<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 11, 1999
SECURITIES ACT FILE NO. 333-76581
INVESTMENT COMPANY ACT FILE NO. 811-9299
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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
DISCIPLINED GROWTH FUND, INC.*
(Exact Name of Registrant as Specified in Charter)
800 SCUDDERS MILL ROAD, PLAINSBORO, NEW JERSEY 08536
(Address of Principal Executive Offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (609) 282-2800
TERRY K. GLENN
MERRILL LYNCH DISCIPLINED GROWTH FUND, INC.
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY
MAILING ADDRESS: P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(Name and Address of Agent for Service)
Copies to:
<TABLE>
<S> <C>
Counsel for the Fund:
BROWN & WOOD LLP Michael J. Hennewinkel, Esq.
One World Trade Center MERRILL LYNCH ASSET MANAGEMENT, L.P.
New York, New York 10048-0557 P.O. Box 9011
Attention: Frank P. Bruno, Esq. Princeton, New Jersey 08543-9011
</TABLE>
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APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
Soon as practicable after the date of this Registration Statement
------------------------
TITLE OF SECURITIES BEING REGISTERED: Shares of 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.
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* The Fund is in the process of changing its name to Merrill Lynch Disciplined
Equity Fund, Inc.
<PAGE> 2
The information contained in this prospectus is not complete and may
be changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these securities
and it is not soliciting an offer to buy these securities in any
State where the offer or sale is not permitted.
Prospectus [MERRILL LYNCH LOGO]
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MAY 11, 1999
[Merrill Lynch Artwork] Merrill Lynch Disciplined Equity Fund, Inc.
June , 1999
This Prospectus contains information you should know before
investing, including information about risks. Please read
it before you invest and keep it for future reference.
The Securities and Exchange Commission has not approved or
disapproved these securities or passed upon the adequacy of
this Prospectus. Any representation to the contrary is a
criminal offense.
<PAGE> 3
Table of Contents
<TABLE>
<CAPTION>
PAGE
<S> <C>
[KEY FACTS ICON]
KEY FACTS
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The Merrill Lynch Disciplined Equity Fund at a Glance....... 3
Fees and Expenses........................................... 4
[FUND DETAILS ICON]
DETAILS ABOUT THE FUND
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How the Fund Invests........................................ 6
Investment Risks............................................ 7
About the Portfolio Manager................................. 12
[YOUR ACCOUNT ICON]
YOUR ACCOUNT
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Merrill Lynch Select Pricing(SM) System..................... 14
How to Buy, Sell, Transfer and Exchange Shares.............. 21
Participation in Merrill Lynch Fee-Based Programs........... 25
[MANAGEMENT ICON]
MANAGEMENT OF THE FUND
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Merrill Lynch Asset Management.............................. 27
[MORE INFORMATION ICON]
FOR MORE INFORMATION
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Shareholder Reports....................................Back Cover
Statement of Additional Information....................Back Cover
</TABLE>
MERRILL LYNCH DISCIPLINED EQUITY FUND, INC.
<PAGE> 4
Key Facts[KEY FACTS ICON]
IN AN EFFORT TO HELP YOU BETTER UNDERSTAND THE MANY CONCEPTS INVOLVED IN MAKING
AN INVESTMENT DECISION, WE HAVE DEFINED THE HIGHLIGHTED TERMS IN THIS PROSPECTUS
IN THE SIDEBAR.
COMMON STOCK -- shares of ownership of a corporation.
THE MERRILL LYNCH DISCIPLINED EQUITY FUND AT A GLANCE
- --------------------------------------------------------------------------------
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is to seek both capital appreciation and current
income.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests primarily in income-producing COMMON STOCKS with a focus on
common stocks of companies that Fund management believes are likely to
experience consistent earnings growth over time. To a lesser extent, the Fund
also may invest in securities convertible into common stock and rights to
subscribe to common stock of these companies. The Fund may invest in the
securities of foreign companies in the form of American Depository Receipts and
may invest up to 20% of its total assets in other securities issued by foreign
companies. We cannot guarantee that the Fund will achieve its goals.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
As with any fund, the value of the Fund's investments -- and therefore the value
of Fund shares -- may go up or down. These changes may occur because the stock
market is rising or falling. At other times, there are specific factors that may
affect the value of a particular investment. Since foreign markets may differ
significantly from U.S. markets in terms of both economic conditions and
government regulation, investments in foreign securities involve special risks.
If the value of the Fund's investments goes down, you may lose money.
WHO SHOULD INVEST?
The Fund may be an appropriate investment for you if you:
- Are investing with long term goals, such as retirement or
funding a child's education.
- Want a professionally managed and diversified portfolio.
- Are willing to accept the risk that the value of your investment
may decline in exchange for potentially higher long term
returns.
- Are prepared to receive taxable distributions of ordinary income
and capital gains.
MERRILL LYNCH DISCIPLINED EQUITY FUND, INC. 3
<PAGE> 5
[KEY FACTS ICON] Key Facts
UNDERSTANDING EXPENSES
Fund investors pay various fees and expenses, either directly or indirectly.
Listed below are some of the main types of expenses, which all mutual funds may
charge:
EXPENSES PAID DIRECTLY BY THE SHAREHOLDER:
SHAREHOLDER FEES -- these include sales charges which you may pay when you buy
or sell shares of the Fund.
EXPENSES PAID INDIRECTLY BY THE SHAREHOLDER:
ANNUAL FUND OPERATING EXPENSES -- expenses that cover the costs of operating the
Fund.
MANAGEMENT FEE -- a fee paid to the Manager for managing the Fund.
DISTRIBUTION FEES -- fees used to support the Fund's marketing and distribution
efforts, such as compensating Financial Consultants, advertising and promotion.
SERVICE (ACCOUNT MAINTENANCE) FEES -- fees used to compensate securities dealers
for account maintenance activities.
FEES AND EXPENSES
- --------------------------------------------------------------------------------
The Fund offers four different classes of shares. Although your money will be
invested the same way no matter which class of shares you buy, there are
differences among the fees and expenses associated with each class. Not everyone
is eligible to buy every class. After determining which classes you are eligible
to buy, decide which class best suits your needs. Your Merrill Lynch Financial
Consultant can help you with this decision.
This table shows the different fees and expenses that you may pay if you buy and
hold the different classes of shares of the Fund. Future expenses may be greater
or less than those indicated below.
<TABLE>
<CAPTION>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR
INVESTMENT): CLASS A CLASS B(a) CLASS C CLASS D
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Maximum Sales Charge (Load) imposed on purchases
(as a percentage of offering price) 5.25%(b) None None 5.25%(b)
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Maximum Deferred Sales Charge (Load) (as a
percentage of original purchase price or
redemption proceeds, whichever is lower) None(c) 4.0%(b) 1.0%(b) None(c)
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Maximum Sales Charge (Load) imposed on Dividend
Reinvestments None None None None
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Redemption Fee None None None None
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Exchange Fee None None None None
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Maximum Account Fee None None None None
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ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE
DEDUCTED FROM FUND ASSETS):
- -----------------------------------------------------------------------------------------------
Management Fee 0.65% 0.65% 0.65% 0.65%
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Distribution and/or Service (12b-1) Fees(d) None 1.00% 1.00% 0.25%
- -----------------------------------------------------------------------------------------------
Other Expenses (including transfer agency
fees)(e) 0.28% 0.28% 0.28% 0.28%
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TOTAL ANNUAL FUND OPERATING EXPENSES(f) 0.93% 1.93% 1.93% 1.18%
- -----------------------------------------------------------------------------------------------
</TABLE>
(a) Class B shares automatically convert to Class D shares about 8 years after
you buy them and will no longer be subject to distribution fees.
(b) Some investors may qualify for reductions in the sales charge (load).
(c) You may pay a deferred sales charge if you purchase $1 million or more and
you redeem within one year.
(d) The Fund calls the Service Fee an "Account Maintenance Fee." Account
Maintenance Fee is the term used elsewhere in this Prospectus and in all
other Fund materials. If you hold Class B or Class C shares for a long time,
it may cost you more in distribution (12b-1) fees than the maximum sales
charge that you would have paid if you had bought one of the other classes.
(e) Information under "Other Expenses" is estimated for the Fund's first fiscal
year ending April 30, 2000. The Fund pays the Transfer Agent $11.00 for each
Class A and Class D shareholder account and $14.00 for each Class B and
Class C shareholder account and reimburses the Transfer Agent's out-of-
pocket expenses. The Fund pays a 0.10% fee for certain accounts that
participate in the Merrill Lynch Mutual Fund Advisor program. The Fund also
pays a $0.20 monthly closed account charge, which is assessed upon all
accounts that close during the year. This fee begins the month following the
month the account is closed and ends at the end of the calendar year. The
Manager provides accounting services to the Fund at its cost.
(f) In addition, Merrill Lynch may charge clients a processing fee (currently
$5.35) when a client buys or redeems shares.
4 MERRILL LYNCH DISCIPLINED EQUITY FUND, INC.
<PAGE> 6
EXAMPLES:
These examples are intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds.
These examples assume that you invest $10,000 in the Fund for the time periods
indicated, that your investment has a 5% return each year, that you pay the
sales charges, if any, that apply to the particular class and that the Fund's
operating expenses remain the same. This assumption is not meant to indicate you
will receive a 5% annual rate of return. Your annual return may be more or less
than the 5% used in this example. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
EXPENSES IF YOU DID REDEEM YOUR SHARES:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
- ----------------------------------------
<S> <C> <C>
Class A $615 $806
- ----------------------------------------
Class B $596 $806
- ----------------------------------------
Class C $296 $606
- ----------------------------------------
Class D $639> $880
- ----------------------------------------
</TABLE>
EXPENSES IF YOU DID NOT REDEEM YOUR SHARES:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
- ----------------------------------------
<S> <C> <C>
Class A $615 $806
- ----------------------------------------
Class B $196 $606
- ----------------------------------------
Class C $196 $606
- ----------------------------------------
Class D $639 $880
- ----------------------------------------
</TABLE>
MERRILL LYNCH DISCIPLINED EQUITY FUND, INC. 5
<PAGE> 7
Details About the Fund [FUND DETAILS ICON]
ABOUT THE PORTFOLIO MANAGER
George H. Burwell is a Vice President and the senior portfolio manager of the
Fund. Mr. Burwell has been a First Vice President of Merrill Lynch Asset
Management since 1999.
ABOUT THE MANAGER
The Fund is managed by Merrill Lynch Asset Management.
HOW THE FUND INVESTS
- --------------------------------------------------------------------------------
The investment objective of the Fund is to seek both capital appreciation and
current income. The Fund tries to achieve its objective by investing primarily
in income-producing common stocks of companies that Fund management believes are
likely to experience consistent earnings growth over time. Fund management
believes that the common stocks of companies that have consistent earnings
growth are likely to increase in market price. Fund management looks
specifically for stocks that are experiencing consistent earnings growth but
whose market prices do not reflect that growth. In other words, the Fund seeks
to buy stocks that have a "growth" bias but that Fund management believes are
undervalued. There can be no assurance that the Fund's investment objective will
be achieved.
Fund management uses a disciplined approach in selecting portfolio investments.
Some of the factors that Fund management will consider include:
- Historical growth rate of earnings and dividends
- Issuing company's potential to generate cash flows
- Price/earnings multiple of the stock relative to the market
Although the Fund emphasizes investment in common stocks, it may also invest in
other equity securities including, but not limited to, the following:
- Securities convertible into common stock
- Preferred stock
- Rights and warrants to subscribe to common stock
The Fund generally will invest at least 65% of its total assets in equity
securities.
The Fund may invest in companies of any size but emphasizes common stocks of
companies having a medium to large stock market capitalization ($1 billion or
more).
The Fund may invest without limitation in the securities of foreign companies in
the form of American Depository Receipts ("ADRs"). In addition, the Fund may
invest up to 20% of its total assets in other forms of securities of foreign
companies, including European Depository Receipts ("EDRs") or other securities
convertible into securities of foreign companies.
The Fund may also lend its portfolio securities.
6 MERRILL LYNCH DISCIPLINED EQUITY FUND, INC.
<PAGE> 8
The Fund will normally invest a portion of its assets in short-term debt
securities, such as commercial paper. These securities can be sold easily and
have limited risk of loss but earn only limited returns. The Fund may also
invest without limitation in short-term debt securities (including repurchase
agreements), non-convertible bonds or government and money market securities
when Fund management is unable to find enough attractive equity investments and
to reduce exposure to equities when management believes it is advisable to do so
on a temporary basis. Investment in these securities may also be used to meet
redemptions. Short-term investments and temporary defensive positions may limit
the potential for the Fund to achieve its goal of capital appreciation and
current income.
INVESTMENT RISKS
- --------------------------------------------------------------------------------
This section contains a summary discussion of the general risks of investing in
the Fund. As with any mutual fund, there can be no guarantee that the Fund will
meet its goals or that the Fund's performance will be positive for any period of
time.
STOCK MARKET AND SELECTION RISK -- Stock market risk is the risk that the stock
market will go down in value, including the possibility that the market will go
down sharply and unpredictably. Selection risk is the risk that the investments
that Fund management selects will underperform the stock market or other funds
with similar investment objectives and investment strategies.
FOREIGN MARKET RISK -- Since the Fund may invest in foreign securities, it
offers the potential for more diversification than an investment only in the
United States. This is because stocks traded on foreign markets have often
(though not always) performed differently than stocks in the United States.
However, such investments involve special risks not present in U.S. investments
that can increase the chances that the Fund will lose money. In particular,
investment in foreign securities involves the following risks, which are
generally greater for investments in emerging markets:
- The economies of some foreign markets often do not compare
favorably with that of the United States in areas such as growth
of gross national product, reinvestment of capital, resources
and balance of payments. Some of these economies may rely
heavily on particular industries or
MERRILL LYNCH DISCIPLINED EQUITY FUND, INC. 7
<PAGE> 9
[FUND DETAILS ICON] Details About the Fund
foreign capital. They may be more vulnerable to adverse
diplomatic developments, the imposition of economic sanctions
against a particular country or countries, changes in
international trading patterns, trade barriers, and other
protectionist or retaliatory measures.
- Investments in foreign markets may be adversely affected by
governmental actions such as the imposition of capital controls,
nationalization of companies or industries, expropriation of
assets, or the imposition of punitive taxes.
- The governments of certain countries may prohibit or impose
substantial restrictions on foreign investing in their capital
markets or in certain industries. Any of these actions could
severely affect security prices, impair the Fund's ability to
purchase or sell foreign securities or transfer the Fund's
assets or income back into the United States, or otherwise
adversely affect the Fund's operations.
- Other foreign market risks include foreign exchange controls,
difficulties in pricing securities, defaults on foreign
government securities, difficulties in enforcing favorable legal
judgments in foreign courts, and political and social
instability. Legal remedies available to investors in certain
foreign countries may be less extensive than those available to
investors in the United States or other foreign countries.
- Because there are generally fewer investors on foreign exchanges
and a smaller number of shares traded each day, it may be
difficult for the Fund to buy and sell securities on those
exchanges. In addition, prices of foreign securities may go up
and down more than prices of securities traded in the United
States.
- Foreign markets have different clearance and settlement
procedures. In certain markets, settlements may be unable to
keep pace with the volume of securities transactions. If this
occurs, settlement may be delayed and the Fund's assets may be
uninvested and not earning returns. The Fund may miss investment
opportunities or be unable to sell an investment because of
these delays.
EUROPEAN ECONOMIC AND MONETARY UNION (EMU) -- A number of European countries
entered into EMU in an effort to reduce trade barriers between
8 MERRILL LYNCH DISCIPLINED EQUITY FUND, INC.
<PAGE> 10
themselves and eliminate fluctuations in their currencies. EMU established a
single European currency (the euro), which was introduced on January 1, 1999 and
is expected to replace the existing national currencies of all initial EMU
participants by July 1, 2002. Certain securities (beginning with government and
corporate bonds) were redenominated in the euro and are listed, trade and make
dividend and other payments only in euros. Like other investment companies and
business organizations, including the companies in which the Fund invests, the
Fund could be adversely affected:
- If the transition to the euro, or EMU as a whole, does not
proceed as planned
- If a participating country withdraws from EMU
- If computing, accounting and trading systems do not properly
recognize the euro as a distinct currency.
Risks associated with certain types of obligations in which the Fund may invest
include:
CONVERTIBLES -- Convertibles are generally debt securities or preferred stocks
that may be converted into common stock. The issuer of the convertible may be
the same as or different from the issuer of the underlying common stock.
Convertibles typically pay current income, as either interest (debt security
convertibles) or dividends (preferred stocks). The market may value a
convertible based in part on this stream of current income payments and in part
on the value of the underlying common stock. The value of a convertible may
react to market interest rates similarly to the value of regular debt
securities: if market interest rates rise, the value of a convertible usually
falls. Because it is convertible into common stock, the convertible also has the
same types of market and issuer risk as the value of the underlying common
stock.
WARRANTS -- A warrant gives the Fund the right to buy a quantity of stock. The
warrant specifies the amount of underlying stock, the purchase (or "exercise")
price, and the date the warrant expires. The Fund has no obligation to exercise
the warrant and buy the stock.
A warrant has value only if the Fund exercises it before it expires. If the
price of the underlying stock does not rise above the exercise price before the
warrant expires, the warrant generally expires without any value and the Fund
loses any amount it paid for the warrant. Thus, investments in
MERRILL LYNCH DISCIPLINED EQUITY FUND, INC. 9
<PAGE> 11
[FUND DETAILS ICON] Details About the Fund
warrants may involve substantially more risk than investments in common stock.
Warrants may trade in the same markets as their underlying stock; however, the
price of the warrant does not necessarily move with the price of the underlying
stock.
SECURITIES LENDING -- Securities lending involves the risk that the borrower to
which the Fund has loaned its securities may not return the securities in a
timely manner or at all. As a result, the Fund might suffer costs and delay in
recovering the securities it loaned. In addition, if the Fund does not get the
securities it loaned back and the value of the collateral the Fund received in
return for the loaned securities falls, the Fund could lose money.
ILLIQUID SECURITIES -- The Fund may invest up to 15% of its net assets in
illiquid securities that it cannot easily resell within seven days at current
value or that have contractual or legal restrictions on resale. If the Fund buys
illiquid securities it may be unable to quickly resell them or may be able to
sell them only at a price below current value.
RESTRICTED SECURITIES -- Restricted securities have contractual or legal
restrictions on their resale. They include private placement securities that the
Fund buys directly from the issuer. Private placement and other restricted
securities may not be listed on an exchange and may have no active trading
market.
Restricted securities may be illiquid. The Fund may be unable to sell them on
short notice or may be able to sell them only at a price below current value.
The Fund may get only limited information about the issuer, so it may be less
able to predict a loss. In addition, if Fund management receives material
adverse nonpublic information about the issuer, the Fund will not be able to
sell the security.
RULE 144A SECURITIES -- Rule 144A securities are restricted securities that can
be resold to qualified institutional buyers but not to the general public. Rule
144A securities may have an active trading market, but carry the risk that the
active trading market may not continue.
REPURCHASE AGREEMENTS; PURCHASE AND SALE CONTRACTS -- The Fund may enter into
certain types of repurchase agreements or purchase and sale contracts. Under a
repurchase agreement, the seller agrees to repurchase a security (typically a
security issued or guaranteed by the U.S. Government) at a mutually agreed upon
time and price. This insulates the Fund from changes in the market value of the
security during the period, except for currency fluctuations. A purchase and
sale contract is similar to a repurchase agreement, but purchase and sale
contracts provide that the purchaser receives any interest on the security paid
during the period. If the seller fails
10 MERRILL LYNCH DISCIPLINED EQUITY FUND, INC.
<PAGE> 12
to repurchase the security in either situation and the market value declines,
the Fund may lose money.
DERIVATIVES -- The Fund may use derivative instruments including futures,
forwards, options, and indexed securities. Derivatives are financial instruments
whose value is derived from another security, a commodity (such as oil or gold),
or an index such as the Standard & Poor's Composite 500 Index. Derivatives allow
the Fund to increase or decrease its risk exposure more quickly and efficiently
than other types of instruments. Derivatives are volatile and involve
significant risks, including:
Credit risk -- the risk that the counterparty (the party on the
other side of the transaction) on a derivative transaction will be
unable to honor its financial obligation to the Fund.
Currency risk -- the risk that changes in the exchange rate between
currencies will adversely affect the value (in U.S. dollar terms) of
an investment.
Leverage risk -- the risk associated with certain types of
investments or trading strategies (such as borrowing money to
increase the amount of investments) that relatively small market
movements may result in large changes in the value of an investment.
Certain investments or trading strategies that involve leverage can
result in losses that greatly exceed the amount originally invested.
Liquidity Risk -- the risk that certain securities may be difficult
or impossible to sell at the time that the seller would like or at
the price that the seller believes the security is currently worth.
The Fund may use derivatives for hedging purposes, including anticipatory
hedges. Hedging is a strategy in which the Fund uses a derivative to offset the
risk that other Fund holdings may decrease in value. While hedging can reduce
losses, it can also reduce or eliminate gains if the market moves in a different
manner than anticipated by the Fund or if the cost of the derivative outweighs
the benefit of the hedge. Hedging also involves the risk that changes in the
value of the derivative will not match those of the holdings being hedged as
expected by the Fund, in which case any losses on the holdings being hedged may
not be reduced. There can be no assurance that the Fund's hedging strategy will
reduce risk or that hedging transactions will be either available or cost
effective. The Fund is not required to use hedging and may choose not to do so.
MERRILL LYNCH DISCIPLINED EQUITY FUND, INC. 11
<PAGE> 13
[FUND DETAILS ICON]
ABOUT THE PORTFOLIO MANAGER
- --------------------------------------------------------------------------------
George H. Burwell, a First Vice President of the Manager since 1999, as well as
a Vice President and Senior Portfolio Manager of the Fund, is primarily
responsible for the day-to-day management of the Fund's portfolio. Mr. Burwell,
a Chartered Financial Analyst, has had 15 years experience as a research
analyst/portfolio manager. He was Senior Portfolio Manager for equities at the
Delaware Investments Family of Funds from 1992 to 1999. He managed a number of
registered mutual funds, including the Devon Fund series of Delaware Group
Equity Funds I, Inc. from its inception on December 29, 1993 to March 17, 1999.
Mr. Burwell also managed the Devon Series of Delaware Group Premium Fund, Inc.,
a variable annuity contract portfolio, from May 1, 1997 to March 17, 1999. The
investment objective, policies and strategies of the Devon Fund and the Devon
Series are substantially similar in all material respects to those of the Fund,
although both the Devon Fund and the Devon Series generally invest at least 65%
of their respective assets in dividend-paying stocks, while the Fund generally
invests at least 65% of its assets in equity securities, but not necessarily in
dividend-paying common stocks. The Fund does intend, however, to invest
primarily in dividend-paying common stocks.
The cumulative total return for Class A shares of the Devon Fund from its
inception through December 31, 1998 was 190.97%. At December 31, 1998, the Devon
Fund had $287.6 million in net assets. The cumulative total return for the Devon
Series from its inception through December 31, 1998 was 57.90%. At December 31,
1998, the Devon Series had $68.6 million in net assets. As portfolio manager of
the Devon Fund and the Devon Series, Mr. Burwell had full discretionary
authority over the selection of investments for each fund. Average annual
returns for the one-year, three-year and five-year periods ended December 31,
1998 to the extent applicable and for the entire period during which Mr. Burwell
managed the Devon Fund and the Devon Series compared with the performance of the
12
MERRILL LYNCH DISCIPLINED EQUITY FUND, INC.
<PAGE> 14
Standard & Poor's 500 Composite Stock Total Return Index were:
<TABLE>
<CAPTION>
THE DEVON THE DEVON
FUND(1) SERIES(2) S&P 500 INDEX(3)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
One Year 22.17% 24.04% 28.58%
- -------------------------------------------------------------------------------------------
Three Years 26.53% N/A 28.23%
- -------------------------------------------------------------------------------------------
Five Years 23.72% N/A 24.06%
- -------------------------------------------------------------------------------------------
Devon Fund
Inception through March 17, 1999(4) 20.84% N/A 24.11%
- -------------------------------------------------------------------------------------------
Devon Series
Inception through March 17, 1999(5) N/A 22.14% 31.60%
- -------------------------------------------------------------------------------------------
</TABLE>
. Average annual total return reflects changes in Class A share prices and
reinvestment of dividends and distributions and is net of fund expenses, but
does not reflect a deduction for the maximum front-end sales charge of 5.75%.
From commencement of operations through December 31, 1997, Delaware Management
Company, Inc. ("Delaware") voluntarily waived a portion of the annual
management fee payable by the Devon Fund and paid the Devon Fund's expenses
necessary to ensure that "Total Operating Expenses" of the Devon Fund
(excluding Rule 12b-1 expenses) did not exceed 0.95%. Beginning January 1,
1998, Delaware agreed to waive a portion of the annual management fee payable
by the Devon Fund and paid the Devon Fund's expenses necessary to ensure that
"Total Operating Expenses" of the Devon Fund (excluding taxes, interest,
brokerage commissions, extraordinary expenses and Rule 12b-1 expenses) did not
exceed 1.00%. Without such waivers and reimbursements, returns would have been
lower.
2. Average annual total return reflects changes in share prices and reinvestment
of dividends and distributions and is net of fund expenses. From commencement
of operations, Delaware voluntarily waived a portion of the annual management
fee payable by the Devon Series and paid the Devon Series's expenses necessary
to ensure that "Total Operating Expenses" of the Devon Series (excluding
taxes, interest, brokerage commissions and extraordinary expenses) did not
exceed 0.80%. Without such waivers and reimbursements, returns would have been
lower.
3. The Standard & Poor's 500 Composite Stock Total Return Index is an unmanaged
index of common stocks that is considered to be generally representative of
the United States stock market. The Index is adjusted to reflect reinvestment
of dividends.
4. The inception date for Class A shares of the Devon Fund was December 29,
1993.
5. The inception date for the Devon Series was May 1, 1997.
HISTORICAL PERFORMANCE IS NOT INDICATIVE OF FUTURE PERFORMANCE. THE DEVON FUND
AND THE DEVON SERIES ARE SEPARATE FUNDS AND THEIR HISTORICAL PERFORMANCE IS NOT
INDICATIVE OF THE POTENTIAL PERFORMANCE OF THE FUND. Share prices and investment
returns will fluctuate reflecting market conditions as well as changes in
company-specific fundamentals of portfolio securities.
Mr. Burwell holds a Bachelor of Arts degree from the University of Virginia.
Prior to joining the Delaware Group in 1992, Mr. Burwell was a portfolio manager
for Midlantic Bank in Edison, New Jersey, where he managed an equity mutual fund
and three commingled funds.
STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
If you would like further information about the Fund, including how it invests,
please see the Statement of Additional Information.
MERRILL LYNCH DISCIPLINED EQUITY FUND, INC. 13
<PAGE> 15
Your Account [YOUR ACCOUNT ICON]
MERRILL LYNCH SELECT PRICING(SM) SYSTEM
- --------------------------------------------------------------------------------
The Fund offers four share classes, each with its own sales charge and expense
structure, allowing you to invest in the way that best suits your needs. Each
share class represents an ownership interest in the same investment portfolio.
When you choose your class of shares you should consider the size of your
investment and how long you plan to hold your shares. Your Merrill Lynch
Financial Consultant can help you determine which share class is best suited to
your personal financial goals.
For example, if you select Class A or D shares, you generally pay a sales charge
at the time of purchase. If you buy Class D shares, you also pay an ongoing
account maintenance fee of 0.25%. You may be eligible for a sales charge waiver.
If you select Class B or C shares, you will invest the full amount of your
purchase price, but you will be subject to a distribution fee of 0.75% and an
account maintenance fee of 0.25%. Because these fees are paid out of the Fund's
assets on an ongoing basis, over time these fees increase the cost of your
investment and may cost you more than paying an initial sales charge. In
addition, you may be subject to a deferred sales charge when you sell Class B or
C shares.
The Fund's shares are distributed by Merrill Lynch Funds Distributor, a division
of Princeton Funds Distributor, Inc., an affiliate of Merrill Lynch.
14 MERRILL LYNCH DISCIPLINED EQUITY FUND, INC.
<PAGE> 16
The table below summarizes key features of the Merrill Lynch Select Pricing(SM)
System.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Availability Limited to certain Generally available Generally available
investors including: through Merrill Lynch. through Merrill Lynch.
- Current Class A Limited availability Limited availability
shareholders through other securities through other securities
- Certain Retirement dealers. dealers.
Plans
- Participants in
certain Merrill Lynch
sponsored programs
- Certain affiliates of
Merrill Lynch.
- ---------------------------------------------------------------------------------------------------------------
Initial Sales Charge? Yes. Payable at time of No. Entire purchase No. Entire purchase
purchase. Lower sales price is invested in price is invested in
charges available for shares of the Fund. shares of the Fund.
larger investments.
- ---------------------------------------------------------------------------------------------------------------
Deferred Sales No. (May be charged for Yes. Payable if you Yes. Payable if you
Charge? purchases over $1 redeem within four years redeem within one year
million that are of purchase. of purchase.
redeemed within one
year.)
- ---------------------------------------------------------------------------------------------------------------
Account Maintenance No. 0.25% Account 0.25% Account
and Distribution Maintenance Fee 0.75% Maintenance Fee 0.75%
Fees? Distribution Fee. Distribution Fee.
- ---------------------------------------------------------------------------------------------------------------
Conversion to Class D No. Yes, automatically after No.
shares? approximately eight
years.
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS D
- -----------------------------------------------------------------
<S> <C>
Availability Generally available
through Merrill Lynch.
