-------------------------------
SOMERSET EXCHANGE FUND
P.O. Box 9011
Princeton, New Jersey 08543-9011
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
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TO BE HELD ON JULY 17, 2000
To the Shareholders of Somerset Exchange Fund:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the
"Meeting") of Somerset Exchange Fund (the "Fund") will be held at the offices
of Merrill Lynch Asset Management, L.P., 800 Scudders Mill Road, Plainsboro,
New Jersey, on Monday, July 17, 2000 at 11:15 a.m. for the following purposes:
(1) To elect a Board of Trustees to serve until the election and
qualification of their successors;
(2) To consider and act upon a proposal to ratify the selection of
Deloitte & Touche LLP to serve as independent auditors of the Fund for
its current fiscal year; and
(3) To transact such other business as may properly come before the
Meeting or any adjournment thereof.
The Board of Trustees of the Fund has fixed the close of business on May
10, 2000 as the record date for the determination of shareholders entitled to
notice of and to vote at the Meeting or any adjournment thereof.
A complete list of the shareholders of the Fund entitled to vote at the
Meeting will be available and open to the examination of any shareholder of
the Fund for any purpose germane to the Meeting during ordinary business hours
from and after July 3, 2000, at the office of the Fund, 800 Scudders Mill
Road, Plainsboro, New Jersey. You are cordially invited to attend the Meeting.
Shareholders who do not expect to attend the Meeting in person are requested
to complete, date and sign the enclosed form of proxy and return it promptly
in the envelope provided for this purpose. The enclosed proxy is being
solicited on behalf of the Board of Trustees of the Fund.
If you have any questions regarding the enclosed proxy material or need
assistance in voting shares, please contact our proxy solicitor, Shareholder
Communication Corporation at (800) 523-4079.
By Order of the Board of Trustees
Robert E. Putney, III
Secretary
Plainsboro, New Jersey
Dated: June 20, 2000
<PAGE>
PROXY STATEMENT
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SOMERSET EXCHANGE FUND
P.O. Box 9011
Princeton, New Jersey 08543-9011
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SPECIAL MEETING OF SHAREHOLDERS
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July 17, 2000
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Trustees of Somerset Exchange Fund, a
Delaware business trust (the "Fund"), to be voted at the Special Meeting of
Shareholders of the Fund (the "Meeting"), to be held at the offices of Merrill
Lynch Asset Management, L.P. ("MLAM"), 800 Scudders Mill Road, Plainsboro, New
Jersey, on Monday, July 17, 2000 at 11:15 a.m. The approximate mailing date of
this Proxy Statement is June 20, 2000.
All properly executed proxies received prior to the Meeting will be voted
at the Meeting in accordance with the instructions marked thereon or otherwise
as provided therein. Unless instructions to the contrary are marked, proxies
will be voted for the election of the Board of Trustees to serve until the
election and qualification of their successors and for the ratification of the
selection of independent auditors to serve for the Fund's current fiscal year.
Any proxy may be revoked at any time prior to the exercise thereof by giving
written notice to the Secretary of the Fund at the Fund's address indicated
above or by voting in person at the Meeting.
The Board of Trustees has fixed the close of business on May 10, 2000 as
the record date (the "Record Date") for the determination of shareholders
entitled to notice of and to vote at the Meeting and at any adjournment
thereof. Shareholders on the Record Date will be entitled to one vote for each
share held, with no shares having cumulative voting rights. As of the Record
Date, the Fund had outstanding 149,182.689 shares of beneficial interest
("Shares"). To the knowledge of the Fund, as of the Record Date, no person is
the beneficial owner of more than five percent of the outstanding Shares.
The Board of Trustees of the Fund knows of no business other than that
mentioned in Items 1 and 2 of the Notice of Special Meeting that will be
presented for consideration at the Meeting. If any other matter is properly
presented at the Meeting or any adjournment thereof, it is the intention of
the persons named on the enclosed proxy to vote in accordance with their best
judgment.
