<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 14, 1997
SECURITIES ACT FILE NO. 333-36721
INVESTMENT COMPANY ACT FILE NO. 811-08389
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. 1 [X]
POST-EFFECTIVE AMENDMENT NO. [ ]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 1 [X]
(Check appropriate box or boxes)
------------------------
MERRILL LYNCH REAL ESTATE FUND, INC.
(Exact name of registrant as specified in charter)
<TABLE>
<S> <C>
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (609) 282-2800
ARTHUR ZEIKEL
MERRILL LYNCH REAL ESTATE FUND, INC.
800 SCUDDERS MILL ROAD, PLAINSBORO, NEW JERSEY
MAILING ADDRESS: P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
------------------------
COPIES TO:
<TABLE>
<S> <C>
COUNSEL FOR THE FUND: PHILIP L. KIRSTEIN, ESQ.
BROWN & WOOD LLP MERRILL LYNCH ASSET MANAGEMENT
ONE WORLD TRADE CENTER P.O. BOX 9011
NEW YORK, NEW YORK 10048-0557 PRINCETON, NEW JERSEY 08543-9011
ATTENTION: JOHN A. MACKINNON, ESQ.
</TABLE>
------------------------
Approximate Date of Proposed Public Offering:
As soon as practicable after the effective date of this Registration Statement.
------------------------
Title of Securities Being Registered: Common Stock, par value $.10 per share
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE> 2
MERRILL LYNCH REAL ESTATE FUND, INC.
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
- ------------- ---------------------------------------
<S> <C> <C>
PART A
Item 1. Cover Page............................... Cover Page
Item 2. Synopsis................................. Fee Table
Item 3. Condensed Financial Information.......... Not Applicable
Item 4. General Description of Registrant........ Cover Page; Risk Factors and Special
Considerations; Investment Objective
and Policies; Additional Information
Item 5. Management of the Fund................... Fee Table; Management of the Fund;
Inside Back Cover Page
Item 5A. Management's Discussion of Fund
Performance............................ Not Applicable
Item 6. Capital Stock and Other Securities....... Cover Page; Additional Information
Item 7. Purchase of Securities Being Offered..... Cover Page; Merrill Lynch Select
Pricing(SM) System; Fee Table;
Purchase of Shares; Shareholder
Services; Additional Information;
Inside Back Cover Page
Item 8. Redemption or Repurchase................. Merrill Lynch Select Pricing(SM)
System; Fee Table; Purchase of Shares;
Redemption of Shares
Item 9. Pending Legal Proceedings................ Not Applicable
PART B
Item 10. Cover Page............................... Cover Page
Item 11. Table of Contents........................ Back Cover Page
Item 12. General Information and History.......... General Information
Item 13. Investment Objective and Policies........ Investment Objective and Policies
Item 14. Management of the Fund................... Management of the Fund
Item 15. Control Persons and Principal Holders of
Securities............................. Management of the Fund; Additional
Information
Item 16. Investment Advisory and Other Services... Management of the Fund; Purchase of
Shares; General Information
Item 17. Brokerage Allocation and Other
Practices.............................. Portfolio Transactions and Brokerage
Item 18. Capital Stock and Other Securities....... General Information
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered............... Purchase of Shares; Redemption of
Shares; Determination of Net Asset
Value; Shareholder Services
Item 20. Tax Status............................... Dividends, Distributions and Taxes
Item 21. Underwriters............................. Purchase of Shares
Item 22. Calculation of Performance Data.......... Performance Data
Item 23. Financial Statements..................... Statement of Assets and Liabilities
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
<PAGE> 3
PROSPECTUS
NOVEMBER 14, 1997
MERRILL LYNCH REAL ESTATE FUND, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 - PHONE NO. (609) 282-2800
------------------------
Merrill Lynch Real Estate Fund, Inc. (the "Fund") is a non-diversified,
open-end management investment company
that seeks total return by investing primarily in equity securities of issuers
that are principally engaged in the real estate industry. Total return is a
combination of capital appreciation and investment income. The Fund may employ a
variety of techniques to hedge against market or currency risk or to enhance
total return. The Fund should be considered as a means of diversifying an
investment portfolio and not itself a balanced investment. There can be no
assurance that the Fund's investment objective will be realized. For more
information on the Fund's Investment Objective and Policies, see "Investment
Objective and Policies" on page 13.
------------------------
Pursuant to the Merrill Lynch Select Pricing(SM) System, the Fund offers
four classes of shares, each with a different combination of sales charges,
ongoing fees and other features. The Merrill Lynch Select Pricing(SM) System
permits an investor to choose the method of purchasing shares that the investor
believes is most beneficial given the amount of the purchase, the length of time
the investor expects to hold the shares and other relevant circumstances. See
"Merrill Lynch Select Pricing(SM) System" on page 4.
Merrill Lynch Funds Distributor, Inc. (the "Distributor"), P.O. Box 9081,
Princeton, New Jersey 08543-9081 ((609) 282-2800), and other securities dealers
which have entered into selected dealer agreements with the Distributor,
including Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"),
will solicit subscriptions for shares of the Fund during a period expected to
end on December 22, 1997, unless extended. On the third business day after the
conclusion of the subscription period, the subscriptions will be payable, the
shares will be issued and the Fund will commence operations. The public offering
price of the shares during the subscription offering will be $10.00 per share in
the case of Class B and Class C shares and $10.00 per share plus a sales charge
of $.554, subject to reductions on purchases in single transactions of $25,000
or more, in the case of Class A and Class D shares. After the completion of the
initial subscription offering, the Fund will engage in a continuous offering of
its shares as described herein under "Merrill Lynch Select Pricing(SM) System."
The minimum initial purchase during the subscription and continuous offerings is
$1,000 and the minimum subsequent purchase in the continuous offering is $50,
with certain exceptions. Merrill Lynch may charge its customers a processing fee
(presently $5.35) for confirming purchases and repurchases. Purchases and
redemptions made directly through Merrill Lynch Financial Data Services, Inc.
(the "Transfer Agent") are not subject to the processing fee. See "Purchase of
Shares" and "Redemption of Shares."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
This Prospectus is a concise statement of information about the Fund that is
relevant to making an investment in the Fund. This Prospectus should be retained
for future reference. A statement containing additional information about the
Fund, dated November 14, 1997 (the "Statement of Additional Information"), has
been filed with the Securities and Exchange Commission (the "Commission") and is
available, without charge, by calling or by writing the Fund at the above
telephone number or address. The Commission maintains a Web site
(http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference and other information regarding the Fund. The
Statement of Additional Information is hereby incorporated by reference into
this Prospectus.
------------------------
MERRILL LYNCH ASSET MANAGEMENT--MANAGER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.--DISTRIBUTOR
<PAGE> 4
FEE TABLE
A general comparison of the sales arrangements and other nonrecurring and
recurring expenses applicable to shares of the Fund follows:
<TABLE>
<CAPTION>
CLASS A(a) Class B(b) Class C Class D
---------- ----------------------- ------------ -------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on Purchases (as a
percentage of offering price)................. 5.25%(c) None None 5.25%(c)
Sales Charge Imposed on Dividend
Reinvestments................................. None None None None
Deferred Sales Charge (as a percentage of
original purchase price or redemption
proceeds, whichever is lower)................. None(d) 4.0% during the first 1.0 % for None(d)
year, decreasing 1.0% one year(f)
annually to 0.0% after
the fourth year(e)
Exchange Fee.................................... None None None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF
AVERAGE NET ASSETS):
Investment Advisory Fees(g)..................... .85% .85% .85% .85%
12b-1 Fees (includes account maintenance fees
and distribution fees)(h)..................... None 1.00% 1.00% .25%
(Class B shares convert
to Class D shares
automatically after
approximately eight
years and cease being
subject to distribution
fees)
Other Expenses(i):
Custodial Fees............................. .02% .02% .02% .02%
Shareholder Servicing Costs(j)............. .11% .11% .11% .11%
Other...................................... .30% .30% .30% .30%
----- ----- ----- -----
Total Other Expenses................... .43% .43% .43% .43%
----- ----- ----- -----
TOTAL FUND OPERATING EXPENSES................... 1.28% 2.28% 2.28% 1.53%
===== ===== ===== =====
</TABLE>
- ---------------
(a) Class A shares are sold to a limited group of investors including existing
Class A shareholders, certain retirement plans and certain participants in
fee-based programs. See "Purchase of Shares--Initial Sales Charge
Alternatives --Class A and Class D Shares" on page 27 and "Shareholder
Services--Fee-Based Programs" on page 39.
(b) Class B shares convert to Class D shares automatically approximately eight
years after initial purchase. See "Purchase of Shares--Deferred Sales Charge
Alternatives--Class B and Class C Shares" on page 29.
(c) Reduced for purchases of $25,000 and over, and waived for purchases of Class
A shares by certain retirement plans and participants in connection with
certain fee-based programs. Class A and Class D purchases of $1,000,000 or
more may not be subject to an initial sales charge. See "Purchase of
Shares--Initial Sales Charge Alternatives--Class A and Class D Shares" on
page 27.
(d) Class A and Class D shares are not subject to a contingent deferred sales
charge ("CDSC"), except that certain purchases of $1,000,000 or more which
are not subject to an initial sales charge may instead be subject to a CDSC
of 1.0% of amounts redeemed within the first year after purchase. Such CDSC
may be waived in connection with certain fee-based programs. See
"Shareholder Services--Fee-Based Programs" on page 39.
(e) The CDSC may be modified in connection with certain fee-based programs. See
"Shareholder Services--Fee-Based Programs" on page 39.
(f) The CDSC may be waived in connection with certain fee-based programs. See
"Shareholder Services--Fee-Based Programs" on page 39.
(g) See "Management of the Fund--Management and Advisory Arrangements" on page
22.
(h) See "Purchase of Shares--Distribution Plans" on page 33.
(i) Information under "Other Expenses" is estimated for the Fund's first full
fiscal year on an annualized basis.
(j) See "Management of the Fund--Transfer Agency Services" on page 23.
2
<PAGE> 5
EXAMPLE:
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES
PAID FOR THE PERIOD
OF:
----------------------
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
An investor would pay the following expenses on a $1,000 investment
including the maximum $52.50 initial sales charge (Class A and Class D
shares only) and assuming (1) the Total Fund Operating Expenses for
each class set forth on page 2, (2) a 5% annual return throughout the
periods and (3) redemption at the end of the period (including any
applicable CDSC for Class B and Class C shares):
Class A............................................................. $65 $91
Class B............................................................. $63 $91
Class C............................................................. $33 $71
Class D............................................................. $67 $98
An investor would pay the following expenses on the same $1,000
investment assuming no redemption at the end of the period:
Class A............................................................. $65 $91
Class B............................................................. $23 $71
Class C............................................................. $23 $71
Class D............................................................. $67 $98
</TABLE>
The foregoing Fee Table is intended to assist investors in understanding
the costs and expenses that a shareholder in the Fund will bear directly or
indirectly. The expenses set forth under "Other Expenses" are based on estimated
amounts through the end of the Fund's first fiscal year on an annualized basis.
The Example set forth above assumes reinvestment of all dividends and
distributions and utilizes a 5% annual rate of return as mandated by Commission
regulations. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR ANNUAL RATE OF RETURN, AND ACTUAL EXPENSES OR ANNUAL RATE OF
RETURN MAY BE MORE OR LESS THAN THOSE ASSUMED FOR PURPOSES OF THE EXAMPLE. Class
B and Class C shareholders who hold their shares for an extended period of time
may pay more in Rule 12b-1 distribution fees than the economic equivalent of the
maximum front-end sales charge permitted under the Conduct Rules of the National
Association of Securities Dealers, Inc. (the "NASD"). Merrill Lynch may charge
its customers a processing fee (presently $5.35) for confirming purchases and
repurchases. Purchases and redemptions made directly through the Fund's Transfer
Agent are not subject to the processing fee. See "Purchase of Shares" and
"Redemption of Shares."
3
<PAGE> 6
MERRILL LYNCH SELECT PRICING(SM) SYSTEM
The Fund offers four classes of shares under the Merrill Lynch Select
Pricing(SM) System. The shares of each class may be purchased at a price equal
to the next determined net asset value per share subject to the sales charges
and ongoing fee arrangements described below. Shares of Class A and Class D are
sold to investors choosing the initial sales charge alternatives, and shares of
Class B and Class C are sold to investors choosing the deferred sales charge
alternatives. The Merrill Lynch Select Pricing(SM) System is used by more than
50 registered investment companies advised by Merrill Lynch Asset Management,
L.P. ("MLAM" or the "Manager") or Fund Asset Management, L.P. ("FAM"), an
affiliate of MLAM. Funds advised by MLAM or FAM that utilize the Merrill Lynch
Select Pricing(SM) System are referred to herein as "MLAM-advised mutual funds."
Each Class A, Class B, Class C or Class D share of the Fund represents an
identical interest in the investment portfolio of the Fund and has the same
rights, except that Class B, Class C and Class D shares bear the expenses of the
ongoing account maintenance fees and Class B and Class C shares bear the
expenses of the ongoing distribution fees and the additional incremental
transfer agency costs resulting from the deferred sales charge arrangements. The
CDSCs, distribution fees and account maintenance fees that are imposed on Class
B and Class C shares, as well as the account maintenance fees that are imposed
on Class D shares, are imposed directly against those classes and not against
all assets of the Fund and, accordingly, such charges will not affect the net
asset value of any other class or have any impact on investors choosing another
sales charge option. Dividends paid by the Fund for each class of shares will be
calculated in the same manner at the same time and will differ only to the
extent that account maintenance and distribution fees and any incremental
transfer agency costs relating to a particular class are borne exclusively by
that class. Each class has different exchange privileges. See "Shareholder
Services--Exchange Privilege."
Investors should understand that the purpose and function of the initial
sales charges with respect to the Class A and Class D shares are the same as
those of the deferred sales charges and distribution fees with respect to the
Class B and Class C shares in that the sales charges and distribution fees
applicable to each class provide for the financing of the distribution of the
shares of the Fund. The distribution-related revenues paid with respect to a
class will not be used to finance the distribution expenditures of another
class. Sales personnel may receive different compensation for selling different
classes of shares.
The following table sets forth a summary of the distribution arrangements
for each class of shares under the Merrill Lynch Select Pricing(SM) System,
followed by a more detailed description of each class and a discussion of the
factors that investors should consider in determining the method of purchasing
shares under the Merrill Lynch Select Pricing(SM)System that the investor
believes is the most beneficial under his or her particular circumstances. More
detailed information as to each class of shares is set forth under "Purchase of
Shares."
4
<PAGE> 7
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
ACCOUNT
MAINTENANCE DISTRIBUTION
CLASS SALES CHARGE(1) FEE FEE CONVERSION FEATURE
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A Maximum 5.25%
initial sales charge(2)(3) No No No
-----------------------------------------------------------------------------------------------
B CDSC for a period of four
years, at a rate of 4.0% during
the
first year, decreasing 1.0% B shares convert to D shares
annually to 0.0%(4) 0.25% 0.75% automatically after
approximately eight years(5)
-----------------------------------------------------------------------------------------------
C 1.0% CDSC for one year(6) 0.25% 0.75% No
-----------------------------------------------------------------------------------------------
D Maximum 5.25%
initial sales charge(3) 0.25% No No
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
</TABLE>
- ---------------
(1) Initial sales charges are imposed at the time of purchase as a percentage of
the offering price. CDSCs are imposed if the redemption occurs within the
applicable CDSC time period. The charge will be assessed on an amount equal
to the lesser of the proceeds of redemption or the cost of the shares being
redeemed.
(2) Offered only to eligible investors. See "Purchase of Shares--Initial Sales
Charge Alternatives--Class A and Class D Shares-- Eligible Class A
Investors."
(3) Reduced for purchases of $25,000 or more and waived for purchases of Class A
shares by certain retirement plans and participants in connection with
certain fee-based programs. Class A and Class D share purchases of
$1,000,000 or more may not be subject to an initial sales charge but instead
may be subject to a 1.0% CDSC if redeemed within one year. Such CDSC may be
waived in connection with certain fee-based programs. A 0.75% sales charge
for 401(k) purchases over $1,000,000 will apply. See "Class A" and "Class D"
below.
(4) The CDSC may be modified in connection with certain fee-based programs.
(5) The conversion period for dividend reinvestment shares and the conversion
and holding periods for certain retirement plans are modified. Also, Class B
shares of certain other MLAM-advised mutual funds into which exchanges may
be made have a ten-year conversion period. If Class B shares of the Fund are
exchanged for Class B shares of another MLAM-advised mutual fund, the
conversion period applicable to the Class B shares acquired in the exchange
will apply, and the holding period for the shares exchanged will be tacked
onto the holding period for the shares acquired.
(6) The CDSC may be waived in connection with certain fee-based programs.
Class A: Class A shares incur an initial sales charge when they are purchased
and bear no ongoing distribution or account maintenance fees. Class A
shares are offered to a limited group of investors and also will be
issued upon reinvestment of dividends on outstanding Class A shares.
Investors who currently own Class A shares of the Fund in a shareholder
account are entitled to purchase additional Class A shares of the Fund
in that account. Other eligible investors include certain retirement
plans and participants in certain fee-based programs. In addition,
Class A shares will be offered at net asset value to Merrill Lynch &
Co., Inc. ("ML & Co.") and its subsidiaries (the term "subsidiaries"
when used herein with respect to ML & Co. includes the Manager, FAM and
certain other entities directly or indirectly wholly owned and
controlled by ML & Co.), and their directors and employees and to
members of the Boards of MLAM-advised mutual funds. The maximum initial
sales charge of 5.25% is reduced for purchases of $25,000 and over and
waived for purchases by certain retirement plans and participants in
connection with certain fee-based programs. Purchases of $1,000,000 or
more may not be subject to an initial sales charge, but if the initial
sales charge is waived such purchases may be subject to a 1.0% CDSC if
the shares are redeemed within one year after purchase.
5
<PAGE> 8
Such CDSC may be waived in connection with certain fee-based programs.
Sales charges are also reduced under a right of accumulation that takes
into account the investor's holdings of all classes of all MLAM-advised
mutual funds. See "Purchase of Shares--Initial Sales Charge
Alternatives-- Class A and Class D Shares."
Class B: Class B shares do not incur a sales charge when they are purchased, but
they are subject to an ongoing account maintenance fee of 0.25% and an
ongoing distribution fee of 0.75% of the Fund's average net assets
attributable to Class B shares, and a CDSC if they are redeemed within
four years of purchase. Such CDSC may be modified in connection with
certain fee-based programs. Approximately eight years after issuance,
Class B shares will convert automatically into Class D shares of the
Fund, which are subject to an account maintenance fee but no
distribution fee; Class B shares of certain other MLAM-advised mutual
funds into which exchanges may be made convert into Class D shares
automatically after approximately ten years. If Class B shares of the
Fund are exchanged for Class B shares of another MLAM-advised mutual
fund, the conversion period applicable to the Class B shares acquired
in the exchange will apply, as will the Class D account maintenance fee
of the acquired fund upon the conversion, and the holding period for
the shares exchanged will be tacked onto the holding period for the
shares acquired. Automatic conversion of Class B shares into Class D
shares will occur at least once a month on the basis of the relative
net asset values of the shares of the two classes on the conversion
date, without the imposition of any sales load, fee or other charge.
Conversion of Class B shares to Class D shares will not be deemed a
purchase or sale of the shares for Federal income tax purposes. Shares
purchased through reinvestment of dividends on Class B shares also will
convert automatically to Class D shares. The conversion period for
dividend reinvestment shares and the conversion and holding periods for
certain retirement plans are modified as described under "Purchase of
Shares--Deferred Sales Charge Alternatives--Class B and Class C
Shares--Conversion of Class B Shares to Class D Shares."
Class C: Class C shares do not incur a sales charge when they are purchased, but
they are subject to an ongoing account maintenance fee of 0.25% and an
ongoing distribution fee of 0.75% of the Fund's average net assets
attributable to Class C shares. Class C shares are also subject to a
1.0% CDSC if they are redeemed within one year of purchase. Such CDSC
may be waived in connection with certain fee-based programs. Although
Class C shares are subject to a CDSC for only one year (as compared to
four years for Class B), Class C shares have no conversion feature and,
accordingly, an investor who purchases Class C shares will be subject
to distribution fees that will be imposed on Class C shares for an
indefinite period subject to annual approval by the Fund's Board of
Directors and regulatory limitations.
Class D: Class D shares incur an initial sales charge when they are purchased
and are subject to an ongoing account maintenance fee of 0.25% of the
Fund's average net assets attributable to Class D shares. Class D
shares are not subject to an ongoing distribution fee or any CDSC when
they are redeemed. The maximum initial sales charge 5.25% is reduced
for purchases of $25,000 and over. Purchases of $1,000,000 or more may
not be subject to an initial sales charge, but if the initial sales
charge is waived such purchases may be subject to a 1.0% CDSC if the
shares are redeemed within one year after purchase. Such CDSC may be
waived in connection with certain fee-based programs. The schedule of
initial sales charges and reductions for Class D shares is the same as
the schedule for
6
<PAGE> 9
Class A shares, except that there is no waiver for purchases by
retirement plans or participants in connection with certain fee-based
programs. Class D shares also will be issued upon conversion of Class B
shares as described above under "Class B." See "Purchase of
Shares--Initial Sales Charge Alternatives--Class A and Class D Shares."
The following is a discussion of the factors that investors should consider
in determining the method of purchasing shares under the Merrill Lynch Select
Pricing(SM) System that the investor believes is most beneficial under his or
her particular circumstances.
Initial Sales Charge Alternatives. Investors who prefer an initial sales
charge alternative may elect to purchase Class D shares or, if an eligible
investor, Class A shares. Investors choosing the initial sales charge
alternative who are eligible to purchase Class A shares should purchase Class A
shares rather than Class D shares because there is an account maintenance fee
imposed on Class D shares. Investors qualifying for significantly reduced
initial sales charges may find the initial sales charge alternative particularly
attractive because similar sales charge reductions are not available with
respect to the CDSCs imposed in connection with purchases of Class B or Class C
shares. Investors not qualifying for reduced initial sales charges who expect to
maintain their investment for an extended period of time also may elect to
purchase Class A or Class D shares, because over time the accumulated ongoing
account maintenance and distribution fees on Class B or Class C shares may
exceed the initial sales charge and, in the case of Class D shares, the account
maintenance fee. Although some investors who previously purchased Class A shares
may no longer be eligible to purchase Class A shares of other MLAM-advised
mutual funds, those previously purchased Class A shares, together with Class B,
Class C and Class D share holdings, will count toward a right of accumulation
which may qualify the investor for reduced initial sales charges on new initial
sales charge purchases. In addition, the ongoing Class B and Class C account
maintenance and distribution fees will cause Class B and Class C shares to have
higher expense ratios, pay lower dividends and have lower total returns than the
initial sales charge shares. The ongoing Class D account maintenance fees will
cause Class D shares to have a higher expense ratio, pay lower dividends and
have a lower total return than Class A shares.
Deferred Sales Charge Alternatives. Because no initial sales charges are
deducted at the time of purchase, Class B and Class C shares provide the benefit
of putting all of the investor's dollars to work from the time the investment is
made. The deferred sales charge alternatives may be particularly appealing to
investors who do not qualify for a reduction in initial sales charges. Both
Class B and Class C shares are subject to ongoing account maintenance fees and
distribution fees; however, the ongoing account maintenance and distribution
fees potentially may be offset to the extent any return is realized on the
additional funds initially invested in Class B or Class C shares. In addition,
Class B shares will be converted into Class D shares of the Fund after a
conversion period of approximately eight years, and thereafter investors will be
subject to lower ongoing fees.
Certain investors may elect to purchase Class B shares if they determine it
to be most advantageous to have all their funds invested initially and intend to
hold their shares for an extended period of time. Investors in Class B shares
should take into account whether they intend to redeem their shares within the
CDSC period and, if not, whether they intend to remain invested until the end of
the conversion period and thereby take advantage of the reduction in ongoing
fees resulting from the conversion into Class D shares. Other investors,
however, may elect to purchase Class C shares if they determine that it is
advantageous to have all their assets invested initially and they are uncertain
as to the length of time they intend to hold their assets in MLAM-advised mutual
funds. Although Class C shareholders are subject to a shorter CDSC period at a
7
<PAGE> 10
lower rate, they forego the Class B conversion feature, making their investment
subject to account maintenance and distribution fees for an indefinite period of
time. In addition, while both Class B and Class C distribution fees are subject
to the limitations on asset-based sales charges imposed by the NASD, the Class B
distribution fees are further limited under a voluntary waiver of asset-based
sales charges. See "Purchase of Shares--Limitations on the Payment of Deferred
Sales Charges."
RISK FACTORS AND SPECIAL CONSIDERATIONS
RISKS ASSOCIATED WITH REAL ESTATE INVESTMENTS
General. Although the Fund does not invest directly in real estate, it
does invest primarily in equity securities of issuers that are principally
engaged in the real estate industry and does have a policy of concentration of
its investments in the real estate industry. Therefore, an investment in the
Fund is subject to certain risks associated with the ownership of real estate
and with the real estate industry in general. These risks include, among others:
possible declines in the value of real estate; risks related to general and
local economic conditions; possible lack of availability of mortgage funds or
other limitations on access to capital; overbuilding; risks associated with
leverage; market illiquidity; extended vacancies of properties; increases in
competition, property taxes, capital expenditures, and operating expenses;
changes in zoning laws or other government regulation; costs resulting from the
clean-up of, and liability to third parties for damages resulting from,
environmental problems; tenant bankruptcies or other credit problems; casualty
or condemnation losses; uninsured damages from floods, earthquakes or other
natural disasters; limitations on and variations in rents, including decreases
in market rates for rents; investment in developments that are not completed or
that are subject to delays in completion; and changes in interest rates. To the
extent that assets underlying the Fund's investments are concentrated
geographically, by property type or in certain other respects, the Fund may be
subject to certain of the foregoing risks to a greater extent. Investments by
the Fund in securities of companies providing mortgage servicing will be subject
to the risks associated with refinancings and their impact on servicing rights.
In addition, if the Fund receives rental income or income from the
disposition of real property acquired as a result of a default on securities the
Fund owns, the receipt of such income may adversely affect the Fund's ability to
retain its tax status as a regulated investment company because of certain
source income requirements applicable to such entities under the Internal
Revenue Code of 1986, as amended (the "Code").
Real Estate Investment Trusts ("REITs"). Investing in REITs involves
certain unique risks in addition to those risks associated with investing in the
real estate industry in general. Equity REITs may be affected by changes in the
value of the underlying property owned by the REITs, while mortgage REITs may be
affected by the quality of any credit extended. REITs are dependent upon
management skills, may not be diversified geographically or by property type,
and are subject to heavy cash flow dependency, default by borrowers and
self-liquidation. REITs also must meet certain requirements under the Code to
avoid entity level tax and pass-through of income to shareholders. REITs are
consequently subject to the risk of failing to meet these requirements for
favorable tax treatment and failing to maintain their exemptions from
registration under the Investment Company Act of 1940, as amended (the
"Investment Company Act"). REITs are also subject to changes in the Code,
including changes involving their tax status.
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REITs (especially mortgage REITs) are also subject to interest rate risks.
When interest rates decline, the value of a REIT's investment in fixed rate
obligations can be expected to rise. Conversely, when interest rates rise,
the value of a REIT's investment in fixed rate obligations can be expected to
decline. In contrast, as interest rates on adjustable rate mortgage loans are
reset periodically, yields on a REIT's investments in such loans will gradually
align themselves to reflect changes in market interest rates, causing the value
of such investments to fluctuate less dramatically in response to interest rate
fluctuations than would investments in fixed rate obligations.
Investing in REITs involves risks similar to those associated with
investing in small capitalization companies. REITs may have limited financial
resources, may trade less frequently and in limited volume and may be subject to
more abrupt or erratic price movements than larger company securities.
Historically, small capitalization stocks, such as REITs, have been more
volatile in price than the larger capitalization stocks included in the S&P
Index of 500 Common Stocks. The management of a REIT may be subject to conflicts
of interest with respect to the operation of the business of the REIT and may be
involved in real estate activities competitive with the REIT. REITs may own
properties through joint ventures or in other circumstances in which the REIT
may not have control over its investments. REITs may incur significant amounts
of leverage.
Mortgage-Backed Securities. The Fund may invest up to 35% of its total
assets in mortgage-backed securities. Investing in mortgage-backed securities
involves certain unique risks in addition to those risks associated with
investment in the real estate industry in general. These risks include the
failure of a party to meet its commitments under the related operative
documents, adverse interest rate changes and the effects of prepayments on
mortgage cash flows. When interest rates decline, the value of an investment in
fixed rate obligations can be expected to rise. Conversely, when interest rates
rise, the value of an investment in fixed rate obligations can be expected to
decline. In contrast, since interest rates on adjustable rate mortgage loans are
reset periodically, yields on investments in such loans will gradually align
themselves to reflect changes in market interest rates, causing the value of
such investments to fluctuate less dramatically in response to interest rate
fluctuations than would investments in fixed rate obligations.
Further, the yield characteristics of mortgage-backed securities, such as
those in which the Fund may invest, differ from those of traditional
fixed-income securities. The major differences typically include more frequent
interest and principal payments (usually monthly), the adjustability of interest
rates, and the possibility that prepayments of principal may be made
substantially earlier than their stated final distribution dates.
Prepayment rates on mortgage loans are influenced by changes in current
interest rates and a variety of economic, geographic, social and other factors,
and cannot be predicted with certainty. Both adjustable rate mortgage loans and
fixed rate mortgage loans may be subject to a greater rate of principal
prepayments in a declining interest rate environment and to a lesser rate of
principal prepayments in an increasing interest rate environment. Early payment
associated with mortgage-backed securities causes these securities to experience
significantly greater price and yield volatility than that experienced by
traditional fixed-income securities. Under certain interest rate and prepayment
rate scenarios, the Fund may fail to recoup fully its investment in
mortgage-backed securities notwithstanding any direct or indirect governmental
or agency guarantee. When the Fund reinvests amounts representing payments and
unscheduled prepayments of principal of the mortgage-backed securities, it may
receive a rate of
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interest that is lower than the rate on existing mortgage-backed securities.
Thus, mortgage-backed securities, and adjustable rate mortgage pass-through
securities in particular, may be less effective than other types of fixed income
securities as a means of "locking in" interest rates.
DERIVATIVE INVESTMENTS
The Fund may engage in transactions in certain instruments that may be
characterized as derivatives. These instruments include various types of
options, futures and options thereon, currency forwards and options,
mortgage-backed securities and indexed securities, including inverse securities.
The Fund may engage in these transactions for hedging purposes or, in certain
cases, to enhance total return.
The risks associated with investments in mortgage-backed securities are
described above. Investments in indexed securities, including inverse
securities, subject the Fund to the risks associated with changes in the
particular indices, which may include losses of amounts invested. Transactions
involving options, futures, options on futures or currency may involve the loss
of an opportunity to profit from a price movement in the underlying asset beyond
certain levels or a price increase on other portfolio assets (in the case of
transactions for hedging purposes) or expose the Fund to potential losses which
exceed the amount originally invested by the Fund in such instruments. For a
further discussion of the risks associated with these investments, see
"Investment Objective and Policies--Description of Certain Investments,"
"--Other Investment Policies and Practices--Portfolio Strategies Involving
Options, Futures and Foreign Exchange Transactions" and Appendix A to this
Prospectus, "Investment Practices Involving the Use of Options, Futures and
Foreign Exchange."
ILLIQUID SECURITIES
The Fund may invest up to 15% of its net assets in securities that lack an
established secondary trading market or otherwise are considered illiquid.
Liquidity of a security relates to the ability to dispose easily of the security
and the price to be obtained upon disposition of the security, which may be less
than would be obtained for a comparable more liquid security. Investment of the
Fund's assets in illiquid securities may restrict the ability of the Fund to
dispose of its investments in a timely fashion and for a fair price as well as
its ability to take advantage of market opportunities. The risks associated with
illiquidity will be particularly acute in situations in which the Fund's
operations require cash, such as when the Fund redeems shares or pays dividends,
and could result in the Fund borrowing to meet short-term cash requirements or
incurring capital losses on the sale of illiquid investments. Further, issuers
whose securities are not publicly traded are not subject to the disclosure and
other investor protection requirements that would be applicable if their
securities were publicly traded. In making investments in such securities, the
Fund may obtain access to material, nonpublic information which may restrict the
Fund's ability to conduct portfolio transactions in such securities. In
addition, the Fund may invest in privately placed securities that may or may not
be freely transferable under the laws of the applicable jurisdiction or due to
contractual restrictions on resale. See "Investment Objective and
Policies--Description of Certain Investments--Illiquid Securities" on page 17.
NO RATING CRITERIA FOR DEBT SECURITIES
The Fund has not established any rating criteria for the debt securities in
which it may invest and such securities may not be rated at all for
creditworthiness. Securities rated in the medium to low rating
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categories of nationally recognized statistical rating organizations, such as
Standard & Poor's Ratings Services ("S&P") and Moody's Investors Service, Inc.
("Moody's"), and unrated securities of comparable quality (such lower rated and
unrated securities are referred to herein as "high yield/high risk securities"
or "junk bonds") are speculative with respect to the capacity to pay interest
and repay principal in accordance with the terms of the security and generally
involve a greater volatility of price than securities in higher rating
categories. In purchasing such securities, the Fund will rely on the Manager's
judgment, analysis and experience in evaluating the creditworthiness of an
issuer of such securities. The Manager will take into consideration, among other
things, the issuer's financial resources, its sensitivity to economic conditions
and trends, its operating history, the quality of the issuer's management and
regulatory matters. The Fund does not intend to purchase debt securities that
are in default. See the Appendix to the Statement of Additional Information.
The market values of high yield/high risk securities tend to reflect
individual issuer developments to a greater extent than do higher rated
securities, which react primarily to fluctuations in the general level of
interest rates. Issuers of high yield/high risk securities may be highly
leveraged and may not have available to them more traditional methods of
financing. Therefore, the risk associated with acquiring the securities of such
issuers generally is greater than is the case with higher rated securities. For
example, during an economic downturn or a sustained period of rising interest
rates, issuers of high yield/high risk securities may be more likely to
experience financial stress, especially if such issuers are highly leveraged.
During such periods, service of debt obligations also may be adversely affected
by specific issuer developments, or the issuer's inability to meet specific
projected business forecasts, or the unavailability of additional financing. The
risk of loss due to default by the issuer is significantly greater for the
holders of high yield/high risk securities because such securities may be
unsecured and may be subordinated to other creditors of the issuer.
High yield/high risk securities may have call or redemption features which
would permit an issuer to repurchase the securities from the Fund. If a call
were exercised by the issuer during a period of declining interest rates, the
Fund likely would have to replace such called securities with lower yielding
securities, thus decreasing the net investment income to the Fund and dividends
to shareholders.
The Fund may have difficulty disposing of certain high yield/high risk
securities because there may be a thin trading market for such securities. To
the extent that a secondary trading market for high yield/high risk securities
does exist, it generally is not as liquid as the secondary market for higher
rated securities. Reduced secondary market liquidity may have an adverse impact
on market price and the Fund's ability to dispose of particular issues when
necessary to meet the Fund's liquidity needs or in response to a specific
economic event such as a deterioration in the creditworthiness of the issuer.
Reduced secondary market liquidity for certain high yield/high risk securities
also may make it more difficult for the Fund to obtain accurate market
quotations for purposes of valuing the Fund's portfolio. Market quotations
generally are available on many high yield/high risk securities only from a
limited number of dealers and may not necessarily represent firm bids of such
dealers or prices for actual sales. The Fund's Directors, or the Manager will
consider carefully the factors affecting the market for high yield/high risk,
lower rated securities in determining whether any particular security is liquid
or illiquid and whether current market quotations are readily available.
Adverse publicity and investor perceptions, which may not be based on
fundamental analysis, also may decrease the value and liquidity of high
yield/high risk securities, particularly in a thinly traded
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<PAGE> 14
market. Factors adversely affecting the market value of high yield/high risk
securities are likely to affect adversely the Fund's net asset value. In
addition, the Fund may incur additional expenses to the extent it is required to
seek recovery upon a default on a portfolio holding or participate in the
restructuring of the obligations.
INVESTMENT IN FOREIGN ISSUERS
General. The Fund may invest up to 25% of its total assets in the
securities of foreign issuers. Investment in securities of foreign issuers
involves certain risks not typically involved in domestic investments, including
fluctuations in foreign exchange rates, future political and economic
developments, different legal systems and the possible imposition of exchange
controls or other foreign governmental laws or restrictions. Securities prices
in different countries are subject to different economic, financial, political
and social factors. Changes in foreign currency exchange rates will affect the
value of securities in the Fund and the unrealized appreciation or depreciation
of investments. In addition, with respect to certain foreign countries, there is
the possibility of expropriation of assets, confiscatory taxation, difficulty in
obtaining or enforcing a court judgment, economic, political or social
instability or diplomatic developments that could affect investments in those
countries. Certain foreign investments also may be subject to foreign
withholding taxes. These risks often are heightened for investments in smaller,
emerging capital markets.
Public Information. Securities of foreign issuers may not be registered
with the Commission, nor may the issuers thereof be subject to the reporting
requirements of such agency. Accordingly, there may be less publicly available
information about a foreign issuer than about a U.S. issuer and such foreign
issuers may not be subject to accounting, auditing and financial reporting
standards and requirements comparable to those of U.S. issuers.
Trading Volume, Clearance and Settlement. Foreign financial markets, while
generally growing in trading volume, typically have substantially less volume
than U.S. markets, and securities of many foreign companies are less liquid and
their prices more volatile than securities of comparable domestic companies. The
foreign markets also have different clearance and settlement procedures. Delays
in settlement could result in periods when assets of the Fund are uninvested and
no return is earned thereon. The inability to dispose of a portfolio security
due to settlement problems could result either in losses to the Fund due to
subsequent declines in the value of such portfolio security or, if the Fund has
entered into a contract to sell the security, could result in possible liability
to the purchaser.
Government Supervision and Regulation. There generally is less
governmental supervision and regulation of exchanges, brokers and issuers in
foreign countries than there is in the United States. For example, there may be
no comparable provisions under certain foreign laws to insider trading and
similar investor protection securities laws that apply with respect to
securities transactions consummated in the United States. Further, brokerage
commissions and other transaction costs on foreign securities exchanges
generally are higher than in the United States.
NON-DIVERSIFICATION
The Fund is classified as a non-diversified investment company under the
Investment Company Act, which means that the Fund is not limited by the
Investment Company Act in the proportion of its assets that may be invested in
the obligations of a single issuer. Thus, the Fund may invest a greater
proportion of its assets in the securities of a smaller number of issuers and,
as a result, will be subject to
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<PAGE> 15
greater risk of loss with respect to its portfolio securities. The Fund,
however, intends to comply with requirements imposed by the Code for
qualification as a regulated investment company. See "Investment Objective and
Policies--Investment Restrictions" and "Taxes."
BORROWING
The Fund may borrow up to 33 1/3% of its total assets, taken at market
value, but only from banks as a temporary measure for extraordinary or emergency
purposes, including to meet redemptions (so as not to force the Fund to
liquidate securities at a disadvantageous time) or to settle securities
transactions. The Fund will not purchase securities at any time when borrowings
exceed 5% of its total assets, except (a) to honor prior commitments or (b) to
exercise subscription rights when outstanding borrowings have been obtained
exclusively for settlements of other securities transactions. The purchase of
securities while borrowings are outstanding will have the effect of leveraging
the Fund. Such leveraging increases the Fund's exposure to capital risk, and
borrowed funds are subject to interest costs that will reduce net income.
SUITABILITY
The economic benefit from an investment in the Fund depends upon many
factors beyond the control of the Fund, the Manager and its affiliates. Because
of its emphasis on securities of issuers principally engaged in the real estate
industry, the Fund should be considered as a vehicle for diversification and not
as a balanced investment program. The suitability for any particular investor of
a purchase of shares of the Fund will depend upon, among other things, such
investor's investment objectives and such investor's ability to accept the risks
of investing in such industry including the risk of a loss of principal.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek total return by investing
primarily in equity securities of issuers that are principally engaged in the
real estate industry. Total return is a combination of capital appreciation and
investment income. This investment objective is a fundamental policy of the Fund
and may not be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities, as defined in the Investment Company Act.
There can be no assurance that the Fund's investment objective will be achieved.
The Fund should be considered as a means of diversifying an investment
portfolio and not in itself a balanced investment program. Accordingly, the Fund
may be appropriate only for long-term investors who can assume the risk of loss
of principal, do not seek current income and can accommodate taxable
distributions of income and capital gains.
Under normal market conditions, at least 65% of the Fund's total assets
will be invested in equity securities of issuers that are principally engaged in
the real estate industry. An issuer "principally engaged" in that industry is an
issuer that derives at least 50% of its gross revenues or net profits from the
ownership, leasing, development, construction, financing, management or sale of
commercial, industrial or residential real estate or interests therein. Such
issuers may include, for example, real estate investment trusts ("REITs"), real
estate brokers, home builders or real estate developers, companies with
substantial real estate holdings
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(such as paper and lumber producers, agricultural businesses and lodging and
entertainment companies) and companies with significant involvement in the real
estate industry, such as building supply companies, financial institutions that
originate real estate mortgages and companies that provide mortgage servicing.
The equity securities in which the Fund will invest consist of common stocks,
shares or units of beneficial interest of REITs, preferred stock and securities
with equity characteristics, such as convertible securities and warrants.
The Manager's investment strategy with respect to equity securities of real
estate issuers is based on the premise that property market fundamentals are the
primary determinant of growth underlying the success of real estate equity
securities. Value added management will further distinguish the most attractive
real estate equity securities. The Manager's research and investment process is
designed to identify issuers with strong property fundamentals and strong
management teams. This process is comprised of real estate market research,
specific property inspection and securities analysis. The Manager believes that
this process will result in a portfolio of real estate equity securities of
issuers that own assets in desirable markets across the country, diversified
both geographically and by property type.
Under normal market conditions, up to 35% of the Fund's total assets may be
invested in (i) non-convertible debt securities, (ii) mortgage-backed securities
such as mortgage pass-through certificates, real estate mortgage investment
conduit ("REMIC") certificates and collateralized mortgage obligations ("CMOs"),
and (iii) cash or cash equivalents and investment grade, short-term securities
including money market securities ("Temporary Investments"). The Fund may invest
up to 25% of its total assets in foreign securities.
Because the Fund has not established any rating criteria for the debt
securities in which it may invest, its assets may be invested in non-convertible
debt securities, REMIC certificates and CMOs that are unrated or rated in the
medium to low rating categories of nationally recognized statistical rating
organizations. See "Risk Factors and Special Considerations" and the Appendix to
the Statement of Additional Information.
DESCRIPTION OF CERTAIN INVESTMENTS
REITS. REITs are pooled investment vehicles that invest primarily in
income producing real estate or real estate related loans or interests. REITs
are generally classified as equity REITs, mortgage REITs or a combination of
equity and mortgage REITs. Equity REITs invest the majority of their assets
directly or indirectly in real property and derive income primarily from the
collection of rents. Equity REITs can also realize capital gains by selling
properties that have appreciated in value. Mortgage REITs invest the majority of
their assets in real estate mortgages and derive income from the collection of
interest payments. Similar to investment companies such as the Fund, REITs are
not taxed on income distributed to shareholders provided they comply with
several requirements of the Code. The Fund will indirectly bear its
proportionate share of expenses incurred by REITs in which the Fund invests in
addition to the expenses incurred directly by the Fund.
Mortgage-Backed Securities. Mortgage-backed securities include mortgage
pass-through certificates and multiple-class pass-through securities, such as
REMIC pass-through certificates, CMOs and stripped mortgage-backed securities,
and other types of mortgage-backed securities that may be available in the
future.
The Fund may invest in guaranteed mortgage pass-through securities which
represent participation interests in pools of residential mortgage loans and
which are issued by United States governmental lenders or by private lenders and
guaranteed by the United States Government or one of its agencies or
instrumentalities,
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including but not limited to the Government National Mortgage Association
("Ginnie Mae"), the Federal National Mortgage Association ("Fannie Mae") and the
Federal Home Loan Mortgage Corporation ("Freddie Mac"). In general, Ginnie Mae
certificates are guaranteed by the full faith and credit of the United States
Government for timely payment of principal and interest on the certificates.
Fannie Mae certificates are generally guaranteed by Fannie Mae, a federally
chartered and privately-owned corporation for full and timely payment of
scheduled principal and interest on the certificates. In general, Freddie Mac
certificates are guaranteed by Freddie Mac, a corporate instrumentality of the
United States Government, for timely payment of interest and the ultimate
collection of all principal of the related mortgage loans.
Mortgage-backed securities also include CMOs and REMIC pass-through or
participation certificates, which may be issued by, among others, United States
Government agencies and instrumentalities as well as private lenders. CMOs and
REMIC certificates are issued in multiple classes and the principal of and
interest on the mortgage assets may be allocated among the several classes of
CMOs or REMIC certificates in various ways. Each class of CMOs or REMIC
certificates, often referred to as a "tranche," is issued at a specified
adjustable or fixed interest rate and must be fully retired no later than its
final distribution date. Generally, interest is paid or accrues on all classes
of CMOs or REMIC certificates on a monthly basis. The Fund will not invest in
the lowest tranche of CMOs and REMIC certificates.
Typically, CMOs are collateralized by Ginnie Mae or Freddie Mac
certificates but also may be collateralized by other mortgage assets such as
whole loans or private mortgage pass-through securities. Debt service on CMOs is
provided from payments of principal and interest on collateral of mortgage
assets and any reinvestment income thereon.
A REMIC is a pool of assets that qualifies for special tax treatment under
the Code and consists of certain mortgages or deeds of trust primarily secured
by interests in real property and other permitted investments. Investors may
purchase "regular" and "residual" interests in REMIC trusts although the Fund
does not intend to invest in "residual interests."
Investing in mortgage-backed securities involves certain unique risks in
addition to those generally associated with investing in the real estate
industry in general. These unique risks include the failure of a party to meet
its commitments under the related operative documents, adverse interest rate
changes and the effects of prepayments on mortgage cash flows. See "Risk Factors
and Special Considerations--Risk Associated with Real Estate
Investments--Mortgage-Backed Securities" for a more complete description of the
risks associated with mortgage-backed securities.
Temporary Investments. The Fund reserves the right, as a temporary
defensive measure, to hold up to 100% of its total assets in Temporary
Investments. Under certain adverse investment conditions, the Fund may restrict
the markets in which its assets will be invested and may increase the proportion
of assets invested in Temporary Investments. Investments made for defensive
purposes will be maintained only during periods in which the Manager determines
that economic or financial conditions are adverse for holding or being primarily
invested in equity securities. A portion of the Fund normally would be held in
Temporary Investments in anticipation of investment in equity securities or to
provide for possible redemptions.
Convertible Securities. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different issuer within a
particular period of time at a specified price or formula. A convertible
security entitles the holder to receive interest generally paid or accrued on
debt or the dividend paid on preferred stock until the
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convertible security matures or is redeemed, converted or exchanged. Convertible
securities have several unique investment characteristics such as (i) higher
yields than common stocks, but lower yields than comparable nonconvertible
securities, (ii) a lesser degree of fluctuation in value than the underlying
stock since they have fixed income characteristics, and (iii) the potential for
capital appreciation if the market price of the underlying common stock
increases. A convertible security might be subject to redemption at the option
of the issuer at a price established in the convertible security's governing
instrument. If a convertible security held by the Fund is called for redemption,
the Fund may be required to permit the issuer to redeem the security, convert it
into the underlying common stock or sell it to a third party.
Warrants. The Fund may invest in warrants, which are securities
permitting, but not obligating, their holder to subscribe for other securities.
Warrants do not carry with them the right to dividends or voting rights with
respect to the securities that they entitle their holders to purchase, and they
do not represent any rights in the assets of the issuer. As a result, an
investment in warrants may be considered more speculative than certain other
types of investments. In addition, the value of a warrant does not necessarily
change with the value of the underlying securities and a warrant ceases to have
value if it is not exercised prior to its expiration date.
Indexed and Inverse Securities. The Fund may invest in securities the
potential return of which is based on the change in particular measurements of
value or rate (an "index"). As an illustration, the Fund may invest in a debt
security that pays interest and returns principal based on the change in the
value of a securities index or a basket of securities, or based on the relative
changes of two indices. In addition, the Fund may invest in securities the
potential return of which is based inversely on the change in an index. For
example, the Fund may invest in securities that pay a higher rate of interest
when a particular index decreases and pay a lower rate of interest (or do not
fully return principal) when the value of the index increases. If the Fund
invests in such securities, it may be subject to reduced or eliminated interest
payments or loss of principal in the event of an adverse movement in the
relevant index or indices.
Certain indexed and inverse securities may have the effect of providing
investment leverage because the rate of interest or amount of principal payable
increases or decreases at a rate that is a multiple of the changes in the
relevant index. As a consequence, the market value of such securities may be
substantially more volatile than the market values of other debt securities. The
Fund believes that indexed and inverse securities may provide portfolio
management flexibility that permits the Fund to seek enhanced returns, hedge
other portfolio positions or vary the degree of portfolio leverage with greater
efficiency than would otherwise be possible under certain market conditions.
Depositary Receipts. The Fund may invest in the securities of foreign
issuers in the form of Depositary Receipts or other securities convertible into
securities of foreign issuers. Depositary Receipts may not necessarily be
denominated in the same currency as the underlying securities into which they
may be converted. ADRs are receipts typically issued by an American bank or
trust company which evidence ownership of underlying securities issued by a
foreign corporation. EDRs are receipts issued in Europe which evidence a similar
ownership arrangement. GDRs are receipts issued throughout the world which
evidence a similar arrangement. Generally, ADRs, in registered form, are
designed for use in the U.S. securities markets, and EDRs, in bearer form, are
designed for use in European securities markets. GDRs are tradeable both in the
U.S. and in Europe and are designed for use throughout the world. The Fund may
invest in unsponsored Depositary Receipts. The issuers of unsponsored Depository
Receipts are not obligated to disclose material information in the United
States, and therefore, there may be less information available regarding such
issuers and there may not be a correlation between such information and the
market value of the Depositary Receipts.
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Illiquid Securities. The Fund may invest up to 15% of its net assets in
securities that lack an established secondary trading market or otherwise are
considered illiquid. The Fund may invest in securities of issuers that are sold
in private placement transactions between the issuers and their purchasers and
that are neither listed on an exchange nor traded in other established markets.
In many cases, privately placed securities will be subject to contractual or
legal restrictions on transfer. See "Investment Restrictions" herein.
The Fund may purchase securities that are not registered ("restricted
securities") under the Securities Act of 1933, as amended (the "Securities
Act"), but can be offered and sold to "qualified institutional buyers" under
Rule 144A under the Securities Act. The Board of Directors has determined to
treat as liquid Rule 144A securities that are either (i) freely tradeable in
their primary markets offshore or (ii) non-investment grade debt securities
which the Manager determines are as liquid as publicly-registered non-investment
grade debt securities. The Board of Directors has adopted guidelines and
delegates 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.
Investment in Other Investment Companies. The Fund may invest in other
investment companies whose investment objectives and policies are consistent
with those of the Fund. In accordance with the Investment Company Act, the Fund
may invest up to 10% of its total assets in securities of other investment
companies. In addition, under the Investment Company Act the Fund may not own
more than 3% of the total outstanding voting stock of any investment company and
not more than 5% of the value of the Fund's total assets may be invested in the
securities of any investment company. If the Fund acquires shares in investment
companies, shareholders would bear both their proportionate share of expenses in
the Fund (including management and advisory fees) and, indirectly, the expenses
of such investment companies (including management and advisory fees).
OTHER INVESTMENT POLICIES AND PRACTICES
Portfolio Strategies Involving Options, Futures and Foreign Exchange
Transactions. The Fund is authorized to engage in certain investment practices
involving the use of options, futures and foreign exchange, which may expose the
Fund to certain risks. These investment practices and the associated risks are
described in detail in Appendix A attached to this Prospectus.
Portfolio Transactions. Subject to policies established by the Board of
Directors of the Fund, the Manager is primarily responsible for the execution of
the Fund's portfolio transactions. Since portfolio transactions may be effected
on foreign securities exchanges, the Fund may incur settlement delays on certain
of such exchanges. See "Risk Factors and Special Considerations." In executing
portfolio transactions, the Manager seeks to obtain the best net results for the
Fund, taking into account such factors as price (including the applicable
brokerage commissions or dealer spread), size of order, difficulty of execution,
operational facilities of the firm involved and the firm's risk in positioning a
block of securities. While the Manager generally seeks reasonably competitive
fees, commissions or spreads, the Fund does not necessarily pay the lowest fee,
commission or spread available. The Fund may invest in certain securities traded
in the over-the-counter ("OTC") market and, where possible, will deal directly
with the dealers who make a market in the securities involved except in those
circumstances where better prices and execution are available elsewhere. Such
dealers usually are acting as principal for their own account. On occasion,
securities may be purchased directly from the issuer. Such portfolio securities
are generally traded on a net basis and do not normally involve either brokerage
commissions or transfer taxes. Securities firms may receive brokerage
commissions on certain portfolio transactions including futures, options and
options on futures transactions and the
17
<PAGE> 20
purchase and sale of underlying securities upon exercise of options. The Fund
contemplates that, consistent with its policy of obtaining the best net results,
it will place orders for transactions with a number of brokers and dealers,
including Merrill Lynch, an affiliate of the Manager. Subject to obtaining the
best price and execution, securities firms that provide supplemental investment
research to the Manager, 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 Manager and the
expenses of the Manager will not necessarily be reduced as a result of the
receipt of such supplemental information. See "Management of the
Fund--Management and Advisory Arrangements."
Under the Investment Company Act, persons affiliated with the Fund and
persons who are affiliated with such affiliated persons, including Merrill
Lynch, are prohibited from dealing with the Fund as a principal in the purchase
and sale of securities unless a permissive order allowing such transactions is
obtained from the Commission. Affiliated persons of the Fund, and affiliated
persons of such affiliated persons, may serve as the Fund's broker in
transactions conducted on an exchange and in OTC transactions conducted on an
agency basis and may receive brokerage commissions from the Fund. In addition,
the Fund may not purchase securities during the existence of any underwriting
syndicate for such securities of which Merrill Lynch is a member except pursuant
to procedures approved by the Board of Directors of the Fund that comply with
rules adopted by the Commission. To the extent Merrill Lynch is active in
distributions of securities of issuers in certain foreign countries, the Fund
may be disadvantaged in that it may not purchase securities in such
distributions or may be limited in the amount it may purchase. In addition,
consistent with the Conduct Rules of the NASD, the Fund may consider sales of
shares of the Fund as a factor in the selection of brokers or dealers to execute
portfolio transactions for the Fund. It is expected that the majority of the
shares of the Fund will be sold by Merrill Lynch. Costs associated with
transactions in foreign securities are generally higher than in the U.S.,
although the Fund will endeavor to achieve the best net results in effecting its
portfolio transactions.
The Fund anticipates that its brokerage transactions involving securities
of issuers domiciled in countries other than the United States generally will be
conducted primarily on the principal stock exchanges of such countries.
Brokerage commissions and other transaction costs on foreign stock exchange
transactions generally are higher than in the United States, although the Fund
will endeavor to achieve the best net results in effecting its portfolio
transactions. There generally is less governmental supervision and regulation of
foreign stock exchanges and brokers than in the United States. See "Risk Factors
and Special Considerations."
Portfolio Turnover. Generally, the Fund does not purchase securities for
short-term trading profits. However, the Fund may dispose of securities without
regard to the time they have been held when such actions, for defensive or other
reasons, appear advisable to the Manager in light of a change in circumstances
in general market, economic or financial conditions. As a result of its
investment policies, the Fund may engage in a substantial number of portfolio
transactions. Accordingly, while the Fund anticipates that its annual portfolio
turnover rate should not exceed 100% under normal conditions, it is impossible
to predict portfolio turnover rates. The portfolio turnover rate is calculated
by dividing the lesser of the Fund's annual sales or purchases of portfolio
securities (exclusive of purchases or sales of all securities whose maturities
at the time of acquisition were one year or less) by the monthly average value
of the securities in the portfolio during the year. A high portfolio turnover
rate involves certain tax consequences and correspondingly greater transaction
costs in the form of dealer spreads and brokerage commissions, which are borne
directly by the Fund.
18
<PAGE> 21
Repurchase Agreements and Purchase and Sale Contracts. The Fund may invest
in securities pursuant to repurchase agreements or purchase and sale contracts.
Repurchase agreements and purchase and sale contracts may be entered into only
with financial institutions which (i) have, in the opinion of the Manager,
substantial capital relative to the Fund's exposure, or (ii) have provided the
Fund with a third-party guaranty or other credit enhancement. Under a repurchase
agreement or a purchase and sale contract, the seller agrees, upon entering into
the contract with the Fund, to repurchase the security at a mutually agreed-upon
time and price in a specified currency, thereby determining the yield during the
term of the agreement. This results in a fixed rate of return insulated from
market fluctuations during such period although it may be affected by currency
fluctuations. In the case of repurchase agreements, the price at which the
trades are conducted does not reflect accrued interest on the underlying
obligation; whereas, in the case of purchase and sale contracts, the prices take
into account accrued interest. Such agreements usually cover short periods, such
as under one week. Repurchase agreements may be construed to be collateral loans
by the purchaser to the seller secured by the securities transferred to the
purchaser. In the case of a purchase agreement, as a purchaser, the Fund will
require the seller to provide additional collateral if the market value of the
securities falls below the repurchase price at any time during the term of the
repurchase agreement; the Fund does not have the right to seek additional
collateral in the case of purchase and sale contracts. In the event of a default
by the seller under a repurchase agreement construed to be a collateralized
loan, the underlying securities are not owned by the Fund but only constitute
collateral for the seller's obligation to pay the repurchase price. Therefore,
the Fund may suffer time delays and incur costs or possible losses in connection
with the disposition of the collateral. A purchase and sale contract differs
from a repurchase agreement in that the contract arrangements stipulate that the
securities are owned by the Fund. In the event of a default under such a
repurchase agreement or under a purchase and sale contract, instead of the
contractual fixed rate, the rate of return to the Fund shall be dependent upon
intervening fluctuations of the market value of such securities and the accrued
interest on the securities. In such event, the Fund would have rights against
the seller for breach of contract with respect to any losses arising from market
fluctuations following the failure of the seller to perform. While the substance
of purchase and sale contracts is similar to repurchase agreements, because of
the different treatment with respect to accrued interest and additional
collateral, management believes that purchase and sale contracts are not
repurchase agreements as such term is understood in the banking and brokerage
community. The Fund may not invest more than 15% of its net assets in repurchase
agreements or purchase and sale contracts maturing in more than seven days
together with all other illiquid investments.
When-Issued Securities and Delayed Delivery Transactions. The Fund may
purchase or sell securities that it is entitled to receive on a when-issued
basis, and it may purchase or sell securities for delayed delivery. These
transactions occur when securities are purchased or sold by the Fund with
payment and delivery taking place in the future to secure what is considered an
advantageous yield and price to the Fund at the time of entering into the
transaction. Although the Fund has not established any limit on the percentage
of its assets that may be committed in connection with such transactions, the
Fund will maintain a segregated account with its custodian of cash, cash
equivalents, U.S. Government securities or other liquid securities denominated
in U.S. dollars or non-U.S. currencies in an aggregate amount equal to the
amount of its commitments in connection with such purchase transactions.
There can be no assurance that a security purchased on a when-issued basis
or purchased or sold for delayed delivery will be issued, and the value of the
security, if issued, on the delivery date may be more or less than its purchase
price. The Fund may bear the risk of a decline in the value of such security and
may not benefit from an appreciation in the value of the security during the
commitment period.
19
<PAGE> 22
Standby Commitment Agreements. The Fund, from time to time, may enter into
standby commitment agreements. Such agreements commit the Fund, for a stated
period of time, to purchase a stated amount of equity securities that may be
issued and sold to the Fund at the option of the issuer. The price and coupon of
the security is fixed at the time of the commitment. At the time of entering
into the agreement the Fund is paid a commitment fee, regardless of whether or
not the security is ultimately issued, which is typically approximately 0.50% of
the aggregate purchase price of the security that the Fund has committed to
purchase. The Fund will enter into such agreements only for the purpose of
investing in the security underlying the commitment at a price that is
considered advantageous to the Fund. The Fund will not enter into a standby
commitment with a remaining term in excess of 45 days and presently will limit
its investment in such commitments so that the aggregate purchase price of the
securities subject to such commitments, together with the value of portfolio
securities subject to legal restrictions on resale that affect their
marketability, will not exceed 15% of its net assets taken at the time of
acquisition of such a commitment. The Fund at all times will maintain a
segregated account with its custodian of cash, cash equivalents, U.S. Government
securities or other liquid securities denominated in U.S. dollars or non-U.S.
currencies in an aggregate amount equal to the purchase price of the securities
underlying a commitment.
There can be no assurance that the securities subject to a standby
commitment will be issued, and the value of the security, if issued, on the
delivery date may be more or less than its purchase price. Since the issuance of
the security underlying the commitment is at the option of the issuer, the Fund
may bear the risk of a decline in the value of such security and may not benefit
from an appreciation in the value of the security during the commitment period.
The purchase of a security subject to a standby commitment agreement and
the related commitment fee will be recorded on the date on which the security
can reasonably be expected to be issued, and the value of the security
thereafter will be reflected in the calculation of the Fund's net asset value.
The cost basis of the security will be adjusted by the amount of the commitment
fee. In the event the security is not issued, the commitment fee will be
recorded as income on the expiration date of the standby commitment.
Lending of Portfolio Securities. The Fund may from time to time lend
securities from its portfolio with a value not exceeding 33 1/3% of its total
assets to banks, brokers and other financial institutions and receive collateral
in cash or securities issued or guaranteed by the United States Government. Such
collateral will be maintained at all times in an amount equal to at least 100%
of the current market value of the loaned securities. During the period of such
a loan, the Fund receives the income on the loaned securities and either
receives the income on the collateral or other compensation, i.e., negotiated
loan premium or fee, for entering into the loan and thereby increases its yield.
In the event that the borrower defaults on its obligation to return borrowed
securities, because of insolvency or otherwise, the Fund could experience delays
and costs in gaining access to the collateral and could suffer a loss to the
extent that the value of the collateral falls below the market value of the
borrowed securities.
INVESTMENT RESTRICTIONS
The Fund's investment activities are subject to further restrictions that
are described in the Statement of Additional Information. Investment
restrictions and policies that are fundamental policies may not be changed
without the approval of the holders of a majority of the Fund's outstanding
voting securities (which for this purpose and under the Investment Company Act
means the lesser of (a) 67% of the shares represented at a meeting at which more
than 50% of the outstanding shares are represented or (b) more than 50% of the
outstanding shares). Among its fundamental policies, the Fund may not invest
more than 25% of its total
20
<PAGE> 23
assets, taken at market value at the time of each investment, in the securities
of issuers in any particular industry (excluding issuers principally engaged in
the real estate industry and the U.S. Government and its agencies and
instrumentalities). Investment restrictions and policies that are
non-fundamental policies may be changed by the Board of Directors without
shareholder approval. As a non-fundamental policy, the Fund may not borrow money
or pledge its assets, except that the Fund (a) may borrow from a bank as a
temporary measure for extraordinary or emergency purposes or to meet redemptions
in amounts not exceeding 33 1/3% (taken at market value) of its total assets and
pledge its assets to secure such borrowings, (b) may obtain such short-term
credit as may be necessary for the clearance of purchases and sales of portfolio
securities and (c) may purchase securities on margin to the extent permitted by
applicable law. (However, at the present time, applicable law prohibits the Fund
from purchasing securities on margin.) (The deposit or payment by the Fund of
initial or variation margin in connection with futures contracts or options
transactions is not considered to be the purchase of a security on margin.) The
purchase of securities while borrowings are outstanding will have the effect of
leveraging the Fund. Such leveraging or borrowing increases the Fund's exposure
to capital risk, and borrowed funds are subject to interest costs which will
reduce net income.
As a non-fundamental policy, the Fund will not invest in securities that
cannot readily be resold because of legal or contractual restrictions or that
are not otherwise readily marketable, including repurchase agreements 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.
Notwithstanding the foregoing, the Fund may purchase without regard to this
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 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 outside of the United States
should be deemed liquid. The Board, however, will retain sufficient oversight
and be ultimately responsible for the determinations.
Non-Diversified Status. The Fund is classified as non-diversified within
the meaning of the Investment Company Act, which means that the Fund is not
limited by such Act in the proportion of its assets that it may invest in
securities of a single issuer. The Fund's investments will be limited, however,
in order to qualify for the special treatment afforded "regulated investment
companies" under the Code. See "Taxes." To qualify, the Fund will comply with
certain requirements, including limiting its investments so that at the close of
each quarter of the taxable year (i) not more than 25% of the market value of
the Fund's total assets will be invested in the securities of a single issuer
and (ii) with respect to 50% of the market value of its total assets, not more
than 5% of the market value of its total assets will be invested in the
securities of a single issuer, and the Fund will not own more than 10% of the
outstanding voting securities of a single issuer. A fund that elects to be
classified as "diversified" under the Investment Company Act must satisfy the
foregoing 5% and 10% requirements with respect to 75% of its total assets. To
the extent that the Fund assumes large positions in the securities of a small
number of issuers, the Fund's net asset value may fluctuate to a greater extent
than that of a diversified company as a result of changes in the financial
condition or in the market's assessment of the issuers, and the Fund may be more
susceptible to any single economic, political or regulatory occurrence than a
diversified company.
21
<PAGE> 24
MANAGEMENT OF THE FUND
DIRECTORS
The Directors of the Fund consist of six individuals, five of whom are not
"interested persons" of the Fund as defined in the Investment Company Act. The
Directors are responsible for the overall supervision of the operations of the
Fund and perform the various duties imposed on the directors or trustees of
investment companies by the Investment Company Act.
The Directors are:
ARTHUR ZEIKEL* -- President of the Manager and its affiliate, FAM;
President and Director of Princeton Services, Inc. ("Princeton Services"); and
Executive Vice President of ML & Co.
JOE GRILLS -- Member of the Committee of Investment of Employee Benefit
Assets of the Financial Executives Institute ("CIEBA"); Member of CIEBA's
Executive Committee; Member of the Investment Advisory Committees of the State
of New York Common Retirement Fund and the Howard Hughes Medical Institute;
Director, Duke Management Company LaSalle Street Fund and Kimco Realty
Corporation.
WALTER MINTZ -- Special Limited Partner of Cumberland Associates
(investment partnership).
ROBERT S. SALOMON, JR. -- Principal of STI Management (investment adviser).
MELVIN R. SEIDEN -- Director of Silbanc Properties, Ltd. (real estate,
investments and consulting).
STEPHEN B. SWENSRUD -- Chairman of Fernwood Advisors (investment adviser).
MANAGEMENT AND ADVISORY ARRANGEMENTS
The Manager acts as the manager for the Fund and provides the Fund with
investment management services. The Manager is owned and controlled by ML & Co.,
a financial services holding company and the parent of Merrill Lynch. The
Manager or FAM acts as the investment adviser for more than 140 registered
investment companies. The Manager also offers portfolio management and portfolio
analysis services to individuals and institutions. As of October 31, 1997, the
Manager and FAM had a total of approximately $271.9 billion in investment
company and other portfolio assets under management, including accounts of
certain affiliates of the Manager. The principal business address of the Manager
is 800 Scudders Mill Road, Plainsboro, New Jersey 08536.
The Fund has entered into an investment advisory agreement with the Manager
(the "Management Agreement"). As described in the Management Agreement, the
Manager will receive for its services to the Fund monthly compensation at the
annual rate of 0.85% of the average daily net assets of the Fund. The Management
Agreement provides that, subject to the direction of the Board of Directors of
the Fund, the Manager is responsible for the actual management of the Fund's
portfolio. The responsibility for making decisions to buy, sell or hold a
particular security rests with the Manager, subject to review by the Board of
Directors.
The Manager provides the portfolio manager for the Fund who considers
analyses from various sources (including brokerage firms with which the Fund
does business), makes the necessary decisions, and places orders for
transactions accordingly. The Manager is also obligated to perform certain
administrative and
- ---------------
* Interested person, as defined by the Investment Company Act, of the Fund.
22
<PAGE> 25
management services for the Fund and is obligated to provide all of the office
space, facilities, equipment and personnel necessary to perform its duties under
the Management Agreement.
Jay L. Willoughby is the Portfolio Manager of the Fund and is responsible
for the day-to-day management of the Fund's investment portfolio. Mr. Willoughby
was a partner and portfolio manager for the Crabbe Huson Group from 1988 to
1995. From January 1995 to November 1997 he was a Managing Director of AEW
Capital Management, L.P. He has been a Senior Portfolio Manager of the Manager
since November 1997.
The Manager has also entered into a sub-advisory agreement (the
"Sub-Advisory Agreement") with Merrill Lynch Asset Management U.K. Limited
("MLAM U.K."), an indirect, wholly owned subsidiary of ML & Co. and an affiliate
of the Manager, pursuant to which the Manager pays MLAM U.K. a fee for providing
investment advisory services to the Manager with respect to the Fund in an
amount to be determined from time to time by the Manager and MLAM U.K. but in no
event in excess of the amount the Manager actually receives for providing
services to the Fund pursuant to the Management Agreement. MLAM U.K. has offices
at Milton Gate, 1 Moor Lane, London EC2Y 9HA, England.
The Management Agreement obligates the Fund to pay certain expenses
incurred in its operations including, among other things, the investment
advisory fees, legal and audit fees, registration fees, unaffiliated Directors'
fees and expenses, custodian and transfer fees, accounting and pricing costs and
certain of the costs of printing proxies, shareholder reports, prospectuses and
statements of additional information distributed to shareholders. Accounting
services are provided to the Fund by the Manager and the Fund reimburses the
Manager for its costs in connection with such services.
CODE OF ETHICS
The Board of Directors of the Fund has adopted a Code of Ethics under Rule
17j-l of the Investment Company Act that incorporates the Code of Ethics of the
Manager (together, the "Codes"). The Codes significantly restrict the personal
investing activities of all employees of the Manager and, as described below,
impose additional, more onerous, restrictions on fund investment personnel.
The Codes require that all employees of the Manager preclear any personal
securities investment (with limited exceptions, such as government securities).
The preclearance requirement and associated procedures are designed to identify
any substantive prohibition or limitation applicable to the proposed investment.
The substantive restrictions applicable to all employees of the Manager include
a ban on acquiring any securities in a "hot" initial public offering and a
prohibition from profiting on short-term trading in securities. In addition, no
employee may purchase or sell any security which at the time is being purchased
or sold (as the case may be), or to the knowledge of the employee is being
considered for purchase or sale, by any fund advised by the Manager.
Furthermore, the Codes provide for trading "blackout periods" which prohibit
trading by investment personnel of the Fund within periods of trading by the
Fund in the same (or equivalent) security (15 or 30 days depending upon the
transaction).
TRANSFER AGENCY SERVICES
The Transfer Agent, which is a subsidiary of ML & Co., acts as the Fund's
transfer agent pursuant to a Transfer Agency, Dividend Disbursing Agency and
Shareholder Servicing Agency Agreement (the "Transfer Agency Agreement").
Pursuant to the Transfer Agency Agreement, the Transfer Agent is responsible for
the issuance, transfer and redemption of shares and the opening and maintenance
of shareholder accounts.
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<PAGE> 26
Pursuant to the Transfer Agency Agreement, the Transfer Agent receives a fee of
up to $11.00 per Class A or Class D account and up to $14.00 per Class B or
Class C account and is entitled to reimbursement from the Fund for certain
transaction charges and out-of-pocket expenses incurred by the Transfer Agent
under the Transfer Agency Agreement. Additionally, a $.20 monthly closed account
charge will be assessed on all accounts which close during the calendar year.
Application of this fee will commence the month following the month the account
is closed. At the end of the calendar year, no further fees will be due. For
purposes of the Transfer Agency Agreement, the term "account" includes a
shareholder account maintained directly by the Transfer Agent and any other
account representing the beneficial interest of a person in the relevant share
class on a recordkeeping system, provided the recordkeeping system is maintained
by a subsidiary of ML & Co.
PURCHASE OF SHARES
SUBSCRIPTION OFFERING
The Distributor, a subsidiary of the Manager and an affiliate of both FAM
and Merrill Lynch, will act as the distributor of the shares of the Fund.
The Distributor, Merrill Lynch and other securities dealers which have
entered into selected dealer agreements with the Distributor will solicit
subscriptions for shares of the Fund during a period expected to end on December
22, 1997. The subscription period may be extended upon agreement between the
Fund and the Distributor. On the third business day after the conclusion of the
subscription period, the subscriptions will be payable, the Class A, Class B,
Class C and Class D shares will be issued and the Fund will commence operations.
The subscription offering may be terminated by the Fund or the Distributor at
any time, in which event no Class A, Class B, Class C or Class D shares will be
issued (and, therefore, the Fund will not commence operations and no amounts
will be payable by subscribers, and no sales charges will be assessed) or a
limited number of shares will be issued.
The public offering price of the Class A and Class D shares during the
subscription offering is set forth in the table below:
<TABLE>
<CAPTION>
SUBSCRIPTION PERIOD
----------------------------------------------
SECURITIES DEALERS'
SALES CHARGE CONCESSION
--------------------- ---------------------
PERCENTAGE* PERCENTAGE*
PUBLIC OF PUBLIC OF PUBLIC
OFFERING DOLLAR OFFERING DOLLAR OFFERING
PRICE AMOUNT PRICE AMOUNT PRICE
-------- ------ ----------- ------ -----------
<S> <C> <C> <C> <C> <C>
Less than $25,000............................. $ 10.554 $.554 5.25% $.554 5.25%
$25,000 but less than $50,000................. 10.499 .499 4.75 .499 4.75
$50,000 but less than $100,000................ 10.417 .417 4.00 .417 4.00
$100,000 but less than $250,000............... 10.309 .309 3.00 .309 3.00
$250,000 but less than $1,000,000............. 10.204 .204 2.00 .204 2.00
$1,000,000 and over**......................... 10.000 .000 0.00 .000 0.00
</TABLE>
- ---------------
* Rounded to the nearest one-hundredth percent.
** The initial sales charge may be waived on Class A and Class D purchases of
$1,000,000 or more. If the sales charge is waived, such purchases will be
subject to a CDSC of 1.0% if the shares are redeemed within one year after
purchase. The charge will be assessed on an amount equal to the lesser of the
proceeds of redemption or the cost of the shares being redeemed. A sales
charge of 0.75% will be charged on purchases of $1,000,000 or more of Class A
or Class D shares by certain 401(k) plans.
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<PAGE> 27
The Distributor may reallow discounts to selected dealers and retain the
balance over such discounts. At times the Distributor may reallow the entire
sales charge to such dealers. Since securities dealers selling Class A and Class
D shares of the Fund will receive a concession equal to most of the sales
charge, they may be deemed to be underwriters under the Securities Act.
The proceeds per share to the Fund from the sale of all Class A and Class D
shares sold during the subscription period will be $10.00.
The public offering price of the Class B and Class C shares during the
subscription offering will be $10.00 per share. However, the Class B and Class C
shares may be subject to the CDSCs described below under "Deferred Sales Charge
Alternatives--Class B and Class C Shares" if redeemed within four years after
purchase, in the case of Class B shares, or one year after purchase, in the case
of Class C shares, and are subject to ongoing account maintenance and
distribution fees as described below.
The minimum initial purchase for Class A, Class B, Class C or Class D
shares during the subscription period is $1,000, except that for retirement
plans, the minimum initial purchase is $100.
CONTINUOUS OFFERING
Commencing immediately after completion of the subscription offering,
shares of the Fund will be offered continuously for sale by the Distributor and
other eligible securities dealers (including Merrill Lynch). During the
continuous offering, shares of the Fund may be purchased from securities dealers
or by mailing a purchase order directly to the Transfer Agent. The minimum
initial purchase during the continuous offering is $1,000. The minimum
subsequent purchase is $50, except that for retirement plans, the minimum
initial purchase is $100 and the minimum subsequent purchase is $1 and for
participants in certain fee-based programs, the minimum initial purchase is $500
and the minimum subsequent purchase is $50. Different minimums may apply to
purchases made through the Merrill Lynch Blueprint(SM) Program. See "Purchase of
Shares--Merrill Lynch Blueprint(SM) Program" in the Statement of Additional
Information.
The Fund will offer its shares in four classes during the continuous
offering at a public offering price equal to the next determined net asset value
per share plus sales charges imposed either at the time of purchase or on a
deferred basis depending upon the class of shares selected by the investor under
the Merrill Lynch Select Pricing(SM) System, as described below. The applicable
offering price for purchase orders is based upon the net asset value of the Fund
next determined after receipt of the purchase orders by the Distributor. As to
purchase orders received by securities dealers prior to the close of business on
the New York Stock Exchange (the "NYSE") (generally, 4:00 p.m., New York time),
which includes orders received after the determination of net asset value on the
previous day, the applicable offering price will be based on the net asset
value, as of 15 minutes after the close of business on the NYSE on that day,
provided the Distributor in turn receives the order from the securities dealer
prior to 30 minutes after the close of business on the NYSE on that day. If the
purchase orders are not received by the Distributor prior to 30 minutes after
the close of business on the NYSE such orders shall be deemed received on the
next business day. The Fund or the Distributor may suspend the continuous
offering of the Fund's shares of any class at any time in response to conditions
in the securities markets or otherwise and may thereafter resume such offering
from time to time. Any order may be rejected by the Distributor or the Fund.
Neither the Distributor nor the dealers are permitted to withhold placing orders
to benefit themselves by a price change. Merrill Lynch may charge its customers
a processing fee (presently $5.35) to confirm a sale of shares to such
customers. Purchases made directly through the Transfer Agent are not subject to
the processing fee.
25
<PAGE> 28
The Fund issues four classes of shares under the Merrill Lynch Select
Pricing(SM) System, which permits each investor to choose the method of
purchasing shares that the investor believes is most beneficial given the amount
of the purchase, the length of time the investor expects to hold the shares and
other relevant circumstances. Shares of Class A and Class D are sold to
investors choosing the initial sales charge alternatives and shares of Class B
and Class C are sold to investors choosing the deferred sales charge
alternatives. Investors should determine whether under their particular
circumstances it is more advantageous to incur an initial sales charge or to
have the entire initial purchase price invested in the Fund with the investment
thereafter being subject to a CDSC and ongoing distribution fees. A discussion
of the factors that investors should consider in determining the method of
purchasing shares under the Merrill Lynch Select Pricing(SM) System is set forth
under "Merrill Lynch Select Pricing(SM) System" on page 4.
Each Class A, Class B, Class C and Class D share of the Fund represents an
identical interest in the investment portfolio of the Fund and has the same
rights, except that Class B, Class C and Class D shares bear the expenses of the
ongoing account maintenance fees, and Class B and Class C shares bear the
expenses of the ongoing distribution fees and the additional incremental
transfer agency costs resulting from the deferred sales charge arrangements. The
CDSCs, distribution fees and account maintenance fees that are imposed on Class
B and Class C shares, as well as the account maintenance fees that are imposed
on Class D shares, will be imposed directly against those classes and not
against all assets of the Fund and, accordingly, such charges will not affect
the net asset value of any other class or have any impact on investors choosing
another sales charge option. Dividends paid by the Fund for each class of shares
will be calculated in the same manner at the same time and will differ only to
the extent that account maintenance and distribution fees and any incremental
transfer agency costs relating to a particular class are borne exclusively by
that class. Class B, Class C and Class D shares each have exclusive voting
rights with respect to the Rule 12b-1 distribution plan adopted with respect to
such class pursuant to which account maintenance and/or distribution fees are
paid (except that Class B shareholders may vote upon any material changes to
expenses charged under the Class D Distribution Plan). See "Distribution Plans"
below. Each class has different exchange privileges. See "Shareholder
Services--Exchange Privilege."
Investors should understand that the purpose and function of the initial
sales charges with respect to Class A and Class D shares are the same as those
of the deferred sales charges and distribution fees with respect to Class B and
Class C shares in that the sales charges and distribution fees, if any,
applicable to each class provide for the financing of the distribution of the
shares of the Fund. The distribution-related revenues paid with respect to a
class will not be used to finance the distribution expenditures of another
class. Sales personnel may receive different compensation for selling different
classes of shares. Investors are advised that only Class A and Class D shares
may be available for purchase through securities dealers, other than Merrill
Lynch, which are eligible to sell shares.
