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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 21, 2000
INVESTMENT COMPANY ACT FILE NO. 811-09735
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 1 [X]
(Check appropriate box or boxes)
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MASTER FOCUS TWENTY TRUST
(Exact name of Registrant as specified in charter)
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(Address Of Principal Executive Offices)
(888) 637-3863
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
TERRY K. GLENN
MASTER FOCUS TWENTY TRUST
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
(Name and Address of Agent for Service)
Copies to:
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Counsel for the Trust:
Frank P. Bruno, Esq. Michael J. Hennewinkel, Esq.
BROWN & WOOD LLP FUND ASSET MANAGEMENT, L.P.
One World Trade Center P.O. Box 9011
New York, New York 10048 Princeton, New Jersey 08543-9011
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EXPLANATORY NOTE
This Registration Statement has been filed by the Registrant pursuant to
Section 8(b) of the Investment Company Act of 1940, as amended (the "Investment
Company Act"). However, beneficial interests in the Registrant are not being
registered under the Securities Act of 1933, as amended (the "1933 Act"),
because such interests will be issued solely in private placement transactions
that do not involve any "public offering" within the meaning of Section 4(2) of
the 1933 Act. Investments in the Registrant may be made only by a limited number
of institutional investors, including investment companies, common or commingled
trust funds, group trusts and certain other "accredited investors" within the
meaning of Regulation D under the 1933 Act. This Registration Statement does not
constitute an offer to sell, or the solicitation of an offer to buy, any
beneficial interests in the Registrant.
This Registration Statement has been prepared as a single document
consisting of Parts A, B and C, none of which is to be used or distributed as a
stand alone document.
PART A
MARCH 21, 2000
MASTER FOCUS TWENTY TRUST
RESPONSES TO ITEMS 1, 2, 3, 5 AND 9 HAVE BEEN OMITTED PURSUANT TO PARAGRAPH
2(b) OF INSTRUCTION B OF THE GENERAL INSTRUCTIONS TO FORM N-1A.
Master Focus Twenty Trust (the "Trust") is part of a master-feeder
structure (as described below). Part A of this Registration Statement should be
read in conjunction with (a) Pre-Effective Amendment No. 2 of the Registration
Statement on Form N-1A (Securities Act File No. 333-89775 and Investment Company
Act File No. 811-09651) of Merrill Lynch Focus Twenty Fund, Inc. (the "Merrill
Lynch Fund"), as filed with the Securities and Exchange Commission (the
"Commission") on December 21, 1999, and as amended from time to time (the
"Merrill Lynch Registration Statement") and (b) Pre-Effective Amendment No. 1 to
the Registration Statement on Form N-1A (Securities Act File No. 333-30942 and
Investment Company Act File No. 811-09825) of Mercury Premier Growth Fund, Inc.
(the "Mercury Fund" and, together with the Merrill Lynch Fund, the "Funds"), as
filed with the Commission on March 21, 2000, and as may be amended from time to
time (the "Mercury Registration Statement"). Part A of the Merrill Lynch
Registration Statement includes the prospectus of the Merrill Lynch Fund. Part A
of the Mercury Registration Statement includes the prospectus of the Mercury
Fund.
The Funds invest all of their respective assets in beneficial interests in
the Trust. The Funds are the only feeder funds that invest in the Trust. The
Fund and any other feeder fund that may invest in the Trust are referred to
herein as "Feeder Funds".
ITEM 4. INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES, AND RELATED
RISKS.
(a) Investment Objectives
(b) Implementation of Investment Objectives
The Trust is an open-end management investment company that was organized
on October 25, 1999 as a business trust under the laws of the State of Delaware.
Beneficial interests in the Trust are issued solely in private placement
transactions which do not involve any "public offering" within the meaning of
Regulation D under the 1933 Act. Investments in the Trust may be made only by
investment companies or certain other entities which are "accredited investors"
within the meaning of Regulation D under the 1933 Act. This registration
statement does not constitute an offer to sell, or the solicitation of an offer
to buy, any "security" within the meaning of the 1933 Act. Fund Asset
Management, L.P. (the "Manager") manages the Trust's investments under the
overall supervision of the Board of Trustees of the Trust.
The Trust's investment objective is to seek long-term capital appreciation.
The Trust tries to achieve its investment objective by investing primarily in
common stocks of approximately 20 companies that the Manager believes have
strong earnings growth and capital appreciation potential. The Manager begins
its investment process by creating a universe of rapidly growing companies that
possess certain growth
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characteristics. That universe is continually updated. The Manager then ranks
each company within its universe by using research models that focus on growth
characteristics such as positive earnings surprises, upward earnings estimate
revisions, and accelerating sales and earnings growth. Finally, using its own
fundamental research and a bottom-up approach to investing, the Manager
evaluates the quality of each company's earnings and tries to determine whether
the company can sustain or increase its current growth trend. The Manager
believes that this disciplined investment process enables it to construct a
portfolio of investments with strong growth characteristics.
Although the Trust emphasizes investment in common stocks, it may also
invest in other equity securities including, but not limited to, the following:
- Securities convertible into common stock
- Preferred stock
- Rights and warrants to subscribe to common stock
The Trust generally will invest at least 65% of its total assets in equity
securities. Normally, the Trust will invest in the common stocks of not less
than 20 companies. The Trust may invest in companies of any size but emphasizes
common stocks of companies with large stock market capitalizations (greater than
$5 billion).
The Trust may invest without limitation in the securities of foreign
companies in the form of American Depositary Receipts ("ADRs"). In addition, the
Trust may invest up to 10% of its total assets in other forms of securities of
foreign companies, including European Depositary Receipts ("EDRs") or other
securities convertible into securities of foreign companies. The Trust may also
lend its portfolio securities.
The Trust may invest in investment grade, non-convertible debt securities
and U.S. Government securities of any maturity, although it typically will not
do so to a significant extent. The Trust may invest in excess of 35% of its
total assets in cash or U.S. dollar-denominated high quality short-term debt
instruments for temporary defensive purposes, to maintain liquidity or when
economic or market conditions are unfavorable for profitable investing.
Normally, a portion of the Trust's assets will be held in these short-term
instruments in anticipation of investment in equities or to meet redemptions.
These types of investments typically have a lower yield than other longer-term
investments and lack the capital appreciation potential of equity securities. In
addition, while these investments are generally designed to limit the Trust's
losses, they can prevent the Trust from achieving its investment objective.
Generally, the Trust will not purchase securities for short-term trading
profits. However, the Trust may dispose of securities without regard to the time
they have been held when such actions, for defensive or other reasons, appear
advisable to the Manager in light of a change in circumstances in general
market, economic or financial conditions. As a result of its investment
policies, the Trust may engage in a substantial number of portfolio
transactions. Accordingly, while the Trust anticipates that its annual portfolio
turnover rate should not exceed 100% under normal conditions, it is impossible
to predict portfolio turnover rates. The portfolio turnover rate is calculated
by dividing the lesser of the Trust's annual sales or purchases of portfolio
securities (exclusive of purchases or sales of securities whose maturities at
the time of acquisition were one year or less) by the monthly average value of
the securities in the portfolio during the year. A high portfolio turnover rate
involves certain tax consequences and correspondingly greater transaction costs
in the form of dealer spreads and brokerage commissions, which are borne by the
Trust.
(c) Risks
Set forth below is a summary discussion of the general risks of investing
in the Trust. As with any mutual fund, no assurance can be given that the Trust
will meet its investment objective, or that the Trust's performance will be
positive over any period of time.
The Trust's principal risks are market risk, selection risk and
concentration risk.
MARKET RISK AND SELECTION RISK -- Market risk is the risk that the U.S. or
foreign equity markets will go down in value, including the possibility that the
U.S. or foreign equity markets will go down sharply and unpredictably. In
particular, the equity securities purchased by the Trust may be particularly
sensitive to changes in earnings or interest rate increases because they
typically have higher price-earnings ratios.
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Selection risk is the risk that the stocks that The Manager selects will under
perform the markets or other funds with similar investment objectives and
investment strategies.
CONCENTRATION RISK -- The Trust is a non-diversified fund. By concentrating
in a smaller number of investments, the Trust's risk is increased because each
investment has a greater effect on the Trust's performance.
The Trust also may be subject to the risks described below.
CONVERTIBLES -- Convertibles are generally debt securities or preferred
stocks that may be converted into common stock. Convertibles typically pay
current income as either interest (debt security convertibles) or dividends
(preferred stocks). A convertible's value usually reflects both the stream of
current income payments and the value of the underlying common stock. The market
value of a convertible performs like a regular debt security, that is, if market
interest rates rise, the value of a convertible usually falls. Since it is
convertible into common stock, the convertible also has the same types of market
and issuer risk as the underlying common stock.
WARRANTS -- A warrant gives the Trust the right to buy a quantity of stock.
The warrant specifies the amount of underlying stock, the purchase (or
"exercise") price, and the date the warrant expires. The Trust has no obligation
to exercise the warrant and buy the stock. A warrant has value only if the Trust
exercises it before it expires. If the price of the underlying stock does not
rise above the exercise price before the warrant expires, the warrant generally
expires without any value and the Trust loses any amount it paid for the
warrant. Thus, investments in warrants may involve substantially more risk than
investments in common stock. Warrants may trade in the same markets as their
underlying stock; however, the price of the warrant does not necessarily move
with the price of the underlying stock.
FOREIGN MARKET RISK -- Since the Trust may invest in foreign securities,
they offer the potential for more diversification than an investment only in the
United States. This is because stocks traded on foreign markets have often
(though not always) performed differently than stocks in the United States. Such
investments, however, involve special risks not present in U.S. investments that
can increase the chances that the Trust will lose money. For example,
investments in foreign markets may be adversely affected by governmental actions
such as the imposition of capital controls, nationalization of companies or
industries, expropriation of assets, diplomatic developments, the imposition of
economic sanctions, changes in international trading patterns, trade barriers,
and other protectionist or retaliatory measures. The governments of certain
countries may prohibit or impose substantial restrictions on foreign investing
in their capital markets or in certain industries. Other foreign market risks
include foreign exchange controls, difficulties in pricing securities, defaults
on foreign government securities, difficulties in enforcing favorable legal
judgments in foreign courts and political and social instability. Legal remedies
available to investors in some foreign countries may be less extensive than
those available to investors in the United States. Foreign markets may have
different clearance and settlement procedures, which may delay settlement of
transactions involving foreign securities. The Trust may miss investment
opportunities or be unable to sell an investment because of these delays. The
risks of investing in foreign securities are generally greater for investments
in emerging markets.
