SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Merrill Lynch Americas Income Fund, Inc.;
Merrill Lynch Developing Capital Markets Fund, Inc.;
Merrill Lynch Dragon Fund, Inc.;
Merrill Lynch EuroFund;
Merrill Lynch Global Allocation Fund, Inc.;
Merrill Lynch Global Bond Fund for Investment and Retirement;
Merrill Lynch International Holdings, Inc. (d/b/a Merrill Lynch Global
Holdings);
Merrill Lynch Healthcare Fund, Inc.;
Merrill Lynch International Equity Fund;
Merrill Lynch Latin America Fund, Inc.;
Merrill Lynch Pacific Fund, Inc.;
Merrill Lynch Short-Term Global Income Fund, Inc.;
and Merrill Lynch Technology Fund, Inc.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(Same as Above)
(NAME OF PERSON(S) FILING PROXY STATEMENT)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).*
[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11/1/
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4) Proposed maximum aggregate value of transaction:
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[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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*$125 per Registrant per Investment Company Act Rule 20a-1(c).
/1/Set forth the amount on which the filing fee is calculated and state how it
was determined.
PRELIMINARY COPY
MERRILL LYNCH AMERICAS INCOME FUND, INC.
MERRILL LYNCH DEVELOPING CAPITAL MARKETS FUND, INC.
MERRILL LYNCH DRAGON FUND, INC.
MERRILL LYNCH EUROFUND
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
MERRILL LYNCH GLOBAL BOND FUND FOR INVESTMENT AND RETIREMENT
MERRILL LYNCH GLOBAL HOLDINGS
MERRILL LYNCH HEALTHCARE FUND, INC.
MERRILL LYNCH INTERNATIONAL EQUITY FUND
MERRILL LYNCH LATIN AMERICA FUND, INC.
MERRILL LYNCH PACIFIC FUND, INC.
MERRILL LYNCH SHORT-TERM GLOBAL INCOME FUND, INC.
MERRILL LYNCH TECHNOLOGY FUND, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
Dear Shareholder:
The enclosed proxy statement requests that you consider and approve (i) the
election of the Board of Directors or Trustees, (ii) the selection of the
independent auditors, (iii) certain changes to the fundamental investment
restrictions for each of the above-referenced mutual funds (each a "Fund") of
which you own shares, (iv) an amendment to the Fund's Articles of
Incorporation or Declaration of Trust in connection with the implementation by
the Funds of the Merrill Lynch Select Pricing SM System (the "Select Pricing
System"); and (v) with respect to shareholders of Merrill Lynch Pacific Fund,
Inc. ("Pacific Fund"), a change in that Fund's investment policy from being a
diversified fund to being a non-diversified fund.
As you are aware, many of the mutual funds advised by Merrill Lynch Asset
Management, L.P. ("MLAM") or its affiliate, Fund Asset Management, L.P.
("FAM"), and distributed by Merrill Lynch Funds
Distributor, Inc. ("MLFD"), offer two classes of shares which may be purchased
at a price equal to the next determined net asset value per share plus a sales
charge which, at the election of the purchaser, may be imposed (i) at the time
of purchase (the "Class A shares") or (ii) on a deferred basis (the "Class B
shares") (the "Dual Distribution System"). In order to provide additional
distribution alternatives tailored more specifically to an investor's needs,
the Funds, as well as all of the other mutual funds advised by MLAM or FAM that
are currently operating under the Dual Distribution System, intend to implement
the Select Pricing System, a new distribution system under which each Fund will
offer four classes of shares, each with a different combination of sales
charges, ongoing fees and other features. The implementation of the Select
Pricing System will not adversely affect the net asset value of a current
shareholder's investment in the Fund nor will the two new classes of shares
have an adverse effect on the shares that are currently issued and outstanding.
An amendment to the Articles of Incorporation or Declaration of Trust of each
of the Funds is being proposed in connection with the implementation of the
Select Pricing System. This amendment, as well as the election of the Boards of
Directors and Trustees, the selection of independent auditors and the proposed
investment restriction changes require the separate approval of the outstanding
shareholders of each of the Funds. In addition, in the case of Pacific Fund,
the proposal to change its investment policy from being a diversified fund to
being a non-diversified fund requires the separate approval of the outstanding
shareholders of that Fund. When we have solicited proxies in the past, you have
received a proxy statement directed solely to shareholders of your Fund.
Because all of the mutual funds currently operating under the Dual Distribution
System intend to begin operating under the Select Pricing System, and since
much of the information required to be included in the proxy materials for each
Fund is substantially identical, we believe it is more efficient to prepare a
single "omnibus" proxy statement for use by the shareholders of all Funds
having a common Board of Directors or Trustees. Specific information pertaining
to your Fund or Funds is attached hereto as Exhibits A and C. If you own more
than one Fund, the term "Fund" refers to each Fund in which you own shares.
EACH SHAREHOLDER WILL VOTE ONLY ON PROPOSALS THAT APPLY TO THAT SHAREHOLDER'S
FUND. THE ENCLOSED PROXY CARD(S) SOLICITS YOUR VOTE ON EACH PROPOSAL AS A
SHAREHOLDER OF EACH OF THE FUNDS THAT YOU OWN. YOU WILL BE SENT A SEPARATE
PROXY STATEMENT AND PROXY CARD FOR EACH ACCOUNT IN WHICH YOU HOLD SHARES OF THE
FUNDS COVERED BY THIS PROXY STATEMENT; IN ADDITION, IF YOU OWN SHARES OF OTHER
MLAM-ADVISED FUNDS, YOU WILL BE SENT FOR EACH ACCOUNT IN WHICH YOU OWN SHARES
AN ADDITIONAL COMBINED PROXY STATEMENT
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AND PROXY CARD FOR EACH GROUP OF FUNDS WITH A COMMON BOARD. EACH VOTE IS
IMPORTANT; PLEASE REVIEW EACH PROXY STATEMENT CAREFULLY AND CAST YOUR VOTE ON
------------------
EACH PROXY CARD YOU RECEIVE. MANAGEMENT AND THE BOARD RECOMMEND THAT YOU VOTE
"FOR" EACH PROPOSAL. If you have any questions, please call 1-609-282-2800.
Sincerely,
Arthur Zeikel
President
3
MERRILL LYNCH AMERICAS INCOME FUND, INC.
MERRILL LYNCH DEVELOPING CAPITAL MARKETS FUND, INC.
MERRILL LYNCH DRAGON FUND, INC.
MERRILL LYNCH EUROFUND
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
MERRILL LYNCH GLOBAL BOND FUND FOR INVESTMENT AND RETIREMENT
MERRILL LYNCH GLOBAL HOLDINGS
MERRILL LYNCH HEALTHCARE FUND, INC.
MERRILL LYNCH INTERNATIONAL EQUITY FUND
MERRILL LYNCH LATIN AMERICA FUND, INC.
MERRILL LYNCH PACIFIC FUND, INC.
MERRILL LYNCH SHORT-TERM GLOBAL INCOME FUND, INC.
MERRILL LYNCH TECHNOLOGY FUND, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
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NOTICE OF MEETINGS OF SHAREHOLDERS
SEPTEMBER 28, 1994
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To The Shareholders:
Notice is hereby given that Meetings of Shareholders (the "Meetings") of the
above-listed mutual funds (each a "Fund") advised by Merrill Lynch Asset
Management, L.P. ("MLAM") will be held at the offices of MLAM, 800 Scudders
Mill Road, Plainsboro, New Jersey, on September 28, 1994 at the time specified
in Exhibit A hereto. The Meetings will be held for the following purposes:
(1) To elect members of the Boards of Directors or Trustees to serve
for an indefinite term until their successors are duly elected
and qualified;
(2) To consider and act upon a proposal to ratify the selection of
the independent auditors of each Fund for its current fiscal
year;
(3) To consider and act upon a proposal to amend the fundamental
investment restrictions of each Fund;
(4) To consider and act upon a proposal to amend the Articles of
Incorporation or Declaration of Trust of each Fund in connection
with the implementation of the Merrill Lynch Select Pricing SM
System (the "Select Pricing System"), a multiclass distribution
system for the offer and sale of shares of the Fund (this
proposal must be approved by the shareholders of both classes of
the Fund voting as a single class and also by the Class B
shareholders of the Fund voting as a separate class);
(5) With respect to Merrill Lynch Pacific Fund, Inc. ("Pacific
Fund"), to consider and act upon a proposal to change that
Fund's investment policy from being a diversified fund to being
a non-diversified fund (this proposal is being submitted for the
approval of only Pacific Fund shareholders); and
(6) To transact such other business as may properly come before the
Meetings or any adjournment thereof.
The Board has fixed the close of business on August 5, 1994 as the record
date for the determination of shareholders entitled to notice of and to vote at
the Meetings or any adjournment thereof.
A complete list of the shareholders of each Fund entitled to vote at each
Meeting will be available and open to the examination of any shareholder of
that Fund for any purpose germane to the Fund's Meeting during ordinary
business hours from and after September 6, 1994 at the office of the Fund, 800
Scudders Mill Road, Plainsboro, New Jersey 08536. You are cordially invited to
attend your Fund's Meeting. Shareholders who do not expect to attend the
Meeting in person are requested to complete, date and sign the enclosed form of
proxy, as well as any other proxies you may receive from the Funds in
connection with these Meetings, and return them promptly. Each proxy you
receive from the Funds in connection with these meetings is being solicited on
behalf of the Board.
By Order of the Board
Mark B. Goldfus
Secretary
Robert Harris
Secretary
Michael J. Hennewinkel
Secretary
Plainsboro, New Jersey
Dated: August 10, 1994
2
COMBINED PROXY STATEMENT
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MERRILL LYNCH AMERICAS INCOME FUND, INC.
MERRILL LYNCH DEVELOPING CAPITAL MARKETS FUND, INC.
MERRILL LYNCH DRAGON FUND, INC.
MERRILL LYNCH EUROFUND
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
MERRILL LYNCH GLOBAL BOND FUND FOR INVESTMENT AND RETIREMENT
MERRILL LYNCH GLOBAL HOLDINGS
MERRILL LYNCH HEALTHCARE FUND, INC.
MERRILL LYNCH INTERNATIONAL EQUITY FUND
MERRILL LYNCH LATIN AMERICA FUND, INC.
MERRILL LYNCH PACIFIC FUND, INC.
MERRILL LYNCH SHORT-TERM GLOBAL INCOME FUND, INC.
MERRILL LYNCH TECHNOLOGY FUND, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
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MEETINGS OF SHAREHOLDERS
SEPTEMBER 28, 1994
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Boards of the above-listed funds (each a "Fund" and
collectively, the "Funds"), to be voted at the Meeting of Shareholders of each
Fund (the "Meeting"), to be held at the offices of Merrill Lynch Asset
Management, L.P. ("MLAM"), 800 Scudders Mill Road, Plainsboro, New Jersey, on
September 28, 1994 at the time specified in Exhibit A hereto. The approximate
mailing date of this Proxy Statement is August 16, 1994.
Each Fund is organized either as a Maryland corporation or a Massachusetts
business trust. In each jurisdiction, nomenclature varies. For ease and
clarity of presentation, throughout the proxy statement shares of common stock
or beneficial interest of a Fund are referred to as "shares", holders of
shares are referred to as "shareholders", the Board of Directors or Trustees
of each of the Funds is referred to as the "Board", the directors or trustees
of each Fund are referred to as "Board members", the investment adviser of
each Fund is referred to as the "Investment Adviser" or "MLAM" and each Fund's
Articles of Incorporation or Declaration of Trust is referred to as its
"charter". Unless otherwise indicated, MLAM and Fund Asset Management, L.P.
("FAM") are together referred to as "MLAM" and Merrill Lynch Funds
Distributor, Inc. is referred to as "MLFD".
All properly executed proxies received prior to the Meeting will be voted at
the Meeting in accordance with the instructions marked thereon or otherwise as
provided therein. Unless instructions to the contrary are marked, proxies will
be voted "FOR" the election of the Board, "FOR" the ratification of the
selection of independent auditors to serve for the Fund's current fiscal year,
"FOR" the proposal to amend the fundamental investment restrictions of the
Fund, "FOR" the charter amendment in connection with the implementation of the
Merrill Lynch Select Pricing SM System (the "Select Pricing System") and with
respect to proxies submitted by shareholders of Merrill Lynch Pacific Fund,
Inc. ("Pacific Fund"), "FOR" the proposal to change its investment policy from
being a diversified fund to being a non-diversified fund. Any proxy may be
revoked at any time prior to the exercise thereof by giving written notice to
the Secretary of the Fund.
The Board has fixed the close of business on August 5, 1994 (the "Record
Date") for the determination of shareholders entitled to notice of and to vote
at the Meetings and at any adjournment thereof. Shareholders on the Record
Date will be entitled to one vote for each share held and fractional votes for
fractional shares held, with no shares having cumulative voting rights.
Shareholders of each Fund will vote as a single class, and will vote
separately on each proposal on which shareholders of that Fund are entitled to
vote. As noted, with respect to Proposal 4, Class B shareholders of each Fund
voting together as a separate class also will be required to approve the
charter amendment.
As of the Record Date, your Fund had outstanding the number of shares
indicated in Exhibit A. To the knowledge of the Fund, no person owned
beneficially more than five percent of the outstanding shares of the Fund at
such date except as set forth on Exhibit A.
2
The Board knows of no business other than that mentioned in Proposals 1
through 5 of the Notice of Meeting which will be presented for consideration at
the Meeting. If any other matter is properly presented, it is the intention of
the persons named in the enclosed proxy, as well as any other proxy sent by the
Funds in connection with the Meetings, to vote in accordance with their best
judgment.
Proposal 1
ELECTION OF BOARD MEMBERS
At the Meeting, each Board member will be elected to serve for an indefinite
term until his successor is elected and qualified, until his death, until he
resigns or is otherwise removed under the charter or until December 31 of the
year in which he reaches age 72. It is the intention of the persons named in
the enclosed proxy to nominate and vote in favor of the election of the persons
listed below.
The Board knows of no reason why any of these nominees will be unable to
serve, but in the event of any such unavailability, the proxies received will
be voted for such substitute nominee or nominees as the Board may recommend.
Certain information concerning the nominees is set forth below. Additional
information concerning the nominees and other information relevant to the
election of Board members is set forth in Exhibit A.
PRINCIPAL OCCUPATIONS DURING
PAST FIVE YEARS AND PUBLIC
NAME AND ADDRESS OF NOMINEE AGE DIRECTORSHIPS(1)
--------------------------- --- ----------------------------
Donald Cecil(1)(2)...... 67 Special Limited Partner of
1114 Avenue of the Cumberland Partners (an
Americas investment partnership) since
New York, New York 1982 and General Partner of
10036 Cumberland Associates (an asset
management company) from 1970 to
1982; Member of Institute of
Chartered Financial Analysts;
Member and Chairman of
Westchester County (New York)
Board of Transportation.
(footnotes at end of table)
3
PRINCIPAL OCCUPATIONS DURING
PAST FIVE YEARS AND PUBLIC
NAME AND ADDRESS OF NOMINEE AGE DIRECTORSHIPS(1)
--------------------------- --- ----------------------------
Edward H. Meyer(1)(2)... 67 President of Grey Advertising Inc.
777 Third Avenue since 1968, Chief Executive
New York, New York Officer since 1970 and Chairman
10017 of the Board of Directors since
1972; Director of The May
Department Stores Company, Bowne
& Co., Inc. (financial
printers), Ethan Allen Interiors
Inc. and Harman International
Industries, Inc.
Charles C. Reilly(1)(2). 63 Self-employed financial consultant
9 Hampton Harbor Road since 1990; President and Chief
Hampton Bays, New York Investment Officer of Verus
11946 Capital, Inc. from 1979 to 1990;
former Senior
Vice President of Arnhold and
S. Bleichroeder, Inc. from 1973
to 1990; Adjunct Professor,
Columbia University Graduate
School of Business since 1990;
Adjunct Professor, Wharton
School, University of
Pennsylvania, 1990; Director,
Harvard Business School Alumni
Association.
Richard R. West(1)(2)... 56 Professor of Finance since 1984,
482 Tepi Drive and Dean from 1984 to 1993, of
Southbury, Connecticut New York University Leonard N.
06488 Stern School of Business
Administration; Director of Re
Capital Corp. (reinsurance
holding company), Bowne & Co.,
Inc. (financial printers),
Vornado, Inc. (real estate
holding company), Smith-Corona
Corporation (manufacturer of
typewriters and word processors)
and Alexander's Inc. (real
estate company).
(footnotes at end of table)
4
PRINCIPAL OCCUPATIONS DURING
PAST FIVE YEARS AND PUBLIC
NAME AND ADDRESS OF NOMINEE AGE DIRECTORSHIPS(1)
--------------------------- --- ----------------------------
Arthur Zeikel(1)(3)..... 62 President of MLAM and its
P.O. Box 9011 predecessor since 1977 and Chief
Princeton, New Jersey Investment Officer since 1976;
08543-9011 President of FAM and its
predecessor since 1977 and Chief
Investment Officer since 1976;
President and Director of
Princeton Services, Inc.
("Princeton Services") since
1993; Executive Vice President
of Merrill Lynch & Co., Inc.
("ML & Co.") since 1990;
Executive Vice President of
Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill
Lynch") since 1990; Senior Vice
President of Merrill Lynch from
1985 to 1990; Director of MLFD.
- ------------
(1) Each of the nominees is a director or trustee of certain other investment
companies for which FAM or MLAM acts as investment adviser. See "Merrill
Lynch Investment Company Board Memberships" below.
(2) Member of the Audit and Nominating Committee of the Board.
(3) Interested person, as defined in the Investment Company Act of 1940, as
amended (the "Investment Company Act"), of the Funds.
Committees and Board Meetings. The Board has a standing Audit and Nominating
Committee (the "Committee"), which consists of the Board members who are not
"interested persons" of the Fund within the meaning of the Investment Company
Act. The principal purpose of the Committee is to review the scope of the
annual audit conducted by the Fund's independent auditors and the evaluation
by such auditors of the accounting procedures followed by the Fund. The
Committee will also select and nominate the Board members who are not
"interested persons" of the Fund within the meaning of the Investment Company
Act. The Committee generally will not consider nominees recommended by
shareholders of the Fund. The non-interested Board members have retained
independent legal counsel to assist them in connection with these duties.
During the Fund's last fiscal year, each of the Board members then in office
attended at least 75% of the aggregate of (i) the total number of meetings of
the Board held during the fiscal year and (ii) if a member, the total number
of meetings of the Committee held during the fiscal year.
Compensation of Board Members. The Investment Adviser pays all compensation
of all officers of the Fund and all Board members who are
5
affiliated with ML & Co. or its subsidiaries. The Fund pays each Board member
not affiliated with the Investment Adviser an annual fee plus a fee for each
meeting attended, and the Fund also pays each member of its Committee a fee for
each meeting attended, together with such Board member's out-of-pocket expenses
relating to attendance at such meetings. Information with respect to fees and
expenses paid to the Board members for each Fund's most recently completed
fiscal year is set forth in Exhibit A.
Merrill Lynch Investment Company Board Memberships. MLAM and FAM act as the
investment adviser for more than 100 registered investment companies. Mr.
Zeikel is a trustee or director of each of these companies except for Merrill
Lynch Series Fund, Inc., Merrill Lynch Institutional Intermediate Fund and
Merrill Lynch Funds for Institutions Series. Messrs. Reilly and West are also
trustees or directors of CBA Money Fund, CMA Government Securities Fund, CMA
Money Fund, CMA Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA
Treasury Fund, Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch Fund for
Tomorrow, Inc., Merrill Lynch Global Utility Fund, Inc., Merrill Lynch High
Income Municipal Bond Fund, Inc., Merrill Lynch Municipal Bond Fund, Inc.,
Merrill Lynch Municipal Intermediate Term Fund, Merrill Lynch Senior Floating
Rate Fund, Inc., Merrill Lynch Strategic Dividend Fund, Merrill Lynch Utility
Income Fund, Inc., MuniVest Fund, Inc., MuniVest Fund II, Inc., Senior High
Income Portfolio, Inc., Senior High Income Portfolio II, Inc., Senior Strategic
Income Fund, Inc., Taurus MuniCalifornia Holdings, Inc., Taurus MuniNewYork
Holdings, Inc., The Corporate Fund Accumulation Program, Inc., and The
Municipal Fund Accumulation Program, Inc. Messrs. Cecil and Meyer are also
trustees or directors of Merrill Lynch Basic Value Fund, Inc., Merrill Lynch
Capital Fund, Inc., Merrill Lynch Global Resources Trust, Merrill Lynch Ready
Assets Trust, Merrill Lynch Special Value Fund, Inc., Merrill Lynch U.S.A.
Government Reserves, Merrill Lynch U.S. Treasury Money Fund, MuniVest
California Insured Fund, Inc., MuniVest Florida Fund, MuniVest Michigan Insured
Fund, Inc., MuniVest New Jersey Fund, Inc., MuniVest New York Insured Fund,
Inc., MuniYield Insured Fund II, Inc., MuniYield New York Insured Fund III,
Inc., MuniYield Florida Insured Fund, MuniYield Pennsylvania Fund, MuniYield
New Jersey Insured Fund, Inc. and MuniYield Michigan Insured Fund, Inc. Each of
Messrs. Cecil, Meyer, Reilly and West are also directors of Merrill Lynch
Global SmallCap Fund, Inc., Emerging Tigers Fund, Inc. and Worldwide DollarVest
Fund, Inc.
Officers of the Fund. Information regarding the officers of the Fund is set
forth in Exhibit A.
6
Stock Ownership. As of July 29, 1994, the nominees held shares of the Funds
as follows:
NO. OF
NOMINEE FUND AND CLASS SHARES HELD
- ------- -------------- -----------
Mr. Cecil............................................
Mr. Meyer............................................
Mr. Reilly...........................................
Mr. West.............................................
Mr. Zeikel...........................................
At the Record Date, the Board members and officers of the Fund as a group
owned an aggregate of less than 1% of the shares of the Fund outstanding at
such date. At such date, Mr. Zeikel, an officer of the Fund and a member of the
Board, and the other officers of the Fund owned an aggregate of less than 1% of
the outstanding shares of common stock of ML & Co.
Proposal 2
SELECTION OF INDEPENDENT AUDITORS
The Board, including a majority of the Board members who are not interested
persons of the Fund, has selected independent auditors to examine the financial
statements of the Fund for the current fiscal year. The Fund knows of no direct
or indirect financial interest of such auditors in the Fund. Such appointment
is subject to ratification or rejection by the shareholders of the Fund. Unless
a contrary specification is made, the accompanying proxy will be voted in favor
of ratifying the selection of such auditors.
Deloitte & Touche ("D&T") acts as independent auditors for all of the Funds.
D&T also acts as independent auditors for ML & Co. and all of its subsidiaries
and for most other investment companies for which MLAM or FAM acts as
investment adviser. The fees received by D&T from these other entities are
substantially greater, in the aggregate, than the total fees received by it
from the Fund. The Board considered the fact that D&T has been retained as the
independent auditors for ML & Co. and the other entities described above in its
evaluation of the independence of D&T with respect to each Fund.
Representatives of the Fund's independent auditors are expected to be present
at the Meeting and will have the opportunity to make a statement if they so
desire and to respond to questions from shareholders.
7
Proposal 3
PROPOSAL TO AMEND THE FUNDAMENTAL INVESTMENT RESTRICTIONS OF THE FUND
Each Fund advised by MLAM or its affiliate, Fund Asset Management, L.P.
("FAM") (collectively, the "MLAM Funds") has adopted investment restrictions
that govern generally the operations of the Fund. Investment restrictions that
are deemed fundamental may not be changed without a vote of the outstanding
shares of the Fund, while non-fundamental investment restrictions may be
changed by the Fund's Board if it deems it in the best interest of the Fund and
its shareholders to do so. In addition to investment restrictions, each of the
Funds operates pursuant to investment objectives and policies, described in the
Fund's Prospectus and Statement of Additional Information, that govern the
investment activities of the Fund and further limit its ability to invest in
certain types of securities or engage in certain types of transactions. These
investment objectives and policies will be unaffected by the adoption of the
proposed investment restrictions. Generally the investment objective of a Fund
is a fundamental policy of the Fund that may be changed only by shareholder
vote. The investment policies of a Fund are non-fundamental and may not be
changed unless and until (i) the Board of the Fund explicitly authorizes, by
resolution, a change in the investment policy and (ii) the Prospectus of the
Fund is amended to reflect the change in policy and, if appropriate, to include
additional disclosure.
Investment restrictions may differ among Funds depending on prevailing
regulations and the nature of the securities markets at the time the particular
Fund commenced operations. As a result, similar Funds in the MLAM complex have
different investment restrictions, which may disadvantage one Fund over another
in the current marketplace and make administration and compliance monitoring
unnecessarily difficult.
To address this problem, MLAM has analyzed the various fundamental and non-
fundamental investment restrictions of the Funds covered by this proxy
statement, as well as the investment restrictions of all of the other MLAM-
advised non-money market mutual funds, in light of each Fund's investment
objectives and policies, and has created a set of standard fundamental and non-
fundamental investment restrictions. The proposed uniform restrictions are
designed to provide each Fund with as much investment flexibility as possible
under the Investment Company Act and applicable state securities regulations
("state blue sky regulations"), help promote operational efficiencies and
facilitate monitoring of compliance. Several recently created funds in the MLAM
complex operate under investment restrictions substantially similar to the
proposed restrictions.
8
The proposed changes to the investment restrictions are not expected to
affect materially the current operations of the Funds. Although adoption of new
or revised investment restrictions is not likely to have any effect on the
current investment techniques employed by a Fund, it will contribute to the
overall goal of uniformity and standardization, as well as provide the Fund
with a greater ability to make future changes in investment restrictions
through Board action. In this regard, the Boards propose that each Fund adopt,
as described below, the uniform, updated investment restrictions.
The proposed restrictions restate many of the fundamental and non-fundamental
restrictions currently in effect for each Fund. In some instances, certain
fundamental or non-fundamental restrictions have been modified or eliminated in
accordance with developments in Federal or state blue sky regulations or in the
securities markets since the inception of the Fund. In other instances, certain
restrictions previously deemed fundamental have been redesignated non-
fundamental. Fundamental investment restrictions may not be changed without a
vote of the shareholders of the Fund, and the costs of shareholder meetings for
these purposes generally are borne by the Fund and its shareholders. By making
certain restrictions non-fundamental, the Board may amend a restriction as it
deems appropriate and in the best interest of the Fund and its shareholders,
without incurring the costs of seeking a shareholder vote.
Each Fund's current investment restrictions are set forth in Exhibit C. Set
forth below is each proposed restriction, followed by a commentary describing
the proposed restriction and detailing the significance, if any, of the
proposed changes for the MLAM Funds.
Proposed Fundamental Investment Restrictions. Under the proposed fundamental
investment restrictions, a Fund may not:
1. MAKE ANY INVESTMENT INCONSISTENT WITH THE FUND'S CLASSIFICATION AS A
DIVERSIFIED COMPANY UNDER THE INVESTMENT COMPANY ACT.
(Applicable to Merrill Lynch EuroFund, Merrill Lynch Global Holdings, and
Merrill Lynch International Equity Fund. Pacific Fund shareholders will
be asked at the Meeting to consider a change in that Fund's investment
policy from being a diversified fund to being a non-diversified fund as
explained further below; if such change is not approved, then this first
proposed fundamental investment restriction would be applicable to that
Fund if its shareholders approve proposal 3. All of the other Funds are
non-diversified Funds.)
Commentary: Current applicable law regarding diversification of assets
requires that with respect to 75% of its total assets, a Fund may not
invest more than 5% of its total assets (taken at market value at
9
the time of each investment) in the securities of any one issuer or
acquire more than 10% of the voting securities of any one issuer. The
U.S. Government, its agencies and instrumentalities are not included
within the definition of "issuer" for purposes of these limitations.
Certain MLAM Funds apply this diversification restriction to 100% of
total assets.
At one time, state blue sky regulations applied the diversification
restriction to 100% of a mutual fund's assets, thereby prohibiting an
investment company from investing more than 5% of total assets in a
single issuer or from holding more than 10% of the voting securities of a
single issuer. These state blue sky limitations, however, have been
eliminated.
If the uniform restrictions are approved, each MLAM Fund currently
classified as "diversified" would be subject, as a matter of investment
policy, to the diversification restriction described above only with
respect to 75% of its total assets. As to the remaining 25% of total
assets, there would be no fundamental investment limitation on the amount
of (i) total assets the Fund could invest in a single issuer or (ii)
voting securities of a single issuer that could be held by the Fund. A
Fund could, for example, invest up to 25% of its assets in a single
issuer without limitation as to the percentage ownership of that issuer's
outstanding securities. The primary purpose of the proposal is to give
the MLAM Funds that presently have a diversification restriction with
respect to 100% of their assets the same investment flexibility as MLAM
Funds that have a diversification restriction with respect to 75% of
their assets, as well as to enable the Funds to comply with any future
changes in applicable law regarding diversification requirements without
incurring the costs of soliciting a shareholder vote.
2. INVEST MORE THAN 25% OF ITS ASSETS, TAKEN AT MARKET VALUE, IN THE
SECURITIES OF ISSUERS IN ANY PARTICULAR INDUSTRY (EXCLUDING THE U.S. GOVERNMENT
AND ITS AGENCIES AND INSTRUMENTALITIES)./1/
- ------------
/1/A MLAM Fund that concentrates in a particular industry (i.e., more than 25%)
will continue to use its present concentration restriction. A typical
restriction in this regard reads as follows:
The Fund will not invest more than 25% of its assets, taken at
market value, in the securities of issuers in any particular
industry (excluding the U.S. Government, its agencies and
instrumentalities), except that, under normal circumstances,
the Fund will invest more than 25% of its total assets in the
securities of issuers in the [name of industry].
None of the Funds covered by this proxy statement, except for Merrill
Lynch Americas Income Fund, Inc., Merrill Lynch Global Bond
10
Commentary: The proposed restriction, which addresses concentration in a
particular industry, is in substance identical to the applicable
restriction in effect for each MLAM Fund. Certain MLAM Funds currently do
not exclude explicitly the U.S. Government, its agencies and
instrumentalities from the definition of "industry". However, such
entities have not been considered to constitute "industries" for purposes
of concentration, and therefore explicit reference to such entities in
the proposed restriction does not change a MLAM Fund's concentration
policy. In addition, for purposes of this restriction, states,
municipalities and their political subdivisions are not considered to be
part of any industry.
3. MAKE INVESTMENTS FOR THE PURPOSE OF EXERCISING CONTROL OR MANAGEMENT.
Commentary: The proposed restriction is in substance identical to the
applicable restriction in effect for each MLAM Fund. Certain MLAM Funds
currently include the restriction in their non-fundamental, rather than
their fundamental, investment restrictions. Certain MLAM Funds that
invest on an international basis go on to state in this restriction that
investment by the Funds in wholly-owned investment entities created under
the laws of certain countries will not be deemed the making of
investments for the purpose of exercising control or management. This
language, which is considered by the MLAM Funds to be explanatory in
nature, will continue to be set forth in their investment restrictions,
including Merrill Lynch Developing Capital Markets Fund, Inc., Merrill
Lynch Dragon Fund, Inc. and Merrill Lynch Latin America Fund, Inc.
4. PURCHASE OR SELL REAL ESTATE, EXCEPT THAT A FUND MAY INVEST IN SECURITIES
DIRECTLY OR INDIRECTLY SECURED BY REAL ESTATE OR INTERESTS THEREIN OR ISSUED BY
COMPANIES WHICH INVEST IN REAL ESTATE OR INTERESTS THEREIN.
Commentary: The proposed restriction is substantially similar to the
applicable restriction in effect for each MLAM Fund, except that certain
MLAM Funds also prohibit investment in real estate limited partnerships
in the fundamental restriction. Prohibition on investments in real estate
limited partnerships is required under current applicable law; however,
such law does not require this restriction to be fundamental.
Accordingly, under the proposed uniform restrictions, investment in real
estate limited partnerships is prohibited in non-fundamental investment
restriction (g) to provide the flexibility to the Board to modify the
restriction in response to future changes in applicable law without
incurring the expense of a shareholder vote.
- ------------
Fund for Investment and Retirement and Merrill Lynch Short-Term Global
Income Fund, Inc., concentrate in a particular industry.
11
In addition, the applicable restrictions currently in effect for certain
MLAM Funds do not contain any exception to the general prohibition on
investments in real estate. The proposed restriction clarifies that these
Funds have the flexibility, consistent with other MLAM Funds to invest in
securities secured by real estate or issued by companies investing in
real estate, such as real estate investment trusts.
5. MAKE LOANS TO OTHER PERSONS, EXCEPT THAT THE ACQUISITION OF BONDS,
DEBENTURES OR OTHER CORPORATE DEBT SECURITIES AND INVESTMENT IN GOVERNMENT
OBLIGATIONS, SHORT-TERM COMMERCIAL PAPER, CERTIFICATES OF DEPOSIT, BANKERS
ACCEPTANCES AND REPURCHASE AGREEMENTS SHALL NOT BE DEEMED TO BE THE MAKING OF A
LOAN, AND EXCEPT FURTHER THAT THE FUND MAY LEND ITS PORTFOLIO SECURITIES,
PROVIDED THAT THE LENDING OF PORTFOLIO SECURITIES MAY BE MADE ONLY IN
ACCORDANCE WITH APPLICABLE LAW AND THE GUIDELINES SET FORTH IN THE FUND'S
PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION, AS THEY MAY BE AMENDED FROM
TIME TO TIME.
Commentary: The proposed restriction, with respect to the making of
loans, is in substance similar to the applicable restrictions in effect
for each MLAM Fund. Certain MLAM Funds address loans to other persons and
securities lending in two separate restrictions. A Fund may, as an
investment policy, restrict investment in the instruments specifically
permitted in the exception beyond the limitations set forth in the
proposed restriction.
Each MLAM Fund is permitted to engage in securities lending but the MLAM
Funds have a variety of different investment restrictions in this regard.
For example, certain MLAM Funds have a fundamental investment restriction
limiting securities lending to less than 20% of total assets. In addition
to investment restrictions, certain MLAM Funds have imposed limitations
on securities lending as an investment policy.
