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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 21, 1998
SECURITIES ACT FILE NO. 333-
INVESTMENT COMPANY ACT FILE NO. 811-08797
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO.
POST-EFFECTIVE AMENDMENT NO. [ ]
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 5 [X]
(Check appropriate box or boxes)
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MERCURY GOLD AND MINING FUND
of Mercury Asset Management Funds, Inc.
(Exact name of Registrant as specified in charter)
800 SCUDDERS MILL ROAD, PLAINSBORO, NEW JERSEY 08536
(Address of Principal Executive Offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (888) 763-2260
JEFFREY M. PEEK
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
(Name and Address of Agent for Service)
Copies to:
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Counsel for the Fund:
JOEL H. GOLDBERG, Esq. and
Swidler Berlin Shereff Friedman, LLP ROBERT E. PUTNEY, III, Esq.
919 Third Avenue P.O. Box 9011
New York, New York 10022 Princeton, New Jersey 08543-9011
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APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after the
effective date of the Registration Statement.
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It is proposed that this filing will become effective
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Mercury Asset Management Master Trust has also executed this Registration
Statement.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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MERCURY GOLD AND MINING FUND
OF MERCURY ASSET MANAGEMENT FUNDS, INC.
[ARTWORK TO COME]
A SUBSCRIPTION PERIOD FOR SHARES OF THE FUND
WILL END ON , , UNLESS EXTENDED.
THIS PROSPECTUS CONTAINS INFORMATION YOU SHOULD
KNOW BEFORE INVESTING, INCLUDING INFORMATION
ABOUT RISKS. PLEASE READ IT BEFORE YOU INVEST
AND KEEP IT FOR FUTURE REFERENCE.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED THESE SECURITIES OR
PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PROSPECTUS - , 1998
[MERCURY ASSET MANAGEMENT LOGO]
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Table of Contents
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PAGE
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[FUND FACTS LOGO]
FUND FACTS
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About the Mercury Gold and Mining Fund...................... 2
Fees and Expenses........................................... 5
[ABOUT THE DETAILS LOGO]
ABOUT THE DETAILS
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How the Fund Invests........................................ 7
Investment Risks............................................ 9
Adviser's Historical Performance Data....................... 14
[ACCOUNT CHOICES LOGO]
ACCOUNT CHOICES
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Pricing of Shares........................................... 20
How to Buy, Sell, Transfer and Exchange Shares.............. 25
How Shares are Priced....................................... 29
Fee-Based Programs.......................................... 30
Dividends, Capital Gains and Taxes.......................... 30
[THE MANAGEMENT TEAM LOGO]
THE MANAGEMENT TEAM
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Master/Feeder Structure..................................... 32
Management of the Fund...................................... 32
[TO LEARN MORE LOGO]
TO LEARN MORE
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Shareholder Reports....................................Back Cover
Statement of Additional Information....................Back Cover
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MERCURY GOLD AND MINING FUND
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[FUND FACTS LOGO]
Fund Facts
IN AN EFFORT TO HELP YOU BETTER UNDERSTAND THE MANY CONCEPTS INVOLVED IN MAKING
AN INVESTMENT DECISION, WE HAVE DEFINED THE HIGHLIGHTED TERMS IN THIS PROSPECTUS
IN THE SIDEBAR.
COMMON STOCK -- units of ownership of a corporation.
PREFERRED STOCK -- class of capital stock that often pays dividends at a
specified rate and has preference over common stock in dividend payments and
liquidation of assets.
CONVERTIBLE SECURITIES -- corporate securities (usually preferred stock or
bonds) that are exchangeable for a fixed number of other securities (usually
common stock) at a set price or formula.
ASSET-BASED SECURITIES -- debt, preferred or convertible securities, the terms
of which are related to the market price of gold bullion or some other natural
resource asset.
ABOUT THE MERCURY GOLD AND MINING FUND
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WHAT ARE THE FUND'S GOALS?
