class D shares is the same as the schedule for Class
A shares, except that there is no waiver for purchases by retirement
plans and participants in connection with certain fee-based programs.
Class D shares also will be issued upon conversion of Class B shares as
described above under "Class B." See "Purchase of Shares--Initial Sales
Charge Alternatives--Class A and Class D Shares."
The following is a discussion of the factors that investors should consider
in determining the method of purchasing shares under the Merrill Lynch Select
Pricing SM System that the investor believes is most beneficial under his or
her particular circumstances.
Initial Sales Charge Alternatives. Investors who prefer an initial sales
charge alternative may elect to purchase Class D shares or, if an eligible
investor, Class A shares. Investors choosing the initial sales charge
alternative who are eligible to purchase Class A shares should purchase Class
A shares rather than Class D shares because there is an account maintenance
fee imposed on Class D shares. Investors qualifying for significantly reduced
initial sales charges may find the initial sales charge alternative
particularly attractive because similar sales charge reductions are not
available with respect to the CDSCs 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 that may qualify the investor for reduced initial sales
charges on new initial sales charge purchases. In addition, the ongoing Class
B and Class C account maintenance and distribution fees will cause Class B and
Class C shares to have higher expense ratios, pay lower dividends and have
lower total returns than the initial sales charge shares. The ongoing Class D
account maintenance fees will cause Class D shares to have a higher expense
ratio, pay lower dividends and have a lower total return than Class A shares.
Deferred Sales Charge Alternatives. Because no initial sales charges are
deducted at the time of purchase, Class B and Class C shares provide the
benefit of putting all of the investor's dollars to work from the time the
investment is made. The deferred sales charge alternatives may be particularly
appealing to investors who do not qualify for a reduction in initial sales
charges. Both Class B and Class C shares are subject to ongoing account
maintenance fees and distribution fees; however, the ongoing account
maintenance and distribution fees potentially may be offset to the extent any
return is realized on the additional funds initially invested in Class B or
Class C shares. In addition, Class B shares will be converted into Class D
shares of the Fund after a conversion period of approximately eight years, and
thereafter investors will be subject to lower ongoing fees.
Certain investors may elect to purchase Class B shares if they determine it
to be most advantageous to have all their funds invested initially and intend
to hold their shares for an extended period of time. Investors in Class B
shares should take into account whether they intend to redeem their shares
within the CDSC period and,
9
<PAGE>
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."
10
<PAGE>
CONSOLIDATED FINANCIAL HIGHLIGHTS
The financial information in the table below has been audited in conjunction
with the annual audits of the consolidated financial statements of the Fund by
Deloitte & Touche LLP, independent auditors. Consolidated financial statements
and the independent auditors' report thereon for the fiscal year ended
November 30, 1997, 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 Fund's audited consolidated financial statements.
<TABLE>
<CAPTION>
CLASS A
------------------------------------------
FOR THE
YEAR ENDED FOR THE PERIOD
NOVEMBER 30, OCT. 21, 1994+
------------------------- TO NOV. 30,
1997++ 1996++ 1995++ 1994++
------- ------- ------- --------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSET VALUE:
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of
period.......... $ 12.83 $ 10.50 $ 17.37 $ 18.22
------- ------- ------- -------
Investment income
(loss)--net..... .17 .46 .16 --
Realized and
unrealized gain
(loss) on
investments and
foreign currency
transactions--
net............. 2.54 1.87 (6.52) (.85)
------- ------- ------- -------
Total from
investment
operations...... 2.71 2.33 (6.36) (.85)
------- ------- ------- -------
Less dividends
and
distributions:
Investment
income--net.... (.44) -- -- --
Realized gain on
investments--
net............ -- -- (.50) --
In excess of
realized gain
on
investments--
net............ -- -- (.01) --
------- ------- ------- -------
Total dividends
and
distributions... (.44) -- (.51) --
------- ------- ------- -------
Net asset value,
end of period... $ 15.10 $ 12.83 $ 10.50 $ 17.37
======= ======= ======= =======
TOTAL INVESTMENT
RETURN:**
Based on net
asset value per
share........... 21.79% 22.19% (37.66)% (4.67)%#
======= ======= ======= =======
RATIOS TO AVERAGE
NET ASSETS:
Expenses......... 1.46% 1.48% 1.66% 1.85 %*
======= ======= ======= =======
Investment income
(loss)--net..... 1.03% 3.74% 1.40% (.20)%*
======= ======= ======= =======
SUPPLEMENTAL
DATA:
Net assets, end
of period (in
thousands)...... $77,086 $46,369 $26,034 $10,350
======= ======= ======= =======
Portfolio
turnover........ 84.91% 66.14% 54.86% 30.15%
======= ======= ======= =======
Average
commission rate
paid##.......... $ .0007 $ .0001 -- --
======= ======= ======= =======
<CAPTION>
CLASS B
--------------------------------------------------------------------------------
FOR THE PERIOD
FOR THE YEAR ENDED NOVEMBER 30, SEPT. 27, 1991+
---------------------------------------------------------------- TO NOV. 30,
1997++ 1996++ 1995++ 1994++ 1993 1992 1991
----------- --------- ---------- --------- --------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSET VALUE:
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of
period.......... $ 12.46 $ 10.31 $ 17.24 $ 14.39 $ 9.83 $ 9.80 $ 10.00
----------- --------- ---------- --------- --------- ----------- ---------------
Investment income
(loss)--net..... -- +++ .32 .05 (.09) .10 .08 .04
Realized and
unrealized gain
(loss) on
investments and
foreign currency
transactions--
net............. 2.50 1.83 (6.47) 2.99 4.68 .05 (.24)
----------- --------- ---------- --------- --------- ----------- ---------------
Total from
investment
operations...... 2.50 2.15 (6.42) 2.90 4.78 .13 (.20)
----------- --------- ---------- --------- --------- ----------- ---------------
Less dividends
and
distributions:
Investment
income--net.... (.30) -- -- (.05) (.13) (.10) --
Realized gain on
investments--
net............ -- -- (.50) -- (.09) -- +++ --
In excess of
realized gain
on
investments--
net............ -- -- (.01) -- -- -- --
----------- --------- ---------- --------- --------- ----------- ---------------
Total dividends
and
distributions... (.30) -- (.51) (.05) (.22) (.10) --
----------- --------- ---------- --------- --------- ----------- ---------------
Net asset value,
end of period... $ 14.66 $ 12.46 $ 10.31 $ 17.24 $ 14.39 $ 9.83 $ 9.80
=========== ========= ========== ========= ========= =========== ===============
TOTAL INVESTMENT
RETURN:**
Based on net
asset value per
share........... 20.51% 20.85% (38.32)% 20.19% 49.80% 1.30% (2.00)%#
=========== ========= ========== ========= ========= =========== ===============
RATIOS TO AVERAGE
NET ASSETS:
Expenses......... 2.50% 2.54% 2.71% 2.51% 2.59% 2.65% 2.73%*
=========== ========= ========== ========= ========= =========== ===============
Investment income
(loss)--net..... (.03)% 2.69% .43% (.54)% 1.09% 1.30% 3.28%*
=========== ========= ========== ========= ========= =========== ===============
SUPPLEMENTAL
DATA:
Net assets, end
of period (in
thousands)...... $527,520 $518,865 $505,038 $937,221 $305,301 $126,344 $63,012
=========== ========= ========== ========= ========= =========== ===============
Portfolio
turnover........ 84.91% 66.14% 54.86% 30.15% 24.74% 36.50% --
=========== ========= ========== ========= ========= =========== ===============
Average
commission rate
paid##.......... $ .0007 $ .0001 -- -- -- -- --
=========== ========= ========== ========= ========= =========== ===============
</TABLE>
- -------
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
++ Based on average shares outstanding during the period.
+++ Amount less than $.01 per share.
# Aggregate total investment return.
## For fiscal years beginning on or after September 1, 1995, the Fund is
required to disclose its average commission rate per share for purchases
and sales of equity securities. The "Average Commission Rate Paid"
includes commissions paid in foreign currencies, which have been
converted into U.S. dollars using the prevailing exchange rate on the
date of the transaction. Such conversions may significantly affect the
rate shown.
11
<PAGE>
CONSOLIDATED FINANCIAL HIGHLIGHTS -- (CONCLUDED)
<TABLE>
<CAPTION>
CLASS C
-------------------------------------------
FOR THE
YEAR ENDED FOR THE PERIOD
NOVEMBER 30, OCT. 21, 1994+
-------------------------- TO NOV. 30,
1997++ 1996++ 1995++ 1994++
------- ------- ------- --------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSET VALUE:
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of
period.......... $ 12.46 $ 10.31 $ 17.24 $18.10
------- ------- ------- ------
Investment income
(loss)--net..... (.02) .32 .03 (.02)
Realized and
unrealized gain
(loss) on
investments and
foreign currency
transactions--
net............. 2.52 1.83 (6.45) (.84)
------- ------- ------- ------
Total from
investment
operations...... 2.50 2.15 (6.42) (.86)
------- ------- ------- ------
Less dividends
and
distributions:
Investment
income--net.... (.32) -- -- --
Realized gain on
investments--
net............ -- -- (.50) --
In excess of
realized gain
on
investments--
net............ -- -- (.01) --
------- ------- ------- ------
Total dividends
and
distributions... (.32) -- (.51) --
------- ------- ------- ------
Net asset value,
end of period... $ 14.64 $ 12.46 $ 10.31 $17.24
======= ======= ======= ======
TOTAL INVESTMENT
RETURN:**
Based on net
asset value per
share........... 20.52% 20.85% (38.32)% (4.75)%#
======= ======= ======= ======
RATIOS TO AVERAGE
NET ASSETS:
Expenses......... 2.50% 2.54% 2.72% 2.93%*
======= ======= ======= ======
Investment income
(loss)--net..... (.11)% 2.68% .30% (1.22)%*
======= ======= ======= ======
SUPPLEMENTAL
DATA:
Net assets, end
of period (in
thousands)...... $37,027 $23,183 $14,659 $5,069
======= ======= ======= ======
Portfolio
turnover........ 84.91% 66.14% 54.86% 30.15%
======= ======= ======= ======
Average
commission rate
paid##.......... $ .0007 $ .0001 -- --
======= ======= ======= ======
<CAPTION>
CLASS D
---------------------------------------------------------------------------
FOR THE PERIOD
FOR THE YEAR ENDED NOVEMBER 30, SEPT. 27, 1991+
----------------------------------------------------------- TO NOV. 30,
1997++ 1996++ 1995++ 1994++ 1993 1992 1991
--------- --------- --------- --------- -------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSET VALUE:
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of
period.......... $ 12.77 $ 10.47 $ 17.37 $ 14.45 $ 9.90 $ 9.81 $ 10.00
--------- --------- --------- --------- -------- ---------- ---------------
Investment income
(loss)--net..... .11 .42 .14 .03 .18 .15 .06
Realized and
unrealized gain
(loss) on
investments and
foreign currency
transactions--
net............. 2.54 1.88 (6.53) 3.00 4.69 .06 (.25)
--------- --------- --------- --------- -------- ---------- ---------------
Total from
investment
operations...... 2.65 2.30 (6.39) 3.03 4.87 .21 (.19)
--------- --------- --------- --------- -------- ---------- ---------------
Less dividends
and
distributions:
Investment
income--net.... (.40) -- -- (.11) (.23) (.12) --
Realized gain on
investments--
net............ -- -- (.50) -- (.09) -- +++ --
In excess of
realized gain
on
investments--
net............ -- -- (.01) -- -- -- --
--------- --------- --------- --------- -------- ---------- ---------------
Total dividends
and
distributions... (.40) -- (.51) (.11) (.32) (.12) --
--------- --------- --------- --------- -------- ---------- ---------------
Net asset value,
end of period... $ 15.02 $ 12.77 $ 10.47 $ 17.37 $ 14.45 $ 9.90 $ 9.81
========= ========= ========= ========= ======== ========== ===============
TOTAL INVESTMENT
RETURN:**
Based on net
asset value per
share........... 21.40% 21.97% (37.84)% 21.07% 50.86% 2.19% (1.90)%#
========= ========= ========= ========= ======== ========== ===============
RATIOS TO AVERAGE
NET ASSETS:
Expenses......... 1.71% 1.74% 1.91% 1.73% 1.83% 1.89% 1.97%*
========= ========= ========= ========= ======== ========== ===============
Investment income
(loss)--net..... .72% 3.47% 1.18% .23% 1.83% 2.18% 4.05%*
========= ========= ========= ========= ======== ========== ===============
SUPPLEMENTAL
DATA:
Net assets, end
of period (in
thousands)...... $128,433 $112,833 $105,830 $204,907 $75,085 $30,685 $18,074
========= ========= ========= ========= ======== ========== ===============
Portfolio
turnover........ 84.91% 66.14% 54.86% 30.15% 24.74% 36.50% --
========= ========= ========= ========= ======== ========== ===============
Average
commission rate
paid##.......... $ .0007 $ .0001 -- -- -- -- --
========= ========= ========= ========= ======== ========== ===============
</TABLE>
- -------
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
++ Based on average shares outstanding during the period.
+++ Amount less than $.01 per share.
# Aggregate total investment return.
## For fiscal years beginning on or after September 1, 1995, the Fund is
required to disclose its average commission rate per share for purchases
and sales of equity securities. The "Average Commission Rate Paid"
includes commissions paid in foreign currencies, which have been
converted into U.S. dollars using the prevailing exchange rate on the
date of the transaction. Such conversions may significantly affect the
rate shown.
12
<PAGE>
RISK FACTORS AND SPECIAL CONSIDERATIONS
GENERAL
Because the Fund intends to invest primarily in Latin American securities, an
investor in the Fund should be aware of certain risk factors and special
considerations relating not only to investing in Latin American economies, but
also, more generally, to international investing and investing in smaller
capital markets, each of which may involve risks which are not typically
associated with investments in securities of U.S. issuers. Consequently, the
Fund should be considered as a means of diversifying an investment portfolio
and not in itself a balanced investment program.
INVESTING ON AN INTERNATIONAL BASIS AND IN COUNTRIES WITH SMALLER CAPITAL
MARKETS
Investing on an international basis and in countries with smaller capital
markets involves certain risks not involved in domestic investments, including
fluctuations in foreign exchange rates, future political and economic
developments, and the possible imposition of exchange controls or other foreign
governmental laws or restrictions. Since the Fund will invest heavily in
securities denominated or quoted in currencies other than the U.S. dollar,
changes in foreign currency exchange rates will affect the value of securities
in the portfolio and the unrealized appreciation or depreciation of investments
insofar as U.S. investors are concerned. In addition, with respect to certain
foreign 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. Moreover,
individual foreign economies may differ favorably or unfavorably from the U.S.
economy in such respects as growth of gross national product, rates of
inflation, capital reinvestment, resources, self-sufficiency and balance of
payments position. Certain foreign investments may also be subject to foreign
withholding taxes. These risks are often heightened for investments in smaller
capital markets and in Latin American countries.
Most of the securities held by the Fund will not be registered with the
Commission nor will the issuers thereof be subject to the reporting
requirements of such agency. Accordingly, there may be less publicly available
information about a foreign company than about a U.S. company, and such foreign
companies may not be subject to accounting, auditing and financial reporting
standards and requirements comparable to those to which U.S. companies are
subject. As a result, traditional investment measurements, such as
price/earnings ratios, as used in the United States, may not be applicable to
certain smaller capital markets. Foreign companies, and companies in smaller
capital markets in particular, are not generally subject to uniform accounting,
auditing and financial reporting standards or to practices and requirements
comparable to those applicable to domestic companies. Foreign markets also have
different clearance and settlement procedures, and in certain markets there
have been times when settlements have failed to keep pace with the volume of
securities transactions, making it difficult to conduct such transactions.
Delays in settlement could result in temporary periods when assets of the Fund
are uninvested and no return is earned thereon. The inability of the Fund to
make intended security purchases due to settlement problems could cause the
Fund to miss attractive investment opportunities. Inability to dispose of a
portfolio security due to settlement problems could result either in losses to
the Fund due to subsequent declines in the 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.
13
<PAGE>
The operating expense ratio of the Fund can be expected to be higher than
that of an investment company investing exclusively in U.S. securities since
the expenses of the Fund, such as management and advisory fees and custodial
costs, are higher.
INVESTING IN LATIN AMERICAN SECURITIES MARKETS AND ECONOMIES
The Latin American securities markets are not as large as the U.S. securities
markets and have substantially less trading volume, resulting in a lack of
liquidity and high price volatility. There is also a high concentration of
market capitalization and trading volume in a small number of issuers
representing a limited number of industries, as well as a high concentration of
investors and financial intermediaries. Latin American brokers typically are
fewer in number and less capitalized than brokers in the United States. These
factors, combined with the U.S. regulatory requirements for open-end funds and
the restrictions on foreign investments discussed below, result in potentially
fewer investment opportunities for the Fund and may have an adverse impact on
the investment performance of the Fund. The Fund may not invest more than 15%
of its total assets in securities which are determined by the Manager to be
illiquid securities.
The investment objective of the Fund reflects the belief that investment
opportunities may result in Latin America from an evolving long-term
international trend encouraging greater market orientation and diminishing
governmental intervention in economic affairs. The Latin American economies
have experienced considerable difficulties in the past decade. Although there
have been significant improvements in recent years, the Latin American
economies continue to experience significant problems, including high inflation
rates and high interest rates. The emergence of the Latin American economies
and securities markets will require continued economic and fiscal discipline
which has been lacking at times in the past, as well as stable political and
social conditions. Recovery may also be influenced by international economic
conditions, particularly those in the United States, and by world prices for
oil and other commodities. There is no assurance that the economic initiatives
will be successful.
Certain of the risks associated with international investments and investing
in smaller capital markets are heightened for investments in Latin American
countries. For example, some of the currencies of Latin American countries have
experienced steady devaluations relative to the U.S. dollar, and major
adjustments have been made in certain of such currencies periodically. In
addition, governments of many Latin American countries have exercised and
continue to exercise substantial influence over many aspects of the private
sector. In certain cases, the government owns or controls many companies,
including the largest in the country. Accordingly, government actions in the
future could have a significant effect on economic conditions in Latin American
countries, which could affect private sector companies and the Fund, as well as
the value of securities in the Fund's portfolio.
In addition to the relative lack of publicly available information about
Latin American issuers and the possibility that such issuers may not be subject
to the same accounting, auditing and financial reporting standards as are
applicable to U.S. companies, inflation accounting rules in some Latin American
countries require, for companies that keep accounting records in the local
currency, for both tax and accounting purposes, that certain assets and
liabilities be restated on the company's balance sheet in order to express
items in terms of currency of constant purchasing power. Inflation accounting
may indirectly generate losses or profits for certain Latin American companies.
14
<PAGE>
Satisfactory custodial services for investment securities may not be
available in some Latin American countries, which may result in the Fund
incurring additional costs and delays in transporting and custodying such
securities outside such countries.
Most Latin American countries have experienced substantial, and in some
periods extremely high, rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have very negative
effects on the economies and securities markets of certain Latin American
countries.
Certain Latin American countries are among the largest debtors to commercial
banks and foreign governments. Trading in debt obligations ("sovereign debt")
issued or guaranteed by Latin American governments or their agencies and
instrumentalities ("governmental entities") involves a high degree of risk. The
governmental entity that controls the repayment of sovereign debt may not be
willing or able to repay the principal and/or interest when due in accordance
with the terms of such obligations. A governmental entity's willingness or
ability to repay principal and interest due in a timely manner may be affected
by, among other factors, its cash flow situation, the relative size of the debt
service burden to the economy as a whole, the governmental entity's dependence
on expected disbursements from third parties, the governmental entity's policy
toward the International Monetary Fund and the political constraints to which a
governmental entity may be subject. As a result, governmental entities may
default on their sovereign debt. Holders of sovereign debt (including the Fund)
may be requested to participate in the rescheduling of such debt and to extend
further loans to governmental entities. There is no bankruptcy proceeding by
which sovereign debt on which governmental entities have defaulted may be
collected in whole or in part.
As a result, management of the Fund may determine that, notwithstanding
otherwise favorable investment criteria, it may not be practicable or
appropriate to invest in a particular Latin American country. The Fund may
invest in countries in which foreign investors, including management of the
Fund, have had no or limited prior experience.
RESTRICTIONS ON FOREIGN INVESTMENTS
Some Latin American countries prohibit or impose substantial restrictions on
investments in their capital markets, particularly their equity markets, by
foreign entities such as the Fund. As illustrations, certain countries may
require governmental approval prior to investments by foreign persons or limit
the amount of investment by foreign persons in a particular company or limit
the investment by foreign persons to only a specific class of securities of a
company which may have less advantageous terms than securities of the company
available for purchase by nationals. Certain countries may restrict investment
opportunities in issuers or industries deemed important to national interests.
Substantial limitations may exist in certain countries with respect to the
Fund's ability to repatriate investment income, capital or the proceeds of
sales of securities by foreign investors. For example, in Chile, with limited
exceptions, invested capital cannot be repatriated for three years. The Fund
could be adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation of capital, as well as by the
application to the Fund of any restrictions on investments. No more than 15% of
the Fund's total assets will be comprised, in the aggregate, of assets which
are (i) subject to material legal restrictions on repatriation or (ii) invested
in illiquid securities.
15
<PAGE>
A number of Latin American countries, such as Chile and Brazil, have
authorized the formation of publicly traded closed-end investment companies to
facilitate indirect foreign investment in their capital markets. In accordance
with the Investment Company Act of 1940, as amended (the "Investment Company
Act"), the Fund may invest up to 10% of its total assets in securities of other
investment companies, not more than 5% of which may be invested in any one such
company. This restriction on investments in securities of investment companies
may limit opportunities for the Fund to invest indirectly in certain Latin
American countries. Shares of certain investment companies may at times be
acquired only at market prices representing premiums to their net asset values.
If the Fund acquires shares in other investment companies, shareholders would
bear both their proportionate share of expenses of the Fund (including
management and advisory fees) and, indirectly, the expenses of such other
investment companies.
In some countries, such as Argentina, banks or other financial institutions
may constitute a substantial number of the leading companies or the companies
with the most actively traded securities. The Investment Company Act restricts
the Fund's investments in any equity security of an issuer which, in its most
recent fiscal year, derived more than 15% of its revenues from "securities
related activities," as defined by the rules thereunder. These provisions may
restrict the Fund's investments in certain foreign banks and other financial
institutions.
LIMITATIONS ON SHARE TRANSACTIONS
To permit the Fund to invest the net proceeds from the sale of its shares in
an orderly manner, the Fund may, from time to time, suspend the sale of its
shares, except for dividend reinvestments. The Fund also reserves the right to
limit the number of its shares that may be purchased by a person during a
specified period of time or in the aggregate.
FEES AND EXPENSES
The management fee (at the annual rate of 1.00% of the Fund's average daily
net assets) and other operating expenses of the Fund are higher than the
management fees and operating expenses of other mutual funds managed by the
Manager and other investment advisers. Any limitations on the growth of the
Fund could adversely affect its operating expense ratio.
HEDGING STRATEGIES
The Fund may engage in various portfolio strategies to seek to hedge against
movements in the equity markets, interest rates and exchange rates between
currencies by the use of options, futures, options on futures and forward
currency transactions. However, suitable hedging instruments may not be
available with respect to Latin American securities on a timely basis and on
acceptable terms. Furthermore, even if hedging techniques are available, the
Fund will only engage in hedging activities from time to time and may not
necessarily be engaging in hedging activities when market or currency movements
occur. In addition, utilization of options and futures transactions involves
the risk of imperfect correlation in movements in the price of options and
futures and movements in the price of the securities, interest rates or
currencies which are the subject of the hedge. Hedging transactions in foreign
markets are also subject to the risk factors associated with foreign
investments
16
<PAGE>
generally, as discussed above. Investors should be aware that U.S. dollar
denominated securities may not be available in some or all Latin American
countries; that the forward currency market for the purchase of U.S. dollars in
most, if not all, Latin American countries is not highly developed; and that,
in certain Latin American countries, no forward market for foreign currencies
currently exists or such market may be closed to investment by the Fund.
NO RATING CRITERIA FOR DEBT SECURITIES
The Fund 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 ("high yield/high risk securities") 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. The sovereign
debt instruments in which the Fund may invest involve great risk and are deemed
to be the equivalent in terms of quality to high yield/high risk securities.
The Fund may have difficulty disposing of certain sovereign debt obligations
because there may be no liquid secondary trading market for such securities.
The Fund may invest up to 5% of its total assets in sovereign debt that is in
default. See "Investment Objective and Policies--Certain Risks of Debt
Securities."
BORROWING
The Fund currently may borrow up to 20% of its total assets, taken at market
value (including the amount borrowed), but only from a bank as a temporary
measure for extraordinary or emergency purposes including to meet redemptions
or to settle securities transactions. The Fund will not purchase securities
while borrowings exceed 5% of its total assets except (a) to honor prior
commitments or (b) to exercise subscription rights where outstanding borrowings
have been obtained exclusively for settlements of other securities
transactions. The purchase of securities while borrowings are outstanding will
have the effect of leveraging the Fund. Such leveraging increases the Fund's
exposure to capital risk, and borrowed funds are subject to interest costs
which will reduce net income.
WITHHOLDING AND OTHER TAXES
Ordinary income and capital gains on securities held by the Fund may be
subject to withholding and other taxes imposed by Latin American countries,
which would reduce the return to the Fund on those securities. The Fund
intends, unless ineligible, to elect to "pass through" to the Fund's
shareholders the amount of foreign taxes paid by the Fund. The taxes passed
through to shareholders will be included in each shareholder's income and
potentially offset by either a deduction or a credit. Certain shareholders,
including non-U.S. shareholders, will not be entitled to the benefit of a
deduction or credit with respect to foreign taxes paid by the Fund and passed
through to shareholders. Other taxes, such as transfer taxes, may be imposed on
the Fund, but will not give rise to a deduction or credit for shareholders. See
"Additional Information--Taxes."
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NON-DIVERSIFIED STATUS
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.
INVESTMENT OBJECTIVE AND POLICIES
The Fund is a non-diversified, open-end management investment company. The
investment objective of the Fund is to seek long-term capital appreciation by
investing primarily in Latin American equity and debt securities. Except for
Temporary Investments, as defined below, at least 65% of the Fund's assets will
consist of direct or indirect investments in Latin American equity and debt
securities, including common stocks, preferred stocks, debt securities
convertible into common stocks and non-convertible debt securities. This
investment objective 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, as defined in the Investment Company Act. The Fund is
authorized to employ a variety of investment techniques to hedge against market
and currency risk, although suitable hedging instruments may not be available
on a timely basis and on acceptable terms. There can be no assurance that the
Fund's investment objective will be achieved.
The Fund seeks to benefit from economic and other developments in Latin
America. The investment objective of the Fund reflects the belief that
investment opportunities may result in Latin America from an evolving long-term
international trend encouraging greater market orientation and diminishing
governmental intervention in economic affairs. This trend may be facilitated by
local or international political, economic or financial developments that could
benefit the capital markets of certain Latin American countries.
In recent years, there has been a significant trend in Latin America towards
democracy and market-oriented economic reform. While there have been distinct
differences in the approaches taken by the various countries and the degrees of
success in accomplishing the economic objectives, the countries have generally
sought to reduce the government's role in economic affairs and implement policy
initiatives designed to control inflation, reduce financial deficits and
external debt, establish stable currency exchange rates, liberalize trade
restrictions, increase foreign investment, privatize state-owned companies and
develop and modernize the securities markets. While considerable difficulties
remain, the economies of certain Latin American countries have improved, and
these improvements have been reflected in the performance of the securities
markets and the reversal of the capital flight which prevailed in the early
1980's.
The Fund will not necessarily seek to diversify investments on a geographic
basis within Latin America. The allocation of the Fund's assets among the
various securities markets of Latin America will be determined by the Manager.
It is presently contemplated that the Fund will emphasize investments in the
equity and debt
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markets of Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela.
Under certain adverse investment conditions, the Fund may restrict the Latin
American securities markets in which its assets are invested.
Many investors, particularly individuals, lack the information, capability
or inclination to invest in Latin American countries. It also may not be
permissible for such investors to invest directly in certain Latin American
capital markets. Unlike many intermediary investment vehicles, such as closed-
end investment companies that invest in a single country, the Fund intends to
diversify investment risk among the capital markets of a number of countries.
For the purpose of the Fund's investment objective, Latin America includes
Mexico, Central America, South America and the Spanish speaking islands of the
Caribbean, including Puerto Rico. A security ordinarily will be considered to
be a Latin American security when its issuer is organized in Latin America or
its primary trading market is located in Latin America. The Fund may consider
a security to be Latin American, without reference to its issuer's domicile or
to its primary trading market, when at least 50% of the issuer's non-current
assets, capitalization, gross revenues or profits in any one of the two most
recent fiscal years represents (directly or indirectly through subsidiaries)
assets or activities located in such countries. The Fund may acquire Latin
American securities that are denominated in currencies other than a Latin
American currency. The Fund also may consider a debt security that is
denominated in a Latin American currency to be a Latin American security
without reference to its principal trading market or to the location of its
issuer. The Fund may consider investment companies to be located in the
country or countries in which they primarily make their portfolio investments.
The Fund may also seek capital appreciation through investment in Latin
American debt securities. Capital appreciation in debt securities may arise as
a result of a favorable change in relative foreign exchange rates, in relative
interest rate levels, or in the creditworthiness of issuers. The receipt of
income from such debt securities is incidental to the Fund's objective of
long-term capital appreciation. In accordance with its investment objective,
the Fund will not seek to benefit from anticipated short-term fluctuations in
currency exchange rates. The Fund may, from time to time, invest in debt
securities with relatively high yields (as compared to other debt securities
meeting the Fund's investment criteria), notwithstanding that the Fund may not
anticipate that such securities will experience substantial capital
appreciation. Such income can be used, however, to offset the operating
expenses of the Fund. For a description of the risks involved in investing in
high yield debt see "Certain Risks of Debt Securities" below.
The Fund may invest in sovereign debt issued or guaranteed by Latin American
governmental entities, debt securities issued or guaranteed by international
organizations designated or supported by multiple foreign governmental
entities (which are not obligations of foreign governments) to promote
economic reconstruction or development ("supranational entities"), debt
securities issued by corporations or financial institutions or debt securities
issued by the U.S. Government or an agency or instrumentality thereof.
Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related governmental
agencies. Examples include the International Bank for Reconstruction and
Development (the "World Bank") and the Inter-American Development Bank. The
governmental members, or "stockholders," usually make initial capital
contributions to the supranational entity and in many cases are committed to
make additional capital contributions if the supranational entity is unable to
repay its borrowings.
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The Fund reserves the right, as a temporary defensive measure or to provide
for redemptions or in anticipation of investment in Latin American countries,
to hold cash or cash equivalents (in U.S. dollars or foreign currencies) and
short-term securities including money market securities denominated in U.S.
dollars or foreign currencies ("Temporary Investments"). The Fund may invest
in the securities of Latin American issuers in the form of American Depositary
Receipts (ADRs), European Depositary Receipts (EDRs), Global Depositary
Receipts (GDRs) or other securities convertible into securities of Latin
American issuers. The Fund may invest in unsponsored ADRs. The issuers of
unsponsored ADRs are not obligated to disclose material information in the
U.S., and therefore, there may not be a correlation between such information
and the market value of such ADRs.
CERTAIN RISKS OF DEBT SECURITIES
No Rating Criteria for Debt Securities. The Fund 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. These high yield/high risk
securities are predominantly speculative with respect to the capacity to pay
interest and repay principal in accordance with the terms of such securities
and generally involve a greater volatility of price than securities in higher
rating categories. These securities are commonly referred to as "junk" bonds.
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 is not authorized to purchase debt securities
that are in default, except for sovereign debt (discussed below) in which the
Fund may invest no more than 5% of its total assets while such sovereign debt
securities are in default.
The market values of high yield/high risk securities tend to reflect
individual issuer developments to a greater extent than do higher rated
securities, which react primarily to fluctuations in the general level of
interest rates. Issuers of high yield/high risk securities may be highly
leveraged and may not have available to them more traditional methods of
financing. Therefore, the risk associated with acquiring the securities of
such issuers generally is 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/high risk 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/high risk securities because such securities may be unsecured and may be
subordinated to other creditors of the issuer.
High yield/high risk securities may have call or redemption features which
would permit an issuer to repurchase the securities from the Fund. If a call
were exercised by the issuer during a period of declining interest rates, the
Fund likely would have to replace such called securities with lower yielding
securities, thus decreasing the net investment income to the Fund and
dividends to shareholders.
The Fund may have difficulty disposing of certain high yield/high risk
securities because there may be a thin trading market for such securities. To
the extent that a secondary trading market for high yield/high risk securities
does exist, it is generally not as liquid as the secondary market for higher
rated securities. Reduced
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secondary market liquidity may have an adverse impact on market price and the
Fund's ability to dispose of particular issues when necessary to meet the
Fund's liquidity needs or in response to a specific economic event such as a
deterioration in the creditworthiness of the issuer. Reduced secondary market
liquidity for certain high yield/high risk securities also may make it more
difficult for the Fund to obtain accurate market quotations for purposes of
valuing the Fund's portfolio. Market quotations are generally available on
many high yield/high risk securities only from a limited number of dealers and
may not necessarily represent firm bids of such dealers or prices for actual
sales.
Adverse publicity and investor perceptions, which may not be based on
fundamental analysis, also may decrease the value and liquidity of high
yield/high risk securities, particularly in a thinly traded market. Factors
adversely affecting the market value of high yield/high risk securities are
likely to adversely affect 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 the obligation.
Sovereign Debt. Certain Latin American countries such as Argentina, Brazil
and Mexico are among the largest debtors to commercial banks and foreign
governments. At times, certain Latin American countries have declared
moratoria on the payment of principal and/or interest on outstanding debt.
Investment in sovereign debt involves a high degree of risk. The
governmental entity that controls the repayment of sovereign debt may not be
able or willing to repay the principal and/or interest when due in accordance
with the terms of such debt. A governmental entity's willingness or ability to
repay principal and interest due in a timely manner may be affected by, among
other factors, its cash flow situation, the extent of its foreign reserves,
the availability of sufficient foreign exchange on the date a payment is due,
the relative size of the debt service burden to the economy as a whole, the
governmental entity's policy towards the International Monetary Fund and the
political constraints to which a governmental entity may be subject.
Governmental entities may also be dependent on expected disbursements from
foreign governments, multilateral agencies and others abroad to reduce
principal and interest arrearages on their debt. The commitment on the part of
these governments, agencies and others to make such disbursements may be
conditioned on a governmental entity's implementation of economic reforms
and/or economic performance and the timely service of such debtor's
obligations. Failure to implement such reforms, achieve such levels of
economic performance or repay principal or interest when due may result in the
cancellation of such third parties' commitments to lend funds to the
governmental entity, which may further impair such debtor's ability or
willingness to timely service its debts. Consequently, governmental entities
may default on their sovereign debt.
Holders of sovereign debt, including the Fund, may be requested to
participate in the rescheduling of such debt and to extend further loans to
governmental entities. There is no bankruptcy proceeding by which sovereign
debt on which a governmental entity has defaulted may be collected in whole or
in part.