Applicable law generally permits the lending of a Fund's portfolio
securities in an amount up to 33 1/3% of the Fund's total assets,
provided that such loans are made in accordance with prescribed
guidelines which typically are set forth in the Statement of Additional
Information of the Fund. Each Fund will continue to be subject to the
lending limitations set forth as an investment policy in its Prospectus
and Statement of Additional Information following approval of the
proposed uniform investment restrictions, unless and until the Board
determines that an amendment to such investment policy is in the best
interest of the Fund and its shareholders and the Prospectus of the Fund
is amended.
12
6. ISSUE SENIOR SECURITIES TO THE EXTENT SUCH ISSUANCE WOULD VIOLATE
APPLICABLE LAW.
Commentary: Certain MLAM Funds currently limit the extent to which the
Fund may issue senior securities, while other MLAM Funds have no
restriction on the issuance of senior securities. The proposed
restriction substitutes instead a limitation on the issuance of senior
securities based upon applicable law.
Applicable law currently prohibits the issuance of senior securities,
defined as any bond, debenture, note or similar obligation or instrument
evidencing indebtedness, and any stock of any class having priority as to
any other class as to distribution of assets or payment of dividends, but
not including (i) bank borrowings provided that immediately thereafter
-------------
the Fund has 300% asset coverage for all borrowings, or (ii) any note or
other evidence of indebtedness representing a loan made to the Fund for
temporary purposes (i.e., to be repaid in 60 days without extension or
renewal) in an amount not exceeding 5% of the Fund's total assets when
the loan is made.
Certain other investment techniques, which involve leverage or establish
a prior claim to the Fund's assets, may be considered senior securities,
absent appropriate segregation of assets or exemptive relief. These
techniques include standby commitment agreements, contracts for the
purchase of securities on a delayed delivery basis (i.e., firm commitment
agreements), reverse repurchase agreements, engaging in financial futures
and options thereon, forward foreign currency contracts, put and call
options, the purchase of securities on a when-issued basis and short
sales. The manner and extent to which a Fund can issue senior securities
is governed by applicable law, must be set forth in the Fund's Prospectus
and Statement of Additional Information and may be changed only upon
resolution of the Board.
Investments in interest rate swaps, to the extent permitted, are not
treated as senior securities.
7. BORROW MONEY, EXCEPT THAT (I) THE FUND MAY BORROW FROM BANKS (AS DEFINED
IN THE INVESTMENT COMPANY ACT) IN AMOUNTS UP TO 33 1/3% OF ITS TOTAL ASSETS
(INCLUDING THE AMOUNT BORROWED), (II) THE FUND MAY BORROW UP TO AN ADDITIONAL
5% OF ITS TOTAL ASSETS FOR TEMPORARY PURPOSES, (III) THE FUND MAY OBTAIN SUCH
SHORT-TERM CREDIT AS MAY BE NECESSARY FOR THE CLEARANCE OF PURCHASES AND SALES
OF PORTFOLIO SECURITIES AND (IV) THE FUND MAY PURCHASE SECURITIES ON MARGIN TO
THE EXTENT PERMITTED BY APPLICABLE LAW. THE FUND MAY NOT PLEDGE ITS ASSETS
OTHER THAN TO SECURE SUCH BORROWINGS OR, TO THE EXTENT PERMITTED BY THE FUND'S
INVESTMENT POLICIES AS SET FORTH IN ITS PROSPECTUS AND STATEMENT OF ADDITIONAL
INFORMATION, AS
13
THEY MAY BE AMENDED FROM TIME TO TIME, IN CONNECTION WITH HEDGING TRANSACTIONS,
SHORT SALES, WHEN-ISSUED AND FORWARD COMMITMENT TRANSACTIONS AND SIMILAR
INVESTMENT STRATEGIES.
Commentary: Each MLAM Fund has an express limitation on borrowings, a
number of which are more restrictive than the limitations set forth in
the proposed restriction. For example, a number of MLAM Funds limit
borrowings to 5% of total assets. To the extent the Fund's investment
policies, as stated in the Fund's Prospectus and Statement of Additional
Information, include a limitation on borrowing, or on the pledging of
assets to secure borrowings, that is more restrictive than the
restrictions in proposed restriction (7), the Fund will continue to be
limited by such investment policy on a non-fundamental basis. Moreover,
if a Fund intends to borrow from a bank or to offer debt securities
privately as part of its investment policies, it will so state in its
Prospectus. If the Fund limits borrowing to 5% of total assets, a
statement to that effect in the Prospectus will suffice. On the other
hand, if the Fund intends as an investment policy to engage in a higher
level of borrowing for investment purposes, additional disclosure with
respect to the purposes of such borrowing and the consequences of
leverage will be included in the Fund's Prospectus and Statement of
Additional Information.
With regard to purchases on margin, under current applicable law, a Fund
may not establish or use a margin account with a broker for the purpose
of effecting securities transactions on margin, except that a Fund may
obtain such short term credit as necessary for the clearance of
transactions. However, a Fund may pay initial or variation margin in
connection with futures and related options transactions, as set forth in
investment restriction (9) below, without regard to this prohibition.
8. UNDERWRITE SECURITIES OF OTHER ISSUERS EXCEPT INSOFAR AS THE FUND
TECHNICALLY MAY BE DEEMED AN UNDERWRITER UNDER THE SECURITIES ACT OF 1933 IN
SELLING PORTFOLIO SECURITIES.
Commentary: The proposed restriction is in substance identical to the
applicable restriction in effect for each Fund.
9. PURCHASE OR SELL COMMODITIES OR CONTRACTS ON COMMODITIES, EXCEPT TO THE
EXTENT THE FUND MAY DO SO IN ACCORDANCE WITH APPLICABLE LAW AND THE FUND'S
PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION, AS THEY MAY BE AMENDED FROM
TIME TO TIME, AND WITHOUT REGISTERING AS A COMMODITY POOL OPERATOR UNDER THE
COMMODITY EXCHANGE ACT.
Commentary: Certain MLAM Funds prohibit investment in commodities; others
have no restriction on investment in commodities.
14
Under the Investment Company Act, a Fund must state its policy relating
to the purchase and sale of commodities. In general, the MLAM Funds
currently do not anticipate investment directly in tangible commodities
and would be greatly restricted from making such direct investments by
the provisions of the Federal tax laws; however, the Funds may invest in
financial instruments linked to commodities as described below. Adoption
of the proposed uniform restrictions will enable a Fund to invest in
commodities only in accordance with applicable law and with the Fund's
investment policies as stated in the Fund's Prospectus and Statement of
Additional Information.
The MLAM Funds have obtained an exemptive order from the Securities and
Exchange Commission (the "SEC") which, among other things, permits
investment in the commodities markets to the extent such investment is
limited to financial futures and options thereon for hedging purposes
only. The terms of the exemptive order are slightly more restrictive than
currently applicable law.
Regulations of the Commodity Futures Trading Commission applicable to the
Funds provide that futures trading activities, as described in a Fund's
Prospectus and Statement of Additional Information, will not result in
the Fund being deemed a "commodity pool operator" as defined under such
regulations if the Fund adheres to certain restrictions. In particular, a
MLAM Fund that may, as a matter of investment policy, purchase and sell
futures contracts and options thereon may do so (i) for bona fide hedging
purposes and (ii) for non-hedging purposes, if the aggregate initial
margin and premiums required to establish positions in such contracts and
options do not exceed 5% of the liquidation value of such Fund's
portfolio, after taking into account unrealized profits and unrealized
losses on any such contracts and options. In addition, certain of the
MLAM Funds may invest in securities whose potential investment returns
are based on the change in value of specific commodities.
If approved by the shareholders, the above-listed restrictions will replace
the fundamental investment restrictions for each Fund and, accordingly, will
become the only fundamental investment restrictions under which each Fund will
operate. If approved, the above restrictions may not be changed without the
approval of the holders of a majority of the Fund's outstanding shares (which
for this purpose and under the Investment Company Act means the lesser of (i)
67% of the shares represented at a meeting at which more than 50% of the
outstanding shares are represented or (ii) more than 50% of the outstanding
shares).
Proposed Non-Fundamental Investment Restrictions. The Boards have adopted the
following non-fundamental investment restrictions,
15
subject to approval of the fundamental investment restrictions described above.
Certain of the proposed non-fundamental restrictions are in substance similar
or identical to current fundamental investment restrictions. Redesignating a
restriction as non-fundamental allows the Board the flexibility to modify the
restriction in response to changes in the securities markets or applicable law
if the Board deems it in the best interest of the Fund and its shareholders to
do so. Although future modification of a non-fundamental investment restriction
would not require a shareholder vote, modification of these restrictions would
require both (i) authorization by resolution by the Board and (ii) amendment of
the Fund's Prospectus.
Under the proposed non-fundamental investment restrictions, each Fund may
not:
A. PURCHASE SECURITIES OF OTHER INVESTMENT COMPANIES, EXCEPT TO THE EXTENT
SUCH PURCHASES ARE PERMITTED BY APPLICABLE LAW.
Commentary: A number of MLAM Funds currently state a restriction relating
to securities of other investment companies as a fundamental, rather than
a non-fundamental, restriction. In addition, a number of the restrictions
currently in effect set forth specifically the applicable law. Applicable
law currently allows a Fund to purchase the securities of other
investment companies if immediately thereafter not more than (i) 3% of
the total outstanding voting stock of such company is owned by the Fund,
(ii) 5% of the Fund's total assets, taken at market value, would be
invested in any one such company, (iii) 10% of the Fund's total assets,
taken at market value, would be invested in such securities, and (iv) the
Fund, together with other investment companies having the same investment
adviser and companies controlled by such companies, owns not more than
10% of the total outstanding stock of any one closed-end investment
company.
Certain state blue sky regulations have excepted from the prohibition on
purchases of securities of other investment companies purchases made in
connection with a plan of merger, consolidation, reorganization, or
acquisition, or purchases made in the open market of securities of
closed-end investment companies where no underwriter or dealer's
commission or profit, other than the customary broker's commission, is
involved. This restriction is no longer required and has therefore been
deleted from the proposed restriction.
B. MAKE SHORT SALES OF SECURITIES OR MAINTAIN A SHORT POSITION EXCEPT TO THE
EXTENT PERMITTED BY APPLICABLE LAW.
Commentary: In a short sale, an investor sells a borrowed security and
has a corresponding obligation to "cover" by delivering at a later date
16
the identical security. In a short sale "against the box", an investor
sells the securities short while either owning the same securities in the
same amount or having the right to obtain securities to cover through,
for example, the investor's ownership of warrants, options, or
convertible securities. Certain MLAM Funds currently prohibit short sales
under any circumstances; others are specifically authorized to engage in
short sales "against the box".
Under current applicable law, short sales are considered to involve the
creation of senior securities. A Fund that includes short sales in its
investment policies must secure its obligation to replace the borrowed
security by depositing collateral in a segregated account in compliance
with SEC guidelines which are described in the Fund's Prospectus. In
addition, under the current blue sky laws of a certain state, Funds that
sell short are limited so that the dollar amount of short sales at any
one time may not exceed 25% of the net equity of the Fund and the value
of securities of any one issuer in which the Fund is short may not exceed
the lesser of 2.0% of the value of the Fund's net assets or 2.0% of the
securities of any class of any issuer.
Short sales "against the box" are not considered speculative sales and do
not create senior securities. Funds that are not specifically authorized
to engage in short sales "against the box" have not considered short
sales "against the box" to be short sales for purposes of their
investment restrictions.
The majority of the MLAM Funds, as a matter of investment policy, do not
enter into short sales of any kind. If the proposed investment
restrictions are adopted, the MLAM Funds that currently are authorized to
make short sales will continue to have that ability within the confines
of applicable law; the MLAM Funds that are not currently authorized to
make short sales will not make short sales unless and until such policy
is amended by resolution of the Board and the Fund's Prospectus is
amended.
C. INVEST IN SECURITIES WHICH CANNOT BE READILY RESOLD BECAUSE OF LEGAL OR
CONTRACTUAL RESTRICTIONS OR WHICH CANNOT OTHERWISE BE MARKETED, REDEEMED OR PUT
TO THE ISSUER OR A THIRD PARTY, IF AT THE TIME OF ACQUISITION MORE THAN 15% OF
ITS TOTAL ASSETS WOULD BE INVESTED IN SUCH SECURITIES. THIS RESTRICTION SHALL
NOT APPLY TO SECURITIES WHICH MATURE WITHIN SEVEN DAYS OR SECURITIES WHICH THE
BOARD OF [DIRECTORS OR TRUSTEES] OF THE FUND HAS OTHERWISE DETERMINED TO BE
LIQUID PURSUANT TO APPLICABLE LAW.
Commentary: Certain MLAM Funds limit investment in restricted and
illiquid securities to 5% or 10% of Fund assets. Under the Investment
Company Act, open-end investment companies are required
17
to determine net asset value and offer redemption on a daily basis with
payment to follow within seven days. In order to ensure that adequate
cash is available at all times to cover redemptions, a Fund is required
to limit its investments in securities deemed illiquid to 15% of the
Fund's net assets.
Under current applicable law, an illiquid asset is any asset which may
not be sold or disposed of in the ordinary course of business within
seven days at approximately the value at which a Fund has valued the
investment. The types of securities that will be considered illiquid will
vary over time based on changing market conditions and regulatory
interpretations.
In accordance with the most restrictive state blue sky regulations
currently in effect, a Fund whose shares are registered or qualified for
sale in such state may invest no more than 10% of its total assets in
illiquid securities. It is possible that such state interpretation will
be relaxed in the future to enable a Fund to invest up to 15% of its
total assets in illiquid securities. In addition, certain states consider
investment of more than 5% of a Fund's total assets in illiquid
securities to be speculative and require special disclosure in a Fund's
Prospectus with respect thereto.
Under current SEC interpretations, a Fund may purchase, without regard to
the foregoing 10% (or 15%) limitation, securities which are not
registered under the Securities Act of 1933, as amended (the "Securities
Act"), provided that they are determined to be liquid pursuant to
guidelines and procedures established by the Board. Included among such
securities are foreign securities traded in a foreign securities market
and securities which can be offered and sold to "qualified institutional
buyers", as defined in Rule 144A under the Securities Act ("Rule 144A
Securities"). Certain MLAM Funds do not permit the Board discretion with
respect to Rule 144A Securities.
The proposed investment restriction would increase the Funds' flexibility
with respect to the amount of securities deemed illiquid in which the
Fund may invest up to the current SEC limit, assuming that the Fund is
not otherwise limited with respect to investment in illiquid securities.
A Fund, in its Prospectus and Statement of Additional Information, may
limit investment in illiquid securities to a percentage of less than 15%,
pursuant to state blue sky regulations or for other reasons.
Current applicable law does not require a Fund to state its limitation on
investment in illiquid securities as a fundamental policy; however, a
18
number of MLAM Funds currently state their limitations on illiquid
securities as a fundamental, rather than a non-fundamental, restriction.
D. INVEST IN WARRANTS IF, AT THE TIME OF ACQUISITION, ITS INVESTMENTS IN
WARRANTS, VALUED AT THE LOWER OF COST OR MARKET VALUE, WOULD EXCEED 5% OF THE
FUND'S TOTAL ASSETS; INCLUDED WITHIN SUCH LIMITATION, BUT NOT TO EXCEED 2% OF
THE FUND'S TOTAL ASSETS, ARE WARRANTS WHICH ARE NOT LISTED ON THE NEW YORK
STOCK EXCHANGE OR AMERICAN STOCK EXCHANGE OR A MAJOR FOREIGN EXCHANGE. FOR
PURPOSES OF THIS RESTRICTION, WARRANTS ACQUIRED BY THE FUND IN UNITS OR
ATTACHED TO SECURITIES MAY BE DEEMED TO BE WITHOUT VALUE.
Commentary: Certain MLAM Funds currently prohibit investment in warrants;
others impose limitations that are as restrictive or more restrictive
than the proposed restriction. If a Fund is otherwise authorized to
invest in warrants as a matter of investment policy, such Fund will now
be subject to the limitation set forth in proposed non-fundamental
investment restriction (d). A Fund that is currently prohibited from
investing in warrants as a matter of investment policy will not invest in
warrants unless and until such policy is amended by resolution of the
Board and the Fund's Prospectus is amended.
E. INVEST IN SECURITIES OF COMPANIES HAVING A RECORD, TOGETHER WITH
PREDECESSORS, OF LESS THAN THREE YEARS OF CONTINUOUS OPERATION, IF MORE THAN 5%
OF THE FUND'S TOTAL ASSETS WOULD BE INVESTED IN SUCH SECURITIES. THIS
RESTRICTION SHALL NOT APPLY TO MORTGAGE-BACKED SECURITIES, ASSET-BACKED
SECURITIES OR OBLIGATIONS ISSUED OR GUARANTEED BY THE U.S. GOVERNMENT, ITS
AGENCIES OR INSTRUMENTALITIES.
Commentary: The proposed restriction, which addresses investment by a
Fund in "unseasoned issuers", is in substance identical to the applicable
restriction in effect for certain MLAM Funds; however, a number of MLAM
Funds state this restriction as a fundamental, rather than a non-
fundamental, restriction.
Restrictions on unseasoned issuers are determined primarily by state blue
sky regulations. While several states have more lenient restrictions
concerning investment in the securities of unseasoned issuers (i.e., up
to 15%), the most restrictive state limitation is currently 5%.
Applicable state blue sky regulations do not require that entities with
less than three years of continuous operation that issue mortgage-backed
securities, asset-backed securities or obligations supported by the U.S.
Government, its agencies or instrumentalities be included in the
definition of "unseasoned issuers". There is no federal limitation
concerning investment in unseasoned issuers.
19
F. PURCHASE OR RETAIN THE SECURITIES OF ANY ISSUER, IF THOSE INDIVIDUAL
OFFICERS AND DIRECTORS OF THE FUND, THE OFFICERS AND GENERAL PARTNER OF THE
INVESTMENT ADVISER, THE DIRECTORS OF SUCH GENERAL PARTNER OR THE OFFICERS AND
DIRECTORS OF ANY SUBSIDIARY THEREOF EACH OWNING MORE THAN ONE-HALF OF ONE
PERCENT OF THE SECURITIES OF SUCH ISSUER OWN IN THE AGGREGATE MORE THAN 5% OF
THE SECURITIES OF SUCH ISSUER.
Commentary: The proposed restriction, which addresses investment by a
Fund in securities of an issuer in which management of the Fund owns
shares, is in substance similar to the applicable restriction in effect
for certain MLAM Funds; however, a number of MLAM Funds currently state
this restriction as a fundamental, rather than a non-fundamental,
restriction.
Restrictions on these types of investments are determined primarily by
state blue sky regulations. Certain MLAM Funds' current investment
restrictions apply to the Investment Adviser or any "affiliate" thereof,
which would make the restriction applicable to ML & Co. and any entity
controlled by ML & Co. The proposed restriction reflects currently
applicable law and applies only to MLAM and certain affiliates.
G. INVEST IN REAL ESTATE LIMITED PARTNERSHIP INTERESTS OR INTERESTS IN OIL,
GAS OR OTHER MINERAL LEASES, OR EXPLORATION OR DEVELOPMENT PROGRAMS, EXCEPT
THAT THE FUND MAY INVEST IN SECURITIES ISSUED BY COMPANIES THAT ENGAGE IN OIL,
GAS OR OTHER MINERAL EXPLORATION OR DEVELOPMENT ACTIVITIES.
Commentary: Restrictions with respect to these types of investments are
determined primarily by state blue sky regulations. The proposed
restriction is in substance similar to the applicable restriction in
effect for each MLAM Fund; however, a number of MLAM Funds state this
restriction, in whole or in part, as a fundamental, rather than a non-
fundamental, restriction.
H. WRITE, PURCHASE OR SELL PUTS, CALLS, STRADDLES, SPREADS OR COMBINATIONS
THEREOF, EXCEPT TO THE EXTENT PERMITTED IN THE FUND'S PROSPECTUS AND STATEMENT
OF ADDITIONAL INFORMATION, AS THEY MAY BE AMENDED FROM TIME TO TIME.
Commentary: The proposed restriction is in substance similar to the
applicable restriction in effect for each MLAM Fund authorized to engage
in these types of transactions, except that certain MLAM Funds impose
specific percentage limitations in the investment restriction on the
investments. A number of MLAM Funds state this restriction as a
fundamental, rather than a non-fundamental, restriction.
20
If the proposed restrictions are approved, MLAM Funds that currently are
authorized to engage in puts, calls, straddles, spreads and combinations
thereof will be subject to the proposed restriction. MLAM Funds that are
not currently authorized to engage in these types of transactions would
not be permitted to engage in such transactions unless and until the
Board determines to establish an investment policy in this regard and the
Fund's Prospectus is amended.
Proposal 4
APPROVAL OR DISAPPROVAL OF A CHARTER AMENDMENT
IN CONNECTION WITH THE IMPLEMENTATION OF
THE MERRILL LYNCH SELECT PRICINGSM SYSTEM
DESCRIPTION OF THE SELECT PRICING SYSTEM
General. In 1988, MLAM developed a two-class distribution system pursuant to
which investors may choose to purchase Class A shares of a Fund with a front-
end sales charge or Class B shares with a contingent deferred sales charge
("CDSC") and ongoing distribution fees (the "Dual Distribution System"). The
Dual Distribution System was among the first in the mutual fund industry to
offer investors alternative sales charge arrangements within the same Fund.
On April 12, 1994, the SEC issued an exemptive order permitting certain MLAM-
advised mutual funds to issue multiple classes of shares (the "Order"). The
Order permits each Fund to create an unlimited number of classes of shares to
expand the types of sales charge arrangements available to Fund investors
without otherwise affecting investment in the Fund. In this regard, the Funds
intend to implement the Select Pricing System, under which eligible investors
may choose from different sales charge alternatives in four classes of shares.
At its meeting held August , 1994, the Board approved the manner in which
shares of each class will be offered and sold under the Select Pricing System,
as described in detail below. The specific amounts of the sales charges, and
account maintenance and distribution fees for each Fund are set forth in
Exhibit A. Although the Funds currently intend to implement the Select Pricing
System as described herein, changes may be made to the distribution
arrangements of any class at any time; however, changes will not be made to the
terms of the Select Pricing System as it applies to any Fund unless and until
(i) the Board of the Fund explicitly authorizes, by resolution, any change in
the terms and (ii) the Prospectus of the Fund is
21
amended to reflect the change. Changes to the Select Pricing System ordinarily
would not require a vote of the shareholders of a Fund, except in certain
circumstances necessitating a charter amendment or in which fees paid by
existing shareholders pursuant to Rule 12b-1 under the Investment Company Act
("Rule 12b-1") are increased.
The following table sets forth a summary of the distribution arrangements for
each class of shares under the Select Pricing System, followed by a more
detailed description each of class.
ACCOUNT
SALES MAINTENANCE DISTRIBUTION CONVERSION
CLASS CHARGE FEE FEE FEATURE
- --------------------------------------------------------------------------------------
A* Maximum No No No
5.25%
front-end sales
charge**
- --------------------------------------------------------------------------------------
B CDSC for Maximum Maximum B shares
periods of up 0.25% 0.75% convert to D
to 4 years, at a shares
maximum rate automatically
of 4.0% during after
the first year, Conversion
decreasing Period
1.0% annually
to 0.0%
- --------------------------------------------------------------------------------------
C 1.0% CDSC Maximum Maximum No
for one year 0.25% 0.75%
- --------------------------------------------------------------------------------------
D Maximum Maximum No No
5.25% 0.25%
front-end sales
charge**
- ------------
* Offered only to eligible investors. See "Class A" below.
** Certain Class A and Class D purchases will be subject to a maximum 1.0%
CDSC for one year. See "Class A" and "Class D" below.
Class A: Class A shares will be sold subject to a front-end sales charge and
will bear no ongoing distribution or account maintenance fees. For
most Funds, the front-end sales charge on purchases of Class A shares
under the Select Pricing System will be lower than the front-end
sales charge currently imposed on Class A shares.
22
Class A shares will be offered to a limited group of investors.
Investors that currently own Class A shares of a Fund in an account
will be entitled to purchase additional Class A shares of that Fund in
that account. Class A shares also will be offered to certain
retirement plans. In addition, Class A shares will be offered to
directors of ML & Co. and employees of ML & Co. and its subsidiaries,
Board members and members of the Boards of other MLAM-advised mutual
funds and participants in certain investment programs. Class A shares
also will be issued on reinvestment of dividends paid on Class A
shares.
Exchange Privilege. THE EXCHANGE PRIVILEGE FOR CLASS A SHAREHOLDERS
WILL BE MODIFIED UNDER THE SELECT PRICING SYSTEM MAKING IT MORE
RESTRICTIVE THAN PRESENTLY EXISTS. Under the Select Pricing System,
Class A shareholders may exchange Class A shares of one Fund for
Class A shares of a second MLAM-advised mutual fund if the
shareholder holds any Class A shares of the second Fund in his
account in which the exchange is made at the time of the exchange. If
the Class A shareholder wants to exchange his Class A shares for
shares of a second Fund, and the shareholder does not hold Class A
shares of the second Fund in his account at the time of the exchange,
the shareholder will receive Class D shares of the second Fund as a
result of the exchange. Class A or Class D shares may be exchanged
for Class A shares of a second Fund at any time as long as, at the
time of the exchange, the shareholder holds Class A shares of the
second Fund in the account in which the exchange is made.
For example, a shareholder owns 50 Class A shares of Merrill Lynch
Basic Value Fund, Inc. ("Basic Value") and 50 Class A shares of
Merrill Lynch World Income Fund, Inc. ("World Income") in his
personal account and 50 Class A shares of Merrill Lynch Pacific Fund,
Inc. ("Pacific") in his individual retirement account ("IRA"). In his
personal account, the shareholder eliminates his position in Basic
Value by exchanging 25 shares of Basic Value for shares of equivalent
value of World Income and 25 shares of Basic Value for shares of
equivalent value of Pacific. The shareholder will receive Class A
shares of World Income, because he holds World Income Class A shares
in his personal account at the time of the exchange, and he will
receive Class D shares of Pacific, because although he owns Pacific
Class A shares, he does not hold them in his personal account.
Similarly, if the shareholder decides to exchange back into Basic
Value, he will receive Class D shares, because he no
23
longer holds Class A shares of Basic Value in his personal account.
In his IRA, if the investor decides to exchange 25 Class A shares of
Pacific for shares of equivalent value of Merrill Lynch Fund for
Tomorrow, Inc. ("Fund for Tomorrow"), he will receive Class D shares
of Fund for Tomorrow, because he holds no Class A shares of Fund for
Tomorrow in his IRA. If he decides, however, to exchange back into
Pacific, he can receive Class A shares of Pacific as long as he
still holds any Class A shares of Pacific in his IRA at the time of
the exchange.
Class A shareholders also may exchange Class A shares for shares of
certain MLAM-advised money market funds. For further information
regarding the Select Pricing System exchange privilege, see
"Exchange Privilege" below.
Reduced initial sales charges. Class A investors may qualify for
reduced initial sales charges through a right of accumulation taking
into account an investor's holdings in both Class A and Class D
shares of any MLAM-advised Fund. Under the Select Pricing System,
Class B shares will no longer be counted toward the right of
accumulation. See "Right of Accumulation" below. Under a right of
accumulation, certain Class A shareholders who purchase or
accumulate at least $1 million in Class A and/or Class D shares of
any MLAM-advised Fund also qualify to add to their investment in
Class A shares of a Fund without the imposition of a front-end sales
charge. Although these investors will not be subject to a front-end
sales charge, they will be subject to a CDSC of 1.0% if the shares
are redeemed within one year after purchase.
Redesignation of Class A Shares. Class A shares outstanding on the
date of the implementation of the Select Pricing System (the
"Implementation Date") that are subject to ongoing account
maintenance fees automatically will be redesignated Class D shares.
The following Funds covered by this Proxy Statement currently have
Class A shares that will be redesignated as Class D shares on the
Implementation Date: Merrill Lynch Americas Income Fund, Inc.,
Merrill Lynch Dragon Fund, Inc., Merrill Lynch International Equity
Fund, Merrill Lynch Latin America Fund, Inc. and Merrill Lynch
Short-Term Global Income Fund, Inc. The redesignation of the Class A
shares to Class D shares will not be deemed a purchase or sale of
the shares for Federal income tax purposes. See "Redesignation of
Shares of Certain MLAM-Advised Funds" below.
24
Class B: Class B shares will be sold on a deferred sales charge basis. Class B
shares do not incur a front-end sales charge, but they are subject to
a maximum ongoing 0.25% account maintenance fee, an ongoing
distribution fee and a CDSC for periods of up to four years.
Conversion of Class B Shares to Class D Shares. After a set time
period (the "Conversion Period"), Class B shares will be converted
automatically into Class D shares of the Fund. Class D shares are
subject to an ongoing account maintenance fee but no distribution
fee. Automatic conversion of Class B shares into Class D shares will
occur at least once a month (on the "Conversion Date") on the basis
of the relative net asset values of the shares of the two classes on
the Conversion Date, without the imposition of any sales load, fee
or other charge. Conversion of Class B shares to Class D shares will
not be deemed a purchase or sale of the shares for Federal income
tax purposes.
In addition, shares purchased through reinvestment of dividends on
Class B shares also will convert automatically to Class D shares.
The Conversion Date for dividend reinvestment shares will be
calculated taking into account the length of time the shares
underlying such dividend reinvestment shares were outstanding.
In general, Class B shares of equity Funds will convert
approximately eight years after initial purchase, and Class B shares
of taxable and tax-exempt fixed income Funds will convert
approximately ten years after initial purchase. Specific Conversion
Periods for each Fund are set forth in Exhibit A. If during the
Conversion Period a shareholder exchanges Class B shares with a ten-
year Conversion Period for Class B shares with an eight-year
Conversion Period, or vice versa, the Conversion Period applicable
to the Class B shares acquired in the exchange will apply, and the
holding period for the shares exchanged will be "tacked" onto the
holding period for the shares acquired. The Conversion Period for
certain retirement plans will be modified as described under
"Proposed Charter Amendment--Class B Retirement Plans" below.
The Class B distribution fee is subject to the limitations on asset-
based sales charges imposed by the National Association of
Securities Dealers, Inc. (the "NASD"), as voluntarily modified by
MLFD. See "Limitations on Asset-Based Sales Charges" below.
25
Exchange Privilege. Class B shareholders may exchange Class B shares
of the Fund for Class B shares of any MLAM-advised mutual fund as
well as shares of certain MLAM-advised money market funds. See
"Exchange Privilege" below.
Redesignation of Class B Shares. Class B shares of Merrill Lynch
Fundamental Growth Fund, Inc. outstanding on the Implementation Date
automatically will be redesignated Class C shares. This
redesignation of Class B shares to Class C shares will not be deemed
a purchase or sale of the shares for Federal income tax purposes.
See "Redesignation of Shares of Certain MLAM-Advised Funds" below.
Class C: Class C shares will not incur a front-end sales charge when
purchased, but Class C shares are subject to a maximum ongoing 0.25%
account maintenance fee and an ongoing distribution fee. In the case
of fixed income Funds, the Class C distribution fees will be
different from the Class B distribution fees of a particular Fund. In
the case of equity Funds, Class C distribution fees will equal Class
B distribution fees. Class C shares are sold subject to a CDSC of
1.0% for one year. The Class C distribution fee will be charged
indefinitely subject to approval of the continuance of the Fund's
Class C Distribution Plan pursuant to Rule 12b-1 and the limitations
on asset-based sales charges imposed by the NASD. See "Limitations on
Asset-Based Sales Charges" below.
Exchange Privilege. Class C shareholders may exchange Class C shares
of the Fund for Class C shares of any MLAM-advised mutual fund as
well as shares of certain MLAM-advised money market funds. See
"Exchange Privilege" below.
Class D: Class D shares will be sold subject to a front-end sales charge which
will be identical to the front-end sales charge imposed on Class A
shares under the Select Pricing System. Class D shares are charged a
maximum ongoing 0.25% account maintenance fee but are not subject to
an ongoing distribution fee.
Reduced Initial Sales Charges. Class D investors may qualify for
reduced initial sales charges through a right of accumulation taking
into account each investor's holdings in both Class A and Class D
shares of any MLAM-advised Fund. See "Right of Accumulation" below.
Under a right of accumulation, certain investors who purchase or
accumulate at least $1 million in Class A and/or Class D shares of
any MLAM-advised Fund will not be subject to a front-end sales
charge upon the purchase of Class
26
D shares; however, they will be subject to a CDSC of 1.0% if the
shares are redeemed within one year after purchase.
Exchange Privilege. Class D shareholders may exchange Class D shares
of one Fund for Class D shares of any MLAM-advised mutual fund. If
the shareholder holds any Class A shares of the second Fund in his
account at the time of the exchange, he may exchange Class D shares
for Class A shares of the second Fund. Class D shareholders also may
exchange Class D shares of the Fund for shares of certain MLAM-
advised money market funds. See "Exchange Privilege" below.
Class D shares also will be issued upon conversion of Class B shares
after the Class B Conversion Period, as more fully described below.
MLAM developed the Dual Distribution System to provide investors with the
alternatives within the same Fund of purchasing shares pursuant to either the
front-end sales charge method or the deferred sales charge method. The Select
Pricing System was developed to expand the alternatives available under the
Dual Distribution System by providing investors with additional distribution
alternatives. These alternative sales arrangements permit the investor to
choose the method of purchasing shares that is most beneficial given the amount
of the investor's purchase, the length of time the investor expects to hold the
shares and other relevant circumstances.
