<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 8, 1994
SECURITIES ACT FILE NO. 33-52589
INVESTMENT COMPANY ACT FILE NO. 811-07147
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. 1 [X]
POST-EFFECTIVE AMENDMENT NO. [_]
AND/OR
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 1 [X]
----------------
EMERGING AMERICAS FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
----------------
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(609) 282-2800
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
ARTHUR ZEIKEL
EMERGING AMERICAS FUND, INC.
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
MAILING ADDRESS, BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(NAME AND ADDRESS OF AGENT FOR SERVICE)
----------------
COPIES TO:
MICHAEL J. HENNEWINKEL, ESQ. FUND THOMAS R. SMITH, JR., ESQ. DOUGLAS A.
ASSET MANAGEMENT BOX 9011 PRINCETON, SGARRO, ESQ. BROWN & WOOD ONE WORLD
NEW JERSEY 08543 TRADE CENTER NEW YORK, NEW YORK
10048-0557
APPROXIMATE DATE OF PROPOSED OFFERING: As soon as practicable after the
effective date of this Registration Statement.
IF ANY OF THE SECURITIES BEING REGISTERED ON THIS FORM ARE TO BE OFFERED ON A
DELAYED OR CONTINUOUS BASIS PURSUANT TO RULE 415 UNDER THE SECURITIES ACT OF
1933, OTHER THAN SECURITIES OFFERED ONLY IN CONNECTION WITH DIVIDEND OR
INTEREST REINVESTMENT PLANS, CHECK THE FOLLOWING. [_]
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNT OFFERING AGGREGATE AMOUNT OF
BEING PRICE PER OFFERING REGISTRATION
TITLE OF SECURITIES BEING REGISTERED REGISTERED(1) UNIT PRICE(1) FEE(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock (par value $.10 per 7,500,000 $15.00 $38,448.55
share)............................... $112,500,000
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Does not include $344.83 previously paid.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that the Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EMERGING AMERICAS FUND, INC.
----------------
CROSS REFERENCE SHEET
PURSUANT TO RULE 404(C)
<TABLE>
<CAPTION>
ITEM NUMBER, FORM N-2 CAPTION IN PROSPECTUS
--------------------- ---------------------
PART A--INFORMATION REQUIRED IN A PROSPECTUS
<C> <C> <S>
1. Outside Front Cover Page ................... Cover Page
2. Inside Front and Outside Back Cover Pages .. Cover Page, Underwriting
3. Fee Table and Synopsis ..................... Fee Table and Prospectus Summary
4. Financial Highlights ....................... Not Applicable
5. Plan of Distribution ....................... Underwriting
6. Selling Shareholders ....................... Not Applicable
7. Use of Proceeds ............................ Use of Proceeds
8. General Description of the Registrant ...... The Fund; Investment Objective and
Policies; Other Investment Policies and
Practices
9. Management ................................. Directors and Officers; Investment
Advisory and Management Arrangements
10. Capital Stock, Long-Term Debt and Other
Securities ................................. Description of Shares
11. Defaults and Arrears on Senior Securities .. Not Applicable
12. Legal Proceedings .......................... Not Applicable
13. Table of Contents of the Statement of Addi-
tional Information ......................... Not Applicable
PART B--INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
14. Cover Page ................................. Not Applicable
15. Table of Contents .......................... Not Applicable
16. General Information and History ............ Not Applicable
17. Investment Objectives and Policies ......... Investment Objective and Policies;
Other Investment Policies and
Practices;
Investment Restrictions
18. Management ................................. Directors and Officers; Investment
Advisory and Management Arrangements
19. Control Persons and Principal Holders of Se- Investment Advisory and Management
curities.................................... Arrangements
20. Investment Advisory and Other Services ..... Investment Advisory and Management
Arrangements; Underwriting; Transfer
Agent, Dividend Disbursing Agent and
Registrar; Custodian; Experts
21. Brokerage Allocation and Other Practices ... Portfolio Transactions
22. Tax Status ................................. Taxes
Statement of Assets, Liabilities and
23. Financial Statements ....................... Capital
</TABLE>
PART C--OTHER INFORMATION
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>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED APRIL 8, 1994
PROSPECTUS
- ---------- 7,500,000 SHARES
EMERGING AMERICAS FUND, INC.
COMMON STOCK
-------------
Emerging Americas Fund, Inc. (the "Fund") is a non-diversified, closed-end
management investment company seeking long-term capital appreciation by
investing primarily in equity and, to a lesser extent, debt securities of
corporate and governmental issuers in countries located in Central and South
America and the Caribbean ("emerging Americas countries"). Under current market
conditions, the Fund intends to emphasize investments in corporate and
governmental issuers in Argentina, Brazil, Chile and Venezuela. The investment
objective of the Fund reflects the belief that the securities markets of the
emerging Americas countries present attractive investment opportunities. A
number of such countries have been instituting economic and political reforms
encouraging greater market orientation and less government intervention in
economic affairs. The Fund believes that these measures have the potential to
offer long-term benefits to the securities markets of such countries. Under
normal market conditions at least 65% of the Fund's total assets will be
invested in securities of corporate and governmental issuers in emerging
Americas countries. There can be no assurance that the Fund's investment
objective will be achieved.
INVESTMENTS IN SECURITIES OF ISSUERS IN EMERGING AMERICAS COUNTRIES INVOLVE
SPECIAL CONSIDERATIONS AND RISKS WHICH ARE NOT TYPICALLY PRESENT IN INVESTMENTS
IN THE SECURITIES OF U.S. ISSUERS. IN ADDITION, THE FUND MAY INVEST IN DEBT
SECURITIES THAT ARE IN THE LOWER RATING CATEGORIES OR UNRATED AND MAY BE IN
DEFAULT AS TO PAYMENT OF PRINCIPAL AND/OR INTEREST AT THE TIME OF ACQUISITION
BY THE FUND. SUCH SECURITIES GENERALLY INVOLVE GREATER VOLATILITY OF PRICE AND
RISKS TO PRINCIPAL AND INCOME THAN SECURITIES IN THE HIGHER RATING CATEGORIES.
THE FUND MAY INVEST WITHOUT LIMITATION IN SECURITIES THAT ARE NOT READILY
MARKETABLE. BECAUSE THE FUND IS NEWLY ORGANIZED, ITS SHARES HAVE NO HISTORY OF
PUBLIC TRADING. SHARES OF CLOSED-END INVESTMENT COMPANIES FREQUENTLY TRADE AT A
DISCOUNT FROM THEIR NET ASSET VALUE. THIS RISK MAY BE GREATER FOR INVESTORS
EXPECTING TO SELL THEIR SHARES IN A RELATIVELY SHORT PERIOD AFTER COMPLETION OF
THE PUBLIC OFFERING. SEE "RISK FACTORS AND SPECIAL CONSIDERATIONS."
Prior to this offering, there has been no public market for the Common Stock
of the Fund. The Fund's shares of Common Stock have been approved for listing
on the New York Stock Exchange under the symbol "EAM". However, during an
initial period which is not expected to exceed four weeks from the date of this
Prospectus, the Fund's shares will not be listed on any securities exchange.
During such period, Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch") does not intend to make a market in the Fund's shares.
Consequently, it is anticipated that an investment in the Fund will be illiquid
during such period. The Investment Adviser of the Fund is Fund Asset
Management, L.P., an affiliate of Merrill Lynch Asset Management, L.P. This
Prospectus sets forth concisely information about the Fund that a prospective
investor ought to know before investing and should be read and retained for
future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MAXIMUM PRICE MAXIMUM PROCEEDS TO
TO PUBLIC(1) SALES LOAD(1)(2) THE FUND(3)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share........................... $15.00 $ $
- --------------------------------------------------------------------------------
Total(4)............................ $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(footnotes on next page)
-------------
The shares are offered by Merrill Lynch, subject to prior sale, when, as and
if issued by the Fund and accepted by Merrill Lynch, subject to approval of
certain legal matters by counsel for Merrill Lynch and certain other
conditions. Merrill Lynch reserves the right to withdraw, cancel or modify such
offer and to reject orders in whole or in part. It is expected that delivery of
the shares will be made in New York, New York on or about April , 1994.
-------------
MERRILL LYNCH & CO.
-------------
The date of this Prospectus is April , 1994
<PAGE>
(Continued from cover page)
(1) The "Maximum Price to Public" and "Maximum Sales Load" per share will be
reduced to $14.85 and $ , respectively, for purchases in single
transactions of between 6,668 and 16,835 shares and to $14.70 and $ ,
respectively, for purchases in single transactions of 16,836 or more
shares. See "Underwriting."
(2) The Fund and the Investment Adviser have agreed to indemnify Merrill Lynch
against certain liabilities, including liabilities under the Securities Act
of 1933. See "Underwriting."
(3) Before deducting organizational and offering costs payable by the Fund
estimated at $ .
(4) The Fund has granted Merrill Lynch an option, exercisable for 45 days after
the date hereof, to purchase up to an additional shares to cover
over-allotments. If all such shares are purchased, the total Maximum Price
to Public, Maximum Sales Load and Proceeds to the Fund will be $ ,
$ and $ , respectively. See "Underwriting."
----------------
THE FUND IS DESIGNED PRIMARILY FOR LONG-TERM INVESTORS AND SHOULD NOT BE
CONSIDERED A VEHICLE FOR TRADING PURPOSES. THE ADDRESS OF THE FUND IS 800
SCUDDERS MILL ROAD, PLAINSBORO, NEW JERSEY 08536, AND ITS TELEPHONE NUMBER IS
(609) 282-2800.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE FUND'S COMMON
STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN OVER-THE-
COUNTER MARKETS OR OTHERWISE. SUCH STABILIZATION, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary should be read in conjunction with the more detailed
information appearing elsewhere in this Prospectus.
THE FUND....................
Emerging Americas Fund, Inc. (the "Fund") is a
newly organized, non-diversified, closed-end man-
agement investment company investing primarily in
equity and, to a lesser extent, debt securities
of corporate and governmental issuers in desig-
nated emerging Americas countries. See "The
Fund."
CONVERSION TO OPEN-END
STATUS...................... The Fund's Articles of Incorporation provide that
the Board of Directors will submit a proposal to
convert the Fund to an open-end investment com-
pany to the Fund's shareholders during the second
quarter of 1996. However, if in the Board's dis-
cretion, conversion at that time would not be in
the best interests of the shareholders of the
Fund, the Board retains the right to withhold the
proposal until such time as the Board deems con-
version to be in the best interests of the share-
holders. Conversion to an open-end investment
company would make the Common Stock redeemable in
cash upon demand by shareholders at the next de-
termined net asset value. So as not to force the
Fund to liquidate portfolio securities at a dis-
advantageous time, in order to meet requests for
redemption, the Fund is authorized to borrow up
to 20% of its total asset value for the purpose
of redeeming its shares. If shareholder approval
of conversion to an open-end investment company
is not obtained, the Fund will continue as a
closed-end investment company. See "The 1996 Vote
to Convert to Open-End Status."
THE OFFERING................
The Fund is offering 7,500,000 shares of Common
Stock at a maximum initial offering price of
$15.00 per share, except that the price will be
reduced to $14.85 for purchases in single trans-
actions of between 6,668 and 16,835 shares and to
$14.70 for purchases in single transactions of
16,836 or more shares. The shares are being of-
fered by Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch"). Merrill Lynch has
been granted an option, exercisable for 45 days
from the date of this Prospectus, to purchase up
to additional shares of Common Stock to
cover over-allotments. See "Underwriting."
INVESTMENT OBJECTIVE AND
POLICIES.................... The investment objective of the Fund is to seek
long-term capital appreciation by investing pri-
marily in equity and, to a lesser extent, debt
securities of corporate and governmental issuers
in countries located in Central and South America
and the Caribbean ("emerging Americas coun-
tries"). Under current market
3
<PAGE>
conditions, the Fund intends to emphasize invest-
ments in corporate and governmental issuers in
Argentina, Brazil, Chile and Venezuela. The gov-
ernment and government-related debt securities or
obligations are referred to herein as "sovereign
debt securities."
The investment objective of the Fund reflects the
belief that the securities markets of the emerg-
ing Americas countries present attractive invest-
ment opportunities. A number of such countries
have been instituting economic and political re-
forms encouraging greater market orientation and
less government intervention in economic affairs.
The Fund believes that these measures have the
potential to offer long-term benefits to the se-
curities markets of such 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 emerging Americas countries towards de-
mocracy 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 af-
fairs and implement policy initiatives designed
to control inflation, reduce financial deficits
and external debt, establish stable currency ex-
change rates, liberalize trade restrictions, in-
crease foreign investment, privatize state-owned
companies and develop and modernize the securi-
ties markets. While considerable difficulties re-
main, the economies of certain emerging Americas
countries have improved, and these improvements
have been reflected in the performance of the se-
curities markets and improved credit fundamentals
for the sovereign and corporate debt securities
issued in such markets.
In addition to making equity investments, the
Fund will seek capital appreciation through in-
vestment in sovereign and corporate debt securi-
ties of issuers in emerging Americas countries.
Such debt securities may be lower rated or
unrated obligations of sovereign or corporate is-
suers. Such securities are traded in over-the-
counter markets by a limited number of dealers.
Consequently, these securities may be less liquid
than certain other securities which are traded in
over-the-counter markets. The Fund's investments
in sovereign debt will consist of debt securities
or obligations issued or guaranteed by foreign
governments, their agencies, instrumentalities
and political subdivisions and by entities con-
4
<PAGE>
trolled or sponsored by such governments. The
Fund may also invest in interests in entities or-
ganized and operated for the purpose of restruc-
turing the investment characteristics of sover-
eign debt. The restructured sovereign debt will
include Brady Bonds, which are debt securities
issued under the framework of the Brady Plan, an
initiative established in 1989 as a mechanism for
debtor nations to restructure their outstanding
external commercial bank indebtedness.
Since such debt securities frequently trade in
the secondary markets at substantial discounts,
there is opportunity for capital appreciation to
the extent there is a favorable change in the
market perception of the creditworthiness of the
issuer. Capital appreciation in debt securities
may also arise as a result of a favorable change
in relative foreign exchange rates or in relative
interest rate levels. In accordance with its in-
vestment objective, the Fund will not seek to
benefit from anticipated short-term fluctuations
in currency exchange rates. The receipt of income
from such debt securities is incidental to the
Fund's objective of long-term capital apprecia-
tion. 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.
Further, the Fund may invest in debt securities
that are in default as to payments of principal
and/or interest at the time of acquisition by the
Fund ("Distressed Securities"). The Fund will in-
vest in Distressed Securities only when the In-
vestment Adviser believes it is reasonably likely
that the issuer of the securities will make an
exchange offer or will be the subject of a plan
of reorganization.
The Fund is authorized to employ a variety of in-
vestment techniques to hedge against market and
currency risk, although at the present time suit-
able hedging instruments may not be available
with respect to securities of corporate and gov-
ernmental issuers in emerging Americas countries
on a timely basis and on acceptable terms. Fur-
thermore, even if hedging techniques are avail-
able, the Fund will only engage in hedging activ-
ities from time to time and may not necessarily
be engaging in hedging activities when market or
currency movements occur.
BENEFITS OF INVESTMENT IN Investment in shares of Common Stock of the Fund
THE FUND.................... offers several benefits. Many investors, particu-
larly individuals, lack the infor-
5
<PAGE>
mation or capability to invest in emerging Ameri-
cas countries. It also may not be permissible for
such investors to invest directly in the capital
markets of certain emerging Americas countries.
The Fund offers investors the possibility of ob-
taining capital appreciation through a diversi-
fied portfolio comprised of securities of issuers
in certain emerging Americas countries. In manag-
ing such portfolio, the Investment Adviser will
provide the Fund and its shareholders with pro-
fessional analysis of investment opportunities
and the use of professional money management
techniques. In addition, unlike many intermediary
investment vehicles, such as closed-end invest-
ment companies that are limited to investment in
a single country, the Fund has the ability to di-
versify investment risk among the capital markets
of a number of countries.
LISTING.....................
Prior to this offering, there has been no public
market for Common Stock of the Fund. The Fund's
shares of Common Stock have been approved for
listing on the New York Stock Exchange. However,
during an initial period which is not expected to
exceed four weeks from the date of this Prospec-
tus, the Fund's shares will not be listed on any
securities exchange. During such period, Merrill
Lynch does not intend to make a market in the
Fund's shares. Consequently, it is anticipated
that an investment in the Fund will be illiquid
during such period. See "Underwriting."
INVESTMENT ADVISER..........
Fund Asset Management, L.P. is the Fund's invest-
ment adviser (the "Investment Adviser") and is
responsible for the management of the Fund's in-
vestment portfolio and for providing administra-
tive services to the Fund. For its services, the
Fund pays the Investment Adviser a monthly fee at
the annual rate of 1.00% of the Fund's average
weekly net assets. The Investment Adviser is an
affiliate of Merrill Lynch Asset Management, L.P.
("MLAM"), which is owned and controlled by Mer-
rill Lynch & Co., Inc. ("ML & Co."). The Invest-
ment Adviser, or MLAM, acts as the investment ad-
viser for over 90 other registered management in-
vestment companies. The Investment Adviser also
offers portfolio management and portfolio analy-
sis services to individuals and institutions. As
of February 28, 1994, the Investment Adviser and
MLAM had a total of approximately $164.4 billion
in investment company and other portfolio assets
under management, including accounts of certain
affiliates of the Investment Adviser. See "In-
vestment Advisory and Management Arrangements."
DIVIDENDS AND It is the Fund's intention to distribute all of
DISTRIBUTIONS............... its net investment income. Dividends from such
net investment income are paid at
6
<PAGE>
least annually. All net realized long-term and
short-term capital gains, if any, will be dis-
tributed to the Fund's shareholders at least an-
nually. See "Dividends and Distributions."
AUTOMATIC DIVIDEND
REINVESTMENT PLAN...........
All dividends and capital gains distributions au-
tomatically will be reinvested in additional
shares of the Fund unless a shareholder elects to
receive cash. Shareholders whose shares are held
in the name of a broker or nominee should contact
such broker or nominee to confirm that they may
participate in the Fund's dividend reinvestment
plan. See "Automatic Dividend Reinvestment Plan."
MUTUAL FUND INVESTMENT Purchasers of shares of the Fund in this offering
OPTION...................... will have an investment option consisting of the
right to reinvest the net proceeds from a sale of
such shares (the "Original Shares") in Class A
initial sales charge shares of certain Merrill
Lynch-sponsored open-end mutual funds ("Eligible
Class A Shares") at their net asset value, with-
out the imposition of the initial sales charge,
if the conditions set forth below are satisfied.
First, the sale of the Original Shares must be
made through Merrill Lynch, and the net proceeds
therefrom must be reinvested immediately in Eli-
gible Class A Shares. Second, the Original Shares
must have either been acquired in this offering
or be shares representing reinvested dividends
from shares acquired in this offering. Third, the
Original Shares must have been maintained contin-
uously in a Merrill Lynch securities account.
Fourth, there must be a minimum purchase of $250
to be eligible for the investment option. Class A
shares of certain of the mutual funds may be sub-
ject to an account maintenance fee at an annual
rate of up to 0.25% of the average daily net as-
set value of such mutual fund. See "Mutual Fund
Investment Option."
CUSTODIAN...................
The Chase Manhattan Bank, N.A., will act as cus-
todian for the Fund's assets and will employ for-
eign sub-custodians approved by the Fund's Board
of Directors in accordance with regulations of
the Securities and Exchange Commission. See "Cus-
todian."
TRANSFER AGENT, DIVIDEND
DISBURSING AGENT AND
REGISTRAR..................
State Street Bank and Trust Company will act as
transfer agent, dividend disbursing agent and
registrar for the Fund. See "Transfer Agent, Div-
idend Disbursing Agent and Registrar."
7
<PAGE>
RISK FACTORS AND SPECIAL CONSIDERATIONS
GENERAL
The Fund is a newly organized, non-diversified, closed-end management
investment company and has no operating history. As described under the heading
"Listing" above, it is anticipated that an investment in the Fund will be
illiquid prior to the listing of the Fund's shares of Common Stock on the New
York Stock Exchange. Shares of closed-end investment companies frequently trade
at a discount from their net asset value. This risk may be greater for
investors expecting to sell their shares in a relatively short period after
completion of the public offering. Accordingly, the Common Stock of the Fund is
designed primarily for long-term investors and should not be considered a
vehicle for trading purposes.
Because the Fund intends to invest primarily in equity and, to a lesser
extent, debt securities of corporate and governmental issuers in emerging
Americas countries, an investor in the Fund should be aware of certain risk
factors and special considerations relating to investing in such securities.
More generally, the investor should also be aware of risks and considerations
related 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, an investment in the
Fund should not be considered 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. In addition, with respect to certain foreign countries, there is
the possibility of expropriation of assets, confiscatory taxation, economic,
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 domestic 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 such as those of
emerging Americas countries.
Most of the securities held by the Fund will not be registered with the
Securities and Exchange Commission, nor will the issuers thereof be subject to
the reporting requirements of such agency. Accordingly, there may be less
publicly available information about foreign issuers than about U.S. issuers,
and such foreign issuers may not be subject to accounting, auditing and
financial reporting standards and requirements comparable to those of U.S.
issuers. 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 issuers, and issuers 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.
8
<PAGE>
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. The
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.
There is generally less government supervision and regulation of exchanges,
brokers and issuers in foreign countries than there is in the United States.
Further, brokerage commissions and other transaction costs on foreign
securities exchanges are generally higher than in the United States.
RISKS RELATING TO INVESTMENT IN EMERGING AMERICAS COUNTRIES
Certain of the risks associated with international investments are heightened
for investments in emerging Americas countries. The securities markets of
emerging Americas countries are not as large as the U.S. securities markets and
have substantially less trading volume, resulting in a lack of liquidity with
high price volatility. Certain markets are in only the earliest stages of
development. 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. Brokers in emerging Americas countries typically are fewer in
number and less capitalized than brokers in the United States. Also, the Fund
may not invest more than 25% of its total assets in the sovereign debt
securities of any one emerging Americas country. These factors, combined with
other U.S. regulatory requirements for closed-end companies and the
restrictions on foreign investment discussed below, result in potentially fewer
investment opportunities for the Fund, limit the degree to which the Fund may
diversify among securities, industries and countries and may have an adverse
impact on the investment performance of the Fund.
The investment objective of the Fund reflects the belief that the securities
markets of the emerging Americas countries present attractive investment
opportunities. A number of such countries have been instituting economic and
political reforms encouraging greater market orientation and less government
intervention in economic affairs. The Fund believes that these measures have
the potential to offer long-term benefits to the securities markets of such
countries. The economies of certain emerging Americas countries have
experienced considerable difficulties in the past decade. Although there have
been significant improvements in recent years, the economies of certain
emerging Americas countries continue to experience significant problems,
including high inflation rates and high interest rates. The continued
development of the economies and securities markets of emerging Americas
countries 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 U.S., and by world prices for oil and
other commodities. There is no assurance that the economic initiatives will be
successful.
Emerging economies present certain risks that do not exist in more
established economies; especially significant is that political and social
uncertainties exist for many of the emerging Americas countries. Many of the
emerging Americas countries may be subject to a greater degree of economic,
political and social
9
<PAGE>
instability than is the case in the United States and Western European
countries. For example, recent events in Mexico such as the uprising in Chiapas
and the assassination of presidential candidate Colosio have had an adverse
effect on the Mexican stock market. In addition, governments of many emerging
Americas 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 emerging Americas countries, which could
affect private sector companies and the Fund, as well as the value of
securities in the Fund's portfolio.
The legal systems in certain emerging Americas countries also may have an
adverse impact on the Fund. For example, while the potential liability of a
shareholder in a U.S. corporation with respect to acts of the corporation is
generally limited to the amount of the shareholder's investment, the notion of
limited liability is less clear in certain emerging Americas countries.
Similarly, the rights of investors in emerging Americas companies may be more
limited than those of shareholders of U.S. corporations. It may be difficult or
impossible to obtain and/or enforce a judgment in an emerging Americas country.
In addition to the relative lack of publicly available information about
emerging Americas issuers and the possibility that such issuers may not be
subject to the same accounting, auditing and financial reporting standards as
U.S. issuers, inflation accounting rules in some emerging Americas countries
require, for issuers that keep accounting records in the local currency, for
both tax and accounting purposes, that certain assets and liabilities be
restated on the issuer'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 issuers in certain emerging Americas countries.
Satisfactory custodial services for investment securities may not be
available in some emerging Americas countries, which may result in the Fund
incurring additional costs and delays in providing transportation and custody
services for such securities outside such countries.
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 emerging Americas
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 emerging Americas 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 issuer or limit the
investment by foreign persons to only a specific class of securities of an
issuer which may have less advantageous terms (including price) than securities
of the issuer available for purchase by nationals. There can be no assurance
that the Fund will be able to obtain required governmental approvals in a
timely manner. In addition, changes to restrictions on foreign ownership of
securities subsequent to the Fund's purchase of such securities may have an
adverse effect on the value of such securities. Certain countries may restrict
investment opportunities in issuers or industries deemed important to national
interests.
10
<PAGE>
Substantial limitations may exist in certain countries with respect to the
Fund's ability to repatriate investment income, capital or proceeds of sales of
securities by foreign investors. 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.
A number of publicly traded closed-end investment companies have been
organized to facilitate indirect foreign investment in emerging Americas
countries, and certain of such countries including Brazil and Chile, have
specifically authorized such funds. There also are investment opportunities in
certain of such countries in pooled vehicles that resemble open-end investment
companies. Under the Investment Company Act, the Fund may invest up to 10% of
its total assets in shares of other investment companies and up to 5% of its
total assets in any one investment company, provided that the investment does
not represent more than 3% of the voting stock of the related acquired
investment company. This restriction on investments in securities of investment
companies may limit opportunities for the Fund to invest indirectly in certain
emerging Americas 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 of investment companies or of venture
capital funds, shareholders would bear both their proportionate share of
expenses in the Fund (including management and advisory fees) and, indirectly,
the expenses of such investment companies or venture capital funds.
SOVEREIGN DEBT
Certain emerging Americas countries are among the largest debtors to
commercial banks and foreign governments. Investment in sovereign debt
securities 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 pay
interest when 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, multinational
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 securities, 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 securities on which a governmental entity has defaulted may be collected
in whole or in part.
11
<PAGE>
The sovereign debt securities 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 below and are subject to many of the
same risks as such securities. In addition, the Fund's investments in non-
dollar denominated sovereign debt securities are subject to foreign currency
risks. Also, the Fund's investments in dollar denominated sovereign debt
securities are subject to the risk that the issuer may be unable to obtain, on
favorable terms, dollars to service its interest and principal payments
thereon. Similarly, the Fund may have difficulty disposing of certain sovereign
debt obligations because there may be a thin trading market for such
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.
Securities rated in the medium to low rating categories of nationally
recognized statistical rating organizations, such as Standard & Poor's
Corporation ("S&P") and Moody's Investors Service, Inc. ("Moody's"), and
unrated securities of comparable quality (such lower rated and unrated
securities are referred to herein as "high yield/high risk securities"), are
speculative with respect to the capacity to pay interest and repay principal in
accordance with the terms of the security and generally involve a greater
volatility of price than securities in higher rating categories. See "Appendix
A--Ratings of Fixed Income Securities." These securities are commonly referred
to as "junk" bonds. In purchasing such securities, the Fund will rely on the
Investment Adviser's judgment, analysis and experience in evaluating the
creditworthiness of an issuer of such securities. The Investment Adviser 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 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, service of 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 secondary market liquidity may have an adverse impact
on market price and the Fund's ability to
12
<PAGE>
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 of prices for actual sales. The Fund's
Directors, or the Investment Adviser will carefully consider the factors
affecting the market for high yield/high risk, lower rated securities in
determining whether any particular security is liquid or illiquid and whether
current market quotations are readily available.
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 participate in the restructuring of
the obligations.
DISTRESSED SECURITIES
Investment in Distressed Securities is speculative and involves significant
risk. The Fund only will make such investments when the Investment Adviser
believes it is reasonably likely that the issuer of the securities will make an
exchange offer or will be the subject of a plan of reorganization; however,
there can be no assurance that such an exchange offer will be made or that such
a plan of reorganization will be adopted. In addition, a significant period of
time may pass between the time at which the Fund makes its investment in
Distressed Securities and the time that any such exchange offer or plan of
reorganization is completed. During this period, it is unlikely that the Fund
will receive any interest payments on the Distressed Securities, the Fund will
be subject to significant uncertainty as to whether or not the exchange offer
or plan of reorganization will be completed, and the Fund may be required to
bear certain expenses to protect its interest in the course of negotiations
surrounding any potential exchange offer or plan of reorganization. In
addition, even if an exchange offer is made or a plan of reorganization is
adopted with respect to Distressed Securities held by the Fund, there can be no
assurance that the securities or other assets received by the Fund in
connection with such exchange offer or plan of reorganization will not have a
lower value or income potential than anticipated when the investment was made.
Moreover, any securities received by the Fund upon completion of an exchange
offer or plan of reorganization may be restricted as to resale. As a result of
the Fund's participation in negotiations with respect to any exchange offer or
plan of reorganization with respect to an issuer of Distressed Securities, the
Fund may be precluded from disposing of such securities.
DERIVATIVES INVESTMENTS
In order to seek to hedge various portfolio positions or to enhance its
return, the Fund may invest in certain instruments which may be characterized
as derivatives. Investments in indexed securities, including inverse
securities, subject the Fund to the risks associated with changes in the
particular indices, which may include reduced or eliminated interest payments
and losses of invested principal. Interest rate transactions involve the risk
of an imperfect correlation between the index used in the hedging transactions
and that pertaining to the securities which are the subject of such
transactions. Similarly, utilization of options and futures transactions
involves the risk of imperfect correlation in movements in the price of options
and futures
13
<PAGE>
and movements in the price of the securities or interest rates which are the
subject of the hedge. For a further discussion of the risks associated with
these investments, see "Investment Objective and Policies--Description of
Certain Investments," "Other Investment Policies and Practices--Portfolio
Strategies Involving Options and Futures" and "Appendix B--Options and Futures
Transactions."
ILLIQUID INVESTMENTS
The Fund may invest in illiquid securities. Investment of the Fund's assets
in relatively illiquid securities may restrict the ability of the Fund to
dispose of its investments in a timely fashion and for a fair price as well as
its ability to take advantage of market opportunities. The risks associated
with illiquidity will be particularly acute in situations in which the Fund's
operations require cash, such as when the Fund repurchases shares or pays
dividends or distributions, and could result in the Fund borrowing to meet
short-term cash requirements or incurring capital losses on the sale of
illiquid investments. Further, issuers whose securities are not publicly traded
are not subject to the disclosure and other investor protection requirements
which would be applicable if their securities were publicly traded. In making
investments in such securities, the Fund may obtain access to material
nonpublic information which may restrict the Fund's ability to conduct
portfolio transactions in such securities. In addition, the Fund may invest in
privately placed securities which may or may not have registration rights. Such
securities may not be sold unless registered under applicable securities laws
or sold in a transaction exempt from registration.
WITHHOLDING AND OTHER TAXES
Income and capital gains on securities held by the Fund may be subject to
withholding and other taxes imposed by emerging Americas 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, as a
deduction or credit, the amount of foreign taxes paid by the Fund. The taxes
passed through to shareholders will be included in each shareholder's income.
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. Other taxes, such as transfer taxes, may be imposed on the Fund, but
would not give rise to a credit, or be eligible to be passed through to
shareholders.
FOREIGN SUBCUSTODIANS AND SECURITIES DEPOSITORIES
Rules adopted under the Investment Company Act permit the Fund to maintain
its foreign securities and cash in the custody of certain eligible non-U.S.
banks and securities depositories. Certain banks in foreign countries may not
be eligible subcustodians for the Fund, in which event the Fund may be
precluded from purchasing securities in certain emerging Americas countries in
which it otherwise would invest or which may result in the Fund's incurring
additional costs and delays in providing transportation and custody services
for such securities outside of such countries. Other banks that are eligible
foreign subcustodians may be recently organized or otherwise lack extensive
operating experience. In addition, in certain countries there may be legal
restrictions or limitations on the ability of the Fund to recover assets held
in custody by foreign subcustodians in the event of the bankruptcy of the
subcustodian.
BORROWINGS TO MEET REDEMPTIONS
As a temporary measure for extraordinary or emergency purposes or, in the
event it converts to an open-end investment company, the Fund is authorized to
borrow up to 20% of its total assets in order to meet
14
<PAGE>
redemptions so as not to force the Fund to liquidate securities at a
disadvantageous time. Any such borrowing will create expenses for the Fund and
may increase the potential for volatility of the net asset value of the Fund.
NET ASSET VALUE DISCOUNT
The Fund is a newly organized company with no prior operating history. Prior
to this offering, there has been no public market for the Fund's Common Stock.
Shares of closed-end investment companies have in the past frequently traded at
a discount from their net asset values and initial offering price. This
characteristic of shares of a closed-end fund is a risk separate and distinct
from the risk that a fund's net asset value will decrease. The Fund cannot
predict whether its own shares will trade at, below or above net asset value.
This risk of loss associated with purchasing shares of a closed-end investment
company is more pronounced for investors who purchase in the initial public
offering and who wish to sell their shares in a relatively short period of
time.
NON-DIVERSIFICATION
The Fund is classified as a non-diversified investment company under the
Investment Company Act, which means that the Fund is not limited by the
Investment Company Act in the proportion of its assets that may be invested in
the obligations of a single issuer. The Fund, however, intends to comply with
the diversification requirements imposed by the Internal Revenue Code of 1986,
as amended, for qualification as a regulated investment company. Thus, the Fund
may invest a greater proportion of its assets in the securities of a smaller
number of issuers and, as a result, will be subject to greater risk of loss
with respect to its portfolio securities. See "Taxes" and "Investment
Restrictions."
CONVERSION TO OPEN-END STATUS
The Fund's Articles of Incorporation require the Board of Directors to submit
a proposal to shareholders to convert the Fund to an open-end investment
company during the second quarter of 1996, unless the Board of Directors
determines that conversion at that time would not be in the best interest of
shareholders. Conversion to open-end status would require changes to the Fund's
investment policies and could have an adverse effect on the management of the
Fund's investment portfolio. See "The 1996 Vote to Convert to Open-End Status."
ANTI-TAKEOVER PROVISIONS
The Fund's Articles of Incorporation contain certain anti-takeover provisions
that may have the effect of limiting the ability of other persons to acquire
control of the Fund. In certain circumstances, these provisions might also
inhibit the ability of holders of Common Stock to sell their shares at a
premium over prevailing market prices. The Fund's Board of Directors has
determined that these provisions are in the best interests of shareholders. See
"Description of Shares--Certain Provisions of the Articles of Incorporation."
OPERATING EXPENSES
The Fund's estimated annual operating expenses are higher than those of many
other investment companies investing exclusively in the securities of U.S.
issuers. The operating expenses are, however, believed by the Investment
Adviser to be comparable to expenses of other closed-end management investment
companies that invest primarily in the securities of issuers in emerging
Americas countries with investment objectives similar to the investment
objective of the Fund.
15
<PAGE>
FEE TABLE
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load (as a percentage of offering price)............. 5.5%(a)
Automatic Dividend Reinvestment Plan Fees.......................... None
ANNUAL EXPENSES (as a percentage of net assets attributable to Common
Stock)
Management Fees.................................................... 1.00%(b)
Interest Payments on Borrowed Funds................................ None
Other Expenses..................................................... .45%
----
TOTAL ANNUAL EXPENSES................................................ 1.45%
====
</TABLE>
<TABLE>
<CAPTION>
3 10
1 YEAR YEARS 5 YEARS YEARS
EXAMPLE ------ ------ ------- -------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on
a $1,000 investment, including the maximum
front-end sales load of $55 and assuming (1)
total annual expenses of 1.45% and (2) a 5%
annual return throughout the periods: $68.95 $98.34 $129.86 $218.98
</TABLE>
- --------
(a) Reduced to 4.55% for purchases in single transactions of between 6,668 and
16,835 shares and to 3.57% for purchases in single transactions of 16,836
or more shares. See the cover page of this Prospectus and "Underwriting."