The Fund's main goal is long-term capital growth through investments primarily
in a diversified portfolio of equity securities of gold mining companies, and to
a lesser extent of companies engaged in other mining activities, located
throughout the world. The Fund may also invest in asset-based securities that
relate to the market price of gold bullion and directly in gold bullion. In
other words, the Fund tries to choose investments in gold and other
mining-related securities and gold bullion that will increase in value. Current
income from dividends and interest will not be an important consideration in
selecting portfolio securities. We cannot guarantee that the Fund will achieve
its goals.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests primarily in stocks of gold mining companies, and to a lesser
extent of companies engaged in other mining activities, that its management
believes are undervalued or have good prospects for earnings growth. For
simplicity, this Prospectus uses the term "mining" to include exploring, mining,
refining, processing, fabricating, distributing, dealing in or owning a
particular metal or mineral. A company's stock is considered to be undervalued
by the Fund's management when its price is less than what the Fund believes it
is worth. 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. The Fund's evaluation of the type, quantity and
quality of a company's ore reserves is an important factor in evaluating a
particular company's value and earnings prospects. The Fund may invest up to 10%
of its assets directly in gold bullion. The Fund allocates investments to
companies engaged in mining activities other than gold mining when the
management of the Fund believes, based on an evaluation of global economic
conditions and the price of gold, that they present better prospects for growth
than investments in gold mining companies.
The Fund purchases COMMON STOCK, PREFERRED STOCK and CONVERTIBLE SECURITIES and
in ASSET-BASED SECURITIES and other assets. Normally, the Fund expects to invest
at least 80% of its assets in equity securities of gold mining companies, equity
securities of companies engaged in other mining activities, asset-based
securities and in gold bullion. The Fund expects that the majority of its
investments will be in gold mining companies. The Fund may invest in securities
issued by companies of all sizes, but will focus mainly on medium and large
companies. Companies will be located throughout the world in countries with
developed capital markets and countries with emerging capital markets.
2 MERCURY GOLD AND MINING FUND
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[FUND FACTS LOGO]
Fund Facts
The Fund invests all of its assets in a Portfolio of Mercury Asset Management
Master Trust that has the same goals as the Fund. All investments will be made
at the level of the Portfolio. This structure is sometimes called a "master/
feeder" structure. The Fund's investment results will correspond directly to the
investment results of the underlying Portfolio it invests in. For simplicity,
this Prospectus uses the term "Fund" to include the underlying Portfolio the
Fund invests in.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
As with any equity fund, the value of the Fund's investments, and therefore the
value of your Fund's shares, may go up or down. These value changes in the
Fund's investments may occur because of changes in a particular stock market or
commodity market generally, as well as the gold market in particular. Unlike
more broadly diversified mutual funds the Fund will invest mainly in securities
of gold mining companies, and to a lesser extent in securities of companies
engaged in other mining activities. This concentration in gold and other mining
securities will make the Fund more vulnerable to the price fluctuations of
metals and minerals generally, and of gold in particular. Historically, the
prices of gold and gold mining securities have been more volatile than prices of
equity securities generally. In addition, gold bullion does not generate income,
and offers only the potential for capital appreciation or depreciation. If the
value of the Fund's investments goes down, you may lose money.
In addition, because the Fund will invest a large portion of its assets in non-
U.S. securities, the Fund will be subject to additional risks. For example, the
Fund's securities may go up or down in value depending on foreign exchange
rates, political and economic developments and U.S. and foreign laws relating to
foreign investment. Non-U.S. securities may also be less liquid, more volatile
and harder to value than U.S. securities. These risks are heightened when the
issuer of the securities is in an emerging capital market.
MERCURY GOLD AND MINING FUND 3
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[FUND FACTS LOGO]
Fund Facts
WHO SHOULD INVEST?
The Fund may be an appropriate investment for you if you:
- Are investing with long-term goals in mind and are not looking for
current income.
- Are willing to accept the risk that your investment may fluctuate
over the short term in exchange for the potential of higher long-
term returns.
- Want to diversify your portfolio with an investment that is likely
to change in value independent of trends in the stock market
generally.
- Can tolerate the increased price volatility and the increased risk
associated with investments concentrated in one industry and
investments in non-U.S. securities.
- Are prepared to receive taxable short-term capital gains.
4 MERCURY GOLD AND MINING FUND
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[FUND FACTS LOGO]
Fund Facts
UNDERSTANDING EXPENSES
Fund investors pay various expenses, either directly or indirectly. Listed below
are some of the main types of expenses, which all mutual funds may charge:
EXPENSES PAID DIRECTLY BY THE SHAREHOLDER:
SHAREHOLDER FEES -- fees paid directly from your investment. These include sales
charges and redemption fees, which you may pay when you buy or sell shares of
the Fund.
EXPENSES PAID INDIRECTLY BY THE SHAREHOLDER (these costs are deducted from the
Fund's total assets):
ANNUAL FUND OPERATING EXPENSES -- expenses that cover the costs of operating the
Fund.
MANAGEMENT FEE -- a fee paid to the investment adviser for managing the Fund.