Front-End Sales Charge Alternatives. Investors who prefer a front-end sales
charge alternative may elect to purchase Class D shares or, if an eligible
investor, Class A shares. Investors choosing the front-end sales charge
alternative who are eligible to purchase Class A shares should purchase Class A
shares rather than Class D shares because of the account maintenance fee
imposed on Class D shares. Investors qualifying for significantly reduced
front-end sales charges may find the front-end sales charge alternative
particularly attractive because similar sales charge reductions are not
available with respect to the deferred sales charges imposed in connection with
purchases of Class B or Class C shares. Investors not qualifying for reduced
initial sales charges who expect to maintain their investment for an extended
period of time also may elect to purchase Class A or Class D shares, because
over time the accumulated ongoing account maintenance and distribution fees on
Class B or Class C shares may exceed the initial front-end sales charge and, in
the case of Class D shares, the account maintenance fee. Although some
investors that previously purchased Class A shares may no longer be eligible to
purchase Class A shares of other Funds, those previously purchased Class A
shares,
27
as well as any new Class D shares acquired, will count toward a right of
accumulation which may qualify the investor for reduced initial sales charges
on new front-end sales charge purchases. In addition, the ongoing Class B and
Class C account maintenance and distribution fees will cause Class B and Class
C shares to have higher expense ratios, pay lower dividends and have lower
total returns than the front-end sales charge shares. The ongoing Class D
account maintenance fees will cause Class D shares to have a higher expense
ratio, pay lower dividends and have a lower total return than Class A shares.
The benefit of an initial sales charge waiver for investors who purchase at
least $1 million in Class A or Class D shares of any MLAM-advised Fund may be
offset to the extent the shareholder must pay a CDSC on shares redeemed in less
than one year.
Deferred Sales Charge Alternatives. Investors that do not qualify for a
reduction of front-end sales charges may prefer the deferred sales charge
alternatives, because while Class A and Class D initial sales charges are
deducted at the time of purchase, Class B and Class C shares provide the
benefit of putting all of the investor's dollars to work from the time the
investment is made. Both Class B and Class C shares are subject to ongoing
account maintenance fees and distribution fees; however, the ongoing account
maintenance and distribution charges potentially may be offset to the extent
any return is realized on the additional funds initially invested in Class B or
Class C shares. In addition, Class B shares will be converted into Class D
shares of the Fund after the Conversion Period and thereafter will be subject
to significantly lower ongoing fees.
Certain investors may elect to purchase Class B shares if they determine it
to be most advantageous to have all their funds invested initially and intend
to hold their shares for an extended period of time. In making this decision,
Class B purchasers will take into account whether they intend to redeem their
shares within the CDSC period and, if not, whether they intend to remain
invested until the end of the Conversion Period and thereby take advantage of
the reduction in ongoing fees. Other investors, however, may elect to purchase
Class C shares if they determine that it is advantageous to have all their
funds invested initially and they are uncertain as to the amount of time they
intend to hold the shares. Although Class C shareholders are subject to a
shorter CDSC period at a lower rate, they forgo the Class B conversion feature,
making their investment subject to account maintenance and distribution fees
for an indefinite period of time. In addition, while both Class B and Class C
distribution fees are subject to the limitations on asset-based sales charges
imposed by the NASD, Class B shares are further limited under a MLFD
28
voluntary waiver of asset-based sales charges. See "Limitations on Asset-Based
Sales Charges" below.
------------------------
Each Class A, Class B, Class C and Class D share of a Fund will represent
identical interests in the investment portfolio of the Fund and have the same
rights, except that Class B, Class C and Class D shares bear the expenses of
the ongoing account maintenance fee and Class B and Class C shares also bear
the expenses of the ongoing distribution fee and the additional incremental
transfer agency costs resulting from the deferred sales charge arrangement.
Class B, Class C and Class D shares have exclusive voting rights with respect
to the distribution plan adopted pursuant to Rule 12b-1 under the Investment
Company Act applicable to each respective class. Each class also has different
exchange privileges. The deferred sales charges that are imposed on Class B and
Class C shares will be imposed directly and respectively against those classes
and not against all assets of the Fund and, accordingly, such charges will not
affect the net asset value of any other class or have any impact on investors
choosing another sales charge option.
The implementation of the Select Pricing System will not adversely affect the
net asset value of a current shareholder's investment in the Fund. Outstanding
shares will not be subject to any charge as a result of the reclassification.
Two new and separate classes will be added, having no adverse effect on the
shares that are issued and outstanding; however, the creation of Class D will
provide a significant benefit to Class B shareholders as described herein.
Exchange Privilege. As previously stated, investors who hold Class A shares
of a Fund in an account will be entitled, subsequent to the Implementation
Date, to purchase additional Class A shares of that Fund in that account only.
Current Class A shareholders that do not qualify to purchase Class A shares
under the Select Pricing System and wish to exchange their Class A shares for
shares of a second Fund will receive Class A shares of that Fund only if such
shareholder owned Class A shares of the second Fund on the date of the
exchange. Otherwise, shareholders that do not qualify to purchase Class A
shares under the Select Pricing System will receive Class D shares in exchange
for Class A shares after the Implementation Date. Investors will have the right
to exchange Class D shares for Class A shares of any Fund held in the account,
provided that Class A shares of the Fund acquired in the exchange are held in
the account at the time of the exchange.
Class A and Class D shares also will be exchangeable for shares of certain
money market funds specifically designated as available for
29
exchange by holders of Class A or Class D shares. The period of time that Class
A or Class D shares are held in a money market fund, however, will not count
toward satisfaction of the holding period requirement for reduction of any CDSC
imposed in connection with a reduced initial sales charge purchase.
Class B and Class C shares will be exchangeable only with shares of the same
class of other mutual funds advised by MLAM as well as certain money market
funds specifically designated as available for exchange by holders of Class B
or Class C shares. The period of time that Class B or Class C shares are held
in a money market fund, however, will not count toward satisfaction of the
holding period requirement for reduction of the CDSC for Class B or Class C
shares or the Conversion Period for Class B shares.
Right of Accumulation. Under the Select Pricing System, reduced sales charges
will be applicable through a right of accumulation under which eligible
investors are permitted to purchase Class A or Class D shares of a Fund at the
offering price applicable to the total of (a) the dollar amount then being
purchased plus (b) an amount equal to the then net asset value or cost,
whichever is higher, of the purchaser's combined holdings of Class A and Class
D shares of the Fund and of any other Fund with an initial sales charge for
which MLFD is the distributor. Class B and Class C shares owned will not count
toward this right of accumulation.
Redesignation of Shares of Certain MLAM-Advised Funds. The following nine
Funds currently offer Class A shares subject to an account maintenance fee:
Merrill Lynch Americas Income Fund, Inc., Merrill Lynch Adjustable Rate
Securities Fund, Inc., Merrill Lynch Dragon Fund, Inc., Merrill Lynch Federal
Securities Trust, Merrill Lynch Fundamental Growth Fund, Inc., Merrill Lynch
Global SmallCap Fund, Inc., Merrill Lynch International Equity Fund, Merrill
Lynch Latin America Fund, Inc. and Merrill Lynch Short-Term Global Income Fund,
Inc. In order to continue the same sales charge and account maintenance fee
arrangements on these Class A shares, on the Implementation Date, Class A
shares of those Funds will be automatically redesignated Class D shares.
Subsequent to the Implementation Date, reinvestment of dividends paid on these
redesignated Class A shares will be in Class D shares.
Outstanding Class B shares of Merrill Lynch Fundamental Growth Fund, Inc.
("Fundamental Growth"), which currently are subject to the same CDSC, account
maintenance fee and distribution fee as Class C shares will be under the Select
Pricing System, will be automatically redesignated Class C shares on the
Implementation Date. Subsequent to
30
the Implementation Date, reinvestment of dividends paid on these redesignated
Class B shares of Fundamental Growth will be in Class C shares.
Redesignation of shares of any Fund in connection with the implementation of
the Select Pricing System will not be deemed a purchase or sale of the shares
for Federal income tax purposes.
Limitations on Asset-Based Sales Charges. Class B and Class C distribution
fees are subject to the limitations on asset-based sales charges imposed by the
NASD. As applicable to the Funds, the NASD rule limits the aggregate of
distribution fee payments and CDSCs payable by a Fund to (1) 6.25% of eligible
gross sales of Class B or Class C shares (defined to exclude shares issued
pursuant to dividend reinvestments and exchanges) plus (2) interest on the
unpaid balance at the prime rate plus 1% (the unpaid balance being the maximum
amount payable minus amounts received from the payment of the distribution fee
and the CDSC). The maximum allowable payments under the NASD rule is referred
to as the "NASD maximum". Aggregate distribution fee payments on Class C shares
will be limited in accordance with the NASD maximum.
With respect to Class B shares, MLFD has agreed voluntarily to waive interest
charges on the unpaid balance in excess of 0.50% of eligible gross sales.
Consequently, the maximum amount payable to MLFD (referred to as the "Class B
voluntary maximum") is 6.75% of eligible gross sales. MLFD retains the right to
stop waiving the interest charges at any time. To the extent payments would
exceed the Class B voluntary maximum, in the case of Class B shares, or the
NASD maximum, in the case of Class C shares, the Fund will not make further
payments of the distribution fee and any CDSCs will be paid to the Fund rather
than to MLFD; however, the Fund will continue to make payments of the account
maintenance fee. In certain circumstances the amount payable pursuant to the
Class B voluntary maximum may exceed the amount payable under the NASD formula.
In such circumstances payments in excess of the amount payable under the NASD
maximum will not be made.
PROPOSED CHARTER AMENDMENT
On August , 1994, the Board approved the Select Pricing System and a related
amendment to the Fund's charter. The proposed amendment to the charter, among
other things, will enable each Fund to institute the Class B to Class D
automatic conversion feature which is integral to the implementation of the
Select Pricing System. In addition, while the Fund's charter permits the Board
to reclassify unissued shares into additional classes, the proposed amendment
to the Fund's charter also will permit the
31
Board to institute automatic conversion features with respect to all classes by
reclassifying issued shares of the Fund into additional classes at a future
date.
Class B Retirement Plans. Certain shareholders of the Fund purchased Class B
shares through retirement plans. These purchases qualified for a waiver of the
CDSC normally imposed on purchases of Class B shares under exemptive orders and
a no-action letter granted by the SEC. Retirement plans holding Class B shares
purchased without a CDSC are herein referred to as "Class B Retirement Plans."
Since these Class B shares were sold without a CDSC, there was heretofore no
reason to track the length of time that such shares were held, and therefore
Class B Retirement Plan shares cannot be converted to Class D shares in the
same manner as other Class B shares.
To ensure that both the Class B Retirement Plan shareholders and the other
Class B shareholders are treated fairly under the Select Pricing System, the
proposed charter amendment provides that rather than imposing the usual Class B
Conversion Periods which apply to the shares, a ten-year Conversion Period will
be applied to each Class B Retirement Plan. After the Implementation Date, the
Class B Retirement Plans will continue to purchase Class B shares without a
CDSC. When the first share purchased by a Class B Retirement Plan has been held
for ten years (i.e., ten years from the date the relationship between the Funds
and the plan was established), all Class B shares of all Funds held in that
---
Class B Retirement Plan will be converted into Class D shares of the
appropriate Funds. Subsequent to such conversion, that retirement plan will be
sold Class D shares of the appropriate Funds.
Text of Proposed Charter Amendment. Each Fund's state of organization is set
forth in Exhibit A. With respect to the Funds that are Maryland corporations,
the charter will be amended to add the following provision:
The Board of Directors may classify and reclassify any issued shares of
capital stock into one or more additional or other classes or series as
may be established from time to time by setting or changing in any one or
more respects the designations, preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends, qualifications
or terms or conditions of redemption of such shares of stock and pursuant
to such classification or reclassification to increase or decrease the
number of authorized shares of any existing class or series; provided,
however, that any such classification or reclassification shall not
substantially adversely affect the rights of holders of such issued
shares. The Board's authority pursuant to this paragraph shall include,
but not be limited to, the power to vary
32
among all the holders of a particular class or series (a) the length of
time shares must be held prior to reclassification to shares of another
class or series (the "Holding Period(s)"), (b) the manner in which the
time for such Holding Period(s) is determined and (c) the class or series
into which the particular class or series is being reclassified;
provided, however, that, subject to the first sentence of this section,
with respect to holders of the Corporation's shares issued on or after
the date of the Corporation's first effective prospectus which sets forth
Holding Period(s) (the "First Holding Period Prospectus"), the Holding
Period(s), the manner in which the time for such Holding Period(s) is
determined and the class or series into which the particular class or
series is being reclassified shall be disclosed in the Corporation's
prospectus or statement of additional information in effect at the time
such shares, which are the subject of the reclassification, were issued;
and provided, further, that, subject to the first sentence of this
section, with respect to holders of the Corporation's Class B shares
issued prior to the date of the Corporation's First Holding Period
Prospectus, the Holding Period shall be ten (10) years for retirement
plan (as recognized by the Internal Revenue Code of 1986, as amended from
time to time) holders of issued Class B shares purchased without a
contingent deferred sales charge (a "CDSC-Waived Retirement Plan") and
shall be the Holding Period set forth in the Corporation's First Holding
Period Prospectus, for all other holders of issued Class B shares; Class
B shares held by a CDSC-Waived Retirement Plan shall be reclassified to
Class D shares in the month following the month in which the first Class
B share of any mutual fund advised by Merrill Lynch Asset Management,
L.P., Fund Asset Management, L.P., or their affiliates or successors,
held by such CDSC-Waived Retirement Plan has been held for the ten (10)
year Holding Period established by the Corporation's Board of Directors
for such CDSC-Waived Retirement Plan Class B shareholder; and the Class B
shares of every shareholder other than CDSC-Waived Retirement Plans shall
be reclassified to Class D shares in the month following the month in
which such shares have been held for the Holding Period established by
the Corporation's Board of Directors for shareholders other than CDSC-
Waived Retirement Plans in the Corporation's First Holding Period
Prospectus.
With respect to the Funds that are Massachusetts business trusts, Sections
6.1, 6.3 and 10.1 of the charters generally will be amended as follows (changes
are underlined):
6.1. Beneficial Interest. The interest of the beneficiaries hereunder
shall be divided into transferable shares of beneficial
33
interest, par value $0.10 per share. The number of such shares of
beneficial interest authorized hereunder is unlimited. The Trustees, in
their discretion, without a vote of the Shareholders, may divide the
shares of beneficial interest into classes. In such event, each class
shall represent interests in the Trust property and have identical
voting, dividend, liquidation and other rights and the same terms and
conditions except that expenses related directly or indirectly to the
distribution of the shares of a class may be borne solely by such class
(as shall be determined by the Trustees) and, as provided in Section
10.1, a class may have exclusive voting rights with respect to matters
relating to the expenses being borne solely by such class. The bearing of
such expenses solely by a class of Shares shall be appropriately
reflected (in the manner determined by the Trustees) in the net asset
value, dividend and liquidation rights of the Shares of such class. The
---
Trustees may provide that shares of a class will be exchanged for shares
------------------------------------------------------------------------
of another class without any act or deed on the part of the holder of
---------------------------------------------------------------------
shares of the class being exchanged, whether or not shares of such class
------------------------------------------------------------------------
are issued and outstanding, all on terms and conditions as the Trustees
-----------------------------------------------------------------------
may specify. The Trustees may redesignate a class or series of shares of
------------------------------------------------------------------------
beneficial interest or a portion of a class or series of shares of
------------------------------------------------------------------
beneficial interest whether or not shares of such class or series are
---------------------------------------------------------------------
issued and outstanding, provided that such redesignation does not
-----------------------------------------------------------------
substantially adversely affect the preference, conversion or other
------------------------------------------------------------------
rights, voting powers, restrictions, limitations as to dividends,
-----------------------------------------------------------------
qualifications or terms or conditions of redemption of such shares of
---------------------------------------------------------------------
beneficial interest. The division of the Shares into classes and the
--------------------
terms and conditions pursuant to which the Shares of the classes will be
issued must be made in compliance with the 1940 Act. All shares issued
hereunder including, without limitation, Shares issued in connection with
a dividend in Shares or a split of Shares, shall be fully paid and
nonassessable.
6.3. Rights of Shareholders. The ownership of the Trust Property of
every description and the right to conduct any business hereinbefore
described are vested exclusively in the Trustees, and the Shareholders
shall have no interest therein other than the beneficial interest
conferred by their Shares, and they shall have no right to call for any
partition or division of any property, profits, rights or interests of
the Trust nor can they be called upon to share or assume any losses of
the Trust or suffer an assessment of any kind by virtue of their
ownership of Shares. The Shares shall be personal property giving only
the rights in this Declaration specifically set forth. The Shares shall
not entitle the holder to preference, preemptive, appraisal, conversion
or exchange rights (except for rights of appraisal specified
34
in Section 11.4 and except as may be specified by the Trustees in
-------------------------------------------------
connection with the division of shares into classes or the redesignation
------------------------------------------------------------------------
of classes or portions of classes in accordance with Section 6.1).
------------------------------------------------------------------
10.1. Voting Powers. The Shareholders shall have power to vote (i) for
the removal of Trustees as provided in Section 2.3; (ii) with respect to
any advisory or management contract as provided in Section 4.1; (iii)
with respect to the amendment of this Declaration as provided in Section
11.3; (iv) with respect to such additional matters relating to the Trust
as may be required or authorized by the 1940 Act, the laws of the
Commonwealth of Massachusetts or other applicable law or by this
Declaration or the By-Laws of the Trust; and (v) with respect to such
additional matters relating to the Trust as may be properly submitted for
Shareholder approval. If the Shares of a Series shall be divided into
classes as provided in Article VI hereof, the Shares of each class shall
have identical voting rights except that the Trustees, in their
discretion, may provide a class with exclusive voting rights with respect
to matters related to expenses being borne solely by such class whether
-------
or not shares of such class are issued and outstanding.
-------------------------------------------------------
Implementation of the Select Pricing System is conditioned upon approval of
the charter amendment by all shareholders of the Fund, voting as a single
class, as well as by existing Class B shareholders, voting as a separate
class. On August , 1994, the Board approved the proposed charter amendment.
The Board recommends that the shareholders approve the charter amendment.
(PACIFIC FUND SHAREHOLDERS ONLY.)
Proposal 5
PROPOSAL TO CHANGE PACIFIC FUND'S INVESTMENT POLICY FROM BEING A DIVERSIFIED
FUND TO BEING A NON-DIVERSIFIED FUND
Pacific Fund currently is subject to an investment restriction prohibiting
investment in securities of any one issuer (other than the Government of Japan,
the United States Government, their agencies and instrumentalities) if
immediately after and as a result of such investment the market value of the
holdings of the Fund in the securities of such issuer exceeds 5% of the Fund's
total assets, taken at market value. As a result, Pacific Fund is classified as
a diversified company under the Investment Company Act. Under present law, a
mutual fund can still be classified as a
35
diversified company yet meet less stringent conditions. See Item 1 under
"Proposal to Amend the Fundamental Investment Restrictions of the Fund" above.
It is proposed that the Fund's shareholders approve changing the Fund's
investment policy from being a diversified fund to being a non-diversified fund
for purposes of the Investment Company Act. As a non-diversified fund, the Fund
would not be subject to the above described investment restriction. A "non-
diversified" mutual fund is able to invest more than 5% of the value of its
assets in the obligations of a single issuer subject to the diversification
requirements of Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"). To qualify under the Code, the Fund must comply with certain
requirements, including limiting its investments so that at the close of each
quarter of the taxable year (i) not more than 25% of the market value of the
Fund's total assets will be invested in the securities of a single issuer, and
(ii) with respect to 50% of the market value of its total assets, not more than
5% of the market value of its total assets will be invested in the securities
of a single issuer, and the Fund will not own more than 10% of the outstanding
voting securities of a single issuer. Foreign government securities (unlike
U.S. Government securities) are not exempt from the diversification
requirements of the Code.
Changing from a diversified to a non-diversified fund would increase the
flexibility with which MLAM could manage the Fund's assets. However, to the
extent the Fund invests a relatively high percentage of its assets in
obligations of a limited number of issuers, the Fund may be more susceptible
than would be a more widely diversified fund to any single economic, political
or regulatory occurrence or to changes in an issuer's financial condition or in
the market's assessment of the issuers. The proposed change in the Fund's
investment policy requires the approval of shareholders of Pacific Fund voting
as a single class. The Board recommends that Pacific Fund's shareholders
approve this change.
* * *
36
OTHER PERTINENT INFORMATION REGARDING THE FUND
INFORMATION CONCERNING MLAM
Effective January 1, 1994, MLAM was reorganized as a Delaware limited
partnership. MLAM is owned and controlled by ML & Co., and the general partner
of MLAM is Princeton Services, Inc. ("Princeton Services"), a wholly-owned
subsidiary of ML & Co. The reorganization did not result in a change of
management of MLAM, in any of its personnel, or in an adverse change in its
financial condition. Prior to the reorganization, MLAM (which was known as
Merrill Lynch Investment Management, Inc. and which did business as Merrill
Lynch Asset Management) was a Delaware corporation. MLAM was a wholly-owned
subsidiary of ML & Co.
MLFD, an affiliate of MLAM, acts as distributor of the Fund's shares. MLAM,
Princeton Services and MLFD are located at 800 Scudders Mill Road, Plainsboro,
New Jersey 08536. ML & Co. is located at 250 Vesey Street, New York, New York
10281.
MLAM and its affiliate, FAM, act as the investment adviser to more than 100
registered investment companies. In addition, MLAM offers portfolio management
and portfolio analysis services to individuals and institutions.
The Investment Adviser's audited balance sheet for the fiscal year ended
December 31, 1993 is set forth in Exhibit B.
Securities held by the Fund also may be held by or be appropriate investments
for other funds or clients (collectively referred to as "clients") for which
MLAM acts as an adviser. Because of different investment objectives or other
factors, a particular security may be bought for one or more clients when one
or more clients are selling the security. If purchases or sales of securities
for the Fund or other clients arise for consideration at or about the same
time, transactions in such securities will be made, insofar as feasible, for
the respective clients in a manner deemed equitable to all by MLAM. To the
extent that transactions on behalf of more than one client of 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.
37
The following table sets forth the name, title and principal occupation of
the principal executive officer of MLAM and the directors of Princeton
Services, the general partner of MLAM.
NAME* TITLE PRINCIPAL OCCUPATION
----- ----- --------------------
Arthur Zeikel...... President and Chief President and Chief
Investment Officer Investment Officer
of MLAM and FAM and of MLAM and FAM;
Director of Executive Vice
Princeton Services President of ML &
Co.; President of
Princeton Services
Terry K. Glenn..... Executive Vice Executive Vice
President of MLAM President of MLAM
and FAM and and FAM; Executive
Director of Vice President of
Princeton Services Princeton Services
Philip L. Kirstein. Senior Vice Senior Vice
President and President and
General Counsel of General Counsel of
MLAM and FAM and MLAM and FAM;
Director of Senior Vice
Princeton Services President of
Princeton Services
- ------------
* Mr. Zeikel is presently a Board member of the Fund. The address of Messrs.
Zeikel, Glenn and Kirstein is P.O. Box 9011, Princeton, New Jersey 08543-
9011, which is also the address of MLAM.
TERMS OF INVESTMENT ADVISORY AGREEMENT
The Investment Advisory Agreement provides that, subject to the direction of
the Board, the Investment Adviser is responsible for the actual management of
the Fund's portfolio and for the review of the Fund's holdings in light of its
own research analysis and analyses from other relevant sources. The
responsibility for making decisions to buy, sell or hold a particular security
rests with the Investment Adviser, subject to review by the Board. The
Investment Adviser provides the portfolio managers for the Fund who consider
analyses from various sources (including brokerage firms with which the Fund
does business), make the necessary investment decisions and place transactions
accordingly. The Investment Adviser is also obligated to perform certain
administrative and management services for the Fund and is obligated to provide
all the office space, facilities, equipment and personnel necessary to perform
its duties under the Investment Advisory Agreement.
38
Investment Advisory Fee. The Investment Advisory Agreement provides that as
compensation for its services to the Fund, the Investment Adviser receives from
the Fund at the end of each month a fee calculated as an annual percentage of
the Fund's average daily net assets (i.e., the average daily value of the total
assets of the Fund minus the sum of accrued liabilities of the Fund).
Information pertaining to the Fund's investment advisory fee is set forth in
Exhibit A.
Payment of Expenses. The Investment Advisory Agreement obligates the
Investment Adviser to provide investment advisory services and to pay all
compensation of and furnish office space for officers and employees of the Fund
connected with the investment and economic research, trading and investment
management of the Fund, as well as the fees of all Board members of the Fund
who are affiliated persons of the Investment Adviser or any of its affiliates.
The Fund pays all other expenses incurred in its operation, including, among
other things, expenses for legal and auditing services; taxes; costs of
printing proxies, stock certificates and shareholder reports; charges of the
custodian and transfer agent, dividend disbursing agent and registrar fees; SEC
fees; fees and expenses of unaffiliated Board members; accounting and pricing
costs; insurance; interest; brokerage costs; litigation and other extraordinary
or non-recurring expenses; mailing and other expenses properly payable by the
Fund.
Accounting services are provided to the Fund by the Investment Adviser, and
the Fund reimburses the Investment Adviser for its costs in connection with
such services. Information with respect to such reimbursement is set forth in
Exhibit A.
California imposes limitations on the expenses of those Funds whose shares
are registered or qualified for sale in California. At the date of this proxy
statement, these annual expense limitations require that the Investment Adviser
reimburse the Fund in an amount necessary to prevent the aggregate ordinary
operating expenses (excluding taxes, brokerage fees and commissions,
distribution fees and extraordinary charges such as litigation costs) from
exceeding in any fiscal year 2.5% of the Fund's first $30 million of average
net assets, 2.0% of the next $70 million and 1.5% of the remaining average net
assets. The following Funds have received partial waivers of California's
expense limits as detailed in their Statements of Additional Information:
Merrill Lynch Developing Capital Markets Fund, Inc., Merrill Lynch Dragon Fund,
Inc., Merrill Lynch EuroFund, Merrill Lynch Global Allocation Fund, Inc.,
Merrill Lynch International Equity Fund and Merrill Lynch Latin America Fund,
Inc. The Investment Adviser's obligation to reimburse the Fund is limited to
the amount of the
39
investment advisory fee. No payment will be made to the Investment Adviser
during any fiscal year which will cause expenses to exceed the most restrictive
expense limitation at the time of such payment. Additional information with
respect to the Fund's reimbursement pursuant to such expense limitations, if
any, is set forth in Exhibit A.
Duration and Termination. The Investment Advisory Agreement will continue in
effect from year to year if approved annually (a) by the Board or by a majority
of the outstanding shares of the Fund and (b) by a majority of the Board
members who are not parties to such agreement or interested persons (as defined
in the Investment Company Act) of any such party. Such agreement is not
assignable and may be terminated without penalty on 60 days' written notice at
the option of either party thereto or by the vote of the shareholders of the
Fund.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to policies established by the Board, the Investment Adviser is
primarily responsible for the execution of each Fund's portfolio transactions
and the allocation of brokerage. In executing such transactions, the Investment
Adviser seeks to obtain the best results for the Fund, taking into account such
factors as price (including the applicable brokerage commission or dealer
spread), size of order, difficulty of execution and operational facilities of
the firm involved and the firm's risk in positioning a block of securities.
While the Investment Adviser generally seeks reasonably competitive commission
rates, the Fund does not necessarily pay the lowest commission or spread
available.
The Fund has no obligation to deal with any broker or group of brokers in the
execution of transactions in portfolio securities. Subject to obtaining the
best price and execution, brokers or dealers who provided supplemental
investment research (such as information concerning money market securities,
economic data and market forecasts) to the Investment Adviser, including
Merrill Lynch, may receive orders for transactions by the Fund. Information so
received will be in addition to and not in lieu of the services required to be
performed by the Investment Adviser under the Investment Advisory Agreement,
and the expenses of the Investment Adviser will not necessarily be reduced as a
result of the receipt of such supplemental information.
Each Fund invests in securities traded in the over-the-counter markets, and
where possible, deals directly with dealers who make markets in the securities
involved, except in those circumstances where better prices and execution are
available elsewhere. Under the Investment Company Act, except as permitted by
exemptive order, persons affiliated with a Fund
40
are prohibited from dealing with the Fund as principal in the purchase and sale
of securities. Since transactions in the over-the-counter market usually
involve transactions with dealers acting as principal for their own account, a
Fund will not deal with affiliated persons, including Merrill Lynch and its
affiliates, in connection with such transactions except that pursuant to an
exemptive order, obtained by the Investment Adviser, certain Funds may engage
in principal transactions with Merrill Lynch in high-quality short-term, tax-
exempt securities. For information about transactions with and brokerage
commissions paid to Merrill Lynch see Exhibit A.
The Board has considered the possibility of recapturing for the benefit of
the Fund brokerage commissions, dealer spreads and other expenses of possible
portfolio transactions, such as underwriting commissions, by conducting
portfolio transactions through affiliated entities, including Merrill Lynch.
For example, brokerage commissions received by Merrill Lynch could be offset
against the investment advisory fee paid by the Fund to the Investment Adviser.
After considering all factors deemed relevant, the Board members made a
determination not to seek such recapture. The Board members will reconsider
this matter from time to time.
ADDITIONAL INFORMATION
The expenses of preparation, printing and mailing by the Fund of the proxy
materials in connection with the matters to be considered at the meeting will
be borne by the Fund. The Fund will reimburse banks, brokers and others for
their reasonable expenses in forwarding proxy solicitation material to the
beneficial owners of the shares of the Fund. The Fund also may hire proxy
solicitors at the expense of the Fund.
The proposal to elect the Fund's Board (Proposal 1) may be approved by a
plurality of the votes cast, in person or by proxy, at a meeting at which a
quorum is duly constituted. The proposal to ratify the selection of the Fund's
independent auditors (Proposal 2) for each of the Maryland corporations may be
approved by a majority of the votes cast by the Fund's shareholders, voting in
person or by proxy, at a meeting at which a quorum is duly constituted, and for
the Massachusetts business trusts, may be approved by the affirmative vote of a
majority of the Fund's shares represented at a meeting at which a quorum is
duly constituted. The proposal to amend the fundamental investment restrictions
of the Fund (Proposal 3), and in addition, with respect to Pacific Fund, the
proposal to change its investment policy from being a diversified fund to being
a non-diversified fund (Proposal 5), requires the affirmative vote of the
lesser of (i) 67% of the shares represented at the Meeting at which more than
50% of the outstanding shares are represented or (ii) more than 50% of the
outstanding shares.
41
The proposal to amend the Fund's charter (Proposal 4) must be approved by the
affirmative vote of (i) at least 66 2/3% of the outstanding shares of the Fund
for Merrill Lynch Global Holdings, Merrill Lynch Healthcare Fund, Inc. and
Pacific Fund, or (ii) a majority of the outstanding shares of the Fund for
Merrill Lynch Americas Income Fund, Inc., Merrill Lynch Developing Capital
Markets Fund, Inc., Merrill Lynch Dragon Fund, Inc., Merrill Lynch EuroFund,
Merrill Lynch Global Allocation Fund, Inc., Merrill Lynch Global Bond Fund for
Investment and Retirement, Merrill Lynch International Equity Fund, Merrill
Lynch Latin America Fund, Inc., Merrill Lynch Short-Term Global Income Fund,
Inc. and Merrill Lynch Technology Fund, Inc. The charter amendment also must be
approved separately by the affirmative vote of the outstanding Class B shares
of the Fund in the same percentages as set forth in (i) and (ii) immediately
above.
In order to obtain the necessary quorum at the Meeting, supplementary
solicitation may be made by mail, telephone, telegraph or personal interview by
officers of the Fund. It is anticipated that the cost of such supplementary
solicitation, if any, will be nominal. For Merrill Lynch Global Holdings,
Merrill Lynch Healthcare Fund, Inc. and Pacific Fund, a quorum consists of a
majority of the shares entitled to vote at the Meeting, present in person or by
proxy; for Merrill Lynch Americas Income Fund, Inc., Merrill Lynch Developing
Capital Markets Fund, Inc., Merrill Lynch Dragon Fund, Inc., Merrill Lynch
EuroFund, Merrill Lynch Global Allocation Fund, Inc., Merrill Lynch Global Bond
Fund for Investment and Retirement, Merrill Lynch International Equity Fund,
Merrill Lynch Latin America Fund, Inc., Merrill Lynch Short-Term Global Income
Fund, Inc. and Merrill Lynch Technology Fund, Inc., a quorum consists of 33
1/3% of the shares entitled to vote at the Meeting, present in person or by
proxy. Class B quorum requirements for the separate Class B vote on Proposal 4
will be identical to the overall quorum requirements for each Fund.
All shares represented by properly executed proxies, unless such proxies have
previously been revoked, will be voted at the Meeting in accordance with the
directions on the proxies; if no direction is indicated, the shares will be
voted "FOR" the Board member nominees, "FOR" the ratification of the
independent auditors, "FOR" the amendments to the fundamental investment
restrictions of the Fund, "FOR" the charter amendment and with respect to
proxies submitted by shareholders of Pacific Fund only, "FOR" the change to
non-diversified status.
With respect to each Fund whose fiscal year ended subsequent to June 30,
1994, the Board represents that there has been no material adverse
42
change in the financial operations of the Fund since the date of the unaudited
financial statements contained in the Fund's most recent semi-annual report.
Also, with respect to each Fund whose fiscal year ended subsequent to June 30,
1994, shares will not be voted for Proposal 1 unless the Fund has received a
certificate from its President, dated the Meeting Date, that, to his knowledge,
there has been no material adverse change in the Fund's financial operations
since the date of the unaudited financial statements included in the Fund's
most recent semi-annual report, unless such material adverse change has been
disclosed to shareholders in additional proxy material. If you wish to receive
a copy of the Fund's most recent annual report and any semi-annual report,
without charge, please call 1-609-282-2800.
Broker-dealer firms, including Merrill Lynch, holding Fund shares in "street
name" for the benefit of their customers and clients will request the
instructions of such customers and clients on how to vote their shares on each
Proposal before the Meeting. The Fund understands that, under the rules of the
New York Stock Exchange, such broker-dealer firms may, without instructions
from their customers and clients, grant authority to the proxies designated to
vote on the election of Board members (Proposal 1), the ratification of the
selection of independent auditors (Proposal 2) and the proposed charter
amendment (Proposal 4) if no instructions have been received prior to the date
specified in the broker-dealer firm's request for voting instructions. Broker-
dealer firms, including Merrill Lynch, will not be permitted to grant voting
authority without instructions with respect to the amendments to the
fundamental investment restrictions (Proposal 3) or with respect to the change
to non-diversified status of Pacific Fund (Proposal 5). The Fund will include
shares held of record by broker-dealers as to which such authority has been
granted in its tabulation of the total number of votes present for purposes of
determining whether the necessary quorum of shareholders exists. Proxies which
are returned but which are marked "abstain" or on which a broker-dealer has
declined to vote on any proposal ("broker non-votes") will be counted as
present for the purposes of a quorum. Merrill Lynch has advised the Fund that
it intends to exercise discretion over shares held in its name for which no
instructions have been received by voting such shares on Proposals 1, 2 and 4
in the same proportion as it has voted shares for which it has received
instructions. However, abstentions and broker non-votes will not be counted as
votes cast. Abstentions and broker non-votes will not have an effect on the
vote on Proposals 1 and 2 (in the case of Maryland corporations) or on Proposal
1 only (in the case of Massachusetts business trusts); however, abstentions and
broker non-votes will have the same effect as a vote against Proposals 3, 4 and
5 (in the case of Maryland corporations) or Proposals 2, 3 and 4 (in the case
of Massachusetts business trusts).