(b) See "Investment Advisory and Management Arrangements."
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 expenses set forth under "Other Expenses" in the Fee Table
above are based on estimated amounts through the end of the Fund's first fiscal
year on an annualized basis. The Example set forth above assumes reinvestment
of all dividends and distributions and utilizes a 5% annual rate of return as
mandated by Securities and Exchange Commission regulations. THE EXAMPLE SHOULD
NOT BE CONSIDERED A REPRESENTATION OF 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.
16
<PAGE>
THE FUND
Emerging Americas Fund, Inc. (the "Fund") is a newly organized, non-
diversified, closed-end management investment company. The Fund was
incorporated under the laws of the State of Maryland on February 25, 1994, and
has registered under the Investment Company Act of 1940, as amended (the
"Investment Company Act"). See "Description of Shares." The Fund's principal
office is located at 800 Scudders Mill Road, Plainsboro, New Jersey 08536, and
its telephone number is (609) 282-2800.
THE 1996 VOTE TO CONVERT TO OPEN-END STATUS
The Fund's Articles of Incorporation provide that the Board of Directors will
submit a proposal to convert the Fund to an open-end investment company to
shareholders during the second quarter of 1996. However, if in the Board's
discretion, conversion at that time would not be in the best interest of
shareholders of the Fund, the Board of Directors retains the right to withhold
such proposal until such time as the Board deems conversion to be in the best
interest of the shareholders. Approval of such a proposal would require the
affirmative vote of a majority of the outstanding shares entitled to be voted
thereon. Shareholders of an open-end investment company may require the company
to redeem their shares at any time (except in certain circumstances as
authorized by the Investment Company Act) at the next determined net asset
value of such shares, less such redemption charges, if any, as might be in
effect at the time of redemption. Accordingly, open-end investment companies
are subject to continuous asset in-flows and out-flows that can complicate
portfolio management. All redemptions will be made in cash. If shareholders
vote to convert the Fund to open-end status it is anticipated that redemption
of shares of the Fund will be subject to a redemption charge of up to 2%, and
may be subject to an ongoing account maintenance fee at an annual rate of up to
0.25% of the average daily net asset value of the Fund.
In considering whether to submit such proposal to the Fund's shareholders,
the Fund's Board of Directors will consider a number of factors, including the
effect on the Fund's investment policies and portfolio management and whether
shares of the Fund have historically, and continue to, trade at a discount from
their net asset value. For example, in light of the position of the Securities
and Exchange Commission (the "Commission") that illiquid securities and certain
securities subject to legal or contractual limitations on resale not exceed 15%
of the total assets of a registered open-end investment company, any attempt to
convert the Fund to an open-end company will have to take into account the
percentage of such securities in the Fund's portfolio at the time, and other
relevant factors. The Fund cannot predict whether, on this basis, it would be
able to effect any such conversion or whether, if relief from the Commission's
position were required, it could be obtained. The conversion of the Fund to
open-end status will require a change to the Fund's fundamental objective and
policies to the extent such fundamental objective and policies are inconsistent
with those permissible for an open-end investment company.
If the Fund is converted to an open-end investment company, it could be
required to liquidate portfolio securities to meet requests for redemption and
the shares would no longer be listed on the New York Stock Exchange. If a large
volume of shares is offered for redemption at one time the Fund could be forced
to liquidate portfolio securities at a disadvantageous time causing a loss to
the Fund. To prevent such a loss, the Fund is authorized to borrow up to 20% of
its net asset value for purposes of redeeming shares of the Fund. The necessity
to liquidate portfolio securities could affect the Fund's ability to meet its
investment objective or to use investment policies and techniques that are more
appropriate for a fixed portfolio than a portfolio subject to cash in-flows and
out-flows. Conversion of the Fund to an open-end investment company would
permit additional in-flows of cash to the Fund. The Fund may not be able to
invest such additional capital
17
<PAGE>
on as favorable terms as its existing portfolio, resulting in dilution of the
value of shares of the Fund's existing shareholders. If the Fund converts to
open-end status, it may commence a continuous offering of its shares as is the
case with most mutual funds.
In the event shareholder approval of the proposal to convert to an open-end
fund is not obtained, the Fund will continue as a closed-end investment
company.
USE OF PROCEEDS
The net proceeds of this offering will be approximately $ (or
approximately $ assuming Merrill Lynch exercises the over-allotment option
in full) after payment of the sales load and organizational and offering costs.
The net proceeds of the offering will be invested in accordance with the
Fund's investment objective and policies between approximately six and nine
months after completion of the offering of the shares of Common Stock,
depending on market conditions and the availability of appropriate securities.
Pending such investment, it is anticipated that the proceeds will be invested
in U.S. Government securities or high grade corporate debt securities. See
"Investment Objective and Policies."
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek long-term capital
appreciation by investing primarily in equity and, to a lesser extent, debt
securities of corporate and governmental issuers in countries located in
Central and South America and the Caribbean ("emerging Americas countries").
Under normal market conditions at least 65% of the Fund's total assets will be
invested in equity and debt securities of companies and governments of emerging
Americas countries. 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. Under current market conditions, the Fund intends to emphasize
investments in companies in Argentina, Brazil, Chile and Venezuela. 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 emerging
Americas countries. The investment objective of the Fund reflects the belief
that the securities markets of emerging Americas countries present attractive
investment opportunities. A number of such countries have been instituting
economic and political reforms encouraging greater market orientation and less
government intervention in economic affairs. The Fund believes that these
measures have the potential to offer long-term benefits to the securities
markets of such countries.
In recent years, there has been a significant trend in emerging Americas
countries 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.
In addition to making equity investments, the Fund will seek capital
appreciation through investment in sovereign and corporate debt securities of
issuers in emerging Americas countries. Such debt securities may
18
<PAGE>
be lower rated or unrated obligations of sovereign or corporate issuers. The
Fund's investments in sovereign debt will consist of debt securities or
obligations issued or guaranteed by foreign governments, their agencies,
instrumentalities and political subdivisions and by entities controlled or
sponsored by such governments. The Fund may also invest in interests in
entities organized and operated for the purpose of restructuring the investment
characteristics of sovereign debt. The restructured sovereign debt securities
will include Brady Bonds, which are debt securities issued under the framework
of the Brady Plan, an initiative established in 1989 as a mechanism for debtor
nations to restructure their outstanding external commercial bank indebtedness.
Since such debt securities frequently trade in the secondary markets at
substantial discounts, there is opportunity for capital appreciation to the
extent there is a favorable change in the market perception of the
creditworthiness of the issuer. Capital appreciation in debt securities may
also arise as a result of a favorable change in relative foreign exchange rates
or in relative interest rate levels. In accordance with its investment
objective, the Fund will not seek to benefit from anticipated short-term
fluctuations in currency exchange rates. The receipt of income from such debt
securities is incidental to the Fund's objective of long-term capital
appreciation. 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.
The Fund's investments in high yield securities will include debt securities,
preferred stocks and convertible securities which are rated in the lower rating
categories of the established rating services ("Baa" or lower by Moody's
Investors Service, Inc. ("Moody's") and "BBB" or lower by Standard & Poor's
Corporation ("S&P")), or in unrated U.S. and non-U.S. securities considered by
the Investment Adviser to be of comparable quality. Securities rated below
"Baa" by Moody's or below "BBB" by S&P, and unrated securities of comparable
quality, are commonly known as "junk bonds."
Further, the Fund may invest in debt securities that are in default as to the
payment of interest and/or principal at the time of acquisition by the Fund
("Distressed Securities"). The Fund will invest in Distressed Securities only
when the Investment Adviser believes it is reasonably likely that the issuer of
the securities will make an exchange offer or will be the subject of a plan of
reorganization. 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.
Investment in shares of Common Stock of the Fund offers several benefits.
Many investors, particularly individuals, lack the information or capability to
invest in emerging Americas countries. It also may not be permissible for such
investors to invest directly in the capital markets of certain emerging
Americas countries. The Fund offers investors the possibility of obtaining
capital appreciation through a diversified portfolio comprised of securities of
emerging Americas country issuers. In managing such portfolio, the Investment
Adviser will provide the Fund and its shareholders with professional analysis
of investment opportunities and the use of professional money management
techniques. In addition, unlike many intermediary investment vehicles, such as
closed-end investment companies that are limited to investment in a single
country, the Fund has the ability to diversify investment risk among the
capital markets of a number of countries.
The Fund will not necessarily seek to diversify investments among emerging
Americas countries and is not limited as to the percentage of assets it may
invest per country. The allocation of the Fund's assets among
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the various securities markets of the emerging Americas countries will be
determined by the Investment Adviser. As noted above, under current market
conditions, the Fund intends to emphasize investments in corporate and
governmental issuers in Argentina, Brazil, Chile, and Venezuela. Under certain
adverse investment conditions, the Fund may restrict the emerging Americas
markets in which its assets are invested.
A company ordinarily will be considered to be in an emerging Americas country
when it is organized in, or the primary trading market of its securities is
located in, an emerging Americas country. The Fund may consider a company to be
in an emerging Americas country, without reference to such company's domicile
or to the primary trading market of its securities, when at least 50% of the
company'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 securities of companies or governments of emerging Americas
countries that are denominated in currencies other than an emerging Americas
country currency. The Fund also may consider a debt security that is
denominated in an emerging Americas country currency to be a security of an
issuer in an emerging Americas country without reference to the principal
trading market of the security or to the location of its issuer. The Fund may
consider investment companies or other pooled investment vehicles to be located
in the country or countries in which they primarily make their portfolio
investments.
The Fund may invest in debt securities ("sovereign debt securities") issued
or guaranteed by emerging Americas country governments (including emerging
Americas countries, provinces and municipalities) or their agencies and
instrumentalities ("governmental entities"), or 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"). 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" of a supranational
entity 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. The Fund may not invest
more than 25% of its total assets in the sovereign debt securities of any one
emerging Americas country.
Equity investments of the Fund include, but are not limited to, stocks,
preferred stocks, American Depositary Receipts ("ADRs"), Global Depositary
Receipts ("GDRs"), International Depositary Receipts ("IDRs"), debt securities
convertible into common stock, warrants, joint venture interests, equity
securities of other investment companies and venture capital funds, limited
partnership interests and other securities ordinarily considered to be equity
securities. The equity securities in which the Fund may invest include direct
investments. Such securities are not listed on an exchange and do not have any
active trading market. The Fund may invest in unsponsored ADRs. The issuers of
unsponsored ADRs are not obligated to disclose material information in the
United States, and therefore, there may not be a correlation between such
information and the market value of such ADRs. The Fund may also invest in
venture capital investments and illiquid privately placed securities.
The Fund reserves the right, as a temporary defensive measure or in
anticipation of investment in emerging Americas 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").
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DESCRIPTION OF CERTAIN INVESTMENTS
Brady Bonds. Brady Bonds are debt obligations which are created through the
exchange of existing commercial bank loans to sovereign entities for new
obligations in connection with debt restructuring under a plan introduced in
1989 by former U.S. Secretary of the Treasury, Nicholas F. Brady (the "Brady
Plan"). Brady Plan debt restructurings have been implemented to date in seven
countries, including Mexico, Venezuela, Argentina, Uruguay and Costa Rica.
Brazil has reached agreement with its lending banks with respect to Brady Plan
restructuring and Brazil's Brady Plan restructuring is being implemented. To
date, Brady Bonds aggregating approximately $90 billion have been issued, based
on current estimates, with the largest proportion of Brady Bonds having been
issued by Mexico, Argentina and Venezuela. Brazil has announced plans to issue
Brady Bonds in respect of approximately $44 billion of bank debt. It is
expected that other countries will undertake Brady Plan debt restructuring in
the future, including Peru, Ecuador and Panama. The Fund anticipates that it
will invest in bank loans (through participations or assignments) that may be
restructured as Brady Bond obligations.
Brady Bonds have been issued relatively recently and, accordingly, do not
have a long payment history. They may be collateralized and issued in various
currencies (although most are U.S. dollar-denominated) and they are actively
traded in the over-the-counter secondary market.
U.S. dollar-denominated, collateralized Brady Bonds, which may be fixed rate
par bonds or floating rate discount bonds, are generally collateralized in full
as to principal by U.S. Treasury zero coupon bonds which have the same maturity
as the Brady Bonds. Interest payments on these Brady Bonds generally are
collateralized on a one-year or longer rolling-forward basis by cash or
securities in an amount that, in the case of fixed rate bonds, is equal to at
least one year of interest payments or, in the case of floating rate bonds,
initially is equal to at least one year's interest payments based on the
applicable interest rate at that time and is adjusted at regular intervals
thereafter. Certain Brady Bonds are entitled to "value recovery payments" in
certain circumstances, which in effect constitute supplemental interest
payments but generally are not collateralized. For example, some Venezuelan
Brady Bonds include attached value recovery options which increase interest
payments if oil revenues rise. Brady Bonds are often viewed as having three or
four valuation components: (i) the collateralized repayment of principal at
final maturity; (ii) the collateralized interest payments; (iii) the
uncollateralized interest payments; and (iv) any uncollateralized repayment of
principal at maturity (these uncollateralized amounts constitute the "residual
risk"). In light of the residual risk of Brady Bonds and, among other factors,
the history of defaults with respect to commercial bank loans by public and
private entities of countries issuing Brady Bonds, investments in Brady Bonds
are considered speculative.
A significant portion of the Venezuelan Brady Bonds and the Argentine Brady
Bonds issued to date have principal repayments at final maturity collateralized
by U.S. Treasury zero coupon bonds (or comparable collateral denominated in
other currencies) and/or interest coupon payments collateralized on a 14-month
(for Venezuela) or 12-month (for Argentina) rolling-forward basis by securities
held by the Federal Reserve Bank of New York as collateral agent.
Warrants. The Fund may invest in warrants, which are securities permitting,
but not obligating, their holder to subscribe for other securities. Warrants do
not carry with them the right to dividends or voting rights with respect to the
securities that they entitle their holders to purchase, and they do not
represent any rights in the assets of the issuer. As a result, an investment in
warrants may be considered more speculative than certain other types of
investments. In addition, the value of a warrant does not necessarily change
with
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the value of the underlying securities and a warrant ceases to have value if it
is not exercised prior to its expiration date.
Distressed Securities. The Fund may invest in Distressed Securities, that are
securities which are currently in default or in risk of default at the time of
acquisition. Such investment involves significant risk. The Fund only will make
such investments when the Investment Adviser believes it is reasonably likely
that the issuer of the securities will make an exchange offer or will be the
subject of a plan of reorganization; however, there can be no assurance that
such an exchange offer will be made or that such a plan of reorganization will
be adopted. A significant period of time may pass between the time at which the
Fund makes its investment in Distressed Securities and the time that any such
exchange offer or plan of reorganization is completed. During this period, it
is unlikely that the Fund will receive any interest payments on the Distressed
Securities. In addition, as a result of the Fund's participation in
negotiations with respect to any exchange offer or plan of reorganization with
respect to an issuer of Distressed Securities, the Fund may be precluded from
disposing of such securities.
Convertible Securities. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different issuer within a
particular period of time at a specified price or formula. A convertible
security entitles the holder to receive interest generally paid or accrued on
debt or the dividend paid on preferred stock until the convertible security
matures or is redeemed, converted or exchanged. Convertible securities have
several unique investment characteristics such as (1) higher yields than common
stocks, but lower yields than comparable nonconvertible securities, (2) a
lesser degree of fluctuation in value than the underlying stock since they have
fixed income characteristics, and (3) the potential for capital appreciation if
the market price of the underlying common stock increases. A convertible
security might be subject to redemption at the option of the issuer at a price
established in the convertible security's governing instrument. If a
convertible security held by the Fund is called for redemption, the Fund may be
required to permit the issuer to redeem the security, convert it into the
underlying common stock or sell it to a third party.
Illiquid Securities. The Fund may invest in securities that lack an
established secondary trading market or otherwise are considered illiquid.
Liquidity of a security relates to the ability to dispose easily of the
security and the price to be obtained upon disposition of the security, which
may be less than a comparable more liquid security. Illiquid sovereign debt and
corporate fixed income securities may trade at a discount from comparable, more
liquid investments. In addition, the Fund may invest in privately placed
securities which may or may not be freely transferable under the laws of the
applicable jurisdiction or due to contractual restrictions on resale. See
"Private Placements" below.
Private Placements. The Fund may invest in securities of companies or
governments of emerging Americas countries that are sold in private placement
transactions between their issuers and their purchasers and that are neither
listed on an exchange nor traded in other established markets. In many cases,
privately placed securities will be subject to contractual or legal
restrictions on transfer. As a result of the absence of a public trading
market, privately placed securities may in turn be less liquid or illiquid and
more difficult to value than publicly traded securities. To the extent that
privately placed securities may be resold in privately negotiated transactions,
the prices realized from the sales could, due to illiquidity, be less than
those originally paid by the Fund or less than their fair value. In addition,
issuers whose securities are not publicly traded may not be subject to the
disclosure and other investor protection requirements that may be applicable if
their securities were publicly traded. If any privately placed securities held
by the Fund are required to be registered under the securities laws of one or
more jurisdictions before being resold, the Fund may be required
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to bear the expenses of registration. Certain of the Fund's investments in
private placements may consist of direct investments and may include
investments in smaller, less-seasoned issuers, which may involve greater risks.
These issuers may have limited product lines, markets or financial resources,
or they may be dependent on a limited management group. Further, in the event
the Fund sells such securities, any capital gains realized on such transactions
may be subject to higher rates of taxation than taxes payable on the sale of
listed securities. In making investments in such securities, the Fund may
obtain access to material nonpublic information which may restrict the Fund's
ability to conduct portfolio transactions in such securities.
Indexed and Inverse Securities. The Fund may invest in securities whose
potential return is based on the change in particular measurements of value or
rate (an "index"). As an illustration, the Fund may invest in a security that
pays interest and returns principal based on the change in an index of interest
rates or of the value on a precious or industrial metal. Interest and principal
payable on a security may also be based on relative changes among particular
indices. In addition, the Fund may invest in securities whose potential
investment return is inversely based on the change in particular indices. For
example, the Fund may invest in securities that pay a higher rate of interest
and principal when a particular index decreases and pay a lower rate of
interest and principal when the value of the index increases. To the extent
that the Fund invests in such types of securities, it will be subject to the
risks associated with changes in the particular indices, which may include
reduced or eliminated interest payments and losses of invested principal.
Examples of such types of securities are indexed or inverse securities issued
with respect to a stock market index in a particular emerging Americas country.
Certain indexed securities, including certain inverse securities, may have
the effect of providing a degree of investment leverage, because they may
increase or decrease in value at a rate that is a multiple of the changes in
applicable indices. As a result, the market value of such securities will
generally be more volatile than the market values of fixed-rate securities. The
Fund believes that indexed securities, including inverse securities, represent
flexible portfolio management instruments that may allow the Fund to seek
potential investment rewards, hedge other portfolio positions, or vary the
degree of portfolio leverage relatively efficiently under different market
conditions.
Investment in Other Investment Companies and Venture Capital Funds. The Fund
may invest in other investment companies and venture capital funds whose
investment objectives and policies are consistent with those of the Fund. In
accordance with the Investment Company Act, the Fund may invest up to 10% of
its total assets in securities of other investment companies. In addition,
under the Investment Company Act the Fund may not own more than 3% of the total
outstanding voting stock of any investment company and not more than 5% of the
value of the Fund's total assets may be invested in the securities of any
investment company. If the Fund acquires shares in investment companies or
venture capital funds, shareholders would bear both their proportionate share
of expenses in the Fund (including management and advisory fees) and,
indirectly, the expenses of such investment companies or venture capital funds
(including management and advisory fees). Investment in such venture capital
funds involves substantial risk of loss to the Fund of its entire investment.
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OTHER INVESTMENT POLICIES AND PRACTICES
PORTFOLIO STRATEGIES INVOLVING OPTIONS AND FUTURES
The Fund is authorized to engage in various portfolio strategies to hedge its
portfolio against adverse movements in 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, the
Investment Adviser 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
volatility, the net asset value of Fund 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
securities of issuers in emerging Americas countries 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 future
date and price set at the time of the contract. The principal reason for
writing 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 high grade liquid debt 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 the put options shall exceed 50% of the Fund's net assets.
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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 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 any 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 of all outstanding options on securities held by
the Fund would exceed 5% of the market value of the Fund's total assets.
Stock Index Options and Futures and Financial Futures. The Fund is authorized
to engage in transactions in stock index options and futures and financial
futures, and related options on such futures. The Fund may purchase or write
put and call options on stock indices to hedge against the risks of marketwide
stock price movement in the securities in which the Fund invests. Options on
indices are similar to options on securities except that on exercise or
assignment, the parties to the contract pay or receive an amount of cash equal
to the difference between the closing value of the index and the exercise price
of the option times a specified multiple. The Fund may invest in stock 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 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 which obligates the
purchaser of the futures contract to buy and the seller of a futures contract
to sell a security for a set price on a future date. Unlike most other futures
contracts, a stock index futures contract 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 this
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 fully
invested in the 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. 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
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redemptions or there is a change in market conditions), 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 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 options 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.
Foreign Currency Hedging. The Fund has authority to deal in forward exchange
among currencies of the different countries in which it will invest and
multinational currency units as a hedge against possible 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 (up to one year) 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. Further, where the Fund is hedging forward foreign
exchange, the Fund will segregate at its custodian, cash, U.S. Government or
other high quality securities having a current market value substantially
representing any subsequent net decrease in the market value of such hedged
forward foreign exchange. 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 in certain emerging Americas
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
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 Brazilian cruzeiro-denominated
security. In such circumstances, for example, the Fund may purchase a foreign
currency put option enabling it to sell a specified amount of cruzeiros for
dollars at a specified price by a future date. To the extent the hedge is
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successful, a loss in the value of the cruzeiro 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 cruzeiros for dollars at a specified price by a future date (a technique
called a "straddle"). By selling such a call option in this illustration, the
Fund gives up the opportunity to profit without limit from increases in the
relative value of the cruzeiro to the dollar. The Investment Adviser believes
that "straddles" of the type which may be utilized by the Fund constitute
hedging transactions and are consistent with the policies described above.
Certain differences exist between these foreign currency hedging instruments.
Foreign currency options provide the holder thereof the right to buy or sell a
currency at a fixed price on a future date. A futures contract on a foreign
currency is an agreement between two parties to buy and sell a specified amount
of 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.
Accordingly, the Fund will not hedge a currency substantially in excess of the
market value of the 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. The Fund may not incur potential net liabilities of
more than 20% of its total assets from foreign currency options, futures or
related options.
Restrictions on the Use of Futures Transactions. Regulations of the Commodity
Futures Trading Commission applicable to the Fund provide that the futures
trading activities described herein will not result in the Fund being deemed a
"commodity pool" under such regulations if the Fund adheres to certain
restrictions. In particular, these regulations permit the Fund to purchase and
sell futures contracts and options thereon (i) for bona fide hedging purposes,
and (ii) for non-hedging purposes, if the aggregate initial margin and premiums
required to establish positions in such contracts and options does not exceed
5% of the liquidation value of the Fund's portfolio, after taking into account
unrealized profits and unrealized losses on any such contracts and options.
When the Fund purchases a futures contract, or writes a put option or
purchases a call option thereon, an amount of cash 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.
OTHER INVESTMENT STRATEGIES
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 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 commitment. 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 at all times maintain a segregated account with its
custodian of cash, cash equivalents, U.S. Government securities or other high
grade liquid debt 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. Because of
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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 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.
When-Issued and Forward Commitment Securities. The Fund may purchase
securities on a "when-issued" basis. When such transactions are negotiated, the
price is fixed at the time the commitment is made, but delivery and payment for
the securities take place at a later date. When-issued securities and forward
commitments may be sold prior to the settlement date, but the Fund will enter
into when-issued and forward commitments only with the intention of actually
receiving or delivering the securities, as the case may be. If the Fund
disposes of the right to acquire a when-issued security prior to its
acquisition or disposes of its right to deliver or receive against a forward
commitment, it can incur a gain or loss. At the time the Fund enters into a
transaction on a when-issued or forward commitment basis, it will segregate
with the custodian cash or other liquid high grade debt securities with a value
of not less than the value of the when-issued or forward commitment securities.
The value of these assets will be monitored daily to ensure that their marked-
to-market value will at all times exceed the corresponding obligations of the
Fund. There is always a risk that the securities may not be delivered, and the
Fund may incur a loss. Settlements in the ordinary course, which may take
substantially more than five business days, are not treated by the Fund as
when-issued or forward commitment transactions and accordingly are not subject
to the foregoing restrictions.
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 a member bank of the
Federal Reserve System or a primary dealer in U.S. Government securities.
Purchase and sale contracts may be entered into only with financial
institutions which have capital of at least $50 million or whose obligations
are guaranteed by an entity having capital of at least $50 million. 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. 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
28
<PAGE>
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 shall be
dependent upon 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. While the substance of purchase and sale contracts is similar to
repurchase agreements, because of the different treatment with respect to
accrued interest and additional collateral, management believes that the
purchase and sale contracts are not repurchase agreements as such term is
understood in the banking and brokerage community.
Short Sales. The Fund may make short sales of securities. A short sale is a
transaction in which the Fund sells a security it does not own in anticipation
that the market price of that security will decline. The Fund expects to make
short sales both as a form of hedging to offset potential declines in long
positions in similar securities and in order to maintain portfolio flexibility.
When the Fund makes a short sale, it must borrow the security sold short and
deliver it to the broker-dealer through which it made the short sale as
collateral for its obligation to deliver the security upon conclusion of the
sale. The Fund may have to pay a fee to borrow particular securities and is
often obligated to pay over any payments received on such borrowed securities.
The Fund's obligation to replace the borrowed security will be secured by
collateral deposited with the broker-dealer, usually cash, U.S. Government
securities or other high grade liquid securities similar to those borrowed. The
Fund will also be required to deposit similar collateral with its custodian to
the extent, if any, necessary so that the value of both collateral deposits in
the aggregate is at all times equal to at least 100% of the current market
value of the security sold short. Depending on arrangements made with the
broker-dealer from which it borrowed the security regarding payment over of any
payments received by the Fund on such security, the Fund may not receive any
payments (including interest) on its collateral deposited with such broker-
dealer. If the price of the security sold short increases between the time of
the short sale and the time the Fund replaces the borrowed security, the Fund
will incur a loss; conversely, if the price declines, the Fund will realize a
gain. Any gain will be decreased, and any loss increased, by the transaction
costs described above. Although the Fund's gain is limited to the price at
which it sold the security short, its potential loss is theoretically
unlimited.
Lending 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, its agencies or
instrumentalities, which will be 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. The Fund may pay reasonable finder's, administrative and custodial
fees in connection with such loans.
29
<PAGE>
INVESTMENT RESTRICTIONS
The Fund has adopted the following restrictions and policies relating to the
investment of its assets and its activities, which are fundamental policies and
may not be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities (which for this purpose and under the
Investment Company Act means the lesser of (i) 67% of the shares represented at
a meeting at which more than 50% of the outstanding shares are represented or
(ii) more than 50% of the outstanding shares). The Fund may not:
1. Invest more than 25% of its total assets, taken at market value at
the time of each investment, in the securities of issuers in any particular
industry (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.
3. Purchase or sell real estate or real estate mortgage loans, except
that the Fund may invest in securities directly or indirectly secured by
real estate or interests therein or issued by companies that invest in real
estate or interests therein.
4. Make loans to other persons, except that the acquisition of bonds,
debentures, loan participation and assignments or other corporate debt
securities and investment in government obligations, or participation or
assignments therein, short-term commercial paper, certificates of deposit,
bankers' acceptances and repurchase agreements and purchase and sale
contracts and similar instruments shall not be deemed to be the making of a
loan, and except further that the Fund may lend its portfolio securities as
set forth in (5) below.
5. Lend its portfolio securities, other than in accordance with
applicable law and the guidelines set forth in this Prospectus.
6. Issue senior securities to the extent such issuance would violate
applicable law.
7. Borrow money or pledge assets, except that the Fund (a) may borrow
from a bank as a temporary measure for extraordinary or emergency purposes
or to meet redemptions in amounts not exceeding 20% (taken at market value)
of its total assets and pledge its assets to secure such borrowings, (b)
may obtain such short-term credit as may be necessary for the clearance of
purchases and sales of portfolio securities and (c) may purchase securities
on margin to the extent permitted by applicable law. The Fund will not
purchase securities while borrowings exceed 5% (taken at market value) of
its total assets, except to honor prior commitments.
8. 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.
9. Purchase or sell interests in oil, gas or other mineral exploration
or development programs, except that the Fund may invest in securities
issued by companies or governments that engage in oil, gas or other mineral
exploration or development activities.
10. Purchase or sell commodities or contracts on commodities, except to
the extent the Fund may do so in accordance with applicable law and without
registering as a commodity pool operator under the Commodity Exchange Act.
30
<PAGE>
Notwithstanding the provisions of investment restriction (7) above, the Fund
currently does not intend to purchase any securities on margin. The deposit or
payment by the Fund of initial or variation margin in connection with futures
contracts or the related options, if applicable, shall not be considered the
purchase of a security on margin.
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 as
a "regulated investment company" for purposes of the Internal Revenue Code of
1986, as amended (the "Code"). See "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 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 securities of the Fund generally may not be purchased from, sold or
loaned to the Investment Adviser or its affiliates or any of their directors,
officers, partners or employees, acting as principal, unless pursuant to a rule
or exemptive order under the Investment Company Act. If a percentage
restriction on investment policies or the use of assets set forth above is
adhered to at the time a transaction is effected, later changes in percentage
resulting from changing values will not be considered a violation.
Because of the affiliation of the Investment Adviser with the Fund, the Fund
is prohibited from engaging in certain transactions involving the Investment
Adviser's affiliate, Merrill Lynch 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." Without such an
exemptive order, the Fund would be prohibited from engaging in portfolio
transactions with Merrill Lynch or its affiliates acting as principal and from
purchasing securities in public offerings which are not registered under the
Securities Act in which such firms or any of their affiliates participate as an
underwriter or dealer.
31
<PAGE>
SELECTED ECONOMIC AND MARKET DATA
INTRODUCTION
The emerging Americas countries include all countries in Central and South
America and the Caribbean. The investment objective of the Fund reflects the
belief that the securities markets of the emerging Americas countries present
attractive investment opportunities.
In recent years, there has been a significant trend in emerging Americas
countries towards 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 and establish stable currency exchange rates. To
further strengthen the economies, initiatives have also sought to liberalize
trade restrictions, strengthen export performance and promote intra-regional
trade. Many of the emerging Americas countries have also sought to increase
foreign investment, privatize state-owned companies and develop and modernize
the securities markets. Other factors favoring certain emerging Americas
countries include large and inexpensive work forces, favorable demographic
structures and high savings rates. While considerable difficulties remain, the
economies of certain emerging Americas countries have improved, and these
improvements have been reflected in the performance of the securities markets
and improved credit fundamentals for the sovereign and corporate debt
securities issued in such markets. The foregoing measures have also served to
make the emerging Americas countries more competitive in the world markets.
The following data sets out certain information relevant to the foregoing for
the countries the Fund intends to emphasize under current market conditions
(Argentina, Brazil, Chile and Venezuela) as well as for Peru, Colombia, and
Mexico. Information is also provided for the United States as a point of
reference. Specific information is set forth as to (1) population and work
force, (2) savings rates, (3) interest rates, inflation and exchange rates, (4)
gross domestic product, (5) trade and exports, (6) intra-regional trade, (7)
balance of payments and (8) the securities markets.
POPULATION AND WORK FORCE
Certain emerging Americas countries have large and inexpensive work forces.
As shown in Table 1, certain emerging Americas countries are highly populated
(especially Brazil, which is one of the most populated nations in the world).
TABLE 1
POPULATION (MILLIONS, MIDYEAR ESTIMATES)
<TABLE>
<CAPTION>
1987 1988 1989 1990 1991 1992
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Argentina............................. 31.14 31.53 31.93 32.32 32.71 33.10
Brazil................................ 141.45 144.43 147.40 150.37 153.32 156.28
Chile................................. 12.54 12.75 12.96 13.17 13.39 13.60
Venezuela............................. 17.97 18.42 18.87 19.33 19.79 20.25
Colombia.............................. 29.73 30.24 32.35 32.99 33.61 --
Mexico................................ 81.20 82.84 84.49 86.15 87.84 89.54
Peru.................................. 20.26 20.68 21.11 21.55 22.00 22.45
United States......................... 242.84 245.06 247.34 249.92 252.69 --
</TABLE>
- --------
Source: International Monetary Fund, International Financial Statistics
Yearbook, 1993.
32
<PAGE>
The relatively high percentage of young people in certain emerging Americas
countries indicates a plentiful potential supply of new labor force
participants. Mexico, Peru and Venezuela are equally well positioned. The
larger this percentage, the lower the likelihood of significant upward pressure
on wage rates over the medium term, which should help ensure a continuation of
the current favorable cost structure these countries enjoy relative to that of
the United States. See Table 2. The region's large pool of low cost labor may
also attract high levels of capital investment by firms based in the
industrialized countries. Such investment may be deterred, however, by the
absence of basic infrastructure such as energy, telephone lines, ports, roads
and railways.
TABLE 2
DEMOGRAPHIC STRUCTURE: 1991
<TABLE>
<CAPTION>
% OF % OF % OF
POPULATION POPULATION POPULATION
UNDER 15-60 60 AND
COUNTRY 15 YEARS YEARS ABOVE
------- ---------- ---------- ----------
<S> <C> <C> <C>
Argentina................................ 30 57 13
Brazil................................... 35 58 7
Chile.................................... 31 60 9
Venezuela................................ 38 56 6
Colombia................................. 35 59 6
Mexico................................... 37 57 6
Peru..................................... 38 56 6
United States............................ 22 66 12
</TABLE>
--------
Source: The World Bank, World Development Report, 1993.
HIGH SAVINGS RATES
A high rate of savings is generally associated with strong investment, rising
productivity and faster growth of gross domestic product ("GDP"). Brazil, with
savings equal to 30% of GDP, followed by Chile at 34%, and Venezuela and
Colombia both at 23% compare favorably with the United States, where savings
was 15% of GDP in 1991. It should be noted that the lack of financial
intermediaries capable of channelling available funds between savers and
investors may constrain growth in the short term. See Table 3.
TABLE 3
SAVINGS
<TABLE>
<CAPTION>
1991
SAVINGS
AS
% OF GDP
--------
<S> <C>
Argentina........................................................ 15
Brazil........................................................... 30
Chile............................................................ 24
Venezuela........................................................ 23
Colombia......................................................... 23
Mexico........................................................... 20
Peru............................................................. 13
United States.................................................... 15
</TABLE>
--------
Source: World Bank, World Bank Development Report, 1993.
33
<PAGE>
INTEREST RATES, INFLATION, AND EXCHANGE RATES
Certain emerging Americas countries have experienced high interest and
inflation rates as well as volatile exchange rates. Greater political and
economic stability has enabled certain of such countries to take steps in order
to try and control these matters.
In recent years interest rates have been generally declining on an
international basis. As shown in Table 4, by 1992 certain emerging Americas
countries had been affected by this downward trend while others continued to
experience high inflation.
