MERRILL LYNCH FOCUS TWENTY FUND INC (Form: 485BPOS, Received: 03/20/2001 17:24:10)

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As filed with the Securities and Exchange Commission on March 20, 2001

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Securities Act File No. 333-89775

Investment Company Act File No. 811-09651

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 x

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Pre-Effective Amendment No. ¨

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Post-Effective Amendment No. 1 x

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and/or

REGISTRATION STATEMENT UNDER THE

INVESTMENT COMPANY ACT OF 1940 x

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Amendment No. 3 x

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(Check appropriate box or boxes)

MERRILL LYNCH

FOCUS TWENTY FUND, INC.*

(Exact name of Registrant as specified in charter)

800 Scudders Mill Road, Plainsboro, New Jersey 08536

(Address of Principal Executive Offices)

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Registrant’s Telephone Number, including Area Code: (609) 282-2800

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TERRY K. GLENN

Merrill Lynch Focus Twenty Fund, Inc.

P.O. Box 9011

Princeton, New Jersey 08543-9011

(Name and Address of Agent for Service)

Copies to:

Counsel for the Fund:
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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It is proposed that this filing will become effective (check appropriate box):

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immediately upon filing pursuant to paragraph (b)

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on (date) pursuant to paragraph (b)

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60 days after filing pursuant to paragraph (a)(1)

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on (date) pursuant to paragraph (a)(1)

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75 days after filing pursuant to paragraph (a)(2)

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on (date) pursuant to paragraph (a)(2) of Rule 485.

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If appropriate, check the following box:

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this post-effective amendment designates a new effective date for a previously filed post-effective amendment.

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Title of Securities Being Registered: Shares of Common Stock, par value $.10 per share.

Master Focus Twenty Trust† has also executed this Registration Statement.

Formerly, Merrill Lynch Concentrated Growth Fund, Inc.

†

Formerly, Master Concentrated Growth Trust.

Merrill Lynch Focus Twenty Fund, Inc.

This Prospectus contains information you should know before investing, including information about risks. Please read it before you invest and keep it for future reference.

The Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense.

Table of Contents

PAGE

		KE Y FACTS
		Me rrill Lynch Focus Twenty Fund, Inc. at a Glance		3

		Ris k/Return Bar Chart		4

		Fe es and Expenses		5

		DE TAILS ABOUT THE FUND
		Ho w the Fund Invests		7

		Inv estment Risks		8

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		Fu nd Performance		12

		Ab out the Portfolio Manager		13

		Sta tement of Additional Information		15

		YO UR ACCOUNT
		Me rrill Lynch Select Pricing ^SM System		16

		Ho w to Buy, Sell, Transfer and Exchange Shares		22

		MA NAGEMENT OF THE FUND
		Fu nd Asset Management		28

		Ma ster/Feeder Structure		29

		Fin ancial Highlights		30

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		FO R MORE INFORMATION
		Sh areholder Reports		Back Cover

		Sta tement of Additional Information		Back Cover

MERRILL LYNCH FOCUS TWENTY FUND, INC.

Key Facts

In an effort to help you better understand the many concepts involved in making an investment decision, we have defined the highlighted terms in this prospectus in the sidebar.

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Common Stock — securities representing shares of ownership of a corporation.

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Preferred Stock — class of capital stock that often pays dividends at a specified rate and has preference over common stock in dividend payments and liquidation of assets.

Convertible Securities — corporate securities (usually preferred stock or bonds) that are exchangeable for a fixed number of other securities (usually common stock) at a set price or formula.

Warrant — a security that gives the right to buy a quantity of stock.

MERRILL LYNCH FOCUS TWENTY FUND, INC. AT A GLANCE

What is the Fund’s investment objective?

The Fund’s investment objective is to seek long-term capital appreciation.

What are the Fund’s main investment strategies?

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The Fund, a non-diversified fund, invests primarily in common stocks of approximately 20 companies that Fund management believes have strong earnings growth and capital appreciation potential. To a lesser extent, the Fund also may invest in preferred stock, convertible securities, warrants and rights to subscribe to common stock of these companies. The Fund cannot guarantee that it will achieve its investment objective.

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Fund management focuses primarily on earnings growth in determining which securities to buy and when to sell them for the Fund. Fund management will emphasize common stocks of companies with large stock market capitalizations (greater than $5 billion).

The Fund is a “feeder” fund that invests all of its assets in a “master” portfolio, the Master Focus Twenty Trust (the “Trust”), that has the same investment objective as the Fund. All investments will be made at the Trust level. This structure is sometimes called a “master/feeder” structure. The Fund’s investment results will correspond directly to the investment results of the Trust. For simplicity, this Prospectus uses the term “Fund” to include the Trust.

What are the main risks of investing in the Fund?

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As with any mutual fund, the value of the Fund’s investments — and therefore the value of your Fund shares — may fluctuate. These changes may occur because a particular stock market in which the Fund invests is rising or falling. Also, Fund management may select securities that underperform the stock market, the relevant indices or other funds with similar investment objectives and investment strategies. By investing in a smaller number of investments, the Fund’s risk is increased because each investment has a greater effect on the Fund’s performance. If the value of the Fund’s investments goes down, you may lose money.

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MERRILL LYNCH FOCUS TWENTY FUND, INC.

Who should invest?

The Fund may be an appropriate investment for you if you:

Are investing with long-term goals in mind, such as retirement or funding a child’s education

Want a professionally managed portfolio

Are willing to accept the risk that the value of your investment may decline in order to seek long-term capital appreciation

Are not looking for a significant amount of current income

Are prepared to receive taxable distributions.

RISK/RETURN BAR CHART

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This Prospectus does not include a Risk/Return Bar Chart because as of the date of this Prospectus the Fund had not yet completed one full calendar year of operations.

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MERRILL LYNCH FOCUS TWENTY FUND, INC.

UNDERSTANDING EXPENSES

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Fund investors pay various fees and expenses, either directly or indirectly. Listed below are some of the main types of expenses, which the Fund may charge:

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Expenses paid directly by the shareholder:

Shareholder Fees — these fees include sales charges which you may pay when you buy or sell shares of the Fund.

Expenses paid indirectly by the shareholder:

Annual Fund Operating Expenses — expenses that cover the costs of operating the Fund.

Management Fee — a fee paid to the Manager for managing the Fund.

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Distribution Fees — fees used to support the Fund’s marketing and distribution efforts, such as compensating Financial Consultants and other financial intermediaries, advertising and promotion.

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Service (Account Maintenance) Fees — fees used to compensate securities dealers and other financial intermediaries for account maintenance activities.

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Administrative Fee — a fee paid to the Administrator for providing administrative services to the Fund.

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FEES AND EXPENSES

The Fund offers four different classes of shares. Although your money will be invested the same way no matter which class of shares you buy, there are differences among the fees and expenses associated with each class. Not everyone is eligible to buy every class. After determining which classes you are eligible to buy, decide which class best suits your needs. Your Merrill Lynch Financial Consultant can help you with this decision.

This table shows the different fees and expenses that you may pay if you buy and hold the different classes of shares of the Fund. Future expenses may be greater or less than those indicated below.

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Shareholder Fees (Fees paid directly from your investment)(a):	Class A	Class B(b)		Class C	Class D

Maximum Sales Charge (Load) imposed on purchases (as a percentage of offering price)	5.25%(c)		None	None	5.25%(c)

Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or redemption proceeds, whichever is lower)	None(d)		4.00%(c)	1.00%(c)	None(d)

Maximum Sales Charge (Load) imposed on Dividend Reinvestments	None		None	None	None

Redemption Fee	None		None	None	None

Exchange Fee	None		None	None	None

Annual Fund Operating Expenses (expenses that are deducted from the Fund’s total assets)(e):

*Management Fee(f)*	0.60%		0.60%	0.60%	0.60%

*Distribution and/or Service (12b-1) Fees(g)*	None		1.00%	1.00%	0.25%

Other Expenses (including transfer agency fees and Administrative Fee)(h)(i)	0.52%		0.53%	0.55%	0.51%

Total Annual Fund Operating Expenses	1.12%		2.13%	2.15%	1.36%

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(a)

In addition, Merrill Lynch may charge clients a processing fee (currently $5.35) when a client buys or sells shares. See “How to Buy, Sell, Transfer and Exchange Shares.”

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(b)

Class B shares automatically convert to Class D shares approximately 8 years after you buy them and will no longer be subject to distribution fees.

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(c)

Some investors may qualify for reductions in the sales charge (load).

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(d)

You may pay a deferred sales charge if you purchase $1 million or more and you redeem within one year.

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(e)

The fees and expenses shown in the table and the examples that follow include the expenses of the Fund and the Trust.

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(f)

Paid by the Trust.

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(g)

The Fund calls the Service Fee an “Account Maintenance Fee.” Account Maintenance Fee is the term used elsewhere in this Prospectus and in all other Fund materials. If you hold Class B or Class C shares over time, it may cost you more in distribution (12b-1) fees than the maximum sales charge that you would have paid if you had bought one of the other classes.

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(h)

The Fund pays the Transfer Agent $11.00 for each Class A and Class D shareholder account and $14.00 for each Class B and Class C shareholder account and reimburses the Transfer Agent’s out-of-pocket expenses. The Fund also pays a $0.20 monthly closed account charge, which is assessed upon all accounts that close during the year. This fee begins the month following the month the account is closed and ends at the end of the calendar year. For the period March 3, 2000 (commencement of operations) to November 30, 2000, the Fund paid the Transfer Agent fees totaling $1,377,926. The Fund and the Trust have entered into an agreement with State Street Bank and Trust Company pursuant to which State Street provides certain accounting services to the Fund and the Trust. The Fund and the Trust will pay the cost of these services. In addition, the Fund and the Trust will reimburse the Manager for the cost of certain additional accounting services. For the period March 3, 2000 to November 30, 2000, the Manager provided accounting services to the Fund and the Trust at its cost. The Manager was reimbursed $1,908 and $366,538 for services rendered to the Fund and the Trust, respectively.

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(i)

Includes administrative fees, which are payable to the Administrator by the Fund at the annual rate of 0.25% of the Fund’s average daily net assets.

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Example

These examples are intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.

These examples assume that you invest $10,000 in the Fund for the time periods indicated, that your investment has a 5% return each year, that you pay the sales charges, if any, that apply to the particular class and that the Fund’s operating expenses remain the same. This assumption is not meant to indicate you will receive a 5% annual rate of return. Your annual return may be more or less than the 5% used in these examples. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:

EXPENSES IF YOU DID REDEEM YOUR SHARES:

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	1 Year		3 Years		5 Years		10 Years

Class A		$633		$862		$1,110	$1,817

Class B		$616		$867		$1,144	$2,271*

Class C		$318		$673		$1,154	$2,483

Class D		$656		$933		$1,231	$2,074

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EXPENSES IF YOU DID NOT REDEEM YOUR SHARES:

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	1 Year		3 Years		5 Years		10 Years

Class A		$633		$862		$1,110	$1,817

Class B		$216		$667		$1,144	$2,271*

Class C		$218		$673		$1,154	$2,483

Class D		$656		$933		$1,231	$2,074

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Assumes conversion to Class D shares approximately eight years after purchase. See note (b) to the Fees and Expenses table below.

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MERRILL LYNCH FOCUS TWENTY FUND, INC.

Details About the Fund

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Bottom Up — an investment style that emphasizes analysis of individual stocks over economic and market cycles.

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ABOUT THE PORTFOLIO MANAGER

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James D. McCall is a Senior Vice President and the Portfolio Manager of the Fund. Mr. McCall has been a First Vice President of Merrill Lynch Investment Managers since November 1999. Prior to joining Merrill Lynch Investment Managers, Mr. McCall was a portfolio manager for the PBHG family of mutual funds from 1994 to 1999.

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ABOUT THE MANAGER AND THE ADMINISTRATOR

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Fund Asset Management serves as the Manager and the Administrator.

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HOW THE FUND INVESTS

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The Fund’s investment objective is to seek long-term capital appreciation. The Fund seeks to achieve its investment objective by investing primarily in common stocks of approximately 20 companies that Fund management believes have strong earnings growth and capital appreciation potential. Fund management begins its investment process by creating a universe of rapidly growing companies that possess certain growth characteristics. That universe is continually updated. Fund management 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, Fund management evaluates the quality of each company’s earnings and tries to determine whether the company can sustain or increase its current growth trend. Fund management believes that this disciplined investment process enables it to construct a portfolio of investments with strong growth characteristics.

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Although the Fund 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 Fund generally will invest at least 65% of its total assets in equity securities. Normally, the Fund will invest in the common stocks of not less than 20 companies. The Fund may invest in companies of any size but emphasizes common stocks of companies with large stock market capitalizations (greater than $5 billion.)

The Fund may invest without limitation in the securities of foreign companies in the form of American Depositary Receipts (“ADRs”). In addition, the Fund 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 Fund may also lend its portfolio securities.

The Fund 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 Fund 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 Fund’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 Fund’s losses, they can prevent the Fund from achieving its investment objective.

INVESTMENT RISKS

This section contains a summary discussion of the general risks of investing in the Fund. As with any mutual fund, there can be no guarantee that the Fund will meet its objectives, or that the Fund’s performance will be positive over any period of time.

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The Fund’s principal risks are market risk, selection risk and non-diversification risk.

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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 Fund may be particularly sensitive to changes in earnings or interest rate increases because they typically have higher price-earnings ratios. Selection risk is the risk that the securities that Fund management selects will underperform the markets, the relevant indices or other funds with similar investment objectives and investment strategies.

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Non-Diversification Risk — The Fund is a non-diversified fund. By investing in a smaller number of investments, the Fund’s risk is increased because developments affecting an individual issuer have a greater effect on the Fund’s performance.

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The Fund also may be subject to risks associated with the following investment strategies.

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 Fund 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 Fund has no obligation to exercise the warrant and buy the stock.

A warrant has value only if the Fund 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 Fund 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.

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Foreign Market Risk — Since the Fund may invest in foreign securities, it offers the potential for more diversification than an investment only in the United States. This is because securities 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 Fund 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 Fund 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.

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Depositary Receipts — The Fund may invest in securities of foreign issuers in the form of Depositary Receipts. American Depositary Receipts are receipts

MERRILL LYNCH FOCUS TWENTY FUND, INC.

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 Fund 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 Fund 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 Fund 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.

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Restricted Securities — Restricted securities have contractual or legal restrictions on their resale. They may include private placement securities that the Fund buys directly from the issuer. Private placement and other restricted securities may not be listed on an exchange and may have no active trading market.

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Restricted securities may be illiquid. The Fund may be unable to sell them on short notice or may be able to sell them only at a price below current value. The Fund may get only limited information about the issuer, so they may be less able to predict a loss. In addition, if Fund management receives material adverse nonpublic information about the issuer, the Fund will not be able to sell the securities.

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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.

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Securities Lending — Securities lending involves the risk that the borrower to which the Fund has loaned its securities may not return the securities in a timely manner or at all. As a result, the Fund may lose money and there may be a delay in recovering the securities it loaned. In addition, if the Fund does not get the securities it loaned back and the value of the collateral the Fund received in return for the loaned securities falls, the Fund could lose money. These events could also trigger adverse tax consequences to the Fund.

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Repurchase Agreements; Purchase and Sale Contracts — The Fund may enter into certain types of repurchase agreements or purchase and sale contracts. Under a repurchase 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 Fund 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 Fund may lose money.

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Derivatives — The Fund 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 Fund 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 Fund.

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.

MERRILL LYNCH FOCUS TWENTY FUND, INC.

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The Fund may use derivatives for hedging purposes, including anticipatory hedges and to seek to increase its return. Hedging is a strategy in which the Fund uses a derivative to offset the risks associated with other Fund holdings. While hedging can reduce losses, it can also reduce or eliminate gains or cause losses if the market moves in a different manner than anticipated by the Fund 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 Fund, in which case any losses on the holdings being hedged may not be reduced. There can be no assurance that the Fund’s hedging strategy will reduce risk or that hedging transactions will be either available or cost effective. The Fund is not required to use hedging and may choose not to do so.

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FUND PERFORMANCE

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The Fund commenced operations on March 3, 2000 and has not yet completed one full calendar year of operations. Set forth in the table below is total return information for the Class A, Class B, Class C and Class D shares of the Fund for the period indicated compared with the performance of the Standard & Poor’s 500 Index and the Lipper Large-Cap Growth Funds category for the same period. For more information on the method of calculating the performance data shown below, please see “Performance Data” in the Statement of Additional Information.

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Period	Class A Shares	Class B Shares	Class C Shares	Class D Shares	S&P 500 Index ¹		Lipper Large-Cap Growth Funds ² *
	Aggregate Total Return (including maximum applicable sales charges)
Inception (March 3, 2000) to December 31, 2000	(38.60)%	(38.36)%	(36.44)%	(38.70)%		(5.43)%		(22.95)%

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The Standard & Poor’s 500 Index is an unmanaged index of common stocks that is considered to be generally representative of the United States stock market. The index is adjusted to reflect reinvestment of dividends.

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Lipper Large-Cap Growth Funds, as classified by Lipper Inc., are funds that, by portfolio practice, invest at least 75% of their equity assets in companies with market capitalization (on a three-year weighted basis) of greater than 300% of the dollar-weighted median market capitalization of the S&P Mid-Cap 400 Index. Large-Cap Growth funds normally invest in companies with long-term earnings expected to grow significantly faster than the earnings of the stocks represented in a major unmanaged stock index. These funds will normally have an above-average price-to-earnings ratio, price-to-book ratio, and three-year earnings growth figure, compared to the U.S. diversified large-cap funds universe average.

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Performance is as of March 31, 2000.

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Total return figures are based on the Fund’s historical performance and are not intended to indicate future performance. The Fund’s total return will vary depending on market conditions, the securities comprising the Fund’s portfolio, the Fund’s operating expenses and the amount of realized and unrealized net capital gains or losses during the period. The value of an

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MERRILL LYNCH FOCUS TWENTY FUND, INC.

ABOUT THE PORTFOLIO MANAGER

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investment in the Fund will fluctuate and an investor’s shares, when redeemed, may be worth more or less than their original cost.

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James D. McCall, a First Vice President of Merrill Lynch Investment Managers, L.P. since 1999 and a Senior Vice President and the Portfolio Manager of the Fund, is primarily responsible for the day-to-day management of the Trust’s portfolio. Mr. McCall, a Chartered Financial Analyst, has had 10 years experience as a portfolio manager. He was a portfolio manager at the PBHG family of mutual funds from 1994 to 1999. He managed a number of registered mutual funds, including the PBHG Large Cap 20 Fund series of The PBHG Funds, Inc. from its inception on November 29, 1996 to May 14, 1999. Mr. McCall also managed the PBHG Select 20 Portfolio of PBHG Insurance Series Fund, Inc., a variable annuity contract portfolio, from its inception on September 25, 1997 to May 14, 1999. The investment objective, policies and strategies of the PBHG Large Cap 20 Fund and the PBHG Select 20 Portfolio are substantially similar in all material respects to those of the Fund.

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The cumulative total return for the PBHG Large Cap 20 Fund from its inception on November 29, 1996 through March 31, 1999 was 144.00%. At March 31, 1999, the PBHG Large Cap 20 Fund had approximately $604.0 million in net assets. The cumulative total return for the PBHG Select 20 Portfolio from its inception on September 25, 1997 through March 31, 1999 was 79.30%. At March 31, 1999, the PBHG Select 20 Portfolio had approximately $432.8 million in net assets. As portfolio manager of the PBHG Large Cap 20 Fund and the PBHG Select 20 Portfolio for the periods indicated above, Mr. McCall had full discretionary authority over the selection of investments for each fund and was primarily responsible for the day-to-day management of each fund. No other person played a significant role in managing each fund from their respective inception dates through May 14, 1999. Average annual returns for the one-year and two-year periods ended March 31, 1999 to the extent applicable and for the entire period during which Mr. McCall managed the PBHG Large Cap 20 Fund and the PBHG Select 20 Portfolio compared with the performance of the Standard & Poor’s 500 Index are set forth below.

MERRILL LYNCH FOCUS TWENTY FUND, INC.

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Prior performance of similar funds previously managed by the Portfolio Manager:	PBHG Large Cap 20(1)		PBHG Select 20 Fund Portfolio(2)		S&P 500 Index(3)		Lipper Large-Cap Growth Funds(6)


One Year Ended March 31, 1999		52.52%		49.79%		18.46%		29.67%


Two Years Ended March 31, 1999		62.33%		N/A		32.41%		38.16%


PBHG Large Cap 20 Fund Inception(4) through May 14, 1999		41.23%		N/A		28.11%		27.75%


PBHG Select 20 Portfolio Inception(5) through May 14, 1999		N/A		39.73%		26.12%		27.75%

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(1)

Average annual total return reflects changes in share prices and reinvestment of dividends and is net of fund expenses. During the periods indicated, PBHG Large Cap 20 Fund was sold without a front-end sales charge that would reduce returns. Although a co-manager for the PBHG Large Cap 20 Fund was named for a portion of the periods indicated, Mr. McCall was primarily responsible for the day-to-day management of that fund.

(2)

Average annual total return reflects changes in share prices and reinvestment of dividends and is net of fund expenses. From the commencement of operations through December 31, 1998, Pilgrim Baxter & Associates, Ltd. voluntarily waived a portion of the annual management fee payable by the PBHG Select 20 Portfolio and agreed to pay certain expenses of the PBHG Select 20 Portfolio to the extent necessary to ensure that the total annual operating expenses of the PBHG Select 20 Portfolio did not exceed 1.20% of its average daily net assets. Without such waivers, returns would have been lower. Moreover, average annual total return does not reflect a deduction for insurance account fees, which if reflected, would also reduce the returns shown. During the periods indicated, PBHG Select 20 Portfolio was sold without a front-end sales charge that would reduce returns.

(3)

(4)

The inception date for the PBHG Large Cap 20 Fund was November 29, 1996.

(5)

The inception date for the PBHG Select 20 Portfolio was September 25, 1997.

(6)

MERRILL LYNCH FOCUS TWENTY FUND, INC.

Historical performance is not indicative of future performance. The PBHG Large Cap 20 Fund and the PBHG Select 20 Portfolio are separate funds and their historical performance is not indicative of the potential performance of the Fund. Share prices and investment returns will fluctuate reflecting market conditions as well as changes in company-specific fundamentals of portfolio securities.

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STATEMENT OF ADDITIONAL INFORMATION

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If you would like further information about the Fund, including how it invests, please see the Statement of Additional Information.

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MERRILL LYNCH FOCUS TWENTY FUND, INC.

Your Account

MERRILL LYNCH SELECT PRICING ^SM SYSTEM

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The Fund offers four classes of shares, each with its own sales charge and expense structure, allowing you to invest in the way that best suits your needs. Each share class represents an ownership interest in the same investment portfolio. When you choose your class of shares you should consider the size of your investment and how long you plan to hold your shares. Your Merrill Lynch Financial Consultant or other financial intermediary can help you determine which share class is best suited to your personal financial goals.

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For example, if you select Class A or D shares, you generally pay a sales charge at the time of purchase. If you buy Class D shares, you also pay an ongoing account maintenance fee of 0.25%. You may be eligible for a sales charge reduction or waiver.

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Certain financial intermediaries may charge additional fees in connection with transactions in Fund shares. The Manager, the Distributor or their affiliates may make payments out of their own resources to selected securities dealers and other financial intermediaries for providing services intended to result in the sale of Fund shares or for shareholder servicing activities.

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If you select Class B or C shares, you will invest the full amount of your purchase price, but you will be subject to a distribution fee of 0.75% and an account maintenance fee of 0.25%. Because these fees are paid out of the Fund’s assets on an ongoing basis, over time these fees increase the cost of your investment and may cost you more than paying other types of sales charges. In addition, you may be subject to a deferred sales charge when you sell Class B or C shares.

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The Fund’s shares are distributed by FAM Distributors, Inc., an affiliate of Merrill Lynch.

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MERRILL LYNCH FOCUS TWENTY FUND, INC.

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The table below summarizes key features of the Merrill Lynch Select Pricing ^SM System.

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	Class A	Class B	Class C	Class D
Availability	Limited to certain investors including: Ÿ Current Class A shareholders Ÿ Certain Retirement Plans Ÿ Certain affiliates of Merrill Lynch, selected securities dealers and other financial intermediaries.	Generally available through Merrill Lynch. Limited availability through selected securities dealers and other financial intermediaries.	Generally available through Merrill Lynch. Limited availability through selected securities dealers and other financial intermediaries.	Generally available through Merrill Lynch. Limited availability through selected securities dealers and other financial intermediaries.

Initial Sales Charge?	Yes. Payable at time of purchase. Lower sales charges available for certain larger investments.	No. Entire purchase price is invested in shares of the Fund.	No. Entire purchase price is invested in shares of the Fund.	Yes. Payable at time of purchase. Lower sales charges available for larger investments.

Deferred Sales Charge?	No. (May be charged for purchases over $1 million that are redeemed within one year.)	Yes. Payable if you redeem within four years of purchase.	Yes. Payable if you redeem within one year of purchase.	No. (May be charged for purchases over $1 million that are redeemed within one year.)

Account Maintenance and Distribution Fees?	No.	0.25% Account Maintenance Fee 0.75% Distribution Fee.	0.25% Account Maintenance Fee 0.75% Distribution Fee.	0.25% Account Maintenance Fee No Distribution Fee.

Conversion to Class D shares?	No.	Yes, automatically after approximately eight years	No.	No.

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MERRILL LYNCH FOCUS TWENTY FUND, INC.

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Right of Accumulation — permits you to pay the sales charge that would apply to the cost or value (whichever is higher) of all shares you own in the Merrill Lynch mutual funds that offer Select Pricing options.

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Letter of Intent — permits you to pay the sales charge that would be applicable if you add up all shares of Merrill Lynch Select Pricing ^SM funds that you agree to buy within a 13-month period. Certain restrictions apply.

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Class A and D Shares — Initial Sales Charge Options

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If you select Class A or Class D shares, you will pay a sales charge at the time of purchase as shown in the following table. Securities dealers’ compensation will be as shown in the last column.

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Your Investment	As a % of Offering Price	As a % of Your Investment*	Dealer Compensation as a % of Offering Price


Less than $25,000	5.25%	5.54%	5.00%


$25,000 but less than $50,000	4.75%	4.99%	4.50%


$50,000 but less than $100,000	4.00%	4.17%	3.75%


$100,000 but less than $250,000	3.00%	3.09%	2.75%


$250,000 but less than $1,000,000	2.00%	2.04%	1.80%


$1,000,000 and over**	0.00%	0.00%	0.00%

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Rounded to the nearest one-hundredth percent.

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If you invest $1,000,000 or more in Class A or D shares, you may not pay an initial sales charge. In that case, the Manager compensates the selling dealer or other financial intermediary from its own funds. However, if you redeem your shares within one year after purchase, you may be charged a deferred sales charge. This charge is 1.00% of the lesser of the original cost of the shares being redeemed or your redemption proceeds. A sales charge of 0.75% will be charged on purchases of $1,000,000 or more of Class A and Class D shares by certain employer sponsored retirement or savings plans.

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No initial sales charge applies to Class A or Class D shares that you buy through reinvestment of dividends.

A reduced or waived sales charge on a purchase of Class A or D shares may apply for:

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Purchases under a Right of Accumulation or Letter of Intent

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Purchases using proceeds from the sale of certain Merrill Lynch closed-end funds under certain circumstances

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Certain employer-sponsored retirement or savings plans

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Certain investors, including directors or trustees of Merrill Lynch mutual funds and Merrill Lynch employees

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MERRILL LYNCH FOCUS TWENTY FUND, INC.

Only certain investors are eligible to buy Class A shares. Your Merrill Lynch Financial Consultant can help you determine whether you are eligible to buy Class A shares or to participate in any of these programs.

If you decide to buy shares under the initial sales charge alternative and you are eligible to buy both Class A and Class D shares, you should buy Class A shares since Class D shares are subject to a 0.25% account maintenance fee, while Class A shares are not.

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If you redeem Class A or Class D shares and within 30 days buy new shares of the same class, you will not pay a sales charge on the new purchase amount. The amount eligible for this “Reinstatement Privilege” may not exceed the amount of your redemption proceeds. To exercise the privilege, contact your Merrill Lynch Financial Consultant, selected securities dealer, other financial intermediary or the Fund’s Transfer Agent at 1-800-MER-FUND.

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Class B and Class C Shares — Deferred Sales Charge Options

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If you select Class B or Class C shares, you do not pay an initial sales charge at the time of purchase. However, if you redeem your Class B shares within four years after purchase or Class C shares within one year after purchase, you may be required to pay a deferred sales charge. You will also pay distribution fees of 0.75% and account maintenance fees of 0.25% each year under a distribution plan that the Fund has adopted under Rule 12b-1. Because these fees are paid out of the Fund’s assets on an ongoing basis, over time these fees increase the cost of your investment and may cost you more than paying other types of sales charges. The Distributor uses the money that it receives from the deferred sales charge and the distribution fees to cover the costs of marketing, advertising and compensating the Merrill Lynch Financial Consultant, selected securities dealer or other financial intermediary who assists you in purchasing Fund shares.

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Class B Shares

If you redeem Class B shares within four years after purchase, you may be charged a deferred sales charge. The amount of the charge gradually decreases as you hold your shares over time, according to the following schedule:

MERRILL LYNCH FOCUS TWENTY FUND, INC.

Years Since Purchase		Sales Charge*

0 – 1		4.00%


1 – 2		3.00%



2 – 3		2.00%



3 – 4		1.00%



4 and thereafter		0.00%

The percentage charge will apply to the lesser of the original cost of the shares being redeemed or the proceeds of your redemption. Shares acquired through reinvestment of dividends are not subject to a deferred sales charge. Not all Merrill Lynch funds have identical deferred sales charge schedules. If you exchange your shares for shares of another fund, the higher charge will apply.

The deferred sales charge relating to Class B shares may be reduced or waived in certain circumstances, such as:

Certain post-retirement withdrawals from an IRA or other retirement plan if you are over 59 ¹ / 2 years old

Redemption by certain eligible 401(a) and 401(k) plans, certain related accounts and certain retirement plan rollovers

Withdrawals resulting from shareholder death or disability as long as the waiver request is made within one year after death or disability or, if later, reasonably promptly following completion of probate, or in connection with involuntary termination of an account in which Fund shares are held

Withdrawal through the Merrill Lynch Systematic Withdrawal Plan of up to 10% per year of your Class B or Class C account value at the time the plan is established

Your Class B shares convert automatically into Class D shares approximately eight years after purchase. Any Class B shares received through reinvestment of dividends paid on converting shares will also convert at that time. Class D shares are subject to lower annual expenses than Class B shares. The conversion of Class B shares to Class D shares is not a taxable event for Federal income tax purposes.

MERRILL LYNCH FOCUS TWENTY FUND, INC.

Different conversion schedules apply to Class B shares of different Merrill Lynch mutual funds. For example, Class B shares of a fixed-income fund typically convert approximately ten years after purchase compared to approximately eight years for equity funds. If you acquire your Class B shares in an exchange from another fund with a shorter conversion schedule, the Fund’s eight year conversion schedule will apply. If you exchange your Class B shares in the Fund for Class B shares of a fund with a longer conversion schedule, the other fund’s conversion schedule will apply. The length of time that you hold both the original and exchanged Class B shares in both funds will count toward the conversion schedule. The conversion schedule may be modified in certain other cases as well.

Class C Shares

If you redeem Class C shares within one year after purchase, you may be charged a deferred sales charge of 1.00%. The charge will apply to the lesser of the original cost of the shares being redeemed or the proceeds of your redemption. You will not be charged a deferred sales charge when you redeem shares that you acquire through reinvestment of Fund dividends. The deferred sales charge relating to Class C shares may be reduced or waived in connection with involuntary termination of an account in which Fund shares are held and withdrawals through the Merrill Lynch Systematic Withdrawal Plan.

Class C shares do not offer a conversion privilege.

MERRILL LYNCH FOCUS TWENTY FUND, INC.

HOW TO BUY, SELL, TRANSFER AND EXCHANGE SHARES

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The chart on the following pages summarizes how to buy, sell, transfer and exchange shares through Merrill Lynch, a selected securities dealer, broker, investment adviser, service provider or other financial intermediary. You may also buy shares through the Transfer Agent. To learn more about buying, selling, transferring or exchanging shares through the Transfer Agent, call 1-800-MER-FUND. Because the selection of a mutual fund involves many considerations, your Merrill Lynch Financial Consultant may help you with this decision.

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Because of the high costs of maintaining smaller shareholder accounts, the Fund may redeem the shares in your account (without charging any deferred sales charge) if the net asset value of your account falls below $500 due to redemptions you have made. You will be notified that the value of your account is less than $500 before the Fund makes an involuntary redemption. You will then have 60 days to make an additional investment to bring the value of your account to at least $500 before the Fund takes any action. The involuntary redemption does not apply to retirement plans or Uniform Gifts or Transfers to Minors Act accounts.

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If You Want To	Your Choices	Information Important for You to Know

Buy Shares	First, select the share class appropriate for you	Refer to the Merrill Lynch Select Pricing table on page 17. Be sure to read this prospectus carefully.
Buy Shares
	Next, determine the amount of your investment	The minimum initial investment for the Fund is $1,000 for all accounts except that it is $100 for retirement plans. (The minimums for initial investments may be waived or reduced under certain circumstances.)

	Have your Merrill Lynch Financial Consultant, selected securities dealer, or other financial intermediary submit your purchase order	The price of your shares is based on the next calculation of net asset value after your order is placed. Any purchase orders placed prior to the close of business on the New York Stock Exchange (generally, 4:00 p.m. Eastern time) will be priced at the net asset value determined that day. Certain financial intermediaries, however, may require submission of orders prior to that time.

		Purchase orders placed after that time will be priced at the net asset value determined on the next business day. The Fund may reject any order to buy shares and may suspend the sale of shares at any time. Selected securities dealers or other financial intermediaries, including Merrill Lynch, may charge a processing fee to confirm a purchase. Merrill Lynch currently charges a fee of $5.35.

	Or contact the Transfer Agent	To purchase shares directly, call the Transfer Agent at 1-800-MER- FUND and request a purchase application. Mail the completed purchase application to the Transfer Agent at the address on the inside back cover of this Prospectus.

Add to Your Investment	Purchase additional shares	The minimum investment for additional purchases is generally $50 except that retirement plans have a minimum additional purchase of $1 and certain programs, such as automatic reinvestment plans, may have higher minimums.
		(The minimums for additional purchases may be waived under certain circumstances.)

	Acquire additional shares through the automatic dividend reinvestment plan	All dividends are automatically reinvested without a sales charge.

	Participate in the automatic investment plan	You may invest a specific amount on a periodic basis through certain Merrill Lynch investment or central asset accounts.

Transfer Shares to Another Securities Dealer or Other Financial Intermediary	Transfer to a participating securities dealer or other financial intermediary	You may transfer your Fund shares only to another securities dealer that has entered into an agreement with Merrill Lynch. Certain shareholder services may not be available for the transferred shares. You may only purchase additional shares of funds previously owned before the transfer. All future trading of these assets must be coordinated by the receiving firm.

	Transfer to a non- participating securities dealer or other financial intermediary	You must either: Ÿ Transfer your shares to an account with the Transfer Agent; or Ÿ Sell our shares, paying any deferred applicable sales charge.

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MERRILL LYNCH FOCUS TWENTY FUND, INC.

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If You Want To	Your Choices	Information Important for You to Know

Sell Your Shares	Have your Merrill Lynch Financial Consultant, selected securities dealer or other financial intermediary submit your sales order	The price of your shares is based on the next calculation of net asset value after your order is placed. For your redemption request to be priced at the net asset value on the day of your request, you must submit your request to your dealer or other financial intermediary prior to that day’s close of business on the New York Stock Exchange (generally 4:00 p.m. Eastern time). Certain financial intermediaries, however, may require submission of orders prior to that time. Any redemption request placed after that time will be priced at the net asset value at the close of business on the next business day. Dealers must submit redemption requests to the Fund not more than thirty minutes after the close of business of the New York Stock Exchange on the day the request was received.

		Securities dealers or other financial intermediaries, including Merrill Lynch, may charge a fee to process a redemption of shares. Merrill Lynch currently charges a fee of $5.35. No processing fee is charged if you redeem shares directly through the Transfer Agent.

		The Fund may reject an order to sell shares under certain circumstances.

	Sell through the Transfer Agent	You may sell shares held at the Transfer Agent by writing to the Transfer Agent at the address on the inside back cover of this prospectus. All shareholders on the account must sign the letter. A signature guarantee will generally be required but may be waived in certain limited circumstances. You can obtain a signature guarantee from a bank, securities dealer, securities broker, credit union, savings and loan association, national securities exchange and registered securities association. A notary public seal will not be acceptable. If you hold share certificates, return the certificates with the letter. The Transfer Agent will normally mail redemption proceeds within seven days following receipt of a properly completed request. If you make a redemption request before the Fund has collected payment for the purchase of shares, the Fund or the Transfer Agent may delay mailing your proceeds. This delay will usually not exceed ten days.

		You may also sell shares held at the Transfer Agent by telephone request if the amount being sold is less than $50,000 and if certain other conditions are met. Contact the Transfer Agent at 1-800-MER- FUND for details.

Sell Shares Systematically	Participate in the Fund’s Systematic Withdrawal Plan	You can choose to receive systematic payments from your Fund account either by check or through direct deposit to your bank account on a monthly or quarterly basis. If you have a Merrill Lynch CMA ^® , CBA ^® or Retirement Account you can arrange for systematic redemptions of a fixed dollar amount on a monthly, bi-monthly, quarterly, semi-annual or annual basis, subject to certain conditions. Under either method you must have dividends

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MERRILL LYNCH FOCUS TWENTY FUND, INC.

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If You Want To	Your Choices	Information Important for You to Know

		automatically reinvested. For Class B and Class C shares your total annual withdrawals cannot be more than 10% per year of the value of your shares at the time your plan is established. The deferred sales charge is waived for systematic redemptions. Ask your Merrill Lynch Financial Consultant or other financial intermediary for details.