26
<PAGE> 29
The following table sets forth a summary of the distribution arrangements
for each class of shares under the Merrill Lynch Select Pricing(SM) System.
<TABLE>
<CAPTION>
=================================================================================================
ACCOUNT
MAINTENANCE DISTRIBUTION
CLASS SALES CHARGE(1) FEE FEE CONVERSION FEATURE
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A Maximum 5.25% No No No
initial sales charge(2)(3)
-------------------------------------------------------------------------------------------------
B CDSC for a period of four years, 0.25% 0.75% B shares convert to D
at a rate of 4.0% during the shares
first year, decreasing 1.0% automatically after
annually to 0.0%(4) approximately eight
years(5)
-------------------------------------------------------------------------------------------------
C 1.0% CDSC for one year(6) 0.25% 0.75% No
-------------------------------------------------------------------------------------------------
D Maximum 5.25% 0.25% No No
initial sales charge(3)
=================================================================================================
</TABLE>
- ---------------
(1) Initial sales charges are imposed at the time of purchase as a percentage of
the offering price. CDSCs may be imposed if the redemption occurs within the
applicable CDSC time period. The charge will be assessed on an amount equal
to the lesser of the proceeds of redemption or the cost of the shares being
redeemed.
(2) Offered only to eligible investors. See "Initial Sales Charge
Alternatives--Class A and Class D Shares--Eligible Class A Investors."
(3) Reduced for purchases of $25,000 or more and waived for purchases of Class A
shares by certain retirement plans and participants in connection with
certain fee-based programs. Class A and Class D share purchases of
$1,000,000 or more may not be subject to an initial sales charge but, if the
initial sales charge is waived, may be subject to a 1.0% CDSC if redeemed
within one year. Such CDSC may be waived in connection with certain
fee-based programs. A 0.75% sales charge for 401(k) purchases over
$1,000,000 will apply.
(4) The CDSC may be modified in connection with certain fee-based programs.
(5) The conversion period for dividend reinvestment shares and the conversion
and holding periods for certain retirement plans are modified. Also, Class B
shares of certain other MLAM-advised mutual funds into which exchanges may
be made have a ten-year conversion period. If Class B shares of the Fund are
exchanged for Class B shares of another MLAM-advised mutual fund, the
conversion period applicable to the Class B shares acquired in the exchange
will apply, and the holding period for the shares exchanged will be tacked
onto the holding period for the shares acquired.
(6) The CDSC may be waived in connection with certain fee-based programs.
INITIAL SALES CHARGE ALTERNATIVES--CLASS A AND CLASS D SHARES
Investors choosing the initial sales charge alternatives who are eligible
to purchase Class A shares should purchase Class A shares rather than Class D
shares because there is an account maintenance fee imposed on Class D shares.
27
<PAGE> 30
The public offering price of Class A and Class D shares for purchasers
choosing the initial sales charge alternative is the next determined net asset
value plus varying sales charges (i.e., sales loads), as set forth below:
<TABLE>
<CAPTION>
DISCOUNT TO
SALES CHARGE AS SALES CHARGE AS SELECTED DEALERS
PERCENTAGE OF PERCENTAGE* OF THE AS PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE NET AMOUNT INVESTED THE OFFERING PRICE
- ----------------------------------------------- --------------- ------------------- ------------------
<S> <C> <C> <C>
Less than $25,000.............................. 5.25% 5.54% 5.00%
$25,000 but less than $50,000.................. 4.75 4.99 4.50
$50,000 but less than $100,000................. 4.00 4.16 3.75
$100,000 but less than $250,000................ 3.00 3.09 2.75
$250,000 but less than $1,000,000.............. 2.00 2.04 1.80
$1,000,000 and over**.......................... 0.00 0.00 0.00
</TABLE>
- ---------------
* Rounded to the nearest one-hundredth percent.
** The initial sales charge may be waived on Class A and Class D purchases of
$1,000,000 or more and on Class A share purchases by certain retirement plan
investors and participants in connection with certain fee-based programs. If
the sales charge is waived in connection with a purchase of $1,000,000 or
more, such purchases may be subject to a CDSC of 1.0% if the shares are
redeemed within one year after purchase. Such CDSC may be waived in
connection with certain fee-based programs. The charge will be assessed on an
amount equal to the lesser of the proceeds of redemption or the cost of the
shares being redeemed. A sales charge of 0.75% will be charged on purchases
of $1,000,000 or more of Class A or Class D shares by certain
employer-sponsored retirement or savings plans.
The Distributor may reallow discounts to selected dealers and retain the
balance over such discounts. At times the Distributor may reallow the entire
sales charge to such dealers. Since securities dealers selling Class A and Class
D shares of the Fund will receive a concession equal to most of the sales
charge, they may be deemed to be underwriters under the Securities Act. The
proceeds from the account maintenance fees are used to compensate Merrill Lynch
(pursuant to a sub-agreement) for providing continuing account maintenance
activities.
Eligible Class A Investors. Class A shares are offered to a limited group
of investors and also will be issued upon reinvestment of dividends on
outstanding Class A shares. Investors that own Class A shares of the Fund in a
shareholder account, including participants in the Merrill Lynch Blueprint(SM)
Program, are entitled to purchase additional Class A shares of the Fund in that
account. Certain employer-sponsored retirement or savings plans, including
eligible 401(k) plans, may purchase Class A shares at net asset value provided
such plans meet the required minimum number of eligible employees or required
amount of assets advised by MLAM or any of its affiliates. Class A shares are
available at net asset value to corporate warranty insurance reserve fund
programs and U.S. branches of foreign banking institutions provided that the
program or branch has $3 million or more initially invested in MLAM-advised
mutual funds. Also eligible to purchase Class A shares at net asset value are
participants in certain fee-based programs including TMA(SM) Managed Trusts to
which Merrill Lynch Trust Company provides discretionary trustee services,
collective investment trusts for which Merrill Lynch Trust Company serves as
trustee and certain purchases made in connection with certain fee-based
programs. In addition, Class A shares are offered at net asset value to ML & Co.
and its subsidiaries and their directors and employees and to members of the
Boards of MLAM-advised investment companies, including the Fund. Certain persons
who acquired shares of certain MLAM-advised closed-end funds in their initial
offerings who wish to reinvest the net proceeds from a sale of their closed-end
fund shares of common stock in shares of the Fund also may purchase Class A
shares of the Fund if certain conditions set forth in the
28
<PAGE> 31
Statement of Additional Information are met. In addition, Class A shares of the
Fund and certain other MLAM-advised mutual funds are offered at net asset value
to shareholders of Merrill Lynch Senior Floating Rate Fund, Inc. and, if certain
conditions set forth in the Statement of Additional Information are met, to
shareholders of Merrill Lynch Municipal Strategy Fund, Inc. and Merrill Lynch
High Income Municipal Bond Fund, Inc. who wish to reinvest the net proceeds from
a sale of certain of their shares of common stock pursuant to a tender offer
conducted by such funds in shares of the Fund and certain other MLAM-advised
mutual funds.
Reduced Initial Sales Charges. No sales charges are imposed upon Class A
and Class D shares issued as a result of the automatic reinvestment of dividends
or capital gains distributions. Class A and Class D sales charges also may be
reduced under a Right of Accumulation and a Letter of Intention. Class A shares
are offered at net asset value to certain eligible Class A investors as set
forth above under "Eligible Class A Investors." See "Shareholder
Services--Fee-Based Programs."
Provided applicable threshold requirements are met, either Class A or Class
D shares are offered at net asset value to Employee Access(SM) Accounts
available through authorized employers. Class A shares are offered at net asset
value to shareholders of Merrill Lynch Senior Floating Rate Fund, Inc., and
subject to certain conditions, Class A and Class D shares are offered at net
asset value to shareholders of Merrill Lynch Municipal Strategy Fund, Inc. and
Merrill Lynch High Income Municipal Bond Fund, Inc., who wish to reinvest in
shares of the Fund the net proceeds from a sale of certain of their shares of
common stock pursuant to tender offers conducted by those funds.
Class D shares are offered at net asset value, without a sales charge, to
an investor who has a business relationship with a Merrill Lynch Financial
Consultant, if certain conditions set forth in the Statement of Additional
Information are met. Class D shares may be offered at net asset value in
connection with the acquisition of assets of other investment companies.
Class D shares are offered with reduced sales charges and, in certain
circumstances, at net asset value, to participants in the Merrill Lynch
Blueprint(SM) Program.
Additional information concerning these reduced initial sales charges is
set forth in the Statement of Additional Information.
DEFERRED SALES CHARGE ALTERNATIVES--CLASS B AND CLASS C SHARES
Investors choosing the deferred sales charge alternatives should consider
Class B shares if they intend to hold their shares for an extended period of
time and Class C shares if they are uncertain as to the length of time they
intend to hold their assets in MLAM-advised mutual funds.
The public offering price of Class B and Class C shares for investors
choosing the deferred sales charge alternatives is the next determined net asset
value per share without the imposition of a sales charge at the time of
purchase. As discussed below, Class B shares are subject to a four-year CDSC,
which declines each year, while Class C shares are subject only to a one-year
1.0% CDSC. On the other hand, approximately eight years after Class B shares are
issued, such Class B shares, together with shares issued upon dividend
reinvestment with respect to those shares, are automatically converted into
Class D shares of the Fund and thereafter will be subject to lower continuing
fees. See "Conversion of Class B Shares to Class D Shares"
29
<PAGE> 32
below. Both Class B and Class C shares are subject to an account maintenance fee
of 0.25% of net assets and distribution fees of 0.75% of net assets as discussed
below under "Distribution Plans."
Class B and Class C shares are sold without an initial sales charge so that
the Fund will receive the full amount of the investor's purchase payment.
Merrill Lynch compensates its financial consultants for selling Class B and
Class C shares at the time of purchase from its own funds. See "Distribution
Plans" below.
Proceeds from the CDSC and the distribution fee are paid to the Distributor
and are used in whole or in part by the Distributor to defray the expenses of
dealers (including Merrill Lynch) related to providing distribution related
services to the Fund in connection with the sale of the Class B and Class C
shares, such as the payment of compensation to financial consultants for selling
Class B and Class C shares from the dealers' own funds. The combination of the
CDSC and the ongoing distribution fee facilitates the ability of the Fund to
sell the Class B and Class C shares without a sales charge being deducted at the
time of purchase. The proceeds from the account maintenance fees are used to
compensate Merrill Lynch for providing continuing account maintenance
activities. Approximately eight years after issuance, Class B shares will
convert automatically into Class D shares of the Fund, which are subject to an
account maintenance fee but no distribution fee; Class B shares of certain other
MLAM-advised mutual funds into which exchanges may be made convert into Class D
shares automatically after approximately ten years. If Class B shares of the
Fund are exchanged for Class B shares of another MLAM-advised mutual fund, the
conversion period applicable to the Class B shares acquired in the exchange will
apply, and the holding period for the shares exchanged will be tacked onto the
holding period for the shares acquired.
Imposition of the CDSC and the distribution fee on Class B and Class C
shares is limited by the NASD asset-based sales charge rule. See "Limitations on
the Payment of Deferred Sales Charges" below. The proceeds from the ongoing
account maintenance fee are used to compensate Merrill Lynch for providing
continuing account maintenance activities. Class B shareholders of the Fund
exercising the exchange privilege described under "Shareholder
Services--Exchange Privilege" will continue to be subject to the Fund's CDSC
schedule if such schedule is higher than the CDSC schedule relating to the Class
B shares acquired as a result of the exchange.
Contingent Deferred Sales Charges--Class B Shares. Class B shares that are
redeemed within four years of purchase may be subject to a CDSC at the rates set
forth below charged as a percentage of the dollar amount subject thereto. The
charge will be assessed on an amount equal to the lesser of the proceeds of
redemption or the cost of the shares being redeemed. Accordingly, no CDSC will
be imposed on increases in net asset value above the initial purchase price. In
addition, no charge will be assessed on shares derived from reinvestment of
dividends or capital gains distributions.
30
<PAGE> 33
The following table sets forth the rates of the Class B CDSC:
<TABLE>
<CAPTION>
CLASS B CDSC AS A
PERCENTAGE OF
YEAR SINCE PURCHASE DOLLAR AMOUNT
PAYMENT MADE SUBJECT TO CHARGE
------------------------------------------------------------ ------------------
<S> <C>
0-1......................................................... 4.0%
1-2......................................................... 3.0%
2-3......................................................... 2.0%
3-4......................................................... 1.0%
4 and thereafter............................................ None
</TABLE>
In determining whether a CDSC is applicable to a redemption, the
calculation will be determined in the manner that results in the lowest
applicable rate being charged. Therefore, it will be assumed that the redemption
is first of shares held for over four years or shares acquired pursuant to
reinvestment of dividends or distributions and then of shares held longest
during the four-year period. The charge will not be applied to dollar amounts
representing an increase in the net asset value since the time of purchase. A
transfer of shares from a shareholder's account to another account will be
assumed to be made in the same order as a redemption.
To provide an example, assume an investor purchased 100 Class B shares at
$10 per share (at a cost of $1,000) and in the third year after purchase, the
net asset value per share is $12 and, during such time, the investor has
acquired 10 additional shares through dividend reinvestment. If at such time the
investor makes his or her first redemption of 50 shares (proceeds of $600), 10
shares will not be subject to the CDSC because of dividend reinvestment. With
respect to the remaining 40 shares, the CDSC is applied only to the original
cost of $10 per share and not to the increase in net asset value of $2 per
share. Therefore, $400 of the $600 redemption proceeds will be charged at a rate
of 2.0% (the applicable rate in the third year after purchase).
The Class B CDSC is waived on redemptions of shares in connection with
certain post-retirement withdrawals from an Individual Retirement Account
("IRA") or other retirement plan or following the death or disability (as
defined in the Code) of a shareholder. The Class B CDSC also is waived on
redemptions of shares by certain eligible 401(a) and eligible 401(k) plans and
in connection with certain group plans placing orders through the Merrill Lynch
Blueprint(SM) Program. The CDSC is also waived for any Class B shares that are
purchased by eligible 401(a) or eligible 401(k) plans that are rolled over into
a Merrill Lynch or Merrill Lynch Trust Company custodied IRA and held in such
account at the time of redemption. The Class B CDSC is also waived for any Class
B shares purchased within eligible Employee Access(SM) Accounts. The Class B
CDSC also is waived for any Class B shares which are purchased by a Merrill
Lynch rollover IRA that was funded by a rollover from a terminated 401(k) plan
managed by the MLAM Private Portfolio Group and held in such account at the
time of redemption. Additional information concerning the waiver of the Class B
CDSC is set forth in the Statement of Additional Information. The terms of the
CDSC may be modified in connection with certain fee-based programs. See
"Shareholder Services--Fee-Based Programs."
Contingent Deferred Sales Charges--Class C Shares. Class C shares that are
redeemed within one year after purchase may be subject to a 1.0% CDSC charged as
a percentage of the dollar amount subject thereto. The charge will be assessed
on an amount equal to the lesser of the proceeds of redemption or the cost of
the shares being redeemed. Accordingly, no Class C CDSC will be imposed on
increases in net asset value above
31
<PAGE> 34
the initial purchase price. In addition, no Class C CDSC will be assessed on
shares derived from reinvestment of dividends or capital gains distributions.
The Class C CDSC may be waived in connection with certain fee-based programs.
See "Shareholder Services--Fee-Based Programs."
In determining whether a Class C CDSC is applicable to a redemption, the
calculation will be determined in the manner that results in the lowest possible
rate being charged. Therefore, it will be assumed that the redemption is first
of shares held for over one year or shares acquired pursuant to reinvestment of
dividends or distributions and then of shares held longest during the one-year
period. The charge will not be applied to dollar amounts representing an
increase in the net asset value since the time of purchase. A transfer of shares
from a shareholder's account to another account will be assumed to be made in
the same order as a redemption.
Conversion of Class B Shares to Class D Shares. After approximately eight
years (the "Conversion Period"), Class B shares will be converted automatically
into Class D shares of the Fund. Class D shares are subject to an ongoing
account maintenance fee of 0.25% of net assets but are not subject to the
distribution fee that is borne by Class B shares. Automatic conversion of Class
B shares into Class D shares will occur at least once each month (on the
"Conversion Date") on the basis of the relative net asset values of the shares
of the two classes on the Conversion Date, without the imposition of any sales
load, fee or other charge. Conversion of Class B shares to Class D shares will
not be deemed a purchase or sale of the shares for Federal income tax purposes.
In addition, shares purchased through reinvestment of dividends on Class B
shares also will convert automatically to Class D shares. The Conversion Date
for dividend reinvestment shares will be calculated taking into account the
length of time the shares underlying such dividend reinvestment shares were
outstanding. If at a Conversion Date the conversion of Class B shares to Class D
shares of the Fund in a single account will result in less than $50 worth of
Class B shares being left in the account, all of the Class B shares of the Fund
held in the account on the Conversion Date will be converted to Class D shares
of the Fund.
Share certificates for Class B shares of the Fund to be converted must be
delivered to the Transfer Agent at least one week prior to the Conversion Date
applicable to those shares. In the event such certificates are not received by
the Transfer Agent at least one week prior to the Conversion Date, the related
Class B shares will convert to Class D shares on the next scheduled Conversion
Date after such certificates are delivered.
In general, Class B shares of equity MLAM-advised mutual funds will convert
approximately eight years after initial purchase, and Class B shares of taxable
and tax-exempt fixed income MLAM-advised mutual funds will convert approximately
ten years after initial purchase. If, during the Conversion Period, a
shareholder exchanges Class B shares with an eight-year Conversion Period for
Class B shares with a ten-year Conversion Period, or vice versa, the Conversion
Period applicable to the Class B shares acquired in the exchange will apply, and
the holding period for the shares exchanged will be tacked onto the holding
period for the shares acquired.
The Conversion Period is modified for shareholders who purchased Class B
shares through certain retirement plans that qualified for a waiver of the CDSC
normally imposed on purchases of Class B shares ("Class B Retirement Plans").
When the first share of any MLAM-advised mutual fund purchased by a Class B
Retirement Plan has been held for ten years (i.e., ten years from the date the
relationship between MLAM-advised mutual funds and the Class B Retirement Plan
was established), all Class B shares of all MLAM-advised mutual funds held in
that Class B Retirement Plan will be converted into Class D shares of
32
<PAGE> 35
the appropriate funds. Subsequent to such conversion, that Class B Retirement
Plan will be sold Class D shares of the appropriate funds at net asset value per
share.
The Conversion Period also may be modified for retirement plan investors
who participate in certain fee-based programs. See "Shareholder
Services--Fee-Based Programs."
DISTRIBUTION PLANS
The Fund has adopted separate distribution plans for Class B, Class C and
Class D shares pursuant to Rule 12b-1 under the Investment Company Act (each a
"Distribution Plan") with respect to the account maintenance and/or distribution
fees paid by the Fund to the Distributor with respect to such classes. The Class
B and Class C Distribution Plans provide for the payment of account maintenance
fees and distribution fees, and the Class D Distribution Plan provides for the
payment of account maintenance fees.
The Distribution Plans for Class B, Class C and Class D shares each provide
that the Fund pays the Distributor an account maintenance fee relating to the
shares of the relevant class, accrued daily and paid monthly, at the annual rate
of 0.25% of the average daily net assets of the Fund attributable to shares of
the relevant class in order to compensate the Distributor and Merrill Lynch
(pursuant to a sub-agreement) in connection with account maintenance activities.
The Distribution Plans for Class B and Class C shares each provide that the
Fund also pays the Distributor a distribution fee relating to the shares of the
relevant class, accrued daily and paid monthly, at the annual rate of 0.75% of
the average daily net assets of the Fund attributable to the shares of the
relevant class in order to compensate the Distributor and Merrill Lynch
(pursuant to a sub-agreement) for providing shareholder and distribution
services, and bearing certain distribution-related expenses of the Fund,
including payments to financial consultants for selling Class B and Class C
shares of the Fund. The Distribution Plans relating to Class B and Class C
shares are designed to permit an investor to purchase Class B and Class C shares
through dealers without the assessment of an initial sales charge and at the
same time permit the dealer to compensate its financial consultants in
connection with the sale of the Class B and Class C shares. In this regard, the
purpose and function of the ongoing distribution fees and the CDSC are the same
as those of the initial sales charge with respect to the Class A and Class D
shares of the Fund in that the deferred sales charges provide for the financing
of the distribution of the Fund's Class B and Class C shares.
The payments under the Distribution Plans are based on a percentage of
average daily net assets attributable to the shares regardless of the amount of
expenses incurred and, accordingly, distribution-related revenues from the
Distribution Plans may be more or less than distribution-related expenses.
Information with respect to the distribution-related revenues and expenses is
presented to the Directors for their consideration in connection with their
deliberations as to the continuance of the Class B and Class C Distribution
Plans. This information is presented annually as of December 31 of each year on
a "fully allocated accrual" basis and quarterly on a "direct expense and
revenue/cash" basis. On the fully allocated accrual basis, revenues consist of
the account maintenance fees, distribution fees, the CDSCs and certain other
related revenues, and expenses consist of financial consultant compensation,
branch office and regional operation center selling and transaction processing
expenses, advertising, sales promotion and marketing expenses, corporate
overhead and interest expense. On the direct expense and revenue/cash basis,
revenues consist of the account maintenance fees, distribution fees and CDSCs
and the expenses consist of financial consultant compensation.
33
<PAGE> 36
The Fund has no obligation with respect to distribution and/or account
maintenance-related expenses incurred by the Distributor and Merrill Lynch in
connection with the Class B, Class C and Class D shares, and there is no
assurance that the Directors of the Fund will approve the continuance of the
Distribution Plans from year to year. However, the Distributor intends to seek
annual continuation of the Distribution Plans. In their review of the
Distribution Plans, the Directors will be asked to take into consideration
expenses incurred in connection with the account maintenance and/or distribution
of each class of shares separately. The initial sales charges, the account
maintenance fee, the distribution fee and/or the CDSCs received with respect to
one class will not be used to subsidize the sale of shares of another class.
Payments of the distribution fee on Class B shares will terminate upon
conversion of those Class B shares into Class D shares as set forth under
"Deferred Sales Charge Alternatives--Class B and Class C Shares--Conversion of
Class B Shares to Class D Shares."
LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES
The maximum sales charge rule in the Conduct Rules of the NASD imposes a
limitation on certain asset-based sales charges such as the distribution fee and
the CDSC borne by the Class B and Class C shares but not the account maintenance
fee. The maximum sales charge rule is applied separately to each class. As
applicable to the Fund, the maximum sales charge rule limits the aggregate of
distribution fee payments and CDSCs payable by the Fund to (1) 6.25% of eligible
gross sales of Class B shares and Class C shares, computed separately (defined
to exclude shares issued pursuant to dividend reinvestments and exchanges) plus
(2) interest on the unpaid balance for the respective class, computed
separately, at the prime rate plus 1% (the unpaid balance being the maximum
amount payable minus amounts received from the payment of the distribution fee
and the CDSC). In connection with the Class B shares, the Distributor has
voluntarily agreed to waive interest charges on the unpaid balance in excess of
0.50% of eligible gross sales. Consequently, the maximum amount payable to the
Distributor (referred to as the "voluntary maximum") in connection with the
Class B shares is 6.75% of eligible gross sales. The Distributor retains the
right to stop waiving the interest charges at any time. To the extent payments
would exceed the voluntary maximum, the Fund will not make further payments of
the distribution fee with respect to Class B shares, and any CDSCs will be paid
to the Fund rather than to the Distributor; however, the Fund will continue to
make payments of the account maintenance fee. In certain circumstances the
amount payable pursuant to the voluntary maximum may exceed the amount payable
under the NASD formula. In such circumstances payments in excess of the amount
payable under the NASD formula will not be made.
REDEMPTION OF SHARES
The Fund is required to redeem for cash all shares of the Fund on receipt
of a written request in proper form. The redemption price is the net asset value
per share next determined after the initial receipt of proper notice of
redemption. Except for any CDSC that may be applicable, there will be no charge
for redemption if the redemption request is sent directly to the Transfer Agent.
Shareholders liquidating their holdings will receive on redemption all dividends
declared through the date of redemption. The value of shares at the time of
redemption may be more or less than the shareholder's cost, depending on the
market value of the securities held by the Fund at such time.
34
<PAGE> 37
REDEMPTION
A shareholder wishing to redeem shares may do so by tendering the shares
directly to the Fund's Transfer Agent, Merrill Lynch Financial Data Services,
Inc., P.O. Box 45289, Jacksonville, Florida 32232-5289. Redemption requests
delivered other than by mail should be delivered to Merrill Lynch Financial Data
Services, Inc., 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484.
Proper notice of redemption in the case of shares deposited with the Transfer
Agent may be accomplished by a written letter requesting redemption. Proper
notice of redemption in the case of shares for which certificates have been
issued may be accomplished by a written letter as noted above accompanied by
certificates for the shares to be redeemed. Redemption requests should not be
sent to the Fund. The redemption request in either event requires the
signature(s) of all persons in whose name(s) the shares are registered, signed
exactly as such name(s) appear(s) on the Transfer Agent's register or on the
certificate, as the case may be. The signature(s) on the redemption request must
be guaranteed by an "eligible guarantor institution" (including, for example,
Merrill Lynch branches and certain other financial institutions) as such term is
defined in Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended,
the existence and validity of which may be verified by the Transfer Agent
through the use of industry publications. Notarized signatures are not
sufficient. In certain instances, the Transfer Agent may require additional
documents such as, but not limited to, trust instruments, death certificates,
appointments as executor or administrator, or certificates of corporate
authority. For shareholders redeeming directly with the Transfer Agent, payments
will be mailed within seven days of receipt of a proper notice of redemption.
At various times, the Fund may be requested to redeem shares for which it
has not yet received good payment. The Fund may delay or cause to be delayed the
mailing of a redemption check until such time as it has assured itself that good
payment (e.g., cash, or certified check drawn on a United States bank) has been
collected for the purchase of such shares. Normally, this delay will not exceed
ten days.
REPURCHASE
The Fund also will repurchase shares through a shareholder's listed
securities dealer. The Fund will normally accept orders to repurchase shares by
wire or telephone from dealers for their customers at the net asset value next
computed after receipt of the order by the dealer, provided that the request for
repurchase is received by the dealer prior to the regular close of business on
the NYSE (generally, 4:00 p.m., New York time) on the day received and is
received by the Fund from such dealer not later than 30 minutes after the close
of business on the NYSE on the same day. Dealers have the responsibility of
submitting such repurchase requests to the Fund not later than 30 minutes after
the close of business on the NYSE in order to obtain that day's closing price.
These repurchase arrangements are for the convenience of shareholders and
do not involve a charge by the Fund (other than any applicable CDSC in the case
of Class B or Class C shares). However, securities firms which do not have
selected dealer agreements with the Distributor may impose a charge on the
shareholder for transmitting the notice of repurchase to the Fund. Merrill Lynch
may charge its customers a processing fee (presently $5.35) to confirm a
repurchase of shares. Repurchases made directly through the Fund's Transfer
Agent are not subject to the processing fee. The Fund reserves the right to
reject any order for repurchase, which right of rejection might affect adversely
shareholders seeking redemption through the repurchase procedure. However, a
shareholder whose order for repurchase is rejected by the Fund may redeem shares
as set forth above.
35
<PAGE> 38
Redemption payments will be made within seven days of the proper tender of
the certificates, if any, and stock power or letter requesting redemption, in
each instance with signatures guaranteed as noted above.
REINSTATEMENT PRIVILEGE--CLASS A AND CLASS D SHARES
Shareholders who have redeemed their Class A or Class D shares have a
privilege to reinstate their accounts by purchasing Class A or Class D shares,
as the case may be, of the Fund at net asset value without a sales charge up to
the dollar amount redeemed. The reinstatement privilege may be exercised by
sending a notice of exercise along with a check for the amount to be reinstated
to the Transfer Agent within 30 days after the date the request for redemption
was accepted by the Transfer Agent or the Distributor. Alternatively, the
reinstatement privilege may be exercised through the investor's Merrill Lynch
Financial Consultant within 30 days after the date the request was accepted by
the Transfer Agent or the Distributor. The reinstatement will be made at the net
asset value per share next determined after the notice of reinstatement is
received and cannot exceed the amount of the redemption proceeds.
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services and investment plans
described below that are designed to facilitate investment in shares of the
Fund. Certain of such services are not available to investors who place orders
for the Fund through the Merrill Lynch Blueprint(SM) Program. Full details as to
each of such services, copies of the various plans described below and
instructions as to how to participate in the various plans and services, or to
change options with respect thereto, can be obtained from the Fund by calling
the telephone number on the cover page hereof or from the Distributor or Merrill
Lynch. Certain of these services are available only to U.S. investors.
INVESTMENT ACCOUNT
Each shareholder whose account is maintained at the Transfer Agent has an
"Investment Account" and will receive statements, at least quarterly, from the
Transfer Agent. These quarterly statements will serve as transaction
confirmations for automatic investment purchases and the reinvestment of
ordinary income dividends and long-term capital gain distributions. These
statements will also show any other activity in the account since the preceding
statement. Shareholders will receive separate transaction confirmations for each
purchase or sale transaction other than automatic investment purchases and the
reinvestment of ordinary income dividends and long-term capital gains
distributions. Shareholders may make additions to their Investment Accounts at
any time by mailing a check directly to the Transfer Agent. Shareholders may
also maintain their accounts through Merrill Lynch. Upon the transfer of shares
out of a Merrill Lynch brokerage account, an Investment Account in the
transferring shareholder's name may be opened automatically at the Transfer
Agent. Shareholders considering transferring their Class A or Class D shares
from Merrill Lynch to another brokerage firm or financial institution should be
aware that, if the firm to which the Class A or Class D shares are to be
transferred will not take delivery of shares of the Fund, a shareholder either
must redeem the Class A or Class D shares (paying any applicable CDSC) so that
the cash proceeds can be transferred to the account at the new firm or such
shareholder must continue to maintain an Investment Account at the Transfer
Agent for those Class A or Class D shares. Shareholders interested in
transferring their Class B or Class C shares from Merrill Lynch and who do not
wish to have an Investment Account maintained for such shares at the Transfer
Agent may request their new brokerage firm to maintain such
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shares in an account registered in the name of the brokerage firm for the
benefit of the shareholder at the Transfer Agent. If the new brokerage firm is
willing to accommodate the shareholder in this manner, the shareholder must
request that he or she be issued certificates for such shares and then must turn
the certificates over to the new firm for re-registration as described in the
preceding sentence. Shareholders considering transferring a tax-deferred
retirement account such as an individual retirement account from Merrill Lynch
to another brokerage firm or financial institution should be aware that, if the
firm to which the retirement account is to be transferred will not take delivery
of shares of the Fund, a shareholder either must redeem the shares (paying any
applicable CDSC) so that the cash proceeds can be transferred to the account at
the new firm, or such shareholder must continue to maintain a retirement account
at Merrill Lynch for those shares.
EXCHANGE PRIVILEGE
U.S. shareholders of each class of shares of the Fund each have an exchange
privilege with certain other MLAM-advised mutual funds. There is currently no
limitation on the number of times a shareholder may exercise the exchange
privilege. The exchange privilege may be modified or terminated in accordance
with the rules of the Commission.
Under the Merrill Lynch Select Pricing(SM) System, Class A shareholders may
exchange Class A shares of the Fund for Class A shares of a second MLAM-advised
mutual fund if the shareholder holds any Class A shares of the second fund in
the account in which the exchange is made at the time of the exchange or is
otherwise eligible to purchase Class A shares of the second fund. If the Class A
shareholder wants to exchange Class A shares for shares of a second MLAM-advised
mutual fund, and the shareholder does not hold Class A shares of the second fund
in his or her account at the time of the exchange and is not otherwise eligible
to acquire Class A shares of the second fund, the shareholder will receive Class
D shares of the second fund as a result of the exchange. Class D shares also may
be exchanged for Class A shares of a second MLAM-advised mutual fund at any time
as long as, at the time of the exchange, the shareholder holds Class A shares of
the second fund in the account in which the exchange is made or is otherwise
eligible to purchase Class A shares of the second fund.
Exchanges of Class A and Class D shares are made on the basis of the
relative net asset values per Class A or Class D share, respectively, plus an
amount equal to the difference, if any, between the sales charge previously paid
on the Class A or Class D shares being exchanged and the sales charge payable at
the time of the exchange on the shares being acquired.
Class B, Class C and Class D shares are exchangeable with shares of the
same class of other MLAM-advised mutual funds.
Shares of the Fund that are subject to a CDSC are exchangeable on the basis
of relative net asset value per share without the payment of any CDSC that might
otherwise be due upon redemption of the shares of the Fund. For purposes of
computing the CDSC that may be payable upon a disposition of the shares acquired
in the exchange, the holding period for the previously owned shares of the Fund
is "tacked" to the holding period for the newly acquired shares of the other
fund.
Class A, Class B, Class C and Class D shares also are exchangeable for
shares of certain MLAM-advised money market funds specifically designated as
available for exchange by holders of Class A, Class B, Class C or Class D
shares. The period of time that Class A, Class B, Class C or Class D shares are
held in a money
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market fund, however, will not count toward satisfaction of the holding period
requirement for reduction of any CDSC imposed on such shares, if any, and, with
respect to Class B shares, toward satisfaction of the Conversion Period.
Class B shareholders of the Fund exercising the exchange privilege will
continue to be subject to the Fund's CDSC schedule if such schedule is higher
than the CDSC schedule relating to the new Class B shares. In addition, Class B
shares of the Fund acquired through use of the exchange privilege will be
subject to the Fund's CDSC schedule if such schedule is higher than the CDSC
schedule relating to the Class B shares of the MLAM-advised mutual fund from
which the exchange has been made.
Exercise of the exchange privilege is treated as a sale of the exchanged
shares and a purchase of the acquired shares for Federal income tax purposes.
For further information, see "Shareholder Services--Exchange Privilege" in the
Statement of Additional Information.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
All dividends and capital gains distributions are reinvested automatically
in full and fractional shares of the Fund, without a sales charge, at the net
asset value per share next determined after the close of business on the NYSE on
the ex-dividend date of such dividend or distribution. A shareholder may at any
time, by written notification to Merrill Lynch if the shareholder's account is
maintained with Merrill Lynch or by written notification or by telephone
(1-800-MER-FUND) to the Transfer Agent if the shareholder's account is
maintained with the Transfer Agent, elect to have subsequent dividends or
capital gains distributions, or both, paid in cash, rather than reinvested, in
which event payment will be mailed on or about the payment date. The Fund is not
responsible for any failure of delivery to the shareholder's address of record
and no interest will accrue on amounts represented by uncashed distribution or
redemption checks. Cash payments also can be directly deposited to the
shareholder's bank account. No CDSC will be imposed upon redemption of shares
issued as a result of the automatic reinvestment of dividends or capital gains
distributions.
SYSTEMATIC WITHDRAWAL PLANS
A shareholder may elect to receive systematic withdrawal payments from his
or her Investment Account in the form of payments by check or through automatic
payment by direct deposit to his or her bank account on either a monthly or
quarterly basis. Alternatively, a shareholder whose shares are held within a
CMA(R), CBA(R) or Retirement Account may elect to have shares redeemed on a
monthly, bimonthly, quarterly, semiannual or annual basis through the Systematic
Redemption Program, subject to certain conditions. With respect to redemptions
of Class B and Class C shares pursuant to a systematic withdrawal plan, the
maximum value of Class B or Class C shares that can be redeemed from an account
annually shall not exceed 10% of the value of shares of such class in that
account at the time the election to join the systematic withdrawal plan was
made. Any CDSC that otherwise might be due on such redemption of Class B or
Class C shares will be waived. Shares redeemed pursuant to a systematic
withdrawal plan will be redeemed in the same order as Class B or Class C shares
are otherwise redeemed. See "Purchase of Shares--Deferred Sales Charge
Alternatives--Class B and Class C Shares--Contingent Deferred Sales
Charges--Class B Shares" and "--Contingent Deferred Sales Charges--Class C
Shares." Where the systematic withdrawal plan is applied to Class B shares, upon
conversion of the last Class B shares in an account to Class D shares, the
systematic withdrawal plan will automatically be applied thereafter to Class D
shares. See "Purchase of
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<PAGE> 41
Shares--Deferred Sales Charge Alternatives--Class B and Class C
Shares--Conversion of Class B Shares to Class D Shares."
AUTOMATIC INVESTMENT PLANS
Regular additions of Class A, Class B, Class C and Class D shares may be
made to an investor's Investment Account by pre-arranged charges of $50 or more
to his or her regular bank account. Investors who maintain CMA(R) or CBA(R)
accounts may arrange to have periodic investments made in the Fund in their
CMA(R) or CBA(R) accounts or in certain related accounts in amounts of $100 or
more through the CMA(R) or CBA(R) Automated Investment Program.
FEE-BASED PROGRAMS
Certain Merrill Lynch fee-based programs, including pricing alternatives
for securities transactions (each referred to in this paragraph as a "Program"),
may permit the purchase of Class A shares at net asset value. Under specified
circumstances, participants in certain Programs may deposit other classes of
shares that will be exchanged for Class A shares. Initial or deferred sales
charges otherwise due in connection with such exchanges may be waived or
modified, as may the Conversion Period applicable to the deposited shares.
Termination of participation in a Program may result in the redemption of shares
held therein or the automatic exchange thereof to another class at net asset
value, which may be shares of a money market fund. In addition, upon termination
of participation in a Program, shares that have been held for less than
specified periods within such Program may be subject to a fee based upon the
current value of such shares. These Programs also generally prohibit such shares
from being transferred to another account at Merrill Lynch, to another
broker-dealer or to the Transfer Agent. Except in limited circumstances (which
may also involve an exchange as described above), such shares must be redeemed
and another class of shares purchased (which may involve the imposition of
initial or deferred sales charges and distribution and account maintenance fees)
in order for the investment not to be subject to Program fees. Additional
information regarding a specific Program (including charges and limitations on
transferability applicable to shares that may be held in such Program) is
available in such Program's client agreement and from the Transfer Agent at
(800) MER-FUND or (800) 637-3863.
TAXES
The Fund intends to elect and to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Code. As long as it
so qualifies, the Fund (but not its shareholders) will not be subject to Federal
income tax on the part of its net ordinary income and net realized capital gains
which it distributes to Class A, Class B, Class C and Class D shareholders
(together, the "shareholders"). The Fund intends to distribute substantially all
of such income.
Dividends paid by the Fund from its ordinary income or from an excess of
net short-term capital gains over net long-term capital losses (together
referred to hereafter as "ordinary income dividends") are taxable to
shareholders as ordinary income. Distributions made from an excess of net
long-term capital gains over net short-term capital losses (including gains or
losses from certain transactions in warrants, futures and options) ("capital
gain dividends") are taxable to shareholders as long-term capital gains,
regardless of the length of time the shareholder has owned Fund shares. Recent
legislation creates additional categories of capital gains
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<PAGE> 42
taxable at different rates. Although the legislation does not explain how gain
in these categories will be taxed to shareholders of RICs, it authorizes
regulations applying the new categories of gain and the new rates to sales of
securities by RICs. In the absence of guidance, there is some uncertainty as to
the manner in which the categories of gain and related rates will be passed
through to shareholders in capital gain dividends. Any loss upon the sale or
exchange of Fund shares held for six months or less will be treated as long-term
capital loss to the extent of any capital gain dividends received by the
shareholder. Distributions in excess of the Fund's earnings and profits will
first reduce the adjusted tax basis of a holder's shares and, after such
adjusted tax basis is reduced to zero, will constitute capital gains to such
holder (assuming the shares are held as a capital asset).
Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Fund. Not later than 60 days after the close of its
taxable year, the Fund will provide its shareholders with a written notice
designating the amounts of any ordinary income dividends or capital gain
dividends. It is anticipated that IRS guidance permitting categories of gain and
related rates to be passed through to shareholders would also require this
written notice to designate the amount of various categories of capital gain
income included in capital gain dividends. A portion of the Fund's ordinary
income dividends may be eligible for the dividends received deduction allowed to
corporations under the Code if certain requirements are met. If the Fund pays a
dividend in January which was declared in the previous October, November or
December to shareholders of record on a specified date in one of such months,
then such dividend will be treated for tax purposes as being paid by the Fund
and received by its shareholders on December 31 of the year in which such
dividend was declared.
Ordinary income dividends paid to shareholders who are nonresident aliens
or foreign entities will be subject to a 30% U.S. withholding tax under existing
provisions of the Code applicable to foreign individuals and entities unless a
reduced rate of withholding or a withholding exemption is provided under
applicable treaty law. Nonresident shareholders are urged to consult their own
tax advisers concerning the applicability of the U.S. withholding tax.
Dividends and interest received by the Fund may give rise to withholding
and other taxes imposed by foreign countries. Tax conventions between certain
countries and the U.S. may reduce or eliminate such taxes.
Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on ordinary income dividends, capital gain dividends and
redemption payments ("backup withholding"). Generally, shareholders subject to
backup withholding will be those for whom no certified taxpayer identification
number is on file with the Fund or who, to the Fund's knowledge, have furnished
an incorrect number. When establishing an account, an investor must certify
under penalty of perjury that such number is correct and that such investor is
not otherwise subject to backup withholding.
The Fund may invest up to 10% of its total assets in securities of other
investment companies. If the Fund purchases shares of an investment company (or
similar investment entity) organized under foreign law, the Fund will be treated
as owning shares in a passive foreign investment company ("PFIC") for U.S.
Federal income tax purposes. The Fund may be subject to U.S. Federal income tax,
and an additional tax in the nature of interest (the "interest charge"), on a
portion of the distributions from such a company and on gain from the
disposition of the shares of such a company (collectively referred to as "excess
distributions"), even if such excess distributions are paid by the Fund as a
dividend to its shareholders. The Fund may be eligible to make an election with
respect to certain PFICs in which it owns shares that will allow it to avoid the
taxes on excess
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distributions. However, such election may cause the Fund to recognize income in
a particular year in excess of the distributions received from such PFICs.
Alternatively, under recent legislation, the Fund could elect to "mark to
market" at the end of each taxable year all shares that it holds in PFICs. If it
made this election, the Fund would recognize as ordinary income any increase in
the value of such shares over their adjusted basis and as ordinary loss any
decrease in such value to the extent it did not exceed prior increases included
in income. By making the mark-to-market election, the Fund could avoid
imposition of the interest charge with respect to its distributions from PFICs,
but in any particular year might be required to recognize income in excess of
the distributions it received from PFICs and its proceeds from dispositions of
PFIC stock.
Under Code Section 988, foreign currency gains or losses from certain debt
instruments, from certain forward contracts, from futures contracts that are not
"regulated futures contracts" and from unlisted options will generally be
treated as ordinary income or loss. Such Code Section 988 gains or losses will
generally increase or decrease the amount of the Fund's investment company
taxable income available to be distributed to shareholders as ordinary income.
Additionally, if Code Section 988 losses exceed other investment company taxable
income during a taxable year, the Fund would not be able to make any ordinary
income dividend distributions, and all or a portion of distributions made before
the losses were realized but in the same taxable year would be recharacterized
as a return of capital to shareholders, thereby reducing the basis of each
shareholder's Fund shares and resulting in a capital gain for any shareholder
who received a distribution greater than such shareholder's tax basis in Fund
shares (assuming the shares were held as a capital asset).
No gain or loss will be recognized by Class B shareholders on the
conversion of their Class B shares into Class D shares. A shareholder's basis in
the Class D shares acquired will be the same as such shareholder's basis in the
Class B shares converted, and the holding period of the acquired Class D shares
will include the holding period for the converted Class B shares.
If a shareholder exercises an exchange privilege within 90 days of
acquiring the shares, then the loss the shareholder can recognize on the
exchange will be reduced (or the gain increased) to the extent any sales charge
paid to the Fund on the exchanged shares reduces any sales charge the
shareholder would have owed upon the purchase of the new shares in the absence
of the exchange privilege. Instead, such sales charge will be treated as an
amount paid for the new shares.
A loss realized on a sale or exchange of shares of the Fund will be
disallowed if other Fund shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30 days
before and ending 30 days after the date that the shares are disposed of. In
such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative, judicial or administrative
action either prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state and
local taxes.
Certain states exempt from state income taxation dividends paid by RICs
that are derived from interest on U.S. Government obligations. State law varies
as to whether dividend income attributable to U.S. Government obligations is
exempt from state income tax.
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Shareholders are urged to consult their tax advisers regarding specific
questions as to Federal, foreign, state or local taxes. Foreign investors should
consider applicable foreign taxes in their evaluation of an investment in the
Fund.
PERFORMANCE DATA
From time to time the Fund may include its average annual total return and
yield for various specified time periods in advertisements or information
furnished to present or prospective shareholders. Average annual total return is
computed separately for Class A, Class B, Class C and Class D shares in
accordance with formulas specified by the Commission.
Average annual total return quotations for the specified periods will be
computed by finding the average annual compounded rates of return (based on net
investment income and any realized and unrealized capital gains or losses on
portfolio investments over such periods) that would equate the initial amount
invested to the redeemable value of such investment at the end of each period.
Average annual total return will be computed assuming all dividends and
distributions are reinvested and taking into account all applicable recurring
and nonrecurring expenses, including any CDSC that would be applicable to a
complete redemption of the investment at the end of the specified period such as
in the case of Class B and Class C shares and the maximum sales charge in the
case of Class A and Class D shares. Dividends paid by the Fund with respect to
all shares, to the extent any dividends are paid, will be calculated in the same
manner at the same time on the same day and will be in the same amount, except
that account maintenance fees, distribution charges and any incremental transfer
agency costs relating to each class of shares will be borne exclusively by that
class. The Fund will include performance data for all classes of shares of the
Fund in any advertisement or information including performance data of the Fund.
The Fund also may quote total return and aggregate total return performance
data for various specified time periods. Such data will be calculated
substantially as described above, except that (1) the rates of return calculated
will not be average annual rates, but rather, actual annual, annualized or
aggregate rates of return and (2) the maximum applicable sales charges will not
be included with respect to annual or annualized rates of return calculations.
Aside from the impact on the performance data calculations of including or
excluding the maximum applicable sales charges, actual annual or annualized
total return data generally will be lower than average annual total return data
since the average annual rates of return reflect compounding; aggregate total
return data generally will be higher than average annual total return data since
the aggregate rates of return reflect compounding over a longer period of time.
In advertisements distributed to investors whose purchases are subject to waiver
of the CDSC in the case of Class B and Class C shares (such as investors in
certain retirement plans) or to reduced sales loads in the case of Class A and
Class D shares, the performance data may take into account the reduced, and not
the maximum, sales charge or may not take into account the CDSC and therefore
may reflect greater total return since, due to the reduced sales charges or
waiver of the CDSC, a lower amount of expenses is deducted. See "Purchase of
Shares." The Fund's total return may be expressed either as a percentage or as a
dollar amount in order to illustrate such total return on a hypothetical $1,000
investment in the Fund at the beginning of each specified period.
Total return figures are based on the Fund's historical performance and are
not intended to indicate future performance. The Fund's total return will vary
depending on market conditions, the securities comprising the Fund's portfolio,
the Fund's operating expenses and the amount of realized and unrealized net
capital gains or
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losses during the period. The value of an investment in the Fund will fluctuate
and an investor's shares, when redeemed, may be worth more or less than their
original cost.
On occasion, the Fund may compare its performance to that of the Standard &
Poor's 500 Index, The Financial Times/Standard & Poor's Actuarial World Indices,
the Morgan Stanley Capital International Indices, the Morgan Stanley REIT Index,
the NAREIT Equity Total Return Index, the Wilshire REIT Index, the Dow Jones
Industrial Average or performance data published by Lipper Analytical Services,
Inc., Morningstar Publications, Inc., Value Line Mutual Fund Advisor, Money
Magazine, U.S. News & World Report, Business Week, CDA Investment Technology,
Inc., Forbes Magazine, Fortune Magazine, or other industry publications. From
time to time, the Fund may include the Fund's risk-adjusted performance ratings
assigned by Morningstar Publications, Inc. in advertisements or supplemental
sales literature. As with other performance data, performance comparisons should
not be considered representative of the Fund's relative performance for any
future period.
ADDITIONAL INFORMATION
DIVIDENDS AND DISTRIBUTIONS
It is the Fund's intention to distribute substantially all of its net
investment income, if any. Dividends from such net investment income will be
paid at least annually. All net realized long- or short-term capital gains, if
any, will be distributed as dividends to the Fund's shareholders at least
annually. In connection with its investments in REITs, the Fund may receive
distributions that do not consist of ordinary income or capital gain, but
represent a return of capital. The Fund does not intend to distribute to its
shareholders the portion of the distribution it receives that consists of a
return of capital. Instead, the Fund will reinvest such amounts. The per share
dividends and distributions on each class of shares will be reduced as a result
of any account maintenance, distribution and transfer agency fees applicable to
that class. See "Additional Information-- Determination of Net Asset Value."
Dividends and distributions will be reinvested automatically in shares of the
Fund at net asset value without a sales charge. However, a shareholder whose
account is maintained at the Transfer Agent or whose account is maintained
through Merrill Lynch may elect in writing to receive any such dividends or
distributions or both in cash. Dividends and distributions are taxable to
shareholders as discussed below whether they are reinvested in shares of the
Fund or received in cash. From time to time, the Fund may declare a special
distribution at or about the end of the calendar year in order to comply with
Federal tax requirements that certain percentages of its ordinary income and
capital gains be distributed during the calendar year.
DETERMINATION OF NET ASSET VALUE
The net asset value of shares of all classes of the Fund is determined once
daily, as of 15 minutes after the close of business on the NYSE (generally, 4:00
p.m. New York time), on each day during which the NYSE is open for trading. Any
assets or liabilities initially expressed in terms of non-U.S. dollar currencies
are translated into U.S. dollars at the prevailing market rates as quoted by one
or more banks or dealers on the day of valuation.
The net asset value per share is computed by dividing the sum of the value
of the securities held by the Fund plus any cash or other assets (including
interest and dividends accrued but not yet received) minus all
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<PAGE> 46
liabilities (including accrued expenses) by the total number of shares
outstanding at such time, rounded to the nearest cent. Expenses, including the
investment advisory fees payable to the Manager and any account maintenance
and/or distribution fees payable to the Distributor, are accrued daily. The per
share net asset value of Class A shares generally will be higher than the per
share net asset value of shares of other classes, reflecting the daily expense
accruals of the account maintenance, distribution and higher transfer agency
fees applicable with respect to the Class B and Class C shares and the daily
expense accruals of the account maintenance fees applicable with respect to
Class D shares; moreover, the per share net asset value of Class D shares
generally will be higher than the per share net asset value of Class B and Class
C shares, reflecting the daily expense accruals of the distribution and higher
transfer agency fees applicable with respect to Class B and Class C shares. It
is expected, however, that the per share net asset value of the four classes
will tend to converge (although not necessarily meet) immediately after the
payment of dividends or distributions, which will differ by approximately the
amount of the expense accrual differentials between the classes.
Portfolio securities that are traded on stock exchanges are valued at the
last sale price (regular way) on the exchange on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where
securities are traded on more than one exchange, the securities are valued on
the exchange designated by or under the authority of the Board of Directors as
the primary market. Securities traded in the OTC market are valued at the last
available bid price in the OTC market prior to the time of valuation. Securities
that are traded both in the OTC market and on a stock exchange are valued
according to the broadest and most representative market. When the Fund writes
an option, the amount of the premium received is recorded on the books of the
Fund as an asset and an equivalent liability. The amount of the liability is
subsequently valued to reflect the current market value of the option written,
based upon the last sale price in the case of exchange-traded options or, in the
case of options traded in the OTC market, the last asked price. Options
purchased by the Fund are valued at their last sale price in the case of
exchange-traded options or, in the case of options traded in the OTC market, the
last bid price. Any assets or liabilities expressed in terms of foreign
currencies are translated into U.S. dollars at the prevailing market rates as
obtained from one or more dealers. Other investments, including futures
contracts and related options, are valued at market value. Securities and assets
for which market quotations are not readily available are valued at fair value
as determined in good faith by or under the direction of the Board of Directors
of the Fund. Such valuations and procedures will be reviewed periodically by the
Board of Directors.
ORGANIZATION OF THE FUND
The Fund was incorporated under Maryland law on September 24, 1997. It has
authorized capital of 400,000,000 shares of Common Stock, par value $0.10 per
share, divided into four classes, designated Class A, Class B, Class C and Class
D Common Stock, each consisting of 100,000,000 shares. Shares of Class A, Class
B, Class C and Class D Common Stock represent an interest in the same assets of
the Fund and are identical in all respects except that Class B, Class C and
Class D shares bear certain expenses related to the account maintenance
associated with such shares, and Class B and Class C shares bear certain
expenses related to distribution of such shares. Each class has exclusive voting
rights with respect to matters relating to account maintenance and distribution
expenditures, as applicable. See "Purchase of Shares." The Directors of the Fund
may classify and reclassify the shares of the Fund into additional classes of
Common Stock at a future date.
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<PAGE> 47
Shareholders are entitled to one vote for each share held and fractional
votes for fractional shares held and will vote on the election of Directors and
any other matter submitted to a shareholder vote. The Fund does not intend to
hold meetings of shareholders in any year in which the Investment Company Act
does not require shareholders to act upon any of the following matters: (i)
election of Directors; (ii) approval of an investment advisory agreement; (iii)
approval of a distribution agreement; and (iv) ratification of selection of
independent accountants. Also, the by-laws of the Fund require that a special
meeting of shareholders be held upon the written request of a majority of the
outstanding shares of the Fund entitled to vote at such meeting, if they comply
with applicable Maryland law. Voting rights for Directors are not cumulative.
Shares issued are fully paid and non-assessable and have no preemptive rights.
Shares have the conversion rights described in this Prospectus. Each share of
Common Stock is entitled to participate equally in dividends and distributions
declared by the Fund and in the net assets of the Fund upon liquidation or
dissolution after satisfaction of outstanding liabilities except, as noted
above, the Class B, Class C and Class D shares bear certain additional expenses.
SHAREHOLDER REPORTS
Only one copy of each shareholder report and certain shareholder
communications will be mailed to each identified shareholder regardless of the
number of accounts such shareholder has. If a shareholder wishes to receive
separate copies of each report and communication for each of the shareholder's
related accounts the shareholder should notify in writing:
Merrill Lynch Financial Data Services, Inc.
P.O. Box 45289
Jacksonville, Florida 32232-5289
The written notification should include the shareholder's name, address,
tax identification number and Merrill Lynch and/or mutual fund account numbers.
If you have any questions regarding this please call your Merrill Lynch
Financial Consultant or Merrill Lynch Financial Data Services, Inc. at (800)
637-3863.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to the Fund at the address or
telephone number set forth on the cover page of this Prospectus.
45
<PAGE> 48
APPENDIX A
INVESTMENT PRACTICES INVOLVING THE USE OF OPTIONS,
FUTURES AND FOREIGN EXCHANGE
The Fund is authorized to engage in certain investment practices involving
the use of options, futures and foreign exchange, as described below. Such
instruments, which may be regarded as derivatives, are referred to collectively
herein as "Strategic Instruments."
OPTIONS ON SECURITIES AND SECURITIES INDICES
Purchasing Options. The Fund is authorized to purchase put options on
securities held in its portfolio or securities indices the performance of which
is substantially correlated with securities held in its portfolio. When the Fund
purchases a put option, in consideration for an up-front payment (the "option
premium"), the Fund acquires a right to sell to another party specified
securities owned by the Fund at a specified price (the "exercise price") on or
before a specified date (the "expiration date"), in the case of an option on
securities, or to receive from another party a payment based on the amount a
specified securities index declines below a specified level on or before the
expiration date, in the case of an option on a securities index. The purchase of
a put option limits the Fund's risk of loss in the event of a decline in the
market value of the portfolio holdings underlying the put option prior to the
option's expiration date. In the event the market value of the portfolio
holdings underlying the put option increases rather than decreases, however, the
Fund will lose the option premium and will consequently realize a lower return
on the portfolio holdings than would have been realized without the purchase of
the put.
The Fund is also authorized to purchase call options on securities it
intends to purchase or securities indices the performance of which substantially
correlates with the performance of the types of securities it intends to
purchase. When the Fund purchases a call option, in consideration for the option
premium, the Fund acquires a right to purchase from another party specified
securities at the exercise price on or before the expiration date, in the case
of an option on securities, or to receive from another party a payment based on
the amount a specified securities index increases beyond a specified level on or
before the expiration date, in the case of an option on a securities index. The
purchase of a call option may protect the Fund from having to pay more for a
security as a consequence of increases in the market value for the security
during a period when the Fund is contemplating its purchase, in the case of an
option on a security, or attempting to identify specific securities in which to
invest in a market the Fund believes to be attractive, in the case of an option
on an index (an "anticipatory hedge"). In the event the Fund determines not to
purchase a security underlying a call option, however, the Fund may lose the
entire option premium.
The Fund may also purchase put or call options in connection with closing
out put or call options it has previously sold.
Writing Options. The Fund is authorized to write (i.e., sell) call options
on securities held in its portfolio or securities indices the performance of
which is substantially correlated with securities held in its portfolio. When
the Fund writes a call option, in return for an option premium, the Fund gives
another party the right to buy specified securities owned by the Fund at the
exercise price on or before the expiration date, in the case of an option on
securities, or agrees to pay to another party an amount based on any gain in a
specified securities index beyond a specified level on or before the expiration
date, in the case of an option on a securities index. The Fund may write call
options to earn income, through the receipt of option premiums. In
46
<PAGE> 49
the event the party to which the Fund has written an option fails to exercise
its rights under the option because the value of the underlying securities is
less than the exercise price, the Fund will partially offset any decline in the
value of the underlying securities through the receipt of the option premium and
will realize a greater return than would have been realized on the underlying
securities alone. By writing a call option, however, the Fund limits its ability
to sell the underlying securities, and gives up the opportunity to profit from
any increase in the value of the underlying securities beyond the exercise
price, while the option remains outstanding.
The Fund may also write put options on securities or securities indices.
When the Fund writes a put option, in return for an option premium, the Fund
gives another party the right to sell to the Fund a specified security at the
exercise price on or before the expiration date, in the case of an option on a
security, or agrees to pay to another party an amount on any decline in a
specified securities index below a specified level on or before the expiration
date, in the case of an option on a securities index. The Fund may write put
options to earn income through the receipt of option premiums. In the event the
party to which the Fund has written an option fails to exercise its right under
the option because the value of the underlying securities is greater than the
exercise price, the Fund will profit by the amount of the option premium. By
writing a put option, however, the Fund will be obligated to purchase the
underlying security at a price that may be higher than the market value of the
security at the time of exercise as long as the put option is outstanding.
Accordingly, when the Fund writes a put option it is exposed to a risk of loss
in the event the value of the underlying securities falls below the exercise
price, which loss potentially may substantially exceed the amount of option
premium received by the Fund for writing the put option. The Fund will write a
put option on a security or a securities index only if the Fund is using the put
as an anticipatory hedge or is writing the put in connection with trading
strategies involving combinations of options, for example, the sale and purchase
of options with identical expiration dates on the same security or index but
different exercise prices (a technique called a "spread").
The Fund is also authorized to sell call or put options in connection with
closing out call or put options it has previously purchased.
Other than with respect to closing transactions, the Fund will only write
call or put options that are "covered." A put option will be considered covered
if the Fund has segregated assets with respect to such option in the manner
described in "Risk Factors in Options, Futures and Currency Instruments" below.
A call option will be considered covered if the Fund owns the securities it
would be required to deliver upon exercise of the option (or, in the case of an
option on a securities index, securities which substantially replicate the
performance of such index) or owns a call option, warrant or convertible
instrument which is immediately exercisable for, or convertible into, such
security.
Types of Options. The Fund may engage in transactions in options on
securities or securities indices on exchanges and in the over-the-counter
("OTC") markets. In general, exchange-traded options have standardized exercise
prices and expiration dates and require the parties to post margin against their
obligations, and the performance of the parties' obligations in connection with
such options is guaranteed by the exchange or a related clearing corporation.
OTC options have more flexible terms negotiated between the buyer and the
seller, but generally do not require the parties to post margin and are subject
to greater risk of counterparty default. See "Additional Risk Factors of OTC
Transactions; Limitations on the Use of OTC Strategic Investments" below.
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<PAGE> 50
FUTURES
The Fund may engage in transactions in futures and, including stock index
futures and financial futures contracts, options thereon. Financial futures
contracts are standardized, exchange-traded contracts which obligate a purchaser
to take delivery, and a seller to make delivery, of a specific amount of a
commodity at a specified future date at a specified price. Stock index futures
contracts are similar to other futures contracts except that they do not require
actual delivery of securities but instead result in cash settlement based on the
difference in value of the index between the time the contract was entered into
and the time of its settlement.
No price is paid upon entering into a futures contract. Rather, upon
purchasing or selling a futures contract the Fund is required to deposit
collateral ("margin") equal to a percentage (generally less than 10%) of the
contract value. Each day thereafter until the futures position is closed, the
Fund will pay additional margin representing any loss experienced as a result of
the futures position the prior day or be entitled to a payment representing any
profit experienced as a result of the futures position the prior day.
The sale of a futures contract for hedging purposes limits the Fund's risk
of loss through a decline in the market value of portfolio holdings correlated
with the futures contract prior to the futures contract's expiration date. In
the event the market value of the portfolio holdings correlated with the futures
contract increases rather than decreases, however, the Fund will realize a loss
on the futures position and a lower return on the portfolio holdings than would
have been realized without the purchase of the futures contract.
The purchase of a futures contract as an anticipatory hedge may protect the
Fund from having to pay more for securities as a consequence of increases in the
market value for such securities during a period when the Fund was attempting to
identify specific securities in which to invest in a market the Fund believes to
be attractive. In the event that such securities decline in value or the Fund
determines not to complete an anticipatory hedge transaction in a futures
contract, however, the Fund may realize a loss relating to the futures position.
The Fund will limit transactions in futures and options on futures to the
extent necessary to prevent the Fund from being deemed a "commodity pool" under
regulations of the Commodity Futures Trading Commission.
FOREIGN EXCHANGE TRANSACTIONS
The Fund may engage in spot and forward foreign exchange transactions and
currency swaps, purchase and sell options on currencies and purchase and sell
currency futures and related options thereon (collectively, "Currency
Instruments") for the purpose of hedging against the decline in the value of
currencies in which its portfolio holdings are denominated against the U.S.
dollar.
Forward foreign exchange transactions are OTC contracts to purchase or sell
a specified amount of a specified currency or multinational currency unit at a
price and future date set at the time of the contract. Spot foreign exchange
transactions are similar but require current, rather than future, settlement.
The Fund will enter into foreign exchange transactions for the purpose of
hedging either a specific transaction or a portfolio position. The Fund may
enter into a foreign exchange transaction for purposes of hedging a specific
transaction by, for example, purchasing a currency needed to settle a security
transaction or selling a currency in which the Fund has received or anticipates
receiving a dividend or distribution. The Fund may enter into a foreign exchange
transaction for purposes of hedging a portfolio position by selling forward a
currency in which a
48
<PAGE> 51
portfolio position of the Fund is denominated or by purchasing a currency in
which the Fund anticipates acquiring a portfolio position in the near future.
The Fund may also hedge portfolio positions through currency swaps, which are
transactions in which one currency is simultaneously bought for a second
currency on a spot basis and sold for the second currency on a forward basis.
The Fund may also hedge against the decline in the value of a currency
against the U.S. dollar through use of currency futures or options thereon.
Currency futures are similar to forward foreign exchange transactions except
that futures are standardized, exchange-traded contracts. See "Futures" above.
The Fund may also hedge against the decline in the value of a currency
against the U.S. dollar through the use of currency options. Currency options
are similar to options on securities, but in consideration for an option premium
the writer of a currency option is obligated to sell (in the case of a call
option) or purchase (in the case of a put option) a specified amount of a
specified currency on or before the expiration date for a specified amount of
another currency. The Fund may engage in transactions in options on currencies
either on exchanges or OTC markets. See "Types of Options" above and "Additional
Risk Factors of OTC Transactions; Limitations on the Use of OTC Strategic
Instruments" below.
When entering into a transaction in a Currency Instrument, the Fund will
not hedge a currency in excess of the aggregate market value of the securities
which it owns (including receivables for unsettled securities sales), or has
committed to or anticipates purchasing, which are denominated in such currency.
The Fund may, however, hedge a currency by entering into a transaction in a
Currency Instrument denominated in a currency other than the currency being
hedged (a "cross-hedge"). The Fund will only enter into a cross-hedge if the
Manager believes that (i) there is a demonstrably high correlation between the
currency in which the cross-hedge is denominated and the currency being hedged
and (ii) executing a cross-hedge through the currency in which the cross-hedge
is denominated will be significantly more cost effective or provide
substantially greater liquidity than executing a similar hedging transaction by
means of the currency being hedged.
Risk Factors in Hedging Foreign Currency Risks. While the Fund's use of
Currency Instruments to effect hedging strategies is intended to reduce the
volatility of the net asset value of the Fund's shares, the net asset value of
the Fund's shares will fluctuate. Moreover, although Currency Instruments will
be used with the intention of hedging against adverse currency movements,
transactions in Currency Instruments involve the risk that anticipated currency
movements will not be accurately predicted and that the Fund's hedging
strategies will be ineffective. To the extent that the Fund hedges against
anticipated currency movements which do not occur, the Fund may realize losses,
and lower its total return, as the result of its hedging transactions.
Furthermore, the Fund will only engage in hedging activities from time to time
and may not be engaging in hedging activities when movements in currency
exchange rates occur. It may not be possible for the Fund to hedge against
currency exchange rate movements, even if correctly anticipated, in the event
that (i) the currency exchange rate movement is so generally anticipated that
the Fund is not able to enter into a hedging transaction at an effective price
or (ii) the currency exchange rate movement relates to a market with respect to
which Currency Instruments are not available (such as certain developing
markets) and it is not possible to engage in effective foreign currency hedging.
49
<PAGE> 52
RISK FACTORS IN OPTIONS, FUTURES AND CURRENCY INSTRUMENTS
Use of Strategic Instruments for hedging purposes involves the risk of
imperfect correlation in movements in the value of the Strategic Instruments and
the value of the instruments being hedged. If the value of the Strategic
Instruments moves more or less than the value of the hedged instruments, the
Fund will experience a gain or loss which will not be completely offset by
movements in the value of the hedged instruments.
The Fund intends to enter transactions involving Strategic Instruments only
if there appears to be a liquid secondary market for such instruments or, in the
case of illiquid instruments traded in OTC transactions, such instruments
satisfy the criteria set forth below under "Additional Risk Factors of OTC
Transactions; Limitations on the Use of OTC Strategic Instruments." However,
there can be no assurance that, at any specific time, either a liquid secondary
market will exist for a Strategic Instrument or the Fund will otherwise be able
to sell such instrument at an acceptable price. It may therefore not be possible
to close a position in a Strategic Instrument without incurring substantial
losses, if at all.
Certain transactions in Strategic Instruments (e.g., forward foreign
exchange transactions, futures transactions, sales of put options) may expose
the Fund to potential losses which exceed the amount originally invested by the
Fund in such instruments. When the Fund engages in such a transaction, the Fund
will deposit in a segregated account at its custodian liquid securities with a
value at least equal to the Fund's exposure, on a mark-to-market basis, to the
transaction (as calculated pursuant to requirements of the Securities and
Exchange Commission). Such segregation will ensure that the Fund has assets
available to satisfy its obligations with respect to the transaction, but will
not limit the Fund's exposure to loss.
ADDITIONAL RISK FACTORS OF OTC TRANSACTIONS; LIMITATIONS ON THE USE OF OTC
STRATEGIC INSTRUMENTS
Certain Strategic Instruments traded in OTC markets, including OTC options,
may be substantially less liquid than other instruments in which the Fund may
invest. The absence of liquidity may make it difficult or impossible for the
Fund to sell such instruments promptly at an acceptable price. The absence of
liquidity may also make it more difficult for the Fund to ascertain a market
value for such instruments. The Fund will therefore acquire illiquid OTC
instruments (i) if the agreement pursuant to which the instrument is purchased
contains a formula price at which the instrument may be terminated or sold or
(ii) for which the Manager anticipates the Fund can receive on each business day
at least two independent bids or offers, unless a quotation from only one dealer
is available, in which case that dealer's quotation may be used.
The staff of the Securities and Exchange Commission has taken the position
that purchased OTC options and the assets underlying written OTC options are
illiquid securities. The Fund has therefore 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 securities underlying OTC call options currently
outstanding which have been sold by the Fund and margin deposits on the Fund's
outstanding OTC options exceeds 15% of the total assets of the Fund, taken at
market value, together with all other assets of the Fund which are deemed to be
illiquid or are otherwise not readily marketable. However, if an OTC option is
sold by the Fund to a dealer in U.S. government securities recognized as a
"primary dealer" by the Federal Reserve Bank of New York and the Fund has the
unconditional contractual right to repurchase such OTC option at a predetermined
price, then the Fund will treat as illiquid such amount of the underlying
securities as
50
<PAGE> 53
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 exercise price).
Because Strategic Instruments traded in OTC markets are not guaranteed by
an exchange or clearing corporation and generally do not require payment of
margin, to the extent that the Fund has unrealized gains in such instruments or
has deposited collateral with its counterparty the Fund is at risk that its
counterparty will become bankrupt or otherwise fail to honor its obligations.
The Fund will attempt to minimize the risk that a counterparty will become
bankrupt or otherwise fail to honor its obligations by engaging in transactions
in Strategic Instruments traded in OTC markets only with financial institutions
which have substantial capital or which have provided the Fund with a
third-party guaranty or other credit enhancement.
ADDITIONAL LIMITATIONS ON THE USE OF STRATEGIC INSTRUMENTS
The Fund may not use any Strategic Instrument to gain exposure to an asset
or class of assets that it would be prohibited from purchasing directly by its
investment restrictions.
51
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(This page intentionally left blank)
52
<PAGE> 55
MERRILL LYNCH REAL ESTATE FUND, INC.--AUTHORIZATION FORM (PART 1)
- --------------------------------------------------------------------------------
NOTE: THIS FORM MAY NOT BE USED FOR PURCHASES THROUGH THE MERRILL LYNCH
BLUEPRINT(SM) PROGRAM. YOU MAY REQUEST A MERRILL LYNCH BLUEPRINT(SM)
PROGRAM APPLICATION BY CALLING TOLL FREE (800) 637-3766.
- --------------------------------------------------------------------------------
1. SHARE PURCHASE APPLICATION
I, being of legal age, wish to purchase: (choose one)
[ ] Class A shares [ ] Class B shares [ ] Class C shares [ ] Class D shares
of Merrill Lynch Real Estate Fund, Inc. and establish an Investment Account as
described in the Prospectus. In the event that I am not eligible to purchase
Class A shares, I understand that Class D shares will be purchased.
Basis for establishing an Investment Account:
A. I enclose a check for $.......... payable to Merrill Lynch Financial
Data Services, Inc., as an initial investment (minimum $1,000). I understand
that this purchase will be executed at the applicable offering price next to
be determined after this Application is received by you.
B. I already own shares of the following Merrill Lynch mutual funds that
would qualify for the right of accumulation as outlined in the Statement of
Additional Information: (Please list all funds. Use a separate sheet of paper
if necessary.)
1. .................................. 4. ...................................
2. .................................. 5. ...................................
3. .................................. 6. ...................................
Name............................................................................
First Name Initial Last Name
Name of Co-Owner (if any).......................................................
First Name Initial Last Name
Address.........................................................................
................................................................................
(Zip Code)
Occupation......................................................................
................................................................................
Signature of Owner
Date............................................................................
Name and Address of Employer....................................................
................................................................................
................................................................................
................................................................................
Signature of Co-Owner (if any)
(In the case of co-owner, a joint tenancy with right of survivorship will be
presumed unless otherwise specified.)
- --------------------------------------------------------------------------------
2. DIVIDEND AND CAPITAL GAIN DISTRIBUTION OPTIONS
<TABLE>
<S> <C> <C>
Ordinary Income Dividends Long-Term Capital Gains
--------------------------------- ---------------------------------
SELECT [ ] Reinvest SELECT [ ] Reinvest
ONE: [ ] Cash ONE: [ ] Cash
--------------------------------- ---------------------------------
</TABLE>
If no election is made, dividends and capital gains will be automatically
reinvested at net asset value without a sales charge.
IF CASH, SPECIFY HOW YOU WOULD LIKE YOUR DISTRIBUTIONS PAID TO YOU: [ ] Check
or [ ] Direct Deposit to bank account
IF DIRECT DEPOSIT TO BANK ACCOUNT IS SELECTED, PLEASE COMPLETE BELOW:
I hereby authorize payment of dividend and capital gain distributions by direct
deposit to my bank account and, if necessary, debit entries and adjustments for
any credit entries made to my account in accordance with the terms I have
selected on the Merrill Lynch Real Estate Fund, Inc. Authorization Form.
SPECIFY TYPE OF ACCOUNT (CHECK ONE): [ ] checking [ ] savings
Name on your Account............................................................
Bank Name.......................................................................
Bank Number ................................................... Account
Number..........................................................................
Bank Address....................................................................
I AGREE THAT THIS AUTHORIZATION WILL REMAIN IN EFFECT UNTIL I PROVIDE WRITTEN
NOTIFICATION TO MERRILL LYNCH FINANCIAL DATA SERVICES, INC. AMENDING OR
TERMINATING THIS SERVICE.
Signature of Depositor..........................................................
Signature of Depositor .........................................................
(if joint account, both must sign)
Date............................................................................
NOTE: IF DIRECT DEPOSIT TO BANK ACCOUNT IS SELECTED, YOUR BLANK, UNSIGNED CHECK
MARKED "VOID" OR A DEPOSIT SLIP FROM YOUR SAVINGS ACCOUNT SHOULD ACCOMPANY THIS
APPLICATION.
53
<PAGE> 56
MERRILL LYNCH REAL ESTATE FUND, INC.--AUTHORIZATION FORM (PART 1) -- (CONTINUED)
- --------------------------------------------------------------------------------
3. SOCIAL SECURITY NUMBER OR TAXPAYER IDENTIFICATION NUMBER
------------------------------------------
------------------------------------------
Social Security Number or Taxpayer Identification Number
Under penalty of perjury, I certify (1) that the number set forth above is my
correct Social Security Number or Taxpayer Identification Number and (2) that I
am not subject to backup withholding (as discussed in the Prospectus under
"Taxes") either because I have not been notified that I am subject thereto as a
result of a failure to report all interest or dividends, or the Internal Revenue
Service ("IRS") has notified me that I am no longer subject thereto.
INSTRUCTION: YOU MUST STRIKE OUT THE LANGUAGE IN (2) ABOVE IF YOU HAVE BEEN
NOTIFIED THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING DUE TO UNDERREPORTING AND IF
YOU HAVE NOT RECEIVED A NOTICE FROM THE IRS THAT BACKUP WITHHOLDING HAS BEEN
TERMINATED. THE UNDERSIGNED AUTHORIZES THE FURNISHING OF THIS CERTIFICATION TO
OTHER MERRILL LYNCH SPONSORED MUTUAL FUNDS.
<TABLE>
<S> <C>
............................................................. ............................................................
Signature of Owner Signature of Co-Owner (if any)
</TABLE>
- --------------------------------------------------------------------------------
4. LETTER OF INTENTION--CLASS A AND D SHARES ONLY (See terms and conditions in
the Statement of Additional Information)
.................................., 19 . . . .
Date of initial purchase
Dear Sir/Madam:
Although I am not obligated to do so, I intend to purchase shares of Merrill
Lynch Real Estate Fund, Inc. or any other investment company with an initial
sales charge or deferred sales charge for which Merrill Lynch Funds Distributor,
Inc. acts as distributor over the next 13-month period which will equal or
exceed:
[ ] $25,000 [ ] $50,000 [ ] $100,000 [ ] $250,000 [ ] $1,000,000
Each purchase will be made at the then reduced offering price applicable to
the amount checked above, as described in the Merrill Lynch Real Estate Fund,
Inc. Prospectus.
I agree to the terms and conditions of this Letter of Intention. I hereby
irrevocably constitute and appoint Merrill Lynch Funds Distributor, Inc., my
attorney, with full power of substitution, to surrender for redemption any or
all shares of Merrill Lynch Real Estate Fund, Inc. held as security.
<TABLE>
<S> <C>
By........................................................... ............................................................
Signature of Owner Signature of Co-Owner
(If registered in joint names, both must sign)
</TABLE>
In making purchases under this letter, the following are the related accounts
on which reduced offering prices are to apply:
<TABLE>
<S> <C>
(1) Name .................................................. (2) Name.....................................................
Account Number ............................................ Account Number...............................................
</TABLE>
- --------------------------------------------------------------------------------
5. FOR DEALER ONLY
Branch Office, Address, Stamp
- --- ---
- --- ---
This form when completed should be mailed to:
Merrill Lynch Real Estate Fund, Inc.
c/o Merrill Lynch Financial Data Services, Inc.
P.O. Box 45289
Jacksonville, Florida 32232-5289
We hereby authorize Merrill Lynch Funds Distributor, Inc. to act as our agent in
connection with transactions under this authorization form and agree to notify
the Distributor of any purchases or sales made under a Letter of Intention,
Automatic Investment Plan or Systematic Withdrawal Plan. We guarantee the
shareholder's signature.
...............................................................
Dealer Name and Address
By .............................................................................
Authorized Signature of Dealer
<TABLE>
<S> <C> <C>
- ----------- --------------
/ / / / / / / / /
- ----------- -------------- ..............................
Branch-Code F/C No. F/C Last Name
- ----------- ----------------
/ / / / / / / / / /
- ----------- ----------------
Dealer's Customer Account No.
</TABLE>
54
<PAGE> 57
MERRILL LYNCH REAL ESTATE FUND, INC.--AUTHORIZATION FORM (PART 2)
- --------------------------------------------------------------------------------
NOTE: THIS FORM IS REQUIRED TO APPLY FOR THE SYSTEMATIC WITHDRAWAL OR AUTOMATIC
INVESTMENT PLANS ONLY.
- --------------------------------------------------------------------------------
1. ACCOUNT REGISTRATION
(Please Print)
<TABLE>
<S> <C>
------------------------------------------------------
Name of Owner..................................................
First Name Initial Last Name
------------------------------------------------------
Social Security No.
or Taxpayer Identification No.
Name of Co-Owner (if any)......................................
First Name Initial Last Name
Address........................................................ Account Number ............................................
(if existing account)
...............................................................
(Zip Code)
</TABLE>
- --------------------------------------------------------------------------------
2. SYSTEMATIC WITHDRAWAL PLAN-- (See terms and conditions in the Statement of
Additional Information)
MINIMUM REQUIREMENTS: $10,000 for monthly disbursements, $5,000 for
quarterly, of [ ] Class A, [ ] Class B*, [ ] Class C* or [ ] Class D shares
in Merrill Lynch Real Estate Fund, Inc. at cost or current offering price.
Withdrawals to be made either (check one) [ ] Monthly on the 24th day of each
month, or [ ] Quarterly on the 24th day of March, June, September and December.
If the 24th falls on a weekend or holiday, the next succeeding business day will
be utilized. Begin systematic withdrawal on ............., or as soon as
possible thereafter. (month)
SPECIFY THE AMOUNT OF WITHDRAWAL YOU WOULD LIKE PAID TO YOU (CHECK ONE):
[ ] $.............. of [ ] Class A, [ ] Class B*,
[ ] Class C* or [ ] Class D shares in the account.
SPECIFY WITHDRAWAL METHOD: [ ] check or [ ] direct deposit to my bank account
(check one and complete part (a) or (b) below):
DRAW CHECKS PAYABLE (CHECK ONE)
(a) I hereby authorize payment by check
[ ] as indicated in Item 1.
[ ] to the order of..........................................................
Mail to (check one)
[ ] the address indicated in Item 1.
[ ] Name (please print)......................................................
Address ........................................................................
..........................................................................
Signature of Owner
..............................................................................
Date ...........................................................................
Signature of Co-Owner (if any) .................................................
