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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 9, 1998
FILE NO. 811-________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO.
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(CHECK APPROPRIATE BOX OR BOXES)
MERCURY MASTER INTERNATIONAL PORTFOLIO
AND MERCURY MASTER PAN-EUROPEAN GROWTH
PORTFOLIO OF
MERCURY ASSET MANAGEMENT MASTER TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(888) 763-2260
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
JEFFREY M. PEEK
BOX 9011
PRINCETON, NEW JERSEY 08543-9011
(NAME AND ADDRESS OF AGENT FOR SERVICE)
Copies to:
Counsel for the Trust:
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JOEL H. GOLDBERG, Esq. and ROBERT E. PUTNEY, III, Esq.
Swidler Berlin Shereff Friedman, LLP P.O. Box 9011
919 Third Avenue Princeton, New Jersey 08543-9011
New York, New York 10022
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EXPLANATORY NOTE
This Registration Statement has been filed by the Registrant pursuant to
Section 8(b) of the Investment Company Act of 1940, as amended (the "Investment
Company Act"). However, beneficial interests in the Registrant are not being
registered under the Securities Act of 1933, as amended (the "1933 Act") because
such interests will be issued solely in private placement transactions that do
not involve any "public offering" within the meaning of Section 4(2) of the 1933
Act. Investments in the Registrant may be made only by a limited number of
institutional investors, including investment companies, common or commingled
trust funds, group trusts and certain other "accredited investors" within the
meaning of Regulation D under the 1933 Act. This Registration Statement does not
constitute an offer to sell, or the solicitation of an offer to buy, any
beneficial interests in the Registrant.
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PART A
Responses to Items 1 through 3, 5 and 9 have been omitted pursuant to
paragraph 2(b) of Instruction B of the General Instructions to Form N-1A.
ITEM 4. - INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES, AND RELATED
RISKS.
Mercury Asset Management Master Trust (the "Trust") is a no-load, open-end
management investment company which was organized as a Delaware business trust
on April 23, 1998. Mercury Master Pan-European Growth Portfolio ("Pan-European
Growth Portfolio") and Mercury Master International Portfolio ("International
Portfolio") (together, the "Portfolios" and each, a "Portfolio") are each
separate series of the Trust. Each Portfolio is a diversified investment company
with different investment objectives and policies. There can, of course, be no
assurance that the respective investment objectives of the Portfolios can be
achieved.
INVESTMENT OBJECTIVES AND PRINCIPAL INVESTMENT STRATEGIES.
MERCURY MASTER INTERNATIONAL PORTFOLIO
International Portfolio's main goal is long-term capital growth through
investments primarily in a diversified portfolio of equity securities of
companies located outside the United States. In selecting securities, the
Portfolio emphasizes those securities that Portfolio management believes to be
undervalued or have good prospects for earnings growth. International Portfolio
will generally invest at least 80% of its total assets in equity securities of
at least two different countries outside the United States.
International Portfolio will invest in securities of companies located in
developed countries and countries with emerging capital markets outside the
United States. International Portfolio may invest without limit in countries
with emerging capital markets including countries in Eastern Europe, Latin
America and the Far East. International Portfolio allocates investments to
countries that the management of the Portfolio believes, based on an evaluation
of economic, political and social factors, present good prospects for overall
economic growth.
MERCURY MASTER PAN-EUROPEAN GROWTH PORTFOLIO
Pan-European Growth Portfolio's main goal is long-term capital growth
through investments primarily in a diversified portfolio of equity securities of
companies located in Europe. In selecting securities, the Portfolio emphasizes
those securities that Portfolio management believes to be undervalued or have
good prospects for earnings growth. Pan- European Growth Portfolio will
generally invest at least 80% of its total assets in equity securities of
companies located in Europe.
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Pan-European Growth Portfolio will invest primarily in securities of
companies located in developed European countries, including the United Kingdom,
Germany, the Netherlands, Switzerland, Sweden, France, Italy, Belgium, Norway,
Denmark, Finland, Portugal, Austria, Spain, Greece, Ireland and Luxembourg. The
Portfolio may also invest in securities of companies located in developing
European countries, including Bulgaria, the Czech Republic, Hungary, Poland,
Romania, Slovakia, and the states which formerly comprised Yugoslavia and the
Soviet Union. Pan-European Growth Portfolio does not allocate investments based
on its analysis of the overall prospects for a particular European country.
BOTH PORTFOLIOS
Equity securities consist of:
- - Common Stock
- - Preferred Stock
- - Securities Convertible into Common Stock
- - Derivative securities, such as options (including warrants) and futures, the
value of which is based on a common stock or group of common stocks.
A company's stock is considered undervalued when the stock's current price
is less than what a Portfolio's management believes a share of the company is
worth. Portfolio management feels a company's worth can be assessed by several
factors such as:
- - financial resources
- - value of assets
- - sales and earnings growth
- - product development
- - quality of management
- - overall business prospects
A company's stock may become undervalued when most investors fail to
perceive the company's strengths in one or more of these areas. A company whose
earnings per share grow faster than inflation and the economy in general usually
has a higher stock price over time than companies with slower earnings growth. A
Portfolio's evaluation of the prospects for a company's industry or market
sector is an important factor in evaluating a particular company's earnings
prospects. Current income from dividends and interest will not be an important
consideration in selecting portfolio securities for a Portfolio.
Both Portfolios may invest in companies of any size, but each Portfolio
intends to focus on medium and large companies. The Portfolios have no stated
minimum holding period for investments, and each will buy or sell securities
whenever the Portfolio's management sees an appropriate opportunity. A Portfolio
does not consider potential tax consequences to investors when it sells
securities.
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Each Portfolio may invest in debt securities that are issued together with
a particular equity security. Each Portfolio may invest in derivatives to hedge
(protect against price movements) or to enable it to reallocate its investments
more quickly than it could by buying and selling the underlying securities.
Each Portfolio will normally invest almost all of its assets in the above
described manner. Each Portfolio may, however, invest in short-term instruments,
such as money market securities and repurchase agreements, to meet redemptions.
Each Portfolio may also make short-term investments, purchase high quality bonds
or buy or sell derivatives, to reduce exposure to equity securities when the
Portfolio believes it is advisable to do so (on a temporary defensive basis).
Short-term investments and temporary defensive positions may limit the potential
for growth in the value of an interest in the Portfolio.
The Portfolios may use many different investment strategies in seeking
their investment objectives, and each Portfolio has certain investment
restrictions. These strategies and certain of the restrictions and policies
governing each Portfolio's investments are explained in Part B of this
Registration Statement.
INVESTMENT RISKS.
This section contains a summary discussion of the general risks of
investing in a Portfolio.
There can be no guarantee that either Portfolio will meet its goals, or
that a Portfolio's performance will be positive over any period of time.
Each Portfolio is subject to three principal risks: market risk, selection
risk and foreign investment risk. Market risk is the risk that the equity
markets will go down in value, including the possibility that the equity markets
will go down sharply and unpredictably. Selection risk is the risk that the
stocks that a Portfolio's adviser selects will underperform the market or other
funds with similar investment objectives and investment strategies. Foreign
investment risk is the risk that a Portfolio's investments in non-U.S.
securities may go up or down in value depending on foreign exchange rates,
foreign political and economic developments and U.S. and foreign laws relating
to non-U.S. investment. In addition to these risks, certain investment
techniques that a Portfolio may use entail other risks:
Liquidity, Information and Valuation Risks.
Certain securities, including securities of companies in countries
with emerging capital markets, securities of small companies and
"restricted securities" may be illiquid or volatile, making it
difficult or impossible to sell them at the time and at the price
that the Portfolio would like. Restricted securities have
contractual or legal restrictions on their resale and include
"private placement" securities that a
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Portfolio may buy directly from the issuer. Also, important
information about these companies, securities or the markets in
which they trade, may be inaccurate or unavailable. It may be
difficult to value accurately these types of securities. Certain
derivatives may be subject to these risks as well.
European Economic and Monetary Union (EMU).
Certain European countries have agreed to enter into EMU, in an
effort to, among other things, reduce barriers between countries,
increase competition among companies, reduce government subsidies in
certain industries, and reduce or eliminate currency fluctuations
among these countries. Among other things, EMU establishes a single
common European currency (the "euro") that will be introduced on
January 1, 1999 and is expected to replace the existing national
currencies of all EMU participants by July 1, 2002. Upon
introduction of the euro, certain securities (beginning with
government and corporate bonds) will be redenominated in the euro,
and, thereafter, will be listed, trade and make dividend and other
payments only in euros. Although EMU is generally expected to have a
beneficial effect, it could negatively affect a Portfolio in a
number of situations, including as follows:
- If the euro, or EMU as a whole, does not take effect as
planned, a Portfolio's investments could be adversely
affected. For example, sharp currency fluctuations, exchange
rate volatility, and other disruptions of the markets could
occur.
- Withdrawal from EMU by a participating country could also have
a negative effect on a Portfolio's investments, for example if
securities redenominated in euros are transferred back into
that country's national currency.
- Computer, accounting, and trading systems must be capable of
recognizing the euro as a distinct currency. Like other
investment companies and business organizations, a Portfolio
could be adversely affected if the systems used by the
investment adviser, the Portfolio's other service providers,
or entities with which the Portfolio or its service providers
do business do not properly address this issue prior to euro
conversion over the first weekend of 1999 (January 1 through
January 3). These issues may negatively affect the operations
of the companies a Portfolio invests in as well.
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Other Foreign Security Risks.
- The value of each Portfolio's non-U.S. holdings (and hedging
transactions in foreign currencies) will be affected by
changes in currency exchange rates.
- The costs of non-U.S. securities transactions tend to be
higher than those of U.S. transactions.
- A Portfolio's non-U.S. securities holdings may be adversely
affected by foreign government action.
- International trade barriers or economic sanctions against
certain non-U.S. countries may adversely affect a Portfolio's
non-U.S. holdings.
- A Portfolio may be able to invest in certain small non-U.S.
markets only by investing in another fund that in turn invests
in those markets. It may cost a Portfolio more to buy shares
of these funds than it would to buy the non-U.S. securities
directly.
- The foregoing risks are heightened when the investment is made
in a country that has an emerging capital market. The
development of a capital market depends on a number of
factors, including a country's success in making political,
economic and social reforms. If a country were to discontinue
its process of reform, or experience other destabilizing
events, a Portfolio's investments could be adversely affected.
In addition, because of the small size of the capital market
in a country with an emerging capital market or governmental
restrictions on foreign investment, there may be fewer
investment opportunities available to a Portfolio than in more
developed markets. This could limit a Portfolio's ability to
diversify its holdings among issuers, industries and
countries.
- If a Portfolio purchases a bond issued by a foreign
government, the government may be unwilling or unable to make
payments when due. There may be no formal bankruptcy
proceeding by which a Portfolio would be able to collect
amounts owed by a foreign government.
- Non-U.S. markets have different clearance and settlement
procedures, and in certain markets settlements may be unable
to keep pace with the volume of securities transactions which
may cause delays. This means that a Portfolio's assets may be
uninvested and not earning returns. A Portfolio may miss
investment opportunities or be unable to dispose of a security
because of these delays.
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Borrowing.
The use of borrowing can increase a Portfolio's exposure to market
risk. That is, when a Portfolio borrows money to make more
investments than it otherwise could or to meet redemptions, and the
Portfolio's investments go down in value, the Portfolio's losses
will be magnified.
Derivatives.
A Portfolio may also 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 S&P 500 or the prime
lending rate). Derivatives allow a Portfolio to increase or decrease
the level of risk to which the Portfolio is exposed more quickly and
efficiently than transactions in other types of instruments.
Derivatives, however, are volatile and involve significant risks,
including many of the risks described above. Other risks include:
- Credit risk -- the risk that the counterparty on a derivative
transaction will be unable to honor its financial obligation
to a Portfolio.
- 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.
- Leverage risk -- 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.
- 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.
- Index risk -- If the derivative is linked to the performance
of an index, it will be subject to the risks associated with
changes in that index. If the index changes, a Portfolio could
receive lower interest payments or experience a reduction in
the value of the derivative to below what the Portfolio paid.
Certain indexed securities, including inverse securities
(which move in an opposite direction to the index), may create
leverage, to the extent that they increase or decrease in
value at a rate that is a multiple of the changes in the
applicable index.
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A Portfolio may use the following types of derivative instruments:
- Futures -- exchange-traded contracts involving the obligation
of the seller to deliver, and the buyer to receive, certain
assets (or a money payment based on the change in value of
certain assets or an index) at a specified time. Futures may
involve leverage risk and currency risk.
- Forwards -- private contracts involving the obligation of the
seller to deliver, and the buyer to receive, certain assets
(or a money payment based on the change in value of certain
assets or an index) at a specified time. Forwards involve
credit risk and leverage risk, and may involve currency risk.
- Options -- exchange-traded or private contracts involving the
right of a holder to deliver (a "put") or receive (a "call")
certain assets (or a money payment based on the change of
certain assets or an index) from another party at a specified
price within a specified time period. Options may involve
leverage risk. Private options also involve credit risk and
liquidity risk. Options also may involve currency risk.
Convertible Securities.
Convertible securities, including bonds and preferred stock, are
convertible into common stock. As a result of the conversion
feature, the interest or dividend rate on a convertible security is
generally less than would be the case if the security were not
convertible. The value of a convertible security will be affected
both by its stated interest or dividend rate and the value of the
underlying common stock. Therefore, its value will be affected by
the factors that affect both debt securities (such as interest
rates) and equity securities (such as stock market movements
generally). Some convertible securities might require a Portfolio to
sell the securities back to the issuer or a third party at a time
that is disadvantageous to the Portfolio.
Debt Securities.
Debt securities, such as bonds, involve credit risk, which is the
risk that the borrower will not make timely payments of principal
and interest. These securities are also subject to interest rate
risk, which 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 shorter term securities.
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ITEM 6. - MANAGEMENT, ORGANIZATION, AND CAPITAL STRUCTURE.
INVESTMENT ADVISER.
Mercury Asset Management International Ltd. manages each Portfolio's
investments under the overall supervision of the Board of Trustees of the
Mercury Asset Management Master Trust. The investment adviser has the
responsibility for making all investment decisions for each Portfolio.
Mercury and its affiliates manage portfolios with over $473 billion in
assets (as of August 1998) for individuals and institutions seeking investments
worldwide. This amount includes assets managed for its affiliates. The advisory
agreement between the Trust on behalf of each Portfolio and the investment
adviser gives the investment adviser the responsibility for making all
investment decisions.
With respect to each Portfolio, the investment adviser is paid at the rate
of .75% of the Portfolio's average daily net assets.
The investment adviser has hired Fund Asset Management, L.P., an
affiliate, to manage each Portfolio's daily cash assets. The Portfolios do not
pay any incremental fee for this service, although the investment adviser may
make payments to Fund Asset Management, L.P.
International Portfolio is managed by members of a team of 18 investment
professionals who participate in the team's research process and stock
selection. The senior investment professionals in this group that have managed
the International Portfolio since the Portfolio started operations include:
Claus Anthon, Director of Mercury Asset Management. He has been employed
as an investment professional by the investment adviser since 1982.
Tammy Chow, Associate Director of Mercury Asset Management. She has been
employed as an investment professional by the investment adviser since
1994. Ms. Chow was a senior fund manager for Far Eastern Markets for
Credit Lyonnais International Asset Management, Hong Kong from 1988 to
1994.
Gary Lowe, Director of Mercury Asset Management. He has been employed as
an investment professional by the investment adviser since 1992.
Juliet Marber, Director of Mercury Asset Management. She has been employed
as an investment professional by the investment adviser since 1987.
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Charles Prideaux, Director of Mercury Asset Management. He has been
employed as an investment professional by the investment adviser since
1988. Mr. Prideaux is primarily responsible for the day-to-day management
of the International Portfolio.
Manraj Sekhon has been employed as an investment professional by the
investment adviser since 1994.
Pan-European Growth Portfolio is managed by members of a team of 26
investment professionals who participate in the team's research process and
stock selection. The senior investment professionals in this group that have
managed the Pan European Growth Portfolio since the Portfolio started operations
include:
Simon Flood, Director of Mercury Asset Management. He has been employed as
an investment professional by the investment adviser since 1989.
Samuel Joab, Associate Director of Mercury Asset Management. He has been
employed as an investment professional by the investment adviser since
1992.
Michel Legros, Director of Mercury Asset Management. He has been employed
as an investment professional by the investment adviser and its affiliates
since 1991.
Andreas Utermann, Director of Mercury Asset Management. He has been
employed as an investment professional by the investment adviser since
1990. Mr. Utermann is primarily responsible for the day-to-day management
of the Pan-European Growth Portfolio .
Charlotte Winther has been employed as an investment professional by the
investment adviser since 1998. Ms. Winther was employed at Unibank Asset
Management from 1989 to 1998.
CAPITAL STOCK.
Investors in the Trust have no preemptive or conversion rights and
beneficial interests in the Trust are fully paid and non-assessable. The Trust
has no current intention to hold annual meetings of investors, except to the
extent required by the Investment Company Act, but will hold special meetings of
investors, when in the judgment of the Trustees, it is necessary or desirable to
submit matters for an investor vote. Upon liquidation of the Trust or Portfolio,
investors would be entitled to share, in proportion to their investment in the
Trust or a Portfolio (as the case may be), in the assets of the Trust or
Portfolio available for distribution to investors.
The Trust is organized as a Delaware business trust and currently consists
of seven Portfolios. Each investor is entitled to a vote in proportion to its
investment in the Trust or the Portfolio (as the case may be). Investors in a
Portfolio will participate equally in accordance
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with their pro rata interests in the earnings, dividends and assets of the
particular Portfolio. The Trust reserves the right to create and issue interests
in additional Portfolios.
Investments in the Trust may not be transferred, but an investor may
withdraw all or any portion of its investment in any Portfolio at net asset
value on any day on which the New York Stock Exchange is open.
ITEM 7. - SHAREHOLDER INFORMATION.
PRICING.
Each Portfolio calculates its net asset value (generally by using market
quotations) each day the New York Stock Exchange is open ("Pricing Day"),
fifteen minutes after the close of business on the Exchange (the New York Stock
Exchange generally closes at 4:00 p.m. Eastern time.) The net asset value used
in determining the price of an interest in the Portfolio is the one calculated
after the purchase or redemption order is received. The net asset value is
determined by deducting the amount of the Portfolio's total liabilities from the
value of its total assets. Net asset value is generally calculated by valuing
each security at its closing price for the day. Many of the Portfolios'
investments are traded on non-U.S. securities exchanges that close many hours
before the New York Stock Exchange. Events that could affect securities prices
that occur between these times normally are not reflected in a Portfolio's net
asset value. Non-U.S. securities sometimes trade on days that the New York Stock
Exchange is closed. As a result, a Portfolio's net asset value may change on
days when an investor will not be able to purchase or redeem the Portfolio's
shares. If an event occurs after the close of a non-U.S. exchange that is likely
to significantly affect a Portfolio's net asset value, "fair value" pricing may
be used. This means that a Portfolio may value its foreign holdings at prices
other than their last closing prices, and the Portfolio's net asset value will
reflect this. Securities and assets for which market quotations are not readily
available are also valued at fair value as determined in good faith by or under
the direction of the Board of Trustees.
Each investor in the Trust may add to or reduce its investment in a
Portfolio on each Pricing Day. The value of each investor's beneficial interest
in a Portfolio will be determined by multiplying the net asset value of the
Portfolio by the percentage, effective for that day, that represents that
investor's share of the aggregate beneficial interests in such Portfolio. Any
additions or withdrawals, which are to be effected on that day, will then be
effected. The investor's percentage of the aggregate beneficial interests in a
Portfolio will then be re-computed as the percentage equal to the fraction (i)
the numerator of which is the value of such investor's investment in the
Portfolio 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 Portfolio effected on such day, and (ii) the denominator of
which is the aggregate net asset value of the Portfolio 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 Portfolio by all investors in
the Portfolio. The percentage so determined will then be applied to determine
the value of the
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investor's interest in such Portfolio as of 15 minutes after the close of
business of the New York Stock Exchange on the next Pricing Day of the
Portfolio.
PURCHASE OF SECURITIES.
Beneficial interests in the Trust are issued solely in private placement
transactions that do not involve any "public offering" within the meaning of
Section 4(2) of the 1933 Act. Investments in each Portfolio of the Trust may
only be made by a limited number of institutional investors including investment
companies, common or commingled trust funds, group trusts, and certain other
"accredited investors" within the meaning of Regulation D under the 1933 Act.
This Registration Statement does not constitute an offer to sell, or the
solicitation of an offer to buy, any "security" within the meaning of the 1933
Act.
There is no minimum initial or subsequent investment in each Portfolio.
However, because each Portfolio intends to be as fully invested at all times as
is reasonably consistent with its investment objectives and policies in order to
enhance the yield on its assets, investments must be made in federal funds
(i.e., monies credited to the account of the respective Portfolio's custodian
bank by a Federal Reserve Bank).
Each Portfolio reserves the right to cease accepting investments at any
time or to reject any investment order.
REDEMPTION.
An investor in the Trust may withdraw all or a portion of its investment
in any Portfolio on any Pricing Day at the net asset value next determined after
a withdrawal request in proper form is furnished by the investor to the
Portfolio. The proceeds of the withdrawal will be paid by the Portfolio normally
on the business day on which the withdrawal is effected, but in any event within
seven days. Investments in any Portfolio of the Trust may not be transferred.
TAX CONSEQUENCES.
Under the anticipated method of operation of the Portfolios, each
Portfolio will be treated as a separate partnership for tax purposes and, thus,
will not be subject to any income tax. Based upon the status of each Portfolio
as a partnership, each investor in a Portfolio will be taxable on its share (as
determined in accordance with the governing instruments of the Portfolio) of
such Portfolio's ordinary income and capital gain in determining its income tax
liability. The determination of such share will be made in accordance with the
Internal Revenue Code of 1986, as amended (the "Code") and Treasury Regulations
promulgated thereunder.
It is intended that each Portfolio's assets, income and distributions will
be managed in such a way that an investor in any Portfolio will be able to
satisfy the requirements of Subchapter M of the Code assuming that the investor
invested all of its assets in the Portfolio.
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A NOTE ABOUT YEAR 2000:
Many computer systems were designed using only two digits to designate
years. These systems may not be able to distinguish the Year 2000 from the Year
1900 (commonly known as the "Year 2000 Problem"). The Portfolios could be
adversely affected if the computer systems used by the investment adviser or
other Portfolio service providers do not properly address this problem before
January 1, 2000. The investment adviser expects to have addressed this problem
before then, and does not anticipate that the services it provides will be
adversely affected. Each Portfolio's other service providers have told Fund
Asset Management, L.P. that they also expect to resolve the Year 2000 Problem,
and Fund Asset Management, L.P. will continue to monitor the situation as the
Year 2000 approaches. However, if the problem has not been fully addressed, the
Portfolios could be negatively affected. The Year 2000 Problem could also have a
negative impact on the companies in which the Portfolios invest, and this could
hurt a Portfolio's investment returns.
ITEM 8. - DISTRIBUTION ARRANGEMENTS.
Investments in a Portfolio will be made without a sales load. All
investments are made at net asset value next determined after an order is
received by the Portfolio. The net asset value of each Portfolio is determined
on each Pricing Day.
The Trust's placement agent is Mercury Funds Distributor, a division of
Princeton Funds Distributor, Inc.
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PART B
Except as otherwise indicated herein, all capitalized terms shall have
the meaning assigned to them in Part A hereof.
ITEM 10.
Mercury Master International Portfolio ("International Portfolio") and
Mercury Master Pan-European Growth Portfolio ("Pan-European Growth Portfolio")
(together, the "Portfolios" and each, a "Portfolio") are each separate series of
Mercury Asset Management Master Trust (the "Trust"). This Statement of
Additional Information is not a prospectus and should be read in conjunction
with the Prospectus of the Portfolios, dated October 9, 1998 (the "Prospectus"),
which has been filed with the Securities and Exchange Commission and can be
obtained, without charge, by calling the Trust at 1-888-763-2260, or by writing
to Mercury Asset Management Master Trust, P.O. Box 9011, Princeton, New Jersey
08543-9011. The Prospectus is incorporated by reference into this Statement of
Additional Information, and this Statement of Additional Information has been
incorporated by reference into the Prospectus.
The date of this Statement of Addition Information is October 9, 1998.
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TABLE OF CONTENTS.
Page
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Trust History...........................................................................3
Description of the Portfolios and Their Investments and Risks...........................3
Management of the Registrant...........................................................16
Control Persons and Principal Holders of
Securities.............................................................................18
Investment Advisory And Other Services.................................................19
Brokerage Allocation and Other Practices...............................................21
Capital Stock and Other Securities.....................................................22
Purchase, Redemption and Pricing of Securities.........................................23
Taxation of the Trust..................................................................25
Underwriters...........................................................................27
Calculation of Performance Data........................................................27
Financial Statements...................................................................28
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ITEM 11. - TRUST HISTORY.
The Trust is a Delaware business trust organized on April 23, 1998.
International Portfolio and Pan-European Growth Portfolio are each separate
series of the Trust.
ITEM 12. - DESCRIPTION OF THE PORTFOLIOS AND THEIR INVESTMENTS AND RISKS.
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS.
International Portfolio's goal (that is, the investment objective) is
long-term capital growth through investments primarily in a diversified
portfolio of equity securities of companies located outside the United States.
Pan-European Growth Portfolio's goal (that is the investment objective)
is long-term capital growth through investments primarily in a diversified
portfolio of equity securities of companies located in Europe.
International Portfolio and Pan-European Growth Portfolio are
diversified, open-end, management investment companies. Each Portfolio's
investment objective is a fundamental policy and cannot be changed without
shareholder approval. The investment objectives and policies are described in
more detail in Part A. There can be no guarantee that a Portfolio's investment
objective will be achieved.
For purposes of each Portfolio's investment objective, an issuer
ordinarily will be considered to be located in the country under the laws of
which it is organized or where the primary trading market of its securities is
located. A Portfolio, however, may consider a company to be located in a
country, without reference to its domicile or to the primary trading market of
its securities, when at least 50% of its non-current assets, capitalization,
gross revenues or profits in any one of the two most recent fiscal years
represents (directly or indirectly through subsidiaries) assets or activities
located in such country. A Portfolio also may consider closed-end investment
companies to be located in the country or countries in which they primarily make
their portfolio investments.
While it is the policy of each Portfolio generally not to engage in
trading for short-term gains, Mercury Asset Management International Ltd.
("Mercury International" or the "Investment Adviser") will effect portfolio
transactions without regard to a holding period if, in its judgment, such
transactions are advisable in light of a change in circumstances of a particular
company or within a particular industry or in general market, economic or
financial conditions.
The U.S. Government has from time to time in the past imposed
restrictions, through taxation and otherwise, on non-U.S. investments by U.S.
investors such as the Portfolios. If such restrictions should be reinstated, it
might become necessary for a Portfolio to invest all or substantially all of its
assets in U.S. securities. In such event, a Portfolio would review its
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investment objectives or fundamental policies to determine whether changes are
appropriate. Any changes in the investment objectives or fundamental policies
set forth under "Investment Restrictions" below would require the approval of
the holders of a majority of the Portfolio's outstanding voting securities.
A Portfolio's ability and decisions to purchase or sell portfolio
securities may be affected by laws or regulations relating to the convertibility
and repatriation of assets. Under present conditions, the Investment Adviser
does not believe that these considerations will have any significant effect on
its portfolio strategies, although there can be no assurance in this regard.
The Portfolios may invest in the securities of non-U.S. issuers in the
form of American Depositary Receipts ("ADRs"), European Depositary Receipts
("EDRs"), Global Depositary Receipts ("GDRs") or other securities convertible
into securities of non-U.S. issuers. These securities may not necessarily be
denominated in the same currency as the securities into which they may be
converted. However, they would generally be subject to the same risks as the
securities into which they may be converted (as more fully described in Part A
and below). ADRs are receipts typically issued by an American bank or trust
company that evidence ownership of underlying securities issued by a non-U.S.
corporation. EDRs are receipts issued in Europe that evidence a similar
ownership arrangement. GDRs are receipts issued throughout the world that
evidence a similar ownership arrangement. Generally, ADRs, in registered form,
are designed for use in the U.S. securities markets, and EDRs, in bearer form,
are designed for use in European securities markets. GDRs are traceable both in
the United States and Europe and are designed for use throughout the world. The
Portfolios may invest in unsponsored ADRs, EDRs and GDRs. The issuers of
unsponsored ADRs, EDRs and GDRs are not obligated to disclose material
information in the United States, and therefore, there may be no correlation
between such information and the market value of such securities.
Each Portfolio's investment objectives and policies are described in Part
A. Certain types of securities in which a Portfolio may invest and certain
investment practices that the Portfolio may employ are discussed more fully
below.
International Investing. International investments involve certain risks
not typically involved in domestic investments, including fluctuations in
foreign exchange rates, future political and economic developments, different
legal systems and the existence or possible imposition of exchange controls or
other U.S. or non-U.S. governmental laws or restrictions applicable to such
investments. Securities prices in different countries are subject to different
economic, financial and social factors. Because the Portfolios will 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 in
the portfolio and the unrealized appreciation or depreciation of investments
insofar as U.S. investors are concerned. 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. With respect to
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<PAGE> 19
certain countries, there may be the possibility of expropriation of assets,
confiscatory taxation, high rates of inflation, political or social instability
or diplomatic developments that could affect investments in those countries. In
addition, certain non-U.S. investments may be subject to non-U.S. withholding
taxes. As a result, management of the Portfolios may determine that,
notwithstanding otherwise favorable investment criteria, it may not be
practicable or appropriate to invest in a particular country.
For a number of years, certain European countries have been seeking
economic unification that would, among other things, reduce barriers between
countries, increase competition among companies, reduce government subsidies in
certain industries, and reduce or eliminate currency fluctuations among these
European countries. The Treaty on European Union (the "Maastricht Treaty") seeks
to set out a framework for the European Economic and Monetary Union ("EMU")
among the countries that comprise the European Union ("EU"). Among other things,
EMU establishes a single common European currency (the "euro") that will be
introduced on January l, 1999 and is expected to replace the existing national
currencies of all EMU participants by July I, 2002. EMU is scheduled to take
effect for the initial EMU participants as of January l, 1999, and will be
implemented over the weekend January l, 1999 through January 3, 1999
("conversion weekend"). Upon implementation of EMU, certain securities issued in
participating EU countries (beginning with government and corporate bonds) will
be redenominated in the euro, and thereafter, will be listed, traded, and make
dividend and other payments only in euros.
No assurance can be given that EMU will take effect, that the changes
planned for the EU can be successfully implemented, or that these changes will
result in the economic and monetary unity and stability intended. There is a
possibility that EMU will not be implemented, will be implemented but not
completed, or will be completed but then partially or completely unwound.
Because any participating country may opt out of EMU within the first three
years, it is also possible that a significant participant could choose to
abandon EMU, which would diminish its credibility and influence. Any of these
occurrences could have adverse effects on the markets of both participating and
non-participating countries, including sharp appreciation or depreciation of the
participants' national currencies and a significant increase in exchange rate
volatility, a resurgence in economic protectionism, an undermining of confidence
in the European markets, an undermining of European economic stability, the
collapse or slowdown of the drive toward European economic unity, and/or
reversion of the attempts to lower government debt and inflation rates that were
introduced in anticipation of EMU. Also, withdrawal from EMU at any time after
the conversion weekend by an initial participant could cause disruption of the
financial markets as securities redenominated in euros are transferred back into
that country's national currency, particularly if the withdrawing country is a
major economic power. Such developments could have an adverse impact on the
Portfolios' investments in Europe generally or in specific countries
participating in EMU. Gains or losses resulting from the euro conversion may be
taxable to a Portfolio's interest holders under foreign or, in certain limited
circumstances, U.S. tax laws.
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In addition, computer, accounting, and trading systems must be capable of
recognizing the euro as a distinct currency immediately after the conversion
weekend. Like other investment companies and business organizations, the
Portfolios could be adversely affected if the computer, accounting, and trading
systems used by the Investment Adviser, the Portfolios' service providers, or
other entities with which the Portfolios or their service providers do business
do not properly address this issue prior to January 4, 1999.
Most of the securities held by the Portfolios will not be registered with
the Commission nor will the issuers thereof be subject to the Commission's
reporting requirements. Accordingly, there may be less publicly available
information about a non-U.S. company than about a U.S. company, and non-U.S.
companies may not be subject to accounting, auditing and financial reporting
standards and requirements comparable to those to which U.S. companies are
subject.
Non-U.S. financial markets, while generally growing in trading volume,
typically have substantially less volume than U.S. markets, and securities of
many non-U.S. companies are less liquid and their prices more volatile than
securities of comparable domestic companies. The non-U.S. 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.
Further, satisfactory custodial services for investment securities may not be
available in some countries having smaller capital markets, which may result in
a Portfolio incurring additional costs and delays in transporting and custodying
such securities outside such countries. Delays in settlement could result in
temporary periods when assets of a Portfolio are uninvested and no return is
earned thereon and could cause a Portfolio to miss attractive investment
opportunities. Inability to dispose of a portfolio security due to settlement
problems either could result in losses to a Portfolio due to subsequent declines
in value of the portfolio security or, if the Portfolio has entered into a
contract to sell the security, could result in possible liability to the
purchaser. Brokerage commissions and other transaction costs on non-U.S.
securities exchanges are generally higher than in the United States. In some
non-U.S. countries there is less governmental supervision and regulation of
exchanges, brokers and issuers than there is in the United States.
A number of non-U.S. countries have authorized the formation of
closed-end investment companies to facilitate indirect foreign investment in
their capital markets. In accordance with the Investment Company Act of 1940, as
amended (the "Investment Company Act"), each Portfolio may invest up to 10% of
its total assets in securities of closed-end investment companies, not more than
5% of which may be invested in any one such company. This restriction on
investments in securities of closed-end investment companies may limit
opportunities for a Portfolio to invest indirectly in certain smaller capital
markets. Shares of certain closed-end investment companies may at times be
acquired only at market prices representing premiums to their net asset values.
If a Portfolio acquires shares in closed-end investment companies, shareholders
would bear both their proportionate share of expenses in the Portfolio
(including investment advisory fees) and, indirectly, the expenses of such
closed-end investment companies. A Portfolio also may seek, at its own cost, to
create their own investment entities under the laws of certain countries.
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<PAGE> 21
In some countries, banks or other financial institutions may constitute a
substantial number of the leading companies or companies with the most
actively-traded securities. The Investment Company Act limits each Portfolio's
ability to invest in any equity security of an issuer that, in its most recent
fiscal year, derived more than 15% of its revenues from "securities related
activities" as defined by the rules thereunder. These provisions may restrict a
Portfolio's investments in certain foreign banks and other financial
institutions.
As described above, each Portfolio will invest in a diversified array of
non-U.S. countries. The securities markets of many countries have at times in
the past moved relatively independently of one another due to different
economic, financial, political and social factors. When such lack of correlation
or negative correlation in movements of these securities markets occurs, it may
reduce risk for a Portfolio's portfolio as a whole. This negative correlation
also may offset unrealized gains a Portfolio has derived from movements in a
particular market. To the extent the various markets move independently, total
portfolio volatility is reduced when the various markets are combined into a
single portfolio. Of course, movements in the various securities markets may be
offset by changes in foreign currency exchange rates, where the different
markets are denominated in different currencies. Exchange rates frequently move
independently of securities markets in a particular country. As a result, gains
in a particular securities market may be affected by changes in exchange rates.
Investment in Emerging Markets. Each Portfolio has the ability to invest
in the securities of issuers domiciled in various countries with emerging
capital markets. Specifically, an "emerging market country" is any country that
the World Bank, the International Finance Corporation, the United Nations or its
authorities has determined to have a low or middle income economy. Countries
with emerging markets can be found in regions such as Asia, Latin America,
Eastern Europe and Africa.
Investments in the securities of issuers domiciled in countries with
emerging capital markets involve certain additional risks not involved in
investments in securities of issuers in more developed capital markets, such as
(i) low or non-existent trading volume, resulting in a lack of liquidity and
increased volatility in prices for such securities, as compared to securities of
comparable issuers in more developed capital markets, (ii) uncertain national
policies and social, political and economic instability, increasing the
potential for expropriation of assets, confiscatory taxation, high rates of
inflation or unfavorable diplomatic developments, (iii) possible fluctuations in
exchange rates, differing legal systems and the existence or possible imposition
of exchange controls, custodial restrictions or other non-U.S. or U.S.
governmental laws or restrictions applicable to such investments, (iv) national
policies that may limit a Portfolio's investment opportunities such as
restrictions on investment in issuers or industries deemed sensitive to national
interests, and (v) the lack or relatively early development of legal structures
governing private and foreign investments and private property. In addition to
withholding taxes on investment income, some countries with emerging markets may
impose differential capital gains taxes on foreign investors.
Such capital markets are emerging in a dynamic political and economic
environment brought about by events over recent years that have reshaped
political boundaries and traditional ideologies. In such a dynamic environment,
there can be no assurance that these capital markets will continue to
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<PAGE> 22
present viable investment opportunities for a Portfolio. In the past,
governments of such nations have expropriated substantial amounts of private
property, and most claims of the property owners have never been fully settled.
There is no assurance that such expropriations will not reoccur. In such an
event, it is possible that a Portfolio could lose the entire value of its
investments in the affected markets.
Also, there may be less publicly available information about issuers in
emerging markets than would be available about issuers in more developed capital
markets, and such issuers may not be subject to accounting, auditing and
financial reporting standards and requirements comparable to those to which U.S.
companies are subject. In certain countries with emerging capital markets,
reporting standards vary widely. As a result, traditional investment
measurements used in the U.S., such as price/earnings ratios, may not be
applicable. Emerging market securities may be substantially less liquid and more
volatile than those of mature markets and companies may be held by a limited
number of persons. This may adversely affect the timing and pricing of a
Portfolio's acquisition or disposal of securities.
Practices in relation to settlement of securities transactions in
emerging markets involve higher risks than those in developed markets, in part
because a Portfolio will need to use brokers and counterparties that are less
well capitalized, and custody and registration of assets in some countries may
be unreliable.
In Russia, for example, registrars are not subject to effective
government supervision nor are they always independent from issuers. The
possibility of fraud, negligence, undue influence being exerted by the issuer or
refusal to recognize ownership exists, which along with other factors could
result in the registration being completely lost. Therefore, investors should be
aware that a Portfolio would absorb any loss resulting from these registration
problems and may have no successful claim for compensation. Some of these
concerns may also exist in other emerging capital markets.
Debt Securities. Each Portfolio may hold convertible debt securities,
non-convertible securities and preferred securities. The Portfolios have
established no rating criteria for the debt securities in which they may invest.
Therefore, a Portfolio may invest in debt securities either (a) rated in one of
the top four rating categories by a nationally recognized statistical rating
organization or unrated but, in the Investment Adviser's judgment, possess
similar credit characteristics ("investment grade securities") or (b) rated
below the top four rating categories or that, are unrated but in the Investment
Adviser's judgment, possess similar credit characteristics ("high yield
securities"). The Investment Adviser considers ratings as one of several factors
in its independent credit analysis of issuers.
Issuers of high yield securities may be highly leveraged and may not have
available to them more traditional methods of financing. Therefore, the risks
associated with acquiring the securities of such issuers generally are greater
than is the case with higher rated securities. For example, during an economic
downturn or a sustained period of rising interest rates, issuers of high yield
securities may be more likely to experience financial stress, especially if such
issuers are highly leveraged. High yield securities tend to be more volatile
than higher rated fixed income securities and adverse economic events may have a
greater impact on the prices of high yield securities than on higher rated fixed
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<PAGE> 23
income securities. The issuer's ability to service its debt obligations also may
be adversely affected by specific issuer developments or the issuer's inability
to meet specific projected business forecasts or the unavailability of
additional financing. The risk of loss due to default by the issuer is
significantly greater for the holder of high yield securities because such
securities may be unsecured and may be subordinated to other creditors of the
issuer.