Exchange Your Shares	Select the fund into which you want to exchange. Be sure to read that fund’s prospectus	You can exchange your shares of the Fund for shares of many other Merrill Lynch mutual funds. You must have held the shares used in the exchange for at least 15 calendar days before you can exchange to another fund.
		Each class of Fund shares is generally exchangeable for shares of the same class of another Merrill Lynch fund. If you own Class A shares and wish to exchange into a fund in which you have no Class A shares (and are not eligible to purchase Class A shares), you will exchange into Class D shares.
		Some of the Merrill Lynch mutual funds impose a different initial or deferred sales charge schedule. If you exchange Class A or Class D shares for shares of a fund with a higher initial sales charge than you originally paid, you will be charged the difference at the time of exchange. If you exchange Class B shares for shares of a fund with a different deferred sales charge schedule, the higher schedule will apply. The time you hold Class B or Class C shares in both funds will count when determining your holding period for calculating a deferred sales charge at redemption. If you exchange Class A or Class D shares for money market fund shares, you will receive Class A shares of Summit Cash Reserves Fund. Class B or Class C shares of the Fund will be exchanged for Class B shares of Summit.
		To exercise the exchange privilege contact your Merrill Lynch Financial Consultant or other financial intermediary or call the Transfer Agent at 1-800-MER-FUND.
		Although there is currently no limit on the number of exchanges that you can make, the exchange privilege may be modified or terminated at any time in the future.

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Short-term or excessive trading into and out of the Fund may harm performance by disrupting portfolio management strategies and by increasing expenses. Accordingly, the Fund may reject any purchase orders, including exchanges, particularly from market timers or investors who, in Fund management’s opinion, have a pattern of short-term or excessive trading or whose trading has been or may be disruptive to the Fund. For these purposes, Fund management may consider an investor’s trading history in that Fund or other Merrill Lynch funds, and accounts under common ownership or control.

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MERRILL LYNCH FOCUS TWENTY FUND, INC.

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Net Asset Value — the market value in U.S. dollars of the Fund’s total assets after deducting liabilities, divided by the number of shares outstanding.

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Dividends — ordinary income and capital gains paid to shareholders. Dividends may be reinvested in additional Fund shares as they are paid.

HOW SHARES ARE PRICED

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When you buy shares, you pay the net asset value , plus any applicable sales charge. This is the offering price. Shares are also redeemed at their net asset value, minus any applicable deferred sales charge. The Fund calculates its net asset value (generally by using market quotations) each day the New York Stock Exchange is open, as of the close of business on the Exchange, based on prices at the time of closing. The Exchange generally closes at 4:00 p.m. Eastern time. The net asset value used in determining your share price is the next one calculated after your purchase or redemption order is placed. Foreign securities owned by the Fund may trade on weekends or other days when the Fund does not price its shares. As a result, the Fund’s net asset value may change on days when you will not be able to purchase or redeem the Fund’s shares.

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The Fund may accept orders from certain authorized financial intermediaries or their designees. The Fund will be deemed to receive an order when accepted by the intermediary or designee and the order will receive the net asset value next computed by the Fund after such acceptance. If the payment for a purchase order is not made by a designated later time, the order will be canceled and the financial intermediary could be held liable for any losses.

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Generally, Class A shares will have the highest net asset value because that class has the lowest expenses, and Class D shares will have a higher net asset value than Class B or Class C shares. Also dividends paid on Class A and Class D shares will generally be higher than dividends paid on Class B and Class C shares because Class A and Class D shares have lower expenses.

DIVIDENDS AND TAXES

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The Fund will distribute at least annually any net investment income and any net realized capital gains. The Fund may also pay a special distribution at the end of the calendar year to comply with Federal tax requirements. Dividends may be reinvested automatically in shares of the Fund at net asset value without a sales charge or may be taken in cash. If you would like to receive dividends in cash, contact your Merrill Lynch Financial Consultant, selected securities dealer, other financial intermediary or the Transfer Agent. Although this cannot be predicted with any certainty, the Fund anticipates that the majority of its dividends, if any, will consist of capital gains. Capital gains may be taxable to you at different rates, depending, in part, on how long the Fund held the assets sold.

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MERRILL LYNCH FOCUS TWENTY FUND, INC.

”BUYING A DIVIDEND“

Unless your investment is in a tax-deferred account, you may want to avoid buying shares shortly before the Fund pays a dividend. The reason? If you buy shares when a fund has realized but not yet distributed ordinary income or capital gains, you will pay the full price for the shares and then receive a portion of the price back in the form of a taxable dividend. Before investing you may want to consult your tax advisor.

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You will pay tax on dividends from the Fund whether you receive them in cash or additional shares. If you redeem Fund shares or exchange them for shares of another fund, you generally will be treated as having sold your shares, and any gain on the transaction may be subject to tax. Capital gains are generally taxed at different rates than ordinary income dividends.

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Dividends and interest received by the Fund may give rise to withholding and other taxes imposed by foreign countries. Tax conventions between certain countries and the United States may reduce or eliminate such taxes.

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If you are neither a lawful permanent resident nor a citizen of the United States, or if you are a foreign entity, the Fund’s ordinary income dividends (which include distributions of net short term capital gains) will generally be subject to a 30% United States withholding tax, unless a lower treaty rate applies.

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By law, the Fund must withhold 31% of your dividends and redemption proceeds if you have not provided a taxpayer identification number or social security number or if the number you have provided is incorrect.

This section summarizes some of the consequences under current Federal tax law of an investment in the Fund. It is not a substitute for personal tax advice. Consult your personal tax advisor about the potential tax consequences of an investment in the Fund under all applicable tax laws.

MERRILL LYNCH FOCUS TWENTY FUND, INC.

Management of the Fund

FUND ASSET MANAGEMENT

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Fund Asset Management, L.P., the Fund’s Manager, manages the Trust’s investments under the overall supervision of the Board of Trustees of the Trust. The advisory agreement between the Trust and the Manager gives the Manager the responsibility for making all investment decisions for the Fund. The Manager has a sub-advisory agreement with Merrill Lynch Asset Management U.K. Limited, an affiliate, under which the Manager may pay a fee for services it receives. The Trust currently pays the Manager a fee at the annual rate of 0.60% of the average daily net assets of the Trust. The Fund pays the Administrator an administrative fee at the annual rate of 0.25% of the average daily net assets of the Fund.

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Fund Asset Management, L.P. was organized as an investment adviser in 1976 and offers investment advisory services to more than 50 registered investment companies. Merrill Lynch Asset Management U.K. Limited was organized as an investment adviser in 1986 and acts as sub-adviser to more than 50 registered investment companies. Fund Asset Management, L.P. and its affiliates, had approximately $557 billion in investment company and other portfolio assets under management as of January 2001. This amount includes assets managed for Merrill Lynch affiliates.

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MERRILL LYNCH FOCUS TWENTY FUND, INC.

MASTER/FEEDER STRUCTURE

The Fund is a “feeder” fund that invests all of its assets in the Trust. (Except where indicated, this prospectus uses the term “Fund” to mean this feeder fund and the Trust taken together.) Investors in the Fund will acquire an indirect interest in the Trust.

The Trust may accept investments from other feeder funds, and all the feeders of the Trust bear the portfolio’s expenses in proportion to their assets. This structure may enable the Fund to reduce costs through economies of scale. A larger investment portfolio may also reduce certain transaction costs to the extent that contributions to and redemptions from the master portfolio from different feeders may offset each other and produce a lower net cash flow.

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However, each feeder can set its own transaction minimums, fund-specific expenses, and other conditions. This means that one feeder could offer access to the Trust on more attractive terms, or could experience better performance, than another feeder.

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The Fund may withdraw from the Trust at any time and may invest all of its assets in another pooled investment vehicle or retain an investment adviser to manage the Fund’s assets directly.

MERRILL LYNCH FOCUS TWENTY FUND, INC.

FINANCIAL HIGHLIGHTS

The Financial Highlights table is intended to help you understand the Fund’s financial performance for the period shown. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate an investor would have earned or lost on an investment in the Fund (assuming reinvestment of all dividends). The information has been audited by Deloitte & Touche LLP , whose report, along with the Fund’s financial statements, is included in the Fund’s Annual Report, which is available upon request.

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Increase (Decrease) in Net Asset Value:	*For the Period March 3, 2000 to November 30, 2000**
Increase (Decrease) in Net Asset Value:	Class A		Class B		Class C		Class D
Per Share Operating Performance:
Net asset value, beginning of period	$ 10.00		$ 10.00		$ 10.00		$ 10.00
Investment loss — net	(.02	)	(.08	)	(.08	)	(.05	)
Realized and unrealized loss on investments from the Trust — net	(3.74	)	(3.73	)	(3.73	)	(3.72	)
Total from investment operations	(3.76	)	(3.81	)	(3.81	)	(3.77	)
Net asset value, end of period	$ 6.24		$ 6.19		$ 6.19		$ 6.23
Total Investment Return:**
Based on net asset value per share	(37.60	%)‡	(38.10	%)‡	(38.10	%)‡	(37.70	%)‡
Ratios to Average Net Assets:
Expenses†	1.12	%††	2.13	%††	2.15	%††	1.36	%††
Investment loss — net	(.57	%)††	(1.56	%)††	(1.58	%)††	(.79	%)††
Supplemental Data:
Net assets, end of period (in thousands)	$55,306		$631,827		$378,948		$120,310
Portfolio Turnover	62.85	%	62.85	%	62.85	%	62.85	%

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Commencement of operations.

Total investment returns exclude the effects of sales charges.

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†

Includes the Fund’s share of the Trust’s allocated expenses.

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‡

Aggregate total investment return.

††

Annualized.

MERRILL LYNCH FOCUS TWENTY FUND, INC.

For More Information

Shareholder Reports

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Additional information about the Fund’s investments is available in the Fund’s annual and semi-annual reports to shareholders. In the Fund’s annual report you will find a discussion of the market conditions and investment strategies that significantly affected the Fund’s performance during its last fiscal year. You may obtain these reports at no cost by calling 1-800-MER-FUND.

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If you hold your Fund shares through a brokerage account or directly at the Transfer Agent, you may receive only one copy of each shareholder report and certain other mailings regardless of the number of Fund accounts you have. If you prefer to receive separate shareholder reports for each account (or if you are receiving multiple copies and prefer to receive only one), call your Merrill Lynch Financial Consultant or write to the Transfer Agent at its mailing address. Include your name, address, tax identification number and Merrill Lynch brokerage or mutual fund account number. If you have any questions, please call your Merrill Lynch Financial Consultant, other financial intermediary or the Transfer Agent at 1-800-MER-FUND.

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Statement of Additional Information

The Fund’s Statement of Additional Information
contains further information about the Fund
and is incorporated by reference (legally considered to be
part of this Prospectus). You may request a free copy by
writing or calling the Fund at Financial Data Services, Inc.,
P.O. Box 45289, Jacksonville, Florida 32232-5789 or by
calling 1-800-MER-FUND.

Contact your Merrill Lynch Financial Consultant or the Fund at the telephone number or address indicated on the inside back cover of this Prospectus, if you have any questions.

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Information about the Fund (including the Statement of Additional Information) can be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Ca ll1-202-942-8090 for information on the operation of the public reference room. This information is also available on the SEC’s Internet site at http://www.sec.gov and copies may be obtained upon payment of a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing the Public Reference Section of the SEC, Washington, D.C. 20549-0102.

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You should rely only on the information contained in this Prospectus. No one is authorized to provide you with information that is different from information contained in this Prospectus.

Investment Company Act file #811-09651.

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Code #19080-03-01

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Merrill Lynch

Focus Twenty

Fund, Inc.

STATEMENT OF ADDITIONAL INFORMATION

Merrill Lynch Focus Twenty Fund, Inc.

P.O. Box 9011, Princeton, New Jersey 08543-9011 Ÿ Phone No. (609) 282-2800

Merrill Lynch Focus Twenty Fund, Inc. (the “Fund”) is a non-diversified, open-end management investment company that seeks to provide shareholders with long-term capital appreciation. The Fund will seek to achieve its investment objective by investing primarily in common stocks of approximately 20 companies that Fund management believes have strong earnings growth and capital appreciation potential. No assurance can be given that the investment objective of the Fund will be realized. For more information on the Fund’s investment objective and policies, see “Investment Objective and Policies.”

The Fund is a “feeder” fund that invests all of its assets in the Master Focus Twenty Trust (the “Trust”) that has the same investment objective as the Fund. All investments will be made at the Trust level. The Fund’s investment results will correspond directly to the investment results of the Trust. There can be no assurance that the Fund will achieve its investment objective.

Pursuant to the Merrill Lynch Select Pricing ^SM System, the Fund offers four classes of shares, each with a different combination of sales charges, ongoing fees and other features. The Merrill Lynch Select Pricing ^SM System permits an investor to choose the method of purchasing shares that the investor believes is most beneficial given the amount of the purchase, the length of time the investor expects to hold the shares and other relevant circumstances. See “Purchase of Shares.”

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This Statement of Additional Information of the Fund is not a prospectus and should be read in conjunction with the Prospectus of the Fund, dated March 20, 2001 (the “Prospectus”), which has been filed with the Securities and Exchange Commission (the “Commission”) and can be obtained, without charge, by calling 1-800-MER-FUND or your Merrill Lynch Financial Consultant, or by writing to the address listed above. The Prospectus is incorporated by reference into this Statement of Additional Information, and this Statement of Additional Information is incorporated by reference into the Prospectus. The Fund’s audited financial statements are incorporated in this Statement of Additional Information by reference to its 2000 annual report to shareholders. You may request a copy of the annual report at no charge by calling (800) 637-3863 between 8:00 a.m. and 8:00 p.m. Eastern time on any business day.

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Fund Asset Management — Manager

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FAM Distributors, Inc. — Distributor

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The date of this Statement of Additional Information is March 20, 2001

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TABLE OF CONTENTS

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		Page
Investment Objective and Policies		2
Growth Securities		2
Foreign Securities		2
Derivatives		4
Convertible Securities		9
Debt Securities		11
Warrants		11
Other Investment Policies and Practices		11
Investment Restrictions		13
Portfolio Turnover		16
Management of the Fund		17
Directors and Officers		17
Compensation of Directors/Trustees		18
Management and Advisory Arrangements		19
Code of Ethics		21
Purchase of Shares		21
Initial Sales Charge Alternatives — Class A and Class D Shares		22
Reduced Initial Sales Charges		23
Deferred Sales Charge — Class B and Class C Shares		25
Closed-End Fund Reinvestment Options		28
Distribution Plans		29
Limitations on the Payment of Deferred Sales Charges		30
Redemption of Shares		32
Redemption		32
Repurchase		33
Reinstatement Privilege — Class A and Class D Shares		33
Pricing of Shares		34
Determination of Net Asset Value		34
Computation of Offering Price Per Share		35
Portfolio Transactions and Brokerage		35
Transactions in Portfolio Securities		35
Shareholder Services		37
Investment Account		38
Exchange Privilege		38
Retirement and Education Savings Plans		40
Automatic Investment Plans		40
Automatic Dividend Reinvestment Plan		41
Systematic Withdrawal Plans		41
Dividends and Taxes		42
Dividends		42
Taxes		42
Tax Treatment of Options, Futures and Forward Foreign Exchange Transactions		44
Special Rules for Certain Foreign Currency Transactions		44
Performance Data		45
General Information		47
Description of Shares		47
Independent Auditors		48
Accounting Services Provider		48
Custodian		48
Transfer Agent		48
Legal Counsel		48
Reports to Shareholders		48
Shareholder Inquiries		49
Additional Information		49
Financial Statements		49

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INVESTMENT OBJECTIVE AND POLICIES

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The investment objective of the Fund is to seek long-term capital appreciation. The Fund seeks to achieve its investment objective by investing primarily in common stocks of approximately 20 companies that Fund management believes have strong earnings growth and capital appreciation potential. Fund management begins its investment process by creating a universe of rapidly growing companies that possess certain growth characteristics. That universe is continually updated. Fund management 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, Fund management evaluates the quality of each company’s earnings and tries to determine whether the company can sustain or increase its current growth trend. Fund management believes that this disciplined investment process enables it to construct a portfolio of investments with strong growth characteristics. The Fund is classified as a non-diversified fund under the Investment Company Act of 1940, as amended (the “Investment Company Act”).

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The Fund is a “feeder” fund that invests all of its assets in the Trust which has the same investment objective as the Fund. All investments are made at the Trust level. This structure is sometimes called a “master /feeder” structure. The Fund’s investment results will correspond directly to the investment results of the Trust. For simplicity, however, this Statement of Additional Information, like the Prospectus, uses the term “Fund” to include the Trust. There can be no assurance that the investment objective of the Fund or the investment objective of the Trust will be realized. The investment objective of the Fund is a fundamental policy of the Fund and may not be changed without the approval of a majority of the Fund’s outstanding voting securities as defined in the Investment Company Act. The investment objective of the Trust is a fundamental policy of the Trust and may not be changed without the approval of a majority of the Trust’s outstanding voting securities as defined in the Investment Company Act. Please see “How the Fund Invests” and “Investment Risks” in the Prospectus for information with respect to the Fund and the Trust’s investment objective and policies.

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Investment emphasis is placed on equities, primarily common stock and, to a lesser extent, securities convertible into common stock, preferred stock, warrants and rights to subscribe for common stock. The Fund generally will invest at least 65% of its total assets in equity securities. Normally, the Fund will invest in the common stocks of not less than 20 companies. The Fund may invest in companies of any size but emphasizes equity securities of companies having large stock market capitalizations (greater than $5 billion). The Fund may invest in non-convertible debt securities rated investment grade by a nationally recognized statistical ratings organization and U.S. Government securities, although it typically will not do so to a significant extent.

The Fund may hold assets in cash or cash equivalents and investment grade, short term securities, including money market securities, in such proportions as, in the opinion of Fund management, prevailing market or economic conditions warrant or for temporary defensive purposes.

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Growth Securities

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As set forth in this Prospectus and the Statement of Additional Information, the investment objective of the Fund is to seek long-term capital appreciation. The Fund seeks to achieve its investment objective by investing primarily in common stocks of approximately 20 companies that Fund management believes have strong earnings growth and capital appreciation potential. These “growth securities” may be particularly sensitive to changes in earnings or interest rate increases because they typically have higher price-earnings ratios. Moreover, the growth securities held by the Trust may never reach what Fund management believes their full value to be and may even go down in price.

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Foreign Securities

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The Fund may invest up to 10% of its total assets in equity securities of foreign issuers with the foregoing characteristics. (Purchases of American Depositary Receipts (“ADRs”), however, are not subject to this restriction.) Investments in securities of foreign entities and securities denominated in foreign currencies involve risks not typically involved in domestic investment, including fluctuations in foreign exchange rates, future foreign political and economic developments, and the possible imposition of exchange controls or other foreign or United States governmental laws or restrictions applicable to such investments. Because the Fund may invest in securities denominated or quoted in currencies other than the U.S. dollar, changes in foreign currency exchange rates may affect the value of securities held by the Trust and the unrealized appreciation or depreciation of investments insofar as the U.S. investors are concerned. Changes in foreign currency exchange rates relative to the U.S. dollar will affect the U.S. dollar value of the Fund’s assets denominated in that currency and the Fund’s yield on such assets. Foreign currency exchange rates are determined by forces of supply and demand in the foreign exchange markets. These forces are, in turn, affected by international balance of payments and other economic and financial conditions, government intervention, speculation and other factors. Moreover, individual foreign economies may differ favorably or unfavorably from the U.S. economy in such respects as growth of gross national product, rate of inflation, capital reinvestment, resources, self-suffciency and balance of payments position.

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With respect to certain foreign countries, there is the possibility of expropriation of assets, confiscatory taxation, high rates of inflation, political or social instability or diplomatic developments that could affect investment in those countries. There may be less publicly available information about a foreign financial instrument than about a U.S. instrument, and foreign entities may not be subject to accounting, auditing and financial reporting standards and requirements comparable to those of U.S. entities. In addition, certain foreign investments may be subject to foreign withholding taxes. See “Taxes.” Foreign financial markets, while growing in volume, have, for the most part, substantially less volume than U.S. markets, and securities of many foreign companies are less liquid and their prices more volatile than securities of comparable domestic companies. The foreign markets also have different clearance and settlement procedures, and in certain markets there have been times when settlements have been unable to keep pace with the volume of securities transactions, making it difficult to conduct such transactions. Delays or other problems in settlement could result in temporary periods when assets of the Fund are uninvested and no return is earned thereon. The ability of the Fund to make intended security purchases due to settlement problems could cause the Fund to miss attractive investment opportunities. Inability to dispose of portfolio securities due to settlement problems could result either in losses to the Fund due to subsequent declines in value of the portfolio security or, if the Fund has entered into a contract to sell the security, could result in possible liability to the purchaser. Costs associated with transactions in foreign securities are generally higher than with transactions in U.S. securities. There is generally less government supervision and regulation of exchanges, financial institutions and issuers in foreign countries than there is in the United States.

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The Fund may invest in the securities of foreign issuers in the form of ADRs, European Depositary Receipts (“EDRs”) or other securities convertible into securities of foreign issuers. These securities may not necessarily be denominated in the same currency as the securities into which they may be converted. ADRs are receipts typically issued by an American bank or trust company which evidence ownership of underlying securities issued by a foreign corporation. EDRs are receipts issued in Europe which evidence a similar ownership arrangement. Generally, ADRs, which are issued in registered form, are designed for use in the United States securities markets, and EDRs, which are issued in bearer form, are designed for use in European securities markets. The Fund may invest in unsponsored ADRs. The issuers of unsponsored ADRs are not obligated to disclose material information in the United States and, therefore, there may not be a correlation between such information and the market value of such ADRs.

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European Economic and Monetary Union . A number of European countries entered into the European Economic and Monetary Union (“EMU”) in an effort to reduce trade barriers between themselves and eliminate fluctuations in their currencies. EMU established a single European currency (the euro), which was introduced on January 1, 1999, and is expected to replace the existing national currencies of all initial EMU participants by July 1, 2002. Certain securities (beginning with government and corporate bonds) were redenominated in the euro and will trade and make dividend and other payments only in euros. Like other investment companies and business organizations, including the companies in which the Funds invest, the Funds could be adversely affected if the transition to the euro, or EMU as a whole, does not proceed as planned or if a participating country withdraws from EMU.

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Derivatives

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The Fund may use instruments referred to as derivatives. Derivatives are financial instruments the value of which is derived from another security, a commodity (such as gold or oil) or an index (a measure of value or rates, such as the Standard & Poor’s 500 Index or the prime lending rate). Derivatives allow the Fund to increase or decrease the level of risk to which the Fund is exposed more quickly and efficiently than transactions in other types of instruments.

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Hedging. The Fund may use derivatives for hedging purposes. Hedging is a strategy in which a derivative is used to offset the risks associated with other Fund holdings. Losses on the other investment may be substantially reduced by gains on a derivative that reacts in an opposite manner to market movements. While hedging can reduce losses, it can also reduce gains or cause losses if the market moves in a different manner than anticipated by the Fund investing in the derivative 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 Fund, in which case any losses on the holdings being hedged may not be reduced. The Fund is not required to use hedging and may choose not to do so.

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The Fund may use the following types of derivative instruments and trading strategies:

Indexed Securities

The Fund may invest in securities the potential return of which is based on an index. As an illustration, the Fund may invest in a debt security that pays interest based on the current value of an interest rate index, such as the prime rate. The Fund may also invest in a debt security which returns principal at maturity based on the level of a securities index or a basket of securities, or based on the relative changes of two indices. Indexed securities involve credit risk, and certain indexed securities may involve leverage risk, liquidity risk, and currency risk. The Fund may invest in indexed securities for hedging purposes only. When used for hedging purposes, indexed securities involve correlation risk.

Options on Securities and Securities Indices

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Purchasing Put Options. The Fund may purchase put options on securities held in its portfolio or on securities or interest rate indices that are correlated with securities held in its portfolio. When the Fund purchases a put option in consideration for an up front payment (the “option premium”), the Fund acquires a right to sell to another party specified securities owned by the Fund at a specified price (the “exercise price”) on or before a specified date (the “expiration date”), in the case of an option on securities, or to receive from another party a payment based on the amount a specified securities index declines below a specified level on or before the expiration date, in the case of an option on a securities index. The purchase of a put option limits the Fund’s risk of loss in the event of a decline in the market value of the portfolio holdings underlying the put option prior to the option’s expiration date. If the market value of the portfolio holdings associated with the put option increases rather than decreases, however, the Fund will lose the option premium and will consequently realize a lower return on the portfolio holdings than would have been realized without the purchase of the put. Purchasing a put option may involve correlation risk, and may also involve liquidity and credit risk.

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Purchasing Call Options. The Fund also may purchase call options on securities it intends to purchase or securities or interest rate indices, which are correlated with the types of securities it intends to purchase. When the Fund purchases a call option in consideration for the option premium, the Fund acquires a right to purchase from another party specified securities at the exercise price on or before the expiration date, in the case of an option on securities, or to receive from another party a payment based on the amount a specified securities index increases beyond a specified level on or before the expiration date, in the case of an option on a securities index. The purchase of a call option may protect the Fund from having to pay more for a security as a consequence of increases in the market value for the security during a period when the Fund is contemplating its purchase, in the case of an option on a security, or attempting to identify specific securities in which to invest in a market the Fund believes to be attractive, in the case of an option on an index (an “anticipatory hedge”). In the event the Fund determines not to purchase a security underlying a call option, however, the Fund may lose the entire option premium. Purchasing a call option involves correlation risk, and may also involve liquidity and credit risk.

The Fund also is authorized to purchase put or call options in connection with closing out put or call options it has previously sold.

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Writing Put Options. The Fund may also write put options on securities or securities indices. When the Fund writes a put option, in return for an option premium the Fund gives another party the right to sell to the Fund a specified security at the exercise price on or before the expiration date, in the case of an option on a security, or agrees to pay to another party an amount based on any decline in a specified securities index below a specified level on or before the expiration date, in the case of an option on a securities index. The Fund may write put options to earn income, through the receipt of option premiums. In the event the party to which the Fund has written an option fails to exercise its rights under the option because the value of the underlying securities is greater than the exercise price, the Fund will profit by the amount of the option premium. By writing a put option, however, the Fund will be obligated to purchase the underlying security at a price that may be higher than the market value of the security at the time of exercise as long as the put option is outstanding, in the case of an option on a security, or make a cash payment reflecting any decline in the index, in the case of an option on an index. Accordingly, when the Fund writes a put option it is exposed to a risk of loss in the event the value of the underlying securities falls below the exercise price, which loss potentially may substantially exceed the amount of option premium received by the Fund for writing the put option. The Fund will write a put option on a security or a securities index only if the Fund would be willing to purchase the security at the exercise price for investment purposes (in the case of an option on a security) or is writing the put in connection with trading strategies involving combinations of options—for example, the sale and purchase of options with identical expiration dates on the same security or index but different exercise prices (a technique called a “spread”). Writing a put option may involve substantial leverage risk.

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Writing Call Options. The Fund may write (i.e ., sell) call options on securities held in its portfolio or securities indices the performance of which correlates with securities held in its portfolio. When the Fund writes a call option, in return for an option premium, the Fund gives another party the right to buy specified securities owned by the Fund at the exercise price on or before the expiration date, in the case of an option on securities, or agrees to pay to another party an amount based on any gain in a specified securities index beyond a specified level on or before the expiration date, in the case of an option on a securities index. The Fund may write call options to earn income, through the receipt of option premiums. In the event the party to which the Fund has written an option fails to exercise its rights under the option because the value of the underlying securities is less than the exercise price, the Fund will partially offset any decline in the value of the underlying securities through the receipt of the option premium. By writing a call option, however, the Fund limits its ability to sell the underlying securities and gives up the opportunity to profit from any increase in the value of the underlying securities beyond the exercise price, while the option remains outstanding. Writing a call option may involve correlation risk.

The Fund also is authorized to sell call or put options in connection with closing out call or put options it has previously purchased.

Other than with respect to closing transactions, the Fund will only write call or put options that are “ covered.” A call or put option will be considered covered if the Fund has segregated assets with respect to such option in the manner described in “Risk Factors in Derivatives” below. A call option will also be considered covered if the Fund owns the securities it would be required to deliver upon exercise of the option (or, in the case of an option on a securities index, securities which substantially correlate with the performance of such index) or owns a call option, warrant or convertible instrument which is immediately exercisable for, or convertible into, such security.

Types of Options. The Fund may engage in transactions in options on securities or securities indices on exchanges and in the over-the-counter (“OTC”) markets. In general, exchange-traded options have standardized exercise prices and expiration dates and require the parties to post margin against their obligations, and the performance of the parties’ obligations in connection with such options is guaranteed by the exchange or a related clearing corporation. OTC options have more flexible terms negotiated between the buyer and the seller, but generally do not require the parties to post margin and are subject to greater credit risk. OTC options also involve greater liquidity risk. See “Additional Risk Factors of OTC Transactions; Limitations on the Use of OTC Derivatives” below.

Futures

The Fund may engage in transactions in futures and options thereon. Futures are standardized, exchange-traded contracts that obligate a purchaser to take delivery, and a seller to make delivery, of a specific amount of an asset at a specified future date at a specified price. No price is paid upon entering into a futures contract. Rather, upon purchasing or selling a futures contract, the Fund is required to deposit collateral (“margin”) equal to a percentage (generally less than 10%) of the contract value. Each day thereafter until the futures position is closed, the Fund will pay additional margin representing any loss experienced as a result of the futures position the prior day or be entitled to a payment representing any profit experienced as a result of the futures position the prior day. Futures involve substantial leverage risk.

The sale of a futures contract limits the Fund’s risk of loss through a decline in the market value of portfolio holdings correlated with the futures contract prior to the futures contract’s expiration date. In the event the market value of the portfolio holdings correlated with the futures contract increases rather than decreases, however, the Fund will realize a loss on the futures position and a lower return on the portfolio holdings than would have been realized without the purchase of the futures contract.

The purchase of a futures contract may protect the Fund from having to pay more for securities as a consequence of increases in the market value for such securities during a period when the Fund was attempting to identify specific securities in which to invest in a market the Fund believes to be attractive. In the event that such securities decline in value or the Fund determines not to complete an anticipatory hedge transaction relating to a futures contract, however, the Fund may realize a loss relating to the futures position.

The Fund will limit transactions in futures and options on futures to financial futures contracts ( i.e ., contracts for which the underlying asset is a currency or securities or interest rate index) purchased or sold for hedging purposes (including anticipatory hedges). The Fund will further limit transactions in futures and options on futures to the extent necessary to prevent the Fund from being deemed a “commodity pool” under regulations of the Commodity Futures Trading Commission.

Foreign Exchange Transactions

The Fund may engage in spot and forward foreign exchange transactions and currency swaps, purchase and sell options on currencies and purchase and sell currency futures and related options thereon (collectively, “Currency Instruments”) for purposes of hedging against the decline in the value of currencies in which its portfolio holdings are denominated against the U.S. dollar.

Forward Foreign Exchange Transactions. Forward foreign exchange transactions are OTC contracts to purchase or sell a specified amount of a specified currency or multinational currency unit at a price and future date set at the time of the contract. Spot foreign exchange transactions are similar but require current, rather than future, settlement. The Fund will enter into foreign exchange transactions only for purposes of hedging either a specific transaction or a position held by the Trust. The Fund may enter into a foreign exchange transaction for purposes of hedging a specific transaction by, for example, purchasing a currency needed to settle a security transaction or selling a currency in which the Fund has received or anticipates receiving a dividend or distribution. The Fund may enter into a foreign exchange transaction for purposes of hedging a position held by the Trust by selling forward a currency in which a position held by the Trust is denominated or by purchasing a currency in which the Fund anticipates acquiring a position held by the Trust in the near future. The Fund may also hedge positions held by the Trust through currency swaps, which are transactions in which one currency is simultaneously bought for a second currency on a spot basis and sold for the second currency on a forward basis. Forward foreign exchange transactions involve substantial currency risk, and also involve credit and liquidity risk.

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Currency Futures. The Fund may also hedge against the decline in the value of a currency against the U.S. dollar through use of currency futures or options thereon. Currency futures are similar to forward foreign exchange transactions except that futures are standardized, exchange-traded contracts. See “Futures” above. Currency futures involve substantial currency risk, and also involve leverage risk.

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Currency Options. The Fund may also hedge against the decline in the value of a currency against the U.S. dollar through the use of currency options. Currency options are similar to options on securities, but in consideration for an option premium the writer of a currency option is obligated to sell (in the case of a call option) or purchase (in the case of a put option) a specified amount of a specified currency on or before the expiration date for a specified amount of another currency. The Fund may engage in transactions in options on currencies either on exchanges or OTC markets. See “Types of Options” above and “Additional Risk Factors of OTC Transactions; Limitations on the Use of OTC Derivatives” below. Currency options involve substantial currency risk, and may also involve credit, leverage or liquidity risk.

Limitations on Currency Hedging. The Fund will not speculate in Currency Instruments. Accordingly, the Fund will not hedge a currency in excess of the aggregate market value of the securities which it owns (including receivables for unsettled securities sales), or has committed to or anticipates purchasing, which are denominated in such currency. The Fund may, however, hedge a currency by entering into a transaction in a Currency Instrument denominated in a currency other than the currency being hedged (a “cross-hedge”). The Fund will only enter into a cross-hedge if Fund Asset Management, L.P. (the “Manager”) believes that (i) there is a demonstrable high correlation between the currency in which the cross-hedge is denominated and the currency being hedged, and (ii) executing a cross-hedge through the currency in which the cross-hedge is denominated will be significantly more cost-effective or provide substantially greater liquidity than executing a similar hedging transaction by means of the currency being hedged.

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Risk Factors in Hedging Foreign Currency Risks. Hedging transactions involving Currency Instruments involve substantial risks, including correlation risk. While the Fund’s use of Currency Instruments to effect hedging strategies is intended to reduce the volatility of the net asset value of the Fund’s shares, the net asset value of the Fund’s shares will fluctuate. Moreover, although Currency Instruments will be used with the intention of hedging against adverse currency movements, transactions in Currency Instruments involve the risk that anticipated currency movements will not be accurately predicted and that the Fund’s hedging strategies will be ineffective. To the extent that the Fund hedges against anticipated currency movements which do not occur, the Fund may realize losses, and decreases in its total return, as the result of its hedging transactions. Furthermore, the Fund will only engage in hedging activities from time to time and may not be engaging in hedging activities when movements in currency exchange rates occur.

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It may not be possible for the Fund to hedge against currency exchange rate movements, even if correctly anticipated, in the event that (i) the currency exchange rate movement is so generally anticipated that the Fund is not able to enter into a hedging transaction at an effective price, or (ii) the currency exchange rate movement relates to a market with respect to which Currency Instruments are not available and it is not possible to engage in effective foreign currency hedging.

Risk Factors in Derivatives

Derivatives are volatile and involve significant risks, including:

Credit ris k —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 Fund.

Currency risk —the risk that changes in the exchange rate between two currencies will adversely affect the value (in U.S. dollar terms) of an investment.

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Leverage ris k —the risk associated with certain types of investments or trading strategies (such as borrowing money to increase the amount of investments) 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.

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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.

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Use of derivatives for hedging purposes involves correlation risk. If the value of the derivative moves more or less than the value of the hedged instruments, the Fund will experience a gain or loss that will not be completely offset by movements in the value of the hedged instruments.

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The Fund intends to enter into transactions involving derivatives only if there appears to be a liquid secondary market for such instruments or, in the case of illiquid instruments traded in OTC transactions, such instruments satisfy the criteria set forth below under “Additional Risk Factors of OTC Transactions; Limitations on the Use of OTC Derivatives.” However, there can be no assurance that, at any specific time, either a liquid secondary market will exist for a derivative or the Fund will otherwise be able to sell such instrument at an acceptable price. It may therefore not be possible to close a position in a derivative without incurring substantial losses, if at all.

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Certain transactions in derivatives (such as futures transactions or sales of put options) involve substantial leverage risk and may expose the Fund to potential losses, which exceed the amount originally invested by the Fund. When the Fund engages in such a transaction, the Fund will deposit in a segregated account at its custodian liquid securities with a value at least equal to the Fund’s exposure, on a mark-to-market basis, to the transaction (as calculated pursuant to requirements of the Securities and Exchange Commission). Such segregation will ensure that the Fund has assets available to satisfy its obligations with respect to the transaction, but will not limit the Fund’s exposure to loss.

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Additional Risk Factors of OTC Transactions; Limitations on the Use of OTC Derivatives

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Certain derivatives traded in OTC markets, including indexed securities, swaps and OTC options, involve substantial liquidity risk. The absence of liquidity may make it difficult or impossible for the Fund to sell such instruments promptly at an acceptable price. The absence of liquidity may also make it more difficult for the Fund to ascertain a market value for such instruments. The Fund will therefore acquire illiquid OTC instruments (i) if the agreement pursuant to which the instrument is purchased contains a formula price at which the instrument may be terminated or sold, or (ii) for which the Manager anticipates the Fund can receive on each business day at least two independent bids or offers, unless a quotation from only one dealer is available, in which case that dealer’s quotation may be used.

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Because derivatives traded in OTC markets are not guaranteed by an exchange or clearing corporation and generally do not require payment of margin, to the extent that the Fund has unrealized gains in such instruments or has deposited collateral with its counterparty, the Fund is at risk that its counterparty will become bankrupt or otherwise fail to honor its obligations. The Fund will attempt to minimize the risk that a counterparty will become bankrupt or otherwise fail to honor its obligations by engaging in transactions in derivatives traded in OTC markets only with financial institutions which have substantial capital or which have provided the Fund with a third-party guaranty or other credit enhancement.

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Convertible Securities

Convertible securities entitle the holder to receive interest payments paid on corporate debt securities or the dividend preference on a preferred stock until such time as the convertible security matures or is redeemed or until the holder elects to exercise the conversion privilege. Synthetic convertible securities may be either (i) a debt security or preferred stock that may be convertible only under certain contingent circumstances or that may pay the holder a cash amount based on the value of shares of underlying common stock partly or wholly in lieu of a conversion right (a “Cash-Settled Convertible”) or (ii) a combination of separate securities chosen by the Manager in order to create the economic characteristics of a convertible security, i.e ., a fixed income security paired with a security with equity conversion features, such as an option or warrant (a “Manufactured Convertible”).

The characteristics of convertible securities make them appropriate investments for an investment company seeking a high total return from capital appreciation and investment income. These characteristics include the potential for capital appreciation as the value of the underlying common stock increases, the relatively high yield received from dividend or interest payments as compared to common stock dividends and decreased risks of decline in value relative to the underlying common stock due to their fixed-income nature. As a result of the conversion feature, however, the interest rate or dividend preference on a convertible security is generally less than would be the case if the securities were issued in nonconvertible form.