Limited availability
through other securities
dealers.
- -----------------------------------------------------------------
Initial Sales Charge? Yes. Payable at time of
purchase. Lower sales
charges available for
larger investments.
- -----------------------------------------------------------------
Deferred Sales No. (May be charged for
Charge? purchases over $1
million that are
redeemed within one
year.)
- -----------------------------------------------------------------
Account Maintenance 0.25% Account
and Distribution Maintenance Fee No
Fees? Distribution Fee.
- -----------------------------------------------------------------
Conversion to Class D No.
shares?
- -----------------------------------------------------------------
</TABLE>
MERRILL LYNCH DISCIPLINED EQUITY FUND,INC. 15
<PAGE> 17
[YOUR ACCOUNT ICON] Your Account
SUBSCRIPTION OFFERING
You will initially be able to buy shares of the Fund during the subscription
period, which is expected to end on June 22, 1999. During the subscription
period, the Distributor, Merrill Lynch and other securities dealers that have
entered into agreements with the Distributor, will solicit subscriptions. The
subscriptions will be payable on the third business day after the end of the
subscription period. At that time, the Fund will begin operations and will issue
the Class A, Class B, Class C and Class D shares.
The Fund and the Distributor may agree to extend the subscription period, but
either the Fund or the Distributor also may terminate the subscription offering
at any time. If the subscription offering is terminated, the Fund will not begin
operations and will not issue any shares, or will issue only a limited number of
shares.
The minimum initial purchase for Class A, Class B, Class C or Class D shares
during the subscription period is $1,000, except for retirement plans where the
minimal initial purchase is $100, or certain fee-based programs where the
minimum initial purchase is $250. If you purchase Class A or Class D shares
during the subscription period you will pay the following public offering price,
which includes a sales charge:
<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 .000 .000 .000
- --------------------------------------------------------------------------------------------------
</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 deferred sales charge 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.
16 MERRILL LYNCH DISCIPLINED EQUITY FUND, INC.
<PAGE> 18
The Fund receives $10.00 per share from the sale of all Class A and Class D
shares sold during the subscription period.
You will pay a public offering price of $10.00 per share for any Class B or
Class C shares you purchase during the subscription period. Please see "Class B
and Class C Shares -- Deferred Sales Charge Options" below, however, for
information on deferred sales charges and ongoing account maintenance and
distribution fees that may apply to such shares.
MERRILL LYNCH DISCIPLINED EQUITY FUND, INC. 17
<PAGE> 19
[YOUR ACCOUNT ICON] Your Account
RIGHT OF ACCUMULATION -- permits you to pay the sales charge that would apply to
the cost or value (whichever is higher) of all shares you own in the Merrill
Lynch mutual funds that offer Select Pricing options.
LETTER OF INTENT -- permits you to pay the sales charge that would be applicable
if you add up all shares of Merrill Lynch Select Pricing System funds that you
agree to buy within a 13 month period. Certain restrictions apply.
CONTINUOUS OFFERING
Beginning immediately after the end of the subscription offering, the
Distributor and other eligible securities dealers (including Merrill Lynch) will
offer shares of the Fund continuously to the public.
CLASS A AND CLASS D SHARES -- INITIAL SALES CHARGE OPTIONS
If you select Class A or Class D shares, you will pay a sales charge at the time
of purchase.
<TABLE>
<CAPTION>
DEALER
COMPENSATION
AS A % OF AS A % OF AS A % OF
YOUR INVESTMENT OFFERING PRICE YOUR INVESTMENT* OFFERING PRICE
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $25,000 5.25% 5.54% 5.00%
- -----------------------------------------------------------------------------------
$25,000 but less than
$50,000 4.75% 4.99% 4.50%
- -----------------------------------------------------------------------------------
$50,000 but less than
$100,000 4.00% 4.17% 3.75%
- -----------------------------------------------------------------------------------
$100,000 but less than
$250,000 3.00% 3.09% 2.75%
- -----------------------------------------------------------------------------------
$250,000 but less than
$1,000,000 2.00% 2.04% 1.80%
- -----------------------------------------------------------------------------------
$1,000,000 and over** 0.00% 0.00% 0.00%
- -----------------------------------------------------------------------------------
</TABLE>
* Rounded to the nearest one-hundredth percent.
** If you invest $1,000,000 or more in Class A or Class D shares, you may not
pay an initial sales charge. However, if you redeem your shares within one
year after purchase, you may be charged a deferred sales charge. This charge
is 1% of the lesser of the original cost of the shares being redeemed or your
redemption proceeds. 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.
No initial sales charge applies to Class A or Class D shares that you buy
through reinvestment of dividends or distributions.
A reduced or waived sales charge on a purchase of Class A or Class D shares may
apply for:
- Purchases under a RIGHT OF ACCUMULATION or LETTER OF INTENT.
- Merrill Lynch Blueprint(SM) Program participants.
18 MERRILL LYNCH DISCIPLINED EQUITY FUND, INC.
<PAGE> 20
- TMA(SM) Managed Trusts.
- Certain Merrill Lynch investment or central asset accounts.
- Certain employer-sponsored retirement or savings plans.
- Purchases using proceeds from the sale of certain Merrill Lynch
closed-end funds under certain circumstances.
- Certain investors, including directors or trustees of Merrill Lynch
mutual funds and Merrill Lynch employees.
- Certain Merrill Lynch fee-based programs.
Only certain investors are eligible to buy Class A shares. Your Financial
Consultant can help you determine whether you are eligible to buy Class A shares
or to participate in any of these programs.
If you decide to buy shares under the initial sales charge alternative and you
are eligible to buy both Class A and Class D shares, you should buy Class A
since Class D shares are subject to an account maintenance fee, while Class A
shares are not.
If you redeem Class A or Class D shares and within 30 days buy new shares of the
same class, you will not pay a sales charge on the new purchase amount. The
amount eligible for this "Reinstatement Privilege" may not exceed the amount of
your redemption proceeds. To exercise the privilege, contact your Merrill Lynch
Financial Consultant or the Fund's Transfer Agent at 1-800-MER-FUND.
CLASS B AND CLASS C SHARES -- DEFERRED SALES CHARGE OPTIONS
If you select Class B or Class C shares, you do not pay an initial sales charge
at the time of purchase. However, if you redeem your Class B shares within four
years after purchase, or your Class C shares within one year after purchase, you
may be required to pay a deferred sales charge. You will also pay distribution
fees of 0.75% and account maintenance fees of 0.25% each year under distribution
plans that the Fund has adopted under Rule 12b-1. Because these fees are paid
out of the Fund's assets on an ongoing basis, over time these fees increase the
cost of your investment and may cost you more than paying an initial sales
charge. The Distributor uses the money that it receives from the deferred sales
charges and the distribution fees to cover the costs of marketing, advertising
and compensating the Merrill Lynch Financial Consultant or other securities
dealer who assists you in purchasing Fund shares.
MERRILL LYNCH DISCIPLINED EQUITY FUND, INC. 19
<PAGE> 21
[YOUR ACCOUNT ICON] Your Account
CLASS B SHARES
If you redeem Class B shares within four years after purchase, you may be
charged a deferred sales charge. The amount of the charge gradually decreases as
you hold your shares over time, according to the following schedule:
<TABLE>
<CAPTION>
YEARS SINCE PURCHASE SALES CHARGE*
- ------------------------------------------
<S> <C>
0 - 1 4.00%
- ------------------------------------------
1 - 2 3.00%
- ------------------------------------------
2 - 3 2.00%
- ------------------------------------------
3 - 4 1.00%
- ------------------------------------------
4 AND THEREAFTER 0.00%
- ------------------------------------------
</TABLE>
* The percentage charge will apply to the lesser of the original cost of the
shares being redeemed or the proceeds of your redemption. Shares acquired
through reinvestment of dividends or distributions are not subject to a
deferred sales charge. Not all Merrill Lynch funds have identical deferred
sales charge schedules. If you exchange your shares for shares of another
fund, the higher charge will apply.
The deferred sales charge relating to Class B shares may be reduced or waived in
certain circumstances, such as:
- Certain post-retirement withdrawals from an IRA or other
retirement plan if you are over 59 1/2 years old.
- Redemption by certain eligible 401(a) and 401(k) plans, certain
related accounts, group plans participating in the Merrill Lynch
Blueprint Program and certain retirement plan rollovers.
- Redemption in connection with participation in certain Merrill
Lynch fee-based programs.
- Withdrawals resulting from shareholder death or disability as
long as the waiver request is made within one year of death or
disability or, if later, reasonably promptly following
completion of probate.
- Withdrawals resulting from involuntary termination of an account
in which Fund shares are held.
- Withdrawal through the Merrill Lynch Systematic Withdrawal Plan
of up to 10% per year of your Class B or Class C account value
at the time the plan is established.
Your Class B shares convert automatically into Class D shares approximately
eight years after purchase. Any Class B shares received through reinvestment
20 MERRILL LYNCH DISCIPLINED EQUITY FUND, INC.
<PAGE> 22
of dividends or distributions paid on converting shares will also convert at
that time. Class D shares are subject to lower annual expenses than Class B
shares. The conversion of Class B to Class D shares is not a taxable event for
federal income tax purposes.
Different conversion schedules apply to Class B shares of different Merrill
Lynch mutual funds. For example, Class B shares of a fixed-income fund convert
approximately ten years after purchase compared to approximately eight years for
equity funds. If you acquire your Class B shares in an exchange from another
fund with a shorter conversion schedule, the Fund's eight year conversion
schedule will apply. If you exchange your Class B shares in the Fund for Class B
shares of a fund with a longer conversion schedule, the other fund's conversion
schedule will apply. The length of time that you hold both the original and
exchanged Class B shares in both funds will count toward the conversion
schedule. The conversion schedule may be modified in certain other cases as
well.
CLASS C SHARES
If you redeem Class C shares within one year after purchase, you may be charged
a deferred sales charge of 1.00%. The charge will apply to the lesser of the
original cost of the shares being redeemed or the proceeds of your redemption.
You will not be charged a deferred sales charge when you redeem shares that you
acquire through reinvestment of Fund dividends or distributions. The deferred
sales charge relating to Class C shares may be reduced or waived in connection
with involuntary termination of an account in which Fund shares are held,
withdrawals through the Merrill Lynch systematic withdrawal plan and purchases
using proceeds from the sale of a certain Merrill Lynch closed-end fund under
certain circumstances.
Class C shares do not offer a conversion privilege.
HOW TO BUY, SELL, TRANSFER AND EXCHANGE SHARES
- --------------------------------------------------------------------------------
The chart below summarizes how to buy, sell, transfer and exchange shares
through Merrill Lynch or other securities dealers during the continuous offering
of the Fund's shares, which will begin immediately after the end of the
subscription offering. You may also buy shares through the Transfer Agent. To
learn more about buying shares through the Transfer Agent, call 1-800-MER-FUND.
Because the selection of a mutual fund involves many considerations, your
Merrill Lynch Financial Consultant may help you with this decision.
MERRILL LYNCH DISCIPLINED EQUITY FUND, INC. 21
<PAGE> 23
[YOUR ACCOUNT ICON]
<TABLE>
<CAPTION>
IF YOU WANT TO YOUR CHOICES INFORMATION IMPORTANT FOR YOU TO KNOW
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Buy Shares First, select the share class Refer to the Merrill Lynch Select Pricing table on page 15.
appropriate for you Be sure to read this prospectus carefully.
------------------------------------------------------------------------------------------------------
Next, determine the amount of your The minimum initial investment for the Fund is $1,000 for
investment all accounts except: - $250 for certain Merrill Lynch
fee-based programs
- $100 for retirement plans
(The minimums for initial investments may be waived under
certain circumstances.)
------------------------------------------------------------------------------------------------------
Have your Merrill Lynch Financial The price of your shares is based on the next calculation
Consultant or securities dealer of net asset value after your order is placed. Any purchase
submit your purchase order orders placed within fifteen minutes after the close of
business on the New York Stock Exchange will be priced at
the net asset value determined that day.
Purchase orders placed after that time will be priced at
the net asset value determined on the next business day.
The Fund may reject any order to buy shares and may suspend
the sale of shares at any time. Merrill Lynch may charge a
processing fee to confirm a purchase. This fee is currently
$5.35.
------------------------------------------------------------------------------------------------------
Or contact the Transfer Agent To purchase shares directly, call the Transfer Agent at
1-800-MER-FUND and request a purchase application. Mail the
completed purchase application to the Transfer Agent at the
address on the inside back cover of this Prospectus.
- --------------------------------------------------------------------------------------------------------------------------------
Add to Your Purchase additional shares The minimum investment for additional purchases is $50 for
Investment all accounts except that retirement plans have a minimum
additional purchase of $1.
(The minimums for additional purchases may be waived under
certain circumstances.)
------------------------------------------------------------------------------------------------------
Acquire additional shares through All dividends and capital gains distributions are
the automatic dividend reinvestment automatically reinvested without a sales charge.
plan
------------------------------------------------------------------------------------------------------
Participate in the automatic You may invest a specific amount on a periodic basis
investment plan through certain Merrill Lynch investment or central asset
accounts.
- --------------------------------------------------------------------------------------------------------------------------------
Transfer Shares to Transfer to a participating You may transfer your Fund shares only to another
Another Securities securities dealer securities dealer that has entered into an agreement with
Dealer Merrill Lynch. All shareholder services will be available
for the transferred shares. You may only purchase
additional shares of funds previously owned before the
transfer. All future trading of these assets must be
coordinated by the receiving firm.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
22 MERRILL LYNCH DISCIPLINED EQUITY FUND,
INC.
<PAGE> 24
<TABLE>
<CAPTION>
IF YOU WANT TO YOUR CHOICES INFORMATION IMPORTANT FOR YOU TO KNOW
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Transfer Shares to Transfer to a non-participating You must either:
Another Securities securities dealer - Transfer your shares to an account with the Transfer
Dealer (continued) Agent; or
- Sell your shares.
- --------------------------------------------------------------------------------------------------------------------------------
Sell Your Shares Have your Merrill Lynch Financial The price of your shares is based on the next calculation
Consultant or securities dealer of net asset value after your order is placed. For your
submit your sales order redemption request to be priced at the net asset value on
the day of your request, you must submit your request to
your dealer within fifteen minutes after that day's close
of business on the New York Stock Exchange (generally 4:00
p.m. Eastern time). Any redemption request placed after
that time will be priced at the net asset value at the
close of business on the next business day. Dealers must
submit redemption requests to the Fund not more than thirty
minutes after the close of business on the New York Stock
Exchange on the day the request was received.
Securities dealers, including Merrill Lynch, may charge a
fee to process a redemption of shares. Merrill Lynch
currently charges a fee of $5.35. No processing fee is
charged if you redeem shares directly through the Transfer
Agent.
The Fund may reject an order to sell shares under certain
circumstances.
------------------------------------------------------------------------------------------------------
Sell through the Transfer Agent You may sell shares held at the Transfer Agent by writing
to the Transfer Agent at the address on the inside back
cover of this prospectus. All shareholders on the account
must sign the letter and signatures must be guaranteed. If
you hold stock certificates, return the certificates with
the letter. The Transfer Agent will normally mail
redemption proceeds within seven days following receipt of
a properly completed request. If you make a redemption
request before the Fund has collected payment for the
purchase of shares, the Fund or the Transfer Agent may
delay mailing your proceeds. This delay will usually not
exceed ten days.
If you hold share certificates, they must be delivered to
the Transfer Agent before they can be converted. Check with
the Transfer Agent or your Merrill Lynch Financial
Consultant for details.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
MERRILL LYNCH DISCIPLINED EQUITY FUND, INC. 23
<PAGE> 25
[YOUR ACCOUNT ICON] Your Account
<TABLE>
<CAPTION>
IF YOU WANT TO YOUR CHOICES INFORMATION IMPORTANT FOR YOU TO KNOW
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sell Shares Participate in the Fund's Systematic You can choose to receive systematic payments from your
Systematically Withdrawal Plan Fund account either by check or through direct deposit to
your bank account on a monthly or quarterly basis. If you
have a Merrill Lynch CMA(R), CBA(R) or Retirement Account
you can arrange for systematic redemptions of a fixed
dollar amount on a monthly, bi-monthly, quarterly,
semi-annual or annual basis, subject to certain conditions.
Under either method you must have dividends and other
distributions automatically reinvested. For Class B and C
shares your total annual withdrawals cannot be more than
10% per year of the value of your shares at the time your
plan is established. The deferred sales charge is waived
for systematic redemptions. Ask your Merrill Lynch
Financial Consultant for details.
- --------------------------------------------------------------------------------------------------------------------------------
Exchange Your Select the fund into which you want You can exchange your shares of the Fund for shares of many
Shares to exchange. Be sure to read that other Merrill Lynch mutual funds. You must have held the
fund's prospectus shares used in the exchange for at least 15 calendar days
before you can exchange to another fund.
Each class of Fund shares is generally exchangeable for
shares of the same class of another fund. If you own Class
A shares and wish to exchange into a fund in which you have
no Class A shares, you will exchange into Class D shares.
Some of the Merrill Lynch mutual funds impose a different
initial or deferred sales charge schedule. If you exchange
Class A or D shares for shares of a fund with a higher
initial sales charge than you originally paid, you will be
charged the difference at the time of exchange. If you
exchange Class B shares for shares of a fund with a
different deferred sales charge schedule, the higher
schedule will apply. The time you hold Class B or C shares
in both funds will count when determining your holding
period for calculating a deferred sales charge at
redemption. If you exchange Class A or D shares for money
market fund shares, you will receive Class A shares of
Summit Cash Reserves Fund. Class B or C shares of the Fund
will be exchanged for Class B shares of Summit.
Although there is currently no limit on the number of
exchanges that you can make, the exchange privilege may be
modified or terminated at any time in the future.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
24 MERRILL LYNCH DISCIPLINED EQUITY FUND, INC.
<PAGE> 26
NET ASSET VALUE -- the market value of the Fund's total assets after deducting
liabilities, divided by the number of shares outstanding.
HOW SHARES ARE PRICED
- --------------------------------------------------------------------------------
When you buy shares, you pay the NET ASSET VALUE, plus any applicable sales
charge. This is the offering price. Shares are also redeemed at their net asset
value, minus any applicable deferred sales charge. The Fund calculates its net
asset value (generally by using market quotations) each day the New York Stock
Exchange is open, fifteen minutes after the close of business on the Exchange
(the Exchange generally closes at 4:00 p.m. Eastern time). The net asset value
used in determining your price is the next one calculated after your purchase or
redemption order is placed. Foreign securities owned by the Fund may trade on
weekends or other days when the Fund does not price its shares. As a result, the
Fund's net asset value may change on days when you will not be able to purchase
or redeem the Fund's shares.
Generally, Class A shares will have the highest net asset value because that
class has the lowest expenses, and Class D shares will have a higher net asset
value than Class B or Class C shares. Also dividends paid on Class A and Class D
shares will generally be higher than dividends paid on Class B and Class C
shares because Class A and Class D shares have lower expenses.
PARTICIPATION IN MERRILL LYNCH FEE-BASED PROGRAMS
- --------------------------------------------------------------------------------
If you participate in certain fee-based programs offered by Merrill Lynch, you
may be able to buy Class A shares at net asset value, including by exchanges
from other share classes. Sales charges on the shares being exchanged may be
reduced or waived under certain circumstances.
You generally cannot transfer shares held through a fee-based program into
another account. Instead, you will have to redeem your shares held through the
program and purchase shares of another class, which may be subject to
distribution and account maintenance fees. This may be a taxable event and you
will pay any applicable sales charges.
If you leave one of these programs, your shares may be redeemed or automatically
exchanged into another class of Fund shares or into a money market fund. The
class you receive may be the class you originally owned when you entered the
program, or in certain cases, a different class. If the exchange is into Class B
shares, the period before conversion to Class D shares may be modified. Any
redemption or exchange will be at net asset value. However, if you participate
in the program for less than a specified period, you may be charged a fee in
accordance with the terms of the program.
MERRILL LYNCH DISCIPLINED EQUITY FUND, INC. 25
<PAGE> 27
[YOUR ACCOUNT ICON] Your Account
DIVIDENDS -- ordinary income and capital gains paid to shareholders. Dividends
may be reinvested in additional Fund shares as they are paid.
"BUYING A DIVIDEND"
Unless your investment is in a tax-deferred account, you may want to avoid
buying shares shortly before the Fund pays a dividend. The reason? If you buy
shares when a fund has realized but not yet distributed income or capital gains,
you will pay the full price for the shares and then receive a portion of the
price back in the form of a taxable dividend. Before investing you may want to
consult your tax adviser.
Details about these features and the relevant charges are included in the client
agreement for each fee-based program and are available from your Merrill Lynch
Financial Consultant.
DIVIDENDS AND TAXES
- --------------------------------------------------------------------------------
The Fund will distribute any net investment income and any net realized long or
short term capital gains annually. The Fund may also pay a special distribution
at the end of the calendar year to comply with Federal tax requirements. If your
account is with Merrill Lynch and you would like to receive DIVIDENDS in cash,
contact your Merrill Lynch Financial Consultant. If your account is with the
Transfer Agent and you would like to receive dividends in cash, contact the
Transfer Agent.
You will pay tax on dividends from the Fund whether you receive them in cash or
additional shares. If you redeem Fund shares or exchange them for shares of
another fund, any gain on the transaction may be subject to tax. The Fund
intends to make distributions that will either be taxed as ordinary income or
capital gains. Capital gain dividends are generally taxed at different rates
than ordinary income dividends.
If you are neither a lawful permanent resident nor a citizen of the U.S. or if
you are a foreign entity, the Fund's ordinary income dividends (which include
distributions of net short-term capital gains) will generally be subject to a
30% U.S. withholding tax, unless a lower treaty rate applies.
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.
By law, the Fund must withhold 31% of your dividends and proceeds if you have
not provided a taxpayer identification number or social security number.
This section summarizes some of the consequences under current Federal tax law
of an investment in the Fund. It is not a substitute for personal tax advice.
Consult your personal tax adviser about the potential tax consequences of an
investment in the Fund under all applicable tax laws.
26 MERRILL LYNCH DISCIPLINED EQUITY FUND, INC.
<PAGE> 28
Management of the Fund [MANAGEMENT OF THE FUND ICON]
MERRILL LYNCH ASSET MANAGEMENT
- --------------------------------------------------------------------------------
Merrill Lynch Asset Management, the Fund's Manager, manages the Fund's
investments and its business operations under the overall supervision of the
Fund's Board of Directors. The Manager has the responsibility for making all
investment decisions for the Fund. The Manager has a sub-advisory agreement with
Merrill Lynch Asset Management U.K. Limited, an affiliate, under which the
Manager may pay a fee for services it receives. The Fund pays the Manager a fee
at the annual rate of 0.65% of the average daily net assets of the Fund.
Merrill Lynch Asset Management is part of the Asset Management Group, which had
approximately $515 billion in investment company and other portfolio assets
under management as of March 1999. This amount includes assets managed for
Merrill Lynch affiliates.
A NOTE ABOUT YEAR 2000
Many computer systems were designed using only two digits to designate years.
These systems may not be able to distinguish the Year 2000 from the Year 1900
(commonly known as the "Year 2000 Problem"). The Fund could be adversely
affected if the computer systems used by the Fund's management or other Fund
service providers do not properly address this problem before January 1, 2000.
The Fund's management expects to have addressed this problem before then, and
does not anticipate that the services it provides will be adversely affected.
The Fund's other service providers have told the Fund's management that they
also expect to resolve the Year 2000 Problem, and the Fund's management will
continue to monitor the situation as the Year 2000 approaches. However, if the
problem has not been fully addressed, the Fund could be negatively affected. The
Year 2000 Problem could also have a negative impact on the issuers of securities
in which the Fund invests, and this could hurt the Fund's investment returns.
MERRILL LYNCH DISCIPLINED EQUITY FUND, INC. 27
<PAGE> 29
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MERRILL LYNCH DISCIPLINED EQUITY FUND, INC.
<PAGE> 30
[ML POTENTIAL INVESTORS CHART]
<TABLE>
<S> <C>
POTENTIAL
INVESTORS
Open an account (two options).
1 2
MERRILL LYNCH TRANSFER AGENT
FINANCIAL CONSULTANT
or SECURITIES DEALER FINANCIAL DATA SERVICES, INC.
P.O. Box 45289
Advises shareholders on their Fund investments. Jacksonville, Florida 32232-5289
Performs shareholder
recordkeeping and reporting services.
DISTRIBUTOR
MERRILL LYNCH FUNDS DISTRIBUTOR,
A DIVISION OF PRINCETON FUNDS DISTRIBUTOR, INC.
P.O. Box 9081
Princeton, New Jersey 08543-9081
Arranges for the sale of Fund shares.
COUNSEL THE FUND CUSTODIAN
BROWN & WOOD LLP The Board of Directors Holds the Fund's assets for safekeeping.
One World Trade Center oversees the Fund.
New York, New York 10048-0557
Provides legal advice to the Fund.
INDEPENDENT AUDITORS INVESTMENT MANAGER
Audits the financial MERRILL LYNCH ASSET MANAGEMENT, L.P.
statements of the Fund on behalf of
the shareholders. ADMINISTRATIVE OFFICES
800 Scudders Mill Road
Plainsboro, New Jersey 08536
MAILING ADDRESS
P.O. Box 9011
Princeton, New Jersey 08543-9011
TELEPHONE NUMBER
1-800-MER-FUND
Manages the Fund's day-to-day activities.
</TABLE>
MERRILL LYNCH DISCIPLINED GROWTH FUND, INC.
<PAGE> 31
[MORE INFORMATION ICON]
SHAREHOLDER REPORTS
Additional information about the Fund's investments is available in the Fund's
annual and semi-annual reports to shareholders. In the Fund's annual report you
will find a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year. You
may obtain these reports at no cost by calling 1-800-MER-FUND.
The Fund will send you one copy of each shareholder report and certain other
mailings, regardless of the number of Fund accounts you have. To receive
separate shareholder reports for each account, call your Merrill Lynch Financial
Consultant or write to the Transfer Agent at its mailing address. Include your
name, address, tax identification number and Merrill Lynch brokerage or mutual
fund account number. If you have any questions, please call your Merrill Lynch
Financial Consultant or the Transfer Agent at 1-800-MER- FUND.
STATEMENT OF ADDITIONAL INFORMATION
The Fund's Statement of Additional Information contains further information
about the Fund and is incorporated by reference (legally considered to be part
of this prospectus). You may request a free copy by writing the Fund at
Financial Data Services, Inc., P.O. Box 45289, Jacksonville, Florida 32232-5289
or by calling 1-800-MER-FUND.
Contact your Merrill Lynch Financial Consultant or the Fund, at the telephone
number or address indicated above, if you have any questions.
Information about the Fund (including the Statement of Additional Information)
can be reviewed and copied at the SEC's Public Reference Room in Washington,
D.C. Call 1- 800-SEC-0330 for information on the operation of the public
reference room. This information is also available on the SEC's Internet site at
http://www.sec.gov and copies may be obtained upon payment of a duplicating fee
by writing the Public Reference Section of the SEC, Washington, D.C. 20549-6009.
YOU SHOULD RELY ONLY ON THE INFORMATION CON-
TAINED IN THIS PROSPECTUS. NO ONE IS AUTHORIZED TO PROVIDE YOU WITH INFORMATION
THAT IS DIFFERENT FROM INFORMATION CONTAINED IN THIS PROSPECTUS.
Investment Company Act file #811-9299
Code #16463-05-99
(C) Merrill Lynch Asset Management, L.P.
LOGO
June , 1999
(LOGO)
Merrill Lynch
Disciplined Equity
Fund, Inc.
<PAGE> 32
THE INFORMATION CONTAINED IN THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT
COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL
THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS.
SUBJECT TO COMPLETION
PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION
DATED MAY 11, 1999
STATEMENT OF ADDITIONAL INFORMATION
MERRILL LYNCH DISCIPLINED EQUITY FUND, INC.
P.O. Box 9011, Princeton, New Jersey 08543-9011 - Phone No. (609) 282-2800
------------------------
Merrill Lynch Disciplined Equity Fund, Inc. (the "Fund") is a diversified,
open-end management investment company that seeks to provide shareholders with
both capital appreciation and current income. The Fund will seek to achieve its
investment objective by investing primarily in income-producing common stocks of
companies that Fund management believes are likely to experience consistent
earnings growth over time. For more information on the Fund's investment
objectives and policies, see "Investment Objective and Policies."
Pursuant to the Merrill Lynch Select PricingSM 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 PricingSM 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
"Purchase of Shares."
------------------------
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 June
, 1999 (the "Prospectus"), which has been filed with the Securities and
Exchange Commission (the "Commission") and can be obtained, without charge, by
calling 1-800-637-3863 or by writing the Fund at the above address. The
Prospectus is incorporated by reference into this Statement of Additional
Information, and this Statement of Additional Information is incorporated by
reference into the Prospectus.
------------------------
MERRILL LYNCH ASSET MANAGEMENT -- MANAGER
MERRILL LYNCH FUNDS DISTRIBUTOR -- DISTRIBUTOR
------------------------
The date of this Statement of Additional Information is June , 1999.