<PAGE>
ITEM 1. ELECTION OF BOARD OF TRUSTEES
At the Meeting, eight individual Trustees will be elected to serve until
the election and qualification of their successors or until their earlier
resignation or removal. The Trustees currently consist of four individual
members and an adviser trustee. MLAM serves as the adviser trustee (in such
capacity, the "Adviser Trustee"). The Fund's Amended and Restated Declaration
of Trust (the "Declaration of Trust") provides that the Adviser Trustee is
responsible for the management of the Fund's portfolio, subject to the
supervision of the individual Trustees, and certain other responsibilities
under the Declaration of Trust, including approving transfers of Shares.
In connection with the re-alignment of the boards of directors and
trustees of certain MLAM/FAM advised funds (as defined herein) it is proposed
that four additional Trustees be elected by shareholders. It is intended that
all properly executed proxies will be voted (unless such authority has been
withheld in the proxy or properly revoked) "FOR" the nominees listed below.
Certain biographical and other information relating to the nominees appears
below.
<TABLE>
<CAPTION>
Shares
Beneficially
Trustee Owned at
Principal Occupations During Past Since/ the Record
Name and Address of Nominee Age Five Years and Public Directorships(1) Nominee Date
------------------------------------------ ----- -------------------------------------------------- ----------- ------------
<S> <C> <C> <C> <C>
Terry K. Glenn(1)*...................... 59 Executive Vice President of MLAM and Fund Asset 1996 0
P.O. Box 9011 Management, L.P., ("FAM") (which terms as used
Princeton, NJ 08543-9011 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.
M. Colyer Crum(1)....................... 67 Currently James R. Williston Professor of Nominee 0
104 Westcliff Road Investment Management Emeritus, Harvard Business
Weston, Massachusetts 02193 School; James R. Williston Professor of
Investment Management, Harvard Business School
from 1971 to 1996; Director of Cambridge Bancorp.
Laurie Simon Hodrick(1)................. 37 Professor of Finance and Economics, Graduate Nominee 0
809 Uris Hall School of Business, Columbia University since
3022 Broadway 1998; Associate Professor of Finance and
New York, New York 10027 Economics, Graduate School of Business, Columbia
University from 1996 to 1998; Associate
Professor of Finance, J.L. Kellogg Graduate
School of Management, Northwestern University
from 1992 to 1996.
Jack B. Sunderland(1)(2)................ 71 President and Director of American Independent 1996 0
P.O. Box 7 Oil Company, Inc. (an energy company) since
West Cornwall, Connecticut 06796 1987; Member of Council on Foreign Relations
since 1971.
Stephen B. Swensrud(1)(2)............... 66 Chairman of Fernwood Advisors (investment 1996 0
24 Federal Street adviser) since 1996; Principal of Fernwood
Boston, Massachusetts 02110 Associates (financial consultants) since 1975;
Chairman of R.P.P. Corporation (manufacturing)
since 1978; Director of International Mobile
Communications, Inc. (telecommunications) since
1998.
J. Thomas Touchton(1)(2)................ 61 Managing Partner of The Witt Touchton Company 1996 0
Suite 3405, One Tampa City Center and its predecessor, The Witt Co. (a private
Tampa, Florida 33602 investment partnership) since 1972; Trustee
Emeritus of Washington and Lee University;
Director of TECO Energy, Inc. (an electric
utility holding company).
Fred G. Weiss(1)........................ 58 Managing Director of FGW Associates since 1997; Nominee 0
16450 Maddalena Place Vice President, Planning, Investment and
Delray Beach, Florida 33446 Development of Warner Lambert Co. from 1979 to
1997.