The sovereign debt instruments in which the Fund may invest involve great
risk and are deemed to be the equivalent in terms of quality to high
yield/high risk securities discussed above and are subject to many of the same
risks as such securities. Similarly, the Fund may have difficulty disposing of
certain sovereign debt obligations because there may be a thin trading market
for such securities. The Fund will not invest more than 5% of its total assets
in sovereign debt which is in default.
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PORTFOLIO STRATEGIES INVOLVING OPTIONS AND FUTURES
The Fund is authorized to engage in various portfolio strategies to hedge
its portfolio against adverse movements in the equity, debt and currency
markets. The Fund has authority to write (i.e., sell) covered put and call
options on its portfolio securities, purchase put and call 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. Each of these
portfolio strategies is described below. Although certain risks are involved
in options and futures transactions (as discussed below and in "Risk Factors
in Options and Futures Transactions" further below), the Manager believes
that, because the Fund will engage in options and futures transactions only
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. 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. 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.
There can be no assurance that the Fund's hedging transactions will be
effective. Suitable hedging instruments may not be available with respect to
Latin American securities on a timely basis and on acceptable terms.
Furthermore, the Fund will only engage in hedging activities from time to time
and will not necessarily engage in hedging transactions when movements in any
particular equity, debt and currency markets occur.
Set forth below are descriptions of certain hedging strategies in which the
Fund is authorized to engage.
Writing Covered Options. The Fund is authorized to write (i.e., sell)
covered call options on the securities in which it may invest and to enter
into closing purchase transactions with respect to certain of such options.
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 price on or before a specified date, in the case of an option on
securities, or agrees to pay to another party an amount based on any gain in a
specified securities index beyond a specified level on or before a specified
date, in the case of an option on a securities index. The principal reason for
writing call options is to attempt to realize, through the receipt of
premiums, a greater return than would be realized on the securities alone. 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. Covered call options serve as a partial hedge
against the price of the underlying security declining.
The Fund also may write put options which give the holder of the option the
right to sell the underlying security to the Fund at the stated exercise
price. The Fund will receive a premium for writing a put option which
increases the Fund's return. The Fund writes only covered put options, which
means that so long as the Fund is obligated as the writer of the option it
will, through its custodian, have deposited and maintained cash, cash
equivalents, U.S. Government securities or other liquid securities denominated
in U.S. dollars or non-U.S. currencies with a securities depository with a
value equal to or greater than the exercise price of the underlying
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securities. By writing a put, the Fund will be obligated to purchase the
underlying security at a price that may be higher than the market value of
that security at the time of exercise for as long as the option is
outstanding. The Fund may engage in closing transactions in order to terminate
put options that it has written. The Fund will not write put options if the
aggregate value of the obligations underlying the put shall exceed 50% of the
Fund's net assets.
Purchasing Options. The Fund is authorized to purchase put options to hedge
against a decline in the market value of its securities. By buying a put
option the Fund has a right to sell the underlying security 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 option expires. The amount of any
appreciation in the value of the underlying security will be partially offset
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 costs. 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.
In certain circumstances, the Fund may purchase call options on securities
held in its portfolio on which it has written call options or on securities
which it intends to purchase. The Fund will not purchase options on securities
(including stock index options discussed below) if as a result of such
purchase, the aggregate cost (premiums paid) of all outstanding options on
securities held by the Fund would exceed 5% of the market value of the Fund's
total assets.
Stock or Other Financial Index Options and Futures. The Fund is authorized
to engage in transactions in stock or other financial index options and
futures (including futures on government bonds), and related options on such
futures. The Fund may purchase or write put and call options on stock or other
financial indices to hedge against the risks of market-wide stock or bond
price movements in the securities in which the Fund invests. Options on
indices are similar to options on securities except that on settlement, the
parties to the contract pay or receive an amount of cash equal to the
difference between the closing value of the index on the relevant valuation
date and the exercise price of the option times a specified multiple. The Fund
may invest in stock or other financial index options based on a broad market
index or based on a narrow index representing an industry or market segment.
The Fund may also purchase and sell stock or other financial index futures
contracts and financial futures contracts ("futures contracts") as a hedge
against adverse changes in the market value of its portfolio securities as
described below. A futures contract is an agreement between two parties that
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 does not require
actual delivery of securities but results 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 connection with the equity securities in which it
invests and in financial futures contracts in connection with the debt
securities in which it invests. 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."
The Fund may sell 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
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fully invested in any particular securities markets and anticipates a
significant market advance, it may purchase 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 futures contracts will be terminated by offsetting sales.
The Manager 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 futures contract or the purchase of a call
option or the writing of a put option on a 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 also has authority to purchase and write call and put options on
futures contracts (including financial futures) and stock indices 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 may purchase put options or write call options
on futures contracts and stock indices rather than selling the underlying
futures contract in anticipation of a decrease in the market value of its
securities. Similarly, the Fund may purchase call options, or write put
options on futures contracts and stock indices, as a substitute for the
purchase of such futures to hedge against the increased cost resulting from an
increase in the market value of securities which the Fund intends to purchase.
The Fund may engage in options and futures transactions on U.S. and foreign
exchanges and in the over-the-counter markets ("OTC options"). Exchange-traded
contracts are third-party contracts (i.e., performance of the parties'
obligations is guaranteed by an exchange or clearing corporation) which, in
general, have standardized strike prices and expiration dates. OTC options
transactions are two-party contracts with prices and terms negotiated by the
buyer and seller. See "Restrictions on OTC Options" for information as to
restrictions on the use of OTC options.
To trade futures contracts, the Fund is not required to deposit funds equal
to the value of the futures contract. The Fund need only make a deposit,
called an "initial margin deposit," equal to a small percentage (typically
between 2% and 15%) of the value of the futures contract. As a result, a
relatively small adverse move in the price of a futures contract may result in
immediate and substantial losses to the Fund. For example, if at the time of
purchase 10% of the price of a futures contract is deposited as margin, a 10%
decrease in the price of that contract would, if the contract were then closed
out, result in a total loss of the initial margin deposit before any deduction
for brokerage commissions and other transaction costs. A decrease of more than
10% would result in a loss of more than the total initial margin deposit.
To some extent, options on futures contracts are even more highly leveraged
than futures contracts. For example, if an in-the-money call (put) option is
sold for its intrinsic value plus a premium representing the time value of
that option, a 10% rise (drop) in the value of the underlying futures contract
does not create a loss equal to just 10% of the value of the option. Such a
rise (drop) creates a loss approximately equal to 10% of the value of the
underlying interest, less the time value, which loss may be many times greater
than the price for which the Fund sold the option. In addition, investors who
sell options are required only to deposit a percentage of the value of the
option at the time of sale as margin, thereby leveraging the investment even
further.
Foreign Currency Hedging. The Fund has authority to deal in forward foreign
exchange among currencies of the different countries in which it will invest
and multinational currency units as a hedge against possible
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variations in the foreign exchange rates among these currencies. This is
accomplished through contractual agreements to purchase or 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 foreign currency with respect to
portfolio security positions denominated or quoted in such foreign currency.
The Fund has no limitation on transaction hedging. The Fund will not speculate
in forward foreign exchange. If the Fund enters into a position hedging
transaction, the Fund's custodian will place cash or liquid 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. Hedging against a decline in the value of a currency does not
eliminate fluctuations in the prices of portfolio securities or prevent losses
if the prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise.
Moreover, it may not be possible for the Fund to hedge against a devaluation
that is so generally anticipated that the Fund is not able to contract to sell
the currency at a price above the devaluation level it anticipates. Investors
should be aware that U.S. dollar denominated securities may not be available
in some or all Latin American countries, that the forward currency market for
the purchase of U.S. dollars in most, if not all, Latin American countries is
not highly developed and that in certain Latin American countries no forward
market for foreign currencies currently exists or such market may be closed to
investment by the Fund.
The Fund is also authorized to purchase or sell listed or over-the-counter
("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. Such transactions may be effected with
respect to hedges on non-U.S. dollar denominated securities owned by the Fund,
sold by the Fund but not yet delivered, or committed or anticipated to be
purchased by the Fund. As an illustration, the Fund may use such techniques to
hedge the stated value in U.S. dollars of an investment in a Mexican peso
denominated security. In such circumstances, for example, the Fund may
purchase a foreign currency put option enabling it to sell a specified amount
of Mexican pesos for dollars at a specified price by a future date. To the
extent the hedge is successful, a loss in the value of the Mexican peso
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 Mexican pesos for dollars at a specified
price by a future date (a technique called a "spread"). By selling a call
option in this illustration, the Fund gives up the opportunity to profit
without limit from increases in the relative value of the Mexican peso to the
dollar. The Manager believes that "spreads" of the type which may be utilized
by the Fund constitute hedging transactions and are consistent with the
policies described above.
Certain differences exist between these foreign currency hedging
instruments. Foreign currency options provide the holder thereof the right to
buy or sell a currency at a fixed price on a future date. 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 traded on boards of trade or
futures exchanges. The Fund will not speculate in foreign currency options,
futures or related options.
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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 liquid 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
20% of its total assets from foreign currency options, futures or related
options.
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
and 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
contacts. 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.
Restrictions on the Use of Futures Transactions. Regulations of the
Commodity Futures Trading Commission ("CFTC") applicable to the Fund provide
that the futures trading activities described herein will not result in the
Fund being deemed a "commodity pool" 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.
These restrictions are in addition to other restrictions on the Fund's hedging
activities mentioned herein.
When the Fund purchases a futures contract, or writes a put option or
purchases a call option thereon, an amount of cash and 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.
Restrictions on OTC Options. The Fund will engage in OTC options, including
OTC stock index options, OTC foreign currency options and options on foreign
currency futures, only with member banks of the Federal Reserve System and
primary dealers in U.S. Government securities or with affiliates of such banks
or dealers that have capital of at least $50 million or whose obligations are
guaranteed by an entity having capital of at least $50 million or any other
bank or dealer having capital of at least $150 million or whose obligations
are guaranteed by an entity having capital of at least $150 million.
The staff of the Commission has taken the position that purchased OTC
options and the assets used as cover for written OTC options are illiquid
securities. Therefore, the Fund has adopted an investment policy pursuant to
which it will not purchase or sell OTC options (including OTC options on
futures contracts) if, as a result of
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such transaction, 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, 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 as to OTC options 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. However, the Fund will not change or modify this
policy prior to the change or modification by the Commission staff of its
position.
Risk Factors in Options and Futures Transactions. Utilization of options and
futures transactions to hedge the portfolio involves the risk of imperfect
correlation in movements in the price of options and futures and movements in
the price of the securities or currencies which are the subject of the hedge.
If the price of the options or futures moves more or less than the price of
the hedged securities or currencies, the Fund will experience a gain or loss
that will not be completely offset by movements in the price of the subject of
the hedge. The successful use of options and futures also depends on the
Manager's ability to predict correctly price movements in the market involved
in a particular options or futures transaction. In addition, options and
futures transactions in foreign markets are subject to the risk factors
associated with foreign investments generally. See "Risk Factors and Special
Considerations."
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, the
Manager believes the Fund can receive on each business day at least two
independent bids or offers, unless a quotation from only one dealer is
available, in which case only that dealer's price will be used, or which can
be sold at a formula price provided for in the OTC option agreement. There can
be no assurance, however, that a liquid secondary market will exist at any
specific time. Thus, it may not be possible to close an options or futures
position. 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 the bankruptcy of a broker with whom the Fund has an open
position in an option, a futures contract or a related option.
The exchanges on which the Fund intends to conduct options transactions
generally have established limitations governing the maximum number of call or
put options on the same underlying security or currency (whether or not
covered) that 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 that 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.
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OTHER INVESTMENT POLICIES AND PRACTICES
Non-Diversified Status. The Fund is classified as non-diversified within the
meaning of the Investment Company Act, which means that the Fund is not
limited by such Act in the proportion of its assets that it may invest in the
securities of a single issuer. The Fund's investments will be limited,
however, in order to qualify for the special tax treatment afforded regulated
investment companies ("RICs") under the Internal Revenue Code of 1986, as
amended (the "Code"). See "Additional Information--Taxes." To qualify, the
Fund must comply with certain requirements, including limiting its investments
so that at the close of each quarter of the taxable year (i) not more than 25%
of the market value of the Fund's total assets will be invested in the
securities of a single issuer and (ii) with respect to 50% of the market value
of its total assets, not more than 5% of the market value of its total assets
will be invested in the securities of a single issuer, and the Fund will not
own more than 10% of the outstanding voting securities of a single issuer.
Foreign government securities (unlike U.S. Government securities) are not
exempt from the diversification requirements of the Code and the securities of
each foreign government issuer are considered to be the obligations of a
single issuer. A fund that elects to be classified as "diversified" under the
Investment Company Act must satisfy the foregoing 5% and 10% requirements with
respect to 75% of its total assets. To the extent that the Fund assumes large
positions in the securities of a small number of issuers, the Fund's net asset
value may fluctuate to a greater extent than that of a diversified company as
a result of changes in the financial condition or in the market's assessment
of the issuers, and the Fund may be more susceptible to any single economic,
political or regulatory occurrence than a diversified company.
Portfolio Transactions. Since portfolio transactions may be effected on
foreign securities exchanges, the Fund may incur settlement delays on certain
of such exchanges. See "Risk Factors and Special Considerations" above. In
executing the Fund's portfolio 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. The Fund may invest
in certain securities traded in the OTC market and, where possible, will deal
directly with the dealers who make a market in the securities involved except
in those circumstances where better prices and execution are available
elsewhere. Such dealers usually are acting as principal for their own account.
On occasion, securities may be purchased directly from the issuer. Such
portfolio securities are generally traded on a net basis and do not normally
involve either brokerage commissions or transfer taxes. Securities firms may
receive brokerage commissions on certain portfolio transactions, including
options, futures and options on futures transactions and the purchase and sale
of underlying securities upon exercise of options. The Fund has no obligation
to deal with any broker in the execution of transactions in portfolio
securities. Under the Investment Company Act, persons affiliated with the Fund
and persons who are affiliated with such affiliated persons, including Merrill
Lynch, are prohibited from dealing with the Fund as a principal in the
purchase and sale of securities unless a permissive order allowing such
transactions is obtained from the Commission. Affiliated persons of the Fund,
and affiliated persons of such affiliated persons, may serve as its broker in
transactions conducted on an exchange and in OTC transactions conducted on an
agency basis and may receive brokerage commissions from the Fund. In addition,
consistent with the Conduct Rules of the NASD, the Fund 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. It is expected that the majority
of the shares of the Fund will be sold by Merrill Lynch. Costs associated with
transactions in foreign securities are generally higher than those associated
with transactions in U.S. securities, although the Fund will endeavor to
achieve the best net results in effecting such transactions.
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<PAGE>
Portfolio Turnover. The Manager, will effect portfolio transactions without
regard to holding period, if, in its judgment, such transactions are advisable
in light of a change in circumstance of a particular company or within a
particular industry or due to general market, economic or financial
conditions. As a result of its investment policies, the Fund may engage in a
substantial number of portfolio transactions. The 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 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. A high
portfolio turnover rate involves correspondingly greater transaction costs in
the form of dealer spreads and brokerage commissions, which are borne directly
by the Fund.
When-Issued Securities and Delayed Delivery Transactions. The Fund may
purchase securities on a when-issued basis, and it may purchase or sell
securities for delayed delivery. These transactions occur when securities are
purchased or sold by the Fund with payment and delivery taking place in the
future to secure what is considered an advantageous yield and price to the
Fund at the time of entering into the transaction. Although the Fund has not
established any limit on the percentage of its assets that may be committed in
connection with such transactions, the Fund will maintain a segregated account
with its custodian of cash, cash equivalents, U.S. Government securities or
other liquid securities denominated in U.S. dollars or non-U.S. currencies in
an aggregate amount equal to the amount of its commitment in connection with
such purchase transactions.
Standby Commitment Agreements. The Fund may from time to time enter into
standby commitment agreements. Such agreements commit the Fund, for a stated
period of time, to purchase a stated amount of a fixed income security or a
stated number of shares of equity securities that may be issued and sold to
the Fund at the option of the issuer. The price and coupon of the security is
fixed at the time of the commitment. At the time of entering into the
agreement, the Fund is paid a commitment fee, regardless of whether or not the
security is ultimately issued, which is typically approximately 0.5% of the
aggregate purchase price of the security that the Fund has committed to
purchase. The Fund will enter into such agreements only for the purpose of
investing in the security underlying the commitment at a yield and price that
is considered advantageous to the Fund. The Fund will not enter into a standby
commitment with a remaining term in excess of 45 days and will limit its
investment in such commitments so that the aggregate purchase price of the
securities subject to such commitments, together with the value of portfolio
securities subject to legal restrictions on resale, will not exceed 15% of its
total assets taken at the time of acquisition of such commitment or security.
The Fund will at all times maintain a segregated account with its custodian of
cash, cash equivalents, U.S. Government securities or other liquid securities
denominated in U.S. dollars or non-U.S. currencies in an aggregate amount
equal to the purchase price of the securities underlying the commitment.
There can be no assurance that the securities subject to a standby
commitment will be issued, and the value of the security, if issued, on the
delivery date may be more or less than its purchase price. Since the issuance
of the security underlying the commitment is at the option of the issuer, the
Fund may bear the risk of a decline in the value of such security and may not
benefit from an appreciation in the value of the security during the
commitment period.
The purchase of a security subject to a standby commitment agreement and the
related commitment fee will be recorded on the date on which the security can
reasonably be expected to be issued and the value of the security will
thereafter be reflected in the calculation of the Fund's net asset value. The
cost basis of the security
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<PAGE>
will be adjusted by the amount of the commitment fee. In the event the
security is not issued, the commitment fee will be recorded as income on the
expiration date of the standby commitment.
Repurchase Agreements; Purchase and Sale Contracts. The Fund may invest in
securities pursuant to repurchase agreements or purchase and sale contracts.
Under a repurchase agreement, the seller agrees, upon entering into the
contract with the Fund, to repurchase a security (typically a security issued
or guaranteed by the U.S. Government) at a mutually agreed-upon time and
price, thereby determining the yield during the term of the agreement. This
results in a fixed yield for the Fund insulated from fluctuations in the
market value of the underlying security during such period, although, to the
extent the repurchase agreement is not denominated in U.S. dollars, the Fund's
return may be affected by currency fluctuations. Repurchase agreements may be
entered into only with financial institutions that (i) have, in the opinion of
the Manager, substantial capital relative to the Fund's exposure, or (ii) have
provided the Fund with a third-party guaranty or other credit enhancement.
A purchase and sale contract is similar to a repurchase agreement, but
purchase and sale contracts, unlike repurchase agreements, allocate interest
on the underlying security to the purchaser during the term of the agreement.
In all instances, the Fund takes possession of the underlying securities when
investing in repurchase agreements or purchase and sale contracts.
Nevertheless, if the seller were to default on its obligation to repurchase a
security under a repurchase agreement or purchase and sale contract and the
market value of the underlying security at such time was less than the Fund
had paid to the seller, the Fund would realize a loss. The Fund may not invest
more than 15% of its total net assets in repurchase agreements or purchase and
sale contracts maturing in more than seven days, together with all other
illiquid securities.
Lending of Portfolio Securities. The Fund may from time to time lend
securities from its portfolio with a value not exceeding 33 1/3% of its total
assets to banks, brokers and other financial institutions and receive
collateral in cash or securities issued or guaranteed by the U.S. Government.
Such collateral will be maintained at all times in an amount equal to at least
100% of the current market value of the loaned securities. During the period
of such a loan, the Fund receives the income on the loaned securities and
receives either the income on the collateral or other compensation, i.e.,
negotiated loan premium or fee, for entering into the loan and thereby
increases its yield. Such loans are terminable at any time, and the borrower,
after notice, will be required to return borrowed securities within five
business days. In the event that the borrower defaults on its obligation to
return borrowed securities, because of insolvency or otherwise, the Fund could
experience delays and costs in gaining access to the collateral and could
suffer a loss to the extent that the value of the collateral falls below the
market value of the borrowed securities.
Investment Restrictions. The Fund's investment activities are subject to
further restrictions that are described in the Statement of Additional
Information. Investment restrictions and policies that are fundamental
policies may not be changed without the approval of the holders of a majority
of the Fund's outstanding voting securities (which for this purpose and under
the Investment Company Act means the lesser of (a) 67% of the shares
represented at a meeting at which more than 50% of the outstanding shares are
represented or (b) more than 50% of the outstanding shares). Among its
fundamental policies, the Fund may not invest more than 25% of its assets,
taken at market value, in the securities of issuers in any particular industry
(excluding the U.S. Government and its agencies or instrumentalities). In
addition, the Fund has adopted non-fundamental restrictions which may be
changed by the Board of Directors without shareholder approval. As a non-
fundamental policy, the Fund may not borrow amounts in excess of 20% of its
total assets (taken at market value) and then only from banks as a temporary
measure for extraordinary or emergency purposes, including to meet redemptions
or to settle securities transactions. In addition, the Fund will not purchase
securities while borrowings exceed 5%
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<PAGE>
of its total assets except to honor prior commitments or to exercise
subscription rights where outstanding borrowings have been obtained
exclusively for settlements of other securities transactions. The purchase of
securities while borrowings are outstanding will have the effect of leveraging
the Fund. Such leveraging or borrowing increases the Fund's exposure to
capital risk, and borrowed funds are subject to interest costs which will
reduce net income.
As a non-fundamental policy, the Fund will not invest in securities that
cannot be readily resold because of legal or contractual restrictions or that
cannot otherwise be marketed, redeemed or put to the issuer or a third party,
including repurchase agreements and purchase and sale contracts maturing in
more than seven days, if, regarding all such securities, more than 15% of its
total assets taken at market value would be invested in such securities.
Notwithstanding the foregoing, the Fund may purchase without regard to this
limitation securities that are not registered under the Securities Act of
1933, as amended (the "Securities Act"), but that can be offered and sold to
"qualified institutional buyers" under Rule 144A under the Securities Act,
provided that the Fund's Board of Directors continuously determines, based on
the trading markets for the specific Rule 144A security, that it is liquid.
The Board of Directors may adopt guidelines and delegate to the Manager the
daily function of determining and monitoring liquidity of restricted
securities. The Board has determined that securities which are freely
tradeable in their primary market offshore should be deemed liquid. The Board,
however, will retain sufficient oversight and be ultimately responsible for
the determinations.
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 Board of Directors of the Fund is responsible for the overall
supervision of the operations of the Fund and performs the various duties
imposed on the directors of investment companies by the Investment Company
Act.
The Directors of the Fund are:
Arthur Zeikel*--Chairman of the Manager and its affiliate, FAM; Chairman and
Director of Princeton Services, Inc. ("Princeton Services"); and Executive
Vice President of ML & Co.
Donald Cecil--Special Limited Partner of Cumberland Partners (an investment
partnership).
Edward H. Meyer--Chairman of the Board, President and Chief Executive
Officer of Grey Advertising Inc.
Charles C. Reilly--Self-employed financial consultant; former President and
Chief Investment Officer of Verus Capital, Inc.; former Senior Vice President
of Arnhold and S. Bleichroeder, Inc.
Richard R. West--Dean Emeritus, New York University Leonard N. Stern School
of Business Administration.
Edward D. Zinbarg--Former Executive Vice President of The Prudential
Insurance Company of America.
- --------
* Interested person, as defined in the Investment Company Act, of the Fund.
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MANAGEMENT AND ADVISORY ARRANGEMENTS
The Manager acts as the Fund's investment adviser. The Manager is owned and
controlled by ML & Co., a financial services holding company and the parent of
Merrill Lynch. The Manager provides the Fund with management and investment
advisory services. The Manager or its affiliate, FAM, acts as the investment
adviser for more than 100 registered investment companies and offers portfolio
management services to individuals and institutions. As of January 31, 1998,
the Manager and FAM had a total of approximately $287.0 billion in investment
company and other portfolio assets under management, including accounts of
certain affiliates of the Manager.
The management agreement with the Manager (the "Management Agreement")
provides that, subject to the direction of the Board of Directors of the Fund,
the Manager is responsible for the actual management of the Fund's portfolio
and constantly reviews the Fund's holdings in light of its own research
analysis and that from other relevant sources. The responsibility for making
decisions to buy, sell or hold a particular security rests with the Manager,
subject to review by the Board of Directors.
The Manager provides the portfolio manager for the Fund who considers
analyses from various sources (including brokerage firms with which the Fund
does business), makes the necessary decisions and places transactions
accordingly. The Manager is also obligated to perform certain administrative
and management services for the Fund and is obligated to provide all of the
office space, facilities, equipment and personnel necessary to perform its
duties under the Management Agreement.
The Fund pays the Manager a monthly fee at the annual rate of 1.00% of the
average daily net assets of the Fund. This fee is higher than that of most
mutual funds, including most other mutual funds managed by the Manager and
other investment advisers, but management of the Fund believes this fee is
justified by the additional investment research and analysis required in
connection with investing in Latin American capital markets. For the fiscal
year ended November 30, 1997, the Manager received a fee of $8,578,935 (based
on average net assets of approximately $860.3 million).
The Manager has also entered into a sub-advisory agreement (the "Sub-
Advisory Agreement") with Merrill Lynch Asset Management U.K. Limited ("MLAM
U.K."), a wholly owned, subsidiary of ML & Co. and an affiliate of the
Manager, pursuant to which the Manager pays MLAM U.K. a fee for providing
investment advisory services to the Manager with respect to the Fund in an
amount to be determined from time to time by the Manager and MLAM U.K. but in
no event in excess of the amount the Manager actually receives for providing
services to the Fund pursuant to the Management Agreement. MLAM U.K. has
offices at Milton Gate, 1 Moor Lane, London EC2Y 9HA, England. For the fiscal
year ended November 30, 1997, no fee was paid by the Manager to MLAM U.K.
pursuant to such arrangement.
A. Grace Pineda, Senior Vice President of the Fund, is the Fund's Portfolio
Manager. Ms. Pineda has been a First Vice President of the Manager since 1997
and a Senior Portfolio Manager since 1989. She was a Vice President of the
Manager from 1989 to 1997. Ms. Pineda has been primarily responsible for the
day-to-day management of the Fund's investment portfolio since it commenced
operations.
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, registration fees, unaffiliated Directors' fees and expenses,
custodian and transfer agency fees, accounting costs, the costs of issuing and
redeeming shares and
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<PAGE>
certain of the costs of printing proxies, 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 November 30, 1997, the Fund reimbursed the Manager $174,010 for
accounting services. For the fiscal year ended November 30, 1997, the ratio of
total expenses to average net assets for Class A, Class B, Class C and Class D
shares was 1.46%, 2.50%, 2.50% and 1.71%, respectively.
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 that 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 that
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
The Transfer Agent, a 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 an annual fee of up to $11.00 per Class
A or Class D account and up to $14.00 per Class B or Class C account and is
entitled to reimbursement for certain transaction charges and out-of-pocket
expenses incurred by it under the Transfer Agency Agreement. Additionally, a
$.20 monthly closed account charge will be assessed on all accounts which
close during the calendar year. Application of this fee will commence the
month following the month the account is closed. At the end of the calendar
year, no further fees will be due. For purposes of the Transfer Agency
Agreement the term "account" includes a shareholder account maintained
directly by the Transfer Agent and any other account representing a beneficial
interest of a person in the relevant share class or recordkeeping system,
provided the recordkeeping system is maintained by a subsidiary of ML & Co.
For the fiscal year ended November 30, 1997, the fee paid by the Fund to the
Transfer Agent was $1,791,523 pursuant to the Transfer Agency Agreement.
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PURCHASE OF SHARES
The Distributor, an affiliate of each of 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 and for participants in certain fee-
based programs, the minimum initial purchase is $500 and the minimum
subsequent purchase is $50.
To permit the Fund to invest the net proceeds from the sale of its shares in
an orderly manner or in response to conditions in the securities markets or
otherwise, the Fund or the Distributor may from time to time, suspend the sale
of its shares, except for dividend reinvestments. The Fund may, thereafter,
resume such offering from time to time. The Fund also reserves the right to
limit the number of shares that may be purchased by a person during a
specified period of time or in the aggregate.
The Fund offers its shares in four classes at a public offering price equal
to the next determined net asset value per share plus sales charges imposed
either at the time of purchase or on a deferred basis depending upon the class
of shares selected by the investor under the Merrill Lynch Select Pricing SM
System, as described below. The applicable offering price for purchase orders
is based upon the net asset value of the Fund next determined after receipt of
the purchase orders by the Distributor. As to purchase orders received by
securities dealers prior to the close of business on the NYSE (generally, 4:00
p.m., New York time), which includes orders received after the close of
business on the previous day, the applicable offering price will be based on
the net asset value determined as of 15 minutes after the close of business on
the NYSE, on that day, provided the Distributor in turn receives the order
from the securities dealer prior to 30 minutes after the close of business on
the NYSE on that day. If the purchase orders are not received by the
Distributor prior to 30 minutes after the close of business on the NYSE, such
orders shall be deemed received on the next business day. 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 $5.35) to confirm a sale of shares to such customers. Purchases
made 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 CDSC and ongoing distribution fees. A
discussion of the factors that investors should consider in determining the
method of purchasing shares under the Merrill Lynch Select Pricing SM System
is set forth under "Merrill Lynch Select Pricing SM System" on page 6.
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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 the 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 CDSCs, distribution and account maintenance fees that are imposed on Class
B and Class C shares, as well as the account maintenance fees that are imposed
on Class D shares, will be imposed directly against those classes and not
against all assets of the Fund and, accordingly, such charges will not affect
the net asset value of any other class or have any impact on investors
choosing another sales charge option. The proceeds from the account
maintenance fees are used to compensate the Distributor and Merrill Lynch
(pursuant to a sub-agreement) for providing continuing account maintenance
activities. Dividends paid by the Fund for each class of shares will be
calculated in the same manner at the same time and will differ only to the
extent that account maintenance and distribution fees and any incremental
transfer agency costs relating to a particular class are borne exclusively by
that class. Class B, Class C and Class D shares each have exclusive voting
rights with respect to the Rule 12b-1 distribution plan adopted with respect
to such class pursuant to which account maintenance and/or distribution fees
are paid (except that Class B shareholders may vote upon any material changes
to expenses charged under the Class D Distribution Plan). See "Distribution
Plans" below. Each class has different exchange privileges. See "Shareholder
Services--Exchange Privilege."
Investors should understand that the purpose and function of the initial
sales charges with respect to Class A and Class D shares are the same as those
of the CDSCs and distribution fees with respect to Class B and Class C shares
in that the sales charges and distribution fees 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, that are
eligible to sell shares.
35
<PAGE>
The following table sets forth a summary of the distribution arrangements
for each class of shares under the Merrill Lynch Select Pricing SM System,
followed by a more detailed description of each class.
<TABLE>
<CAPTION>
ACCOUNT
MAINTENANCE DISTRIBUTION CONVERSION
CLASS SALES CHARGE(/1/) FEE FEE FEATURE
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A Maximum 5.25% initial sales No No No
charge(/2/)(/3/)
- -----------------------------------------------------------------------------------------
B CDSC for a period of four 0.25% 0.75% B shares convert to
years, at a rate of 4.0% during D shares automatically
the first year, decreasing 1.0% after approximately
annually to 0.0%(/4/) eight years(/5/)
- -----------------------------------------------------------------------------------------
C 1.0% CDSC for one year(/6/) 0.25% 0.75% No
- -----------------------------------------------------------------------------------------
D Maximum 5.25% initial 0.25% No No
sales 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 and waived for purchases of Class
A shares by certain retirement plans and participants in connection with
certain fee-based programs. Certain Class A and Class D share purchases of
$1,000,000 or more may not be subject to an initial sales charge but
instead may be subject to a 1.0% CDSC if redeemed within one year. Such
CDSC may be waived in connection with certain fee-based programs. A 0.75%
sales charge for 401(k) purchases over $1,000,000 will apply.
(4) The CDSC may be modified in connection with certain fee-based programs.
(5) The conversion period for dividend reinvestment shares, certain retirement
plans and certain fee-based programs was modified. Also, Class B shares of
certain other MLAM-advised mutual funds into which exchanges may be made
have a ten-year conversion period. If Class B shares of the Fund are
exchanged for Class B shares of another MLAM-advised mutual fund, the
conversion period applicable to the Class B shares acquired in the
exchange will apply, and the holding period for the shares exchanged will
be tacked onto the holding period for the shares acquired.
(6) The CDSC may be waived in connection with certain fee-based programs.
36
<PAGE>
INITIAL SALES CHARGE ALTERNATIVES--CLASS A AND CLASS D SHARES
Investors choosing the initial sales charge alternatives who are eligible to
purchase Class A shares should purchase Class A shares rather than Class D
shares because there is an account maintenance fee imposed on Class D shares.
The public offering price of Class A and Class D shares for purchasers
choosing the initial sales charge alternatives is the next determined net
asset value plus varying sales charges (i.e., sales loads), as set forth
below.
<TABLE>
<CAPTION>
SALES LOAD AS DISCOUNT TO
SALES LOAD AS PERCENTAGE* SELECTED DEALERS
PERCENTAGE OF OF THE NET AMOUNT AS PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING 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.
** The initial sales charge may be waived on Class A and Class D purchases of
$1,000,000 or more and on Class A purchases by certain retirement plan
investors and participants in connection with certain fee-based programs.
If the sales charge is waived in connection with a purchase of $1,000,000
or more, such purchases may be subject to a 1.0% CDSC if the shares are
redeemed within one year after purchase. Such CDSC may be waived in
connection with certain fee-based programs. 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 $1,000,000 or more of Class A or Class D shares by certain
employer sponsored retirement or savings plans.
The Distributor may reallow discounts to selected dealers and retain the
balance over such discounts. At times the Distributor may reallow the entire
sales charge to such dealers. Since securities dealers selling Class A and
Class D shares of the Fund will receive a concession equal to most of the
sales charge, they may be deemed to be underwriters under the Securities Act.
For the fiscal year ended November 30, 1997, the Fund sold 5,567,495 Class A
shares for aggregate net proceeds to the Fund of $85,878,766. The gross sales
charges for the sale of Class A shares for the year were $2,253, of which $163
and $2,090 were received by the Distributor and Merrill Lynch, respectively.
During such year, the Distributor received no CDSCs with respect to
redemptions within one year after purchase of Class A shares purchased subject
to a front-end sales charge waiver.
For the fiscal year ended November 30, 1997, the Fund sold 7,096,389 Class D
shares for aggregate net proceeds to the Fund of $114,563,804. The gross sales
charges for the sale of Class D shares for the year were $351,814, of which
$23,410 and $328,404 were received by the Distributor and Merrill Lynch,
respectively. For the fiscal year ended November 30, 1997, the Distributor
received no CDSCs with respect to redemptions within one year after purchase
of Class D shares purchased subject to a front-end sales charge waiver.
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 who currently own Class A shares of the
Fund in a shareholder account are entitled to purchase additional Class A
shares of the Fund in that account. 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
37
<PAGE>
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 and U.S. branches of foreign owned banking institutions
provided that the program or branch has $3 million or more initially invested
in MLAM-advised mutual funds. Also eligible to purchase Class A shares at net
asset value are participants in certain investment programs including TMA SM
Managed Trusts to which Merrill Lynch Trust Company provides discretionary
trustee services, collective investment trusts for which Merrill Lynch Trust
Company serves as trustee and purchases made in connection with certain fee-
based programs. In addition, Class A shares are offered at net asset value to
ML & Co. and its subsidiaries and their directors and employees and to members
of the Boards of MLAM-advised investment companies, including the Fund.