TABLE 4
INTEREST RATES (%)
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993
--------- --------- ------ ------ -----
<S> <C> <C> <C> <C> <C>
Argentina*............................. 1,387,179 9,695,422 71+ 15 6
Brazil**............................... 38,341 1,083 2,494 1,489 5,757
Chile*................................. 35.92 48.83 28.55 23.92 24.33
Venezuela*............................. 22.57 28.23 29.78 33.91 48.88
Colombia*.............................. 43.00 45.20 47.10 37.30 --
Mexico***.............................. 36.29 31.24 17.10 15.68 15.46
Peru*.................................. 1,515.90 4,774.50 751.50 173.80 97.40
United States*......................... 10.92 10.01 8.46 6.25 6.00
</TABLE>
- --------
Source: International Monetary Fund, International Financial Statistics, April
1994.
* Lending rate
** Bank rate
*** Deposit rate
+ See Table 6, note **
As Table 5 illustrates, many emerging Americas countries have been able to
reduce inflation in recent years (although Brazil has been less successful in
this endeavor).
TABLE 5
CONSUMER PRICE INFLATION: % OF CHANGE
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992
----- ------- ------- ----- -----
<S> <C> <C> <C> <C> <C>
Argentina..................................... 343.0 3,080.5 2,314.7 171.7 24.9
Brazil........................................ 684.6 1,319.9 2,738.8 413.7 991.1
Chile......................................... 14.7 17.0 26.0 21.8 15.4
Venezuela..................................... 29.4 84.5 40.7 34.2 31.4
Colombia...................................... 28.1 25.9 29.1 30.5 27.0
Mexico........................................ 114.2 20.0 26.7 27.7 15.5
Peru.......................................... 667.0 3,398.6 7,481.6 409.2 73.4
United States................................. 4.1 4.8 5.4 4.2 3.0
</TABLE>
- --------
Source: International Monetary Fund, World Economic Outlook, October 1993.
34
<PAGE>
It should be noted that certain currencies of emerging Americas countries
have experienced devaluation relative to the U.S. dollar and major exchange
rate adjustments have been made periodically. Table 6 shows the exchange rates
for the indicated emerging Americas countries for the years 1989 to 1993.
TABLE 6
EXCHANGE RATES (TO US $, END OF PERIOD)
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993
------- --------- --------- ---------- -------
<S> <C> <C> <C> <C> <C>
Argentina.................... 0.136 0.567 0.999** 0.998 1.000
Brazil....................... 11.300 161.020 1,090.200 12,243.000 320.920
Chile........................ 294.110 336.860 374.870 382.330 431.040
Venezuela.................... 43.500 49.740 60.800 78.161 104.460
Colombia..................... 423.090 523.000 705.410 811.770 811.900
Mexico....................... 2.684 2.948 3.089 3.116 3.109+
Peru*........................ 266.300 187,885.6 0.773*** 1.245 2.150
</TABLE>
- --------
Source: International Finance Corporation, Emerging Stock Markets Factbook,
1993.
*Source: The Economist Intelligence Unit, Country Profile 1993/94 (Peru),
average for period.
**Peso became new official currency on January 1, 1992, (1 Peso =10,000
australs)
***New Soles became new currency in September 1991, (1 New Soles = 1 million
Intis)
+New Peso became official currency on January 1, 1993, (1 New Peso = 1,000 old
Pesos)
GROSS DOMESTIC PRODUCT ("GDP")
As shown in Table 7, over the five year period ending in 1992, certain
emerging Americas countries have experienced sporadic changes in GDP. Factors
contributing to these changes include governmental instability, substantial
debt burdens, restructuring of such debt and economic dependency on commodities
with volatile prices (e.g., Venezuela's dependence on oil).
35
<PAGE>
TABLE 7
GDP (US $ BILLIONS)
<TABLE>
<CAPTION>
REAL REAL REAL REAL REAL
GDP % GDP % GDP % GDP % GDP %
CHANGE CHANGE CHANGE CHANGE CHANGE
1988 1989 1990 1991 1992 1988* 1989* 1990* 1991* 1992*
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Argentina............... 83.81 68.99 105.44 129.60 229.00** -1.9 -6.2 0.1 8.9 8.7
Brazil.................. 331.52 452.27 490.51 406.71 396.00** 0.3 3.3 -4.4 0.9 0.9
Chile................... 22.04 26.14 28.40 31.33 37.88 7.4 10.0 2.1 6.0 10.4
Venezuela............... 26.35 38.49 48.96 54.14 61.92 5.8 -8.6 6.5 10.4 7.3
Colombia................ 39.25 39.78 42.55 39.94 40.73 4.1 3.4 4.3 2.1 3.5
Mexico.................. 174.20 199.66 237.75 282.61 331.51 1.2 3.3 4.4 3.6 2.6
Peru***................. 33.42 39.45 33.43 43.49 45.22 -8.2 -11.8 -4.4 2.2 2.8
</TABLE>
- --------
Source: International Finance Corporation, Emerging Stock Markets Market
Factbook, 1993.
* Source: International Monetary Fund, World Economic Outlook, October 1993
(measured in local currency).
** Source: MSCI Emerging Market Indices.
*** Source: The Institute of International Finance, Inc., Comparative Country
Statistics, December 1993.
Table 8 shows the break-down by sector of the origin of GDP. Through
increased governmental stability, restructured debt and greater economic
diversity, the Investment Adviser believes that such countries may be
positioned to realize sustained economic growth.
TABLE 8
ORIGIN OF GDP BY SECTOR
<TABLE>
<CAPTION>
ARGENTINA
1992
SECTOR % OF TOTAL
- ------ ----------
<S> <C>
Agriculture................... 7.9
Mining........................ 2.3
Manufacturing................. 27.3
Electricity, gas & water...... 1.9
Construction.................. 5.6
Retail, restaurants & hotels.. 16.9
Transport & communications.... 5.0
Financial sector.............. 15.9
Other services................ 17.2
TOTAL......................... 100.0
</TABLE>
- -------------
Source: The Economist Intelligence Unit,
Country Profile 1993/94
(Argentina).
<TABLE>
<CAPTION>
BRAZIL
1992
SECTOR % OF TOTAL
- ------ ----------
<S> <C>
Agriculture.............. 13.4
Industry................. 38.4
mining.................. 1.9
manufacturing........... 27.5
construction............ 5.4
other................... 3.6
Services................. 61.0
commerce................ 10.9
transport............... 5.0
communications.......... 4.0
other................... 41.1
Imputed financial........ -12.8
TOTAL.................... 100.0
</TABLE>
- --------
Source: The Economist Intelligence
Unit, Country Profile 1993/94
(Brazil).
36
<PAGE>
<TABLE>
<CAPTION>
CHILE
1992
SECTOR % OF TOTAL
- ------ ----------
<S> <C>
Agriculture & forestry...... 7.4
Fishing..................... 0.8
Mining...................... 6.7
Manufacturing............... 20.8
Electricity, gas & water.... 2.5
Construction................ 6.0
Commerce.................... 19.1
Transport & communications.. 7.6
Others...................... 29.0
TOTAL....................... 100.0
</TABLE>
- --------
Source: The Economist Intelligence
Unit, Country Profile 1993/94
(Chile).
<TABLE>
<CAPTION>
VENEZUELA
1992
SECTOR % OF TOTAL
- ------ ----------
<S> <C>
Agriculture & forestry....... 5.5
Crude........................ 22.2
Manufacturing................ 15.4
Electricity & water.......... 2.1
Construction................. 5.5
Commerce, restaurants & ho-
tels........................ 18.4
other........................ 30.9
TOTAL........................ 100.0
</TABLE>
- --------
Source: The Economist Intelligence
Unit, Country Profile 1993/94
(Venezuela).
<TABLE>
<CAPTION>
COLOMBIA
1992
SECTOR % OF TOTAL
- ------ ----------
<S> <C>
Agriculture................. 15.7
Mining...................... 7.6
Manufacturing............... 19.8
Electricity, gas & water.... 2.6
Construction................ 5.0
Commerce.................... 15.4
Transport & communications.. 10.1
Financial Services.......... 7.4
Real Estate................. 4.4
Government.................. 8.4
Personal Services........... 5.2
Imputed Bank Charges........ -3.5
Indirect taxes & subsidies.. 2.0
TOTAL....................... 100.0
</TABLE>
- -------
Source: The Economist Intelligence
Unit, Country Profile 1993/94
(Colombia).
<TABLE>
<CAPTION>
MEXICO
1992
SECTOR % OF TOTAL
- ------ ----------
<S> <C>
Agriculture, livestock,
forestry & fishing.......... 7.3
Mining....................... 3.4
Manufacturing................ 22.7
Construction................. 5.3
Electricity.................. 1.5
Commerce, restaurants & ho-
tels........................ 26.0
Transport, storage & communi-
cations..................... 7.0
Financial services, insurance
&
real estate................. 10.8
Public & private services.... 17.4
Less imputed banking servic-
es.......................... -1.5
TOTAL........................ 100.0
</TABLE>
- --------
Source: The Economist Intelligence
Unit, Country Profile 1993/94
(Mexico).
37
<PAGE>
<TABLE>
<CAPTION>
PERU
1991
SECTOR % OF TOTAL
- ------ ----------
<S> <C>
Agriculture & livestock........ 11.9
Fishing........................ 1.0
Mining & quarrying............. 2.6
Manufacturing.................. 23.9
Construction................... 8.4
Services....................... 52.2
TOTAL.......................... 100.0
</TABLE>
- --------
Source: The Economist Intelligence
Unit, Country Profile 1993/94
(Peru).
TRADE AND EXPORTS
Economic growth is often tied to strong export performance. Consequently, a
trade surplus is generally considered to be a sign of economic strength.
However, in certain cases, such as instances in which a country imports a large
amount of capital goods or transport equipment, a trade deficit may indicate
future growth. Table 9 shows the trade balances for the indicated emerging
Americas countries.
38
<PAGE>
TABLE 9
EXPORT/IMPORT DATA
(US $ MILLIONS)
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
ARGENTINA
export (fob).......................... 9,428 9,579 12,352 11,968 12,234
import (cif).......................... -5,322 -4,202 -4,079 -8,276 14,867
balance............................... 4,106 5,376 8,274 3,693 -2,633
BRAZIL
export (fob).......................... 33,789 34,383 31,414 31,620 36,103
import (fob).......................... -14,605 -18,263 -20,661 -21,041 -20,578
balance............................... 19,184 16,120 10,753 10,579 15,525
CHILE
export (fob).......................... 7,052 8,180 8,310 8,929 9,986
import (cif).......................... -5,292 -7,144 -7,678 -8,094 -10,129
balance............................... 2,315 1,695 1,273 1,575 -749
VENEZUELA
export (fob).......................... 10,244 12,915 17,444 14,892 14,008
import (fob).......................... -11,465 -7,283 -6,807 -10,101 -12,400
balance............................... -1,221 5,632 10,637 4,791 1,608
COLOMBIA*
export (fob).......................... 5,343 6,031 7,079 7,507 7,263
import (fob).......................... -4,516 -4,557 -5,108 4,548 -6,030
balance............................... 827 1,474 1,971 2,959 1,233
MEXICO*
export (fob).......................... 20,566 22,765 26,838 26,855 27,516
import (fob).......................... -18,898 -23,410 -31,271 -38,184 -48,193
balance............................... 1,668 -645 -4,433 -11,329 -20,677
PERU
export (fob).......................... 2,701 3,488 3,231 3,329 3,484
import (fob).......................... -2,790 -2,291 -2,892 -3,495 -4,051
balance............................... -89 1,197 339 -166 -567
</TABLE>
- --------
Source: The Economist Intelligence Unit, Country Profile 1993/94 (Argentina,
Brazil, Chile, Venezuela, Colombia, Mexico, Peru).
* Merchandise only.
39
<PAGE>
Table 10 illustrates the principal exports from the indicated emerging
Americas countries. Many emerging Americas countries rely on mining and
agricultural products as their principal exports. Consequently, such countries
are often vulnerable to commodity market price fluctuations due to their
dependence on commodities with high price volatility.
TABLE 10
PRINCIPAL EXPORTS: 1992
(US $ MILLIONS)
<TABLE>
<CAPTION>
PROCESSED
AGRICULTURAL FOOD & OILS AND ANIMAL MINERAL TOTAL
PRODUCTS TOBACCO FATS PRODUCTS PRODUCTS EXPORTS(FOB)
------------- ----------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
ARGENTINA............... 2,901 2,397 1,131 1,064 941 12,234
<CAPTION>
METALLURGICAL TRANSPORT METALLIC CHEMICAL TOTAL
PRODUCTS EQUIPMENT SOYBEANS ORE PRODUCTS EXPORTS(FOB)
------------- ----------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
BRAZIL.................. 6,082 4,215 2,699 2,537 2,375 36,103
<CAPTION>
MINED TOTAL
COPPER FRESH FRUIT RESOURCES FISHMEAL CELLULOSE EXPORTS(FOB)
------------- ----------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
CHILE................... 3,886 941 838 538 527 9,986
<CAPTION>
PETROLEUM TOTAL
DERIVATIVES ALUMINUM* STEEL* IRON ORE* OTHER* EXPORTS(FOB)
------------- ----------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
VENEZUELA............... 11,223 548 206 223 154 14,008
<CAPTION>
OIL & OIL TOTAL
PRODUCTS COFFEE COAL BANANAS GOLD EXPORTS(FOB)
------------- ----------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
COLUMBIA................ 1,396 1,259 555 407 364 7,263
<CAPTION>
ELECTRIC TRANSPORT OTHER TOTAL
EQUIPMENT CRUDE OIL EQUIPMENT MACHINERY CHEMICAL EXPORTS(FOB)
------------- ----------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
MEXICO.................. 11,730 7,420 7,371 3,683 3,089 27,516
<CAPTION>
TOTAL
COPPER FISHMEAL ZINC GOLD LEAD EXPORTS(FOB)
------------- ----------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
PERU.................... 806 440 335 215 161 3,484
</TABLE>
- --------
Source: The Economist Intelligence Unit, Country Profile 1993/94 (Argentina,
Brazil, Chile, Venezuela, Colombia, Mexico, Peru).
* 1991 public sector figures
INTRA-REGIONAL TRADE
Through regional trade associations such as the Andean Pact and the ALADI as
well as bilateral trade agreements, many emerging Americas countries have been
working to promote intra-regional trade.
By lowering trade barriers between emerging America countries and creating
common import tariffs local industries may experience a competitive advantage.
Such intra-regional trade may also serve to increase demand for local goods
while at the same time decreasing the region's dependency on other more
developed economies such as the United States. Table 11 illustrates the intra-
regional trade for 1992.
40
<PAGE>
TABLE 11
INTRA-REGIONAL TRADE: 1992
(US $ MILLIONS)
<TABLE>
<CAPTION>
EXPORTS TO
WESTERN
UNITED HEMISPHERE* TOTAL
EXPORTS FROM: TO: ARGENTINA BRAZIL CHILE VENEZUELA COLOMBIA MEXICO PERU STATES % OF TOTAL EXPORTS
- ----------------- --------- ------ ----- --------- -------- ------ ----- ------ ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Argentina............... -- 1,598 688 221 86 259 231 1,254 38 12,365
Brazil.................. 3,070 -- 930 444 347 1,111 199 7,143 23 36,207
Chile................... 462 451 -- 75 74 93 173 1,650 17 9,956
Venezuela............... 24 546 143 -- 306 202 128 7,851 28 15,710
Colombia................ 39 63 117 473 -- 61 304 2,786 23 7,226
Mexico.................. 181 288 199 149 151 -- 88 32,624 5 42,700
Peru.................... 28 165 43 107 88 95 -- 745 18 3,484
IMPORTS FROM UNITED
STATES................. 3,544 5,849 143 5,438 3,610 40,598 1,019 -- -- --
TOTAL IMPORTS........... 15,557 23,260 2,390 12,261 8,251 58,545 3,744 -- -- 11,691
</TABLE>
- --------
Source: International Monetary Fund, Direction of Trade Statistics Yearbook,
1993.
* Excludes U.S. and Canada
BALANCE OF PAYMENTS
Certain emerging Americas countries are among the highest debtors to
commercial banks and foreign governments. Such heavy debt burdens have
adversely affected, and may continue to adversely affect, the economies of
these countries.
Due to lower interest rates and debt restructuring programs, including the
Brady Plan debt restructurings, certain emerging Americas countries have been
able to significantly ease their debt burdens since the 1980's. Table 12 shows
the total external debt, total debt service and debt service ratios for the
indicated emerging Americas countries.
41
<PAGE>
TABLE 12
EXTERNAL DEBT (US $ MILLIONS)
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992**
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
ARGENTINA
Total External Debt................... 58,741 65,257 62,233 65,397 70,000
Total Debt Service.................... 4,139 3,033 4,955 4,004 --
Debt Service Ratio %*................. 44.2 36.2 40.8 37.6 48.0
BRAZIL
Total External Debt................... 115,727 111,379 116,417 116,514 132,300
Total Debt Service.................... 17,740 13,426 8,039 10,754 --
Debt Service Ratio %*................. 48.2 34.6 22.6 30.8 32.3
CHILE
Total External Debt................... 19,592 18,032 19,132 17,902 19,000
Total Debt Service.................... 2,148 2,668 2,731 3,956 --
Debt Service Ratio %*................. 25.4 27.1 26.0 33.9 23.0
VENEZUELA
Total External Debt................... 34,845 32,478 33,273 34,372 34,200
Total Debt Service.................... 5,557 3,829 4,991 3,435 --
Debt Service Ratio %*................. 43.7 24.5 23.2 18.7 23.0
COLOMBIA
Total External Debt................... 16,995 16,874 17,241 17,369 16,600
Total Debt Service.................... 3,099 3,719 3,655 3,644 --
Debt Service Ratio %*................. 41.6 46.1 38.0 35.1 40.4
MEXICO
Total External Debt................... 100,781 95,466 97,357 101,737 132,200
Total Debt Service.................... 15,472 14,297 12,118 14,043 --
Debt Service Ratio %*................. 48.0 37.9 27.8 30.9 30.0
PERU
Total External Debt................... 17,971 18,250 19,429 20,708 26,000
Total Debt Service.................... 248 297 253 925 --
Debt Service Ratio %.................. 9.3 8.9 10.9 27.4 --
</TABLE>
- --------
Source: The Economist Intelligence Unit, Country Profile 1993/94 (Argentina,
Brazil, Chile, Venezuela, Colombia, Mexico, Peru).
*Debt-Service Ratio as a percentage of earnings from exports of Goods and
Services
** Central Banks of respective countries
Table 13 shows the current and capital account balances of the indicated
emerging Americas countries over the five year period ending in 1992. As
illustrated, the account balances have been highly volatile. Some of the
reasons for this are the heavy debt burden and restructuring of such debt,
fluctuations in trade balances, declines in interest rates, fluctuations in
commodity prices (including oil), and increases in foreign investment.
Certain emerging Americas countries have been able to offset deficits in
their current accounts through strong capital flows resulting from capital
repatriation, and direct and portfolio foreign investment. It is estimated that
approximately US $575 billion of foreign capital was invested into emerging
Americas countries in 1993, representing a 350% increase from 1990. (Source:
EUROMONEY, March 1994)
42
<PAGE>
TABLE 13
BALANCE OF PAYMENTS
(US $ MILLIONS)
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
ARGENTINA
BALANCE ON CURRENT ACCOUNT............. -1,572 -1,305 1,903 -2,804 -8,370
Direct investment...................... 1,147 1,028 1,836 2,439 4,179
Portfolio investment................... -718 -1,098 -1,346 -56 -1,017
Other capital.......................... 2 -7,938 -3,691 -66 7,500
BALANCE ON CAPITAL ACCOUNT............. 431 -8,008 -3,201 2,317 10,662
Errors & omissions..................... -165 -249 715 -341 137
OVERALL BALANCE........................ -1,306 -9,562 -583 -828 2,429
BRAZIL
BALANCE ON CURRENT ACCOUNT............. 4,159 1,025 -3,788 -1,408 6,450
Direct investment...................... 2,794 744 236 -42 2,836
Portfolio investment................... -498 -421 512 3,808 14,466*
Other capital.......................... -11,506 -12,848 -6,315 -6,297 -3,179*
BALANCE ON CAPITAL ACCOUNT............. -9,210 -12,525 -5,567 -2,531 24,702
Errors & omissions..................... -827 -819 -296 852 -1,124
OVERALL BALANCE........................ -5,878 -12,319 -9,651 -3,087 30,028
CHILE
BALANCE ON CURRENT ACCOUNT............. -167 -767 -824 142 -583*
Foreign investment (net)............... 1,011 1,583 1,014 453 --
Other capital.......................... -2 -305 2,277 481 2,174*
BALANCE ON CAPITAL ACCOUNT............. 1,009 1,278 3,291 934 2,897*
Errors & omissions..................... -110 -74 -326 161 187*
OVERALL BALANCE........................ 732 437 2,368 1,238 2,501*
VENEZUELA
BALANCE ON CURRENT ACCOUNT............. -5,809 2,161 8,279 1,736 -3,365
Direct investment...................... 21 77 96 1,769 545
Portfolio investment................... -- -158 13,579 192 61
Other capital.......................... -1,923 -5,148 -18,231 -420 1,523
BALANCE ON CAPITAL ACCOUNT............. -1,902 -5,229 -4,556 1,541 2,129
Errors & omissions..................... 3,117 1,418 -1,742 -1,516 -402
OVERALL BALANCE........................ -4,594 1,650 1,981 1,761 -1,638
COLOMBIA
BALANCE ON CURRENT ACCOUNT............. -216 -201 542 2,349 912
Direct investment...................... 159 547 482 433 740
Portfolio investment................... -- 179 -4 81 60
Other capital.......................... 781 -319 -454 -1,299 -517
BALANCE ON CAPITAL ACCOUNT............. 940 407 26 -785 283
Errors & omissions..................... -530 157 70 269 14
OVERALL BALANCES....................... 194 363 -639 1,834 1,209
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992
------- ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
MEXICO
BALANCE ON CURRENT ACCOUNT............. -2,443 -3,958 -7,117 -13,785 -22,811
Direct investment...................... 635 2,648 2,548 4,742 5,366
Portfolio investment................... -880 438 -5,359 9,267 14,095
Other capital.......................... -5,625 -2,129 11,257 10,329 6,955
BALANCE ON CAPITAL ACCOUNT............. -5,870 957 8,446 24,338 26,416
Errors & omissions..................... -2,840 2,791 890 -2,581 -1,859
OVERALL BALANCE........................ -11,153 -210 2,219 7,972 1,746
PERU
BALANCE ON CURRENT ACCOUNT............. -1,091 396 -766 -1,478 -2,080*
Direct investment...................... 26 59 41 -7 127
Other capital.......................... -909 -1,185 -974 54 -217*
BALANCE ON CAPITAL ACCOUNT............. -883 -1,126 -933 47 -90*
Errors & omissions..................... -114 -246 504 1,329 1,744*
OVERALL BALANCE........................ -2,089 -978 -1,195 -102 -426*
</TABLE>
- --------
Source: The Economist Intelligence Unit, Country Profile 1993/94 (Argentina,
Brazil, Chile, Venezuela, Colombia, Mexico, Peru).
*Source: International Monetary Fund, International Financial Statistics, April
1994.
SECURITIES MARKETS
The securities markets of the emerging Americas countries are not as large or
as developed as those of the United States. Emerging Americas countries'
securities markets have substantially less trading volume and therefore may be
less liquid and experience high price volatility. There may also be a high
concentration of market capitalization and trading volume in a small number of
issuers representing a limited number of industries. It should also be noted
that such markets are less regulated than more developed securities markets.
See "Risk Factors and Special Considerations--Investing on an International
Basis and in Countries with Smaller Capital Markets" and "--Risks Relating to
Investments in Emerging Americas Countries."
Table 14 shows certain information concerning the stock markets of the
indicated emerging Americas countries and the United States from 1987 to 1993.
TABLE 14
1993 STOCK MARKET DATA
<TABLE>
<CAPTION>
MARKET TEN LARGEST
MARKET PRICE STOCKS AS %
NO. OF CAPITALIZATION VALUE TRADED TURNOVER EARNINGS OF MARKET
COMPANIES (US $ MILLIONS) (US $ MILLIONS) RATIO% RATIO CAPITALIZATION
----------- ------------------- ------------------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1987 1993* 1987 1993* 1987 1993* 1987 1992+ 1987 1993* 1993*
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Argentina............... 206 180 -- 44,000 251 10,340 14.7 83.9 4.3 48.9 68.8
Brazil*................. 590 550 16,900 99,400 9,608 47,849 41.5 31.5 6.6 12.6 29.3
Chile................... 209 266 5,341 44,600 503 2,790 10.6 6.7 0.7 20.0 53.8
Venezuela............... 110 93 2,278 6,587 148 1,862 8.1 27.8 14.6 17.4 59.6
Colombia................ 96 80 1,255 8,755 80 733 7.7 11.4 9.6 25.5 78.5
Mexico.................. 190 190 8,371 200,671 15,554 65,538 179.3 37.0 4.9 19.4 31.7
Peru.................... N/A 233 N/A 5,113 N/A 1,636 N/A N/A N/A 44.0 N/A
U.S.***................. 1,647 2,361 2,216,311 4,545,000 1,888,707 2,283,384 73 60 15.5 23.40 14.0
</TABLE>
- --------
Source: International Finance Corporation, Emerging Stock Markets Factbook,
1993.
*Source: International Finance Corporation, Quarterly Review of Emerging
Markets, Fourth Quarter 1993.
**Sao Paulo Bolsa only
***Source: New York Stock Exchange.
+1993 figures unavailable
44
<PAGE>
Certain of the local stock market indices have experienced significant gains
over the five year period ending in 1992. See Table 15.
TABLE 15
LOCAL STOCK MARKET
PRICE INDEXES (LOCAL CURRENCY, END OF PERIOD)
<TABLE>
<CAPTION>
LOCAL INDEX 1989 1990 1991 1992 1993
----------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
ARGENTINA .............. Bolsa Indice General 717.2 2,202.9 17,856.0 13,427.5 20,607.0
(1977=0.00001)
BRAZIL.................. BOVESPA Market Index 6.16 25.2 607.8 6,780.5 37,545.0
(1968=0.0000001)
CHILE................... IPGA Index 757.6 1,166.7 2,483.7 2,733.5 3,915.5
(1980=100)
VENEZUELA............... New BUL Index 2,754.0 17,881.9 29,316.6 19,874.1 21,903.4
(1970=100)
COLOMBIA................ IBB 975.9 1,392.3 358.1 499.9 749.1
(1992=100)*
MEXICO.................. BMV General Index 418.9 628.8 1,431.5 1,759.4 2,602.6
(1978=0.7816)
PERU**.................. Bolsa de Valores de N/A N/A 100.00 372.95 930.47
Lima Indice General
(1991=100)
</TABLE>
- --------
Source: International Finance Corporation, Emerging Stock Markets Factbook,
1993.
* IBB introduced in 1992
** Source: Bolsa de Valores de Lima Informe Bursatil, 1993.
ADDITIONAL INFORMATION WITH RESPECT TO CERTAIN
EMERGING AMERICAS COUNTRIES
Set forth below are brief profiles of the indicated emerging Americas
countries.
ARGENTINA. The government of Argentina is seeking to bolster the
competitiveness of its private sector. Its comprehensive privatization program
is a deliberate effort to attract foreign participation and know how. In
addition the domestic market is now more open to competition. Pension and labor
reforms in the country may reduce costs of production. Pension reforms may also
foster capital market development and channel more funds to the stock market.
BRAZIL. Brazil offers potential for economic turnaround as political
consensus improves in favor of fiscal reform and privatizations. Its private
sector is strong. Brazilian companies are globally competitive, lending to the
country's trade surplus of about $15 billion. Brazil is natural-resource rich;
many of its listed companies may benefit from a price pickup in world
commodities, including pulp, tin, and iron ore.
CHILE. Chile has a free trade agreement with Mexico and may be the next to
have an agreement with the United States. Chile is one of the world's leading
producers of copper and therefore may benefit from commodity price recovery.
The market is likely to become more accessible to foreign investors which may
boost the performance of locally listed shares.
45
<PAGE>
VENEZUELA. Venezuela is among the fastest growing emerging markets in the
world and may benefit from the U.S. recovery. Venezuela's new president is
working toward thorough market-oriented economic reforms. Its most substantial
natural resource is crude petroleum.
PERU. Trade in Peru is flourishing between the country and the other Andean
Pact members. Regarding natural resources, Peru is a crucial producer of zinc.
President Fujimori is ranking high in the popularity polls. In addition, the
country has privatized its pension system, which will provide an important
source of new funds for its stock market.
COLOMBIA. Like Peru, Colombia is also an Andean Pact member and is undergoing
pension reforms. An economic recovery may be at hand, helped by the
exploitation of Cusiana oil fields this year, which may also boost export
growth. In addition, Colombia ranks among the world's top ten countries in gold
production.
MEXICO. The economic outlook is for a pickup in growth, particularly now that
North American Free Trade Agreement (NAFTA) has been approved, and inflation
has fallen due to the government's economic policies. However, recent events in
Mexico such as the uprising in Chiapas and the assassination of presidential
candidate Colosio have had an adverse effect on the Mexican stock market. The
upcoming presidential election on August 21, 1994 could result in changes in
the government's economic policies.
DIRECTORS AND OFFICERS
The Directors and executive officers of the Fund and their principal
occupations during the last five years are set forth below. Unless otherwise
noted, the address of each Director and executive officer is 800 Scudders Mill
Road, Plainsboro, New Jersey 08536.
Arthur Zeikel, President and Director (1)(2)--President, Director and Chief
Investment Officer of the Investment Adviser and Merrill Lynch Asset
Management, L.P. ("MLAM"); President and Director of Princeton Services, Inc.
since 1993; Executive Vice President of Merrill Lynch & Co., Inc. since 1990;
Executive Vice President of Merrill Lynch since 1990 and a Senior Vice
President thereof from 1985 to 1990; Director of Merrill Lynch Funds
Distributor, Inc. ("MLFD").
Donald Cecil, Director (2)--1114 Avenue of the Americas, New York, New York
10036. Special Limited Partner of Cumberland Partners (investment partnership)
since 1982; Member of Institute of Chartered Financial Analysts; Member and
Chairman of Westchester County (N.Y.) Board of Transportation.
Edward H. Meyer, Director (2)--777 Third Avenue, New York, New York 10017.
President of Grey Advertising Inc. since 1968, Chief Executive Officer since
1970 and Chairman of the Board of Directors since 1972; Director of The May
Department Stores Company, Bowne & Co., Inc., Ethan Allen Interiors Inc. and
Harman International Industries, Inc.
Charles C. Reilly, 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 since 1990; Adjunct
Professor, Wharton School University of Pennsylvania, 1990; Director, Harvard
Business School Alumni Association.
46
<PAGE>
Richard R. West, Director (2)--482 Tepi Drive, Southbury, Connecticut 06488.
Professor of Finance, and Dean from 1984 to 1993, New York University Leonard
N. Stern School of Business Administration; Director of Vornado Realty Trust
(real estate investment trust), Smith-Corona Corporation (manufacturer of
typewriters and word processors), Alexander's Inc. and Bowne & Co., Inc.
Terry K. Glenn, Executive Vice President (1)(2)--Executive Vice President of
the Investment Adviser and of MLAM since 1983; President of MLFD since 1986 and
a Director thereof since 1991.
Grace Pineda, Vice President and Portfolio Manager (1)(2)--Vice President and
Senior Portfolio Manager with MLAM since 1989.
Gerald M. Richard, Treasurer (1)(2)--Senior Vice President and Treasurer of
MLAM and the Investment Adviser since 1984; Vice President of MLFD since 1981
and Treasurer since 1984.
Michael J. Hennewinkel, Secretary (1)(2)--Vice President of MLAM since 1985
and attorney associated with the Investment Adviser and MLAM since 1982.
- --------
(1) Interested person, as defined in the Investment Company Act, of the Fund.
(2) Such Director or officer is a director, trustee or officer of one or more
other investment companies for which the Investment Adviser or MLAM acts as
investment adviser.
The Fund pays each Director not affiliated with the Investment Adviser a fee
of $ per year plus $ per meeting attended, together with such Director's
actual out-of-pocket expenses relating to attendance at meetings. The Fund also
compensates members of its audit committee, which consists of all of the
Directors not affiliated with the Investment Adviser, an annual fee of $ ;
the chairman of the audit committee receives an additional annual fee of $ .
INVESTMENT ADVISORY AND MANAGEMENT ARRANGEMENTS
The Investment Adviser is an affiliate of MLAM, which is owned and controlled
by Merrill Lynch & Co., Inc. ("ML & Co."). The Investment Adviser will provide
the Fund with investment advisory and management services. The Investment
Adviser or MLAM acts as the investment adviser for over 90 other registered
investment companies. The Investment Adviser also offers portfolio management
and portfolio analysis services to individuals and institutions. As of February
28, 1994, the Investment Adviser and MLAM had a total of approximately $164.4
billion in investment company and other portfolio assets under management,
including accounts of certain affiliates of the Investment Adviser. In addition
to such assets under management, as of that date ML & Co. and its subsidiaries
held assets aggregating over $500 billion on behalf of their customers. The
principal business address of the Investment Adviser is 800 Scudders Mill Road,
Plainsboro, New Jersey 08536.
The investment advisory agreement between the Fund and the Investment Adviser
(the "Investment Advisory Agreement") provides that, subject to the direction
of the Board of Directors of the Fund, the Investment Adviser is responsible
for the actual management of the Fund's portfolio. The responsibility for
making decisions to buy, sell or hold a particular security rests with the
Investment Adviser, subject to review by the Board of Directors.
The Investment Adviser provides the portfolio management for the Fund. Such
portfolio management will consider analyses from various sources (including
brokerage firms with which the Fund does business),
47
<PAGE>
make the necessary investment decisions, and place orders for transactions
accordingly. The Investment Adviser also will be responsible for the
performance of certain administrative and management services for the Fund.
For the services rendered, the facilities furnished and the expenses assumed
by the Investment Adviser under the Investment Advisory Agreement, the Fund
will pay a monthly fee at the annual rate of 1.00% of the Fund's average weekly
net assets ("average weekly net assets" means the average weekly value of the
total assets of the Fund minus the sum of (i) accrued liabilities of the Fund
and (ii) any accrued and unpaid interest on outstanding borrowings). For
purposes of this calculation, average weekly net assets are determined at the
end of each month on the basis of the average net assets of the Fund for each
week during the month. The assets for each weekly period are determined by
averaging the net assets at the last business day of a week with the net assets
at the last business day of the prior week.
The Investment Advisory Agreement obligates the Investment Adviser to provide
investment advisory services and to pay all compensation of and furnish office
space for officers and employees of the Fund connected with investment and
economic research, trading and investment management of the Fund, as well as
the compensation of all Directors of the Fund who are affiliated persons of the
Investment Adviser or any of its affiliates. The Fund pays all other expenses
incurred in the operation of the Fund, including, among other things, expenses
for legal and auditing services, taxes, costs of printing proxies, stock
certificates and shareholder reports, listing fees, charges of the custodian
and the transfer agent, dividend disbursing agent and registrar, Securities and
Exchange Commission fees, fees and expenses of unaffiliated Directors,
accounting and pricing costs, insurance, interest, brokerage costs, litigation
and other extraordinary or non-recurring expenses, mailing and other expenses
properly payable by the Fund. Accounting services are provided to the Fund by
the Investment Adviser, and the Fund reimburses the Investment Adviser for its
costs in connection with such services.
Securities held by the Fund also may be held by or be appropriate investments
for other funds for which the Investment Adviser or MLAM acts as an adviser or
by investment advisory clients of MLAM. Because of different investment
objectives or other factors, a particular security may be bought for one or
more clients when one or more clients are selling the same security. If
purchases or sales of securities for the Fund or other funds for which the
Investment Adviser or MLAM acts as investment adviser or for their 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 Investment Adviser or MLAM 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.
Unless earlier terminated as described below, the Investment Advisory
Agreement will remain in effect until March 31, 1996, and from year to year
thereafter if approved annually (a) by the Board of Directors of the Fund 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.