(B) I HEREBY AUTHORIZE PAYMENT BY DIRECT DEPOSIT TO MY BANK ACCOUNT AND, IF
NECESSARY, DEBIT ENTRIES AND ADJUSTMENTS FOR ANY CREDIT ENTRIES MADE TO MY
ACCOUNT. I AGREE THAT THIS AUTHORIZATION WILL REMAIN IN EFFECT UNTIL I PROVIDE
WRITTEN NOTIFICATION TO MERRILL LYNCH FINANCIAL DATA SERVICES, INC. AMENDING OR
TERMINATING THIS SERVICE.
Specify type of account (check one): [ ] checking [ ] savings
Name on your account.........................................................
Bank Name....................................................................
Bank Number ..................Account Number.................................
Bank Address.................................................................
...................................................................
Signature of Owner...........................................................
Signature of Depositor.............................Date......................
Signature of Depositor.......................................................
(If joint account, both must sign)
NOTE: IF DIRECT DEPOSIT IS ELECTED, YOUR BLANK, UNSIGNED CHECK MARKED "VOID" OR
A DEPOSIT SLIP FROM YOUR SAVINGS ACCOUNT SHALL ACCOMPANY THIS APPLICATION.
- ---------------
* Annual withdrawal cannot exceed 10% of the value of shares of such class held
in the account at the time the election to join the systematic withdrawal plan
is made.
55
<PAGE> 58
MERRILL LYNCH REAL ESTATE FUND, INC.--AUTHORIZATION FORM (PART 2) -- (CONTINUED)
- --------------------------------------------------------------------------------
3. APPLICATION FOR AUTOMATIC INVESTMENT PLAN
I hereby request that Merrill Lynch Financial Data Services, Inc. draw an
automated clearing house ("ACH") debit on my checking account as described below
each month to purchase (choose one):
[ ] Class A shares [ ] Class B shares [ ] Class C shares [ ] Class D shares
of Merrill Lynch Real Estate Fund, Inc., subject to the terms set forth below.
In the event that I am not eligible to purchase Class A shares, I understand
that Class D shares will be purchased.
MERRILL LYNCH FINANCIAL DATA SERVICES, INC.
You are hereby authorized to draw an ACH debit each month on my bank account for
investment in Merrill Lynch Real Estate Fund, Inc. as indicated below:
Amount of each check or ACH debit $..........................................
Account Number...............................................................
Please date and invest ACH debits on the 20th of each month beginning
.............................. or as soon thereafter as possible.
(month)
I agree that you are preparing these ACH debits voluntarily at my request and
that you shall not be liable for any loss arising from any delay in preparing or
failure to prepare any such debit. If I change banks or desire to terminate or
suspend this program, I agree to notify you promptly in writing. I hereby
authorize you to take any action to correct erroneous ACH debits of my bank
account or purchases of Fund shares including liquidating shares of the Fund and
crediting my bank account. I further agree that if a debit is not honored upon
presentation, Merrill Lynch Financial Data Services, Inc. is authorized to
discontinue immediately the Automatic Investment Plan and to liquidate
sufficient shares held in my account to offset the purchase made with the
dishonored debit.
................. .......................................
Date Signature of Depositor
.......................................
Signature of Depositor
(If joint account, both must sign)
AUTHORIZATION TO HONOR ACH DEBITS DRAWN BY
MERRILL LYNCH FINANCIAL DATA SERVICES, INC.
To..........................................................................Bank
(Investor's Bank)
Bank Address....................................................................
City .................... State .................... Zip........................
As a convenience to me, I hereby request and authorize you to pay and charge
to my account ACH debits drawn on my account by and payable to Merrill Lynch
Financial Data Services, Inc. I agree that your rights in respect to each such
debit shall be the same as if it were a check drawn on you and signed personally
by me. This authority is to remain in effect until revoked by me in writing.
Until you receive such notice, you shall be fully protected in honoring any such
debit. I further agree that if any such debit be dishonored, whether with or
without cause and whether intentionally or inadvertently, you shall be under no
liability.
.................... .......................................
Date Signature of Depositor
.................... .......................................
Bank Account Number Signature of Depositor
(If joint account, both must sign)
NOTE: IF AUTOMATIC INVESTMENT PLAN IS ELECTED, YOUR BLANK, UNSIGNED CHECK MARKED
"VOID" SHOULD ACCOMPANY THIS APPLICATION.
56
<PAGE> 59
MANAGER
Merrill Lynch Asset Management
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9011
Princeton, New Jersey 08543-9011
DISTRIBUTOR
Merrill Lynch Funds Distributor, Inc.
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9081
Princeton, New Jersey 08536-9081
CUSTODIAN
The Bank of New York
90 Washington Street
12th Floor
New York, New York 10286
TRANSFER AGENT
Merrill Lynch Financial Data Services, Inc.
Administrative Offices:
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
Mailing Address:
P.O. Box 45289
Jacksonville, Florida 32232-5289
INDEPENDENT AUDITORS
Deloitte & Touche LLP
117 Campus Drive
Princeton, New Jersey 08540-6400
COUNSEL
Brown & Wood LLP
One World Trade Center
New York, New York 10048-0557
<PAGE> 60
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION
WITH THE OFFER CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE FUND, THE MANAGER OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFERING IN ANY STATE IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fee Table.......................................... 2
Merrill Lynch Select Pricing(SM) System............ 4
Risk Factors and Special Considerations............ 8
Investment Objective and Policies.................. 13
Description of Certain Investments............... 14
Other Investment Policies and Practices.......... 17
Investment Restrictions.......................... 20
Management of the Fund............................. 22
Directors........................................ 22
Management and Advisory Arrangements............. 22
Code of Ethics................................... 23
Transfer Agency Services......................... 23
Purchase of Shares................................. 24
Subscription Offering............................ 24
Continuous Offering.............................. 25
Initial Sales Charge Alternatives--Class A and
Class D Shares................................. 27
Deferred Sales Charge Alternatives--Class B and
Class C Shares................................. 29
Distribution Plans............................... 33
Limitations on the Payment of Deferred Sales
Charges........................................ 34
Redemption of Shares............................... 34
Redemption....................................... 35
Repurchase....................................... 35
Reinstatement Privilege--Class A and Class D
Shares......................................... 36
Shareholder Services............................... 36
Investment Account............................... 36
Exchange Privilege............................... 37
Automatic Reinvestment of Dividends and Capital
Gains Distributions............................ 38
Systematic Withdrawal Plans...................... 38
Automatic Investment Plans....................... 39
Fee-Based Programs............................... 39
Taxes.............................................. 39
Performance Data................................... 42
Additional Information............................. 43
Dividends and Distributions...................... 43
Determination of Net Asset Value................. 43
Organization of the Fund......................... 44
Shareholder Reports.............................. 45
Shareholder Inquiries............................ 45
Appendix A......................................... 46
Authorization Form................................. 53
Code #19017-1197
</TABLE>
[MERRILL LYNCH LOGO]
MERRILL LYNCH
REAL ESTATE FUND, INC.
PROSPECTUS [MLYNCH COMPASS]
November 14, 1997
Distributor:
Merrill Lynch
Funds Distributor, Inc.
This prospectus should be
retained for future reference.
<PAGE> 61
STATEMENT OF ADDITIONAL INFORMATION
MERRILL LYNCH REAL ESTATE FUND, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 - PHONE NO. (609) 282-2800
------------------------
Merrill Lynch Real Estate Fund, Inc. (the "Fund") is a non-diversified,
open-end management investment company that seeks to provide shareholders with
total return by investing primarily in equity securities of issuers that are
principally engaged in the real estate industry. Total return is the combination
of capital appreciation and investment income. The Fund may employ a variety of
techniques to hedge against market or currency risk or to enhance total return.
There can be no assurance that the investment objective of the Fund will be
realized.
Pursuant to the Merrill Lynch Select Pricing(SM) System, the Fund offers
four classes of shares each with a different combination of sales charges,
ongoing fees and other features. The Merrill Lynch Select Pricing(SM) System
permits an investor to choose the method of purchasing shares that the investor
believes is most beneficial given the amount of the purchase, the length of time
the investor expects to hold the shares and other relevant circumstances.
------------------------
This Statement of Additional Information of the Fund is not a prospectus
and should be read in conjunction with the prospectus of the Fund, dated
November 14, 1997 (the "Prospectus"), which has been filed with the Securities
and Exchange Commission (the "Commission") and can be obtained, without charge,
by calling or by writing the Fund at the above telephone number or address. This
Statement of Additional Information has been incorporated by reference into the
Prospectus. Capitalized terms used but not defined herein have the same meanings
as in the Prospectus.
------------------------
MERRILL LYNCH ASSET MANAGEMENT--MANAGER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.--DISTRIBUTOR
------------------------
The date of this Statement of Additional Information is November 14, 1997.
<PAGE> 62
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek total return by investing
primarily in equity securities of issuers that are principally engaged in the
real estate industry. Total return is a combination of capital appreciation and
investment income. There can be no assurance that the Fund's investment
objective will be achieved. Reference is made to "Investment Objective and
Policies" in the Prospectus for a discussion of the investment objective and
policies of the Fund.
The Fund may invest up to 25% of its total assets in foreign securities.
While it is the policy of the Fund generally not to engage in trading for
short-term gains, the Manager will effect portfolio transactions without regard
to holding period, if, in its judgment, such transactions are advisable in light
of a change in circumstances of a particular company or within a particular
industry or in the general market, economic or financial conditions. The Fund
will, however, monitor its trading so as to comply with the requirements for the
special tax treatment afforded regulated investment companies under the Code.
See "Taxes." The portfolio turnover rate is calculated by dividing the lesser of
the Fund's annual sales or purchases of portfolio securities (exclusive of
purchases or sales of all securities whose maturities at the time of acquisition
were one year or less) by the monthly average value of the securities in the
portfolio during the year. While the Fund anticipates that its annual portfolio
turnover rate should not exceed 100% under normal conditions, it is impossible
to predict portfolio turnover rates. Higher portfolio turnover may contribute to
higher transactional costs and negative tax consequences, such as an increase in
capital gain dividends or in ordinary income dividends of accrued market
discount, as well as greater difficulty meeting the requirement for
qualification as a regulated investment company that less than 30% of its gross
income be derived from the sale or other disposition of securities held for less
than three months, a requirement that will no longer apply to the Fund after its
fiscal year ending December 31, 1997. See "Dividends, Distributions and Taxes."
PORTFOLIO STRATEGIES INVOLVING OPTIONS, FUTURES AND FOREIGN EXCHANGE
TRANSACTIONS
The Fund is authorized to engage in certain investment practices involving
the use of options, futures and foreign exchange, which may expose the Fund to
certain risks. These investment practices and the associated risks are described
in detail in Appendix A in the Prospectus.
OTHER INVESTMENT POLICIES AND PRACTICES
Non-Diversified Status. The Fund is classified as non-diversified within
the meaning of the Investment Company Act of 1940, as amended (the "Investment
Company Act"), which means that the Fund is not limited by such Act in the
proportion of its assets that it may invest in securities of a single issuer.
The Fund's investments are limited, however, in order for the Fund to qualify as
a "regulated investment company" under the Internal Revenue Code of 1986, as
amended (the "Code"). See "Taxes." To qualify, the Fund complies 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. A fund that elects to be classified as "diversified" under the
Investment Company Act must satisfy the foregoing 5% and 10% requirements with
respect to 75% of its total assets. To the extent that the Fund assumes large
positions in the securities of a small number of issuers, the Fund's net asset
value may fluctuate to a greater extent than that of
2
<PAGE> 63
a diversified company as a result of changes in the financial condition or in
the market's assessment of the issuers, and the Fund may be more susceptible to
any single economic, political or regulatory occurrence than a diversified
company.
When-Issued Securities and Delayed Delivery Transactions. The Fund may
purchase securities on a when-issued basis, and it may purchase or sell
securities for delayed delivery. These transactions occur when securities are
purchased or sold by the Fund with payment and delivery taking place in the
future to secure what is considered an advantageous yield and price to the Fund
at the time of entering into the transaction. Although the Fund has not
established any limit on the percentage of its assets that may be committed in
connection with such transactions, the Fund will maintain a segregated account
with its custodian of cash, cash equivalents, U.S. Government securities or
other liquid securities denominated in U.S. dollars or non-U.S. currencies in an
aggregate amount equal to the amount of its commitment in connection with such
purchase transactions.
There can be no assurance that a security purchased on a when-issued basis
or purchased or sold through a forward commitment will be issued, and the value
of the security, if issued, on the delivery date may be more or less than its
purchase price. The Fund may bear the risk of a decline in the value of such
security and may not benefit from an appreciation in the value of the security
during the commitment period.
Standby Commitment Agreements. The Fund, from time to time, may enter into
standby commitment agreements. Such agreements commit the Fund, for a stated
period of time, to purchase a stated amount of equity securities which may be
issued and sold to the Fund at the option of the issuer. The price of the
security is fixed at the time of the commitment. At the time of entering into
the agreement the Fund is paid a commitment fee, regardless of whether or not
the security is ultimately issued, which is typically approximately 0.50% of the
aggregate purchase price of the security that the Fund has committed to
purchase. The Fund will enter into such agreements only for the purpose of
investing in the security underlying the commitment at a price that is
considered advantageous to the Fund. The Fund will not enter into a standby
commitment with a remaining term in excess of 45 days and presently will limit
its investment in such commitments so that the aggregate purchase price of the
securities subject to such commitments, together with the value of portfolio
securities subject to legal restrictions on resale that affect their
marketability, will not exceed 15% of its net assets taken at the time of
acquisition of such a commitment. The Fund at all times will maintain a
segregated account with its custodian of cash, cash equivalents, U.S. Government
securities or other liquid securities denominated in U.S. dollars or non-U.S.
currencies in an aggregate amount equal to the purchase price of the securities
underlying a commitment.
There can be no assurance that the securities subject to a standby
commitment will be issued, and the value of the security, if issued, on the
delivery date may be more or less than its purchase price. Since the issuance of
the security underlying the commitment is at the option of the issuer, the Fund
may bear the risk of a decline in the value of such security and may not benefit
from an appreciation in the value of the security during the commitment period.
The purchase of a security subject to a standby commitment agreement and
the related commitment fee will be recorded on the date on which the security
can reasonably be expected to be issued, and the value of the security
thereafter will be reflected in the calculation of the Fund's net asset value.
The cost basis of the security will be adjusted by the amount of the commitment
fee. In the event the security is not issued, the commitment fee will be
recorded as income on the expiration date of the standby commitment.
3
<PAGE> 64
Repurchase Agreements and Purchase and Sale Contracts. The Fund may invest
in securities pursuant to repurchase agreements or purchase and sale contracts.
Repurchase agreements and purchase and sale contracts may be entered into only
with financial institutions which (i) have, in the opinion of Merrill Lynch
Asset Management L.P. (the "Manager" or "MLAM"), substantial capital relative to
the Fund's exposure, or (ii) have provided the Fund with a third-party guaranty
or other credit enhancement. Under a repurchase agreement or a purchase and sale
contract, the seller agrees, upon entering into the contract with the Fund, to
repurchase the security at a mutually agreed-upon time and price in a specified
currency, thereby determining the yield during the term of the agreement. This
results in a fixed rate of return insulated from market fluctuations during such
period although it may be affected by currency fluctuations. In the case of
repurchase agreements, the price at which the trades are conducted do not
reflect accrued interest on the underlying obligation; whereas, in the case of
purchase and sale contracts, the prices take into account accrued interest. Such
agreements usually cover short periods, such as under one week. Repurchase
agreements may be construed to be collateralized loans by the purchaser to the
seller secured by the securities transferred to the purchaser. In the case of a
repurchase agreement, as a purchaser, the Fund will require the seller to
provide additional collateral if the market value of the securities falls below
the repurchase price at any time during the term of the repurchase agreement;
the Fund does not have the right to seek additional collateral in the case of
purchase and sale contracts. In the event of default by the seller under a
repurchase agreement construed to be a collateralized loan, the underlying
securities are not owned by the Fund but only constitute collateral for the
seller's obligation to pay the repurchase price. Therefore, the Fund may suffer
time delays and incur costs or possible losses in connection with the
disposition of the collateral. A purchase and sale contract differs from a
repurchase agreement in that the contract arrangements stipulate that the
securities are owned by the Fund. In the event of a default under such a
repurchase agreement or under a purchase and sale contract, instead of the
contractual fixed rate, the rate of return to the Fund shall be dependent upon
intervening fluctuations of the market value of such securities and the accrued
interest on the securities. In such event, the Fund would have rights against
the seller for breach of contract with respect to any losses arising from market
fluctuations following the failure of the seller to perform. While the substance
of purchase and sale contracts is similar to repurchase agreements, because of
the different treatment with respect to accrued interest and additional
collateral, management believes that purchase and sale contracts are not
repurchase agreements as such term is understood in the banking and brokerage
community. The Fund may not invest more than 15% of its net assets in repurchase
agreements or purchase and sale contracts maturing in more than seven days
together with all other illiquid investments.
Lending of Portfolio Securities. Subject to the investment restrictions
set forth in the Prospectus and herein, the Fund may lend securities from its
portfolio to approved borrowers and receive therefor collateral in cash or
securities issued or guaranteed by the United States Government. Such collateral
will be maintained at all times in an amount equal to at least 100% of the
current market value of the loaned securities. The purpose of such loans is to
permit the borrower to use such securities for delivery to purchasers when such
borrower has sold short. If cash collateral is received by the Fund, it is
invested in short-term money market securities, and a portion of the yield
received in respect of such investment is retained by the Fund. Alternatively,
if securities are delivered to the Fund as collateral, the Fund and the borrower
negotiate a rate for the loaned premium to be received by the Fund for lending
its portfolio securities. In either event, the total yield on the Fund's
portfolio is increased by loans of its portfolio securities. The Fund will have
the right to regain record ownership of loaned securities to exercise beneficial
rights such as voting rights, subscription rights and rights to dividends,
interest or other distributions. Such loans are terminable at any time, and the
4
<PAGE> 65
borrower, after notice, will be required to return borrowed securities within
five business days. The Fund may pay reasonable finder's, administrative and
custodial fees in connection with such loans. With respect to the lending of
portfolio securities, there is the risk of failure by the borrower to return the
securities involved in such transactions.
INVESTMENT RESTRICTIONS
The Fund has adopted a number of fundamental and non-fundamental
restrictions and policies relating to the investment of its assets and its
activities. The fundamental policies set forth below may not be changed without
the approval of the holders of a majority of the Fund's outstanding voting
securities (which for this purpose and under the Investment Company Act means
the lesser of (i) 67% of the Fund's shares represented at a meeting at which
more than 50% of the outstanding shares of the Fund are represented or (ii) more
than 50% of the Fund's outstanding shares). 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 issuers principally engaged in the real estate industry
and the U.S. Government and its agencies and instrumentalities). For
purposes of this restriction, states, municipalities and their political
subdivisions are not considered part of any industry.
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 to be the
making of investments for the purpose of exercising control or management.
3. Purchase or sell real estate, except that, to the extent permitted
by applicable law, the Fund may invest in securities directly or indirectly
secured by real estate or interests therein or issued by companies which
invest in real estate or interests therein and may hold and sell real
estate acquired by the Fund as a result of the ownership of securities.
4. Make loans to other persons, except that the acquisition of bonds,
debentures or other corporate debt securities and investment in government
obligations, commercial paper, pass-through instruments, certificates of
deposit, bankers' acceptances and repurchase agreements and purchase and
sale contracts or any similar instruments shall not be deemed to be the
making of a loan, and except further that the Fund may lend its portfolio
securities, provided that the lending of portfolio securities may be made
only in accordance with applicable law and the guidelines set forth in the
Fund's Prospectus and this Statement of Additional Information, as they may
be amended from time to time.
5. Issue senior securities to the extent such issuance would violate
applicable law.
6. Borrow money, except that (i) the Fund may borrow from banks (as
defined in the Investment Company Act) in amounts up to 33 1/3% of its
total assets (including the amount borrowed), (ii) the Fund may borrow up
to an additional 5% of its total assets for temporary purposes, (iii) the
Fund may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities and (iv) the Fund
may purchase securities on margin to the extent permitted by applicable
law. The Fund may not pledge its assets other than to secure such
borrowings or, to the extent permitted by the Fund's investment policies as
set forth in its Prospectus and Statement of Additional Information, as
they may be amended from time to time, in connection with hedging
transactions, short sales, when-issued and forward commitment transactions
and similar investment strategies.
5
<PAGE> 66
7. Underwrite securities of other issuers, except insofar as the Fund
technically may be deemed an underwriter under the Securities Act of 1933,
as amended (the "Securities Act"), in selling portfolio securities.
8. Purchase or sell commodities or contracts on commodities, except to
the extent that the Fund may do so in accordance with applicable law and
the Fund's Prospectus and Statement of Additional Information, as they may
be amended from time to time, and without registering as a commodity pool
operator under the Commodity Exchange Act.
Under the non-fundamental investment restrictions, the Fund may not:
a. Purchase securities of other investment companies except to the
extent permitted by applicable law. As a matter of policy, however, the
Fund will not purchase shares of any registered open-end investment company
or registered unit investment trust in reliance on Section 12(d)(1)(F) or
(G) (the "fund of funds" provisions) of the Investment Company Act, at any
time its shares are owned by another investment company that is part of the
same group of investment companies as the Fund.
b. Make short sales of securities or maintain a short position, except
to the extent permitted by applicable law. The Fund currently does not
intend to engage in short sales, except short sales "against the box."
c. Invest in securities which cannot be readily resold because of
legal or contractual restrictions or which cannot otherwise be marketed,
redeemed or put to the issuer or a third party, if at the time of
acquisition more than 15% of its net assets would be invested in such
securities. This restriction shall not apply to securities which mature
within seven days or securities which the Board of Directors of the Fund
has otherwise determined to be liquid pursuant to applicable law.
Securities purchased in accordance with Rule 144A under the Securities Act
and determined to be liquid by the Board of Directors are not subject to
the limitations set forth in this investment restriction.
d. Notwithstanding fundamental investment restriction (6) above,
borrow money or pledge its assets, except that the Fund (a) may borrow from
a bank as a temporary measure for extraordinary or emergency purposes or to
meet redemptions in amounts not exceeding 33 1/3% (taken at market value)
of its total assets and pledge its assets to secure such borrowings, (b)
may obtain such short-term credit as may be necessary for the clearance of
purchases and sales of portfolio securities and (c) may purchase securities
on margin to the extent permitted by applicable law. However, at the
present time, applicable law prohibits the Fund from purchasing securities
on margin. The deposit or payment by the Fund of initial or variation
margin in connection with financial futures contracts or options
transactions is not considered to be the purchase of a security on margin.
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. The Fund will not purchase securities
while borrowings exceed 5% of its total assets.
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, officers
or employees, acting as principal, unless pursuant to a rule or exemptive order
under the Investment Company Act.
The staff of the Commission has taken the position that purchased
over-the-counter ("OTC") options and the assets used as cover for written OTC
options are illiquid securities. Therefore, the Fund has adopted
6
<PAGE> 67
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 that are held by the Fund, the market value of the
underlying securities covered by OTC call options currently outstanding that
were sold by the Fund and margin deposits on the Fund's existing OTC options on
financial futures contracts, exceeds 15% of the net assets of the Fund, taken at
market value, together with all other assets of the Fund that 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.
In addition, as a non-fundamental policy which may be changed by the Board
of Directors and to the extent required by the Commission or its staff, the Fund
will, for purposes of investment restriction (1), treat securities issued or
guaranteed by the government of any one foreign country as the obligations of a
single issuer.
As another non-fundamental policy, the Fund will not invest in securities
that 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 cash securities.
Because of the affiliation of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") with the Fund, the Fund is prohibited from
engaging in certain transactions involving such firm or its affiliates except
for brokerage transactions permitted under the Investment Company Act involving
only usual and customary commissions or transactions permitted pursuant to an
exemptive order under the Investment Company Act. See "Portfolio Transactions
and Brokerage." Without such an exemptive order, the Fund is prohibited from
engaging in portfolio transactions with Merrill Lynch or its affiliates acting
as principal and from purchasing securities in public offerings that are not
registered under the Securities Act in which such firms or any of its affiliates
participate as an underwriter or dealer.
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
Information about the Directors, executive officers and portfolio manager
of the Fund, including their ages and their principal occupations for at least
the last five years, is set forth below. Unless otherwise noted, the address of
the portfolio manager and of each executive officer and Director is P.O. Box
9011, Princeton, New Jersey 08543-9011.
7
<PAGE> 68
ARTHUR ZEIKEL (65) -- President and Director(1)(2) -- President of the
Manager (which term as used herein includes its corporate predecessors) since
1977; President of Fund Asset Management, L.P. ("FAM") (which term as used
herein includes its corporate predecessors) since 1977; President and Director
of Princeton Services, Inc. ("Princeton Services") since 1993; Executive Vice
President of Merrill Lynch & Co., Inc. ("ML & Co.") since 1990.
JOE GRILLS (62) -- Director(2) -- 183 Soundview Lane, New Canaan,
Connecticut 06840. Member of the Committee of Investment of Employee Benefit
Assets of the Financial Executives Institute ("CIEBA") since 1986; member of
CIEBA's Executive Committee since 1988 and its Chairman from 1991 to 1992;
Assistant Treasurer of International Business Machines Incorporated ("IBM") and
Chief Investment Officer of IBM Retirement Funds from 1986 until 1993; Member of
the Investment Advisory Committees of the State of New York Common Retirement
Fund and the Howard Hughes Medical Institute; Director, Duke Management Company
since 1993; Director, LaSalle Street Fund since 1995; Director, Kimco Realty
Corporation since January 1997.
WALTER MINTZ(68) -- Director(2) -- 1114 Avenue of the Americas, New York,
New York 10036. Special Limited Partner of Cumberland Associates (investment
partnership) since 1982.
ROBERT S. SALOMON, JR. (61) -- Director(2) -- 106 Dolphin Cove Quay,
Stamford, Connecticut 06902. Principal of STI Management (investment adviser);
Director, The Common Fund and the Norwalk Community Technical College
Foundation; Chairman and CEO of Salomon Brothers Asset Management from 1992
until 1995; Chairman of Salomon Brothers equity mutual funds from 1992 until
1995; Director of Stock Research and U.S. Equity Strategist at Salomon Brothers
from 1975 until 1991.
MELVIN R. SEIDEN(67) -- Director(2) -- 780 Third Avenue, Suite 2502, New
York, New York 10017. Director of Silbanc Properties, Ltd. (real estate,
investments and consulting) since 1987; Chairman and President of Seiden & de
Cuevas, Inc. (private investment firm) from 1964 to 1987.
STEPHEN B. SWENSRUD(64) -- Director(2) -- 24 Federal Street, Suite 400,
Boston, Massachusetts 02110. Chairman of Fernwood Advisors (investment adviser)
since 1975.
TERRY K. GLENN (57) -- Executive Vice President(1)(2) -- Executive Vice
President of the Manager and FAM since 1983; Executive Vice President and
Director of Princeton Services since 1993; President of Merrill Lynch Funds
Distributor, Inc. (the "Distributor" or "MLFD") since 1986 and Director thereof
since 1991; President of Princeton Administrators, L.P. since 1988.
NORMAN R. HARVEY (64) -- Senior Vice President(1)(2) -- Senior Vice
President of the Manager and FAM since 1982; Senior Vice President of Princeton
Services since 1993.
JAY L. WILLOUGHBY (38) -- Senior Portfolio Manager -- Senior Portfolio
Manager of the Manager since 1997; Managing Director of AEW Capital Management,
L.P. from 1995 to 1997; Partner and Portfolio Manager of the Crabbe Huson Group
from 1988 to 1995.
DONALD C. BURKE (37) -- Vice President(1)(2) -- First Vice President of the
Manager since 1997; Vice President of the Manager from 1990 to 1997; Director of
Taxation of the Manager since 1990.
GERALD M. RICHARD(48) -- Treasurer(1)(2) -- Senior Vice President and
Treasurer of the Manager and FAM since 1984; Senior Vice President and Treasurer
of Princeton Services since 1993; Treasurer of the Distributor since 1984 and
Vice President thereof since 1981.
8
<PAGE> 69
PHILIP M. MANDEL(50) -- Secretary(1)(2) -- First Vice President of the
Manager since 1997; Vice President and Assistant General Counsel of Merrill
Lynch from 1989 to 1997.
- ---------------
(1) Interested person, as defined in the Investment Company Act, of the Fund.
(2) Such Director or officer is a trustee, director or officer of certain other
investment companies for which the Manager or FAM acts as investment adviser
or manager.
At October 31, 1997, the officers and Directors of the Fund as a group (12
persons) owned an aggregate of less than 1% of the outstanding shares of the
Fund. At such date, Mr. Zeikel, a Director and officer of the Fund, and the
other officers of the Fund, owned less than 1% of the outstanding shares of
common stock of ML & Co.
COMPENSATION OF DIRECTORS
The Fund pays each Director who is not affiliated with the Manager (each, a
"non-affiliated Director") a fee of $1,500 per year plus $250 per Board meeting
attended, together with such Director's actual out-of-pocket expenses relating
to attendance at meetings. The Fund also compensates each member of the Audit
and Nominating Committee (the "Committee"), which consists of the non-affiliated
Directors, a fee of $1,500 per year plus $250 per Committee meeting attended.
The following table sets forth the estimated compensation to be paid by the
Fund to the non-affiliated Directors projected through the end of the Fund's
first full fiscal year assuming the Board and Committee each held four meetings
and all Directors attended each meeting, and the aggregate compensation paid by
all registered investment companies advised by MLAM or its affiliate, FAM
("MLAM/FAM-Advised Funds"), to the non-affiliated Directors for the year ended
December 31, 1996.
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
FROM FUND AND
PENSION OR RETIREMENT MLAM/FAM-ADVISED
COMPENSATION BENEFITS ACCRUED AS FUNDS PAID TO
NAME OF DIRECTOR FROM FUND PART OF FUND EXPENSES DIRECTORS(1)
- ------------------------------------------- ------------ --------------------- ----------------
<S> <C> <C> <C>
Joe Grills................................. $5,000 None $164,000
Walter Mintz............................... $5,000 None $164,000
Robert S. Salomon, Jr. .................... $5,000 None $187,167
Melvin R. Seiden........................... $5,000 None $164,000
Stephen B. Swensrud........................ $5,000 None $154,250
</TABLE>
- ---------------
(1) The Directors serve on the boards of MLAM/FAM-Advised Funds as follows: Joe
Grills (19 registered investment companies consisting of 47 portfolios);
Walter Mintz (18 registered investment companies consisting of 37
portfolios); Robert S. Salomon, Jr. (18 registered investment companies
consisting of 37 portfolios); Melvin R. Seiden (18 registered investment
companies consisting of 37 portfolios); and Stephen B. Swensrud (21
registered investment companies consisting of 52 portfolios).
MANAGEMENT AND ADVISORY ARRANGEMENTS
Reference is made to "Management of the Fund--Management and Advisory
Arrangements" in the Prospectus for certain information concerning the
management and advisory arrangements of the Fund.
Securities may be held by, or be appropriate investments for, the Fund as
well as other funds or investment advisory clients for which the Manager or its
affiliates act as an adviser. Because of different objectives or other factors,
a particular security may be bought for one or more clients when one or more
9
<PAGE> 70
clients are selling the same security. If purchases or sales of securities by
the Manager for the Fund or other funds for which it acts as investment adviser
or for its advisory clients arise for consideration at or about the same time,
transactions in such securities will be made, insofar as feasible, for the
respective funds and clients in a manner deemed equitable to all. To the extent
that transactions on behalf of more than one client of the Manager or its
affiliates during the same period may increase the demand for securities being
purchased or the supply of securities being sold, there may be an adverse effect
on price.
The Fund has entered into an investment advisory agreement with the Manager
(the "Management Agreement"). As discussed in the Prospectus, the Manager
receives for its services to the Fund monthly compensation at the annual rate of
0.85% of the average daily net assets of the Fund.
As described in the Prospectus, the Manager has also entered into a
sub-advisory agreement with Merrill Lynch Asset Management U.K. Limited ("MLAM
U.K.") pursuant to which MLAM U.K. provides investment advisory services to the
Manager with respect to the Fund.
The Management Agreement obligates the Manager to provide investment
advisory services and to pay all compensation of and furnish office space for
officers and employees of the Fund connected with investment and economic
research, trading and investment management of the Fund, as well as the fees of
all Directors of the Fund who are affiliated persons of the Manager. The Fund
pays all other expenses incurred in the operation of the Fund, including, among
other things, taxes, expenses for legal and auditing services, costs of printing
proxies, stock certificates, shareholder reports and prospectuses and statements
of additional information (except to the extent paid by the Distributor),
charges of the custodian, any sub-custodian and transfer agent, expenses of
redemption of shares, Commission fees, expenses of registering the shares under
Federal, state or foreign laws, fees and expenses of non-affiliated Directors,
accounting and pricing costs (including the daily calculation of net asset
value), insurance, interest, brokerage costs, litigation and other extraordinary
or nonrecurring expenses, and other expenses properly payable by the Fund.
Accounting services are provided to the Fund by the Manager, and the Fund
reimburses the Manager for its costs in connection with such services on a
semi-annual basis. The Distributor will pay certain promotional expenses of the
Fund incurred in connection with the offering of shares of the Fund. Certain
expenses will be financed by the Fund pursuant to distribution plans in
compliance with Rule 12b-1 under the Investment Company Act. See "Purchase of
Shares--Distribution Plans."
The Manager is a limited partnership, the partners of which are ML & Co.
and Princeton Services. ML & Co. and Princeton Services are "controlling
persons" of the Manager as defined under the Investment Company Act because of
their ownership of its voting securities or their power to exercise a
controlling influence over its management or policies. Similarly, the following
entities may be considered "controlling persons" of MLAM U.K.: Merrill Lynch
Europe Limited (MLAM U.K.'s parent), a subsidiary of ML International Holdings,
a subsidiary of Merrill Lynch International, Inc., a subsidiary of ML & Co.
Duration and Termination. Unless earlier terminated as described herein,
the Management Agreement will continue in effect for a period of two years from
the date of execution and will remain in effect from year to year thereafter if
approved annually (a) by the Board of Directors or by a majority of the
outstanding shares of the Fund and (b) by a majority of the Directors who are
not parties to such contract or "interested persons" (as defined in the
Investment Company Act) of any such party. Such contracts are 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.
10
<PAGE> 71
PURCHASE OF SHARES
Reference is made to "Purchase of Shares" in the Prospectus for certain
information as to the purchase of Fund shares.
The Fund issues four classes of shares under the Merrill Lynch Select
Pricing(SM) System; shares of Class A and Class D are sold to investors choosing
the initial sales charge alternatives, and shares of Class B and Class C are
sold to investors choosing the deferred sales charge alternatives. Each Class A,
Class B, Class C and Class D share of the Fund represents an identical interest
in the investment portfolio of the Fund and has the same rights except that
Class B, Class C and Class D shares bear the expenses of the ongoing account
maintenance fees, and Class B and Class C shares bear the expenses of the
ongoing distribution fees and the additional incremental transfer agency costs
resulting from the deferred sales charge arrangements. Class B, Class C and
Class D shares each have exclusive voting rights with respect to the Rule 12b-1
distribution plan adopted with respect to such class pursuant to which account
maintenance and/or distribution fees are paid (except that Class B shareholders
may vote upon any material changes to expenses charged under the Class D
Distribution Plan). Each class has different exchange privileges. See
"Shareholder Services--Exchange Privilege."
The Merrill Lynch Select Pricing(SM) System is used by more than 50
registered investment companies advised by the Manager or its affiliate, FAM.
Funds advised by the Manager or FAM that utilize the Merrill Lynch Select
Pricing(SM) System are referred to herein as "MLAM-advised mutual funds."
The Fund has entered into separate distribution agreements with the
Distributor in connection with the continuous offering of each class of shares
of the Fund (the "Distribution Agreements"). The Distribution Agreements
obligate the Distributor to pay certain expenses in connection with the offering
of each class of shares of the Fund. After the prospectuses, statements of
additional information and periodic reports have been prepared, set in type and
mailed to shareholders, the Distributor pays for the printing and distribution
of copies thereof used in connection with the offering to dealers and
prospective investors. The Distributor also pays for other supplementary sales
literature and advertising costs. The Distribution Agreements are subject to the
same renewal requirements and termination provisions as the Management Agreement
described under "Management of the Fund--Management and Advisory Arrangements."
INITIAL SALES CHARGE ALTERNATIVES--CLASS A AND CLASS D SHARES
The term "purchase," as used in the Prospectus and this Statement of
Additional Information in connection with an investment in Class A and Class D
shares of the Fund, refers to a single purchase by an individual, or to
concurrent purchases, which in the aggregate are at least equal to the
prescribed amounts by an individual, his or her spouse and their children under
the age of 21 years purchasing shares for his, her or their own account and
single purchases by a trustee or other fiduciary purchasing shares for a single
trust estate or single fiduciary account although more than one beneficiary is
involved. The term "purchase" also includes purchases by any "company," as that
term is defined in the Investment Company Act, but does not include purchases by
any such company which has not been in existence for at least six months or that
has no purpose other than the purchase of shares of the Fund or shares of other
registered investment companies at a discount; provided, however, that it shall
not include purchases by any group of individuals whose sole organizational
nexus is that the participants therein are credit cardholders of a company,
policyholders of an insurance company, customers of either a bank or
broker-dealer or clients or an investment advisor.
11
<PAGE> 72
Closed-End Fund Investment Option. Class A shares of the Fund and other
MLAM-advised mutual funds ("Eligible Class A shares") are offered at net asset
value to shareholders of certain closed-end funds advised by the Manager or FAM
who purchased such closed-end fund shares prior to October 21, 1994 (the date
the Merrill Lynch Select Pricing(SM) System commenced operations) and wish to
reinvest the net proceeds of a sale of their closed-end fund shares of common
stock in Eligible Class A shares, if the conditions set forth below are
satisfied. Alternatively, closed-end fund shareholders who purchased such shares
on or after October 21, 1994 and wish to reinvest the net proceeds from a sale
of their closed-end fund shares are offered Class A shares (if eligible to buy
Class A shares) or Class D shares of the Fund and other MLAM-advised mutual
funds ("Eligible Class D shares"), if the following conditions are met. First,
the sale of closed-end fund shares must be made through Merrill Lynch and the
net proceeds therefrom must be reinvested immediately in Eligible Class A or
Class D shares. Second, the closed-end fund shares must either have been
acquired in the initial public offering or be shares representing dividends from
shares of common stock acquired in such offering. Third, the closed-end fund
shares must have been continuously maintained in a Merrill Lynch securities
account. Fourth, there must be a minimum purchase of $250 to be eligible for the
investment option.
Shareholders of certain MLAM-advised continuously offered closed-end funds
may reinvest at net asset value the net proceeds from a sale of certain shares
of common stock of such funds in shares of the Fund. Upon exercise of this
investment option, shareholders of Merrill Lynch Senior Floating Rate Fund, Inc.
will receive Class A shares of the Fund and shareholders of Merrill Lynch
Municipal Strategy Fund, Inc. and Merrill Lynch High Income Municipal Bond Fund,
Inc. will receive Class D shares of the Fund, except that shareholders already
owning Class A shares of the Fund will be eligible to purchase additional Class
A shares pursuant to this option, if such additional Class A shares will be held
in the same account as the existing Class A shares and other requirements
pertaining to the reinvestment privilege are met. In order to exercise this
investment option, a shareholder of one of the above-referenced continuously
offered closed-end funds (an "eligible fund") must sell his or her shares of
common stock of the eligible fund (the "eligible shares") back to the eligible
fund in connection with a tender offer conducted by the eligible fund and
reinvest the proceeds immediately in the designated class of shares of the Fund.
This investment option is available only with respect to eligible shares as to
which no Early Withdrawal Charge or CDSC (each as defined in the eligible fund's
prospectus) is applicable. Purchase orders from eligible fund shareholders
wishing to exercise this investment option will be accepted only on the day that
the related tender offer terminates and will be effected at the net asset value
of the designated class of the Fund on such day.
REDUCED INITIAL SALES CHARGES
Right of Accumulation. Reduced sales charges are applicable through a
right of accumulation under which eligible investors are permitted to purchase
shares of the Fund subject to an initial sales charge at the offering price
applicable to the total of (a) the public offering price of the shares then
being purchased plus (b) an amount equal to the then current net asset value or
cost, whichever is higher, of the purchaser's combined holdings of all classes
of shares of the Fund and of other MLAM-advised mutual funds. For any such right
of accumulation to be made available, the Distributor must be provided at the
time of purchase, by the purchaser or the purchaser's securities dealer, with
sufficient information to permit confirmation of qualification. Acceptance of
the purchase order is subject to such confirmation. The right of accumulation
may be amended or terminated at any time. Shares held in the name of a nominee
or custodian under pension,
12
<PAGE> 73
profit-sharing, or other employee benefit plans may not be combined with other
shares to qualify for the right of accumulation.
Letter of Intention. Reduced sales charges are applicable to purchases
aggregating $25,000 or more of the Class A or Class D shares of the Fund or of
any other MLAM-advised mutual funds made within a 13-month period starting with
the first purchase pursuant to a Letter of Intention in the form provided in the
Prospectus. The Letter of Intention is available only to investors whose
accounts are maintained at Merrill Lynch Financial Data Services, Inc., the
Fund's transfer agent (the "Transfer Agent"). The Letter of Intention is not
available to employee benefit plans for which Merrill Lynch provides plan
participant recordkeeping services. The Letter of Intention is not a binding
obligation to purchase any amount of Class A or Class D shares but its execution
will result in the purchaser paying a lower sales charge at the appropriate
quantity purchase level. A purchase not originally made pursuant to a Letter of
Intention may be included under a subsequent Letter of Intention executed within
90 days of such purchase if the Distributor is informed in writing of this
intent within such 90-day period. The value of Class A and Class D shares of the
Fund and of other MLAM-advised mutual funds presently held, at cost or maximum
offering price (whichever is higher), on the date of the first purchase under
the Letter of Intention, may be included as a credit toward the completion of
such Letter, but the reduced sales charge applicable to the amount covered by
such Letter will be applied only to new purchases. If the total amount of shares
purchased does not equal the amount stated in the Letter of Intention (minimum
of $25,000), the investor will be notified and must pay, within 20 days of the
expiration of such Letter, the difference between the sales charge on the Class
A or Class D shares purchased at the reduced rate and the sales charge
applicable to the shares actually purchased through the Letter. Class A or Class
D shares equal to five percent of the intended amount will be held in escrow
during the 13-month period (while remaining registered in the name of the
purchaser) for this purpose. The first purchase under the Letter of Intention
must be at least five percent of the dollar amount of such Letter. If a purchase
during the term of such Letter otherwise would be subject to a further reduced
sales charge based on the right of accumulation, the purchaser will be entitled
on that purchase and subsequent purchases to the reduced percentage sales charge
which would be applicable to a single purchase equal to the total dollar value
of the Class A or Class D shares then being purchased under such Letter, but
there will be no retroactive reduction of the sales charges on any previous
purchase. The value of any shares redeemed or otherwise disposed of by the
purchaser prior to termination or completion of the Letter of Intention will be
deducted from the total purchases made under such Letter. An exchange from a
MLAM-advised money market fund into the Fund that creates a sales charge will
count toward completing a new or existing Letter of Intention from the Fund.
Merrill Lynch Blueprint(SM) Program. Class D shares of the Fund are
offered to participants in the Merrill Lynch Blueprint(SM) Program
("Blueprint"). In addition, participants in Blueprint who own Class A shares of
the Fund may purchase additional Class A shares of the Fund through Blueprint.
Blueprint is directed to small investors, group Individual Retirement Accounts
("IRAs") and participants in certain affinity groups such as credit unions,
trade associations and benefit plans. Investors placing orders to purchase Class
A or Class D shares of the Fund through Blueprint will acquire the Class A or
Class D shares at net asset value plus a sales charge calculated in accordance
with the Blueprint sales charge schedule (i.e., up to $5,000 at 3.50% and
$5,000.01 or more at the standard sales charge rates disclosed in the
Prospectus). In addition, Class A and Class D shares of the Fund are being
offered at net asset value plus a sales charge of .50% for corporate or group
IRA programs placing orders to purchase their Class A or Class D shares through
13
<PAGE> 74
Blueprint. Services available to Class A and Class D investors through
Blueprint, including exchange privileges, may differ from those available to
other investors in Class A or Class D shares.
Class A and Class D shares are offered at net asset value to Blueprint
participants through the Merrill Lynch Directed IRA Rollover Program ("IRA
Rollover Program") available from Merrill Lynch Business Financial Services, a
business unit of Merrill Lynch. The IRA Rollover Program is available to
custodian rollover assets from Employee Sponsored Retirement and Savings Plans
(as defined below) whose trustee and/or plan sponsor has entered into the
Merrill Lynch Directed IRA Rollover Program Service Agreement.
Orders for purchases and redemptions of Class A or Class D shares of the
Fund may be grouped for execution purposes which, in some circumstances, may
involve the execution of such orders two business days following the day such
orders are placed. The minimum initial purchase price is $100, with a $50
minimum for subsequent purchases through Blueprint. There are no minimum initial
or subsequent purchase requirements for participants who are part of an
automatic investment plan. Additional information concerning purchases through
Blueprint, including any annual fees and transaction charges, is available from
Merrill Lynch, Pierce, Fenner & Smith Incorporated, The Blueprint(SM) Program,
P.O. Box 30441, New Brunswick, New Jersey 08989-0441.
Employee Access(SM) Accounts. Provided applicable threshold requirements
are met, either Class A or Class D shares are offered at net asset value to
Employee Access(SM) Accounts available through authorized employers. The initial
minimum for such accounts is $500, except that the initial minimum for shares
purchased for such accounts pursuant to the Automatic Investment Program is $50.
Purchase Privilege of Certain Persons. Directors of the Fund, directors
and trustees of other MLAM-advised mutual funds, ML & Co. and its subsidiaries
(the term "subsidiaries," when used herein with respect to ML & Co., includes
the Manager, FAM and certain other entities directly or indirectly wholly owned
and controlled by ML & Co.) and their directors and employees, and any trust,
pension, profit-sharing or other benefit plan for such persons, may purchase
Class A shares of the Fund at net asset value.
Class D shares of the Fund are offered at net asset value, without a sales
charge, to an investor who has a business relationship with a Financial
Consultant who joined Merrill Lynch from another investment firm within six
months prior to the date of purchase by such investor, if the following
conditions are satisfied: first, the investor must advise Merrill Lynch that it
will purchase Class D shares of the Fund with proceeds from a redemption of a
mutual fund that was sponsored by the Financial Consultant's previous firm and
was subject to a sales charge either at the time of purchase or on a deferred
basis; and second, the investor also must establish that such redemption had
been made within 60 days prior to the investment in the Fund, and the proceeds
from the redemption had been maintained in the interim in cash or a money market
fund.
Class D shares of the Fund are also offered at net asset value, without a
sales charge, to an investor who has a business relationship with a Merrill
Lynch Financial Consultant and who has invested in a mutual fund sponsored by a
non-Merrill Lynch company for which Merrill Lynch has served as a selected
dealer and where Merrill Lynch has either received or given notice that such
arrangement will be terminated ("notice"), if the following conditions are
satisfied: first, the investor must purchase Class D shares of the Fund with
proceeds from a redemption of shares of such other mutual fund and the shares of
such other fund were subject to a sales charge either at the time of purchase or
on a deferred basis; and second, such purchase of Class D shares must be made
within 90 days after such notice.
14
<PAGE> 75
Class D shares of the Fund are also offered at net asset value, without a
sales charge, to an investor who has a business relationship with a Merrill
Lynch Financial Consultant and who has invested in a mutual fund for which
Merrill Lynch has not served as a selected dealer if the following conditions
are satisfied: first, the investor must advise Merrill Lynch that it will
purchase Class D shares of the Fund with proceeds from the redemption of shares
of such other mutual fund and that such shares have been outstanding for a
period of no less than six months; and second, such purchase of Class D shares
must be made within 60 days after the redemption and the proceeds from the
redemption must be maintained in the interim in cash or a money market fund.
TMA(SM) Managed Trusts. Class A shares are offered to TMA(SM) Managed
Trusts to which Merrill Lynch Trust Company provides discretionary trustee
services at net asset value.
Acquisition of Certain Investment Companies. The public offering price of
Class D shares of the Fund may be reduced to the net asset value per Class D
share in connection with the acquisition of the assets of or merger or
consolidation with a public or private investment company. The value of the
assets or company acquired in a tax-free transaction may be adjusted in
appropriate cases to reduce possible adverse tax consequences to the Fund that
might result from an acquisition of assets having net unrealized appreciation
that is disproportionately higher at the time of acquisition than the realized
or unrealized appreciation of the Fund. The issuance of Class D shares for
consideration other than cash is limited to bona fide reorganizations, statutory
mergers or other acquisitions of portfolio securities that (i) meet the
investment objective and policies of the Fund; (ii) are acquired for investment
and not for resale (subject to the understanding that the disposition of the
Fund's portfolio securities shall at all times remain within its control); and
(iii) are liquid securities, the value of which is readily ascertainable, that
are not restricted as to transfer either by law or liquidity of market (except
that the Fund may acquire through such transactions restricted or illiquid
securities to the extent the Fund does not exceed the applicable limits on
acquisition of such securities set forth under "Investment Objective and
Policies" herein).
Reductions in or exemptions from the imposition of a sales load are due to
the nature of the investors and/or the reduced sales efforts that will be needed
in obtaining such investments.
EMPLOYER-SPONSORED RETIREMENT OR SAVINGS PLANS AND CERTAIN OTHER ARRANGEMENTS
Certain employer-sponsored retirement or savings plans and certain other
arrangements may purchase Class A or Class D shares at net asset value, based on
the number of employees or number of employees eligible to participate in the
plan, the aggregate amount invested by the plan in specified investments and/or
the services provided by Merrill Lynch to the plan. Certain other plans may
purchase Class B shares with a waiver of the contingent deferred sales charge
("CDSC") upon redemption, based on similar criteria. Such Class B shares will
convert into Class D shares approximately ten years after the plan purchases the
first share of any MLAM-advised mutual fund. Minimum purchase requirements may
be waived or varied for such plans. Additional information regarding purchases
by employer-sponsored retirement or savings plans and certain other arrangements
is available toll-free from Merrill Lynch Business Financial Services at (800)
237-7777.
15
<PAGE> 76
DISTRIBUTION PLANS
Reference is made to "Purchase of Shares--Distribution Plans" in the
Prospectus for certain information with respect to the separate distribution
plans for Class B, Class C and Class D shares pursuant to Rule 12b-1 under the
Investment Company Act (each a "Distribution Plan") with respect to the account
maintenance and/or distribution fees paid by the Fund to the Distributor with
respect to such classes.
Payments of the account maintenance fees and/or distribution fees are
subject to the provisions of Rule 12b-1 under the Investment Company Act. Among
other things, each Distribution Plan provides that the Distributor shall provide
and the Directors shall review quarterly reports of the disbursement of the
account maintenance fees and/or distribution fees paid to the Distributor. In
their consideration of each Distribution Plan, the Directors must consider all
factors they deem relevant, including information as to the benefits of the
Distribution Plan to the Fund and its related class of shareholders. Each
Distribution Plan further provides that so long as the Distribution Plan remains
in effect, the selection and nomination of Directors who are not "interested
persons" of the Fund, as defined in the Investment Company Act (the "Independent
Directors"), shall be committed to the discretion of the Independent Directors
then in office. In approving each Distribution Plan in accordance with Rule
12b-1, the Independent Directors concluded that there is a reasonable likelihood
that such Distribution Plan will benefit the Fund and its related class of
shareholders. Each Distribution Plan can be terminated at any time, without
penalty, by the vote of a majority of the Independent Directors or by the vote
of the holders of a majority of the outstanding related class of voting
securities of the Fund. A Distribution Plan cannot be amended to increase
materially the amount to be spent by the Fund without the approval of the
related class of shareholders, and all material amendments are required to be
approved by the vote of Directors, including a majority of the Independent
Directors who have no direct or indirect financial interest in such Distribution
Plan, cast in person at a meeting called for that purpose. Rule 12b-1 further
requires that the Fund preserve copies of each Distribution Plan and any report
made pursuant to such plan for a period of not less than six years from the date
of such Distribution Plan or such report, the first two years in an easily
accessible place.
LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES
The maximum sales charge rule in the Conduct Rules of the National
Association of Securities Dealers, Inc. (the "NASD") imposes a limitation on
certain asset-based sales charges such as the distribution fee and the CDSC
borne by the Class B and Class C shares but not the account maintenance fee. The
maximum sales charge rule is applied separately to each class. As applicable to
the Fund, the maximum sales charge rule limits the aggregate of distribution fee
payments and CDSCs payable by the Fund to (1) 6.25% of eligible gross sales of
Class B shares and Class C shares, computed separately (defined to exclude
shares issued pursuant to dividend reinvestments and exchanges), plus (2)
interest on the unpaid balance for the respective class, computed separately, at
the prime rate plus 1% (the unpaid balance being the maximum amount payable
minus amounts received from the payment of the distribution fee and the CDSC).
In connection with the Class B shares, the Distributor has voluntarily agreed to
waive interest charges on the unpaid balance in excess of 0.50% of eligible
gross sales. Consequently, the maximum amount payable to the Distributor
(referred to as the "voluntary maximum") in connection with the Class B shares
is 6.75% of eligible gross sales. The Distributor retains the right to stop
waiving the interest charges at any time. To the extent payments would exceed
the voluntary maximum, the Fund will not make further payments of the
distribution fee with respect to Class B shares, and any CDSCs will be paid to
the Fund rather than to the Distributor; however, the
16
<PAGE> 77
Fund will continue to make payments of the account maintenance fee. In certain
circumstances the amount payable pursuant to the voluntary maximum may exceed
the amount payable under the NASD formula In such circumstances payment in
excess of the amount payable under the NASD formula will not be made.
REDEMPTION OF SHARES
Reference is made to "Redemption of Shares" in the Prospectus for certain
information as to the redemption and repurchase of Fund shares.
The right to redeem shares or to receive payment with respect to any such
redemption may be suspended for more than seven days after the tender of such
shares only for periods during which trading on the New York Stock Exchange (the
"NYSE") is restricted as determined by the Commission, or such Exchange is
closed (other than customary weekend and holiday closings), for any period
during which an emergency exists, as defined by the Commission, as a result of
which disposal of portfolio securities or determination of the net asset value
of the Fund is not reasonably practicable, and for such other periods as the
Commission may by order permit for the protection of shareholders of the Fund.
DEFERRED SALES CHARGES--CLASS B AND CLASS C SHARES
As discussed in the Prospectus under "Purchase of Shares--Deferred Sales
Charge Alternatives-- Class B and Class C Shares," while Class B shares redeemed
within four years of purchase are subject to a CDSC under most circumstances,
the charge is waived (i) on redemptions of Class B shares in certain instances,
including in connection with certain post-retirement withdrawals from an IRA or
other retirement plan or (ii) on redemptions of Class B shares following the
death or disability of a Class B shareholder. Redemptions for which the waiver
applies in the case of such withdrawals are: (a) any partial or complete
redemption in connection with a tax-free distribution following retirement under
a tax-deferred retirement plan or attaining age 59 1/2 in the case of an IRA or
other retirement plan, or part of a series of equal periodic payments (not less
frequently than annually) made for the life (or life expectancy) or any
redemption resulting from the tax-free return of an excess contribution to an
IRA; or (b) any partial or complete redemption following the death or disability
(as defined in the Code) of a Class B shareholder (including one who owns the
Class B shares as joint tenant with his or her spouse), provided the redemption
is requested within one year of the death or initial determination of
disability.
Merrill Lynch Blueprint(SM) Program. Class B shares are offered to certain
participants in the Blueprint(SM) Program. Blueprint is directed to small
investors, group IRAs and participants in certain affinity groups such as trade
associations and credit unions. Class B shares of the Fund are offered through
Blueprint only to members of certain affinity groups. The CDSC is waived in
connection with purchase orders placed through Blueprint. Services, including
the exchange privilege, available to Class B investors through Blueprint,
however, may differ from those available to other Class B investors. Orders for
purchases and redemptions of Class B shares of the Fund will be grouped for
execution purposes which, in some circumstances, may involve the execution of
such orders two business days following the day such orders are placed. The
minimum initial purchase price is $100, with a $50 minimum for subsequent
purchases through Blueprint. There is no minimum initial or subsequent purchase
requirement for investors who are part of a Blueprint automatic investment plan.
Additional information concerning these Blueprint programs, including any annual
fees or
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transaction charges, is available from Merrill Lynch, Pierce, Fenner & Smith
Incorporated, The Blueprint(SM) Program, P.O. Box 30441, New Brunswick, New
Jersey 08989-0441.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to policies established by the Board of Directors of the Fund, the
Manager is primarily responsible for the execution of the Fund's portfolio
transactions and the allocation of brokerage. The Fund has no obligation to deal
with any broker or group of brokers in execution of transactions in portfolio
securities and does not use any particular broker or dealer. In executing
transactions with brokers and dealers, the Manager seeks to obtain the best net
results for the Fund, taking into account such factors as price (including the
applicable brokerage commission or dealer spread), size of order, difficulty of
execution and operational facilities of the firm involved and the firm's risk in
positioning a block of securities. While the Manager generally seeks reasonably
competitive commission rates, the Fund does not necessarily pay the lowest
commission or spread available. In addition, consistent with the Conduct Rules
of the NASD and policies established by the Board of Directors of the Fund, the
Manager may consider sales of shares of the Fund as a factor in the selection of
brokers or dealers to execute portfolio transactions for the Fund; however,
whether or not a particular broker or dealer sells shares of the Fund neither
qualifies nor disqualifies such broker or dealer to execute transactions for the
Fund.
Subject to obtaining the best price and execution, brokers who provide
supplemental investment research services to the Manager may receive orders for
transactions by the Fund. Such supplemental research services ordinarily consist
of assessments and analyses of the business or prospects of a company, industry
or economic sector. Information so received will be in addition to and not in
lieu of the services required to be performed by the Manager under the
Management Agreement, and the expenses of the Manager will not necessarily be
reduced as a result of the receipt of such supplemental information. If in the
judgment of the Manager the Fund will benefit from supplemental research
services, the Manager is authorized to pay brokerage commissions to a broker
furnishing such services that are in excess of commissions that another broker
may have charged for effecting the same transaction. Certain supplemental
research services may primarily benefit one or more other investment companies
or other accounts for which the Manager exercises investment discretion.
Conversely, the Fund may be the primary beneficiary of the supplemental research
services received as a result of portfolio transactions effected for such other
accounts or investment companies.
The Fund may invest in certain securities traded in the OTC market and
intends to deal directly with the dealers who make a market in the securities
involved, except in those circumstances in which better prices and execution are
available elsewhere. Under the Investment Company Act, persons affiliated with
the Fund and persons who are affiliated with such affiliated persons are
prohibited from dealing with the Fund as principal in the purchase and sale of
securities unless a permissive order allowing such transactions is obtained from
the Commission. Since transactions in the OTC market usually involve
transactions with dealers acting as principal for their own accounts, the Fund
will not deal with affiliated persons, including Merrill Lynch and its
affiliates, in connection with such transactions. However, an affiliated person
of the Fund may serve as its broker in OTC transactions conducted on an agency
basis provided that, among other things, the fee or commission received by such
affiliated broker is reasonable and fair compared to the fee or commission
received by non-affiliated brokers in connection with comparable transactions.
See "Investment Objective and Policies--Investment Restrictions."
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Foreign equity securities may be held by the Fund in the form of American
Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"), Global
Depositary Receipts ("GDRs") or other securities convertible into foreign equity
securities. ADRs, EDRs and GDRs may be listed on stock exchanges, or traded in
over-the-counter markets in the United States or Europe, as the case may be.
ADRs, like other securities traded in the United States, will be subject to
negotiated commission rates. The Fund's ability and decisions to purchase or
sell portfolio securities of foreign issuers may be affected by laws or
regulations relating to the convertibility and repatriation of assets. Because
the shares of the Fund are redeemable on a daily basis in United States dollars,
the Fund intends to manage its portfolio so as to give reasonable assurance that
it will be able to obtain United States dollars to the extent necessary to meet
anticipated redemptions. Under present conditions, it is not believed that these
considerations will have any significant effect on its portfolio strategy.
Section 11(a) of the Securities Exchange Act of 1934, as amended, generally
prohibits members of the United States national securities exchanges from
executing exchange transactions for their affiliates and institutional accounts
which they manage unless the member (i) has obtained prior express authorization
from the account to effect such transactions, (ii) at least annually furnishes
the account with the aggregate compensation received by the member in effecting
such transactions, and (iii) complies with any rules the Commission has
prescribed with respect to the requirements of clauses (i) and (ii). To the
extent Section 11(a) would apply to Merrill Lynch acting as a broker for the
Fund in any of its portfolio transactions executed on any such securities
exchange of which it is a member, appropriate consents have been obtained from
the Fund and annual statements as to aggregate compensation will be provided to
the Fund.
The Board of Directors of the Fund has considered the possibility of
seeking to recapture for the benefit of the Fund brokerage commissions and other
expenses of portfolio transactions by conducting portfolio transactions through
affiliated entities. For example, brokerage commissions received by affiliated
brokers could be offset against the advisory fee paid by the Fund to the
Manager. After considering all factors deemed relevant, the Board of Directors
made a determination not to seek such recapture. The Board will reconsider this
matter from time to time.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of the Fund will be determined by the
Manager once daily Monday through Friday, as of 15 minutes after the close of
business on the NYSE (generally, 4:00 p.m., New York time), on each day during
which the NYSE is open for trading. The NYSE is not open on New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Any assets or
liabilities initially expressed in terms of non-U.S. dollar currencies are
translated into U.S. dollars at the prevailing market rates as quoted by one or
more banks or dealers on the day of valuation. The Fund also will determine its
net asset value on any day in which there is sufficient trading in its portfolio
securities that the net asset value might be affected materially, but only if on
any such day the Fund is required to sell or redeem shares. Net asset value is
computed by dividing the value of the securities held by the Fund plus any cash
or other assets (including interest and dividends accrued but not yet received)
minus all liabilities (including accrued expenses) by the total number of shares
outstanding at such time. Expenses, including the investment advisory fees and
any account maintenance and/or distribution fees, are accrued daily. The per
share net asset value of Class B, Class C and Class D shares generally will be
lower than the per share net asset value of Class A shares, reflecting the daily
expense
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<PAGE> 80
accruals of the account maintenance, distribution and higher transfer agency
fees applicable with respect to Class B and Class C shares and the daily expense
accruals of the account maintenance fees applicable with respect to Class D
shares; moreover, the per share net asset value of Class B and Class C shares
generally will be lower than the per share net asset value of Class D shares,
reflecting the daily expense accruals of the distribution fees and higher
transfer agency fees applicable with respect to Class B and Class C shares of
the Fund. It is expected, however, that the per share net asset value of the
four classes will tend to converge (although not necessarily meet) immediately
after the payment of dividends or distributions, which will differ by
approximately the amount of the expense accrual differentials between the
classes.
Portfolio securities that are traded on stock exchanges are valued at the
last sale price (regular way) on the exchange on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where
securities are traded on more than one exchange, the securities are valued on
the exchange designated by or under the authority of the Board of Directors as
the primary market. Securities traded in the OTC market are valued at the last
available bid price in the OTC market prior to the time of valuation. Portfolio
securities that are traded both in the OTC market and on a stock exchange are
valued according to the broadest and most representative market. When the Fund
writes an option, the amount of the premium received is recorded on the books of
the Fund as an asset and an equivalent liability. The amount of the liability is
subsequently valued to reflect the current market value of the option written,
based upon the last sale price in the case of exchange-traded options or, in the
case of options traded in the OTC market, the last asked price. Options
purchased by the Fund are valued at their last sale price in the case of
exchange-traded options or, in the case of options traded in the OTC market, the
last bid price. Other investments, including financial futures contracts and
related options, are valued at market value. Securities and assets for which
market quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Board of Directors of
the Fund. Such valuations and procedures will be reviewed periodically by the
Board of Directors.
Generally, trading in foreign securities, as well as U.S. Government
securities and money market instruments, is substantially completed each day at
various times prior to the close of business on the NYSE. The values of such
securities used in computing the net asset value of the Fund's shares are
determined as of such times. Foreign currency exchange rates are also generally
determined prior to the close of business on the NYSE. Occasionally, events
affecting the values of such securities and such exchange rates may occur
between the times at which they are determined and the close of business on the
NYSE that will not be reflected in the computation of the Fund's net asset
value. If events materially affecting the value of such securities occur during
such period, then these securities will be valued at their fair value as
determined in good faith by the Directors.
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services described below which are
designed to facilitate investment in its shares. Full details as to each of such
services and copies of the various plans described below can be obtained from
the Fund, the Distributor or Merrill Lynch. Certain of these services are
available only to U.S. investors.
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INVESTMENT ACCOUNT
Each shareholder whose account is maintained at the Transfer Agent has an
Investment Account and will receive statements, at least quarterly, from the
Transfer Agent. The statements will serve as transaction confirmations for
automatic investment purchases and the reinvestment of ordinary income dividends
and capital gain distributions. The statements also will show any other activity
in the account since the preceding statement. Shareholders will receive separate
transaction confirmations for each purchase or sale transaction other than
automatic investment purchases, the reinvestment of ordinary income dividends
and long-term capital gain distributions. A shareholder may make additions to
his or her Investment Account at any time by mailing a check directly to the
Fund's Transfer Agent.
Share certificates are issued only for full shares and only upon the
specific request of the shareholder. Issuance of certificates representing all
or only part of the full shares in an Investment Account may be requested by
shareholders directly from the Transfer Agent.
Shareholders considering transferring their Class A or Class D shares from
Merrill Lynch to another brokerage firm or financial institution should be aware
that, if the firm to which the Class A or Class D shares are to be transferred
will not take delivery of shares of the Fund, a shareholder either must redeem
the Class A or Class D shares (paying any applicable CDSC) so that the cash
proceeds can be transferred to the account at the new firm or such shareholder
must continue to maintain an Investment Account at the Transfer Agent for those
Class A or Class D shares. Shareholders interested in transferring their Class B
or Class C shares from Merrill Lynch and who do not wish to have an Investment
Account maintained for such shares at the Transfer Agent may request their new
brokerage firm to maintain such shares in an account registered in the name of
the brokerage firm for the benefit of the shareholder. If the new brokerage firm
is willing to accommodate the shareholder in this manner, the shareholder must
request that he or she be issued certificates for the shares and then must turn
the certificates over to the new firm for re-registration as described in the
preceding sentence. Shareholders considering transferring a tax-deferred
retirement account such as an IRA from Merrill Lynch to another brokerage firm
or financial institution should be aware that, if the firm to which the
retirement account is to be transferred will not take delivery of shares of the
Fund, a shareholder must either redeem the shares (paying any applicable CDSC)
so that the cash proceeds can be transferred to the account at the new firm, or
continue to maintain a retirement account at Merrill Lynch for those shares. A
shareholder may make additions to his or her Investment Account at any time by
mailing a check directly to the Transfer Agent.
AUTOMATIC INVESTMENT PLANS
A U.S. shareholder may make additions to an Investment Account at any time
by purchasing Class A shares (if an eligible Class A investor as described in
the Prospectus) or Class B, Class C or Class D shares at the applicable public
offering price either through the shareholder's securities dealer, or by mail
directly to the Transfer Agent, acting as agent for such securities dealer.
Voluntary accumulation also can be made through a service known as the Fund's
Automatic Investment Plan whereby the Fund is authorized through pre-authorized
checks or automated clearing house debits of $50 or more to charge the regular
bank account of the shareholder on a regular basis to provide systematic
additions to the Investment Account of such shareholder. An investor whose
shares of the Fund are held within a CMA(R) or CBA(R) account may arrange to
have periodic investments made in the Fund in amounts of $100 or more ($1 for
retirement accounts) through the CMA(R) or CBA(R) Automated Investment Program.
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AUTOMATIC REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Unless specific instructions to the contrary are given as to the method of
payment of dividends and capital gains distributions, dividends and
distributions will be automatically reinvested in additional shares of the Fund.
Such reinvestment will be at the net asset value of shares of the Fund, without
a sales charge, as of the close of business on the NYSE on the ex-dividend date
of the dividend or distribution. Shareholders may elect in writing to receive
either their dividends or capital gains distributions, or both, in cash, in
which event payment will be mailed on or about the payment date. Cash payments
also can be directly deposited to the shareholder's bank account.
Shareholders may, at any time, notify Merrill Lynch in writing if the
shareholder's account is maintained with Merrill Lynch or notify the Transfer
Agent in writing or by telephone (1-800-MER-FUND) if the shareholder's account
is maintained with the Transfer Agent, that they no longer wish to have their
dividends and/or capital gains distributions reinvested in shares of the Fund or
vice versa and, commencing ten days after the receipt by the Transfer Agent of
such notice, those instructions will be effected.
SYSTEMATIC WITHDRAWAL PLANS
A shareholder may elect to make systematic withdrawals from an Investment
Account of Class A, Class B, Class C or Class D shares on either a monthly or
quarterly basis as provided below. Quarterly withdrawals are available for
shareholders who have acquired shares of the Fund having a value, based on cost
or the current offering price, of $5,000 or more, and monthly withdrawals are
available for shareholders with shares having a value of $10,000 or more.
At the time of each withdrawal payment, sufficient shares are redeemed from
those on deposit in the shareholder's account to provide the withdrawal payment
specified by the shareholder. The shareholder may specify the dollar amount and
the class of shares to be redeemed. Redemptions will be made at net asset value
as determined at the close of business on the NYSE (generally, 4:00 p.m., New
York time) on the 24th day of each month or the 24th day of the last month of
each quarter, whichever is applicable. If the NYSE is not open for business on
such date, the shares will be redeemed at the close of business on the following
business day. The check for the withdrawal payment will be mailed, or the direct
deposit for the withdrawal payment will be made, on the next business day
following redemption. When a shareholder is making systematic withdrawals,
dividends on all shares in the Investment Account are reinvested automatically
in the Fund. A shareholder's Systematic Withdrawal Plan may be terminated at any
time, without charge or penalty, by the shareholder, the Fund, the Transfer
Agent or the Distributor.
Withdrawal payments should not be considered as dividends, yield or income.
Each withdrawal is a taxable event. If periodic withdrawals continuously exceed
reinvested dividends, the shareholder's original investment may be reduced
correspondingly. Purchases of additional shares concurrent with withdrawals are
ordinarily disadvantageous to the shareholder because of sales charges and tax
liabilities. The Fund will not knowingly accept purchase orders for shares of
the Fund from investors who maintain a Systematic Withdrawal Plan unless such
purchase is equal to at least one year's scheduled withdrawals or $1,200,
whichever is greater. Periodic investments may not be made into an Investment
Account in which the shareholder has elected to make systematic withdrawals.
With respect to redemptions of Class B and Class C shares pursuant to a
systematic withdrawal plan, the maximum number of Class B or Class C shares that
can be redeemed from an account annually shall not
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<PAGE> 83
exceed 10% of the value of shares of such class in that account at the time the
election to join the systematic withdrawal plan was made. Any CDSC that
otherwise might be due on such redemption of Class B or Class C shares will be
waived. Shares redeemed pursuant to a systematic withdrawal plan will be
redeemed in the same order as Class B or Class C shares are otherwise redeemed.
See "Purchase of Shares--Deferred Sales Charge Alternatives--Class B and Class C
Shares--Contingent Deferred Sales Charges--Class B Shares" and "--Contingent
Deferred Sales Charges--Class C Shares" in the Prospectus. Where the systematic
withdrawal plan is applied to Class B shares, upon conversion of the last Class
B shares in an account to Class D shares, the systematic withdrawal plan will
automatically be applied thereafter to Class D shares. See "Purchase of
Shares--Deferred Sales Charge Alternatives--Class B and Class C
Shares--Conversion of Class B Shares to Class D Shares" in the Prospectus; if an
investor wishes to change the amount being withdrawn in a systematic withdrawal
plan the investor should contact his or her Financial Consultant.
Alternatively, a shareholder whose shares are held within a CMA(R), CBA(R)
or Retirement Account may elect to have shares redeemed on a monthly, bimonthly,
quarterly, semiannual or annual basis through the CMA(R) or CBA(R) Systematic
Redemption Program. The minimum fixed dollar amount redeemable is $50. The
proceeds of systematic redemptions will be posted to the shareholder's account
three business days after the date the shares are redeemed. All redemptions are
made at net asset value. A shareholder may elect to have his or her shares
redeemed on the first, second, third or fourth Monday of each month, in the case
of monthly redemptions, or of every other month, in the case of bimonthly
redemptions. For quarterly, semiannual or annual redemptions, the shareholder
may select the month in which the shares are to be redeemed and may designate
whether the redemption is to be made on the first, second, third or fourth
Monday of the month. If the Monday selected is not a business day, the
redemption will be processed at net asset value on the next business day. The
CMA(R) or CBA(R) Systematic Redemption Program is not available if Fund shares
are being purchased within the account pursuant to the Automatic Investment
Program. For more information on the CMA(R) or CBA(R) Systematic Redemption
Program, eligible shareholders should contact their Merrill Lynch Financial
Consultant.
EXCHANGE PRIVILEGE
U.S. shareholders of each class of shares of the Fund have an exchange
privilege with certain other MLAM-advised mutual funds. Under the Merrill Lynch
Select Pricing(SM) System, Class A shareholders may exchange Class A shares of
the Fund for Class A shares of a second MLAM-advised mutual fund if the
shareholder holds any Class A shares of the second fund in the account in which
the exchange is made at the time of the exchange or is otherwise eligible to
purchase Class A shares of the second fund. If the Class A shareholder wants to
exchange Class A shares for shares of a second MLAM-advised mutual fund, but
does not hold Class A shares of the second fund in his or her account at the
time of the exchange and is not otherwise eligible to acquire Class A shares of
the second fund, the shareholder will receive Class D shares of the second fund
as a result of the exchange. Class D shares also may be exchanged for Class A
shares of a second MLAM-advised mutual fund at any time as long as, at the time
of the exchange, the shareholder holds Class A shares of the second fund in the
account in which the exchange is made or is otherwise eligible to purchase Class
A shares of the second fund. Class B, Class C and Class D shares are
exchangeable with shares of the same class of other MLAM-advised mutual funds.
For purposes of computing the CDSC that may be payable upon a disposition of the
shares acquired in the exchange, the holding period for the previously owned
shares of the Fund is "tacked" to the holding period of the newly acquired
shares of the other fund as more fully described below. Class A, Class B, Class
C and Class D shares also are exchangeable for shares of certain
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MLAM-advised money market funds as follows: Class A shares may be exchanged for
shares of Merrill Lynch Ready Assets Trust, Merrill Lynch Retirement Reserves
Money Fund (available only for exchanges within certain retirement plans),
Merrill Lynch U.S.A. Government Reserves and Merrill Lynch U.S. Treasury Money
Fund; Class B, Class C and Class D shares may be exchanged for shares of Merrill
Lynch Government Fund, Merrill Lynch Institutional Fund, Merrill Lynch
Institutional Tax-Exempt Fund and Merrill Lynch Treasury Fund. Shares with a net
asset value of at least $100 are required to qualify for the exchange privilege,
and any shares utilized in an exchange must have been held by the shareholder
for 15 days. It is contemplated that the exchange privilege may be applicable to
other new mutual funds whose shares may be distributed by the Distributor.
Exchanges of Class A or Class D shares outstanding ("outstanding Class A or
Class D shares") for Class A or Class D shares of another MLAM-advised mutual
fund ("new Class A or Class D shares") are transacted on the basis of relative
net asset value per Class A or Class D share, respectively, plus an amount equal
to the difference, if any, between the sales charge previously paid on the
outstanding Class A or Class D shares and the sales charge payable at the time
of the exchange on the new Class A or Class D shares. With respect to
outstanding Class A or Class D shares as to which previous exchanges have taken
place, the "sales charge previously paid" shall include the aggregate of the
sales charges paid with respect to such Class A or Class D shares in the initial
purchase and any subsequent exchange. Class A or Class D shares issued pursuant
to dividend reinvestment are sold on a no-load basis in each of the funds
offering Class A or Class D shares. For purposes of the exchange privilege,
Class A and Class D shares acquired through dividend reinvestment shall be
deemed to have been sold with a sales charge equal to the sales charge
previously paid on the Class A or Class D shares on which the dividend was paid.
Based on this formula, Class A and Class D shares of the Fund generally will be
exchanged into the Class A or Class D shares of the other funds or into shares
of certain money market funds without a sales charge.
In addition, each of the funds with Class B and Class C shares outstanding
("outstanding Class B or Class C shares") offers to exchange its Class B or
Class C shares for Class B or Class C shares, respectively, of another
MLAM-advised mutual fund ("new Class B or Class C shares") on the basis of
relative net asset value per Class B or Class C share, without the payment of
any CDSC that might otherwise be due on redemption of the outstanding Class B or
Class C shares. Class B shareholders of the Fund exercising the exchange
privilege will continue to be subject to the Fund's CDSC schedule if such
schedule is higher than the CDSC schedule relating to the new Class B shares
acquired through use of the exchange privilege. In addition, Class B or Class C
shares of the Fund acquired through use of the exchange privilege will be
subject to the Fund's CDSC schedule if such schedule is higher than the CDSC
schedule relating to the Class B or Class C shares of the fund from which the
exchange has been made. For purposes of computing the sales load that may be
payable on a disposition of the new Class B or Class C shares, the holding
period for the outstanding Class B or Class C shares is "tacked" to the holding
period of the new Class B or Class C shares. For example, an investor may
exchange Class B or Class C shares of the Fund for those of Merrill Lynch
Special Value Fund, Inc. ("Special Value Fund") after having held the Fund's
Class B shares for two and a half years. The 2% CDSC that generally would apply
to a redemption would not apply to the exchange. Three years later the investor
may decide to redeem the Class B shares of Special Value Fund and receive cash.
There will be no CDSC due on this redemption, since by "tacking" the two and a
half year holding period of the Fund Class B shares to the three year holding
period for the Special Value Fund Class B shares, the investor will be deemed to
have held the Special Value Fund Class B shares for more than five years.
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<PAGE> 85
Shareholders also may exchange shares of the Fund into shares of certain
money market funds advised by the Manager or its affiliates, but the period of
time that Class B or Class C shares are held in a money market fund will not
count towards satisfaction of the holding period requirement for purposes of
reducing the CDSC or, with respect to Class B shares, towards satisfaction of
the conversion period. However, shares of a money market fund that were acquired
as a result of an exchange for Class B or Class C shares of the Fund may, in
turn, be exchanged back into Class B or Class C shares, respectively, of any
fund offering such shares, in which event the holding period for Class B or
Class C shares of the newly acquired fund will be aggregated with previous
holding periods for purposes of reducing the CDSC. Thus, for example, an
investor may exchange Class B shares of the Fund for shares of Merrill Lynch
Institutional Fund ("Institutional Fund") after having held the Fund Class B
shares for two and a half years and three years later decide to redeem the
shares of Institutional Fund for cash. At the time of this redemption, the 2%
CDSC that would have been due had the Class B shares of the Fund been redeemed
for cash rather than exchanged for shares of Institutional Fund will be payable.
If, instead of such redemption the shareholder exchanged such shares for Class B
shares of a fund that the shareholder continued to hold for an additional two
and a half years, any subsequent redemption would not incur a CDSC.
Before effecting an exchange, shareholders should obtain a currently
effective prospectus of the fund into which the exchange is to be made.
To exercise the exchange privilege, a shareholder should contact his or her
Merrill Lynch Financial Consultant, who will advise the Fund of the exchange.
Shareholders of the Fund, and shareholders of other MLAM-advised mutual funds
with shares for which certificates have not been issued, may exercise the
exchange privilege by wire through their securities dealers. The Fund reserves
the right to require a properly completed Exchange Application. This exchange
privilege may be modified or terminated in accordance with the rules of the
Commission. The Fund reserves the right to limit the number of times an investor
may exercise the exchange privilege. Certain funds may suspend the offering of
their shares to the general public at any time and thereafter may resume such
offering from time to time. The exchange privilege is available only to U.S.
shareholders in states where the exchange legally may be made.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to distribute substantially all its net investment income,
if any. Dividends from such net investment income will be paid at least
annually. All net realized long- or short-term capital gains, if any, will be
distributed to the Fund's shareholders at least annually. In connection with its
investments in REITs, the Fund may receive distributions that do not consist of
ordinary income or capital gain, but represent a return of capital. The Fund
does not intend to distribute to its shareholders the portion of the
distribution it receives that consists of a return of capital. Instead, the Fund
will reinvest such amounts. From time to time, the Fund may declare a special
distribution at or about the end of the calendar year in order to comply with
Federal tax requirements that certain percentages of its ordinary income and
capital gains be distributed during the calendar year. If in any fiscal year,
the Fund has net income from certain foreign currency transactions, such income
will be distributed at least annually.