DISTRIBUTION FEES -- fees used to support the Fund's marketing and distribution
efforts, such as advertising and promotion.
ACCOUNT MAINTENANCE FEES -- fees used to compensate dealers for account
maintenance activities.
FEES AND EXPENSES
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The Fund offers four different classes of shares. Although your money will be
invested the same way no matter which class of shares you buy, there are
differences among the fees and expenses associated with each class. Not everyone
is eligible to buy every class. After determining which classes you are eligible
to buy, decide which class best suits your needs. Your financial consultant can
help you with this decision.
THIS TABLE SHOWS THE DIFFERENT FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND
HOLD THE DIFFERENT CLASSES OF SHARES OF THE FUND. FUTURE EXPENSES MAY BE GREATER
OR LESS THAN THOSE INDICATED BELOW.
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SHAREHOLDER FEES: CLASS I CLASS A CLASS B(b) CLASS C
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MAXIMUM SALES CHARGE (LOAD) IMPOSED ON PURCHASES (AS
A PERCENTAGE OF OFFERING PRICE) 5.25%(c) 5.25%(c) NONE NONE
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MAXIMUM DEFERRED SALES CHARGE (LOAD) (AS A PERCENTAGE
OF ORIGINAL PURCHASE PRICE OR REDEMPTION PROCEEDS,
WHICHEVER IS LOWER) NONE(d) NONE(d) 4.00%(c) 1.00%(c)
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MAXIMUM SALES CHARGE (LOAD) IMPOSED ON DIVIDEND
REINVESTMENTS NONE NONE NONE NONE
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REDEMPTION FEE NONE NONE NONE NONE
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EXCHANGE FEE NONE NONE NONE NONE
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MAXIMUM ACCOUNT FEE NONE NONE NONE NONE
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ANNUAL FUND OPERATING EXPENSES(a):
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MANAGEMENT FEE(e) 0.75% 0.75% 0.75% 0.75%
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DISTRIBUTION AND/OR ACCOUNT MAINTENANCE (12b-1)
FEES(f) NONE 0.25% 1.00% 1.00%
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OTHER EXPENSES (INCLUDING TRANSFER AGENCY FEES)(g) 1.81% 1.81% 1.81% 1.81%
ADMINISTRATIVE FEES(h) 0.25% 0.25% 0.25% 0.25%
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TOTAL OTHER EXPENSES 2.06% 2.06% 2.06% 2.06%
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TOTAL ANNUAL FUND OPERATING EXPENSES(i) 2.81% 3.06% 3.81% 3.81%
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(a) The fees and expenses include the expenses of both the Fund and the
Portfolio it invests in.
(b) Class B shares automatically convert to Class A shares about eight years
after you buy them and will no longer be subject to distribution fees.
(c) Some investors may qualify for reductions in the sales charge (load).
(d) You may pay a deferred sales charge if you purchase $1 million or more and
you redeem within one year.
(e) Paid by the Portfolio. The investment adviser pays the sub-adviser out of
this fee. The investment adviser or its affiliate provides accounting
services to the Portfolio at its cost.
(f) If you hold Class B or C shares for a long time, it may cost you more in
distribution (12b-1) fees than the maximum sales charge that you would have
paid if you had bought one of the other classes. Class B and C shares pay a
Distribution Fee of 0.75% and an Account Maintenance Fee of 0.25%. Class A
shares pay only an Account Maintenance Fee of 0.25%.
(g) Based on estimated amounts for the current fiscal year. The Transfer Agent
is an affiliate of the investment adviser. The Fund pays the Transfer Agent
a fee for each shareholder account and reimburses it for out-of-pocket
expenses. The fee ranges from $11.00 to $23.00 per account (depending on the
level of services required), but is set at 0.10% for certain accounts that
participate in certain fee-based programs.
(h) Paid by the Fund. The administrator provides accounting services to the Fund
at its cost.
(i) In addition, certain securities dealers may charge a fee to process a
purchase or sale of shares.
MERCURY GOLD AND MINING FUND 5
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[FUND FACTS LOGO]
Fund Facts
EXAMPLE
These examples are intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds.