DEPOSITARY RECEIPTS -- The Trust may invest in securities of foreign
issuers in the form of Depositary Receipts. American Depositary Receipts are
receipts typically issued by an American bank or trust company that show
evidence of underlying securities issued by a foreign corporation. European
Depositary Receipts evidence a similar ownership arrangement. The Trust may also
invest in unsponsored Depositary Receipts. The issuers of such unsponsored
Depositary Receipts are not obligated to disclose material information in the
United States, and therefore, there may be less information available regarding
such issuers.
ILLIQUID SECURITIES -- The Trust may invest up to 15% of its net assets in
illiquid securities that it cannot easily resell within seven days at current
value or that have contractual or legal restrictions on resale. If the Trust
buys illiquid securities it may be unable to quickly resell them or may be able
to sell them only at a price below current value.
RESTRICTED SECURITIES -- Restricted securities have contractual or legal
restrictions on their resale. They may include private placement securities that
the Trust buys directly from the issuer. Private placement and
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other restricted securities may not be listed on an exchange and may have no
active trading market. Restricted securities may be illiquid. The Trust may be
unable to sell them on short notice or may be able to sell them only at a price
below current value. The Trust may get only limited information about the
issuer, so they may be less able to predict a loss. In addition, if the Manager
receives material adverse nonpublic information about the issuer, the Trust will
not be able to sell the security.
RULE 144A SECURITIES -- Rule 144A securities are restricted securities that
can be resold to qualified institutional buyers but not to the general public.
Rule 144A securities may have an active trading market, but carry the risk that
the active trading market may not continue.
DEBT SECURITIES -- Debt securities, such as bonds, involve credit risk.
This is the risk that the borrower will not make timely payments of principal
and interest. The degree of credit risk depends on the issuer's financial
condition and on the terms of the bonds. These securities are also subject to
interest rate risk. This is the risk that the value of the security may fall
when interest rates rise. In general, the market price of debt securities with
longer maturities will go up or down more in response to changes in interest
rates than the market price of shorter term securities.
SECURITIES LENDING -- Securities lending involves the risk that the
borrower to which the Trust has loaned its securities may not return the
securities in a timely manner or at all. As a result, the Trust might suffer
costs and delay in recovering the securities it loaned. In addition, if the
Trust does not get the securities it loaned back and the value of the collateral
the Trust received in return for the loaned securities falls, the Trust could
lose money.
REPURCHASE AGREEMENTS; PURCHASE AND SALE CONTRACTS -- The Trust may enter
into certain types of repurchase agreements or purchase and sale contracts.
Under are purchase agreement, the seller agrees to repurchase a security
(typically a security issued or guaranteed by the U.S. Government) at a mutually
agreed upon time and price. This insulates the Trust from changes in the market
value of the security during the period, except for currency fluctuations. A
purchase and sale contract is similar to a repurchase agreement, but purchase
and sale contracts provide that the purchaser receives any interest on the
security paid during the period. If the seller fails to repurchase the security
in either situation and the market value declines, the Trust may lose money.
DERIVATIVES -- The Trust may use derivative instruments including futures,
options, indexed securities, inverse securities and swaps. Derivatives are
financial instruments whose value is derived from another security, a commodity
(such as gold or oil), or an index such as Standard & Poor's 500 Index.
Derivatives allow the Trust to increase or decrease their risk exposure more
quickly and efficiently than other types of instruments. Derivatives are
volatile and involve significant risks, including:
Credit risk -- the risk that the counterparty (the party on the other
side of the transaction) on a derivative transaction will be unable to
honor its financial obligation to the Trust.
Currency risk -- the risk that changes in the exchange rate between
currencies will adversely affect the value (in U.S. dollar terms) of an
investment.
Leverage risk -- the risk associated with certain types of investments
or trading strategies (such as borrowing money to increase the amount of
investment) that relatively small market movements may result in large
changes in the value of an investment. Certain investments or trading
strategies that involve leverage can result in losses that greatly exceed
the amount originally invested.
Liquidity risk -- the risk that certain securities may be difficult or
impossible to sell at the time that the seller would like or at the price
that the seller believes the security is currently worth.
The Trust may use derivatives for hedging purposes, including anticipatory
hedges. Hedging is a strategy in which the Trust uses a derivative to offset the
risk that other Trust holdings may decrease in value. While hedging can reduce
losses, it can also reduce or eliminate gains if the market moves in a different
manner than anticipated by the Trust or if the cost of the derivative outweighs
the benefit of the hedge. Hedging also involves the risk that changes in the
value of the derivative will not match those of the holdings being hedged as
expected by the Trust, in which case any losses on the holdings being hedged may
not be reduced. There
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can be no assurance that the Trust's hedging strategy will reduce risk or that
hedging transactions will be either available or cost effective. The Trust is
not required to use hedging and may choose not to do so.
ITEM 6. MANAGEMENT, ORGANIZATION, AND CAPITAL STRUCTURE.
(a)(1) Investment Manager
Fund Asset Management, L.P. manages the Trust's investments under the
overall supervision of the Board of Trustees of the Trust. The investment
management agreement between the Trust and the Manager gives the Manager the
responsibility for making all investment decisions for the Trust. The Manager
has a sub-advisory agreement with Merrill Lynch Asset Management U.K. Limited
("MLAM U.K."), an affiliate, under which the Manager may pay a fee for services
it receives from MLAM U.K.
The Trust pays the Manager a fee at the annual rate of 0.85% of the average
daily net assets of the Trust.
The Manager was organized as an investment adviser in 1977 and offers
investment advisory services to more than 50 registered investment companies.
MLAM U.K. was organized as an investment adviser in 1986 and acts as sub-advisor
to more than 50 registered investment companies. The Manager and MLAM U.K. are
part of Asset Management Group of Merrill Lynch & Co., Inc. The Asset Management
Group had approximately $550 billion in investment company and other portfolio
assets under management as of January 2000. This amount includes assets managed
for affiliates of the Manager.
(a)(2) Portfolio Manager
James D. McCall is a Senior Vice President and the Portfolio Manager of the
Trust. Mr. McCall has been a First Vice President of Merrill Lynch Asset
Management, L.P. ("MLAM") since November 1999. Prior to joining MLAM, Mr. McCall
was a portfolio manager for the PBHG family of mutual funds from 1994 to 1999.
(b) Capital Stock.
Investors in the Trust have no preemptive or conversion rights, and
beneficial interests in the Trust are fully paid and non-assessable. The Trust
has no current intention to hold annual meetings of investors, except to the
extent required by the Investment Company Act, but will hold special meetings of
investors, when in the judgment of the Trustees, it is necessary or desirable to
submit matters for an investor vote. Upon liquidation of the Trust, Feeder Funds
would be entitled to their pro rata share of the assets of the Trust that are
available for distribution.
The Trust is organized as a business trust under the laws of the State of
Delaware. Each Feeder Fund is entitled to a vote in proportion to its investment
in the Trust. Each Feeder Fund generally will participate in the earnings,
dividends and assets of the Trust in accordance with their pro rata interests in
the Trust.
Investments in the Trust may not be transferred. A Feeder Fund may withdraw
all or any portion of its investment in the Trust at net asset value on any day
on which the New York Stock Exchange (the "NYSE") is open, subject to certain
exceptions. For more information about the ability of a Feeder Fund to withdraw
all or any portion of its investment in the Trust, please see Item 7 herein.
ITEM 7. SHAREHOLDER INFORMATION.
(a) Pricing of Beneficial Interests in the Trust.
The net asset value of the Trust is determined once daily Monday through
Friday as of the close of business on the NYSE on each day the NYSE is open for
trading based on prices at the time of closing. The NYSE generally closes at
4:00 p.m., Eastern time. The price at which a purchase or redemption is effected
is based on the next calculation of net asset value after such an order is
placed. Any assets or liabilities initially expressed in terms of non-U.S.
dollar currencies are translated into U.S. dollars at the prevailing market
rates as quoted by one or more banks or dealers on the day of valuation. The
NYSE is not open for trading on New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
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The net asset value of the Trust is computed by dividing the value of the
securities held by the Trust plus any cash or other assets (including interest
and dividends accrued but not yet received) minus all liabilities (including
accrued expenses) by the total number of interests in the Trust outstanding at
such time, rounded to the nearest cent. Expenses, including the fee payable to
the Manager are accrued daily. Each investor in the Trust may add to or reduce
its investment in the Trust on each day the NYSE is open for trading. The value
of each investor's interest in the Trust will be determined after the close of
business on the NYSE by multiplying the net asset value of the Trust by the
percentage, effective for that day, that represents the investor's share of the
aggregate interests in the Trust. Any additions or withdrawals to be effected on
that day will then be effected. The investor's percentage of the aggregate
beneficial interests in the Trust will then be recomputed as the percentage
equal to the fraction (i) the numerator of which is the value of such investor's
investment in the Trust as of the time of determination on such day plus or
minus, as the case may be, the amount of any additions to or withdrawals from
the investor's investment in the Trust effected on such day, and (ii) the
denominator of which is the aggregate net asset value of the Trust as of such
time on such day plus or minus, as the case may be, the amount of the net
additions to or withdrawals from the aggregate investments in the Trust by all
investors in the Trust. The percentage so determined will then be applied to
determine the value of the investor's interest in the Trust after the close of
business of the NYSE on the next determination of net asset value of the Trust.
(b) Purchase of Beneficial Interests in the Trust.
Beneficial interests in the Trust are issued solely in private placement
transactions that do not involve any "public offering" within the meaning of
Section 4(2) of the 1933 Act. Investments in the Trust may only be made by a
limited number of institutional investors including investment companies, common
or commingled trust funds, group trusts, and certain other "accredited
investors" within the meaning of Regulation D under the 1933 Act. This
Registration Statement does not constitute an offer to sell, or the solicitation
of an offer to buy, any "security" within the meaning of the 1933 Act.
There is no minimum initial or subsequent investment in the Trust. However,
because the Trust intends to be as fully invested at all times as is reasonably
consistent with its investment objectives and policies in order to enhance the
return on its assets, investments by a Feeder Fund must be made in federal funds
(i.e., monies credited to the account of the Trust's custodian bank by a Federal
Reserve Bank).
The Trust reserves the right to stop accepting investments from any Feeder
Fund or to reject any investment order.
(c) Redemption of Beneficial Interests in the Trust.
A Feeder Fund may withdraw all or any portion of its investment in the
Trust on any business day in which the NYSE is open at the net asset value next
determined after a withdrawal request in proper form is furnished by the
investor to the Trust's transfer agent. When a request is received in proper
form, the Trust will redeem a Feeder Fund's interests at the next determined net
asset value. The Trust will make payment for all interests redeemed within seven
days after receipt by the Trust of a redemption request in proper form, except
as provided by the rules of the Commission. The right of a Feeder Fund to
receive payment with respect to any withdrawal may be suspended or the payment
of the withdrawal proceeds postponed during any period in which the NYSE is
closed (other than weekends or holidays) or trading on the NYSE is restricted,
or, to the extent otherwise permitted by the Investment Company Act, if an
emergency exists. Investments in the Trust may not be transferred.