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See "Shareholder Services--Automatic Reinvestment of Dividends and Capital
Gains Distributions" for information concerning the manner in which dividends
and distributions may be reinvested automatically in shares of the Fund. A
shareholder whose account is maintained at the Transfer Agent or whose account
is maintained through Merrill Lynch may elect in writing to receive any such
dividends or distributions, or both, in cash. Dividends and distributions are
taxable to shareholders, as discussed below, whether they are reinvested in
shares of the Fund or received in cash. The per share dividends on each class of
shares will be reduced as a result of any account maintenance, distribution and
transfer agency fees applicable with respect to such class of shares. See
"Determination of Net Asset Value."
TAXES
The Fund intends to elect and to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Code. As long as it
so qualifies, the Fund (but not its shareholders) will not be subject to Federal
income tax on the part of its net ordinary income and net realized capital gains
that it distributes to Class A, Class B, Class C and Class D shareholders
(together, the "shareholders"). The Fund intends to distribute substantially all
of such income.
Dividends paid by the Fund from its ordinary income or from an excess of
net short-term capital gains over net long-term capital losses (together
referred to hereafter as "ordinary income dividends") are taxable to
shareholders as ordinary income. Distributions made from an excess of net
long-term capital gains over net short-term capital losses (including gains or
losses from certain transactions in warrants, futures and options) ("capital
gain dividends") are taxable to shareholders as long-term capital gains,
regardless of the length of time the shareholder has owned Fund shares. Recent
legislation creates additional categories of capital gains taxable at different
rates. Although the legislation does not explain how gain in these categories
will be taxed to shareholders of RICs, it authorizes regulations applying the
new categories of gain and the new rates to sales of securities by RICs. In the
absence of guidance, there is some uncertainty as to the manner in which the
categories of gain and related rates will be passed through to shareholders in
capital gain dividends. Any loss upon the sale or exchange of Fund shares held
for six months or less will be treated as long-term capital loss to the extent
of any capital gain dividends received by the shareholder. Distributions in
excess of the Fund's earnings and profits will first reduce the adjusted tax
basis of a holder's shares and, after such adjusted tax basis is reduced to
zero, will constitute capital gains to such holder (assuming the shares are held
as a capital asset).
Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Fund. Not later than 60 days after the close of its
taxable year, the Fund will provide its shareholders with a written notice
designating the amounts of any ordinary income dividends or capital gain
dividends. It is anticipated that IRS guidance permitting categories of gain and
related rates to be passed through to shareholders would also require this
written notice to designate the amount of various categories of capital gain
income included in capital gain dividends. A portion of the Fund's ordinary
income dividends may be eligible for the dividends received deduction allowed to
corporations under the Code, if certain requirements are met. For this purpose,
the Fund will allocate dividends eligible for the dividends received deduction
among the Class A, Class B, Class C and Class D shareholders according to a
method (which it believes is consistent with the Commission rule permitting the
issuance and sale of multiple classes of stock) that is based on the gross
income allocable to Class A, Class B, Class C and Class D shareholders during
the taxable year, or such other method as the Internal Revenue Service may
prescribe. If the Fund pays a dividend in January that was declared in the
26
<PAGE> 87
previous October, November or December to shareholders of record on a specified
date in one of such months, then such dividend will be treated for tax purposes
as being paid by the Fund and received by its shareholders on December 31 of the
year in which such dividend was declared.
Ordinary income dividends paid to shareholders who are nonresident aliens
or foreign entities will be subject to a 30% U.S. withholding tax under existing
provisions of the Code applicable to foreign individuals and entities unless a
reduced rate of withholding or a withholding exemption is provided under
applicable treaty law. Nonresident shareholders are urged to consult their own
tax advisers concerning the applicability of the U.S. withholding tax.
Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on ordinary income dividends, capital gain dividends and
redemption payments ("backup withholding"). Generally, shareholders subject to
backup withholding will be those for whom no certified taxpayer identification
number is on file with the Fund or who, to the Fund's knowledge, have furnished
an incorrect number. When establishing an account, an investor must certify
under penalty of perjury that such number is correct and that such investor is
not otherwise subject to backup withholding.
Dividends and interest received by the Fund may give rise to withholding
and other taxes imposed by foreign countries. Tax conventions between certain
countries and the United States may reduce or eliminate such taxes.
No gain or loss will be recognized by Class B shareholders on the
conversion of their Class B shares into Class D shares. A shareholder's basis in
the Class D shares acquired will be the same as such shareholder's basis in the
Class B shares converted, and the holding period of the acquired Class D shares
will include the holding period for the converted Class B shares.
If a shareholder exercises an exchange privilege within 90 days of
acquiring the shares, then the loss the shareholder can recognize on the
exchange will be reduced (or the gain increased) to the extent any sales charge
paid to the Fund on the exchanged shares reduces any sales charge the
shareholder would have owed upon the purchase of the new shares in the absence
of the exchange privilege. Instead, such sales charge will be treated as an
amount paid for the new shares.
A loss realized on a sale or exchange of shares of the Fund will be
disallowed if other Fund shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30 days
before and ending 30 days after the date that the shares are disposed of. In
such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
The Code requires a RIC to pay a nondeductible 4% excise tax to the extent
the RIC does not distribute, during each calendar year, 98% of its ordinary
income, determined on a calendar year basis, and 98% of its capital gains,
determined, in general, on an October 31 year end, plus certain undistributed
amounts from previous years. While the Fund intends to distribute its income and
capital gains in the manner necessary to minimize imposition of the 4% excise
tax, there can be no assurance that sufficient amounts of the Fund's taxable
income and capital gains will be distributed to avoid entirely the imposition of
the tax. In such event, the Fund will be liable for the tax only on the amount
by which it does not meet the foregoing distribution requirements.
The Fund may invest in securities rated in the medium to lower rating
categories of nationally recognized rating organizations, and in unrated
securities ("high yield/high risk securities"), as described in the
27
<PAGE> 88
Prospectus. Some of these high yield/high risk securities may be purchased at a
discount and may therefore cause the Fund to accrue and distribute income before
amounts due under the obligations are paid. In addition, a portion of the
interest payments on such high yield/high risk securities may be treated as
dividends for Federal income tax purposes; in such case, if the issuer of such
high yield/high risk securities is a domestic corporation, dividend payments by
the Fund will be eligible for the dividends received deduction to the extent of
the deemed dividend portion of such interest payments.
The Fund may invest up to 10% of its total assets in securities of other
investment companies. If the Fund purchases shares of an investment company (or
similar investment entity) organized under foreign law, the Fund will be treated
as owning shares in a passive foreign investment company ("PFIC") for U.S.
Federal income tax purposes. The Fund may be subject to U.S. Federal income tax,
and an additional tax in the nature of interest (the "interest charge"), on a
portion of the distributions from such a company and on gain from the
disposition of the shares of such a company (collectively referred to as "excess
distributions"), even if such excess distributions are paid by the Fund as a
dividend to its shareholders. The Fund may be eligible to make an election with
respect to certain PFICs in which it owns shares that will allow it to avoid the
taxes on excess distributions. However, such election may cause the Fund to
recognize income in a particular year in excess of the distributions received
from such PFICs. Alternatively, under recent legislation, the Fund could elect
to "mark to market" at the end of each taxable year all shares that it holds in
PFICs. If it made this election, the Fund would recognize as ordinary income any
increase in the value of such shares over their adjusted basis and as ordinary
loss any decrease in such value to the extent it did not exceed prior increases
included in income. By making the mark-to-market election, the Fund could avoid
imposition of the interest charge with respect to its distributions from PFICs,
but in any particular year might be required to recognize income in excess of
the distributions it received from PFICs and its proceeds from dispositions of
PFIC stock.
The Fund may make investments that produce taxable income which is not
matched by a corresponding receipt of cash or an offsetting loss deduction. Such
investments would include obligations that have original issue discount, accrue
negative amortization or are subordinated in the mortgage-backed securities
structure. Such taxable income would be treated as income earned by the Fund and
would be subject to the distribution requirements of the Code. Because such
income may not be matched by a corresponding receipt of cash by the Fund or an
offsetting loss deduction, the Fund may be required to borrow money or dispose
of other securities to be able to make distributions to shareholders. The Fund
intends to make sufficient and timely distributions to shareholders to qualify
for the special tax treatment afforded RICs at all times and to avoid imposition
of the excise tax.
TAX TREATMENT OF OPTIONS AND FUTURES TRANSACTIONS
The Fund may write, purchase or sell options, futures and forward foreign
exchange contracts. Options and futures contracts that are "Section 1256
contracts" will be "marked to market" for Federal income tax purposes at the end
of each taxable year, i.e., each such option or futures contract will be treated
as sold for its fair market value on the last day of the taxable year. Unless
such contract is a forward foreign exchange contract, or is a non-equity option
or a regulated futures contract for a non-U.S. currency for which the Fund
elects to have gain or loss treated as ordinary gain or loss under Code Section
988 (as described below), gain or loss from Section 1256 contracts will be 60%
long-term and 40% short-term capital gain or loss. Application of these rules to
Section 1256 contracts held by the Fund may alter the timing and character of
distributions to shareholders. The mark-to-market rules outlined above, however,
will not apply to certain transactions entered
28
<PAGE> 89
into by the Fund solely to reduce the risk of changes in price or interest or
currency exchange rates with respect to its investments.
A forward foreign exchange contract that is a Section 1256 contract will be
marked to market, as described above. However, the character of gain or loss
from such a contract will generally be ordinary under Code Section 988. The Fund
may, nonetheless, elect to treat the gain or loss from certain forward foreign
exchange contracts as capital. In this case, gain or loss realized in connection
with a forward foreign exchange contract that is a Section 1256 contract will be
characterized as 60% long-term and 40% short-term capital gain or loss.
Code Section 1092, which applies to certain "straddles," may affect the
taxation of the Fund's sales of securities and transactions in options, futures
and forward foreign exchange contracts. Under Section 1092, the Fund may be
required to postpone recognition for tax purposes of losses incurred in certain
sales of securities and certain closing transactions in options, futures and
forward foreign exchange contracts.
One of the requirements for qualification as a RIC is that less than 30% of
the Fund's gross income be derived from gains from the sale or other disposition
of securities held for less than three months. Accordingly, the Fund may be
restricted in effecting closing transactions within three months after entering
into an option or futures contract. Under recently enacted legislation, this
requirement will no longer apply to the Fund after its fiscal year ending
November 30, 1997.
SPECIAL RULES FOR CERTAIN FOREIGN CURRENCY TRANSACTIONS
In general, gains from "foreign currencies" and from foreign currency
options, foreign currency futures and forward foreign exchange contracts
relating to investments in stocks, securities or foreign currencies will be
qualifying income for purposes of determining whether the Fund qualifies as a
RIC. It is currently unclear, however, who will be treated as the issuer of a
foreign currency instrument or how foreign currency options, futures, or forward
foreign exchange contracts will be valued for purposes of the RIC
diversification requirements applicable to the Fund.
Under Code Section 988, special rules are provided for certain transactions
in a foreign currency other than the taxpayer's functional currency (i.e.,
unless certain special rules apply, currencies other than the U.S. dollar). In
general, foreign currency gains or losses from certain debt instruments, from
certain forward contracts, from futures contracts that are not "regulated
futures contracts" and from unlisted options will be treated as ordinary income
or loss under Code Section 988. In certain circumstances, the Fund may elect
capital gain or loss treatment for such transactions. Regulated futures
contracts, as described above, will be taxed under Code Section 1256 unless
application of Section 988 is elected by the Fund. In general, however, Code
Section 988 gains or losses will increase or decrease the amount of the Fund's
investment company taxable income available to be distributed to shareholders as
ordinary income. Additionally, if Code Section 988 losses exceed other
investment company taxable income during a taxable year, the Fund would not be
able to make any ordinary income dividend distributions, and all or a portion of
distributions made before the losses were realized but in the same taxable year
would be recharacterized as a return of capital to shareholders, thereby
reducing the basis of each shareholder's Fund shares and resulting in a capital
gain for any shareholder who received a distribution greater than such
shareholder's basis in Fund shares (assuming the shares were held as a capital
asset). These rules and the mark-to-market rules described above, however,
29
<PAGE> 90
will not apply to certain transactions entered into by the Fund solely to reduce
the risk of currency fluctuations with respect to its investments.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative, judicial or administrative
action either prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state and
local taxes.
Certain states exempt from state income taxation dividends paid by RICs
which are derived from interest on U.S. Government obligations. State law varies
as to whether dividend income attributable to U.S. Government obligations is
exempt from state income tax.
Shareholders are urged to consult their own tax advisers regarding specific
questions as to Federal, foreign, state or local taxes. Foreign investors should
consider applicable foreign taxes in their evaluation of an investment in the
Fund.
PERFORMANCE DATA
From time to time the Fund may include its average annual total return and
other total return data in advertisements or information furnished to present or
prospective shareholders. Total return figures are based on the Fund's
historical performance and are not intended to indicate future performance.
Average annual total return is determined separately for Class A, Class B, Class
C and Class D shares in accordance with formulas specified by the Commission.
Average annual total return quotations for the specified periods are
computed by finding the average annual compounded rates of return (based on net
investment income and any realized and unrealized capital gains or losses on
portfolio investments over such periods) that would equate the initial amount
invested to the redeemable value of such investment at the end of each period.
Average annual total return is computed assuming all dividends are reinvested
and taking into account all applicable recurring and nonrecurring expenses,
including the maximum sales charge in the case of Class A and Class D shares and
the CDSC that would be applicable to a complete redemption of the investment at
the end of the specified period in the case of Class B and Class C shares.
The Fund also may quote annual, average annual and annualized total return
and aggregate total return performance data, both as a percentage and as a
dollar amount based on a hypothetical $1,000 investment, for various periods
other than those noted below. Such data will be computed as described above,
except that (i) as required by the periods of the quotations, actual annual,
annualized or aggregate data, rather than average annual data, may be quoted and
(ii) the maximum applicable sales charges will not be included with respect to
annual or annualized rates of return calculations. Aside from the impact on the
performance data calculations of including or excluding the maximum applicable
sales charges, actual annual or annualized total return data generally will be
lower than average annual total return data since the average rates of return
reflect compounding of return; aggregate total return data generally will be
higher than average annual total return data since the aggregate rates of return
reflect compounding over a longer period of time.
30
<PAGE> 91
In order to reflect the reduced sales charges in the case of Class A or
Class D shares or the waiver of the CDSC in the case of Class B or Class C
shares applicable to certain investors, as described under "Purchase of Shares"
and "Redemption of Shares," respectively, the total return data quoted by the
Fund in advertisements directed to such investors may take into account the
reduced, and not the maximum, sales charge or may not take into account the CDSC
and therefore may reflect greater total return since, due to the reduced sales
charges or the waiver of sales charges, a lower amount of expenses is deducted.
GENERAL INFORMATION
DESCRIPTION OF SHARES
The Fund was incorporated under Maryland law on September 24, 1997. It has
an authorized capital of 400,000,000 shares of Common Stock, par value $.10 per
share, divided into four classes designated Class A, Class B, Class C and Class
D Common Stock, each consisting of 100,000,000 shares. Shares of Class A, Class
B, Class C and Class D Common Stock represent an interest in the same assets of
the Fund and are identical in all respects except that the Class B, Class C and
Class D shares bear certain expenses related to the account maintenance and/or
distribution of such shares and have exclusive voting rights with respect to
matters relating to such expenditures. The Fund may issue additional classes or
shares if the Board of Directors deems such issuance to be in the best interests
of the Fund. Upon liquidation of the Fund, shareholders of each class are
entitled to share pro rata in the net assets of the Fund available for
distribution to shareholders, except for any expenses which may be attributable
only to one class. Shares have no preemptive or conversion rights. The rights of
redemption and exchange are described elsewhere herein and in the Prospectus.
Shares are fully paid and nonassessable by the Fund.
Shareholders are entitled to one vote for each full share held and
fractional votes for fractional shares held in the election of Directors and any
other matter submitted to a shareholder vote. The Fund does not intend to hold
annual meetings of shareholders in any year in which the Investment Company Act
does not require shareholders to act upon any of the following matters: (i)
election of Directors; (ii) approval of an investment advisory agreement; (iii)
approval of a distribution agreement; and (iv) ratification of selection of
independent accountants. Also, the by-laws of the Fund require that a special
meeting of shareholders be held upon the written request of at least 25% of the
outstanding shares of the Fund entitled to vote at such meeting, if they comply
with applicable Maryland law. Voting rights for Directors are not cumulative.
Shares issued are fully paid and non-assessable and have no preemptive rights.
Redemption and conversion rights are discussed elsewhere herein and in the
Prospectus. Each share of Class B, Class C and Class D Common Stock is entitled
to participate equally in dividends and distributions declared by the Fund and
in the net assets of the Fund upon liquidation or dissolution after satisfaction
of outstanding liabilities. Stock certificates will be issued by the Transfer
Agent only on specific request. Certificates for fractional shares are not
issued in any case.
The Manager provided the initial capital for the Fund by purchasing 10,000
shares of common stock of the Fund for $100,000. Such shares were acquired for
investment and can only be disposed of by redemption. The organizational
expenses of the Fund (estimated at approximately $141,000) will be paid by the
Fund and will be amortized over a period not exceeding five years. The proceeds
realized by the Manager upon the redemption of any of the shares initially
purchased by it will be reduced by the proportional amount of the unamortized
organizational expenses which the number of such initial shares being redeemed
bears to the number of shares initially purchased. As of the date of this
Statement of Additional Information, the Manager
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<PAGE> 92
owned 100% of the outstanding shares of Common Stock of the Fund. The Manager
may be deemed to control the Fund until such time as it owns less than 25% of
the outstanding shares of the Fund.
COMPUTATION OF OFFERING PRICE PER SHARE
An illustration of the computation of the offering price for Class A, Class
B, Class C and Class D shares of the Fund based on the projected value of the
Fund's estimated net assets and projected number of shares outstanding on the
date its shares first are offered for sale to public investors is as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Assets...................................... $25,000 $25,000 $25,000 $25,000
====== ====== ====== ======
Number of Shares Outstanding.................... 2,500 2,500 2,500 2,500
====== ====== ====== ======
Net Asset Value Per Share (net assets divided by
number of shares outstanding)................. $ 10.00 $ 10.00 $ 10.00 $ 10.00
Sales Charge (for Class A and Class D Shares:
5.25% of offering price (5.54% of net amount
invested*))................................... $ .55 ** ** $ .55
------ ------ ------ ------
Offering Price.................................. $ 10.55 $ 10.00 $ 10.00 $ 10.55
====== ====== ====== ======
</TABLE>
- ---------------
* Rounded to the nearest one-hundredth percent; assumes maximum sales charge is
applicable.
** Class B and Class C shares are not subject to an initial sales charge but may
be subject to a CDSC on redemption. See "Purchase of Shares--Deferred Sales
Charge Alternatives--Class B and Class C Shares" in the Prospectus and
"Redemption of Shares--Deferred Sales Charges--Class B and Class C Shares"
herein.
INDEPENDENT AUDITORS
Deloitte & Touche LLP has been selected as the independent auditors of the
Fund. The selection of independent auditors is subject to approval by the
Independent Directors of the Fund. The independent auditors are responsible for
auditing the annual financial statements of the Fund.
CUSTODIAN
The Bank of New York acts as the Custodian of the Fund's assets. Under its
contract with the Fund, the Custodian is authorized, among other things, to
establish separate accounts in foreign currencies and to cause foreign
securities owned by the Fund to be held in its offices outside of the United
States and with certain foreign banks and securities depositories. The Custodian
is responsible for safeguarding and controlling the Fund's cash and securities,
handling the receipt and delivery of securities and collecting interest and
dividends on the Fund's investments.
TRANSFER AGENT
Merrill Lynch Financial Data Services, Inc., 4800 Deer Lake Drive East,
Jacksonville, Florida 32246 6484, acts as the Fund's Transfer Agent. The
Transfer Agent is responsible for the issuance, transfer and redemption of
shares and the opening, maintenance and servicing of shareholder accounts. See
"Management of the Fund--Transfer Agency Services" in the Prospectus.
32
<PAGE> 93
LEGAL COUNSEL
Brown & Wood LLP, One World Trade Center, New York New York 10048-0557, is
counsel for the Fund.
REPORTS TO SHAREHOLDERS
The fiscal year of the Fund ends on November 30 of each year. The Fund
sends to its shareholders at least semi-annually reports showing the Fund's
portfolio and other information. An annual report, containing financial
statements audited by independent auditors, is sent to shareholders each year.
After the end of each year, shareholders will receive Federal income tax
information regarding dividends and capital gains distributions. It is
anticipated that IRS guidance permitting categories of gain and related rates to
be passed through to shareholders would also require this Federal income tax
information to indicate the amounts of various categories of capital gain income
included in capital gain dividends.
ADDITIONAL INFORMATION
The Prospectus and this Statement of Additional Information do not contain
all the information set forth in the Registration Statement and the exhibits
relating thereto, which the Fund has filed with the Securities and Exchange
Commission, Washington, D.C., under the Securities Act and the Investment
Company Act, to which reference is hereby made.
------------------
Under a separate agreement, ML & Co. has granted the Fund the right to use
the "Merrill Lynch" name and has reserved the right to withdraw its consent to
the use of such name by the Fund at any time or to grant the use of such name to
any other company, and the Fund has granted ML & Co., under certain conditions,
the use of any other name it might assume in the future, with respect to any
corporation organized by ML & Co.
33
<PAGE> 94
APPENDIX
RATINGS OF FIXED INCOME SECURITIES
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S ("MOODY'S") CORPORATE RATINGS
<TABLE>
<S> <C>
Aaa Bonds which are rated "Aaa" are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edged".
Interest payments are protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa Bonds which are rated "Aa" are judged to be of high quality by all standards. Together
with the "Aaa" group they comprise what are generally known as high grade bonds. They
are rated lower than the best bonds because margins of protection may not be as large
as in "Aaa" securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-term risks appear
somewhat larger than in "Aaa" securities.
A Bonds which are rated "A" possess many favorable investment attributes and are to be
considered as upper-medium grade obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present which suggest a
susceptibility to impairment sometime in the future.
Baa Bonds which are rated "Baa" are considered as medium-grade obligations (i.e., they are
neither highly protected nor poorly secured). Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative characteristics as
well.
Ba Bonds which are rated "Ba" are judged to have speculative elements; their future
cannot be considered as well-assured. Often the protection of interest and principal
payments may be very moderate, and thereby not well safeguarded during both good and
bad times over the future. Uncertainty of position characterizes bonds in this class.
B Bonds which are rated "B" generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of the
contract over any long period of time may be small.
Caa Bonds which are rated "Caa" are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Ca Bonds which are rated "Ca" represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
C Bonds which are rated "C" are the lowest rated class of bonds, and issues so rated can
be regarded as having extremely poor prospects of ever attaining any real investment
standing.
</TABLE>
NOTE: Moody's applies numerical modifiers 1, 2 and 3 in each generic
rating classification from "Aa" through "B". The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the
lower end of that generic rating category.
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<PAGE> 95
DESCRIPTION OF MOODY'S SHORT-TERM DEBT RATINGS
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations. These obligations have an original
maturity not exceeding one year, unless explicitly noted. Moody's makes no
representation that rated bank or insurance company obligations are exempt from
registration under the Securities Act of 1933 or issued in conformity with any
other applicable law or regulation. Nor does Moody's represent that any specific
bank or insurance company obligation is legally enforceable or a valid senior
obligation of a rated issuer. Moody's employs the following three designations,
all judged to be investment grade, to indicate the relative repayment ability of
rated issuers:
PRIME-1. Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
-- Leading market positions in well-established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
-- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
PRIME-2. Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
PRIME-3. Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
NOT PRIME. Issuers rated Not Prime do not fall within any of the Prime
rating categories.
If an issuer represents to Moody's that its short-term debt obligations are
supported by the credit of another entity or entities, then the name or names of
such supporting entity or entities are listed within the parentheses beneath the
name of the issuer, or there is a footnote referring the reader to another page
for the name or names of the supporting entity or entities. In assigning ratings
to such issuers, Moody's evaluates the financial strength of the affiliated
corporations, commercial banks, insurance companies, foreign governments or
other entities, but only as one factor in the total rating assessment. Moody's
makes no representation and gives no opinion on the legal validity or
enforceability of any support arrangement.
DESCRIPTION OF MOODY'S PREFERRED STOCK RATINGS
Because of the fundamental differences between preferred stocks and bonds,
a variation of the bond rating symbols is used in the quality ranking of
preferred stock. The symbols, presented below, are designed to avoid comparison
with bond quality in absolute terms. It should always be borne in mind that
preferred stock
35
<PAGE> 96
occupies a junior position to bonds within a particular capital structure and
that these securities are rated within the universe of preferred stocks.
Preferred stock rating symbols and their definitions are as follows:
<TABLE>
<S> <C>
aaa An issue which is rated "aaa" is considered to be a top-quality preferred stock. This
rating indicates good asset protection and the least risk of dividend impairment
within the universe of preferred stocks.
aa An issue which is rated "aa" is considered a high-grade preferred stock. This rating
indicates that there is a reasonable assurance the earnings and asset protection will
remain relatively well maintained in the foreseeable future.
a An issue which is rated "a" is considered to be an upper-medium grade preferred stock.
While risks are judged to be somewhat greater than in the "aaa" and "aa"
classifications, earnings and asset protections are, nevertheless, expected to be
maintained at adequate levels.
baa An issue which is rated "baa" is considered to be a medium-grade preferred stock,
neither highly protected nor poorly secured. Earnings and asset protection appear
adequate at present but may be questionable over any great length of time.
ba An issue which is rated "ba" is considered to have speculative elements and its future
cannot be considered well assured. Earnings and asset protection may be very moderate
and not well safeguarded during adverse periods. Uncertainty of position characterizes
preferred stocks in this class.
b An issue which is rated "b" generally lacks the characteristics of a desirable
investment. Assurance of dividend payments and maintenance of other terms of the issue
over any long period of time may be small.
caa An issue which is rated "caa" is likely to be in arrears on dividend payments. This
rating designation does not purport to indicate the future status of payments.
ca An issue which is rated "ca" is speculative in a high degree and is likely to be in
arrears on dividends with little likelihood of eventual payments.
c This is the lowest rated class of preferred or preference stock. Issues so rated can
be regarded as having extremely poor prospects of ever attaining any real investment
standing.
</TABLE>
NOTE: Moody's applies numerical modifiers l, 2 and 3 in each rating
classification "a" to "b": the modifier 1 indicates that the security ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.
DESCRIPTION OF STANDARD & POOR'S RATINGS SERVICES ("STANDARD & POOR'S")
CORPORATE DEBT RATINGS
A Standard & Poor's corporate or municipal debt rating is a current opinion
of the creditworthiness of an obligor with respect to a specific financial
obligation, a specific class of financial obligations, or a specific financial
program. It takes into consideration the creditworthiness of guarantors,
insurers, or other forms of credit enhancement on the obligation.
The debt rating is not a recommendation to purchase, sell or hold a
financial obligation, inasmuch as it does not comment as to market price or
suitability for a particular investor.
36
<PAGE> 97
The ratings are based on current information furnished by the obligors or
obtained by Standard & Poor's from other sources it considers reliable. Standard
& Poor's does not perform any audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended or withdrawn as a result of changes in, or unavailability of, such
information, or based on other circumstances.
The ratings are based, in varying degrees, on the following considerations:
I. Likelihood of payment--capacity and willingness of the obligor to
meet its financial commitment on an obligation in accordance with
the terms of the obligation;
II. Nature of and provisions of the obligation; and
III. Protection afforded by, and relative position of, the obligation
in the event of bankruptcy, reorganization or other arrangement
under the laws of bankruptcy and other laws affecting creditors'
rights.
<TABLE>
<S> <C>
AAA Debt rated "AAA" has the highest rating assigned by Standard & Poor's. Capacity to
meet its financial commitment on the obligation is extremely strong.
AA Debt rated "AA" differs from the highest rated obligations only in small degree. The
obligor's capacity to meet its financial commitment on the obligation is very strong.
A Debt rated "A" is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories. However,
the obligor's capacity to meet its financial commitment on the obligation is still
strong.
BBB Debt rated "BBB" exhibits adequate protection parameters. However, adverse economic
conditions or changing circumstances are more likely to lead to a weakened capacity
of the obligor to meet its financial commitment on the obligation.
Debt rated "BB", "B", "CCC", "CC" and "C" are regarded as having significant
speculative characteristics. "BB" indicates the least degree of speculation and "C"
the highest. While such debt will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties or major exposures to
adverse conditions.
BB Debt rated "BB" is less vulnerable to non-payment than other speculative issues.
However, it faces major ongoing uncertainties or exposure to adverse business,
financial, or economic conditions which could lead to the obligor's inadequate
capacity to meet its financial commitment on the obligation.
B Debt rated "B" is more vulnerable to non-payment than obligations rated "BB", but the
obligor currently has the capacity to meet its financial commitment on the
obligation. Adverse business, financial, or economic conditions will likely impair
the obligor's capacity or willingness to meet its financial commitment on the
obligation.
CCC Debt rated "CCC" is currently vulnerable to non-payment, and is dependent upon
favorable business, financial, and economic conditions for the obligor to meet its
financial commitment on the obligation. In the event of adverse business, financial,
or economic conditions, it is not likely to have the capacity to meet its financial
commitment on the obligation.
CC The rating "CC" is currently highly vulnerable to non-payment.
</TABLE>
37
<PAGE> 98
<TABLE>
<S> <C>
C The "C" rating may be used to cover a situation where a bankruptcy petition has been
filed or similar action has been taken, but payments on this obligation are being
continued.
D Debt rated "D" is in payment default. The "D" rating category is used when payments
on an obligation are not made on the date due even if the applicable grace period has
not expired on an obligation, unless Standard & Poor's believes that such payments
will be made during such grace period. The "D" rating also will be used upon the
filing of a bankruptcy petition or the taking of similar action if payments on an
obligation are jeopardized.
</TABLE>
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
N.R. indicates not rated.
Debt obligations of issuers outside the United States and its territories
are rated on the same basis as domestic corporate and municipal issues. The
ratings measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.
BOND INVESTMENT QUALITY STANDARDS: Under present commercial bank
regulations issued by the Comptroller of the Currency, bonds rated in the top
four categories ("AAA", "AA", "A", "BBB", commonly known as "investment grade"
ratings) generally are regarded as eligible for bank investment. Also, the laws
of various states governing legal investments impose certain rating or other
standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries in general.
DESCRIPTION OF STANDARD & POOR'S COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an orginal maturity of no more than
365 days. Ratings are graded into several categories, ranging from "A" for the
highest-quality obligations to "D" for the lowest. These categories are as
follows:
<TABLE>
<S> <C>
A-1 This designation indicates that the degree of safety regarding timely payment is
strong. Those issues determined to possess extremely strong safety characteristics are
denoted with a plus (+) sign designation.
A-2 Capacity for timely payment on issues with this designation is satisfactory. However,
the relative degree of safety is not as high as for issues designated "A-1".
A-3 Issues carrying this designation have an adequate capacity for timely payment. They
are, however, more vulnerable to the adverse effects of changes in circumstances than
obligations carrying the higher designations.
B Issues rated "B" are regarded as having only speculative capacity for timely payment.
C This rating is assigned to short-term debt obligations with a doubtful capacity for
payment.
D Debt rated "D" is in payment default. The "D" rating category is used when interest
payments or principal payments are not made on the date due, even if the applicable
grace period has not expired, unless Standard & Poor's believes that such payments
will be made during such grace period.
</TABLE>
A commercial paper rating is not a recommendation to purchase, sell or hold
a security inasmuch as it does not comment as to market price or suitability for
a particular investor. The ratings are based on current
38
<PAGE> 99
information furnished to Standard & Poor's by the issuer or obtained by Standard
& Poor's from other sources it considers reliable. Standard & Poor's does not
perform an audit in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed, suspended, or
withdrawn as a result of changes in or unavailability of such information or
based on other circumstances.
DESCRIPTION OF STANDARD & POOR'S PREFERRED STOCK RATINGS
A Standard & Poor's preferred stock rating is an assessment of the capacity
and willingness of an issuer to pay preferred stock dividends and any applicable
sinking fund obligations. A preferred stock rating differs from a bond rating
inasmuch as it is assigned to an equity issue, which is intrinsically different
from, and subordinated to, a debt issue. Therefore, to reflect this difference,
the preferred stock rating symbol will normally not be higher than the debt
rating symbol assigned to, or that would be assigned to, the senior debt of the
same issuer.
Preferred stock ratings are based on the following considerations:
<TABLE>
<S> <C>
1. Likelihood of payment--capacity and willingness of the issuer to meet the timely
payment of preferred stock dividends and any applicable sinking fund requirements in
accordance with the terms of the obligation.
2. Nature of, and provisions of, the issue.
3. Relative position of the issue in the event of bankruptcy, reorganization, or other
arrangement under the laws of bankruptcy and other laws affecting creditors' rights.
AAA This is the highest rating that may be assigned by Standard & Poor's to a preferred
stock issue and indicates an extremely strong capacity to pay the preferred stock
obligations.
AA A preferred stock issue rated "AA" also qualifies as a high-quality, fixed income
security. The capacity to pay preferred stock obligations is very strong, although
not as overwhelming as for issues rated "AAA".
A An issue rated "A" is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
BBB An issue rated "BBB" is regarded as backed by an adequate capacity to pay the
preferred stock obligations. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more likely to
lead to a weakened capacity to make payments for a preferred stock in this category
than for issues in the "A" category.
BB, B, Preferred stock rated "BB", "B", and "CCC" are regarded, on balance, as
CCC predominately speculative with respect to the issuer's capacity to pay preferred
stock obligations. "BB" indicates the lowest degree of speculation and "CCC" the
highest. While such issues will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk exposures
to adverse conditions.
</TABLE>
39
<PAGE> 100
<TABLE>
<S> <C>
CC The rating "CC" is reserved for a preferred stock issue in arrears on dividends or
sinking fund payments but that is currently paying.
C A preferred stock rated "C" is a non-paying issue.
D A preferred stock rated "D" is a non-paying issue with the issuer in default on debt
instruments.
</TABLE>
N.R. indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy.
PLUS (+) OR MINUS (-): To provide more detailed indications of preferred
stock quality, the rating from "AA" to "CCC" may be modified by the addition of
a plus or minus sign to show relative standing within the major rating
categories.
The preferred stock rating is not a recommendation to purchase, sell or
hold a security, inasmuch as it does not comment as to market price or
suitability for a particular investor. [Preferred stock ratings are wholly
unrelated to Standard & Poor's earnings and dividend rankings for common
stocks.]
The ratings are based on current information furnished to Standard & Poor's
by the issuer, or obtained by Standard & Poor's from other sources it considers
reliable. Standard & Poor's does not perform an audit in connection with any
rating and may, on occasion, rely on unaudited financial information. The
ratings may be changed, suspended, or withdrawn as a result of changes in, or
unavailability of, such information, or based on other circumstances.
40
<PAGE> 101
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholder,
Merrill Lynch Real Estate Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of Merrill
Lynch Real Estate Fund, Inc. as of November 12, 1997. This financial statement
is the responsibility of the Fund's management. Our responsibility is to express
an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such statement of assets and liabilities presents fairly, in all
material respects, the financial position of Merrill Lynch Real Estate Fund,
Inc. as of November 12, 1997 in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Princeton, New Jersey
November 12, 1997
41
<PAGE> 102
MERRILL LYNCH REAL ESTATE FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 12, 1997
<TABLE>
<S> <C>
Assets:
Cash in Bank.................................................... $100,000
Prepaid registration fees (Note 3).............................. 68,030
Deferred organization expenses (Note 4)......................... 141,000
--------
Total Assets................................................. 309,030
Liabilities--accrued expenses..................................... 209,030
--------
Net Assets (equivalent to $0.10 per share on 2,500 Class A shares
of Common Stock (par value $0.10), 2,500 Class B shares of
Common Stock (par value $0.10), 2,500 Class C shares of Common
Stock (par value $0.10) and 2,500 Class D shares of Common Stock
(par value $0.10) outstanding with 400,000,000 shares
authorized) (Note 1)............................................ $100,000
========
</TABLE>
- ---------------
Notes to Statement of Assets and Liabilities.
(1) Merrill Lynch Real Estate Fund, Inc. (the "Fund") was organized as a
Maryland corporation on September 24, 1997. The Fund is registered under the
Investment Company Act of 1940 as an open-end management investment company.
To date, the Fund has not had any transactions other than those relating to
organizational matters and the sale of 2,500 Class A shares, 2,500 Class B
shares, 2,500 Class C shares and 2,500 Class D shares of Common Stock to
Merrill Lynch Asset Management, L.P. (the "Manager").
(2) The Fund has entered into a management agreement (the "Management
Agreement") with the Manager, and distribution agreements (the "Distribution
Agreements") with Merrill Lynch Funds Distributor, Inc. (the "Distributor").
(See "Management of the Fund--Management and Advisory Arrangements" in the
Statement of Additional Information.) Certain officers and/or directors of
the Fund are officers and/or directors of the Manager and the Distributor.
(3) Prepaid registration fees are charged to income as the related shares are
issued.
(4) Deferred organization expenses will be amortized over a period from the date
the Fund commences operations not exceeding five years. In the event that
the Manager (or any subsequent holder) redeems any of its original shares
prior to the end of the five-year period, the proceeds of the redemption
payable in respect of such shares shall be reduced by the pro rata share
(based on the proportionate share of the original shares redeemed to the
total number of original shares outstanding at the time of redemption) of
the unamortized deferred organization expenses as of the date of such
redemption. In the event that the Fund is liquidated prior to the end of the
five-year period, the Manager (or any subsequent holder) shall bear the
unamortized deferred organization expenses.
42
<PAGE> 103
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objective and Policies....... 2
Portfolio Strategies Involving
Options, Futures and Foreign
Exchange Transactions............... 2
Other Investment Policies and
Practices........................... 2
Investment Restrictions............... 5
Management of the Fund.................. 7
Directors and Officers................ 7
Compensation of Directors............. 9
Management and Advisory
Arrangements........................ 9
Purchase of Shares...................... 11
Initial Sales Charge
Alternatives -- Class A and Class D
Shares.............................. 11
Reduced Initial Sales Charges......... 12
Employer-Sponsored Retirement or
Savings Plans and Certain Other
Arrangements........................ 15
Distribution Plans.................... 16
Limitations on the Payment of Deferred
Sales Charges....................... 16
Redemption of Shares.................... 17
Deferred Sales Charges -- Class B and
Class C Shares...................... 17
Portfolio Transactions and Brokerage.... 18
Determination of Net Asset Value........ 19
Shareholder Services.................... 20
Investment Account.................... 21
Automatic Investment Plans............ 21
Automatic Reinvestment of Dividends
and Capital Gains Distributions..... 22
Systematic Withdrawal Plans........... 22
Exchange Privilege.................... 23
Dividends, Distributions and Taxes...... 25
Dividends and Distributions........... 25
Taxes................................. 26
Tax Treatment of Options and Futures
Transactions........................ 28
Special Rules for Certain Foreign
Currency Transactions............... 29
Performance Data........................ 30
General Information..................... 31
Description of Shares................. 31
Computation of Offering Price Per
Share............................... 32
Independent Auditors.................. 32
Custodian............................. 32
Transfer Agent........................ 32
Legal Counsel......................... 33
Reports to Shareholders............... 33
Additional Information................ 33
Appendix................................ 34
Independent Auditors' Report............ 41
Statement of Assets and Liabilities..... 42
Code # 19018-1197
</TABLE>
[MERRILL LYNCH LOGO]
MERRILL LYNCH
REAL ESTATE FUND, INC.
STATEMENT OF MLYNCH COMPASS
ADDITIONAL
INFORMATION
November 14, 1997
Distributor:
Merrill Lynch
Funds Distributor, Inc.
<PAGE> 104
APPENDIX FOR GRAPHIC AND IMAGE MATERIAL
Pursuant to Rule 304 of Regulation S-T, the following table presents
fair and accurate narrative descriptions of graphic and image material omitted
from this EDGAR Submission File due to ASCII-incompatibility and
cross-references this material to the location of each occurrence in the text.
DESCRIPTION OF OMITTED LOCATION OF GRAPHIC
GRAPHIC OR IMDATE OR IMAGE IN TEST
- ---------------------- -------------------
Compass plate, circular Back cover of Prospectus and
graph paper and Merrill Lynch back cover of Statement of
logo including stylized market Additional Information
bull.
<PAGE> 105
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS:
Contained in Part B:
Independent Auditors' Report
Statement of Assets and Liabilities as of November 12, 1997.
(b) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ----------------------------------------------------------------------------------
<S> <C> <C>
1 -- Articles of Incorporation of the Registrant, dated September 23, 1997.(a)
2 -- By-Laws of the Registrant.
3 -- None.
4(a) -- Portions of the Articles of Incorporation and the By-Laws of the Registrant
defining the rights of holders of shares of the Registrant.(b)
(b) -- Form of Specimen Certificate for shares of Common Stock of the Registrant.
5(a) -- Form of Management Agreement between the Registrant and Merrill Lynch Asset
Management, L.P. (the "Manager").
(b) -- Form of Sub-Advisory Agreement between the Manager and Merrill Lynch Asset
Management U.K. Limited.
6(a) -- Form of Class A Shares Distribution Agreement between the Registrant and Merrill
Lynch Funds Distributor, Inc. (the "Distributor").
(b) -- Form of Class B Shares Distribution Agreement between the Registrant and the
Distributor.
(c) -- Form of Class C Shares Distribution Agreement between the Registrant and the
Distributor.
(d) -- Form of Class D Shares Distribution Agreement between the Registrant and the
Distributor.
7 -- None.
8 -- Form of Custody Agreement between Registrant and The Bank of New York.
9(a) -- Form of Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing
Agency Agreement between the Registrant and Merrill Lynch Financial Data Services,
Inc. (the "Transfer Agent").
(b) -- Form of Agreement relating to use of name between the Registrant and Merrill Lynch
& Co., Inc.
10 -- Opinion of Brown & Wood LLP, counsel for the Registrant.
11 -- Consent of Deloitte & Touche LLP, independent auditors for the Registrant.
12 -- None.
13 -- Certificate of the Manager.
14 -- None.
15(a) -- Form of Class B Shares Distribution Plan and Class B Shares Distribution Plan Sub-
Agreement of the Registrant.
(b) -- Form of Class C Shares Distribution Plan and Class C Shares Distribution Plan Sub-
Agreement of the Registrant.
(c) -- Form of Class D Shares Distribution Plan and Class D Shares Distribution Plan Sub-
Agreement of the Registrant.
16 -- None.
17(a) -- Financial Data Schedule for Class A Shares.
(b) -- Financial Data Schedule for Class B Shares.
(c) -- Financial Data Schedule for Class C Shares.
(d) -- Financial Data Schedule for Class D Shares.
18 -- Merrill Lynch Select Pricing(SM) System Plan Pursuant to Rule 18f-3.(c)
</TABLE>
- ---------------
(a) Previously filed on September 30, 1997 as an Exhibit to the Registrant's
Registration Statement on Form N-1A (File No. 333-36721) under the
Securities Act of 1933, as amended.
C-1
<PAGE> 106
(b) Reference is made to Articles IV, V (Sections 3, 5, 6 and 7), VI, VII and IX
of the Registrant's Articles of Incorporation filed herewith as Exhibit 1
to this Registration Statement on Form N-1A; and to Articles II, III
(Sections 1, 3, 5 and 6), VI, VII, XIII and XIV of the Registrant's
By-Laws, filed herewith as Exhibit 2 to this Registration Statement on Form
N-1A.
(c) Incorporated by reference to Exhibit 18 to Post-Effective Amendment No. 13
to the Registration Statement on Form N-1A under the Securities Act of
1933, as amended, filed on January 25, 1996 relating to shares of Merrill
Lynch New York Municipal Bond Fund series of Merrill Lynch Multi-State
Municipal Series Trust (File No. 2-99473).
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE REGISTRANT
The Registrant has sold 2,500 Class A shares of its Common Stock, 2,500
Class B shares of its Common Stock, 2,500 Class C shares of its Common Stock and
2,500 Class D shares of its Common Stock to the Manager for an aggregate of
$100,000.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
<TABLE>
<CAPTION>
NUMBER OF
RECORD HOLDERS
TITLE OF CLASS AT NOVEMBER 12, 1997
------------------------------------------------------------------ ---------------------
<S> <C>
Class A shares of Common Stock, par value $0.10 per share......... 1
Class B shares of Common Stock, par value $0.10 per share......... 1
Class C shares of Common Stock, par value $0.10 per share......... 1
Class D shares of Common Stock, par value $0.10 per share......... 1
</TABLE>
- ---------------
Note: The number of holders includes holders of record plus beneficial owners,
whose shares are held of record by Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
ITEM 27. INDEMNIFICATION
Reference is made to Article V of Registrant's Articles of Incorporation,
Article VI of Registrant's By-Laws, Section 2-418 of the Maryland General
Corporation Law and Section 9 of the Class A, Class B, Class C and Class D
Distribution Agreements.
Article VI of the By-Laws provides that each officer and director of the
Registrant shall be indemnified by the Registrant to the full extent permitted
under the General Laws of the State of Maryland, except that such indemnity
shall not protect any such person against any liability to the Registrant or any
stockholder thereof to which such person would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office. Absent a court determination that
an officer or director seeking indemnification was not liable on the merits or
guilty of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office, the decision by the
Registrant to indemnify such person must be based upon the reasonable
determination of independent counsel or non-party independent directors, after
review of the facts, that such officer or director is not guilty of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
Each officer and director of the Registrant claiming indemnification within
the scope of Article VI of the By-Laws shall be entitled to advances from the
Registrant for payment of the reasonable expenses incurred by him in connection
with proceedings to which he is a party in the manner and to the full extent
permitted under the General Laws of the State of Maryland; provided, however,
that the person seeking indemnification shall provide to the Registrant a
written affirmation of his good faith belief that the standard of conduct
necessary for indemnification by the Registrant has been met and a written
undertaking to repay any such advance, if it should ultimately be determined
that the standard of conduct has not been met, and provided further that at
least one of the following additional conditions is met: (a) the person seeking
indemnification shall provide a
C-2
<PAGE> 107
security in form and amount acceptable to the Registrant for his undertaking;
(b) the Registrant is insured against losses arising by reason of the advance;
(c) a majority of a quorum of non-party independent directors, or independent
legal counsel in a written opinion, shall determine, based on a review of facts
readily available to the Registrant at the time the advance is proposed to be
made, that there is reason to believe that the person seeking indemnification
will ultimately be found to be entitled to indemnification.
The Registrant may purchase insurance on behalf of an officer or director
protecting such person to the full extent permitted under the General Laws of
the State of Maryland from liability arising from his activities as officer or
director of the Registrant. The Registrant, however, may not purchase insurance
on behalf of any officer or director of the Registrant that protects or purports
to protect such person from liability to the Registrant or to its stockholders
to which such officer or director would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of his office.
The Registrant may indemnify, make advances or purchase insurance to the
extent provided in Article VI of the By-Laws on behalf of an employee or agent
who is not an officer or director of the Registrant.
In Section 9 of the Class A, Class B, Class C and Class D Distribution
Agreements relating to the securities being offered hereby, the Registrant
agrees to indemnify the Distributor and each person, if any, who controls the
Distributor within the meaning of the Securities Act of 1933 (the "1933 Act"),
against certain types of civil liabilities arising in connection with the
Registration Statement or Prospectus and Statement of Additional Information.
Insofar as indemnification for liabilities arising under the 1933 Act may
be permitted to Directors, officers and controlling persons of the Registrant
and the principal underwriter pursuant to the foregoing provisions or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the 1933 Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a Director, officer, or controlling
person of the Registrant and the principal underwriter in connection with the
successful defense of any action, suit or proceeding) is asserted by such
Director, officer or controlling person or the principal underwriter in
connection with the shares being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the 1933 Act and
will be governed by the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF MANAGER
(a) Merrill Lynch Asset Management, L.P. ("MLAM" or the "Manager") acts as
the investment adviser for the following open-end registered investment
companies: Merrill Lynch Adjustable Rate Securities Fund, Inc., Merrill Lynch
Americas Income Fund, Inc., Merrill Lynch Asset Builder Program, Inc., Merrill
Lynch Asset Growth Fund, Inc., Merrill Lynch Asset Income Fund, Inc., Merrill
Lynch Capital Fund, Inc., Merrill Lynch Convertible Fund, Inc., Merrill Lynch
Developing Capital Markets Fund, Inc., Merrill Lynch Dragon Fund, Inc., Merrill
Lynch EuroFund, Merrill Lynch Fundamental Growth Fund, Inc., Merrill Lynch Fund
For Tomorrow, Inc., Merrill Lynch Global Allocation Fund, Inc., Merrill Lynch
Global Bond Fund for Investment and Retirement, Merrill Lynch Global Convertible
Fund, Inc., Merrill Lynch Global Growth Fund, Inc., Merrill Lynch Global
Holdings, Inc., Merrill Lynch Global Resources Trust, Merrill Lynch Global
SmallCap Fund, Inc., Merrill Lynch Global Utility Fund, Inc., Merrill Lynch
Global Value Fund, Inc., Merrill Lynch Growth Fund, Merrill Lynch Healthcare
Fund, Inc., Merrill Lynch Intermediate Government Bond Fund, Merrill Lynch
International Equity Fund, Merrill Lynch Latin America Fund, Inc., Merrill Lynch
Middle East/Africa Fund, Inc., Merrill Lynch Municipal Series Trust, Merrill
Lynch Pacific Fund, Inc., Merrill Lynch Ready Assets Trust, Merrill Lynch
Retirement Series Trust, Merrill Lynch Series Fund, Inc., Merrill Lynch
Short-Term Global Income Fund, Inc., Merrill Lynch Strategic Dividend Fund,
Merrill Lynch Technology Fund, Inc., Merrill Lynch U.S.A. Government Reserves,
Merrill Lynch U.S. Treasury Money Fund, Merrill Lynch Utility Income Fund, Inc.,
Merrill Lynch Variable Series Funds,
C-3
<PAGE> 108
Inc. and Hotchkis and Wiley Funds (advised by Hotchkis and Wiley, a dvision of
MLAM); and for the following closed-end registered investment companies: Merrill
Lynch High Income Municipal Bond Fund, Inc. and Merrill Lynch Senior Floating
Rate Fund, Inc. MLAM also acts as sub-adviser to Merrill Lynch World Strategy
Portfolio and Merrill Lynch Basic Value Equity Portfolio, two investment
portfolios of EQ Advisory Trust.
(b) Fund Asset Management, L.P. ("FAM"), an affiliate of the Manager, acts
as the investment adviser for the following open-end registered investment
companies: CBA Money Fund, CMA Government Securities Fund, CMA Money Fund, CMA
Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The
Corporate Fund Accumulation Program, Inc., Debt Strategies Fund, Inc., Financial
Institutions Series Trust, Merrill Lynch Basic Value Fund, Inc., Merrill Lynch
California Municipal Series Trust, Merrill Lynch Corporate Bond Fund, Inc.,
Merrill Lynch Emerging Tigers Fund, Inc., Merrill Lynch Federal Securities
Trust, Merrill Lynch Funds for Institutions Series, Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, Merrill Lynch Multi-State Municipal
Series Trust, Merrill Lynch Municipal Bond Fund, Inc., Merrill Lynch Phoenix
Fund, Inc., Merrill Lynch Special Value Fund, Inc., Merrill Lynch World Income
Fund, Inc. and The Municipal Fund Accumulation Program, Inc.; and the following
closed-end registered investment companies: Apex Municipal Fund, Inc., Corporate
High Yield Fund, Inc., Corporate High Yield Fund II, Inc., Debt Strategies Fund,
Inc., Income Opportunities Fund 1999, Inc., Income Opportunities Fund 2000,
Inc., Merrill Lynch Municipal Strategy Fund, Inc., MuniAssets Fund, Inc.,
MuniEnhanced Fund, Inc., MuniHoldings Fund, Inc., MuniHoldings California
Insured Fund, Inc., MuniHoldings Florida Insured Fund, MuniHoldings New York
Insured Fund, Inc., MuniInsured Fund, Inc., MuniVest Fund, Inc., MuniVest Fund
II, Inc., MuniVest Florida Fund, MuniVest Michigan Insured Fund, Inc., MuniVest
New Jersey Fund, Inc., MuniVest Pennsylvania Insured Fund, MuniYield Arizona
Fund, Inc., MuniYield California Fund, Inc., MuniYield California Insured Fund,
Inc., MuniYield California Insured Fund II, Inc., MuniYield Florida Fund,
MuniYield Florida Insured Fund, MuniYield Fund, Inc., MuniYield Insured Fund,
Inc., MuniYield Michigan Fund, Inc., MuniYield Michigan Insured Fund, Inc.,
MuniYield New Jersey Fund, Inc., MuniYield New Jersey Insured Fund, Inc.,
MuniYield New York Insured Fund, Inc., MuniYield New York Insured Fund II, Inc.,
MuniYield Pennsylvania Fund, MuniYield Quality Fund, Inc., MuniYield Quality
Fund II, Inc., Senior High Income Portfolio, Inc., Taurus MuniCalifornia
Holdings, Inc., Taurus MuniNewYork Holdings, Inc. and Worldwide DollarVest Fund,
Inc.
The address of each of these investment companies is P.O. Box 9011,
Princeton, New Jersey 08543-9011, except that the address of Merrill Lynch Funds
for Institutions Series is One Financial Center, 23rd Floor, Boston,
Massachusetts 02111-2646. The address of the Manager, FAM, Princeton Services,
Inc. ("Princeton Services") and Princeton Administrators L.P. is also P.O. Box
9011, Princeton, New Jersey 08543-9011. The address of Merrill Lynch Funds
Distributor, Inc. ("MLFD") is P.O. Box 9081, Princeton, New Jersey 08543-9081.
The address of Merrill Lynch & Co., Inc. ("ML&Co.") is World Financial Center,
North Tower, 250 Vesey Street, New York, New York 10281. The address of Merrill
Lynch Financial Data Services, Inc. ("MLFDS") is 4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484.
Set forth below is a list of each executive officer and partner of the
Manager indicating each business, profession, vocation or employment of a
substantial nature in which each such person or entity has been engaged since
January 1, 1995 for his, her or its own account or in the capacity of director,
officer, partner or trustee. In addition, Mr. Zeikel is President, Mr. Richard
is Treasurer and Mr. Glenn is Executive Vice President of substantially all of
the investment companies described in the first two paragraphs of this Item 28
and Messrs. Giordano, Harvey, Kirstein and Monagle are directors, trustees or
officers of one or more of such companies.
C-4
<PAGE> 109
Officers and partners of MLAM are as follows:
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
POSITION WITH PROFESSION, VOCATION OR
NAME THE MANAGER EMPLOYMENT
- ------------------------- -------------------------- ---------------------------------
<S> <C> <C>
ML & Co.................. Limited Partner Financial Services Holding
Company; Limited Partner of FAM
Princeton Services....... General Partner General Partner of FAM
Arthur Zeikel............ President President of FAM; President and
Director of Princeton Services;
Executive Vice President of ML
& Co.
Terry K. Glenn........... Executive Vice President Executive Vice President of FAM;
Executive Vice President and
Director of Princeton Services;
President and Director of MLFD;
Director of MLFDS; President of
Princeton Administrators, L.P.
Linda L. Federici........ Senior Vice President Senior Vice President of FAM;
Senior Vice President of
Princeton Services
Vincent R. Giordano...... Senior Vice President Senior Vice President of FAM;
Senior Vice President of
Princeton Services
Elizabeth A. Griffin..... Senior Vice President Senior Vice President of FAM
Norman R. Harvey......... Senior Vice President Senior Vice President of FAM;
Senior Vice President of
Princeton Services
Michael J. Hennewinkel... Senior Vice President Senior Vice President of FAM;
Senior Vice President of
Princeton Services
Philip L. Kirstein....... Senior Vice President, Senior Vice President, General
General Counsel and Counsel and Secretary of FAM;
Secretary Senior Vice President, General
Counsel, Director and Secretary
of Princeton Services
Ronald M. Kloss.......... Senior Vice President and Senior Vice President and
Controller Controller of FAM; Senior Vice
President and Controller of
Princeton Services
Debra Landsman-Yaros..... Senior Vice President Senior Vice President of FAM;
Senior Vice President of
Princeton Services; Vice
President of MLFD
Stephen M.M. Miller...... Senior Vice President Executive Vice President of
Princeton Administrators, L.P.;
Senior Vice President of
Princeton Services
Joseph T. Monagle, Jr.... Senior Vice President Senior Vice President of FAM;
Senior Vice President of
Princeton Services
Michael L. Quinn......... Senior Vice President Senior Vice President of FAM;
Senior Vice President of
Princeton Services; Managing
Director and First Vice
President of Merrill Lynch from
1989 to 1995
Richard L. Reller........ Senior Vice President Senior Vice President of FAM;
Senior Vice President of
Princeton Services; Director of
MLFD
</TABLE>
C-5
<PAGE> 110
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
POSITION WITH PROFESSION, VOCATION OR
NAME THE MANAGER EMPLOYMENT
- ------------------------- -------------------------- ---------------------------------
<S> <C> <C>
Gerald M. Richard........ Senior Vice President and Senior Vice President and
Treasurer Treasurer of FAM; Senior Vice
President and Treasurer of
Princeton Services; Vice
President and Treasurer of MLFD
Gregory Upah............. Senior Vice President Senior Vice President of FAM;
Senior Vice President of
Princeton Services
Ronald L. Welburn........ Senior Vice President Senior Vice President of FAM;
Senior Vice President of
Princeton Services
</TABLE>
(b) Merrill Lynch Asset Management U.K. Limited ("MLAM U.K.") acts as
sub-adviser for the following registered investment companies: Corporate High
Yield Fund, Inc., Corporate High Yield Fund II, Inc., Income Opportunities Fund
1999, Inc., Income Opportunities Fund 2000, Inc., Merrill Lynch Americas Income
Fund Inc., Merrill Lynch Asset Builder Program, Inc., Merrill Lynch Basic Value
Fund, Inc., Merrill Lynch Capital Fund, Inc., Merrill Lynch Convertible Fund,
Inc., Merrill Lynch Developing Capital Markets, Inc., Merrill Lynch Dragon Fund,
Inc., Merrill Lynch Emerging Tigers Fund, Inc., Merrill Lynch EuroFund, Merrill
Lynch Fundamental Growth Fund Inc., Merrill Lynch Global Allocation Fund, Inc.,
Merrill Lynch Global Bond Fund for Investment and Retirement, Merrill Lynch
Global Convertible Fund, Inc., Merrill Lynch Global Growth Fund, Inc., Merrill
Lynch Global Holdings, Inc., Merrill Lynch Global Resources Trust, Merrill Lynch
Global SmallCap Fund, Inc., Merrill Lynch Global Value Fund, Inc., Merrill Lynch
Healthcare Fund, Inc., Merrill Lynch International Equity Fund, Merrill Lynch
Latin America Fund, Inc., Merrill Lynch Middle East/Africa Fund, Inc., Merrill
Lynch Pacific Fund, Inc., Merrill Lynch Phoenix Fund, Inc., Merrill Lynch
Short-Term Global Income Fund, Inc., Merrill Lynch Special Value Fund, Inc.,
Merrill Lynch Technology Fund, Inc., Merrill Lynch World Income Fund, Inc. and
Worldwide DollarVest Fund, Inc. The address of each of these investment
companies is P.O. Box 9011, Princeton, New Jersey 08543-9011. The address of
MLAM U.K. is Milton Gate, 1 Moor Lane, London EC2Y 9HA, England.
Set forth below is a list of each executive officer and director of MLAM
U.K. indicating each business, profession, vocation or employment of a
substantial nature in which each such person has been engaged since January 1,
1995, for his or her own account or in the capacity of director, officer,
partner or trustee. In addition, Messrs. Zeikel, Albert and Richard are officers
of one or more of the registered investment companies listed in the first two
paragraphs of this Item 28.
<TABLE>
<CAPTION>
POSITION WITH OTHER SUBSTANTIAL BUSINESS,
NAME MLAM U.K. PROFESSION, VOCATION OR EMPLOYMENT
- ----------------------- ------------------------- ---------------------------------------------
<S> <C> <C>
Arthur Zeikel.......... Director and Chairman President of the Manager and FAM; President
and Director of Princeton Services;
Executive Vice President of ML&Co.
Alan J. Albert......... Senior Managing Director Vice President of the Manager
Nicholas C.D. Hall..... Director Director of Merrill Lynch Europe PLC.;
General Counsel of Merrill Lynch
International Private Banking Group
Gerald M. Richard...... Senior Vice President Senior Vice President and Treasurer of the
Manager and FAM; Senior Vice President and
Treasurer of Princeton Services; Vice
President and Treasurer of MLFD
Carol Ann Langham...... Company Secretary None
Debra Anne Searle...... Assistant Company None
Secretary
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS
(a) MLFD acts as the principal underwriter for the Registrant. MLFD acts as
the principal underwriter for each of the open-end investment companies referred
to in the first two paragraphs of Item 28 except CBA
C-6
<PAGE> 111
Money Fund, CMA Government Securities Fund, CMA Money Fund, CMA Multi-State
Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The Corporate
Fund Accumulation Program, Inc., MuniAssets Fund, Inc. and The Municipal Fund
Accumulation Program, Inc., and MLFD also acts as the principal underwriter for
the following closed-end investment companies: Merrill Lynch High Income
Municipal Bond Fund, Inc., Merrill Lynch Municipal Strategy Fund, Inc. and
Merrill Lynch Senior Floating Rate Fund, Inc.
(b) Set forth below is information concerning each director and officer of
MLFD. The principal business address of each such person is P.O. Box 9011,
Princeton, New Jersey 08543-9011, except that the address of Messrs. Aldrich,
Brady, Breen, Crook, Fatseas, and Wasel is One Financial Center, 23rd Floor,
Boston, Massachusetts 02111-2665.
<TABLE>
<CAPTION>
POSITIONS AND OFFICES POSITION(S) AND OFFICE(S)
NAME WITH MLFD WITH REGISTRANT
- ----------------------------------------- ----------------------------- -------------------------
<S> <C> <C>
Terry K. Glenn........................... President and Director Executive Vice President
Richard L. Reller........................ Director None
Thomas J. Verage......................... Director None
William E. Aldrich....................... Senior Vice President None
Robert W. Crook.......................... Senior Vice President None
Michael J. Brady......................... Vice President None
William M. Breen......................... Vice President None
Michael G. Clark......................... Vice President None
James T. Fatseas......................... Vice President None
Debra W. Landsman-Yaros.................. Vice President None
Michelle T. Lau.......................... Vice President None
Gerald M. Richard........................ Vice President and Treasurer Treasurer
Salvatore Venezia........................ Vice President None
William Wasel............................ Vice President None
Robert Harris............................ Secretary None
</TABLE>
(c) Not Applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by
Section 31 (a) of the Investment Company Act of 1940, as amended, and the rules
thereunder will be maintained at the offices of the Registrant, 800 Scudders
Mill Road, Plainsboro, New Jersey 08536, and Merrill Lynch Financial Data
Services, Inc., 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484.
ITEM 31. MANAGEMENT SERVICES
Other than as set forth under the caption "Management of the
Fund--Management and Advisory Arrangements" in the Prospectus constituting Part
A of the Registration Statement and under "Management of the Fund--Management
and Advisory Arrangements" in the Statement of Additional Information
constituting Part B of the Registration Statement, the Registrant is not a party
to any management-related service contract.
ITEM 32. UNDERTAKINGS
(a) The Registrant undertakes to file a post-effective amendment, using
financial statements which need not be certified, within four to six months from
the effective date of the Registrant's registration statement under the 1933
Act.
(b) The Fund, if requested to do so by the holders of at least 10% of the
Fund's outstanding shares, will call a meeting of shareholders for the purpose
of voting upon the question of removal of a director or directors and will
assist communications with other shareholders as required by Section 16(c) of
the 1940 Act.
C-7
<PAGE> 112
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE
INVESTMENT COMPANY ACT OF 1940, THE REGISTRANT HAS DULY CAUSED THIS AMENDMENT TO
ITS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE TOWNSHIP OF PLAINSBORO, AND STATE OF NEW
JERSEY, ON THE 14TH DAY OF NOVEMBER, 1997.
Merrill Lynch Real Estate Fund,
Inc.
(Registrant)
By: /s/ ARTHUR ZEIKEL
---------------------------------
(Arthur Zeikel, President)
Each person whose signature appears below hereby authorizes Arthur Zeikel,
Terry K. Glenn and Gerald M. Richard or any of them, as attorney-in-fact, to
sign on his behalf, individually and in each capacity stated below, any
amendments to the Registration Statement (including post-effective amendments)
and to file the same, with all exhibits thereto, with the Securities and
Exchange Commission.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ ARTHUR ZEIKEL President and Director November 14, 1997
- ------------------------------------------ (Principal Executive
(Arthur Zeikel) Officer)
/s/ GERALD M. RICHARD Treasurer (Principal November 14, 1997
- ------------------------------------------ Financial and Accounting
(Gerald M. Richard) Officer) and Director
/s/ JOE GRILLS Director November 14, 1997
- ------------------------------------------
(Joe Grills)
/s/ WALTER MINTZ Director November 14, 1997
- ------------------------------------------
(Walter Mintz)
/s/ MELVIN R. SEIDEN Director November 14, 1997
- ------------------------------------------
(Melvin R. Seiden)
/s/ ROBERT S. SALOMON, JR. Director November 14, 1997
- ------------------------------------------
(Robert S. Salomon, Jr.)
/s/ STEPHEN B. SWENSRUD Director November 14, 1997
- ------------------------------------------
(Stephen B. Swensrud)
</TABLE>
C-8
<PAGE> 113
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<S> <C> <C>
2 -- By-Laws of the Registrant
4(b) -- Form of Specimen Certificate for shares of Common Stock of the Registrant
5(a) -- Management Agreement between the Registrant and Merrill Lynch Asset
Management L.P. (the "Manager")
(b) -- Sub-Advisory Agreement between the Manager and Merrill Lynch Asset
Management U.K. Limited
6(a) -- Class A Shares Distribution Agreement between the Registrant and Merrill
Lynch Funds Distributor, Inc. (the "Distributor")
(b) -- Class B Shares Distribution Agreement between the Registrant and the
Distributor
(c) -- Class C Shares Distribution Agreement between the Registrant and the
Distributor
(d) -- Class D Shares Distribution Agreement between the Registrant and the
Distributor
8 -- Custody Agreement between the Registrant and The Bank of New York
9(a) -- Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing
Agency Agreement between the Registrant and Merrill Lynch Financial Data
Services, Inc.
(b) -- Agreement relating to use of name between the Registrant and Merrill Lynch
& Co., Inc.
10 -- Opinion of Brown & Wood LLP, counsel for the Registrant
11 -- Consent of Deloitte & Touche LLP, independent auditors for the Registrant
13 -- Certificate of the Manager
15(a) -- Class B Shares Distribution Plan and Class B Shares Distribution Plan
Sub-Agreement of the Registrant
(b) -- Class C Shares Distribution Plan and Class C Shares Distribution Plan Sub-
Agreement of the Registrant
(c) -- Class D Shares Distribution Plan and Class D Shares Distribution Plan Sub-
Agreement of the Registrant
17(a) -- Financial Data Schedule for Class A Shares
(b) -- Financial Data Schedule for Class B Shares
(c) -- Financial Data Schedule for Class C Shares
(d) -- Financial Data Schedule for Class D Shares
</TABLE>
<PAGE> 1
Exhibit 2
BY-LAWS
OF
MERRILL LYNCH REAL ESTATE FUND, INC.
ARTICLE I
OFFICES
Section 1. Principal Office. The principal office of Merrill Lynch Real
Estate Fund, Inc. (the "Corporation") shall be in the City of Baltimore, State
of Maryland.
Section 2. Principal Executive Office. The principal executive office
of the Corporation shall be at 800 Scudders Mill Road, Plainsboro, New Jersey
08536.
Section 3. Other Offices. The Corporation may have such other offices
in such places as the Board of Directors from time to time may determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Annual Meeting. The Corporation shall not be required to
hold an annual meeting of its stockholders in any year in which the election of
directors is not required to be acted upon under the Investment Company Act of
1940, as amended (the "Investment Company Act"). In the event that the
Corporation shall be required to hold an annual meeting of stockholders to elect
directors by the Investment Company Act, such meeting
<PAGE> 2
shall be held no later than 120 days after the occurrence of the event requiring
the meeting. Any stockholders' meeting held in accordance with this Section for
all purposes shall constitute the annual meeting of stockholders for the year in
which the meeting is held.
Section 2. Special Meetings. Special meetings of the stockholders,
unless otherwise provided by law, may be called for any purpose or purposes by a
majority of the Board of Directors, the President, or upon the written request
of the holders of at least a majority of the outstanding shares of capital stock
of the Corporation entitled to vote at such meeting if they comply with Section
2-502(b) of the Maryland General Corporation Law.
Section 3. Place of Meetings. Meetings of the stockholders shall be
held at such place within the United States as the Board of Directors from time
to time may determine.
Section 4. Notice of Meetings; Waiver of Notice. Notice of the place,
date and time of the holding of each stockholders' meeting and, if the meeting
is a special meeting, the purpose or purposes of the special meeting, shall be
given personally or by mail, not less than 10 nor more than 90 days before the
date of such meeting, to each stockholder entitled to vote at such meeting and
to each other stockholder entitled to notice of the meeting. Notice by mail
shall be deemed to be duly given when deposited in the United States mail
addressed to the stockholder at his or her address as it appears on the records
of the Corporation, with postage thereon prepaid.
Notice of any meeting of stockholders shall be deemed waived by any
stockholder who shall attend such meeting in person or by proxy, or who, either
before or after the meeting, shall submit a signed waiver of notice which is
filed with the records of the
2
<PAGE> 3
meeting. When a meeting is adjourned to another time and place, unless the Board
of Directors, after the adjournment, shall fix a new record date for an
adjourned meeting, or the adjournment is for more than 120 days after the
original record date, notice of such adjourned meeting need not be given if the
time and place to which the meeting shall be adjourned were announced at the
meeting at which the adjournment is taken.
Section 5. Quorum. The presence in person or by proxy of the holders of
shares entitled to cast one-third of the votes entitled to be cast shall
constitute a quorum at any meeting of stockholders, except with respect to any
matter which requires approval by a separate vote of one or more classes or
series of stock, in which case the presence in person or by proxy of the holders
of shares entitled to cast one-third of the votes entitled to be cast by each
class or series entitled to vote as a separate class or series shall constitute
a quorum. In the absence of a quorum no business may be transacted, except that
the holders of a majority of the shares of stock present in person or by proxy
and entitled to vote may adjourn the meeting from time to time, without notice
other than announcement thereat except as otherwise required by these By-Laws,
until the holders of the requisite amount of shares of stock shall be so
present. At any such adjourned meeting at which a quorum may be present any
business may be transacted which might have been transacted at the meeting as
originally called. The absence from any meeting, in person or by proxy, of
holders of the number of shares of stock of the Corporation in excess of a
majority thereof which may be required by the laws of the State of Maryland, the
Investment Company Act, or other applicable statute, the Articles of
Incorporation, or these By-Laws, for action upon any given
3
<PAGE> 4
matter shall not prevent action at such meeting upon any other matter or matters
which properly may come before the meeting, if there shall be present thereat,
in person or by proxy, holders of the number of shares of stock of the
Corporation required for action in respect of such other matter or matters.
Section 6. Organization. At each meeting of the stockholders, the
Chairman of the Board (if one has been designated by the Board), or in his or
her absence or inability to act, the President, or in the absence or inability
to act of the Chairman of the Board and the President, a Vice President, shall
act as chairman of the meeting. The Secretary, or in his or her absence or
inability to act, any person appointed by the chairman of the meeting, shall act
as secretary of the meeting and keep the minutes thereof.
Section 7. Order of Business. The order of business at all meetings of
the stockholders shall be as determined by the chairman of the meeting.
Section 8. Voting. Except as otherwise provided by statute or by the
Articles of Incorporation, each holder of record of shares of stock of the
Corporation having voting power shall be entitled at each meeting of the
stockholders to one vote for every share of such stock standing in his or her
name on the record of stockholders of the Corporation as of the record date
determined pursuant to Section 9 of this Article or if such record date shall
not have been so fixed, then at the later of (i) the close of business on the
day on which notice of the meeting is mailed or (ii) the thirtieth day before
the meeting.
Each stockholder entitled to vote at any meeting of stockholders may
authorize another person or persons to act for him or her by a proxy signed by
such stockholder or his
4
<PAGE> 5
or her attorney-in-fact. No proxy shall be valid after the expiration of eleven
months from the date thereof, unless otherwise provided in the proxy. Every
proxy shall be revocable at the pleasure of the stockholder executing it, except
in those cases where such proxy states that it is irrevocable and where an
irrevocable proxy is permitted by law. Except as otherwise provided by statute,
the Articles of Incorporation or these By-Laws, any corporate action to be taken
by vote of the stockholders (other than the election of directors, which shall
be by plurality vote) may be authorized by a majority of the total votes cast at
a meeting of stockholders by the holders of shares present in person or
represented by proxy and entitled to vote on such action.
If a vote shall be taken on any question other than the election of
directors, which shall be by written ballot, then unless required by statute or
by these By-Laws, or determined by the chairman of the meeting to be advisable,
any such vote need not be by ballot. On a vote by ballot, each ballot shall be
signed by the stockholder voting, or by his or her proxy, if there be such
proxy, and shall state the number of shares voted.
Section 9. Fixing of Record Date. The Board of Directors may set a
record date for the purpose of determining stockholders entitled to vote at any
meeting of the stockholders. The record date, which may not be prior to the
close of business on the day the record date is fixed, shall be not more than 90
days nor less than 10 days before the date of the meeting of the stockholders.
All persons who were holders of record of shares at such time, and not others,
shall be entitled to vote at such meeting and any adjournment thereof.
5
<PAGE> 6
Section 10. Inspectors. The Board, in advance of any meeting of
stockholders, may appoint one or more inspectors to act at such meeting or any
adjournment thereof. If the inspectors shall not be so appointed or if any of
them shall fail to appear or act, the chairman of the meeting may appoint
inspectors. Each inspector, before entering upon the discharge of his or her
duties, may be required to take and sign an oath to execute faithfully the
duties of inspector at such meeting with strict impartiality and according to
the best of his or her ability. The inspectors may be empowered to determine the
number of shares outstanding and the voting powers of each, the number of shares
represented at the meeting, the existence of a quorum, the validity and effect
of proxies, and shall receive votes, ballots or consents, hear and determine all
challenges and questions arising in connection with the right to vote, count and
tabulate all votes, ballots or consents, determine the result, and do such acts
as are proper to conduct the election or vote with fairness to all stockholders.
On request of the chairman of the meeting or any stockholder entitled to vote
thereat, the inspectors shall make a report in writing of any challenge, request
or matter determined by them and shall execute a certificate of any fact found
by them. No director or candidate for the office of director shall act as
inspector of an election of directors. Inspectors need not be stockholders.
Section 11. Consent of Stockholders in Lieu of Meeting. Except as
otherwise provided by statute or by the Articles of Incorporation, any action
required to be taken at any meeting of stockholders, or any action which may be
taken at any meeting of such stockholders, may be taken without a meeting,
without prior notice and without a vote, if the
6
<PAGE> 7
following are filed with the records of stockholders meetings: (i) a unanimous
written consent which sets forth the action and is signed by each stockholder
entitled to vote on the matter and (ii) a written waiver of any right to dissent
signed by each stockholder entitled to notice of the meeting but not entitled to
vote thereat.
ARTICLE III
BOARD OF DIRECTORS
Section 1. General Powers. Except as otherwise provided in the Articles
of Incorporation, the business and affairs of the Corporation shall be managed
under the direction of the Board of Directors. All powers of the Corporation may
be exercised by or under authority of the Board of Directors except as conferred
on or reserved to the stockholders by law or by the Articles of Incorporation or
these By-Laws.
Section 2. Number of Directors. The number of directors shall be fixed
from time to time by resolution of the Board of Directors adopted by a majority
of the entire Board of Directors; provided, however, that in no event shall the
number of directors be less than the minimum permitted by the General Law of the
State of Maryland nor more than fifteen. Any vacancy created by an increase in
Directors may be filled in accordance with Section 6 of this Article III. No
reduction in the number of directors shall have the effect of removing any
director from office prior to the expiration of his or her term unless such
director is specifically removed pursuant to Section 5 of this Article III at
the time of such decrease. Directors need not be stockholders.
7
<PAGE> 8
Section 3. Election and Term of Directors. Directors shall be elected
annually at a meeting of stockholders held for that purpose; provided, however,
that if no meeting of the stockholders of the Corporation is required to be held
in a particular year pursuant to Section 1 of Article II of these By-Laws,
directors shall be elected at the next meeting held. The term of office of each
director shall be from the time of his or her election and qualification until
the election of directors next succeeding his or her election and until his or
her successor shall have been elected and shall have qualified, or until his or
her death, or until he or she shall have resigned or until December 31 of the
year in which he or she shall have reached 72 years of age, or until he or she
shall have been removed as hereinafter provided in these By-Laws, or as
otherwise provided by statute or by the Charter.
Section 4. Resignation. A director of the Corporation may resign at any
time by giving written notice of his or her resignation to the Board or the
Chairman of the Board or the President or the Secretary. Any such resignation
shall take effect at the time specified therein or, if the time when it shall
become effective shall not be specified therein, immediately upon its receipt;
and, unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
Section 5. Removal of Directors. Any director of the Corporation may be
removed (with or without cause) by the stockholders by a vote of a majority of
the votes entitled to be cast for the election of directors.
Section 6. Vacancies. Any vacancies in the Board, whether arising from
death, resignation, removal, an increase in the number of directors or any other
cause, may be
8
<PAGE> 9
filled by a vote of the majority of the Board of Directors then in office even
though such majority is less than a quorum, provided that no vacancies shall be
filled by action of the remaining directors, if after the filling of said
vacancy or vacancies, less than two-thirds of the directors then holding office
shall have been elected by the stockholders of the Corporation. In the event
that at any time there is a vacancy in any office of a director which vacancy
may not be filled by the remaining directors, a special meeting of the
stockholders shall be held as promptly as possible and in any event within 60
days, for the purpose of filling said vacancy or vacancies.
Section 7. Place of Meetings. Meetings of the Board may be held at such
place as the Board from time to time may determine or as shall be specified in
the notice of such meeting.
Section 8. Regular Meetings. Regular meetings of the Board may be held
without notice at such time and place as may be determined by the Board of
Directors.
Section 9. Special Meetings. Special meetings of the Board may be
called by two or more directors of the Corporation or by the Chairman of the
Board or the President.
Section 10. Telephone Meetings. Members of the Board of Directors or of
any committee thereof may participate in a meeting by means of a conference
telephone or similar communications equipment if all persons participating in
the meeting can hear each other at the same time. Subject to the provisions of
the Investment Company Act participation in a meeting by these means constitutes
presence in person at the meeting.
9
<PAGE> 10
Section 11. Notice of Special Meetings. Notice of each special meeting
of the Board shall be given by the Secretary as hereinafter provided, in which
notice shall be stated the time and place of the meeting. Notice of each such
meeting shall be delivered to each director, either personally or by telephone
or any standard form of telecommunication, at least 24 hours before the time at
which such meeting is to be held, or by first-class mail, postage prepaid,
addressed to him or her at his or her residence or usual place of business, at
least three days before the day on which such meeting is to be held.
Section 12. Waiver of Notice of Meetings. Notice of any special meeting
need not be given to any director who, either before or after the meeting, shall
sign a written waiver of notice which is filed with the records of the meeting
or who shall attend such meeting. Except as otherwise specifically required by
these By-Laws, a notice or waiver or notice of any meeting need not state the
purposes of such meeting.
