<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 2, 1999.
SECURITIES ACT FILE NO. 333-83085
INVESTMENT COMPANY ACT FILE NO. 811-09479
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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. 3 [X]
POST-EFFECTIVE AMENDMENT NO. [ ]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 3 [X]
(CHECK APPROPRIATE BOX OR BOXES)
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THE S&P 500(R) PROTECTED EQUITY FUND, INC.*
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (609) 282-2800
TERRY K. GLENN
THE S&P 500(R) PROTECTED EQUITY FUND, INC.
800 SCUDDERS MILL ROAD, PLAINSBORO, NEW JERSEY
MAILING ADDRESS: P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(NAME AND ADDRESS OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
FRANK P. BRUNO, ESQ MICHAEL J. HENNEWINKEL, 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. [ ]
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 delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
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PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
AMOUNT BEING OFFERING PRICE AGGREGATE REGISTRATION
TITLE OF SECURITIES BEING REGISTERED REGISTERED(1) PER UNIT(1) OFFERING PRICE(1) FEE(2)
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<S> <C> <C> <C> <C>
Common Stock ($.10 par value).......... 31,500,000 shares $10.00 $315,000,000 $87,570
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(1) Estimated solely for the purpose of calculating the registration fee.
(2) Transmitted to the designated lockbox at Mellon Bank in Pittsburgh, PA. $27,800 was previously paid. $59,770 was
transmitted in connection with this filing.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS
EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SEC, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
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* Formerly, The Market Participation Principal Protection Fund, Inc.
</TABLE>
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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 NOVEMBER 2, 1999
PROSPECTUS
31,500,000 SHARES
THE S&P 500(R) PROTECTED EQUITY FUND, INC.
COMMON STOCK
------------------------
The S&P 500(R) Protected Equity Fund, Inc. (the "Fund") is a newly
organized, non-diversified, fixed-term, closed-end fund. The investment
objective of the Fund is to return to shareholders on or about the Fund's
maturity date of November 30, 2007 (i) $10.00 per share (the Fund's initial net
asset value per share) plus (ii) an amount equal to $10.00 multiplied by the
percentage increase in the price appreciation of the S&P 500 Index, if any, from
the value of the Index on November , 1999 to the value of the Index at the
close of the market on October 31, 2007, as reduced by the application of an
annual index adjustment factor of % per year, any deferred investment advisory
fee and remaining Fund expenses. The price appreciation of the S&P 500 does not
include any of the dividends paid on the stocks included in the S&P 500. The
Fund will seek to achieve its investment objective by investing primarily in a
portfolio of the common stocks of substantially all of the companies represented
in the S&P 500 and purchasing one or more privately-negotiated put option
contracts intended to protect the Fund's initial net asset value at the maturity
date by limiting the risk of loss caused by a decline in the market value of the
Fund's common stock portfolio. There can be no assurance that the investment
objective of the Fund will be achieved.
Because the Fund is newly organized, its shares have no history of public
trading. Shares of closed-end investment companies frequently trade at a
discount from their net asset value. Initial investors expecting to sell their
shares in a relatively short period after completion of the public offering
typically face greater risk of loss. The shares of the Fund are being sold to
the public without a sales load or underwriting commission. The Fund's shares of
common stock have been approved for listing on the New York Stock Exchange under
the symbol "PEF".
------------------------
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.
------------------------
INVESTING IN THE COMMON STOCK INVOLVES RISKS WHICH ARE DESCRIBED IN THE
"RISK FACTORS AND SPECIAL CONSIDERATIONS" SECTION BEGINNING ON PAGE 7 OF THIS
PROSPECTUS.
<TABLE>
<CAPTION>
PER SHARE TOTAL
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<S> <C> <C>
Public Offering Price........ $10.00 $315,000,000
Sales Load................... None None
Proceeds to Fund............. $10.00 $315,000,000
</TABLE>
The Fund's investment adviser or an affiliate will pay the underwriter a
commission in the amount of 3.00% of the public offering price per share in
connection with the sale of the common stock and will bear all other offering
and organization expenses of the Fund.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The shares of common stock will be ready for delivery in New York, New York
on or about November , 1999.
------------------------
MERRILL LYNCH & CO.
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The date of this prospectus is November , 1999.
<PAGE> 3
TABLE OF CONTENTS
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PAGE
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Prospectus Summary.......................................... 3
Risk Factors and Special Considerations..................... 7
Fee Table................................................... 12
The Fund.................................................... 13
Use of Proceeds............................................. 13
Investment Objective and Policies........................... 13
Other Investment Policies................................... 17
Investment Restrictions..................................... 22
Directors and Officers...................................... 23
Investment Advisory and Management Arrangements............. 25
Portfolio Transactions...................................... 27
Dividends and Distributions................................. 29
Taxes....................................................... 30
Net Asset Value............................................. 32
Repurchase of Shares........................................ 33
Description of Capital Stock................................ 33
Custodian................................................... 36
Underwriting................................................ 36
Transfer Agent, Dividend Disbursing Agent and Registrar..... 37
Legal Opinions.............................................. 37
Experts..................................................... 37
Additional Information...................................... 38
Independent Auditors' Report................................ 39
Statement of Assets, Liabilities and Capital................ 40
</TABLE>
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"Standard & Poor's(R)", "S&P(R)", "S&P 500(R)", "Standard & Poor's 500" and
"500" are trademarks of The McGraw-Hill Companies, Inc., and have been licensed
for use by Merrill Lynch Asset Management, L.P. and its affiliates. The Fund is
not sponsored, endorsed, sold or promoted by Standard & Poor's Corporation and
Standard & Poor's Corporation makes no representation regarding the advisability
of investing in the Fund.
------------------------
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 SEC'S PUBLIC REFERENCE SECTION OF
THE SEC, WASHINGTON, D.C., 20549-6009.
------------------------
You should rely only on the information contained in this prospectus. We
have not, and the underwriter has not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriter is not, making an offer to sell these securities in any jurisdiction
where the offer or sale is not permitted. You should assume that the information
appearing in this prospectus is accurate as of the date on the front cover of
this prospectus only. Our business, financial condition, results of operations
and prospects may have changed since that date.
2
<PAGE> 4
PROSPECTUS SUMMARY
This summary is qualified in its entirety by reference to the detailed
information included in this prospectus.
THE FUND The S&P 500(R) Protected Equity Fund, Inc. (the "Fund") is a
newly organized, non-diversified, fixed-term, closed-end fund.
The Fund's maturity date is November 30, 2007 (the "Maturity
Date"). The Fund will distribute substantially all of its net
assets on or about the Maturity Date and then terminate.
THE OFFERING The Fund is offering 31,500,000 shares of common stock at an
initial offering price of $10.00 per share. The common stock is
being offered by Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch"), as underwriter.
INVESTMENT
OBJECTIVE
AND POLICIES The investment objective of the Fund is to return to shareholders
on or about the Maturity Date (i) $10.00 per share (the Fund's
initial net asset value per share) plus (ii) an amount equal to
$10.00 multiplied by the percentage increase in the price
appreciation of the Standard & Poor's 500 Composite Stock Price
Index (the "S&P 500" or the "Index"), if any, from the value of
the Index on November , 1999 (the "Starting Value") to the
value of the Index at the close of the market on October 31,
2007, as reduced by the application of an annual index adjustment
factor of % per year (the "Index Adjustment Factor"), any
deferred investment advisory fee and remaining Fund expenses, as
discussed below. The price appreciation of the S&P 500 does not
include any of the dividends paid on the stocks included in the
S&P 500. In contrast, total return on the S&P 500 would include
dividends. The dividend yield on the stocks underlying the S&P
500 Index for the twelve (12) months ended September 30, 1999 was
1.296%. The Fund will seek to achieve its investment objective by
investing primarily in a portfolio of the common stocks of all or
substantially all of the companies represented in the S&P 500 and
purchasing one or more privately-negotiated put option contracts
intended to protect the Fund's initial net asset value at the
Maturity Date (the "Put Contracts"), as described below. There
can be no assurance that the investment objective of the Fund
will be achieved.
With the proceeds of this offering, the Fund intends to purchase
Put Contracts on the S&P 500. The Put Contracts are expected to
represent approximately 15% to 20% of the Fund's initial net
assets. With the remaining proceeds, the Fund will invest
primarily in a portfolio of stocks that will match as closely as
practicable the composition and proportions of the stocks in the
S&P 500 Index. Because a portion of the Fund's initial assets
will be used to purchase the Put Contracts, at any time less than
100% of the Fund's assets will be invested in the S&P 500. With
less than 100% of the Fund's assets invested in the S&P 500, the
Fund's return on the Maturity Date is expected to lag the
performance of the S&P 500 Index if the value of the S&P 500 on
the Maturity Date is greater than its Starting Value. This lag in
Fund performance is quantified in part by the Index Adjustment
Factor, which is intended to help you better understand the
relationship between the Fund's net asset value and the S&P 500
Index on the Maturity Date. The Fund's portfolio on the Maturity
Date is expected to lag the S&P 500 in positive markets by at
least the % annual Index Adjustment
3
<PAGE> 5
Factor because less than 100% of the Fund's assets is invested in
the S&P 500 stocks. Deferred investment advisory fees and
remaining Fund expenses, if any, will further reduce the Fund's
return. Quantifying the lag on the Maturity Date illustrates the
"costs" of principal protection and certain annual performance
sacrifices resulting from investment by the Fund of less than
100% of the Fund's assets in the S&P 500 stocks. The Index
Adjustment Factor is not a separate fee or charge.
As an example, if the S&P 500 Index increased by 100% from the
Starting Value to its value at maturity, the annualized price
return of the S&P 500 Index would equal 8.85%. However, since
less than 100% of the Fund's assets will be invested in the
stocks of the S&P 500 Index, the return of the Fund would be
expected to equal approximately % and the annualized
return would equal approximately %. This difference between
the hypothetical return on the S&P 500 Index and the Fund at the
Maturity Date is quantified by the annual Index Adjustment Factor
of %. The Index Adjustment Factor does not reflect Deferred
Advisory Fees and other remaining Fund expenses, which would also
reduce the Fund's return on the Maturity Date. In addition, the
example does not reflect any dividends paid on the S&P 500 stocks
or by the Fund. This example is provided for purposes of
illustration only and is not necessarily indicative of the future
performance of the S&P 500 Index or of the Fund. The example
should not be considered a representation or prediction of the
actual value of the S&P 500 or the Fund's performance at the
Maturity Date.
Because Merrill Lynch Asset Management, L.P. serves as the Fund's
investment adviser, the Fund is prohibited under Federal
securities laws from purchasing principal protection from Merrill
Lynch. The Fund only may purchase the Put Contracts from eligible
counterparties that are not affiliated with Merrill Lynch.
CONSEQUENTLY, THE FUND'S ABILITY TO RETURN $10 PER SHARE WHEN THE
VALUE OF THE S&P 500 ON THE MATURITY DATE IS LESS THAN ITS
STARTING VALUE DOES NOT DEPEND UPON MERRILL LYNCH'S CREDIT
QUALITY, BUT INSTEAD DEPENDS UPON THE CREDIT QUALITY OF THE
COUNTERPARTIES TO THE FUND'S PUT CONTRACTS.
The Fund will pay a fee for the Put Contracts and the Put
Contracts will require the counterparties to make a payment to
the Fund upon expiration of the options in the event that the S&P
500 is below a specified level. In the event that the S&P 500 on
the Maturity Date is less than this specified level, the Put
Contracts will obligate the counterparties to make a payment to
the Fund which is intended approximately to equal the difference
between the Fund's initial net asset value and the Fund's net
asset value on the Maturity Date. As a result, the Fund's return
on the Maturity Date is expected to exceed the performance of the
S&P 500 if the value of the S&P 500 on the Maturity Date is less
than its Starting Value.
Of the Fund's total assets, 80% to 85% initially is expected to
be invested in a portfolio of S&P 500 stocks, financial
instruments, including options (other than the Put Contracts) and
futures, and to a lesser extent, in cash or cash equivalents.
At times when the Fund believes that it is more cost-efficient to
do so, the Fund may determine not to invest in substantially all
of the common stocks in the S&P 500 or in
4
<PAGE> 6
the same weightings as in the S&P 500. At those times, the Fund
may instead invest in a statistically selected sample of the
stocks in the S&P 500 which has aggregate investment
characteristics, such as market capitalization and industry
weightings, similar to the S&P 500 as a whole. In addition, the
Fund may purchase stocks not included in the S&P 500 when it
would be a cost-efficient way of approximating the S&P 500's
performance. However, under normal circumstances, the Fund will
invest at least 90% to 95% of its initial assets remaining after
purchase of the Put Contracts in securities in the S&P 500 Index
and not more than 5% of its total portfolio in derivatives (other
than the Put Contracts) or other financial instruments and cash
equivalents. The Fund may also engage in securities lending.
LISTING There is currently no public market for the Fund's common stock.
However, the Fund's shares of common stock have been approved for
listing on the New York Stock Exchange under the symbol "PEF".
LEVERAGE The Fund is authorized to borrow money in amounts up to 33 1/3%
of the value of its total assets, but under current market
conditions does not intend to do so. The Fund may borrow to
finance repurchases of its common stock, to pay required
distributions, if any, to investors or for extraordinary or
emergency purposes.
INVESTMENT
ADVISER AND THE
ADVISORY FEE Merrill Lynch Asset Management, L.P., the Fund's investment
adviser, provides investment advisory and management services to
the Fund. The Fund will pay the investment adviser on a quarterly
basis an investment advisory fee in arrears at an annual rate
equal to 1.00% of the Fund's average weekly net assets. In lieu
of liquidating any S&P 500 stocks held in the Fund's portfolio to
pay the investment advisory fee, the investment adviser will be
paid its accrued investment advisory fee from income from stock
dividends on the Fund's portfolio or other available cash
(together, "Available Assets") remaining after payment of any
extraordinary or other expenses of the Fund not covered by the
investment advisory fee. It is possible, particularly during the
initial years of the Fund's operations, that the Fund's portfolio
will not yield sufficient cash to pay the entire investment
advisory fee out of the current Available Assets. To the extent
that Available Assets are not sufficient to pay all of the
investment advisory fee at the conclusion of a quarterly period,
the investment adviser will defer collecting the portion of the
investment advisory fee not covered by such Available Assets (the
"Deferred Advisory Fee") until the conclusion of the next
quarterly period. To the extent that there are additional
Available Assets after paying the then current Advisory Fee in
such subsequent quarter, such additional amount will be applied
to the payment of the Deferred Advisory Fee, and any unpaid
Deferred Advisory Fee balance will be carried forward from
quarter to quarter until paid. To the extent that Available
Assets are not sufficient to pay the then current investment
advisory fee, such unpaid investment advisory fee will be added
to the Deferred Advisory Fee balance, if any. On the Maturity
Date, any Deferred Advisory Fee will only be paid to the extent
that the Fund will be able to return at least $10.00 per share to
investors. If payment of any portion of the Deferred Advisory Fee
would otherwise result in a return to investors on the Maturity
Date of less than $10.00 per share (as adjusted for any early
return of capital), that portion of the Deferred Advisory Fee
will
5
<PAGE> 7
be waived. The Fund will not pay the investment adviser any
interest on the Deferred Advisory Fee.
DIVIDENDS AND
DISTRIBUTIONS The Fund will seek to minimize Federal income tax recognition of
taxable income and capital gains by shareholders prior to the
Maturity Date primarily by minimizing the Fund's sales of stock
in its portfolio. However, to the extent the Fund has any net
investment income or any net realized capital gains prior to the
Maturity Date, it intends to distribute to shareholders at least
annually substantially all of such amounts.
REPURCHASE OF
SHARES The Board of Directors of the Fund may consider open market share
repurchases from time to time if the Fund's shares trade at a
discount to the Fund's net asset value. There can be no assurance
that the Fund will in fact repurchase any of its shares.
6
<PAGE> 8
RISK FACTORS AND SPECIAL CONSIDERATIONS
Investing in the Fund involves certain risks. The Fund is subject to
financial, market and credit risks. As with any security, a risk of loss is
inherent in investment in shares of common stock of the Fund.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to return to shareholders on or
about the Maturity Date (i) $10.00 per share (the Fund's initial net asset value
per share) plus (ii) an amount equal to $10.00 multiplied by the percentage
increase in the price appreciation of the S&P 500, if any, from the Starting
Value to the value of the Index at the close of the market on November 30, 2007,
as reduced by the annual application of the Index Adjustment Factor, any
Deferred Advisory Fees, and remaining Fund expenses. The price appreciation of
the S&P 500 does not include any of the dividends paid on the stocks included in
the S&P 500. There is no assurance that the Fund will be able to achieve this
investment objective. The Put Contracts and the Fund's other investment
techniques have certain risks. The following discussion describes potential
risks associated with the Put Contracts and the different types of investment
techniques used by the Fund as described under "Investment Objectives and
Policies" and "Other Investment Policies".
With a portion of the proceeds of this offering, the Fund intends to
purchase one or more Put Contracts on the S&P 500. With the remaining proceeds,
the Fund will invest primarily in a portfolio that will match as closely as
practicable the composition and proportions of the stocks included in the S&P
500 Index. Because a portion of the Fund's initial assets will be used to
purchase the Put Contracts, at any time less than 100% of the Fund's assets will
be invested in the S&P 500 Index. With less than 100% of the Fund's assets
invested in the S&P 500, the Fund's return on the Maturity Date is expected to
lag the performance of the S&P 500 Index if the value of the S&P 500 on the
Maturity Date is greater than its Starting Value. However, as the Fund will use
a portion of its assets to purchase the Put Contracts, the Fund's return on the
Maturity Date is expected to exceed the performance of the S&P 500 if the value
of the S&P 500 on the Maturity Date is less than its Starting Value.
The Put Contracts. Because Merrill Lynch Asset Management, L.P. serves as
the Fund's investment adviser, the Fund is prohibited under Federal securities
laws from purchasing principal protection from Merrill Lynch. The Fund only may
purchase the Put Contracts on the S&P 500 Index from Eligible Counterparties (as
defined below under "Counterparty Credit Risk") that are not affiliated with
Merrill Lynch. CONSEQUENTLY, THE FUND'S ABILITY TO RETURN $10 PER SHARE WHEN THE
VALUE OF THE S&P 500 ON THE MATURITY DATE IS LESS THAN ITS STARTING VALUE DOES
NOT DEPEND UPON MERRILL LYNCH'S CREDIT QUALITY, BUT INSTEAD DEPENDS UPON THE
CREDIT QUALITY OF THE COUNTERPARTIES TO THE FUND'S PUT CONTRACTS.
The Fund will pay a fee for the Put Contracts and the Put Contracts will
require the Eligible Counterparties to make a payment to the Fund upon
expiration of the options in the event that the S&P 500 is below a specified
level. In the event that the S&P 500 on the Maturity Date is less than this
specified level, the Put Contracts will obligate the Eligible Counterparties to
make a payment to the Fund which is intended approximately to equal the
difference between the Fund's initial net asset value and the value of the
Fund's assets invested in S&P 500 stocks on the Maturity Date. As a result, the
Fund's return on the Maturity Date is expected to exceed the performance of the
S&P 500 if the value of the S&P 500 on the Maturity Date is less than its
Starting Value.
7
<PAGE> 9
Options contracts on securities or securities indices may be listed and
traded on exchanges or entered into in private transactions.
Privately-negotiated securities or financial contracts such as the Put Contracts
that are not traded on an organized exchange are known as an "over-the-counter"
or "OTC" instruments. The Put Contracts that the Fund intends to purchase will
differ from exchange traded financial contracts such as listed options in
several respects. Generally, exchange traded options have standardized terms and
the performance of the parties' obligations in connection with the options is
guaranteed by the exchange upon which they are listed or a related clearing
corporation. OTC instruments offer greater flexibility than exchange traded
instruments such as listed options. However, OTC instruments such as the Put
Contracts are transacted directly with dealers or other counterparties and not
through a clearing corporation, and involve a risk of non-performance by such
counterparties as a result of the insolvency of such counterparties or
otherwise. IN THE EVENT OF NON-PERFORMANCE BY A COUNTERPARTY TO A PUT CONTRACT,
THE FUND MAY SUFFER SIGNIFICANT LOSSES AND MAY BE UNABLE TO RETURN $10.00 PER
SHARE TO INVESTORS ON OR ABOUT THE MATURITY DATE IF THE VALUE OF THE S&P 500 ON
THE MATURITY DATE IS LESS THAN ITS STARTING VALUE. The Fund will seek to limit
such risks by entering into OTC Put Contracts only with Eligible Counterparties
(as defined below).
The purchase of the Put Contracts limits the Fund's risk of loss in the
event of a decline in the S&P 500. As described below, if the market value of
S&P 500 on the Maturity Date is greater than the market level specified in the
Put Contracts, the Put Contracts will expire worthless. Consequently, the Fund
would realize a lower return on its stock portfolio than it would have without
the purchase of the Put Contracts.
The value of the Put Contracts primarily will be affected by the value of
the S&P 500 and by other factors that generally affect the value of put options.
Because the Put Contracts require the counterparties to pay the Fund in the
event of a decline in the S&P 500 at the expiration of such contracts, in
general, an increase in the value of the S&P 500 is expected to decrease the
value of the Put Contracts and, conversely, a decrease in the value of the S&P
500 is expected to increase the value of the Put Contracts. In general, the
value of the Put Contracts is expected to decrease when interest rates increase
or when dividend yields on the stocks in the S&P 500 decrease. Further, the
value of the Put Contracts is expected to decrease as anticipated fluctuations
in the future value, or volatility, of the S&P 500 decrease.
The value of the Put Contracts is expected to decrease over time if the S&P
500 is above its Starting Value and, conversely, the value of the Put Contracts
is expected to increase over time if the S&P 500 is below its Starting Value.
Counterparty Credit Risk. The Fund may enter into OTC put and call options
contracts, including the Put Contracts, only with counterparties that are rated
Aa3 or better by Moody's Investors Service, Inc. ("Moody's") or AA- or better by
Standard & Poor's Corporation ("S&P") (or whose obligations are guaranteed by
Eligible Counterparties so rated) as described below or are determined by the
investment adviser to be of comparable credit quality ("Eligible
Counterparties"). THE FUND'S ABILITY TO MEET ITS INVESTMENT OBJECTIVE UNDER
CERTAIN MARKET CONDITIONS WILL DEPEND SIGNIFICANTLY UPON THE ABILITY OF ANY
ELIGIBLE COUNTERPARTY THAT SERVES AS COUNTERPARTY TO THE FUND'S PUT CONTRACTS TO
MEET ITS OBLIGATIONS UNDER THOSE CONTRACTS. MERRILL LYNCH IS NOT PERMITTED TO
SELL PUT CONTRACTS TO THE FUND, AND THE FUND WILL NOT BE ABLE TO LOOK TO MERRILL
LYNCH FOR PRINCIPAL PROTECTION IF ANY COUNTERPARTY TO THE FUND'S PUT CONTRACTS
FAILS TO MEET ITS OBLIGATIONS. S&P indicates that it assigns a AA- rating to
obligors that have a very strong capacity to meet their financial commitments,
differing from the highest rated obligors only in small degree. Moody's
indicates that counterparties rated Aa3 offer excellent financial security but
are
8
<PAGE> 10
rated lower than Aaa counterparties because long-term risks appear somewhat
larger. The margins of protection may not be as large as with Aaa
counterparties, or fluctuations of protective elements may be of greater
amplitude. Eligible Counterparties in the ordinary course of business may
purchase securities or enter into arrangements with broker-dealers, banks or
other market participants in order to hedge the market risks associated with
such Eligible Counterparties' obligations under the Put Contracts. Although
unlikely, such hedging arrangements theoretically could affect the price of
certain stocks and the value of the S&P 500 or the Fund's investments in a
manner that would be adverse to investors in the Fund.
Liquidity. OTC contracts generally are considered illiquid. While some OTC
contracts have contractual provisions that appear to provide a measure of
liquidity, such liquidity will generally be provided only by the counterparty to
the contract. Consequently, any liquidity will be subject to, among other
things, such counterparty's ability and willingness to provide liquidity at any
given time.
Concentration. The Put Contracts on the date that they are executed are
expected to represent approximately 15% to 20% of the Fund's initial net assets.
The common stocks of companies in the S&P 500 in the financial service industry
are expected to represent approximately 12% to 15% of the Fund's initial net
assets. Consequently, the Fund's portfolio will be concentrated in the
securities or obligations of issuers in the industry group consisting of
financial institutions and their holding companies, including broker-dealers,
commercial banks, thrift institutions, insurance companies and finance
companies. As a result, the Fund is subject to certain credit quality risks
associated with such institutions. General economic conditions are important to
the operation of these institutions, with exposure to, among other things,
market fluctuations, changes in interest rates, and credit losses resulting from
possible financial difficulties of borrowers potentially having an adverse
effect. The Fund will not enter into a Put Contract with any one broker-dealer
as a counterparty that represents in excess of 5% of the Fund's net assets as of
the date that the Fund enters into such Put Contract. Increases in the value of
the S&P 500 portion of the Fund's portfolio resulting in a decrease in the
relative value of the Put Contracts or changes in the weighting or composition
of the S&P 500 may result in the Fund being no longer concentrated in the
financial services industry.