<PAGE> 33
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objective and Policies........................... 2
European Economic and Monetary Union ("EMU").............. 3
Derivatives............................................... 3
Convertible Securities.................................... 7
Warrants.................................................. 9
Other Investment Policies and Practices................... 9
Investment Restrictions................................... 11
Portfolio Turnover........................................ 13
Management of the Fund...................................... 14
Directors and Officers.................................... 14
Compensation of Directors................................. 15
Management and Advisory Arrangements...................... 16
Code of Ethics............................................ 17
Purchase of Shares.......................................... 17
Initial Sales Charge Alternatives -- Class A and Class D
Shares................................................. 18
Deferred Sales Charge Alternatives -- Class B and Class C
Shares................................................. 22
Distribution Plans........................................ 25
Limitations on the Payment of Deferred Sales Charges...... 26
Redemption of Shares........................................ 27
Redemption................................................ 27
Repurchase................................................ 28
Reinstatement Privilege -- Class A and Class D Shares..... 28
Pricing of Shares........................................... 28
Determination of Net Asset Value.......................... 28
Portfolio Transactions and Brokerage........................ 29
Transactions in Portfolio Securities...................... 29
Shareholder Services........................................ 31
Investment Account........................................ 31
Exchange Privilege........................................ 31
Fee-Based Programs........................................ 34
Retirement Plans.......................................... 34
Automatic Investment Plans................................ 34
Automatic Dividend Reinvestment Plan...................... 34
Systematic Withdrawal Plans............................... 35
Dividends and Taxes......................................... 36
Dividends................................................. 36
Taxes..................................................... 36
Tax Treatment of Options and Futures Transactions......... 37
Special Rules for Certain Foreign Currency Transactions... 38
Performance Data............................................ 39
General Information......................................... 40
Description of Shares..................................... 40
Independent Auditors...................................... 40
Custodian................................................. 40
Transfer Agent............................................ 40
Legal Counsel............................................. 41
Reports to Shareholders................................... 41
Shareholder Inquiries..................................... 41
Additional Information.................................... 41
Independent Auditors' Report................................ 42
Statement of Assets and Liabilities......................... 43
</TABLE>
<PAGE> 34
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek both capital appreciation
and current income. The Fund will seek to achieve its investment objective by
investing primarily in income-producing common stocks of companies that Fund
management believes are likely to experience consistent earnings growth over
time. Fund management looks specifically for stocks that are experiencing
consistent earnings growth but whose market prices do not reflect that growth.
In other words, the Fund seeks to buy stocks that have a "growth" bias but that
Fund management believes are undervalued. There can be no assurance that the
investment objective of the Fund will be realized. The investment objective of
the Fund set forth in the first sentence of this paragraph is a fundamental
policy of the Fund which may not be changed without a vote of a majority of its
outstanding shares as defined below.
Fund management uses a disciplined approach in selecting portfolio
investments. Some of the factors Fund management will consider include
historical growth rate of earnings and dividends, the issuing company's
potential to generate cash flows, and the price/earnings multiple of the stock
relative to the market. Emphasis also will be given to companies having medium
to large stock market capitalizations ($1 billion or more).
Investment emphasis is on equities, primarily common stock and, to a lesser
extent, securities convertible into common stock, preferred stock and rights and
warrants to subscribe for common stock. The Fund generally will invest 65% of
its total assets in equity securities. The Fund may also invest in debt
securities rated investment grade by a nationally recognized statistical ratings
organization, U.S. Government and money market securities, including repurchase
agreements, or cash, in such proportions as, in the opinion of Fund management,
prevailing market or economic conditions warrant.
The Fund may invest up to 20% of its total assets in equity securities of
foreign issuers with the foregoing characteristics. (Purchases of American
Depositary Receipts ("ADRs"), however, are not subject to this restriction.)
Investments in securities of foreign entities and securities denominated in
foreign currencies involve risks not typically involved in domestic investment,
including fluctuations in foreign exchange rates, future foreign political and
economic developments, and the possible imposition of exchange controls or other
foreign or United States governmental laws or restrictions applicable to such
investments. Since the Fund may invest in securities denominated or quoted in
currencies other than the United States dollar, changes in foreign currency
exchange rates may affect the value of investments in the portfolio and the
unrealized appreciation or depreciation of investments insofar as the United
States investors are concerned. Changes in foreign currency exchange rates
relative to the U.S. dollar will affect the U.S. dollar value of the Fund's
assets denominated in that currency and the Fund's yield on such assets. Foreign
currency exchange rates are determined by forces of supply and demand on the
foreign exchange markets. These forces are, in turn, affected by the
international balance of payments and other economic and financial conditions,
government intervention, speculation and other factors. Moreover, individual
foreign economies may differ favorably or unfavorably from the United States
economy in such respects as growth of gross national product, rate of inflation,
capital reinvestment, resources, self-sufficiency and balance of payments
position.
With respect to certain foreign countries, there is the possibility of
expropriation of assets, confiscatory taxation, political or social instability
or diplomatic developments which could affect investment in those countries.
There may be less publicly available information about a foreign financial
instrument than about a United States instrument, and foreign entities may not
be subject to accounting, auditing and financial reporting standards and
requirements comparable to those of United States entities. In addition, certain
foreign investments may be subject to foreign withholding taxes. Foreign
financial markets, while growing in volume, have, for the most part,
substantially less volume than United States markets, and securities of many
foreign companies are less liquid and their prices more volatile than securities
of comparable domestic companies. The foreign markets also have different
clearance and settlement procedures, and in certain markets there have been
times when settlements have been unable to keep pace with the volume of
securities transactions, making it difficult to conduct such transactions.
Delays in settlement could result in temporary periods when assets of the Fund
are uninvested and no return is earned thereon. The ability of the Fund to make
intended security purchases due to settlement problems could cause the Fund to
miss attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems could result either in losses to the Fund
due to subsequent declines in value of the portfolio security or, if the Fund
has entered into a contract to sell the security, could result in possible
liability to the purchaser. Costs associated with transactions in foreign
securities are generally higher than with transactions in United States
securities.
2
<PAGE> 35
There is generally less government supervision and regulation of exchanges,
financial institutions and issuers in foreign countries than there is in the
United States.
The Fund may invest in the securities of foreign issuers in the form of
ADRs, European Depositary Receipts ("EDRs") or other securities convertible into
securities of foreign issuers. These securities may not necessarily be
denominated in the same currency as the 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. Generally, ADRs, which are issued in registered form, are
designed for use in the United States securities markets, and EDRs, which are
issued in bearer form, are designed for use in European securities markets. The
Fund may invest in unsponsored ADRs. The issuers of unsponsored ADRs are not
obligated to disclose material information in the United States and, therefore,
there may not be a correlation between such information and the market value of
such ADRs.
EUROPEAN ECONOMIC AND MONETARY UNION ("EMU")
For a number of years, certain European countries have been seeking
economic unification that would, among other things, reduce barriers between
countries, increase competition among companies, reduce government subsidies in
certain industries, and reduce or eliminate currency fluctuations among these
European countries. The Treaty on European Union (the "Maastricht Treaty") seeks
to set out a framework for the European Economic and Monetary Union ("EMU")
among the countries that comprise the European Union ("EU"). EMU established a
single common European currency (the "euro") that was introduced on January 1,
1999 and is expected to replace the existing national currencies of all EMU
participants by July 1, 2002. EMU took effect for the initial EMU participants
on January 1, 1999. Certain securities issued in participating EU countries
(beginning with government and corporate bonds) were redenominated in the euro,
and are listed, traded, and make dividend and other payments only in euros.
No assurance can be given that EMU will take effect, that the changes
planned for the EU can be successfully implemented, or that these changes will
result in the economic and monetary unity and stability intended. There is a
possibility that EMU will not be completed, or will be completed but then
partially or completely unwound. Because any participating country may opt out
of EMU within the first three years, it is also possible that a significant
participant could choose to abandon EMU, which could diminish its credibility
and influence. Any of these occurrences could have adverse effects on the
markets of both participating and non-participating countries, including sharp
appreciation or depreciation of participants' national currencies and a
significant increase in exchange rate volatility, a resurgence in economic
protectionism, an undermining of confidence in the European markets, an
undermining of European economic stability, the collapse or slowdown of the
drive toward European economic unity, and/or reversion of the attempts to lower
government debt and inflation rates that were introduced in anticipation of EMU.
Also, withdrawal from EMU by an initial participant could cause disruption of
the financial markets as securities redenominated in euros are transferred back
into that country's national currency, particularly if the withdrawing country
is a major economic power. Such developments could have an adverse impact on the
Fund's investments in Europe generally or in specific countries participating in
EMU. Gains or losses from euro conversion may be taxable to Fund shareholders
under foreign or, in certain limited circumstances, U.S. tax laws. In addition,
computer, accounting, and trading systems must be capable of recognizing the
euro as a distinct currency. If not properly addressed, this may negatively
affect the operations of the companies in which the Fund invests.
DERIVATIVES
The Fund may use instruments referred to as "Derivatives." Derivatives are
financial instruments the value of which is derived from another security, a
commodity (such as gold or oil) or an index (a measure of value or rates, such
as the Standard & Poor's Composite 500 Index or the prime lending rate).
Derivatives allow the Fund to increase or decrease the level of risk to which
the Fund is exposed more quickly and efficiently than transactions in other
types of instruments.
Hedging. The Fund may use Derivatives for hedging purposes. Hedging is a
strategy in which a Derivative is used to offset the risk that other Fund
holdings may decrease in value. Losses on the other investment may be
substantially reduced by gains on a Derivative that reacts in an opposite manner
to market movements. While hedging can reduce losses, it can also reduce or
eliminate gains if the market moves in a different manner than anticipated by
the Fund or if the cost of the Derivative outweighs the benefit of the
3
<PAGE> 36
hedge. Hedging also involves the risk that changes in the value of the
Derivative will not match those of the holdings being hedged as expected by the
Fund, in which case any losses on the holdings being hedged may not be reduced.
The Fund may use the following types of derivative instruments and trading
strategies:
Indexed Securities
The Fund may invest in securities the potential return of which is based on
an index. As an illustration, the Fund may invest in a debt security that pays
interest based on the current value of an interest rate index, such as the prime
rate. The Fund may also invest in a debt security which returns principal at
maturity based on the level of a securities index or a basket of securities, or
based on the relative changes of two indices. Indexed securities involve credit
risk, and certain indexed securities may involve leverage risk, liquidity risk,
and currency risk. The Fund may invest in indexed securities for hedging
purposes only. When used for hedging purposes, indexed securities involve
correlation risk.
Options on Securities and Securities Indices
Purchasing Put Options. The Fund may purchase put options on securities
held in its portfolio or securities or interest rate indices which are
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. If the market value of the portfolio holdings associated with 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. Purchasing a put
option may involve correlation risk, and may also involve liquidity and credit
risk.
Purchasing Call Options. The Fund may also purchase call options on
securities it intends to purchase or securities or interest rate indices, which
are correlated with 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. Purchasing a call option involves correlation risk, and may also
involve liquidity and credit risk.
The Fund is also authorized to purchase put or call options in connection
with closing out put or call options it has previously sold.
Writing Call Options. The Fund may write (i.e., sell) call options on
securities held in its portfolio or securities indices the performance of which
correlates 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 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
4
<PAGE> 37
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. 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. Writing a call option may involve
correlation risk.
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 call or 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 Derivatives" below. A call option will also
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 option on a securities
index, securities which substantially correlate with 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 credit risk. OTC options also involve greater liquidity risk. See
"Additional Risk Factors of OTC Transactions; Limitations on the Use of OTC
Derivatives" below.
Futures
The Fund may engage in transactions in futures and options thereon. Futures
are standardized, exchange-traded contracts which obligate a purchaser to take
delivery, and a seller to make delivery, of a specific amount of an asset at a
specified future date at a specified price. 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. Futures involve substantial leverage risk.
The sale of a futures contract 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 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 relating to 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
financial futures contracts (i.e., contracts for which the underlying asset is a
currency or securities or interest rate index) purchased or sold for hedging
purposes (including anticipatory hedges). The Fund will further 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.
5
<PAGE> 38
Risk Factors in Derivatives
Derivatives are volatile and involve significant risks, including:
Credit risk -- the risk that the counterparty on a Derivative
transaction will be unable to honor its financial obligation to the Fund.
Currency risk -- the risk that changes in the exchange rate between
two currencies will adversely affect the value (in U.S. dollar terms) of an
investment.
Leverage risk -- the risk associated with certain types of investments
or trading strategies (such as borrowing money to increase the amount of
investments) that relatively small market movements may result in large
changes in the value of an investment. Certain investments or trading
strategies that involve leverage can result in losses that greatly exceed
the amount originally invested.
Liquidity Risk -- the risk that certain securities may be difficult or
impossible to sell at the time that the seller would like or at the price
that the seller believes the security is currently worth.
Use of Derivatives for hedging purposes involves correlation risk. If the
value of the Derivative 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 into transactions involving Derivatives 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 Derivatives." However, there can be
no assurance that, at any specific time, either a liquid secondary market will
exist for a Derivative 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 Derivative without incurring substantial losses, if at all.
Certain transactions in Derivatives (such as futures transactions or sales
of put options) involve substantial leverage risk and may expose the Fund to
potential losses, which exceed the amount originally invested by the Fund. 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
Derivatives
Certain Derivatives traded in OTC markets, including indexed securities,
swaps and OTC options, involve substantial liquidity risk. 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
[Investment Adviser] [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.
Because Derivatives 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
Derivatives 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.
6
<PAGE> 39
CONVERTIBLE SECURITIES
Convertible securities entitle the holder to receive interest payments paid
on corporate debt securities or the dividend preference on a preferred stock
until such time as the convertible security matures or is redeemed or until the
holder elects to exercise the conversion privilege. Synthetic convertible
securities may be either (i) a debt security or preferred stock that may be
convertible only under certain contingent circumstances or that may pay the
holder a cash amount based on the value of shares of underlying common stock
partly or wholly in lieu of a conversion right (a "Cash-Settled Convertible") or
(ii) a combination of separate securities chosen by the Manager in order to
create the economic characteristics of a convertible security, i.e., a fixed
income security paired with a security with equity conversion features, such as
an option or warrant (a "Manufactured Convertible").
The characteristics of convertible securities make them appropriate
investments for an investment company seeking a high total return from capital
appreciation and investment income. These characteristics include the potential
for capital appreciation as the value of the underlying common stock increases,
the relatively high yield received from dividend or interest payments as
compared to common stock dividends and decreased risks of decline in value
relative to the underlying common stock due to their fixed-income nature. As a
result of the conversion feature, however, the interest rate or dividend
preference on a convertible security is generally less than would be the case if
the securities were issued in nonconvertible form.
In analyzing convertible securities, the Manager will consider both the
yield on the convertible security and the potential capital appreciation that is
offered by the underlying common stock.
Convertible securities are issued and traded in a number of securities
markets. For the past several years, the principal markets have been the United
States, the Euromarket and Japan. Issuers during this period have included major
corporations domiciled in the United States, Japan, France, Switzerland, Canada
and the United Kingdom. Even in cases where a substantial portion of the
convertible securities held by the Fund are denominated in United States
dollars, the underlying equity securities may be quoted in the currency of the
country where the issuer is domiciled. With respect to convertible securities
denominated in a currency different from that of the underlying equity
securities, the conversion price may be based on a fixed exchange rate
established at the time the security is issued. As a result, fluctuations in the
exchange rate between the currency in which the debt security is denominated and
the currency in which the share price is quoted will affect the value of the
convertible security. As described below, the Fund is authorized to enter into
foreign currency hedging transactions in which it may seek to reduce the effect
of such fluctuations.
Apart from currency considerations, the value of convertible securities is
influenced by both the yield of nonconvertible securities of comparable issuers
and by the value of the underlying common stock. The value of a convertible
security viewed without regard to its conversion feature (i.e., strictly on the
basis of its yield) is sometimes referred to as its "investment value." To the
extent interest rates change, the investment value of the convertible security
typically will fluctuate. However, at the same time, the value of the
convertible security will be influenced by its "conversion value," which is the
market value of the underlying common stock that would be obtained if the
convertible security were converted. Conversion value fluctuates directly with
the price of the underlying common stock. If, because of a low price of the
common stock the conversion value is substantially below the investment value of
the convertible security, the price of the convertible security is governed
principally by its investment value.
To the extent the conversion value of a convertible security increases to a
point that approximates or exceeds its investment value, the price of the
convertible security will be influenced principally by its conversion value. A
convertible security will sell at a premium over the conversion value to the
extent investors place value on the right to acquire the underlying common stock
while holding a fixed-income security. The yield and conversion premium of
convertible securities issued in Japan and the Euromarket are frequently
determined at levels that cause the conversion value to affect their market
value more than the securities' investment value.
Holders of convertible securities generally have a claim on the assets of
the issuer prior to the common stockholders but may be subordinated to other
debt securities of the same issuer. A convertible security may
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<PAGE> 40
be subject to redemption at the option of the issuer at a price established in
the charter provision, indenture or other governing instrument pursuant to which
the convertible security was issued. If a convertible security held by the Fund
is called for redemption, the Fund will be required to redeem the security,
convert it into the underlying common stock or sell it to a third party. Certain
convertible debt securities may provide a put option to the holder which
entitles the holder to cause the security to be redeemed by the issuer at a
premium over the stated principal amount of the debt security under certain
circumstances.
As indicated above, synthetic convertible securities may include either
Cash-Settled Convertibles or Manufactured Convertibles. Cash-Settled
Convertibles are instruments that are created by the issuer and have the
economic characteristics of traditional convertible securities but may not
actually permit conversion into the underlying equity securities in all
circumstances. As an example, a private company may issue a Cash-Settled
Convertible that is convertible into common stock only if the company
successfully completes a public offering of its common stock prior to maturity
and otherwise pays a cash amount to reflect any equity appreciation.
Manufactured Convertibles are created by the Manager by combining separate
securities that possess one of the two principal characteristics of a
convertible security, i.e., fixed income ("fixed income component") or a right
to acquire equity securities ("convertible component"). The fixed income
component is achieved by investing in nonconvertible fixed income securities,
such as nonconvertible bonds, preferred stocks and money market instruments. The
convertibility component is achieved by investing in call options, warrants,
LEAPS, or other securities with equity conversion features ("equity features")
granting the holder the right to purchase a specified quantity of the underlying
stocks within a specified period of time at a specified price or, in the case of
a stock index option, the right to receive a cash payment based on the value of
the underlying stock index.
A Manufactured Convertible differs from traditional convertible securities
in several respects. Unlike a traditional convertible security, which is a
single security having a unitary market value, a Manufactured Convertible is
comprised of two or more separate securities, each with its own market value.
Therefore, the total "market value" of such a Manufactured Convertible is the
sum of the values of its fixed-income component and its convertibility
component.
More flexibility is possible in the creation of a Manufactured Convertible
than in the purchase of a traditional convertible security. Because many
corporations have not issued convertible securities, the Manager may combine a
fixed income instrument and an equity feature with respect to the stock of the
issuer of the fixed income instrument to create a synthetic convertible security
otherwise unavailable in the market. The Manager may also combine a fixed income
instrument of an issuer with an equity feature with respect to the stock of a
different issuer when the Manager believes such a Manufactured Convertible would
better promote the Fund's objective than alternative investments. For example,
the Manager may combine an equity feature with respect to an issuer's stock with
a fixed income security of a different issuer in the same industry to diversify
the Fund's credit exposure, or with a U.S. Treasury instrument to create a
Manufactured Convertible with a higher credit profile than a traditional
convertible security issued by that issuer. A Manufactured Convertible also is a
more flexible investment in that its two components may be purchased separately
and, upon purchasing the separate securities, "combined" to create a
Manufactured Convertible. For example, the Fund may purchase a warrant for
eventual inclusion in a Manufactured Convertible while postponing the purchase
of a suitable bond to pair with the warrant pending development of more
favorable market conditions.
The value of a Manufactured Convertible may respond differently to certain
market fluctuations than would a traditional convertible security with similar
characteristics. For example, in the event the Fund created a Manufactured
Convertible by combining a short-term U.S. Treasury instrument and a call option
on a stock, the Manufactured Convertible would likely outperform a traditional
convertible of similar maturity and which is convertible into that stock during
periods when Treasury instruments outperform corporate fixed income securities
and underperform during periods when corporate fixed-income securities
outperform Treasury instruments.
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<PAGE> 41
WARRANTS
Buying a warrant does not make the Fund a shareholder of the underlying
stock. The warrant holder has no right to dividends or votes on the underlying
stock. A warrant does not carry any right to assets of the issuer, and for this
reason investment in warrants may be more speculative than other equity-based
investments.
OTHER INVESTMENT POLICIES AND PRACTICES
Illiquid or Restricted 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. Illiquid securities may trade at a discount
from comparable, more liquid investments. 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 where 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.
The Fund may invest in securities that are not registered ("restricted
securities") under the Securities Act of 1933, as amended (the "Securities
Act"). Restricted securities may be sold in private placement transactions
between the issuers and their purchasers and may be neither listed on an
exchange nor traded in other established markets. In many cases, privately
placed securities may not be freely transferable under the laws of the
applicable jurisdiction or due to contractual restrictions on resale. As a
result of the absence of a public trading market, privately placed securities
may be less liquid and more difficult to value than publicly traded securities.
To the extent that privately placed securities may be resold in privately
negotiated transactions, the prices realized from the sales, due to illiquidity,
could be less than those originally paid by the Fund or less than their fair
market value. In addition, issuers whose securities are not publicly traded may
not be subject to the disclosure and other investor protection requirements that
may be applicable if their securities were publicly traded. If any privately
placed securities held by the Fund are required to be registered under the
securities laws of one or more jurisdictions before being resold, the Fund may
be required to bear the expenses of registration. Certain of the Fund's
investments in private placements may consist of direct investments and may
include investments in smaller, less seasoned issuers, which may involve greater
risks. These issuers may have limited product lines, markets or financial
resources, or they may be dependent on a limited management group. 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.
144A Securities. The Fund may purchase restricted securities that can be
offered and sold to "qualified institutional buyers" under Rule 144A under the
Securities Act. The Board has determined to treat as liquid Rule 144A securities
that are either freely tradable in their primary markets offshore or have been
determined to be liquid in accordance with the policies and procedures adopted
by the Fund's Board. The Board has adopted guidelines and delegated to the
Manager the daily function of determining and monitoring liquidity of restricted
securities. The Board, however, will retain sufficient oversight and be
ultimately responsible for the determinations. Since it is not possible to
predict with assurance exactly how this market for restricted securities sold
and offered under Rule 144A will continue to develop, the Board will carefully
monitor the Fund's investments in these securities. This investment practice
could have the effect of increasing the level of illiquidity in the Fund to the
extent that qualified institutional buyers become for a time uninterested in
purchasing these securities.
When Issued Securities and Delayed Delivery Transactions. The Fund may
purchase or sell securities on a delayed delivery basis or a when-issued basis
at fixed purchase terms. These transactions arise when securities are purchased
or sold by the Fund with payment and delivery taking place in the future. The
purchase will be recorded on the date the Fund enters into the commitment and
the value of the obligation will thereafter be reflected in the calculation of
the Fund's net asset value. The value of the obligation on the
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<PAGE> 42
delivery date may be more or less than its purchase price. A separate account of
the Fund will be established with its custodian consisting of liquid securities
having a market value at all times at least equal to the amount of the forward
commitment.
Repurchase Agreements and Purchase and Sale Contracts. The Fund may invest
in securities pursuant to repurchase agreements or purchase and sale contracts.
Repurchase agreements and purchase and sale contracts may be entered into only
with financial institutions which (i) have, in the opinion of Fund management,
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, Fund 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, from time to time, 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 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.
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<PAGE> 43
Suitability. The economic benefit of an investment in the Fund depends
upon many factors beyond the control of the Fund, the Investment Adviser and its
affiliates. Because of its emphasis on foreign securities, the Fund should be
considered a vehicle for diversification and not as a balanced investment
program. The suitability for any particular investor of a purchase of shares in
the Fund will depend upon, among other things, such investor's investment
objectives and such investor's ability to accept the risks associated with
investing in foreign securities, including the risk of loss of principal.
INVESTMENT RESTRICTIONS
The Fund has adopted a number of fundamental and non-fundamental investment
policies and restrictions. The fundamental policies and restrictions 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 of 1940, as amended (the "Investment Company Act"), means
the lesser of (i) 67% of the shares represented at a meeting at which more than
50% of the outstanding shares are represented or (ii) more than 50% of the
outstanding shares). Unless otherwise provided, all references to the assets of
the Fund below are in terms of current market value. The Fund may not:
1. Make any investment inconsistent with the Fund's classification as
a diversified company under the Investment Company Act.
2. Invest more than 25% of its total assets, taken at market value at
the time of each investment, in the securities of issuers in any particular
industry (excluding the U.S. Government and its agencies and
instrumentalities).
3. 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.
4. 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.
5. Make loans to other persons, except that the acquisition of bonds,
debentures or other corporate debt securities and investment in government
obligations, commercial paper, pass-through instruments, certificates of
deposit, bankers acceptances, repurchase agreements, 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.
6. Issue senior securities to the extent such issuance would violate
applicable law.
7. Borrow money, except that the Fund (i) 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) may borrow up to an
additional 5% of its total assets for temporary purposes, (iii) may obtain
such short-term credit as may be necessary for the clearance of purchases
and sales of portfolio securities and (iv) 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 this
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.
8. Underwrite securities of other issuers except insofar as the Fund
technically may be deemed an underwriter under the Securities Act in
selling portfolio securities.
9. 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 this 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.
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<PAGE> 44
Under the non-fundamental investment restrictions, which may be changed by
the Board of Directors without shareholder approval, the Fund may not:
a. Purchase securities of other investment companies except to the
extent permitted by applicable law. Applicable law currently allows the
Fund to purchase the securities of other investment companies if
immediately thereafter, not more than (i) 3% of the total outstanding
voting stock of such company is owned by the Fund; (ii) 5% of the Fund's
total assets, taken at market value, would be invested in any one such
company; (iii) 10% of the Fund's total assets, taken at market value,
would be invested in such securities; and (iv) the Fund, together with
other investment companies having the same investment adviser and
companies controlled by such companies, owns not more than 10% of the
total outstanding stock of any one closed-end investment company.
Investments by the Fund in wholly-owned investment entities created
under the laws of certain countries will not be deemed an investment in
other investment companies. 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 of 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 (7) 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.
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 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
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<PAGE> 45
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 fundamental investment restrictions (1) and (2), 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 such securities.
Because of the affiliation of Merrill Lynch with the Manager, the Fund is
prohibited from engaging in certain transactions involving Merrill Lynch or its
affiliates except for brokerage transactions permitted under the Investment
Company Act involving only usual and customary commissions or transactions
pursuant to an exemptive order under the Investment Company Act. See "Portfolio
Transactions and Brokerage." Without such an exemptive order the Fund would be
prohibited from engaging in portfolio transactions with Merrill Lynch or any of
its affiliates acting as principal.
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 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.
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<PAGE> 46
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
The Board of Directors of the Fund consists of eight individuals, six of
whom are not "interested persons" of the Fund as defined in the Investment
Company Act (the "non-interested Directors"). The Directors are responsible for
the overall supervision of the operations of the Fund and perform the various
duties imposed on the directors of investment companies by the Investment
Company Act.
Information about the Directors, executive officers and the 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 each Director, executive officer and the portfolio manager is P.O.
Box 9011, Princeton, New Jersey 08543-9011.
TERRY K. GLENN (58) -- President and Director (1)(2) -- Executive Vice
President of the Manager and Fund Asset Management, L.P. ("FAM") (which terms as
used herein include their corporate predecessors) since 1983; Executive Vice
President and Director of Princeton Services, Inc. ("Princeton Services") since
1993; President of Princeton Funds Distributor, Inc. ("PFD") since 1986 and
Director thereof since 1991; President of Princeton Administrators, L.P. since
1988.
DONALD CECIL (72) -- Director (2)(3) -- 1114 Avenue of the Americas, New
York, New York 10036. Special Limited Partner of Cumberland Associates (an
investment partnership) since 1982; Member of Institute of Chartered Financial
Analysts; Member and Chairman of Westchester County (N.Y.) Board of
Transportation.
M. COLYER CRUM (66) -- Director (2)(3) -- 104 Westcliff Road, Weston,
Massachusetts 02193. Currently James R. Williston Professor of Investment
Management Emeritus, Harvard Business School; James R. Williston Professor of
Investment Management, Harvard Business School, from 1971 to 1996; Director of
Cambridge Bancorp, Copley Properties, Inc. and Sun Life Assurance Company of
Canada.
EDWARD H. MEYER (72) -- Director (2)(3) -- 777 Third Avenue, New York, New
York 10017. President of Grey Advertising, Inc., since 1968, Chief Executive
Officer since 1970 and Chairman of the Board of Directors since 1972; Director
of The May Department Stores Company, Bowne & Co., Inc. (financial printers),
Harman International Industries, Inc. (stereo and audio equipment manufacturers)
and Ethan Allen Interiors, Inc.
JACK B. SUNDERLAND (70) -- Director (2)(3) -- P.O. Box 7, West Cornwall,
Connecticut 06796. President and Director of American Independent Oil Company,
Inc. (an energy company) since 1987; Member of Council on Foreign Relations
since 1971.
J. THOMAS TOUCHTON (60) -- Director (2)(3) -- Suite 3405, One Tampa City
Center, 201 North Franklin Street, Tampa, Florida 33062. Managing Partner of The
Witt Touchton Company and its predecessor, The Witt Co. (a private investment
partnership), since 1972; Trustee Emeritus of Washington and Lee University;
Director of TECO Energy, Inc. (an electric utility holding company).
FRED G. WEISS (57) -- Director (2)(3) -- 16410 Maddalena Place, Del Ray
Beach, Florida 33446. Managing Director of FGW Associates since 1997; Vice
President, Planning Investment, and Development of Warner Lambert Co. from 1979
to 1997.