43
With respect to Funds organized in Massachusetts: The charter, which is on
file with the Secretary of State of the Commonwealth of Massachusetts, provides
that the name of the Fund refers to the Board members under the charter
collectively as Board members, but not as individuals or personally; and no
Board member, shareholder, officer, employee or agent of the Fund shall be held
to any personal liability, nor shall resort be had to their private property
for the satisfaction of any obligation or claim of the Fund but the Fund Estate
only shall be liable.
PENDING LITIGATION
In June 1993, a putative class action complaint was filed in the United
States District Court for the Southern District of California by several
shareholders of the Merrill Lynch Short-Term World Income Portfolio (the "World
Fund"), naming the World Fund, the Investment Adviser and certain of their
affiliates as defendants. Plaintiffs sought damages in excess of $86 million
stemming from alleged misrepresentations and omissions in the marketing and
offering materials associated with the World Fund. The complaint alleged, among
other things, that the World Fund prospectus did not contain risk disclosures
included in the Merrill Lynch Short-Term Global Income Fund, Inc. (the "Global
Fund") prospectus, a mutual fund with similar investment objectives.
Thereafter, in September 1993, a First Amended Complaint was filed, adding
two plaintiffs who purchased shares in the Global Fund, and adding the Global
Fund and Merrill Lynch Funds Distributor, Inc. as defendants. In the Amended
Complaint, plaintiffs seek compensatory and punitive damages in excess of $600
million, purportedly on behalf of Global Fund investors who purchased shares
between September 15, 1990 and October 31, 1992, and on behalf of World Fund
investors who purchased shares between June 9, 1990 and October 31, 1992. The
Amended Complaint alleges violations of Section 10(b) and Section 20 of the
Securities Exchange Act of 1934, Section 12(2) and Section 15 of the Securities
Act of 1933, and various common law claims. In essence, plaintiffs allege that
these funds' sales materials did not contain adequate risk disclosures and
further allege oral point of sale misrepresentations regarding the safety of
investing in these funds.
After plaintiffs voluntarily dismissed the action as to two Merrill Lynch
affiliates, the remaining defendants, with the exception of the World Fund,
moved to dismiss the Amended Complaint on the grounds, among others, that (1)
the prospectuses adequately disclosed the risks associated with investing in
these funds, thus defeating plaintiffs' securities claims as a matter of law;
and (2) plaintiffs failed to comply with the statute of limitations. In
addition, all defendants, with the exception of the World Fund, moved to
transfer venue to the District of New Jersey. At the same
44
time, the World Fund moved to dismiss the Amended Complaint for insufficiency
of process and lack of personal jurisdiction.
In April 1994, the Court granted defendants' motion to transfer the action to
the District of New Jersey. Plaintiffs then moved for reconsideration. On
reconsideration, the court ruled that the World Fund was subject to
jurisdiction in the United States, and then reaffirmed its decision
transferring the action to the District of New Jersey. The remaining motions to
dismiss now will be decided by the transferee court.
The defendants believe that the allegations are totally without merit, and
will continue to vigorously contest the action. MLAM has agreed to indemnify
these funds for any liabilities or expenses they may incur in connection with
this litigation.
MEETINGS OF SHAREHOLDERS
The Fund's charter does not require that the Fund hold an annual meeting of
shareholders. The Fund will be required, however, to call special meetings of
shareholders in accordance with the requirements of the Investment Company Act
to seek approval of new management and advisory arrangements or of a change in
the fundamental policies, objectives or restrictions of the Fund. The Fund also
would be required to hold a special shareholders' meeting to elect new Board
members at such time as less than a majority of the Board members holding
office have been elected by shareholders. The charter or by-laws provide that a
shareholders' meeting may be called at the request of 10% of the outstanding
shares of Merrill Lynch Americas Income Fund, Inc., Merrill Lynch Developing
Capital Markets Fund, Inc., Merrill Lynch Dragon Fund, Inc., Merrill Lynch
EuroFund, Merrill Lynch Global Allocation Fund, Inc., Merrill Lynch Global Bond
Fund for Investment and Retirement, Merrill Lynch International Equity Fund,
Merrill Lynch Latin America Fund, Inc., Merrill Lynch Pacific Fund, Inc. and
Merrill Lynch Technology Fund, or 25% of the outstanding shares of Merrill
Lynch Global Holdings, Merrill Lynch Healthcare Fund, Inc. and [Merrill Lynch
Short-Term Global Income Fund, Inc.], entitled to vote at such meeting, or by a
majority of the Board members.
By Order of the Board
Mark B. Goldfus
Secretary
Robert Harris
Secretary
Michael J. Hennewinkel
Secretary
Dated: August 10, 1994
45
EXHIBIT A
INFORMATION PERTAINING TO EACH FUND
. GENERAL INFORMATION PERTAINING TO THE FUNDS
DEFINED TERM USED STATE OF
FUND IN EXHIBIT A FISCAL YEAR END ORGANIZATION MEETING TIME
- -------------------------------------------------------------------------------------------------------------------
Merrill Lynch Americas Income Fund Inc. Americas Income 12/31 MD 9:30 a.m.
- -------------------------------------------------------------------------------------------------------------------
Merrill Lynch Developing Capital Markets Fund,
Inc. Developing Capital 6/30 MD 2:30 p.m.
- -------------------------------------------------------------------------------------------------------------------
Merrill Lynch Dragon Fund, Inc. Dragon Fund 12/31 MD 10:00 a.m.
- -------------------------------------------------------------------------------------------------------------------
Merrill Lynch EuroFund EuroFund 10/31 MA 3:00 p.m.
- -------------------------------------------------------------------------------------------------------------------
Merrill Lynch Global Allocation Fund, Inc. Global Allocation 10/31 MD 4:00 p.m.
- -------------------------------------------------------------------------------------------------------------------
Merrill Lynch Global Bond Fund for Inv. and Ret. Global Bond Fund 12/31 MA 3:30 p.m.
- -------------------------------------------------------------------------------------------------------------------
Merrill Lynch Healthcare Fund, Inc. Healthcare Fund 4/30 MD 1:30 p.m.
- -------------------------------------------------------------------------------------------------------------------
Merrill Lynch International Equity Fund International Equity 5/31 MA 2:00 p.m.
- -------------------------------------------------------------------------------------------------------------------
Merrill Lynch International Holdings, Inc. Global Holdings 11/30 MD 10:30 a.m.
- -------------------------------------------------------------------------------------------------------------------
Merrill Lynch Latin America Fund, Inc. Latin America 11/30 MD 11:00 a.m.
- -------------------------------------------------------------------------------------------------------------------
Merrill Lynch Pacific Fund, Inc. Pacific Fund 12/31 MD 9:00 a.m.
- -------------------------------------------------------------------------------------------------------------------
Merrill Lynch Short-Term Global Income Fund, Inc. Short-Term 10/31 MD 4:30 p.m.
- -------------------------------------------------------------------------------------------------------------------
Merrill Lynch Technology Fund, Inc. Technology Fund 3/31 MD 11:30 a.m.
A-1
SHARES OUTSTANDING AS OF THE RECORD DATE
----------------------------------------------------------
FUND CLASS A CLASS B
- -------------------------------------------------------------------------------------
Americas Income
- -------------------------------------------------------------------------------------
Developing Capital
- -------------------------------------------------------------------------------------
Dragon Fund
- -------------------------------------------------------------------------------------
EuroFund
- -------------------------------------------------------------------------------------
Global Allocation
- -------------------------------------------------------------------------------------
Global Bond Fund
- -------------------------------------------------------------------------------------
Global Holdings
- -------------------------------------------------------------------------------------
Healthcare Fund
- -------------------------------------------------------------------------------------
International Equity
- -------------------------------------------------------------------------------------
Latin America
- -------------------------------------------------------------------------------------
Pacific Fund
- -------------------------------------------------------------------------------------
Short-Term
- -------------------------------------------------------------------------------------
Technology Fund
A-2
. INFORMATION PERTAINING TO OFFICERS AND BOARD MEMBERS
YEAR IN WHICH EACH NOMINEE BECAME A MEMBER OF THE BOARD
-----------------------------------------------------------------------------
FUND CECIL MEYER REILLY WEST ZEIKEL
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
Americas In-
come 1993 1993 1993 1993 1993
- --------------------------------------------------------------------------------------------
Developing
Capital 1989 1990 1990 1989 1989
- --------------------------------------------------------------------------------------------
Dragon Fund 1992 1992 1992 1992 1992
- --------------------------------------------------------------------------------------------
EuroFund 1986 1990 1990 1986 1986
- --------------------------------------------------------------------------------------------
Global Allo-
cation 1988 1990 1990 1988 1988
- --------------------------------------------------------------------------------------------
Global Bond
Fund 1986 1990 1990 1986 1986
- --------------------------------------------------------------------------------------------
Global Hold-
ings 1984 1990 1990 1984 1984
- --------------------------------------------------------------------------------------------
Healthcare
Fund 1983 1990 1990 1983 1983
- --------------------------------------------------------------------------------------------
International
Equity 1993 1993 1993 1993 1993
- --------------------------------------------------------------------------------------------
Latin America 1991 1991 1991 1991 1991
- --------------------------------------------------------------------------------------------
Pacific Fund 1981 1981 1991 1991 1980
- --------------------------------------------------------------------------------------------
Short-Term 1990 1990 1990 1990 1990
- --------------------------------------------------------------------------------------------
Technology
Fund 1991 1991 1991 1991 1991
A-3
Set forth in the table below is information regarding board and committee
meetings held and compensation paid to independent Board members during each
Fund's most recently completed fiscal year.
BOARD AUDIT AND NOMINATING COMMITTEE
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
AGGREGATE FEES
# MEETINGS ANNUAL FEE PER MEETING FEE # MEETINGS PER MEETING FEE CHAIRMAN FEE AND EXPENSES
FUND HELD $ $ HELD $ $ $
- --------------------------------------------------------------------------------------------------------------------
Americas Income 4 3,500 500 4 500 250 11,450
- --------------------------------------------------------------------------------------------------------------------
Developing Capital 4 3,500 500 4 500 250
- --------------------------------------------------------------------------------------------------------------------
Dragon Fund 4 3,500 500 4 500 250 26,703
- --------------------------------------------------------------------------------------------------------------------
EuroFund 4 3,500 500 4 500 250 32,007
- --------------------------------------------------------------------------------------------------------------------
Global Allocation 4 3,500 500 4 500 250 30,741
- --------------------------------------------------------------------------------------------------------------------
Global Bond Fund 4 3,500 500 4 500 250 31,103
- --------------------------------------------------------------------------------------------------------------------
Global Holdings 4 3,500 500 4 500 250 31,432
- --------------------------------------------------------------------------------------------------------------------
Healthcare Fund 4 1,750 250 4 250 125 15,398
- --------------------------------------------------------------------------------------------------------------------
International Equity 4 3,500 500 4 500 250 26,827
- --------------------------------------------------------------------------------------------------------------------
Latin America 4 3,500 500 4 500 250 31,137
- --------------------------------------------------------------------------------------------------------------------
Pacific Fund 4 3,500 1,000 4 500 250 39,408
- --------------------------------------------------------------------------------------------------------------------
Short-Term 4 3,500 500 4 500 250 30,737
- --------------------------------------------------------------------------------------------------------------------
Technology Fund 4 1,750 250 4 250 125 15,364
A-4
Set forth in the table below are the officers of all of the Funds; specific
officers of each Fund are indicated according to the year in which he or she
became an officer.
OFFICER INFORMATION
- --------------------------------------------------------------------------------------------------------------------------------
OFFICER SINCE
----------------------------------------------------------------------------------------
GLOBAL
NAME AND AMERICAS DEVELOPING DRAGON GLOBAL BOND GLOBAL HEALTHCARE INTERNATIONAL
BIOGRAPHY AGE OFFICE INCOME CAPITAL FUND EUROFUND ALLOCATION FUND HOLDINGS FUND* EQUITY
- --------------------------------------------------------------------------------------------------------------------------------
Arthur Zeikel............. 62 President 1993 1989 1992 1986 1988 1986 1984 1982 1993
President of MLAM since
1977 and Chief Investment
Officer since 1976;
President and Chief
Investment Officer of FAM
since 1977; President and
Director of Princeton
Services since 1993;
Executive Vice President
of ML & Co. since 1990;
Executive Vice President
of Merrill Lynch since
1990 and Senior Vice
President from 1985 to
1990; Director of MLFD.
- --------------------------------------------------------------------------------------------------------------------------------
Terry K. Glenn............ 53 Executive 1993 1989 1992 1986 1988 1986 1984 1983 1993
Executive Vice President Vice
of MLAM and FAM since President
1983; Executive Vice
President and Director of
Princeton Services since
1993; President of MLFD
since 1986 and Director
since 1991; President of
Princeton Administrators,
L.P. since 1988.
NAME AND LATIN PACIFIC SHORT- TECHNOLOGY
BIOGRAPHY AMERICA FUND TERM FUND*
- -------------------------------------------------------------------------------
Arthur Zeikel............. 1991 1980 1990 1991
President of MLAM since
1977 and Chief Investment
Officer since 1976;
President and Chief
Investment Officer of FAM
since 1977; President and
Director of Princeton
Services since 1993;
Executive Vice President
of ML & Co. since 1990;
Executive Vice President
of Merrill Lynch since
1990 and Senior Vice
President from 1985 to
1990; Director of MLFD.
- -------------------------------------------------------------------------------
Terry K. Glenn............ 1991 1983 1990 1991
Executive Vice President
of MLAM and FAM since
1983; Executive Vice
President and Director of
Princeton Services since
1993; President of MLFD
since 1986 and Director
since 1991; President of
Princeton Administrators,
L.P. since 1988.
* Healthcare Fund and Technology Fund resulted from a reorganization involving
Sci/Tech Holdings, Inc. which was consummated on April 27, 1992.
A-5
OFFICER INFORMATION
- ----------------------------------------------------------------------------------------------
NAME AND
BIOGRAPHY AGE OFFICE
- ----------------------------------------------------------------------------------------------
Gerald M. Richard......... 45 Treasurer
Senior Vice President and
Treasurer of MLAM and FAM
since 1984; Senior Vice
President and Treasurer
of Princeton Services
since 1993; Treasurer of
MLFD since 1984 and Vice
President since 1981.
- ----------------------------------------------------------------------------------------------
Norman R. Harvey.......... 61 Senior
Senior Vice President of Vice
MLAM and FAM since 1982. President
- ----------------------------------------------------------------------------------------------
N. John Hewitt............ 59 Senior
Senior Vice President of Vice
MLAM and FAM since 1976; President
Manager of the Fixed
Income Mutual Fund and
Insurance Portfolio
Groups of MLAM since
1980; Senior Vice
President of Princeton
Services since 1993.
OFFICER SINCE
-------------------------------------------------------------------------------------------------------
NAME AND AMERICAS DEVELOPING
BIOGRAPHY INCOME CAPITAL
- -----------------------------------------------------------------------------------------------------------------------------------
Gerald M. Richard......... 1993 1989
Senior Vice President and
Treasurer of MLAM and FAM
since 1984; Senior Vice
President and Treasurer
of Princeton Services
since 1993; Treasurer of
MLFD since 1984 and Vice
President since 1981.
- -----------------------------------------------------------------------------------------------------------------------------------
Norman R. Harvey.......... 1989
Senior Vice President of
MLAM and FAM since 1982.
- -----------------------------------------------------------------------------------------------------------------------------------
N. John Hewitt............ -- --
Senior Vice President of
MLAM and FAM since 1976;
Manager of the Fixed
Income Mutual Fund and
Insurance Portfolio
Groups of MLAM since
1980; Senior Vice
President of Princeton
Services since 1993.
GLOBAL
NAME AND DRAGON GLOBAL BOND GLOBAL HEALTHCARE INTERNATIONAL LATIN PACIFIC SHORT- TECHNOLOGY
BIOGRAPHY FUND EUROFUND ALLOCATION FUND HOLDINGS FUND* EQUITY AMERICA FUND TERM FUND*
- -----------------------------------------------------------------------------------------------------------------------------------
Gerald M. Richard......... 1992 1986 1988 1986 1984 1984 1993 1991 1984 1990 1991
Senior Vice President and
Treasurer of MLAM and FAM
since 1984; Senior Vice
President and Treasurer
of Princeton Services
since 1993; Treasurer of
MLFD since 1984 and Vice
President since 1981.
- -----------------------------------------------------------------------------------------------------------------------------------
Norman R. Harvey.......... 1992 1987 1988 -- 1984 1982 1993 1991 1985 -- 1991
Senior Vice President of
MLAM and FAM since 1982.
- -----------------------------------------------------------------------------------------------------------------------------------
N. John Hewitt............ -- -- -- 1993 -- -- -- -- -- -- --
Senior Vice President of
MLAM and FAM since 1976;
Manager of the Fixed
Income Mutual Fund and
Insurance Portfolio
Groups of MLAM since
1980; Senior Vice
President of Princeton
Services since 1993.
* Healthcare Fund and Technology Fund resulted from a reorganization involving
Sci/Tech Holdings, Inc. which was consummated on April 27, 1992.
A-6
OFFICER INFORMATION
- ----------------------------------------------------------------------------------------------
NAME AND
BIOGRAPHY AGE OFFICE
- ----------------------------------------------------------------------------------------------
Philip L. Kirstein........ Senior
Senior Vice President and Vice
General Counsel of the President
Investment Adviser and
FAM and their
predecessors since 1984;
Senior Vice President,
General Counsel, Director
and Secretary of
Princeton Services;
Secretary of the
Investment Advisor and
its predecessor since
1984; Secretary of FAM
and its predecessor since
1982; Director of the
Distributor.
- ----------------------------------------------------------------------------------------------
Joseph T. Monagle, Jr..... 46 Senior
Senior Vice President and Vice
Department Head of the President
Global Short-Term Fixed
Income Division of MLAM
and its predecessor and
associated therewith
since 1977; Senior Vice
President of Princeton
Services since 1993.
- ----------------------------------------------------------------------------------------------
Alan J. Albert............ 46 Vice
Managing Director of President
Merrill Lynch Asset
Management U.K. since
1993; Vice President of
MLAM since 1986.
OFFICER SINCE
-------------------------------------------------------------------------------------------------------
NAME AND AMERICAS DEVELOPING
BIOGRAPHY INCOME CAPITAL
- -----------------------------------------------------------------------------------------------------------------------------------
Philip L. Kirstein........ -- --
Senior Vice President and
General Counsel of the
Investment Adviser and
FAM and their
predecessors since 1984;
Senior Vice President,
General Counsel, Director
and Secretary of
Princeton Services;
Secretary of the
Investment Advisor and
its predecessor since
1984; Secretary of FAM
and its predecessor since
1982; Director of the
Distributor.
- -----------------------------------------------------------------------------------------------------------------------------------
Joseph T. Monagle, Jr..... 1993 --
Senior Vice President and
Department Head of the
Global Short-Term Fixed
Income Division of MLAM
and its predecessor and
associated therewith
since 1977; Senior Vice
President of Princeton
Services since 1993.
- -----------------------------------------------------------------------------------------------------------------------------------
Alan J. Albert............ -- --
Managing Director of
Merrill Lynch Asset
Management U.K. since
1993; Vice President of
MLAM since 1986.
GLOBAL
NAME AND DRAGON GLOBAL BOND GLOBAL HEALTHCARE INTERNATIONAL LATIN PACIFIC SHORT- TECHNOLOGY
BIOGRAPHY FUND EUROFUND ALLOCATION FUND HOLDINGS FUND* EQUITY AMERICA FUND TERM FUND*
- -----------------------------------------------------------------------------------------------------------------------------------
Philip L. Kirstein........ -- -- -- -- 1984 1982 -- -- -- -- --
Senior Vice President and
General Counsel of the
Investment Adviser and
FAM and their
predecessors since 1984;
Senior Vice President,
General Counsel, Director
and Secretary of
Princeton Services;
Secretary of the
Investment Advisor and
its predecessor since
1984; Secretary of FAM
and its predecessor since
1982; Director of the
Distributor.
- -----------------------------------------------------------------------------------------------------------------------------------
Joseph T. Monagle, Jr..... -- -- -- -- -- -- -- -- -- 1993 --
Senior Vice President and
Department Head of the
Global Short-Term Fixed
Income Division of MLAM
and its predecessor and
associated therewith
since 1977; Senior Vice
President of Princeton
Services since 1993.
- -----------------------------------------------------------------------------------------------------------------------------------
Alan J. Albert............ -- 1987 -- -- -- -- -- -- -- -- --
Managing Director of
Merrill Lynch Asset
Management U.K. since
1993; Vice President of
MLAM since 1986.
* Healthcare Fund and Technology Fund resulted from a reorganization involving
Sci/Tech Holdings, Inc. which was consummated on April 27, 1992.
A-7
OFFICER INFORMATION
- ---------------------------------------------------------------------------------------------------------------------------------
OFFICER SINCE
----------------------------------------------------------------------------------------
GLOBAL
NAME AND AMERICAS DEVELOPING DRAGON GLOBAL BOND GLOBAL HEALTHCARE INTERNATIONAL
BIOGRAPHY AGE OFFICE INCOME CAPITAL FUND EUROFUND ALLOCATION FUND HOLDINGS FUND* EQUITY
- ---------------------------------------------------------------------------------------------------------------------------------
Kara W.Y. Tan Bhala....... 34 Vice -- -- 1992 -- -- -- -- -- --
Portfolio manager with President
MLAM and its predecessor
since 1992; Vice President
of James Capel Inc. from
1988 to 1990; Senior
Investment Analyst of
James Capel (Far East)
Ltd. from 1986-1988.
- ---------------------------------------------------------------------------------------------------------------------------------
Alex V. Bouzakis.......... 37 Vice 1993 -- -- -- -- -- -- -- --
Vice President and Senior President
Portfolio Manager of MLAM
and its predecessor and
associated therewith since
1982.
- ---------------------------------------------------------------------------------------------------------------------------------
Donald C. Burke........... 34 Vice 1993 1993 1993 1993 1993 1993 1993 1993 1993
Vice President and President
Director of Taxation of
MLAM since 1990; Employee
of Deloitte & Touche from
1982 to 1990.
- ---------------------------------------------------------------------------------------------------------------------------------
Edward F. Gobora.......... 28 Vice -- -- -- -- -- -- -- -- --
Vice President and President
Portfolio Manager of MLAM
since 1993, and associated
therewith and with its
predecessor since 1988.
NAME AND LATIN PACIFIC SHORT- TECHNOLOGY
BIOGRAPHY AMERICA FUND TERM FUND*
- -----------------------------------------------------------------------------------
Kara W.Y. Tan Bhala....... -- -- -- --
Portfolio manager with
MLAM and its predecessor
since 1992; Vice President
of James Capel Inc. from
1988 to 1990; Senior
Investment Analyst of
James Capel (Far East)
Ltd. from 1986-1988.
- -----------------------------------------------------------------------------------
Alex V. Bouzakis.......... -- -- 1993 --
Vice President and Senior
Portfolio Manager of MLAM
and its predecessor and
associated therewith since
1982.
- -----------------------------------------------------------------------------------
Donald C. Burke........... 1993 1993 1993 1993
Vice President and
Director of Taxation of
MLAM since 1990; Employee
of Deloitte & Touche from
1982 to 1990.
- -----------------------------------------------------------------------------------
Edward F. Gobora.......... -- -- 1993 --
Vice President and
Portfolio Manager of MLAM
since 1993, and associated
therewith and with its
predecessor since 1988.
* Healthcare Fund and Technology Fund resulted from a reorganization involving
Sci/Tech Holdings, Inc. which was consummated on April 27, 1992.
A-8
OFFICER INFORMATION
- ---------------------------------------------------------------------------------------------------------------------------------
OFFICER SINCE
----------------------------------------------------------------------------------------
GLOBAL
NAME AND AMERICAS DEVELOPING DRAGON GLOBAL BOND GLOBAL HEALTHCARE INTERNATIONAL
BIOGRAPHY AGE OFFICE INCOME CAPITAL FUND EUROFUND ALLOCATION FUND HOLDINGS FUND* EQUITY
- ---------------------------------------------------------------------------------------------------------------------------------
Adrian Holmes............. 32 Vice -- -- -- 1993 -- -- -- -- --
Vice President of MLAM President
since 1990 and associated
therewith since 1987.
- ---------------------------------------------------------------------------------------------------------------------------------
Bryan N. Ison............. 39 Vice -- -- -- -- 1988 -- -- -- --
Vice President of MLAM President
since 1985; Portfolio
Manager since 1984.
- ---------------------------------------------------------------------------------------------------------------------------------
Peter A. Lehman........... 35 Vice -- -- -- -- -- -- 1994 -- --
Vice President of MLAM President
since 1994; senior fund
analyst for MLAM since
1992; prior thereto, a
global natural resources
portfolio manager and
basic industry analyst for
Prudential Insurance
Company.
- ---------------------------------------------------------------------------------------------------------------------------------
Grace Pineda.............. 37 Vice -- 1989 -- -- -- -- -- -- --
Vice President of MLAM and President
Senior Portfolio Manager
since 1989; Analyst and
Portfolio Manager at
Clemente Capital, Inc.
from 1982 to 1989.
NAME AND LATIN PACIFIC SHORT- TECHNOLOGY
BIOGRAPHY AMERICA FUND TERM FUND*
- -----------------------------------------------------------------------------------
Adrian Holmes............. -- -- -- --
Vice President of MLAM
since 1990 and associated
therewith since 1987.
- -----------------------------------------------------------------------------------
Bryan N. Ison............. -- -- -- --
Vice President of MLAM
since 1985; Portfolio
Manager since 1984.
- -----------------------------------------------------------------------------------
Peter A. Lehman........... -- -- -- --
Vice President of MLAM
since 1994; senior fund
analyst for MLAM since
1992; prior thereto, a
global natural resources
portfolio manager and
basic industry analyst for
Prudential Insurance
Company.
- -----------------------------------------------------------------------------------
Grace Pineda.............. 1991 -- -- --
Vice President of MLAM and
Senior Portfolio Manager
since 1989; Analyst and
Portfolio Manager at
Clemente Capital, Inc.
from 1982 to 1989.
* Healthcare Fund and Technology Fund resulted from a reorganization involving
Sci/Tech Holdings, Inc. which was consummated on April 27, 1992.
A-9
OFFICER INFORMATION
- ----------------------------------------------------------------------------------------------
NAME AND
BIOGRAPHY AGE OFFICE
- ----------------------------------------------------------------------------------------------
James K. Renck............ 37 Vice
Vice President of MLAM President
and Portfolio Manager
since 1986; Assistant
Vice President of MLAM
and Associate Portfolio
Manager from 1985 to
1986; Fund Analyst for
MLAM from 1983 to 1985.
- ----------------------------------------------------------------------------------------------
Jordan C. Schreiber....... 64 Vice
Vice President of MLAM President
and Portfolio Manager
since 1983.
- ----------------------------------------------------------------------------------------------
Stephen I. Silverman...... 43 Vice
Vice President of MLAM President
and its predecessor since
1983.
- ----------------------------------------------------------------------------------------------
Paolo H. Valle............ 36 Vice
Vice President and Senior President
Portfolio Manager of MLAM
since 1992; Vice
President and Manager,
Emerging Markets Trading,
PNC Bank prior thereto.
- ----------------------------------------------------------------------------------------------
David B. Walter........... 49 Vice
Vice President and President
Portfolio Manager of MLAM
and its predecessor since
1984.
OFFICER SINCE
-------------------------------------------------------------------------------------------------------
NAME AND AMERICAS DEVELOPING
BIOGRAPHY INCOME CAPITAL
- -----------------------------------------------------------------------------------------------------------------------------------
James K. Renck............ -- --
Vice President of MLAM
and Portfolio Manager
since 1986; Assistant
Vice President of MLAM
and Associate Portfolio
Manager from 1985 to
1986; Fund Analyst for
MLAM from 1983 to 1985.
- -----------------------------------------------------------------------------------------------------------------------------------
Jordan C. Schreiber....... -- --
Vice President of MLAM
and Portfolio Manager
since 1983.
- -----------------------------------------------------------------------------------------------------------------------------------
Stephen I. Silverman...... -- --
Vice President of MLAM
and its predecessor since
1983.
- -----------------------------------------------------------------------------------------------------------------------------------
Paolo H. Valle............ 1993 --
Vice President and Senior
Portfolio Manager of MLAM
since 1992; Vice
President and Manager,
Emerging Markets Trading,
PNC Bank prior thereto.
- -----------------------------------------------------------------------------------------------------------------------------------
David B. Walter........... -- --
Vice President and
Portfolio Manager of MLAM
and its predecessor since
1984.
GLOBAL
NAME AND DRAGON GLOBAL BOND GLOBAL HEALTHCARE INTERNATIONAL LATIN PACIFIC SHORT- TECHNOLOGY
BIOGRAPHY FUND EUROFUND ALLOCATION FUND HOLDINGS FUND* EQUITY AMERICA FUND TERM FUND*
- -----------------------------------------------------------------------------------------------------------------------------------
James K. Renck............ -- -- -- -- -- -- -- -- -- -- 1991
Vice President of MLAM
and Portfolio Manager
since 1986; Assistant
Vice President of MLAM
and Associate Portfolio
Manager from 1985 to
1986; Fund Analyst for
MLAM from 1983 to 1985.
- -----------------------------------------------------------------------------------------------------------------------------------
Jordan C. Schreiber....... -- -- -- -- -- 1985 -- -- -- -- --
Vice President of MLAM
and Portfolio Manager
since 1983.
- -----------------------------------------------------------------------------------------------------------------------------------
Stephen I. Silverman...... -- -- -- -- -- -- -- -- 1983 -- --
Vice President of MLAM
and its predecessor since
1983.
- -----------------------------------------------------------------------------------------------------------------------------------
Paolo H. Valle............ -- -- -- -- -- -- -- -- -- -- --
Vice President and Senior
Portfolio Manager of MLAM
since 1992; Vice
President and Manager,
Emerging Markets Trading,
PNC Bank prior thereto.
- -----------------------------------------------------------------------------------------------------------------------------------
David B. Walter........... -- -- -- 1986 -- -- -- -- -- 1990 --
Vice President and
Portfolio Manager of MLAM
and its predecessor since
1984.
* Healthcare Fund and Technology Fund resulted from a reorganization involving
Sci/Tech Holdings, Inc. which was consummated on April 27, 1992.
A-10
OFFICER INFORMATION
- ------------------------------------------------------------------------------------------------
NAME AND
BIOGRAPHY AGE OFFICE
- ------------------------------------------------------------------------------------------------
Robert Parish............. 39 Vice
Portfolio Manager of FAM President
since 1991; Portfolio
Manager of Templeton
International from 1986
to 1991 and Vice
President from 1989.
- ------------------------------------------------------------------------------------------------
Stephen Yardley........... 37 Vice
Vice President and President
Portfolio Manager of MLAM
U.K. and associated
therewith since 1992;
Portfolio Manager at
Julius Baer Investment
Management, Inc. and
Bankers Trust prior
thereto.
- ------------------------------------------------------------------------------------------------
Mark B. Goldfus........... 47 Secretary
Vice President of MLAM
and FAM since 1985.
- ------------------------------------------------------------------------------------------------
Robert Harris............. 42 Secretary
Vice President of MLAM
since 1984; Secretary of
MLFD since 1982.
- ------------------------------------------------------------------------------------------------
Michael J. Hennewinkel.... 42 Secretary
Vice President of MLAM
since 1985; attorney
associated with MLAM
since 1982.
- ------------------------------------------------------------------------------------------------
Robert E. Putney, III..... 34 Assistant
Attorney associated with Secretary
MLAM since 1991; attorney
in private practice prior
thereto.
OFFICER SINCE
-------------------------------------------------------------------------------------------------------
NAME AND AMERICAS DEVELOPING
BIOGRAPHY INCOME CAPITAL
- -----------------------------------------------------------------------------------------------------------------------------------
Robert Parish............. -- --
Portfolio Manager of FAM
since 1991; Portfolio
Manager of Templeton
International from 1986
to 1991 and Vice
President from 1989.
- -----------------------------------------------------------------------------------------------------------------------------------
Stephen Yardley........... -- --
Vice President and
Portfolio Manager of MLAM
U.K. and associated
therewith since 1992;
Portfolio Manager at
Julius Baer Investment
Management, Inc. and
Bankers Trust prior
thereto.
- -----------------------------------------------------------------------------------------------------------------------------------
Mark B. Goldfus........... 1993 1989
Vice President of MLAM
and FAM since 1985.
- -----------------------------------------------------------------------------------------------------------------------------------
Robert Harris............. -- --
Vice President of MLAM
since 1984; Secretary of
MLFD since 1982.
- -----------------------------------------------------------------------------------------------------------------------------------
Michael J. Hennewinkel.... -- --
Vice President of MLAM
since 1985; attorney
associated with MLAM
since 1982.
- -----------------------------------------------------------------------------------------------------------------------------------
Robert E. Putney, III..... -- --
Attorney associated with
MLAM since 1991; attorney
in private practice prior
thereto.