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In analyzing convertible securities, the Manager will consider both the yield on the convertible security relative to its credit facility and the potential capital appreciation that is offered by the underlying common stock, among other things.

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Convertible securities are issued and traded in a number of securities markets. For the past several years, the principal markets have been the United States, the Euromarket and Japan. Issuers during this period have included major corporations domiciled in the United States, Japan, France, Switzerland, Canada and the United Kingdom. Even in cases where a substantial portion of the convertible securities held by the Fund are denominated in U.S. dollars, the underlying equity securities may be quoted in the currency of the country where the issuer is domiciled. With respect to convertible securities denominated in a currency different from that of the underlying equity securities, the conversion price may be based on a fixed exchange rate established at the time the security is issued. As a result, fluctuations in the exchange rate between the currency in which the debt security is denominated and the currency in which the share price is quoted will affect the value of the convertible security. As described below, the Fund is authorized to enter into foreign currency hedging transactions in which it may seek to reduce the effect of such fluctuations.

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Apart from currency considerations, the value of convertible securities is influenced by both the yield of nonconvertible securities of comparable issuers and by the value of the underlying common stock. The value of a convertible security viewed without regard to its conversion feature ( i.e ., strictly on the basis of its yield) is sometimes referred to as its “investment value.” To the extent interest rates change, the investment value of the convertible security typically will fluctuate. However, at the same time, the value of the convertible security will be influenced by its “conversion value,” which is the market value of the underlying common stock that would be obtained if the convertible security were converted. Conversion value fluctuates directly with the price of the underlying common stock. If, because of a low price of the common stock the conversion value is substantially below the investment value of the convertible security, the price of the convertible security is governed principally by its investment value.

To the extent the conversion value of a convertible security increases to a point that approximates or exceeds its investment value, the price of the convertible security will be influenced principally by its conversion value. A convertible security will sell at a premium over the conversion value to the extent investors place value on the right to acquire the underlying common stock while holding a fixed-income security. The yield and conversion premium of convertible securities issued in Japan and the Euromarket are frequently determined at levels that cause the conversion value to affect their market value more than the securities’ investment value.

Holders of convertible securities generally have a claim on the assets of the issuer prior to the common stockholders but may be subordinated to other debt securities of the same issuer. A convertible security may be subject to redemption at the option of the issuer at a price established in the charter provision, indenture or other governing instrument pursuant to which the convertible security was issued. If a convertible security held by the Fund is called for redemption, the Fund will be required to redeem the security, convert it into the underlying common stock or sell it to a third party. Certain convertible debt securities may provide a put option to the holder which entitles the holder to cause the security to be redeemed by the issuer at a premium over the stated principal amount of the debt security under certain circumstances.

As indicated above, synthetic convertible securities may include either Cash-Settled Convertibles or Manufactured Convertibles. Cash-Settled Convertibles are instruments that are created by the issuer and have the economic characteristics of traditional convertible securities but may not actually permit conversion into the underlying equity securities in all circumstances. As an example, a private company may issue a Cash-Settled Convertible that is convertible into common stock only if the company successfully completes a public offering of its common stock prior to maturity and otherwise pays a cash amount to reflect any equity appreciation. Manufactured Convertibles are created by the Manager by combining separate securities that possess one of the two principal characteristics of a convertible security, i.e ., fixed income (“fixed income component”) or a right to acquire equity securities (“convertible component”). The fixed income component is achieved by investing in nonconvertible fixed income securities, such as nonconvertible bonds, preferred stocks and money market instruments. The convertibility component is achieved by investing in call options, warrants, LEAPS, or other securities with equity conversion features (“equity features”) granting the holder the right to purchase a specified quantity of the underlying stocks within a specified period of time at a specified price or, in the case of a stock index option, the right to receive a cash payment based on the value of the underlying stock index.

A Manufactured Convertible differs from traditional convertible securities in several respects. Unlike a traditional convertible security, which is a single security having a unitary market value, a Manufactured Convertible is comprised of two or more separate securities, each with its own market value. Therefore, the total “market value” of such a Manufactured Convertible is the sum of the values of its fixed-income component and its convertibility component.

More flexibility is possible in the creation of a Manufactured Convertible than in the purchase of a traditional convertible security. Because many corporations have not issued convertible securities, the Manager may combine a fixed income instrument and an equity feature with respect to the stock of the issuer of the fixed income instrument to create a synthetic convertible security otherwise unavailable in the market. The Manager may also combine a fixed income instrument of an issuer with an equity feature with respect to the stock of a different issuer when the Manager believes such a Manufactured Convertible would better promote the Fund’s objective than alternative investments. For example, the Manager may combine an equity feature with respect to an issuer’s stock with a fixed income security of a different issuer in the same industry to diversify the Fund’s credit exposure, or with a U.S. Treasury instrument to create a Manufactured Convertible with a higher credit profile than a traditional convertible security issued by that issuer. A Manufactured Convertible also is a more flexible investment in that its two components may be purchased separately and, upon purchasing the separate securities, “combined” to create a Manufactured Convertible. For example, the Fund may purchase a warrant for eventual inclusion in a Manufactured Convertible while postponing the purchase of a suitable bond to pair with the warrant pending development of more favorable market conditions.

The value of a Manufactured Convertible may respond differently to certain market fluctuations than would a traditional convertible security with similar characteristics. For example, in the event the Fund created a Manufactured Convertible by combining a short-term U.S. Treasury instrument and a call option on a stock, the Manufactured Convertible would likely outperform a traditional convertible of similar maturity and which is convertible into that stock during periods when Treasury instruments outperform corporate fixed income securities and underperform during periods when corporate fixed-income securities outperform Treasury instruments.

Debt Securities

Debt securities, such as bonds, involve credit risk. This is the risk that the issuer 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. This risk is reduced to the extent the Fund limits its debt investments to U.S. Government securities. All debt securities, however, are 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.

Warrants

The Fund may invest in warrants. Warrants are securities that permit but do not require the warrant holder to subscribe for other securities. Buying a warrant does not make the Fund a shareholder of the underlying stock. The warrant holder has no right to dividends or votes on the underlying stock. A warrant does not carry any right to assets of the issuer, and for this reason investment in warrants may be more speculative than other equity-based investments.

Other Investment Policies and Practices

Temporary Investments . The Fund reserves the right, as a temporary defensive measure, and without limitation, to hold in excess of 35% of its total assets in cash or cash equivalents and investment grade, short-term securities including money market securities (“Temporary Investments”). Under certain adverse investment conditions, the Fund may restrict the markets in which its assets will be invested and may increase the proportion of assets invested in Temporary Investments. Investments made for defensive purposes will be maintained only during periods in which the Manager determines that economic or financial conditions are adverse for holding or being fully invested in equity securities. A portion of the Fund normally will be held in Temporary Investments in anticipation of investment in equity securities or to provide for possible redemptions.

Illiquid or Restricted Securities. The Fund may invest up to 15% of its net assets in securities that lack an established secondary trading market or otherwise are considered illiquid. Liquidity of a security relates to the ability to dispose easily of the security and the price to be obtained upon disposition of the security, which may be less than would be obtained for a comparable more liquid security. Illiquid securities may trade at a discount from comparable, more liquid investments. Investment of the Fund’s assets in illiquid securities may restrict the ability of the Fund to dispose of such investments in a timely fashion and for a fair price as well as its ability to take advantage of market opportunities. The risks associated with illiquidity will be particularly acute where the Fund’s operations require cash, such as when the Fund redeems shares or pays dividends, and could result in the Fund borrowing to meet short-term cash requirements or incurring capital losses on the sale of illiquid investments.

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The Fund may invest in securities that are not registered (“restricted securities”) under the Securities Act of 1933, as amended (the “Securities Act”). Restricted securities have contractual or legal restrictions on their resale and include “private placement” securities that the Fund may buy directly from the issuer. Restricted securities may be sold in private placement transactions between issuers and the purchasers and may be neither listed on an exchange nor traded in other established markets. Privately placed securities may or may not be freely transferable under the laws of the applicable jurisdiction or due to contractual restrictions on resale. As a result of the absence of a public trading market, privately placed securities may be less liquid and more difficult to value than publicly traded securities. To the extent that privately placed securities may be resold in privately negotiated transactions, the prices realized from the sales, due to illiquidity, could be less than those originally paid by the Fund or less than their fair market value. In addition, issuers whose securities are not publicly traded may not be subject to the disclosure and other investor protection requirements that may be applicable if their securities were publicly traded. In addition, issuers whose securities are not publicly traded may not be subject to the disclosure and other investor protection requirements that may be applicable if their securities were publicly traded. If any privately placed securities held by the Fund are required to be registered under the securities laws of one or more jurisdictions before being resold, the Fund may be required to bear the expenses of registration. Certain of the Fund’s investments in private placements may consist of direct investments and may include investments in smaller, less seasoned issuers, which may involve greater risks. These issuers may have limited product lines, markets or financial resources, or they may be dependent on a limited management group. In making investments in such securities, the Fund may obtain access to material nonpublic information which may restrict the Fund’s ability to conduct portfolio transactions in such securities.

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144A Securities. The Fund may purchase restricted securities that can be offered and sold to “qualified institutional buyers” under Rule 144A under the Securities Act. The Board has determined to treat as liquid Rule 144A securities that are either freely tradable in their primary markets offshore or have been determined to be liquid in accordance with the policies and procedures adopted by the Fund’s Board. The Board has adopted guidelines and delegated to the Manager the daily function of determining and monitoring liquidity of restricted securities. The Board, however, will retain sufficient oversight and be ultimately responsible for the determinations. Since it is not possible to predict with assurance exactly how this market for restricted securities sold and offered under Rule 144A will continue to develop, the Board will carefully monitor the Fund’s investments in these securities. This investment practice could have the effect of increasing the level of illiquidity in the Fund to the extent that qualified institutional buyers become for a time uninterested in purchasing these securities.

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When-Issued Securities, Delayed Delivery Securities and Forward Commitments. The Fund may purchase or sell securities that it is entitled to receive on a when-issued basis. The Fund may also purchase or sell securities on a delayed delivery basis or through a forward commitment. These transactions involve the purchase or sale of securities by the Fund at an established price with payment and delivery taking place in the future. The Fund enters into these transactions to obtain what is considered an advantageous price to the Fund at the time of entering into the transaction. The Fund has not established any limit on the percentage of its assets that may be committed in connection with these transactions. When the Fund purchases securities in these transactions, the Fund segregates liquid securities in an amount equal to the amount of its purchase commitments.

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There can be no assurance that a security purchased on a when-issued basis will be issued or that a security purchased or sold through a forward commitment will be delivered. The value of securities in these transactions on the delivery date may be more or less than the Fund’s purchase price. The Fund may bear the risk of a decline in the value of the security in these transactions and may not benefit from an appreciation in the value of the security during the commitment period.

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Repurchase Agreements and Purchase and Sale Contracts . The Fund may invest in securities pursuant to repurchase agreements or purchase and sale contracts. Repurchase agreements and purchase and sale contracts may be entered into only with financial institutions which (i) have, in the opinion of Fund management, substantial capital relative to the Fund’s exposure, or (ii) have provided the Fund with a third-party guaranty or other credit enhancement. Under a repurchase agreement or a purchase and sale contract, the seller agrees, upon entering into the contract with the Fund, to repurchase the security at a mutually agreed-upon time and price in a specified currency, thereby determining the yield during the term of the agreement. This results in a fixed rate of return insulated from market fluctuations during such period although it may be affected by currency fluctuations. In the case of repurchase agreements, the price at which the trades are conducted do not reflect accrued interest on the underlying obligation; whereas, in the case of purchase and sale contracts, the prices take into account accrued interest. Such agreements usually cover short periods, such as under one week. Repurchase agreements may be construed to be collateralized loans by the purchaser to the seller secured by the securities transferred to the purchaser. In the case of a repurchase agreement, as a purchaser, the Fund will require the seller to provide additional collateral if the market value of the securities falls below the repurchase price at any time during the term of the repurchase agreement; the Fund does not have the right to seek additional collateral in the case of purchase and sale contracts. In the event of default by the seller under a repurchase agreement construed to be a collateralized loan, the underlying securities are not owned by the Fund but only constitute collateral for the seller’s obligation to pay the repurchase price. Therefore, the Fund may suffer time delays and incur costs or possible losses in connection with the disposition of the collateral. A purchase and sale contract differs from a repurchase agreement in that the contract arrangements stipulate that the securities are owned by the Fund. In the event of a default under such a repurchase agreement or under a purchase and sale contract, instead of the contractual fixed rate, the rate of return to the Fund shall be dependent upon intervening fluctuations of the market value of such securities and the accrued interest on the securities. In such event, the Fund would have rights against the seller for breach of contract with respect to any losses arising from market fluctuations following the failure of the seller to perform. While the substance of purchase and sale contracts is similar to repurchase agreements, because of the different treatment with respect to accrued interest and additional collateral, Fund management believes that purchase and sale contracts are not repurchase agreements as such term is understood in the banking and brokerage community. The Fund may not invest more than 15% of its net assets in repurchase agreements or purchase and sale contracts maturing in more than seven days together with all other illiquid investments.

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Securities Lending. The Fund may lend securities with a value not exceeding 33 ¹ / 3 % of its total assets to banks, brokers and other financial institutions. In return, the Fund receives collateral in cash or securities issued or guaranteed by the U.S. Government which will be maintained at all times in an amount equal to at least 100% of the current market value of the loaned securities. During the period of such a loan, the Fund typically receives the income on both the loaned securities and the collateral and thereby increases its yield. In certain circumstances, the Fund may receive a flat fee for its loans. Such loans are terminable at any time and the borrower, after notice, is required to return borrowed securities within five business days. The Fund may pay reasonable finder’s, administrative and custodial fees in connection with its loans. In the event that the borrower defaults on its obligation to return borrowed securities because of insolvency or for any other reason, the Fund could experience delays and costs in gaining access to the collateral and could suffer a loss to the extent the value of the collateral falls below the market value of the borrowed securities.

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Suitability. The economic benefit of an investment in the Fund depends upon many factors beyond the control of the Trust, the Fund, the Manager and its affiliates. The Fund should be considered a vehicle for diversification and not as a balanced investment program. The suitability for any particular investor of a purchase of shares in the Fund will depend on, among other things, such investor’s investment objectives and such investor’s ability to accept the risks associated with investing in securities, including the risk of loss of principal.

Investment Restrictions

The Fund has adopted the following restrictions and policies relating to the investment of the Fund’s assets and its activities. The fundamental restrictions set forth below may not be changed without the approval of the holders of a majority of the Fund’s outstanding voting securities (which for this purpose and under the Investment Company Act means the lesser of (i) 67% of the shares represented at a meeting at which more than 50% of the outstanding shares are represented or (ii) more than 50% of the outstanding shares). Unless otherwise provided, all references to the Fund’s assets below are in terms of current market value. Provided that none of the following restrictions shall prevent the Fund from investing all of its assets in shares of another registered investment company with the same investment objective (in a master/feeder structure), the Fund may not:

1. Invest more than 25% of its total assets, taken at market value at the time of each investment, in the securities of issuers in any particular industry (excluding the U.S. Government and its agencies and instrumentalities).

2. Make investments for the purpose of exercising control or management. Investments by the Fund in wholly-owned investment entities created under the laws of certain countries will not be deemed the making of investments for the purpose of exercising control or management.

3. Purchase or sell real estate, except that, to the extent permitted by applicable law, the Fund may invest in securities directly or indirectly secured by real estate or interests therein or issued by companies that invest in real estate or interests therein.

4. Make loans to other persons, except that the acquisition of bonds, debentures or other corporate debt securities and investment in governmental obligations, commercial paper, pass-through instruments, certificates of deposit, bankers’ acceptances, repurchase agreements, purchase and sale contracts or any similar instruments shall not be deemed to be the making of a loan, and except further that the Fund may lend its portfolio securities, provided that the lending of portfolio securities may be made only in accordance with applicable law and the guidelines set forth in the Fund’s Prospectus and Statement of Additional Information, as they may be amended from time to time.

5. Issue senior securities to the extent such issuance would violate applicable law.

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6. Borrow money, except that (i) the Fund may borrow from banks (as defined in the Investment Company Act) in amounts up to 33 ¹ / 3 % of its total assets (including the amount borrowed), (ii) the Fund may borrow up to an additional 5% of its total assets for temporary purposes, (iii) the Fund may obtain such short-term credit as may be necessary for the clearance of purchases and sales of portfolio securities and (iv) the Fund may purchase securities on margin to the extent permitted by applicable law. The Fund may not pledge its assets other than to secure such borrowings or, to the extent permitted by the Fund’s investment policies as set forth in its Prospectus and Statement of Additional Information, as they may be amended from time to time, in connection with hedging transactions, short sales, when-issued and forward commitment transactions and similar investment strategies.

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7. Underwrite securities of other issuers except insofar as the Fund technically may be deemed an underwriter under the Securities Act of 1933, as amended (the “Securities Act”) in selling portfolio securities.

8. Purchase or sell commodities or contracts on commodities, except to the extent that the Fund may do so in accordance with applicable law and the Fund’s Prospectus and this Statement of Additional Information, as they may be amended from time to time, and without registering as a commodity pool operator under the Commodity Exchange Act.

The Trust has adopted investment restrictions substantially identical to the foregoing, which are fundamental policies of the Trust and may not be changed with respect to the Trust without the approval of the holders of a majority of the interests of the Trust.

In addition, the Fund has adopted non-fundamental restrictions that may be changed by the Board of Directors of the Fund without shareholder approval. Like the fundamental restrictions, none of the non-fundamental restrictions, including but not limited to restriction (a) below, shall prevent the Fund from investing all of its assets in shares of another registered investment company with the same investment objective (in a master/feeder structure). Under the non-fundamental investment restrictions, the Fund may not:

a. Purchase securities of other investment companies, except to the extent such purchases are permitted by applicable law. As a matter of policy, however, the Fund will not purchase shares of any registered open-end investment company or registered unit investment trust, in reliance on Section 12(d)(1)(F) or (G) (the “fund of funds” provisions) of the Investment Company Act, at any time its shares are owned by another investment company that is part of the same group of investment companies as the Fund.

b. Make short sales of securities or maintain a short position, except to the extent permitted by applicable law. The Fund currently does not intend to engage in short sales, except short sales “against the box.”

c. Invest in securities that cannot be readily resold because of legal or contractual restrictions or that cannot otherwise be marketed, redeemed or put to the issuer or a third party, if at the time of acquisition more than 15% of its net assets would be invested in such securities. This restriction shall not apply to securities that mature within seven days or securities that the Directors of the Fund have otherwise determined to be liquid pursuant to applicable law. Securities purchased in accordance with Rule 144A under the Securities Act (which are restricted securities that can be resold to qualified institutional buyers, but not to the general public) and determined to be liquid by the Board of Directors of the Fund are not subject to the limitations set forth in this investment restriction.

d. Notwithstanding fundamental investment restriction (6) above, borrow money or pledge its assets, except that the Fund (a) may borrow from a bank as a temporary measure for extraordinary or emergency purposes or to meet redemption in amounts not exceeding 33 ¹ / 3 % (taken at market value) of its total assets and pledge its assets to secure such borrowing, (b) may obtain such short-term credit as may be necessary for the clearance of purchases and sales of portfolio securities and (c) may purchase securities on margin to the extent permitted by applicable law. However, at the present time, applicable law prohibits the Fund from purchasing securities on margin. The deposit or payment by the Fund of initial or variation margin in connection with financial futures contracts or options transactions is not considered to be the purchase of a security on margin. The purchase of securities while a borrowing is outstanding will have the effect of leveraging the Fund. Such leveraging or borrowing increases the Fund’s exposure to capital risk and borrowed funds are subject to interest costs which will reduce net income. The Fund will not purchase securities while borrowing exceeds 5% of its total assets.

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The Trust has adopted investment restrictions substantially identical to the foregoing which are non-fundamental policies of the Trust and may be changed by the Trustees without the approval of the holders of the interests of the Trust.

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The staff of the Commission has taken the position that purchased OTC options and the assets used as cover for written OTC options are illiquid securities. Therefore, the Fund and the Trust have adopted an investment policy pursuant to which neither the Fund nor the Trust will purchase or sell OTC options (including OTC options on futures contracts) if, as a result of such transaction, the sum of the market value of OTC options currently outstanding that are held by the Fund or the Trust, the market value of the underlying securities covered by OTC call options currently outstanding that were sold by the Fund or the Trust and margin deposits on the Fund’s or the Trust’s existing OTC options on financial futures contracts exceeds 15% of the net assets of the Fund or the Trust, taken at market value, together with all other assets of the Fund or the Trust that are illiquid or are not otherwise readily marketable. However, if the OTC option is sold by the Fund or the Trust to a primary U.S. Government securities dealer recognized by the Federal Reserve Bank of New York and if the Fund or the Trust has the unconditional contractual right to repurchase such OTC option from the dealer at a predetermined price, then the Fund or the Trust will treat as illiquid such amount of the underlying securities as is equal to the repurchase price less the amount by which the option is “in-the-money” (i.e. , current market value of the underlying securities minus the option’s strike price). The repurchase price with the primary dealers is typically a formula price that is generally based on a multiple of the premium received for the option, plus the amount by which the option is “in-the-money.” This policy as to OTC options is not a fundamental policy of the Fund or the Trust and may be amended by the Board of Directors of the Fund or the Board of Trustees of the Trust without the approval of the Fund’s shareholders. However, the Directors or the Trustees will not change or modify this policy prior to the change or modification by the Commission staff of its position.

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In addition, as a non-fundamental policy that may be changed by the Board of Directors and to the extent required by the Commission or its staff, the Fund will, for purposes of fundamental investment restriction (1), treat securities issued or guaranteed by the government of any one foreign country as the obligations of a single issuer.

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As another non-fundamental policy, the Fund will not invest in securities that are (a) subject to material legal restrictions on repatriation of assets or (b) cannot be readily resold because of legal or contractual restrictions or which are not otherwise readily marketable, including repurchase agreements and purchase and sales contracts maturing in more than seven days, if, regarding all such securities, more than 15% of its net assets, taken at market value would be invested in such securities.

Because of the affiliation of Merrill Lynch, Pierce, Fenner & Smith Incorporated (“Merrill Lynch” ) with the Manager, the Fund and the Trust are prohibited from engaging in certain transactions involving Merrill Lynch or its affiliates except for brokerage transactions permitted under the Investment Company Act involving only usual and customary commissions or transactions pursuant to an exemptive order under the Investment Company Act. See “Portfolio Transactions and Brokerage.” Without such an exemptive order the Fund and the Trust would be prohibited from engaging in portfolio transactions with Merrill Lynch or any of its affiliates acting as principal.

Non-Diversified Status

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The Fund is classified as non-diversified within the meaning of the Investment Company Act, which means that the Fund is not limited by such Act in the proportion of its assets that it may invest in securities of a single issuer. The Fund’s investments are limited, however, in order to continue to qualify as a regulated investment company under the Internal Revenue Code of 1986, as amended (the “Code”). See “Dividends and Taxes — Taxes.” To qualify as a regulated investment company under the Code, the Fund complies with certain requirements, including limiting its investments so that at the close of each quarter of the taxable year (i) not more than 25% of the market value of the Fund’s total assets will be invested in the securities of a single issuer and (ii) with respect to 50% of the market value of its total assets, not more than 5% of the market value of its total assets will be invested in the securities of a single issuer. Foreign government securities (unlike U.S. Government securities) are not exempt from the diversification requirements of the Code and the securities of each foreign government issuer are considered to be obligations of a single issuer. A fund that elects to be classified as “diversified” under the Investment Company Act must satisfy the foregoing 5% and 10% requirements with respect to 75% of its total assets. To the extent that the Fund assumes large positions in the securities of a small number of issuers, the Fund’s net asset value may fluctuate to a greater extent than that of a diversified company as a result of changes in the financial condition or in the market’s assessment of the issuers, and the Fund may be more susceptible to any single economic, political or regulatory occurrence than a diversified company.

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Portfolio Turnover

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Generally, the Fund will not purchase securities for short-term trading profits. However, the Fund 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 Fund may engage in a substantial number of portfolio transactions. Accordingly, while the Fund 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 Fund’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 may result in negative tax consequences, such as increased capital gains dividends. See “Dividends and Taxes.” High portfolio turnover may also involve correspondingly greater transaction costs in the form of dealer spreads and brokerage commissions, which are borne directly by the Fund.

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MANAGEMENT OF THE FUND

Directors and Officers

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The Directors of the Fund consist of six individuals, five of whom are not “interested persons” of the Fund as defined in the Investment Company Act. The six Directors of the Fund are also the Trustees of the Trust. The five Directors who are not interested persons of the Fund similarly comprise the Trustees who are not interested persons of the Trust, and are sometimes referred to herein as the “non-interested Directors/Trustees.” The Directors of the Fund are responsible for the overall supervision of the operations of the Fund and perform the various duties imposed on the directors of investment companies by the Investment Company Act. Information about the Directors and executive officers of the Fund, 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 Director is P.O. Box 9011, Princeton, New Jersey 08543-9011.

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T ERRY K. G LENN (60) — President and Director (1)(2) — Executive Vice President of the Manager and its affiliate, Merrill Lynch Investment Managers, L.P. (“MLIM”) (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 FAM Distributors, Inc. (“FAMD”) since 1986 and Director thereof since 1991; President of Princeton Administrators, L.P. since 1988.

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J AMES H. B ODURTHA (57) — Director (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.

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H ERBERT I. L ONDON (62) — Director (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.

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J OSEPH L. M AY (71) — Director (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.

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A NDRE F. P EROLD (48) — Director (2)(3) — Morgan Hall, Soldiers Field, Boston, Massachusetts 02163. Harvard Business School: George Gund Professor of Finance and Banking, since 2000, Finance Area Chair since 1996, Sylvan C. Coleman Professor of Financial Management from 1993 to 2000; Trustee, the Common Fund since 1989; Director, Genbel Securities Limited and Gensec Bank since 1999; Director, Gensec Asset Management since 2000; Director, Bulldogresearch.com since 2000; Director Stockback.com since 2000; Director, Quantec Limited from 1991 to 1999; Director, TIBCO from 1994 to 1996.

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R OBERTA C OOPER R AMO (58) — Director (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.

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J AMES D. M C C ALL (47) — Senior Vice President and Portfolio Manager (1)(2) — First Vice President of MLIM since 1999; portfolio manager for the PBHG family of mutual funds from 1994 to 1999.

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R OBERT C. D OLL , J R . (46) — Senior Vice President (1)(2) — Senior Vice President of the Manager and MLIM 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.

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D ONALD C. B URKE (40) — Vice President and Treasurer (1)(2) — First Vice President of the Manager and MLIM since 2000 and Treasurer thereof since 1999; Senior Vice President of the Manager and MLIM from 1999 to 2000; Senior Vice President and Treasurer of Princeton Services since 1999; Vice President of FAMD since 1999; First Vice President of MLIM from 1997 to 1999; Vice President of MLIM from 1990 to 1997; Director of Taxation of MLIM since 1990.

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S USAN B. B AKER (43) — Secretary (1)(2) — Director (Legal Advisory) of MLIM since 1999; Vice President of MLIM from 1993 to 1999; Attorney associated with MLIM since 1987.

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(1)

Interested person, as defined in the Investment Company Act, of the Trust and the 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 the 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.

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As of March 1, 2001, the officers and Directors of the Fund as a group (10 persons) owned an aggregate of less than 1% of the outstanding shares of the Fund. At such date, Mr. Glenn, a Director and officer of the Fund, and the other officers of the Fund owned an aggregate of less then 1% of the outstanding shares of common stock of Merrill Lynch & Co., Inc. (“ML & Co.”).

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Compensation of Directors/Trustees

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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, MLIM (“MLIM/FAM-Advised funds”). The portion of the annual retainer allocated to each MLIM/FAM-Advised fund is determined quarterly based on the relative net assets of each fund. 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 MLIM/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.

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The following table shows the compensation earned by the non-interested Directors/Trustees for the period ended November 30, 2000 and the aggregate compensation paid to them from all MLIM/FAM-Advised funds for the calendar year ended December 31, 2000.

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Name

Compensation

from

Fund /Trust

Position with
Corporation /Trust

Pension or

Retirement

BenefitsAccrued

as Part of

Fund /Trust
Expense

Annual
Benefits upon
Retirement

Aggregate

Compensation

from
Fund /Trust

and Other

MLIM /FAM-
Advised Funds(1)

Jam es H. Bodurtha

$ 9,226

Director/Trustee

None

$132,250

He rbert I. London

$ 9,226

Director/Trustee

None

$132,250

Jos eph L. May

$ 9,226

Director/Trustee

None

$132,250

An dré F. Perold

$ 9,226

Director/Trustee

None

$132,250

Ro berta Cooper Ramo

$16,166

Director/Trustee

None

$169,000

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(1)

The Directors serve on the boards of MLIM/FAM-Advised funds as follows: Mr.Bodurtha (30 registered investment companies consisting of 42 portfolios); Mr. London (30 registered investment companies consisting of 42 portfolios); Mr. May (30 registered investment companies consisting of 42 portfolios); Mr. Perold (30 registered investment companies consisting of 42 portfolios) and Ms. Ramo (30 registered investment companies consisting of 42 portfolios).

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The Directors of the Fund and the Trustees of the Trust may purchase Class A shares of the Fund at net asset value. See “Purchase of Shares — Initial Sales Charges — Purchase Privileges of Certain Persons.”

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Management and Advisory Arrangements

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Management Services and Management Fee. The Fund invests all of its assets in shares of the Trust. Accordingly, the Fund does not invest directly in portfolio securities and does not require investment advisory services. All portfolio management occurs at the Trust level. The Trust has entered into an investment management agreement with FAM, as Manager (the “Management Agreement”). As discussed in “Management of the Fund — Fund Asset Management” in the Prospectus, the Manager receives monthly compensation at the annual rate of 0.60% of the average daily net assets of the Trust for its services to the Trust. For the period March 3, 2000 (commencement of operations) to November 30, 2000, the Manager received monthly compensation at the annual rate of 0.85% of the average daily net assets of the Trust. For that period, the total management fee paid by the Trust to the Manager was $8,655,695.

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The Manager has also entered into a sub-advisory agreement (the “Sub-Advisory Agreement”) with Merrill Lynch Asset Management U.K. Limited (“MLAM U.K.”) pursuant to which MLAM U.K. provides investment advisory services to the Manager with respect to the Trust. Under the Sub-Advisory Agreement, the Manager may pay MLAM U.K. a fee for providing such services, in an amount to be determined from time to time by the Manager and MLAM U.K. but in no event in excess of the amount that the Manager actually receives for providing services pursuant to the Management Agreement. The following entities may be considered “controlling persons” of MLAM U.K.: Merrill Lynch Europe PLC (MLAM U.K.’s parent), a subsidiary of Merrill Lynch International Holdings, Inc., a subsidiary of Merrill Lynch International, Inc., a subsidiary of Merrill Lynch & Co., Inc. For the period March 3, 2000 (commencement of operations) to November 30, 2000, the Manager paid no fees to MLAM U.K. pursuant to the Sub-Advisory Agreement.

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Unless earlier terminated as described herein, the Management Agreement and Sub-Advisory Agreement will remain in effect for two years from their respective effective dates. Thereafter, they will remain in effect from year to year if approved annually (a) by the Board of Trustees of the Trust or by a majority of the outstanding shares of the Trust and (b) by a majority of the Trustees who are not parties to such contract or interested persons (as defined in the Investment Company Act) of any such party. Such contracts are not assignable and may be terminated without penalty on 60 days’ written notice at the option of either party thereto or by the vote of the shareholders of the Trust.

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Payment of Trust Expenses. The Management Agreement obligates the Manager to provide investment advisory services and to pay, or cause an affiliate to pay, for maintaining its staff and personnel and to provide office space, facilities and necessary personnel for the Trust. The Manager is also obligated to pay, or cause an affiliate to pay, the fees of all officers, Trustees and Directors who are affiliated persons of the Manager or any affiliate. The Trust pays, or causes to be paid, all other expenses incurred in the operation of the Trust, including, among other things, taxes, expenses for legal and auditing services, costs of preparing, printing and mailing proxies, stock certificates, shareholder reports, copies of the Registration Statement, charges of the custodian, any sub-custodian and the transfer agent expenses of portfolio transactions, expenses of redemption of shares, Commission fees, expenses of registering the shares under federal, state or foreign securities laws, fees and actual out-of-pocket expenses of non-interested Directors/Trustees, accounting and pricing costs (including the daily calculation of net asset value), insurance, interest, brokerage costs, litigation and other extraordinary or non-recurring expenses, and other expenses properly payable by the Trust. Certain accounting services are provided to the Trust by State Street Bank and Trust Company (“State Street”) pursuant to an agreement between State Street and the Trust. The Trust will pay the costs of these services. In addition, the Trust will reimburse the Manager for the cost of certain additional accounting services.

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Organization of the Manager. FAM is a limited partnership, the partners of which are ML & Co., a financial services holding company and the parent of Merrill Lynch, and Princeton Services. ML & Co. and Princeton Services are “controlling persons” of the Manager as defined under the Investment Company Act because of their ownership of its voting securities and their power to exercise a controlling influence over its management or policies.

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Administrative Services and Administration Fee. The Fund has entered into an administration agreement with FAM (the “Administrator”) as Administrator (the “Administration Agreement”). The Administrator receives for its services to the Fund monthly compensation at the annual rate of 0.25% of the average daily net assets of the Fund.

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Payment of Fund Expenses. The Administration Agreement obligates the Administrator to provide certain administrative services to the Fund and to pay, or cause its affiliates to pay, for maintaining its staff and personnel and to provide office space, facilities and necessary personnel for the Fund. The Administrator is also obligated to pay, or cause its affiliates to pay, the fees of those officers, Directors and Trustees who are affiliated persons of the Administrator or any of its affiliates. The Fund pays, or causes to be paid, all other expenses incurred in the operation of the Fund (except to the extent paid by the Distributor, see “Distribution Expenses” below), including, among other things, taxes, expenses for legal and auditing services, costs of preparing, printing and mailing proxies, stock certificates, shareholder reports and prospectuses and statements of additional information, charges of the custodian, any sub-custodian and transfer agent, expenses of redemption of shares, Commission fees, expenses of registering the shares under federal, state or foreign securities laws, fees and actual out-of-pocket expenses of non-interested Directors/Trustees, accounting and pricing costs (including the daily calculation of the net asset value), insurance, interest, litigation and other extraordinary or non-recurring expenses, and other expenses properly payable by the Fund. The Distributor will pay certain of the expenses of the Fund incurred in connection with the continuous offering of its shares. Certain expenses will be financed by the Fund pursuant to distribution plans in compliance with Rule 12b-1 under the Investment Company Act. See “Purchase of Shares — Distribution Plans.” Certain accounting services are provided to the Fund by State Street pursuant to an agreement between State Street and the Fund. The Fund will pay the cost of these services. In addition, the Fund will reimburse the Manager for the cost of certain additional accounting services.

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Unless earlier terminated as described below, the Administration Agreement will remain in effect for two years from its effective date. Thereafter, it will remain in effect from year to year if approved annually (a) by the Board of Directors or by a vote of a majority of the outstanding voting securities of the Fund and (b) by a majority of the Directors who are not parties to such contract or interested persons (as defined in the Investment Company Act) of any such party. Such contract is not assignable and may be terminated without penalty on 60 days’ written notice at the option of either party thereto or by the vote of the shareholders of the Fund.

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Transfer Agency Services . Financial Data Services, Inc. (the ”Transfer Agent”), a subsidiary of ML & Co., acts as the Fund’s Transfer Agent pursuant to a Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing Agency Agreement (the “Transfer Agency Agreement”). Pursuant to the Transfer Agency Agreement, the Transfer Agent is responsible for the issuance, transfer and redemption of shares and the opening and maintenance of shareholder accounts. Pursuant to the Transfer Agency Agreement, the Transfer Agent receives a fee of $11.00 per Class A or Class D account and $14.00 per Class B or Class C account and is entitled to reimbursement for certain transaction charges and out-of-pocket expenses incurred by the Transfer Agent under the Transfer Agency Agreement. Additionally, a $.20 monthly closed account charge will be assessed on all accounts that close during the calendar year. Application of this fee will commence the month following the month the account is closed. At the end of the calendar year, no further fee will be due. For purposes of the Transfer Agency Agreement, the term “account” includes a shareholder account maintained directly by the Transfer Agent and any other account representing the beneficial interest of a person in the relevant share class on a recordkeeping system, provided the recordkeeping system is maintained by a subsidiary of ML & Co.

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Accounting Services . The Fund and the Trust have entered into an agreement with State Street, commencing January 1, 2001, pursuant to which State Street provides certain accounting services to the Fund and the Trust. The Fund and the Trust will pay the cost of these services. The Manager provides certain additional accounting services to the Fund and the Trust. The Fund and the Trust reimburse the Manager for the cost of these services. For the period March 3, 2000 (commencement of operations) to November 30, 2000, the Manager provided accounting services to the Fund and the Trust at its cost in connection with such services and the Fund and the Trust reimbursed the Manager $1,908 and $366,538, respectively, for such services.

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Distribution Expenses. The Fund has entered into a distribution agreement with the Distributor in connection with the continuous offering of each class of shares of the Fund (the “Distribution Agreement”). The Distribution Agreement obligates the Distributor to pay certain expenses in connection with the offering of each class of shares of the Fund. After the prospectuses, statements of additional information and periodic reports have been prepared, set in type and mailed to shareholders, the Distributor pays for the printing and distribution of copies thereof used in connection with the offering to dealers and investors. The Distributor also pays for other supplementary sales literature and advertising costs. The Distribution Agreement is subject to the same renewal requirements and termination provisions as the Management Agreement described above.

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Code of Ethics

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The Board of Trustees of the Trust and the Board of Directors of the Fund have approved a Code of Ethics under Rule 17j-1 of the Investment Company Act that covers the Trust, the Fund, the Manager, MLAM U.K. and the Distributor. The Code of Ethics established procedures for personal investing and restricts certain transactions. Employees subject to the Code of Ethics may invest in securities for their personal investment accounts, including securities that may be purchased or held by the Trust.

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PURCHASE OF SHARES

Reference is made to “How to Buy, Sell, Transfer and Exchange Shares” in the Prospectus for certain information as to the purchase of Fund shares.