High yield securities frequently have call or redemption features that
would permit the issuer to repurchase such securities from a Portfolio. If a
call were exercised by an issuer during a period of declining interest rates, a
Portfolio likely would have to replace such called security with a lower
yielding security, thus decreasing the net investment income for the Portfolio
and dividends to interestholders.
A Portfolio may have difficulty disposing of certain high yield
securities because there may be a thin trading market for such securities.
Because not all dealers maintain markets in all high yield securities, there is
no established retail secondary market for many of these securities, and the
Portfolios anticipate that such securities could be sold only to a limited
number of dealers or institutional investors. To the extent that a secondary
trading market for high yield securities does exist, it is generally not as
liquid as the secondary market for higher rated securities. Reduced secondary
market liquidity may have an adverse impact on market price and a Portfolio's
ability to dispose of particular issues when necessary to meet the Portfolio's
liquidity needs or in response to a specific economic event such as a
deterioration in the creditworthiness of the issuer. Reduced secondary market
liquidity for certain securities also may make it more difficult for the
Portfolios to obtain accurate market quotations for purposes of valuing a
Portfolio's holdings. Market quotations are generally available on many high
yield securities only from a limited number of dealers and may not necessarily
represent firm bids of such dealer or prices for actual sales.
Adverse publicity and investor perceptions, which may not be based on
fundamental analysis, also may decrease the value and liquidity of high yield
securities, particularly in a thinly traded market. To the extent a Portfolio
holds high yield securities, factors adversely affecting the market value of
high yield securities are likely to adversely affect the Portfolio's net asset
value. In addition, a Portfolio may incur additional expenses to the extent it
is required to seek recovery upon a default on a portfolio holding or
participate in the restructuring of the obligation.
Borrowing. Each Portfolio 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), and may borrow up to an additional 5% of its total assets
for temporary purposes. Each Portfolio may obtain such short-term credit as may
be necessary for the clearance of purchases and sales of portfolio securities
and may purchase securities on margin to the extent permitted by applicable law.
Subject to these limits, each Portfolio may use borrowing to enable it to meet
redemptions. The purchase of securities while borrowings are outstanding will
have the effect of leveraging a Portfolio. Such leveraging increases the
Portfolio's exposure to capital risk. See "Investment Restrictions" below.
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<PAGE> 24
Illiquid or Restricted Securities. Each Portfolio 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 pace 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 a Portfolio's assets in
illiquid securities may restrict the ability of the Portfolio to dispose of its
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 a Portfolio's operations require cash, such as
when the Portfolio redeems shares or pays dividends, and could result in the
Portfolio borrowing to meet short-term cash requirements or incurring capital
losses on the sale of illiquid investments.
Each Portfolio may invest in securities that are "restricted securities."
Restricted securities have contractual or legal restrictions on their resale and
include "private placement" securities that a Portfolio may buy directly from
the issuer. Restricted securities 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 more difficult to value than
publicly traded securities and may be less liquid, or illiquid, and therefore
may be subject to the risks associated with illiquid securities as described in
the preceding paragraph. Some restricted securities however, may be liquid. 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 a Portfolio are required to be registered under the securities laws of
one or more jurisdictions before being resold, the Portfolio may be required to
bear the expenses of registration. Certain of a Portfolio'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, a Portfolio may obtain access to material nonpublic information
which may restrict the Portfolio's ability to conduct portfolio transactions in
such securities.
Other Special Considerations. Each Portfolio may make short-term
investments, purchase high quality bonds or buy or sell derivatives, to reduce
exposure to equity securities when a Portfolio believes it is advisable to do so
(on a temporary defensive basis). Short-term investments and temporary defensive
positions may limit the potential for growth in the value of the shares of a
Portfolio.
Sovereign Debt. Each Portfolio may invest more than 5% of its assets in
debt obligations ("sovereign debt") issued or guaranteed by non-U.S. governments
or their agencies and instrumentalities ("governmental entities"). Investment in
sovereign debt may involve a high degree of risk that the governmental entity
that controls the repayment of sovereign debt may not be able or willing to
repay the principal and/or interest when due in accordance with the terms of
such debt. A governmental entity's willingness or ability to repay principal and
interest due in a timely manner may
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<PAGE> 25
be affected by, among other factors, its cash flow situation, the extent of its
foreign reserves, the availability of sufficient foreign exchange on the date a
payment is due, the relative size of the debt service burden to the economy as a
whole, the governmental entity's policy towards the International Monetary Fund
and the political constraints to which a governmental entity may be subject. In
certain countries, governmental entities may also be dependent on expected
disbursements from foreign governments, multilateral agencies and others abroad
to reduce principal and interest arrearages on their debt. The commitment on the
part of these governments, agencies and others to make such disbursements may be
conditioned on a governmental entity's implementation of economic reforms and/or
economic performance and the timely service of such debtor's obligations.
Failure to implement such reforms, achieve such levels of economic performance
or repay principal or interest when due may result in the cancellation of such
third parties' commitments to lend funds to the governmental entity, which may
further impair such debtor's ability or willingness to timely service its debts.
Consequently, governmental entities may default on their sovereign debt.
Holders of sovereign debt, including a Portfolio, may be requested to
participate in the rescheduling of such debt and to extend further loans to
governmental entities. There is no bankruptcy proceeding by which sovereign debt
on which a governmental entity has defaulted may be collected in whole or in
part.
The sovereign debt instruments in which a Portfolio may invest involve
great risk and are deemed to be the equivalent in terms of quality to high
yield/high risk securities discussed above and are subject to many of the same
risks as such securities. Similarly, a Portfolio may have difficulty disposing
of certain sovereign debt obligations because there may be a thin trading market
for such securities.
Securities Lending. Each Portfolio may lend securities with a value not
exceeding 33 1/3% of its total assets. In return, the Portfolio receives
collateral in an amount equal to at least 100% of the current market value of
the loaned securities in cash or securities issued or guaranteed by the U.S.
Government. If cash collateral is received by a Portfolio, it is invested in
short-term money market securities and a portion of the yield received in
respect of such investment is retained by the Portfolio. Alternatively, if
securities are delivered to a Portfolio as collateral, the Portfolio and the
borrower negotiate a rate for the loan premium to be received by the Portfolio
for lending its portfolio securities. In either event, the total yield on a
Portfolio's portfolio is increased by loans of its portfolio securities. A
Portfolio may receive a flat fee for its loans. The loans are terminable at any
time and the borrower, after notice, is required to return borrowed securities
within five business days. A Portfolio 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, a Portfolio 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.
Repurchase Agreements. Each Portfolio may invest in securities pursuant
to repurchase agreements. Repurchase agreements may be entered into only with a
member bank of the Federal Reserve System or primary dealer in U.S. Government
securities or an affiliate thereof. Under such
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<PAGE> 26
agreements, the bank or primary dealer or an affiliate thereof agrees, upon
entering into the contract, to repurchase the security at a mutually agreed upon
time and price, thereby determining the yield during the term of the agreement.
This insulates the Portfolio from fluctuations in the market value of the
underlying security during such period, although, to the extent the repurchase
agreement is not denominated in U.S. dollars, a Portfolio's return may be
affected by currency fluctuations. A Portfolio may not invest more than 15% of
its total assets in repurchase agreements maturing in more than seven days
(together with other illiquid securities). Repurchase agreements may be
construed to be collateralized loans by the purchaser to the seller secured by
the securities transferred to the purchaser. A Portfolio 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. 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 a Portfolio but only constitute collateral for the seller's obligation to pay
the repurchase pace. Therefore, a Portfolio may suffer time delays and incur
costs or possible losses in connection with the disposition of the collateral.
In the event of a default under such a repurchase agreement, instead of the
contractual fixed rate of return, the rate of return to a Portfolio shall be
dependent upon intervening fluctuations of the market value of such security and
the accrued interest on the security. In such event, the Portfolio 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.
Warrants. Each Portfolio may invest in warrants, which are securities
permitting, but not obligating, the warrant holder to subscribe for other
securities. Buying a warrant does not make a Portfolio 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 an investment in warrants may be more speculative than other
equity-based investments.
When-lssued Securities and Forward Commitments. Each Portfolio may
purchase or sell securities that they are entitled to receive on a when-issued
basis. Each Portfolio may also purchase or sell securities through a forward
commitment. These transactions involve the purchase or sale of securities by a
Portfolio at an established price with payment and delivery taking place in the
future. A Portfolio enters into these transactions to obtain what is considered
an advantageous price to the Portfolio at the time of entering into the
transaction. Neither Portfolio has established any limit on the percentage of
its assets that may be committed in connection with these transactions. When a
Portfolio is purchasing securities in these transactions, the Portfolio
maintains a segregated account with its custodian of cash, cash equivalents,
U.S. Government securities or other liquid securities in an amount equal to the
amount of its purchase commitments.
There can be no assurance that a security purchased on a when-issued
basis will be issued, or 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 a Portfolio's purchase price. The
Portfolio 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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<PAGE> 27
Standby Commitment Agreements. Each Portfolio may enter into standby
commitment agreements. These agreements commit a Portfolio, for a stated period
of time, to purchase a stated amount of securities which may be issued and sold
to the Portfolio at the option of the issuer. The price of the security is fixed
at the time of the commitment. At the time of entering into the agreement the
Portfolio is paid a commitment fee, regardless of whether or not the security is
ultimately issued. A Portfolio will enter into such agreements for the purpose
of investing in the security underlying the commitment at a price that is
considered advantageous to the Portfolio. A Portfolio will not enter into a
standby commitment with a remaining term in excess of 45 days and will limit its
investment in such commitments so that the aggregate purchase price of
securities subject to such commitments, together with the value of portfolio
securities subject to legal restrictions on resale that affect their
marketability, will not exceed 15% of its net assets taken at the time of the
commitment. A Portfolio will maintain a segregated account with its custodian of
cash, cash equivalents, U.S. Government securities or other liquid securities in
an aggregate amount equal to the purchase price of the securities underlying the
commitment.
There can be no assurance that the securities subject to a standby
commitment will be issued, and the value of the security if issued, on the
delivery date may be more or less than its purchase price. Since the issuance of
the security underlying the commitment is at the option of the issuer, a
Portfolio may bear the risk of a decline in the value of such security and may
not benefit from an appreciation in the value of the security during the
commitment period.
The purchase of a security subject to a standby commitment agreement and
the related commitment fee will be recorded on the date on which the security
can reasonably be expected to be issued, and the value of the security
thereafter will be reflected in the calculation of a Portfolio's net asset
value. The cost basis of the security will be adjusted by the amount of the
commitment fee. In the event the security is not issued, the commitment fee will
be recorded as income on the expiration date of the standby commitment.
INVESTMENT RESTRICTIONS.
The Trust has adopted the following restrictions and policies relating to
the investment of each Portfolio's assets and each Portfolio's activities. The
fundamental restrictions set forth below may not be changed with respect to a
Portfolio without the approval of the holders of a majority of a Portfolio's
outstanding voting securities (which for this purpose and under the Investment
Company Act means the lesser of (i) 67% of the interests represented at a
meeting at which more than 50% of the outstanding interests are represented or
(ii) more than 50% of the outstanding interests). No Portfolio may:
1. Make any investment inconsistent with the Portfolio's
classification as a diversified company under the Investment Company Act.
2. Invest more than 25% of its assets, taken at market value, in the
securities of issuers in any particular industry (excluding the U.S. Government
and its agencies and instrumentalities).
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3. Make investments for the purpose of exercising control or
management. Investments by the Portfolio 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.
4. Purchase or sell real estate, except that, to the extent
permitted by applicable law, the Portfolio 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.
5. 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 or any
similar instruments shall not be deemed to be the making of a loan, and except
further that the Portfolio 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 Portfolio's Registration Statement, as
it may be amended from time to time.
6. Issue senior securities to the extent such issuance would violate
applicable law.
7. Borrow money, except that (i) the Portfolio 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 Portfolio may borrow up to an
additional 5% of its total assets for temporary purposes, (iii) the Portfolio
may obtain such short-term credit as may be necessary for the clearance of
purchases and sales of portfolio securities and (iv) the Portfolio may purchase
securities on margin to the extent permitted by applicable law. A Portfolio may
not pledge its assets other than to secure such borrowings or, to the extent
permitted by the Portfolio's investment policies as set forth in its
Registration Statement, as it may be amended from time to time, in connection
with hedging transactions, short sales, when-issued and forward commitment
transactions and similar investment strategies.
8. Underwrite securities of other issuers except insofar as a
Portfolio technically may be deemed an underwater under the Securities Act of
1933, as amended (the Securities Act"), in selling portfolio securities.
9. Purchase or sell commodities or contracts on commodities, except
to the extent that a Portfolio may do so in accordance with applicable law and
the Portfolio's Registration Statement, as it may be amended from time to time,
and without registering as a commodity pool operator under the Commodity
Exchange Act.
In addition, the Trust has adopted non-fundamental restrictions that may
be changed with respect to a Portfolio by the Board of Trustees without
shareholder approval. Under the non-fundamental investment restrictions, no
Portfolio may:
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(a) Purchase securities of other investment companies, except to the
extent such purchases are permitted by applicable law. As a matter of policy,
however, a Portfolio 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 the Portfolio's shares are owned by another investment company
that is part of the same group of investment companies as the Portfolio.
(b) Make short sales of securities or maintain a short position,
except to the extent permitted by applicable law. The Portfolios currently do
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 Trustees of the Trust 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 Trustees are not subject to the limitations set forth in this investment
restriction.
The staff of the Commission has taken the position that purchased
over-the-counter ("OTC") options and the assets used as cover for written OTC
options are illiquid securities. Therefore, the Trust has adopted an investment
policy pursuant to which a Portfolio 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 Portfolio, the market value of the underlying securities
covered by OTC call options currently outstanding that were sold by the
Portfolio and margin deposits on the Portfolio's existing OTC options on futures
contracts exceeds 15% of the total assets of the Portfolio taken at market
value, together with all other assets of the Portfolio that are illiquid or are
not otherwise readily marketable. However, if the OTC option is sold by a
Portfolio to a primary U.S. Government securities dealer recognized by the
Federal Reserve Bank of New York and if the Portfolio has the unconditional
contractual right to repurchase such OTC option from the dealer at a
predetermined price, then the Portfolio 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 Portfolios and may be amended by the Trustees without the approval
of the interestholders. However, the Trustees will not change or modify this
policy prior to the change or modification by the Commission staff of its
position.
Portfolio securities of the Portfolios generally may not be purchased
from, sold or loaned to the Investment Adviser or its affiliates or any of their
directors, general partners, officers or employees, acting as principal, unless
pursuant to a rule or exemptive order under the Investment Company Act.
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Because of the affiliation of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") with the Investment Adviser and Fund Asset
Management, L.P. ("FAM"), a Portfolio is prohibited from engaging in certain
transactions involving Merrill Lynch, the Investment Adviser, or any of 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." Rule 10f-3 under the Investment Company Act sets
forth conditions under which a Portfolio may purchase from an underwriting
syndicate of which Merrill Lynch is a member.
ITEM 13. - MANAGEMENT OF THE REGISTRANT.
TRUSTEES AND OFFICERS.
The Trustees of the Trust consist of six individuals, four of whom are
not "interested persons" of the Trust as defined in the Investment Company Act.
The Trustees are responsible for the overall supervision of the operations of
the Trust and perform the various duties imposed on the trustees of investment
companies by the Investment Company Act. Information about the Trustees and
executive officers of the Trust, their ages and their principal occupations for
at least the last five years are set forth below. Unless otherwise noted, the
address of each executive officer and Trustee is P.O. Box 9011, Princeton, New
Jersey 08543-9011.
Jeffrey M. Peek (51)--Trustee and President(1)(2)--President of MLAM and
FAM since 1997; President and Director of Princeton Services, Inc. since 1997;
Executive Vice President of Merrill Lynch & Co., Inc. ("ML & Co.") since 1997;
Co-Head of Merrill Lynch Investment Banking Division from March 1997 to December
1997; Director of Merrill Lynch Global Securities Research and Economics
Division from 1995 to 1997; Head of Merrill Lynch Global Industries Group from
1993 to 1995.
Terry K. Glenn (58)--Trustee and Executive Vice President(1)
(2)--Executive Vice President of MLAM and FAM since 1983; Executive Vice
President and Director of Princeton Services, Inc. since 1993; President of
Princeton Funds Distributor, Inc. since 1986 and Director thereof since 1991;
President of Princeton Administrators, L.P. since 1988.
David O. Beim (58)--Trustee--410 Uris Hall, Columbia University, New
York, New York 10027. Professor at Columbia University since 1991; Chairman of
Outward Bound USA since 1997; Chairman of Wave Hill, Inc. since 1980.
James T. Flynn (57)--Trustee(2)--340 East 72nd Street, New York, New York
10021. Chief Financial Officer of J.P. Morgan & Co. Inc. from 1990 to 1995 and
an employee of J.P. Morgan in various capacities from 1967 to 1995.
W. Carl Kester (45)--Trustee(2)--Harvard Business School, Morgan Hall
393, Soldiers Field, Boston, Massachusetts 02163. James R. Williston Professor
of Business Administration of Harvard
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<PAGE> 31
University Graduate School of Business since 1997; MBA Class of 1958 Professor
of Business Administration of Harvard University Graduate School of Business
Administration from 1981 to 1997; Independent Consultant since 1978.
Karen P. Robards (48)--Trustee--Robards & Company, 173 Riverside Drive,
New York, New York 10024. President of Robards & Company, a financial advisory
firm, for more than five years; Director of Enable Medical Corp. since 1996;
Director of Cine Muse Inc. since 1996.
Peter John Gibbs (40)--Senior Vice President--33 King William Street,
London, EC4R 9AS, England. Chairman of Mercury Asset Management International
Ltd. since 1998; Director of Mercury Asset Management Ltd since 1993; Director
of Mercury Asset Management International Channel Islands Ltd.
Gerald M. Richard (49)--Treasurer--Senior Vice President and Treasurer of
MLAM and FAM since 1984; Senior Vice President and Treasurer of Princeton
Services, Inc. 1993; Vice President of Princeton Funds Distributor, Inc. since
1981 and Treasurer thereof since 1984.
Donald C. Burke (38)--Vice President--First Vice President of MLAM and
FAM since 1997 and Director of Taxation thereof since 1990; Vice President of
MLAM and FAM from 1990 to 1997.
Robert E. Putney, III (38)--Secretary--Director (Legal Advisory) of MLAM
and Princeton Administrators, L.P. since 1997; Vice President of MLAM from 1994
to 1997; Vice President of Princeton Administrators, L.P. from 1996 to 1997;
Attorney with MLAM from 1991 to 1994.
- ------------
(1) Interested person, as defined in the Investment Company Act, of the
Trust.
(2) Such Trustee or officer is a trustee, director or officer of other
investment companies for which the Investment Adviser, or the
Portfolios' sub-adviser, FAM, or their affiliates, acts as investment
adviser.
As of the date of this Part B, the officers and Trustees of the Trust as
a group (ten persons) owned an aggregate of less than 1% of the outstanding
shares of common stock of ML & Co. and owned an aggregate of less than 1% of the
outstanding shares of any of the Portfolios.
COMPENSATION OF DIRECTORS/TRUSTEES.
Mercury Asset Management Funds, Inc., (the "Corporation"), the registered
investment company whose series (the "Funds") invest all of their assets in the
corresponding Portfolios, and the Trust expect to pay each Director/Trustee not
affiliated with the Investment Adviser or FAM or with an affiliate of the
Investment Adviser or FAM (each a "non-affiliated Director/Trustee"), for
service to the Funds and Portfolios, a fee of $2,500 per year plus $250 per
in-person meeting attended, together with such individual's actual out-of-pocket
expenses relating to attendance at meetings. The Corporation and
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<PAGE> 32
the Trust also expect to compensate members of the Audit and Nominating
Committee, which consists of all of the non-affiliated Directors/Trustees, at
the rate of $1,000 annually.
The following table sets forth the aggregate compensation the Corporation
and the Trust expect to pay to the non-affiliated Directors/Trustees for their
first full fiscal year and the aggregate compensation paid by all investment
companies advised by Mercury International, FAM, or their affiliates ("Mercury
and Affiliates-Advised Funds") to the non-affiliated Directors/Trustees for the
calendar year ended December 31, 1997.
<TABLE>
<CAPTION>
TOTAL COMPENSATION FROM
AGGREGATE PENSION OR RETIREMENT FUNDS/PORTFOLIOS AND
COMPENSATION BENEFITS ACCRUED AS PART MERCURY
FROM OF AND AFFILIATES-ADVISED FUNDS
NAME OF DIRECTOR/TRUSTEE FUNDS/PORTFOLIOS FUNDS/PORTFOLIOS EXPENSES PAID TO DIRECTORS/TRUSTEES(1)
- --------------------------- ---------------- ------------------------- -----------------------------
<S> <C> <C> <C>
David O. Beim.............. None None None
James T. Flynn............. None None $36,000
W. Carl Kester............. None None $36,000
Karen P. Robards........... None None None
</TABLE>
- ---------------------
(1) In addition to the Corporation and the Trust, the Directors/Trustees
served on other Mercury and Affiliates-Advised Funds as follows: Mr. Beim
(no registered investment companies); Mr. Flynn (2 registered investment
companies consisting of 6 portfolios); Mr. Kester (2 registered
investment companies consisting of 6 portfolios); and Ms. Robards (no
registered investment companies).
ITEM 14. - CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.
Mercury International Fund of Mercury Asset Management Funds, Inc.
("International Fund") and the Investment Adviser each control International
Portfolio. As of October 1, 1998 International Fund owns 99.8% of the currently
outstanding interests of International Portfolio and the Investment Adviser owns
100% of the currently outstanding interests of International Fund.
Mercury Pan-European Growth Fund of Mercury Asset Management Funds, Inc.
("Pan-European Growth Fund") and the Investment Adviser each control
Pan-European Growth Portfolio. As of October 1, 1998 Pan-European Growth Fund
owns 99.8% of the currently outstanding interests of Pan-European Growth
Portfolio and the Investment Adviser owns 100% of the currently outstanding
interests of Pan-European Growth Fund.
All holders of interests ("Holders") are entitled to vote in proportion
to the amount of their interest in a Portfolio or in the Trust, as the case may
be. There is no cumulative voting. Accordingly, the Holder or Holders of more
than 50% of the aggregate beneficial interests of the Trust would be able to
elect all the Trustees. With respect to the election of Trustees and
ratification of accountants the Holders of separate Portfolios vote together;
they generally vote separately by Portfolio on other matters.
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ITEM 15. - INVESTMENT ADVISORY AND OTHER SERVICES.
The Trust on behalf of each Portfolio has entered into investment
advisory agreements with Mercury International as Investment Adviser (the
"Advisory Agreements"). As discussed in Part A, the Investment Adviser receives
for its services to each Portfolio monthly compensation at the annual rate of
0.75% of the average daily net assets of each Portfolio.
The Advisory Agreements obligate the Investment Adviser to provide
investment advisory services and to pay, or cause its affiliate to pay, for
maintaining its staff and personnel and to provide office space, facilities and
necessary personnel for the Trust. The Investment Adviser is also obligated to
pay, or cause its affiliate to pay, the fees of all Officers, Trustees and
Directors who are affiliated persons of the Investment Adviser or any
sub-adviser or of an affiliate of the Investment Adviser or any sub-adviser. The
Trust pays, or causes to be paid, all other expenses incurred in the operation
of the Portfolios and the Trust (except to the extent paid by Mercury Funds
Distributor, a division of Princeton Funds Distributors, Inc., as Placement
Agent), including, among other things, taxes, expenses for legal and auditing
services, costs of printing proxies, shareholder reports, copies of the
Registration Statement, charges of the Custodian, any Sub-custodian and Transfer
Agent, expenses of portfolio transactions, expenses of redemption of shares,
Commission fees, expenses of registering the shares under federal, state or
non-U.S. laws, fees and actual out-of-pocket expenses of Trustees who are not
affiliated persons of the Investment Adviser or any sub-adviser, or of an
affiliate of the Investment Adviser or of any sub-adviser, 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 or the Portfolios.
The Placement Agent will pay certain of the expenses of the Portfolios incurred
in connection with continuous offering of its interests. Accounting services are
provided to the Trust by the Investment Adviser or an affiliate of the
Investment Adviser, and the Trust reimburses the Investment Adviser or an
affiliate of the Investment Adviser for its costs in connection with such
services.
Securities held by the Portfolios, or other portfolios of the Trust, may
also be held by, or be appropriate investments for, other funds or investment
advisory clients for which the Investment Adviser or its affiliates act as an
adviser. Because of different objectives or other factors, a particular security
may be bought for one or more clients when one or more clients are selling the
same security. If purchases or sales of securities by the Investment Adviser for
the Trust's portfolios or other funds for which it acts as investment adviser or
for its advisory clients arise for consideration at or about the same time,
transactions in such securities will be made, insofar as feasible, for the
respective funds and clients in a manner deemed equitable to all. To the extent
that transactions on behalf of more than one client of the Investment Adviser 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.
Mercury International is located at 33 King William Street, London EC4R
9AS, England. Mercury International's intermediate parent company is Mercury
Asset Management Group Ltd, a London-based holding company of a group engaged in
the provision of investment management and
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advisory services globally. The ultimate parent of Mercury Asset Management
Group Ltd. is ML & Co., a financial services holding company. ML & Co. is a
controlling person of Mercury International as defined under the Investment
Company Act because of its power to exercise a controlling influence over its
management or policies.
The Investment Adviser has entered into sub-advisory agreements (the
"Sub-Advisory Agreements") with FAM with respect to each Portfolio pursuant to
which FAM provides investment advisory services with respect to each Portfolio's
daily cash assets. The Investment Adviser pays FAM a fee in an amount to be
determined from time to time by the Investment Adviser and FAM but in no event
in excess of the amount that the Investment Adviser actually receives for
providing services to the Trust pursuant to the Advisory Agreements.
FAM is located at 800 Scudders Mill Road, Plainsboro, New Jersey 08536.
FAM, an affiliate of Mercury International, is a wholly owned subsidiary of ML &
Co., a financial services holding company and the parent of Merrill Lynch. ML &
Co. and Princeton Services, Inc., the partners of FAM, are "controlling persons"
of FAM as defined under the Investment Company Act because of their power to
exercise a controlling influence over its management or policies.
Duration and Termination. Unless earlier terminated as described below,
the Advisory Agreements and Sub-Advisory Agreements will each remain in effect
for two years from their effective dates. Thereafter, they will remain in effect
from year to year if approved annually (a) by the Board of Trustees or by a
majority of the outstanding shares of the respective Portfolio 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 with respect to each
Portfolio without penalty on 60 days' written notice at the option of either
party thereto or by the vote of the shareholders of the Portfolio.
CODE OF ETHICS.
The Board of Trustees of the Trust, the Board of Directors of the
Corporation, the Investment Adviser, and FAM have each adopted a Code of Ethics
under Rule 17j-1 of the Investment Company Act (together the "Codes"). The Codes
significantly restrict the personal investing activities of all employees of the
Investment Adviser and FAM and, as described below, impose additional, more
onerous, restrictions on portfolio investment personnel. Among other substantive
restrictions, the Codes contain reporting and preclearance requirements for
employees of the Investment Adviser and FAM and provide for trading "blackout
periods" that prohibit trading by decision making access persons (those who
recommend or determine which securities transactions the Trust undertakes) of
the Trust within periods of trading by the Trust in the same (or equivalent)
security.
INDEPENDENT ACCOUNTANTS.
Deloitte & Touche LLP, has been selected as the independent auditors of
the Trust. The independent auditors are responsible for auditing the annual
financial statements of the Trust.
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LEGAL COUNSEL.
Swidler Berlin Shereff Friedman, LLP, 919 Third Avenue, New York 10022,
is counsel for the Trust.
CUSTODIAN.
Brown Brothers Harriman & Co., 40 Water Street, Boston, Massachusetts
02109, acts as the custodian of the Portfolios' assets. Under its contract with
the Trust, the Custodian is authorized to establish separate accounts in foreign
currencies and to cause foreign securities owned by the Portfolios to be held in
its offices outside the United States and with certain foreign banks and
securities depositors. The Custodian is responsible for safe guarding and
controlling the Portfolios' cash and securities, handling the receipt and
delivery of securities and collecting interest and dividends on the Portfolios'
investments.
ITEM 16. - BROKERAGE ALLOCATION AND OTHER PRACTICES.
The Investment Adviser is responsible for making portfolio decisions for
each Portfolio, placing the Portfolios' brokerage business, evaluating the
reasonableness of brokerage commissions and negotiating the amount of any
commissions paid subject to a policy established by the Trust's Trustees and
officers. The Trust has no obligation to deal with any broker or group of
brokers in the execution of transactions in portfolio securities. Orders for
transactions in portfolio securities are placed for the Trust with a number of
brokers and dealers, including affiliates of the Investment Adviser. In placing
orders, it is the policy of the Trust to obtain the most favorable net results,
taking into account various factors, including price, commissions, if any, size
of the transaction and difficulty of execution. Where practicable, the
Investment Adviser surveys a number of brokers and dealers in connection with
proposed portfolio transactions and selects the broker or dealer that offers the
Trust the best price and execution or other services that are of benefit to the
Trust. Securities firms also may receive brokerage commissions on transactions
including covered call options written by the Trust and the sale of underlying
securities upon the exercise of such options.
Brokers who provide supplemental investment research to the Investment
Adviser 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 Investment Adviser under the Advisory Agreement. If in the
judgment of the Investment Adviser the Trust will be benefited by supplemental
research services, the Investment Adviser is authorized to pay brokerage
commissions to a broker furnishing such services in excess of commissions that
another broker may have charged for effecting the same transaction. The expenses
of the Investment Adviser will not necessarily be reduced as a result of the
receipt of such supplemental information, and the Investment Adviser may use
such information in servicing its other accounts.
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<PAGE> 36
The Trust invests in certain securities traded in the over-the-counter
market and, where possible, deals directly with dealers who make a market in the
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 generally are prohibited from dealing with the Trust
as principal in purchase and sale of securities. Since transactions in the
over-the-counter market usually involve transactions with dealers acting as
principal for their own accounts, affiliated persons of the Trust, including
Merrill Lynch, will not serve as the Trust's dealer in such transactions.
However, affiliated persons of the Trust may serve as its broker in the
over-the-counter transactions conducted on an agency basis.
Pursuant to Section 11(a) of the Securities Exchange Act of 1934, as
amended, Merrill Lynch may execute transactions for the Trust on the floor of
any U.S. national securities exchange provided that prior authorization of such
transactions is obtained and Merrill Lynch furnishes a statement to the Trust at
least annually setting forth the compensation it has received in connection with
such transactions.
The Trustees of the Trust have considered the possibility of recapturing
for the benefit of the Trust brokerage commissions, dealer spreads and other
expenses of possible portfolio transactions, such as underwriting commissions,
by conducting such portfolio transactions through affiliated entities, including
Merrill Lynch. For example, brokerage commissions received by Merrill Lynch
could be offset against the management fee paid by the Trust to the Investment
Adviser. After considering all factors deemed relevant, the Trustees made a
determination not to seek such recapture. The Trustees will reconsider this
matter from time to time.
The portfolio turnover rate is calculated by dividing the lesser of a
Portfolio's annual sales or purchases of portfolio securities (exclusive of
purchases and 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. The portfolio turnover rate is generally anticipated
to be under 100%.
ITEM 17. - CAPITAL STOCK AND OTHER SECURITIES.
Under the Declaration of Trust that establishes the Trust, a Delaware
business trust, the Trustees are authorized to issue beneficial interests in
each Portfolio of the Trust. Investors are entitled to participate, in
proportion to their investment, in distributions of taxable income, loss, gain
and deduction with respect to the Portfolio in which they have invested. Upon
liquidation or dissolution of a Portfolio, investors are entitled to share in
proportion to their investment in such Portfolio's net assets available for
distribution to its investors. Interests in a Portfolio have no preference,
preemptive, conversion or similar rights and are fully paid and nonassessable,
except as set forth below. Investments in a Portfolio generally may not be
transferred.
Each investor is entitled to a vote in proportion to the amount of its
interest in a Portfolio or in the Trust, as the case may be. Investors in the
Trust, or in any Portfolio, do not have cumulative voting rights, and investors
holding more than 50% of the aggregate beneficial interests in the Trust may
elect
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all of the Trustees of the Trust if they choose to do so and in such event the
other investors in the Trust would not be able to elect any Trustee. The Trust
is not required and has no current intention to hold annual meetings of
investors but the Trust will hold special meetings of investors when in the
judgment of the Trustees it is necessary or desirable to submit matters for an
investor vote.
A Portfolio shall be dissolved by unanimous consent of the Trustees by
written notice of dissolution to the Holders of the interests of the Portfolio.
The Trust shall be dissolved upon the dissolution of the last remaining
Portfolio.
The Declaration of Trust provides that obligations of the Trust and the
Portfolios are not binding upon the Trustees individually but only upon the
property of the Portfolios and that the Trustees will not be liable for any
action or failure to act (including without limitation, the failure to compel in
any way any former or acting Trustee to redress any breach of trust), but
nothing in the Declaration of Trust protects a Trustee against any liability to
which he would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the conduct of
his office. The Declaration of Trust provides that the Trust may maintain
appropriate insurance (for example, fidelity bond and errors and omissions
insurance) for the protection of the Portfolios, their Holders, Trustees,
officers, employees and agents covering possible tort and other liabilities.
The Trust currently consists of seven Portfolios. The Trust reserves the
right to create and issue interests in a number of additional Portfolios. As
indicated above, Holders of each Portfolio participate equally in the earnings
and assets of the particular Portfolio. Holders of each Portfolio are entitled
to vote separately to approve advisory agreements or changes in investment
policy, but Holders of all Portfolios vote together in the election or selection
of Trustees and accountants for the Trust. Upon liquidation or dissolution of a
Portfolio, the Holders of such Portfolio are entitled to share in proportion to
their investment in the net assets of such Portfolio available for distribution
to Holders.
ITEM 18. - PURCHASE, REDEMPTION AND PRICING OF SECURITIES.
Beneficial interests in the Trust are not offered to the public and are
issued solely in private placement transactions that do not involve any "public
offering" within the meaning of Section 4(2) of the 1933 Act. Investments in the
Trust may be made only by a limited number of institutional investors, including
investment companies, common or commingled trust funds, group trusts and certain
other entities that are "accredited investors" within the meaning of Regulation
D under the 1933 Act. The number of Holders of any Portfolio shall be limited to
fewer than 100. This Registration Statement does not constitute an offer to
sell, or the solicitation of an offer to buy, any "security" within the meaning
of the 1933 Act.
The net asset value of the shares of each Portfolio is determined once
daily Monday through Friday as of 15 minutes after the close of business on the
New York Stock Exchange ("NYSE") on each day the NYSE is open for trading (a
"Pricing Day"). The close of business on the NYSE is generally 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
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<PAGE> 38
or dealers on the day of valuation. The NYSE is not open for trading on New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The net
asset value is computed by deducting the amount of the Portfolio's total
liabilities from the value of its total assets. Expenses, including the advisory
fees payable to the Investment Adviser, are accrued daily.
Portfolio securities, including ADRs, EDRs, or GDRs, that are traded on
stock exchanges are valued at the last sale price (regular way) on the exchange
on which such securities are traded, as of the close of business on the day the
securities are being valued, or lacking any sales, at the last available bid
price for long positions, and at the last available ask price for short
positions. In cases where securities are traded on more than one exchange, the
securities are valued on the exchange designated by or under the authority of
the Board of Trustees as the primary market. 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 on the OTC market are valued at the
last available ask price in the OTC market prior to the time of valuation. When
the Portfolio writes a call option, the amount of the premium received is
recorded on the books of the Portfolio 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 upon the last sale price in the case of
exchange-traded options or, in the case of options traded in the OTC market, the
last asked price. Options purchased by the Portfolio 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.
Generally, trading in non-U.S. securities, as well as U.S. Government
securities and money market instruments, is substantially completed each day at
various times prior to the close of business on the NYSE. The values of such
securities used in computing the net asset value of the Portfolio's shares are
determined as of such times. Foreign currency exchange rates are also 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 will not be reflected in the computation of a Portfolio's net asset
value. If events materially affecting the value of such securities occur during
such period, then these securities will be valued at their fair value as
determined in good faith by the Trustees.
Each investor in the Trust may add to or reduce its investment in a
Portfolio on each Pricing Day. The value of each investor's interest in the
Portfolio will be determined as of 15 minutes after the close of business on the
NYSE by multiplying the net asset value of the Portfolio by the percentage,
effective for that day, that represents that investor's share of the aggregate
interests in the Portfolio. 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
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<PAGE> 39
in the Portfolio 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
Portfolio as of the time or determination on such day plus or minus, as the case
may be, the amount of any additions to or withdrawals from the investor's
investments in the Portfolio effected on such day, and (ii) the denominator of
which is the aggregate net asset value of the Portfolio 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 Portfolio by all investors in
the Portfolio. The percentage so determined will then be applied to determine
the value of the investor's interest in the Portfolio as of 15 minutes after the
close of business of the NYSE on the next Pricing Day of the Portfolio. For
further information concerning the Portfolios' net asset value, and the
valuation of the Portfolios' assets, see Part A.
REDEMPTIONS.
An investor in the Trust may withdraw all or a portion of its investment
in any Portfolio on any Pricing Day at the net asset value next determined after
a withdrawal request in proper form is furnished by the investor to the
Portfolio. The proceeds of the withdrawal will be paid by the Portfolio normally
on the business day on which the withdrawal is effected, but in any event within
seven days. Investments in any Portfolio of the Trust may not be transferred.
ITEM 19. - TAXATION OF THE TRUST
The Trust is organized as a Delaware business trust. Each Portfolio is
treated as a separate partnership under the Internal Revenue Code of 1986, as
amended (the "Code") and, thus, is not subject to income tax. Based upon the
status of each Portfolio as a partnership, each investor in a Portfolios will be
taxable on its share (as determined in accordance with the governing instruments
of such Portfolio) of such Portfolio's ordinary income and capital gain in
determining its income tax liability. The determination of such share will be
made in accordance with the Code and regulations promulgated thereunder.
Although, as described above, the Portfolios will not be subject to
federal income tax, they will file appropriate income tax returns. Each
prospective Investor Fund which is a regulated investment company ("RIC") will
be required to agree, in its subscription agreement, that, for purposes of
determining its required distribution under Code Section 4982(a), it will
account for its share of items of income, gain, loss and deduction of a
Portfolio as they are taken into account by the Portfolio.
All of the Portfolios may invest in futures contracts or options. Certain
options, futures contracts and options on futures contracts are "section 1256
contracts." Any gains or losses on section 1256 contracts are generally
considered 60% long-term and 40% short-term capital gains or losses ("60/40").
Also, section 1256 contracts held by a Portfolio at the end of each taxable year
are treated for federal income tax purposes as being sold on such date for their
fair market value. The resultant paper gains or losses are also treated as 60/40
gains or losses. When the section 1256 contract is subsequently disposed of, the
actual gain or loss will be adjusted by the amount of any preceding year-end
gain or loss.
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<PAGE> 40
Foreign currency gains or losses on non-U.S. dollar denominated bonds and
other similar debt instruments and on any non-U.S. dollar denominated futures
contracts, options and forward contracts that are not section 1256 contracts
generally will be treated as ordinary income or loss.
Certain hedging transactions undertaken by a Portfolio may result in
"straddles" for federal income tax purposes. The straddle rules may affect the
character of gains (or losses) realized by the Portfolios. In addition, losses
realized by the Portfolios on positions that are part of a straddle may be
deferred, rather than being taken into account in calculating taxable income for
the taxable year in which such losses are realized. Because only a few
regulations implementing the straddle rules have been promulgated, the tax
consequences of hedging transactions to the Portfolios are not entirely clear.
The Portfolios may make one or more of the elections available under the Code
which are applicable to straddles. If the Portfolios make any of the elections,
the amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the elections made. The rules applicable under certain of the elections
operate to accelerate the recognition of gains or losses from the affected
straddle positions. Additionally, the conversion transaction or constructive
sale rules may apply to certain transactions (including straddles) to change the
character of capital gains to ordinary income or require the recognition of
income prior to the economic recognition of such income.