These examples assume that you invest $10,000 in the Fund for the time periods
indicated, that your investment has a 5% return each year, that you pay the
sales charges, if any, that apply to the particular class and that the Fund's
operating expenses remain the same. This assumption is not meant to indicate you
will receive a 5% annual rate of return. Your annual return may be more or less
than the 5% used in these examples. Although your actual costs may be higher or
lower, based on these assumptions, your costs would be:
Expenses if you did redeem your shares:
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CLASS I CLASS A CLASS B CLASS C
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ONE YEAR $ 794 $ 818 $ 783 $ 483
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THREE YEARS $1,350 $1,420 $1,464 $1,164
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Expenses if you did not redeem your shares:
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CLASS I CLASS A CLASS B CLASS C
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ONE YEAR $ 794 $ 818 $ 383 $ 383
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THREE YEARS $1,350 $1,420 $1,164 $1,164
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6 MERCURY GOLD AND MINING FUND
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[ABOUT THE DETAILS LOGO]
About the Details
ABOUT THE PORTFOLIO MANAGEMENT TEAM -- The Fund is managed by members of a team
of 7 investment professionals who participate in the team's research process and
stock selection. The senior investment professionals in this group include David
Baker, Graham Birch, Geoff Campbell, and Trevor Steel. Graham Birch is primarily
responsible for the day-to-day management of the Fund.
ABOUT THE INVESTMENT ADVISER -- Mercury Asset Management International Ltd. is
the investment adviser.
HOW THE FUND INVESTS
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The Fund's main goal is long-term capital growth through investments primarily
in a diversified portfolio of equity securities of gold mining companies, and to
a lesser extent of companies engaged in other mining activities, located
throughout the world. In selecting securities, the Fund emphasizes those
securities that the Fund's management believes to be undervalued or have good
prospects for earnings growth. The Fund may also invest in asset-based
securities and up to 10% of its assets directly in gold bullion.
During normal market conditions, the Fund expects to invest at least 80% of its
total assets in equity securities of gold mining companies, asset-based
securities and gold bullion, and the remainder of its assets in equity
securities of companies engaged in other mining activities.
The Fund will invest in equity securities of gold mining companies, and to a
lesser extent of companies engaged in other mining activities, located
throughout the world. The Fund will invest in companies engaged in non-gold
mining activities when the management of the Fund believes, based on an
evaluation of global economic conditions and the price of gold, that they
present better prospects for growth than investments in gold mining companies.
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 the Fund's management believes a share of the company is worth.
Fund management feels a company's worth can be assessed by several factors, such
as:
- financial resources
- value of assets (including the type, quantity and quality of a
company's ore reserves, and mineral exploration prospects)
- sales and earnings growth
- product development
- quality of management
- overall business prospects
MERCURY GOLD AND MINING FUND 7
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[ABOUT THE DETAILS LOGO]
About the Details
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. Current
income from dividends and interest will not be an important consideration in
selecting portfolio securities.
The Fund will invest in securities of companies located throughout the world and
will invest a substantial amount of its assets in securities of companies
located in the Republic of South Africa. The Fund may invest without limit in
securities of companies located in countries with emerging capital markets
including the Republic of South Africa, The People's Republic of China, Russia,
Indonesia, Uzbekistan, Peru, Brazil, Mexico, Zimbabwe, Ghana, Mali, Tanzania,
the Philippines and Papua New Guinea. The Fund may also invest in securities of
companies located in countries with developed capital markets including the
United States, Canada, Japan, United Kingdom, Finland, France, Germany,
Switzerland, Ireland, Luxemburg, Spain and Australia. The Fund may invest in
debt securities that are issued together with a particular equity security. The
Fund 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 assets.
The Fund may invest in companies of any size, but tends to focus on medium and
large companies. The Fund has no stated minimum holding period for investments,
and will buy or sell securities and other assets whenever the Fund's management
sees an appropriate opportunity. The Fund does not consider potential tax
consequences to Fund shareholders when it sells assets.
The Fund may invest up to 10% of its assets in gold bullion when the Fund
believes it is undervalued relative to the price of securities of gold mining
companies. However, the Fund may have internal guidelines that limit its
investments in gold bullion to considerably less than 10% of the Fund's assets.
The Fund will normally invest almost all of its assets in the above described
manner. The Fund may, however, invest in short-term instruments, such as money
market securities and repurchase agreements, to meet redemptions. If the Fund
anticipates significant adverse changes in the price of gold then the Fund's
investment in stocks of gold mining companies and gold bullion may be
temporarily reduced to below 50% of the Fund's total assets. In this case the
Fund may make substantial investments, for temporary defensive purposes, in
other mineral mining companies (non-gold), and may hold substantial amounts of
cash. Short term investments and temporary defensive positions may limit the
potential for growth in the value of your shares.