Section 13. Quorum and Voting. One-third, but not less than two (unless
there is only one Director), of the members of the entire Board shall be present
in person at any meeting of the Board in order to constitute a quorum for the
transaction of business at such meeting, and except as otherwise expressly
required by statute, the Articles of Incorporation, these By-Laws, the
Investment Company Act, or other applicable statute, the act of a majority of
the directors present at any meeting at which a quorum is present shall be the
act of the Board. In the absence of a quorum at any meeting of the Board, a
majority of the directors present thereat may adjourn such meeting to another
time and place until a quorum shall be present thereat. Notice of the time and
place of any such adjourned meeting shall be
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<PAGE> 11
given to the directors who were not present at the time of the adjournment and,
unless such time and place were announced at the meeting at which the
adjournment was taken, to the other directors. At any adjourned meeting at which
a quorum is present, any business may be transacted which might have been
transacted at the meeting as originally called.
Section 14. Organization. The Board, by resolution adopted by a
majority of the entire Board, may designate a Chairman of the Board, who shall
preside at each meeting of the Board. In the absence or inability of the
Chairman of the Board to preside at a meeting, the President or, in his or her
absence or inability to act, another director chosen by a majority of the
directors present, shall act as chairman of the meeting and preside thereat. The
Secretary (or, in his or her absence or inability to act, any person appointed
by the Chairman) shall act as secretary of the meeting and keep the minutes
thereof.
Section 15. Written Consent of Directors in Lieu of a Meeting. Subject
to the provisions of the Investment Company Act, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writings or
writing are filed with the minutes of the proceedings of the Board or committee.
Section 16. Compensation. Directors may receive compensation for
services to the Corporation in their capacities as directors or otherwise in
such manner and in such amounts as may be fixed from time to time by the Board.
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Section 17. Investment Policies. It shall be the duty of the Board of
Directors to direct that the purchase, sale, retention and disposal of portfolio
securities and the other investment practices of the Corporation at all times
are consistent with the investment policies and restrictions with respect to
securities investments and otherwise of the Corporation, as recited in the
Prospectus of the Corporation included in the Registration Statement of the
Corporation, as recited in the current Prospectus and Statement of Additional
Information of the Corporation, as filed from time to time with the Securities
and Exchange Commission, and as required by the Investment Company Act. The
Board however, may delegate the duty of management of the assets and the
administration of its day-to-day operations to an individual or corporate
management company and/or investment adviser pursuant to a written contract or
contracts which have obtained the requisite approvals, including the requisite
approvals of renewals thereof, of the Board of Directors and/or the stockholders
of the Corporation in accordance with the provisions of the Investment Company
Act.
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ARTICLE IV
COMMITTEES
Section 1. Executive Committee. The Board, by resolution adopted by a
majority of the entire board, may designate an Executive Committee consisting of
two or more of the directors of the corporation, which committee shall have and
may exercise all of the powers and authority of the Board with respect to all
matters other than:
(a) the submission to stockholders of any action requiring
authorization of stockholders pursuant to statute or the Articles of
Incorporation;
(b) the filling of vacancies on the Board of Directors;
(c) the fixing of compensation of the directors for serving on the
Board or on any committee of the Board, including the Executive Committee;
(d) the approval or termination of any contract with an investment
adviser or principal underwriter, as such terms are defined in the Investment
Company Act, or the taking of any other action required to be taken by the Board
of Directors by the Investment Company Act;
(e) the amendment or repeal of these By-Laws or the adoption of new
By-Laws;
(f) the amendment or repeal of any resolution of the Board which by its
terms may be amended or repealed only by the Board;
(g) the declaration of dividends and the issuance of capital stock of
the Corporation; and
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(h) the approval of any merger or share exchange which does not require
stockholder approval.
The Executive Committee shall keep written minutes of its proceedings
and shall report such minutes to the Board. All such proceedings shall be
subject to revision or alteration by the Board; provided, however, that third
parties shall not be prejudiced by such revision or alteration.
Section 2. Other Committees of the Board. The Board of Directors from
time to time, by resolution adopted by a majority of the whole Board, may
designate one or more other committees of the Board, each such committee to
consist of one or more directors and to have such powers and duties as the Board
of Directors, by resolution, may prescribe.
Section 3. General. One-third of the members of any committee shall be
present in person at any meeting of such committee in order to constitute a
quorum for the transaction of business at such meeting, and the act of a
majority present shall be the act of such committee. The Board may designate a
chairman of any committee and such chairman or any two members of any committee
may fix the time and place of its meetings unless the Board shall otherwise
provide. In the absence or disqualification of any member of any committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or she or they constitute a quorum, unanimously may
appoint another member of the Board of Directors to act at the meeting in the
place of any such absent or disqualified member. The Board shall have the power
at any time to change the membership of any committee, to fill all vacancies, to
designate alternate members to replace
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any absent or disqualified member, or to dissolve any such committee. Nothing
herein shall be deemed to prevent the Board from appointing one or more
committees consisting in whole or in part of persons who are not directors of
the Corporation; provided, however, that no such committee shall have or may
exercise any authority or power of the Board in the management of the business
or affairs of the Corporation except as may be prescribed by the Board.
ARTICLE V
OFFICERS, AGENTS AND EMPLOYEES
Section 1. Number and Qualifications. The officers of the Corporation
shall be a President, a Secretary and a Treasurer, each of whom shall be elected
by the Board of Directors. The Board of Directors may elect or appoint one or
more Vice Presidents and also may appoint such other officers, agents and
employees as it may deem necessary or proper. Any two or more offices may be
held by the same person, except the offices of President and Vice President, but
no officer shall execute, acknowledge or verify any instrument in more than one
capacity. Such officers shall be elected by the Board of Directors each year at
a meeting of the Board of Directors, each to hold office for the ensuing year
and until his or her successor shall have been duly elected and shall have
qualified, or until his or her death, or until he or she shall have resigned, or
have been removed, as hereinafter provided in these By-Laws. The Board from time
to time may elect such officers (including one or more Assistant Vice
Presidents, one or more Assistant Treasurers and one or more
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<PAGE> 16
Assistant Secretaries) and such agents, as may be necessary or desirable for the
business of the Corporation. The President also shall have the power to appoint
such assistant officers (including one or more Assistant Vice Presidents, one or
more Assistant Treasurers and one or more Assistant Secretaries) as may be
necessary or appropriate to facilitate the management of the Corporation's
affairs. Such officers and agents shall have such duties and shall hold their
offices for such terms as may be prescribed by the Board or by the appointing
authority.
Section 2. Resignations. Any officer of the Corporation may resign at
any time by giving written notice of resignation to the Board, the Chairman of
the Board, President or the Secretary. Any such resignation shall take effect at
the time specified therein or, if the time when it shall become effective shall
not be specified therein, immediately upon its receipt; and, unless otherwise
specified therein, the acceptance of such resignation shall be necessary to make
it effective.
Section 3. Removal of Officer, Agent or Employee. Any officer, agent or
employee of the Corporation may be removed by the Board of Directors with or
without cause at any time, and the Board may delegate such power of removal as
to agents and employees not elected or appointed by the Board of Directors. Such
removal shall be without prejudice to such person's contract rights, if any, but
the appointment of any person as an officer, agent or employee of the
Corporation shall not of itself create contract rights.
Section 4. Vacancies. A vacancy in any office, whether arising from
death, resignation, removal or any other cause, may be filled for the unexpired
portion of the term
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of the office which shall be vacant, in the manner prescribed in these By-Laws
for the regular election or appointment to such office.
Section 5. Compensation. The compensation of the officers of the
Corporation shall be fixed by the Board of Directors, but this power may be
delegated to any officer in respect of other officers under his or her control.
Section 6. Bonds or Other Security. If required by the Board, any
officer, agent or employee of the Corporation shall give a bond or other
security for the faithful performance of his or her duties, in such amount and
with such surety or sureties as the Board may require.
Section 7. President. The President shall be the chief executive
officer of the Corporation. In the absence of the Chairman of the Board (or if
there be none), he or she shall preside at all meetings of the stockholders and
of the Board Directors. He or she shall have, subject to the control of the
Board of Directors, general charge of the business and affairs of the
Corporation. He or she may employ and discharge employees and agents of the
Corporation, except such as shall be appointed by the Board, and he or she may
delegate these powers.
Section 8. Vice President. Each Vice President shall have such powers
and perform such duties as the Board of Directors or the President from time to
time may prescribe.
Section 9. Treasurer. The Treasurer shall:
(a) have charge and custody of, and be responsible for, all of the
funds and securities of the Corporation, except those which the Corporation has
placed in the custody of a bank
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or trust company or member of a national securities exchange (as that term is
defined in the Securities Exchange Act of 1934, as amended) pursuant to a
written agreement designating such bank or trust company or member of a national
securities exchange as custodian of the property of the Corporation;
(b) keep full and accurate accounts of receipts and disbursements in
books belonging to the Corporation;
(c) cause all moneys and other valuables to be deposited to the credit
of the Corporation;
(d) receive, and give receipts for, moneys due and payable, to the
Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and supervise the investment
of its funds as ordered or authorized by the Board, taking proper vouchers
therefor; and
(f) in general, perform all of the duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him or
her by the Board or the President.
Section 10. Secretary. The Secretary shall:
(a) keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Board, the committees of the Board
and the stockholders;
(b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by law;
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(c) be custodian of the records and the seal of the Corporation and
affix and attest the seal to all stock certificates of the Corporation (unless
the seal of the Corporation on such certificates shall be a facsimile, as
hereinafter provided) and affix and attest the seal to all other documents to be
executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed are properly kept and
filed; and
(e) in general, perform all of the duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him or
her by the Board or the President.
Section 11. Delegation of Duties. In case of the absence of any officer
of the Corporation, or for any other reason that the Board may deem sufficient,
the Board may confer for the time being the powers or duties, or any of them, of
such officer upon any other officer or upon any director.
ARTICLE VI
INDEMNIFICATION
Section 1. General Indemnification. Each officer and director of the
Corporation shall be indemnified by the Corporation to the full extent permitted
under the Maryland General Corporation Law, except that such indemnity shall not
protect any such person against any liability to the Corporation or any
stockholder thereof to which such person would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or
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reckless disregard of the duties involved in the conduct of his or her office.
Absent a court determination that an officer or director seeking indemnification
was not liable on the merits or guilty of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her office, the decision by the Corporation to indemnify such person must be
based upon the reasonable determination of independent legal counsel or the vote
of a majority of a quorum of the directors who are neither "interested persons,"
as defined in Section 2(a)(19) of the Investment Company Act, nor parties to the
proceeding ("non-party independent directors"), after review of the facts, that
such officer or director is not guilty of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her office.
Each officer and director of the Corporation claiming indemnification
within the scope of this Article VI shall be entitled to advances from the
Corporation for payment of the reasonable expenses incurred by him or her in
connection with proceedings to which he or she is a party in the manner and to
the full extent permitted under the Maryland General Corporation Law without a
preliminary determination as to his or her ultimate entitlement to
indemnification (except as set forth below); provided, however, that the person
seeking indemnification shall provide to the Corporation a written affirmation
of his or her good faith belief that the standard of conduct necessary for
indemnification by the Corporation has been met and a written undertaking to
repay any such advance, if it should ultimately be determined that the standard
of conduct has not been met, and provided further that at least one of the
following additional conditions is met: (a) the person seeking indemnification
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shall provide a security in form and amount acceptable to the Corporation for
his or her undertaking; (b) the Corporation is insured against losses arising by
reason of the advance; (c) a majority of a quorum of non-party independent
directors, or independent legal counsel in a written opinion, shall determine,
based on a review of facts readily available to the Corporation at the time the
advance is proposed to be made, that there is reason to believe that the person
seeking indemnification will ultimately be found to be entitled to
indemnification.
The Corporation may purchase insurance on behalf of an officer or
director protecting such person to the full extent permitted under the General
Laws of the State of Maryland, from liability arising from his or her activities
as officer or director of the Corporation. The Corporation, however, may not
purchase insurance on behalf of any officer or director of the Corporation that
protects or purports to protect such person from liability to the Corporation or
to its stockholders to which such officer or director would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her office.
The Corporation may indemnify, make advances or purchase insurance to
the extent provided in this Article VI on behalf of an employee or agent who is
not an officer or director of the Corporation.
Section 2. Other Rights. The indemnification provided by this Article
VI shall not be deemed exclusive of any other right, in respect of
indemnification or otherwise, to which those seeking such indemnification may be
entitled under any insurance or other agreement,
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vote of stockholders or disinterested directors or otherwise, both as to action
by a director or officer of the Corporation in his or her official capacity and
as to action by such person in another capacity while holding such office or
position, and shall continue as to a person who has ceased to be a director or
officer and shall inure to the benefit of the heirs, executors and
administrators of such person.
ARTICLE VII
CAPITAL STOCK
Section 1. Stock Certificates. Each holder of stock of the Corporation
shall be entitled upon request to have a certificate or certificates, in such
form as shall be approved by the Board, representing the number of shares of
stock of the Corporation owned by him or her, provided, however, that
certificates for fractional shares will not be delivered in any case. The
certificates representing shares of stock shall be signed by or in the name of
the Corporation by the Chairman, President or a Vice President and by the
Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer
and sealed with the seal of the Corporation. Any or all of the signatures or the
seal on the certificate may be a facsimile. In case any officer, transfer agent
or registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate shall be issued, it may be issued by the Corporation
with the same effect as if such officer, transfer agent or registrar were still
in office at the date of issue.
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Section 2. Books of Account and Record of Stockholders. There shall be
kept at the principal executive office of the Corporation correct and complete
books and records of account of all of the business and transactions of the
Corporation.
Section 3. Transfers of Shares. Transfers of shares of stock of the
Corporation shall be made on the stock records of the Corporation only by the
registered holder thereof, or by his or her attorney thereunto authorized by
power of attorney duly executed and filed with the Secretary or with a transfer
agent or transfer clerk, and on surrender of the certificate or certificates, if
issued, for such shares properly endorsed or accompanied by a duly executed
stock transfer power and the payment of all taxes thereon. Except as otherwise
provided by law, the Corporation shall be entitled to recognize the exclusive
right of a person in whose name any share or shares stand on the record of
stockholders as the owner of such share or shares for all purposes, including,
without limitation, the rights to receive dividends or other distributions, and
to vote as such owner, and the Corporation shall not be bound to recognize any
equitable or legal claim to or interest in any such share or shares on the part
of any other person.
Section 4. Regulations. The Board may make such additional rules and
regulations, not inconsistent with these By-Laws, as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
stock of the Corporation. It may appoint, or authorize any officer or officers
to appoint, one or more transfer agents or one or more transfer clerks and one
or more registrars and may require all certificates for shares of stock to bear
the signature or signatures of any of them.
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Section 5. Lost, Destroyed or Mutilated Certificates. The holder of any
certificates representing shares of stock of the Corporation shall immediately
notify the Corporation of any loss, destruction or mutilation of such
certificate, and the Corporation may issue a new certificate of stock in the
place of any certificate theretofore issued by it which the owner thereof shall
allege to have been lost or destroyed or which shall have been mutilated, and
the Board, in its discretion, may require such owner or his or her legal
representatives to give to the Corporation a bond in such sum, limited or
unlimited, and in such form and with such surety or sureties, as the Board in
its absolute discretion shall determine, to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss or
destruction of any such certificate, or issuance of a new certificate. Anything
herein to the contrary notwithstanding, the Board, in its absolute discretion,
may refuse to issue any such new certificate, except pursuant to legal
proceedings under the laws of the State of Maryland.
Section 6. Fixing of a Record Date for Dividends and Distributions. The
Board may fix, in advance, a date not more than 90 days preceding the date fixed
for the payment of any dividend or the making of any distribution or the
allotment of rights to subscribe for securities of the Corporation, or for the
delivery of evidences of rights or evidences of interests arising out of any
change, conversion or exchange of common stock or other securities, as the
record date for the determination of the stockholders entitled to receive any
such dividend, distribution, allotment, rights or interests, and in such case
only the
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stockholders of record at the time so fixed shall be entitled to receive such
dividend, distribution, allotment, rights or interests.
Section 7. Information to Stockholders and Others. Any stockholder of
the Corporation or his or her agent may inspect and copy during usual business
hours the Corporation's By-Laws, minutes of the proceedings of its stockholders,
annual statements of its affairs, and voting trust agreements on file at its
principal office.
ARTICLE VIII
SEAL
The seal of the Corporation shall be circular in form and shall bear,
in addition to any other emblem or device approved by the Board of Directors,
the name of the Corporation, the year of its incorporation and the words
"Corporate Seal" and "Maryland." Said seal may be used by causing it or a
facsimile thereof to be impressed or affixed or in any other manner reproduced.
ARTICLE IX
FISCAL YEAR
Unless otherwise determined by the Board, the fiscal year of the
Corporation shall end on the 30th day of November.
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ARTICLE X
DEPOSITORIES AND CUSTODIANS
Section 1. Depositories. The funds of the Corporation shall be
deposited with such banks or other depositories as the Board of Directors of the
Corporation from time to time may determine.
Section 2. Custodians. All securities and other investments shall be
deposited in the safekeeping of such banks or other companies as the Board of
Directors of the Corporation may from time to time determine. Every arrangement
entered into with any bank or other company for the safekeeping of the
securities and investments of the Corporation shall contain provisions complying
with the Investment Company Act, and the general rules and regulations
thereunder.
ARTICLE XI
EXECUTION OF INSTRUMENTS
Section 1. Checks, Notes, Drafts, etc. Checks, notes, drafts,
acceptances, bills of exchange and other orders or obligations for the payment
of money shall be signed by such officer or officers or person or persons as the
Board of Directors from time to time shall designate by resolution.
Section 2. Sale or Transfer of Securities. Stock certificates, bonds or
other securities at any time owned by the Corporation may be held on behalf of
the Corporation or sold, transferred or otherwise disposed of subject to any
limits imposed by these By-Laws and
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pursuant to authorization by the Board and, when so authorized to be held on
behalf of the Corporation or sold, transferred or otherwise disposed of, may be
transferred from the name of the Corporation by the signature of the President
or a Vice President or the Treasurer or pursuant to any procedure approved by
the Board of Directors, subject to applicable law.
ARTICLE XII
INDEPENDENT PUBLIC ACCOUNTANTS
The firm of independent public accountants which shall sign or certify
the financial statements of the Corporation which are filed with the Securities
and Exchange Commission shall be selected annually by the Board of Directors
and, if required by the provisions of the Investment Company Act, ratified by
the stockholders.
ARTICLE XIII
ANNUAL STATEMENT
The books of account of the Corporation shall be examined by an
independent firm of public accountants at the close of each annual period of the
Corporation and at such other times as may be directed by the Board. A report to
the stockholders based upon each such examination shall be mailed to each
stockholder of the Corporation of record on such date with respect to each
report as may be determined by the Board, at his or her address as the same
appears on the books of the Corporation. Such annual statement shall also be
available at any annual meeting of stockholders and shall be placed on file at
the Corporation's
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principal office in the State of Maryland, and if no annual meeting is held
pursuant to Article II, Section 1, such annual statement of affairs shall be
placed on file at the Corporation's principal office within 120 days after the
end of the Corporation's fiscal year. Each such report shall show the assets and
liabilities of the Corporation as of the close of the annual or quarterly period
covered by the report and the securities in which the funds of the Corporation
were then invested. Such report also shall show the Corporation's income and
expenses for the period from the end of the Corporation's preceding fiscal year
to the close of the annual or quarterly period covered by the report and any
other information required by the Investment Company Act, and shall set forth
such other matters as the Board or such firm of independent public accountants
shall determine.
ARTICLE XIV
AMENDMENTS
These By-Laws or any of them may be amended, altered or repealed by the
affirmative vote of a majority of the Board of Directors. The stockholders shall
have no power to make, amend, alter or repeal By-Laws.
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EXHIBIT 4(b)
NUMBER SHARES
MERRILL LYNCH REAL ESTATE FUND, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
CLASS _ COMMON STOCK
THIS CERTIFIES THAT CUSIP
SEE REVERSE FOR CERTAIN
DEFINITIONS
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES, PAR VALUE TEN CENTS ($0.10)
PER SHARE, OF CLASS _ COMMON STOCK OF
MERRILL LYNCH REAL ESTATE FUND, INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this Certificate properly
endorsed.
This Certificate and the shares represented hereby are issued and shall
be subject to all of the provisions of the Articles of Incorporation and of the
By-Laws of the Corporation, and of all of the amendments from time to time made
thereto.
This Certificate is not valid unless countersigned by the Transfer
Agent.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
/s/ Arthur Zeikel /s/ Philip M. Mandel
President Secretary
Countersigned:
MERRILL LYNCH FINANCIAL DATA SERVICES, INC.
Transfer Agent
By:
Authorized Signature
<PAGE> 2
MERRILL LYNCH REAL ESTATE FUND, INC.
The Corporation has the authority to issue stock of more than one class.
A full statement of the designations and any preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends, qualifications
and terms and conditions of redemption of the shares of each class of stock
which the Corporation is authorized to issue and the differences in the relative
rights and preferences between the shares of each class to the extent that they
have been set, and the authority of the Board of Directors to set the relative
rights and preferences of subsequent classes, will be furnished by the
Corporation to any stockholder, without charge, upon request to the Secretary of
the Corporation.
The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM--as tenants in common UNIF GIFT MIN ACT--
_______Custodian_______
(Cust) (Minor)
TEN ENT--as tenants by the entireties under Uniform Gifts to
Minors Act _________
(State)
JT TEN --as joint tenants with right
of survivorship and not as
tenants in common
Additional abbreviations may also be used though not in the above list.
For value received,................. hereby sell, assign and transfer
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- -------------------------------------------
| |
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
Please print or typewrite name and address including zip code of assignee
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
__________________________________________________________________Shares
represented by the within Certificate, and do hereby irrevocably
constitute and appoint___________________________________________________
- -------------------------------------------------------------------------
<PAGE> 3
Attorney to transfer the said shares on the books of the within-named
Corporation with full power of substitution in the premises.
Dated,___________________
---------------------------------------------
NOTICE:The signature to this assignment must correspond with the
name as written upon the face of the Certificate, in every
particular, without alteration or enlargement, or any
change whatever.
-------------------------------------------------------------
| Signatures must be guaranteed by an "eligible guarantor |
| institution" as such term is defined in Rule 17Ad-15 |
| under the Securities Exchange Act of 1934. |
-------------------------------------------------------------
<PAGE> 1
Exhibit 5(a)
MANAGEMENT AGREEMENT
AGREEMENT made this ___ day of _________, 1997, by and between MERRILL
LYNCH REAL ESTATE FUND, INC., a Maryland corporation (hereinafter referred to as
the "Fund"), and MERRILL LYNCH ASSET MANAGEMENT, L.P., a Delaware limited
partnership (hereinafter referred to as the "Manager").
W I T N E S S E T H:
WHEREAS, the Fund is engaged in business as an open-end investment
company registered under the Investment Company Act of 1940, as amended
(hereinafter referred to as the "Investment Company Act"); and
WHEREAS, the Manager is engaged principally in rendering management and
investment advisory services and is registered as an investment adviser under
the Investment Advisers Act of 1940; and
WHEREAS, the Fund desires to retain the Manager to render management
and investment advisory services to the Fund in the manner and on the terms
hereinafter set forth; and
WHEREAS, the Manager is willing to provide management and investment
advisory services to the Fund on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the promises and the covenants
hereinafter contained, the Fund and the Manager hereby agree as follows:
<PAGE> 2
ARTICLE I
Duties of the Manager
The Fund hereby employs the Manager to act as a manager and investment
adviser of the Fund and to furnish or arrange for affiliates to furnish, the
management and investment advisory services described below, subject to policies
of, review by and overall control of the Board of Directors of the Fund (the
"Directors"), for the period and on the terms and conditions set forth in this
Agreement. The Manager hereby accepts such employment and agrees during such
period, at its own expense, to render, or arrange for the rendering of, such
services and to assume the obligations herein set forth for the compensation
provided for herein. The Manager and its affiliates shall for all purposes
herein be deemed to be an independent contractor and shall, unless otherwise
expressly provided or authorized, have no authority to act for or represent the
Fund in any way or otherwise be deemed an agent of the Fund.
(a) Management and Administrative Services. The Manager shall perform
(or arrange for the performance by affiliates of) the management and
administrative services necessary for the operation of the Fund including
administering shareholder accounts and handling shareholder relations. The
Manager shall provide the Fund with office space, equipment and facilities and
such other services as the Manager, subject to review by the Directors, shall
from time to time determine to be necessary or useful to perform its obligations
under this Agreement. The
2
<PAGE> 3
Manager shall also, on behalf of the Fund, conduct relations with custodians,
depositories, transfer agents, dividend disbursing agents, other shareholder
service agents, accountants, attorneys, underwriters, brokers and dealers,
corporate fiduciaries, insurers, banks and such other persons in any such other
capacity deemed to be necessary or desirable. The Manager shall generally
monitor the Fund's compliance with investment policies and restrictions as set
forth in the currently effective prospectus and statement of additional
information relating to the shares of the Fund under the Securities Act of 1933,
as amended (the "Prospectus" and "Statement of Additional Information",
respectively). The Manager shall make reports to the Directors of its
performance of obligations hereunder and furnish advice and recommendations with
respect to such other aspects of the business and affairs of the Fund as it
shall determine to be desirable.
(b) Investment Advisory Services. The Manager shall provide (or arrange
for affiliates to provide) the Fund with such investment research, advice and
supervision as the latter may from time to time consider necessary for the
proper supervision of the assets of the Fund, shall furnish continuously an
investment program for the Fund and shall determine from time to time which
securities shall be purchased, sold or exchanged and what portion of the assets
of the Fund shall be held in the various securities in which the Fund invests,
options, futures, options on futures or cash, subject always to the restrictions
3
<PAGE> 4
set forth in the Articles of Incorporation and By-Laws of the Fund, as amended
from time to time, the provisions of the Investment Company Act and the
statements relating to the Fund's investment objectives, investment policies and
investment restrictions as the same are set forth in the Prospectus and
Statement of Additional Information. The Manager shall also make decisions for
the Fund as to the manner in which voting rights, rights to consent to corporate
action and any other rights pertaining to the Fund's portfolio securities shall
be exercised. Should the Directors at any time, however, make any definite
determination as to investment policy and notify the Manager thereof in writing,
the Manager shall be bound by such determination for the period, if any,
specified in such notice or until similarly notified that such determination has
been revoked. The Manager shall take, on behalf of the Fund, all actions which
it deems necessary to implement the investment policies determined as provided
above, and in particular to place all orders for the purchase or sale of
portfolio securities for the Fund's account with brokers or dealers selected by
it, and to that end, the Manager is authorized as the agent of the Fund to give
instructions to the Custodian of the Fund as to deliveries of securities and
payments of cash for the account of the Fund. In connection with the selection
of such brokers or dealers and the placing of such orders with respect to assets
of the Fund, the Manager is directed at all times to seek to obtain execution
and price within the policy guidelines determined by the
4
<PAGE> 5
Directors as set forth in the Prospectus and Statement of Additional
Information. Subject to this requirement and the provisions of the Investment
Company Act, the Securities Exchange Act of 1934, as amended, and other
applicable provisions of law, the Manager may select brokers or dealers with
which it or the Fund is affiliated.
(c) Notice Upon Change in Partners of Manager. The Manager is a limited
partnership and its limited partner is Merrill Lynch & Co., Inc. and its general
partner is Princeton Services, Inc. The Manager will notify the Fund of any
change in the membership of the partnership within a reasonable time after such
change.
ARTICLE II
Allocation of Charges and Expenses
(a) The Manager. The Manager assumes and shall pay for maintaining the
staff and personnel necessary to perform its obligations under this Agreement,
and shall at its own expense, provide the office space, equipment and facilities
which it is obligated to provide under Article I hereof, and shall pay all
compensation of officers of the Fund and all Directors who are affiliated
persons of the Manager.
(b) The Fund. The Fund assumes and shall pay or cause to be paid all
other expenses of the Fund (except for the expenses paid by the Distributor),
including, without limitation: redemption expenses, expenses of portfolio
transactions, expenses of registering shares under federal and state securities
laws, pricing costs (including the daily calculation of net asset
5
<PAGE> 6
value), expenses of printing shareholder reports, stock certificates,
prospectuses and statements of additional information, Securities and Exchange
Commission fees, interest, taxes, custodian and transfer agency fees, fees and
actual out-of-pocket expenses of Directors who are not affiliated persons of the
Manager, fees for legal and auditing services, litigation expenses, costs of
printing proxies and other expenses related to shareholder meetings, and other
expenses properly payable by the Fund. It is also understood that the Fund will
reimburse the Manager for its costs in providing accounting services to the
Fund. The Distributor will pay certain of the expenses of the Fund incurred in
connection with the continuous offering of Fund shares.
ARTICLE III
Compensation of the Manager
Management Fee. For the services rendered, the facilities furnished and
expenses assumed by the Manager, the Fund shall pay to the Manager at the end of
each calendar month a fee based upon the average daily value of the net assets
of the Fund, as determined and computed in accordance with the description of
the determination of net asset value contained in the Prospectus and Statement
of Additional Information, at the annual rate of 0.85% of the average daily net
assets of the Fund, commencing on the day following effectiveness hereof. If
this Agreement becomes effective subsequent to the first day of a month or shall
terminate before the last day of a month, compensation for that
6
<PAGE> 7
part of the month this Agreement is in effect shall be prorated in a manner
consistent with the calculation of the fee as set forth above. During any period
when the determination of net asset value is suspended by the Directors, the net
asset value of a share as of the last business day prior to such suspension
shall for this purpose be deemed to be the net asset value at the close of each
succeeding business day until it is again determined.
ARTICLE IV
Sub Advisory Agreement
The Manager may enter into a separate sub advisory agreement with
Merrill Lynch Asset Management U.K. Limited ("MLAM U.K.") in which the Manager
may contract for sub advisory services and pay MLAM U.K. compensation for its
services out of the compensation received hereunder pursuant to Article III.
Such sub advisory agreement will be coterminous with this Management Agreement.
ARTICLE V
Limitation of Liability of the Manager
The Manager shall not be liable for any error of judgment or mistake of
law or for any loss arising out of any investment or for any act or omission in
the management of the Fund, except for willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of reckless disregard
of its obligations and duties hereunder. As used in this Article V, the term
"Manager" shall include any affiliates of the Manager performing services for
the Fund contemplated hereby and
7
<PAGE> 8
directors, officers and employees of the Manager and such affiliates.
ARTICLE VI
Activities of the Manager
The services of the Manager to the Fund are not to be deemed to be
exclusive, and the Manager and any person controlled by or under common control
with the Manager (for purposes of Article VI referred to as "affiliates") is
free to render services to others. It is understood that Directors, officers,
employees and shareholders of the Fund are or may become interested in the
Manager and its affiliates, as directors, officers, employees and shareholders
or otherwise and that directors, officers, employees and shareholders of the
Manager and its affiliates are or may become similarly interested in the Fund,
and that the Manager and directors, officers, employees, partners and
shareholders of its affiliates may become interested in the Fund as shareholder
or otherwise.
ARTICLE VII
Duration and Termination of this Contract
This Agreement shall become effective as of the date of the
commencement of operations of the Fund as an open-end investment company and
shall remain in force until _______ __, 199_, and thereafter, but only so long
as such continuance is specifically approved at least annually by (i) the
Directors, or by the vote of a majority of the outstanding voting securities of
the Fund, and (ii) a majority of those Directors who are not parties to
8
<PAGE> 9
this Agreement or interested persons of any such party cast in person at a
meeting called for the purpose of voting on such approval.
This Agreement may be terminated at any time, without the payment of
any penalty, by the Directors or by vote of a majority of the outstanding voting
securities of the Fund, or by the Manager, on sixty days' written notice to the
other party. This Agreement shall automatically terminate in the event of its
assignment.
ARTICLE VIII
Amendments of this Agreement
This Agreement may be amended by the parties only if such amendment is
specifically approved by (i) the vote of a majority of outstanding voting
securities of the Fund, and (ii) a majority of those Directors who are not
parties to this Agreement or interested persons of any such party cast in person
at a meeting called for the purpose of voting on such approval.
ARTICLE IX
Definitions of Certain Terms
The terms "vote of a majority of the outstanding voting securities",
"assignment", "affiliated person" and "interested person", when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act and the Rules and Regulations thereunder, subject, however, to such
exemptions as may be granted by the Securities and Exchange Commission under the
Investment Company Act.
9
<PAGE> 10
ARTICLE X
Governing Law
This Agreement shall be construed in accordance with laws of the State
of New York and the applicable provisions of the Investment Company Act. To the
extent that the applicable laws of the State of New York, or any of the
provisions herein, conflict with the applicable provisions of the Investment
Company Act, the latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
MERRILL LYNCH REAL ESTATE FUND, INC.
By
---------------------------------
Name:
Title:
MERRILL LYNCH ASSET MANAGEMENT, L.P.
By
---------------------------------
Name:
Title:
10
<PAGE> 1
Exhibit 5(b)
SUB-ADVISORY AGREEMENT
AGREEMENT made as of the ___ day of _______, 1997, by and between
MERRILL LYNCH ASSET MANAGEMENT, L.P., a Delaware limited partnership
(hereinafter referred to as "MLAM"), and MERRILL LYNCH ASSET MANAGEMENT U.K.
LIMITED, a corporation organized under the laws of England and Wales
(hereinafter referred to as "MLAM U.K.").
W I T N E S S E T H:
WHEREAS, MERRILL LYNCH REAL ESTATE FUND, INC. (the "Fund") is a
Maryland corporation engaged in business as a non-diversified, open-end
investment company registered under the Investment Company Act of 1940, as
amended (hereinafter referred to as the "Investment Company Act"); and
WHEREAS, MLAM and MLAM U.K. are engaged principally in rendering
investment advisory services and are registered as investment advisers under the
Investment Advisers Act of 1940, as amended; and
WHEREAS, MLAM U.K. is regulated by the Investment Management Regulatory
Organization, a self-regulating organization recognized under the Financial
Services Act of 1986 of the United Kingdom (hereinafter referred to as "IMRO"),
and the conduct of its investment business is regulated by IMRO; and
WHEREAS, MLAM has entered into a management agreement (the "Management
Agreement") dated ___________, 1997, pursuant to
<PAGE> 2
which MLAM provides management and investment and advisory services to the Fund;
and
WHEREAS, MLAM U.K. is willing to provide investment advisory services
to MLAM in connection with the Fund's operations on the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, MLAM U.K. and MLAM hereby agree as follows:
ARTICLE I
Duties of MLAM U.K.
MLAM hereby employs MLAM U.K. to act as investment adviser to MLAM and
to furnish, or arrange for affiliates to furnish, the investment advisory
services described below, subject to the broad supervision of MLAM and the Fund,
for the period and on the terms and conditions set forth in this Agreement. MLAM
U.K. hereby accepts such employment and agrees during such period, at its own
expense, to render, or arrange for the rendering of, such services and to assume
the obligations herein set forth for the compensation provided for herein. MLAM
and its affiliates shall for all purposes herein be deemed a Non Private
Customer as defined under the rules promulgated by IMRO (hereinafter referred to
as the "IMRO Rules"). MLAM U.K. and its affiliates shall for all purposes herein
be deemed to be an independent contractor and shall, unless otherwise expressly
provided or authorized, have no authority to act for or represent the Fund in
any way or otherwise be deemed an agent of the Fund.
2
<PAGE> 3
MLAM U.K. shall have the right to make unsolicited calls on MLAM and
shall provide MLAM with such investment research, advice and supervision as the
latter may from time to time consider necessary for the proper supervision of
the assets of the Fund; shall make recommendations from time to time as to which
securities shall be purchased, sold or exchanged and what portion of the assets
of the Fund shall be held in the various securities in which the Fund invests,
options, futures, options on futures or cash; all of the foregoing subject
always to the restrictions of the Articles of Incorporation and By-Laws of the
Fund, as they may be amended and/or restated from time to time, the provisions
of the Investment Company Act and the statements relating to the Fund's
investment objective, investment policies and investment restrictions as the
same are set forth in the currently effective prospectus and statement of
additional information relating to the shares of the Fund under the Securities
Act of 1933, as amended (the "Prospectus" and "Statement of Additional
Information", respectively). MLAM U.K. shall make recommendations and effect
transactions with respect to foreign currency matters, including foreign
exchange contracts, foreign currency options, foreign currency futures and
related options on foreign currency futures and forward foreign currency
transactions. MLAM U.K. shall also make recommendations or take action as to the
manner in which voting rights, rights to consent to corporate action and any
other rights pertaining to the portfolio securities of the Fund shall be
exercised.
3
<PAGE> 4
MLAM U.K. will not hold money on behalf of MLAM or the Fund, nor will
MLAM U.K. be the registered holder of the registered investments of MLAM or the
Fund or be the custodian of documents or other evidence of title.
ARTICLE II
Allocation of Charges and Expenses
MLAM U.K. assumes and shall pay for maintaining the staff and personnel
necessary to perform its obligations under this Agreement and shall at its own
expense provide the office space, equipment and facilities which it is obligated
to provide under Article I hereof and shall pay all compensation of officers of
the Fund and all Directors of the Fund who are affiliated persons of MLAM U.K.
ARTICLE III
Compensation of MLAM U.K.
For the services rendered, the facilities furnished and expenses
assumed by MLAM U.K., MLAM shall pay to MLAM U.K. a fee in an amount to be
determined from time to time by MLAM and MLAM U.K. but in no event in excess of
the amount that MLAM actually receives for providing services to the Fund
pursuant to the Management Agreement.
ARTICLE IV
Limitation of Liability of MLAM U.K.
MLAM U.K. shall not be liable for any error of judgment or mistake of
law or for any loss arising out of any investment or for any act or omission in
the performance of sub-advisory
4
<PAGE> 5
services rendered with respect to the Fund, except for willful misfeasance, bad
faith or gross negligence in the performance of its duties, or by reason of
reckless disregard of its obligations and duties hereunder. As used in this
Article IV, MLAM U.K. shall include any affiliates of MLAM U.K. performing
services for MLAM contemplated hereby and directors, officers and employees of
MLAM U.K. and such affiliates.
ARTICLE V
Activities of MLAM U.K.
The services of MLAM U.K. to the Fund are not to be deemed to be
exclusive, MLAM U.K. and any person controlled by or under common control with
MLAM U.K. (for purposes of this Article V referred to as "affiliates") being
free to render services to others. It is understood that Directors, officers,
employees and shareholders of the Fund are or may become interested in MLAM U.K.
and its affiliates, as directors, officers, employees and shareholders or
otherwise and that directors, officers, employees and shareholders of MLAM U.K.
and its affiliates are or may become similarly interested in the Fund, and that
MLAM U.K. and directors, officers, employees, partners and shareholders of its
affiliates may become interested in the Fund as shareholders or otherwise.
ARTICLE VI
MLAM U.K. Statements Pursuant to IMRO Rules
Any complaints concerning MLAM U.K. should be in writing addressed to
the attention of the Managing Director of MLAM U.K.
5
<PAGE> 6
MLAM has the right to obtain from MLAM U.K. a copy of the IMRO complaints
procedure and to approach IMRO and the Investment Ombudsman directly.
MLAM U.K. may make recommendations, subject to the investment
restrictions referred to in Article I herein, regarding Investments Not Readily
Realisable (as that term is used in the IMRO Rules) or investments denominated
in a currency other than British pound sterling. There can be no certainty that
market makers will be prepared to deal in unlisted or thinly traded securities
and an accurate valuation may be hard to obtain. The value of investments
recommended by MLAM U.K. may be subject to exchange rate fluctuations which may
have favorable or unfavorable effects on investments.
MLAM U.K. may make recommendations, subject to the investment
restrictions referred to in Article I herein, regarding options, futures or
contracts for differences. Markets can be highly volatile and such investments
carry a high degree of risk of loss exceeding the original investment and any
margin on deposit.
ARTICLE VII
Duration and Termination of this Agreement
This Agreement shall become effective as of the date first above
written and shall remain in force until _________, 1999, and thereafter, but
only so long as such continuance is specifically approved at least annually by
(i) the Directors of the Fund or by the vote of a majority of the outstanding
voting
6
<PAGE> 7
securities of the Fund and (ii) a majority of those Directors who are not
parties to this Agreement or interested persons of any such party cast in person
at a meeting called for the purpose of voting on such approval.
This Agreement may be terminated at any time, without the payment of
any penalty, by MLAM or by vote of a majority of the outstanding voting
securities of the Fund, or by MLAM U.K., on sixty days' written notice to the
other party. This Agreement shall automatically terminate in the event of its
assignment or in the event of the termination of the Management Agreement. Any
termination shall be without prejudice to the completion of transactions already
initiated.
ARTICLE VIII
Amendments of this Agreement
This Agreement may be amended by the parties only if such amendment is
specifically approved by (i) the Directors of the Fund or by the vote of a
majority of outstanding voting securities of the Fund and (ii) a majority of
those Directors who are not parties to this Agreement or interested persons of
any such party cast in person at a meeting called for the purpose of voting on
such approval.
ARTICLE IX
Definitions of Certain Terms
The terms "vote of a majority of the outstanding voting securities",
"assignment", "affiliated person" and "interested person", when used in this
Agreement, shall have the respective
7
<PAGE> 8
meanings specified in the Investment Company Act and the rules and regulations
thereunder, subject, however, to such exemptions as may be granted by the
Securities and Exchange Commission under said Act.
ARTICLE X
Governing Law
This Agreement shall be construed in accordance with the laws of the
State of New York and the applicable provisions of the Investment Company Act.
To the extent that the applicable laws of the State of New York, or any of the
provisions herein, conflict with the applicable provisions of the Investment
Company Act, the latter shall control.
8
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
MERRILL LYNCH ASSET MANAGEMENT, L.P.
By
----------------------------------------
Title:
MERRILL LYNCH ASSET MANAGEMENT U.K. LIMITED
By
----------------------------------------
Title:
9
<PAGE> 1
Exhibit 6(a)
CLASS A SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the day of , 1997 between MERRILL
LYNCH REAL ESTATE FUND, INC., a Maryland corporation (the "Fund"), and MERRILL
LYNCH FUNDS DISTRIBUTOR, INC., a Delaware corporation (the "Distributor").
W I T N E S S E T H :
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the "Investment Company Act"), as an open-end investment
company, and it is affirmatively in the interest of the Fund to offer its shares
for sale continuously; and
WHEREAS, the Distributor is a securities firm engaged in the business
of selling shares of investment companies either directly to purchasers or
through other securities dealers; and
WHEREAS, the Fund and the Distributor wish to enter into an agreement
with each other with respect to the continuous offering of the Class A shares of
common stock in the Fund.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor. The Fund hereby appoints the
Distributor as the principal underwriter and
<PAGE> 2
distributor of the Fund to sell Class A shares of common stock in the Fund
(sometimes herein referred to as "Class A shares") to eligible investors (as
defined below) and hereby agrees during the term of this Agreement to sell Class
A shares of the Fund to the Distributor upon the terms and conditions herein set
forth.
Section 2. Exclusive Nature of Duties. The Distributor shall be the
exclusive representative of the Fund to act as principal underwriter and
distributor, except that:
(a) The Fund may, upon written notice to the Distributor, from time to
time designate other principal underwriters and distributors of Class A shares
with respect to areas other than the United States as to which the Distributor
may have expressly waived in writing its right to act as such. If such
designation is deemed exclusive, the right of the Distributor under this
Agreement to sell Class A shares in the areas so designated shall terminate, but
this Agreement shall remain otherwise in full effect until terminated in
accordance with the other provisions hereof.
(b) The exclusive right granted to the Distributor to purchase Class A
shares from the Fund shall not apply to Class A shares issued in connection with
the merger or consolidation of any other investment company or personal holding
company with the Fund or the acquisition by purchase or otherwise of all (or
substantially all) the assets or the outstanding Class A shares of any such
company by the Fund.
2
<PAGE> 3
(c) Such exclusive right also shall not apply to Class A shares issued
by the Fund pursuant to reinvestment of dividends or capital gains
distributions.
(d) Such exclusive right also shall not apply to Class A shares issued
by the Fund pursuant to any conversion, exchange or reinstatement privilege
afforded redeeming shareholders or to any other Class A shares as shall be
agreed between the Fund and the Distributor from time to time.
Section 3. Purchase of Class A Shares from the Fund.
(a) Prior to the continuous offering of the Class A shares, commencing
on a date agreed upon by the Fund and the Distributor, it is contemplated that
the Distributor will solicit subscriptions for Class A shares during a
subscription period which shall last for such period as may be agreed upon by
the parties hereto. The subscriptions will be payable within three business days
after the termination of the subscription period, at which time the Fund will
commence operations.
(b) After the Fund commences operations, the Fund will commence an
offering of its Class A shares and thereafter the Distributor shall have the
right to buy from the Fund the Class A shares needed, but not more than the
Class A shares needed (except for clerical errors in transmission) to fill
unconditional orders for Class A shares of the Fund placed with the Distributor
by eligible investors or securities dealers. Investors eligible to purchase
Class A shares shall be those persons so identified in the currently effective
prospectus and
3
<PAGE> 4
statement of additional information of the Fund (the "prospectus" and "statement
of additional information", respectively) under the Securities Act of 1933, as
amended (the "Securities Act"), relating to such Class A shares ("eligible
investors"). The price which the Distributor shall pay for the Class A shares so
purchased from the Fund shall be the net asset value, determined as set forth in
Section 3(e) hereof, used in determining the public offering price on which such
orders were based.
(c) The Class A shares are to be resold by the Distributor to eligible
investors at the public offering price, as set forth in Section 3(d) hereof, or
to securities dealers having agreements with the Distributor upon the terms and
conditions set forth in Section 7 hereof.
(d) The public offering price(s) of the Class A shares, i.e., the price
per share at which the Distributor or selected dealers may sell Class A shares
to eligible investors, shall be the public offering price as set forth in the
prospectus and statement of additional information relating to such Class A
shares, but not to exceed the net asset value at which the Distributor is to
purchase the Class A shares, plus a sales charge not to exceed 5.75% of the
public offering price (5.54% of the net amount invested), subject to reductions
for volume purchases. Class A shares may be sold to certain Directors, officers
and employees of the Fund, directors and employees of Merrill Lynch & Co., Inc.
and its subsidiaries, and to certain other persons described in the prospectus
and statement of
4
<PAGE> 5
additional information, without a sales charge or at a reduced sales charge,
upon terms and conditions set forth in the prospectus and statement of
additional information. If the public offering price does not equal an even
cent, the public offering price may be adjusted to the nearest cent. All
payments to the Fund hereunder shall be made in the manner set forth in Section
3(g).
(e) The net asset value of Class A shares shall be determined by the
Fund or any agent of the Fund in accordance with the method set forth in the
prospectus and statement of additional information of the Fund and guidelines
established by the Directors.
(f) The Fund shall have the right to suspend the sale of its Class A
shares at times when redemption is suspended pursuant to the conditions set
forth in Section 4(b) hereof. The Fund shall also have the right to suspend the
sale of its Class A shares if trading on the New York Stock Exchange shall have
been suspended, if a banking moratorium shall have been declared by Federal or
New York authorities, or if there shall have been some other event, which, in
the judgment of the Fund, makes it impracticable or inadvisable to sell the
Class A shares.
(g) The Fund, or any agent of the Fund designated in writing by the
Fund, shall be promptly advised of all purchase orders for Class A shares
received by the Distributor. Any order may be rejected by the Fund; provided,
however, that the Fund will not arbitrarily or without reasonable cause refuse
to accept
5
<PAGE> 6
or confirm orders for the purchase of Class A shares from eligible investors.
The Fund (or its agent) will confirm orders upon their receipt, will make
appropriate book entries and, upon receipt by the Fund (or its agent) of payment
therefor, will deliver deposit receipts or certificates for such Class A shares
pursuant to the instructions of the Distributor. Payment shall be made to the
Fund in New York Clearing House funds. The Distributor agrees to cause such
payment and such instructions to be delivered promptly to the Fund (or its
agent).
Section 4. Repurchase or Redemption of Class A shares by the Fund.
(a) Any of the outstanding Class A shares may be tendered for
redemption at any time, and the Fund agrees to repurchase or redeem the Class A
shares so tendered in accordance with its obligations as set forth in Article VI
of its Articles of Incorporation, as amended from time to time, and in
accordance with the applicable provisions set forth in the prospectus and
statement of additional information. The price to be paid to redeem or
repurchase the Class A shares shall be equal to the net asset value calculated
in accordance with the provisions of Section 3(e) hereof, less any contingent
deferred sales charge ("CDSC"), redemption fee or other charge(s), if any, set
forth in the prospectus and statement of additional information of the Fund. All
payments by the Fund hereunder shall be made in the manner set forth below. The
redemption or repurchase by the Fund of any of the Class A shares purchased by
or through the
6
<PAGE> 7
Distributor will not affect the sales charge secured by the Distributor or any
selected dealer in the course of the original sale, except that if any Class A
shares are tendered for redemption or repurchase within seven business days
after the date of the confirmation of the original purchase, the right to the
sales charge shall be forfeited by the Distributor and the selected dealer which
sold such Class A shares.
The Fund shall pay the total amount of the redemption price as defined
in the above paragraph pursuant to the instructions of the Distributor in New
York Clearing House funds on or before the seventh business day subsequent to
its having received the notice of redemption in proper form. The proceeds of any
redemption of shares shall be paid by the Fund as follows: (i) any applicable
CDSC shall be paid to the Distributor, and (ii) the balance shall be paid to or
for the account of the shareholder, in each case in accordance with the
applicable provisions of the prospectus and statement of additional information.
(b) Redemption of Class A shares or payment may be suspended at times
when the New York Stock Exchange is closed, when trading on said Exchange is
suspended, when trading on said Exchange is restricted, when an emergency exists
as a result of which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the Fund fairly
to determine the value of its net assets, or during any other period when the
Securities and Exchange Commission, by order, so permits.
7
<PAGE> 8
Section 5. Duties of the Fund.
(a) The Fund shall furnish to the Distributor copies of all
information, financial statements and other papers which the Distributor may
reasonably request for use in connection with the distribution of Class A shares
of the Fund, and this shall include, upon request by the Distributor, one
certified copy of all financial statements prepared for the Fund by independent
public accountants. The Fund shall make available to the Distributor such number
of copies of the prospectus and statement of additional information as the
Distributor shall reasonably request.
(b) The Fund shall take, from time to time, but subject to any
necessary approval of the Class A shareholders, all necessary action to fix the
number of authorized Class A shares and such steps as may be necessary to
register the same under the Securities Act, to the end that there will be
available for sale such number of Class A shares as the Distributor may
reasonably be expected to sell.
(c) The Fund shall use its best efforts to qualify and maintain the
qualification of an appropriate number of its Class A shares for sale under the
securities laws of such states as the Distributor and the Fund may approve. Any
such qualification may be withheld, terminated or withdrawn by the Fund at any
time in its discretion. As provided in Section 8(c) hereof, the expense of
qualification and maintenance of qualification shall be borne by the Fund. The
Distributor shall furnish such information and
8
<PAGE> 9
other material relating to its affairs and activities as may be required by the
Fund in connection with such qualification.
(d) The Fund will furnish, in reasonable quantities upon request by the
Distributor, copies of annual and interim reports of the Fund.
Section 6. Duties of the Distributor.
(a) The Distributor shall devote reasonable time and effort to effect
sales of Class A shares of the Fund but shall not be obligated to sell any
specific number of Class A shares. The services of the Distributor to the Fund
hereunder are not to be deemed exclusive and nothing herein contained shall
prevent the Distributor from entering into like arrangements with other
investment companies so long as the performance of its obligations hereunder is
not impaired thereby.
(b) In selling the Class A shares of the Fund, the Distributor shall
use its best efforts in all respects duly to conform with the requirements of
all Federal and state laws relating to the sale of such securities. Neither the
Distributor nor any selected dealer, as defined in Section 7 hereof, nor any
other person is authorized by the Fund to give any information or to make any
representations, other than those contained in the registration statement or
related prospectus and statement of additional information and any sales
literature specifically approved by the Fund.
(c) The Distributor shall adopt and follow procedures, as approved by
the officers of the Fund, for the confirmation of
9
<PAGE> 10
sales to eligible investors and selected dealers, the collection of amounts
payable by eligible investors and selected dealers on such sales, and the
cancellation of unsettled transactions, as may be necessary to comply with the
requirements of the National Association of Securities Dealers, Inc. (the
"NASD"), as such requirements may from time to time exist.
Section 7. Selected Dealers Agreements.
(a) The Distributor shall have the right to enter into selected dealers
agreements with securities dealers of its choice ("selected dealers") for the
sale of Class A shares and fix therein the portion of the sales charge which may
be allocated to the selected dealers; provided that the Fund shall approve the
forms of agreements with dealers and the dealer compensation set forth therein.
Class A shares sold to selected dealers shall be for resale by such dealers only
at the public offering price(s) set forth in the prospectus and statement of
additional information. The form of agreement with selected dealers to be used
during the subscription period described in Section 3(a) is attached hereto as
Exhibit A and the initial form of agreement with selected dealers to be used in
the continuous offering of the Class A shares is attached hereto as Exhibit B.
(b) Within the United States, the Distributor shall offer and sell
Class A shares only to such selected dealers as are members in good standing of
the NASD.
10
<PAGE> 11
Section 8. Payment of Expenses.
(a) The Fund shall bear all costs and expenses of the Fund, including
fees and disbursements of its counsel and auditors, in connection with the
preparation and filing of any required registration statements and/or
prospectuses and statements of additional information under the Investment
Company Act, the Securities Act, and all amendments and supplements thereto, and
preparing and mailing annual and interim reports and proxy materials to Class A
shareholders (including but not limited to the expense of setting in type any
such registration statements, prospectuses, statements of additional
information, annual or interim reports or proxy materials).
(b) The Distributor shall be responsible for any payments made to
selected dealers as reimbursement for their expenses associated with payments of
sales commissions to financial consultants. In addition, after the prospectuses,
statements of additional information and annual and interim reports have been
prepared and set in type, the Distributor shall bear the costs and expenses of
printing and distributing any copies thereof which are to be used in connection
with the offering of Class A shares to selected dealers or eligible investors
pursuant to this Agreement. The Distributor shall bear the costs and expenses of
preparing, printing and distributing any other literature used by the
Distributor or furnished by it for use by selected dealers in connection with
the offering of the Class A shares for sale to
11
<PAGE> 12
eligible investors and any expenses of advertising incurred by the Distributor
in connection with such offering.
(c) The Fund shall bear the cost and expenses of qualification of the
Class A shares for sale pursuant to this Agreement and, if necessary or
advisable in connection therewith, of qualifying the Fund as a broker or dealer
in such states of the United States or other jurisdictions as shall be selected
by the Fund and the Distributor pursuant to Section 5(c) hereof and the cost and
expenses payable to each such state for continuing qualification therein until
the Fund decides to discontinue such qualification pursuant to Section 5(c)
hereof.
Section 9. Indemnification.
(a) The Fund shall indemnify and hold harmless the Distributor and each
person, if any, who controls the Distributor against any loss, liability, claim,
damage or expense (including the reasonable cost of investigating or defending
any alleged loss, liability, claim, damage or expense and reasonable counsel
fees incurred in connection therewith), as incurred, arising by reason of any
person acquiring any Class A shares, which may be based upon the Securities Act,
or on any other statute or at common law, on the ground that the registration
statement or related prospectus and statement of additional information, as from
time to time amended and supplemented, or an annual or interim report to
shareholders of the Fund, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary in
order to make the
12
<PAGE> 13
statements therein not misleading, unless such statement or omission was made in
reliance upon, and in conformity with, information furnished to the Fund in
connection therewith by or on behalf of the Distributor; provided, however, that
in no case (i) is the indemnity of the Fund in favor of the Distributor and any
such controlling persons to be deemed to protect such Distributor or any such
controlling persons thereof against any liability to the Fund or its security
holders to which the Distributor or any such controlling persons would otherwise
be subject by reason of willful misfeasance, bad faith or gross negligence in
the performance of their duties or by reason of the reckless disregard of their
obligations and duties under this Agreement; or (ii) is the Fund to be liable
under its indemnity agreement contained in this paragraph with respect to any
claim made against the Distributor or any such controlling persons, unless the
Distributor or such controlling persons, as the case may be, shall have notified
the Fund in writing within a reasonable time after the summons or other first
legal process giving information of the nature of the claim shall have been
served upon the Distributor or such controlling persons (or after the
Distributor or such controlling persons shall have received notice of such
service on any designated agent), but failure to notify the Fund of any such
claim shall not relieve it from any liability which it may have to the person
against whom such action is brought otherwise than on account of its indemnity
agreement contained in this paragraph. The Fund will be entitled
13
<PAGE> 14
to participate at its own expense in the defense or, if it so elects, to assume
the defense of any suit brought to enforce any such liability, but if the Fund
elects to assume the defense, such defense shall be conducted by counsel chosen
by it and satisfactory to the Distributor or such controlling person or persons,
defendant or defendants in the suit. In the event the Fund elects to assume the
defense of any such suit and retain such counsel, the Distributor or such
controlling person or persons, defendant or defendants in the suit shall bear
the fees and expenses of any additional counsel retained by them, but in case
the Fund does not elect to assume the defense of any such suit, it will
reimburse the Distributor or such controlling person or persons, defendant or
defendants in the suit, for the reasonable fees and expenses of any counsel
retained by them. The Fund shall promptly notify the Distributor of the
commencement of any litigation or proceedings against it or any of its officers
or Directors in connection with the issuance or sale of any of the Class A
shares.
(b) The Distributor shall indemnify and hold harmless the Fund and each
of its Directors and officers and each person, if any, who controls the Fund
against any loss, liability, claim, damage or expense described in the foregoing
indemnity contained in subsection (a) of this Section, but only with respect to
statements or omissions made in reliance upon, and in conformity with,
information furnished to the Fund in writing by or on behalf of the Distributor
for use in connection with the
14
<PAGE> 15
registration statement or related prospectus and statement of additional
information, as from time to time amended, or the annual or interim reports to
Class A shareholders. In case any action shall be brought against the Fund or
any person so indemnified, in respect of which indemnity may be sought against
the Distributor, the Distributor shall have the rights and duties given to the
Fund, and the Fund and each person so indemnified shall have the rights and
duties given to the Distributor by the provisions of subsection (a) of this
Section 9.
Section 10. Merrill Lynch Mutual Fund Advisor Program. In connection
with the Merrill Lynch Mutual Fund Advisor (Merrill Lynch MFA(SM)) Program, the
Distributor and its affiliate, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, are authorized to offer and sell shares of the Fund, as agent for
the Fund, to participants in such program. The terms of this Agreement shall
apply to such sales, including terms as to the offering price of shares, the
proceeds to be paid to the Fund, the duties of the Distributor, the payment of
expenses and indemnification obligations of the Fund and the Distributor.
Section 11. Duration and Termination of this Agreement. This Agreement
shall become effective as of the date first above written and shall remain in
force until _________, 1999 and thereafter, but only for so long as such
continuance is specifically approved at least annually by (i) the Directors or
by the vote of a majority of the outstanding voting securities of the Fund and
(ii) by the vote of a majority of those Directors
15
<PAGE> 16
who are not parties to this Agreement or interested persons of any such party
cast in person at a meeting called for the purpose of voting on such approval.
This Agreement may be terminated at any time, without the payment of
any penalty, by the Directors or by vote of a majority of the outstanding voting
securities of the Fund, or by the Distributor, on sixty days' written notice to
the other party. This Agreement shall automatically terminate in the event of
its assignment.
The terms "vote of a majority of the outstanding voting securities",
"assignment", "affiliated person" and "interested person", when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act.
Section 12. Amendments of this Agreement. This Agreement may be amended
by the parties only if such amendment is specifically approved by (i) the
Directors or by the vote of a majority of outstanding voting securities of the
Fund and (ii) by the vote of a majority of those Directors of the Fund who are
not parties to this Agreement or interested persons of any such party cast in
person at a meeting called for the purpose of voting on such approval.
Section 13. Governing Law. The provisions of this Agreement shall be
construed and interpreted in accordance with the laws of the State of New York
as at the time in effect and the applicable provisions of the Investment Company
Act. To the extent that the applicable law of the State of New York, or any
16
<PAGE> 17
of the provisions herein, conflict with the applicable provisions of the
Investment Company Act, the latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
MERRILL LYNCH REAL ESTATE FUND, INC.
By
----------------------------------
Name:
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By
----------------------------------
Name:
Title:
17
<PAGE> 18
EXHIBIT A
MERRILL LYNCH REAL ESTATE FUND, INC.
CLASS A SHARES OF COMMON STOCK
SELECTED DEALER AGREEMENT
FOR SUBSCRIPTION PERIOD
Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor") has an
agreement with Merrill Lynch Real Estate Fund, Inc., a Maryland corporation (the
"Fund"), pursuant to which it acts as the distributor for the sale of Class A
shares of common stock, par value $0.10 per share (herein referred to as "Class
A shares"), of the Fund, and as such has the right to distribute Class A shares
of the Fund for resale. The Fund is an open-end investment company registered
under the Investment Company Act of 1940, as amended (the "Investment Company
Act"), and its Class A shares being offered to the public are registered under
the Securities Act of 1933, as amended (the "Securities Act"). Such Class A
shares and certain of the terms on which they are being offered are more fully
described in the enclosed Prospectus and Statement of Additional Information.
You have received a copy of the Class A shares Distribution Agreement (the
"Distribution Agreement") between ourself and the Fund and reference is made
herein to certain provisions of such Distribution Agreement. This Agreement
relates solely to the subscription period described in Section 3(a) of such
Distribution Agreement. Subject to the foregoing, as principal, we offer to sell
to you, as a member of the Selected Dealers Group, Class A shares of the Fund
for resale to investors identified in the Prospectus and Statement of Additional
Information as eligible to purchase Class A shares ("eligible investors") upon
the following terms and conditions:
1. The subscription period referred to in Section 3(a) of the
Distribution Agreement will continue through ________ __, 199_. The subscription
period may be extended upon agreement between the Fund and the Distributor.
Subject to the provisions of such Section and the conditions contained herein,
we will sell to you on the third business day following the termination of the
subscription period, or such other date as we may advise (the "Closing Date"),
such number of Class A shares as to which you have placed orders with us not
later than 5:00 P.M. on the second full business day preceding the Closing Date.
A-1
<PAGE> 19
2. In all sales of these Class A shares to eligible investors, you
shall act as dealer for your own account, and in no transaction shall you have
any authority to act as agent for the Fund, for us or for any other member of
the Selected Dealers Group, except in connection with the Merrill Lynch Mutual
Fund Advisor (Merrill Lynch MFA(SM)) Program and such other special programs as
we from time to time agree, in which case you shall have authority to offer and
sell shares, as agent for the Fund, to participants in such program.
3. Except as provided in Paragraph 4, below, the public offering
prices, sales charges and the related Selected Dealers' concession are as
follows:
<TABLE>
<CAPTION>
Subscription Period
-------------------
Securities Dealers'
Sales Charge Concession
------------ ----------
Percentage* Percentage*
Public of Public of Public
Offering Dollar Offering Dollar Offering
Price Amount Price Amount Price
----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
Less than $25,000............................. $10.554 $.554 5.25% $.554 5.25%
$25,000 but less than $50,000................. 10.499 .499 4.75 .499 4.75
$50,000 but less than $100,000................ 10.417 .417 4.00 .417 4.00
$100,000 but less than $250,000............... 10.309 .309 3.00 .309 3.00
$250,000 but less than $1,000,000............. 10.204 .204 2.00 .204 2.00
$1,000,000 and over**......................... 10.000 .000 0.00 .000 0.00
</TABLE>
- ------------------
*Rounded to the nearest one-hundredth percent.
**Initial sales charges may be waived for certain classes of offers as set forth
in the Prospectus and Statement of Additional Information of the Fund. Such
purchases may be subject to a contingent deferred sales charge as set forth in
the Prospectus and Statement of Additional Information.
The proceeds per Class A share to the Fund from the sale of all shares sold
during the subscription period will be $__.__.
The term "purchase" refers to a single purchase by an individual, or to
concurrent purchases, which in the aggregate are at least equal to the
prescribed amounts, by an individual, his spouse and their children under the
age of 21 years purchasing shares for his or their own account and to single
purchases by a trustee or other fiduciary purchasing shares for a single trust
estate or single fiduciary account although more than one beneficiary is
involved. The term "purchase" also includes purchases by any "company" as that
term is defined in the Investment Company Act, but does not include purchases by
any
A-2
<PAGE> 20
such company which has not been in existence for at least six months or which
has no purpose other than the purchase of shares of the Fund or shares of the
registered investment companies at a discount; provided, however, that it shall
not include purchases by any group of individuals whose sole organizational
nexus is that the participants therein are credit cardholders of a company,
policyholders of an insurance company, customers of either a bank or
broker-dealer or clients of an investment adviser.
The reduced sales charges are applicable through a right of
accumulation under which certain eligible investors are permitted to purchase
Class A shares of the Fund at the offering price applicable to the total of (a)
the dollar amount then being purchased plus (b) an amount equal to the then
current net asset value or cost, whichever is higher, of the purchaser's
combined holdings of the Class A, Class B, Class C and Class D shares of the
Fund and of any other open-end investment company advised by Merrill Lynch Asset
Management, L.P. or Fund Asset Management, L.P. (together, "MLAM-advised mutual
funds"). For any such right of accumulation to be made available, the
Distributor must be provided at the time of purchase, by the purchaser or you,
with sufficient information to permit confirmation of qualification, and
acceptance of the purchase order is subject to such confirmation.
The reduced sales charges are applicable to purchases aggregating
$25,000 or more of Class A shares or of Class D shares or of shares of any other
MLAM-advised mutual fund made through you within a thirteen-month period
starting with the first purchase pursuant to a Letter of Intention in the form
provided in the Prospectus. A purchase not originally made pursuant to a Letter
of Intention may be included under a subsequent letter executed within 90 days
of such purchase if the Distributor is informed in writing of this intent within
such 90-day period. If the intended amount of shares is not purchased within the
thirteen-month period, an appropriate price adjustment will be made pursuant to
the terms of the Letter of Intention.
You agree to advise us promptly at your request as to amounts of any
sales made by you to eligible investors qualifying for reduced sales charges.
Further information as to the reduced sales charges pursuant to the right of
accumulation or a Letter of Intention is set forth in the Prospectus and
Statement of Additional Information.
4. You shall not place orders for any of the Class A shares unless you
have already received purchase orders for such shares at the applicable public
offering prices and subject to the terms hereof and of the Distribution
Agreement. All orders are subject to acceptance by the Distributor or the Fund
in the sole discretion of either. The minimum initial and subsequent
A-3
<PAGE> 21
purchase requirements are as set forth in the Prospectus, as amended from time
to time. You agree that you will not offer or sell any of the Class A shares
except under circumstances that will result in compliance with the applicable
Federal and state securities laws and that in connection with sales and offers
to sell Class A shares you will furnish to each person to whom any such sale or
offer is made a copy of the Prospectus and, if requested, the Statement of
Additional Information (as then amended or supplemented) and will not furnish to
any person any information relating to the Class A shares of the Fund which is
inconsistent in any respect with the information contained in the Prospectus and
Statement of Additional Information (as then amended or supplemented) or cause
any advertisement to be published in any newspaper or posted in any public place
without our consent and the consent of the Fund.
5. All Class A shares purchased by Selected Dealers will be delivered
in the first instance at a settlement price computed on the basis of all sales
having been made in a purchase (as such term is defined above) involving a
public offering price of less than $25,000. All sales to you will be deemed to
have been made in such a transaction unless within 30 days after the Closing
Date you furnish to us, on forms supplied by us for the purpose, a statement
acceptable to us setting forth sales in purchases involving a public offering
price of $25,000 or more, in which case we will compute such Selected Dealers'
concessions on the basis of the information set forth in such statement.
6. Payment for Class A shares purchased by you is to be made by
certified or official bank check at the office of Merrill Lynch Funds
Distributor, Inc., Box 9081, Princeton, New Jersey 08543-9081, on such date as
we may advise, in New York Clearing House funds payable to the order of Merrill
Lynch Funds Distributor, Inc., or by federal funds wire transfer, against
delivery by us of non-negotiable share deposit receipts ("Receipts") issued by
Merrill Lynch Financial Data Services, Inc., as shareholder servicing agent,
acknowledging the deposit with it of the Class A shares so purchased by you. You
agree that as promptly as practicable after the delivery of such Class A shares
you will issue appropriate written transfer instructions to the Fund or to the
shareholder servicing agent as to the purchasers to whom you sold the Class A
shares.
7. If any Class A shares sold to you under the terms of this Agreement
are repurchased by the Fund or by us for the account of the Fund or are tendered
for redemption within seven business days after the Closing Date, it is agreed
that you shall forfeit your right to, and refund to us, any discount received by
you on such Class A shares.
8. No person is authorized to make any representations concerning Class
A shares of the Fund except those contained in
A-4
<PAGE> 22
the current Prospectus and Statement of Additional Information of the Fund and
in such printed information subsequently issued by us or the Fund as information
supplemental to such Prospectus and Statement of Additional Information. In
purchasing Class A shares through us you shall rely solely on the
representations contained in the Prospectus and Statement of Additional
Information and supplemental information above mentioned. Any printed
information which we furnish you other than the Fund's Prospectus and Statement
of Additional Information, periodic reports and proxy solicitation material are
our sole responsibility and not the responsibility of the Fund, and you agree
that the Fund shall have no liability or responsibility to you in these respects
unless expressly assumed in connection therewith.
9. You agree to deliver to each of the purchasers making purchases from
you a copy of the then current Prospectus and, if requested, the Statement of
Additional Information at or prior to the time of offering or sale and you agree
thereafter to deliver to such purchasers copies of the annual and interim
reports and proxy solicitation materials of the Fund. You further agree to
endeavor to obtain Proxies from such purchasers. Additional copies of the
Prospectus and Statement of Additional Information, annual or interim reports
and proxy solicitation materials of the Fund will be supplied to you in
reasonable quantities upon request.
10. We reserve the right in our discretion, without notice, to suspend
sales or withdraw the offering of Class A shares entirely. Each party hereto has
the right to cancel this Agreement upon notice to the other party.
11. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the continuous offering. We
shall be under no liability to you except for lack of good faith and for
obligations expressly assumed by us herein. Nothing contained in this paragraph
is intended to operate as, and the provisions of this paragraph shall not in any
way whatsoever constitute, a waiver by you of compliance with any provision of
the Securities Act, or of the rules and regulations of the Securities and
Exchange Commission issued thereunder.
12. You represent that you are a member of the National Association of
Securities Dealers, Inc. and, with respect to any sales in the United States, we
both hereby agree to abide by the Conduct Rules of such Association.
13. Upon application to us, we will inform you as to the states in
which we believe the Class A shares have been qualified for sale under, or are
exempt from the requirements of, the respective securities laws of such states,
but we assume no
A-5
<PAGE> 23
responsibility or obligation as to your right to sell shares in any
jurisdiction. We will file with the Department of State in New York a Further
State Notice with respect to the shares, if necessary.
14. All communications to us should be sent to the address below. Any
notice to you shall be duly given if mailed or telegraphed to you at the address
specified by you below.
15. You agree that you will not sell any Class A shares of the Fund to
any account over which you exercise discretionary authority.
16. This Agreement shall terminate at the close of business on the
Closing Date, unless earlier terminated, provided, however, this Agreement shall
continue after termination for the purpose of Section 7 hereof and for the
purpose of settlement of accounts hereunder.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By __________________________________
(Authorized Signature)
Please return one signed copy
of this Agreement to:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
Box 9081
Princeton, New Jersey 08543-9081
Accepted:
Firm Name: __________________________________________________
By: _________________________________________________________
Address: ____________________________________________________
____________________________________________________________
Date: _______________________________________________________
A-6
<PAGE> 24
EXHIBIT B
MERRILL LYNCH REAL ESTATE FUND, INC.
CLASS A SHARES OF COMMON STOCK
SELECTED DEALERS AGREEMENT
Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor") has an
agreement with Merrill Lynch Real Estate Fund, Inc., a Maryland corporation (the
"Fund"), pursuant to which it acts as the distributor for the sale of Class A
shares of common stock, par value $0.10 per share (herein referred to as "Class
A shares"), of the Fund and as such has the right to distribute Class A shares
of the Fund for resale. The Fund is an open-end investment company registered
under the Investment Company Act of 1940, as amended (the "Investment Company
Act"), and its Class A shares are registered under the Securities Act of 1933,
as amended (the "Securities Act"). You have received a copy of the Class A
shares Distribution Agreement (the "Distribution Agreement") between ourself and
the Fund and reference is made herein to certain provisions of such Distribution
Agreement. The terms "Prospectus" and "Statement of Additional Information" used
herein refer to the prospectus and statement of additional information,
respectively, on file with the Securities and Exchange Commission which is part
of the most recent effective registration statement pursuant to the Securities
Act. We offer to sell to you, as a member of the Selected Dealers Group, Class A
shares of the Fund for resale to investors identified in the Prospectus and
Statement of Additional Information as eligible to purchase Class A shares
("eligible investors") upon the following terms and conditions:
1. In all sales of these Class A shares to eligible investors, you
shall act as dealer for your own account and in no transaction shall you have
any authority to act as agent for the Fund, for us or for any other member of
the Selected Dealers Group, except in connection with the Merrill Lynch Mutual
Fund Advisor (Merrill Lynch MFA(SM)) Program and such other special programs as
we from time to time agree, in which case you shall have authority to offer and
sell shares, as agent for the Fund, to participants in such program.
2. Orders received from you will be accepted through us only at the
public offering price applicable to each order, as set forth in the current
Prospectus and Statement of Additional
B-1
<PAGE> 25
Information of the Fund. The procedure relating to the handling of orders shall
be subject to Section 5 hereof and instructions which we or the Fund shall
forward from time to time to you. All orders are subject to acceptance or
rejection by the Distributor or the Fund in the sole discretion of either. The
minimum initial and subsequent purchase requirements are as set forth in the
current Prospectus and Statement of Additional Information of the Fund.
3. The sales charges for sales to eligible investors, computed as
percentages of the public offering price and the amount invested, and the
related discount to Selected Dealers are as follows:
<TABLE>
<CAPTION>
Discount to
Selected
Sales Charge Dealers as
Sales Charge as Percentage* Percentage
as Percentage of the Net of the
of the Amount Offering
Amount of Purchase Offering Price Invested Price
- ------------------ -------------- -------- -----
<S> <C> <C> <C>
Less than $25,000 ................. 5.25% 5.54% 5.00%
$25,000 but less
than $50,000 ..................... 4.75 4.99 4.50
$50,000 but less
than $100,000 .................... 4.00 4.17 3.75
$100,000 but less
than $250,000 .................... 3.00 3.09 2.75
$250,000 but less
than $1,000,000 .................. 2.00 2.04 1.80
$1,000,000 and over** ............. 0.00 0.00 0.00
</TABLE>
- -------------------
* Rounded to the nearest one-hundredth percent.
** Initial sales charges may be waived for certain classes of offerees as set
forth in the current Prospectus and Statement of Additional Information of the
Fund. Such purchases may be subject to a contingent deferred sales charge as set
forth in the current Prospectus and Statement of Additional Information.
The term "purchase" refers to a single purchase by an individual, or to
concurrent purchases, which in the aggregate are at least equal to the
prescribed amounts, by an individual, his spouse and their children under the
age of 21 years
B-2
<PAGE> 26
purchasing Class A shares for his or their own account and to single purchases
by a trustee or other fiduciary purchasing Class A shares for a single trust
estate or single fiduciary account although more than one beneficiary is
involved. The term "purchase" also includes purchases by any "company" as that
term is defined in the Investment Company Act but does not include purchases by
any such company which has not been in existence for at least six months or
which has no purpose other than the purchase of Class A shares of the Fund or
Class A shares of other registered investment companies at a discount; provided,
however, that it shall not include purchases by any group of individuals whose
sole organizational nexus is that the participants therein are credit
cardholders of a company, policyholders of an insurance company, customers of
either a bank or broker-dealer or clients of an investment adviser.
The reduced sales charges are applicable through a right of
accumulation under which certain eligible investors are permitted to purchase
Class A shares of the Fund at the offering price applicable to the total of (a)
the dollar amount then being purchased plus (b) an amount equal to the then
current net asset value or cost, whichever is higher, of the purchaser's
combined holdings of Class A, Class B, Class C and Class D shares of the Fund
and of any other open-end investment company advised by Merrill Lynch Asset
Management, L.P. or Fund Asset Management, L.P. (together "MLAM-advised mutual
funds"). For any such right of accumulation to be made available, the
Distributor must be provided at the time of purchase, by the purchaser or you,
with sufficient information to permit confirmation of qualification, and
acceptance of the purchase order is subject to such confirmation.
The reduced sales charges are applicable to purchases aggregating
$25,000 or more of Class A shares or of Class D shares of any other MLAM-advised
mutual fund made through you within a thirteen-month period starting with the
first purchase pursuant to a Letter of Intention in the form provided in the
Prospectus. A purchase not originally made pursuant to a Letter of Intention may
be included under a subsequent letter executed within 90 days of such purchase
if the Distributor is informed in writing of this intent within such 90-day
period. If the intended amount of shares is not purchased within the
thirteen-month period, an appropriate price adjustment will be made pursuant to
the terms of the Letter of Intention.
You agree to advise us promptly at our request as to amounts of any
sales made by you to eligible investors qualifying for reduced sales charges.
Further information as to the reduced sales charges pursuant to the right of
accumulation or a Letter
B-3
<PAGE> 27
of Intention is set forth in the Prospectus and Statement of Additional
Information.
4. You shall not place orders for any of the Class A shares unless you
have already received purchase orders for such Class A shares at the applicable
public offering prices and subject to the terms hereof and of the Distribution
Agreement. You agree that you will not offer or sell any of the Class A shares
except under circumstances that will result in compliance with the applicable
Federal and state securities laws and that in connection with sales and offers
to sell Class A shares you will furnish to each person to whom any such sale or
offer is made a copy of the Prospectus and, if requested, the Statement of
Additional Information (as then amended or supplemented) and will not furnish to
any person any information relating to the Class A shares of the Fund which is
inconsistent in any respect with the information contained in the Prospectus and
Statement of Additional Information (as then amended or supplemented) or cause
any advertisement to be published in any newspaper or posted in any public place
without our consent and the consent of the Fund.
5. As a selected dealer, you are hereby authorized (i) to place orders
directly with the Fund for Class A shares of the Fund to be resold by us to you
subject to the applicable terms and conditions governing the placement of orders
by us set forth in Section 3 of the Distribution Agreement and subject to the
compensation provisions of Section 3 hereof and (ii) to tender Class A shares
directly to the Fund or its agent for redemption subject to the applicable terms
and conditions set forth in Section 4 of the Distribution Agreement.
6. You shall not withhold placing orders received from your customers
so as to profit yourself as a result of such withholding: e.g., by a change in
the "net asset value" from that used in determining the offering price to your
customers.
7. If any Class A shares sold to you under the terms of this Agreement
are repurchased by the Fund or by us for the account of the Fund or are tendered
for redemption within seven business days after the date of the confirmation of
the original purchase by you, it is agreed that you shall forfeit your right to,
and refund to us, any discount received by you on such Class A shares.
8. No person is authorized to make any representations concerning Class
A shares of the Fund except those contained in the current Prospectus and
Statement of Additional Information of the Fund and in such printed information
subsequently issued by us or the Fund as information supplemental to such
Prospectus and
B-4
<PAGE> 28
Statement of Additional Information. In purchasing Class A shares through us you
shall rely solely on the representations contained in the Prospectus and
Statement of Additional Information and supplemental information above
mentioned. Any printed information which we furnish you other than the Fund's
Prospectus, Statement of Additional Information, periodic reports and proxy
solicitation material is our sole responsibility and not the responsibility of
the Fund, and you agree that the Fund shall have no liability or responsibility
to you in these respects unless expressly assumed in connection therewith.
9. You agree to deliver to each of the purchasers making purchases from
you a copy of the then current Prospectus and, if requested, the Statement of
Additional Information at or prior to the time of offering or sale and you agree
thereafter to deliver to such purchasers copies of the annual and interim
reports and proxy solicitation materials of the Fund. You further agree to
endeavor to obtain proxies from such purchasers. Additional copies of the
Prospectus and Statement of Additional Information, annual or interim reports
and proxy solicitation materials of the Fund will be supplied to you in
reasonable quantities upon request.