GLOBAL
NAME AND DRAGON GLOBAL BOND GLOBAL HEALTHCARE INTERNATIONAL LATIN PACIFIC SHORT- TECHNOLOGY
BIOGRAPHY FUND EUROFUND ALLOCATION FUND HOLDINGS FUND* EQUITY AMERICA FUND TERM FUND*
- -----------------------------------------------------------------------------------------------------------------------------------
Robert Parish............. -- -- -- 1992 -- -- -- -- -- -- --
Portfolio Manager of FAM
since 1991; Portfolio
Manager of Templeton
International from 1986
to 1991 and Vice
President from 1989.
- -----------------------------------------------------------------------------------------------------------------------------------
Stephen Yardley........... -- -- -- -- -- -- -- -- -- 1993 --
Vice President and
Portfolio Manager of MLAM
U.K. and associated
therewith since 1992;
Portfolio Manager at
Julius Baer Investment
Management, Inc. and
Bankers Trust prior
thereto.
- -----------------------------------------------------------------------------------------------------------------------------------
Mark B. Goldfus........... -- -- -- 1986 -- -- -- 1991 -- 1990 --
Vice President of MLAM
and FAM since 1985.
- -----------------------------------------------------------------------------------------------------------------------------------
Robert Harris............. -- 1986 -- -- 1984 1984 -- -- 1982 -- 1991
Vice President of MLAM
since 1984; Secretary of
MLFD since 1982.
- -----------------------------------------------------------------------------------------------------------------------------------
Michael J. Hennewinkel.... 1992 -- 1988 -- -- -- 1993 -- -- -- --
Vice President of MLAM
since 1985; attorney
associated with MLAM
since 1982.
- -----------------------------------------------------------------------------------------------------------------------------------
Robert E. Putney, III..... -- -- -- -- -- -- 1993 -- -- -- --
Attorney associated with
MLAM since 1991; attorney
in private practice prior
thereto.
* Healthcare Fund and Technology Fund resulted from a reorganization involving
Sci/Tech Holdings, Inc. which was consummated on April 27, 1992.
A-11
. INFORMATION PERTAINING TO THE SELECT PRICING SYSTEM
SALES CHARGES
For Developing Capital, Dragon Fund, EuroFund, Global Allocation, Healthcare
Fund, International Equity, Global Holdings, Latin America, Pacific Fund and
Technology Fund:
DUAL DISTRIBUTION SELECT PRICING
- ------------------------------------ ----------------------------------------------------------------------
- ------------------------------------ ----------------------------------------------------------------------
CLASS A CLASS B CLASS A CLASS B CLASS C CLASS D
- ------------------------------------ ----------------------------------------------------------------------
Maximum 6.5%* 4.0% CDSC during Maximum 5.25%** 4.0% CDSC during 1.0% CDSC during Maximum 5.25%**
the first year, the first year, the first year,
decreasing 1.0% decreasing 1.0% decreasing to
annually to 0.0% annually to 0.0% 0.0% after the
after the fourth after the fourth first year
year year
* 6.5% for purchase less than $10,000; 6.0% for purchases between $10,000 and
$25,000; 5.0% for purchases between $25,000 and $50,000; 4.0% for purchases
between $50,000 and $100,000; 3.0% for purchases between $100,000 and
$250,000; 2.0% for purchases between $250,000 and $1,000,000; .75% for
purchases of $1,000,000 and greater.
** 4.75% for purchases between $25,000 and $50,000; 4.0% for purchases between
$50,000 and $100,000; 3.0% for purchases between $100,000 and $250,000; 2.0%
for purchases between $250,000 and $1,000,000; and 0.0% for purchases of
$1,000,000 and greater.
For Global Bond Fund:
DUAL DISTRIBUTION SELECT PRICING
- ------------------------------------ ----------------------------------------------------------------------
- ------------------------------------ ----------------------------------------------------------------------
CLASS A CLASS B CLASS A CLASS B CLASS C CLASS D
- ------------------------------------ ----------------------------------------------------------------------
Maximum 4.0% CDSC during the Maximum 4.0% CDSC during the 1.0% CDSC during Maximum
4.0%* first year, 4.0%** first the 4.0%**
decreasing 1.0% year, decreasing 1.0% first year,
annually to 0.0% annually to 0.0% decreasing to
after the fourth year after the fourth year 0.0% after the
first year
* 4.0% for purchases less than $25,000; 3.75% for purchases between $25,000
and $50,000; 3.25% for purchases between $50,000 and $100,000; 2.5% for
purchases between $100,000 and $250,000; 1.5% for purchases between
$250,000 and $1,000,000; 0.50% for purchases of $1,000,000 and greater.
** 3.75% for purchases between $25,000 and $50,000; 3.25% for purchases
between $50,000 and $100,000; 2.5% for purchases between $100,000 and
$250,000; 1.5% for purchases between $250,000 and $1,000,000; 0.0% for
purchases of $1,000,000 and greater.
A-12
For Americas Income, Short-Term:
DUAL DISTRIBUTION SELECT PRICING
- ----------------------------------- ---------------------------------------------------------------
- ----------------------------------- ---------------------------------------------------------------
CLASS A CLASS B CLASS A CLASS B CLASS C CLASS D
- ----------------------------------- ---------------------------------------------------------------
Maximum 3.0% CDSC during the Maximum 1.0% CDSC during the 1.0% CDSC during Maximum
3.0%* first year, 4.0%** first the 4.0%**
decreasing to year, decreasing to first year,
0.0% after the third 0.0% after the first decreasing to
year year 0.0% after the
first year
* 3.0% for purchases less than $100,000; 2.5% for purchases between $100,000
and $500,000; 2.0% for purchases between $500,000 and $100,000; 1.5% for
purchases between $100,000 and $3,000,000; 1.0% for purchases between
$3,000,000 and $5,000,000; 0.5% for purchases of $5,000,000 and greater.
** 3.75% for purchases between $25,000 and $50,000; 3.25% for purchases
between $50,000 and $100,000; 2.5% for purchases between $100,000 and
$250,000; 1.5% for purchases between $250,000 and $1,000,000; 0.0% for
purchases of $1,000,000 and greater.
A-13
DISTRIBUTION AND ACCOUNT MAINTENANCE FEES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
For Developing Capital, EuroFund, Global Allocation, Global Holdings,
Healthcare Fund, Pacific Fund and Technology Fund:
DUAL DISTRIBUTION SELECT PRICING
- ------------------------------------- -----------------------------------------------------------------------------------
- ------------------------------------- -----------------------------------------------------------------------------------
CLASS A* CLASS B CLASS A CLASS B CLASS C CLASS D
- ------------------------------------- -----------------------------------------------------------------------------------
ACCOUNT ACCOUNT ACCOUNT ACCOUNT
DISTRIBUTION MAINTENANCE DISTRIBUTION MAINTENANCE DISTRIBUTION MAINTENANCE DISTRIBUTION MAINTENANCE
FEE FEE FEE FEE FEE FEE FEE FEE
------------------------ -----------------------------------------------------------------------------------
None 0.75% 0.25% None 0.75% 0.25% 0.75% 0.25% None 0.25%
*For Class A Shares, the stated fee constitutes an account maintenance fee.
For Global Bond Fund:
DUAL DISTRIBUTION SELECT PRICING
- ------------------------------------- -----------------------------------------------------------------------------------
- ------------------------------------- -----------------------------------------------------------------------------------
CLASS A* CLASS B CLASS A CLASS B CLASS C CLASS D
- ------------------------------------- -----------------------------------------------------------------------------------
ACCOUNT ACCOUNT ACCOUNT ACCOUNT
DISTRIBUTION MAINTENANCE DISTRIBUTION MAINTENANCE DISTRIBUTION MAINTENANCE DISTRIBUTION MAINTENANCE
FEE FEE FEE FEE FEE FEE FEE FEE
------------------------ -----------------------------------------------------------------------------------
None 0.50% 0.25% None 0.50% 0.25% 0.55% 0.25% None 0.25%
*For Class A shares, the stated fee constitutes an account maintenance fee.
A-14
For Short-Term and Americas Income:
DUAL DISTRIBUTION SELECT PRICING
- ------------------------------------- ----------------------------------------------------------------------------------
- ------------------------------------- ----------------------------------------------------------------------------------
CLASS A* CLASS B CLASS A CLASS B CLASS C CLASS D
- ------------------------------------- ----------------------------------------------------------------------------------
ACCOUNT ACCOUNT ACCOUNT ACCOUNT
DISTRIBUTION MAINTENANCE DISTRIBUTION MAINTENANCE DISTRIBUTION MAINTENANCE DISTRIBUTION MAINTENANCE
FEE FEE FEE FEE FEE FEE FEE FEE
------------------------ ----------------------------------------------------------------------------------
0.25% 0.50% 0.25% None 0.50% 0.25% 0.55% 0.25% None 0.25%
*For Class A shares, the stated fee constitutes an account maintenance fee.
For Dragon Fund, International Equity and Latin America:
DUAL DISTRIBUTION SELECT PRICING
- ------------------------------------- ----------------------------------------------------------------------------------
- ------------------------------------- ----------------------------------------------------------------------------------
CLASS A* CLASS B CLASS A CLASS B CLASS C CLASS D
- ------------------------------------- ----------------------------------------------------------------------------------
ACCOUNT ACCOUNT ACCOUNT ACCOUNT
DISTRIBUTION MAINTENANCE DISTRIBUTION MAINTENANCE DISTRIBUTION MAINTENANCE DISTRIBUTION MAINTENANCE
FEE FEE FEE FEE FEE FEE FEE FEE
------------------------ ----------------------------------------------------------------------------------
0.25% 0.75% 0.25% None 0.75% 0.25% 0.75% 0.25% None 0.25%
*For Class A shares, the stated fee constitutes an account maintenance fee.
A-15
CLASS B CONVERSION PERIODS
Americas Income 10 years
- ------------------------------------------------------
Developing Capital 8 years
- ------------------------------------------------------
Dragon Fund 8 years
- ------------------------------------------------------
EuroFund 8 years
- ------------------------------------------------------
Global Allocation 8 years
- ------------------------------------------------------
Global Bond Fund 10 years
- ------------------------------------------------------
Global Holdings 8 years
- ------------------------------------------------------
Healthcare Fund 8 years
- ------------------------------------------------------
International Equity 8 years
- ------------------------------------------------------
Latin America 8 years
- ------------------------------------------------------
Pacific Fund 8 years
- ------------------------------------------------------
Short-Term 10 years
- ------------------------------------------------------
Technology Fund 8 years
A-16
. INFORMATION PERTAINING TO THE FUNDS' INVESTMENT ADVISORY ARRANGEMENTS
------------------------------------------
INVESTMENT ADVISORY
FUND AGREEMENT
----------------------------------------------------
MOST RECENT MOST RECENT
INVESTMENT DATE ANNUAL DIRECTOR SHAREHOLDER
ADVISER EXECUTED FEE RATE APPROVAL APPROVAL
- --------------------------------------------------------------------------
Americas Income MLAM 7/20/93 0.60% 7/20/93 --
- --------------------------------------------------------------------------
Developing Capital MLAM 6/19/89 1.0% 4/19/94 12/21/90
- --------------------------------------------------------------------------
Dragon Fund MLAM 4/14/92 1.0% 7/20/93 --
- --------------------------------------------------------------------------
EuroFund MLAM 12/19/86 0.74% 2/1/94 5/18/90
- --------------------------------------------------------------------------
Global Allocation MLAM 12/13/88 0.75%* 4/20/93 12/21/90
- --------------------------------------------------------------------------
Global Bond Fund MLAM 7/17/86 0.60% 7/20/93 9/30/88
- --------------------------------------------------------------------------
Global Holdings MLAM 2/1/90 1.0% 4/19/94 10/12/90
- --------------------------------------------------------------------------
Healthcare Fund MLAM 4/1/92 1.0% 7/20/93 3/06/92
- --------------------------------------------------------------------------
International Equity MLAM 7/20/93 0.75% 7/20/93 --
- --------------------------------------------------------------------------
Latin America MLAM 8/15/91 1.0% 4/19/94 11/30/92
- --------------------------------------------------------------------------
Pacific Fund MLAM 7/29/85 0.60% 4/19/94 9/30/88
- --------------------------------------------------------------------------
Short-Term MLAM 6/12/90 0.55% 7/21/92 8/30/91
- --------------------------------------------------------------------------
Technology Fund MLAM 10/8/91 1.0% 7/20/93 3/06/92
FEE INFORMATION
-----------------------------------------------------------------------
INVESTMENT ADVISORY FEE ADVISORY FEE PAYABLE
PAID FOR FUND'S MOST BASED ON NET ASSETS REIMBURSEMENTS DURING
FUND RECENT FISCAL YEAR AT RECORD DATE FISCAL YEAR
-----------------------------------------------------------------------
BASED ON NET PURSUANT TO
BASED ON AVERAGE ASSETS OF FOR CALIFORNIA
FEE NET ASSETS OF FEE APPROX. (IN ACCOUNTING EXPENSE
AMOUNT APPROX. AMOUNT BILLIONS) SERVICES LIMITATIONS
($) ($) ($) ($) ($) ($)
- -----------------------------------------------------------------------------------------------
Americas Income 197,936 902,341,724 21,800 0
- -----------------------------------------------------------------------------------------------
Developing Capital
- -----------------------------------------------------------------------------------------------
Dragon Fund 5,988,153 7 09,635,017 78,380 0
- -----------------------------------------------------------------------------------------------
EuroFund 4,484,339 599,551,739 60,042 0
- -----------------------------------------------------------------------------------------------
Global Allocation 18,984,493 2,571,107,849 213,891 0
- -----------------------------------------------------------------------------------------------
Global Bond Fund 5,111,447 854,248,252 167,189 0
- -----------------------------------------------------------------------------------------------
Global Holdings 2,329,402 232,940,249 111,045 0
- -----------------------------------------------------------------------------------------------
Healthcare Fund 1,200,254 120,355,142 35,660 0
- -----------------------------------------------------------------------------------------------
International Equity 4,054,791 644,879,564 142,452 0
- -----------------------------------------------------------------------------------------------
Latin America 2,091,529 208,626,762 130,471 0
- -----------------------------------------------------------------------------------------------
Pacific Fund 4,179,008 696,501,275 68,896 0
- -----------------------------------------------------------------------------------------------
Short-Term 12,966,035 2,382,376,500 230,453 0
- -----------------------------------------------------------------------------------------------
Technology Fund 2,476,639 81,601,667 41,958 0
* The Investment Adviser is currently waiving a portion of the fee otherwise
due it.
A-17
Set forth in the table below is information regarding portfolio transactions
and brokerage commissions:
BROKERAGE COMMISSIONS % OF AGGREGATE DOLLAR AMOUNT
OF TRANSACTIONS IN WHICH
BROKERAGE COMMISSIONS PAID
EFFECTED THROUGH
-------------------------------------- MERRILL LYNCH
FUND AMOUNT AMOUNT PAID TO % PAID TO
($) MERRILL LYNCH MERRILL LYNCH
($)
- -------------------------------------------------------------------------------------
Americas In-
come 0 0 0 0
- -------------------------------------------------------------------------------------
Developing
Capital
- -------------------------------------------------------------------------------------
Dragon Fund 3,002,855 75,638 2.5 2.1
- -------------------------------------------------------------------------------------
EuroFund 2,301,224 164,217 7.14 6.82
- -------------------------------------------------------------------------------------
Global Allo-
cation 3,047,988 246,070 8.07 8.40
- -------------------------------------------------------------------------------------
Global Bond
Fund 0 0 0 0
- -------------------------------------------------------------------------------------
Global Hold-
ings 138,617 4,128 2.98 3.37
- -------------------------------------------------------------------------------------
Healthcare
Fund 326,782 39,566 12.11 19.33
- -------------------------------------------------------------------------------------
International
Equity 2,692,776 122,601 4.55 4.67
- -------------------------------------------------------------------------------------
Latin America 53,608 8,790 16.40 19.61
- -------------------------------------------------------------------------------------
Pacific Fund 1,891,212 27,267 1.40 1.60
- -------------------------------------------------------------------------------------
Short-Term 0 0 0 0
- -------------------------------------------------------------------------------------
Technology
Fund 158,420 0 0 0
A-18
EXHIBIT B
MERRILL LYNCH INVESTMENT MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF
DECEMBER 31, 1993 AND INDEPENDENT AUDITORS' REPORT
B-1
INDEPENDENT AUDITORS' REPORT
Merrill Lynch Investment Management, Inc.:
We have audited the accompanying consolidated balance sheet of Merrill Lynch
Investment Management, Inc. and its subsidiaries (the "Company") as of December
31, 1993. This consolidated balance sheet is the responsibility of the
Company's management. Our responsibility is to express an opinion on the
consolidated balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated balance sheet presents fairly, in all
material respects, the financial position of the Company at December 31, 1993
in conformity with generally accepted accounting principles.
Deloitte & Touche
Parsippany, New Jersey
February 28, 1994
B-2
MERRILL LYNCH INVESTMENT MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31,
1993
------------
ASSETS
Cash and cash equivalents......................................... $ 1,664,075
Receivable from affiliated companies:
Lease transactions.............................................. 708,616,571
Sale of leased investment....................................... 48,312,532
Investments in affiliated limited partnership..................... 62,218,528
Investments in leases:
Leveraged leases................................................ 57,431,668
Sales-type leases............................................... 3,362,521
Investments in affiliated investment companies--(market:
$26,066,372).................................................... 24,610,184
Fund management and administrative fees receivable................ 49,098,914
Fixed assets (net of $11,457,912 accumulated depreciation)........ 10,406,280
Prepaid expenses and other assets................................. 15,376,412
------------
TOTAL ASSETS...................................................... $981,097,685
============
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Payable to affiliates............................................. $759,321,639
Accrued liabilities and other payables............................ 8,432,888
Deferred income--unearned fees.................................... 7,007,406
Deferred income taxes:
Arising from leveraged leases................................... 52,938,886
Arising from sales-type leases.................................. 1,351,622
Other........................................................... 43,685,367
------------
Total liabilities................................................. 872,737,808
------------
Stockholder's Equity:
Common stock, par value $1.00 per share--authorized 25,000 shares;
outstanding 10,000 shares....................................... 10,000
Additional paid-in capital........................................ 23,266,792
Accumulated translation adjustment................................ 642,388
Retained earnings................................................. 84,440,697
------------
Total stockholder's equity........................................ 108,359,877
------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY........................ $981,097,685
============
See notes to consolidated balance sheet.
B-3
MERRILL LYNCH INVESTMENT MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1993
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Merrill Lynch Investment Management, Inc. and its subsidiaries (the
"Company"), serve as investment adviser to certain registered investment
companies, and provide investment advisory services for individuals and
institutions. Merrill Lynch Investment Management, Inc., a wholly-owned
subsidiary of Merrill Lynch Group, Inc., is an indirect wholly-owned subsidiary
of Merrill Lynch & Co., Inc. ("ML&Co.").
The Company's consolidated balance sheet reflects its 100 percent ownership
of Merrill Lynch Funds Distributor, Inc., a distributor of shares of various
affiliated managed registered investment companies, Fund Asset Management,
Inc., an investment adviser to various registered investment companies and a
lessor participant in leveraged lease agreements, Merrill Lynch International
Asset Management, Ltd., a Channel Islands based investment adviser and
Princeton Administrators, Inc., an administrator to certain non-affiliated
investment companies, and its 60% ownership of Merrill Lynch International
Capital Management Co., a Japan based investment advisor.
CASH AND CASH EQUIVALENTS
For purposes of the consolidated balance sheet, cash and cash equivalents
include marketable securities with initial maturity dates of less than three
months. The carrying amount approximates fair value because of the short
maturity of those instruments.
FIXED ASSETS
Fixed assets are recorded at cost and consist principally of furniture and
equipment. Depreciation is calculated using the straight-line method over a
period ranging from 3 to 10 years.
DEFERRED INCOME--UNEARNED FEES
Investment advisory services are billed at the beginning of the period for
which services are to be rendered. The fee is deferred and credited to income
on a pro rata basis over the period of the contract, which normally does not
exceed one year.
B-4
MERRILL LYNCH INVESTMENT MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET--(CONTINUED)
INCOME TAXES
The results of operations of the Company are included in the consolidated
Federal and combined state and local income tax returns filed by ML&Co. It is
the policy of ML&Co. to allocate the tax associated with such operating results
to each respective subsidiary in a manner which approximates the separate
company method. In 1992, ML&Co. adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS 109") which requires an
asset and liability method in recording income taxes on all transactions that
have been recognized in the financial statements. SFAS 109 provides that
deferred taxes be adjusted to reflect tax rates at which future tax liabilities
or assets are expected to be settled or realized.
TRANSACTIONS WITH AFFILIATES
The Company serves as an investment adviser for certain investment companies.
In addition, the Company, through its 100% owned subsidiary, Princeton
Administrators, Inc., serves as an administrator for certain non-affiliated
investment companies. Management fees earned as adviser and administrator are
based on a percentage of the net assets of each investment company. Such fees
are recognized in the period earned.
The Company maintains investments in certain of these investment companies.
Such investments are carried at the lower of cost or market value. Market value
is determined based upon quoted market prices.
The Company has an arrangement with Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("MLPF&S"), an affiliate which provides that the Company, which
receives revenue as investment adviser to certain investment companies (the
"Funds"), reimburse MLPF&S for certain costs incurred in processing
transactions involving shares of the Funds.
In connection with the formation of certain affiliated investment companies
(the "Investment Companies"), the Company has reimbursed MLPF&S for
subscription expenses incurred in offering the Investment Companies' shares for
sale. The unamortized balance included in prepaid expenses and other assets
totalled $5,276,842 as of December 31, 1993.
The Company has unsecured note agreements with ML&Co. for $700,000,000. These
amounts bear interest at a floating rate approximating ML&Co's. average
borrowing rate, of which $650,000,000 is payable on demand and $50,000,000 is
due August 26, 1994. In addition, the Company has certain other amounts payable
to affiliates.
B-5
MERRILL LYNCH INVESTMENT MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET--(CONTINUED)
During 1992, the Company's investments in Merrill Lynch Interfunding, Inc.
and Merlease Leasing Corp. were sold to an affiliate at book value. Receivable
from affiliated companies-lease transactions represents the proceeds from this
transaction.
The Company has a 98 percent limited partnership interest in ML Plainsboro
Limited Partnership ("MLP"), whose general partner is an affiliate. Profits and
losses are allocated to the Company based on its percentage interest.
The "Receivable from affiliated companies" arising from lease transactions is
summarized as follows:
Monies advanced to fund lease transactions................... $(103,476,954)
Tax benefits allocated to the Company by ML&Co............... 88,699,254
Proceeds from sale of subsidiaries........................... 684,115,048
Other........................................................ 39,279,223
-------------
Total...................................................... $ 708,616,571
=============
ML&Co. is the holder of the Company's excess cash, which is available on
demand to meet current liabilities. ML&Co. credits the Company for interest at
a floating rate approximating ML&Co.'s average borrowing rate based on the
Company's average daily balance due to/from ML&Co.
INVESTMENTS IN LEASES
The Company is a lessor participant in leveraged lease agreements. Pertinent
information relating to the Company's investments in leveraged leases is
summarized as follows:
ESTIMATED
LENGTH OF RESIDUAL VALUE
LEASE EQUITY OF LEASED
TYPE OF PROPERTY (YEARS) INVESTMENT PROPERTY
---------------- --------- ---------- --------------
Generating plant......................... 24-25 34.06% 15.0%
Financing beyond the Company's equity interest in the purchase price of the
properties was furnished by outside parties in the form of long-term debt that
provides for no recourse against the Company and is
B-6
MERRILL LYNCH INVESTMENT MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET--(CONTINUED)
collateralized by a first lien on the properties and related rentals. At the
end of the respective lease terms, ownership of the properties remains with the
Company.
The Company's net investment in leveraged leases is summarized as follows:
Rentals receivable (net of principal and interest on nonre-
course debt)............................................... $ 66,075,030
Estimated residual values of leased assets................... 18,964,143
Less:
Unearned and deferred income............................... (26,617,505)
Allowance for uncollectibles............................... (990,000)
------------
Investment in leveraged leases............................... 57,431,668
Less deferred taxes arising from leveraged leases............ (52,938,886)
------------
Net investment in leveraged leases........................... $ 4,492,782
============
In 1993, one of the Company's subsidiaries sold its equity interest in a
chemical tanker previously accounted for as a leverage lease. The sale resulted
in an after-tax gain of $112,000.
The Company's investment in the sales-type lease consisted of the following
elements at December 31, 1993:
Minimum lease payments receivable................................ $3,672,000
Less:
Unearned income................................................ (59,479)
Allowance for uncollectibles................................... (250,000)
----------
Investment in sales-type financing leases........................ $3,362,521
==========
At December 31, 1993, minimum lease payments receivable are $3,672,000 for
1994.
For Federal income tax purposes, the Company receives the investment tax
credit and has the benefit of tax deductions for (i) depreciation on the entire
amount of leased assets and (ii) interest on the outstanding long-term debt.
For state and local tax purposes, the Company also receives the benefits of tax
deductions from (i) and (ii) above. Since, during the early years of the
leases, those deductions exceed the Company's
B-7
MERRILL LYNCH INVESTMENT MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET--(CONTINUED)
lease rental income, substantial excess deductions are available to be applied
against the Company's other income and the consolidated income of ML&Co. In the
later years of these leases, rental income will exceed the related deductions
and taxes will be payable (to the extent that net deductions arising from
additional leveraged lease transactions do not offset such lease income).
Deferred taxes have been provided to reflect these temporary differences.
INCOME TAXES
As part of the consolidated group, the Company transfers its current Federal
and state tax liabilities to the Parent. At December 31, 1993, the Company had
a current Federal tax receivable of $1,015,000 and current state tax payable of
$2,900,000 to the Parent.
PENSION PLAN
The Company participates in the ML&Co. Comprehensive Retirement Program (the
"Program"), consisting of the Retirement Accumulation Plan ("RAP") and the
Employee Stock Ownership Plan (the "ESOP"). Both plans became effective January
1, 1989. Under the Program, cash contributions made by the Company and the
ML&Co. stock held by the ESOP are allocated quarterly to participant's
accounts. Allocations are based on years of service, age and eligible
compensation. Actuarial data regarding the Company's Plan participants is not
separately available.
NAME CHANGE
Effective December 28, 1991, the Company, through an amendment of its
certificate of incorporation, changed its name to Merrill Lynch Investment
Management, Inc., ("MLIM"). MLIM does business under the name "Merrill Lynch
Asset Management".
LITIGATION
The Company is a party to certain lawsuits arising from the normal conduct of
its business. While the ultimate result of the lawsuits against the Company
cannot be predicted with certainty, management does not expect that these
matters will have a material adverse effect on the Company's financial position
or the results of its operations.
B-8
MERRILL LYNCH INVESTMENT MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET--(CONCLUDED)
SUBSEQUENT EVENT
Effective January 1, 1994, the Company contributed certain net investment
advisory assets to Merrill Lynch Asset Management, L.P., a newly formed
Delaware limited partnership, in exchange for a 99% limited partnership
interest. The general partner, Princeton Services, Inc. (a wholly-owned
subsidiary of Merrill Lynch & Co., Inc.) contributed 1% of the value of the net
investment advisory assets in exchange for its 1% general partnership interest.
The partnership's profits and losses are to be allocated in proportion to the
capital contributions of the partners.
B-9
EXHIBIT C
EXISTING INVESTMENT RESTRICTIONS RELATING TO EACH FUND
MERRILL LYNCH AMERICAS INCOME FUND, INC.
As shown in the Prospectus:
Investment Restrictions
Among its fundamental policies, the Fund may not invest in securities which
cannot be readily resold because of legal or contractual restrictions or which
are not otherwise readily marketable, including repurchase agreements and
purchase and sale contracts maturing in more than seven days, if, regarding all
such securities, more than 15% of its total assets, taken at market value,
would be invested in such securities. While the Fund does not intend to
purchase illiquid securities in an amount exceeding 15% of its total assets,
the Fund may purchase, without regard to that limitation, securities that are
not registered under the Securities Act of 1933, as amended (the "Securities
Act"), but that can be offered and sold to "qualified institutional buyers"
under Rule 144A under the Securities Act, provided that the Fund's Board of
Directors continuously determines, based on the trading markets for the
specific Rule 144A security, that it is liquid. (Under the laws of certain
states, the Fund is presently limited with respect to investments in illiquid
securities to 10% of its total assets.) The Board of Directors has adopted
guidelines regarding certain foreign debt securities which may be held by the
Fund and delegated to the Investment Adviser the daily function of determining
and monitoring liquidity of such securities. The Board of Directors, however,
has retained oversight and is ultimately responsible for the determinations.
Since it is not possible to predict with assurance exactly how this market for
restricted securities sold and offered under Rule 144A will develop, the Board
of Directors will carefully monitor the Fund's investments in these securities,
focusing on such factors, among others, as valuation, liquidity and
availability of information. This investment practice could have the effect of
increasing the level of illiquidity in the Fund to the extent that qualified
institutional buyers become for a time uninterested in purchasing these
securities.
Other fundamental policies include policies which (i) prohibit investment of
more than 25% of the Fund's total assets (taken at market value at the time of
each investment) in the securities of issuers in any particular industry (other
than debt securities issued or guaranteed by a Western Hemisphere governmental
entity), except that, under normal circumstances, the Fund will invest more
than 25% of its total assets in the securities of issuers in the financial
services industry or (ii) restrict the issuance of senior securities and limit
borrowings except that the Fund may borrow amounts up to 33 1/3% of its total
assets and up to an additional 5% of its assets for temporary purposes.
C-1
MERRILL LYNCH AMERICAS INCOME FUND
As shown in the Statement of Additional Information:
Investment Restrictions
The Fund may not:
1. Make investments for the purpose of exercising control or management.
2. Purchase securities of other investment companies, except in connection
with a merger, consolidation, acquisition or reorganization, or by purchase in
the open market of securities of closed-end investment companies where no
underwriter or dealer's commission or profit, other than customary broker's
commission, is involved and only if immediately thereafter not more than 10% of
the Fund's total assets, taken at market value, would be invested in such
securities.
3. Purchase or sell real estate; provided that the Fund may invest in
securities secured by real estate or interests therein or issued by companies
which invest in real estate or interests therein.
4. Purchase or sell commodities or commodity contracts, except that the Fund
may engage in transactions involving commodities in order to hedge against
interest rate, market or currency risks or to increase investment return
provided that such transactions will not result in the Fund having to register
as a "commodity pool" under applicable regulations of the Commodity Futures
Trading Commission.
5. Issue senior securities (including borrowing money, including on margin if
margin securities are owned) in excess of 33 1/3% of its total assets
(including the amount of senior securities issued but excluding any liabilities
and indebtedness not constituting senior securities) except that the Fund may
borrow up to an additional 5% of its total assets for temporary purposes; or
pledge its assets other than to secure such issuances or in connection with
hedging transactions, short sales, when-issued and forward commitment
transactions and similar investment strategies. The Fund's obligations under
interest rate swaps are not treated as senior securities.
6. Make loans to other persons (except as provided in (7) below); provided
that for purposes of this restriction the acquisition of bonds, debentures, or
other corporate debt securities and investment in government securities, short-
term commercial paper, certificates of deposit, bankers' acceptances and
repurchase agreements shall not be deemed to be the making of a loan.
7. Lend its portfolio securities in excess of 33 1/3% of its total assets,
taken at market value.
C-2
8. Invest in securities which cannot be readily resold because of legal or
contractual restrictions or which are not otherwise readily marketable if,
regarding all such securities, more than 15% of its total assets, taken at
market value, would be invested in such securities.
9. Underwrite securities of other issuers except insofar as the Fund may be
deemed an underwriter under the Securities Act of 1933, as amended, in selling
portfolio securities.
10. Purchase or sell interests in oil, gas or other mineral exploration or
development programs.
11. Invest more than 25% of its total assets (taken at market value at the
time of each investment) in securities of issuers in a single industry (other
than debt securities issued or guaranteed by a Western Hemisphere governmental
entity), except that, under normal circumstances, the Fund will invest more
than 25% of its total assets in the securities of issuers in the financial
services industry.
The Board of Directors has established the policy that the Fund will not
purchase or retain the securities of any issuer if those individual officers
and Directors of the Fund, the officers and directors of the Investment
Adviser, or the Distributor each owning beneficially more than one-half of 1%
of the securities of such issuer own in the aggregate more than 5% of the
securities of such issuer. Portfolio securities of the Fund may not be
purchased from, sold or loaned to the Investment Adviser or its affiliates or
any of their directors, officers or employees, acting as principal.
The Fund has adopted a policy pursuant to which it will not invest in
warrants if, at the time of acquisition, its investment in warrants, valued at
the lower of cost or market value, would exceed 5% of the Fund's net assets;
included within such limitation, but not to exceed 2% of the Fund's net assets,
are warrants which are not listed on the New York or American Stock Exchanges.
For purposes of this policy, warrants acquired by the Fund in units or attached
to securities may be deemed to be without value. The Fund also has adopted a
policy pursuant to which it will not invest in real estate limited partnerships
or in oil, gas or mineral leases. In order to comply with certain state
statutes, the Fund will not, as a matter of operating policy, mortgage, pledge
or hypothecate its portfolio securities to the extent that at any time the
percentage of the value of pledged securities plus the maximum sales charge
will exceed 10% of the value of the Fund's shares at the maximum offering
price. Under the laws of certain states, the Fund presently is limited with
respect to the investments described in investment restriction (8) above to 10%
of its total assets. The policies set forth in this paragraph may be amended
without the approval of the Fund's shareholders.
C-3
The staff of the Commission has taken the position that purchased OTC options
and the assets used as cover for written OTC options are illiquid securities.
Therefore, the Fund has adopted an investment policy pursuant to which it will
not purchase or sell OTC options if, as a result of any such transaction, the
sum of the market value of OTC options currently outstanding which are held by
the Fund, the market value of the underlying securities covered by OTC call
options currently outstanding which were sold by the Fund and margin deposits
on the Fund's existing OTC options on futures contracts exceed 10% of the total
assets of the Fund, taken at market value, together with all other assets of
the Fund which are illiquid or are not otherwise readily marketable. However,
if the OTC option is sold by the Fund to a primary U.S. Government securities
dealer recognized by the Federal Reserve Bank of New York and if the Fund has
the unconditional contractual right to repurchase such OTC option from the
dealer at a predetermined price, then the Fund will treat as illiquid such
amount of the underlying securities as is equal to the repurchase price less
the amount by which the option is "in-the-money" (i.e., current market value of
the underlying securities minus the option's strike price). The repurchase
price with the primary dealers is typically a formula price which is generally
based on a multiple of the premium received for the option, plus the amount by
which the option is "in-the-money". This policy as to OTC options is not a
fundamental policy of the Fund and may be amended by the Board of 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.