Arthur Zeikel(1)*....................... 67 Chairman of FAM and of MLAM from 1997 to 1999; Nominee 0
300 Woodland Avenue President of FAM and MLAM from 1977 to 1997;
Westfield, New Jersey 07090 Chairman of Princeton Services from 1997 to
1999, Director thereof from 1993 to 1999 and
President thereof from 1993 to 1997; Executive
Vice President of Merrill Lynch & Co., Inc. ("ML
& Co.") from 1990 to 1999.
</TABLE>
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(1 )Each of the nominees is a director, trustee or member of an advisory board
of certain other investment companies for which MLAM, FAM or their
affiliates act as investment adviser. See "Compensation of Trustees" below.
(2) Member of the Audit Committee of the Board of Trustees.
* Interested person, as defined in the Investment Company Act of 1940, as
amended (the "Investment Company Act"), of the Fund.
The Board of Trustees of the Fund knows of no reason why any of the
nominees listed above will be unable to serve, but in the event of any such
unavailability, the proxies received will be voted for such substitute nominee
or nominees as the Board may recommend.
Committee and Board Meetings. The Board of Trustees has a standing Audit
and Nominating Committee (the "Committee"), which consists of the Trustees who
are not "interested persons" of the Fund within the meaning of the Investment
Company Act. The principal purpose of the Committee is to review the scope of
the annual audit conducted by the Fund's independent auditors and the
evaluation by such auditors of the accounting procedures followed by the Fund.
The Committee also reviews and nominates candidates to serve as non-interested
Trustees. The Committee generally will not consider nominees recommended by
shareholders of the Fund. The non-interested Trustees have retained
independent legal counsel to assist them in connection with these duties.
During the fiscal year ended December 31, 1999, the Board of Trustees
held four meetings and the Audit Committee held three meetings. All of the
Trustees then serving attended at least 75% of the aggregate of the total
number of meetings of the Board of Trustees and, if a member, the total number
of meetings of the Committee held during such period.
Compliance with Section 16(a) of the Securities Exchange Act of 1934.
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Fund's officers, trustees and persons who own
more than ten percent of a registered class of the Fund's equity securities to
file reports of ownership and changes in ownership on Forms 3, 4, and 5 with
the Securities and Exchange Commission ("SEC"). Officers, trustees and greater
than ten percent shareholders are required by SEC regulations to furnish the
Fund with copies of all Forms 3, 4 and 5 they file.
Based solely on the Fund's review of the copies of such forms, and
amendments thereto, furnished to it during or with respect to its most recent
fiscal year, and written representations from certain reporting persons that
they were not required to file Form 5 with respect to the most recent fiscal
year, the Fund believes that all of its officers, trustees, greater than ten
percent beneficial owners and other persons subject to Section 16 of the
Exchange Act due to the requirements of Section 30 of the Investment Company
Act (i.e., any advisory board member, investment adviser or affiliated person
of the Fund's investment adviser) have complied with all filing requirements
applicable to them with respect to transactions during the Fund's most recent
fiscal year.
Interested Persons. The Fund considers Messrs. Glenn and Zeikel to be
"interested persons" of the Fund within the meaning of Section 2(a)(19) of the
Investment Company Act because of the positions each holds or has held with
MLAM and its affiliates and/or due to their ownership of securities issued by
ML & Co. Mr. Glenn is the President of the Fund.
Compensation of Trustees. MLAM, the Fund's investment adviser, pays all
compensation to all officers of the Fund and all Trustees of the Fund who are
affiliated with ML & Co. or its affiliates. The Fund pays each Trustee not
affiliated with MLAM (each a "non-interested Trustee") a fee of $2,500 per
year plus $250 per in person meeting attended, together with such Trustee's
actual out-of-pocket expenses relating to attendance at meetings. The Fund
also pays each member of its Audit Committee, which consists of all of the
non-interested Trustees, a fee of $1,000 per year. These fees and expenses
aggregated $15,373 for the fiscal year ended December 31, 1999.