The Portfolios may be subject to a tax on dividend or interest income
received from securities of a non-U.S. issuer withheld by a foreign country at
the source. The United States has entered into tax treaties with many foreign
countries which entitle the Portfolios to a reduced rate of tax or exemption
from tax on such income. It is impossible to determine the effective rate of
foreign tax in advance since the amount of each Portfolio's assets to be
invested within various countries is not known.
The Portfolios may make investments that produce income that is not
matched by a corresponding cash receipt by the Portfolios, such as investments
in obligations having original issue discount or market discount (if a Portfolio
elects to accrue the market discount on a current basis with respect to such
instruments). Because such income may not be matched by a corresponding cash
receipt, the Portfolios may be required to borrow money or dispose of other
securities to be able to make distributions to investors.
Each Portfolio's taxable income will in most cases be determined on the
basis of reports made to such Portfolio by the issuers of the securities in
which such Portfolio invests. The tax treatment of certain securities in which a
Portfolio may invest is not free from doubt, and it is possible that an Internal
Revenue Service examination of the issuers of such securities or of such
Portfolio could result in adjustments to the income of the Portfolio.
Under the Trust, each Portfolio is to be managed in compliance with the
provisions of the Code applicable to RICs as though such requirements were
applied at the Portfolio level. Thus, consistent with its investment objectives,
each Portfolio will meet the income and diversification of assets tests of the
Code applicable to RICs. The Portfolios have received rulings from the Internal
Revenue Service
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<PAGE> 41
that Holders of interests in the Portfolios that are RICs will be treated as
owners of their proportionate shares of the Portfolios' assets and income for
purposes of the Code's requirements applicable thereto.
ITEM 20. - UNDERWRITERS.
The exclusive placement agent for each Portfolio of the Trust is Mercury
Funds Distributor, a division of Princeton Funds Distributor, Inc., (the
"Placement Agent"), an affiliate of the Investment Adviser and of Merrill Lynch,
with offices at 800 Scudders Mill Road, Plainsboro, New Jersey 08536. The
Placement Agent receives no compensation for serving in this capacity.
Investment companies, common and commingled trust funds and similar
organizations and entities may continuously invest in the Portfolios.
ITEM 22. - CALCULATION OF PERFORMANCE DATA.
Beneficial interests in the Trust are not offered to the public and are
issued solely in private placement transactions that do not involve any "public
offering" within the meaning of Section 4(2) of the 1933 Act. Accordingly, the
Trust will not advertise the Portfolios' performance. However, certain of the
Trust's Holders may from time to time advertise their performance, which will be
based upon the Trust's performance.
Total return figures are based on historical performance and are not
intended to indicate future performance. Average annual total return is
determined in accordance with a formula specified by the Securities and Exchange
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.
Annual, average annual and annualized total return and aggregate total
return performance data, both as a percentage and as a dollar amount, are based
on a hypothetical $1,000 investment and computed as described above, except that
as required by the periods of the quotations, actual annual, annualized or
aggregate data, rather than average annual data, may be quoted. 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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<PAGE> 42
ITEM 23. - FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Investor,
Mercury Asset Management Master Trust:
We have audited the accompanying statements of assets and liabilities of the
Mercury Master International Portfolio and Mercury Master Pan-European Growth
Portfolio of Mercury Asset Management Master Trust as of October 8, 1998 and the
related statements of operations for the period April 23, 1998 (organization of
the Trust) to October 8, 1998. These financial statements are the responsibility
of the Trust's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Mercury Master International Portfolio
and Mercury Master Pan-European Growth Portfolio of Mercury Asset Management
Master Trust as of October 8, 1998 and the results of their operations for the
period April 23, 1998 (organization of the Trust) to October 8, 1998 in
conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Princeton, New Jersey
October 9, 1998
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<PAGE> 43
MERCURY MASTER INTERNATIONAL PORTFOLIO AND
MERCURY MASTER PAN-EUROPEAN GROWTH PORTFOLIO OF
MERCURY ASSET MANAGEMENT MASTER TRUST
STATEMENTS OF ASSETS AND LIABILITIES
OCTOBER 8, 1998
<TABLE>
<CAPTION>
Mercury Master
Mercury Master Pan-European
International Growth
Portfolio Portfolio
-------------- --------------
<S> <C> <C>
Assets:
Cash $50,000 $50,000
Prepaid offering costs (Note 3) 15,000 15,000
Receivable from Investment Adviser (Note 4) 10,500 10,500
-------- --------
Total Assets 75,500 75,500
Liabilities:
Organization expenses (Note 4) 10,500 10,500
Liabilities and accrued expenses 15,000 15,000
-------- --------
Total Liabilities 25,500 25,500
Net Assets applicable to investor's interest $50,000 $50,000
in each Portfolio. (Note 1) ======== ========
</TABLE>
- ----------------------------
See Notes to Financial Statements.
- 29 -
<PAGE> 44
MERCURY MASTER INTERNATIONAL PORTFOLIO AND
MERCURY MASTER PAN-EUROPEAN GROWTH PORTFOLIO OF
MERCURY ASSET MANAGEMENT MASTER TRUST
STATEMENTS OF OPERATIONS
FOR THE PERIOD APRIL 23, 1998 (INCEPTION) TO OCTOBER 8, 1998
<TABLE>
<CAPTION>
Mercury Master
Mercury Master Pan-European
International Growth
Portfolio Portfolio
-------------- --------------
<S> <C> <C>
INVESTMENT INCOME:
Investment income $ - $ -
EXPENSES:
Organization expenses (Note 4) 10,500 10,500
-------- --------
Total expenses before reimbursement 10,500 10,500
Reimbursement from Investment Adviser (Note 4) (10,500) (10,500)
-------- --------
Total expenses after reimbursement - -
-------- --------
Investment income - net - -
-------- --------
NET CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $ - $ -
======== ========
</TABLE>
- ----------------------------
See Notes to Financial Statements.
- 30 -
<PAGE> 45
MERCURY MASTER INTERNATIONAL PORTFOLIO AND
MERCURY MASTER PAN-EUROPEAN GROWTH PORTFOLIO OF
MERCURY ASSET MANAGEMENT MASTER TRUST
NOTES TO FINANCIAL STATEMENTS
(1) Mercury Asset Management Master Trust (the "Trust") was organized as a
Delaware business trust on April 23, 1998. Mercury Master International
Portfolio and Mercury Master Pan-European Growth Portfolio (the
"Portfolios") are portfolios of the Trust. To date, the Trust has not had
any transactions other than those relating to organizational matters and an
indirect $50,000 capital contribution to each of the portfolios by Mercury
Asset Management International Ltd. (the "Investment Adviser") through the
corresponding portfolios of the Mercury Asset Management Funds, Inc.
(2) The Trust on behalf of each Portfolio has entered into investment advisory
agreements (the "Advisory Agreements") with the Investment Adviser. (See
"Investment Advisory and Other Services" in Part B of the Registration
Statement.) Certain officers and/or Trustees of the Trust are officers
and/or directors of the Investment Adviser.
(3) Prepaid offering costs consist of legal and printing fees related to
preparing the initial registration statement, and will be amortized over a
12 month period beginning with the commencement of operations of the Trust.
(4) Organization expenses are reimbursed by the Investment Adviser.
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<PAGE> 46
APPENDIX A
Investment Policies Involving the Use of Indexed
Securities, Options, Futures, Swaps and Foreign Exchange
The Portfolios are authorized to use certain derivative instruments,
including indexed and inverse securities, options, futures, and swaps, and to
purchase and sell foreign exchange, as described below. Such instruments are
referred to collectively herein as "Strategic Instruments."
Although certain risks are involved in options and futures transactions
(as defined below in "Risk Factors in Options, Futures and Currency
Instruments"), the Investment Adviser believes that, because the Portfolios will
generally engage in these transactions for hedging purposes, including
anticipatory hedges (other than options on securities that may be used to seek
increased return), the options and futures portfolio strategies of the
Portfolios will not subject the Portfolios to the risks frequently associated
with the speculative use of options and futures transactions. While the
Portfolios' use of hedging strategies is intended to reduce the volatility of
the net asset value of Portfolio interests the Portfolios' net asset value will
fluctuate. There can be no assurance that the Portfolios' hedging transactions
will be effective. Furthermore, the Portfolios will engage in hedging activities
only from time to time and may not necessarily be engaging in hedging activities
when movements in the equity markets, interest rates or currency exchange rates
occur.
INDEXED AND INVERSE SECURITIES
The Portfolios may invest in securities the potential return of which is
based on the change in particular measurements of value or rate (an "index"). As
an illustration, a Portfolio may invest in a debt security that pays interest
and returns principal based on the change in the value of a securities index or
a basket of securities, or based on the relative changes of two indices. In
addition, a Portfolio may invest in securities the potential return of which is
based inversely on the change in an index. For example, a Portfolio may invest
in securities that pay a higher rate of interest when a particular index
decreases and pay a lower rate of interest (or do not fully return principal)
when the value of the index increases. If a Portfolio invests in such
securities, it may be subject to reduced or eliminated interest payments or loss
of principal in the event of an adverse movement in the relevant index or
indices. Furthermore, where such a security includes a contingent liability, in
the event of such an adverse movement, a Portfolio may be required to pay
substantial additional margin to maintain the position.
Certain indexed and inverse securities may have the effect of providing
investment leverage because the rate of interest or amount of principal payable
increases or decreases at a rate that is a multiple of the changes in the
relevant index. As a consequence, the market value of such securities may be
substantially more volatile than the market values of other debt securities. The
Portfolios believe that indexed and inverse securities may provide portfolio
management flexibility that permits the Portfolios to seek enhanced returns,
hedge other portfolio positions or vary the degree of portfolio leverage with
greater efficiency than would otherwise be possible under certain market
conditions.
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<PAGE> 47
OPTIONS ON SECURITIES AND SECURITIES INDICES
Purchasing Options. Each Portfolio is authorized to purchase put options
on equity securities held in its portfolio or securities indices the performance
of which is substantially replicated by securities held in its portfolio. When a
Portfolio purchases a put option, in consideration for an up-front payment (the
"option premium") the Portfolio acquires a right to sell to another party
specified securities owned by the Portfolio 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 a Portfolio'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, a Portfolio 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.
Each Portfolio is also authorized to purchase call options on securities
it intends to purchase or securities indices the performance of which
substantially replicates the performance of the types of securities it intends
to purchase. When a Portfolio purchases a call option, in consideration for the
option premium the Portfolio 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 a Portfolio 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 Portfolio 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 Portfolio believes to be
attractive, in the case of an option on an index (an "anticipatory hedge"). In
the event a Portfolio determines not to purchase a security underlying a call
option, however, the Portfolio may lose the entire option premium.
Each Portfolio is also authorized to purchase put or call options in
connection with closing out put or call options it has previously sold.
Writing Options. Each Portfolio is authorized to write (i.e., sell) call
options on securities held in its portfolio or securities indices the
performance of which is substantially replicated by securities held in its
portfolio. When a Portfolio writes a call option, in return for an option
premium the Portfolio is legally obligated to sell specified securities owned by
the Portfolio at the exercise price on or before the expiration date, in the
case of an option on securities, or 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, however
much the exercise price exceeds the market price. A Portfolio may write call
options to earn income, through the receipt of option premiums. In the event the
party to which the Portfolio 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 Portfolio will partially offset
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<PAGE> 48
any decline in the value of the underlying securities through the receipt of the
option premium. By writing a call option, however, the Portfolio 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.
A Portfolio may also write put options on securities or securities
indices. When a Portfolio writes a put option, in return for an option premium
the Portfolio gives another party the right to sell to the Portfolio 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. A Portfolio
may write put options to earn income, through the receipt of option premiums. In
the event the party to which a Portfolio has written an option fails to exercise
its right under the option because the value of the underlying securities is
greater than the exercise price, the Portfolio will profit by the amount of the
option premium. By writing a put option, however, a Portfolio 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 a Portfolio 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 Portfolio for writing the put option. A Portfolio
will write a put option on a security or a securities index only if the
Portfolio 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").
Each Portfolio is also authorized to sell put or call options in
connection with closing out call or put options it has previously purchased.
Other than with respect to closing transactions, a Portfolio will write
only call or put options that are "covered." A put option will be considered
covered if a Portfolio has segregated assets with respect to such option in the
manner described in "Risk Factors in Options, Futures and Currency Instruments"
below. A call option will be considered covered if the Portfolio 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 that substantially
correlate with the performance of such index) or owns a call option, warrant or
convertible instrument that is immediately exercisable for, or convertible into,
such security.
Types of Options. Each Portfolio 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
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<PAGE> 49
are subject to greater risk of counterparty default. See "Additional Risk
Factors of OTC Transactions; Limitations on the Use of OTC Strategic
Instruments" below.
FUTURES
The Portfolios 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 a
commodity 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 a Portfolio is required to deposit collateral ("margin") equal to a
percentage (generally less than 10%) of the contract value with the Futures
Commission Merchants (the "FCM") effecting the Portfolio's exchanges or in a
third-party account with the Portfolio's Custodian. Each day thereafter until
the futures position is closed, the Portfolio 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. Whether the margin is deposited with the
FCM or with the Custodian, the margin may be deemed to be in the FCM's custody,
and, consequently, in the event of default due to the FCM's bankruptcy, the
margin may be subject to pro rata treatment as the FCM's assets, which could
result in potential losses to a Portfolio and its interestholders. Even if a
transaction is profitable, a Portfolio may not get back the same assets which
were deposited as margin or may receive payment in cash.
The sale of a futures contract limits the Portfolio's risk of loss
through a decline in the market value of portfolio holdings correlated with the
futures contract prior to the future's contract's expiration date. In the event
the market value of the portfolio holdings correlated with the futures contract
increases rather than decreases, however, a Portfolio 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 a Portfolio from having to
pay more for securities as a consequence of increases in the market value for
such securities during a period when the Portfolio was attempting to identify
specific securities in which to invest in a market the Portfolio believes to be
attractive. In the event that such securities decline in value or a Portfolio
determines not to complete an anticipatory hedge transaction relating to a
futures contract, however, the Portfolio may realize a loss relating to the
futures position.
The Portfolios will limit transactions in futures and options on futures
to financial futures contracts (i.e., contracts for which the underlying
commodity is a currency or securities or interest rate index) purchased or sold
for hedging purposes (including anticipatory hedges). The Portfolios will
further limit transactions in futures and options on futures to the extent
necessary to prevent a Portfolio from being deemed a "commodity pool" under
regulations of the Commodity Futures Trading Commission.
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<PAGE> 50
SWAPS
The Portfolios are authorized to enter into equity swap agreements, which
are OTC contracts in which one party agrees to make periodic payments based on
the change in market value of a specified equity security, basket of equity
securities or equity index in return for periodic payments based on a fixed or
variable interest rate or the change in market value of a different equity
security, basket of equity securities or equity index. Swap agreements may be
used to obtain exposure to an equity or market without owning or taking physical
custody of securities.
A Portfolio will enter into a swap transaction only if, immediately
following the time the Portfolio enters into the transaction, the aggregate
notional principal amount of swap transactions to which the Portfolio is a party
would not exceed 5% of the Portfolio's net assets.
FOREIGN EXCHANGE TRANSACTIONS
The Portfolios 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 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 Portfolios will enter into foreign exchange transactions only
for purposes of hedging either a specific transaction or a portfolio position. A
Portfolio 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 at a future date or selling a currency in which the
Portfolio has received or anticipates receiving a dividend or distribution. A
Portfolio may enter into a foreign exchange transaction for purposes of hedging
a portfolio position by selling forward a currency in which a portfolio position
of the Portfolio is denominated or by purchasing a currency in which the
Portfolio anticipates acquiring a portfolio position in the near future. The
Portfolios may also hedge portfolio positions 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.
The Portfolios 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.
The Portfolios 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
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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. A Portfolio 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"). A Portfolio will only enter into a
cross-hedge if the Investment Adviser believes that (i) there is a demonstrably
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.
The Portfolios will not speculate in Currency Instruments. Accordingly, a
Portfolio will not hedge a currency in excess of the aggregate market value of
the securities that it owns (including receivables for unsettled securities
sales), or has committed to or anticipates purchasing, which are denominated in
such currency.
Risk Factors in Hedging Foreign Currency Risks. While the Portfolio's use
of Currency Instruments to effect hedging strategies is intended to reduce the
volatility of the net asset value of a Portfolio's interests, the net asset
value of the Portfolio'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 may not be accurately predicted and a Portfolio's
hedging strategies may be ineffective. To the extent that a Portfolio hedges
against anticipated currency movements that do not occur, the Portfolio may
realize losses, and decrease its total return, as the result of its hedging
transactions. Furthermore, a Portfolio 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. It may not be possible for a Portfolio 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 Portfolio 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 or in which
their availability is limited (such as certain emerging markets) and it is not
possible to engage in effective foreign currency hedging.
RISK FACTORS IN OPTIONS, FUTURES, AND CURRENCY INSTRUMENTS
Use of Strategic Instruments for hedging purposes involves the risk of
imperfect correlation in movements in the value of the Strategic Instruments and
the value of the instruments being hedged. If the value of the Strategic
Instruments moves more or less than the value of the hedged instruments, a
Portfolio will experience a gain or loss that will not be completely offset by
movements in the value of the hedged instruments.
The Portfolios intend to enter into transactions involving Strategic
Instruments 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
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of OTC Transactions; Limitations on the Use of OTC Strategic Instruments."
However, there can be no assurance that, at any specific time, either a liquid
secondary market will exist for a Strategic Instrument or a Portfolio will
otherwise be able to sell such instrument at an acceptable price. Therefore, it
may not be possible to close a position in a Strategic Instrument without
incurring substantial losses, if at all.
Certain transactions in Strategic Instruments (e.g., forward foreign
exchange transactions, futures transactions, sales of put options) may expose a
Portfolio to potential losses that exceed the amount originally invested by the
Portfolio in such instruments. When a Portfolio engages in such a transaction,
the Portfolio will deposit in a segregated account at its custodian liquid
securities with a value at least equal to the Portfolio's exposure, on a
mark-to-market basis, to the transaction (as calculated pursuant to requirements
of the Commission). Such segregation will ensure that a Portfolio has assets
available to satisfy its obligations with respect to the transactions, but will
not limit the Portfolio's exposure to loss.
ADDITIONAL RISK FACTORS OF OTC TRANSACTIONS; LIMITATIONS ON THE USE OF OTC
STRATEGIC INSTRUMENTS
Certain Strategic Instruments traded in OTC markets, including indexed
securities, swaps and OTC options, may be substantially less liquid than other
instruments in which a Portfolio may invest. The absence of liquidity may make
it difficult or impossible for a Portfolio to sell such instruments promptly at
an acceptable price. The absence of liquidity may also make it more difficult
for a Portfolio to ascertain a market value for such instruments. A Portfolio
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 Investment Adviser
anticipates the Portfolio 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.
The staff of the Commission has taken the position that purchased OTC
options and the assets underlying written OTC options are illiquid securities.
The Portfolios have therefore adopted an investment policy pursuant to which a
Portfolio will not purchase or sell OTC options (including OTC options on
futures contracts) if, as a result of such transactions, the sum of the market
value of OTC options currently outstanding that are held by the Portfolio, the
market value of the securities underlying OTC call options currently outstanding
that have been sold by the Portfolio and margin deposits on the Portfolio's
outstanding OTC options exceeds 15% of the total assets of the Portfolio, taken
at market value, together with all other assets of the Portfolio that are deemed
to be illiquid or are otherwise not readily marketable. However, if an OTC
option is sold by a Portfolio to a dealer in U.S. government securities
recognized as a "primary dealer" by the Federal Reserve Bank of New York and the
Portfolio has the unconditional contractual right to repurchase such OTC option
at a predetermined price, then the Portfolio will treat as illiquid such amount
of the underlying securities as equal to the repurchase price less the amount by
which the option is "in-the-money" (i.e., current market value of the underlying
security minus the option's exercise price).
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Because Strategic Instruments 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 a Portfolio has unrealized gains in such instruments
or has deposited collateral with its counterparty, the Portfolio is at risk that
its counterparty will become bankrupt or otherwise fail to honor its
obligations. The Portfolio will attempt to minimize the risk that a counterparty
will default by engaging in transactions in Strategic Instruments traded in OTC
markets only with financial institutions that have a credit rating of AA- or
better from Standard & Poor's, or Aa3 or better from Moody's, or AA or better of
Fitch.
ADDITIONAL LIMITATIONS ON THE USE OF STRATEGIC INSTRUMENTS
A Portfolio may not use any Strategic Instrument to gain exposure to an
asset or class of assets that it would be prohibited by its investment
restrictions from purchasing directly.
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APPENDIX B
RATINGS OF FIXED INCOME SECURITIES
DESCRIPTION OF MOODY'S INVESTORS SERVICES, INC.'S CORPORATE DEBT RATINGS
Aaa Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there
may be other elements present that make the long-term risks appear
somewhat larger than in Aaa securities.
A Bonds that are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present that suggest a susceptibility to impairment sometime in
the future.
Baa Bonds that are rated Baa are considered as medium grade obligations;
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba Bonds that are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate, and therefore not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B Bonds that are rated B generally lack characteristics of desirable
investments. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Caa Bonds that are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
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Ca Bonds that are rated Ca represent obligations that are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C Bonds that are rated C are the lowest rated bonds, and issues so rated
can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Note: Moody's may apply numerical modifiers 1, 2 and 3 in each generic
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking, and the modifier
3 indicates that the issue ranks in the lower end of its generic category.
DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS
The term "commercial paper" as used by Moody's means promissory
obligations not having an original maturity in excess of nine months. Moody's
makes no representations as to whether such commercial paper is by any other
definition "commercial paper" or is exempt from registration under the
Securities Act, as amended.
Moody's commercial paper ratings are opinions of the ability of issuers
to repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's makes no representation that such obligations are
exempt from registration under the Securities Act, nor does it represent that
any specific note is a valid obligation of a rated issuer or issued in
conformity with any applicable law. Moody's employs the following three
designations, all judged to be investment grade, to indicate the relative
repayment capacity of rated issuers:
Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
- Leading market positions in well-established industries
- High rates of return on funds employed
- Conservative capitalization structures with moderate reliance on debt
and ample asset protection
- Broad margins in earnings coverage of fixed financial charges and
higher internal cash generation
- Well established access to a range of financial markets and assured
sources of alternate liquidity
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
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variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
level of debt protection measurements and the requirement for relatively high
financial leverage. Adequate alternative liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating
categories.
If an issuer represents to Moody's that its commercial paper obligations
are supported by the credit of another entity or entities, then the name or
names of such supporting entity or entities are listed within parentheses
beneath the name of the issuer, or there is a footnote referring the reader to
another page for the name or names of the supporting entity or entities. In
assigning ratings to such issuers, Moody's evaluates the financial strength of
the indicated affiliated corporations, commercial banks, insurance companies,
foreign governments or other entities, but only as one factor in the total
rating assessment. Moody's makes no representation and gives no opinion on the
legal validity or enforceability of any support arrangement. You are cautioned
to review with your counsel any questions regarding particular support
arrangements.
DESCRIPTION OF MOODY'S PREFERRED STOCK RATINGS
Because of the fundamental differences between preferred stocks and
bonds, a variation of the bond rating symbols is being used in the quality
ranking of preferred stocks. The symbols, presented below, are designed to avoid
comparison with bond quality in absolute terms. It should always be borne in
mind that preferred stocks occupy a junior position to bonds within a particular
capital structure and that these securities are rated within the universe of
preferred stocks.
Preferred stock rating symbols and their definitions are as follows:
aaa An issue that is rated "aaa" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the
least risk of dividend impairment within the universe of preferred
stocks.
aa An issue that is rated "aa" is considered a high-grade preferred stock.
This rating indicates that there is reasonable assurance that earnings
and asset protection will remain relatively well maintained in the
foreseeable future.
a An issue that is rated "a" is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in
the "aaa" and "aa" classifications, earnings and asset protection are,
nevertheless, expected to be maintained at adequate levels.
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baa An issue that is rated "baa" is considered to be medium grade,
neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over
any great length of time.
ba An issue that is rated "ba" is considered to have speculative elements
and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse
periods. Uncertainty of position characterizes preferred stocks in this
class.
b An issue that is rated "b" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of
other terms of the issue over any long period of time may be small.
caa An issue that is rated "caa" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the
future status of payments.
ca An issue that is rated "ca" is speculative in a high degree and is likely
to be in arrears on dividends with little likelihood of eventual payment.
c This is the lowest rated class of preferred or preference stock. Issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Note: Moody's may apply numerical modifiers 1, 2 and 3 in each rating
classification from "aa" through "b" in its preferred stock rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
DESCRIPTION OF STANDARD & POOR'S CORPORATE DEBT RATINGS
A Standard & Poor's corporate or municipal rating is a current assessment
of the creditworthiness of an obligor with respect to a specific obligation.
This assessment may take into consideration obligers such as guarantors,
insurers, or lessees.
The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable. Standard
& Poor's does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended or withdrawn as a result of changes in, or unavailability of, such
information, or for other reasons.
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The ratings are based, in varying degrees, on the following
considerations: (1) likelihood of default-capacity and willingness of the
obligor as to the timely payment of interest and repayment of principal in
accordance with the terms of the obligation; (2) nature of and provisions of the
obligation; and (3) protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization or other arrangement under
the laws of bankruptcy and other laws affecting creditors' rights.
AAA Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest-rated issues only in small
degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in
higher-rated categories.
BBB Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for debt
in higher-rated categories.
Debt rated BB, B, CCC and C are regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest degree
of speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
BB Debt rated BB has less near-term vulnerability to default than other
speculative grade debt. However, it faces major ongoing
uncertainties or exposure to adverse business, financial or economic
conditions that could lead to inadequate capacity to meet timely
interest and principal payment. The BB rating category is also used
for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating.
B Debt rated B has a greater vulnerability to default but presently has the
capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions would likely impair capacity
or willingness to pay interest or repay principal. The B rating category
is also used for debt subordinated to senior debt that is assigned an
actual or implied BB or BB- rating.
CCC Debt rated CCC has a current identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic
conditions to meet timely payments of interest and repayments of
principal. In the event of adverse business, financial or economic
conditions, it is not likely to have the capacity to pay interest
and repay principal. The CCC rating category is
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also used for debt subordinated to senior debt that is assigned an
actual or implied B or B- rating.
CC The rating CC is typically applied to debt subordinated to senior
debt that is assigned an actual or implied CCC rating.
C The rating C is typically applied to debt subordinated to senior debt
that is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed
but debt service payments are continued.
CI The rating CI is reserved for income bonds on which no interest is being
paid.
D Debt rated D is in default. The D rating is assigned on the day an
interest or principal payment is missed. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Plus (+) or minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
ratings categories.
Provisional ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the debt being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no comment on the
likelihood or risk of default upon failure of such completion. The investor
should exercise judgment with respect to such likelihood and risk.
L The letter "L" indicates that the rating pertains to the principal amount
of those bonds to the extent that the underlying deposit collateral is
insured by the Federal Savings & Loan Insurance Corp. or the Federal
Deposit Insurance Corp. and interest is adequately collateralized.
* Continuance of the rating is contingent upon Standard & Poor's receipt of
an executed copy of the escrow agreement or closing documentation
confirming investments and cash flows.
NR Indicates that no rating has been requested, that there is
insufficient information on which to base a rating or that Standard
& Poor's does not rate a particular type of obligation as a matter
of policy.
Debt obligations of issuers outside the United States and its territories
are rated on the same basis as domestic corporate and municipal issues. The
ratings measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.
BOND INVESTMENT QUALITY STANDARDS: Under present commercial bank
regulations issued by the Comptroller of the Currency, bonds rated in the top
four categories ("AAA," "AA," "A," "BBB,"
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commonly known as "investment grade" ratings) are generally regarded as eligible
for bank investment. In addition, the laws of various states governing legal
investments impose certain rating or other standards for obligations eligible
for investment by savings banks, trust companies, insurance companies and
fiduciaries generally.
DESCRIPTION OF STANDARD & POOR'S COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment of debt having an original maturity of no more
than 365 days. Ratings are graded into four categories, ranging from "A" for the
highest quality obligations to "D" for the lowest. The four categories are as
follows:
A Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with
the numbers 1, 2 and 3 to indicate the relative degree of safety.
A-1 This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues
determined to possess overwhelming safety characteristics are
denoted with a plus (+) sign designation.
A-2 Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as
for issues designated "A-1."
A-3 Issues carrying this designation have a satisfactory capacity for
timely payment. They are, however, somewhat more vulnerable to the
adverse effects of changes in circumstances than obligations
carrying the higher designations.
B Issues rated "B" are regarded as having only adequate capacity for timely
payment. However, such capacity may be damaged by changing conditions or
short-term adversities.
C This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D This rating indicates that the issue is either in default or is expected
to be in default upon maturity.
The commercial paper rating is not a recommendation to purchase or sell a
security. The ratings are based on current information furnished to Standard &
Poor's by the issuer or obtained from other sources it considers reliable. The
ratings may be changed, suspended, or withdrawn as a result of changes in or
unavailability of such information.
DESCRIPTION OF STANDARD & POOR'S PREFERRED STOCK RATINGS
A Standard & Poor's preferred stock rating is an assessment of the
capacity and willingness of an issuer to pay preferred stock dividends and any
applicable sinking fund obligations. A preferred stock
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rating differs from a bond rating inasmuch as it is assigned to an equity issue,
which issue is intrinsically different from, and subordinated to, a debt issue.
Therefore, to reflect this difference, the preferred stock rating symbol will
normally not be higher than the bond rating symbol assigned to, or that would be
assigned to, the senior debt of the same issuer.
The preferred stock ratings are based on the following considerations:
I. Likelihood of payment-capacity and willingness of the issuer to meet the
timely payment of preferred stock dividends and any applicable sinking
fund requirements in accordance with the terms of the obligation.
II. Nature of, and provisions of, the issue.
III. Relative position of the issue in the event of bankruptcy,
reorganization, or other arrangements affecting creditors' rights.
AAA This is the highest rating that may be assigned by Standard & Poor's
to a preferred stock issue and indicates an extremely strong
capacity to pay the preferred stock obligations.
AA A preferred stock issue rated "AA" also qualifies as a high-quality
fixed income security. The capacity to pay preferred stock
obligations is very strong, although not as overwhelming as for
issues rated "AAA."
A An issue rated "A" is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions.
BBB An issue rated "BBB" is regarded as backed by an adequate capacity
to pay the preferred stock obligations. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to make payments for a preferred stock in this category
than for issues in the "A" category.
BB, Preferred stock rated "BB," "B," and "CCC" are regarded, on balance,
as predominantly
B, speculative with respect to the issuer's capacity to pay
preferred stock obligations. "BB"
CCC indicates the lowest degree of speculation and "CCC" the highest
degree of speculation. While such issues will likely have some
quality and protection characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
CC The rating "CC" is reserved for a preferred stock issue in arrears
on dividends or sinking fund payments but that is currently paying.
C A preferred stock rated "C" is a non-paying issue.
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D A preferred stock rated "D" is a non-paying issue in default on debt
instruments.
NR indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
PLUS (+) or MINUS (-): To provide more detailed indications of preferred
stock quality, the ratings from "AA" to "CCC" may be modified by the addition of
a plus or minus sign to show relative standing within the major rating
categories.
The preferred stock ratings are not a recommendation to purchase or sell
a security, inasmuch as market price is not considered in arriving at the
rating. Preferred stock ratings are wholly unrelated to Standard & Poor's
earnings and dividend rankings for common stocks.
The ratings are based on current information furnished to Standard &
Poor's by the issuer, and obtained by Standard & Poor's from other sources it
considers reliable. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information.
DESCRIPTION OF FITCH IBCA, INC. ("FITCH") INVESTMENT GRADE BOND RATINGS
Fitch investment grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
represent Fitch's assessment of the issuer's ability to meet the obligations of
a specific debt issue or class of debt in a timely manner.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and of any
guarantor, as well as the economic and political environment that might affect
the issuer's future financial strength and credit quality.
Fitch ratings do not reflect any credit enhancement that may be provided
by insurance policies or financial guaranties unless otherwise indicated.
Bonds carrying the same rating are of similar but not necessarily
identical credit quality since the rating categories do not fully reflect small
differences in the degrees of credit risk.
Fitch ratings are not recommendations to buy, sell, or hold any security.
Ratings do not comment on the adequacy of market price, the suitability of any
security for a particular investor, or the tax-exempt nature or taxability of
payments made in respect of any security.
Fitch ratings are based on information obtained from issuers, other
obligers, underwriters, their experts, and other sources Fitch believes to be
reliable. Fitch does not audit or verify the truth or accuracy of such
information. Ratings may be changed, suspended, or withdrawn as a result of
changes in, or the unavailability of, information or for other reasons.
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AAA Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated "AAA."
Because bonds rated in the "AAA" and "AA" categories are not
significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated "F-1+."
A Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes
in economic conditions and circumstances than bonds with higher ratings.
BBB Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal
is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have adverse impact
on these bonds, and therefore, impair timely payment. The
likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
Plus (+) or Minus (-): Plus and minus signs are used with a rating
symbol to indicate the relative position of a credit within the rating category.
Plus and minus signs, however, are not used in the "AAA" category.
NR Indicates that Fitch does not rate the specific issue.
Conditional A conditional rating is premised on the successful completion of a
project or the occurrence of a specific event.
Suspended A rating is suspended when Fitch deems the amount of nformation
available from the issuer to be inadequate for rating purposes.
Withdrawn A rating will be withdrawn when an issue matures or is called or
refinanced and, at Fitch's discretion, when an issuer fails to
furnish proper and timely information.
FitchAlert Ratings are placed on FitchAlert to notify investors of an
occurrence that is likely to result in a rating change and the
likely direction of such change. These are designated as "Positive"
indicating a potential upgrade, "Negative," for potential downgrade,
or "Evolving," where ratings may be raised or lowered. FitchAlert is
relatively short-term, and should be resolved within 12 months.
- 49 -
<PAGE> 64
Ratings Outlook: An outlook is used to describe the most likely direction
of any rating change over the intermediate term. It is described as "Positive"
or "Negative." The absence of a designation indicates a stable outlook.
DESCRIPTION OF FITCH SPECULATIVE GRADE BOND RATINGS
Fitch speculative grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
("BB" to "C") represent Fitch's assessment of the likelihood of timely payment
of principal and interest in accordance with the terms of obligation for bond
issues not in default. For defaulted bonds, the rating ("DDD" to "D") is an
assessment of the ultimate recovery value through reorganization or liquidation.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the issuer's
future financial strength.
Bonds that have the same rating are of similar but not necessarily
identical credit quality since rating categories cannot fully reflect the
differences in degrees of credit risk.
BB Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can
be identified which could assist the obligor in satisfying its debt
service requirements.
B Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited
margin of safety and the need for reasonable business and economic
activity throughout the life of the issue.
CCC Bonds have certain identifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations
requires an advantageous business and economic environment.
CC Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C Bonds are in imminent default in payment of interest or principal.
DDD Bonds are in default on interest and/or principal payments. Such
bonds are
DD extremely speculative and should be valued on the basis of their
ultimate recovery
D value in liquidation or reorganization of the obligor. "DDD" represents
the highest potential for recovery on these bonds, and "D" represents the
lowest potential for recovery.
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<PAGE> 65
Plus (+) or Minus (-): Plus and minus signs are used with a rating
symbol to indicate the relative position of a credit within the rating category.
Plus and minus signs, however, are not used in the "DDD," "DD," or "D"
categories.
DESCRIPTION OF FITCH INVESTMENT GRADE SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal and
investment notes.
The short-term rating places greater emphasis than a long-term rating on
the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
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<PAGE> 66
Fitch short-term ratings are as follows:
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating
are regarded as having the strongest degree of assurance for timely
payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues
rated "F-1+."
F-2 Good Credit Quality. Issues assigned this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is
not as great as for issues assigned "F-1+" and "F-1" ratings.
F-3 Fair Credit Quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for timely
payment is adequate, however, near-term adverse changes could cause
these securities to be rated below investment grade.
F-S Weak Credit Quality. Issues assigned this rating have
characteristics suggesting a minimal degree of assurance for timely
payment and are vulnerable to near-term adverse changes in financial
and economic conditions.
D Default. Issues assigned this rating are in actual or imminent payment
default.
LOC The symbol "LOC" indicates that the rating is based on a letter of
credit issued by a commercial bank.
- 52 -
<PAGE> 67
PART C. OTHER INFORMATION
ITEM 23. - EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- --------
<S> <C> <C>
1(a) -- Declaration of Trust of Registrant
1(b) -- Amendment No. 1 to Declaration of Trust of Registrant
1(c) -- Certificate of Trust
1(d) -- Certificate of Amendment of Certificate of Trust
2 -- Amended and Restated by-Laws of Registrant.
3 -- Instrument Defining Rights of Security Holders. Incorporated by reference to Exhibits 1 and 2 above.
4(a) -- Investment Advisory Agreement between the Trust on behalf of Mercury Master International Portfolio and Mercury
Asset Management International Ltd.
4(b) -- Investment Advisory Agreement between the Trust on behalf of Mercury Master Pan-European Growth Portfolio and
Mercury Asset Management International Ltd.
4(c) -- Sub-Advisory Agreement between Mercury Asset Management International Ltd. and Fund Asset Management, L.P., with
respect to Mercury Master International Portfolio.
4(d) -- Sub-Advisory Agreement between Mercury Asset Management International Ltd. and Fund Asset Management, L.P., with
respect to Mercury Master Pan-European Growth Portfolio.
5 -- Not Applicable.
6 -- Not Applicable.
7 -- Custody Agreement between Registrant and Brown Brothers Harriman & Co.
8(a) -- Placement Agent Agreement between Registrant and Mercury Funds Distributor, a division of Princeton Funds
Distributor, Inc.
8(b) -- License Agreement relating to Use of Name among Mercury Asset Management International Ltd., Mercury Asset
Management Group Ltd. and Mercury Funds Distributor, a division of Princeton Funds Distributor, Inc.
8(c) -- License Agreement relating to Use of Name among Mercury Asset Management International Ltd., Mercury Asset
Management Group Ltd. and Registrant.
9 -- Not Applicable.
10 -- Conset of Deloitte & Touche LLP, independent auditors for the Registrant
11 -- Not Applicable.
12 -- Certificate of Mercury Asset Management Funds, Inc.
13 -- Not Applicable.
14 -- Not Applicable.
15 -- Not Applicable.
</TABLE>
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ITEM 24. - PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE TRUST.
Mercury International Fund of Mercury Asset Management Funds, Inc.
("International Fund") and Mercury Asset Management International Ltd. (the
"Investment Adviser") each control Mercury International Portfolio
("Internatioinal Portfolio"). International Fund owns 100% of the currently
outstanding interests of International Portfolio and the Investment Adviser
owns 100% of the currently outstanding interests of International Fund.
Therefore, International Fund is under common control with International
Portfolio.
Mercury Pan-European Growth Fund of Mercury Asset Management Funds,
Inc. ("Pan-European Growth Fund") and the Investment Adviser each control
Mercury Pan-European Growth Portfolio ("Pan-European Growth Portfolio").
Pan-European Growth Fund owns 100% of the currently outstanding interests of
Pan-European Growth Portfolio and the Investment Adviser owns 100% of the
currently outstanding interests of Pan-European Growth Fund. Therefore,
Pan-European Growth Fund is under common control with Pan-European Growth
Portfolio.
The Investment Adviser was incorporated under the laws of England and
Wales. Mercury Asset Management Funds, Inc. was incorporated under the laws of
the State of Maryland.
ITEM 25. - INDEMNIFICATION.