C-4
MERRILL LYNCH DEVELOPING CAPITAL MARKETS FUND, INC.
As shown in the Prospectus:
Investment Restrictions
Among its fundamental policies, the Fund may not invest more than 25% of its
total assets, taken at market value at the time of each investment, in the
securities of issuers of any particular industry (excluding the United States
Government and its agencies or instrumentalities). Other fundamental policies
include policies which (i) limit investments in securities which cannot be
readily resold because of legal or contractual restrictions or which are not
otherwise readily marketable, including repurchase agreements and purchase and
sale contracts maturing in more than seven days, if, regarding all such
securities, more than 10% of its net assets, taken at market value, would be
invested in such securities, (ii) limit investments in securities of other
investment companies, except in connection with certain specified transactions
and with respect to investments of up to 20% of the Fund's assets in securities
of closed-end investment companies and (iii) restrict the issuance of senior
securities and limit bank borrowings except that the Fund may borrow amounts of
up to 10% of its assets for extraordinary purposes or to meet redemptions. The
Fund will not purchase securities while borrowings exceed 5% of its total
assets, except (a) to honor prior commitments, or (b) to exercise subscription
rights where outstanding borrowings have been obtained exclusively for
settlements of other securities transactions. The purchase of securities while
borrowings are outstanding will have the effect of leveraging the Fund. Such
leveraging or borrowing increases the Fund's exposure to capital risk, and
borrowed funds are subject to interest costs which will reduce net income.
Although not a fundamental policy, the Fund will include OTC options and the
securities underlying such options in calculating the amount of its total
assets subject to the limitation set forth in clause (i) above. However, as
discussed above, the Fund may treat the securities it uses as cover for written
OTC options as liquid and, therefore, will exclude such securities from this
restriction, provided it follows a specified procedure. The Fund will not
change or modify this policy prior to the change or modification by the
Commission staff of its position regarding OTC options, as discussed above.
C-5
MERRILL LYNCH DEVELOPING CAPITAL MARKETS FUND, INC.
As shown in the Statement of Additional Information:
Investment Restrictions
The Fund may not:
1. Invest more than 25% of its 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 securities of other investment companies, except in connection
with a merger, consolidation, acquisition or reorganization, or by purchase in
the open market of securities of closed-end investment companies where no
underwriter or dealer's commission or profit, other than customary broker's
commission, is involved and only if immediately thereafter not more than (i) 3%
of the total outstanding voting stock of such company is owned by the Fund,
(ii) 5% of the Fund's total assets, taken at market value, would be invested in
any one such company, or (iii) 10% of the Fund's total assets, taken at market
value, would be invested in such securities. Investments by the Fund in wholly-
owned investment entities created under the laws of certain countries will not
be deemed an investment in other investment companies.
4. Purchase or sell real estate (including real estate limited partnerships),
except that the Fund may invest in securities secured by real estate or
interests therein or issued by companies, including real estate investment
trusts, which invest in real estate or interests therein.
5. Purchase any securities on margin, except that the Fund may obtain such
short-term credit as may be necessary for the clearance of purchases and sales
of portfolio securities. The payment by the Fund of initial or variation margin
in connection with futures or related options transactions, if applicable,
shall not be considered the purchase of a security on margin.
6. Make short sales of securities or maintain a short position.
7. Make loans to other persons, except that the acquisition of bonds,
debentures or other corporate debt securities and investment in government
obligations, short-term commercial paper, certificates of
C-6
deposit, bankers' acceptances and repurchase agreements and purchase and sale
contracts 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 (8) below.
8. Lend its portfolio securities in excess of 33 1/3% of its total assets,
taken at market value; provided that such loans may only be made in accordance
with the guidelines set forth above.
9. Issue senior securities, borrow money or pledge its assets in excess of
20% of its total assets taken at market value (including the amount borrowed)
and then only from a bank as a temporary measure for extraordinary or emergency
purposes including to meet redemptions or to settle securities transactions.
Usually only "leveraged" investment companies may borrow in excess of 5% of
their assets; however, the Fund will not borrow to increase income but only as
a temporary measure for extraordinary or emergency purposes including to meet
redemptions or to settle securities transactions which may otherwise require
untimely dispositions of Fund securities. The Fund will not purchase securities
while borrowings exceed 5% of total assets except (a) to honor prior
commitments or (b) to exercise subscription rights where outstanding borrowings
have been obtained exclusively for settlements of other securities
transactions. (For the purpose of this restriction, collateral arrangements
with respect to the writing of options, and, if applicable, futures contracts,
options on futures contracts, and collateral arrangements with respect to
initial and variation margin are not deemed to be a pledge of assets and
neither such arrangements nor the purchase or sale of futures or related
options are deemed to be the issuance of a senior security.)
10. Invest in securities which cannot be readily resold because of legal or
contractual restrictions or which are otherwise not readily marketable,
including repurchase agreements and purchase and sale contracts maturing in
more than seven days, if at the time of acquisition more than 10% of its net
assets would be invested in such securities.
11. 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.
12. 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 that engage in oil, gas or other mineral exploration or development
activities.
C-7
Additional investment restrictions adopted by the Fund, which may be changed
by the Board of Directors, provide that the Fund may not:
(i) Invest in warrants if at the time of acquisition its investments in
warrants, valued at the lower of cost or market value, would exceed 5% of
the Fund's net assets; included within such limitation, but not to exceed
2% of the Fund's net assets, are warrants which are not listed on the New
York or American Stock Exchange. For purposes of this restriction,
warrants acquired by the Fund in units or attached to securities may be
deemed to be without value.
(ii) Purchase or sell commodities or commodity contracts, except that
the Fund may deal in forward foreign exchange between currencies of the
different countries in which it may invest and purchase and sell stock
index and currency options, stock index futures, financial futures and
currency futures contracts and related options on such futures.
(iii) Invest in securities of corporate issuers having a record,
together with predecessors, of less than three years of continuous
operation, if more than 5% of its total assets, taken at market value,
would be invested in such securities.
(iv) Write, purchase or sell puts, calls, straddles, spreads or
combinations thereof, except to the extent described in the Fund's
Prospectus and in this Statement of Additional Information, as amended
from time to time.
(v) Purchase or retain the securities of any issuer, if those
individual officers and directors of the Fund, the officers and general
partner of the Manager, the directors of such general partner or the
officers and directors of any subsidiary thereof each owning beneficially
more than 1/2 of 1% of the securities of such issuer own in the aggregate
more than 5% of the securities of such issuer.
Under the laws of a certain state, the Fund currently may not pay the Manager
a management fee with respect to the Fund's assets invested in the shares of
another investment company on which such other investment company is charging a
management fee. The Manager has agreed to waive its management fee to the
extent necessary to comply with this current state law requirement.
The staff of the Commission has taken the position that purchased OTC options
and the assets used as cover for written OTC options are illiquid securities.
Therefore, the Fund has adopted an investment policy pursuant to which it will
not purchase or sell OTC options if, as a result of such transactions, the sum
of the market value of OTC options currently
C-8
outstanding which are held by the Fund, the market value of the underlying
securities covered by OTC call options currently outstanding which were sold by
the Fund and margin deposits on the Fund's existing OTC options on futures
contracts exceeds 10% of the total assets of the Fund, taken at market value,
together with all other assets of the Fund which are illiquid or are otherwise
not readily marketable. However, if an OTC option is sold by the Fund to a
primary U.S. Government securities dealer recognized by the Federal Reserve
Bank of New York and if the Fund has the unconditional contractual right to
repurchase such OTC option from the dealer at a predetermined price, then the
Fund will treat as illiquid such amount of the underlying securities equal to
the repurchase price less the amount by which the option is "in-the-money"
(i.e., current market value of the underlying securities minus the option's
strike price). The repurchase price with the primary dealers is typically a
formula price which is generally based on a multiple of the premium received
for the option, plus the amount by which the option is "in-the-money". This
policy as to OTC options is not a fundamental policy of the Fund and may be
amended by the Directors of the Fund without the approval of the Fund's
shareholders. However, the Fund will not change or modify this policy prior to
the change or modification by the Commission staff of its position.
C-9
MERRILL LYNCH DRAGON FUND, INC.
As shown in the Prospectus:
Investment Restrictions
Among its fundamental policies, the Fund may not invest more than 25% of its
total assets, taken at market value at the time of each investment, in the
securities of issuers of any particular industry (excluding the U.S. Government
and its agencies or instrumentalities). Other fundamental policies include
policies which (i) limit investments in securities which are (a) subject to
material legal restrictions on repatriation of assets or (b) cannot be readily
resold because of legal or contractual restrictions or which are not otherwise
readily marketable, including repurchase agreements and purchase and sale
contracts maturing in more than seven days, if, regarding all such securities,
more than 15% of its net assets, taken at market value would be invested in
such securities and (ii) restrict the issuance of senior securities and limit
bank borrowings, except that the Fund may borrow amounts of up to 33 1/3% of
its assets for extraordinary purposes or to meet redemptions. As a non-
fundamental policy, the Fund will, for purposes of the 25% restriction set
forth above and to the extent required by the Securities and Exchange
Commission, consider securities issued or guaranteed by the government of any
one foreign country as the obligations of a single issuer.
While the Fund may not purchase illiquid securities in an amount exceeding
15% of its net assets (or 10%, as presently required by state law), the fund
may purchase without regard to that limitation securities that are not
registered under the Securities Act of 1933, as amended (the "Securities Act"),
but that can be offered and sold to "qualified institutional buyers" under Rule
144A under the Securities Act, provided that the Fund's Board of Directors
continuously determines, based on the trading markets for the specific Rule
144A security, that it is liquid. The Board of Directors may adopt guidelines
and delegate to the Manager the daily function of determining and monitoring
liquidity of restricted securities. The Board has determined that securities
which are freely tradeable in their primary market offshore should be deemed
liquid. The Board, however, will retain sufficient oversight and be ultimately
responsible for the determinations.
Since it is not possible to predict with assurance exactly how the market for
restricted securities sold and offered under Rule 144A will develop, the Board
of Directors will carefully monitor the Fund's investments in these securities,
focusing on such factors, among others, as valuation, liquidity and
availability of information. This investment practice could have the effect of
increasing the level of illiquidity in the Fund to the extent that qualified
institutional buyers become for a time uninterested in purchasing these
restricted securities.
C-10
The Fund will not purchase securities while borrowings exceed 5% of its total
assets, except (a) to honor prior commitments or (b) to exercise subscription
rights where outstanding borrowings have been obtained exclusively for
settlements of other securities transactions. The purchase of securities while
borrowings are outstanding will have the effect of leveraging the Fund. Such
leveraging or borrowing increases the Fund's exposure to capital risk, and
borrowed funds are subject to interest costs which will reduce net income.
Although not a fundamental policy, the Fund will include OTC options and the
securities underlying such options in calculating the amount of its assets
subject to the limitation set forth in clause (i) above. However, as discussed
above, the Fund may treat the securities it uses as cover for written OTC
options as liquid and, therefore, will exclude such securities from this
restriction, provided it follows a specified procedure. The Fund will not
change or modify this policy prior to the change or modification by the
Securities and Exchange Commission staff of its position regarding OTC options,
as discussed above.
C-11
MERRILL LYNCH DRAGON FUND, INC.
As shown in the Statement of Additional Information:
Investment Restrictions
The Fund may not:
1. Invest more than 25% of its 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 of management.
3. Purchase securities of other investment companies, except in connection
with a merger, consolidation, acquisition or reorganization, or by purchase of
securities of investment companies and only if immediately thereafter not more
than (i) 3% of the total outstanding voting stock of such company is owned by
the Fund, (ii) 5% of the Fund's total assets, taken at market value, would be
invested in any one such Company, or (iii) 10% of Fund's assets, taken at
market value, would be invested in such securities. Investments by the Fund in
wholly-owned investment entities created under the laws of certain countries
will not be deemed an investment in other investment companies.
4. Purchase or sell real estate (including real estate limited partnerships),
except that the Fund may invest in securities secured by real estate or
interests therein or issued by companies, including real estate investment
trusts, which invest in real estate or interests therein.
5. Purchase any securities on margin, except that the Fund may obtain such
short-term credit as may be necessary for the clearance of purchases and sales
of portfolio securities. The payment by the Fund of initial or variation margin
in connection with futures or related options transactions, if applicable,
shall not be considered the purchase of a security on margin.
6. Make short sales of securities or maintain a short position.
7. Make loans to other persons, except that the acquisition of bonds,
debentures or other corporate debt securities and investment in government
obligations, or participations therein, short-term commercial paper,
certificates of deposit, bankers' acceptances and repurchase
C-12
agreements and purchase and sale contracts 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 (8) below.
8. Lend its portfolio securities in excess of 33 1/3% of its total assets,
taken at market value; provided that such loans may only be made in accordance
with the guidelines set forth above.
9. Issue senior securities, borrow money or pledge its assets in excess of 33
1/3% of its total assets taken at market value (including the amount borrowed)
and then only from a bank as a temporary measure for extraordinary or emergency
purposes including to meet redemptions or to settle securities transactions.
Usually only "leveraged" investment companies may borrow in excess of 5% of
their assets; however, the Fund will not borrow to increase income but only as
a temporary measure for extraordinary or emergency purposes, including to meet
redemptions or to settle securities transactions which may otherwise require
untimely dispositions of Fund securities. The Fund will not purchase securities
while borrowings exceed 5% of total assets except (a) to honor prior
commitments or (b) to exercise subscription rights where outstanding borrowings
have been obtained, exclusively for settlements of other securities
transactions. (For the purpose of this restriction, collateral arrangements
with respect to the writing of options, and, if applicable, futures contracts,
options on futures contracts, and collateral arrangements with respect to
initial and variation margin are not deemed to be a pledge of assets and
neither such arrangements nor the purchase or sale of futures or related
options are deemed to be the issuance of a senior security.)
10. Invest in securities which (i) are subject to material legal restrictions
on repatriation of assets or (ii) cannot be readily resold because of legal or
contractual restrictions or which are otherwise not readily marketable,
including repurchase agreements and purchase and sale contracts maturing in
more than seven days, if at the time of acquisition more than 15% of its net
assets would be invested in such securities. While the Fund will not purchase
illiquid securities and assets subject to material legal restrictions on
repatriation in an amount exceeding 15% of its net assets, the Fund may
purchase, without regard to that limitation, securities that are not registered
under the Securities Act of 1933 (the "Securities Act"), but that can be
offered and sold to "qualified institutional buyers" under Rule 144A under the
Securities Act, provided that the Fund's Board of Directors continuously
determines, based on the trading markets for the specific Rule 144A security,
that it is liquid.
11. Underwrite securities of other issuers except insofar as the Fund
technically may be deemed an underwriter in selling portfolio securities.
C-13
12. Purchase or sell interests (including leases) in oil, gas or other
mineral exploration or development programs, except that the Fund may invest in
securities issued by companies that engage in oil, gas or other mineral
exploration or development activities.
Additional investment restrictions adopted by the Fund, which may be changed
by the Board of Directors, provide that the Fund may not:
(i) Invest in warrants if at the time of acquisition its investments in
warrants, valued at the lower of cost or market value, would exceed 5% of
the Fund's net assets; included within such limitation, but not to exceed
2% of the Fund's net assets, are warrants which are not listed on the New
York or American Stock Exchange. For purposes of this restriction,
warrants acquired by the Fund in units or attached to securities may be
deemed to be without value.
(ii) Purchase or sell commodities or commodity contracts, except that
the Fund may deal in forward foreign exchange between currencies of the
different countries in which it may invest and purchase and sell stock
index and currency options, stock index futures, financial futures and
currency futures contracts and related options on such futures.
(iii) Invest in securities of corporate issuers having a record,
together with predecessors, of less than three years of continuous
operation, if more than 5% of its total assets, taken at market value,
would be invested in such securities.
(iv) Write, purchase or sell puts, calls, straddles, spreads or
combinations thereof, except to the extent described in the Fund's
Prospectus and in this Statement of Additional Information, as amended
from time to time.
(v) Purchase or retain the securities of any issuer, if those
individual officers and directors of the Fund, the officers and general
partner of the Manager, the directors of such general partner or any
subsidiary thereof each owning beneficially more than of 1/2 of 1% of the
securities of such issuer own in the aggregate more than 5% of the
securities of such issuer.
(vi) Invest more than 10% of its net assets in securities of real
estate investment trusts.
The staff of the Securities and Exchange Commission (the "Commission") has
taken the position that purchased over-the-counter options ("OTC") and the
assets used as cover for written OTC options are illiquid securities.
Therefore, the Fund has adopted an investment policy pursuant to which it will
not purchase or sell OTC options if, as a result of
C-14
such transaction, the sum of the market value of OTC options currently
outstanding which are held by the Fund, the market value of the underlying
securities covered by OTC call options currently outstanding which were sold by
the Fund and margin deposits on the Fund's existing OTC options on futures
contracts exceeds 15% (presently, further limited to 10% by the law of certain
states) of the net assets of the Fund, taken at market value, together with all
other assets of the Fund which are illiquid or are otherwise not readily
marketable. However, if the OTC option is sold by the Fund to a primary U.S.
Government securities dealer recognized by the Federal Reserve Bank of New York
and if the Fund has the unconditional contractual right to repurchase such OTC
option from the dealer at a predetermined price, then the Fund will treat as
illiquid such amount of the underlying securities equal to the repurchase price
less the amount by which the option is "in-the-money" (i.e., current market
value of the underlying securities minus the option's strike price). The
repurchase price with the primary dealers is typically a formula price which is
generally based on a multiple of the premium received for the option, plus the
amount by which the option is "in-the-money". This policy as to OTC options is
not a fundamental policy of the Fund and may be amended by the Directors of the
Fund without the approval of the Fund's shareholders. However, the Fund will
not change or modify this policy prior to the change or modification by the
Commission staff of its position.
C-15
MERRILL LYNCH EUROFUND
As shown in the Prospectus:
Investment Restrictions
Among the more significant restrictions, the Fund may not:
--Invest in the securities of any one issuer if, immediately after and
as a result of such investment, the value of the holdings of the Fund in
the securities of such issuer exceeds 5% of the Fund's total assets,
taken at market value, except that such restrictions shall not apply to
securities issued or guaranteed by the government of the United States or
any of its agencies or instrumentalities or, with respect to 25% of the
Fund's total assets, to securities issued or guaranteed by the government
of any European country or any agency or instrumentality thereof, or any
European supranational governmental or regulatory organization.
--Invest in the securities of any single issuer if, immediately after
and as a result of such investment, the Fund owns more than 10% of the
outstanding voting securities of such issuer.
--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.
Nothing in the foregoing investment restrictions shall be deemed to prohibit
the Fund from purchasing the securities of any issuer pursuant to the exercise
of subscription rights distributed to the Fund by the issuer, except that no
such purchase may be made if as a result the Fund will no longer be a
diversified investment company as defined in the Investment Company Act or fail
to meet the diversification requirements of the Internal Revenue Code.
Other fundamental policies include policies which (i) limit investments in
securities which cannot be readily sold because of legal or contractual
restrictions or which are not otherwise readily marketable if, regarding all
such securities, more than 5% of its total assets, taken at market value, would
be invested in such securities; (ii) limit investments in securities of issuers
having a record, together with predecessors, of less than three years of
continuous operation if more than 5% of its total assets, taken at market
value, would be invested in such securities; (iii) limit investments in
securities of other investment companies, except in connection with a merger,
consolidation, acquisition or reorganization, or by purchase in the open market
of securities of closed-end investment companies where no underwriter's or
dealer's commission or profit, other than customary broker's commission, is
involved and only if immediately thereafter, not more than 10% of the Fund's
total assets, taken at market
C-16
value, would be invested in such securities; and (iv) limit the purchase or
sale of real estate by the Fund, except that the Fund may invest in securities
secured by real estate or interests therein or issued by companies which invest
in real estate or interests therein.
C-17
MERRILL LYNCH EUROFUND
As shown in the Statement of Additional Information:
Investment Restrictions
The Fund may not:
1. Make investments for the purpose of exercising control or management.
2. Purchase securities of other investment companies, except in connection
with a merger, consolidation, acquisition or reorganization, or by purchase in
the open market of securities of closed-end investment companies where no
underwriter or dealer's commission or profit, other than customary broker's
commission, is involved and only if immediately thereafter not more than 10% of
the Fund's total assets, taken at market value, would be invested in such
securities.
3. Purchase or sell real estate; provided that the Fund may invest in
securities secured by real estate or interests therein or issued by companies
which invest in real estate or interests therein.
4. Purchase or sell commodities or commodity contracts except that the Fund
may deal in forward foreign exchange between currencies of the different
countries in which its portfolio securities are denominated and the Fund may
purchase or sell currency options, currency futures contracts and related
options on the currencies of the countries in which it may invest.
5. Purchase any securities on margin, except that the Fund may obtain such
short-term credit as may be necessary for the clearance of purchases and sales
of portfolio securities, or make short sales of securities or maintain a short
position.
6. Make loans to other persons (except as provided in (7) below); provided
that for purposes of this restriction the acquisition of a portion of publicly
distributed bonds, debentures, or other corporate debt securities and
investment in Government obligations, short-term commercial paper, certificates
of deposit, bankers' acceptances and repurchase agreements shall not be deemed
to be the making of a loan.
7. Lend its portfolio securities in excess of 33 1/3% of its total assets,
taken at market value; provided that such loans shall be made in accordance
with the guidelines set forth in the Prospectus. See "Investment Objective and
Policies--Lending of Portfolio Securities".
C-18
8. Issue senior securities or borrow amounts in excess of 20% of its total
assets, taken at market value, and then only from banks as a temporary measure
for extraordinary or emergency purposes such as the redemption of Fund shares.
Utilization of borrowings may exaggerate increases or decreases in an
investment company's net asset value. However, the Fund will not purchase
securities while borrowings are outstanding except to exercise prior
commitments and to exercise subscription rights. (See restriction (9) below
regarding the exclusion from this restriction of arrangements with respect to
options, futures contracts and options on futures contracts.)
9. Mortgage, pledge, hypothecate or in any manner transfer (except as
provided in (7) above), as security for indebtedness, any securities owned or
held by the Fund except as may be necessary in connection with borrowing
mentioned in (8) above, and then such mortgaging, pledging or hypothecating may
not exceed 10% of the Fund's total assets, taken at market value. (For the
purpose of this restriction and restriction (7) above, collateral arrangements
with respect to the writing of options, futures contracts and collateral
arrangements with respect to initial and variation margins are not deemed to be
a pledge of assets and neither such arrangements nor the purchase and sale of
options, futures and related options are deemed to be the issuance of a senior
security.)
10. Invest in securities which cannot be readily resold because of legal or
contractual restrictions or which are not otherwise readily marketable if,
regarding all such securities, more than 5% of its total assets, taken at
market value, would be invested in such securities.
11. Underwrite securities of other issuers except insofar as the Fund may be
deemed an underwriter under the Securities Act of 1933 in selling portfolio
securities.
12. Purchase or sell interests in oil, gas or other mineral exploration or
development programs.
13. Invest in securities of issuers having a record, together with
predecessors, of less than three years of continuous operation if more than 5%
of its total assets, taken at market value, would be invested in such
securities.
14. Enter into repurchase agreements if, as a result, more than 10% of the
Fund's total assets (taken at market value at the time of each investment)
would be subject to repurchase agreements maturing in more than seven days.
C-19
As described in restrictions 2 and 3, the Fund is subject to limitations
regarding investments in other investment companies and in real estate.
Investments in closed-end investment companies involve additional costs to the
Fund in the form of management, advisory, administrative and other fees of such
closed-end companies that would not be incurred in the case of direct
investments by the Fund in the underlying securities. The Fund has no present
intention of investing more than 5% of its total assets in other investment
companies. Furthermore, the Fund has no present intention of investing more
than 5% of its total assets in securities secured by real estate or interests
therein or issued by companies which invest in real estate or interests
therein.
The staff of the Securities and Exchange Commission (the "Commission") has
taken the position that purchased over-the-counter options ("OTC options") and
the assets used as cover for written OTC options are illiquid securities.
Therefore, the Fund has adopted an investment policy pursuant to which it will
not purchase or sell OTC options if, as a result of such transaction, the sum
of the market value of OTC options currently outstanding which are held by the
Fund, the market value of the underlying securities covered by OTC call options
currently outstanding which were sold by the Fund and margin deposits on the
Fund's existing OTC options on futures contracts exceeds 10% of the total
assets of the Fund, taken at market value, together with all other assets of
the Fund which are illiquid or are not otherwise readily marketable. However,
if the OTC option is sold by the Fund to a primary U.S. Government securities
dealer recognized by the Federal Reserve Bank of New York and if the Fund has
the unconditional contractual right to repurchase such OTC option from the
dealer at a predetermined price, then the Fund will treat as illiquid such
amount of the underlying securities as is equal to the repurchase price less
the amount by which the option is "in-the-money" (i.e., current market value of
the underlying security minus the option's strike price). The repurchase price
with the primary dealers is typically a formula price which is generally based
on a multiple of the premium received for the option, plus the amount by which
the option is "in-the-money". This policy as to OTC options is not a
fundamental policy of the Fund and may be amended by the Trustees 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.
The Trustees have established the policy that the Fund will not purchase or
retain the securities of any issuer if those individual officers and Trustees
of the Fund, or officers and general partner of the Manager, the directors of
such general partner or the directors and officers of the
C-20
Distributor, each owning beneficially more than 1/2 of 1% of the securities of
such issuer own in the aggregate more than 5% of the securities of such issuer.
Portfolio securities of the Fund generally may not be purchased from, sold or
loaned to the Manager or its affiliates or any of their directors, general
partners, officers or employees, acting as principal, unless pursuant to a rule
or exemptive order under the Investment Company Act.
The Trustees have established the policy that the Fund will not purchase real
estate limited partnership interests or oil, gas or other mineral leases.
The Fund has adopted a policy pursuant to which it will not invest in
warrants if, at the time of acquisition, its investment in warrants, valued at
the lower of cost or market value, would exceed 10% of the Fund's net assets.
For purposes of this policy, warrants acquired by the Fund in units or attached
to securities may be deemed to be without value. The policy set forth in this
paragraph may be amended by the Trustees without the approval of the Fund's
shareholders.
C-21
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
As shown in the Prospectus:
Investment Restrictions
Among its fundamental policies, the Fund may not invest more than 25% of its
total assets, taken at market value at the time of each investment, in the
securities of issuers of any particular industry (excluding the U.S. Government
and its agencies or instrumentalities). Other fundamental policies include
policies which (i) limit investments in securities which cannot be readily
resold because of legal or contractual restrictions or which are not otherwise
readily marketable, including repurchase agreements and purchase and sale
contracts maturing in more than seven days, if, regarding all such securities,
more than 10% of its net assets, taken at market value, would be invested in
such securities, (ii) limit investments in securities of other investment
companies, except in connection with certain specified transactions and with
respect to investments of up to 10% of the Fund's assets in securities of
closed-end investment companies and (iii) restrict the issuance of senior
securities and limit bank borrowings except that the Fund may borrow amounts of
up to 10% of its assets for extraordinary purposes or to meet redemptions. The
Fund will not purchase securities while borrowings exceed 5% of its total
assets. The Fund has no present intention to borrow money in amounts exceeding
5% of its total assets. Although not a fundamental policy, the Fund will
include OTC options and the securities underlying such options in calculating
the amount of its total assets subject to the limitation set forth in clause
(i) above. However, as discussed above, the Fund may treat the securities it
uses as cover for written OTC options as liquid, and, therefore, will be
excluded from this restriction, provided it follows a specified procedure. The
Fund will not change or modify this policy prior to the change or modification
by the Securities and Exchange Commission staff of its position regarding OTC
options, as discussed above.
C-22
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
As shown in the Statement of Additional Information:
Investment Restrictions
The Fund may not:
1. Invest more than 25% of its 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.
3. Purchase securities of other investment companies, except in connection
with a merger, consolidation, acquisition or reorganization, or by purchase in
the open market of securities of closed-end investment companies where no
underwriter or dealer's commission or profit, other than customary broker's
commission, is involved and only if immediately thereafter not more than (i) 3%
of the total outstanding voting stock of such company is owned by the Fund,
(ii) 5% of the Fund's total assets, taken at market value, would be invested in
any one such company, (iii) 10% of the Fund's total assets, taken at market
value, would be invested in such securities.
4. Purchase or sell real estate (including real estate limited partnerships),
except that the Fund may invest in securities secured by real estate or
interests therein or issued by companies, including real estate investment
trusts, which invest in real estate or interests therein.
5. Purchase any securities on margin, except that the Fund may obtain such
short-term credit as may be necessary for the clearance of purchases and sales
of portfolio securities. The payment by the Fund of initial or variation margin
in connection with futures or related options transactions, if applicable,
shall not be considered the purchase of a security on margin.
6. Make short sales of securities or maintain a short position.
7. Make loans to other persons, except that the acquisition of bonds,
debentures or other corporate debt securities and investment in government
obligations, short-term commercial paper, certificates of deposit, bankers'
acceptances and repurchase agreements and purchase and sale contracts 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 (8) below.
C-23
8. Lend its portfolio securities in excess of 33 1/3% of its total assets,
taken at market value; provided that such loans may only be made in accordance
with the guidelines set forth above.
9. Issue senior securities, borrow money or pledge its assets except that the
Fund may borrow from a bank as a temporary measure for extraordinary or
emergency purposes or to meet redemptions in amounts not exceeding 10% (taken
at the market value) of its total assets and pledge its assets to secure such
borrowings. (For the purposes of this restriction, collateral arrangements with
respect to the writing of options, and, if applicable, futures contracts,
options on futures contracts, and collateral arrangements with respect to
initial and variation margin are not deemed to be a pledge of assets and
neither such arrangements nor the purchase or sale of futures or related
options are deemed to be the issuance of a senior security.) The Fund will not
purchase securities while borrowings exceed 5% (taken at market value) of its
total assets.
10. Invest in securities which cannot be readily resold because of legal or
contractual restrictions or which are not otherwise readily marketable,
including repurchase agreements and purchase and sale contracts maturing in
more than seven days, if at the time of acquisition more than 10% of its net
assets would be invested in such securities. Asset-backed securities which the
Fund has the option to put to the issuer or a stand-by bank or broker and
receive the principal amount or redemption price thereof less transaction costs
on no more than seven days' notice or when the Fund has the right to convert
such securities into a readily marketable security in which it could otherwise
invest upon not less than seven days' notice are not subject to this
restriction.
11. Underwrite securities of other issuers except insofar as the Fund
technically may be deemed an underwriter under the Securities Act of 1933, as
amended, in selling portfolio securities.
12. 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 that engage in oil, gas or other mineral exploration or development
activities.
Additional investment restrictions adopted by the Fund, which may be changed
by the Directors, provide that the Fund may not:
(i) Invest in warrants if at the time of acquisition its investments in
warrants, valued at the lower of cost or market value, would exceed 5% of
the Fund's net assets; included within such limitation, but not to exceed
2% of the Fund's net assets, are warrants which are not listed on the New
York or American Stock Exchange. For purposes of this restriction,
warrants acquired by the Fund in units or attached to securities may be
deemed to be without value.
C-24
(ii) Purchase or sell commodities or commodity contracts, except that
the Fund may deal in forward foreign exchange between currencies of the
different countries in which it may invest and purchase and sell stock
index and currency options, stock index futures, financial futures and
currency futures contracts and related options on such futures.
(iii) Invest in securities of corporate issuers having a record,
together with predecessors, of less than three years of continuous
operation, if more than 5% of its total assets, taken at market value,
would be invested in such securities.
(iv) Write, purchase or sell puts, calls, straddles, spreads or
combinations thereof, except to the extent described in the Fund's
Prospectus and in this Statement of Additional Information, as amended
from time to time.
(v) Purchase or retain the securities of any issuer, if those
individual officers and directors of the Fund, the officers and general
partner of the Manager, the directors of such general partner or any
subsidiary thereof each owning beneficially more than 1/2 of 1% of the
securities of such issuer own in the aggregate more than 5% of the
securities of such issuer.
(vi) Invest more than 35% of its assets in obligations rated below Baa
or BBB by Moody's or S&P, respectively.
(vii) Purchase oil, gas or other mineral leases.
The staff of the Securities and Exchange Commission (the "Commission") has
taken the position that purchased OTC options and the assets used as cover for
written OTC options are illiquid securities. Therefore, the Fund has adopted an
investment policy pursuant to which it will not purchase or sell OTC options
if, as a result of such transaction, the sum of the market value of OTC options
currently outstanding which are held by the Fund, the market value of the
underlying securities covered by OTC call options currently outstanding which
were sold by the Fund and margin deposits on the Fund's existing OTC options on
futures contracts exceeds 10% of the total assets of the Fund, taken at market
value, together with all other assets of the Fund which are illiquid or are
otherwise not readily marketable. However, if the OTC option is sold by the
Fund to a primary U.S. Government securities dealer recognized by the Federal
Reserve Bank of New York and if the Fund has the unconditional contractual
right to repurchase such OTC option from the dealer at a predetermined price,
then the Fund will treat as illiquid such amount of the underlying securities
as is equal to the repurchase price less the amount by which the option is "in-
the-money" (i.e., current market
C-25
value of the underlying securities minus the option's strike price). The
repurchase price with the primary dealers is typically a formula price which is
generally based on a multiple of the premium received for the option, plus the
amount by which the option is "in-the-money". This policy as to OTC options is
not a fundamental policy of the Fund and may be amended by the Directors of the
Fund without the approval of the Fund's shareholders. However, the Fund will
not change or modify this policy prior to the change or modification by the
Commission staff of its position.
Portfolio securities of the Fund generally may not be purchased from, sold or
loaned to the Manager or its affiliates or any of their directors, general
partners, officers or employees, acting as principal, unless pursuant to a rule
or exemptive order under the Investment Company Act.