(d) Dividends and Distributions.
(e) Tax Consequences
Because the Trust intends to operate as a partnership for federal income
tax purposes, the Trust will not be subject to any income tax. Based upon the
status of the Trust as a partnership, a Feeder Fund will take into account its
share of the Trust's ordinary income, capital gains, losses, deductions and
credits in determining its income tax liability. The determination of a Feeder
Fund's share of the Trust's ordinary income, capital gains, losses, deductions
and credits will be made in accordance with the Code.
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ITEM 8. DISTRIBUTION ARRANGEMENTS.
(a) Sales Loads. Not Applicable.
(b) 12b-1 Fees. Not Applicable.
(c) Multiple Class and Master Feeder Funds.
The Trust is part of a master/feeder structure. Members of the general
public may not purchase beneficial interests in the Trust. However, the Trust
may sell beneficial interests to other affiliated and non-affiliated investment
companies and/or institutional investors. Each Feeder Fund acquires an indirect
interest in the securities owned by the Trust and will pay a proportionate share
of the Trust's expenses. A Feeder Fund is not required to sell its shares to the
public at the same price as another Feeder Fund. Feeder Funds may have different
sales commissions and operating expenses. These different sales commissions and
operating expenses may result in differences in returns among the Feeder Funds.
The Trustees of the Trust believe that the "master/feeder" fund structure
may enable the Trust to reduce costs through economies of scale. A larger
investment portfolio for the Trust may reduce certain transaction costs to the
extent that contributions to and redemptions from the Trust's portfolio by the
various Feeder Funds may offset each other and produce a lower net cash flow.
A Feeder Fund's investment in the Trust may, however, be adversely affected
by the actions of other Feeder Funds. For example, if a large Feeder Fund
reduces its investment in the Trust or withdraws from the Trust, the remaining
Feeder Funds may bear higher pro rata operating expenses. However, this
possibility also exists for traditionally structured funds with large investors.
A Feeder Fund might also withdraw from the Trust if the Trust voted to change
its investment objective, policies or limitations in a manner not acceptable to
the Directors of that Feeder Fund. The withdrawal of all of a Feeder Fund's
assets from the Trust may affect the investment performance of the Feeder Fund
and the Trust. As of March 3, 2000, the net assets of the Trust were
approximately $1,057,415,660.
The Trust normally will not hold meetings of investors except as required
by the Investment Company Act. Each Feeder Fund will be entitled to vote in
proportion to its interest in the Trust. When a Feeder Fund is requested to vote
on matters pertaining to the Trust, the Feeder Fund will hold a meeting of its
shareholders and will vote its interest in the Trust proportionately to the
voting instructions received from the shareholders of the Feeder Fund. For more
information about the "master/feeder" structure, please see Part A of the
Merrill Lynch Registration Statement and Part A of the Mercury Registration
Statement under "Master Feeder Structure".
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PART B
MARCH 21, 2000
MASTER FOCUS TWENTY TRUST
ITEM 10. COVER PAGE AND TABLE OF CONTENTS.
This Part B, which is not a prospectus, supplements and should be read in
conjunction with the current Part A of Master Focus Twenty Trust (the "Trust"),
dated March 21, 2000, as it may be revised from time to time (the "Trust's Part
A"). To obtain a copy of the Trust's Part A, please call the Trust at
1-888-637-3863, or write to the Trust at P.O. Box 9011, Princeton, New Jersey
08543-9011. The Trust's Part A is incorporated herein by reference and this Part
B is incorporated by reference in the Trust's Part A.
As permitted by General Instruction D to Form N-1A, responses to certain
Items required to be included in Part B of this Registration Statement are
incorporated herein by reference from (a) Pre-Effective Amendment No. 2 of the
Registration Statement on Form N-1A (Securities Act File No. 333-89775 and
Investment Company Act File No. 811-09651) of Merrill Lynch Focus Twenty Fund,
Inc. (the "Merrill Lynch Fund"), as filed with the Securities and Exchange
Commission (the "Commission") on December 21, 1999 and as amended from time to
time (the "Merrill Lynch Registration Statement") and (b) Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A (Securities Act File
No. 333-30942 and Investment Company Act File No. 811-09825) of Mercury Premier
Growth Fund, Inc. (the "Mercury Fund" and, together with the Merrill Lynch Fund,
the "Funds"), as filed with the Commission on March 21, 2000, and as may be
amended from time to time (the "Mercury Registration Statement"). Part A of the
Merrill Lynch Registration Statement includes the prospectus of the Merrill
Lynch Fund. Part B of the Merrill Lynch Registration Statement includes the
statement of additional information of the Merrill Lynch Fund. Part A of the
Mercury Registration Statement includes the prospectus of the Mercury Fund. Part
B of the Mercury Registration Statement includes the statement of additional
information of the Mercury Fund.
The Trust is part of a "master/feeder" structure. The Funds invest all of
their assets in beneficial interests in the Trust. The Fund's are the only
feeder funds that invest in the Trust. The Funds and any other feeder fund that
may invest in the Trust are referred to herein as "Feeder Funds".
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Trust History............................................... 9
Description of the Trust and Its Investments and Risks...... 9
Management of the Trust..................................... 10
Control Persons and Principal Holders of Securities......... 11
Investment Advisory and Other Services and Other
Practices................................................. 12
Capital Stock and Other Securities.......................... 12
Purchase, Redemption and Pricing of Securities.............. 13
Taxation of the Trust....................................... 14
Underwriters................................................ 16
Calculation of Performance Data............................. 16
Financial Statements........................................ 16
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ITEM 11. TRUST HISTORY.
Information relating to the history of the Trust is incorporated herein by
reference from Item 4 of the Trust's Part A.
ITEM 12. DESCRIPTION OF THE TRUST AND ITS INVESTMENTS AND RISKS.
The following information supplements and should be read in conjunction
with Item 4 of the Trust's Part A.
Information relating to the fundamental investment restrictions and the
non-fundamental investment policies and restrictions of the Trust, the types of
securities purchased by the Trust, the investment techniques used by the Trust,
and certain risks relating thereto, as well as other information relating to the
Trust's
9
<PAGE> 10
investment programs, is incorporated herein by reference from the section
entitled "INVESTMENT OBJECTIVE AND POLICIES" in Part B of the Merrill Lynch
Registration Statement and Part B of the Mercury Registration Statement.
ITEM 13. MANAGEMENT OF THE TRUST.
(a) Board of Trustees of the Trust
The Trustees of the Trust consist of seven individuals, five of whom are
not "interested persons" of the Trust as defined in the Investment Company Act
of 1940, as amended (the "Investment Company Act"). The same individuals serve
as Directors of the Fund and are sometimes referred to herein as the
"non-interested Directors/Trustees." The Trustees of the Trust are responsible
for the overall supervision of the operations of the Trust and perform the
various duties imposed on the directors of investment companies by the
Investment Company Act. Information about the Trustees and executive officers of
the Trust, their ages and their principal occupations for at least the last five
years are set forth below. Unless otherwise noted, the address of each executive
officer and Trustee is P.O. Box 9011, Princeton, New Jersey 08543-9011.
(b) Management Information
TERRY K. GLENN (59) -- President and Trustee(1)(2) -- Executive Vice
President of Fund Asset Management, L.P. (the "Manager") and Merrill Lynch Asset
Management L.P. ("MLAM") (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.
JAMES H. BODURTHA(55) -- Trustee(2)(3) -- 36 Popponesset Road, Cotuit,
Massachusetts 02635. Director and Executive Vice President, The China Business
Group, Inc. since 1996; Chairman and Chief Executive Officer, China Enterprise
Management Corporation from 1993 to 1996; Chairman, Berkshire Corporation since
1980; Partner, Squire, Sanders & Dempsey from 1980 to 1993.
HERBERT I. LONDON (60) -- Trustee(2)(3) -- 2 Washington Square Village, New
York, New York 10012. John M. Olin Professor of Humanities, New York University
since 1993 and Professor thereof since 1980; President, Hudson Institute since
1997 and Trustee thereof since 1980; Dean, Gallatin Division of New York
University from 1976 to 1993; Distinguished Fellow, Herman Kahn Chair, Hudson
Institute from 1984 to 1985; Director, Damon Corporation from 1991 to 1995;
Overseer, Center for Naval Analyses from 1983 to 1993; Limited Partner,
Hypertech LP since 1996.
JOSEPH L. MAY (70) -- Trustee(2)(3) -- 424 Church Street, Suite 2000,
Nashville, Tennessee 37219. Attorney in private practice since 1984; President,
May and Athens Hosiery Mills Division, Wayne-Gossard Corporation from 1954 to
1983; Vice President, Wayne-Gossard Corporation from 1972 to 1983; Chairman, The
May Corporation (personal holding company) from 1972 to 1983; Director, Signal
Apparel Co. from 1972 to 1989.
ANDRE F. PEROLD (47) -- Trustee(2)(3) -- Morgan Hall, Soldiers Field,
Boston, Massachusetts 02163. Professor, Harvard Business School since 1989 and
Associate Professor from 1983 to 1989; Trustee, The Common Fund since 1989;
Director, Quantec Limited from 1991 to 1999; Director, TIBCO from 1994 to 1996;
Director, Genbel Securities Limited and Gensec Bank since 1999; Director, Gensec
Asset Management since 2000; Director, Bulldogresearch.com since 2000.
ROBERTA COOPER RAMO (57) -- Trustee(2)(3) -- P.O. Box 2168, 500 Fourth
Street, N.W., Albuquerque, New Mexico 87103. Shareholder, Modrall, Sperling,
Roehl, Harris & Sisk, P.A. since 1993; President, American Bar Association from
1995 to 1996 and Member of the Board of Governors thereof from 1994 to 1997;
Partner, Poole, Kelly & Ramo, Attorneys at Law, P.C. from 1977 to 1993;
Director, Coopers, Inc. since 1999; Director, United New Mexico Bank (now Wells
Fargo) from 1983 to 1988; Director, First National Bank of New Mexico (now First
Security) from 1975 to 1976.
ARTHUR ZEIKEL (67) -- Trustee(1)(2) -- 300 Woodland Avenue, Westfield, New
Jersey 07090. Chairman of the Manager and MLAM from 1997 to 1999 and President
thereof from 1977 to 1997; Chairman of Princeton Services from 1997 to 1999,
Director thereof from 1993 to 1999 and President thereof from 1993 to 1997;
Executive Vice President of Merrill Lynch & Co., Inc. ("ML & Co.") from 1990 to
1999.