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PORTFOLIO TRANSACTIONS
Subject to policies established by the Board of Directors of the Fund, the
Investment Adviser is primarily responsible for the execution of the Fund's
portfolio transactions. In executing such transactions, the Investment Adviser
seeks to obtain the best results for the Fund, taking into account such factors
as price (including the applicable fee, commission or spread), size of order,
difficulty of execution and operational facilities of the firm involved, the
firm's risk in positioning a block of securities and the provision of
supplemental investment research by the firm. While the Investment Adviser
generally seeks reasonably competitive fees, commissions or spreads, the Fund
does not necessarily pay the lowest fee, commission or spread available.
The Fund has no obligation to deal with any broker or dealer in execution of
transactions in portfolio securities. Subject to obtaining the best price and
execution, securities firms which provide supplemental investment research to
the Investment Adviser, including Merrill Lynch, may receive orders for
transactions by the Fund. Information so received will be in addition to and
not in lieu of the services required to be performed by the Investment Adviser
under the Investment Advisory Agreement and the expenses of the Investment
Adviser will not necessarily be reduced as a result of the receipt of such
supplemental information.
The Fund anticipates that its brokerage transactions involving securities of
issuers 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 will invest in certain securities traded in over-the-counter
markets. Debt securities in which the Fund may invest are primarily traded in
over-the-counter markets. Where possible, the Fund intends to deal directly
with the dealers who make markets in the securities involved, except in those
circumstances where better prices and execution are available elsewhere. Under
the Investment Company Act, except as permitted by exemptive order, persons
affiliated with the Fund are prohibited from dealing with the Fund as
principals in the purchase and sale of securities. Since transactions in over-
the-counter markets usually involve transactions with dealers acting as
principals for their own account, the Fund will not deal with affiliated
persons, including Merrill Lynch and its affiliates, in connection with such
principal 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 except pursuant to procedures approved by the Board
of Directors of the Fund which comply with rules adopted by the Securities and
Exchange Commission. To the extent Merrill Lynch is active in distributions of
securities of issuers in emerging Americas countries, the Fund may be
disadvantaged in that it may not purchase securities in such distributions. An
affiliated person of the Fund may serve as its broker in over-the-counter
transactions conducted on an agency basis.
The Fund's ability and decisions to purchase and sell portfolio securities
may be affected by foreign laws and regulations relating to the convertibility
and repatriation of assets.
PORTFOLIO TURNOVER
Generally, the Fund does not purchase securities for short-term trading
profits. However, the Fund may dispose of securities without regard to the time
they have been held when such actions, for defensive or other
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reasons, appear advisable to the Investment Adviser. While it is not possible
to predict turnover rates with any certainty, at present it is anticipated that
the Fund's annual portfolio turnover rate, under normal circumstances, will be
less than 100%. (The portfolio turnover rate is calculated by dividing the
lesser of purchases or sales of portfolio securities for the particular fiscal
year by the monthly average of the value of the portfolio securities owned by
the Fund during the particular fiscal year. For purposes of determining this
rate, all securities whose maturities at the time of acquisition are one year
or less are excluded).
DIVIDENDS AND DISTRIBUTIONS
It is the Fund's intention to distribute substantially all of its net
investment income. Dividends from such net investment income are paid at least
annually. All net realized long-term or short-term capital gains, if any, are
distributed at least annually to holders of Common Stock. 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 a Federal income tax requirement that certain
percentages of its ordinary income and capital gains be distributed during the
calendar year.
See "Automatic Dividend Reinvestment Plan" for information concerning the
manner in which dividends and distributions to holders of Common Stock may be
reinvested automatically in shares of Common Stock of the Fund. Dividends and
distributions may be taxable to shareholders whether they are reinvested in
shares of the Fund or received in cash.
TAXES
The Fund intends to elect and to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Internal Revenue
Code of 1986, as amended (the "Code"). If it so qualifies, the Fund (but not
its shareholders) will not be subject to Federal income tax on the part of its
net ordinary income and net realized capital gains which it distributes to
shareholders. The Fund intends to distribute substantially all of such income.
Dividends paid by the Fund from its ordinary income and distributions of the
Fund's net realized short-term capital gains (together referred to hereafter as
"ordinary income dividends") are taxable to shareholders as ordinary income.
Distributions made from the Fund's net realized long-term capital gains
("capital gain dividends") are taxable to shareholders as long-term capital
gains, regardless of the length of time the shareholder has owned Fund shares.
Distributions in excess of the Fund's earnings and profits will first reduce
the adjusted tax basis of a holder's shares and, after such adjusted tax basis
is reduced to zero, will constitute capital gains to such holder (assuming the
shares are held as a capital asset). 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.
Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Fund. Not later than 60 days after the close of its
taxable year, the Fund will provide its shareholders with a written notice
designating the amounts of any ordinary income or capital gain dividends.
Distributions by the Fund, whether from ordinary income or capital gains,
generally will not be eligible for the dividends received deduction allowed to
corporations under the Code. If the Fund pays a dividend in January which was
declared in the previous October, November or December to shareholders of
record on a specified date in
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one of such months, then such dividend will be treated for tax purposes as
being paid by the Fund and received by its shareholders on December 31 of the
year in which such dividend was declared.
Ordinary income dividends paid by the Fund to shareholders who are
nonresident aliens or foreign entities will be subject to a 30% U.S.
withholding tax under existing provisions of the Code applicable to foreign
individuals and entities unless a reduced rate of withholding or a withholding
exemption is provided under applicable treaty law. Nonresident shareholders are
urged to consult their own tax advisers concerning the applicability of the
U.S. withholding tax.
Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on ordinary income dividends and capital gain dividends and
on redemption payments ("backup withholding"). Generally, shareholders subject
to backup withholding will be those for whom no certified taxpayer
identification number is on file with the Fund or who, to the Fund's knowledge,
have furnished an incorrect number. When establishing an account, an investor
must certify under penalty of perjury that such number is correct and that such
investor is not otherwise subject to backup withholding.
Dividends and interest received by the Fund may give rise to withholding and
other taxes imposed by foreign countries. The Fund will conduct its investment
activities to avoid becoming subject to net income taxes imposed by the
countries in which it invests. Tax conventions between certain countries and
the United States may reduce or eliminate such taxes. The United States is not
currently a party to income tax conventions with any Central or South American
countries. However, it is presently negotiating income tax treaties with
several countries. It is uncertain whether such treaties will ultimately be
entered into or, if they are, what terms they will contain. Shareholders may be
able to claim U.S. foreign tax credits with respect to withholding taxes and
other income taxes on the Fund by foreign countries, subject to certain
conditions and limitations contained in the Code. For example, certain
retirement accounts cannot claim foreign tax credits on investments in foreign
securities held in the Fund. If more than 50% in value of the Fund's total
assets at the close of its taxable year consists of securities of foreign
corporations, the Fund will be eligible, and intends, to file an election with
the Internal Revenue Service pursuant to which shareholders of the Fund will be
required to include their proportionate shares of such withholding taxes 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. No deductions for foreign taxes, however, may be
claimed by noncorporate shareholders who do not itemize deductions.
The amount of withholding and other foreign income taxes that may be credited
against a shareholder's U.S. federal income tax liability will generally be
limited to an amount equal to the shareholder's U.S. federal income tax rate
multiplied by his or her foreign source taxable income. For this purpose, the
Fund expects that the capital gains, if any, it distributes, whether as
ordinary income or capital gain dividends, will not be treated as foreign
source taxable income, even if subject to taxes by a foreign country. In
addition, this limitation must be applied separately to certain categories of
foreign source income, one of which is foreign source "passive income." For
this purpose, foreign source "passive income" includes dividends, interest,
capital gains and certain foreign currency gains. As a consequence of these
rules, certain shareholders may not be able to claim a foreign tax credit for
the full amount of their proportionate share of foreign taxes paid by the Fund,
although taxes which cannot be claimed as a credit in the year they are paid as
a result of these rules may be carried back for two years or carried forward
for five years. 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
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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.
Certain taxes, such as stamp duties and withholding taxes on gross proceeds,
imposed by countries in which the Fund invests may not be eligible to be used
as a foreign tax credit, or to be passed through to shareholders, because they
are not considered to be taxes on income. Such taxes may nevertheless be
deducted by the Fund.
If a shareholder sells shares of the Fund within 90 days of acquiring such
shares and exercises the option to reinvest the net proceeds from the sale of
such shares in Class A shares of Merrill Lynch-sponsored open-end mutual funds,
then the loss the shareholder can recognize on the disposition of such shares
of the Fund will be reduced (or the gain increased) to the extent the sales
charge paid to the Fund reduces any sales charge the shareholder would have
owed upon purchase of the new Class A shares in the absence of the investment
privilege. Instead, such sales charge will be treated as an amount paid for the
new Class A shares.
The Code requires a RIC to pay a nondeductible 4% excise tax to the extent
the RIC does not distribute, during each calendar year, 98% of its ordinary
income, determined on a calendar year basis, and 98% of its capital gains,
determined, in general, on an October 31 year end, plus certain undistributed
amounts from previous years. While the Fund intends to distribute its income
and capital gains in the manner necessary to avoid imposition of the 4% excise
tax, there can be no assurance that sufficient amounts of the Fund's taxable
income and capital gains will be distributed to avoid entirely the imposition
of the tax. In such event, the Fund will be liable for the tax only on the
amount by which it does not meet the foregoing distribution requirements.
The Fund may invest 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 company and on gain from the
disposition of the shares of such 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 proposed regulations the Fund may be able
to 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. Unrealized losses, however,
would not be recognized. 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 non-equity option or a
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regulated futures contract for a non-U.S. currency and the Fund elects to have
gain or loss in connection with the contract treated as ordinary gain or loss
under Code Section 988 (as described below), gain or loss attributable to
Section 1256 contracts will be 60% long-term and 40% short-term capital gain or
loss. The mark-to-market rules outlined above, however, will not apply to
certain transactions entered into by the Fund solely to reduce the risk of
changes in price or interest or currency exchange rates with respect to its
investments.
A forward foreign exchange contract that is a Section 1256 contract will be
marked to market, as described above. However, the character of gain or loss
from such a contract will generally be ordinary under Code Section 988. The
Fund may, nonetheless, elect to treat the gain or loss from certain forward
foreign exchange contracts as capital. In this case, gain or loss realized in
connection with a forward foreign exchange contract that is a Section 1256
contract will be characterized as 60% long-term and 40% short-term capital gain
or loss.
Code Section 1092, which applies to certain "straddles", may affect the
taxation of the Fund's options, futures and interest rate transactions and its
short sales of securities. Under Section 1092, the Fund may be required to
postpone recognition for tax purposes of losses incurred in certain closing
transactions in options and futures contracts, interest rate swaps and certain
short sales of securities.
One of the requirements for qualification as a RIC is that less than 30% of
the Fund's gross income may be derived from gains from the sale or other
disposition of securities held for less than three months. Accordingly, the
Fund may be restricted in effecting closing transactions within three months
after entering into an option or futures contract.
Special Rules for Certain Foreign Currency Transactions. In general, gains
from "foreign currencies" and from foreign currency options, foreign currency
futures and forward foreign exchange contracts relating to investments in
stock, securities or foreign currencies will be qualifying income for purposes
of determining whether the Fund qualifies as a RIC. It is currently unclear,
however, who will be treated as the issuer of a foreign currency instrument or
how foreign currency options, foreign currency futures and forward foreign
currency contracts will be valued for purposes of the RIC diversification
requirements applicable to the Fund. The Fund may request a private letter
ruling from the Internal Revenue Service on some or all of these issues.
Under Code Section 988, special rules are provided for certain transactions
in a foreign currency other than the taxpayer's functional currency (i.e.,
unless certain special rules apply, currencies other than the U.S. dollar). In
general, foreign currency gains or losses from certain debt instruments, from
certain forward contracts, from futures contracts that are not "regulated
futures contracts" and from unlisted options will be treated as ordinary income
or loss under Code Section 988. In certain circumstances, the Fund may elect
capital gain or loss treatment for such transactions. Regulated futures
contracts, as described above, will be taxed under Code Section 1256 unless
application of Section 988 is elected by the Fund. In general, however, Code
Section 988 gains or losses will increase or decrease the amount of the Fund's
investment company taxable income available to be distributed to shareholders
as ordinary income. Additionally, if Code Section 988 losses exceed other
investment company taxable income during a taxable year, the Fund would not be
able to make any ordinary dividend distributions, and any distributions made
before the losses were realized but in the same taxable year would be
recharacterized as a return of capital to shareholders, thereby reducing the
basis of each shareholder's Fund shares. 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.
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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 emerging Americas countries in which the Fund intends to
invest. No such regulations have been issued.
----------------
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections
and the Treasury regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative or administrative action
either prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state and
local taxes.
Certain states exempt from state income taxation dividends paid by RICs that
are derived from interest on U.S. Government obligations. State law varies as
to whether dividend income attributed 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 evaluations of an investment
in the Fund.
----------------
AUTOMATIC DIVIDEND REINVESTMENT PLAN
Pursuant to the Fund's Automatic Dividend Reinvestment Plan (the "Plan"),
unless a shareholder otherwise elects, all dividend and capital gains
distributions will be reinvested automatically by State Street Bank and Trust
Company, as agent for shareholders in administering the Plan (the "Plan
Agent"), in additional shares of Common Stock of the Fund. Shareholders who
elect not to participate in the Plan will receive all distributions in cash
paid by check mailed directly to the shareholder of record (or, if the shares
are held in street or other nominee name, then to such nominee) by State Street
Bank and Trust Company, as dividend paying agent. Such participants may elect
not to participate in the Plan and to receive all distributions of dividends
and capital gains in cash by sending written instructions to State Street Bank
and Trust Company, as dividend paying agent, at the address set forth below.
Participation in the Plan is completely voluntary and may be terminated or
resumed at any time without penalty by written notice if received by the Plan
Agent not less than ten days prior to any dividend record date; otherwise such
termination will be effective with respect to any subsequently declared
dividend or distribution.
Whenever the Fund declares an ordinary income dividend or a capital gain
dividend (collectively referred to as "dividends") payable either in shares or
in cash, non-participants in the Plan will receive cash, and participants in
the Plan will receive the equivalent in shares of Common Stock. The shares will
be acquired by the Plan Agent for the participant's account, depending upon the
circumstances described below, either (i) through receipt of additional
unissued but authorized shares of Common Stock from the Fund ("newly issued
shares") or (ii) by purchase of outstanding shares of Common Stock on the open
market ("open-market purchases") on the New York Stock Exchange or elsewhere.
If on the payment date for the dividend, the net asset value per share of the
Common Stock is equal to or less than the market price per share of the Common
Stock plus estimated brokerage commissions (such condition being referred to
herein as "market premium"), the Plan Agent will invest the dividend amount in
newly issued shares on behalf of the participant. The number of newly issued
shares of Common Stock to be credited to the participant's account will be
determined by dividing the dollar amount of the dividend by the net asset value
per share on the date the
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shares are issued, provided that the maximum discount from the then current
market price per share on the date of issuance may not exceed 5%. If on the
dividend payment date the net asset value per share is greater than the market
value (such condition being referred to herein as "market discount"), the Plan
Agent will invest the dividend amount in shares acquired on behalf of the
participant in open-market purchases. Prior to the time the shares of Common
Stock commence trading on the New York Stock Exchange, participants in the Plan
will receive any dividends in newly issued shares. In addition, if the Fund is
converted to an open-end fund, its shares will no longer be listed on any stock
exchange and participants in the Plan will receive any dividends in newly
issued shares at their net asset value.
In the event of a market discount on the dividend payment date, the Plan
Agent will have until the last business day before the next date on which the
shares trade on an "ex-dividend" basis or in no event more than 30 days after
the dividend payment date (the "last purchase date") to invest the dividend
amount in shares acquired in open-market purchases. If, before the Plan Agent
has completed its open-market purchases, the market price of a share of Common
Stock exceeds the net asset value per share, the average per share purchase
price paid by the Plan Agent may exceed the net asset value of the Fund's
shares, resulting in the acquisition of fewer shares than if the dividend had
been paid in newly issued shares on the dividend payment date. Because of the
foregoing difficulty with respect to open-market purchases, the Plan provides
that if the Plan Agent is unable to invest the full dividend amount in open-
market purchases during the purchase period or if the market discount shifts to
a market premium during the purchase period, the Plan Agent will cease making
open-market purchases and will invest the uninvested portion of the dividend
amount in newly issued shares at the close of business on the last purchase
date.
The Plan Agent maintains all shareholders' accounts in the Plan and furnishes
written confirmation of all transactions in the accounts, including information
needed by shareholders for tax records. Shares in the account of each Plan
participant will be held by the Plan Agent on behalf of the Plan participant,
and each shareholder's proxy will include those shares purchased or received
pursuant to the Plan. The Plan Agent will forward all proxy solicitation
materials to participants and vote proxies for shares held pursuant to the Plan
in accordance with the instructions of the participants.
In the case of shareholders such as banks, brokers or nominees which hold
shares for others who are the beneficial owners, the Plan Agent will administer
the Plan on the basis of the number of shares certified from time to time by
the record shareholders as representing the total amount registered in the
record shareholder's name and held for the account of beneficial owners who are
to participate in the Plan.
There will be no brokerage charges with respect to shares issued directly by
the Fund as a result of dividends or capital gains distributions payable either
in shares or in cash. However, each participant will pay a pro rata share of
brokerage commissions incurred with respect to the Plan Agent's open-market
purchases in connection with the reinvestment of dividends.
The automatic reinvestment of dividends and distributions will not relieve
participants of any Federal, state or local income tax that may be payable (or
required to be withheld) on such dividends. See "Taxes."
Shareholders participating in the Plan may receive benefits not available to
shareholders not participating in the Plan. If the market price plus
commissions of the Fund's shares is above the net asset value, participants in
the Plan will receive shares of the Fund at less than they could otherwise
purchase them and will have shares with a cash value greater than the value of
any cash distribution they would have received on their shares. If the market
price plus commissions is below the net asset value, participants will receive
distributions
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in shares with a net asset value greater than the value of any cash
distribution they would have received on their shares. However, there may be
insufficient shares available in the market to make distributions in shares at
prices below the net asset value. Also, since the Fund does not redeem its
shares, the price on resale may be more or less than the net asset value. See
"Taxes" for a discussion of tax consequences of the Plan.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan. There
is no direct service charge to participants in the Plan; however, the Fund
reserves the right to amend the Plan to include a service charge payable by the
participants.
All correspondence concerning the Plan should be directed to the Plan Agent
at Two Heritage Drive, Quincy, Massachusetts 02171.
MUTUAL FUND INVESTMENT OPTION
Purchasers of shares of the Fund in this offering will have an investment
option consisting of the right to reinvest the net proceeds from a sale of such
shares (the "Original Shares") in Class A initial sales charge shares of
certain Merrill Lynch-sponsored open-end mutual funds ("Eligible Class A
Shares") at their net asset value, without the imposition of the initial sales
charge, if the conditions set forth below are satisfied. First, the sale of the
Original Shares must be made through Merrill Lynch, and the net proceeds
therefrom must be reinvested immediately in Eligible Class A Shares. Second,
the Original Shares must either have been acquired in this offering or be
shares representing reinvested dividends from shares acquired in this offering.
Third, the Original Shares must have been maintained continuously in a Merrill
Lynch securities account. Fourth, there must be a minimum purchase of $250 to
be eligible for the investment option. Class A shares of certain of the mutual
funds may be subject to an account maintenance fee at an annual rate of up to
0.25% of the average daily net asset value of such mutual fund. The Eligible
Class A Shares may be redeemed at any time at the next determined net asset
value, subject in certain cases to a redemption fee. Prior to the time the
shares commence trading on the New York Stock Exchange, the distributor for the
mutual funds will advise Merrill Lynch financial consultants as to those mutual
funds which offer the investment option described above.
NET ASSET VALUE
Net asset value per share is determined at 4:15 P.M., New York time, on the
last business day in each week. For purposes of determining the net asset value
of a share of Common Stock, the value of the securities held by the Fund plus
any cash or other assets (including interest accrued but not yet received)
minus all liabilities (including accrued expenses) is divided by the total
number of shares of Common Stock outstanding at such time. Expenses, including
the fees payable to the Investment Adviser, are accrued daily.
The Fund determines and makes available for publication the net asset value
of its shares weekly. Currently, the net asset values of shares of publicly
traded, closed-end investment companies are published in Barron's and in the
Monday editions of The Wall Street Journal and The New York Times.
Portfolio securities which are traded on stock exchanges are valued at the
last sale price 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 over-the-counter markets are valued at the last available bid prices
obtained from one or more dealers in over-the-counter markets prior to the time
of valuation. Portfolio securities which are traded both in over-the-counter
markets and on a stock exchange are valued according to the broadest and most
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representative market. Other investments, including futures contracts and
related options, are stated at market value. Securities and assets for which
market quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Board of Directors of
the Fund.
Certain portfolio securities (other than short-term obligations but including
listed issues) may be valued on the basis of prices furnished by one or more
pricing services which determine prices for normal, institutional-size trading
units of such securities using market information, transactions for comparable
securities and various relationships between securities which are generally
recognized by institutional traders. Rights or warrants to acquire stock, or
stock acquired pursuant to the exercise of a right or warrant, may be valued
taking into account various factors such as original cost to the Fund, earnings
and net worth of the issuer, market prices for securities of similar issuers,
assessment of the issuer's future prosperity, liquidation value or third party
transactions involving the issuer's securities. Securities for which there
exist no price quotations or valuations and all other assets are valued at fair
value as determined in good faith by or on behalf of the Board of Directors of
the Fund.
DESCRIPTION OF SHARES
The Fund is authorized to issue 200,000,000 shares of capital stock, par
value $.10 per share, all of which shares initially are classified as Common
Stock. The Board of Directors is authorized, however, to classify and
reclassify any unissued shares of capital stock by setting or changing the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications or terms or conditions of
redemption. The Fund may reclassify an amount of unissued capital stock into
one or more additional or other classes or series in accordance with
limitations set forth in the Investment Company Act.
Shares of Common Stock, when issued and outstanding, will be fully paid and
non-assessable. Shareholders are entitled to share pro rata in the net assets
of the Fund available for distribution to shareholders upon liquidation of the
Fund. Shareholders are entitled to one vote for each share held.
The Fund will send unaudited reports at least semi-annually and audited
annual financial statements to all of its shareholders.
As of , 1994, there were shares issued and outstanding, all of which
were owned by the Investment Adviser.
CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION
The Fund's Articles of Incorporation provide that the Board of Directors will
submit a proposal to convert the Fund to an open-end investment company to
shareholders during the second quarter of 1996, unless the Board of Directors
determines that conversion at that time would not be in the best interests of
shareholders. See "The 1996 Vote to Convert to Open-End Status."
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The Fund's Articles of Incorporation include provisions that could have the
effect of limiting the ability of other entities or persons to acquire control
of the Fund or to change the composition of its Board of Directors and could
have the effect of depriving shareholders of an opportunity to sell their
shares at a premium over prevailing market prices by discouraging a third party
from seeking to obtain control of the Fund. A Director may be removed from
office with or without cause but only by vote of the holders of at least 66
2/3% of the shares entitled to be voted on the matter.
In addition, the Articles of Incorporation require the favorable vote of the
holders of at least 66 2/3% of the Fund's shares of capital stock, then
entitled to be voted, voting as a single class, to approve, adopt or authorize
the following:
(i) a merger or consolidation or statutory share exchange of the Fund
with any other corporation,
(ii) a sale of all or substantially all of the Fund's assets (other than
in the regular course of the Fund's investment activities), or
(iii) a liquidation or dissolution of the Fund,
unless such action has been approved, adopted or authorized by the affirmative
vote of at least two-thirds of the total number of Directors fixed in
accordance with the by-laws of the Fund, in which case the affirmative vote of
a majority of the Fund's shares of capital stock is required.
In addition, conversion of the Fund to an open-end investment company would
require an amendment to the Fund's Articles of Incorporation. The amendment
would have to be determined to be in the best interest of the shareholders of
the Fund by the Board of Directors prior to its submission to shareholders.
Such an amendment would require the favorable vote of the holders of at least a
majority of the Fund's outstanding shares entitled to be voted on the matter.
Such a vote also would satisfy a separate requirement in the Investment Company
Act that the change be approved by the shareholders. Shareholders of an open-
end investment company may require the company to redeem their shares of common
stock at any time (except in certain circumstances as authorized by or under
the Investment Company Act) at their net asset value, less such redemption
charge, if any, as might be in effect at the time of a redemption. All
redemptions will be made in cash. If the Fund is converted to an open-end
investment company, it could be required to liquidate portfolio securities to
meet requests for redemption and the shares no longer would be listed on a
stock exchange. Conversion to an open-end investment company also would require
changes in certain of the Fund's investment policies and restrictions, such as
those relating to the borrowing of money and the purchase of illiquid
securities.
The Board of Directors has determined that the 66 2/3% voting requirements
described above, which are greater than the minimum requirements under Maryland
law or the Investment Company Act, are in the best interests of shareholders
generally. Reference should be made to the Articles of Incorporation on file
with the Securities and Exchange Commission for the full text of these
provisions.
CUSTODIAN
The Chase Manhattan Bank, N.A. will act as the custodian for the Fund's
assets and will employ foreign sub-custodians approved by the Fund's Board of
Directors in accordance with regulations of the Securities and Exchange
Commission.
58
<PAGE>
UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") has
agreed, subject to the terms and conditions of a Purchase Agreement with the
Fund and the Investment Adviser, to purchase shares of Common Stock from the
Fund. Merrill Lynch is committed to purchase all of such shares if any are
purchased.
Merrill Lynch has advised the Fund that it proposes initially to offer the
shares to the public at the public offering price set forth on the cover page
of this Prospectus, except that the price will be reduced to $14.85 per share
for purchases in single transactions of between 6,668 and 16,835 shares and to
$14.70 for purchases in single transactions of 16,836 or more shares. Merrill
Lynch also has advised the Fund that it may offer shares to certain dealers at
the initial offering price set forth in the preceding sentence less a
concession not in excess of $ per share ($ per share for purchases in
single transactions of between 6,668 and 16,835 shares and $ for purchases in
single transactions of 16,836 or more shares). Merrill Lynch may allow, and
such dealers may reallow, a discount on sales to certain other dealers not in
excess of $ per share. After the initial public offering, the public offering
price, concession and discount may be changed. The maximum sales load of $
per share is equal to %, the sales load of $ per share is equal to % and
the sales load of $ per share is equal to % of the respective initial public
offering prices. Investors must pay for any shares of Common Stock purchased in
the initial public offering on or before , 1994.
The Fund has granted Merrill Lynch an option, exercisable for 45 days after
the date hereof, to purchase up to additional shares of Common Stock to
cover over-allotments, if any, at the initial offering price less the sales
load.
Prior to this offering, there has been no public market for the Common Stock
of the Fund. The Fund's shares of Common Stock have been approved for listing
on the New York Stock Exchange. However, during an initial period which is not
expected to exceed four weeks from the date of this Prospectus, the Fund's
shares will not be listed on any securities exchange. Additionally, during such
period, Merrill Lynch does not intend to make a market in the Fund's shares,
although a limited market may develop. Consequently, it is anticipated that an
investment in the Fund will be illiquid during such period. In order to meet
the requirements for listing, Merrill Lynch has undertaken to sell lots of 100
or more shares to a minimum of 2,000 beneficial owners.
The Fund anticipates that Merrill Lynch from time to time may act as a broker
in connection with the execution of the Fund's portfolio transactions. See
"Portfolio Transactions."
Merrill Lynch is an affiliate of the Investment Adviser of the Fund. Merrill
Lynch's principal business address is Merrill Lynch World Headquarters, World
Financial Center, North Tower, New York, New York 10281-1305.
The Fund and the Investment Adviser have agreed to indemnify Merrill Lynch
against certain liabilities including liabilities under the Securities Act of
1933.
59
<PAGE>
TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REGISTRAR
The transfer agent, dividend disbursing agent and registrar for the shares of
the Fund is State Street Bank and Trust Company.
LEGAL OPINIONS
Certain legal matters in connection with the shares offered hereby will be
passed upon for the Fund and Merrill Lynch by Brown & Wood, New York, New York.
Brown & Wood will rely as to matters of Maryland law on the opinion of
Ginsburg, Feldman and Bress, Chartered, Washington, D.C.
EXPERTS
The statement of assets, liabilities and capital of the Fund included in this
Prospectus has been so included in reliance on the report of ,
independent auditors, and on their authority as experts in auditing and
accounting.
60
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholder of
EMERGING AMERICAS FUND, INC.
We have audited the accompanying statement of assets, liabilities and capital
of Emerging Americas Fund, Inc. as of April , 1994. This financial statement
is the responsibility of the Fund's management. Our responsibility is to
express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. 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 audit provides a reasonable basis for our opinion.
In our opinion, such statement of assets, liabilities and capital presents
fairly, in all material respects, the financial position of Emerging Americas
Fund, Inc. as of April , 1994, in conformity with generally accepted accounting
principles.
April , 1994
61
<PAGE>
EMERGING AMERICAS FUND, INC.
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
, 1994
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash...................................................................... $
Deferred organization and offering costs (Note 1).........................
---
Total Assets............................................................
LIABILITIES
Deferred organization and offering
costs (Note 1)........................................................... ---
NET ASSETS.................................................................. $
===
CAPITAL
Common Stock, par value $.10 per share;
200,000,000 shares authorized; 7,055
shares issued and outstanding (Note 1)................................... $
Paid in Capital in excess of par..........................................
---
Total Capital-Equivalent of $
net asset value per share of $
Common Stock (Note 1).................................................. ===
</TABLE>
NOTES TO STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
NOTE 1. ORGANIZATION
The Fund was incorporated under the laws of the State of Maryland on February
25, 1994, as a closed-end, non-diversified management investment company and
has had no operations other than the sale to Fund Asset Management, L.P. (the
"Investment Adviser") of an aggregate of shares for $ on
, 1994.
Deferred organization costs will be amortized on a straight-line basis over a
five-year period beginning with the commencement of operations of the Fund.
Direct costs relating to the public offering of the Fund's shares will be
charged to capital at the time of issuance.
NOTE 2. MANAGEMENT ARRANGEMENTS
The Fund has engaged the Investment Adviser to provide investment advisory
and management services to the Fund. The Investment Adviser will receive a
monthly fee at the annual rate of 1.00% of the Fund's average weekly net
assets.
NOTE 3. FEDERAL INCOME TAXES
The Fund intends to qualify as a "regulated investment company" and as such
(and by complying with the applicable provisions of the Internal Revenue Code
of 1986, as amended) will not be subject to Federal income tax on taxable
income (including realized capital gains) that is distributed to shareholders.
62
<PAGE>
APPENDIX A
RATINGS OF FIXED INCOME SECURITIES
DESCRIPTION OF CORPORATE BOND RATINGS OF MOODY'S INVESTORS SERVICE, INC.
("MOODY'S"):
Aaa Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and generally are
referred to as "gilt-edge." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, such changes as
can be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what generally
are known as high grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large as with Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-
term risks appear somewhat larger than with Aaa securities.
A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa Bonds which are rated Baa are considered medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of
time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other
marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Note: Moody's applies numerical modifiers, 1, 2 and 3, in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the bond ranks in the higher
A-1
<PAGE>
end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower end of
its rating category.
DESCRIPTION OF MOODY'S PREFERRED STOCK RATINGS
Because of the fundamental differences between preferred stocks and bonds, a
variation of the bond rating symbols is used in the quality ranking of
preferred stocks. The symbols, presented below, are designed to avoid
comparison with bond quality in absolute terms. It always should be borne in
mind that preferred stocks occupy a junior position to bonds within a
particular capital structure and that these securities are rated within the
universe of preferred stocks.
Preferred stock rating symbols and their definitions are as follows:
aaa An issue which is rated "aaa" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the
least risk of dividend impairment within the universe of preferred
stocks.
aa An issue which is rated "aa" is considered a high-grade preferred
stock. This rating indicates that there is reasonable assurance that
earnings and asset protection will remain relatively well maintained
in the foreseeable future.
a An issue which is rated "a" is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in
the "aaa" and "aa" classifications, earnings and assets protection,
nevertheless, are expected to be maintained at adequate levels.
baa An issue which is rated "baa" is considered to be a medium grade
preferred stock, neither highly protected nor poorly secured. Earnings
and asset protection appear adequate at present but may be
questionable over any great length of time.
ba An issue which is rated "ba" is considered to have speculative
elements and its future cannot be considered well assured. Earnings
and asset protection may be very moderate and not well safeguarded
during adverse periods. Uncertainty of position characterizes
preferred stocks in this class.
b An issue which is rated "b" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance
of other terms of the issue over any long period of time may be small.
caa An issue which is rated "caa" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the
future status of payments.
ca An issue which is rated "ca" is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of
eventual payment.
c This is the lowest rated class of preferred or preference stock.
Issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
Note: Moody's may apply numerical modifiers 1, 2 and 3 in each rating
classification from "aa" through "b" in its preferred stock rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
A-2
<PAGE>
DESCRIPTION OF CORPORATE BOND RATINGS OF STANDARD & POOR'S CORPORATION
("STANDARD & POOR'S"):
AAA Bonds rated AAA have the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the higher-rated issues only in small
degree.
A Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds
in higher-rated categories.
BBB Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than in
higher-rated categories.
BB Bonds rated BB have less near-term vulnerability to default than other
speculative issues. However, they face major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which
could lead to inadequate capacity to meet timely interest payments and
principal repayments. The BB rating also is used for bonds
subordinated to senior debt that is assigned an actual or implied BBB-
rating.
B Bonds rated B have a greater vulnerability to default but currently
have the capacity to meet interest payments and principal repayments.
Adverse business, financial or economic conditions likely will impair
capacity or willingness to pay interest or repay principal. The B
rating category also is used for bonds subordinated to senior debt
that is assigned an actual or implied BB or BB- rating.
CCC Bonds rated CCC have a currently identifiable vulnerability to
default, and are dependent upon favorable business, financial and
economic conditions to meet timely payment of interest and repayment
of principal. In the event of adverse business, financial or economic
conditions, they are not likely to have the capacity to pay interest
and repay principal. The CCC rating also is used for bonds
subordinated to senior debt that is assigned an actual or implied B or
B- rating.
CC The rating CC typically is applied to bonds subordinated to senior
debt that is assigned an actual or implied CCC rating.
C The rating C typically is applied to bonds subordinated to senior debt
that is assigned an actual or implied CCC- rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed,
but debt service payments are continued.
CI
The CI rating is reserved for income bonds on which no interest is
being paid.
D Bonds rated D are in payment default. The D rating is used when
interest payments or principal repayments are not made on the date due
even if the applicable grace period has not expired, unless Standard &
Poor's believes that such payments will be made during such grace
period. The D rating also will be used upon the filing of a bankruptcy
petition if debt service payments are jeopardized.
NR
Not rated.
A-3
<PAGE>
Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
DESCRIPTION OF STANDARD & POOR'S PREFERRED STOCK RATINGS
A Standard & Poor's preferred stock rating is an assessment of the capacity
and willingness of an issuer to pay preferred stock dividends and any
applicable sinking fund obligations. A preferred stock rating differs from a
bond rating inasmuch as it is assigned to an equity issue, which issue is
intrinsically different from, and subordinated to, a debt issue. Therefore, to
reflect this difference, the preferred stock rating symbol normally will not be
higher than the bond rating symbol assigned to, or that would be assigned to,
the senior debt of the same issuer.
The preferred stock ratings are based on the following considerations:
I. Likelihood of payment--capacity and willingness of the issuer to meet
the timely payment of preferred stock dividends and any applicable
sinking fund requirements in accordance with the terms of the
obligation;
II. Nature of, and provisions of, the issue; and
III. Relative position of the issue in the event of bankruptcy,
reorganization, or other arrangements under the laws of bankruptcy and
other laws affecting creditors' rights.