Risk Factors in Options and Futures Transactions. In addition to
transactions in OTC options, including the Put Contracts, and exchange traded
options, the Fund also may engage in transactions in futures and options on
futures. Use of options and futures transactions involves the risk of imperfect
correlation in movements in the price of options and futures and movements in
the prices of the underlying securities. In addition, many options (particularly
OTC options such as the Put Contracts) have limited liquidity and the Fund may
not be able to sell or unwind its options positions prior to their maturity.
There is a risk of loss by the Fund of margin deposits or collateral in the
event of bankruptcy of a broker with whom the Fund has an open position in an
option, a futures contract or an option related to a futures contract.
Furthermore, the Fund's ability to enter into new OTC contracts or restructure
existing OTC contracts may be limited by market conditions. For additional
information on the considerations involved in the use of options and futures,
see "Other Investment Policies".
Price Appreciation of the S&P 500. The investment objective of the Fund is
to return to shareholders on or about the Maturity Date (i) $10.00 per share
(the Fund's initial net asset value per share) plus (ii) an amount equal to
$10.00 multiplied by the percentage increase in the price appreciation of the
S&P 500, if any, from the Starting Value to the value of the Index at the close
of the market on October 31, 2007, as reduced by the annual application of the
Index Adjustment Factor, any Deferred
9
<PAGE> 11
Advisory Fees, and remaining Fund expenses. The price appreciation of the S&P
500 does not include any of the dividends paid on the stocks included in the S&P
500. Dividends received by the Fund from the stocks held in its portfolio will
be used to pay the Fund's expenses. To the extent that these expenses match or
exceed the dividends paid on the Fund's portfolio, the Fund's return will not
reflect the payment of dividends on stocks. Thus, the Fund's return from its
stock portfolio will be less than the return that you would receive if you owned
directly the same portfolio.
The market price of Fund shares is affected by, but not directly correlated
with, the current value of the S&P 500.
Early Return of Capital. It is expected that stocks in the Fund's
portfolio may be the subject of corporate acquisitions or liquidation in which
the Fund will receive cash for such stocks. The Fund may be required to
distribute a portion of such cash payments to investors. It is also possible
that the Fund may be required to sell portfolio stocks in order to make required
distributions or to finance share repurchases. Some of these such payments may
result in an early return of part of your investment and the $10.00 per share
that the Fund seeks to return on or about the Maturity Date would be reduced pro
rata by such amounts.
Net Asset Value. The net asset value of the Fund will equal the sum of the
value of the assets of the Fund less the liabilities of the Fund. The assets
will consist primarily of the Fund's stock portfolio and the Put Contracts. See
"The Put Contracts" above for a description of the factors affecting the value
of the Put Contracts.
TAX EFFECT OF THE PUT CONTRACTS
Because the Put Contracts offset the Fund's risk of loss on the stock
portfolio, the stock portfolio and the Put Contracts will constitute a
"straddle" for Federal income tax purposes. Individual stocks in the portfolio
and certain other options entered into by the Fund may likewise constitute
straddles. Special tax rules applicable to straddles will require the Fund to
postpone recognition for tax purposes of losses incurred on sales of stock in
the portfolio and on certain closing transactions in connection with the Put
Contracts and with any other options. As a result, the Fund will not be able to
reduce its income by such losses. This increases the possibility that the Fund
will have income which it must distribute to shareholders in order to satisfy
its distribution requirement for Federal income tax purposes. The Fund may have
to borrow in order to meet its distribution requirement. Furthermore, because
the stock portfolio and the Put Contracts will constitute a straddle, the
straddle rules will require the Fund to treat any gains recognized as a result
of sales of stock in the portfolio as short-term capital gains to the Fund even
if the stock was owned by the Fund for more than 12 months.
LIQUIDITY AND MARKET PRICE OF SHARES
The Fund is newly organized and has no operating history or history of
public trading. Shares of closed-end funds that trade in a secondary market
frequently trade at a market price that is below their net asset value. This is
commonly referred to as "trading at a discount." (This risk is independent of
the risk that the net asset value of the Fund's shares will fluctuate and may
decline.) The resulting risk of loss typically may be greater for initial
investors who sell their shares within a relatively short period after
completion of the public offering. Accordingly, the Fund is designed primarily
for long-term investors and should not be considered a vehicle for trading
purposes.
10
<PAGE> 12
LEVERAGE
The Fund is authorized to borrow money in amounts up to 33 1/3% of the
value of its total assets, although it does not intend to do so under current
market conditions. The Fund may borrow money to pay required distributions,
finance repurchases, or for extraordinary or emergency purposes. Borrowing
creates the risk of increased volatility in the net asset value and market price
of the Fund's common stock. Leverage also creates the risk that the investment
return on the Fund's common stock will be reduced to the extent the cost of the
borrowings exceeds the return on portfolio investments.
REPURCHASE OF SHARES
Subject to its borrowing restrictions, the Fund may borrow to finance
repurchases. Interest on any borrowings will increase the Fund's expenses and
reduce its income. If the Fund must liquidate portfolio securities to repurchase
shares, there may be certain tax consequences and transaction costs. There can
be no assurance that share repurchases will cause Fund shares to trade at prices
equal to their net asset value.
SECURITIES LENDING
The Fund may lend securities to financial institutions. Securities lending
involves the risk that the borrower may fail to return the securities in a
timely manner or at all. As a result, the Fund may lose money and there may be a
delay in recovering the loaned securities. The Fund could also lose money if it
does not recover the securities and the value of the collateral falls. These
events could trigger adverse tax consequences to the Fund.
NON-DIVERSIFICATION
The Fund is a non-diversified fund, which means that it can invest its
assets in fewer companies than if it were a diversified fund. If the Fund
concentrates in a smaller number of investments, the Fund's risk is increased
because each investment has a greater effect on the Fund's performance. Even as
a non-diversified fund, the Fund must still meet the diversification
requirements of applicable Federal income tax laws.
ANTITAKEOVER PROVISIONS
The Fund's Articles of Incorporation and By-Laws include provisions that
could limit or delay the ability of other entities or persons to acquire control
of the Fund or to change the composition of its Board of Directors without
shareholder approval. Such provisions could limit the ability of shareholders to
sell their shares at a premium over prevailing market prices by discouraging a
third party from seeking to obtain control of the Fund.
11
<PAGE> 13
FEE TABLE
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load (as a percentage of offering
price)................................................ None
Dividend Reinvestment Plan Fees........................ None
ANNUAL EXPENSES (as a percentage of net assets attributable
to common stock)
Management Fees(a)..................................... 1.00%
Interest payments on Borrowed Funds.................... None
Other Expenses(a)...................................... 0.00
----
Total Annual Expenses(a).......................... 1.00%
====
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
EXAMPLE ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
Investment assuming a 5% annual return throughout
the periods:........................................ $10 $32 $55 $122
</TABLE>
- ------------
(a) Other Expenses are estimated to be 0.00015% of net assets during the Fund's
first fiscal year. The investment adviser will bear all of the Fund's
structuring, organizational and offering expenses, as well as the expenses
of ordinary operation of the Fund, including administration, custodial,
transfer agency, legal, auditing and accounting fees. The Fund will pay
brokerage and other transaction costs, the fees and expenses of directors
(and their counsel) who are not affiliated with the investment adviser and
extraordinary expenses that may arise as well as any expenses required to
liquidate portfolio investments and terminate the Fund at the Maturity Date.
See "Investment Advisory and Management Arrangements" -- page 25.
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 first 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 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.
12
<PAGE> 14
THE FUND
The S&P 500(R) Protected Equity Fund, Inc. (the "Fund") is a newly
organized, non-diversified, fixed-term, closed-end management investment
company. The Fund was incorporated under the laws of the State of Maryland on
July 15, 1999 and has registered under the Investment Company Act of 1940, as
amended (the "1940 Act"). The Fund's Articles of Incorporation provide that the
Fund will terminate on November 30, 2007 (the "Maturity Date") without
shareholder approval, at which time the Fund will distribute substantially all
of its net assets to shareholders. The Fund's principal office is located at 800
Scudders Mill Road, Plainsboro, New Jersey 08536 and its telephone number is
(609) 282-2800.
The Fund has been organized as a closed-end investment company. Closed-end
investment companies differ from open-end investment companies (commonly
referred to as mutual funds) in that closed-end investment companies do not
redeem their securities at the option of the shareholder, while open-end
companies issue securities redeemable at net asset value at any time at the
option of the shareholder and typically engage in a continuous offering of their
shares. Accordingly, open-end companies are subject to continuous asset in-flows
and out-flows that can complicate portfolio management. However, shares of
closed-end investment companies frequently trade at a discount from net asset
value. This risk may be greater for investors expecting to sell their shares in
a relatively short period after completion of the public offering. The shares of
the Fund are being sold to the public without a sales load or underwriting
commission.
USE OF PROCEEDS
The proceeds of this offering to the Fund will be $315,000,000. The
proceeds to the Fund will not be reduced by payment of organizational and
offering costs which will be borne by the Fund's investment adviser or an
affiliate. Such proceeds of the offering will be invested in accordance with the
Fund's investment objective and policies on or about November , 1999. See
"Investment Objective and Policies."
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to return to shareholders on or
about the Maturity Date (i) $10.00 per share (the Fund's initial net asset value
per share) plus (ii) an amount equal to $10.00 multiplied by the percentage
increase in the price appreciation of the Standard & Poor's 500 Composite Stock
Price Index (the "S&P 500" or the "Index"), if any, from the value of the Index
on November , 1999 (the "Starting Value") to the value of the Index at the
close of the market on October 31, 2007, as reduced by the application of an
annual index adjustment factor of % per annum (the "Index Adjustment Factor"),
any deferred investment advisory fee and remaining Fund expenses. The price
appreciation of the S&P 500 does not include any of the dividends paid on the
stocks included in the S&P 500. In contrast, total return on the S&P 500 would
include dividends. The dividend yield on the stocks underlying the S&P 500 Index
for the twelve (12) months ended September 30, 1999 was 1.296%. The Fund will
seek to achieve its investment objective by investing primarily in a portfolio
of the common stocks of all or substantially all of the companies represented in
the S&P 500 and purchasing one or more privately-negotiated put option contracts
intended to protect the Fund's initial net asset value at the Maturity Date (the
"Put Contracts") as described below. There can be no assurance that the
investment objective of the Fund will be achieved. The investment objective of
the Fund is a fundamental policy and may not be changed without shareholder
approval.
13
<PAGE> 15
THE PUT CONTRACTS AND THE STOCK PORTFOLIO
With the proceeds of this offering, the Fund intends to purchase the Put
Contracts relating to the S&P 500. The Put Contracts will represent
approximately 15% to 20% of the Fund's initial net assets. With the remaining
proceeds, the Fund will invest primarily in a portfolio that will match as
closely as practicable the composition and proportions of the stocks included in
the S&P 500 Index.
A put option provides its purchaser with downside protection (i.e., by
hedging against a decline in the value of a specified asset such as a particular
stock or index) and generally gives its purchaser the right to sell (or receive
the depreciated value of) that specified asset at a predetermined price within a
specified time. The Fund will purchase Put Contracts intended to protect the
Fund's initial net asset value at the Maturity Date. Because Merrill Lynch Asset
Management, L.P. ("MLAM" or the "Investment Adviser") serves as the Fund's
investment adviser, the Fund is prohibited under Federal securities laws from
purchasing principal protection from Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch"). The Fund only may purchase the Put Contracts on
the S&P 500 Index from Eligible Counterparties that are not affiliated with
Merrill Lynch. CONSEQUENTLY, THE FUND'S ABILITY TO RETURN $10 PER SHARE WHEN THE
VALUE OF THE S&P 500 ON THE MATURITY DATE IS LESS THAN ITS STARTING VALUE DOES
NOT DEPEND UPON MERRILL LYNCH'S CREDIT QUALITY, BUT INSTEAD DEPENDS UPON THE
CREDIT QUALITY OF THE COUNTERPARTIES TO THE FUND'S PUT CONTRACTS.
The Put Contracts are expected to have a maturity equal to or approximately
equal to that of the Fund. The value of the Put Contracts primarily will be
affected by the value of the S&P 500 and by other factors that generally affect
the value of put options. Because the Put Contracts require the Eligible
Counterparties to pay the Fund if the S&P 500 is below a specific level at the
expiration of such contracts, in general, an increase in the value of the S&P
500 is expected to decrease the value of the Put Contracts. In addition, the
value of the Put Contracts generally is expected to decrease when interest rates
increase or when dividend yields on the stocks in the S&P 500 decrease. Further,
the value of the Put Contracts is expected to decrease as anticipated
fluctuations in the future value, or volatility, of the S&P 500 decrease. The
value of the Put Contracts is expected to increase over time if the S&P 500 is
below the Starting Value. Because the counterparty to a Put Contract is
responsible for paying the Fund the decrease in value, if any, in the S&P 500 at
maturity, the performance of the individual stocks in the Fund's portfolio has
somewhat limited bearing on the Fund's ability to protect invested capital. See
"Risk Factors and Special Considerations -- Investment Objective and
Policies -- Counterparty Credit Risk".
With the proceeds of this offering remaining after purchase of the Put
Contracts, expected to represent 80% to 85% of its initial net assets, the Fund
will invest primarily in a portfolio of the common stocks included in, and
financial instruments related to, the S&P 500. With respect to its stock
portfolio, the Fund will not attempt to buy or sell securities based on
economic, financial or market analysis, but will instead seek to employ a
"passive" investment approach. This means that with substantially all of the
Fund assets remaining after purchase of the Put Contracts, the Fund will attempt
to remain invested at all times in a portfolio of common stocks the performance
of which is expected to match approximately that of the S&P 500 (before
deduction of transaction costs and certain other Fund expenses). The Fund will
generally seek to buy or sell securities only when the Fund believes it is
necessary to do so in order to match the performance of the S&P 500.
Accordingly, it is anticipated that the Fund's portfolio turnover and trading
costs will be lower than those of actively managed funds.
14
<PAGE> 16
Because less than 100% of the Fund's assets at any time will be invested in
the S&P 500 and other factors, the Fund's return on the Maturity Date is
expected to lag the performance of the S&P 500 Index if the value of the S&P 500
on the Maturity Date is greater than its Starting Value. This lag in Fund
performance is quantified in part by the Index Adjustment Factor, which is
intended to help an investor better understand the relationship between the
Fund's net asset value and the S&P 500 Index on the Maturity Date. The Fund's
portfolio on the Maturity Date is expected to lag the S&P 500 in positive
markets at least by the annual Index Adjustment Factor because less than 100% of
the Fund's assets is invested in the S&P 500. Deferred investment advisory fees
and remaining Fund expenses, if any, will further reduce the Fund's return.
Quantifying the lag on the Maturity Date illustrates the "costs" of principal
protection and certain annual performance sacrifices resulting from investment
by the Fund of less than 100% of the Fund's assets in the S&P 500 stocks. The
Index Adjustment Factor is not a separate fee or charge.
As an example, if the S&P 500 Index increased by 100% from the Starting
Value to its value at maturity, the annualized price return of the S&P 500 Index
would equal 8.85%. However, since less than 100% of the Fund's assets will be
invested in the stocks of the S&P 500 Index, the return of the Fund would be
expected to equal approximately % and the annualized return would equal
approximately %. This difference between the hypothetical return on the
S&P 500 Index and the Fund at the Maturity Date is quantified by the annual
Index Adjustment Factor of %. The Index Adjustment Factor does not reflect
Deferred Advisory Fees and other remaining Fund expenses, which would also
reduce the Fund's return on the Maturity Date. In addition, the example does not
reflect any dividends paid on the S&P 500 stocks or by the Fund. This example is
provided for purposes of illustration only and is not necessarily indicative of
the future performance of the S&P 500 Index or of the Fund. The example should
not be considered a representation or prediction of the actual value of the S&P
500 or the Fund's performance at the Maturity Date.
In seeking to match the return of its stock portfolio to that of the S&P
500 Index, the Fund generally will invest in all 500 stocks in the S&P 500,
other than the stock of Merrill Lynch & Co. Inc., in approximately the same
proportions as their weightings in the S&P 500. For example, if 5% of the S&P
500 is made up of the stock of a particular company, the Fund will normally
invest approximately 5% of its assets (other than the Put Contracts) in that
company. Such a strategy is known as "full replication." However, when the Fund
believes it would be cost efficient, the Fund is authorized to deviate from full
replication and to instead invest in a statistically selected sample of the 500
stocks in the S&P 500 which has aggregate investment characteristics, such as
average market capitalization and industry weightings, similar to the S&P 500 as
a whole. The Fund may also purchase stocks not included in the S&P 500 when it
believes that it would be a cost efficient way of approximating the S&P 500's
performance to do so. If the Fund uses these techniques, the Fund may not track
the S&P 500 as closely as it would if it were fully replicating the S&P 500.
However, under normal circumstances, the Fund will be substantially invested in
securities in the Index and will invest at least 90% to 95% of its assets other
than the Put Contracts in securities in the S&P 500 Index and not more than 5%
of its total portfolio in other financial instruments and cash equivalents.
An investment in the shares of the Fund's common stock does not represent
any ownership interest in the stocks of the companies included in the Index.
15
<PAGE> 17
While the Fund's assets other than the Put Contracts are expected to be
substantially invested in the common stocks included in the S&P 500, the Fund
may use options other than the Put Contracts as well as futures contracts and
options on futures relating to all or a portion of the S&P 500. In addition, the
Fund will invest in short-term money market instruments for cash management,
liquidity and other purposes. See "Other Investment Policies."
As described under "Investment Advisory and Management Arrangements", the
Investment Adviser will defer receipt of payment of all or a portion of its
investment advisory fee until the Maturity Date if the Fund's income from stock
dividends or other available cash or cash equivalents are not sufficient to pay
the fee. Distributions to investors upon termination of the Fund at the Maturity
Date will, on a per share basis, be reduced by the amount of any deferred
investment advisory fee payable to the Investment Adviser, as well as by all
other outstanding and unpaid liabilities and obligations of the Fund, including
any unpaid brokerage and transaction costs, expenses, including the expenses of
liquidation, and principal and interest on any outstanding borrowings. The
Investment Adviser will waive payment of any portion of the deferred investment
advisory fee that would reduce the amount payable per share of the Fund to less
than $10.00 (as adjusted for any early return of capital).
THE S&P 500 INDEX
The S&P 500 is composed of 500 common stocks. The stocks represented in the
Index are issued by large-capitalization companies in a wide range of businesses
and which collectively represent a substantial portion of all common stocks
publicly traded in the U.S. The S&P 500 is a market-weighted index (an index in
which the weighting of each security is based on its market capitalization),
which means that the largest stocks represented in the index have the most
effect on the index's performance. Currently, the largest stocks in the S&P 500
have many times the effect of most other stocks in the Index. The Index does not
reflect the payment of dividends on the stocks underlying it.
The stocks in the S&P 500 are chosen by Standard & Poor's ("S&P"), a
division of The McGraw-Hill Companies, Inc. S&P chooses stocks for inclusion in
the S&P 500 based on market capitalization, trading activity and the overall mix
of industries represented in the Index, among other factors. The S&P 500 is
generally considered broadly representative of the performance of publicly
traded U.S. large capitalization stocks. S&P's selection of a stock for the S&P
500 does not mean that S&P believes the stock to be an attractive investment.
Over time, the S&P 500 Index is expected to be rebalanced to reflect
additions to, or removals from, the S&P 500, including as a result of capital
changes (e.g., mergers, spin-offs, or a change in the business or character of a
component company).
If S&P discontinues publication of the Index and S&P or another entity
publishes a successor or substitute index that the Investment Adviser
determines, with the approval of the Board of Directors of the Fund, to be
comparable to the S&P 500 (any such index being a "Successor Index"), then, upon
such determination, the Successor Index will be substituted for the S&P. Upon
any selection of a Successor Index, notice thereof will be given to shareholders
of the Fund.
16
<PAGE> 18
LICENSE AGREEMENT
S&P and MLAM have entered into a non-exclusive license agreement providing
for the license to MLAM, in exchange for a fee, of the right to use the S&P 500
as a component of certain financial products including the Fund.
The license agreement between S&P and MLAM provides that the following
language must be stated in this prospectus.
The Fund is not sponsored, endorsed, sold or promoted by S&P. S&P makes no
representation or warranty, express or implied, to the owners of shares of the
Fund or any member of the public regarding the advisability of investing in
securities generally or in the Fund particularly or the ability of the Index to
track general stock market performance. S&P's only relationship to MLAM is the
licensing of certain trademarks and trade names of S&P and of the Index which is
determined, composed and calculated by S&P without regard to MLAM or the Fund.
S&P has no obligation to take the needs of MLAM or the shareholders of the Fund
into consideration in determining, composing or calculating the Index. S&P is
not responsible for and has not participated in the determination of the prices
and amount of the Fund shares or the timing of the issuance and sale of shares
of the Fund or in the determination or calculation by which the Fund shares may
be converted to cash. S&P has no obligation or liability in connection with the
administration, marketing or trading of the Fund.
S&P does not guarantee the accuracy and/or the completeness of the Index or
any data included therein and S&P shall have no liability for any errors,
omissions or interruptions therein. S&P makes no warranty, express or implied,
as to results to be obtained by the Fund, holders of the shares, or any other
person or entity from the use of the Index or any data included therein. S&P
makes no express or implied warranties, and hereby expressly disclaims all
warranties of merchantability or fitness for a particular purpose or use with
respect to the Index or any data included therein. Without limiting any of the
foregoing, in no event shall S&P have any liability for any special, punitive,
indirect or consequential damage (including lost profits), even if notified of
the possibility of such damages.
Information in this prospectus regarding the Index, including its make-up,
method of calculation and changes in its components, is derived from publicly
available information prepared by S&P. The Fund does not assume any
responsibility for the accuracy or completeness of such information.
OTHER INVESTMENT POLICIES
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, (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, and not more than 10% of the voting
securities of a single issuer will be held. A fund that elects to be classified
as "diversified" under the 1940
17
<PAGE> 19
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.
The Fund has adopted certain other policies as set forth below.
Money Market Instruments. The Fund will invest in short-term money market
instruments as cash reserves to maintain liquidity and for other cash management
purposes. The Fund will not invest in money market instruments in order to
lessen the Fund's exposure to common stocks as a defensive strategy, but will
instead attempt to remain as fully invested as practicable at all times.
The Fund may invest in short term U.S. Government securities, U.S.
Government agency securities and other money market instruments. The other money
market instruments in which the Fund may invest include certificates of deposit,
bankers' acceptances, time deposits, repurchase agreements, commercial paper
rated within the two highest grades by S&P or Moody's Investors Service, Inc.,
or, if not rated, of comparable quality as determined by the Investment Adviser,
and have remaining maturities of 397 days or less, and shares of investment
companies which invest exclusively in such money market instruments (subject to
applicable limitations under the 1940 Act).
A repurchase agreement involves the purchase of a security together with a
simultaneous agreement to resell the security to the seller at a later date at
approximately the purchase price less an amount that represents interest to the
buyer. Repurchase agreements are considered relatively safe, liquid investments
for short-term cash, but involve the risk that the seller will fail to
repurchase the security and that the Fund will have to attempt to sell the
security in the market for its current value, which may be less than the amount
the Fund paid for the security. In the event of a default, the Fund may also
incur delays or losses in connection with realizing its interest in the
collateral for the repurchase agreement. The Fund will only enter into
repurchase agreements with counterparties that the Investment Adviser deems to
be creditworthy.
Standard & Poor's Depositary Receipts or "SPDRs". The Fund may invest in
Standard & Poor's Depositary Receipts ("SPDRs"), which are securities issued by
SPDR Trust, Series 1, a registered unit investment trust. The SPDRs are
exchange-listed and generally trade like shares of common stock. The investment
objective of the SPDR Trust is to provide investment results that generally
correspond to the price and yield performance of the component stocks of the S&P
500. Because SPDRs are designed to track the S&P 500, the Fund may use SPDRs to
invest cash balances to provide investment results that would generally
correspond to the price and yield performance of the component stocks of the S&P
500 Index. There can be no assurance that the SPDR Trust will at all times be
able to replicate substantially the performance of the S&P 500 Index. Because
SPDRs are securities issued by another investment company, the Fund's use of
SPDRs will be limited by the Fund's investment restrictions and applicable law.
See "Investment Restrictions".