Certain persons who acquired shares of certain MLAM-advised closed-end funds
in their initial offering who wish to reinvest the net proceeds from a sale of
their closed-end fund shares of common stock in shares of the Fund also may
purchase Class A shares of the Fund if certain conditions set forth in the
Statement of Additional Information are met. In addition, Class A shares of
the Fund and certain other MLAM-advised mutual funds are offered at net asset
value to shareholders of Merrill Lynch Senior Floating Rate Fund, Inc. and, if
certain conditions set forth in the Statement of Additional Information are
met, to shareholders of Merrill Lynch Municipal Strategy Fund, Inc. and
Merrill Lynch High Income Municipal Bond Fund, Inc. who wish to reinvest the
net proceeds from a sale of certain of their shares of common stock pursuant
to a tender offer conducted by such funds in shares of the Fund and certain
other MLAM-advised mutual funds.
Reduced Initial Sales Charges. No initial sales charges are imposed upon
Class A and Class D shares issued as a result of the automatic reinvestment of
dividends or capital gains distributions. Class A and Class D sales charges
also may be reduced under a Right of Accumulation and a Letter of Intention.
Class A shares are offered at net asset value to certain eligible Class A
investors as set forth above under "Eligible Class A Investors." See
"Shareholder Services--Fee-Based Programs."
Provided applicable threshold requirements are met, either Class A or Class
D shares are offered at net asset value to Employee Access SM Accounts
available through authorized employers. Class A shares are offered at net
asset value to shareholders of Merrill Lynch Senior Floating Rate Fund, Inc.
and, subject to certain conditions, Class A and Class D shares of the Fund are
offered at net asset value to shareholders of Merrill Lynch Municipal Strategy
Fund, Inc. and Merrill Lynch High Income Municipal Bond Fund, Inc., who wish
to reinvest in shares of the Fund the net proceeds from a sale of certain of
their shares of common stock pursuant to tender offers conducted by those
funds.
Class D shares are offered at net asset value without sales charge to an
investor who has a business relationship with a Merrill Lynch Financial
Consultant, if certain conditions set forth in the Statement of Additional
Information are met. Class D shares may be offered at net asset value in
connection with the acquisition of assets of other investment companies.
Class D shares are offered with reduced sales charges and, in certain
circumstances, at net asset value, to participants in the Merrill Lynch
Blueprint SM Program.
Additional information concerning these reduced initial sales charges is set
forth in the Statement of Additional Information.
38
<PAGE>
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
which declines each year, 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 the Distributor and Merrill Lynch (pursuant to a sub-agreement)
for providing continuing account maintenance activities.
Class B and Class C shares are sold without an initial sales charge so that
the Fund will receive the full amount of the investor's purchase payment.
Merrill Lynch compensates its financial consultants for selling Class B and
Class C shares at the time of purchase from its own funds. See "Distribution
Plans" below.
Proceeds from the CDSC and the distribution fee are paid to the Distributor
and are used in whole or in part by the Distributor to defray the expenses of
dealers (including Merrill Lynch) related to providing distribution-related
services to the Fund in connection with the sale of Class B and Class C
shares, such as the payment of compensation to financial consultants for
selling Class B and Class C shares from the dealers' 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. 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 that 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
39
<PAGE>
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
OF DOLLAR AMOUNT
YEAR SINCE PURCHASE 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 November 30, 1997, the Distributor received CDSCs
of $1,403,724 with respect to redemptions of Class B shares, all of which were
paid to Merrill Lynch. Additional CDSCs payable to the Distributor may have
been waived or converted to a contingent obligation in connection with a
shareholder's participation in certain fee-based programs.
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 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 Code) of a shareholder. The Class B CDSC also is waived on
redemptions of shares by certain eligible 401(a) and eligible 401(k) plans.
The CDSC also is waived for any Class B shares that are purchased by eligible
401(k) or eligible 401(a) plans that 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 that 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 Class B CDSC also is waived for
any Class B shares which are purchased within qualifying Employee Access SM
Accounts. Additional information concerning the waiver of the Class B CDSC is
set forth in the Statement of Additional Information. The terms of the CDSC
may be modified in connection with certain fee-based programs. See
"Shareholder Services--Fee-Based Programs."
40
<PAGE>
Contingent Deferred Sales Charges--Class C Shares. Class C shares that 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. The Class C CDSC may be waived in
connection with certain fee-based programs. See "Shareholder Services--Fee-
Based Programs." For the fiscal year ended November 30, 1997, the Distributor
received CDSCs of $31,593 with respect to redemptions of Class C shares, all
of which were paid to Merrill Lynch.
In determining whether a Class C CDSC is applicable to a redemption, the
calculation will be determined in the manner that results in the lowest
possible rate being charged. Therefore, it will be assumed that the redemption
is first of shares held for over one year or shares acquired pursuant to
reinvestment of dividends or distributions and then of shares held longest
during the one-year period. The charge will not be applied to dollar amounts
representing an increase in the net asset value since the time of purchase. A
transfer of shares from a shareholder's account to another account will be
assumed to be made in the same order as a redemption.
Conversion of Class B Shares to Class D Shares. After approximately eight
years (the "Conversion Period"), Class B shares will be converted
automatically into Class D shares of the Fund. Class D shares are subject to
an ongoing account maintenance fee of 0.25% of net assets but are not subject
to the distribution fee that is borne by Class B shares. Automatic conversion
of Class B shares into Class D shares will occur at least once each month (on
the "Conversion Date") on the basis of the relative net asset values of the
shares of the two classes on the Conversion Date, without the imposition of
any sales load, fee or other charge. Conversion of Class B shares to Class D
shares will not be deemed a purchase or sale of the shares for Federal income
tax purposes.
In addition, shares purchased through reinvestment of dividends on Class B
shares also will convert automatically to Class D shares. The Conversion Date
for dividend reinvestment shares will be calculated taking into account the
length of time the shares underlying such dividend reinvestment shares were
outstanding. If at a Conversion Date the conversion of Class B shares to Class
D shares of the Fund in a single account will result in less than $50 worth of
Class B shares being left in the account, all of the Class B shares of the
Fund held in the account on the Conversion Date will be converted to Class D
shares of the Fund.
Share certificates for Class B shares of the Fund to be converted must be
delivered to the Transfer Agent at least one week prior to the Conversion Date
applicable to those shares. In the event such certificates are not received by
the Transfer Agent at least one week prior to the Conversion Date, the related
Class B shares will convert to Class D shares on the next scheduled Conversion
Date after such certificates are delivered.
In general, Class B shares of equity MLAM-advised mutual funds will convert
approximately eight years after initial purchase, and Class B shares of
taxable and tax-exempt fixed income MLAM-advised mutual funds will convert
approximately ten years after initial purchase. If, during the Conversion
Period, a shareholder exchanges Class B shares with an eight-year Conversion
Period for Class B shares with a ten-year Conversion
41
<PAGE>
Period, or vice versa, the Conversion Period applicable to the Class B shares
acquired in the exchange will apply, and the holding period for the shares
exchanged will be tacked onto the holding period for the shares acquired.
The Conversion Period is modified for shareholders who purchased Class B
shares through certain retirement plans which qualified for a waiver of the
CDSC normally imposed on purchases of Class B shares ("Class B Retirement
Plans"). When the first share of any MLAM-advised mutual fund purchased by a
Class B Retirement Plan has been held for ten years (i.e., ten years from the
date the relationship between MLAM-advised mutual funds and the Class B
Retirement Plan was established), all Class B shares of all MLAM-advised
mutual funds held in that Class B Retirement Plan will be converted into Class
D shares of the appropriate funds. Subsequent to such conversion, that Class B
Retirement Plan will be sold Class D shares of the appropriate funds at net
asset value.
The Conversion Period also may be modified for retirement plan investors who
participate in certain fee-based programs. See "Shareholder Services--Fee-
Based Programs."
DISTRIBUTION PLANS
The Fund has adopted separate distribution plans for Class B, Class C and
Class D shares pursuant to Rule 12b-1 under the Investment Company Act (each a
"Distribution Plan") with respect to the account maintenance and/or
distribution fees paid by the Fund to the Distributor with respect to such
classes. The Class B and Class C Distribution Plans provide for the payment of
account maintenance fees and distribution fees, and the Class D Distribution
Plan provides for the payment of account maintenance fees.
The Distribution Plans for Class B, Class C and Class D shares each provide
that the Fund pays the Distributor an account maintenance fee relating to the
shares of the relevant class, accrued daily and paid monthly, at the annual
rate of 0.25% of the average daily net assets of the Fund attributable to
shares of the relevant class in order to compensate the Distributor and
Merrill Lynch (pursuant to a sub-agreement) in connection with account
maintenance activities.
The Distribution Plans for Class B and Class C shares each provide that the
Fund also pays the Distributor a distribution fee relating to the shares of
the relevant class, accrued daily and paid monthly, at the annual rate of
0.75% of the average daily net assets of the Fund attributable to the shares
of the relevant class in order to compensate the Distributor and Merrill Lynch
(pursuant to a sub-agreement) for providing shareholder and distribution
services, and bearing certain distribution-related expenses of the Fund,
including payments to financial consultants for selling Class B and Class C
shares of the Fund. The Distribution Plans relating to Class B and Class C
shares are designed to permit an investor to purchase Class B and Class C
shares through dealers without the assessment of an initial sales charge and
at the same time permit the dealer to compensate its financial consultants in
connection with the sale of the Class B and Class C shares. In this regard,
the purpose and function of the ongoing distribution fees and the CDSC are the
same as those of the initial sales charge with respect to the Class A and
Class D shares of the Fund in that the deferred sales charges provide for the
financing of the distribution of the Fund's Class B and Class C shares.
For the fiscal year ended November 30, 1997, the Fund paid the Distributor
$6,085,100 pursuant to the Class B Distribution Plan (based on average daily
net assets subject to such Class B Distribution Plan of
42
<PAGE>
approximately $610.2 million), all of which was paid to Merrill Lynch for
providing account maintenance and distribution-related activities and services
in connection with Class B shares. For the fiscal year ended November 30,
1997, the Fund paid the Distributor $358,455 pursuant to the Class C
Distribution Plan (based on average daily net assets subject to such Class C
Distribution Plan of approximately $35.9 million), all of which was paid to
Merrill Lynch for providing account maintenance and distribution-related
activities and services in connection with Class C shares. For the fiscal year
ended November 30, 1997, the Fund paid the Distributor $341,038 pursuant to
the Class D Distribution Plan (based on average daily net assets subject to
such Class D Distribution Plan of approximately $136.8 million), all of which
was paid to Merrill Lynch for providing account maintenance activities in
connection with Class D shares.
The payments under the Distribution Plans are based on a percentage of
average daily net assets attributable to the shares regardless of the amount
of expenses incurred, and accordingly, distribution-related revenues from the
Distribution Plans may be more or less than distribution-related expenses.
Information with respect to the distribution-related revenues and expenses is
presented to the Directors for their consideration in connection with their
deliberations as to the continuance of the Class B and Class C Distribution
Plans. This information is presented annually as of December 31 of each year
on a "fully allocated accrual" basis and quarterly on a "direct expense and
revenue/cash" basis. On the fully allocated accrual basis, revenues consist of
the account maintenance fees, distribution fees, the CDSCs and certain other
related revenues, and expenses consist of financial consultant compensation,
branch office and regional operation center selling and transaction processing
expenses, advertising, sales promotion and marketing expenses, corporate
overhead and interest expense. On the direct expense and revenue/cash basis,
revenues consist of the account maintenance fees, distribution fees and CDSCs,
and the expenses consist of financial consultant compensation.
As of December 31, 1996, the last date for which fully allocated accrual
information is available, the fully allocated accrual expenses incurred by the
Distributor and Merrill Lynch with respect to Class B shares for the period
since September 27, 1991 (commencement of operations) exceeded fully allocated
accrual revenues by approximately $9,559,000 (1.87% of Class B net assets at
that date). As of November 30, 1997, direct cash revenues for the period since
the commencement of operations of Class B shares exceeded direct cash expenses
by $19,109,980 (3.62% of Class B net assets at that date). As of December 31,
1996, the fully allocated accrual expenses incurred by the Distributor and
Merrill Lynch with respect to Class C shares for the period since October 21,
1994 (commencement of operations) exceeded fully allocated accrual revenues by
approximately $238,000 (1.42% of Class C net assets at that date). As of
November 30, 1997, direct cash revenues for the period since the commencement
of operations of Class C shares exceeded direct cash expenses by $452,183
(1.22% of Class C net assets at that date).
The Fund has no obligation with respect to distribution and/or account
maintenance-related expenses incurred by the Distributor and Merrill Lynch in
connection with Class B, Class C and Class D shares, and there is no assurance
that the Directors of the Fund will approve the continuance of the
Distribution Plans from year to year. However, the Distributor intends to seek
annual continuation of the Distribution Plans. In their review of the
Distribution Plans, the Directors will be asked to take into consideration
expenses incurred in connection with the account maintenance and/or
distribution of each class of shares separately. The initial sales charges,
the account maintenance fee, the distribution fee and/or the CDSCs received
with respect to one class will not be used to subsidize the sale of shares of
another class. Payments of the distribution fee on Class B shares will
terminate upon conversion of those Class B shares into Class D shares as set
forth under "Deferred Sales Charge Alternatives--Class B and Class C Shares--
Conversion of Class B Shares to Class D Shares."
43
<PAGE>
LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES
The maximum sales charge rule in the Conduct Rules of the NASD imposes a
limitation on certain asset-based sales charges such as the distribution fee
and the CDSC borne by the Class B and Class C shares but not the account
maintenance fee. The maximum sales charge rule is applied separately to each
class. As applicable to the Fund, the maximum sales charge rule limits the
aggregate of distribution fee payments and CDSCs payable by the Fund to (1)
6.25% of eligible gross sales of Class B shares and Class C shares, computed
separately (defined to exclude shares issued pursuant to dividend
reinvestments and exchanges), plus (2) interest on the unpaid balance for the
respective class, computed separately, at the prime rate plus 1% (the unpaid
balance being the maximum amount payable minus amounts received from the
payment of the distribution fees and the CDSCs). In connection with the Class
B shares, the Distributor has voluntarily agreed to waive interest charges on
the unpaid balance in excess of 0.50% of eligible gross sales. Consequently,
the maximum amount payable to the Distributor (referred to as the "voluntary
maximum") in connection with the Class B shares is 6.75% of eligible gross
sales. The Distributor retains the right to stop waiving the interest charges
at any time. To the extent payments would exceed the voluntary maximum, the
Fund will not make further payments of the distribution fee with respect to
Class B shares, and any CDSCs will be paid to the Fund rather than to the
Distributor; however, the Fund will continue to make payments of the account
maintenance fee. In certain circumstances the amount payable pursuant to the
voluntary maximum may exceed the amount payable under the NASD formula. In
such circumstances payment in excess of the amount payable under the NASD
formula will not be made.
REDEMPTION OF SHARES
The Fund is required to redeem for cash all full and fractional shares of
the Fund upon 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 that may be
applicable, there will be no charge for redemption if the redemption request
is sent directly to the Transfer Agent. Shareholders liquidating their
holdings will receive upon redemption all dividends reinvested through the
date of redemption. The value of shares at the time of redemption may be more
or less than the shareholder's cost, depending on the market value of the
securities held by the Fund at such time.
REDEMPTION
A shareholder wishing to redeem shares may do so, without charge, by
tendering the shares directly to the Fund's Transfer Agent, Merrill Lynch
Financial Data Services, Inc., P.O. Box 45289, Jacksonville, Florida 32232-
5289. Redemption requests delivered other than by mail should be delivered to
Merrill Lynch Financial Data Services, Inc., 4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484. Proper notice of redemption in the case of
shares deposited with the Transfer Agent may be accomplished by a written
letter requesting redemption. Proper notice of redemption in the case of
shares for which certificates have been issued may be accomplished by a
written letter as noted above accompanied by certificates for the shares to be
redeemed. Redemption requests should not be sent to the Fund. A redemption
request in either event requires the signature(s) of all persons in whose
name(s) the shares are registered, signed exactly as the name(s) appear(s) on
the Transfer Agent's register or on the certificates, as the case may be. The
signature(s) on the redemption request must be guaranteed by an "eligible
guarantor institution" (including, for example, Merrill Lynch branch offices
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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 (e.g., cash, Federal funds or a certified check
drawn on a U.S. bank). 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 has been collected for the purchase of such shares. Normally this
delay will not exceed ten days.
REPURCHASE
The Fund also will repurchase shares through a shareholder's listed
securities dealer. The Fund normally will accept orders to repurchase shares
by wire or telephone from dealers for their customers at the net asset value
next computed after receipt of the order by the dealer, provided that the
request for repurchase is received by the dealer prior to the close of
business on the NYSE (generally, 4:00 p.m., New York time), on the day
received and that such request is received by the Fund from such dealer not
later than 30 minutes after the close of business on the NYSE on the same day.
Dealers have the responsibility of submitting such repurchase requests to the
Fund not later than 30 minutes after the close of business on the NYSE in
order to obtain that day's closing price.
The foregoing repurchase arrangements are for the convenience of
shareholders and do not involve a charge by the Fund (other than any
applicable CDSC). Securities firms that 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 $5.35) to confirm a
repurchase of shares to such customers. Repurchases made directly through the
Fund's 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
affect adversely shareholders seeking redemption through the repurchase
procedure. However, a shareholder whose order for repurchase is rejected by
the Fund may redeem shares as set forth above.
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.
REINSTATEMENT PRIVILEGE--CLASS A AND CLASS D SHARES
Shareholders who have redeemed their Class A or Class D shares have a
privilege to reinstate their accounts by purchasing Class A or Class D shares,
as the case may be, of the Fund at net asset value without a sales charge up
to the dollar amount redeemed. The reinstatement privilege may be exercised by
sending a notice of exercise along with a check for the amount to be
reinstated to the Transfer Agent within 30 days after the date the request for
redemption was accepted by the Transfer Agent or the Distributor.
Alternatively, the reinstatement privilege may be exercised through the
investor's Merrill Lynch Financial Consultant within 30 days after the date
the request for redemption was accepted by the Transfer Agent or the
Distributor. 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.
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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. 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 plans
and services, or to change options with respect thereto, can be obtained from
the Fund by calling the telephone number on the cover page 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 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 or her Investment
Account at any time by mailing a check directly to the Transfer Agent.
Shareholders also may maintain their accounts through Merrill Lynch. Upon the
transfer of shares out of a Merrill Lynch brokerage account, an Investment
Account in the transferring shareholder's name will be opened, automatically,
without charge, at the Transfer Agent.
Shareholders considering transferring their Class A or Class D shares from
Merrill Lynch to another brokerage firm or financial institution should be
aware that, if the firm to which the Class A or Class D shares are to be
transferred will not take delivery of shares of the Fund, a shareholder either
must redeem the Class A or Class D shares (paying any applicable CDSC) so that
the cash proceeds can be transferred to the account at the new firm or such
shareholder must continue to maintain an Investment Account at the Transfer
Agent for those Class A or Class D shares. Shareholders interested in
transferring their Class B or Class C shares from Merrill Lynch and who do not
wish to have an Investment Account maintained for such shares at the Transfer
Agent may request their new brokerage firm to maintain such shares in an
account registered in the name of the brokerage firm for the benefit of the
shareholder at the Transfer Agent. If the new brokerage firm is willing to
accommodate the shareholder in this manner, the shareholder must request that
he or she be issued certificates for such 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.
EXCHANGE PRIVILEGE
U.S. shareholders of each class of shares of the Fund have an exchange
privilege with certain other MLAM-advised mutual funds. There is currently no
limitation on the number of times a shareholder may exercise the exchange
privilege. The exchange privilege may be modified or terminated in accordance
with the rules of the Commission.
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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 the 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 or her account at the time of the exchange and is not
otherwise eligible to acquire Class A shares of the second fund, the
shareholder will receive Class D shares of the second fund as a result of the
exchange. Class D shares also may be exchanged for Class A shares of a second
MLAM-advised mutual fund at any time as long as, at the time of the exchange,
the shareholder holds Class A shares of the second fund in the account in
which the exchange is made or is otherwise eligible to purchase Class A shares
of the second fund.
Exchanges of Class A and Class D shares are made on the basis of the
relative net asset values per Class A or Class D share, respectively, plus an
amount equal to the difference, if any, between the sales charge previously
paid on the Class A or Class D shares being exchanged and the sales charge
payable at the time of the exchange on the shares being acquired.
Class B, Class C and Class D shares are exchangeable with shares of the same
class of other MLAM-advised mutual funds.
Shares of the Fund that are subject to a CDSC are exchangeable on the basis
of relative net asset value per share without the payment of any CDSC that
might otherwise be due upon redemption of the shares of the Fund. For purposes
of computing the CDSC that may be payable upon a disposition of the shares
acquired in the exchange, the holding period for the previously owned shares
of the Fund is "tacked" to the holding period for the newly acquired shares of
the other fund.
Class A, Class B, Class C and Class D shares also are exchangeable for
shares of certain MLAM-advised money market funds specifically designated as
available for exchange by holders of Class A, Class B, Class C or Class D
shares. The period of time that Class A, Class B, Class C or Class D shares
are held in a money market fund, however, will not count toward satisfaction
of the holding period requirement for reduction of any CDSC imposed on such
shares, if any, and, with respect to Class B shares, toward satisfaction of
the Conversion Period.
Class B shareholders of the Fund exercising the exchange privilege will
continue to be subject to the Fund's CDSC schedule if such schedule is higher
than the CDSC schedule relating to the new Class B shares. In addition, Class
B shares of the Fund acquired through use of the exchange privilege will be
subject to the Fund's CDSC schedule if such schedule is higher than the CDSC
schedule relating to the Class B shares of the MLAM-advised mutual fund from
which the exchange has been made.
Exercise of the exchange privilege is treated as a sale of the exchanged
shares and a purchase of the acquired shares for Federal income tax purposes.
For further information, see "Shareholder Services--Exchange Privilege" in the
Statement of Additional Information.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
All dividends and capital gains distributions are reinvested automatically
in full and fractional shares of the Fund, without a sales charge, at the net
asset value per share next determined after the close of business on the
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NYSE on the ex-dividend date of such dividend or distribution. A shareholder
may at any time, by written notification to Merrill Lynch if the shareholder's
account is maintained with Merrill Lynch or by written notification or
telephone (1-800-MER-FUND) to the Transfer Agent if the shareholder's account
is maintained with the Transfer Agent, elect to have subsequent dividends, or
both dividends and capital gains distributions, paid in cash, rather than
reinvested, in which event payment will be mailed on or about the payment
date. The Fund is not responsible for any failure of delivery to the
shareholder's address of record and no interest will accrue on amounts
represented by uncashed distribution or redemption checks. Cash payments can
also be directly deposited to the shareholder's bank account. No CDSC will be
imposed on redemption of shares issued as a result of the automatic
reinvestment of dividends or capital gains distributions.
SYSTEMATIC WITHDRAWAL PLANS
A shareholder may elect to receive systematic withdrawal payments from his
or her Investment Account in the form of payments by check or through
automatic payment by direct deposit to his or her bank account on either a
monthly or quarterly basis. A shareholder whose shares are held within a
CMA(R), CBA(R) or Retirement Account may elect to have shares redeemed on a
monthly, bimonthly, quarterly, semiannual or annual basis through the CMA(R)
or CBA(R) Systematic Redemption Program, subject to certain conditions. With
respect to redemptions of Class B or Class C shares pursuant to a systematic
withdrawal plan, the maximum number of Class B or Class C shares that can be
redeemed from an account annually shall not exceed 10% of the value of shares
of such class in that account at the time the election to join the systematic
withdrawal plan was made. Any CDSC that otherwise might be due on such
redemption of Class B or Class C shares will be waived. Shares redeemed
pursuant to a systematic withdrawal plan will be redeemed in the same order as
Class B or Class C shares are otherwise redeemed. See "Purchase of Shares--
Deferred Sales Charge Alternatives--Class B and Class C Shares--Contingent
Deferred Sales Charges--Class B Shares" and "--Contingent Deferred Sales
Charges--Class C Shares." Where the systematic withdrawal plan is applied to
Class B shares, upon conversion of the last Class B shares in an account to
Class D shares, the systematic withdrawal plan will automatically be applied
thereafter to Class D shares. See "Purchase of Shares--Deferred Sales Charge
Alternatives--Class B and Class C Shares--Conversion of Class B Shares to
Class D Shares."
AUTOMATIC INVESTMENT PLANS
Regular additions of Class A, Class B, Class C or Class D shares may be made
to an investor's Investment Account by prearranged charges of $50 or more to
his or her 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) or CBA(R) Automated Investment Program.
FEE-BASED PROGRAMS
Certain Merrill Lynch fee-based programs, including pricing alternatives for
securities transactions (each referred to in this paragraph as a "Program"),
may permit the purchase of Class A shares at net asset value. Under specified
circumstances, participants in certain Programs may deposit other classes of
shares which will be exchanged for Class A shares. Initial or deferred sales
charges otherwise due in connection with such exchanges may be waived or
modified as may the Conversion Period applicable to the deposited shares.
Termination of participation in a Program may result in the redemption of
shares held therein or the automatic
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exchange thereof to another class at net asset value, which may be shares of a
money market fund. In addition, upon termination of participation in a
Program, shares that have been held for less than specified periods within
such Program may be subject to a fee based upon the current value of such
shares. These programs also generally prohibit such shares from being
transferred to another account at Merrill Lynch, to another broker-dealer or
to the Transfer Agent. Except in limited circumstances (which may also involve
an exchange as described above), such shares must be redeemed and another
class of shares purchased (which may involve the imposition of initial or
deferred sales charges and distribution and account maintenance fees) in order
for the investment not to be subject to Program fees. Additional information
regarding a specific Program (including charges and limitations on
transferability applicable to shares that may be held in such Program) is
available in such Program's client agreement and from the Transfer Agent at
(800) MER-FUND or (800) 637-3863.
PERFORMANCE DATA
From time to time the Fund may include its average annual total return for
various specified 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 fees and distribution charges 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 distributed to
investors whose purchases are subject to waiver of the CDSC in the case of
Class B and Class C shares (such as investors in certain retirement plans) or
to reduced sales charges in the case of Class A and Class D shares,
performance data may take into account the reduced, and not the maximum, sales
charges 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
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<PAGE>
expenses may be deducted. See "Purchase of Shares." The Fund's total return
may be expressed either as a percentage or as a dollar amount in order to
illustrate the effect of such total return on a hypothetical $1,000 investment
in the Fund at the beginning of each specified period.
Total return figures are based on the Fund's historical performance and are
not intended to indicate future performance. The Fund's total return will vary
depending on market conditions, the securities comprising the Fund's
portfolio, the Fund's operating expenses and the amount of realized and
unrealized net capital gains or losses during the period. The value of an
investment in the Fund will fluctuate, and an investor's shares, when
redeemed, may be worth more or less than their original cost.
On occasion, the Fund may compare its performance to the Standard & Poor's
500 Index, the Dow Jones Industrial Average, or performance data published by
Lipper Analytical Services, Inc., Morningstar Publications, Inc., Money
Magazine, U.S. News & World Report, Business Week, CDA Investment Technology,
Inc., Forbes Magazine, Fortune Magazine or other industry publications. In
addition, from time to time the Fund may include the Fund's risk-adjusted
performance ratings assigned by Morningstar Publications, Inc. in advertising
or supplemental sales literature. As with other performance data, performance
comparisons should not be considered indicative of the Fund's relative
performance for any future period.
ADDITIONAL INFORMATION
DIVIDENDS AND DISTRIBUTIONS
It is the Fund's intention to distribute all of its net investment income,
if any. Dividends from such net investment income are paid at least annually.
All net realized capital gains, if any, are distributed 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
"Determination of Net Asset Value" below. Dividends and distributions will be
automatically reinvested in shares of the Fund, at net asset value without a
sales charge. However, a shareholder whose account is maintained at the
Transfer Agent or whose account is maintained by Merrill Lynch may elect in
writing to receive any such dividends or distributions, or both, in cash.
Capital gains distributions will be automatically reinvested in shares unless
the shareholder elects to receive such distributions in cash. Dividends and
distributions are taxable to shareholders as described below whether they are
reinvested in shares of the Fund or received in cash. From time to time, the
Fund may declare a special distribution at or about the end of the calendar
year in order to comply with Federal tax requirements that certain percentages
of its ordinary income and capital gains be distributed during the calendar
year.
Gains or losses attributable to certain foreign currency transactions may
increase or decrease the amount of the Fund's income available for
distribution to shareholders. If such losses exceed other income during a
taxable year, (a) the Fund would not be able to make any ordinary income
dividend distributions, and (b) all or a portion of distributions made before
the losses were realized but in the same taxable year would be recharacterized
as a return of capital to shareholders, rather than as ordinary income
dividends, thereby reducing each shareholder's tax basis in his or her Fund
shares for Federal income tax purposes and resulting in a capital gain for any
shareholder who received such a distribution greater than such shareholder's
tax basis in Fund shares (assuming the shares were held as a capital asset).
For a detailed discussion of the Federal tax considerations relevant to
foreign currency transactions, see "Taxes" below. If in any fiscal year the
Fund has net income from certain foreign currency transactions, such income
will be distributed annually.
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See "Shareholder Services--Automatic Reinvestment of Dividends and Capital
Gains Distributions" for information as to how to elect cash payment.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of all classes of the Fund is determined
once daily as of 15 minutes after the close of business on the NYSE
(generally, 4:00 p.m., New York time), on each day during which the NYSE is
open for trading. Any assets or liabilities initially expressed in terms of
non-U.S. dollar currencies are translated into U.S. dollars at the prevailing
market rates as quoted by one or more banks or dealers on the day of
valuation. The net asset value per share is computed by dividing the sum of
the market 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 management fees payable to
the Manager and any account maintenance and/or distribution fees payable to
the Distributor, are accrued daily. The per share net asset value of Class A
shares will generally be higher than the per share net asset value of shares
of the other classes, reflecting the daily expense accruals of the account
maintenance, distribution and higher transfer agency fees applicable with
respect to Class B and Class C shares and the daily expense accruals of the
account maintenance fees applicable with respect to Class D shares; moreover,
the per share net asset value of the 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 differentials between the classes.
Portfolio securities that 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 for long positions and
at the last available ask price for short positions. 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. Long positions in securities traded in the OTC market are
valued at the last available bid price in the OTC market prior to the time of
valuation. Short positions in securities traded in the OTC market are valued
at the last available ask price in the OTC market prior to the time of
valuation. Portfolio securities that are traded in both the OTC market and on
a stock exchange are valued according to the broadest and most representative
market. When the Fund writes an option, the amount of the premium received is
recorded on the books of the Fund as an asset and an equivalent liability. The
amount of the liability is subsequently valued to reflect the current market
value of the option written, based upon the last sale price in the case of
exchange-traded options or, in the case of options traded in the OTC market,
the last asked price. Options purchased by the Fund are valued at their last
sale price in the case of exchange-traded options or, in the case of options
traded in the OTC market, the last bid price. Securities and assets for which
market quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Board of Directors
of the Fund.
TAXES
The Fund intends to continue to qualify for the special tax treatment
afforded RICs under the Internal Revenue Code of 1986, as amended (the
"Code"). As long as it so qualifies, the Fund (but not its shareholders)
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will not be subject to Federal income tax on the part of its net ordinary
income and net realized capital gains which it distributes to Class A, Class
B, Class C and Class D shareholders (together, the "shareholders"). The Fund
intends to distribute substantially all of such income.
Dividends paid by the Fund from its ordinary income or from an excess of net
short-term capital gains over net long-term capital losses (together referred
to hereafter as "ordinary income dividends") are taxable to shareholders as
ordinary income. Distributions made from an excess of net long-term capital
gains over net short-term capital losses (including gains or losses from
certain transactions in 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 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). Recent legislation
creates additional categories of capital gains taxable at different rates.
Generally not later than 60 days after the close of its taxable year, the Fund
will provide its shareholders with a written notice designating the amount of
any ordinary income dividends or capital gain dividends, as well as the amount
of capital gain dividends in the different categories of capital gain referred
to above.
Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Fund. Distributions by the Fund, whether from
ordinary income or capital gains, generally will not be eligible for the
dividends received deduction allowed to corporations under the Code. If the
Fund pays a dividend in January which was declared in the previous October,
November or December to shareholders of record on a specified date in one of
such months, then such dividend will be treated for tax purposes as being paid
by the Fund and received by its shareholders on December 31 of the year in
which such dividend was declared.
Ordinary income dividends paid to shareholders who are nonresident aliens or
foreign entities will be subject to a 30% U.S. withholding tax under existing
provisions of the Code applicable to foreign individuals and entities unless a
reduced rate of withholding or a withholding exemption is provided under
applicable treaty law. Nonresident shareholders are urged to consult their own
tax advisers concerning the applicability of the U.S. withholding tax.
Dividends and interest received by the Fund may give rise to withholding and
other taxes imposed by foreign countries. Tax conventions between certain
countries and the U.S. may reduce or eliminate such taxes. Shareholders may be
able to claim U.S. foreign tax credits with respect to such taxes, subject to
certain conditions and limitations contained in the Code. For example, certain
retirement accounts cannot claim foreign tax credits on investments in foreign
securities held in the Fund. In addition, recent legislation permits a foreign
tax credit to be claimed with respect to withholding tax on a dividend only if
the shareholder meets certain holding period requirements. 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 in 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. In the case of
foreign taxes passed through by a RIC, the holding period requirements
referred to above must be met by both the
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shareholder and the RIC. 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 and other information needed to
claim the foreign tax credit.
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 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.
Due to investment laws in certain Latin American countries, it is
anticipated that the Fund's investments in equity securities in such countries
will consist primarily of shares of investment companies (or similar
investment entities) organized under foreign law or of ownership interests in
special accounts, trusts or partnerships. The Fund currently may invest up to
10% of its total assets in securities of other investment companies. If the
Fund purchases shares of an investment company (or similar investment entity)
organized under foreign law, the Fund will be treated as owning shares in a
passive foreign investment company ("PFIC") for U.S. Federal income tax
purposes. The Fund may be subject to U.S. Federal income tax, and an
additional tax in the nature of interest (the "interest charge"), on a portion
of the distributions from such a company and on gain from the disposition of
the shares of such a company (collectively referred to as "excess
distributions"), even if such excess distributions are paid by the Fund as a
dividend to its shareholders. The Fund may be eligible to make an election
with respect to certain PFICs in which it owns shares that will allow it to
avoid the taxes on excess distributions. However, such election may cause the
Fund to recognize income in a particular year in excess of the distributions
received from such PFICs. Alternatively, under recent legislation the Fund
could elect to "mark to market" at the end of each taxable year all shares
that it holds in PFICs. If it made this election, the Fund would recognize as
ordinary income any increase in the value of such shares over their adjusted
basis and as ordinary loss any decrease in such value to the extent it did not
exceed prior increases. By making the mark-to-market election, the Fund could
avoid imposition of the interest charge with respect to its distributions from
PFICs, but in any particular year might be required to recognize income in
excess of the distributions it received from PFICs and its proceeds from
dispositions of PFIC stock.