10. We reserve the right in our discretion, without notice, to suspend
sales or withdraw the offering of Class A shares entirely or to certain persons
or entities in a class or classes specified by us. Each party hereto has the
right to cancel this agreement upon notice to the other party.
11. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the continuous offering. We
shall be under no liability to you except for lack of good faith and for
obligations expressly assumed by us herein. Nothing contained in this paragraph
is intended to operate as, and the provisions of this paragraph shall not in any
way whatsoever constitute, a waiver by you of compliance with any provision of
the Securities Act of 1933, as amended, or of the rules and regulations of the
Securities and Exchange Commission issued thereunder.
12. You represent that you are a member of the National Association of
Securities Dealers, Inc. and, with respect to any sales in the United States, we
both hereby agree to abide by the Conduct Rules of such Association.
13. Upon application to us, we will inform you as to the states in
which we believe the Class A shares have been qualified for sale under, or are
exempt from the requirements of, the respective securities laws of such states,
but we assume no responsibility or obligation as to your right to sell Class A
B-5
<PAGE> 29
shares in any jurisdiction. We will file with the Department of State in New
York a Further State Notice with respect to the Class A shares, if necessary.
14. All communications to us should be sent to the address below. Any
notice to you shall be duly given if mailed or telegraphed to you at the address
specified by you below.
15. Your first order placed pursuant to this Agreement for the purchase
of Class A shares of the Fund will represent your acceptance of this Agreement.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By __________________________________
(Authorized Signature)
Please return one signed copy
of this Agreement to:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
Box 9081
Princeton, New Jersey 08543-9081
Accepted:
Firm Name: ____________________________________________________________
By: ______________________________________________________________
Address: _________________________________________________________
_________________________________________________________
Date: ____________________________________________________________
B-6
<PAGE> 1
Exhibit 6(b)
CLASS B SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the day of , 1997, between MERRILL
LYNCH REAL ESTATE FUND, INC., a Maryland corporation (the "Fund"), and MERRILL
LYNCH FUNDS DISTRIBUTOR, INC., a Delaware corporation (the "Distributor").
W I T N E S S E T H :
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the "Investment Company Act"), as an open-end investment
company and it is affirmatively in the interest of the Fund to offer its shares
for sale continuously; and
WHEREAS, the Distributor is a securities firm engaged in the business
of selling shares of investment companies either directly to purchasers or
through other securities dealers; and
WHEREAS, the Fund and the Distributor wish to enter into an agreement
with each other with respect to the continuous offering of the Class B shares of
the Fund.
NOW, THEREFORE, the parties agree as follows:
<PAGE> 2
Section 1. Appointment of the Distributor. The Fund hereby appoints the
Distributor as the principal underwriter and distributor of the Fund to sell
Class B shares of common stock of the Fund (sometimes herein referred to as
"Class B shares") to the public and hereby agrees during the term of this
Agreement to sell shares of the Fund to the Distributor upon the terms and
conditions herein set forth.
Section 2. Exclusive Nature of Duties. The Distributor shall be the
exclusive representative of the Fund to act as principal underwriter and
distributor of the Class B shares, except that:
(a) The Fund may, upon written notice to the Distributor, from time to
time designate other principal underwriters and distributors of Class B shares
with respect to areas other than the United States as to which the Distributor
may have expressly waived in writing its right to act as such. If such
designation is deemed exclusive, the right of the Distributor under this
Agreement to sell Class B shares in the areas so designated shall terminate, but
this Agreement shall remain otherwise in full effect until terminated in
accordance with the other provisions hereof.
(b) The exclusive rights granted to the Distributor to purchase Class B
shares from the Fund shall not apply to Class B shares of the Fund issued in
connection with the merger or consolidation of any other investment company or
personal holding
2
<PAGE> 3
company with the Fund or the acquisition by purchase or otherwise of all (or
substantially all) the assets or the outstanding Class B shares of any such
company by the Fund.
(c) Such exclusive rights also shall not apply to Class B shares issued
by the Fund pursuant to reinvestment of dividends or capital gains
distributions.
(d) Such exclusive rights also shall not apply to Class B shares issued
by the Fund pursuant to any reinstatement privilege afforded redeeming
shareholders or any other Class B shares as shall be equal between the Fund and
the Distributor from time to time.
Section 3. Purchase of Class B Shares from the Fund.
(a) Prior to the continuous offering of the Class B shares,
commencing on a date agreed upon by the Fund and the Distributor, it is
contemplated that the Distributor will solicit subscriptions for Class B shares
during a subscription period which shall last for such period as may be agreed
upon by the parties hereto. The subscriptions will be payable within three
business days after the termination of the subscription period, at which time
the Fund will commence operations.
(b) After the Fund commences operations, the Fund will commence an
offering of its Class B shares and thereafter the Distributor shall have the
right to buy from the Fund the Class B shares needed, but not more than the
Class B shares needed (except for clerical errors in transmission) to fill
3
<PAGE> 4
unconditional orders for Class B shares of the Fund placed with the Distributor
by eligible investors or securities dealers. Investors eligible to purchase
Class B shares shall be those persons so identified in the currently effective
prospectus and statement of additional information of the Fund (the "prospectus"
and "statement of additional information", respectively) under the Securities
Act of 1933, as amended (the "Securities Act"), relating to such Class B shares.
The price which the Distributor shall pay for the Class B shares so purchased
from the Fund shall be the net asset value, determined as set forth in Section
3(d) hereof.
(c) The Class B shares are to be resold by the Distributor to investors
at net asset value, as set forth in Section 3(d) hereof, or to securities
dealers having agreements with the Distributor upon the terms and conditions set
forth in Section 7 hereof.
(d) The net asset value of Class B shares of the Fund shall be
determined by the Fund or any agent of the Fund in accordance with the method
set forth in the prospectus and statement of additional information and
guidelines established by the Board of Directors.
(e) The Fund shall have the right to suspend the sale of its Class B
shares at times when redemption is suspended pursuant to the conditions set
forth in Section 4(b) hereof. The Fund shall also have the right to suspend the
sale of its Class B
4
<PAGE> 5
shares if trading on the New York Stock Exchange shall have been suspended, if a
banking moratorium shall have been declared by Federal or New York authorities,
or if there shall have been some other event, which, in the judgment of the
Fund, makes it impracticable or inadvisable to sell the shares.
(f) The Fund, or any agent of the Fund designated in writing by the
Fund, shall be promptly advised of all purchase orders for Class B shares
received by the Distributor. Any order may be rejected by the Fund; provided,
however, that the Fund will not arbitrarily or without reasonable cause refuse
to accept or confirm orders for the purchase of Class B shares. The Fund (or its
agent) will confirm orders upon their receipt, will make appropriate book
entries and, upon receipt by the Fund (or its agent) of payment therefor, will
deliver deposit receipts or certificates for such Class B shares pursuant to the
instructions of the Distributor. Payment shall be made to the Fund in New York
Clearing House funds. The Distributor agrees to cause such payment and such
instructions to be delivered promptly to the Fund (or its agent).
Section 4. Repurchase or Redemption of Class B Shares by the Fund.
(a) Any of the outstanding Class B shares may be tendered for
redemption at any time, and the Fund agrees to repurchase or redeem the Class B
shares so tendered in accordance with its obligations as set forth in Article VI
of its Articles of
5
<PAGE> 6
Incorporation, as amended from time to time, and in accordance with the
applicable provisions set forth in the prospectus and statement of additional
information of the Fund. The price to be paid to redeem or repurchase the Class
B shares shall be equal to the net asset value calculated in accordance with the
provisions of Section 3(d) hereof, less any contingent deferred sales charge
("CDSC"), redemption fee(s) or other charge(s), if any, set forth in the
prospectus and statement of additional information of the Fund. All payments by
the Fund hereunder shall be made in the manner set forth below.
The Fund shall pay the total amount of the redemption price as defined
in the above paragraph pursuant to the instructions of the Distributor on or
before the seventh business day subsequent to its having received the notice of
redemption in proper form. The proceeds of any redemption of shares shall be
paid by the Fund as follows (i) any applicable CDSC shall be paid to the
Distributor, and (ii) the balance shall be paid to or for the account of the
shareholder, in each case in accordance with the applicable provisions of the
prospectus and statement of additional information.
(b) Redemption of Class B shares or payment may be suspended at times
when the New York Stock Exchange is closed, when trading on said Exchange is
closed, when trading on said Exchange is suspended, when trading on said
Exchange is restricted, when an emergency exists as a result of which
6
<PAGE> 7
disposal by the Fund of securities owned by it is not reasonably practicable or
it is not reasonably practicable for the Fund fairly to determine the value of
its net assets, or during any other period when the Securities and Exchange
Commission, by order, so permits.
Section 5. Duties of the Fund.
(a) The Fund shall furnish to the Distributor copies of all
information, financial statements and other papers which the Distributor may
reasonably request for use in connection with the distribution of Class B shares
of the Fund, and this shall include, upon request by the Distributor, one
certified copy of all financial statements prepared for the Fund by independent
public accountants. The Fund shall make available to the Distributor such number
of copies of its prospectus and statement of additional information as the
Distributor shall reasonably request.
(b) The Fund shall take, from time to time, but subject to the
necessary approval of the shareholders, all necessary action to fix the number
of authorized shares and such steps as may be necessary to register the same
under the Securities Act to the end that there will be available for sale such
number of Class B shares as the Distributor reasonably may be expected to sell.
(c) The Fund shall use its best efforts to qualify and maintain the
qualification of an appropriate number of its Class B shares for sale under the
securities laws of such states as the
7
<PAGE> 8
Distributor and the Fund may approve. Any such qualification may be withheld,
terminated or withdrawn by the Fund at any time in its discretion. As provided
in Section 8(c) hereof, the expense of qualification and maintenance of
qualification shall be borne by the Fund. The Distributor shall furnish such
information and other material relating to its affairs and activities as may be
required by the Fund in connection with such qualification.
(d) The Fund will furnish, in reasonable quantities upon request by the
Distributor, copies of annual and interim reports of the Fund.
Section 6. Duties of the Distributor.
(a) The Distributor shall devote reasonable time and effort to effect
sales of Class B shares of the Fund, but shall not be obligated to sell any
specific number of shares. The services of the Distributor to the Fund hereunder
are not to be deemed exclusive and nothing herein contained shall prevent the
Distributor from entering into like arrangements with other investment companies
so long as the performance of its obligations hereunder is not impaired thereby.
(b) In selling the Class B shares of the Fund, the Distributor shall
use its best efforts in all respects duly to conform with the requirements of
all Federal and state laws relating to the sale of such securities. Neither the
Distributor nor any selected dealer, as defined in Section 7 hereof, nor any
other person is authorized by the Fund to give any information or
8
<PAGE> 9
to make any representations, other than those contained in the registration
statement or related prospectus and statement of additional information and any
sales literature specifically approved by the Fund.
(c) The Distributor shall adopt and follow procedures, as approved by
the officers of the Fund, for the confirmation of sales to investors and
selected dealers, the collection of amounts payable by investors and selected
dealers on such sales, and the cancellation of unsettled transactions, as may be
necessary to comply with the requirements of the National Association of
Securities Dealers, Inc. (the "NASD"), as such requirements may from time to
time exist.
Section 7. Selected Dealer Agreements.
(a) The Distributor shall have the right to enter into
selected dealer agreements with securities dealers of its choice ("selected
dealers") for the sale of Class B shares; provided, that the Fund shall approve
the forms of agreements with dealers. Class B shares sold to selected dealers
shall be for resale by such dealers only at net asset value determined as set
forth in Section 3(d) hereof. The form of agreement with selected dealers to be
used during the subscription period described in Section 3(a) is attached hereto
as Exhibit A and the initial form of agreement with selected dealers to be used
in the continuous offering of the shares is attached hereto as Exhibit B.
9
<PAGE> 10
(b) Within the United States, the Distributor shall offer and sell
Class B shares only to such selected dealers that are members in good standing
of the NASD.
Section 8. Payment of Expenses.
(a) The Fund shall bear all costs and expenses of the Fund, including
fees and disbursements of its counsel and auditors, in connection with the
preparation and filing of any required registration statements and/or
prospectuses and statements of additional information under the Investment
Company Act, the Securities Act, and all amendments and supplements thereto, and
preparing and mailing annual and interim reports and proxy materials to Class B
shareholders (including but not limited to the expense of setting in type any
such registration statements, prospectuses, statements of additional
information, annual or interim reports or proxy materials).
(b) The Distributor shall be responsible for any payments made to
selected dealers as reimbursement for their expenses associated with payments of
sales commissions to financial consultants. In addition, after the prospectuses,
statements of additional information and annual and interim reports have been
prepared and set in type, the Distributor shall bear the costs and expenses of
printing and distributing any copies thereof which are to be used in connection
with the offering of Class B shares to selected dealers or investors pursuant to
this Agreement. The Distributor shall bear the costs and expenses of
10
<PAGE> 11
preparing, printing and distributing any other literature used by the
Distributor or furnished by it for use by selected dealers in connection with
the offering of the Class B shares for sale to the public and any expenses of
advertising incurred by the Distributor in connection with such offering. It is
understood and agreed that, so long as the Fund's Class B Shares Distribution
Plan pursuant to Rule 12b-1 under the Investment Company Act remains in effect,
any expenses incurred by the Distributor hereunder may be paid from amounts
recovered by it from the Fund under such Plan.
(c) The Fund shall bear the cost and expenses of qualification of the
Class B shares for sale pursuant to this Agreement, and, if necessary or
advisable in connection therewith, of qualifying the Fund as a broker or dealer
in such states of the United States or other jurisdictions as shall be selected
by the Fund and the Distributor pursuant to Section 5(c) hereof and the cost and
expenses payable to each such state for continuing qualification therein until
the Fund decides to discontinue such qualification pursuant to Section 5(c)
hereof.
Section 9. Indemnification.
(a) The Fund shall indemnify and hold harmless the Distributor and each
person, if any, who controls the Distributor against any loss, liability, claim,
damage or expense (including the reasonable cost of investigating or defending
any alleged loss, liability, claim, damage or expense and reasonable counsel
11
<PAGE> 12
fees incurred in connection therewith), as incurred, arising by reason of any
person acquiring any Class B shares, which may be based upon the Securities Act,
or on any other statute or at common law, on the ground that the registration
statement or related prospectus and statement of additional information, as from
time to time amended and supplemented, or an annual or interim report to Class B
shareholders of the Fund, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading, unless such statement or
omission was made in reliance upon, and in conformity with, information
furnished to the Fund in connection therewith by or on behalf of the
Distributor; provided, however, that in no case (i) is the indemnity of the Fund
in favor of the Distributor and any such controlling persons to be deemed to
protect such Distributor or any such controlling persons thereof against any
liability to the Fund or its security holders to which the Distributor or any
such controlling persons would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of their duties or
by reason of the reckless disregard of their obligations and duties under this
Agreement; or (ii) is the Fund to be liable under its indemnity agreement
contained in this paragraph with respect to any claim made against the
Distributor or any such controlling persons, unless the Distributor or such
controlling persons, as the case
12
<PAGE> 13
may be, shall have notified the Fund in writing within a reasonable time after
the summons or other first legal process giving information of the nature of the
claim shall have been served upon the Distributor or such controlling persons
(or after the Distributor or such controlling persons shall have received notice
of such service on any designated agent), but failure to notify the Fund of any
such claim shall not relieve it from any liability which it may have to the
person against whom such action is brought otherwise than on account of its
indemnity agreement contained in this paragraph. The Fund will be entitled to
participate at its own expense in the defense, or, if it so elects, to assume
the defense of any suit brought to enforce any such liability, but if the Fund
elects to assume the defense, such defense shall be conducted by counsel chosen
by it and satisfactory to the Distributor or such controlling person or persons,
defendant or defendants in the suit. In the event the Fund elects to assume the
defense of any such suit and retain such counsel, the Distributor or such
controlling person or persons, defendant or defendants in the suit, shall bear
the fees and expenses, as incurred, of any additional counsel retained by them,
but, in case the Fund does not elect to assume the defense of any such suit, it
will reimburse the Distributor or such controlling person or persons, defendant
or defendants in the suit, for the reasonable fees and expenses, as incurred, of
any counsel retained by them. The Fund shall promptly notify the
13
<PAGE> 14
Distributor of the commencement of any litigation or proceedings against it or
any of its officers or Directors in connection with the issuance or sale of any
of the Class B shares.
(b) The Distributor shall indemnify and hold harmless the Fund and each
of its Directors and officers and each person, if any, who controls the Fund
against any loss, liability, claim, damage or expense, as incurred, described in
the foregoing indemnity contained in subsection (a) of this Section, but only
with respect to statements or omissions made in reliance upon, and in conformity
with, information furnished to the Fund in writing by or on behalf of the
Distributor for use in connection with the registration statement or related
prospectus and statement of additional information, as from time to time
amended, or the annual or interim reports to shareholders. In case any action
shall be brought against the Fund or any person so indemnified, in respect of
which indemnity may be sought against the Distributor, the Distributor shall
have the rights and duties given to the Fund, and the Fund and each person so
indemnified shall have the rights and duties given to the Distributor by the
provisions of subsection (a) of this Section 9.
Section 10. Merrill Lynch Mutual Fund Advisor Program. In connection
with the Merrill Lynch Mutual Fund Advisor (Merrill Lynch MFA(SM)) Program, the
Distributor and its affiliate, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, are authorized to
14
<PAGE> 15
offer and sell shares of the Fund, as agent for the Fund, to participants in
such program. The terms of this Agreement shall apply to such sales, including
terms as to the offering price of shares, the proceeds to be paid to the Fund,
the duties of the Distributor, the payment of expenses and indemnification
obligations of the Fund and the Distributor.
Section 11. Duration and Termination of this Agreement. This Agreement
shall become effective as of the date first above written and shall remain in
force until _________, 1999, and thereafter, but only so long as such
continuance is specifically approved at least annually by (i) the Directors, or
by the vote of a majority of the outstanding voting securities of the Fund, and
(ii) by the vote of a majority of those Directors who are not parties to this
Agreement or interested persons of any such party cast in person at a meeting
called for the purpose of voting on such approval.
This Agreement may be terminated at any time, without the payment of
any penalty, by the Directors or by vote of a majority of the outstanding voting
securities of the Fund, or by the Distributor, on sixty days' written notice to
the other party. This Agreement shall automatically terminate in the event of
its assignment.
The terms "vote of a majority of the outstanding voting securities",
"assignment", "affiliated person" and "interested
15
<PAGE> 16
person," when used in this Agreement, shall have the respective meanings
specified in the Investment Company Act.
Section 12. Amendments of this Agreement. This Agreement may be amended
by the parties only if such amendment is specifically approved by (i) the
Directors, or by the vote of a majority of outstanding voting securities of the
Fund, and (ii) by the vote of a majority of those Directors of the Fund who are
not parties to this Agreement or interested persons of any such party cast in
person at a meeting called for the purpose of voting on such approval.
Section 13. Governing Law. The provisions of this Agreement shall be
construed and interpreted in accordance with the laws of the State of New York
as at the time in effect and the applicable provisions of the Investment Company
Act. To the extent that the applicable law of the State of New York, or any of
the provisions herein, conflict with the applicable provisions of the Investment
Company Act, the latter shall control.
16
<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
MERRILL LYNCH REAL ESTATE FUND, INC.
By__________________________________________
Name:
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By__________________________________________
Name:
Title:
17
<PAGE> 18
EXHIBIT A
MERRILL LYNCH REAL ESTATE FUND, INC.
CLASS B SHARES OF COMMON STOCK
SELECTED DEALER AGREEMENT
FOR SUBSCRIPTION PERIOD
Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor") has an
agreement with Merrill Lynch Real Estate Fund, Inc., a Maryland corporation (the
"Fund"), pursuant to which it acts as the distributor for the sale of Class B
shares of common stock, par value $0.10 per share (herein referred to as "Class
B shares"), of the Fund, and as such has the right to distribute Class B shares
of the Fund for resale. The Fund is an open-end investment company registered
under the Investment Company Act of 1940, as amended, and its Class B shares
being offered to the public are registered under the Securities Act of 1933, as
amended (the "Securities Act"). Such Class B shares and certain of the terms on
which they are being offered are more fully described in the enclosed Prospectus
and Statement of Additional Information. You have received a copy of the Class B
shares Distribution Agreement (the "Distribution Agreement") between ourself and
the Fund and reference is made herein to certain provisions of such Distribution
Agreement. This Agreement relates solely to the subscription period described in
Section 3(a) of such Distribution Agreement. Subject to the foregoing, as
principal, we offer to sell to you, as a member of the Selected Dealers Group,
Class B shares of the Fund upon the following terms and conditions:
1. The subscription period referred to in Section 3(a) of the
Distribution Agreement will continue through __________, 199_. The subscription
period may be extended upon agreement between the Fund and the Distributor.
Subject to the provisions of such Section and the conditions contained herein,
we will sell to you on the third business day following the termination of the
subscription period, or such other date as we may advise (the "Closing Date"),
such number of Class B shares as to which you have placed orders with us not
later than 5:00 P.M. on the second full business day preceding the Closing Date.
A-1
<PAGE> 19
2. In all sales of these Class B shares to the public you shall act as
dealer for your own account, and in no transaction shall you have any authority
to act as agent for the Fund, for us or for any other member of the Selected
Dealers Group, except in connection with the Merrill Lynch Mutual Fund Advisor
(Merrill Lynch MFA(SM)) Program and such other programs as we from time to time
agree, in which case you shall have authority to offer and sell shares, as agent
for the Fund, to participants in such program.
3. You shall not place orders for any of the Class B shares unless you
have already received purchase orders for such Class B shares at the applicable
public offering prices and subject to the terms hereof and of the Distribution
Agreement. All orders are subject to acceptance by the Distributor or the Fund
in the sole discretion of either. The minimum initial and subsequent purchase
requirements are as set forth in the Prospectus, as amended from time to time.
You agree that you will not offer or sell any of the Class B shares except under
circumstances that will result in compliance with the applicable Federal and
state securities laws and that in connection with sales and offers to sell Class
B shares you will furnish to each person to whom any such sale or offer is made
a copy of the Prospectus and, if requested, the Statement of Additional
Information (as then amended or supplemented) and will not furnish to any person
any information relating to the Class B shares of the Fund which is inconsistent
in any respect with the information contained in the Prospectus and Statement of
Additional Information (as then amended or supplemented) or cause any
advertisement to be published in any newspaper or posted in any public place
without our consent and the consent of the Fund.
4. Payment for Class B shares purchased by you is to be made by
certified or official bank check at the office of Merrill Lynch Funds
Distributor, Inc., Box 9081, Princeton, New Jersey 08543-9081, on such date as
we may advise, in New York Clearing House funds payable to the order of Merrill
Lynch Funds Distributor, Inc., or by federal funds wire transfer, against
delivery by us of non-negotiable share deposit receipts ("Receipts") issued by
Merrill Lynch Financial Data Services, Inc., as shareholder servicing agent,
acknowledging the deposit with it of the Class B shares so purchased by you. You
agree that as promptly as practicable after the delivery of such Class B shares
you will issue appropriate written transfer instructions to the Fund or to the
shareholder servicing agent as to the purchasers to whom you sold the Class B
shares.
A-2
<PAGE> 20
5. No person is authorized to make any representations concerning Class
B shares of the Fund except those contained in the current Prospectus and
Statement of Additional Information of the Fund and in such printed information
subsequently issued by us or the Fund as information supplemental to such
Prospectus and Statement of Additional Information. In purchasing Class B shares
through us you shall rely solely on the representations contained in the
Prospectus and Statement of Additional Information and supplemental information
above mentioned. Any printed information which we furnish you other than the
Fund's Prospectus and Statement of Additional Information, periodic reports and
proxy solicitation material are our sole responsibility and not the
responsibility of the Fund, and you agree that the Fund shall have no liability
or responsibility to you in these respects unless expressly assumed in
connection therewith.
6. You agree to deliver to each of the purchasers making purchases from
you a copy of the then current Prospectus and, if requested, the Statement of
Additional Information at or prior to the time of offering or sale and you agree
thereafter to deliver to such purchasers copies of the annual and interim
reports and proxy solicitation materials of the Fund. You further agree to
endeavor to obtain Proxies from such purchasers. Additional copies of the
Prospectus and Statement of Additional Information, annual or interim reports
and proxy solicitation materials of the Fund will be supplied to you in
reasonable quantities upon request.
7. We reserve the right in our discretion, without notice, to suspend
sales or withdraw the offering of Class B shares entirely. Each party hereto has
the right to cancel this Agreement upon notice to the other party.
8. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the continuous offering. We
shall be under no liability to you except for lack of good faith and for
obligations expressly assumed by us herein. Nothing contained in this paragraph
is intended to operate as, and the provisions of this paragraph shall not in any
way whatsoever constitute, a waiver by you of compliance with any provision of
the Securities Act, or of the rules and regulations of the Securities and
Exchange Commission issued thereunder.
9. You represent that you are a member of the National Association of
Securities Dealers, Inc. and, with respect to any
A-3
<PAGE> 21
sales in the United States, we both hereby agree to abide by the Conduct Rules
of such Association.
10. Upon application to us, we will inform you as to the states in
which we believe the Class B shares have been qualified for sale under, or are
exempt from the requirements of, the respective securities laws of such states,
but we assume no responsibility or obligation as to your right to sell Class B
shares in any jurisdiction. We will file with the Department of State in New
York a Further State Notice with respect to the Class B shares, if necessary.
11. All communications to us should be sent to the address below. Any
notice to you shall be duly given if mailed or telegraphed to you at the address
specified by you below.
12. You agree that you will not sell any Class B shares of the Fund to
any account over which you exercise discretionary authority.
13. This Agreement shall terminate at the close of business on the
Closing Date, unless earlier terminated, provided, however, this Agreement shall
continue after termination for the purpose of settlement of accounts hereunder.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By__________________________________________
(Authorized Signature)
Please return one signed copy of this Agreement to:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
Box 9081
Princeton, New Jersey 08543-9081
Accepted:
Firm Name:____________________________________________________
By:___________________________________________________________
Address:______________________________________________________
A-4
<PAGE> 22
______________________________________________________________
Date:_________________________________________________________
A-5
<PAGE> 23
EXHIBIT B
MERRILL LYNCH REAL ESTATE FUND, INC.
CLASS B SHARES OF COMMON STOCK
SELECTED DEALER AGREEMENT
Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor") has an
agreement with Merrill Lynch Real Estate Fund, Inc., a Maryland corporation (the
"Fund"), pursuant to which it acts as the distributor for the sale of Class B
shares of common stock, par value $0.10 per share (herein referred to as the
"Class B shares"), of the Fund, and as such has the right to distribute Class B
shares of the Fund for resale. The Fund is an open-end investment company
registered under the Investment Company Act of 1940, as amended, and its Class B
shares being offered to the public are registered under the Securities Act of
1933, as amended (the "Securities Act"). You have received a copy of the Class B
shares Distribution Agreement (the "Distribution Agreement") between ourself and
the Fund and reference is made herein to certain provisions of such Distribution
Agreement. The terms "Prospectus" and "Statement of Additional Information" as
used herein refer to the prospectus and statement of additional information,
respectively, on file with the Securities and Exchange Commission (the
"Commission") which is part of the most recent effective registration statement
pursuant to the Securities Act. We offer to sell to you, as a member of the
Selected Dealers Group, Class B shares of the Fund upon the following terms and
conditions:
1. In all sales of these Class B shares to the public you shall act as
dealer for your own account, and in no transaction shall you have any authority
to act as agent for the Fund, for us or for any other member of the Selected
Dealers Group, except in connection with the Merrill Lynch Mutual Fund Advisor
(Merrill Lynch MFA(SM)) Program and such other special programs as we from time
to time agree, in which case you shall have authority to offer and sell shares,
as agent for the Fund, to participants in such program.
2. Orders received from you will be accepted through us only at the
public offering price applicable to each order, as set forth in the current
Prospectus and Statement of Additional Information of the Fund. The procedure
relating to the handling of orders shall be subject to Section 4 hereof and
instructions which we or the Fund shall forward from time to time to you. All
B-1
<PAGE> 24
orders are subject to acceptance or rejection by the Distributor or the Fund in
the sole discretion of either. The minimum initial and subsequent purchase
requirements are as set forth in the current Prospectus and Statement of
Additional Information of the Fund.
3. You shall not place orders for any of the Class B shares unless you
have already received purchase orders for such Class B shares at the applicable
public offering prices and subject to the terms hereof and of the Distribution
Agreement. You agree that you will not offer or sell any of the Class B shares
except under circumstances that will result in compliance with the applicable
Federal and state securities laws and that in connection with sales and offers
to sell Class B shares you will furnish to each person to whom any such sale or
offer is made a copy of the Prospectus and, if requested, the Statement of
Additional Information (as then amended or supplemented) and will not furnish to
any person any information relating to the Class B shares of the Fund, which is
inconsistent in any respect with the information contained in the Prospectus and
Statement of Additional Information (as then amended or supplemented) or cause
any advertisement to be published in any newspaper or posted in any public place
without our consent and the consent of the Fund.
4. As a selected dealer, you are hereby authorized (i) to place orders
directly with the Fund for Class B shares of the Fund to be resold by us to you
subject to the applicable terms and conditions governing the placement of orders
by us set forth in Section 3 of the Distribution Agreement, and (ii) to tender
Class B shares directly to the Fund or its agent for redemption subject to the
applicable terms and conditions set forth in Section 4 of the Distribution
Agreement.
5. You shall not withhold placing orders received from your customers
so as to profit yourself as a result of such withholding: e.g., by a change in
the "net asset value" from that used in determining the offering price to your
customers.
6. No person is authorized to make any representations concerning Class
B shares of the Fund except those contained in the current Prospectus and
Statement of Additional Information of the Fund and in such printed information
subsequently issued by us or the Fund as information supplemental to such
Prospectus and Statement of Additional Information. In purchasing Class B shares
through us you shall rely solely on the representations contained in the
Prospectus and Statement of Additional Information and supplemental information
above mentioned. Any printed information which we furnish you other than the
Fund's Prospectus, Statement of Additional Information, periodic reports and
proxy solicitation material are our sole responsibility and not the
responsibility of the Fund, and you agree that the Fund
B-2
<PAGE> 25
shall have no liability or responsibility to you in these respects unless
expressly assumed in connection therewith.
7. You agree to deliver to each of the purchasers making purchases from
you a copy of the then current Prospectus and, if requested, the Statement of
Additional Information at or prior to the time of offering or sale and you agree
thereafter to deliver to such purchasers copies of the annual and interim
reports and proxy solicitation materials of the Fund. You further agree to
endeavor to obtain proxies from such purchasers. Additional copies of the
Prospectus and Statement of Additional Information, annual or interim reports
and proxy solicitation materials of the Fund will be supplied to you in
reasonable quantities upon request.
8. We reserve the right in our discretion, without notice, to suspend
sales or withdraw the offering of Class B shares entirely or to certain persons
or entities in a class or classes specified by us. Each party hereto has the
right to cancel this Agreement upon notice to the other party.
9. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the continuous offering. We
shall be under no liability to you except for lack of good faith and for
obligations expressly assumed by us herein. Nothing contained in this paragraph
is intended to operate as, and the provisions of this paragraph shall not in any
way whatsoever constitute, a waiver by you of compliance with any provision of
the Securities Act, or of the rules and regulations of the Commission issued
thereunder.
10. You represent that you are a member of the National Association of
Securities Dealers, Inc. and, with respect to any sales in the United States, we
both hereby agree to abide by the Conduct Rules of such Association.
11. Upon application to us, we will inform you as to the states in
which we believe the Class B shares have been qualified for sale under, or are
exempt from the requirements of, the respective securities laws of such states,
but we assume no responsibility or obligation as to your right to sell Class B
shares in any jurisdiction. We will file with the Department of State in New
York a Further State Notice with respect to the Class B shares, if necessary.
12. All communications to us should be sent to the address below. Any
notice to you shall be duly given if mailed or telegraphed to you at the address
specified by you below.
B-3
<PAGE> 26
13. Your first order placed pursuant to this Agreement for the purchase
of Class B shares of the Fund will represent your acceptance of this Agreement.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By__________________________________________
(Authorized Signature)
Please return one signed copy
of this Agreement to:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
Box 9081
Princeton, New Jersey 08543-9081
Accepted:
Firm Name:____________________________________________________
By:___________________________________________________________
Address:______________________________________________________
______________________________________________________________
Date:_________________________________________________________
B-4
<PAGE> 1
Exhibit 6(c)
CLASS C SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the day of , 1997, between MERRILL
LYNCH REAL ESTATE FUND, INC., a Maryland corporation (the "Fund"), and MERRILL
LYNCH FUNDS DISTRIBUTOR, INC., a Delaware corporation (the "Distributor").
W I T N E S S E T H :
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the "Investment Company Act"), as an open-end investment
company, and it is affirmatively in the interest of the Fund to offer its shares
for sale continuously; and
WHEREAS, the Distributor is a securities firm engaged in the business
of selling shares of investment companies either directly to purchasers or
through other securities dealers; and
WHEREAS, the Fund and the Distributor wish to enter into an agreement
with each other with respect to the continuous offering of the Fund's Class C
shares in order to promote the growth of the Fund and facilitate the
distribution of its Class C shares.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor. The Fund hereby appoints the
Distributor as the principal underwriter and distributor of the Fund to sell
Class C shares of common stock in
<PAGE> 2
the Fund (sometimes herein referred to as "Class C shares") to the public and
hereby agrees during the term of this Agreement to sell shares of the Fund to
the Distributor upon the terms and conditions herein set forth.
Section 2. Exclusive Nature of Duties. The Distributor
shall be the exclusive representative of the Fund to act as principal
underwriter and distributor of the Class C shares, except that:
(a) The Fund may, upon written notice to the Distributor, from time to
time designate other principal underwriters and distributors of Class C shares
with respect to areas other than the United States as to which the Distributor
may have expressly waived in writing its right to act as such. If such
designation is deemed exclusive, the right of the Distributor under this
Agreement to sell Class C shares in the areas so designated shall terminate, but
this Agreement shall remain otherwise in full effect until terminated in
accordance with the other provisions hereof.
(b) The exclusive right granted to the Distributor to purchase Class C
shares from the Fund shall not apply to Class C shares of the Fund issued in
connection with the merger or consolidation of any other investment company or
personal holding company with the Fund or the acquisition by purchase or
otherwise of all (or substantially all) the assets or the outstanding Class C
shares of any such company by the Fund.
2
<PAGE> 3
(c) Such exclusive right also shall not apply to Class C shares issued
by the Fund pursuant to reinvestment of dividends or capital gains
distributions.
(d) Such exclusive right also shall not apply to Class C shares issued
by the Fund pursuant to any conversion, exchange or reinstatement privilege
afforded redeeming shareholders or to any other Class C shares as shall be
agreed between the Fund and the Distributor from time to time.
Section 3. Purchase of Class C Shares from the Fund.
(a) Prior to the continuous offering of the Class C shares, commencing
on a date agreed upon by the Fund and the Distributor, it is contemplated that
the Distributor will solicit subscriptions for Class C shares during a
subscription period which shall last for such period as may be agreed upon by
the parties hereto. The subscriptions will be payable within three business days
after the termination of the subscription period, at which time the Fund will
commence operations.
(b) After the Fund commences operations, the Fund will commence an
offering of its Class C shares, and thereafter the Distributor shall have the
right to buy from the Fund the Class C shares needed, but not more than the
Class C shares needed (except for clerical errors in transmission) to fill
unconditional orders for Class C shares of the Fund placed with the Distributor
by eligible investors or securities dealers. Investors eligible to purchase
Class C shares shall be those
3
<PAGE> 4
persons so identified in the currently effective prospectus and statement of
additional information of the Fund (the "prospectus" and "statement of
additional information", respectively) under the Securities Act of 1933, as
amended (the "Securities Act"), relating to such Class C shares. The price which
the Distributor shall pay for the Class C shares so purchased from the Fund
shall be the net asset value, determined as set forth in Section 3(d) hereof.
(c) The Class C shares are to be resold by the Distributor to investors
at net asset value, as set forth in Section 3(d) hereof, or to securities
dealers having agreements with the Distributor upon the terms and conditions set
forth in Section 7 hereof.
(d) The net asset value of Class C shares of the Fund shall be
determined by the Fund or any agent of the Fund in accordance with the method
set forth in the prospectus and statement of additional information and
guidelines established by the Board of Directors.
(e) The Fund shall have the right to suspend the sale of its Class C
shares at times when redemption is suspended pursuant to the conditions set
forth in Section 4(b) hereof. The Fund shall also have the right to suspend the
sale of its Class C shares if trading on the New York Stock Exchange shall have
been suspended, if a banking moratorium shall have been declared by Federal or
New York authorities, or if there shall have been some
4
<PAGE> 5
other event, which, in the judgment of the Fund, makes it impracticable or
inadvisable to sell the Class C shares.
(f) The Fund, or any agent of the Fund designated in writing by the
Fund, shall be promptly advised of all purchase orders for Class C shares
received by the Distributor. Any order may be rejected by the Fund; provided,
however, that the Fund will not arbitrarily or without reasonable cause refuse
to accept or confirm orders for the purchase of Class C shares. The Fund (or its
agent) will confirm orders upon their receipt, will make appropriate book
entries and, upon receipt by the Fund (or its agent) of payment therefor, will
deliver deposit receipts or certificates for such Class C shares pursuant to the
instructions of the Distributor. Payment shall be made to the Fund in New York
Clearing House funds. The Distributor agrees to cause such payment and such
instructions to be delivered promptly to the Fund (or its agent).
Section 4. Repurchase or Redemption of Class C Shares by the Fund.
(a) Any of the outstanding Class C shares may be tendered for
redemption at any time, and the Fund agrees to repurchase or redeem the Class C
shares so tendered in accordance with its obligations as set forth in Article VI
of its Articles of Incorporation, as amended from time to time, and in
accordance with the applicable provisions set forth in the prospectus and
statement of additional information of the Fund. The price to be
5
<PAGE> 6
paid to redeem or repurchase the Class C shares shall be equal to the net asset
value calculated in accordance with the provisions of Section 3(d) hereof, less
any contingent deferred sales charge ("CDSC"), redemption fee or other
charge(s), if any, set forth in the prospectus and statement of additional
information of the Fund. All payments by the Fund hereunder shall be made in the
manner set forth below.
The Fund shall pay the total amount of the redemption price as defined
in the above paragraph pursuant to the instructions of the Distributor on or
before the seventh business day subsequent to its having received the notice of
redemption in proper form. The proceeds of any redemption of shares shall be
paid by the Fund as follows: (i) any applicable CDSC shall be paid to the
Distributor, and (ii) the balance shall be paid to or for the account of the
shareholder, in each case in accordance with the applicable provisions of the
prospectus and statement of additional information.
(b) Redemption of Class C shares or payment may be suspended at times
when the New York Stock Exchange is closed, when trading on said Exchange is
suspended, when trading on said Exchange is restricted, when an emergency exists
as a result of which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the Fund fairly
to determine the value of its net assets, or
6
<PAGE> 7
during any other period when the Securities and Exchange Commission, by order,
so permits.
Section 5. Duties of the Fund.
(a) The Fund shall furnish to the Distributor copies of all
information, financial statements and other papers which the Distributor may
reasonably request for use in connection with the distribution of Class C shares
of the Fund, and this shall include, upon request by the Distributor, one
certified copy of all financial statements prepared for the Fund by independent
public accountants. The Fund shall make available to the Distributor such number
of copies of its prospectus and statement of additional information as the
Distributor shall reasonably request.
(b) The Fund shall take, from time to time, but subject to any
necessary approval of the shareholders, all necessary action to fix the number
of authorized shares and such steps as may be necessary to register the same
under the Securities Act to the end that there will be available for sale such
number of Class C shares as the Distributor reasonably may be expected to sell.
(c) The Fund shall use its best efforts to qualify and maintain the
qualification of an appropriate number of its Class C shares for sale under the
securities laws of such states as the Distributor and the Fund may approve. Any
such qualification may be withheld, terminated or withdrawn by the Fund at any
time in its discretion. As provided in Section 8(c) hereof, the expense
7
<PAGE> 8
of qualification and maintenance of qualification shall be borne by the Fund.
The Distributor shall furnish such information and other material relating to
its affairs and activities as may be required by the Fund in connection with
such qualification.
(d) The Fund will furnish, in reasonable quantities upon request by the
Distributor, copies of annual and interim reports of the Fund.
Section 6. Duties of the Distributor.
(a) The Distributor shall devote reasonable time and effort to effect
sales of Class C shares of the Fund but shall not be obligated to sell any
specific number of shares. The services of the Distributor to the Fund hereunder
are not to be deemed exclusive and nothing herein contained shall prevent the
Distributor from entering into like arrangements with other investment companies
so long as the performance of its obligations hereunder is not impaired thereby.
(b) In selling the Class C shares of the Fund, the Distributor shall
use its best efforts in all respects duly to conform with the requirements of
all Federal and state laws relating to the sale of such securities. Neither the
Distributor nor any selected dealer, as defined in Section 7 hereof, nor any
other person is authorized by the Fund to give any information or to make any
representations, other than those contained in the registration statement or
related prospectus and statement of
8
<PAGE> 9
additional information and any sales literature specifically approved by the
Fund.
(c) The Distributor shall adopt and follow procedures, as approved by
the officers of the Fund, for the confirmation of sales to investors and
selected dealers, the collection of amounts payable by investors and selected
dealers on such sales, and the cancellation of unsettled transactions, as may be
necessary to comply with the requirements of the National Association of
Securities Dealers, Inc. (the "NASD"), as such requirements may from time to
time exist.
Section 7. Selected Dealer Agreements.
(a) The Distributor shall have the right to enter into
selected dealer agreements with securities dealers of its choice ("selected
dealers") for the sale of Class C shares; provided, that the Fund shall approve
the forms of agreements with dealers. Class C shares sold to selected dealers
shall be for resale by such dealers only at net asset value determined as set
forth in Section 3(d) hereof. The form of agreement with selected dealers to be
used during the subscription period described in Section 3(a) is attached hereto
as Exhibit A and the initial form of agreement with selected dealers to be used
in the continuous offering of the shares is attached hereto as Exhibit B.
(b) Within the United States, the Distributor shall offer and sell
Class C shares only to such selected dealers that are members in good standing
of the NASD.
9
<PAGE> 10
Section 8. Payment of Expenses.
(a) The Fund shall bear all costs and expenses of the Fund, including
fees and disbursements of its counsel and auditors, in connection with the
preparation and filing of any required registration statements and/or
prospectuses and statements of additional information under the Investment
Company Act, the Securities Act, and all amendments and supplements thereto, and
preparing and mailing annual and interim reports and proxy materials to Class C
shareholders (including but not limited to the expense of setting in type any
such registration statements, prospectuses, statements of additional
information, annual or interim reports or proxy materials).
(b) The Distributor shall be responsible for any payments made to
selected dealers as reimbursement for their expenses associated with payments of
sales commissions to financial consultants. In addition, after the prospectuses,
statements of additional information and annual and interim reports have been
prepared and set in type, the Distributor shall bear the costs and expenses of
printing and distributing any copies thereof which are to be used in connection
with the offering of Class C shares to selected dealers or investors pursuant to
this Agreement. The Distributor shall bear the costs and expenses of preparing,
printing and distributing any other literature used by the Distributor or
furnished by it for use by selected dealers in connection with the offering of
the Class C shares for sale to
10
<PAGE> 11
the public and any expenses of advertising incurred by the Distributor in
connection with such offering. It is understood and agreed that so long as the
Fund's Class C Shares Distribution Plan pursuant to Rule 12b-1 under the
Investment Company Act remains in effect, any expenses incurred by the
Distributor hereunder may be paid from amounts recovered by it from the Fund
under such Plan.
(c) The Fund shall bear the cost and expenses of qualification of the
Class C shares for sale pursuant to this Agreement and, if necessary or
advisable in connection therewith, of qualifying the Fund as a broker or dealer
in such states of the United States or other jurisdictions as shall be selected
by the Fund and the Distributor pursuant to Section 5(c) hereof and the cost and
expenses payable to each such state for continuing qualification therein until
the Fund decides to discontinue such qualification pursuant to Section 5(c)
hereof.
Section 9. Indemnification.
(a) The Fund shall indemnify and hold harmless the Distributor and each
person, if any, who controls the Distributor against any loss, liability, claim,
damage or expense (including the reasonable cost of investigating or defending
any alleged loss, liability, claim, damage or expense and reasonable counsel
fees incurred in connection therewith), as incurred, arising by reason of any
person acquiring any Class C shares, which may be based upon the Securities Act,
or on any other statute or at
11
<PAGE> 12
common law, on the ground that the registration statement or related prospectus
and statement of additional information, as from time to time amended and
supplemented, or an annual or interim report to Class C shareholders of the
Fund, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading, unless such statement or omission was made in
reliance upon, and in conformity with, information furnished to the Fund in
connection therewith by or on behalf of the Distributor; provided, however, that
in no case (i) is the indemnity of the Fund in favor of the Distributor and any
such controlling persons to be deemed to protect such Distributor or any such
controlling persons thereof against any liability to the Fund or its security
holders to which the Distributor or any such controlling persons would otherwise
be subject by reason of willful misfeasance, bad faith or gross negligence in
the performance of their duties or by reason of the reckless disregard of their
obligations and duties under this Agreement; or (ii) is the Fund to be liable
under its indemnity agreement contained in this paragraph with respect to any
claim made against the Distributor or any such controlling persons, unless the
Distributor or such controlling persons, as the case may be, shall have notified
the Fund in writing within a reasonable time after the summons or other first
legal process giving information of the nature of the claim shall have been
12
<PAGE> 13
served upon the Distributor or such controlling persons (or after the
Distributor or such controlling persons shall have received notice of such
service on any designated agent), but failure to notify the Fund of any such
claim shall not relieve it from any liability which it may have to the person
against whom such action is brought otherwise than on account of its indemnity
agreement contained in this paragraph. The Fund will be entitled to participate
at its own expense in the defense or, if it so elects, to assume the defense of
any suit brought to enforce any such liability, but if the Fund elects to assume
the defense, such defense shall be conducted by counsel chosen by it and
satisfactory to the Distributor or such controlling person or persons, defendant
or defendants in the suit. In the event the Fund elects to assume the defense of
any such suit and retain such counsel, the Distributor or such controlling
person or persons, defendant or defendants in the suit shall bear the fees and
expenses, as incurred, of any additional counsel retained by them, but in case
the Fund does not elect to assume the defense of any such suit, it will
reimburse the Distributor or such controlling person or persons, defendant or
defendants in the suit, for the reasonable fees and expenses, as incurred, of
any counsel retained by them. The Fund shall promptly notify the Distributor of
the commencement of any litigation or proceedings against it or any of its
officers or Directors in connection with the issuance or sale of any of the
Class C shares.
13
<PAGE> 14
(b) The Distributor shall indemnify and hold harmless the Fund and each
of its Directors and officers and each person, if any, who controls the Fund
against any loss, liability, claim, damage or expense, as incurred, described in
the foregoing indemnity contained in subsection (a) of this Section, but only
with respect to statements or omissions made in reliance upon, and in conformity
with, information furnished to the Fund in writing by or on behalf of the
Distributor for use in connection with the registration statement or related
prospectus and statement of additional information, as from time to time
amended, or the annual or interim reports to shareholders. In case any action
shall be brought against the Fund or any person so indemnified, in respect of
which indemnity may be sought against the Distributor, the Distributor shall
have the rights and duties given to the Fund, and the Fund and each person so
indemnified shall have the rights and duties given to the Distributor by the
provisions of subsection (a) of this Section 9.
Section 10. Merrill Lynch Mutual Fund Advisor Program. In connection
with the Merrill Lynch Mutual Fund Advisor (Merrill Lynch MFA(SM)) Program, the
Distributor and its affiliate, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, are authorized to offer and sell shares of the Fund, as agent for
the Fund, to participants in such program. The terms of this Agreement shall
apply to such sales, including terms as to the offering price of
14
<PAGE> 15
shares, the proceeds to be paid to the Fund, the duties of the Distributor, the
payment of expenses and indemnification obligations of the Fund and the
Distributor.
Section 11. Duration and Termination of this Agreement.
This Agreement shall become effective as of the date first
above written and shall remain in force until _________, 1999 and thereafter,
but only for so long as such continuance is specifically approved at least
annually by (i) the Directors or by the vote of a majority of the outstanding
voting securities of the Fund and (ii) by the vote of a majority of those
Directors who are not parties to this Agreement or interested persons of any
such party cast in person at a meeting called for the purpose of voting on such
approval.
This Agreement may be terminated at any time, without the payment of
any penalty, by the Directors or by vote of a majority of the outstanding voting
securities of the Fund, or by the Distributor, on sixty days' written notice to
the other party. This Agreement shall automatically terminate in the event of
its assignment.
The terms "vote of a majority of the outstanding voting securities",
"assignment", "affiliated person" and "interested person", when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act.
Section 12. Amendments of this Agreement. This Agreement may be amended
by the parties only if such amendment is
15
<PAGE> 16
specifically approved by (i) the Directors or by the vote of a majority of
outstanding voting securities of the Fund and (ii) by the vote of a majority of
those Directors of the Fund who are not parties to this Agreement or interested
persons of any such party cast in person at a meeting called for the purpose of
voting on such approval.
Section 13. Governing Law. The provisions of this Agreement shall be
construed and interpreted in accordance with the laws of the State of New York
as at the time in effect and the applicable provisions of the Investment Company
Act. To the extent that the applicable law of the State of New York, or any of
the provisions herein, conflict with the applicable provisions of the Investment
Company Act, the latter shall control.
16
<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
MERRILL LYNCH REAL ESTATE FUND, INC.
By__________________________________________
Name:
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By__________________________________________
Name:
Title:
17
<PAGE> 18
EXHIBIT A
MERRILL LYNCH REAL ESTATE FUND, INC.
CLASS C SHARES OF COMMON STOCK
SELECTED DEALER AGREEMENT
FOR SUBSCRIPTION PERIOD
Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor") has an
agreement with Merrill Lynch Real Estate Fund, Inc., a Maryland corporation (the
"Fund"), pursuant to which it acts as the distributor for the sale of Class C
shares of common stock, par value $0.10 per share (herein referred to as "Class
C shares"), of the Fund, and as such has the right to distribute Class C shares
of the Fund for resale. The Fund is an open-end investment company registered
under the Investment Company Act of 1940, as amended, and its Class C shares
being offered to the public are registered under the Securities Act of 1933, as
amended (the "Securities Act"). Such Class C shares and certain of the terms on
which they are being offered are more fully described in the enclosed Prospectus
and Statement of Additional Information. You have received a copy of the Class C
shares Distribution Agreement (the "Distribution Agreement") between ourself and
the Fund and reference is made herein to certain provisions of such Distribution
Agreement. This Agreement relates solely to the subscription period described in
Section 3(a) of such Distribution Agreement. Subject to the foregoing, as
principal, we offer to sell to you, as a member of the Selected Dealers Group,
Class C shares of the Fund upon the following terms and conditions:
1. The subscription period referred to in Section 3(a) of the
Distribution Agreement will continue through ________ __, 199_. The subscription
period may be extended upon agreement between the Fund and the Distributor.
Subject to the provisions of such Section and the conditions contained herein,
we will sell to you on the third business day following the termination of the
subscription period, or such other date as we may advise (the "Closing Date"),
such number of Class C shares as to which you have placed orders with us not
later than 5:00 P.M. on the second full business day preceding the Closing Date.
2. In all sales of these Class C shares to the public you shall act as
dealer for your own account, and in no transaction
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shall you have any authority to act as agent for the Fund, for us or for any
other member of the Selected Dealers Group, except in connection with the
Merrill Lynch Mutual Fund Advisor (Merrill Lynch MFA(SM)) Program and such other
programs as we from time to time agree, in which case you shall have authority
to offer and sell shares, as agent for the Fund, to participants in such
program.
3. You shall not place orders for any of the Class C shares unless you
have already received purchase orders for such Class C shares at the applicable
public offering prices and subject to the terms hereof and of the Distribution
Agreement. All orders are subject to acceptance by the Distributor or the Fund
in the sole discretion of either. The minimum initial and subsequent purchase
requirements are as set forth in the Prospectus, as amended from time to time.
You agree that you will not offer or sell any of the Class C shares except under
circumstances that will result in compliance with the applicable Federal and
state securities laws and that in connection with sales and offers to sell Class
C shares you will furnish to each person to whom any such sale or offer is made
a copy of the Prospectus and, if requested, the Statement of Additional
Information (as then amended or supplemented) and will not furnish to any person
any information relating to the Class C shares of the Fund which is inconsistent
in any respect with the information contained in the Prospectus and Statement of
Additional Information (as then amended or supplemented) or cause any
advertisement to be published in any newspaper or posted in any public place
without our consent and the consent of the Fund.
4. Payment for Class C shares purchased by you is to be made by
certified or official bank check at the office of Merrill Lynch Funds
Distributor, Inc., Box 9081, Princeton, New Jersey 08543-9081, on such date as
we may advise, in New York Clearing House funds payable to the order of Merrill
Lynch Funds Distributor, Inc., or by federal funds wire transfer, against
delivery by us of non-negotiable share deposit receipts ("Receipts") issued by
Merrill Lynch Financial Data Services, Inc., as shareholder servicing agent,
acknowledging the deposit with it of the Class C shares so purchased by you. You
agree that as promptly as practicable after the delivery of such Class C shares
you will issue appropriate written transfer instructions to the Fund or to the
shareholder servicing agent as to the purchasers to whom you sold the Class C
shares.
5. No person is authorized to make any representations concerning Class
C shares of the Fund except those contained in the current Prospectus and
Statement of Additional Information of the Fund and in such printed information
subsequently issued by us or the Fund as information supplemental to such
Prospectus and
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<PAGE> 20
Statement of Additional Information. In purchasing Class C shares through us you
shall rely solely on the representations contained in the Prospectus and
Statement of Additional Information and supplemental information above
mentioned. Any printed information which we furnish you other than the Fund's
Prospectus and Statement of Additional Information, periodic reports and proxy
solicitation material are our sole responsibility and not the responsibility of
the Fund, and you agree that the Fund shall have no liability or responsibility
to you in these respects unless expressly assumed in connection therewith.
6. You agree to deliver to each of the purchasers making purchases from
you a copy of the then current Prospectus and, if requested, the Statement of
Additional Information at or prior to the time of offering or sale and you agree
thereafter to deliver to such purchasers copies of the annual and interim
reports and proxy solicitation materials of the Fund. You further agree to
endeavor to obtain Proxies from such purchasers. Additional copies of the
Prospectus and Statement of Additional Information, annual or interim reports
and proxy solicitation materials of the Fund will be supplied to you in
reasonable quantities upon request.
7. We reserve the right in our discretion, without notice, to suspend
sales or withdraw the offering of Class C shares entirely. Each party hereto has
the right to cancel this Agreement upon notice to the other party.
8. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the continuous offering. We
shall be under no liability to you except for lack of good faith and for
obligations expressly assumed by us herein. Nothing contained in this paragraph
is intended to operate as, and the provisions of this paragraph shall not in any
way whatsoever constitute, a waiver by you of compliance with any provision of
the Securities Act, or of the rules and regulations of the Securities and
Exchange Commission issued thereunder.
9. You represent that you are a member of the National Association of
Securities Dealers, Inc. and, with respect to any sales in the United States, we
both hereby agree to abide by the Conduct Rules of such Association.
10. Upon application to us, we will inform you as to the states in
which we believe the Class C shares have been qualified for sale under, or are
exempt from the requirements of, the respective securities laws of such states,
but we assume no responsibility or obligation as to your right to sell Class C
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<PAGE> 21
shares in any jurisdiction. We will file with the Department of State in New
York a Further State Notice with respect to the Class C shares, if necessary.
11. All communications to us should be sent to the address below. Any
notice to you shall be duly given if mailed or telegraphed to you at the address
specified by you below.
12. You agree that you will not sell any Class C shares of the Fund to
any account over which you exercise discretionary authority.
13. This Agreement shall terminate at the close of business on the
Closing Date, unless earlier terminated, provided, however, this Agreement shall
continue after termination for the purpose of settlement of accounts hereunder.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By___________________________________
(Authorized Signature)
Please return one signed copy
of this Agreement to:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
Box 9081
Princeton, New Jersey 08543-9081
Accepted:
Firm Name:____________________________________________________
By:___________________________________________________________
Address:______________________________________________________
______________________________________________________________
Date:_________________________________________________________
A-4
<PAGE> 22
EXHIBIT B
MERRILL LYNCH REAL ESTATE FUND, INC.
CLASS C SHARES OF COMMON STOCK
SELECTED DEALER AGREEMENT
Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor") has an
agreement with Merrill Lynch Real Estate Fund, Inc., a Maryland corporation (the
"Fund"), pursuant to which it acts as the distributor for the sale of Class C
shares of common stock, par value $0.10 per share (herein referred to as the
"Class C shares"), of the Fund and as such has the right to distribute Class C
shares of the Fund for resale. The Fund is an open-end investment company
registered under the Investment Company Act of 1940, as amended, and its Class C
shares being offered to the public are registered under the Securities Act of
1933, as amended (the "Securities Act"). You have received a copy of the Class C
Shares Distribution Agreement (the "Distribution Agreement") between ourself and
the Fund and reference is made herein to certain provisions of such Distribution
Agreement. The terms "Prospectus" and "Statement of Additional Information" as
used herein refer to the prospectus and statement of additional information,
respectively, on file with the Securities and Exchange Commission (the
"Commission") which is part of the most recent effective registration statement
pursuant to the Securities Act. We offer to sell to you, as a member of the
Selected Dealers Group, Class C shares of the Fund upon the following terms and
conditions:
1. In all sales of these Class C shares to the public, you shall act as
dealer for your own account and in no transaction shall you have any authority
to act as agent for the Fund, for us or for any other member of the Selected
Dealers Group, except in connection with the Merrill Lynch Mutual Fund Advisor
(Merrill Lynch MFA(SM)) Program and such other special programs as we from time
to time agree, in which case you shall have authority to offer and sell shares,
as agent for the Fund, to participants in such program.
2. Orders received from you will be accepted through us only at the
public offering price applicable to each order, as set forth in the current
Prospectus and Statement of Additional Information of the Fund. The procedure
relating to the handling
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<PAGE> 23
of orders shall be subject to Section 4 hereof and instructions which we or the
Fund shall forward from time to time to you. All orders are subject to
acceptance or rejection by the Distributor or the Fund in the sole discretion of
either. The minimum initial and subsequent purchase requirements are as set
forth in the current Prospectus and Statement of Additional Information of the
Fund.
3. You shall not place orders for any of the Class C shares unless you
have already received purchase orders for such Class C shares at the applicable
public offering prices and subject to the terms hereof and of the Distribution
Agreement. You agree that you will not offer or sell any of the Class C shares
except under circumstances that will result in compliance with the applicable
Federal and state securities laws and that in connection with sales and offers
to sell Class C shares you will furnish to each person to whom any such sale or
offer is made a copy of the Prospectus and, if requested, the Statement of
Additional Information (as then amended or supplemented) and will not furnish to
any person any information relating to the Class C shares of the Fund which is
inconsistent in any respect with the information contained in the Prospectus and
Statement of Additional Information (as then amended or supplemented) or cause
any advertisement to be published in any newspaper or posted in any public place
without our consent and the consent of the Fund.
4. As a selected dealer, you are hereby authorized (i) to place orders
directly with the Fund for Class C shares of the Fund to be resold by us to you
subject to the applicable terms and conditions governing the placement of orders
by us set forth in Section 3 of the Distribution Agreement and (ii) to tender
Class C shares directly to the Fund or its agent for redemption subject to the
applicable terms and conditions set forth in Section 4 of the Distribution
Agreement.
5. You shall not withhold placing orders received from your customers
so as to profit yourself as a result of such withholding: e.g., by a change in
the "net asset value" from that used in determining the offering price to your
customers.
6. No person is authorized to make any representations concerning Class
C shares of the Fund except those contained in the current Prospectus and
Statement of Additional Information of the Fund and in such printed information
subsequently issued by us or the Fund as information supplemental to such
Prospectus and Statement of Additional Information. In purchasing Class C shares
through us you shall rely solely on the representations contained in the
Prospectus and Statement of Additional Information and supplemental information
above mentioned. Any printed information which we furnish you other than the
Fund's
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<PAGE> 24
Prospectus, Statement of Additional Information, periodic reports and proxy
solicitation material is our sole responsibility and not the responsibility of
the Fund, and you agree that the Fund shall have no liability or responsibility
to you in these respects unless expressly assumed in connection therewith.
7. You agree to deliver to each of the purchasers making purchases from
you a copy of the then current Prospectus and, if requested, the Statement of
Additional Information at or prior to the time of offering or sale and you agree
thereafter to deliver to such purchasers copies of the annual and interim
reports and proxy solicitation materials of the Fund. You further agree to
endeavor to obtain proxies from such purchasers. Additional copies of the
Prospectus and Statement of Additional Information, annual or interim reports
and proxy solicitation materials of the Fund will be supplied to you in
reasonable quantities upon request.
8. We reserve the right in our discretion, without notice, to suspend
sales or withdraw the offering of Class C shares entirely or to certain persons
or entities in a class or classes specified by us. Each party hereto has the
right to cancel this Agreement upon notice to the other party.
9. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the continuous offering. We
shall be under no liability to you except for lack of good faith and for
obligations expressly assumed by us herein. Nothing contained in this paragraph
is intended to operate as, and the provisions of this paragraph shall not in any
way whatsoever constitute, a waiver by you of compliance with any provision of
the Securities Act or of the rules and regulations of the Commission issued
thereunder.
10. You represent that you are a member of the National Association of
Securities Dealers, Inc. and, with respect to any sales in the United States, we
both hereby agree to abide by the Conduct Rules of such Association.
11. Upon application to us, we will inform you as to the states in
which we believe the Class C shares have been qualified for sale under, or are
exempt from the requirements of, the respective securities laws of such states,
but we assume no responsibility or obligation as to your right to sell Class C
shares in any jurisdiction. We will file with the Department of State in New
York a Further State Notice with respect to the Class C shares, if necessary.
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<PAGE> 25
12. All communications to us should be sent to the address below. Any
notice to you shall be duly given if mailed or telegraphed to you at the address
specified by you below.
13. Your first order placed pursuant to this Agreement for the purchase
of Class C shares of the Fund will represent your acceptance of this Agreement.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By__________________________________________
(Authorized Signature)
Please return one signed copy
of this Agreement to:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
Box 9081
Princeton, New Jersey 08543-9081
Accepted:
Firm Name:____________________________________________________
By:___________________________________________________________
Address:______________________________________________________
______________________________________________________________
Date:_________________________________________________________
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<PAGE> 1
Exhibit 6(d)
CLASS D SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the day of , 1997 between MERRILL LYNCH
REAL ESTATE FUND, INC., a Maryland corporation (the "Fund"), and MERRILL LYNCH
FUNDS DISTRIBUTOR, INC., a Delaware corporation (the "Distributor").
W I T N E S S E T H :
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the "Investment Company Act"), as an open-end investment
company, and it is affirmatively in the interest of the Fund to offer its shares
for sale continuously; and
WHEREAS, the Distributor is a securities firm engaged in the business
of selling shares of investment companies either directly to purchasers or
through other securities dealers; and
WHEREAS, the Fund and the Distributor wish to enter into an agreement
with each other with respect to the continuous offering of the Class D shares of
common stock in the Fund.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor. The Fund hereby appoints the
Distributor as the principal underwriter and distributor of the Fund to sell
Class D shares of common stock in
<PAGE> 2
the Fund (sometimes herein referred to as "Class D shares") to the public and
hereby agrees during the term of this Agreement to sell Class D shares of the
Fund to the Distributor upon the terms and conditions herein set forth.
Section 2. Exclusive Nature of Duties. The Distributor shall be the
exclusive representative of the Fund to act as principal underwriter and
distributor, except that:
(a) The Fund may, upon written notice to the Distributor, from time to
time designate other principal underwriters and distributors of Class D shares
with respect to areas other than the United States as to which the Distributor
may have expressly waived in writing its right to act as such. If such
designation is deemed exclusive, the right of the Distributor under this
Agreement to sell Class D shares in the areas so designated shall terminate, but
this Agreement shall remain otherwise in full effect until terminated in
accordance with the other provisions hereof.
(b) The exclusive right granted to the Distributor to purchase Class D
shares from the Fund shall not apply to Class D shares issued in connection with
the merger or consolidation of any other investment company or personal holding
company with the Fund or the acquisition by purchase or otherwise of all (or
substantially all) the assets or the outstanding Class D shares of any such
company by the Fund.
2
<PAGE> 3
(c) Such exclusive right also shall not apply to Class D shares issued
by the Fund pursuant to reinvestment of dividends or capital gains
distributions.
(d) Such exclusive right also shall not apply to Class D shares issued
by the Fund pursuant to any conversion, exchange or reinstatement privilege
afforded redeeming shareholders or to any other Class D shares as shall be
agreed between the Fund and the Distributor from time to time.
Section 3. Purchase of Class D Shares from the Fund.
(a) Prior to the continuous offering of the Class D shares, commencing
on a date agreed upon by the Fund and the Distributor, it is contemplated that
the Distributor will solicit subscriptions for Class D shares during a
subscription period which shall last for such period as may be agreed upon by
the parties hereto. The subscriptions will be payable within three business days
after the termination of the subscription period, at which time the Fund will
commence operations.
(b) After the Fund commences operations, the Fund will commence an
offering of its Class D shares, and thereafter the Distributor shall have the
right to buy from the Fund the Class D shares needed, but not more than the
Class D shares needed (except for clerical errors in transmission) to fill
unconditional orders for Class D shares of the Fund placed with the Distributor
by eligible investors or securities dealers. Investors eligible to purchase
Class D shares shall be those persons so identified in the currently effective
prospectus and
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<PAGE> 4
statement of additional information of the Fund (the "prospectus" and "statement
of additional information", respectively) under the Securities Act of 1933, as
amended (the "Securities Act"), relating to such Class D shares. The price which
the Distributor shall pay for the Class D shares so purchased from the Fund
shall be the net asset value, determined as set forth in Section 3(e) hereof,
used in determining the public offering price on which such orders were based.
(c) The Class D shares are to be resold by the Distributor to investors
at the public offering price, as set forth in Section 3(d) hereof, or to
securities dealers having agreements with the Distributor upon the terms and
conditions set forth in Section 7 hereof.
(d) The public offering price(s) of the Class D shares, i.e., the price
per share at which the Distributor or selected dealers may sell Class D shares
to the public, shall be the public offering price as set forth in the prospectus
and statement of additional information relating to such Class D shares, but not
to exceed the net asset value at which the Distributor is to purchase the Class
D shares, plus a sales charge not to exceed 5.75% of the public offering price
(5.54% of the net amount invested), subject to reductions for volume purchases.
Class D shares may be sold to certain Directors, officers and employees of the
Fund, directors and employees of Merrill Lynch & Co., Inc. and its subsidiaries,
and to certain other persons described in the prospectus and statement of
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<PAGE> 5
additional information, without a sales charge or at a reduced sales charge,
upon terms and conditions set forth in the prospectus and statement of
additional information. If the public offering price does not equal an even
cent, the public offering price may be adjusted to the nearest cent. All
payments to the Fund hereunder shall be made in the manner set forth in Section
3(g).
(e) The net asset value of Class D shares shall be determined by the
Fund or any agent of the Fund in accordance with the method set forth in the
prospectus and statement of additional information of the Fund and guidelines
established by the Directors.
(f) The Fund shall have the right to suspend the sale of its Class D
shares at times when redemption is suspended pursuant to the conditions set
forth in Section 4(b) hereof. The Fund shall also have the right to suspend the
sale of its Class D shares if trading on the New York Stock Exchange shall have
been suspended, if a banking moratorium shall have been declared by Federal or
New York authorities, or if there shall have been some other event, which, in
the judgment of the Fund, makes it impracticable or inadvisable to sell the
Class D shares.
(g) The Fund, or any agent of the Fund designated in writing by the
Fund, shall be promptly advised of all purchase orders for Class D shares
received by the Distributor. Any order may be rejected by the Fund; provided,
however, that the Fund will not arbitrarily or without reasonable cause refuse
to accept
5
<PAGE> 6
or confirm orders for the purchase of Class D shares. The Fund (or its agent)
will confirm orders upon their receipt, will make appropriate book entries and,
upon receipt by the Fund (or its agent) of payment therefor, will deliver
deposit receipts or certificates for such Class D shares pursuant to the
instructions of the Distributor. Payment shall be made to the Fund in New York
Clearing House funds. The Distributor agrees to cause such payment and such
instructions to be delivered promptly to the Fund (or its agent).
Section 4. Repurchase or Redemption of Class D Shares by the Fund.
(a) Any of the outstanding Class D shares may be tendered for
redemption at any time, and the Fund agrees to repurchase or redeem the Class D
shares so tendered in accordance with its obligations as set forth in Article VI
of its Articles of Incorporation, as amended from time to time, and in
accordance with the applicable provisions set forth in the prospectus and
statement of additional information. The price to be paid to redeem or
repurchase the Class D shares shall be equal to the net asset value calculated
in accordance with the provisions of Section 3(e) hereof, less any contingent
deferred sales charge ("CDSC"), redemption fee or other charge(s), if any, set
forth in the prospectus and statement of additional information of the Fund. All
payments by the Fund hereunder shall be made in the manner set forth below. The
redemption or repurchase by the Fund of any of the Class D shares purchased by
or through the
6
<PAGE> 7
Distributor will not affect the sales charge secured by the Distributor or any
selected dealer in the course of the original sale, except that if any Class D
shares are tendered for redemption or repurchase within seven business days
after the date of the confirmation of the original purchase, the right to the
sales charge shall be forfeited by the Distributor and the selected dealer which
sold such Class D shares.
The Fund shall pay the total amount of the redemption price as defined
in the above paragraph pursuant to the instructions of the Distributor in New
York Clearing House funds on or before the seventh business day subsequent to
its having received the notice of redemption in proper form. The proceeds of any
redemption of shares shall be paid by the Fund as follows: (i) any applicable
CDSC shall be paid to the Distributor, and (ii) the balance shall be paid to or
for the account of the shareholder, in each case in accordance with the
applicable provisions of the prospectus and statement of additional information.
(b) Redemption of Class D shares or payment may be suspended at times
when the New York Stock Exchange is closed, when trading on said Exchange is
suspended, when trading on said Exchange is restricted, when an emergency exists
as a result of which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the Fund fairly
to determine the value of its net assets, or during any other period when the
Securities and Exchange Commission, by order, so permits.
7
<PAGE> 8
Section 5. Duties of the Fund.
(a) The Fund shall furnish to the Distributor copies of all
information, financial statements and other papers which the Distributor may
reasonably request for use in connection with the distribution of Class D shares
of the Fund, and this shall include, upon request by the Distributor, one
certified copy of all financial statements prepared for the Fund by independent
public accountants. The Fund shall make available to the Distributor such number
of copies of the prospectus and statement of additional information as the
Distributor shall reasonably request.
(b) The Fund shall take, from time to time, but subject to any
necessary approval of the Class D shareholders, all necessary action to fix the
number of authorized Class D shares and such steps as may be necessary to
register the same under the Securities Act, to the end that there will be
available for sale such number of Class D shares as the Distributor may
reasonably be expected to sell.
(c) The Fund shall use its best efforts to qualify and maintain the
qualification of an appropriate number of its Class D shares for sale under the
securities laws of such states as the Distributor and the Fund may approve. Any
such qualification may be withheld, terminated or withdrawn by the Fund at any
time in its discretion. As provided in Section 8(c) hereof, the expense of
qualification and maintenance of qualification shall be borne by the Fund. The
Distributor shall furnish such information and
8
<PAGE> 9
other material relating to its affairs and activities as may be required by the
Fund in connection with such qualification.
(d) The Fund will furnish, in reasonable quantities upon request by the
Distributor, copies of annual and interim reports of the Fund.
Section 6. Duties of the Distributor.
(a) The Distributor shall devote reasonable time and effort to effect
sales of Class D shares of the Fund but shall not be obligated to sell any
specific number of Class D shares. The services of the Distributor to the Fund
hereunder are not to be deemed exclusive and nothing herein contained shall
prevent the Distributor from entering into like arrangements with other
investment companies so long as the performance of its obligations hereunder is
not impaired thereby.
(b) In selling the Class D shares of the Fund, the Distributor shall
use its best efforts in all respects duly to conform with the requirements of
all Federal and state laws relating to the sale of such securities. Neither the
Distributor nor any selected dealer, as defined in Section 7 hereof, nor any
other person is authorized by the Fund to give any information or to make any
representations, other than those contained in the registration statement or
related prospectus and statement of additional information and any sales
literature specifically approved by the Fund.
(c) The Distributor shall adopt and follow procedures, as approved by
the officers of the Fund, for the confirmation of
9
<PAGE> 10
sales to investors and selected dealers, the collection of amounts payable by
investors and selected dealers on such sales, and the cancellation of unsettled
transactions, as may be necessary to comply with the requirements of the
National Association of Securities Dealers, Inc. (the "NASD"), as such
requirements may from time to time exist.
Section 7. Selected Dealers Agreements.
(a) The Distributor shall have the right to enter into
selected dealers agreements with securities dealers of its choice ("selected
dealers") for the sale of Class D shares and fix therein the portion of the
sales charge which may be allocated to the selected dealers; provided that the
Fund shall approve the forms of agreements with dealers and the dealer
compensation set forth therein. Class D shares sold to selected dealers shall be
for resale by such dealers only at the public offering price(s) set forth in the
prospectus and statement of additional information. The form of agreement with
selected dealers to be used during the subscription period described in Section
3(a) is attached hereto as Exhibit A and the initial form of agreement with
selected dealers to be used in the continuous offering of the Class D shares is
attached hereto as Exhibit B.
(b) Within the United States, the Distributor shall offer and sell
Class D shares only to such selected dealers as are members in good standing of
the NASD.
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<PAGE> 11
Section 8. Payment of Expenses.
(a) The Fund shall bear all costs and expenses of the Fund, including
fees and disbursements of its counsel and auditors, in connection with the
preparation and filing of any required registration statements and/or
prospectuses and statements of additional information under the Investment
Company Act, the Securities Act, and all amendments and supplements thereto, and
preparing and mailing annual and interim reports and proxy materials to Class D
shareholders (including but not limited to the expense of setting in type any
such registration statements, prospectuses, statements of additional
information, annual or interim reports or proxy materials).
(b) The Distributor shall be responsible for any payments made to
selected dealers as reimbursement for their expenses associated with payments of
sales commissions to financial consultants. In addition, after the prospectuses,
statements of additional information and annual and interim reports have been
prepared and set in type, the Distributor shall bear the costs and expenses of
printing and distributing any copies thereof which are to be used in connection
with the offering of Class D shares to selected dealers or investors pursuant to
this Agreement. The Distributor shall bear the costs and expenses of preparing,
printing and distributing any other literature used by the Distributor or
furnished by it for use by selected dealers in connection with the offering of
the Class D shares for sale to the public and any expenses of advertising
incurred by the
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<PAGE> 12
Distributor in connection with such offering. It is understood and agreed that
so long as the Fund's Class D Shares Distribution Plan pursuant to Rule 12b-1
under the Investment Company Act remains in effect, any expenses incurred by the
Distributor hereunder in connection with account maintenance activities may be
paid from amounts recovered by it from the Fund under such plan.
(c) The Fund shall bear the cost and expenses of qualification of the
Class D shares for sale pursuant to this Agreement and, if necessary or
advisable in connection therewith, of qualifying the Fund as a broker or dealer
in such states of the United States or other jurisdictions as shall be selected
by the Fund and the Distributor pursuant to Section 5(c) hereof and the cost and
expenses payable to each such state for continuing qualification therein until
the Fund decides to discontinue such qualification pursuant to Section 5(c)
hereof.
Section 9. Indemnification.
(a) The Fund shall indemnify and hold harmless the Distributor and each
person, if any, who controls the Distributor against any loss, liability, claim,
damage or expense (including the reasonable cost of investigating or defending
any alleged loss, liability, claim, damage or expense and reasonable counsel
fees incurred in connection therewith), as incurred, arising by reason of any
person acquiring any Class D shares, which may be based upon the Securities Act,
or on any other statute or at common law, on the ground that the registration
statement or
12
<PAGE> 13
related prospectus and statement of additional information, as from time to time
amended and supplemented, or an annual or interim report to shareholders of the
Fund, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading, unless such statement or omission was made in
reliance upon, and in conformity with, information furnished to the Fund in
connection therewith by or on behalf of the Distributor; provided, however, that
in no case (i) is the indemnity of the Fund in favor of the Distributor and any
such controlling persons to be deemed to protect such Distributor or any such
controlling persons thereof against any liability to the Fund or its security
holders to which the Distributor or any such controlling persons would otherwise
be subject by reason of willful misfeasance, bad faith or gross negligence in
the performance of their duties or by reason of the reckless disregard of their
obligations and duties under this Agreement; or (ii) is the Fund to be liable
under its indemnity agreement contained in this paragraph with respect to any
claim made against the Distributor or any such controlling persons, unless the
Distributor or such controlling persons, as the case may be, shall have notified
the Fund in writing within a reasonable time after the summons or other first
legal process giving information of the nature of the claim shall have been
served upon the Distributor or such controlling persons (or after the
Distributor or such controlling persons shall have received
13
<PAGE> 14
notice of such service on any designated agent), but failure to notify the Fund
of any such claim shall not relieve it from any liability which it may have to
the person against whom such action is brought otherwise than on account of its
indemnity agreement contained in this paragraph. The Fund will be entitled to
participate at its own expense in the defense or, if it so elects, to assume the
defense of any suit brought to enforce any such liability, but if the Fund
elects to assume the defense, such defense shall be conducted by counsel chosen
by it and satisfactory to the Distributor or such controlling person or persons,
defendant or defendants in the suit. In the event the Fund elects to assume the
defense of any such suit and retain such counsel, the Distributor or such
controlling person or persons, defendant or defendants in the suit shall bear
the fees and expenses of any additional counsel retained by them, but in case
the Fund does not elect to assume the defense of any such suit, it will
reimburse the Distributor or such controlling person or persons, defendant or
defendants in the suit, for the reasonable fees and expenses of any counsel
retained by them. The Fund shall promptly notify the Distributor of the
commencement of any litigation or proceedings against it or any of its officers
or Directors in connection with the issuance or sale of any of the Class D
shares.
(b) The Distributor shall indemnify and hold harmless the Fund and each
of its Directors and officers and each person, if any, who controls the Fund
against any loss, liability, claim,
14
<PAGE> 15
damage or expense described in the foregoing indemnity contained in subsection
(a) of this Section, but only with respect to statements or omissions made in
reliance upon, and in conformity with, information furnished to the Fund in
writing by or on behalf of the Distributor for use in connection with the
registration statement or related prospectus and statement of additional
information, as from time to time amended, or the annual or interim reports to
Class D shareholders. In case any action shall be brought against the Fund or
any person so indemnified, in respect of which indemnity may be sought against
the Distributor, the Distributor shall have the rights and duties given to the
Fund, and the Fund and each person so indemnified shall have the rights and
duties given to the Distributor by the provisions of subsection (a) of this
Section 9.
Section 10. Merrill Lynch Mutual Fund Advisor Program. In connection
with the Merrill Lynch Mutual Fund Advisor (Merrill Lynch MFA(sm)) Program, the
Distributor and its affiliate, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, are authorized to offer and sell shares of the Fund, as agent for
the Fund, to participants in such program. The terms of this Agreement shall
apply to such sales, including terms as to the offering price of shares, the
proceeds to be paid to the Fund, the duties of the Distributor, the payment of
expenses and indemnification obligations of the Fund and the Distributor.
Section 11. Duration and Termination of this Agreement. This Agreement
shall become effective as of the date first above
15
<PAGE> 16
written and shall remain in force until _________, 1999 and thereafter, but only
for so long as such continuance is specifically approved at least annually by
(i) the Directors or by the vote of a majority of the outstanding voting
securities of the Fund and (ii) by the vote of a majority of those Directors who
are not parties to this Agreement or interested persons of any such party cast
in person at a meeting called for the purpose of voting on such approval.