10
<PAGE> 11
JAMES D. MCCALL (46)--Senior Vice President and Portfolio
Manager(1)(2) -- First Vice President of MLAM since 1999; portfolio manager for
the PBHG family of mutual funds from 1994 to 1999.
ROBERT C. DOLL, JR. (45) -- Senior Vice President(1)(2) -- Senior Vice
President of the Manager and MLAM since 1999; Senior Vice President of Princeton
Services since 1999; Chief Investment Officer of Oppenheimer Funds, Inc. in 1999
and Executive Vice President thereof from 1991 to 1999.
DONALD C. BURKE (39) -- Vice President and Treasurer(1)(2) -- Senior Vice
President and Treasurer of the Manager and MLAM since 1999; Senior Vice
President and Treasurer of Princeton Services since 1999; Vice President of PFD
since 1999; First Vice President of MLAM from 1997 to 1999; Vice President of
MLAM from 1990 to 1997; Director of Taxation of MLAM since 1990.
SUSAN B. BAKER (42) -- Secretary(1)(2) -- Director (Legal Advisory) of MLAM
since 1999; Vice President of MLAM from 1993 to 1999, Attorney associated with
MLAM since 1987.
- ---------------
(1) Interested person, as defined in the Investment Company Act, of the Trust
and each Fund.
(2) Such Director or officer is a trustee, director or officer of other
investment companies for which the Manager, or one of its affiliates, acts
as investment adviser or manager.
(3) Member of each Fund's Audit and Nominating Committee, which is responsible
for the selection of the independent auditors and the selection and
nomination of non-interested Directors.
(d) Compensation
The Trust pays fees to each non-interested Director/Trustee for service to
the Fund and the Trust. Each non-interested Director/Trustee receives an
aggregate annual retainer of $100,000 for his or her services to multiple
investment companies advised by the Manager or its affiliate MLAM
("MLAM/FAM-advised funds"). The portion of the annual retainer allocated to each
MLAM/FAM-advised fund is determined quarterly based on the relative net assets
of each fund. As of the date of this Part B, this annual retainer applies to 43
MLAM/FAM-advised funds. In addition, each non-interested Director/Trustee
receives a fee per in-person board meeting attended and per in-person Audit and
Nominating Committee meeting attended. The annual per meeting fees paid to
non-interested Directors/Trustees aggregate $60,000 for all MLAM/FAM-advised
funds for which the Directors/Trustees serve and are allocated equally among
those funds. The Trust also reimburses the non-interested Trustees for actual
out-of-pocket expenses relating to attendance at meetings. The Audit and
Nominating Committee consists of all of the non-interested Directors/Trustees of
the Trust.
The following table sets forth the estimated compensation to be earned by
the non-interested Directors/ Trustees for the fiscal year ending November 30,
2000 and the aggregate compensation paid to them from all MLAM/FAM-advised funds
to the non-affiliated Directors/Trustees for the calendar year ended December
31, 1999.
<TABLE>
<CAPTION>
AGGREGATE
ESTIMATED PENSION OR COMPENSATION FROM
COMPENSATION RETIREMENT BENEFITS ESTIMATED ANNUAL FUND/TRUST AND
FROM ACCRUED AS PART OF BENEFITS UPON OTHER MLAM/FAM-
NAME FUND/TRUST FUND/TRUST EXPENSE RETIREMENT ADVISED FUNDS(1)
---- ------------ ------------------- ---------------- -----------------
<S> <C> <C> <C> <C>
James H. Bodurtha............. $9,500 None None $133,500
Herbert I. London............. 9,500 None None 133,500
Joseph I. May................. 9,500 None None 133,500
Andre F. Perold............... 9,500 None None 133,250
Roberta Cooper Ramo........... 9,500 None None 0
</TABLE>
- ---------------
(1) In addition to the Fund and the Trust, the Directors/Trustees serve on other
boards of MLAM/FAM advised funds as follows: Mr. Bodurtha (29 registered
investment companies consisting of 43 portfolios); Mr. London (29 registered
investment companies consisting of 43 portfolios); Mr. May (29 registered
investment companies consisting of 43 portfolios); Mr. Perold (29 registered
investment companies consisting of 43 portfolios) and Ms. Ramo (23
registered investment companies consisting of 19 portfolios).
11
<PAGE> 12
(e) Sales Loads Not Applicable.
ITEM 14. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.
As of March 1, 2000, the Merrill Lynch Fund, a Maryland corporation, owned
100% of the beneficial interests in the Trust.
As of March 1, 2000, the officers and Trustees of the Trust as a group (11
persons) owned an aggregate of less than 1% of the outstanding shares of common
stock of Merrill Lynch & Co., Inc. and owned an aggregate of less than 1% of the
outstanding beneficial interests in the Trust.
ITEM 15. INVESTMENT ADVISORY AND OTHER SERVICES.
The following information supplements should be read in conjunction with
Item 4 in the Trust's Part A.
Information relating to the investment management and other services
provided to the Trust or on behalf of the Trust is incorporated herein by
reference from the sub-section entitled "Management and Advisory Arrangements"
from the section entitled "GENERAL INFORMATION" in Part B of the Merrill Lynch
Registration Statement and from the section entitled "GENERAL INFORMATION" in
Part B of the Mercury Registration Statement. The following list identifies the
specific sections and sub-sections in Part B of the Funds' Registration
Statement under which the information required by Item 15 of Form N-1A may be
found. Each listed section is incorporated herein by reference.
<TABLE>
<CAPTION>
SECTIONS INCORPORATED BY REFERENCE FROM
PART B OF THE MERRILL LYNCH REGISTRATION STATEMENT AND
FORM N-1A ITEM NO. PART B OF THE MERCURY REGISTRATION STATEMENT
------------------ ------------------------------------------------------
<S> <C>
Item 15(a)........................................ Management and Advisory Arrangements
Item 15(c)........................................ Management and Advisory Arrangements
Item 15(d)........................................ Management and Advisory Arrangements
Item 15(e)........................................ Not Applicable
Item 15(f)........................................ Not Applicable
Item 15(g)........................................ Not Applicable
Item 15(h)........................................ GENERAL INFORMATION
</TABLE>
Princeton Funds Distributor, Inc. ("PFD"), P.O. Box 9011, Princeton, New
Jersey, 08543-9081, an affiliate of FAM, acts as placement agent for the Trust
pursuant to a placement agent agreement (the "Placement Agent Agreement"). Under
the Placement Agent Agreement, PFD receives no compensation for acting as
placement agent for the Trust.
ITEM 16. BROKERAGE ALLOCATION AND OTHER PRACTICES.
Information relating to portfolio turnover and brokerage allocation for or
on behalf of the Trust is incorporated herein by reference from the section
entitled "PORTFOLIO TRANSACTIONS AND BROKERAGE" in Part B of the Merrill Lynch
Registration Statement and from the section entitled "PORTFOLIO TRANSACTIONS AND
BROKERAGE" in Part B of the Mercury Registration Statement.
ITEM 17. CAPITAL STOCK AND OTHER SECURITIES.
The following information supplements and should be read in conjunction
with Item 6(B) and Item 7 in the Trusts' Part A. Under the Declaration of Trust,
the Trustees are authorized to issue beneficial interests in the Trust. Upon
liquidation of the Trust, Feeder Funds would be entitled to share in the assets
of the Trust that are available for distribution in proportion to their
investment in the Trust.
The Trust is organized as a business trust under the laws of the State of
Delaware. Each Feeder Fund is entitled to a vote in proportion to its investment
in the Trust. Each Feeder Fund will participate in the earnings, dividends and
assets of the Trust in accordance with their pro rata interests in the Trust. No
certificates are issued.
12
<PAGE> 13
Each investor is entitled to a vote, with respect to matters effecting the
Trust, in proportion to the amount of its investment in the Trust. Investors in
the Trust do not have cumulative voting rights, and investors holding more than
50% of the aggregate beneficial interest in the Trust may elect all of the
Trustees of the Trust if they choose to do so and in such event the other
investors in the Trust would not be able to elect any Trustee. The Trust is not
required to hold annual meetings of investors but the Trust will hold special
meetings of investors when in the judgment of the Trust's Trustees it is
necessary or desirable to submit matters for an investor vote. The Trustees may
elect to terminate the Trust without a vote of the interest holders.
ITEM 18. PURCHASE, REDEMPTION AND PRICING OF SECURITIES.
The following information supplements and should be read in conjunction
with Item 7 and Item 8 in the Trust's Part A.
(a) Purchase of Beneficial Interests in the Trust.
The net asset value of the Trust is determined once daily Monday through
Friday as of the close of business on the NYSE on each day the NYSE is open for
trading based on prices at the time of closing. The NYSE generally closes at
4:00 p.m., Eastern time. The price at which a purchase or redemption is effected
is based on the next calculation of net asset value after such an order is
placed. Any assets or liabilities initially expressed in terms of non-U.S.
dollar currencies are translated into U.S. dollars at the prevailing market
rates as quoted by one or more banks or dealers on the day of valuation. The
NYSE is not open for trading on New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
The net asset value of the Trust is computed by dividing the value of the
securities held by the Trust plus any cash or other assets (including interest
and dividends accrued but not yet received) minus all liabilities (including
accrued expenses) by the total number of interests in the Trust outstanding at
such time, rounded to the nearest cent. Expenses, including the fee payable to
the Manager, are accrued daily. Each investor in the Trust may add to or reduce
its investment in the Trust on each day the NYSE is open for trading. The value
of each investor's interest in the Trust will be determined after the close of
business on the NYSE by multiplying the net asset value of the Trust by the
percentage, effective for that day, that represents the investor's share of the
aggregate interests in the Trust. Any additions or withdrawals to be effected on
that day will then be effected. The investor's percentage of the aggregate
beneficial interests in the Trust will then be recomputed as the percentage
equal to the fraction (i) the numerator of which is the value of such investor's
investment in the Trust as of the time of determination on such day plus or
minus, as the case may be, the amount of any additions to or withdrawals from
the investor's investment in the Trust effected on such day, and (ii) the
denominator of which is the aggregate net asset value of the Trust as of such
time on such day plus or minus, as the case may be, the amount of the net
additions to or withdrawals from the aggregate investments in the Trust by all
investors in the Trust. The percentage so determined will then be applied to
determine the value of the investor's interest in the Trust after the close of
business of the NYSE on the next determination of net asset value of the Trust.
Securities that are held by the Trust, including ADRs, EDRs or GDRs, that
are traded on stock exchanges are valued at the last sale price (regular way) on
the exchange on which such securities are traded, as of the close of business on
the day the securities are being valued or, lacking any sales, at the last
available bid price for long positions, and at the last available ask price for
short positions. In cases where securities are traded on more than one exchange,
the securities are valued on the exchange designated by or under the authority
of the Board of Trustees of the Trust as the primary market. Long positions in
securities traded in the OTC market are valued at the last available bid price
in the OTC market prior to the time of valuation. Portfolio securities that are
traded both in the OTC market and on a stock exchange are valued according to
the broadest and most representative market. Short positions in securities
traded in the OTC market are valued at the last available ask price in the OTC
market prior to the time of valuation. Portfolio securities that are traded both
in the OTC market and on a stock exchange are valued according to the broadest
and most representative market. When the Trust writes an option, the amount of
the premium received is recorded on the books of the Trust as an asset and an
equivalent liability. The amount of the liability is subsequently valued
13
<PAGE> 14
to reflect the current market value of the option written, based on the last
sale price in the case of exchange-traded options or, in the case of options
traded in the OTC market, the last ask price. Options purchased by the Trust are
valued at their last sale price in the case of exchange-traded options or, in
the case of options traded in the OTC market, the last bid price. Other
investments, including financial futures contracts and related options, are
stated at market value. Securities and assets for which market quotations are
not readily available are valued at fair value as determined in good faith by or
under the direction of the Board of Trustees of the Trust. Such valuations and
procedures will be reviewed periodically by the Board of Trustees of the Trust.
Generally, trading in non-U.S. securities, as well as U.S. Government
securities and money market instruments, is substantially completed each day at
various times prior to the close of business on the NYSE. The values of such
securities used in computing the net asset value of interests in the Trust are
determined as of such times. Foreign currency exchange rates also are generally
determined prior to the close of business on the NYSE. Occasionally, events
affecting the values of such securities and such exchange rates may occur
between the times at which they are determined and the close of business on the
NYSE that may not be reflected in the computation of the Trust's net asset
value.
Beneficial interests in the Trust are issued solely in private placement
transactions that do not involve any "public offering" within the meaning of
Section 4(2) of the 1933 Act. Investments in the Trust may only be made by a
limited number of institutional investors including investment companies, common
or commingled trust funds, group trusts, and certain other "accredited
investors" within the meaning of Regulation D under the 1933 Act. This
Registration Statement does not constitute an offer to sell, or the solicitation
of an offer to buy, any "security" within the meaning of the 1933 Act.
There is no minimum initial or subsequent investment in the Trust. However,
because the Trust intends to be as fully invested at all times as is reasonably
consistent with its investment objectives and policies in order to enhance the
return on its assets, investments by a Feeder Fund must be made in federal funds
(i.e., monies credited to the account of the Trust's custodian bank by a Federal
Reserve Bank).
The Trust reserves the right to stop accepting investments from any Feeder
Fund or to reject any investment order.
A Feeder Fund may withdraw all or any portion of its investment in the
Trust on any business day in which the NYSE is open at the net asset value next
determined after a withdrawal request in proper form is furnished by the
investor to the Trust's transfer agent. When a request is received in proper
form, the Trust will redeem a Feeder Fund's interests at the next determined net
asset value. The Trust will make payment for all interests redeemed within seven
days after receipt by the Trust's transfer agent of a redemption request in
proper form, except as provided by the rules of the Commission. The right of a
Feeder Fund to receive payment with respect to any withdrawal may be suspended
or the payment of the withdrawal proceeds postponed during any period in which
the NYSE is closed (other than weekends or holidays) or trading on the NYSE is
restricted, or, to the extent otherwise permitted by the Investment Company Act,
if an emergency exists. Investments in the Trust may not be transferred.
(b) Fund Reorganizations. Not applicable.
(c) Offering Price. Not Applicable.
ITEM 19. TAXATION OF THE TRUST.
Because the Trust intends to qualify as a partnership for federal income
tax purposes, the Trust should not be subject to any income tax. Based upon the
status of the Trust as a partnership, a Feeder Fund will take into account its
share of the Trust's ordinary income, capital gains, losses, deduction and
credits in determining its income tax liability. The determination of a Feeder
Fund's share of the Trust's ordinary income, capital gains, losses, deductions
and credits will be made in accordance with the Internal Revenue Code of 1986,
as amended, and regulations promulgated thereunder (the "Code").
14
<PAGE> 15
The Trust's taxable year-end is November 30, 2000. Although the Trust will
not be subject to Federal income tax, it will file appropriate Federal income
tax returns.
It is intended that the Trust's assets, income and distributions will be
managed in such a way that an investor in the Trust will be able to satisfy the
requirements of Subchapter M of the Code for qualification as a regulated
investment company ("RIC"), assuming that the investor invested all of its
investable assets in the Trust. Any prospective Feeder Fund which is a RIC
agrees that, for purposes of determining its required distribution under Code
Section 4982(a), it will account for its share of items of income, gain, loss,
deduction and credit of the Trust as they are taken into account by the Trust.
The Trust may invest in futures contracts or options. Certain options and
futures contracts and foreign currency contracts are "section 1256 contracts."
Any gains or losses on section 1256 contracts are generally considered 60%
long-term and 40% short-term capital gains or losses ("60/40" gains or losses).
Also, section 1256 contracts held by the Trust at the end of each taxable year
are marked to market, i.e. treated for Federal income tax purposes as being sold
on the last business day of such taxable year for their fair market value. The
resulting mark-to-market gains or losses are also treated as 60/40 gains or
losses. When the section 1256 contract is subsequently disposed of, the
resulting actual gain or loss will be adjusted by the amount of any year-end
mark-to-market gain or loss previously taken into account.
Foreign currency gains or losses on non-U.S. dollar denominated bonds and
other similar debt instruments and on any non-U.S. dollar denominated futures
contracts, options and forward contracts that are not section 1256 contracts
generally will be treated as ordinary income or loss.
Certain hedging transactions undertaken by the Trust may result in
"straddles" for federal income tax purposes. The straddle rules contained in
Code sec.1092 and the regulations thereunder may affect the character of gains
(or losses) realized by the Trust with respect to property held in a straddle.
In addition, it may be required that losses realized by the Trust on positions
that are part of a straddle be deferred, rather than taken into account in
calculating taxable income for the taxable year in which such losses are
realized. The Trust may make one or more of the elections available under the
Code which are applicable to straddles. If the Trust makes any of the elections,
the amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the elections made. The rules applicable under certain of the elections
operate to accelerate the recognition of gains or losses from the affected
straddle positions. Additionally, Section 1258 the Code, applicable to
"conversion transactions" or Section 1259, applicable to "constructive sales,"
may apply to certain Trust transactions (including straddles) to change the
character of capital gains to ordinary income or to require the recognition of
income prior to the economic recognition of such income.
The Trust may be subject to a tax on dividend or interest income received
from securities of a non-U.S. issuer withheld by a foreign country at the
source. The United States has entered into tax treaties with many foreign
countries which may entitle the Trust to a reduced rate of tax or exemption from
tax on such income. It is impossible to determine the effective rate of foreign
tax in advance since the amount of the Trust's assets to be invested within
various countries is not known.
The Trust is to be managed in compliance with the provisions of the Code
applicable to RICs as though such requirements were applied at the Trust level.
Thus, consistent with its investment objectives, the Trust will meet the income
and diversification of assets tests of the Code applicable to RIC's. The Trust
will apply for a ruling from the Internal Revenue Service that feeder funds that
are RIC's will be treated as owners or their proportionate shares, subject to
certain adjustments, of the Trust's assets and income for purposes of these
tests.
The Code requires a RIC to pay a nondeductible 4% excise tax to the extent
that the RIC does not distribute during each calendar year 98% of its ordinary
income, determined on a calendar year basis, and 98% of its net capital gain,
determined, in general, on an October 31 year-end basis plus certain
undistributed amounts from previous years. The Trust intends to distribute its
income and capital gains to its RIC investors so as to enable such RICs to
minimize imposition of the 4% excise tax. There can be no assurance that
sufficient amounts of the Trust's taxable income and capital gains will be
distributed to avoid entirely the
15
<PAGE> 16
imposition of the tax on RIC investors. In such event, a RIC investor will be
liable for the tax only on the amount by which it does not meet the foregoing
distribution requirements.
Investors are advised to consult their own tax advisers as to the tax
consequences of an investment in the Trust.
ITEM 20. UNDERWRITERS.
The placement agent for the Trust is PFD. PFD receives no compensation for
acting as placement agent for the Trust.
ITEM 21. CALCULATION OF PERFORMANCE DATA.
Not Applicable.
16
<PAGE> 17
ITEM 22. FINANCIAL STATEMENTS.
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Investors,
Master Focus Twenty Trust:
We have audited the accompanying statement of assets and liabilities of Master
Focus Twenty Trust as of December 20, 1999. This financial statement is the
responsibility of the Trust'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 and liabilities presents fairly, in all
material respects, the financial position of Master Focus Twenty Trust as of
December 20, 1999, in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
December 20, 1999
17
<PAGE> 18
MASTER FOCUS TWENTY TRUST
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 20, 1999
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Cash...................................................... $100,100
Prepaid offering costs (Note 3)........................... 7,500
--------
Total assets...................................... 107,600
--------
Less liabilities and accrued expenses....................... 7,500
--------
Net Assets applicable to investors' interest in the Fund $100,100
(Note 1).................................................. ========
</TABLE>
- ------------------------
Notes to Financial Statement
(1) Master Focus Twenty Trust (the "Trust") was organized as a Delaware business
trust on October 25, 1999. Merrill Lynch Focus Twenty Fund, Inc. (the
"Fund") invests all of its assets in the Trust. To date, the Trust has not
had any transactions other than those relating to organizational matters, an
indirect $100,000 capital contribution to the Trust by Fund Asset
Management, L.P. (the "Manager") through the Fund and a $100 partnership
contribution to the Fund by Princeton Funds Distributor, Inc. (the
"Placement Agent").
(2) The Trust will enter into a management agreement (the "Management
Agreement") with the Manager. (See "Investment Advisory and Other Services"
in Part B of this Registration Statement.) Certain officers and/or Trustees
of the Trust are officers and/or directors of the Manager and the Placement
Agent.
(3) Prepaid offering costs consist of legal fees related to preparing the
initial registration statement, and will be amortized over a 12 month period
beginning with the commencement of operations of the Trust. The Manager, on
behalf of the Trust, will incur organization costs estimated at $10,000.
18
<PAGE> 19
PART C. OTHER INFORMATION
ITEM 23. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<C> <S> <C>
1(a) -- Certificate of Trust, dated October 25, 1999.(a)
(b) -- Amended and Restated Declaration of Trust, dated December 7,
1999.(a)
(c) -- Certificate of Amendment, dated November 5, 1999.(a)
2 -- By-Laws of the Registrant.(a)
3 -- Portions of the Amended and Restated Declaration of Trust
and By-Laws of the Registrant defining the rights of holders
of interests in the Registrant.(b)
4(a) -- Form of Management Agreement between the Registrant and Fund
Asset Management, L.P.(a)
(b) -- Form of Sub-Advisory Agreement between Fund Asset
Management, L.P. and Merrill Lynch Asset Management U.K.
Limited.(a)
5 -- Omitted pursuant to Paragraph 2(b) of Instruction B of the
General Instructions to Form N-1A.
6 -- None.
7 -- Form of Custody Agreement between the Registrant and The
Bank of New York.(a)
8(a) -- Credit Agreement between the Registrant and a syndicate of
banks.(a)
(b) Form of Placement Agent Agreement between the Registrant and
Princeton Funds Distributor, Inc.
(c) Form of Subscription Agreement for the acquisition of
interests in the Registrant.
9 -- Omitted pursuant to Paragraph 2(b) of Instruction B of the
General Instructions to Form N-1A.
10 -- Consent of Deloitte & Touche LLP, independent auditors for
the Registrant.
11 -- None.
12 -- Certificate of Merrill Lynch Focus Twenty Fund, Inc.(a)
13 -- None.
14 -- None.
</TABLE>
- ---------------
<TABLE>
<S> <C>
(a) Filed on December 21, 1999, as an Exhibit to the
Registrant's Registration Statement on Form N-1A (File No.
811-09735) under the Investment Company Act of 1940, as
amended.
(b) Reference is made to Article I (Sections 1.1 and 1.2),
Article II (Sections 2.2, 2.4 and 2.7), Article III
(Sections 3.2, 3.4, 3.8, 3.10, 3.11 and 3.12), Article V
(Sections 5.1, 5.2, 5.3, 5.4, 5.5, 5.6, 5.7, 5.8, 5.9 and
5.10), Article VI, Article VII (Sections 7.1 and 7.2),
Article VIII (Sections 8.1, 8.3 and 8.6), Article IX,
Article X (Sections 10.2, 10.3, 10.4 and 10.5) and Article
XI (Sections 11.2, 11.4 and 11.6) of the Registrant's
Amended and Restated Declaration of Trust, filed as Exhibit
1(b) to the Registration Statement; the Certificate of
Trust, filed as Exhibit 1(a) to the Registration Statement;
and Article I, Article III (Sections 3.7 and 3.10) and
Article VI (Section 6.2) of the Registrant's By-Laws, filed
as Exhibit 2 to the Registration Statement.
</TABLE>
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE TRUST.
Merrill Lynch Focus Twenty Fund, Inc. (the "Merrill Lynch Fund") owns 100%
of the beneficial interests in the Registrant.
ITEM 25. INDEMNIFICATION.
Reference is made to Section 17(h) and (i) of the Investment Company Act of
1940, as amended (the "1940 Act"), and pursuant to Sections 8.2, 8.3 and 8.4, of
Article VIII of the Registrant's Amended and Restated Declaration of Trust (the
"Declaration of Trust") (Exhibit 1(b) to this Registrant Statement), Trustees,
officers, employees and agents of the Trust will be indemnified to the maximum
extent permitted by Delaware law and the 1940 Act.
Article VIII, Section 8.1 provides, inter alia, that no Trustee, officer,
employee or agent of the Registrant shall be liable to the Registrant, its
Holders, or to any other Trustee, officer, employee or agent thereof for any
action or failure to act (including, without limitation, the failure to compel
in any way any former or acting Trustee to redress any breach of trust) except
for his own bad faith, willful misfeasance, gross negligence or reckless
disregard of his duties.
C-1
<PAGE> 20
Article VIII, Section 8.2 of the Registrant's Declaration of Trust
provides:
The Trust shall indemnify each of its Trustees, officers, employees and
agents (including persons who serve at its request as directors, officers or
trustees of another organization in which it has any interest, as a shareholder,
creditor or otherwise) against all liabilities and expenses (including amounts
paid in satisfaction of judgments, in compromise, as fines and penalties, and as
counsel fees) reasonably incurred by him in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or criminal,
in which he may be involved or with which he may be threatened, while in office
or thereafter, by reason of his being or having been such a Trustee, officer,
employee or agent, except with respect to any matter as to which he shall have
been adjudicated to have acted in bad faith, willful misfeasance, gross
negligence or reckless disregard of his duties; provided, however, that as to
any matter disposed of by a compromise payment by such Person, pursuant to a
consent decree or otherwise, no indemnification either for said payment or for
any other expenses shall be provided unless there has been a determination that
such Person did not engage in willful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct of his office by the
court or other body approving the settlement or other disposition or, in the
absence of a judicial determination, by a reasonable determination, based upon a
review of readily available facts (as opposed to a full trial-type inquiry),
that he did not engage in such conduct, which determination shall be made by a
majority of a quorum of Trustees who are neither Interested Persons of the Trust
nor parties to the action, suit or proceeding, or by written opinion from
independent legal counsel approved by the Trustees. The rights accruing to any
Person under these provisions shall not exclude any other right to which he may
be lawfully entitled; provided that no Person may satisfy any right of indemnity
or reimbursement granted herein or to which he may be otherwise entitled except
out of the Trust Property. The Trustees may make advance payments in connection
with indemnification under this Section 8.2; provided that any advance payment
of expenses by the Trust to any Trustee, officer, employee or agent shall be
made only upon the undertaking by such Trustee, officer, employee or agent to
repay the advance unless it is ultimately determined that he is entitled to
indemnification as above provided, and only if one of the following conditions
is met:
(a) the Trustee, officer, employee or agent to be indemnified provides a
security for his undertaking; or
(b) the Trust shall be insured against losses arising by reason of any
lawful advances; or
(c) there is a determination, based on a review of readily available facts,
that there is reason to believe that the Trustee, officer, employee or agent to
be indemnified ultimately will be entitled to indemnification, which
determination shall be made by:
(i) a majority of a quorum of Trustees who are neither Interested
Persons of the Trust nor parties to the Proceedings; or
(ii) an independent legal counsel in a written opinion.
Article VIII, Section 8.3 of the Registrant's Declaration of Trust further
provides:
Nothing contained in Sections 8.1 or 8.2 hereof shall protect any Trustee
or officer of the Trust from any liability to the Trust or its 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. Nothing contained in Sections 8.1 or 8.2 hereof or in any agreement of
the character described in Section 4.1 or 4.2 hereof shall protect any Manager
to the Trust against any liability to the Trust to which he would otherwise be
subject by reason of willful misfeasance, bad faith or gross negligence in the
performance of his or its duties to the Trust, or by reason of his or its
reckless disregard to his or its obligations and duties under the agreement
pursuant to which he serves as Manager to the Trust.
As permitted by Article VIII, Section 8.6, the Registrant may insure its
Trustees and officers against certain liabilities, and certain costs of
defending claims against such Trustees and officers, to the extent such Trustees
and officers are not found to have committed conduct constituting conflict of
interest, intentional non-compliance with statutes or regulations or dishonest,
fraudulent or criminal acts or omissions. The Registrant will purchase an
insurance policy to cover such indemnification obligation. The insurance policy
also will insure the Registrant against the cost of indemnification payments to
Trustees and officers under
C-2
<PAGE> 21
certain circumstances. Insurance will not be purchased that protects, or
purports to protect, any Trustee or officer from liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of duty.
The Registrant hereby undertakes that it will apply the indemnification
provisions of its Declaration of Trust and By-Laws in a manner consistent with
Release No. 11330 of the Securities and Exchange Commission under the 1940 Act
so long as the interpretation of Section 17(h) and 17(i) of such Act remain in
effect and are consistently applied.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER.
See Item 6 in the Trust's Part A and Item 15 in Part B of the Trust's
Registration Statement regarding the business of the Manager. Information
relating to the business, profession, vocation or employment of a substantial
nature engaged in by the Manager or any of its respective officers and directors
during the past two years is incorporated herein by reference from Item 26 in
Part C of the Merrill Lynch Registration Statement on Form N-1A and Item 26 in
Part C of the Registration Statement on Form N-1A of Mercury Focus Twenty Fund,
Inc.
ITEM 27. PRINCIPAL UNDERWRITERS.
PFD acts as the placement agent for the Registrant and as the principal
underwriter for each of the following open-end investment companies: Financial
Institutions Series Trust, Master Focus Twenty Trust, Master Large Cap Series
Trust, Master Premier Growth Trust, Master Internet Strategies 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
Internet Strategies Fund, Inc., 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.,
Master Global Financial Services Trust, 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 Disciplined Equity 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, 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 Index
Funds, 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 U.S. Treasury Money Fund, Merrill Lynch
U.S.A. Government Reserves, Merrill Lynch Utility Income Fund, Inc. and Merrill
Lynch Variable Series Funds, Inc. and Hotchkis and Wiley funds (advised by
Hotchkis and Wiley, a division of Merrill Lynch Asset Management L.P.). PFD also
acts as the principal underwriter for each of the following open-end investment
companies: Mercury Global Balanced Fund of Mercury Asset Management Funds, Inc.;
Mercury Gold and Mining Fund of Mercury Asset Management Funds, Inc.; Mercury
International Fund of Mercury Asset Management Funds, Inc.; Mercury Internet
Strategies Fund, Inc.; Mercury U.S. Large Cap Fund of Mercury Asset Management
Funds, Inc.; Mercury U.S. Small Cap Growth Fund of Mercury Asset Management
Funds, Inc.; Mercury Pan-European Growth Fund of Mercury Asset Management Funds,
Inc.; Summit Cash Reserves Fund of Financial Institutions Series Trust; Mercury
V.I. U.S. Large Cap Fund of Mercury Asset Management V.I. Funds, Inc. PFD also
acts as the principal underwriter for the following
C-3
<PAGE> 22
closed-end registered investment companies: Merrill Lynch High Income Municipal
Bond Fund, Inc., Merrill Lynch Municipal Strategy Fund, Inc., Merrill Lynch
Senior Floating Rate Fund, Inc, and Merrill Lynch Senior Floating Rate Fund II,
Inc.
(b) Set forth below is information concerning each director and officer of
PFD. The principal business address of each such person is P.O. Box 9081,
Princeton, New Jersey 08543-9081, except that the address of Messrs. Breen,
Crook, Fatseas and Wasel is One Financial Center, 23rd Floor, Boston,
Massachusetts 02111-2665.
<TABLE>
<CAPTION>
POSITION(S) AND POSITION(S) AND OFFICE(S)
NAME OFFICE(S) WITH PFD WITH REGISTRANT
---- ---------------------- ---------------------------
<S> <C> <C>
Terry K. Glenn.............................. President and Director President and Director
Michael G. Clark............................ Treasurer and Director None
Thomas J. Verage............................ Director None
Robert W. Crook............................. Senior Vice President None
Michael J. Brady............................ Vice President None
William M. Breen............................ Vice President None
Donald C. Burke............................. Vice President Vice President and
Treasurer
James T. Fatseas............................ Vice President None
Debra W. Landsman-Yaros..................... Vice President None
Michelle T. Lau............................. Vice President None
Salvatore Venezia........................... Vice President None
William Wasel............................... Vice President None
Robert Harris............................... Secretary None
</TABLE>
(c) Not Applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940, as amended, and the rules
thereunder are maintained at the offices of the Registrant (800 Scudders Mill
Road, Plainsboro, New Jersey 08536).
ITEM 29. MANAGEMENT SERVICES.
Other than as set forth or incorporated by reference in Item 6 of the
Trust's Part A and Item 13 and Item 15 in Part B of the Trust's Registration
Statement, the Registrant is not a party to any management-related service
contract.
ITEM 30. UNDERTAKINGS.
Not Applicable.
C-4
<PAGE> 23
SIGNATURES
Pursuant to the requirements of 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 21st day of March, 2000.
MASTER FOCUS TWENTY TRUST (Registrant)
By: /s/ TERRY K. GLENN
------------------------------------
(Terry K. Glenn, President and
Trustee)
C-5
<PAGE> 24
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S> <C>
8(b) Form of Placement Agent Agreement between the Registrant and
Princeton Funds Distributor, Inc.
8(c) Form of Subscription Agreement for the acquisition of
interests in the Registrant.
10 -- Consent of Deloitte & Touche LLP, independent auditors for
the Registrant.
</TABLE>
C-6
<PAGE> 1
PLACEMENT AGENT AGREEMENT
AGREEMENT made as of the 21st day of December, 1999, between MASTER
FOCUS TWENTY TRUST, a Delaware business trust (the "Trust") and PRINCETON FUNDS
DISTRIBUTOR, INC., a Delaware corporation (the "Placement Agent").
W I T N E S S E T H :
WHEREAS, the Trust has filed a registration statement (the
"Registration Statement") pursuant to Section 8(b) of the Investment Company
Act of 1940, as amended (the "Investment Company Act"); and
WHEREAS, the Trustees (the "Trustees") are authorized to offer
beneficial interests in the Trust (the "Shares") to Merrill Lynch Focus Twenty
Fund, Inc. (the "Fund") and a limited number of institutional investors as
described below; and
WHEREAS, the Trust and the Placement Agent wish to enter into an
agreement with each other with respect to the distribution of Shares (the
"Agreement").
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Placement Agent; Private Offering.
(a) The Trust hereby appoints the Placement Agent as placement agent
in connection with the distribution of the Shares.
(b) The Placement Agent understands that: (i) The Shares are not being
registered under the Securities Act of 1933, as amended (the "Securities Act");
(ii) such Shares are to be issued solely in private placement transactions that
do not involve any "public offering" within the meaning of Section 4(2) of the
Securities Act; (iii) investments in the Trust may be made only by the Fund and
a limited number of institutional investors, including investment companies,
common or commingled trust funds, group trusts and certain other "accredited
investors" within the meaning of Regulation D under the Securities Act; (iv)
the Registration Statement is not intended to constitute an offer to sell, or
the solicitation of an offer to buy, the Shares.
(c) In carrying out its duties hereunder, the Placement Agent agrees
that it will act in a manner consistent with the foregoing and, unless
otherwise instructed by the Trust in writing, will not take any actions that
would cause the Trust to make a "public offering" within the meaning of Section
4(2) of the Securities Act.
Section 2. Exclusive Nature of Duties. The Placement Agent shall be
the exclusive representative of the Trust to act as placement agent in respect
of the distribution of the Shares of the Trust, except that:
<PAGE> 2
(a) The Trust may, upon written notice to the Placement Agent, from
time to time designate other placement agents with respect to areas other than
the United States as to which the Placement Agent may have expressly waived in
writing its right to act as such. If such designation is deemed exclusive, the
right of the Placement Agent under this Agreement in respect of such areas so
designated shall terminate, but this Agreement shall remain otherwise in full
effect until terminated in accordance with the other provisions hereof.
(b) The exclusive right granted to the Placement Agent hereunder shall
not apply to Shares issued in connection with the merger or consolidation of
any other investment company or personal holding company with the Trust or the
acquisition by purchase or otherwise of all (or substantially all) the assets
or the outstanding shares of any such company by the Trust.
(c) Such exclusive right also shall not apply to Shares pursuant to
reinvestment of dividends or capital gains distributions.
(d) Such exclusive right also shall not apply to Shares pursuant to
any conversion, exchange or reinstatement privilege afforded redeeming
shareholders or to any other Shares as shall be agreed between the Trust and
the Placement Agent from time to time.
Section 3. Duties of the Trust.
(a) The Trust shall furnish to the Placement Agent copies of all
information, financial statements and other papers that the Placement Agent may
reasonably request for use in connection with its duties hereunder, and this
shall include, upon request by the Placement Agent, one certified copy of all
financial statements prepared for the Trust by independent public accountants.
(b) Consistent with Section 1 hereof, the Trust shall use its best
efforts to qualify and maintain the qualification of the Shares for sale under
the securities laws of such jurisdictions as the Placement Agent and the Trust
may approve. Any such qualification may be withheld, terminated or withdrawn by
the Trust at any time in its discretion. The expense of qualification and
maintenance of qualification shall be borne by the Trust. The Placement Agent
shall furnish such information and other material relating to its affairs and
activities as may be required by the Trust in connection with such
qualification.
(c) The Trust will furnish to the Placement Agent, in reasonable
quantities upon request by the Placement Agent, copies of annual and interim
reports of the Trust.
Section 4. Duties of the Placement Agent.
(a) The Placement Agent shall devote reasonable time and effort to its
duties hereunder. The services of the Placement Agent to the Trust hereunder
are not to be deemed exclusive and nothing herein contained shall prevent the
Placement Agent from entering into like arrangements with other investment
companies so long as the performance of its obligations hereunder is not
impaired thereby.
2
<PAGE> 3
(b) In performing its duties hereunder, the Placement Agent shall use
its best efforts in all respects duly to conform with the requirements of all
applicable laws relating to the sale of securities. Neither the Placement Agent
nor any other person is authorized by the Trust to give any information or to
make any representations, other than those contained in the Trust's
registration statement or any sales literature specifically approved by the
Trust.
Section 5. Payment of Expenses.
(a) The Trust shall pay or cause to be paid all costs and expenses
incurred in connection with the operation of the Trust, including fees and
disbursements of its counsel and auditors, in connection with the preparation
and filing of any required registration statements under the Investment Company
Act, and all amendments and supplements thereto, and preparing and mailing
annual and interim reports and proxy materials to shareholders (including but
not limited to the expense of setting in type any such registration statements,
or interim reports or proxy materials).
(b) The Trust shall bear any cost and expenses of qualification of the
Shares for sale pursuant to this Agreement and, if necessary or advisable in
connection therewith, of qualifying the Trust as a broker or dealer in such
states of the United States or other jurisdictions as shall be selected by the
Trust and the Placement Agent pursuant to Section 3 hereof and the cost and
expenses payable to each such state for continuing qualification therein until
the Trust decides to discontinue such qualification pursuant to Section 3
hereof.
Section 6. Indemnification.
(a) The Trust shall indemnify and hold harmless the Placement Agent
and each person, if any, who controls the Placement Agent against any loss,
liability, claim, damage or expense (including the reasonable cost of
investigating or defending any alleged loss, liability, claim, damage or
expense and reasonable counsel fees incurred in connection therewith), as
incurred, arising by reason of any person acquiring any Shares, which may be
based upon the Securities Act, or on any other statute or at common law, on the
ground that any registration statement or other offering materials, as from
time to time amended and supplemented, or any annual or interim report to the
shareholders of the Trust, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading, unless such statement or
omission was made in reliance upon, and in conformity with, information
furnished to the Trust in connection therewith by or on behalf of the Placement
Agent; provided, however, that in no case (i) is the indemnity of the Trust in
favor of the Placement Agent and any such controlling persons to be deemed to
protect such Placement Agent or any such controlling persons thereof against
any liability to the Trust or its shareholders to which the Placement Agent or
any such controlling persons would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of their duties
or by reason of the reckless disregard of their obligations and duties under
this Agreement; or (ii) is the Trust to be liable under its indemnity agreement
contained in this paragraph with respect to any claim made against the
Placement Agent or any such controlling persons, unless the Placement Agent or
such controlling persons, as the case may be,
3
<PAGE> 4
shall have notified the Trust in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
claim shall have been served upon the Placement Agent or such controlling
persons (or after the Placement Agent or such controlling persons shall have
received notice of such service on any designated agent), but failure to notify
the Trust of any such claim shall not relieve it from any liability that it may
have to the person against whom such action is brought otherwise than on
account of its indemnity agreement contained in this paragraph. The Trust will
be entitled to participate at its own expense in the defense or, if it so
elects, to assume the defense of any suit brought to enforce any such
liability, but if the Trust elects to assume the defense, such defense shall be
conducted by counsel chosen by it and satisfactory to the Placement Agent or
such controlling person or persons, defendant or defendants in the suit. In the
event the Trust elects to assume the defense of any such suit and retain such
counsel, the Placement Agent or such controlling person or persons, defendant
or defendants in the suit shall bear the fees and expenses, as incurred, of any
additional counsel retained by them, but in case the Trust does not elect to
assume the defense of any such suit, the Trust will reimburse the Placement
Agent or such controlling person or persons, defendant or defendants in the
suit, for the reasonable fees and expenses, as incurred, of any counsel
retained by them. The Trust shall promptly notify the Placement Agent of the
commencement of any litigation or proceedings against it or any of the Trust's
officers or Trustees in connection with the issuance or sale of any of the
Shares.
(b) The Placement Agent shall indemnify and hold harmless the Trust
and each of the Trustees of the Trust and officers and each person, if any, who
controls the Trust against any loss, liability, claim, damage or expense, as
incurred, described in the foregoing indemnity contained in subsection (a) of
this Section, but only with respect to statements or omissions made in reliance
upon, and in conformity with, information furnished to the Trust in writing by
or on behalf of the Placement Agent for use in connection with its registration
statement or related prospectus and statement of additional information, as
from time to time amended, or the annual or interim reports to shareholders. In
case any action shall be brought against the Trust or any person so
indemnified, in respect of which indemnity may be sought against the Placement
Agent, the Placement Agent shall have the rights and duties given to the Trust,
and the Trust and each person so indemnified shall have the rights and duties
given to the Placement Agent by the provisions of subsection (a) of this
Section 6.
Section 7. Duration and Termination of this Agreement. This Agreement
shall become effective as of the date first above written and shall remain in
force for two years thereafter and thereafter, but only for so long as such
continuance is specifically approved at least annually by (i) the Trustees or
by the vote of a majority of the outstanding voting securities of the Trust and
(ii) by the vote of a majority of those Trustees who are not parties to this
Agreement or interested persons of any such party cast in person at a meeting
called for the purpose of voting on such approval.
This Agreement may be terminated at any time, without the payment of
any penalty, by the Trustees or by vote of a majority of the outstanding voting
securities of the Fund, or by the
4
<PAGE> 5
Placement Agent, on sixty days' written notice to the other party. This
Agreement shall automatically terminate in the event of its assignment.
The terms "vote of a majority of the outstanding voting securities",
"assignment", "affiliated person" and "interested person", when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act and the Rules and Regulations thereunder, subject, however to such
exemptions as may be granted by the Securities and Exchange Commission under
the Investment Company Act.
Section 8. Amendments of this Agreement. This Agreement may be amended
by the parties only if such amendment is specifically approved by (i) the
Trustees or by the vote of a majority of outstanding voting securities of the
Trust and (ii) by the vote of a majority of those Trustees who are not parties
to this Agreement or interested persons of any such party cast in person at a
meeting called for the purpose of voting on such approval.
Section 9. Governing Law. The provisions of this Agreement shall be
construed and interpreted in accordance with the laws of the State of New York
as at the time in effect and the applicable provisions of the Investment
Company Act. To the extent that the applicable law of the State of New York, or
any of the provisions herein, conflict with the applicable provisions of the
Investment Company Act, the latter shall control.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
MASTER FOCUS TWENTY TRUST
By:
------------------------------
Name:
Title:
PRINCETON FUNDS DISTRIBUTOR, INC.
By:
------------------------------
Name:
Title:
6
<PAGE> 1
SUBSCRIPTION AGREEMENT
For the Acquisition of an Interest In
MASTER FOCUS TWENTY TRUST
The undersigned (the "New Holder") does hereby apply for admission
to, and subscribes for Interests in Master Focus Twenty Trust (the "Trust"), a
Delaware business trust formed by an Amended and Restated Declaration of Trust,
dated December 7, 1999 (the "Declaration"), by a trustee (the trustees of the
Trust are referred to herein as the "Trustees") and registered as an open-end
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"). Capitalized terms not otherwise defined herein shall
have the meanings given to them in the Declaration.
FIRST: The New Holder desires to become a Holder in Interests in
the Trust on the later of the date of acceptance of this Agreement by the
Trustees or the date of its initial contribution to the Trust in accordance
herewith (the "Admission Date"). In accordance with the terms and conditions
set forth herein and in the Declaration, the New Holder will make a capital
contribution to the Trust of cash and/or marketable securities approved by the
Trustees in their sole discretion for addition to the Trust, in the amounts set
forth adjacent to the name of the New Holder at the end of this Agreement. By
causing this Agreement to be signed indicating their acceptance of the New
Holder's subscription, the Trustees agree to admit the New Holder as a Holder
on the Admission Date and to accept such cash and/or marketable securities as a
capital contribution to the Trust.
SECOND: By the execution of this Agreement, the New Holder does
agree to all of the provisions of the Declaration.
THIRD: The New Holder represents, warrants and acknowledges that it
is not an individual, S corporation, partnership or grantor trust beneficially
owned by any individual, S corporation or partnership and that it is at least
one of the following (check applicable representation(s)):
<PAGE> 2
<TABLE>
<S> <C> <C>
[ ] (i) a bank, as defined in Section 3(a) (2) of the
Securities Act of 1933, as amended (the "1933
Act"), or any savings and loan association or
other institution, as defined in Section 3 (a)
(5) (A) of the 1933 Act, whether acting in its
individual or fiduciary capacity;
[ ] (ii) a broker or dealer registered pursuant to
Section 15 of the Securities Exchange Act of
1934, as amended;
[ ] (iii) an insurance company, as defined in Section 2
(13) of the 1933 Act, including, without
limitation, an unregistered separate account,
as defined in Section 2(a) (37) of the 1940
Act;
[X] (iv) an investment company registered under
the 1940 Act, or a business development
company as defined in Section 2(a) (48) of
that Act;
[ ] (v) a Small Business Investment Company licensed
by the U.S. Small Business Administration
under Section 301 (c) or (d) of the Small
Business Investment Act of 1958;
[ ] (vi) a plan established and maintained by a state,
its political subdivisions, or any agency or
instrumentality of a state or its political
subdivisions, for the benefit of its
employees, which plan has total assets in
excess of $5,000,000;
[ ] (vii) an employee benefit plan within the meaning of
the Employee Retirement Income Security Act of
1974, ("ERISA") (a) for which the investment
decision is made by a plan fiduciary, as
defined in Section 3 (21) of ERISA, which is
either a bank, savings and loan association,
insurance company, or registered investment
adviser, or (b) which has total assets in
excess of $5,000,000, or (c) which is a
self-directed plan with investment decisions made
solely by persons that are accredited
investors within the meaning of Regulation D
under the 1933 Act;
[ ] (viii) a private business development company, as
defined in Section 202 (a) (22) of the
Investment Advisers Act of 1940, as amended;
[ ] (ix) an organization described in Section 501(c)(3)
of the Internal Revenue Code of 1986, as
amended (the "Code"), not formed for the
specific purpose of acquiring the Interests,
with total assets in excess of $5,000,000;
[ ] (x) a corporation, other than an S corporation,
not formed for the specific purpose of
acquiring the Interests, with total assets in
excess of $5,000,000;
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<S> <C> <C>
[ ] (xi) a Massachusetts or similar business trust
(which is not treated as a partnership for
federal income tax purposes) not formed for
the specific purpose of acquiring the
Interests, with total assets in excess of
$5,000,000;
[ ] (xii) a trust, other than a grantor trust, with
total assets in excess of $5,000,000, not
formed for the specific purpose of acquiring
the Interests, whose investment is directed by
a sophisticated person who has such knowledge
and experience in financial and business
matters that he or she is capable of
evaluating the merits and risks of the
prospective investment;
[ ] (xiii) a grantor trust, with total assets in excess
of $5,000,000, not formed for the specific
purpose of acquiring the Interests, whose
investment is directed by a sophisticated
person who has such knowledge and experience
in financial and business matters that he or
she is capable of evaluating the merits and
risks of the prospective investment, all of
whose owners are accredited investors within
the meaning of Regulation D under the 1933
Act, and none of such owners is an individual,
S corporation or partnership;
If such a grantor trust, the number of
beneficial owners is ___________.
[ ] (xiv) an entity, other than a partnership, S
corporation or grantor trust, in which all of
the equity owners are accredited investors
within the meaning of Regulation D under the
1933 Act.
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FOURTH: In order to induce the Trust to accept the capital
contributions specified herein, the New Holder further represents, warrants,
acknowledges and agrees that:
(a) The New Holder has made an investigation of the pertinent
facts relating to the operation of the Trust and has reviewed the terms of the
Declaration and the Registration Statement for the Trust with its own counsel
to the extent it deems necessary in order to be fully informed with respect
thereto.
(b) The New Holder or its counsel has such knowledge and
experience in financial and business matters that it is capable of evaluating
the merits and risks of an investment in the Trust.
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<PAGE> 4
(c) The New Holder understands that (i) the Interests are
nontransferable and, thus, the realization of the value of the Interests will
be dependent upon withdrawals from the Trust, and (ii) all rights with respect
to the management of the Trust are vested in the Trustees to the exclusion of
the Holders.
(d) The New Holder is acquiring its Interests for its own account
as a principal for investment and not with a view to resale or distribution. It
understands that the Interests are nontransferable and have not be registered
under the 1933 Act, and may never be so registered. It shall not permit any
other person to have any beneficial interest in its Interests (other than its
shareholders, participants or other beneficiaries by virtue of their ownership
of the New Holder as specified in Section THIRD above), and it shall not
assign, transfer, convey or encumber all or any portion of its Interests,
except in accordance with the Declaration and, as necessary, pursuant to an
exemption from registration under the 1933 Act.
(e) The New Holder will, if it is a regulated investment company
within the meaning of Section 851 of the Code, for purposes of determining its
required distributions under Section 4982(a) of the Code, if any, account for
its share of items of income, gain, loss and deduction of the Trust as they are
taken into account by the Trust.
FIFTH: The New Holder hereby agrees that any representation made
hereunder will be deemed to be reaffirmed at any time the New Holder makes an
additional capital contribution to the Trust and the act of making such
additional contribution will be evidence of such reaffirmation.
SIXTH: This Agreement shall inure to the benefit of and be
binding upon each of the parties hereto, and their respective successors in
interest and legal representatives.
4
<PAGE> 5
SEVENTH: This Agreement may be executed in counterparts, all of
which when taken together shall be deemed one original.
5
<PAGE> 6
IN WITNESS WHEREOF, the New Holder has executed this Agreement
which, when accepted by the Trustees, shall constitute the terms and conditions
upon which the Interests are issued.
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<S> <C>
- -------------------------------- ------------------------------------
Taxpayer Identification Number
- ---- of New Holder
Name of New Holder
(please print)
- --------------------------------
- -------------------------------- ------------------------------------
Telephone Number of New Holder
- --------------------------------
- --------------------------------
Mailing Address/Residence of New
Holder
Capital Commitment:
Signature of Authorized Representative of New Holder:
Date:
-------------------- ----------------------------------
Name:
-----------------------------
Title:
----------------------------
ACCEPTED: MASTER FOCUS TWENTY TRUST
---------------------------------
Date: By:
--------------------- ------------------------------
Title:
---------------------------
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EXHIBIT 10
INDEPENDENT AUDITORS' CONSENT
Master Focus Twenty Trust:
We consent to the use in this Amendment No. 1 to the Registration Statement on
Form N-1A of our report dated December 20, 1999 and to the incorporation by
reference to us under the caption "Investment Advisory and Other Services" from
the caption "Independent Auditors" from the section "General Information" in
Pre-Effective Amendment No. 1 to the Registration Statement on Form N-1A of
Mercury Focus Twenty Fund, Inc. (File No. 333-30942) and in Pre-Effective
Amendment No. 2 to the Registration Statement on Form N-1A of Merrill Lynch
Focus Twenty Fund, Inc. (File No. 333-89775).
Deloitte & Touche LLP
Princeton, New Jersey
March 20, 2000