Options and Futures. The Fund may use futures and options. In general, the
Fund will invest a portion of its portfolio other than the Put Contracts in such
derivative instruments linked to the performance of the S&P 500. The Fund may
invest in options, futures and other derivative instruments to gain market
exposure quickly, to maintain liquidity and to help keep trading costs low. The
Fund may also engage in anticipatory hedging to offset the risk that securities
in which it intends to invest will increase in
18
<PAGE> 20
value before the Fund has an opportunity to purchase the securities. Futures and
options on futures may be employed to provide liquidity or, for example, be
employed as a proxy for a direct investment in securities underlying the S&P
500. More detailed information with respect to use of options and futures is
provided below.
Futures are exchange-traded contracts involving the obligation of the
seller to deliver, and the buyer to receive, certain assets (or a money payment
based on the change in value of certain assets or an index) at a specified time.
Futures involve leverage risk (the risk associated with certain types of
investments or trading strategies that relatively small market movements may
result in large changes in value of an investment).
Options are exchange-traded or OTC contracts involving the right of a
holder to deliver (a "put") or receive (a "call") certain assets (or a money
payment based on the change of certain assets or an index) from another party at
a specified price within a specified time period. Options also involve leverage
risk, and OTC options also involve credit risk (the risk that the other party
will not be able to complete its contractual obligations) and liquidity risk
(the risk that the Fund will not be able to find a buyer at an acceptable price
if it wants to sell). Index options are similar to options on securities except
that, rather than taking or making delivery of securities underlying the option
at a specified price upon exercise, an index option gives the holder the right
to receive cash upon exercise of the option if the level of the index upon which
the option is based is greater than (with respect to a call option) or less than
(with respect to a put option) the exercise price of the option.
Call Options on Portfolio Securities. The Fund may purchase call options
on any of the types of securities in which it may invest. A purchased call
option gives the Fund the right to buy, and obligates the seller to sell, the
underlying security at the exercise price at any time during the option period.
The Fund also is authorized to write (i.e., sell) covered call options on the
securities in which it may invest and to enter into closing purchase
transactions with respect to certain of such options. A covered call option is
an option where the Fund, in return for a premium, gives another party a right
to buy specified securities owned by the Fund at a specified future date and
price set at the time of the contract. The principal reason for writing call
options is to attempt to realize, through the receipt of premiums, a greater
return than would be realized on the securities alone. By writing covered call
options, the Fund gives up the opportunity, while the option is in effect, to
profit from any price increase in the underlying security above the option
exercise price. In addition, the Fund's ability to sell the underlying security
will be limited while the option is in effect unless the Fund effects a closing
purchase transaction. A closing purchase transaction cancels out the Fund's
position as the writer of an option by means of an offsetting purchase of an
identical option prior to the expiration of the option it has written. Covered
call options also serve as a partial hedge against the price of the underlying
security declining. The Fund may also purchase and sell call options on indices
such as the S&P 500.
Put Options on Portfolio Securities. In addition to the Put Contracts
intended to protect on the Maturity Date at least 100% of the value of the
Fund's initial assets, the Fund is authorized to purchase put options. By buying
a put option, the Fund has a right to sell the underlying security at the
exercise price, thus limiting the Fund's risk of loss through a decline in the
market value of the security until the put option expires. The amount of any
appreciation in the value of the underlying security will be partially offset by
the amount of the premium paid for the put option and any related transaction
costs. Prior to its expiration, a put option may be sold in a closing sale
transaction and profit or loss from the sale will
19
<PAGE> 21
depend on whether the amount received is more or less than the premium paid for
the put option plus the related transaction costs. A closing sale transaction
cancels out the Fund's position as the purchaser of an option by means of an
offsetting sale of an identical option prior to the expiration of the option it
has purchased. The Fund also has authority to write (i.e., sell) put options on
the types of securities which may be held by the Fund, provided that such put
options are covered, meaning that such options are secured by segregated, liquid
instruments. The Fund will receive a premium for writing a put option, which
increases the Fund's return. The Fund will not sell puts if, as a result, more
than 50% of the Fund's assets would be required to cover its potential
obligations under its hedging and other investment transactions.
Furthermore, the Fund may also purchase and sell additional put options on
indices. Rather than taking or making delivery of securities underlying the
option at a specified price upon exercise, an index option gives the holder the
right to receive cash upon exercise of the option if the level of the index upon
which the option is based is less than the exercise price of the option.
OTC Options. OTC options and assets used to cover OTC options written by
the Fund are considered by the staff of the SEC to be illiquid. The illiquidity
of such options or assets may prevent a successful sale of such options or
assets, result in a delay of sale, or reduce the amount of proceeds that might
otherwise be realized.
Financial Futures and Options Thereon. The Fund is authorized to engage in
transactions in financial futures contracts ("futures contracts") and related
options on such futures contracts either as a hedge against adverse changes in
the market value of its portfolio securities and interest rates or to enhance
the Fund's income. A futures contract is an agreement between two parties which
obligates the purchaser of the futures contract to buy and the seller of a
futures contract to sell a security for a set price on a future date or, in the
case of an index futures contract to make and accept a cash settlement based
upon the difference in value of the index between the time the contract was
entered into and the time of its settlement. A majority of transactions in
futures contracts, however, do not result in the actual delivery of the
underlying instrument or cash settlement, but are settled through liquidation,
i.e., by entering into an offsetting transaction. Futures contracts are
standardized, exchange-traded agreements that have been designed by boards of
trade which have been designated "contract markets" by the Commodities Futures
Trading Commission ("CFTC"). Transactions by the Fund in futures contracts and
financial futures are subject to limitations as described below under
"Restrictions on the Use of Futures Transactions".
The Fund also has authority to purchase and write call and put options on
futures contracts. Generally, these strategies are utilized under the same
market and market sector conditions (i.e., conditions relating to specific types
of investments) in which the Fund enters into futures transactions. The Fund may
purchase put options or write call options on futures contracts rather than
selling the underlying futures contract. Similarly, the Fund may purchase call
options, or write call options on futures contracts, as a substitute for the
purchase of such futures to hedge against the increased cost resulting from an
increase in the market value of securities which the Fund intends to purchase.
Restrictions on the Use of Futures Transactions. Under regulations of the
CFTC, the futures trading activity described herein will not result in the Fund
being deemed a "commodity pool," as defined under such regulations, provided
that the Fund adheres to certain restrictions. In particular, the Fund may
purchase and sell futures contracts and options thereon (i) for bona fide
hedging purposes, and (ii) for non-hedging purposes, if the aggregate initial
margin and premiums required to establish positions in such
20
<PAGE> 22
contracts and options does not exceed 5% of the liquidation value of the Fund's
portfolio, after taking into account unrealized profits and unrealized losses on
any such contracts and options. Margin deposits may consist of cash or
securities acceptable to the broker and the relevant contract market.
When the Fund purchases a futures contract or writes a put option or
purchases a call option thereon, an amount of cash or liquid instruments will be
deposited in a segregated account with the Fund's custodian so that the amount
so segregated, plus the amount of variation margin held in the account of its
broker, equals the market value of the futures contract, thereby ensuring that
the use of such futures is unleveraged.
Securities Lending. The Fund may lend portfolio securities having a value
of up to 33 1/3% of total assets. The Fund may lend portfolio securities to
financial institutions in return for collateral in the form of U.S. Government
securities or cash. The Fund will either receive a fee from the borrower or pay
the borrower interest in return for the right to seek to invest cash collateral
at a higher rate. If a borrower fails to return the Fund's security, the Fund
will have to attempt to liquidate the borrower's collateral, which may be worth
less than the Fund's security.
Leverage. The Fund may borrow to finance repurchases of its common stock
and for other purposes, including payment of required distributions to holders
of shares. If the Fund borrows to finance repurchases of its common stock, it
will not be necessary for the Fund to dispose of Fund securities to finance such
repurchases. The Fund may also borrow money as a temporary measure for
extraordinary or emergency purposes. The Fund may borrow in an amount up to
approximately 33 1/3% of its total assets (including the amount borrowed). The
Fund has no current intention of borrowing.
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.
Capital raised through leverage will be subject to interest costs which may
or may not exceed the income and appreciation 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. Borrowing creates an opportunity for greater return per share of
common stock, but at the same time such borrowing 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 that have floating rates of interest.
Unless the income and appreciation, if any, on assets acquired with borrowed
funds exceeds the cost of borrowing, the use of leverage will diminish the
investment performance of the Fund compared with what it would have been without
leverage.
Certain types of borrowings may result in the Fund being subject to
covenants in credit agreements relating to asset coverage and portfolio
composition requirements. It is not anticipated that these covenants will impede
the Investment Adviser from managing the Fund's portfolio in accordance with the
Fund's investment objectives and policies.
Under the 1940 Act, the Fund is not permitted to borrow unless immediately
after such incurrence the Fund has an asset coverage of 300% of the aggregate
outstanding principal balance of indebtedness (i.e., such indebtedness may not
exceed 33 1/3% of the Fund's total assets). Additionally, under the 1940
21
<PAGE> 23
Act the Fund may not declare any dividend or other distribution upon any class
of 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.
The Fund's willingness to borrow money to finance repurchases of its common
stock, 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.
INVESTMENT RESTRICTIONS
The following are fundamental investment restrictions of the Fund and 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). The Fund may not:
1. Make investments for the purpose of exercising control or
management.
2. Purchase or sell real estate, commodities or commodity contracts,
provided that the Fund may invest in securities secured by real estate or
interests therein or issued by companies that invest in real estate or
interests therein, and the Fund may purchase and sell financial futures
contracts and options thereon.
3. Issue senior securities or borrow money, except as permitted by
Section 18 of the 1940 Act.
4. Underwrite securities of other issuers except insofar as the Fund
may be deemed an underwriter under the Securities Act of 1933, as amended,
in selling portfolio securities.
5. Make loans to other persons, except that the acquisition of
corporate debt securities and investment in U.S. Government and agency
obligations, commercial paper, pass-through instruments, certificates of
deposit, bankers acceptances, repurchase agreements or any similar
instruments shall not be deemed to be the making of a loan, and except
further that the Fund may lend portfolio securities provided that the
lending of portfolio securities may be made only in accordance with
applicable law and the guidelines set forth in this prospectus.
6. Invest more than 25% of its total assets, taken at market value at
the time of each investment, in the securities of issuers in any 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; provided further, that to the extent that the Fund
invests in the Put Contracts and the S&P 500, the Fund may invest more than
25% of its assets in securities of issuers in the industry group consisting
of financial institutions and their holding companies, including
broker-dealers, commercial banks, thrift institutions, insurance companies
and finance companies; and provided
22
<PAGE> 24
further, that in replicating the weighting of a particular industry in the
S&P 500, the Fund may invest more that 25% in its total assets in
securities of issuers in that industry.
Additional investment restrictions adopted by the Fund, which may be
changed by the Board of Directors, provide that the Fund may not:
a. Purchase securities of other investment companies, except to the
extent that such purchases are permitted by applicable law. Applicable law
currently prohibits the Fund from purchasing the securities of other
investment companies except if immediately thereafter not more than (i) 3%
of the total outstanding voting stock of such company is owned by the Fund,
(ii) 5% of the Fund's total assets, taken at market value, would be
invested in any one such company, (iii) 10% of the Fund's total assets,
taken at market value, would be invested in such securities, and (iv) the
Fund, together with other investment companies having the same Investment
Adviser and companies controlled by such companies, owns not more than 10%
of the total outstanding stock of any one closed-end investment company.
b. Mortgage, pledge, hypothecate or in any manner transfer, as
security for indebtedness, any securities owned or held by the Fund except
as may be necessary in connection with borrowings mentioned in investment
restriction (3) above or except as may be necessary in connection with the
Put Contracts and other options or future transactions as described in this
prospectus.
c. 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.
d. Make short sales of securities except for short sales "against the
box" or invest in put, call or other options except as described in this
prospectus.
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. However, if borrowings exceed the limit permitted by
Section 18 of the 1940 Act, the Fund will have three business days to comply
with Section 18 of the 1940 Act.
Because of the affiliation of 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".
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
each Director, executive officer and portfolio manager 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 Fund Asset Management, L.P. ("FAM")
(which terms as used herein include their corporate predecessors) since 1983;
Executive Vice President and Director of Princeton Services, Inc.
23
<PAGE> 25
("Princeton Services") since 1993; President of Princeton Funds Distributor,
Inc. ("PFD") since 1986 and Director thereof since 1991; President of Princeton
Administrators, L.P. since 1988.
JACK B. SUNDERLAND (71) -- Director(2) -- P.O. Box 7, West Cornwall,
Connecticut 06796. President and Director of American Independent Oil Company,
Inc. (energy company) since 1987; Member of Council of Foreign Relations since
1971.
STEPHEN B. SWENSRUD (66) -- Director(2) -- 24 Federal Street, Suite 400,
Boston, Massachusetts 02110. Chairman, Fernwood Advisors (investment adviser)
since 1996; Principal, Fernwood Associates (financial consultant) since 1975.
J. THOMAS TOUCHTON (60) -- Director(2) -- Suite 3405, One Tampa City
Center, Tampa, Florida, 33602. Managing Partner of The Witt-Touchton Company and
its predecessor The Witt Co. (private investment partnership) since 1972;
Trustee Emeritus of Washington and Lee University; Director of TECO Energy Inc.
(electric utility holding company).
ERIC S. MITOFSKY (45) -- Senior Vice President and Portfolio
Manager(1)(2) -- First Vice President of the Investment Adviser since 1997; Vice
President of the Investment Adviser from 1992 to 1997.
DONALD C. BURKE (39) -- Vice President and Treasurer(1)(2) -- Senior Vice
President and Treasurer of the Investment Adviser and FAM since 1999; Senior
Vice President and Treasurer of Princeton Services since 1999; Vice President of
PFD since 1999; First Vice President of the Investment Adviser from 1997 to
1999; Vice President of the Investment Adviser from 1990 to 1997; Director of
Taxation of the Investment Adviser since 1990.
IRA P. SHAPIRO (36) -- Secretary(1)(2) -- First Vice President of the
Investment Adviser since 1998; Director (Legal Advisory) of the Investment
Adviser from 1997 to 1998; Vice President of the Investment Adviser from 1996 to
1997; Attorney with the Investment Adviser and FAM from 1993 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 Fund Asset Management, L.P. acts as Investment Adviser
or manager.
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 Merrill Lynch & Co., Inc. ("ML & Co.") or
its subsidiaries as well as such Directors' actual out-of-pocket expenses
relating to attendance at meetings. The Fund pays each Director not affiliated
with the Investment Adviser (each a "non-affiliated Director") a fee of $2,500
per year plus $250 per meeting attended and pays the non-affiliated Directors'
actual out-of-pocket expenses relating to attendance at meetings. The Fund also
pays members of the Board's Audit and Nominating Committee, which consists of
all of the non-affiliated Directors, an annual fee of $1,000.
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<PAGE> 26
The following table shows the estimated compensation to be paid by the Fund
to the non-affiliated Directors projected through the end of the Fund's first
full fiscal year and for the calendar year ended December 31, 1998 the aggregate
compensation paid to non-affiliated Directors from all registered investment
companies advised by the Investment Adviser and its affiliate Fund Asset
Management, L.P. ("FAM/MLAM - advised funds").
<TABLE>
<CAPTION>
PENSION OR AGGREGATE FROM FUND
RETIREMENT BENEFITS AND FAM/MLAM
COMPENSATION ACCRUED AS PART OF ADVISED FUNDS PAID
NAME OF DIRECTOR FROM FUND FUND EXPENSE TO DIRECTORS
- ---------------- ------------ ------------------- -------------------
<S> <C> <C> <C>
Jack B. Sunderland(1)....................... $4,500 None $133,600
Stephen B. Swensrud(1)...................... $4,500 None $195,583
J. Thomas Touchton(1)....................... $4,500 None $133,600
</TABLE>
- ------------
(1) The Directors serve on the boards of other FAM/MLAM - advised funds as
follows: Mr. Sunderland (19 registered investment companies consisting of 31
portfolios); Mr. Swensrud (25 registered investment companies consisting of
58 portfolios); Mr. Touchton (19 registered investment companies consisting
of 31 portfolios).
INVESTMENT ADVISORY AND MANAGEMENT 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 management services. The Asset Management
Group of ML & Co. (which includes the Investment Adviser) acts as the investment
adviser to more than 100 registered investment companies. The Investment Adviser
also offers investment advisory services to individuals and institutions. As of
September 1999, the Asset Management Group had a total of approximately $514
billion in investment company and other portfolio assets under management
(including approximately $280 billion managed by the Investment Adviser). The
total 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. The principal business address of the
Investment Adviser is 800 Scudders Mill Road, Plainsboro, New Jersey 08536.
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 will also be responsible for the performance of certain
administrative and management services for the Fund. Mr. Eric Mitofsky is the
portfolio manager of the Fund and is primarily responsible for the Fund's
day-to-day management.
The Fund will pay the Investment Adviser an investment advisory fee
quarterly in arrears at an annual rate of 1.00% of the Fund's average weekly net
assets ("average weekly net assets" means the average weekly value of the total
assets of the Fund minus accrued liabilities of the Fund). For purposes
25
<PAGE> 27
of this calculation, the amount of average weekly net assets is determined at
the end of the calendar quarter on the basis of the average net assets of the
Fund for each week during the calendar quarter. The assets for each weekly
period are determined by averaging the net assets at the last business day of a
week with the net assets at the last business day of the prior week.
In lieu of liquidating any S&P 500 stocks held in the Fund's portfolio to
pay the investment advisory fee, the Investment Adviser will be paid its accrued
investment advisory fee from income from the stock dividends on the Fund's
portfolio and other available cash or cash equivalents (together, "Available
Assets") remaining after payment of any extraordinary or other expenses of the
Fund not covered by the investment advisory fee. It is possible, particularly
during the initial years of the Fund's operations, that the Fund's portfolio
will not yield sufficient cash to pay the entire investment advisory fee out of
then current Available Assets. To the extent that Available Assets are not
sufficient to pay all of the investment advisory fee at the conclusion of a
quarterly period, the Investment Adviser will defer collecting the portion of
the investment advisory fee not covered by such Available Assets (the "Deferred
Advisory Fee") until the conclusion of the next quarterly period. To the extent
that there are additional Available Assets after paying the then current
investment advisory fee, such additional amount will be applied to the payment
of the Deferred Advisory Fee, and any unpaid Deferred Advisory Fee balance will
be carried forward from quarter to quarter until paid. To the extent that
Available Assets are not sufficient to pay the then current Advisory Fee, such
unpaid Advisory Fee will be added to the Deferred Advisory Fee balance, if any.
On the Maturity Date, any Deferred Advisory Fee will only be payable to the
extent that the Fund will be able to return at least $10.00 per share to
investors. If payment of any portion of the Deferred Advisory Fee would
otherwise result in a return to investors on the Maturity Date of less than
$10.00 per share (as adjusted for any early return of capital), that portion of
the Deferred Advisory Fee will be waived. The Fund will not pay the Investment
Adviser any interest on the Deferred Advisory Fee.
The Investment Advisory Agreement obligates the Investment Adviser to
provide investment advisory services and to pay all compensation of and furnish
office space for officers and employees of the Fund connected with investment
and economic research, trading and investment management of 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. The Investment Adviser will bear
all of the Fund's ordinary operating expenses, including administration,
custodial, transfer agency, legal, auditing and accounting fees. The Fund will
pay the fees and expenses of non-affiliated Directors and their counsel,
brokerage and transactions costs, and the cost of any extraordinary expenses
that may arise, including expenses as may be required to liquidate portfolio
investments and terminate the Fund pursuant to its Articles of Incorporation.
Unless earlier terminated as described below, the Investment Advisory
Agreement 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 contract is not assignable and may be terminated without
penalty on 60 days' written notice at the option of either party thereto or by
the vote of the shareholders of the Fund.
Securities held by the Fund 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
26
<PAGE> 28
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 affiliates) 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.
The Investment Adviser has also entered into a sub-advisory agreement with
Merrill Lynch Asset Management U.K. Limited ("MLAM U.K."), 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 the
Investment Adviser actually receives pursuant to the Investment Advisory
Agreement. As of September 1999, MLAM U.K. had a total of approximately $63
billion in investment company assets under management pursuant to sub-advisory
arrangements with affiliates. MLAM U.K. has offices at Milton Gate, 1 Moor Lane,
London EC2Y 9HA, England. 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.
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 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, the Investment
Adviser is primarily responsible for the execution of the Fund's portfolio
transactions and the allocation of brokerage. The Fund has no obligation to deal
with any dealer or group of dealers in the execution of transactions in
portfolio securities of the Fund. Where possible, the Fund deals directly with
the dealers who make a market in the securities involved except in those
circumstances where better prices and execution are available elsewhere. It is
the policy of the Fund to obtain the best results in conducting portfolio
transactions for the Fund,
27
<PAGE> 29
taking into account such factors as price (including the applicable dealer
spread or commission), the size, type and difficulty of the transaction
involved, the firm's general execution and operations facilities and the firm's
risk in positioning the securities involved. The cost of portfolio securities
transactions of the Fund primarily consists of dealer or underwriter spreads and
brokerage commissions. While reasonable competitive spreads or commissions are
sought, the Fund will not necessarily be paying the lowest spread or commission
available.
Subject to obtaining the best net results, dealers who provide supplemental
investment research (such as quantitative and modeling information assessments
and statistical data and provide other similar services) to the Investment
Adviser may receive orders for transactions by the Fund. Information so received
will be in addition to and not in lieu of the services required to be performed
by the Investment Adviser under the Investment Advisory Agreement and the
expense of the Investment Adviser will not necessarily be reduced as a result of
the receipt of such supplemental information. Supplemental investment research
obtained from such dealers might be used by the Investment Adviser in servicing
all of its accounts and such research might not be used by the Investment
Adviser in connection with the Fund.
Under the 1940 Act, persons affiliated with the Fund and persons who are
affiliated with such persons are prohibited from dealing with the Fund as
principal in the purchase and sale of securities unless a permissive order
allowing such transactions is obtained from the Securities and Exchange
Commission (the "Commission"). Since transactions in the over-the-counter market
usually involve transactions with dealers acting as principal for their own
accounts, affiliated persons of the Fund, including Merrill Lynch and any of its
affiliates, will not serve as the Fund's dealer in such transactions. However,
affiliated persons of the Fund may serve as its broker in listed or
over-the-counter transactions conducted on an agency basis provided that, among
other things, the fee or commission received by such affiliated broker is
reasonable and fair compared to the fee or commission received by non-affiliated
brokers in connection with comparable transactions. In addition, the Fund may
not purchase securities during the existence of any underwriting syndicate for
such securities of which Merrill Lynch is a member or in a private placement in
which Merrill Lynch serves as placement agent except pursuant to procedures
adopted by the Board of Directors of the Fund that either comply with rules
adopted by the Commission or with interpretations of the Commission staff.
Certain court decisions have raised questions as to the extent to which
investment companies should seek exemptions under the 1940 Act in order to seek
to recapture underwriting and dealer spreads from affiliated entities. The
Directors have considered all factors deemed relevant and have made a
determination not to seek such recapture at this time. The Directors will
reconsider this matter from time to time.
Section 11(a) of the Securities Exchange Act of 1934 generally prohibits
members of the U.S. national securities exchanges from executing exchange
transactions for their affiliates and institutional accounts that they manage
unless the member (i) has obtained prior express authorization from the account
to effect such transactions, (ii) at least annually furnishes the account with a
statement setting forth the aggregate compensation received by the member in
effecting such transactions, and (iii) complies with any rules the Commission
has prescribed with respect to the requirements of clauses (i) and (ii). To the
extent Section 11(a) would apply to Merrill Lynch acting as a broker for the
Fund in any of its portfolio transactions executed on any such securities
exchange of which it is a member, appropriate
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consents have been obtained from the Fund and annual statements as to aggregate
compensation will be provided to the Fund.
Securities may be held by, or be appropriate investments for, the Fund as
well as other funds or investment advisory clients of the Investment Adviser or
its affiliates. Because of different objectives or other factors, a particular
security may be bought for one or more clients of the Investment Adviser or an
affiliate when one or more clients of the Investment Adviser or an affiliate are
selling the same security. If purchases or sales of securities arise for
consideration at or about the same time that would involve the Fund or other
clients or funds for which the Investment Adviser or an affiliate act as
investment adviser, transactions in such securities will be made, insofar as
feasible, for the respective funds and clients in a manner deemed equitable to
all. To the extent that transactions on behalf of more than one client of the
Investment Adviser or an affiliate during the same period may increase the
demand for securities being purchased or the supply of securities being sold,
there may be an adverse effect on price.
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
10%. This portfolio turnover rate may be significantly higher if the Fund
restructures its Put Contracts. (The portfolio turnover rate is calculated by
dividing the lesser of purchases or sales of portfolio securities for the
particular fiscal year 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 of its net investment income, if any.