ARTHUR ZEIKEL (66) -- Director(1)(2) -- Chairman of the Manager and FAM
from 1997 to 1999 and President thereof from 1977 to 1999; Chairman of Princeton
Services from 1997 to 1999 and Director thereof from 1993 to 1999; President of
Princeton Services from 1993 to 1997; Executive Vice President of Merrill Lynch
& Co., Inc. ("ML & Co.") from 1990 to 1999.
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<PAGE> 47
JOSEPH T. MONAGLE, JR. (50) -- Senior Vice President (1)(2) -- Senior Vice
President of the Manager and FAM since 1990; Department Head of the Global Fixed
Income Division of the Manager and FAM since 1997; Senior Vice President of
Princeton Services since 1993.
GEORGE H. BURWELL (37) -- Senior Vice President and Portfolio Manager
(1)(2) -- First Vice President of the Manager and FAM since 1999; Senior
Portfolio Manager for equities of Delaware Investments Family of Funds from 1992
to 1999.
DONALD C. BURKE (38) -- Vice President and Treasurer (1)(2) -- Senior Vice
President and Treasurer of the Manager and FAM since 1999; Senior Vice President
and Treasurer of Princeton Services since 1999; Vice President of PFD since
1999; First Vice President of the Manager from 1997 to 1999; Vice President of
the Manager from 1990 to 1997; Director of Taxation of the Manager since 1990.
PHILLIP S. GILLESPIE (35) -- Secretary (1)(2) -- Attorney associated with
the Manager and FAM since 1998; Assistant General Counsel of Chancellor LGT
Asset Management, Inc. from 1997 to 1998; Senior Counsel and Attorney in the
Division of Investment Management and the Office of General Counsel at the U.S.
Securities and Exchange Commission from 1993 to 1997.
- ---------------
(1) Interested Person, as defined in the Investment Company Act, of the Fund.
(2) Such Director or officer is a director, trustee or officer of one or more
investment companies for which the Manager, or its affiliate FAM, acts as
investment adviser or manager.
(3) Member of the Fund's Audit and Nominating Committee, which is responsible
for the selection of the independent auditors and the selection and
nomination of non-interested Directors.
As of the date of this Statement of Additional Information, the Directors
and officers of the Fund as a group (12 persons) owned an aggregate of less than
1% of the outstanding shares of the Fund. At such date, Mr. Zeikel, a Director
of the Fund, Mr. Glenn, a Director and officer of the Fund and the other
officers of the Fund owned an aggregate of less than 1% of the outstanding
shares of common stock of ML & Co.
COMPENSATION OF DIRECTORS
The Fund pays each non-interested Director a fee of $3,500 per year plus
$500 per meeting attended. The Fund also compensates members of its Audit and
Nominating Committee (the "Committee"), which consists of all the non-interested
Directors, a fee of $2,500 per year. The Fund pays the Chairman of the Committee
an additional fee of $1,000 per year. The Fund reimburses each non-interested
Director for his out-of-pocket expenses relating to attendance at Board and
Committee meetings.
The following table shows the estimated compensation to be earned by the
non-interested Directors for the fiscal year ended April 30, 2000 and the
aggregate compensation paid to them from all registered investment companies
advised by the Manager and its affiliate, FAM ("MLAM/FAM-advised funds"), for
the calendar year ended December 31, 1998.
<TABLE>
<CAPTION>
AGGREGATE
PENSION OR ESTIMATED COMPENSATION FROM
POSITION RETIREMENT BENEFITS ANNUAL FUND AND OTHER
WITH COMPENSATION ACCRUED AS PART OF BENEFITS UPON MLAM/FAM-
NAME FUND FROM FUND FUND EXPENSE RETIREMENT ADVISED FUNDS(1)
- ---- -------- ------------ ------------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Donald Cecil...................... Director $9,000 None None $277,808
M. Colyer Crum.................... Director $8,000 None None $116,600
Edward H. Meyer................... Director $8,000 None None $214,558
Jack B. Sunderland................ Director $8,000 None None $133,600
J. Thomas Touchton................ Director $8,000 None None $133,600
Fred G. Weiss..................... Director $8,000 None None $140,842
</TABLE>
- ---------------
(1) The Directors serve on the boards of MLAM/FAM-advised funds as follows: Mr.
Cecil (34 registered investment companies consisting of 34 portfolios); Mr.
Crum (15 registered investment companies consisting of 15 portfolios); Mr.
Meyer (34 registered investment companies consisting of 34 portfolios); Mr.
Sunderland (18 registered investment companies consisting of 30 portfolios);
Mr. Touchton (18 registered investment companies consisting of 30
portfolios); and Mr. Weiss (15 registered investment companies consisting of
15 portfolios).
15
<PAGE> 48
Directors of the Fund may purchase Class A shares of the Fund at net asset
value. See "Purchase of Shares -- Initial Sales Charge Alternatives -- Class A
and Class D Shares -- Reduced Initial Sales Charges -- Purchase Privilege of
Certain Persons."
MANAGEMENT AND ADVISORY ARRANGEMENTS
Management Services. The Manager provides the Fund with investment
advisory and management services. Subject to the supervision of the Board of
Directors, the Manager is responsible for the actual management of the Fund's
portfolio and constantly reviews the Fund's holdings in light of its own
research analysis and that from other relevant sources. The responsibility for
making decisions to buy, sell or hold a particular security rests with the
Manager. The Manager performs certain of the other administrative services and
provides all the office space, facilities, equipment and necessary personnel for
management of the Fund.
Management Fee. The Fund has entered into an investment management
agreement with the Manager (the "Management Agreement"), pursuant to which the
Manager receives for its services to the Fund monthly compensation at the annual
rate of 0.65% of the average daily net assets of the Fund.
Payment of Fund Expenses. 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
ML & Co. or any of its affiliates. 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, prospectuses and statements of additional information,
except to the extent paid by Merrill Lynch Funds Distributor, a division of PFD
(the "Distributor"); charges of the custodian and the transfer agent; expenses
of redemption of shares; Commission fees; expenses of registering the shares
under Federal and state securities laws; fees and expenses of unaffiliated
Directors; accounting and pricing costs (including the daily calculations of net
asset value); insurance; interest; brokerage costs; litigation and other
extraordinary or non-recurring expenses; and other expenses properly payable by
the Fund. Accounting services are provided for the Fund by the Manager and the
Fund reimburses the Manager for its costs in connection with such services. See
"Purchase of Shares -- Distribution Plans."
Organization of the Manager. The Manager is a limited partnership, the
partners of which are ML & Co., a financial services holding company and the
parent of Merrill Lynch, 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.
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 following entities may be considered "controlling persons" of MLAM U.K.:
Merrill Lynch Europe PLC (MLAM U.K.'s parent), a subsidiary of Merrill Lynch
International Holdings, Inc., a subsidiary of Merrill Lynch International, Inc.,
a subsidiary of ML & Co.
Duration and Termination. Unless earlier terminated as described herein,
the Management Agreement will remain in effect from year to year if approved
annually (a) by the Board of Directors of the Fund or by a majority of the
outstanding shares of the Fund and (b) by a majority of the Directors who are
not parties to such contract or interested persons (as defined in the Investment
Company Act) of any such party. Such contracts are not assignable and may be
terminated without penalty on 60 days' written notice at the option of either
party or by vote of the shareholders of the Fund.
Transfer Agency Services. Financial Data Services, Inc. (the "Transfer
Agent"), a subsidiary of ML & Co., acts as the Fund's Transfer Agent pursuant to
a Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing Agency
Agreement (the "Transfer Agency Agreement"). Pursuant to the Transfer Agency
Agreement, the Transfer Agent is responsible for the issuance, transfer and
redemption of shares and the opening and maintenance of shareholder accounts.
Pursuant to the Transfer Agency Agreement, the
16
<PAGE> 49
Transfer Agent receives a fee of $11.00 per Class A or Class D account and
$14.00 per Class B or Class C account and is entitled to reimbursement for
certain transaction charges and out-of-pocket expenses incurred by 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.
Distribution Expenses. The Fund has entered into four separate
distribution agreements with the Distributor in connection with the continuous
offering of each class of shares of the Fund (the "Distribution Agreements").
The Distribution Agreements obligate the Distributor to pay certain expenses in
connection with the offering of each class of shares of the Fund. After the
prospectuses, statements of additional information and periodic reports have
been prepared, set in type and mailed to shareholders, the Distributor pays for
the printing and distribution of copies thereof used in connection with the
offering to dealers and investors. The Distributor also pays for other
supplementary sales literature and advertising costs. The Distribution
Agreements are subject to the same renewal requirements and termination
provisions as the Management Agreement described above.
CODE OF ETHICS
The Board of Directors of the Fund has adopted a Code of Ethics under Rule
17j-1 of the Investment Company Act which incorporates the Code of Ethics of the
Manager (together, the "Codes"). The Codes significantly restrict the personal
investing activities of all employees of the Manager and, as described below,
impose additional, more onerous, restrictions on fund investment personnel.
The Codes require that all employees of the Manager pre-clear any personal
securities investment (with limited exceptions, such as government securities).
The pre-clearance requirement and associated procedures are designed to identify
any substantive prohibition or limitation applicable to the proposed investment.
The substantive restrictions applicable to all employees of the Manager include
a ban on acquiring any securities in a "hot" initial public offering and a
prohibition from profiting on short-term trading in securities. In addition, no
employee may purchase or sell any security that at the time is being purchased
or sold (as the case may be), or to the knowledge of the employee is being
considered for purchase or sale, by any fund advised by the Manager.
Furthermore, the Codes provide for trading "blackout periods" which prohibit
trading by investment personnel of the Fund within periods of trading by the
Fund in the same (or equivalent) security (15 or 30 days depending upon the
transaction).
PURCHASE OF SHARES
Reference is made to "How to Buy, Sell, Transfer and Exchange Shares" in
the Prospectus.
The Fund offers 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 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 (also known as service 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 contingent deferred sales charges ("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 do not affect the net asset value of any other
class or have any impact on investors choosing another sales charge option.
Dividends paid by the Fund for each class of shares are calculated in the same
manner at the same time and differ only to the extent that account maintenance
and
17
<PAGE> 50
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 CDSCs 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 Merrill Lynch Select Pricing(SM) System is used by more than 50
registered investment companies advised by MLAM or FAM. Funds advised by MLAM or
FAM that utilize the Merrill Lynch Select Pricing(SM) System are referred to
herein as "Select Pricing Funds."
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. 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.
INITIAL SALES CHARGE ALTERNATIVES -- CLASS A AND CLASS D SHARES
Investors who prefer an initial sales charge alternative may elect to
purchase Class D shares or, if an eligible investor, Class A shares. Investors
choosing the initial sales charge alternative who are eligible to purchase Class
A shares should purchase Class A shares rather than Class D shares because there
is an account maintenance fee imposed on Class D shares. Investors qualifying
for significantly reduced initial sales charges may find the initial sales
charge alternative particularly attractive because similar sales charge
reductions are not available with respect to the deferred sales charges imposed
in connection with purchases of Class B or Class C shares. Investors not
qualifying for reduced initial sales charges who expect to maintain their
investment for an extended period of time also may elect to purchase Class A or
Class D shares, because over time the accumulated ongoing account maintenance
and distribution fees on Class B or Class C shares may exceed the initial sales
charge and, in the case of Class D shares, the account maintenance fee. Although
some investors who previously purchased Class A shares may no longer be eligible
to purchase Class A shares of other Select Pricing 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 charge 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.
The term "purchase," as used in the Prospectus and this Statement of
Additional Information in connection with an investment in Class A and Class D
shares of the Fund, refers to a single purchase by an individual or to
concurrent purchases, which in the aggregate are at least equal to the
prescribed amounts, by an individual, his or her spouse and their children under
the age of 21 years purchasing shares for his, her or their own account and to
single purchases by a trustee or other fiduciary purchasing shares for a single
trust estate or single fiduciary account although more than one beneficiary is
involved. The term "purchase" also includes purchases by any "company," as that
term is defined in the Investment Company Act, but does not include purchases by
any such company that has not been in existence for at least six months or which
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 of an investment adviser.
18
<PAGE> 51
Eligible Class A Investors
Class A shares are offered to a limited group of investors and also will be
issued upon reinvestment of dividends on outstanding Class A shares. Investors
who currently own Class A shares, including participants in the Merrill Lynch
Blueprint(SM) Program, are entitled to purchase additional Class A shares of the
Fund in that account. Certain Employer Sponsored Retirement or Savings Plans,
including eligible 401(k) plans, may purchase Class A shares at net asset value
provided such plans meet the required minimum number of eligible employees or
required amount of assets advised by MLAM or any of its affiliates. Class A
shares are available at net asset value to corporate warranty insurance reserve
fund programs provided that the program has $3 million or more initially
invested in Select Pricing Funds. Also eligible to purchase Class A shares at
net asset value are participants in certain investment programs including
TMA(SM) Managed Trusts to which Merrill Lynch Trust Company provides
discretionary trustee services, collective investment trusts for which Merrill
Lynch Trust Company serves as trustee and 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/FAM-advised investment companies. Certain
persons who acquired shares of certain MLAM/FAM-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 are met. In addition,
Class A shares of the Fund and certain other Select Pricing Funds are offered at
net asset value to shareholders of Merrill Lynch Senior Floating Rate Fund, Inc.
and, if certain conditions 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 Select Pricing Funds.
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.
Reduced Initial Sales Charges
Reinvested Dividends. No initial sales charges are imposed upon Class A
and Class D shares issued as a result of the automatic reinvestment of
dividends.
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 any other Select Pricing Funds. For any such right
of accumulation to be made available, the Distributor must be provided at the
time of purchase, by the purchaser or the purchaser's securities dealer, with
sufficient information to permit confirmation of qualification. Acceptance of
the purchase order is subject to such confirmation. The right of accumulation
may be amended or terminated at any time. Shares held in the name of a nominee
or custodian under pension, profit-sharing or other employee benefit plans may
not be combined with other shares to qualify for the right of accumulation.
Letter of Intent. Reduced sales charges are applicable to purchases
aggregating $25,000 or more of the Class A or Class D shares of the Fund or any
Select Pricing Funds made within a 13-month period starting with the first
purchase pursuant to a Letter of Intent. The Letter of Intent is available only
to investors whose accounts are established and maintained at the Fund's
Transfer Agent. The Letter of Intent is not available to employee benefit plans
for which Merrill Lynch provides plan participant recordkeeping services. The
Letter of Intent is not a binding obligation to purchase any amount of Class A
or Class D shares; however, its execution will result in the purchaser paying a
lower sales charge at the appropriate quantity purchase level. A purchase not
originally made pursuant to a Letter of Intent may be included under a
subsequent Letter of
19
<PAGE> 52
Intent 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 Select Pricing Funds presently held, at
cost or maximum offering price (whichever is higher), on the date of the first
purchase under the Letter of Intent, 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 does not equal the amount stated in the Letter of Intent
(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 at least 5.0% 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 Intent must
be at least 5.0% of the dollar amount of such Letter. If a purchase during the
term of such Letter would otherwise be subject to a further reduced sales charge
based on the right of accumulation, the purchaser will be entitled on that
purchase and subsequent purchases to the further reduced percentage sales charge
that 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 charge 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 Intent will be deducted from
the total purchases made under such Letter. An exchange from the Summit Cash
Reserves Fund into the Fund that creates a sales charge will count toward
completing a new or existing Letter of Intent from the Fund.
Merrill Lynch Blueprint(SM) Program. Class D shares of the Fund are
offered to participants in the Merrill Lynch BlueprintSM 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. The Blueprint
program is directed to small investors, group IRAs and participants in certain
affinity groups such as credit unions, trade associations and benefit plans.
Investors placing orders to purchase Class A or Class D shares of the Fund
through Blueprint will acquire the Class A or Class D shares at net asset value
plus a sales charge calculated in accordance with the Blueprint sales charge
schedule (i.e., up to $300 at 4.25%, from $300.01 to $5,000 at 3.25% plus $3.00,
and $5,000.01 or more at the standard sales charge rates disclosed in the
Prospectus). In addition, Class A or Class D shares of the Fund are being
offered at net asset value plus a sales charge of 0.50% for corporate or group
IRA programs placing orders to purchase their Class A or Class D shares through
Blueprint. Services, including the exchange privilege, available to Class A and
Class D investors through Blueprint, however, may differ from those available to
other investors in Class A or Class D shares.
Class A and Class D shares are offered at net asset value to Blueprint
participants through the Merrill Lynch Directed IRA Rollover Program (the "IRA
Rollover Program") available from Merrill Lynch Business Financial Services, a
business unit of Merrill Lynch. The IRA Rollover Program is available to
custodian rollover assets from employer-sponsored retirement and savings plans
(as defined below) whose trustee and/or plan sponsor has entered into the IRA
Rollover Program.
Orders for purchases and redemptions of Class A or Class D shares of the
Fund may be grouped for execution purposes which, in some circumstances, may
involve the execution of such orders two business days following the day such
orders are placed. The minimum initial purchase price is $100, with a $50
minimum for subsequent purchases through Blueprint. There are no minimum initial
or subsequent purchase requirements for participants who are part of an
automatic investment plan. Additional information concerning purchases through
Blueprint, including any annual fees and transaction charges, is available from
Merrill Lynch, Pierce, Fenner & Smith Incorporated, The BlueprintSM Program,
P.O. Box 30441, New Brunswick, New Jersey 08989-0441.
TMA(SM) Managed Trusts. Class A shares are offered at net asset value to
TMA(SM) Managed Trusts to which Merrill Lynch Trust Company provides
discretionary trustee services.
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
20
<PAGE> 53
employers. The initial minimum investment for such accounts is $500, except that
the initial minimum investment for shares purchased for such accounts pursuant
to the Automatic Investment Program is $50.
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.
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 1-800-237-7777.
Purchase Privilege of Certain Persons. Directors of the Fund, members of
the Boards of other MLAM/FAM-advised funds, ML & Co. and its subsidiaries (the
term "subsidiaries," when used herein with respect to ML & Co., includes MLAM,
FAM and certain other entities directly or indirectly wholly owned and
controlled by ML & Co.) and their directors and employees, and any trust,
pension, profit-sharing or other benefit plan for such persons, may purchase
Class A shares of the Fund at net asset value. The Fund realizes economies of
scale and reduction of sales-related expenses by virtue of the familiarity of
these persons with the Fund. Employees and directors or trustees wishing to
purchase shares of the Fund must satisfy the Fund's suitability standards.
Class D shares of the Fund are offered at net asset value, without a sales
charge, to an investor that 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
shares 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 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 that has a business relationship with a Merrill
Lynch Financial Consultant and that 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.
Class D shares of the Fund are offered at net asset value, without a sales
charge, to an investor that has a business relationship with a Merrill Lynch
Financial Consultant and that 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.
Closed-End Fund Investment Option. Class A shares of the Fund and certain
other Select Pricing Funds ("Eligible Class A Shares") are offered at net asset
value to shareholders of certain closed-end funds advised by FAM or MLAM who
purchased such closed-end fund shares prior to October 21, 1994 (the date the
Merrill Lynch Select Pricing(SM) System commenced operations) and wish to
reinvest the net proceeds from a sale of their closed-end fund shares of common
stock in Eligible Class A Shares, if the conditions set forth below are
satisfied. Alternatively, closed-end fund shareholders who purchased such shares
on or after October 21, 1994 and wish to reinvest the net proceeds from a sale
of their closed-end fund shares are offered Class A shares (if eligible to buy
Class A shares) or Class D shares of the Fund and other Select Pricing Funds
("Eligible Class D Shares"), if the following conditions are met. First, the
sale of closed-end fund 21
<PAGE> 54
shares must be made through Merrill Lynch, and the net proceeds therefrom must
be immediately reinvested in Eligible Class A or Eligible Class D Shares.
Second, the closed-end fund shares must either have been acquired in the initial
public offering or be shares representing dividends from shares of common stock
acquired in such offering. Third, the closed-end fund shares must have been
continuously maintained in a Merrill Lynch securities account. Fourth, there
must be a minimum purchase of $250 to be eligible for the investment option.
Shareholders of certain MLAM-advised continuously offered closed-end funds
may reinvest at net asset value the net proceeds from a sale of certain shares
of common stock of such funds in shares of the Fund. Upon exercise of this
investment option, shareholders of Merrill Lynch Senior Floating Rate Fund, Inc.
will receive Class A shares of the Fund and shareholders of Merrill Lynch
Municipal Strategy Fund, Inc. and Merrill Lynch High Income Municipal Bond Fund,
Inc. will receive Class D shares of the Fund, except that shareholders already
owning Class A shares of the Fund will be eligible to purchase additional Class
A shares pursuant to this option, if such additional Class A shares will be held
in the same account as the existing Class A shares and the other requirements
pertaining to the reinvestment privilege are met. In order to exercise this
investment option, a shareholder of one of the above-referenced continuously
offered closed-end funds (an "eligible fund") must sell his or her shares of
common stock of the eligible fund (the "eligible shares") back to the eligible
fund in connection with a tender offer conducted by the eligible fund and
reinvest the proceeds immediately in the designated class of shares of the Fund.
This investment option is available only with respect to eligible shares as to
which no Early Withdrawal Charge or CDSC (each as defined in the eligible fund's
prospectus) is applicable. Purchase orders from eligible fund shareholders
wishing to exercise this investment option will be accepted only on the day that
the related tender offer terminates and will be effected at the net asset value
of the designated class of the Fund on such day.
Acquisition of Certain Investment Companies. The public offering price of
Class D shares may be reduced to the net asset value per Class D share in
connection with the acquisition of the assets of or merger or consolidation with
a personal holding company or 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 objectives and policies of the Fund; (ii) are acquired for investment
and not for resale (subject to the understanding that the disposition of the
Fund's portfolio securities shall at all times remain within its control); and
(iii) are liquid securities, the value of which is readily ascertainable, which
are not restricted as to transfer either by law or liquidity of market (except
that the Fund may acquire through such transactions restricted or illiquid
securities to the extent the Fund does not exceed the applicable limits on
acquisition of such securities set forth under "Investment Objective and
Policies" herein).
Reductions in or exemptions from the imposition of a sales load are due to
the nature of the investors and/or the reduced sales efforts that will be needed
in obtaining such investments.
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 Select Pricing 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. See "Pricing of Shares -- Determination of Net Asset Value" below.
Because no initial sales charges are deducted at the time of the 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 that do not qualify for
the reduction in initial sales charges. Both Class B and Class C shares are
subject to ongoing account maintenance
22
<PAGE> 55
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.
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. 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. The charge will be assessed on an amount
equal to the lesser of the proceeds of redemption or the cost of the shares
being redeemed. Accordingly, no CDSC will be imposed on increases in net asset
value above the initial purchase price. In addition, no CDSC will be assessed on
shares derived from reinvestment of dividends. It will be assumed that the
redemption is first of shares held for over four years or shares acquired
pursuant to reinvestment of dividends and then of shares held longest during the
four-year period. 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.
The following table sets forth the Class B CDSC:
<TABLE>
<CAPTION>
CDSC AS A PERCENTAGE
OF DOLLAR AMOUNT
YEAR SINCE PURCHASE 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>
To provide an example, assume an investor purchased 100 shares at $10 per
share (at a cost of $1,000) and in the third year after purchase, the net asset
value per share is $12 and, during such time, the investor has acquired 10
additional shares upon dividend reinvestment. If at such time the investor makes
his or her first redemption of 50 shares (proceeds of $600), 10 shares will not
be subject to a CDSC because of dividend reinvestment. With respect to the
remaining 40 shares, the charge 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 Internal Revenue Code of 1986, as amended) of a 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, or if later, reasonably promptly following
completion of probate. The Class B CDSC may also be waived on redemptions of
shares by certain eligible 401(a) and eligible 401(k) plans and in connection
with certain group plans placing orders through the Merrill Lynch Blueprint(SM)
Program. The CDSC also may be waived for any Class B shares that are purchased
by eligible 401(k) or eligible 401(a) plans that are rolled over into a Merrill
Lynch or Merrill Lynch Trust Company custodied IRA and held in such account at
the time of redemption. The Class B CDSC may be waived for any Class B shares
that were acquired and held at the time of the redemption in an Employee
Access(SM) Account available through employers providing eligible 401(k) plans.
The Class B CDSC may also be waived for any Class B shares that are purchased by
a Merrill Lynch rollover IRA that was funded by a rollover from a terminated
401(k) plan managed by the MLAM Private Portfolio Group and held in such account
at the time of redemption. The Class B CDSC may be waived or its terms may be
modified in connection with certain fee-based programs. The Class B CDSC may
also be waived in connection with involuntary termination of an account in which
Fund shares are held or for withdrawals through the Merrill
23
<PAGE> 56
Lynch Systematic Withdrawal Plan. See "Shareholder Services -- Fee-Based
Programs" and "-- Systematic Withdrawal Plan."
Employer-Sponsored Retirement or Savings Plans and Certain Other
Arrangements. Certain employer-sponsored retirement or savings plans and
certain other arrangements may purchase Class B shares with a waiver of the CDSC
upon redemption, 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. Such Class B shares will convert into Class D shares approximately ten
years after the plan purchases the first share of any Select Pricing 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 1-800-237-7777.
Merrill Lynch Blueprint(SM) Program. Class B shares are offered to certain
participants in Blueprint. Blueprint is directed to small investors, group IRAs
and participants in certain affinity groups such as trade associations, credit
unions and benefit plans. 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 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 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 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.
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 the average daily 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 value 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 the 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.
In general, Class B shares of equity Select Pricing Funds will convert
approximately eight years after initial purchase and Class B shares of taxable
and tax-exempt fixed income Select Pricing 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 on to the holding period
for the shares acquired. The conversion period also may be modified for
investors that participate in certain fee-based programs. See "Shareholder
Services -- Fee-Based Programs."
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.
24
<PAGE> 57
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.
Contingent Deferred Sales Charges -- Class C Shares
Class C shares that are redeemed within one year of purchase may be subject
to a 1.0% CDSC charged as a percentage of the dollar amount subject thereto. 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. The charge will be assessed on an amount equal to the lesser
of the proceeds of redemption or the cost of the shares being redeemed.
Accordingly, no Class C CDSC will be imposed on increases in net asset value
above the initial purchase price. In addition, no Class C CDSC will be assessed
on shares derived from reinvestment of dividends. It will be assumed that the
redemption is first of shares held for over one year or shares acquired pursuant
to reinvestment of dividends 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. The Class C CDSC may be reduced or waived in
connection with involuntary termination of an account in which Fund shares are
held and withdrawals through the Merrill Lynch Systematic Withdrawal Plans. See
"Shareholder Services -- Fee-Based Programs."
Shareholders of Merrill Lynch Senior Floating Rate Fund II, Inc., a
MLAM-advised continuously offered closed-end fund ("SFR II"), may reinvest the
net proceeds from a sale of shares in a tender offer by SFR II in Class C shares
of the Fund at their net asset value, without the imposition of any CDSC upon
any subsequent redemption of the Class C shares, if the conditions set forth
below are satisfied. In order to exercise this investment option, a shareholder
of SFR II must sell his or her shares of common stock back to SFR II in
connection with a tender offer conducted by SFR II and reinvest the proceeds
immediately in Class C shares of the Fund. This investment option is available
only with respect to SFR II shares as to which no Early Withdrawal Charge (as
defined in the SFR II prospectus) is applicable. Purchase orders from SFR II
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 Class C shares of the Fund on such day.
Class B and Class C Sales Charge Information
Merrill Lynch compensates its Financial Consultants for selling Class B and
Class C shares at the time of purchase from its own funds. 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 dealer's 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.
See "Distribution Plans" below. 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.
DISTRIBUTION PLANS
Reference is made to "Fees and Expenses" 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.
The Distribution Plans for Class B, Class C and Class D shares each
provides 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
25
<PAGE> 58
relevant class in order to compensate the Distributor and Merrill Lynch
(pursuant to a sub-agreement) in connection with account maintenance activities
with respect to Class B, Class C and Class D shares. Each of those classes has
exclusive voting rights with respect to the 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).
The Distribution Plans for Class B and Class C shares each provides 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.
The Fund's Distribution Plans are subject to the provisions of Rule 12b-1
under the Investment Company Act. 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 each
related class of shareholders. Each Distribution Plan further provides that, so
long as the Distribution Plan remains in effect, the selection and nomination of
Independent Directors shall be committed to the discretion of the Independent
Directors then in office. In approving each Distribution Plan in accordance with
Rule 12b-1, the Independent Directors concluded that there is reasonable
likelihood that each 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 the Distribution
Plan, cast in person at a meeting called for that purpose. Rule 12b-1 further
requires that the Fund preserve copies of the Distribution Plan and any report
made pursuant to such plan for a period of not less than six years from the date
of the Distribution Plan or such report, the first two years in an easily
accessible place.
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 and/or distribution fees paid to the
Distributor. 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 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.
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,
26
<PAGE> 59
computed separately (defined to exclude shares issued pursuant to dividend
reinvestments and exchanges), plus (2) interest on the unpaid balance for the
respective class, computed separately, at the prime rate plus 1% (the unpaid
balance being the maximum amount payable minus amounts received from the payment
of the distribution fee and the CDSC). In connection with the Class B shares,
the Distributor has voluntarily agreed to waive interest charges on the unpaid
balance in excess of 0.50% of eligible gross sales. Consequently, the maximum
amount payable to the Distributor (referred to as the "voluntary maximum") in
connection with the Class B shares is 6.75% of eligible gross sales. The
Distributor retains the right to stop waiving the interest charges at any time.
To the extent payments would exceed the voluntary maximum, the Fund will not
make further payments of the distribution fee with respect to Class B shares and
any CDSCs will be paid to the Fund rather than to the Distributor; however, the
Fund will continue to make payments of the account maintenance fee. In certain
circumstances the amount payable pursuant to the voluntary maximum may exceed
the amount payable under the NASD formula. In such circumstances payment in
excess of the amount payable under the NASD formula will not be made.