Under Code Section 988, foreign currency gains or losses from certain debt
instruments, from certain forward contracts, from futures contracts that are
not "regulated futures contracts" and from unlisted options will generally be
treated as ordinary income or loss. Such Code Section 988 gains or losses will
generally increase or decrease the amount of the Fund's investment company
taxable income available to be distributed to shareholders as ordinary income.
Additionally, if Code Section 988 losses exceed other investment company
taxable income during a taxable year, the Fund would not be able to make any
ordinary income dividend distributions, and all or a portion of distributions
made before the losses were realized but in the same taxable year would be
recharacterized as a return of capital to shareholders, thereby reducing the
basis of each shareholder's Fund shares and resulting in a capital gain for
any shareholder who received a distribution greater than such shareholder's
tax basis in Fund shares (assuming the shares were held as a capital asset).
53
<PAGE>
No gain or loss will be recognized by Class B shareholders on the conversion
of their Class B shares into Class D shares. A shareholder's basis in the
Class D shares acquired will be the same as such shareholder's basis in the
Class B shares converted, and the holding period of the acquired Class D
shares will include the holding period for the converted Class B shares.
If a shareholder exercises an exchange privilege within 90 days of acquiring
the shares, then the loss the shareholder can recognize on the exchange will
be reduced (or the gain increased) to the extent any sales charge paid to the
Fund on the exchanged shares reduces any sales charge the shareholder would
have owed upon purchase of the new shares in the absence of the exchange
privilege. Instead, such sales charge will be treated as an amount paid for
the new shares.
A loss realized on a sale or exchange of shares of the Fund will be
disallowed if other Fund shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30
days before and ending 30 days after the date that the shares are disposed of.
In such a case, the basis of the shares acquired will be adjusted to reflect
the disallowed loss.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections
and the Treasury regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative, judicial or administrative
action either prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state and
local taxes.
Certain states exempt from state income taxation dividends paid by RICs
which are derived from interest on U.S. Government obligations. State law
varies as to whether dividend income attributable to U.S. Government
obligations is exempt from state income tax.
Shareholders are urged to consult their tax advisers regarding specific
questions as to Federal, foreign, state or local taxes. Foreign investors
should consider applicable foreign taxes in their evaluation of an investment
in the Fund.
ORGANIZATION OF THE FUND
The Fund was incorporated under Maryland law on July 1, 1991. 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 interests 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 relating to the
account maintenance associated with such shares, and Class B and Class C
shares bear certain expenses relating to the distribution of such shares. Each
class has exclusive voting rights with respect to matters relating to such
account maintenance and/or distribution expenditures. See "Purchase of
Shares." 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 matters submitted to a shareholder vote. The Fund does not
54
<PAGE>
intend to hold meetings of shareholders in any year in which the Investment
Company Act does not require shareholders to act upon any of the following
matters: (i) election of Directors; (ii) approval of an investment advisory
agreement; (iii) approval of a distribution agreement; and (iv) ratification
of selection of independent auditors. Also, the by-laws of the Fund require
that a special meeting of shareholders be held upon the written request of at
least 10% of the outstanding shares of the Fund entitled to vote at such
meeting. Voting rights for Directors are not cumulative. Shares issued are
fully paid and non-assessable and have no preemptive rights. 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 upon liquidation or dissolution after
satisfaction of outstanding liabilities, except that, as noted above, expenses
related to the distribution and/or account maintenance of the shares of a
class will be borne solely by such class.
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.
SHAREHOLDER REPORTS
Only one copy of each shareholder report and certain shareholder
communications will be mailed to each identified shareholder regardless of the
number of accounts such shareholder has. If a shareholder wishes to receive
separate copies of each report and communication for each of the shareholder's
related accounts, the shareholder should notify in writing:
Merrill Lynch Financial Data Services, Inc.
P.O. Box 45289
Jacksonville, FL 32232-5289
The written notification should include the shareholder's name, address, tax
identification number and Merrill Lynch and/or mutual fund account numbers. If
you have any questions regarding this, please call your Merrill Lynch
Financial Consultant or Merrill Lynch Financial Data Services, Inc. at 1-800-
637-3863.
55
<PAGE>
[This page is intentionally left blank]
56
<PAGE>
MERRILL LYNCH LATIN AMERICA FUND, INC. -- AUTHORIZATION FORM (PART 1)
- -------------------------------------------------------------------------------
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 Latin America Fund, Inc. and establish an Investment Account
as described in the Prospectus. In the event that I am not eligible to
purchase Class A shares, I understand that Class D shares will be purchased.
Basis for establishing an Investment Account:
A. I enclose a check for $............ payable to Merrill Lynch Financial
Data Services, Inc. as an initial investment (minimum $1,000). I understand
that this purchase will be executed at the applicable offering price next to
be determined after this Application is received by you.
B. I already own shares of the following Merrill Lynch mutual funds that
would qualify for the right of accumulation as outlined in the Statement of
Additional Information: (Please list all funds. Use a separate sheet of
paper if necessary.)
1. .................................. 4. ..................................
2. .................................. 5. ..................................
3. .................................. 6. ..................................
Name...........................................................................
First Name Initial Last Name
Name of Co-Owner (if any)......................................................
First Name Initial Last Name
Address........................................................................
................................................. Date........................
(Zip Code)
Occupation........................... Name and Address of Employer ........
.....................................
.....................................
..................................... .....................................
Signature of Owner Signature of Co-Owner (if any)
(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
Ordinary Income Dividends Long-Term Capital Gains
SELECT [_] Reinvest SELECT [_] Reinvest
ONE: [_] Cash ONE: [_] Cash
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 Latin America 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 MERRILL LYNCH 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.
57
<PAGE>
MERRILL LYNCH LATIN AMERICA FUND, INC. -- AUTHORIZATION FORM (PART 1) --
(CONTINUED)
- -------------------------------------------------------------------------------
3. SOCIAL SECURITY 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 in the Prospectus
under "Additional Information--Taxes") either because I have not been notified
that I am subject thereto as a result of a failure to report all interest or
dividends, or the Internal Revenue Service ("IRS") has notified me that I am
no longer subject thereto.
INSTRUCTION: YOU MUST STRIKE OUT THE LANGUAGE IN (2) ABOVE IF YOU HAVE BEEN
NOTIFIED THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING DUE TO 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.
..................................... .....................................
Signature of Owner Signature of Co-Owner (if any)
- -------------------------------------------------------------------------------
4. LETTER OF INTENTION--CLASS A AND D SHARES ONLY (SEE TERMS AND CONDITIONS IN
THE STATEMENT OF ADDITIONAL INFORMATION)
..................., 19......
Dear Sir/Madam: Date of Initial Purchase
Although I am not obligated to do so, I intend to purchase shares of Merrill
Lynch Latin America 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 Latin America
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 Latin America Fund, Inc. held as security.
By: ................................. .....................................
Signature of Owner Signature of Co-Owner
(If registered in joint names, both must sign)
In making purchases under this letter, the following are the related
accounts on which reduced offering prices are to apply:
(1) Name............................. (2) Name.............................
Account Number....................... Account Number.......................
- -------------------------------------------------------------------------------
5. FOR DEALER ONLY
Branch Office, Address, Stamp We hereby authorize Merrill Lynch
- - - Funds Distributor, Inc. to act as
our agent in connection with
transactions under this
authorization form and agree to
notify the Distributor of any
purchases or sales made under a
Letter of Intention, Automatic
Investment Plan or Systematic
Withdrawal Plan. We guarantee the
shareholder's signature.
- - -
This form when completed should be .....................................
mailed to: Dealer Name and Address
Merrill Lynch Latin America Fund, Inc. By ..................................
c/o Merrill Lynch Financial Authorized Signature of Dealer
Data Services, Inc.
P.O. Box 45289
Jacksonville, FL 32232-5289 [ ][ ][ ] [ ][ ][ ][ ]
Branch-Code F/C No. ...............
F/C Last Name
[ ][ ][ ] [ ][ ][ ][ ][ ]
Dealer's Customer Account No.
58
<PAGE>
MERRILL LYNCH LATIN AMERICA 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
(Please Print)
[ ]
Name of Owner...................... Social Security No. or
First Name Initial Last Name Taxpayer Identification No.
Address............................ Account Number ....................
(if existing account)
...................................
(Zip Code)
Name of Co-Owner (if any)..........
First Name Initial Last Name
Address............................
...................................
(Zip Code)
- -------------------------------------------------------------------------------
2. SYSTEMATIC WITHDRAWAL PLAN-- (See terms and conditions in the Statement of
Additional Information)
MINIMUM REQUIREMENTS: $10,000 for monthly disbursements, $5,000 for quarterly,
of [_] Class A, [_] Class B*, [_] Class C* or [_] Class D shares in Merrill
Lynch Latin America Fund, Inc., at cost or current offering price. Withdrawals
to be made either (check one) [_] monthly on the 24th day of each month, or
[_] quarterly on the 24th day of March, June, September and December. If the
24th falls on a weekend or holiday, the next succeeding business day will be
utilized. Begin systematic withdrawal on or as soon as
(month)
possible thereafter.
SPECIFY THE AMOUNT OF THE WITHDRAWAL YOU WOULD LIKE PAID TO YOU: $ OF
(CHECK ONE) [_] Class A, [_] Class B*, [_] Class C* 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 MERRILL LYNCH FINANCIAL DATA SERVICES, INC. AMENDING
OR TERMINATING THIS SERVICE.
Specify type of account (check one): [_] checking [_] savings
Name on your account...........................................................
Bank Name......................................................................
Bank Number........................ Account Number............................
Bank Address...................................................................
........................................................................
Signature of Depositor................................. Date..................
Signature of Depositor.........................................................
(if joint account, both must sign)
NOTE: IF DIRECT DEPOSIT IS ELECTED, YOUR BLANK, UNSIGNED CHECK MARKED "VOID"
OR A DEPOSIT SLIP FROM YOUR SAVINGS ACCOUNT SHOULD ACCOMPANY THIS APPLICATION.
* Annual withdrawal cannot exceed 10% of the value of shares of such class
held in the account at the time the election to join the systematic withdrawal
plan is made.
59
<PAGE>
MERRILL LYNCH LATIN AMERICA FUND, INC.--AUTHORIZATION FORM (PART 2)--
(CONTINUED)
- -------------------------------------------------------------------------------
3. APPLICATION FOR AUTOMATIC INVESTMENT PLAN
I hereby request that Merrill Lynch Financial Data Services, Inc. draw an
automated clearing house ("ACH") debit on my checking account as described
below each month to purchase: (choose one)
[_] Class A shares [_] Class B shares [_] Class C shares [_] Class D shares
of Merrill Lynch Latin America 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.
AUTHORIZATION TO HONOR ACH DEBITS
MERRILL LYNCH FINANCIAL DATA DRAWN BY MERRILL LYNCH FINANCIAL
SERVICES, INC. DATA SERVICES, INC.
You are hereby authorized to draw an
ACH debit each month on my bank
account for investment in Merrill
Lynch Latin America Fund, Inc., as
indicated below:
To...............................Bank
Amount of each ACH debit $........ (Investor's Bank)
Bank Address.........................
Account No. ......................
Please date and invest ACH debits on City...... State...... Zip Code......
the 20th of each month
beginning or as soon thereafter As a convenience to me, I hereby
(month) request and authorize you to pay and
as possible. charge to my account ACH debits
drawn on my account by and payable
I agree that you are drawing these to Merrill Lynch Financial Data
ACH debits voluntarily at my request Services, Inc. I agree that your
and that you shall not be liable for rights in respect to each such debit
any loss arising from any delay in shall be the same as if it were a
preparing or failure to prepare any check drawn on you and signed
such debit. If I change banks or personally by me. This authority is
desire to terminate or suspend this to remain in effect until revoked by
program, I agree to notify you me in writing. Until you receive
promptly in writing. I hereby such notice, you shall be fully
authorize you to take any action to protected in honoring any such
correct erroneous ACH debits of my debit. I further agree that if any
bank account or purchases of Fund such debit be dishonored, whether
shares including liquidating shares with or without cause and whether
of the Fund and crediting my bank intentionally or inadvertently, you
account. I further agree that if a shall be under no liability.
debit is not honored upon
presentation, Merrill Lynch Financial ............ .....................
Data Services, Inc. is authorized to Date Signature of
discontinue immediately the Automatic Depositor
Investment Plan and to liquidate
sufficient shares held in my account ............ .....................
to offset the purchase made with the Bank Signature of Depositor
dishonored debit. Account (If joint account,
Number both must sign)
............ .....................
Date Signature of
Depositor
......................
Signature of Depositor
(If joint account,
both must sign)
NOTE: IF AUTOMATIC INVESTMENT PLAN IS ELECTED, YOUR BLANK, UNSIGNED CHECK
MARKED "VOID" SHOULD ACCOMPANY THIS APPLICATION.
60
<PAGE>
[This page is intentionally left blank]
<PAGE>
[This page is intentionally left blank]
<PAGE>
MANAGER
Merrill Lynch Asset Management
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9011
Princeton, New Jersey 08543-9011
DISTRIBUTOR
Merrill Lynch Funds Distributor, Inc.
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9081
Princeton, New Jersey 08543-9081
TRANSFER AGENT
Merrill Lynch Financial Data Services, Inc.
Administrative Offices:
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
Mailing Address:
P.O. Box 45289
Jacksonville, Florida 32232-5289
CUSTODIAN
Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109
INDEPENDENT AUDITORS
Deloitte & Touche LLP
117 Campus Drive
Princeton, New Jersey 08540-6400
COUNSEL
Brown & Wood LLP
One World Trade Center
New York, New York 10048-0557
<PAGE>
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
Prospectus Summary......................................................... 4
Merrill Lynch Select Pricing SM System..................................... 6
Consolidated Financial Highlights.......................................... 11
Risk Factors and Special Considerations.................................... 13
Investment Objective and Policies.......................................... 18
Certain Risks of Debt Securities.......................................... 20
Portfolio Strategies Involving Options and Futures........................ 22
Other Investment Policies and Practices................................... 28
Management of the Fund..................................................... 31
Board of Directors........................................................ 31
Management and Advisory Arrangements...................................... 32
Code of Ethics............................................................ 33
Transfer Agency Services.................................................. 33
Purchase of Shares......................................................... 34
Initial Sales Charge Alternatives--Class A and Class D Shares............. 37
Deferred Sales Charge Alternatives--Class B and Class C Shares............ 39
Distribution Plans........................................................ 42
Limitations on the Payment of Deferred Sales Charges...................... 44
Redemption of Shares....................................................... 44
Redemption................................................................ 44
Repurchase................................................................ 45
Reinstatement Privilege--Class A and Class D Shares....................... 45
Shareholder Services....................................................... 46
Investment Account........................................................ 46
Exchange Privilege........................................................ 46
Automatic Reinvestment of Dividends and Capital Gains Distributions....... 47
Systematic Withdrawal Plans............................................... 48
Automatic Investment Plans................................................ 48
Fee-Based Programs........................................................ 48
Performance Data........................................................... 49
Additional Information..................................................... 50
Dividends and Distributions............................................... 50
Determination of Net Asset Value.......................................... 51
Taxes..................................................................... 51
Organization of the Fund.................................................. 54
Shareholder Inquiries..................................................... 55
Shareholder Reports....................................................... 55
Authorization Form......................................................... 57
</TABLE>
Code #13989-0398
- ---------------------------------
[LOGO] MERRILL LYNCH
MERRILL LYNCH
LATIN AMERICA FUND, INC.
[ART]
PROSPECTUS
March 2, 1998
- -------------
Distributor:
Merrill Lynch
Funds Distributor, Inc.
This Prospectus should be
retained for future reference.
- ---------------------------------
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
MERRILL LYNCH LATIN AMERICA FUND, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 . PHONE NO. (609) 282-2800
----------------
Merrill Lynch Latin America Fund, Inc. (the "Fund") is a non-diversified,
open-end management investment company seeking long-term capital appreciation
by investing primarily in Latin American equity and debt securities. This
objective of the Fund reflects the belief that investment opportunities may
result in Latin America from an evolving long-term international trend
encouraging greater market orientation and diminishing governmental
intervention in economic affairs. The Fund may employ a variety of instruments
and techniques to hedge against market and currency risk, although suitable
hedging investments may not be available on a timely basis and on acceptable
terms.
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 March 2,
1998 (the "Prospectus"), which has been filed with the Securities and Exchange
Commission (the "Commission") and can be obtained, without charge, by calling
or by writing the Fund at the above telephone number or address. This
Statement of Additional Information has been incorporated by reference into
the Prospectus.
----------------
MERRILL LYNCH ASSET MANAGEMENT -- MANAGER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC. -- DISTRIBUTOR
----------------
The date of this Statement of Additional Information is March 2, 1998.
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek long-term capital
appreciation by investing primarily in Latin American equity and debt
securities. Reference is made to "Investment Objective and Policies" in the
Prospectus for a discussion of the investment objective and policies of the
Fund.
While it is the policy of the Fund generally not to engage in trading for
short-term gains, Merrill Lynch Asset Management, L.P. ("MLAM" or the
"Manager") will effect portfolio transactions without regard to 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 due
to general market, economic or financial conditions. The 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 U.S.
Government securities and of all other securities whose maturities at the time
of acquisition were one year or less) by the monthly average value of
securities in the portfolio during the year. The Fund's portfolio turnover
rates for the fiscal years ended November 30, 1996 and 1997 were 66.14% and
84.91%, respectively.
The U.S. Government has from time to time in the past imposed restrictions,
through taxation and otherwise, on foreign investments by U.S. investors such
as the Fund. If such restrictions should be reinstituted, it might become
necessary for the Fund to invest all or substantially all of its assets in
U.S. securities. In such event, the Fund would review its investment objective
and investment policies to determine whether changes are appropriate. Any
changes in the investment objective or in the fundamental policies set forth
under "Investment Restrictions" below would require the approval of the
holders of a majority of the Fund's outstanding voting securities.
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 on each day the Fund determines its net assets 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. See "Redemption of Shares." Under present conditions,
the Fund does not believe that these considerations will have any significant
effect on its portfolio strategy, although there can be no assurance in this
regard.
PORTFOLIO STRATEGIES INVOLVING OPTIONS AND FUTURES
Reference is made to the discussion under the caption "Investment Objective
and Policies--Portfolio Strategies Involving Options and Futures" 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, debt and currency markets. The Fund has
authority to write (i.e., sell) covered put and call options on its portfolio
securities, purchase put and call options on securities and engage in
transactions in stock index options, stock index futures and stock futures and
financial futures, and related options on such futures. The Fund may also deal
in forward foreign exchange transactions, foreign currency options and futures
and related options on such futures. 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 engage in options and futures
transactions only 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. While
the Fund's use of hedging strategies is intended to reduce the
2
<PAGE>
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. Suitable hedging instruments may not
be available with respect to Latin American securities on a timely basis and
on acceptable terms. The following is further information relating to
portfolio strategies involving options and futures that the Fund may utilize.
Writing Covered Options. The Fund is authorized to write (i.e., sell)
covered call options on the securities in which it may invest and to enter
into closing purchase transactions with respect to certain of such options. 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 price on or before a specified date, in the case of an option on
securities, or agrees to pay to another party an amount based on any gain in a
specified securities index beyond a specified level on or before a specified
date, in the case of an option on a securities index. The principal reason for
writing call options is to attempt to realize, through the receipt of
premiums, a greater return than would be realized on the securities alone. 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. Covered call options serve as a particular hedge
against the price of the underlying security declining.
The writer of a covered call option has no control over when he or she may
be required to sell his or her securities since he or she may be assigned an
exercise notice at any time prior to the termination of his or her obligation
as a writer. If an option expires unexercised, the writer would realize 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 would realize a gain or loss
from the sale of the underlying security.
The Fund also may write put options which give the holder of the option the
right to sell the underlying security to the Fund at the stated exercise
price. The Fund will receive a premium for writing a put option which
increases the Fund's return. The Fund writes only covered put options which
means that so long as the Fund is obligated as the writer of the option, it
will, through its custodian, have deposited and maintained cash, cash
equivalents, U.S. Government securities or other liquid securities denominated
in U.S. dollars or non-U.S. currencies with a securities depository with a
value equal to or greater than the exercise price of the underlying
securities. By writing a put, the Fund will be obligated to purchase the
underlying security at a price that may be higher than the market value of
that security at the time of exercise for as long as the option is
outstanding. The Fund may engage in closing transactions in order to terminate
put options that it has written. The Fund will not write put options if the
aggregate value of the obligations underlying puts shall exceed 50% of the
Fund's net assets.
Options referred to herein and in the Fund's Prospectus may be options
traded on foreign securities exchanges. An options position may be closed out
only on an exchange which provides a secondary market for an option of the
same series. If a secondary market does not exist, it might not be possible to
effect closing transactions in particular options, with the result, in the
case of a covered call option, that the Fund will not be able to sell the
underlying security until the option expires or it delivers the underlying
security upon exercise. Reasons for the absence of a liquid secondary market
on an exchange include the following: (i) there may be
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insufficient trading interest in certain options; (ii) restrictions may be
imposed by an exchange on opening transactions or closing transactions or
both; (iii) trading halts, suspensions or other restrictions may be imposed
with respect to particular classes or series of options or underlying
securities; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or the clearing
corporation may not, at all times, be adequate to handle current trading
volume; or (vi) one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of
options (or a particular class or series of options), in which event the
secondary market on that exchange (or in that class or series of options)
would cease to exist, although outstanding options on that exchange that had
been issued by the clearing corporation as a result of trades on that exchange
would continue to be exercisable in accordance with their terms.
The Fund may also enter into over-the-counter options transactions ("OTC
options"), which are two party contracts with prices and terms negotiated
between the buyer and seller. The staff of the Commission has taken the
position that OTC options and the assets used as cover for written OTC options
are illiquid securities.
Purchasing Options. The Fund may purchase put options to hedge against a
decline in the market value of its equity holdings. By buying a put, the Fund
has a right to sell the underlying security at the exercise price, thus
limiting the Fund's risk of loss through a decline in the market value of the
security until the put option expires. The amount of any appreciation in the
value of the underlying security will be offset partially by the amount of the
premium paid for the put option and any related transaction costs. Prior to
its expiration, a put option may be sold in a closing sale transaction; 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. In certain
circumstances, the Fund may purchase call options on securities held in its
portfolio on which it has written call options or on securities which it
intends to purchase. The Fund may purchase either exchange-traded options or
OTC options. The Fund will not purchase options on securities (including stock
index options discussed below) if as a result of such purchase, the aggregate
cost of all outstanding options on securities held by the Fund would exceed 5%
of the market value of the Fund's total assets.
Stock or Other Financial Index Options and Futures. As described in the
Prospectus, the Fund is authorized to engage in transactions in stock or other
financial index options and futures and related options on such futures. Set
forth below is further information concerning futures transactions.
A futures contract is an agreement between two parties to buy and sell a
security, or, in the case of an index-based futures contract, to make and
accept a cash settlement for a set price on a future date. A majority of
transactions in futures contracts, however, do not result in the actual
delivery of the underlying instrument or cash settlement, but are settled
through liquidation, i.e., by entering into an offsetting transaction.
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% and 15% of the
value of the futures contract, 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
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futures contract fluctuates, making the long and short positions in the
futures contract 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.
An order has been obtained from the Commission exempting the Fund from the
provisions of Section 17(f) and Section 18(f) of the Investment Company Act of
1940, as amended (the "Investment Company Act"), in connection with its
strategy of investing in futures contracts. Section 17(f) relates to the
custody of securities and other assets of an investment company and may be
deemed to prohibit certain arrangements between the Fund and commodities
brokers with respect to initial and variation margin. Section 18(f) of the
Investment Company Act prohibits an open-end investment company such as the
Fund from issuing a "senior security" other than a borrowing from a bank. The
staff of the Commission has in the past indicated that a futures contract may
be a "senior security" under the Investment Company Act.
Foreign Currency Hedging. Generally, the foreign exchange transactions of
the Fund will be conducted on a spot, i.e., cash basis at the spot rate for
purchasing or selling currency prevailing in the foreign exchange market. This
rate under normal market conditions differs from the prevailing exchange rate
in an amount generally less than one tenth of one percent due to the costs of
converting from one currency to another. The Fund has authority, however, to
deal in forward foreign exchange among currencies of the different countries
in which it will invest as a hedge against possible variations in the foreign
exchange rate among these currencies. This is accomplished through contractual
agreements to purchase or 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 foreign currency with respect to portfolio security positions
denominated or quoted in such foreign currency. The Fund will not speculate in
forward foreign exchange. 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 bank will place
cash or liquid equity or debt securities in a separate account of the Fund in
an amount equal to the value of the Fund's total assets committed to the
consummation of such forward contract. If the value of the securities placed
in the separate account declines, additional cash or securities will be placed
in the account so that the value of the account will equal the amount of the
Fund's commitment with respect to such contracts. Alternatively, no such
segregation of funds need be made when the Fund "covers" its open positions.
The position is considered "covered" if the Fund holds securities denominated
in the currency underlying the forward contract, or in a demonstrably
correlated currency, having a value equal to or greater than the Fund's
obligation under the forward contract. The Fund will enter into such
transactions only to the extent, if any, deemed appropriate by the Manager.
The Fund will not enter into a forward contract with a term of more than one
year. Investors should be aware that U.S. dollar denominated securities may
not be available in some or all Latin American countries, that the forward
currency market for the purchase of U.S. dollars in most, if not all, Latin
American countries is not highly developed and that in certain Latin American
countries, no forward market for foreign currencies currently exists or such
market may be closed to investment by the Fund.
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The Fund is also authorized to purchase or sell listed or over-the-counter
("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. Such transactions may be effected with
respect to hedges on non-U.S. dollar denominated securities owned by the Fund,
sold by the Fund but not yet delivered, or committed or anticipated to be
purchased by the Fund. As an illustration, the Fund may use such techniques to
hedge the stated value in U.S. dollars of an investment in a Mexican peso
denominated security. In such circumstances, for example, the Fund may
purchase a foreign currency put option enabling it to sell a specified amount
of Mexican pesos for dollars at a specified price by a future date. To the
extent the hedge is successful, a loss in the value of the Mexican pesos
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 Mexican pesos for dollars at a specified
price by a future date (a technique called a "spread"). By selling such call
option in this illustration, the Fund gives up the opportunity to profit
without limit from increases in the relative value of the Mexican peso to the
dollar. The Manager believes that "spreads" of the type which may be utilized
by the Fund constitute hedging transactions and are consistent with the
policies described above.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise.
Moreover, it may not be possible for the Fund to hedge against a devaluation
that is so generally anticipated that the Fund is not able to contract to sell
the currency at a price above the devaluation level it anticipates. The 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.
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 and movements in the prices of the
securities and currencies which are the subject of the hedge. If the prices of
the options and futures move 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 and
currencies which are the subject of the hedge. The successful use of options
and futures also depends on the Manager's ability to correctly predict price
movements in the market involved in a particular options or futures
transaction.
Prior to exercise or expiration, an exchange-traded option or futures
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), unless there is only one dealer, in which case such
dealer's price is used, or which can be sold at a formula price provided for
in the OTC option agreement. 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
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variation margin requirements at a time when it may be disadvantageous to do
so. In addition, the Fund may be required to take or make delivery of the
security or currency underlying the futures contracts it holds. The inability
to close options and futures positions also could have an adverse impact on
the Fund's ability to hedge its portfolio effectively. 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
generally have established limitations governing the maximum number of call or
put options on the same underlying security or 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
effectively.
OTHER INVESTMENT POLICIES AND PRACTICES
Non-Diversified Status. The Fund is classified as non-diversified within the
meaning of the Investment Company Act, which means that the Fund is not
limited by such Act in the proportion of its assets that it may invest in
securities of a single issuer. The Fund's investments will be limited,
however, in order to qualify for the special tax treatment afforded regulated
investment companies under the Internal Revenue Code of 1986, as amended (the
"Code"). See "Dividends, Distributions and Taxes--Taxes." To qualify, the Fund
will 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. A fund which elects to be classified as "diversified" under the
Investment Company Act must satisfy the foregoing 5% and 10% requirements with
respect to 75% of its total assets. To the extent that the Fund assumes large
positions in the securities of a small number of issuers, the Fund's net asset
value may fluctuate to a greater extent than that of a diversified investment
company as a result of changes in the financial condition or in the market's
assessment of the issuers, and the Fund may be more susceptible to any single
economic, political or regulatory occurrence than a diversified company.
When-Issued Securities and Delayed Delivery Transactions. The Fund may
purchase or sell securities which it is entitled to receive on a when-issued
basis, and it may purchase or sell securities for delayed delivery. These
transactions occur when securities are purchased or sold by the Fund with
payment and delivery taking place in the future to secure what is considered
an advantageous yield and price to the Fund at the time of entering into the
transaction. Although the Fund has not established any limit on the percentage
of its assets that may be committed in connection with such transactions, the
Fund will maintain a segregated account with its custodian of cash, cash
equivalents, U.S. Government securities or other liquid securities denominated
in U.S. dollars or non-U.S. currencies in an aggregate amount equal to the
amount of its commitment in connection with such purchase transactions.
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Standby Commitment Agreements. The Fund may from time to time enter into
standby commitment agreements. Such agreements commit the Fund, for a stated
period of time, to purchase a stated amount of a fixed income security or a
stated number of shares of equity securities which may be issued and sold to
the Fund at the option of the issuer. The price and coupon of the security is
fixed at the time of the commitment. At the time of entering into the
agreement, the Fund is paid a commitment fee, regardless of whether or not the
security is ultimately issued, which is typically approximately 0.5% of the
aggregate purchase price of the security that the Fund has committed to
purchase. The Fund will enter into such agreements only for the purpose of
investing in the security underlying the commitment at a yield and price that
is considered advantageous to the Fund. The Fund will not enter into a standby
commitment with a remaining term in excess of 45 days and will limit its
investment in such commitments so that the aggregate purchase price of the
securities subject to such commitments, together with the value of portfolio
securities subject to legal restrictions on resale, will not exceed 15% of its
total assets taken at the time of acquisition of such commitment or security.
The Fund will at all times maintain a segregated account with its custodian of
cash, cash equivalents, U.S. Government securities or other liquid securities
denominated in U.S. dollars or non-U.S. currencies in an aggregate amount
equal to the purchase price of the securities underlying the commitment.
There can be no assurance that the security subject to a standby commitment
will be issued, and the value of the security, if issued, on the delivery date
may be more or less than its purchase price. Because the issuance of the
security underlying the commitment is at the option of the issuer, the Fund
may bear the risk of a decline in the value of such security and may not
benefit from an appreciation in the value of the security during the
commitment period.
The purchase of a security subject to a standby commitment agreement and the
related commitment fee will be recorded on the date on which the security can
reasonably be expected to be issued, and the value of the security will
thereafter be reflected in the calculation of the Fund's net asset value. The
cost basis of the security will be adjusted by the amount of the commitment
fee. In the event the security is not issued, the commitment fee will be
recorded as income on the expiration date of the standby commitment.
Repurchase Agreements and Purchase and Sale Contracts. The Fund may invest
in securities pursuant to repurchase agreements or purchase and sale
contracts. Repurchase agreements may be entered into only with financial
institutions which (i) have, in the opinion of the Manager, substantial
capital relative to the Fund's exposure, or (ii) have provided the Fund with a
third-party guaranty or other credit enhancement. Under such agreements, the
other party agrees, upon entering into the contract with the Fund, to
repurchase the security at a mutually agreed upon time and price in a
specified currency, thereby determining the yield during the term of the
agreement. This results in a fixed rate of return insulated from market
fluctuations during such period although it may be affected by currency
fluctuations. In the case of repurchase agreements, the prices at which the
trades are conducted do not reflect the accrued interest on the underlying
obligations; whereas, in the case of purchase and sale contracts, the prices
take into account accrued interest. Such agreements usually cover short
periods, often less than one week. Repurchase agreements may be construed to
be collateralized loans by the purchaser to the seller secured by the
securities transferred to the purchaser. In the case of a repurchase
agreement, as a purchaser, the Fund will require the seller to provide
additional collateral if the market value of the securities falls below the
repurchase price at any time during the term of the repurchase agreement; the
Fund does not have the right to seek additional collateral in the case of
purchase and sale contracts. In the event of default by the seller under a
repurchase agreement construed to be a collateralized loan, the underlying
securities are not owned by the Fund but constitute only collateral for the
seller's obligation to pay the repurchase price.
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Therefore, the Fund may suffer time delays and incur costs or possible losses
in connection with the disposition of the collateral. A purchase and sale
contract differs from a repurchase agreement in that the contract arrangements
stipulate that the securities are owned by the Fund. In the event of a default
under such a repurchase agreement or under a purchase and sale contract,
instead of the contractual fixed rate of return, the rate of return to the
Fund would depend on intervening fluctuations of the market values of such
securities and the accrued interest on the securities. In such event, the Fund
would have rights against the seller for breach of contract with respect to
any losses resulting from market fluctuations following the failure of the
seller to perform. The Fund may not invest more than 15% of its total assets
in repurchase agreements or purchase and sale contracts maturing in more than
seven days. While the substance of purchase and sale contracts is similar to
the substance of repurchase agreements, because of the different treatment
with respect to accrued interest and additional collateral, management
believes that purchase and sale contracts are not repurchase agreements as
such term is understood in the banking and brokerage community.
Lending of Portfolio Securities. Subject to the investment restriction
stated below, the Fund may lend securities from its portfolio to approved
borrowers and receive collateral therefor in cash or securities issued or
guaranteed by the U.S. Government. Such collateral is maintained at all times
in an amount equal to at least 100% of the current market value of the loaned
securities. The purpose of such loans is to permit the borrower to use such
securities for delivery to purchasers when such borrower has sold short. If
cash collateral is received by the Fund, it is invested in short-term money
market securities, and a portion of the yield received in respect of such
investment is retained by the Fund. Alternatively, if securities are delivered
to the Fund as collateral, the Fund and the borrower negotiate a rate for the
loan premium to be received by the Fund for lending its portfolio securities.
In either event, the total yield on the Fund's portfolio is increased by loans
of its portfolio securities. The Fund will have the right to regain record
ownership of loaned securities to exercise beneficial rights such as voting
rights, subscription rights and rights to dividends, interest or other
distributions. Such loans are terminable at any time, and the borrower, after
notice, will be required to return borrowed securities within five business
days. The Fund may pay reasonable finder's, administrative and custodial fees
in connection with such loans. With respect to the lending of portfolio
securities, there is the risk of failure by the borrower to return the
securities involved in such transactions.
INVESTMENT RESTRICTIONS
In addition to the investment restrictions set forth in the Prospectus, the
Fund has adopted a number of fundamental and non-fundamental restrictions and
policies relating to the investment of its assets and its activities. The
fundamental policies set forth below may not be changed without the approval
of the holders of a majority of the Fund's outstanding voting securities
(which for this purpose and under the Investment Company Act means the lesser
of (i) 67% of the shares represented at a meeting at which more than 50% of
the outstanding shares are represented or (ii) more than 50% of the
outstanding shares).