Dividends from such net investment income will be paid at least annually. All
net realized capital gains, if any, will also be distributed to Fund
shareholders at least annually.
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. This could affect
the Fund's ability to qualify for the special tax treatment afforded regulated
investment companies ("RICs") under the Internal Revenue Code of 1986, as
amended (the "Code"). See "Taxes". From time to time, the Fund may declare a
special distribution at or about the end of the calendar year in order to comply
with Federal tax requirements that certain percentages of its ordinary income
and capital gains be distributed during the year.
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TAXES
GENERAL
The Fund intends to elect and to qualify for the special tax treatment
afforded RICs under the Code. As long as it so qualifies, in any taxable year in
which it distributes at least 90% of its net income ("distribution
requirement"), as described 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.
Although the Fund does not expect to make significant current distributions
to shareholders, any dividends paid by the Fund from its ordinary income or from
an excess of net short-term capital gains over net long-term capital losses
(together referred to hereafter as "ordinary income dividends") are taxable to
shareholders as ordinary income. Any distributions from the excess of net
long-term capital gains over net short-term capital losses derived from the sale
of securities or from certain other transactions are taxable as long-term
capital gains, regardless of the length of time the shareholder has owned Fund
shares. 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).
The Code requires a RIC to pay a nondeductible 4% excise tax to the extent
the RIC does not distribute during each calendar year 98% of its ordinary
income, determined on a calendar year basis, and 98% of its capital gains,
determined, in general, on an October 31 year end, plus certain undistributed
amounts from previous years. While the Fund intends to distribute any 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.
Because the Put Contracts offset the Fund's risk of loss on the stock
portfolio, the stock portfolio and the Put Contracts will constitute a
"straddle" for Federal income tax purposes. Individual stocks in the portfolio
and certain other options entered into by the Fund may likewise constitute
straddles. Special tax rules applicable to straddles will require the Fund to
postpone recognition for tax purposes of losses incurred on any sales of
portfolio stocks and on certain closing transactions in connection with the Put
Contracts and/or other options. As a result, the Fund will not be able to reduce
its income by such losses. This increases the possibility that the Fund will
have income which it must distribute to shareholders in order to satisfy the
distribution requirement. The Fund may have to borrow in order to meet any such
distribution requirement. Furthermore, because the stock portfolio and the Put
Contracts will constitute a straddle, the straddle rules will require the Fund
to treat any gains recognized as a result of sales of portfolio stocks will be
characterized as short-term even if the Fund held such stock for the long-term
capital gain holding period.
Distributions by the Fund 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
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such dividend is treated for tax purposes as being paid and received on December
31 of the year in which the dividend was declared.
To qualify as a RIC, the Fund is required to distribute 90% of its taxable
income each year. If the IRS adjusts the Fund's taxable income on audit, the
Fund may be able to pay a deficiency dividend in order to meet the 90%
requirement for the year to which the adjustment relates and continue to qualify
as a RIC. The Fund may have to borrow to pay such a deficiency dividend.
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.
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.
A loss realized on a sale of shares of the Fund will be disallowed if other
Fund shares are acquired (whether through the automatic reinvestment of
dividends or otherwise) within a 61-day period beginning 30 days before and
ending 30 days after the date that the shares are disposed of. In such a case,
the basis of the shares acquired will be adjusted to reflect the disallowed
loss.
The liquidating distribution a shareholder receives from the Fund at
maturity will be treated as made in exchange for Fund shares, and any capital
gain or loss will be long-term, provided the shares have been held for more than
one year as a capital asset. If a liquidating distribution exceeds a
shareholder's basis in Fund shares, the excess will be treated as gain from the
sale of the shares. If a shareholder receives a liquidating distribution which
is less than such basis, the shareholder will recognize a loss to that extent.
Any gain or loss recognized by the shareholder will be capital if the shares
have been held as a capital asset and will be long-term if the shares have been
held for more than one year.
As previously discussed, at Maturity the Investment Advisor may waive all
or a portion of the Deferred Advisory Fee (if any), if payment of the fee would
result in a return to shareholders of less than $10.00 per share (as adjusted
for any early return of capital). Any such waiver would result in income to the
Fund that is subject to the distribution requirement. The Fund would satisfy any
such distribution requirement by virtue of its liquidating distribution to
shareholders.
Under current law, a holder of common stock whose shares are repurchased by
the Fund and who sells all of its shares and who, after such repurchase, 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 and will be long-term if the shares have been held
for more than one year. Different tax consequences may apply to selling and
non-selling holders of common stock in connection with repurchase. For example,
if a holder of common stock sells less than all shares owned by or attributed to
such shareholder, and if the
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<PAGE> 33
distribution to such shareholder does not otherwise qualify as a sale or
exchange, the proceeds received will be treated as a taxable dividend, or, if
the Fund has insufficient earnings and profits, a return of capital or capital
gains, depending on the shareholder's basis in the repurchased shares. Also,
there is a remote risk that non-selling holders of common stock may be
considered to have received a deemed distribution that may be a taxable dividend
in whole or in part. Holders of common stock may wish to consult their tax
advisers prior to selling stock which will be repurchased by the Fund.
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.
The Fund does not currently expect to issue preferred stock, but does have
the authority to do so. If preferred stock is issued, the Fund will be required
to comply with tax rules regarding the allocation of ordinary income and capital
gains between the preferred stock and the common stock.
Shareholders are urged to consult their tax advisers regarding specific
questions as to Federal, foreign, state or local taxes. Foreign investors should
consider applicable foreign taxes in their evaluation of an investment in the
Fund.
NET ASSET VALUE
The net asset value per share of common stock is determined after the close
of business on the New York Stock Exchange (the "NYSE")(generally, the NYSE
closes 4:00 p.m., Eastern time), on the last business day in each week. 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 accrued but not yet received) minus all liabilities
(including accrued expenses) 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.
The Fund will determine and make available for publication the net asset
value of its shares of common stock weekly. Currently, the net asset values of
shares of publicly traded closed-end investment companies are published in
Barrons, the Monday edition of The Wall Street Journal and the Monday and
Saturday editions of The New York Times.
Certain 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. 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
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accrued interest. Positions in options are generally valued at the last sale
price on the market where any such option is principally traded. 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.
Instruments such as the Put Contracts 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.
REPURCHASE OF SHARES
Because the Fund is newly organized, its shares have no history of public
trading, and shares of closed-end investment companies frequently trade at a
discount from their net asset value. The risk of loss typically may be greater
for initial investors expecting to sell their shares in a relatively short
period after completion of the public offering.
Shares of the Fund are being sold to the public without a sales load or
underwriting commission. In addition, the Board of Directors of the Fund may
consider open market share repurchases from time to time to seek to reduce the
market price discount, if any, from net asset value.
Subject to the Fund's fundamental policy with respect to borrowings, the
Fund may incur debt to finance share repurchases. See "Investment Objective and
Policies" and "Investment Restrictions". Interest on any such borrowings will
increase the Fund's expenses and reduce the Fund's net income. See the
discussion of leverage under "Risk Factors and Special Considerations". There
can be no assurance that share repurchases will cause the shares to trade at a
price equal to their net asset value. Nevertheless, the possibility that a
portion of the Fund's outstanding shares may be the subject of repurchases may
reduce the discount between market price and net asset value that might
otherwise exist.
If the Fund must liquidate portfolio securities to repurchase shares, the
Fund may be required to sell portfolio securities for other than investment
purposes and may realize gains and losses.
DESCRIPTION OF CAPITAL STOCK
The Fund is authorized to issue 200,000,000 shares of capital stock, par
value $.10 per share, all of which are classified as common stock. Although it
has no current intention to do so, the Board of Directors is authorized to
classify or reclassify any unissued shares of capital stock by setting or
changing the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications, or terms or
conditions of redemption. The Fund's Articles of Incorporation permit the Board
of Directors to increase the number of authorized shares of capital stock
without the vote of shareholders. The shares of common stock, when issued and
outstanding, will be fully paid and nonassessable. Shareholders are entitled to
one vote for each share held for the election of Directors and other matters
submitted to shareholders. There are no preemptive rights. The rights of the
shares with respect to dividends and distributions are described under
"Dividends and Distributions". Each share is entitled to participate equally in
the net distributable assets of the Fund upon liquidation or termination.
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The Fund's Articles of Incorporation provide that the Fund will terminate
on November 30, 2007, without shareholder approval. In connection with such
termination, the Fund will liquidate all of its assets and distribute to
shareholders the net proceeds after making appropriate provision for any
liabilities of the Fund. Prior to such termination, however, the Board of
Directors of the Fund will consider whether it is in the best interests of
shareholders to terminate and liquidate the Fund without shareholder approval
notwithstanding the Articles of Incorporation provision. In considering the
matter, the Board of Directors will take into account, among other factors, the
adverse effect which capital losses realized upon disposition of securities in
connection with liquidation (if any such losses are anticipated) would have on
the Fund and its shareholders. In the event that the Board of Directors
determines that under the circumstances, termination and liquidation of the Fund
on November 30, 2007 without a shareholder vote would not be in the best
interests of shareholders, the Board of Directors will call a special meeting of
shareholders to consider an appropriate amendment to the Fund's Articles of
Incorporation. The Fund's Articles of Incorporation would require the
affirmative vote of the holders of at least 66 2/3% of outstanding shares to
approve such an amendment. The foregoing provisions of the Fund's Articles of
Incorporation are governed by the laws of the State of Maryland and not the 1940
Act. If the Fund's Board of Directors calls a special meeting of shareholders to
consider voting upon an amendment to the Fund's Articles of Incorporation to
extend the life of the Fund beyond November 30, 2007, such shareholders will
also be provided the opportunity to vote upon the Fund's fundamental policy as
set forth in the first paragraph under "Investment Objective and Policies."
The Fund has no present intention of offering any additional shares. Other
offerings of its shares, if made, will require approval by the Fund's Board of
Directors. Any additional offering of shares of common stock will be subject to
the requirements of the 1940 Act that shares may not be issued at a price below
the then current net asset value (exclusive of underwriting discounts and
commissions) except in connection with an offering to existing shareholders or
with the consent of a majority of the Fund's outstanding voting securities.
The Fund will send unaudited reports at least semi-annually and audited
annual financial statements to all of its shareholders of record.
The Investment Adviser provided the initial capital for the Fund by
purchasing 10,000 shares of common stock at $10.000 per share 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 AND BY-LAWS
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 holders of capital
stock may be removed from office with or without cause by vote of the holders of
at least 66 2/3% of the shares of capital stock, of the Fund entitled to be
voted on the matter.
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<PAGE> 36
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:
- a merger or consolidation or statutory share exchange of the Fund with
other corporations;
- 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
- a liquidation or dissolution of the Fund except pursuant to the Articles
of Incorporation on November 30, 2007
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 by the
Fund, 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.
In addition, conversion of the Fund to an open-end investment company would
require an amendment to the Fund's Article of Incorporation. The amendment would
have to be declared advisable by the Board of Directors prior to its submission
to shareholders. Such an amendment would require the favorable vote of the
holders of at least 66 2/3% of the Fund's outstanding shares (including any
preferred stock) entitled to be voted on the matter, voting as a single class
(or a majority of such shares if the amendment was previously approved, adopted
or authorized by two-thirds of the total number of Directors fixed in accordance
with the by-laws), and, assuming preferred stock is issued, the affirmative vote
of a majority of outstanding shares of preferred stock of the Fund, voting as a
separate class. Such a vote also would satisfy a separate requirement in the
1940 Act that the change be approved by the shareholders. Shareholders of an
open-end investment company may require the company to redeem their shares of
common stock at any time (except in certain circumstances as authorized by or
under the 1940 Act) at their net asset value, less such redemption charge, if
any, as might be in effect at the time of a redemption. All redemptions would
usually be made in cash. If the Fund is converted to an open-end investment
company, it could be required to liquidate portfolio securities to meet requests
for redemption, and the shares would no longer be listed on a stock exchange.
Conversion to an open-end investment company would require a change in the
Fund's fundamental policy as set forth in the first paragraph under "Investment
Objective and Policies" and also would require changes in certain of the Fund's
other investment policies and restrictions.
The Articles of Incorporation and By-Laws provide that the Board of
Directors has the power, to the exclusion of shareholders, to make, alter or
repeal any of the By-Laws (except for any By-Law specified not to be amended or
repealed by the Board), subject to the requirements of the 1940 Act. Neither
this provision of the Articles of Incorporation, nor any of the foregoing
provisions of the Articles requiring the affirmative vote of 66 2/3% of shares
of capital stock of the Fund, can be amended or repealed except by the vote of
such required number of shares.
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 and By-Laws on file
with the Commission for the full text of these provisions.
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<PAGE> 37
The Fund's By-Laws generally require that advance notice be given to the
Fund in the event a shareholder desires to nominate a person for election to the
Board of Directors or to transact any other business at an annual meeting of
shareholders. With respect to an annual meeting following the first annual
meeting of shareholders, notice of any such nomination or business must be
delivered to or received at the principal executive offices of the Fund not less
than 60 calendar days nor more than 90 calendar days prior to the anniversary
date of the prior year's annual meeting (subject to certain exceptions). In the
case of the first annual meeting of shareholders, the notice must be given no
later than the tenth calendar day following public disclosure as specified in
the By-Laws of the date of the meeting. Any notice by a shareholder must be
accompanied by certain information as provided in the By-Laws.
The notice provisions are intended to afford shareholders a fair
opportunity to present matters for consideration at shareholder meetings while
assuring that shareholders and Directors will have a reasonable opportunity to
consider the matters proposed and to allow for full information to be
distributed to all shareholders about all sides of the particular issue. These
provisions could have the effect of limiting or delaying to some extent the
ability of shareholders to take certain actions at a meeting of shareholders.
CUSTODIAN
The Fund's securities and cash are held under a custodial agreement with
The Chase Manhattan Bank, 4 Chase MetroTech Center, 18th Floor, Brooklyn, New
York 11245.
UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch" or the
"Underwriter") has agreed, subject to the terms and conditions of a Purchase
Agreement with the Fund and the Investment Adviser, to purchase 31,500,000
shares of common stock from the Fund. The Underwriter is committed to purchase
all of such shares if any are purchased.
The Underwriter has advised the Fund that it proposes initially to offer
the shares of common stock to the public at the public offering price set forth
on the cover page of this prospectus. There is no sales charge or underwriting
discount charged to investors on purchases of shares of common stock in the
offering. The Investment Adviser or an affiliate has agreed to pay the
Underwriter from its own assets a commission in connection with the sale of
shares of common stock in the offering in the amount of $.30 per share. Such
payment is equal to 3.00% of the initial public offering price per share. The
Underwriter also has advised the Fund that from this amount the Underwriter may
pay a concession to certain dealers not in excess of $.30 per share on sales by
such dealers. After the initial public offering, the public offering price and
other selling terms may be changed. Investors must pay for shares of common
stock purchased in the offering on or before November , 1999.
The Underwriter may engage in certain transactions that stabilize the price
of the shares of common stock. Such transactions consist of bids or purchases
for the purpose of pegging, fixing or maintaining the price of the shares of
common stock.
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<PAGE> 38
If the Underwriter creates a short position in the shares of common stock
in connection with the offering, i.e., if it sells more shares of common stock
than are set forth on the cover page of this prospectus, the Underwriter may
reduce its short position by purchasing shares of common stock in the open
market.
The Underwriter may also impose a penalty bid on certain selling group
members. This means that if the Underwriter purchases shares of common stock in
the open market to reduce the Underwriter's short position or to stabilize the
price of the shares of common stock, it may reclaim the amount of the selling
concession from the selling group members who sold those shares of common stock
as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
Neither the Fund nor the Underwriter makes any representation or prediction
as to the direction or magnitude of any effect that the transactions described
above may have on the price of the shares of common stock. In addition, neither
the Fund nor the Underwriter makes any representation that the Underwriter will
engage in such transactions or that such transactions, once commenced, will not
be discontinued without notice.
Prior to this offering, there has been no public market for the shares of
the common stock. The Fund's shares of common stock have been approved for
listing on the NYSE. In order to meet the requirements for listing, the
Underwriter has undertaken to sell lots of 100 or more shares to a minimum of
2,000 beneficial owners.
The Fund anticipates that the Underwriter may from time to time act as
broker in connection with the execution of its portfolio transactions.
The Underwriter is an affiliate of the Investment Adviser of the Fund.
The Fund and the Investment Adviser have agreed to indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REGISTRAR
The transfer agent, dividend disbursing agent and registrar for the shares
of the Fund is State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110.
LEGAL OPINIONS
Certain legal matters in connection with the common stock offered hereby
are passed on for the Fund and the Underwriter by Brown & Wood LLP, New York,
New York.
EXPERTS
The statement of assets, liabilities and capital of the Fund as of October
21, 1999 included in this prospectus has been so included in reliance on the
report of Deloitte & Touche LLP, 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.
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ADDITIONAL INFORMATION
The Fund is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and the 1940 Act and in accordance therewith
is required to file reports, proxy statements and other information with the
Commission. Any such reports, proxy statements and other information can be
inspected and copied at the public reference facilities of the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the following regional offices of the Commission: Regional Office, at Seven
World Trade Center, Suite 1300, New York, New York 10048; Pacific Regional
Office, at 5670 Wilshire Boulevard, 11th Floor, Los Angeles, California 90036;
and Midwest Regional Office, at Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such materials can
be obtained from the public reference section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
maintains a Web site at http://www.sec.gov containing reports, proxy and
information statements and other information regarding registrants, including
the Fund, that file electronically with the Commission. Reports, proxy
statements and other information concerning the Fund can also be inspected at
the offices of the New York Stock Exchange, 20 Broad Street, New York, New York
10005.
Additional information regarding the Fund is contained in the Registration
Statement on Form N-2, including amendments, exhibits and schedules thereto,
relating to such shares filed by the Fund with the Commission in Washington,
D.C. This prospectus does not contain all of the information set forth in the
Registration Statement, including any amendments, exhibits and schedules
thereto. For further information with respect to the Fund and the shares offered
hereby, reference is made to the Registration Statement. Statements contained in
this prospectus as to the contents of any contract or other document referred to
are not necessarily complete and in each instance reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. A copy of the Registration Statement may be inspected without charge
at the Commission's principal office in Washington, D.C., and copies of all or
any part thereof may be obtained from the Commission upon the payment of certain
fees prescribed by the Commission.
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 Year 2000 approaches. However, if the
problem has not been fully addressed, the Fund could be negatively affected. The
Year 2000 Problem could also have a negative impact on the issuers of securities
in which the Fund invests, and this could hurt the Fund's investment returns.
38
<PAGE> 40
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholder,
The S&P 500(R) Protected Equity Fund, Inc.:
We have audited the accompanying statement of assets, liabilities and capital of
The S&P 500(R) Protected Equity Fund, Inc. as of October 21, 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, such financial statement presents fairly, in all material
respects, the financial position of The S&P 500(R) Protected Equity Fund, Inc.
as of October 21, 1999 in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Princeton, New Jersey
October 21, 1999
39
<PAGE> 41
THE S&P 500(R) PROTECTED EQUITY FUND, INC.
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
OCTOBER 21, 1999
<TABLE>
<S> <C>
ASSETS
Cash................................................... $100,000
--------
Total Assets...................................... 100,000
--------
LIABILITIES
Liabilities and accrued expenses (Note 1).............. 0
--------
NET ASSETS.................................................. $100,000
========
CAPITAL
Common stock, par value $.10 per share; 200,000,000
shares authorized; 10,000 shares issued and
outstanding (Note 1).................................. $ 1,000
Paid-in Capital in excess of par....................... 99,000
--------
Total Capital-Equivalent to $10.00 net asset value per
share of common stock (Note 1)........................ $100,000
========
</TABLE>
NOTES TO STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
NOTE 1. ORGANIZATION
The Fund was incorporated under the laws of the State of Maryland on July
15, 1999, as a closed-end, non-diversified management investment company and has
had no operations other than the sale to Merrill Lynch Asset Management, L.P.
(the "Investment Adviser"), of an aggregate of 10,000 shares of common stock for
$100,000 on October 21, 1999. The General Partner of the Investment Adviser is
an indirectly wholly-owned subsidiary of Merrill Lynch & Co., Inc.
The organization costs and costs of the offering have been paid by the
Investment Adviser or an affiliate.
NOTE 2. MANAGEMENT ARRANGEMENTS
The Fund has engaged the Investment Adviser to provide investment advisory
and management services to the Fund. The Investment Adviser will receive a
quarterly fee in arrears at the annual rate of 1.00% of the Fund's average
weekly net assets. The Investment Adviser or an affiliate will pay Merrill
Lynch, Pierce, Fenner & Smith Incorporated a commission in the amount of 3.00%
of the price to the public in connection with the initial public offering of the
Fund's common stock.
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 a taxable income
(including realized capital gains) that is distributed to shareholders.
40
<PAGE> 42
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Through and including , 2000 (the 90th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
31,500,000 SHARES
THE S&P 500(R) PROTECTED EQUITY FUND, INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
MERRILL LYNCH & CO.
NOVEMBER , 1999
CODE-19073-1199
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 43
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(1) Financial Statement:
Independent Auditors' Report
Statement of Assets, Liabilities and Capital as of October 21, 1999
EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C> <C>
(a) (1) -- Articles of Incorporation.
(2) -- Articles of Amendment to Articles of Incorporation as
amended on October 7, 1999.
(b) -- By-Laws, as amended.
(c) -- Not applicable.
(d) (1) -- Portions of the Articles of Incorporation and By-Laws of the
Fund defining the rights of holders of shares of the
Fund.(b)
(2) -- Form of specimen certificate for the shares of common stock
of the Fund.(a)
(e) -- Not applicable.
(f) -- Not applicable.
(g) (1) -- Form of Investment Advisory Agreement between the Fund and
Merrill Lynch Asset Management, L.P.(c)
(g) (2) -- Form of Sub-Advisory Agreement between Merrill Lynch Asset
Management, L.P. and Merrill Lynch Asset Management U.K.
Limited.(c)
(h) (1) -- Form of Purchase Agreement between the Fund and Merrill
Lynch, Pierce, Fenner & Smith Incorporated.(c)
(2) -- Form of Merrill Lynch Standard Dealer Agreement.(c)
(i) -- Not applicable.
(j) -- Form of Custody Agreement between the Fund and The Chase
Manhattan Bank.
(k) -- Form of Registrar, Transfer Agency and Service Agreement
between the Fund and State Street Bank and Trust Company.(c)
(l) -- Opinion and Consent of Brown & Wood LLP.
(m) -- Not applicable.
(n) -- Consent of Deloitte & Touche LLP, independent auditors for
the Fund.
(o) -- Not applicable.
(p) -- Certificate of Merrill Lynch Asset Management, L.P.
(q) -- Not applicable.
(r) -- Not applicable.
</TABLE>
- ------------
(a) Filed on September 3, 1999 as an Exhibit to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-2.
(b) Reference is made to Article IV, Article V (sections 2, 3, 4, 5 and 6),
Article VI, Article VII, Article VIII, Article IX, Article X, Article XI and
Article XII of the Registrant's Articles of Incorporation, filed as Exhibit
(a) to this Registration Statement; and to Article II, Article III (sections
1, 2, 3, 5 and 17), Article VI, Article VII, Article XII, Article XIII and
Article XIV of the Registrant's By-Laws, filed as Exhibit (b) to this
Registration Statement.
(c) Filed on September 17, 1999 as an Exhibit to Pre-Effective Amendment No. 2
to Registrant's Registration Statement on Form N-2.
ITEM 25. MARKETING ARRANGEMENTS.
See Exhibits (h)(1) and (h)(2).
C-1
<PAGE> 44
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses to be incurred in connection with the offering described in
this Registration Statement will be paid by Merrill Lynch Asset Management, L.P.
(the "Investment Adviser" or "MLAM") or an affiliate, not by the Registrant.
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
The information in the prospectus under the captions "Investment Advisory
and Management Arrangements" and "Description of Capital Stock -- Common Stock"
and in Note 1 to the Statement of Assets, Liabilities and Capital is
incorporated herein by reference.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES.
There will be one record holder of the Common Stock, par value $0.10 per
share, as of the effective date of this Registration Statement.
ITEM 29. INDEMNIFICATION.
Section 2-418 of the General Corporation Law of the State of Maryland,
Article VI of the Registrant's Articles of Incorporation, filed as Exhibit (a)
to this Registration Statement, Article VI of the Registrant's By-Laws, filed as
Exhibit (b) to this Registration Statement, and the Investment Advisory
Agreement, a form of which will be filed as Exhibit (g)(1) to this Registration
Statement, provide for indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act") may be provided to directors,
officers and controlling persons of the Fund, pursuant to the foregoing
provisions or otherwise, the Fund has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Fund of expenses incurred or paid by a director, officer or
controlling person of the Fund in connection with any successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Fund 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 Act and
will be governed by the final adjudication of such issue.