8 MERCURY GOLD AND MINING FUND
<PAGE> 11
About the Details
ABOUT THE DETAILS LOGO
The Fund may use many different investment strategies in seeking its investment
objectives and it has certain investment restrictions. These strategies and
certain of the restrictions and policies governing the Fund's investments are
explained in the Fund's Statement of Additional Information. If you would like
to learn more about how the Fund may invest, request the Statement of Additional
Information.
INVESTMENT RISKS
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This section contains a summary discussion of the general risks of investing in
the Fund.
As with any mutual fund, there can be no guarantee that the Fund will meet its
goals, or that the Fund's performance will be positive over any period of time.
This Fund is subject to four principal risks: market risk, selection risk,
sector risk and foreign investment risk. Market risk is the risk that the equity
markets or commodity markets in general, or the gold market in particular, will
go down in value, including the possibility that any of these markets will go
down sharply and unpredictably. Selection risk is the risk that the stocks that
the Fund's adviser selects will underperform the markets or other funds with
similar investment objectives and investment strategies. Sector risk is the risk
that the Fund's concentration in gold and other mining securities will expose
the Fund more to the price fluctuations of mining securities, generally, or of
gold in particular, than more broadly diversified funds. Foreign investment risk
is the risk that the Fund's non-U.S. securities may go up or down in value
depending on foreign exchange rates, 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 the Fund may use entail other risks:
MINING RELATED SECURITIES AND GOLD BULLION.
- Investments in or relating to gold and other metals or minerals
are considered speculative.
- Historically, during periods of economic or financial instability
the securities of mining companies in general, and companies
engaged in precious (including gold) and industrial metals mining
in particular, have been subject to extreme fluctuations in market
price. Gold bullion has also been subject to extreme fluctuations
in market price.
- The earnings and general financial condition of mining companies
are highly dependent on the market prices of the
MERCURY GOLD AND MINING FUND 9
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[ABOUT THE DETAILS LOGO]
About the Details
underlying metals or minerals, which have historically
been extremely volatile.
- During periods of instability in the price of metals or minerals,
the liquidity of the Fund's portfolio securities may be severely
reduced; in other words, the Fund may not, during these periods,
be able to sell its securities at the time and price that the Fund
would like.
- Actions of large producers, sellers and holders of precious metals
(such as governments and central banks) may severely impact supply
of, or demand for, precious metals, and their actions in general
may have a significant impact on the prices of precious metals.
These actions can be affected by various economic, financial,
social and political factors which may be unpredictable.
- The Fund will invest a substantial amount of its assets in
securities of companies located in the Republic of South Africa.
This investment focus could increase volatility and risk compared
to a fund that invests a smaller percentage of its assets in South
Africa. In addition, South African companies are generally more
sensitive to movements in the price of gold than similar companies
in other countries.
- Gold bullion does not generate income and offers only the
potential for capital appreciation or depreciation.
ASSET-BASED SECURITIES RISKS
- The market price of an asset-based security and the related
underlying asset may not be perfectly correlated.
- The asset-based security may not be protected by a direct claim on
the underlying asset, in the event of an issuer default.
- An asset-based security may pay interest or dividends at below
market rates. Therefore, the Fund's return on these types of
investments will be based on changes in their market value.
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 Fund would like. Restricted securities have
contractual
10 MERCURY GOLD AND MINING FUND
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[ABOUT THE DETAILS LOGO]
About the Details
or legal restrictions on their resale and include "private placement" securities
that the Fund 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 and eliminate fluctuations in
their currencies. Among other things, EMU establishes a single European currency
(the euro), which will be introduced on January 1, 1999 and is expected to
replace the existing national currencies of all initial 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 trade and make dividend and other payments only in euros. Like
other investment companies and business organizations, including the companies
in which the Fund invests, the Fund could be adversely affected:
- If the euro, or EMU as a whole does not take effect as planned.
- If a participating country withdraws from EMU.
- If the computing, accounting and trading systems used by the
Fund's service providers, or by other entities with which the Fund
or its service providers do business, are not capable of
recognizing the euro as a distinct currency at the time of, and
following, euro conversion.
OTHER FOREIGN SECURITY RISKS
- The value of the Fund'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.
- The Fund'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 the Fund's non-U.S.
holdings.
MERCURY GOLD AND MINING FUND 11
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[ABOUT THE DETAILS LOGO]
About the Details
- The Fund 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 the Fund 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, the Fund'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 the Fund than
in more developed markets. This could limit the Fund's ability to
diversify its holdings among issuers, industries and countries.