C-26
MERRILL LYNCH GLOBAL BOND FUND FOR INVESTMENT AND RETIREMENT
As shown in the Prospectus:
Investment Restrictions
Among its fundamental policies, the Fund may not invest in securities which
cannot be readily resold because of legal or contractual restrictions or which
are not otherwise readily marketable if, regarding all such securities, more
than 10% of its total assets, taken at market value would be invested in such
securities. Other fundamental policies include policies which (i) limit
investments in securities of other investment companies, except in connection
with certain specified transactions and with respect to investments of up to
10% of the Fund's assets in securities of closed-end investment companies and
(ii) restrict the issuance of senior securities and limit bank borrowings
except that the Fund may borrow amounts of up to 10% of its assets for
extraordinary purposes or to meet redemptions. The Fund has no present
intention to invest more than 5% of its total assets in other investment
companies or to issue senior securities in amounts exceeding 5% of its total
assets.
C-27
MERRILL LYNCH GLOBAL BOND FUND FOR INVESTMENT AND RETIREMENT
As shown in the Statement of Additional Information:
Investment Restrictions
The Fund may not:
1. Make investments for the purpose of exercising control or management.
2. Purchase securities of other investment companies, except in connection
with a merger, consolidation, acquisition or reorganization, or by purchase in
the open market of securities of closed-end investment companies where no
underwriter or dealer's commission or profit, other than customary broker's
commission, is involved and only if immediately thereafter not more than 10% of
the Fund's total assets, taken at market value, would be invested in such
securities.
3. Purchase or sell real estate, provided that the Fund may invest in
securities secured by real estate or interests therein or issued by companies
which invest in real estate or interests therein.
4. Purchase or sell commodities or commodity contracts except that the Fund
may deal in forward foreign exchange between currencies in which its portfolio
securities are denominated and the Fund may purchase and sell interest rate and
currency options, futures contracts and related options.
5. Invest more than 25% of its total assets, taken at market value at the
time of each investment, in the securities of corporate issuers in any
particular industry.
6. Purchase any securities on margin, except that the Fund may obtain such
short-term credit as may be necessary for the clearance of purchases and sales
of portfolio securities, or make short sales of securities or maintain a short
position. (The deposit or payment by the Fund of initial or variation margin in
connection with futures contracts or options transactions is not considered the
purchase of a security on margin.)
7. Make loans to other persons (except as provided in (8) below), provided
that for purposes of this restriction the acquisition of a portion of publicly
distributed bonds, debentures, or other corporate debt securities and
investment in governmental and supranational obligations, short-term commercial
paper, certificates of deposit, bankers' acceptances and repurchase agreements
shall not be deemed to be the making of a loan.
C-28
8. Lend its portfolio securities in excess of 33 1/3% of its total assets,
taken at market value, provided that such loans shall be made in accordance
with the guidelines set forth in the Prospectus.
9. Issue senior securities, borrow money or pledge its assets except that the
Fund may borrow from a bank as a temporary measure for extraordinary or
emergency purposes or to meet redemptions in amounts not exceeding 10% (taken
at the market value) of its total assets and pledge its assets to secure such
borrowings. (For the purpose of this restriction, collateral arrangements with
respect to the writing of options, futures contracts, options on futures
contracts, and collateral arrangements with respect to initial and variation
margin are not deemed to be a pledge of assets and neither such arrangements
nor the purchase or sale of options, futures or related options are deemed to
be the issuance of a senior security.)
10. Invest in securities which cannot be readily resold because of legal or
contractual restrictions or which are not otherwise readily marketable if,
regarding all such securities, more than 10% of its net assets, taken at market
value, would be invested in such securities.
11. Underwrite securities of other issuers except insofar as the Fund may be
deemed an underwriter under the Securities Act of 1933 in selling portfolio
securities.
12. Purchase or sell interests in oil, gas or other mineral exploration or
development programs.
13. Invest in securities of corporate issuers having a record, together with
predecessors, of less than three years of continuous operation if more than 5%
of its total assets, taken at market value, would be invested in such
securities.
As described in restrictions (2) and (9) above, the Fund is subject to
limitations regarding investments in other investment companies and the
issuance of senior securities. The Fund has no present intention to invest more
than 5% of its total assets in other investment companies or to issue senior
securities, as defined in restriction (9), in amounts exceeding 5 percent of
its total assets.
C-29
MERRILL LYNCH GLOBAL HOLDINGS
As shown in the Prospectus:
Investment Restrictions
Among the more significant restrictions, the Company may not:
--Invest in the securities of any one issuer if, immediately after and
as a result of such investment the value of the holdings of the Company
in the securities of such issuer exceeds 5% of the Company's total
assets, taken at market value, except that such restriction shall not
apply to securities issued or guaranteed by the United States Government
or any of its agencies or instrumentalities or, with respect to 25% of
the Company's total assets, to securities issued or guaranteed by the
government of any country which is a member of the Organization for
Economic Co-operation and Development (OECD).
--Invest in the securities of any single issuer if, immediately after
and as a result of such investment, the Company owns more than 10% of the
outstanding voting securities of such issuer.
--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.
Nothing in the foregoing investment restrictions shall be deemed to prohibit
the Company from purchasing the securities of any issuer pursuant to the
exercise of subscription rights distributed to the Company by the issuer,
except that no such purchase may be made if as a result the Company will no
longer be a diversified investment company as defined in the Investment Company
Act or fail to meet the diversification requirements of the Internal Revenue
Code of 1986, as amended.
C-30
MERRILL LYNCH GLOBAL HOLDINGS
As shown in the Statement of Additional Information:
Investment Restrictions
The Company may not:
1. Make investments for the purpose of exercising control or management.
2. Purchase securities of other investment companies, except in connection
with a merger, consolidation, acquisition or reorganization, or by purchase in
the open market of securities of closed-end investment companies where no
underwriter or dealer's commission or profit, other than customary broker's
commission, is involved and only if immediately thereafter not more than 10% of
the Company's total assets, taken at market value, would be invested in such
securities.
3. Purchase or sell real estate; provided that the Company may invest in
securities secured by real estate or interests therein or issued by companies
which invest in real estate or interests therein.
4. Purchase or sell commodities or commodity contracts, except that the
Company may deal in forward foreign exchange between currencies of the
different countries in which it may invest and the Company may purchase or sell
stock index and currency options, stock index futures, financial futures and
currency futures contracts and related options on such futures.
5. Purchase any securities on margin, except that the Company may obtain such
short-term credit as may be necessary for the clearance of purchases and sales
of portfolio securities, or make short sales of securities or maintain a short
position. The payment by the Company of initial or variation margin in
connection with futures or related options transactions, if applicable, shall
not be considered the purchase of a security on margin. Also, engaging in
futures transactions and related options will not be deemed a short sale or
maintenance of a short position in securities.
6. Make loans to other persons (except as provided in (7) below); provided
that for purposes of this restriction the acquisition of bonds, debentures, or
other corporate debt securities and investment in Government obligations,
short-term commercial paper, certificates of deposit, bankers' acceptances and
repurchase agreements shall not be deemed to be the making of a loan.
7. Lend its portfolio securities in excess of 33 1/3% of its total assets,
taken at market value; provided that such loans shall be made in accordance
with the guidelines set forth below.
C-31
8. Borrow amounts in excess of 20% of its total assets, taken at market
value, and then only from banks as a temporary measure for extraordinary or
emergency purposes such as the redemption of Company shares. Utilization of
borrowings may exaggerate increases or decreases in an investment company's net
asset value. However, the Company will not purchase securities while borrowings
are outstanding except to exercise prior commitments and to exercise
subscription rights. (See restriction (9) below regarding the exclusion from
this restriction of arrangements with respect to options, futures contracts and
options on futures contracts.)
9. Mortgage, pledge, hypothecate or in any manner transfer (except as
provided in (7) above), as security for indebtedness, any securities owned or
held by the Company except as may be necessary in connection with borrowings
mentioned in (8) above, and then such mortgaging, pledging or hypothecating may
not exceed 10% of the Company's total assets, taken at market value. [In order
to comply with certain state statutes, the Company will not, as a matter of
operating policy, mortgage, pledge or hypothecate its portfolio securities to
the extent that at any time the percentage of the value of pledged securities
plus the maximum sales charge will exceed 10% of the value of the Company's
shares at the maximum offering price.] (For the purpose of this restriction and
restriction (8) above, collateral arrangements with respect to the writing of
options, futures contracts, options on futures contracts and collateral
arrangements with respect to initial and variation margin are not deemed to be
a pledge of assets, and neither such arrangements nor the purchase and sale of
options, futures or related options are deemed to be the issuance of a senior
security.)
10. Invest in securities which cannot be readily resold because of legal or
contractual restrictions or which are not otherwise readily marketable if,
regarding all such securities, more than 5% of its total assets, taken at
market value, would be invested in such securities.
11. Underwrite securities of other issuers except insofar as the Company may
be deemed an underwriter under the Securities Act of 1933 in selling portfolio
securities.
12. Purchase or sell interests in oil, gas or other mineral exploration or
development programs.
13. Invest in securities of issuers having a record, together with
predecessors, of less than three years of continuous operation if more than 5%
of its total assets, taken at market value, would be invested in such
securities.
C-32
Subject to investment restriction (7) above, the Company may from time to
time lend securities from its portfolio to brokers, dealers and financial
institutions such as banks and trust companies and receive collateral in cash
or securities issued or guaranteed by the U.S. Government which will be
maintained in an amount equal to at least 100% of the current market value of
the loaned securities. Such cash will be invested in short-term securities,
which will increase the current income of the Company. Such loans will not be
for more than 30 days and will be terminable at any time. The Company will have
the right to regain record ownership of loaned securities to exercise
beneficial rights such as voting rights, subscription rights and rights to
dividends, interest or other distributions. The Company may pay reasonable fees
to persons unaffiliated with the Company for services in arranging such loans.
With respect to the lending of portfolio securities, there is the risk of
failure by the borrower to return the securities involved in such transactions.
The Board of Directors has established the policy that the Company will not
purchase or retain the securities of any issuer if those individual officers
and directors of the Company, the Investment Adviser, or the Distributor each
owning beneficially more than 1/2 of 1% of the securities of such issuer may
own in the aggregate more than 5% of the securities of such issuer. Portfolio
securities of the Company may not be purchased from, sold or loaned to the
Investment Adviser, Nomura Capital Management, Inc. ("NCM") and Lombard Odier
International Portfolio Management Limited ("LOIPM") or their affiliates or any
of their directors, officers or employees, acting as principal.
The Company has adopted a policy pursuant to which it will not invest in
warrants if, at the time of acquisition, its investment in warrants, valued at
the lower of cost or market value, would exceed 5% of the Company's net assets;
included within such limitation, but not to exceed 2% of the Company's net
assets, are warrants which are not listed on the New York or American Stock
Exchanges. For purposes of this policy, warrants acquired by the Company in
units or attached to securities may be deemed to be without value. The Company
also has adopted a policy pursuant to which it will not invest in real estate
limited partnerships or in oil, gas or mineral leases. The policies set forth
in this paragraph may be amended without the approval of the Company's
shareholders.
The staff of the Securities and Exchange Commission has taken the position
that purchased OTC options and the assets used as cover for written OTC options
are illiquid securities. Therefore, the Company has adopted an investment
policy pursuant to which it will not purchase or sell OTC options if, as a
result of such transaction, the sum of the market value
C-33
of OTC options currently outstanding which are held by the Company, the market
value of the underlying securities covered by OTC call options currently
outstanding which were sold by the Company and margin deposits on the Company's
existing OTC options on futures contracts exceed 10% of the net assets of the
Company, taken at market value, together with all other assets of the Company
which are illiquid or are not otherwise readily marketable. However, if the OTC
option is sold by the Company to a primary U.S. government securities dealer
recognized by the Federal Reserve Bank of New York and if the Company has the
unconditional contractual right to repurchase such OTC option from the dealer
at a predetermined price, then the Company will treat as illiquid such amount
of the underlying securities as is equal to the repurchase price less the
amount by which the option is "in-the-money" (i.e., current market value of the
underlying securities minus the option's strike price). The repurchase price
with the primary dealers is typically a formula price which is generally based
on a multiple of the premium received for the option, plus the amount by which
the option is "in-the-money". This policy as to OTC options is not a
fundamental policy of the Company and may be amended by the Board of Directors
of the Company without the approval of the Company's shareholders. However, the
Company will not change or modify this policy prior to the change or
modification by the Securities and Exchange Commission staff of its position.
C-34
MERRILL LYNCH HEALTHCARE FUND, INC.
As shown in the Prospectus:
Investment Restrictions
Among the more significant restrictions, the Company may not:
--Invest in the securities of any single issuer, if immediately after
and as a result of such investment, the Company owns more than 10% of the
outstanding securities, or more than 10% of the outstanding voting
securities, of such issuer; or
--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.
Other fundamental policies include policies which limit investments in
securities which cannot be readily resold because of legal or contractual
restrictions or which are not otherwise readily marketable if, regarding all
such securities more than 10% of the Company's total assets, taken at market
value, would be invested in such securities. While the Company will not
purchase illiquid securities in an amount exceeding 10% of its total assets,
the Company may purchase, without regard to that limitation, securities that
are not registered under the Securities Act of 1933, as amended (the
"Securities Act") but that can be offered and sold to "qualified institutional
buyers" under Rule 144A under the Securities Act, provided that the Company's
Board of Directors continuously determines, based on the trading markets for
the specific Rule 144A security, that it is liquid. The Board of Directors has
determined to treat as liquid Rule 144A securities which are freely tradeable
in their primary markets offshore. The Board of Directors may adopt guidelines
and delegate to the Investment Adviser the daily function of determining and
monitoring liquidity of other restricted securities. The Board of Directors,
however, will retain sufficient oversight and be ultimately responsible for the
determinations.
Notwithstanding the above, because of certain state law requirements, the
Company may presently be precluded from purchasing restricted securities sold
and offered under Rule 144A, together with securities which are illiquid, in
excess of 10% of the Company's net assets. In addition, since it is not
possible to predict with assurance exactly how the market for restricted
securities sold and offered under Rule 144A will develop, the Board of
Directors will carefully monitor the Company's investments in these securities,
focusing on such factors, among others, as valuation, liquidity and
availability of information. This investment practice could have the effect of
increasing the level of illiquidity in the Company to the extent that qualified
institutional buyers become for a time uninterested in purchasing these
restricted securities.
C-35
MERRILL LYNCH HEALTHCARE FUND, INC.
As shown in the Statement of Additional Information:
Investment Restrictions
The Company may not:
1. Make investments for the purpose of exercising control or management.
2. Purchase securities of other investment companies, except in connection
with a merger, consolidation, acquisition or reorganization, or by purchase in
the open market of securities of closed-end investment companies where no
underwriter or dealer's commission or profit, other than customary broker's
commission, is involved and only if immediately thereafter not more than 10% of
the Company's total assets, taken at market value, would be invested in such
securities.
3. Purchase or sell real estate, provided that the Company may invest in
securities secured by real estate or interests therein or issued by companies
which invest in real estate or interests therein.
4. Purchase or sell commodities or commodity contracts, except that the
Company may deal in forward foreign exchange between currencies of the
different countries in which it may invest and the Company may purchase or sell
stock index and currency options, stock index futures, financial futures and
currency futures contracts and related options on such futures.
5. Purchase any securities on margin, except that the Company may obtain such
short-term credit as may be necessary for the clearance of purchase and sales
of portfolio securities, or make short sales of securities or maintain a short
position. The payment by the Company of initial or variation margin in
connection with futures or related options transactions, if applicable, shall
not be considered the purchase of a security on margin. Also, engaging in
futures transactions and related options will not be deemed a short sale or
maintenance of a short position in securities.
6. Make loans to other persons (except as provided in (7) below); provided
that for purposes of this restriction the acquisition of bonds, debentures, or
other corporate debt securities and investment in Government obligations,
short-term commercial paper, certificates of deposit, bankers' acceptances and
repurchase agreements shall not be deemed to be the making of a loan.
C-36
7. Lend its portfolio securities in excess of 10% of its total assets, taken
at market value, provided that such loans shall be made in accordance with the
guidelines set forth below.
8. Borrow amounts in excess of 10% of its total assets, taken at market
value, and then only from banks as a temporary measure for extraordinary or
emergency purposes such as the redemption of Company shares. Utilization of
borrowings may exaggerate increases or decreases in an investment company's net
asset value. However, the Company will not purchase securities while borrowings
are outstanding except to exercise prior commitments and to exercise
subscription rights. (See restriction (9) below regarding the exclusion from
this restriction of arrangements with respect to options, futures contracts and
options on futures contracts.)
9. Mortgage, pledge, hypothecate or in any manner transfer (except as
provided in (7) above), as security for indebtedness, any securities owned or
held by the Company except as may be necessary in connection with borrowings
mentioned in (8) above, and then such mortgaging, pledging or hypothecating may
not exceed 10% of the Company's total assets, taken at market value. (In order
to comply with certain state statutes, the Company will not, as a matter of
operating policy, mortgage, pledge or hypothecate its portfolio securities to
the extent that at any time the percentage of the value of pledged securities
plus the maximum sales charge will exceed 10% of the value of the Company's
shares at the maximum offering price.) (For the purpose of this restriction and
restriction (8) above, collateral arrangements with respect to the writing of
options, futures contracts, options on futures contracts, and collateral
arrangements with respect to initial and variation margin are not deemed to be
a pledge of assets, and neither such arrangements nor the purchase and sale of
options, futures or related options are deemed to be the issuance of a senior
security.)
10. Invest in securities which cannot be readily resold because of legal or
contractual restrictions or which are not otherwise readily marketable if,
regarding all such securities, more than 10% of its total assets, taken at
market value, would be invested in such securities.
11. Underwrite securities of other issuers, except insofar as the Company may
be deemed an underwriter under the Securities Act of 1933 in selling portfolio
securities.
12. Purchase or sell interests in oil, gas or other mineral exploration or
development programs.
C-37
Subject to investment restriction (7) above, the Company may from time to
time lend securities from its portfolio to brokers, dealers and financial
institutions such as banks and trust companies and receive collateral in cash
or securities issued or guaranteed by the U.S. Government which will be
maintained in an amount equal to at least 100% of the current market value of
the loaned securities. Such cash will be invested in short-term securities,
which will increase the current income of the Company. Such loans will not be
for more than 30 days and will be terminable at any time. The Company will have
the right to regain ownership of loaned securities to exercise beneficial
rights such as voting rights, subscription rights and rights to dividends,
interest or other distributions. The Company may pay reasonable fees to persons
unaffiliated with the Company for services in arranging such loans. With
respect to the lending of portfolio securities, there is the risk of failure by
the borrower to return the securities involved in such transactions.
With respect to investment restriction (10) above, while the Company will not
purchase illiquid securities in an amount exceeding 10% of its assets, the
Company may purchase, without regard to that limitation, and to the extent
permitted by applicable state law, securities that are not registered under the
Securities Act but that can be offered and sold to "qualified institutional
buyers" under Rule 144A under that Act, provided that the Company's Board of
Directors continuously determines, based on the trading markets for the
specific Rule 144A security, that it is liquid. The Board of Directors may
adopt guidelines regarding such securities which may be held by the Company and
delegate to the Investment Adviser the daily function of determining and
monitoring liquidity of such securities. The Board of Directors, however, will
retain oversight and is ultimately responsible for the determinations.
Since it is not possible to predict with assurance exactly how this market
for restricted securities sold and offered under Rule 144A will develop, the
Board of Directors will carefully monitor the Company's investments in these
securities, focusing on such factors, among others, as valuation, liquidity and
availability of information. This investment practice could have the effect of
increasing the level of illiquidity in the Company to the extent that qualified
institutional buyers became for a time uninterested in purchasing these
securities.
C-38
MERRILL LYNCH INTERNATIONAL EQUITY FUND
As shown in the Prospectus:
Investment Restrictions
Among the more significant restrictions, the Fund may not:
--Invest in the securities of any one issuer if, immediately after and
as a result of such investment, the value of the holdings of the Fund in
the securities of such issuer exceeds 5% of the Fund's total assets,
taken at market value, except that such restriction shall not apply to
securities issued or guaranteed by the U.S. Government or any of its
agencies or instrumentalities or, with respect to 25% of the Fund's total
assets, to securities issued or guaranteed by the government of any
country which is a member of the Organization for Economic Co-operation
and Development (OECD).
--Invest in the securities of any single issuer if, immediately after
and as a result of such investment, the Fund owns more than 10% of the
outstanding voting securities of such issuer.
--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.
Nothing in the foregoing investment restrictions shall be deemed to prohibit
the Fund from purchasing the securities of any issuer pursuant to the exercise
of subscription rights distributed to the Fund by the issuer, except that no
such purchase may be made if as a result the Fund will no longer be a
diversified investment company as defined in the Investment Company Act or fail
to meet the diversification requirements of the Internal Revenue Code of 1986,
as amended.
C-39
MERRILL LYNCH INTERNATIONAL EQUITY FUND
As shown in the Statement of Additional Information:
Investment Restrictions
The Fund may not:
1. Make investments for the purpose of exercising control or management.
2. Purchase securities of other investment companies, except in connection
with a merger, consolidation, acquisition or reorganization, or by purchase in
the open market of securities of closed-end investment companies where no
underwriter or dealer's commission or profit, other than customary broker's
commission, is involved and only if immediately thereafter not more than (i) 3%
of the total outstanding voting stock of such company is owned by the Fund,
(ii) 5% of the Fund's total assets, taken at market value, would be invested in
any one such company, or (iii) 10% of the Fund's total assets, taken at market
value, would be invested in all such securities.
3. Purchase or sell real estate; provided that the Fund may invest in
securities secured by real estate or interests therein or issued by companies
which invest in real estate or interests therein.
4. Purchase or sell commodities or commodity contracts, except that the Fund
may deal in forward foreign exchange between currencies of the different
countries in which it may invest and that the Fund may purchase or sell stock
index and currency options, stock index futures, financial futures and currency
futures contracts and related options on such futures.
5. Purchase any securities on margin, except that the Fund may obtain such
short-term credit as may be necessary for the clearance of purchases and sales
of portfolio securities, or make short sales of securities or maintain a short
position. The payment by the Fund of initial or variation margin in connection
with futures or related options transactions, if applicable, shall not be
considered the purchase of a security on margin. Also, engaging in futures
transactions and related options will not be deemed a short sale or maintenance
of a short position in securities.
6. Make loans to other persons (except as provided in (7) below); provided
that for purposes of this restriction the acquisition of bonds, debentures, or
other corporate debt securities and investment in government obligations,
short-term commercial paper, certificates of deposit, bankers' acceptances and
repurchase agreements shall not be deemed to be the making of a loan.
C-40
7. Lend its portfolio securities in excess of 33 1/3% of its total assets,
taken at market value; provided that such loans shall be made in accordance
with the guidelines set forth below.
8. Borrow amounts in excess of 20% of its total assets, taken at market
value, and then only from banks as a temporary measure for extraordinary or
emergency purposes such as the redemption of Fund shares. Utilization of
borrowings may exaggerate increases or decreases in an investment company's net
asset value. However, the Fund will not purchase securities while borrowings
exceed 5% of its total assets, except to honor prior commitments and to
exercise subscription rights when outstanding borrowings have been obtained
exclusively for settlements of other securities transactions. (See restriction
(9) below regarding the exclusion from this restriction of arrangements with
respect to options, futures contracts and options on futures contracts.)
9. Mortgage, pledge, hypothecate or in any manner transfer (except as
provided in (7) above), as security for indebtedness, any securities owned or
held by the Fund except as may be necessary in connection with borrowings
mentioned in (8) above, and then such mortgaging, pledging or hypothecating may
not exceed 10% of the Fund's total assets, taken at market value. (For the
purpose of this restriction and restriction (8) above, collateral arrangements
with respect to the writing of options, futures contracts, options on futures
contracts, and collateral arrangements with respect to initial and variation
margin are not deemed to be a pledge of assets, and neither such arrangements
nor the purchase and sale of options, futures or related options are deemed to
be the issuance of a senior security.)
10. Invest in securities which cannot be readily resold because of legal or
contractual restrictions or which are not otherwise readily marketable if,
regarding all such securities, more than 15% of its total assets, taken at
market value, would be invested in such securities.
11. Underwrite securities of other issuers except insofar as the Fund may be
deemed an underwriter under the Securities Act of 1933, as amended, in selling
portfolio securities.
12. Purchase or sell interests in oil, gas or other mineral exploration or
development programs.
The Board of Trustees has established the policy that the Fund will not
purchase or retain the securities of any issuer if those individual officers
and Trustees of the Fund, the officers and directors of the Investment Adviser,
or the Distributor each owning beneficially more than one-half of
C-41
1% of the securities of such issuer own in the aggregate more than 5% of the
securities of such issuer. Portfolio securities of the Fund may not be
purchased from, sold or loaned to the Investment Adviser or its affiliates or
any of their directors, officers or employees, acting as principal. The Board
of Trustees has also established the policy that the Fund will not invest in
securities of issuers having a record, together with predecessors, of less than
three years of continuous operation if more than 5% of its total assets, taken
at market value, would be invested in such securities. The Fund has adopted a
policy pursuant to which it will not invest in warrants if, at the time of
acquisition, its investments in warrants, valued at the lower of cost or market
value, would exceed 5% of the Fund's net assets; included within such
limitation, but not to exceed 2% of the Fund's net assets, are warrants which
are not listed on the New York or American Stock Exchanges. For purposes of
this policy, warrants acquired by the Fund in units or attached to securities
may be deemed to be without value. The Fund also has adopted a policy pursuant
to which it will not invest in real estate limited partnerships or in oil, gas
or mineral leases. In order to comply with certain state statutes, the Fund
will not, as a matter of operating policy, mortgage, pledge or hypothecate its
portfolio securities to the extent that at any time the percentage of the value
of pledged securities plus the maximum sales charge will exceed 10% of the
value of the Fund's shares at the maximum offering price. Under the law of
certain states, the Fund presently is limited with respect to the investments
described in investment restriction (10) above to 10% of its net assets. The
policies set forth in this paragraph may be amended without the approval of the
Fund's shareholders.
The staff of the Securities and Exchange Commission has taken the position
that purchased over-the-counter ("OTC") options and the assets used as a cover
for written OTC options are illiquid securities. Therefore, the Fund has
adopted an investment policy pursuant to which it will not purchase or sell OTC
options if, as a result of any such transaction, the sum of the market value of
OTC options currently outstanding which are held by the Fund, the market value
of the underlying securities covered by OTC call options currently outstanding
which were sold by the Fund and margin deposits on the Fund's existing OTC
options on futures contracts exceed 15% of the total assets of the Fund, taken
at market value, together with all other assets of the Fund which are illiquid
or are not otherwise readily marketable. (Under the law of certain states, the
Fund presently is limited with respect to such investments to 10% of its net
assets.) However, if the OTC option is sold by the Fund to a primary U.S.
Government securities dealer recognized by the Federal Reserve Bank of New York
and if the Fund has the unconditional contractual right to repurchase such OTC
option from the dealer at a predetermined price, then the Fund will
C-42
treat as illiquid such amount of the underlying securities as is equal to the
repurchase price less the amount by which the option is "in-the-money" (i.e.,
current market value of the underlying securities minus the option's strike
price). The repurchase price with the primary dealers is typically a formula
price which is generally based on a multiple of the premium received for the
option, plus the amount by which the option is "in-the-money". This policy as
to OTC options is not a fundamental policy of the Fund and may be amended by
the Board of Trustees 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 Securities and Exchange Commission staff of
its position.
C-43
MERRILL LYNCH LATIN AMERICA FUND, INC.
As shown in the Prospectus:
Investment Restrictions
Among its fundamental policies, the Fund may not invest more than 25% of its
total assets, taken at market value at the time of each investment, in the
securities of issuers of any particular industry (including the securities
issued or guaranteed by the government of any one foreign country, but
excluding the U.S. Government and its agencies or instrumentalities). Other
fundamental policies include policies which (i) limit investments in securities
which are (a) subject to material legal restrictions on repatriation of assets
or (b) cannot be readily resold because of legal or contractual restrictions or
which are not otherwise readily marketable, including repurchase agreements and
purchase and sale contracts maturing in more than seven days, if, regarding all
such securities, more than 10% of its net assets, taken at market value would
be invested in such securities and (ii) restrict the issuance of senior
securities and limit bank borrowings, except that the Fund may borrow amounts
of up to 20% of its assets for extraordinary purposes or to meet redemptions.
While the Fund will not purchase illiquid securities in an amount exceeding
10% of its net assets, the Fund may purchase, without regard to that
limitation, securities that are not registered under the Securities Act of
1933, as amended (the "Securities Act"), but that can be offered and sold to
"qualified institutional buyers" under Rule 144A under the Securities Act,
provided that the Fund's Board of Directors continuously determines, based on
the trading markets for the specific Rule 144A security, that it is liquid. The
Board of Directors may adopt guidelines and delegate to the Manager the daily
function of determining and monitoring liquidity of restricted securities. The
Board of Directors, however, will retain sufficient oversight and be ultimately
responsible for the determinations.
Since it is not possible to predict with assurance exactly how the market for
restricted securities sold and offered under Rule 144A will develop, the Board
of Directors will carefully monitor the Fund's investments in these securities,
focusing on such factors, among others, as valuation, liquidity and
availability of information. This investment practice could have the effect of
increasing the level of illiquidity in the Fund to the extent that qualified
institutional buyers become for a time uninterested in purchasing these
restricted securities.
The Fund will not purchase securities while borrowings exceed 5% of its total
assets, except (a) to honor prior commitments or (b) to exercise subscription
rights where outstanding borrowings have been obtained
C-44
exclusively for settlements of other securities transactions. The purchase of
securities while borrowings are outstanding will have the effect of leveraging
the Fund. Such leveraging or borrowing increases the Fund's exposure to capital
risk, and borrowed funds are subject to interest costs which will reduce net
income.
Although not a fundamental policy, the Fund will include OTC options and the
securities underlying such options in calculating the amount of its total
assets subject to the limitation set forth in clause (i) above. However, as
discussed above, the Fund may treat the securities it uses as cover for written
OTC options as liquid and, therefore, will exclude such securities from this
restriction, provided it follows a specified procedure. The Fund will not
change or modify this policy prior to the change or modification by the
Securities and Exchange Commission staff of its position regarding OTC options,
as discussed above.
C-45
MERRILL LYNCH LATIN AMERICA FUND, INC.
As shown in the Statement of Additional Information:
Investment Restrictions
The Fund may not:
1. Invest more than 10% of its assets, taken at market value at the time of
each investment, in the securities of issuers in any particular industry
(including the securities issued or guaranteed by the government of any one
foreign country, but 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 securities of other investment companies, except in connection
with a merger, consolidation, acquisition or reorganization, or by purchase of
securities of closed-end investment companies and only if immediately
thereafter not more than (i) 3% of the total outstanding voting stock of such
company is owned by the Fund, (ii) 5% of the Fund's total assets, taken at
market value, would be invested in any one such company, or (iii) 10% of the
Fund's total assets, taken at market value, would be invested in such
securities. Investments by the Fund in wholly-owned investment entities created
under the laws of certain countries will not be deemed an investment in other
investment companies.
4. Purchase or sell real estate (including real estate limited partnerships),
except that the Fund may invest in securities secured by real estate or
interests therein or issued by companies, including real estate investment
trusts, which invest in real estate or interests therein.
5. Purchase any securities on margin, except that the Fund may obtain such
short-term credit as may be necessary for the clearance of purchases and sales
of portfolio securities. The payment by the Fund of initial or variation margin
in connection with futures or related options transactions, if applicable,
shall not be considered the purchase of a security on margin.
6. Make short sales of securities or maintain a short position.
7. Make loans to other persons, except that the acquisition of bonds,
debentures or other corporate debt securities and investment in government
obligations, short-term commercial paper, certificates of
C-46
deposit, bankers' acceptances and repurchase agreements and purchase and sale
contracts 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 (8) below.
8. Lend its portfolio securities in excess of 33 1/3% of its total assets,
taken at market value; provided that such loans may only be made in accordance
with the guidelines set forth above.
9. Issue senior securities, borrow money or pledge its assets in excess of
20% of its total assets taken at market value (including the amount borrowed)
and then only from a bank as a temporary measure for extraordinary or emergency
purposes including to meet redemptions or to settle securities transactions.
Usually only "leveraged" investment companies may borrow in excess of 5% of
their assets; however, the Fund will not borrow to increase income but only as
a temporary measure for extraordinary or emergency purposes, including to meet
redemptions or to settle securities transactions which may otherwise require
untimely dispositions of Fund securities. The Fund will not purchase securities
while borrowings exceed 5% of total assets except (a) to honor prior
commitments or (b) to exercise subscription rights where outstanding borrowings
have been obtained exclusively for settlements of other securities
transactions. (For the purpose of this restriction, collateral arrangements
with respect to the writing of options, and, if applicable, futures, contracts,
options on futures, contracts, and collateral arrangements with respect to
initial and variation margin are not deemed to be a pledge of assets and
neither such arrangements nor the purchase or sale of futures or related
options are deemed to be the issuance of a senior security.)
10. Invest in securities which (i) are subject to material legal restrictions
on repatriation of assets or (ii) cannot be readily resold because of legal or
contractual restrictions or which are otherwise not readily marketable,
including repurchase agreements and purchase and sale contracts maturing in
more than seven days, if at the time of acquisition more than 10% of its total
assets would be invested in such securities. While the Fund will not purchase
illiquid securities and assets subject to material legal restrictions on
repatriation in an amount exceeding 10% of its net assets, the Fund may
purchase, without regard to that limitation, securities that are not registered
under the Securities Act of 1933 (the "Securities Act"), but that can be
offered and sold to "qualified institutional buyers" under Rule 144A under the
Securities Act, provided that the Fund's Board of Directors continuously
determines, based on the trading markets for the specific Rule 144A security,
that it is liquid.
C-47
11. Underwrite securities of other issuers except insofar as the Fund
technically may be deemed an underwriter in selling portfolio securities.
12. Purchase or sell interests (including leases) in oil, gas or other
mineral exploration or development programs, except that the Fund may invest in
securities issued by companies that engage in oil, gas or other mineral
exploration or development activities.