Reference is made to Section Six of the Purchase Agreement, a form of which
is filed as Exhibit (h)(1) hereto, for provisions relating to the
indemnification of the underwriter.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
The Investment Adviser 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 Disciplined Equity 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 Small Cap Fund, Inc., Merrill Lynch Global Technology Fund, Inc., Merrill
Lynch Global Utility Fund, Inc., Merrill Lynch Global Value Fund, Inc., Merrill
Lynch Growth Fund, Merrill Lynch Healthcare Fund, Inc., Merrill Lynch
Intermediate Government Bond Fund, Merrill Lynch International Equity Fund,
Merrill Lynch Latin America Fund, Inc., Merrill Lynch Middle East/Africa Fund,
Inc., Merrill Lynch Municipal Series Trust, Merrill Lynch Pacific Fund, Inc.,
Merrill Lynch Ready Assets Trust, Merrill Lynch Real Estate Fund,
C-2
<PAGE> 45
Inc., Merrill Lynch Retirement Series Trust, Merrill Lynch Series Fund, Inc.,
Merrill Lynch Short-Term Global Income Fund, Inc., Merrill Lynch Strategic
Dividend Fund, Merrill Lynch Technology Fund, Inc., Merrill Lynch U.S.A.
Government Reserves, Merrill Lynch U.S. Treasury Money Fund, Merrill Lynch
Utility Income Fund, Inc., Merrill Lynch Variable Series Fund, Inc. and Hotchkis
and Wiley Funds (advised by Hotchkis and Wiley, a division of MLAM); and for the
following closed-end registered investment companies: Merrill Lynch High Income
Municipal Bond Fund, Inc., Merrill Lynch Senior Floating Rate Fund, Inc. and
Merrill Lynch Senior Floating Rate Fund II, Inc. MLAM also acts as sub-adviser
to Merrill Lynch World Strategy Portfolio and Merrill Lynch Basic Value Equity
Portfolio, two investment portfolios of EQ Advisory Trust.
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 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
California Insured Fund V, Inc., MuniHoldings Florida Insured Fund, MuniHoldings
Florida Insured Fund II, MuniHoldings Florida Insured Fund III, MuniHoldings
Florida Insured Fund IV, MuniHoldings Florida Insured Fund V, MuniHoldings Fund,
Inc., MuniHoldings Fund II, Inc., MuniHoldings Insured Fund, Inc., MuniHoldings
Insured Fund I, Inc., MuniHoldings Insured Fund III, Inc., MuniHoldings Insured
Fund IV, Inc., MuniHoldings Michigan Insured Fund, Inc., MuniHoldings Michigan
Insured Fund II, Inc., MuniHoldings New Jersey Insured Fund, Inc., MuniHoldings
New Jersey Insured Fund II, Inc., MuniHoldings New Jersey Insured Fund III,
Inc., MuniHoldings New Jersey Insured Fund IV, Inc., MuniHoldings New York Fund,
Inc., MuniHoldings New York Insured Fund, Inc., MuniHoldings New York Insured
Fund II, Inc., MuniHoldings New York Insured Fund III, Inc., MuniHoldings New
York Insured Fund IV, Inc., MuniHoldings Pennsylvania Insured Fund, MuniVest
Florida Fund, MuniVest Fund, Inc., MuniVest Fund II, Inc., MuniVest Michigan
Insured Fund, Inc., MuniVest New Jersey Fund, Inc., MuniVest Pennsylvania
Insured Fund, MuniYield Arizona Fund, Inc., MuniYield California Fund, Inc.,
MuniYield California Insured Fund, Inc., MuniYield California Insured Fund II,
Inc., MuniYield Florida Fund, MuniYield Florida Insured Fund, MuniYield Fund,
Inc., MuniYield Insured Fund, Inc., MuniYield Michigan Fund, Inc., MuniYield
Michigan Insured Fund, Inc., MuniYield New Jersey Fund, Inc., MuniYield New
Jersey Insured Fund, Inc., MuniYield New York Insured Fund, Inc., MuniYield New
York Insured Fund II, Inc., MuniYield Pennsylvania Fund, MuniYield Quality Fund,
Inc., MuniYield Quality Fund II, Inc., Senior High Income Portfolio, Inc. and
Worldwide DollarVest Fund, Inc.
The address of each of these registered investment companies is P.O. Box
9011, Princeton, New Jersey 08543-9011 except that the address of Merrill Lynch
Funds for Institutions Series and Merrill Lynch Intermediate Government Bond
Fund is One Financial Center, 23rd Floor, Boston, Massachusetts 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
C-3
<PAGE> 46
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.
Set forth below is a list of each executive officer and partner of the
Investment Adviser indicating each business, profession, vocation or employment
of a substantial nature in which each such person or entity has been engaged
since 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 position 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, Kirstein and Monagle are officers
or directors/trustees of one or more of such companies.
<TABLE>
<CAPTION>
POSITION(S) WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION,
NAME INVESTMENT ADVISER 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 since 1997; 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 in
Economics Division of Merrill Lynch
(from 1995 to 1997)
Terry K. Glenn.................... Executive Vice President Executive Vice President of FAM;
Executive Vice President and Director of
Princeton Services; President and
Director of PFD; Director of FDS;
President of Princeton Administrators
Gregory A. Bundy.................. Chief Operating Officer Chief Operating Officer and Managing
and Managing Director Director of FAM; Chief Operating Officer
and Managing Director of Princeton
Services; Co-CEO of Merrill Lynch
Australia from 1997 to 1999
Donald C. Burke................... Senior Vice President, Senior Vice President and Treasurer of
Treasurer and Director FAM; Senior Vice President and Treasurer
of Taxation of Princeton Services; Vice President of
PFD; First Vice President of MLAM from
1997 to 1999; Vice President of MLAM
from 1990 to 1997
Michael G. Clark.................. Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services;
Treasurer and Director of PFD; First
Vice President of MLAM from 1997 to
1999; Vice President of MLAM from 1996
to 1997
</TABLE>
C-4
<PAGE> 47
<TABLE>
<CAPTION>
POSITION(S) WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION,
NAME INVESTMENT ADVISER VOCATION OR EMPLOYMENT
- ---- ------------------ ---------------------------------------
<S> <C> <C>
Robert C. Doll.................... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services;
Chief Investment Officer of Oppenheimer
Funds, Inc. in 1999 and Executive Vice
President thereof from 1991 to 1999
Linda L. Federici................. Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
Vincent R. Giordano............... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
Michael J. Hennewinkel............ Senior Vice President, Senior Vice President, Secretary and
Secretary and General General Counsel of FAM; Senior Vice
Counsel President of Princeton Services
Philip L. Kirstein................ Senior Vice President Senior Vice President of FAM; Senior
Vice President, Secretary, General
Counsel and Director of Princeton
Services
Debra W. Landsman-Yaros........... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services;
Vice President of PFD
Stephen M. M. Miller.............. Senior Vice President Executive Vice President of Princeton
Administrators; Senior Vice President of
Princeton Services
Joseph T. Monagle, Jr. ........... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
Brian A. Murdock.................. Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
Gregory D. Upah................... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
</TABLE>
Merrill Lynch Asset Management U.K. Limited ("MLAM U.K.") acts as
sub-adviser for the following registered investment companies: The Corporate
Fund Accumulation Program, Inc., Corporate High Yield Fund, Inc., Corporate High
Yield Fund II, Inc., Corporate High Yield Fund III, Inc., Debt Strategies Fund,
Inc., Debt Strategies Fund II, Inc., Debt Strategies Fund III, Inc., Income
Opportunities Fund 1999, Inc., Income Opportunities Fund 2000, Inc., Merrill
Lynch Americas Income Fund, Inc., Merrill Lynch Asset Builder Program, Inc.,
Merrill Lynch Asset Growth Fund, Inc., Merrill Lynch Asset Income Fund, Inc.,
Merrill Lynch Basic Value Fund, Inc., Merrill Lynch Capital Fund, Inc., Merrill
Lynch Consults International Portfolio, Merrill Lynch Convertible Fund, Inc.,
Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch Corporate High Yield
Fund, Inc., Merrill Lynch Developing Capital Markets, Inc., Merrill Lynch
Disciplined Equity Fund, 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 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
C-5
<PAGE> 48
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.
Set forth below is a list of each executive officer and director of MLAM
U.K. indicating each business, profession, vocation or employment of a
substantial nature in which each such person has been engaged since January 1,
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>
POSITION(S) WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION,
NAME MLAM U.K. VOCATION OR EMPLOYMENT
- ---- ---------------- ---------------------------------------
<S> <C> <C>
Terry K. Glenn........ Director and Chairman Executive Vice President of MLAM and FAM;
Executive Vice President and Director of
Princeton Services; President and Director
of PFD; President of Princeton
Administrators
Alan J. Albert........ Senior Managing Director Vice President of MLAM
Nicholas C.D. Hall.... Director Director of Merrill Lynch Europe PLC;
General Counsel of Merrill Lynch
International Private Banking Group
Donald C. Burke....... Treasurer Senior Vice President and Treasurer of MLAM
and FAM; Director of Taxation of MLAM;
Senior Vice President and Treasurer of
Princeton Services; Vice President of PFD;
First Vice President of MLAM from 1997 to
1999; Vice President of MLAM from 1990 to
1997
Carol Ann Langham..... Company Secretary None
Debra Anne Searle..... Assistant Company 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 Investment Company Act of 1940, as amended, and the rules
promulgated thereunder are maintained at the offices of the registrant (800
Scudders Mill Road, Plainsboro, New Jersey 08536), its Investment Adviser (800
Scudders Mill Road, Plainsboro, New Jersey 08536), and its custodian and
transfer agent.
ITEM 32. MANAGEMENT SERVICES.
Not applicable.
ITEM 33. UNDERTAKINGS.
(a) Registrant undertakes to suspend the offering 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) Registrant undertakes that:
(1) For purposes of determining any liability under the 1933 Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the registrant pursuant to Rule 497(h) under the
1933 Act shall be deemed to be part of this Registration Statement as of
the time it was declared effective.
C-6
<PAGE> 49
(2) For the purpose of determining any liability under the 1933 Act,
each post-effective amendment that contains a form of prospectus 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.
C-7
<PAGE> 50
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 1st
day of November, 1999.
THE S&P 500(R) PROTECTED EQUITY FUND, INC.
By: /s/ DONALD C. BURKE
-------------------------------------------
(Donald C. Burke, Vice President and
Treasurer)
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 dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
TERRY K. GLENN* President (Principal Executive
- ------------------------------------------------ Officer) and Director
(Terry K. Glenn)
DONALD C. BURKE* Treasurer (Principal Financial
- ------------------------------------------------ and Accounting Officer)
(Donald C. Burke)
JACK B. SUNDERLAND* Director
- ------------------------------------------------
(Jack B. Sunderland)
STEPHEN B. SWENSRUD* Director
- ------------------------------------------------
(Stephen B. Swensrud)
J. THOMAS TOUCHTON* Director
- ------------------------------------------------
(J. Thomas Touchton)
*By: /s/ DONALD C. BURKE November 1, 1999
------------------------------------------
(Donald C. Burke, Attorney-in-Fact)
</TABLE>
C-8
<PAGE> 51
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
(a)(1) Articles of Incorporation
(2) Articles of Amendment to Articles of Incorporation as
amended on October 7, 1999
(b) By-Laws, as amended
(j) Form of Custody Agreement between the Fund and The Chase
Manhattan Bank
(l) Opinion and Consent of Brown & Wood LLP
(n) Consent of Deloitte & Touche LLP, independent auditors for
the Fund
(p) Certificate of Merrill Lynch Asset Management, L.P.
</TABLE>
C-9
<PAGE> 1
EXHIBIT (a)(1)
ARTICLES OF INCORPORATION
OF
THE MARKET PARTICIPATION PRINCIPAL PROTECTION FUND, INC.
THE UNDERSIGNED, BARTHOLOMEW A. SHEEHAN, III, whose post-office
address is c/o Brown & Wood LLP, One World Trade Center, 56th Floor, New York,
New York 10048-0557, being at least eighteen (18) years of age, does hereby act
as incorporator, under and by virtue of the General Laws of the State of
Maryland authorizing the formation of corporations and with the intention of
forming a corporation.
ARTICLE I
NAME
The name of the corporation is THE MARKET PARTICIPATION PRINCIPAL
PROTECTION FUND, INC. (the "Corporation").
ARTICLE II
PURPOSES AND POWERS
The purpose or purposes for which the Corporation is formed is to
act as a closed-end, management investment company under the federal Investment
Company Act of 1940, as amended, and in effect from time to time (the
"Investment Company Act"), and to exercise and enjoy all of the powers, rights
and privileges granted to, or conferred upon, corporations by the General Laws
of the State of Maryland now or hereafter in force.
ARTICLE III
PRINCIPAL OFFICE AND RESIDENT AGENT
The post-office address of the principal office of the Corporation
in the State of Maryland is c/o The Corporation Trust Incorporated, 300 Lombard
Street, Baltimore, Maryland 21202. The name of the resident agent of the
Corporation in this State is The Corporation Trust Incorporated, a corporation
of this State, and the post-office address of the resident agent is The
Corporation Trust Incorporated, 300 Lombard Street, Baltimore, Maryland 21202.
ARTICLE IV
CAPITAL STOCK
(1) The total number of shares of capital stock which the
Corporation shall have authority to issue is 200,000,000 shares, all initially
classified as one class called Common Stock, of the
<PAGE> 2
par value of Ten Cents ($0.10) per share, and of the aggregate par value of
Twenty Million Dollars ($20,000,000).
(2) The Board of Directors may amend the Charter of the Corporation,
without stockholder approval, to increase or decrease the aggregate number of
authorized shares of capital stock or to increase or decrease the number of
shares of stock of any class that the Corporation has the authority to issue.
(3) The Board of Directors may classify and reclassify any unissued
shares of capital stock into one or more additional or other classes or series
as may be established from time to time by setting or changing in any one or
more respects the designations, preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications or terms or
conditions of redemption of such shares of stock and pursuant to such
classification or reclassification to increase or decrease the number of
authorized shares of any existing class or series provided, however, that the
total amount of shares of all classes or series shall not exceed the total
number of shares of capital stock authorized in the Charter.
(4) Unless otherwise expressly provided in the Charter of the
Corporation, including any Articles Supplementary creating any class or series
of capital stock, the holders of each class or series of capital stock shall be
entitled to dividends and distributions in such amounts and at such times as may
be determined by the Board of Directors, and the dividends and distributions
paid with respect to the various classes or series of capital stock may vary
among such classes and series.
(5) Unless otherwise expressly provided in the Charter of the
Corporation, including any Articles Supplementary creating any class or series
of capital stock, on each matter submitted to a vote of stockholders, each
holder of a share of capital stock of the Corporation shall be entitled to one
vote for each share standing in such holder's name on the books of the
Corporation, irrespective of the class or series thereof, and all shares of all
classes and series shall vote together as a single class; provided, however,
that as to any matter with respect to which a separate vote of any class or
series is required by the Investment Company Act, or any rules, regulations or
orders issued thereunder, or by the Maryland General Corporation Law, such
requirement as to a separate vote by that class or series shall apply in lieu of
a general vote of all classes and series as described above.
(6) Notwithstanding any provision of the Maryland General
Corporation Law requiring a greater proportion than a majority of the votes of
all classes or series of capital stock of the Corporation (or of any class or
series entitled to vote thereon as a separate class or series) to take or
authorize any action, the Corporation is hereby authorized (subject to the
requirements of the Investment Company Act, and any rules, regulations and
orders issued thereunder) to take such action upon the concurrence of a majority
of the votes entitled to be cast by holders of capital stock of the Corporation
(or a majority of the votes entitled to be cast by holders of a class or series
as a separate class or series) unless a greater proportion is specified in the
Charter.
(7) Unless otherwise expressly provided in the Charter of the
Corporation, including any Articles Supplementary creating any class or series
of capital stock, in the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, the
2
<PAGE> 3
holders of each class or series of capital stock of the Corporation shall be
entitled, after payment or provision for payment of the debts and other
liabilities of the Corporation, to share ratably in the remaining net assets of
the Corporation.
(8) Any fractional shares shall carry proportionately all of the
rights of a whole share, excepting any right to receive a certificate evidencing
such fractional share, but including, without limitation, the right to vote and
the right to receive dividends.
(9) The presence in person or by proxy of the holders of shares
entitled to cast one-third of the votes entitled to be cast shall constitute a
quorum at any meeting of stockholders, except with respect to any matter which
requires approval by a separate vote of one or more classes or series of stock,
in which case the presence in person or by proxy of the holders of shares
entitled to cast one-third of the votes entitled to be cast by each class or
series entitled to vote as a separate class shall constitute a quorum.
(10) All persons who shall acquire stock in the Corporation shall
acquire the same subject to the provisions of the Charter and the By-Laws of the
Corporation. As used in the Charter of the Corporation, the terms "Charter" and
"Articles of Incorporation" shall mean and include the Articles of Incorporation
of the Corporation as amended, supplemented and restated from time to time by
Articles of Amendment, Articles Supplementary, Articles of Restatement or
otherwise.
ARTICLE V
PROVISIONS FOR DEFINING, LIMITING AND
REGULATING CERTAIN POWERS OF
THE CORPORATION AND OF
THE DIRECTORS AND STOCKHOLDERS
(1) The initial number of directors of the Corporation shall be
three (3), which number may be increased or decreased pursuant to the By-Laws of
the Corporation but shall never be less than the minimum number permitted by the
General Laws of the State of Maryland. The names of the directors who shall act
until the first annual meeting or until their successors are duly elected and
qualify are:
Ira P. Shapiro
Jerry Weiss
Michael J. Hennewinkel
(2) The Board of Directors of the Corporation is hereby empowered to
authorize the issuance from time to time of shares of capital stock of any class
or series, whether now or hereafter authorized, for such consideration as the
Board of Directors may deem advisable, without any action by the stockholders,
subject to such limitations as may be set forth in these Articles of
Incorporation or in the By-Laws of the Corporation or in the Maryland General
Corporation Law.
3
<PAGE> 4
(3) Each director and each officer of the Corporation shall be
indemnified and advanced expenses by the Corporation to the full extent
permitted by the General Laws of the State of Maryland now or hereafter in
force, including the advance of expenses under the procedures and to the full
extent permitted by law, subject to the requirements of the Investment Company
Act. The foregoing rights of indemnification shall not be exclusive of any other
rights to which those seeking indemnification may be entitled. No amendment of
these Articles of Incorporation or repeal of any provision hereof shall limit or
eliminate the benefits provided to directors and officers under this provision
in connection with any act or omission that occurred prior to such amendment or
repeal.
(4) To the fullest extent permitted by the General Laws of the State
of Maryland, or decisional law, as amended or interpreted, subject to the
requirements of the Investment Company Act, no director or officer of the
Corporation shall be personally liable to the Corporation or its security
holders for money damages. No amendment of these Articles of Incorporation or
repeal of any provision hereof shall limit or eliminate the benefits provided to
directors and officers under this provision in connection with any act or
omission that occurred prior to such amendment or repeal.
(5) The Board of Directors of the Corporation is vested with the
sole power, to the exclusion of the stockholders, to make, alter or repeal from
time to time any of the By-Laws of the Corporation except any particular By-Law
which is specified as not subject to alteration or repeal by the Board of
Directors, subject to the requirements of the Investment Company Act.
(6) A director elected by the holders of capital stock may be
removed (with or without cause), but only by action taken by the holders of at
least sixty-six and two-thirds percent (66 2/3%) of the shares of capital stock
then entitled to vote in an election to fill that directorship.
(7) The enumeration and definition of the particular powers of the
Board of Directors included in the Charter shall in no way be limited or
restricted by reference to or inference from the terms of any other clause of
this or any other Article of the Charter of the Corporation, or construed as or
deemed by inference or otherwise in any manner to exclude or limit any powers
conferred upon the Board of Directors under the General Laws of the State of
Maryland now or hereinafter in force.
ARTICLE VI
DENIAL OF PREEMPTIVE RIGHTS
No stockholder of the Corporation shall by reason of his holding
shares of capital stock have any preemptive or preferential right to purchase or
subscribe to any shares of capital stock of the Corporation, now or hereafter to
be authorized, or any notes, debentures or bonds or any other securities
convertible into shares of capital stock, now or hereafter to be authorized,
whether or not the issuance of any such shares, or notes, debentures, bonds or
other securities would adversely affect the dividend or voting rights of such
stockholder; except that the Board of Directors, in its sole discretion, may
issue shares of any class of stock of the Corporation, or any notes, debentures,
bonds, other securities convertible into shares of any class, either in whole or
4
<PAGE> 5
in part, to the existing stockholders or holders of any class, series, or type
of stock or other securities at the time outstanding to the exclusion of any or
all of the holders of any or all of the classes, series or types of stock or
other securities at the time outstanding.
ARTICLE VII
DETERMINATION BINDING
Any determination made in good faith and consistent with applicable
law, so far as accounting matters are involved, in accordance with accepted
accounting practice by or pursuant to the direction of the Board of Directors,
as to the amount of assets, obligations or liabilities of the Corporation, as to
the amount of net income of the Corporation from dividends and interest for any
period or amounts at any time legally available for the payment of dividends, as
to the amount of any reserves or as to the use, alteration or cancellation of
any reserves or charges set up and the propriety thereof, as to the time of or
purpose for creating reserves or as to the use, alteration or cancellation of
any reserves or charges (whether or not any obligation or liability for which
such reserves or as to the use, alteration or cancellation of any reserves or
charges shall have been created, shall have been paid or discharged or shall be
then or thereafter required to be paid or discharged), as to the price of any
security owned by the Corporation or as to any other matters relating to the
issuance, sale, redemption or other acquisition or disposition of securities or
shares of capital stock of the Corporation, and any reasonable determination
made in good faith by the Board of Directors as to whether any transaction
constitutes a purchase of securities on "margin," a sale of securities "short,"
or an underwriting or the sale of, or a participation in any underwriting or
selling group in connection with the public distribution of, any securities,
shall be final and conclusive, and shall be binding upon the Corporation and all
holders of its capital stock, past, present and future, and shares of the
capital stock of the Corporation are issued and sold on the condition and
understanding, evidenced by the purchase of shares of capital stock or
acceptance of share certificates, that any and all such determinations shall be
binding as aforesaid. No provision in this Charter shall be effective to (a)
require a waiver of compliance with any provision of the Securities Act of 1933,
as amended, or the Investment Company Act, or of any valid rule, regulation or
order of the Securities and Exchange Commission thereunder or (b) protect or
purport to protect any director or officer of the Corporation against any
liability to the Corporation or its security holders to which he 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.
ARTICLE VIII
LIMITED TERM OF EXISTENCE
The Corporation shall have a limited period of existence and shall
cease to exist at the close of business on October 30, 2009, except that the
Corporation shall continue to exist for the purpose of paying, satisfying, and
discharging any existing debts or obligations, collecting and distributing its
assets, and doing all other acts required to liquidate and wind up its business
and affairs. After the close of business on October 30, 2009, if the Corporation
has not liquidated and wound up its business and affairs, the directors shall
become trustees of the Corporation's assets
5
<PAGE> 6
for purposes of liquidation with the full powers granted to directors of a
corporation which has voluntarily dissolved under Subtitle 4 of Title 3 of the
Maryland General Corporation Law or any successor statute as are necessary to
liquidate the Corporation and wind up its affairs, but in no event with lesser
powers than the powers granted by such subtitle under the Maryland General
Corporation Law as of the date of incorporation of the Corporation.
The Board of Directors may, to the extent it deems it appropriate,
adopt a plan of termination at any time during the twelve months immediately
preceding October 30, 2009, which plan of termination may set forth the terms
and conditions for implementing the termination of the Corporation's existence
under this Article VIII. Stockholders of the Corporation shall not be entitled
to vote on the adoption of any such plan or the termination of the Corporation's
existence under this Article VIII.
ARTICLE IX
PRIVATE PROPERTY OF STOCKHOLDERS
The private property of stockholders shall not be subject to the
payment of corporate debts to any extent whatsoever.
ARTICLE X
CONVERSION TO OPEN-END COMPANY
Notwithstanding any other provisions of these Articles of
Incorporation or the By-Laws of the Corporation, a favorable vote of the holders
of at least sixty-six and two-thirds percent (66 2/3%) of the outstanding shares
of capital stock of the Corporation entitled to be voted on the matter shall be
required to approve, adopt or authorize an amendment to these Articles of
Incorporation of the Corporation that makes the Common Stock a "redeemable
security" (as that term is defined in section 2(a)(32) the Investment Company
Act) unless such action has previously been approved, adopted or authorized by
the affirmative vote of at least two-thirds of the total number of directors
fixed in accordance with the By-Laws of the Corporation, in which case the
affirmative vote of the holders of a majority of the outstanding shares of
capital stock of the Corporation entitled to vote thereon shall be required.
