As filed with the Securities and Exchange on July 16, 1999.
Securities Act File No. 333-
Investment Company Act File No. 811-
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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
PRE-EFFECTIVE AMENDMENT NO.
POST-EFFECTIVE AMENDMENT NO.
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO.
(Check appropriate box or boxes)
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The Market Participation Principal Protection 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 Market Participation Principal Protection 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)
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Copies to:
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
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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.
_________________
If delivery of the prospectus is expected to be made pursuant to Rule
434 under the Securities Act, please check the following box.
- -----------------
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
- ------------------------------------------------- ----------------------- ------------------- ------------------ --------------
Title of Securities Being Registered Amount Being Proposed Maximum Proposed Maximum Amount of
Registered(1) Offering Price Aggregate Registration
Per Unit(1) Offering Price(1) Fee(2)
- ------------------------------------------------- ----------------------- ------------------- ------------------ ==============
<S> <C> <C> <C> <C>
Common Stock ($.10 par value) 100,000 shares $10.00 $1,000,000 $278
- ------------------------------------------------- ----------------------- ------------------- ------------------ ==============
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Transmitted to the designated lockbox at Mellon Bank in Pittsburgh, PA.
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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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.
<PAGE>
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. 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 JULY 16, 1999
PROSPECTUS
Shares
The Market Participation Principal Protection FundSM, Inc.
Common Stock
-----------------
The Market Participation Principal Protection 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
[October 30,] 2009 (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
Index, if any, from the value of the Index on [September 28,] 1999 to the
average value of the Index at the close of the market on three business days
shortly prior to [September 30,] 2009, as reduced by the application of an
annual index adjustment factor (expected to be between 1.50% and 2.00% per
year), and any deferred investment advisory fee. The Fund will seek to achieve
its investment objective by investing 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. 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
plans to apply to list its shares on the _________ Stock Exchange under the
symbol " ".
-----------------
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 5 of
this prospectus.
Per Share Total
Public Offering Price........................... $10.00 $
Sales Load...................................... None None
Proceeds to Fund................................ $10.00 $
The Fund's investment adviser or an affiliate will pay the
underwriter a commission in the amount of % 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.
We expect that the shares of common stock will be ready for delivery
in New York, New York on or about September __, 1999.
-----------------
Merrill Lynch & Co.
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The date of this prospectus is September __, 1999.
<PAGE>
TABLE OF CONTENTS
Page
PROSPECTUS SUMMARY........................................................3
RISK FACTORS AND SPECIAL CONSIDERATIONS...................................5
FEE TABLE.................................................................9
THE FUND..................................................................10
USE OF PROCEEDS...........................................................10
INVESTMENT OBJECTIVE AND POLICIES.........................................10
OTHER INVESTMENT POLICIES.................................................12
INVESTMENT RESTRICTIONS...................................................15
DIRECTORS AND OFFICERS....................................................17
INVESTMENT ADVISORY AND MANAGEMENT ARRANGEMENTS...........................18
PORTFOLIO TRANSACTIONS....................................................20
DIVIDENDS AND DISTRIBUTIONS...............................................20
TAXES.....................................................................20
NET ASSET VALUE...........................................................22
REPURCHASE OF SHARES......................................................23
DESCRIPTION OF CAPITAL STOCK..............................................23
CUSTODIAN.................................................................26
UNDERWRITING..............................................................26
TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REGISTRAR...................27
LEGAL OPINIONS............................................................27
EXPERTS...................................................................27
ADDITIONAL INFORMATION....................................................27
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"The Market Participation Principal Protection Fund" is a service mark of
Merrill Lynch & Co., Inc. "Standard & Poor's(R)", "Standard & Poor's 500",
"S&P 500(R)", "S&P" and "500" are trademarks of The McGraw-Hill
Companies, Inc. and have been licensed for use by Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch") and the Fund as an authorized
sublicensee. The Fund is not sponsored, endorsed, sold or promoted by Standard
& Poor's Corporation. 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 Public
Reference Room of the Securities and Exchange Commission (the "SEC") 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, 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.
<PAGE>
PROSPECTUS SUMMARY
This summary is qualified in its entirety by reference to the
detailed information included in this prospectus.
The Fund The Market Participation Principal Protection Fund,
Inc. (the "Fund") is a newly organized,
non-diversified, fixed-term, closed-end fund. The
Fund's maturity date is [October 30,] 2009 (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 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, 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
[September 28,] 1999 (the "Starting Value") to the
average value of the Index at the close of the
market on three business days shortly prior to
[September 30,] 2009, as reduced by the application
of an annual index adjustment factor, expected to
be between 1.50% and 2.00% per year (the "Index
Adjustment Factor"), and any deferred investment
advisory fee, as discussed below. The Fund will
seek to achieve its investment objective by
investing 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").