- If the Fund 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 the Fund
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 the Fund's assets may be uninvested
and not earning returns. The Fund may miss investment
opportunities or be unable to dispose of a security because of
these delays.
BORROWING
The use of borrowing can increase the Fund's exposure to market risk. That is,
when the Fund borrows money to make more investments than it otherwise could or
to meet redemptions, and the Fund's investments go down in value, the Fund's
losses will be magnified.
DERIVATIVES
The Fund 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,
12 MERCURY GOLD AND MINING FUND
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[ABOUT THE DETAILS LOGO]
About the Details
such as the S&P 500 or the prime lending rate). Derivatives allow the Fund
to increase or decrease the level of risk to which the Fund is exposed more
quickly and efficiently than transactions in other types of instruments.
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 the
Fund.
- Currency risk -- the risk that changes in the exchange rate
between two currencies will adversely affect the value (in U.S.
dollar terms) of an investment.
- 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, the Fund could receive lower
interest payments or experience a reduction in the value of the
derivative to below what the Fund 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.
The Fund 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.
MERCURY GOLD AND MINING FUND 13
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[ABOUT THE DETAILS LOGO]
About the Details
- 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 may also 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 the Fund to sell the securities back to the issuer or a third party at a
time that is disadvantageous to the Fund.
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.
ADVISER'S HISTORICAL PERFORMANCE DATA
- --------------------------------------------------------------------------------
The following tables present historical performance data for all accounts that
have been managed by the investment adviser or another Mercury investment
adviser and that have substantially similar (although not necessarily identical)
objectives and policies to the Fund's. These accounts have been managed using
investment styles and strategies substantially similar to those to be used in
14 MERCURY GOLD AND MINING FUND
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[ABOUT THE DETAILS LOGO]
About the Details
managing the Fund. THESE FIGURES DO NOT REPRESENT THE PERFORMANCE OF THE FUND.
The Fund is newly organized and does not yet have a performance record. The
Fund's actual performance may be higher or lower, and past performance is no
guarantee of future results.
The composite figures shown in the tables presented below were calculated in the
following manner:
- Many of the accounts in the composite were managed by the
investment adviser's Mercury affiliates. All personnel of the
investment adviser and its Mercury affiliates are employed by a
single holding company. Portfolio managers perform management
services for accounts of various Mercury advisers, including the
Fund's investment adviser, depending on the nature of each
adviser's clients. The investment process, including the resources
available to the portfolio managers and the supervisory review, is
the same across advisers. As a practical matter, there is no
significant distinction between the process used in determining
the recommendations of the investment adviser and those of its
Mercury affiliates.
- The accounts included in the composite are not U.S. mutual funds,
and are not subject to the same rules and regulations (for
example, diversification and liquidity requirements and
restrictions on transactions with affiliates) as the Fund, or to
the same types of expenses that the Fund will pay. These
differences might have affected the performance figures shown
below.
- The composite figures have been calculated by weighting the
performance of each included account by the level of the account's
total assets at the beginning of each monthly or quarterly period.
Accounts were added to the composite as of
the first full quarter under management and excluded at the end of
the last full quarter under management. [Accordingly, the number
of accounts included in the composite vary by quarter, from
at the beginning of to in the most recent quarter.]
- The performance of each of the accounts in the composite may have
been influenced by the level of the account's total assets. Had an
account's assets been different, its performance might have been
higher or lower.
MERCURY GOLD AND MINING FUND 15
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[ABOUT THE DETAILS LOGO]
About the Details
- The accounts presented were accounted for in various base
currencies other than U.S. dollars. The Fund will calculate its
net asset value daily in U.S. dollars. For purposes of this
presentation, the accounts' performance history was converted into
U.S. dollars on at least a quarterly basis using exchange rate
movements to approximate the equivalent U.S. dollar returns which
might have been achieved.
- The figures shown below represent the performance, converted to
U.S. dollars, of the composite's included accounts. THEY ARE NOT
THE PERFORMANCE OF THE FUND. Figures show total returns. Total
return shows you how much an investment has changed in value over
the stated time period and includes both capital appreciation and
income. The first table reflects average annual total returns.
This smooths out variations in annual performance by averaging
returns over the stated period. The second table shows actual
total returns for each one year period.
- To provide you with additional information, these composite
performance figures are presented two different ways. The "Gross
of Fees and Charges" row reflects the composite's gross
performance -- that is, performance before any deductions for fees
or expenses. These figures are hypothetical and presented for
information only; they do not reflect actual performance of the
accounts because the accounts would have paid fees and expenses.