ARTICLE XI
MERGER, SALE OF ASSETS, LIQUIDATION
Notwithstanding any other provisions of these Articles of
Incorporation or the By-Laws of the Corporation, a favorable vote of the holders
of at least sixty-six and two-thirds percent (66 2/3%) of the outstanding shares
of capital stock of the Corporation entitled to be voted on the matter shall be
required to approve, adopt or authorize (i) a merger or consolidation or
statutory share exchange of the Corporation with any other corporation, (ii) a
sale of all or substantially all of the assets of the Corporation (other than in
the regular course of its investment activities), or (iii) a liquidation or
dissolution of the Corporation before the end of its limited term of existence
6
<PAGE> 7
as provided in Article VIII of these Articles of Incorporation, unless such
action has previously been approved, adopted or authorized by the affirmative
vote of at least two-thirds of the total number of directors fixed in accordance
with the By-Laws of the Corporation, in which case the affirmative vote of the
holders of a majority of the outstanding shares of capital stock of the
Corporation entitled to vote thereon shall be required.
ARTICLE XII
AMENDMENT
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in its Charter, in any manner now or hereafter
prescribed by Statute, including any amendment which alters the contract rights,
as expressly set forth in the Charter, of any outstanding stock and
substantially adversely affects the stockholders' rights, and all rights
conferred upon stockholders herein are granted subject to this reservation.
Notwithstanding any other provisions of these Articles of Incorporation or the
By-Laws of the Corporation (and notwithstanding the fact that a lesser
percentage may be specified by law, these Articles of Incorporation or the
By-Laws of the Corporation), the amendment or repeal of Section (6) of Article
IV, Section (1), Section (3), Section (4), Section (5) and Section (6) of
Article V, Article VIII, Article IX, Article X, Article XI, or this Article XII,
of these Articles of Incorporation shall require the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66 2/3%) of the
outstanding shares of capital stock of the Corporation entitled to be voted on
the matter.
7
<PAGE> 8
IN WITNESS WHEREOF, the undersigned incorporator of The Market
Participation Principal Protection Fund, Inc. hereby executes the foregoing
Articles of Incorporation and acknowledges the same to be his act.
Dated the 14th day
of July 1999
/s/ Bartholomew A. Sheehan, III
Bartholomew A. Sheehan, III
8
<PAGE> 1
EXHIBIT (a)(2)
THE MARKET PARTICIPATION PRINCIPAL PROTECTION FUND, INC.
ARTICLES OF AMENDMENT TO THE
ARTICLES OF INCORPORATION
THE MARKET PARTICIPATION PRINCIPAL PROTECTION FUND, INC., a Maryland
corporation (the "Corporation"), does hereby certify to the State Department of
Assessments and Taxation of Maryland that:
FIRST: The charter of the Corporation is hereby amended by deleting
Article I thereof in its entirety and inserting the following in lieu thereof:
"ARTICLE I.
NAME
The name of the corporation is THE S&P 500(R) PROTECTED EQUITY FUND,
INC. (the "Corporation")."
SECOND: The charter of the Corporation is hereby further amended by
deleting Article VIII thereof in its entirety and inserting the following in
lieu thereof:
"ARTICLE VIII
LIMITED TERM OF EXISTENCE
The Corporation shall have a limited period of existence and shall
cease to exist at the close of business on November 30, 2009, except that the
Corporation shall continue to exist for the purpose of paying, satisfying, and
discharging any existing debts or obligations, collecting and distributing its
assets, and doing all other acts required to liquidate and wind up its business
and affairs. After the close of business on November 30, 2009, if the
Corporation has not liquidated and wound up its business and affairs, the
directors shall become trustees of the Corporation's assets for purposes of
liquidation with the full powers granted to directors of a corporation which has
voluntarily dissolved under Subtitle 4 of Title 3 of the Maryland General
Corporation Law or any successor statute as are necessary to liquidate the
Corporation and wind up its affairs, but in no event with lesser powers than the
powers granted by such subtitle under the Maryland General Corporation Law as of
the date of incorporation of the Corporation.
The Board of Directors may, to the extent it deems it appropriate,
adopt a plan of termination at any time during the twelve months immediately
preceding November 30, 2009, which plan of termination may set forth the terms
and conditions for implementing the termination of the Corporation's existence
under this Article VIII. Stockholders of the Corporation shall not be entitled
to vote on the adoption of any such plan or the termination of the Corporation's
existence under this Article VIII."
THIRD: Pursuant to Section 2-607 of the Maryland General Corporation
Law, these Articles of Amendment amend the provisions of the Articles of
Incorporation of the Corporation.
<PAGE> 2
FOURTH: These Articles of Amendment have been approved by a majority
of the entire Board of Directors of the Corporation, there being no stock
outstanding or subscribed for at the time of approval.
FIFTH: The authorized capital stock of the Corporation has not been
increased by these Articles of Amendment.
SIXTH: Except as amended hereby, the Corporation's charter shall
remain in full force and effect.
The undersigned President acknowledges these Articles of Amendment to
be the corporate act of the Corporation and as to all matters or facts required
to be verified under oath, the undersigned President acknowledges that to the
best of his knowledge, information and belief, the matters and facts set forth
in these Articles of Amendment with respect to the authorization and approval of
the amendment of the Corporation's charter are true in all material respects,
and that this statement is made under the penalties of perjury.
IN WITNESS WHEREOF, THE MARKET PARTICIPATION PRINCIPAL PROTECTION FUND,
INC. has caused these Articles of Amendment to be signed in its name and on its
behalf by its President and attested to by its Secretary as of the 7th day of
October1999.
THE MARKET PARTICIPATION PRINCIPAL PROTECTION FUND, INC.
(a Maryland corporation)
By: /s/ Terry K. Glenn
--------------------------------------
Terry K. Glenn, President
ATTEST:
/s/ Ira P. Shapiro
- ----------------------------------
Ira P. Shapiro, Secretary
2
<PAGE> 1
EXHIBIT (b)
BY-LAWS
OF
THE S&P 500(R) PROTECTED EQUITY FUND, INC.
ARTICLE I.
Offices
Section 1. Principal Office. The principal office of the
Corporation shall be in the City of Baltimore and State of Maryland.
Section 2. Principal Executive Office. The principal executive
office of the Corporation shall be at 800 Scudders Mill Road, Plainsboro, New
Jersey 08536.
Section 3. Other Offices. The Corporation may have such other
offices in such places as the Board of Directors from time to time may
determine.
ARTICLE II.
Meetings of Stockholders
Section 1. Annual Meeting. 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.
Section 2. Special Meetings. Special meetings of the stockholders,
unless otherwise provided by law, may be called for any purpose or purposes by a
majority of the Board of Directors, the President, or 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.
<PAGE> 2
Section 3. Place of Meetings. The annual meeting and any special
meeting of the stockholders shall be held at such place as the Board of
Directors from time to time may determine.
Section 4. Notice of Meetings; Waiver of Notice. Notice of the
place, date and time of the holding of each annual and special meeting of the
stockholders and the purpose or purposes of each special meeting shall be given
personally or by mail or transmitted to the stockholder by electronic mail to
any electronic mail address of the stockholder or by any other electronic means,
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 5. 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 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 6. Organization. At each meeting of the stockholders, the
Chairman of the Board (if one has been designated by the Board), or in his or
her absence or inability to act, the President, or in the absence or inability
to act of the Chairman of the Board and the President, a Vice President, shall
act as chairman of the meeting. The Secretary, or in his or her absence or
2
<PAGE> 3
inability to act, any person appointed by the chairman of the meeting, shall act
as secretary of the meeting and keep the minutes thereof.
Section 7. Order of Business. The order of business at all meetings
of the stockholders shall be as determined by the chairman of the meeting.
Section 8. Business at Annual Meeting. No business may be
transacted at any meeting of stockholders, other than business that is either
(a) specified in the notice of meeting (or any supplement thereto) given by or
at the direction of the Board of Directors (or any duly authorized committee
thereof), (b) otherwise properly brought before the meeting by or at the
direction of the Board of Directors (or any duly authorized committee thereof)
or (c) otherwise properly brought before any meeting by any stockholder of the
Corporation (i) who is a stockholder of record on the date of the giving of the
notice provided for in Article II, Section 4 of these By-Laws and on the record
date for the determination of stockholders entitled to vote at any such meeting
of stockholders as determined in accordance with Article II, Section 9 hereof
and (ii) who complies with the notice procedures set forth in this Section 8.
In addition to any other applicable requirements, for business to be
properly brought before a meeting by a stockholder, such stockholder must have
given timely notice thereof in proper written form to the Secretary of the
Corporation.
To be timely, a stockholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices of the
Corporation (a) with respect to the Corporation's first annual meeting of
stockholders, not later than the close of business on the tenth (10th) calendar
day following the day on which public disclosure of the date on which the first
annual meeting shall be held is first made (provided that such annual meeting
shall be held within ninety (90) calendar days of such public disclosure of the
date); and (b) thereafter, not less than sixty (60) calendar days nor more than
ninety (90) calendar days prior to the anniversary date of the immediately
preceding annual meeting of stockholders; provided, however, that in the event
that the annual meeting is called for a date that is not within thirty (30)
calendar days before or sixty (60) calendar days after such anniversary date,
notice by the stockholder in order to be timely must be so received not later
than the close of business on the later of the sixtieth (60th) calendar day
prior to such annual meeting or the fifteenth (15th) calendar day following the
day on which notice of the date of the annual meeting was mailed or public
disclosure of the date of the annual meeting was made, whichever first occurs.
For purposes of this Section 8, the date of a public disclosure shall include,
but not be limited to, the date on which such disclosure is made in a press
release reported by the Dow Jones News Services, the Associated Press or any
comparable national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Sections 13,
14 or 15(d) (or the rules and regulations thereunder) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), or pursuant to Section 30 (or the
rules and regulations thereunder) of the Investment Company Act.
To be in proper written form, a stockholder's notice to the
Secretary must set forth as to each matter such stockholder proposes to bring
before the annual meeting (i) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (ii) the name and record address of such stockholder,
(iii) the class or series and number of shares of capital stock of the
Corporation which are owned
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<PAGE> 4
beneficially or of record by such stockholder, (iv) a description of all
arrangements or understandings between such stockholder and any other person or
persons (including their names) in connection with the proposal of such business
by such stockholder and any material interest of such stockholder in such
business and (v) a representation that such stockholder intends to appear in
person or by proxy at the annual meeting to bring such business before the
meeting.
No business shall be conducted at the annual meeting of stockholders
except business brought before the annual meeting in accordance with the
procedures set forth in this Section 8, provided, however, that, once business
has been properly brought before the annual meeting in accordance with such
procedures, nothing in this Section 8 shall be deemed to preclude discussion by
any stockholder of any such business. If the chairman of a meeting determines
that business was not properly brought before the meeting in accordance with the
foregoing procedures, the chairman shall declare to the meeting that the
business was not properly brought before the meeting and such business shall not
be transacted.
Section 9. Nomination of Directors. Only persons who are nominated
in accordance with the following procedures shall be eligible for election as
directors of the Corporation, except as may be otherwise provided in the Charter
with respect to the right, if any, of holders of preferred stock of the
Corporation to nominate and elect a specified number of directors in certain
circumstances. Nominations of persons for election to the Board of Directors may
be made at any annual meeting of stockholders, or at any special meeting of
stockholders called for the purpose of electing directors, (a) by or at the
direction of the Board of Directors (or any duly authorized committee thereof)
or (b) by any stockholder of the Corporation (i) who is a stockholder of record
on the date of the giving of the notice provided for in this Section 9 and on
the record date for the determination of stockholders entitled to vote at such
meeting and (ii) who complies with the notice procedures set forth in this
Section 9.
In addition to any other applicable requirements, for a nomination
to be made by a stockholder, such stockholder must have given timely notice
thereof in proper written form to the Secretary of the Corporation.
To be timely, a stockholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices of the
Corporation (a) with respect to the Corporation's first annual meeting of
stockholders, not later than the close of business on the tenth (10th) calendar
day following the day on which public disclosure of the date on which the first
annual meeting shall be held is first made (provided that such annual meeting
shall be held within ninety (90) calendar days of such public disclosure of the
date); (b) thereafter, in the case of an annual meeting, not less than sixty
(60) calendar days nor more than ninety (90) calendar days prior to the
anniversary date of the immediately preceding annual meeting of stockholders;
provided, however, that in the event that the annual meeting is called for a
date that is not within thirty (30) calendar days before or sixty (60) calendar
days after such anniversary date, notice by the stockholder in order to be
timely must be so received not later than the close of business on the later of
the sixtieth (60th) calendar day prior to such annual meeting or the fifteenth
(15th) calendar day following the day on which notice of the date of the annual
meeting was mailed or public disclosure of the date of the annual meeting was
made, whichever first occurs; and (c) in the case of a special meeting of
stockholders called for the purpose of electing directors, not later
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than the close of business on the fifteenth (15th) day following the day on
which notice of the date of the special meeting was mailed or public disclosure
of the date of the special meeting was made, whichever first occurs. For
purposes of this Section 9, the date of a public disclosure shall include, but
not be limited to, the date on which such disclosure is made in a press release
reported by the Dow Jones News Services, the Associated Press or any comparable
national news service or in a document publicly filed by the Corporation with
the Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d) (or
the rules and regulations thereunder) of the Exchange Act or pursuant to Section
30 (or the rules and regulations thereunder) of the Investment Company Act.
To be in proper written form, a stockholder's notice to the
Secretary must set forth (a) as to each person whom the stockholder proposes to
nominate for election as a director (i) the name, age, business address and
residence address of the person, (ii) the principal occupation or employment of
the person, (iii) the class or series and number of shares of capital stock of
the Corporation which are owned beneficially or of record by the person and (iv)
any other information relating to the person that would be required to be
disclosed in a proxy statement or other filings required to be made in
connection with solicitations of proxies for election of directors pursuant to
Section 14 of the Exchange Act and the rules and regulations promulgated
thereunder; and (b) as to the stockholder giving the notice (i) the name and
record address of such stockholder, (ii) the class or series and number of
shares of capital stock of the Corporation which are owned beneficially or of
record by such stockholder, (iii) a description of all arrangements or
understandings between such stockholder and each proposed nominee and any other
person or persons (including their names) pursuant to which the nomination(s)
are to be made by such stockholder, (iv) a representation that such stockholder
intends to appear in person or by proxy at the meeting to nominate the persons
named in its notice and (v) any other information relating to such stockholder
that would be required to be disclosed in a proxy statement or other filings
required to be made in connection with solicitations of proxies for election of
directors pursuant to Section 14 of the Exchange Act and the rules and
regulations promulgated thereunder. Such notice must be accompanied by a written
consent of each proposed nominee to being named as a nominee and to serve as a
director if elected.
No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section 9. If the chairman of the meeting determines that a nomination was not
made in accordance with the foregoing procedures, the chairman shall declare to
the meeting that the nomination was defective and such defective nomination
shall be disregarded.
Section 10. 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 (30) day before the meeting.
Each stockholder entitled to vote at any meeting of stockholders may
authorize another person or persons to act for him or her as proxy by signing a
writing authorizing another person
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to act as proxy. Such signing may be accomplished by the stockholder or the
stockholder's authorized agent signing the writing or causing the stockholder's
signature to be affixed to the writing by any reasonable means, including
facsimile signature. A stockholder may authorize another person to act as proxy
by transmitting, or authorizing the transmission of, an authorization for the
person to act as proxy to (i) the person authorized to act as proxy or (ii) any
other person authorized to receive the proxy authorization on behalf of the
person authorized to act as the proxy, including a proxy solicitation firm or
proxy support service organization. The authorization referred to in the
preceding sentences may be transmitted by U.S. mail, couriour service, personal
delivery, a telegram, cablegram, datagram, electronic mail, or any other
electronic or telephonic means and a copy, facsimile telecommunication, or other
reliable reproduction of the writing or transmission authorized in this
paragraph may be substituted for the original writing or transmission for any
purpose for which the original writing or transmission could be used.
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 11. Fixing of Record Date for a Meeting. 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 12. 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 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
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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 13. 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 1. 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 2. Number of Directors. The number of directors shall be
fixed from time to time by resolution of the Board of Directors adopted by a
majority of the entire Board of Directors then in office; provided, however,
that in no event shall the number of directors be less than the minimum
permitted by the Maryland General Corporation Law 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 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. 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.
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Section 4. Resignation. A director of the Corporation may resign at
any time by giving written notice of his or her resignation to the Board or the
Chairman of the Board or the President or the Secretary. Any such resignation
shall take effect at the time specified therein or, if the time when it shall
become effective shall not be specified therein, immediately upon its receipt;
and, unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
Section 5. Removal of Directors. Any director of the Corporation may
be removed (with or without cause) by the stockholders by a vote of sixty-six
and two-thirds percent (66 2/3%) of the outstanding shares of capital stock then
entitled to vote in the election of such director.
Section 6. 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.
Section 7. Place of Meetings. Meetings of the Board may be held at
such place as the Board from time to time may determine or as shall be specified
in the notice of such meeting.
Section 8. Regular 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 9. Special Meetings. Special meetings of the Board may be
called by two or more directors of the Corporation or by the Chairman of the
Board or the President.
Section 10. Telephone Meetings. Members of the Board of Directors or
of any committee thereof may participate in a meeting by means of a conference
telephone or similar communications equipment if all persons participating in
the meeting can hear each other at the same time. Subject to the provisions of
the Investment Company Act, participation in a meeting by these means
constitutes presence in person at the meeting.
Section 11. Notice of Special Meetings. Notice of each special
meeting of the Board shall be given by the Secretary as hereinafter provided, in
which notice shall be stated the time and place of the meeting. Notice of each
such meeting shall be delivered to each director, either personally or by
telephone or any standard form of telecommunication, at least 24 hours before
the time at which such meeting is to be held, or by first-class mail, postage
prepaid, addressed to him or her at his or her residence or usual place of
business, at least three days before the day on which such meeting is to be
held.
Section 12. Waiver of Notice of Meetings. Notice of any special
meeting need not be given to any director who, either before or after the
meeting, shall sign a written waiver of notice which is filed with the records
of the meeting or who shall attend such meeting. Except as otherwise
specifically required by these By-Laws, a notice or waiver of notice of any
meeting need not state the purposes of such meeting.
Section 13. Quorum and Voting. One-third, but not less than two
(unless there is only one director) of the members of the entire Board shall be
present in person at any meeting of the Board in order to constitute a quorum
for the transaction of business at such meeting, and except
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as otherwise expressly required by Maryland General Corporation Law, the
Charter, these By-Laws, the Investment Company Act, or other applicable statute,
the act of a majority of the directors present at any meeting at which a quorum
is present shall be the act of the Board. In the absence of a quorum at any
meeting of the Board, a majority of the directors present thereat may adjourn
such meeting to another time and place until a quorum shall be present thereat.
Notice of the time and place of any such adjourned meeting shall be given to the
directors who were not present at the time of the adjournment and, unless such
time and place were announced at the meeting at which the adjournment was taken,
to the other directors. At any adjourned meeting at which a quorum is present,
any business may be transacted which might have been transacted at the meeting
as originally called.
Section 14. Organization. The Board, by resolution adopted by a
majority of the entire Board, may designate a Chairman of the Board, who shall
preside at each meeting of the Board. In the absence or inability of the
Chairman of the Board to preside at a meeting, the President or, in his or her
absence or inability to act, another director chosen by a majority of the
directors present, shall act as chairman of the meeting and preside thereat. The
Secretary (or, in his or her absence or inability to act, any person appointed
by the Chairman) shall act as secretary of the meeting and keep the minutes
thereof.
Section 15. Written Consent of Directors in Lieu of a Meeting.
Subject to the provisions of the Investment Company Act, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members of the Board or
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 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 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 other assets and the other investment practices of the
Corporation at all times are consistent with the investment policies and
restrictions with respect to securities investments and otherwise of the
Corporation, as recited in the Prospectus of the Corporation included in the
registration statement of the Corporation relating to the initial public
offering of its capital stock, as filed with the Securities and Exchange
Commission and as required by the Investment Company Act (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). The Board, however, may delegate
the duty of management of the assets and the administration of its day to day
operations to an individual or corporate management company and/or investment
adviser pursuant to a written contract or contracts which have obtained the
requisite approvals, including the requisite approvals of renewals thereof, of
the Board of Directors and/or the stockholders of the Corporation in accordance
with the provisions of the Investment Company Act.
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ARTICLE IV.
Committees
Section 1. Executive Committee. The Board, by resolution adopted by
a majority of the entire board, may designate an Executive Committee consisting
of two or more of the directors of the Corporation, which committee shall have
and may exercise all of the powers and authority of the Board with respect to
all matters other than:
(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;
(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 2. Other Committees of the Board. The Board of Directors
from time to time, by resolution adopted by a majority of the whole Board, may
designate one or more other committees of the Board, each such committee to
consist of two or more directors and to have such powers and duties as the Board
of Directors, by resolution, may prescribe.
Section 3. 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
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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 shall have or may
exercise any authority or power of the Board in the management of the business
or affairs of the Corporation except as may be prescribed by the Board.
ARTICLE V.
Officers, Agents and Employees
Section 1. Number of Qualifications. The officers of the
Corporation shall be a President, a Secretary and a Treasurer, each of whom
shall be elected by the Board of Directors. The Board of Directors may elect or
appoint one or more Vice Presidents and also may appoint such other officers,
agents and employees as it may deem necessary or proper. Any two or more offices
may be held by the same person, except the offices of President and Vice
President, but no officer shall execute, acknowledge or verify any instrument in
more than one capacity. Such officers shall be elected by the Board of Directors
each year a meeting of the Board of Directors, 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 2. Resignations. Any officer of the Corporation may
resign at any time by giving written notice of resignation to the Board, the
Chairman of the Board, 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.
Section 3. Removal of Officer, Agent or Employee. Any
officer, agent or employee of the Corporation may be removed by the Board of
Directors with or without cause at any time, and the Board may delegate such
power of removal as to agents and employees not elected or appointed by the
Board of Directors. Such removal shall be without prejudice to such person's
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contract rights, if any, but the appointment of any person as an officer, agent
or employee of the Corporation shall not of itself create contract rights.
Section 4. Vacancies. A vacancy in any office, whether arising
from death, resignation, removal or any other cause, may be filled for the
unexpired portion of the term of the office which shall be vacant, in the manner
prescribed in these By-Laws for the regular election or appointment to such
office.
Section 5. Compensation. The compensation of the officers of the
Corporation shall be fixed by the Board of Directors, but this power may be
delegated to any officer in respect of other officers under his or her control.
Section 6. Bonds or Other Security. If required by the Board, any
officer, agent or employee of the Corporation shall give a bond or other
security for the faithful performance of his or her duties, in such amount and
with such surety or sureties as the Board may require.
Section 7. President. The President shall be the chief executive
officer of the Corporation. In the absence of the Chairman of the Board (or if
there be none), 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 8. Vice President. Each Vice President shall have such
powers and perform such duties as the Board of Directors or the President from
time to time may prescribe.
Section 9. Treasurer. The Treasurer shall:
(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 Exchange Act) 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
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(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 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
(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 11. Delegation of Duties. In case of the absence of any
officer of the Corporation, or for any other reason that the Board may deem
sufficient, the Board may confer for the time being the powers or duties, or any
of them, of such officer upon any other officer or upon any director.
ARTICLE VI.
Indemnification
Section 1. General Indemnification. Each officer and director of
the Corporation shall be indemnified by the Corporation to the full extent
permitted under the Maryland General Corporation Law, except that such indemnity
shall not protect any such person against any liability to the Corporation or
any stockholder thereof to which such person 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
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faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her office.
Each officer and director of the Corporation claiming
indemnification within the scope of this Article VI shall be entitled to
advances from the Corporation for payment of the reasonable expenses incurred by
him or her in connection with proceedings to which he or she is a party in the
manner and to the full extent permitted under the Maryland General Corporation
Law; 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 Maryland
General Corporation Law, 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 2. Other Rights. The indemnification provided by this
Article VI shall not be deemed exclusive of any other right, in respect of
indemnification or otherwise, to which those seeking such indemnification may be
entitled under any insurance or other agreement, vote of stockholders or
disinterested directors or otherwise, both as to action by a director or officer
of the Corporation in his or her official capacity and as to action by such
person in another capacity while holding such office or position, and shall
continue as to a person who has ceased to be a director or officer and shall
inure to the benefit of the heirs, executors and administrators of such person.
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ARTICLE VII.