REDEMPTION OF SHARES
Reference is made to "How to Buy, Sell, Transfer and Exchange Shares" in
the Prospectus.
The Fund is required to redeem for cash all shares of the Fund upon receipt
of a written request in proper form. The redemption price is the net asset value
per share next determined after the initial receipt of proper notice of
redemption. Except for any CDSC that may be applicable, there will be no charge
for redemption if the redemption request is sent directly to the Transfer Agent.
Shareholders liquidating their holdings will receive upon redemption all
dividends reinvested through the date of redemption.
The right to redeem shares or to receive payment with respect to any such
redemption may be suspended for more than seven days only for any period during
which trading on the New York Stock Exchange (the "NYSE") is restricted as
determined by the Commission or the NYSE is closed (other than customary weekend
and holiday closings), for any period during which an emergency exists as
defined by the Commission as a result of which disposal of portfolio securities
or determination of the net asset value of the Fund is not reasonably
practicable, and for such other periods as the Commission may by order permit
for the protection of shareholders of the Fund.
The value of shares at the time of redemption may be more or less than the
shareholder's cost, depending in part on the market value of the securities held
by the Fund at such time.
REDEMPTION
A shareholder wishing to redeem shares held with the Transfer Agent may do
so without charge by tendering the shares directly to the Transfer Agent at
Financial Data Services, Inc., P.O. Box 45289, Jacksonville, Florida 32232-5289.
Redemption requests delivered other than by mail should be delivered to
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. The
signature(s) on the redemption requests must be guaranteed by an "eligible
guarantor institution" as such is defined in Rule 17Ad-15 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), 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.
27
<PAGE> 60
At various times the Fund may be requested to redeem shares for which it
has not yet received good payment (e.g., cash, Federal funds or certified check
drawn on a United States bank). The Fund may delay or cause to be delayed the
mailing of a redemption check until such time as it has assured itself that good
payment (e.g., cash, Federal funds or certified check drawn on a United States
bank) has been collected for the purchase of such Fund shares, which will not
usually exceed 10 days.
REPURCHASE
The Fund also will repurchase Fund shares through a shareholder's listed
securities dealer. The Fund normally will accept orders to repurchase Fund
shares by wire or telephone from dealers for their customers at the net asset
value next computed after the order is placed. Shares will be priced at the net
asset value calculated on the day the request is received, provided that the
request for repurchase is submitted to the dealer within fifteen minutes after
the regular close of business on the NYSE (generally, the NYSE closes at 4:00
p.m., Eastern time) on the day received, and such request is received by the
Fund from such dealer not later than 30 minutes after the close of business on
the NYSE on the same day. Dealers have the responsibility of submitting such
repurchase requests to the Fund not later than 30 minutes after the close of
business on the NYSE, in order to obtain that day's closing price.
The foregoing repurchase arrangements are for the convenience of
shareholders and do not involve a charge by the Fund (other than any applicable
CDSC). Securities firms that do not have selected dealer agreements with the
Distributor, however, may impose a transaction charge on the shareholder for
transmitting the notice of repurchase to the Fund. Merrill Lynch may charge its
customers a processing fee (presently $5.35) to confirm a repurchase of shares
to such customers. Repurchases made directly through the Transfer Agent on
accounts held at the Transfer Agent are not subject to the processing fee. The
Fund reserves the right to reject any order for repurchase, which right of
rejection might adversely affect shareholders seeking redemption through the
repurchase procedure. However, a shareholder whose order for repurchase is
rejected by the Fund may redeem Fund shares as set forth above.
REINSTATEMENT PRIVILEGE -- CLASS A AND CLASS D SHARES
Shareholders who have redeemed their Class A or Class D shares of the Fund
have a privilege to reinstate their accounts by purchasing Class A or Class D
shares, as the case may be, of the Fund at net asset value without a sales
charge up to the dollar amount redeemed. The reinstatement privilege may be
exercised by sending a notice of exercise along with a check for the amount to
be reinstated to the Transfer Agent within 30 days after the date the request
for redemption was accepted by the Transfer Agent or the Distributor.
Alternatively, the reinstatement privilege may be exercised through the
investor's Merrill Lynch Financial Consultant within 30 days after the date the
request for redemption was accepted by the Transfer Agent or the Distributor.
The reinstatement will be made at the net asset value per share next determined
after the notice of reinstatement is received and cannot exceed the amount of
the redemption proceeds.
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
Reference is made to "How Shares are Priced" in the Prospectus.
The net asset value of the shares of all classes of the Fund is determined
once daily Monday through Friday, as of fifteen minutes after the close of
business on the NYSE on each day the NYSE is open for trading. The NYSE
generally closes at 4:00 p.m., Eastern time. 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 NYSE is not open for trading 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.
28
<PAGE> 61
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, rounded to the nearest cent.
Expenses, including the fees payable to the Manager and Distributor, 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 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 the Class D shares; moreover, the per share net asset
value of the 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, which will differ
by approximately the amount of the expense accrual differentials between the
classes.
Portfolio securities that are traded on stock exchanges are valued at the
last sale price (regular way) on the exchange on which such securities are
traded as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price for long positions, and
at the last available ask price for short positions. In cases where securities
are traded on more than one exchange, the securities are valued on the exchange
designated by or under the authority of the Directors as the primary market.
Long positions in securities traded in the over-the-counter ("OTC") market are
valued at the last available bid price in the OTC market prior to the time of
valuation. Short positions in securities traded in the OTC market are valued at
the last available ask price in the OTC market prior to the time of valuation.
Portfolio securities that are traded 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 stated at market value. Securities and assets
for which market quotations are not readily available are valued at fair value
as determined in good faith by or under the direction of the Directors of the
Fund. Such valuations and procedures will be reviewed periodically by the
Directors.
Generally, trading in non-U.S. 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 may not be reflected in the computation of the Fund's net asset value.
PORTFOLIO TRANSACTIONS AND BROKERAGE
TRANSACTIONS IN PORTFOLIO SECURITIES
Subject to policies established by the Board of Directors, 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 dealer
or group of dealers in the execution of transactions in portfolio securities of
the Fund. Where possible, the Fund deals directly with the dealers who make a
market in the securities involved except in those circumstances where better
prices and execution are available elsewhere. It is the policy of the Fund to
obtain the best results in conducting portfolio transactions for the Fund,
taking into account such factors as price (including the applicable dealer
spread or commission), the size, type and difficulty of the transaction
29
<PAGE> 62
involved, the firm's general execution and operations facilities and the firm's
risk in positioning the securities involved. The portfolio securities of the
Fund generally are traded on a principal basis and normally do not involve
either brokerage commissions or transfer taxes. The cost of portfolio securities
transactions of the Fund primarily consists of dealer or underwriter spreads.
While reasonable competitive spreads or commissions are sought, the Fund will
not necessarily be paying the lowest spread or commission available.
Transactions with respect to the securities of small and emerging growth
companies in which the Fund may invest may involve specialized services on the
part of the broker or dealer and thereby entail higher commissions or spreads
than would be the case with transactions involving more widely traded
securities.
Subject to obtaining the best net results, dealers who provide supplemental
investment research (such as information concerning tax-exempt securities,
economic data and market forecasts) to the Manager may receive orders for
transactions by the Fund. Information so received will be in addition to and not
in lieu of the services required to be performed by the Manager under its
Management Agreement and the expense of the Manager will not necessarily be
reduced as a result of the receipt of such supplemental information.
Supplemental investment research obtained from such dealers might be used by the
Manager in servicing all of its accounts and all such research might not be used
by the Manager in connection with the Fund. Consistent with the Conduct Rules of
the NASD and policies established by the Directors of the Fund, the Manager may
consider sales of shares of the Fund as a factor in the selection of brokers or
dealers to execute portfolio transactions for the Fund.
Under the Investment Company Act, persons affiliated with the Fund and
persons who are affiliated with such 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 over-the-counter market usually involve transactions with
dealers acting as principal for their own accounts, affiliated persons of the
Fund, including Merrill Lynch and any of its affiliates, will not serve as the
Fund's dealer in such transactions. However, affiliated persons of the Fund may
serve as its broker in listed or over-the-counter transactions conducted on an
agency basis provided that, among other things, the fee or commission received
by such affiliated broker is reasonable and fair compared to the fee or
commission received by non-affiliated brokers in connection with comparable
transactions. In addition, the Fund may not purchase securities during the
existence of any underwriting syndicate for such securities of which Merrill
Lynch is a member or in a private placement in which Merrill Lynch serves as
placement agent except pursuant to procedures adopted by the Board of Directors
of the Fund that either comply with rules adopted by the Commission or with
interpretations of the Commission staff.
Certain court decisions have raised questions as to the extent to which
investment companies should seek exemptions under the Investment Company Act in
order to seek to recapture underwriting and dealer spreads from affiliated
entities. The Directors have considered all factors deemed relevant and have
made a determination not to seek such recapture at this time. The Directors will
reconsider this matter from time to time.
Section 11(a) of the Exchange Act generally prohibits members of the U.S.
national securities exchanges from executing exchange transactions for their
affiliates and institutional accounts that they manage unless the member (i) has
obtained prior express authorization from the account to effect such
transactions, (ii) at least annually furnishes the account with a statement
setting forth 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. Securities may be held by, or be appropriate investments for, the Fund
as well as other funds or investment advisory clients of the Manager or MLAM.
Because of different objectives or other factors, a particular security may
be bought for one or more clients of the Manager or an affiliate when one or
more clients of the Manager or an affiliate are selling the same security. If
purchases or sales of securities arise for consideration at or about the same
time that would involve the Fund or other clients or funds for which the Manager
or an affiliate act as manager, transactions in
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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 an affiliate 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.
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 purchase
orders for the Fund's shares through the Merrill Lynch Blueprint(SM) Program.
Full details as to each of such services, copies of the various plans and
instructions as to how to participate in the various services or plans, or how
to change options with respect thereto, can be obtained from the Fund, by
calling the telephone number on the cover page hereof, or from the Distributor
or Merrill Lynch. Certain of these services are available only to U.S.
investors.
INVESTMENT ACCOUNT
Each shareholder whose account is maintained at the Transfer Agent has an
Investment Account and will receive statements, at least quarterly, from the
Transfer Agent. These statements will serve as transaction confirmations for
automatic investment purchases and the reinvestment of dividends. The statements
will also show any other activity in the account since the preceding statement.
Shareholders will also receive separate confirmations for each purchase or sale
transaction other than automatic investment purchases and the reinvestment of
dividends. A shareholder with an account held at the Transfer Agent may make
additions to his or her Investment Account at any time by mailing a check
directly to the Transfer Agent. A shareholder may also maintain an account
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.
Share certificates are issued only for full shares and only upon the
specific request of a shareholder who has an Investment Account. Issuance of
certificates representing all or only part of the full shares in an Investment
Account may be requested by a shareholder directly from the Transfer Agent.
Shareholders may transfer their Fund shares from Merrill Lynch to another
securities dealer that has entered into a selected dealer agreement with Merrill
Lynch. Certain shareholder services may not be available for the transferred
shares. After the transfer, the shareholder may purchase additional shares of
funds owned before the transfer and all future trading of these assets must be
coordinated by the new firm. If a shareholder wishes to transfer his or her
shares to a securities dealer that has not entered into a selected dealer
agreement with Merrill Lynch, the shareholder must either (i) redeem his or her
shares, paying any applicable CDSC or (ii) continue to maintain an Investment
Account at the Transfer Agent for those shares. The shareholder may also request
the new securities dealer to maintain the shares in an account at the Transfer
Agent registered in the name of the securities dealer for the benefit of the
shareholder whether the securities dealer has entered into a selected dealer
agreement with Merrill Lynch or not.
Shareholders considering transferring a tax-deferred retirement account,
such as an individual retirement account, from Merrill Lynch to another
securities dealer should be aware that, if the firm to which the retirement
account is to be transferred will not take delivery of shares of the Fund, a
shareholder must either redeem the shares, paying any applicable CDSC, so that
the cash proceeds can be transferred to the account at the new firm, or such
shareholder must continue to maintain a retirement account at Merrill Lynch for
those shares.
EXCHANGE PRIVILEGE
U.S. shareholders of each class of shares of the Fund have an exchange
privilege with certain other Select Pricing Funds and Summit Cash Reserves Fund
("Summit"), a series of Financial Institutions Series Trust, which is a Merrill
Lynch-sponsored money market fund specifically designated as available for
exchange by
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holders of Class A, Class B, Class C and Class D shares of Select Pricing Funds.
Shares with a net asset value of at least $100 are required to qualify for the
exchange privilege and any shares utilized in an exchange must have been held by
the shareholder for at least 15 days. Before effecting an exchange, shareholders
should obtain a currently effective prospectus of the fund into which the
exchange is to be 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.
Exchanges of Class A and Class D Shares. Class A shareholders may exchange
Class A shares of the Fund for Class A shares of a second Select Pricing Fund if
the shareholder holds any Class A shares of the second fund in his or her
account in which the exchange is made at the time of the exchange or is
otherwise eligible to purchase Class A shares of the second fund. If the Class A
shareholder wants to exchange Class A shares for shares of a second Select
Pricing 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 Select Pricing 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 D shares are
exchangeable with shares of the same class of other Select Pricing Funds.
Exchanges of Class A or Class D shares outstanding ("outstanding Class A or
Class D shares") for Class A or Class D shares of other Select Pricing Funds or
for Class A shares of Summit ("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 or 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 generally
may be exchanged into the Class A or Class D shares, respectively, of the other
funds with a reduced sales charge or without a sales charge.
Exchanges of Class B and Class C Shares. Certain Select Pricing Funds with
Class B or Class C shares outstanding ("outstanding Class B or Class C shares")
offer to exchange their Class B or Class C shares for Class B or Class C shares,
respectively, of certain other Select Pricing Funds or for Class B shares of
Summit ("new Class B or Class C shares") on the basis of relative net asset
value per Class B or Class C share, without the payment of any CDSC that might
otherwise be due on redemption of the outstanding shares. Class B shareholders
of the Fund exercising the exchange privilege will continue to be subject to the
Fund's CDSC schedule if such schedule is higher than the CDSC schedule relating
to the new Class B shares acquired through use of the exchange privilege. In
addition, Class B shares of the Fund acquired through use of the exchange
privilege will be subject to the Fund's CDSC schedule if such schedule is higher
than the CDSC schedule relating to the Class B shares of the fund from which the
exchange has been made. For purposes of computing the CDSC 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 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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Exchanges for Shares of a Money Market Fund. Class A and Class D shares
are exchangeable for Class A shares of Summit and Class B and Class C shares are
exchangeable for Class B shares of Summit. Class A shares of Summit have an
exchange privilege back into Class A or Class D shares of Select Pricing Funds;
Class B shares of Summit have an exchange privilege back into Class B or Class C
shares of Select Pricing Funds and, in the event of such an exchange, the period
of time that Class B shares of Summit are held will count toward satisfaction of
the holding period requirement for purposes of reducing any CDSC and toward
satisfaction of any Conversion Period with respect to Class B shares. Class B
shares of Summit will be subject to a distribution fee at an annual rate of
0.75% of average daily net assets of such Class B shares. This exchange
privilege does not apply with respect to certain Merrill Lynch fee-based
programs for which alternative exchange arrangements may exist. Please see your
Merrill Lynch Financial Consultant for further information.
Prior to October 12, 1998, exchanges from the Fund and other Select Pricing
Funds into a money market fund were directed to certain Merrill Lynch-sponsored
money market funds other than Summit. Shareholders who exchanged Select Pricing
Fund shares for such other money market funds and subsequently wish to exchange
those money market fund shares for shares of the Fund will be subject to the
CDSC schedule applicable to such Fund shares, if any. The holding period for
those money market fund shares will not count toward satisfaction of the holding
period requirement for reduction of the CDSC imposed on such shares, if any,
and, with respect to Class B shares, toward satisfaction of the Conversion
Period. However, the holding period for Class B or Class C shares received in
exchange for such money market fund shares will be aggregated with the holding
period for the original Select Pricing Fund shares for purposes of reducing the
CDSC or satisfying the Conversion Period.
Exchanges by Participants in the MFA Program. The exchange privilege is
modified with respect to certain retirement plans which participate in the
Merrill Lynch Mutual Fund Advisor (Merrill Lynch MFA(SM)) Program (the "MFA
Program"). Such retirement plans may exchange Class B, Class C or Class D shares
that have been held for at least one year for Class A shares of the same fund on
the basis of relative net asset values in connection with the commencement of
participation in the MFA Program, i.e., no CDSC will apply. The one year holding
period does not apply to shares acquired through reinvestment of dividends. Upon
termination of participation in the MFA Program, Class A shares will be
re-exchanged for the class of shares originally held. For purposes of computing
any CDSC that may be payable upon redemption of Class B or Class C shares so
reacquired, or the Conversion Period for Class B shares so reacquired, the
holding period for the Class A shares will be "tacked" to the holding period for
the Class B or Class C shares originally held. The Fund's exchange privilege is
also modified with respect to purchases of Class A and Class D shares by non-
retirement plan investors under the MFA Program. First, the initial allocation
of assets is made under the MFA Program. Then, any subsequent exchange under the
MFA Program of Class A or Class D shares of a Select Pricing Fund for Class A or
Class D shares of the Fund will be made solely on the basis of the relative net
asset values of the shares being exchanged. Therefore, there will not be a
charge for any difference between the sales charge previously paid on the shares
of the other Select Pricing Fund and the sales charge payable on the shares of
the Fund being acquired in the exchange under the MFA Program.
Exercise of the Exchange Privilege. 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 the other Select Pricing 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 continuous offering of their shares to the general
public at any time and may thereafter resume such offering from time to time.
The exchange privilege is available only to U.S. shareholders in states where
the exchange legally may be made. It is contemplated that the exchange privilege
may be applicable to other new mutual funds whose shares may be distributed by
the Distributor.
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FEE-BASED PROGRAMS
Certain Merrill Lynch fee-based programs, including pricing alternatives
for securities transactions (each referred to in this paragraph as a "Program"),
may permit the purchase of Class A shares at net asset value. Under specified
circumstances, participants in certain Programs may deposit other classes of
shares which will be exchanged for Class A shares. Initial or deferred sales
charges otherwise due in connection with such exchanges may be waived or
modified, as may the Conversion Period applicable to the deposited shares.
Termination of participation in a Program may result in the redemption of shares
held therein or the automatic 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
1-800-MER-FUND (1-(800)-637-3863).
RETIREMENT PLANS
Individual retirement accounts and other retirement plans are available
from Merrill Lynch. Under these plans, investments may be made in the Fund and
certain of the other mutual funds sponsored by Merrill Lynch as well as in other
securities. Merrill Lynch charges an initial establishment fee and an annual
custodial fee for each account. Information with respect to these plans is
available on request from Merrill Lynch. The minimum initial purchase to
establish any such plan is $100, and the minimum subsequent purchase is $1.
AUTOMATIC INVESTMENT PLANS
A shareholder may make additions to an Investment Account at any time by
purchasing Class A shares (if he or she is an eligible Class A investor) or
Class B, Class C or Class D shares at the applicable public offering price.
These purchases may be made 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. The Fund would be authorized, on a regular
basis, to provide systematic additions to the Investment Account of such
shareholder through charges of $50 or more to the regular bank account of the
shareholder by either pre-authorized checks or automated clearing house debits.
For investors who buy shares of the Fund through Blueprint, no minimum charge to
the investor's bank account is required. Alternatively, 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 or more for
retirement accounts) through the CMA(R) or CBA(R) Automated Investment Program.
AUTOMATIC DIVIDEND REINVESTMENT PLAN
Unless specific instructions are given as to the method of payment,
dividends will be automatically reinvested, without sales charge, in additional
full and fractional shares of the Fund. Such reinvestment will be at the net
asset value of shares of the Fund as of the close of business on the NYSE on the
monthly payment date for such dividends. No CDSC will be imposed upon redemption
of shares issued as a result of the automatic reinvestment of dividends.
Shareholders may, at any time, by written notification to Merrill Lynch if
their account is maintained with Merrill Lynch, or by written notification or by
telephone (1-800-MER-FUND) to the Transfer Agent, if their account is maintained
with the Transfer Agent elect to have subsequent dividends of ordinary income
and/or capital gains paid in cash, rather than reinvested in shares of the Fund
(provided that, in the event that a payment on an account maintained at the
Transfer Agent would amount to $10.00 or less, a shareholder will
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not receive such payment in cash and such payment will automatically be
reinvested in additional shares). Commencing ten days after the receipt by the
Transfer Agent of such notice, those instructions will be effected. 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 dividend
checks. Cash payments can also be directly deposited to the shareholder's bank
account.
SYSTEMATIC WITHDRAWAL PLANS
A shareholder may elect to receive systematic withdrawals from his or her
Investment Account by check or through automatic payment by direct deposit to
his or her bank account on either a monthly or quarterly basis as provided
below. Quarterly withdrawals are available for shareholders that 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 fifteen minutes after the close of business on the NYSE
(generally, the NYSE closes at 4:00 p.m., Eastern time) on the 24th day of each
month or the 24th day of the last month of each quarter, whichever is
applicable. If the NYSE is not open for business on such date, the shares will
be redeemed at the net asset value determined fifteen minutes after the close of
business on the NYSE on the following business day. The check for the withdrawal
payment will be mailed, or the direct deposit of the withdrawal payment will be
made, on the next business day following redemption. When a shareholder is
making systematic withdrawals, dividends on all shares in the Investment Account
are reinvested automatically in Fund shares. 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.
With respect to redemptions of Class B or Class C shares pursuant to a
systematic withdrawal plan, the maximum number of Class B or Class C shares that
can be redeemed from an account annually shall not exceed 10% of the value of
shares of such class in that account at the time the election to join the
systematic withdrawal plan was made. Any CDSC that otherwise might be due on
such redemption of Class B or Class C shares will be waived. Shares redeemed
pursuant to a systematic withdrawal plan will be redeemed in the same order as
Class B or Class C shares are otherwise redeemed. See "Purchase of
Shares -- Deferred Sales Charge Alternatives -- Contingent Deferred Sales
Charges -- Class B and 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 be applied
thereafter to Class D shares if the shareholder so elects. See "Purchase of
Shares -- Deferred Sales Charge Alternatives -- Conversion of Class B Shares to
Class D Shares." If an investor wishes to change the amount being withdrawn in a
systematic withdrawal plan the investor should contact his or her Merrill Lynch
Financial Consultant.
Withdrawal payments should not be considered as dividends. 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 that maintain a Systematic Withdrawal Plan unless such purchase is
equal to at least one year's scheduled withdrawals or $1,200, whichever is
greater. Automatic investments may not be made into an Investment Account in
which the shareholder has elected to make systematic withdrawals.
Alternatively, a shareholder whose shares are held within a CMA(R), CBA(R)
Account 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
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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 Automated Investment
Program. For more information on the CMA(R) or CBA(R) Systematic Redemption
Program, eligible shareholders should contact their Merrill Lynch Financial
Consultant.
DIVIDENDS AND TAXES
DIVIDENDS
It is the Fund's intention to distribute all of its net investment income,
if any. Dividends from such investment income are paid annually. All net
realized capital gains, if any, are distributed to the Fund's shareholders at
least annually. Premiums from expired call options written by the Fund and net
gains from closing purchase transactions are treated as short-term capital gains
for Federal income tax purposes. Shareholders may elect in writing to receive
any such dividends in cash. See "Shareholder Services -- Dividend Reinvestment
Plan" for information concerning the manner in which dividends may be reinvested
automatically in shares of the Fund. Dividends are taxable to shareholders, as
described below, whether they are invested in shares of the Fund or received in
cash. The per share dividends on Class B and Class C shares will be lower than
the per share dividends on Class A and Class D shares as a result of the account
maintenance, distribution and higher transfer agency fees applicable with
respect to the Class B and Class C shares. Similarly, the per share dividends on
Class D shares will be lower than the per share dividends on Class A shares as a
result of the account maintenance fees applicable with respect to the Class D
shares. See "Pricing of Shares -- 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 Internal Revenue Code
of 1986, as amended (the "Code"). As long as the Fund 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.
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 a 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.
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 options, futures and warrants) ("capital
gain dividends") are taxable to shareholders as long-term gains, regardless of
the length of time the shareholder has owned Fund shares. Any loss upon the sale
or exchange of Fund shares held for six months or less will be treated as
long-term capital loss to the extent of any capital gain dividends received by
the shareholder. Distributions in excess of the Fund's earnings and profits will
first reduce the adjusted tax basis of a holder's shares and, after such
adjusted tax basis is reduced to zero, will constitute capital gains to such
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holder (assuming the shares are held as a capital asset). Certain categories of
capital gains are taxable at different rates. Generally not later than 60 days
after the close of its taxable year, the Fund will provide its shareholders with
a written notice designating the amount of any capital gain dividends, as well
as any amount of capital gain dividends in the different categories of capital
gain referred to above.
Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Fund. 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 Securities and Exchange 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
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.
No gain or loss will be recognized by Class B shareholders on the
conversion of their Class B shares into Class D shares. A shareholder's basis in
the Class D shares acquired will be the same as such shareholder's basis in the
Class B shares converted, and the holding period of the acquired Class D shares
will include the holding period of the converted Class B shares.
If a shareholder exercises an exchange privilege within 90 days of
acquiring the shares, then the loss the shareholder can recognize on the
exchange will be reduced (or the gain increased) to the extent any sales charge
paid to the Fund 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.
Ordinary income dividends paid to shareholders who are nonresident aliens
or foreign entities will be subject to a 30% United States 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 applicability of the United States 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 United States 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.
TAX TREATMENT OF OPTIONS AND FUTURES TRANSACTIONS
The Fund may write, purchase or sell options, futures and forward foreign
exchange contracts. Options and futures 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
37
<PAGE> 70
gain or loss treated as ordinary gain or loss under Code Section 988 (as
described below), gain or loss from Section 1256 contracts will be 60% long-term
and 40% short-term capital gain or loss. Application of these rules to Section
1256 contracts held by the Fund may alter the timing and character of
distributions to shareholders. The mark-to-market rules outlined above, however,
will not apply to certain transactions entered into by the Fund solely to reduce
the risk of changes in price or interest 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 closing transactions in options, futures and forward
foreign exchange contracts.
SPECIAL RULES FOR CERTAIN FOREIGN CURRENCY TRANSACTIONS
In general, gains from "foreign currencies" and from foreign currency
options, foreign currency futures and forward foreign exchange contracts
relating to investments in stock, securities or foreign currencies will be
qualifying income for purposes of determining whether the Fund qualifies as a
RIC. It is currently unclear, however, who will be treated as the issuer of a
foreign currency instrument or how foreign currency options, foreign currency
futures and forward foreign exchange contracts will be valued for purposes of
the RIC diversification requirements applicable to the Fund.
Under Code Section 988, special rules are provided for certain transactions
in a currency other than the taxpayer's functional currency (i.e., unless
certain special rules apply, currencies other than the U.S. dollar). In general,
foreign currency gains or losses from certain debt instruments, from certain
forward contracts, from future 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, 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 United States Government obligations. State
law varies as to whether dividend income attributable to United States
Government obligations is exempt from state income tax.
38
<PAGE> 71
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 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 and distributions
are reinvested and taking into account all applicable recurring and nonrecurring
expenses, including the maximum sales charge in the case of Class A and Class D
shares and the CDSC that would be applicable to a complete redemption of the
investment at the end of the specified period in the case of Class B and Class C
shares.
Yield quotations will be computed based on a 30-day period by dividing (a)
the net income based on the yield of each security earned during the period by
(b) the average daily number of shares outstanding during the period that were
entitled to receive dividends multiplied by the maximum offering price per share
on the last day of the period. Tax equivalent yield quotations will be computed
by dividing (a) the part of the Fund's yield that is tax-exempt by (b) one minus
a stated tax rate and (c) adding the result to that part, if any, of the Fund's
yield that is not tax-exempt.
The Fund also may quote annual, average annual and annualized total return
and aggregate total return performance data for various periods other than those
noted below. Such data will be computed as described above, except that (1) as
required by the periods of the quotations, actual annual, annualized or
aggregate data, rather than average annual data, may be quoted and (2) the
maximum applicable sales charges will not be included with respect to annual or
annualized rates of return calculations. Aside from the impact on the
performance data calculations of including or excluding the maximum applicable
sales charges, actual annual or annualized total return data generally will be
lower than average annual total return data since the average rates of return
reflect compounding of return; aggregate total return data generally will be
higher than average annual total return data since the aggregate rates of return
reflect compounding over a longer period of time. 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.
On occasion, the Fund may compare its performance to that of the Standard &
Poor's 500 Index, the Value Line Composite Index, the Dow Jones Industrial
Average, other market indices or performance data published by Lipper Analytical
Services, Inc., Morningstar Publications, Inc., Money Magazine, U.S. News &
World Report, Business Week, Forbes Magazine and Fortune Magazine or other
industry publications. When comparing its performance to a market index, the
Fund may refer to various statistical measures derived from the historic
performance of the Fund and the index, such as standard deviation and beta. In
addition, from time to time the Fund may include the Fund's risk-adjusted
performance ratings assigned by Morningstar Publications, Inc. in advertising or
supplemental sales literature. As with other performance data, performance
comparisons should not be considered indicative of the Fund's relative
performance for any future period.
The Fund's total return will vary depending on market conditions, the
securities comprising the Fund's portfolio, the Fund's operating expenses and
the amount of realized and unrealized net capital gains or losses during the
period. The value of an investment in the Fund will fluctuate and an investor's
shares, when redeemed, may be worth more or less than their original cost.