Under the fundamental investment restrictions, the Fund may not:
1. Invest more than 25% of its assets, taken at market value, in the
securities of issuers in any particular industry (excluding the U.S.
Government and its agencies and instrumentalities).
2. Make investments for the purpose of exercising control or management.
Investments by the Fund in wholly-owned investment entities created under
the laws of certain countries will not be deemed the making of investments
for the purpose of exercising control or management.
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3. Purchase or sell real estate, except that, to the extent permitted by
applicable law, the Fund may invest in securities directly or indirectly
secured by real estate or interests therein or issued by companies which
invest in real estate or interests therein.
4. Make loans to other persons, except that the acquisition of bonds,
debentures or other corporate debt securities and investment in government
obligations, commercial paper, pass-through instruments, certificates of
deposit, bankers acceptances, repurchase agreements or any similar
instruments shall not be deemed to be the making of a loan, and except
further that the Fund may lend its portfolio securities, provided that the
lending of portfolio securities may be made only in accordance with
applicable law and the guidelines set forth in the Fund's Prospectus and
Statement of Additional Information, as they may be amended from time to
time.
5. Issue senior securities to the extent such issuance would violate
applicable law.
6. Borrow money, except that (i) the Fund may borrow from banks (as
defined in the Investment Company Act) in amounts up to 33 1/3% of its
total assets (including the amount borrowed), (ii) the Fund may borrow up
to an additional 5% of its total assets for temporary purposes, (iii) the
Fund may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities and (iv) the Fund
may purchase securities on margin to the extent permitted by applicable
law. The Fund may not pledge its assets other than to secure such
borrowings or, to the extent permitted by the Fund's investment policies as
set forth in its Prospectus and Statement of Additional Information, as
they may be amended from time to time, in connection with hedging
transactions, short sales, when-issued and forward commitment transactions
and similar investment strategies.
7. Underwrite securities of other issuers except insofar as the Fund
technically may be deemed an underwriter under the Securities Act of 1933,
as amended (the "Securities Act") in selling portfolio securities.
8. Purchase or sell commodities or contracts on commodities, except to
the extent that the Fund may do so in accordance with applicable law and
the Fund's Prospectus and Statement of Additional Information, as they may
be amended from time to time, and without registering as a commodity pool
operator under the Commodity Exchange Act.
In addition, the Fund has adopted non-fundamental restrictions which may be
changed by the Board of Directors. 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. As a matter of
policy, however, the Fund will not purchase shares of any registered open-
end investment company or registered unit investment trust in reliance on
Section 12(d)(1)(F) or (G) (the "fund of funds" provisions) of the
Investment Company Act, at any time its shares are owned by another
investment company that is part of the same group of investment companies
as the Fund.
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
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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. Securities purchased in accordance with Rule
144A under the Securities Act and determined to be liquid by the Fund's
Board of Directors are not subject to the limitations set forth in this
investment restriction.
d. Notwithstanding fundamental investment restriction (6) above, borrow
amounts in excess of 20% of its total assets taken at market value
(including the amount borrowed) and then only from a bank as a temporary
measure for extraordinary or emergency purposes including to meet
redemptions or to settle securities transactions. The Fund will not
purchase securities while borrowings exceed 5% of total assets except (a)
to honor prior commitments or (b) to exercise subscription rights where
outstanding borrowings have been obtained exclusively for settlements of
other securities transactions.
The staff of the Commission has taken the position that purchased OTC
options and the assets used as cover for written OTC options are illiquid
securities. Therefore, the Fund has adopted an investment policy pursuant to
which it will not purchase or sell OTC options if, as a result of such
transaction, 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, taken at market value, together
with all other assets of the Fund which are illiquid or are otherwise not
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 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 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 as to OTC options 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. However, the Fund will not change or modify this policy prior to
the change or modification by the Commission staff of its position.
Because of the affiliation of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") with the Fund, the Fund is prohibited from
engaging in certain transactions involving such firm or its affiliates except
for brokerage transactions permitted under the Investment Company Act
involving only usual and customary commissions or transactions pursuant to an
exemptive order under the Investment Company Act. See "Portfolio Transactions
and Brokerage." Without such an exemptive order, the Fund would be prohibited
from engaging in portfolio transactions with the Manager or any of its
affiliates acting as principal.
11
<PAGE>
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
Information about the Directors, executive officers and portfolio manager of
the Fund, including their ages and their principal occupations for at least
the last five years, is set forth below. Unless otherwise noted, the address
of the portfolio manager and of each executive officer and Director is P.O.
Box 9011, Princeton, New Jersey 08543-9011.
Arthur Zeikel (65)--President and Director(1)(2)--Chairman of the Manager
(which term as used herein includes its corporate predecessors) since 1997;
Chairman of Fund Asset Management, L.P. ("FAM") (which term as used herein
includes its corporate predecessors) since 1997; President of the Manager and
FAM from 1977 to 1997; Chairman of Princeton Services, Inc. ("Princeton
Services") since 1997 and Director thereof since 1993; President of Princeton
Services from 1993 to 1997; Executive Vice President of Merrill Lynch & Co.,
Inc. ("ML & Co.") since 1990.
Donald Cecil (71)--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 (71)--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 (66)--Director(2)--9 Hampton Harbor Road, Hampton Bays,
New York 11946. Self-employed financial consultant since 1990; President and
Chief Investment Officer of Verus Capital, Inc. from 1979 to 1990; former
Senior Vice President of Arnhold and S. Bleichroeder, Inc. from 1973 to 1990;
Adjunct Professor, Columbia University Graduate School of Business from 1990
to 1991; Adjunct Professor, Wharton School, University of Pennsylvania from
1989 to 1990; Partner, Small Cities Cable Television since 1986.
Richard R. West (60)--Director(2)--Box 604, Genoa, Nevada 89491. Professor
of Finance since 1984, Dean from 1984 to 1993 and currently Dean Emeritus of
New York University Leonard N. Stern School of Business Administration;
Director of Bowne & Co., Inc. (financial printers), Vornado, Inc. (real estate
holding company), Smith-Corona Corporation (manufacturer of typewriters and
word processors) and Alexander's Inc. (real estate company).
Edward D. Zinbarg (63)--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 (57)--Executive Vice President(1)(2)--Executive Vice
President of the Manager and FAM since 1983; Executive Vice President and
Director of Princeton Services since 1993; President of Merrill Lynch Funds
Distributor Inc. ("MLFD" or the "Distributor") since 1986 and Director thereof
since 1991; President of Princeton Administrators, L.P. since 1988.
Norman R. Harvey (64)--Senior Vice President(1)(2)--Senior Vice President of
the Manager and FAM since 1982.
12
<PAGE>
A. Grace Pineda (41)--Senior Vice President and Portfolio Manager(1)(2)--
First Vice President of the Manager since 1997; Senior Portfolio Manager of
the Manager since 1989; Vice President of the Manager from 1989 to 1997.
Donald C. Burke (37)--Vice President(1)(2)--First Vice President of the
Manager since 1997; Vice President of the Manager from 1990 to 1997; Director
of Taxation of the Manager since 1990.
Gerald M. Richard (48)--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 thereof since 1984.
Barbara G. Fraser (54)--Secretary(1)(2)--First Vice President of the Manager
since 1996; Vice President of MLAM from 1994 to 1996; attorney in private
practice from 1991 to 1994.
- --------
(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 certain
other investment companies for which the Manager, or its affiliate, FAM,
acts as investment adviser or manager.
At February 2, 1998, the officers and Directors of the Fund as a group (12
persons) owned an aggregate of less than 1% of the outstanding shares of the
Fund. At such date, Mr. Zeikel, a Director and officer of the Fund, and the
other officers of the Fund owned less than 1% of the outstanding shares of
common stock of ML & Co.
COMPENSATION OF DIRECTORS
The Fund pays each Director not affiliated with the Manager (each a "non-
affiliated Director") a fee of $3,500 per year plus $500 per Board meeting
attended, together with such Director's actual out-of-pocket expenses relating
to attendance at meetings. The Fund also compensates members of its Audit and
Nominating Committee (the "Committee"), which consists of all of the non-
affiliated Directors, at a rate of $500 per Committee meeting attended. The
Chairman of the Committee receives an additional fee of $250 per Committee
meeting attended. For the fiscal year ended November 30, 1997, fees and
expenses paid to the non-affiliated Directors aggregated $37,437.
The following table sets forth for the fiscal year ended November 30, 1997,
compensation paid by the Fund to the non-affiliated Directors and for the
calendar year ended December 31, 1997, the aggregate compensation paid by all
registered investment companies advised by the Manager and its affiliate, FAM
("MLAM/FAM Advised Funds") to the non-affiliated Directors.
<TABLE>
<CAPTION>
AGGREGATE COMPENSATION
PENSION OR FROM FUND AND OTHER
RETIREMENT BENEFITS MLAM/FAM
COMPENSATION ACCRUED AS PART ADVISED FUNDS PAID
NAME OF DIRECTOR FROM FUND OF FUND EXPENSES TO DIRECTORS(/1/)
- ---------------- ------------ ------------------- ----------------------
<S> <C> <C> <C>
Donald Cecil............ $8,500 None $280,350
Edward H. Meyer......... $6,000 None $222,100
Charles C. Reilly....... $7,500 None $313,000
Richard R. West......... $7,500 None $290,000
Edward D. Zinbarg....... $7,500 None $133,500
</TABLE>
- --------
(/1/The)Directors serve on the boards of MLAM/FAM Advised Funds as follows:
Mr. Cecil (33 registered investment companies consisting of 33
portfolios); Mr. Meyer (33 registered investment companies consisting of
33 portfolios); Mr. Reilly (46 registered investment companies consisting
of 59 portfolios); Mr. West (47 registered investment companies consisting
of 69 portfolios); and Mr. Zinbarg (18 registered investment companies
consisting of 18 portfolios).
13
<PAGE>
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.
Securities held by the Fund may also be held by, or be appropriate
investments for, other funds or other investment advisory clients for which
the Manager or its affiliates act as an adviser. Because of different
objectives or other factors, a particular security may be bought for one or
more clients when one or more clients are selling the same security. If
purchases or sales of securities by the Manager for the Fund or other funds
for which it acts as investment adviser or for its other advisory clients
arise for consideration at or about the same time, transactions in such
securities will be made, insofar as feasible, for the respective funds and
clients in a manner deemed equitable to all. To the extent that transactions
on behalf of more than one client of the Manager or its affiliates during the
same period may increase the demand for securities being purchased or the
supply of securities being sold, there may be an adverse effect on price.
The Fund has entered into a management agreement (the "Management
Agreement") with the Manager. As discussed in the Prospectus, the Manager
receives for its services to the Fund monthly compensation at the annual rate
of 1.00% of the average daily net assets of the Fund. For the fiscal years
ended November 30, 1995, 1996 and 1997, the management fees paid by the Fund
to the Manager aggregated $7,649,241, $7,092,959 and $8,578,935, respectively.
As described in the Prospectus, the Manager has also entered into a sub-
advisory agreement with Merrill Lynch Asset Management U.K. Limited ("MLAM
U.K.") pursuant to which MLAM U.K. provides investment advisory services to
the Manager with respect to the Fund. For the fiscal years ended November 30,
1996 and 1997, no sub-advisory fees were paid by the Manager to MLAM U.K.
pursuant to such agreement.
The Management Agreement obligates the Manager to provide investment
advisory services and to pay all compensation of and furnish office space for
officers and employees of the Fund connected with investment and economic
research, trading and investment management of the Fund, as well as the fees
of all Directors of the Fund who are affiliated persons of the Manager or its
affiliates. The Fund pays all other expenses incurred in its operation,
including, among other things, taxes; expenses for legal and auditing
services; costs of printing proxies, stock certificates, shareholder reports
and prospectuses and statements of additional information (except to the
extent paid by the Distributor); charges of the custodian, any sub-custodian
and transfer agent; expenses of redemption of shares; Commission fees;
expenses of registering the shares under Federal, state or foreign laws; fees
and expenses of unaffiliated Directors; accounting and pricing costs
(including the daily calculation of net asset value); insurance; interest;
brokerage costs; litigation and other extraordinary or non-recurring expenses;
and other 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 November 30, 1995, 1996 and 1997, the amount of such
reimbursement was $152,840, $128,292 and $174,010, respectively. The
Distributor will pay certain promotional expenses of the Fund incurred in
connection with the offering of its shares. Certain expenses in connection
with the distribution of Class B, Class C and Class D shares will be financed
by the Fund pursuant to distribution plans in compliance with Rule 12b-1 under
the Investment Company Act. See "Purchase of Shares--Distribution Plans."
14
<PAGE>
The Manager is a limited partnership, the partners of which are ML & Co. and
Princeton Services. ML & Co. and Princeton Services are "controlling persons"
of the Manager as defined under the Investment Company Act because of their
ownership of its voting securities or their power to exercise a controlling
influence over its management or policies. Similarly, the following entities
may be considered "controlling persons" of MLAM U.K.: Merrill Lynch Europe
Limited (MLAM U.K.'s parent), a subsidiary of ML International Holdings, a
subsidiary of Merrill Lynch International, Inc., a subsidiary of ML & Co.
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 Board of Directors or by a majority of the outstanding
shares of the Fund and (b) by a majority of the Directors who are not parties
to such contract or interested persons (as defined in the Investment Company
Act) of any such party. Such contract is not assignable and may be terminated
without penalty on 60 days' written notice at the option of either party
thereto or by the vote of the shareholders of the Fund.
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 Pricing SM System: shares of Class A and
Class D are sold to investors choosing the initial sales charge alternatives,
and shares of Class B and Class C are sold to investors choosing the deferred
sales charge alternatives. Each Class A, Class B, Class C and Class D share of
the Fund represents identical interests in the investment portfolio of the
Fund and has the same rights, except that Class B, Class C and Class D shares
bear the expenses of the ongoing account maintenance fees, and Class B and
Class C shares bear the expenses of the ongoing distribution fees and the
additional incremental transfer agency costs resulting from the deferred sales
charge arrangements. Class B, Class C and Class D shares each have exclusive
voting rights with respect to the Rule 12b-1 distribution plan adopted with
respect to such class pursuant to which account maintenance and/or
distribution fees are paid (except that Class B shareholders may vote upon any
material changes to expenses charged under the Class D Distribution Plan).
Each class has different exchange privileges. See "Shareholder Services--
Exchange Privilege."
The Merrill Lynch Select Pricing SM System is used by more than 50
registered investment companies advised by the Manager or its affiliate, FAM.
Funds advised by the Manager or FAM that utilize the Merrill Lynch Select
Pricing SM System are referred to herein as "MLAM-advised mutual funds."
The Fund has entered into separate distribution agreements with the
Distributor in connection with the continuous offerings 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.
15
<PAGE>
INITIAL SALES CHARGE ALTERNATIVES--CLASS A AND CLASS D SHARES
For the fiscal years ended November 30, 1995, 1996 and 1997, the Fund sold
its Class A shares through the Distributor and Merrill Lynch, as a dealer. The
gross sales charges for the sale of Class A shares for the fiscal year ended
November 30, 1995, were $2,872, of which the Distributor received $188, and
Merrill Lynch received $2,684. The gross sales charges for the sale of Class A
shares for the fiscal year ended November 30, 1996, were $2,523, of which the
Distributor received $189 and Merrill Lynch received $2,334. The gross sales
charges for the sale of Class A shares for the fiscal year ended November 30,
1997, were $2,253, of which the Distributor received $163, and Merrill Lynch
received $2,090. For the fiscal years ended November 30, 1995, 1996 and 1997,
the Fund sold its Class D shares through the Distributor and Merrill Lynch, as
a dealer. The gross sales charges for the sale of Class D shares for the
fiscal year ended November 30, 1995 were $645,246, of which the Distributor
received $40,794 and Merrill Lynch received $604,452. The gross sales charges
for the sale of Class D shares for the fiscal year ended November 30, 1996,
were $199,218, of which the Distributor received $15,673 and Merrill Lynch
received $183,545. The gross sales charges for the sale of Class D shares for
the fiscal year ended November 30, 1997, were $351,814, of which the
Distributor received $23,410, and Merrill Lynch received $328,404. During such
periods, the Distributor received no contingent deferred sales charges
("CDSCs") with respect to redemptions within one year after purchase of Class
A or Class D shares purchased subject to a front-end sales charge waiver. For
information as to brokerage commissions received by Merrill Lynch, see
"Portfolio Transactions and Brokerage."
The term "purchase" as used in the Prospectus and this Statement of
Additional Information in connection with an investment in Class A and Class D
shares of the Fund 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 or her spouse and their children
under the age of 21 years purchasing shares for his, her or their own account
and to single purchases by a trustee or other fiduciary purchasing shares for
a single trust estate or single fiduciary account (including a pension,
profit-sharing or other employee benefit trust created pursuant to a plan
qualified under Section 401 of the Code) although more than one beneficiary is
involved. The term "purchase" also includes purchases by any "company," as
that term is defined in the Investment Company Act, but does not include
purchases by any such company that has not been in existence for at least six
months or that has no purpose other than the purchase of shares of the Fund or
shares of other registered investment companies at a discount. The term
"purchase" shall not include purchases by any group of individuals whose sole
organizational nexus is that the participants therein are credit cardholders
of a company, policyholders of an insurance company, customers of either a
bank or broker-dealer or clients of an investment adviser. The term "purchase"
also includes purchases by employee benefit plans not qualified under Section
401 of the Code, including purchases by employees or by employers on behalf of
employees, by means of a payroll deduction plan or otherwise, of shares of the
Fund. Purchases by such a company or non-qualified employee benefit plan will
qualify for the quantity discounts discussed above only if the Fund and the
Distributor are able to realize economies of scale in sales effort and sales
related expense by means of the company, employer or plan making the Fund's
Prospectus available to individual investors or employees and forwarding
investments by such persons to the Fund and by any such employer or plan
bearing the expense of any payroll deduction plan.
Closed-End Fund Investment Option. Class A shares of the Fund and other
MLAM-advised mutual funds ("Eligible Class A Shares") are offered at net asset
value to shareholders of certain closed-end funds advised by MLAM or its
affiliate, FAM, who purchased such closed-end fund shares prior to October 21,
1994 (the date the Merrill Lynch Select Pricing SM System commenced
operations) and wish to reinvest the net proceeds from a sale
16
<PAGE>
of their closed-end fund shares of common stock in Eligible Class A Shares, if
the conditions set forth below are satisfied. Alternatively, closed-end fund
shareholders who purchased such shares on or after October 21, 1994, and wish
to reinvest the net proceeds from a sale of their closed-end fund shares are
offered Class A shares (if eligible to buy Class A shares) or Class D shares
of the Fund and other MLAM-advised mutual funds ("Eligible Class D Shares"),
if the following conditions are met. First, the sale of the closed-end fund
shares must be made through Merrill Lynch, and the net proceeds therefrom must
be immediately reinvested in Eligible Class A or Class D Shares. Second, the
closed-end fund shares must either have been acquired in the initial public
offering or be shares representing dividends from shares of common stock
acquired in such offering. Third, the closed-end fund shares must have been
continuously maintained in a Merrill Lynch securities account. Fourth, there
must be a minimum purchase of $250 to be eligible for the investment option.
Shareholders of certain MLAM-advised continuously offered closed-end funds
may reinvest at net asset value the net proceeds from a sale of certain shares
of common stock of such funds in shares of the Fund. Upon exercise of this
investment option, shareholders of Merrill Lynch Senior Floating Rate Fund,
Inc. will receive Class A shares of the Fund and shareholders of Merrill Lynch
Municipal Strategy Fund, Inc. and Merrill Lynch High Income Municipal Bond
Fund, Inc. will receive Class D shares of the Fund, except that shareholders
already owning Class A shares of the Fund will be eligible to purchase
additional Class A shares pursuant to this option, if such additional Class A
shares will be held in the same account as the existing Class A shares and the
other requirements pertaining to the reinvestment privilege are met. In order
to exercise this investment option, a shareholder of one of the above-
referenced continuously offered closed-end funds (an "eligible fund") must
sell his or her shares of common stock of the eligible fund (the "eligible
shares") back to the eligible fund in connection with a tender offer conducted
by the eligible fund and reinvest the proceeds immediately in the designated
class of shares of the Fund. This investment option is available only with
respect to eligible shares as to which no Early Withdrawal Charge or CDSC
(each as defined in the eligible fund's prospectus) is applicable. Purchase
orders from eligible fund shareholders wishing to exercise this investment
option will be accepted only on the day that the related tender offer
terminates and will be effected at the net asset value of the designated class
of the Fund on such day.
REDUCED INITIAL SALES CHARGES
Right of Accumulation. The reduced sales charges are applicable through a
right of accumulation under which eligible 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 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. Acceptance of the purchase order is subject to such
confirmation. The right of accumulation may be amended or terminated at any
time. Shares held in the name of a nominee or custodian under pension, profit-
sharing or other employee benefit plans may not be combined with other shares
to qualify for the right of accumulation.
Letter of Intention. Reduced sales charges are applicable to purchases
aggregating $25,000 or more of Class A or Class D shares of the Fund or of 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.
17
<PAGE>
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 but 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 purchased 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.
Purchase Privilege of Certain Persons. Directors of the Fund, members of the
Boards of other MLAM-advised investment companies, ML & Co. and its
subsidiaries (the term "subsidiaries," when used herein with respect to ML &
Co., includes MLAM, FAM and certain other entities directly or indirectly
wholly owned and controlled by ML & Co.) and their directors and employees,
and any trust, pension, profit-sharing or other benefit plan for such persons
may purchase Class A shares of the Fund at net asset value.
Class D shares of the Fund are offered at net asset value, without a sales
charge, to an investor who has a business relationship with a financial
consultant who joined Merrill Lynch from another investment firm within six
months prior to the date of purchase by such investor if the following
conditions are satisfied: first, the investor must advise Merrill Lynch that
it will purchase Class D shares of the Fund with proceeds from a redemption of
a mutual fund that was sponsored by the financial consultant's previous firm
and was subject to a sales charge either at the time of purchase or on a
deferred basis; and second, the investor also must establish that such
redemption had been made within 60 days prior to the investment in the Fund,
and the proceeds from the redemption had been maintained in the interim in
cash or a money market fund.
Class D shares of the Fund are also offered at net asset value, without 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 sponsored by
a non-Merrill Lynch company for which Merrill Lynch has served as a selected
dealer and where
18
<PAGE>
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; and second, such purchase of Class D shares must be made within 90 days
after such notice of termination.
Class D shares of the Fund are offered at net asset value, without a sales
charge, to an investor who has a business relationship with a Merrill Lynch
Financial Consultant and who has invested in a mutual fund for which Merrill
Lynch has not served as a selected dealer if the following conditions are
satisfied: first, the investor must advise Merrill Lynch that it will purchase
Class D shares of the Fund with proceeds from the redemption of such shares of
the other mutual fund and that such shares have been outstanding for a period
of no less than six months; and second, such purchase of Class D shares must
be made within 60 days after the redemption and the proceeds from the
redemption must be maintained in the interim in cash or a money market fund.
TMA SM Managed Trusts. Class A shares are offered to TMA SM Managed Trusts
to which Merrill Lynch Trust Company provides discretionary trustee services
at net asset value.
Employee Access SM Accounts. Provided applicable threshold requirements are
met, either Class A or Class D shares are offered at net asset value to
Employee Access SM Accounts available through authorized employers. The
initial minimum for such accounts is $500 except that the initial minimum for
shares purchased for such accounts pursuant to the Automatic Investment
Program is $50.
Acquisition of Certain Investment Companies. The public offering price of
Class D shares of the Fund may be reduced to the net asset value per Class D
share in connection with the acquisition of the assets of or merger or
consolidation with a public or private investment company. The value of the
assets or company acquired in a tax-free transaction may be adjusted in
appropriate cases to reduce possible adverse tax consequences to the Fund that
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 that (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, that are not restricted as to
transfer either by law or liquidity of market (except that the Fund may
acquire through such transactions restricted or illiquid securities to the
extent the Fund does not exceed the applicable limits on acquisition of such
securities set forth under "Investment Objective and Policies" herein).
Reductions in or exemptions from the imposition of a sales load are due to
the nature of the investors and/or the reduced sales efforts that will be
needed in obtaining such investments.
EMPLOYER-SPONSORED RETIREMENT OR SAVINGS PLANS AND CERTAIN OTHER ARRANGEMENTS
Certain employer-sponsored retirement or savings plans and certain other
arrangements may purchase Class A or Class D shares at net asset value, based
on the number of employees or number of employees eligible to participate in
the plan, the aggregate amount invested by the plan in specified investments
and/or the services
19
<PAGE>
provided by Merrill Lynch to the plan. Certain other plans may purchase Class
B shares with a waiver of the CDSC upon redemption, based on similar criteria.
Such Class B shares will convert into Class D shares approximately ten years
after the plan purchases the first share of any MLAM-advised mutual fund.
Minimum purchase requirements may be waived or varied for such plans.
Additional information regarding purchases by employer-sponsored retirement or
savings plans and certain other arrangements is available toll-free from
Merrill Lynch Business Financial Services at (800) 237-7777.
DISTRIBUTION PLANS
Reference is made to "Purchase of Shares--Distribution Plans" in the
Prospectus for certain information with respect to the separate distribution
plans for Class B, Class C and Class D shares pursuant to Rule 12b-1 under the
Investment Company Act (each a "Distribution Plan") with respect to the
account maintenance and/or distribution fees paid by the Fund to the
Distributor with respect to such classes.
Payments of the account maintenance fees and/or distribution fees are
subject to the provisions of Rule 12b-1 under the Investment Company Act.
Among other things, each Distribution Plan provides that the Distributor shall
provide and the Directors shall review quarterly reports of the disbursement
of the account maintenance fees and/or distribution fees paid to the
Distributor. In their consideration of each Distribution Plan, the Directors
must consider all factors they deem relevant, including information as to the
benefits of the Distribution Plan to the Fund and 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 a 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 outstanding 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 the Directors,
including a majority of the Independent Directors who have no direct or
indirect financial interest in such Distribution Plan, cast in person at a
meeting called for that purpose. Rule 12b-1 further requires that the Fund
preserve copies of each Distribution Plan and any report made pursuant to such
plan for a period of not less than six years from the date of such
Distribution Plan or such report, the first two years in an easily accessible
place.
LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES
The maximum sales charge rule in the Conduct Rules of the National
Association of Securities Dealers, Inc. (the "NASD") imposes a limitation on
certain asset-based sales charges such as the distribution fee and the CDSC
borne by the Class B and Class C shares but not the account maintenance fee.
The maximum sales charge rule is applied separately to each class. As
applicable to the Fund, the maximum sales charge rule limits the aggregate of
distribution fee payments and CDSCs payable by the Fund to (1) 6.25% of
eligible gross sales of Class B shares and Class C shares, computed separately
(defined to exclude shares issued pursuant to dividend reinvestments and
exchanges), plus (2) interest on the unpaid balance for the respective class,
computed separately, at the prime rate plus 1% (the unpaid balance being the
maximum amount payable minus amounts received from the payment of the
distribution fees and the CDSCs). In connection with the Class B shares, the
20
<PAGE>
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 November 30,
1997, with respect to Class B and Class C shares, 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 for
the periods indicated.
<TABLE>
<CAPTION>
DATA CALCULATED AS OF NOVEMBER 30, 1997
-----------------------------------------------------------------------------------
(IN THOUSANDS)
ANNUAL
ALLOWABLE AMOUNTS DISTRIBUTION
ELIGIBLE AGGREGATE INTEREST MAXIMUM PREVIOUSLY AGGREGATE FEE AT CURRENT
GROSS SALES ON 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
PERIOD SEPTEMBER 27,
1991 (COMMENCEMENT OF
OPERATIONS) TO NOVEMBER
30, 1997:
Under NASD Rule as
Adopted................ $1,030,207 $64,388 $18,201 $82,589 $28,849 $53,740 $3,956
Under Distributor's
Voluntary Waiver....... $1,030,207 $64,388 $ 5,151 $69,539 $28,849 $40,690 $3,956
CLASS C SHARES, FOR THE
PERIOD OCTOBER 21, 1994
(COMMENCEMENT OF
OPERATIONS) TO NOVEMBER
30, 1997:
Under NASD Rule as
Adopted................ $ 53,083 $ 3,318 $ 484 $ 3,802 $ 575 $ 3,227 $ 278
</TABLE>
- --------
(1) Purchase price of all eligible Class B or Class C shares sold during
periods indicated other than shares acquired through dividend reinvestment
and the exchange privilege.
(2) Interest is computed on a monthly basis based upon the prime rate, as
reported in The Wall Street Journal, plus 1%, as permitted under the NASD
Rule.
(3) Consists of CDSC payments, distribution fee payments and accruals. Of the
distribution fee payments made with respect to Class B shares prior to
July 7, 1993, under the distribution plan in effect at that time, at the
1.0% rate, 0.75% of average daily net assets has been treated as a
distribution fee and 0.25% of average daily net assets has been deemed to
have been a service fee and not subject to the NASD maximum sales charge
rule. This figure may include CDSC's that were deferred when a shareholder
redeemed shares prior to the expiration of the applicable CDSC period and
invested the proceeds, without the imposition of a sales charge, in Class
A shares in conjunction with the shareholder's participation in the
Merrill Lynch Mutual Fund Advisor (Merrill Lynch MFA SM) Program (the "MFA
Program"). The CDSC is booked as a contingent obligation that may be
payable if the shareholder terminates participation in the MFA Program.
See "Purchase of Shares--Distribution Plans" in the Prospectus.
(4) Provided to illustrate the extent to which the current level of
distribution fee payments (not including any CDSC payments) is amortizing
the unpaid balance. No assurance can be given that payments of the
distribution fee will reach either the NASD maximum or, with respect to
Class B shares, the voluntary maximum.
21
<PAGE>
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 redeem shares or to receive payment with respect to any such
redemption may be suspended for more than seven days only for any period
during which trading on the NYSE is restricted as determined by the Commission
or the NYSE is closed (other than customary weekend and holiday closings) for
any period during which an emergency exists, as defined by the Commission, as
a result of which disposal of portfolio securities or determination of the net
asset value of the Fund is not reasonably practicable, and for such other
periods as the Commission may by order permit for the protection of
shareholders of the Fund.
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 any such time.
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 on redemptions of Class B shares in
certain instances, including in connection with certain post-retirement
withdrawals from an Individual Retirement Account ("IRA") or other retirement
plan or following the death or disability of a Class B shareholder.
Redemptions for which the waiver applies in the case of such withdrawals are:
(a) any partial or complete redemption in connection with a tax-free
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
year ended November 30, 1995, the Distributor received CDSCs of $2,264,262
with respect to redemptions of Class B shares, all of which were paid to
Merrill Lynch. For the fiscal year ended November 30, 1996, the Distributor
received CDSCs of $1,554,900 with respect to redemptions of Class B shares,
all of which were paid to Merrill Lynch. For the fiscal year ended November
30, 1997, the Distributor received CDSCs of $1,403,724, with respect to
redemptions of Class B shares, all of which were paid to Merrill Lynch.
Additional CDSCs payable to the Distributor with respect to the fiscal years
ended November 30, 1996 and 1997, may have been waived or converted to a
contingent obligation in connection with a shareholder's participation in
certain fee-based programs. For the fiscal years ended November 30, 1995, 1996
and 1997, the Distributor received CDSCs of $14,661, $17,371 and $31,593,
respectively, with respect to redemptions of Class C shares, all of which were
paid to Merrill Lynch.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Reference is made to "Investment Objective and Policies--Other Investment
Policies and Practices--Portfolio Transactions" in the Prospectus.
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. 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
22
<PAGE>
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. 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. In
addition, consistent with the Conduct Rules of the NASD and policies
established by the Directors of the Fund, the Manager may consider sales of
shares of the Fund as a factor in the selection of brokers or dealers to
execute portfolio transactions for the Fund. 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.
The Fund anticipates that its brokerage transactions involving securities of
companies domiciled in countries other than the United States generally will
be conducted primarily on the principal stock exchanges of such countries.
Brokerage commissions and other transaction costs on foreign stock exchange
transactions are generally higher than in the United States, although the Fund
will endeavor to achieve the best net results in effecting its portfolio
transactions. There is generally less governmental supervision and regulation
of foreign stock exchanges and brokers than in the United States.
The Fund may invest in certain securities traded in the OTC market and
intends, where possible, to deal directly with the dealers who make a market
in the securities involved, except in those circumstances in which 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 accounts, affiliated persons of the Fund, including Merrill Lynch and any
of its affiliates, will not serve as the Fund's dealer in such transactions.
However, affiliated persons of the Fund may serve as its broker in listed or
OTC 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. In addition, the Fund may not
purchase securities during the existence of any underwriting syndicate for
such securities of which Merrill Lynch is a member or in a private placement
in which Merrill Lynch serves as placement agent except pursuant to procedures
approved by the Board of Directors of the Fund that either comply with rules
adopted by the Commission or with interpretations of the Commission staff. See
"Investment Objective and Policies--Investment Restrictions."
For the fiscal year ended November 30, 1995, the Fund paid total brokerage
commissions of $2,724,059, of which $280,047, or 10.3%, was paid to Merrill
Lynch for effecting 13.6% of the aggregate dollar amount of transactions on
which the Fund paid brokerage commissions. For the fiscal year ended November
30, 1996, the Fund paid total brokerage commissions of $2,285,881, of which
$173,055, or 7.57%, was paid to Merrill Lynch for effecting 7.23% of the
aggregate dollar amount of transactions on which the Fund paid brokerage
23
<PAGE>
commissions. For the fiscal year ended November 30, 1997, the Fund paid total
brokerage commissions of $3,466,172, of which $75,219, or 2.17%, was paid to
Merrill Lynch for effecting 2.21% of the aggregate dollar amount of
transactions on which the Fund paid brokerage commissions.
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, it
is not believed that these considerations will have any significant effect on
its portfolio strategy.
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 that
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 the aggregate compensation received by the member in
effecting such transactions, and (iii) complies with any rules the Commission
has prescribed with respect to the requirements of clauses (i) and (ii). To
the extent Section 11(a) would apply to Merrill Lynch acting as a broker for
the Fund in any of its portfolio transactions executed on any such securities
exchange of which it is a member, appropriate consents have been obtained from
the Fund and annual statements as to aggregate compensation will be provided
to the Fund.
The Board of Directors has considered the possibility 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 advisory fee paid by the Fund.
After considering all factors deemed relevant, the Board of Directors made a
determination not to seek such recapture. The Directors will reconsider this
matter from time to time.
DETERMINATION OF NET ASSET VALUE
Reference is made to "Additional Information--Determination of Net Asset
Value" in the Prospectus concerning the determination of net asset value. The
net asset value of the shares of the Fund is determined once daily Monday
through Friday as of 15 minutes after the close of business on the New York
Stock Exchange (the "NYSE") (generally, 4:00 p.m., New York time), on each day
the NYSE is open for trading. The NYSE is not open on New Year's Day, Martin
Luther King, Jr. 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 management fees and any
account maintenance and/or distribution fees, are accrued daily. The per share
net asset value of 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 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
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
24
<PAGE>
after the payment of dividends or distributions which will differ by
approximately the amount of the expense accrual differentials between the
classes.