Capital Stock
Section 1. Stock Certificates. Each holder of stock of the
Corporation shall be entitled upon request to have a certificate or
certificates, in such form as shall be approved by the Board, representing the
number of shares of stock of the Corporation owned by him or her, provided,
however, that certificates for fractional shares will not be delivered in any
case. The certificates representing shares of stock shall be signed by or in the
name of the Corporation by the 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 2. Books of Account and Record of Stockholders. There shall
be kept at the principal executive office of the Corporation correct and
complete books and records of account of all the business and transactions of
the Corporation.
Section 3. Transfers of Shares. Transfers of shares of stock of the
Corporation shall be made on the stock records of the Corporation only by the
registered holder thereof, or by his or her attorney thereunto authorized by
power of attorney duly executed and filed with the Secretary or with a transfer
agent or transfer clerk, and on surrender of the certificate or certificates, if
issued, for such shares properly endorsed or accompanied by a duly executed
stock transfer power and the payment of all taxes thereon. Except as otherwise
provided by law, the Corporation shall be entitled to recognize the exclusive
right of a person in whose name any share or shares stand on the record of
stockholders as the owner of such share or shares for all purposes, including,
without limitation, the rights to receive dividends or other distributions, and
to vote as such owner, and the Corporation shall not be bound to recognize any
equitable or legal claim to or interest in any such share or shares on the part
of any other person.
Section 4. Regulations. The Board may make such additional rules and
regulations, not inconsistent with these By-Laws, as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
stock of the Corporation. It may appoint, or authorize any officer or officers
to appoint, one or more transfer agents or one or more transfer clerks and one
or more registrars and may require all certificates for shares of stock to bear
the signature or signatures of any of them.
Section 5. 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
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Board in its absolute discretion shall determine, to indemnify the Corporation
against any claim that may be made against it on account of the alleged loss or
destruction of any such certificate, or issuance of a new certificate. Anything
herein to the contrary notwithstanding, the Board, in its absolute discretion,
may refuse to issue any such new certificate, except pursuant to legal
proceedings under the laws of the State of Maryland.
Section 6. Fixing of a Record Date for Dividends and Distributions.
The Board may fix, in advance, a date not more than 90 days preceding the date
fixed for the payment of any dividend or the making of any distribution or the
allotment of rights to subscribe for securities of the Corporation, or for the
delivery of evidences of rights or evidences of interests arising out of any
change, conversion or exchange of common stock or other securities, as the
record date for the determination of the stockholders entitled to receive any
such dividend, distribution, allotment, rights or interests, and in such case
only the stockholders of record at the time so fixed shall be entitled to
receive such dividend, distribution, allotment, rights or interests.
Section 7. Information to Stockholders and Others. Any stockholder
of the Corporation or his or her agent may inspect and copy during usual
business hours the Corporation's By-Laws, minutes of the proceedings of its
stockholders, annual statements of its affairs, and voting trust agreements on
file at its principal office.
ARTICLE VIII.
Seal
The seal of the Corporation shall be circular in form and shall
bear, in addition to any other emblem or device approved by the Board of
Directors, the name of the Corporation, the year of its incorporation and the
words "Corporate Seal" and "Maryland". Said seal may be used by causing it or a
facsimile thereof to be impressed or affixed or in any other manner reproduced.
ARTICLE IX.
Fiscal Year
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 1. Depositories. The funds of the Corporation shall be
deposited with such banks or other depositories as the Board of Directors of the
Corporation from time to time may determine.
Section 2. Custodians. All securities and other investments shall be
deposited in the safekeeping of such banks or other companies as the Board of
Directors of the Corporation from time to time may determine. Every arrangement
entered into with any bank or other company
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for the safekeeping of the securities and investments of the Corporation shall
contain provisions complying with the Investment Company Act, and the general
rules and regulations thereunder.
ARTICLE XI.
Execution of Instruments
Section 1. Checks, Notes, Drafts, etc. Checks, notes, drafts,
acceptances, bills of exchange and other orders or obligations for the payment
of money shall be signed by such officer or officers or person or persons as the
Board of Directors by resolution from time to time shall designate.
Section 2. Sale or Transfer of Securities. Stock certificates,
bonds or other securities at any time owned by the Corporation may be held on
behalf of the Corporation or sold, transferred or otherwise disposed of subject
to any limits imposed by these By-Laws and 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 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 and other assets 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
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required by the Investment Company Act, and shall set forth such other matters
as the Board or such firm of independent public accountants shall determine.
ARTICLE XIV.
Amendments
These By-Laws or any of them may be amended, altered or repealed by
the affirmative vote of a majority of the Board of Directors. The stockholders
shall have no power to make, amend, alter or repeal By-Laws.
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EXHIBIT (j)
CHASE LOGO
GLOBAL CUSTODY AGREEMENT
This AGREEMENT is effective September 14, 1999, and is between THE CHASE
MANHATTAN BANK ("Bank") and THE S&P 500 PROTECTED EQUITY FUND, INC.
("Customer").
1. CUSTOMER ACCOUNTS
Bank, acting as "Securities Intermediary" (as defined in Section 15(g)
hereof) shall establish and maintain the following accounts ("Accounts"): (a) a
Custody Account (as defined in Section 15(b) hereof) in the name of Customer
for Financial Assets, which shall, except as modified by Section 15(d) hereof,
mean stocks, shares, bonds, debentures, notes, mortgages or other obligations
for the payment of money, bullion, coin and any certificates, receipts, warrants
or other instruments representing rights to receive, purchase or subscribe for
the same or evidencing or representing any other rights or interests therein and
other similar property whether certificated or uncertificated as may be received
by Bank or its Subcustodian (as defined in Section 3 hereof) for the account of
Customer, including as an "Entitlement Holder" as defined in Section 15(c)
hereof); and
(b) an account in the name of Customer ("Deposit Account") for any and
all cash in any currency received by Bank or its Subcustodian for the account of
Customer, which cash shall not be subject to withdrawal by draft or check.
Customer warrants its authority to: 1) deposit the cash and Financial
Assets (collectively "Assets") received in the Accounts and 2) give Instructions
(as defined in Section 11 hereof) concerning the Accounts. Bank may deliver
Financial Assets of the same class in place of those deposited in the Custody
Account.
Upon written agreement between Bank and Customer, additional Accounts may
be established and separately accounted for as additional Accounts hereunder.
2. MAINTENANCE OF FINANCIAL ASSETS AND CASH AT BANK AND SUBCUSTODIAN
LOCATIONS.
Unless Instructions specifically require another location acceptable to
Bank:
(a) Financial Assets shall be held in the country or other jurisdiction
in which the principal trading market for such Financial Assets is located,
where such Financial Assets are to be presented for payment or where such
Financial Assets are acquired; and
(b) Cash shall be credited to an account in a country or other
jurisdiction in which such cash may be legally deposited or is the legal
currency for the payment of public or private debts.
Cash may be held pursuant to Instructions in either interest or
non-interest bearing accounts as may be available for the particular currency.
To the extent Instructions are issued and Bank can comply with such
Instructions, Bank is authorized to maintain cash balances on deposit for
Customer with itself or one of its "Affiliates" at such reasonable rates of
interest as may from time to time be paid on such accounts, or in non-interest
bearing accounts as Customer may direct, if acceptable to Bank. For purposes
hereof, the term "Affiliate" shall mean an entity controlling, controlled by, or
under common control with, Bank.
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If Customer wishes to have any of its Assets held in the custody of an
institution other than the established Subcustodians as defined in Section 3 (or
their securities depositories), such arrangement must be authorized by a written
agreement, signed by Bank and Customer.
3. SUBCUSTODIANS AND SECURITIES DEPOSITORIES.
Bank may act hereunder through the subcustodians listed in Schedule A
hereof with which Bank has entered into subcustodial agreements
("Subcustodians"). Customer authorizes Bank to hold Assets in the Accounts in
accounts which Bank has established with one or more of its branches or
Subcustodians. Bank and Subcustodians are authorized to hold any of Financial
Assets in their account with any securities depository in which they
participate.
Bank reserves the right to add new, replace or remove Subcustodians.
Customer shall be given reasonable notice by Bank of any amendment to Schedule
A. Upon request by Customer, Bank shall identify the name, address and
principal place of business of any Subcustodian of Customer's Assets and the
name and address of the governmental agency or other regulatory authority that
supervises or regulates such Subcustodian.
4. USE OF SUBCUSTODIAN.
(a) Bank shall identify the Assets on its books as belonging to Customer.
(b) A Subcustodian shall hold such Assets together with assets belonging
to other customers of Bank in accounts identified on such Subcustodian's books
as custody accounts for the exclusive benefit of customers of Bank.
(c) Any Assets in the Accounts held by a Subcustodian shall be subject
only to the instructions of Bank or its agent. Any Financial Assets held in a
securities depository for the account of a Subcustodian shall be subject only to
the instructions of such Subcustodian.
(d) Any agreement Bank enters into with a Subcustodian for holding Bank's
customers' assets shall provide that such assets shall not be subject to any
right, charge, security interest, lien or claim of any kind in favor of such
Subcustodian except for safe custody or administration, and that the beneficial
ownership of such assets shall be freely transferable without the payment of
money or value other than for safe custody or administration, or, in the case of
cash deposits, except for liens or rights in favor of creditors of the
Subcustodian arising under bankruptcy, insolvency or similar laws. Where
Securities are deposited by a Subcustodian with a securities depository, Bank
shall cause the Subcustodian to identify on its books as belonging to Bank, as
agent, the Securities shown on the Subcustodian's account on the books of such
securities depository. The foregoing shall not apply to the extent of any
special agreement or arrangement made by Customer with any particular
Subcustodian.
5. DEPOSIT ACCOUNT TRANSACTIONS.
(a) Bank or its Subcustodians shall make payments from the Deposit
Account upon receipt of Instructions which include all information required by
Bank.
(b) In the event that any payment to be made under this Section 5 exceeds
the funds available in the Deposit Account, Bank, in its discretion, may advance
Customer such excess amount which shall be deemed a loan payable on demand,
bearing interest at the rate customarily charged by Bank on similar loans.
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(c) If Bank credits the Deposit Account on a payable date, or at any
time prior to actual collection and reconciliation to the Deposit Account, with
interest, dividends, redemptions or any other amount due, Customer shall
promptly return any such amount upon oral or written notification: (i) that
such amount has not been received in the ordinary course of business or (ii)
that such amount was incorrectly credited. If Customer does not promptly return
any amount upon such notification, Bank shall be entitled, upon oral or written
notification to Customer, to reverse such credit by debiting the Deposit
Account for the amount previously credited. Bank or its Subcustodian shall have
no duty or obligation to institute legal proceedings, file a claim or a proof
of claim in any insolvency proceeding or take any other action with respect to
the collection of such amount, but may act for Customer upon Instructions after
consultation with Customer.
6. CUSTODY ACCOUNT TRANSACTIONS.
(a) Financial Assets shall be transferred, exchanged or delivered by
Bank or its Subcustodian upon receipt by Bank of Instructions which include all
information required by Bank. Settlement and payment for Financial Assets
received for, and delivery of Financial Assets out of, the Custody Account may
be made in accordance with the customary or established securities trading or
securities processing practices and procedures in the jurisdiction or market in
which the transaction occurs, including, without limitation, delivery of
Financial Assets to a purchaser, dealer or their agents against a receipt with
the expectation of receiving later payment and free delivery. Delivery of
Financial Assets out of the Custody Account may also be made in any manner
specifically required by Instructions acceptable to Bank.
(b) Bank, in its discretion, may credit or debit the Accounts on a
contractual settlement date with cash or Financial Assets with respect to any
sale, exchange or purchase of Financial Assets. Otherwise, such transactions
shall be credited or debited to the Accounts on the date cash or Financial
Assets are actually received by Bank and reconciled to the Account.
(i) Bank may reverse credits or debits made to the Accounts in its
discretion if the related transaction fails to settle within a reasonable
period, determined by Bank in its discretion, after the contractual
settlement date for the related transaction.
(ii) If any Financial Assets delivered pursuant to this Section 6
are returned by the recipient thereof, Bank may reverse the credits and
debits of the particular transaction at any time.
7. ACTIONS OF BANK.
Bank shall follow Instructions received regarding Assets held in the
Accounts. However, until it receives Instructions to the contrary, Bank shall:
(a) Present for payment any Financial Assets which are called, redeemed
or retired or otherwise become payable and all coupons and other income items
which call for payment upon presentation, to the extent that Bank or
Subcustodian is actually aware of such opportunities.
(b) Execute in the name of Customer such ownership and other
certificates as may be required to obtain payments in respect of Financial
Assets.
(c) Exchange interim receipts or temporary Financial Assets for
definitive Financial Assets.
(d) Appoint brokers and agents for any transaction involving the
Financial Assets, including, without limitation, Affiliates of Bank or any
Subcustodian.
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(e) Issue statements to Customer, at times mutually agreed upon,
identifying the Assets in the Accounts.
Bank shall send Customer an advice or notification of any transfers of
Assets to or from the Accounts. Such statements, advices or notifications shall
indicate the identity of the entity having custody of the Assets. Unless
Customer sends Bank a written exception or objection to any Bank statement
within sixty (60) days of receipt, Customer shall be deemed to have approved
such statement. In such event, or where Customer has otherwise approved any
such statement, Bank shall, to the extent permitted by law, be released,
relieved and discharged with respect to all matters set forth in such statement
or reasonably implied therefrom as though it had been settled by the decree of
a court of competent jurisdiction in an action where Customer and all persons
having or claiming an interest in Customer or Customer's Accounts were parties.
All collections of funds or other property paid or distributed in respect
of Financial Assets in the Custody Account shall be made at the risk of
Customer. Bank shall have no liability for any loss occasioned by delay in the
actual receipt of notice by Bank or by its Subcustodians of any payment,
redemption or other transaction regarding Financial Assets in the Custody
Account in respect of which Bank has agreed to take any action hereunder.
8. CORPORATE ACTIONS; PROXIES; TAX RECLAIMS.
(a) Corporate Actions. Whenever Bank receives information concerning the
Financial Assets which requires discretionary action by the beneficial owner of
the Financial Assets (other than a proxy), such as subscription rights, bonus
issues, stock repurchase plans and rights offerings, or legal notices or other
material intended to be transmitted to securities holders ("Corporate
Actions"), Bank shall give Customer notice of such Corporate Actions to the
extent that Bank's central corporate actions department has actual knowledge of
a Corporate Action in time to notify its customers.
When a rights entitlement or a fractional interest resulting from a
rights issue, stock dividend, stock split or similar Corporate Action is
received which bears an expiration date, Bank shall endeavor to obtain
Instructions from Customer or its Authorized Person (as defined in Section 10
hereof), but if Instructions are not received in time for Bank to take timely
action, or actual notice of such Corporate Action was received too late to seek
Instructions, Bank is authorized to sell such rights entitlement or fractional
interest and to credit the Deposit Account with the proceeds or take any other
action it deems, in good faith, to be appropriate in which case it shall be
held harmless for any such action.
(b) Proxy Voting. Bank shall provide proxy voting services, if elected
by Customer, in accordance with the terms of the proxy voting services rider
hereto. Proxy voting services may be provided by Bank or, in whole or in part,
by one or more third parties appointed by Bank (which may be Affiliates of
Bank).
(c) Tax Reclaims.
(i) Subject to the provisions hereof, Bank shall apply for a
reduction of withholding tax and any refund of any tax paid or tax
credits which apply in each applicable market in respect of income
payments on Financial Assets for the benefit of Customer which Bank
believes may be available to such Customer.
(ii) The provision of tax reclaim services by Bank is conditional
upon Bank receiving from the beneficial owner of Financial Assets (A) a
declaration of its identity and place of residence and (B) certain other
documentation (pro forma copies of which are available from Bank).
Customer acknowledges that, if Bank does not receive such declarations,
documentation and information,
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additional United Kingdom taxation shall be deducted from all income
received in respect of Financial Assets issued outside the United Kingdom
and that U.S. non-resident alien tax or U.S. backup withholding tax shall
be deducted from U.S. source income. Customer shall provide to Bank such
documentation and information as it may require in connection with
taxation, and warrants that, when given, this information shall be true
and correct in every respect, not misleading in any way, and contain all
material information. Customer undertakes to notify Bank immediately if
any such information requires updating or amendment.
(iii) Bank shall not be liable to Customer or any third party for
any taxes, fines or penalties payable by Bank or Customer, and shall be
indemnified accordingly, whether these result from the inaccurate
completion of documents by Customer or any third party acting as agent for
Customer, or as a result of the provision to Bank or any third party of
inaccurate or misleading information or the withholding of material
information by Customer or any other third party, or as a result of any
delay of any revenue authority or any other matter beyond the control of
Bank.
(iv) Customer confirms that Bank is authorized to deduct from any
cash received or credited to the Deposit Account any taxes or levies
required by any revenue or governmental authority for whatever reason in
respect of the Securities or Cash Accounts.
(v) Bank shall perform tax reclaim services only with respect to
taxation levied by the revenue authorities of the countries notified to
Customer from time to time and Bank may, by notification in writing, at
its absolute discretion, supplement or amend the markets in which the tax
reclaim services are offered. Other than as expressly provided in this
sub-clause, Bank shall have no responsibility with regard to Customer's
tax position or status in any jurisdiction.
(vi) Customer confirms that Bank is authorized to disclose any
information requested by any revenue authority or any governmental body in
relation to Customer or the Financial Assets and/or Cash held for
Customer.
(vii) Tax reclaim services may be provided by Bank or, in whole or
in part, by one or more third parties appointed by Bank (which may be
Affiliates of Bank); provided that Bank shall be liable for the
performance of any such third party to the same extent as Bank would have
been if it performed such services itself.
9. NOMINEES.
Financial Assets which are ordinarily held in registered form may be
registered in a nominee name of Bank, Subcustodian or securities depository, as
the case may be. Bank may without notice to Customer cause any such Financial
Assets to cease to be registered in the name of any such nominee and to be
registered in the name of Customer. In the event that any Financial Assets
registered in a nominee name are called for partial redemption by the issuer,
Bank may allot the called portion to the respective beneficial holders of such
class of security in any manner Bank deems to be fair and equitable. Customer
shall hold Bank, Subcustodians, and their respective nominees harmless from any
liability arising directly or indirectly from their status as a mere record
holder of Financial Assets in the Custody Account.
10. AUTHORIZED PERSONS.
As used herein, the term "Authorized Person" means employees or agents
including investment managers as have been designated by written notice from
Customer or its designated agent to act on behalf of Customer hereunder. Such
persons shall continue to be Authorized Persons until such time as Bank receives
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Instructions from Customer or its designated agent that any such employee or
agent is no longer an Authorized Person.
11. INSTRUCTIONS.
The term "Instructions" means instructions of any Authorized Person
received by Bank, via telephone, telex, facsimile transmission, bank wire or
other teleprocess or electronic instruction or trade information system
acceptable to Bank which Bank believes in good faith to have been given by
Authorized Persons or which are transmitted with proper testing or
authentication pursuant to terms and conditions which Bank may specify. Unless
otherwise expressly provided, all Instructions shall continue in full force and
effect until canceled or superseded. The term "Instructions" includes, without
limitation, instructions to sell, assign, transfer, deliver, purchase or receive
for the Custody Account, any and all stocks, bonds and other Financial Assets or
to transfer funds in the Cash Account.)
Any Instructions delivered to Bank by telephone shall promptly thereafter
be confirmed in writing by an Authorized Person (which confirmation may bear the
facsimile signature of such Person), but Customer shall hold Bank harmless for
the failure of an Authorized Person to send such confirmation in writing, the
failure of such confirmation to conform to the telephone instructions received
or Bank's failure to produce such confirmation at any subsequent time. Bank may
electronically record any Instructions given by telephone, and any other
telephone discussions with respect to the Custody Account. Customer shall be
responsible for safeguarding any testkeys, identification codes or other
security devices which Bank shall make available to Customer or its Authorized
Persons.
12. STANDARD OF CARE; LIABILITIES.
(a) Bank shall be responsible for the performance of only such duties as
are set forth herein or expressly contained in Instructions which are consistent
with the provisions hereof as follows:
(i) Bank shall use reasonable care with respect to its obligations
hereunder and the safekeeping of Assets. The Bank shall be liable to the
Customer for any loss which shall occur as the result of the failure of a
Subcustodian to exercise reasonable care with respect to the safekeeping
of such Assets to the same extent that the Bank would be liable to the
Customer if the Bank were holding such Assets in New York. In the event of
any loss to Customer by reason of the failure of Bank or its Subcustodian
to utilize reasonable care, Bank shall be liable to Customer only to the
extent of Customer's direct damages, to be determined based on the market
value of the property which is the subject of the loss at the date of
discovery of such loss and without reference to any special conditions or
circumstances. Bank shall have no liability whatsoever for any
consequential, special, indirect or speculative loss or damages
(including, but not limited to, lost profits) suffered by Customer in
connection with the transactions contemplated hereby and the relationship
established hereby even if Bank has been advised as to the possibility of
the same and regardless of the form of the action.
(ii) Bank shall not be responsible for the insolvency of any
Subcustodian which is not a branch or Affiliate of Bank. Bank shall not be
responsible for any act, omission, default or the solvency of any broker
or agent which it or a Subcustodian appoints unless such appointment was
made negligently or in bad faith.
(iii) Banks shall be indemnified by, and without liability to
Customer for any action taken or omitted by Bank whether pursuant to
Instructions or otherwise within the scope hereof if such act or omission
was in good faith, without negligence. In performing its obligations
hereunder, Bank may rely on the genuineness of any document which it
believes in good faith to have been validly executed.
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(iv) Customer shall pay for and hold Bank harmless from any
liability or loss resulting from the imposition or assessment of any taxes
or other governmental charges, and any related expenses with respect to
income from or Assets in the Accounts.
(v) Bank shall be entitled to rely, and may act, upon the advice
of counsel (who may be counsel for Customer) on all matters and shall be
without liability for any action reasonably taken or omitted pursuant to
such advice.
(vi) Bank need not maintain any insurance for the benefit of
Customer.
(vii) Without limiting the foregoing, Bank shall not be liable for
any loss which results from: 1) the general risk of investing, or 2)
investing or holding Assets in a particular country including, but not
limited to, losses resulting from malfunction, interruption of or error in
the transmission of information caused by any machines or system or
interruption of communication facilities, abnormal operating conditions,
nationalization, expropriation or other governmental actions; regulation
of the banking or securities industry; currency restrictions, devaluations
or fluctuations; and market conditions which prevent the orderly execution
of securities transactions or affect the value of Assets.
(viii) Neither party shall be liable to the other for any loss due to
forces beyond their control including, but not limited to strikes or work
stoppages, acts of war (whether declared or undeclared) or terrorism,
insurrection, revolution, nuclear fusion, fission or radiation, or acts of
God.
(b) Consistent with and without limiting the first paragraph of this
Section 12, it is specifically acknowledged that Bank shall have no duty or
responsibility to:
(i) question Instructions or make any suggestions to Customer or
an Authorized Person regarding such Instructions;
(ii) supervise or make recommendations with respect to investments
or the retention of Financial Assets;
(iii) advise Customer or an Authorized Person regarding any default
in the payment of principal or income of any security other than as
provided in Section 5(c) hereof;
(iv) evaluate or report to Customer or an Authorized Person
regarding the financial condition of any broker, agent or other party to
which Financial Assets are delivered or payments are made pursuant hereto;
and
(v) review or reconcile trade confirmations received from brokers.
Customer or its Authorized Persons issuing Instructions shall bear any
responsibility to review such confirmations against Instructions issued to
and statements issued by Bank.
(c) Customer authorizes Bank to act hereunder notwithstanding that Bank
or any of its divisions or Affiliates may have a material interest in a
transaction, or circumstances are such that Bank may have a potential conflict
of duty or interest including the fact that Bank or any of its Affiliates may
provide brokerage services to other customers, act as financial advisor to the
issuer of Financial Assets, act as a lender to the issuer of Financial Assets,
act in the same transaction as agent for more than one customer, have a material
interest in the issue of Financial Assets, or earn profits from any of the
activities listed herein.
7
<PAGE> 8
13. FEES AND EXPENSES.
Customer shall pay Bank for its services hereunder the fees set forth in
Schedule B hereto or such other amounts as may be agreed upon in writing,
together with Bank's reasonable out-of-pocket or incidental expenses,
including, but not limited to, legal fees. Bank shall have a lien on and is
authorized to charge any Accounts of Customer for any amount owing to Bank
under any provision hereof.