39
<PAGE> 72
GENERAL INFORMATION
DESCRIPTION OF SHARES
The Fund was incorporated under Maryland law on April 16, 1999. It has an
authorized capital of 400,000,000 shares of Common Stock, par value $0.10 per
share, divided into four classes, designated Class A, Class B, Class C and Class
D Common Stock, each of which consists of 100,000,000 shares. Class A, Class B,
Class C and Class D Common Stock represent an interest in the same assets of the
Fund and are identical in all respects except that the Class B, Class C and
Class D shares bear certain expenses related to the account maintenance and/or
distribution of such shares and have exclusive voting rights with respect to
matters relating to such account maintenance and/or distribution expenditures,
(except that Class B shares have certain voting rights with respect to Class B
share expenditures). The Board of Directors of the Fund may classify and
reclassify the shares of the Fund into additional classes of Common Stock at a
future date.
Shareholders are entitled to one vote for each share held and fractional
votes for fractional shares held and will vote on the election of Directors and
any other matter submitted to a shareholder vote. The Fund does not intend to
hold annual meetings of shareholders in any year in which the Investment Company
Act does not require shareholders to elect Directors. Also, the by-laws of the
Fund require that a special meeting of stockholders be held upon the written
request of at least 10% of the outstanding shares of the Fund entitled to vote
at such meeting, 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 is entitled to participate
equally in dividends and distributions declared by the Fund and in the net
assets of the Fund upon liquidation or dissolution after satisfaction of
outstanding liabilities, except that expenses related to the distribution of the
shares within a class will be borne solely by such class. Stock certificates are
issued by the Transfer Agent only on specific request. Certificates for
fractional shares are not issued in any case.
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. As of the date of this
Statement of Additional Information, the Manager owned 100% of the outstanding
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.
INDEPENDENT AUDITORS
, has been selected as the
independent auditors of the Fund. The selection of independent auditors is
subject to approval by the non-interested Directors of the Fund. The independent
auditors are responsible for auditing the annual financial statements of the
Fund.
CUSTODIAN
, (the "Custodian") acts as
the Custodian of the Fund's assets. Under its contract with the Fund, the
Custodian is authorized to establish separate accounts in foreign currencies and
to cause foreign securities owned by the Fund to be held in its offices outside
the 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
Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville,
Florida 32246-6484, acts as the Fund's transfer agent (the "Transfer Agent").
The Transfer Agent is responsible for the issuance, transfer and redemption of
shares and the opening, maintenance and servicing of shareholder accounts. See
"Management of the Fund -- Transfer Agency Services" in the Prospectus.
40
<PAGE> 73
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 April 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.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to the Fund at the address or
telephone number set forth on the cover page of this Statement of Additional
Information.
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.
41
<PAGE> 74
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholder,
Merrill Lynch Disciplined Equity Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of
Merrill Lynch Disciplined Equity Fund, Inc. as of , 1999. 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, the statement of assets and liabilities presents fairly, in
all material respects, the financial position of Merrill Lynch Disciplined
Equity Fund, Inc. as of , 1999, in conformity with generally accepted
accounting principles.
, 1999
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<PAGE> 75
MERRILL LYNCH DISCIPLINED EQUITY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
, 1999
<TABLE>
<S> <C>
Assets:
Cash in Bank.............................................. $100,000
Prepaid registration fees and offering costs (Note 3).....
--------
Total Assets................................................
Liabilities -- accrued expenses.............................
--------
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
500,000,000 shares authorized) (Note 1)................... $100,000
========
</TABLE>
- ---------------
Notes to Statement of Assets and Liabilities.
(1) Merrill Lynch Disciplined Equity Fund, Inc. (the "Fund") was organized as a
Maryland corporation on April 16, 1999. 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 Princeton 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) The Manager, on behalf of the Fund, will incur organization costs estimated
at $ . Prepaid offering costs consist of legal and printing fees
related to preparing the initial registration statement, and will be
amortized over a 12 month period beginning with the commencement of
operations of the Fund. Prepaid registration fees are charged to income as
the related shares are issued.
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<PAGE> 76
(This page intentionally left blank.)
<PAGE> 77
CODE #16464-05-99
<PAGE> 78
PART C. OTHER INFORMATION
ITEM 23. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<C> <S> <C>
1(a) -- Articles of Incorporation of the Registrant, dated April 16,
1999.(a)
2 -- By-Laws of the Registrant.(a)
3(a) -- Portions of the Articles of Incorporation, as amended and
supplemented, and By-Laws of the Registrant defining the
rights of holders of shares of common stock of the
Registrant.(b)
4(a) -- Form of Management Agreement, between the Registrant and
MLAM.
(b) -- Form of Sub-Advisory Agreement between MLAM and Merrill
Lynch Asset Management U.K. Limited.
5(a) -- Form of Class A Distribution Agreement between the
Registrant and Princeton Funds Distributor, Inc. (the
"Distributor") (including Form of Selected Dealers
Agreement).
(b) -- Form of Class B Distribution Agreement between the
Registrant and the Distributor.
(c) -- Form of Class C Distribution Agreement between the
Registrant and the Distributor.
(d) -- Form of Class D Distribution Agreement between the
Registrant and the Distributor.
6 -- None.
7 -- Custody Agreement between the Registrant and
.(d)
8(a) -- Transfer Agency, Dividend Disbursing Agency and Shareholder
Servicing Agency Agreement between the Registrant and
Financial Data Services, Inc.
(b) -- Agreement between Merrill Lynch & Co., Inc. and Registrant
relating to Registrant's use of Merrill Lynch name.
9 -- Opinion of Brown & Wood LLP, counsel for the Registrant.(d)
10 -- Consent of , independent auditors for the
Registrant.(d)
11 -- None.
12 -- Certificate of Merrill Lynch Asset Management, L.P.(d)
13(a) -- Form of Class B Distribution Plan of the Registrant and
Class B Distribution Plan Sub-Agreement.
(b) -- Form of Class C Distribution Plan of the Registrant and
Class C Distribution Plan Sub-Agreement.
(c) -- Form of Class D Distribution Plan of the Registrant and
Class D Distribution Plan Sub-Agreement.
14 -- Not applicable.
15 -- Merrill Lynch Select Pricing(SM) System Plan pursuant to
Rule 18f-3.(c)
</TABLE>
- ---------------
<TABLE>
<S> <C>
(a) Filed on April 20, 1999 as an Exhibit to the Registrant's
Registration Statement on Form N-1A under the Securities Act
of 1933, as amended (File No. 333-76581 (the "Registration
Statement").
(b) Reference is made to Article II, Article IV, Article V
(sections 2, 3, 4 and 6), Article VI, Article VII and
Article IX of the Registrant's Articles of Incorporation,
previously filed as Exhibit (1), to the Registration
Statement, and to Article II, Article III (sections 1, 3, 5,
6 and 17), Article VI, Article VII, Article XII, Article
XIII and Article XIV of the Registrant's By-Laws previously
filed as Exhibit (2) to the Registration Statement.
(c) Incorporated by reference to Post-Effective Amendment No. 13
to the Registration Statement on Form N-1A of Merrill Lynch
New York Municipal Bond Fund of Merrill Lynch Multi-State
Municipal Series Trust filed on January 25, 1996.
(d) To be filed by amendment.
</TABLE>
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<PAGE> 79
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
The Registrant is not controlled by or under common control with any other
person.
ITEM 25. INDEMNIFICATION.
Reference is made to Article VI of the Registrant's Articles of
Incorporation, Article VI of the 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.
Insofar as the conditional advancing of indemnification moneys for actions
based on the Investment Company Act of 1940, as amended (the "1940 Act") may be
concerned, Article VI of the Registrant's By-Laws provides that such payments
will be made only on the following conditions: (i) advances may be made only on
receipt of a written affirmation of such person's good faith belief that the
standard of conduct necessary for indemnification has been met and a written
undertaking to repay any such advance if it is ultimately determined that the
standard of conduct has not been met; and (ii) (a) such promise must be secured
by a security for the undertaking in form and amount acceptable to the
Registrant, (b) the Registrant is insured against losses arising by receipt by
the advance, or (c) a majority of a quorum of the Registrant's disinterested
non-party Directors, or an independent legal counsel in a written opinion, shall
determine, based upon a review of readily available facts, that at the time the
advance is proposed to be made, there is reason to believe that the person
seeking indemnification will ultimately be found to be entitled to
indemnification.
In Section 9 of the Class A, Class B, Class C and Class D Shares
Distribution Agreements relating to the securities being offered hereby, the
Registrant agrees to indemnify the Distributor and each person, if any, who
controls the Distributor within the meaning of the Securities Act of 1933, as
amended (the "1933 Act"), against certain types of civil liabilities arising in
connection with the Registration Statement 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 26. BUSINESS AND OTHER CONNECTIONS OF THE MANAGER.
Merrill Lynch Asset Management, L.P. ("MLAM" or "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 Growth
Fund, Inc., Merrill Lynch Global Holdings, Inc., Merrill Lynch Global Resources
Trust, Merrill Lynch Global SmallCap Fund, Inc., Merrill Lynch Global Technology
Fund, Inc., Merrill Lynch Global Utility Fund, Inc., Merrill Lynch Global Value
Fund, Inc., Merrill Lynch Growth Fund, Merrill Lynch Healthcare Fund, Inc.,
Merrill Lynch Intermediate Government Bond Fund, Merrill Lynch International
Equity Fund, Merrill Lynch Latin America Fund, Inc., Merrill Lynch Middle
East/Africa Fund, Inc., Merrill Lynch Municipal Series Trust, Merrill Lynch
Pacific Fund, Inc., Merrill Lynch Ready Assets Trust, Merrill Lynch Real Estate
Fund, Inc., Merrill Lynch Retirement Series Trust, Merrill Lynch Series Fund,
Inc., Merrill Lynch Short-Term Global Income Fund, Inc., Merrill Lynch Strategic
Dividend Fund, Merrill Lynch Technology Fund, Inc., Merrill Lynch U.S. Treasury
Money Fund, Merrill Lynch U.S.A. Government Reserves, Merrill Lynch Utility
Income Fund, Inc. and Merrill
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<PAGE> 80
Lynch Variable Series Funds, Inc. and Hotchkis and Wiley funds (advised by
Hotchkis and Wiley, a division of MLAM); and for the following closed-end
registered investment companies: Merrill Lynch High Income Municipal Bond Fund,
Inc. and Merrill Lynch Senior Floating Rate Fund, Inc. MLAM also acts as sub-
adviser to Merrill Lynch World Strategy Portfolio and Merrill Lynch Basic Value
Equity Portfolio, two investment portfolios of EQ Advisors Trust.
Fund Asset Management, L.P. ("FAM"), an affiliate of the Manager, acts as
the investment manager for the following open-end registered investment
companies: CBA Money Fund, CMA Government Securities Fund, CMA Money Fund, CMA
Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The
Corporate Fund Accumulation Program, Inc., Financial Institutions Series Trust,
Merrill Lynch Basic Value Fund, Inc., Merrill Lynch California Municipal Series
Trust, Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch Corporate High
Yield Fund, Inc., Merrill Lynch Emerging Tigers Fund, Inc., Merrill Lynch
Federal Securities Trust, Merrill Lynch Funds for Institutions Series, Merrill
Lynch Multi-State Limited Maturity Municipal Series Trust, Merrill Lynch
Multi-State Municipal Series Trust, Merrill Lynch Municipal Bond Fund, Inc.,
Merrill Lynch Phoenix Fund, Inc., Merrill Lynch Special Value Fund, Inc.,
Merrill Lynch World Income Fund, Inc., and The Municipal Fund Accumulation
Program, Inc.; and for the following closed-end registered investment companies:
Apex Municipal Fund, Inc., Corporate High Yield Fund, Inc., Corporate High Yield
Fund II, Inc., Corporate High Yield Fund III, Inc., Debt Strategies Fund, Inc.,
Debt Strategies Fund II, Inc., Debt Strategies Fund III, 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 Fund II, Inc., MuniHoldings
California Insured Fund, Inc., MuniHoldings California Insured Fund II, Inc.,
MuniHoldings California Insured Fund III, Inc., MuniHoldings California Insured
Fund IV, Inc., MuniHoldings Florida Insured Fund, MuniHoldings Florida Insured
Fund II, MuniHoldings Florida Insured Fund III, MuniHoldings Florida Insured
Fund IV, MuniHoldings Insured Fund, Inc., MuniHoldings Insured Fund II, Inc.,
MuniHoldings Michigan Insured Fund, Inc., MuniHoldings New Jersey Insured Fund,
Inc., MuniHoldings New Jersey Insured Fund II, Inc., MuniHoldings New Jersey
Insured Fund III, Inc., MuniHoldings New York Fund, Inc., MuniHoldings New York
Insured Fund, Inc., MuniHoldings New York Insured Fund II, Inc., MuniHoldings
New York Insured Fund III, Inc., MuniHoldings Pennsylvania Insured Fund,
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. and Worldwide DollarVest Fund, Inc.
The address of each of these registered investment companies is P.O. Box
9011, Princeton, New Jersey 08543-9011, except that the address of Merrill Lynch
Funds for Institutions Series and Merrill Lynch Intermediate Government Bond
Fund is One Financial Center, 23rd Floor, Boston, Massachusetts 02111-2665. The
address of FAM, MLAM, Princeton Services, Inc. ("Princeton Services") and
Princeton Administrators, L.P. ("Princeton Administrators") is also P.O. Box
9011, Princeton, New Jersey 08543-9011. The address of Princeton Funds
Distributor, Inc. ("PFD") and of Merrill Lynch Funds Distributor ("MLFD") is
P.O. Box 9081, Princeton, New Jersey 08543-9081. The address of Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and Merrill Lynch & Co.,
Inc. ("ML & Co.") is World Financial Center, North Tower, 250 Vesey Street, New
York, New York 10281-1201. The address of the Fund's transfer agent, Financial
Data Services, Inc. ("FDS"), is 4800 Deer Lake Drive East, Jacksonville, Florida
32246-6484.
Set forth below is a list of each executive officer and partner of the
Investment Adviser indicating each business, profession, vocation or employment
of a substantial nature in which each such person or entity has been engaged
since November 1, 1996 for his, her or its own account or in the capacity of
director, officer, partner or trustee. In addition Mr. Glenn is President and
Mr. Burke is Vice President and Treasurer of all or substantially all
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<PAGE> 81
of the investment companies described in the first two paragraphs of this Item
26, and Messrs. Giordano and Monagle are officers of one or more of such
companies.
<TABLE>
<CAPTION>
POSITION(S) WITH OTHER SUBSTANTIAL BUSINESS,
NAME THE MANAGER PROFESSION, VOCATION OR EMPLOYMENT
---- ------------------------ ----------------------------------
<S> <C> <C>
ML & Co.......................... Limited Partner Financial Services Holding
Company; Limited Partner of FAM
Princeton Services............... General Partner General Partner of FAM
Jeffrey M. Peek.................. President President of FAM; President and
Director of Princeton Services;
Executive Vice President of ML &
Co.; Managing Director and Co-Head
of the Investment Banking Division
of Merrill Lynch (in 1997); Senior
Vice President and Director of the
Global Securities and Economics
Division of Merrill Lynch (from
1995 to 1997).
Terry K. Glenn................... Executive Vice President Executive Vice President of FAM;
Executive Vice President and
Director of Princeton Services;
President and Director of PFD;
Director of FDS; President of
Princeton Administrators
Donald C. Burke.................. Senior Vice President, Senior Vice President and
Treasurer and Director Treasurer of FAM; Senior Vice
of Taxation President and Treasurer of
Princeton Services; Vice President
of PFD; First Vice President of
the Investment Adviser from 1997
to 1999; Vice President of the
Investment Adviser from 1990 to
1997
Michael G. Clark................. Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton
Services; Treasurer and Director
of PFD; First Vice President of
the Investment Adviser from 1997
to 1999; Vice President of the
Investment Adviser from 1996 to
1997
Mark A. DeSario.................. Senior Vice President Senior Vice President of FAM
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
Michael J. Hennewinkel........... Senior Vice President, Senior Vice President, Secretary
Secretary and General and General Counsel of FAM; Senior
Counsel Vice President of Princeton
Services
Philip L. Kirstein............... Senior Vice President Senior Vice President of FAM;
Senior Vice President, General
Counsel, Director and Secretary of
Princeton Services
</TABLE>
C-4
<PAGE> 82
<TABLE>
<CAPTION>
POSITION(S) WITH OTHER SUBSTANTIAL BUSINESS,
NAME THE MANAGER PROFESSION, VOCATION OR EMPLOYMENT
---- ------------------------ ----------------------------------
<S> <C> <C>
Ronald M. Kloss.................. Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton
Services
Debra W. Landsman-Yaros.......... Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton
Services; Vice President of PFD
Stephen M. M. Miller............. Senior Vice President Executive Vice President of
Princeton Administrators; Senior
Vice President of Princeton
Services
Joseph T. Monagle, Jr. .......... Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton
Services
Brian A. Murdock................. Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton
Services;
Gregory D. Upah.................. Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton
Services
</TABLE>
Merrill Lynch Asset Management U.K. Limited ("MLAM U.K.") acts as
sub-adviser for the following registered investment companies: The Corporate
Fund Accumulation Program, Inc., Corporate High Yield Fund, Inc., Corporate High
Yield Fund II, Inc., Corporate High Yield Fund III, Inc., Debt Strategies Fund,
Inc., Debt Strategies Fund II, Inc., Debt Strategies Fund III, Inc., Income
Opportunities Fund 1999, Inc., Income Opportunities Fund 2000, Inc., Merrill
Lynch Americas Income Fund, Inc., Merrill Lynch Asset Builder Program, Inc.,
Merrill Lynch Asset Growth Fund, Inc., Merrill Lynch Asset Income Fund, Inc.,
Merrill Lynch Basic Value Fund, Inc., Merrill Lynch Capital Fund, Inc., Merrill
Lynch Consults International Portfolio, Merrill Lynch Convertible Fund, Inc.,
Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch Corporate High Yield
Fund, Inc., Merrill Lynch Developing Capital Markets, Inc., Merrill Lynch Dragon
Fund, Inc., Merrill Lynch Emerging Tigers Fund, Inc., Merrill Lynch EuroFund,
Merrill Lynch Fundamental Growth Fund, Inc., Merrill Lynch Fund For Tomorrow,
Inc., Merrill Lynch Global Allocation Fund, Inc., Merrill Lynch Global Bond Fund
for Investment and Retirement, Merrill Lynch Global Growth Fund, Inc., Merrill
Lynch Global Holdings, Inc., Merrill Lynch Global Resources Trust, Merrill Lynch
Global SmallCap Fund, Inc., Merrill Lynch Global Technology Fund, Inc., Merrill
Lynch Global Utility Fund, Inc., Merrill Lynch Global Value Fund, Inc., Merrill
Lynch Growth Fund, Merrill Lynch Healthcare Fund, Inc., Merrill Lynch
International Equity Fund, Merrill Lynch Latin America Fund, Inc., Merrill Lynch
Middle East/Africa Fund, Inc., Merrill Lynch Pacific Fund, Inc., Merrill Lynch
Phoenix Fund, Inc., Merrill Lynch Real Estate Fund, Inc., Merrill Lynch Series
Fund, Inc., Merrill Lynch Senior Floating Rate Fund, Inc., Merrill Lynch
Short-Term Global Income Fund, Inc., Merrill Lynch Special Value Fund, Inc.,
Merrill Lynch Strategic Dividend Fund, Merrill Lynch Technology Fund, Inc.,
Merrill Lynch Utility Income Fund, Inc., Merrill Lynch Variable Series Funds,
Inc., Merrill Lynch World Income Fund, Inc., The Municipal Fund Accumulation
Program, Inc. and Worldwide DollarVest Fund, Inc. The address of each of these
registered investment companies is P.O. Box 9011, Princeton, New Jersey
08543-9011. The address of MLAM U.K. is 33 King William Street, London EC4R 9AS,
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 July 1,
1996, for his or her own account or in the capacity of director, officer,
partner or trustee. In addition,
C-5
<PAGE> 83
Messrs. Glenn, Burke and Albert are officers of one or more of the registered
investment companies listed in the first two paragraphs of this Item 26:
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
NAME POSITIONS WITH MLAM U.K. PROFESSION, VOCATION OR EMPLOYMENT
---- --------------------------- --------------------------------------
<S> <C> <C>
Terry K. Glenn................. Director and Chairman Executive Vice President of MLAM and
FAM; Executive Vice President and
Director of Princeton Services;
President and Director of PFD;
President of Princeton Administrators
Alan J. Albert................. Senior Managing Director Vice President of MLAM
Nicholas C.D. Hall............. Director Director of Merrill Lynch Europe PLC;
General Counsel of Merrill Lynch
International Private Banking Group
Donald C. Burke................ Treasurer Senior Vice President and Treasurer of
MLAM and FAM; Director of Taxation of
MLAM; Senior Vice President and
Treasurer of Princeton Services; Vice
President of PFD; First Vice President
of MLAM from 1997 to 1999; Vice
President of MLAM from 1990 to 1997
Carol Ann Langham.............. Company Secretary None
Debra Anne Searle.............. Assistant Company Secretary None
</TABLE>
ITEM 27. PRINCIPAL UNDERWRITERS.
(a) MLFD, a division of PFD, acts as the principal underwriter for the
Registrant and for each of the open-end registered investment companies referred
to in the first two paragraphs of Item 26 except CBA Money Fund, CMA Government
Securities Fund, CMA Money Fund, CMA Multi-State Municipal Series Trust, CMA
Tax-Exempt Fund, CMA Treasury Fund, The Corporate Fund Accumulation Program,
Inc. and The Municipal Fund Accumulation Program, Inc.; MLFD also acts as the
principal underwriter for the following closed-end registered investment
companies: Merrill Lynch High Income Municipal Bond Fund, Inc., Merrill Lynch
Municipal Strategy Fund, Inc. and Merrill Lynch Senior Floating Rate Fund, Inc.
A separate division of PFD acts as the principal underwriter of a number of
other investment companies.
(b) Set forth below is information concerning each director and officer of
PFD. The principal business address of each such person is P.O. Box 9081,
Princeton, New Jersey 08543-9081, except that the address of Messrs. Breen,
Crook, Fatseas and Wasel is One Financial Center, 23rd Floor, Boston,
Massachusetts 02111-2665.
<TABLE>
<CAPTION>
POSITION(S) AND OFFICE(S) POSITION(S) AND OFFICE(S)
NAME WITH PFD WITH REGISTRANT
---- ---------------------------- -------------------------
<S> <C> <C>
Terry K. Glenn........................... President and Director President and Director
Michael G. Clark......................... Treasurer and Director None
Thomas J. Verage......................... Director None
Robert W. Crook.......................... Senior Vice President None
Michael J. Brady......................... Vice President None
William M. Breen......................... Vice President None
Donald C. Burke.......................... Vice President Vice President and
Treasurer
James T. Fatseas......................... Vice President None
Debra W. Landsman-Yaros.................. Vice President None
Michelle T. Lau.......................... Vice President None
Salvatore Venezia........................ Vice President None
William Wasel............................ Vice President None
Robert Harris............................ Secretary None
</TABLE>
C-6
<PAGE> 84
(c) Not applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the rules thereunder are maintained at the
offices of the Registrant (800 Scudders Mill Road, Plainsboro, New Jersey
08536), and its transfer agent, Financial Data Services, Inc. (4800 Deer Lake
Drive East, Jacksonville, Florida 32246-6484).
ITEM 29. MANAGEMENT SERVICES.
Other than as set forth under the caption "Management of the
Fund -- Merrill Lynch Asset Management" 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 30. UNDERTAKINGS.
Not applicable.
C-7
<PAGE> 85
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 11th day of May, 1999.
MERRILL LYNCH DISCIPLINED GROWTH FUND,
INC. (Registrant)
By: /s/ TERRY K. GLENN
------------------------------------
(Terry K. Glenn, President)
Each person whose signature appears below hereby authorizes Terry K. Glenn,
Donald C. Burke, or Joseph T. Monagle, Jr., 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>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ TERRY K. GLENN President and Director May 11, 1999
- -------------------------------------------------- (Principal Executive Officer)
(Terry K. Glenn)
/s/ DONALD C. BURKE Treasurer (Principal Financial May 11, 1999
- -------------------------------------------------- and Accounting Officer)
(Donald C. Burke)
/s/ DONALD CECIL Director May 11, 1999
- --------------------------------------------------
(Donald Cecil)
/s/ M. COLYER CRUM Director May 11, 1999
- --------------------------------------------------
(M. Colyer Crum)
/s/ EDWARD H. MEYER Director May 11, 1999
- --------------------------------------------------
(Edward H. Meyer)
/s/ JACK B. SUNDERLAND Director May 11, 1999
- --------------------------------------------------
(Jack B. Sunderland)
/s/ J. THOMAS TOUCHTON Director May 11, 1999
- --------------------------------------------------
(J. Thomas Touchton)
/s/ FRED G. WEISS Director May 11, 1999
- --------------------------------------------------
(Fred G. Weiss)
/s/ ARTHUR ZEIKEL Director May 11, 1999
- --------------------------------------------------
(Arthur Zeikel)
</TABLE>
C-8
<PAGE> 86
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S> <C>
4(a) -- Form of Management Agreement, between the Registrant and
MLAM.
(b) -- Form of Sub-Advisory Agreement between MLAM and Merrill
Lynch Asset Management U.K. Limited.
5(a) -- Form of Class A Distribution Agreement between the
Registrant and Princeton Funds Distributor, Inc. (the
"Distributor") (including Form of Selected Dealers
Agreement).
(b) -- Form of Class B Distribution Agreement between the
Registrant and the Distributor.
(c) -- Form of Class C Distribution Agreement between the
Registrant and the Distributor.
(d) -- Form of Class D Distribution Agreement between the
Registrant and the Distributor.
8(a) -- Transfer Agency, Dividend Disbursing Agency and Shareholder
Servicing Agency Agreement between the Registrant and
Financial Data Services, Inc.
(b) -- Agreement between Merrill Lynch & Co., Inc. and Registrant
relating to Registrant's use of Merrill Lynch name.
13(a) -- Form of Class B Distribution Plan of the Registrant and
Class B Distribution Plan Sub-Agreement.
(b) -- Form of Class C Distribution Plan of the Registrant and
Class C Distribution Plan Sub-Agreement.
(c) -- Form of Class D Distribution Plan of the Registrant and
Class D Distribution Plan Sub-Agreement.
</TABLE>
C-9
<PAGE> 1
EXHIBIT 4(a)
MANAGEMENT AGREEMENT
AGREEMENT made this day of , 1999, by and between MERRILL
LYNCH DISCIPLINED EQUITY 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 a diversified open-end
investment company registered under the Investment Company Act of 1940, as
amended (hereinafter referred to as the "Investment Company Act"); and
WHEREAS, the Manager is engaged principally in rendering 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:
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
<PAGE> 2
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 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 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 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.
<PAGE> 3
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 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 0.65% 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 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.
<PAGE> 4
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 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 first above written
and shall remain in force until , 2001, 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 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.
<PAGE> 5
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.
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.
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
MERRILL LYNCH DISCIPLINED EQUITY FUND, INC.
By
-----------------------
Name:
Title:
MERRILL LYNCH ASSET MANAGEMENT, L.P.
By
-----------------------
Name:
Title:
<PAGE> 1
EXHIBIT 4(b)
SUB-ADVISORY AGREEMENT
AGREEMENT made as of the day of , 1999, 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 DISCIPLINED EQUITY FUND, INC. (the "Fund") is a
Maryland corporation engaged in business as a diversified, open-end investment
company registered under the Investment Company Act of 1940, as amended
(hereinafter referred to as the "Investment Company Act"); and
WHEREAS, 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 , 1999, pursuant to which MLAM provides
management and investment and advisory services to the Fund; and
<PAGE> 2
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.
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
<PAGE> 3
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.
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.
<PAGE> 4
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 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
<PAGE> 5
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. 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.
<PAGE> 6
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 , 2001, 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 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.
<PAGE> 7
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
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.
<PAGE> 8
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:
<PAGE> 1
EXHIBIT 5(a)
CLASS A SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the day of 1999, between MERRILL LYNCH
DISCIPLINED EQUITY FUND, INC., a Maryland corporation (the "Fund"), and MERRILL
LYNCH FUNDS DISTRIBUTOR, a division of Princeton Funds Distributor, Inc., a
Delaware corporation (the "Distributor").
W I T N E S S E T H :
WHEREAS, the Fund is registered under the Investment Company Act of 1940,
as amended (the "Investment Company Act"), as an open-end investment company,
and it is affirmatively in the interest of the Fund to offer its shares for
sale continuously; and
WHEREAS, the Distributor is a securities firm engaged in the business of
selling shares of investment companies either directly to purchasers or through
other securities dealers; and
WHEREAS, the Fund and the Distributor wish to enter into an agreement
with each other with respect to the continuous offering of the Class A shares
of common stock in the Fund.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor. The Fund hereby appoints
the Distributor as the principal underwriter and distributor of the Fund to
sell Class A shares of common stock in the Fund (sometimes herein referred to
as "Class A shares") to eligible investors (as defined below) and hereby agrees
during the term of this Agreement to sell Class A shares of the Fund to the
Distributor upon the terms and conditions herein set forth.
<PAGE> 2
Section 2. Exclusive Nature of Duties. The Distributor shall be the
exclusive representative of the Fund to act as principal underwriter and
distributor, except that:
(a) The Fund may, upon written notice to the Distributor, from time
to time designate other principal underwriters and distributors of Class A
shares with respect to areas other than the United States as to which the
Distributor may have expressly waived in writing its right to act as such. If
such designation is deemed exclusive, the right of the Distributor under this
Agreement to sell Class A shares in the areas so designated shall terminate,
but this Agreement shall remain otherwise in full effect until terminated in
accordance with the other provisions hereof.