The following table sets forth for the fiscal year ended December 31,
1999 compensation paid by the Fund to the non-interested Trustees and to
Trustee nominees and, for the calendar year ended December 31, 1999, the
aggregate compensation paid by all investment companies advised by MLAM and
its affiliate, FAM ("MLAM/FAM advised funds"), to the non-interested Trustees
and to Trustee nominees.
<PAGE>
<TABLE>
<CAPTION>
Pension or
Retirement
Benefits
Accrued as Aggregate Compensation from
Compensation from Part of Fund Fund and MLAM/FAM Advised
Name of Trustee or Nominee Fund Expenses Funds Paid to Trustees
--------------------------------------- ---------------------- ---------------- -----------------------------
<S> <C> <C> <C>
M. Colyer Crum(1).................. $0 None $122,975
Laurie Simon Hodrick(1)............ $0 None $53,000
Jack B. Sunderland(1).............. $4,500 None $143,975
Stephen B. Swensrud(1)............. $4,500 None $232,250
J. Thomas Touchton(1).............. $4,500 None $142,725
Fred G. Weiss(1)................... $0 None $122,975
</TABLE>
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(1) The Trustees serve on the boards of MLAM/FAM advised funds as follows: Mr.
Crum (14 registered investment companies consisting of 14 portfolios); Ms.
Hodrick (14 registered investment companies consisting of 14 portfolios);
Mr. Sunderland (18 registered investment companies consisting of 33
portfolios); Mr. Swensrud (25 registered investment companies consisting of
61 portfolios); Mr. Touchton (18 registered investment companies consisting
of 33 portfolios); and Mr. Weiss (14 registered investment companies
consisting of 14 portfolios).
Officers of the Fund. The Board of Trustees has elected 5 officers of the
Fund. Officers of the Fund are elected and appointed by the Board and hold
office until they resign, are removed or are otherwise disqualified to serve.
The following sets forth information concerning each of these officers:
<TABLE>
<CAPTION>
Name and Principal Occupation Office Age Officer Since
---------------------------------------------------------------------- ------------------ ------- ------------------
<S> <C> <C> <C>
Terry K. Glenn.................................................... President 59 1996
Executive Vice President of MLAM and FAM since 1983; Executive
Vice President and Director of 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.
Robert C. Doll, Jr................................................ Senior Vice 45 2000
Senior Vice President of FAM and MLAM since 1999; Senior Vice President
President of Princeton Services since 1999; Chief Investment
Officer of Oppenheimer Funds, Inc. in 1999 and Executive Vice
President thereof from 1991 to 1999.
Eric S. Mitofsky.................................................. Senior Vice 45 1996
First Vice President of MLAM since 1997; Vice President of MLAM President
from 1992 to 1997.
Donald C. Burke................................................... Vice President 39 1999
Senior Vice President and Treasurer of MLAM and FAM since 1999; and Treasurer
Senior Vice President and Treasurer of Princeton Services since
1999; Vice President of PFD since 1999; First Vice President of
MLAM from 1997 to 1999; Vice President of MLAM from 1990 to
1997; Director of Taxation of MLAM and FAM since 1990.
Robert E. Putney, III............................................. Secretary 40 1996
Director (Legal Advisory) of MLAM and Princeton Administrators,
L.P. since 1997; Vice President of MLAM from 1994 to 1997; Vice
President of Princeton Administrators, L.P. from 1996 to 1997;
attorney with MLAM since 1991; attorney in private practice
from 1985 to 1991.
</TABLE>
Stock Ownership. At the Record Date, the Trustees, the Adviser Trustee
and officers of the Fund as a group (8 persons) owned an aggregate of less
than 1% of the Shares of the Fund outstanding at such date. At such date, Mr.
Zeikel, a nominee for election to the Board of Trustees of the Fund, Mr.
Glenn, an officer and a Trustee 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.