Additional investment restrictions adopted by the Fund, which may be changed
by the Board of Directors, provide that the Fund may not:
(i) Invest in warrants if at the time of acquisition its investments in
warrants, valued at the lower of cost or market value, would exceed 5% of
the Fund's net assets; included within such limitation, but not to exceed
2% of the Fund's net assets, are warrants which are not listed on the New
York or American Stock Exchange. For purposes of this restriction,
warrants acquired by the Fund in units or attached to securities may be
deemed to be without value.
(ii) Purchase or sell commodities or commodity contracts, except that
the Fund may deal in forward foreign exchange between currencies of the
different countries in which it may invest and purchase and sell stock
index and currency options, stock index futures, financial futures and
currency futures contracts and related options on such futures.
(iii) Invest in securities of corporate issuers having a record,
together with predecessors, of less than three years of continuous
operation, if more than 5% of its total assets, taken at market value,
would be invested in such securities.
(iv) Write, purchase or sell puts, calls, straddles, spreads or
combinations thereof, except to the extent described in the Fund's
Prospectus and in this Statement of Additional Information, as amended
from time to time.
(v) Purchase or retain the securities of any issuer, if those
individual officers and directors of the Fund, the officers and general
partner of the Manager, the directors of such general partner or any
subsidiary thereof each owning beneficially more than 1/2 of 1% of the
securities of such issuer own in the aggregate more than 5% of the
securities of such issuer.
(vi) Invest more than 10% of its net assets in securities of real
estate investment trusts.
The staff of the Securities and Exchange Commission (the "Commission") has
taken the position that purchased OTC options and the assets used as cover for
written OTC options are illiquid securities.
C-48
Therefore, the Fund has adopted an investment policy pursuant to which it will
not purchase or sell OTC options if, as a result of such transaction, the sum
of the market value of OTC options currently outstanding which are held by the
Fund, the market value of the underlying securities covered by OTC call options
currently outstanding which were sold by the Fund and margin deposits on the
Fund's existing OTC options on futures contracts exceeds 10% of the total
assets of the Fund, taken at market value, together with all other assets of
the Fund which are illiquid or are otherwise not readily marketable. However,
if the OTC option is sold by the Fund to a primary U.S. Government securities
dealer recognized by the Federal Reserve Bank of New York and the Fund has the
unconditional contractual right to repurchase such OTC option from the dealer
at a predetermined price, then the Fund will treat as illiquid such amount of
the underlying securities equal to the repurchase price less the amount by
which the option is "in-the-money" (i.e., current market value of the
underlying securities minus the option's strike price). The repurchase price
with the primary dealers is typically a formula price which is generally based
on a multiple of the premium received for the option, plus the amount by which
the option is "in-the-money". This policy as to OTC options is not a
fundamental policy of the Fund and may be amended by the Directors of the Fund
without the approval of the Fund's shareholders. However, the Fund will not
change or modify this policy prior to the change or modification by the
Commission staff of its position.
C-49
MERRILL LYNCH PACIFIC FUND, INC.
As shown in the Prospectus:
Investment Restrictions
The Fund has adopted a number of restrictions and policies relating to the
investment of its assets and its activities which are fundamental policies and
may not be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities as defined in the Investment Company Act.
Among the more significant restrictions, the Fund may not:
--Invest in securities of any one issuer (other than the Government of
Japan, the United States Government, their agencies and
instrumentalities) if immediately after and as a result of such
investment the market value of the holdings of the Fund in the securities
of such issuer exceeds 5% of the Fund's total assets, taken at market
value;
--Invest in the securities of any single issuer, if immediately after
and as a result of such investment, the Fund owns more than 10% of the
outstanding securities, or more than 10% of the outstanding voting
securities, of such issuer; or
--Invest more than 25% of its total assets (taken at market value at
the time of each investment) in the securities of issuers in any
particular industry;
provided, however, that nothing in the foregoing investment restrictions shall
be deemed to prohibit the Fund from purchasing the securities of any issuer
pursuant to the exercise of subscription rights distributed to the Fund by the
issuer, except that no such purchase may be made if as a result the Fund will
no longer be a diversified investment company as defined in the Investment
Company Act.
The Fund may from time to time lend securities from its portfolio, with a
value not exceeding 20% of its total assets, to brokers, dealers and financial
institutions and receive collateral in cash (or cash equivalents consisting of
securities issued or guaranteed by the governments of the U.S. or Japan or
other Far Eastern or Western Pacific countries or their agencies or
instrumentalities) which will be maintained in an amount equal to at least 100%
of the current market value of the loaned securities. During the period of the
loan, the Fund receives income on the loaned securities and a loan fee and
thereby increases the current income of the Fund. With respect to the lending
of portfolio securities, there is the risk of the failure of the parties
involved to return the securities involved in such transactions in which event
the Fund may suffer time delays and incur costs or possible losses in
connection with such transactions.
C-50
MERRILL LYNCH PACIFIC FUND, INC.
As shown in the Statement of Additional Information:
Investment Restrictions
The Fund may not:
1. Make investments for the purpose of exercising control or management.
2. Purchase securities of other investment companies, except in connection
with a merger, consolidation, acquisition or reorganization, or by purchase in
the open market of securities of closed-end investment companies where no
underwriter's or dealer's commission or profit, other than customary broker's
commission, is involved and only if immediately thereafter not more than (i) 3%
of the total outstanding voting stock of such company is owned by the Fund,
(ii) 5% of the Fund's total assets, taken at market value, would be invested in
any one such company, or (iii) 10% of the Fund's total assets, taken at market
value, would be invested in such securities.
3. Purchase or sell real estate; provided that the Fund may invest in
securities secured by real estate or interests therein or issued by companies
which invest in real estate or interests therein.
4. Purchase or sell commodities or commodity contracts, except that the Fund
may deal in forward foreign exchange between currencies of the different
countries in which it may invest and the Fund may purchase or sell stock index
and currency options, stock index futures, interest rate futures and currency
futures contracts and related options on such futures.
5. Purchase securities on margin (except for short-term credit necessary for
clearance of portfolio transactions) or sell securities short or write, sell or
buy puts or calls, or any combination thereof. [Except as otherwise discussed
under "Investment Objective and Policies--Hedging Techniques" in the Prospectus
and herein.]
6. Make loans to other persons (except as provided in (11) below); provided
that for purposes of this restriction the acquisition of bonds, debentures, or
other corporation debt securities and investment in government obligations,
short-term commercial paper, certificates of deposit and bankers' acceptances
shall not be deemed to be the making of a loan (the acquisition of bonds,
debentures or other corporate debt securities which are not publicly
distributed is considered to be the making of a loan under the Investment
Company Act of 1940).
C-51
7. Borrow amounts in excess of 5% of its total assets, taken at acquisition
cost or market value, whichever is lower, and then only from banks as a
temporary measure for extraordinary or emergency purposes. (See restriction (8)
below regarding the exclusion from this restriction of arrangements with
respect to options, futures contracts and options on futures contracts.)
8. Mortgage, pledge, hypothecate or in any manner transfer, as security for
indebtedness, any securities owned or held by the Fund except as may be
necessary in connection with borrowings mentioned in (7) above, and then such
mortgaging, pledging or hypothecating may not exceed 15% of the Fund's total
assets, taken at market value. [In order to comply with certain statutes, the
Fund will not, as a matter of operating policy, mortgage, pledge or hypothecate
its portfolio securities to the extent that at any time the percentage of the
value of pledged securities plus the maximum sales charge will exceed 10% of
the value of the Fund's shares at the maximum offering price.] (For the purpose
of this restriction and restriction (7) above, collateral arrangements with
respect to the writing of options, futures contracts, options on futures
contracts, and collateral arrangements with respect to initial and variation
margins are not deemed to be a pledge of assets, and neither such arrangements
nor the purchase and sale of options, futures or related options are deemed to
be the issuance of a senior security.)
9. Invest in securities which cannot be readily resold to the public because
of legal or contractual restrictions or for which no readily available market
exists or in securities of issuers having a record, together with predecessors,
of less than three years of continuous operation if, regarding all such
securities, more than 5% of its total assets, taken at market value, would be
invested in such securities.
10. Underwrite securities of other issuers except insofar as the Fund may be
deemed an underwriter under the Securities Act of 1933 in selling portfolio
securities.
11. Lend its portfolio securities, except that it may lend up to 20% of its
total assets, taken at market value, in accordance with the guidelines set
forth below.
The staff of the Securities and Exchange Commission has taken the position
that purchased OTC options and the assets used as cover for written OTC options
are illiquid securities. Therefore, the Fund has adopted an investment policy
pursuant to which it will not purchase or sell OTC options (including OTC
options on futures contracts) if, as a result of such transactions, the sum of
the market value of OTC options currently outstanding which are held by the
Fund, the market value of the
C-52
underlying securities covered by OTC call options currently outstanding which
were sold by the Fund and margin deposits on the Fund's existing OTC options on
futures contracts exceeds 5% of the total assets of the Fund, taken at market
value, together with all other assets of the Fund which are illiquid or are not
otherwise readily marketable. However, if an OTC option is sold by the Fund to
a primary U.S. Government securities dealer recognized by the Federal Reserve
Bank of New York and if the Fund has the unconditional contractual right to
repurchase such OTC option from the dealer at a predetermined price, then the
Fund will treat as illiquid such amount of the underlying securities as is
equal to the repurchase price less the amount by which the option is "in-the-
money" (i.e., current market value of the underlying securities minus the
option's strike price). The repurchase price with the primary dealers is
typically a formula price which is generally based on a multiple of the premium
received for the option, plus the amount by which the option is "in-the-money".
This policy is not a fundamental policy of the Fund and may be amended by the
Board of Directors of the Fund without the approval of the Fund's shareholders.
The Fund will not change or modify this policy, however, prior to the change or
modification by the Securities and Exchange Commission staff of its position.
Subject to investment restriction (11) above, the Fund may from time to time
lend securities from its portfolio to brokers, dealers and financial
institutions and receive collateral in cash (or cash equivalents consisting of
securities issued or guaranteed by the governments of the U.S. or Japan or
other Far Eastern or Western Pacific countries or their agencies or
instrumentalities) which will be maintained in an amount equal to at least 100%
of the current market value of the loaned securities. During the period of the
loan, the Fund receives income on the loaned securities and a loan fee and
thereby increases the current income of the Fund. Such loans will be terminable
at any time. The Fund will have the right to regain record ownership of loaned
securities to exercise beneficial rights such as voting rights, subscription
rights and rights to dividends, interest or other distributions. The Fund may
pay reasonable fees to persons unaffiliated with the Fund for services in
arranging such loans.
The Board of Directors has established the policy that the Fund will not
purchase or retain the securities of any issuer if those individual officers
and directors of the Fund, the officers and general partner of the Manager, the
directors of such general partner or the officers and directors of the
Distributor each owning beneficially more than 1/2 of 1% of the securities of
such issuer own in the aggregate more than 5% of the securities of such issuer.
Portfolio securities of the Fund may not be purchased from, sold or loaned to
the Manager or its affiliates or any of its directors, general partners,
officers or employees, acting as principal.
C-53
MERRILL LYNCH SHORT-TERM GLOBAL INCOME FUND, INC.
As shown in the Prospectus:
Investment Restrictions
Among its fundamental policies, the Fund may not invest in securities which
cannot be readily resold because of legal or contractual restrictions or which
are not otherwise readily marketable, including repurchase agreements and
purchase and sale contracts maturing in more than seven days, if, regarding all
such securities, more than 10% of its net assets, taken at market value, would
be invested in such securities. Other fundamental policies include policies
which (i) prohibit investment of more than 25% of the Fund's total assets
(taken at market value at the time of each investment) in the securities of
issuers in any particular industry (other than securities issued or guaranteed
by the U.S. Government, or by its agencies or instrumentalities), except that,
under normal circumstances, the Fund will invest more than 25% of its total
assets in issuers in the banking industry, (ii) limit investments in securities
of other investment companies, except in connection with certain specified
transactions and with respect to investments of up to 10% of the Fund's total
assets in securities of closed-end investment companies and (iii) restrict the
issuance of senior securities and limit bank borrowings except that the Fund
may borrow amounts of up to 10% of its assets for extraordinary or emergency
purposes, including to meet redemptions or to settle securities transactions.
The Fund will not purchase securities while borrowings exceed 5% of its total
assets, except to honor prior commitments.
C-54
MERRILL LYNCH SHORT-TERM GLOBAL INCOME FUND, INC.
As shown in the Statement of Additional Information:
Investment Restrictions
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 except that, under normal circumstances, the Fund will
invest more than 25% of its total assets in issuers in the banking industry.
This restriction will not apply to securities issued or guaranteed by the U.S.
Government or by its agencies or instrumentalities, but will apply to
obligations of a foreign government unless the Securities and Exchange
Commission permits their exclusion; (2) invest more than 5% of its total assets
(taken at market value at the time of each investment) in unsecured securities
of corporate issuers which, including predecessors, controlling persons,
general partners and guarantors, have a record of less than three years'
continuous business operation or relevant business experience (provided that
such restriction shall not apply to issuers of mortgage-backed and receivable
backed bonds, notes or pass-through certificates); (3) make investments for the
purpose of exercising control or management; (4) purchase securities of other
investment companies, except in connection with a merger, consolidation,
acquisition or reorganization or by purchase of securities of closed-end
investment companies and only if immediately thereafter not more than (i) 3% of
the total outstanding voting stock of any one such company is owned by the
Fund, (ii) 5% of the Fund's total assets, taken at market value, would be
invested in any one such company, or (iii) 10% of the Fund's total assets,
taken at market value, would be invested in such companies' securities.
Investments by the Fund in wholly-owned investment entities created under the
laws of certain countries for purposes of investing in such countries will not
be deemed an investment in other investment companies; (5) purchase or sell
real estate (provided that such restriction shall not apply to securities
secured by real estate or interests therein or issued by companies which invest
in real estate or interests therein), commodities or commodity contracts
(except that the Fund may deal in forward foreign exchange between currencies
and the Fund may purchase and sell interest rate and currency options, futures
contracts and related options and indexed notes and commercial paper), or
interests or leases in oil, gas or other mineral exploration or development
programs (provided that such restriction shall not apply to securities issued
by companies which invest in oil, gas or other mineral exploration or
development programs); (6) purchase any securities on margin, except for use of
short-term credit necessary for clearance of purchases and sales of portfolio
securities (the deposit or payment by the Fund of initial or variation margin
in connection with futures contracts or options
C-55
transactions is not considered the purchase of a security on margin); (7) make
short sales of securities or maintain a short position or invest in put, call,
straddle or spread options (this restriction does not apply to interest rate
and currency options and options on futures contracts); (8) make loans to other
persons, provided that the purchase of a portion of an issue of bonds,
debentures or other debt securities and investment in governmental and
supranational obligations, short-term commercial paper, certificates of
deposit, bankers' acceptances and repurchase agreements and purchase and sale
contracts shall not be deemed to be the making of a loan; (9) borrow amounts in
excess of 10% of its total assets taken at market value (including the amount
borrowed), and then only from banks as a temporary measure for extraordinary or
emergency purposes, including to meet redemptions or to settle securities
transactions. Usually only "leveraged" investment companies may borrow in
excess of 5% of their assets; however, the Fund will not borrow to increase
income but only to meet redemption requests or to settle securities
transactions which might otherwise require untimely disposition of portfolio
securities. The Fund will not purchase securities while borrowings exceed 5% of
total assets except to honor prior commitments. (For the purpose of this
restriction, collateral arrangements with respect to the writing of options,
and, if applicable, futures contracts, options on futures contracts, and
collateral arrangements with respect to initial and variation margin are not
deemed to be a pledge of assets and neither such arrangements nor the purchase
or sale of futures or related options are deemed to be the issuance of a senior
security); (10) mortgage, pledge, hypothecate or in any manner transfer as
security for indebtedness any securities owned or held by the Fund except as
may be necessary in connection with borrowings mentioned in (9) above, and then
such mortgaging, pledging or hypothecating may not exceed 10% of its total
assets, taken at market value, or except as may be necessary in connection with
options, futures and related options transactions; (11) invest in securities
which cannot be readily resold or are illiquid because of legal or contractual
restrictions or are not otherwise readily marketable if, regarding all such
securities, more than 10% of its net assets (taken at market value), would be
invested in such securities; and (12) act as an underwriter of securities,
except to the extent that the Fund may technically be deemed an underwriter
when engaged in the activities described in (11) above or insofar as the Fund
may be deemed an underwriter by virtue of selling portfolio securities.
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. To comply with tax requirements for qualification as a "regulated
investment company", however, the Fund's investments will be
C-56
limited in a manner such that, at the close of each quarter of each fiscal
year, (a) no more than 25% of the Fund's total assets are invested in the
securities of a single issuer, and (b) with regard to at least 50% of the
Fund's total assets, no more than 5% of its total assets are invested in the
securities of a single issuer. For purposes of this restriction, the Fund will
regard each country and each political subdivision, agency or instrumentality
of such country and each multinational agency of which such country is a member
and each public authority which issues securities on behalf of a private entity
as a separate issuer, except that if the security is backed only by the assets
and revenues of a non-government entity, then the entity with the ultimate
responsibility for the payment of interest and principal may be regarded as the
sole issuer. In addition, the Fund will regard the issuer of participations in,
or bonds and notes backed by, pools of mortgage, credit card, automobile or
other types of receivables as being the limited purpose corporation or trust
issuing the participation certificates, bonds or notes as well as any other
entity that is or may be responsible for providing full payment on the
underlying obligations in the pool. These tax-related limitations may be
changed by the Board of Directors of the Fund to the extent necessary to comply
with changes to the Federal tax requirements. A fund which elects to be
classified as "diversified" under the Investment Company Act must satisfy the
foregoing 5% and 10% requirements with respect to 75% of its total assets. To
the extent that the Fund assumes large positions in the securities of a small
number of issuers, the Fund's net asset value may fluctuate to a greater extent
than that of a diversified investment company as a result of changes in the
financial condition or in the market's assessment of the issuers.
The staff of the Securities and Exchange Commission (the "Commission") has
taken the position that purchased OTC options and the assets used as cover for
written OTC options are illiquid securities. Therefore, the Fund has adopted an
investment policy pursuant to which it will not purchase or sell OTC options
if, as a result of such transaction, the sum of the market value of OTC options
currently outstanding which are held by the Fund, the market value of the
underlying securities covered by OTC call options currently outstanding which
were sold by the Fund and margin deposits on the Fund's existing OTC options on
futures contracts exceed 10% of the net assets of the Fund, taken at market
value, together with all other assets of the Fund which are illiquid or are not
otherwise readily marketable. However, if the OTC option is sold by the Fund to
a primary U.S. Government securities dealer recognized by the Federal Reserve
Bank of New York and if the Fund has the unconditional contractual right to
repurchase such OTC option from the dealer at a predetermined price, then the
Fund will treat as illiquid such amount of
C-57
the underlying securities as is equal to the repurchase price less the amount
by which the option is "in-the-money" (i.e., current market value of the
underlying securities minus the option's strike price). The repurchase price
with the primary dealers is typically a formula price which is generally based
on a multiple of the premium received for the option, plus the amount by which
the option is "in-the-money". This policy as to OTC options is not a
fundamental policy of the Fund and may be amended by the Directors of the Fund
without the approval of the Fund's shareholders. However, the Fund will not
change or modify this policy prior to the change or modification by the
Commission staff of its position.
The Directors have established the policy that the Fund will not purchase or
retain the securities of any issuer, if those individual officers and directors
of the Fund, the officers and general partner of the Investment Adviser, the
directors of such general partner or the directors and officers of the
Distributor each owning beneficially more than 1/2 of 1% of the securities of
each issuer own in the aggregate more than 5% of the securities of such issuer.
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,
general partners, officers, or employees, acting as principal, unless pursuant
to a rule or exemptive order under the Investment Company Act.
C-58
MERRILL LYNCH TECHNOLOGY FUND, INC.
As shown in the Prospectus:
Investment Restrictions
Among the more significant restrictions, the Company may not 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. Other fundamental
policies include policies which limit investments in securities which cannot be
readily resold because of legal or contractual restrictions or which are not
otherwise readily marketable if, regarding all such securities, more than 10%
of the Company's net assets, taken at market value, would be invested in such
securities.
While the Company will not purchase illiquid securities in an amount
exceeding 10% of its net assets, the Company may purchase, without regard to
that limitation, securities that are not registered under the Securities Act of
1933, as amended (the "Securities Act"), but that can be offered and sold to
"qualified institutional buyers" under Rule 144A under the Securities Act,
provided that the Company's Board of Directors continuously determines, based
on the trading markets for the specific Rule 144A security, that it is liquid.
The Board of Directors has determined to treat as liquid Rule 144A securities
which are freely tradeable in their primary markets offshore. The Board of
Directors may adopt guidelines and delegate to the Investment Adviser the daily
functions of determining and monitoring liquidity of other restricted
securities. The Board of Directors, however, will retain sufficient oversight
and be ultimately responsible for the determinations.
Since it is not possible to predict with assurance exactly how the market for
restricted securities sold and offered under Rule 144A will develop, the Board
of Directors will carefully monitor the Company's investments in these
securities, focusing on such factors, among others, as valuation, liquidity and
availability of information. This investment practice could have the effect of
increasing the level of illiquidity in the Company to the extent that qualified
institutional buyers become for a time uninterested in purchasing these
restricted securities.
Nothing in the foregoing investment restrictions shall be deemed to prohibit
the Company from purchasing the securities of any issuer pursuant to the
exercise of subscription rights distributed to the Company by the issuer,
except that no such purchase may be made if as a result the Company will fail
to meet the diversification requirements of the Code.
C-59
MERRILL LYNCH TECHNOLOGY FUND, INC.
As shown in the Statement of Additional Information:
Investment Restrictions
The Company may not:
1. Make investments for the purpose of exercising control or management.
2. Purchase securities of other investment companies, except in connection
with a merger, consolidation, acquisition or reorganization, or by purchase in
the open market of securities of closed-end investment companies where no
underwriter or dealer's commission or profit, other than customary broker's
commission, is involved and only if immediately thereafter not more than 10% of
the Company's total assets, taken at market value, would be invested in such
securities.
3. Purchase or sell real estate (including interests in real estate limited
partnerships), provided that the Company may invest in securities secured by
real estate or interests therein or issued by companies which invest in real
estate or interests therein.
4. Purchase or sell commodities or commodity contracts, except that the
Company may deal in forward foreign exchange between currencies of the
different countries in which it may invest and the Company may purchase or sell
stock index and currency options, stock index futures, financial futures and
currency futures contracts and related options on such futures.
5. Purchase any securities on margin, except that the Company may obtain such
short-term credit as may be necessary for the clearance of purchase and sales
of portfolio securities, or make short sales of securities or maintain a short
position. The payment by the Company of initial or variation margin in
connection with futures or related options transactions, if applicable, shall
not be considered the purchase of a security on margin. Also, engaging in
futures transactions and related options will not be deemed a short sale or
maintenance of a short position in securities.
6. Make loans to other persons (except as provided in (7) below); provided
that for purposes of this restriction the acquisition of bonds, debentures, or
other corporate debt securities and investment in Government obligations,
short-term commercial paper, certificates of deposit, bankers' acceptances and
repurchase agreements shall not be deemed to be the making of a loan.
C-60
7. Lend its portfolio securities in excess of 10% of its total assets, taken
at market value, provided that such loans shall be made in accordance with the
guidelines set forth below.
8. Borrow amounts in excess of 10% of its total assets, taken at market
value, and then only from banks as a temporary measure for extraordinary or
emergency purposes such as the redemption of Company shares. Utilization of
borrowings may exaggerate increases or decreases in an investment company's net
asset value. However, the Company will not purchase securities while borrowings
are outstanding except to exercise prior commitments and to exercise
subscription rights. (See restriction (9) below regarding the exclusion from
this restriction of arrangements with respect to options, futures contracts and
options on futures contracts.)
9. Mortgage, pledge, hypothecate or in any manner transfer (except as
provided in (7) above), as security for indebtedness, any securities owned or
held by the Company except as may be necessary in connection with borrowings
mentioned in (8) above, and then such mortgaging, pledging or hypothecating may
not exceed 10% of the Company's total assets, taken at market value. [In order
to comply with certain state statutes, the Company will not, as a matter of
operating policy, mortgage, pledge or hypothecate its portfolio securities to
the extent that at any time the percentage of the value of pledged securities
plus the maximum sales charge will exceed 10% of the value of the Company's
shares at the maximum offering price.] (For the purpose of this restriction and
restriction (8) above, collateral arrangements with respect to the writing of
options, futures contracts, options on futures contracts and collateral
arrangements with respect to initial and variation margin are not deemed to be
a pledge of assets, and neither such arrangements nor the purchase and sale of
options, futures or related options are deemed to be the issuance of a senior
security.)
10. Invest in securities which cannot be readily resold because of legal or
contractual restrictions or which are not otherwise readily marketable if,
regarding all such securities, more than 10% of its net assets, taken at market
value, would be invested in such securities.
11. Underwrite securities of other issuers, except insofar as the Company may
be deemed an underwriter under the Securities Act of 1933 in selling portfolio
securities.
12. Purchase or sell interests in oil, gas or other mineral exploration or
development programs.
Subject to investment restriction (7) above, the Company may from time to
time lend securities from its portfolio to brokers, dealers and financial
institutions such as banks and trust companies and receive
C-61
collateral in cash or securities issued or guaranteed by the U.S. Government
which will be maintained in an amount equal to at least 100% of the current
market value of the loaned securities. Such cash will be invested in short-term
securities, which will increase the current income of the Company. Such loans
will not be for more than 30 days and will be terminable at any time. The
Company will have the right to regain ownership of loaned securities to
exercise beneficial rights such as voting rights, subscription rights and
rights to dividends, interest or other distributions. The Company may pay
reasonable fees to persons unaffiliated with the Company for services in
arranging such loans. With respect to the lending of portfolio securities,
there is the risk of failure by the borrower to return the securities involved
in such transactions.
With respect to investment restriction (10) above, while the Company does not
intend to purchase illiquid securities in an amount exceeding 10% of its net
assets, the Company may purchase, without regard to that limitation, securities
that are not registered under the Securities Act, but that can be offered and
sold to "qualified institutional buyers" under Rule 144A under the Securities
Act, provided that the Company's Board of Directors continuously determines,
based on the trading markets for the specific Rule 144A security, that it is
liquid. The Board of Directors may adopt guidelines regarding such securities
which may be held by the Company and delegate to the Investment Adviser the
daily function of determining and monitoring liquidity of such securities. The
Board of Directors, however, will retain oversight and is ultimately
responsible for the determinations.
Since it is not possible to predict with assurance exactly how this market
for restricted securities sold and offered under Rule 144A will develop, the
Board of Directors will carefully monitor the Company's investments in these
securities, focusing on such factors, among others, as valuation, liquidity and
availability of information. This investment practice could have the effect of
increasing the level of illiquidity in the Company to the extent that qualified
institutional buyers become for a time uninterested in purchasing these
securities.
The Board of Directors has established a non-fundamental policy that the
Company will not purchase or retain the securities of any issuer if those
individual officers and directors of the Company, the Investment Adviser or
Merrill Lynch Funds Distributor, Inc. (the "Distributor"), each owning
beneficially more than 1/2 of 1% of the securities of such issuer, own in the
aggregate more than 5% of the securities of such issuer. Portfolio securities
of the Company may not be purchased from, sold or loaned to the Investment
Adviser, officers or employees, acting as principal.
C-62
The Company has adopted a non-fundamental policy pursuant to which it will
not invest in securities of issuers having a record, together with
predecessors, of less than three years of continuous operation if more than 5%
of the Company's total assets, taken at market value, would be invested in such
securities. In addition, the Company has adopted a non-fundamental policy
pursuant to which it will not invest in warrants if, at the time of
acquisition, its investment in warrants, valued at the lower of cost or market
value, would exceed 5% of the Company's net assets; included within such
limitation, but not to exceed 2% of the Company's net assets, are warrants
which are not listed on the New York or American Stock Exchanges. For purposes
of this policy, warrants acquired by the Company in units or attached to
securities may be deemed to be without value. The two policies set forth in
this paragraph may be amended without the approval of the Company's
shareholders.
The staff of the Commission has taken the position that purchased OTC options
and the assets used as cover for written OTC options are illiquid securities.
Therefore, the Company has adopted an investment policy pursuant to which it
will not purchase or sell OTC options if, as a result of such transactions, the
sum of the market value of OTC options currently outstanding which are held by
the Company, the market value of the underlying securities covered by OTC call
options currently outstanding which were sold by the Company and margin
deposits on the Company's existing OTC options on futures contracts exceed 10%
of the net assets of the Company, taken at market value, together with all
other assets of the Company which are illiquid or are not otherwise readily
marketable. However, if an OTC option is sold by the Company to a primary U.S.
Government securities dealer recognized by the Federal Reserve Bank of New York
and if the Company has the unconditional contractual right to repurchase such
OTC option from the dealer at a predetermined price, then the Company will
treat as illiquid such amount of the underlying securities as is equal to the
repurchase price less the amount by which the option is "in-the-money" (i.e.,
current market value of the underlying securities minus the option's strike
price). The repurchase price with the primary dealers is typically a formula
price which is generally based on a multiple of the premium received for the
option, plus the amount by which the option is "in-the-money". This policy as
to OTC options is not a fundamental policy of the Company and may be amended by
the Board of Directors of the Company without the approval of the Company's
shareholders. However, the Company will not change or modify this policy prior
to the change or modification by the Commission staff of its position.
C-63
FORM OF PROXY
Meeting of the Shareholders of
Merrill Lynch Americas Income Fund, Inc.
Merrill Lynch Dragon Fund
Merrill Lynch EuroFund
Merrill Lynch Global Allocation Fund
Merrill Lynch Global Bond Fund for Investment & Retirement
Merrill Lynch Healthcare Fund
Merrill Lynch International Equity Fund
P.O. Box 9011, Princeton, NJ 08543-9011
This Proxy is solicited on behalf of the Directors/Trustees
Please mark your choices below in blue or black ink.
This Proxy has been personalized to reflect these
shares of the indicated Funds that are held within a
single account. If a shareholder holds shares in
multiple accounts, it will be necessary to exercise a
proxy for each such account. With respect to
proposal 4, a separate vote is required for Class A
and Class B shares owned.
The undersigned hereby appoints ______________________________ as proxies, each
with the power to appoint his substitute, and hereby authorizes each to
represent and to vote, as designated below, all shares in one or more of the
above-mentioned Funds held of record by the undersigned on August 5, 1994, at
the Meeting of Shareholders of such Fund to be held on September 28, 1994, or
any adjournments thereof. Such proxies are also authorized to vote on such
other matters as may properly come before such meeting or any adjournment
thereof.
This Proxy when properly executed will be voted in the manner directed herein by
the undersigned shareholder. If no direction is made, this Proxy will be voted
FOR Proposals 1, 2, 3, 4, 6 and, with respect to Merrill Lynch Pacific Fund,
Inc. (if applicable), 5.
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Shares Held in 1. Election of Directors/Trustees. Nominees: Donald Cecil, Edward H. Meyer, Charles C. Reilly,
Account Richard R. West and Arthur Zeikel
*To withhold authority for a
Nominee for a particular Fund,
check the "FOR ALL EXCEPT" box
and print name of Nominee on the
Class A Class B FOR WITHHOLD FOR ALL appropriate line below.
ALL ALL EXCEPT
000000000 000000000 Merrill Lynch Americas Income Fund, Inc. [_] [_] [_] ________________________________
000000000 000000000 Merrill Lynch Dragon Fund [_] [_] [_] ________________________________
000000000 000000000 Merrill Lynch EuroFund [_] [_] [_] ________________________________
000000000 000000000 Merrill Lynch Global Allocation Fund [_] [_] [_] ________________________________
000000000 000000000 Merrill Lynch Global Bond Fund for Invest. & Ret. [_] [_] [_] ________________________________
000000000 000000000 Merrill Lynch Healthcare Fund [_] [_] [_] ________________________________
000000000 000000000 Merrill Lynch International Equity Fund [_] [_] [_] ________________________________
- --------------------------------------------------------------------------------
2. Ratify the 3. Amend the
selection fundamental
of independent investment
auditors. restrictions.
FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
Merrill Lynch Americas Fund, Inc. [_] [_] [_] [_] [_] [_]
Merrill Lynch Dragon Fund [_] [_] [_] [_] [_] [_]
Merrill Lynch EuroFund [_] [_] [_] [_] [_] [_]
Merrill Lynch Global Allocation Fund [_] [_] [_] [_] [_] [_]
Merrill Lynch Global Bond Fund for Invest. & Ret. [_] [_] [_] [_] [_] [_]
Merrill Lynch Healthcare Fund [_] [_] [_] [_] [_] [_]
Merrill Lynch International Equity Fund [_] [_] [_] [_] [_] [_]
4. Amend the charter of the Fund in connection with
the implementation of Merrill Lynch Select Pricing/sm/.
---Class A Shares--- ---Class B Shares---
FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
Merrill Lynch Americas Fund, Inc. [_] [_] [_] [_] [_] [_]
Merrill Lynch Dragon Fund [_] [_] [_] [_] [_] [_]
Merrill Lynch EuroFund [_] [_] [_] [_] [_] [_]
Merrill Lynch Global Allocation Fund [_] [_] [_] [_] [_] [_]
Merrill Lynch Global Bond Fund for Invest. & Ret. [_] [_] [_] [_] [_] [_]
Merrill Lynch Healthcare Fund [_] [_] [_] [_] [_] [_]
Merrill Lynch International Equity Fund [_] [_] [_] [_] [_] [_]
5. (Merrill Lynch Pacific Fund, Inc. Shareholders Only)
Change the Fund's investment policy from being a
diversified fund to being a non-diversified fund.
FOR AGAINST ABSTAIN
[_] [_] [_]
6. In the discretion of such proxies, upon such
other business as may properly come before
the meeting or any adjournment thereof.
- --------------------------------------------------------------------------------
Please mark, sign, date, and mail your Proxy in the enclosed postage-paid
envelope.
Signature __________________________________________ Date ____________________
If joint owner, each should sign. When signing as executor, trustee,
etc., give full title as such.
OOOOOOOOOOOOOOOOOOOOO
[GLOBAL CLUSTER 8/1/94]
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