See "Risk Factors and Special Considerations",
"Investment Advisory and Management Arrangements"
and "Taxes-Required Distributions". 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 one or more Put Contracts
relating to the S&P 500. With the remaining
proceeds, the Fund will invest in a portfolio of
stocks that will match as closely as practicable
the composition and proportions of the S&P 500
Index. Because a portion of the Fund's initial
assets will be used to purchase the Put Contracts,
less than 100% of the Fund's initial net assets
will be invested in the S&P 500. Because less than
100% of the Fund's assets is 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 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
one or more 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. See
"Investment Objective and Policies - the Adjustment
Amount", "Investment Objective and Policies - Price
Appreciation of the S&P 500" and "Risk Factors and
Special Considerations - Investment Objective and
Policies - Counterparty Credit Risk".
The Fund also may use other investment techniques.
For additional information about the Put Contracts
and the Fund's investment techniques, see
"Investment Objectives and Policies" and "Other
Investment Policies."
Listing There is currently no public market for the Fund's
common stock. However, the Fund plans to apply to
list the Fund's shares of common stock on the
________ Stock Exchange.
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 other 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 a
bundled investment advisory fee (the "Advisory
Fee") in arrears at an annual rate equal to 1.00%
of Fund's average weekly net assets. In lieu of
liquidating portfolio investments to pay the
Advisory Fee, the investment adviser will be paid
its accrued 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
bundled Advisory Fee. To the extent that Available
Assets are not sufficient to pay all of the
Advisory Fee at the conclusion of a quarterly
period, the investment adviser will defer
collecting the portion of the 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, 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. 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 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, 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.
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. 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 effect repurchases of any of its
shares. There are certain risks associated with
repurchases.
<PAGE>
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 average value of the Index at the close of the market on
three business days shortly prior to September 30, 2009, as reduced by the
annual application of the Index Adjustment Factor and Deferred Advisory Fees,
if any. There is no assurance that the Fund will be able to achieve this
investment objective. The Put Contracts and the 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 the proceeds of this offering, the Fund intends to purchase one
or more Put Contracts relating to the S&P 500. With the remaining proceeds,
the Fund will invest in a portfolio that will match as closely as practicable
the composition and proportions of the S&P 500 Index. Because a portion of the
Fund's initial assets will be used to purchase the Put Contracts, less than
100% of the Fund's initial net assets will be invested in the S&P 500. Because
less than 100% of the Fund's assets is 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
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 one
or more 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. 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. 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 with Eligible
Counterparties (as defined below).
Counterparty Credit Risk. The Fund may enter into OTC put and call
options contracts, including the Put Contracts, only with counterparties that
have been approved specifically by the Fund's investment adviser (pursuant to
procedures adopted by the Board of Directors of the Fund) and that are rated A
or better by Moody's Investors Service, Inc. ("Moody's") or 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. S&P indicates that it assigns
an A rating to obligations that are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations
in higher rated categories. Moody's indicates that long-term debt rated A,
generally known as high-grade bonds, has a strong capacity to pay interest and
principal although it is somewhat more susceptible to the effects of changes
in circumstances and economic conditions than debt in higher rated categories.
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,
amount 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. As a result, the Fund may be deemed to be concentrated in 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 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.
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 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 average value of the Index
at the close of the market on three business days shortly prior to September
30, 2009, as reduced by the annual application of the Index Adjustment Factor
and Deferred Advisory Fees, if any. 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.
Early Return of Principal. 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 its shares. The Fund may be required to
distribute such cash payments to investors. Such payments may result in a
return of capital and the $10.00 per share that the Fund seeks to return on or
about the Maturity Date will be reduced pro rata by such amounts. See "Taxes"
and "Dividends and Distributions."
Net Asset Value. The net asset value of the Fund will be affected by
a number of other factors. Some of these factors are interrelated in complex
ways; as a result, the effect of any one factor may be offset or magnified by
the effect of another factor. The following paragraphs describe the expected
impact on the net asset value of the Fund given a change in a specific factor,
assuming all other conditions remain constant.
o S&P 500 Index. The Fund expects that its net asset value will depend
substantially on the amount by which the value of the S&P 500 differs
from the Starting Value. If you choose to sell your Fund shares prior
to maturity, when the current value of the S&P 500 is greater than
its Starting Value, you may receive substantially less than the
amount that would be payable at maturity based on such value. If you
choose to sell your Fund shares when the value of the S&P 500 is
below or not sufficiently above its Starting Value, you may receive
less than the $10 initial offering price per share. There can be no
assurance that S&P will not modify or change the methodology used to
calculate the Index, and no assurance can be given that S&P will not
modify or change such methodology in a manner that may affect the
amounts, if any, payable to holders of shares upon maturity or
otherwise.