14. MISCELLANEOUS.
(a) Foreign Exchange Transactions. To facilitate the administration of
Customer's trading and investment activity, Bank is authorized to enter into
spot or forward foreign exchange contracts with Customer or an Authorized
Person for Customer and may also provide foreign exchange through its
subsidiaries, Affiliates or Subcustodians. Instructions, including standing
instructions, may be issued with respect to such contracts but Bank may
establish rules or limitations concerning any foreign exchange facility made
available. In all cases where Bank, its subsidiaries, Affiliates or
Subcustodians enter into a foreign exchange contract related to Accounts, the
terms and conditions of the then current foreign exchange contract of Bank, its
subsidiary, Affiliate or Subcustodian and, to the extent not inconsistent, this
Agreement shall apply to such transaction.
(b) Certification of Residency, etc. Customer certifies that it is a
resident of the United States and shall notify Bank of any changes in residency.
Bank may rely upon this certification or the certification of such other facts
as may be required to administer Bank's obligations hereunder. Customer shall
indemnify Bank against all losses, liability, claims or demands arising directly
or indirectly from any such certifications.
(c) Access to Records. Bank shall allow Customer's independent public
accountant reasonable access to the records of Bank relating to the Assets as is
required in connection with their examination of books and records pertaining to
Customer's affairs. Subject to restrictions under applicable law, Bank shall
also obtain an undertaking to permit Customer's independent public accountants
reasonable access to the records of any Subcustodian which has physical
possession of any Assets as may be required in connection with the examination
of Customer's books and records.
(d) Governing Law, Successors and Assigns, Captions THIS AGREEMENT SHALL
BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE
AND TO BE PERFORMED IN NEW YORK and shall not be assignable by either party, but
shall bind the successors in interest of Customer and Bank. The captions given
to the sections and subsections of this Agreement are for convenience of
reference only and are not to be used to interpret this Agreement.
(e) Entire Agreement; Applicable Riders. Customer represents that the
Assets deposited in the Accounts are (Check one):
__ Investment Company assets subject to certain U.S. Securities and
Exchange Commission rules and regulations;
__ Other (specify)
This Agreement consists exclusively of this document together with
Schedules A and B, Exhibits I - _____ and the following Rider(s) [Check
applicable rider(s)]:
__ INVESTMENT COMPANY
8
<PAGE> 9
__ PROXY VOTING
__ SPECIAL TERMS AND CONDITIONS
There are no other provisions hereof and this Agreement supersedes any
other agreements, whether written or oral, between the parties. Any amendment
hereto must be in writing, executed by both parties.
(f) Severability. In the event that one or more provisions hereof are
held invalid, illegal or unenforceable in any respect on the basis of any
particular circumstances or in any jurisdiction, the validity, legality and
enforceability of such provision or provisions under other circumstances or in
other jurisdictions and of the remaining provisions shall not in any way be
affected or impaired.
(g) Waiver. Except as otherwise provided herein, no failure or delay on
the part of either party in exercising any power or right hereunder operates as
a waiver, nor does any single or partial exercise of any power or right preclude
any other or further exercise, or the exercise of any other power or right. No
waiver by a party of any provision hereof, or waiver of any breach or default,
is effective unless in writing and signed by the party against whom the waiver
is to be enforced.
(h) Representations and Warranties. (i) Customer hereby represents and
warrants to Bank that: (A) it has full authority and power to deposit and
control the Financial Assets and cash deposited in the Accounts; (B) it has all
necessary authority to use Bank as its custodian; (C) this Agreement
constitutes its legal, valid and binding obligation, enforceable in accordance
with its terms; (D) it shall have full authority and power to borrow moneys and
enter into foreign exchange transactions; and (E) it has not relied on any oral
or written representation made by Bank or any person on its behalf, and
acknowledges that this Agreement sets out to the fullest extent the duties of
Bank. (ii) Bank hereby represents and warrants to Customer that: (A) it has the
full power and authority to perform its obligations hereunder, (B) this
Agreement constitutes its legal, valid and binding obligation; enforceable in
accordance with its terms; and (C) that it has taken all necessary action to
authorize the execution and delivery hereof.
(i) Notices. All notices hereunder shall be effective when actually
received. Any notices or other communications which may be required hereunder
are to be sent to the parties at the following addresses or such other
addresses as may subsequently be given to the other party in writing: (a)
Bank: The Chase Manhattan Bank, 4 Chase MetroTech Center, Brooklyn, N.Y. 11245,
Attention: Global Investor Services, Investment Management Group; and (b)
Customer: THE S & P 500 PROTECTED EQUITY FUND, INC., 800 Scudders Mill Road,
Plainsboro, New Jersey 08536, Attention: Donald C. Burke, Senior Vice President
and Treasurer.
- -----------------------------------------------------------------------------
(j) Termination. This Agreement may be terminated by Customer or Bank by
giving sixty (60) days written notice to the other, provided that such notice to
Bank shall specify the names of the persons to whom Bank shall deliver the
Assets in the Accounts. If notice of termination is given by Bank, Customer
shall, within sixty (60) days following receipt of the notice, deliver to Bank
Instructions specifying the names of the persons to whom Bank shall deliver the
Assets. In either case Bank shall deliver the Assets to the persons so
specified, after deducting any amounts which Bank determines in good faith to be
owed to it under Section 13. If within sixty (60) days following receipt of a
notice of termination by Bank, Bank does not receive Instructions from Customer
specifying the names of the persons to whom Bank shall deliver the Assets, Bank,
at its election, may deliver the Assets to a bank or trust company doing
business in the State of New York to be held and disposed of pursuant to the
provisions hereof, or to Authorized Persons, or may continue to hold the Assets
until Instructions are provided to Bank.
9
<PAGE> 10
(k) Money Laundering. Customer warrants and undertakes to Bank for itself
and its agents that all Customer's customers are properly identified in
accordance with U.S. Money Laundering Regulations as in effect from time to
time.
(l) Imputation of certain information. Bank shall not be held responsible
for and shall not be required to have regard to information held by any person
by imputation or information of which Bank is not aware by virtue of a "Chinese
Wall" arrangement. If Bank becomes aware of confidential information which in
good faith it feels inhibits it from effecting a transaction hereunder Bank may
refrain from effecting it.
15. DEFINITIONS
As used herein, the following terms shall have the meaning hereinafter
stated:
a) "Certificated Security" shall mean a security that is represented by a
certificate.
b) "Custody Account" means each Securities custody account on Bank's records
to which Financial Assets are or may be credited pursuant hereto.
c) "Entitlement Holder" shall mean the person on the records of a Securities
Intermediary as the person having a Securities Entitlement against the
Securities Intermediary.
d) "Financial Asset" shall mean, as the context requires, either the asset
itself or the means by which a person's claim to it is evidenced,
including a Certificated Security or Uncertificated Security, a security
certificate, or a Securities Entitlement.
e) "Securities" means stocks, bonds, rights, warrants and other negotiable
and non-negotiable paper whether issued as Certificated Securities or
Uncertificated Securities and commonly traded or dealt in on securities
exchanges or financial markets, and other obligations of an issuer, or
shares, participations and interests in an issuer recognized in an area in
which it is issued or dealt in as a medium for investment and any other
property as shall be acceptable to Bank for the Custody Account.
f) "Securities Entitlement" shall mean the rights and property interest of an
Entitlement Holder with respect to a Financial Asset as set forth in Part
5 of the Uniform Commercial Code.
g) "Securities Intermediary" shall mean Bank, a Subcustodian, a securities
depository, and any other financial institution which in the ordinary
course of business maintains custody accounts for others and acts in that
capacity.
h) "Uncertificated Security" shall mean a security that is not represented by
a certificate.
i) "Uniform Commercial Code" means Article 8 of the Uniform Commercial Code
of the State of New York, as the same may be amended from time to time.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first-above written.
10
<PAGE> 11
THE CUSTOMER THE BANK
THE S & P 500 PROTECTED EQUITY THE CHASE MANHATTAN BANK
FUND, INC.
By: By:
------------------------- -------------------------
Name: Name:
Title: Title:
Date: Date:
11
<PAGE> 12
STATE OF )
:ss.
COUNTY OF )
On this day of , 199 , before me personally came
, to me known, who being by me duly sworn, did depose and
say that he/she resides in at ,
that he/she is of ,
the entity described in and which executed the foregoing instrument, that he/she
knows the seal of said entity, that the seal affixed to said instrument is such
seal, that it was so affixed by order of said entity, and that he/she signed
his/her name thereto by like order.
Sworn to before me this________
day of________,199_.
Notary
<PAGE> 13
STATE OF NEW YORK )
:ss.
COUNTY OF NEW YORK )
On this day of , 199 , before me
personally came to me known, who being by me duly sworn, did depose and say
that he/she resides in at ; that he/she
is a Vice President of THE CHASE MANHATTAN BANK, the corporation described in
and which executed the foregoing instrument; that he/she knows the seal of said
corporation, that the seal affixed to said instrument is such corporate seal,
that it was so affixed by order of the Board of Directors of said corporation,
and that he/she signed his/her name thereto by like order.
Sworn to before me this________
day of ________, 199_.
Notary
<PAGE> 14
INVESTMENT COMPANY RIDER TO GLOBAL CUSTODY AGREEMENT
BETWEEN THE CHASE MANHATTAN BANK AND
THE S&P 500 PROTECTED EQUITY FUND, INC.
EFFECTIVE SEPTEMBER 14, 1999
The following modifications are made to the Agreement:
A. Add a new Section 16 to the Agreement as follows:
"16. COMPLIANCE WITH SEC RULE 17f-5.
(a) Customer's board of directors (or equivalent body) (hereinafter
'Board') hereby delegates to Bank, and, except as to the country or countries as
to which Bank may, from time to time, advise Customer that it does not accept
such delegation, Bank hereby accepts the delegation to it, of the obligation to
perform as Customer's 'Foreign Custody Manager' (as that term is defined in SEC
rule 17f-5(a)(2)s promulgated under the Investment Company Act of 1940, as
amended ("1940 Act")), both for the purpose of selecting Eligible Foreign
Custodians (as that term is defined in SEC rule 17f-5(a)(1), and as the same may
be amended from time to time, or that have otherwise been made exempt pursuant
to an SEC exemptive order) to hold Financial Assets and Cash and of evaluating
the contractual arrangements with such Eligible Foreign Custodians (as set forth
in SEC rule 17f-5(c)(2)); provided that, the term Eligible Foreign Custodian
shall not include any 'Eligible Securities Depository.' An Eligible Securities
Depository for purposes hereof shall have the same meaning as in SEC 17f-7 as
proposed on April 29, 1999. (Eligible Securities Depositories used by Bank as of
the date hereof are set forth in Appendix 1-A hereto, and as the same may be
amended on notice to Customer from time to time.)
(b) In connection with the foregoing, Bank shall:
(i) provide written reports notifying Customer's Board of the placement
of Financial Assets and Cash with particular Eligible Foreign Custodians
and of any material change in the arrangements with such Eligible Foreign
Custodians, with such reports to be provided to Customer's Board at such
times as the Board deems reasonable and appropriate based on the
circumstances of Customer's foreign custody arrangements (and until
further notice from Customer such reports shall be provided not less than
quarterly with respect to the placement of Financial Assets and Cash with
particular Eligible Foreign Custodians and with reasonable promptness upon
the occurrence of any material change in the arrangements with such
Eligible Foreign Custodians);
(ii) exercise such reasonable care, prudence and diligence in performing
as Customer's Foreign Custody Manager as a person having responsibility
for the safekeeping of Financial Assets and Cash would exercise;
(iii) in selecting an Eligible Foreign Custodian, first have determined
that Financial Assets and Cash placed and maintained in the safekeeping of
such Eligible Foreign Custodian shall be subject to reasonable care, based
on the standards applicable to custodians in the relevant market, after
having considered all factors relevant to the safekeeping of such
Financial Assets and Cash, including, without limitation, those factors
set forth in SEC rule 17f-5(c)(1)(i)-(iv);
<PAGE> 15
(iv) determine that the written contract with the Eligible Foreign
Custodian requires that the Eligible Foreign Custodian will provide
reasonable care for Financial Assets and Cash based on the standards
applicable to custodians in the relevant market.
(v) have established a system to monitor the continued appropriateness of
maintaining Financial Assets and Cash with particular Eligible Foreign
Custodians and of the governing contractual arrangements; it being
understood however, that in the event that Bank shall have determined
that the existing Eligible Foreign Custodian in a given country would no
longer afford Financial Assets and Cash reasonable care and that no other
Eligible Foreign Custodian in that country would afford reasonable care,
Bank shall promptly so advise Customer and shall then act in accordance
with the Instructions of Customer with respect to the disposition of the
affected Financial Assets and Cash.
Subject to (b)(i)-(v) above, Bank is hereby authorized to place and maintain
Financial Assets and Cash on behalf of Customer with Eligible Foreign Custodians
pursuant to a written contract deemed appropriate by Bank.
(c) Except as expressly provided herein, Customer shall be solely
responsible to assure that the maintenance of Financial Assets and Cash
hereunder complies with the rules, regulations, interpretations and exemptive
orders promulgated by or under the authority of the SEC.
(d) Bank represents to Customer that it is a U.S. Bank as defined in Rule
17f-5(a)(7). Customer represents to Bank that: (1) the Financial Assets and Cash
being placed and maintained in Bank's custody are subject to the 1940 Act as the
same may be amended from time to time; (2) its Board: (i) has determined that it
is reasonable to rely on Bank to perform as Customer's Foreign Custody Manager
(ii) or its investment adviser shall have determined that Customer may maintain
Financial Assets and Cash in each country in which Customer's Financial Assets
and Cash shall be held hereunder and determined to accept the risks arising
therefrom (including, but not limited to, a country's financial infrastructure),
prevailing custody and settlement practices, laws applicable to the safekeeping
and recovery of Financial Assets and Cash held in custody, and the likelihood of
nationalization, currency controls and the like) (collectively ("Country
Risk")). Nothing contained herein shall require Bank to make any selection or
to engage in any monitoring on behalf of Customer that would entail
consideration of Country Risk.
(e) Bank shall provide to Customer such information relating to Country
Risk as is specified in Appendix 1-B hereto. Customer hereby acknowledges that:
(i) such information is solely designed to inform Customer of market conditions
and procedures and is not intended as a recommendation to invest or not invest
in particular markets; and (ii) Bank has gathered the information from sources
it considers reliable, but that Bank shall have no responsibility for
inaccuracies or incomplete information.
B. Add the following after the first sentence of Section 3 of the
Agreement: "At the request of Customer, Bank may, but need not, add to Schedule
A an Eligible Foreign Custodian where Bank has not acted as Foreign Custody
Manager with respect to the selection thereof. Bank shall notify Customer in the
event that it elects to add any such entity."
C. Add the following language to the end of Section 3 of the Agreement:
"The term Subcustodian as used herein shall mean the following:
(a) a 'U.S. Bank,' which shall mean a U.S. bank as defined in SEC rule
17f-5(a)(7);
2
<PAGE> 16
(b) an 'Eligible Foreign Custodian,' which shall mean (i) a banking
institution or trust company, incorporated or organized under the laws of
a country other than the United States, that is regulated as such by that
country's government or an agency thereof, (ii) a majority-owned direct or
indirect subsidiary of a U.S. bank or bank holding company which
subsidiary is incorporated or organized under the laws of a country other
than the United States; and (iii) any other entity (other than an Eligible
Securities Depository) that shall have been so qualified by exemptive
order, rule or other appropriate action of the SEC.
For purposes of clarity, it is agreed that as used in Section 12(a)(i), the term
Subcustodian shall not include any Eligible Foreign Custodian as to which Bank
has not acted as Foreign Custody Manager or any Eligible Securities Depository."
3
<PAGE> 17
Appendix 1-A
ELIGIBLE SECURITIES DEPOSITORIES
<PAGE> 18
Appendix 1-B
Information Regarding Country Risk
1. To aid Customer in its determinations regarding Country Risk, Bank
shall furnish annually and upon the initial placing of Financial Assets and Cash
into a country the following information (check items applicable):
A Opinions of local counsel concerning:
X i. Whether applicable foreign law would restrict the access afforded
- --- Customer's independent public accountants to books and records
kept by an eligible foreign custodian located in that country.
X ii. Whether applicable foreign law would restrict the Customer's
- --- ability to recover its Financial Assets and Cash in the event of
the bankruptcy of an Eligible Foreign Custodian located in that
country.
X iii. Whether applicable foreign law would restrict the Customer's
- --- ability to recover Financial Assets that are lost while under
the control of an Eligible Foreign Custodian located in the
country.
B. Written information concerning:
X i. The foreseeability of expropriation, nationalization, freezes, or
- --- confiscation of Customer's Financial Assets and Cash.
X ii. Whether difficulties in converting Customer's cash and cash
- --- equivalents to U.S. dollars are reasonably foreseeable.]
C. A market report with respect to the following topics:
(i) securities regulatory environment, (ii) foreign ownership
restrictions, (iii) foreign exchange, (iv) securities settlement and
registration, (v) taxation, and (vi) compulsory depositories (including
depository evaluation).
2. To aid Customer in monitoring Country Risk, Bank shall furnish board
the following additional information:
Market flashes, including with respect to changes in the information in
market reports.
<PAGE> 19
GLOBAL PROXY SERVICE RIDER
To Global Custody Agreement
Between
THE CHASE MANHATTAN BANK
AND
THE S & P 500 PROTECTED EQUITY FUND, INC.
dated September 14, 1999.
1. Global Proxy Services ("Proxy Services") shall be provided for the
countries listed in the procedures and guidelines ("Procedures") furnished
to Customer, as the same may be amended by Bank from time to time on prior
notice to Customer. The Procedures are incorporated by reference herein
and form a part of this Rider.
2. Proxy Services shall consist of those elements as set forth in the
Procedures, and shall include (a) notifications ("Notifications") by Bank
to Customer of the dates of pending shareholder meetings, resolutions to be
voted upon and the return dates as may be received by Bank or provided to
Bank by its Subcustodians or third parties, and (b) voting by Bank of
proxies based on Customer Instructions. Original proxy materials or copies
thereof shall not be provided. Notifications shall generally be in English
and, where necessary, shall be summarized and translated from such
non-English materials as have been made available to Bank or its
Subcustodian. In this respect Bank's only obligation is to provide
information from sources it believes to be reliable and/or to provide
materials summarized and/or translated in good faith. Bank reserves the
right to provide Notifications, or parts thereof, in the language received.
Upon reasonable advance request by Customer, backup information relative to
Notifications, such as annual reports, explanatory material concerning
resolutions, management recommendations or other material relevant to the
exercise of proxy voting rights shall be provided as available, but without
translation.
3. While Bank shall attempt to provide accurate and complete Notifications,
whether or not translated, Bank shall not be liable for any losses or other
consequences that may result from reliance by Customer upon Notifications
where Bank prepared the same in good faith.
4. Notwithstanding the fact that Bank may act in a fiduciary capacity with
respect to Customer under other agreements or otherwise under the
Agreement, in performing Proxy Services Bank shall be acting solely as the
agent of Customer, and shall not exercise any discretion with regard to
such Proxy Services.
5. Proxy voting may be precluded or restricted in a variety of circumstances,
including, without limitation, where the relevant Financial Assets are: (i)
on loan; (ii) at registrar for registration or reregistration; (iii) the
subject of a conversion or other corporate action; (iv) not held in a name
subject to the control of Bank or its Subcustodian or are otherwise held in
a manner which precludes voting; (v) not capable of being voted on account
of local market regulations or practices or restrictions by the issuer; or
(vi) held in a margin or collateral account.
6. Customer acknowledges that in certain countries Bank may be unable to vote
individual proxies but shall only be able to vote proxies on a net basis
(e.g., a net yes or no vote given the voting instructions received from all
customers).
<PAGE> 20
7. Customer shall not make any use of the information provided hereunder,
except in connection with the funds or plans covered hereby, and shall in
no event sell, license, give or otherwise make the information provided
hereunder available, to any third party, and shall not directly or
indirectly compete with Bank or diminish the market for Proxy Services by
provision of such information, in whole or in part, for compensation or
otherwise, to any third party.
8. The names of Authorized Persons for Proxy Services shall be furnished to
Bank in accordance with Section 10 of the Agreement. Proxy Services fees
shall be as set forth in Section 13 of the Agreement or as separately
agreed.
2
<PAGE> 21
SPECIAL TERMS AND CONDITIONS RIDER
GLOBAL CUSTODY AGREEMENT
WITH
--------------------
DATE
--------------------
<PAGE> 22
DOMESTIC ONLY
SPECIAL TERMS AND CONDITIONS RIDER
Domestic Corporate Actions and Proxies
With respect to domestic U.S. and Canadian Financial Assets (the latter if held
in DTC), the following provisions shall apply rather than the provisions of
Section 8 of the Agreement and the Global Proxy Service rider:
Bank shall send to Customer or the Authorized Person for a Custody
Account, such proxies (signed in blank, if issued in the name of Bank's
nominee or the nominee of a central depository) and communications with
respect to Financial Assets in the Custody Account as call for voting or
relate to legal proceedings within a reasonable time after sufficient
copies are received by Bank for forwarding to its customers. In addition,
Bank shall follow coupon payments, redemptions, exchanges or similar
matters with respect to Financial Assets in the Custody Account and advise
Customer or the Authorized Person for such Account of rights issued,
tender offers or any other discretionary rights with respect to such
Financial Assets, in each case, of which Bank has received notice from the
issuer of the Financial Assets, or as to which notice is published in
publications routinely utilized by Bank for this purpose.
Fees
The fees referenced in Section 13 hereof cover only domestic and euro-dollar
holdings. There shall be no Schedule A hereto, as there are no foreign assets
in the Accounts.
<PAGE> 23
DOMESTIC AND GLOBAL
SPECIAL TERMS AND CONDITIONS RIDER
Domestic Corporate Actions and Proxies
With respect to domestic U.S. and Canadian Financial Assets (the latter if held
in DTC), the following provisions shall apply rather than the pertinent
provisions of Section 8 of the Agreement and the Global Proxy Service rider:
Bank shall send to Customer or the Authorized Person for a Custody
Account, such proxies (signed in blank, if issued in the name of Bank's
nominee or the nominee of a central depository) and communications with
respect to Financial Assets in the Custody Account as call for voting or
relate to legal proceedings within a reasonable time after sufficient
copies are received by Bank for forwarding to its customers. In addition,
Bank shall follow coupon payments, redemptions, exchanges or similar
matters with respect to Financial Assets in the Custody Account and advise
Customer or the Authorized Person for such Account of rights issued,
tender offers or any other discretionary rights with respect to such
Financial Assets, in each case, of which Bank has received notice from the
issuer of the Financial Assets, or as to which notice is published in
publications routinely utilized by Bank for this purpose.
<PAGE> 1
Exhibit (l)
[LETTERHEAD OF BROWN & WOOD LLP]
November 2, 1999
The S&P 500(R) Protected Equity Fund, Inc.
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Ladies and Gentlemen:
This opinion is being furnished in connection with the registration by
The S&P 500(R) Protected Equity Fund, Inc., a Maryland corporation (the "Fund"),
of shares of common stock, par value $0.10 per share (the "Shares"), under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to the
Fund's registration statement on Form N-2, as amended (the "Registration
Statement"), under the Securities Act, in the amount set forth under "Amount
Being Registered" on the facing page of the Registration Statement.
As counsel for the Fund, we are familiar with the proceedings taken by
it in connection with the authorization, issuance and sale of the Shares. In
addition, we have examined and are familiar with the Articles of Incorporation
of the Fund, as amended the By-laws of the Fund, and such other documents as we
have deemed relevant to the matters referred to in this opinion.
Based upon the foregoing, we are of the opinion that the Shares, upon
issuance and sale in the manner referred to in the Registration Statement, will
be legally issued, fully paid and non-assessable shares of common stock of the
Fund.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name in the Prospectus constituting
a part thereof.
Very truly yours,
/s/ Brown & Wood LLP
<PAGE> 1
Exhibit (n)
INDEPENDENT AUDITORS' CONSENT
The S&P 500(R) Protected Equity Fund, Inc.
We consent to the use in Pre-Effective Amendment No. 3 to Registration
Statement No. 333-83085 of our report dated October 21, 1999 and to the
reference to us under the caption "Experts" both of which appear in the
Prospectus, which is a part of such Registration Statement.
/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Princeton, New Jersey
October 27, 1999
<PAGE> 1
EXHIBIT (p)
CERTIFICATE OF THE SOLE STOCKHOLDER OF
THE S&P 500(R) PROTECTED EQUITY FUND, INC.
Merrill Lynch Asset Management, L.P., which is the holder of 10,000
shares of common stock, par value $0.10 per share, of The S&P 500(R) Protected
Equity Fund, Inc. (the "Fund"), a Maryland corporation, does hereby confirm to
the Fund its representation that it purchased such shares for investment
purposes, with no present intention of redeeming or reselling any portion
thereof.
MERRILL LYNCH ASSET MANAGEMENT, L.P.
By: /s/ Donald C. Burke
----------------------------
Vice President
Dated: November 1, 1999