The first table (average annual total returns) also includes a
"Net of Fees and Charges" section, which reflects
adjustments of the gross performance to reflect the deduction of
all of the fees and expenses that the Fund and a shareholder is
projected to pay as shown in the "Fees and Expenses" section at
the beginning of the Prospectus. Like the gross figures, the net
figures are hypothetical, because they do not reflect the actual
fees and charges paid by the included accounts. The net figures
assume the shareholder bought the shares at the beginning of the
period and sold (redeemed) the shares at the end of the period. To
the extent the Fund's expenses deviate from the projections, the
"Net of Fees and Charges" figures will be inaccurate. The effect
would be greater over longer periods due to compounding. The "Net
of Fees and Charges" performance figures differ by class because
the sales charges and account maintenance fees differ for each
class of shares. The net figures shown -- that is, the performance
results after all applicable
16 MERCURY GOLD AND MINING FUND
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[ABOUT THE DETAILS LOGO]
About the Details
deductions -- are equal to or lower than the actual net results of
the included accounts.
- Both tables include figures for a benchmark index (Financial Times
Gold Mines Index) and for the Lipper Gold Funds universe so that
you can compare the composite's performance to the performance of
the market as a whole. The Financial Times Gold Mines Index is an
unmanaged index and does not reflect any fees or charges. The
Lipper Gold Funds Average reflects advisory fees and other fees
and charges, but does not reflect front-end or contingent deferred
sales charges.
MERCURY GOLD AND MINING FUND 17
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[ABOUT THE DETAILS LOGO]
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AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
THIS IS NOT THE FUND'S PERFORMANCE.
<TABLE>
<CAPTION>
FOR FOR FOR FOR FOR
ONE-YEAR TWO-YEAR THREE-YEAR FOUR-YEAR FIVE-YEAR
PERIOD PERIOD PERIOD PERIOD PERIOD
ENDED ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1998 1998 1998 1998(1)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMPOSITE OF SIMILAR ACCOUNTS,
RECALCULATED:
- ---------------------------------------------------------------------------------------------------------------------------------
NET OF FEES AND CHARGES (2):
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS I FEES AND CHARGES % % % % %
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS A FEES AND CHARGES
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS B FEES AND CHARGES
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS C FEES AND CHARGES
- ---------------------------------------------------------------------------------------------------------------------------------
GROSS OF FEES AND CHARGES (3):
- ---------------------------------------------------------------------------------------------------------------------------------
FINANCIAL TIMES GOLD MINES INDEX
(4):
- ---------------------------------------------------------------------------------------------------------------------------------
LIPPER GOLD FUNDS AVERAGE (DOES NOT
INCLUDE SALES CHARGES) (5):
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The investment adviser and its affiliates first began managing accounts with
substantially similar objectives and policies to those of the Fund on
, .
(2) Reflects the reinvestment of dividends and distributions, and the deduction
of all fees and expenses that the Fund and a shareholder are projected to
pay (including the maximum front-end sales charges paid when purchasing
shares, or the maximum deferred sales charge paid upon redeeming shares at
the end of each period shown). To the extent the Fund's expenses deviate
from the projections, the "Net of Fees and Charges" figures will be
inaccurate. The effect would be greater over longer periods due to
compounding.
(3) Does not reflect the deduction of any fees, charges or expenses other than
certain brokerage commissions. These figures are hypothetical and presented
for information only; they do not reflect actual performance of the accounts
because the accounts would have paid fees and expenses.
(4) An unmanaged geographically diversified index of leading gold mining
companies. The minimum qualification is a production of more than 300,000
ounces of gold a year and more than 75% of the revenue from mining gold. One
of the members of the Fund's portfolio management team is a member of the
committee that selects the companies included in this index. The committee
has more than ten other members. No sales charges, 12b-1 fees or advisory
fees, and no other expenses (e.g., custody or brokerage fees) are reflected
in the total returns of the Index. Index returns reflect reinvestment of net
dividends and distributions.
(5) An average of the performance of other U.S. investment companies that
concentrate at least 65% of their equity portfolio in shares of gold mines,
gold-oriented mining finance houses, gold coins, or bullion. The average
does not reflect front-end or contingent deferred sales charges that might
be paid by an investor in a fund included in the average, but does include
12b-1 fees, advisory fees and other expenses. The average also reflects
reinvestment of dividends and distributions.