This Agreement may be terminated at any time, without the payment of
any penalty, by the Directors or by vote of a majority of the outstanding voting
securities of the Fund, or by the Distributor, on sixty days' written notice to
the other party. This Agreement shall automatically terminate in the event of
its assignment.
The terms "vote of a majority of the outstanding voting securities",
"assignment", "affiliated person" and "interested person", when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act.
Section 12. Amendments of this Agreement. This Agreement may be amended
by the parties only if such amendment is specifically approved by (i) the
Directors or by the vote of a majority of outstanding voting securities of the
Fund and (ii) by the vote of a majority of those Directors of the Fund who are
not parties to this Agreement or interested persons of any such party cast in
person at a meeting called for the purpose of voting on such approval.
16
<PAGE> 17
Section 13. Governing Law. The provisions of this Agreement shall be
construed and interpreted in accordance with the laws of the State of New York
as at the time in effect and the applicable provisions of the Investment Company
Act. To the extent that the applicable law of the State of New York, or any of
the provisions herein, conflict with the applicable provisions of the Investment
Company Act, the latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
MERRILL LYNCH REAL ESTATE FUND, INC.
By__________________________________________
Name:
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By__________________________________________
Name:
Title:
17
<PAGE> 18
EXHIBIT A
MERRILL LYNCH REAL ESTATE FUND, INC.
CLASS D SHARES OF COMMON STOCK
SELECTED DEALER AGREEMENT
FOR SUBSCRIPTION PERIOD
Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor") has an
agreement with Merrill Lynch Real Estate Fund, Inc., a Maryland corporation (the
"Fund"), pursuant to which it acts as the distributor for the sale of Class D
shares of common stock, par value $0.10 per share (herein referred to as "Class
D shares"), of the Fund, and as such has the right to distribute Class D shares
of the Fund for resale. The Fund is an open-end investment company registered
under the Investment Company Act of 1940, as amended (the "Investment Company
Act"), and its Class D shares being offered to the public are registered under
the Securities Act of 1933, as amended (the "Securities Act"). Such Class D
shares and certain of the terms on which they are being offered are more fully
described in the enclosed Prospectus and Statement of Additional Information.
You have received a copy of the Class D shares Distribution Agreement (the
"Distribution Agreement") between ourself and the Fund and reference is made
herein to certain provisions of such Distribution Agreement. This Agreement
relates solely to the subscription period described in Section 3(a) of such
Distribution Agreement. Subject to the foregoing, as principal, we offer to sell
to you, as a member of the Selected Dealers Group, Class D shares of the Fund
upon the following terms and conditions:
1. The subscription period referred to in Section 3(a) of the
Distribution Agreement will continue through ___________, 199_. The subscription
period may be extended upon agreement between the Fund and the Distributor.
Subject to the provisions of such Section and the conditions contained herein,
we will sell to you on the third business day following the termination of the
subscription period, or such other date as we may advise (the "Closing Date"),
such number of Class D shares as to which you have placed orders with us not
later than 5:00 P.M. on the second full business day preceding the Closing Date.
2. In all sales of these Class D shares to the public you shall act as
dealer for your own account, and in no transaction shall you have any authority
to act as agent for the Fund, for us
A-1
<PAGE> 19
or for any other member of the Selected Dealers Group, except in connection with
the Merrill Lynch Mutual Fund Advisor (Merrill Lynch MFA(sm)) Program and such
other special programs as we from time to time agree in which case you shall
have authority to offer and sell shares, as agent for the Fund, to participants
in such program.
3. Except as provided in Paragraph 4, below, the public offering
prices, sales charges and the related Selected Dealers' concession are as
follows:
<TABLE>
<CAPTION>
Subscription Period
-------------------
Securities Dealers'
Sales Charge Concession
------------ ----------
Percentage* Percentage*
Public of Public of Public
Offering Dollar Offering Dollar Offering
Price Amount Price Amount Price
----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
Less than $25,000............................. $10.554 $.554 5.25% $.554 5.25%
$25,000 but less than $50,000................. 10.499 .499 4.75 .499 4.75
$50,000 but less than $100,000................ 10.417 .417 4.00 .417 4.00
$100,000 but less than $250,000............... 10.309 .309 3.00 .309 3.00
$250,000 but less than $1,000,00 10.204 .204 2.00 .204 2.00
$1,000,000 and over**......................... 10.000 .000 0.00 .000 0.00
</TABLE>
- ------------------
*Rounded to the nearest one-hundredth percent.
**Initial sales charges may be waived for certain classes of offers as set forth
in the Prospectus and Statement of Additional Information of the Fund. Such
purchases may be subject to a contingent deferred sales charge as set forth in
the Prospectus and Statement of Additional Information.
The proceeds per Class D share to the Fund from the sale of all shares sold
during the subscription period will be $_____.
The term "purchase" refers to a single purchase by an individual, or to
concurrent purchases, which in the aggregate are at least equal to the
prescribed amounts, by an individual, his spouse and their children under the
age of 21 years purchasing shares for his or their own account and to single
purchases by a trustee or other fiduciary purchasing shares for a single trust
estate or single fiduciary account although more than one beneficiary is
involved. The term "purchase" also includes purchases by any "company" as that
term is defined in the Investment Company Act, but does not include purchases by
any such company which has not been in existence for at least six months or
which has no purpose other than the purchase of shares of the Fund or shares of
the registered investment companies at a
A-2
<PAGE> 20
discount; provided, however, that it shall not include purchases by any group of
individuals whose sole organizational nexus is that the participants therein are
credit card holders of a company, policyholders of an insurance company,
customers of either a bank or broker-dealer or clients of an investment adviser.
The reduced sales charges are applicable through a right of
accumulation under which eligible investors are permitted to purchase Class D
shares of the Fund at the offering price applicable to the total of (a) the
dollar amount then being purchased plus (b) an amount equal to the then current
net asset value or cost, whichever is higher, of the purchaser's combined
holdings of the Class A, Class B, Class C and Class D shares of the Fund and of
any other open-end investment company advised by Merrill Lynch Asset Management,
L.P. or Fund Asset Management, L.P. (together, "MLAM-advised mutual funds"). For
any such right of accumulation to be made available, the Distributor must be
provided at the time of purchase, by the purchaser or you, with sufficient
information to permit confirmation of qualification, and acceptance of the
purchase order is subject to such confirmation.
The reduced sales charges are applicable to purchases aggregating
$25,000 or more of Class A shares or of Class D shares or of shares of any other
MLAM-advised mutual fund made through you within a thirteen-month period
starting with the first purchase pursuant to a Letter of Intention in the form
provided in the Prospectus. A purchase not originally made pursuant to a Letter
of Intention may be included under a subsequent letter executed within 90 days
of such purchase if the Distributor is informed in writing of this intent within
such 90-day period. If the intended amount of shares is not purchased within the
thirteen-month period, an appropriate price adjustment will be made pursuant to
the terms of the Letter of Intention.
You agree to advise us promptly at your request as to amounts of any
sales made by you to eligible investors qualifying for reduced sales charges.
Further information as to the reduced sales charges pursuant to the right of
accumulation or a Letter of Intention is set forth in the Prospectus and
Statement of Additional Information.
4. You shall not place orders for any of the Class D shares unless you
have already received purchase orders for such shares at the applicable public
offering prices and subject to the terms hereof and of the Distribution
Agreement. All orders are subject to acceptance by the Distributor or the Fund
in the sole discretion of either. The minimum initial and subsequent purchase
requirements are as set forth in the Prospectus, as amended from time to time.
You agree that you will not offer or sell any of the Class D shares except under
circumstances that
A-3
<PAGE> 21
will result in compliance with the applicable Federal and state securities laws
and that in connection with sales and offers to sell Class D shares you will
furnish to each person to whom any such sale or offer is made a copy of the
Prospectus and, if requested, the Statement of Additional Information (as then
amended or supplemented) and will not furnish to any person any information
relating to the Class D shares of the Fund which is inconsistent in any respect
with the information contained in the Prospectus and Statement of Additional
Information (as then amended or supplemented) or cause any advertisement to be
published in any newspaper or posted in any public place without our consent and
the consent of the Fund.
5. All Class D shares purchased by Selected Dealers will be delivered
in the first instance at a settlement price computed on the basis of all sales
having been made in a purchase (as such term is defined above) involving a
public offering price of less than $25,000. All sales to you will be deemed to
have been made in such a transaction unless within 30 days after the Closing
Date you furnish to us, on forms supplied by us for the purpose, a statement
acceptable to us setting forth sales in purchases involving a public offering
price of $25,000 or more, in which case we will compute such Selected Dealers'
concessions on the basis of the information set forth in such statement.
6. Payment for Class D shares purchased by you is to be made by
certified or official bank check at the office of Merrill Lynch Funds
Distributor, Inc., Box 9081, Princeton, New Jersey 08543-9081, on such date as
we may advise, in New York Clearing House funds payable to the order of Merrill
Lynch Funds Distributor, Inc., or by federal funds wire transfer, against
delivery by us of non-negotiable share deposit receipts ("Receipts") issued by
Merrill Lynch Financial Data Services, Inc., as shareholder servicing agent,
acknowledging the deposit with it of the Class D shares so purchased by you. You
agree that as promptly as practicable after the delivery of such Class D shares
you will issue appropriate written transfer instructions to the Fund or to the
shareholder servicing agent as to the purchasers to whom you sold the Class D
shares.
7. If any Class D shares sold to you under the terms of this Agreement
are repurchased by the Fund or by us for the account of the Fund or are tendered
for redemption within seven business days after the Closing Date, it is agreed
that you shall forfeit your right to, and refund to us, any discount received by
you on such Class D shares.
8. No person is authorized to make any representations concerning Class
D shares of the Fund except those contained in the current Prospectus and
Statement of Additional Information of the Fund and in such printed information
subsequently issued by us or the Fund as information supplemental to such
Prospectus and
A-4
<PAGE> 22
Statement of Additional Information. In purchasing Class D shares through us you
shall rely solely on the representations contained in the Prospectus and
Statement of Additional Information and supplemental information above
mentioned. Any printed information which we furnish you other than the Fund's
Prospectus and Statement of Additional Information, periodic reports and proxy
solicitation material are our sole responsibility and not the responsibility of
the Fund, and you agree that the Fund shall have no liability or responsibility
to you in these respects unless expressly assumed in connection therewith.
9. You agree to deliver to each of the purchasers making purchases from
you a copy of the then current Prospectus and, if requested, the Statement of
Additional Information at or prior to the time of offering or sale and you agree
thereafter to deliver to such purchasers copies of the annual and interim
reports and proxy solicitation materials of the Fund. You further agree to
endeavor to obtain Proxies from such purchasers. Additional copies of the
Prospectus and Statement of Additional Information, annual or interim reports
and proxy solicitation materials of the Fund will be supplied to you in
reasonable quantities upon request.
10. We reserve the right in our discretion, without notice, to suspend
sales or withdraw the offering of Class D shares entirely. Each party hereto has
the right to cancel this Agreement upon notice to the other party.
11. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the continuous offering. We
shall be under no liability to you except for lack of good faith and for
obligations expressly assumed by us herein. Nothing contained in this paragraph
is intended to operate as, and the provisions of this paragraph shall not in any
way whatsoever constitute, a waiver by you of compliance with any provision of
the Securities Act, or of the rules and regulations of the Securities and
Exchange Commission issued thereunder.
12. You represent that you are a member of the National Association of
Securities Dealers, Inc. and, with respect to any sales in the United States, we
both hereby agree to abide by the Conduct Rules of such Association.
13. Upon application to us, we will inform you as to the states in
which we believe the Class D shares have been qualified for sale under, or are
exempt from the requirements of, the respective securities laws of such states,
but we assume no responsibility or obligation as to your right to sell shares in
any jurisdiction. We will file with the Department of State in
A-5
<PAGE> 23
New York a Further State Notice with respect to the shares, if necessary.
14. All communications to us should be sent to the address below. Any
notice to you shall be duly given if mailed or telegraphed to you at the address
specified by you below.
15. You agree that you will not sell any Class D shares of the Fund to
any account over which you exercise discretionary authority.
16. This Agreement shall terminate at the close of business on the
Closing Date, unless earlier terminated, provided, however, this Agreement shall
continue after termination for the purpose of Section 7 hereof and for the
purpose of settlement of accounts hereunder.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By___________________________________
(Authorized Signature)
Please return one signed copy of this Agreement to:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
Box 9081
Princeton, New Jersey 08543-9081
Accepted:
Firm Name:____________________________________________________
By:___________________________________________________________
Address:______________________________________________________
______________________________________________________________
Date:_________________________________________________________
A-6
<PAGE> 24
EXHIBIT B
MERRILL LYNCH REAL ESTATE FUND, INC.
CLASS D SHARES OF COMMON STOCK
SELECTED DEALERS AGREEMENT
Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor") has an
agreement with Merrill Lynch Real Estate Fund, Inc., a Maryland corporation (the
"Fund"), pursuant to which it acts as the distributor for the sale of Class D
shares of common stock, par value $0.10 per share (herein referred to as "Class
D shares"), of the Fund and as such has the right to distribute Class D shares
of the Fund for resale. The Fund is an open-end investment company registered
under the Investment Company Act of 1940, as amended (the "Investment Company
Act"), and its Class D shares are registered under the Securities Act of 1933,
as amended (the "Securities Act"). You have received a copy of the Class D
shares Distribution Agreement (the "Distribution Agreement") between ourself and
the Fund and reference is made herein to certain provisions of such Distribution
Agreement. The terms "Prospectus" and "Statement of Additional Information" used
herein refer to the prospectus and statement of additional information,
respectively, on file with the Securities and Exchange Commission which is part
of the most recent effective registration statement pursuant to the Securities
Act. We offer to sell to you, as a member of the Selected Dealers Group, Class D
shares of the Fund upon the following terms and conditions:
1. In all sales of these Class D shares to the public, you shall act as
dealer for your own account and in no transaction shall you have any authority
to act as agent for the Fund, for us or for any other member of the Selected
Dealers Group, except in connection with the Merrill Lynch Mutual Fund Advisor
(Merrill Lynch MFA(sm)) Program and such other special programs as we from time
to time agree, in which case you shall have authority to offer and sell shares,
as agent for the Fund, to participants in such program.
2. Orders received from you will be accepted through us only at the
public offering price applicable to each order, as set forth in the current
Prospectus and Statement of Additional Information of the Fund. The procedure
relating to the handling
B-1
<PAGE> 25
of orders shall be subject to Section 5 hereof and instructions which we or the
Fund shall forward from time to time to you. All orders are subject to
acceptance or rejection by the Distributor or the Fund in the sole discretion of
either. The minimum initial and subsequent purchase requirements are as set
forth in the current Prospectus and Statement of Additional Information of the
Fund.
3. The sales charges for sales to eligible investors, computed as
percentages of the public offering price and the amount invested, and the
related discount to Selected Dealers are as follows:
<TABLE>
<CAPTION>
Discount to
Selected
Sales Charge Dealers as
Sales Charge as Percentage* Percentage
as Percentage of the Net of the
of the Amount Offering
Amount of Purchase Offering Price Invested Price
- ------------------ -------------- -------------- -----------
<S> <C> <C> <C>
Less than $25,000.... 5.25% 5.54% 5.00%
$25,000 but less
than $50,000........ 4.75 4.99 4.50
$50,000 but less
than $100,000........ 4.00 4.17 3.75
$100,000 but less
than $250,000....... 3.00 3.09 2.75
$250,000 but less
than $1,000,000....... 2.00 2.04 1.80
$1,000,000 and over**.. 0.00 0.00 0.00
</TABLE>
- -------------------
* Rounded to the nearest one-hundredth percent.
** Initial sales charges will be waived for certain classes of offerees as set
forth in the current Prospectus and Statement of Additional Information of the
Fund. Such purchases may be subject to a contingent deferred sales charge as set
forth in the current Prospectus and Statement of Additional Information.
The term "purchase" refers to a single purchase by an
individual, or to concurrent purchases, which in the aggregate are at
least equal to the prescribed amounts, by an individual, his spouse and
their children under the age of 21 years purchasing Class D shares for
his or their own account and to
B-2
<PAGE> 26
single purchases by a trustee or other fiduciary purchasing Class D shares for a
single trust estate or single fiduciary account although more than one
beneficiary is involved. The term "purchase" also includes purchases by any
"company" as that term is defined in the Investment Company Act but does not
include purchases by any such company which has not been in existence for at
least six months or which has no purpose other than the purchase of Class D
shares of the Fund or Class D shares of other registered investment companies at
a discount; provided, however, that it shall not include purchases by any group
of individuals whose sole organizational nexus is that the participants therein
are credit cardholders of a company, policyholders of an insurance company,
customers of either a bank or broker-dealer or clients of an investment adviser.
The reduced sales charges are applicable through a right of
accumulation under which certain eligible investors are permitted to purchase
Class D shares of the 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
current net asset value or cost, whichever is higher, of the purchaser's
combined holdings of Class A, Class B, Class C and Class D shares of the Fund
and of any other open-end investment company advised by Merrill Lynch Asset
Management, L.P. or Fund Asset Management, L.P. (together "MLAM-advised mutual
funds"). For any such right of accumulation to be made available, the
Distributor must be provided at the time of purchase, by the purchaser or you,
with sufficient information to permit confirmation of qualification, and
acceptance of the purchase order is subject to such confirmation.
The reduced sales charges are applicable to purchases aggregating
$25,000 or more of Class A shares or of Class D shares of any other MLAM-advised
mutual fund made through you within a thirteen-month period starting with the
first purchase pursuant to a Letter of Intention in the form provided in the
Prospectus. A purchase not originally made pursuant to a Letter of Intention may
be included under a subsequent letter executed within 90 days of such purchase
if the Distributor is informed in writing of this intent within such 90-day
period. If the intended amount of shares is not purchased within the
thirteen-month period, an appropriate price adjustment will be made pursuant to
the terms of the Letter of Intention.
You agree to advise us promptly at our request as to amounts of any
sales made by you to eligible investors qualifying for reduced sales charges.
Further information as to the reduced sales charges pursuant to the right of
accumulation or a Letter of Intention is set forth in the Prospectus and
Statement of Additional Information.
B-3
<PAGE> 27
4. You shall not place orders for any of the Class D shares unless you
have already received purchase orders for such Class D shares at the applicable
public offering prices and subject to the terms hereof and of the Distribution
Agreement. You agree that you will not offer or sell any of the Class D shares
except under circumstances that will result in compliance with the applicable
Federal and state securities laws and that in connection with sales and offers
to sell Class D shares you will furnish to each person to whom any such sale or
offer is made a copy of the Prospectus and, if requested, the Statement of
Additional Information (as then amended or supplemented) and will not furnish to
any person any information relating to the Class D shares of the Fund which is
inconsistent in any respect with the information contained in the Prospectus and
Statement of Additional Information (as then amended or supplemented) or cause
any advertisement to be published in any newspaper or posted in any public place
without our consent and the consent of the Fund.
5. As a selected dealer, you are hereby authorized (i) to place orders
directly with the Fund for Class D shares of the Fund to be resold by us to you
subject to the applicable terms and conditions governing the placement of orders
by us set forth in Section 3 of the Distribution Agreement and subject to the
compensation provisions of Section 3 hereof and (ii) to tender Class D shares
directly to the Fund or its agent for redemption subject to the applicable terms
and conditions set forth in Section 4 of the Distribution Agreement.
6. You shall not withhold placing orders received from your customers
so as to profit yourself as a result of such withholding: e.g., by a change in
the "net asset value" from that used in determining the offering price to your
customers.
7. If any Class D shares sold to you under the terms of this Agreement
are repurchased by the Fund or by us for the account of the Fund or are tendered
for redemption within seven business days after the date of the confirmation of
the original purchase by you, it is agreed that you shall forfeit your right to,
and refund to us, any discount received by you on such Class D shares.
8. No person is authorized to make any representations concerning Class
D shares of the Fund except those contained in the current Prospectus and
Statement of Additional Information of the Fund and in such printed information
subsequently issued by us or the Fund as information supplemental to such
Prospectus and Statement of Additional Information. In purchasing Class D shares
through us you shall rely solely on the representations contained in the
Prospectus and Statement of Additional
B-4
<PAGE> 28
Information and supplemental information above mentioned. Any printed
information which we furnish you other than the Fund's Prospectus, Statement of
Additional Information, periodic reports and proxy solicitation material is our
sole responsibility and not the responsibility of the Fund, and you agree that
the Fund shall have no liability or responsibility to you in these respects
unless expressly assumed in connection therewith.
9. You agree to deliver to each of the purchasers making purchases from
you a copy of the then current Prospectus and, if requested, the Statement of
Additional Information at or prior to the time of offering or sale and you agree
thereafter to deliver to such purchasers copies of the annual and interim
reports and proxy solicitation materials of the Fund. You further agree to
endeavor to obtain proxies from such purchasers. Additional copies of the
Prospectus and Statement of Additional Information, annual or interim reports
and proxy solicitation materials of the Fund will be supplied to you in
reasonable quantities upon request.
10. We reserve the right in our discretion, without notice, to suspend
sales or withdraw the offering of Class D shares entirely or to certain persons
or entities in a class or classes specified by us. Each party hereto has the
right to cancel this agreement upon notice to the other party.
11. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the continuous offering. We
shall be under no liability to you except for lack of good faith and for
obligations expressly assumed by us herein. Nothing contained in this paragraph
is intended to operate as, and the provisions of this paragraph shall not in any
way whatsoever constitute, a waiver by you of compliance with any provision of
the Securities Act, or of the rules and regulations of the Securities and
Exchange Commission issued thereunder.
12. You represent that you are a member of the National Association of
Securities Dealers, Inc. and, with respect to any sales in the United States, we
both hereby agree to abide by the Conduct Rules of such Association.
13. Upon application to us, we will inform you as to the states in
which we believe the Class D shares have been qualified for sale under, or are
exempt from the requirements of, the respective securities laws of such states,
but we assume no responsibility or obligation as to your right to sell Class D
shares in any jurisdiction. We will file with the Department of State in New
York a Further State Notice with respect to the Class D shares, if necessary.
B-5
<PAGE> 29
14. All communications to us should be sent to the address below. Any
notice to you shall be duly given if mailed or telegraphed to you at the address
specified by you below.
15. Your first order placed pursuant to this Agreement for the purchase
of Class D shares of the Fund will represent your acceptance of this Agreement.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By___________________________________
(Authorized Signature)
Please return one signed copy of this agreement to:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
Box 9081
Princeton, New Jersey 08543-9081
Accepted:
Firm Name:_____________________________________________________________
By:___________________________________________________________
Address:______________________________________________________
______________________________________________________________
Date:_________________________________________________________
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Exhibit 8
CUSTODY AGREEMENT
Agreement made as of this day of , 1997, between Merrill
Lynch Real Estate Fund, Inc., a Maryland corporation organized and existing
under the laws of the State of Maryland, having its principal office and place
of business at 800 Scudders Mill Road, Plainsboro, New Jersey 08536 (hereinafter
called the "Fund"), and THE BANK OF NEW YORK, a New York corporation authorized
to do a banking business, having its principal office and place of business at
48 Wall Street, New York, New York 10286 (hereinafter called the "Custodian").
W I T N E S S E T H :
that for and in consideration of the mutual promises hereinafter set forth, the
Fund and the Custodian agree as follows:
ARTICLE I.
DEFINITIONS
Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
1. "Authorized Persons" shall be deemed to include any person, whether
or not such person is an officer or employee of the Fund, duly authorized by the
Board of Trustees of the Fund to execute any Certificate, instruction, notice or
other instrument on behalf of the Fund and listed in the Certificate annexed
hereto as Appendix A or such other Certificate as may be received by the
Custodian from time to time.
2. "Book-Entry System" shall mean the Federal Reserve/Treasury
book-entry system for United States and federal agency securities, its successor
or successors and its nominee or nominees.
3. "Call Option" shall mean an exchange traded option with respect to
Securities other than Stock Index Options, Futures Contracts, and Futures
Contract Options entitling the holder, upon timely exercise and payment of the
exercise price, as specified therein, to purchase from the writer thereof the
specified underlying Securities.
4. "Certificate" shall mean any notice, instruction, or other
instrument in writing, authorized or required by this
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Agreement to be given to the Custodian which is actually received by the
Custodian and signed on behalf of the Fund by any two Authorized Persons, and
the term Certificate shall also include Instructions.
5. "Clearing Member" shall mean a registered broker-dealer which is a
clearing member under the rules of O.C.C. and a member of a national securities
exchange qualified to act as a custodian for an investment company, or any
broker-dealer reasonably believed by the Custodian to be such a clearing member.
6. "Collateral Account" shall mean a segregated account so denominated
which is specifically allocated to a Series and pledged to the Custodian as
security for, and in consideration of, the Custodian's issuance of (a) any Put
Option guarantee letter or similar document described in paragraph 8 of Article
V herein, or (b) any receipt described in Article V or VIII herein.
7. "Covered Call Option" shall mean an exchange traded option entitling
the holder, upon timely exercise and payment of the exercise price, as specified
therein, to purchase from the writer thereof the specified underlying Securities
(excluding Futures Contracts) which are owned by the writer thereof and subject
to appropriate restrictions.
8. "Composite Currency Unit" shall mean the European Currency Unit or
any other composite unit consisting of the aggregate of specified amounts of
specified Currencies as such unit may be constituted from time to time.
9. "Currency" shall mean money denominated in a lawful currency of any
country or the European Currency Unit.
10. "Depository" shall mean The Depository Trust Company ("DTC"), a
clearing agency registered with the Securities and Exchange Commission, its
successor or successors and its nominee or nominees. The term "Depository" shall
further mean and include any other person authorized to act as a depository
under the Investment Company Act of 1940, its successor or successors and its
nominee or nominees, specifically identified in a certified copy of a resolution
of the Fund's Board of Directors specifically approving deposits therein by the
Custodian.
11. "Financial Futures Contract" shall mean the firm commitment to buy
or sell fixed income securities including, without limitation, U.S. Treasury
Bills, U.S. Treasury Notes, U.S. Treasury Bonds, domestic bank certificates of
deposit, and Eurodollar certificates of deposit, during a specified month at an
agreed upon price.
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12. "Futures Contract" shall mean a Financial Futures Contract and/or
Stock Index Futures Contracts.
13. "Futures Contract Option" shall mean an option with respect to a
Futures Contract.
14. "FX Transaction" shall mean any transaction for the purchase by one
party of an agreed amount in one Currency against the sale by it to the other
party of an agreed amount in another Currency.
15. "Instructions" shall mean instructions communications transmitted
by electronic or telecommunications media including S.W.I.F.T.,
computer-to-computer interface, dedicated transmission line, facsimile
transmission (which may be signed by an Authorized Person or unsigned) and
tested telex.
16. "Margin Account" shall mean a segregated account in the name of a
broker, dealer, futures commission merchant, or a Clearing Member, or in the
name of the Fund for the benefit of a broker, dealer, futures commission
merchant, or Clearing Member, or otherwise, in accordance with an agreement
between the Fund, the Custodian and a broker, dealer, futures commission
merchant or a Clearing Member (a "Margin Account Agreement"), separate and
distinct from the custody account, in which certain Securities and/or money of
the Fund shall be deposited and withdrawn from time to time in connection with
such transactions as the Fund may from time to time determine. Securities held
in the Book-Entry System or the Depository shall be deemed to have been
deposited in, or withdrawn from, a Margin Account upon the Custodian's effecting
an appropriate entry in its books and records.
17. "Money Market Security" shall be deemed to include, without
limitation, certain Reverse Repurchase Agreements, debt obligations issued or
guaranteed as to interest and principal by the government of the United States
or agencies or instrumentalities thereof, any tax, bond or revenue anticipation
note issued by any state or municipal government or public authority, commercial
paper, certificates of deposit and bankers' acceptances, repurchase agreements
with respect to the same and bank time deposits, where the purchase and sale of
such securities normally requires settlement in federal funds on the same day as
such purchase or sale.
18. "O.C.C." shall mean the Options Clearing Corporation, a clearing
agency registered under Section 17A of the Securities Exchange Act of 1934, its
successor or successors, and its nominee or nominees.
19. "Option" shall mean a Call Option, Covered Call Option, Stock
Index Option and/or a Put Option.
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20. "Oral Instructions" shall mean verbal instructions actually
received by the Custodian from an Authorized Person or from a person reasonably
believed by the Custodian to be an Authorized Person.
21. "Put Option" shall mean an exchange traded option with respect to
Securities other than Stock Index Options, Futures Contracts, and Futures
Contract Options entitling the holder, upon timely exercise and tender of the
specified underlying Securities, to sell such Securities to the writer thereof
for the exercise price.
22. "Reverse Repurchase Agreement" shall mean an agreement pursuant to
which the Fund sells Securities and agrees to repurchase such Securities at a
described or specified date and price.
23. "Security" shall be deemed to include, without limitation, Money
Market Securities, Call Options, Put Options, Stock Index Options, Stock Index
Futures Contracts, Stock Index Futures Contract Options, Financial Futures
Contracts, Financial Futures Contract Options, Reverse Repurchase Agreements,
common stocks and other securities having characteristics similar to common
stocks, preferred stocks, debt obligations issued by state or municipal
governments and by public authorities, (including, without limitation, general
obligation bonds, revenue bonds, industrial bonds and industrial development
bonds), bonds, debentures, notes, mortgages or other obligations, and any
certificates, receipts, warrants or other instruments representing rights to
receive, purchase, sell or subscribe for the same, or evidencing or representing
any other rights or interest therein, or any property or assets.
24. "Senior Security Account" shall mean an account maintained and
specifically allocated to a Series under the terms of this Agreement as a
segregated account, by recordation or otherwise, within the custody account in
which certain Securities and/or other assets of the Fund specifically allocated
to such Series shall be deposited and withdrawn from time to time in accordance
with Certificates received by the Custodian in connection with such transactions
as the Fund may from time to time determine.
25. "Series" shall mean the various portfolios, if any, of the Fund
listed on Appendix B hereto as amended from time to time.
26. "Shares" shall mean the shares of capital stock of the Fund, each
of which is, in the case of a Fund having Series, allocated to a particular
Series.
27. "Stock Index Futures Contract" shall mean a bilateral agreement
pursuant to which the parties agree to
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take or make delivery of an amount of cash equal to a specified dollar amount
times the difference between the value of a particular stock index at the close
of the last business day of the contract and the price at which the futures
contract is originally struck.
28. "Stock Index Option" shall mean an exchange traded option entitling
the holder, upon timely exercise, to receive an amount of cash determined by
reference to the difference between the exercise price and the value of the
index on the date of exercise.
ARTICLE II.
APPOINTMENT OF CUSTODIAN
1. The Fund hereby constitutes and appoints the Custodian as custodian
of the Securities and money at any time owned by the Fund during the period of
this Agreement.
2. The Custodian hereby accepts appointment as such custodian and
agrees to perform the duties thereof as hereinafter set forth.
ARTICLE III.
CUSTODY OF CASH AND SECURITIES
1. Except as otherwise provided in paragraph 7 of this Article and in
Article VIII, the Fund will deliver or cause to be delivered to the Custodian
all Securities and all money owned by it, at any time during the period of this
Agreement, and shall specify with respect to such Securities and money the
Series to which the same are specifically allocated. The Custodian shall
segregate, keep and maintain the assets of the Series separate and apart. The
Custodian will not be responsible for any Securities and money not actually
received by it. The Custodian will be entitled to reverse any credits made on
the Fund's behalf where such credits have been previously made and money is not
finally collected. The Fund shall deliver to the Custodian a certified
resolution of the Board of Directors of the Fund, substantially in the form of
Exhibit A hereto, approving, authorizing and instructing the Custodian on a
continuous and on-going basis to deposit in the Book-Entry System all Securities
eligible for deposit therein, regardless of the Series to which the same are
specifically allocated and to utilize the Book-Entry System to the extent
possible in connection with its performance hereunder, including, without
limitation, in connection with settlements of purchases and sales of Securities,
loans of Securities and deliveries and returns of Securities collateral. Prior
to a deposit of Securities specifically allocated to a Series in
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the Depository, the Fund shall deliver to the Custodian a certified resolution
of the Board of Directors of the Fund, substantially in the form of Exhibit B
hereto, approving, authorizing and instructing the Custodian on a continuous and
ongoing basis until instructed to the contrary by a Certificate actually
received by the Custodian to deposit in the Depository all Securities
specifically allocated to such Series eligible for deposit therein, and to
utilize the Depository to the extent possible with respect to such Securities in
connection with its performance hereunder, including, without limitation, in
connection with settlements of purchases and sales of Securities, loans of
Securities, and deliveries and returns of Securities collateral. Securities and
money deposited in either the Book-Entry System or the Depository will be
represented in accounts which include only assets held by the Custodian for
customers, including, but not limited to, accounts in which the Custodian acts
in a fiduciary or representative capacity and will be specifically allocated on
the Custodian's books to the separate account for the applicable Series. Prior
to the Custodian's accepting, utilizing and acting with respect to Clearing
Member confirmations for Options and transactions in Options for a Series as
provided in this Agreement, the Custodian shall have received a certified
resolution of the Fund's Board of Directors, substantially in the form of
Exhibit C hereto, approving, authorizing and instructing the Custodian on a
continuous and on-going basis, until instructed to the contrary by a Certificate
actually received by the Custodian, to accept, utilize and act in accordance
with such confirmations as provided in this Agreement with respect to such
Series.
2. The Custodian shall establish and maintain separate accounts, in the
name of each Series, and shall credit to the separate account for each Series
all money received by it for the account of the Fund with respect to such
Series. Money credited to a separate account for a Series shall be disbursed by
the Custodian only:
(a) as hereinafter provided;
(b) pursuant to Certificates setting forth the name and address of
the person to whom the payment is to be made, the Series account from which
payment is to be made and the purpose for which payment is to be made; or
(c) in payment of the fees and in reimbursement of the expenses and
liabilities of the Custodian attributable to such Series.
3. Promptly after the close of business on each day, the Custodian
shall furnish the Fund with confirmations and a summary, on a per Series basis,
of all transfers to or from the account of the Fund for a Series, either
hereunder or with any co-custodian or sub-custodian appointed in accordance with
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this Agreement during said day. Where Securities are transferred to the account
of the Fund for a Series, the Custodian shall also by book-entry or otherwise
identify as belonging to such Series a quantity of Securities in a fungible bulk
of Securities registered in the name of the Custodian (or its nominee) or shown
on the Custodian's account on the books of the Book-Entry System or the
Depository. At least monthly and from time to time, the Custodian shall furnish
the Fund with a detailed statement, on a per Series basis, of the Securities and
money held by the Custodian for the Fund.
4. Except as otherwise provided in paragraph 7 of this Article and in
Article VIII, all Securities held by the Custodian hereunder, which are issued
or issuable only in bearer form, except such Securities as are held in the
Book-Entry System, shall be held by the Custodian in that form; all other
Securities held hereunder may be registered in the name of the Fund, in the name
of any duly appointed registered nominee of the Custodian as the Custodian may
from time to time determine, or in the name of the Book-Entry System or the
Depository or their successor or successors, or their nominee or nominees. The
Fund agrees to furnish to the Custodian appropriate instruments to enable the
Custodian to hold or deliver in proper form for transfer, or to register in the
name of its registered nominee or in the name of the Book-Entry System or the
Depository any Securities which it may hold hereunder and which may from time to
time be registered in the name of the Fund. The Custodian shall hold all such
Securities specifically allocated to a Series which are not held in the
Book-Entry System or in the Depository in a separate account in the name of such
Series physically segregated at all times from those of any other person or
persons.
5. Except as otherwise provided in this Agreement and unless otherwise
instructed to the contrary by a Certificate, the Custodian by itself, or through
the use of the Book-Entry System or the Depository with respect to Securities
held hereunder and therein deposited, shall with respect to all Securities held
for the Fund hereunder in accordance with preceding paragraph 4:
(a) collect all income, dividends and distributions due or payable;
(b) give notice to the Fund and present payment and collect the
amount payable upon such Securities which are called, but only if either (i) the
Custodian receives a written notice of such call, or (ii) notice of such call
appears in one or more of the publications listed in Appendix C annexed hereto,
which may be amended at any time by the Custodian without the prior notification
or consent of the Fund;
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(c) present for payment and collect the amount payable upon all
Securities which mature;
(d) surrender Securities in temporary form for definitive
Securities;
(e) execute, as custodian, any necessary declarations or
certificates of ownership under the Federal Income Tax Laws or the laws or
regulations of any other taxing authority now or hereafter in effect;
(f) hold directly, or through the Book-Entry System or the
Depository with respect to Securities therein deposited, for the account of a
Series, all rights and similar securities issued with respect to any Securities
held by the Custodian for such Series hereunder; and
(g) deliver to the Fund all notices, proxies, proxy soliciting
materials, consents and other written information (including, without
limitation, notices of tender offers and exchange offers, pendency of calls,
maturities of Securities and expiration of rights) relating to Securities held
pursuant to this Agreement which are actually received by the Custodian, such
proxies and other similar materials to be executed by the registered owner (if
Securities are registered otherwise than in the name of the Fund), but without
indicating the manner in which proxies or consents are to be voted.
6. Upon receipt of a Certificate and not otherwise, the Custodian,
directly or through the use of the Book-Entry System or the Depository, shall:
(a) execute and deliver to such persons as may be designated in such
Certificate proxies, consents, authorizations, and any other instruments whereby
the authority of the Fund as owner of any Securities held by the Custodian
hereunder for the Series specified in such Certificate may be exercised;
(b) deliver any Securities held by the Custodian hereunder for the
Series specified in such Certificate in exchange for other Securities or cash
issued or paid in connection with the liquidation, reorganization, refinancing,
merger, consolidation or recapitalization of any corporation, or the exercise of
any conversion privilege and receive and hold hereunder specifically allocated
to such Series any cash or other Securities received in exchange;
(c) deliver any Securities held by the Custodian hereunder for the
Series specified in such Certificate to any protective committee, reorganization
committee or other person in connection with the reorganization, refinancing,
merger, consolidation, recapitalization or sale of assets of any
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corporation, and receive and hold hereunder specifically allocated to such
Series such certificates of deposit, interim receipts or other instruments or
documents as may be issued to it to evidence such delivery;
(d) make such transfers or exchanges of the assets of the Series
specified in such Certificate, and take such other steps as shall be stated in
such Certificate to be for the purpose of effectuating any duly authorized plan
of liquidation, reorganization, merger, consolidation or recapitalization of the
Fund; and
(e) present for payment and collect the amount payable upon
Securities not described in preceding paragraph 5(b) of this Article which may
be called as specified in the Certificate.
7. Notwithstanding any provision elsewhere contained herein, the
Custodian shall not be required to obtain possession of any instrument or
certificate representing any Futures Contract, any Option, or any Futures
Contract Option until after it shall have determined, or shall have received a
Certificate from the Fund stating, that any such instruments or certificates are
available. The Fund shall deliver to the Custodian such a Certificate no later
than the business day preceding the availability of any such instrument or
certificate. Prior to such availability, the Custodian shall comply with Section
17(f) of the Investment Company Act of 1940, as amended, in connection with the
purchase, sale, settlement, closing out or writing of Futures Contracts,
Options, or Futures Contract Options by making payments or deliveries specified
in Certificates received by the Custodian in connection with any such purchase,
sale, writing, settlement or closing out upon its receipt from a broker, dealer,
or futures commission merchant of a statement or confirmation reasonably
believed by the Custodian to be in the form customarily used by brokers,
dealers, or future commission merchants with respect to such Futures Contracts,
Options, or Futures Contract Options, as the case may be, confirming that such
Security is held by such broker, dealer or futures commission merchant, in
book-entry form or otherwise, in the name of the Custodian (or any nominee of
the Custodian) as custodian for the Fund, provided, however, that
notwithstanding the foregoing, payments to or deliveries from the Margin
Account, and payments with respect to Securities to which a Margin Account
relates, shall be made in accordance with the terms and conditions of the Margin
Account Agreement. Whenever any such instruments or certificates are available,
the Custodian shall, notwithstanding any provision in this Agreement to the
contrary, make payment for any Futures Contract, Option, or Futures Contract
Option for which such instruments or such certificates are available only
against the delivery to the Custodian of such instrument or such certificate,
and deliver any Futures Contract, Option or
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Futures Contract Option for which such instruments or such certificates are
available only against receipt by the Custodian of payment therefor. Any such
instrument or certificate delivered to the Custodian shall be held by the
Custodian hereunder in accordance with, and subject to, the provisions of this
Agreement.
ARTICLE IV.
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
OTHER THAN OPTIONS, FUTURES CONTRACTS AND
FUTURES CONTRACT OPTIONS
1. Promptly after each purchase of Securities by the Fund, other than a
purchase of an Option, a Futures Contract, or a Futures Contract Option, the
Fund shall deliver to the Custodian (i) with respect to each purchase of
Securities which are not Money Market Securities, a Certificate, and (ii) with
respect to each purchase of Money Market Securities, a Certificate or Oral
Instructions, specifying with respect to each such purchase: (a) the Series to
which such Securities are to be specifically allocated; (b) the name of the
issuer and the title of the Securities; (c) the number of shares or the
principal amount purchased and accrued interest, if any; (d) the date of
purchase and settlement; (e) the purchase price per unit; (f) the total amount
payable upon such purchase; (g) the name of the person from whom or the broker
through whom the purchase was made, and the name of the clearing broker, if any;
and (h) the name of the broker to whom payment is to be made. The Custodian
shall, upon receipt of Securities purchased by or for the Fund, pay to the
broker specified in the Certificate out of the money held for the account of
such Series the total amount payable upon such purchase, provided that the same
conforms to the total amount payable as set forth in such Certificate or Oral
Instructions.
2. Promptly after each sale of Securities by the Fund, other than a
sale of any Option, Futures Contract, Futures Contract Option, or any Reverse
Repurchase Agreement, the Fund shall deliver to the Custodian (i) with respect
to each sale of Securities which are not Money Market Securities, a Certificate,
and (ii) with respect to each sale of Money Market Securities, a Certificate or
Oral Instructions, specifying with respect to each such sale: (a) the Series to
which such Securities were specifically allocated; (b) the name of the issuer
and the title of the Security; (c) the number of shares or principal amount
sold, and accrued interest, if any; (d) the date of sale; (e) the sale price per
unit; (f) the total amount payable to the Fund upon such sale; (g) the name of
the broker through whom or the person to whom the sale was made, and the name of
the clearing broker, if any; and (h) the name of the broker to whom the
Securities are to be delivered. The Custodian shall deliver the Securities
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specifically allocated to such Series to the broker specified in the Certificate
against payment of the total amount payable to the Fund upon such sale, provided
that the same conforms to the total amount payable as set forth in such
Certificate or Oral Instructions.
ARTICLE V.
OPTIONS
1. Promptly after the purchase of any Option by the Fund, the Fund
shall deliver to the Custodian a Certificate specifying with respect to each
Option purchased: (a) the Series to which such Option is specifically allocated;
(b) the type of Option (put or call); (c) the name of the issuer and the title
and number of shares subject to such Option or, in the case of a Stock Index
Option, the stock index to which such Option relates and the number of Stock
Index Options purchased; (d) the expiration date; (e) the exercise price; (f)
the dates of purchase and settlement; (g) the total amount payable by the Fund
in connection with such purchase; (h) the name of the Clearing Member through
whom such Option was purchased; and (i) the name of the broker to whom payment
is to be made. The Custodian shall pay, upon receipt of a Clearing Member's
statement confirming the purchase of such Option held by such Clearing Member
for the account of the Custodian (or any duly appointed and registered nominee
of the Custodian) as custodian for the Fund, out of money held for the account
of the Series to which such Option is to be specifically allocated, the total
amount payable upon such purchase to the Clearing Member through whom the
purchase was made, provided that the same conforms to the total amount payable
as set forth in such Certificate.
2. Promptly after the sale of any Option purchased by the Fund pursuant
to paragraph 1 hereof, the Fund shall deliver to the Custodian a Certificate
specifying with respect to each such sale: (a) the Series to which such Option
was specifically allocated; (b) the type of Option (put or call); (c) the name
of the issuer and the title and number of shares subject to such Option or, in
the case of a Stock Index Option, the stock index to which such Option relates
and the number of Stock Index Options sold; (d) the date of sale; (e) the sale
price; (f) the date of settlement; (g) the total amount payable to the Fund upon
such sale; and (h) the name of the Clearing Member through whom the sale was
made. The Custodian shall consent to the delivery of the Option sold by the
Clearing Member which previously supplied the confirmation described in
preceding paragraph 1 of this Article with respect to such Option against
payment to the Custodian of the total amount payable to the Fund, provided that
the same conforms to the total amount payable as set forth in such Certificate.
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3. Promptly after the exercise by the Fund of any Call Option purchased
by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to the
Custodian a Certificate specifying with respect to such Call Option: (a) the
Series to which such Call Option was specifically allocated; (b) the name of the
issuer and the title and number of shares subject to the Call Option; (c) the
expiration date; (d) the date of exercise and settlement; (e) the exercise price
per share; (f) the total amount to be paid by the Fund upon such exercise; and
(g) the name of the Clearing Member through whom such Call Option was exercised.
The Custodian shall, upon receipt of the Securities underlying the Call Option
which was exercised, pay out of the money held for the account of the Series to
which such Call Option was specifically allocated the total amount payable to
the Clearing Member through whom the Call Option was exercised, provided that
the same conforms to the total amount payable as set forth in such Certificate.
4. Promptly after the exercise by the Fund of any Put Option purchased
by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to the
Custodian a Certificate specifying with respect to such Put Option: (a) the
Series to which such Put Option was specifically allocated; (b) the name of the
issuer and the title and number of shares subject to the Put Option; (c) the
expiration date; (d) the date of exercise and settlement; (e) the exercise price
per share; (f) the total amount to be paid to the Fund upon such exercise; and
(g) the name of the Clearing Member through whom such Put Option was exercised.
The Custodian shall, upon receipt of the amount payable upon the exercise of the
Put Option, deliver or direct the Depository to deliver the Securities
specifically allocated to such Series, provided the same conforms to the amount
payable to the Fund as set forth in such Certificate.
5. Promptly after the exercise by the Fund of any Stock Index Option
purchased by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to
the Custodian a Certificate specifying with respect to such Stock Index Option:
(a) the Series to which such Stock Index Option was specifically allocated; (b)
the type of Stock Index Option (put or call); (c) the number of Options being
exercised; (d) the stock index to which such Option relates; (e) the expiration
date; (f) the exercise price; (g) the total amount to be received by the Fund in
connection with such exercise; and (h) the Clearing Member from whom such
payment is to be received.
6. Whenever the Fund writes a Covered Call Option, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to such
Covered Call Option: (a) the Series for which such Covered Call Option was
written; (b) the name of the issuer and the title and number of shares for which
the Covered Call Option was written and which underlie the same; (c) the
expiration date; (d) the exercise price; (e) the premium to be received by the
Fund; (f) the date such
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Covered Call Option was written; and (g) the name of the Clearing Member through
whom the premium is to be received. The Custodian shall deliver or cause to be
delivered, in exchange for receipt of the premium specified in the Certificate
with respect to such Covered Call Option, such receipts as are required in
accordance with the customs prevailing among Clearing Members dealing in Covered
Call Options and shall impose, or direct the Depository to impose, upon the
underlying Securities specified in the Certificate specifically allocated to
such Series such restrictions as may be required by such receipts.
Notwithstanding the foregoing, the Custodian has the right, upon prior written
notification to the Fund, at any time to refuse to issue any receipts for
Securities in the possession of the Custodian and not deposited with the
Depository underlying a Covered Call Option.
7. Whenever a Covered Call Option written by the Fund and described in
the preceding paragraph of this Article is exercised, the Fund shall promptly
deliver to the Custodian a Certificate instructing the Custodian to deliver, or
to direct the Depository to deliver, the Securities subject to such Covered Call
Option and specifying: (a) the Series for which such Covered Call Option was
written; (b) the name of the issuer and the title and number of shares subject
to the Covered Call Option; (c) the Clearing Member to whom the underlying
Securities are to be delivered; and (d) the total amount payable to the Fund
upon such delivery. Upon the return and/or cancellation of any receipts
delivered pursuant to paragraph 6 of this Article, the Custodian shall deliver,
or direct the Depository to deliver, the underlying Securities as specified in
the Certificate against payment of the amount to be received as set forth in
such Certificate.
8. Whenever the Fund writes a Put Option, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to such Put
Option: (a) the Series for which such Put Option was written; (b) the name of
the issuer and the title and number of shares for which the Put Option is
written and which underlie the same; (c) the expiration date; (d) the exercise
price; (e) the premium to be received by the Fund; (f) the date such Put Option
is written; (g) the name of the Clearing Member through whom the premium is to
be received and to whom a Put Option guarantee letter is to be delivered; (h)
the amount of cash, and/or the amount and kind of Securities, if any,
specifically allocated to such Series to be deposited in the Senior Security
Account for such Series; and (i) the amount of cash and/or the amount and kind
of Securities specifically allocated to such Series to be deposited into the
Collateral Account for such Series. The Custodian shall, after making the
deposits into the Collateral Account specified in the Certificate, issue a Put
Option guarantee letter substantially in the form utilized by the Custodian on
the date hereof, and deliver the same to the Clearing Member
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<PAGE> 14
specified in the Certificate against receipt of the premium specified in said
Certificate. Notwithstanding the foregoing, the Custodian shall be under no
obligation to issue any Put Option guarantee letter or similar document if it is
unable to make any of the representations contained therein.
9. Whenever a Put Option written by the Fund and described in the
preceding paragraph is exercised, the Fund shall promptly deliver to the
Custodian a Certificate specifying: (a) the Series to which such Put Option was
written; (b) the name of the issuer and title and number of shares subject to
the Put Option; (c) the Clearing Member from whom the underlying Securities are
to be received; (d) the total amount payable by the Fund upon such delivery; (e)
the amount of cash and/or the amount and kind of Securities specifically
allocated to such Series to be withdrawn from the Collateral Account for such
Series and (f) the amount of cash and/or the amount and kind of Securities,
specifically allocated to such Series, if any, to be withdrawn from the Senior
Security Account. Upon the return and/or cancellation of any Put Option
guarantee letter or similar document issued by the Custodian in connection with
such Put Option, the Custodian shall pay out of the money held for the account
of the Series to which such Put Option was specifically allocated the total
amount payable to the Clearing Member specified in the Certificate as set forth
in such Certificate against delivery of such Securities, and shall make the
withdrawals specified in such Certificate.
10. Whenever the Fund writes a Stock Index Option, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to such
Stock Index Option: (a) the Series for which such Stock Index Option was
written; (b) whether such Stock Index Option is a put or a call; (c) the number
of options written; (d) the stock index to which such Option relates; (e) the
expiration date; (f) the exercise price; (g) the Clearing Member through whom
such Option was written; (h) the premium to be received by the Fund; (i) the
amount of cash and/or the amount and kind of Securities, if any, specifically
allocated to such Series to be deposited in the Senior Security Account for such
Series; (j) the amount of cash and/or the amount and kind of Securities, if any,
specifically allocated to such Series to be deposited in the Collateral Account
for such Series; and (k) the amount of cash and/or the amount and kind of
Securities, if any, specifically allocated to such Series to be deposited in a
Margin Account, and the name in which such account is to be or has been
established. The Custodian shall, upon receipt of the premium specified in the
Certificate, make the deposits, if any, into the Senior Security Account
specified in the Certificate, and either (1) deliver such receipts, if any,
which the Custodian has specifically agreed to issue, which are in accordance
with the customs prevailing among Clearing Members in Stock Index Options and
make the deposits into the Collateral Account
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<PAGE> 15
specified in the Certificate, or (2) make the deposits into the Margin Account
specified in the Certificate.
11. Whenever a Stock Index Option written by the Fund and described in
the preceding paragraph of this Article is exercised, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to such Stock
Index Option: (a) the Series for which such Stock Index Option was written; (b)
such information as may be necessary to identify the Stock Index Option being
exercised; (c) the Clearing Member through whom such Stock Index Option is being
exercised; (d) the total amount payable upon such exercise, and whether such
amount is to be paid by or to the Fund; (e) the amount of cash and/or amount and
kind of Securities, if any, to be withdrawn from the Margin Account; and (f) the
amount of cash and/or amount and kind of Securities, if any, to be withdrawn
from the Senior Security Account for such Series; and the amount of cash and/or
the amount and kind of Securities, if any, to be withdrawn from the Collateral
Account for such Series. Upon the return and/or cancellation of the receipt, if
any, delivered pursuant to the preceding paragraph of this Article, the
Custodian shall pay out of the money held for the account of the Series to which
such Stock Index Option was specifically allocated to the Clearing Member
specified in the Certificate the total amount payable, if any, as specified
therein.
12. Whenever the Fund purchases any Option identical to a previously
written Option described in paragraphs, 6, 8 or 10 of this Article in a
transaction expressly designated as a "Closing Purchase Transaction" in order to
liquidate its position as a writer of an Option, the Fund shall promptly deliver
to the Custodian a Certificate specifying with respect to the Option being
purchased: (a) that the transaction is a Closing Purchase Transaction; (b) the
Series for which the Option was written; (c) the name of the issuer and the
title and number of shares subject to the Option, or, in the case of a Stock
Index Option, the stock index to which such Option relates and the number of
Options held; (d) the exercise price; (e) the premium to be paid by the Fund;
(f) the expiration date; (g) the type of Option (put or call); (h) the date of
such purchase; (i) the name of the Clearing Member to whom the premium is to be
paid; and (j) the amount of cash and/or the amount and kind of Securities, if
any, to be withdrawn from the Collateral Account, a specified Margin Account, or
the Senior Security Account for such Series. Upon the Custodian's payment of the
premium and the return and/or cancellation of any receipt issued pursuant to
paragraphs 6, 8 or 10 of this Article with respect to the Option being
liquidated through the Closing Purchase Transaction, the Custodian shall remove,
or direct the Depository to remove, the previously imposed restrictions on the
Securities underlying the Call Option.
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<PAGE> 16
13. Upon the expiration, exercise or consummation of a Closing Purchase
Transaction with respect to any Option purchased or written by the Fund and
described in this Article, the Custodian shall delete such Option from the
statements delivered to the Fund pursuant to paragraph 3 Article III herein, and
upon the return and/or cancellation of any receipts issued by the Custodian,
shall make such withdrawals from the Collateral Account, and the Margin Account
and/or the Senior Security Account as may be specified in a Certificate received
in connection with such expiration, exercise, or consummation.
ARTICLE VI.
FUTURES CONTRACTS
1. Whenever the Fund shall enter into a Futures Contract, the Fund
shall deliver to the Custodian a Certificate specifying with respect to such
Futures Contract, (or with respect to any number of identical Futures
Contract(s)): (a) the Series for which the Futures Contract is being entered;
(b) the category of Futures Contract (the name of the underlying stock index or
financial instrument); (c) the number of identical Futures Contracts entered
into; (d) the delivery or settlement date of the Futures Contract(s); (e) the
date the Futures Contract(s) was (were) entered into and the maturity date; (f)
whether the Fund is buying (going long) or selling (going short) on such Futures
Contract(s); (g) the amount of cash and/or the amount and kind of Securities, if
any, to be deposited in the Senior Security Account for such Series; (h) the
name of the broker, dealer, or futures commission merchant through whom the
Futures Contract was entered into; and (i) the amount of fee or commission, if
any, to be paid and the name of the broker, dealer, or futures commission
merchant to whom such amount is to be paid. The Custodian shall make the
deposits, if any, to the Margin Account in accordance with the terms and
conditions of the Margin Account Agreement. The Custodian shall make payment out
of the money specifically allocated to such Series of the fee or commission, if
any, specified in the Certificate and deposit in the Senior Security Account for
such Series the amount of cash and/or the amount and kind of Securities
specified in said Certificate.
2. (a) Any variation margin payment or similar payment required to be
made by the Fund to a broker, dealer, or futures commission merchant with
respect to an outstanding Futures Contract, shall be made by the Custodian in
accordance with the terms and conditions of the Margin Account Agreement.
(b) Any variation margin payment or similar payment from a broker,
dealer, or futures commission merchant to the
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<PAGE> 17
Fund with respect to an outstanding Futures Contract, shall be received and
dealt with by the Custodian in accordance with the terms and conditions of the
Margin Account Agreement.
3. Whenever a Futures Contract held by the Custodian hereunder is
retained by the Fund until delivery or settlement is made on such Futures
Contract, the Fund shall deliver to the Custodian a Certificate specifying: (a)
the Futures Contract and the Series to which the same relates; (b) with respect
to a Stock Index Futures Contract, the total cash settlement amount to be paid
or received, and with respect to a Financial Futures Contract, the Securities
and/or amount of cash to be delivered or received; (c) the broker, dealer, or
futures commission merchant to or from whom payment or delivery is to be made or
received; and (d) the amount of cash and/or Securities to be withdrawn from the
Senior Security Account for such Series. The Custodian shall make the payment or
delivery specified in the Certificate, and delete such Futures Contract from the
statements delivered to the Fund pursuant to paragraph 3 of Article III herein.
4. Whenever the Fund shall enter into a Futures Contract to offset a
Futures Contract held by the Custodian hereunder, the Fund shall deliver to the
Custodian a Certificate specifying: (a) the items of information required in a
Certificate described in paragraph 1 of this Article, and (b) the Futures
Contract being offset. The Custodian shall make payment out of the money
specifically allocated to such Series of the fee or commission, if any,
specified in the Certificate and delete the Futures Contract being offset from
the statements delivered to the Fund pursuant to paragraph 3 of Article III
herein, and make such withdrawals from the Senior Security Account for such
Series as may be specified in such Certificate. The withdrawals, if any, to be
made from the Margin Account shall be made by the Custodian in accordance with
the terms and conditions of the Margin Account Agreement.
5. Notwithstanding any other provision in this Agreement to the
contrary, the Custodian shall deliver cash and Securities to a future commission
merchant upon receipt of a Certificate from the Fund specifying: (a) the name of
the future commission merchant; (b) the specific cash and Securities to be
delivered; (c) the date of such delivery; and (d) the date of the agreement
between the Fund and such future commission merchant entered pursuant to Rule
17f-6 under the Investment Company Act 1940, as amended. Each delivery of such a
Certificate by the Fund shall constitute (x) a representation and warranty by
the Fund that the Rule 17f-6 agreement has been duly authorized, executed and
delivered by the Fund and the future commission merchant and complies with Rule
17f-6, and (y) an agreement by the Fund that the Custodian shall not be liable
for the acts or omissions of any such future commission merchant.
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<PAGE> 18
ARTICLE VII.
FUTURES CONTRACT OPTIONS
1. Promptly after the purchase of any Futures Contract Option by the
Fund, the Fund shall promptly deliver to the Custodian a Certificate specifying
with respect to such Futures Contract Option: (a) the Series to which such
Option is specifically allocated; (b) the type of Futures Contract Option (put
or call); (c) the type of Futures Contract and such other information as may be
necessary to identify the Futures Contract underlying the Futures Contract
Option purchased; (d) the expiration date; (e) the exercise price; (f) the dates
of purchase and settlement; (g) the amount of premium to be paid by the Fund
upon such purchase; (h) the name of the broker or futures commission merchant
through whom such option was purchased; and (i) the name of the broker, or
futures commission merchant, to whom payment is to be made. The Custodian shall
pay out of the money specifically allocated to such Series, the total amount to
be paid upon such purchase to the broker or futures commissions merchant through
whom the purchase was made, provided that the same conforms to the amount set
forth in such Certificate.
2. Promptly after the sale of any Futures Contract Option purchased by
the Fund pursuant to paragraph 1 hereof, the Fund shall promptly deliver to the
Custodian a Certificate specifying with respect to each such sale: (a) the
Series to which such Futures Contract Option was specifically allocated; (b) the
type of Future Contract Option (put or call); (c) the type of Futures Contract
and such other information as may be necessary to identify the Futures Contract
underlying the Futures Contract Option; (d) the date of sale; (e) the sale
price; (f) the date of settlement; (g) the total amount payable to the Fund upon
such sale; and (h) the name of the broker or futures commission merchant through
whom the sale was made. The Custodian shall consent to the cancellation of the
Futures Contract Option being closed against payment to the Custodian of the
total amount payable to the Fund, provided the same conforms to the total amount
payable as set forth in such Certificate.
3. Whenever a Futures Contract Option purchased by the Fund pursuant to
paragraph 1 is exercised by the Fund, the Fund shall promptly deliver to the
Custodian a Certificate specifying: (a) the Series to which such Futures
Contract Option was specifically allocated; (b) the particular Futures Contract
Option (put or call) being exercised; (c) the type of Futures Contract
underlying the Futures Contract Option; (d) the date of exercise; (e)the name of
the broker or futures commission merchant through whom the Futures Contract
Option is exercised; (f) the net total amount, if any, payable by the Fund; (g)
the amount, if any, to be received by the Fund; and
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<PAGE> 19
(h) the amount of cash and/or the amount and kind of Securities to be deposited
in the Senior Security Account for such Series. The Custodian shall make, out of
the money and Securities specifically allocated to such Series, the payments, if
any, and the deposits, if any, into the Senior Security Account as specified in
the Certificate. The deposits, if any, to be made to the Margin Account shall be
made by the Custodian in accordance with the terms and conditions of the Margin
Account Agreement.
4. Whenever the Fund writes a Futures Contract Option, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to such
Futures Contract Option: (a) the Series for which such Futures Contract Option
was written; (b) the type of Futures Contract Option (put or call); (c) the type
of Futures Contract and such other information as may be necessary to identify
the Futures Contract underlying the Futures Contract Option; (d) the expiration
date; (e) the exercise price; (f) the premium to be received by the Fund; (g)
the name of the broker or futures commission merchant through whom the premium
is to be received; and (h) the amount of cash and/or the amount and kind of
Securities, if any, to be deposited in the Senior Security Account for such
Series. The Custodian shall, upon receipt of the premium specified in the
Certificate, make out of the money and Securities specifically allocated to such
Series the deposits into the Senior Security Account, if any, as specified in
the Certificate. The deposits, if any, to be made to the Margin Account shall be
made by the Custodian in accordance with the terms and conditions of the Margin
Account Agreement.
5. Whenever a Futures Contract Option written by the Fund which is a
call is exercised, the Fund shall promptly deliver to the Custodian a
Certificate specifying: (a) the Series to which such Futures Contract Option was
specifically allocated; (b) the particular Futures Contract Option exercised;
(c) the type of Futures Contract underlying the Futures Contract Option; (d) the
name of the broker or futures commission merchant through whom such Futures
Contract Option was exercised; (e) the net total amount, if any, payable to the
Fund upon such exercise; (f) the net total amount, if any, payable by the Fund
upon such exercise; and (g) the amount of cash and/or the amount and kind of
Securities to be deposited in the Senior Security Account for such Series. The
Custodian shall, upon its receipt of the net total amount payable to the Fund,
if any, specified in such Certificate make the payments, if any, and the
deposits, if any, into the Senior Security Account as specified in the
Certificate. The deposits, if any, to be made to the Margin Account shall be
made by the Custodian in accordance with the terms and conditions of the Margin
Account Agreement.
6. Whenever a Futures Contract Option which is written by the Fund and
which is a put is exercised, the Fund shall
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<PAGE> 20
promptly deliver to the Custodian a Certificate specifying: (a) the Series to
which such Option was specifically allocated; (b) the particular Futures
Contract Option exercised; (c) the type of Futures Contract underlying such
Futures Contract Option; (d) the name of the broker or futures commission
merchant through whom such Futures Contract Option is exercised; (e) the net
total amount, if any, payable to the Fund upon such exercise; (f) the net total
amount, if any, payable by the Fund upon such exercise; and (g) the amount and
kind of Securities and/or cash to be withdrawn from or deposited in, the Senior
Security Account for such Series, if any. The Custodian shall, upon its receipt
of the net total amount payable to the Fund, if any, specified in the
Certificate, make out of the money and Securities specifically allocated to such
Series, the payments, if any, and the deposits, if any, into the Senior Security
Account as specified in the Certificate. The deposits to and/or withdrawals from
the Margin Account, if any, shall be made by the Custodian in accordance with
the terms and conditions of the Margin Account Agreement.
7. Whenever the Fund purchases any Futures Contract Option identical to
a previously written Futures Contract Option described in this Article in order
to liquidate its position as a writer of such Futures Contract Option, the Fund
shall promptly deliver to the Custodian a Certificate specifying with respect to
the Futures Contract Option being purchased: (a) the Series to which such Option
is specifically allocated; (b) that the transaction is a closing transaction;
(c) the type of Future Contract and such other information as may be necessary
to identify the Futures Contract underlying the Futures Option Contract; (d) the
exercise price; (e) the premium to be paid by the Fund; (f) the expiration date;
(g) the name of the broker or futures commission merchant to whom the premium is
to be paid; and (h) the amount of cash and/or the amount and kind of Securities,
if any, to be withdrawn from the Senior Security Account for such Series. The
Custodian shall effect the withdrawals from the Senior Security Account
specified in the Certificate. The withdrawals, if any, to be made from the
Margin Account shall be made by the Custodian in accordance with the terms and
conditions of the Margin Account Agreement.
8. Upon the expiration, exercise, or consummation of a closing
transaction with respect to, any Futures Contract Option written or purchased by
the Fund and described in this Article, the Custodian shall (a) delete such
Futures Contract Option from the statements delivered to the Fund pursuant to
paragraph 3 of Article III herein and, (b) make such withdrawals from and/or in
the case of an exercise such deposits into the Senior Security Account as may be
specified in a Certificate. The deposits to and/or withdrawals from the
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<PAGE> 21
Margin Account, if any, shall be made by the Custodian in accordance with the
terms and conditions of the Margin Account Agreement.
9. Futures Contracts acquired by the Fund through the exercise of a
Futures Contract Option described in this Article shall be subject to Article VI
hereof.
10. Notwithstanding any other provision in this Agreement to the
contrary, the Custodian shall deliver cash and Securities to a future commission
merchant upon receipt of a Certificate from the Fund specifying: (a) the name of
the future commission merchant; (b) the specific cash and Securities to be
delivered; (c) the date of such delivery; and (d) the date of the agreement
between the Fund and such future commission merchant entered pursuant to Rule
17f-6 under the Investment Company Act 1940, as amended. Each delivery of such a
Certificate by the Fund shall constitute (x) a representation and warranty by
the Fund that the Rule 17f-6 agreement has been duly authorized, executed and
delivered by the Fund and the future commission merchant and complies with Rule
17f-6, and (y) an agreement by the Fund that the Custodian shall not be liable
for the acts or omissions of any such future commission merchant.
ARTICLE VIII.
SHORT SALES
1. Promptly after any short sales by any Series of the Fund, the Fund
shall promptly deliver to the Custodian a Certificate specifying: (a) the Series
for which such short sale was made; (b) the name of the issuer and the title of
the Security; (c) the number of shares or principal amount sold, and accrued
interest or dividends, if any; (d) the dates of the sale and settlement; (e) the
sale price per unit; (f) the total amount credited to the Fund upon such sale,
if any, (g) the amount of cash and/or the amount and kind of Securities, if any,
which are to be deposited in a Margin Account and the name in which such Margin
Account has been or is to be established; (h) the amount of cash and/or the
amount and kind of Securities, if any, to be deposited in a Senior Security
Account, and (i) the name of the broker through whom such short sale was made.
The Custodian shall upon its receipt of a statement from such broker confirming
such sale and that the total amount credited to the Fund upon such sale, if any,
as specified in the Certificate is held by such broker for the account of the
Custodian (or any nominee of the Custodian) as custodian of the Fund, issue a
receipt or make the deposits into the Margin Account and the Senior Security
Account specified in the Certificate.
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<PAGE> 22
2. In connection with the closing-out of any short sale, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to each
such closing out: (a) the Series for which such transaction is being made; (b)
the name of the issuer and the title of the Security; (c) the number of shares
or the principal amount, and accrued interest or dividends, if any, required to
effect such closing-out to be delivered to the broker; (d) the dates of
closing-out and settlement; (e) the purchase price per unit; (f) the net total
amount payable to the Fund upon such closing-out; (g) the net total amount
payable to the broker upon such closing-out; (h) the amount of cash and the
amount and kind of Securities to be withdrawn, if any, from the Margin Account;
(i) the amount of cash and/or the amount and kind of Securities, if any, to be
withdrawn from the Senior Security Account; and (j) the name of the broker
through whom the Fund is effecting such closing-out. The Custodian shall, upon
receipt of the net total amount payable to the Fund upon such closing-out, and
the return and/or cancellation of the receipts, if any, issued by the Custodian
with respect to the short sale being closed-out, pay out of the money held for
the account of the Fund to the broker the net total amount payable to the
broker, and make the withdrawals from the Margin Account and the Senior Security
Account, as the same are specified in the Certificate.
ARTICLE IX.
REVERSE REPURCHASE AGREEMENTS
1. Promptly after the Fund enters into a Reverse Repurchase Agreement
with respect to Securities and money held by the Custodian hereunder, the Fund
shall deliver to the Custodian a Certificate, or in the event such Reverse
Repurchase Agreement is a Money Market Security, a Certificate or Oral
Instructions specifying: (a) the Series for which the Reverse Repurchase
Agreement is entered; (b) the total amount payable to the Fund in connection
with such Reverse Repurchase Agreement and specifically allocated to such
Series; (c) the broker or dealer through or with whom the Reverse Repurchase
Agreement is entered; (d) the amount and kind of Securities to be delivered by
the Fund to such broker or dealer; (e) the date of such Reverse Repurchase
Agreement; and (f) the amount of cash and/or the amount and kind of Securities,
if any, specifically allocated to such Series to be deposited in a Senior
Security Account for such Series in connection with such Reverse Repurchase
Agreement. The Custodian shall, upon receipt of the total amount payable to the
Fund specified in the Certificate or Oral Instructions make the delivery to the
broker or dealer, and the deposits, if any, to the Senior Security Account,
specified in such Certificate or Oral Instructions.
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<PAGE> 23
2. Upon the termination of a Reverse Repurchase Agreement described in
preceding paragraph 1 of this Article, the Fund shall promptly deliver a
Certificate or, in the event such Reverse Repurchase Agreement is a Money Market
Security, a Certificate or Oral Instructions to the Custodian specifying: (a)
the Reverse Repurchase Agreement being terminated and the Series for which same
was entered; (b) the total amount payable by the Fund in connection with such
termination; (c) the amount and kind of Securities to be received by the Fund
and specifically allocated to such Series in connection with such termination;
(d) the date of termination; (e) the name of the broker or dealer with or
through whom the Reverse Repurchase Agreement is to be terminated; and (f) the
amount of cash and/or the amount and kind of Securities to be withdrawn from the
Senior Securities Account for such Series. The Custodian shall, upon receipt of
the amount and kind of Securities to be received by the Fund specified in the
Certificate or Oral Instructions, make the payment to the broker or dealer, and
the withdrawals, if any, from the Senior Security Account, specified in such
Certificate or Oral Instructions.
ARTICLE X.
LOAN OF PORTFOLIO SECURITIES OF THE FUND
1. Promptly after each loan of portfolio Securities specifically
allocated to a Series held by the Custodian hereunder, the Fund shall deliver or
cause to be delivered to the Custodian a Certificate specifying with respect to
each such loan: (a) the Series to which the loaned Securities are specifically
allocated; (b) the name of the issuer and the title of the Securities, (c) the
number of shares or the principal amount loaned, (d) the date of loan and
delivery, (e) the total amount to be delivered to the Custodian against the loan
of the Securities, including the amount of cash collateral and the premium, if
any, separately identified, and (f) the name of the broker, dealer, or financial
institution to which the loan was made. The Custodian shall deliver the
Securities thus designated to the broker, dealer or financial institution to
which the loan was made upon receipt of the total amount designated as to be
delivered against the loan of Securities. The Custodian may accept payment in
connection with a delivery otherwise than through the Book-Entry System or
Depository only in the form of a certified or bank cashier's check payable to
the order of the Fund or the Custodian drawn on New York Clearing House funds
and may deliver Securities in accordance with the customs prevailing among
dealers in securities.
2. Promptly after each termination of the loan of Securities by the
Fund, the Fund shall deliver or cause to be delivered to the Custodian a
Certificate specifying with
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<PAGE> 24
respect to each such loan termination and return of Securities: (a) the Series
to which the loaned Securities are specifically allocated; (b) the name of the
issuer and the title of the Securities to be returned, (c) the number of shares
or the principal amount to be returned, (d) the date of termination, (e) the
total amount to be delivered by the Custodian (including the cash collateral for
such Securities minus any offsetting credits as described in said Certificate),
and (f) the name of the broker, dealer, or financial institution from which the
Securities will be returned. The Custodian shall receive all Securities returned
from the broker, dealer, or financial institution to which such Securities were
loaned and upon receipt thereof shall pay, out of the money held for the account
of the Fund, the total amount payable upon such return of Securities as set
forth in the Certificate.
ARTICLE XI.
CONCERNING MARGIN ACCOUNTS, SENIOR SECURITY
ACCOUNTS, AND COLLATERAL ACCOUNTS
1. The Custodian shall, from time to time, make such deposits to, or
withdrawals from, a Senior Security Account as specified in a Certificate
received by the Custodian. Such Certificate shall specify the Series for which
such deposit or withdrawal is to be made and the amount of cash and/or the
amount and kind of Securities specifically allocated to such Series to be
deposited in, or withdrawn from, such Senior Security Account for such Series.
In the event that the Fund fails to specify in a Certificate the Series, the
name of the issuer, the title and the number of shares or the principal amount
of any particular Securities to be deposited by the Custodian into, or withdrawn
from, a Senior Securities Account, the Custodian shall be under no obligation to
make any such deposit or withdrawal and shall so notify the Fund.
2. The Custodian shall make deliveries or payments from a Margin
Account to the broker, dealer, futures commission merchant or Clearing Member in
whose name, or for whose benefit, the account was established as specified in
the Margin Account Agreement.
3. Amounts received by the Custodian as payments or distributions with
respect to Securities deposited in any Margin Account shall be dealt with in
accordance with the terms and conditions of the Margin Account Agreement.
4. The Custodian shall have a continuing lien and security interest in
and to any property at any time held by the Custodian in any Collateral Account
described herein. In accordance with applicable law the Custodian may enforce
its lien and realize on any such property whenever the Custodian
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<PAGE> 25
has made payment or delivery pursuant to any Put Option guarantee letter or
similar document or any receipt issued hereunder by the Custodian. In the event
the Custodian should realize on any such property net proceeds which are less
than the Custodian's obligations under any Put Option guarantee letter or
similar document or any receipt, such deficiency shall be a debt owed the
Custodian by the Fund within the scope of Article XIV herein.
5. On each business day the Custodian shall furnish the Fund with a
statement with respect to each Margin Account in which money or Securities are
held specifying as of the close of business on the previous business day: (a)
the name of the Margin Account; (b) the amount and kind of Securities held
therein; and (c) the amount of money held therein. The Custodian shall make
available upon request to any broker, dealer, or futures commission merchant
specified in the name of a Margin Account a copy of the statement furnished the
Fund with respect to such Margin Account.
6. Promptly after the close of business on each business day in which
cash and/or Securities are maintained in a Collateral Account for any Series,
the Custodian shall furnish the Fund with a statement with respect to such
Collateral Account specifying the amount of cash and/or the amount and kind of
Securities held therein. No later than the close of business next succeeding the
delivery to the Fund of such statement, the Fund shall furnish to the Custodian
a Certificate specifying the then market value of the Securities described in
such statement. In the event such then market value is indicated to be less than
the Custodian's obligation with respect to any outstanding Put Option guarantee
letter or similar document, the Fund shall promptly specify in a Certificate the
additional cash and/or Securities to be deposited in such Collateral Account to
eliminate such deficiency.
ARTICLE XII.
PAYMENT OF DIVIDENDS OR DISTRIBUTIONS
1. The Fund shall furnish to the Custodian a copy of the resolution of
the Board of Directors of the Fund, certified by the Secretary or any Assistant
Secretary, either (i) setting forth with respect to the Series specified therein
the date of the declaration of a dividend or distribution, the date of payment
thereof, the record date as of which shareholders entitled to payment shall be
determined, the amount payable per Share of such Series to the shareholders of
record as of that date and the total amount payable to the Dividend Agent and
any sub-dividend agent or co-dividend agent of the Fund on the payment date, or
(ii) authorizing with respect to the Series specified therein the declaration of
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dividends and distributions on a daily basis and authorizing the Custodian to
rely on Oral Instructions or a Certificate setting forth the date of the
declaration of such dividend or distribution, the date of payment thereof, the
record date as of which shareholders entitled to payment shall be determined,
the amount payable per Share of such Series to the shareholders of record as of
that date and the total amount payable to the Dividend Agent on the payment
date.
2. Upon the payment date specified in such resolution, Oral
Instructions or Certificate, as the case may be, the Custodian shall pay out of
the money held for the account of each Series the total amount payable to the
Dividend Agent and any sub-dividend agent or co-dividend agent of the Fund with
respect to such Series.
ARTICLE XIII.
SALE AND REDEMPTION OF SHARES
1. Whenever the Fund shall sell any Shares, it shall deliver to the
Custodian a Certificate duly specifying:
(a) the Series, the number of Shares sold, trade date, and price;
and
(b) the amount of money to be received by the Custodian for the sale
of such Shares and specifically allocated to the separate account in the name of
such Series.
2. Upon receipt of such money from the Transfer Agent, the Custodian
shall credit such money to the separate account in the name of the Series for
which such money was received.
3. Upon issuance of any Shares of any Series described in the foregoing
provisions of this Article, the Custodian shall pay, out of the money held for
the account of such Series, all original issue or other taxes required to be
paid by the Fund in connection with such issuance upon the receipt of a
Certificate specifying the amount to be paid.
4. Except as provided hereinafter, whenever the Fund desires the
Custodian to make payment out of the money held by the Custodian hereunder in
connection with a redemption of any Shares, it shall furnish to the Custodian a
Certificate specifying:
(a) the number and Series of Shares redeemed; and
(b) the amount to be paid for such Shares.
5. Upon receipt from the Transfer Agent of an advice setting forth the
Series and number of Shares received by the
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Transfer Agent for redemption and that such Shares are in good form for
redemption, the Custodian shall make payment to the Transfer Agent out of the
money held in the separate account in the name of the Series the total amount
specified in the Certificate issued pursuant to the foregoing paragraph 4 of
this Article.
6. Notwithstanding the above provisions regarding the redemption of any
Shares, whenever any Shares are redeemed pursuant to any check redemption
privilege which may from time to time be offered by the Fund, the Custodian,
unless otherwise instructed by a Certificate, shall, upon receipt of an advice
from the Fund or its agent setting forth that the redemption is in good form for
redemption in accordance with the check redemption procedure, honor the check
presented as part of such check redemption privilege out of the money held in
the separate account of the Series of the Shares being redeemed.
ARTICLE XIV.
OVERDRAFTS OR INDEBTEDNESS
1. If the Custodian, should in its sole discretion advance funds on
behalf of any Series which results in an overdraft because the money held by the
Custodian in the separate account for such Series shall be insufficient to pay
the total amount payable upon a purchase of Securities specifically allocated to
such Series, as set forth in a Certificate or Oral Instructions, or which
results in an overdraft in the separate account of such Series for some other
reason, or if the Fund is for any other reason indebted to the Custodian with
respect to a Series, including any indebtedness to The Bank of New York under
the Fund's Cash Management and Related Services Agreement, (except a borrowing
for investment or for temporary or emergency purposes using Securities as
collateral pursuant to a separate agreement and subject to the provisions of
paragraph 2 of this Article), such overdraft or indebtedness shall be deemed to
be a loan made by the Custodian to the Fund for such Series payable on demand
and shall bear interest from the date incurred at a rate per annum (based on a
360-day year for the actual number of days involved) equal to 1/2% over
Custodian's prime commercial lending rate in effect from time to time, such rate
to be adjusted on the effective date of any change in such prime commercial
lending rate but in no event to be less than 6% per annum. In addition, the Fund
hereby agrees that the Custodian shall have a continuing lien, security
interest, and security entitlement in and to any property including any
investment property or any financial asset specifically allocated to such Series
at any time held by it for the benefit of such Series or in which the Fund may
have an interest which is then in the Custodian's possession or
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control or in possession or control of any third party acting in the Custodian's
behalf. The Fund authorizes the Custodian, in its sole discretion, at any time
to charge any such overdraft or indebtedness together with interest due thereon
against any balance of account standing to such Series' credit on the
Custodian's books. In addition, the Fund hereby covenants that on each Business
Day on which either it intends to enter a Reverse Repurchase Agreement and/or
otherwise borrow from a third party, or which next succeeds a Business Day on
which at the close of business the Fund had outstanding a Reverse Repurchase
Agreement or such a borrowing, it shall prior to 9 a.m., New York City time,
advise the Custodian, in writing, of each such borrowing, shall specify the
Series to which the same relates, and shall not incur any indebtedness not so
specified other than from the Custodian.
2. The Fund will cause to be delivered to the Custodian by any bank
(including, if the borrowing is pursuant to a separate agreement, the Custodian)
from which it borrows money for investment or for temporary or emergency
purposes using Securities held by the Custodian hereunder as collateral for such
borrowings, a notice or undertaking in the form currently employed by any such
bank setting forth the amount which such bank will loan to the Fund against
delivery of a stated amount of collateral. The Fund shall promptly deliver to
the Custodian a Certificate specifying with respect to each such borrowing: (a)
the Series to which such borrowing relates; (b) the name of the bank, (c) the
amount and terms of the borrowing, which may be set forth by incorporating by
reference an attached promissory note, duly endorsed by the Fund, or other loan
agreement,(d) the time and date, if known, on which the loan is to be entered
into, (e) the date on which the loan becomes due and payable, (f) the total
amount payable to the Fund on the borrowing date, (g) the market value of
Securities to be delivered as collateral for such loan, including the name of
the issuer, the title and the number of shares or the principal amount of any
particular Securities, and (h) a statement specifying whether such loan is for
investment purposes or for temporary or emergency purposes and that such loan is
in conformance with the Investment Company Act of 1940 and the Fund's
prospectus. The Custodian shall deliver on the borrowing date specified in a
Certificate the specified collateral and the executed promissory note, if any,
against delivery by the lending bank of the total amount of the loan payable,
provided that the same conforms to the total amount payable as set forth in the
Certificate. The Custodian may, at the option of the lending bank, keep such
collateral in its possession, but such collateral shall be subject to all rights
therein given the lending bank by virtue of any promissory note or loan
agreement. The Custodian shall deliver such Securities as additional collateral
as may be specified in a Certificate to collateralize further any transaction
described in this paragraph. The Fund shall cause all Securities released from
collateral status to be returned
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directly to the Custodian, and the Custodian shall receive from time to time
such return of collateral as may be tendered to it. In the event that the Fund
fails to specify in a Certificate the Series, the name of the issuer, the title
and number of shares or the principal amount of any particular Securities to be
delivered as collateral by the Custodian, the Custodian shall not be under any
obligation to deliver any Securities.
ARTICLE XV.
INSTRUCTIONS
1. With respect to any software provided by the Custodian to a Fund in
order for the Fund to transmit Instructions to the Custodian (the "Software"),
the Custodian grants to such Fund a personal, nontransferable and nonexclusive
license to use the Software solely for the purpose of transmitting Instructions
to, and receiving communications from, the Custodian in connection with its
account(s). The Fund agrees not to sell, reproduce, lease or otherwise provide,
directly or indirectly, the Software or any portion thereof to any third party
without the prior written consent of the Custodian.
2. The Fund shall obtain and maintain at its own cost and expense all
equipment and services, including but not limited to communications services,
necessary for it to utilize the Software and transmit Instructions to the
Custodian. The Custodian shall not be responsible for the reliability,
compatibility with the Software or availability of any such equipment or
services or the performance or nonperformance by any nonparty to this Custody
Agreement.
3. The Fund acknowledges that the Software, all data bases made
available to the Fund by utilizing the Software (other than data bases relating
solely to the assets of the Fund and transactions with respect thereto), and any
proprietary data, processes, information and documentation (other than which are
or become part of the public domain or are legally required to be made available
to the public) (collectively, the "Information"), are the exclusive and
confidential property of the Custodian. The Fund shall keep the Information
confidential by using the same care and discretion that the Fund uses with
respect to its own confidential property and trade secrets and shall neither
make nor permit any disclosure without the prior written consent of the
Custodian. Upon termination of this Agreement or the Software license granted
hereunder for any reason, the Fund shall return to the Custodian all copies of
the Information which are in its possession or under its control or which the
Fund distributed to third parties.
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4. The Custodian reserves the right to modify the Software from time to
time upon reasonable prior notice and the Fund shall install new releases of the
Software as the Custodian may direct. The Fund agrees not to modify or attempt
to modify the Software without the Custodian's prior written consent. The Fund
acknowledges that any modifications to the Software, whether by the Fund or the
Custodian and whether with or without the Custodian's consent, shall become the
property of the Custodian.
5. The Custodian makes no warranties or representations of any kind
with regard to the Software or the method(s) by which the Fund may transmit
Instructions to the Custodian, express or implied, including but not limited to
any implied warranties or merchantability or fitness for a particular purpose.
6. Where the method for transmitting Instructions by the Fund involves
an automatic systems acknowledgment by the Custodian of its receipt of such
Instructions, then in the absence of such acknowledgment the Custodian shall not
be liable for any failure to act pursuant to such Instructions, the Fund may not
claim that such Instructions were received by the Custodian, and the Fund shall
deliver a Certificate by some other means.
7. (a) The Fund agrees that where it delivers to the Custodian
Instructions hereunder, it shall be the Fund's sole responsibility to ensure
that only persons duly authorized by the Fund transmit such Instructions to the
Custodian. The Fund will cause all persons transmitting Instructions to the
Custodian to treat applicable user and authorization codes, passwords and
authentication keys with extreme care, and irrevocably authorizes the Custodian
to act in accordance with and rely upon Instructions received by it pursuant
hereto.
(b) The Fund hereby represents, acknowledges and agrees that it is
fully informed of the protections and risks associated with the various methods
of transmitting Instructions to the Custodian and that there may be more secure
methods of transmitting instructions to the Custodian than the method(s)
selected by the Fund. The Fund hereby agrees that the security procedures (if
any) to be followed in connection with the Fund's transmission of Instructions
provide to it a commercially reasonable degree of protection in light of its
particular needs and circumstances.
8. The Fund hereby presents, warrants and covenants to the Custodian
that this Agreement has been duly approved by a resolution of its Board of
Directors, and that its transmission of Instructions pursuant hereto shall at
all times comply with the Investment Company Act of 1940, as amended.
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9. The Fund shall notify the Custodian of any errors, omissions or
interruptions in, or delay or unavailability of, its ability to send
Instructions as promptly as practicable, and in any event within 24 hours after
the earliest of (i) discovery thereof, (ii) the Business Day on which discovery
should have occurred through the exercise of reasonable care and (iii) in the
case of any error, the date of actual receipt of the earliest notice which
reflects such error, it being agreed that discovery and receipt of notice may
only occur on a business day. The Custodian shall promptly advise the Fund
whenever the Custodian learns of any errors, omissions or interruption in, or
delay or unavailability of, the Fund's ability to send Instructions.
ARTICLE XVI.
DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY
OF ANY SERIES HELD OUTSIDE OF THE UNITED STATES
1. The Custodian is authorized and instructed to employ, as
sub-custodian for each Series' Foreign Securities (as such term is defined in
paragraph (c)(1) of Rule 17f-5 under the Investment Company Act of 1940, as
amended) and other assets, the foreign banking institutions and foreign
securities depositories and clearing agencies designated on Schedule I hereto
("Foreign Sub-Custodians") to carry out their respective responsibilities in
accordance with the terms of the sub-custodian agreement between each such
Foreign Sub-Custodian and the Custodian, copies of which have been previously
delivered to the Fund and receipt of which is hereby acknowledged (each such
agreement, a "Foreign Sub-Custodian Agreement"). Upon receipt of a Certificate,
together with a certified resolution substantially in the form attached as
Exhibit E of the Fund's Board of Directors, the Fund may designate any
additional foreign sub-custodian with which the Custodian has an agreement for
such entity to act as the Custodian's agent, as its sub-custodian and any such
additional foreign sub-custodian shall be deemed added to Schedule I. Upon
receipt of a Certificate from the Fund, the Custodian shall cease the employment
of any one or more Foreign Sub-Custodians for maintaining custody of the Fund's
assets and such Foreign Sub-Custodian shall be deemed deleted from Schedule I.
2. Each Foreign Sub-Custodian Agreement shall be substantially in the
form previously delivered to the Fund and will not be amended in a way that
materially adversely affects the Fund without the Fund's prior written consent.
3. The Custodian shall identify on its books as belonging to each
Series of the Fund the Foreign Securities of such Series held by each Foreign
Sub-Custodian. At the election of the Fund, it shall be entitled to be
subrogated to
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the rights of the Custodian with respect to any claims by the Fund or any Series
against a Foreign Sub-Custodian as a consequence of any loss, damage, cost,
expense, liability or claim sustained or incurred by the Fund or any Series if
and to the extent that the Fund or such Series has not been made whole for any
such loss, damage, cost, expense, liability or claim.
4. Upon request of the Fund, the Custodian will, consistent with the
terms of the applicable Foreign Sub-Custodian Agreement, use reasonable efforts
to arrange for the independent accountants of the Fund to be afforded access to
the books and records of any Foreign Sub-Custodian insofar as such books and
records relate to the performance of such Foreign Sub-Custodian under its
agreement with the Custodian on behalf of the Fund.
5. The Custodian will supply to the Fund from time to time, as mutually
agreed upon, statements in respect of the securities and other assets of each
Series held by Foreign Sub-Custodians, including but not limited to, an
identification of entities having possession of each Series' Foreign Securities
and other assets, and advices or notifications of any transfers of Foreign
Securities to or from each custodial account maintained by a Foreign
Sub-Custodian for the Custodian on behalf of the Series.
6. The Custodian shall transmit promptly to the Fund all notices,
reports or other written information received pertaining to the Fund's Foreign
Securities, including without limitation, notices of corporate action, proxies
and proxy solicitation materials.
7. Notwithstanding any provision of this Agreement to the contrary,
settlement and payment for securities received for the account of any Series and
delivery of securities maintained for the account of such Series may be effected
in accordance with the customary or established securities trading or securities
processing practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivery of securities to the
purchaser thereof or to a dealer therefor (or an agent for such purchaser or
dealer) against a receipt with the expectation of receiving later payment for
such securities from such purchaser or dealer.
8. Notwithstanding any other provision in this Agreement to the
contrary, with respect to any losses or damages arising out of or relating to
any actions or omissions of any Foreign Sub-Custodian the sole responsibility
and liability of the Custodian shall be to take appropriate action at the Fund's
expense to recover such loss or damage from the Foreign Sub-Custodian. It is
expressly understood and agreed that the Custodian's sole responsibility and
liability shall
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be limited to amounts so recovered from the Foreign Sub-Custodian.
ARTICLE XVII.
FX TRANSACTIONS
1. Whenever the Fund shall enter into an FX Transaction, the Fund shall
promptly deliver to the Custodian a Certificate or Oral Instructions specifying
with respect to such FX Transaction: (a) the Series to which such FX Transaction
is specifically allocated; (b) the type and amount of Currency to be purchased
by the Fund; (c) the type and amount of Currency to be sold by the Fund; (d) the
date on which the Currency to be purchased is to be delivered; (e) the date on
which the Currency to be sold is to be delivered; and (f) the name of the person
from whom or through whom such currencies are to be purchased and sold. Unless
otherwise instructed by a Certificate or Oral Instructions, the Custodian shall
deliver, or shall instruct a Foreign Sub-Custodian to deliver, the Currency to
be sold on the date on which such delivery is to be made, as set forth in the
Certificate, and shall receive, or instruct a Foreign Sub-Custodian to receive,
the Currency to be purchased on the date as set forth in the Certificate.
2. Where the Currency to be sold is to be delivered on the same day as
the Currency to be purchased, as specified in the Certificate or Oral
Instructions, the Custodian or a Foreign Sub-Custodian may arrange for such
deliveries and receipts to be made in accordance with the customs prevailing
from time to time among brokers or dealers in Currencies, and such receipt and
delivery may not be completed simultaneously. The Fund assumes all
responsibility and liability for all credit risks involved in connection with
such receipts and deliveries, which responsibility and liability shall continue
until the Currency to be received by the Fund has been received in full.
3. Any FX Transaction effected by the Custodian in connection with this
Agreement may be entered with the Custodian, any office, branch or subsidiary of
The Bank of New York Company, Inc., or any Foreign Sub-Custodian acting as
principal or otherwise through customary banking channels. The Fund may issue a
standing Certificate with respect to FX Transaction but the Custodian may
establish rules or limitations concerning any foreign exchange facility made
available to the Fund. The Fund shall bear all risks of investing in Securities
or holding Currency. Without limiting the foregoing, the Fund shall bear the
risks that rules or procedures imposed by a Foreign Sub-Custodian or foreign
depositories, exchange controls, asset freezes or other laws, rules, regulations
or orders shall prohibit or impose burdens
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or costs on the transfer to, by or for the account of the Fund of Securities or
any cash held outside the Fund's jurisdiction or denominated in Currency other
than its home jurisdiction or the conversion of cash from one Currency into
another currency. The Custodian shall not be obligated to substitute another
Currency for a Currency (including a Currency that is a component of a Composite
Currency Unit) whose transferability, convertibility or availability has been
affected by such law, regulation, rule or procedure. Neither the Custodian nor
any Foreign Sub-Custodian shall be liable to the Fund for any loss resulting
from any of the foregoing events.
ARTICLE XVIII.
CONCERNING THE CUSTODIAN
1. Except as hereinafter provided, or as provided in Article XVI,
neither the Custodian nor its nominee shall be liable for any loss or damage,
including counsel fees, resulting from its action or omission to act or
otherwise, either hereunder or under any Margin Account Agreement, except for
any such loss or damage arising out of its own negligence or willful misconduct.
In no event shall the Custodian be liable to the Fund or any third party for
special, indirect or consequential damages or lost profits or loss of business,
arising under or in connection with this Agreement, even if previously informed
of the possibility of such damages and regardless of the form of action. The
Custodian may, with respect to questions of law arising hereunder or under any
Margin Account Agreement, apply for and obtain the advice and opinion of counsel
to the Fund or of its own counsel, at the expense of the Fund, and shall be
fully protected with respect to anything done or omitted by it in good faith in
conformity with such advice or opinion. The Custodian shall be liable to the
Fund for any loss or damage resulting from the use of the Book-Entry System or
any Depository arising by reason of any negligence or willful misconduct on the
part of the Custodian or any of its employees or agents.
2. Without limiting the generality of the foregoing, the Custodian
shall be under no obligation to inquire into, and shall not be liable for:
(a) the validity of the issue of any Securities purchased, sold, or
written by or for the Fund, the legality of the purchase, sale or writing
thereof, or the propriety of the amount paid or received therefor;
(b) the legality of the sale or redemption of any Shares, or the
propriety of the amount to be received or paid therefor;
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(c) the legality of the declaration or payment of any dividend by
the Fund;
(d) the legality of any borrowing by the Fund using Securities as
collateral;
(e) the legality of any loan of portfolio Securities, nor shall the
Custodian be under any duty or obligation to see to it that any cash collateral
delivered to it by a broker, dealer, or financial institution or held by it at
any time as a result of such loan of portfolio Securities of the Fund is
adequate collateral for the Fund against any loss it might sustain as a result
of such loan. The Custodian specifically, but not by way of limitation, shall
not be under any duty or obligation periodically to check or notify the Fund
that the amount of such cash collateral held by it for the Fund is sufficient
collateral for the Fund, but such duty or obligation shall be the sole
responsibility of the Fund. In addition, the Custodian shall be under no duty or
obligation to see that any broker, dealer or financial institution to which
portfolio Securities of the Fund are lent pursuant to Article X of this
Agreement makes payment to it of any dividends or interest which are payable to
or for the account of the Fund during the period of such loan or at the
termination of such loan, provided, however, that the Custodian shall promptly
notify the Fund in the event that such dividends or interest are not paid and
received when due; or
(f) the sufficiency or value of any amounts of money and/or
Securities held in any Margin Account, Senior Security Account or Collateral
Account in connection with transactions by the Fund. In addition, the Custodian
shall be under no duty or obligation to see that any broker, dealer, futures
commission merchant or Clearing Member makes payment to the Fund of any
variation margin payment or similar payment which the Fund may be entitled to
receive from such broker, dealer, futures commission merchant or Clearing
Member, to see that any payment received by the Custodian from any broker,
dealer, futures commission merchant or Clearing Member is the amount the Fund is
entitled to receive, or to notify the Fund of the Custodian's receipt or
non-receipt of any such payment.
3. The Custodian shall not be liable for, or considered to be the
Custodian of, any money, whether or not represented by any check, draft, or
other instrument for the payment of money, received by it on behalf of the Fund
until the Custodian actually receives and collects such money directly or by the
final crediting of the account representing the Fund's interest at the
Book-Entry System or the Depository.
4. The Custodian shall have no responsibility and shall not be liable
for ascertaining or acting upon any calls, conversions, exchange offers,
tenders, interest rate changes
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or similar matters relating to Securities held in the Depository, unless the
Custodian shall have actually received timely notice from the Depository. In no
event shall the Custodian have any responsibility or liability for the failure
of the Depository to collect, or for the late collection or late crediting by
the Depository of any amount payable upon Securities deposited in the Depository
which may mature or be redeemed, retired, called or otherwise become payable.
However, upon receipt of a Certificate from the Fund of an overdue amount on
Securities held in the Depository the Custodian shall make a claim against the
Depository on behalf of the Fund, except that the Custodian shall not be under
any obligation to appear in, prosecute or defend any action suit or proceeding
in respect to any Securities held by the Depository which in its opinion may
involve it in expense or liability, unless indemnity satisfactory to it against
all expense and liability be furnished as often as may be required.
5. The Custodian shall not be under any duty or obligation to take
action to effect collection of any amount due to the Fund from the Transfer
Agent of the Fund nor to take any action to effect payment or distribution by
the Transfer Agent of the Fund of any amount paid by the Custodian to the
Transfer Agent of the Fund in accordance with this Agreement.
6. The Custodian shall not be under any duty or obligation to take
action to effect collection of any amount if the Securities upon which such
amount is payable are in default, or if payment is refused after due demand or
presentation, unless and until (i) it shall be directed to take such action by a
Certificate and (ii) it shall be assured to its satisfaction of reimbursement of
its costs and expenses in connection with any such action.
7. The Custodian may in addition to the employment of Foreign
Sub-Custodians pursuant to Article XVI appoint one or more banking institutions
as Depository or Depositories, as Sub-Custodian or Sub-Custodians, or as
Co-Custodian or Co-Custodians including, but not limited to, banking
institutions located in foreign countries, of Securities and money at any time
owned by the Fund, upon such terms and conditions as may be approved in a
Certificate or contained in an agreement executed by the Custodian, the Fund and
the appointed institution.
8. The Custodian shall not be under any duty or obligation (a) to
ascertain whether any Securities at any time delivered to, or held by it or by
any Foreign Sub-Custodian, for the account of the Fund and specifically
allocated to a Series are such as properly may be held by the Fund or such
Series under the provisions of its then current prospectus, or (b) to ascertain
whether any transactions by the Fund, whether
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or not involving the Custodian, are such transactions as may properly be engaged
in by the Fund.
9. The Custodian shall be entitled to receive and the Fund agrees to
pay to the Custodian all out-of-pocket expenses and such compensation as may be
agreed upon from time to time between the Custodian and the Fund. The Custodian
may charge such compensation and any expenses with respect to a Series incurred
by the Custodian in the performance of its duties pursuant to such agreement
against any money specifically allocated to such Series. Unless and until the
Fund instructs the Custodian by a Certificate to apportion any loss, damage,
liability or expense among the Series in a specified manner, the Custodian shall
also be entitled to charge against any money held by it for the account of a
Series such Series' pro rata share (based on such Series net asset value at the
time of the charge to the aggregate net asset value of all Series at that time)
of the amount of any loss, damage, liability or expense, including counsel fees,
for which it shall be entitled to reimbursement under the provisions of this
Agreement. The expenses for which the Custodian shall be entitled to
reimbursement hereunder shall include, but are not limited to, the expenses of
sub-custodians and foreign branches of the Custodian incurred in settling
outside of New York City transactions involving the purchase and sale of
Securities of the Fund.
10. The Custodian shall be entitled to rely upon any Certificate,
notice or other instrument in writing received by the Custodian and reasonably
believed by the Custodian to be a Certificate. The Custodian shall be entitled
to rely upon any Oral Instructions actually received by the Custodian
hereinabove provided for. The Fund agrees to forward to the Custodian a
Certificate or facsimile thereof confirming such Oral Instructions in such
manner so that such Certificate or facsimile thereof is received by the
Custodian, whether by hand delivery, telecopier or other similar device, or
otherwise, by the close of business of the same day that such Oral Instructions
are given to the Custodian. The Fund agrees that the fact that such confirming
instructions are not received, or that contrary instructions are received, by
the Custodian shall in no way affect the validity of the transactions or
enforceability of the transactions hereby authorized by the Fund. The Fund
agrees that the Custodian shall incur no liability to the Fund in acting upon
Oral Instructions given to the Custodian hereunder concerning such transactions
provided such instructions reasonably appear to have been received from an
Authorized Person.
11. The Custodian shall be entitled to rely upon any instrument,
instruction or notice received by the Custodian and reasonably believed by the
Custodian to be given in accordance with the terms and conditions of any Margin
Account Agreement. Without limiting the generality of the foregoing,
-37-
<PAGE> 38
the Custodian shall be under no duty to inquire into, and shall not be liable
for, the accuracy of any statements or representations contained in any such
instrument or other notice including, without limitation, any specification of
any amount to be paid to a broker, dealer, futures commission merchant or
Clearing Member.
12. The books and records pertaining to the Fund which are in the
possession of the Custodian shall be the property of the Fund. Such books and
records shall be prepared and maintained as required by the Investment Company
Act of 1940, as amended, and other applicable securities laws and rules and
regulations. The Fund, or the Fund's authorized representatives, shall have
access to such books and records during the Custodian's normal business hours.
Upon the reasonable request of the Fund, copies of any such books and records
shall be provided by the Custodian to the Fund or the Fund's authorized
representative, and the Fund shall reimburse the Custodian its expenses of
providing such copies. Upon reasonable request of the Fund, the Custodian shall
provide in hard copy or on micro-film, whichever the Custodian elects, any
records included in any such delivery which are maintained by the Custodian on a
computer disc, or are similarly maintained, and the Fund shall reimburse the
Custodian for its expenses of providing such hard copy or micro-film.
13. The Custodian shall provide the Fund with any report obtained by
the Custodian on the system of internal accounting control of the Book-Entry
System, the Depository or O.C.C., and with such reports on its own systems of
internal accounting control as the Fund may reasonably request from time to
time.
14. The Fund agrees to indemnify the Custodian against and save the
Custodian harmless from all liability, claims, losses and demands whatsoever,
including attorney's fees, howsoever arising or incurred because of or in
connection with this Agreement, including the Custodian's payment or non-payment
of checks pursuant to paragraph 6 of Article XIII as part of any check
redemption privilege program of the Fund, except for any such liability, claim,
loss and demand arising out of the Custodian's own negligence or willful
misconduct.
15. Subject to the foregoing provisions of this Agreement, including,
without limitation, those contained in Article XVI and XVII the Custodian may
deliver and receive Securities, and receipts with respect to such Securities,
and arrange for payments to be made and received by the Custodian in accordance
with the customs prevailing from time to time among brokers or dealers in such
Securities. When the Custodian is instructed to deliver Securities against
payment, delivery of such Securities and receipt of payment therefor may not be
completed simultaneously. The Fund assumes all responsibility and liability for
all credit risks involved in
-38-
<PAGE> 39
connection with the Custodian's delivery of Securities pursuant to instructions
of the Fund, which responsibility and liability shall continue until final
payment in full has been received by the Custodian.
16. The Custodian shall have no duties or responsibilities whatsoever
except such duties and responsibilities as are specifically set forth in this
Agreement, and no covenant or obligation shall be implied in this Agreement
against the Custodian.
ARTICLE XIX.
TERMINATION
1. Either of the parties hereto may terminate this Agreement by giving
to the other party a notice in writing specifying the date of such termination,
which shall be not less than ninety (90) days after the date of giving of such
notice. In the event such notice is given by the Fund, it shall be accompanied
by a copy of a resolution of the Board of Directors of the Fund, certified by
the Secretary or any Assistant Secretary, electing to terminate this Agreement
and designating a successor custodian or custodians, each of which shall be a
bank or trust company having not less than $2,000,000 aggregate capital, surplus
and undivided profits. In the event such notice is given by the Custodian, the
Fund shall, on or before the termination date, deliver to the Custodian a copy
of a resolution of the Board of Directors of the Fund, certified by the
Secretary or any Assistant Secretary, designating a successor custodian or
custodians. In the absence of such designation by the Fund, the Custodian may
designate a successor custodian which shall be a bank or trust company having
not less than $2,000,000 aggregate capital, surplus and undivided profits. Upon
the date set forth in such notice this Agreement shall terminate, and the
Custodian shall upon receipt of a notice of acceptance by the successor
custodian on that date deliver directly to the successor custodian all
Securities and money then owned by the Fund and held by it as Custodian, after
deducting all fees, expenses and other amounts for the payment or reimbursement
of which it shall then be entitled.
2. If a successor custodian is not designated by the Fund or the
Custodian in accordance with the preceding paragraph, the Fund shall upon the
date specified in the notice of termination of this Agreement and upon the
delivery by the Custodian of all Securities (other than Securities held in the
Book-Entry System which cannot be delivered to the Fund) and money then owned by
the Fund be deemed to be its own custodian and the Custodian shall thereby be
relieved of all duties and responsibilities pursuant to this Agreement, other
than the duty with respect to Securities held in the Book-
-39-
<PAGE> 40
Entry System which cannot be delivered to the Fund to hold such Securities
hereunder in accordance with this Agreement.
ARTICLE XX.
MISCELLANEOUS
1. Annexed hereto as Appendix A is a Certificate signed by two of the
present Authorized Persons of the Fund under its seal, setting forth the names
and the signatures of the present Authorized Persons of the Fund. The Fund
agrees to furnish to the Custodian a new Certificate in similar form in the
event that any such present Authorized Person ceases to be an Authorized Person
of the Fund, or in the event that other or additional Authorized Persons are
elected or appointed. Until such new Certificate shall be received, the
Custodian shall be fully protected in acting under the provisions of this
Agreement or Oral Instructions upon the signatures of the Authorized Persons as
set forth in the last delivered Certificate.
2. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Custodian, shall be sufficiently given if
addressed to the Custodian and mailed or delivered to it at its offices at 90
Washington Street, New York, New York 10286, or at such other place as the
Custodian may from time to time designate in writing.
3. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Fund shall be sufficiently given if addressed
to the Fund and mailed or delivered to it at its office at the address for the
Fund first above written, or at such other place as the Fund may from time to
time designate in writing.
4. This Agreement may not be amended or modified in any manner except
by a written agreement executed by both parties with the same formality as this
Agreement and approved by a resolution of the Board of Directors of the Fund.
5. This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successors and assigns; provided, however, that
this Agreement shall not be assignable by the Fund without the written consent
of the Custodian, or by the Custodian without the written consent of the Fund,
authorized or approved by a resolution of the Fund's Board of Directors.
6. This Agreement shall be construed in accordance with the laws of the
State of New York without giving effect to conflict of laws principles thereof.
Each party hereby consents to the jurisdiction of a state or federal court
-40-
<PAGE> 41
situated in New York City, New York in connection with any dispute arising
hereunder and hereby waives its right to trial by jury.
7. This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original, but such counterparts shall,
together, constitute only one instrument.
-41-
<PAGE> 42
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers, thereunto duly authorized and their
respective seals to be hereunto affixed, as of the day and year first above
written.
Merrill Lynch Real Estate
Fund, Inc.
[SEAL] By:______________________________
Attest:
___________________________
THE BANK OF NEW YORK
[SEAL] By:______________________________
Name: Jorge Ramos
Title: Vice President
Attest:
___________________________
<PAGE> 43
APPENDIX A
I, , and I,
, of Merrill
Lynch Real Estate Fund, Inc., a Maryland corporation (the "Fund"), do hereby
certify that:
The following persons have been duly authorized in conformity with the
Fund's Declaration of Trust and By-Laws to execute any Certificate, instruction,
notice or other instrument on behalf of the Fund, and the signatures set forth
opposite their respective names are their true and correct signatures:
Name Position Signature
________________________ __________________________ ________________________
<PAGE> 44
APPENDIX B
SERIES
<PAGE> 45
APPENDIX C
I, Jorge Ramos, a Vice President with THE BANK OF NEW YORK do hereby
designate the following publications:
The Bond Buyer
Depository Trust Company Notices
Financial Daily Card Service
JJ Kenney Municipal Bond Service
London Financial Times
New York Times
Standard & Poor's Called Bond Record
Wall Street Journal
<PAGE> 46
EXHIBIT A
CERTIFICATION
The undersigned, hereby certifies that he
or she is the duly elected and acting of Merrill Lynch Real
Estate Fund, Inc., a Maryland corporation (the "Fund"), and further certifies
that the following resolution was adopted by the Board of Directors of the Fund
at a meeting duly held on ,1997, at which a quorum was at all times
present and that such resolution has not been modified or rescinded and is in
full force and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to
a Custody Agreement between The Bank of New York and the Fund dated as
of ,1997, (the "Custody Agreement") is authorized and
instructed on a continuous and ongoing basis to deposit in the
Book-Entry System, as defined in the Custody Agreement, all securities
eligible for deposit therein, regardless of the Series to which the
same are specifically allocated, and to utilize the Book-Entry System
to the extent possible in connection with its performance thereunder,
including, without limitation, in connection with settlements of
purchases and sales of securities, loans of securities, and deliveries
and returns of securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of Merrill
Lynch Real Estate Fund, Inc., as of the day of ,1997.
___________________
[SEAL]
<PAGE> 47
EXHIBIT B
CERTIFICATION
The undersigned, hereby certifies that
he or she is the duly elected and acting of Merrill Lynch Real Estate Fund,
Inc., a Maryland corporation (the "Fund"), and further certifies that the
following resolution was adopted by the Board of Directors of the Fund at a
meeting duly held on ,1997, at which a quorum was at all times
present and that such resolution has not been modified or rescinded and is in
full force and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to
a Custody Agreement between The Bank of New York and the Fund dated as
of ,1997, (the "Custody Agreement") is authorized and
instructed on a continuous and ongoing basis until such time as it
receives a Certificate, as defined in the Custody Agreement, to the
contrary to deposit in the Depository, as defined in the Custody
Agreement, all securities eligible for deposit therein, regardless of
the Series to which the same are specifically allocated, and to utilize
the Depository to the extent possible in connection with its
performance thereunder, including, without limitation, in connection
with settlements of purchases and sales of securities, loans of
securities, and deliveries and returns of securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of Merrill
Lynch Real Estate Fund, Inc., as of the day of ,1997.
______________________________
[SEAL]
<PAGE> 48
EXHIBIT B-1
CERTIFICATION
The undersigned, hereby certifies that
he or she is the duly elected and acting of Merrill Lynch
Real Estate Fund, Inc., a Maryland corporation (the "Fund"), and further
certifies that the following resolution was adopted by the Board of Directors of
the Fund at a meeting duly held on ,1997, at which a quorum was at
all times present and that such resolution has not been modified or rescinded
and is in full force and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to
a Custody Agreement between The Bank of New York and the Fund dated as
of ,1997, (the "Custody Agreement") is authorized and
instructed on a continuous and ongoing basis until such time as it
receives a Certificate, as defined in the Custody Agreement, to the
contrary to deposit in the Participants Trust Company as Depository, as
defined in the Custody Agreement, all securities eligible for deposit
therein, regardless of the Series to which the same are specifically
allocated, and to utilize the Participants Trust Company to the extent
possible in connection with its performance thereunder, including,
without limitation, in connection with settlements of purchases and
sales of securities, loans of securities, and deliveries and returns of
securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of Merrill
Lynch Real Estate Fund, Inc., as of the day of ,1997.
_____________________
[SEAL]
<PAGE> 49
EXHIBIT C
CERTIFICATION
The undersigned, , hereby certifies that he or
she is the duly elected and acting of Merrill Lynch Real Estate Fund,
Inc., a Maryland corporation (the "Fund"), and further certifies that the
following resolution was adopted by the Board of Directors of the Fund at a
meeting duly held on , 1997, at which a quorum was at all
times present and that such resolution has not been modified or rescinded and is
in full force and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to
a Custody Agreement between The Bank of New York and the Fund dated as
of ,1997, (the "Custody Agreement") is authorized and
instructed on a continuous and ongoing basis until such time as it
receives a Certificate, as defined in the Custody Agreement, to the
contrary, to accept, utilize and act with respect to Clearing Member
confirmations for Options and transaction in Options, regardless of the
Series to which the same are specifically allocated, as such terms are
defined in the Custody Agreement, as provided in the Custody Agreement.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of Merrill
Lynch Real Estate Fund, Inc., as of the day of ,1997.
______________________________
[SEAL]
<PAGE> 50
EXHIBIT D
The undersigned, ,hereby certifies that he or she is the
duly elected and acting of Merrill Lynch Real Estate Fund, Inc., a
Maryland corporation (the "Fund"), further certifies that the following
resolutions were adopted by the Board of Directors of the Fund at a meeting duly
held on ,1997, at which a quorum was at all times present and that
such resolutions have not been modified or rescinded and are in full force and
effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to
the Custody Agreement between The Bank of New York and the Fund dated
as of 1997 (the "Custody Agreement") is authorized and
instructed on a continuous and ongoing basis to act in accordance with,
and to rely on Instructions (as defined in the Custody Agreement).
RESOLVED, that the Fund shall establish access codes and grant
use of such access codes only to Authorized Persons of the Fund as
defined in the Custody Agreement, shall establish internal safekeeping
procedures to safeguard and protect the confidentiality and
availability of user and access codes, passwords and authentication
keys, and shall use Instructions only in a manner that does not
contravene the Investment Company Act of 1940, as amended, or the rules
and regulations thereunder.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of Merrill
Lynch Real Estate Fund, Inc., as of the day of ,1997.
______________________________
[SEAL]
<PAGE> 51
EXHIBIT E
The undersigned, , hereby certifies that he or she
is the duly elected and acting of Merrill Lynch Real
Estate Fund, Inc., a Maryland corporation (the "Fund"), further certifies that
the following resolutions were adopted by the Board of Directors of the Fund at
a meeting duly held on , 1997, at which a quorum was at
all times present and that such resolutions have not been modified or rescinded
and are in full force and effect as of the date hereof.
RESOLVED, that the maintenance of the Fund's assets in each
country listed in Schedule I hereto be, and hereby is, approved by the
Board of Directors as consistent with the best interests of the Fund
and its shareholders; and further
RESOLVED, that the maintenance of the Fund's assets with the
foreign branches of The Bank of New York (the "Bank") listed in
Schedule I located in the countries specified therein, and with the
foreign sub-custodians and depositories listed in Schedule I located in
the countries specified therein be, and hereby is, approved by the
Board of Directors as consistent with the best interest of the Fund and
its shareholders; and further
RESOLVED, that the Sub-Custodian Agreements presented to this
meeting between the Bank and each of the foreign sub-custodians and
depositories listed in Schedule I providing for the maintenance of the
Fund's assets with the applicable entity, be and hereby are, approved
by the Board of Directors as consistent with the best interests of the
Fund and its shareholders; and further
RESOLVED, that the appropriate officers of the Fund are hereby
authorized to place assets of the Fund with the aforementioned foreign
branches and foreign sub-custodians and depositories as hereinabove
provided; and further
RESOLVED, that the appropriate officers of the Fund, or any of
them, are authorized to do any and all other acts, in the name of the
Fund and on its behalf, as they, or any of them, may determine to be
necessary or desirable and proper in connection with or in furtherance
of the foregoing resolutions.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of Merrill
Lynch Real Estate Fund, Inc., as of the day of , 1997.
______________________________
[SEAL]
<PAGE> 1
Exhibit 9(a)
TRANSFER AGENCY, DIVIDEND DISBURSING AGENCY
AND SHAREHOLDER SERVICING AGENCY AGREEMENT
THIS AGREEMENT made as of the ____ day of ____________, 1997 by and
between MERRILL LYNCH REAL ESTATE FUND, INC., a Maryland corporation (the
"Fund"), and MERRILL LYNCH FINANCIAL DATA SERVICES, INC. ("MLFDS"), a New Jersey
corporation.
WITNESSETH:
WHEREAS, the Fund wishes to appoint MLFDS to be the Transfer Agent,
Dividend Disbursing Agent and Shareholder Servicing Agent upon, and subject to,
the terms and provisions of this Agreement, and MLFDS is desirous of accepting
such appointment upon, and subject to, such terms and provisions:
NOW THEREFORE, in consideration of mutual covenants contained in
this Agreement, the Fund and MLFDS agree as follows:
1. Appointment of MLFDS as Transfer Agent, Dividend Disbursing Agent
and Shareholder Servicing Agent.
a. The Fund hereby appoints MLFDS to act as Transfer Agent, Dividend
Disbursing Agent and Shareholder Servicing Agent for the Fund upon, and subject
to, the terms and provisions of this Agreement.
b. MLFDS hereby accepts the appointment as Transfer Agent, Dividend
Disbursing Agent and Shareholder Servicing Agent for the Fund, and agrees to act
as such upon, and subject to, the terms and provisions of this Agreement.
2. Definitions.
a. In this Agreement:
(i) The term "Act" means the Investment Company Act of 1940 as
amended from time to time and any rule or regulation thereunder;
(ii) The term "Account" means any account of a Shareholder, or, if
the shares are held in an account in the name of Merrill Lynch, Pierce, Fenner &
Smith Incorporated for benefit of an identified customer, such account,
including a Plan Account, any account under a plan (by whatever name referred to
in the Prospectus) pursuant to the Self-Employed Individuals
<PAGE> 2
Retirement Act of 1962 ("Keogh Act Plan") and any plan (by whatever name
referred to in the Prospectus) in conjunction with Section 401 of the Internal
Revenue Code ("Corporation Master Plan");
(iii) The term "application" means an application made by a
Shareholder or prospective Shareholder respecting the opening of an Account;
(iv) The term "MLFD" means Merrill Lynch Funds Distributor, Inc., a
Delaware corporation;
(v) The term "MLPF&S" means Merrill Lynch, Pierce, Fenner & Smith
Incorporated, a Delaware corporation;
(vi) The term "Officer's Instruction" means an instruction in
writing given on behalf of the Fund to MLFDS, and signed on behalf of the Fund
by the President, any Vice President, the Secretary or the Treasurer of the
Fund;
(vii) The term "Prospectus" means the Prospectus and the Statement
of Additional Information of the Fund as from time to time in effect;
(viii) The term "Shares" means shares of stock or beneficial
interest, as the case may be, of the Fund, irrespective of class or series;
(ix) The term "Shareholder" means the holder of record of Shares;
(x) The term "Plan Account" means an account opened by a
Shareholder or prospective Shareholder in respect to an open account, monthly
payment or withdrawal plan (in each case by whatever name referred to in the
Prospectus), and may also include an account relating to any other plan if and
when provision is made for such plan in the Prospectus.
3. Duties of MLFDS as Transfer Agent, Dividend Disbursing Agent and
Shareholder Servicing Agent.
a. Subject to the succeeding provisions of the Agreement, MLFDS hereby
agrees to perform the following functions as Transfer Agent, Dividend Disbursing
Agent and Shareholder Servicing Agent for the Fund;
(i) Issuing, transferring and redeeming Shares;
(ii) Opening, maintaining, servicing and closing Accounts;
(iii) Acting as agent for the Fund Shareholders and/or customers of
MLPF&S in connection with Plan Accounts, upon the
2
<PAGE> 3
terms and subject to the conditions contained in the Prospectus and application
relating to the specific Plan Account;
(iv) Acting as agent of the Fund and/or MLPF&S, maintaining such
records as may permit the imposition of such contingent deferred sales charges
as may be described in the Prospectus, including such reports as may be
reasonably requested by the Fund with respect to such Shares as may be subject
to a contingent deferred sales charge;
(v) Upon the redemption of Shares subject to such a contingent
deferred sales charge, calculating and deducting from the redemption proceeds
thereof the amount of such charge in the manner set forth in the Prospectus.
MLFDS shall pay, on behalf of MLFD, to MLPF&S such deducted contingent deferred
sales charges imposed upon all Shares maintained in the name of MLPF&S, or
maintained in the name of an account identified as a customer account of MLPF&S.
Sales charges imposed upon any other Shares shall be paid by MLFDS to MLFD;
(vi) Exchanging the investment of an investor into, or from the
shares of other open-end investment companies or other series portfolios of the
Fund, if any, if and to the extent permitted by the Prospectus at the direction
of such investor;
(vii) Processing redemptions;
(viii) Examining and approving legal transfers;
(ix) Replacing lost, stolen or destroyed certificates representing
Shares, in accordance with, and subject to, procedures and conditions adopted by
the Fund;
(x) Furnishing such confirmations of transactions relating to
their Shares as required by applicable law;
(xi) Acting as agent for the Fund and/or MLPF&S, furnishing such
appropriate periodic statements relating to Accounts, together with additional
enclosures, including appropriate income tax information and income tax forms
duly completed, as required by applicable law;
(xii) Acting as agent for the Fund and/or MLPF&S, mailing annual,
semi-annual and quarterly reports prepared by or on behalf of the Fund, and
mailing new Prospectuses upon their issue to Shareholders as required by
applicable law;
(xiii) Furnishing such periodic statements of transactions effected
by MLFDS, reconciliations, balances and summaries as the Fund may reasonably
request;
(xiv) Maintaining such books and records relating to transactions
effected by MLFDS as are required by the Act, or by any other applicable
provision of law, rule or regulation, to be
3
<PAGE> 4
maintained by the Fund or its transfer agent with respect to such transactions,
and preserving, or causing to be preserved any such books and records for such
periods as may be required by any such law, rule or regulation and as may be
agreed upon from time to time between MLFDS and the Fund. In addition, MLFDS
agrees to maintain and preserve master files and historical computer tapes on a
daily basis in multiple separate locations a sufficient distance apart to insure
preservation of at least one copy of such information;
(xv) Withholding taxes on non-resident alien Accounts, preparing
and filing U.S. Treasury Department Form 1099 and other appropriate forms as
required by applicable law with respect to dividends and distributions; and
(xvi) Reinvesting dividends for full and fractional shares and
disbursing cash dividends, as applicable.
b. MLFDS agrees to act as proxy agent in connection with the holding of
annual, if any, and special meetings of Shareholders, mailing such notices,
proxies and proxy statements in connection with the holding of such meetings as
may be required by applicable law, receiving and tabulating votes cast by proxy
and communicating to the Fund the results of such tabulation accompanied by
appropriate certifications, and preparing and furnishing to the Fund certified
lists of Shareholders as of such date, in such form and containing such
information as may be required by the Fund.
c. MLFDS agrees to deal with, and answer in a timely manner, all
correspondence and inquiries relating to the functions of MLFDS under this
Agreement with respect to Accounts.
d. MLFDS agrees to furnish to the Fund such information and at such
intervals as is necessary for the Fund to comply with the registration and/or
the reporting requirements (including applicable escheat laws) of the Securities
and Exchange Commission, Blue Sky authorities or other governmental authorities.
e. MLFDS agrees to provide to the Fund such information as may
reasonably be required to enable the Fund to reconcile the number of outstanding
Shares between MLFDS's records and the account books of the Fund.
f. Notwithstanding anything in the foregoing provisions of this
paragraph, MLFDS agrees to perform its functions thereunder subject to such
modification (whether in respect of particular cases or in any particular class
of cases) as may from time to time be contained in an Officer's Instruction.
4
<PAGE> 5
4. Compensation.
The charges for services described in this Agreement, including
"out-of-pocket" expenses, will be set forth in the Schedule of Fees attached
hereto.
5. Right of Inspection.
MLFDS agrees that it will in a timely manner make available to, and
permit, any officer, accountant, attorney or authorized agent of the Fund to
examine and make transcripts and copies (including photocopies and computer or
other electronic information storage media and print-outs) of any and all of its
books and records which relate to any transaction or function performed by MLFDS
under or pursuant to this Agreement.
6. Confidential Relationship.
MLFDS agrees that it will, on behalf of itself and its officers and
employees, treat all transactions contemplated by this Agreement, and all
information germane thereto, as confidential and not to be disclosed to any
person (other than the Shareholder concerned, or the Fund, or as may be
disclosed in the examination of any books or records by any person lawfully
entitled to examine the same) except as may be authorized by the Fund by way of
an Officer's Instruction.
7. Indemnification.
The Fund shall indemnify and hold MLFDS harmless from any loss,
costs, damage and reasonable expenses, including reasonable attorney's fees
(provided that such attorney is appointed with the Fund's consent, which consent
shall not be unreasonably withheld), incurred by it resulting from any claim,
demand, action, or suit in connection with the performance of its duties
hereunder, provided that this indemnification shall not apply to actions or
omissions of MLFDS in cases of willful misconduct, failure to act in good faith
or negligence by MLFDS, its officers, employees or agents, and further provided,
that prior to confessing any claim against it which may be subject to this
indemnification, MLFDS shall give the Fund reasonable opportunity to defend
against said claim in its own name or in the name of MLFDS. An action taken by
MLFDS upon any Officer's Instruction reasonably believed by it to have been
properly executed shall not constitute willful misconduct, failure to act in
good faith or negligence under this Agreement.
5
<PAGE> 6
8. Regarding MLFDS.
a. MLFDS hereby agrees to hire, purchase, develop and maintain such
dedicated personnel, facilities, equipment, software, resources and capabilities
as may be reasonably determined by the Fund to be necessary for the satisfactory
performance of the duties and responsibilities of MLFDS. MLFDS warrants and
represents that its officers and supervisory personnel charged with carrying out
its functions as Transfer Agent, Dividend Disbursing Agent and Shareholder
Servicing Agent for the Fund possess the special skill and technical knowledge
appropriate for that purpose. MLFDS shall at all times exercise due care and
diligence in the performance of its functions as Transfer Agent, Dividend
Disbursing Agent and Shareholder Servicing Agent for the Fund. MLFDS agrees
that, in determining whether it has exercised due care and diligence, its
conduct shall be measured by the standard applicable to persons possessing such
special skill and technical knowledge.
b. MLFDS warrants and represents that it is duly authorized and
permitted to act as Transfer Agent, Dividend Disbursing Agent and Shareholder
Servicing Agent under all applicable laws and that it will immediately notify
the Fund of any revocation of such authority or permission or of the
commencement of any proceeding or other action which may lead to such
revocation.
9. Termination.
a. This Agreement shall become effective as of the date first above
written and shall thereafter continue from year to year. This Agreement may be
terminated by the Fund or MLFDS (without penalty to the Fund or MLFDS) provided
that the terminating party gives the other party written notice of such
termination at least sixty (60) days in advance, except that the Fund may
terminate this Agreement immediately upon written notice to MLFDS if the
authority or permission of MLFDS to act as Transfer Agent, Dividend Disbursing
Agent and Shareholder Servicing Agent has been revoked or if any proceeding or
other action which the Fund reasonably believes will lead to such revocation has
been commenced.
b. Upon termination of this Agreement, MLFDS shall deliver all unissued
and cancelled stock certificates representing Shares remaining in its
possession, and all Shareholder records, books, stock ledgers, instruments and
other documents (including computerized or other electronically stored
information) made or accumulated in the performance of its duties as Transfer
Agent, Dividend Disbursing Agent and Shareholder Servicing Agent for the Fund
along with a certified locator document clearly indicating the complete contents
therein, to such successor as may be specified in a notice of termination or
Officer's Instruction; and the Fund assumes all responsibility for failure
thereafter to produce any paper, record or documents so delivered and
6
<PAGE> 7
identified in the locator document, if and when required to be produced.
10. Amendment.
Except to the extent that the performance by MLFDS or its functions
under this Agreement may from time to time be modified by an Officer's
Instruction, this Agreement may be amended or modified only by further written
Agreement between the parties.
11. Governing Law.
This Agreement shall be governed by the laws of the State of New
Jersey.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be signed by their respective duly authorized officers and their respective
corporate seals hereunto duly affixed and attested, as of the day and year above
written.
MERRILL LYNCH REAL ESTATE FUND, INC.
By:_______________________________________
Name:
Title:
MERRILL LYNCH FINANCIAL DATA SERVICES, INC.
By:_______________________________________
Name:
Title:
7
<PAGE> 1
Exhibit 9(b)
LICENSE AGREEMENT RELATING TO USE OF NAME
AGREEMENT made as of the day of , 1997, by and between
MERRILL LYNCH & CO., INC., a Delaware corporation ("ML & Co."), and MERRILL
LYNCH REAL ESTATE FUND, INC., a Maryland corporation (the "Fund").
W I T N E S S E T H :
WHEREAS, ML & Co. was incorporated under the laws of the State of
Delaware on March 27, 1973 under the corporate name "Merrill Lynch & Co., Inc."
and has used such name at all times thereafter;
WHEREAS, ML & Co. was duly qualified as a foreign corporation under the
laws of the State of New York on April 25, 1973 and has remained so qualified at
all times thereafter;
WHEREAS, the Fund was incorporated under the laws of the
State of Maryland on September 24, 1997; and
WHEREAS, the Fund desires to qualify as a foreign corporation under the
laws of the State of New York and has requested ML & Co. to give its consent to
the use of the name "Merrill Lynch" in the Fund's corporate name.
NOW, THEREFORE, in consideration of the premises and of the covenants
hereinafter contained, ML & Co. and the Fund hereby agree as follows:
<PAGE> 2
1. ML & Co. hereby grants the Fund a non-exclusive license to use the
words "Merrill Lynch" in its corporate name.
2. ML & Co. hereby consents to the qualification of the Fund as a
foreign corporation under the laws of the State of New York with the words
"Merrill Lynch" in its corporate name and agrees to execute such formal consents
as may be necessary in connection with such filing.
3. The non-exclusive license hereinabove referred to has been given and
is given by ML & Co. on the condition that it may at any time, in its sole and
absolute discretion, withdraw the non-exclusive license to the use of the words
"Merrill Lynch" in the name of the Fund; and, as soon as practicable after
receipt by the Fund of written notice of the withdrawal of such non-exclusive
license, and in no event later than ninety days thereafter, the Fund will change
its name so that such name will not thereafter include the words "Merrill Lynch"
or any variation thereof.
4. ML & Co. reserves and shall have the right to grant to any other
company, including without limitation, any other investment company, the right
to use the words "Merrill Lynch" or variations thereof in its name and no
consent or permission of the Fund shall be necessary; but, if required by an
applicable law of any state, the Fund will forthwith grant all requisite
consents.
2
<PAGE> 3
5. The Fund will not grant to any other company the right to use a name
similar to that of the Fund or ML & Co. without the written consent of ML & Co.
6. Regardless of whether the Fund should hereafter change its name and
eliminate the words "Merrill Lynch" or any variation thereof from such name, the
Fund hereby grants to ML & Co. the right to cause the incorporation of other
corporations or the organization of voluntary associations which may have names
similar to that of the Fund or to that to which the Fund may change its name and
to own all or any portion of the shares of such other corporations or
associations and to enter into contractual relationships with such other
corporations or associations, subject to any requisite approval of a majority of
the Fund's shareholders and the Securities and Exchange Commission and subject
to the payment of a reasonable amount to be determined at the time of use, and
the Fund agrees to give and execute any such formal consents or agreements as
may be necessary in connection therewith.
7. This Agreement may be amended at any time by a writing signed by the
parties hereto.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
MERRILL LYNCH & CO., INC.
By:_________________________________
Name:
Title:
MERRILL LYNCH REAL ESTATE FUND, INC.
By:_________________________________
Name:
Title:
4
<PAGE> 1
Exhibit 10
BROWN & WOOD LLP
One World Trade Center
New York, New York 10048-0557
Telephone: 212-839-5300
Facsimile: 212-839-5599
November 14, 1997
Merrill Lynch Real Estate Fund, Inc.
800 Scudders Mill Road
Plainsboro, NJ 08536
Ladies and Gentlemen:
We have acted as counsel for Merrill Lynch Real Estate Fund, Inc., a
corporation organized under the laws of the State of Maryland (the "Fund"), in
connection with the organization of the Fund and its registration as an open-end
investment company under the Investment Company Act of 1940, as amended. This
opinion is being furnished in connection with the registration of an indefinite
number of shares of common stock, designated Class A, Class B, Class C and Class
D, par value $0.10 per share, of the Fund (the "Shares") under the Securities
Act of 1933, as amended, which registration is being effected pursuant to a
registration statement on Form N-1A (File No. 333-36721), as amended (the
"Registration Statement").
As counsel for the Fund, we are familiar with the proceedings taken by
it in connection with the authorization, issuance and sale of the Shares. In
addition, we have examined and are familiar with the Articles of Incorporation
of the Fund,
<PAGE> 2
the By-Laws of the Fund and such other documents as we have deemed relevant to
the matters referred to in this opinion.
Based upon the foregoing, we are of the opinion that the Shares, upon
issuance and sale in the manner referred to in the Registration Statement for
consideration not less than the par value thereof, will be legally issued, fully
paid and non-assessable shares of common stock of the Fund.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name in the prospectus and
statement of additional information constituting parts thereof.
Very truly yours,
/s/ Brown & Wood LLP
<PAGE> 1
EXHIBIT 11
INDEPENDENT AUDITORS' CONSENT
Merrill Lynch Real Estate Fund, Inc.:
We consent to the use in Pre-Effective Amendment No. 1 to Registration
Statement No. 333-36721 of our report dated November 12, 1997 appearing in the
Statement of Additional Information, which is a part of such Registration
Statement.
Deloitte & Touche LLP
Princeton, New Jersey
November 12, 1997
<PAGE> 1
EXHIBIT 13
CERTIFICATE OF THE SOLE STOCKHOLDER OF
MERRILL LYNCH REAL ESTATE FUND, INC.
Merrill Lynch Asset Management, L.P. ("MLAM"), the holder of 2,500
Class A shares of common stock, par value $0.10 per share, 2,500 Class B shares
of common stock, par value $0.10 per share, 2,500 Class C shares of common
stock, par value $0.10 per share, and 2,500 Class D shares of common stock, par
value $0.10 per share, of Merrill Lynch Real Estate Fund, Inc. (the "Fund"), a
Maryland corporation, does hereby confirm to the Fund its representation that
it purchased such shares for investment purposes, with no present intention of
redeeming or reselling any portion thereof, and does further agree that if it
redeems any portion of such shares prior to the amortization of the Fund's
organizational expenses, the proceeds thereof will be reduced by the
proportionate amount of unamortized organizational expenses which the number of
shares being redeemed bears to the number of shares initially purchased and
outstanding at the time of redemption. MLAM further agrees that in the event
such shares are sold or otherwise transferred to any other party, that prior to
such sale or transfer MLAM will obtain on behalf of the Fund an agreement from
such other party to comply with the foregoing as to the reduction of redemption
proceeds and to obtain a similar agreement from any transferee of such party.
MERRILL LYNCH ASSET MANAGEMENT, L.P.
By: /s/ Philip L. Kirstein
-------------------------------
Philip L. Kirstein
Senior Vice President,
General Counsel and Secretary
Dated: November 12, 1997
<PAGE> 1
Exhibit 15(a)
CLASS B DISTRIBUTION PLAN
OF
MERRILL LYNCH REAL ESTATE FUND, INC.
PURSUANT TO RULE 12b-1
DISTRIBUTION PLAN made as of the ___ day of _________, 1997, by and
between Merrill Lynch Real Estate Fund, Inc., a Maryland corporation (the
"Fund"), and Merrill Lynch Funds Distributor, Inc., a Delaware corporation
("MLFD").
W I T N E S S E T H :
WHEREAS, the Fund intends to engage in business as an open-end
investment company registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"); and
WHEREAS, MLFD is a securities firm engaged in the business of selling
shares of investment companies either directly to purchasers or through other
securities dealers; and
WHEREAS, the Fund proposes to enter into a Class B Shares Distribution
Agreement with MLFD, pursuant to which MLFD will act as the exclusive
distributor and representative of the Fund in the offer and sale of Class B
shares of common stock, par value $0.10 per share (the "Class B shares"), of the
Fund to the public; and
WHEREAS, the Fund desires to adopt this Class B Shares Distribution
Plan pursuant to Rule 12b-1 under the Investment Company Act, pursuant to which
the Fund will pay an account maintenance fee and a distribution fee to MLFD with
respect to the Fund's Class B Shares; and
WHEREAS, the Directors of the Fund have determined that there is a
reasonable likelihood that adoption of this Class B Shares Distribution Plan
will benefit the Fund and its shareholders.
NOW, THEREFORE, the Fund hereby adopts, and MLFD hereby agrees to the
terms of, this Class B Shares Distribution Plan (the "Plan") in accordance with
Rule 12b-1 under the Investment Company Act on the following terms and
conditions:
<PAGE> 2
1. The Fund shall pay MLFD an account maintenance fee under the Plan at
the end of each month at the annual rate of 0.25% of average daily net assets of
the Fund relating to Class B shares to compensate MLFD and securities firms with
which MLFD enters into related agreements pursuant to Paragraph 3 hereof
("Sub-Agreements") for providing account maintenance activities with respect to
Class B shareholders of the Fund. Expenditures under the Plan may consist of
payments to financial consultants for maintaining accounts in connection with
Class B shares of the Fund and payment of expenses incurred in connection with
such account maintenance activities including the costs of making services
available to shareholders including assistance in connection with inquiries
related to shareholder accounts.
2. The Fund shall pay MLFD a distribution fee under the Plan at the end
of each month at the annual rate of 0.75% of average daily net assets of the
Fund relating to Class B shares to compensate MLFD and securities firms with
which MLFD enters into related Sub-Agreements for providing sales and
promotional activities and services. Such activities and services will relate to
the sale, promotion and marketing of the Class B shares of the Fund. Such
expenditures may consist of sales commissions to financial consultants for
selling Class B shares of the Fund, compensation, sales incentives and payments
to sales and marketing personnel, and the payment of expenses incurred in its
sales and promotional activities, including advertising expenditures related to
the Fund and the costs of preparing and distributing promotional materials. The
distribution fee may also be used to pay the financing costs of carrying the
unreimbursed expenditures described in this Paragraph 2. Payment of the
distribution fee described in this Paragraph 2 shall be subject to any
limitations set forth in any applicable regulation of the National Association
of Securities Dealers, Inc.
3. The Fund hereby authorizes MLFD to enter into Sub-Agreements with
certain securities firms ("Securities Firms"), including Merrill Lynch, Pierce,
Fenner & Smith Incorporated, to provide compensation to such Securities Firms
for activities and services of the type referred to in Paragraphs 1 and 2
hereof. MLFD may reallocate all or a portion of its account maintenance fee or
distribution fee to such Securities Firms as compensation for the
above-mentioned activities and services. Such Sub-Agreement shall provide that
the Securities Firms shall provide MLFD with such information as is reasonably
necessary to permit MLFD to comply with the reporting requirements set forth in
Paragraph 4 hereof.
4. MLFD shall provide the Fund for review by the Board of Directors,
and the Directors shall review, at least quarterly, a written report complying
with the requirements of Rule 12b-1
2
<PAGE> 3
regarding the disbursement of the account maintenance fee and the distribution
fee during such period.
5. This Plan shall not take effect until it has been approved by a vote
of at least a majority, as defined in the Investment Company Act, of the
outstanding Class B voting securities of the Fund.
6. This Plan shall not take effect until it has been approved, together
with any related agreements, by votes of a majority of both (a) the Directors of
the Fund and (b) those Directors of the Fund who are not "interested persons" of
the Fund, as defined in the Investment Company Act, and have no direct or
indirect financial interest in the operation of this Plan or any agreements
related to it (the "Rule 12b-1 Directors"), cast in person at a meeting or
meetings called for the purpose of voting on this Plan and such related
agreements.
7. This Plan shall continue in effect for so long as such continuance
is specifically approved at least annually in the manner provided for approval
of this Plan in Paragraph 6.
8. This Plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Directors, or by vote of a majority of the outstanding Class B voting
securities of the Fund.
9. This Plan may not be amended to increase materially the rate of
payments provided for herein unless such amendment is approved by at least a
majority, as defined in the Investment Company Act, of the outstanding Class B
voting securities of the Fund, and by the Directors of the Fund in the manner
provided for in Paragraph 6 hereof, and no material amendment to the Plan shall
be made unless approved in the manner provided for approval and annual renewal
in Paragraph 6 hereof.
10. While this Plan is in effect, the selection and nomination of
Directors who are not interested persons, as defined in the Investment Company
Act, of the Fund shall be committed to the discretion of the Directors who are
not interested persons.
11. The Fund shall preserve copies of this Plan and any related
agreements and all reports made pursuant to Paragraph 4 hereof, for a period of
not less than six years from the date of this Plan, or the agreements or such
report, as the case may be, the first two years in an easily accessible place.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have executed this Plan as of
the date first above written.
MERRILL LYNCH REAL ESTATE FUND, INC.
By__________________________________________
Name:
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By__________________________________________
Name:
Title:
4
<PAGE> 5
CLASS B SHARES DISTRIBUTION PLAN SUB-AGREEMENT
AGREEMENT made as of the ___ day of _________, 1997 by and between
Merrill Lynch Funds Distributor, Inc. (the "MLFD"), and Merrill Lynch, Pierce,
Fenner & Smith Incorporated, a Delaware corporation ("Securities Firm").
W I T N E S S E T H :
WHEREAS, MLFD has entered into an agreement with Merrill Lynch Real
Estate Fund, Inc., a Maryland corporation (the "Fund"), pursuant to which it
acts as the exclusive distributor for the sale of Class B shares of common
stock, par value $0.10 per share (the "Class B shares"), of the Fund; and
WHEREAS, MLFD and the Fund have entered into a Class B Shares
Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Investment
Company Act of 1940 (the "Act") pursuant to which MLFD receives an account
maintenance fee from the Fund at the annual rate of 0.25% of average daily net
assets of the Fund relating to Class B shares for account maintenance activities
related to the Class B shares of the Fund and a distribution fee from the Fund
at the annual rate of 0.75% of average daily net assets of the Fund relating to
Class B shares for providing sales and promotional activities and services
related to the distribution of Class B shares; and
WHEREAS, MLFD desires the Securities Firm to perform certain account
maintenance activities and sales and promotional activities and services for the
Fund's Class B shareholders and the Securities Firm is willing to perform such
services;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereby agree as follows:
1. The Securities Firm shall provide account maintenance activities
with respect to the Class B shares of the Fund of the types referred to in
Paragraph 1 of the Plan.
2. The Securities Firm shall provide sales and promotional activities
and services with respect to the sale of the Class B shares of the Fund, and
incur distribution expenditures of the types referred to in paragraph 2 of the
Plan.
3. As compensation for its activities and services performed under this
Agreement, MLFD shall pay the Securities Firm an account maintenance fee and a
distribution fee at the end
<PAGE> 6
of each calendar month in an amount agreed upon by the parties hereto.
4. The Securities Firm shall provide MLFD, at least quarterly, such
information as reasonably requested by MLFD to enable MLFD to comply with the
reporting requirements of Rule 12b-1 regarding the disbursement of the account
maintenance fee and the distribution fee during such period referred to in
Paragraph 4 of the Plan.
5. This Agreement shall not take effect until it has been approved by
votes of a majority of both (a) the Directors of the Fund and (b) those
Directors of the Fund who are not "interested persons" of the Fund, as defined
in the Act, and have no direct or indirect financial interest in the operation
of this Plan or any agreements related to it (the "Rule 12b-1 Directors"), cast
in person at a meeting or meetings called for the purpose of voting on this
Agreement.
6. This Agreement shall continue in effect for as long as such
continuance is specifically approved at least annually in the manner provided
for approval of the Plan in Paragraph 6.
7. This Agreement shall automatically terminate in the event of its
assignment or in the event of the termination of the Plan or any amendment to
the Plan that requires such termination.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By__________________________________________
Name:
Title:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By__________________________________________
Name:
Title:
2
<PAGE> 1
Exhibit 15(b)
CLASS C DISTRIBUTION PLAN
OF
MERRILL LYNCH REAL ESTATE FUND, INC.
PURSUANT TO RULE 12b-1
DISTRIBUTION PLAN made as of the ___ day of _________, 1997, by and
between Merrill Lynch Real Estate Fund, Inc., a Maryland corporation (the
"Fund"), and Merrill Lynch Funds Distributor, Inc., a Delaware corporation
("MLFD").
W I T N E S S E T H:
WHEREAS, the Fund is engaged in business as an open-end investment
company registered under the Investment Company Act of 1940, as amended (the
"Investment Company Act"); and
WHEREAS, MLFD is a securities firm engaged in the business of selling
shares of investment companies either directly to purchasers or through other
securities dealers; and
WHEREAS, the Fund proposes to enter into a Class C Shares Distribution
Agreement with MLFD, pursuant to which MLFD will act as the exclusive
distributor and representative of the Fund in the offer and sale of Class C
shares of common stock, par value $0.10 per share (the "Class C shares"), of the
Fund to the public; and
WHEREAS, the Fund desires to adopt this Class C Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Investment Company Act, pursuant to
which the Fund will pay an account maintenance fee and a distribution fee to
MLFD with respect to the Fund's Class C shares; and
WHEREAS, the Directors of the Fund have determined that there is a
reasonable likelihood that adoption of the Plan will benefit the Fund and its
shareholders.
NOW, THEREFORE, the Fund hereby adopts, and MLFD hereby agrees to the
terms of, the Plan in accordance with Rule 12b-1 under the Investment Company
Act on the following terms and conditions:
1. The Fund shall pay MLFD an account maintenance fee under the Plan at
the end of each month at the annual rate of 0.25% of
<PAGE> 2
average daily net assets of the Fund relating to Class C shares to compensate
MLFD and securities firms with which MLFD enters into related agreements
pursuant to Paragraph 3 hereof ("Sub-Agreements") for providing account
maintenance activities with respect to Class C shareholders of the Fund.
Expenditures under the Plan may consist of payments to financial consultants for
maintaining accounts in connection with Class C shares of the Fund and payment
of expenses incurred in connection with such account maintenance activities
including the costs of making services available to shareholders including
assistance in connection with inquiries related to shareholder accounts.
2. The Fund shall pay MLFD a distribution fee under the Plan at the end
of each month at the annual rate of 0.75% of average daily net assets of the
Fund relating to Class C shares to compensate MLFD and securities firms with
which MLFD enters into related Sub-Agreements for providing sales and
promotional activities and services. Such activities and services will relate to
the sale, promotion and marketing of the Class C shares of the Fund. Such
expenditures may consist of sales commissions to financial consultants for
selling Class C shares of the Fund, compensation, sales incentives and payments
to sales and marketing personnel, and the payment of expenses incurred in its
sales and promotional activities, including advertising expenditures related to
the Fund and the costs of preparing and distributing promotional materials. The
distribution fee may also be used to pay the financing costs of carrying the
unreimbursed expenditures described in this Paragraph 2. Payment of the
distribution fee described in this Paragraph 2 shall be subject to any
limitations set forth in any applicable regulation of the National Association
of Securities Dealers, Inc.
3. The Fund hereby authorizes MLFD to enter into Sub-Agreements with
certain securities firms ("Securities Firms"), including Merrill Lynch, Pierce,
Fenner & Smith Incorporated, to provide compensation to such Securities Firms
for activities and services of the type referred to in Paragraphs 1 and 2
hereof. MLFD may reallocate all or a portion of its account maintenance fee or
distribution fee to such Securities Firms as compensation for the
above-mentioned activities and services. Such Sub-Agreement shall provide that
the Securities Firms shall provide MLFD with such information as is reasonably
necessary to permit MLFD to comply with the reporting requirements set forth in
Paragraph 4 hereof.
4. MLFD shall provide the Fund for review by the Board of Directors,
and the Directors shall review, at least quarterly, a written report complying
with the requirements of Rule 12b-1 regarding the disbursement of the account
maintenance fee and the distribution fee during such period.
2
<PAGE> 3
5. This Plan shall not take effect until it has been approved by a vote
of at least a majority, as defined in the Investment Company Act, of the
outstanding Class C voting securities of the Fund.
6. This Plan shall not take effect until it has been approved, together
with any related agreements, by votes of a majority of both (a) the Directors of
the Fund and (b) those Directors of the Fund who are not "interested persons" of
the Fund, as defined in the Investment Company Act, and have no direct or
indirect financial interest in the operation of this Plan or any agreements
related to it (the "Rule 12b-1 Directors"), cast in person at a meeting or
meetings called for the purpose of voting on the Plan and such related
agreements.
7. The Plan shall continue in effect for so long as such continuance is
specifically approved at least annually in the manner provided for approval of
the Plan in Paragraph 6.
8. The Plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Directors, or by vote of a majority of the outstanding Class C voting
securities of the Fund.
9. The Plan may not be amended to increase materially the rate of
payments provided for herein unless such amendment is approved by at least a
majority, as defined in the Investment Company Act, of the outstanding Class C
voting securities of the Fund, and by the Directors of the Fund in the manner
provided for in Paragraph 6 hereof, and no material amendment to the Plan shall
be made unless approved in the manner provided for approval and annual renewal
in Paragraph 6 hereof.
10. While the Plan is in effect, the selection and nomination of
Directors who are not interested persons, as defined in the Investment Company
Act, of the Fund shall be committed to the discretion of the Directors who are
not interested persons.
11. The Fund shall preserve copies of the Plan and any related
agreements and all reports made pursuant to Paragraph 4 hereof, for a period of
not less than six years from the date of the Plan, or the agreements or such
report, as the case may be, the first two years in an easily accessible place.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have executed this Distribution
Plan as of the date first above written.
MERRILL LYNCH REAL ESTATE FUND, INC.
By_____________________________________
Name:
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By_____________________________________
Name:
Title:
4
<PAGE> 5
CLASS C SHARES DISTRIBUTION PLAN SUB-AGREEMENT
AGREEMENT made as of the ___ day of _________, 1997, by and between
Merrill Lynch Funds Distributor, Inc., a Delaware corporation ("MLFD"), and
Merrill Lynch, Pierce, Fenner & Smith Incorporated, a Delaware corporation
("Securities Firm").
W I T N E S S E T H :
WHEREAS, MLFD has entered into an agreement with Merrill Lynch Real
Estate Fund, Inc. a Maryland corporation (the "Fund"), pursuant to which it acts
as the exclusive distributor for the sale of Class C shares of common stock, par
value $0.10 per share (the "Class C shares"), of the Fund; and
WHEREAS, MLFD and the Fund have entered into a Class C Shares
Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Investment
Company Act of 1940, as amended (the "Act"), pursuant to which MLFD receives an
account maintenance fee from the Fund at the annual rate of 0.25% of average
daily net assets of the Fund relating to Class C shares for account maintenance
activities related to Class C shares of the Fund and a distribution fee from the
Fund at the annual rate of 0.75% of average daily net assets of the Fund
relating to Class C shares for providing sales and promotional activities and
services related to the distribution of Class C shares; and
WHEREAS, MLFD desires the Securities Firm to perform certain account
maintenance activities and sales and promotional activities and services for the
Fund's Class C shareholders and the Securities Firm is willing to perform such
activities and services;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereby agree as follows:
1. The Securities Firm shall provide account maintenance activities
with respect to the Class C shares of the Fund and incur expenditures in
connection with such activities of the types referred to in Paragraph 1 of the
Plan.
2. The Securities Firm shall provide sales and promotional activities
and services with respect to the sale of the Class C
<PAGE> 6
shares of the Fund, and incur distribution expenditures, of the types referred
to in Paragraph 2 of the Plan.
3. As compensation for its activities and services performed under this
Agreement, MLFD shall pay the Securities Firm an account maintenance fee and a
distribution fee at the end of each calendar month in an amount agreed upon by
the parties hereto.
4. The Securities Firm shall provide MLFD, at least quarterly, such
information as reasonably requested by MLFD to enable MLFD to comply with the
reporting requirements of Rule 12b-1 regarding the disbursement of the account
maintenance fee and the distribution fee during such period referred to in
Paragraph 4 of the Plan.
5. This Agreement shall not take effect until it has been approved by
votes of a majority of both (a) the Directors of the Fund and (b) those
Directors of the Fund who are not "interested persons" of the Fund, as defined
in the Act, and have no direct or indirect financial interest in the operation
of the Plan, this Agreement or any agreements related to the Plan or this
Agreement (the "Rule 12b-1 Directors"), cast in person at a meeting or meetings
called for the purpose of voting on this Agreement.
6. This Agreement shall continue in effect for as long as such
continuance is specifically approved at least annually in the manner provided
for approval of the Plan in Paragraph 6.
7. This Agreement shall automatically terminate in the event of its
assignment or in the event of the termination of the Plan or any amendment to
the Plan that requires such termination.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By_____________________________________
Name:
Title:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By_____________________________________
Name:
Title:
2
<PAGE> 1
Exhibit 15(c)
CLASS D DISTRIBUTION PLAN
OF
MERRILL LYNCH REAL ESTATE FUND, INC.
PURSUANT TO RULE 12b-1
DISTRIBUTION PLAN made as of the day of , 1997, by
and between Merrill Lynch Real Estate Fund, Inc., a Maryland corporation (the
"Fund"), and Merrill Lynch Funds Distributor, Inc., a Delaware corporation
("MLFD").
W I T N E S S E T H :
WHEREAS, the Fund is engaged in business as an open-end investment
company registered under the Investment Company Act of 1940, as amended (the
"Investment Company Act"); and
WHEREAS, MLFD is a securities firm engaged in the business of selling
shares of investment companies either directly to purchasers or through other
securities dealers; and
WHEREAS, the Fund proposes to enter into a Class D Shares Distribution
Agreement with MLFD, pursuant to which MLFD will act as the exclusive
distributor and representative of the Fund in the offer and sale of Class D
shares of common stock, par value $0.10 per share (the "Class D shares"), of the
Fund to the public; and
WHEREAS, the Fund desires to adopt this Class D Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Investment Company Act, pursuant to
which the Fund will pay an account maintenance fee to MLFD with respect to the
Fund's Class D shares; and
WHEREAS, the Directors of the Fund have determined that there is a
reasonable likelihood that adoption of the Plan will benefit the Fund and its
shareholders.
NOW, THEREFORE, the Fund hereby adopts, and MLFD hereby agrees to the
terms of, the Plan in accordance with Rule 12b-1 under the Investment Company
Act on the following terms and conditions:
1. The Fund shall pay MLFD an account maintenance fee under the Plan at
the end of each month at the annual rate of 0.25% of
<PAGE> 2
average daily net assets of the Fund relating to Class D shares to compensate
MLFD and securities firms with which MLFD enters into related agreements
("Sub-Agreements") pursuant to Paragraph 2 hereof for providing account
maintenance activities with respect to Class D shareholders of the Fund.
Expenditures under the Plan may consist of payments to financial consultants for
maintaining accounts in connection with Class D shares of the Fund and payment
of expenses incurred in connection with such account maintenance activities
including the costs of making services available to shareholders including
assistance in connection with inquiries related to shareholder accounts.
2. The Fund hereby authorizes MLFD to enter into Sub-Agreements with
certain securities firms ("Securities Firms"), including Merrill Lynch, Pierce,
Fenner & Smith Incorporated, to provide compensation to such Securities Firms
for activities of the type referred to in Paragraph 1. MLFD may reallocate all
or a portion of its account maintenance fee to such Securities Firms as
compensation for the above-mentioned activities. Such Sub-Agreement shall
provide that the Securities Firms shall provide MLFD with such information as is
reasonably necessary to permit MLFD to comply with the reporting requirements
set forth in Paragraph 3 hereof.
3. MLFD shall provide the Fund for review by the Board of Directors,
and the Directors shall review, at least quarterly, a written report complying
with the requirements of Rule 12b-1 regarding the disbursement of the account
maintenance fee during such period.
4. This Plan shall not take effect until it has been approved by a vote
of at least a majority, as defined in the Investment Company Act, of the
outstanding Class D voting securities of the Fund.
5. This Plan shall not take effect until it has been approved, together
with any related agreements, by votes of a majority of both (a) the Directors of
the Fund and (b) those Directors of the Fund who are not "interested persons" of
the Fund, as defined in the Investment Company Act, and have no direct or
indirect financial interest in the operation of this Plan or any agreements
related to it (the "Rule 12b-1 Directors"), cast in person at a meeting or
meetings called for the purpose of voting on the Plan and such related
agreements.
6. The Plan shall continue in effect for so long as such continuance is
specifically approved at least annually in the manner provided for approval of
the Plan in Paragraph 5.
2
<PAGE> 3
7. The Plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Directors, or by vote of a majority of the outstanding Class D voting
securities of the Fund.
8. The Plan may not be amended to increase materially the rate of
payments provided for in Paragraph 1 hereof unless such amendment is approved by
at least a majority, as defined in the Investment Company Act, of the
outstanding Class D voting securities of the Fund, and by the Directors of the
Fund in the manner provided for in Paragraph 5 hereof, and no material amendment
to the Plan shall be made unless approved in the manner provided for approval
and annual renewal in Paragraph 5 hereof.
9. While the Plan is in effect, the selection and nomination of
Directors who are not interested persons, as defined in the Investment Company
Act, of the Fund shall be committed to the discretion of the Directors who are
not interested persons.
10. The Fund shall preserve copies of the Plan and any related
agreements and all reports made pursuant to Paragraph 3 hereof, for a period of
not less than six years from the date of the Plan, or the agreements or such
report, as the case may be, the first two years in an easily accessible place.
IN WITNESS WHEREOF, the parties hereto have executed this Distribution
Plan as of the date first above written.
MERRILL LYNCH REAL ESTATE FUND, INC.
By_____________________________________
Name:
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By_____________________________________
Name:
Title:
3
<PAGE> 4
CLASS D SHARES DISTRIBUTION PLAN SUB-AGREEMENT
AGREEMENT made as of the ___ day of _________, 1997, by and between
Merrill Lynch Funds Distributor, Inc., a Delaware corporation ("MLFD"), and
Merrill Lynch, Pierce, Fenner & Smith Incorporated, a Delaware corporation
("Securities Firm").
W I T N E S S E T H :
WHEREAS, MLFD has entered into an agreement with Merrill Lynch Real
Estate Fund, Inc., a Maryland corporation (the "Fund"), pursuant to which it
acts as the exclusive distributor for the sale of Class D shares of common
stock, par value $0.10 per share (the "Class D shares"), of the Fund; and
WHEREAS, MLFD and the Fund have entered into a Class D Shares
Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Investment
Company Act of 1940, as amended (the "Act"), pursuant to which MLFD receives an
account maintenance fee from the Fund at the annual rate of 0.25% of average
daily net assets of the Fund relating to Class D shares for providing account
maintenance activities with respect to Class D shares; and
WHEREAS, MLFD desires the Securities Firm to perform certain account
maintenance activities, including assistance in connection with inquiries
related to shareholder accounts, for the Fund's Class D shareholders and the
Securities Firm is willing to perform such services;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereby agree as follows:
1. The Securities Firm shall provide account maintenance activities
with respect to the Class D shares of the Fund and incur expenditures in
connection with such activities and services, of the types referred to in
Paragraph 1 of the Plan.
2. As compensation for its services performed under this Agreement,
MLFD shall pay the Securities Firm a fee at the end of each calendar month in an
amount agreed upon by the parties hereto.
3. The Securities Firm shall provide MLFD, at least quarterly, such
information as reasonably requested by MLFD to enable MLFD to comply with the
reporting requirements of Rule
<PAGE> 5
12b-1 regarding the disbursement of the fee during such period referred to in
Paragraph 3 of the Plan.
4. This Agreement shall not take effect until it has been approved by
votes of a majority of both (a) the Directors of the Fund and (b) those
Directors of the Fund who are not "interested persons" of the Fund, as defined
in the Act, and have no direct or indirect financial interest in the operation
of the Plan, this Agreement or any agreements related to the Plan or this
Agreement (the "Rule 12b-1 Directors"), cast in person at a meeting or meetings
called for the purpose of voting on this Agreement.
5. This Agreement shall continue in effect for as long as such
continuance is specifically approved at least annually in the manner provided
for approval of the Plan in Paragraph 5.
6. This Agreement shall automatically terminate in the event of its
assignment or in the event of the termination of the Plan or any amendment to
the Plan that requires such termination.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By_____________________________________
Name:
Title:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By_____________________________________
Name:
Title:
2
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