o Interest Rates. The net asset value of the Fund will be affected by
changes in interest rates. In general, the Fund anticipates that
rising interest rates may lower the net asset value of the Fund and,
conversely, falling interest rates may increase the net asset value
of the Fund.
o Volatility. Volatility is a term used to describe the size and
frequency of market fluctuations. The Fund anticipates that the level
of volatility in the S&P 500 will have a direct effect on the net
asset value of the Fund. Generally, if the volatility of the S&P 500
increases, the Fund expects that its net asset value will increase
and, conversely, if the volatility of the S&P 500 decreases, the Fund
expects its net asset value will decrease.
o Time Remaining to Maturity. The net asset value of the Fund will be
affected by the passage of time. In general, the passage of time will
increase the value of the Put Contracts (and thereby increase the net
asset value of the Fund) if the S&P 500 has decreased. Conversely,
the passage of time generally will decrease the value of the Put
Contracts (and thereby decrease the net asset value of the Fund) if
the value of the S&P 500 has increased.
o Dividend Yields. The Fund anticipates that the level of dividend
yields on the stocks comprising the S&P 500 will have a direct effect
on the net asset value of the Fund. Generally, if dividend yields on
the stocks comprising the S&P 500 increase, the Fund expects that its
net asset value will increase; conversely, if dividend yields on the
stocks comprising the S&P 500 decrease, the Fund expects that its net
asset value will decrease.
It is important for you to understand that the impact of one of the
factors specified above, such as an increase in interest rates, may offset
some or all of any increase in the net asset value of the Fund attributable to
another factor, such as an increase in the value of the S&P 500.
In general, assuming all other relevant factors are held constant, we
expect that the effect on the value of the Fund's portfolio of a given change
in any one of the factors listed above will be less if it occurs later in the
term of the Fund than if it occurs earlier in the term of the Fund. However,
the Fund expects that the effect on the net asset value of the Fund of an
increase or decrease in the value of the S&P 500 Index will be greater if it
occurs later in the term of the Fund than if it occurs earlier in the term of
the Fund.
Tax Effect of the Put Contracts
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. As a result, the Fund may be required 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. This will have the effect of increasing the Fund's distribution
requirement. Furthermore, any gains recognized as a result of sales of stock
in the portfolio will be characterized as short-term capital gains to the Fund
even if the stock was owned by the Fund for more than 12 months. The Fund may
have to borrow in order to meet any such distribution requirement.
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.
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 other 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 income on retained investments.
Repurchase of Shares
Subject to its borrowing restrictions, the Fund may borrow to finance
repurchases and for other purposes including the payment of required
distributions, if any. There are certain risks associated with repurchases of
the Fund's shares. Interest on any borrowings will increase the Fund's
expenses and reduce its income. In some circumstances, an open market purchase
of Fund shares may cause a deemed dividend distribution under the Internal
Revenue Code of 1986, as amended, to the selling shareholder and possibly to
the remaining shareholders. There can be no assurance that share repurchases
will cause Fund shares to trade at prices equal to their net asset value.
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.
Antitakeover Provisions
The Fund's Articles of Incorporation and By-Laws include provisions
that could limit 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.
<PAGE>
FEE TABLE
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)
Investment Advisory Fees (a)...................................... 1.00%
Interest payments on Borrowed Funds............................... None
Other Expenses (a)................................................
Total Annual Expenses (a)................................. %
=====
EXAMPLE
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a $1,000
Investment assuming total annual expenses of % and a 5% annual return
throughout the periods:
$-- $-- $-- $--
</TABLE>
- -----------
(a) 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 (other than fees and expenses paid to directors who are
not affiliated with the investment adviser), including administration,
custodial, transfer agency, legal 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 extraordinary expenses
required to liquidate portfolio investments at the Maturity Date. See
"Investment Advisory and Management Arrangements" -- page 18.
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.
<PAGE>
THE FUND
The Market Participation Principal Protection Fund, Inc.SM (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 October 30, 2009 (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
Assuming that all shares of common stock currently being registered
are sold in the initial offering, the proceeds of this offering to the Fund
will be approximately $_________. 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 the Fund's Investment
Start Date. 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 September 28, 1999 (the "Starting Value") to the average
value of the Index at the close of the market on three business days shortly
prior to September 30, 2009, as reduced by the application of an annual index
adjustment factor, expected to be between 1.50% and 2.00% per year (the "Index
Adjustment Factor"), and Deferred Advisory Fees, if any. The Fund will seek to
achieve its investment objective by investing 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"). 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.