AAA This is the highest rating that may be assigned by Standard & Poor's
to a preferred stock issue and indicates an extremely strong capacity
to pay the preferred stock obligations.
AA A preferred stock issue rated "AA" also qualifies as a high-quality
fixed income security. The capacity to pay preferred stock obligations
is very strong, although not as overwhelming as for issues rated
"AAA."
A An issue rated "A" is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions.
BBB An issue rated "BBB" is regarded as backed by an adequate capacity to
pay the preferred stock obligations. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity
to make payments for a preferred stock in this category than for
issues in "A" Category.
BB,B,Preferred stock rated "BB," "B," and "CCC" are regarded, on balance,
CCC as predominately speculative with respect to the issuer's capacity to
pay preferred stock obligations. "BB" indicates the lowest degree of
speculation and "CCC" the highest degree of speculation. While such
issues likely will have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk exposures to
adverse conditions.
CC The rating "CC" is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments but that is currently paying.
C A preferred stock rated "C" is a non-paying issue.
D
A preferred stock rated "D" is a non-paying issue with the issuer in
default on debt instruments.
NR indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that Standard & Poor's does not rate
a particular type of obligation as a matter of policy.
A-4
<PAGE>
Plus (+) or Minus (-): To provide more detailed indications of preferred
stock quality, the ratings from "AA" to "CCC" may be modified by the addition
of a plus or minus sign to show relative standing within the major rating
categories.
A preferred stock rating is not a recommendation to purchase, sell or hold a
security inasmuch as it does not comment as to market price or suitability for
a particular investor. The ratings are based on current information furnished
to Standard & Poor's by the issuer or obtained by Standard & Poor's from other
sources it considers reliable. Standard & Poor's does not perform an audit in
connection with any rating and, on occasion, may rely on unaudited financial
information. The ratings may be changed, suspended, or withdrawn as a result of
changes in, or unavailability of, such information, or based on other
circumstances.
A-5
<PAGE>
APPENDIX B
OPTIONS AND FUTURES TRANSACTIONS
Reference is made to the discussion under the caption "Other Investment
Policies and Practices--Portfolio Strategies Involving Options and Futures"
above for information with respect to various portfolio strategies involving
such portfolio strategies.
WRITING COVERED OPTIONS
The writer of a covered call option has no control over when he may be
required to sell his securities since he may be assigned an exercise notice at
any time prior to the termination of his obligation as a writer. If an option
expires unexercised, the writer realizes a gain in the amount of the premium.
Such a gain, of course, may be offset by a decline in the market value of the
underlying security during the option period. If a call option is exercised,
the writer realizes a gain or loss from the sale of the underlying security.
PUT OPTIONS ON PORTFOLIO SECURITIES
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 high grade liquid debt with the Fund's custodian 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.
OPTIONS MARKETS
The options in which the Fund invests may be options issued by The Options
Clearing Corporation (the "Clearing Corporation") which are currently traded on
the Chicago Board Options Exchange, American Stock Exchange, Philadelphia Stock
Exchange, Pacific Stock Exchange, New York Stock Exchange or Midwest Stock
Exchange. An option 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 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 trade on that exchange would
continue to be exercisable in accordance with their terms.
B-1
<PAGE>
The Fund may also enter into OTC options, which are two-party contracts with
price 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. 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 as is equal to the repurchase price less the amount by
which the option is "in-the-money" (i.e., current market value of the
underlying security minus the option's strike price). The repurchase price with
the primary dealers is typically a formula price which is generally based on a
multiple of the premium received for the option, plus the amount by which the
option is "in-the-money." This policy is not a fundamental policy of the Fund
and may be amended by the Directors of the Fund without the approval of the
Fund's shareholders. However, the Fund will not change or modify this policy
prior to the change or modification by the Commission staff of its position.
FINANCIAL FUTURES AND OPTIONS THEREON
The purchase or sale of a futures contract differs from the purchase or sale
of a security in that no price or premium is paid or received. Instead, an
amount of cash or securities acceptable to the broker and the relevant contract
market, which varies, but is generally about 5% of the contract amount, must be
deposited with the broker. This amount is known as "initial margin" and
represents a "good faith" deposit assuring the performance of both the
purchaser and seller under the futures contract. Subsequent payments to and
from the broker, called "variation margin," are required to be made on a daily
basis as the price of the futures contracts fluctuates making the long and
short positions in the futures contracts more or less valuable, a process known
as "mark to the market." At any time prior to the settlement date of the
futures contract, the position may be closed out by taking an opposite position
which will operate to terminate the position in the futures contract. A final
determination of variation margin is then made, additional cash is required to
be paid to or released by the broker and the purchaser realizes a loss or gain.
In addition, a nominal commission is paid on each completed sale transaction.
The Fund has received an order from the Commission exempting it from the
provisions of Section 17(f) of 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.
RISK FACTORS IN OPTIONS AND FUTURES TRANSACTIONS
In the case of a futures position or an option on a futures position written
by the Fund, in the event of adverse price movements, the Fund would continue
to be required to make daily cash payments of variation margin. In such
situations, if the Fund has insufficient cash, it may have to sell portfolio
securities to meet daily variation margin requirements at a time when it may be
disadvantageous to do so. In addition, the Fund may be required to take or make
delivery of the securities underlying futures contracts it holds. The inability
to close options and futures positions also could have an adverse impact on the
Fund's ability to hedge effectively its portfolio.
The exchanges on which the Fund intends to conduct its options transactions
have generally established limitations governing the maximum number of call or
put options on the same underlying security (whether or not covered) which may
be written by a single investor, whether acting alone or in concert with others
B-2
<PAGE>
(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 Investment Adviser does not believe
that these trading and position limits will have any adverse impact on the
portfolio strategies for hedging the Fund's portfolio.
B-3
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFOR-
MATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING OF ANY SECURITIES OTHER THAN
THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER TO ANY PERSON IN ANY
STATE OR JURISDICTION OF THE UNITED STATES OR ANY COUNTRY WHERE SUCH OFFER
WOULD BE UNLAWFUL.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................................................... 3
Risk Factors and Special Considerations.................................... 8
Fee Table.................................................................. 16
The Fund................................................................... 17
The 1996 Vote to Convert to Open-End Status................................ 17
Use of Proceeds............................................................ 18
Investment Objective and Policies.......................................... 18
Other Investment Policies and Practices.................................... 24
Investment Restrictions.................................................... 30
Selected Economic and Market Data.......................................... 32
Directors and Officers..................................................... 46
Investment Advisory and Management
Arrangements.............................................................. 47
Portfolio Transactions..................................................... 49
Dividends and Distributions................................................ 50
Taxes...................................................................... 50
Automatic Dividend Reinvestment Plan....................................... 54
Mutual Fund Investment Option.............................................. 56
Net Asset Value............................................................ 56
Description of Shares...................................................... 57
Custodian.................................................................. 58
Underwriting............................................................... 59
Transfer Agent, Dividend Disbursing Agent and Registrar.................... 60
Legal Opinions............................................................. 60
Experts.................................................................... 60
Independent Auditors' Report............................................... 61
Statement of Assets, Liabilities and Capital............................... 62
Appendix A................................................................. A-1
Appendix B................................................................. B-1
</TABLE>
---------------
UNTIL , 1994 (90 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPAT-
ING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIV-
ERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PRO-
SPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOT-
MENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Code #18066
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
7,500,000 SHARES
EMERGING AMERICAS FUND, INC.
COMMON STOCK
---------------
P R O S P E C T U S
---------------
MERRILL LYNCH & CO.
APRIL , 1994
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(1) Financial Statements
Independent Auditors' Report
Statement of Assets, Liabilities and Capital as of , 1994
(2) Exhibits:
(a)(1) --Articles of Incorporation
(2) --Amendment to Articles of Incorporation (changing
name)
(b) --Form of By-Laws
(c) --Not applicable
(d)(1) --Specimen certificate for Common Stock*
(d)(2) --Portions of the Articles of Incorporation and
the By-Laws of the Registrant defining the rights
of holders of shares of the Registrant.**
(e) --Form of Dividend Reinvestment Plan
(f) --Not applicable
(g) --Form of Investment Advisory Agreement between
the Fund and Fund Asset Management, L.P.
(h)(1) --Form of Purchase Agreement
(2) --Merrill Lynch Standard Dealer Agreement
(i) --Not applicable
(j) --Custodian Contract between the Fund and The
Chase Manhattan Bank, N.A.*
(k) --Registrar, Transfer Agency and Service Agreement
between the Fund and State Street Bank and Trust
Company*
(l) --Opinion and Consent of Brown & Wood, counsel to
the Fund*
(m) --Not applicable
--Consent of independent auditors for the
(n) Fund*
(o) --Not applicable
(p) --Certificate of Fund Asset Management, L.P.*
(q) --Not applicable
- --------
* To be filed by amendment.
** Reference is made to Article V, Article VI (sections 2, 3, 4, 5 and 6),
Article VII, Article VIII, Article IX, Article X, Article XI, Article XII
and Article XIII of the Registrant's Articles of Incorporation, filed as
Exhibit (a) to the Registration Statement; and to Article II, Article III
(sections 1, 3, 5 and 17), Article VI, Article VII, Article XIII and Article
XIV of the Registrant's By-Laws, filed as Exhibit (b) to the Registration
Statement.
C-1
<PAGE>
ITEM 25. MARKETING ARRANGEMENTS.
See Exhibit (h).
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses to be incurred in
connection with the offering described in this Registration Statement:
<TABLE>
<S> <C>
Registration Fees.................................................... $ *
Stock Exchange listing fee........................................... *
Printing (other than stock certificates)............................. *
Engraving and printing stock certificates............................ *
Fees and expenses of qualifications under state securities laws (in-
cluding
fees of counsel).................................................... *
Legal fees and expenses.............................................. *
Accounting fees and expenses......................................... *
NASD fees............................................................ *
Miscellaneous ....................................................... *
---
Total.............................................................. $ *
===
</TABLE>
--------
* To be provided by amendment.
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
The information in the Prospectus under the caption "Investment Advisory and
Management Arrangements" and in Note l to the Statement of Assets, Liabilities
and Capital is incorporated herein by reference.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES.
There will be one record holder of the Common Stock, par value $.10 per
share, as of the effective date of this Registration Statement.
ITEM 29. INDEMNIFICATION.
Section 2-418 of the General Corporation Law of the State of Maryland,
Article VI of the Fund's Articles of Incorporation, Article VI of the Fund's
By-Laws and the Investment Advisory Agreement to be filed as Exhibit (g)
provide for indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be provided to directors, officers and controlling persons of the
Fund, pursuant to the foregoing provisions or otherwise, the Fund has been
advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Fund of expenses incurred or
paid by a director, officer or controlling person of the Fund in connection
with any successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the Fund will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
C-2
<PAGE>
Reference is made to Section Six of the Purchase Agreement, a form of which
is filed as Exhibit (h) (l) hereto, for provisions relating to the
indemnification of the underwriter.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER.
Fund Asset Management, L.P. (the "Investment Adviser"), acts as investment
adviser for the following registered investment companies: Apex Municipal Fund,
Inc., CBA Money Fund, CMA Government Securities Fund, CMA Money Fund, CMA
Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The
Corporate Fund Accumulation Program, Inc., Corporate High Yield Fund, Inc.,
Corporate High Yield Fund II, Inc., Emerging Tigers Fund, Inc., Financial
Institutions Series Trust, Income Opportunities Fund 1999, Inc., Income
Opportunities Fund 2000, Inc., Merrill Lynch Basic Value Fund, Inc., Merrill
Lynch California Municipal Series Trust, Merrill Lynch Corporate Bond Fund,
Inc., Merrill Lynch Federal Securities Trust, Merrill Lynch Funds for
Institutions Series, Merrill Lynch Institutional Tax-Exempt Fund, Merrill Lynch
Multi-State Municipal Series Trust, Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust, Merrill Lynch Municipal Bond Fund, Inc., Merrill Lynch
Phoenix Fund, Inc., Merrill Lynch Special Value Fund, Inc., Merrill Lynch World
Income Fund, Inc., MuniAssets Fund, Inc., MuniBond Income Fund, Inc., The
Municipal Fund Accumulation Program, Inc., MuniEnhanced Fund, Inc., MuniInsured
Fund, Inc., MuniVest California Insured Fund, Inc., MuniVest Florida Fund,
MuniVest Fund, Inc., MuniVest Fund II, Inc., MuniVest Michigan Insured Fund,
Inc., MuniVest New Jersey Fund, Inc., MuniVest New York Insured Fund, Inc.,
MuniVest Pennsylvania Insured Fund, MuniYield Arizona Fund, Inc., MuniYield
Arizona Fund II, Inc., MuniYield California Fund, Inc., MuniYield California
Insured Fund, Inc., MuniYield California Insured Fund II, Inc., MuniYield
Florida Fund, MuniYield Florida Insured Fund, MuniYield Fund, Inc., MuniYield
Insured Fund, Inc., MuniYield Insured Fund II, Inc., MuniYield Michigan Fund,
Inc., MuniYield Michigan Insured Fund, Inc., MuniYield New Jersey Fund, Inc.,
MuniYield New Jersey Insured Fund, Inc., MuniYield New York Insured Fund, Inc.,
MuniYield New York Insured Fund II, Inc., MuniYield New York Insured Fund III,
Inc., MuniYield Pennsylvania Fund, MuniYield Quality Fund, Inc., MuniYield
Quality Fund II, Inc., Senior High Income Portfolio, Inc., Senior High Income
Portfolio II, Inc., Taurus MuniCalifornia Holdings, Inc., Taurus MuniNewYork
Holdings, Inc. and Worldwide DollarVest Fund, Inc. The address of each of these
investment companies is Box 9011, Princeton, New Jersey 08543-9011, except that
the address of Merrill Lynch Funds for Institutions Series and Merrill Lynch
Institutional Tax-Exempt Fund is One Financial Center, 15th Floor, Boston,
Massachusetts 02111-2646. The address of the Investment Adviser and its
affiliate, Merrill Lynch Asset Management, L.P. ("MLAM"), also is Box 9011,
Princeton, New Jersey 08543-9011. The address of Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("Merrill Lynch") and Merrill Lynch & Co., Inc. ("ML &
Co.") is North Tower, World Financial Center, 250 Vesey Street, New York, New
York 10281-1213.
Set forth below is a list of each executive officer and partner of the
Investment Adviser indicating each business, profession, vocation or employment
of a substantial nature in which each such person or entity has been engaged
for the past two years for his own account or in the capacity of director,
officer, employee, partner or trustee. In addition, Mr. Zeikel is President,
Mr. Richard is Treasurer and Mr. Glenn is Executive Vice President of all or
substantially all of the investment companies described in the preceding
paragraph and also hold the same positions with all or substantially all of the
investment companies advised by MLAM as they do with those advised by the
Investment Adviser. Messrs. Durnin, Giordano, Harvey, Hewitt and Monagle are
directors or officers of one or more of such companies.
C-3
<PAGE>
Officers and Partners of FAM are set forth below as follows:
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL
POSITION(S) WITH THE BUSINESS, PROFESSION,
NAME INVESTMENT ADVISER VOCATION OR EMPLOYMENT
---- -------------------- ----------------------
<S> <C> <C>
Financial Services Holding
ML & Co. ............... Limited Partner Company
Fund Asset Management,
Inc. .................. Limited Partner Investment Advisory Services
Princeton Services, Inc.
("Princeton Services"). General Partner General Partner of MLAM
Arthur Zeikel........... President President and Director of MLAM;
President and Director of
Princeton Services; Director of
Merrill Lynch Funds Distributor,
Inc. ("MLFD");
Executive Vice President of ML &
Co.; Executive Vice President of
Merrill Lynch
Terry K. Glenn.......... Executive Vice President and Executive Vice President of MLAM;
Director Executive Vice President and
Director of Princeton Services;
President and Director of MLFD;
President of Princeton
Administrators, L.P., Director of
Financial Data Services, Inc.
Bernard J. Durnin....... Senior Vice President Senior Vice President of MLAM;
Senior Vice President of
Princeton Services
Vincent R. Giordano..... Senior Vice President Senior Vice President of MLAM;
Senior Vice President of
Princeton Services
Elizabeth Griffin....... Senior Vice President Senior Vice President of MLAM
Norman R. Harvey........ Senior Vice President Senior Vice President of MLAM;
Senior Vice President of
Princeton Services
N. John Hewitt.......... Senior Vice President Senior Vice President of MLAM;
Senior Vice President of
Princeton Services
Philip L. Kirstein...... Senior Vice President, General Senior Vice President, General
Counsel and Secretary Counsel and Secretary of MLAM;
Senior Vice President, General
Counsel, Director of Princeton
Services; Director of MLFD
</TABLE>
C-4
<PAGE>
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL
POSITION(S) WITH THE BUSINESS, PROFESSION,
NAME INVESTMENT ADVISER VOCATION OR EMPLOYMENT
---- -------------------- ----------------------
<S> <C> <C>
Ronald M. Kloss......... Senior Vice President and Controller Senior Vice President and
Controller of MLAM; Senior Vice
President and Controller of
Princeton Services
Joseph T. Monagle....... Senior Vice President Senior Vice President of MLAM;
Senior Vice President of
Princeton Services
Gerald M. Richard....... Senior Vice President and Treasurer Senior Vice President and
Treasurer of MLAM; Senior Vice
President and Treasurer of
Princeton Services; Vice
President and Treasurer of MLFD
Richard L. Rufener...... Senior Vice President Senior Vice President of MLAM;
Senior Vice President of
Princeton Services; Vice
President of MLFD
Ronald L. Welburn....... Senior Vice President Senior Vice President of MLAM;
Senior Vice President of
Princeton Services
Anthony Wiseman......... Senior Vice President Senior Vice President of MLAM;
Senior Vice President of
Princeton Services
</TABLE>
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by Section
31 (a) of the Investment Company Act of 1940 and the rules promulgated
thereunder are maintained at the offices of the Registrant (800 Scudders Mill
Road, Plainsboro, New Jersey 08536), its investment adviser (800 Scudders Mill
Road, Plainsboro, New Jersey 08536), and its custodian (4 MetroTech Center,
18th Floor, Brooklyn, NY 11245) and transfer agent (Two Heritage Drive, Quincy,
Massachusetts 02171).
ITEM 32. MANAGEMENT SERVICES.
Not applicable.
ITEM 33. UNDERTAKINGS.
(a) Registrant undertakes to suspend offering of the shares of Common Stock
covered hereby until it amends its Prospectus contained herein if (1)
subsequent to the effective date of this Registration Statement, its net asset
value per share of Common Stock declines more than 10 percent from its net
asset value per share of Common Stock as of the effective date of this
Registration Statement, or (2) its net asset value per share of Common Stock
increases to an amount greater than its net proceeds as stated in the
Prospectus contained herein.
(b) Registrant undertakes that:
(1) For the purpose of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of a registration statement in reliance upon Rule 430A
C-5
<PAGE>
and contained in the form of prospectus filed by the Registrant pursuant to
Rule 497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
C-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE INVESTMENT
COMPANY ACT OF 1940, THE REGISTRANT HAS DULY CAUSED THIS AMENDMENT TO ITS
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO
DULY AUTHORIZED, IN THE CITY OF PLAINSBORO AND STATE OF NEW JERSEY, ON THE 7TH
DAY OF APRIL, 1994.
Emerging Americas Fund, Inc.
(Registrant)
/s/ Mark B. Goldfus
By: ________________________________
(MARK B.GOLDFUS, PRESIDENT)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND
ON THE DATE(S) INDICATED.
SIGNATURES TITLE DATE
---------- ----- ----
/s/ Mark B. Goldfus President (Principal
- ------------------------------------- Executive Officer) April 7, 1994
(MARK B. GOLDFUS) and Director
Treasurer (Principal
Robert Harris* Financial and
- ------------------------------------- Accounting Officer)
(ROBERT HARRIS) and Director
Secretary and
Michael J. Hennewinkel* Director
- -------------------------------------
(MICHAEL J. HENNEWINKEL)
/s/ Mark B. Goldfus
*By: __________________________ April 7, 1994
(MARK B.GOLDFUS, PRESIDENT)
(ATTORNEY-IN-FACT)
C-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
-------- ----
<C> <S> <C>
99(a)(1) --Articles of Incorporation
99(a)(2) --Amendment of Articles of Incorporation (Changing Name)
99(b) --Form of By-Laws
99(e) --Form of Dividend Reinvestment Plan
99(g) --Form of Investment Advisory Agreement between the Fund and
Fund Asset Management, L.P.
99(h)(1) --Form of Purchase Agreement
99(h)(2) --Merrill Lynch Standard Dealer Agreement
</TABLE>
<PAGE>
ARTICLES OF INCORPORATION
EMERGING AMERICA FUND, INC.
ARTICLE I
THE UNDERSIGNED, Jason M.Barnett, whose post-office address
is Brown & Wood, One World Trade Center, New York, New York
10048-0557, being at least eighteen (18) years of age, does
hereby act as an incorporator, under and by virtue of the
General Laws of the State of Maryland authorizing the formation
of corporations and with the intention of forming a corporation.
ARTICLE II
NAME
The name of the corporation is EMERGING AMERICA FUND, INC.
(the "Corporation").
ARTICLE III
PURPOSES AND POWERS
The purpose or purposes for which the Corporation is formed
is to act as a closed-end, management investment company under
the Investment Company Act of 1940, as amended, and to exercise
and enjoy all of the powers, rights and privileges granted to,
or conferred upon, corporations by the General Laws of the State
of Maryland now or hereafter in force.
<PAGE>
ARTICLE IV
PRINCIPAL OFFICE AND RESIDENT AGENT
The post office address of the principal office of the
Corporation in the State of Maryland is c/o The Corporation
Trust Incorporated, 32 South Street, Baltimore, Maryland
21202. The name of the resident agent of the Corporation in
this State is The Corporation Trust Incorporated, a corporation
of this State, and the post office address of the resident agent
is 32 South Street, Baltimore, Maryland 21202.
ARTICLE V
CAPITAL STOCK
(1) The total number of shares of capital stock which the
Corporation shall have authority to issue is Two Hundred Million
(200,000,000) shares, all of one class called Common Stock, of
the par value of Ten Cents ($0.10) per share and of the
aggregate par value of Twenty Million Dollars ($20,000,000).
(2) The Board of Directors may classify and reclassify any
unissued shares of capital stock into one or more additional or
other classes or series as may be established from time to time
by setting or changing in any one or more respects the
designations, preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends,
qualifications or terms or conditions of redemption of such
shares of stock and pursuant to such classification or
reclassification to increase
2
<PAGE>
or decrease the number of authorized shares of any existing class
or series.
(3) Unless otherwise expressly provided in the charter of
the Corporation, including any Articles Supplementary creating
any class or series of capital stock, the holders of each class
or series of capital stock shall be entitled to dividends and
distributions in such amounts and at such times as may be
determined by the Board of Directors, and the dividends and
distributions paid with respect to the various classes or series
of capital stock may vary among such classes and series.
(4) Unless otherwise expressly provided in the charter of
the Corporation, including any Articles Supplementary creating
any class or series of capital stock, on each matter submitted
to a vote of stockholders, each holder of a share of capital
stock of the Corporation shall be entitled to one vote for each
share standing in such holder's name on the books of the
Corporation, irrespective of the class or series thereof, and
all shares of all classes and series shall vote together as a
single class; provided, however, that as to any matter with
respect to which a separate vote of any class or series is
required by the Investment Company Act of 1940, as amended, and
in effect from time to time, or any rules, regulations or orders
issued thereunder, or the Maryland General Corporation Law, such
requirement as to a separate vote by that class or series shall
apply in addition to a general vote of all classes and series as
described above.
3
<PAGE>
(5) Notwithstanding any provision of the Maryland General
Corporation Law requiring a greater proportion than a majority
of the votes of all classes or series of capital stock of the
Corporation (or of any class or series entitled to vote thereon
as a separate class or series) to take or authorize any action,
the Corporation is hereby authorized (subject to the
requirements of the Investment Company Act of 1940, as amended,
and in effect from time to time, and any rules, regulations and
orders issued thereunder) to take such action upon the
concurrence of a majority of the aggregate number of shares of
capital stock of the Corporation entitled to vote thereon (or a
majority of the aggregate number of shares of a class or series
entitled to vote thereon as a separate class or series).
(6) Unless otherwise expressly provided in the charter of
the Corporation, including any Articles Supplementary creating
any class or series of capital stock, in the event of any
liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, the holders of all classes and
series of capital stock of the Corporation shall be entitled,
after payment or provision for payment of the debts and other
liabilities of the Corporation, to share ratably in the
remaining net assets of the Corporation.
(7) Any fractional shares shall carry proportionately all
of the rights of a whole share, excepting any right to receive a
certificate evidencing such fractional share, but including,
4
<PAGE>
without limitation, the right to vote and the right to receive
dividends.
(8) All persons who shall acquire stock in the Corporation
shall acquire the same subject to the provisions of the charter
and the By-Laws of the Corporation. As used in the charter of
the Corporation, the terms "charter" and "Articles of
Incorporation" shall mean and include the Articles of
Incorporation of the Corporation as amended, supplemented and
restated from time to time by Articles of Amendment, Articles
Supplementary, Articles of Restatement or otherwise.
ARTICLE VI
PROVISIONS FOR DEFINING, LIMITING AND
REGULATING CERTAIN POWERS OF THE
CORPORATION AND OF THE DIRECTORS
AND STOCKHOLDERS
(1) The number of directors of the Corporation shall be
three (3), which number may be changed pursuant to the By-Laws
of the Corporation but shall never be less than three (3). The
names of the directors who shall act until the first annual
meeting or until their successors are duly elected and qualify
are:
Mark B. Goldfus
Robert Harris
Michael J. Hennewinkel
(2) The Board of Directors of the Corporation is hereby
empowered to authorize the issuance from time to time of shares
of capital stock, whether now or hereafter authorized, for such
consideration as the Board of Directors may deem advisable,
5
<PAGE>
subject to such limitations as may be set forth in these
Articles of Incorporation or in the By-Laws of the Corporation
or in the General Laws of the State of Maryland.
(3) Each director and each officer of the Corporation
shall be indemnified by the Corporation to the full extent
permitted by the General Laws of the State of Maryland, subject
to the requirements of the Investment Company Act of 1940, as
amended. No amendment of these Articles of Incorporation or
repeal of any provision hereof shall limit or eliminate the
benefits provided to directors and officers under this provision
in connection with any act or omission that occurred prior to
such amendment or repeal.
(4) To the fullest extent permitted by the General Laws of
the State of Maryland, subject to the requirements of the
Investment Company Act of 1940, as amended, no director or
officer of the Corporation shall be personally liable to the
Corporation or its security holders for money damages. No
amendment of these Articles of Incorporation or repeal of any
provision hereof shall limit or eliminate the benefits provided
to directors and officers under this provision in connection
with any act or omission that occurred prior to such amendment
or repeal.
(5) The Board of Directors of the Corporation may make,
alter or repeal from time to time any of the By-Laws of the
Corporation except any particular By-Law which is specified as
not subject to alteration or repeal by the Board of Directors,
6
<PAGE>
subject to the requirements of the Investment Company Act of
1940, as amended.
(6) A director elected by the holders of capital stock may
be removed (with or without cause), but only by action taken by
the holders of at least sixty-six and two-thirds percent
(66 2/3%) of the shares of capital stock then entitled to vote
in an election to fill that directorship.
ARTICLE VII
DENIAL OF PREEMPTIVE RIGHTS
No stockholder of the Corporation shall by reason of his or
her holding shares of capital stock have any preemptive or
preferential right to purchase or subscribe to any shares of
capital stock of the Corporation, now or hereafter to be
authorized, or any notes, debentures, bonds or other securities
convertible into shares of capital stock, now or hereafter to be
authorized, whether or not the issuance of any such shares, or
notes, debentures, bonds or other securities would adversely
affect the dividend or voting rights of such stockholder; and
the Board of Directors may issue shares of any class of the
Corporation, or any notes, debentures, bonds, other securities
convertible into shares of any class, either whole or in part,
to the existing stockholders.
7
<PAGE>
ARTICLE VIII
DETERMINATION BINDING
Any determination made in good faith, so far as accounting
matters are involved, in accordance with accepted accounting
practice by or pursuant to the direction of the Board of
Directors, as to the amount of assets, obligations or
liabilities of the Corporation, as to the amount of net income
of the Corporation from dividends and interest for any period or
amounts at any time legally available for the payment of
dividends, as to the amount of any reserves or charges set up
and the propriety thereof, as to the time of or purpose for
creating reserves or as to the use, alteration or cancellation
of any reserves or charges (whether or not any obligation or
liability for which such reserves or charges shall have been
created, shall have been paid or discharged or shall be then or
thereafter required to be paid or discharged), as to the price
of any security owned by the Corporation or as to any other
matters relating to the issuance, sale, redemption or other
acquisition or disposition of securities or shares of capital
stock of the Corporation, and any reasonable determination made
in good faith by the Board of Directors as to whether any
transaction constitutes a purchase of securities on "margin," a
sale of securities "short," or an underwriting of the sale of,
or a participation in any underwriting or selling group in
connection with the public distribution of, any securities,
shall be final and conclusive, and shall be binding upon the
Corporation and all holders of its
8
<PAGE>
capital stock, past, present and future, and shares of the
capital stock of the Corporation are issued and sold on the
condition and understanding, evidenced by the purchase of shares
of capital stock or acceptance of stock certificates, that any
and all such determinations shall be binding as aforesaid. No
provision of these Articles of Incorporation shall be effective
to (a) require a waiver of compliance with any provision of the
Securities Act of 1933, as amended, or the Investment Company Act
of 1940, as amended, or of any valid rule, regulation or order of
the Securities and Exchange Commission thereunder or (b) protect
or purport to protect any director or officer of the Corporation
against any liability to the Corporation or its security holders
to which he or she 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 or her
office.
ARTICLE IX
CONVERSION TO OPEN-END STATUS
Subject to the immediately following sentence, but
notwithstanding any other provisions of these Articles of
Incorporation or the By-Laws of the Corporation, or the General
Laws of the State of Maryland, the Board of Directors of the
Corporation shall submit to the stockholders, during the period
from April 1, 1996 through June 30, 1996, a proposed amendment to
these Articles of Incorporation to convert the Corporation from a
9
<PAGE>
"closed-end company" to an "open-end company" (as defined in
Sections 5(a)(2) and 5(a)(1), respectively, of the Investment
Company Act of 1940, as amended), such proposed amendment to
include but not be limited to making the Common Stock a
"redeemable security" (as that term is defined in Section
2(a)(32) of the Investment Company Act of 1940, as amended),
which proposed amendment shall require the affirmative vote or
consent of a majority of the outstanding shares of capital stock
of the Corporation entitled to be voted on the matter in order to
be approved, adopted or authorized. Notwithstanding the
immediately preceding sentence, the Board of Directors of the
Corporation shall have the discretion not to submit to the
stockholders, during the period January 1, 1996 through March 31,
1996, a proposed amendment to these Articles of Incorporation to
convert the Corporation from a closed-end company to an open-end
company, if in the Board's discretion, such proposed amendment
would not be in the best interests of the stockholders; provided,
however, that if the Board of Directors, in its discretion,
submits to the stockholders at a later time a proposed amendment
to these Articles of Incorporation to convert the Corporation
from a closed-end company to an open-end company, the stockholder
voting requirements of the preceding sentence shall nevertheless
apply.
10
<PAGE>
ARTICLE X
PERPETUAL EXISTENCE
The duration of the Corporation shall be perpetual.
ARTICLE XI
PRIVATE PROPERTY OF STOCKHOLDERS
The private property of stockholders shall not be subject
to the payment of corporate debts to any extent whatsoever.
ARTICLE XII
MERGER, SALE OF ASSETS, LIQUIDATION
Notwithstanding any other provisions of these Articles of
Incorporation or the By-Laws of the Corporation, a favorable
vote of the holders of at least sixty-six and two-thirds percent
(66 2/3%) of the outstanding shares of capital stock of the
Corporation entitled to be voted on the matter shall be required
to approve, adopt or authorize (i) a merger or consolidation or
statutory share exchange of the Corporation with any other
corporation, (ii) a sale of all or substantially all of the
assets of the Corporation (other than in the regular course of
its investment activities), or (iii) a liquidation or
dissolution of the Corporation, unless such action previously
has been approved, adopted or authorized by the affirmative vote
of at least two-thirds of the total number of directors fixed in
11
<PAGE>
accordance with the By-Laws of the Corporation, in which case
the affirmative vote of the holders of a majority of the
outstanding shares of capital stock of the Corporation entitled
to vote thereon shall be required.
ARTICLE XIII
AMENDMENT
The Corporation reserves the right to amend, alter, change
or repeal any provision contained in these Articles of
Incorporation, in the manner now or hereafter prescribed by
statute, including any amendment which alters the contract
rights, as expressly set forth in the charter, of any outstanding
stock and substantially adversely affects the stockholders'
rights and all rights conferred upon stockholders herein are
granted subject to this reservation. Notwithstanding any other
provisions of these Articles of Incorporation or the By-Laws of
the Corporation (and notwithstanding the fact that a lesser
percentage may be specified by law, these Articles of
Incorporation or the By-Laws of the Corporation) the amendment or
repeal of Section (5) of Article V, Section (1), Section (3),
Section (4), Section (5) and Section (6) of Article VI, Article
IX, Article X, Article XI, Article XII, or this Article XIII, of
these Articles of Incorporation shall require the affirmative
vote of the holders of at least sixty-six and two-thirds percent
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(66 2/3%) of the outstanding shares of capital stock of the
Corporation entitled to be voted on the matter.
IN WITNESS WHEREOF, the undersigned incorporator of
Emerging Tigers Fund, Inc. hereby executes the foregoing
Articles of Incorporation and acknowledges the same to be his
act and further acknowledges that, to the best of his knowledge,
the matters and facts set forth therein are true in all material
respects under the penalties of perjury.
Dated the 23th day
of February, 1994.
/s/ Jason M. Barnett
Jason M. Barnett
13
<PAGE>
Emerging America Fund, Inc.
ARTICLES OF AMENDMENT
Emerging America Fund, Inc., a Maryland corporation having its principal
office in Baltimore, Maryland (hereinafter called the "Corporation"), hereby
certifies to the State Department of Assessments and Taxation of Maryland, that:
FIRST: The charter of the Corporation as hereby amended by striking out
Article II of the Articles of Incorporation and inserting in lieu thereof the
following:
"Article II
NAME
----
The name of the Corporation is Emerging Americas Fund, Inc."
SECOND: The Board of Directors of the Corporation at a meeting held on
March 15, 1994 duly adopted a resolution in which was set forth the foregoing
amendment to the charter.
THIRD: The remaining Articles of the charter shall remain in full force
and effect.
FOURTH: The amendment of the charter of the Corporation as hereinabove
set forth has been duly advised, approved and adopted by the Board of Directors
of the Corporation there being no stock outstanding or subscribed for at the
time of approval.
<PAGE>
FIFTH: The authorized capital stock of the Corporation has not been
increased by these Articles of Amendment.
IN WITNESS WHEREOF, the officers of Emerging America Fund, Inc. who
executed on behalf of said corporation these Articles of Amendment hereby
acknowledge, in the name and on behalf of said corporation, these Articles of
Amendment to be the corporate act of said corporation and further certify, under
the penalties of perjury that, to the best of their knowledge, information and
belief, the matters and facts set forth therein with respect to the approval
thereof are true in all material respects, all on this 16th day of March 1994.
Emerging America Fund, Inc.
/s/ Mark B. Goldfus
----------------------------
Mark B. Goldfus
President
Attest:
/s/ Michael J. Hennewinkel
- --------------------------
Michael J. Hennewinkel
Secretary
<PAGE>
BY-LAWS
OF
EMERGING AMERICAS FUND, INC.