Portfolio securities, including ADRs, EDRs or GDRs, that 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 for long positions and at the last available ask price for short
positions. 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. Long positions in securities
traded in the OTC market are valued at the last available bid price in the OTC
market prior to the time of valuation. Short positions in securities traded in
the OTC market are valued at the last available ask price in the OTC market
prior to the time of valuation. Portfolio securities that are traded in both
the OTC market and on a stock exchange are valued according to the broadest
and most representative market. When the Fund writes an option, the amount of
the premium received is recorded on the books of the Fund as an asset and an
equivalent liability. The amount of the liability is subsequently valued to
reflect the current market value of the option written, based upon the last
sale price in the case of exchange-traded options or, in the case of options
traded in the OTC market, the last asked price. Options purchased by the Fund
are valued at their last sale price in the case of exchange-traded options or,
in the case of options traded in the OTC market, the last bid price.
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. Such valuation and procedures will be
reviewed periodically by the Board of Directors.
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services described below which are
designed to facilitate investment in its shares. Full details as to each of
such services and copies of the various plans described below can be obtained
from the Fund, 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 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 also will receive separate confirmations for each purchase or
sale transaction other than automatic investment purchases, reinvestment of
ordinary income dividends and long-term capital gain distributions. A
shareholder may make additions to his Investment Account at any time by
mailing a check directly to the Fund's transfer agent.
Share certificates are issued only for full shares and only upon the
specific request of the shareholder. Issuance of certificates representing all
or only part of the full shares in an Investment Account may be requested by a
shareholder directly from the Fund's transfer agent.
Shareholders considering transferring their Class A or Class D shares from
Merrill Lynch to another brokerage firm or financial institution should be
aware that, if the firm to which the Class A or Class D shares are to be
transferred will not take delivery of shares of the Fund, a shareholder either
must redeem the Class A or Class D shares (paying any applicable CDSC) so that
the cash proceeds can be transferred to the account at the new firm or such
shareholder must continue to maintain an Investment Account at the transfer
agent for those
25
<PAGE>
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 or she be issued certificates for the 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 IRA 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 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 such
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.
An investor whose shares of the Fund are held within a CMA (R) or CBA (R)
account may arrange to have periodic investments made in the Fund in amounts
of $100 or more ($1 for retirement accounts) through the CMA (R) or CBA (R)
Automated Investment Program. The Fund is not responsible for any failure of
delivery to the shareholder's address of record and no interest will accrue on
amounts represented by uncashed distribution or redemption checks.
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 will be reinvested automatically in additional shares of the
Fund. Such reinvestment will be at the net asset value of shares of the Fund
as of the close of business on the ex-dividend date of the dividend or
distribution. Shareholders may elect in writing to receive either their
dividends or capital gains distributions, or both, in cash, in which event
payment will be mailed or direct deposited on or about the payment date.
Shareholders may, at any time, notify Merrill Lynch in writing if the
shareholder's account is maintained by Merrill Lynch or notify the Transfer
Agent in writing or by telephone (1-800-MER-FUND) if the shareholder's account
is maintained by the Transfer Agent 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
A shareholder may elect to make withdrawals from an Investment Account of
Class A, Class B, Class C or Class D shares on either a monthly or quarterly
basis as provided below. Quarterly withdrawals are available for shareholders
who have acquired shares of the Fund having a value, based on cost or the
current offering price, of $5,000 or more and monthly withdrawals are
available for shareholders with shares having a value of $10,000 or more.
26
<PAGE>
At the time of each withdrawal payment, sufficient 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
the dollar amount and class of shares to be redeemed. Redemptions will be made
at net asset value as determined as of 15 minutes after the close of business
on the NYSE (generally, 4:00 p.m. New York time) on the 24th day of each month
or the 24th day of the last month of each quarter, whichever is applicable. If
the NYSE is not open for business on such date, the shares will be redeemed at
the net asset value next determined after the close of business on the NYSE on
the following business day. The check for the withdrawal payment will be
mailed, or the direct deposit of the withdrawal payment will be made, on the
next business day following redemption. When a shareholder is making
systematic withdrawals, dividends and distributions on all shares in the
Investment Account are reinvested automatically in shares of the Fund. A
shareholder's Systematic Withdrawal Plan may be terminated at any time,
without charge or penalty, by the shareholder, the Fund, the Transfer Agent or
the Distributor.
Withdrawal payments should not be considered as dividends, yield or income.
Each withdrawal is a taxable event. If periodic withdrawals continuously
exceed reinvested dividends and capital gains distributions, the shareholder's
original investment may be reduced correspondingly. Purchases of additional
shares concurrent with withdrawals are ordinarily disadvantageous to the
shareholder because of sales charges and tax liabilities. The Fund will not
knowingly accept purchase orders for shares of the Fund from investors who
maintain a Systematic Withdrawal Plan unless such purchase is equal to at
least one year's scheduled withdrawals or $1,200, whichever is greater.
Periodic investments may not be made into an Investment Account in which the
shareholder has elected to make systematic withdrawals.
A 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) or CBA(R) Systematic Redemption
Program. The minimum fixed dollar amount redeemable is $50. The proceeds of
systematic redemptions will be posted to the shareholder's account three
business days after the date the shares are redeemed. All redemptions are made
at net asset value. A shareholder may elect to have his or her shares redeemed
on the first, second, third or fourth Monday of each month, in the case of
monthly redemptions, or every other month, in the case of bimonthly
redemptions. For quarterly, semiannual or annual redemptions, the shareholder
may select the month in which the shares are to be redeemed and may designate
whether the redemption is to be made on the first, second, third or fourth
Monday of the month. If the Monday selected is not a business day, the
redemption will be processed at net asset value on the next business day. The
Systematic Redemption Program is not available if Fund shares are being
purchased within the account pursuant to the Automatic Investment Program. For
more information on the CMA(R) or CBA(R) Systematic Redemption Program,
eligible shareholders should contact their Merrill Lynch Financial Consultant.
With respect to redemptions of Class B and Class C shares pursuant to a
systematic withdrawal plan, the maximum number of Class B or Class C shares
that can be redeemed from an account annually shall not exceed 10% of the
value of shares of such class in that account at the time the election to join
the systematic withdrawal plan was made. Any CDSC that otherwise might be due
on such redemption of Class B or Class C shares will be waived. Shares
redeemed pursuant to a systematic withdrawal plan will be redeemed in the same
order as Class B or Class C shares are otherwise redeemed. See "Purchase of
Shares--Deferred Sales Charge Alternatives--Class B and Class C Shares--
Contingent Deferred Sales Charges--Class B Shares" and "--Contingent Deferred
Sales Charges--Class C Shares" in the Prospectus. Where the systematic
withdrawal
27
<PAGE>
plan is applied to Class B shares, upon conversion of the last Class B shares
in an account to Class D shares, the systematic withdrawal plan will
automatically be applied thereafter to Class D shares. See "Purchase of
Shares--Deferred Sales Charge Alternatives--Class B and Class C Shares--
Conversion of Class B Shares to Class D Shares" in the Prospectus; if an
investor wishes to change the amount being withdrawn in a systematic
withdrawal plan the investor should contact his or her Financial Consultant.
EXCHANGE PRIVILEGE
U.S. shareholders of each class of shares of the Fund have an exchange
privilege with certain other MLAM-advised mutual funds. Under the Merrill
Lynch Select Pricing SM System, Class A shareholders may exchange Class A
shares of the Fund for Class A shares of a second MLAM-advised mutual fund if
the shareholder holds any Class A shares of the second fund in his or her
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 or her account at the time of the exchange and is not otherwise eligible
to acquire Class A shares of the second fund, the shareholder will receive
Class D shares of the second fund as a result of the exchange. Class D shares
also may be exchanged for Class A shares of a second MLAM-advised mutual fund
at any time as long as, at the time of the exchange, the shareholder holds
Class A shares of the second fund in the account in which the exchange is made
or is otherwise eligible to purchase Class A shares of the second fund. Class
B, Class C and Class D shares are exchangeable with shares of the same class
of other MLAM-advised mutual funds. For purposes of computing the CDSC that
may be payable upon a disposition of the shares acquired in the exchange, the
holding period for the previously owned shares of the Fund is "tacked" to the
holding period for the newly acquired shares of the other Fund as more fully
described below. Class A, Class B, Class C and Class D shares are also
exchangeable for shares of certain MLAM-advised money market funds as follows:
Class A shares may be exchanged for shares of Merrill Lynch Ready Assets
Trust, Merrill Lynch Retirement Reserves Money Fund (available only for
exchanges within certain retirement plans), Merrill Lynch U.S.A. Government
Reserves and Merrill Lynch U.S. Treasury Money Fund; Class B, Class C and
Class D shares may be exchanged for shares of Merrill Lynch Government Fund,
Merrill Lynch Institutional Fund, Merrill Lynch Institutional Tax-Exempt Fund
and Merrill Lynch Treasury Fund. Shares with a net asset value of at least
$100 are required to qualify for the exchange privilege, and any shares
utilized in an exchange must have been held by the shareholder for at least 15
days. It is contemplated that the exchange privilege may be applicable to
other new mutual funds whose shares may be distributed by the Distributor.
Exchanges of Class A or Class D shares outstanding ("outstanding Class A or
Class D shares") for Class A or Class D shares of another MLAM-advised mutual
fund ("new Class A or Class D shares") are transacted on the basis of relative
net asset value per Class A or Class D share, respectively, plus an amount
equal to the difference, if any, between the sales charge previously paid on
the outstanding Class A or Class D shares and the sales charge payable at the
time of the exchange on the new Class A or Class D shares. With respect to
outstanding Class A or Class D shares as to which previous exchanges have
taken place, the "sales charge previously paid" shall include the aggregate of
the sales charge paid with respect to such Class A or Class D shares in the
initial purchase and any subsequent exchange. Class A or Class D shares issued
pursuant to dividend reinvestment are sold on a no-load basis in each of the
funds offering Class A or Class D shares. For purposes of the exchange
privilege, Class A and Class D shares acquired through dividend reinvestment
shall be deemed to have been sold with a sales charge equal to the sales
charge previously paid on the Class A or Class D shares on
28
<PAGE>
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 certain money market funds with a reduced or
without a sales charge.
In addition, each of the funds with Class B and Class C shares outstanding
("outstanding Class B or Class C shares") offers to exchange its Class B or
Class C shares for Class B or Class C shares, respectively ("new Class B or
Class C shares"), of another MLAM-advised mutual fund on the basis of relative
net asset value per Class B or Class C share, without the payment of any CDSC
that might otherwise be due on redemption of the outstanding shares. Class B
shareholders of the Fund exercising the exchange privilege will continue to be
subject to the Fund's CDSC schedule if such schedule is higher than the CDSC
schedule relating to the new Class B shares acquired through use of the
exchange privilege. In addition, Class B shares of the Fund acquired through
use of the exchange privilege will be subject to the Fund's CDSC schedule if
such schedule is higher than the CDSC schedule relating to the Class B shares
of the fund from which the exchange has been made. For purposes of computing
the sales charge that may be payable on a disposition of the new Class B or
Class C shares, the holding period for the outstanding Class B or Class C
shares is "tacked" to the holding period for the new Class B or Class C
shares. For example, an investor may exchange Class B shares of the Fund for
those of Merrill Lynch Special Value Fund, Inc. ("Special Value Fund") after
having held the Fund Class B shares for two and a half years. The 2% CDSC that
generally would apply to a redemption would not apply to the exchange. Three
years later the investor may decide to redeem the Class B shares of Special
Value Fund and receive cash. There will be no CDSC due on this redemption,
since by "tacking" the two and a half year holding period of Fund Class B
shares to the three year holding period for the Special Value Fund Class B
shares, the investor will be deemed to have held the new Class B shares for
more than five years.
Shareholders also may exchange shares of the Fund into shares of certain
money market funds 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 newly-acquired fund will be aggregated with
previous holding periods for purposes of reducing the CDSC. Thus, for example,
an investor may exchange Class B shares of the Fund for shares of Merrill
Lynch Institutional Fund ("Institutional Fund") after having held the Fund
Class B shares for two and a half years and three years later decide to redeem
the shares of Institutional Fund for cash. At the time of this redemption, the
2% CDSC that would have been due had the Class B shares of the Fund been
redeemed for cash rather than exchanged for shares of Institutional Fund will
be payable. If instead of such redemption the shareholder exchanged such
shares for Class B shares of a fund which the shareholder continued to hold
for an additional two and a half years, any subsequent redemption would not
incur a CDSC.
Before effecting an exchange, shareholders of the Fund 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 MLAM-advised mutual
funds 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
29
<PAGE>
Exchange Application. This exchange privilege may be modified or terminated in
accordance with the rules of the Commission. The Fund reserves the right to
limit the number of times an investor may exercise the exchange privilege.
Certain funds may suspend the continuous offering of their shares at any time
and may thereafter resume such offering from time to time. The exchange
privilege is available only to U.S. shareholders in states where the exchange
legally may be made.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
It is the Fund's intention to distribute all of its net investment income,
if any. Dividends from such net investment income are paid at least annually.
All net realized capital gains, if any, are distributed to the Fund's
shareholders at least annually. Premiums from expired options written by the
Fund and net gains from closing purchase transactions with respect to such
options are treated as short-term capital gains for Federal income tax
purposes. See "Shareholder Services--Automatic Reinvestment of Dividends and
Distributions" in the Prospectus for information concerning the manner in
which dividends and distributions may be reinvested automatically 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
shareholders as described below whether they are invested in shares of the
Fund or received in cash. 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 Code. As long as it
so qualifies, the Fund (but not its shareholders) will not be subject to
Federal income tax on the part of its net ordinary income and net realized
capital gains which it distributes to Class A, Class B, Class C and Class D
shareholders (together, the "shareholders"). The Fund intends to distribute
substantially all of such income.
Dividends paid by the Fund from its ordinary income or from an excess of net
short-term capital gains over net long-term capital losses (together referred
to hereafter as "ordinary income dividends") are taxable to shareholders as
ordinary income. Distributions made from an excess of net long-term capital
gains over net short-term capital losses (including gains or losses from
certain transactions in 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, 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). Recent legislation
creates additional categories of capital gains taxable at different rates.
Generally not later than 60 days after the close of its taxable year, the Fund
will provide
30
<PAGE>
its shareholders with a written notice designating the amounts of any ordinary
income dividends or capital gain dividends, as well as the amount of capital
gain dividends in the different categories of capital gain referred to above.
Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Fund. Distributions by the Fund, whether from
ordinary income or capital gains, generally will not be eligible for the
dividends received deduction allowed to corporations under the Code. If the
Fund pays a dividend in January which was declared in the previous October,
November or December to shareholders of record on a specified date in one of
such months, then such dividend will be treated for tax purposes as being paid
by the Fund and received by its shareholders on December 31 of the year in
which such dividend was declared.
Ordinary income dividends paid to shareholders who are nonresident aliens or
foreign entities will be subject to a 30% U.S. withholding tax under existing
provisions of the Code applicable to foreign individuals and entities unless a
reduced rate of withholding or a withholding exemption is provided under
applicable treaty law. Nonresident shareholders are urged to consult their own
tax advisers concerning the applicability of the U.S. withholding tax.
Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on ordinary income dividends, capital gain dividends and
redemption payments ("backup withholding"). Generally, shareholders subject to
backup withholding will be those for whom no 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. In addition, recent legislation permits a foreign
tax credit to be claimed with respect to withholding tax on a dividend only if
the shareholder meets certain holding period requirements. 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 in 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. In the case of
foreign taxes passed through by a RIC, the holding period requirements
referred to above must be met by both the shareholder and the RIC. 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 and other information needed to claim the
foreign tax credit. For this purpose, the Fund will allocate foreign taxes and
foreign source income among the Class A, Class B, Class C
31
<PAGE>
and Class D shareholders according to a method (which it believes is
consistent with the Commission rule permitting the issuance and sale of
multiple classes of stock) that is based on the gross income allocable to
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 of the converted Class B shares.
If a shareholder exercises an exchange privilege within 90 days of acquiring
the shares, then the loss the shareholder can recognize on the exchange will
be reduced (or the gain increased) to the extent any sales charge paid to the
Fund on the exchanged shares reduces any sales charge the shareholder would
have owed upon purchase of the new shares in the absence of the exchange
privilege. Instead, such sales charge will be treated as an amount paid for
the new shares.
A loss realized on a sale or exchange of shares of the Fund will be
disallowed if other Fund shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30
days before and ending 30 days after the date that the shares are disposed of.
In such a case, the basis of the shares acquired will be adjusted to reflect
the disallowed loss.
The Code requires a RIC to pay a nondeductible 4% excise tax to the extent
the RIC does not distribute, during each calendar year, 98% of its ordinary
income, determined on a calendar year basis, and 98% of its capital gains,
determined, in general, on an October 31 year end, plus certain undistributed
amounts from previous years. While the Fund intends to distribute its income
and capital gains in the manner necessary to minimize imposition of the 4%
excise tax, there can be no assurance that sufficient amounts of the Fund's
taxable income and capital gains will be distributed to avoid entirely the
imposition of the tax. In such event, the Fund will be liable for the tax only
on the amount by which it does not meet the foregoing distribution
requirements.
The Fund may invest in securities rated in the medium to lower rating
categories of nationally recognized rating organizations and in unrated
securities ("high yield/high risk securities"), as described in the
Prospectus. Some of these high yield/high risk securities may be purchased at
a discount and may therefore cause the Fund to accrue and distribute income
before amounts due under the obligations are paid. In addition, a portion of
the interest payments on such high yield/high risk securities may be treated
as dividends for Federal income tax purposes; in such case, if the issuer of
such high yield/high risk 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.
Due to investment laws in certain Latin American countries, it is
anticipated that the Fund's investments in equity securities in such countries
will consist primarily of shares of investment companies (or similar
investment entities) organized under foreign law or of ownership interests in
special accounts, trusts or partnerships. The Fund may invest up to 10% of its
total assets in securities of other investment companies. If the Fund
purchases shares of an investment company (or similar investment entity)
organized under foreign law, the Fund will be treated as owning shares in a
passive foreign investment company ("PFIC") for U.S. Federal income tax
purposes. The Fund may be subject to U.S. Federal income tax, and an
additional tax in the nature of interest (the "interest charge"), on a portion
of distributions from such a company and on gain from the disposition of
32
<PAGE>
the shares of such a company (collectively referred to as "excess
distributions"), even if such excess distributions are paid by the Fund as a
dividend to its shareholders. The Fund may be eligible to make an election
with respect to certain PFICs in which it owns shares that will allow it to
avoid the taxes on excess distributions. However, such election may cause the
Fund to recognize income in a particular year in excess of the distributions
received from such PFICs. Alternatively, under recent legislation the Fund
could elect to "mark to market" at the end of each taxable year all shares
that it holds in PFICs. If it made this election, the Fund would recognize as
ordinary income any increase in the value of such shares over their adjusted
basis and as ordinary loss any decrease in such value to the extent it did not
exceed prior increases. By making the mark-to-market election, the Fund could
avoid imposition of the interest charge with respect to its distributions from
PFICs, but in any particular year might be required to recognize income in
excess of the distributions it received from PFICs and its proceeds from
dispositions of PFIC stock.
TAX TREATMENT OF OPTIONS, FUTURES AND FORWARD FOREIGN EXCHANGE TRANSACTIONS
The Fund may write, purchase or sell options, futures and forward foreign
exchange contracts. Options and futures contracts that are "Section 1256
contracts" will be "marked to market" for Federal income tax purposes at the
end of each taxable year, i.e., each such option or futures contract will be
treated as sold for its fair market value on the last day of the taxable year.
Unless such contract is a forward foreign exchange contract, or is a non-
equity option or a regulated futures contract for a non-U.S. currency for
which the Fund elects to have gain or loss treated as ordinary gain or loss
under Code Section 988 (as described below), gain or loss from Section 1256
contracts will be 60% long-term and 40% short-term capital gain or loss.
Application of these rules to Section 1256 contracts held by the Fund may
alter the timing and character of distributions to shareholders. The mark-to-
market rules outlined above, however, will not apply to certain transactions
entered into by the Fund solely to reduce the risk of changes in price or
interest or currency exchange rates with respect to its investments.
A forward foreign exchange contract that is a Section 1256 contract will be
marked to market, as described above. However, the character of gain or loss
from such a contract will generally be ordinary under Code Section 988. The
Fund may, nonetheless, elect to treat the gain or loss from certain forward
foreign exchange contracts as capital. In this case, gain or loss realized in
connection with a forward foreign exchange contract that is a Section 1256
contract will be characterized as 60% long-term and 40% short-term capital
gain or loss.
Code Section 1092, which applies to certain "straddles," may affect the
taxation of the Fund's sales of securities and transactions in options,
futures and forward foreign exchange contracts. Under Section 1092, the Fund
may be required to postpone recognition for tax purposes of losses incurred in
certain sales of securities and certain closing transactions in options,
futures and forward foreign exchange contracts.
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
stocks, 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
33
<PAGE>
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 Code Section 988 is
elected by the Fund. In general, however, Code Section 988 gains or losses
will increase or decrease the amount of the Fund's investment company taxable
income available to be distributed to shareholders as ordinary income.
Additionally, if Code Section 988 losses exceed other investment company
taxable income during a taxable year, the Fund would not be able to make any
ordinary income dividend distributions, and all or a portion of distributions
made before the losses were realized but in the same taxable year would be
recharacterized as a return of capital to shareholders, thereby reducing the
basis of each shareholder's Fund shares and resulting in a capital gain for
any shareholder who received a distribution greater than such shareholder's
tax basis in Fund shares (assuming the shares were held as a capital asset).
These rules and the 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 Latin American countries in which the Fund intends to
invest. No such regulations have been issued.
----------------
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections
and the Treasury regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative, judicial or administrative
action either prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state and
local taxes.
Certain states exempt from state income taxation dividends paid by RICs
which are derived from interest on U.S. Government obligations. State law
varies as to whether dividend income attributable to U.S. Government
obligations is exempt from state income tax.
Shareholders are urged to consult their own tax advisers regarding specific
questions as to Federal, foreign, state or local taxes. Foreign investors
should consider applicable foreign taxes in their evaluation of an investment
in the Fund.
34
<PAGE>
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 data are determined separately for Class A, Class
B, Class C and Class D shares in accordance with a formula specified by the
Commission.
Average annual total return quotations for the specified periods are
computed by finding the average annual compounded rates of return (based on
net investment income and any realized and unrealized capital gains or losses
on portfolio investments over such periods) that would equate the initial
amount invested to the redeemable value of such investment at the end of each
period. Average annual total return is computed assuming all dividends and
distributions are reinvested and taking into account all applicable recurring
and nonrecurring expenses, including the maximum sales charge in the case of
Class A and Class D shares and the CDSC that would be applicable to a complete
redemption of the investment at the end of the specified period in the case of
Class B and Class C shares.
The Fund also may quote annual, average annual and annualized total return
and aggregate total return performance data, both as a percentage and as a
dollar amount based on a hypothetical $1,000 investment, for various periods
other than those noted below. Such data will be computed as described above,
except that, (i) as required by the periods of the quotations, actual annual,
annualized or aggregate data, rather than average annual data, may be quoted,
and (ii) the maximum applicable sales charges will not be included. Actual
annual or annualized total return data generally will be lower than average
annual total return data since the average rates of return reflect compounding
of return; aggregate total return data generally will be higher than average
annual total return data since the aggregate rates of return reflect
compounding over longer periods of time.
Set forth in the tables below is total return information for Class A, Class
B, Class C and Class D shares of the Fund for the periods indicated. As a
result of the implementation of the Merrill Lynch Select Pricing System SM,
Class A shares of the Fund outstanding prior to October 21, 1994, were
redesignated Class D shares, and historical performance data pertaining to
such shares are provided below under the caption "Class D."
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
-------------------------- -------------------------- --------------------------
EXPRESSED REDEEMABLE EXPRESSED REDEEMABLE EXPRESSED REDEEMABLE
AS A VALUE OF A AS A VALUE OF A AS A VALUE OF A
PERCENTAGE HYPOTHETICAL PERCENTAGE HYPOTHETICAL PERCENTAGE HYPOTHETICAL
BASED ON A $1,000 BASED ON A $1,000 BASED ON A $1,000
HYPOTHETICAL INVESTMENT AT HYPOTHETICAL INVESTMENT AT HYPOTHETICAL INVESTMENT AT
$1,000 THE END OF $1,000 THE END OF $1,000 THE END OF
PERIOD INVESTMENT THE PERIOD INVESTMENT THE PERIOD INVESTMENT THE PERIOD
------ ------------ ------------- ------------ ------------- ------------ -------------
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C> <C> <C>
One Year Ended
November 30,
1997........... 15.40 % $1,154.00 16.51 % $1,165.10 19.52 % $1,195.20
Five Years Ended
November 30,
1997........... 10.09 % $1,617.40
Inception
(September 27, 1991) to
November 30, 1997. 7.97 % $1,605.70
Inception
(October 21,
1994) to
November 30,
1997........... (5.53)% $ 837.90 (4.88)% $ 855.80
<CAPTION>
CLASS D
--------------------------
EXPRESSED REDEEMABLE
AS A VALUE OF A
PERCENTAGE HYPOTHETICAL
BASED ON A $1,000
HYPOTHETICAL INVESTMENT AT
$1,000 THE END OF
PERIOD INVESTMENT THE PERIOD
------ ------------ -------------
<S> <C> <C>
One Year Ended
November 30,
1997........... 15.03 % $1,150.30
Five Years Ended
November 30,
1997........... 9.76 % $1,592.80
Inception
(September 27, 1991) to
November 30, 1997. 7.87 % $1,596.80
Inception
(October 21,
1994) to
November 30,
1997...........
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
-------------------------- -------------------------- -------------------------- --------------------------
EXPRESSED REDEEMABLE EXPRESSED REDEEMABLE EXPRESSED REDEEMABLE EXPRESSED REDEEMABLE
AS A VALUE OF A AS A VALUE OF A AS A VALUE OF A AS A VALUE OF A
PERCENTAGE HYPOTHETICAL PERCENTAGE HYPOTHETICAL PERCENTAGE HYPOTHETICAL PERCENTAGE HYPOTHETICAL
BASED ON A $1,000 BASED ON A $1,000 BASED ON A $1,000 BASED ON A $1,000
HYPOTHETICAL INVESTMENT AT HYPOTHETICAL INVESTMENT AT HYPOTHETICAL INVESTMENT AT HYPOTHETICAL INVESTMENT AT
$1,000 THE END OF $1,000 THE END OF $1,000 THE END OF $1,000 THE END OF
PERIOD INVESTMENT THE PERIOD INVESTMENT THE PERIOD INVESTMENT THE PERIOD INVESTMENT THE PERIOD
------ ------------ ------------- ------------ ------------- ------------ ------------- ------------ -------------
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year Ended
November 30, 1997. 21.79% $1,217.90 20.51 % $1,205.10 20.52 % $1,205.20 21.40 % $1,214.00
Year Ended
November 30,
1996........... 22.19% $1,221.90 20.85 % $1,208.50 20.85 % $1,208.50 21.97 % $1,219.70
Year Ended
November 30,
1995........... (37.66)% $ 623.40 (38.32)% $ 616.80 (38.32)% $ 616.80 (37.84)% $ 621.60
Year Ended
November 30,
1994........... 20.19 % $1,201.90 21.07 % $1,210.70
Inception
(October 21,
1994) to
November 30,
1994........... (4.67)% $ 953.30 (4.75)% $ 952.50
Year Ended
November 30,
1993........... 49.80 % $1,498.00 50.86 % $1,508.60
Year Ended
November 30,
1992........... 1.30 % $1,013.00 2.19 % $1,021.90
Inception
(September 27,
1991)
to November 30,
1991........... (2.00)% $ 980.00 (1.90)% $ 981.00
<CAPTION>
AGGREGATE TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Inception
(October 21,
1994) to
November 30,
1997........... (16.21)% $ 837.90 (14.42)% $ 855.80
Inception
(September 27,
1991) to
November 30,
1997........... 60.57 % $1,605.70 59.68 % $1,596.80
</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 or Class C
shares applicable to certain investors, as described under "Purchase of
Shares" and "Redemption of Shares," respectively, the total return data quoted
by the Fund in advertisements directed to such investors may take into account
the reduced, and not the maximum, sales charges, or may not take into account
the CDSC and therefore may reflect greater total return since, due to the
reduced sales charges or the waiver of CDSCs, a lower amount of expenses is
deducted.
36
<PAGE>
GENERAL INFORMATION
DESCRIPTION OF SHARES
The Fund was incorporated under Maryland law on July 1, 1991. 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. Each share
of Class A, Class B, Class C and Class D Common Stock represents an interest
in the same assets of the Fund and 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 fees, and have exclusive voting rights
with respect to matters relating to such account maintenance and/or
distribution expenditures. The Board of Directors of the Fund may classify and
reclassify the shares of the Fund into additional classes of Common Stock at a
future date.
Shareholders are entitled to one vote for each share held and fractional
votes for fractional shares held and will vote on the election of Directors
and any other matter submitted to a shareholder vote. The Fund does not intend
to hold meetings of shareholders in any year in which the Investment Company
Act does not require shareholders to act upon any of the following matters:
(i) election of Directors; (ii) approval of a management agreement; (iii)
approval of a distribution agreement; and (iv) ratification of selection of
independent accountants. Also, the by-laws of the Fund require that a special
meeting of shareholders be held upon the written request of at least 10% of
the outstanding shares of the Fund entitled to vote at such meeting. Voting
rights for Directors are not cumulative. Shares issued are fully paid and non-
assessable and have no preemptive rights. Redemption and conversion rights are
discussed elsewhere herein and in the Prospectus. Each share is entitled to
participate equally in dividends and distributions declared by the Fund and in
the net assets of the Fund upon liquidation or dissolution after satisfaction
of outstanding liabilities, except that expenses related to the distribution
of the shares of a class will be borne solely by such class. Stock
certificates are issued by the transfer agent only on specific request.
Certificates for fractional shares are not issued in any case.
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 November 30, 1997, and its shares outstanding on that date is set
forth below. The offering price for Class B and Class C shares of the Fund is
the net asset value of Class B and Class C shares, respectively.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Net Assets................... $77,085,775 $527,520,345 $37,026,502 $128,432,971
=========== ============ =========== ============
Number of Shares Outstanding. 5,106,408 35,977,136 2,529,568 8,549,978
=========== ============ =========== ============
Net Asset Value Per Share
(net assets divided by
number of shares
outstanding)................ $ 15.10 $ 14.66 $ 14.64 $ 15.02
Sales Charge (for Class A and
Class D shares:
5.25% of offering price
(5.54% of net asset value
per share))*................ 0.84 ** ** 0.83
----------- ------------ ----------- ------------
Offering Price............... $ 15.94 $ 14.66 $ 14.64 $ 15.85
=========== ============ =========== ============
</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.
37
<PAGE>
INDEPENDENT AUDITORS
Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey 08540, has
been selected as the independent auditors of the Fund. The selection of
independent auditors is subject to approval by the independent Directors of
the Fund. The independent auditors are responsible for auditing the annual
consolidated financial statements of the Fund.
CUSTODIAN
Brown Brothers Harriman & Co., 40 Water Street, Boston, Massachusetts 02109,
acts as the custodian of the Fund's assets (the "Custodian"). Under its
contract with the Fund, the Custodian is authorized to establish separate
accounts in foreign currencies and to cause foreign securities owned by the
Fund to be held in its offices outside the U.S. and with certain foreign banks
and securities depositories. The Custodian is responsible for safeguarding and
controlling the Fund's cash and securities, handling the receipt and delivery
of securities and collecting interest and dividends on the Fund's investments.
TRANSFER AGENT
Merrill Lynch Financial Data Services, Inc., 4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484, acts as the Fund's transfer agent (the
"Transfer Agent"). The Transfer Agent is responsible for the issuance,
transfer and redemption of shares and the opening, maintenance and servicing
of shareholder accounts. See "Management of the Fund--Transfer Agency
Services" in the Prospectus.
LEGAL COUNSEL
Brown & Wood LLP, 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 November 30 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 and the Investment
Company Act, to which reference is hereby made.
Under a separate agreement, ML & Co. 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 ML & Co., under certain
conditions, the use of any other name it might assume in the future, with
respect to any corporation organized by ML & Co.
To the knowledge of the Fund, no person or entity owned beneficially 5% or
more of the Fund's shares on February 2, 1998.
38
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of Merrill Lynch Latin America Fund,
Inc.:
We have audited the accompanying consolidated statement of assets and
liabilities, including the consolidated schedule of investments, of Merrill
Lynch Latin America Fund, Inc. and its subsidiary as of November 30, 1997, the
related consolidated 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 consolidated financial highlights for 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 November 30, 1997, by correspondence with the custodian and brokers.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements and consolidated
financial highlights present fairly, in all material respects, the financial
position of Merrill Lynch Latin America Fund, Inc. and its subsidiary as of
November 30, 1997, the results of their operations, the changes in their net
assets, and the consolidated financial highlights for the respective stated
periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
January 8, 1998
39
<PAGE>
[This page is intentionally left blank]
40
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED SCHEDULE OF INVESTMENTS (in US dollars)
Shares Held/ Value Percent of
COUNTRY Industries Face Amount Long-Term Investments Cost (Note 1a) Net Assets
<S> <C> <C> <C> <C> <C> <C>
Argentina Banking 203,484 Banco de Galicia y Buenos Aires
S.A. (ADR)(1) $5,100,718 $4,718,285 0.6%
Beverages 120,800 Quilmes Industrial S.A. (ADR)(1) 1,648,400 1,570,400 0.2
Foreign US$ 16,850,000 Republic of Argentina, 9.75% due
Government 9/19/2027 15,232,132 15,518,850 2.0
Obligations
Merchandising 547,144 +Grimoldi S.A. (Class B) 3,174,556 1,423,144 0.2
Multi-Industry 1,766,755 Compania Naviera Perez Companc
S.A.C.F.I.M.F.A. 8,928,824 12,584,329 1.7
Oil & Gas
Producers 948,054 Yacimientos Petroliferos Fiscales
S.A. (YPF)(ADR)(1) 26,194,297 31,819,062 4.1
Real Estate 1,166,915 Inversiones y Representaciones S.A.
(IRSA) 3,126,377 3,793,991 0.5
126,741 Inversiones y Representaciones S.A.
(IRSA)(GDR)(2) 3,522,249 3,873,522 0.5
------------- ------------- ------
6,648,626 7,667,513 1.0
Telecommunications 149,632 Telecom Argentina Stet -- France
Telecom S.A. (GDR)(2) 3,179,182 4,591,832 0.6
201,994 Telefonica de Argentina S.A.
(ADR)(1) 6,083,565 6,678,427 0.9
525,000 Telefonica de Argentina S.A.
(Class B) 1,497,352 1,738,445 0.2
------------- ------------- ------
10,760,099 13,008,704 1.7
------------- ------------- ------
Total Long-Term Investments in
Argentina 77,687,652 88,310,287 11.5
============= ============= ======
Brazil Banking 1,048,190,217 Banco Bradesco S.A. (Preferred) 6,517,353 7,739,522 1.0
26,158,357 Banco Itau S.A. (Preferred) 12,586,040 11,697,210 1.5
712,900 +Uniao de Bancos Brasileiros S.A.