The Stock Portfolio and Put Contracts
With the proceeds of this offering, the Fund intends to purchase one
or more Put Contracts relating to the S&P 500. With the remaining proceeds,
the Fund will invest in a portfolio that will match as closely as practicable
the composition and proportions of 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 one or more
privately-negotiated Put Contracts intended to protect the Fund's initial net
asset value at the Maturity Date. Because the Eligible Counterparty that
serves as 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 -
Eligible Counterparty Credit Risk".
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 employ a "passive" investment approach. This means that with Fund
assets remaining after purchase of the Put Contracts, the Fund will attempt to
remain invested at all times in a portfolio of stocks the performance of which
is expected to match approximately that of the S&P 500. The Fund will 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.
The Fund generally will invest in all 500 stocks in the S&P 500 in
roughly 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 in that company. This
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 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.
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.
As described under "Investment Advisory and Management Arrangements",
the Fund's investment adviser, Merrill Lynch Asset Management, L.P (the
"Investment Adviser"), may defer receipt of payment of a portion of its
Advisory Fee until the Maturity Date if the Fund's Available Assets are not
sufficient. Distributions to investors upon termination of the Fund at the
Maturity Date will, on a per share basis, be reduced by the amount of Deferred
Advisory Fees payable to the Investment Adviser (if any), 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 Advisory Fee that would reduce the amount payable per share of the
Fund to less than $10.00.
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 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 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.
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.
The Index does not reflect the payment of dividends on the stocks
underlying it.
License Agreement
S&P and Merrill Lynch have entered into a non-exclusive license
agreement providing for the license to Merrill Lynch, in exchange for a fee,
of the right to use indices owned and published by S&P in connection with
certain securities, including the shares of the Fund's common stock, and the
Fund is an authorized sublicensee thereof.
Standard & Poor's does not guarantee the accuracy and/or the
completeness of the Index or any data included 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 in connection with the rights licensed under the license
agreement described herein or for any other use. S&P makes no express or
implied warranties, and hereby expressly disclaims all warranties of
merchantability or fitness for a particular purpose 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.
The license agreement between S&P and Merrill Lynch provides that the
following language must be stated in this prospectus.
"The shares are not sponsored, endorsed, sold or promoted by S&P. S&P
makes no representation or warranty, express or implied, to the holders of the
shares or any member of the public regarding the advisability of investing in
securities generally or in the shares particularly or the ability of the Index
to track general stock market performance. S&P's only relationship to Merrill
Lynch and the Fund (other than transactions entered into in the ordinary
course of business) is the licensing of certain servicemarks and trade names
of S&P and of the Index which is determined, composed and calculated by S&P
without regard to ML&Co. or the shares. S&P has no obligation to take the
needs of the Fund or the holders of the shares into consideration in
determining, composing or calculating the Index. S&P is not responsible for
and has not participated in the determination of the timing of the sale of the
shares, prices at which the shares are to initially be sold, or quantities of
the shares are to be converted into cash. S&P has no obligation or liability
in connection with the administration, marketing or trading of the shares."
All disclosures contained in this prospectus regarding the Index,
including its make-up, method of calculation and changes in its components,
are 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 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 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,
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).
Repurchase Agreements. The Fund may invest in repurchase agreements.
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
security in the market for its current value, which may be less than the
amount the Fund paid for the security.
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.
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
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 performance of
the S&P 500, the Fund may use SPDRs as a cash management tool or in connection
with portfolio changes designed to match reconstitutions of the 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. 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 be able
to complete its 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).
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. 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 the exercise price of the
option.
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 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 purchase 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. 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 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 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 in
anticipation of a decrease in the market value of securities or an increase in
interest rates. 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 or a decline in interest rates 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 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.
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 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 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 Fund may (i)
enter into repurchase agreements in accordance with its investment
objectives, policies and limitations, and (ii) may lend its portfolio
securities in an amount not in excess of 33 1/3% of its total
assets, taken at market value, provided that such loans shall be made
in accordance with the guidelines set forth in this prospectus.
6. Invest more than 25% of its total assets in the
securities of issuers in any one industry, provided that this
limitation shall not apply with respect to obligations issued or
guaranteed by the U.S. Government or by its agencies or
instrumentalities; and provided further that to the extent that the
Fund invests in the Put Contracts 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.
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.
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 under "Investment Objectives and Policies" and "Other
Investment Policies."
If a percentage restriction on investment policies or the investment
or use of assets set forth above is adhered to at the time a transaction is
effected, later changes in percentage resulting from changing values will not
be considered a violation.
Because of the affiliation of Merrill Lynch 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" and "Risk Factors - Investment
Objective and Policies - The Put Contracts".
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. ("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.
[To be completed by amendment]
ERIC S. MITOFSKY (43) - Senior Vice President (1)(2) - First Vice
President of the Investment Adviser since 1997; Vice President of the
Investment Adviser from 1992 to 1997.
DONALD C. BURKE (38) - 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 (35) - 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 ML & Co. or its subsidiaries as well as
such Director's 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 $ ____________________ per
year plus $ ________________ 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 (the
"Committee"), which consists of all of the non-affiliated Directors, an annual
fee of $ . The Chairman of the Committee receives an additional annual fee of
$ .
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 _________ __,
1999 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>
Pension or Aggregate from
Retirement Benefits Fund and FAM/MLAM
Compensation from Accrued as Part of Advised Funds
Name of Director Fund Fund Expense Paid to Directors
<S> <C> <C> <C>
_________ _. _________(1).......................... $ None $
_________ _. _________(1).......................... $ None $
_________ _. _________(1).......................... $ None $
_________ _. _________(1)........................... $ None $
_________ _. _________(1)........................... $ None $
- -----------
</TABLE>
(1) The Directors serve on the Boards of other FAM/MLAM - advised funds
as follows:( ); _________ _. _________ (__ registered investment
companies consisting of __ portfolios); and _________ _. _________
(__ registered investment companies consisting of __ 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 June __, 1999, the Asset Management Group had a total of
approximately $____ billion in investment company and other portfolio assets
under management. This amount includes assets managed for certain affiliates
of the Investment Adviser. The Investment Adviser is a limited partnership,
the partners of which are ML & Co. and Princeton Services. 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 a bundled Advisory Fee in
arrears at annual rate of 1.00% of 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 of this calculation,
the amount of average weekly net assets is determined at the end of the
calendar year on the basis of the average net assets of the Fund for each week
during the calendar year. 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. See "Advisory Fees and
Expenses."
In lieu of liquidating portfolio investments to pay the Advisory Fee,
the Investment Adviser will be paid its accrued Advisory Fee from income from
the stock dividends on the Fund's portfolio and other available cash
(together, "Available Assets") remaining after payment of any extraordinary or
other expenses of the Fund not covered by the bundled Advisory Fee. To the
extent that Available Assets are not sufficient to pay all of the Advisory Fee
at the conclusion of a quarterly period, the Investment Adviser will defer
collecting the portion of the 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, 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. 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, 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 expenses of ordinary operation,
including administration, custodial, transfer agency, legal, 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 with such extraordinary
expenses as may be required to liquidate portfolio investments.
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 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.") 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. 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
Rule17j-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 insecurities. 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 of the
Fund, the Investment Adviser is primarily responsible for the execution of the
Fund's portfolio transactions. In executing such transactions, the Investment
Adviser seeks to obtain the best results for the Fund, taking into account
such factors as price (including the applicable fee, commission or spread),
size of order, difficulty of execution and operational facilities of the firm
involved and the firm's risk in positioning a block of securities and the
provision of supplemental investment research by the firm. While the
Investment Adviser generally seeks reasonably competitive fees, commissions or
spreads, the Fund does not necessarily pay the lowest fee, commission or
spread available.
The Fund has no obligation to deal with any bank, broker or dealer in
execution of transactions in portfolio securities. Subject to providing the
best price and execution, securities firms that provide supplemental
investment research to the Investment Adviser, including Merrill Lynch, may
receive orders for transactions by the Fund. Research information provided to
the Investment Adviser by securities firms is supplemental. It does not
replace or reduce the level of services performed by the Investment Adviser
and the expenses of the Investment Adviser will not be reduced.
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.
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 (see
below), the Fund will not be subject to Federal income tax to the extent that
it distributes its net investment income and net realized capital gains. The
Fund intends to distribute substantially all of its net investment income and
net capital gains.
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. Distributions from
the excess of net long-term capital gains over net short-term capital losses
derived from the sale of securities and/or from certain other transactions, if
any, 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.
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. As a result, the Fund may be required 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. This will have the effect of increasing the Fund's distribution
requirement, if any. The Fund may have to borrow in order to meet any such
distribution requirement. Furthermore, 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 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 you receive from the Fund at maturity
will be treated as made in exchange for your 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.
Tender Offers
Under current law, a holder of common stock, who, pursuant to any
tender offer, tenders all of its shares and who, after such tender offer, is
not considered to own any shares under attribution rules contained in the Code
will realize a taxable gain or loss depending upon such shareholder's basis in
the shares. Such gain or loss will be treated as capital gain or loss if the
shares are held as capital assets and will be long-term if the shares have
been held for more than one year. Different tax consequences may apply to
tendering and non-tendering holders of common stock in connection with a
tender offer, and these consequences will be disclosed in the related offering
documents. For example, if a tendering holder of common stock tenders less
than all shares owned by or attributed to such shareholder, and if the
distribution to such shareholder does not otherwise qualify as a sale or
exchange, the proceeds received will be treated as a taxable dividend, or, if
the Fund has insufficient earnings and profits, a return of capital or capital
gains, depending on the shareholder's basis in the tendered shares. Also,
there is a remote risk that non-tendering 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 tendering. Likewise, if holders of common stock
whose shares are acquired by the Fund in the open market sell less than all
shares owned by or attributed to them, a risk exists that these shareholders
will be subject to taxable dividend treatment, and a remote risk exists that
the remaining shareholder may be considered to have received a deemed
distribution.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury Regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections
and the Treasury Regulations promulgated thereunder. The Code and the Treasury
Regulations are subject to change by legislative, judicial, or administrative
action either prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to
state and local taxes.
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 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 as of 15
minutes after the close of business on the New York Stock Exchange (generally,
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, if any) 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 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.
Under certain circumstances, it is possible that periodic open market
purchases of the Fund's shares may cause a deemed dividend distribution under
the Code to the remaining shareholders of the Fund. 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 common stock,
par value $.10 per share. The Fund's Articles of Incorporation permit the
Board of Directors to increase the number of authorized shares of common stock
without the vote of shareholders. The shares, when issued, 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.
The Fund's Articles of Incorporation provide that the Fund will
terminate on October 30, 2009, 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 October 30, 2009 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% 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 October 30, 2009, such
shareholders will also be provided the opportunity to vote upon the Fund's
fundamental investment policy.
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 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.
Security holders will be entitled to request copies of all documents
(including financial statements, as available) filed by the Fund with the SEC
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act
of 1934, as amended.
The Fund will send unaudited reports at least semi-annually and
audited annual financial statements to all 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 all holders of capital stock or by the holders of
preferred stock may be removed from office with or without cause by vote of
the holders of at least 66% of the shares of capital stock or preferred
stock, as the case may be, of the Fund entitled to be voted on the matter.
In addition, the Articles of Incorporation require the favorable vote
of the holders of at least 66% 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:
o a merger or consolidation or statutory share exchange of
the Fund with other corporations;
o 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
o a liquidation or dissolution of the Fund except pursuant to
the Articles of Incorporation on October 30, 2009
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% 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 also require changes in certain of the
Fund's investment policies and restrictions.
The Board of Directors has determined that the 66% voting
requirements described above which are greater than the minimum requirements
under Maryland law or the 1940 Act are in the best interests of shareholders
generally. Reference should be made to the Articles of Incorporation on file
with the SEC for the full text of these provisions.
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, 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 prior to the
anniversary date of the prior year's annual meeting.
The notice provision is intended to afford shareholders a fair
opportunity to present matters for consideration a 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. This
provision could have the effect of limiting 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 _________________ .
UNDERWRITING
Merrill Lynch, Pierce, Fenner and 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 _____
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 $ per share.
Such payment is equal to % 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 $ 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 ___________________ ,
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.
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 plans to apply to list the Fund's shares
of common stock on the _____________________________________ Stock Exchange.
In order to meet the requirements for listing, the Underwriter has undertaken
to sell lots of ______________ or more shares to a minimum of
___________________ 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__________.
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 included
in this prospectus has been so included in reliance on the report of ,
independent auditors, and on their authority as experts in auditing and
accounting. The selection of independent auditors is subject to ratification
by shareholders of the Fund.
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 SEC. Any such reports, proxy statements and other
information can be inspected and copied at the public reference facilities of
the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the following regional offices of the SEC: 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 SEC at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The SEC
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 SEC. 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 SEC 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 SEC's principal office in Washington, D.C.,
and copies of all or any part thereof may be obtained from the SEC upon the
payment of certain fees prescribed by the SEC.
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.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholder,
The Market Participation Principal Protection Fund, Inc.:
We have audited the accompanying statement of assets, liabilities and
capital of The Market Participation Principal Protection Fund, Inc. as of ,
1999. This financial statement is the responsibility of the Fund's management.
Our responsibility is to express an opinion on this financial statement based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statement is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such statement of assets, liabilities and capital
presents fairly, in all material respects, the financial position of The
Market Participation Principal Protection Fund, Inc. as of _______________ ,
1999 in conformity with generally accepted accounting principles.
<PAGE>
THE MARKET PARTICIPATION PRINCIPAL PROTECTION FUND, INC.
Statement of Assets, Liabilities and Capital
, 1999
ASSETS
Cash.............................................................. $
Offering costs (Note 1)...........................................
Total Assets.................................................... ______
LIABILITIES
Liabilities and accrued expenses (Note 1)......................... ______
NET ASSETS.......................................................... $
======
CAPITAL
Common stock, par value $.10 per share; shares authorized; shares
Issued and outstanding (Note 1).................................. $
Paid-in Capital in excess of par..................................
Total Capital--Equivalent to $___ net asset value per share of
common stock ______
(Note 1)..................................................... $
======
Notes to Statement of Assets, Liabilities and Capital
Note 1. Organization
The Fund was incorporated under the laws of the State of Maryland on
________ __, 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 _____ shares of
common stock for $_______ on _______________ , 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 an annual fee in arrears at the annual rate of ____% of the Fund's
average weekly net assets.
Note 3. Federal Income Taxes
The Fund intends to qualify as a "regulated investment company" and
as such (and by complying with the applicable provisions of the Internal
Revenue Code of 1986, as amended) will not be subject to Federal income tax on
a taxable income (including realized capital gains) that is distributed to
shareholders.
<PAGE>
===============================================================================
Through and including ____________ __, 1999 (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.
Shares
The Market Participation Principal Protection Fund, Inc.
Common Stock
-------------------
PROSPECTUS
-------------------
Merrill Lynch & Co.
__________ __, 1999
CODE-
===============================================================================
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(1) Financial Statements:
Independent Auditors' Report
Statement of Assets, Liabilities and Capital as of , 1999
Exhibits:
Exhibit
Number Description
- ------ -----------
(a) -- Articles of Incorporation.
(b) -- By-Laws. *
(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.(a)
(2)-- Form of specimen certificate for the shares of common stock of the
Fund.*
(e) -- Not applicable.
(f) -- Not applicable.
(g) -- Form of Investment Advisory Agreement between the Fund and
Merrill Lynch Asset Management, L.P.*
(h) (1)-- Form of Purchase Agreement between the Fund and Merrill
Lynch, Pierce, Fenner & Smith
Incorporated. *
(2)-- Form of Merrill Lynch Standard Dealer Agreement.*
(i) -- Not applicable.
(j) -- Form of Custody Agreement between the Fund and .*
(k) -- Form of Registrar, Transfer Agency and Service Agreement between
the Fund and .*
(l) -- Opinion and Consent of Brown & Wood LLP.*
(m) -- Not applicable.
(n) -- Consent of , independent auditors
for the Fund.*
(o) -- Not applicable.
(p) -- Certificate of Merrill Lynch Asset Management, L.P.*
(q) -- Not applicable.
(r) -- Not applicable.
- -----------
(a) Reference is made to Article V, Article VI (sections 2, 3, 4, 5 and
6), Article VII, Article VIII, Article X, Article XI, Article XII and
Article XIII of the Registrant's Articles of Incorporation, filed 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.
* To be provided by amendment.
Item 25. Marketing Arrangements.
See Exhibits (h)(1) and (h)(2).
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.
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 "1933 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 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 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, 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
Florida Insured Fund, MuniHoldings Florida Insured Fund II, MuniHoldings
Florida Insured Fund III, MuniHoldings Fund, Inc., MuniHoldings Fund II, Inc.,
MuniHoldings Insured Fund, Inc., MuniHoldings New Jersey Insured Fund, Inc.,
MuniHoldings New Jersey Insured Fund II, Inc., MuniHoldings New York Fund,
Inc., MuniHoldings New York Insured Fund, Inc., MuniHoldings New York Insured
Fund II, Inc., MuniVest Florida Fund, MuniVest Fund, Inc., MuniVest Fund II,
Inc. (the "Investment Adviser" or "MLAM") 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 Merrill Lynch & Co., Inc. ("ML& Co.") is North Tower, World Financial
Center, 250 Vesey Street, New York, New York 10281-1201. The address of
Merrill Lynch Financial Data Services, Inc. ("MLFDS") is 4800 Deer Lake Drive
East, Jacksonville, Florida 32246-6484.
Set forth below is a list of each executive officer and partner of
the 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.
Position(s) with Other Substantial Business,
Name Investment Adviser Profession, Vocation or
Employment
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 Executive Vice President of FAM;
President Executive Vice President and
Director of Princeton Services;
President and Director of PFD;
Director of FDS; President of
Princeton Administrators.
Donald C. Burke........Senior Vice Senior Vice President and
President, Treasurer of FAM; Senior Vice
Treasurer and President and Treasurer of
Director of Princeton Services; Vice
Taxation 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 Service; Treasurer and
Director of PFD; First Vice
President of MLAM from 1997 to
1999; Vice President of MLAM
from 1996 to 1997.
Linda L. Federici......Senior Vice President Senior Vice President of FAM;
Senior Vice President of
Princeton Services
Vincent R. Giordano....Senior Vice President Senior Vice President of FAM;
Senior Vice President of
Princeton Services
Michael J. Hennewinkel.Senior Vice President, Senior Vice President, Secretary
Secretary and General and General Counsel of FAM;
Counsel Senior Vice 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
Ronald M. Kloss........Senior Vice President Senior Vice President of FAM;
Senior Vice President of
Princeton Services
Debra W. Landsman-Yaros.Senior Vice President Senior Vice President of FAM;
Senior Vice President of
Princeton Services; Vice
President of PFD
Stephen M. M. Miller...Senior Vice President Executive Vice President of
Princeton Administrators;
Senior Vice President of
Princeton Services
Joseph T. Monagle, Jr. Senior Vice President Senior Vice President of FAM;
Senior Vice President of
Princeton Services
Brian A. Murdock.......Senior Vice President Senior Vice President of FAM;
Senior Vice President of
Princeton Services;
Gregory D. Upah........Senior Vice President Senior Vice President of FAM;
Senior Vice President of
Princeton Services
Merrill Lynch Asset Management U.K. Limited ("MLAM U.K.") acts as
sub-adviser for the following registered investment companies: The Corporate
Fund Accumulation Program, Inc., Corporate High Yield Fund, Inc., Corporate
High Yield Fund II, Inc., Corporate High Yield Fund III, Inc., Debt Strategies
Fund, Inc., Debt Strategies Fund II, Inc., Debt Strategies Fund III, Inc.,
Income Opportunities Fund 1999, Inc., Income Opportunities Fund 2000, Inc.,
Merrill Lynch Americas Income Fund, Inc., Merrill Lynch Asset Builder Program,
Inc., Merrill Lynch Asset Growth Fund, Inc., Merrill Lynch Asset Income Fund,
Inc., Merrill Lynch Basic Value Fund, Inc., Merrill Lynch Capital Fund, Inc.,
Merrill Lynch Consults International Portfolio, Merrill Lynch Convertible
Fund, Inc., Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch Corporate
High Yield Fund, Inc., Merrill Lynch Developing Capital Markets, Inc., Merrill
Lynch Dragon Fund, Inc., Merrill Lynch Emerging Tigers Fund, Inc., Merrill
Lynch EuroFund, Merrill Lynch Fundamental Growth Fund, Inc., Merrill Lynch
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 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>
Other Substantial Business,
Name Position with MLAM U.K. Profession, Vocation or Employment
<S> <C> <C>
Terry K. Glenn...........Director and Chairman Executive Vice President of MLAM and FAM; Executive Vice
President and Director of Princeton Services; President
and Director of PFD; President of Princeton Administrators
Alan J. Albert...........Senior Managing Director Vice President of MLAM
Nicholas C.D. Hall.......Director Director of Merrill Lynch Europe PLC.; General
Counsel of Merrill Lynch International Private
Banking Group
Donald C. Burke..........Treasurer Senior Vice President and Treasurer of MLAM and FAM;
Director of Taxation of MLAM; Senior Vice President and
Treasurer of Princeton Services; Vice President of PFD;
First Vice President of MLAM from 1997 to 1999; Vice
President of MLAM from 1990 to 1997
Carol Ann Langham........Company Secretary None
Debra Anne Searle........Assistant Company Secretary None
</TABLE>
Item 31. Location of Account 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.
(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.
<PAGE>
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 16th day of July, 1999.
THE MARKET PARTICIPATION PRINCIPAL PROTECTION
FUND, INC.
(Registrant)
By: /s/ MICHAEL J. HENNEWINKEL
(Michael J. Hennewinkel, President)
Each person whose signature appears below hereby authorizes Ira P.
Shapiro, Jerry Weiss or Michael J. Hennewinkel or any of them, as
attorney-in-fact, to sign on his behalf, individually and in each capacity
stated below, any amendment to this Registration Statement (including
post-effective amendments) and to file the same, with all exhibits thereto,
with the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
President (Principal Executive July 16, 1999
/s/ MICHAEL J. HENNEWINKEL Officer) and Director
---------------------------
(Michael J. Hennewinkel)
/s/ IRA P. SHAPIRO Treasurer (Principal Financial July 16, 1999
--------------------------- and Accounting Officer) and
(Ira P. Shapiro) Director
Director
---------------------------
(Jerry Weiss)
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit Description
------- -----------
(a) Articles of Incorporation
Exhibit (a)
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 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 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) 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 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 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 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.
<PAGE>
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