(b) The exclusive right granted to the Distributor to purchase Class
A shares from the Fund shall not apply to Class A shares issued in connection
with the merger or consolidation of any other investment company or personal
holding company with the Fund or the acquisition by purchase or otherwise of
all (or substantially all) the assets or the outstanding Class A shares of any
such company by the Fund.
(c) Such exclusive right also shall not apply to Class A shares
issued by the Fund pursuant to reinvestment of dividends or capital gains
distributions.
(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.
2
<PAGE> 3
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 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.
3
<PAGE> 4
(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 5.25% of
the public offering price (5.54% of the net amount invested), subject to
reductions for volume purchases. Class A shares may be sold to certain
Directors, officers and employees of the Fund, directors and employees of
Merrill Lynch & Co., Inc. and its subsidiaries, and to certain other persons
described in the prospectus and statement of additional information, without a
sales charge or at a reduced sales charge, upon terms and conditions set forth
in the prospectus and statement of additional information. If the public
offering price does not equal an even cent, the public offering price may be
adjusted to the nearest cent. All payments to the Fund hereunder shall be made
in the manner set forth in Section 3(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.
4
<PAGE> 5
(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 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 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
5
<PAGE> 6
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.
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
6
<PAGE> 7
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 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
7
<PAGE> 8
investment companies so long as the performance of its obligations hereunder is
not impaired thereby.
(b) In selling the Class A shares of the Fund, the Distributor shall
use its best efforts in all respects duly to conform with the requirements of
all Federal and state laws relating to the sale of such securities. Neither the
Distributor nor any selected dealer, as defined in Section 7 hereof, nor any
other person is authorized by the Fund to give any information or to make any
representations, other than those contained in the registration statement or
related prospectus and statement of additional information and any sales
literature specifically approved by the Fund.
(c) The Distributor shall adopt and follow procedures, as approved by
the officers of the Fund, for the confirmation of sales to eligible investors
and selected dealers, the collection of amounts payable by eligible investors
and selected dealers on such sales, and the cancellation of unsettled
transactions, as may be necessary to comply with the requirements of the
National 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)
8
<PAGE> 9
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.
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
9
<PAGE> 10
dealers in connection with the offering of the Class A shares for sale to
eligible investors and any expenses of advertising incurred by the Distributor
in connection with such offering.
(c) The Fund shall bear the cost and expenses of qualification of the
Class A shares for sale pursuant to this Agreement and, if necessary or
advisable in connection therewith, of qualifying the Fund as a broker or dealer
in such states of the United States or other jurisdictions as shall be selected
by the Fund and the Distributor pursuant to Section 5(c) hereof and the cost
and expenses payable to each such state for continuing qualification therein
until the Fund decides to discontinue such qualification pursuant to Section
5(c) hereof.
Section 9. Indemnification.
(a) The Fund shall indemnify and hold harmless the Distributor and
each person, if any, who controls the Distributor against any loss, liability,
claim, damage or expense (including the reasonable cost of investigating or
defending any alleged loss, liability, claim, damage or expense and reasonable
counsel fees incurred in connection therewith), as incurred, arising by reason
of any person acquiring any Class A shares, which may be based upon the
Securities Act, or on any other statute or at common law, on the ground that
the registration statement or related prospectus and statement of additional
information, as from time to time amended and supplemented, or an annual or
interim report to shareholders of the Fund, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein
or necessary in order to make the statements therein not misleading, unless
such statement or omission was made in reliance upon, and in conformity with,
information furnished to the Fund in connection therewith by or on behalf of
the Distributor; provided, however, that in no case (i) is the indemnity of the
Fund in favor of the Distributor and any such controlling persons to be
10
<PAGE> 11
deemed to protect such Distributor or any such controlling persons thereof
against any liability to the Fund or its security holders to which the
Distributor or any such controlling persons would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence in the performance
of their duties or by reason of the reckless disregard of their obligations and
duties under this Agreement; or (ii) is the Fund to be liable under its
indemnity agreement contained in this paragraph with respect to any claim made
against the Distributor or any such controlling persons, unless the Distributor
or such controlling persons, as the case may be, shall have notified the Fund
in writing within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have been served
upon the Distributor or such controlling persons (or after the Distributor or
such controlling persons shall have received notice of such service on any
designated agent), but failure to notify the Fund of any such claim shall not
relieve it from any liability which it may have to the person against whom such
action is brought otherwise than on account of its indemnity agreement
contained in this paragraph. The Fund will be entitled to participate at its
own expense in the defense or, if it so elects, to assume the defense of any
suit brought to enforce any such liability, but if the Fund elects to assume
the defense, such defense shall be 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
11
<PAGE> 12
commencement of any litigation or proceedings against it or any of its officers
or Directors in connection with the issuance or sale of any of the Class A
shares.
(b) The Distributor shall indemnify and hold harmless the Fund and
each of its Directors and officers and each person, if any, who controls the
Fund against any loss, liability, claim, damage or expense described in the
foregoing indemnity contained in subsection (a) of this Section, but only with
respect to statements or omissions made in reliance upon, and in conformity
with, information furnished to the Fund in writing by or on behalf of the
Distributor for use in connection with the registration statement or related
prospectus and statement of additional information, as from time to time
amended, or the annual or interim reports to Class A shareholders. In case any
action shall be brought against the Fund or any person so indemnified, in
respect of which indemnity may be sought against the Distributor, the
Distributor shall have the rights and duties given to the Fund, and the Fund
and each person so indemnified shall have the rights and duties given to the
Distributor by the provisions of subsection (a) of this Section 9.
Section 10. Merrill Lynch Mutual Fund Adviser Program. In connection
with the Merrill Lynch Mutual Fund Adviser Program, the Distributor and its
affiliate, Merrill Lynch, Pierce, Fenner & Smith Incorporated, are authorized
to offer and sell shares of the Fund, as agent for the Fund, to participants in
such program. The terms of this Agreement shall apply to such sales, including
terms as to the offering price of shares, the proceeds to be paid to the Fund,
the duties of the Distributor, the payment of expenses and indemnification
obligations of the Fund and the Distributor.
Section 11. Duration and Termination of this Agreement. This
Agreement shall become effective as of the date first above written and shall
remain in force until April 30, 2001
12
<PAGE> 13
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.
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.
13
<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
MERRILL LYNCH DISCIPLINED EQUITY FUND, INC.
By
--------------------------------------
Name:
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR,
a division of PRINCETON FUNDS DISTRIBUTOR, INC.
By
--------------------------------------
Name:
Title:
14
<PAGE> 15
EXHIBIT A
MERRILL LYNCH DISCIPLINED EQUITY FUND, INC.
CLASS A SHARES OF COMMON STOCK
SELECTED DEALER AGREEMENT
FOR SUBSCRIPTION PERIOD
Ladies and Gentlemen:
Merrill Lynch Funds Distributor, a division of Princeton Funds
Distributor, Inc. (the "Distributor"), has an agreement with Merrill Lynch
Disciplined Equity 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 , 1999. 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.
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
Adviser program and such other special programs as we from time to time agree,
in which case you shall have authority to offer and sell shares, as agent for
the Fund, to participants in such program.
A-1
<PAGE> 16
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 $10.00.
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 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
A-2
<PAGE> 17
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 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.
A-3
<PAGE> 18
6. Payment for Class A shares purchased by you is to be made on such
date as we may advise by wire transfer of immediately available funds to a bank
account designated by us against delivery by us of non-negotiable share deposit
receipts ("Receipts") issued by 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 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 subscription 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.
A-4
<PAGE> 19
12. You represent that you are a member of the National Association of
Securities Dealers, Inc. (the "NASD") and, with respect to any sales in the
United States, we both hereby agree to abide by the Conduct Rules of the NASD.
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 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.
A-5
<PAGE> 20
MERRILL LYNCH FUNDS DISTRIBUTOR,
a division of PRINCETON FUNDS DISTRIBUTOR, INC.
By
---------------------------------
(Authorized Signature)
Please return one signed copy
of this Agreement to:
MERRILL LYNCH FUNDS DISTRIBUTOR
a division of PRINCETON FUNDS DISTRIBUTOR, INC.
P.O. Box 9081
Princeton, New Jersey 08543-9081
Accepted:
Firm Name:
--------------------------------
By:
---------------------------------------
Address:
----------------------------------
------------------------------------------
Date:
-------------------------------------
A-6
<PAGE> 21
EXHIBIT B
MERRILL LYNCH DISCIPLINED EQUITY FUND, INC.
CLASS A SHARES OF COMMON STOCK
SELECTED DEALERS AGREEMENT
Ladies and Gentlemen:
Merrill Lynch Funds Distributor, a division of Princeton Funds
Distributor (the "Distributor"), has an agreement with Merrill Lynch
Disciplined Equity 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 Adviser program and such other special programs as we from time to time
agree, in which case you shall have authority to offer and sell shares, as
agent for the Fund, to participants in such program.
2. Orders received from you will be accepted through us only at the
public offering price applicable to each order, as set forth in the current
Prospectus and Statement of Additional Information of the Fund. The procedure
relating to the handling of orders shall be subject to Section 5 hereof and
instructions which we or the Fund shall forward from time to time to you. All
orders are subject to acceptance or rejection by the Distributor or the Fund in
the sole
B-1
<PAGE> 22
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 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
B-2
<PAGE> 23
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 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
B-3
<PAGE> 24
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 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.
B-4
<PAGE> 25
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. (the "NASD") and, with respect to any sales in the
United States, we both hereby agree to abide by the Conduct Rules of the NASD.
13. Upon application to us, we will inform you as to the states in
which we believe the Class A shares have been qualified for sale under, or are
exempt from the requirements of, the respective securities laws of such states,
but we assume no responsibility or obligation as to your right to sell Class A
shares in any jurisdiction. We will file with the Department of State in New
York a Further State Notice with respect to the Class A shares, if necessary.
14. All communications to us should be sent to the address below.
Any notice to you shall be duly given if mailed or telegraphed to you at the
address specified by you below.
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.
B-5
<PAGE> 26
MERRILL LYNCH FUNDS DISTRIBUTOR,
a division of PRINCETON FUNDS DISTRIBUTOR, INC.
By
--------------------------------------
(Authorized Signature)
Please return one signed copy
of this agreement to:
MERRILL LYNCH FUNDS DISTRIBUTOR,
a division of PRINCETON FUNDS DISTRIBUTOR, INC.
P.O. Box 9081
Princeton, New Jersey 08543-9081
Accepted:
Firm Name:
--------------------------------
By:
---------------------------------------
Address:
----------------------------------
------------------------------------------
Date:
-------------------------------------
B-6
<PAGE> 1
EXHIBIT 5(b)
CLASS B SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the day of 1999, between MERRILL LYNCH
DISCIPLINED EQUITY FUND, INC., a Maryland corporation (the "Fund"), and MERRILL
LYNCH FUNDS DISTRIBUTOR, a division of Princeton 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:
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
<PAGE> 2
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 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 conversion, exchange or reinstatement
privilege afforded redeeming
2
<PAGE> 3
shareholders or to any other Class B shares as shall be agreed 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
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.
3
<PAGE> 4
(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 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).
4
<PAGE> 5
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 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 disposal
by the Fund of securities owned by it is not reasonably
5
<PAGE> 6
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 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.
6
<PAGE> 7
(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 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.
7
<PAGE> 8
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.
(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).
8
<PAGE> 9
(b) The Distributor shall be responsible for any payments made to
selected dealers as reimbursement for their expenses associated with payments
of sales commissions to financial consultants. In addition, after the
prospectuses, statements of additional information and annual and interim
reports have been prepared and set in type, the Distributor shall bear the
costs and expenses of printing and distributing any copies thereof which are to
be used in connection with the offering of Class B shares to selected dealers
or investors pursuant to this Agreement. The Distributor shall bear the costs
and expenses of preparing, printing and distributing any other literature used
by the Distributor or furnished by it for use by selected dealers in connection
with the offering of the Class B shares for sale to the public and any expenses
of advertising incurred by the Distributor in connection with such offering. It
is understood and agreed that, so long as the Fund's 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
9
<PAGE> 10
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 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 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
10
<PAGE> 11
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 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
11
<PAGE> 12
shall have the rights and duties given to the Fund, and the Fund and each person
so indemnified shall have the rights and duties given to the Distributor by the
provisions of subsection (a) of this Section 9.
Section 10. Merrill Lynch Mutual Fund Adviser Program. In connection
with the Merrill Lynch Mutual Fund Adviser Program, the Distributor and its
affiliate, Merrill Lynch, Pierce, Fenner & Smith Incorporated, are authorized
to offer and sell shares of the Fund, as agent for the Fund, to participants in
such program. The terms of this Agreement shall apply to such sales, including
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 April 30, 2000, 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.
12
<PAGE> 13
The terms "vote of a majority of the outstanding voting securities,"
"assignment," "affiliated person" and "interested person," when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act.
Section 12. Amendments of this Agreement. This Agreement may be
amended by the parties only if such amendment is specifically approved by (i)
the Directors, or by the vote of a majority of outstanding voting securities of
the Fund, and (ii) by the vote of a majority of those Directors of the Fund who
are not parties to this Agreement or interested persons of any such party cast
in person at a meeting called for the purpose of voting on such approval.
Section 13. Governing Law. The provisions of this Agreement shall be
construed and interpreted in accordance with the laws of the State of New York
as at the time in effect and the applicable provisions of the Investment
Company Act. To the extent that the applicable law of the State of New York, or
any of the provisions herein, conflict with the applicable provisions of the
Investment Company Act, the latter shall control.
13
<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
MERRILL LYNCH DISCIPLINED EQUITY FUND, INC.
By
---------------------------------
Name:
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR,
a division of PRINCETON FUNDS DISTRIBUTOR, INC.
By
---------------------------------
Name:
Title:
<PAGE> 15
EXHIBIT A
MERRILL LYNCH DISCIPLINED EQUITY FUND, INC.
CLASS B SHARES OF COMMON STOCK
SELECTED DEALER AGREEMENT
FOR SUBSCRIPTION PERIOD
Ladies and Gentlemen:
Merrill Lynch Funds Distributor, a division of Princeton Funds
Distributor, Inc. (the "Distributor"), has an agreement with Merrill Lynch
Disciplined EquityFund, 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 , 1999. 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.
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 Adviser
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
<PAGE> 16
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 on such date
as we may advise by wire transfer of immediately available funds to a bank
account designated by us against delivery by us of non-negotiable share deposit
receipts ("Receipts") issued by 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.
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.
A-2
<PAGE> 17
8. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the subscription 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. (the "NASD") and, with respect to any sales in the
United States, we both hereby agree to abide by the Conduct Rules the NASD.
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.
A-3
<PAGE> 18
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, a division of
PRINCETON FUNDS DISTRIBUTOR, INC.
By ------------------------------------
(Authorized Signature)
Please return one signed copy
of this Agreement to:
MERRILL LYNCH FUNDS DISTRIBUTOR,
a division of PRINCETON FUNDS DISTRIBUTOR, INC.
P.O. Box 9081
Princeton New Jersey 08543-9081
Accepted:
Firm Name:
--------------------------------
By:
---------------------------------------
Address:
----------------------------------
------------------------------------------
Date:
-------------------------------------
A-4
<PAGE> 19
EXHIBIT B
MERRILL LYNCH DISCIPLINED EQUITY FUND, INC.
CLASS B SHARES OF COMMON STOCK
SELECTED DEALER AGREEMENT
Ladies and Gentlemen:
Merrill Lynch Funds Distributor, a division of Princeton Funds
Distributor, Inc. (the "Distributor"), has an agreement with Merrill Lynch
Disciplined Equity 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 Adviser
program and such other special programs as we from time to time agree, in which
case you shall have authority to offer and sell shares, as agent for the Fund,
to participants in such program.
2. Orders received from you will be accepted through us only at the
public offering price applicable to each order, as set forth in the current
Prospectus and Statement of Additional Information of the Fund. The procedure
relating to the handling of orders shall be subject to Section 4 hereof and
instructions which we or the Fund shall forward from time to time to you. All
orders are subject to acceptance or rejection by the Distributor or the Fund in
the sole discretion of either. The minimum 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
<PAGE> 20
or sell any of the Class B shares except under circumstances that will result in
compliance with the applicable Federal and state securities laws and that in
connection with sales and offers to sell Class B shares you will furnish to each
person to whom any such sale or offer is made a copy of the Prospectus and, if
requested, the Statement of Additional Information (as then amended or
supplemented) and will not furnish to any person any information relating to the
Class B shares of the Fund, which is inconsistent in any respect with the
information contained in the Prospectus and Statement of Additional Information
(as then amended or supplemented) or cause any advertisement to be published in
any newspaper or posted in any public place without our consent and the consent
of the Fund.
4. As a selected dealer, you are hereby authorized (i) to place orders
directly with the Fund for Class B shares of the Fund to be resold by us to you
subject to the applicable terms and conditions governing the placement of
orders by us set forth in Section 3 of the Distribution Agreement, and (ii) to
tender Class B shares directly to the Fund or its agent for redemption subject
to the applicable terms and conditions set forth in Section 4 of the
Distribution Agreement.
5. You shall not withhold placing orders received from your customers so
as to profit yourself as a result of such withholding, e.g., by a change in the
"net asset value" from that used in determining the offering price to your
customers.
6. No person is authorized to make any representations concerning Class B
shares of the Fund except those contained in the current Prospectus and
Statement of Additional Information of the Fund and in such printed information
subsequently issued by us or the Fund as information supplemental to such
Prospectus and Statement of Additional Information. In purchasing Class B
shares through us you shall rely solely on the representations contained in the
Prospectus and Statement of Additional Information and supplemental information
above mentioned. Any printed information which we furnish you other than the
Fund's Prospectus, Statement of Additional Information, periodic reports and
proxy solicitation material are our sole responsibility and not the
responsibility of the Fund, and you agree that the Fund shall have no liability
or responsibility to you in these respects unless expressly assumed in
connection therewith.
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
B-2
<PAGE> 21
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. (the "NASD") and, with respect to any sales in the
United States, we both hereby agree to abide by the Conduct Rules of the NASD.
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> 22
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,
a division of PRINCETON FUNDS DISTRIBUTOR, INC.
By
--------------------------------------
(Authorized Signature)
Please return one signed copy
of this Agreement to:
MERRILL LYNCH FUNDS DISTRIBUTOR,
a division of PRINCETON FUNDS DISTRIBUTOR, INC.
P.O. Box 9081
Princeton, New Jersey 08543-9081
Accepted:
Firm Name:
--------------------------------
By:
---------------------------------------
Address:
----------------------------------
------------------------------------------
Date:
-------------------------------------
B-4
<PAGE> 1
EXHIBIT 5(c)
CLASS C SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the day of 1999, between MERRILL LYNCH
DISCIPLINED EQUITY FUND, INC., a Maryland corporation (the "Fund"), and MERRILL
LYNCH FUNDS DISTRIBUTOR, a division of Princeton Funds Distributor, Inc. a
Delaware corporation (the "Distributor").
W I T N E S S E T H :
WHEREAS, the Fund is registered under the Investment Company Act of 1940,
as amended (the "Investment Company Act"), as an open-end investment company,
and it is affirmatively in the interest of the Fund to offer its shares for sale
continuously; and
WHEREAS, the Distributor is a securities firm engaged in the business of
selling shares of investment companies either directly to purchasers or through
other securities dealers; and
WHEREAS, the Fund and the Distributor wish to enter into an agreement with
each other with respect to the continuous offering of the Fund's Class C shares
in order to promote the growth of the Fund and facilitate the distribution of
its Class C shares.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor. The Fund hereby appoints the
Distributor as the principal underwriter and distributor of the Fund to sell
Class C shares of common stock in the Fund (sometimes herein referred to as
"Class C shares") to the public and hereby agrees
<PAGE> 2
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.
(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
2
<PAGE> 3
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 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.
3
<PAGE> 4
(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 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).
4
<PAGE> 5
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 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
5
<PAGE> 6
the Fund fairly to determine the value of its net assets, or during any other
period when the Securities and Exchange Commission, by order, so permits.
Section 5. Duties of the Fund.
(a) The Fund shall furnish to the Distributor copies of all
information, financial statements and other papers which the Distributor may
reasonably request for use in connection with the distribution of Class C shares
of the Fund, and this shall include, upon request by the Distributor, one
certified copy of all financial statements prepared for the Fund by independent
public accountants. The Fund shall make available to the Distributor such number
of copies of its prospectus and statement of additional information as the
Distributor shall reasonably request.
(b) The Fund shall take, from time to time, but subject to any
necessary approval of the shareholders, all necessary action to fix the number
of authorized shares and such steps as may be necessary to register the same
under the Securities Act to the end that there will be available for sale such
number of Class C shares as the Distributor reasonably may be expected to sell.
(c) The Fund shall use its best efforts to qualify and maintain the
qualification of an appropriate number of its Class C shares for sale under the
securities laws of such states as the Distributor and the Fund may approve. Any
such qualification may be withheld, terminated or withdrawn by the Fund at any
time in its discretion. As provided in Section 8(c) hereof, the expense of
qualification and maintenance of qualification shall be borne by the Fund. The
Distributor shall furnish such information and other material relating to its
affairs and activities as may be required by the Fund in connection with such
qualification.
6
<PAGE> 7
(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 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.
7
<PAGE> 8
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.
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).
8
<PAGE> 9
(b) The Distributor shall be responsible for any payments made to
selected dealers as reimbursement for their expenses associated with payments of
sales commissions to financial consultants. In addition, after the prospectuses,
statements of additional information and annual and interim reports have been
prepared and set in type, the Distributor shall bear the costs and expenses of
printing and distributing any copies thereof which are to be used in connection
with the offering of Class C shares to selected dealers or investors pursuant to
this Agreement. The Distributor shall bear the costs and expenses of preparing,
printing and distributing any other literature used by the Distributor or
furnished by it for use by selected dealers in connection with the offering of
the Class C shares for sale to the public and any expenses of advertising
incurred by the Distributor in connection with such offering. It is understood
and agreed that so long as the Fund's Class C Shares Distribution Plan pursuant
to Rule 12b-1 under the Investment Company Act remains in effect, any expenses
incurred by the Distributor hereunder may be paid from amounts recovered by it
from the Fund under such Plan.
(c) The Fund shall bear the cost and expenses of qualification of the
Class C shares for sale pursuant to this Agreement and, if necessary or
advisable in connection therewith, of 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
9
<PAGE> 10
the reasonable cost of investigating or defending any alleged loss, liability,
claim, damage or expense and reasonable counsel fees incurred in connection
therewith), as incurred, arising by reason of any person acquiring any Class C
shares, which may be based upon the Securities Act, or on any other statute or
at common law, on the ground that the registration statement or related
prospectus and statement of additional information, as from time to time amended
and supplemented, or an annual or interim report to Class C shareholders of the
Fund, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading, unless such statement or omission was made in
reliance upon, and in conformity with, information furnished to the Fund in
connection therewith by or on behalf of the Distributor; provided, however, that
in no case (i) 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
10
<PAGE> 11
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.
(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
11
<PAGE> 12
shall have the rights and duties given to the Fund, and the Fund and each person
so indemnified shall have the rights and duties given to the Distributor by the
provisions of subsection (a) of this Section 9.
Section 10. Merrill Lynch Mutual Fund Adviser Program. In connection
with the Merrill Lynch Mutual Fund Adviser Program, the Distributor and its
affiliate, Merrill Lynch, Pierce, Fenner & Smith Incorporated, are authorized to
offer and sell shares of the Fund, as agent for the Fund, to participants in
such program. The terms of this Agreement shall apply to such sales, including
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 April 30, 2000 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.
12
<PAGE> 13
The terms "vote of a majority of the outstanding voting securities,"
"assignment", "affiliated person" and "interested person," when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act.
Section 12. Amendments of this Agreement. This Agreement may be amended
by the parties only if such amendment is specifically approved by (i) the
Directors or by the vote of a majority of outstanding voting securities of the
Fund and (ii) by the vote of a majority of those Directors of the Fund who are
not parties to this Agreement or interested persons of any such party cast in
person at a meeting called for the purpose of voting on such approval.
Section 13. Governing Law. The provisions of this Agreement shall be
construed and interpreted in accordance with the laws of the State of New York
as at the time in effect and the applicable provisions of the Investment Company
Act. To the extent that the applicable law of the State of New York, or any of
the provisions herein, conflict with the applicable provisions of the Investment
Company Act, the latter shall control.
13
<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
MERRILL LYNCH DISCIPLINED EQUITY FUND, INC.
By
----------------------------------
Name:
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR,
a division of PRINCETON FUNDS DISTRIBUTOR, INC.
By
----------------------------------
Name:
Title:
<PAGE> 15
EXHIBIT A
MERRILL LYNCH DISCIPLINED EQUITY FUND, INC.
CLASS C SHARES OF COMMON STOCK
SELECTED DEALER AGREEMENT
FOR SUBSCRIPTION PERIOD
Ladies and Gentlemen:
Merrill Lynch Funds Distributor, a division of Princeton Funds
Distributor, Inc. (the "Distributor"), has an agreement with Merrill Lynch
Disciplined Equity 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 , 1999. 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 shall you have any authority
to act as agent for the Fund, for us or for any other member of the Selected
Dealers Group, except in connection with the Merrill Lynch Mutual Fund Adviser
program and such other 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
<PAGE> 16
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 on such date
as we may advise by wire transfer of immediately available funds to a bank
account designated by us against delivery by us of non-negotiable share deposit
receipts ("Receipts") issued by 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 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.
A-2
<PAGE> 17
8. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the subscription 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. (the "NASD") and, with respect to any sales in the
United States, we both hereby agree to abide by the Conduct Rules of the NASD.
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 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.
A-3
<PAGE> 18
MERRILL LYNCH FUNDS DISTRIBUTOR,
a division of PRINCETON FUNDS DISTRIBUTOR, INC.
By
-----------------------------------
(Authorized Signature)
Please return one signed copy
of this Agreement to:
MERRILL LYNCH FUNDS DISTRIBUTOR
a division of PRINCETON FUNDS DISTRIBUTOR, INC.
P.O. Box 9081
Princeton, New Jersey 08543-9081
Accepted:
Firm Name:
--------------------
By:
---------------------------
Address:
----------------------
Date:
-------------------------
A-4
<PAGE> 19
EXHIBIT B
MERRILL LYNCH DISCIPLINED EQUITY FUND, INC.
CLASS C SHARES OF COMMON STOCK
SELECTED DEALER AGREEMENT
Ladies and Gentlemen:
Merrill Lynch Funds Distributor, a division of Princeton Funds
Distributor, Inc. (the "Distributor"), has an agreement with Merrill Lynch
Disciplined Equity 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 Adviser
program and such other special programs as we from time to time agree, in which
case you shall have authority to offer and sell shares, as agent for the Fund,
to participants in such program.
2. Orders received from you will be accepted through us only at the public
offering price applicable to each order, as set forth in the current Prospectus
and Statement of Additional Information of the Fund. The procedure relating to
the handling of orders shall be subject to Section 4 hereof and instructions
which we or the Fund shall forward from time to time to you. All orders are
subject to acceptance or rejection by the Distributor or the Fund in the sole
discretion of either. The minimum 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
<PAGE> 20
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 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.
B-2
<PAGE> 21
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. (the "NASD") and, with respect to any sales in the
United States, we both hereby agree to abide by the Conduct Rules of the NASD.
11. Upon application to us, we will inform you as to the states in which
we believe the Class C shares have been qualified for sale under, or are exempt
from the requirements of, the respective securities laws of such states, but we
assume no responsibility or obligation as to your right to sell Class C shares
in any jurisdiction. We will file with the Department of State in New York a
Further State Notice with respect to the Class C shares, if necessary.
12. All communications to us should be sent to the address below. Any
notice to you shall be duly given if mailed or telegraphed to you at the address
specified by you below.
B-3
<PAGE> 22
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,
a division of PRINCETON FUNDS DISTRIBUTOR, INC.
By
---------------------------------------
(Authorized Signature)
Please return one signed copy
of this Agreement to:
MERRILL LYNCH FUNDS DISTRIBUTOR,
a division of PRINCETON FUNDS DISTRIBUTOR, INC.
P.O. Box 9081
Princeton, New Jersey 08543-9081
Accepted:
Firm Name:
---------------------------
By:
----------------------------------
Address:
-----------------------------
-------------------------------------
Date:
--------------------------------
B-4
<PAGE> 1
EXHIBIT 5(d)
CLASS D SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the day of 1999, between MERRILL LYNCH DISCIPLINED
EQUITY FUND, INC., a Maryland corporation (the "Fund"), and MERRILL LYNCH FUNDS
DISTRIBUTOR, a division of Princeton Funds Distributor, Inc., a Delaware
corporation (the "Distributor").
W I T N E S S E T H :
WHEREAS, the Fund is registered under the Investment Company Act of 1940,
as amended (the "Investment Company Act"), as an open-end investment company,
and it is affirmatively in the interest of the Fund to offer its shares for sale
continuously; and
WHEREAS, the Distributor is a securities firm engaged in the business of
selling shares of investment companies either directly to purchasers or through
other securities dealers; and
WHEREAS, the Fund and the Distributor wish to enter into an agreement with
each other with respect to the continuous offering of the Class D shares of
common stock in the Fund.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor. The Fund hereby appoints the
Distributor as the principal underwriter and distributor of the Fund to sell
Class D shares of common stock in the Fund (sometimes herein referred to as
"Class D shares") to the public and hereby agrees during the term of this
Agreement to sell Class D shares of the Fund to the Distributor upon the terms
and conditions herein set forth.