(Unibanco) (GDR)(2) 20,708,075 20,495,875 2.7
15,000,000 +Uniao de Bancos Brasileiros S.A.
(Unibanco) (Units)(5) 1,113,955 930,400 0.1
------------- ------------- ------
40,925,423 40,863,007 5.3
Beverages & 33,493,982 Companhia Cervejaria Brahma S.A.
Tobacco PN (Preferred) 16,463,232 22,194,444 2.9
27,200 Companhia Cervejaria Brahma S.A.
PN (Preferred) (ADR)(1) 397,933 362,100 0.0
------------- ------------- ------
16,861,165 22,556,544 2.9
Diversified 969,200 Souza Cruz S.A. 7,243,874 7,470,844 1.0
Energy Sources 1,324,711 Companhia Paranaense de Energia
S.A. (Copel) (ADR)(1) 23,773,045 19,953,459 2.6
91,476,398 Petroleo Brasileiro S.A. (Preferred) 22,242,901 20,040,358 2.6
------------- ------------- ------
46,015,946 39,993,817 5.2
Food & 332,100 +Latas de Aluminio S.A. (GDR)(2) 5,325,182 1,785,038 0.2
Household
Products
</TABLE>
41
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Foreign US$ 26,620,000 Republic of Brazil, Global Bonds,
Government 10.125% due 5/15/2027 23,016,000 23,691,800 3.1
Obligations
Forest Products 186,500 Aracruz Celulose S.A. (ADR)(1) 3,082,364 2,680,938 0.4
288,086,000 Votorantim Celulose e Papel S.A.
(Preferred) 7,636,997 6,493,103 0.8
------------- ------------- ------
10,719,361 9,174,041 1.2
Machinery & 8,848,000 Weg Exportadora S.A. (Preferred) 5,385,285 5,424,306 0.7
Engineering
Metals & US$ 1,099,391 Companhia de Vale do Rio Doce S.A.,
Steel 0.0% due 12/31/2049** 0 0 0.0
493,295 Companhia de Vale do Rio Doce S.A.
(Preferred) 10,077,342 8,716,717 1.1
655,475,000 Companhia Siderurgica de Tubarao
S.A. 'B' (Preferred) 10,356,489 9,632,386 1.3
107,914,949 Companhia Siderurgica Nacional S.A.
-- CSN 2,764,579 2,918,724 0.4
1,022,339 Usinas Siderurgicas de Minas Gerais
S.A. -- Usiminas (Preferred) 11,857,391 6,507,134 0.8
------------- ------------- ------
35,055,801 27,774,961 3.6
Retail 125,100 Companhia Brasileira de
Distribuicao Grupo Pao de Acucar
S.A. (ADR)(1) 2,571,085 1,860,863 0.2
81,640,000 Lojas Arapua S.A. (Preferred) 1,482,172 327,532 0.0
------------- ------------- ------
4,053,257 2,188,395 0.2
Telecommunications 192,973 Telecomunicacoes Brasileiras S.A.
-- Telebras (ADR)(1) 23,478,135 20,141,557 2.6
149,205,637 Telecomunicacoes Brasileiras S.A.
-- Telebras (Ordinary) 9,932,085 13,989,710 1.8
3,265,379 Telecomunicacoes de Sao Paulo S.A.
-- TELESP 524,948 715,369 0.1
109,086 Telecomunicacoes de Sao Paulo S.A.
-- TELESP (Rights)(3) 0 2,065 0.0
------------- ------------- ------
33,935,168 34,848,701 4.5
Textiles & 19,091,093 Companhia de Tecidos Norte de Minas
Apparel S.A. -- Coteminas (Preferred) 8,349,721 6,884,635 0.9
19,351,093 Empresa Nasional de Comercio S.A. 0 15,004 0.0
------------- ------------- ------
8,349,721 6,899,639 0.9
Utilities 22,198,735 Centrais Eletricas Brasileiras S.A.
(Eletrobras) 11,591,204 10,366,881 1.3
74,917 Centrais Eletricas de Santa Catarina
S.A. (CELESC) (ADR)(1)(4) 6,026,323 7,833,891 1.0
1,122,012 Centrais Eletricas de Santa Catarina
S.A. (CELESC) 'B' (Preferred) 591,246 1,183,514 0.2
28,470 Companhia Energetica de Minas Gerais
S.A. (CEMIG) (ADR)(1) 638,750 1,405,706 0.2
50,573 Companhia Energetica de Minas Gerais
S.A. (CEMIG) (ADR)(1)(4) 1,086,614 2,461,792 0.3
</TABLE>
42
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
390,409,000 Companhia Energetica de Minas Gerais
S.A. (CEMIG) (Preferred) 13,759,899 19,006,569 2.5
60,873,712 Companhia Paulista de Forca e Luz S.A. 3,586,717 7,463,780 1.0
39 Companhia Paulista de Forca e Luz S.A.
(Preferred) 3 4 0.0
288,000 Globex Utilidades S.A. (Preferred) 5,061,120 1,947,349 0.3
28,201,766 Light Participacoes S.A. 3,670,043 7,754,977 1.0
------------- ------------- ------
46,011,919 59,424,463 7.8
Utilities 1,143,900,000 Companhia Energetica do Ceara S.A.
-- Electric (Preferred) 4,912,770 3,908,566 0.5
55,000 Espirito Santo Centrais Eletricas
S.A. (Escelsa) 9,896,967 7,438,289 1.0
------------- ------------- ------
14,809,737 11,346,855 1.5
------------- ------------- ------
Total Long-Term Investments in
Brazil 297,707,839 293,442,411 38.1
============= ============= ======
Chile Telecommunications 611,551 Compania de Telecomunicaciones de
Chile S.A. (ADR)(1) 14,619,714 16,550,099 2.1
436,373 +Quinenco S.A. (ADR)(1) 7,825,408 5,181,929 0.7
------------- ------------- ------
22,445,122 21,732,028 2.8
Utilities 75,000 Distribuidora Chilectra
Metropolitana S.A. (ADR)(1)(4) 1,263,750 1,872,000 0.2
3,724,465 Empresa Nacional de Electricidad
S.A. (ENDESA) 2,032,168 2,227,000 0.3
2,057,425 Enersis S.A. 930,264 1,225,499 0.2
152,900 Enersis S.A. (ADR)(1) 3,878,773 4,567,887 0.6
------------- ------------- ------
8,104,955 9,892,386 1.3
------------- ------------- ------
Total Long-Term Investments in Chile 30,550,077 31,624,414 4.1
============= ============= ======
Colombia Banking 1,440,336 Banco de Bogota S.A. 7,126,517 7,158,728 0.9
83,600 Banco Ganadero S.A. (Preferred)
(ADR)(1) 2,026,555 1,682,450 0.2
------------- ------------- ------
9,153,072 8,841,178 1.1
Beverages & 488,354 La Compania Cervecera Bavaria S.A. 2,831,026 4,914,160 0.7
Tobacco
Merchandising 1,485,966 Gran Cadena de Almacenes Colombianos
S.A. (CADENALCO) 4,043,019 1,568,002 0.2
36,400 Gran Cadena de Almacenes Colombianos
S.A. (CADENALCO) (ADR)(1)(4) 611,250 296,318 0.0
------------- ------------- ------
4,654,269 1,864,320 0.2
------------- ------------- ------
Total Long-Term Investments in
Colombia 16,638,367 15,619,658 2.0
============= ============= ======
Mexico Banking 3,826,557 +Grupo Financiero Banamex -- Accival,
S.A. de C.V. 'B' (Banacci) 9,171,986 8,441,277 1.1
63,000 +Grupo Financiero Banamex -- Accival,
S.A. de C.V. 'L' (Banacci) 140,485 124,695 0.0
7,263,204 +Grupo Financiero Bancomer, S.A. de
C.V. 'B' (Ordinary) 1,987,808 4,133,963 0.5
------------- ------------- ------
11,300,279 12,699,935 1.6
Beverages 64,600 Coca-Cola Femsa S.A. de C.V.
(Series L) 3,071,254 3,322,862 0.4
237,487 Panamerican Beverages Inc. (Class A) 4,471,322 8,133,930 1.1
------------- ------------- ------
7,542,576 11,456,792 1.5
</TABLE>
43
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Beverages 345,960 Fomento Economico Mexicano, S.A. de
& Tobacco C.V. (Femsa) (ADR)(1)++ 1,060,276 2,865,241 0.4
649,625 Fomento Economico Mexicano, S.A. de
C.V. (Femsa) (Ordinary) 'B' 1,449,545 5,383,851 0.7
------------- ------------- ------
2,509,821 8,249,092 1.1
Broadcast 2,870,000 Grupo Radio Centro, S.A. de C.V. 4,647,848 4,617,185 0.6
-- Media 64,400 Grupo Radio Centro, S.A. de C.V.
(ADR)(1) 905,464 957,950 0.1
------------- ------------- ------
5,553,312 5,575,135 0.7
Building 769,700 Cementos Mexicanos, S.A. de C.V.
Materials 'B' (Cemex) 3,739,531 3,799,250 0.5
1,175,782 Cementos Mexicanos, S.A. de C.V.
'B' (Cemex) (ADR)(1) 10,624,404 10,875,983 1.4
------------- ------------- ------
14,363,935 14,675,233 1.9
Chemicals 190,737 Desc, S.A. de C.V. (ADR)(1) 4,023,170 7,164,559 0.9
Construction 769,200 +Grupo Tribasa, S.A. de C.V. 'A1'
(ADR)(1) 4,828,690 4,759,425 0.6
Construction/ 307,830 +Bufete Industrial, S.A. de C.V.
Housing (ADR)(1) 5,788,091 2,924,385 0.4
Diversified 766,268 Alfa, S.A. de C.V. (Class A) 6,379,316 5,771,525 0.8
Financial Services 63,052 +Grupo Financiero Bancomer, S.A.
de C.V. (Series L) 22,760 24,591 0.0
Foreign US$ 33,440,000 United Mexican States, 11.50% due
Government 5/15/2026 38,135,123 38,706,800 5.0
Obligations
Health & 1,515,980 Kimberly-Clark de Mexico, S.A. de
Personal Care C.V. 'A' 3,994,088 6,780,800 0.9
Merchandising 7,668,387 Cifra, S.A. de C.V. 'C' 9,058,845 14,804,052 1.9
Multi-Industry 3,645,179 Grupo Carso, S.A. de C.V. 'A1' 22,183,832 23,768,078 3.1
31,179 Grupo Carso, S.A. de C.V. (ADR)(1) 347,491 385,840 0.1
------------- ------------- ------
22,531,323 24,153,918 3.2
Telecommunications 772,171 +Grupo Televisa, S.A. de C.V. (GDR)
(2) 21,731,549 28,570,327 3.7
691,375 Telefonos de Mexico, S.A. de C.V.
(ADR)(1) 35,579,610 34,223,062 4.5
------------- ------------- ------
57,311,159 62,793,389 8.2
------------- ------------- ------
Total Long-Term Investments in
Mexico 193,342,488 220,539,631 28.7
============= ============= ======
Peru Financial Services 293,920 Credicorp Ltd. S.A. 4,748,674 5,364,040 0.7
Food & Household 2,885,636 Consorcio Alimentos Fabril Pacifico
Products S.A. 5,303,100 2,206,663 0.3
Metals -- 408,900 Compania de Minas Buenaventura S.A.
Non-Ferrous (ADR)(1) 7,052,139 6,593,512 0.8
910,102 Minsur S.A. (T Shares) 2,575,220 2,271,909 0.3
------------- ------------- ------
9,627,359 8,865,421 1.1
------------- ------------- ------
Total Long-Term Investments in Peru 19,679,133 16,436,124 2.1
============= ============= ======
Venezuela Building Materials 359,137 Corporacion Venezolana de Cementos
I, S.A.C.A. 307,742 631,324 0.1
771,285 Corporacion Venezolana de Cementos
II, S.A.C.A. 559,240 1,388,190 0.2
------------- ------------- ------
866,982 2,019,514 0.3
</TABLE>
44
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Food & 22,907,438 Mavesa S.A. 2,037,878 3,784,349 0.4
Household
Products
Telecommunications 713,227 Compania Anonima Nacional Telefonos
de Venezuela (CANTV) (ADR)(1) 27,488,320 28,172,466 3.7
Textiles 634,430 Sudamtex de Venezuela S.A.C.A.
(ADR)(1)(4) 10,150,880 6,264,996 0.8
Utilities 11,602,535 C.A. La Electricidad de Caracas
S.A.I.C.A. -- S.A.C.A. 11,864,060 13,767,291 1.8
------------- ------------- ------
Total Long-Term Investments in
Venezuela 52,408,120 54,008,616 7.0
============= ============= ======
Total Long-Term Investments in
Latin America 688,013,676 719,981,141 93.5
============= ============= ======
<CAPTION>
Face
Amount Short-Term Investments
<S> <C> <C> <C> <C> <C> <C>
United States Commercial US$ 10,000,000 AIG Funding Inc., 5.54% due
Paper* 12/02/1997 9,995,383 9,995,383 1.3
9,243,000 Allomon Funding Corp., 5.62% due
12/10/1997 9,227,128 9,227,128 1.2
20,000,000 Associates Corp. of North America,
5.54% due 12/04/1997 19,984,611 19,984,611 2.6
32,019,000 General Motors Acceptance Corp.,
5.75% due 12/01/1997 32,008,772 32,008,772 4.2
6,000,000 International Securitization
Corporation, 5.60% due 12/01/1997 5,998,133 5,998,133 0.8
11,575,000 Lexington Parker Capital Company LLC,
5.59% due 12/08/1997 11,558,824 11,558,824 1.5
------------- ------------- ------
88,772,851 88,772,851 11.6
US Government 15,000,000 Federal Home Loan Mortgage Corp.,
Agency 5.47% due 12/01/1997 14,995,442 14,995,442 1.9
Obligations* ------------- ------------- ------
Total Short-Term Investments 103,768,293 103,768,293 13.5
============= ============= ======
Total Investments $791,781,969 823,749,434 107.0
=============
Liabilities in Excess of Other Assets (53,683,841) (7.0)
------------- ------
Net Assets $770,065,593 100.0%
============= ======
</TABLE>
* Commercial Paper and certain US Government Agency Obligations
are traded on a discount basis; the interest rates shown are the discount
rates paid at the time of purchase by the Fund.
** Received through a bonus issue from Companhia de Vale do Rio Doce S.A.
As of November 30, 1997, the bonds have not commenced trading and the
coupon rate has not been determined.
(1) American Depositary Receipts (ADR).
(2) Global Depositary Receipts (GDR).
(3) The rights may be exercised until 12/19/1997.
(4) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(5) Each unit represents one preferred share of Uniao de Bancos Brasileiros
S.A. (Unibanco) and one preferred "B" share of Unibanco Holdings S.A.
+ Non-income producing security.
++ Restricted security as to resale. The value of the Fund's investment in
restricted securities was approximately $2,865,000, representing 0.4% of
net assets.
Acquisition Value
Issue Dates Cost (Note 1a)
Fomento Economico Mexicano, 8/22/1996 -
S.A. de C.V. (Femsa)(ADR) 9/04/1996 $1,060,276 $2,865,241
---------- ----------
Total $1,060,276 $2,865,241
========== ==========
See Notes to Consolidated Financial Statements.
45
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES
As of November 30, 1997
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $791,781,969) (Note 1a) $823,749,434
Foreign cash (Note 1b) 30,803,704
Receivables:
Dividends $987,975
Securities sold 727,143
Interest 585,555
Capital shares sold 445,224 2,745,897
------------
Prepaid registration fees and other assets (Note 1f) 44,535
------------
Total assets 857,343,570
------------
Liabilities: Payables:
Securities purchased 81,539,797
Capital shares redeemed 3,500,534
Investment adviser (Note 2) 581,697
Distributor (Note 2) 451,968 86,073,996
------------
Accrued expenses and other liabilities 1,203,981
------------
Total liabilities 87,277,977
------------
Net Assets: Net assets $770,065,593
============
Net Assets Class A Common Stock, $0.10 par value, 100,000,000 shares authorized $510,641
Consist of: Class B Common Stock, $0.10 par value, 100,000,000 shares authorized 3,597,714
Class C Common Stock, $0.10 par value, 100,000,000 shares authorized 252,957
Class D Common Stock, $0.10 par value, 100,000,000 shares authorized 854,998
Paid-in capital in excess of par 830,109,013
Accumulated investment loss -- net (237,280)
Accumulated realized capital losses on investments and foreign
currency transactions -- net (Note 6) (96,549,936)
Unrealized appreciation on investments and foreign currency
transactions -- net 31,527,486
------------
Net assets $770,065,593
============
Net Asset Class A -- Based on net assets of $77,085,775 and 5,106,408 shares
Value: outstanding $15.10
============
Class B -- Based on net assets of $527,520,345 and 35,977,136 shares
outstanding $14.66
============
Class C -- Based on net assets of $37,026,502 and 2,529,568 shares
outstanding $14.64
============
Class D -- Based on net assets of $128,432,971 and 8,549,978 shares
outstanding $15.02
============
See Notes to Consolidated Financial Statements.
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended November 30, 1997
<S> <C> <C> <C>
Investment Income Dividends (net of $794,133 foreign withholding tax) $19,610,476
(Notes 1d & 1e): Interest and discount earned 1,503,658
------------
Total income 21,114,134
------------
Expenses: Investment advisory fees (Note 2) 8,578,935
Account maintenance and distribution fees -- Class B (Note 2) 6,085,100
Custodian fees 1,744,824
Transfer agent fees -- Class B (Note 2) 1,326,810
Account maintenance and distribution fees -- Class C (Note 2) 358,455
Account maintenance fees -- Class D (Note 2) 341,038
Transfer agent fees -- Class D (Note 2) 246,372
Printing and shareholder reports 188,147
Accounting services (Note 2) 174,010
Transfer agent fees -- Class A (Note 2) 138,826
Registration fees (Note 1f) 103,287
Professional fees 82,152
Transfer agent fees -- Class C (Note 2) 79,515
Directors' fees and expenses 37,437
Pricing fees 9,037
Other 65,928
------------
Total expenses 19,559,873
------------
Investment income -- net 1,554,261
------------
Realized & Realized gain (loss) from:
Unrealized Gain Investments -- net $167,921,307
(Loss) on Foreign currency transactions -- net (2,431,153) 165,490,154
Investments & ------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions -- Net Investments -- net (26,246,803)
(Notes 1b, 1c, Foreign currency transactions -- net (318,437) (26,565,240)
1e & 3): ------------ ------------
Net realized and unrealized gain on investments and foreign currency
transactions 138,924,914
------------
Net Increase in Net Assets Resulting from Operations $140,479,175
============
See Notes to Consolidated Financial Statements.
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
For the Year Ended November 30,
Increase (Decrease) in Net Assets: 1997 1996
<S> <C> <C> <C>
Operations: Investment income -- net $1,554,261 $20,415,852
Realized gain (loss) on investments and foreign currency
transactions -- net 165,490,154 (77,935,512)
Change in unrealized appreciation/depreciation on investments and
foreign currency transactions -- net (26,565,240) 189,511,752
------------ ------------
Net increase in net assets resulting from operations 140,479,175 131,992,092
------------ ------------
Dividends to Investment income -- net:
Shareholders Class A (1,603,289) --
(Note 1g): Class B (12,117,748) --
Class C (579,869) --
Class D (3,322,519) --
------------ ------------
Net decrease in net assets resulting from dividends to shareholders (17,623,425) --
------------ ------------
Capital Share Net decrease in net assets derived from capital share transactions (54,040,066) (82,303,224)
Transactions ------------ ------------
(Note 4):
Net Assets: Total increase in net assets 68,815,684 49,688,868
Beginning of year 701,249,909 651,561,041
------------ ------------
End of year* $770,065,593 $701,249,909
============ ============
* Undistributed (accumulated) investment income (loss) -- net (Note 1i) $(237,280) $17,612,088
============ ============
See Notes to Consolidated Financial Statements.
</TABLE>
48
<PAGE>
CONSOLIDATED FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Class A++
For the
Period
The following per share data and ratios have been derived Oct. 21,
from information provided in the financial statements. For the Year 1994+ to
Ended November 30, Nov. 30,
1997 1996 1995 1994
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $12.83 $10.50 $17.37 $18.22
Operating ---------- ---------- ---------- ----------
Performance: Investment income -- net .17 .46 .16 --
Realized and unrealized gain (loss) on
investments and foreign currency transactions
-- net 2.54 1.87 (6.52) (.85)
---------- ---------- ---------- ----------
Total from investment operations 2.71 2.33 (6.36) (.85)
---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income -- net (.44) -- -- --
Realized gain on investments -- net -- -- (.50) --
In excess of realized gain on investments -- net -- -- (.01) --
---------- ---------- ---------- ----------
Total dividends and distributions (.44) -- (.51) --
---------- ---------- ---------- ----------
Net asset value, end of period $15.10 $12.83 $10.50 $17.37
========== ========== ========== ==========
Total Investment Based on net asset value per share 21.79% 22.19% (37.66%) (4.67%)++++
Return:** ========== ========== ========== ==========
Ratios to Average Expenses 1.46% 1.48% 1.66% 1.85%*
Net Assets: ========== ========== ========== ==========
Investment income (loss) -- net 1.03% 3.74% 1.40% (.20%)*
========== ========== ========== ==========
Supplemental Net assets, end of period (in thousands) $77,086 $46,369 $26,034 $10,350
Data: ========== ========== ========== ==========
Portfolio turnover 84.91% 66.14% 54.86% 30.15%
========== ========== ========== ==========
Average commission rate paid+++ $.0007 $.0001 -- --
========== ========== ========== ==========
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales
loads.
+ Commencement of operations.
++ Based on average shares outstanding.
+++ For fiscal years beginning on or after September 1, 1995,
the Fund is required to disclose its average commission
rate per share for purchases and sales of equity
securities. The "Average Commission Rate Paid" includes
commissions paid in foreign currencies, which have been
converted into US dollars using the prevailing exchange
rate on the date of the transaction. Such conversions may
significantly affect the rate shown.
++++ Aggregate total investment return.
See Notes to Consolidated Financial Statements
49
<PAGE>
<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 November 30,
1997++ 1996++ 1995++ 1994++ 1993
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $12.46 $10.31 $17.24 $14.39 $9.83
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income (loss) -- net --++++ .32 .05 (.09) .10
Realized and unrealized gain (loss) on
investments and foreign currency
transactions -- net 2.50 1.83 (6.47) 2.99 4.68
---------- ---------- ---------- ---------- ----------
Total from investment operations 2.50 2.15 (6.42) 2.90 4.78
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income -- net (.30) -- -- (.05) (.13)
Realized gain on investments -- net -- -- (.50) -- (.09)
In excess of realized gain on investments --
net -- -- (.01) -- --
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (.30) -- (.51) (.05) (.22)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $14.66 $12.46 $10.31 $17.24 $14.39
========== ========== ========== ========== ==========
Total Investment Based on net asset value per share 20.51% 20.85% (38.32%) 20.19% 49.80%
Return:** ========== ========== ========== ========== ==========
Ratios to Average Expenses 2.50% 2.54% 2.71% 2.51% 2.59%
Net Assets: ========== ========== ========== ========== ==========
Investment income (loss) -- net (.03%) 2.69% .43% (.54%) 1.09%
========== ========== ========== ========== ==========
Supplemental Net assets, end of year (in thousands) $527,520 $518,865 $505,038 $937,221 $305,301
Data: ========== ========== ========== ========== ==========
Portfolio turnover 84.91% 66.14% 54.86% 30.15% 24.74%
========== ========== ========== ========== ==========
Average commission rate paid+++ $.0007 $.0001 -- -- --
========== ========== ========== ========== ==========
<CAPTION>
Class C++
For the
Period
The following per share data and ratios have been derived Oct. 21,
from information provided in the financial statements. For the Year 1994+ to
Ended November 30, Nov. 30,
1997 1996 1995 1994
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $12.46 $10.31 $17.24 $18.10
Operating ---------- ---------- ---------- ----------
Performance: Investment income (loss) -- net (.02) .32 .03 (.02)
Realized and unrealized gain (loss) on
investments and foreign currency transactions
-- net 2.52 1.83 (6.45) (.84)
---------- ---------- ---------- ----------
Total from investment operations 2.50 2.15 (6.42) (.86)
---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income -- net (.32) -- -- --
Realized gain on investments -- net -- -- (.50) --
In excess of realized gain on investments -- net -- -- (.01) --
---------- ---------- ---------- ----------
Total dividends and distributions (.32) -- (.51) --
---------- ---------- ---------- ----------
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
Net asset value, end of period $14.64 $12.46 $10.31 $17.24
========== ========== ========== ==========
Total Investment Based on net asset value per share 20.52% 20.85% (38.32%) (4.75%)++++
Return:** ========== ========== ========== ==========
Ratios to Average Expenses 2.50% 2.54% 2.72% 2.93%*
Net Assets: ========== ========== ========== ==========
Investment income (loss) -- net (.11%) 2.68% .30% (1.22%)*
========== ========== ========== ==========
Supplemental Net assets, end of period (in thousands) $37,027 $23,183 $14,659 $5,069
Data: ========== ========== ========== ==========
Portfolio turnover 84.91% 66.14% 54.86% 30.15%
========== ========== ========== ==========
Average commission rate paid+++ $.0007 $.0001 -- --
========== ========== ========== ==========
<CAPTION>
Class D
The following per share data and ratios have been derived
from information provided in the financial statements. For the Year Ended November 30,
1997++ 1996++ 1995++ 1994++ 1993
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $12.77 $10.47 $17.37 $14.45 $9.90
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income -- net .11 .42 .14 .03 .18
Realized and unrealized gain (loss) on
investments and foreign currency
transactions -- net 2.54 1.88 (6.53) 3.00 4.69
---------- ---------- ---------- ---------- ----------
Total from investment operations 2.65 2.30 (6.39) 3.03 4.87
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income -- net (.40) -- -- (.11) (.23)
Realized gain on investments -- net -- -- (.50) -- (.09)
In excess of realized gain on investments --
net -- -- (.01) -- --
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (.40) -- (.51) (.11) (.32)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $15.02 $12.77 $10.47 $17.37 $14.45
========== ========== ========== ========== ==========
Total Investment Based on net asset value per share 21.40% 21.97% (37.84%) 21.07% 50.86%
Return:** ========== ========== ========== ========== ==========
Ratios to Average Expenses 1.71% 1.74% 1.91% 1.73% 1.83%
Net Assets: ========== ========== ========== ========== ==========
Investment income -- net .72% 3.47% 1.18% .23% 1.83%
========== ========== ========== ========== ==========
Supplemental Net assets, end of year (in thousands) $128,433 $112,833 $105,830 $204,907 $75,085
Data: ========== ========== ========== ========== ==========
Portfolio turnover 84.91% 66.14% 54.86% 30.15% 24.74%
========== ========== ========== ========== ==========
Average commission rate paid+++ $.0007 $.0001 -- -- --
========== ========== ========== ========== ==========
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales
loads.
+ Commencement of operations.
++ Based on average shares outstanding.
+++ For fiscal years beginning on or after September 1, 1995,
the Fund is required to disclose its average commission
rate per share for purchases and sales of equity
securities. The "Average Commission Rate Paid" includes
commissions paid in foreign currencies, which have been
converted into US dollars using the prevailing exchange
rate on the date of the transaction. Such conversions may
significantly affect the rate shown.
++++ Amount is less than $.01 per share.
+++++ Aggregate total investment return.
See Notes to Consolidated Financial Statements.
51
<PAGE>
Merrill Lynch Latin America Fund, Inc., November 30, 1997
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Latin America 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. Securities traded in the over-the-counter
market are valued at the last available bid price prior to the time of
valuation. 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 which are traded both in the over-the-counter market and on
a stock exchange are valued according to the broadest and most
representative market. Options written are valued at the last sale
price in the case of exchange-traded options or, in the case of
options traded in the over-the-counter market, the last asked price.
Options purchased are valued at the last sale price in the case of
exchange-traded options or, in the case of options traded in the over-
the-counter market, the last bid price. Short-term securities are
valued at amortized cost, which approximates market value. Other
investments, including futures contracts and related options, are
stated at market value. Securities and assets for which market value
quotations are not available are valued at their fair value as
determined in good faith by or under the direction of the Fund's Board
of Directors.
(b) 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.
(c) 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.
[bullet] Options -- The Fund is authorized to write and purchase call
and put options. When the Fund writes an option, an amount equal to
the premium received by the Fund is reflected as an asset and an
equivalent liability. The amount of the liability is subsequently
marked to market to reflect the current market value of the option
written.
When a security is purchased or sold through an exercise of an option,
the related premium paid (or received) is added to (or deducted from)
the basis of the security acquired or deducted from (or added to) the
proceeds of the security sold. When an option expires (or the Fund
enters into a closing transaction), the Fund realizes a gain or loss
on the option to the extent of the premiums received or paid (or gain
or loss to the extent the cost of the closing transaction exceeds the
premium paid or received).
Written and purchased options are non-income producing investments.
[bullet] 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.
[bullet] Foreign currency options and futures -- The Fund may also
purchase or sell listed or over-the-counter foreign currency options,
foreign currency futures and related options on foreign currency
futures as a short or long hedge against possible variations in
foreign exchange rates. Such transactions may be effected with respect
to hedges on non-US dollar denominated securities owned by the Fund,
sold by the Fund but not yet delivered, or committed or anticipated to
be purchased by the Fund.
[bullet] Financial futures contracts -- The Fund may purchase or sell
interest rate futures contracts and options on such futures contracts
for the purpose of hedging the market risk on existing securities or
the intended purchase of securities. Futures contracts are contracts
for delayed delivery of securities at a specific future date and at a
52
<PAGE>
specific price or yield. Upon entering into a contract, the Fund
deposits and maintains as collateral such initial margin as required
by the exchange on which the transaction is effected. Pursuant to the
contract, the Fund agrees to receive from or pay to the broker an
amount of cash equal to the daily fluctuation in value of the
contract. Such receipts or payments are known as variation margin and
are recorded by the Fund as unrealized gains or losses. When the
contract is closed, the Fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was
opened and the value at the time it was closed.
(d) Income taxes -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required. Under the applicable foreign tax law, a
withholding tax may be imposed on interest, dividends, and capital
gains at various rates.
(e) 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
dates. Dividends from foreign securities where the ex-dividend date
may have passed are subsequently recorded when the Fund has determined
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.
(f) Prepaid registration fees -- Prepaid registration fees are charged
to expense as the related shares are issued.
(g) Dividends and distributions -- Dividends and distributions paid by
the Fund are recorded on the ex-dividend dates. Distributions in
excess of realized capital gains are due primarily to differing tax
treatments for post-October losses.
(h) Basis of consolidation -- The accompanying consolidated financial
statements include the accounts of Merrill Lynch Latin America Fund
Chile Ltd., a wholly-owned subsidiary, which primarily invests in
Chilean securities. Intercompany accounts and transactions have been
eliminated.
(i) Reclassification -- Generally accepted accounting principles
require that certain components of net assets be adjusted to
reflect permanent differences between financial and tax reporting.
Accordingly, current year's permanent book/tax differences of
$2,266,679 have been reclassified between accumulated net realized
capital losses and accumulated net investment loss and differences of
$486,475 have been reclassified between paid-in capital in excess of
par and accumulated net investment loss. 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., Inc. ("ML & Co."), which
is the limited partner. The Fund has 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 1.0%, on an annual basis, of
the average daily value of the Fund's net assets.
Pursuant to the Distribution Plans adopted by the Fund in accordance
with Rule 12b-1 under the Investment Company Act of 1940, the Fund
pays the Distributor ongoing account maintenance and distribution
fees. The fees are accrued daily and paid monthly at annual rates
based upon the average daily net assets of the shares as follows:
Account Distribution
Maintenance Fee Fee
Class B 0.25% 0.75%
Class C 0.25% 0.75%
Class D 0.25% --
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), a subsidiary of ML & Co., also
provides account maintenance and distribution services to the Fund.
The ongoing account maintenance fee compensates the Distributor and
MLPF&S for providing account maintenance services to Class B, Class C
and Class D shareholders. The ongoing distribution fee compensates the
Distributor and MLPF&S for providing shareholder and
distribution-related services to Class B and Class C shareholders.
53
<PAGE>
For the year ended November 30, 1997, MLFD earned underwriting
discounts and direct commissions and MLPF&S earned dealer concessions
on sales of the Fund's Class A and Class D Shares as follows:
MLFD MLPF&S
Class A $163 $2,090
Class D $23,410 $328,404
For the year ended November 30, 1997, MLPF&S received contingent
deferred sales charges of $1,742,901 and $31,593 relating to
transactions in Class B and Class C Shares, respectively.
In addition, MLPF&S received $75,219 in commissions on the execution
of portfolio security transactions for the Fund for the year ended
November 30, 1997.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-owned
subsidiary of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of MLAM, PSI, MLFDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended November 30, 1997 were $677,314,526 and
$777,148,781, respectively.
Net realized and unrealized gains (losses) as of November 30, 1997
were as follows:
Realized Unrealized
Gains (Losses) Gains (Losses)
Long-term investments $167,921,307 $31,967,465
Foreign currency transactions (2,431,153) (439,979)
-------------- --------------
Total $165,490,154 $31,527,486
============== ==============
As of November 30, 1997, net unrealized appreciation for Federal
income tax purposes aggregated $23,746,148, of which $86,104,025
related to appreciated securities and $62,357,877 related to
depreciated securities. At November 30, 1997, the aggregate cost of
investments for Federal income tax purposes was $800,003,286.
4. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions was
$54,040,066 and $82,303,224 for the years ended November 30, 1997 and
November 30, 1996, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Year Dollar
Ended November 30, 1997 Shares Amount
Shares sold 5,567,495 $85,878,766
Shares issued to shareholders in
reinvestment of dividends 108,885 1,362,155
-------------- --------------
Total issued 5,676,380 87,240,921
Shares redeemed (4,184,228) (65,174,117)
-------------- --------------
Net increase 1,492,152 $22,066,804
============== ==============
Class A Shares for the Year Dollar
Ended November 30, 1996 Shares Amount
Shares sold 2,334,477 $27,998,108
Shares redeemed (1,199,157) (14,535,235)
-------------- --------------
Net increase 1,135,320 $13,462,873
============== ==============
Class B Shares for the Year Dollar
Ended November 30, 1997 Shares Amount
Shares sold 8,877,378 $138,784,719
Shares issued to shareholders in
reinvestment of dividends 862,151 10,578,592
-------------- --------------
Total issued 9,739,529 149,363,311
Automatic conversion of shares (199,127) (3,137,064)
Shares redeemed (15,196,792) (231,729,252)
-------------- --------------
Net decrease (5,656,390) $(85,503,005)
============== ==============
Class B Shares for the Year Dollar
Ended November 30, 1996 Shares Amount
Shares sold 10,055,825 $115,213,232
Automatic conversion of shares (137,908) (1,581,919)
Shares redeemed (17,283,572) (199,308,905)
-------------- --------------
Net decrease (7,365,655) $(85,677,592)
============== ==============
Class C Shares for the Year Dollar
Ended November 30, 1997 Shares Amount
Shares sold 2,398,269 $38,016,628
Shares issued to shareholders in
reinvestment of dividends 41,877 512,997
-------------- --------------
Total issued 2,440,146 38,529,625
Shares redeemed (1,771,078) (27,673,620)
-------------- --------------
Net increase 669,068 $10,856,005
============== ==============
54
<PAGE>
Class C Shares for the Year Dollar
Ended November 30, 1996 Shares Amount
Shares sold 1,248,519 $14,588,140
Shares redeemed (810,190) (9,591,529)
-------------- --------------
Net increase 438,329 $4,996,611
============== ==============
Class D Shares for the Year Dollar
Ended November 30, 1997 Shares Amount
Shares sold 7,096,389 $114,563,804
Automatic conversion of shares 195,055 3,137,064
Shares issued to shareholders in
reinvestment of dividends 224,831 2,803,638
-------------- --------------
Total issued 7,516,275 120,504,506
Shares redeemed (7,805,127) (121,964,376)
-------------- --------------
Net decrease (288,852) $(1,459,870)
============== ==============
Class D Shares for the Year Dollar
Ended November 30, 1996 Shares Amount
Shares sold 5,255,871 $59,496,466
Automatic conversion of shares 135,283 1,581,919
-------------- --------------
Total issued 5,391,154 61,078,385
Shares redeemed (6,658,036) (76,163,501)
-------------- --------------
Net decrease (1,266,882) $(15,085,116)
============== ==============
5. Commitments:
At November 30, 1997, the Fund had entered into foreign exchange
contracts under which it had agreed to purchase foreign currencies
with an approximate value of $1,885,000.
6. Capital Loss Carryforward:
At November 30, 1997, the Fund had a net capital loss carryforward of
approximately $88,329,000, all of which expires in 2004. This amount
will be available to offset like amounts of any future taxable gains.
55
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objective and Policies......................................... 2
Portfolio Strategies Involving Options and Futures....................... 2
Other Investment Policies and Practices.................................. 7
Investment Restrictions.................................................. 9
Management of the Fund.................................................... 12
Directors and Officers................................................... 12
Compensation of Directors................................................ 13
Management and Advisory Arrangements..................................... 14
Purchase of Shares........................................................ 15
Initial Sales Charge Alternatives--Class A and Class D Shares............ 16
Reduced Initial Sales Charges............................................ 17
Employer-Sponsored Retirement or Savings Plans and Certain Other
Arrangements........................................................... 19
Distribution Plans....................................................... 20
Limitations on the Payment of Deferred Sales Charges..................... 20
Redemption of Shares...................................................... 22
Deferred Sales Charges--Class B and Class C Shares....................... 22
Portfolio Transactions and Brokerage...................................... 22
Determination of Net Asset Value.......................................... 24
Shareholder Services...................................................... 25
Investment Account....................................................... 25
Automatic Investment Plans............................................... 26
Automatic Reinvestment of Dividends and Capital Gains Distributions...... 26
Systematic Withdrawal Plans.............................................. 26
Exchange Privilege....................................................... 28
Dividends, Distributions and Taxes........................................ 30
Dividends and Distributions.............................................. 30
Taxes.................................................................... 30
Tax Treatment of Options, Futures and Forward Foreign Exchange
Transactions........................................................... 33
Performance Data.......................................................... 35
General Information....................................................... 37
Description of Shares.................................................... 37
Computation of Offering Price Per Share.................................. 37
Independent Auditors..................................................... 38
Custodian................................................................ 38
Transfer Agent........................................................... 38
Legal Counsel............................................................ 38
Reports to Shareholders.................................................. 38
Additional Information................................................... 38
Independent Auditors' Report.............................................. 39
Consolidated Financial Statements......................................... 40
</TABLE>
Code #13991-0398
[LOGO] MERRILL LYNCH
Merrill Lynch
Latin America Fund, Inc.
[ART]
STATEMENT OF
ADDITIONAL
INFORMATION
March 2, 1998
Distributor:
Merrill Lynch
Funds Distributor, Inc.
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS:
Contained in Part A:
Consolidated Financial Highlights for each of the years in the six-
year period ended November 30, 1997, and the period September 27,
1991 (commencement of operations) to November 30, 1991.
Contained in Part B:
Consolidated Schedule of Investments as of November 30, 1997.
Consolidated Statement of Assets and Liabilities as of November 30,
1997.
Consolidated Statement of Operations for the year ended November 30,
1997.
Consolidated Statements of Changes in Net Assets for each of the years
in the two-year period ended November 30, 1997.
Consolidated Financial Highlights for each of the years in the five-
year period ended November 30, 1997.
(B) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
1(a) Articles of Incorporation of the Registrant, dated June 28, 1991.(a)
(b) Articles Supplementary to the Articles of Incorporation of the
Registrant dated August 5, 1991.(b)
(c) Articles of Amendment to the Articles of Incorporation of the
Registrant, dated October 19, 1994.(a)
(d) Articles Supplementary to the Articles of Incorporation of the
Registrant dated October 21, 1994.(a)
2 By-Laws of the Registrant, as amended.(b)
3 None.
4 Copies of instruments defining the rights of shareholders, including
the relevant portions of the Articles of Incorporation, as amended,
and the By-Laws of the Registrant.(c)
5(a) Management Agreement between the Registrant and Merrill Lynch Asset
Management, Inc.(a)
(b) Sub-Advisory Agreement between Merrill Lynch Asset Management, L.P.
and Merrill Lynch Asset Management U.K. Limited.(d)
6(a) Class A Shares Distribution Agreement between the Registrant and
Merrill Lynch Funds Distributor, Inc.(e)
(b) Form of Class B Shares Distribution Agreement between the Registrant
and Merrill Lynch Funds Distributor, Inc.(a)
</TABLE>
C-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
(c) Letter Agreement between the Registrant and Merrill Lynch Funds
Distributor, Inc. with respect to the Merrill Lynch Mutual Fund
Advisor Program.(f)
(d) Class C Shares Distribution Agreement between the Registrant and
Merrill Lynch Funds Distributor, Inc.(e)
(e) Class D Shares Distribution Agreement between the Registrant and
Merrill Lynch Funds Distributor, Inc.(e)
7 None.
8 Custodian Agreement between the Registrant and Brown Brothers Harriman
& Co.(d)
9 Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing
Agency Agreement
between the Registrant and Merrill Lynch Financial Data Services,
Inc.(a)
10 None.
11 Consent of Deloitte & Touche LLP, independent auditors for the
Registrant.
12 None.
13 Certificate of Merrill Lynch Asset Management, L.P.(a)
14 None.
15(a) Amended and Restated Class B Shares Distribution Plan and Class B
Shares Distribution
Plan Sub-Agreement of the Registrant.(f)
(b) Class C Shares Distribution Plan and Class C Shares Distribution Plan
Sub-Agreement of
the Registrant.(e)
(c) Class D Shares Distribution Plan and Class D Shares Distribution Plan
Sub-Agreement of
the Registrant.(e)
16(a) Schedule of computation of each performance quotation provided in the
Registration
Statement in response to Item 22 relating to Class A shares.(a)
(b) Schedule of computation of each performance quotation provided in the
Registration
Statement in response to Item 22 relating to Class B shares.(a)
(c) Schedule of computation of each performance quotation provided in the
Registration
Statement in response to Item 22 relating to Class C shares.(a)
(d) Schedule of computation of each performance quotation provided in the
Registration
Statement in response to Item 22 relating to Class D shares.(a)
17(a) Financial Data Schedule for Class A Shares.
(b) Financial Data Schedule for Class B Shares.
(c) Financial Data Schedule for Class C Shares.
(d) Financial Data Schedule for Class D Shares.
18 Merrill Lynch Select Pricing SM System Plan pursuant to Rule 18f-3.(g)
</TABLE>
C-2
<PAGE>
- --------
(a) Filed on March 27, 1995 as an Exhibit to Post-Effective Amendment No. 5 to
the Registrant's Registration Statement on Form N-1A under the Securities
Act of 1933, as amended (File No. 33-41622) (the "Registration
Statement").
(b) Filed on March 28, 1996 as an Exhibit to Post-Effective Amendment No. 6 to
the Registration Statement.
(c) Reference is made to Article III (Section 3 and 4), Article V, Article VI
(Sections 2, 3, 4, 5 and 6), Article VII, Article VIII and Article X of
the Registrant's Articles of Incorporation, as amended and supplemented,
filed as Exhibits 1(a), 1(b), 1(c) and 1(d) to the Registration Statement;
and Article II, Article III (Sections 1, 2, 3, 5, 6 and 17), Article V
(Section 7), Article VI, Article VII, Article XII, Article XIII, and
Article XIV of the Registrant's By-Laws filed as Exhibit 2 to the
Registration Statement.
(d) Filed on March 24, 1997 as an Exhibit to Post-Effective Amendment No. 7 to
the Registration Statement.
(e) Filed on October 17, 1994 as an Exhibit to Post-Effective Amendment No. 4
to the Registration Statement.
(f) Filed on March 29, 1994 as an Exhibit to Post-Effective Amendment No. 3 to
the Registration Statement.
(g) Incorporated by reference to Exhibit 18 to Post-Effective Amendment No. 13
to the Registration Statement on Form N-1A under the Securities Act of
1933, as amended, filed on January 25, 1996, relating to shares of Merrill
Lynch New York Municipal Bond Fund series of Merrill Lynch Multi-State
Municipal Series Trust (File No. 2-99473).
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Registrant is not controlled by or under common control with any other
person. The Registrant owns all of the stock of ML Latin America Fund Chile
Ltd., a corporation formed under the laws of Delaware specifically to
facilitate investment in accordance with restrictions limiting investment in
Chile. Such subsidiary is included in the Registrant's consolidated financial
statements.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
NUMBER OF
HOLDERS AT
TITLE OF CLASS JANUARY 31, 1998
-------------- ----------------
<S> <C>
Class A Shares of Common Stock, par value $0.10 per share...... 15,945
Class B Shares of Common Stock, par value $0.10 per share...... 68,756
Class C Shares of Common Stock, par value $0.10 per share...... 5,619
Class D Shares of Common Stock, par value $0.10 per share...... 13,303
</TABLE>
- --------
Note: The number of holders shown above includes holders of record plus
beneficial owners, whose shares are held of record by Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch").
ITEM 27. INDEMNIFICATION.
Reference is made to Article VI of the Registrant's Articles of
Incorporation, Article VI of Registrant's By-Laws, Section 2-418 of the
Maryland General Corporation Law and Section 9 of the Class A, Class B, Class
C and Class D Distribution Agreements.
Article VI of the By-Laws provides that each officer and director of the
Registrant shall be indemnified by the Registrant to the full extent permitted
under the General Laws of the State of Maryland, except that such
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<PAGE>
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.
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.
Insofar as the conditional advancing of indemnification moneys for actions
based on the Investment Company Act of 1940, as amended (the "1940 Act"), may
be concerned, Article VI of the Registrant's By-Laws provides that such
payments will be made only on the following conditions: (i) the advances must
be limited to amounts used, or to be used, for the preparation or presentation
of a defense to the action, including costs connected with the preparation of
a settlement; (ii) advances may be made only upon receipt of a written promise
by, or on behalf of, the recipient to repay that amount of the advance which
exceeds the amount which it is ultimately determined he is entitled to receive
from the Registrant by reason of indemnification; and (iii) (a) such promise
must be secured by a surety bond, other suitable insurance or an equivalent
form of security which assures that any repayments may be obtained by the
Registrant without delay or litigation, which bond, insurance or other form of
security must be provided by the recipient of the advance, or (b) a majority
of a quorum of the Registrant's disinterested, non-party Directors, or an
independent legal counsel in a written opinion, shall determine, based upon a
review of readily available facts, that the recipient of the advance
ultimately will be found entitled to indemnification.
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, as amended (the "1933 Act"), against certain types of
civil liabilities arising in connection with the Registration Statement, the
Prospectus or the Statement of Additional Information.
Insofar as indemnification for liabilities arising under the 1933 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 1933 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,
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<PAGE>
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the 1933 Act
and will be governed by the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER.
(a) Merrill Lynch Asset Management, L.P. ("MLAM" or the "Manager") acts as
the investment adviser for the following open-end registered investment
companies: Merrill Lynch Adjustable Rate Securities Fund, Inc., Merrill Lynch
Americas Income Fund, Inc., Merrill Lynch Asset Builder Program, Inc., Merrill
Lynch Asset Growth Fund, Inc., Merrill Lynch Asset Income Fund, Inc., Merrill
Lynch Capital Fund, Inc., Merrill Lynch Convertible Fund, Inc., Merrill Lynch
Developing Capital Markets Fund, Inc., Merrill Lynch Dragon Fund, Inc.,
Merrill Lynch EuroFund, Merrill Lynch Fundamental Growth Fund, Inc., Merrill
Lynch Fund For Tomorrow, Inc., Merrill Lynch Global Allocation Fund, Inc.,
Merrill Lynch Global Bond Fund for Investment and Retirement, Merrill Lynch
Global Convertible Fund, Inc., Merrill Lynch Global Growth Fund, Inc., Merrill
Lynch Global Holdings, Inc., Merrill Lynch Global Resources Trust, Merrill
Lynch Global SmallCap Fund, Inc., Merrill Lynch Global Utility Fund, Inc.,
Merrill Lynch Global Value Fund, Inc., Merrill Lynch Growth Fund, Merrill
Lynch Healthcare Fund, Inc., Merrill Lynch Intermediate Government Bond Fund,
Merrill Lynch International Equity Fund, Merrill Lynch Latin America Fund,
Inc., Merrill Lynch Middle East/Africa Fund, Inc., Merrill Lynch Municipal
Series Trust, Merrill Lynch Pacific Fund, Inc., Merrill Lynch Ready Assets
Trust, Merrill Lynch Real Estate Fund, 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., Merrill Lynch
Variable Series Funds, Inc. and Hotchkis and Wiley Funds (advised by Hotchkis
and Wiley, a division of MLAM); and for the following closed-end registered
investment companies: Merrill Lynch High Income Municipal Bond Fund, Inc. and
Merrill Lynch Senior Floating Rate Fund, Inc. MLAM also acts as sub-adviser to
Merrill Lynch World Strategy Portfolio and Merrill Lynch Basic Value Equity
Portfolio, two investment portfolios of EQ Advisors Trust.
Fund Asset Management, L.P. ("FAM"), an affiliate of the Manager, acts as
the investment adviser for the following open-end registered investment
companies: CBA Money Fund, CMA Government Securities Fund, CMA Money Fund, CMA
Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund,
The Corporate Fund Accumulation Program, Inc., Financial Institutions Series
Trust, Merrill Lynch Basic Value Fund, Inc., Merrill Lynch California
Municipal Series Trust, Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch
Emerging Tigers Fund, Inc., Merrill Lynch Federal Securities Trust, Merrill
Lynch Funds for Institutions Series, Merrill Lynch Multi-State Limited
Maturity Municipal Series Trust, Merrill Lynch Multi-State Municipal Series
Trust, Merrill Lynch Municipal Bond Fund, Inc. Merrill Lynch Phoenix Fund,
Inc., Merrill Lynch Special Value Fund, Inc., Merrill Lynch World Income Fund,
Inc. and The Municipal Fund Accumulation Program, Inc.; and for the following
closed-end registered investment companies: Apex Municipal Fund, Inc.,
Corporate High Yield Fund, Inc., Corporate High Yield Fund II, Inc., Corporate
High Yield Fund III, Inc., Debt Strategies Fund, Inc., Income Opportunities
Fund 1999, Inc., Income Opportunities Fund 2000, Inc., Merrill Lynch Municipal
Strategy Fund, Inc., MuniAssets Fund, Inc., MuniEnhanced Fund, Inc.,
MuniHoldings California Insured Fund, Inc., MuniHoldings California Insured
Fund II, Inc., MuniHoldings Florida Insured Fund, MuniHoldings Florida Insured
Fund II, Inc., MuniHoldings Fund, Inc., MuniHoldings Fund II, Inc.,
MuniHoldings New York Fund, Inc., MuniHoldings New York Insured Fund, Inc.,
MuniInsured Fund, Inc., MuniVest Fund, Inc., MuniVest Fund II, Inc., MuniVest
Florida Fund, MuniVest Michigan Insured Fund, Inc., MuniVest New Jersey Fund,
Inc., MuniVest Pennsylvania Insured Fund, MuniYield Arizona Fund, Inc.,
MuniYield California Fund, Inc., MuniYield California Insured Fund, Inc.,
MuniYield California Insured
C-5
<PAGE>
Fund II, Inc., MuniYield Florida Fund, MuniYield Florida Insured Fund,
MuniYield Fund, Inc., MuniYield Insured Fund, 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 Pennsylvania Fund,
MuniYield Quality Fund, Inc., MuniYield Quality Fund II, Inc., Senior High
Income Portfolio, 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 Intermediate Government Bond
Fund is One Financial Center, 23rd Floor, Boston, Massachusetts 02111-2665. The
address of MLAM, FAM, Princeton Services, Inc. ("Princeton Services") and
Princeton Administrators L.P. is also P.O. Box 9011, Princeton, New Jersey
08543-9011. The address of Merrill Lynch Funds Distributor, Inc. ("MLFD") is
P.O. Box 9081, Princeton, New Jersey 08543-9081. The address of Merrill Lynch
and Merrill Lynch & Co., Inc. ("ML & Co.") is North Tower, World Financial
Center, 250 Vesey Street, New York, New York 10281-1201. The address of Merrill
Lynch Financial Data Services, Inc. ("MLFDS") is 4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484.
Set forth below is a list of each executive officer and partner of the
Manager indicating each business, profession, vocation or employment of a
substantial nature in which each such person or entity has been engaged since
December 1, 1995 for his, her or its own account or in the capacity of
director, officer, partner or trustee. In addition, Mr. Zeikel is President and
director or trustee, Mr. Richard is Treasurer and Mr. Glenn is Executive Vice
President of substantially all of the investment companies listed in the first
two paragraphs of this Item 28 and Messrs. Giordano, Harvey, Kirstein and
Monagle are directors, trustees or officers of one or more of such companies.
<TABLE>
<CAPTION>
POSITION WITH OTHER SUBSTANTIAL BUSINESS,
NAME THE MANAGER PROFESSION, VOCATION OR EMPLOYMENT
---- ------------- ----------------------------------
<S> <C> <C>
ML & Co. ............... Limited Partner Financial Services Holding Company;
Limited Partner of FAM
Princeton Services...... General Partner General Partner of FAM
Arthur Zeikel........... Chairman Chairman of FAM; President of the
Manager and FAM from 1977 to 1997;
Chairman and Director of Princeton
Services, President of Princeton
Services from 1993 to 1997; Executive
Vice President of ML & Co.
Jeffrey M. Peek......... President President of FAM since 1997; President
and Director of Princeton Services
since 1997; Executive Vice President of
ML & Co.
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 MLFDS;
President of Princeton Administrators,
L.P.
Linda L. Federici....... Senior Vice President Senior Vice President of FAM, Senior
Vice President of Princeton Services
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
POSITION WITH OTHER SUBSTANTIAL BUSINESS,
NAME THE MANAGER PROFESSION, VOCATION OR EMPLOYMENT
---- ------------- ----------------------------------
<S> <C> <C>
Vincent R. Giordano..... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
Elizabeth A. 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
Michael J. Hennewinkel.. Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
Philip L. Kirstein...... Senior Vice President, Senior Vice President, General Counsel
General Counsel and and Secretary of FAM; Senior Vice
Secretary President, General Counsel, Director
and Secretary of Princeton Services
Ronald M. Kloss......... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
Debra W. Landsman-Yaros. Senior Vice President Senior Vice President of FAM; Vice
President of MLFD; Senior Vice
President of Princeton Services
Stephen M.M. Miller..... Senior Vice President Executive Vice President of Princeton
Administrators, L.P.; Senior Vice
President of Princeton Services
Joseph T. Monagle, Jr. . Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
Michael L. Quinn........ Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services;
Managing Director and First Vice
President of Merrill Lynch from 1989 to
1995
Richard L. Reller....... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services;
Director of MLFD
Gerald M. Richard....... Senior Vice President Senior Vice President and Treasurer of
and Treasurer FAM; Senior Vice President and
Treasurer of Princeton Services; Vice
President and Treasurer of MLFD
Gregory D. Upah......... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
Ronald L. Welburn....... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
</TABLE>
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<PAGE>
(b) Merrill Lynch Asset Management U.K. Limited ("MLAM U.K.") acts as sub-
adviser for the following registered investment companies: Corporate High
Yield Fund, Inc., Corporate High Yield Fund II, Inc., Corporate High Yield
Fund III, Inc., Income Opportunities Fund 1999, Inc., Income Opportunities
Fund 2000, Inc., Merrill Lynch Americas Income Fund, Inc., Merrill Lynch Asset
Builder Program, Inc., Merrill Lynch Asset Growth Fund, Inc., Merrill Lynch
Asset Income Fund, Inc., Merrill Lynch Basic Value Fund, Inc., Merrill Lynch
Capital Fund, Inc., Merrill Lynch Consults International Portfolio, Merrill
Lynch Convertible Fund, Inc., Merrill Lynch Corporate Bond Fund, Inc., Merrill
Lynch Developing Capital Markets, Inc., Merrill Lynch Dragon Fund, Inc.,
Merrill Lynch Emerging Tigers Fund, Inc., Merrill Lynch EuroFund, Merrill
Lynch Fundamental Growth Fund Inc., Merrill Lynch Fund For Tomorrow, Inc.,
Merrill Lynch Global Allocation Fund, Inc., Merrill Lynch Global Bond Fund for
Investment and Retirement, Merrill Lynch Global Convertible Fund, Inc.,
Merrill Lynch Global Growth Fund, Inc., Merrill Lynch Global Holdings, Inc.,
Merrill Lynch Global Resources Trust, Merrill Lynch Global SmallCap Fund,
Inc., Merrill Lynch Global Utility Fund, Inc., Merrill Lynch Global Value
Fund, Inc., Merrill Lynch Growth Fund, 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 Phoenix Fund, Inc., Merrill Lynch Real Estate Fund, Inc.,
Merrill Lynch Series Fund, Inc., Merrill Lynch Short-Term Global Income Fund,
Inc., Merrill Lynch Special Value Fund, Inc., Merrill Lynch Strategic Dividend
Fund, Merrill Lynch Technology Fund, Inc., Merrill Lynch Utility Income Fund,
Inc., Merrill Lynch Variable Series Funds, Inc., Merrill Lynch World Income
Fund, Inc. and Worldwide DollarVest Fund, Inc. The address of each of these
registered investment companies is P.O. Box 9011, Princeton, New Jersey 08543-
9011. The address of MLAM U.K. is Milton Gate, 1 Moor Lane, London EC2Y 9HA,
England.
Set forth below is a list of each executive officer and director of MLAM
U.K. indicating each business, profession, vocation or employment of a
substantial nature in which each such person has been engaged since December
1, 1995, for his or her own account or in the capacity of director, officer,
partner or trustee. In addition, Messrs. Zeikel, Albert and Richard are
officers of one or more of the registered investment companies listed in the
first two paragraphs of this Item 28:
<TABLE>
<CAPTION>
POSITION(S) WITH OTHER SUBSTANTIAL BUSINESS,
NAME MLAM U.K. PROFESSION, VOCATION OR EMPLOYMENT
---- ---------------- ----------------------------------
<S> <C> <C>
Arthur Zeikel........... Director and Chairman Chairman of the Manager and FAM;
President of the Manager and FAM from
1977 to 1997; Chairman and Director of
Princeton Services; President of
Princeton Services from 1993 to 1997;
Executive Vice President of ML & Co.
Alan J. Albert.......... Senior Managing Director Vice President of the Manager
Nicholas C.D. Hall...... Director Director of Merrill Lynch Europe PLC;
General Counsel of Merrill Lynch
International Private Banking Group
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
POSITION(S) WITH OTHER SUBSTANTIAL BUSINESS,
NAME MLAM U.K. PROFESSION, VOCATION OR EMPLOYMENT
---- ---------------- ----------------------------------
<S> <C> <C>
Gerald M. Richard....... Senior Vice President Senior Vice President and Treasurer of
the Manager and FAM; Senior Vice
President and Treasurer of Princeton
Services; Vice President and Treasurer
of MLFD
Carol Ann Langham....... Company Secretary None
Debra Anne Searle....... Assistant Company Secretary None
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) MLFD acts as the principal underwriter for the Registrant and for each
of the open-end registered investment companies referred to in the first two
paragraphs of Item 28 except CBA Money Fund, CMA Government Securities Fund,
CMA Money Fund, CMA Multi-State Municipal Series Trust, CMA Tax-Exempt Fund,
CMA Treasury Fund, The Corporate Fund Accumulation Program, Inc., and The
Municipal Fund Accumulation Program, Inc., and MLFD also acts as the principal
underwriter for the following closed-end registered investment companies:
Merrill Lynch High Income Municipal Bond Fund, Inc., Merrill Lynch Municipal
Strategy Fund, Inc. and Merrill Lynch Senior Floating Rate Fund, Inc.
(b) Set forth below is information concerning each director and officer of
MLFD. the principal business address of each such person is P.O. Box 9081,
Princeton, New Jersey 08543-9081, except that the address of Messrs. Aldrich,
Breen, Crook, Fatseas, and Wasel is One Financial Center, 23rd Floor, Boston,
Massachusetts 02111-2665.
<TABLE>
<CAPTION>
POSITION(S) ANDOFFICE(S) POSITION(S) AND OFFICE(S)
NAME WITH MLFD WITH REGISTRANT
---- ------------------------ -------------------------
<S> <C> <C>
Terry K. Glenn.......... President and Director Executive Vice President
Richard L. Reller....... Director None
Thomas J. Verage ....... Director None
William E. Aldrich...... Senior Vice President None
Robert W. Crook......... Senior Vice President None
Michael J. Brady........ Vice President None
William M. Breen........ Vice President None
Michael G. Clark........ Vice President None
James T. Fatseas........ Vice President None
Michelle T. Lau......... Vice President None
Debra W. Landsman-Yaros. Vice President None
Gerald M. Richard....... Vice President and Treasurer Treasurer
Salvatore Venezia....... Vice President None
William Wasel........... Vice President None
Robert Harris........... Secretary None
</TABLE>
(c) Not applicable.
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<PAGE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by Section
31(a) of the 1940 Act and the rules thereunder are maintained at the offices
of the Registrant, 800 Scudders Mill Road, Plainsboro, New Jersey 08536, and
its transfer agent, MLFDS, 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 the caption "Management of the Fund--
Management and Advisory Arrangements" in the Statement of Additional
Information constituting Part B of the Registration Statement, the Registrant
is not a party to any management-related service contract.
ITEM 32. UNDERTAKINGS.
(a) Not applicable.
(b) Not applicable.
(c) Registrant undertakes to furnish each person to whom a prospectus is
delivered with copy of the Registrant's latest annual report to shareholders,
upon request and without charge.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of
1933 and has duly caused this Post-Effective Amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Township of Plainsboro, and the State of New Jersey, on the
2nd day of March 1998.
Merrill Lynch Latin America Fund,
Inc.
(Registrant)
/s/ Gerald M. Richard
By: _________________________________
(GERALD M. RICHARD, TREASURER)
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.
SIGNATURES TITLE DATE(S)
Arthur Zeikel* President and Director
- -------------------------------------
(ARTHUR ZEIKEL) (Principal Executive Officer)
Gerald M. Richard* Treasurer (Principal Financial
- -------------------------------------
(GERALD M. RICHARD) and Accounting Officer)
Donald Cecil* Director
- -------------------------------------
(DONALD CECIL)
Edward H. Meyer* Director
- -------------------------------------
(EDWARD H. MEYER)
Charles C. Reilly* Director
- -------------------------------------
(CHARLES C. REILLY)
Richard R. West* Director
- -------------------------------------
(RICHARD R. WEST)
Edward D. Zinbarg* Director
- -------------------------------------
(EDWARD D. ZINBARG)
/s/ Gerald M. Richard
*By: ________________________________ March 2, 1998
(GERALD M. RICHARD, ATTORNEY-IN-
FACT)
C-11
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
11 --Consent of Deloitte & Touche LLP, independent auditors for the
Registrant.
17(a) --Financial Data Schedule for Class A Shares.
(b) --Financial Data Schedule for Class B Shares.
(c) --Financial Data Schedule for Class C Shares.
(d) --Financial Data Schedule for Class D Shares.
</TABLE>
<PAGE>
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
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 001
<NAME> MERRILL LYNCH LATIN AMERICA FUND, INC. -CLASS A
<S> <C>
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<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 791781969
<INVESTMENTS-AT-VALUE> 823749434
<RECEIVABLES> 2745897
<ASSETS-OTHER> 30848239
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 857343570
<PAYABLE-FOR-SECURITIES> 81539797
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5738180
<TOTAL-LIABILITIES> 87277977
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 835325323
<SHARES-COMMON-STOCK> 5106408
<SHARES-COMMON-PRIOR> 3614256
<ACCUMULATED-NII-CURRENT> (237280)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (96549936)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 31527486
<NET-ASSETS> 77085775
<DIVIDEND-INCOME> 19610476
<INTEREST-INCOME> 1503658
<OTHER-INCOME> 0
<EXPENSES-NET> (19559873)
<NET-INVESTMENT-INCOME> 1554261
<REALIZED-GAINS-CURRENT> 165490154
<APPREC-INCREASE-CURRENT> (26565240)
<NET-CHANGE-FROM-OPS> 140479175
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1603289)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5567495
<NUMBER-OF-SHARES-REDEEMED> (4184228)
<SHARES-REINVESTED> 108885
<NET-CHANGE-IN-ASSETS> 68815684
<ACCUMULATED-NII-PRIOR> 17612088
<ACCUMULATED-GAINS-PRIOR> (263705203)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (601566)
<GROSS-ADVISORY-FEES> 8578935
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 19559873
<AVERAGE-NET-ASSETS> 77334922
<PER-SHARE-NAV-BEGIN> 12.83
<PER-SHARE-NII> .17
<PER-SHARE-GAIN-APPREC> 2.54
<PER-SHARE-DIVIDEND> (.44)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.10
<EXPENSE-RATIO> 1.46
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 002
<NAME> MERRILL LYNCH LATIN AMERICA FUND, INC. -CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 791781969
<INVESTMENTS-AT-VALUE> 823749434
<RECEIVABLES> 2745897
<ASSETS-OTHER> 30848239
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 857343570
<PAYABLE-FOR-SECURITIES> 81539797
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5738180
<TOTAL-LIABILITIES> 87277977
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 835325323
<SHARES-COMMON-STOCK> 35977136
<SHARES-COMMON-PRIOR> 41633526
<ACCUMULATED-NII-CURRENT> (237280)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (96549936)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 31527486
<NET-ASSETS> 527520345
<DIVIDEND-INCOME> 19610476
<INTEREST-INCOME> 1503658
<OTHER-INCOME> 0
<EXPENSES-NET> (19559873)
<NET-INVESTMENT-INCOME> 1554261
<REALIZED-GAINS-CURRENT> 165490154
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<NET-CHANGE-FROM-OPS> 140479175
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (12117748)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8877378
<NUMBER-OF-SHARES-REDEEMED> (15395919)
<SHARES-REINVESTED> 862151
<NET-CHANGE-IN-ASSETS> 68815684
<ACCUMULATED-NII-PRIOR> 17612088
<ACCUMULATED-GAINS-PRIOR> (263705203)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (601566)
<GROSS-ADVISORY-FEES> 8578935
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 19559873
<AVERAGE-NET-ASSETS> 610181682
<PER-SHARE-NAV-BEGIN> 12.46
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 2.50
<PER-SHARE-DIVIDEND> (.30)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.66
<EXPENSE-RATIO> 2.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 003
<NAME> MERRILL LYNCH LATIN AMERICA FUND, INC. -CLASS C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 791781969
<INVESTMENTS-AT-VALUE> 823749434
<RECEIVABLES> 2745897
<ASSETS-OTHER> 30848239
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 857343570
<PAYABLE-FOR-SECURITIES> 81539797
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5738180
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<SENIOR-EQUITY> 0
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<SHARES-COMMON-STOCK> 2529568
<SHARES-COMMON-PRIOR> 1860500
<ACCUMULATED-NII-CURRENT> (237280)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (96549936)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 31527486
<NET-ASSETS> 37026502
<DIVIDEND-INCOME> 19610476
<INTEREST-INCOME> 1503658
<OTHER-INCOME> 0
<EXPENSES-NET> (19559873)
<NET-INVESTMENT-INCOME> 1554261
<REALIZED-GAINS-CURRENT> 165490154
<APPREC-INCREASE-CURRENT> (26565240)
<NET-CHANGE-FROM-OPS> 140479175
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (579869)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2398269
<NUMBER-OF-SHARES-REDEEMED> (1771078)
<SHARES-REINVESTED> 41877
<NET-CHANGE-IN-ASSETS> 68815684
<ACCUMULATED-NII-PRIOR> 17612088
<ACCUMULATED-GAINS-PRIOR> (263705203)
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<OVERDIST-NET-GAINS-PRIOR> (601566)
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 19559873
<AVERAGE-NET-ASSETS> 35943947
<PER-SHARE-NAV-BEGIN> 12.46
<PER-SHARE-NII> (.02)
<PER-SHARE-GAIN-APPREC> 2.52
<PER-SHARE-DIVIDEND> (.32)
<PER-SHARE-DISTRIBUTIONS> 0
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<PER-SHARE-NAV-END> 14.64
<EXPENSE-RATIO> 2.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 004
<NAME> MERRILL LYNCH LATIN AMERICA FUND, INC. -CLASS D
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 791781969
<INVESTMENTS-AT-VALUE> 823749434
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<SHARES-COMMON-PRIOR> 8838830
<ACCUMULATED-NII-CURRENT> (237280)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (96549936)
<OVERDISTRIBUTION-GAINS> 0
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<NET-ASSETS> 128432971
<DIVIDEND-INCOME> 19610476
<INTEREST-INCOME> 1503658
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<EXPENSES-NET> (19559873)
<NET-INVESTMENT-INCOME> 1554261
<REALIZED-GAINS-CURRENT> 165490154
<APPREC-INCREASE-CURRENT> (26565240)
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<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3322519)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7291444
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<SHARES-REINVESTED> 224831
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<ACCUMULATED-NII-PRIOR> 17612088
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 19559873
<AVERAGE-NET-ASSETS> 136789816
<PER-SHARE-NAV-BEGIN> 12.77
<PER-SHARE-NII> .11
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<PER-SHARE-DIVIDEND> (.40)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
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<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
EXHIBIT 99.11
INDEPENDENT AUDITORS' CONSENT
Merrill Lynch Latin America Fund, Inc.:
We consent to the use in Post-Effective Amendment No. 8 to Registration
Statement No. 33-41622 of our report dated January 8, 1998 appearing in the
Statement of Additional Information, which is a part of such Registration
Statement, and to the reference to us under the caption "Consolidated Financial
Highlights" appearing in the Prospectus, which also is a part of such
Registration Statement.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Princeton, New Jersey
February 26, 1998