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The Fund offers four classes of shares under the Merrill Lynch Select Pricing ^SM System: shares of Class A and Class D are sold to investors choosing the initial sales charge alternatives and shares of Class B and Class C are sold to investors choosing the deferred sales charge alternatives. Each Class A, Class B, Class C and Class D share of the Fund represents an identical interest in the investment portfolio of the Fund and has the same rights, except that Class B, Class C and Class D shares bear the expenses of the ongoing account maintenance fees (also known as service fees) and Class B and Class C shares bear the expenses of the ongoing distribution fees and the additional incremental transfer agency costs resulting from the deferred sales charge arrangements. The contingent deferred sales charges (“CDSCs”), distribution fees and account maintenance fees that are imposed on Class B and Class C shares, as well as the account maintenance fees that are imposed on Class D shares, are imposed directly against those classes and not against all assets of the Fund and, accordingly, such charges do not affect the net asset value of any other class or have any impact on investors choosing another sales charge option. Dividends paid by the Fund for each class of shares are calculated in the same manner at the same time and differ only to the extent that account maintenance and distribution fees and any incremental transfer agency costs relating to a particular class are borne exclusively by that class. Each class has different exchange privileges. See “Shareholder Services — Exchange Privilege.”

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Investors should understand that the purpose and function of the initial sales charges with respect to the Class A and Class D shares are the same as those of the CDSCs and distribution fees with respect to the Class B and Class C shares in that the sales charges and distribution fees applicable to each class provide for the financing of the distribution of the shares of the Fund. The distribution-related revenues paid with respect to a class will not be used to finance the distribution expenditures of another class. Sales personnel may receive different compensation for selling different classes of shares.

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The Merrill Lynch Select Pricing ^SM System is used by more than 50 registered investment companies advised by the Manager or MLIM. Funds advised by the Manager or MLIM that utilize the Merrill Lynch Select Pricing ^SM System are referred to herein as “Select Pricing Funds.”

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<R>

The Fund offers its shares at a public offering price equal to the next determined net asset value per share plus any sales charge applicable to the class of shares selected by the investor. The applicable offering price for purchase orders is based upon the net asset value of the Fund next determined after receipt of the purchase order by the Distributor. As to purchase orders received by securities dealers prior to the close of business on the New York Stock Exchange (the “NYSE”) (generally 4:00 p.m., Eastern time), which includes orders received after the determination of net asset value on the previous day, the applicable offering price will be based on the net asset value on the day the order is placed with the Distributor, provided that the orders are received by the Distributor prior to 30 minutes after the close of business on the NYSE on that day. If the purchase orders are not received prior to 30 minutes after the close of business on the NYSE on that day, such orders shall be deemed received on the next business day. Dealers have the responsibility of submitting purchase orders to the Fund not later than 30 minutes after the close of business on the NYSE in order to purchase shares at that day’s offering price.

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<R>

The Fund or the Distributor may suspend the continuous offering of the Fund’s shares of any class at any time in response to conditions in the securities markets or otherwise and may thereafter resume such offering from time to time. Any order may be rejected by the Fund or the Distributor. Neither the Distributor, the securities dealers or other financial intermediaries are permitted to withhold placing orders to benefit themselves by a price change. Certain securities dealers may charge a processing fee to confirm a sale of shares to such customers. For example, the fee currently charged by Merrill Lynch is $5.35. Purchases made directly through the Transfer Agent are not subject to the processing fee.

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Initial Sales Charge Alternatives — Class A and Class D Shares

</R>

<R>

Investors who prefer an initial sales charge alternative may elect to purchase Class D shares or, if an eligible investor, Class A shares. Investors choosing the initial sales charge alternative who are eligible to purchase Class A shares should purchase Class A shares rather than Class D shares because there is an account maintenance fee imposed on Class D shares. Investors qualifying for significantly reduced initial sales charges may find the initial sales charge alternative particularly attractive because similar sales charge reductions are not available with respect to the deferred sales charges imposed in connection with purchase of Class B or Class C shares. Investors not qualifying for reduced initial sales charges who expect to maintain their investment for an extended period of time also may elect to purchase Class A or Class D shares, because over time the accumulated ongoing account maintenance and distribution fees on Class B or Class C shares may exceed the initial sales charge and, in the case of Class D shares, the account maintenance fee. Although some investors who previously purchased Class A shares may no longer be eligible to purchase Class A shares of other Select Pricing Funds, those previously purchased Class A shares, together with Class B, Class C and Class D share holdings, will count toward a right of accumulation which may qualify the investor for a reduced initial sales charge on new initial sales charge purchases. In addition, the ongoing Class B and Class C account maintenance and distribution fees will cause Class B and Class C shares to have higher expense ratios, pay lower dividends and have lower total returns than the initial sales charge shares. The ongoing Class D account maintenance fees will cause Class D shares to have a higher expense ratio, pay lower dividends and have a lower total return than Class A shares.

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The term “purchase,” as used in the Prospectus and this Statement of Additional Information in connection with an investment in Class A and Class D shares of the Fund, refers to a single purchase by an individual or to concurrent purchases, which in the aggregate are at least equal to the prescribed amounts, by an individual, his or her spouse and their children under the age of 21 years purchasing shares for his, her or their own account and to single purchases by a trustee or other fiduciary purchasing shares for a single trust estate or single fiduciary account although more than one beneficiary is involved. The term “purchase” also includes purchases by any “company,” as that term is defined in the Investment Company Act, but does not include purchases by any such company that has not been in existence for at least six months or which has no purpose other than the purchase of shares of the Fund or shares of other registered investment companies at a discount; provided, however, that it shall not include purchases by any group of individuals whose sole organizational nexus is that the participants therein are credit cardholders of a company, policyholders of an insurance company, customers of either a bank or broker-dealer or clients of an investment adviser.

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Eligible Class A Investors . Class A shares are offered to a limited group of investors and also will be issued upon reinvestment of dividends on outstanding Class A shares. Investors who currently own Class A shares in a shareholder account are entitled to purchase additional Class A shares of the Fund in that account. Certain employer-sponsored retirement plans, including eligible 401(k) plans, may purchase Class A shares at net asset value provided such purchases are made through eligible Merrill Lynch Group Employee Services (“GES”) accounts. In addition, Class A shares are offered at net asset value to ML & Co. and its subsidiaries and their directors and employees, to members of the Boards of Merrill Lynch and MLIM/FAM-Advised investment companies including the Fund, and to employees of certain selected dealers. Certain persons who acquired shares of certain MLIM/FAM-Advised closed-end funds in their initial offerings who wish to reinvest the net proceeds from a sale of their closed-end fund shares of common stock in shares of the Fund also may purchase Class A shares of the Fund if certain conditions are met. In addition, Class A shares of the Fund and certain other Select Pricing Funds are offered at net asset value to shareholders of Merrill Lynch Senior Floating Rate Fund, Inc. and, if certain conditions are met, to shareholders of Merrill Lynch Municipal Strategy Fund, Inc. and Merrill Lynch High Income Municipal Bond Fund, Inc. who wish to reinvest the net proceeds from a sale of certain of their shares of common stock pursuant to a tender offer conducted by such funds in shares of the Fund and certain other Select Pricing Funds.

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Class A and Class D Sales Charge Information

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	Class A Shares
	Gross Sales Charges Collected		Sales Charges Retained by Distributor		Sales Charges Paid to Merrill Lynch		CDSCs Received on Redemption of Load-Waived Shares
Fo r the Period March 3, 2000* to November 30, 2000		$ 14,800		$ 833		$ 10,542		$ 0

	Class D Shares
	Gross Sales Charges Collected		Sales Charges Retained by Distributor		Sales Charges Paid to Merrill Lynch		CDSCs Received on Redemption of Load-Waived Shares
Fo r the Period March 3, 2000* to November 30, 2000		$6,641,097		$131,213		$6,509,884		$37,301

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<R>

Commencement of operations.

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<R>

The Distributor may reallow discounts to selected securities dealers and other financial intermediaries and retain the balance over such discounts. At times the Distributor may reallow the entire sales charge to such dealers. Since securities dealers and other financial intermediaries selling Class A and Class D shares of the Fund will receive a concession equal to most of the sales charge, they may be deemed to be underwriters under the Securities Act.

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Reduced Initial Sales Charges

Reductions in or exemptions from the imposition of a sales load are due to the nature of the investors and/or the reduced sales efforts that will be needed to obtain such investments.

Reinvested Dividends. No initial sales charges are imposed upon Class A and Class D shares issued as a result of the automatic reinvestment of dividends.

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Rights of Accumulation. Reduced sales charges are applicable through a right of accumulation under which eligible investors are permitted to purchase shares of the Fund subject to an initial sales charge at the offering price applicable to the total of (a) the public offering price of the shares then being purchased plus (b) an amount equal to the then current net asset value or cost, whichever is higher, of the purchaser’s combined holdings of all classes of shares of the Fund and of any other Select Pricing Funds. For any such right of accumulation to be made available, the Distributor must be provided at the time of purchase, by the purchaser or the purchaser’s securities dealer or other financial intermediary, with sufficient information to permit confirmation of qualification. Acceptance of the purchase order is subject to such confirmation. The right of accumulation may be amended or terminated at any time. Shares held in the name of a nominee or custodian under pension, profit-sharing or other employee benefit plans may not be combined with other shares to qualify for the right of accumulation.

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Letter of Intent. Reduced sales charges are applicable to purchases aggregating $25,000 or more of Class A or Class D shares of the Fund or any other Merrill Lynch mutual funds made within a 13-month period starting with the first purchase pursuant to the Letter of Intent. The Letter of Intent is available only to investors whose accounts are established and maintained at the Fund’s Transfer Agent. The Letter of Intent is not available to employee benefit plans for which affiliates of the Manager provide plan participant record-keeping services. The Letter of Intent is not a binding obligation to purchase any amount of Class A or Class D shares; however, its execution will result in the purchaser paying a lower sales charge at the appropriate quantity purchase level. A purchase not originally made pursuant to a Letter of Intent may be included under a subsequent Letter of Intent executed within 90 days of such purchase if the Distributor is informed in writing of this intent within such 90-day period. The value of Class A and Class D shares of the Fund and other Select Pricing Funds presently held, at cost or maximum offering price (whichever is higher), on the date of the first purchase under the Letter of Intent, may be included as a credit toward the completion of such Letter, but the reduced sales charge applicable to the amount covered by such Letter will be applied only to new purchases. If the total amount of shares does not equal the amount stated in the Letter of Intent (minimum of $25,000), the investor will be notified and must pay, within 20 days of the execution of such Letter, the difference between the sales charge on the Class A or Class D shares purchased at the reduced rate and the sales charge applicable to the shares actually purchased through the Letter. Class A or Class B shares equal to at least 5.0% of the intended amount will be held in escrow during the 13-month period (while remaining registered in the name of the purchaser) for this purpose. The first purchase under the Letter of Intent must be at least 5.0% of the dollar amount of such Letter. If a purchase during the term of such Letter would otherwise be subject to a further reduced sales charge based on the right of accumulation, the purchaser will be entitled on that purchase and subsequent purchases to that further reduced percentage sales charge but there will be no retroactive reduction of the sales charge on any previous purchase.

The value of any shares redeemed or otherwise disposed of by the purchaser prior to termination or completion of the Letter of Intent will be deducted from the total purchases made under such Letter. An exchange from the Summit Cash Reserves Fund into the Fund that creates a sales charge will count toward completing a new or existing Letter of Intent from the Fund.

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Purchase Privileges of Certain Persons . Directors of the Fund, Trustees of the Trust, members of the Boards of other MLIM/FAM-Advised investment companies, ML & Co. and its subsidiaries (the term “subsidiaries,” when used herein with respect to ML & Co., includes the Manager, MLIM and certain other entities directly or indirectly wholly owned and controlled by ML & Co.) and their directors and employees and any trust, pension, profit-sharing or other benefit plan for such persons, may purchase Class A shares of the Fund at net asset value. The Fund realizes economies of scale and reduction of sales-related expenses by virtue of the familiarity of these persons with the Fund. Employees and directors or trustees wishing to purchase shares of the Fund must satisfy the Fund’s suitability standards.

Class D shares of the Fund are offered at net asset value, without a sales charge, to an investor that has a business relationship with a Financial Consultant who joined Merrill Lynch from another investment firm within six months prior to the date of purchase by such investor, if the following conditions are satisfied: first, the investor must advise Merrill Lynch that it will purchase Class D shares of the Fund with proceeds from a redemption of shares of a mutual fund that was sponsored by the Financial Consultant’s previous firm and was subject to a sales charge either at the time of purchase or on a deferred basis; and second, the investor must establish that such redemption had been made within 60 days prior to the investment in the Fund and the proceeds from the redemption had been maintained in the interim in cash or a money market fund.

Class D shares of the Fund are also offered at net asset value, without a sales charge, to an investor that has a business relationship with a Merrill Lynch Financial Consultant and that has invested in a mutual fund sponsored by a non-Merrill Lynch company for which Merrill Lynch has served as a selected dealer and where Merrill Lynch has either received or given notice that such arrangement will be terminated (“notice”) if the following conditions are satisfied: first, the investor must purchase Class D shares of the Fund with proceeds from a redemption of shares of such other mutual fund and the shares of such other fund were subject to a sales charge either at the time of purchase or on a deferred basis; and, second, such purchase of Class D shares must be made within 90 days after such notice.

Class D shares of the Fund are offered at net asset value, without a sales charge, to an investor that has a business relationship with a Merrill Lynch Financial Consultant and that has invested in a mutual fund for which Merrill Lynch has not served as a selected dealer if the following conditions are satisfied: first, the investor must advise Merrill Lynch that it will purchase Class D shares of the Fund with proceeds from the redemption of shares of such other mutual fund and that such shares have been outstanding for a period of no less than six months; and, second, such purchase of Class D shares must be made within 60 days after the redemption and the proceeds from the redemption must be maintained in the interim in cash or a money market fund.

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Acquisition of Certain Investment Companies. Class D shares may be offered at net asset value in connection with the acquisition of the assets of or merger or consolidation with a personal holding company or a public or private investment company.

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Purchases Through Certain Financial Intermediaries. Reduced sales charges may be applicable for purchases of Class A or Class D shares of the Fund through certain financial advisers, selected securities dealers and other financial intermediaries that meet and adhere to standards established by the Manager from time to time.

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Deferred Sales Charge — Class B and Class C Shares

Investors choosing the deferred sales charge alternatives should consider Class B shares if they intend to hold their shares for an extended period of time and Class C shares if they are uncertain as to the length of time they intend to hold their assets in Select Pricing Funds.

Because no initial sales charges are deducted at the time of the purchase, Class B and Class C shares provide the benefit of putting all of the investor’s dollars to work from the time the investment is made. The deferred sales charge alternatives may be particularly appealing to investors that do not qualify for the reduction in initial sales charges. Both Class B and Class C shares are subject to ongoing account maintenance fees and distribution fees; however, the ongoing account maintenance and distribution fees potentially may be offset to the extent any return is realized on the additional funds initially invested in Class B or Class C shares. In addition, Class B shares will be converted into Class D shares of the Fund after a conversion period of approximately eight years, and thereafter investors will be subject to lower ongoing fees.

The public offering price of Class B and Class C shares for investors choosing the deferred sales charge alternatives is the next determined net asset value per share without the imposition of a sales charge at the time of purchase. See “Pricing of Shares — Determination of Net Asset Value” below.

Contingent Deferred Sales Charges — Class B Shares . Class B shares that are redeemed within four years of purchase may be subject to a CDSC at the rates set forth below charged as a percentage of the dollar amount subject thereto. In determining whether a CDSC is applicable to a redemption, the calculation will be determined in the manner that results in the lowest applicable rate being charged. The charge will be assessed on an amount equal to the lesser of the proceeds of redemption or the cost of the shares being redeemed. Accordingly, no CDSC will be imposed on increases in net asset value above the initial purchase price. In addition, no CDSC will be assessed on shares derived from reinvestment of dividends. It will be assumed that the redemption is first of shares held for over four years or shares acquired pursuant to reinvestment of dividends and then of shares held longest during the four-year period. A transfer of shares from a shareholder’s account to another account will be assumed to be made in the same order as a redemption.

The following table sets forth the Class B CDSC:

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Year Since Purchase Payment Made	CDSC as a Percentage of Dollar Amount Subject to Charge
0-1		4.0%
1-2		3.0%
2-3		2.0%
3-4		1.0%
4 a nd thereafter		None

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To provide an example, assume an investor purchased 100 shares at $10 per share (at a cost of $1,000) and in the third year after purchase, the net asset value per share is $12 and, during such time, the investor has acquired 10 additional shares upon dividend reinvestment. If at such time the investor makes his or her first redemption of 50 shares (proceeds of $600), 10 shares will not be subject to a CDSC because of dividend reinvestment. With respect to the remaining 40 shares, the charge is applied only to the original cost of $10 per share and not to the increase in net asset value of $2 per share. Therefore, $400 of the $600 redemption proceeds will be charged at a rate of 2.0% (the applicable rate in the third year after purchase).

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The Class B CDSC may be waived on redemptions of shares in connection with certain post-retirement withdrawals from an Individual Retirement Account (“IRA”) or other retirement plan or following the death or disability (as defined in the Internal Revenue Code of 1986, as amended) of a shareholder (including one who owns the Class B shares as joint tenant with his or her spouse), provided the redemption is requested within one year of the death or initial determination of disability, or if later, reasonably promptly following completion of probate. The Class B CDSC also may be waived on redemption of shares by certain eligible 401(a) and 401(k) plans through eligible GES accounts. The CDSC may also be waived for any Class B shares that are purchased by eligible 401(k) or eligible 401(a) plans that are rolled over into a Merrill Lynch or Merrill Lynch Trust Company custodied IRA and held in such account at the time of redemption. The Class B CDSC also may be waived for any Class B shares that are purchased by a Merrill Lynch rollover IRA that was funded by a rollover from a terminated 401(k) plan managed by the MLIM Private Portfolio Group and held in such account at the time of redemption. The Class B CDSC also may be waived in connection with involuntary termination of an account in which Fund shares are held or for withdrawals through the Merrill Lynch Systematic Withdrawal Plan. See “Shareholder Services — Fee-Based Programs” and “— Systematic Withdrawal Plan.”

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Employer-Sponsored Retirement or Savings Plans and Certain Other Arrangements Through GES. Through GES, certain employer-sponsored retirement or savings plans and certain other arrangements may purchase Class B shares with a waiver of the CDSC upon redemption, based on the number of employees or number of employees eligible to participate in the plan, the aggregate amount invested by the plan in specified investments and/or the services provided by Merrill Lynch to the plan. Such Class B shares will convert into Class D shares approximately ten years after the plan purchases the first share of any Select Pricing fund. Minimum purchase requirements may be waived or varied for such plans.

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Conversion of Class B Shares to Class D Shares. After approximately eight years (the “Conversion Period”), Class B shares will be converted automatically into Class D shares of the Fund. Class D shares are subject to an ongoing account maintenance fee of 0.25% of the average daily net assets but are not subject to the distribution fee that is borne by Class B shares. Automatic conversion of Class B shares into Class D shares will occur at least once each month (on the “Conversion Date”) on the basis of the relative net asset value of the shares of the two classes on the Conversion Date, without the imposition of any sales load, fee or other charge. Conversion of Class B shares to Class D shares will not be deemed a purchase or sale of the shares for Federal income tax purposes.

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In addition, shares purchased through reinvestment of dividends on Class B shares also will convert automatically to Class D shares. The Conversion Date for dividend reinvestment shares will be calculated taking into account the length of time the shares underlying such dividend reinvestment shares were outstanding. If at the Conversion Date the conversion of Class B shares to Class D shares of the Fund in a single account will result in less than $50 worth of Class B shares being left in the account, all of the Class B shares of the Fund held in the account on the Conversion Date will be converted to Class D shares of the Fund.

In general, Class B shares of equity Select Pricing Funds will convert approximately eight years after initial purchase and Class B shares of taxable and tax-exempt fixed income Select Pricing Funds will convert approximately ten years after initial purchase. If, during the Conversion Period, a shareholder exchanges Class B shares with an eight-year Conversion Period for Class B shares with a ten-year Conversion Period, or vice versa, the Conversion Period applicable to the Class B shares acquired in the exchange will apply and the holding period for the shares exchanged will be tacked on to the holding period for the shares acquired. The Conversion Period also may be modified for investors that participate in certain fee-based programs. See “Shareholder Services — Fee-Based Programs.”

Class B shareholders of the Fund exercising the exchange privilege described under “Shareholder Services — Exchange Privilege” will continue to be subject to the Fund’s CDSC schedule if such schedule is higher than the CDSC schedule relating to the Class B shares acquired as a result of the exchange.

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Share certificates for Class B shares of the Fund to be converted must be delivered to the Transfer Agent at least one week prior to the Conversion Date applicable to those shares. In the event such certificates are not received by the Transfer Agent at least one week prior to the Conversion Date, the related Class B shares will convert to Class D shares on the next scheduled Conversion Date after such certificates are delivered.

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Contingent Deferred Sales Charges — Class C Shares. Class C shares that are redeemed within one year of purchase may be subject to a 1.0% CDSC charged as a percentage of the dollar amount subject thereto. In determining whether a Class C CDSC is applicable to a redemption, the calculation will be determined in the manner that results in the lowest possible rate being charged. The charge will be assessed on an amount equal to the lesser of the proceeds of redemption or the cost of the shares being redeemed. Accordingly, no Class C CDSC will be imposed on increases in net asset value above the initial purchase price. In addition, no Class C CDSC will be assessed on shares derived from reinvestment of dividends. It will be assumed that the redemption is first of shares held for over one year or shares acquired pursuant to reinvestment of dividends and then of shares held longest during the one-year period. A transfer of shares from a shareholder’s account to another account will be assumed to be made in the same order as a redemption. The Class C CDSC may be reduced or waived in connection with involuntary termination of an account in which Fund shares are held and withdrawals through the Merrill Lynch Systematic Withdrawal Plans. See “Shareholder Services — Systematic Withdrawal Plan.”

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Class B and Class C Sales Charge Information

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	Class B Shares
	CDSCs Received by Distributor	CDSCs Paid to Merrill Lynch
Fo r the period March 3, 2000 (commencement of operations) to November 30, 2000	$1,104,457		$1,104,457

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	Class C Shares
	CDSCs Received by Distributor		CDSCs Paid to Merrill Lynch
Fo r the period March 3, 2000 (commencement of operations) to November 30, 2000		$333,277		$333,277

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Merrill Lynch compensates its Financial Consultants for selling Class B and Class C shares at the time of purchase from its own funds. Proceeds from the CDSC and the distribution fee are paid to the Distributor and are used in whole or in part by the Distributor to defray the expenses of dealers or other financial intermediaries (including Merrill Lynch) related to providing distribution-related services to the Fund in connection with the sale of the Class B and Class C shares, such as the payment of compensation to financial consultants for selling Class B and Class C shares from the dealer’s own funds. The combination of the CDSC and the ongoing distribution fee facilitates the ability of the Fund to sell the Class B and Class C shares without a sales charge being deducted at the time of purchase. See “Distribution Plans” below. Imposition of the CDSC and the distribution fee on Class B and Class C shares is limited by the National Association of Securities Dealers, Inc. (the “NASD”) asset-based sales charge rule. See “Limitations on the Payment of Deferred Sales Charges” below.

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Closed-End Fund Reinvestment Options

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Class A shares of the Fund (“Eligible Class A Shares”) are offered at net asset value to holders of the common stock of certain closed-end funds advised by the Manager or MLIM who purchased such closed-end fund shares prior to October 21, 1994 (the date the Merrill Lynch Select Pricing ^SM System commenced operations) and wish to reinvest the net proceeds from a sale of such shares in Eligible Class A Shares, if the conditions set forth below are satisfied. Alternatively, holders of the common stock of closed-end funds who purchased such shares on or after October 21, 1994 and wish to reinvest the net proceeds from a sale of those shares may purchase Class A shares (if eligible to buy Class A shares) or Class D shares of the Fund (“Eligible Class D Shares”) at net asset value if the following conditions are met. First, the sale of closed-end fund shares must be made through Merrill Lynch, and the net proceeds therefrom must be immediately reinvested in Eligible Class A or Eligible Class D Shares. Second, the closed-end fund shares must either have been acquired in that fund’s initial public offering or represent dividends from shares of common stock acquired in such offering. Third, the closed-end fund shares must have been continuously maintained in a Merrill Lynch securities account. Fourth, there must be a minimum purchase of $250 to be eligible for the reinvestment option.

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Subject to the conditions set forth below, shares of the Fund are offered at net asset value to holders of the common stock of certain MLIM/FAM-advised continuously offered closed-end funds who wish to reinvest the net proceeds from a sale of such shares. Upon exercise of this reinvestment option, shareholders of Merrill Lynch Senior Floating Rate Fund, Inc. will receive Class A shares of the Fund, shareholders of Merrill Lynch Senior Floating Rate Fund II, Inc. will receive Class C shares of the Fund and shareholders of Merrill Lynch Municipal Strategy Fund, Inc. and Merrill Lynch High Income Municipal Bond Fund, Inc. will receive Class D shares of the Fund, except that shareholders of Merrill Lynch Municipal Strategy Fund, Inc. and Merrill Lynch High Income Municipal Bond Fund, Inc. who already own Class A shares of the Fund may be eligible to purchase additional Class A shares pursuant to this option, if such additional Class A shares will be held in the same account as the existing Class A shares and the other requirements pertaining to the reinvestment privilege are met. In order to exercise this reinvestment option, a shareholder of one of the above-referenced continuously offered closed-end funds (an “eligible fund”) must sell his or her shares of common stock of the eligible fund (the “eligible shares”) back to the eligible fund in connection with a tender offer conducted by the eligible fund and reinvest the proceeds immediately in the designated class of shares of the Fund. This option is available only with respect to eligible shares as to which no Early Withdrawal Charge or CDSC (each as defined in the eligible fund’s prospectus) is applicable. Purchase orders from eligible fund shareholders who wish to exercise this reinvestment option will be accepted only on the day that the related tender offer terminates and will be effected at the net asset value of the designated class of shares of the Fund on such day. The Class C CDSC may be waived upon redemption of Class C shares purchased by an investor pursuant to this closed-end fund reinvestment option. Such waiver is subject to the requirement that the investor has held the tendered shares for a minimum of one year and to such other conditions as are set forth in the prospectus for the related closed-end fund.

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Distribution Plans

Reference is made to “Fees and Expenses” in the Prospectus for certain information with respect to the separate distribution plans for Class B, Class C and Class D shares of the Fund pursuant to Rule 12b-1 under the Investment Company Act (each a “Distribution Plan”) with respect to the account maintenance and/or distribution fees paid by the Fund to the Distributor with respect to such classes.

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The Distribution Plan for each of the Class B, Class C and Class D shares provides that the Fund pays the Distributor an account maintenance fee relating to the shares of the relevant class, accrued daily and paid monthly, at the annual rate of 0.25% of the average daily net assets of the Fund attributable to shares of the relevant class in order to compensate the Distributor, Merrill Lynch, a selected securities dealer or other financial intermediary (pursuant to a sub-agreement) in connection with account maintenance activities with respect to Class B, Class C and Class D shares. Each of those classes has exclusive voting rights with respect to the Distribution Plan adopted with respect to such class pursuant to which account maintenance and/or distribution fees are paid (except that Class B shareholders may vote upon any material changes to expenses charged under the Class D Distribution Plan).

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The Distribution Plan for each of the Class B and Class C shares provides that the Fund also pays the Distributor a distribution fee relating to the shares of the relevant class, accrued daily and paid monthly, at the annual rate of 0.75% of the average daily net assets of the Fund attributable to the shares of the relevant class in order to compensate the Distributor, Merrill Lynch, a selected securities dealer or other financial intermediary (pursuant to a sub-agreement) for providing shareholder and distribution services and bearing certain distribution-related expenses of the Fund, including payments to financial consultants or other financial intermediaries for selling Class B and Class C shares of the Fund. The Distribution Plans relating to Class B and Class C shares are designed to permit an investor to purchase Class B and Class C shares through selected securities dealers or other financial intermediaries without the assessment of an initial sales charge and at the same time permit the dealer to compensate its financial consultants, selected securities dealers or other financial intermediaries in connection with the sale of the Class B and Class C shares. In this regard the purpose and function of the ongoing distribution fees and the CDSC are the same as those of the initial sales charge with respect to the Class A and Class D shares of the Fund in that the ongoing distribution fees and deferred sales charges provide for the financing of the distribution of the Fund’s Class B and Class C shares.

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The Fund’s Distribution Plans are subject to the provisions of Rule 12b-1 under the Investment Company Act. In their consideration of each Distribution Plan, the Directors must consider all factors they deem relevant, including information as to the benefits of the Distribution Plan to the Fund and the related class of shareholders. Each Distribution Plan further provides that, so long as the Distribution Plan remains in effect, the selection and nomination of non-interested Directors shall be committed to the discretion of the non-interested Directors then in office. In approving each Distribution Plan in accordance with Rule 12b-1, the non-interested Directors concluded that there is reasonable likelihood that each Distribution Plan will benefit the Fund and its related class of shareholders. Each Distribution Plan can be terminated at any time, without penalty, by the vote of a majority of the non-interested Directors or by the vote of the holders of a majority of the outstanding related class of voting securities of the Fund. A Distribution Plan cannot be amended to increase materially the amount to be spent by the Fund without the approval of the related class of shareholders and all material amendments are required to be approved by the vote of Directors, including a majority of the non-interested Directors who have no direct or indirect financial interest in the Distribution Plan, cast in person at a meeting called for that purpose. Rule 12b-1 further requires that the Fund preserve copies of the Distribution Plan and any report made pursuant to such plan for a period of not less than six years from the date of the Distribution Plan or such report, the first two years in an easily accessible place.

Among other things, each Distribution Plan provides that the Distributor shall provide and the Directors shall review quarterly reports of the disbursement of the account maintenance and/or distribution fees paid to the Distributor. Payments under the Distribution Plans are based on a percentage of average daily net assets attributable to the shares regardless of the amount of expenses incurred and, accordingly, distribution-related revenues from the Distribution Plans may be more or less than distribution-related expenses of the related class. Information with respect to the distribution-related revenues and expenses is presented to the Directors for their consideration in connection with their deliberations as to the continuance of the Class B and Class C Distribution Plans. This information is presented annually as of December 31 of each year, on a “ fully allocated accrual” basis and quarterly on a “direct expense and revenue /cash” basis. On the fully allocated accrual basis, revenues consist of the account maintenance fees, the distribution fees, the CDSCs and certain other related revenues, and expenses consist of financial consultant compensation, branch office and regional operation center selling and transaction processing expenses, advertising, sales promotion and marketing expenses, corporate overhead and interest expense. On the direct expense and revenue /cash basis, revenues consist of the account maintenance fees, the distribution fees and CDSCs and the expenses consist of financial consultant compensation.

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As of November 30, 2000, direct cash expenses for the period since the commencement of operations of Class B shares exceeded direct cash revenues by $6,799,803 (1.08% of Class B net assets at that date). For that same time period, direct cash revenues for the period since the commencement of operations of Class C shares exceeded direct cash expenses by $1,563,175 (.41% of Class C net assets at that date).

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For the period March 3, 2000 (commencement of operations) to November 30, 2000 the Fund paid the Distributor $5,503,266 pursuant to the Class B Distribution Plan (based on average daily net assets subject to such Class B Distribution Plan of approximately $735.8 million), all of which was paid to Merrill Lynch for providing account maintenance and distribution-related activities and services in connection with Class B shares. For the period March 3, 2000 (commencement of operations) to November 30, 2000, the Fund paid the Distributor $3,274,051 pursuant to the Class C Distribution Plan (based on average daily net assets subject to such Class C Distribution Plan of approximately $437.7 million), all of which was paid to Merrill Lynch for providing account maintenance and distribution-related activities and services in connection with Class C shares. For the period March 3, 2000 (commencement of operations) to November 30, 2000, the Fund paid the Distributor $279,945 pursuant to the Class D Distribution Plan (based on average daily net assets subject to such Class D Distribution Plan of approximately $149.7 million), all of which was paid to Merrill Lynch for providing account maintenance activities in connection with Class D shares.

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Limitations on the Payment of Deferred Sales Charges

The maximum sales charge rule in the Conduct Rules of the NASD imposes a limitation on certain asset-based sales charges such as the distribution fee and the CDSC borne by the Class B and Class C shares but not the account maintenance fee. The maximum sales charge rule is applied separately to each class. As applicable to the Fund, the maximum sales charge rule limits the aggregate of distribution fee payments and CDSCs payable by the Fund to (1) 6.25% of eligible gross sales of Class B shares and Class C shares, computed separately (defined to exclude shares issued pursuant to dividend reinvestments and exchanges), plus (2) interest on the unpaid balance for the respective class, computed separately, at the prime rate plus 1% (the unpaid balance being the maximum amount payable minus amounts received from the payment of the distribution fee and the CDSC). In connection with the Class B shares, the Distributor has voluntarily agreed to waive interest charges on the unpaid balance in excess of 0.50% of eligible gross sales. Consequently, the maximum amount payable to the Distributor (referred to as the “voluntary maximum”) in connection with the Class B shares is 6.75% of eligible gross sales. The Distributor retains the right to stop waiving the interest charges at any time. To the extent payments would exceed the voluntary maximum, the Fund will not make further payments of the distribution fee with respect to Class B shares and any CDSCs will be paid to the Fund rather than to the Distributor; however, the Fund will continue to make payments of the account maintenance fee. In certain circumstances the amount payable pursuant to the voluntary maximum may exceed the amount payable under the NASD formula. In such circumstance payment in excess of the amount payable under the NASD formula will not be made.

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The following table sets forth comparative information as of November 30, 2000 with respect to the Class B and Class C shares of the Fund indicating the maximum allowable payments that can be made under the NASD maximum sales charge rule and, with respect to the Class B shares, the Distributor’s voluntary maximum.

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	Data Calculated as of November 30, 2000
	(in thousands)
	Eligible Gross Sales(1)	Allowable Aggregate Sales Charge(2)		Allowable Interest On Unpaid Balance(3)		Maximum Amount Payable		Amounts Previously Paid to Distributor(4)		Aggregate Unpaid Balance		Annual Distribution Fee at Current Net Asset Level(5)
Cla ss B Shares for the period from March 3, 2000 (commencement of operations) to November 30, 2000
Un der NASD Rule as Adopted	$907,890		$57,826		$3,642		$61,468		$5,232		$56,236		$4,731
Un der Distributor’s Voluntary Waiver	$907,890		$57,826		$3,456		$61,283		$5,232		$56,051		$4,731

Cla ss C Shares, for the period from March 3, 2000 (commencement of operations) to November 30, 2000
Un der NASD Rule as Adopted	$604,447		$37,901		$2,336		$40,237		$2,789		$37,449		$2,837

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(1)

Purchase price of all eligible Class B or Class C shares sold during the period indicated other than shares acquired through dividend reinvestment and the exchange privilege.

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(2)

Includes amounts attributable to exchanges from Summit Cash Reserves Fund (“Summit”) that are not reflected in Eligible Gross Sales. Shares of Summit can only be purchased by exchange from another fund (the “redeemed fund”). Upon such an exchange, the maximum allowable sales charge payment to the redeemed fund is reduced in accordance with the amount of the redemption. This amount is then added to the maximum allowable sales charge payment with respect to Summit. Upon an exchange out of Summit, the remaining balance of this amount is deducted from the maximum allowable sales charge payment to Summit and added to the maximum allowable sales charge payment to the fund into which the exchange is made.

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(3)

Interest is computed on a monthly basis based upon the prime rate, as reported in The Wall Street Journal , plus 1.0%, as permitted under the NASD Rule.

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(4)

Consists of CDSC payments, distribution fee payments and accruals. This figure may include CDSCs that were deferred when a shareholder redeemed shares prior to the expiration of the applicable CDSC period and invested the proceeds, without the imposition of a sales charge, in Class A shares in conjunction with the shareholder’s participation in the Merrill Lynch Mutual Fund Advisor (Merrill Lynch MFA ^SM ) Program (“MFA Program”). The CDSC is booked as a contingent obligation that may be payable if the shareholder terminates participation in the MFA Program.

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(5)

Provided to illustrate the extent to which the current level of distribution fee payments (not including any CDSC payments) is amortizing the unpaid balance. No assurance can be given that payments of the distribution fee will reach either the voluntary maximum (with respect to Class B shares) or the NASD maximum (with respect to Class B and Class C shares).

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REDEMPTION OF SHARES

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Reference is made to “How to Buy, Sell, Transfer and Exchange Shares” in the Prospectus.

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The Fund is required to redeem for cash all shares of the Fund upon receipt of a written request in proper form. The redemption price is the net asset value per share next determined after the initial receipt of proper notice of redemption. Except for any CDSC that may be applicable, there will be no charge for redemption if the redemption request is sent directly to the Transfer Agent. Shareholders liquidating their holdings will receive upon redemption all dividends reinvested through the date of redemption.

The right to redeem shares or to receive payment with respect to any such redemption may be suspended for more than seven days only for any period during which trading on the NYSE is restricted as determined by the Commission or during which the NYSE is closed (other than customary weekend and holiday closings), for any period during which an emergency exists, as defined by the Commission, as a result of which disposal of portfolio securities or determination of the net asset value of the Fund is not reasonably practicable, and for such other periods as the Commission may by order permit for the protection of shareholders of the Fund.

The value of shares of the Fund at the time of redemption may be more or less than the shareholder’s cost, depending in part on the market value of the securities held by the Trust at such time.

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The Trust has entered into a joint committed line of credit with other investment companies advised by the Manager and its affiliates and a syndicate of banks that is intended to provide the Trust and the Fund with a temporary source of cash to be used to meet redemption requests from shareholders in extraordinary or emergency circumstances.

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Redemption

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A shareholder wishing to redeem shares held with the Transfer Agent may do so without charge by tendering the shares directly to the Fund’s Transfer Agent, Financial Data Services, Inc., P.O. Box 45289, Jacksonville, Florida 32232-5289. Redemption requests delivered other than by mail should be delivered to Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484. Proper notice of redemption in the case of shares deposited with the Transfer Agent may be accomplished by a written letter requesting redemption. Proper notice of redemption in the case of shares for which certificates have been issued may be accomplished by a written letter as noted accompanied by certificates for the shares to be redeemed. Redemption requests should not be sent to the Trust or the Fund. A redemption request in either event requires the signature(s) of all persons in whose name(s) the shares are registered, signed exactly as such name(s) appear(s) on the Transfer Agent’s register. The signature(s) on the redemption request may require a guarantee by an “eligible guarantor institution” as defined in Rule 17Ad-15 under the Securities Exchange Act of 1934 (the “Exchange Act”), the existence and validity of which may be verified by the Transfer Agent through the use of industry publications. In the event a signature guarantee is required, notarized signatures are not sufficient. In general, signature guarantees are waived on redemptions of less than $50,000 as long as the following requirements are met: (i) all requests require the signature(s) of all persons in whose name(s) shares are recorded on the Transfer Agent’s register; (ii) all checks must be mailed to the stencil address of record on the Transfer Agent’s register and (iii) the stencil address must not have changed within 30 days. Certain rules may apply regarding certain account types such as but not limited to UGMA/UTMA accounts, Joint Tenancies With Rights of Survivorship, contra broker transactions and institutional accounts. In certain instances, the Transfer Agent may require additional documents such as, but not limited to, trust instruments, death certificates, appointments as executor or administrator, or certificates of corporate authority.

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A shareholder may also redeem shares held with the Transfer Agent by telephone request. To request a redemption from your account, call the Transfer Agent at 1-800-MER-FUND. The request must be made by the shareholder of record and be for an amount less than $50,000. Before telephone requests will be honored, signature approval from all shareholders of record on the account must be obtained. The shares being redeemed must have been held for at least 15 days. Telephone redemption requests will not be honored in the following situations: the accountholder is deceased, the proceeds are to be sent to someone other than the shareholder of record, funds are to be wired to the client’s bank account, a systematic withdrawal plan is in effect, the request is by an individual other than the accountholder of record, the account is held by joint tenants who are divorced, the address on the account has changed within the last 30 days or share certificates have been issued on the account.

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Since this account feature involves a risk of loss from unauthorized or fraudulent transactions, the Transfer Agent will take certain precautions to protect your account from fraud. Telephone redemption may be refused if the caller is unable to provide: the account number, the name and address registered on the account and the social security number registered on the account. The Funds or the Transfer Agent may temporarily suspend telephone transactions at any time.

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For shareholders redeeming directly with the Transfer Agent, payments will be mailed within seven days of receipt of the proper notice of redemption. At various times the Fund may be requested to redeem shares for which it has not yet received good payment (e.g., cash, Federal funds or certified check drawn on a U.S. bank). The Fund may delay or cause to be delayed the mailing of a redemption check until such time as good payment (e.g., cash, Federal funds or certified check drawn on a U.S. bank) has been collected for the purchase of such Fund shares, which will usually not exceed 10 days. In the event that a shareholder account held directly with the Transfer Agent contains a fractional share balance, such fractional share balance will be automatically redeemed by the Fund.

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Repurchase

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The Fund also will repurchase its shares through a shareholder’s listed selected securities dealer or other financial intermediary. The Fund normally will accept orders to repurchase shares by wire or telephone from dealers for their customers at the net asset value next computed after the order is placed. Shares will be priced at the net asset value calculated on the day the request is received, provided that the request for repurchase is submitted to the selected securities dealer or other financial intermediary prior to the regular close of business on the NYSE (generally, the NYSE closes at 4:00 p.m., Eastern time) and such request is received by the Fund from such selected securities dealer or other financial intermediary not later than 30 minutes after the close of business on the NYSE on the same day. Dealers have the responsibility of submitting such repurchase requests to the Funds not later than 30 minutes after the close of business on the NYSE in order to obtain that day’s closing price.

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The foregoing repurchase arrangements are for the convenience of shareholders and do not involve a charge by the Fund (other than any applicable CDSC). Securities firms that do not have selected dealer agreements with the Distributor, however, may impose a transaction charge on the shareholder for transmitting the notice of repurchase to the Fund. Merrill Lynch, selected securities dealers or other financial intermediaries may charge customers a processing fee (Merrill Lynch currently charges $5.35) to confirm a repurchase of shares to such customers. Repurchases made directly through the Transfer Agent, on accounts held at the Transfer Agent, are not subject to the processing fee. The Fund reserves the right to reject any order for repurchase, which right of rejection might adversely affect shareholders seeking redemption through the repurchase procedure. A shareholder whose order for repurchase is rejected by the Fund, however, may redeem shares as set forth above.

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Reinstatement Privilege — Class A and Class D Shares

Shareholders of the Fund who have redeemed their Class A or Class D shares have a privilege to reinstate their accounts by purchasing Class A or Class D shares, as the case may be, of the Fund at net asset value without a sales charge up to the dollar amount redeemed. The reinstatement privilege may be exercised by sending a notice of exercise along with a check for the amount to be reinstated to the Transfer Agent within 30 days after the date the request for redemption was accepted by the Transfer Agent or the Distributor. Alternatively, the reinstatement privilege may be exercised through the investor’s Merrill Lynch Financial Consultant within 30 days after the date the request for redemption was accepted by the Transfer Agent or the Distributor. The reinstatement will be made at the net asset value per share next determined after the notice of reinstatement is received and cannot exceed the amount of the redemption proceeds.

PRICING OF SHARES

Determination of Net Asset Value

Reference is made to “How Shares are Priced” in the Prospectus.

The net asset value of the shares of all classes of the Fund 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. 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 principal asset of the Fund will normally be its interest in the underlying Trust. The value of that interest is based on the net assets of the Trust, which are comprised of 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 of the Trust). Expenses of the Trust, including the investment advisory fees, are accrued daily. Net asset value of the Fund is the Fund’s proportionate interest in the net assets of the Trust plus any cash or other assets minus all liabilities (including accrued expenses) of the Fund divided by the total number of shares outstanding of the Fund at such time, rounded to the nearest cent. Expenses, including fees payable to the Administrator and Distributor, are accrued daily.

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The per share net asset value of Class B, Class C and Class D shares generally will be lower than the per share net asset value of Class A shares, reflecting the daily expense accruals of the account maintenance, distribution and higher transfer agency fees applicable with respect to Class B and Class C shares, and the daily expense accruals of the account maintenance fees applicable with respect to Class D shares. Moreover, the per share net asset value of the Class B and Class C shares generally will be lower than the per share net asset value of Class D shares reflecting the daily expense accruals of the distribution fees and higher transfer agency fees applicable with respect to Class B and Class C shares of the Fund. It is expected, however, that the per share net asset value of the four classes of the Fund will tend to converge (although not necessarily meet) immediately after the payment of dividends, which will differ by approximately the amount of the expense accrual differentials between the classes.

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Securities that are held by the Trust 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 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.

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Generally, trading in foreign 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 the Fund’s shares 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 Fund’s net asset value.

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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 (including the Fund’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 that investor’s share of the aggregate interests in the Trust. The close of business on the NYSE is generally 4:00 p.m., Eastern time. 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.

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Computation of Offering Price Per Share

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An illustration of the computation of the offering price for Class A, Class B, Class C and Class D shares of the Fund based on the value of the Fund’s net assets and number of shares outstanding on November 30, 2000 is set forth below.

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	Class A	Class B	Class C	Class D
Ne t Assets	$55,305,816	$631,826,412	$378,948,295	$120,310,220

Nu mber of Shares Outstanding	8,867,491	102,087,075	61,236,069	19,326,673

Ne t Asset Value Per Share (net assets divided by number of shares outstanding)	$ 6.24	$ 6.19	$ 6.19	$ 6.23
Sal es Charge (for Class A and Class D shares: 5.25% of offering price; 5.54% of net asset value per share)*	.35	**	**	.35

Of fering Price	$ 6.59	$ 6.19	$ 6.19	$ 6.58

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Rounded to the nearest one-hundredth percent; assumes maximum sales charge is applicable.

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Class B and Class C shares are not subject to an initial sales charge but may be subject to a CDSC on redemption of shares. See “Purchase of Shares — Deferred Sales Charge — Class B and Class C Shares” herein.

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PORTFOLIO TRANSACTIONS AND BROKERAGE

Transactions in Portfolio Securities

Because the Fund will invest exclusively in beneficial interests in the Trust, it is expected that all transactions in portfolio securities will be entered into by the Trust. Subject to policies established by the Board of Trustees of the Trust, the Manager is primarily responsible for the execution of the Trust’s portfolio transactions and the allocation of brokerage. The Trust has no obligation to deal with any broker or group of brokers in the execution of transactions in portfolio securities and does not use any particular broker or dealer. In executing transactions with brokers and dealers, the Manager seeks to obtain the best net results for the Trust, taking into account such factors as price (including the applicable brokerage commission or dealer spread), size of order, difficulty of execution and operational facilities of the firm and the firm’s risk in positioning a block of securities. While the Manager generally seeks reasonably competitive commission rates, the Trust does not necessarily pay the lowest spread or commission available. In addition, consistent with the Conduct Rules of the NASD and policies established by the Board of Trustees of the Trust, the Manager may consider sales of shares of the Fund as a factor in the selection of brokers or dealers to execute portfolio transactions for the Trust; however, whether or not a particular broker or dealer sells shares of the Fund neither qualifies nor disqualifies such broker or dealer to execute transactions for the Trust.

Subject to obtaining the best net results, brokers who provide supplemental investment research to the Manager may receive orders for transactions by the Trust. Such supplemental research services ordinarily consist of assessments and analyses of the business or prospects of a company, industry or economic sector. Information so received will be in addition to and not in lieu of the services required to be performed by the Manager under the Management Agreement, and the expenses of the Manager will not necessarily be reduced as a result of the receipt of such supplemental information. If in the judgment of the Manager the Trust will benefit from supplemental research services, the Manager is authorized to pay brokerage commissions to a broker furnishing such services that are in excess of commission that another broker may have charged for effecting the same transactions. Certain supplemental research services may primarily benefit one or more other investment companies or other accounts for which the Manager exercises investment discretion. Conversely, the Trust may be the primary beneficiary of the supplemental research services received as a result of portfolio transactions effected for such other accounts or investment companies.

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The Trust anticipates that its brokerage transactions involving securities of issuers domiciled in countries other than the United States generally will be conducted primarily on the principal stock exchanges of such countries. Brokerage commissions and other transaction costs on foreign stock exchange transactions generally are higher than in the United States, although the Trust will endeavor to achieve the best net results in effecting its portfolio transactions. There generally is less governmental supervision and regulation of foreign stock exchanges and brokers than in the United States. The Trust’s ability and decisions to purchase or sell portfolio securities of foreign issuers may be affected by laws or regulations relating to the convertibility and repatriation of assets.

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Foreign equity securities may be held by the Trust in the form of ADRs, EDRs or other securities convertible into foreign equity securities. ADRs and EDRs may be listed on stock exchanges, or traded in over-the-counter markets in the United States or Europe, as the case may be. ADRs, like other securities traded in the United States, will be subject to negotiated commission rates. Because the shares of the Fund are redeemable on a daily basis in U.S. dollars, the Trust intends to manage its portfolio so as to give reasonable assurance that it will be able to obtain U.S. dollars to the extent necessary to meet anticipated redemptions. Under present conditions, it is not believed that these considerations will have significant effect on the Trust’s portfolio strategies.

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Information about the brokerage commissions paid by the Trust, including commissions paid to Merrill Lynch, is set forth in the following table:

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		Aggregate Brokerage Commissions Paid				Commissions Paid to Merrill Lynch
Ma rch 3, 2000 (commencement of operations) to November 30, 2000			$704,268				$192,006

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For the period ended November 30, 2000 the brokerage commission paid to Merrill Lynch represented 27.26% of the aggregate brokerage commission paid and involved 43.98% of the Trust’s dollar amount of transactions involving payment of commissions.

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The Fund may invest in certain securities traded in the OTC market and intends to deal directly with the dealers who make a market in securities involved, except in those circumstances in which better prices and execution are available elsewhere. Under the Investment Company Act, persons affiliated with the Trust and persons who are affiliated with such affiliated persons are prohibited from dealing with the Trust as principal in the purchase and sale of securities unless a permissive order allowing such transactions is obtained from the Commission. Since transactions in the OTC market usually involve transactions with the dealers acting as principal for their own accounts, the Trust will not deal with affiliated persons, including Merrill Lynch and its affiliates, in connection with such transactions. However, an affiliated person of the Trust may serve as its broker in OTC transactions conducted on an agency basis provided that, among other things, the fee or commission received by such affiliated broker is reasonable and fair compared to the fee or commission received by non-affiliated brokers in connection with comparable transactions. In addition, the Trust may not purchase securities during the existence of any underwriting syndicate for such securities of which Merrill Lynch is a member or in a private placement in which Merrill Lynch serves as placement agent except pursuant to procedures approved by the Board of Trustees of the Trust that either comply with rules adopted by the Commission or with interpretations of the Commission staff. See “Investment Objective and Policies — Investment Restrictions.”

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Section 11(a) of the Exchange Act generally prohibits members of the U.S. national securities exchanges from executing exchange transactions for their affiliates and institutional accounts that they manage unless the member (i) has obtained prior express authorization from the account to effect such transactions, (ii) at least annually furnishes the account with a statement setting forth the aggregate compensation received by the member in effecting such transactions, and (iii) complies with any rules the Commission has prescribed with respect to the requirements of clauses (i) and (ii). To the extent Section 11(a) would apply to Merrill Lynch acting as a broker for the Trust in any of its portfolio transactions executed on any such securities exchange of which it is a member, appropriate consents have been obtained from the Trust and annual statements as to aggregate compensation will be provided to the Trust. Securities may be held by, or be appropriate investments for, the Trust as well as other funds or investment advisory clients of the Manager or its affiliates.

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The Board of Trustees of the Trust has considered the possibility of seeking to recapture for the benefit of the Trust brokerage commissions and other expenses of possible portfolio transactions by conducting portfolio transactions through affiliated entities. For example, brokerage commissions received by affiliated brokers could be offset against the advisory fee paid by the Trust to the Manager. After considering all factors deemed relevant, the Board of Trustees of the Trust made a determination not to seek such recapture. The Board of Trustees of the Trust will reconsider this matter from time to time.

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Because of different objectives or other factors, a particular security may be bought for one or more clients of the Manager or its affiliates when one or more clients of the Manager or its affiliates are selling the same security. If purchases or sales of securities arise for consideration at or about the same time that would involve the Trust or other clients or funds for which the Manager or an affiliate act as investment adviser, transactions in such securities will be made, insofar as feasible, for the respective funds and clients in a manner deemed equitable to all. To the extent that transactions on behalf of more than one client of the Manager or its affiliates during the same period may increase the demand for securities being purchased or the supply of securities being sold, there may be an adverse effect on price.

SHAREHOLDER SERVICES

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The Fund offers a number of shareholder services described below that are designed to facilitate investment in its shares. Full details as to each such service and copies of the various plans or how to change options with respect thereto, can be obtained from the Fund, by calling the telephone number on the cover page hereof, or from the Distributor, Merrill Lynch, a selected securities dealer or other financial intermediary. Certain of these services are available only to U.S. investors.

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Investment Account

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Each shareholder whose account is maintained at the Transfer Agent has an Investment Account and will receive statements, at least quarterly, from the Transfer Agent. These statements will serve as transaction confirmations for automatic investment purchases and the reinvestment of dividends. The statements also will show any other activity in the account since the preceding statement. Shareholders also will receive separate confirmations for each purchase or sale transaction other than automatic investment purchases and the reinvestment of dividends. A shareholder with an account held at the Transfer Agent may make additions to his or her Investment Account at any time by mailing a check directly to the Transfer Agent. A shareholder may also maintain an account through Merrill Lynch, a selected securities dealer or other financial intermediary. Upon the transfer of shares out of a Merrill Lynch brokerage account or an account maintained with a selected securities dealer or other financial intermediary, an Investment Account in the transferring shareholder’s name may be opened automatically at the Transfer Agent.

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Share certificates are issued only for full shares and only upon the specific request of a shareholder who has an Investment Account. Issuance of certificates representing all or only part of the full shares in an Investment Account may be requested by a shareholder directly from the Transfer Agent.

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Shareholders may transfer their Fund shares from Merrill Lynch, a selected securities dealer or other financial intermediary to another securities dealer or other financial intermediary that has entered into an agreement with the Distributor. Certain shareholder services may not be available for the transferred shares. After the transfer, the shareholder may purchase additional shares of funds owned before the transfer and all future trading of these assets must be coordinated by the new firm. If a shareholder wishes to transfer his or her shares to a securities dealer or other financial intermediary that has not entered into an agreement with the Distributor, the shareholder must either (i) redeem his or her shares, paying any applicable CDSC or (ii) continue to maintain an Investment Account at the Transfer Agent for those shares. The shareholder also may request the new securities dealer or other financial intermediary to maintain the shares in an account at the Transfer Agent registered in the name of the securities dealer or other financial intermediary for the benefit of the shareholder whether the securities dealer or other financial intermediary has entered into a selected dealer agreement or not.

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Shareholders considering transferring a tax-deferred retirement account such as an individual retirement account, from Merrill Lynch to another securities dealer or other financial intermediary should be aware that, if the firm to which the retirement account is to be transferred will not take delivery of shares of the Fund, a shareholder must either redeem the shares (paying any applicable CDSC) so that the cash proceeds can be transferred to the account at the new firm, or such shareholder must continue to maintain a retirement account at a selected dealer for those shares.

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Exchange Privilege

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U.S. shareholders of each class of shares of the Fund have an exchange privilege with certain other Select Pricing Funds and Summit Cash Reserves Fund (“Summit”), a series of Financial Institutions Series Trust, which is a Merrill Lynch-sponsored money market fund specifically designated as available for exchange by holders of Class A, Class B, Class C and Class D shares Select Pricing Funds. Shares with a net asset value of at least $100 are required to qualify for the exchange privilege, and any shares used in an exchange must have been held by the shareholder for at least 15 days. Before effecting an exchange, shareholders should obtain a currently effective prospectus of the fund into which the exchange is to be made. Exercise of the exchange privilege is treated as a sale of the exchanged shares and a purchase of the acquired shares for Federal income tax purposes.

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Exchanges of Class A and Class D Shares . Class A shareholders may exchange Class A shares of the Fund for Class A shares of a second Select Pricing Fund if the shareholder holds any Class A shares of the second fund in the account in which the exchange is made at the time of the exchange or is otherwise eligible to purchase Class A shares of the second fund. If the Class A shareholder wants to exchange Class A shares for shares of a second Select Pricing Fund, but does not hold Class A shares of the second fund in his or her account at the time of exchange and is not otherwise eligible to acquire Class A shares of the second fund, the shareholder will receive Class D shares of the second fund as a result of the exchange. Class D shares also may be exchanged for Class A shares of a second Select Pricing Fund at any time as long as, at the time of the exchange, the shareholder holds Class A shares of the second fund in the account in which the exchange is made or is otherwise eligible to purchase Class A shares of the second fund. Class D shares are exchangeable with shares of the same class of other Select Pricing Funds.

Exchanges of Class A or Class D shares outstanding (“outstanding Class A or Class D shares”) for Class A or Class D shares of another Select Pricing Fund, or for Class A shares of Summit (“new Class A or Class D shares”) are transacted on the basis of relative net asset value per Class A or Class D share, respectively, plus an amount equal to the difference, if any, between the sales charge previously paid on the outstanding Class A or Class D shares and the sales charge payable at the time of the exchange on the new Class A or Class D shares. With respect to outstanding Class A or Class D shares as to which previous exchanges have taken place, the “sales charge previously paid” shall include the aggregate of the sales charges paid with respect to such Class A or Class D shares in the initial purchase and any subsequent exchange. Class A or Class D shares issued pursuant to dividend reinvestment are sold on a no-load basis in each of the funds offering Class A or Class D shares. For purposes of the exchange privilege, Class A and Class D shares acquired through dividend reinvestment shall be deemed to have been sold with a sales charge equal to the sales charge previously paid on the Class A or Class D shares on which the dividend was paid. Based on this formula, Class A and Class D shares of the Fund generally may be exchanged into the Class A or Class D shares, respectively, of the other funds with a reduced sales charge or without a sales charge.

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Exchanges of Class B and Class C Shares . Certain Select Pricing Funds with Class B and Class C shares outstanding (“outstanding Class B or Class C shares”) offer to exchange their Class B or Class C shares for Class B or Class C shares, respectively, of certain other Select Pricing Funds or for Class B shares of Summit (“ new Class B or Class C shares”) on the basis of relative net asset value per Class B or Class C share, without the payment of any CDSC that might otherwise be due on redemption of the outstanding shares. Class B shareholders of the Fund exercising the exchange privilege will continue to be subject to the Fund’s CDSC schedule if such schedule is higher than the CDSC schedule relating to the new Class B shares acquired through use of the exchange privilege. In addition, Class B shares of the Fund acquired through use of the exchange privilege will be subject to the Fund’s CDSC schedule if such schedule is higher than the CDSC schedule relating to the Class B shares of the fund from which the exchange was made. For purposes of computing the CDSC that may be payable on a disposition of the new Class B or Class C shares, the holding period for the outstanding Class B shares is “tacked” to the holding period of the new Class B shares or Class C shares. For example, an investor may exchange Class B shares of the Fund for those of Merrill Lynch Small Cap Value Fund, Inc. (“Small Cap Value Fund”) after having held the Fund’s Class B shares for two-and-a-half years. The 2% CDSC that generally would apply to a redemption would not apply to the exchange. Three years later the investor may decide to redeem the Class B shares of Small Cap Value Fund and receive cash. There will be no CDSC due on this redemption since by “tacking” the two-and-a-half year holding period of the Fund Class B shares to the three year holding period for the Small Cap Value Fund Class B shares, the investor will be deemed to have held Small Cap Value Fund Class B shares for more than five years.

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Exchanges for Shares of a Money Market Fund . Class A and Class D shares are exchangeable for Class A shares of Summit and Class B and Class C shares are exchangeable for Class B shares of Summit. Class A shares of Summit have an exchange privilege back into Class A or Class D shares of Select Pricing Funds; Class B shares of Summit have an exchange privilege back into Class B or Class C shares of Select Pricing Funds and, in the event of such an exchange, the period of time that Class B shares of Summit are held will count toward satisfaction of the holding period requirement for purposes of reducing any CDSC and toward satisfaction of any Conversion Period with respect to Class B shares. Class B shares of Summit will be subject to a distribution fee at an annual rate of 0.75% of average daily net assets of such Class B shares. Please see your Merrill Lynch Financial Consultant for further information.

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Prior to October 12, 1998, exchanges from Select Pricing Funds into a money market fund were directed to certain Merrill Lynch-sponsored money market funds other than Summit. Shareholders who exchanged Select Pricing Funds shares for such other money market funds and subsequently wish to exchange those money market fund shares for shares of the Fund will be subject to the CDSC schedule applicable to such Fund shares, if any. The holding period for those money market fund shares will not count toward satisfaction of the holding period requirement for reduction of the CDSC imposed on such shares, if any, and, with respect to Class B shares, toward satisfaction of the Conversion Period. However, the holding period for Class B or Class C shares of the Fund received in exchange for such money market fund shares will be aggregated with the holding period for the fund shares originally exchanged for such money market fund shares for purposes of reducing the CDSC or satisfying the Conversion Period.

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Exercise of the Exchange Privilege . To exercise the exchange privilege, a shareholder should contact his or her Merrill Lynch Financial Consultant, who will advise the Fund of the exchange. Shareholders of the Fund, and shareholders of the other Select Pricing Funds with shares for which certificates have not been issued, may exercise the exchange privilege by wire through their securities dealer or other financial intermediary. The Fund reserves the right to require a properly completed Exchange Application.

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Telephone exchange requests are also available in accounts held with the Transfer Agent for amounts up to $50,000. To request an exchange from your account, call the Transfer Agent at 1-800-MER-FUND. The request must be from the shareholder of record. Before telephone requests will be honored, signature approval from all shareholders of record must be obtained. The shares being exchanged must have been held for at least 15 days. Telephone requests for an exchange will not be honored in the following situations: the accountholder is deceased, the request is by an individual other than the accountholder of record, the account is held by joint tenants who are divorced or the address on the account has changed within the last 30 days. Telephone exchanges may be refused if the caller is unable to provide: the account number, the name and address registered on the account and the social security number registered on the account. The Fund or the Transfer Agent may temporarily suspend telephone transactions at any time.

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This exchange privilege may be modified or terminated in accordance with the rules of the Commission. The Fund reserves the right to limit the number of times an investor may exercise the exchange privilege. Certain funds may suspend the continuous offering of their shares to the general public at any time and may thereafter resume such offering from time to time. The exchange privilege is available only to U.S. shareholders in states where the exchange legally may be made. It is contemplated that the exchange privilege may be applicable to other new mutual funds whose shares may be distributed by the Distributor.

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Retirement and Education Savings Plans

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Individual retirement accounts and other retirement and education savings plans are available from Merrill Lynch. Under these plans, investments may be made in a Fund and certain of the other mutual funds sponsored by Merrill Lynch as well as in other securities. There may be fees associated with investing through these plans. Merrill Lynch may charge an initial establishment fee and an annual fee for each account. Information with respect to these plans is available on request from Merrill Lynch.

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Dividends received in each of the plans referred to above are exempt from Federal taxation until distributed from the plans. Different tax rules apply to Roth IRA plans and education savings plans. Investors consider participation in any retirement or education savings plan should review specific tax laws relating thereto and should consult their attorneys or tax advisers with respect to the establishment and maintenance of any such plan.

Automatic Investment Plans

A shareholder may make additions to an Investment Account at any time by purchasing Class A shares (if he or she is an eligible Class A investor) or Class B, Class C or Class D shares at the applicable public offering price. These purchases may be made either through the shareholder’s securities dealer or by mail directly to the Transfer Agent, acting as agent for such securities dealer. Voluntary accumulation also can be made through a service known as the Fund’s Automatic Investment Plan. Under the Automatic Investment Plan, the Fund would be authorized, on a regular basis, to provide systematic additions to the Investment Account of such shareholder through charges of $50 or more to the regular bank account of the shareholder by either pre-authorized checks or automated clearing house debits. Alternatively, an investor that maintains a CMA ^® or CBA ^® Account may arrange to have periodic investments made in the Fund in amounts of $100 ($1 or more for retirement accounts) or more through the CMA ^® or CBA ^® Automated Investment Program.

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Automatic Dividend Reinvestment Plan

Unless specific instructions are given as to the method of payment, dividends will be automatically reinvested, without sales charge, in additional full and fractional shares of the Fund. Such reinvestment will be at the net asset value of shares of the Fund as determined after the close of business on the NYSE on the monthly payment date for such dividends. No CDSC will be imposed upon redemption of shares issued as a result of the automatic reinvestment of dividends.

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Shareholders may, at any time, elect to have subsequent dividends of ordinary income and/or capital gains paid in cash, rather than reinvested in shares of the Fund (provided that, in the event that a payment on an account maintained at the Transfer Agent would amount to $10.00 or less, a shareholder will not receive such payment in cash and such payment will automatically be reinvested in additional shares). If the shareholder’s account is maintained with the Transfer Agent, he or she may contact the Transfer Agent in writing or by telephone (1-800-MER-FUND). For other accounts, the shareholder should contact his or her Merrill Lynch Financial Consultant, selected securities dealer or other financial intermediary. Commencing ten days after the receipt by the Transfer Agent of such notice, those instructions will be effected. The Fund is not responsible for any failure of delivery to the shareholder’s address of record and no interest will accrue on amounts represented by uncashed dividend checks. Cash payments can also be directly deposited to the shareholder’s bank account.

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Systematic Withdrawal Plans

A shareholder may elect to receive systematic withdrawals from his or her Investment Account by check or through automatic payment by direct deposit to his or her bank account on either a monthly or quarterly basis as provided below. Quarterly withdrawals are available for shareholders who have acquired shares of the Fund having a value, based on cost or the current offering price, of $5,000 or more, and monthly withdrawals are available for shareholders with shares having a value of $10,000 or more.

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At the time of each withdrawal payment, sufficient shares are redeemed from those on deposit in the shareholder’s account to provide the withdrawal payment specified by the shareholder. The shareholder may specify the dollar amount and class of shares to be redeemed. Redemptions will be made at net asset value as determined after the close of business on the NYSE (generally, the NYSE closes at 4:00 p.m., Eastern time) on the 24th day of each month or the 24th day of the last month of each quarter, whichever is applicable. If the NYSE is not open for business on such date, the shares will be redeemed at the net asset value determined at the close of business on the following business day. The check for the withdrawal payment will be mailed, or the direct deposit will be made on the next business day following redemption. When a shareholder is making systematic withdrawals, dividends and distributions on all shares in the Investment Account are reinvested automatically in Fund shares. A shareholder’s Systematic Withdrawal Plan may be terminated at any time, without a charge or penalty, by the shareholder, the Fund, the Transfer Agent or the Distributor.

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With respect to redemptions of Class B and Class C shares pursuant to a systematic withdrawal plan, the maximum number of Class B or Class C shares that can be redeemed from an account annually shall not exceed 10% of the value of shares of such class in that account at the time the election to join the systematic withdrawal plan was made. Any CDSC that otherwise might be due on such redemption of Class B or Class C shares will be waived. Shares redeemed pursuant to a systematic withdrawal plan will be redeemed in the same order as Class B or Class C shares are otherwise redeemed. See “Purchase of Shares — Deferred Sales Charge Alternatives — Class B and Class C Shares.” Where the systematic withdrawal plan is applied to Class B shares, upon conversion of the last Class B shares in an account to Class D shares, a shareholder must make a new election to join the systematic withdrawal program with respect to the Class D shares. If an investor wishes to change the amount being withdrawn in a systematic withdrawal plan, the investor should contact his or her Merrill Lynch Financial Consultant.

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Withdrawal payments should not be considered as dividends. Each withdrawal is a taxable event. If periodic withdrawals continuously exceed reinvested dividends, the shareholder’s original investment may be reduced correspondingly. Purchases of additional shares concurrent with withdrawals are ordinarily disadvantageous to the shareholder because of sales charges and tax liabilities. The Fund will not knowingly accept purchase orders for shares of the Fund from investors who maintain a systematic withdrawal plan unless such purchase is equal to at least one year’s scheduled withdrawals or $1,200, whichever is greater. Periodic investments may not be made into an Investment Account in which the shareholder has elected to make systematic withdrawals.

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Alternatively, a shareholder whose shares are held within a CMA ^® , CBA ^® or Retirement Account may elect to have shares redeemed on a monthly, bimonthly, quarterly, semiannual or annual basis through the CMA ^® or CBA ^® Systematic Redemption Program. The minimum fixed dollar amount redeemable is $50. The proceeds of systematic redemptions will be posted to the shareholder’s account three business days after the date the shares are redeemed. All redemptions are made at net asset value. A shareholder may elect to have his or her shares redeemed on the first, second, third or fourth Monday of each month, in the case of monthly redemptions, or of every other month, in the case of bimonthly redemptions. For quarterly, semiannual or annual redemptions, the shareholder may select the month in which the shares are to be redeemed and may designate whether the redemption is to be made on the first, second, third or fourth Monday of the month. If the Monday selected is not a business day, the redemption will be processed at net asset value on the next business day. The CMA ^® or CBA ^® Systematic Redemption Program is not available if Fund shares are being purchased within the account pursuant to the Automated Investment Program. For more information on the CMA ^® or CBA ^® Systematic Redemption Program, eligible shareholders should contact their Merrill Lynch Financial Consultant.

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DIVIDENDS AND TAXES

Dividends

The Fund intends to distribute substantially all of its net investment income, if any. Dividends from such net investment income will be paid at least annually. All net realized capital gains, if any, will be distributed to the Fund’s shareholders at least annually. From time to time, the Fund may declare a special distribution at or about the end of the calendar year in order to comply with Federal tax requirements that certain percentages of its ordinary income and capital gains be distributed during the year. If in any fiscal year, the Fund have net income from certain foreign currency transactions, such income will be distributed at least annually.

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See “Shareholder Services — Automatic Dividend Reinvestment Plan” for information concerning the manner in which dividends may be reinvested automatically in shares of the Fund. A shareholder may also elect in writing to receive any such dividends in cash. Dividends are taxable to shareholders, as discussed below, whether they are reinvested in shares of the Fund or received in cash. The per share dividends on Class B and Class C shares will be lower than the per share dividends on Class A and Class D shares as a result of the account maintenance, distribution and higher transfer agency fees applicable with respect to the Class B and Class C shares; similarly, the per share dividends on Class D shares will be lower than the per share dividends on Class A shares as a result of the account maintenance fees applicable with respect to the Class D shares. See “Pricing of Share — Determination of Net Asset Value.”

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Taxes

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The Fund intends to continue to qualify for the special tax treatment afforded regulated investment companies (“RICs”) under the Internal Revenue Code of 1986, as amended (the “Code”). As long as the Fund so qualifies, the Fund (but not its shareholders) will not be subject to Federal income tax on the part of its net ordinary income and net realized capital gains that it distributes to Class A, Class B, Class C and Class D shareholders (together, the “shareholders”). The Fund intends to distribute substantially all of such income.

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The Code requires a RIC to pay a nondeductible 4% excise tax to the extent the RIC does not distribute, during each calendar year, 98% of its ordinary income, determined on a calendar year basis, and 98% of its capital gains, determined, in general on a October 31 year end, plus certain undistributed amounts from previous years. While the Fund intends to distribute its income and capital gains in the manner necessary to minimize imposition of the 4% excise tax, there can be no assurance that sufficient amounts of the Fund’s taxable income and capital gains will be distributed to avoid entirely the imposition of the tax. In such event, the Fund will be liable for the tax only on the amount by which it does not meet the foregoing distribution requirements.

Dividends paid by the Fund from its ordinary income or from an excess of net short term capital gains over net long term capital losses (together referred to hereafter as “ordinary income dividends”) are taxable to shareholders as ordinary income. Distributions made from an excess of net long term capital gains over net short term capital losses (including gains or losses from certain transactions in warrants, futures and options) (“capital gain dividends”) are taxable to shareholders as long term capital gains, regardless of the length of time the shareholder has owned Fund shares. Any loss upon the sale or exchange of Fund shares held for six months or less will be treated as long term capital loss to the extent of any capital gain dividends received by the shareholder. Distributions in excess of the Fund’s earnings and profits will first reduce the adjusted tax basis of a holder’s shares and, after such adjusted tax basis is reduced to zero, will constitute capital gains to such holder (assuming the shares are held as a capital asset). Certain categories of capital gains are taxable at different rates. Generally not later than 60 days after the close of its taxable year, the Fund will provide its shareholders with a written notice designating the amount of any capital gain dividends as well as any amount of capital gain dividends in the different categories of capital gain referred to above.

Dividends are taxable to shareholders even though they are reinvested in additional shares of the Fund. A portion of the Fund’s ordinary income dividends may be eligible for the dividends received deduction allowed to corporations under the Code, if certain requirements are met. For this purpose, the Fund will allocate dividends eligible for the dividends received deduction among the Class A, Class B, Class C and Class D shareholders according to a method (which it believes is consistent with the Commission rule permitting the issuance and sale of multiple classes of stock) that is based on the gross income allocable to Class A, Class B, Class C and Class D shareholders during the taxable year, or such other method as the Internal Revenue Service may prescribe. If the Fund pays a dividend in January that was declared in the previous October, November or December to shareholders of record on a specified date in one of such months, then such dividend will be treated for tax purposes as being paid by the Fund and received by its shareholders on December 31 of the year in which such dividend was declared.

No gain or loss will be recognized by Class B shareholders on the conversion of their Class B shares into Class D shares. A shareholder’s basis in the Class D shares acquired will be the same as such shareholder’s basis in the Class B shares converted, and the holding period of the acquired Class D shares will include the holding period for the converted Class B shares.

If a shareholder exercises an exchange privilege within 90 days of acquiring the shares, then the loss the shareholder can recognize on the exchange will be reduced (or the gain increased) to the extent any sales charge paid on the exchanged shares reduces any sales charge the shareholder would have owed upon the purchase of the new shares in the absence of the exchange privilege. Instead, such sales charge will be treated as an amount paid for the new shares.

A loss realized on a sale or exchange of shares of the Fund will be disallowed if such shares are acquired (whether through the automatic reinvestment of dividends or otherwise) within a 61-day period beginning 30 days before and ending 30 days after the date that the shares are disposed of. In such a case, the basis of the shares acquired will be adjusted to reflect the disallowed loss.

Ordinary income dividends paid to shareholders who are non-resident aliens or foreign entities will be subject to a 30% U.S. withholding tax under existing provisions of the Code applicable to foreign individuals and entities unless a reduced rate of withholding or a withholding exemption is provided under applicable treaty law. Nonresident shareholders are urged to consult their own tax advisers concerning the applicability of the United States withholding tax.

Under certain provisions of the Code, some shareholders may be subject to a 31% withholding tax on ordinary income dividends, capital gain dividends and redemption payments (“backup withholding”). Generally, shareholders subject to backup withholding will be those for whom no certified taxpayer identification number is on file with the Fund or who, to the Fund’s knowledge, have furnished an incorrect number. When establishing an account, an investor must certify under penalty of perjury that such number is correct and that such investor is not otherwise subject to backup withholding.

Dividends and interest received by the Fund may give rise to withholding and other taxes imposed by foreign countries. Tax conventions between certain countries and the U.S. may reduce or eliminate such taxes.

Tax Treatment of Options, Futures and Forward Foreign Exchange Transactions

The Fund may write, purchase or sell options, futures and forward foreign exchange contracts. Options and futures contracts that are “Section 1256 contracts” will be “marked to market” for Federal income tax purposes at the end of each taxable year, i.e. , each such option or futures contract will be treated as sold for its fair market value on the last day of the taxable year. Unless such contract is a forward foreign exchange contract, or is a non-equity option or a regulated futures contract for a non-U.S. currency for which the Fund elects to have gain or loss treated as ordinary gain or loss under Code Section 988 (as described below), gain or loss from Section 1256 contracts will be 60% long-term and 40% short-term capital gain or loss. Application of these rules to Section 1256 contracts held by the Fund may alter the timing and character of distributions to shareholders. The mark-to-market rules outlined above, however, will not apply to certain transactions entered into by the Fund solely to reduce the risk of changes in price or interest or currency exchange rates with respect to its investments.

A forward foreign exchange contract that is a Section 1256 contract will be marked to market, as described above. However, the character of gain or loss from such a contract will generally be ordinary under Code Section 988. In certain instances, the Fund may, nonetheless, elect to treat the gain or loss from certain forward foreign exchange contracts as capital. In this case, gain or loss realized in connection with a forward foreign exchange contract that is a Section 1256 contract will be characterized as 60% long-term and 40% short-term capital gain or loss.

Code Section 1092, which applies to certain “straddles,” may affect the taxation of the Fund’s sales of securities and transactions in options, futures and forward foreign exchange contracts. Under Section 1092, the Fund may be required to postpone recognition for tax purposes of losses incurred in certain sales of securities and certain closing transactions in options, futures and forward foreign exchange contracts.

Special Rules for Certain Foreign Currency Transactions

In general, gains from “foreign currencies” and from foreign currency options, foreign currency futures and forward foreign exchange contracts relating to investments in stocks, securities or foreign currencies will be qualifying income for purposes of determining whether the Fund qualifies as a RIC. It is currently unclear, however, who will be treated as the issuer of a foreign currency instrument or how foreign currency options, futures or forward foreign exchange contracts will be valued for purposes of the RIC diversification requirements applicable to the Fund.

Under Code Section 988, special rules are provided for certain transactions in a foreign currency other than the taxpayer’s functional currency ( i.e. , unless certain special rules apply, currencies other than the U.S. dollar). In general, foreign currency gains or losses from certain debt instruments, from certain forward contracts, from futures contracts that are not “regulated futures contracts” and from unlisted options will be treated as ordinary income or loss under Code Section 988. In certain circumstances, the Fund may elect capital gain or loss treatment for such transactions. Regulated futures contracts, as described above, will be taxed under Code Section 1256 unless application of Section 988 is elected by the Fund. In general, however, Code Section 988 gains or losses will increase or decrease the amount of the investment company taxable income of the Fund available to be distributed to shareholders as ordinary income. Additionally, if Code Section 988 losses exceed other investment company taxable income during a taxable year, the Fund would not be able to make any ordinary income dividend distributions, and all or a portion of distributions made before the losses were realized but in the same taxable year would be recharacterized as a return of capital to shareholders, thereby reducing the basis of each shareholder’s Fund shares and resulting in a capital gain for any shareholder who received a distribution greater than such shareholder’s basis in Fund shares (assuming the shares were held as a capital asset). These rules and the mark-to-market rules described above, however, will not apply to certain transactions entered into by the Fund solely to reduce the risk of currency fluctuations with respect to its investments.

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The foregoing is a general and abbreviated summary of the applicable provisions of the Code and Treasury regulations presently in effect. For the complete provisions, reference should be made to the pertinent Code sections and the Treasury regulations promulgated thereunder. The Code and the Treasury regulations are subject to change by legislative, judicial or administrative action either prospectively or retroactively.

Ordinary income and capital gain dividends may also be subject to state and local taxes.

Certain states exempt from state income taxation dividends paid by RICs that are derived from interest on U.S. Government obligations. State law varies as to whether dividend income attributable to U.S. Government obligations is exempt from state income tax.

Shareholders are urged to consult their tax advisers regarding specific questions as to Federal, foreign, state or local taxes. Foreign investors should consider applicable foreign taxes in their evaluation of an investment in the Fund.

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The Trust and the Fund have received a private letter ruling from the IRS to the effect that, because the Trust is classified as a partnership for tax purposes, the Fund will be entitled to look to the underlying assets of the Trust in which it has invested for purposes of satisfying various requirements of the Code applicable to RICs. If any of the facts upon which such ruling is premised change in any material respect (e.g., if the Trust were required to register its interests under the Securities Act), then the Board of Directors of the Fund will determine, in its discretion, the appropriate course of action for the Fund. One possible course of action would be to withdraw the Fund’s investments from the Trust and to retain an investment adviser to manage the Fund’s assets in accordance with the investment policies applicable to the Fund. See “ Investment Objective and Policies.”

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PERFORMANCE DATA

From time to time the Fund may include its average annual total return and other total return data in advertisements or information furnished to present or prospective shareholders. Total return is based on the Fund’s historical performance and is not intended to indicate future performance. Average annual total return is determined separately for Class A, Class B, Class C and Class D shares in accordance with a formula specified by the Commission.

Average annual total return quotations for the specified periods are computed by finding the average annual compounded rates of return (based on net investment income and any realized and unrealized capital gains or losses on portfolio investments over such periods) that would equate the initial amount invested to the redeemable value of such investment at the end of each period. Average annual total return is computed assuming all dividends and distributions are reinvested and taking into account all applicable recurring and nonrecurring expenses, including the maximum sales charge in the case of Class A and Class D shares and the CDSC that would be applicable to a complete redemption of the investment at the end of the specified period in the case of Class B and Class C shares.

Yield quotations will be computed based on a 30-day period by dividing (a) the net income based on the yield of each security earned during the period by (b) the average daily number of shares outstanding during the period that were entitled to receive dividends multiplied by the maximum offering price per share on the last day of the period.

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The Fund also may quote annual, average annual and annualized total return and aggregate total return performance data, both as a percentage and a dollar amount based on a hypothetical investment of $1,000 or some other amount, for various periods other than those noted below. Such data will be computed as described above, except that (1) as required by the periods of the quotations, actual annual, annualized or aggregate data, rather than average annual data, may be quoted and (2) the maximum applicable sales charges will not be included with respect to annual or annualized rates of return calculations. Aside from the impact on the performance data calculations of including or excluding the maximum applicable sales charges, actual annual or annualized total return data generally will be lower than average annual total return data since the average rates of return reflect compounding of return; aggregate total return data generally will be higher than average annual total return data since the aggregate rates of return reflect compounding over a longer period of time.

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Set forth in the table below is total return information for the Class A, Class B, Class C and Class D shares of the Fund for the period indicated.

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	Class A Shares	Class B Shares	Class C Shares	Class D Shares
Period	Expressed as a percentage based on a hypothetical $1,000 investment	Expressed as a percentage based on a hypothetical $1,000 investment	Expressed as a percentage based on a hypothetical $1,000 investment	Expressed as a percentage based on a hypothetical $1,000 investment
	Aggregate Total Return
	(including maximum applicable sales charges)
Inc eption (March 3, 2000) to November 30, 2000	(40.88)%	(40.57)%	(38.71)%	(40.97)%

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In order to reflect the reduced sales charges in the case of Class A or Class D shares or the waiver of the CDSC in the case of Class B or Class C shares applicable to certain investors, as described under “Purchase of Shares” and “Redemption of Shares,” respectively, the total return data quoted by the Fund in advertisements directed to such investors may take into account the reduced, and not the maximum, sales charge or may take into account the CDSC and therefore may reflect greater total return since, due to the reduced sales charges or the waiver of sales charges, a lower amount of expenses is deducted.

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On occasion, the Fund may compare its performance to, among other things, the Standard & Poor’s 500 Index, the Value Line Composite Index, the Dow Jones Industrial Average, or to other published indices, or to data contained in publications published by Lipper Analytical Services, Inc., Morningstar Publications, Inc. (“Morningstar”), or to data contained in publications such as Money Magazine , U.S. News & World Report , Business Week, Forbes Magazine, Fortune Magazine, CDA Investment Technology, Inc. or other industry publications. When comparing its performance to a market index, the Fund may refer to various statistical measures derived from the historic performance of the Fund and the index, such as standard deviation and beta. As with other performance data, performance comparisons should not be considered indicative of the Fund’s relative performance for any future period. In addition, from time to time the Fund may include the Fund’s Morningstar risk-adjusted performance ratings assigned by Morningstar in advertising or supplemental sales literature. From time to time the Fund may quote in advertisements or other materials other applicable measures of Fund performance and may also make reference to awards that may be given to the Manager. The Fund may provide information designed to help investors understand how the Fund is seeking to achieve its investment objectives. This may include information about past, current or possible economic, market, political or other conditions, descriptive information or general principles of investing such as asset allocation, diversification and risk tolerance, discussion of the Fund’s portfolio composition, investment philosophy, strategy or investment techniques, comparisons of the Fund’s performance or portfolio composition to that of other funds or types of investments, indices relevant to the comparison being made, or to a hypothetical or model portfolio. The Fund may also quote various measures of volatility and benchmark correlation in advertising and other materials, and may compare these measures to those of other funds or types of investments. As with other performance data, performance comparisons should not be considered indicative of the Fund’s relative performance for any future period.

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The Fund’s total return will vary depending on market conditions, the securities held by the Trust, the Trust’s operating expenses, the Fund’s operating expenses and the amount of realized and unrealized net capital gains or losses during the period. The value of an investment in the Fund will fluctuate and an investor’s shares, when redeemed, may be worth more or less than their original cost.

GENERAL INFORMATION

Description of Shares

The Fund is a “feeder” fund that invests in the Trust. Investors in the Fund will acquire an indirect interest in the Trust. The Trust may accept investments from other feeder funds, and all of the feeders of the Trust bear the Trust’s expenses in proportion to their assets. This structure may enable the Fund to reduce costs through economies of scale. A larger investment portfolio also may reduce certain transaction costs to the extent that contributions to and redemptions from the Trust from different feeders may offset each other and produce a lower net cash flow. However, each feeder can set its own transaction minimums, fund-specific expenses, and other conditions. This means that one feeder could offer access to the Trust on more attractive terms, or could experience better performance, than another feeder.

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The Fund was incorporated under Maryland law on October 25, 1999. As of the date of this Statement of Additional Information, it has an authorized capital of 700,000,000 shares of Common Stock, par value $0.10 per share, divided into four classes, designated Class A, Class B, Class C and Class D Common Stock, consisting of 100,000,000 shares of Class A Common Stock, 300,000,000 shares of Class B Common Stock, 200,000,000 shares of Class C Common Stock and 100,000,000 shares of Class D Common Stock.

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Shareholders are entitled to one vote for each full share held and fractional votes for fractional shares held in the election of Directors (to the extent hereinafter provided) and on other matters submitted to the vote of shareholders, except that shareholders of the class bearing distribution expenses as provided above shall have exclusive voting rights with respect to matters relating to such distribution expenditures (except that Class B shareholders may vote upon any material changes to expenses charged under the Class D Distribution Plan). Voting rights are not cumulative, so that the holders of more than 50% of the shares voting in the election of Directors can, if they choose to do so, elect all the Directors of the Fund, in which event the holders of the remaining shares would be unable to elect any person as a Director.

Whenever the Trust holds a vote of its feeder funds, the Fund will pass the vote through to its own shareholders. Smaller feeder funds may be harmed by the actions of larger feeder funds. For example, a larger feeder fund could have more voting power than the Fund over the operations of the Trust. The Fund may withdraw from the Trust at any time and may invest all of its assets in another pooled investment vehicle or retain an investment adviser to manage the Fund’s assets directly.

There normally will be no meeting of shareholders for the purpose of electing Directors unless and until such time as less than a majority of the Directors holding office have been elected by the shareholders, at which time the Directors then in office will call a shareholders’ meeting for the election of Directors. Shareholders may, in accordance with the terms of the Articles of Incorporation, cause a meeting of shareholders to be held for the purpose of voting on the removal of Directors. Also, the Fund will be required to call a special meeting of shareholders in accordance with the requirements of the Investment Company Act to seek approval of new management and advisory arrangements, of a material increase in account maintenance fees or of a change in fundamental policies, objectives or restrictions. Except as set forth above, the Directors shall continue to hold office and appoint successor Directors. Each issued and outstanding share is entitled to participate equally in dividends and distributions declared and in net assets upon liquidation or dissolution remaining after satisfaction of outstanding liabilities, except for any expenses which may be attributable to only one Class. Shares issued are fully-paid and non-assessable by the Fund. Voting rights for Directors are not cumulative.

The Trust is organized as a Delaware Business Trust. Whenever the Fund is requested to vote on any matter relating to the Trust, the Fund will hold a meeting of its shareholders and will cast its vote as instructed by the Fund’s shareholders.

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The Manager provided the initial capital for the Fund by purchasing 10,000 shares of common stock of the Fund for $100,000. Such shares were acquired for investment and can only be disposed of by redemption.

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Independent Auditors

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Deloitte & Touche LLP , Princeton Forrestal Village, l16-300 Village Boulevard, Princeton, New Jersey 08540-6400, has been selected as the independent auditors of the Trust and the Fund. The independent auditors are responsible for auditing the annual financial statements of the Fund and the Trust.

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Accounting Services Provider

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State Street Bank and Trust Company, 500 College Road East, Princeton, NJ 08540, provides certain accounting services for the Fund and the Trust.

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Custodian

The Bank of New York, 90 Washington Street, 12th Floor, New York, New York 10286 (the “Custodian”) acts as the custodian of the Trust’s assets and the Fund’s assets. Under its contracts with the Trust and the Fund, the Custodian is authorized to establish separate accounts in foreign currencies and to cause foreign securities owned by the Trust and the Fund to be held in its offices outside the United States and with certain foreign banks and securities depositories. The Custodian is responsible for safeguarding and controlling the Trust’s and the Fund’s cash and securities, handling the receipt and delivery of securities and collecting interest and dividends on the Trust’s and the Fund’s investments.

Transfer Agent

Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484, which is a wholly owned subsidiary of ML & Co., acts as the Fund’s Transfer Agent pursuant to a transfer agency, dividend disbursing agency and shareholder servicing agency agreement (the “Transfer Agency Agreement”). The Transfer Agent is responsible for the issuance, transfer and redemption of shares and the opening, maintenance and servicing of shareholder accounts.

Legal Counsel

Brown & Wood LLP , One World Trade Center, New York, New York 10048-0557, is counsel for the Trust and the Fund.

Reports to Shareholders

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The fiscal year of the Fund and the Trust ends on November 30 of each year. The Fund sends to its shareholders at least semi-annually reports showing information related to the Fund and the Trust and other information. An annual report, containing financial statements audited by independent auditors, is sent to shareholders each year. After the end of each year, shareholders will receive Federal income tax information regarding dividends.

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Shareholder Inquiries

Shareholder inquiries may be addressed to the Fund at the address or telephone number set forth on the cover page of this Statement of Additional Information.

Additional Information

The Prospectus and this Statement of Additional Information do not contain all the information set forth in the Registration Statement and the exhibits relating thereto, which the Fund has filed with the Commission, Washington, D.C., under the Securities Act and the Investment Company Act, to which reference is hereby made.

Under a separate agreement, ML & Co. has granted the Fund the right to use the “Merrill Lynch” name and has reserved the right to withdraw its consent to the use of such name by the Fund at any time or to grant the use of such name to any other company, and the Fund has granted ML & Co. under certain conditions, the use of any other name it might assume in the future, with respect to any corporation organized by ML & Co.

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To the knowledge of the Fund, the following persons or entities owned beneficially or of record 5% or more of any class of the Fund’s shares as of February 2, 2001.

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Name	Address	Percent of Class
Me rrill Lynch Trust Company Trustee FBO MLSIP Investment Account Attn: East Region	PO Box 30532 New Brunswick, NJ 08989	32.90% Class A

Me rrill Lynch Trust Company Trustee FBO MLRAP Plan Investment Account Attn: East Region	PO Box 30532 New Brunswick, NJ 08989	10.68% Class A

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FINANCIAL STATEMENTS

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The audited financial statements of the Fund and the Trust are incorporated in this Statement of Additional Information by reference to the Fund’s 2000 annual report to shareholders. You may request a copy of the annual report at no charge by calling (800) 637-3863 between 8:00 a.m. and 8:00 p.m. Eastern time on any business day.

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CO	DE #: 19081-03-01

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PART C. OTHER INFORMATION

Item 23. Exhibits.

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Exhibit Number
	1( a)	—A rticles of Incorporation.(a)
	( b)	—A rticles of Amendment to Articles of Incorporation, as amended on November 5, 1999.(b) ;
	( c)	—A rticles Supplementary to Articles of Incorporation, as amended on July 12, 2000.
	( d)	—A rticles Supplementary to Articles of Incorporation, as amended on December 22, 2000.
	2	—B y-Laws, as amended.(b)
	3	—P ortions of the Articles of Incorporation and By-Laws of the Registrant defining the rights of holders of shares of common stock of the Merrill Lynch Focus Twenty Fund, Inc. (the “Registrant”).(c)
	4	—N ot Applicable.
	5	—F orm of Unified Distribution Agreement between the Registrant and FAM Distributors, Inc. (the “Distributor”).(d)
	6	—N one.
	7	—C ustody Agreement between the Registrant and The Bank of NewYork.(e)
	8( a)	—F orm of Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing Agency Agreement between the Registrant and Financial Data Services, Inc.(e)
	( b)	—F orm of License Agreement relating to use of name between the Registrant and Merrill Lynch & Co.(e)
	( c)	—F orm of Administration Agreement between the Registrant and Fund Asset Management, L.P.
	( d)	—F orm of Administration Services Agreement between the Registrant and State Street Bank and Trust Company.
	9	—O pinion of Brown & Wood LLP , counsel for the Registrant.(e)
	10	—C onsent of Deloitte & Touche LLP , independent auditors for the Registrant.
	11	—N one.
	12	—C ertificate of Fund Asset Management, L.P.(e)
	13( a)	—F orm of Unified Class B Distribution Plan of the Registrant.(d)
	( b)	—F orm of Unified Class C Distribution Plan of the Registrant.(d)
	( c)	—F orm of Unified Class D Distribution Plan of the Registrant.(d)
	14	—M errill Lynch Selected Pricing ^SM System Plan pursuant to Rule 18f-3.(e)
	15	—C ode of Ethics.(f)

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(a)

Filed on October 27, 1999 as an Exhibit to the Registration Statement on Form N-1A (File No. 333-89775) under the Securities Act of 1933, as amended, of the Registrant (the “Registration Statement”).

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(b)

Filed on November 17, 1999 as an Exhibit to Pre-Effective Amendment No. 1 to the Registration Statement.

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(c)

Reference is made to Article II, Article IV, Article V (sections 2, 3, 4, 6, 7 and 8), Article VI, Article VII and Article IX of the Registrant’s Articles of Incorporation, filed as Exhibits 1(a) and 1(b), to the Registration Statement, and to Article II, Article III (sections 1, 3, 5, 6 and 17), Article VI, Article VII, Article XII, and Article XIV of the Registrant’s By-Laws filed as Exhibit (2) to the Registration Statement.

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(d)

Incorporated by reference to Exhibits 5 and 13 to the Registration Statement on Form N-1A of Merrill Lynch Mid Cap Growth Fund, Inc. (File No. 333-42020), filed on July 21, 2000.

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(e)

Filed on December 21, 1999 as an Exhibit to Pre-Effective Amendment No. 2 to the Registration Statement.

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(f)

Incorporated by reference to Exhibit 15 to Post Effective Amendment No. 9 to the Registration Statement on Form N-1A of Merrill Lynch Multi-State Limited Maturity Municipal Series Trust (File No. 33-50417) filed on November 22, 2000.

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Item 24. Persons Controlled by or under Common Control with Registrant.

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The Registrant is not controlled by or under common control of any other person.

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Item 25. Indemnification.

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Reference is made to Article VI of the Registrant’s Articles of Incorporation, Article VI of the Registrant’s By-Laws, Section 2-418 of the Maryland General Corporation Law and Section 9 of the Distribution Agreement.

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Insofar as the conditional advancing of indemnification moneys for actions based on the Investment Company Act of 1940, as amended (the “Investment Company Act”) may be concerned, Article VI of the Registrant’s By-Laws provides that such payments will be made only on the following conditions: (i) advances may be made only on receipt of a written affirmation of such person’s good faith belief that the standard of conduct necessary for indemnification has been met and a written undertaking to repay any such advance if it is ultimately determined that the standard of conduct has not been met; and (ii) (a) such promise must be secured by a security for the undertaking in form and amount acceptable to the Registrant, (b) the Registrant is insured against losses arising by reason of the advance, or (c) a majority of a quorum of the Registrant’s disinterested non-party Directors, or an independent legal counsel in a written opinion, shall determine, based upon a review of readily available facts, that at the time the advance is proposed to be made, there is reason to believe that the person seeking indemnification will ultimately be found to be entitled to indemnification.

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In Section 9 of the Distribution Agreement relating to the securities being offered hereby, the Registrant agrees to indemnify the Distributor and each person, if any, who controls the Distributor within the meaning of the Securities Act, against certain types of civil liabilities arising in connection with the Registration Statement or Prospectus and Statement of Additional Information.

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Insofar as indemnification for liabilities arising under the Securities Act may be permitted to Directors, officers and controlling persons of the Registrant and the principal underwriter pursuant to the foregoing provisions or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a Director, officer, or controlling person of the Registrant and the principal underwriter in connection with the successful defense of any action, suit or proceeding) is asserted by such Director, officer or controlling person or the principal underwriter in connection with the shares being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

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Item 26. Business and Other Connections of the Investment Adviser.

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Fund Asset Management, L.P. (the “Manager” or “FAM”) acts as the investment adviser for the following open-end registered investment companies: CBA Money Fund, CMA Government Securities Fund, CMA Money Fund, CMA Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The Corporate Fund Accumulation Program, Inc., Financial Institutions Series Trust, Master Basic Value Trust, Master Focus Twenty Trust, Master Internet Strategies Trust, Master Large Cap Series Trust, Master Mid Cap Growth Trust, Master Premier Growth Trust, Master Small Cap Value Trust, Master U.S. High Yield Trust, Mercury Global Holdings, Inc., Merrill Lynch Bond Fund, Inc., Merrill Lynch California Municipal Series Trust, Merrill Lynch Focus Value Fund, Inc., Merrill Lynch Funds for Institutions Series, Merrill Lynch Multi-State Limited Maturity Municipal Series Trust, Merrill Lynch Multi-State Municipal Series Trust, Merrill Lynch Municipal Bond Fund, Inc., Merrill Lynch U.S. Government Mortgage Fund, Merrill Lynch World Income Fund, Inc., The Asset Program, Inc. and The Municipal Fund Accumulation Program, Inc.; and for the following closed-end registered investment companies: Apex Municipal Fund, Inc., Corporate High Yield Fund, Inc., Corporate High Yield Fund II, Inc., Corporate High Yield Fund III, Inc., Debt Strategies Fund, Inc., Master Senior Floating Rate Trust, Merrill Lynch Municipal Strategy Fund, Inc., MuniAssets Fund, Inc., MuniEnhanced Fund, Inc., MuniHoldings Fund, Inc., MuniHoldings Fund II, Inc., MuniHoldings California Insured Fund, Inc., MuniHoldings Florida Insured Fund, MuniHoldings Insured Fund, Inc., MuniHoldings Insured Fund II, Inc., MuniHoldings Michigan Insured Fund II, Inc., MuniHoldings New Jersey Insured Fund, Inc., MuniHoldings New York Insured Fund, Inc., MuniInsured Fund, Inc., MuniVest Fund, Inc., MuniVest Fund II, Inc., MuniYield Arizona Fund, Inc., MuniYield California Fund, Inc., MuniYield California Insured Fund, Inc., MuniYield California Insured Fund II, Inc., MuniYield Florida Fund, MuniYield Florida Insured Fund, MuniYield Fund, Inc., MuniYield Insured Fund, Inc., MuniYield Michigan Fund, Inc., MuniYield Michigan Insured Fund, Inc., MuniYield New Jersey Fund, Inc., MuniYield New Jersey Insured Fund, Inc., MuniYield New York Insured Fund, Inc., MuniYield Pennsylvania Insured Fund, MuniYield Quality Fund, Inc., MuniYield Quality Fund II, Inc. and Senior High Income Portfolio, Inc.

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Merrill Lynch Investment Managers, L.P. (“MLIM”), acts as the investment adviser for the following open-end registered investment companies: Global Financial Services Master Trust, Merrill Lynch Balanced Capital Fund, Inc., Merrill Lynch Developing Capital Markets Fund, Inc., Merrill Lynch Disciplined Equity Fund, Inc., Merrill Lynch Dragon Fund, Inc., Merrill Lynch Emerging Markets Debt Fund, Inc., Merrill Lynch Equity Income 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 Small Cap Fund, Inc., Merrill Lynch Global Technology Fund, Inc., Merrill Lynch Global Value Fund, Inc., Merrill Lynch Growth Fund, Merrill Lynch Healthcare Fund, Inc., Merrill Lynch Index Fund, Inc., Merrill Lynch International Equity Fund, Merrill Lynch Latin America Fund, Inc., Merrill Lynch Municipal Series Trust, Merrill Lynch Natural Resources 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 Short Term U.S. Government Fund, Inc., Merrill Lynch U.S. Treasury Money Fund, Merrill Lynch U.S.A. Government Reserves, Merrill Lynch Utilities and Telecommunications Fund, Inc., Merrill Lynch Variable Series Funds, Inc., The S&P 500 ^® Protected Equity Fund, Inc., The Asset Program, Inc. and Mercury HW funds (advised by Mercury Advisors, a division of MLIM); and for the following closed-end registered investment companies: Merrill Lynch High Income Municipal Bond Fund, Inc. and Merrill Lynch Senior Floating Rate Fund, Inc. MLIM also acts as sub-adviser to Merrill Lynch World Strategy Portfolio and Merrill Lynch Basic Value Equity Portfolio, two investment portfolios of EQ Advisors Trust.

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<R>

The address of each of these registered investment companies is P.O. Box 9011, Princeton, New Jersey 08543-9011, except that the address of Merrill Lynch Funds for Institutions Series is One Financial Center, 23rd Floor, Boston, Massachusetts 02111-2665. The address of FAM, MLIM, Princeton Services, Inc. (“Princeton Services”) and Princeton Administrators, L.P. (“Princeton Administrators”) is also P.O. Box 9011, Princeton, New Jersey 08543-9011. The address of FAM Distributors, Inc. (“FAMD”). is P.O. Box 9081, Princeton, New Jersey 08543-9081. The address of Merrill Lynch, Pierce, Fenner & Smith Incorporated (“Merrill Lynch”) and Merrill Lynch & Co., Inc. (“ML & Co.”) is World Financial Center, North Tower, 250 Vesey Street, New York, New York 10281-1201. The address of the Fund’s transfer agent, Financial Data Services, Inc. (“FDS”), is 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484.

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Set forth below is a list of each executive officer and partner of the Manager indicating each business, profession, vocation or employment of a substantial nature in which each such person or entity has been engaged since December 1, 1998 for his, her or its own account or in the capacity of director, officer, partner or trustee. In addition Mr. Glenn is President and Mr. Burke is Vice President and Treasurer of all or substantially all of the investment companies described in the first two paragraphs of this Item 26, and Messrs. Doll and Giordano are officers of one or more of such companies.

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<R>

Name	Position(s) with the Manager	Other Substantial Business, Profession, Vocation or Employment

ML & Co	Limited Partner	Financial Services Holding Company; Limited Partner of MLIM

Pri nceton Services	General Partner	General Partner of MLIM

Jef frey M. Peek	President	President of MLIM; President and Director of Princeton Services; Executive Vice President of ML & Co.

Te rry K. Glenn	Executive Vice President	Executive Vice President of MLIM; Executive Vice President and Director of Princeton Services; President and Director of FAMD; President of Princeton Administrators

Gr egory A. Bundy	Chief Operating Officer and Managing Director	Chief Operating Officer and Managing Director of MLIM; Chief Operating Officer and Managing Director of Princeton Services; Co-CEO of Merrill Lynch Australia from 1997 to 1999

Do nald C. Burke	First Vice President and Treasurer	First Vice President, Treasurer and Director of Taxation of MLIM; Senior Vice President and Treasurer of Princeton Services; Vice President of FAMD; Senior Vice President of the Manager and MLIM from 1999 to 2000; First Vice President of MLIM from 1997 to 1999

Mi chael G. Clark	Senior Vice President	Senior Vice President of MLIM; Senior Vice President of Princeton Services; Treasurer and Director of FAMD; First Vice President of MLIM from 1997 to 1999

Ro bert C. Doll, Jr.	Senior Vice President	Senior Vice President of MLIM; Senior Vice President of Princeton Services; Chief Investment Officer of OppenheimerFunds, Inc. in 1999 and Executive Vice President thereof from 1991 to 1999

Vin cent R. Giordano	Senior Vice President	Senior Vice President of MLIM; Senior Vice President of Princeton Services

</R>

<R>

Name	Position(s) with the Manager	Other Substantial Business, Profession, Vocation or Employment

Mi chael J. Hennewinkel	First Vice President, Secretary and General Counsel, (Americas Region)	First Vice President and Secretary of MLIM; General Counsel of MLIM (Americas Region); Senior Vice President of Princeton Services

Ph ilip L. Kirstein	General Counsel	General Counsel of MLIM; Senior Vice President, Secretary, General Counsel and Director of Princeton Services

De bra W. Landsman-Yaros	Senior Vice President	Senior Vice President of MLIM; Senior Vice President of Princeton Services; Vice President of FAMD

Ste phen M. M. Miller	Senior Vice President	Executive Vice President of Princeton Administrators; Senior Vice President of Princeton Services

Bri an A. Murdock	Senior Vice President	Senior Vice President of MLIM; Senior Vice President of Princeton Services;

Gr egory D. Upah	Senior Vice President	Senior Vice President of MLIM; Senior Vice President of Princeton Services

</R>

<R></R>

<R>

Merrill Lynch Asset Management U.K. Limited (“MLAM U.K.”) acts as sub-adviser for the following registered investment companies: The Corporate Fund Accumulation Program, Inc., Corporate High Yield Fund, Inc., Corporate High Yield Fund II, Inc., Corporate High Yield Fund III, Inc., Debt Strategies Fund, Inc., Global Financial Services Master Trust, Master Focus Twenty Trust, Master Internet Strategies Trust, Master Premier Growth Trust, Mercury Global Holdings, Inc., Merrill Lynch Balanced Capital Fund, Inc., Merrill Lynch Bond Fund, Inc., Merrill Lynch Developing Capital Markets Fund, Inc., Merrill Lynch Disciplined Equity Fund, Inc., Merrill Lynch Dragon Fund, Inc., Merrill Lynch Emerging Markets Debt Fund, Inc., Merrill Lynch Equity Income Fund, Merrill Lynch EuroFund, Merrill Lynch Focus Value Fund, Inc., 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 SmallCap Fund, Inc., Merrill Lynch Global Technology Fund, Inc., Merrill Lynch Global Value Fund, Inc., Merrill Lynch Growth Fund, Merrill Lynch Healthcare Fund, Inc., Merrill Lynch International Equity Fund, Merrill Lynch Latin America Fund, Inc., Merrill Lynch Natural Resources Trust, Merrill Lynch Pacific Fund, Inc., Merrill Lynch Real Estate Fund, Inc., Merrill Lynch Series Fund, Inc., Merrill Lynch Senior Floating Rate Fund, Inc., Merrill Lynch Senior Floating Rate Fund II, Inc., Merrill Lynch Short-Term Global Income Fund, Inc., Merrill Lynch Utilities and T elecommunications Fund, Inc., Merrill Lynch Variable Series Funds, Inc., Merrill Lynch World Income Fund, Inc., The Asset Program, Inc. and The Municipal Fund Accumulation Program, Inc. The address of each of these registered investment companies is P.O. Box 9011, Princeton, New Jersey 08543-9011. The address of MLAM U.K. is 33 King William Street, London EC4R 9AS, England.

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<R>

Set forth below is a list of each executive officer and director of MLAM U.K. indicating each business, profession, vocation or employment of a substantial nature in which each such person has been engaged since December 1, 1998, for his or her own account or in the capacity of director, officer, partner or trustee. In addition, Messrs. Glenn and Burke are officers of one or more of the registered investment companies listed in the first two paragraphs of this Item 26.

</R>

<R></R>

<R>

Name	Position(s) with MLAM U.K.	Other Substantial Business, Profession, Vocation or Employment
Te rry K. Glenn	Director and Chairman	Executive Vice President of the Manager and MLIM; Executive Vice President and Director of Princeton Services; President and Director of FAMD; Director of Princeton Administrators

Nicholas C.D. Hall	President	Director of Mercury Asset Management Ltd. and the Institutional Liquidity Fund PLC; First Vice President and General Counsel for Merrill Lynch Mercury Asset Management

James T. Stratford	Alternate Director	Director of Mercury Asset Management Group Ltd.; Head of Compliance, Merrill Lynch Mercury Asset Management

Donald C. Burke	Treasurer	First Vice President and Treasurer of the Manager and MLIM; Director of Taxation of MLIM; Senior Vice President and Treasurer of Princeton Services; Vice President of FAMD; Senior Vice President of the Manager and MLIM from 1999 to 2000; First Vice President of MLIM from 1997 to 1999

Carol Ann Langham	Company Secretary	None

De bra Anne Searle	Assistant Company Secretary	None

</R>

<R>

Item 27. Principal Underwriters.

</R>

<R>

(a) FAMD acts as the principal underwriter for the Registrant and for each of the open-end registered investment companies referred to in the first two paragraphs of Item 26 except CBA Money Fund, CMA Government Securities Fund, CMA Money Fund, CMA Multi-State Municipal Series Trust, CMA Tax Exempt Fund, CMA Treasury Fund, Global Financial Services Master Trust, Master Basic Value Trust, Master Focus Twenty Trust, Master Internet Strategies Trust, Master Large Cap Series Trust, Master Mid Cap Growth Trust, Master Premier Growth Trust, Master Small Cap Value Trust, Master U.S. High Yield Trust, The Corporate Fund Accumulation Program, Inc. and The Municipal Fund Accumulation Program, Inc. FAMD acts as the principal underwriter for each of the following additional open-end registered investment companies: Mercury Basic Value Fund, Inc., Mercury Focus Twenty Fund, Inc., Mercury Global Balanced Fund of Mercury Funds, Inc., Mercury Gold and Mining Fund of Mercury Funds, Inc., Mercury International Fund of Mercury Funds, Inc., Mercury Internet Strategies Fund, Inc., Mercury Large Cap Series Funds, Inc., Mercury Mid Cap Growth Fund, Inc., Mercury Pan-European Growth Fund of Mercury Funds, Inc., Mercury Premier Growth Fund, Inc., Mercury Small Cap Value Fund, Inc., Mercury U.S. High Yield Fund, 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., Merrill Lynch Basic Value Fund, Inc., Merrill Lynch Focus Twenty Fund, Inc., Merrill Lynch Global Financial Services Fund, Inc., Merrill Lynch Internet Strategies Fund, Inc., Merrill Lynch Large Cap Series Funds, Inc., Merrill Lynch Mid Cap Growth Fund, Inc., Merrill Lynch Premier Growth Fund, Inc., Merrill Lynch Small Cap Value Fund, Inc. and Merrill Lynch U.S. High Yield Fund, Inc. FAMD also acts as the principal underwriter for the following closed-end registered investment companies: Mercury Senior Floating Rate Fund, Inc., 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.

</R>

<R>

(b) Set forth below is information concerning each director and officer of FAMD. 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.

</R>

<R>

Name	Position(s) and Office(s) with PFD	Position(s) and Office(s) with Registrant
Te rry K. Glenn	President and Director	President and Director

Mi chael G. Clark	Treasurer and Director	None

Th omas J. Verage	Director	None

Ro bert W. Crook	Senior Vice President	None

Mi chael J. Brady	Vice President	None

Wi lliam M. Breen	Vice President	None

Do nald C. Burke	Vice President	Vice President and Treasurer

Jam es T. Fatseas	Vice President	None

De bra W. Landsman-Yaros	Vice President	None

Mi chelle T. Lau	Vice President	None

Wi lliam Wasel	Vice President	None

Ro bert Harris	Secretary	None

</R>

<R></R>

Item 28. Location of Accounts and Records.

All accounts, books and other documents required to be maintained by Section 31(a) of the 1940 Act and the rules thereunder are maintained at the offices of the Registrant (800 Scudders Mill Road, Plainsboro, New Jersey 08536), and its transfer agent, Financial Data Services, Inc. (4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484).

Item 29. Management Services.

<R>

Other than as set forth under the caption “Management of the Fund” in the Prospectus constituting Part A of the Registration Statement and under “Management of the Fund — Management and Advisory Arrangements” in the Statement of Additional Information constituting Part B of the Registration Statement, the Registrant is not a party to any management-related service contract.

</R>

Item 30. Undertakings.

Not applicable.

<R>

SIGNATURES

</R>

<R>

Pursuant to the requirements of the Securities Act and the Investment Company Act, the Registrant certifies that it meets all requirements of effectiveness of this Post-Effective Amendment to the Registration Statement pursuant to Rule 485(b) under the Securities Act and has duly caused this Registration Statement to be signed on its behalf by the undersigned, duly authorized, in the Township of Plainsboro, and State of New Jersey, on the 20th day of March, 2001.

</R>

<R>

M E

RRILL L YNCH F OCUS T WENTY F UND , I NC .

</R>

<R>

(Registrant)

</R>

<R>


				/s/ D ONALD C. B URKE
		By
				(Donald C. Burke, Vice President and Treasurer)

</R>

<R></R>

<R>

Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.

</R>

<R>

Signature	Title	Date

T ERRY K. G LENN * (Terry K. Glenn)	Pre sident and Director (Principal Executive Officer)

D ONALD C. B URKE * (Donald C. Burke)	Vic e President and Treasurer (Principal Financial and Accounting Officer)

J AMES H. B ODURTHA * (James H. Bodurtha)	Dir ector

H ERBERT I. L ONDON * (Herbert I. London)	Dir ector

J OSEPH L. M AY * (Joseph L. May)	Dir ector

A NDRÉ F. P EROLD * (André F. Perold)	Dir ector

R OBERTA C OOPER R AMO * (Roberta Cooper Ramo)	Dir ector

/s/ D ONALD C. B URKE By: (Donald C. Burke, Attorney-in-Fact)*		March 20, 2001

</R>

<R>

Master Focus Twenty Trust has duly caused this Registration Statement of Merrill Lynch Focus Twenty Fund, Inc. to be signed on its behalf by the undersigned, thereunto duly authorized, in the Township of Plainsboro, and State of New Jersey, on the 20th day of March 2001.

</R>

<R>

STER FOCUS TWENTY TRUST

</R>

<R>


				/ S / T ERRY K.G LENN
		By:
				(Terry K. Glenn, President)

</R>

<R>

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.

</R>

<R>

Signature	Title	Date

T ERRY K. G LENN * (Terry K. Glenn)	Pre sident and Trustee (Principal Executive Officer)

D ONALD C. B URKE * (Donald C. Burke)	Vic e President and Treasurer (Principal Financial and Accounting Officer)

J AMES H. B ODURTHA * (James H. Bodurtha)	Tru stee

H ERBERT I. L ONDON * (Herbert I. London)	Tru stee

J OSEPH L. M AY * (Joseph L. May)	Tru stee

A NDRÉ F. P EROLD * (André F. Perold)	Tru stee

R OBERTA C OOPER R AMO * (Roberta Cooper Ramo)	Tru stee

/s/ D ONALD C. B URKE *By: (Donald C. Burke, Vice President and Treasurer)		March 20, 2001

</R>

INDEX TO EXHIBITS

<R>

Exhibit Number

	1(c)	—A rticles Supplementary to Articles of Incorporation, as amended on July 12, 2000.

	1(d)	—A rticles Supplementary to Articles of Incorporation, as amended on December 22, 2000.

	8(c)	—F orm of Administration Agreement between the Registrant and Fund Asset Management, L.P.

	(d)	—F orm of Administrative Services Agreement between the Registrant and State Street Bank and Trust Company.

	10	—C onsent of Deloitte & Touche LLP , independent auditors for the Registrant.

</R>

<R></R>

EXHIBIT 1C

MERRILL LYNCH FOCUS TWENTY FUND, INC.
ARTICLES SUPPLEMENTARY TO THE ARTICLES OF INCORPORATION
INCREASING THE AUTHORIZED CAPITAL STOCK
OF THE CORPORATION

MERRILL LYNCH FOCUS TWENTY FUND, INC., a Maryland corporation (the "Corporation") having its principal Maryland office c/o The Corporation Trust Incorporated, 300 East Lombard Street, Baltimore, Maryland 21202, hereby certifies to the State Department of Assessments and Taxation of Maryland that:

FIRST: The Corporation is registered as an open-end investment company under the Investment Company Act of 1940, as amended, with the authority to issue Four Hundred Million (400,000,000) shares of capital stock. All shares of all classes of the Corporation's capital stock have a par value of Ten Cents ($.10) per share, and an aggregate par value of Forty Million Dollars ($40,000,000). The Corporation's shares of capital stock are classified into four classes, consisting of One Hundred Million (100,000,000) shares of Class A Common Stock, One Hundred Million (100,000,000) shares of Class B Common Stock, One Hundred Million (100,000,000) shares of Class C Common Stock and One Hundred Million (100,000,000) shares of Class D Common Stock.

SECOND: The Board of Directors of the Corporation, acting in accordance with Section 2-105(c) of the Maryland General Corporation Law, hereby increases the number of authorized shares of Class B Common Stock of the Corporation by One Hundred Million (100,000,000) shares and increases the number of authorized shares of Class C Common Stock of the Corporation by One Hundred Million (100,000,000) shares.

THIRD: After this increase in the number of authorized shares of capital stock of the Corporation, the Corporation will have authority to issue Six Hundred Million (600,000,000) shares of capital stock, classified into four classes, consisting of One Hundred Million (100,000,000) shares of Class A Common Stock, Two Hundred Million (200,000,000) shares of Class B Common Stock, Two Hundred Million (200,000,000) shares of Class C Common Stock and One Hundred Million (100,000,000) shares of Class D Common Stock.

FOURTH: After this increase in the number of authorized shares of capital stock of the Corporation, all shares of all classes of the Corporation's capital stock have a par value of Ten Cents ($.10) per share and an aggregate par value of Sixty Million Dollars ($60,000,000).

IN WITNESS WHEREOF, MERRILL LYNCH FOCUS TWENTY FUND, INC. has caused these Articles Supplementary to be signed in its name and on its behalf by its Vice President and attested by its Secretary on July 12, 2000.

MERRILL LYNCH FOCUS TWENTY FUND, INC.

                                       By:   /s/ Donald C. Burke
                                          --------------------------------------
                                             Donald C. Burke, Vice President



Attest:

/s/ Susan B. Baker
-------------------------------------
Susan B. Baker, Secretary

THE UNDERSIGNED, Vice President of MERRILL LYNCH FOCUS TWENTY FUND, INC., who executed on behalf of said Corporation the foregoing Articles Supplementary, of which this certificate is made a part, hereby acknowledges, in the name and on behalf of said Corporation, the foregoing Articles Supplementary to be the corporate act of said Corporation and further certifies that, to the best of his knowledge, information and belief, the matters and facts set forth therein with respect to the authorization and approval thereof are true in all material respects, and that this statement is made under the penalties for perjury.

/s/ Donald C. Burke
-----------------------------------------
    Donald C. Burke, Vice President

EXHIBIT 1D

MERRILL LYNCH FOCUS TWENTY FUND, INC.
ARTICLES SUPPLEMENTARY TO THE ARTICLES OF INCORPORATION
INCREASING THE AUTHORIZED CAPITAL STOCK
OF THE CORPORATION

FIRST: The Corporation is registered as an open-end investment company under the Investment Company Act of 1940, as amended, with the authority to issue Six Hundred Million (600,000,000) shares of capital stock. All shares of all classes of the Corporation's capital stock have a par value of Ten Cents ($.10) per share, and an aggregate par value of Sixty Million Dollars ($60,000,000). The Corporation's shares of capital stock are classified into four classes, consisting of One Hundred Million (100,000,000) shares of Class A Common Stock, Two Hundred Million (200,000,000) shares of Class B Common Stock, Two Hundred Million (200,000,000) shares of Class C Common Stock and One Hundred Million (100,000,000) shares of Class D Common Stock.

THIRD: After this increase in the number of authorized shares of capital stock of the Corporation, the Corporation will have authority to issue Seven Hundred Million (700,000,000) shares of capital stock, classified into four classes, consisting of One Hundred Million (100,000,000) shares of Class A Common Stock, Three Hundred Million (300,000,000) shares of Class B Common Stock, Two Hundred Million (200,000,000) shares of Class C Common Stock and One Hundred Million (100,000,000) shares of Class D Common Stock.

MERRILL LYNCH FOCUS TWENTY FUND, INC.

                                           By:  /s/ Terry K. Glenn
                                              ----------------------------------
                                                Terry K. Glenn, President

Attest:

/s/ Donald C. Burke
--------------------------------
Donald C. Burke, Vice President

THE UNDERSIGNED, President of MERRILL LYNCH FOCUS TWENTY FUND, INC., who executed on behalf of said Corporation the foregoing Articles Supplementary, of which this certificate is made a part, hereby acknowledges, in the name and on behalf of said Corporation, the foregoing Articles Supplementary to be the corporate act of said Corporation and further certifies that, to the best of his knowledge, information and belief, the matters and facts set forth therein with respect to the authorization and approval thereof are true in all material respects, and that this statement is made under the penalties for perjury.

/s/ Terry K. Glenn
--------------------------------
    Terry K. Glenn, President

EXHIBIT 8C

ADMINISTRATION AGREEMENT

AGREEMENT made as of January 17, 2001, by and between MERRILL LYNCH FOCUS TWENTY FUND, INC., a Maryland corporation (the "Fund") and FUND ASSET MANAGEMENT, L.P., a Delaware limited partnership (the "Administrator").

WITNESSETH:

WHEREAS, the Fund is engaged in business as an open-end management investment company and is registered as such under the Investment Company Act of 1940, as amended (the "Investment Company Act"); and

WHEREAS, the Fund desires to retain the Administrator to provide management and administrative services to the Fund in the manner and on the terms hereinafter set forth; and

WHEREAS, the Administrator is willing to provide management and administrative services to the Fund on the terms and conditions hereafter set forth; and

WHEREAS, the Fund is one of the "feeder" funds for and invests all of its assets in MASTER FOCUS TWENTY TRUST, which serves as the "master" portfolio and has the same investment objective and policies as the Fund;

NOW, THEREFORE, in consideration of the premises and the covenants hereinafter contained, the Fund and the Administrator hereby agree as follows:

ARTICLE I
DUTIES OF THE ADMINISTRATOR

(a) The Fund hereby employs the Administrator to act as a manager and administrator and to furnish, or arrange for affiliates to furnish, the management and administrative services described below, subject to review by and the overall control of the Board of Directors of the Fund (the "Directors"), for the period and on the terms and conditions set forth in this Agreement. The Administrator hereby accepts such employment and agrees during such period, at its own expense, to render, or arrange for the rendering of, such services and to assume the obligations herein set forth for the compensation provided for herein. The Administrator and its affiliates shall for all purposes herein be deemed to be independent contractors and shall, unless otherwise expressly provided or authorized, have no authority to act for or represent the Fund in any way or otherwise be deemed agents of the Fund.

(b) Management Services. The Administrator shall perform (or arrange for the performance by affiliates of) the management and administrative services necessary for the operation of the Fund including administering shareholder accounts and handling shareholder relations. The Administrator shall provide the Fund with office space, facilities, equipment and necessary personnel and such other services as the Administrator, subject to review by the Directors, shall from time to time determine to be necessary or useful to perform its obligations under this Agreement. The Administrator shall also, on behalf of the Fund, conduct relations

with custodians, depositories, transfer agents, dividend disbursing agents, other shareholder servicing agents, accountants, attorneys, underwriters, brokers and dealers, corporate fiduciaries, insurers, banks and such other persons in any such other capacity deemed to be necessary or desirable. The Administrator shall make reports to the Directors of its performance of obligations hereunder and furnish advice and recommendations with respect to such other aspects of the business and affairs of the Fund as it shall determine to be desirable.

ARTICLE II
ALLOCATION OF CHARGES AND EXPENSES

(a) The Administrator. The Administrator assumes and shall pay, or cause its affiliates to pay, for maintaining the staff and personnel necessary to perform its obligations under this Agreement, and shall, at its own expense, provide the office space, facilities and necessary personnel that it is obligated to provide under Article I hereof. The Administrator shall pay, or cause its affiliates to pay, compensation of all officers of the Fund and all Directors of the Fund who are affiliated persons of the Administrator or of an affiliate of the Administrator.

(b) The Fund. The Fund assumes and shall pay or cause to be paid all other expenses of the Fund (except for the expenses paid by the distributor of the Fund's shares (the "Distributor")), including, without limitation: taxes, expenses for legal and auditing services, costs of printing proxies, shareholder reports, prospectuses and statements of additional information, charges of the custodian, any sub-custodian and transfer agent, expenses of portfolio transactions, expenses of redemption of shares, Securities and Exchange Commission fees, expenses of registering the shares under Federal, state and foreign laws, fees and actual out-of-pocket expenses of Directors who are not affiliated persons of the Administrator, or of an affiliate of the Administrator, accounting and pricing costs (including the daily calculation of the net asset value), insurance, interest, brokerage costs, litigation and other extraordinary or non-recurring expenses, and other expenses properly payable by the Fund. It also is understood that if the Administrator or any of its affiliates provide accounting services to the Fund, the Fund will reimburse the Administrator and its affiliates for their costs in providing accounting services to the Fund. The Distributor will pay certain of the expenses of the Fund incurred in connection with the continuous offering of shares of common stock of the Fund.

ARTICLE III
COMPENSATION OF THE ADMINISTRATOR

Administrative Fees. For the services rendered, the facilities furnished and expenses assumed by the Administrator, the Fund shall pay to the Administrator at the end of each calendar month a fee based upon the average daily value of the net assets of the Fund, as determined and computed in accordance with the description of the determination of net asset value contained in the prospectus and statement of additional information of the Fund, at the annual rate of 0.25% of the average daily net assets of the Fund, commencing on the day following effectiveness hereof. If this Agreement becomes effective subsequent to the first day of a month or shall terminate before the last day of a month, compensation for that part of the month this Agreement is in effect shall be prorated in a manner consistent with the calculation of the fee as set forth above. Payment of the Administrator's compensation for the preceding month

shall be made as promptly as possible after completion of the computations contemplated above. During any period when the determination of net asset value is suspended by the Directors, the net asset value of a share as of the last business day prior to such suspension shall for this purpose be deemed to be the net asset value at the close of each succeeding business day until it is again determined.

ARTICLE IV
LIMITATION OF LIABILITY OF THE ADMINISTRATOR

The Administrator shall not be liable for any error of judgment or mistake of law or for any loss arising out of any act or omission in the management and administration of the Fund, except for willful misfeasance, bad faith or gross negligence in the performance of its duties, or by reason of reckless disregard of its obligations and duties hereunder. As used in this Article IV, the term "Administrator" shall include any affiliates of the Administrator performing services for the Fund contemplated hereby and partners, shareholders, directors, officers and employees of the Administrator and such affiliates.

ARTICLE V
ACTIVITIES OF THE ADMINISTRATOR

The services of the Administrator to the Fund are not to be deemed to be exclusive, and the Administrator and each affiliate is free to render services to others. It is understood that Directors, officers, employees and shareholders of the Fund are or may become interested in the Administrator and its affiliates, as directors, officers, employees, partners and shareholders or otherwise, and that the Administrator and directors, officers, employees, partners and shareholders of the Administrator and its affiliates are or may become similarly interested in the Fund as shareholders or otherwise.

ARTICLE VI
DURATION AND TERMINATION OF THIS AGREEMENT

(a) This Agreement shall become effective as of the date first above written and shall remain in force until November 30, 2001 and thereafter continue from year to year, but only so long as such continuance is specifically approved at least annually by (i) the Directors of the Fund, or by the vote of a majority of the outstanding voting securities of the Fund, and (ii) a majority of those Directors who are not parties to this Agreement or interested persons of any such party cast in person at a meeting called for the purpose of voting on such approval.

(b) This Agreement may be terminated at any time, without the payment of any penalty, by the Directors or by the vote of a majority of the outstanding voting securities of the Fund, or by the Administrator, on sixty days' written notice to the other party. This Agreement shall automatically terminate in the event of its assignment.

ARTICLE VII
AMENDMENTS OF THIS AGREEMENT

This Agreement may be amended by the parties only if such amendment is specifically approved by a majority of those Directors who are not parties to this Agreement or interested persons of any such party cast in person at a meeting called for the purpose of voting on such approval. Provided, however, that this Agreement may not be amended so as to increase the compensation of the Administrator payable under Article III hereunder so that the aggregate fee payable under this Agreement and the Management Agreement, originally made as of December 21, 1999, as amended as of January 17, 2001, by and between Master Focus Twenty Trust and the Administrator would exceed 0.85% of the average daily net assets of the Fund, without first obtaining the approval of a majority of the outstanding voting securities of the Fund, in accordance with the Investment Company Act.

ARTICLE VIII
DEFINITIONS OF CERTAIN TERMS

The terms "vote of majority of the outstanding voting securities," "assignment," "affiliated person" and "interested person," when used in this Agreement, shall have the respective meanings specified in the Investment Company Act and the Rules and Regulations thereunder, subject, however, to such exemptions as may be granted by the Securities and Exchange Commission under said Act.

ARTICLE IX
GOVERNING LAW

This Agreement shall be construed in accordance with laws of the State of New York and the applicable provisions of the Investment Company Act. To the extent that the applicable laws of the State of New York, or any of the provisions herein, conflict with the applicable provisions of the Investment Company Act, the latter shall control.

IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date first above written.

MERRILL LYNCH FOCUS TWENTY FUND, INC.

By: _______________________________
Name:
Title:

FUND ASSET MANAGEMENT, L.P.

By: PRINCETON SERVICES, INC.,
General Partner

By: _______________________________
Name:
Title:

EXHIBIT 8(D)

EXECUTION COPY

ADMINISTRATIVE SERVICES AGREEMENT

THIS AGREEMENT (the "Agreement") is dated as of December 29, 2000 by and among STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company ("State Street"), and each entity listed on Schedule 1 hereto, together with any other entity which may from time to time become a party to this Agreement by execution of an Instrument of Accession substantially in the form attached as Exhibit 1 hereto (each a "Fund" and collectively, the "Funds").

WHEREAS, each Fund is, unless otherwise noted, registered as an open-end or closed-end, management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"); and

WHEREAS, each Fund desires to retain State Street to furnish certain accounting and other administrative services, and State Street is willing to furnish such services, on the terms and conditions hereinafter set forth.

NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained and other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows:

1. INTERPRETATION.

1.1 In this Agreement:

"Agreement" means this Agreement including the recitals hereto and the Schedules and Exhibits, as the same may be amended from time to time by agreement of the parties.

"Authorized Person" means any person authorized by a Fund to give Proper Instructions on behalf of the Fund and in respect of whom State Street has not received written notice from the Fund that such authorization has been revoked.

"Authorized Price Sources" means pricing sources designated by a Fund on State Street's standard form price source authorization, as the same may be amended by the Fund and State Street from time to time or as otherwise designated by the Fund or an Authorized Person, including, without limitation, the investment adviser to the Fund.

"Business Day" means any day on which the New York Stock Exchange is open for trading or on which banking institutions in the City of New York are open for business.

"Charter Documents" means a Fund's Articles of Incorporation or Declaration of Trust, as the case may be, and By-Laws.

"Compliance Monitoring Services" means the agreed investment compliance checks as may be carried out by State Street in respect of a Fund on a daily (or other periodic) basis pursuant to the provisions of the Compliance Monitoring Services Addendum attached hereto as Exhibit 2.

"Constitutive Documents" means, collectively, a Fund's Charter Documents and Prospectus, as defined herein.

"Existing Service" means a Service which is described in the Service Level Agreement or which is determined by the JSC (as defined in Section 15) to be an Existing Service.

"Historic Fund Records" means the books, records, data files, documents and other information maintained by or on behalf of each Fund as part of the Services prior to the effective date of this Agreement and which are necessary for the provision of the Services by State Street hereunder.

"MLIM" means Merrill Lynch Investment Managers, L.P.

"New Service" means a Service other than an Existing Service.

"Proper Instructions" means instructions (which may be standing instructions) received by State Street from an Authorized Person, in any of the following forms:

(i) in writing signed by the Authorized Person; or (ii) in a tested communication; or (iii) in a communication utilizing access codes effected between electro-mechanical or electronic devices as may be agreed upon by the parties in writing from time to time; or

(iv) by such other means as may be agreed upon in writing from time to time by State Street and the party giving such instruction including, without limitation, oral instructions.

"Prospectus" means a Fund's currently effective registration statement under the Securities Act of 1933, as amended (the "1933 Act"), and the 1940 Act and the Fund's Prospectus(es) and Statement(s) of Additional Information relating to all portfolios and all amendments and supplements thereto as in effect from time to time.

"Service Level Agreement" means the Service Level Agreement of even date herewith between State Street and MLIM relating to the provision of the Services, as amended from time to time.

"Services" means the accounting and other administrative services described in Sections 3 and 4 hereof.

1.2 References herein to a Fund shall be deemed to include each portfolio or class of share of such Fund, as applicable. For purposes of any liability or indemnification provision hereunder each separate portfolio of an investment company shall be considered a Fund.

1.3 In this Agreement references to "persons" shall include legal as well as natural entities, references importing the singular shall include the plural (and vice versa), use of the masculine pronoun shall include the feminine and numbered schedules, exhibits, sections or sub-sections shall (unless the contrary intention appears) be construed as references to such schedules and exhibits hereto and sections or sub-sections herein bearing those numbers. The Schedules and Exhibits are hereby incorporated herein by reference.

2. APPOINTMENT.

2.1 Each Fund hereby retains State Street and State Street agrees to provide the Services, in each case subject to and in accordance with the terms and conditions set forth in this Agreement and subject to the control, supervision and direction of the Fund and the review and comment by the Fund's auditors and legal counsel and in accordance with such procedures as may be established from time to time between the Fund and State Street. State Street confirms that it shall offer employment to substantially all of those persons employed by, and in good standing with, the Mutual Fund Accounting Department of MLIM as of the date hereof.

2.2 In the event that a Fund establishes one or more additional series of shares with respect to which it desires to have State Street render Services under the terms hereof, it shall so notify State Street in writing and thereafter such series will be subject to the terms and conditions of this Agreement, and shall be maintained and accounted for by State Street on a discrete basis.

2.3 Subject to obtaining the prior written approval of each Fund, State Street may assign, delegate or otherwise transfer any or all of its rights and obligations under this Agreement to a third party provided that State Street's liability to the Funds shall not be affected thereby.

2.4 It is hereby acknowledged and agreed by each Fund that this Agreement is entered into by the Fund as a principal contracting party and not as agent for any other party and nothing contained herein shall be interpreted as creating any contractual obligations on the part of State Street towards any shareholders of the Fund.

2.5 State Street shall not be responsible for any duties or obligations which it has not specifically undertaken pursuant to this Agreement and no such duties or obligations shall be implied or inferred.

2.6 This Agreement and the Services to be provided by State Street hereunder shall be revised by the parties from time to time to comply with changes in any law, rule or regulation applicable to the Funds.

2.7 If any literature, including, but not limited to, brochures, advertising materials, web site contents and marketing materials, issued by or on behalf of a Fund contains any reference to State Street, other than literature merely identifying State Street as providing accounting or administrative services to the Fund, or if any literature issued by State Street contains any reference to a Fund, then the Fund or State Street, as the case may be,

will obtain the other party's prior written consent to such reference before its publication in any form.

3. ACCOUNTING SERVICES.

3.1 State Street shall maintain the books of account and other financial records of each Fund in accordance with applicable law, including Section 31(a) of the 1940 Act and rules thereunder, other than records maintained by the Fund's custodian (as agreed among the Fund, State Street and the custodian) and shall perform the following duties in the manner prescribed by the Constitutive Documents and further in accordance 74-ith such written procedures. including, but not limited to the Service Level Agreement, as may be established between the Fund and State Street from time to time:

3.1.1 Record general ledger entries;

3.1.2 Calculate daily net income;

3.1.3 Reconcile activity to the trial balance;

3.1.4 Calculate and publish daily net asset value;

3.1.5 Prepare account balances; and

3.1.6 Provide such other accounting services as may be required to enable each Fund to maintain its books and records in compliance with applicable law and generally accepted accounting principles.

3.2 Each Fund shall provide timely prior written notice to State Street of any modification in the manner in which such calculations are to be performed. For purposes of calculating the net asset value of a Fund, State Street shall value the Fund's portfolio securities utilizing prices obtained from Authorized Price Sources. State Street shall not be responsible for any revisions to the methods of calculation prescribed by the Constitutive Documents or the Fund unless and until such revisions are communicated in writing to State Street.

4. ADMINISTRATIVE SERVICES.

4.1 State Street shall provide the following additional administrative services to each Fund in the manner prescribed by the Constitutive Documents and further in accordance with such written procedures, including, but not limited to, the Service Level Agreement, as may be established between the Fund and State Street from time to time:

4.1.1 Oversee the maintenance by the Fund's custodian of certain books and records of the Fund as required under Rule 31a-1(b) of the 1940 Act;

4.1.2 Calculate, submit for approval by officers of the Fund and arrange for payment of the Fund's expenses;

4.1.3  Prepare for review and approval by officers of the Fund financial
       information for the Fund's semi-annual and annual reports, proxy
       statements and other communications required or otherwise to be sent
       to Fund shareholders;

4.1.4  Prepare and file, following review by an officer of and legal
       counsel for the Fund, the Fund's periodic financial reports required
       to be filed with the Securities and Exchange Commission ("SEC") on
       Form N-SAR and prepare financial information required by Form N-1A,
       Form N-2 and other regulatory filings and such other financial
       reports, forms or filings as may be mutually agreed upon;

4.1.5  Prepare reports relating to the business and affairs of the Fund as
       may be mutually agreed upon and not otherwise prepared by the Fund's
       investment adviser, custodian, legal counsel or independent
       accountants;

4.1.6  Make such reports and recommendations to the Board of Directors of
       the Fund (the "Board") concerning the performance of the Fund's
       independent accountants as the Board may reasonably request;

4.1.7  Make such reports and recommendations to the Board concerning the
       performance and fees of the Fund's custodian and transfer and
       dividend disbursing agent (the "Transfer Agent") as the Board may
       reasonably request or deem appropriate;

4.1.8  Consult with the Fund's officers, independent accountants, legal
       counsel, custodian and Transfer Agent in establishing and following
       the accounting policies of the Fund;

4.1.9  Provide Compliance Monitoring Services to assist the Fund's
       investment adviser in complying with Internal Revenue Code mandatory
       qualification requirements, the requirements of the 1940 Act and
       Fund prospectus limitations as may be mutually agreed upon;

4.1.10 Assist the Fund in the handling of routine regulatory examinations and work closely with the Fund's legal counsel in response to any non-routine regulatory matters;

4.1.11 Assist the Fund in the preparation of reports to the Board of Directors and with any other work of a routine or non-routine nature that requires information maintained or accessible through the Fund's accounting and financial records.

4.2 State Street shall be responsible for the provision of the office facilities and the personnel required by it to perform the Services contemplated herein. State Street shall also provide reasonable facilities for use by the Fund's auditors in connection with any periodic inspection of the books and records maintained by State Street hereunder.

5. SERVICE LEVEL AGREEMENT.

5.1 In conjunction with this Agreement. State Street and MLIM shall enter into a Service Level Agreement which specifies key performance indicators and delivery benchmarks in respect of the Services and which reflects the performance goals of the parties from time to time.

5.2 Subject at alt times to the terms and conditions of this Agreement, State Street shall use all reasonable endeavors to provide the Services in accordance with the Service Level Agreement.

5.3 Each Fund shall use all reasonable endeavors to fulfill its duties and obligations under the Service Level Agreement and to cause any third parties referenced therein to do likewise. State Street shall have no liability for any loss, liability, claim, cost or expense to the extent resulting from or caused by the failure of a Fund or any other party referenced in the Service Level Agreement to comply with the terms thereof. For avoidance of doubt, the preceding sentence shall not relieve State Street of liability to the extent any such loss or expense arises from its own negligence, bad faith, fraud, willful default or willful misconduct in the discharge of its duties hereunder.

5.4 The liability of State Street in respect of its obligations under the Service Level Agreement shall be governed by the terms of this Agreement. In no event shall a failure by State Street to comply with any term or condition of the Service Level Agreement constitute a breach or violation of this Agreement giving rise to financial penalties, damages or contractual or other remedies, except as set out in this Section 5. However, the fact that State Street has met the key performance indicators or delivery benchmarks of the Service Level Agreement shall not relieve State Street of any liability that it might otherwise have under this Agreement arising from or as a result of its fraud, willful default, negligence or willful misconduct in the performance of its duties hereunder. It is the intention of State Street and each Fund that the remedy for any:

5.4.1 failure by State Street, a Fund or any third party referenced in the Service Level Agreement to meet the performance indicators, delivery benchmarks or other aspects of the Service Level Agreement; or

5.4.2 consistent failure by State Street, a Fund or any third party referenced in the Service Level Agreement to fulfill its duties and obligations under the Service Level Agreement in a material respect; or

5.4.3 dispute relating to the Service Level Agreement,

shall be referral of the matter to the JSC (as defined below) for attempted resolution or, where applicable, termination of this Agreement in accordance with Section 20.6.4.

5.5 The purpose of the referral to the JSC is to resolve the inability of the relevant party to meet the provisions of the Service Level Agreement. It shall be the responsibility of the JSC to develop and oversee implementation of procedural or operational changes which will enable the Service Level Agreement to be more regularly met; revise the obligations

of the parties under the Service Level Agreement to more adequately meet the service requirements of the Funds; or otherwise develop a solution aimed at ensuring that the inability to meet the Service Level Agreement will be less likely to occur in the future.

5.6 If a matter is referred to the JSC pursuant to Section 5.4 and despite implementation of the JSC's recommendations, a party consistently fails to meet in a material respect its obligations under the Service Level Agreement that were the subject of the referral or any revised obligations agreed as a result of the referral (other than for reasons outside the party's reasonable control), then the matter shall be referred to the senior executive of the Global Investor Services Group of State Street and the First Vice President--MLIM Operations (or their equivalents following any reorganization) (together the "Executive Officers") for resolution. The referral shall expressly cite this Section 5 and state that the relevant Fund(s) or State Street, as the case may be, may exercise its right to terminate this Agreement should the matter not be resolved.

5.7 If the Executive Officers are unable to resolve the matter within thirty
(30) Business Days of the referral, and if (but only if) all relevant parties agree in writing within five (5) Business Days of the aforementioned deadline, the matter may be submitted to a mutually-acceptable Professional Mediator (as defined in Section 26.5 below) to attempt to facilitate a resolution within thirty (30) Business Days of the referral. Any such mediation shall be conducted in accordance with the provisions of Sections 26.4 through 26.6 below.

5.8 If either (i) following a failure by the Executive Officers to resolve the matter, the relevant Fund(s) and State Street do not agree on use of a Professional Mediator or (ii) the matter has not been resolved within thirty (30) Business Days of the conclusion of such mediation effort, then the relevant Fund(s) or State Street, as the case may be, shall be entitled to terminate this Agreement in accordance with Sections 20.4.3 and 20.6.4, respectively.

5.9 Nothing in this Section 5 shall limit the liability of State Street for any failure to perform the Services in accordance with the standard of care set forth in Section 11 and the terms of this Agreement as distinct from a failure by State Street to meet key performance indicators or delivery benchmarks of the Service Level Agreement. The fact that the Service Level Agreement performance metrics have been met shall not excuse State Street from liability that it would otherwise have under the terms of this Agreement.

6. NECESSARY INFORMATION.

6.1 Each Fund will promptly deliver to State Street copies of each of the following documents and all future amendments and supplements thereto, if any:

6.1.1 The Fund's Charter Documents;

6.1.2 The Fund's Prospectus;

6.1.3 Certified copies of the resolutions of the Board authorizing (1) the Fund to enter into this Agreement and (2) certain individuals on behalf of the Fund to (a) give

Proper Instructions to State Street pursuant to this Agreement and
(b) sign checks and pay expenses;

6.1.4 A copy of the investment advisory agreement between the Fund and its investment adviser; and

6.1.5 Such other certificates, documents or opinions which State Street may, in its reasonable discretion, deem necessary or appropriate in the proper performance of its duties.

6.2 Each Fund shall provide or cause to be provided to State Street such additional data and information as State Street may reasonably require in order to discharge its duties under this Agreement, including, without limitation, the information detailed in the Service Level Agreement. State Street shall have no liability for the failure to provide, any error in the provision of, or any delay in providing, any of the Services to the extent the provision of such Services is dependent upon receipt of the aforesaid information and the same has not been provided in a materially complete, accurate and timely manner. For avoidance of doubt. The preceding sentence shall not relieve State Street of liability to the extent any such loss or expense arises from its own negligence, bad faith, fraud, willful default or willful misconduct in the discharge of its duties hereunder.

6.3 Each Fund shall assure that its custodian and other service providers make available to State Street such information in respect of the Fund as State Street may reasonably require for the performance of the Services.

6.4 Each Fund shall use all reasonable endeavors to ensure that any information provided or caused to be provided to State Street pursuant to this Agreement, including the Service Level Agreement, shall be provided in a complete, accurate and timely manner so as to enable State Street to duly render the Services.

6.5 In the course of discharging its duties hereunder, State Street may rely on the information provided to it by or on behalf of a Fund or by any persons authorized by a Fund including, without limitation, any other service providers to the Fund or any Authorized Price Sources.

6.6 Each Fund acknowledges and agrees that except as otherwise expressly set forth in the Service Level Agreement, State Street shall have no responsibility for, or duty to review, confirm or otherwise perform any investigation as to the completeness, accuracy or sufficiency of any information provided to it by the Fund, any persons authorized by the Fund or any other service providers to the Fund, including, without limitation, any Authorized Price Sources and shall be without liability for any loss, liability, claim, expense or damage suffered or incurred by any person as a result of State Street having relied upon and utilized such information in good faith. For avoidance of doubt, the preceding sentence shall not relieve State Street of liability to the extent any such loss or expense arises from its own negligence, bad faith, fraud, willful default or willful misconduct in the discharge of its duties hereunder. State Street will promptly notify a Fund in the event it becomes aware that any information received by it is incomplete,

inaccurate or insufficient or in the event of a failure or delay by any party to provide information required by State Street to discharge its duties under this Agreement.

7. RECONCILIATION.

7.1 Each Fund represents and warrants to State Street that it has completed or caused to be completed a full reconciliation of the Historic Fund Records and except as otherwise disclosed in writing to State Street such records are accurate and complete in all material respects.

7.2 To the extent the Historic Fund Records remain unreconciled as of the effective date of this Agreement, each Fund shall ensure that the outstanding items are reconciled as soon as practicable or otherwise promptly redressed, in each case at the expense of the Fund. State Street shall provide all reasonable assistance to each Fund (at the expense of the Fund) to reconcile any outstanding items.

7.3 State Street shall have no liability to a Fund or any other person and shall be indemnified and held harmless by each Fund from and against any loss, liability, damage, claim, cost or expense resulting from or caused by its good faith reliance on the accuracy and completeness of the Historic Fund Records.

8. PROPER INSTRUCTIONS.

8.1 Each Fund shall provide State Street with an incumbency certificate specifying the names, specimen signatures and powers of all Authorized Persons. in respect of the Fund. State Street may rely upon the identity and authority of such persons until it receives written notice from the relevant Fund to the contrary.

8.2 Each Fund will give State Street all necessary instructions to enable State Street to fulfill its obligations under this Agreement at such times and in .such form as mutually agreed upon, including, without limitation, as State Street may request.

8.3 State Street shall have no responsibility or liability to a Fund and shall be indemnified and held harmless by the Fund, if a subsequent written confirmation of an oral Proper Instruction fails to conform to the oral instructions received by State Street. State Street shall promptly seek written confirmation of any oral instruction received by it.

8.4 State Street shall have no obligation to act in accordance with purported instructions to the extent they conflict with applicable law or regulation, provided that State Street shall not be under any obligation to ensure that any instruction received by it would not contravene any such laws or regulations.

8.5 State Street shall not be liable for any loss resulting from a delay while it obtains clarification of any Proper Instructions which it reasonably deems to be incomplete or unclear, provided that it promptly seeks such clarification.

8.6 State Street shall be held harmless by a Fund in acting upon any instruction, notice, request, consent, certificate or instrument reasonably believed by it to be genuine and to be signed or otherwise given by the proper party or parties.

8.7 If a Fund instructs State Street to take any action (including, without limitation, the initiation of legal proceedings) which may involve the payment of money or liability on the part of State Street, State Street may refrain from acting in accordance with such instruction until it has received indemnity, security or both reasonably satisfactory to it and sufficient to hold it harmless from and against any loss, liability or expense which State Street may incur as a result of taking such action.

9. PROFESSIONAL ADVICE.

When deemed necessary for the proper performance of its duties under this Agreement with respect to specific and non-routine matters involving one or more of the Funds, State Street may, with the consent of a Fund (which consent shall not be unreasonably withheld), seek legal, tax, financial, administrative or other advice of a reputable professional adviser and State Street shall be reimbursed in respect of any costs and expenses properly incurred in obtaining and receiving any such advice. State Street shall have no liability to a Fund for any loss, liability, claim, cost, expense, tax or assessment arising as a direct or indirect result of having relied on such advice in good faith.

10. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS.

Each Fund assumes responsibility for complying with all securities, tax, commodities and other laws, rules and regulations applicable to it in the conduct of its business.

11. STANDARD OF CARE; LIMITATION OF LIABILITY.

11.1 State Street shall at all times exercise reasonable care and diligence and act in good faith in the performance of its duties hereunder, provided, however, that State Street shall be without liability to any Fund or any agent thereof for any loss, liability, damage, claim, cost or expense unless caused by its own fraud, willful default, negligence or willful misconduct or that of its agents, delegates or employees. State Street shall be responsible for the performance of only such duties as are explicitly set forth in this Agreement and shall have no responsibility for the actions or activities of any other party (save its agents, delegates or employees), including other service providers to a Fund.

11.2 Each Fund, severally but not jointly, hereby indemnifies and secures harmless (to the maximum extent permitted by law) State Street from and against all claims, actions, costs, charges, losses, damages and expenses (including without limitation legal fees and amounts reasonably paid in settlement) which State Street may incur or sustain (other than by reason of State Street's bad faith, willful default or negligence or that of its agents, delegates or employees) in connection with the performance of its duties for that particular Fund under this Agreement or otherwise arising from any act or omission of that particular Fund or any other person (including any predecessor service provider to the Fund) prior to the effective date of this Agreement.

11.3 If State Street (the "Indemnified Party") shall seek indemnification from a Fund (the "Indemnifying Party") in respect of a claim or liability asserted by a third party, the Indemnified Party shall give written notice thereof to the Indemnifying Party promptly after it receives notice of the claim or liability being asserted, but the failure to do so shall not relieve the Indemnifying Party from any liability except to the extent that it is prejudiced by the failure or delay in giving such notice. Such notice shall summarize the basis for the claim for indemnification and any claim or liability being asserted by the third party. Within 15 days after receiving such notice, the Indemnifying Party shall give written notice to the Indemnified Party stating whether it disputes the claim for indemnification and whether it will defend against the third-party claim or liability at its own cost and expense. If the Indemnifying Party fails to give notice that it disputes an indemnification claim within 15 days after receipt of notice thereof, it shall be deemed to have accepted and agreed to the claim. The Indemnifying Party shall be entitled to direct the defense against the third-party claim or liability with counsel selected by it (subject to the consent of the Indemnified Party, which consent shall not be unreasonably withheld) as long as the Indemnifying Party is conducting a good faith and diligent defense. The Indemnified Party shall at all times have the right to fully participate in the defense of a third-party claim or liability at its own expense directly or through counsel. If no such notice of intent to dispute and defend a third-party claim or liability is given by the Indemnifying Party, or if such good faith and diligent defense is not being or ceases to be conducted by the Indemnifying Party, the Indemnified Party shall have the right, at the expense of the Indemnifying Party, to undertake the defense of such claim or liability (with counsel selected by the Indemnified Party), and to compromise or settle it, exercising reasonable business judgment. Except as otherwise provided in the immediately preceding sentence, neither the Indemnified Party nor the Indemnifying Party shall settle or confess any claim or make any compromise in any case in which the Indemnifying Party will be asked to indemnify the Indemnified Party, except with the prior written consent of both parties. The Indemnified Party shall at all times make available such information and assistance as the Indemnifying Party may reasonably request and shall cooperate with the Indemnifying Party in such defense, at the expense of the Indemnifying Party.

11.4 In no event shall any party be liable for any loss arising by reason of the occurrence of a Force Majeure Event (as defined in Section 12) which prevents, hinders or delays it from or in performing its obligations under this Agreement.

11.5 State Street shall not be liable for any liabilities, damages, losses, claims, taxes, duties, costs or expenses (including, without limitation, legal fees) whatsoever incurred or suffered by a Fund at any time as a result of the failure of the Fund or any other person (other than State Street, its employees, agents or delegates) to comply with the laws or regulations of any country or jurisdiction. For avoidance of doubt, the preceding sentence shall not relieve State Street of liability to the extent such other person's failure to comply with laws or regulations is the direct result of State Street's negligence, bad faith, fraud, willful default or willful misconduct in the discharge of its duties hereunder.

11.6 The provisions herein regarding indemnification, liability and limits thereon shall survive following the expiration or termination of this Agreement to the extent relating to any

claim or right of action arising in connection with the performance of this Agreement and each Fund and State Street shall enter into such documents as shall be necessary to ensure the survival of the same.

11.7 Each Fund acknowledges that except as otherwise expressly set forth in this Agreement, State Street's duties under this Agreement do not include any obligation to monitor the compliance of the Fund or any other person whatsoever with any restriction or guideline imposed by its Constitutive Documents or by law or regulation or otherwise with regard to the investment of the assets of the Fund. In no event shall State Street have any duty to enforce compliance by the Fund or any other person whatsoever with any such restrictions or guidelines.

11.8 Each Fund acknowledges and agrees that State Street shall provide Compliance Monitoring Services, if any, on a contractual basis only in accordance with the terms of the Compliance Monitoring Services Addendum attached hereto as Exhibit 2. The Compliance Monitoring Services are provided by State Street as a supplement to and not in place or in lieu of a Fund's own compliance program and/or that of the investment advisers of the Fund.

11.9 State Street shall have no liability to a Fund or otherwise for any loss or liability resulting from State Street's performance or non-performance of the Compliance Monitoring Services except as expressly set forth in the Compliance Monitoring Services Addendum.

11.10 In no event shall State Street or any Fund be liable for any special, indirect, incidental, punitive or consequential damages of any kind whatsoever, even if advised of the possibility of such damages. The limitation on liability imposed by this Section 11.10 shall not be construed to relieve State Street of liability to a Fund in circumstances where (i) it is otherwise liable to the Fund under the terms of this Agreement for losses resulting from an inaccurate Net Asset Value calculation and (ii) the liability of the Fund arises from its obligation to compensate shareholders for direct loss resulting from the purchase or redemption of shares at such inaccurate Net Asset Value.

12. FORCE MAJEURE.

12.1 If a party is prevented, hindered or delayed from or in performing any of its obligations under this Agreement by a Force Majeure Event (as defined below) then:

12.1.1 that party's obligations under this Agreement shall be suspended for so long as the Force Majeure Event continues and to the extent that party is so prevented, hindered or delayed;

12.1.2 as soon as reasonably possible after commencement of the Force Majeure Event that party shall notify the other party in writing of the occurrence of the Force Majeure Event, the date of commencement of the Force Majeure Event and the effects of the Force Majeure Event on its ability to perform its obligations under this Agreement; and

12.1.3 as soon as reasonably possible after the cessation of the Force Majeure Event that party shall notify the other party in writing of the cessation of the Force Majeure Event and shall resume performance of its obligations under this Agreement.

12.2 For the purposes of this Section 12 and Section 11.4, "Force Majeure Event" means any event beyond the reasonable control of a party including, without limitation, acts of God, war damage, enemy action, riot, civil commotion, rebellion, act of any government or any other competent authority or compliance with any law or governmental order, rule, regulation or direction. For avoidance of doubt, provided that State Street has exercised reasonable care and diligence and complied with its obligations under
Section 12.3 and 13 below, a Force Majeure Event shall include any failure or malfunction of any telecommunications, computer or other electrical mechanical or technological application, service or system to the extent any such failure is beyond State Street's reasonable control.

12.3 Each party hereto shall use all reasonable efforts to mitigate the effects of any Force Majeure Event.

13. CONTINGENCY MEASURES.

13.1 State Street shall maintain in a separate and safe place additional copies of all records required to be maintained pursuant to this Agreement or additional tapes, disks or other sources of information necessary to reproduce all such records.

13.2 Within twelve (12) months of the date hereof, State Street shall establish and maintain a disaster recovery back-up facility available for its use in providing the Services required hereunder in the event circumstances beyond State Street's control result in State Street not being able to process the necessary work at its principal facility. State Street shall, from time to time, upon request from a Fund provide written evidence and details of its arrangement with respect to such back-up facility. State Street further agrees to provide each Fund from time to time on request with a copy of the disaster recovery and contingency plans of State Street and to make its staff available to discuss such plans on request. Nothing in this Section shall relieve State Street of any liability that it might otherwise have under this Agreement arising from or as a result of its fraud, willful default, negligence or willful misconduct in the performance of its duties hereunder, provided, however, that the aggregate liability of State Street to any Fund in relation to the maintenance of a disaster recovery back-up facility during the initial twelve (12) months of this Agreement shall not at any time exceed an amount equal to ten (10) per cent of the fee paid or accrued and payable by such Fund (as of the date of the liability) in, respect of the accounting and administrative services provided pursuant to the Agreement.

13.3 State Street shall at all times employ a then current version of one of the leading commercially available virus detection software programs to test the on-site hardware and software applications utilized by it to deliver the Services to determine that such hardware and software does not contain any computer code designed to disrupt, disable, harm, or otherwise impede operation. With respect to any applications utilized on a

remote basis, State Street shall use commercially reasonable efforts to obtain a similar representation or commitment from the third party provider of such application.

13.4 State Street shall at its expense retain a firm of independent auditors to perform an annual audit of the internal accounting controls and procedures employed by State Street in the performance of the Services and to issue a detailed report thereon and shall provide to each Fund a copy of such report within ten (10) Business Days of its issue by the independent auditors. The first such annual audit shall be carried out in the fourth quarter of 2001. State Street shall also allow each Fund's independent auditors and the corresponding personnel of each Fund's investment adviser reasonable access to perform their own audit of State Street's internal accounting controls, provided, however, that the frequency and scope of such audits shall be as agreed by the JSC from time to time.

13.5 Upon request of a Fund, State Street shall from time to time as appropriate, furnish to such Fund a letter setting forth the insurance coverage maintained by State Street, any changes in such coverage which may have occurred from the date of the last such request and any claim relating to the Fund which State Street may have made under such insurance.

14. FEES AND EXPENSES.

14.1 In consideration of the provision of the Services by State Street, each Fund (or Merrill Lynch Investment Managers, L.P., for those Funds identified on Schedule 1 hereto as Funds for which its investment adviser pays accounting costs) shall pay to State Street such fees and shall reimburse State Street such expenses as may be agreed by the parties from time to time in a separate written fee schedule.

14.2 Each Fund will bear all expenses that are incurred in its operation and not specifically assumed by State Street. Expenses to be borne by each Fund include, but are not limited to: organizational expenses; cost of services of independent accountants and outside legal and tax counsel (including such counsel's review of the Fund's registration statement, proxy materials, federal and state tax qualification as a regulated investment company and other reports and materials prepared by State Street under this Agreement); cost of any services contracted for by the Fund directly from parties other than State Street; cost of trading operations and brokerage fees, commissions and transfer taxes in connection with the purchase and sale of securities for the Fund; investment advisory fees; taxes, insurance premiums and other fees and expenses applicable to its operation; costs incidental to any meetings of shareholders including, but not limited to, legal and independent accountants' fees, proxy filing fees and the costs of preparation, printing and mailing of any proxy materials; costs incidental to Board meetings, including fees and expenses of Board members; the salary and expenses of any officer, director/trustee or employee of the Fund; costs incidental to the preparation, printing and distribution of the Fund's registration statements and any amendments thereto and shareholder reports; cost of typesetting and printing of prospectuses; cost of preparation and filing of the Fund's tax returns, Form N-1A or N-2, and all notices, registrations and amendments associated with applicable federal and state tax and securities laws; all applicable registration fees

and filing fees required under federal and state securities laws; and fidelity bond and directors' and officers' liability insurance.

15. JOINT SERVICES COMMITTEE.

15.1 Following the signing of this Agreement, State Street and the Funds, in conjunction with MLIM and Princeton Administrators, L.P. (collectively, the "MLIM Group") which have entered into separate Administrative Services Agreements with State Street, shall establish a Joint Services Committee (the "JSC") comprised of an equal number of representatives appointed to represent State Street and the MLIM Group (the "Committee Members"). For purposes of this section, the MLIM Group shall be treated as one entity in terms of their ability to appoint representatives to the JSC. Except as otherwise agreed, a meeting shall not be validly constituted unless an equal number of representatives from the MLIM Group and State Street are present. The JSC shall continue in existence after termination of this Agreement until such time as all activities performed by State Street under this Agreement have been transferred to a successor service provider. All parties shall be entitled from time to time to replace any of their representatives (and shall notify one another of their intention to do so). The JSC shall monitor the progress and performance of this Agreement in relation to the Services and shall meet on a regular basis no less frequently than quarterly unless otherwise agreed. Each of State Street and the MLIM Group shall also be entitled to convene meeting of the JSC by giving notice to all members of the JSC. A representative of the Funds shall chair all meetings of the JSC. The minutes shall be kept by State Street and, subject to review of all parties, issued to the MLIM Group. The JSC shall establish its own procedures and each party shall use all reasonable endeavors to meet the actions agreed at those meetings and cooperate with the other to provide personnel, resources and actions to meet their obligations under this Agreement.

15.2 State Street shall provide to the JSC and the representative(s) of the MLIM Group a monthly report in such form as the Committee Members shall agree (the "Key Performance Indicator Report") showing the following performance levels achieved by State Street in providing the relevant Services including, but not limited to:

15.2.1 the average performance in the previous 12 months;

15.2.2 the month with the highest and lowest performance levels in the previous 12 months; and

15.2.3 the performance in each month since the previous meeting.

15.3 The JSC shall be responsible for:

15.3.1 determining whether a Service is an Existing Service or a New Service and, for this purpose, a Service shall be determined to be an Existing Service if, although that Service is not described in a Service Level Agreement, it is a service which a Fund can demonstrate (to the reasonable satisfaction of State Street) has been provided or made available prior to the date of this Agreement by MLIM to one or more of the Funds;

15.3.2 oversight of the performance of the Services;

15.3.3 oversight of the performance by State Street, each Fund and third parties of their duties under the Service Level Agreement;

15.3.4 determining when and where revisions need to be made to this Agreement and to the Service Level Agreement(s) to more adequately meet or address the service requirements of the Funds from time to time; and

15.3.5 determining changes to be made in the Services as a result of changes in any law, rule or regulation applicable to the Funds.

16. REPRESENTATIONS AND WARRANTIES OF STATE STREET.

16.1 State Street represents and warrants to each Fund that:

16.1.1 It is a Massachusetts trust company, duly organized and existing under the laws of The Commonwealth of Massachusetts;

16.1.2 It has the corporate power and authority to carry on its business in The Commonwealth of Massachusetts and the State of New Jersey;

16.1.3 All requisite corporate proceedings hove been taken to authorize it to enter into and perform this Agreement;

16.1.4 No legal or administrative proceedings have been instituted or threatened which would impair State Street's ability to perform its duties and obligations under this Agreement; and

16.1.5 Its entrance into this Agreement shall not cause a material breach or be in material conflict with any other agreement or obligation of State Street or any law or regulation applicable to it.

17. REPRESENTATIONS AND WARRANTIES OF THE FUNDS.

17.1 Each Fund represents and warrants to State Street that:

17.1.1 It is a corporation or business trust as the case may be, duly organized, existing and in good standing under the laws of the jurisdiction of its incorporation or establishment;

17.1.2 It has the requisite corporate or trust power and authority under applicable laws and by its Constitutive Documents to enter into and perform this Agreement;

17.1.3 All requisite proceedings have been to authorize it to enter into and perform this Agreement;

17.1.4 It is an investment company properly registered under the 1940 Act;

17.1.5 A registration statement under the 1933 Act and the 1940 Act has been filed and, if the Fund is offering securities in a transaction that requires registration under the 1933 Act, will be effective and remain effective during the term of this Agreement as required by applicable law. The Fund also warrants to State Street that as of the effective date of this Agreement, all necessary filings under the securities laws of the states in which the Fund offers or sells its shares have been made;

17.1.6 No legal or administrative proceeding have been instituted or threatened which would impair the Fund's ability to perform its duties and obligations under this Agreement; and

17.1.7 Its entrance into this Agreement will not cause a material breach or be in material conflict with any other agreement or obligation or the Fund or any law or regulation applicable to it.

18. CONFIDENTIALITY.

The parties hereto agree that each shall treat confidentially the terms and conditions of this Agreement and all information provided by each party to the other regarding its business and operations. All confidential information provided by a party hereto, including nonpublic personal information pursuant to Regulation S-P of the Securities and Exchange Commission, shall be used by any other party hereto solely for the purpose of rendering services pursuant to this Agreement and, except as may be required in carrying out this Agreement, shall not be disclosed to any third party, without the prior consent of such provident party. The foregoing shall not be applicable to any information that is publicly available when provided or thereafter becomes publicly available other than through a breach of this Agreement, or that is required to be disclosed by any regulatory authority, any authority or legal counsel of the parties hereto, by judicial or administrative process or otherwise by applicable law or regulation.

19. RECORDS.

19.1 State Street is authorized to maintain all accounts, registers, corporate books and other documents and information on magnetic tape or disc or in accordance with any other mechanical or electronic system provided that they are capable of being produced in legible form in accordance with applicable laws.

19.2 In compliance with the requirements of Rule 31a-3 under the 1940 Act, State Street agrees that all records which it maintains for a Fund shall at all times remain the property of the Fund, shall be readily accessible during normal business hours, and shall be promptly surrendered upon the termination of the Agreement or otherwise on written request. State Street further agrees that all records which it maintains for a Fund pursuant to Rule 31a-1 under the 1940 Act will be preserved for the periods prescribed by Rule 31a-2 under the 1940 Act unless any such records are earlier surrendered as provided above. Records shall be surrendered in usable machine-readable form. State Street shall

have the right to retain copies of such records subject to observance of its confidentiality obligations under this Agreement.

20. TERM: TERMINATION.

20.1 This Agreement shall become effective as of the date of its execution and delivery and shall continue in full force and effect for an initial term of five (5) years (the "Initial Term") with automatic one year renewals from year to year thereafter unless otherwise terminated in accordance with this provisions of this Section 20.

20.2 Upon termination of this Agreement, each Fund shall pay to State Street upon demand, such fees and reimbursable costs, expenses and disbursements as may be due as of the date of such termination.

20.3 State Street shall be entitled to resign its appointment hereunder in respect of a Fund:

20.3.1   following expiration of the Initial Term, by giving not less than
         270 days notice in writing to the Fund to expire at any time,
         provided, however, that State Street will use reasonable efforts
         in assisting the Fund to select a successor and if, after the
         expiration of the notice period, a new administrative services
         provider has hot been appointed or is not ready to assume its
         duties, State Street shall continue its appointment hereunder for
         such additional period as may be mutually agreed between State
         Street and the Fund.

20.3.2   with immediate effect at any time prior to the expiry of the

Initial Term if:

20.3.2.1 such Fund shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Fund seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, or other similar official for it or for any substantial part of its property; or the Fund shall take any corporate action to authorize any of the preceding actions, provided, however, that State Street may not resign its position on the basis that a Fund is being liquidated or reorganized for reasons other than bankruptcy or insolvency; or

20.3.2.2 such Fund shall commit a material breach of this Agreement, which breach, although capable of remedy, has not been remedied by the Fund within thirty (30) days of written notice by State Street; or

20.3.2.3 the obligations and duties in respect of a Fund under the Service Level Agreement have consistently not been met in a material respect and such failure has not been resolved by the JSC or the Executive Officers in accordance with Sections 5.5 through 5.8 above.

20.4 A Fund may terminate the appointment of State Street:

20.4.1   following expiration of the Initial Term, by giving not less than
         270 days notice in writing to expire at any time.

20.4.2   with immediate effect at any time prior to the expiry of the

Initial Term if:

20.4.2.1 State Street shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against State Street seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, or other similar official for it or for any substantial part of its property; or State Street shall take any corporate action to authorize any of the preceding actions;

20.4.2.2 State Street shall commit any material breach hereunder, which breach, although capable of remedy, has not been remedied by State Street within thirty (30) days of written notice by a Fund;

20.4.2.3 The Fund has substantially liquidated or distributed its assets to shareholders or a successor following a vote of such shareholders or other action to dissolve the Fund; or

20.4.2.4 State Street has consistently failed to meet the key performance indicators, delivery benchmarks or other aspects of the Service Level Agreement in a material respect and such failure has not been resolved by the JSC or the Executive Officers in accordance with Sections 5.5 through 3.8 above.

20.4.3 A Fund may terminate this Agreement with effect on the expiry of the Initial term by giving twelve months prior written notice or anytime thereafter in accordance with Section 20.4.1.

20.5 In the event that a Fund terminates one or more series of shares with respect to which State Street renders Services or a Fund terminates State Street's appointment pursuant to Section 20.4.2 above, it shall so notify State Street in writing.

20.6 Following any termination of this Agreement State Street and each Fund agree to provide their committed cooperation to effect an orderly transition of State Street's duties and responsibilities hereunder to a new administrative services provider(s) selected by the Fund or Funds as soon as may be reasonably practicable.

20.7 In the event this Agreement is terminated by one or more of the Funds pursuant to Section 20.4.2.4 or by State Street pursuant to Section
20.3.2.3. State Street shall pay one-half of the direct costs and expenses incurred by State Street and the Fund(s) in connection with such termination and the conversion to a successor administrative services provider and the Fund or Funds involved shall arrange for the payment of the balance.

21. NOTICES.

Any notice or other communication authorized or required by this Agreement to be given to either party shall be in writing and deemed to have beep, given when delivered in person or by confirmed facsimile, or posted by certified mail, return receipt requested, to the following address (or such other address as a party may specify by written notice to the other): if to a Fund c/o Merrill Lynch Investment Managers, L.P., 500 College Road East, Plainsboro, NJ 08536, Attn: Treasurer, fax (609) 282-7231; and if to State Street: State Street Bank and Trust Company, 500 College Road East, Plainsboro, NJ 08536, Attn: Donald DeMarco, fax: 609-282-9239.

22. FURTHER ASSURANCE.

Each party to this Agreement shall do execute or procure to be done and executed all necessary acts, deeds, documents and things reasonably in its power to give effect to this Agreement.

23. NON-EXCLUSIVITY.

23.1 The services of State Street to the Funds hereunder are not to be deemed exclusive and State Street and any affiliate shall be free to render similar services to others and to retain for its own use and benefit all fees or other monies payable thereby and neither State Street nor any affiliate shall be deemed to be affected with notice of or to be under any duty to disclose to the Funds any fact or thing which comes to the notice of State Street or that affiliate or any servant or agent of State Street or that affiliate in the course of State Street rendering similar services to others or in the course of its business in any other capacity or in any manner whatsoever otherwise than in the course of carrying out its duties hereunder.

23.2 Nothing herein contained shall prevent State Street or any affiliate from buying holding and dealing in any assets upon its own account or the account of others notwithstanding that similar assets may be held by State Street for the account of a Fund.

24. NO PARTNERSHIP OR AGENCY.

Nothing in this Agreement shall be construed as creating a partnership between State Street and a Fund or as constituting any party the agent of another party (save as expressly set out in this Agreement) for any purpose whatsoever and no party shall have the authority or power to bind another party or to contract in the name of or create a liability against another party in any way or for any purpose.

25. NON-WAIVER: FORBEARANCE.

The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion or the failure of a party to exercise or any delay in exercising a right or remedy under this Agreement (including any right implied by law) shall not constitute a waiver of any such term, right or remedy or a waiver of any other rights or remedies and no single or partial exercise of any right or remedy under this Agreement shall prevent any further exercise of the right or remedy or the exercise of any other right or remedy.

26. DISPUTES.

26.1 The parties desire to prevent both disputes and unanticipated issues arising under or relating to this Agreement. The parties further desire to resolve such disputes and unanticipated issues that nevertheless do occur by use of processes that are intended to avoid and prevent delaying or impairing in any way the performance by all parties of their respective obligations under this Agreement. Therefore, the parties have agreed to utilize the processes specified below in this Section 26 to resolve certain disputes, as described below, arising under or relating to this Agreement.

26.2 The parties agree that any issue(s) which may arise in connection with the Agreement shall initially be referred to the JSC, which shall establish a deadline for resolution of each matter submitted to it.

26.3 If the JSC has not fully resolved such issue(s) by the stated deadline, then the matter shall be referred to the Executive Officers for resolution.

26.4 If the Executive Officers are unable to resolve the matter within thirty
(30) Business Days of the referral, and if (but only if) all relevant parties agree in writing within five (5) Business Days of the aforementioned deadline, then a mutually-acceptable Professional Mediator (as defined below) may be utilized to review the open issue(s) and attempt to facilitate a resolution within thirty (30) Business Days of referral of the issue(s). The parties will mutually determine the location, date, duration. and process for any such mediation effort, which shall be in all respects advisory to, and not binding on, the parties. State Street shall pay one-half of the costs of the Professional Mediator and the Fund or Funds involved shall arrange for the payment of the balance.

26.5 To be considered as the Professional Mediator, an individual must have experience in the investment and/or administrative services industry/ies (preferably both). Any individual employed during the last two (2) calendar year by any party or any party's current primary legal, accounting, or consulting firm may not be utilized.

26.6 In order to enable and facilitate candor and completeness during, and the optimal potential benefits of, the mediation process, both (1) the parties' respective contentions, communications, documents, and/or submissions, if any, during the mediation, and (2) the analysis, comments, and/or recommendations of the Professional Mediator, if any (x) will remain confidential among the parties (to the extent permissible under applicable law, State Street and each Fund hereby acknowledging that State laws and/or regulations may require the public availability of some or all information and documents relating to this Agreement) and (y) may not be asserted, admitted or otherwise utilized by any party as evidence against another party in any later or simultaneous mediation, binding arbitration, litigation, or otherwise.

26.7 If either (i) following a failure by the Executive Officers to resolve the matter, the relevant parties do not agree on use of a Professional Mediator or (ii) the open issue(s) have not been resolved within thirty (30) Business Days of the conclusion of such mediation effort, then resolution between the parties' will be deemed to have failed and each party shall be free to enforce of its legal rights under this Agreement in such manner as it shall deem fit.

27. REMEDIES ARE CUMULATIVE.

Except as expressly provided in this Agreement, the rights and remedies contained in this Agreement are cumulative and not exclusive of any rights or remedies provided by law.

28. REPRODUCTION OF DOCUMENTS.

This Agreement and all schedules, exhibits, attachments and amendments hereto may be reproduced by any photographic, photostatic, microfilm, micro-card, miniature photographic or other similar process. The parties hereto each arms that any such reproduction shall be admissible in evidence as the original itself, subject to any challenge on the grounds that the reproduction has been materially altered so that it does not conform to the terms of the original agreement, if any judicial or administrative proceeding, whether or not the original is in existence and whether or not such reproduction was made by a party in the regular course of business, and that any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence.

29. VARIATION OF AGREEMENT.

No variation, amendment or modification of this Agreement shall be valid unless it is in written and signed for or on behalf of each party hereto.

30. ASSIGNABILITY.

This Agreement shall not be assigned by either State Street or a Fund without the prior consent in writing of the other party, except that State Street may assign this Agreement to a successor of all or a substantial portion of its business, or to a party controlling, controlled by or under common control with State Street.

31. SUCCESSORS.

This Agreement shall be binding on and shall inure to the benefit of the Fund and State Street and their respective successors and permitted assigns.

32. SEVERABILITY.

In the event that any part of this Agreement shall be determined to be void or unenforceable for any reason, the remainder of this Agreement shall be unaffected thereby (unless the purpose of the agreement is substantially frustrated by such determination), and shall be enforceable in accordance with the remainder of its terms as if the void or unenforceable part were not part hereof.

33. COUNTERPARTS.

This Agreement may be executed in any number of counterparts, each of which shall, when executed and delivered be an original, but all the counterparts taken together shall constitute one and the same agreement.

34. LIMITATION ON LIABILITY OF TRUSTEES.

In relation to each Fund which is a business trust, this Agreement is executed and made by the Trustees of the Fund not individually, but as trustees under the Declarations of Trust of the Fund and the obligations of this Agreement are not binding upon any of such Trustees or upon any of the shareholders of the Fund individually, but bind only the trust estate of the Fund.

35. GOVERNING LAW.

This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to the conflicts of law principles thereof.

36. ENTIRE AGREEMENT.

This Agreement constitutes the entire agreement between State Street and each Fund on the subject matter hereof and supersedes and terminates as of the date hereof, all prior oral or written agreements, arrangements or understandings between the parties.

[Remainder of Page Intentionally Blank]

SIGNATURE PAGE

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their officers designated below as of the date first written above.

STATE STREET BANK AND TRUST COMPANY

By:
Name: Donald DeMarco
Title: Senior Vice President

TERRY K. GLENN,
President
for and on behalf of the Funds listed in Schedule 1 hereto

SCHEDULE I

MLIM-ADVISED/1/ INVESTMENT COMPANIES

Apex Municipal Fund, Inc.
CBA Money Fund
CMA Government Securities Fund
CMA Money Fund
CMA Multi-State Municipal Series Trust (10 series) CMA Tax-Exempt Fund
CMA Treasury Fund
Corporate High Yield Fund II, Inc.
Corporate High Yield Fund III, Inc.
Corporate High Yield Fund, Inc.
Debt Strategies Fund II, Inc.
Financial Institutions Series Trust (Summit Cash Reserves Fund) Global Financial Services Master Trust
Income Opportunities Fund 2000, Inc.
Master Basic Value Trust
Master Equity Income Trust
Mercury Master Trust (7 portfolios)
Mercury Asset Management VI Funds, Inc.
Master Small Cap Value Trust
Master Large Cap Series Trust (3 series) Master Premier Growth Trust
Master Mid Cap Growth Trust
Master Senior Floating Rate Trust
Master U.S. High Yield Trust
Mercury Basic Value Fund
Mercury Focus Twenty Fund
Mercury Large Cap Series Funds, Inc. (3 series) Mercury Mid Cap Growth Fund
Mercury Premier Growth Fund
Mercury Small Cap Value Fund
Mercury Internet Strategies Fund
Mercury U.S. High Yield Fund
Mercury Senior Floating Rate Fund
Mercury US Large Cap Fund
Mercury US Small Cap Growth Fund
Master Focus Twenty Trust
Master Internet Strategies Trust
Master Large Cap Series Trust
Master Premier Growth Trust
Mercury Global Holdings, Inc.

/1/ Includes funds advised by Merrill Lynch Investment Managers, L.P. and Fund Asset Management, L.P.

Mercury QA Equity Series, Inc.
Mercury QA Strategy Series, Inc.
Mercury Pan European Growth Fund
Mercury International Fund
Mercury Global Balanced Fund
Mercury Gold and Mining Fund
Mercury Select Growth Fund.
Mercury VI US Large Cap Fund
Mercury VI Pan-European Growth Fund
Mercury Puerto Rico Tax-Exempt Fund
Merrill Lynch Short-Term US Government Fund (formerly Adjustable Rate) Merrill Lynch Emerging Markets Debt Fund (formerly Americas Income Fund) Merrill Lynch Balanced Capital Fund, Inc./2/ Merrill Lynch Basic Value Fund, Inc.
Merrill Lynch California Municipal Series Trust (2 series) Merrill Lynch Corporate Bond Fund, Inc. (3 series) 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 Funds for Institutions Series Merrill Lynch Government Fund
Merrill Lynch Institutional Fund Merrill Lynch Premier Institutional Fund Merrill Lynch Rated Institutional Fund Merrill Lynch Institutional Tax-Exempt Fund Merrill Lynch Treasury Fund
Merrill Lynch Global Allocation Fund, Inc. Merrill Lynch Global Bond Fund for Investment and Retirement Merrill Lynch Global Financial Services Fund Merrill Lynch Global Growth Fund, Inc.
Merrill Lynch Natural Resources Trust (formerly Global Resources Trust) Merrill Lynch Global SmallCap Fund, Inc. Merrill Lynch Global Technology Fund, Inc. Merrill Lynch Utilities & Telecommunications Fund (formerly Global Utility Fund) Merrill Lynch Global Value Fund, Inc.
Merrill Lynch Growth Fund
Merrill Lynch Healthcare Fund, Inc.
Merrill Lynch High Income Municipal Bond Fund, Inc. Merrill Lynch Index Funds, Inc. (Administration Agreement only) Merrill Lynch Intermediate Government Bond Fund Merrill Lynch International Equity Fund
Merrill Lynch Large Cap Series Funds, Inc. (3 series)

/2/ Costs of Services for this Fund to be billed to and paid by MLIM.

Merrill Lynch Focus Twenty Fund, Inc.
Merrill Lynch Premier Growth Fund, Inc.
Merrill Lynch Mid Cap Growth Fund, Inc.
Merrill Lynch Latin America Fund, Inc.
Merrill Lynch Multi-State Limited Maturity Municipal Series Trust (2 series) Merrill Lynch Multi-State Municipal Series Trust (17 series) Merrill Lynch Municipal Bond Fund, Inc. (3 series) , Merrill Lynch Municipal Series Trust (Merrill Lynch Municipal Intermediate Term Fund)
Merrill Lynch Municipal Strategy Fund, Inc. Merrill Lynch Pacific Fund, Inc.
Merrill Lynch Focus Value Fund (formerly Merrill Lynch Phoenix Fund) Merrill Lynch Ready Assets Trust
Merrill Lynch Real Estate Fund, Inc.
Merrill Lynch Retirement Series Trust (Merrill Lynch Retirement Reserves Money Fund)
Merrill Lynch Senior Floating Rate Fund, Inc. Merrill Lynch Senior Floating Rate Fund II, Inc. Merrill Lynch Series Fund, Inc. (10 portfolios) Merrill Lynch Short-Term Global Income Fund, Inc. Merrill Lynch Small Cap Value Fund, Inc. (formerly Merrill Lynch Special Value Fund, Inc.)
Merrill Lynch Equity Income Fund (formerly Strategic Dividend Fund) Merrill Lynch U.S. Treasury Money Fund
Merrill Lynch U.S. High Yield Fund, Inc. (formerly Merrill Lynch Corporate High Yield)
Merrill Lynch U.S. Government Mortgage Fund (formerly Merrill Lynch Federal Securities Trust) .
Merrill Lynch U.S.A. Government Reserves Merrill Lynch Variable Series Funds, Inc. (20 portfolios) Merrill Lynch World Income Fund, Inc.
MuniAssets Fund, Inc.
MuniEnhanced Fund, Inc.
MuniHoldings California Insured Fund, Inc. MuniHoldings Florida Insured Fund
MuniHoldings Florida Insured Fund V
MuniHoldings Fund, Inc.
MuniHoldings Fund II, Inc.
MuniHoldings Insured Fund, Inc.
MuniHoldings Insured Fund II, Inc.
MuniHoldings Michigan Insured Fund II, Inc. MuniHoldings New Jersey Insured Fund, Inc. MuniHoldings New Jersey Insured Fund IV, Inc. MuniHoldings New York Insured Fund, Inc. MuniHoldings New York Insured Fund IV, Inc. MuniInsured Fund, Inc.

MuniVest Fund, Inc.
MuniVest Fund II, Inc.
MuniYield Arizona Fund, Inc.
MuniYield California Fund, Inc.
MuniYield California Insured Fund, Inc.
MuniYield California Insured Fund II, Inc. MuniYield Florida Fund
MuniYield Florida Insured Fund
MuniYield Fund, Inc.
MuniYield Insured Fund, Inc.
MuniYield Michigan Insured Fund, Inc.
MuniYield Michigan Fund, Inc.
MuniYield New Jersey Fund, Inc.
MuniYield New Jersey Insured Fund, Inc.
MuniYield New York Insured Fund, Inc.
MuniYield Pennsylvania Insured Fund
MuniYield Quality Fund, Inc.
MuniYield Quality Fund II, Inc.
Quantitative Master Series Trust
Senior High Income Portfolio, Inc.
Somerset Exchange Fund2
The Asset Program, Inc. (formerly Asset Builder Program, Inc.) (5 series) The Corporate Fund Accumulation Program, Inc. The Municipal Fund Accumulation Program, Inc. The S&P 500 Protected Equity Fund/3/
Worldwide DollarVest Fund, Inc.

/3/ Costs of Services for this Fund to be billed to and paid by MLIM.

EXHIBIT 1

Instrument of Accession

Reference is hereby made to the Administrative Services Agreement (the "Agreement") dated December 29, 2000 by and between STATE STREET BANK AND TRUST COMPANY ("State Street") and each entity listed on Schedule 1 thereto or which has or shall become a signatory thereto by execution of an instrument of accession substantially in the form hereof.

In order that it may become a party to the aforesaid Agreement, including, without limitation, any and all schedules and exhibits thereto, [Fund Name] agrees and binds itself to the terms and conditions thereof and acknowledges that by its execution and delivery of this Instrument it shall assume all of the obligations and shall be entitled to all of the rights of a Fund (as such term is defined in the Agreement), as if it were an original party thereto.

This Instrument of Accession shall take effect and shall become a part of said Agreement immediately upon its execution and delivery.

Executed as of the date set forth below under the laws of the State of New York.

[NAME OF FUND]

By:
Name:
Title

Accepted and agreed to:

STATE STREET BANK AND TRUST COMPANY

By:
Name:
Title

Date:

EXHIBIT 2

Compliance Monitoring Services Addendum

1. DEFINITIONS.

For purposes of this addendum (the "Addendum"):

"Contract Year" means the twelve-month period beginning on the commencement date of the Compliance Monitoring Service in respect of a Portfolio and each subsequent twelve-month period thereafter.

"Compliance Test" means periodic checks carried out by State Street to determine or assist in the determination of compliance or non-compliance by a Portfolio with the investment guidelines, restrictions and policies specified for such portfolio in a Test Matrix or as required by the Service Level Agreement, including without limitation the tests to be carried out pursuant to Section 4.1.9 of the Agreement and Sections 11.1 and 9.11 of the Service Level Agreement relating to AMPS Compliance and Subchapter "M" and Subchapter "L" Compliance (as applicable in each case, the "Investment Criteria")

"Compliance Breach" means, as applicable in relation to the test being conducted, the failure of a Portfolio to comply with any of the Investment Criteria specified for such Portfolio in the applicable Test Matrix or the Service Level Agreement.

"Compliance Monitoring Services" means the performance by State Street of the Compliance Tests set forth in a Test Matrix or as required by the Service Level Agreement with respect to one or more Portfolios designated therein.

"Compliance Report" means, as applicable in relation to the test being conducted, a report containing the results of the Compliance Tests carried out by State Street.

"Test Matrix" means State Street's standard form test matrix, together with any exhibits or attachments thereto, setting forth the Investment Criteria, Compliance Tests to be carried out, Portfolios to be tested and frequency of tests, as agreed between State Street and a Fund from time to time.

"Portfolio" means each portfolio of assets of a Fund in respect of which a Fund has requested State Street to carry out Compliance Tests.

2. COMPLIANCE MONITORING SERVICES.

2.1 Subject to the general terms and conditions of the Agreement and Section 3 below, State Street agrees to carry out the Compliance Tests set forth in a Test Matrix or the Service Level Agreement, as the case may be, with respect to one or more Portfolios designated therein as may be agreed from time to time by State Street and a Fund.

2.2 Unless otherwise specified in a Test Matrix or the Service Level Agreement, as the case may be, all Compliance Tests will be based on unaudited daily, monthly or other

appropriate period end data obtained from the record keeping systems employed by State Street and will utilize standard dictionary classifications with respect to all assets and each Compliance Test.

2.3 State Street shall communicate Compliance Breaches and Compliance Reports to the relevant Fund at such times and in such manner as may be agreed from time to time between State Street and the Fund; provided that in carrying out the Compliance Monitoring Services, State Street shall report Compliance Breaches to a Fund promptly after becoming aware of any such breach.

2.4 The Compliance Monitoring Services will commence in respect of a Portfolio at such time as may be agreed from time to time between State Street and the Fund.

3. LIABILITY.

3.1 Each Fund acknowledges and agrees that State Street shall assume no duty to discharge any legal or regulatory obligation imposed on a Fund or its investment adviser to ensure or otherwise monitor investment or legal compliance by the Fund.

3.2 Except as expressly set forth in Section 3.2 below, State Street shall have no liability for any loss, liability, damage, claim, cost or expense, in contract, tort or otherwise (including, but not limited to, any liability relating to qualification of a Fund as a regulated investment company or any liability relating to a Fund's compliance with any federal or state tax or securities statute, regulation or ruling), whether ordinary, direct, indirect, consequential, incidental, special, punitive or exemplary arising out or in connection with the Compliance Monitoring Services or any decision made or action taken by any party in reliance upon such service, even if State Street has been advised of the possibility of such loss, damage or expense and regardless of the form of action in which a claim is brought.

3.3 In the event a Fund incurs a loss or liability with respect to a Portfolio by reason of State Street's fraud, bad faith, willful default or negligence in the performance of the Compliance Monitoring Services, State Street shall reimburse the Fund an amount in respect of such loss or liability up to (but not in excess of) the fees paid or accrued and payable by the Fund for the Compliance Monitoring Services in respect of such Portfolio, provided, however, that in no event will the aggregate liability of State Street for the provision of Compliance Monitoring Services in respect of any Portfolio in any Contract Year exceed the annual fee payable by the Fund for such services in respect of such Portfolio. For purposes of this
Section 3.2, the annual fee payable by a Fund for Compliance Monitoring Services shall be deemed to be an amount equal to ten (10) per cent of the aggregate annual fee payable by such Fund to State Street in respect of the accounting and administrative services provided pursuant to the Agreement.

3.4 The liability of State Street under Section 3.2 for any loss shall be limited to the extent of its relative degree of fault in relation to that of the party responsible for the management of the Portfolio. To the extent that a Fund and State Street are unable to agree initially as to the relative degree of fault, the particular matter shall be referred to the JSC, which

shall refer the matter to a committee of representatives of State Street and the Funds appointed by the JSC. To the extent that the committee is unable to reach a determination of relative decree of fault, and the dispute is not subsequently resolved by the JSC, the matter shall be resolved under the dispute resolution procedures set forth in Section 26 of the Agreement.

3.5 Notwithstanding Section 3.2, State Street shall be without liability to a Fund for any loss or liability incurred subsequent to a Fund or the investment adviser of the Fund becoming aware of a Compliance Breach.

EXHIBIT 10

INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in Post-Effective Amendment No. 1 to Registration Statement No. 333-89775 on Form N-1A of our reports dated January 12, 2001 on Merrill Lynch Focus Twenty Fund, Inc. and Master Focus Twenty Trust, both appearing in the Fund's November 30, 2000 Annual Report, and to the reference to us under the caption "Financial Highlights" in the Prospectus which is a part of such Registration Statement.

/s/ Deloitte & Touche LLP

Princeton, New Jersey

March 16, 2001