ITEM 2. RATIFICATION OF THE SELECTION OF INDEPENDENT AUDITORS
The Board of Trustees of the Fund, including a majority of the Trustees
who are not interested persons of the Fund, has selected the firm of Deloitte
& Touche llp ("D&T"), independent auditors, to examine the financial
statements of the Fund for its current fiscal year. The Fund knows of no
direct or indirect financial interest of such firm in the Fund. Such
appointment is subject to ratification or rejection by the shareholders of the
Fund. Unless a contrary specification is made, the accompanying proxy will be
voted in favor of ratifying the selection of such auditors.
D&T also acts as independent auditors for ML & Co. and most of its
subsidiaries, including MLAM and FAM, and for most other investment companies
for which MLAM and FAM act as investment adviser. The Board of Trustees
considered the fact that D&T has been retained as the independent auditors for
ML & Co. and the other entities described above in its evaluation of the
independence of D&T with respect to the Fund. The fees received by D&T from
these other entities are substantially greater, in the aggregate, than the
total fees received by it from the Fund.
Representatives of D&T are expected to be present at the Meeting and will
have the opportunity to make a statement if they so desire and to respond to
questions from shareholders.
ADDITIONAL INFORMATION
As described in the Fund's Confidential Private Placement Memorandum
dated February 14, 1996, the Board of Trustees intends to consider
recommending to Shareholders that the Fund convert from a closed-end fund to
an open-end fund or an interval fund after July 11, 2001, at which time the
Fund will have had at least five years of operations. The Fund was structured
as a closed-end fund so that during its first five years of operation, it
would generally not be subject to redemption requests. This structure was
designed to avoid triggering gain upon distributions of portfolio securities.
Generally, if portfolio securities were to be distributed within five years
after their contribution to the Fund, to anyone other than the contributing
Shareholder, the contributing Shareholder (not the redeeming Shareholder)
would recognize gain up to the amount of built-in gain existing at the time of
contribution. In addition, the Shareholder receiving such portfolio securities
who had also contributed appreciated securities could be required to recognize
gain the same as if such Shareholder received cash from the Fund. Neither gain
recognition would apply to distributions after five years. If the Board of
Trustees were to recommend and act upon the proposal to convert the Fund to an
open-end fund or an interval fund, a meeting of Shareholders could be held as
early as the third quarter of 2001 to consider and act upon such proposal.
The expenses of preparation, printing and mailing of the enclosed form of
proxy and accompanying Notice and Proxy Statement will be borne by the Fund.
In order to obtain the necessary quorum at the Meeting (i.e., 50% of the
outstanding Shares, present in person or by proxy), supplementary solicitation
may be made by mail, telephone, telegraph or personal interview by officers of
the Fund. The Fund has retained Shareholder Communication Corporation to aid
in the solicitation of proxies, at a cost to be borne by the Fund of
approximately $3,500.
All shares represented by properly executed proxies, unless such proxies
have previously been revoked, will be voted at the Meeting in accordance with
the directions on the proxies; if no direction is indicated, the shares will
be voted "FOR" the Trustee nominees and "FOR" the ratification of D&T as
independent auditors.
With respect to Item 1, "Election of Trustees," assuming a quorum is
present, approval will require affirmative vote of a majority of the votes
cast by the holders of Shares represented at the Meeting and entitled to vote.
With respect to Item 2, "Ratification of the Selection of Independent
Auditors," assuming a quorum is present, approval will require the affirmative
vote of a majority of the votes cast by the holders of Shares represented at
the Meeting and entitled to vote.
If, by the time scheduled for the Meeting, a quorum of the shareholders
is not present or if a quorum is present but sufficient votes to act upon the
proposals are not received from the shareholders, the persons named as proxies
may propose one or more adjournments of the Meeting to permit further
solicitation of proxies from shareholders. Any such adjournment will require
the affirmative vote of a majority of the shares of the Fund present in person
or by proxy and entitled to vote at the session of the Meeting to be
adjourned. The persons named as proxies will vote in favor of any such
adjournment if they determine that adjournment and additional solicitation are
reasonable and in the best interests of the Fund's shareholders.
Address of MLAM
The principal office of MLAM is located at 800 Scudders Mill Road,
Plainsboro, New Jersey 08536.
Annual Report Delivery
The Fund will furnish, without charge, a copy of its annual report for
the Fund's last fiscal year and a copy of its most recent semi-annual report,
if any, to any shareholder upon request. Such requests should be directed to
the attention of the Secretary of the Fund, P.O. Box 9011, Princeton, New
Jersey 08543-9011, or to 1-800-456-4587 ext. 123.
The Declaration of Trust of the Fund does not require the Fund to hold an
annual meeting of shareholders. The Fund will be required, however, to call
special meetings of Shareholders in accordance with the requirements of the
Investment Company Act to seek approval of new management and advisory
arrangements or of a change in the fundamental policies, objectives or
restrictions of the Fund. The Fund also would be required to hold a special
shareholders' meeting to elect new Trustees at such time as less than a
majority of the Trustees holding office have been elected by shareholders. The
charter or by-laws provide that a shareholders' meeting may be called at the
request of a majority of the Trustees or of 10% of the outstanding shares of
the Fund entitled to vote at such meeting.
Shareholder Proposals
A shareholder proposal intended to be presented at any subsequent
meetings of shareholders of the Fund must be received by the Fund in a
reasonable time before the Board's solicitation relating to such meeting is to
be made in order to be considered in the Fund's proxy statement and form of
proxy relating to the meeting.
By Order of the Board of Trustees
Robert E. Putney, III
Secretary
Dated: June 20, 2000
<PAGE>
SHARES OF BENEFICIAL INTEREST
SOMERSET EXCHANGE FUND
P.O. BOX 9011
Princeton, New Jersey 08543-9011
P R O X Y
This proxy is solicited on behalf of the Board of Trustees
The undersigned hereby appoints Terry K. Glenn, Donald C. Burke and
Robert E. Putney, III as proxies, each with the power to appoint his
substitute, and hereby authorizes each of them to represent and to vote, as
designated on the reverse hereof, all of the shares of beneficial interest of
Somerset Exchange Fund (the "Fund") held of record by the undersigned on May
10, 2000 at the special meeting of shareholders of the Fund to be held on July
17, 2000 or any adjournment thereof.
This proxy when properly executed will be voted in the manner directed
herein by the undersigned shareholder. If no direction is made, this proxy
will be voted for Proposals 1 and 2.
(continued and to be signed on the reverse side)
REVERSE OF CARD BELOW
Please mark boxes / / or / / in blue or black ink.
<TABLE>
<CAPTION>
<S> <C> <C>
1. ELECTION OF TRUSTEES FOR all nominees listed below WITHOLD AUTHORITY
(except as marked to the contrary below) / / to vote for all nominees listed below / /
(INSTRUCTION: To withhold authority to vote for any individual nominee, strike a line through the nominee's name in
the list below.)
M. Colyer Crum, Terry K. Glenn, Laurie Simon Hodrick, Jack B. Sunderland, Stephen B. Swensrud, J. Thomas Touchton,
Fred G. Weiss and Arthur Zeikel
2. Proposal to ratify the selection of Deloitte & Touche LLP as the independent auditors of the Fund to serve for the
current fiscal year.
FOR / / AGAINST / / ABSTAIN / /
3. In the discretion of such proxies, upon such other business as may properly come before the meeting or any adjournment thereof.
Please sign exactly as name appears hereon. When shares are
held by joint tenants, both should sign. When signing as
attorney or as executor, administrator, trustee or guardian,
please give full title as such. If a corporation, please sign
in full corporate name by president or other authorized
officer. If a partnership, please sign in partnership name by
authorized person.
Dated: , 2000
----------------------------------
X
---------------------------------------------
Signature
X
---------------------------------------------
Signature, if held jointly
Sign, Date and Return the Proxy Card Promptly Using the Enclosed Envelope.
</TABLE>