As permitted by Section 17(h) and (i) of the Investment Company Act of
1940, as amended (the "1940 Act"), and pursuant to Sections 8.2, 8.3 and 8.4,
of Article VIII of the Registrant's Declaration of Trust (Exhibit 1 to this
Registrant Statement), Trustees, officers, employees and agents of the Trust
will be indemnified to the maximum extent permitted by Delaware law and the
1940 Act.
Article VIII, Section 8.2 provides, inter alia, that no Trustee,
officer, employee or agent of the Registrant shall be liable to the Registrant,
its holders, or to any other Trustee, officer, employee or agent thereof for
any action or failure to act (including, without limitation, the failure to
compel in any way any former or acting Trustee to redress any breach of trust)
except for his own bad faith, willful misfeasance, gross negligence or reckless
disregard of his duties.
Article VIII, Section 8.3 of the Registrant's Declaration of Trust
provides:
Section 8.3. Indemnification. The Trust shall indemnify each of
its Trustees, officers, employees, and agents (including persons who serve at
its request as directors, officers or trustees of another organization in which
it has any interest, as a shareholder, creditor or otherwise) against all
liabilities and expenses (including amounts paid in satisfaction of judgments,
in compromise, as fines and penalties, and as counsel fees) reasonably incurred
by him in connection with the defense or disposition of any action, suit or
other proceeding, whether
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civil or criminal, in which he may be involved or with which he may be
threatened, while in office or thereafter, by reason of his being or having
been such a Trustee, officer, employee or agent, except with respect to any
matter as to which he shall have been adjudicated to have acted in bad faith,
willful misfeasance, gross negligence or reckless disregard of his duties, such
liabilities and expenses being liabilities belonging to the Series out of which
such claim for indemnification arises; provided, however, that as to any matter
disposed of by a compromise payment by such Person, pursuant to a consent
decree or otherwise, no indemnification either for said payment or for any
other expenses shall be provided unless there has been a determination that
such Person did not engage in willful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct of his office by
the court or other body approving the settlement or other disposition or, in
the absence of a judicial determination, by a reasonable determination, based
upon a review of readily available facts (as opposed to a full trial-type
inquiry), that he did not engage in such conduct, which determination shall be
made by a majority of a quorum of Trustees who are neither Interested Persons
of the Trust (within the meaning of the 1940 Act) nor parties to the action,
suit or proceeding, or by written opinion from independent legal counsel
approved by the Trustees. The rights accruing to any Person under these
provisions shall not exclude any other right to which he may be lawfully
entitled; provided that no Person may satisfy any right of indemnity or
reimbursement granted herein or to which he may be otherwise entitled except
out of the Trust Property. The Trustees may make advance payments in
connection with indemnification under this Section 8.3; provided that any
advance payment of expenses by the Trust to any Trustee, officer, employee or
agent shall be made only upon the undertaking by such Trustee, officer,
employee or agent to repay the advance unless it is ultimately determined that
he is entitled to indemnification as above provided, and only if one of the
following conditions is met:
(a) the Trustee, officer, employee or
agent to be indemnified provides a
security for his undertaking; or
(b) the Trust shall be insured against
losses arising by reason of any
lawful advances; or
(c) there is a determination, based on a
review of readily available facts,
that there is reason to believe that
the Trustee, officer, employee or
agent to be indemnified ultimately
will be entitled to indemnification,
which determination shall be made
by:
(i) a majority of a quorum of
Trustees who are neither
Interested Persons of the
Trust nor parties to the
Proceedings; or
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<PAGE> 70
(ii) an independent legal counsel
in a written opinion.
Article VIII, Section 8.4 of the Registrant's Declaration of Trust further
provides:
Section 8.4. No Protection Against Certain 1940 Act Liabilities.
Nothing contained in Sections 8.1, 8.2 or 8.3 hereof shall protect any Trustee
or officer of the Trust from any liability to the Trust or its Holders to which
he would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office. Nothing contained in Sections 8.1, 8.2 or 8.3 hereof or in any
agreement of the character described in Section 4.1 or 4.2 hereof shall protect
any Investment Adviser to the Trust or any Series against any liability to the
Trust or any Series to which he would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of his or its
duties to the Trust or Series, or by reason of his or its reckless disregard to
his or its obligations and duties under the agreement pursuant to which he
serves as Investment Adviser to the Trust or any Series.
As permitted by Article VIII, Section 8.7, the Registrant may insure
its Trustees and officers against certain liabilities, and certain costs of
defending claims against such Trustees and officers, to the extent such
Trustees and officers are not found to have committed conduct constituting
conflict of interest, intentional non-compliance with statutes or regulations
or dishonest, fraudulent or criminal acts or omissions. The Registrant will
purchase an insurance policy to cover such indemnification obligation. The
insurance policy also will insure the Registrant against the cost of
indemnification payments to Trustees and officers under certain circumstances.
Insurance will not be purchased that protects, or purports to protect, any
Trustee or officer from liability to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of duty.
The Registrant hereby undertakes that it will apply the
indemnification provisions of its Declaration of Trust and Bylaws in a manner
consistent with Release No. 11330 of the Securities and Exchange Commission
under the 1940 Act so long as the interpretation of Section 17(h) and 17(i) of
such Act remain in effect and are consistently applied.
ITEM 26. - BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Set forth below is a list of each executive officer and partner of the
adviser indicating each business, profession, vocation or employment of a
substantial nature in which each such person or entity has been engaged since
September, 1996 for his own account or in the capacity of director, officer,
partner or trustee.
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<PAGE> 71
<TABLE>
<CAPTION>
POSITIONS WITH OTHER SUBSTANTIAL BUSINESS,
NAME ADVISER PROFESSION, VOCATION OR EMPLOYMENT
- -------- ----------------- -----------------------------------------------
<S> <C> <C>
Peter John Gibbs . . . . . . . . . . Chairman Director of Mercury Asset
Management Ltd; and Director of Mercury
Asset Management International Channel
Islands Ltd.
Carol Consuelo Brooke . . . . . . . Deputy Chairman Director of Mercury Asset Management Ltd.
David Morris Fitzgerald Scott . . . Director Director of Corporation of St. Lawrence College
Helen Margaret Perkins . . . . . . . Secretary None
John Eric Nelson . . . . . . . . . . Director None
Steve Warner Golann . . . . . . . . Director None
</TABLE>
Set forth below is a list of the name and principal business address
of any company for which a person listed above serves in the capacity of
director, officer, employee, partner or trustee. The address of each, unless
otherwise stated is 33 King William Street, London, England EC4R 9AS.
Mrs. Brooke also serves as director of the following companies:
Munich London Investment Management Ltd.; Benenden School (Kent) Ltd.,
Cranbrook Kent, TN17 4AA; and Mercury Asset Management Pension Trustee Co. Ltd.
Mr. Gibbs also serves as director of Mercury Asset Management Limited
(Australia).
Mrs. Perkins also serves as officer of the following companies:
Grosvenor Alternate Partner Limited; Grosvenor General Partner
Limited; Grosvenor Ventures Limited; Grosvenor Venture Managers Limited;
Mercury Asset Management Finance Ltd.; Mercury Asset Management Group Ltd;
Mercury Asset Management Group Services Ltd; Mercury Asset Management No. 1
Limited; Mercury Asset Management Pension Trustee Co. Ltd.; Mercury Executor &
Trustee Co. ltd.; Mercury (Finance) Ltd; Mercury Fund Managers Limited; Mercury
Financial Services Ltd.; Mercury Investment Management Limited; Mercury
Investment Services Ltd.; Mercury Investment Trust Managers Ltd.; Mercury Life
Assurance Company Ltd; Mercury Life Limited; Mercury Life Nominees Ltd.;
Mercury Private Equity Holdings Ltd; Mercury Rowan Mullens Ltd.; Munich London
Investment Management Ltd.; Mercury Private Equity MUST 3 Limited; Seligman
Trust Limited; Third Grosvenor Limited; and Winco Nominees Ltd.
Set forth below is a list of each executive officer and director of
Fund Asset Management, L.P. ("FAM") indicating each business, profession,
vocation or employment of a substantial
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<PAGE> 72
nature in which each such person has been engaged since September, 1996 for his
own account or in the capacity of director, officer, partner or trustee.
<TABLE>
<CAPTION>
POSITIONS WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION,
NAME FAM VOCATION OR EMPLOYMENT
---- ----------------- -------------------------------------------
<S> <C> <C>
ML & Co. . . . . . . . . . . . . . . Limited Partner Financial Services Holding Company; Limited Partner of
Merrill Lynch Asset Management, L.P. ("MLAM")
Fund Asset Management, Inc. . . . . . Limited Partner Investment Advisory Service
Princeton Services . . . . . . . . . General Partner General Partner of MLAM
Arthur Zeikel . . . . . . . . . . . . Chairman Chairman of MLAM; President of MLAM and FAM from 1977 to
1997; Chairman and Director of Princeton Services;
President of Princeton Services from 1993 to 1997;
Executive Vice President of Merrill Lynch & Co., Inc.
("ML & Co.")
Jeffrey M. Peek . . . . . . . . . . . President President of MLAM; President and Director of
Princeton Services; Executive Vice President of ML & Co.
Terry K. Glenn . . . . . . . . . . . Executive Vice Executive Vice President of MLAM; Executive Vice
President President and Director of Princeton Services;
President and Director of Princeton Funds
Distributor, Inc.; Director of FDS; President of
Princeton Administrators, L.P.
Linda L. Federici . . . . . . . . . . Senior Vice President Senior Vice President of MLAM; Senior Vice President of
Princeton Services
Vincent R. Giordano . . . . . . . . . Senior Vice President Senior Vice President of MLAM; Senior Vice President of
Princeton Services
Elizabeth A. Griffin. . . . . . . . . Senior Vice President Senior Vice President of MLAM; Senior Vice President of
Princeton Services
Norman R. Harvey. . . . . . . . . . . Senior Vice President Senior Vice President of MLAM; Senior Vice President of
Princeton Services
Michael J. Hennewinkel. . . . . . . . Senior Vice President, Senior Vice President, General Counsel and Secretary of
General Counsel and MLAM; Senior Vice President of Princeton
Secretary Services
Philip L. Kirstein . . . . . . . . . Senior Vice President Senior Vice President of MLAM; Senior Vice President,
General Counsel, Director and Secretary of
Princeton Services
Ronald M. Kloss . . . . . . . . . . . Senior Vice President Senior Vice President of MLAM; Senior Vice President of
Princeton Services
Debra W. Landsman-Yaros . . . . . . . Senior Vice President Senior Vice President of MLAM; Senior Vice President of
Princeton Services; Vice President of Princeton
Funds Distributor, Inc.
</TABLE>
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<TABLE>
<CAPTION>
POSITIONS WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION,
NAME FAM VOCATION OR EMPLOYMENT
---- ----------------- -------------------------------------------
<S> <C> <C>
Stephen M.M. Miller . . . . . . . . . . . Senior Vice President Executive Vice President of Princeton Administrators;
Senior Vice President of Princeton Services
Joseph T. Monagle, Jr. . . . . . . . . . Senior Vice President Senior Vice President of MLAM; Senior Vice President of
Princeton Services
Michael L. Quinn . . . . . . . . . . . . Senior Vice President Senior Vice President of MLAM; Senior Vice President of
Princeton Services; Managing Director and First
Vice President of Merrill Lynch, Pierce, Fenner
& Smith Incorporated from 1989 to 1995
Richard L. Reller . . . . . . . . . . . . Senior Vice President Senior Vice President of MLAM; Senior Vice President of
Princeton Services; Director of Princeton Funds
Distributor, Inc.
Gerald M. Richard . . . . . . . . . . . . Senior Vice President Senior Vice President and Treasurer of MLAM; Senior
and Treasurer Vice President and Treasurer of Princeton
Services; Vice President and Treasurer of
Princeton Funds Distributor, Inc.
Gregory D. Upah . . . . . . . . . . . . . Senior Vice President Senior Vice President of MLAM; Senior Vice President of
Princeton Services
Ronald L. Welburn . . . . . . . . . . . . Senior Vice President Senior Vice President of MLAM; Senior Vice President of
Princeton Services
</TABLE>
Mr. Zeikel is President, Mr. Glenn is Executive Vice President and Mr.
Richard is Treasurer of all or substantially all of the investment companies
described in the following two paragraphs. Mr. Zeikel is a director of
substantially all such companies. Messrs. Glenn, Giordano, Harvey, Kirstein,
and Monagle are directors or officers of one or more of such companies.
FAM, located at P.O. Box 9011, Princeton, New Jersey 08543-9011, an
affiliate of the Investment Adviser, acts as the investment adviser for the
following open-end registered investment companies: CBA Money Fund, CMA
Government Securities Fund, CMA Money Fund, CMA Multi-State Municipal Series
Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The Corporate Fund Accumulation
Program, Inc., Financial Institutions Series Trust, Merrill Lynch Basic Value
Fund, Inc., Merrill Lynch California Municipal Series Trust, Merrill Lynch
Corporate Bond Fund, Inc., Merrill Lynch Corporate High Yield Fund, Inc.,
Merrill Lynch Emerging Tigers Fund, Inc., Merrill Lynch Federal Securities
Trust, Merrill Lynch Funds for Institutions Series, Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, Merrill Lynch Multi-State Municipal
Series Trust, Merrill Lynch Municipal Bond Fund, Inc., Merrill Lynch Phoenix
Fund, Inc., Merrill Lynch Special Value Fund, Inc., Merrill Lynch World Income
Fund, Inc. and The Municipal Fund Accumulation Program, Inc.; and the following
closed-end investment companies: Apex Municipal Fund, Inc., Corporate High
Yield Fund, Inc., Corporate
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<PAGE> 74
High Yield Fund II, Inc., Corporate High Yield Fund III, Inc., Debt Strategies
Fund, Inc., Debt Strategies Fund II, Inc., Debt Strategies Fund III, Inc.,
Income Opportunities Fund 1999, Inc., Income Opportunities Fund 2000, Inc.,
Merrill Lynch Municipal Strategy Fund, Inc., MuniAssets Fund, Inc.,
MuniEnhanced Fund, Inc., MuniHoldings Fund, Inc., MuniHoldings Fund II, Inc.,
MuniHoldings Insured Fund Inc., MuniHoldings California Insured Fund, Inc.,
MuniHoldings California Insured Fund II, Inc., MuniHoldings California Insured
Fund III, Inc., MuniHoldings New York Insured Fund, Inc., MuniHoldings New York
Insured Fund II, Inc., MuniHoldings New York Fund, Inc., MuniHoldings Florida
Insured Fund, MuniHoldings Florida Insured Fund II, MuniHoldings Florida
Insured Fund III, MuniHoldings New Jersey Insured Fund, Inc., MuniHoldings New
Jersey Insured Fund II, Inc., MuniInsured Fund, Inc., MuniVest Fund, Inc.,
MuniVest Fund II, Inc., MuniVest Florida Fund, MuniVest Michigan Insured Fund,
Inc., MuniVest New Jersey Fund, Inc., MuniVest Pennsylvania Insured Fund,
MuniYield Arizona Fund, Inc., MuniYield California Fund, Inc., MuniYield
California Insured Fund, Inc., MuniYield California Insured Fund II, Inc.,
MuniYield Florida Fund, MuniYield Florida Insured Fund, MuniYield Fund, Inc.,
MuniYield Insured Fund, Inc., MuniYield Michigan Fund, Inc., MuniYield Michigan
Insured Fund, Inc., MuniYield New Jersey Fund, Inc., MuniYield New Jersey
Insured Fund, Inc., MuniYield New York Insured Fund, Inc., MuniYield New York
Insured Fund II, Inc., MuniYield Pennsylvania Fund, MuniYield Quality Fund,
Inc., MuniYield Quality Fund II, Inc., Senior High Income Portfolio, Inc., and
Worldwide DollarVest Fund, Inc.
MLAM, located at P.O. Box 9011, Princeton, New Jersey 08543-9011, acts
as investment adviser for the following open-end registered investment
companies: Merrill Lynch Adjustable Rate Securities Fund, Inc., Merrill Lynch
Americas Income Fund, Inc., Merrill Lynch Asset Builder Program, Inc., Merrill
Lynch Asset Growth Fund, Inc., Merrill Lynch Asset Income Fund, Inc., Merrill
Lynch Capital Fund, Inc., Merrill Lynch Convertible Fund, Inc., Merrill Lynch
Developing Capital Markets Fund, Inc., Merrill Lynch Dragon Fund, Inc., Merrill
Lynch EuroFund, Merrill Lynch Fundamental Growth Fund, Inc., Merrill Lynch Fund
For Tomorrow, Inc., Merrill Lynch Global Allocation Fund, Inc., Merrill Lynch
Global Bond Fund for Investment and Retirement, Merrill Lynch Global Growth
Fund, Inc., Merrill Lynch Global Holdings, Inc., Merrill Lynch Global Resources
Trust, Merrill Lynch Global SmallCap Fund, Inc., Merrill Lynch Global
Technology Fund, Inc., Merrill Lynch Global Utility Fund, Inc., Merrill Lynch
Global Value Fund, Inc., Merrill Lynch Growth Fund, Merrill Lynch Healthcare
Fund, Inc., Merrill Lynch Intermediate Government Bond Fund, Merrill Lynch
International Equity Fund, Merrill Lynch Latin America Fund, Inc., Merrill
Lynch Middle East/Africa Fund, Inc., Merrill Lynch Municipal Series Trust,
Merrill Lynch Pacific Fund, Inc., Merrill Lynch Ready Assets Trust, Merrill
Lynch Retirement Series Trust, Merrill Lynch Series Fund, Inc., Merrill Lynch
Short-Term Global Income Fund, Inc., Merrill Lynch Strategic Dividend Fund,
Merrill Lynch Technology Fund, Inc., Merrill Lynch U.S. Treasury Money Fund,
Merrill Lynch U.S.A. Government Reserves, Merrill Lynch Utility Income Fund,
Inc., Merrill Lynch Variable Series Funds, Inc. and Hotchkis and Wiley Funds
(advised by Hotchkis and Wiley, a division of MLAM); and for the following
closed-end registered investment companies: Merrill Lynch High Income
Municipal Bond Fund, Inc. and Merrill Lynch Senior Floating Rate Fund, Inc.
MLAM
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<PAGE> 75
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.
ITEM 27. - PRINCIPAL UNDERWRITERS.
(a) Mercury Funds Distributor, a division of Princeton Funds
Distributor, Inc. ("MFD") acts as placement agent for the Registrant and as
principal underwriter for each of the following open-end investment companies:
Mercury International Fund of Mercury Asset Management Funds, Inc.;
Mercury Pan-European Growth Fund of Mercury Asset Management Funds, Inc.;
Summit Cash Reserves Fund of Financial Institutions Series Trust.
A separate division of Princeton Funds Distributor, Inc. acts as the
principal underwriter for a number of other investment companies.
(b) Set forth below is information concerning each director and
officer of MFD. The principal business address of each such person is P.O. Box
9081, Princeton, New Jersey 08543-9081, except that the address of Messrs.
Crook, Aldrich, Breen, Fatseas, and Wasel is One Financial Center, 23rd Floor,
Boston, Massachusetts 02111-2665.
<TABLE>
<CAPTION>
(2)
POSITIONS AND (3)
(1) OFFICES WITH PRINCETON POSITIONS AND
NAME FUNDS DISTRIBUTOR, INC. OFFICES WITH REGISTRANT
---------- ------------------------------ ---------------------------------
<S> <C> <C>
Terry K. Glenn . . . . . . . . . . . . . President and Director Executive Vice President
Richard L. Reller. . . . . . . . . . . . Director None
Thomas J. Verage . . . . . . . . . . . . Director None
Robert W. Crook. . . . . . . . . . . . . Senior Vice President None
Michael J. Brady . . . . . . . . . . . . Vice President None
William M. Breen . . . . . . . . . . . . Vice President None
Michael G. Clark . . . . . . . . . . . . Vice President None
James J. Fatseas . . . . . . . . . . . . Vice President None
Debra W. Landsman-Yaros. . . . . . . . . Vice President None
Michelle T. Lau. . . . . . . . . . . . . Vice President None
Gerald M. Richard. . . . . . . . . . . . Vice President and Treasurer Treasurer
Salvatore Venezia. . . . . . . . . . . . Vice President None
William Wasel. . . . . . . . . . . . . . Vice President None
Robert Harris. . . . . . . . . . . . . . Secretary None
</TABLE>
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ITEM 28. - LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940, as amended, and the rules
thereunder are maintained at the offices of:
(1) the registrant, Mercury Asset
Management Master Trust, 800 Scudders Mill
Road, Plainsboro, New Jersey 08536;
(2) the custodian, Brown Brothers
Harriman & Co., 40 Water Street, Boston,
Massachusetts 02109;
(3) the investment adviser, Mercury
Asset Management International ltd., 33 King
William Street, London EC4R 9AS, England; and
(4) the sub-adviser, Fund Asset
Management, L.P., 800 Scudders Mill Road,
Plainsboro, New Jersey 08536.
ITEM 29. - MANAGEMENT SERVICES.
Other than as set forth under the caption "Management, Organization,
and Capital Structure of the Fund" in Part A of the Registration Statement and
under "Investment Advisory and Other Services" in Part B of the Registration
Statement, the Registrant is not party to any Management-related service
contract.
ITEM 30. - UNDERTAKINGS.
None.
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SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940,
the Registrant certifies that it has duly caused this Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
Township of Plainsboro, and State of New Jersey, on the 9th day of
October, 1998.
MERCURY ASSET MANAGEMENT
MASTER TRUST
(Registrant)
By: /s/ Jeffrey M. Peek
------------------------------
(Jeffrey M. Peek, President)
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C> <C>
1(a) -- Declaration of Trust of Registrant
1(b) -- Amendment No. 1 to Declaration of Trust of Registrant
1(c) -- Certificate of Trust
1(d) -- Certificate of Amendment of Certificate of Trust
2 -- Amended and Restated by-Laws of Registrant.
3 -- Instrument Defining Rights of Security Holders. Incorporated by reference to Exhibits 1 and 2 above.
4(a) -- Investment Advisory Agreement between the Trust on behalf of Mercury Master International Portfolio and Mercury
Asset Management International Ltd.
4(b) -- Investment Advisory Agreement between the Trust on behalf of Mercury Master Pan-European Growth Portfolio and
Mercury Asset Management International Ltd.
4(c) -- Sub-Advisory Agreement between Mercury Asset Management International Ltd. and Fund Asset Management, L.P., with
respect to Mercury Master International Portfolio.
4(d) -- Sub-Advisory Agreement between Mercury Asset Management International Ltd. and Fund Asset Management, L.P., with
respect to Mercury Master Pan-European Growth Portfolio.
7 -- Custody Agreement between Registrant and Brown Brothers Harriman & Co.
8(a) -- Placement Agent Agreement between Registrant and Mercury Funds Distributor, a division of Princeton Funds
Distributor, Inc.
8(b) -- License Agreement relating to Use of Name among Mercury Asset Management International Ltd., Mercury Asset
Management Group Ltd. and Mercury Funds Distributor, a division of Princeton Funds Distributor, Inc.
8(c) -- License Agreement relating to Use of Name among Mercury Asset Management International Ltd., Mercury Asset
Management Group Ltd. and Registrant.
10 -- Consent of Deloitte & Touche LLP, independent auditors for the Registrant
12 -- Certificate of Mercury Asset Management Funds, Inc.
</TABLE>
C-12
<PAGE> 1
EXHIBIT 1(a)
MERCURY MASTER TRUST
DECLARATION OF TRUST
Dated: April 23, 1998
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
<S> <C>
ARTICLE I
NAME AND DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
--------------------
Section 1.1. Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
----
Section 1.2. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
-----------
ARTICLE II
TRUSTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
--------
Section 2.1. Number of Trustees and Qualification . . . . . . . . . . . . . . . . . . . . . . . . . 4
------------------------------------
Section 2.2. Term and Election. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
-----------------
Section 2.3. Resignation and Removal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
-----------------------
Section 2.4. Vacancies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
---------
Section 2.5. Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
--------
Section 2.6. Officers; Chairman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
------------------
Section 2.7. By-Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
-------
ARTICLE III
POWERS OF TRUSTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
------------------
Section 3.1. General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
-------
Section 3.2. Activities and Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
--------------------------
Section 3.3. Legal Title. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
-----------
Section 3.4. Sale of Interests; Reclassification. . . . . . . . . . . . . . . . . . . . . . . . . . 9
-----------------------------------
Section 3.5. Borrowing Money; Pledging Trust Assets; Lending Property . . . . . . . . . . . . . . . 9
--------------------------------------------------------
Section 3.6. Delegation; Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
----------------------
Section 3.7. Collection and Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
----------------------
Section 3.8. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
--------
Section 3.9. Common Items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
------------
Section 3.10. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
----------
Section 3.11. Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
-----------
Section 3.12. Miscellaneous Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
--------------------
Section 3.13. Manner of Acting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
----------------
ARTICLE IV
INVESTMENT ADVISORY, ADMINISTRATIVE SERVICES
---------------------------------------------
AND PLACEMENT AGENT ARRANGEMENTS; CUSTODIAN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
-------------------------------------------
Section 4.1. Investment Advisory and Other Arrangements . . . . . . . . . . . . . . . . . . . . . . 11
------------------------------------------
Section 4.2. Parties to Contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
-------------------
Section 4.3. Custodian. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
---------
ARTICLE V
INTERESTS IN THE TRUST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
----------------------
Section 5.1. Interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
---------
</TABLE>
ii
<PAGE> 3
<TABLE>
<S> <C>
Section 5.2. Establishment and Designation of Series . . . . . . . . . . . . . . . . . . . . . . . . 13
---------------------------------------
Section 5.3. Rights of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
-----------------
Section 5.4. Purchase of or Increase in Interests. . . . . . . . . . . . . . . . . . . . . . . . . . 14
------------------------------------
Section 5.5. Register of Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
---------------------
Section 5.6. Non-Transferability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
-------------------
Section 5.7. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
-------
Section 5.8. Limitation on Number of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
-------------------------------
Section 5.9. No Liability of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
-----------------------
ARTICLE VI
DECREASES AND WITHDRAWALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
-------------------------
Section 6.1. Decreases and Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
-------------------------
ARTICLE VII
DETERMINATION OF BOOK CAPITAL ACCOUNT BALANCES,
------------------------------------------------
NET INCOME AND DISTRIBUTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
----------------------------
Section 7.1. Book Capital Account Balances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
-----------------------------
Section 7.2. Allocations and Distributions to Holders. . . . . . . . . . . . . . . . . . . . . . . . 16
----------------------------------------
Section 7.3. Power to Modify Foregoing Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . 17
------------------------------------
ARTICLE VIII
LIABILITY FOR TRUST OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
-------------------------------
Section 8.1. Liabilities of Series . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
---------------------
Section 8.2. No Personal Liability of Trustees, etc. . . . . . . . . . . . . . . . . . . . . . . . . 17
--------------------------------------
Section 8.3. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
---------------
Section 8.4. No Protection Against Certain 1940 Act Liabilities. . . . . . . . . . . . . . . . . . . 19
--------------------------------------------------
Section 8.5. No Bond Required of Trustees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
----------------------------
Section 8.6. No Duty of Investigation; Notice in Trust Instruments, etc. . . . . . . . . . . . . . . 19
-----------------------------------------------------------
Section 8.7. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
---------
Section 8.8. Reliance on Experts, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
------------------------
ARTICLE IX
HOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
-------
Section 9.1. Meetings of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
-------------------
Section 9.2. Notice of Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
------------------
Section 9.3. Record Date for Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
------------------------
Section 9.4. Proxies, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
------------
Section 9.5. Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
-------
Section 9.6. Inspection of Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
---------------------
Section 9.7. Holder Action by Written Consent. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
--------------------------------
</TABLE>
iii
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE X
DURATION; TERMINATION OF TRUST OR SERIES; AMENDMENT; MERGERS; ETC.. . . . . . . . . . . . . . . . . . 22
------------------------------------------------------------------
Section 10.1. Duration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
--------
Section 10.2. Dissolution of Series or Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
------------------------------
Section 10.3. Termination of Trust or Series. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
------------------------------
Section 10.4. Amendment Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
-------------------
Section 10.5. Merger, Consolidation and Sale of Assets. . . . . . . . . . . . . . . . . . . . . . . . 24
----------------------------------------
ARTICLE XI
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
-------------
Section 11.1. Certificate of Trust; Registered Agent. . . . . . . . . . . . . . . . . . . . . . . . . 24
---------------------------------------
Section 11.2. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
-------------
Section 11.3. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
------------
Section 11.4. Reliance by Third Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
-------------------------
Section 11.5. Provisions in Conflict with Law or Regulations. . . . . . . . . . . . . . . . . . . . . 25
----------------------------------------------
Section 11.6. Trust Only. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
----------
SIGNATURE PAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
iv
<PAGE> 5
DECLARATION OF TRUST
OF
MERCURY MASTER TRUST
Dated: April 23, 1998
DECLARATION OF TRUST of Mercury Master Trust made the 23rd day of
April, 1998, by Robert E. Putney, III, as trustee (such individual, so long as
he shall continue in office in accordance with the provisions of this
Declaration of Trust, and all other Persons who may hereafter be duly elected
or appointed, qualified and serving as trustees in accordance with the
provisions hereof, being hereinafter called "Trustees").
W I T N E S S E T H:
WHEREAS, the Trustees desire to establish a business trust under the
Delaware Business Trust Act (the "Act") consisting of one or more series or
portfolios for the investment and reinvestment of funds contributed thereto;
NOW, THEREFORE, the Trustees hereby declare that all money and
property hereafter contributed to the Series established hereby shall be held
and managed in trust for the benefit of the holders of beneficial interests
issued hereunder with respect to each respective Series from time to time and
subject to the provisions hereof, to wit:
ARTICLE I
NAME AND DEFINITIONS
Section 1.1. Name. The name of the trust established hereby (the
"Trust") is "Mercury Master Trust," and, insofar as may be practicable, the
Trust shall conduct its activities, execute all documents and sue or be sued
under that name, which name (and the word "Trust" wherever herein used) shall
refer to the Trust as a separate legal entity, and shall not refer to the
Trustees, officers, agents, employees or Holders. If the Trustees determine
that the Trust's use of such name is not advisable, the Trustees may adopt such
other name for the Trust as they deem proper and the Trust may hold its
property and conduct its activities under such other name. Any name change
shall become effective upon the execution by a majority of the then Trustees of
an instrument setting forth the new name and the filing of a Certificate of
Amendment under the Act. Any such instrument shall have the status of an
amendment to this Declaration.
Section 1.2. Definitions. Wherever they are used herein, the
following terms have the respective meanings assigned to them below:
<PAGE> 6
(a) "Administrator" shall mean any party furnishing
services to the Trust and the Series pursuant to any administrative
services contract described in Section 4.1.
(b) "Act" shall mean the Delaware Business Trust Act, as
the same may be amended from time to time.
(c) "Affiliated Person" has the meaning assigned to it in
Section 2(a)(3) of the 1940 Act.
(d) "Assets belonging to" a Series shall have the meaning
ascribed in Section 5.2(a).
(e) "Book Capital Account" shall mean, for any Holder at
any time, the Book Capital Account of the Holder at such time with
respect to such Holder's interest in the Trust Property of any Series,
determined in accordance with generally accepted accounting principles
and the provisions of the 1940 Act, and each Holder shall have a
separate Book Capital Account for each Series in which it holds an
Interest.
(f) "By-Laws" means the By-Laws referred to in Section
2.7 hereof, as amended and in effect from time to time.
(g) "Code" shall mean the Internal Revenue Code of 1986
and the rules and regulations thereunder, each as amended from time to
time.
(h) "Commission" means the Securities and Exchange
Commission.
(i) "Custodian" means the party, other than the Trust or
the Series, to the agreement described in Section 4.3 hereof.
(j) "Declaration" means this Declaration of Trust, as
amended and in effect from time to time. Reference in this
Declaration of Trust to "Declaration," "hereof," "herein," "hereby"
and "hereunder" shall be deemed to refer to this Declaration rather
than the article or section in which such words appear.
(k) "Fundamental Policies" means the investment policies
and restrictions applicable to any Series which are set forth and
designated as fundamental policies in the Registration Statement.
(l) "Holders" shall mean as of any particular time all
holders of record of Interests in the Trust Property of any Series at
such time.
(m) "Institutional Investor(s)" shall mean any registered
investment company (including a unit investment trust), insurance
company separate account, common or
2
<PAGE> 7
commingled trust fund, group trust or similar organization or entity
that is an "accredited investor" within the meaning of Regulation D
under the Securities Act of 1933, and shall not include any
individual, S corporation, partnership, or grantor trust beneficially
owned by any individual, S corporation or partnership.
(n) "Interested Person" has the meaning ascribed to it in
Section 2(a)(19) of the 1940 Act.
(o) "Interest(s)" shall mean the interest of a Holder in
the Trust Property of any Series, including all rights, powers and
privileges accorded to Holders in this Declaration, which interest may
be expressed as a percentage, determined by calculating, as the
Trustees shall from time to time determine, the ratio of each Holder's
Book Capital Account balance in the Trust Property of any Series to
the total of all Holders' Book Capital Account balances in the Trust
Property of any such Series. Reference herein to a specific
percentage in, or fraction of, Interests of the Holders means Holders
whose combined Book Capital Accounts represent such specified
percentage or fraction of the Book Capital Accounts of all Holders of
the Trust Property of any Series or of the Trust as a whole (as the
context may require).
(p) "Investment Adviser" means the party, other than the
Trust or the Series, to any investment advisory contract described in
Section 4.1 hereof.
(q) "Liabilities belonging to" a Series shall have the
meaning ascribed in Section 5.2(b).
(r) "1940 Act" means the provisions of the Investment
Company Act of 1940 and the rules and regulations thereunder as
amended from time to time and any order or orders thereunder which may
from time to time be applicable to the Trust.
(s) "Person" means and includes individuals,
corporations, partnerships, trusts, associations, joint ventures and
other entities, whether or not legal entities, and governments and
agencies and political subdivisions thereof.
(t) "Registration Statement" means the Trust's currently
effective Registration Statement under the 1940 Act, as it may be
amended or supplemented from time to time.
(u) "Series" refers to the Series of the Trust
established and designated under or in accordance with Sections 3804
and 3806 of the Act and the provisions of Article V hereof, each of
which shall be accounted for and maintained as a separate series or
portfolio of the Trust.
(v) "Trust" means the master trust established hereby by
whatever name it may then be known, inclusive of each and every Series
established hereunder.
3
<PAGE> 8
(w) "Trust Property" means any and all assets, real or
personal, tangible or intangible, which is owned or held by the Trust,
each and every asset of which shall be allocated and belong to a
specific Series to the exclusion of all other Series.
(x) "Trustees" means the individuals who have signed this
Declaration, so long as they shall continue in office in accordance
with the provisions hereof, and all other Persons who may from time to
time be duly elected or appointed, qualified and serving as Trustees
in accordance with the provisions hereof, and reference herein to a
Trustee or the Trustees shall refer to such individual or Persons in
their capacity as trustees hereunder.
(y) The use herein of the masculine or feminine gender or
the neutral shall be construed to refer to the other gender or the
neutral as well, and the use herein of the singular shall be construed
to include the plural and the plural to include the singular, as the
context may require.
ARTICLE II
TRUSTEES
Section 2.1. Number of Trustees and Qualification. The number of
Trustees shall initially be one (1) and shall thereafter be such number as
shall be fixed from time to time by a written instrument signed by a majority
of the Trustees then in office, provided, however, that the number of Trustees
shall, subsequent to any sale of Interests other than sales made solely for the
purposes of meeting any applicable seed money requirement under the 1940 Act,
in no event be less than three (3) or more than fifteen (15). Any vacancy
created by an increase in Trustees may be filled by the appointment of any
Person having the qualifications described in this Article made by a written
instrument signed by a majority of the Trustees then in office. Any such
appointment shall not become effective, however, until the Person named in the
written instrument of appointment shall have accepted in writing such
appointment and agreed in writing to be bound by the terms of this Declaration.
No reduction in the number of Trustees shall have the effect of removing any
Trustee from office. Whenever a vacancy in the number of Trustees shall occur,
until such vacancy is filled as provided in this Section and Section 2.4
hereof, the Trustees in office, regardless of their number, shall have all the
powers granted to the Trustees and shall discharge all the duties imposed upon
the Trustees by this Declaration.
Section 2.2. Term and Election. Each Trustee named herein, or
elected or appointed prior to the first meeting of the Holders, shall (except
in the event of resignations or removals or vacancies pursuant to Section 2.3
or 2.4 hereof) hold office until his successor has been elected at such meeting
and has qualified to serve as Trustee, as required under the 1940 Act.
Beginning with the Trustees elected at the first meeting of Holders, each
Trustee shall hold office during the lifetime of this Trust and until its
termination as hereinafter provided unless such Trustee resigns or is removed
as provided in Section 2.3 below.
4
<PAGE> 9
Section 2.3. Resignation and Removal. Any Trustee may resign his
trust (without need for prior or subsequent accounting) by an instrument in
writing signed by him and delivered to the other Trustees, and such resignation
shall be effective upon such delivery or at any later date according to the
terms of the instrument. Any of the Trustees may be removed by the action of
two-thirds of the remaining Trustees; provided, that if the removal of one or
more Trustees would have the effect of reducing the number of remaining
Trustees below the minimum number prescribed by Section 2.1 hereof, then
subject to Section 16(a) of the 1940 Act, at the time of the removal of such
Trustee or Trustees, the remaining Trustees shall elect or appoint a number of
additional Trustees at least sufficient to increase the number of Trustees
holding office to the minimum number prescribed by Section 2.1 hereof. Upon
the resignation or removal of a Trustee, or his otherwise ceasing to be a
Trustee due to death or legal disability, he shall execute and deliver such
documents as the remaining Trustees shall require for the purpose of conveying
to the Trust or the remaining Trustees any Trust Property held in his name.
Upon the death or legal disability of any Trustee, his legal representative
shall execute and deliver on his behalf such documents as the remaining
Trustees shall require as provided in the preceding sentence. However, the
execution and delivery of such documents by a former Trustee or his legal
representative shall not be requisite to the vesting of title to the Trust
Property in the remaining Trustees as provided in Section 3.3 hereof.
Section 2.4. Vacancies. The term of office of a Trustee shall
terminate and a vacancy shall occur in the event of such Trustee's death,
resignation, removal, bankruptcy, adjudicated incompetence or other legal
disability to perform the duties of the office of Trustee. No such vacancy
shall operate to annul this Declaration or to revoke any existing obligations
created pursuant to the terms of this Declaration. In the case of a vacancy,
the Holders of at least a majority of the Interests entitled to vote, acting at
any meeting of the Holders held in accordance with Section 9.1 hereof, or, to
the extent permitted by the 1940 Act, a majority vote of the Trustees
continuing in office acting by written instrument or instruments, may fill such
vacancy, and any Trustee so elected by the Trustees or the Holders shall hold
office as provided in this Declaration.
Section 2.5. Meetings. Regular meetings of the Trustees may be held
on such notice at such place or places and times as may be fixed by the By-Laws
or by resolution of the Trustees. Special Meetings of the Trustees shall be
held upon the call of the Chairman, if any, the president, the secretary or any
two Trustees, by oral or telegraphic or written notice duly served on or sent,
mailed or sent by telecopy to each Trustee not less than one day before the
meeting. No notice need be given to any Trustee who attends in person or to any
Trustee who, in writing signed and filed with the records of the meeting either
before or after the holding thereof, waives notice. Notice or waiver of notice
need not state the purpose or purposes of the meeting. The Trustees may act
with or without a meeting, subject to the requirements of the 1940 Act. A
quorum for all meetings of the Trustees shall be a majority of the Trustees.
Unless provided otherwise in this Declaration, any action of the Trustees may
be taken at a meeting by vote of a majority of the Trustees present (a quorum
being present) or without a meeting by written consent of a majority of the
trustees.
5
<PAGE> 10
Any committee of the Trustees, including an executive committee, if
any, may act with or without a meeting. A quorum for all meetings of any such
committee shall be a majority of the members thereof. Unless provided
otherwise in this Declaration, any action of any such committee may be taken at
a meeting by vote of a majority of the members present (a quorum being present)
or without a meeting by written consent of a majority of the members.
With respect to actions of the Trustees and any committee of the
Trustees, Trustees who are Interested Persons of the Trust within the meaning
of Section 1.2 hereof or otherwise interested in any action to be taken may be
counted for quorum purposes under this Section 2.5 and shall be entitled to
vote to the extent permitted by the 1940 Act.
All or any one or more Trustees may participate in a meeting of the
Trustees or any committee thereof by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other and participation in a meeting pursuant to such
communications system shall constitute presence in person at such meeting.
Section 2.6. Officers; Chairman. The Trustees shall, from time to
time, elect a President, a Secretary and a Treasurer. The Trustees may elect
or appoint, from time to time, a Chairman who shall preside at all meetings of
the Trustees and carry out such other duties as the Trustees shall designate.
The Trustees may elect or appoint or authorize the President to appoint such
other officers or agents with such powers as the Trustees may deem to be
advisable. The President, the Secretary and the Treasurer may, but need not,
be Trustees, and shall be agents of the Trust.
Section 2.7. By-Laws. The Trustees may adopt By-Laws not
inconsistent with this Declaration for the conduct of activities of the Trust
and may amend or repeal such By-Laws to the extent such power is not reserved
to the Holders by express provision of such By-Laws. This Declaration and the
By-Laws shall together constitute the "governing instrument" of the Trust
within the meaning of Section 3801(f) of the Act.
ARTICLE III
POWERS OF TRUSTEES
Section 3.1. General. The Trustees shall have exclusive and absolute
control over the Trust Property and over the activities of the Trust and each
Series to the same extent as if the Trustees were the sole owners of the Trust
Property in their own right, but with such powers of delegation as may be
permitted by this Declaration. The Trustees shall have power to conduct the
activities of the Trust and any Series and to carry on their operations and
maintain offices both within and without the State of Delaware, in any and all
states of the United States of America, and in the District of Columbia, in any
foreign country, and in any and all commonwealths, territories, dependencies,
colonies, possessions, agencies or instrumentalities of the United States
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of America and of foreign governments, and to do all such other things and
execute all such instruments as they deem necessary, proper or desirable in
order to promote the interests of the Trust and each Series although such things
are not herein specifically mentioned. Any determination as to what is in the
interests of the Trust or any Series made by the Trustees in good faith shall be
conclusive. In construing the provisions of this Declaration, the presumption
shall be in favor of a grant of power to the Trustees. The Trustees will not be
required to obtain any court order to deal with Trust Property.
The enumeration of any specific power herein shall not be construed as
limiting the aforesaid powers. Such powers of the Trustees may be exercised
without order of or resort to any court.
Section 3.2. Activities and Investments. The Trustees shall have the
power with respect to the Trust and each Series:
(a) to conduct, operate and carry on the activities of an
investment company, and, in connection therewith:
(i) to subscribe for, purchase or otherwise acquire
and invest and reinvest in, to hold for investment or
otherwise, to sell, transfer, assign, negotiate, exchange,
lend or otherwise dispose of, and to turn to account or
realize upon and generally deal in and with, domestic or
foreign securities (which term, "securities," shall include
without limitation any and all bills, notes, bonds, debentures
or other obligations or evidences of indebtedness,
certificates of deposit, bankers acceptances, commercial
paper, repurchase agreements or other money market
instruments; stocks, shares or other equity ownership
interests (including non-publicly traded or illiquid
securities and those securities the disposition of which is
restricted under the Federal securities laws); convertible
securities; mortgage-backed or other asset-backed securities;
and warrants, options or other instruments representing rights
to subscribe for, purchase, receive or otherwise acquire or to
sell, transfer, assign or otherwise dispose of, and scrip,
certificates, receipts or other instruments evidencing any
ownership rights or interests in, any of the foregoing; and
"forward commitment", "when issued" and "delayed delivery"
contracts for securities, issued, guaranteed or sponsored by
any governments, political subdivisions or governmental
authorities, agencies or instrumentalities, by any
individuals, firms, companies, corporations, syndicates,
associations or trusts, or by any other organizations or
entities whatsoever, irrespective of their forms or the names
by which they may be described, whether or not they be
organized and operated for profit, and whether they be
domestic or foreign with respect to the State of Delaware or
the United States of America); and
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(ii) to acquire and become the owner of or
interested in any securities by delivering or issuing in
exchange or payment therefor, in any lawful manner, any of the
Trust Property; and
(iii) to exercise while the owner of any securities
or interests therein any and all of the rights, powers and
privileges of ownership of such securities or interests,
including without limitation any and all voting rights and
rights of assent, consent or dissent pertaining thereto, and
to do any and all acts and things for the preservation,
protection, improvement and enhancement in value thereof; and
(iv) to purchase, sell and hold currencies and enter
into contracts for the future purchase or sale of currencies,
including but not limited to forward foreign currency exchange
contracts; and
(v) to enter into futures and forward contracts, and
to purchase and write put and call options on futures
contracts, securities, currencies and securities indexes; and
(vi) to make loans to the extent provided in the
Registration Statement from time to time; and
(vii) to engage in such other activities as may be
disclosed in the Registration Statement from time to time; and
(b) to conduct, operate and carry on any other lawful
activities which the Trustees, in their sole and absolute discretion,
consider to be (i) incidental to the activities of the Trust and each
Series as an investment company, (ii) conducive to or expedient for
the benefit or protection of the Trust or any Series or the Holders,
or (iii) calculated in any other manner to promote the interests of
the Trust or any Series or the Holders.
The Trustees shall not be limited to investing in securities maturing before
the possible termination of the Trust or any Series, nor shall the Trustees be
limited by any law limiting the investments which may be made by fiduciaries.
Notwithstanding anything to the contrary herein contained but consistent with
the applicable investment objectives, the Trust and each Series shall be
managed in compliance with the requirements of the Code applicable to regulated
investment companies as though such requirements were applied at the Series
level.
Section 3.3. Legal Title. Legal title to all the Trust Property
shall be vested in the Trust as a separate legal entity, except that the
Trustees shall have power to cause legal title to any Trust Property to be held
by or in the name of one or more of the Trustees or in the name of any Series
of the Trust, or in the name of any other Person as nominee, on such terms as
the Trustees may determine, provided, that the interest of the Trust or any
Series therein is appropriately protected. The right, title and interest of
the Trustees in the Trust Property shall vest
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automatically in each Person who may hereafter become a Trustee. Upon the
termination of the term of office of a Trustee as provided in Section 2.2 or
2.4 hereof, such Trustee shall automatically cease to have any right, title or
interest in any of the Trust Property, and all right, title and interest of
such Trustee in the Trust Property shall vest automatically in the remaining
Trustees. Such vesting and cessation of title shall be effective whether or
not conveyancing documents have been executed and delivered as provided in
Section 2.3 hereof.
Section 3.4. Sale of Interests; Reclassification. Subject to more
detailed provisions set forth in Article V and the Trustees' duty of
impartiality to the Holders, the Trustees shall have the power to permit
Persons to purchase Interests and to add to or reduce, in whole or in part,
their Interests in any Series, provided that from and after the commencement of
the private placement of Interests, Interests shall be sold only to
Institutional Investors, and the original Holders shall withdraw their entire
Interests from the Series. The Trustees shall also have the power to acquire,
hold, resell, dispose of, transfer, classify, reclassify and otherwise deal in
Interests of the Trust or any Series. The Trustees may hold as treasury
Interests, re-issue for such consideration and on such terms as they determine,
or cancel, in their discretion from time to time, any Interests of any Series
or class thereof reacquired by the Trust.
Section 3.5. Borrowing Money; Pledging Trust Assets; Lending
Property. Subject to any applicable Fundamental Policies of the Trust or any
Series or any applicable provision of the By-Laws, the Trustees shall have
power, on behalf of the Trust or any Series, to borrow money or otherwise
obtain credit and to secure the same by mortgaging, pledging or otherwise
subjecting as security any of the Trust Property, to endorse, guarantee, or
undertake the performance of any obligation, contract or engagement of any
other Person and to lend Trust Property; provided that Trust Property belonging
to a Series shall not be pledged, encumbered or subject to liabilities
belonging to any other Series.
Section 3.6. Delegation; Committees. The Trustees shall have power,
consistent with their continuing exclusive authority over the management of the
Trust, each Series and the Trust Property, to delegate from time to time to
such committee or committees as they may from time to time appoint from among
their own number or to such officers, employees or agents of the Trust as they
may from time to time designate the doing of such things and the execution of
such instruments either in the name of the Trust or any Series or the names of
the Trustees or otherwise as the Trustees may deem expedient.
Section 3.7. Collection and Payment. The Trustees shall have power
to collect all property due to the Trust or any Series; to pay all claims,
including taxes, against the Trust Property; to prosecute, defend, compromise
or abandon any claims relating to the Trust Property; to foreclose any security
interest securing any obligations by virtue of which any property is owed to
the Trust or any Series; and to enter into releases, agreements and other
instruments.
Section 3.8. Expenses. The Trustees shall have the power to incur
and pay, out of the income or the principal of the Trust Property of the
Series, any expenses which, in the opinion of
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the Trustees, are necessary or incidental to carrying out any of the purposes
of this Declaration, and to pay reasonable compensation from the funds of the
Trust to themselves as Trustees; provided that no Series will be liable for the
debts and obligations of any other Series, and expenses, fees, charges, taxes,
and liabilities incurred or arising in connection with a particular Series, or
in connection with the management thereof, shall be paid out of the Trust
Property belonging to that Series and not out of the Trust Property belonging
to any other Series. The Trustees shall not be obligated to account to the
Holders for the retention of compensation, and each Holder agrees that
compliance with the accounting requirements of the 1940 Act and of this
Declaration shall constitute satisfactory accounting with respect to all acts
of the Trustees. The Trustees shall fix the compensation of all officers,
employees and Trustees of the Trust and may pay such compensation out of the
Trust Property without reduction of the Trustees' compensation.
Section 3.9. Common Items. All expenses and other items of the Trust
which are common to the Series shall be borne by or allocated to the Series
proportionately based upon the relative net asset values of each. Such common
items shall include, but not be limited to, Trustees' fees; 1940 Act
registration expenses; organizational expenses of the Trust, exclusive of
organizational expenses attributable to any specific Series; and accounting
expenses relating to the Trust which are not attributable to any specific
Series.
Section 3.10. Litigation. The Trustees shall have the power to engage
in and to prosecute, defend, compromise, abandon, or adjust, by arbitration or
otherwise, any actions, suits, proceedings, disputes, claims, and demands
relating to the Trust or any Series or the Trust Property, and, out of the
Trust Property, to pay or to satisfy any debts, claims or expenses incurred in
connection therewith, including those of litigation, and such power shall
include without limitation the power of the Trustees or any appropriate
committee thereof, in the exercise of their or its good faith business
judgment, consenting to dismiss any action, suit, proceeding, dispute, claim or
demand, brought by any Person, including, to the extent permitted by applicable
law, a Holder in such Holder's own name or in the name of the Trust or any
Series, whether or not the Trust, a Series or any of the Trustees may be named
individually therein or the subject matter arises by reason of business for or
on behalf of the Trust or any Series.
Section 3.11. Tax Matters. The Trustees shall have the exclusive
power, authority and responsibility with respect to the Trust and the Series
regarding (i) preparation and filing of tax returns; (ii) providing reports to
the Holders regarding tax information necessary to the filing of their
respective tax returns; (iii) making any and all available elections with
respect to the tax treatment of the Series and their investments; (iv)
representing the Series before the Internal Revenue Service and/or any state
taxing authority and exercising the powers and authorities of a tax matters
partner under the Code with respect to the Series' partnership tax returns; (v)
exercising such responsibility as may be imposed by law with respect to
withholding from a Holder's share of income or distributions; (vi) providing to
the accountants of the Series such instructions regarding allocations of
realized income, gains and losses as may be necessary or
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appropriate to assure compliance with applicable provisions of the Code and
Treasury Regulations; and (vii) any and all other tax matters.
Section 3.12. Miscellaneous Powers. The Trustees shall have the power
to: (a) employ or contract with such Persons as the Trustees may deem desirable
for the transaction of the activities of the Trust or any Series and eliminate
such employees or contractual relationships as they consider appropriate; (b)
enter into joint ventures, partnerships and any other combinations or
associations; (c) remove Trustees or fill vacancies in or add to their number,
subject to and in accordance with Sections 2.3 and 2.4 hereof; elect and remove
at will such officers and appoint and terminate such agents or employees as
they consider appropriate; and appoint from their own number and terminate at
will any one or more committees which may exercise some or all of the power and
authority of the Trustees as the Trustees may determine; (d) purchase, and pay
for out of Trust Property, insurance policies insuring the Trust Property, and,
to the extent permitted by law and not inconsistent with any applicable
provision of this Declaration or the By-Laws, insuring the Investment Adviser,
Administrator, placement agent, Holders, Trustees, officers, employees, agents
or independent contractors of the Trust or any Series against all claims
arising by reason of holding any such position or by reason of any action taken
or omitted to be taken by any such Person in such capacity, whether or not
constituting negligence, or whether or not the Trust or any Series would have
the power to indemnify such Person against such liability; (e) indemnify any
person with whom the Trust or any Series has dealings, including the Holders,
Trustees, officers, employees, agents, Investment Adviser, Administrator,
placement agent and independent contractors of the Trust or any Series, to such
extent permitted by law and not inconsistent with the applicable provisions of
this Declaration; (f) subject to applicable Fundamental Policies, guarantee
indebtedness or contractual obligations of others; (h) determine and change the
fiscal year of the Trust or any Series and the method by which its accounts
shall be kept; and (g) adopt a seal for the Trust or any Series, but the
absence of such seal shall not impair the validity of any instrument executed
on behalf of the Trust or Series.
Section 3.13. Manner of Acting. Except as otherwise provided herein,
in the By-Laws, in the 1940 Act or in any other applicable provision of law,
any action to be taken by the Trustees may be taken in the manner set forth in
Section 2.5 hereof.
ARTICLE IV
INVESTMENT ADVISORY, ADMINISTRATIVE SERVICES
AND PLACEMENT AGENT ARRANGEMENTS; CUSTODIAN
Section 4.1. Investment Advisory and Other Arrangements. The
Trustees may in their discretion, from time to time, cause the Series to
separately enter into investment advisory and administrative services contracts
or placement agent agreements whereby the other party to such contract or
agreement shall undertake to furnish to the Series specified therein such
investment advisory, administrative, placement agent and/or other services as
the Trustees shall, from time to time, consider desirable with respect to such
Series and all upon such terms and conditions as the
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Trustees may in their discretion determine. Notwithstanding any other
provisions of this Declaration, the Trustees may authorize any Investment
Adviser (subject to such general or specific instructions as the Trustees may,
from time to time, adopt) to effect purchases, sales, loans or exchanges of
Trust Property on behalf of any Series or may authorize any officer, employee
or Trustee to effect such purchases, sales, loans or exchanges pursuant to
recommendations of any such Investment Adviser (and all without further action
by the Trustees). Any such purchase, sales, loans and exchanges shall be
deemed to have been authorized by all of the Trustees.
Section 4.2. Parties to Contract. Any contract of the character
described in Section 4.1 of this Article IV or in the By-Laws of the Trust may
be entered into with any corporation, firm, trust or association, although one
or more of the Trustees or officers of the Trust may be an officer, director,
trustee, shareholder, or member of such other party to the contract; and no
such contract shall be invalidated or rendered voidable by reason of the
existence of any such relationship, nor shall any person holding such
relationship be liable merely by reason of such relationship for any loss or
expense to the Trust or any Series under or by reason of said contract or
accountable for any profit realized directly or indirectly therefrom, provided
that the contract when entered into was reasonable and fair and not
inconsistent with the provisions of this Article IV or the By-Laws. The same
Person (including a firm, corporation, trust, or association) may be the other
party to contracts entered into pursuant to Section 4.1 above or the By-Laws of
the Trust, and any individual may be financially interested or otherwise
affiliated with Persons who are parties to any or all of the contracts
mentioned in this Section 4.2.
Section 4.3. Custodian. The Trustees may appoint one or more banks
or trust companies as custodian of the securities and cash belonging to the
Series. The agreement providing for such appointment shall contain such terms
and conditions as the Trustees in their discretion determine to be not
inconsistent with this Declaration, the applicable provisions of the 1940 Act
and any applicable provisions of the By-Laws of the Trust. One or more
subcustodians may be appointed in a manner not inconsistent with this
Declaration, the applicable provisions of the 1940 Act and any applicable
provisions of the By-Laws of the Trust.
ARTICLE V
INTERESTS IN THE TRUST
Section 5.1. Interests. Subject to the limitations contained in
Section 5.8 relating to the number of permitted Holders, The beneficial
interests in the Trust Property shall consist of an unlimited number of
non-transferable Interests which shall be denominated in dollars corresponding
to the value of such Interests determined by reference to the corresponding
Book Capital Accounts. All Interests shall be validly issued, fully paid and
nonassessable when issued for such consideration as the Trustees shall
determine. The Trustees may permit the purchase of Interests (for cash or
other consideration acceptable to the Trustees, subject to the requirements of
the 1940 Act) but only if the purchaser is an Institutional Investor. Subject
to applicable law,
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the provisions hereof and such restrictions as may be adopted by the Trustees,
a Holder may increase its Interest by contributions or decrease its Interest by
withdrawals without limitation.
Pursuant to Section 3806(b) of the Act, the Trustees shall have
authority, from time to time, to establish Interests of a Series, each of which
shall be separate and distinct from the Interests in any other Series. The
Series shall include, without limitation, those Series specifically established
and designated in Section 5.2 hereof, and such other Series as the Trustees may
deem necessary or desirable. The Trustees shall have exclusive power without
the requirement of Holder approval to establish and designate such separate and
distinct Series, and, subject to the provisions of this Declaration and the
1940 Act, to fix and determine the rights of Holders of Interests in such
Series, including with respect to the price, terms and manner of purchase and
redemption, dividends and other distributions, rights on liquidation, sinking
or purchase fund provisions, conversion rights and conditions under which the
Holders of the several Series shall have separate voting rights or no voting
rights.
Section 5.2. Establishment and Designation of Series. The
establishment and designation of any Series shall be effective upon the
execution by the Secretary or an Assistant Secretary of the Trust, pursuant to
authorization by a majority of the Trustees, of an instrument setting forth
such establishment and designation and the relative rights and preferences of
the Interests of such Series, or as otherwise provided in such instrument. At
any time that there are no Interests outstanding of any particular Series
previously established and designated, the Trustees may by resolution adopted
by a majority of their number, and evidenced by an instrument executed by the
Secretary or an Assistant Secretary of the Trust, abolish that Series and the
establishment and designation thereof. Each instrument referred to in this
paragraph shall have the status of an amendment to this Declaration of Trust.
Without limiting the authority of the Trustees set forth above to
establish and designate further Series, the Trustees hereby establish and
designate seven Series: Mercury Master European Growth Portfolio, Mercury
Master International Portfolio, Mercury Master Japan Portfolio, Mercury Master
Portfolio 4, Mercury Master Portfolio 5, Mercury Master Portfolio 6 and Mercury
Master Portfolio 7. The Interests of each of these Series and any Interests of
any further Series that may from time to time be established and designated by
the Trustees shall (unless the Trustees otherwise determine with respect to
some further Series at the time of establishing and designating the same) have
the following relative rights and preferences:
(a) Assets Belonging to Series. All consideration
received by the Trust for the issue or sale of Interests of a
particular Series, together with all assets in which such
consideration is invested or reinvested, all income, earnings,
profits, and proceeds thereof, including any proceeds derived from the
sale, exchange or liquidation of such assets, and any funds or
payments derived from any reinvestment of such proceeds in whatever
form the same may be, shall be held by the Trustees in a separate
trust for the benefit of the holders of Interests of that Series and
shall irrevocably belong to that Series for all purposes, and shall be
so recorded upon the books of account of the Trust. Such
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consideration, assets, income, earnings, profits, and proceeds
thereof, including any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds, in whatever form the same may be, are
herein referred to as "assets belonging to" that Series. No Series
shall have any right to or interest in the assets belonging to any
other Series, and no Holder shall have any right or interest with
respect to the assets belonging to any Series in which it does not
hold an Interest.
(b) Liabilities Belonging to Series. The assets
belonging to each particular Series shall be charged with the
liabilities in respect of that Series and all expenses, costs, charges
and reserves attributable to that Series. The liabilities, expenses,
costs, charges and reserves so charged to a Series are herein referred
to as "liabilities belonging to" that Series. Subject to Section 8.1
hereof, no Series shall be liable for or charged with the liabilities
belonging to any other Series.
(c) Voting. On each matter submitted to a vote of the
Holders, each Holder of an Interest in each Series shall be entitled
to a vote proportionate to its Interest in such Series as recorded on
the books of the Trust and all Holders of Interests in each Series
shall vote as a separate class except as to voting for Trustees and as
otherwise required by the 1940 Act, in which case all Holders shall
vote together as a single class. As to any matter which does not
affect the interest of a particular Series, only the Holders of
Interests of the one or more affected Series shall be entitled to
vote.
Section 5.3. Rights of Holders. The ownership of the Trust Property
of every description and the right to conduct any activities hereinbefore
described shall be vested exclusively in the Trust, and the Holders shall have
no interest therein other than the beneficial interest conferred by their
Interests, and they shall have no right to call for any partition or division
of any property, profits, rights or interests of the Trust or any Series. No
Holder shall have any interest in or rights with respect to any Series in which
it does not hold an Interest. The Interests shall be personal property giving
only the rights specifically set forth in this Declaration. The Holders shall
have no right to demand payment for their Interests or any other rights of
dissenting shareholders in the event the Trust participates in any transaction
which would give rise to appraisal or dissenter's rights by a shareholder of a
corporation organized under the General Corporation Law of the State of
Delaware or otherwise. Holders shall have no preemptive or other rights to
subscribe for additional Interests or other securities issued by the Trust. No
action may be brought by a Holder on behalf of the Trust unless Holders owning
not less than 25% of the then-outstanding Interests join in the bringing of
such action. All Persons, by virtue of acquiring an Interest in the Trust and
being registered as a Holder in accordance with Section 5.5 hereof, shall be
deemed to have assented to, and shall be bound by, this Declaration to the same
extent as if such Person was a party hereto.
Section 5.4. Purchase of or Increase in Interests. The Trustees, in
their discretion, may, from time to time, without a vote of the Holders, permit
the purchase of additional Interests of
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any Series by such Person or Persons (including existing Holders), subject to
the provisions of Section 5.1 hereof, and for such type of consideration,
including cash or property, at such time or times (including, without
limitation, each business day), and on such terms as the Trustees may deem
best, and may in such manner acquire other assets (including the acquisition of
assets subject to, and in connection with the assumption of, liabilities) and
businesses.
Section 5.5. Register of Interests. A register shall be kept by the
Trust which shall contain the names and addresses of the Holders and the Book
Capital Account balances of each Holder in each Series. Each such register
shall be conclusive as to who the Holders are and who shall be entitled to
payments of distributions or otherwise to exercise or enjoy the rights of
Holders. No Holder shall be entitled to receive payment of any distribution,
nor to have notice given to it as herein provided, until it has given its
address to such officer or agent of the Trust as shall keep the said register
for entry thereon.
Section 5.6. Non-Transferability. Interests shall not be
transferable except with the prior written consent of all of the Trustees and
all remaining Holders of Interests.
Section 5.7. Notices. Any and all notices to which any Holder
hereunder may be entitled and any and all communications shall be deemed duly
served or given if mailed, postage prepaid, addressed to any Holder of record
at its last known address as recorded on the register of the Trust.
Section 5.8. Limitation on Number of Holders. Notwithstanding any
provision hereof to the contrary, the number of Holders of Interests in any
Series shall be limited to fewer than 100. Solely for purposes of determining
the number of Holders of Interests in any Series under this Section 5.8, each
beneficial owner of a grantor trust which is itself a Holder shall be treated
as a Holder of such Interest.
Section 5.9. No Liability of Holders. All Interests, when issued in
accordance with this Declaration, shall be fully paid and nonassessable.
Holders shall be entitled to the protection against personal liability for the
obligations of the Trust under Section 3803(a) of the Act. The Trust shall
indemnify and hold each Holder harmless from and against any claim or liability
to which such Holder may become subject solely by reason of his or her being or
having been a Holder and not because of such Holder's acts or omissions or for
some other reason, and shall reimburse such Holder for all legal and other
expenses reasonably incurred by him or her in connection with any such claim or
liability (upon proper and timely request by the Holder); provided, however,
that no Holder shall be entitled to indemnification by an Series unless such
Holder is a Holder of Interests of such Series.
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ARTICLE VI
DECREASES AND WITHDRAWALS
Section 6.1. Decreases and Withdrawals. A Holder shall have the
right on any day the New York Stock Exchange is open to decrease its Interest
in any Series, and to withdraw completely from any Series, at the next
determined net asset value attributable to the Interest (or portion thereof)
being withdrawn, and an appropriate adjustment therefor shall be made to such
Holder's Book Capital Account. The rights of a Holder upon withdrawal from a
Series shall be limited to the assets belonging to the Series from which the
withdrawal is made. The Trust may, subject to compliance with the 1940 Act,
charge fees for effecting such decrease or withdrawal, at such rates as the
Trustees may establish, and may at any time and from time to time, suspend such
right of decrease or withdrawal. The procedures for effecting decreases or
withdrawals shall be as determined by the Trustees from time to time, subject
to the requirements of the 1940 Act.
ARTICLE VII
DETERMINATION OF BOOK CAPITAL ACCOUNT BALANCES,
NET INCOME AND DISTRIBUTIONS
Section 7.1. Book Capital Account Balances. The Book Capital Account
balances of Holders of the Trust with respect to each Series shall be
determined on such days and at such time or times as the Trustees may
determine, consistent with the requirements of the 1940 Act, with income, gains
and losses of each Series determined in accordance with generally accepted
accounting principles to be allocated among the Holders of such Series in
accordance with their Interests. The power and duty to make calculations of
the Book Capital Account balances of the Holders may be delegated by the
Trustees to the Investment Adviser, Administrator, Custodian, or such other
person as the Trustees may determine.
Section 7.2. Allocations and Distributions to Holders. In compliance
with the Treasury Regulations promulgated under applicable provisions of the
Code, the Trustees shall (i) allocate items of taxable income, gain, loss and
deduction with respect to each Series to Holders of the Interests in such
Series, provided that, except as may otherwise be specifically provided in the
Treasury Regulations, in all cases allocations of specific types of income
shall be proportionate to the Interests of the Holders in that Series, and (ii)
upon liquidation of a Series, make final distribution of the net assets of such
Series among the Holders of the Interests in such Series in accordance with
their respective Book Capital Accounts. The Trustees shall provide each Holder
that is a regulated investment company, as defined in Section 851(a) of the
Code, information which will enable it to take into account its share of items
of taxable income, gain, loss and deduction as they are taken into account by
the Series in order to facilitate compliance with Code Section 4982. Any
income tax withholding or other withholding of taxes required by law with
respect to the allocable share of income of, or distributions to, a Holder
shall be accounted for as a distribution to and charged to the Book Capital
Account of such Holder at the time of payment of such taxes to the applicable
taxing authority. The Trustees may always retain from the assets
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belonging to a Series such amount as they may deem necessary to pay the
liabilities belonging to that Series.
Section 7.3. Power to Modify Foregoing Procedures. Notwithstanding
any of the foregoing provisions of this Article VII, the Trustees may
prescribe, in their absolute discretion, such other bases and times for
determining the net income and net assets of the Trust and of each Series as
they may deem necessary or desirable to enable the Trust to comply with any
provision of the 1940 Act, any rule or regulation thereunder, or any order of
exemption issued by said Commission, all as in effect now or hereafter amended
or modified.
ARTICLE VIII
LIABILITY FOR TRUST OBLIGATIONS
Section 8.1. Liabilities of Series. Without limitation of the
provisions of Section 5.2(b) hereof, but subject to the right of the Trustees
in their discretion to allocate general liabilities, expenses, costs, charges
or services as herein provided, the debts, liabilities, obligations and
expenses incurred, contracted for or otherwise existing with respect to a
particular Series shall be enforceable against the assets of such Series only,
and not against the assets of any other Series. Notice of this limitation on
interseries liabilities shall be set forth in the certificate of trust of the
Trust (whether originally or by amendment) as filed or to be filed in the
Office of the Secretary of State of the State of Delaware pursuant to Section
3810 of the Act, and upon the giving of such notice in the certificate of
trust, the statutory provisions of Section 3804 of the Act relating to
limitations on interseries liabilities (and the statutory effect under Section
3804 of setting forth such notice in the certificate of trust) shall become
applicable to the Trust and each Series. Every note, bond, contract or other
undertaking issued by or on behalf of a particular Series shall include a
recitation limiting the obligation represented thereby to that Series and its
assets.
Section 8.2. No Personal Liability of Trustees, etc.
(a) Trustees. The Trustees shall be entitled to the
protection against personal liability for the obligations of the Trust
under Section 3803(b) of the Act. No Trustee shall be liable to the
Trust, its Holders, or to any Trustee, officer, employee, or agent
thereof for any action or failure to act (including, without
limitation, the failure to compel in any way any former or acting
Trustee to redress any breach of trust) except for his own bad faith,
willful misfeasance, gross negligence or reckless disregard of his
duties.
(b) Officers, Employees or Agents of the Trust. The
officers, employees and agents of the Trust shall be entitled to the
protection against personal liability for the obligations of the Trust
under Section 3803(c) of the Act. No officer, employee or agent of
the Trust shall be liable to the Trust, its Holders, or to any
Trustee, officer, employee, or agent thereof for any action or failure
to act (including, without limitation, the failure to compel in any
way any former or acting Trustee to redress any breach of trust)
except for his own bad faith, willful misfeasance, gross negligence or
reckless disregard of his duties.
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(c) The provisions of this Declaration, to the extent that
they expand or restrict the duties and liabilities of the Trustees,
officers, employees or agents of the Trust otherwise existing at law
or in equity, are agreed by the Holders to modify to that extent such
other duties and liabilities.
Section 8.3. Indemnification. The Trust shall indemnify each of its
Trustees, officers, employees, and agents (including persons who serve at its
request as directors, officers or trustees of another organization in which it
has any interest, as a shareholder, creditor or otherwise) against all
liabilities and expenses (including amounts paid in satisfaction of judgments,
in compromise, as fines and penalties, and as counsel fees) reasonably incurred
by him in connection with the defense or disposition of any action, suit or
other proceeding, whether civil or criminal, in which he may be involved or
with which he may be threatened, while in office or thereafter, by reason of
his being or having been such a Trustee, officer, employee or agent, except
with respect to any matter as to which he shall have been adjudicated to have
acted in bad faith, willful misfeasance, gross negligence or reckless disregard
of his duties, such liabilities and expenses being liabilities belonging to the
Series out of which such claim for indemnification arises; provided, however,
that as to any matter disposed of by a compromise payment by such Person,
pursuant to a consent decree or otherwise, no indemnification either for said
payment or for any other expenses shall be provided unless there has been a
determination that such Person did not engage in willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office by the court or other body approving the settlement or
other disposition or, in the absence of a judicial determination, by a
reasonable determination, based upon a review of readily available facts (as
opposed to a full trial-type inquiry), that he did not engage in such conduct,
which determination shall be made by a majority of a quorum of Trustees who are
neither Interested Persons of the Trust nor parties to the action, suit or
proceeding, or by written opinion from independent legal counsel approved by
the Trustees. The rights accruing to any Person under these provisions shall
not exclude any other right to which he may be lawfully entitled; provided that
no Person may satisfy any right of indemnity or reimbursement granted herein or
to which he may be otherwise entitled except out of the Trust Property. The
Trustees may make advance payments in connection with indemnification under
this Section 8.3; provided that any advance payment of expenses by the Trust to
any Trustee, officer, employee or agent shall be made only upon the undertaking
by such Trustee, officer, employee or agent to repay the advance unless it is
ultimately determined that he is entitled to indemnification as above provided,
and only if one of the following conditions is met:
(a) the Trustee, officer, employee or agent to be
indemnified provides a security for his undertaking;
or
(b) the Trust shall be insured against losses arising by
reason of any lawful advances; or
(c) there is a determination, based on a review of
readily available facts, that there is reason to
believe that the Trustee, officer, employee or agent
to be
18
<PAGE> 23
indemnified ultimately will be entitled to
indemnification, which determination shall be made by:
(i) a majority of a quorum of Trustees who are
neither Interested Persons of the Trust nor
parties to the Proceedings; or
(ii) an independent legal counsel in a written
opinion.
Section 8.4. No Protection Against Certain 1940 Act Liabilities.
Nothing contained in Sections 8.1, 8.2 or 8.3 hereof shall protect any Trustee
or officer of the Trust from any liability to the Trust or its Holders to which
he would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office. Nothing contained in Sections 8.1, 8.2 or 8.3 hereof or in any
agreement of the character described in Section 4.1 or 4.2 hereof shall protect
any Investment Adviser to the Trust or any Series against any liability to the
Trust or any Series to which he would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of his or its
duties to the Trust or Series, or by reason of his or its reckless disregard to
his or its obligations and duties under the agreement pursuant to which he
serves as Investment Adviser to the Trust or any Series.
Section 8.5. No Bond Required of Trustees. No Trustee shall be
obligated to give any bond or other security for the performance of any of his
duties hereunder.
Section 8.6. No Duty of Investigation; Notice in Trust Instruments,
etc. No purchaser, lender, seller or other Person dealing with the Trustees or
with any officer, employee or agent of the Trust shall be bound to make any
inquiry concerning the validity of any transaction purporting to be made by the
Trustees or by said officer, employee or agent or be liable for the application
of money or property paid, lent or delivered to or on the order of the Trustees
or of said officer, employee or agent. Every contract, undertaking,
instrument, certificate, interest or obligation or other security of the Trust,
and every other act or thing whatsoever executed in connection with the Trust,
shall be conclusively presumed to have been executed or done by the executors
thereof only in their capacity as Trustees under this Declaration or in their
capacity as officers, employees or agents of the Trust. Every written
obligation, contract, instrument, certificate or other interest or undertaking
of the Trust made or sold by the Trustees or by any officer, employee or agent
of the Trust, in his capacity as such, may contain an appropriate recital to
the effect that the Holders, Trustees, officers, employees and agents of the
Trust shall not personally be bound by or liable thereunder, nor shall resort
be had to their private property for the satisfaction of any obligation or
claim thereunder, and appropriate references shall be made therein to the
Declaration, and may contain any further recital which they may deem
appropriate, but the omission of such recital shall not operate to impose
personal liability on any of the Holders, Trustees, officers, employees or
agents of the Trust.
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<PAGE> 24
Section 8.7. Insurance. The Trustees may maintain insurance for the
protection of the Trust Property, its Holders, Trustees, officers, employees
and agents in such amount as the Trustees shall deem adequate to cover possible
tort liability, and such other insurance as the Trustees in their sole judgment
shall deem advisable.
Section 8.8. Reliance on Experts, etc. Each Trustee, officer or
employee of the Trust shall, in the performance of his duties, be fully and
completely justified and protected with regard to any act or any failure to act
resulting from reliance in good faith upon the books of account or other
records of the Trust, upon an opinion of counsel, or upon reports made to the
Trust by any of its officers or employees or by any Investment Adviser, the
Administrator, accountant, appraiser or other expert or consultant selected
with reasonable care by the Trustees, officers or employees of the Trust,
regardless of whether such counsel or expert may also be a Trustee; provided
that nothing in this Section shall be deemed to exonerate the Trustees from
their duties of reasonable care, diligence and prudence or any other duties
imposed by the 1940 Act.
ARTICLE IX
HOLDERS
Section 9.1. Meetings of Holders. Meetings of the Holders may be
called at any time by a majority of the Trustees and shall be called by any
Trustee upon written request of Holders holding, in the aggregate, not less
than 10% of the Interests of a Series (if the meeting relates solely to that
Series), or not less than 10% of the Interests of the Trust (if the meeting
relates to the Trust and not solely to a particular Series), such request
specifying the purpose or purposes for which such meeting is to be called. Any
such meeting shall be held within or without the State of Delaware on such day
and at such time as the Trustees shall designate. Holders of at least
one-third of the Interests of the Series (if the meeting relates solely to that
Series) or Holders of at least one-third of the Interests of the Trust (if the
meeting relates to the Trust and not solely to a particular Series), present in
person or by proxy, shall constitute a quorum for the transaction of any
business, except as may otherwise be required by the 1940 Act or other
applicable law or by this Declaration or the By-Laws of the Trust. If a quorum
is present at a meeting, an affirmative vote by the Holders present, in person
or by proxy, holding more than 50% of the total Interests of the Holders
present, either in person or by proxy, at such meeting constitutes the action
of the Holders, unless the 1940 Act, other applicable law, this Declaration or
the By-Laws of the Trust require a greater number of affirmative votes.
Section 9.2. Notice of Meetings. Notice of all meetings of the
Holders stating the time, place and purposes of the meeting, shall be given by
the Trustees by mail to each Holder of the Series or the Trust, as the case may
be, at his registered address, mailed at least 10 days and not more than 90
days before the meeting. At any such meeting, any business properly before the
meeting may be considered whether or not stated in the notice of the meeting.
Any adjourned meeting may be held as adjourned without further notice.
20
<PAGE> 25
Section 9.3. Record Date for Meetings. For the purpose of
determining Holders who are entitled to notice of and to vote at any meeting,
or to participate in any distribution, or for the purpose of any other action,
the Trustees may from time to time fix a date, not more than 90 days prior to
the date of any meeting of the Holders or payment of distributions or other
action, as the case may be, as a record date for the determination of the
Persons to be treated as Holders of record of a particular Series or the Trust
for such purposes.
Section 9.4. Proxies, etc. At any meeting of Holders, any Holder
entitled to vote thereat may vote by proxy, provided that no proxy shall be
voted at any meeting unless it shall have been placed on file with the
Secretary, or with such other officer or agent of the Trust as the Secretary
may direct, for verification prior to the time at which such vote shall be
taken. Pursuant to a resolution of a majority of the Trustees, proxies may be
solicited in the name of one or more Trustees or one or more of the officers of
the Trust. Only Holders of record shall be entitled to vote. Each Holder
shall be entitled to vote proportionate to his Interest in the Trust or in any
Series (as the context may require). When Interests are held jointly by
several persons, any one of them may vote at any meeting in person or by proxy
in respect of such Interest, but if more than one of them shall be present at
such meeting in person or by proxy, and such joint owners or their proxies so
present disagree as to any vote to be cast, such vote shall not be received in
respect of such Interest. A proxy purporting to be executed by or on behalf of
a Holder shall be deemed valid unless challenged at or prior to its exercise,
and the burden of proving invalidity shall rest on the challenger. If the
Holder is a minor or a person of unsound mind, and subject to guardianship or
to the legal control of any other person as regards the charge or management of
his Interest, he may vote by his guardian or such other person appointed or
having such control, and such vote may be given in person or by proxy.
Section 9.5. Reports. The Trustees shall cause to be prepared, at
least annually, a report of operations containing a balance sheet and statement
of income and undistributed income of each Series prepared in conformity with
generally accepted accounting principles and an opinion of an independent
public accountant on such financial statements. The Trustees shall, in
addition, furnish to the Holders at least semi-annually interim reports
containing an unaudited balance sheet as of the end of such period and an
unaudited statement of income and surplus for the period from the beginning of
the current fiscal year to the end of such period.
Section 9.6. Inspection of Records. The records of the Trust shall
be open to inspection by Holders during normal business hours for any purpose
not harmful to the Trust.
Section 9.7. Holder Action by Written Consent. Any action which may
be taken by Holders may be taken without a meeting if Holders holding more than
50% of the total Interests entitled to vote (or such larger proportion thereof
as shall be required by any express provision of this Declaration) shall
consent to the action in writing and the written consents are filed with the
records of the meetings of Holders. Such consent shall be treated for all
purposes as a vote taken at a meeting of Holders.
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<PAGE> 26
ARTICLE X
DURATION; TERMINATION OF
TRUST OR SERIES; AMENDMENT; MERGERS; ETC.
Section 10.1. Duration. Subject to possible termination or
dissolution in accordance with Sections 10.2 and 10.3, respectively, the Trust
created hereby shall have perpetual existence.
Section 10.2. Dissolution of Series or Trust. Any Series shall be
dissolved by unanimous consent of the Trustees by written notice of dissolution
to the Holders of the Interests of the Series. The Trust shall be dissolved
upon the dissolution of the last remaining Series.
Section 10.3. Termination of Trust or Series.
(a) Upon an event of dissolution of the Trust or a
Series, the Trust or Series shall be terminated in accordance with the
following provisions:
(i) The Trust (or Series, as applicable) shall
thereafter carry on no business except for the purpose of
winding up its affairs.
(ii) The Trustees shall proceed to wind up the
affairs of the Trust (or Series, as applicable) and all of the
powers of the Trustees under this Declaration shall continue
until the affairs of the Trust (or Series, as applicable)
shall have been wound up, including the power to fulfill or
discharge the contracts of the Trust (or Series, as
applicable), collect its assets, sell, convey, assign,
exchange, transfer or otherwise dispose of all or any part of
the remaining Trust Property (or assets belonging to the
Series, as applicable) to one or more persons at public or
private sale for consideration which may consist in whole or
in part of cash, securities or other property of any kind,
discharge or pay its liabilities, and to do all other acts
appropriate to liquidate its business; provided that any sale,
conveyance, assignment, exchange, transfer or other
disposition of all or substantially all of the Trust Property
or substantially all of the assets belonging to a particular
Series other than for cash, shall require approval of the
principal terms of the transaction and the nature and amount
of the consideration by the vote at a meeting, or by written
consent, of Holders holding more than 50% of the total
outstanding Interests of the Trust or Series, as the case may
be, entitled to vote.
(iii) After paying or adequately providing for the
payment of all liabilities belonging to the Series subject of
termination and upon receipt of such releases, indemnities and
refunding agreements as they deem necessary for their
protection, the Trustees may distribute the remaining Trust
Property or assets belonging to such Series, in cash or in
kind or partly each, among the Holders of such Series
according to their Book Capital Accounts in such Series. In
all cases, as herein
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<PAGE> 27
provided, the rights of Holders of Interests in a Series upon
termination and liquidation of that Series shall be limited to
the assets belonging to that Series.
(b) After termination of the Trust or Series and
distribution to the Holders as herein provided, a majority of the
Trustees shall execute and lodge among the records of the Trust an
instrument in writing setting forth the fact of such termination.
Upon termination of the Trust, the Trustees shall file a certificate
of cancellation in accordance with Section 3810 of the Act and such
Trustees shall thereupon be discharged from all further liabilities
and duties hereunder, and the rights and interests of all Holders
shall thereupon cease.
Section 10.4. Amendment Procedure.
(a) Two-thirds (2/3) of the Trustees then in office may
amend this Declaration at any time for any purpose without the
approval of the Holders of Interests; provided, that the vote or a
written consent of Holders holding more than 50% of the total
outstanding Interests or of Holders of 67% or more of the Interests
voting or consenting, if Holders of at least 50% of such Interests
vote or consent, shall be necessary to approve any amendment whenever
such vote or consent is required under the 1940 Act.
(b) Nothing contained in this Declaration shall permit
the amendment of this Declaration to impair the exemption from
personal liability of Holders, Trustees, officers, employees and
agents of the Trust.
(c) A certificate signed by a Trustee or by the Secretary
or any Assistant Secretary of the Trust, setting forth an amendment
and reciting that it was duly adopted by the Holders or by the
Trustees as aforesaid or a copy of the Declaration, as amended,
certified by a Trustee or the Secretary or any Assistant Secretary of
the Trust, certifying that such Declaration is a true and correct copy
of the Declaration as amended, shall be conclusive evidence of such
amendment when lodged among the records of the Trust.
Notwithstanding any other provision hereof, until such time as
Interests are first sold to an Institutional Investor, this Declaration may be
terminated or amended in any respect by vote or written consent of the
Trustees.
Section 10.5. Merger, Consolidation and Sale of Assets.
(a) Any Series may merge into or consolidate with any
corporation, association, other trust or other organization or may
sell, lease or exchange all or substantially all of the Trust Property
belonging to such Series, including its good will, upon such terms and
conditions and for such consideration when and as authorized by vote
or written consent of two-thirds (2/3) of the Trustees then in office.
In accordance with Section 3815(f) of the Act, an agreement of merger
or consolidation may effect any amendment to this
23
<PAGE> 28
Declaration or the By-Laws or effect the adoption of a new declaration
or by-laws of the Trust if the Trust is the surviving or resulting
entity.
(b) The Trustees may cause to be organized or assist in
organizing a corporation or corporations under the laws of any
jurisdiction or any other trust, partnership, association or other
organization to take over all of the Trust Property, or Series thereof
or to carry on any business in which the Trust shall directly or
indirectly have any interest, and to sell, convey and transfer the
Trust Property or Series thereof to any such corporation, trust,
association or organization in exchange for the equity interests
thereof or otherwise, and to lend money to, subscribe for the equity
interests of, and enter into any contracts with any such corporation,
trust, partnership, association or organization, or any corporation,
partnership, trust, association or organization in which the Trust
holds or is about to acquire equity interests. The Trustees may also
cause a merger or consolidation between the Trust or any successor
thereto and any such corporation, trust, partnership, association or
other organization if and to the extent permitted by law, as provided
under the law then in effect. Nothing contained herein shall be
construed as requiring approval of the Holders for the Trustees to
organize or assist in organizing one or more corporations, trusts,
partnerships, associations or other organizations and selling,
conveying or transferring a portion of the Trust Property to such
organizations or entities.
ARTICLE XI
MISCELLANEOUS
Section 11.1. Certificate of Trust; Registered Agent. The initial
Trustees shall file a certificate of trust in accordance with Section 3810 of
the Act.
Section 11.2. Governing Law. This Declaration is executed by all of
the Trustees and delivered with reference to Act and the laws of the State of
Delaware, and the rights of all parties and the validity and construction of
every provision hereof shall be subject to and construed according to the Act
and the laws of the State of Delaware (unless and to the extent otherwise
provided for and/or preempted by the 1940 Act or other applicable federal
securities laws); provided, however, that there shall not be applicable to the
Trust, the Trustees or this Declaration (a) the provisions of Section 3540 of
Title 12 of the Delaware Code or (b) any provisions of the laws (statutory or
common) of the State of Delaware (other than the Act) pertaining to trusts
which are inconsistent with the rights, duties, powers, limitations or
liabilities of the Trustees or the Holders set forth or referenced in this
Declaration.
Section 11.3. Counterparts. The Declaration may be simultaneously
executed in several counterparts, each of which shall be deemed to be an
original, and such counterparts, together, shall constitute one and the same
instrument, which shall be sufficiently evidenced by any such original
counterpart.
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Section 11.4. Reliance by Third Parties. Any certificate executed by
an individual who, according to the records of the Trust, appears to be a
Trustee hereunder, or Secretary, Assistant Secretary, Treasurer or Assistant
Treasurer of the Trust, certifying to: (a) the number or identity of Trustees
or Holders, (b) the due authorization of the execution of any instrument or
writing, (c) the form of any vote passed at a meeting of Trustees or Holders,
(d) the fact that the number of Trustees or Holders present at any meeting or
executing any written instrument satisfies the requirements of this
Declaration, (e) the form of any By-Laws adopted by or the identity of any
officers elected by the Trustees, or (f) the existence of any fact or facts
which in any manner relate to the affairs of the Trust, shall be conclusive
evidence as to the matters so certified in favor of any Person dealing with the
Trustees and their successors.
Section 11.5. Provisions in Conflict with Law or Regulations.
(a) The provisions of this Declaration are severable, and
if the Trustees shall determine, with the advice of counsel, that any
of such provisions is in conflict with the 1940 Act, the regulated
investment company provisions of the Code, the Act or, consistent with
Section 11.2, any other applicable Delaware law regarding
administration of trusts, or with other applicable laws and
regulations, the conflicting provisions shall be deemed superseded by
such law or regulation to the extent necessary to eliminate such
conflict; provided, however, that such determination shall not affect
any of the remaining provisions of this Declaration or render invalid
or improper any action taken or omitted prior to such determination.
(b) If any provision of this Declaration shall be held
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall pertain only to such provision in such
jurisdiction and shall not in any manner affect such provision in any
other jurisdiction or any other provision of this Declaration in any
jurisdiction.
Section 11.6. Trust Only. It is the intention of the Trustees to
create only a business trust under the Act with the relationship of trustee and
beneficiary between the Trustees and each Holder from time to time. It is not
the intention of the Trustees to create a general partnership, limited
partnership, joint stock association, corporation, bailment, or any form of
legal relationship other than a Delaware business trust except to the extent
such trust is deemed to constitute a partnership under the Code and applicable
state tax laws. Nothing in this Declaration shall be construed to make the
Holders, either by themselves or with the Trustees, partners or members of a
joint stock association.
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<PAGE> 30
SIGNATURE PAGE
IN WITNESS WHEREOF, the undersigned has executed this instrument as of
the 23rd day of April, 1998.
/s/ Robert E. Putney, III
- ---------------------------------
Robert E. Putney, III, as Trustee
26
<PAGE> 1
EXHIBIT 1(b)
AMENDMENT NO. 1 TO DECLARATION OF TRUST
OF MERCURY ASSET MANAGEMENT MASTER TRUST
(formerly Mercury Master Trust)
The undersigned sole Trustee and Secretary of Mercury Asset
Management Master Trust (the "Trust"), a Delaware business trust, DOES HEREBY
CERTIFY, pursuant to the authority conferred on the Secretary of the Trust by
Section 10.4(c) of the Trust's Declaration of Trust dated April 23, 1998 (the
"Declaration of Trust"), that the following amendments were duly adopted by the
sole Trustee as of July 16, 1998.
1. The Declaration of Trust is hereby amended to change the
name of the Trust from Mercury Master Trust to Mercury
Asset Management Master Trust in each place where such
name appears.
2. Section 5.2 of the Declaration of Trust is hereby amended
to delete the names of the series of the Trust, and to
substitute the names Mercury Master Pan-European Growth
Portfolio, Mercury Master International Portfolio, Mercury
Master Japan Capital Portfolio, Mercury Master Emerging
Economies Portfolio, Mercury Master Gold and Mining
Portfolio, Mercury Master Core U.S. Growth Portfolio and
Mercury Master Portfolio 7.
IN WITNESS WHEREOF, the undersigned has executed this Amendment to
the Declaration of Trust as of July 16, 1998.
/s/ Robert E. Putney, III
--------------------------
Robert E. Putney, III
Secretary and Sole Trustee
<PAGE> 1
EXHIBIT 1(c)
CERTIFICATE OF TRUST OF
MERCURY MASTER TRUST
THIS Certificate of Trust of Mercury Master Trust (the "Trust"),
dated April 23, 1998, is being duly executed and filed by Robert E. Putney, III,
as trustee, to form a business trust under the Delaware Business Trust Act (12
Del. C. Section 3801, et seq.).
1. Name. The name of the business trust formed hereby is Mercury
Master Trust.
2. Registered Agent. The business address of the registered office of
the Trust in the State of Delaware is 1013 Centre Road, Wilmington, Delaware
19805. The name of the Trust's registered agent at such address is The
Corporation Service Company.
3. Effective Date. This Certificate of Trust shall be effective upon
the date and time of filing.
4. Series Trust. Notice is hereby given that pursuant to Section 3804
of the Delaware Business Trust Act, the debts, liabilities, obligations and
expenses incurred, contracted for or otherwise existing with respect to a
particular series of the Trust shall be enforceable against the assets of such
series only and not against the assets of the Trust generally. The Trust will be
a registered investment company under the Investment Company Act of 1940, as
amended.
IN WITNESS WHEREOF, the undersigned, being the sole trustee of the
Trust, has executed this Certificate of Trust as of the date first above
written.
/s/ Robert E. Putney, III
-----------------------------------
Robert E. Putney, III, Sole Trustee
<PAGE> 1
EXHIBIT 1(d)
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF TRUST
OF
MERCURY ASSET MANAGEMENT MASTER TRUST
MERCURY ASSET MANAGEMENT MASTER TRUST, a business trust organized and
existing under the Delaware Business Trust Act (12 Del. C. Section 3801, et
seq.), does hereby certify that:
1. Name. The name of the business trust (hereinafter called the
"Trust") is MERCURY ASSET MANAGEMENT MASTER TRUST.
2. The Certificate of Trust of the Trust is hereby amended by
changing paragraph 5 to read in its entirety:
The Trust consists of seven portfolios, known as Mercury Master
Pan-European Growth Portfolio, Mercury Master International Portfolio, Mercury
Master Japan Capital Portfolio, Mercury Master Emerging Economies Portfolio,
Mercury Master Gold and Mining Portfolio, Mercury Master Core U.S. Growth
Portfolio and Mercury Master Portfolio 7.
4. Effective Date. This Certificate of Trust shall be effective upon
the date and time of filing.
IN WITNESS WHEREOF, the undersigned, being the sole trustee of the
Trust, has executed this Certificate of Amendment as of July 16, 1998.
/s/ Robert E. Putney, III
---------------------------------------
Robert E. Putney, III, Sole Trustee, as
Trustee and not individually
<PAGE> 1
EXHIBIT 2
AMENDED AND RESTATED BY-LAWS
OF
MERCURY ASSET MANAGEMENT MASTER TRUST
These By-Laws are made and adopted pursuant to Section 2.7 of the
Declaration of Trust establishing Mercury Asset Management Master Trust (the
"Trust"), dated April 23, 1998, as from time to time amended (the
"Declaration"). All words and terms capitalized in these By-Laws that are not
otherwise defined herein shall have the meaning or meanings set forth for such
words or terms in the Declaration.
ARTICLE I
HOLDERS' MEETINGS
Section 1.1 Chairman. The president shall act as chairman at all meetings
of the Holders, or the Trustee or Trustees present at each meeting may elect a
temporary chairman for the meeting, who may be one of themselves.
Section 1.2 Proxies; Voting. Holders may vote either in person or by duly
executed proxy and each Holder shall be entitled to a vote proportionate to his
Interest in the Trust or any Series (as the context may require), all as
provided in Article IX of the Declaration. No proxy shall be valid after eleven
(11) months from the date of its execution, unless a longer period is expressly
stated in such proxy.
Section 1.3 Fixing Record Dates. For the purpose of determining the
Holders who are entitled to notice of or to vote or act at a meeting, including
any adjournment thereof, the Trustees may from time to time fix a record date in
the manner provided in Section 9.3 of the Declaration. If the Trustees do not,
prior to any meeting of the Holders, so fix a record date, then the record date
for determining Holders entitled to notice of or to vote at the meeting of
Holders shall be the later of (i) the close of business on the day on which the
notice of meeting is first mailed to any Holder; or (ii) the thirtieth day
before the meeting.
Section 1.4. Inspectors of Election. In advance of any meeting of the
Holders, the Trustees may appoint one or more Inspectors of Election to act at
the meeting or any adjournment thereof. If Inspectors of Election are not
appointed in advance by the Trustees, the chairman, if any, of any meeting of
the Holders may, and on the request of any Holder or his proxy shall, appoint
one or more Inspectors of Election of the meeting. In case any person appointed
as Inspector fails to appear or fails or refuses to act, the vacancy may be
filled by appointment made by the Trustees in advance of the convening of the
meeting or at the meeting by the person acting as chairman. The Inspectors of
Election shall determine the Interests owned by Holders, the Interests
represented at the meeting, the existence of a quorum, the authenticity,
validity and effect of proxies, shall receive votes, ballots or consents, shall
hear and determine all challenges and questions in any way arising in connection
with the right to vote, shall count and
<PAGE> 2
tabulate all votes or consents, determine the results, and do such other acts as
may be proper to conduct the election or vote with fairness to all Holders. If
there is more than one Inspector of Election, the decision, act or certificate
of a majority is effective in all respects as the decision, act or certificate
of all Inspectors of Election. On request of the chairman, if any, of the
meeting, or of any Holder or his proxy, the Inspectors of Election shall make a
report in writing of any challenge or question or matter determined by them and
shall execute a certificate of any facts found by them.
Section 1.5. Records at Holders' Meetings: Inspection of Records. At each
meeting of the Holders there shall be open for inspection the minutes of the
last previous meeting of Holders of the Trust and a list of the Holders of the
Trust, certified to be true and correct by the secretary or other proper agent
of the Trust, as of the record date of the meeting. Such list of Holders shall
contain the name of each Holder in alphabetical order and the address and
Interests owned by such Holder. Holders shall have the right to inspect books
and records of the Trust during normal business hours and for any purpose not
harmful to the Trust.
ARTICLE II
TRUSTEES
Section 2.1. Annual and Regular Meetings. The Trustees shall hold an
annual meeting for the election of officers and the transaction of other
business which may come before such meeting. Regular meetings of the Trustees
may be held on such notice at such place or places and times as the Trustees may
by resolution provide from time to time.
Section 2.2. Special Meetings. Special Meetings of the Trustees shall be
held upon the call of the chairman, if any, the president, the secretary or any
two Trustees, by oral or telegraphic or written notice duly served on or sent or
mailed to each Trustee not less than one day before the meeting. No notice need
be given to any Trustee who attends in person or to any Trustee who, in writing
signed and filed with the records of the meeting either before or after the
holding thereof, waives notice. Notice or waiver of notice need not state the
purpose or purposes of the meeting.
Section 2.3. Chairman: Records. The Chairman, if any, shall act as
chairman at all meetings of the Trustees; in his absence the President shall act
as chairman; and, in the absence of the Chairman and the President, the Trustees
present shall elect one of their number to act as temporary chairman. The
results of all actions taken at a meeting of the Trustees, or by written consent
of the Trustees, shall be recorded by the Secretary.
ARTICLE III
OFFICERS
Section 3.1. Executive Officers. The executive officers of the Trust
shall be a president, a secretary, a chief accounting officer and a chief
financial officer or treasurer. If the Trustees shall
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elect a chairman pursuant to Section 3.6, then the chairman shall also be an
executive officer of the Trust. If the Trustees shall elect one or more vice
presidents, each such vice president shall be an executive officer. The
Chairman, if there be one, shall be elected from among the Trustees, but no
other executive officer need be a Trustee. Any two or more executive offices,
except those of president and vice president, may be held by the same person. A
person holding more than one office may not act in more than one capacity to
execute, acknowledge or verify on behalf of the Trust an instrument required by
law to be executed, acknowledged and verified by more than one officer. The
executive officers of the Trust shall be elected at each annual meeting of
Trustees.
Section 3.2. Other Officers and Agents. The Trustees may also elect or
may delegate to the president authority to appoint, remove, or fix the duties,
compensation or terms of office of one or more assistant vice-presidents,
assistant secretaries and assistant treasurers, and such other officers and
agents as the Trustees shall at any time and from time to time deem to be
advisable.
Section 3.3. Election and Tenure. At the initial organization meeting and
thereafter at each annual meeting of the Trustees, the Trustees shall elect the
Chairman, if any, President, Secretary, Chief Accounting Officer, Chief
Financial Officer or Treasurer and such other officers as the Trustees shall
deem necessary or appropriate in order to carry out the business of the Trust.
Such officers shall hold office until the next annual meeting of the Trustees
and until their successors have been duly elected and qualified. The Trustees
may fill any vacancy in office or add any additional officers at any time.
Section 3.4. Removal of Officers. Any officer may be removed at any time,
with or without cause, by action of a majority of the Trustees. This provision
shall not prevent the making of a contract of employment for a definite term
with any officer and shall have no effect upon any cause of action which any
officer may have as a result of removal in breach of a contract of employment.
Any officer may resign at any time by notice in writing signed by such officer
and delivered or mailed to the chairman, if any, president, or secretary, and
such resignation shall take effect immediately, or at a later date according to
the terms of such notice in writing.
Section 3.5. Authority and Duties. All officers as between themselves and
the Trust shall have such powers, perform such duties and be subject to such
restrictions, if any, in the management of the Trust as may be provided in these
By-Laws, or, to the extent not so provided, as may be prescribed by the Trustees
or by the president acting under authority delegated by the Trustees pursuant to
Section 3.2.
Section 3.6. Chairman. When and if the Trustees deem such action to be
necessary or appropriate, they may elect a Chairman from among the Trustees. The
Chairman shall preside at meetings of the Holders and of the Trustees; and he
shall have such other powers and duties as may be prescribed by the Trustees.
The Chairman shall in the absence or disability of the president exercise the
powers and perform the duties of the president.
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Section 3.7. President. The president shall be the chief executive
officer of the Trust. He shall have general and active management of the
activities of the Trust, shall see to it that all orders, policies and
resolutions of the Trustees are carried into effect, and, in connection
therewith, shall be authorized to delegate to any vice president of the Trust
such of his powers and duties as president and at such times and in such manner
as he shall deem advisable. In the absence or disability of the Chairman, or if
there be no Chairman, the president shall preside at all meetings of the Holders
and of the Trustees; and he shall have such other powers and perform such other
duties as are incident to the office of a corporate president and as the
Trustees may from time to time prescribe. The president shall be, ex officio, a
member of all standing committees. Subject to direction of the Trustees, the
president shall have the power, in the name and on behalf of the Trust, to
execute any and all loan documents, contracts, agreements, deeds, mortgages, and
other instruments in writing, and to employ and discharge employees and agents
of the Trust. Unless otherwise directed by the Trustees, the president shall
have full authority and power, on behalf of all of the Trustees. to attend and
to act and to vote, on behalf of the Trust at any meetings of business
organizations in which the Trust holds an interest or to confer such powers upon
any other persons, by executing any proxies duly authorizing such persons.
Section 3.8. Vice Presidents. The vice president, if any, or, if there be
more than one, the vice presidents, shall assist the president in the management
of the activities of the Trust and the implementation of orders, policies and
resolutions of the Trustees at such times and in such manner as the president
may deem to be advisable. If there be more than one vice president, the Trustees
may designate one as the executive vice president, in which case he shall be
first in order of seniority, and the Trustees may also grant to other vice
presidents such titles as shall be descriptive of their respective functions or
indicative of their relative seniority. In the absence or disability of both the
president and the Chairman, or in the absence or disability of the president if
there be no Chairman, the vice president, or, if there be more than one, the
vice presidents in the order of their relative seniority, shall exercise the
powers and perform the duties of those officers. Subject to the direction of the
president, each the vice president shall have the power in the name and on
behalf of the Trust to execute any and all loan documents, contracts,
agreements, deeds, mortgages and other instruments in writing, and, in addition,
shall have such other powers and perform such other duties as from time to time
may be prescribed by the president or by the Trustees.
Section 3.9. Assistant Vice President. The assistant vice president, if
any, or if there be more than one, the assistant vice presidents, shall perform
such duties as may from time to time be prescribed by the Trustees or by the
president acting under authority delegated by the Trustees pursuant to Section
3.7.
Section 3.10. Secretary. The secretary shall (a) keep the minutes of the
meetings and proceedings and any written consents evidencing actions of the
Holders, the Trustees and any committees of the Trustees in one or more books
provided for that purpose; (b) see that all notices are duly given in accordance
with the provisions of these By-Laws or as required by law; (c) be custodian of
the corporate records and of the seal of the Trust and each Series, and, when
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authorized by the Trustees, cause the seal of the Trust and each Series to be
affixed to any document requiring it, and when so affixed attested by his
signature as secretary or by the signature of an assistant secretary; (d)
perform any other duties commonly incident to the office of secretary in a New
York corporation; and (e) in general, perform such other duties as from time to
time may be assigned to him by the president or by the Trustees.
Section 3.11. Assistant Secretaries. The assistant secretary, if any, or,
if there be more than one, the assistant secretaries in the order determined by
the Trustees or by the president, shall in the absence or disability of the
secretary exercise the powers and perform the duties of the secretary, and he or
they shall perform such other duties as the Trustees, the president or the
secretary may from time to time prescribe.
Section 3.12. Treasurer. The treasurer shall be the chief financial
officer of the Trust. The treasurer shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Trust and each Series,
shall deposit all monies and other valuable effects in the name and to the
credit of the Trust and each Series in such depositories as may be designated by
the Trustees, and shall render to the Trustees and the president, at regular
meetings of the Trustees or whenever they or the president may require it, an
account of all his transactions as treasurer and of the financial condition of
the Trust and each Series. Certain of the duties of the treasurer may be
delegated to a chief accounting officer.
If required by the Trustees, the treasurer shall give the Trust a bond in
such sum and with such surety or sureties as shall be satisfactory to the
Trustees for the faithful performance of the duties of his office and for the
restoration to the Trust, in case of his death, resignation, retirement or
removal from office, all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the Trust.
Section 3.13. Assistant Treasurers. The assistant treasurer, if any, or,
if there be more than one, the assistant treasurers in the order determined by
the Trustees or by the president, shall in the absence or disability of the
treasurer exercise the powers and perform the duties of the treasurer, and he or
they shall perform such other duties as the Trustees, the president or the
treasurer may from time to time prescribe.
Section 3.14. Bonds and Surety. Any officer may be required by the
Trustees to be bonded for the faithful performance of his duties in such amount
and with such sureties as the Trustees may determine.
ARTICLE IV
MISCELLANEOUS
Section 4.1. Depositories. Subject to Section 7.1 of the Declaration, the
funds of the Trust and each Series shall be deposited in such depositories as
the Trustees shall designate and shall be drawn out on checks, drafts or other
orders signed by such officer, officers, agent or
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agents (including any adviser, administrator or manager), as the Trustees may
from time to time authorize.
Section 4.2. Signatures. All contracts and other instruments shall be
executed on behalf of the Trust and each Series by such officer, officers, agent
or agents, as provided in these By-Laws or as the Trustees may from time to time
by resolution provide.
Section 4.3. Seal. The seal of the Trust, if any, may be affixed to any
document, and the seal and its attestation may be lithographed, engraved or
otherwise printed on any document with the same force and effect as if it had
been imprinted and attested manually in the same manner and with the same effect
as if done by a Delaware corporation.
ARTICLE V
NON-TRANSFERABILITY OF INTERESTS
Section 5.1. Non-Transferability of Interests. Except as provided in
Section 5.6 of the Declaration, Interests shall not be transferable. Except as
otherwise provided by law, the Trust and each Series shall be entitled to
recognize the exclusive right of a person in whose name Interests stand on the
record of Holders as the owner of such Interests for all purposes, including,
without limitation, the rights to receive distributions, and to vote as such
owner, and the Trust and each Series shall not be bound to recognize any
equitable or legal claim to or interest in any such Interests on the part of any
other person.
Section 5.2. Regulations. The Trustees may make such additional rules and
regulations, not inconsistent with these By-Laws, as they may deem expedient
concerning the sale and purchase of Interests of the Trust.
ARTICLE VI
AMENDMENT; LIMITATION OF LIABILITY
Section 6.1. Amendment and Repeal of By-Laws. In accordance with Section
2.7 of the Declaration, the Trustees shall have the power to alter, amend or
repeal the By-Laws or adopt new By-Laws at any time. Action by the Trustees with
respect to the By-Laws shall be taken by an affirmative vote of a majority of
the Trustees. The Trustees shall in no event adopt By-Laws which are in conflict
with the Declaration.
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Section 6.2. Limitation of Liability. The Declaration refers to the
Trustees as Trustees, but not as individuals or personally; and no Trustee,
officer, employee or agent of the Trust shall be held to any personal liability,
nor shall resort be had to their private property for the satisfaction of any
obligation or claim or otherwise in connection with the affairs of the Trust;
provided, that nothing contained in the Declaration or the By-Laws shall protect
any Trustee or officer of the Trust from any liability to the Trust, any Series
or its Holders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the involved
in the conduct of his office.
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EXHIBIT 4(a)
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of _____________________, 1998, by and between MERCURY
ASSET MANAGEMENT MASTER TRUST, a Delaware business trust (hereinafter referred
to as the "Trust") on behalf of its series MERCURY MASTER INTERNATIONAL
PORTFOLIO (the "Portfolio") and MERCURY ASSET MANAGEMENT INTERNATIONAL LTD., a
corporation organized under the laws of England and Wales (hereinafter referred
to as the "Investment Adviser").
W I T N E S S E T H:
WHEREAS, the Trust is engaged in business as an open-end management
investment company registered under the Investment Company Act of 1940, as
amended (hereinafter referred to as the "Investment Company Act"); and
WHEREAS, the Trustees of the Trust (the "Trustees") are authorized to
establish separate series relating to separate portfolios of securities, each of
which may offer separate classes of shares; and
WHEREAS, the Trustees have established and designated the Portfolio as a
series of the Trust; and
WHEREAS, the Investment Adviser is engaged principally in rendering
management and investment advisory services and is registered as an investment
adviser under the Investment Advisers Act of 1940 and regulated by the
Investment Management Regulatory Organization, a self-regulating organization
recognized under the Financial Services Act of 1986 of the United Kingdom
(hereinafter referred to as "IMRO"), and the conduct of its investment business
is regulated by IMRO; and
<PAGE> 2
WHEREAS, the Trust desires to retain the Investment Adviser to provide
management and investment advisory services to the Portfolio in the manner and
on the terms hereinafter set forth; and
WHEREAS, the Investment Adviser is willing to provide management and
investment advisory services to the Portfolio on the terms and conditions
hereafter set forth;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Trust and the Investment Adviser hereby agree as
follows:
ARTICLE I
DUTIES OF THE INVESTMENT ADVISER
The Trust hereby employs the Investment Adviser to act as a manager and
investment adviser of the Portfolio and to furnish, or arrange for affiliates to
furnish, the management and investment advisory services described below,
subject to the policies of, review by and overall control of the Trustees, for
the period and on the terms and conditions set forth in this Agreement. The
Investment Adviser hereby accepts such employment and agrees during such period,
at its own expense, to render, or arrange for the rendering of, such services
and to assume the obligations herein set forth for the compensation provided for
herein. The Investment Adviser and its affiliates 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 Trust or
the Portfolio in any way or otherwise be deemed agents of the Trust or the
Portfolio.
(a) Management Services. The Investment Adviser shall perform (or arrange
for the performance by affiliates of) the management and administrative services
necessary for the operation of the Trust and the Portfolio. The Investment
Adviser shall provide the Trust and the Portfolio with
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office space, facilities, equipment and necessary personnel and such other
services as the Investment Adviser, subject to review by the Trustees, shall
from time to time determine to be necessary or useful to perform its obligations
under this Agreement. The Investment Adviser shall also, on behalf of the Trust
and the Portfolio, 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 Investment Adviser shall generally
monitor the Trust's and the Portfolio's compliance with investment policies and
restrictions as set forth in the Registration Statement of the Trust filed with
the Securities and Exchange Commission under the Investment Company Act, as
amended from time to time (the "Registration Statement"). The Investment Adviser
shall make reports to the Trustees of its performance of obligations hereunder
and furnish advice and recommendations with respect to such other aspects of the
business and affairs of the Portfolio as it shall determine to be desirable.
(b) Investment Advisory Services. The Investment Adviser shall provide
(or arrange for affiliates to provide) the Trust with such investment research,
advice and supervision as the latter may from time to time consider necessary
for the proper supervision of the assets of the Portfolio, shall furnish
continuously an investment program for the Portfolio and shall determine from
time to time which securities shall be purchased, sold or exchanged and what
portion of the assets of the Portfolio shall be held in the various securities
and other financial instruments in which the Portfolio invests or cash, subject
always to the restrictions of the Declaration of Trust and By-Laws of the Trust,
as amended from time to time, the provisions of the Investment Company Act and
the statements relating to the Portfolio's investment objectives, investment
policies and investment
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restrictions as the same are set forth in the Trust's current Registration
Statement. The Investment Adviser shall make decisions for the Trust as to the
manner in which voting rights, rights to consent to corporate action and any
other rights pertaining to the Portfolio's portfolio securities shall be
exercised. Should the Trustees at any time, however, make any definite
determination as to investment policy and notify the Investment Adviser thereof
in writing, the Investment Adviser shall be bound by such determination for the
period, if any, specified in such notice or until similarly notified that such
determination has been revoked. The Investment Adviser shall take, on behalf of
the Portfolio, all actions which it deems necessary to implement the investment
policies determined as provided above, and in particular to place all orders for
the purchase or sale of portfolio securities for the Portfolio's account with
brokers or dealers selected by it, and to that end, the Investment Adviser is
authorized as the agent of the Trust to give instructions to the custodian of
the Portfolio as to deliveries of securities and payments of cash for the
account of the Portfolio. In connection with the selection of such brokers or
dealers and the placing of such orders with respect to assets of the Portfolio,
the Investment Adviser is directed at all times to seek to obtain execution and
price within the policy guidelines determined by the Trustees and set forth in
the then current Registration Statement. Subject to this requirement and the
provisions of the Investment Company Act, the Securities Exchange Act of 1934,
as amended, and other applicable provisions of law, the Investment Adviser may
select brokers or dealers with which it or the Trust is affiliated.
(c) Affiliated Sub-Advisers. In carrying out its responsibilities
hereunder, the Investment Adviser may employ, retain or otherwise avail itself
of the services of other persons or entities including without limitation,
affiliates of the Investment Adviser, on such terms as the Investment Adviser
shall determine to be necessary, desirable or appropriate. However, if the
Investment
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Adviser chooses to retain or avail itself of the services of another person or
entity to manage assets of the Fund, such other person or entity must be (i) an
affiliate of the Investment Adviser, (ii) retained at the Investment Adviser's
own cost and expense, and (iii) retained subject to the requirements of Section
15 of the Investment Company Act. Retention of one or more affiliated sub-
advisers, or the employment or retention of other persons or entities to perform
services, shall in no way reduce the responsibilities or obligations of the
Investment Adviser under this Agreement and the Investment Adviser shall be
responsible for all acts and omissions of such affiliated sub-advisers, or other
persons or entities, in connection with the performance of the Investment
Adviser's duties hereunder.
ARTICLE II
ALLOCATION OF CHARGES AND EXPENSES
(a) The Investment Adviser. The Investment Adviser assumes and shall
pay, or cause its affiliate 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 which it
is obligated to provide under Article I hereof. The Investment Adviser shall
pay, or cause its affiliate to pay, compensation of all Officers of the Trust
and all Trustees of the Trust who are affiliated persons of the Investment
Adviser or any sub-adviser, or of an affiliate of the Investment Adviser or any
sub-adviser.
(b) The Trust. The Trust assumes and shall pay or cause to be paid all
other expenses of the Trust and the Portfolio (except for the expenses paid by
the Mercury Funds Distributor division of Princeton Funds Distributor, Inc. (the
"Distributor")), including, without limitation: taxes, expenses for legal and
auditing services, costs of printing proxies, shareholder reports, copies of the
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Registration Statement, 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
Trustees who are not affiliated persons of the Investment Adviser or any
sub-adviser, or of an affiliate of the Investment Adviser or any sub-adviser,
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 Trust or
the Portfolio. It is also understood that the Trust shall reimburse the
Investment Adviser or an affiliate of the Investment Adviser for its costs in
providing accounting services to the Trust and the Portfolio. The Distributor
will pay certain of the expenses of the Portfolio incurred in connection with
the continuous offering of shares of beneficial interest of the Portfolio.
ARTICLE III
COMPENSATION OF THE INVESTMENT ADVISER
Management and Investment Advisory Fee. For the services rendered, the
facilities furnished and expenses assumed by the Investment Adviser, the
Portfolio shall pay to the Investment Adviser at the end of each calendar month
a fee based upon the average daily value of the net assets of the Portfolio, as
determined and computed in accordance with the description of the determination
of net asset value contained in the Registration Statement, at the annual rate
of 0.75% of the average daily net assets of the Portfolio, 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 Investment
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Adviser'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 Trustees,
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 INVESTMENT ADVISER
The Investment Adviser shall not be liable for any error of judgment or
mistake of law or for any loss arising out of any investment or for any act or
omission in the management of the Trust and the Portfolio, except for willful
misfeasance, bad faith or gross negligence in the performance of its duties, or
by reason of reckless disregard of its obligations and duties hereunder. As used
in this Article IV, the term "Investment Adviser" shall include any affiliates
of the Investment Adviser performing services for the Trust or the Portfolio
contemplated hereby and partners, directors, officers and employees of the
Investment Adviser and such affiliates.
ARTICLE V
ACTIVITIES OF THE INVESTMENT ADVISER
The services of the Investment Adviser to the Trust and the Portfolio are
not to be deemed to be exclusive, and the Investment Adviser and each affiliate
is free to render services to others. It is understood that Trustees, officers,
employees and shareholders of the Trust and the Portfolio are or may become
interested in the Investment Adviser and its affiliates, as directors, officers,
employees, partners and shareholders or otherwise, and that the Investment
Adviser and directors, officers, employees, partners and shareholders of the
Investment Adviser and its affiliates are or may become similarly interested in
the Trust or the Portfolio as shareholders or otherwise.
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ARTICLE VI
INVESTMENT ADVISER STATEMENTS PURSUANT TO IMRO RULES
Any complaints concerning the Investment Adviser should be in writing
addressed to the attention of the Managing Director of the Investment Adviser.
The Trust has the right to obtain from the Investment Adviser a copy of the IMRO
complaints procedure and to approach IMRO and the Investment Ombudsman directly.
The Investment Adviser may make recommendations, subject to the
investment restrictions referred to in Article I herein, regarding Investments
Not Readily Realisable (as that term is used in the IMRO Rules) or investments
denominated in a currency other than British pound sterling. There can be no
certainty that market makers will be prepared to deal in unlisted or thinly
traded securities and an accurate valuation may be hard to obtain. The value of
investments recommended by the Investment Adviser may be subject to exchange
rate fluctuations which may have favorable or unfavorable effects on
investments.
The Investment Adviser may make recommendations, subject to the
investment restrictions referred to in Article I herein, regarding options,
futures or contracts for differences. Markets can be highly volatile and such
investments carry a high degree of risk of loss exceeding the original
investment and any margin on deposit.
ARTICLE VII
DURATION AND TERMINATION OF THIS AGREEMENT
This Agreement shall become effective as of the date first above written,
and shall remain in force for two years thereafter and thereafter, but only so
long as such continuance is specifically approved at least annually by (i) the
Trustees, or by the vote of a majority of the outstanding voting securities of
the Portfolio, and (ii) a majority of those Trustees who are not parties to this
Agreement
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or interested persons of any such party cast in person at a meeting called for
the purpose of voting on such approval.
This Agreement may be terminated at any time, without the payment of any
penalty, by the Trustees or by the vote of a majority of the outstanding voting
securities of the Portfolio, or by the Investment Adviser, on sixty days'
written notice to the other party. This Agreement shall automatically terminate
in the event of its assignment.
ARTICLE VIII
AMENDMENTS OF THIS AGREEMENT
This Agreement may be amended by the parties only if such amendment is
specifically approved by (i) by the vote of a majority of outstanding voting
securities of the Portfolio, and (ii) a majority of those Trustees who are not
parties to this Agreement or interested persons of any such party cast in person
at a meeting called for the purpose of voting on such approval.
ARTICLE IX
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 X
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
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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.
ARTICLE XI
LIMITATION OF OBLIGATIONS OF THE PORTFOLIO
The obligations of the Portfolio shall be limited to the assets of the
Portfolio, shall be separate from the obligations of any other series of the
Trust, and the Portfolio shall not be liable for the obligations of any other
series of the Trust.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written. This Agreement may be executed by
the parties hereto on any number of counterparts, all of which together shall
constitute one and the same instrument.
MERCURY ASSET MANAGEMENT MASTER
TRUST on behalf of its series,
MERCURY MASTER
INTERNATIONAL PORTFOLIO
By:
----------------------------
Title:
MERCURY ASSET MANAGEMENT
INTERNATIONAL LTD.
By:
----------------------------
Title:
10
<PAGE> 1
EXHIBIT 4(b)
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of ______________, 1998, by and between MERCURY ASSET
MANAGEMENT MASTER TRUST, a Delaware business trust (hereinafter referred to as
the "Trust") on behalf of its series MERCURY MASTER PAN-EUROPEAN GROWTH
PORTFOLIO (the "Portfolio") and MERCURY ASSET MANAGEMENT INTERNATIONAL LTD., a
corporation organized under the laws of England and Wales (hereinafter referred
to as the "Investment Adviser").
W I T N E S S E T H:
WHEREAS, the Trust is engaged in business as an open-end management
investment company registered under the Investment Company Act of 1940, as
amended (hereinafter referred to as the "Investment Company Act"); and
WHEREAS, the Trustees of the Trust (the "Trustees") are authorized to
establish separate series relating to separate portfolios of securities, each of
which may offer separate classes of shares; and
WHEREAS, the Trustees have established and designated the Portfolio as a
series of the Trust; and
WHEREAS, the Investment Adviser is engaged principally in rendering
management and investment advisory services and is registered as an investment
adviser under the Investment Advisers Act of 1940 and regulated by the
Investment Management Regulatory Organization, a self-regulating organization
recognized under the Financial Services Act of 1986 of the United Kingdom
(hereinafter referred to as "IMRO"), and the conduct of its investment business
is regulated by IMRO; and
<PAGE> 2
WHEREAS, the Trust desires to retain the Investment Adviser to provide
management and investment advisory services to the Portfolio in the manner and
on the terms hereinafter set forth; and
WHEREAS, the Investment Adviser is willing to provide management and
investment advisory services to the Portfolio on the terms and conditions
hereafter set forth;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Trust and the Investment Adviser hereby agree as
follows:
ARTICLE I
DUTIES OF THE INVESTMENT ADVISER
The Trust hereby employs the Investment Adviser to act as a manager and
investment adviser of the Portfolio and to furnish, or arrange for affiliates to
furnish, the management and investment advisory services described below,
subject to the policies of, review by and overall control of the Trustees, for
the period and on the terms and conditions set forth in this Agreement. The
Investment Adviser hereby accepts such employment and agrees during such period,
at its own expense, to render, or arrange for the rendering of, such services
and to assume the obligations herein set forth for the compensation provided for
herein. The Investment Adviser and its affiliates 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 Trust or
the Portfolio in any way or otherwise be deemed agents of the Trust or the
Portfolio.
(a) Management Services. The Investment Adviser shall perform (or
arrange for the performance by affiliates of) the management and administrative
services necessary for the operation of the Trust and the Portfolio. The
Investment Adviser shall provide the Trust and the Portfolio with
2
<PAGE> 3
office space, facilities, equipment and necessary personnel and such other
services as the Investment Adviser, subject to review by the Trustees, shall
from time to time determine to be necessary or useful to perform its obligations
under this Agreement. The Investment Adviser shall also, on behalf of the Trust
and the Portfolio, 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 Investment Adviser shall generally
monitor the Trust's and the Portfolio's compliance with investment policies and
restrictions as set forth in the Registration Statement of the Trust filed with
the Securities and Exchange Commission under the Investment Company Act, as
amended from time to time (the "Registration Statement"). The Investment Adviser
shall make reports to the Trustees of its performance of obligations hereunder
and furnish advice and recommendations with respect to such other aspects of the
business and affairs of the Portfolio as it shall determine to be desirable.
(b) Investment Advisory Services. The Investment Adviser shall provide
(or arrange for affiliates to provide) the Trust with such investment research,
advice and supervision as the latter may from time to time consider necessary
for the proper supervision of the assets of the Portfolio, shall furnish
continuously an investment program for the Portfolio and shall determine from
time to time which securities shall be purchased, sold or exchanged and what
portion of the assets of the Portfolio shall be held in the various securities
and other financial instruments in which the Portfolio invests or cash, subject
always to the restrictions of the Declaration of Trust and By-Laws of the Trust,
as amended from time to time, the provisions of the Investment Company Act and
the statements relating to the Portfolio's investment objectives, investment
policies and investment
3
<PAGE> 4
restrictions as the same are set forth in the Trust's current Registration
Statement. The Investment Adviser shall make decisions for the Trust as to the
manner in which voting rights, rights to consent to corporate action and any
other rights pertaining to the Portfolio's portfolio securities shall be
exercised. Should the Trustees at any time, however, make any definite
determination as to investment policy and notify the Investment Adviser thereof
in writing, the Investment Adviser shall be bound by such determination for the
period, if any, specified in such notice or until similarly notified that such
determination has been revoked. The Investment Adviser shall take, on behalf of
the Portfolio, all actions which it deems necessary to implement the investment
policies determined as provided above, and in particular to place all orders for
the purchase or sale of portfolio securities for the Portfolio's account with
brokers or dealers selected by it, and to that end, the Investment Adviser is
authorized as the agent of the Trust to give instructions to the custodian of
the Portfolio as to deliveries of securities and payments of cash for the
account of the Portfolio. In connection with the selection of such brokers or
dealers and the placing of such orders with respect to assets of the Portfolio,
the Investment Adviser is directed at all times to seek to obtain execution and
price within the policy guidelines determined by the Trustees and set forth in
the then current Registration Statement. Subject to this requirement and the
provisions of the Investment Company Act, the Securities Exchange Act of 1934,
as amended, and other applicable provisions of law, the Investment Adviser may
select brokers or dealers with which it or the Trust is affiliated.
(c) Affiliated Sub-Advisers. In carrying out its responsibilities
hereunder, the Investment Adviser may employ, retain or otherwise avail itself
of the services of other persons or entities including without limitation,
affiliates of the Investment Adviser, on such terms as the Investment Adviser
shall determine to be necessary, desirable or appropriate. However, if the
Investment
4
<PAGE> 5
Adviser chooses to retain or avail itself of the services of another person or
entity to manage assets of the Fund, such other person or entity must be (i) an
affiliate of the Investment Adviser, (ii) retained at the Investment Adviser's
own cost and expense, and (iii) retained subject to the requirements of Section
15 of the Investment Company Act. Retention of one or more affiliated sub-
advisers, or the employment or retention of other persons or entities to perform
services, shall in no way reduce the responsibilities or obligations of the
Investment Adviser under this Agreement and the Investment Adviser shall be
responsible for all acts and omissions of such affiliated sub-advisers, or other
persons or entities, in connection with the performance of the Investment
Adviser's duties hereunder.
ARTICLE II
ALLOCATION OF CHARGES AND EXPENSES
(a) The Investment Adviser. The Investment Adviser assumes and shall
pay, or cause its affiliate 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 which it
is obligated to provide under Article I hereof. The Investment Adviser shall
pay, or cause its affiliate to pay, compensation of all Officers of the Trust
and all Trustees of the Trust who are affiliated persons of the Investment
Adviser or any sub-adviser, or of an affiliate of the Investment Adviser or any
sub-adviser.
(b) The Trust. The Trust assumes and shall pay or cause to be paid all
other expenses of the Trust and the Portfolio (except for the expenses paid by
the Mercury Funds Distributor division of Princeton Funds Distributor, Inc. (the
"Distributor")), including, without limitation: taxes, expenses for legal and
auditing services, costs of printing proxies, shareholder reports, copies of the
5
<PAGE> 6
Registration Statement, 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
Trustees who are not affiliated persons of the Investment Adviser or any
sub-adviser, or of an affiliate of the Investment Adviser or any sub-adviser,
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 Trust or
the Portfolio. It is also understood that the Trust shall reimburse the
Investment Adviser or an affiliate of the Investment Adviser for its costs in
providing accounting services to the Trust and the Portfolio. The Distributor
will pay certain of the expenses of the Portfolio incurred in connection with
the continuous offering of shares of beneficial interest of the Portfolio.
ARTICLE III
COMPENSATION OF THE INVESTMENT ADVISER
Management and Investment Advisory Fee. For the services rendered, the
facilities furnished and expenses assumed by the Investment Adviser, the
Portfolio shall pay to the Investment Adviser at the end of each calendar month
a fee based upon the average daily value of the net assets of the Portfolio, as
determined and computed in accordance with the description of the determination
of net asset value contained in the Registration Statement, at the annual rate
of 0.75% of the average daily net assets of the Portfolio, 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 Investment
6
<PAGE> 7
Adviser'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 Trustees,
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 INVESTMENT ADVISER
The Investment Adviser shall not be liable for any error of judgment or
mistake of law or for any loss arising out of any investment or for any act or
omission in the management of the Trust and the Portfolio, except for willful
misfeasance, bad faith or gross negligence in the performance of its duties, or
by reason of reckless disregard of its obligations and duties hereunder. As used
in this Article IV, the term "Investment Adviser" shall include any affiliates
of the Investment Adviser performing services for the Trust or the Portfolio
contemplated hereby and partners, directors, officers and employees of the
Investment Adviser and such affiliates.
ARTICLE V
ACTIVITIES OF THE INVESTMENT ADVISER
The services of the Investment Adviser to the Trust and the Portfolio are
not to be deemed to be exclusive, and the Investment Adviser and each affiliate
is free to render services to others. It is understood that Trustees, officers,
employees and shareholders of the Trust and the Portfolio are or may become
interested in the Investment Adviser and its affiliates, as directors, officers,
employees, partners and shareholders or otherwise, and that the Investment
Adviser and directors, officers, employees, partners and shareholders of the
Investment Adviser and its affiliates are or may become similarly interested in
the Trust or the Portfolio as shareholders or otherwise.
7
<PAGE> 8
ARTICLE VI
INVESTMENT ADVISER STATEMENTS PURSUANT TO IMRO RULES
Any complaints concerning the Investment Adviser should be in writing
addressed to the attention of the Managing Director of the Investment Adviser.
The Trust has the right to obtain from the Investment Adviser a copy of the IMRO
complaints procedure and to approach IMRO and the Investment Ombudsman directly.
The Investment Adviser may make recommendations, subject to the
investment restrictions referred to in Article I herein, regarding Investments
Not Readily Realisable (as that term is used in the IMRO Rules) or investments
denominated in a currency other than British pound sterling. There can be no
certainty that market makers will be prepared to deal in unlisted or thinly
traded securities and an accurate valuation may be hard to obtain. The value of
investments recommended by the Investment Adviser may be subject to exchange
rate fluctuations which may have favorable or unfavorable effects on
investments.
The Investment Adviser may make recommendations, subject to the
investment restrictions referred to in Article I herein, regarding options,
futures or contracts for differences. Markets can be highly volatile and such
investments carry a high degree of risk of loss exceeding the original
investment and any margin on deposit.
ARTICLE VII
DURATION AND TERMINATION OF THIS AGREEMENT
This Agreement shall become effective as of the date first above written,
and shall remain in force for two years thereafter and thereafter, but only so
long as such continuance is specifically approved at least annually by (i) the
Trustees, or by the vote of a majority of the outstanding voting securities of
the Portfolio, and (ii) a majority of those Trustees who are not parties to this
Agreement
8
<PAGE> 9
or interested persons of any such party cast in person at a meeting called for
the purpose of voting on such approval.
This Agreement may be terminated at any time, without the payment of any
penalty, by the Trustees or by the vote of a majority of the outstanding voting
securities of the Portfolio, or by the Investment Adviser, on sixty days'
written notice to the other party. This Agreement shall automatically terminate
in the event of its assignment.
ARTICLE VIII
AMENDMENTS OF THIS AGREEMENT
This Agreement may be amended by the parties only if such amendment is
specifically approved by (i) by the vote of a majority of outstanding voting
securities of the Portfolio, and (ii) a majority of those Trustees who are not
parties to this Agreement or interested persons of any such party cast in person
at a meeting called for the purpose of voting on such approval.
ARTICLE IX
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 X
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
9
<PAGE> 10
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.
ARTICLE XI
LIMITATION OF OBLIGATIONS OF THE PORTFOLIO
The obligations of the Portfolio shall be limited to the assets of the
Portfolio, shall be separate from the obligations of any other series of the
Trust, and the Portfolio shall not be liable for the obligations of any other
series of the Trust.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written. This Agreement may be executed by
the parties hereto on any number of counterparts, all of which together shall
constitute one and the same instrument.
MERCURY ASSET MANAGEMENT MASTER
TRUST on behalf of its series,
MERCURY MASTER PAN-EUROPEAN
GROWTH PORTFOLIO
By:
---------------------------
Title:
MERCURY ASSET MANAGEMENT
INTERNATIONAL LTD.
By:
---------------------------
Title:
10
<PAGE> 1
EXHIBIT 4(c)
SUB-ADVISORY AGREEMENT
AGREEMENT made as of _______________, 1998, by and between MERCURY ASSET
MANAGEMENT INTERNATIONAL LTD., a corporation organized under the laws of England
and Wales (hereinafter referred to as the "Investment Adviser"), and FUND ASSET
MANAGEMENT, L.P., a Delaware limited partnership (hereinafter referred to as the
"Sub-Adviser").
W I T N E S S E T H:
WHEREAS, MERCURY ASSET MANAGEMENT MASTER TRUST (the "Trust") is a
Delaware business trust engaged in business as an open-end management investment
company registered under the Investment Company Act of 1940, as amended
(hereinafter referred to as the "Investment Company Act"); and
WHEREAS, the Trustees of the Trust (the "Trustees") are authorized to
establish separate series relating to separate portfolios of securities, each of
which may offer separate classes of shares; and
WHEREAS, the Trustees have established and designated MERCURY MASTER
INTERNATIONAL PORTFOLIO (the "Portfolio") as a series of the Trust; and
WHEREAS, the Investment Adviser and the Sub-Adviser are engaged
principally in rendering investment advisory services and are registered as
investment advisers under the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Investment Adviser is also regulated by the Investment
Management Regulatory Organization, a self-regulating organization recognized
under the Financial Services
1
<PAGE> 2
Act of 1986 of the United Kingdom (hereinafter referred to as "IMRO"), and the
conduct of its investment business is regulated by IMRO; and
WHEREAS, the Investment Adviser has entered into an investment advisory
agreement with the Trust on behalf of the Portfolio (the "Advisory Agreement"),
dated _________________, pursuant to which the Investment Adviser will provide
investment advisory and management services to the Trust and the Portfolio; and
WHEREAS, the Sub-Adviser is willing to provide sub-advisory services to
the Investment Adviser with respect to the daily cash position of the Portfolio
on the terms and conditions hereinafter set forth;
NOW THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Sub-Adviser and the Investment Adviser hereby agree
as follows:
ARTICLE I
Duties of the Sub-Adviser
The Investment Adviser hereby employs the Sub-Adviser to act as
sub-adviser to the Investment Adviser and to furnish, or arrange for affiliates
to furnish, certain investment advisory services with respect to the daily cash
position of the Portfolio, as described below, subject to the supervision of the
Investment Adviser and the Trustees of the Trust, for the period and on the
terms and conditions set forth in this Agreement. The Sub-Adviser hereby accepts
such employment and agrees during such period to render, or arrange for the
rendering of, such services and to assume the obligations herein set forth for
the compensation from the Investment Adviser provided for herein. The
Sub-Adviser and its affiliates shall for all purposes herein be
2
<PAGE> 3
deemed to be an independent contractor and shall, unless otherwise expressly
provided or authorized, have no authority to act for or represent the Trust or
Portfolio in any way or otherwise be deemed an agent of the Trust or Portfolio.
The Sub-Adviser shall provide the Investment Adviser with such investment
research, advice and supervision as the latter may from time to time consider
necessary for the proper management of the daily cash position of the Portfolio.
All advice and recommendations provided by the Sub-Adviser shall be subject to
the restrictions of the Declaration of Trust and By-Laws of the Trust, as
amended from time to time, the provisions of the Investment Company Act and the
statements relating to the Portfolio's investment objectives, investment
policies and investment restrictions as the same are set forth in the currently
effective prospectus and statement of additional information relating to the
shares of the Portfolio under the Securities Act of 1933, as amended (the
"Prospectus" and "Statement of Additional Information", respectively).
ARTICLE II
Allocation of Charges and Expenses
The Sub-Adviser assumes and shall pay for maintaining the staff and
personnel necessary to perform its obligations under this Agreement, and shall
at its own expense provide the office space, equipment and facilities which it
is obligated to provide under Article I hereof and shall pay all compensation of
officers of the Trust and all Trustees of the Trust who are affiliated persons
of the Sub-Adviser to the extent not otherwise paid by the Investment Adviser.
3
<PAGE> 4
ARTICLE III
Compensation of the Sub-Adviser
For the services rendered, the facilities furnished and expenses assumed
by the Sub-Adviser, the Investment Adviser shall pay to the Sub-Adviser a fee
in an amount to be determined from time to time by the Investment Adviser and
the Sub-Adviser but in no event in excess of the amount that the Investment
Adviser actually receives for providing services to the Trust and the Portfolio
pursuant to the Advisory Agreement.
ARTICLE IV
Limitation of Liability of the Sub-Adviser
The Sub-Adviser shall not be liable for any error of judgment or mistake
of law or for any loss arising out of any investment or for any act or omission
in the performance of sub-advisory services rendered with respect to the Trust
and the Portfolio, 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 Sub-Adviser
shall include any affiliates of the Sub-Adviser performing services for the
Investment Adviser contemplated hereby and directors, officers and employees of
the Sub-Adviser and such affiliates.
ARTICLE V
Activities of the Sub-Adviser
The services of the Sub-Adviser to the Trust and the Portfolio are not to
be deemed to be exclusive, and the Sub-Adviser and any person controlled by or
under common control with the Sub-Adviser (for purposes of this Article V
referred to as "affiliates") is free to render services to
4
<PAGE> 5
others. It is understood that Trustees, officers, employees and shareholders of
the Trust or Portfolio are or may become interested in the Sub-Adviser and its
affiliates, as directors, officers, partners, employees and shareholders of the
Sub-Adviser and its affiliates are or may become similarly interested in the
Trust or Portfolio, and that the Sub-Adviser and directors, officers, employees,
partners and shareholders of the Sub-Adviser or its affiliates may become
interested in the Trust or Portfolio as shareholders or otherwise.
ARTICLE VI
Investment Adviser Statements Pursuant to IMRO Rules
Any complaints concerning the Investment Adviser should be in writing
addressed to the attention of the Compliance Officer of the Investment Adviser.
The Trust has the right to obtain from the Investment Adviser a copy of the IMRO
complaints procedure and to approach the Investment Ombudsman directly.
ARTICLE VII
Duration and Termination of this Agreement
This Agreement shall become effective as of the date first above written,
and shall remain in force until the date of termination of the Advisory
Agreement (but not later than two years after the effective date of this
Agreement) and thereafter, but only so long as such continuance is specifically
approved at least annually by (i) the Trustees of the Trust, or by the vote of a
majority of the outstanding voting securities of the Portfolio, and (ii) a
majority of those Trustees who are not parties to this Agreement or interested
persons of any such party cast in person at a meeting called for the purpose of
voting on such approval.
5
<PAGE> 6
This Agreement may be terminated at any time, without the payment of
any penalty, by the Investment Adviser or by vote of a majority of the
outstanding voting securities of the Portfolio, or by the Sub-Adviser, on sixty
days' written notice to the other party. This Agreement shall automatically
terminate in the event of its assignment or in the event of the termination of
the Advisory Agreement. Any termination shall be without prejudice to the
completion of transactions already initiated.
ARTICLE VIII
Amendments of this Agreement
This Agreement may be amended by the parties only if such amendment is
specifically approved by (i) the Trustees of the Trust or by the vote of a
majority of outstanding voting securities of the Portfolio and (ii) a majority
of those Trustees who are not parties to this Agreement or interested persons of
any such party cast in person at a meeting called for the purpose of voting on
such approval.
ARTICLE IX
Definitions of Certain Terms
The terms "vote of a majority of the outstanding voting securities",
"assignment", "affiliated person" and "interested person", when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act and the rules and regulations thereunder, subject, however, to such
exemptions as may be granted by the Securities and Exchange Commission under
said Act.
6
<PAGE> 7
ARTICLE X
Governing Law
This Agreement shall be construed in accordance with the laws of the
State of New York and the applicable provisions of the Investment Company Act.
To the extent that the applicable laws of the State of New York, or any of the
provisions herein, conflict with the applicable provisions of the Investment
Company Act, the latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written. This Agreement may be executed by
the parties hereto on any number of counterparts, all of which together shall
constitute one and the same instrument.
MERCURY ASSET MANAGEMENT INTERNATIONAL LTD.
By:
------------------------------
Title:
FUND ASSET MANAGEMENT, L.P.
By: PRINCETON SERVICES, INC.,
GENERAL PARTNER
By:
------------------------------
Title:
7
<PAGE> 1
EXHIBIT 4(d)
SUB-ADVISORY AGREEMENT
AGREEMENT made as of ______________, 1998, by and between MERCURY ASSET
MANAGEMENT INTERNATIONAL LTD., a corporation organized under the laws of England
and Wales (hereinafter referred to as the "Investment Adviser"), and FUND ASSET
MANAGEMENT, L.P., a Delaware limited partnership (hereinafter referred to as the
"Sub- Adviser").
W I T N E S S E T H:
WHEREAS, MERCURY ASSET MANAGEMENT MASTER TRUST (the "Trust") is a
Delaware business trust engaged in business as an open-end management investment
company registered under the Investment Company Act of 1940, as amended
(hereinafter referred to as the "Investment Company Act"); and
WHEREAS, the Trustees of the Trust (the "Trustees") are authorized to
establish separate series relating to separate portfolios of securities, each of
which may offer separate classes of shares; and
WHEREAS, the Trustees have established and designated MERCURY MASTER PAN-
EUROPEAN GROWTH PORTFOLIO (the "Portfolio") as a series of the Trust; and
WHEREAS, the Investment Adviser and the Sub-Adviser are engaged
principally in rendering investment advisory services and are registered as
investment advisers under the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Investment Adviser is also regulated by the Investment
Management Regulatory Organization, a self-regulating organization recognized
under the Financial Services
1
<PAGE> 2
Act of 1986 of the United Kingdom (hereinafter referred to as "IMRO"), and the
conduct of its investment business is regulated by IMRO; and
WHEREAS, the Investment Adviser has entered into an investment advisory
agreement with the Trust on behalf of the Portfolio (the "Advisory Agreement"),
dated __________________, pursuant to which the Investment Adviser will provide
investment advisory and management services to the Trust and the Portfolio; and
WHEREAS, the Sub-Adviser is willing to provide sub-advisory services to
the Investment Adviser with respect to the daily cash position of the Portfolio
on the terms and conditions hereinafter set forth;
NOW THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Sub-Adviser and the Investment Adviser hereby agree
as follows:
ARTICLE I
Duties of the Sub-Adviser
The Investment Adviser hereby employs the Sub-Adviser to act as
sub-adviser to the Investment Adviser and to furnish, or arrange for affiliates
to furnish, certain investment advisory services with respect to the daily cash
position of the Portfolio, as described below, subject to the supervision of the
Investment Adviser and the Trustees of the Trust, for the period and on the
terms and conditions set forth in this Agreement. The Sub-Adviser hereby accepts
such employment and agrees during such period to render, or arrange for the
rendering of, such services and to assume the obligations herein set forth for
the compensation from the Investment Adviser provided for herein. The
Sub-Adviser and its affiliates shall for all purposes herein be
2
<PAGE> 3
deemed to be an independent contractor and shall, unless otherwise expressly
provided or authorized, have no authority to act for or represent the Trust or
Portfolio in any way or otherwise be deemed an agent of the Trust or Portfolio.
The Sub-Adviser shall provide the Investment Adviser with such investment
research, advice and supervision as the latter may from time to time consider
necessary for the proper management of the daily cash position of the Portfolio.
All advice and recommendations provided by the Sub-Adviser shall be subject to
the restrictions of the Declaration of Trust and By-Laws of the Trust, as
amended from time to time, the provisions of the Investment Company Act and the
statements relating to the Portfolio's investment objectives, investment
policies and investment restrictions as the same are set forth in the currently
effective prospectus and statement of additional information relating to the
shares of the Portfolio under the Securities Act of 1933, as amended (the
"Prospectus" and "Statement of Additional Information", respectively).
ARTICLE II
Allocation of Charges and Expenses
The Sub-Adviser assumes and shall pay for maintaining the staff and
personnel necessary to perform its obligations under this Agreement, and shall
at its own expense provide the office space, equipment and facilities which it
is obligated to provide under Article I hereof and shall pay all compensation of
officers of the Trust and all Trustees of the Trust who are affiliated persons
of the Sub-Adviser to the extent not otherwise paid by the Investment Adviser.
3
<PAGE> 4
ARTICLE III
Compensation of the Sub-Adviser
For the services rendered, the facilities furnished and expenses assumed
by the Sub-Adviser, the Investment Adviser shall pay to the Sub-Adviser a fee
in an amount to be determined from time to time by the Investment Adviser and
the Sub-Adviser but in no event in excess of the amount that the Investment
Adviser actually receives for providing services to the Trust and the Portfolio
pursuant to the Advisory Agreement.
ARTICLE IV
Limitation of Liability of the Sub-Adviser
The Sub-Adviser shall not be liable for any error of judgment or mistake
of law or for any loss arising out of any investment or for any act or omission
in the performance of sub-advisory services rendered with respect to the Trust
and the Portfolio, 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 Sub-Adviser
shall include any affiliates of the Sub-Adviser performing services for the
Investment Adviser contemplated hereby and directors, officers and employees of
the Sub-Adviser and such affiliates.
ARTICLE V
Activities of the Sub-Adviser
The services of the Sub-Adviser to the Trust and the Portfolio are not to
be deemed to be exclusive, and the Sub-Adviser and any person controlled by or
under common control with the Sub-Adviser (for purposes of this Article V
referred to as "affiliates") is free to render services to
4
<PAGE> 5
others. It is understood that Trustees, officers, employees and shareholders of
the Trust or Portfolio are or may become interested in the Sub-Adviser and its
affiliates, as directors, officers, partners, employees and shareholders of the
Sub-Adviser and its affiliates are or may become similarly interested in the
Trust or Portfolio, and that the Sub-Adviser and directors, officers, employees,
partners and shareholders of the Sub-Adviser or its affiliates may become
interested in the Trust or Portfolio as shareholders or otherwise.
ARTICLE VI
Investment Adviser Statements Pursuant to IMRO Rules
Any complaints concerning the Investment Adviser should be in writing
addressed to the attention of the Compliance Officer of the Investment Adviser.
The Trust has the right to obtain from the Investment Adviser a copy of the IMRO
complaints procedure and to approach the Investment Ombudsman directly.
ARTICLE VII
Duration and Termination of this Agreement
This Agreement shall become effective as of the date first above written,
and shall remain in force until the date of termination of the Advisory
Agreement (but not later than two years after the effective date of this
Agreement) and thereafter, but only so long as such continuance is specifically
approved at least annually by (i) the Trustees of the Trust, or by the vote of a
majority of the outstanding voting securities of the Portfolio, and (ii) a
majority of those Trustees who are not parties to this Agreement or interested
persons of any such party cast in person at a meeting called for the purpose of
voting on such approval.
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<PAGE> 6
This Agreement may be terminated at any time, without the payment of any
penalty, by the Investment Adviser or by vote of a majority of the outstanding
voting securities of the Portfolio, or by the Sub-Adviser, on sixty days'
written notice to the other party. This Agreement shall automatically terminate
in the event of its assignment or in the event of the termination of the
Advisory Agreement. Any termination shall be without prejudice to the completion
of transactions already initiated.
ARTICLE VIII
Amendments of this Agreement
This Agreement may be amended by the parties only if such amendment is
specifically approved by (i) the Trustees of the Trust or by the vote of a
majority of outstanding voting securities of the Portfolio and (ii) a majority
of those Trustees who are not parties to this Agreement or interested persons of
any such party cast in person at a meeting called for the purpose of voting on
such approval.
ARTICLE IX
Definitions of Certain Terms
The terms "vote of a majority of the outstanding voting securities",
"assignment", "affiliated person" and "interested person", when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act and the rules and regulations thereunder, subject, however, to such
exemptions as may be granted by the Securities and Exchange Commission under
said Act.
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<PAGE> 7
ARTICLE X
Governing Law
This Agreement shall be construed in accordance with the laws of the
State of New York and the applicable provisions of the Investment Company Act.
To the extent that the applicable laws of the State of New York, or any of the
provisions herein, conflict with the applicable provisions of the Investment
Company Act, the latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written. This Agreement may be executed by
the parties hereto on any number of counterparts, all of which together shall
constitute one and the same instrument.
MERCURY ASSET MANAGEMENT INTERNATIONAL LTD.
By:
----------------------------
Title:
FUND ASSET MANAGEMENT, L.P.
By: PRINCETON SERVICES, INC.,
GENERAL PARTNER
By:
----------------------------
Title:
7
<PAGE> 1
EXHIBIT 7
AGREEMENT BETWEEN
BROWN BROTHERS HARRIMAN & CO.
AND
MERCURY ASSET MANAGEMENT MASTER TRUST
CUSTODIAN AGREEMENT
<PAGE> 2
AGREEMENT made this ______ day of ______, 1996, between MERCURY ASSET MANAGEMENT
MASTER TRUST (the "Fund") and Brown Brothers Harriman & Co. (the "Custodian").
WITNESSETH: That in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
1. The Fund hereby employs and appoints the Custodian as a custodian for
the term and subject to the provisions of this Agreement. The Custodian shall
not be under any duty or obligation to require the Fund to deliver to it any
securities or funds owned by the Fund and shall have no responsibility or
liability for or on account of securities or funds not so delivered. The Fund
will deposit with the Custodian copies of the Certificate of Incorporation and
By-Laws (or comparable documents) of the Fund and all amendments thereto, and
copies of such votes and other proceedings of the Fund as may be necessary for
or convenient to the Custodian in the performance of its duties.
2. Except for securities and funds held by subcustodians appointed
pursuant to the provisions of Section 3 hereof, the Custodian shall have and
perform the following powers and duties:
A. Safekeeping - To keep safely the securities of the Fund that have been
delivered to the Custodian and from time to time to receive delivery of
securities for safekeeping.
B. Manner of Holding Securities - To hold securities of the Fund (1) by
physical possession of the share certificates or other instruments representing
such securities in registered or bearer form, or (2) in book-entry form by a
Securities System (as said term is defined in Section 2S).
C. Registered Name; Nominee - To hold registered securities of the Fund
(1) in the name or any nominee name of the Custodian or the Fund, or in the name
or any nominee name of any agent appointed pursuant to Section 5E, or (2) in
street certificate form, so-called, and in any case with or without any
indication of fiduciary capacity.
D. Purchases - Upon receipt of Proper Instructions, as defined in Section
V on Page 14, insofar as funds are available for the purpose, to pay for and
receive securities purchased for
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<PAGE> 3
the account of the Fund, payment being made only upon receipt of the securities
(1) by the Custodian, or (2) by a clearing corporation of a national securities
exchange of which the Custodian is a member, or (3) by a Securities System.
However, (i) in the case of repurchase agreements entered into by the Fund, the
Custodian may release funds to a Securities System or to a Subcustodian prior to
the receipt of advice from the Securities System or Subcustodian that the
securities underlying such repurchase agreement have been transferred by book
entry into the Account (as defined in Section 2S) of the Custodian maintained
with such Securities System or Subcustodian, so long as such payment
instructions to Securities System or Subcustodian include a requirement that
delivery is only against payment of securities, and (ii) in the case of time
deposits, call account deposits, currency deposits, and other deposits,
contracts or options pursuant to Sections 2K, 2L and 2M, the Custodian may make
payment therefor without receiving an instrument evidencing said deposit so long
as such payment instructions detail specific securities to be acquired.
E. Exchanges - Upon receipt of proper instructions, to exchange
securities held by it for the account of the Fund for other securities in
connection with any reorganization, recapitalization, split-up of shares, change
of par value, conversion or other event, and to deposit any such securities in
accordance with the terms of any reorganization or protective plan. Without such
instructions, the Custodian may surrender securities in temporary form for
definitive securities, may surrender securities for transfer into a name or
nominee name as permitted in Section 2C, and may surrender securities for a
different number of certificates or instruments representing the same number of
shares or same principal amount of indebtedness, provided the securities to be
issued are to be delivered to the Custodian and further provided custodian shall
at the time of surrendering securities or instruments receive a receipt or other
evidence of ownership thereof.
F. Sales of Securities - Upon receipt of proper instructions, to make
delivery of securities which have been sold for the account of the Fund, but
only against payment therefor (1) in cash, by a certified check, bank cashier's
check, bank credit, or bank wire transfer, or (2) by credit to the account of
the Custodian with a clearing corporation of a
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<PAGE> 4
national securities exchange of which the Custodian is a member, or (3) by
credit to the account of the Custodian or an Agent of the Custodian with a
Securities System.
G. Depositary Receipts - Upon receipt of proper instructions, to instruct
a subcustodian appointed pursuant to Section 3 hereof (a "Subcustodian") or an
agent of the Custodian appointed pursuant to Section 5E hereof (an "Agent") to
surrender securities to the depositary used by an issuer of American Depositary
Receipts or International Depositary Receipts (hereinafter collectively referred
to as "ADRs") for such securities against a written receipt therefor adequately
describing such securities and written evidence satisfactory to the Subcustodian
or Agent that the depositary has acknowledged receipt of instructions to issue
with respect to such securities ADRs in the name of the Custodian, or a nominee
of the Custodian, for delivery to the Custodian in Boston, Massachusetts, or at
such other place as the Custodian may from time to time designate.
Upon receipt of proper instructions, to surrender ADRs to the issuer
thereof against a written receipt therefor adequately describing the ADRs
surrendered and written evidence satisfactory to the Custodian that the issuer
of the ADRs has acknowledged receipt of instructions to cause its depositary to
deliver the securities underlying such ADRs to a Subcustodian or an Agent.
H. Exercise of Rights; Tender Offers - Upon timely receipt of proper
instructions, to deliver to the issuer or trustee thereof, or to the agent of
either, warrants, puts, calls, rights or similar securities for the purpose of
being exercised or sold, provided that the new securities and cash, if any,
acquired by such action are to be delivered to the Custodian, and, upon receipt
of proper instructions, to deposit securities upon invitations for tenders of
securities, provided that the consideration is to be paid or delivered or the
tendered securities are to be returned to the Custodian.
I. Stock Dividends, Rights, Etc. - To receive and collect all stock
dividends, rights and other items of like nature; and to deal with the same
pursuant to proper instructions relative thereto.
J. Borrowings - Upon receipt of proper instructions, to deliver
securities of the Fund to lenders or their agents as collateral for borrowings
effected by the Fund, provided that such borrowed money is payable to or upon
the Custodian's order as Custodian for the Fund.
K. Demand Deposit Bank Accounts - To open and operate an account or
accounts in the
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<PAGE> 5
name of the Fund on the Custodian's books subject only to draft or order by the
Custodian. All funds received by the Custodian from or for the account of the
Fund shall be deposited in said account(s). The responsibilities of the
Custodian to the Fund for deposits accepted on the Custodian's books shall be
that of a U. S. bank for a similar deposit.
If and when authorized by proper instructions, the Custodian may open and
operate an additional account(s) in such other banks or trust companies as may
be designated by the Fund in such instructions (any such bank or trust company
so designated by the Fund being referred to hereafter as a "Banking
Institution"), provided that such account(s) shall be in the name of the
Custodian for account of the Fund and subject only to the Custodian's draft or
order. Such accounts may be opened with Banking Institutions in the United
States and in other countries and may be denominated in either U. S. Dollars or
other currencies as the Fund may determine. All such deposits shall be deemed to
be portfolio securities of the Fund and accordingly the responsibility of the
Custodian therefore shall be the same as and neither lesser nor greater than the
Custodian's responsibility in respect of other portfolio securities of the Fund.
L. Interest Bearing Call or Time Deposits - To place interest bearing
fixed term and call deposits with such banks and in such amounts as the Fund may
authorize pursuant to proper instructions. Such deposits may be placed with the
Custodian or with Subcustodians or other Banking Institutions as the Fund may
determine. Deposits may be denominated in U. S. Dollars or other currencies and
need not be evidenced by the issuance or delivery of a certificate to the
Custodian, provided that the Custodian shall include in its records with respect
to the assets of the Fund, appropriate notation as to the amount and currency of
each such deposit, the accepting Banking Institution, and other appropriate
details. Such deposits, other than those placed with the Custodian, shall be
deemed portfolio securities of the Fund and the responsibilities of the
Custodian therefor shall be the same as those for demand deposit bank accounts
placed with other banks, as described in Section K of this agreement. The
responsibility of the Custodian for such deposits accepted on the Custodian's
books shall be that of a U. S. bank for a similar deposit.
M. Foreign Exchange Transactions and Futures Contracts - Pursuant to
proper instructions, to
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<PAGE> 6
enter into foreign exchange contracts or options to purchase and sell foreign
currencies for spot and future delivery on behalf and for the account of the
Fund. Such transactions may be undertaken by the Custodian with such Banking
Institutions, including the Custodian and Subcustodian(s) as principals, as
approved and authorized by the Fund. Foreign exchange contracts and options
other than those executed with the Custodian, shall be deemed to be portfolio
securities of the Fund and the responsibilities of the Custodian therefor shall
be the same as those for demand deposit bank accounts placed with other banks as
described in Section 2-K of this agreement. Upon receipt of proper instructions,
to receive and retain confirmations evidencing the purchase or sale of a futures
contract or an option on a futures contract by the Fund; to deposit and maintain
in a segregated account, for the benefit of any futures commission merchant or
to pay to such futures commission merchant, assets designated by the fund as
initial, maintenance or variation "margin" deposits intended to secure the
Fund's performance of its obligations under any futures contracts purchased or
sold or any options on futures contracts written by the Fund, in accordance with
the provisions of any agreement or agreements among any of the Fund, the
Custodian and such futures commission merchant, designated to comply with the
rules of the Commodity Futures Trading Commission and/or any contract market, or
any similar organization or organizations, regarding such margin deposits; and
to release and/or transfer assets in such margin accounts only in accordance
with any such agreements or rules.
N. Stock Loans - Upon receipt of proper instructions to deliver
securities of the Fund, in connection with loans of securities by the Fund, to
the borrower thereof upon the receipt of the cash collateral, if any, for such
borrowing. In the event U.S. Government securities are to be used as collateral,
the Custodian will not release the securities to be loaned until it has received
confirmation that such collateral has been delivered to the Custodian. The
Custodian and Fund understand that the timing of receipt of such confirmation
will normally require that the delivery of securities to be loaned will be made
one day after receipt of the U. S. Government collateral.
O. Collections - To collect, receive and deposit in said account or
accounts all income and other payments with respect to the securities held
hereunder, and to execute ownership and other
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<PAGE> 7
certificates and affidavits for all federal and state tax purposes in connection
with receipt of income or other payments with respect to securities of the Fund
or in connection with transfer of securities, and pursuant to proper
instructions to take such other actions with respect to collection or receipt of
funds or transfer of securities which involve an investment decision.
P. Dividends, Distributions and Redemptions - Upon receipt of proper
instructions from the Fund, or upon receipt of instructions from the Fund's
shareholder servicing agent or agent with comparable duties (the "Shareholder
Servicing Agent") (given by such person or persons and in such manner on behalf
of the Shareholder Servicing Agent as the Fund shall have authorized), the
Custodian shall release funds or securities to the Shareholder Servicing Agent
or otherwise apply funds or securities, insofar as available, for the payment of
dividends or other distributions to Fund shareholders. Upon receipt of proper
instructions from the Fund, or upon receipt of instructions from the Shareholder
Servicing Agent (given by such person or persons and in such manner on behalf of
the Shareholder Servicing Agent as the Fund shall have authorized), the
Custodian shall release funds or securities, insofar as available, to the
Shareholder Servicing Agent or as such Agent shall otherwise instruct for
payment to Fund shareholders who have delivered to such Agent a request for
repurchase or redemption of their shares of capital stock of the Fund.
Q. Proxies, Notices, Etc. - Promptly to deliver or mail to the Fund all
forms of proxies and all notices of meetings and any other notices or
announcements affecting or relating to securities owned by the Fund that are
received by the Custodian, and upon receipt of proper instructions, to execute
and deliver or cause its nominee to execute and deliver such proxies or other
authorizations as may be required. Neither the Custodian nor its nominee shall
vote upon any of such securities or execute any proxy to vote thereon or give
any consent or take any other action with respect thereto (except as otherwise
herein provided) unless ordered to do so by proper instructions.
R. Bills - Upon receipt of proper instructions from the Administrator, to
pay or cause to be paid, insofar as funds are available for the purpose, bills,
statements, or other obligations of the Fund.
S. Deposit of Fund Assets in Securities Systems - The Custodian may
deposit and/or
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<PAGE> 8
maintain securities owned by the Fund in (i) The Depository Trust Company, (ii)
any book-entry system as provided in Subpart O of Treasury Circular No. 300, 31
CFR 306, Subpart B of 31 CFR Part 350, or the book-entry regulations of federal
agencies substantially in the form of Subpart O. or (iii) any other domestic
clearing agency registered with the Securities and Exchange Commission under
Section 17A of the Securities Exchange Act of 1934 which acts as a securities
depository and whose use the Fund has previously approved in writing (each of
the foregoing being referred to in this Agreement as a "Securities System").
Utilization of a Securities System shall be in accordance with applicable
Federal Reserve Board and Securities and Exchange Commission rules and
regulations, if any, and subject to the following provisions:
1) The Custodian may deposit and/or maintain Fund securities, either
directly or through one or more Agents appointed by the Custodian (provided that
any such agent shall be qualified to act as a custodian of the Fund pursuant to
the Investment Company Act of 1940 and the rules and regulations thereunder), in
a Securities System provided that such securities are represented in an account
("Account") of the Custodian or such Agent in the Securities System which shall
not include any assets of the Custodian or Agent other than assets held as a
fiduciary, custodian, or otherwise for customers;
2) The records of the Custodian with respect to securities of the Fund
which are maintained in a Securities System shall identify by book-entry those
securities belonging to the Fund;
3) The Custodian shall pay for securities purchased for the account of
the Fund upon (i) receipt of advice from the Securities System that such
securities have been transferred to the Account, and (ii) the making of an entry
on the records of the Custodian to reflect such payment and transfer for the
account of the Fund. The Custodian shall Transfer securities sold for the
account of the Fund upon (i) receipt of advice from the Securities System that
payment for such securities has been transferred to the Account, and (ii) the
making of an entry on the records of the Custodian to reflect such transfer and
payment for the account of the Fund. Copies of all advices from the Securities
System of transfers of securities for the account of the Fund shall identify the
Fund, be maintained for the Fund by the Custodian or an Agent as referred to
above, and be provided to the
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<PAGE> 9
Fund at its request. The Custodian shall furnish the Fund confirmation of each
transfer to or from the account of the Fund in the form of a written advice or
notice and shall furnish to the Fund copies of daily transaction sheets
reflecting each day's transactions in the Securities System for the account of
the Fund on the next business day;
4) The Custodian shall provide the Fund with any report obtained by the
Custodian or any Agent as referred to above on the Securities System's
accounting system, internal accounting control and procedures for safeguarding
securities deposited in the Securities System; and the Custodian and such Agents
shall send to the Fund such reports on their own systems of internal accounting
control as the Fund may reasonably request from time to time.
5) At the written request of the Fund, the Custodian will terminate the
use of any such Securities System on behalf of the Fund as promptly as
practicable.
T. Other Transfers - Upon receipt of Proper Instructions, to deliver
securities, funds and other property of the Fund to a Subcustodian or another
custodian of the Fund; and, upon receipt of proper instructions, to make such
other disposition of securities, funds or other property of the Fund in a manner
other than or for purposes other than as enumerated elsewhere in this Agreement,
provided that the instructions relating to such disposition shall include a
statement of the purpose for which the delivery is to be made, the amount of
securities to be delivered and the name of the person or persons to whom
delivery is to be made.
U. Investment Limitations - In performing its duties generally, and more
particularly in connection with the purchase, sale and exchange of securities
made by or for the Fund, the Custodian may assume unless and until notified in
writing to the contrary that proper instructions received by it are not in
conflict with or in any way contrary to any provisions of the Fund's Certificate
of Incorporation or By-Laws (or comparable documents) or votes or proceedings of
the shareholders or Directors of the Fund. The Custodian shall in no event be
liable to the Fund and shall be indemnified by the Fund for any violation which
occurs in the course of carrying out instructions given by the Fund of any
investment limitations to which the Fund is subject or other limitations with
respect to the Fund's powers to make expenditures, encumber securities, borrow
or
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<PAGE> 10
take similar actions affecting its portfolio.
V. Proper Instructions - Proper instructions shall mean a tested telex
from the Fund or a written request, direction, instruction or certification
signed or initialed on behalf of the Fund by two or more persons as the Board of
Directors of the Fund shall have from time to time authorized, provided,
however, that no such instructions directing the delivery of securities or the
payment of funds to an authorized signatory of the Fund shall be signed by such
person. Those persons authorized to give proper instructions may be identified
by the Board of Directors by name, title or position and will include at least
one officer empowered by the Board to name other individuals who are authorized
to give proper instructions on behalf of the Fund. Telephonic or other oral
instructions given by any one of the above persons will be considered proper
instructions if the Custodian reasonably believes them to have been given by a
person authorized to give such instructions with respect to the transaction
involved. Oral instructions will be confirmed by tested telex or in writing in
the manner set forth above but the lack of such confirmation shall in no way
affect any action taken by the Custodian in reliance upon such oral
instructions. The Fund authorizes the Custodian to tape record any and all
telephonic or other oral instructions given to the Custodian by or on behalf of
the Fund (including any of its officers, Directors, employees or agents) and
will deliver to the Custodian a similar authorization from any investment
manager or adviser or person or entity with similar responsibilities which is
authorized to give proper instructions on behalf of the Fund to the Custodian.
Proper instructions may relate to specific transactions or to types or classes
of transactions, and may be in the form of standing instructions.
Proper instructions may include communications effected directly between
electro-mechanical or electronic devices or systems, in addition to tested
telex, provided that the Fund and the Custodian agree to the use of such device
or system.
3. Securities, funds and other property of the Fund may be held by
subcustodians appointed pursuant to the provisions of this Section 3 (a
"Subcustodian"). The Custodian may, at any time and from time to time, appoint
any bank or trust company (meeting the requirements of a custodian
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<PAGE> 11
or a foreign custodian under the Investment Company Act of 1940 and the rules
and regulations thereunder) to act as a Subcustodian for the Fund, provided that
the Fund shall have approved in writing (1) any such bank or trust company and
the subcustodian agreement to be entered into between such bank or trust company
and the Custodian, and (2) if the subcustodian is a bank organized under the
laws of a country other than the United States, the holding of securities, cash
and other property of the Fund in the country in which it is proposed to utilize
the services of such subcustodian. Upon such approval by the Fund, the Custodian
is authorized on behalf of the Fund to notify each Subcustodian of its
appointment as such. The Custodian may, at any time in its discretion, remove
any bank or trust company that has been appointed as a Subcustodian but will
promptly notify the Fund of any such action.
Those Subcustodians, their offices or branches which the Fund has
approved to date are set forth on Appendix A hereto. Such Appendix shall be
amended from time to time as Subcustodians, branches or offices are changed,
added or deleted. The Fund shall be responsible for informing the Custodian
sufficiently in advance of a proposed investment which is to be held at a
location not listed on Appendix A, in order that there shall be sufficient time
for the Fund to give the approval required by the preceding paragraph and for
the Custodian to put the appropriate arrangements in place with such
Subcustodian pursuant to such subcustodian agreement.
Although the Fund does not intend to invest in a country before the
foregoing procedures have been completed, in the event that an investment is
made prior to approval, if practical, such security shall be removed to an
approved location or if not practical such security shall be held by such agent
as the Custodian may appoint. In such event, the Custodian shall be liable to
the Fund for the actions of such agent if and only to the extent the Custodian
shall have recovered from such agent for any damages caused the Fund by such
agent and provided that the Custodian shall pursue its rights against such
agent.
In the event that any Subcustodian appointed pursuant to the provisions
of this Section 3 fails to perform any of its obligations under the terms and
conditions of the applicable subcustodian
11
<PAGE> 12
agreement, the Custodian shall use its best efforts to cause such Subcustodian
to perform such obligations. In the event that the Custodian is unable to cause
such Subcustodian to perform fully its obligations thereunder, the Custodian
shall forthwith upon the Fund's request terminate such Subcustodian and, if
necessary or desirable, appoint another subcustodian in accordance with the
provisions of this Section 3. At the election of the Fund, it shall have the
right to enforce, to the extent permitted by the subcustodian agreement and
applicable law, the Custodian's rights against any such Subcustodian for loss or
damage caused the Fund by such Subcustodian.
At the written request of the Fund, the Custodian will terminate any
subcustodian Appointed pursuant to the provisions of this Section 3 in
accordance with the termination provisions under the applicable subcustodian
agreement. The Custodian will not amend any subcustodian agreement or agree to
change or permit any changes thereunder except upon the prior written approval
of the Fund.
In the event the Custodian receives a claim from a Subcustodian under the
indemnification provisions of any subcustodian agreement, the Custodian shall
promptly give written notice to the Fund of such claim. No more than thirty days
after written notice to the Fund of the Custodian's intention to make such
payment, the Fund will reimburse the Custodian the amount of such payment except
in respect of any negligence or misconduct of the Custodian.
4. The Custodian may assist generally in the preparation of reports to
Fund shareholders and others, audits of accounts, and other ministerial matters
of like nature.
5. A. The Custodian shall not be liable for any action taken or omitted
in reliance upon proper instructions believed by it to be genuine or upon any
other written notice, request, direction, instruction, certificate or other
instrument believed by it to be genuine and signed by the proper party or
parties.
The Chairman of the Board of the Fund shall certify to the Custodian the
names, signatures and scope of authority of all persons authorized to give
proper instructions or any other such notice, request, direction, instruction,
certificate or instrument on behalf of the Fund, the names and signatures of the
officers of the Fund, the name and address of the Shareholder Servicing Agent,
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<PAGE> 13
and any resolutions, votes, instructions or directions of the Fund's Board of
Directors or shareholders. Such certificate may be accepted and relied upon by
the Custodian as conclusive evidence of the facts set forth therein and may be
considered in full force and effect until receipt of a similar certificate to
the contrary.
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Agreement.
The Custodian shall be entitled, at the expense of the Fund, (but only to
the extent such expenses are reasonable) to receive and act upon advice of
counsel (who may be counsel for the Fund) on all matters, and the Custodian
shall be without liability for any action reasonably taken or omitted pursuant
to such advice.
B. With respect to the portfolio securities, cash and other property of
the Fund held by a Securities System, the Custodian shall be liable to the Fund
only for any loss or damage to the Fund resulting from use of the Securities
System if caused by any negligence, misfeasance or misconduct of the Custodian
or any of its agents or of any of its or their employees or from any failure of
the Custodian or any such agent to enforce effectively such rights as it may
have against the Securities System.
C. The Custodian shall be liable to the Fund for any loss or damage to
the Fund caused by or resulting from the acts or omissions of any Subcustodian
if such acts or omissions would be deemed to be negligence, gross negligence or
willful misconduct hereunder if such acts or omissions were those of the
Custodian taken or omitted by the Custodian in the country in which the
Subcustodian is operating. The Custodian shall also be liable to the Fund for
its own negligence in transmitting any instructions received by it from the Fund
and for its own negligence in connection with the delivery of any securities or
funds held by it to any Subcustodian.
D. Except as may otherwise be set forth in this Agreement with respect to
particular matters, the Custodian shall be held only to the exercise of
reasonable care and diligence in carrying out the provisions of this Agreement,
provided that the Custodian shall not thereby be required to
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<PAGE> 14
take any action which is in contravention of any applicable law. However,
nothing herein shall exempt the Custodian from liability due to its own
negligence or willful misconduct. The Fund agrees to indemnify and hold harmless
the Custodian and its nominees from all claims and liabilities (including
reasonable counsel fees) incurred or assessed against it or its nominees in
connection with the performance of this Agreement, except such as may arise from
its or its nominee's breach of the relevant standard of conduct set forth in
this Agreement. Without limiting the foregoing indemnification obligation of the
Fund, the Fund agrees to indemnify the Custodian and its nominees against any
liability the Custodian or such nominee may incur by reason of taxes assessed to
the Custodian or such nominee or other costs, liability or expense incurred by
the Custodian or such nominee resulting directly or indirectly from the fact
that portfolio securities or other property of the Fund is registered in the
name of the Custodian or such nominee.
In order that the indemnification provisions contained in this Paragraph
5-C shall apply, however, it is understood that if in any case the Fund may be
asked to indemnify or hold the Custodian harmless, the Fund shall be fully and
promptly advised of all pertinent facts concerning the situation in question,
and it is further understood that the Custodian will use all reasonable care to
identify and notify the Fund promptly concerning any situation which presents or
appears likely to present the probability of such a claim for indemnification
against the Fund. The Fund shall have the option to defend the Custodian against
any claim which may be the subject of this indemnification, and in the event
that the Fund so elects it will so notify the Custodian, and thereupon the Fund
shall take over complete defense of the claim, and the Custodian shall in such
situation initiate no further legal or other expenses for which it shall seek
indemnification under this Paragraph 5-C. The Custodian shall in no case confess
any claim or make any compromise in any case in which the Fund will be asked to
indemnify the Custodian except with the Fund's prior written consent.
It is also understood that the Custodian shall not be liable for any loss
involving any securities, currencies, deposits or other property of the Fund,
whether maintained by it, a
14
<PAGE> 15
Subcustodian, an agent of the Custodian or a Subcustodian, a Securities System,
or a Banking Institution, or a loss arising from a foreign currency transaction
or contract, resulting from a Sovereign Risk. A "Sovereign Risk" shall mean
nationalization, expropriation, devaluation, revaluation, confiscation, seizure,
cancellation, destruction or similar action by any governmental authority, de
facto or de jure; or enactment, promulgation, imposition or enforcement by any
such governmental authority of currency restrictions, exchange controls, taxes,
levies or other charges affecting the Fund's property; or acts of war,
terrorism, insurrection or revolution; or any other similar act or event beyond
the Custodian's control.
E. The Custodian shall be entitled to receive reimbursement from the Fund
on demand, in the manner provided in Section 6, for its cash disbursements,
expenses and charges (including the fees and expenses of any Subcustodian or any
Agent) in connection with this Agreement, but excluding salaries and usual
overhead expenses.
F. The Custodian may at any time or times in its discretion appoint (and
may at any time remove) any other bank or trust company as its agent (an
"Agent") to carry out such of the provisions of this Agreement as the Custodian
may from time to time direct, provided, however, that the appointment of such
Agent (other than an Agent appointed pursuant to the third paragraph of Section
3) shall not relieve the Custodian of any of its responsibilities under this
agreement.
G. Upon request, the Fund shall deliver to the Custodian such proxies,
powers of attorney or other instruments as may be reasonable and necessary or
desirable in connection with the performance by the Custodian or any
Subcustodian of their respective obligations under this Agreement or any
applicable subcustodian agreement.
6. The Fund shall pay the Custodian a custody fee based on such fee
schedule as may from time to time be agreed upon in writing by the Custodian and
the Fund. Such fee, together with all amounts for which the Custodian is to be
reimbursed in accordance with Section 5D, shall be billed to the Fund in such a
manner as to permit payment by a direct cash payment to the Custodian.
7. This Agreement shall continue in full force and effect until
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid, to the other party, such termination to
15
<PAGE> 16
take effect not sooner than seventy five (75) days after the date of such
delivery or mailing. In the event of termination the Custodian shall be entitled
to receive prior to delivery of the securities, funds and other property held by
it all accrued fees and unreimbursed expenses the payment of which is
contemplated by Sections 5D and 6, upon receipt by the Fund of a statement
setting forth such fees and expenses.
In the event of the appointment of a successor custodian, it is agreed
that the funds and securities owned by the Fund and held by the Custodian or any
Subcustodian shall be delivered to the successor custodian, and the Custodian
agrees to cooperate with the Fund in execution of documents and performance of
other actions necessary or desirable in order to substitute the successor
custodian for the Custodian under this Agreement.
8. This Agreement constitutes the entire understanding and agreement of
the parties hereto with respect to the subject matter hereof. No provision of
this Agreement may be amended or terminated except by a statement in writing
signed by the party against which enforcement of the amendment or termination is
sought.
In connection with the operation of this Agreement, the Custodian and the
Fund may agree in writing from time to time on such provisions interpretative of
or in addition to the provisions of this Agreement as may in their joint opinion
be consistent with the general tenor of this Agreement. No interpretative or
additional provisions made as provided in the preceding sentence shall be deemed
to be an amendment of this Agreement.
9. This instrument is executed and delivered in The Commonwealth of
Massachusetts and shall be governed by and construed according to the laws of
said Commonwealth.
10. Notices and other writings delivered or mailed postage prepaid to the
Fund addressed to the Fund in care of Merrill Lynch Asset Management, Inc., 800
Scudders Mill Road, Plainsboro, New Jersey 08536, Mailing address: Post Office
Box 9011, Princeton, New Jersey 08543, Attention: Mr. Gerald M. Richard, Senior
Vice President/Treasurer, or to such other address as the Fund may have
designated to the Custodian in writing, or to the Custodian at 40 Water Street,
Boston, Massachusetts 02109, Attention: Manager, Securities Department, or to
such other address
16
<PAGE> 17
as the Custodian may have designated to the Fund in writing, shall be deemed to
have been properly delivered or given hereunder to the respective addressee.
11. This Agreement shall be binding on and shall inure to the benefit of
the Fund and the Custodian and their respective successors and assigns, provided
that neither party hereto may assign this Agreement or any of its rights or
obligations hereunder without the prior written consent of the other party.
12. This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original. This Agreement shall become effective when
one or more counterparts have been signed and delivered by each of the parties.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed in its name and behalf on the day and year first above written.
BROWN BROTHERS HARRIMAN & CO.
By:
-------------------------
MERCURY ASSET MANAGEMENT
MASTER TRUST
By:
-------------------------
17
<PAGE> 1
EXHIBIT 8(a)
PLACEMENT AGENT AGREEMENT
AGREEMENT made as of the ______ day of ____________ 1998, between MERCURY
ASSET MANAGEMENT MASTER TRUST, a Delaware business trust (the "Trust"), on
behalf of itself and each of its series listed on Exhibit A (each, a
"Portfolio") and MERCURY FUNDS DISTRIBUTOR, a division of PRINCETON FUNDS
DISTRIBUTOR, INC., a Delaware corporation (the "Placement Agent").
W I T N E S S E T H :
WHEREAS, the Trust has filed a registration statement (the "Registration
Statement") pursuant to Section 8(b) of the Investment Company Act of 1940, as
amended (the "Investment Company Act"); and
WHEREAS, the Trustees (the "Trustees") are authorized to establish
separate series relating to separate portfolios of securities, each of which may
offer beneficial interests in its specific series of the Trust; and
WHEREAS, the Trustees have established and designated the Portfolios as
series of the Trust, and authorized them to offer shares of beneficial interests
(the "Shares"); and
WHEREAS, the Trust and the Placement Agent wish to enter into an
agreement with each other with respect to the distribution of Shares (the
"Agreement").
<PAGE> 2
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Placement Agent; Private Offering.
(a) The Trust hereby appoints the Placement Agent as placement agent
in connection with the distribution of the Shares.
(b) The Placement Agent understands that: (i) The Shares are not being
registered under the Securities Act of 1933, as amended (the "Securities Act");
(ii) Such Shares are to be issued solely in private placement transactions that
do not involve any "public offering" within the meaning of Section 4(2) of the
Securities Act; (iii) Investments in the Portfolios may be made only by a
limited number of institutional investors, including investment companies,
common or commingled trust funds, group trusts and certain other "accredited
investors" within the meaning of Regulation D under the Securities Act; (iv) The
Registration Statement is not intended to constitute an offer to sell, or the
solicitation of an offer to buy, the Shares.
(c) In carrying out its duties hereunder, the Placement Agent agrees
that it will act in a manner consistent with the foregoing and, unless otherwise
instructed by the Trust in writing, will not take any actions that would cause
the Trust to make a "public offering" within the meaning of Section 4(2) of the
Securities Act.
Section 2. Exclusive Nature of Duties. The Placement Agent shall be the
exclusive representative of the Portfolios to act as placement agent in respect
of the distribution of the Shares, except that:
(a) The Trust may, with respect to any Portfolio, upon written notice to
the Placement Agent, from time to time designate other placement agents with
respect to areas other than the United States as to which the Placement Agent
may have expressly waived in writing its right to
2
<PAGE> 3
act as such. If such designation is deemed exclusive, the right of the Placement
Agent under this Agreement in respect of such areas so designated shall
terminate, but this Agreement shall remain otherwise in full effect until
terminated in accordance with the other provisions hereof.
(b) The exclusive right granted to the Placement Agent hereunder shall
not apply to Shares issued in connection with the merger or consolidation of any
other investment company or personal holding company with a Portfolio or the
acquisition by purchase or otherwise of all (or substantially all) the assets or
the outstanding shares of any such company by a Portfolio.
(c) Such exclusive right also shall not apply to Shares issued by a
Portfolio pursuant to reinvestment of dividends or capital gains distributions.
(d) Such exclusive right also shall not apply to Shares issued by a
Portfolio pursuant to any conversion, exchange or reinstatement privilege
afforded redeeming shareholders or to any other Shares as shall be agreed
between the Trust and the Placement Agent from time to time.
Section 3. Duties of the Trust.
(a) The Trust shall furnish to the Placement Agent copies of all
information, financial statements and other papers that the Placement Agent may
reasonably request for use in connection with its duties hereunder, and this
shall include, upon request by the Placement Agent, one certified copy of all
financial statements prepared for the Trust by independent public accountants.
(b) Consistent with Section 1 hereof, the Trust shall use its best
efforts to qualify and maintain the qualification of the Shares for sale under
the securities laws of such jurisdictions as the Placement Agent and the Trust
may approve. Any such qualification may be withheld, terminated or withdrawn by
the Trust at any time in its discretion. The expense of qualification
3
<PAGE> 4
and maintenance of qualification shall be borne by the Trust. The Placement
Agent shall furnish such information and other material relating to its affairs
and activities as may be required by the Trust in connection with such
qualification.
(c) The Trust will furnish, in reasonable quantities upon request by the
Placement Agent, copies of annual and interim reports of the Portfolios.
Section 4. Duties of the Placement Agent.
(a) The Placement Agent shall devote reasonable time and effort to its
duties hereunder. The services of the Placement Agent to the Trust hereunder are
not to be deemed exclusive and nothing herein contained shall prevent the
Placement Agent from entering into like arrangements with other investment
companies so long as the performance of its obligations hereunder is not
impaired thereby.
(b) In performing its duties hereunder, the Placement Agent shall use its
best efforts in all respects duly to conform with the requirements of all
applicable laws relating to the sale of securities. Neither the Placement Agent
nor any other person is authorized by the Trust to give any information or to
make any representations, other than those contained in the Trust's registration
statement or any sales literature specifically approved by the Trust.
Section 5. Payment of Expenses.
(a) The Trust shall bear all costs and expenses of the Portfolios,
including fees and disbursements of its counsel and auditors, in connection with
the preparation and filing of any required registration statements under the
Investment Company Act, and all amendments and supplements thereto, and
preparing and mailing annual and interim reports and proxy materials to
4
<PAGE> 5
shareholders (including but not limited to the expense of setting in type any
such registration statements, or interim reports or proxy materials).
(b) The Trust shall bear any cost and expenses of qualification of the
Shares for sale pursuant to this Agreement and, if necessary or advisable in
connection therewith, of qualifying the Trust as a broker or dealer in such
states of the United States or other jurisdictions as shall be selected by the
Trust and the Placement Agent pursuant to Section 3 hereof and the cost and
expenses payable to each such state for continuing qualification therein until
the Trust decides to discontinue such qualification pursuant to Section 3
hereof.
Section 6. Indemnification.
(a) Each Portfolio, severally and not jointly, shall indemnify and hold
harmless the Placement Agent and each person, if any, who controls the Placement
Agent against any loss, liability, claim, damage or expense (including the
reasonable cost of investigating or defending any alleged loss, liability,
claim, damage or expense and reasonable counsel fees incurred in connection
therewith), as incurred, arising by reason of any person acquiring any Shares of
the respective Portfolio, which may be based upon the Securities Act, or on any
other statute or at common law, on the ground that any registration statement or
other offering materials, as from time to time amended and supplemented, or an
annual or interim report to the shareholders of such Portfolio, includes an
untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary in order to make the statements therein not
misleading, unless such statement or omission was made in reliance upon, and in
conformity with, information furnished to the Trust in connection therewith by
or on behalf of the Placement Agent; provided, however, that in no case (i) is
the indemnity of a Portfolio in favor of the
5
<PAGE> 6
Placement Agent and any such controlling persons to be deemed to protect such
Placement Agent or any such controlling persons thereof against any liability to
such Portfolio or its shareholders to which the Placement Agent or any such
controlling persons would otherwise be subject by reason of willful misfeasance,
bad faith or gross negligence in the performance of their duties or by reason of
the reckless disregard of their obligations and duties under this Agreement; or
(ii) is a Portfolio to be liable under its indemnity agreement contained in this
paragraph with respect to any claim made against the Placement Agent or any such
controlling persons, unless the Placement Agent or such controlling persons, as
the case may be, shall have notified such Portfolio in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon the Placement
Agent or such controlling persons (or after the Placement Agent or such
controlling persons shall have received notice of such service on any designated
agent), but failure to notify such Portfolio of any such claim shall not relieve
it from any liability that it may have to the person against whom such action is
brought otherwise than on account of its indemnity agreement contained in this
paragraph. Each Portfolio will be entitled to participate at its own expense in
the defense or, if it so elects, to assume the defense of any suit brought to
enforce any such liability, but if a Portfolio elects to assume the defense,
such defense shall be conducted by counsel chosen by it and satisfactory to the
Placement Agent or such controlling person or persons, defendant or defendants
in the suit. In the event a Portfolio elects to assume the defense of any such
suit and retain such counsel, the Placement Agent or such controlling person or
persons, defendant or defendants in the suit shall bear the fees and expenses,
as incurred, of any additional counsel retained by them, but in case a Portfolio
does not elect to assume the defense of any such suit,
6
<PAGE> 7
such Portfolio will reimburse the Placement Agent or such controlling person or
persons, defendant or defendants in the suit, for the reasonable fees and
expenses, as incurred, of any counsel retained by them. Each Portfolio shall
promptly notify the Placement Agent of the commencement of any litigation or
proceedings against it or any of the Trust's officers or Directors in connection
with the issuance or sale of any of the Shares of such Portfolio.
(b) The Placement Agent shall indemnify and hold harmless the Trust, each
Portfolio and each of the Trust's Trustees and officers and each person, if any,
who controls the Trust or a Portfolio against any loss, liability, claim, damage
or expense, as incurred, described in the foregoing indemnity contained in
subsection (a) of this Section, but only with respect to statements or omissions
made in reliance upon, and in conformity with, information furnished to the
Trust or such Portfolio in writing by or on behalf of the Placement Agent for
use in connection with its registration statement or related prospectus and
statement of additional information, as from time to time amended, or the annual
or interim reports to shareholders. In case any action shall be brought against
the Trust or any person so indemnified, in respect of which indemnity may be
sought against the Placement Agent, the Placement Agent shall have the rights
and duties given to the Trust, and the Trust and each person so indemnified
shall have the rights and duties given to the Placement Agent by the provisions
of subsection (a) of this Section 6.
Section 7. Duration and Termination of this Agreement. This Agreement
shall become effective as of the date first above written and shall remain in
force for two years thereafter and thereafter, but only for so long as such
continuance is specifically approved at least annually by (i) the Trustees or by
the vote of a majority of the outstanding voting securities of the Trust and
7
<PAGE> 8
(ii) by the vote of a majority of those Trustees who are not parties to this
Agreement or interested persons of any such party cast in person at a meeting
called for the purpose of voting on such approval.
This Agreement may be terminated at any time, without the payment of any
penalty, by the Trustees or by vote of a majority of the outstanding voting
securities of the Trust, or by the Placement Agent, on sixty days' written
notice to the other party. This Agreement shall automatically terminate in the
event of its assignment.
The terms "vote of a majority of the outstanding voting securities",
"assignment", "affiliated person" and "interested person", when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act.
Section 8. Amendments of this Agreement. This Agreement may be amended by
the parties only if such amendment is specifically approved by (i) the Trustees
or by the vote of a majority of outstanding voting securities of the Trust and
(ii) by the vote of a majority of those Trustees who are not parties to this
Agreement or interested persons of any such party cast in person at a meeting
called for the purpose of voting on such approval.
Section 9. Governing Law. The provisions of this Agreement shall be
construed and interpreted in accordance with the laws of the State of New York
as at the time in effect and the applicable provisions of the Investment Company
Act. To the extent that the applicable law of the State of New York, or any of
the provisions herein, conflict with the applicable provisions of the Investment
Company Act, the latter shall control.
8
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
MERCURY ASSET MANAGEMENT MASTER TRUST
By
-----------------------------------
Title:
MERCURY FUNDS DISTRIBUTOR, a division of
PRINCETON FUNDS DISTRIBUTOR, INC.
By
-----------------------------------
Title:
9
<PAGE> 10
Exhibit A
Individual Series of MERCURY ASSET MANAGEMENT MASTER TRUST
MERCURY MASTER CORE U.S. GROWTH PORTFOLIO
MERCURY MASTER EMERGING ECONOMIES PORTFOLIO
MERCURY MASTER GOLD AND MINING PORTFOLIO
MERCURY MASTER JAPAN CAPITAL PORTFOLIO
MERCURY MASTER INTERNATIONAL PORTFOLIO
MERCURY MASTER PAN-EUROPEAN GROWTH PORTFOLIO
10
<PAGE> 1
EXHIBIT 8(b)
LICENSE AGREEMENT RELATING TO USE OF NAME
AGREEMENT made as of ___________ by and between MERCURY ASSET MANAGEMENT
INTERNATIONAL LTD., a corporation organized under the laws of England and Wales
("Mercury International") and MERCURY ASSET MANAGEMENT GROUP LTD., a corporation
organized under the laws of England and Wales ("Mercury Group") (Mercury
International and Mercury Group are hereinafter together referred to as
"Mercury") and MERCURY FUNDS DISTRIBUTOR (the "division") a division of
PRINCETON FUNDS DISTRIBUTOR, INC., a Delaware corporation ("MFD").
W I T N E S S E T H :
WHEREAS, Mercury International was originally incorporated under the laws
of England and Wales on March 12, 1981 under the name "Eighty-Ninth Shelf
Trading Company Limited", changed on May 20, 1981 to "Aetna Warburg Investment
Management Limited," which changed on October 1, 1981 to "Warburg Investment
Management International Ltd." and on July 27, 1995 it changed to "Mercury Asset
Management International Ltd." and Mercury Group was incorporated under the laws
of England and Wales on March 12, 1981 under the corporate name "Warburg
Investment Management Ltd." which was changed on April 14, 1986 to "Mercury
Warburg Investment Management Ltd.," changed on October 1, 1986 to "Mercury
Asset Management Holdings Ltd." on March 3, 1987 to Mercury Asset Management
plc" and was reregistered as a private limited company under the name "Mercury
Asset Management Group Ltd." on March 9, 1998, and have used such names at all
times thereafter;
WHEREAS, Princeton Funds Distributor, Inc. was originally incorporated
under the laws of the State of Delaware on February 28, 1969 and changed its
name to Princeton Funds Distributor, Inc. on July 21, 1998; and
<PAGE> 2
WHEREAS, MFD has requested Mercury to give its consent to the use of the
word "Mercury" or the words "Mercury Asset Management" in the name of the
division;
NOW, THEREFORE, in consideration of the premises and of the covenants
hereinafter contained, Mercury and MFD hereby agree as follows:
1. Mercury hereby grants MFD a non-exclusive license to use the word
"Mercury" or the words "Mercury Asset Management" in the name of the division;
2. The non-exclusive license hereinabove referred to has been given
and is given by Mercury on the condition that it may at any time, in its sole
and absolute discretion, withdraw the non-exclusive license to the use of the
word "Mercury" or the words "Mercury Asset Management" in the names of the
division; and, as soon as practicable after receipt by MFD of written notice of
the withdrawal of such non-exclusive license, and in no event later than ninety
days thereafter, MFD will change the name of the division so that such name will
not thereafter include the word "Mercury," the words "Mercury Asset Management"
or any variation thereof.
3. Mercury reserves and shall have the right to grant to any other
company, including without limitation any other investment company, the right to
use the word "Mercury," the words "Mercury Asset Management" or variations
thereof in its name and no consent or permission of MFD shall be necessary; but,
if required by an applicable law of any state, MFD will forthwith grant all
requisite consents.
4. MFD will not grant to any other company the right to use a name
similar to that of MFD or the Funds or Mercury without the written consent of
Mercury.
5. Regardless of whether MFD should hereafter change the name of the
division and eliminate the word "Mercury," the words "Mercury Asset Management"
or any variation thereof from such name, MFD hereby grants to Mercury the right
to cause the incorporation of other
2
<PAGE> 3
corporations or the organization of voluntary associations which may have names
similar to that of MFD or to that to which MFD may change its name and own all
or any portion of the shares of such other corporations or associations and to
enter into contractual relationships with such other corporations or
associations, subject to any requisite approval of a majority of each Fund's
shareholders and the Securities and Exchange Commission and subject to the
payment of a reasonable amount to be determined at the time of use, and MFD
agrees to give and execute such formal consents or agreements as may be
necessary in connection therewith.
6. This Agreement may be amended at any time by a writing signed by
the parties hereto. This Agreement constitutes the entire agreement of the
parties with respect to the subject matter hereof and supersedes all prior
agreements, arrangements and understandings, whether written or oral, with
respect thereto.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written. This Agreement may be executed by the
parties hereto on any number of counterparts, all of which together shall
constitute one and the same instrument.
MERCURY ASSET MANAGEMENT INTERNATIONAL
LTD.
By:
-----------------------------------
Title:
MERCURY ASSET MANAGEMENT GROUP LTD.
By:
-----------------------------------
Title:
MERCURY FUNDS DISTRIBUTOR, a division of
PRINCETON FUNDS DISTRIBUTOR, INC.
By:
-----------------------------------
Title:
4
<PAGE> 1
EXHIBIT 8(c)
LICENSE AGREEMENT RELATING TO USE OF NAME
AGREEMENT made as of ____________ by and between MERCURY ASSET MANAGEMENT
INTERNATIONAL LTD., a corporation organized under the laws of England and Wales
("Mercury International") and MERCURY ASSET MANAGEMENT GROUP LTD., a corporation
organized under the laws of England and Wales ("Mercury Group") (Mercury
International and Mercury Group are hereinafter together referred to as
"Mercury") and MERCURY ASSET MANAGEMENT MASTER TRUST, a Delaware business trust
(the "Trust"), on its own behalf and on behalf of its currently existing series,
and on behalf of each series of the Trust that may be formed in the future (the
"Portfolios").
W I T N E S S E T H :
WHEREAS, Mercury International was originally incorporated under the laws
of England and Wales on March 12, 1981 under the name "Eighty-Ninth Shelf
Trading Company Limited", changed on May 20, 1981 to "Aetna Warburg Investment
Management Limited," which changed on October 1, 1981 to "Warburg Investment
Management International Ltd." and on July 27, 1995 it changed to "Mercury Asset
Management International Ltd." and Mercury Group was incorporated under the laws
of England and Wales on March 12, 1981 under the corporate name "Warburg
Investment Management Ltd." which was changed on April 14, 1986 to "Mercury
Warburg Investment Management Ltd.," changed on October 1, 1986 to "Mercury
Asset Management Holdings Ltd." on March 3, 1987 to Mercury Asset Management
plc" and was reregistered as a private limited company under the name "Mercury
Asset Management Group Ltd." on March 9, 1998, and have used such names at all
times thereafter;
WHEREAS, the Trust was organized under the laws of the State of Delaware
on April 23, 1998; and
<PAGE> 2
WHEREAS, the Trust desires to qualify to do business under the laws of
the State of New York and has requested Mercury to give its consent to the use
of the word "Mercury" or the words "Mercury Asset Management" in its name and in
the name of each Portfolio;
NOW, THEREFORE, in consideration of the premises and of the covenants
hereinafter contained, Mercury and the Trust hereby agree as follows:
1. Mercury hereby grants the Trust a non-exclusive license to use the
word "Mercury" or the words "Mercury Asset Management" in its name and in the
name of each Portfolio.
2. Mercury hereby consents to the qualification of the Trust to do
business under the laws of the State of New York with the word "Mercury" or the
words "Mercury Asset Management" in its name and in the name of each Portfolio
and agrees to execute such formal consents as may be necessary in connection
with such filing.
3. The non-exclusive license hereinabove referred to has been given
and is given by Mercury on the condition that it may at any time, in its sole
and absolute discretion, withdraw the non-exclusive license to the use of the
word "Mercury" or the words "Mercury Asset Management" in the names of the Trust
and of the Portfolios; and, as soon as practicable after receipt by the Trust of
written notice of the withdrawal of such non-exclusive license, and in no event
later than ninety days thereafter, the Trust will change its name and the name
of the Portfolios so that such names will not thereafter include the word
"Mercury," the words "Mercury Asset Management" or any variation thereof.
4. Mercury reserves and shall have the right to grant to any other
company, including without limitation any other investment company, the right to
use the word "Mercury," the words "Mercury Asset Management" or variations
thereof in its name and no consent or permission of the
2
<PAGE> 3
Trust shall be necessary; but, if required by an applicable law of any state,
the Trust will forthwith grant all requisite consents.
5. The Trust will not grant to any other company the right to use a
name similar to that of the Trust or the Portfolios or Mercury without the
written consent of Mercury.
6. Regardless of whether the Trust and/or the Portfolios should
hereafter change their names and eliminate the word "Mercury," the words
"Mercury Asset Management" or any variation thereof from such names, the Trust
hereby grants to Mercury the right to cause the incorporation of other
corporations or the organization of voluntary associations which may have names
similar to that of the Trust and/or the Portfolios or to that to which the Trust
and/or the Portfolios may change their names and own all or any portion of the
shares of such other corporations or associations and to enter into contractual
relationships with such other corporations or associations, subject to any
requisite approval of a majority of each Portfolio's shareholders and the
Securities and Exchange Commission and subject to the payment of a reasonable
amount to be determined at the time of use, and the Trust agrees to give and
execute such formal consents or agreements as may be necessary in connection
therewith.
7. This Agreement may be amended at any time by a writing signed by
the parties hereto. This Agreement constitutes the entire agreement of the
parties with respect to the subject matter hereof and supersedes all prior
agreements, arrangements and understandings, whether written or oral, with
respect thereto.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written. This Agreement may be executed by the
parties hereto on any number of counterparts, all of which together shall
constitute one and the same instrument.
MERCURY ASSET MANAGEMENT INTERNATIONAL
LTD.
By:
-----------------------------------
Title:
MERCURY ASSET MANAGEMENT GROUP LTD.
By:
-----------------------------------
Title:
MERCURY ASSET MANAGEMENT MASTER TRUST
By:
-----------------------------------
Title:
4
<PAGE> 1
EXHIBIT 10
INDEPENDENT AUDITORS' CONSENT
Mercury Asset Management Master Trust:
We consent to the use in this Registration Statement of our report dated
October 9, 1998 appearing in Part B of such Registration Statement.
/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Princeton, New Jersey
October 9, 1998
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EXHIBIT 12
CERTIFICATE OF SOLE SHAREHOLDER
Mercury Asset Management Funds, Inc., the holder of the beneficial
interests in the amounts indicated below, of Mercury Asset Management Master
Trust (the "Trust"), does hereby confirm to the Trust its representation that it
purchased such shares for investment purposes, with no present intention of
redeeming or reselling any portion thereof.
Mercury Asset Management Funds, Inc.
By: /s/ Jeffrey M. Peek
-----------------------------------
Jeffrey M. Peek, President
Dated: October 8, 1998
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<S> <C>
Mercury International Portfolio of Mercury Asset Management Master Trust: $50,000
Mercury Pan-European Growth Portfolio of Mercury Asset Management Master Trust: $50,000
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Total: $100,000
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