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Section 2. Exclusive Nature of Duties. The Distributor shall be the
exclusive representative of the Fund to act as principal underwriter and
distributor, except that:
(a) The Fund may, upon written notice to the Distributor, from time to
time designate other principal underwriters and distributors of Class D shares
with respect to areas other than the United States as to which the Distributor
may have expressly waived in writing its right to act as such. If such
designation is deemed exclusive, the right of the Distributor under this
Agreement to sell Class D shares in the areas so designated shall terminate, but
this Agreement shall remain otherwise in full effect until terminated in
accordance with the other provisions hereof.
(b) The exclusive right granted to the Distributor to purchase Class D
shares from the Fund shall not apply to Class D shares issued in connection with
the merger or consolidation of any other investment company or personal holding
company with the Fund or the acquisition by purchase or otherwise of all (or
substantially all) the assets or the outstanding Class D shares of any such
company by the Fund.
(c) Such exclusive right also shall not apply to Class D shares issued by
the Fund pursuant to reinvestment of dividends or capital gains distributions.
(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.
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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 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.
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(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 5.25% of the public offering price
(5.54% of the net amount invested), subject to reductions for volume purchases.
Class D shares may be sold to certain Directors, officers and employees of the
Fund, directors and employees of Merrill Lynch & Co., Inc. and its subsidiaries,
and to certain other persons described in the prospectus and statement of
additional information, without a sales charge or at a reduced sales charge,
upon terms and conditions set forth in the prospectus and statement of
additional information. If the public offering price does not equal an even
cent, the public offering price may be adjusted to the nearest cent. All
payments to the Fund hereunder shall be made in the manner set forth in Section
3(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.
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(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 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
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
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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.
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
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the prospectus and statement of additional information as the Distributor shall
reasonably request.
(b) The Fund shall take, from time to time, but subject to any necessary
approval of the Class D shareholders, all necessary action to fix the number of
authorized Class D shares and such steps as may be necessary to register the
same under the Securities Act, to the end that there will be available for sale
such number of Class D shares as the Distributor may reasonably be expected to
sell.
(c) The Fund shall use its best efforts to qualify and maintain the
qualification of an appropriate number of its Class D shares for sale under the
securities laws of such states as the Distributor and the Fund may approve. Any
such qualification may be withheld, terminated or withdrawn by the Fund at any
time in its discretion. As provided in Section 8(c) hereof, the expense of
qualification and maintenance of qualification shall be borne by the Fund. The
Distributor shall furnish such information and other material relating to its
affairs and activities as may be required by the Fund in connection with such
qualification.
(d) The Fund will furnish, in reasonable quantities upon request by the
Distributor, copies of annual and interim reports of the Fund.
Section 6. Duties of the Distributor.
(a) The Distributor shall devote reasonable time and effort to effect
sales of Class D shares of the Fund but shall not be obligated to sell any
specific number of Class D shares. The 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
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investment companies so long as the performance of its obligations hereunder is
not impaired thereby.
(b) In selling the Class D shares of the Fund, the Distributor shall use
its best efforts in all respects duly to conform with the requirements of all
Federal and state laws relating to the sale of such securities. Neither the
Distributor nor any selected dealer, as defined in Section 7 hereof, nor any
other person is authorized by the Fund to give any information or to make any
representations, other than those contained in the registration statement or
related prospectus and statement of additional information and any sales
literature specifically approved by the Fund.
(c) The Distributor shall adopt and follow procedures, as approved by the
officers of the Fund, for the confirmation of sales to investors and selected
dealers, the collection of amounts payable by investors and selected dealers on
such sales, and the cancellation of unsettled transactions, as may be necessary
to comply with the requirements of the National Association of Securities
Dealers, Inc. (the "NASD"), as such requirements may from time to time exist.
Section 7. Selected Dealers Agreements.
(a) The Distributor shall have the right to enter into selected dealers
agreements with securities dealers of its choice ("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
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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.
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
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by the Distributor in connection with such offering. It is understood and agreed
that so long as the Fund's Class D Shares Distribution Plan pursuant to Rule
12b-1 under the Investment Company Act remains in effect, any expenses incurred
by the Distributor hereunder in connection with account maintenance activities
may be paid from amounts recovered by it from the Fund under such plan.
(c) The Fund shall bear the cost and expenses of qualification of the
Class D shares for sale pursuant to this Agreement and, if necessary or
advisable in connection therewith, of qualifying the Fund as a broker or dealer
in such states of the United States or other jurisdictions as shall be selected
by the Fund and the Distributor pursuant to Section 5(c) hereof and the cost and
expenses payable to each such state for continuing qualification therein until
the Fund decides to discontinue such qualification pursuant to Section 5(c)
hereof.
Section 9. Indemnification.
(a) The Fund shall indemnify and hold harmless the Distributor and each
person, if any, who controls the Distributor against any loss, liability, claim,
damage or expense (including the reasonable cost of investigating or defending
any alleged loss, liability, claim, damage or expense and reasonable counsel
fees incurred in connection therewith), as incurred, arising by reason of any
person acquiring any Class D shares, which may be based upon the Securities Act,
or on any other statute or at common law, on the ground that the registration
statement or related prospectus and statement of additional information, as from
time to time amended and supplemented, or an annual or interim report to
shareholders of the Fund, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading, unless such statement or
omission was made in reliance upon, and in conformity with, information
furnished to the Fund
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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 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
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controlling person or persons, defendant or defendants in the suit, for the
reasonable fees and expenses of any counsel retained by them. The Fund shall
promptly notify the Distributor of the commencement of any litigation or
proceedings against it or any of its officers or Directors in connection with
the issuance or sale of any of the Class D shares.
(b) The Distributor shall indemnify and hold harmless the Fund and each of
its Directors and officers and each person, if any, who controls the Fund
against any loss, liability, claim, damage or expense described in the foregoing
indemnity contained in subsection (a) of this Section, but only with respect to
statements or omissions made in reliance upon, and in conformity with,
information furnished to the Fund in writing by or on behalf of the Distributor
for use in connection with the registration statement or related prospectus and
statement of additional information, as from time to time amended, or the annual
or interim reports to Class D shareholders. In case any action shall be brought
against the Fund or any person so indemnified, in respect of which indemnity may
be sought against the Distributor, the Distributor shall have the rights and
duties given to the Fund, and the Fund and each person so indemnified shall have
the rights and duties given to the Distributor by the provisions of subsection
(a) of this Section 9.
Section 10. Merrill Lynch Mutual Fund Adviser Program. In connection with
the Merrill Lynch Mutual Fund Adviser Program, the Distributor and its
affiliate, Merrill Lynch, Pierce, Fenner & Smith Incorporated, are authorized to
offer and sell shares of the Fund, as agent for the Fund, to participants in
such program. The terms of this Agreement shall apply to such sales, including
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.
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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 April 30, 2000 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.
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
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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 DISCIPLINED EQUITY FUND, INC.
By
------------------------------------
Name:
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR,
a division of PRINCETON FUNDS DISTRIBUTOR, INC.
By
------------------------------------
Name:
Title:
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EXHIBIT A
MERRILL LYNCH DISCIPLINED EQUITY FUND, INC.
CLASS D SHARES OF COMMON STOCK
SELECTED DEALER AGREEMENT
FOR SUBSCRIPTION PERIOD
Ladies and Gentlemen:
Merrill Lynch Funds Distributor, a division of Princeton Funds
Distributor, Inc. (the "Distributor"), has an agreement with Merrill Lynch
Disciplined Equity 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
yourself 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 , 1999. 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 or for any other member of the Selected
Dealers Group, except in connection with the Merrill Lynch Mutual Fund Adviser
program and such other special programs as we from time to time agree in which
case you shall have authority to offer and sell shares, as agent for the Fund,
to participants in such program.
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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
-------------------
Sales Charge Securities Dealers'
------------ 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 D share to the Fund from the sale of all shares sold
during the subscription period will be $10.00.
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 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 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-
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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 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.
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6. Payment for Class D shares purchased by you is to be made on such date
as we may advise by wire transfer of immediately available funds to a bank
account designated by us against delivery by us of non-negotiable share deposit
receipts ("Receipts") issued by 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 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 subscription 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.
A-4
<PAGE> 19
12. You represent that you are a member of the National Association of
Securities Dealers, Inc. (the "NASD") and, with respect to any sales in the
United States, we both hereby agree to abide by the Conduct Rules of the NASD.
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 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,
a division of PRINCETON FUNDS DISTRIBUTOR, INC.
By
----------------------------------
(Authorized Signature)
Please return one signed copy
of this Agreement to:
MERRILL LYNCH FUNDS DISTRIBUTOR,
a division of PRINCETON FUNDS DISTRIBUTOR, INC.
P.O. Box 9081
Princeton, New Jersey 08543-9081
Accepted:
Firm Name:
---------------------------------
By:
---------------------------------------
Address:
-----------------------------------
------------------------------------------
Date:
-------------------------------------
A-5
<PAGE> 20
EXHIBIT B
MERRILL LYNCH DISCIPLINED EQUITY FUND, INC.
CLASS D SHARES OF COMMON STOCK
SELECTED DEALERS AGREEMENT
Ladies and Gentlemen:
Merrill Lynch Funds Distributor, a division of Princeton Funds
Distributor, Inc. (the "Distributor"), has an agreement with Merrill Lynch
Disciplined Equity 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 Adviser
program and such other special programs as we from time to time agree, in which
case you shall have authority to offer and sell shares, as agent for the Fund,
to participants in such program.
2. Orders received from you will be accepted through us only at the public
offering price applicable to each order, as set forth in the current Prospectus
and Statement of Additional Information of the Fund. The procedure relating to
the handling of orders shall be subject to Section 5 hereof and instructions
which we or the Fund shall forward from time to time to you. All 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.
B-1
<PAGE> 21
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>
Sales Charge Sales Charge as Discount to
as Percentage* Percentage* of Selected Dealers
of the Offering the Net Amount as Percentage of
Price Invested the Offering Price
Amount of Purchase
- ------------------
<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
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.
B-2
<PAGE> 22
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.
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
B-3
<PAGE> 23
Class D shares directly to the Fund or its agent for redemption subject to the
applicable terms and conditions set forth in Section 4 of the Distribution
Agreement.
6. You shall not withhold placing orders received from your customers so
as to profit yourself as a result of such withholding, e.g., by a change in the
"net asset value" from that used in determining the offering price to your
customers.
7. If any Class D shares sold to you under the terms of this Agreement are
repurchased by the Fund or by us for the account of the Fund or are tendered for
redemption within seven business days after the date of the confirmation of the
original purchase by you, it is agreed that you shall forfeit your right to, and
refund to us, any discount received by you on such Class D shares.
8. No person is authorized to make any representations concerning Class D
shares of the Fund except those contained in the current Prospectus and
Statement of Additional Information of the Fund and in such printed information
subsequently issued by us or the Fund as information supplemental to such
Prospectus and Statement of Additional Information. In purchasing Class D shares
through us you shall rely solely on the representations contained in the
Prospectus and Statement of Additional Information and supplemental information
above mentioned. Any printed information which we furnish you other than the
Fund's 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
B-4
<PAGE> 24
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. (the "NASD") and, with respect to any sales in the
United States, we both hereby agree to abide by the Conduct Rules of the NASD.
13. Upon application to us, we will inform you as to the states in which
we believe the Class D shares have been qualified for sale under, or are exempt
from the requirements of, the respective securities laws of such states, but we
assume no responsibility or obligation as to your right to sell Class D shares
in any jurisdiction. We will file with the Department of State in New York a
Further State Notice with respect to the Class D shares, if necessary.
14. All communications to us should be sent to the address below. Any
notice to you shall be duly given if mailed or telegraphed to you at the address
specified by you below.
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.
B-5
<PAGE> 25
MERRILL LYNCH FUNDS DISTRIBUTOR,
a division of PRINCETON FUNDS DISTRIBUTOR, INC.
By:
-------------------------------
(Authorized Signature)
Please return one signed copy
of this agreement to:
MERRILL LYNCH FUNDS DISTRIBUTOR,
a division of PRINCETON FUNDS DISTRIBUTOR, INC.
P.O. Box 9081
Princeton, New Jersey 08543-9081
Accepted:
Firm Name:
-------------------------------
By:
-------------------------------
Address:
---------------------------
-----------------------------------
Date:
------------------------------
B-6
<PAGE> 1
EXHIBIT 8(a)
TRANSFER AGENCY, DIVIDEND DISBURSING AGENCY
AND SHAREHOLDER SERVICING AGENCY AGREEMENT
THIS AGREEMENT made as of the day of , 1999 by and between
MERRILL LYNCH DISCIPLINED EQUITY FUND, INC., a Maryland corporation (the
"Fund"), and FINANCIAL DATA SERVICES, INC. ("FDS"), a Florida corporation.
WITNESSETH:
WHEREAS, the Corporation wishes to appoint FDS to be the Transfer
Agent, Dividend Disbursing Agent and Shareholder Servicing Agent upon, and
subject to, the terms and provisions of this Agreement, and FDS 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 Corporation and FDS agree as follows:
1. APPOINTMENT OF FDS AS TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND
SHAREHOLDER SERVICING AGENT.
a. The Corporation hereby appoints FDS 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. FDS 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 a Broker-Dealer, as defined
below, for the benefit of an identified person, such account, including a Plan
Account, any account under a plan (by whatever name referred to in the
Prospectus) pursuant to the Self-Employed Individuals Retirement Act of 1962
("Keogh Act Plan") and any account under any plan (by whatever name referred to
in the Prospectus) pursuant to Section 401(k) 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;
<PAGE> 2
(IV) The term "Fund Distributor" means Merrill Lynch Funds
Distributor, Inc., a division of Princeton Funds Distributor, Inc., a
Delaware corporation;
(V) The term "Broker-Dealer" means a registered broker-dealer that
sells shares of the Fund pursuant to a selected dealer's agreement with the
Corporation;
(VI) The term "Officer's Instruction" means an instruction in
writing given on behalf of the Fund to FDS, and signed on behalf of the Fund by
the President, any Vice President, the Secretary or the Treasurer of the
Corporation;
(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 of the Corporation,
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 FDS AS TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND
SHAREHOLDER SERVICING AGENT.
a. Subject to the succeeding provisions of the Agreement, FDS 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
a Broker-Dealer in connection with Plan Accounts, upon the terms and subject to
the conditions contained in the Prospectus and application relating to the
specific Plan Account;
(IV) Acting as agent of the Fund and/or a Broker-Dealer, 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 Corporation 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. FDS
shall pay, on behalf of the Fund Distributor, to a Broker-Dealer such deducted
contingent deferred sales charges imposed upon all Shares maintained in the name
of that Broker-Dealer, or maintained in the name of an account
2
<PAGE> 3
identified as a customer account of that Broker-Dealer. Sales charges imposed
upon any other Shares shall be paid by FDS to the Fund Distributor.
(VI) Exchanging the investment of a Shareholder into, or from the
shares of other open-end investment companies or other series portfolios of the
Corporation, if any, if and to the extent permitted by the Prospectus at the
direction of such Shareholder.
(VII) Processing redemptions;
(VIII) Examining and approving legal transfers;
(IX) Furnishing such confirmations of transactions relating to
their Shares as required by applicable law;
(X) Acting as agent for the Corporation with respect to furnishing
each Shareholder 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,
as well as furnishing such information to each Broker-Dealer to enable the
Broker-Dealer to provide such information to its customers;
(XI) Acting as agent for the Corporation with respect to mailing
annual, semi-annual and quarterly reports prepared by or on behalf of the Fund,
and mailing new Prospectuses upon their issue to each Shareholder as required by
applicable law, as well as causing such materials to be mailed to each
Broker-Dealer to enable the Broker-Dealer to deliver such materials to its
customers;
(XII) Furnishing such periodic statements of transactions effected
by FDS, reconciliations, balances and summaries as the Fund may reasonably
request;
(XIII) Maintaining such books and records relating to transactions
effected by FDS as are required by the Act, or by any other applicable provision
of law, rule or regulation, to be maintained by the Corporation 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
FDS and the Corporation. In addition, FDS agrees to maintain and preserve master
files and historical computer tapes on a daily basis in multiple separate
locations a sufficient distance apart to ensure preservation of at least one
copy of such information;
(XIV) 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
(XV) Reinvesting dividends for full and fractional shares and
disbursing cash dividends, as applicable pursuant to instructions received from
the Shareholder at the time an Account is established.
b. FDS 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
3
<PAGE> 4
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
Corporation the results of such tabulation accompanied by appropriate
certificates, and preparing and furnishing to the Corporation certified lists of
Shareholders as of such date, in such form and containing such information as
may be required by the Corporation.
c. FDS agrees to deal with, and answer in a timely manner, all
correspondence and inquiries relating to the functions of FDS under this
Agreement with respect to Accounts.
d. FDS agrees to furnish to the Corporation 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. FDS agrees to provide to the Corporation such information as may
reasonably be required to enable the Fund to reconcile the number of outstanding
Shares between FDS's records and the account books of the Corporation.
f. Notwithstanding anything in the foregoing provisions of this paragraph,
FDS 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 agreed in a writing signed by both parties.
4. COMPENSATION.
The Corporation agrees to pay FDS the fees and charges, as well as
FDS' out of pocket costs, for services described in this Agreement as set forth
in the Schedule of Fees attached hereto.
5. RIGHT OF INSPECTION.
FDS agrees that it will in a timely manner make available to, and
permit, any officer, accountant, attorney or authorized agent of the Corporation
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
FDS under or pursuant to this Agreement.
6. CONFIDENTIAL RELATIONSHIP.
FDS 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 Corporation, 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 Corporation by
way of an Officer's Instruction.
4
<PAGE> 5
7. INDEMNIFICATION.
The Corporation shall indemnify and hold FDS harmless from any loss,
costs, damage and reasonable expenses, including reasonable attorney's fees
(provided that such attorney is appointed with the Corporation'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 FDS in cases of willful misconduct, failure to act in good faith or
negligence by FDS, its officers, employees or agents, and further provided that
prior to confessing any claim against it which may be subject to this
indemnification, FDS shall give the Corporation reasonable opportunity to defend
against said claim in its own name or in the name of FDS. An action taken by FDS
upon any Officer's Instruction reasonably believed by it to have been properly
executed shall not constitute willful misconduct, failure to act in good faith
or negligence under this Agreement.
8. REGARDING FDS.
a. FDS hereby agrees to hire, purchase, develop and maintain such
dedicated personnel, facilities, equipment, software, resources and capabilities
as both parties may mutually determine to be reasonably necessary for the
satisfactory performance of the duties and responsibilities of FDS. FDS 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 Corporation possess the special skill and technical
knowledge appropriate for that purpose. FDS 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 Corporation. FDS 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. FDS 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 Corporation 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 remain in force for two years thereafter and shall thereafter
continue from year to year. This Agreement may be terminated by the Corporation
or FDS (without penalty to the Corporation or FDS) provided that the terminating
party gives the other party written notice of such termination at least sixty
(60) days in advance, except that the Corporation may terminate this Agreement
immediately upon written notice to FDS if the authority or permission of FDS to
act as Transfer Agent, Dividend Disbursing Agent and Shareholder Servicing Agent
has been revoked or if any proceeding or other action which the Corporation
reasonably believes will lead to such revocation has been commenced.
5
<PAGE> 6
b. Upon termination of this Agreement, FDS shall deliver 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 Corporation 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
Corporation assumes all responsibility for failure thereafter to produce any
paper, record or documents so delivered and identified in the locator document,
if and when required to be produced.
10. AMENDMENT.
Except to the extent that the performance by FDS 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 DISCIPLINED EQUITY FUND, INC.
By:
--------------------------------
Name:
Title:
FINANCIAL DATA SERVICES, INC.
By:
--------------------------------
Name:
Title:
6
<PAGE> 7
Schedule of Fees
The Fund will pay to FDS:
1) For all accounts other than those detailed below an annual fee of $11.00
per Class A and Class D Shareholder Account and $14.00 per Class B and
Class C Shareholder Account. Additionally, a $.20 monthly closed account
charge will be assessed to 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, the closed account
fee will be waived.
2) For ERISA accounts held in the MFA program or any other program requiring
equalization under ERISA, the Fund will pay an annual fee equal to 10
basis points on the net assets in these accounts instead of the per
account charge.
3) For "Large" and "Mid" Market employee benefit plan accounts, the Fund will
pay an annual fee of $11.00 per Class A and Class D Shareholder Account
and $14.00 per Class B and Class C Shareholder Account plus $1.00 per
transaction.
4) For "Small" market employee benefit plan accounts, the Fund will pay per
each shareholder account based on the following schedule:
<TABLE>
<CAPTION>
Account Size Base Fee Transactions
------------ -------- ------------
<S> <C> <C>
<$1,000 $7.00 0.00
$1,000<$2,500 $11.00 0.00
>$2,500 $11.00 1.00
</TABLE>
Additionally, the Fund will reimburse FDS for the out-of-pocket expenses
incurred pursuant to this Agreement.
7
<PAGE> 1
EXHIBIT 8(b)
LICENSE AGREEMENT RELATING TO USE OF NAME
AGREEMENT made as of the day of 1999, by and between MERRILL LYNCH
& CO., INC., a Delaware corporation ("ML & Co."), and MERRILL LYNCH DISCIPLINED
EQUITY 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 April 16, 1999; 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:
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.
<PAGE> 2
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.
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 DISCIPLINED EQUITY FUND, INC.
By:
-----------------------------
Name:
Title:
2
<PAGE> 1
EXHIBIT 13(a)
CLASS B DISTRIBUTION PLAN
OF
MERRILL LYNCH DISCIPLINED EQUITY FUND, INC.
PURSUANT TO RULE 12b-1
DISTRIBUTION PLAN made as of the day of 1999, by and between
Merrill Lynch Disciplined Equity Fund, Inc., a Maryland corporation (the
"Fund"), and Merrill Lynch Funds Distributor, a division of Princeton 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:
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.
<PAGE> 2
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 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
2
<PAGE> 3
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 DISCIPLINED EQUITY FUND, INC.
By:
----------------------------------
Name:
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR,
a division of PRINCETON FUNDS DISTRIBUTOR, INC.
By:
----------------------------------
Name:
Title:
4
<PAGE> 5
CLASS B SHARES DISTRIBUTION PLAN SUB-AGREEMENT
AGREEMENT made as of the day of 1999, by and between Merrill Lynch
Funds Distributor, a division of Princeton 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 Disciplined
Equity 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 services 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 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.
<PAGE> 6
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,
a division of PRINCETON FUNDS DISTRIBUTOR, INC.
By:
----------------------------
Name:
Title:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:
----------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 13(b)
CLASS C DISTRIBUTION PLAN
OF
MERRILL LYNCH DISCIPLINED EQUITY FUND, INC.
PURSUANT TO RULE 12b-1
DISTRIBUTION PLAN made as of the day of 1999, by and between Merrill Lynch
Disciplined Equity Fund, Inc., a Maryland corporation (the "Fund"), and Merrill
Lynch Funds Distributor, a division of Princeton 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 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.
<PAGE> 2
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.
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
2
<PAGE> 3
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 DISCIPLINED EQUITY FUND, INC.
By
------------------------------
Name:
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR,
a division of PRINCETON FUNDS DISTRIBUTOR, INC.
By
------------------------------
Name:
Title:
4
<PAGE> 5
CLASS C SHARES DISTRIBUTION PLAN SUB-AGREEMENT
AGREEMENT made as of the day of 1999, by and between Merrill Lynch Funds
Distributor, Inc., a division of Princeton 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 Disciplined
Equity 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 and
services with respect to the Class C shares of the Fund and incur expenditures
in connection with such activities and services of the types referred to in
Paragraph 1 of the Plan.
2. The Securities Firm shall provide sales and promotional activities and
services with respect to the sale of the Class C shares of the Fund, and incur
distribution expenditures, of the types referred to in Paragraph 2 of the Plan.
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
<PAGE> 6
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,
a division of PRINCETON FUNDS DISTRIBUTOR, INC.
By
----------------------------
Name:
Title:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By
----------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 13(c)
CLASS D DISTRIBUTION PLAN
OF
MERRILL LYNCH DISCIPLINED EQUITY FUND, INC.
PURSUANT TO RULE 12b-1
DISTRIBUTION PLAN made as of the day of 1999, by and between
Merrill Lynch Disciplined Equity Fund, Inc., a Maryland corporation (the
"Fund"), and Merrill Lynch Funds Distributor, a division of Princeton Funds
Distributor, Inc., a Delaware corporation ("MLFD").
W I T N E S S E T H :
WHEREAS, the Fund is engaged in business as an open-end investment company
registered under the Investment Company Act of 1940, as amended (the "Investment
Company Act"); and
WHEREAS, MLFD is a securities firm engaged in the business of selling
shares of investment companies either directly to purchasers or through other
securities dealers; and
WHEREAS, the Fund proposes to enter into a Class D Shares Distribution
Agreement with MLFD, pursuant to which MLFD will act as the exclusive
distributor and representative of the Fund in the offer and sale of Class D
shares of common stock, par value $0.10 per share (the "Class D shares"), of the
Fund to the public; and
WHEREAS, the Fund desires to adopt this Class D Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Investment Company Act, pursuant to
which the Fund will pay an account maintenance fee to MLFD with respect to the
Fund's Class D shares; and
WHEREAS, the Directors of the Fund have determined that there is a
reasonable likelihood that adoption of the Plan will benefit the Fund and its
shareholders.
NOW, THEREFORE, the Fund hereby adopts, and MLFD hereby agrees to the
terms of, the Plan in accordance with Rule 12b-1 under the Investment Company
Act on the following terms and conditions:
1. The Fund shall pay MLFD an account maintenance fee under the Plan at
the end of each month at the annual rate of 0.25% of average daily net assets of
the Fund relating to Class D shares to compensate MLFD and securities firms with
which MLFD enters 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.
<PAGE> 2
2. The Fund hereby authorizes MLFD to enter into Sub-Agreements with
certain securities firms ("Securities Firms"), including Merrill Lynch, Pierce,
Fenner & Smith Incorporated, to provide compensation to such Securities Firms
for activities of the type referred to in Paragraph 1. MLFD may reallocate all
or a portion of its account maintenance fee to such Securities Firms as
compensation for the above-mentioned activities. Such Sub-Agreement shall
provide that the Securities Firms shall provide MLFD with such information as is
reasonably necessary to permit MLFD to comply with the reporting requirements
set forth in Paragraph 3 hereof.
3. MLFD shall provide the Fund for review by the Board of Directors, and
the Directors shall review, at least quarterly, a written report complying with
the requirements of Rule 12b-1 regarding the disbursement of the account
maintenance fee during such period.
4. This Plan shall not take effect until it has been approved by a vote of
at least a majority, as defined in the Investment Company Act, of the
outstanding Class D voting securities of the Fund.
5. This Plan shall not take effect until it has been approved, together
with any related agreements, by votes of a majority of both (a) the Directors of
the Fund and (b) those Directors of the Fund who are not "interested persons" of
the Fund, as defined in the Investment Company Act, and have no direct or
indirect financial interest in the operation of this Plan or any agreements
related to it (the "Rule 12b-1 Directors"), cast in person at a meeting or
meetings called for the purpose of voting on the Plan and such related
agreements.
6. The Plan shall continue in effect for so long as such continuance is
specifically approved at least annually in the manner provided for approval of
the Plan in Paragraph 5.
7. The Plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Directors, or by vote of a majority of the outstanding Class D voting
securities of the Fund.
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.
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have executed this Distribution
Plan as of the date first above written.
MERRILL LYNCH DISCIPLINED EQUITY FUND, INC.
By
----------------------------
Name:
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR,
a division of PRINCETON FUNDS DISTRIBUTOR, INC.
By
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Name:
Title:
<PAGE> 4
CLASS D SHARES DISTRIBUTION PLAN SUB-AGREEMENT
AGREEMENT made as of the day of 1999, by and between Merrill Lynch
Funds Distributor, a division of Princeton 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 Disciplined
Equity Fund, Inc., a Maryland corporation (the "Fund"), pursuant to which it
acts as the exclusive distributor for the sale of Class D shares of common
stock, par value $0.10 per share (the "Class D shares"), of the Fund; and
WHEREAS, MLFD and the Fund have entered into a Class D Shares Distribution
Plan (the "Plan") pursuant to Rule 12b-1 under the Investment Company Act of
1940, as amended (the "Act"), pursuant to which MLFD receives an account
maintenance fee from the Fund at the annual rate of 0.25% of average daily net
assets of the Fund relating to Class D shares for providing account maintenance
activities and services with respect to Class D shares; and
WHEREAS, MLFD desires the Securities Firm to perform certain account
maintenance activities and services, including assistance in connection with
inquiries related to shareholder accounts, for the Fund's Class D shareholders
and the Securities Firm is willing to perform such services;
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the parties hereby agree as follows:
1. The Securities Firm shall provide account maintenance activities and
services with respect to the Class D shares of the Fund and incur expenditures
in connection with such activities and services, of the types referred to in
Paragraph 1 of the Plan.
2. As compensation for its services performed under this Agreement, MLFD
shall pay the Securities Firm a fee at the end of each calendar month in an
amount agreed upon by the parties hereto.
3. The Securities Firm shall provide MLFD, at least quarterly, such
information as reasonably requested by MLFD to enable MLFD to comply with the
reporting requirements of Rule 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
<PAGE> 5
(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,
a division of PRINCETON FUNDS DISTRIBUTOR, INC.
By
----------------------------
Name:
Title:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By
----------------------------
Name:
Title:
