<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 19, 1999.
SECURITIES ACT FILE NO. 333-72137
INVESTMENT COMPANY ACT FILE NO. 811-09229
POST-EFFECTIVE AMENDMENT TO REGISTRATION STATEMENT AS STATED BELOW
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. 1 [X]
POST-EFFECTIVE AMENDMENT NO. [ ]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 1 [X]
(CHECK APPROPRIATE BOX OR BOXES)
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MERRILL LYNCH SENIOR FLOATING RATE FUND II, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
800 SCUDDERS MILL ROAD 08536
PLAINSBORO, NEW JERSEY (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (609) 282-2800
TERRY K. GLENN
MERRILL LYNCH SENIOR FLOATING RATE FUND II, 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)
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COPIES TO:
<TABLE>
<S> <C>
FRANK P. BRUNO, ESQ. PATRICK D. SWEENEY, ESQ.
BROWN & WOOD LLP MERRILL LYNCH ASSET MANAGEMENT, L.P.
ONE WORLD TRADE CENTER P.O. BOX 9011
NEW YORK, NEW YORK 10048-0557 PRINCETON, NEW JERSEY 08543-9011
</TABLE>
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APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), other than securities offered only in
connection with dividend or interest reinvestment plans, check the following
box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
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If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
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If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNT OFFERING AGGREGATE AMOUNT OF
TITLE OF SECURITIES BEING BEING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER UNIT PRICE(1) FEE(2)
<S> <C> <C> <C> <C>
Common Stock ($.10 par value)...... 10,000,000 shs. $ 10.00 $100,000,000 $27,800
</TABLE>
(1) Estimated solely for the purpose of calculating the filing fee.
(2) Transmitted to the designated lockbox at Mellon Bank in Pittsburgh, PA. $278
was previously paid. $27,522 was transmitted in connection with this filing.
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<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.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED FEBRUARY 19, 1999
PROSPECTUS
MARCH , 1999
MERRILL LYNCH SENIOR FLOATING RATE FUND II, INC.
COMMON STOCK
------------------------
Merrill Lynch Senior Floating Rate Fund II, Inc. (the "Fund") is a newly
organized, continuously offered, non-diversified, closed-end fund. The Fund
seeks as high a level of current income and such preservation of capital as is
consistent with investment in senior collateralized corporate loans (primarily
in the form of participation interests) made by banks and other financial
institutions. There can be no assurance that the investment objective of the
Fund will be realized. Currently, there is no secondary market for the Fund's
common stock. To provide liquidity, the Fund generally intends to make quarterly
tender offers for its shares. In a tender offer, the Fund repurchases
outstanding shares at the Fund's net asset value on the last day of the offer.
If a tender offer is not made, shareholders may not be able to sell their
shares.
Shares of common stock of the Fund will be offered at $10.00 per share
without a front-end sales charge during a subscription offering period expected
to end on March 23, 1999, unless extended. On the third business day after the
conclusion of this subscription offering period, the subscriptions will be
payable, the common stock will be issued and the Fund will commence operations.
After the completion of the subscription offering period, the Fund expects to
engage in a continuous offering of its common stock at a price equal to the next
determined net asset value per share without a front-end sales charge.
------------------------
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 determined if this Prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
<TABLE>
<CAPTION>
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) FUND(3)
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<S> <C> <C> <C>
Per Share..................... $10.00 None $10.00
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Total(3)...................... $100,000,000 None $100,000,000
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</TABLE>
(1) The common stock is offered on a best efforts basis at a price equal to net
asset value, which is initially $10.00 a share.
(2) The Distributor pays all offering expenses (other than registration fees)
and sales commissions to selected dealers (primarily Merrill Lynch, Pierce,
Fenner & Smith Incorporated) from its own assets. Therefore, all of the
proceeds of this offering will be available to the Fund for investment in
portfolio securities. See "Purchase of Shares."
(3) These amounts (a) do not take into account offering expenses (approximately
$240,000), which will be amortized over a one-year period and charged as
expenses against income of the Fund, and (b) assume all shares currently
registered are sold in the continuous offering.
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MERRILL LYNCH FUNDS DISTRIBUTOR -- DISTRIBUTOR
MERRILL LYNCH ASSET MANAGEMENT -- INVESTMENT ADVISER
<PAGE> 3
PROSPECTUS SUMMARY
This summary is qualified in its entirety by reference to the detailed
information included in this Prospectus.
THE FUND Merrill Lynch Senior Floating Rate Fund II,
Inc. is a newly organized, continuously
offered, non-diversified, closed-end fund.
THE OFFERING Merrill Lynch Funds Distributor, a division of
Princeton Funds Distributor, Inc., and other
securities dealers which have entered into
selected dealer agreements with the
Distributor, including Merrill Lynch, Pierce,
Fenner & Smith Incorporated, will solicit
subscriptions for common stock of the Fund
during a period expected to end on March 23,
1999, unless extended. On the third business
day after the conclusion of this subscription
period, the subscriptions will be payable, the
common stock will be issued and the Fund will
commence operations. The public offering price
of the common stock during the subscription
offering will be $10.00 per share without a
front-end sales charge.
After the completion of the initial
subscription offering, the Fund expects to
engage in a continuous offering of its common
stock at a price equal to the next determined
net asset value per share without a front-end
sales charge. During the subscription and
continuous offering periods shares will be sold
subject to certain minimum purchase
requirements:
<TABLE>
<CAPTION>
THE THE
MINIMUM MINIMUM
INITIAL SUBSEQUENT
FOR INVESTMENTS PURCHASE PURCHASE
IN THE FUND MADE AMOUNT IS AMOUNT IS
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<S> <C> <C>
Directly through the Fund's
Distributor or Transfer Agent.... $1,000 $50
Via a Merrill Lynch-maintained
401(k) or 403(b) plan............ None None
Via another retirement plan........ $ 250 $ 1
</TABLE>
INVESTMENT OBJECTIVE AND
POLICIES The Fund seeks to provide shareholders with as
high a level of current income and such
preservation of capital as is consistent with
investment in senior collateralized corporate
loans made to U.S. or non-U.S. borrowers. An
investment in the Fund entails certain risks.
2
<PAGE> 4
Corporate Loans. The Fund invests primarily in
corporate loans that are direct obligations of
a borrower undertaken to finance the growth of
the borrower's business or a capital
restructuring. A significant portion of such
corporate loans are highly leveraged loans such
as leveraged buy-out loans, leveraged
recapitalization loans and other types of
acquisition loans. The Fund also may invest in
privately placed notes with credit and pricing
terms that are, in the opinion of the
Investment Adviser, consistent with investment
in senior collateralized corporate loans.
Floating or Variable Rate Corporate
Loans. Under normal market conditions, the
Fund will invest at least 65% of its assets in
corporate loans that have floating or variable
interest rates. Floating rate corporate loan
interest rates adjust periodically at a margin
above a generally-recognized base lending rate
such as the prime rate of a designated U.S.
bank, the Certificate of Deposit rate or the
London InterBank Offered Rate.
Credit Quality. The Fund will invest in a
corporate loan only if, in the Investment
Adviser's judgment, the borrower can meet debt
service on such loan. The Investment Adviser
performs its own credit analysis of each
borrower. Since the minimum debt rating of a
borrower may not have a meaningful relationship
to the quality of such borrower's senior
collateralized debt, the Fund does not impose
any minimum standard regarding the rating of
other debt instruments of the borrower. The
Fund may invest without limitation in corporate
loans rated below investment grade (i.e., below
BBB or Baa) or which are unrated but of similar
credit quality.
Unsecured Loans and Short-Term
Investments. Generally the Fund invests at
least 80% of its assets in senior
collateralized corporate loans. The remainder
of the Fund's assets may be invested in
unsecured senior loans. The Fund also may
invest in cash or in secured or unsecured
short-term debt obligations. Short-term debt
obligations in which the Fund invests are rated
investment grade (i.e., within the four highest
rating categories assigned by a nationally
recognized rating service) or, if not rated,
are determined to be of comparable quality by
the Investment Adviser. Obligations rated in
the fourth highest rating category may
3
<PAGE> 5
include obligations considered to have certain
speculative characteristics.
Portfolio Maturity. The Fund has no
restrictions on portfolio maturity, but it is
anticipated that a majority of the corporate
loans in which it invests will have stated
maturities ranging from three to ten years. As
a result of prepayments, however, the average
life of the corporate loans is expected to be
in the two to three year range.
Foreign and Domestic Borrowers. The Fund may
invest in corporate loans made to U.S. or
non-U.S. borrowers, provided that the loans are
U.S. dollar-denominated or otherwise provide
for payment to the Fund in U.S. dollars.
Hedging Techniques. The Fund may engage in
certain interest rate hedging transactions,
such as "swaps", "caps" or "floors," to reduce
the Fund's exposure to interest rate movements.
The Fund also may invest in corporate loans
that pay interest and principal in a currency
other than U.S. dollars if the loan arrangement
also includes a foreign currency swap that
entitles the Fund to receive payments in U.S.
dollars, or if the Fund hedges the foreign
currency exposure itself utilizing forward
contracts or other methods.
BORROWINGS BY THE FUND The Fund may borrow money in amounts up to
33 1/3% of the value of its total assets.
Typically the Fund borrows to satisfy tender
offers, but it also is authorized to borrow to
finance additional investments. The Fund will
borrow to finance additional investments only
when the Investment Adviser believes that the
potential return on such additional investments
will exceed the costs incurred in connection
with the borrowing. The Fund does not currently
anticipate borrowing to finance additional
investments.
INVESTMENT ADVISER AND
ADMINISTRATOR Merrill Lynch Asset Management, L.P., the
Investment Adviser, provides investment
advisory and administrative services to the
Fund. For advisory services, the Fund pays the
Investment Adviser a fee at the annual rate of
0.95% of the Fund's average daily net assets.
For its administrative services, the Fund pays
the Investment Adviser a fee at the annual rate
of 0.40% of the Fund's average daily net
assets. While the combined advisory and
administrative fees are higher than that paid
by most funds, they are comparable to
4
<PAGE> 6
those paid by other continuously offered
closed-end funds investing primarily in
corporate loans.
DISTRIBUTIONS The Fund intends to declare dividends daily,
pay dividends monthly and distribute all of its
net investment income. Net capital gains, if
any, will be distributed at least annually.
TENDER OFFERS Currently, there is no secondary market for the
Fund's common stock, and it is not expected
that a secondary market will develop. To
provide liquidity, the Board of Directors
intends to consider, on a quarterly basis,
whether the Fund should make a tender offer for
its shares. In a tender offer, the Fund
repurchases outstanding shares at the Fund's
net asset value on the last day of the offer.
If a tender offer is not made, shareholders may
not be able to sell their shares.
EARLY WITHDRAWAL CHARGE Tendered shares of common stock held for less
than one year at the date of tender are subject
to an early withdrawal charge in most cases. It
is based on the lesser of cost or net asset
value of the tendered shares. There is no
charge when shares are tendered after more than
one year.
5
<PAGE> 7
RISK FACTORS AND SPECIAL CONSIDERATIONS
Liquidity of Shares. The Fund is designed primarily for long-term
investors and should not be considered a vehicle for trading purposes.
Currently, there is no secondary market for the Fund's common stock, and a
secondary market is not expected to develop. To provide liquidity to
shareholders, the Board of Directors of the Fund intends to consider the making
of quarterly tender offers to repurchase the Fund's shares at net asset value.
However, the Fund's shares are less liquid than shares of funds traded on a
stock exchange, and shareholders who tender Fund shares held for less than one
year will pay an early withdrawal charge. The Board of Directors is not
obligated to authorize any tender offer, and there may be quarters in which no
tender offer is made. If the Board of Directors does not authorize a tender
offer, shareholders may be unable to sell their shares. Merrill Lynch and other
selected dealers are prohibited from making a market in the Fund's common stock
while the Fund either is offering its shares or is making a tender offer to
repurchase its shares.
Closed-end funds that do trade in a secondary market are subject to the
risk that the net asset value of the shares may be higher than the market price,
commonly referred to as "trading at a discount." As long as there is no
secondary market for the Fund's shares, the Fund is not subject to this risk.
Non-payment. The debt instruments in which the Fund invests are subject to
the risk of non-payment of interest and principal. When a borrower fails to make
scheduled interest or principal payments on a debt instrument, the value of the
instrument, and hence the value of the Fund's shares, may go down. While
collateral may provide some protection against devaluation due to a default on a
collateralized loan, losses may not be completely covered by the liquidation or
sale of collateral.
The Fund may invest without limitation in corporate loans rated below
investment grade (i.e., below BBB or Baa) or which are unrated but of similar
credit quality. These investments have a higher risk of non-payment than
investment grade investments.
Corporate loans made in connection with highly leveraged transactions are
subject to greater risks than other corporate loans. For example, the risks of
default or bankruptcy of the borrower or the risks that other creditors of the
borrower may seek to nullify or subordinate the Fund's claims on the collateral
securing the loan are greater in highly leveraged transactions.
Intermediary. The Fund may invest in corporate loans either by
participating as a co-lender at the time the loan is originated or by buying an
interest in the loan from an institution acting as agent, co-lender or
participant. The financial status of the institutions interposed between the
Fund and a borrower may affect the ability of the Fund to receive principal and
interest payments. For this reason, the Fund will invest in corporate loans only
if, at the time of investment, the outstanding debt obligations of these
intermediary institutions are rated investment grade or are of comparable
quality in the judgment of the Investment Adviser.
The success of the Fund depends, to a great degree, on the skill with which
an agent bank administers the terms of the corporate loan agreements, monitors
borrower compliance with covenants, collects principal, interest and fee
payments from borrowers and, where necessary, enforces creditor remedies against
borrowers. Agent banks typically have broad discretion in enforcing corporate
loan agreements.
6
<PAGE> 8
Net Asset Value; Interest Rate Sensitivity. Generally, when interest rates
go up, the value of debt securities goes down. Therefore, the net asset value of
a fund that invests primarily in fixed-income debt securities changes as
interest rates fluctuate. Because the Fund invests primarily in floating or
variable rate debt obligations, the Investment Adviser expects that it will be
insulated to a significant degree from net asset value fluctuations caused by
movements in interest rates. However, because floating and variable rate debt
obligations only reset periodically, the Fund's net asset value may fluctuate
from time to time when there is an imperfect correlation between the interest
rates on the variable rate loans in the Fund's portfolio and prevailing interest
rates. Changes in the creditworthiness of borrowers or of co-lenders or
participants interposed between the Fund and the borrowers also may affect the
Fund's net asset value. Furthermore, volatility in the capital markets may
affect the Fund's net asset value given that the Fund uses market prices to
value many of its corporate loan investments.
Borrowings by the Fund. If the Fund chooses to borrow money, rather than
liquidate investments, to satisfy a tender offer, it is subject to the risk that
investment return on Fund shares will be reduced to the extent the cost of the
borrowings exceeds income on the retained investments.
Hedging. Hedging transactions subject the Fund to the risk that, if the
Investment Adviser incorrectly forecasts market values, interest rates or other
applicable factors, the Fund's performance could suffer. In addition, if the
counterparty to an interest rate hedging transaction defaults, the Fund's risk
of loss consists of the net amount of interest payments that the Fund
contractually is entitled to receive. The Fund is not required to enter into
interest rate hedging transactions and may not do so. If the counterparty to a
foreign currency swap defaults, the Fund will seek a replacement swap, which may
result in additional costs to the Fund, and will be subject to fluctuations in
the applicable exchange rate until a replacement swap is obtained.
Concentration. The Fund's investments may be concentrated in obligations
issued by financial institutions and their holding companies, including
commercial banks, thrift institutions, insurance companies and finance
companies. As a result, the Fund is subject to certain risks associated with
such institutions, including, among other things, changes in government
regulation, interest rate levels and general economic conditions.
Foreign Investment. Loans to non-U.S. borrowers may involve risks not
typically involved in domestic investment, including fluctuation in foreign
interest rates, future foreign political and economic developments and the
possible imposition of exchange controls or other governmental laws or
restrictions.
Non-diversification. The Fund is classified as a non-diversified
investment company, meaning that the Fund may invest a greater percentage of its
assets in the obligations of a single issuer than a diversified investment
company. Even as a non-diversified fund, the Fund is still subject to the
diversification requirements of the U.S. tax laws. However, since the Fund may
invest a higher percentage of its assets in obligations of a single issuer than
a diversified fund, it is more susceptible than a diversified fund to any
economic, political or regulatory occurrence that affects an individual issuer.
Liquidity of Investments. Certain corporate loans in which the Fund
invests may be deemed to be illiquid. Illiquid investments may impair the Fund's
ability to realize the full value of those investments in the event the Fund
must dispose of them quickly. The Fund's Board of Directors will consider the
liquidity of the Fund's portfolio in determining whether a tender offer should
be made.
7
<PAGE> 9
FEE TABLE
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load (as a percentage of offering price).... None
Dividend Reinvestment and Cash Purchase Plan Fees......... None
Early Withdrawal Charge (as a percentage of the lesser of
the original purchase price or net asset value at the
time of repurchase)(a)................................. 1.0% during the first year,
0.0% thereafter
ANNUAL EXPENSES (AS A PERCENTAGE OF NET ASSETS)
Investment Advisory Fees(b)............................... 0.95%
Interest Payments on Borrowed Funds(c).................... 0.00
Other Expenses(d)......................................... 0.72
----
Total Annual Expenses............................. 1.67%
----
----
</TABLE>
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(a) See "Early Withdrawal Charge" -- page 27.
(b) See "Investment Advisory and Administrative Arrangements" -- page 30.
(c) Typically the Fund will borrow only when sufficient cash is otherwise
unavailable to satisfy tender offers.
(d) Includes administrative fees, which are payable to the Investment Adviser by
the Fund, at the annual rate of 0.40% of average daily net assets. See
"Investment Advisory and Administrative Arrangements" -- page 30.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a $1,000
investment assuming (1) total annual expenses of 1.67%,
(2) a 5% annual return throughout the periods and (3)
tender at the end of the period........................ $27* $53 $91 $198
An investor would pay the following expenses on a $1,000
investment assuming no tender at the end of the
period................................................. $17 $53 $91 $198
</TABLE>
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* Reflects the early withdrawal charge.
The Fee Table is intended to assist investors in understanding the costs
and expenses that a shareholder in the Fund will bear directly or indirectly.
The expenses set forth under "Other Expenses" are based on estimated amounts
through the end of the Fund's current fiscal year. The Example set forth above
assumes reinvestment of all dividends and distributions and utilizes a 5% annual
rate of return as mandated by Securities and Exchange Commission regulations.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES
OR ANNUAL RATES OF RETURN, AND ACTUAL EXPENSES OR ANNUAL RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE ASSUMED FOR PURPOSES OF THE EXAMPLE. Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch") may charge its customers a
processing fee (presently $5.35) for confirming purchases and repurchases.
Purchases and repurchases made directly through the Transfer Agent are not
subject to the processing fee.
8
<PAGE> 10
THE FUND
Merrill Lynch Senior Floating Rate Fund II, Inc. is a newly organized,
continuously offered, non-diversified, closed-end management investment company.
The Fund was incorporated under the laws of the State of Maryland on February 9,
1999 and has registered under the Investment Company Act of 1940, as amended
(the "1940 Act"). The Fund's principal office is located at 800 Scudders Mill
Road, Plainsboro, New Jersey 08536 and its telephone number is (609) 282-2800.
USE OF PROCEEDS
Assuming all shares of common stock currently registered are sold in the
initial offering, it is estimated that the net proceeds from the sale of the
common stock offered hereby will be $99,760,000, after payment of offering
expenses by the Fund, and will be invested in accordance with the Fund's
investment objective and policies as soon as practicable after the closing of
the subscription offering of common stock, but in no event, under normal market
conditions, longer than three months from such closing date. Pending such
investment, it is anticipated that the proceeds will be invested in high grade,
short-term debt securities. See "Investment Objective and Policies."
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide as high a level of current
income and such preservation of capital as is consistent with investment in
senior collateralized corporate loans ("Corporate Loans") primarily in the form
of Participation Interests, as defined below, in Corporate Loans made by banks
or other financial institutions. It is anticipated that the Corporate Loans will
pay interest at rates that float at a margin above a generally recognized base
lending rate such as the prime rate of a designated U.S. bank, or which adjust
periodically at a margin above the Certificate of Deposit ("CD") rate or the
London InterBank Offered Rate ("LIBOR"). This is a fundamental policy of the
Fund and may not be changed without a vote of a majority of the outstanding
shares of the Fund. There can be no assurance that the investment objective of
the Fund will be realized.
Under normal market conditions the Fund will invest at least 80% of its
total assets in interests in Corporate Loans that have floating or variable
interest rates. Under normal market conditions, at least 65% of the total assets
of the Fund will be invested in floating or variable rate loans made to
corporations. The Fund may invest up to 20% of its total assets in cash or in
short-term debt obligations including, but not limited to, U.S. Government and
Government agency securities (some of which may not be backed by the full faith
and credit of the United States), bank money instruments (such as certificates
of deposit and bankers' acceptances), corporate and commercial obligations (such
as commercial paper and medium-term notes) and repurchase agreements. Such
short-term debt obligations, which need not be secured, will all be investment
grade (rated Baa, P-3 or higher by Moody's Investors Service, Inc. ("Moody's")
or BBB, A-3 or higher by Standard & Poor's ("S&P") or, if unrated, determined to
be of comparable quality in the judgment of the Investment Adviser). Securities
rated Baa, BBB, P-3 or A-3 are considered to have adequate capacity for payment
of principal and interest, but are more susceptible to adverse economic
conditions and, in the case of securities rated BBB or Baa (or comparable
unrated securities), have speculative characteristics. Such securities or cash
will not exceed 20% of the Fund's total assets except during interim periods
pending investment of the net proceeds of public offerings of the Fund's
securities
9
<PAGE> 11
and during temporary defensive periods when, in the opinion of the Investment
Adviser, suitable Corporate Loans are not available for investment by the Fund
or prevailing market or economic conditions warrant. The Fund also may invest up
to 20% of its total assets in senior loans made on an unsecured basis
("Unsecured Corporate Loans"). Investments in Unsecured Corporate Loans will be
made on the same basis as investments in Corporate Loans as described herein,
except with respect to collateral requirements. To a limited extent, incidental
to and in connection with its lending activities, the Fund also may acquire
warrants and other debt and equity securities.
The Fund has no restrictions on portfolio maturity, but it is anticipated
that a majority of the Corporate Loans in which it will invest will have stated
maturities ranging from three to ten years. As a result of prepayments, however,
it is expected that the average life of the Corporate Loans will be in the two
to three year range. See "Description of Corporate Loans."
Investment in shares of common stock of the Fund offers several benefits.
The Fund offers investors the opportunity to receive a high level of current
income by investing in a professionally managed portfolio comprised primarily of
Corporate Loans, a type of investment typically not available to individual
investors. In managing such portfolio, Merrill Lynch Asset Management, L.P., the
investment adviser (the "Investment Adviser"), provides the Fund and its
shareholders with professional credit analysis and portfolio diversification.
The Fund also relieves the investor of the burdensome administrative details
involved in managing a portfolio of such investments, if available to individual
investors. The benefits are at least partially offset by the expenses involved
in operating an investment company. Such expenses primarily consist of the
investment advisory and administrative fees and operational costs.
The net asset value of the shares of common stock of an investment company
that invests primarily in fixed-income securities changes as the general levels
of interest rates fluctuate. When interest rates decline, the value of a
fixed-income portfolio can be expected to rise. Conversely, when interest rates
rise, the value of a fixed-income portfolio can be expected to decline. The
Investment Adviser expects the Fund's net asset value to be relatively stable
during normal market conditions, because the Fund's portfolio will consist
primarily of floating and variable rate Corporate Loans, of fixed-rate Corporate
Loans hedged by interest rate swap transactions and of short-term instruments.
For these reasons, the Investment Adviser expects the value of the Fund's
portfolio to fluctuate significantly less as a result of interest rate changes
than would a portfolio of fixed-rate obligations. However, because variable
interest rates only reset periodically, the Fund's net asset value may fluctuate
from time to time in the event of an imperfect correlation between either the
interest rates on variable rate loans in the Fund's portfolio or the variable
interest rates on notional amounts in the Fund's interest rate swap
transactions, and prevailing interest rates. Also, a default on a Corporate Loan
in which the Fund has invested or a sudden and extreme increase in prevailing
interest rates may cause a decline in the Fund's net asset value. Conversely, a
sudden and extreme decline in interest rates could result in an increase in the
Fund's net asset value. Furthermore, volatility in the capital markets may
affect the Fund's net asset value given that the Fund uses market prices to
value many of its corporate loan investments.
The Fund is classified as non-diversified within the meaning of the 1940
Act, which means that the Fund is not limited by such Act in the proportion of
its assets that it may invest in securities of a single issuer. However, the
Fund's investments will be limited so as to qualify the Fund as a "regulated
investment company" for purposes of the Federal tax laws. See "Taxes." To
qualify, among other requirements, the Fund will limit its investments so that,
at the close of each quarter of the taxable year,
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(i) not more than 25% of the market value of the Fund's total assets will be
invested in the securities (other than U.S. Government securities) of a single
issuer and (ii) with respect to 50% of the market value of its total assets, not
more than 5% of the market value of its total assets will be invested in the
securities (other than U.S. Government securities) of a single issuer. A fund
that elects to be classified as "diversified" under the 1940 Act must satisfy
the foregoing 5% requirement with respect to 75% of its total assets. To the
extent that the Fund assumes large positions in the securities of a small number
of issuers, the Fund's net asset value may fluctuate to a greater extent than
that of a diversified company as a result of changes in the financial condition
or in the market's assessment of the issuers.
DESCRIPTION OF CORPORATE LOANS
The Corporate Loans in which the Fund invests primarily consist of direct
obligations of a borrower undertaken to finance the growth of the borrower's
business, internally or externally, or to finance a capital restructuring.
Corporate Loans may also include debtor in possession financings pursuant to
Chapter 11 of the U.S. Bankruptcy Code and obligations of a borrower issued in
connection with a restructuring pursuant to Chapter 11 of the U.S. Bankruptcy
Code. A significant portion of such Corporate Loans are highly leveraged loans
such as leveraged buy-out loans, leveraged recapitalization loans and other
types of acquisition loans. Such Corporate Loans may be structured to include
both term loans, which are generally fully funded at the time of the Fund's
investment, and revolving credit facilities, which would require the Fund to
make additional investments in the Corporate Loans as required under the terms
of the credit facility. Such Corporate Loans may also include receivables
purchase facilities, which are similar to revolving credit facilities secured by
a borrower's receivables. Corporate Loans generally are issued in the form of
senior syndicated loans, but the Fund also may invest from time to time in
privately placed notes with credit and pricing terms which are, in the opinion
of the Investment Adviser, consistent with investments in senior collateralized
loan obligations. The Fund may invest without limitation in highly leveraged
Corporate Loans that are rated below investment grade or are unrated. See "Risk
Factors and Special Considerations."
The Fund may invest in Corporate Loans that are made to non-U.S. borrowers,
provided that the loans are U.S. dollar-denominated or otherwise provide for
payment in U.S. dollars, and any such borrower meets the credit standards
established by the Investment Adviser for U.S. borrowers. The Fund similarly may
invest in Corporate Loans made to U.S. borrowers with significant non-dollar
denominated revenues, provided that the loans are U.S. dollar-denominated or
otherwise provide for payment to the Fund in U.S. dollars. In all cases where
the Corporate Loans are not denominated in U.S. dollars, the Corporate Loan
facility will provide for payments to the lenders, including the Fund, in U.S.
dollars pursuant to foreign currency swap arrangements. Loans to such non-U.S.
borrowers or U.S. borrowers may involve risks not typically involved in domestic
investment, including fluctuation in foreign exchange rates, future foreign
political and economic developments, and the possible imposition of exchange
controls or other foreign or U.S. governmental laws or restrictions applicable
to such loans. With respect to certain foreign countries, there is the
possibility of expropriation or confiscatory taxation, political or social
instability, or diplomatic developments which could affect the Fund's
investments in those countries. Moreover, individual foreign economies may
differ favorably or unfavorably from the U.S. economy in such respects as growth
of gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payment position. In addition, information with
respect to non-U.S. borrowers may differ from that available with respect to
U.S. borrowers, since foreign companies are not generally subject to uniform
accounting,
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auditing and financial reporting standards, practices and requirements
comparable to those applicable to U.S. borrowers.
The Corporate Loans in which the Fund invests, in many instances, hold the
most senior position in the capitalization structure of the borrower, and, in
any case, in the judgment of the Investment Adviser, are in the category of
senior debt of the borrower. Each Corporate Loan is secured by collateral that
the Investment Adviser believes to have a market value, at the time of the
Fund's investment in the Corporate Loan, which equals or exceeds the principal
amount of the Corporate Loan. The value of such collateral generally is
determined by an independent appraisal or by obtaining the market value of such
collateral (e.g., cash or securities) if it is readily ascertainable. In the
event of a default, however, the ability of the lender to have access to the
collateral may be limited by bankruptcy and other insolvency laws. The value of
the collateral may decline below the amount of the Corporate Loan subsequent to
the Fund's investment in the loan. Under certain circumstances, the collateral
is released with the consent of the Agent Bank and Co-Lenders or pursuant to the
terms of the underlying credit agreement with the borrower. There is no
assurance that the liquidation of the collateral will satisfy the borrower's
obligation in the event of nonpayment of scheduled interest or principal, or
that the collateral could be readily liquidated. As a result, the Fund might not
receive payments to which it is entitled and thereby may experience a decline in
the value of the investment and, possibly, its net asset value.
In the case of highly leveraged loans, a borrower generally is required to
pledge collateral that may include (i) working capital assets, such as accounts
receivable and inventory, (ii) tangible fixed assets, such as real property,
buildings and equipment, (iii) intangible assets, such as trademarks, copyrights
and patent rights and (iv) security interests in securities of subsidiaries or
affiliates. In the case of Corporate Loans to privately held companies, the
companies' owners may provide additional credit support in the form of
guarantees and/or pledges of other securities that they own. There may be
temporary periods in the course of financing a borrower's tender offer where the
collateral for the loan consists of common stock having a value not less than
200% of the value of the loan on the date the loan is made. Under such
circumstances, the borrower generally proceeds with a subsequent transaction
that will permit it to pledge assets of a company as collateral for the loan,
although there can be no assurance that the borrower will be able to effect such
transaction.
In the case of project finance loans, the borrower is generally a special
purpose entity that pledges undeveloped land and other non-income producing
assets as collateral and obtains construction completion guaranties from third
parties, such as the project sponsor. Project finance credit facilities
typically provide for payment of interest from escrowed funds during a scheduled
construction period, and for the pledge of current and fixed assets after the
project is constructed and becomes operational. During the construction period,
however, the lenders bear the risk that the project will not be constructed in a
timely manner, or will exhaust project funds prior to completion. In such an
event, the lenders may need to take legal action to enforce the completion
guaranties, or may need to lend more money to the project on less favorable
financing terms, or may need to liquidate the undeveloped project assets. There
can be no assurance in any of such cases that the lenders will recover all of
their invested capital.
The rate of interest payable on floating or variable rate Corporate Loans
is established as the sum of a base lending rate plus a specified margin. These
base lending rates generally are the Prime Rate of a designated U.S. bank,
LIBOR, the CD rate or another base lending rate used by commercial lenders. The
interest rate on Prime Rate-based Corporate Loans floats daily as the Prime Rate
changes, while the
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interest rate on LIBOR-based and CD-based Corporate Loans is reset periodically,
typically every 30 days to one year. Certain of the floating or variable rate
Corporate Loans in which the Fund invests permit the borrower to select an
interest rate reset period of up to one year. A portion of the Fund's portfolio
may be invested in Corporate Loans with interest rates that are fixed for the
term of the loan. Investment in Corporate Loans with longer interest rate reset
periods or fixed interest rates may increase fluctuations in the Fund's net
asset value as a result of changes in interest rates. However, the Fund attempts
to hedge all of its fixed rate Corporate Loans against fluctuations in interest
rates by entering into interest rate swap transactions. The Fund also attempts
to maintain a portfolio of Corporate Loans that have a dollar weighted average
period to the next interest rate adjustment of no more than 90 days.
The Fund may receive and/or pay certain fees in connection with its lending
activities. These fees are in addition to interest payments received and may
include facility fees, commitment fees, amendment fees, commissions and
prepayment fees. When the Fund buys a Corporate Loan it may receive a facility
fee, and when it sells a Corporate Loan may pay a facility fee. In certain
circumstances, the Fund may receive a prepayment fee on the prepayment of a
Corporate Loan by a borrower. In connection with the acquisition of Corporate
Loans, the Fund also may acquire warrants and other debt and equity securities
of the borrower or its affiliates. The acquisition of such debt and equity
securities will only be incidental to the Fund's purchase of an interest in a
Corporate Loan.
The Fund invests in a Corporate Loan only if, in the Investment Adviser's
judgment, the borrower can meet debt service on such loan. In addition, the
Investment Adviser will consider other factors deemed by it to be appropriate to
the analysis of the borrower and the Corporate Loan. Such factors include
financial ratios of the borrower such as pre-tax interest coverage, leverage
ratios, the ratio of cash flows to total debt and the ratio of tangible assets
to debt. In its analysis of these factors, the Investment Adviser also will be
influenced by the nature of the industry in which the borrower is engaged, the
nature of the borrower's assets and the Investment Adviser's assessments of the
general quality of the borrower.
The primary consideration in selecting such Corporate Loans for investment
by the Fund is the creditworthiness of the borrower. The Investment Adviser
performs its own independent credit analysis of the borrower in addition to
utilizing information prepared and supplied by the Agent Bank, Co-Lender or
Participant (each defined below) from whom the Fund purchases its Participation
Interest in a Corporate Loan. The Investment Adviser's analysis continues on an
ongoing basis for any Corporate Loans in which the Fund has invested. Although
the Investment Adviser uses due care in making such analysis, there can be no
assurance that such analysis will disclose factors that may impair the value of
the Corporate Loan.
Corporate Loans made in connection with highly leveraged transactions are
subject to greater credit risks than other Corporate Loans in which the Fund may
invest. These credit risks include a greater possibility of default or
bankruptcy of the borrower and the assertion that the pledging of collateral to
secure the loan constituted a fraudulent conveyance or preferential transfer
which can be nullified or subordinated to the rights of other creditors of the
borrower under applicable law.
The Fund does not have a policy with regard to minimum ratings for
Corporate Loans in which it may invest. Investments in Corporate Loans are based
primarily on the Investment Adviser's independent credit analyses of a
particular borrower. Moreover, the Investment Adviser does not regard the
ratings of other publicly held securities of a borrower to be relevant to its
investment considerations. See "Appendix--Ratings of Securities."
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A borrower also must comply with various restrictive covenants contained in
any Corporate Loan agreement between the borrower and the lending syndicate.
Such covenants, in addition to requiring the scheduled payment of interest and
principal, may include restrictions on dividend payments and other distributions
to stockholders, provisions requiring the borrower to maintain specific
financial ratios or relationships and limits on total debt. In addition, the
Corporate Loan agreement may contain a covenant requiring the borrower to prepay
the Corporate Loan with any excess cash flow. Excess cash flow generally
includes net cash flow after scheduled debt service payments and permitted
capital expenditures, among other things, as well as the proceeds from asset
dispositions or sales of securities. A breach of a covenant (after giving effect
to any cure period) which is not waived by the Agent Bank and the lending
syndicate normally is an event of acceleration (i.e., the Agent Bank has the
right to call the outstanding Corporate Loan).
It is expected that a majority of the Corporate Loans will have stated
maturities ranging from three to ten years. However, such Corporate Loans
usually require, in addition to scheduled payments of interest and principal,
the prepayment of the Corporate Loan from excess cash flow, as discussed above,
and may permit the borrower to prepay at its election. The degree to which
borrowers prepay Corporate Loans, whether as a contractual requirement or at
their election, may be affected by general business conditions, the financial
condition of the borrower and competitive conditions among lenders, among other
factors. Accordingly, prepayments cannot be predicted with accuracy. Upon a
prepayment, the Fund may receive both a prepayment fee from the prepaying
borrower and a facility fee on the purchase of a new Corporate Loan with the
proceeds from the prepayment of the former. Such fees may mitigate any adverse
impact on the yield on the Fund's portfolio which may arise as a result of
prepayments and the reinvestment of such proceeds in Corporate Loans bearing
lower interest rates.
Loans to non-U.S. borrowers or to U.S. borrowers with significant non-U.S.
dollar-denominated revenues may provide for conversion of all or part of the
loan from a U.S. dollar-denominated obligation into a foreign currency
obligation at the option of the borrower. The Fund may invest in Corporate Loans
that were converted into non-U.S. dollar-denominated obligations only when the
Corporate Loan facility provides for payments to the lenders in U.S. dollars
pursuant to foreign currency swap arrangements. Foreign currency swaps involve
the exchange by the lenders, including the Fund, with another party (the
"counterparty") of the right to receive the currency in which the loan is
denominated for the right to receive U.S. dollars. The Fund will enter into a
transaction subject to a foreign currency swap only if, at the time of entering
into such swap, the outstanding debt obligations of the counterparty are
investment grade (i.e., rated BBB or A-3 or higher by S&P or Baa or P-3 or
higher by Moody's, or determined to be of comparable quality in the judgment of
the Investment Adviser). The amounts of U.S. dollar payments to be received by
the lenders and the foreign currency payments to be received by the counterparty
are fixed at the time the swap arrangement is entered into. Accordingly, the
swap protects the Fund from fluctuations in exchange rates and locks in the
right to receive payments under the loan in a predetermined amount of U.S.
dollars. If there is a default by the counterparty, the Fund will have
contractual remedies pursuant to the swap arrangements; however, the U.S. dollar
value of the Fund's right to foreign currency payments under the loan will be
subject to fluctuations in the applicable exchange rate to the extent that a
replacement swap arrangement is unavailable or the Fund is unable to recover
damages from the defaulting counterparty. If the borrower defaults on or prepays
the underlying Corporate Loan, the Fund may be required pursuant to the swap
arrangements to compensate the counterparty to the extent of fluctuations in
exchange rates adverse to the counterparty. In the event of such a default or
prepayment,
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an amount of cash or liquid securities having an aggregate net asset value at
least equal to the amount of compensation that must be paid to the counterparty
pursuant to the swap arrangements will be maintained in a segregated account by
the Fund's custodian.
DESCRIPTION OF PARTICIPATION INTERESTS
A Corporate Loan in which the Fund may invest typically is originated,
negotiated and structured by a syndicate of lenders ("Co-Lenders") consisting of
commercial banks, thrift institutions, insurance companies, finance companies or
other financial institutions one or more of which administers the Loan on behalf
of the syndicate (the "Agent Bank"). Co-Lenders may sell Corporate Loans to
third parties called "Participants." The Fund invests in a Corporate Loan either
by participating as a Co-Lender at the time the loan is originated or by buying
an interest in the Corporate Loan from a Co-Lender or a Participant. Co-Lenders
and Participants interposed between the Fund and a borrower, together with Agent
Banks, are referred to herein as "Intermediate Participants."
The Fund may invest in a Corporate Loan at origination as a Co-Lender or by
acquiring participations in, assignments of or novations of a Corporate Loan
(collectively, "Participation Interests"). In a novation, the Fund accepts all
of the rights of the Intermediate Participants in a Corporate Loan, including
the right to receive payments of principal and interest and other amounts
directly from the borrower and to enforce its rights as a lender directly
against the borrower and assumes all of the obligations of the Intermediate
Participants, including any obligations to make future advances to the borrower.
As a result, therefore, the Fund has the status of a Co-Lender. As an
alternative, the Fund may purchase an assignment of all or a portion of an
Intermediate Participant's interest in a Corporate Loan, in which case the Fund
is required generally to rely on the assigning lender to demand payment and
enforce its rights against the borrower but would otherwise be entitled to all
of such lender's rights in the Corporate Loan. The Fund also may purchase a
participation in a portion of the rights of an Intermediate Participant in a
Corporate Loan by means of a participation agreement with such Intermediate
Participant. A participation in the rights of an Intermediate Participant is
similar to an assignment in that the Intermediate Participant transfers to the
Fund all or a portion of an interest in a Corporate Loan. Unlike an assignment,
however, a participation does not establish any direct relationship between the
Fund and the borrower. In such a case, the Fund is required to rely on the
Intermediate Participant that sold the participation not only for the
enforcement of the Fund's rights against the borrower but also for the receipt
and processing of payments due to the Fund under the Corporate Loans. The Fund
will not act as an Agent Bank, guarantor, sole negotiator or sole structuror
with respect to a Corporate Loan.
Because it may be necessary to assert through an Intermediate Participant
such rights as may exist against the borrower, in the event the borrower fails
to pay principal and interest when due, the Fund may be subject to delays,
expenses and risks that are greater than those that would be involved if the
Fund could enforce its rights directly against the borrower. Moreover, under the
terms of a participation, the Fund may be regarded as a creditor of the
Intermediate Participant (rather than of the borrower), so that the Fund may
also be subject to the risk that the Intermediate Participant may become
insolvent. Similar risks may arise with respect to the Agent Bank, as described
below. Further, in the event of the bankruptcy or insolvency of the borrower,
the obligation of the borrower to repay the Corporate Loan may be subject to
certain defenses that can be asserted by such borrower as a result of improper
conduct by the Agent Bank or Intermediate Participant. The Fund invests in
Corporate Loans only if, at the time of
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investment, the outstanding debt obligations of the Agent Bank and Intermediate
Participants are investment grade (i.e., rated BBB or A-3 or higher by S&P or
Baa or P-3 or higher by Moody's, or determined to be of comparable quality in
the judgment of the Investment Adviser).
Because the Fund regards the issuer of a Corporate Loan as including the
borrower under a Corporate Loan Agreement, the Agent Bank and any Intermediate
Participant, the Fund may be deemed to be concentrated in securities of issuers
in the industry group consisting of financial institutions and their holding
companies, including commercial banks, thrift institutions, insurance companies
and finance companies. As a result, the Fund is subject to certain risks
associated with such institutions. Banking and thrift institutions are subject
to extensive governmental regulations which may limit both the amounts and types
of loans and other financial commitments that such institutions may make and the
interest rates and fees that such institutions may charge. The profitability of
these institutions is largely dependent on the availability and cost of capital
funds, and has shown significant recent fluctuation as a result of volatile
interest rate levels. In addition, general economic conditions are important to
the operations of these institutions, with exposure to credit losses resulting
from possible financial difficulties of borrowers potentially having an adverse
effect. Insurance companies also are affected by economic and financial
conditions and are subject to extensive government regulation, including rate
regulation. The property and casualty industry is cyclical, being subject to
dramatic swings in profitability which can be affected by natural catastrophes
and other disasters. Individual companies may be exposed to material risks,
including reserve inadequacy, latent health exposure and inability to collect
from their reinsurance carriers. The financial services area is currently
undergoing relatively rapid change as existing distinctions between financial
service segments become less clear. In this regard, recent business combinations
have included insurance, finance and securities brokerage under single
ownership. Moreover, the Federal laws generally separating commercial and
investment banking are currently being studied by Congress.
In a typical Corporate Loan, the Agent Bank administers the terms of the
Corporate Loan Agreement and is responsible for the collection of principal and
interest and fee payments from the borrower and the apportionment of these
payments to the credit of all lenders which are parties to the Corporate Loan
Agreement. The Fund generally relies on the Agent Bank or an Intermediate
Participant to collect its portion of the payments on the Corporate Loan.
Furthermore, the Fund generally relies on the Agent Bank to use appropriate
creditor remedies against the borrower. Typically, under Corporate Loan
Agreements, the Agent Bank is given broad discretion in enforcing the Corporate
Loan Agreement, and is obligated to use only the same care it would use in the
management of its own property. The borrower compensates the Agent Bank for
these services. Such compensation may include special fees paid on structuring
and funding the Corporate Loan and other fees paid on a continuing basis.
In the event that an Agent Bank becomes insolvent, or has a receiver,
conservator, or similar official appointed for it by the appropriate bank
regulatory authority or becomes a debtor in a bankruptcy proceeding, assets held
by the Agent Bank under the Corporate Loan Agreement should remain available to
holders of Corporate Loans. If, however, assets held by the Agent Bank for the
benefit of the Fund were determined by an appropriate regulatory authority or
court to be subject to the claims of the Agent Bank's general or secured
creditors, the Fund might incur certain costs and delays in realizing payment on
a Corporate Loan or suffer a loss of principal and/or interest. In situations
involving Intermediate Participants similar risks may arise, as described above.
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The Fund may have certain obligations pursuant to a Corporate Loan
agreement, which may include the obligation to make future advances to the
borrower in connection with revolving credit facilities in certain
circumstances. The Fund currently intends to reserve against such contingent
obligations by segregating sufficient investments in high quality, short-term,
liquid instruments. The Fund will not invest in Corporate Loans that would
require the Fund to make any additional investments in connection with such
future advances if such commitments would exceed 20% of the Fund's total assets
or would cause the Fund to fail to meet the diversification requirements
described under "Investment Objective and Policies."
ILLIQUID SECURITIES
Certain Corporate Loans are, at present, not readily marketable and may be
subject to restrictions on resale. Although the market for Corporate Loans has
developed significantly during recent years, certain of the Corporate Loans in
which the Fund invests do not have the liquidity of conventional debt securities
traded in the secondary market and may be considered illiquid. The Fund has no
limitation on the amount of its investments which are not readily marketable or
are subject to restrictions on resale. Such investments, which may be considered
illiquid, may affect the Fund's ability to realize the net asset value in the
event of a voluntary or involuntary liquidation of its assets. To the extent
that such investments are illiquid, the Fund may have difficulty disposing of
portfolio securities in order to purchase shares of its common stock pursuant to
tender offers, if any. The Board of Directors of the Fund will consider the
liquidity of the Fund's portfolio securities in determining whether a tender
offer should be made by the Fund. See "Net Asset Value" for information with
respect to valuation of illiquid Corporate Loans.
OTHER INVESTMENT POLICIES
The Fund has adopted certain other policies as set forth below:
Borrowing. The Fund is authorized to borrow money in amounts of up to
33 1/3% of the value of its total assets at the time of such borrowings.
Borrowings by the Fund (commonly known as "leveraging") create an opportunity
for greater total return but, at the same time, increase exposure to capital
risk. In addition, borrowed funds are subject to interest costs that may offset
or exceed the return earned on the borrowed funds. See "Borrowings by the Fund."
Repurchase Agreements. The Fund may enter into repurchase agreements with
respect to its permitted investments but currently intends to do so only with
member banks of the Federal Reserve System or with primary dealers in U.S.
Government securities. Under a repurchase agreement the Fund buys a security at
one price and simultaneously promises to sell that same security back to the
seller at a higher price. The Fund's repurchase agreements will provide that the
value of the collateral underlying the repurchase agreement will always be at
least equal to the repurchase price, including any accrued interest earned on
the repurchase agreement, and will be marked to market daily. The repurchase
date usually is within seven days of the original purchase date. Repurchase
agreements are deemed to be loans under the 1940 Act. In all cases, the
Investment Adviser must be satisfied with the creditworthiness of the other
party to the agreement before entering into a repurchase agreement. In the event
of the bankruptcy (or other insolvency proceeding) of the other party to a
repurchase agreement, the Fund might experience delays in recovering its cash.
To the extent that, in the meantime, the value of the securities the Fund
purchases may have declined, the Fund could experience a loss.
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Lending of Portfolio Securities. The Fund may from time to time lend
securities from its portfolio with a value not exceeding 33 1/3% of its total
assets to banks, brokers and other financial institutions and receive collateral
in cash or securities issued or guaranteed by the United States Government. Such
collateral will be maintained at all times in an amount equal to at least 100%
of the current market value of the loaned securities. This limitation is a
fundamental policy, and it may not be changed without the approval of the
holders of a majority of the Fund's outstanding voting securities, as defined in
the 1940 Act. The purpose of such loans is to permit the borrower to use such
securities for delivery to purchasers when such borrower has sold short. If cash
collateral is received by the Fund, it is invested in short-term money market
securities, and a portion of the yield received in respect of such investment is
retained by the Fund. Alternatively, if securities are delivered to the Fund as
collateral, the Fund and the borrower negotiate a rate for the loan premium to
be received by the Fund for lending its portfolio securities. In either event,
the total yield on the Fund's portfolio is increased by loans of its portfolio
securities. The Fund will have the right to regain record ownership of loaned
securities to exercise beneficial rights such as voting rights, subscription
rights and rights to dividends, interest or other distributions. Such loans are
terminable at any time. The Fund may pay reasonable finder's, administrative and
custodial fees in connection with such loans. In the event that the borrower
defaults on its obligation to return borrowed securities, because of insolvency
or otherwise, the Fund could experience delays and costs in gaining access to
the collateral and could suffer a loss to the extent that the value of the
collateral falls below the market value of the borrowed securities.
"WHEN ISSUED" AND "DELAYED DELIVERY" TRANSACTIONS
The Fund also may purchase and sell interests in Corporate Loans and other
portfolio securities on a "when issued" and "delayed delivery" basis. No income
accrues to the Fund on such interests or securities in connection with such
transactions prior to the date the Fund actually takes delivery of such
interests or securities. These transactions are subject to market fluctuation;
the value of the interests in Corporate Loans and other portfolio debt
securities at delivery may be more or less than their purchase price, and yields
generally available on such interests or securities when delivery occurs may be
higher than yields on the interests or securities obtained pursuant to such
transactions. Because the Fund relies on the buyer or seller, as the case may
be, to consummate the transaction, failure by the other party to complete the
transaction may result in the Fund missing the opportunity of obtaining a price
or yield considered to be advantageous. When the Fund is the buyer in such a
transaction, however, it will maintain, in a segregated account with its
custodian, cash or liquid securities having an aggregate value equal to the
amount of such purchase commitments until payment is made. The Fund will make
commitments to purchase such interest or securities on such basis only with the
intention of actually acquiring these interests or securities, but the Fund may
sell such interests or securities prior to the settlement date if such sale is
considered to be advisable. To the extent the Fund engages in "when issued" and
"delayed delivery" transactions, it will do so for the purpose of acquiring
interests or securities for the Fund's portfolio consistent with the Fund's
investment objective and policies and not for the purpose of investment
leverage. No specific limitation exists as to the percentage of the Fund's
assets which may be used to acquire securities on a "when issued" or "delayed
delivery" basis.
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INTEREST RATE HEDGING TRANSACTIONS
The Fund may hedge all or a portion of its portfolio investments against
fluctuations in interest rates by entering into interest rate hedging
transactions. While the Fund's use of hedging strategies is intended to further
the Fund's investment objective, there can be no assurance that the Fund's
interest rate hedging transactions will be effective. Suitable hedging
instruments may not be available on a timely basis and on acceptable terms.
Furthermore, the Fund has no obligation to enter into interest rate hedging
transactions and may only be engaged in interest rate hedging transactions from
time to time and may not necessarily engage in hedging transactions when moves
in interest rates occur.
Certain Federal income tax requirements may limit the Fund's ability to
engage in interest rate hedging transactions. Gains from transactions in
interest rate hedges distributed to shareholders are taxable as ordinary income
or, in certain circumstances, as long-term capital gains to shareholders. See
"Taxes."
The Fund expects to enter into interest rate hedging transactions primarily
to preserve a return or spread on a particular investment or portion of its
portfolio or to protect against any increase in the price of securities the Fund
anticipates purchasing at a later date. The Fund also attempts to enter into
interest rate hedging transactions to hedge all of its fixed rate Corporate
Loans against fluctuations in interest rates. The Fund may enter into interest
rate hedges on either an asset-based or liability-based basis, depending on
whether it is hedging its assets or its liabilities. Typically, the parties with
which the Fund enters into interest rate hedging transactions are broker-dealers
and other financial institutions.
The interest rate hedging transactions in which the Fund may engage include
interest rate swaps involving the exchange by the Fund with another party of
their respective commitments to pay or receive interest, such as an exchange of
fixed rate payments for floating rate payments. For example, if the Fund holds a
Corporate Loan with an interest rate that is reset only once each year, it may
swap the right to receive interest at this fixed rate for the right to receive
interest at a rate that is reset every week. This enables the Fund to offset a
decline in the value of the Corporate Loan due to rising interest rates, but
would also limit its ability to benefit from falling interest rates. Conversely,
if the Fund holds a Corporate Loan with an interest rate that is reset every
week and it would like to lock in what it believes to be a high interest rate
for one year, it may swap the right to receive interest at this variable weekly
rate for the right to receive interest at a rate that is fixed for one year.
Such a swap would protect the Fund from a reduction in yield due to falling
interest rates, but would preclude it from taking full advantage of rising
interest rates.
The Fund also may engage in interest rate hedging transactions in the form
of purchasing or selling interest rate caps or floors. The Fund will not sell
interest rate caps or floors that it does not own. The purchase of an interest
rate cap entitles the purchaser, to the extent that a specified index exceeds a
predetermined interest rate, to receive payments of interest equal to the
difference of the index and the predetermined rate on a notional principal
amount (the reference amount with respect to which interest obligations are
determined although no actual exchange of principal occurs) from the party
selling such interest rate cap. The purchase of an interest rate floor entitles
the purchaser, to the extent that a specified index falls below a predetermined
interest rate, to receive payments of interest at the difference of the index
and the predetermined rate on a notional principal amount from the party selling
such interest rate floor. The Fund will not enter into caps or floors if, on a
net basis, the aggregate notional principal amount with respect to such
agreements exceeds the net assets of the Fund.
19
<PAGE> 21
Inasmuch as these interest rate hedging transactions are entered into for
good faith hedging purposes, the Investment Adviser believes that such
obligations do not constitute senior securities and, accordingly, will not treat
them as being subject to its borrowing restrictions. The Fund usually enters
into interest rate swaps on a net basis, i.e., the two payment streams are
netted out, with the Fund receiving or paying, as the case may be, only the net
amount of the two payments. The net amount of the excess, if any, of the Fund's
obligations over its entitlements with respect to each interest rate swap will
be accrued on a daily basis, and an amount of cash or high grade liquid debt
securities having an aggregate net asset value at least equal to the accrued
excess will be maintained in a segregated account by the Fund's custodian. If
the interest rate swap transaction is entered into on other than a net basis,
the full amount of the Fund's obligations will be accrued on a daily basis, and
the full amount of the Fund's obligations will be maintained in a segregated
account by the Fund's custodian. The Fund will not enter into any interest rate
hedging transaction unless the Investment Adviser considers the credit quality
of the unsecured senior debt or the claims-paying ability of the other party
thereto to be investment grade. If there is a default by the other party to such
a transaction, the Fund will have contractual remedies pursuant to the
agreements related to the transaction but such remedies may be subject to
bankruptcy and insolvency laws which could affect the Fund's rights as a
creditor. The swap market has grown substantially in recent years with a large
number of banks and investment banking firms acting both as principals and as
agents utilizing standardized swap documentation. As a result, the swap market
has become relatively liquid in comparison with other similar instruments traded
in the interbank market. Interest rate caps and floors are more recent
innovations and they are less liquid than swaps. There can be no assurance,
however, that the Fund will be able to enter into interest rate swaps or to
purchase interest rate caps or floors at prices or on terms the Investment
Adviser believes are advantageous to the Fund. In addition, although the terms
of interest rate swaps, caps and floors may provide for termination, there can
be no assurance the Fund will be able to terminate an interest rate swap or to
sell or offset interest rate caps or floors that it has purchased.
The use of interest rate hedges is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. If the Investment Adviser is
incorrect in its forecasts of market values, interest rates and other applicable
factors, the investment performance of the Fund would diminish compared with
what it would have been if these investment techniques were not used.
There is no limit on the amount of interest rate hedging transactions that
may be entered into by the Fund. These transactions do not involve the delivery
of securities or other underlying assets or principal. Accordingly, the risk of
loss with respect to interest rate hedges is limited to the net amount of
interest payments that the Fund is contractually obligated to make. If the
Corporate Loan underlying an interest rate swap is prepaid and the Fund
continues to be obligated to make payments to the other party to the swap, the
Fund would have to make such payments from another source. If the other party to
an interest rate swap defaults, the Fund's risk of loss consists of the net
amount of interest payments that the Fund contractually is entitled to receive.
Since interest rate transactions are individually negotiated, the Investment
Adviser expects to achieve an acceptable degree of correlation between the
Fund's rights to receive interest on Participation Interests and its rights and
obligations to receive and pay interest pursuant to interest rate swaps.
20
<PAGE> 22
BORROWINGS BY THE FUND
The Fund may borrow money representing up to approximately 33 1/3%, or
issue shares of preferred stock representing up to approximately 50%, of the
Fund's total assets immediately after such borrowing or issuance. There can be
no assurance, however, that money will actually be borrowed or that preferred
stock representing such percentage of the Fund's capital will actually be
issued. Borrowings by the Fund or the issuance of the preferred stock will
result in leveraging of the common stock. The Fund at times may borrow from
affiliates of the Investment Adviser, provided that the terms of such borrowings
are no less favorable than those available from comparable sources of funds in
the marketplace. Borrowings from an affiliate of the Investment Adviser will
result in the payment of fees and interest on borrowed funds to the affiliate by
the Fund.
The Fund may borrow money to finance the purchase of shares of its common
stock pursuant to tender offers. The Fund also may incur borrowings and/or issue
preferred stock for the purpose of acquiring additional income-producing
investments when the Investment Adviser believes that the interest or dividend
payments and other costs with respect to such borrowings and/or preferred stock
issuance will be exceeded by the anticipated return on such investments. The
amount of any such borrowing or issuance will depend on market or economic
conditions existing at that time. Although the Fund is authorized to borrow
money and/or issue preferred stock to finance the purchase of investments, it
does not currently anticipate doing so.
Capital raised through leverage will be subject to interest costs or
dividend payments which may or may not exceed the interest on the assets
purchased. The Fund also may be required to maintain minimum average balances in
connection with borrowings or to pay a commitment or other fee to maintain a
line of credit; either of these requirements will increase the cost of borrowing
over the stated interest rate. Certain types of borrowings may result in the
Fund being subject to covenants in credit agreements, including those relating
to asset coverage and portfolio composition requirements and those restricting
the Fund's payment of dividends and distributions on the common stock in certain
instances. The issuance of preferred stock involves offering expenses and other
costs and may limit the Fund's freedom to pay dividends on shares of common
stock or to engage in other activities. Borrowings and the issuance of preferred
stock having priority over the Fund's common stock create an opportunity for
greater income per share of common stock, but at the same time such borrowing or
issuance is a speculative technique in that it will increase the Fund's exposure
to capital risk. Such risks may be reduced through the use of borrowings and
preferred stock that have floating rates of interest. Unless the income and
appreciation, if any, on assets acquired with borrowed funds or offering
proceeds exceeds the cost of borrowing or issuing additional classes of
securities, the use of leverage will diminish the investment performance of the
Fund compared with what it would have been without leverage.
The Fund's willingness to borrow money and issue new securities for
investment purposes, and the amount it will borrow, will depend on many factors,
the most important of which are investment outlook, market conditions and
interest rates. Successful use of a leveraging strategy depends on the
Investment Adviser's ability to predict correctly interest rates and market
movements, and there is no assurance that a leveraging strategy will be
successful during any period in which it is employed.
21
<PAGE> 23
INVESTMENT RESTRICTIONS
The following are fundamental investment restrictions of the Fund and,
prior to issuance of any preferred stock, may not be changed without the
approval of the holders of a majority of the Fund's outstanding shares of common
stock (which for this purpose and under the 1940 Act means the lesser of (i) 67%
of the shares of common stock represented at a meeting at which more than 50% of
the outstanding shares of common stock are represented or (ii) more than 50% of
the outstanding shares). Subsequent to the issuance of a class of preferred
stock, the following investment restrictions may not be changed without the
approval of a majority of the outstanding shares of common stock and of the
preferred stock, voting together as a class, and the approval of a majority of
the outstanding shares of preferred stock, voting separately by class. The Fund
may not:
1. Borrow money or issue senior securities, except as permitted by
Section 18 of the 1940 Act.
2. Make investments for the purpose of exercising control or
management.
3. Purchase securities of other investment companies, except in
connection with a merger, consolidation, acquisition or reorganization, or
by purchase in the open market of securities of closed-end investment
companies where no underwriter's or dealer's commission or profit, other
than customary broker's commission, is involved and only if immediately
thereafter not more than 10% of the Fund's total assets would be invested
in such securities.
4. Purchase or sell real estate; provided that the Fund may invest in
securities secured by real estate or interests therein or issued by
companies which invest in real estate or interests therein.
5. Underwriter securities of other issuers except insofar as the Fund
may be deemed an underwriter under the Securities Act of 1933 in selling
portfolio securities.
6. Make loans to other persons, except (i) to the extent that the
Fund may be deemed to be making loans by purchasing Corporate Loans, as a
Co-Lender or otherwise, and other debt securities and entering into
repurchase agreements in accordance with its investment objective, policies
and limitations and (ii) the Fund may lend its portfolio securities in an
amount not in excess of 33 1/3% of its total assets, taken at market value,
provided that such loans shall be made in accordance with the guidelines
set forth in this Prospectus.
7. Invest more than 25% of its total assets in the securities of
issuers in any one industry; provided that this limitation shall not apply
with respect to obligations issued or guaranteed by the U.S. Government or
by its agencies or instrumentalities; and provided further that the Fund
may invest more than 25% and may invest up to 100% of its assets in
securities of issuers in the industry group consisting of financial
institutions and their holding companies, including commercial banks,
thrift institutions, insurance companies and finance companies. For
purposes of this restriction, the term "issuer" includes the Borrower, the
Agent Bank and any Intermediate Participant (as defined under "Investment
Objective and Policies -- Description of Participation Interests").
8. Purchase any securities on margin, except that the Fund may obtain
such short-term credit as may be necessary for the clearance of purchases
and sales of portfolio securities.
9. Make short sales of securities or maintain a short position or
invest in put, call, straddle or spread options.
22
<PAGE> 24
An additional investment restriction adopted by the Fund, which may be
changed by the Board of Directors, provides that the Fund may not mortgage,
pledge, hypothecate or in any manner transfer, as security for indebtedness, any
securities owned or held by the Fund except as may be necessary in connection
with hedging techniques involving interest rate transactions, foreign currency
swap transactions relating to non-U.S. dollar-denominated loans and permitted
borrowings by the Fund.
If a percentage restriction on investment policies or the investment or use
of assets set forth above is adhered to at the time a transaction is effected,
later changes in percentage resulting from changing values will not be
considered a violation.
Because of the affiliation of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") with the Investment Adviser, the Fund is
prohibited from engaging in certain transactions involving Merrill Lynch except
pursuant to an exemptive order or otherwise in compliance with the provisions of
the 1940 Act and the rules and regulations thereunder. Included among such
restricted transactions will be purchases from or sales to Merrill Lynch of
securities in transactions in which it acts as principal. See "Portfolio
Transactions."
The Fund has established procedures for blocking the use of inside
information in securities transactions (commonly referred to as "Chinese Wall
procedures"). As a result, in relation to other funds managed by the same
portfolio manager as the Fund, if one fund buys a security that is publicly
traded or privately placed, respectively, the other fund may be deprived of the
opportunity to buy a security of the same issuer that is privately placed or
publicly traded, respectively.
PURCHASE OF SHARES
SUBSCRIPTION OFFERING
Merrill Lynch Funds Distributor, a division of Princeton Funds Distributor,
Inc. (the "Distributor"), an affiliate of the Investment Adviser, acts as the
distributor of shares of common stock of the Fund.
The Distributor, and other securities dealers which have entered into
selected dealer agreements with the Distributor, including Merrill Lynch, will
solicit subscriptions for shares of the Fund during a period expected to end on
March 23, 1999. The subscription period may be extended for up to an additional
30 days upon agreement between the Fund and the Distributor. On the third
business day after the conclusion of the subscription period, the subscriptions
will be payable, the shares will be issued and the Fund will commence
operations. The subscription offering may be terminated by the Fund or the
Distributor at any time, in which event no shares will be issued (and,
therefore, the Fund will not commence operations, no amounts will be payable by
subscribers, any payments by subscribers will be refunded in full without
interest) or a limited number of shares will be issued.
The public offering price of the shares during the subscription offering is
$10.00 without a front-end sales charge. The minimum initial purchase for shares
of common stock during the subscription offering is $1,000.
The proceeds per share to the Fund from the sale of all shares sold during
the subscription period will be $10.00. As set forth below, the Distributor may
make payments to Merrill Lynch or other selected dealers from its own assets.
23
<PAGE> 25
Due to the administrative complexities associated with the subscription
offering, administrative errors may result in the Distributor or an affiliate
inadvertently acquiring nominal numbers (in no event in excess of 5% of the
shares of common stock) or shares of common stock which it may wish to resell.
Such shares of common stock will not be subject to any investment restriction
and may be resold pursuant to this Prospectus.
CONTINUOUS OFFERING
After completion of the subscription offering, the Fund expects to engage
in a continuous offering of its shares of common stock through the Distributor
and other securities dealers that have entered into selected dealer agreements
with the Distributor, including Merrill Lynch. During the continuous offering of
the Fund's common stock, shares of the Fund may be purchased from the
Distributor or selected dealers, including Merrill Lynch, or by mailing a
purchase order directly to the Fund's Transfer Agent. Minimum initial and
subsequent purchase requirements during the continuous offering are:
<TABLE>
<CAPTION>
THE THE
MINIMUM MINIMUM
INITIAL SUBSEQUENT
PURCHASE PURCHASE
FOR INVESTMENTS IN THE FUND MADE AMOUNT IS AMOUNT IS
-------------------------------- ----------- -----------
<S> <C> <C>
Directly through the Fund's Distributor or Transfer
Agent................................................... $1,000 $50
Via 401(k) or 403(b) plans maintained through Merrill
Lynch................................................... None None
Via other individual retirement accounts or other
retirement plans that are not maintained through Merrill
Lynch................................................... $ 250 $ 1
</TABLE>
To permit the Fund to invest the net proceeds from the sale of its shares
of common stock in an orderly manner, the Fund may delay the commencement of the
continuous offering of its shares of common stock or, from time to time, suspend
the sale of its shares of common stock, except for sales to existing holders of
common stock and dividend reinvestments.
The Fund will offer its shares during the continuous offering at a public
offering price equal to the next determined net asset value per share without a
front-end sales charge. The applicable offering price for purchase orders is
based on the net asset value of the Fund next determined after receipt of the
purchase order by the Distributor. As to purchase orders received by securities
dealers prior to the close of business on the New York Stock Exchange
(generally, the NYSE closes at 4:00 p.m., Eastern time), which includes orders
received after the close of business on the previous day, the applicable
offering price is based on the net asset value determined as of 15 minutes after
the close of business on the NYSE on that day, provided the Distributor in turn
receives the order from the securities dealer prior to 30 minutes after the
close of business on the NYSE on that day. If the purchase orders are not
received by the Distributor prior to 30 minutes after the close of business on
the NYSE on that day, such orders are deemed received on the next business day.
Any order may be rejected by the Distributor or the Fund. The Fund or the
Distributor may suspend the continuous offering of the Fund's shares 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. The Distributor is required to advise the Fund promptly of all
purchase orders and cause payments for shares of common stock to be delivered
promptly to the Fund. Merrill Lynch charges
24
<PAGE> 26
its customers a processing fee (presently $5.35) to confirm a purchase of shares
by such customers. Purchases made directly through the Fund's Transfer Agent are
not subject to the processing fee.
Due to the administrative complexities associated with a continuous
offering, administrative errors may result in the Distributor or an affiliate
inadvertently acquiring nominal numbers (in no event in excess of 5% of the
shares of common stock) of shares of common stock that it may wish to resell.
Such shares of common stock will not be subject to any investment restriction
and may be resold pursuant to this Prospectus.
The Distributor compensates Merrill Lynch or other selected dealers at a
rate of 1.0% of amounts purchased. In addition, the Distributor compensates
Merrill Lynch or such dealers quarterly at an annual rate equal to 0.75% of the
value of Fund shares that remain outstanding after one year from the date of
their original purchase sold by Merrill Lynch or such dealers. The foregoing
payments made by the Distributor will be made from its own assets or an
affiliate's and will not be an expense borne by the Fund. Total compensation
paid to Merrill Lynch, selected dealers and the Distributor, including the
compensation paid at the time of purchase, the quarterly payments mentioned
above and the early withdrawal charge, if any, will not exceed the applicable
limit (presently, 8%), as determined from time to time by the National
Association of Securities Dealers, Inc.
Upon the transfer of shares out of a Merrill Lynch brokerage account, an
investment account in the transferring shareholder's name may be opened at the
Transfer Agent. Shareholders should be aware that it will not be possible to
transfer their shares from Merrill Lynch to another brokerage firm or financial
institution. Shareholders interested in transferring their brokerage accounts
from Merrill Lynch and who do not wish to have an account maintained for such
shares at the Fund's transfer agent must tender the shares for repurchase by the
Fund as described under "Tender Offers" so that the cash proceeds can be
transferred to the account at the new firm.
TENDER OFFERS
In recognition of the possibility that a secondary market for the Fund's
shares will not exist, the Fund intends to take certain actions that provide
liquidity to shareholders. The Fund intends from time to time to make offers to
purchase its shares of common stock from all beneficial holders at a price per
share equal to the net asset value per share determined at the close of business
on the day an offer terminates. Commencing with the second quarter of Fund
operations, the Board of Directors presently intends to make tender offers on a
quarterly basis. There can be no assurance, however, that the Board of Directors
will decide to undertake the making of any tender offer. Subject to the Fund's
investment restriction with respect to borrowings, the Fund may borrow money to
finance the repurchase of shares pursuant to any tender offers. See "Borrowings
by the Fund" and "Investment Restrictions."
The Fund expects that ordinarily there will be no secondary market for the
Fund's common stock and that periodic tenders will be the only source of
liquidity for Fund shareholders. Nevertheless, if a secondary market develops
for the common stock of the Fund, the market price of the shares may vary from
net asset value from time to time. Such variance may be affected by, among other
factors, relative demand and supply of shares and the performance of the Fund,
especially as it affects the yield on and net asset value of the common stock of
the Fund. A tender offer for shares of common stock of the Fund at net asset
value is expected to reduce any spread between net asset value and market price
that may
25
<PAGE> 27
otherwise develop. However, there can be no assurance that such action would
result in the Fund's common stock trading at a price which equals or
approximates net asset value.
Although the Board of Directors believes that the tender offers generally
are beneficial to shareholders, the acquisition of shares of common stock by the
Fund will decrease the total assets of the Fund. Tender offers are therefore
likely to increase the Fund's expense ratio (assuming such acquisition is not
offset by the issuance of additional shares of common stock). Furthermore, to
the extent the Fund borrows to finance the making of tender offers, interest on
such borrowings reduce the Fund's net investment income.
It is the Board's announced policy, which may be changed by the Board, not
to purchase shares pursuant to a tender offer if (1) such purchases would impair
the Fund's status as a regulated investment company under the Federal tax laws
(which would cause the Fund's income to be taxed at the corporate level in
addition to the taxation of shareholders who receive dividends from the Fund);
(2) the Fund would not be able to liquidate portfolio securities in a manner
which is orderly and consistent with the Fund's investment objective and
policies in order to purchase common stock tendered pursuant to the tender
offer; or (3) there is, in the Board's judgment, any (a) legal action or
proceeding instituted or threatened challenging the tender offer or otherwise
materially adversely affecting the Fund, (b) declaration of a banking moratorium
by Federal or state authorities or any suspension of payment by banks in the
United States or New York State, which is material to the Fund, (c) limitation
imposed by Federal or state authorities on the extension of credit by lending
institutions, (d) commencement of war, armed hostilities or other international
or national calamity directly or indirectly involving the United States which is
material to the Fund, or (e) other event or condition which would have a
material adverse effect on the Fund or its shareholders if shares of common
stock tendered pursuant to the tender offer were purchased. Thus, there can be
no assurance that the Board will proceed with any tender offer. The Board of
Directors may modify these conditions in light of circumstances existing at the
time. If the Board of Directors determines to purchase the Fund's shares of
common stock pursuant to a tender offer, such purchases could reduce
significantly the asset coverage of any borrowing or outstanding senior
securities. The Fund may not purchase shares of common stock to the extent such
purchases would result in the asset coverage with respect to such borrowing or
senior securities being reduced below the asset coverage requirement set forth
in the 1940 Act. Accordingly, in order to purchase all shares of common stock
tendered, the Fund may have to repay all or part of any then outstanding
borrowing or redeem all or part of any then outstanding senior securities to
maintain the required asset coverage. See "Borrowings by the Fund." In addition,
the amount of shares of common stock for which the Fund makes any particular
tender offer may be limited for the reasons set forth above or in respect of
other concerns related to liquidity of the Fund's portfolio.
In the event that circumstances arise under which the Fund does not conduct
the tender offers regularly, the Board of Directors will consider alternative
means of providing liquidity for holders of common stock. Such action would
include evaluating any secondary market that then exists and determining whether
such market provides liquidity for shareholders. If the Board of Directors
determines that such market, if any, fails to provide liquidity for the holders
of common stock, the Board plans to consider alternatives to providing such
liquidity. Among the alternatives that the Board of Directors may consider is
the listing of the Fund's common shares on a major domestic stock exchange or on
the Nasdaq National Market. The Board of Directors also may consider causing the
Fund to repurchase its shares
26
<PAGE> 28
from time to time in open-market or private transactions when it can do so on
terms that represent a favorable investment opportunity. In any event, the Board
of Directors cause the Fund to take whatever action it deems necessary or
appropriate to provide liquidity for the shareholders in light of the facts and
circumstances existing at such time.
Consummating a tender offer may require the Fund to liquidate portfolio
securities, and realize gains or losses, at a time when the Investment Adviser
would otherwise consider it disadvantageous to do so.
Each tender offer is made and shareholders are notified in accordance with
the requirements of the Securities Exchange Act of 1934 and the 1940 Act, either
by publication or mailing or both. The offering documents contain information
prescribed by such laws and the rules and regulations promulgated thereunder.
The repurchase of tendered shares by the Fund is a taxable event. See "Taxes."
The Fund pays all costs and expenses associated with the making of any tender
offer. An early withdrawal charge is imposed on most shares accepted for tender
that have been held for less than one year. See "Early Withdrawal Charge." In
addition, Merrill Lynch charges its customers a processing fee (presently $5.35)
to confirm a repurchase of shares from such customers pursuant to a tender
offer. Tenders made directly through the Fund's Transfer Agent are not subject
to the processing fee.
Shareholders have an investment option consisting of the right to reinvest
the net proceeds from a sale of shares (the "Original Shares") in a tender offer
by the Fund in Class C shares of certain Merrill Lynch-sponsored open-end funds
("Eligible Class C Shares") at their net asset value, without the imposition of
any contingent deferred sales charge upon any subsequent redemption of Eligible
Class C Shares, if the conditions set forth below are satisfied. First, net
proceeds from the sale of the Original Shares in the tender offer must be
immediately reinvested in Eligible Class C Shares. Second, the investment option
is available only with respect to the proceeds of shares as to which no early
withdrawal charge is applicable. Eligible Class C shares are subject to an
ongoing account maintenance fee and an ongoing distribution fee. Before taking
advantage of this investment option, shareholders should obtain a currently
effective prospectus of the fund in which they intend to invest and should
consult their Merrill Lynch Financial Consultant.
EARLY WITHDRAWAL CHARGE
An early withdrawal charge to recover distribution expenses incurred by the
Distributor is charged against the shareholder's investment account and paid to
the Distributor in connection with most shares of common stock held for less
than one year which are repurchased pursuant to a tender offer. The early
withdrawal charge is imposed on those shares accepted for tender based on an
amount equal to the lesser of the then current net asset value or the cost of
the shares. Accordingly, the early withdrawal charge is not imposed on increases
in the net asset value above the initial purchase price. In addition, the early
withdrawal charge is not imposed on shares acquired by reinvesting dividends or
capital gains distributions. In determining whether an early withdrawal charge
is payable, it is assumed that the acceptance of an offer to repurchase pursuant
to a tender offer would be made from the earliest purchase of shares of common
stock. The early withdrawal charge imposed, if any, varies depending on the
length of time the
27
<PAGE> 29
common stock has been owned since purchase (separate purchases shall not be
aggregated for these purposes), as set forth in the following table:
<TABLE>
<CAPTION>
EARLY
YEAR OF REPURCHASE WITHDRAWAL
AFTER PURCHASE CHARGE
------------------ ----------
<S> <C>
First....................................................... 1.0%
Second and following........................................ 0.0%
</TABLE>
In determining whether an early withdrawal charge is applicable to a tender
of shares of common stock, the calculation is determined in the manner that
results in the lowest possible amount being charged. Therefore, it is assumed
that the shareholder first tenders shares held for over one year and shares
acquired by reinvesting dividends or distributions. The Fund waives the early
withdrawal charge on shares tendered following the death of all beneficial
owners of such shares, provided the shares are tendered within one year of death
(a death certificate and other applicable documents may be required). At the
time of tender, the record or succeeding beneficial owner must notify the
Transfer Agent either directly or indirectly through the Distributor that the
early withdrawal charge should be waived. Upon confirmation of the owner's
entitlement, the waiver will be granted; otherwise, the waiver will be lost.
EXAMPLE:
Assume an investor purchased 1,000 shares of common stock (at a cost of
$10,000) and six months after purchase, the net asset value per share is $10.05
and, during the six months period, the investor has acquired 30 additional
shares of common stock upon dividend reinvestment. If the investor first tenders
500 shares at this time (proceeds of $5,025), 30 shares will not be subject to
the early withdrawal charge because they were acquired by dividend reinvestment.
With respect to the remaining 470 shares, the early withdrawal charge is applied
only to the original cost of $10 per share (and not to the increase in net asset
value of $0.05 per share). Therefore, $4,700 of the $5,025 repurchase proceeds
will be charged at a rate of 1.0%.
DIRECTORS AND OFFICERS
Information about the Directors, executive officers and portfolio manager
of the Fund, including their ages and their principal occupations for at least
the last five years, is set forth below. Unless otherwise noted, the address of
the portfolio manager and each Director and executive officer is P.O. Box 9011,
Princeton, New Jersey 08536-9011.
TERRY K. GLENN (58) -- President and Director(1)(2) -- Executive Vice
President of the Investment Adviser and its affiliate, Fund Asset Management,
L.P. ("FAM") (which terms as used herein include their corporate predecessors),
since 1983; President of Princeton Funds Distributor, Inc. ("PFD") since 1986
and Director thereof since 1991; Executive Vice President and Director of
Princeton Services since 1993; President of Princeton Administrators, L.P. since
1988.
RONALD W. FORBES (58) -- Director(2) -- 1400 Washington Avenue, Albany, New
York 12222. Professor of Finance, School of Business, State University of New
York at Albany since 1989; Consultant, Urban Institute, Washington, D.C. since
1995.
28
<PAGE> 30
CYNTHIA A. MONTGOMERY (46) -- Director(2) -- Harvard Business School,
Soldiers Field Road, Boston, Massachusetts 02163. Professor, Harvard Business
School since 1989; Associate Professor, J.L. Kellogg Graduate School of
Management, Northwestern University from 1985 to 1989; Assistant Professor,
Graduate School of Business Administration, The University of Michigan from 1979
to 1985; Director, UNUM Corporation since 1990 and Director of Newell Co. since
1995.
CHARLES C. REILLY (67) -- Director(2) -- 9 Hampton Harbor Road, Hampton
Bays, New York 11946. Self-employed financial consultant since 1990; President
and Chief Investment Officer of Verus Capital, Inc. from 1979 to 1990; Senior
Vice President of Arnold and S. Bleichroeder, Inc. from 1973 to 1990; Adjunct
Professor, Columbia University Graduate School of Business from 1990 to 1991;
Adjunct Professor, Wharton School, The University of Pennsylvania from 1989 to
1990.
KEVIN A. RYAN (66) -- Director(2) -- 127 Commonwealth Avenue, Chestnut
Hill, Massachusetts 02167. Founder and current Director of The Boston University
Center for the Advancement of Ethics and Character; Professor of Education at
Boston University since 1982; Formerly taught on the faculties of The University
of Chicago, Stanford University and Ohio State University.
RICHARD R. WEST (60) -- Director(2) -- Box 604, Genoa, Nevada 89411.
Professor of Finance since 1984, and Dean from 1984 to 1993, and currently Dean
Emeritus of New York University, Leonard N. Stern School of Business
Administration; Director of Bowne & Co., Inc., Vornado Realty Trust, Inc.,
Vornado Operating Company and Alexander's Inc.
ARTHUR ZEIKEL (66) -- Director(1)(2) -- Chairman of the Investment Adviser
and FAM from 1997 to 1999; President of the Investment Adviser and FAM from 1977
to 1997; Chairman of Princeton Services, Inc. ("Princeton Services") from 1997
to 1999 and Director from 1997 to 1999; President of Princeton Services from
1993 to 1997; Executive Vice President of Merrill Lynch & Co., Inc. ("ML & Co.")
from 1990 to 1999.
JOSEPH T. MONAGLE, JR. (50) -- Senior Vice President(1)(2) -- Senior Vice
President of the Investment Adviser and FAM since 1990; Department Head of the
Global Fixed Income Division of the Investment Adviser and FAM since 1997;
Senior Vice President of Princeton Services since 1993.
R. DOUGLAS HENDERSON (41) -- Senior Vice President and Portfolio
Manager(1)(2) -- First Vice President of the Investment Adviser since 1997; Vice
President of the Investment Adviser from 1989 to 1997.
DONALD C. BURKE (38) -- Vice President and Treasurer(1)(2) -- Senior Vice
President and Treasurer of the Investment Adviser since 1999; First Vice
President of the Investment Adviser from 1997 to 1999 and Vice President of the
Investment Adviser from 1990 to 1997; Director of Taxation of the Investment
Adviser since 1990.
PATRICK D. SWEENEY (44) -- Secretary(1)(2) -- First Vice President of the
Investment Adviser since 1997; Vice President of the Investment Adviser from
1990 to 1997.
- ---------------
(1) Interested person, as defined in the 1940 Act, of the Fund.
(2) Such Director or officer is a director, trustee, officer or member of the
advisory board of certain other investment companies for which the
Investment Adviser or FAM acts as investment adviser.
29
<PAGE> 31
COMPENSATION OF DIRECTORS
Pursuant to its investment advisory agreement with the Fund (the
"Investment Advisory Agreement"), the Investment Adviser pays all compensation
of officers and employees of the Fund as well as the fees of all Directors of
the Fund who are affiliated persons of ML & Co. or its subsidiaries. The Fund
pays each Director not affiliated with the Investment Adviser (each a
"non-affiliated Director") a fee of $3,000 per year plus $300 per meeting
attended and pays all Directors' actual out-of-pocket expenses relating to
attendance at meetings. The Fund also pays members of the Board's Audit and
Nominating Committee (the "Committee"), which consists of all of the
non-affiliated Directors, an annual fee of $900. The Chairman of the Committee
receives an additional annual fee of $1,000.
The following table sets forth the compensation to be paid by the Fund to
the non-affiliated Directors projected through the end of the Fund's first full
fiscal year and the aggregate compensation paid to non-affiliated Directors from
all registered investment companies advised by the Investment Adviser and its
affiliate FAM ("MLAM/FAM Advised Funds") for the calendar year ended December
31, 1998.
<TABLE>
<CAPTION>
AGGREGATE
FROM FUND AND
PENSION OR RETIREMENT MLAM/FAM ADVISED
COMPENSATION BENEFITS ACCRUED AS PART FUNDS PAID TO
NAME OF DIRECTOR FROM FUND OF FUND EXPENSE DIRECTORS(1)
- ---------------- ------------ ------------------------ ----------------
<S> <C> <C> <C>
Ronald W. Forbes....................... $5,100 None $192,567
Cynthia A. Montgomery.................. $5,100 None $192,567
Charles C. Reilly...................... $6,100 None $362,858
Kevin A. Ryan.......................... $5,100 None $192,567
Richard R. West........................ $5,100 None $326,125
</TABLE>
- ---------------
(1) The Directors serve on the Boards of other MLAM/FAM Advised Funds as
follows: Mr. Forbes (37 registered investment companies consisting of 50
portfolios); Ms. Montgomery (37 registered investment companies consisting
of 50 portfolios); Mr. Reilly (56 registered investment companies consisting
of 69 portfolios); Mr. Ryan (37 registered investment companies consisting
of 50 portfolios); and Mr. West (58 registered investment companies
consisting of 83 portfolios).
INVESTMENT ADVISORY
AND ADMINISTRATIVE ARRANGEMENTS
The Investment Adviser, which is owned and controlled by ML & Co., a
financial services holding company and the parent of Merrill Lynch, provides the
Fund with investment advisory and administrative services. The Merrill Lynch
Asset Management Group (which includes the Investment Adviser) acts as the
investment adviser to more than 100 registered investment companies and offers
investment advisory services to individuals and institutional accounts. As of
December 1998, the Merrill Lynch Asset Management Group had a total of
approximately $501 billion in investment company and other portfolio assets
under management. This amount includes assets managed for certain affiliates of
the Investment Adviser. The Investment Adviser is a limited partnership, the
partners of which are ML & Co. and Princeton Services, Inc. The principal
business address of the Investment Adviser is 800 Scudders Mill Road,
Plainsboro, New Jersey 08536.
30
<PAGE> 32
The Investment Advisory Agreement provides that, subject to the direction
of the Board of Directors of the Fund, the Investment Adviser is responsible for
the actual management of the Fund's portfolio. The responsibility for making
decisions to buy, sell or hold a particular security rests with the Investment
Adviser, subject to review by the Board of Directors.
The Investment Adviser provides the portfolio management for the Fund. Such
portfolio management will consider analyses from various sources, make the
necessary investment decisions, and place orders for transactions accordingly.
The Investment Adviser also will be responsible for the performance of certain
management services for the Fund. R. Douglas Henderson is the portfolio manager
of the Fund and is primarily responsible for the Fund's day-to-day management.
For the services provided by the Investment Adviser under the Investment
Advisory Agreement, the Fund pays a monthly fee at an annual rate of 0.95% of
the Fund's average daily net assets (i.e., the average daily value of the total
assets of the Fund, including proceeds from the issuance of any shares of
preferred stock, minus the sum of accrued liabilities of the Fund and
accumulated dividends on shares of outstanding preferred stock, if any). For
purposes of this calculation, average daily net assets is determined at the end
of each month on the basis of the average net assets of the Fund for each day
during the month.
Under the terms of an administration agreement with the Fund (the
"Administration Agreement"), the Investment Adviser also performs or arranges
for the performance of the administrative services (i.e., services other than
investment advice and related portfolio activities) necessary for the operation
of the Fund, including paying all compensation of and furnishing office space
for officers and employees performing investment and economic research, trading
and investment management for the Fund, as well as the compensation of all
Directors of the Fund who are affiliated persons of the Investment Adviser or
any of its affiliates.
For administrative services, the Fund pays the Investment Adviser a monthly
fee at an annual rate of 0.40% of the Fund's average daily net assets determined
in the same manner as the fee payable by the Fund under the Investment Advisory
Agreement. The combined advisory and administrative fees are greater than those
paid by most funds, but are comparable to those paid by other continuously
offered, closed-end funds investing primarily in Corporate Loans.
The Investment Adviser has entered into a sub-advisory agreement with
Merrill Lynch Asset Management U.K. Limited ("MLAM U.K."), an indirect,
wholly-owned subsidiary of ML & Co. and an affiliate of the Investment Adviser,
pursuant to which the Investment Adviser pays MLAM U.K. a fee for providing
investment advisory services to the Investment Adviser with respect to the Fund
in an amount to be determined from time to time by the Investment Adviser and
MLAM U.K. but in no event in excess of the amount that the Investment Adviser
actually receives for providing services to the Fund pursuant to the Investment
Advisory Agreement. MLAM U.K. has offices at Milton Gate, 1 Moor Lane, London
EC2Y 9HA, England.
The Fund pays all other expenses incurred in its operations, including,
among other things, legal and auditing expenses, taxes, costs of printing
proxies, stock certificates and shareholder reports, charges of the Custodian
and Transfer Agent, expenses of registering the shares under Federal and state
securities laws, fees and expenses with respect to the issuance of preferred
shares or any borrowing, Securities and Exchange Commission fees, fees and
expenses of non-affiliated Directors, accounting and pricing costs, insurance,
interest, brokerage costs, litigation and other extraordinary or non-recurring
expenses, mailing
31
<PAGE> 33
and other expenses properly payable by the Fund. Accounting services are
provided to the Fund by the Investment Adviser, and the Fund reimburses the
Investment Adviser for its costs in connection with such services.
The Investment Adviser is a limited partnership, the partners of which are
ML & Co. and Princeton Services. ML & Co. and Princeton Services are
"controlling persons" of the Investment Adviser as defined under the 1940 Act
because of their ownership of its voting securities and their power to exercise
a controlling influence over its management or policies. Similarly, the
following entities may be considered "controlling persons" of MLAM U.K.: Merrill
Lynch Europe 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.
Unless earlier terminated as described below, the Investment Advisory and
Administration Agreements will remain in effect for a period of two years from
the date of execution and will remain in effect from year to year thereafter if
approved annually (a) by the Board of Directors 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 1940
Act) of any such party. Such contracts are not assignable and may be terminated
without penalty on 60 days' written notice at the option of either party thereto
or by the vote of the shareholders of the Fund.
Securities held by the Fund, including Corporate Loans, may also be held
by, or be appropriate investments for, other funds or investment advisory
clients for which the Investment Adviser or its affiliates act as an adviser.
Because of different objectives or other factors, a particular security may be
bought for an advisory client when other clients are selling the same security.
If purchases or sales of securities by the Investment Adviser for the Fund or
other funds for which it acts as investment adviser or for advisory clients
arise for consideration at or about the same time, transactions in such
securities will be made, insofar as feasible, for the respective funds and
clients in a manner deemed equitable to all. Transactions effected by the
Investment Adviser (or its affiliate) on behalf of more than one of its clients
during the same period may increase the demand for securities being purchased or
the supply of securities being sold, causing an adverse effect on price.
CODE OF ETHICS
The Board of Directors of the Fund has adopted a Code of Ethics under Rule
17j-1 of the 1940 Act which incorporates the Code of Ethics of the Investment
Adviser (together, the "Codes"). The Codes significantly restrict the personal
investing activities of all employees of the Investment Adviser and, as
described below, impose additional, more onerous, restrictions on Fund
investment personnel.
The Codes require that all employees of the Investment Adviser preclear any
personal securities investment (with limited exceptions, such as government
securities). The preclearance requirement and associated procedures are designed
to identify any substantive prohibition or limitation applicable to the proposed
investment. The substantive restrictions applicable to all employees of the
Investment Adviser include a ban on acquiring any securities in a "hot" initial
public offering and a prohibition from profiting on short-term trading in
securities. In addition, no employee may purchase or sell any security which at
the time is being purchased or sold (as the case may be), or to the knowledge of
the employee is being considered for purchase or sale, by any fund advised by
the Investment Adviser. Furthermore, the Codes
32
<PAGE> 34
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).
PORTFOLIO TRANSACTIONS
Subject to policies established by the Board of Directors of the Fund, the
Investment Adviser is primarily responsible for the execution of the Fund's
portfolio transactions. In executing such transactions, the Investment Adviser
seeks to obtain the best results for the Fund, taking into account such factors
as price (including the applicable fee, commission or spread), size of order,
difficulty of execution and operational facilities of the firm involved and the
firm's risk in positioning a block of securities. While the Investment Adviser
generally seeks reasonably competitive fee or commission rates, the Fund does
not necessarily pay the lowest commission or spread available.
The Fund purchases Corporate Loans in individually negotiated transactions
with commercial banks, thrifts, insurance companies, finance companies and other
financial institutions. In selecting such financial institutions, the Investment
Adviser may consider, among other factors, the financial strength, professional
ability, level of service and research capability of the institution. See
"Investment Objective and Policies -- Description of Participation Interests."
While such financial institutions generally are not required to repurchase
Participation Interests in Corporate Loans which they have sold, they may act as
principal or on an agency basis in connection with the Fund's disposition of
Corporate Loans.
The Fund has no obligation to deal with any bank, broker or dealer in
execution of transactions in portfolio securities. Subject to providing the best
price and execution, securities firms that provide investment research to the
Investment Adviser, including Merrill Lynch, may receive orders for transactions
by the Fund. Research information provided to the Investment Adviser by
securities firms is supplemental. It does not replace or reduce the level of
services performed by the Investment Adviser and the expenses of the Investment
Adviser will not be reduced.
The Fund invests in securities traded primarily in the over-the-counter
markets, and the Fund intends to deal directly with dealers who make markets in
the securities involved, except in those circumstances where better prices and
execution are available elsewhere. Under the 1940 Act, except as permitted by
exemptive order, persons affiliated with the Fund, including Merrill Lynch, are
prohibited from dealing with the Fund as principal in the purchase and sale of
securities. Since transactions in the over-the-counter market usually involve
transactions with dealers acting as principal for their own account, the Fund
does not deal with Merrill Lynch and its affiliates in connection with such
transactions. See "Investment Restrictions." An affiliated person of the Fund
may serve as its broker in over-the-counter transactions conducted on an agency
basis.
PORTFOLIO TURNOVER
The Fund may dispose of securities without regard to the length of time
they have been held when such actions, for defensive or other reasons, appear
advisable to the Investment Adviser. While it is not possible to predict
turnover rates with any certainty, presently it is anticipated that the Fund's
annual portfolio turnover rate, under normal circumstances, should be less than
100%. (The portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the particular fiscal year
33
<PAGE> 35
by the monthly average value of the portfolio securities owned by the Fund
during the particular fiscal year. For purposes of determining this rate, all
securities whose maturities at the time of acquisition are one year or less are
excluded.) A high portfolio turnover rate bears certain tax consequences and
results in greater transaction costs, which are borne directly by the Fund.
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to distribute all its net investment income. Dividends
from such net investment income are declared daily and paid monthly to holders
of common stock. It is expected that the Fund will commence paying dividends to
holders of common stock within approximately 90 days of the date of this
Prospectus. Monthly distributions to holders of common stock consist of
substantially all net investment income remaining after the payment of interest
on any borrowing or dividends or interest on any senior securities from and
after any borrowing or issuance of senior securities. For Federal tax purposes,
the Fund is required to distribute substantially all of its net investment
income for each calendar year. All net realized capital gains, if any, are
distributed at least annually to holders of common stock. Shares of common stock
accrue dividends as long as they are issued and outstanding. Shares of common
stock are issued and outstanding from the settlement date of a purchase order to
the settlement date of a tender offer.
Under the 1940 Act, the Fund may not declare any dividend or other
distribution upon any class of its capital stock, or purchase any such capital
stock, unless the aggregate indebtedness of the Fund has at the time of the
declaration of any such dividend or distribution or at the time of any such
purchase an asset coverage of at least 300% after deducting the amount of such
dividend, distribution, or purchase price, as the case may be. Also, certain
types of borrowings may result in the Fund being subject to covenants in credit
agreements, including those relating to asset coverage and portfolio composition
requirements and those restricting the Fund's payment of dividends and
distributions.
While any shares of preferred stock are outstanding, the Fund may not
declare any cash dividend or other distribution on its common stock, unless at
the time of such declaration, (1) all accumulated preferred stock dividends have
been paid and (2) the net asset value of the Fund's portfolio (determined after
deducting the amount of such dividend or other distribution) is at least 200% of
the liquidation value of the outstanding preferred stock (expected to be equal
to original purchase price per share plus any accumulated and unpaid dividends
thereon). This limitation, and the limitations contained in the preceding
paragraph, on the Fund's ability to pay dividends or make distributions on its
common stock could under certain circumstances impair the ability of the Fund to
maintain its qualification for taxation as a regulated investment company. See
"Borrowings by the Fund" and "Taxes."
See "Automatic Dividend Reinvestment Plan" for information concerning the
manner in which dividends and distributions to holders of common stock may be
automatically reinvested in shares of common stock of the Fund. Dividends and
distributions are taxable to shareholders whether they are reinvested in shares
of the Fund or received in cash (provided that, in the event that a payment on
an account maintained at the Transfer Agent would amount to $10 or less, a
shareholder will not receive such payment in cash and such payment will be
automatically invested in additional shares).
34
<PAGE> 36
TAXES
GENERAL
The Fund intends to elect and to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Internal Revenue Code
of 1986, as amended (the "Code"). If it so qualifies, in any taxable year in
which it distributes at least 90% of its net income (see below), the Fund will
not be subject to Federal income tax to the extent that it distributes its net
investment income and net realized capital gains. The Fund intends to distribute
substantially all of its net investment income and net capital gains.
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") will be taxable to
shareholders as ordinary income. Distributions, if any, from the excess of net
long-term capital gains over net short-term capital losses derived from the sale
of securities or from certain transactions in interest rate swaps ("capital gain
dividends") are taxable as long-term capital gains, regardless of the length of
time the shareholder has owned Fund shares. 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 dividends or capital gain dividends as well
as any amounts of capital gain dividends in the different categories of capital
gain referred to above. Any loss upon the sale or exchange of Fund shares held
for six months or less is 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 first reduce the adjusted tax basis of a
holder's common stock and, after such adjusted tax basis is reduced to zero,
constitute capital gains to such holder (assuming such common stock is held as a
capital asset).
Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Fund. Distributions by the Fund, whether from ordinary
income or capital gains, generally will not be eligible for the dividends
received deduction allowed to corporations under the Code. If the Fund pays a
dividend in January which was declared in the previous October, November or
December to shareholders of record on a specified date in one of such months,
then such dividend is treated for tax purposes as being paid and received on
December 31 of the year in which the dividend was declared.
The IRS has taken the position in a revenue ruling that if a RIC has two or
more classes of shares, it may designate distributions made to each class in any
year as consisting of no more than such class's proportionate share of
particular types of income, including the different categories of capital gains,
discussed above. A class's proportionate share of a particular type of income is
determined according to the percentage of total dividends paid by the RIC during
the year that was paid to such class. Consequently, if both common stock and
preferred stock are outstanding, the Fund intends to designate distributions
made to the classes as consisting of particular types of income in accordance
with the classes' proportionate shares of such income. Thus, capital gain
dividends as discussed above, will be allocated among the holders of common
stock and any series of preferred stock in proportion to the total dividends
paid to each class during the taxable year, or otherwise as required by
applicable law.
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
35
<PAGE> 37
98% of its capital gains, determined, in general, on an October 31 year end,
plus certain undistributed amounts from previous years. While the Fund intends
to distribute its income and capital gains in the manner necessary to minimize
imposition of the 4% excise tax, there can be no assurance that sufficient
amounts of the Fund's taxable income and capital gains will be distributed to
avoid entirely the imposition of the tax. In such event, the Fund will be liable
for the tax only on the amount by which it does not meet the foregoing
distribution requirements.
If at any time when borrowings or shares of preferred stock are outstanding
the Fund does not meet the asset coverage requirements of the 1940 Act or
applicable credit agreements, the Fund will be required to suspend distributions
to holders of common stock until the asset coverage is restored. See "Dividends
and Distributions." Limits on the Fund's payment of dividends may prevent the
Fund from distributing at least 90% of its net income and may therefore
jeopardize the Fund's qualification for taxation as a RIC and/or may subject the
Fund to the 4% Federal excise tax described above. If the Fund were to fail to
qualify as a RIC, some or all of the distributions would be fully taxable for
Federal income tax purposes. Upon any failure to meet the asset coverage
requirement of the 1940 Act or applicable credit agreements, the Fund may, in
its sole discretion, repay borrowings or redeem shares of preferred stock in
order to maintain or restore the requisite asset coverage and avoid the adverse
consequences to the Fund and its shareholders of failing to qualify as a RIC.
There can be no assurance, however, that any such action would achieve these
objectives.
As noted above, the Fund must distribute annually at least 90% of its net
investment income. A distribution will only be counted for this purpose if it
qualifies for the dividends paid deduction under the Code. Some types of
preferred stock that the Fund has the authority to issue may raise a question as
to whether distributions on such preferred stock are "preferential" under the
Code and therefore not eligible for the dividends paid deduction. The Fund
intends to rely on the advice of its counsel and may seek a private letter
ruling from the IRS on questions raised by issuance of these types of preferred
stock. Moreover, the Fund intends to issue preferred stock that counsel advises
or the IRS has ruled will not result in the payment of preferential dividends.
If the Fund ultimately relies solely on a legal opinion on issuance of such
preferred stock, there is no assurance that the IRS would agree that dividends
on the preferred stock are not preferential. If the IRS successfully disallowed
the dividends paid deduction for dividends on the preferred stock, the Fund
could lose the benefit of the special treatment afforded RICs under the Code.
The Federal income tax rules governing the taxation of interest rate swaps
are not entirely clear and may require the Fund to treat payments received under
such arrangements as ordinary income and to amortize payments under certain
circumstances. Additionally, because the treatment of swaps under the RIC
qualification rules is also not clear, the Fund will limit its activity in this
regard in order to maintain its qualification as a RIC.
Under certain Code provisions, 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.
36
<PAGE> 38
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 the applicability of the United States withholding
tax.
Interest income from non-U.S. securities may be subject to withholding and
other taxes imposed by the country in which the issuer is located. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes.
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.
OFFERS TO PURCHASE SHARES
Under current law, a shareholder who, pursuant to any tender offer, tenders
all of its shares and who, after such tender offer, is not considered to own any
shares under attribution rules contained in the Code will realize a taxable gain
or loss depending upon such shareholder's basis in the shares. Such gain or loss
will be treated as capital gain or loss if the shares are held as capital
assets. Different tax consequences may apply to tendering and nontendering
shareholders in connection with a tender offer, and these consequences will be
disclosed in the related offering documents. For example, if a shareholder
tenders less than all shares owned by or attributed to such shareholder, and if
the distribution to such shareholder does not otherwise qualify as a sale or
exchange, the proceeds received will be treated as a taxable dividend, a return
of capital or capital gain depending on the Fund's earnings and profits and the
shareholder's basis in the tendered shares. Also, there is a remote risk that
non-tendering shareholders may be considered to have received a deemed
distribution which may be a taxable dividend in whole or in part. Shareholders
may wish to consult their tax advisers prior to tendering. If holders of common
stock whose shares are acquired by the Fund in the open market sell less than
all shares owned by or attributed to them, a risk exists that these shareholders
will be subject to taxable dividend treatment and a remote risk exists that the
remaining shareholders may be considered to have received a deemed distribution.
-------------------------
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.
Shareholders are urged to consult their tax advisors regarding specific
questions as to Federal, foreign, state or local taxes. Foreign investors should
consider applicable foreign taxes in their evaluation of an investment in the
Fund.
37
<PAGE> 39
AUTOMATIC DIVIDEND REINVESTMENT PLAN
All dividends and capital gains distributions are reinvested automatically
in full and fractional shares of the Fund at the net asset value per share next
determined on the payable date of such dividend or distribution. A shareholder
may at any time, by request to his Merrill Lynch financial consultant or by
written notification to Merrill Lynch if the shareholder's account is maintained
with Merrill Lynch or by written notification or by telephone (1-800-MER-FUND)
to the Transfer Agent if the shareholder's account is maintained with the
Transfer Agent, elect to have subsequent dividends or capital gains
distributions, or both, paid in cash, rather than reinvested, in which event
payment will be mailed on or about the payment date (provided that, in the event
that a payment on an account maintained at the Transfer Agent would amount to
$10 or less, a shareholder will not receive such payment in cash and such
payment will be automatically reinvested in additional shares). Cash payments
can also be directly deposited to the shareholder's bank account. No early
withdrawal charge will be imposed upon redemption of shares issued as a result
of the automatic reinvestment of dividends or capital gains distributions. The
Fund is not responsible for any failure of delivery to the shareholder's address
of record and no interest will accrue on amounts represented by uncashed
distribution or redemption checks.
The automatic reinvestment of dividends and distributions does not relieve
participants of any Federal income tax that may be payable (or required to be
withheld) on such dividends or distributions. See "Taxes."
NET ASSET VALUE
The net asset value per share of common stock is determined Monday through
Friday as of 15 minutes after the close of business on the NYSE (generally, the
NYSE closes at 4:00 p.m., Eastern time), on each business day during which the
NYSE is open. The NYSE is not open on New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. For purposes of determining the net asset
value of a share of common stock, the value of the securities held by the Fund
plus any cash or other assets (including interest and dividends accumulated but
not yet received) minus all liabilities (including accrued expenses) and the
aggregate liquidation value of the outstanding shares of preferred stock is
divided by the total number of shares of common stock outstanding at such time.
Expenses, including the fees payable to the Investment Adviser, are accrued
daily.
Corporate Loans will be valued in accordance with guidelines established by
the Board of Directors. Under the Fund's current guidelines, Corporate Loans for
which the Investment Adviser can obtain at least two quotations from banks or
dealers in Corporate Loans will be valued by the Investment Adviser by
calculating the mean of the last available bid and asked prices in the market
for such Corporate Loans, and then using the mean of those two means. If only
one quote for a particular Corporate Loan is available, and the Investment
Adviser believes that such quote is a reliable indicator of value, such
Corporate Loan will be valued on the basis of the mean of the last available bid
and asked prices in the market. For Corporate Loans for which no reliable quotes
are available, such Corporate Loans will be valued by the Investment Adviser at
fair value, which is intended to approximate market value. In valuing a
Corporate Loan at fair value, the Investment Adviser will consider, among other
factors, (i) the creditworthiness of the borrower and any Intermediate
Participants, (ii) the current interest rate period
38
<PAGE> 40
until next interest rate reset and maturity of the Corporate Loan, (iii) recent
prices in the market for similar Corporate Loans, if any, and (iv) recent prices
in the market for instruments of similar quality, rate, period until next
interest rate reset and maturity.
Other portfolio securities (other than short-term obligations but including
listed issues) may be valued on the basis of prices furnished by one or more
pricing services which determine prices for normal, institutional-size trading
units of such securities using market information, transactions for comparable
securities and various relationships between securities which are generally
recognized by institutional traders. In certain circumstances, such other
portfolio securities are valued at the last sale price on the exchange that is
the primary market for such securities, or the last quoted bid price for those
securities for which the over-the-counter market is the primary market or for
listed securities in which there were no sales during the day. The value of
interest rate swaps, caps and floors is determined in accordance with a formula
and then confirmed periodically by obtaining a bank quotation. Positions in
options are valued at the last sale price on the market where any such option is
principally traded. Obligations with remaining maturities of 60 days or less are
valued at amortized cost unless this method no longer produces fair valuations.
Repurchase agreements are valued at cost plus accrued interest. Rights or
warrants to acquire stock, or stock acquired pursuant to the exercise of a right
or warrant, may be valued taking into account various factors such as original
cost to the Fund, earnings and net worth of the issuer, market prices for
securities of similar issuers, assessment of the issuer's future prosperity,
liquidation value or third party transactions involving the issuer's securities.
Securities for which there exist no price quotations or valuations and all other
assets are valued at fair value as determined in good faith by or on behalf of
the Board of Directors of the Fund.
DESCRIPTION OF CAPITAL STOCK
The Fund is authorized to issue 1,000,000,000 shares of capital stock, par
value $.10 per share, all of which shares are initially classified as common
stock. The Board of Directors is authorized, however, to classify and reclassify
any unissued shares of capital stock by setting or changing in any one or more
respects the designation and number of shares of any such class or series, and
the nature, rates, amounts and times at which and the conditions under which
dividends shall be payable on, and the voting, conversion, redemption and
liquidation rights of, such class or series and any other preferences, rights,
restrictions and qualifications applicable thereto.
Shares of common stock, when issued and outstanding, are fully paid and
non-assessable. Shareholders are entitled to share pro rata in the net assets of
the Fund available for distribution to shareholders upon liquidation of the
Fund. Shareholders are entitled to one vote for each share held.
The Fund does not currently anticipate issuing preferred stock. However, in
the event the Fund issues preferred stock and so long as any shares of the
Fund's preferred stock are outstanding, holders of common stock are not entitled
to receive any net income of or other distributions from the Fund unless all
accumulated dividends on preferred stock have been paid, and unless asset
coverage (as defined in the 1940 Act) with respect to preferred stock would be
at least 200% after giving effect to such distributions.
The Fund will send unaudited reports at least semi-annually and audited
annual financial statements to all of its shareholders of record.
39
<PAGE> 41
The Investment Adviser provided the initial capital for the Fund by
purchasing 10,000 shares of common stock of the Fund for $100,000. As of the
date of this Prospectus, the Investment Adviser owned 100% of the outstanding
shares of common stock of the Fund. The Investment Adviser may be deemed to
control the Fund until such time as it owns less than 25% of the outstanding
shares of the Fund.
CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION
The Fund's Articles of Incorporation include provisions that could have the
effect of limiting the ability of other entities or persons to acquire control
of the Fund or to change the composition of its Board of Directors and could
have the effect of depriving shareholders of an opportunity to sell their shares
at a premium over prevailing market prices by discouraging a third party from
seeking to obtain control of the Fund. A Director elected by all holders of
capital stock or by the holders of preferred stock may be removed from office
only for cause by vote of the holders of at least 66 2/3% of the shares of
capital stock or preferred stock, as the case may be, of the Fund entitled to be
voted on the matter.
In addition, the Articles of Incorporation require the favorable vote of
the holders of at least 66 2/3% of the Fund's shares of capital stock, then
entitled to be voted, voting as a single class, to approve, adopt or authorize
the following:
(i) a merger or consolidation or statutory share exchange of the Fund
with other corporations;
(ii) a sale of all or substantially all of the Fund's assets (other
than in the regular course of the Fund's investment activities); or
(iii) a liquidation or dissolution of the Fund,
unless such action has been approved, adopted or authorized by the affirmative
vote of two-thirds of the total number of Directors fixed in accordance with the
by-laws, in which case the affirmative vote of a majority of the Fund's shares
of capital stock is required. Following any issuance of preferred stock, it is
anticipated that the approval, adoption or authorization of the foregoing would
also require the favorable vote of a majority of the Fund's shares of preferred
stock then entitled to be voted, voting as a separate class.
The Board of Directors has determined that the 66 2/3% voting requirements
described above, which are greater than the minimum requirements under Maryland
law or the 1940 Act, are in the best interests of shareholders generally.
Reference should be made to the Articles of Incorporation on file with the
Securities and Exchange Commission for the full text of these provisions.
PERFORMANCE DATA
From time to time the Fund may include its yield and/or total return for
various specified time periods in advertisements or information furnished to
present or prospective shareholders.
The yield of the Fund refers to the income generated by an investment in
the Fund over a stated period. Yield is calculated by annualizing the most
recent monthly distribution and dividing the product by the average maximum
offering price.
40
<PAGE> 42
The Fund also may quote annual total return and aggregate total return
performance data. Total return quotations for the specified periods will be
computed by finding the rate of return (based on net investment income and any
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 the period.
The calculation of yield and total return does not reflect the imposition
of any early withdrawal charges.
Yield and total return figures are based on the Fund's historical
performance and are not intended to indicate future performance. The Fund's
yield is expected to fluctuate, and its total return varies depending on market
conditions, the Corporate Loans and other securities comprising the Fund's
portfolio, the Fund's operating expenses and the amount of net realized and
unrealized capital gains or losses during the period.
On occasion, the Fund may compare its yield to (1) the Prime Rate, quoted
daily in The Wall Street Journal as the base rate on corporate loans at large
U.S. money center commercial banks, (2) the CD rate, quoted daily in The Wall
Street Journal as the average of top rates paid by major New York banks on
primary new issues of negotiable CDs, usually on amounts of $1 million and more,
(3) one or more averages compiled by Donoghue's Money Fund Report, a widely
recognized independent publication that monitors the performance of money market
mutual funds, (4) the average yield reported by the Bank Rate Monitor National
Index(TM) for money market deposit accounts offered by the 100 leading banks and
thrift institutions in the ten largest standard metropolitan statistical areas,
(5) yield data published by Lipper Analytical Services, Inc., or (6) the yield
on an investment in 90-day Treasury bills on a rolling basis, assuming quarterly
compounding. In addition, the Fund may compare the Prime Rate, the CD rate, the
Donoghue's averages and the other yield data described above to each other. As
with yield quotations, yield comparisons should not be considered indicative of
the Fund's yield or relative performance for any future period.
CUSTODIAN
The Fund's securities and cash are held under a custodial agreement with
The Bank of New York, 90 Washington Street, New York, New York 10286.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT
AND SHAREHOLDER SERVICING AGENT; SHAREHOLDER REPORTS
The Transfer Agent for the shares of the Fund is Financial Data Services,
Inc., 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484, a subsidiary
of ML & Co.
The Transfer Agent, which is a subsidiary of ML & Co., acts as the Fund's
transfer agent pursuant to a Transfer Agency, Dividend Disbursing Agency and
Shareholder Servicing Agency Agreement (the "Transfer Agency Agreement").
Pursuant to the Transfer Agency Agreement, the Transfer Agent is responsible for
the issuance, transfer and tender of shares and the opening and maintenance of
shareholder accounts. Pursuant to the Transfer Agency Agreement, the Transfer
Agent receives an annual fee of up to $14.00 per shareholder account, and is
entitled to reimbursement for certain transaction charges and out-of-pocket
expenses incurred by it under the Agreement. Additionally, a $.20 monthly closed
account charge is assessed on all accounts that close during the calendar year.
Application of this fee commences
41
<PAGE> 43
the month following the month the account is closed and terminates at the end of
the calendar year. 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.
Shareholder Reports. Only one copy of each shareholder report and certain
shareholder communications will be mailed to each identified shareholder
regardless of the number of accounts such shareholder has. If a shareholder
wishes to receive separate copies of each report and communication for each of
the shareholder's related accounts the shareholder should notify in writing:
Financial Data Services, Inc.
P.O. Box 45289
Jacksonville, Florida 32232-5289
The written notification should include the shareholder's name, address,
tax identification number and Merrill Lynch and/or mutual fund account numbers.
If you have any questions regarding this please call your Merrill Lynch
financial consultant or Financial Data Services, Inc. at (800) 637-3863.
YEAR 2000 ISSUES
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 Investment Adviser or other Fund
service providers do not properly address this problem prior to January 1, 2000.
The Investment Adviser 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 Investment Adviser that they
also expect to resolve the Year 2000 Problem, and the Investment Adviser 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 invest, and this could hurt the Fund's investment returns.
LEGAL OPINIONS
Certain legal matters in connection with the common stock offered hereby
are passed on for the Fund by Brown & Wood LLP, One World Trade Center, New
York, New York 10048-0557.
INDEPENDENT AUDITORS
The statement of assets and liabilities of the Fund as of March , 1999
included in this prospectus has been so included in reliance on the report of
, independent auditors, and on their authority as experts in
auditing and accounting. The selection of independent auditors is subject to
ratification by shareholders of the Fund.
42
<PAGE> 44
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholder,
Merrill Lynch Senior Floating Rate Fund II, Inc.
We have audited the accompanying statement of assets and liabilities of
Merrill Lynch Senior Floating Rate Fund II, 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 Senior Floating
Rate Fund II, Inc. as of , 1999, in conformity with generally accepted
accounting principles.
Princeton, New Jersey
, 1999
43
<PAGE> 45
MERRILL LYNCH SENIOR FLOATING RATE FUND II, INC.
STATEMENT OF ASSETS AND LIABILITIES
, 1999
<TABLE>
<S> <C>
ASSETS:
Cash................................................... $100,000
Prepaid registration fees and offering costs (Note
1)....................................................
Total assets......................................
--------
LIABILITIES:
Liabilities and accrued expenses.......................
--------
NET ASSETS:................................................. $100,000
========
NET ASSETS CONSIST OF:
Common Stock, par value $0.10 per share; 1,000,000,000
shares authorized, 10,000 shares issued and
outstanding (Note 1).................................. $
Paid-in Capital excess of par..........................
--------
Net Assets-Equivalent to $10.00 net asset value per
share based on 10,000 shares of capital stock
outstanding (Note 1).................................. $
========
</TABLE>
NOTES TO STATEMENT OF ASSETS AND LIABILITIES
NOTE I. ORGANIZATION
The Fund was incorporated under the laws of the State of Maryland on
February 9, 1999 as a closed-end, non-diversified management investment company
and has had no operation other than the sale to Merrill Lynch Asset Management,
L.P. (the "Investment Adviser") of an aggregate of shares of common stock
for $100,000 on ,1999. The General Partner of the Investment Adviser
is an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc.
The Investment Adviser, 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.
NOTE 2. INVESTMENT ADVISORY AND ADMINISTRATIVE ARRANGEMENTS
The Fund has engaged the Investment Adviser to provide investment advisory
and administrative services to the Fund. For advisory services the Investment
Adviser will receive a monthly fee at the annual rate of 0.95 of 1% of the
Fund's average daily net assets. For administrative services, the Investment
Adviser will receive a monthly fee at the annual rate of 0.40 of 1% of the
Fund's average daily net assets.
NOTE 3. FEDERAL INCOME TAXES
The Fund intends to qualify as a "regulated investment company" and as such
(and by complying with the applicable provisions of the Internal Revenue Code of
1986, as amended) will not be subject to Federal income tax on taxable income
(including realized capital gains) that is distributed to shareholders.
44
<PAGE> 46
APPENDIX
RATINGS OF SECURITIES
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S ("MOODY'S") SECURITY RATINGS
AAA Securities which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
AA Securities which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade securities. They are rated lower than the best
securities because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater amplitude
or there may be other elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
A Securities which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
BAA Securities which are rated Baa are considered as medium grade obligations;
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such securities lack outstanding investment
characteristics and in fact have speculative characteristics as well.
BA Securities which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes securities in this class.
B Securities which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payment or of maintenance of
other terms of the contract over any long period of time may be small.
CAA Securities which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
CA Securities which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C Securities which are rated C are the lowest rated class of securities, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
NOTE: Those securities in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols Aa1, A1, Baa1, Ba1 and B1.
SHORT-TERM NOTES: The three ratings of Moody's for short-term notes are MIG
1/VMIG 1, MIG 2/VMIG 2 and MIG 3/VMIG 3; MIG 1/VMIG 1 denotes "best quality,
enjoying strong protection from established cash flows;" MIG 2/VMIG 2 denotes
"high quality" with ample margins of protection; MIG 3/VMIG 3 notes are of
"favorable quality . . . but lacking the undeniable strength of the preceding
grades."
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<PAGE> 47
DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS
The term "commercial paper" as used by Moody's means promissory obligations
not having an original maturity in excess of nine months. Moody's makes no
representations as to whether such commercial paper is by any other definition
"commercial paper" or is exempt from registration under the Securities Act of
1933, as amended.
Moody's Commercial Paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's makes no representation that such obligations are
exempt from registration under the Securities Act of 1933, nor does it represent
that any specific note is a valid obligation of a rated issuer or issued in
conformity with any applicable law. Moody's employs the following three
designations, all judged to be investment grade, to indicate the relative
repayment capacity of rated issuers:
Issuers rated PRIME-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. PRIME-1 repayment
capacity will normally be evidenced by the following characteristics:
-- Leading market positions in well established industries
-- High rates of return on funds employed
-- Conservative capitalization structures with moderate reliance on debt
and ample asset protection
-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation
-- Well established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated PRIME-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations. The
effects of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
Issuers rated NOT PRIME do not fall within any of the Prime rating
categories.
If an issuer represents to Moody's that its Commercial Paper obligations
are supported by the credit of another entity or entities, then the name or
names of such supporting entity or entities are listed within parentheses
beneath the name of the issuer, or there is a footnote referring the reader to
another page for the name or names of the supporting entity or entities. In
assigning ratings to such issuers, Moody's evaluates the financial strength of
the indicated affiliated corporations, commercial banks, insurance companies,
foreign governments or other entities, but only as one factor in the total
rating assessment. Moody's makes no representation and gives no opinion on the
legal validity or enforceability of any support arrangement. You are cautioned
to review with your counsel any questions regarding particular support
arrangements.
46
<PAGE> 48
DESCRIPTION OF STANDARD & POOR'S, A DIVISION OF
THE MCGRAW-HILL COMPANIES, INC., CORPORATE DEBT RATINGS
<TABLE>
<S> <C>
AAA Debt rated AAA has the highest rating assigned by Standard & Poor's. Capacity to pay interest and
repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay principal and differs from the
higher rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal although it is somewhat
more susceptible to the adverse effects of changes in circumstances and economic conditions than
debt in higher rated categories.
BBB Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal.
Whereas it normally exhibits adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than for debt in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded, on balance, as having predominantly speculative characteristics with
respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions.
BB Debt rated BB has less near-term vulnerability to default than other speculative issues. However,
it faces major ongoing uncertainties or exposure to adverse business, financial or economic
conditions which could lead to inadequate capacity to meet timely interest and principal payments.
The BB rating category is also used for debt subordinated to senior debt that is assigned an
actual or implied BBB- rating.
B Debt rated B has a greater vulnerability to default but presently has the capacity to meet
interest payments and principal repayments. Adverse business, financial or economic conditions
would likely impair capacity or willingness to pay interest and repay principal.
The B rating category is also used for debt subordinated to senior debt that is assigned an actual
or implied BB or BB- rating.
CCC Debt rated CCC has a current identifiable vulnerability to default, and is dependent upon
favorable business, financial and economic conditions to meet timely payments of interest and
repayment of principal. In the event of adverse business, financial or economic conditions, it is
not likely to have the capacity to pay interest and repay principal.
The CCC rating category is also used for debt subordinated to senior debt that is assigned an
actual or implied B or B- rating.
CC The rating CC is typically applied to debt subordinated to senior debt which is assigned an actual
or implied CCC rating.
C The rating C is typically applied to debt subordinated to senior debt which is assigned an actual
or implied CCC- debt rating. The C rating may be used to cover a situation where a bankruptcy
petition has been filed but debt service payments are continued.
CI The rating CI is reserved for income bonds on which no interest is being paid.
</TABLE>
47
<PAGE> 49
<TABLE>
<S> <C>
D Debt rated D is in payment default. The D rating category is also used when interest payments or
principal repayments are not made on the date due even if the applicable grace period has not
expired, unless Standard & Poor's believes that such payments will be made during such grace
period. The D rating also will be used upon the filing of a bankruptcy petition if debt service
payments are jeopardized.
</TABLE>
Plus(+) or Minus (-): The rating from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing with the major rating
categories.
NR Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy.
DESCRIPTION OF STANDARD & POOR'S COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. Ratings are graded into four categories, ranging form "A-1" for the
highest quality obligations to "D" for the lowest. These categories are as
follows:
<TABLE>
<S> <C>
A-1 This highest category indicates that the degree of safety regarding timely payment is strong.
Those issues determined to possess extremely strong safety characteristics are denoted with a plus
(+) sign designation.
A-2 Capacity for timely payment on issues with this designation is satisfactory. However, the relative
degree of safety is not as high as for issues designated "A-1."
A-3 Issues carrying this designation have a satisfactory capacity for timely payment. They are,
however, somewhat more vulnerable to the adverse effects of changes in circumstances than
obligations carrying the higher designations.
B Issues rated "B" are regarded as having only speculative capacity for timely payment.
C This rating is assigned to short-term debt obligations with a doubtful capacity for payment.
D Debt rated "D" is in payment default. The "D" rating category is used when interest payments or
principal payments are not made on the date due, even if the applicable grace period has not
expired, unless Standard & Poor's believes that such payments will be made during such grace
period.
</TABLE>
A commercial paper rating is not a recommendation to purchase or sell a
security. The ratings are based on current information furnished to Standard &
Poor's by the issuer or obtained from other sources it considers reliable. The
ratings may be changed, suspended, or withdrawn as a result of changes in or
unavailability of such information.
48
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49
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50
<PAGE> 52
[Graph]
MERRILL LYNCH SENIOR FLOATING RATE FUND II, INC.
<PAGE> 53
INFORMATION ABOUT THE FUND 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 CONTAINED IN THIS PROSPECTUS. NO ONE
IS AUTHORIZED TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT.
-------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................. 2
Risk Factors and Special
Considerations.................... 6
Fee Table........................... 8
The Fund............................ 9
Use of Proceeds..................... 9
Investment Objective and Policies... 9
Borrowings by the Fund.............. 21
Investment Restrictions............. 22
Purchase of Shares.................. 23
Tender Offers....................... 25
Early Withdrawal Charge............. 27
Directors and Officers.............. 28
Investment Advisory and
Administrative Arrangements....... 30
Portfolio Transactions.............. 33
Dividends and Distributions......... 34
Taxes............................... 35
Automatic Dividend Reinvestment
Plan.............................. 38
Net Asset Value..................... 38
Description of Capital Stock........ 39
Performance Data.................... 40
Custodian........................... 41
Transfer Agent, Dividend Disbursing
Agent and Shareholder Servicing
Agent; Shareholder Reports........ 41
Year 2000 Issues.................... 42
Legal Opinions...................... 42
Independent Auditors................ 42
Independent Auditors' Report........ 43
Statement of Assets and
Liabilities....................... 44
Appendix -- Ratings of Securities... 45
</TABLE>
Code # 19056--0299
[MERRILL LYNCH LOGO]
MERRILL LYNCH
SENIOR FLOATING
RATE FUND II, INC.
PROSPECTUS [MLYNCH COMPASS]
March , 1999
Distributor:
Merrill Lynch
Funds Distributor,
a division of
Princeton Funds
Distributor, Inc.
This prospectus should be
retained for future reference.
<PAGE> 54
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(1) Financial Statements:
Report of Independent Auditors, Statement of Assets and Liabilities as
of , 1999.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C> <C> <C>
(a) -- Articles of Incorporation of Registrant.(a)
(b) -- By-Laws of Registrant.
(c) -- None.
(d) (1) -- Portions of the Articles of Incorporation and By-Laws of the
Registrant defining the rights of holders of shares of the
Registrant.(b)
(2) -- Form of specimen certificate for common stock.
(e) -- None.
(f) -- None.
(g) (1) -- Form of Investment Advisory Agreement between Registrant and
Merrill Lynch Asset Management, L.P.
(2) -- Form of Sub-Advisory Agreement between Merrill Lynch Asset
Management, L.P. and Merrill Lynch Asset Management U.K.
Limited
(3) -- Form of Administration Agreement between Registrant and
Merrill Lynch Asset Management, L.P.
(h) (1) -- Form of Distribution Agreement between Registrant and
Merrill Lynch Funds Distributor, a division of Princeton
Funds Distributor, Inc.
(2) -- Form of Selected Dealer Agreement.
(i) -- None.
(j) -- Form of Custody Agreement between Registrant and The Bank of
New York.*
(k) (1) -- Form of Transfer Agency, Dividend Disbursing Agency and
Shareholder Servicing Agency Agreement between Registrant
and Financial Data Services, Inc.
(2) -- Form of Agreement between Merrill Lynch & Co., Inc. and
Registrant relating to use by Registrant of Merrill Lynch
name.
(l) -- Opinion and Consent of Brown & Wood LLP.*
(m) -- None.
(n) -- Consent of , independent auditors for Registrant.*
(o) -- None.
(p) -- Certificate of Merrill Lynch Asset Management, L.P.*
(q) -- None.
(r) -- Not applicable.
</TABLE>
- ---------------
(a) Filed on February 11, 1999 as an exhibit to the Registrant's Registration
Statement on Form N-2 (File No. 333-72137).
(b) Reference is made to Article V, Article VI (Sections 2, 3, 4, 5 and 6),
Article VII, Article VIII, Article X, Article XI, Article XII and Article
XIII of the Registrant's Articles of Incorporation, filed herewith as
Exhibit (a) to the Registration Statement; and to Article II, Article III
(Sections 1, 3, 5 and 17), Article VI, Article VII, Article XII, Article
XIII and Article XIV of the Registrant's By-Laws, previously filed as
Exhibit (b) to the Registration Statement.
* To be provided by amendment.
ITEM 25. MARKETING ARRANGEMENTS.
See Exhibits (h)(1) and (h)(2).
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<PAGE> 55
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses to be incurred in
connection with the offering described in this Registration Statement:
<TABLE>
<S> <C>
Registration fees........................................... $ 27,800
Printing (other than stock certificates).................... 60,000
Engraving and printing stock certificates................... 20,000
Legal fees and expenses..................................... 50,000
Blue Sky fees............................................... 68,140
NASD fees................................................... 10,500
Miscellaneous............................................... 3,560
--------
Total.................................................. $240,000
========
</TABLE>
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES.
There will be one record holder of the common stock, par value $.10 per
share, as of the effective date of this Registration Statement.
ITEM 29. INDEMNIFICATION.
Reference is made to Article IV 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 Distribution Agreement.
Article VI of the By-Laws provides that each officer and director of the
Registrant shall be indemnified by the Registrant to the full extent permitted
under the General Laws of the State of Maryland, except that such indemnity
shall not protect any such person against any liability to the Registrant or any
stockholder thereof to which such person would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office. Absent a court determination that
an officer or director seeking indemnification was not liable on the merits or
guilty of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office, the decision by the
Registrant to indemnify such person must be based upon the reasonable
determination of independent counsel or non-party independent directors, after
review of the facts, that such officer or director is not guilty of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
The Registrant may purchase insurance on behalf of an officer or director
protecting such person to the full extent permitted under the General Laws of
the State of Maryland from liability arising from his activities as officer or
director of the Registrant. The Registrant, however, may not purchase insurance
on behalf of any officer or director of the Registrant that protects or purports
to protect such person from liability to the Registrant or to its stockholders
to which such officer or director would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of his office.
Insofar as the conditional advancing of indemnification moneys for actions
based upon the Investment Company Act of 1940, as amended (the "1940 Act"), may
be concerned, such payments will be made
C-2
<PAGE> 56
only on the following conditions: (i) the advances must be limited to amounts
used, or to be used, for the preparation or presentation of a defense to the
action, including costs connected with the preparation of a settlement; (ii)
advances may be made only upon receipt of a written promise by, or on behalf of,
the recipient to repay that amount of the advance which exceeds the amount to
which it is ultimately determined that he is entitled to receive from the
Registrant by reason of indemnification; and (iii)(a) such promise must be
secured by a surety bond, other suitable insurance or an equivalent form of
security which assures that any repayments may be obtained by the Registrant
without delay or litigation, which bond, insurance or other form of security
must be provided by the recipient of the advance, of (b) 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 the recipient of the advance ultimately will be found
entitled to indemnification.
In Section 9 of the Distribution Agreement 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 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 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
(a) Merrill Lynch Asset Management, L.P. (the "Investment Adviser" or
"MLAM") 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 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, Inc., 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 Real Estate Fund, Inc., Merrill Lynch Ready Assets Trust, Merrill
Lynch Retirement Series Trust, Merrill Lynch Series Fund, Inc., Merrill Lynch
Short-Term Global Income Fund, Inc., Merrill Lynch Strategic Dividend Fund,
Merrill Lynch Technology Fund, Inc., Merrill Lynch U.S.A. Government Reserves,
Merrill Lynch U.S. Treasury Money Fund, Merrill Lynch Utility Income Fund, Inc.,
Merrill Lynch Variable Series Fund, Inc. and Hotchkis
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<PAGE> 57
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.
(b) Fund Asset Management, L.P. ("FAM"), an affiliate of the Investment
Adviser, acts as the investment adviser for the following open-end registered
investment companies: CBA Money Fund, CMA Government Securities Fund, CMA Money
Fund, CMA Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury
Fund, The Corporate Fund Accumulation Program, Inc., 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 Puerto Rico Tax
Exempt 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., MuniInsured Fund, 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 Fund, Inc., MuniHoldings Fund
II, Inc., MuniHoldings Insured Fund, 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., 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., MuniVest Fund, Inc., MuniVest Fund
II, 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, 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. The address of Merrill Lynch Funds for
Institutions Series and Merrill Lynch Intermediate Government Bond Fund is One
Financial Center, 23rd Floor, Boston, Massachusetts 02110-2665. The address of
the Investment Adviser, FAM, Princeton Services, Inc. ("Princeton Services") and
Princeton Administrators, L.P. is also P.O. Box 9011, Princeton, New Jersey
08543-9011. The address of 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 and Merrill Lynch & Co., Inc. ("ML &
Co.") is North Tower, World Financial Center, 250 Vesey Street, New York, New
York 10281-1201. The address of Financial Data Services, Inc. ("FDS") is 4800
Deer Lake Drive East, Jacksonville, Florida 32246-6484.
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<PAGE> 58
Set forth below is a list of each executive officer and director of the
Investment Adviser indicating each business, profession, vocation or employment
of a substantial nature in which each such person has been engaged since August
31, 1996 for his, her or its own account or in the capacity of director,
officer, employee, partner or trustee. In addition, Mr. Glenn is President or
Executive Vice President and Mr. Burke is either Vice President or Vice
President and Treasurer of all or substantially all of the investment companies
listed in the first two paragraphs of this Item 30. Messrs. Glenn and Burke also
hold the same positions with all or substantially all of the investment
companies advised by FAM as they do with those advised by the Investment
Adviser. Messrs. Giordano, Harvey, and Monagle are officers or
directors/trustees of one or more of such companies.
<TABLE>
<CAPTION>
POSITION WITH OTHER SUBSTANTIAL BUSINESS,
NAME INVESTMENT ADVISER 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 Economic
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 of Princeton Funds
Distributors, Inc. since 1986 and
Director thereof since 1991;
Director of FDS; President of
Princeton Administrators, L.P.
Donald C. Burke...................... Senior Vice President Senior Vice President and Treasurer
and Treasurer of FAM; Senior Vice President and
Treasurer of Princeton Services
Michael G. Clark..................... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton
Services
Mark Desario......................... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton
Services
Linda L. Federici.................... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton
Services
Vincent R. Giordano.................. Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton
Services
Elizabeth A. Griffin................. Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton
Services
Norman R. Harvey..................... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton
Services
Michael J. Hennewinkel............... Senior Vice President, Senior Vice President, General
General Counsel and Counsel and Secretary of FAM; Senior
Secretary Vice President of Princeton
Services
Philip L. Kirstein................... Senior Vice President Senior Vice President; Senior Vice
President, Director and Secretary
of Princeton Services
</TABLE>
C-5
<PAGE> 59
<TABLE>
<CAPTION>
POSITION WITH OTHER SUBSTANTIAL BUSINESS,
NAME INVESTMENT ADVISER 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; Senior Vice President of
PFD
Stephen M. M. Miller................. Senior Vice President Executive Vice President of
Princeton Administrators, L.P.;
Senior Vice President of Princeton
Services
Joseph T. Monagle, Jr................ Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton
Services
Brian A. Murdock..................... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton
Services; Director of PFD
Gregory Upah......................... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton
Services
Ronald L. Welburn.................... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton
Services
</TABLE>
(c) 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., 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 Developing Capital Markets, Inc., Merrill Lynch Dragon
Fund, Inc., Merrill Lynch Emerging Tigers Fund, Inc., Merrill Lynch EuroFund,
Merrill Lynch Fundamental Growth Fund, Inc., Merrill Lynch Global Allocation
Fund, Inc., Merrill Lynch Global Bond Fund for Investment and Retirement,
Merrill Lynch Global 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 Milton Gate, 1 Moor Lane, London EC2Y 9HA, England.
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<PAGE> 60
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 June 1,
1996, for his or her own account or in the capacity of director, officer,
partner or trustee. In addition, Messrs. Glenn, Albert and Burke are officers of
one or more of the registered investment companies listed in the preceding
paragraphs:
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
NAME POSITION WITH MLAM U.K. PROFESSION, VOCATION OR EMPLOYMENT
---- ----------------------- ----------------------------------
<S> <C> <C>
Terry K. Glenn....................... Executive Vice President Executive Vice President of the
Investment Adviser and FAM;
Executive Vice President and
Director of Princeton Services;
President of Princeton Funds
Distributors, Inc. since 1986 and
Director thereof since 1991;
Director of FDS; President of
Princeton Administrators, L.P.
Alan J. Albert....................... Senior Managing Director Vice President of the Investment
Adviser
Nicholas C.D. Hall................... President Director of Merrill Lynch Europe
PLC; General Counsel of Merrill
Lynch International Private
Banking Group
Donald C. Burke...................... Senior Vice President Senior Vice President and Treasurer
of the Investment Adviser and FAM;
Senior Vice President and
Treasurer of Princeton Services
Carol Ann Langham.................... Company Secretary None
Debra Anne Searle.................... Assistant Company None
Secretary
</TABLE>
ITEM 31. 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 will be maintained at the
offices of the Registrant, 800 Scudders Mill Road, Plainsboro, New Jersey 08536
and FDS, 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484.
ITEM 32. MANAGEMENT SERVICES.
Not Applicable.
ITEM 33. UNDERTAKINGS.
(a) Registrant undertakes to suspend offerings of the shares of Common
Stock covered hereby until it amends its Prospectus contained herein if (1)
subsequent to the effective date of this Registration Statement, its net asset
value per share of Common Stock declines more than 10 percent from its net asset
value per share of Common Stock as of the effective date of this Registration
Statement, or (2) its net asset value per share of Common Stock increases to an
amount greater than its net proceeds as stated in the Prospectus contained
herein.
(b) The undersigned registrant hereby undertakes:
(1) To file during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement.
(i) To include any prospectus required by section 10(a)(3) of the
1933 Act;
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<PAGE> 61
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which individually or in the aggregate
represent a fundamental change in the information set forth in the
Registration Statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement.
(2) That, for the purpose of determining any liability under the 1933
Act, each such post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities offered therein and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
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<PAGE> 62
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE
INVESTMENT COMPANY ACT OF 1940, THE REGISTRANT HAS DULY CAUSED THIS 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 19TH
DAY OF FEBRUARY, 1999.
Merrill Lynch Senior Floating Rate
Fund II, 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 Patrick D. Sweeney, or any of them, as attorney-in-fact, to
sign on his or her behalf, individually and in each capacity stated below, any
amendment to this 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 below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ TERRY K. GLENN President (Principal February 19, 1999
- --------------------------------------------------- Executive Officer) and
(Terry K. Glenn) Director
/s/ DONALD C. BURKE Treasurer (Principal February 19, 1999
- --------------------------------------------------- Financial and Accounting
(Donald C. Burke) Officer)
/s/ RONALD W. FORBES Director February 19, 1999
- ---------------------------------------------------
(Ronald W. Forbes)
Director
- ---------------------------------------------------
(Cynthia A. Montgomery)
/s/ CHARLES C. REILLY Director February 19, 1999
- ---------------------------------------------------
(Charles C. Reilly)
/s/ KEVIN A. RYAN Director February 19, 1999
- ---------------------------------------------------
(Kevin A. Ryan)
/s/ RICHARD R. WEST Director February 19, 1999
- ---------------------------------------------------
(Richard R. West)
Director
- ---------------------------------------------------
(Arthur Zeikel)
</TABLE>
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<PAGE> 63
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C> <C> <C>
(b) -- By-laws of Registrant.
(d) (2) -- Form of specimen certificate for common stock.
(g) (1) -- Form of Investment Advisory Agreement between Registrant and
Merrill Lynch Asset Management, L.P.
(g) (2) -- Form of Sub-Advisory Agreement between Merrill Lynch Asset
Management, L.P. and Merrill Lynch Asset Management U.K.
Limited.
(g) (3) -- Form of Administration Agreement between Registrant and
Merrill Lynch Asset Management, L.P.
(h) (1) -- Form of Distribution Agreement between Registrant and
Merrill Lynch Funds Distributor, a division of Princeton
Funds Distributor, Inc.
(h) (2) -- Form of Selected Dealer Agreement.
(k) (1) -- Form of Transfer Agency, Dividend Disbursing Agency and
Shareholder Servicing Agency Agreement between Registrant
and Financial Data Services, Inc.
(k) (2) -- Form of Agreement between Merrill Lynch & Co., Inc. and
Registrant relating to use by Registrant of Merrill Lynch
name.
</TABLE>
<PAGE> 1
Exhibit b
BY-LAWS
OF
MERRILL LYNCH SENIOR FLOATING RATE FUND II, INC.
ARTICLE I.
Offices
Section 1.01. Principal Office. The principal office of the Corporation
shall be in the City of Baltimore and State of Maryland.
Section 1.02. Principal Executive Office. The principal executive
office of the Corporation shall be at 800 Scudders Mill Road, Plainsboro, New
Jersey 08536.
Section 1.03. Other Offices. The Corporation may have such other
offices in such places as the Board of Directors from time to time may
determine.
ARTICLE II.
Meetings of Stockholders
Section 2.01. Annual Meeting. Except as otherwise required by the rules
of any stock exchange on which the Corporation's shares of stock may be listed,
the Corporation shall not be required to hold an annual meeting of its
stockholders in any year in which the election of directors is not required to
be acted upon under the Investment Company Act of 1940, as amended (the
"Investment Company Act"). In the event that the Corporation shall be required
to hold an annual meeting of stockholders to elect directors under the
Investment Company Act, such meeting shall be held no later than 120 days after
the occurrence of the event requiring the meeting. Any stockholders' meeting
held in accordance with this Section shall for all purposes constitute the
annual meeting of stockholders for the year in which the meeting is held.
In the event an annual meeting is required by the rules of a stock
exchange on which the Corporation's shares of stock are listed, the annual
meeting of the stockholders of the Corporation for the election of directors and
for the transaction of such other business as may properly be brought before the
meeting shall be held on such day and month of each year as shall be designated
annually by the Board of Directors.
<PAGE> 2
Section 2.02. Special Meetings. Special meetings of the stockholders,
unless otherwise provided by law, may be called for any purpose or purposes by a
majority of the Board of Directors, the President, or on the written request of
the holders of at least 10% of the outstanding shares of capital stock of the
Corporation entitled to vote at such meeting if they comply with Section
2-502(b) or (c) of the Maryland General Corporation Law.
Section 2.03. Place of Meetings. The annual meeting and any special
meeting of the stockholders shall be held at such place within the United States
as the Board of Directors from time to time may determine.
Section 2.04. Notice of Meetings; Waiver of Notice. Notice of the
place, date and time of the holding of each annual and special meeting of the
stockholders and the purpose or purposes of each special meeting shall be given
personally or by mail, not less than ten nor more than 90 days before the date
of such meeting, to each stockholder entitled to vote at such meeting and to
each other stockholder entitled to notice of the meeting. Notice by mail shall
be deemed to be duly given when deposited in the United States mail addressed to
the stockholder at his or her address as it appears on the records of the
Corporation, with postage thereon prepaid.
Notice of any meeting of stockholders shall be deemed waived by any
stockholder who shall attend such meeting in person or by proxy, or who, either
before or after the meeting, shall submit a signed waiver of notice which is
filed with the records of the meeting. When a meeting is adjourned to another
time and place, unless the Board of Directors, after the adjournment, shall fix
a new record date for an adjourned meeting, or unless the adjournment is for
more than 120 days after the original record date, notice of such adjourned
meeting need not be given if the time and place to which the meeting shall be
adjourned were announced at the meeting at which the adjournment is taken.
Section 2.05. Quorum. The presence in person or by proxy of the holders
of shares of stock entitled to cast one-third of the votes entitled to be cast
shall constitute a quorum at any meeting of stockholders, except with respect to
any matter which requires approval by a separate vote of one or more classes or
series of stock, in which case the presence in person or by proxy of the holders
of shares entitled to cast one-third of the votes entitled to be cast by each
class or
<PAGE> 3
series entitled to vote as a separate class or series shall constitute a quorum.
In the absence of a quorum no business may be transacted, except that the
holders of a majority of the shares of stock present in person or by proxy and
entitled to vote may adjourn the meeting from time to time, without notice other
than announcement thereat except as otherwise required by these By-Laws, until
the holders of the requisite amount of shares of stock shall be so present. At
any such adjourned meeting at which a quorum may be present any business may be
transacted which might have been transacted at the meeting as originally called.
The absence from any meeting, in person or by proxy, of holders of the number of
shares of stock of the Corporation in excess of a majority thereof which may be
required by the laws of the State of Maryland, the Investment Company Act, or
other applicable statute, the Charter, or these By-Laws, for action upon any
given matter shall not prevent action at such meeting upon any other matter or
matters which properly may come before the meeting, if there shall be present
thereat, in person or by proxy, holders of the number of shares of stock of the
Corporation required for action in respect of such other matter or matters.
Section 2.06. Organization. At each meeting of the stockholders, the
Chairman of the Board (if one has been designated by the Board), or in his or
her absence or inability to act, the President, or in the absence or inability
to act of the Chairman of the Board and the President, any officer of the
Corporation, shall act as chairman of the meeting. The Secretary, or in his or
her absence or inability to act, any person appointed by the chairman of the
meeting, shall act as secretary of the meeting and keep the minutes thereof.
Section 2.07. Order of Business. The order of business at all meetings
of the stockholders shall be as determined by the chairman of the meeting.
Section 2.08. Voting. Except as otherwise provided by statute or the
Charter, each holder of record of shares of stock of the Corporation having
voting power shall be entitled at each meeting of the stockholders to one vote
for every share of such stock standing in his or her name on the record of
stockholders of the Corporation as of the record date determined pursuant to
Section 9 of this Article or, if such record date shall not have been so fixed,
then at the later of (i) the close of business on the day on which notice of the
meeting is mailed or (ii) the thirtieth day before the meeting.
<PAGE> 4
Each stockholder entitled to vote at any meeting of stockholders may
authorize another person or persons to act for him or her by a proxy signed by
such stockholder or his or her attorney-in-fact. No proxy shall be valid after
the expiration of eleven months from the date thereof, unless otherwise provided
in the proxy. Every proxy shall be revocable at the pleasure of the stockholder
executing it, except in those cases where such proxy states that it is
irrevocable and where an irrevocable proxy is permitted by law. Except as
otherwise provided by statute, the Charter or these By-Laws, any corporate
action to be taken by vote of the stockholders (other than the election of
directors, which shall be by a plurality of votes cast) shall be authorized by a
majority of the total votes cast at a meeting of stockholders by the holders of
shares present in person or represented by proxy and entitled to vote on such
action.
If a vote shall be taken on any question other than the election of
directors, which shall be by written ballot, then unless required by statute or
these By-Laws, or determined by the chairman of the meeting to be advisable, any
such vote need not be by ballot. On a vote by ballot, each ballot shall be
signed by the stockholder voting, or by his or her proxy, if there be such
proxy, and shall state the number of shares voted. Section 2.09. Fixing of
Record Date. The Board of Directors may set a record date for the purpose of
determining stockholders entitled to vote at any meeting of the stockholders.
The record date, which may not be prior to the close of business on the day the
record date is fixed, shall be not more than 90 nor less than ten days before
the date of the meeting of the stockholders. All persons who were holders of
record of shares at such time, and not others, shall be entitled to vote at such
meeting and any adjournment thereof.
Section 2.10. Inspectors. The Board, in advance of any meeting of
stockholders, may appoint one or more inspectors to act at such meeting or any
adjournment thereof. If the inspectors shall not be so appointed or if any of
them shall fail to appear or act, the chairman of the meeting may, and on the
request of any stockholder entitled to vote thereat shall, appoint inspectors.
Each inspector, before entering upon the discharge of his or her duties, shall
take and sign an oath to execute faithfully the duties of inspector at such
meeting with strict impartiality and according to the best of his or her
ability. The inspectors shall determine the number of shares outstanding and the
voting powers of each, the number of shares represented at the
<PAGE> 5
meeting, the existence of a quorum, and the validity and effect of proxies, and
shall receive votes, ballots or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and tabulate all
votes, ballots or consents, determine the result, and do such acts as are proper
to conduct the election or vote with fairness to all stockholders. On request of
the chairman of the meeting or any stockholder entitled to vote thereat, the
inspectors shall make a report in writing of any challenge, request or matter
determined by them and shall execute a certificate of any fact found by them. No
director or candidate for the office of director shall act as inspector of an
election of directors. Inspectors need not be stockholders.
Section 2.11. Consent of Stockholders in Lieu of Meeting. Except as
otherwise provided by statute or the Charter, any action required to be taken at
any annual or special meeting of stockholders, or any action which may be taken
at any annual or special meeting of such stockholders, may be taken without a
meeting, without prior notice and without a vote, if the following are filed
with the records of stockholders' meetings: (i) a unanimous written consent
which sets forth the action and is signed by each stockholder entitled to vote
on the matter and (ii) a written waiver of any right to dissent signed by each
stockholder entitled to notice of the meeting but not entitled to vote thereat.
ARTICLE III.
Board of Directors
Section 3.01. General Powers. Except as otherwise provided in the
Charter, the business and affairs of the Corporation shall be managed under the
direction of the Board of Directors. All powers of the Corporation may be
exercised by or under authority of the Board of Directors except as conferred on
or reserved to the stockholders by law or by the Charter or these By-Laws.
Section 3.02. Number of Directors. The number of directors shall be
fixed from time to time by resolution of the Board of Directors adopted by a
majority of the entire Board of Directors then in office; provided, however,
that in no event shall the number of directors be less than the minimum
permitted by the General Law of the State of Maryland nor more than 15. Any
vacancy created by an increase in the number of directors may be filled in
accordance with Section 6 of this Article III. No reduction in the number of
directors shall have the effect of
<PAGE> 6
removing any director from office prior to the expiration of his or her term
unless such director specifically is removed pursuant to Section 5 of this
Article III at the time of such decrease. Directors need not be stockholders. As
long as any preferred stock of the Corporation is outstanding, the number of
directors shall be not less than five.
Section 3.03. Election and Term of Directors. Directors shall be
elected annually at a meeting of stockholders held for that purpose; provided,
however, that if no meeting of the stockholders of the Corporation is required
to be held in a particular year pursuant to Section 1 of Article II of these
By-Laws, directors shall be elected at the next meeting held. The term of office
of each director shall be from the time of his election and qualification until
the election of directors next succeeding his election and until his successor
shall have been elected and shall have qualified, or until his death, or until
he shall have resigned or until December 31 of the year in which he shall have
reached seventy-two years of age, or until he shall have been removed as
hereinafter provided in these By-Laws, or as otherwise provided by statute or by
the Charter.
Section 3.04. Resignation. A director of the Corporation may resign at
any time by giving written notice of his or her resignation to the Board or the
Chairman of the Board or the President or the Secretary. Any such resignation
shall take effect at the time specified therein or, if the time when it shall
become effective shall not be specified therein, immediately upon its receipt;
and, unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
Section 3.05. Removal of Directors. Any director of the Corporation may
be removed (with or without cause) by the stockholders by a vote of sixty-six
and two-thirds percent (662/3%) of the outstanding shares of capital stock then
entitled to vote in the election of such director.
Section 3.06. Vacancies. Subject to the provisions of the Investment
Company Act, any vacancies in the Board of Directors, whether arising from
death, resignation, removal, an increase in the number of directors or any other
cause, shall be filled by a vote of a majority of the Board of Directors then in
office, regardless of whether they constitute a quorum.
<PAGE> 7
Section 3.07. Place of Meetings. Meetings of the Board may be held at
such place as the Board from time to time may determine or as shall be specified
in the notice of such meeting.
Section 3.08. Regular Meeting. Regular meetings of the Board may be
held without notice at such time and place as may be determined by the Board of
Directors.
Section 3.09. Special Meetings. Special meetings of the Board may be
called by two or more directors of the Corporation or by the Chairman of the
Board or the President.
Section 3.10. Telephone Meetings. Members of the Board of Directors or
of any committee thereof may participate in a meeting by means of a conference
telephone or similar communications equipment if all persons participating in
the meeting can hear each other at the same time. Subject to the provisions of
the Investment Company Act, participation in a meeting by these means
constitutes presence in person at the meeting.
Section 3.11. Notice of Special Meetings. Notice of each special
meeting of the Board shall be given by the Secretary as hereinafter provided, in
which notice shall be stated the time and place of the meeting. Notice of each
such meeting shall be delivered to each director, either personally or by
telephone or any standard form of telecommunication, at least 24 hours before
the time at which such meeting is to be held, or by first-class mail, postage
prepaid, addressed to him or her at his or her residence or usual place of
business, at least three days before the day on which such meeting is to be
held.
Section 3.12. Waiver of Notice of Meetings. Notice of any special
meeting need not be given to any director who, either before or after the
meeting, shall sign a written waiver of notice which is filed with the records
of the meeting or who shall attend such meeting. Except as otherwise
specifically required by these By-Laws, a notice or waiver of notice of any
meeting need not state the purposes of such meeting.
Section 3.13. Quorum and Voting. One-third, but not less than two
(unless there is only one director) of the members of the entire Board shall be
present in person at any meeting of the Board in order to constitute a quorum
for the transaction of business at such meeting, and except as otherwise
expressly required by statute, the Charter, these By-Laws, the Investment
Company
<PAGE> 8
Act, or other applicable statute, the act of a majority of the directors present
at any meeting at which a quorum is present shall be the act of the Board. In
the absence of a quorum at any meeting of the Board, a majority of the directors
present thereat may adjourn such meeting to another time and place until a
quorum shall be present thereat. Notice of the time and place of any such
adjourned meeting shall be given to the directors who were not present at the
time of the adjournment and, unless such time and place were announced at the
meeting at which the adjournment was taken, to the other directors. At any
adjourned meeting at which a quorum is present, any business may be transacted
which might have been transacted at the meeting as originally called.
Section 3.14. Organization. The Board, by resolution adopted by a
majority of the entire Board, may designate a Chairman of the Board, who shall
preside at each meeting of the Board. In the absence or inability of the
Chairman of the Board to preside at a meeting, the President or, in his or her
absence or inability to act, another director or any officer of the Corporation
chosen by a majority of the directors present, shall act as chairman of the
meeting and preside thereat. The Secretary (or, in his or her absence or
inability to act, any person appointed by the Chairman) shall act as secretary
of the meeting and keep the minutes thereof.
Section 3.15. Written Consent of Directors in Lieu of a Meeting.
Subject to the provisions of the Investment Company Act, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members of the Board or
the committee, as the case may be, consent thereto in writing, and the writings
or writing are filed with the minutes of the proceedings of the Board or the
committee.
Section 3.16. Compensation. Directors may receive compensation for
services to the Corporation in their capacities as directors or otherwise in
such manner and in such amounts as may be fixed from time to time by the Board.
Section 3.17. Investment Policies. It shall be the duty of the Board of
Directors to direct that the purchase, sale, retention and disposal of portfolio
securities and the other investment practices of the Corporation at all times
are consistent with the investment policies and
<PAGE> 9
restrictions with respect to securities investments and otherwise of the
Corporation, as recited in the Prospectus of the Corporation included in the
registration statement of the Corporation relating to the initial public
offering of its capital stock, as filed with the Securities and Exchange
Commission (or as such investment policies and restrictions may be modified by
the Board of Directors, or, if required, by a majority vote of the stockholders
of the Corporation in accordance with the Investment Company Act) and as
required by the Investment Company Act. The Board, however, may delegate the
duty of management of the assets and the administration of its day to day
operations to an individual or corporate management company and/or investment
adviser pursuant to a written contract or contracts which have obtained the
requisite approvals, including the requisite approvals of renewals thereof, of
the Board of Directors and/or the stockholders of the Corporation in accordance
with the provisions of the Investment Company Act.
ARTICLE IV.
Committees
Section 4.01. Executive Committee. The Board, by resolution adopted by
a majority of the entire board, may designate an Executive Committee consisting
of two or more of the directors of the Corporation, which committee shall have
and may exercise all of the powers and authority of the Board with respect to
all matters other than:
(i) the submission to stockholders of any action
requiring authorization of stockholders pursuant to statute or the
Charter;
(ii) the filling of vacancies on the Board of Directors;
(iii) the fixing of compensation of the directors for
serving on the Board or on any committee of the Board, including the
Executive Committee;
(iv) the approval or termination of any contract with an
investment adviser or principal underwriter, as such terms are defined
in the Investment Company Act, or the taking of any other action
required to be taken by the Board of Directors by the Investment
Company Act;
(v) the amendment or repeal of these By-Laws or the
adoption of new By-Laws;
<PAGE> 10
(vi) the amendment or repeal of any resolution of the
Board which by its terms may be amended or repealed only by the Board;
(vii) the declaration of dividends and, except to the
extent permitted by law, the issuance of capital stock of the
Corporation; and
(viii) the approval of any merger or share exchange which
does not require stockholder approval.
The Executive Committee shall keep written minutes of its proceedings
and shall report such minutes to the Board. All such proceedings shall be
subject to revision or alteration by the Board; provided, however, that third
parties shall not be prejudiced by such revision or alteration.
Section 4.02. Other Committees of the Board. The Board of Directors
from time to time, by resolution adopted by a majority of the whole Board, may
designate one or more other committees of the Board, each such committee to
consist of two or more directors and to have such powers and duties as the Board
of Directors, by resolution, may prescribe.
Section 4.03. General. One-third, but not less than two, of the members
of any committee shall be present in person at any meeting of such committee in
order to constitute a quorum for the transaction of business at such meeting,
and the act of a majority present shall be the act of such committee. The Board
may designate a chairman of any committee and such chairman or any two members
of any committee may fix the time and place of its meetings unless the Board
shall otherwise provide. In the absence or disqualification of any member of any
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or she or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. The Board shall
have the power at any time to change the membership of any committee, to fill
all vacancies, to designate alternate members to replace any absent or
disqualified member, or to dissolve any such committee. Nothing herein shall be
deemed to prevent the Board from appointing one or more committees consisting in
whole or in part of persons who are not directors of the Corporation; provided,
however, that no such committee
<PAGE> 11
shall have or may exercise any authority or power of the Board in the management
of the business or affairs of the Corporation except as may be prescribed by the
Board.
ARTICLE V.
Officers, Agents and Employees
Section 5.01. Number of Qualifications. The officers of the Corporation
shall be a President, who shall be a director of the Corporation, a Secretary
and a Treasurer, each of whom shall be elected by the Board of Directors. The
Board of Directors may elect or appoint one or more Vice Presidents and also may
appoint such other officers, agents and employees as it may deem necessary or
proper. Any two or more offices may be held by the same person, except the
offices of President and Vice President, but no officer shall execute,
acknowledge or verify any instrument in more than one capacity. Such officers
shall be elected by the Board of Directors each year at its first meeting held
after the annual meeting of stockholders, each to hold office until the next
meeting of the stockholders and until his or her successor shall have been duly
elected and shall have qualified, or until his or her death, or until he or she
shall have resigned, or have been removed, as hereinafter provided in these
By-Laws. The Board from time to time may elect such officers (including one or
more Assistant Vice Presidents, one or more Assistant Treasurers and one or more
Assistant Secretaries) and such agents, as may be necessary or desirable for the
business of the Corporation. The President also shall have the power to appoint
such assistant officers (including one or more Assistant Vice Presidents, one or
more Assistant Treasurers and one or more Assistant Secretaries) as may be
necessary or appropriate to facilitate the management of the Corporation's
affairs. Such officers and agents shall have such duties and shall hold their
offices for such terms as may be prescribed by the Board or by the appointing
authority.
Section 5.02. Resignations. Any officer of the Corporation may resign
at any time by giving written notice of resignation to the Board, the Chairman
of the Board, the President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt; and,
unless otherwise specified therein, the acceptance of such resignation shall be
necessary to make it effective.
<PAGE> 12
Section 5.03. Removal of Officer, Agent or Employee. Any officer, agent
or employee of the Corporation may be removed by the Board of Directors with or
without cause at any time, and the Board may delegate such power of removal as
to agents and employees not elected or appointed by the Board of Directors. Such
removal shall be without prejudice to such person's contract rights, if any, but
the appointment of any person as an officer, agent or employee of the
Corporation shall not of itself create contract rights.
Section 5.04. Vacancies. A vacancy in any office, whether arising from
death, resignation, removal or any other cause, may be filled for the unexpired
portion of the term of the office which shall be vacant, in the manner
prescribed in these By-Laws for the regular election or appointment to such
office.
Section 5.05. Compensation. The compensation of the officers of the
Corporation shall be fixed by the Board of Directors, but this power may be
delegated to any officer in respect of other officers under his or her control.
Section 5.06. Bonds or Other Security. If required by the Board, any
officer, agent or employee of the Corporation shall give a bond or other
security for the faithful performance of his or her duties, in such amount and
with such surety or sureties as the Board may require.
Section 5.07. President. The President shall be the chief executive
officer of the Corporation. In the absence of the Chairman of the Board (or if
there be none), the President shall preside at all meetings of the stockholders
and of the Board of Directors. He or she shall have, subject to the control of
the Board of Directors, general charge of the business and affairs of the
Corporation. He or she may employ and discharge employees and agents of the
Corporation, except such as shall be appointed by the Board, and he or she may
delegate these powers.
Section 5.08. Vice President. Each Vice President shall have such
powers and perform such duties as the Board of Directors or the President from
time to time may prescribe.
Section 5.09. Treasurer. The Treasurer shall:
<PAGE> 13
(i) have charge and custody of, and be responsible for,
all of the funds and securities of the Corporation, except those which
the Corporation has placed in the custody of a bank or trust company or
member of a national securities exchange (as that term is defined in
the Securities Exchange Act of 1934, as amended) pursuant to a written
agreement designating such bank or trust company or member of a
national securities exchange as custodian of the property of the
Corporation;
(ii) keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation;
(iii) cause all moneys and other valuables to be deposited
to the credit of the Corporation;
(iv) receive, and give receipts for, moneys due and
payable to the Corporation from any source whatsoever;
(v) disburse the funds of the Corporation and supervise
the investment of its funds as ordered or authorized by the Board,
taking proper vouchers therefor; and
(vi) in general, perform all of the duties incident to the
office of Treasurer and such other duties as from time to time may be
assigned to him or her by the Board or the President.
Section 5.10. Secretary. The Secretary shall:
(i) keep or cause to be kept in one or more books
provided for the purpose, the minutes of all meetings of the Board, the
committees of the Board and the stockholders;
(ii) see that all notices are duly given in accordance
with the provisions of these By-Laws and as required by law;
(iii) be custodian of the records and the seal of the
Corporation and affix and attest the seal to all stock certificates of
the Corporation (unless the seal of the Corporation on such
certificates shall be a facsimile, as hereinafter provided) and affix
and attest the seal to all other documents to be executed on behalf of
the Corporation under its seal;
(iv) see that the books, reports, statements, certificates
and other documents and records required by law to be kept and filed
are properly kept and filed; and
<PAGE> 14
(v) in general, perform all of the duties incident to the
office of Secretary and such other duties as from time to time may be
assigned to him or her by the Board or the President.
Section 5.11. Delegation of Duties. In case of the absence of any
officer of the Corporation, or for any other reason that the Board may deem
sufficient, the Board may confer for the time being the powers or duties, or any
of them, of such officer upon any other officer or upon any director.
ARTICLE VI.
Indemnification
Section 6.01. General Indemnification. Each officer and director of the
Corporation shall be indemnified by the Corporation to the full extent permitted
under the General Laws of the State of Maryland, except that such indemnity
shall not protect any such person against any liability to the Corporation or
any stockholder thereof to which such person otherwise would be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his or her office. Absent a court
determination that an officer or director seeking indemnification was not liable
on the merits or guilty of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office,
the decision by the Corporation to indemnify such person must be based upon the
reasonable determination of independent legal counsel or the vote of a majority
of a quorum of the directors who are neither "interested persons," as defined in
Section 2(a)(19) of the Investment Company Act, nor parties to the proceeding
("non-party independent directors"), after review of the facts, that such
officer or director is not guilty of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her office.
Each officer and director of the Corporation claiming indemnification
within the scope of this Article VI shall be entitled to advances from the
Corporation for payment of the reasonable expenses incurred by him or her in
connection with proceedings to which he or she is a party in the manner and to
the full extent permitted under the General Laws of the State of Maryland;
<PAGE> 15
provided, however, that the person seeking indemnification shall provide to the
Corporation a written affirmation of his or her good faith belief that the
standard of conduct necessary for indemnification by the Corporation has been
met and a written undertaking to repay any such advance, if it ultimately should
be determined that the standard of conduct has not been met, and provided
further that at least one of the following additional conditions is met:
(i) the person seeking indemnification shall provide a
security in form and amount acceptable to the Corporation for his or
her undertaking;
(ii) the Corporation is insured against losses arising by
reason of the advance; or
(iii) a majority of a quorum of non-party independent
directors, or independent legal counsel in a written opinion shall
determine, based on a review of facts readily available to the
Corporation at the time the advance is proposed to be made, that there
is reason to believe that the person seeking indemnification will
ultimately be found to be entitled to indemnification.
The Corporation may purchase insurance on behalf of an officer or
director protecting such person to the full extent permitted under the General
Laws of the State of Maryland, from liability arising from his or her activities
as an officer or director of the Corporation. The Corporation, however, may not
purchase insurance on behalf of any officer or director of the Corporation that
protects or purports to protect such person from liability to the Corporation or
to its stockholders to which such officer or director otherwise would be subject
by reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his or her office.
The Corporation may indemnify, make advances or purchase insurance to
the extent provided in this Article VI on behalf of an employee or agent who is
not an officer or director of the Corporation.
Section 6.02. Other Rights. The indemnification provided by this
Article VI shall not be deemed exclusive of any other right, in respect of
indemnification or otherwise, to which those seeking such indemnification may be
entitled under any insurance or other agreement, vote of stockholders or
disinterested directors or otherwise, both as to action by a director or officer
of
<PAGE> 16
the Corporation in his or her official capacity and as to action by such person
in another capacity while holding such office or position, and shall continue as
to a person who has ceased to be a director or officer and shall inure to the
benefit of the heirs, executors and administrators of such person.
ARTICLE VII.
Capital Stock
Section 7.01. Stock Certificates. Each holder of stock of the
Corporation shall be entitled upon request to have a certificate or
certificates, in such form as shall be approved by the Board, representing the
number of shares of stock of the Corporation owned by him or her, provided,
however, that certificates for fractional shares will not be delivered in any
case. The certificates representing shares of stock shall be signed by or in the
name of the Corporation by the President or a Vice President and by the
Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer
and sealed with the seal of the Corporation. Any or all of the signatures or the
seal on the certificate may be a facsimile. In case any officer, transfer agent
or registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate shall be issued, it may be issued by the Corporation
with the same effect as if such officer, transfer agent or registrar were still
in office at the date of issue.
Section 7.02. Books of Account and Record of Stockholders. There shall
be kept at the principal executive office of the Corporation correct and
complete books and records of account of all the business and transactions of
the Corporation.
Section 7.03. Transfers of Shares. Transfers of shares of stock of the
Corporation shall be made on the stock records of the Corporation only by the
registered holder thereof, or by his or her attorney thereunto authorized by
power of attorney duly executed and filed with the Secretary or with a transfer
agent or transfer clerk, and on surrender of the certificate or certificates, if
issued, for such shares properly endorsed or accompanied by a duly executed
stock transfer power and the payment of all taxes thereon. Except as otherwise
provided by law, the
<PAGE> 17
Corporation shall be entitled to recognize the exclusive right of a person in
whose name any share or shares stand on the record of stockholders as the owner
of such share or shares for all purposes, including, without limitation, the
rights to receive dividends or other distributions, and to vote as such owner,
and the Corporation shall not be bound to recognize any equitable or legal claim
to or interest in any such share or shares on the part of any other person.
Section 7.04. Regulations. The Board may make such additional rules and
regulations, not inconsistent with these By-Laws, as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
stock of the Corporation. It may appoint, or authorize any officer or officers
to appoint, one or more transfer agents or one or more transfer clerks and one
or more registrars and may require all certificates for shares of stock to bear
the signature or signatures of any of them.
Section 7.05. Lost, Destroyed or Mutilated Certificates. The holder of
any certificates representing shares of stock of the Corporation immediately
shall notify the Corporation of any loss, destruction or mutilation of such
certificate, and the Corporation may issue a new certificate of stock in the
place of any certificate theretofore issued by it which the owner thereof shall
allege to have been lost or destroyed or which shall have been mutilated, and
the Board, in its discretion, may require such owner or his or her legal
representatives to give to the Corporation a bond in such sum, limited or
unlimited, and in such form and with such surety or sureties, as the Board in
its absolute discretion shall determine, to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss or
destruction of any such certificate, or issuance of a new certificate. Anything
herein to the contrary notwithstanding, the Board, in its absolute discretion,
may refuse to issue any such new certificate, except pursuant to legal
proceedings under the laws of the State of Maryland.
Section 7.06. Fixing of a Record Date for Dividends and Distributions.
The Board may fix, in advance, a date not more than 90 days preceding the date
fixed for the payment of any dividend or the making of any distribution or the
allotment of rights to subscribe for securities of the Corporation, or for the
delivery of evidences of rights or evidences of interests arising out of any
change, conversion or exchange of common stock or other securities, as the
record date for the determination of the stockholders entitled to receive any
such dividend, distribution,
<PAGE> 18
allotment, rights or interests, and in such case only the stockholders of record
at the time so fixed shall be entitled to receive such dividend, distribution,
allotment, rights or interests.
Section 7.07. Information to Stockholders and Others. Any stockholder
of the Corporation or his or her agent may inspect and copy during usual
business hours the Corporation's By-Laws, minutes of the proceedings of its
stockholders, annual statements of its affairs, and voting trust agreements on
file at its principal office.
ARTICLE VIII.
Seal
The seal of the Corporation shall be circular in form and shall bear,
in addition to any other emblem or device approved by the Board of Directors,
the name of the Corporation, the year of its incorporation and the words
"Corporate Seal" and "Maryland". Said seal may be used by causing it or a
facsimile thereof to be impressed or affixed or in any other manner reproduced.
ARTICLE IX.
Fiscal Year
The Board of Directors shall have the power from time to time to fix
the fiscal year of the corporation by a duly adopted resolution.
ARTICLE X.
Depositories and Custodians
Section 10.01. Depositories. The funds of the Corporation shall be
deposited with such banks or other depositories as the Board of Directors of the
Corporation from time to time may determine.
Section 10.02. Custodians. All securities and other investments shall
be deposited in the safekeeping of such banks or other companies as the Board of
Directors of the Corporation from time to time may determine. Every arrangement
entered into with any bank or other company for the safekeeping of the
securities and investments of the Corporation shall contain provisions complying
with the Investment Company Act, and the general rules and regulations
thereunder.
<PAGE> 19
ARTICLE XI.
Execution of Instruments
Section 11.01. Checks, Notes, Drafts, etc. Checks, notes, drafts,
acceptances, bills of exchange and other orders or obligations for the payment
of money shall be signed by such officer or officers or person or persons as the
Board of Directors by resolution from time to time shall designate.
Section 11.02. Sale or Transfer of Securities. Stock certificates,
bonds or other securities at any time owned by the Corporation may be held on
behalf of the Corporation or sold, transferred or otherwise disposed of subject
to any limits imposed by these By-Laws and pursuant to authorization by the
Board and, when so authorized to be held on behalf of the Corporation or sold,
transferred or otherwise disposed of, may be transferred from the name of the
Corporation by the signature of the President or a Vice President or the
Treasurer or pursuant to any procedure approved by the Board of Directors,
subject to applicable law.
ARTICLE XII.
Independent Public Accountants
The firm of independent public accountants which shall sign or certify
the financial statements of the Corporation which are filed with the Securities
and Exchange Commission shall be selected annually by the Board of Directors and
ratified by the stockholders in accordance with the provisions of the Investment
Company Act.
ARTICLE XIII.
Annual Statement
The books of account of the Corporation shall be examined by an
independent firm of public accountants at the close of each annual period of the
Corporation and at such other times as may be directed by the Board. A report to
the stockholders based upon each such examination shall be mailed to each
stockholder of record of the Corporation on such date with respect to each
report as may be determined by the Board, at his or her address as the same
appears on the books of the Corporation. Such annual statement also shall be
available at the annual meeting of stockholders and shall be placed on file at
the Corporation's principal office in the State of Maryland, and if no annual
meeting is held pursuant to Article II, Section 1, such annual
<PAGE> 20
statement of affairs shall be placed on file as the Corporation's principal
office within 120 days after the end of the Corporation's fiscal year. Each such
report shall show the assets and liabilities of the Corporation as of the close
of the period covered by the report and the securities in which the funds of the
Corporation then were invested. Such report also shall show the Corporation's
income and expenses for the period from the end of the Corporation's preceding
fiscal year to the close of the period covered by the report and any other
information required by the Investment Company Act, and shall set forth such
other matters as the Board or such firm of independent public accountants shall
determine.
ARTICLE XIV.
Amendments
These By-Laws or any of them may be amended, altered or repealed by the
affirmative vote of a majority of the Board of Directors. The stockholders shall
have no power to make, amend, alter or repeal By-Laws.
<PAGE> 1
Exhibit d(2)
COMMON STOCK COMMON STOCK
PAR VALUE $.10 PAR VALUE $.10
CUSIP
See Reverse For Certain
Definitions
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
MERRILL LYNCH SENIOR FLOATING RATE FUND II, INC.
This certifies that
is the registered holder of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF
Merrill Lynch Senior Floating Rate Fund II, Inc. transferable on the books of
the Corporation by the holder in person or by duly authorized attorney upon
surrender of this Certificate properly endorsed. This Certificate and the shares
represented hereby are issued and shall be subject to all of the provisions of
the Articles of Incorporation and of the By-Laws of the Corporation, and of all
the amendments from time to time made thereto. This Certificate is not valid
unless countersigned and registered by the Transfer Agent and Registrar.
Witness the facsimile seal of the Corporation and the
facsimile signatures of its duly authorized officers.
Dated:
President Secretary
Countersigned and Registered:
Transfer Agent and Registrar
Authorized Signature
<PAGE> 2
MERRILL LYNCH SENIOR FLOATING RATE FUND II, INC.
A full statement of the designations and any preferences, conversion
and other rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption of the shares of each
class of stock which the Corporation is authorized to issue and the differences
in the relative rights and preferences between the shares of each class to the
extent that they have been set, and the authority of the Board of Directors to
set the relative rights and preferences of subsequent series, will be furnished
by the Corporation to any stockholder, without charge, upon request to the
Secretary of the Corporation.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM--as tenants in common UNIF GIFT MIN ACT -- _______Custodian_______
(Cust) (Minor)
TEN ENT--as tenants by the entireties under Uniform Gifts to Minors Act _____
(State)
JT TEN --as joint tenants with right
of survivorship and not as
tenants in common
Additional abbreviations may also be used though not in the above list.
For value received,................. hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
____________________________________________________________________________
Please print or typewrite name and address including zip code of assignee
__________________________________________________________________Shares
represented by the within Certificate, and do hereby irrevocably constitute and
appoint
________________________________________________________________________________
Attorney to transfer the said shares on the books of the within-named
Corporation with full power of substitution in the premises.
Dated:__________________
Signature:___________________________________
2
<PAGE> 3
NOTICE: The signature to this assignment must correspond with
the name as written upon the face of the certificate, in every
particular, without alteration or enlargement, or any change
whatever.
Signature Guaranteed:____________________________________
Signatures must be guaranteed by an "eligible guarantor institution" as
such term is defined in Rule 17Ad-15 under the Securities Exchange Act of 1934.
3
<PAGE> 1
Exhibit g(1)
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, made as of the day of 1999, by and between
MERRILL LYNCH SENIOR FLOATING RATE FUND II, INC., a Maryland corporation
(hereinafter referred to as the "Fund"), and MERRILL LYNCH ASSET MANAGEMENT,
L.P., a Delaware limited partnership (the "Investment Adviser").
W I T N E S S E T H:
WHEREAS, the Fund intends to engage in business as a closed-end,
non-diversified, management investment company and is registered as such under
the Investment Company Act of 1940, as amended (the "Investment Company Act");
and
WHEREAS, the Investment Adviser is engaged principally in rendering
management and investment advisory services and is registered as an investment
adviser under the Investment Adviser's Act of 1940, as amended; and
WHEREAS, the Fund desires to retain the Investment Adviser to provide
management and investment advisory services to the Fund in the manner and on the
terms hereinafter set forth; and
WHEREAS, the Investment Adviser is willing to provide management and
investment advisory services to the Fund on the terms and conditions hereinafter
set forth;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Fund and the Investment Adviser hereby agree as
follows:
<PAGE> 2
ARTICLE I
Duties of the Investment Adviser
The Fund hereby employs the Investment Adviser 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 the policies of, review by and overall control of the Board of
Directors of the Fund, for the period and on the terms and conditions set forth
in this Agreement. The Investment Adviser hereby accepts such employment and
agrees during such period, at its own expense, to render, or arrange for the
rendering of, such services and to assume the obligations herein set forth for
the compensation provided for herein. The Investment Adviser and its affiliates
for all purposes herein shall be deemed to be independent contractors and,
unless otherwise expressly provided or authorized, shall have no authority to
act for or represent the Fund in any way or otherwise be deemed agents of the
Fund.
(a) Management and Administrative Services. The Investment Adviser
shall perform, or arrange for its affiliates to perform, the management and
administrative services necessary for the operation of the Fund, including
administering shareholder accounts and handling shareholder relations, pursuant
to an Administration Agreement of even date herewith.
(b) Investment Advisory Services. The Investment Adviser shall provide,
or arrange for its affiliates to provide, the Fund with such investment
research, advice and supervision as the latter 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 or cash, subject always to the restrictions of the Articles of
Incorporation and the By-Laws of the Fund,
2
<PAGE> 3
as amended from time to time, the provisions of the Investment Company Act and
the statements relating to the Fund's investment objective, investment policies
and investment restrictions as the same are set forth in filings made by the
Fund under the Federal securities laws. The Investment Adviser shall make
decisions for the Fund as to 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 Board of Directors at any
time, however, make any definite determination as to investment policy and
notify the Investment Adviser thereof in writing, the Investment Adviser shall
be bound by such determination for the period, if any, specified in such notice
or until similarly notified that such determination has been revoked. The
Investment Adviser 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 Investment Adviser is authorized as the agent of the Fund to give
instructions to the Custodian of the Fund as to deliveries of securities and
payments of cash for the account of the Fund. In connection with the selection
of such brokers or dealers and the placing of such orders with respect to assets
of the Fund, the Investment Adviser is directed at all times to seek to obtain
execution and prices within the policy guidelines determined by the Board of
Directors and set forth in filings made by the Fund under the Federal securities
laws. Subject to this requirement and the provisions of the Investment Company
Act, the Securities Exchange Act of 1934, as amended, and other applicable
provisions of law, the Investment Adviser may select brokers or dealers with
which it or the Fund is affiliated.
(c) Notice Upon Change in Partners of the Investment Adviser. The
Investment Adviser is a limited partnership and its limited partner is Merrill
Lynch & Co., Inc. and its
3
<PAGE> 4
general partner is Princeton Services, Inc. The Investment Adviser will notify
the Fund of any change in the membership of the partnership within a reasonable
time after such change.
ARTICLE II
Allocation of Charges and Expenses
(a) The Investment Adviser. The Investment Adviser 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,
facilities, equipment and necessary personnel which it is obligated to provide
under Article I hereof, and shall pay all compensation of officers of the Fund
and all Directors of the Fund who are affiliated persons of the Investment
Adviser.
(b) The Fund. The Fund assumes and shall pay or cause to be paid all
other expenses of the Fund including, without limitation: taxes, expenses for
legal and auditing services, costs of printing proxies, stock certificates,
shareholder reports, prospectuses, charges of the custodian, any sub-custodian
and transfer agent, expenses of portfolio transactions, Securities and Exchange
Commission fees, expenses of registering the shares of common stock under
Federal, state and foreign laws, fees and actual out-of-pocket expenses of
Directors who are not affiliated persons of the Investment Adviser, accounting
and pricing costs (including the calculation of the net asset value), insurance,
interest, brokerage costs, litigation and other extraordinary or non-recurring
expenses, and other expenses properly payable by the Fund. It also is understood
that the Fund will reimburse the Investment Adviser for its costs incurred in
providing accounting services to the Fund.
4
<PAGE> 5
ARTICLE III
Compensation of the Investment Adviser
(a) Investment Advisory Fee. For the services rendered, the facilities
furnished and expenses assumed by the Investment Adviser, the Fund shall pay to
the Investment Adviser at the end of each calendar month a fee based on the
average daily value of the net assets of the Fund at the annual rate of 0.95 of
1.0% (0.95%) of the average daily net assets of the Fund, (i.e., the average
daily value of the total assets of the Fund, minus the sum of accrued
liabilities of the Fund and accumulated dividends on shares of outstanding
preferred stock, if any), commencing on the day following effectiveness hereof.
It is understood that the liquidation preference of any outstanding preferred
stock (other than accumulated dividends) is not considered a liability in
determining the Fund's average daily net assets. For purposes of this
calculation, average daily net assets is determined at the end of each month on
the basis of the average net assets of the Fund for each day during the month.
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. Subject to the provisions of
subsection (b) hereof, payment of the Investment Adviser's compensation for the
preceding month shall be made as promptly as possible after completion of the
computations contemplated by subsection (b) hereof. During any period when the
determination of net asset value is suspended by the Board of Directors, the
average net asset value of a share for the day prior to such suspension for this
purpose shall be deemed to be the net asset value at the close of each
succeeding day until it is again determined.
(b) Expense Limitations. In the event the operating expenses of the
Fund, including amounts payable to the Investment Adviser pursuant to subsection
(a) hereof, for any fiscal year
5
<PAGE> 6
ending on a date on which this Agreement is in effect exceed the expense
limitations applicable to the Fund imposed by applicable state securities laws
or regulations thereunder, as such limitations may be raised, lowered or waived
from time to time, the Investment Adviser shall reduce its management and
investment advisory fee by the extent of such excess and, if required pursuant
to any such laws or regulations, will reimburse the Fund in the amount of such
excess; provided, however, to the extent permitted by law, there shall be
excluded from such expenses the amount of any interest, taxes, distribution
fees, brokerage fees and commissions and extraordinary expenses (including but
not limited to legal claims and liabilities and litigation costs and any
indemnification related thereto) paid or payable by the Fund. Whenever the
expenses of the Fund exceed a pro rata portion of the applicable annual expense
limitations, the estimated amount of reimbursement under such limitations shall
be applicable as an offset against the monthly payment of the fee due to the
Investment Adviser. Should two or more such expense limitations be applicable as
at the end of the last business day of the month, that expense limitation which
results in the largest reduction in the Investment Adviser's fee shall be
applicable.
ARTICLE IV
Limitation of Liability of the Investment Adviser
The Investment Adviser shall not be liable for any error of judgment or
mistake of law or for any loss arising out of any investment or for any act or
omission in the management of the Fund, except for willful misfeasance, bad
faith or gross negligence in the performance of its duties, or by reason of
reckless disregard of its obligations and duties hereunder. As used in this
Article IV, the term "Investment Adviser" shall include any affiliates of the
Investment Adviser
6
<PAGE> 7
performing services for the Fund contemplated hereby and directors, officers and
employees of the Investment Adviser and of such affiliates.
7
<PAGE> 8
ARTICLE V
Activities of the Investment Adviser
The services of the Investment Adviser to the Fund are not to be deemed
to be exclusive: the Investment Adviser and any person controlled by or under
common control with the Investment Adviser (for purposes of this Article V
referred to as "affiliates") are free to render services to others. It is
understood that Board of Directors, officers, employees and shareholders of the
Fund are or may become interested in the Investment Adviser and its affiliates,
as directors, officers, employees, partners, and shareholders or otherwise and
that directors, officers, employees, partners, and shareholders of the
Investment Adviser and its affiliates are or may become similarly interested in
the Fund, and that the Investment Adviser and directors, officers, employees,
partners, and shareholders of its affiliates may become interested in the Fund
as shareholders or otherwise.
ARTICLE VI
Duration and Termination of this Agreement
This Agreement shall become effective as of the date first above
written and shall remain in force until February 28, 2001 and thereafter, but
only so long as such continuance specifically is approved at least annually by
(i) the Board of Directors of the Fund, or by the vote of a majority of the
outstanding voting securities of the Fund, and (ii) 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 Board of Directors or by vote of a majority of the
outstanding voting securities of the Fund,
8
<PAGE> 9
or by the Investment Adviser, on sixty days' written notice to the other party.
In the event of its assignment, this Agreement shall automatically terminate.
ARTICLE VII
Amendments of this Agreement
This Agreement may be amended by the parties only if such amendment
specifically is approved by the vote of (i) 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.
ARTICLE VIII
Definitions of Certain Terms
The terms "vote of a majority of the outstanding voting securities,"
"assignment," "affiliated person" and "interested person", when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act and the rules and regulations thereunder, subject, however, to such
exemptions as may be granted by the Securities and Exchange Commission under
said Act.
ARTICLE IX
Governing Law
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York and the applicable provisions of the
Investment Company Act. To the extent that the applicable laws of the State of
New York, or any of the provisions herein, conflict with the applicable
provisions of the Investment Company Act, the latter shall control.
9
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
MERRILL LYNCH SENIOR FLOATING
RATE FUND II, INC.
By _____________________________________
Title:
MERRILL LYNCH ASSET MANAGEMENT, L.P.
By _____________________________________
Title:
10
<PAGE> 1
Exhibit g(2)
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 SENIOR FLOATING RATE FUND II, INC. (the "Fund")
is a Maryland corporation that intends to engage in business as a diversified,
closed-end investment company and is registered as such 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
management and 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 investment advisory agreement (the
"Investment Advisory Agreement") dated , 1999, pursuant to which MLAM
provides management and investment 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 its 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
2
<PAGE> 3
Fund invests 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 prospectus
and relating to the shares of the Fund under the Securities Act of 1933, as
amended (the "Prospectus"). 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.
3
<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 Investment Advisory 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
4
<PAGE> 5
and that directors, officers, employees and shareholders of MLAM U.K. and its
affiliates are or may become similarly interested in the Fund, and that MLAM
U.K. and directors, officers, employees, partners and shareholders of its
affiliates may become interested in the Fund as shareholders or otherwise.
ARTICLE VI
MLAM U.K. Statements Pursuant to IMRO Rules
Any complaints concerning MLAM U.K. should be in writing addressed to
the attention of the Managing Director of MLAM U.K. 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.
5
<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 Investment Advisory
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.
6
<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 governed by and construed and interpreted 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.
7
<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:
8
<PAGE> 1
Exhibit g(3)
ADMINISTRATION AGREEMENT
AGREEMENT, made as of the day of , 1999, by and
between MERRILL LYNCH SENIOR FLOATING RATE FUND II, INC., a Maryland corporation
(the "Fund"), and MERRILL LYNCH ASSET MANAGEMENT, L.P., a Delaware limited
partnership ("MLAM" or the "Administrator").
WITNESSETH:
WHEREAS, the Fund intends to engage in business as a closed-end,
non-diversified, management investment company and is registered as such under
the Investment Company Act of 1940, as amended (the "Investment Company Act");
and
WHEREAS, the Fund and MLAM are entering into an investment advisory
agreement (the "Investment Advisory Agreement") pursuant to which MLAM will
provide management and investment advisory services to the Fund; and
WHEREAS, the Fund desires to retain MLAM to render administrative
services in the manner and on the terms hereinafter set forth; and
WHEREAS, MLAM is willing to provide administrative services to the Fund
on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Fund and MLAM agree as follows:
1. Duties of the Administrator. The Fund hereby retains MLAM to act as
administrator of the Fund, subject to the supervision and direction of the Board
of Directors of the Fund, as hereinafter set forth. MLAM shall perform, or
arrange for its affiliates to perform, the
<PAGE> 2
administrative services (i.e., services other than investment advise and related
portfolio activities) necessary for the operation of the Fund and, without
limiting the generality of the foregoing, shall (i) prepare and file reports and
other documents required by U.S. Federal, state and other applicable laws and
regulations; (ii) prepare proxy materials and periodic reports to Fund
shareholders; (iii) respond to inquiries from Fund shareholders; (iv) calculate,
or arrange for the calculation of, the net asset value of the Fund's shares (it
being understood that the Fund will reimburse the Administrator for its costs in
providing such accounting services to the Fund); (v) oversee the performance of
administrative and professional services rendered to the Fund by others,
including its custodian, transfer agent, dividend disbursing agent and
shareholder servicing agent, as well as accounting, auditing and other services;
(vi) provide the Fund with the services of persons competent to perform such
administrative and clerical functions as are necessary to provide effective
operation of the Fund, (vii) coordinate tender offers for the Fund's shares, and
(viii) provide the Fund with administrative office and data processing
facilities.
2. Expenses of the Administrator. MLAM shall provide the staff and
personnel necessary to perform its obligations under this Agreement, shall
assume and pay or cause to be paid all expenses incurred in connection with the
maintenance of such staff and personnel, and, at its own expense, shall provide
the office space, facilities, equipment and necessary personnel which it is
obligated to provide under paragraph 1 hereof, except that the Fund shall pay
the expenses of legal counsel retained by MLAM as may be necessary or
appropriate for MLAM's performance of its duties and responsibilities under this
Agreement. All other expenses of the Fund shall be paid as set forth in the
Investment Advisory Agreement.
3. Compensation of the Administrator. For the services rendered to the
Fund by MLAM pursuant to this Agreement, the Fund shall pay to the Administrator
a monthly a fee at
2
<PAGE> 3
an annual rate of 0.40 of 1.0% (0.40%) of the Fund's average daily net assets
(i.e., the average daily value of the total assets of the Fund, minus the sum of
accrued liabilities of the Fund and accumulated dividends on shares of
outstanding preferred stock, if any). It is understood that the liquidation
preference of any outstanding preferred stock (other than accumulated dividends)
is not considered a liability in determining the Fund's average daily net
assets. For purposes of this calculation, average daily net assets is determined
at the end of each month on the basis of the average net assets of the Fund for
each day during the month. 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 the 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. Payment of the Administrator's compensation shall be payable in arrears
on the last day of each calendar month for services performed hereunder during
such month. During any period when the determination of net asset value is
suspended by the Board of Directors, the average net asset value of a share for
the last day prior to such suspension for this purpose shall be deemed to be the
net asset value at the close of each succeeding day until it is again
determined.
4. Limitation of Liability of the Administrator; Indemnification.
(a) The Administrator shall not be liable to the Fund for any error of
judgment or mistake of law or for any loss arising out of any act or omission by
the Administrator in the performance of its duties hereunder. Nothing herein
contained shall be construed to protect the administrator against any liability
to the Fund, its shareholders or any sub-investment adviser to which the
Administrator shall otherwise be subject by reasons of willful misfeasance, bad
faith, or gross negligence in the performance of its duties, or by reckless
disregard of its obligations and duties hereunder.
3
<PAGE> 4
(b) The Administrator may, with respect to questions of law, apply for
and obtain the advice and opinion of counsel to the Fund or of its own counsel,
at the expense of the Fund, and shall be fully protected with respect to any
action taken or omitted by it in good faith in conformity with such advice or
opinion.
(c) The Fund agrees to indemnify and hold harmless the Administrator
from and against all charges, claims, expenses (including legal fees) and
liabilities reasonably incurred by the Administrator in connection with the
performance of its duties hereunder, except such as may arise from the
Administrator's willful misfeasance, bad faith, gross negligence in the
performance of its duties or by reckless disregard of its obligations and duties
hereunder. Such expenses shall be paid by the Fund in advance of the final
disposition of such matter upon invoice by the Administrator and receipt by the
Fund of an undertaking from the Administrator to repay such amounts if it shall
ultimately be established that the Administrator is not entitled to
indemnification hereunder by virtue of the Administrator's willful misfeasance,
bad faith, gross negligence in the performance of its duties or by reckless
disregard of its obligations and duties hereunder.
(d) As used in this paragraph 4, the term "Administrator" shall include
any affiliates of the Administrator performing services for the Fund
contemplated hereby and directors, officers, agents and employees of the
Administrator and such affiliates.
5. Activities of the Administrator. The services of the Administrator
under this Agreement are not to be deemed exclusive, and the Administrator and
any person controlled by or under common control with the Administrator shall be
free to render similar services to others.
4
<PAGE> 5
6. 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 specifically
is approved at least annually by (i) the Board of Directors of the Fund, or by
the vote of a majority of the outstanding voting securities of the Fund, and
(ii) 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 Board of Directors or by vote of a majority of the
outstanding voting securities of the Fund, or by the Investment Adviser, on
sixty days' written notice to the other party. In the event of its assignment,
this Agreement shall automatically terminate.
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.
7. Amendments to this Agreement. This Agreement may be amended by the
parties hereto only if such amendment is specifically approved by the Board of
Directors of the Fund and such amendment is set forth in a written instrument
executed by each of the parties hereto.
8. Governing Law. The provisions of this Agreement shall be governed by
and 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.
5
<PAGE> 6
9. Counterparts. This Agreement may be executed by the parties hereto
in counterparts and if executed in more than one counterpart the separate
instruments shall constitute one agreement.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
MERRILL LYNCH SENIOR FLOATING RATE
FUND II, INC.
By: __________________________
Title:
MERRILL LYNCH ASSET MANAGEMENT, L.P.
By: __________________________
Title:
7
<PAGE> 1
Exhibit h(1)
DISTRIBUTION AGREEMENT
AGREEMENT made as of the day of 1999, between
MERRILL LYNCH SENIOR FLOATING RATE FUND II, INC., a Maryland corporation (the
"Fund"), and MERRILL LYNCH FUNDS DISTRIBUTOR, a division of PRINCETON FUNDS
DISTRIBUTORS, INC., a Delaware corporation (the "Distributor").
WITNESSETH:
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the "Investment Company Act"), as a closed-end,
non-diversified, management 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 shares in
order to promote the growth of the Fund and facilitate the distribution of its
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
shares of common stock of the Fund (sometimes herein referred to as the
"shares") to the public and hereby agrees during the
1
<PAGE> 2
term of this Agreement to sell shares of the Fund to the Distributor on the
terms and conditions hereinafter 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 shares, except that:
(a) The Fund may, on written notice to the Distributor, from time to
time designate other principal underwriters and distributors of its 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
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 shares
from the Fund shall not apply to 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 shares of any such company by
the Fund.
(c) Such exclusive rights also shall not apply to shares issued by the
Fund pursuant to reinvestment of dividends or capital gains distributions.
Section 3. Purchase of Shares from the Fund.
(a) Prior to the continuous offering of the shares, commencing on a
date agreed on by the Fund and the Distributor, it is contemplated that the
Distributor will solicit subscriptions for shares during a subscription period
which shall last for such period as may be agreed upon by the
2
<PAGE> 3
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 shares and thereafter the Distributor shall have the right to
buy from the Fund the shares needed, but not more than the shares needed (except
for clerical errors in transmission) to fill unconditional orders for shares of
the Fund placed with the Distributor by investors or securities dealers. The
price which the Distributor shall pay for the shares so purchased from the Fund
shall be the net asset value, determined as set forth in Section 3(d) hereof.
(c) The 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 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 of the Fund and guidelines established by the Board of Directors.
(e) The Fund shall have the right to suspend the sale of its shares at
times when repurchase 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 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 shares received by
the Distributor. Any order may be rejected by the Fund; provided, however, that
the Fund will not arbitrarily or without reasonable
3
<PAGE> 4
cause refuse to accept or confirm orders for the purchase of 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 shares pursuant to the
instructions of the Distributor. Payment shall be made to the Fund by wire
transfer of immediately available funds to a bank account designated by the
Fund. The Distributor agrees to cause such payment and such instructions to be
delivered promptly to the Fund (or its agent).
Section 4. Repurchase of Shares by the Fund.
(a) Any of the outstanding shares may be tendered for repurchase
pursuant to a tender offer made by the Fund, and the Fund agrees to repurchase
the shares so tendered in accordance with the requirements of the Securities
Exchange Act of 1934, as amended, and the rules thereunder and the applicable
tender offer provisions set forth in the prospectus of the Fund. The price to be
paid to repurchase the shares shall be equal to the net asset value calculated
in accordance with the provisions of Section 3(d) hereof, less the Early
Withdrawal Charge (as defined in the Prospectus of the Fund), if any, set forth
in the Prospectus 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 repurchase price as defined
in the above paragraph pursuant to the instructions of the Distributor or return
the tendered shares promptly following the termination or withdrawal of the
tender offer. The proceeds of any repurchase of shares shall be paid by the Fund
as follows: (i) any applicable Early Withdrawal Charge 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.
4
<PAGE> 5
(b) Repurchases of shares pursuant to a tender offer or payment may be
suspended at such times as may be determined by the Board of Directors of the
Fund as set forth in the Prospectus of the Fund.
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 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 auditors.
The Fund shall make available to the Distributor such number of copies of its
Prospectus 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 of 1933, as amended (the "Securities Act"), to the end
that there will be available for sale such number of 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 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.
5
<PAGE> 6
(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 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 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 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 any sales
literature specifically approved by the Fund.
(c) The Distributor shall adopt and follow procedures, as approved by
the officers of the Fund, for the confirmation of sales to investors and
selected dealers, the collection of amounts payable by investors and selected
dealers on such sales, and the cancellation of unsettled transactions, as may be
necessary to comply with the requirements of the National Association of
Securities Dealers, Inc. (the "NASD"), as such requirements may from time to
time exist.
Section 7. Selected Dealer Agreements.
(a) The Distributor shall have the right to enter into selected dealer
agreements with securities dealers of its choice ("selected dealers") for the
sale of the shares; provided, that the
6
<PAGE> 7
Fund shall approve the forms of agreements with dealers. 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
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 under the Investment Company Act and the Securities Act, and all
amendments and supplements thereto, and in connection with any fees and expenses
incurred with respect to any filings with the NASD and preparing and mailing
annual and interim reports and proxy materials to shareholders (including but
not limited to the expense of setting in type any such registration statements,
prospectuses, 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
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 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
7
<PAGE> 8
furnished by it for use by selected dealers in connection with the offering of
the shares for sale to the public 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
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 shares, which may be based on the Securities Act, or on any
other statute or at common law, on the ground that the registration statement or
related prospectus, as from time to time amended and supplemented, or an annual
or interim report to shareholders of the Fund, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary in order to make the statements therein not misleading, unless such
statement or omission was made in reliance upon, and in conformity with,
information furnished to the Fund in connection therewith by or on behalf of the
Distributor; provided, however, that in no case (i) is the indemnity of the Fund
in favor of the Distributor and any such controlling persons to be deemed to
protect such Distributor or any
8
<PAGE> 9
such controlling persons thereof against any liability to the Fund or its
shareholders 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, 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
9
<PAGE> 10
litigation or proceedings against it or any of its officers or Directors in
connection with the issuance or sale of any of the 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, as from time to time amended, or the annual or interim reports to
shareholders. In case any action shall be brought against the Fund or any person
so indemnified, in respect of which indemnity may be sought against the
Distributor, the Distributor shall have the rights and duties given to the Fund,
and the Fund and each person so indemnified shall have the rights and duties
given to the Distributor by the provisions of subsection (a) of this Section 9.
Section 10. 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, 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
10
<PAGE> 11
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 11. 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 12. Governing Law. The provisions of this Agreement shall be
governed by and 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.
11
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
MERRILL LYNCH SENIOR FLOATING
RATE FUND II, INC.
By ______________________________________
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR,
a division of PRINCETON FUNDS
DISTRIBUTORS, INC.
By ______________________________________
Title:
12
<PAGE> 1
EXHIBIT h(2)
MERRILL LYNCH SENIOR FLOATING RATE FUND II, INC.
SHARES OF COMMON STOCK
SELECTED DEALER AGREEMENT
FOR SUBSCRIPTION PERIOD
Gentlemen:
Merrill Lynch Funds Distributor, Inc., a division of Princeton Funds
Distributors, Inc. (the "Distributor"), has an agreement with Merrill Lynch
Senior Floating Rate Fund II, Inc., a Maryland corporation (the "Fund"),
pursuant to which it acts as the distributor for the sale of shares of common
stock, par value $0.10 per share (herein referred to as "shares"), of the Fund,
and as such has the right to distribute shares of the Fund for resale. The Fund
is a closed-end investment company registered under the Investment Company Act
of 1940, as amended, and its shares being offered to the public are registered
under the Securities Act of 1933, as amended. Such shares and certain of the
terms on which they are being offered are more fully described in the enclosed
Prospectus. You have received a copy of the 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, 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 March 23, 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 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 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.
3. With respect to each sale of shares by you to the public, the
Distributor shall pay you, from its own assets, a fee at the rate of 1.0% of the
amount purchased. If shares sold by you remain outstanding after one year from
the date of their original purchase, the Distributor will compensate you at an
annual rate, paid quarterly, equal to 0.75% of the average daily net asset value
of shares sold by you and remaining outstanding.
4. You shall not place orders for any of the 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.
<PAGE> 2
5. You agree that you will not offer or sell any of the 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
shares you will furnish to each person to whom any such sale or offer is made a
copy of the Prospectus (as then amended or supplemented) and will not furnish to
any person any information relating to the shares of the Fund which is
inconsistent in any respect with the information contained in the Prospectus (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. You further agree that you shall not make a market in the Fund's
shares while the Fund is making a public offering of such shares.
6. Payment for 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 shares so purchased by you. You
agree that as promptly as practicable after the delivery of such 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 shares.
7. No person is authorized to make any representations concerning
shares of the Fund except those contained in the current Prospectus of the Fund
and in such printed information subsequently issued by us or the Fund as
information supplemental to such Prospectus. In purchasing shares through us you
shall rely solely on the representations contained in the Prospectus and
supplemental information above mentioned. Any printed information which we
furnish you other than the Fund's Prospectus, 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.
8. You agree to deliver to each of the purchasers making purchases from
you a copy of the then current Prospectus 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, annual or interim reports and proxy solicitation materials of
the Fund will be supplied to you in reasonable quantities upon request.
9. We reserve the right in our discretion, without notice, to suspend
sales or withdraw the offering of the shares entirely. Each party hereto has the
right to cancel this Agreement upon notice to the other party.
10. 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.
2
<PAGE> 3
11. 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,
including in particular, the provisions of Conduct Rules 2429, 2730, 2740, and
2750, to the extent applicable.
12. Upon application to us, we will inform you as to the states in
which we believe the 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.
13. 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.
14. You agree that you will not sell any shares of the Fund to any
account over which you exercise discretionary authority.
15. 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.
3
<PAGE> 4
MERRILL LYNCH FUNDS DISTRIBUTOR,
a division of PRINCETON FUNDS DISTRIBUTORS, INC.
By
----------------------------------------------
(Authorized Signature)
Please return one signed copy of this Agreement to:
MERRILL LYNCH FUNDS DISTRIBUTOR,
a division of PRINCETON FUNDS
DISTRIBUTORS, INC.
Box 9011
Princeton, New Jersey 08543-9011
Accepted:
Firm Name:
------------------------------------------------
By:
-------------------------------------------------
Address:
-------------------------------------------------
Date:
-------------------------------------------------
4
<PAGE> 5
MERRILL LYNCH SENIOR FLOATING RATE FUND II, INC.
SHARES OF COMMON STOCK
SELECTED DEALER AGREEMENT
Gentlemen:
Merrill Lynch Funds Distributor, a division of Princeton Funds
Distributors, Inc. (the "Distributor"), has an agreement with Merrill Lynch
Senior Floating Rate Fund II, Inc., a Maryland corporation (the "Fund"),
pursuant to which it acts as the distributor for the sale of shares of common
stock, par value $0.10 per share (herein referred to as the "shares"), of the
Fund, and as such has the right to distribute shares of the Fund for resale. The
Fund is a closed-end investment company registered under the Investment Company
Act of 1940, as amended, and its shares being offered to the public are
registered under the Securities Act of 1933, as amended. You have received a
copy of the Distribution Agreement (the "Distribution Agreement") between
ourself and the Fund and reference is made herein to certain provisions of such
Distribution Agreement. The term "Prospectus" as used herein refers to the
prospectus on file with the Securities and Exchange Commission which is part of
the most recent effective registration statement pursuant to the Securities Act
of 1933, as amended. As principal, we offer to sell to you, as a member of the
Selected Dealers Group, shares of the Fund upon the following terms and
conditions:
1. In all sales of these 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.
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 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 of the Fund.
3. With respect to each sale of shares by you to the public, the
Distributor shall pay you, from its own assets, a fee at the rate of 1.0% of the
amount purchased. If shares sold by you remain outstanding after one year from
the date of their original purchase, the Distributor will compensate you at an
annual rate, paid quarterly, equal to 0.75% of the average daily net asset value
of shares sold by you and remaining outstanding.
4. You shall not place orders for any of the 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. You agree that you will not offer or sell any of the 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
shares you will furnish to each person to whom any such sale or offer is made a
copy of the Prospectus (as then amended or supplemented) and will not furnish to
any person any information relating to the shares of the
<PAGE> 6
Fund, which is inconsistent in any respect with the information contained in the
Prospectus (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. You further agree that you shall not make a market in
the Fund's shares while the Fund is making either a public offering of or a
tender offer to purchase its shares.
5. As a selected dealer, you are hereby authorized (i) to place orders
directly with the Fund for 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 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. No person is authorized to make any representations concerning
shares of the Fund except those contained in the current Prospectus of the Fund
and in such printed information subsequently issued by us or the Fund as
information supplemental to such Prospectus. In purchasing shares through us you
shall rely solely on the representations contained in the Prospectus and
supplemental information above mentioned. Any printed information which we
furnish you other than the Fund's Prospectus, 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.
8. You agree to deliver to each of the purchasers making purchases from
you a copy of the then current Prospectus 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, annual or interim reports and proxy solicitation materials of
the Fund will be supplied to you in reasonable quantities upon request.
9. We reserve the right in our discretion, without notice, to suspend
sales or withdraw the offering of the shares entirely. Each party hereto has the
right to cancel this Agreement upon notice to the other party.
10. 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.
11. 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
2
<PAGE> 7
agree to abide by the Conduct Rules of the NASD, including in particular, the
provisions of Conduct Rules 2420, 2730, 2740 and 2750 of such Rules, to the
extent applicable.
12. Upon application to us, we will inform you as to the states in
which we believe the 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.
13. 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.
14. Your first order placed pursuant to this Agreement for the purchase
of shares of the Fund will represent your acceptance of this Agreement.
MERRILL LYNCH FUNDS DISTRIBUTOR,
a division of PRINCETON FUNDS DISTRIBUTORS, INC.
By
-----------------------------------------------------
(Authorized Signature)
Please return one signed copy of this Agreement to:
MERRILL LYNCH FUNDS DISTRIBUTOR,
a division of PRINCETON FUNDS
DISTRIBUTORS, INC.
Box 9011
Princeton, New Jersey 08543-9011
Accepted:
Firm Name:
---------------------------------------------------
By:
---------------------------------------------------
Address:
---------------------------------------------------
-------------------------------------------------------------
Date:
---------------------------------------------------
3
<PAGE> 1
EXHIBIT k(1)
TRANSFER AGENCY, DIVIDEND DISBURSING AGENCY
AND SHAREHOLDER SERVICING AGENCY AGREEMENT
THIS AGREEMENT made as of the day of 1999 by and
between MERRILL LYNCH SENIOR FLOATING RATE FUND II, INC., a Maryland corporation
(the "Fund"), and FINANCIAL DATA SERVICES, INC., a New Jersey Corporation
("FDS").
WITNESSETH:
WHEREAS, the Fund wishes to appoint FDS to be the Transfer Agent,
Dividend Disbursing Agent and Shareholder Servicing Agent for the Fund on, and
subject to, the terms and provisions of this Agreement, and FDS is desirous of
accepting such appointment on, and subject to, such terms and provisions:
NOW, THEREFORE, in consideration of mutual covenants contained in this
Agreement, the Fund and FDS agree as follows:
1. APPOINTMENT OF FDS AS TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND
SHAREHOLDER SERVICING AGENT.
(a) The Fund hereby appoints FDS to act as Transfer Agent, Dividend
Disbursing Agent and Shareholder Servicing Agent for the Fund on, 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 on, and subject to, the terms and provisions of the Agreement.
2. DEFINITIONS.
(a) In this Agreement:
(1) The term "Act" means the Investment Company Act of 1940, as
amended from time to time, and any rule or regulation thereunder;
(2) The term "Account" means any account of a Shareholder, or, if
the shares are held in an account in the name of MLPF&S for benefit of
an identified customer, such account, including a Plan Account, any
account under a plan (by whatever name referred to in the Prospectus)
pursuant to the Self-Employed Individuals Retirement Act of 1962
("Keogh Act Plan") and any plan (by whatever name referred to in the
Prospectus) in conjunction with Section 401 of the Internal Revenue
Code ("Corporation Master Plan");
(3) The term "application" means an application made by a
Shareholder or prospective Shareholder respecting the opening of an
Account;
<PAGE> 2
(4) The term "MLFD" means Merrill Lynch Funds Distributor, Inc., a
Delaware corporation;
(5) The term "MLPF&S" means Merrill Lynch, Pierce, Fenner & Smith
Incorporated, a Delaware corporation;
(6) 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 Fund;
(7) The term "Prospectus" means the Prospectus of the Fund, as from
time to time in effect;
(8) The term "Shares" means shares of Common Stock of the Fund; and
(9) The term "Shareholder" means the holder of record of Shares.
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;
(1) Issuing, transferring and redeeming Shares;
(2) Opening, maintaining, servicing and closing Accounts;
(3) Acting as agent of the Fund and/or MLPF&S, maintaining such
records as may permit the imposition of such early withdrawal charges
as may be described in the Prospectus, including such reports as may be
reasonably requested by the Fund with respect to such Shares as may be
subject to an early withdrawal charge;
(4) Upon the repurchase pursuant to a tender of Shares subject to
such an early withdrawal charge, calculating and deducting from the
tender offer proceeds thereof the amount of such charge in the manner
set forth in the Prospectus;
(5) Processing tender offers;
(6) Examining and approving legal transfers;
(7) Replacing lost, stolen or destroyed certificates representing
Shares, in accordance with, and subject to, procedures and conditions
adopted by the Fund;
(8) Furnishing such confirmations of transactions relating to their
Shares as required by applicable law;
(9) Acting as agent for the Fund and/or MLPF&S, furnishing such
appropriate periodic statements relating to Accounts, together with
additional enclosures, including
2
<PAGE> 3
appropriate income tax information and income tax forms duly completed,
as required by applicable law;
(10) Acting as agent for the Fund and/or MLPF&S, mailing annual,
semi-annual and quarterly reports prepared by or on behalf of the Fund,
and mailing new Prospectuses on their issue to Shareholders as required
by applicable law;
(11) Furnishing such periodic statements of transactions effected
by FDS, reconciliations, balances and summaries as the Fund may
reasonably request;
(12) 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 Fund or
its transfer agent with respect to such transactions, and preserving,
or causing to be preserved any such books and records for such periods
as may be required by any such law, rule or regulation and as may be
agreed on from time to time between FDS and the Fund. 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 insure preservation of at least one copy of such
information;
(13) 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
(14) Reinvesting dividends for full and fractional shares and
disbursing cash dividends, as applicable.
(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 connection with the holding of such meetings as
may be required by applicable law, receiving and tabulating votes cast by proxy
and communicating to the Fund the results of such tabulation accompanied by
appropriate certificates, and preparing and furnishing to the Fund certified
lists of Shareholders as of such date, in such form and containing such
information as may be required by the Fund.
(c) FDS agrees to deal with, and answer in a timely manner, all
correspondence and inquires relating to the functions of FDS under this
Agreement with respect to Accounts.
(d) FDS agrees to furnish to the Fund such information and at such
intervals as is necessary for the Fund to comply with the registration and/or
the reporting requirements (including applicable escheat laws) of the Securities
and Exchange Commission, Blue Sky authorities or other governmental authorities.
(e) FDS agrees to provide to the Fund such information as may
reasonably be required to enable the Fund to reconcile the number of outstanding
Shares between FDS's records and the account books of the Fund.
3
<PAGE> 4
(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 contained in an Officer's Instruction.
4. COMPENSATION.
The charges for services described in this Agreement, including
"out-of-pocket" expenses, will be set forth in the Schedule of Fees attached
hereto.
5. RIGHT OF INSPECTION.
FDS agrees that it will in a timely manner make available to, and
permit, any officer, accountant, attorney or authorized agent of the Fund to
examine and make transcripts and copies (including photocopies and computer or
other electronical information storage media and print-outs) of any and all of
its books and records which relate to any transaction or function performed by
MLFDS under or pursuant to this Agreement.
6. CONFIDENTIAL RELATIONSHIP.
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 Fund, or as may be
disclosed in the examination of any books or records by any person lawfully
entitled to examine the same) except as may be authorized by the Fund by way of
an Officer's Instruction.
7. INDEMNIFICATION.
The Fund shall indemnify and hold FDS harmless from any loss, costs,
damage and reasonable expenses, including reasonable attorney's fees (provided
that such attorney is appointed with the Fund's consent, which consent shall not
be unreasonably withheld), incurred by it resulting from any claim, demand,
action, or suit in connection with the performance of its duties hereunder,
provided that this indemnification shall not apply to actions or omissions of
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 Fund reasonable opportunity to defend against said claim in
its own name or in the name of FDS. An action taken by FDS on 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 may be reasonably determined by the Fund to be 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
4
<PAGE> 5
Shareholder Servicing Agent for the Fund 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 Fund. 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 Fund of any revocation of such authority or permission or of the
commencement of any proceeding or other action which may lead to such
revocation.
9. TERMINATION.
(a) This Agreement shall become effective as of the date first above
written and shall thereafter continue from year to year. This Agreement may be
terminated by the Fund or FDS (without penalty to the Fund 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 Fund may terminate this
Agreement immediately on 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
Fund reasonably believes will lead to such revocation has been commenced.
(b) Upon termination of this Agreement, FDS shall deliver all unissued
and cancelled stock certificates representing Shares remaining in its
possession, and all Shareholder records, books, stock ledgers, instruments and
other documents (including computerized or other electronically stored
information) made or accumulated in the performance of its duties as Transfer
Agent, Disbursing Agent and Shareholder Servicing Agent for the Fund along with
a certified locator document clearly indicating the complete contents therein,
to such successor as may be specified in a notice of termination or Officer's
Instruction; and the Fund assumes all responsibility for failure thereafter to
produce any paper, record or documents so delivered and 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.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective duly authorized officers as of the date first above
written.
MERRILL LYNCH SENIOR FLOATING
RATE FUND II, INC.
By
-----------------------------------------
Title:
FINANCIAL DATA SERVICES, INC.
By
-----------------------------------------
Title:
6
<PAGE> 1
EXHIBIT k(2)
MERRILL LYNCH SENIOR FLOATING RATE FUND II, INC.
LICENSE AGREEMENT RELATING TO USE OF NAME
AGREEMENT, made as of the 19th day of February 1999, by and between
MERRILL LYNCH & CO., INC., a Delaware corporation ("ML&Co."), and MERRILL LYNCH
SENIOR FLOATING RATE FUND II, 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 February 9, 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:
<PAGE> 2
1. ML&Co. hereby grants the Fund a non-exclusive license to use the
words "Merrill Lynch" in its corporate name.
2. ML&Co. hereby consents to the qualification of the Fund as a foreign
corporation under the laws of the State of New York with the words "Merrill
Lynch" in its corporate name and agrees to execute such formal consents as may
be necessary in connection with such filing.
3. The non-exclusive license hereinabove referred to has been given and
is given by ML&Co. on the condition that it may at any time, in its sole and
absolute discretion, withdraw the non-exclusive license to the use of the words
"Merrill Lynch" in the name of the Fund; and, as soon as practicable after
receipt by the Fund of written notice of the withdrawal of such non-exclusive
license, and in no event later than ninety days thereafter, the Fund will change
its name so that such name will not thereafter include the words "Merrill Lynch"
or any variation thereof.
4. ML&Co. reserves and shall have the right to grant to any other
company, including without limitation, any other investment company, the right
to use the words "Merrill Lynch" or variations thereof in its name and no
consent or permission of the Fund shall be necessary; but, if required by an
applicable law of any state, the Fund will forthwith grant all requisite
consents.
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
2
<PAGE> 3
voluntary associations which may have names similar to that of the Fund or to
that to which the Fund may change its name and to own all or any portion of the
shares of such other corporations or associations and to enter into contractual
relationships with such other corporations or associations, subject to any
requisite approval of a majority of the Fund's shareholders and the Securities
and Exchange Commission and subject to the payment of a reasonable amount to be
determined at the time of use, and the Fund agrees to give and execute any such
formal consents or agreements as may be necessary in connection therewith.
7. This Agreement may be amended at any time by a writing signed by the
parties hereto.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
MERRILL LYNCH & CO., INC.
By
----------------------------------------
Vice President
MERRILL LYNCH SENIOR FLOATING
RATE FUND II, INC.
By
----------------------------------------
President
4