ARTICLE I
Offices
Section 1. Principal Office. The principal office of the
Corporation shall be in the City of Baltimore, State of Maryland.
Section 2. Principal Executive Office. The principal
executive office of the Corporation shall be at 800 Scudders Mill
Road, Plainsboro, New Jersey 08536.
Section 3. Other Offices. The Corporation may have such
other offices in such places as the Board of Directors may from
time to time determine.
ARTICLE II
Meetings of Stockholders
Section 1. Annual Meeting. The annual meeting of the
stockholders of the Corporation for the election of directors and
for the transaction of such other business as may properly be
brought before the meeting shall be held on such day in May of
each year as shall be designated annually by the Board of
Directors.
Section 2. Special Meetings. Special meetings of the
stockholders, unless otherwise provided by law or by the Charter,
<PAGE>
may be called for any purpose or purposes by a majority of the
Board of Directors, the President, or on the written request of
the holders of the outstanding shares of capital stock of the
Corporation entitled to vote at such meeting to the extent
permitted by Maryland law.
Section 3. Place of Meetings. The annual meeting and any
special meeting of the stockholders shall be held at such place
within the United States as the Board of Directors may from time
to time determine.
Section 4. Notice of Meetings; Waiver of Notice. Notice of
the place, date and time of the holding of each annual and
special meeting of the stockholders and the purpose or purposes
of each special meeting shall be given personally or by mail, not
less than ten nor more than ninety days before the date of such
meeting, to each stockholder entitled to vote at such meeting and
to each other stockholder entitled to notice of the meeting.
Notice by mail shall be deemed to be duly given when deposited in
the United States mail addressed to the stockholder at his
address as it appears on the records of the Corporation, with
postage thereon prepaid.
Notice of any meeting of stockholders shall be deemed waived
by any stockholder who shall attend such meeting in person or by
proxy, or who shall, either before or after the meeting, submit a
signed waiver of notice which is filed with the records of the
meeting. When a meeting is adjourned to another time and place,
unless the Board of Directors, after the adjournment, shall fix a
new record date for an adjourned meeting, or the adjournment is
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for more than one hundred and twenty days after the original
record date, notice of such adjourned meeting need not be given if
the time and place to which the meeting shall be adjourned were
announced at the meeting at which the adjournment is taken.
Section 5. Quorum. At all meetings of the stockholders,
the holders of a majority of the shares of stock of the
Corporation entitled to vote at the meeting, present in person or
by proxy, shall constitute a quorum for the transaction of any
business, except as otherwise provided by statute or by the
Charter. In the absence of a quorum no business may be
transacted, except that the holders of a majority of the shares
of stock present in person or by proxy and entitled to vote may
adjourn the meeting from time to time, without notice other than
announcement thereat except as otherwise required by these
ByLaws, until the holders of the requisite amount of shares of
stock shall be so present. At any such adjourned meeting at
which a quorum may be present any business may be transacted
which might have been transacted at the meeting as originally
called. The absence from any meeting, in person or by proxy, of
holders of the number of shares of stock of the Corporation in
excess of a majority thereof which may be required by the laws
of the State of Maryland, the Investment Company Act of 1940, as
amended, or other applicable statute, the Charter, or these
By-Laws, for action upon any given matter shall not prevent
action at such meeting upon any other matter or matters which
may properly come before the meeting, if there shall be present
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thereat, in person or by proxy, holders of the number of shares
of stock of the Corporation required for action in respect of
such other matter or matters.
Section 6. Organization. At each meeting of the
stockholders, the Chairman of the Board (if one has been
designated by the Board), or in his absence or inability to act,
the President, or in the absence or inability to act of the
Chairman of the Board and the President, a Vice President, shall
act as chairman of the meeting. The Secretary, or in his absence
or inability to act, any person appointed by the chairman of the
meeting, shall act as secretary of the meeting and keep the
minutes thereof.
Section 7. Order of Business. The order of business at all
meetings of the stockholders shall be as determined by the
chairman of the meeting.
Section 8. Voting. Except as otherwise provided by statute
or the Charter, each holder of record of shares of stock of the
Corporation having voting power shall be entitled at each meeting
of the stockholders to one vote for every share of such stock
standing in his name on the record of stockholders of the
Corporation as of the record date determined pursuant to Section 9
of this Article or if such record date shall not have been so
fixed, then at the later of (i) the close of business on the day
on which notice of the meeting is mailed or (ii) the thirtieth day
before the meeting.
Each stockholder entitled to vote at any meeting of
stockholders may authorize another person or persons to act for
him by
4
<PAGE>
a proxy signed by such stockholder or his attorney-in-fact.
No proxy shall be valid after the expiration of eleven months from
the date thereof, unless otherwise provided in the proxy. Every
proxy shall be revocable at the pleasure of the stockholder
executing it, except in those cases where such proxy states that
it is irrevocable and where an irrevocable proxy is permitted by
law. Except as otherwise provided by statute, the Charter or these
By-Laws, any corporate action to be taken by vote of the
stockholders (other than the election of directors, which shall be
by a plurality of votes cast) shall be authorized by a majority of
the total votes cast at a meeting of stockholders by the holders
of shares present in person or represented by proxy and entitled
to vote on such action.
If a vote shall be taken on any question other than the
election of directors, which shall be by written ballot, then
unless required by statute or these By-Laws, or determined by the
chairman of the meeting to be advisable, any such vote need not be
by ballot. On a vote by ballot, each ballot shall be signed by the
stockholder voting, or by his proxy, if there be such proxy, and
shall state the number of shares voted.
Section 9. Fixing of Record Date. The Board of Directors may
set a record date for the purpose of determining stockholders
entitled to vote at any meeting of the stockholders. The record
date, which may not be prior to the close of business on the day
the record date is fixed, shall be not more than ninety nor less
than ten days before the date of the meeting of the stockholders.
5
<PAGE>
All persons who were holders of record of shares at such time, and
not others, shall be entitled to vote at such meeting and any
adjournment thereof.
Section 10. Inspectors. The Board may, in advance of any
meeting of stockholders, appoint one or more inspectors to act at
such meeting or any adjournment thereof. If the inspectors shall
not be so appointed or if any of them shall fail to appear or act,
the chairman of the meeting may, and on the request of any
stockholder entitled to vote thereat shall, appoint inspectors.
Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath to execute faithfully the duties of
inspector at such meeting with strict impartiality and according
to the best of his ability. The inspectors shall determine the
number of shares outstanding and the voting powers of each, the
number of shares represented at the meeting, the existence of a
quorum, the validity and effect of proxies, and shall receive
votes, ballots or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and
tabulate all votes, ballots or consents, determine the result, and
do such acts as are proper to conduct the election or vote with
fairness to all stockholders. On request of the chairman of the
meeting or any stockholder entitled to vote thereat, the
inspectors shall make a report in writing of any challenge,
request or matter determined by them and shall execute a
certificate of any fact found by them. No director or candidate
for the
6
<PAGE>
office of director shall act as inspector of an election
of directors. Inspectors need not be stockholders.
Section 11. Consent of Stockholders in Lieu of Meeting.
Except as otherwise provided by statute or the Charter, any action
required to be taken at any annual or special meeting of
stockholders, or any action which may be taken at any annual or
special meeting of such stockholders, may be taken without a
meeting, without prior notice and without a vote, if the following
are filed with the records of stockholders meetings: (i) a
unanimous written consent which sets forth the action and is
signed by each stockholder entitled to vote on the matter and (ii)
a written waiver of any right to dissent signed by each
stockholder entitled to notice of the meeting but not entitled to
vote thereat.
ARTICLE III
Board of Directors
Section 1. General Powers. Except as otherwise provided in
the Charter, the business and affairs of the Corporation shall be
managed under the direction of the Board of Directors. All powers
of the Corporation may be exercised by or under authority of the
Board of Directors except as conferred on or reserved to the
stockholders by law or by the Charter or these By-Laws.
Section 2. Number of Directors. The number of directors
shall be fixed from time to time by resolution of the Board of
Directors adopted by a majority of the Directors then in office;
7
<PAGE>
provided, however, that the number of directors shall in no event
be less than three nor more than fifteen. Any vacancy created by
an increase in Directors may be filled in accordance with Section
6 of this Article III. No reduction in the number of directors
shall have the effect of removing any director from office prior
to the expiration of his term unless such director is specifically
removed pursuant to Section 5 of this Article III at the time of
such decrease. Directors need not be stockholders.
Section 3. Election and Term of Directors. Directors shall
be elected annually, by written ballot at the annual meeting of
stockholders, or a special meeting held for that purpose. The term
of office of each director shall be from the time of his election
and qualification until the annual election of directors next
succeeding his election and until his successor shall have been
elected and shall have qualified, or until his death, or until he
shall have resigned, or until December 31 of the year in which he
shall have reached seventy-two years of age, or until he shall
have been removed as hereinafter provided in these By-Laws, or as
otherwise provided by statute or the Charter.
Section 4. Resignation. A director of the Corporation may
resign at any time by giving written notice of his resignation to
the Board or the Chairman of the Board or the President or the
Secretary. Any such resignation shall take effect at the time
specified therein or, if the time when it shall become effective
shall not be specified therein, immediately upon its receipt;
8
<PAGE>
and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Section 5. Removal of Directors. Any director of the
Corporation may be removed (with or without cause) by the
stockholders by a vote of sixty-six and two-thirds percent (66
2/3%) of the outstanding shares of capital stock then entitled to
vote in the election of such director.
Section 6. Vacancies. Subject to the provisions of the
Investment Company Act of 1940, as amended, any vacancies in the
Board, whether arising from death, resignation, removal, an
increase in the number of directors or any other cause, shall be
filled by a vote of a majority of the Board of Directors then in
office, regardless of whether they constitute a quorum.
Section 7. Place of Meetings. Meetings of the Board may be
held at such place as the Board may from time to time determine or
as shall be specified in the notice of such meeting.
Section 8. Regular Meeting. Regular meetings of the Board
may be held without notice at such time and place as may be
determined by the Board of Directors.
Section 9. Special Meetings. Special meetings of the Board
may be called by two or more directors of the Corporation or by
the Chairman of the Board or the President.
Section 10. Telephone Meetings. Members of the Board of
Directors or of any committee thereof may participate in a meeting
by means of a conference telephone or similar communications
equipment if all persons participating in the meeting can
9
<PAGE>
hear each other at the same time. Subject to the provisions of the
Investment Company Act of 1940, as amended, participation in a
meeting by these means constitutes presence in person at the
meeting.
Section 11. Notice of Special Meetings. Notice of each
special meeting of the Board shall be given by the Secretary as
hereinafter provided, in which notice shall be stated the time and
place of the meeting. Notice of each such meeting shall be
delivered to each director, either personally or by telephone or
any standard form of telecommunication, at least twenty-four hours
before the time at which such meeting is to be held, or by
first-class mail, postage prepaid, addressed to him at his
residence or usual place of business, at least three days before
the day on which such meeting is to be held.
Section 12. Waiver of Notice of Meetings. Notice of any
special meeting need not be given to any director who shall,
either before or after the meeting, sign a written waiver of
notice which is filed with the records of the meeting or who shall
attend such meeting. Except as otherwise specifically required by
these By-Laws, a notice or waiver of notice of any meeting need
not state the purposes of such meeting.
Section 13. Quorum and Voting. One-third, but not less
than two, of the members of the entire Board shall be present in
person at any meeting of the Board in order to constitute a
quorum for the transaction of business at such meeting, and
except as otherwise expressly required by statute, the Charter,
10
<PAGE>
these By-Laws, the Investment Company Act of 1940, as amended,
or other applicable statute, the act of a majority of the
directors present at any meeting at which a quorum is present
shall be the act of the Board. In the absence of a quorum at
any meeting of the Board, a majority of the directors present
thereat may adjourn such meeting to another time and place until
a quorum shall be present thereat. Notice of the time and place
of any such adjourned meeting shall be given to the directors
who were not present at the time of the adjournment and, unless
such time and place were announced at the meeting at which the
adjournment was taken, to the other directors. At any adjourned
meeting at which a quorum is present, any business may be
transacted which might have been transacted at the meeting as
originally called.
Section 14. Organization. The Board may, by resolution
adopted by a majority of the entire Board, designate a Chairman of
the Board, who shall preside at each meeting of the Board. In the
absence or inability of the Chairman of the Board to preside at a
meeting, the President or, in his absence or inability to act,
another director chosen by a majority of the directors present,
shall act as chairman of the meeting and preside thereat. The
Secretary (or, in his absence or inability to act, any person
appointed by the Chairman) shall act as secretary of the meeting
and keep the minutes thereof.
Section 15. Written Consent of Directors in Lieu of a
Meeting. Subject to the provisions of the Investment Company Act
of 1940, as amended, any action required or permitted to be taken
11
<PAGE>
at any meeting of the Board of Directors or of any committee
thereof may be taken without a meeting if all members of the Board
or committee, as the case may be, consent thereto in writing, and
the writings or writing are filed with the minutes of the
proceedings of the Board or committee.
Section 16. Compensation. Directors may receive compensation
for services to the Corporation in their capacities as directors
or otherwise in such manner and in such amounts as may be fixed
from time to time by the Board.
Section 17. Investment Policies. It shall be the duty of
the Board of Directors to direct that the purchase, sale,
retention and disposal of portfolio securities and the other
investment practices of the Corporation are at all times
consistent with the investment policies and restrictions with
respect to securities investments and otherwise of the
Corporation, as recited in the Prospectus of the Corporation
included in the registration statement of the Corporation
relating to the initial public offering of its capital stock, as
filed with the Securities and Exchange Commission (or as such
investment policies and restrictions may be modified by the
Board of Directors, or, if required, by majority vote of the
stockholders of the Corporation in accordance with the
Investment Company Act of 1940, as amended) and as required by
the Investment Company Act of 1940, as amended. The Board
however, may delegate the duty of management of the assets and the
administration of its day to day operations to an individual or
12
<PAGE>
corporate management company and/or investment adviser
pursuant to a written contract or contracts which have obtained
the requisite approvals, including the requisite approvals of
renewals thereof, of the Board of Directors and/or the
stockholders of the Corporation in accordance with the
provisions of the Investment Company Act of 1940, as amended.
ARTICLE IV
Committees
Section 1. Executive Committee. The Board may, by resolution
adopted by a majority of the entire board, designate an Executive
Committee consisting of two or more of the directors of the
Corporation, which committee shall have and may exercise all the
powers and authority of the Board with respect to all matters
other than:
(a) the submission to stockholders of any action requiring
authorization of stockholders pursuant to statute or the Charter;
(b) the filling of vacancies on the Board of Directors;
(c) the fixing of compensation of the directors for
serving on the Board or on any committee of the Board, including
the Executive Committee;
(d) the approval or termination of any contract with an
investment adviser or principal underwriter, as such terms are
defined in the Investment Company Act of 1940, as amended, or
the taking of any other action required to be taken by the Board
of Directors by the Investment Company Act of 1940, as amended;
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(e) the amendment or repeal of these By-Laws or the
adoption of new By-Laws;
(f) the amendment or repeal of any resolution of the Board
which by its terms may be amended or repealed only by the Board;
(g) the declaration of dividends and except, to the extent
permitted by law, the issuance of capital stock of the
Corporation; and
(h) the approval of any merger or share exchange which
does not require stockholder approval.
The Executive Committee shall keep written minutes of its
proceedings and shall report such minutes to the Board. All
such proceedings shall be subject to revision or alteration by
the Board; provided, however, that third parties shall not be
prejudiced by such revision or alteration.
Section 2. Other Committees of the Board. The Board of
Directors may from time to time, by resolution adopted by a
majority of the whole Board, designate one or more other
committees of the Board, each such committee to consist of two or
more directors and to have such powers and duties as the Board
of Directors may, by resolution, prescribe.
Section 3. General. One-third, but not less than two, of
the members of any committee shall be present in person at any
meeting of such committee in order to constitute a quorum for the
transaction of business at such meeting, and the act of a
majority present shall be the act of such committee. The Board
may designate a chairman of any committee and such chairman or any
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two members of any committee may fix the time and place of
its meetings unless the Board shall otherwise provide. In the
absence or disqualification of any member of any committee, the
member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent
or disqualified member. The Board shall have the power at any
time to change the membership of any committee, to fill all
vacancies, to designate alternate members to replace any absent
or disqualified member, or to dissolve any such committee.
Nothing herein shall be deemed to prevent the Board from
appointing one or more committees consisting in whole or in part
of persons who are not directors of the Corporation; provided,
however, that no such committee shall have or may exercise any
authority or power of the Board in the management of the business
or affairs of the Corporation except as may be prescribed by the
Board.
ARTICLE V
Officers, Agents and Employees
Section 1. Number of Qualifications. The officers of the
Corporation shall be a President, who shall be a director of the
Corporation, a Secretary and a Treasurer, each of whom shall be
elected by the Board of Directors. The Board of Directors may
elect or appoint one or more Vice Presidents and may also appoint
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such other officers, agents and employees as it may deem
necessary or proper. Any two or more offices may be held by the
same person, except the offices of President and Vice President,
but no officer shall execute, acknowledge or verify any
instrument in more than one capacity. Such officers shall be
elected by the Board of Directors each year at its first meeting
held after the annual meeting of stockholders, each to hold
office until the next meeting of the stockholders and until his
successor shall have been duly elected and shall have qualified,
or until his death, or until he shall have resigned, or have
been removed, as hereinafter provided in these By-Laws. The
Board may from time to time elect, or delegate to the President
the power to appoint, such officers (including one or more
Assistant Vice Presidents, one or more Assistant Treasurers and
one or more Assistant Secretaries) and such agents, as may be
necessary or desirable for the business of the Corporation.
Such officers and agents shall have such duties and shall hold
their offices for such terms as may be prescribed by the Board
or by the appointing authority.
Section 2. Resignations. Any officer of the Corporation
may resign at any time by giving written notice of resignation
to the Board, the Chairman of the Board, President or the
Secretary. Any such resignation shall take effect at the time
specified therein or, if the time when it shall become effective
shall not be specified therein, immediately upon its receipt;
and, unless otherwise specified therein, the acceptance of such
resignation shall be necessary to make it effective.
16
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Section 3. Removal of Officer, Agent or Employee. Any
officer, agent or employee of the Corporation may be removed by
the Board of Directors with or without cause at any time, and
the Board may delegate such power of removal as to agents and
employees not elected or appointed by the Board of Directors.
Such removal shall be without prejudice to such person's
contract rights, if any, but the appointment of any person as an
officer, agent or employee of the Corporation shall not of
itself create contract rights.
Section 4. Vacancies. A vacancy in any office, whether
arising from death, resignation, removal or any other cause, may
be filled for the unexpired portion of the term of the office
which shall be vacant, in the manner prescribed in these By-Laws
for the regular election or appointment to such office.
Section 5. Compensation. The compensation of the officers
of the Corporation shall be fixed by the Board of Directors, but
this power may be delegated to any officer in respect of other
officers under his control.
Section 6. Bonds or Other Security. If required by the
Board, any officer, agent or employee of the Corporation shall
give a bond or other security for the faithful performance of
his duties, in such amount and with such surety or sureties as
the Board may require.
Section 7. President. The President shall be the chief
executive officer of the Corporation. In the absence of the
Chairman of the Board (or if there be none), he shall preside at
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all meetings of the stockholders and of the Board of Directors.
He shall have, subject to the control of the Board of Directors,
general charge of the business and affairs of the Corporation.
He may employ and discharge employees and agents of the
Corporation, except such as shall be appointed by the Board, and
he may delegate these powers.
Section 8. Vice President. Each Vice President shall have
such powers and perform such duties as the Board of Directors or
the President may from time to time prescribe.
Section 9. Treasurer. The Treasurer shall:
(a) have charge and custody of, and be responsible for,
all the funds and securities of the Corporation, except those
which the Corporation has placed in the custody of a bank or
trust company or member of a national securities exchange (as
that term is defined in the Securities Exchange Act of 1934, as
amended) pursuant to a written agreement designating such bank
or trust company or member of a national securities exchange as
custodian of the property of the Corporation;
(b) keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation;
(c) cause all moneys and other valuables to be deposited
to the credit of the Corporation;
(d) receive, and give receipts for, moneys due and
payable, to the Corporation from any source whatsoever;
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(e) disburse the funds of the Corporation and supervise
the investment of its funds as ordered or authorized by the
Board, taking proper vouchers therefor; and
(f) in general, perform all the duties incident to the
office of Treasurer and such other duties as from time to time
may be assigned to him by the Board or the President.
Section 10. Secretary. The Secretary shall:
(a) keep or cause to be kept in one or more books provided
for the purpose, the minutes of all meetings of the Board, the
committees of the Board and the stockholders;
(b) see that all notices are duly given in accordance with
the provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the
Corporation and affix and attest the seal to all stock
certificates of the Corporation (unless the seal of the
Corporation on such certificates shall be a facsimile, as
hereinafter provided) and affix and attest the seal to all other
documents to be executed on behalf of the Corporation under its
seal;
(d) see that the books, reports, statements, certificates
and other documents and records required by law to be kept and
filed are properly kept and filed; and
(e) in general, perform all the duties incident to the
office of Secretary and such other duties as from time to time
may be assigned to him by the Board or the President.
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Section 11. Delegation of Duties. In case of the absence
of any officer of the Corporation, or for any other reason that
the Board may deem sufficient, the Board may confer for the time
being the powers or duties, or any of them, of such officer upon
any other officer or upon any director.
ARTICLE VI
Indemnification
Each officer and director of the Corporation shall be
indemnified by the Corporation to the full extent permitted under
the General Laws of the State of Maryland, except that such
indemnity shall not protect any such person against any liability
to the Corporation or any stockholder thereof to which such
person would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his office. Absent a court
determination that an officer or director seeking indemnification
was not liable on the merits or guilty of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office, the decision by the
Corporation to indemnify such person must be based upon the
reasonable determination of independent legal counsel or the vote
of a majority of a quorum of the directors who are neither
"interested persons," as defined in Section 2(a)(19) of the
Investment Company Act of 1940, as amended, nor parties to the
proceeding ("non-party independent directors"), after review of
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the facts, that such officer or director is not guilty of willful
misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his office.
Each officer and director of the Corporation claiming
indemnification within the scope of this Article VI shall be
entitled to advances from the Corporation for payment of the
reasonable expenses incurred by him in connection with
proceedings to which he is a party in the manner and to the full
extent permitted under the General Laws of the State of
Maryland; provided, however, that the person seeking
indemnification shall provide to the Corporation a written
affirmation of his good faith belief that the standard of
conduct necessary for indemnification by the Corporation has
been met and a written undertaking to repay any such advance, if
it should ultimately be determined that the standard of conduct
has not been met, and provided further that at least one of the
following additional conditions is met: (a) the person seeking
indemnification shall provide a security in form and amount
acceptable to the Corporation for his undertaking; (b) the
Corporation is insured against losses arising by reason of the
advance; (c) a majority of a quorum of non-party independent
directors, or independent legal counsel in a written opinion
shall determine, based on a review of facts readily available to
the Corporation at the time the advance is proposed to be made,
that there is reason to believe that the person seeking
indemnification will ultimately be found to be entitled to
indemnification.
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The Corporation may purchase insurance on behalf of an
officer or director protecting such person to the full extent
permitted under the General Laws of the State of Maryland, from
liability arising from his activities as officer or director of
the Corporation. The Corporation, however, may not purchase
insurance on behalf of any officer or director of the
Corporation that protects or purports to protect such person
from liability to the Corporation or to its stockholders to which
such officer or director would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office.
The Corporation may indemnify or purchase insurance to the
extent provided in this Article VI on behalf of an employee or
agent who is not an officer or director of the Corporation.
ARTICLE VII
Capital Stock
Section 1. Stock Certificates. Each holder of stock of the
Corporation shall be entitled upon request to have a certificate
or certificates, in such form as shall be approved by the Board,
representing the number of shares of stock of the Corporation
owned by him, provided, however, that certificates for fractional
shares will not be delivered in any case. The certificates
representing shares of stock shall be signed by or in the name of
the Corporation by the President or a Vice President and by the
Secretary or an Assistant Secretary or the Treasurer or an
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Assistant Treasurer and sealed with the seal of the Corporation.
Any or all of the signatures or the seal on the certificate may
be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon
a certificate shall have ceased to be such officer, transfer
agent or registrar before such certificate shall be issued, it
may be issued by the Corporation with the same effect as if such
officer, transfer agent or registrar were still in office at the
date of issue.
Section 2. Books of Account and Record of Stockholders.
There shall be kept at the principal executive office of the
Corporation correct and complete books and records of account of
all the business and transactions of the Corporation. There
shall be made available upon request of any stockholder, in
accordance with Maryland law, a record containing the number of
shares of stock issued during a specified period not to exceed
twelve months and the consideration received by the Corporation
for each such share.
Section 3. Transfers of Shares. Transfers of shares of
stock of the Corporation shall be made on the stock records of
the Corporation only by the registered holder thereof, or by his
attorney thereunto authorized by power of attorney duly executed
and filed with the Secretary or with a transfer agent or transfer
clerk, and on surrender of the certificate or certificates, if
issued, for such shares properly endorsed or accompanied by a
duly executed stock transfer power and the payment of all taxes
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thereon. Except as otherwise provided by law, the Corporation
shall be entitled to recognize the exclusive right of a person in
whose name any share or shares stand on the record of
stockholders as the owner of such share or shares for all
purposes, including, without limitation, the rights to receive
dividends or other distributions, and to vote as such owner, and
the Corporation shall not be bound to recognize any equitable or
legal claim to or interest in any such share or shares on the
part of any other person.
Section 4. Regulations. The Board may make such
additional rules and regulations, not inconsistent with these
By-Laws, as it may deem expedient concerning the issue, transfer
and registration of certificates for shares of stock of the
Corporation. It may appoint, or authorize any officer or
officers to appoint, one or more transfer agents or one or more
transfer clerks and one or more registrars and may require all
certificates for shares of stock to bear the signature or
signatures of any of them.
Section 5. Lost, Destroyed or Mutilated Certificates. The
holder of any certificates representing shares of stock of the
Corporation shall immediately notify the Corporation of any
loss, destruction or mutilation of such certificate, and the
Corporation may issue a new certificate of stock in the place of
any certificate theretofore issued by it which the owner thereof
shall allege to have been lost or destroyed or which shall have
been mutilated, and the Board may, in its discretion, require
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such owner or his legal representatives to give to the
Corporation a bond in such sum, limited or unlimited, and in
such form and with such surety or sureties, as the Board in its
absolute discretion shall determine, to indemnify the
Corporation against any claim that may be made against it on
account of the alleged loss or destruction of any such
certificate, or issuance of a new certificate. Anything herein
to the contrary notwithstanding, the Board, in its absolute
discretion, may refuse to issue any such new certificate, except
pursuant to legal proceedings under the laws of the State of
Maryland.
Section 6. Fixing of a Record Date for Dividends and
Distributions. The Board may fix, in advance, a date not more
than ninety days preceding the date fixed for the payment of any
dividend or the making of any distribution or the allotment of
rights to subscribe for securities of the Corporation, or for
the delivery of evidences of rights or evidences of interests
arising out of any change, conversion or exchange of common stock
or other securities, as the record date for the determination of
the stockholders entitled to receive any such dividend,
distribution, allotment, rights or interests, and in such case
only the stockholders of record at the time so fixed shall be
entitled to receive such dividend, distribution, allotment,
rights or interests.
Section 7. Information to Stockholders and Others. Any
stockholder of the Corporation or his agent may inspect and copy
during usual business hours the Corporation's By-Laws, minutes of
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the proceedings of its stockholders, annual statements of its
affairs, and voting trust agreements on file at its principal
office.
ARTICLE VIII
Seal
The seal of the Corporation shall be circular in form and
shall bear, in addition to any other emblem or device approved
by the Board of Directors, the name of the Corporation, the year
of its incorporation and the words "Corporate Seal" and
"Maryland". Said seal may be used by causing it or a facsimile
thereof to be impressed or affixed or in any other manner
reproduced.
ARTICLE IX
Fiscal Year
Unless otherwise determined by the Board, the fiscal year
of the Corporation shall end on the 30th day of November.
ARTICLE X
Depositories and Custodians
Section 1. Depositories. The funds of the Corporation
shall be deposited with such banks or other depositories as the
Board of Directors of the Corporation may from time to time
determine.
Section 2. Custodians. All securities and other investments
shall be deposited in the safekeeping of such banks or other
companies as the Board of Directors of the Corporation may
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from time to time determine. Every arrangement entered into
with any bank or other company for the safekeeping of the
securities and investments of the Corporation shall contain
provisions complying with the Investment Company Act of 1940, as
amended, and the general rules and regulations thereunder.
ARTICLE XI
Execution of Instruments
Section 1. Checks, Notes, Drafts, etc. Checks, notes,
drafts, acceptances, bills of exchange and other orders or
obligations for the payment of money shall be signed by such
officer or officers or person or persons as the Board of
Directors by resolution shall from time to time designate.
Section 2. Sale or Transfer of Securities. Stock
certificates, bonds or other securities at any time owned by the
Corporation may be held on behalf of the Corporation or sold,
transferred or otherwise disposed of subject to any limits
imposed by these By-Laws and pursuant to authorization by the
Board and, when so authorized to be held on behalf of the
Corporation or sold, transferred or otherwise disposed of, may
be transferred from the name of the Corporation by the signature
of the President or a Vice President or the Treasurer or
pursuant to any procedure approved by the Board of Directors,
subject to applicable law.
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ARTICLE XII
Independent Public Accountants
The firm of independent public accountants which shall sign
or certify the financial statements of the Corporation which are
filed with the Securities and Exchange Commission shall be
selected annually by the Board of Directors and ratified by the
stockholders in accordance with the provisions of the Investment
Company Act of 1940, as amended.
ARTICLE XIII
Annual Statement
The books of account of the Corporation shall be examined
by an independent firm of public accountants at the close of each
annual period of the Corporation and at such other times as may
be directed by the Board. A report to the stockholders based upon
each such examination shall be mailed to each stockholder of
record of the Corporation on such date with respect to each
report as may be determined by the Board, at his address as the
same appears on the books of the Corporation. Such annual
statement shall also be available at the annual meeting of
stockholders and be placed on file at the Corporation's principal
office in the State of Maryland. Each such report shall show the
assets and liabilities of the Corporation as of the close of the
annual or quarterly period covered by the report and the
securities in which the funds of the Corporation were then
invested. Such report shall also show the Corporation's income
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and expenses for the period from the end of the Corporation's
preceding fiscal year to the close of the annual or quarterly
period covered by the report and any other information required
by the Investment Company Act of 1940, as amended, and shall set
forth such other matters as the Board or such firm of independent
public accountants shall determine.
ARTICLE XIV
Amendments
These By-Laws or any of them may be amended, altered or
repealed at any regular meeting of the stockholders or at any
special meeting of the stockholders by a favorable vote of the
holders of at least sixty-six and two-thirds percent (66 2/3%)
of the outstanding shares of capital stock of the Corporation
entitled to be voted on the matter, provided that notice of the
proposed amendment, alteration or repeal be contained in the
notice of such special meeting. These By-Laws may also be
amended, altered or repealed by the affirmative vote of a
majority of the Board of Directors at any regular or special
meeting of the Board of Directors, except any particular By-Law
which is specified as not subject to alteration or repeal by the
Board of Directors, subject to the requirements of the
Investment Company Act of 1940, as amended.
29
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EMERGING AMERICAS FUND, INC.
TERMS AND CONDITIONS OF
AUTOMATIC DIVIDEND REINVESTMENT PLAN
1. Appointment of Agent. You, ____________, will act as
Agent for me, and will open an account for me under the Dividend
Reinvestment Plan (the "Plan") in the same name as my present
shares of common stock, par value $.10 per share ("Common
Stock"), of EMERGING AMERICAS FUND, INC. (the "Fund") are
registered, and automatically will put into effect for me the
dividend reinvestment option of the Plan as of the first record
date for a dividend or capital gains distribution (collectively
referred to herein as a "dividend"), payable at the election of
shareholders in cash or shares of Common Stock.
2. Dividends Payable in Common Stock. My participation in
the Plan constitutes an election by me to receive dividends in
shares of Common Stock whenever the Fund declares a dividend.
In such event, the dividend amount automatically shall be made
payable to me entirely in shares of Common Stock which shall be
acquired by the Agent for my account, depending upon the
circumstances described in paragraph 3, either (i) through
receipt of additional shares of unissued but authorized shares
of Common Stock from the Fund ("newly-issued shares") as
described in paragraph 6 or (ii) by purchase of outstanding
shares of Common Stock on the open market ("open-market
purchases") as described in paragraph 7.
3. Determination of Whether Newly-Issued Shares or
Open-Market Purchases. If on the payment date for the dividend
(the "valuation date"), the net asset value per share of the
Common Stock, as defined in paragraph 8, is equal to or less
than the market price per share of the Common Stock, as defined
in paragraph 8, plus estimated brokerage commissions (such
condition being referred to herein as "market premium"), the
Agent shall invest the dividend amount in newly-issued shares on
my behalf as described in paragraph 6. If on the valuation
date, the net asset value per share is greater than the market
value (such condition being referred to herein as "market
discount"), the Agent shall invest the dividend amount in shares
acquired on my behalf in open-market purchases as described in
paragraph 7. If the Fund is converted to an open-end fund, its
shares will no longer be listed on any stock exchange and
participants in the Plan will receive any dividends in newly
issued shares at their net asset value.
4. Purchase Period for Open-Market Purchases. In the event
of a market discount on the valuation date, the Agent shall have
until the last business day before the next ex-dividend date with
<PAGE>
respect to the shares of Common Stock or in no event more than 30
days after the valuation date (the "last purchase date") to invest
the dividend amount in shares acquired in open-market purchases
except where temporary curtailment or suspension of purchases is
necessary to comply with applicable provisions of Federal
securities laws.
5. Failure to Complete Open-Market Purchases During
Purchase Period. If the Agent is unable to invest the full
dividend amount in open-market purchases during the purchase
period because the market discount has shifted to a market
premium or otherwise, the Agent will invest the uninvested
portion of the dividend amount in newly-issued shares at the
close of business on the last purchase date as described in
paragraph 4; except that the Agent may not acquire newly-issued
shares after the valuation date under the foregoing
circumstances unless it has received a legal opinion that
registration of such shares is not required under the Securities
Act of 1933 or unless the shares to be issued are registered
under such Act.
6. Acquisition of Newly-Issued Shares. In the event that
all or part of the dividend amount is to be invested in
newly-issued shares, you automatically shall receive such
newly-issued shares of Common Stock, including fractions, for my
account, and the number of additional newly-issued shares of
Common Stock to be credited to my account shall be determined by
dividing the dollar amount of the dividend on my shares to be
invested in newly-issued shares by the net asset value per share
of Common Stock on the date the shares are issued (the valuation
date in the case of an initial market premium or the last
purchase date in case the Agent is unable to complete
open-market purchases during the purchase period); provided, that
the maximum discount from the then current market price per
share on the date of issuance shall not exceed 5%.
7. Manner of Making Open-Market Purchases. In the event that
the dividend amount is to be invested in shares of Common Stock
acquired in open-market purchases, you shall apply the amount of
such dividend on my shares (less my pro rata share of brokerage
commissions incurred with respect to your open-market purchases)
to the purchase on the open market of shares of the Common Stock
for my account. Open-market purchases may be made on any
securities exchange where the Common Stock is traded, in the
over-the-counter market or in negotiated transactions and may be
on such terms as to price, delivery and otherwise as you shall
determine. My funds held by you uninvested will not bear interest,
and it is understood that, in any event, you shall have no
liability in connection with any inability to purchase shares
within 30 days after the initial date of such purchase as herein
provided, or with the timing of any purchases affected. You shall
have no responsibility as to the value of the Common Stock
acquired for my account. For the purposes of cash investments
2
<PAGE>
you may commingle my funds with those of other shareholders of the
Fund for whom you similarly act as Agent, and the average price
(including brokerage commissions) of all shares purchased by you
as Agent on the open market shall be the price per share allocable
to me in connection with open-market purchases.
8. Meaning of Market Price and Net Asset Value. For all
purposes of the Plan: (a) the market price of the Common Stock
on a particular date shall be the last sales price on the New
York Stock Exchange (the "Exchange") on that date, or, if there
is no sale on the Exchange on that date, then the mean between
the closing bid and asked quotations for such stock on the
Exchange on such date and (b) net asset value per share of the
Common Stock on a particular date shall be as determined by or
on behalf of the Fund.
9. Registration of Shares Acquired Pursuant to the Plan.
You may hold my shares of Common Stock acquired pursuant to the
Plan, together with the shares of other shareholders of the Fund
acquired pursuant to the Plan, in noncertificated form in your
name or that of your nominee. You will forward to me any proxy
solicitation material and will vote any shares so held for me
only in accordance with the proxy returned by me to the Fund.
Upon my written request, you will deliver to me, without charge,
a certificate or certificates for the full shares held by you
for my account.
10. Confirmations. You will confirm to me each acquisition
made for my account as soon as practicable but not later than 60
days after the date thereof.
11. Fractional Interests. Although from time to time I may
have an undivided fractional interest (computed to three decimal
places) in a share of the Fund, no certificates for a fractional
share will be issued. However, dividends and distributions on
fractional shares will be credited to my account. In the event of
termination of my account under the Plan, you will adjust for any
such undivided fractional interest in cash at the market value of
the Fund's shares at the time of termination less the pro rata
expense of any sale required to make such an adjustment.
12. Stock Dividends or Share Purchase Rights. Any stock
dividends or split shares distributed by the Fund on shares held
by you for me will be credited to my account. In the event that
the Fund makes available to its shareholders rights to purchase
additional shares or other securities, the shares held for me
under the Plan will be added to other shares held by me in
calculating the number of rights to be issued to me.
13. Service Fee. Your service fee for handling capital gains
distributions or income dividends will be paid by the Fund.
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I will be charged for my pro rata share of brokerage commissions
on all open-market purchases.
14. Termination of Account. I may terminate my account
under the Plan by notifying you in writing. Such termination
will be effective immediately if my notice is received by you
not less than ten days prior to any dividend or distribution
record date; otherwise, such termination will be effective on
the first trading day after the payment date for such dividend
or distribution with respect to any subsequent dividend or
distribution. The Plan may be terminated by you or by the Fund
upon notice in writing mailed to me at least 90 days prior to
any record date for the payment of any dividend or distribution
by the Fund. Upon any termination you will cause a certificate
or certificates for the full shares held for me under the Plan
and cash adjustment for any fraction to be delivered to me
without charge. If I elect by notice to you in writing in
advance of such termination to have you sell part or all of my
shares and remit the proceeds to me, you are authorized to
deduct brokerage commissions for this transaction from the
proceeds.
15. Amendment of Plan. These terms and conditions may be
amended or supplemented by you or by the Fund at any time or
times but, except when necessary or appropriate to comply with
applicable laws or the rules or policies of the Securities and
Exchange Commission or any other regulatory authority, only by
mailing to me appropriate written notice at least 90 days prior
to the effective date thereof. The amendment or supplement
shall be deemed to be accepted by me unless, prior to the
effective date thereof, you receive written notice of the
termination of my account under the Plan. Any such amendment
may include an appointment by you in your place and stead of a
successor Agent under these terms and conditions, with full
power and authority to perform all or any of the acts to be
performed by the Agent under these terms and conditions. Upon
any such appointment of an Agent for the purpose of receiving
dividends and distributions, the Fund will be authorized to pay
to such successor Agent, for my account, all dividends and
distributions payable on Common Stock of the Fund held in my
name or under the Plan for retention or application by such
successor Agent as provided in these terms and conditions.
16. Extent of Responsibility of Agent. At all times you
shall act in good faith and you agree to use your best efforts
within reasonable limits to insure the accuracy of all services
performed under this Agreement and to comply with applicable
laws, but you assume no responsibility and you shall not be
liable for loss or damage due to errors unless such error is
caused by your negligence, bad faith, or willful misconduct or
that of your employees.
4
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17. Governing Law. These terms and conditions shall be
governed by and construed in accordance with the laws of the
State of New York without regard to its conflicts of laws
provisions.
5
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INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this ___ day of _______, 1994, by and
between EMERGING AMERICAS FUND, INC., a Maryland corporation (the
"Fund"), and FUND ASSET MANAGEMENT, L.P., a Delaware limited
partnership (the "Investment Adviser").
W I T N E S S E T H:
WHEREAS, the Fund is engaged in business as a closed-end
management investment company registered under the Investment
Company Act of 1940, as amended (the "Investment Company Act");
and
WHEREAS, the Investment Adviser is engaged principally in
rendering management and investment advisory services and is
registered as an investment adviser under the Investment
Advisers Act of 1940, as amended; and
WHEREAS, the Fund desires to retain the Investment Adviser
to provide management and investment advisory services to the
Fund in the manner and on the terms hereinafter set forth; and
WHEREAS, the Investment Adviser is willing to provide
management and investment advisory services to the Fund on the
terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the
covenants hereinafter contained, the Fund and the Investment
Adviser hereby agree as follows:
<PAGE>
ARTICLE I
Duties of the Investment Adviser
The Fund hereby employs the Investment Adviser to act as a
manager of and an investment adviser to the Fund and to furnish,
or arrange for its affiliates to furnish, the management and
investment advisory services described below, subject to the
policies of, review by and overall control of, the Board of
Directors of the Fund, for the period and on the terms and
conditions set forth in this Agreement. The Investment Adviser
hereby accepts such employment and agrees during such period, at
its own expense, to render, or arrange for the rendering of,
such services and to assume the obligations herein set forth for
the compensation provided for herein. The Investment Adviser
and its affiliates for all purposes herein shall be deemed to be
independent contractors and, unless otherwise expressly provided
or authorized, shall have no authority to act for or represent
the Fund in any way or otherwise be deemed agents of the Fund.
(a) Management and Administrative Services. The Investment
Adviser shall perform (or arrange for its affiliates to perform)
the management and administrative services necessary for the
operation of the Fund, including administering shareholder
accounts and handling shareholder relations. The Investment
Adviser shall provide the Fund with office space, facilities,
equipment and necessary personnel and such other services as the
Investment Adviser, subject to review by the Board of Directors,
2
<PAGE>
from time to time shall determine to be necessary or useful to
perform its obligations under this Agreement. The Investment
Adviser, also on behalf of the Fund, shall conduct relations with
custodians, depositories, transfer agents, pricing agents,
dividend disbursing agents, other shareholder servicing agents,
accountants, attorneys, underwriters, brokers and dealers,
corporate fiduciaries, insurers, banks and such other persons in
any such other capacity deemed to be necessary or desirable. The
Investment Adviser generally shall monitor the Fund's compliance
with investment policies and restrictions as set forth in filings
made by the Fund under the Federal securities laws. The
Investment Adviser shall make reports to the Board of Directors
of its performance of obligations hereunder and furnish advice
and recommendations with respect to such other aspects of the
business and affairs of the Fund as it shall determine to be
desirable.
(b) Investment Advisory Services. The Investment Adviser
shall provide (or arrange for its affiliates to provide) the Fund
with such investment research, advice and supervision as the
latter from time to time may consider necessary for the proper
supervision of the assets of the Fund, shall furnish continuously
an investment program for the Fund and shall determine from time
to time which securities shall be purchased, sold or exchanged
and what portion of the assets of the Fund shall be held in the
various securities in which the Fund invests, options, futures,
3
<PAGE>
options on futures or cash, subject always to the restrictions of
the Articles of Incorporation and the By-Laws of the Fund, as
amended from time to time, the provisions of the Investment
Company Act and the statements relating to the Fund's investment
objective, investment policies and investment restrictions as the
same are set forth in filings made by the Fund under the Federal
securities laws. The Investment Adviser shall make decisions for
the Fund as to foreign currency matters. The Investment Adviser
shall make decisions for the Fund as to the manner in which
voting rights, rights to consent to corporate action and any
other rights pertaining to the Fund's portfolio securities shall
be exercised. Should the Directors at any time, however, make any
definite determination as to investment policy and notify the
Investment Adviser thereof in writing, the Investment Adviser
shall be bound by such determination for the period, if any,
specified in such notice or until similarly notified that such
determination has been revoked. The Investment Adviser, on behalf
of the Fund, shall take all actions which it deems necessary to
implement the investment policies determined as provided above,
and in particular to place all orders for the purchase or sale of
portfolio securities for the Fund's account with brokers or
dealers selected by it, and to that end, the Investment Adviser
is authorized as the agent of the Fund to give instructions to
the custodian of the Fund as to deliveries of securities and
payments of cash for the account of the Fund. In
4
<PAGE>
connection with the selection of such brokers or dealers and
the placing of such orders with respect to assets of the Fund,
the Investment Adviser is directed at all times to seek to
obtain execution and prices within the policy guidelines
determined by the Board of Directors and set forth in filings
made by the Fund under the Federal securities laws. Subject to
this requirement and the provisions of the Investment Company
Act, the Securities Exchange Act of 1934, as amended, and other
applicable provisions of law, the Investment Adviser may select
brokers or dealers with which it or the Fund is affiliated.
(c) Notice Upon Change in Partners of Investment Adviser.
The Investment Adviser is a limited partnership and its limited
partners are Merrill Lynch & Co., Inc. and Fund Asset
Management, Inc. and its general partner is Princeton Services,
Inc. The Investment Adviser will notify the Fund of any change
in the membership of the partnership within a reasonable time
after such change.
ARTICLE II
Allocation of Charges and Expenses
(a) The Investment Adviser. The Investment Adviser shall
provide the staff and personnel necessary to perform its
obligations under this Agreement, shall assume and pay or cause
to be paid all expenses incurred in connection with the
maintenance of such staff and personnel, and, at its own expense,
shall provide the office space, facilities, equipment and
5
<PAGE>
necessary personnel which it is obligated to provide under
Article I hereof, and shall pay all compensation of officers of
the Fund and all Directors of the Fund who are affiliated
persons of the Investment Adviser.
(b) The Fund. The Fund assumes, and shall pay or cause to
be paid, all other expenses of the Fund including, without
limitation: taxes, expenses for legal and auditing services,
costs of printing proxies, stock certificates, shareholder
reports and prospectuses, charges of the custodian, any
sub-custodian and transfer agent, expenses of portfolio
transactions, Securities and Exchange Commission fees, expenses
of registering the shares under Federal, state and foreign laws,
fees and actual out-of-pocket expenses of Directors who are not
affiliated persons of the Investment Adviser, accounting and
pricing costs (including the daily calculation of the net asset
value), insurance, interest, brokerage costs, litigation and
other extraordinary or non-recurring expenses, and other
expenses properly payable by the Fund. It also is understood
that the Fund will reimburse the Investment Adviser for its
costs incurred in providing accounting services to the Fund.
ARTICLE III
Compensation of the Investment Adviser
(a) Investment Advisory Fee. For the services rendered,
the facilities furnished and the expenses assumed by the
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Investment Adviser, the Fund shall pay to the Investment Adviser
at the end of each calendar month a fee based upon the average
weekly value of the net assets of the Fund at the annual rate of
1.00% of the average weekly net assets of the Fund ("average
weekly net assets" means the average weekly value of the total
assets of the Fund, minus the sum of (i) accrued liabilities of
the Fund, (ii) any accrued and unpaid interest on outstanding
borrowings). For purposes of this calculation, average weekly net
assets are determined at the end of each month on the basis of
the average net assets of the Fund for each week during the
month. The assets for each weekly period are determined by
averaging the net assets at the last business day of a week with
the net assets at the last business day of the prior week. If
this Agreement becomes effective subsequent to the first day of a
month or terminates before the last day of a month, compensation
for that part of the month this Agreement is in effect shall be
prorated in a manner consistent with the calculation of the fee
as set forth above. Subject to the provisions of subsection (b)
hereof, payment of the Investment Adviser's compensation for the
preceding month shall be made as promptly as possible after
completion of the computations contemplated by subsection (b)
hereof. During any period when the determination of net asset
value is suspended by the Board of Directors, the average net
asset value of a share for the last week prior to such suspension
7
<PAGE>
for this purpose shall be deemed to be the net asset value at the
close of each succeeding week until it again is determined.
(b) Expense Limitations. In the event the operating
expenses of the Fund, including amounts payable to the Investment
Adviser pursuant to subsection (a) hereof, for any fiscal year
ending on a date on which this Agreement is in effect, exceed the
expense limitations applicable to the Fund imposed by applicable
state securities laws or regulations thereunder, as such
limitations may be raised or lowered from time to time, the
Investment Adviser shall reduce its management and investment
advisory fee by the extent of such excess and, if required
pursuant to any such laws or regulations, will reimburse the Fund
in the amount of such excess; provided, however, that to the
extent permitted by law, there shall be excluded from such
expenses the amount of any interest, taxes, brokerage fees and
commissions and extraordinary expenses (including but not limited
to legal claims and liabilities and litigation costs and any
indemnification related thereto) paid or payable by the Fund.
Whenever the expenses of the Fund exceed a pro rata portion of
the applicable annual expense limitations, the estimated amount
of reimbursement under such limitations shall be applicable as an
offset against the monthly payment of the fee due to the
Investment Adviser. Should two or more such expense limitations
be applicable as at the end of the last business day of the
8
<PAGE>
month, that expense limitation which results in the largest
reduction in the Investment Adviser's fee shall be applicable.
ARTICLE IV
Limitation of Liability of the Investment Adviser
The Investment Adviser shall not be liable for any error of
judgment or mistake of law or for any loss arising out of any
investment or for any act or omission in the management of the
Fund, except for willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of
reckless disregard of its obligations and duties hereunder. As
used in this Article IV, the term "Investment Adviser" shall
include any affiliates of the Investment Adviser performing
services for the Fund contemplated hereby and directors,
officers and employees of the Investment Adviser and of such
affiliates.
ARTICLE V
Activities of the Investment Adviser
The services of the Investment Adviser to the Fund are not
to be deemed to be exclusive; the Investment Adviser and any
person controlled by or under common control with the Investment
Adviser (for purposes of this Article V referred to as
"affiliates") are free to render services to others. It is
understood that Directors, officers, employees and shareholders
of the Fund are or may become interested in the Investment
9
<PAGE>
Adviser and its affiliates, as directors, officers, employees,
partners and shareholders or otherwise, and that directors,
officers, employees, partners and shareholders of the Investment
Adviser and its affiliates are or may become similarly
interested in the Fund, and that the Investment Adviser and
directors, officers, employees, partners and shareholders of its
affiliates may become interested in the Fund as shareholders or
otherwise.
ARTICLE VI
Duration and Termination of this Agreement
This Agreement shall become effective as of the date first
above written and shall remain in force until February 1, 1996
and thereafter, but only so long as such continuance
specifically is approved at least annually by (i) the Board of
Directors of the Fund, or by the vote of a majority of the
outstanding voting securities of the Fund, and (ii) a majority of
those Directors who are not parties to this Agreement or
interested persons of any such party cast in person at a meeting
called for the purpose of voting on such approval.
This Agreement may be terminated at any time, without the
payment of any penalty, by the Board of Directors or by the vote
of a majority of the outstanding voting securities of the Fund,
or by the Investment Adviser, on sixty days' written notice to
the other party. This Agreement shall terminate automatically
in the event of its assignment.
10
<PAGE>
ARTICLE VII
Amendments of this Agreement
This Agreement may be amended by the parties only if such
amendment specifically is approved by (i) the vote of a majority
of outstanding voting securities of the Fund, and (ii) a
majority of those Directors who are not parties to this
Agreement or interested persons of any such party cast in person
at a meeting called for the purpose of voting on such approval.
ARTICLE VIII
Definitions of Certain Terms
The terms "vote of a majority of the outstanding voting
securities", "assignment", "affiliated person" and "interested
person", when used in this Agreement, shall have the respective
meanings specified in the Investment Company Act and the rules
and regulations thereunder, subject, however, to such exemptions
as may be granted by the Securities and Exchange Commission
under said Act.
11
<PAGE>
ARTICLE IX
Governing Law
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York and the
applicable provisions of the Investment Company Act. To the
extent that the applicable laws of the State of New York, or any
of the provisions herein, conflict with the applicable
provisions of the Investment Company Act, the latter shall
control.
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement as of the date first above written.
EMERGING AMERICAS FUND, INC.
By: ______________________________
Authorized Signatory
FUND ASSET MANAGEMENT, L.P.
By: ______________________________
Authorized Signatory
12
<PAGE>
____________ Shares
EMERGING AMERICAS FUND, INC.
(a Maryland corporation)
Common Stock
(Par Value $0.10 Per Share)
PURCHASE AGREEMENT
__________, 1994
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
Merrill Lynch World Headquarters
World Financial Center
North Tower
New York, New York 10281-1305
Dear Sirs:
Emerging Americas Fund, Inc., a Maryland corporation (the
"Fund"), and Fund Asset Management, L.P., a Delaware limited
partnership (the "Adviser"), each confirms its agreement with
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated (the "Underwriter"), with respect to the sale by
the Fund and the purchase by the Underwriter of _________ shares
of common stock, par value $.10 per share, of the Fund (the
"Common Stock") and, with respect to the grant by the Fund to
the Underwriter of the option described in Section 2 hereof to
purchase all or any part of _______ additional shares of Common
Stock to cover over-allotments. The aforesaid _________ shares
(the "Initial Shares"), together with all or any part of the
_______ additional shares of Common Stock subject to the option
described in Section 2 hereof (the "Option Shares"), hereinafter
are referred to collectively as the "Shares".
Prior to the purchase and public offering of the Shares by
the Underwriter, the Fund and the Underwriter shall enter into
an agreement substantially in the form of Exhibit A hereto (the
"Pricing Agreement"). The Pricing Agreement may take the form
of an exchange of any standard form of written telecommunication
between the Fund and the Underwriter and shall specify such
<PAGE>
applicable information as is indicated in Exhibit A hereto. The
offering of the Shares will be governed by this Agreement, as
supplemented by the Pricing Agreement. From and after the date
of the execution and delivery of the Pricing Agreement, this
Agreement shall be deemed to incorporate the Pricing Agreement.
The Fund has filed with the Securities and Exchange
Commission (the "Commission") a notification on Form N-8A of
registration of the Fund as an investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"), and
a registration statement on Form N-2 (No. 33- ) and a related
preliminary prospectus for the registration of the Shares under
the Securities Act of 1933, as amended (the "1933 Act"), the
1940 Act, and the rules and regulations of the Commission under
the 1933 Act and the 1940 Act (the "Rules and Regulations"), and
has filed such amendments to such registration statement on Form
N-2, if any, and such amended preliminary prospectuses as may
have been required to the date hereof. The Fund will prepare
and file such additional amendments thereto and such amended
prospectuses as hereafter may be required. Such registration
statement (as amended, if applicable) and the prospectus
constituting a part thereof (including in each case the
information, if any, deemed to be a part thereof pursuant to
Rule 430A(b) of the Rules and Regulations), as from time to time
amended or supplemented pursuant to the 1933 Act, hereinafter
are referred to as the "Registration Statement" and the
"Prospectus", respectively, except that if any revised
prospectus shall be provided to the Underwriter by the Fund for
use in connection with the offering of the Shares which differs
from the Prospectus on file at the Commission at the time the
Registration Statement becomes effective (whether such revised
prospectus is required to be filed by the Fund pursuant to Rule
497(c) or Rule 497(h) of the Rules and Regulations), the term
"Prospectus" shall refer to each such revised prospectus from
and after the time it first is provided to the Underwriter for
such use.
The Fund understands that the Underwriter proposes to make
a public offering of the Shares as soon as the Underwriter deems
advisable after the Registration Statement becomes effective and
the Pricing Agreement has been executed and delivered.
SECTION 1. Representations and Warranties. (a) The Fund
and the Adviser each severally represents and warrants to the
Underwriter as of the date hereof and as of the date of the
Pricing Agreement (such later date hereinafter being referred to
as the "Representation Date") as follows:
(i) At the time the Registration Statement becomes
effective and at the Representation Date, the Registration
Statement will comply in all material respects with the
requirements of the 1933 Act, the 1940 Act and the Rules and
2
<PAGE>
Regulations and will not contain an untrue statement of a
material fact or omit to state a material fact required to
be stated therein or necessary to make the statements
therein not misleading. At the time the Registration
Statement becomes effective, at the Representation Date and
at Closing Time referred to in Section 2 hereof, the
Prospectus (unless the term "Prospectus" refers to a
prospectus which has been provided to the Underwriter by the
Fund for use in connection with the offering of the Shares
which differs from the Prospectus on file with the
Commission at the time the Registration Statement becomes
effective, in which case at the time such prospectus first
is provided to the Underwriter for such use) will not
contain an untrue statement of a material fact or omit to
state a material fact necessary in order to make the
statements therein, in the light of the circumstances under
which they were made, not misleading; provided, however,
that the representations and warranties in this subsection
shall not apply to statements in or omissions from the
Registration Statement or the Prospectus made in reliance
upon and in conformity with information furnished to the
Fund in writing by the Underwriter expressly for use in the
Registration Statement or in the Prospectus.
(ii) The accountants who certified the statement of
assets, liabilities and capital included in the
Registration Statement are independent public accountants
as required by the 1933 Act and the Rules and Regulations.
(iii) The statement of assets, liabilities and capital
included in the Registration Statement presents fairly the
financial position of the Fund as at the date indicated and
said statement has been prepared in conformity with
generally accepted accounting principles.
(iv) Since the respective dates as of which
information is given in the Registration Statement and in
the Prospectus, and except as otherwise stated therein, (A)
there has been no material adverse change in the condition,
financial or otherwise, of the Fund, or in the earnings,
business affairs or business prospects of the Fund, whether
or not arising in the ordinary course of business, (B)
there have been no transactions entered into by the Fund
which are material to the Fund other than those in the
ordinary course of business and (C) there has been no
dividend or distribution of any kind declared, paid or made
by the Fund on any class of its capital stock.
(v) The Fund has been duly incorporated and is validly
existing as a corporation in good standing under the laws of
the State of Maryland with corporate power and authority to
3
<PAGE>
own, lease and operate its properties and conduct its
business as described in the Registration Statement; the
Fund is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in
which such qualification is required; and the Fund has no
subsidiaries.
(vi) The Fund is registered with the Commission under
the 1940 Act as a closed-end, non-diversified, management
investment company, and no order of suspension or
revocation of such registration has been issued or
proceedings therefor initiated or threatened by the
Commission.
(vii) The authorized, issued and outstanding capital
stock of the Fund is as set forth in the Prospectus under
the caption "Description of Shares"; the Shares have been
duly authorized for issuance and sale to the Underwriter
pursuant to this Agreement and, when issued and delivered
by the Fund pursuant to this Agreement against payment of
the consideration set forth in the Pricing Agreement, will
be validly issued and fully paid and nonassessable; the
Shares conform in all material respects to all statements
relating thereto contained in the Registration Statement;
and the issuance of the Shares is not subject to preemptive
rights.
(viii) The Fund is not in violation of its articles of
incorporation, as amended (the "Charter"), or its by-laws,
as amended (the "By-Laws"), or in default in the performance
or observance of any material obligation, agreement,
covenant or condition contained in any material contract,
indenture, mortgage, loan agreement, note, lease or other
instrument to which it is a party or by which it or its
properties may be bound; and the execution and delivery of
this Agreement, the Pricing Agreement and the Investment
Advisory Agreement and the Custody Agreement referred to in
the Registration Statement (as used herein, the "Advisory
Agreement" and the "Custody Agreement", respectively) and
the consummation of the transactions contemplated herein and
therein have been duly authorized by all necessary corporate
action and will not conflict with or constitute a breach of,
or a default under, or result in the creation or imposition
of any lien, charge or encumbrance upon any property or
assets of the Fund pursuant to, any material contract,
indenture, mortgage, loan agreement, note, lease or other
instrument to which the Fund is a party or by which it may
be bound or to which any of the property or assets of the
Fund is subject, nor will such action result in any
violation of the provisions of the Charter or the By-Laws
or, to the best knowledge of the Fund and the Adviser,
any law, administrative regulation or administrative
or court decree; and no consent, approval, authorization
or order of any court or governmental authority
4
<PAGE>
or agency is required for the consummation by the Fund of
the transactions contemplated by this Agreement, the Pricing
Agreement, the Advisory Agreement and the Custody Agreement,
except such as has been obtained under the 1940 Act or as
may be required under the 1933 Act or state securities or
Blue Sky laws or foreign securities laws in connection with
the purchase and distribution of the Shares by the
Underwriter.
(ix) The Fund owns or possesses or has obtained all
material governmental licenses, permits, consents, orders,
approvals and other authorizations necessary to lease or
own, as the case may be, and to operate its properties and
to carry on its businesses as contemplated in the
Prospectus, and the Fund has not received any notice of
proceedings relating to the revocation or modification of
any such licenses, permits, covenants, orders, approvals or
authorizations.
(x) There is no action, suit or proceeding before or
by any court or governmental agency or body, domestic or
foreign, now pending, or, to the knowledge of the Fund or
the Adviser, threatened against or affecting, the Fund,
which might result in any material adverse change in the
condition, financial or otherwise, business affairs or
business prospects of the Fund, or which might materially
and adversely affect the properties or assets of the Fund;
and there are no material contracts or documents of the
Fund which are required to be filed as exhibits to the
Registration Statement by the 1933 Act, the 1940 Act or the
Rules and Regulations which have not been so filed.
(xi) The Fund owns or possesses, or can acquire on
reasonable terms, adequate trademarks, service marks and
trade names necessary to conduct its business as described
in the Registration Statement, and the Fund has not
received any notice of infringement of or conflict with
asserted rights of others with respect to any trademarks,
service marks or trade names which, singly or in the
aggregate, if the subject of an unfavorable decision,
ruling or finding, would materially adversely affect the
conduct of the business, operations, financial condition or
income of the Fund.
(xii) The Fund intends to, and will, direct the
investment of the proceeds of the offering described in the
Registration Statement in such a manner as to comply with
the requirements of Subchapter M of the Internal Revenue
Code of 1986, as amended, and intends to qualify as a
regulated investment company under said Subchapter M.
(xiii) This Agreement, the Pricing Agreement, the Advisory
Agreement and the Custody Agreement each has been duly
5
<PAGE>
authorized, executed and delivered by the Fund, and each
complies with all applicable provisions of the 1940 Act.
(b) The Adviser represents and warrants to the Underwriter
as of the date hereof and as of the Representation Date as
follows:
(i) The Adviser has been duly organized and is
validly existing as a limited partnership under the laws of
the State of Delaware, with partnership power and authority
to conduct its business as described in the Prospectus.
(ii) The Adviser is duly registered as an investment
adviser under the Investment Advisers Act of 1940, as
amended (the "Advisers Act"), and is not prohibited by the
Advisers Act or the 1940 Act, or the rules and regulations
under such acts, from acting under the Advisory Agreement
for the Fund as contemplated by the Prospectus.
(iii) This Agreement has been duly authorized, executed
and delivered by the Adviser; the Advisory Agreement has
been duly authorized, executed and delivered by the Adviser
and constitutes a valid and binding obligation of the
Adviser, enforceable in accordance with its terms, subject,
as to enforcement, to bankruptcy, insolvency,
reorganization or other laws relating to or affecting
creditors' rights and to general equitable principles; and
neither the execution and delivery of this Agreement or the
Advisory Agreement, nor the performance by the Adviser of
its obligations hereunder or thereunder will conflict with,
or result in a breach of any of the terms and provisions
of, or constitute, with or without the giving of notice or
the lapse of time or both, a default under, any agreement
or instrument to which the Adviser is a party or by which
it is bound, or any law, order, rule or regulation
applicable to it of any jurisdiction, court, Federal or
state regulatory body, administrative agency or other
governmental body, stock exchange or securities association
having jurisdiction over the Adviser or its respective
properties or operations.
(iv) The Adviser has the financial resources available
to it necessary for the performance of its services and
obligations as contemplated in the Prospectus.
(v) Any advertisement approved by the Adviser for use
in the public offering of the Shares pursuant to Rule 482
under the Rules and Regulations (an "Omitting Prospectus")
complies with the requirements of such Rule 482.
(c) Any certificate signed by any officer of the Fund or
the Adviser and delivered to the Underwriter shall be deemed a
6
<PAGE>
representation and warranty by the Fund or the Adviser, as the
case may be, to the Underwriter, as to the matters covered
thereby.
SECTION 2. Sale and Delivery to the Underwriter; Closing.
(a) On the basis of the representations and warranties
herein contained, and subject to the terms and conditions herein
set forth, the Fund agrees to sell the Initial Shares to the
Underwriter, and the Underwriter agrees to purchase the Initial
Shares from the Fund, at the price per share set forth in the
Pricing Agreement.
(i) If the Fund has elected not to rely upon Rule
430A under the Rules and Regulations, the initial public
offering price and the purchase price per share to be paid
by the Underwriter for the Shares have been determined and
set forth in the Pricing Agreement, dated the date hereof,
and an amendment to the Registration Statement and the
Prospectus will be filed before the Registration Statement
becomes effective.
(ii) If the Fund has elected to rely upon Rule 430A
under the Rules and Regulations, the purchase price per
share to be paid by the Underwriter for the Shares shall be
an amount equal to the applicable initial public offering
price, less an amount per share to be determined by
agreement between the Underwriter and the Fund. The
applicable initial public offering price per share shall be
a fixed price based upon the number of Shares purchased in
a single transaction to be determined by agreement between
the Underwriter and the Fund. The initial public offering
price and the purchase price, when so determined, shall be
set forth in the Pricing Agreement. In the event that such
prices have not been agreed upon and the Pricing Agreement
has not been executed and delivered by all parties thereto
by the close of business on the fourth business day
following the date of this Agreement, this Agreement shall
terminate forthwith, without liability of any party to any
other party, except as provided in Section 4 hereof, unless
otherwise agreed to by the Fund, the Adviser and the
Underwriter.
In addition, on the basis of the representations and
warranties herein contained, and subject to the terms and
conditions herein set forth, the Fund hereby grants an option to
the Underwriter to purchase all or any part of the Option Shares
at the price per share set forth above. The option hereby granted
will expire 45 days after the date hereof (or, if the Fund has
elected to rely upon Rule 430A under the Rules and Regulations, 45
days after the execution of the Pricing Agreement)
and may be exercised only for the purpose of covering
over-allotments which may be made in connection with
the offering and distribution of the Initial
7
<PAGE>
Shares upon notice by the Underwriter to the Fund setting forth
the number of Option Shares as to which the Underwriter is then
exercising the option and the time, date and place of payment and
delivery for such Option Shares. Any such time and date of
delivery (a "Date of Delivery") shall be determined by the
Underwriter but shall not be later than seven full business days
after the exercise of said option, nor in any event prior to
Closing Time, as hereinafter defined, unless otherwise agreed upon
by the Underwriter and the Fund.
(b) Payment of the purchase price for, and delivery of
certificates for, the Initial Shares shall be made at the office
of Brown & Wood, One World Trade Center, New York, New York
10048-0557, or at such other place as shall be agreed upon by the
Underwriter and the Fund, at 10:00 A.M. on the fifth business
day (unless postponed in accordance with the provisions of
Section 10 hereof) following the date the Registration Statement
becomes effective (or, if the Fund has elected to rely upon Rule
430A under the Rules and Regulations, the fifth business day
after execution of the Pricing Agreement), or such other time
not later than ten business days after such date as shall be
agreed upon by the Underwriter and the Fund (such time and date
of payment and delivery herein being referred to as "Closing
Time"). In addition, in the event that any or all of the Option
Shares are purchased by the Underwriter, payment of the purchase
price for, and delivery of certificates for, such Option Shares
shall be made at the above-mentioned office of Brown & Wood, or
at such other place as shall be agreed upon mutually by the Fund
and the Underwriter, on each Date of Delivery as specified in
the notice from the Underwriter to the Fund. Payment shall be
made to the Fund by certified check or checks in New York
Clearinghouse or similar next-day funds payable to the order of
the Fund, against delivery to the Underwriter of certificates
for the Shares to be purchased by it. Certificates for the
Initial Shares and Option Shares shall be in such denominations
and registered in such names as the Underwriter may request in
writing at least two business days before Closing Time or the
Date of Delivery, as the case may be. The certificates for the
Initial Shares and the Option Shares will be made available by
the Fund for examination and packaging by the Underwriter not
later than 10:00 A.M. on the last business day prior to Closing
Time or the Date of Delivery, as the case may be.
SECTION 3. Covenants of the Fund. The Fund covenants with
the Underwriter as follows:
(a) The Fund will use its best efforts (i) to cause
the Registration Statement to become effective under the
1933 Act, and will advise the Underwriter
promptly as to the time at which the Registration
Statement and any amendments thereto (including any
post-effective amendments) becomes so effective
8
<PAGE>
and (ii) if required, to cause the issuance of any orders
exempting the Fund from any provisions of the 1940 Act, and
the Fund will advise the Underwriter promptly as to the time
at which any such orders are granted.
(b) The Fund will notify the Underwriter immediately,
and will confirm the notice in writing, (i) of the
effectiveness of the Registration Statement and any
amendments thereto (including any post-effective
amendments), (ii) of the receipt of any comments from the
Commission, (iii) of any request by the Commission for any
amendment to the Registration Statement or any amendment or
supplement to the Prospectus or for additional information,
(iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement
or the initiation of any proceedings for that purpose, and
(v) of the issuance by the Commission of an order of
suspension or revocation of the notification on Form N-8A
of registration of the Fund as an investment company under
the 1940 Act or the initiation of any proceeding for that
purpose. The Fund will make every reasonable effort to
prevent the issuance of any stop order described in
subsection (iv) hereunder or any order of suspension or
revocation described in subsection (v) hereunder and, if
any such stop order or order of suspension or revocation is
issued, to obtain the lifting thereof at the earliest
possible moment.
(c) The Fund will give the Underwriter notice of its
intention to file any amendment to the Registration
Statement (including any post-effective amendment) or any
amendment or supplement to the Prospectus (including any
revised prospectus which the Fund proposes for use by the
Underwriter in connection with the offering of the Shares,
which differs from the prospectus on file at the Commission
at the time the Registration Statement becomes effective,
whether such revised prospectus is required to be filed
pursuant to Rule 497(c) or Rule 497(h) of the Rules and
Regulations), whether pursuant to the 1940 Act, the 1933
Act, or otherwise, and will furnish the Underwriter with
copies of any such amendment or supplement a reasonable
amount of time prior to such proposed filing or use, as the
case may be, and will not file any such amendment or
supplement to which the Underwriter reasonably shall object.
(d) The Fund will deliver to the Underwriter, as
soon as practicable, two signed copies of the
notification of registration and registration statement
as originally filed and of each amendment thereto, in
each case with two sets of the exhibits filed
therewith, and also will deliver to the Underwriter a
conformed copy of the registration statement as
9
<PAGE>
originally filed and of each amendment thereto (but without
exhibits to the registration statement or any such
amendment) for the Underwriter.
(e) The Fund will furnish to the Underwriter, from
time to time during the period when the Prospectus is
required to be delivered under the 1933 Act, such number of
copies of the Prospectus (as amended or supplemented) as
the Underwriter reasonably may request for the purposes
contemplated by the 1933 Act or the Rules and Regulations.
(f) If any event shall occur as a result of which it
is necessary, in the opinion of counsel for the
Underwriter, to amend or supplement the Prospectus in order
to make the Prospectus not misleading in the light of the
circumstances existing at the time it is delivered to a
purchaser, the Fund forthwith will amend or supplement the
Prospectus by preparing and furnishing to the Underwriter a
reasonable number of copies of an amendment or amendments
of or a supplement or supplements to, the Prospectus (in
form and substance satisfactory to counsel for the
Underwriter) so that, as so amended or supplemented, the
Prospectus will not contain an untrue statement of a
material fact or omit to state a material fact necessary in
order to make the statements therein, in the light of the
circumstances existing at the time the Prospectus is
delivered to a purchaser, not misleading.
(g) The Fund will endeavor, in cooperation with the
Underwriter, to qualify the Shares for offering and sale
under the applicable securities laws of such states and
other jurisdictions of the United States as the Underwriter
may designate, and will maintain such qualifications in
effect for a period of not less than one year after the
date hereof. The Fund will file such statements and
reports as may be required by the laws of each jurisdiction
in which the Shares have been qualified as above provided.
(h) The Fund will make generally available to its
security holders as soon as practicable, but no later than
60 days after the close of the period covered thereby, an
earnings statement (in form complying with the provisions
of Rule 158 of the Rules and Regulations) covering a
twelve-month period beginning not later than the first day
of the Fund's fiscal quarter next following the "effective"
date (as defined in said Rule 158) of the Registration
Statement.
(i) Between the date of this Agreement and the
termination of any trading restrictions or Closing Time,
whichever is later, the Fund will not, without your prior
10
<PAGE>
consent, offer or sell, or enter into any agreement to
sell, any equity or equity-related securities of the Fund
other than the Shares and shares of Common Stock issued in
reinvestment of dividends or distributions.
(j) If, at the time that the Registration Statement
becomes effective, any information shall have been omitted
therefrom in reliance upon Rule 430A of the Rules and
Regulations, then immediately following the execution of
the Pricing Agreement, the Fund will prepare, and file or
transmit for filing with the Commission in accordance with
such Rule 430A and Rule 497(h) of the Rules and
Regulations, copies of an amended Prospectus, or, if
required by such Rule 430A, a post-effective amendment to
the Registration Statement (including an amended
Prospectus), containing all information so omitted.
(k) The Fund will use its best efforts to effect the
listing of the Shares on the New York Stock Exchange so
that trading on such Exchange will begin no later than four
weeks from the date of the Prospectus.
SECTION 4. Payment of Expenses. The Fund will pay all
expenses incident to the performance of its obligations under this
Agreement, including, but not limited to, expenses relating to (i)
the printing and filing of the registration statement as
originally filed and of each amendment thereto, (ii) the printing
of this Agreement and the Pricing Agreement, (iii) the
preparation, issuance and delivery of the certificates for the
Shares to the Underwriter, (iv) the fees and disbursements of the
Fund's counsel and accountants, (v) the qualification of the
Shares under securities laws in accordance with the provisions of
Section 3(g) hereof, including filing fees and any reasonable fees
or disbursements of counsel for the Underwriter in connection
therewith and in connection with the preparation of the Blue Sky
Survey, (vi) the printing and delivery to the Underwriter of
copies of the registration statement as originally filed and of
each amendment thereto, of the preliminary prospectus, and of the
Prospectus and any amendments or supplements thereto, (vii) the
printing and delivery to the Underwriter of copies of the Blue Sky
Survey, (viii) the fees and expenses incurred with respect to the
filing with the National Association of Securities Dealers, Inc.
and (ix) the fees and expenses incurred with respect to the
listing of the Shares on the New York Stock Exchange.
If this Agreement is terminated by the Underwriter in
accordance with the provisions of Section 5 or Section 9(a)(i)
hereof, the Fund or the Adviser shall reimburse the Underwriter
for all of its reasonable out-of-pocket expenses, including the
reasonable fees and disbursements of counsel for the Underwriter.
11
<PAGE>
In the event the transactions contemplated hereunder are not
consummated, the Adviser agrees to pay all of the costs and
expenses set forth in the first paragraph of this Section 4 which
the Fund would have paid if such transactions had been
consummated.
SECTION 5. Conditions of Underwriter's Obligations. The
obligations of the Underwriter hereunder are subject to the
accuracy of the representations and warranties of the Fund and
the Adviser herein contained, to the performance by the Fund and
the Adviser of their respective obligations hereunder, and to
the following further conditions:
(a) The Registration Statement shall have become
effective not later than 5:30 P.M., New York City time, on
the date of this Agreement, or at a later time and date not
later, however, than 5:30 P.M. on the first business day
following the date hereof, or at such later time and date
as may be approved by the Underwriter, and at Closing Time
no stop order suspending the effectiveness of the
Registration Statement shall have been issued under the
1933 Act or proceedings therefor initiated or threatened by
the Commission. If the Fund has elected to rely upon Rule
430A of the Rules and Regulations, the price of the Shares
and any price-related information previously omitted from
the effective Registration Statement pursuant to such Rule
430A shall have been transmitted to the Commission for
filing pursuant to Rule 497(h) of the Rules and Regulations
within the prescribed time period, and prior to Closing
Time the Fund shall have provided evidence satisfactory to
the Underwriter of such timely filing, or a post-effective
amendment providing such information shall have been filed
promptly and declared effective in accordance with the
requirements of Rule 430A of the Rules and Regulations.
(b) At Closing Time, the Underwriter shall have
received:
(1) The favorable opinion, dated as of Closing
Time, of Brown & Wood, counsel for the Fund and the
Underwriter, to the effect that:
(i) The Fund has been duly incorporated and
is validly existing as a corporation in good
standing under the laws of the State of Maryland.
(ii) The Fund has corporate power and
authority to own, lease and operate its
properties and conduct its business as described
in the Registration Statement and in the
Prospectus.
12
<PAGE>
(iii) The Fund is duly qualified as a foreign
corporation to transact business and is in good
standing in each jurisdiction in which such
qualification is required.
(iv) The Shares have been duly authorized
for issuance and sale to the Underwriter pursuant
to this Agreement and, when issued and delivered
by the Fund pursuant to this Agreement against
payment of the consideration set forth in the
Pricing Agreement, will be validly issued and
fully paid and nonassessable; the issuance of the
Shares is not subject to preemptive or other
similar rights; and the authorized capital stock
conforms as to legal matters in all material
respects to the description thereof in the
Registration Statement under the caption
"Description of Shares".
(v) This Agreement and the Pricing
Agreement each has been duly authorized, executed
and delivered by the Fund and each complies with
all applicable provisions of the 1940 Act.
(vi) The Registration Statement is effective
under the 1933 Act and, to the best of their
knowledge and information, no stop order
suspending the effectiveness of the Registration
Statement has been issued under the 1933 Act or
proceedings therefor initiated or threatened by
the Commission.
(vii) At the time the Registration Statement
became effective and at the Representation Date,
the Registration Statement (other than the
financial statements included therein, as to
which no opinion need be rendered) complied as to
form in all material respects with the
requirements of the 1933 Act and the 1940 Act and
the Rules and Regulations.
(viii) To the best of their knowledge and
information, there are no legal or governmental
proceedings pending or threatened against the
Fund which are required to be disclosed in the
Registration Statement, other than those
disclosed therein.
(ix) To the best of their knowledge and infor-
mation, there are no contracts, indentures, mort-
gages, loan agreements, notes, leases or other in-
struments of the Fund required to be described or
13
<PAGE>
referred to in the Registration Statement or to
be filed as exhibits thereto other than those
described or referred to therein or filed as
exhibits thereto, the descriptions thereof are
correct in all material respects, references
thereto are correct, and no default exists in the
due performance or observance of any material
obligation, agreement, covenant or condition
contained in any contract, indenture, mortgage,
loan agreement, note, lease or other instrument so
described, referred to or filed.
(x) No consent, approval, authorization or
order of any court or governmental authority or
agency is required in connection with the sale of
the Shares to the Underwriter, except such as has
been obtained under the 1933 Act, the 1940 Act or
the Rules and Regulations or such as may be
required under state or foreign securities laws;
and to the best of their knowledge and
information, the execution and delivery of this
Agreement, the Pricing Agreement, the Advisory
Agreement and the Custody Agreement and the
consummation of the transactions contemplated
herein and therein will not conflict with or
constitute a breach of, or a default under, or
result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets
of the Fund pursuant to, any contract, indenture,
mortgage, loan agreement, note, lease or other
instrument to which the Fund is a party or by
which it may be bound or to which any of the
property or assets of the Fund is subject, nor
will such action result in any violation of the
provisions of the Charter or the By-Laws of the
Fund, or any law or administrative regulation,
or, to the best of their knowledge and
information, any administrative or court decree.
(xi) The Advisory Agreement and the Custody
Agreement each has been duly authorized and
approved by the Fund, each complies as to form in
all material respects with all applicable
provisions of the 1940 Act, and each has been
duly executed by the Fund.
(xii) The Fund is registered with the
Commission under the 1940 Act as a closed-end,
diversified, management investment company, and
all required action has been taken by the Fund
under the 1933 Act, the 1940 Act and the Rules and
14
<PAGE>
Regulations to make the public offering and
consummate the sale of the Shares pursuant to this
Agreement; the provisions of the Charter and the
By-Laws of the Fund comply as to form in all
material respects with the requirements of the
1940 Act; and, to the best of their knowledge and
information, no order of suspension or revocation
of such registration under the 1940 Act, pursuant
to Section 8(e) of the 1940 Act, has been issued
or proceedings therefor initiated or threatened by
the Commission.
(xiii) The information in the Prospectus
under the caption "Taxes", to the extent that it
constitutes matters of law or legal conclusions,
has been reviewed by them and is correct in all
material respects.
(2) The favorable opinion, dated as of Closing
Time, of Philip L. Kirstein, Esq., General Counsel of
the Adviser, in form and substance satisfactory to
counsel for the Underwriter, to the effect that:
(i) The Adviser has been duly organized and
is validly existing as a limited partnership
under the laws of the State of Delaware, with
full partnership power and authority to conduct
its business as described in the Registration
Statement and in the Prospectus.
(ii) The Adviser is duly registered as an
investment adviser under the Advisers Act, and is
not prohibited by the Advisers Act or the 1940
Act, or the rules and regulations under such
Acts, from acting under the Advisory Agreement
for the Fund as contemplated by the Prospectus.
(iii) This Agreement and the Advisory
Agreement each has been duly authorized, executed
and delivered by the Adviser, and the Advisory
Agreement constitutes a valid and binding
obligation of the Adviser, enforceable in
accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency,
reorganization or other laws relating to or
affecting creditors' rights and to general
equitable principles; and, to the best of his
knowledge and information, neither the
execution and delivery of this Agreement or the
Advisory Agreement nor the performance by the
15
<PAGE>
Adviser of its obligations hereunder or
thereunder will conflict with, or will result in
a breach of, any of the terms and provisions of,
or constitute, with or without the giving of
notice or the lapse of time or both, a default
under, any agreement or instrument to which the
Adviser is a party or by which the Adviser is
bound, or any law, order, rule or regulation
applicable to the Adviser of any jurisdiction,
court, Federal or state regulatory body,
administrative agency or other governmental body,
stock exchange or securities association having
jurisdiction over the Adviser or its properties
or operations.
(iv) To the best of his knowledge and
information, the description of the Adviser in
the Registration Statement and in the Prospectus
does not contain any untrue statement of a
material fact or omit to state any material fact
required to be stated therein or necessary to
make the statements therein, in the light of the
circumstances under which they were made, not
misleading.
(3) In giving their opinion required by subsection
(b)(1) of this Section 5, Brown & Wood additionally
shall state that nothing has come to their attention
that would lead them to believe that the Registration
Statement, at the time it became effective or at the
Representation Date, contained an untrue statement of a
material fact or omitted to state a material fact
required to be stated therein or necessary to make the
statements therein not misleading or that the
Prospectus, at the Representation Date (unless the term
"Prospectus" refers to a prospectus which has been
provided to the Underwriter by the Fund for use in
connection with the offering of the Shares which differs
from the Prospectus on file at the Commission at the
time the Registration Statement becomes effective, in
which case at the time it first is provided to the
Underwriter for such use) or at Closing Time, included
an untrue statement of a material fact or omitted to
state a material fact necessary in order to make the
statements therein, in the light of the circumstances
under which they were made, not misleading. In giving
their opinion, Brown & Wood may rely as to matters
involving the laws of the State of Maryland upon the
opinion of Ginsburg, Feldman and Bress, Chartered. Brown
& Wood and Ginsburg, Feldman and Bress, Chartered may
rely, as to matters of fact, upon certificates and
written statements of officers and employees of and
16
<PAGE>
accountants for the Fund and the Adviser and of public
officials.
(c) At Closing Time, (i) the Registration Statement
and the Prospectus shall contain all statements which are
required to be stated therein in accordance with the 1933
Act, the 1940 Act and the Rules and Regulations, and in all
material respects shall conform to the requirements of the
1933 Act, the 1940 Act and the Rules and Regulations and
neither the Registration Statement nor the Prospectus shall
contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or
necessary to make the statements therein, in the light of
the circumstances under which they were made, not
misleading, and no action, suit or proceeding at law or in
equity shall be pending or, to the knowledge of the Fund or
the Adviser, threatened against the Fund or the Adviser
which would be required to be set forth in the Prospectus
other than as set forth therein, (ii) there shall not have
been, since the date as of which information is given in
the Prospectus, any material adverse change in the
condition, financial or otherwise, of the Fund or in its
earnings, business affairs or business prospects, whether
or not arising in the ordinary course of business, from
that set forth in the Prospectus, (iii) the Adviser shall
have the financial resources available to it necessary for
the performance of its services and obligations as
contemplated in the Registration Statement and the
Prospectus and (iv) no proceedings shall be pending or, to
the knowledge of the Fund or the Adviser, threatened
against the Fund or the Adviser before or by any Federal,
state or other commission, board or administrative agency
wherein an unfavorable decision, ruling or finding would
materially and adversely affect the business, property,
financial condition or income of either the Fund or the
Adviser other than as set forth in the Prospectus; and the
Underwriter shall have received, at Closing Time, a
certificate of the President or the Treasurer of the Fund
and of the President or a Vice President of the Adviser
dated as of Closing Time, evidencing compliance with the
appropriate provisions of this subsection (c). As used in
this subsection (c), the term "Prospectus" means the
Prospectus in the form first used to confirm sales of the
Shares.
(d) At Closing Time , the Underwriter shall have
received certificates, dated as of Closing Time, (i) of
the President or the Treasurer of the Fund to the effect
that the representations and warranties of the Fund
contained in Section 1(a) hereof are true and correct
with the same force and effect as though expressly made
at and as of Closing Time and, (ii) of the President or
a Vice President of the Adviser to the effect that the
representations and warranties of the Adviser contained
in Sections 1(a) and (b) hereof are true and
17
<PAGE>
correct with the same force and effect as though expressly
made at and as of Closing Time.
(e) At the time of execution of this Agreement, the
Underwriter shall have received from Deloitte & Touche a
letter, dated such date in form and substance satisfactory
to the Underwriter, to the effect that:
(i) they are independent accountants with
respect to the Fund within the meaning of the 1933 Act
and the Rules and Regulations;
(ii) in their opinion, the statement of assets,
liabilities and capital examined by them and included
in the Registration Statement complies as to form in
all material respects with the applicable accounting
requirements of the 1933 Act and the 1940 Act and the
Rules and Regulations; and
(iii) they have performed specified procedures,
not constituting an audit, including a reading of the
latest available interim financial statements of the
Fund, a reading of the minute books of the Fund,
inquiries of officials of the Fund responsible for
financial accounting matters and such other inquiries
and procedures as may be specified in such letter, and
on the basis of such inquiries and procedures nothing
came to their attention that caused them to believe
that at the date of the latest available statement of
assets, liabilities and capital read by such
accountants, or at a subsequent specified date not
more than five days prior to the date of this
Agreement, there was any change in the capital stock
or net assets of the Fund as compared with amounts
shown on the statement of assets, liabilities and
capital included in the Prospectus.
(f) At Closing Time, the Underwriter shall have
received from Deloitte & Touche a letter, dated as of
Closing Time, to the effect that they reaffirm the
statements made in the letter furnished pursuant to
subsection (e) of this Section 5, except that the
"specified date" referred to shall be a date not more than
five days prior to Closing Time.
(g) At Closing Time, all proceedings taken by the
Fund and the Adviser in connection with the organization
and registration of the Fund under the 1940 Act and the
issuance and sale of the Shares as herein and therein
contemplated shall be satisfactory in form and substance to
the Underwriter.
18
<PAGE>
(h) In the event the Underwriter exercises its option
provided in Section 2 hereof to purchase all or any portion
of the Option Shares, the representations and warranties of
the Fund and the Adviser contained herein and the
statements in any certificate furnished by the Fund and the
Adviser hereunder shall be true and correct as of each Date
of Delivery, and the Underwriter shall have received:
(1) Certificates, dated the Date of Delivery, of
the President or the Treasurer of the Fund and of the
President or a Vice President of the Adviser
confirming that the information contained in the
certificate delivered by each of them at Closing Time
pursuant to Section 5(c) or 5(d) hereof, as the case
may be, remains true as of such Date of Delivery.
(2) The favorable opinions of Brown & Wood,
counsel for the Fund, and Philip L. Kirstein, Esq.,
General Counsel to the Adviser, each in form and
substance satisfactory to the Underwriter, dated such
Date of Delivery, relating to the Option Shares and
otherwise to the same effect as the opinions required
by Sections 5(b)(1) and (2) hereof, respectively.
(3) A letter from Deloitte & Touche in form and
substance satisfactory to the Underwriter and dated
such Date of Delivery, substantially the same in scope
and substance as the letter furnished to the
Underwriter pursuant to Section 5(e) hereof, except
that the "specified date" in the letter furnished
pursuant to this Section 5(h)(3) shall be a date not
more than five days prior to such Date of Delivery.
If any condition specified in this Section 5 shall not have
been fulfilled when and as required to be fulfilled, this
Agreement may be terminated by the Underwriter by notice to the
Fund at any time at or prior to Closing Time, and such
termination shall be without liability of any party to any other
party except as provided in Section 4 hereof.
SECTION 6. Indemnification. (a) The Fund and the Adviser
jointly and severally agree to indemnify and hold harmless the
Underwriter and each person, if any, who controls the
Underwriter within the meaning of Section 15 of the 1933 Act as
follows:
(i) against any and all loss, liability, claim,
damage and expense whatsoever, as incurred, arising
out of any untrue statement or alleged untrue
statement of a material fact contained in the
Registration Statement (or any amendment thereto),
including the information deemed to be part of the
19
<PAGE>
Registration Statement pursuant to Rule 430A of the Rules
and Regulations, if applicable, or the omission or alleged
omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged
untrue statement of a material fact contained in any
preliminary prospectus or the Prospectus (or any amendment
or supplement thereto) or the omission or alleged omission
therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under
which they were made, not misleading;
(ii) against any and all loss, liability, claim,
damage and expense whatsoever as incurred to the extent of
the aggregate amount paid in settlement of any litigation,
or investigation or proceeding by any governmental agency
or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission,
if such settlement is effected with the written consent of
the indemnifying party; and
(iii) against any and all expense whatsoever (including
the fees and disbursements of counsel chosen by the
Underwriter) reasonably incurred in investigating,
preparing or defending against any litigation, or
investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever
based upon any such untrue statement or omission, or any
such alleged untrue statement or omission, to the extent
that any such expense is not paid under (i) or (ii) above;
provided, however, that this indemnity agreement does not apply
to any loss, liability, claim, damage or expense to the extent
arising out of any untrue statement or omission or alleged
untrue statement or omission made in reliance upon and in
conformity with written information furnished to the Fund by the
Underwriter expressly for use in the Registration Statement (or
any amendment thereto) or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto).
(b) The Underwriter agrees, severally and not jointly,
to indemnify and hold harmless the Fund and the Adviser,
their respective directors, each of the Fund's officers who
signed the Registration Statement, and each person, if any,
who controls the Fund or the Adviser within the meaning of
Section 15 of the 1933 Act, against any and all loss,
liability, claim, damage and expense described in the
indemnity contained in subsection (a) of this Section 6, as
incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in
20
<PAGE>
the Registration Statement (or in any amendment thereto) or in any
preliminary prospectus or in the Prospectus (or in any amendment
or supplement thereto) in reliance upon and in conformity with
written information furnished to the Fund by the Underwriter
expressly for use in the Registration Statement (or in any
amendment thereto) or in any preliminary prospectus or in the
Prospectus (or in any amendment or supplement thereto).
(c) In addition to the foregoing indemnification, the
Adviser also agrees to indemnify and hold harmless the
Underwriter and each person, if any, who controls the
Underwriter within the meaning of Section 15 of the 1933 Act,
against any and all loss, liability, claim, damage and expense
described in the indemnity contained in subsection (a) of this
Section 6, with respect to any Omitting Prospectus or any
advertising materials approved by the Adviser for use in
connection with the public offering of the Shares.
(d) Each indemnified party shall give notice as promptly
as reasonably practicable to each indemnifying party of any
action commenced against it in respect of which indemnity may be
sought hereunder, but failure to so notify an indemnifying party
shall not relieve it from any liability which it may have
otherwise than on account of this indemnity agreement. An
indemnifying party may participate at its own expense in the
defense of any such action. In no event shall the indemnifying
parties be liable for the fees and expenses of more than one
counsel (in addition to any local counsel) separate from their
own counsel for all indemnified parties in connection with any
one action or separate but similar or related actions in the
same jurisdiction arising out of the same general allegations or
circumstances.
SECTION 7. Contribution. In order to provide for just and
equitable contribution in circumstances in which the indemnity
agreement provided for in Section 6 hereof for any reason is
held to be unenforceable by the indemnified parties although
applicable in accordance with its terms, the Fund, the Adviser
and the Underwriter shall contribute to the aggregate losses,
liabilities, claims, damages and expenses of the nature
contemplated by said indemnity agreement as incurred by the
Fund, the Adviser and the Underwriter, in such proportion that
the Underwriter is responsible for that portion represented by
the percentage that the aggregate underwriting compensation
payable pursuant to Section 2 hereof bears to the aggregate
initial public offering price of the Shares sold under this
Agreement and the Fund and the Adviser are responsible for the
balance; provided, however, that no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
1933 Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation.
Notwithstanding the provisions of this Section 7, the
Underwriter shall not be required to contribute any amount
21
<PAGE>
in excess of the amount by which the total price at which the
Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such
Underwriter otherwise has been required to pay in respect of such
losses, liabilities, claims, damages and expenses. For purposes of
this Section 7, each person, if any, who controls the Underwriter
within the meaning of Section 15 of the 1933 Act shall have the
same rights to contribution as the Underwriter, and each director
of the Fund and of the Adviser, respectively, each officer of the
Fund who signed the Registration Statement, and each person, if
any, who controls the Fund or the Adviser within the meaning of
Section 15 of the 1933 Act, shall have the same rights to
contribution as the Fund and the Adviser, respectively.
SECTION 8. Representations, Warranties and Agreements to
Survive Delivery. All representations, warranties and
agreements contained in this Agreement or in the Pricing
Agreement, or contained in certificates of officers of the Fund
or of the Adviser submitted pursuant hereto, shall remain
operative and in full force and effect, regardless of any
investigation made by or on behalf of the Underwriter or
controlling person, or by or on behalf of the Fund or the
Adviser and shall survive delivery of the Shares to the
Underwriter.
SECTION 9. Termination of Agreement. (a) The Underwriter,
by notice to the Fund, may terminate this Agreement at any time
at or prior to Closing Time (i) if there has been, since the
date of this Agreement or since the date as of which information
is given in the Prospectus, any material adverse change in the
condition, financial or otherwise, or in the earnings, business
affairs or business prospects of the Fund or the Adviser,
whether or not arising in the ordinary course of business, or
(ii) if there has occurred any material adverse change in the
financial markets in the United States or elsewhere or any
outbreak of hostilities or other calamity or crisis or any
escalation of existing hostilities the effect of which is such
as to make it, in the Underwriter's judgment, impracticable to
market the Shares or enforce contracts for the sale of the
Shares, or (iii) if trading in the Common Stock has been
suspended by the Commission or if trading generally on either
the American Stock Exchange or the New York Stock Exchange has
been suspended, or minimum or maximum prices for trading have
been fixed, or maximum ranges for prices for securities have
been required, by either of said exchanges or by order of the
Commission or any other governmental authority, or if a banking
moratorium has been declared by Federal or New York
authorities. As used in this subsection (a), the term
"Prospectus" means the Prospectus in the form first used to
confirm sales of the Shares.
22
<PAGE>
(b) If this Agreement is terminated pursuant to this
Section 9, such termination shall be without liability of any
party to any other party except as provided in Section 4 hereof.
SECTION 10. Notices. All notices and other communications
hereunder shall be in writing and shall be deemed to have been
duly given if mailed or transmitted by any standard form of
written telecommunication. Notices to the Underwriter shall be
directed to Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated, Merrill Lynch World Headquarters, North
Tower, World Financial Center, New York, New York 10281-1305,
Attention: Richard N. Doyle, Director; notices to the Fund or to
the Adviser shall be directed to each of them at 800 Scudders
Mill Road, Plainsboro, New Jersey 08536, Attention: Arthur
Zeikel, President.
SECTION 11. Parties. This Agreement and the Pricing
Agreement shall inure to the benefit of and be binding upon the
Underwriter, the Fund, the Adviser and their respective
successors. Nothing expressed or mentioned in this Agreement or
in the Pricing Agreement is intended or shall be construed to
give any person, firm or corporation, other than the parties
hereto and their respective successors and the controlling
persons and officers and directors referred to in Sections 6 and
7 hereof and their heirs and legal representatives, any legal or
equitable right, remedy or claim under or in respect of this
Agreement or any provision herein contained. This Agreement and
the Pricing Agreement and all conditions and provisions hereof
are intended to be for the sole and exclusive benefit of the
parties hereto and thereto and their respective successors, and
said controlling persons and officers and directors and their
heirs and legal representatives, and for the benefit of no other
person, firm or corporation. No purchaser of Shares from the
Underwriter shall be deemed to be a successor merely by reason
of such purchase.
SECTION 12. Governing Law and Time. This Agreement and
the Pricing Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to
agreements made and to be performed in said State. Specified
times of day refer to New York City time.
23
<PAGE>
If the foregoing is in accordance with your understanding
of our Agreement, please sign and return to us a counterpart
hereof, whereupon this instrument, along with all counterparts,
will become a single binding agreement between the Underwriter
and the Fund and the Adviser in accordance with its terms.
Very truly yours,
EMERGING AMERICAS FUND, INC.
By: _________________________
Authorized Officer
FUND ASSET MANAGEMENT, L.P.
By: _________________________
Authorized Officer
Confirmed and Accepted, as of the
date first above written:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: ________________________
Authorized Signature
24
<PAGE>
Exhibit A
_________ Shares
Emerging Americas Fund, Inc.
(a Maryland corporation)
Common Stock
(Par Value $.10 Per Share)
PRICING AGREEMENT
__________, 1994
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, New York 10281
Dear Sirs:
Reference is made to the Purchase Agreement, dated
__________, 1994 (the "Purchase Agreement"), relating to the
purchase by Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated (the "Underwriter"), of the above shares of
common stock, par value $.10 per share (the "Initial Shares"),
of Emerging Americas Fund, Inc. (the "Fund") and relating to the
option granted to the Underwriter to purchase up to an
additional _______ shares of common stock, par value $.10 per
share, of the Fund to cover over-allotments in connection with
the sale of the Initial Shares (the "Option Shares"). The
Initial Shares and all or any part of the Option Shares
collectively are referred to herein as the "Shares".
Pursuant to Section 2 of the Purchase Agreement, the Fund
agrees with the Underwriter as follows:
1. The applicable initial public offering price per
share for the Shares, determined as provided in said
Section 2, shall be as follows:
A-1
<PAGE>
(a) $_____ for purchases in single transactions
of less than 3,500 Shares;
(b) $_____ for purchases in single transactions
of 3,500 or more Shares but less than _____ Shares; and
(c) $_____ for purchases in single transactions
of 7,000 or more Shares.
2. The purchase price per Share for the Shares to be
paid by the Underwriter shall be an amount equal to the
applicable initial public offering price set forth above
less (i) $____ per Share for purchases in single
transactions of less than _____ Shares; (ii) $____ per
Share for purchases in single transactions of _____ or more
Shares but less than _____ Shares and (iii) $____ per Share
for purchases in single transactions of _____ or more
Shares.
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<PAGE>
If the foregoing is in accordance with your understanding
of our agreement, please sign and return to the Fund a
counterpart hereof, whereupon this instrument, along with all
counterparts, will become a binding agreement between the
Underwriter and the Fund in accordance with its terms.
Very truly yours,
EMERGING AMERICAS FUND, INC.
By: _________________________
Authorized Officer
Confirmed and Accepted, as of the
date first above written:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: ________________________
Authorized Signature
A-3
<PAGE>
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Merrill Lynch World Headquarters
World Financial Center
North Tower
New York, N.Y. 10281-1305
STANDARD DEALER AGREEMENT
Dear Sirs:
In connection with public offerings of securities
underwritten by us, or by a group of underwriters (the
"Underwriters") represented by us, you may be offered the
opportunity to purchase a portion of such securities, as a
principal, at a discount from the offering price representing a
selling concession or reallowance granted as consideration for
services rendered by you in the sale of such securities. We
request that you agree to the following terms and provisions,
and make the following representations, which, together with any
additional terms and provisions set forth in any wire or letter
sent to you in connection with a particular offering, will
govern all such purchases of securities and the reoffering
thereof by you.
Your subscription to, or purchase of, such securities will
constitute your reaffirmation of this Agreement.
1. When we are acting as a representative (a
"Representative") of the Underwriters in offering securities to
you, it should be understood that all offers are made subject to
prior sale of the subject securities, when, as and if such
securities are delivered to and accepted by the Underwriters and
subject to the approval of legal matters by their counsel. In
such cases, any order from you for securities will be strictly
subject to confirmation and we reserve the right in our
uncontrolled discretion to reject any order in whole or in part.
Upon release by us, you may reoffer such securities at the
offering price fixed by us. With our consent, you may allow a
discount, not in excess of the reallowance fixed by us, in
selling such securities to other dealers, provided that in doing
so you comply with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. (the "NASD"). Upon our
request, you will advise us of the identity of any dealer to
whom you allow such a discount and any Underwriter or dealer
from whom you receive such a discount. After the securities are
released for sale to the public, we may vary the offering price
and other selling terms.
<PAGE>
2. You represent that you are a dealer actually engaged in
the investment banking or securities business and that you are
either (i) a member in good standing of the NASD or (ii) a
dealer with its principal place of business located outside the
United States, its territories or possessions and not registered
under the Securities Exchange Act of 1934 (a "non-member foreign
dealer") or (iii) a bank not eligible for membership in the
NASD. If you are a non-member foreign dealer, you agree to make
no sales of securities within the United States, its territories
or its possessions or to persons who are nationals thereof or
residents therein. Non-member foreign dealers and banks agree,
in making any sales, to comply with the NASD's interpretation
with respect to free-riding and withholding. In accepting a
selling concession where we are acting as a Representative of
the Underwriters, in accepting a reallowance from us whether or
not we are acting as such Representative, and in allowing a
discount to any other person, you agree to comply with the
provisions of Section 24 of Article III of the Rules of Fair
Practice of the NASD, and, in addition, if you are a non-member
foreign dealer or bank, you agree to comply, as though you were
a member of the NASD, with the provisions of Sections 8 and 36
of Article III of such Rules of Fair Practice and to comply with
Section 25 of Article III thereof as that Section applies to a
non-member foreign dealer or bank. You represent that you are
fully familiar with the above provisions of the Rules of Fair
Practice of the NASD.
3. If the securities have been registered under the
Securities Act of 1933, as amended (the "1933 Act"), in offering
and selling such securities you are not authorized to give any
information or make any representation not contained in the
prospectus relating thereto. You confirm that you are familiar
with the rules and policies of the Securities and Exchange
Commission relating to the distribution of preliminary and final
prospectuses, and you agree that you will comply therewith in
any offering covered by this Agreement. If we are acting as a
Representative of the Underwriters, we will make available to
you, to the extent made available to us by the issuer of the
securities, such number of copies of the prospectus or offering
documents, for securities not registered under the 1933 Act, as
you reasonably may request.
4. If we are acting as a Representative of the
Underwriters of securities of an issuer that is not required to
file reports under the Securities Exchange Act of 1934, as
amended (the "1934 Act"), you agree that you will not sell any
of the securities to any account over which you have
discretionary authority.
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<PAGE>
5. Payment for securities purchased by you is to be made
at our office at Merrill Lynch World Headquarters, World
Financial Center, North Tower, New York, N.Y. 10281-1305 (or at
such other place as we may advise), at the offering price less
the concession allowed to you, on such date as we may advise, by
certified or official bank check in New York Clearing House
funds (or such other funds as we may advise), payable to our
order, against delivery of the securities to be purchased by
you. We shall have authority to make appropriate arrangements
for payment to and/or delivery through the facility of The
Depository Trust Company or any such other depository or similar
facility for the securities.
6. In the event that, prior to the completion of the
distribution of securities covered by this Agreement, we
purchase in the open market or otherwise any securities
delivered to you, if we are acting as a Representative of the
Underwriters, you agree to repay to us for the accounts of the
Underwriters the amount of the concession allowed to you plus
brokerage commissions and any transfer taxes paid in connection
with such purchase.
7. At any time prior to the completion of the distribution
of securities covered by this Agreement, upon our request as a
Representative of the Underwriters, you will report to us the
amount of securities purchased by you which then remains unsold
and, upon our request, will sell to us for the account of one or
more of the Underwriters such amount of such unsold securities
as we may designate, at the offering price less an amount to be
determined by us not in excess of the concession allowed to you.
8. If we are acting as a Representative of the
Underwriters, upon application to us, we will inform you of the
states and other jurisdictions of the United States in which it
is believed that the securities being offered are qualified for
sale under, or are exempt from the requirements of, their
respective securities laws, but we assume no responsibility with
respect to your right to sell securities in any jurisdiction.
We shall have authority to file with the Department of State of
the State of New York a Further State Notice with respect to the
securities, if necessary.
9. You agree that in connection with any offering of
securities covered by this Agreement you will comply with the
applicable provisions of the 1933 Act and the 1934 Act and the
applicable rules and regulations of the Securities and Exchange
Commission thereunder, the applicable rules and regulations of
the NASD, and the applicable rules of any securities exchange
having jurisdiction over the offering.
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<PAGE>
10. We shall have full authority to take such action as we
may deem advisable in respect of all matters pertaining to any
offering covered by this Agreement. We shall be under no
liability to you except for our lack of good faith and for
obligations assumed by us in this Agreement, except that you do
not waive any rights that you may have under the 1933 Act or the
rules and regulations thereunder.
11. Any notice from us shall be deemed to have been duly
given if mailed or transmitted by any standard form of written
telecommunications to you at the above address or at such other
address as you shall specify to us in writing.
12. With respect to any offering of securities covered by
this Agreement, the price restrictions contained in Paragraph 1
hereof and the provisions of Paragraphs 6 and 7 hereof shall
terminate as to such offering at the close of business on the
45th day after the securities are released for sale or, as to
any or all such provisions, at such earlier time as we may
advise. All other provisions of this Agreement shall remain
operative and in full force and effect with respect to such
offering.
13. This Agreement shall be governed by the laws of the
State of New York.
Please confirm your agreement hereto by signing the
enclosed duplicate copy hereof in the place provided below and
returning such signed duplicate copy to us at World
Headquarters, World Financial Center, North Tower, New York,
N.Y. 10281-1305, Attention: Corporate Syndicate. Upon receipt
thereof, this instrument and such signed duplicate copy will
evidence the agreement between us.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: _________________________________
Name:
Confirmed and accepted as of the
day of , 199
__________________________________
Name of Dealer
__________________________________
Authorized Officer or Partner
(if not an Officer or Partner, attach a
copy of the Instrument of Authorization)
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