18 MERCURY GOLD AND MINING FUND
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[ABOUT THE DETAILS LOGO]
About the Details
TOTAL RETURNS ON AN ANNUAL BASIS
- --------------------------------------------------------------------------------
THIS IS NOT THE FUND'S PERFORMANCE.
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
SEPTEMBER 30, FOR EACH YEAR ENDED DECEMBER 31,
1998 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
COMPOSITE OF SIMILAR ACCOUNTS,
RECALCULATED: GROSS OF FEES AND CHARGES
(1): % % % % % %
- -----------------------------------------------------------------------------------------------
FINANCIAL TIMES GOLD MINES INDEX (2):
- -----------------------------------------------------------------------------------------------
LIPPER GOLD FUNDS AVERAGE (DOES NOT
INCLUDE SALES CHARGES) (3):
- -----------------------------------------------------------------------------------------------
</TABLE>
(1) Does not reflect the deduction of any fees, charges or expenses, other than
certain brokerage commissions. These figures are hypothetical and presented
for information only; they do not reflect actual performance of the accounts
because the accounts would have paid fees and expenses. If these fees and
expenses were included, the performance figures would be lower.
(2) An unmanaged geographically diversified index of leading gold mining
companies. The minimum qualification is a production of more than 300,000
ounces of gold a year and more than 75% of the revenue from mining gold. One
of the members of the Fund's portfolio management team is a member of the
committee that selects the companies included in this index. The committee
has more than ten other members. No sales charges, 12b-1 fees or advisory
fees, and no other expenses (e.g., custody or brokerage fees) are reflected
in the total returns of the Index. Index returns reflect reinvestment of net
dividends and distributions.
(3) An average of the performance of other U.S. investment companies that
concentrate at least 65% of their equity portfolio in shares of gold mines,
gold-oriented mining finance houses, gold coins, or bullion. The average
does not reflect front-end or contingent deferred sales charges that might
be paid by an investor in a fund included in the average, but does include
12b-1 fees, advisory fees and other expenses. The average also reflects
reinvestment of dividends and distributions.
MERCURY GOLD AND MINING FUND 19
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[ACCOUNT CHOICES LOGO]
Account Choices
PRICING OF SHARES
- --------------------------------------------------------------------------------
The Fund offers four classes of shares, each with its own sales charge and
expense structure allowing you to invest in the way that best suits your needs.
Each share class represents an ownership interest in the same investment
portfolio. The class of shares you should choose will be affected by the size of
your investment and how long you plan to hold your shares. Your financial
consultant can help you determine which pricing option is best suited to your
personal financial goals.
For example, if you select Class I or A, you will pay a sales charge at the time
of purchase. If you buy Class A shares, you also will pay an ongoing account
maintenance fee of 0.25%. If you select Class B or C shares, you can invest the
full amount of your purchase price, but you will be subject to a distribution
fee and account maintenance fee payable over time and possibly a deferred sales
charge when you sell shares. You may be eligible for a sales charge waiver. See
the following table.
If you purchase Class B or C shares you pay a distribution fee of 0.75% and an
account maintenance fee of 0.25% on an ongoing basis. Because these fees are
paid out of the Fund's assets on an ongoing basis, over time these fees increase
the cost of your investment and may cost you more than paying an initial sales
charge.
The Fund's shares are distributed by Mercury Funds Distributor, a division of
Princeton Funds Distributor, Inc.
A subscription period for the shares will end on , , unless extended.
Subscriptions will be payable, shares will be issued and the Fund will commence
operations on the third business day after the end of the subscription period.
The Fund or the Distributor can terminate the subscription offering at any time,
in which case the Fund will not commence operations or will commence operations
with a limited number of shares.
After the Fund commences operations, shares can be purchased on each business
day.
20 MERCURY GOLD AND MINING FUND
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[ACCOUNT CHOICES LOGO]
Account Choices
To better understand the pricing of the Fund's shares, we have summarized the
information below:
<TABLE>
<CAPTION>
CLASS I CLASS A CLASS B CLASS C
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABILITY? LIMITED TO CERTAIN GENERALLY AVAILABLE GENERALLY AVAILABLE GENERALLY AVAILABLE
INVESTORS INCLUDING: THROUGH SELECTED THROUGH SELECTED THROUGH SELECTED
- Current Class I SECURITIES DEALERS. SECURITIES DEALERS. SECURITIES DEALERS.
shareholders
- Certain Retirement
Plans
- Participants of
certain sponsored
programs
- Certain affiliates of
selected securities
dealers
- ---------------------------------------------------------------------------------------------------------------------------
INITIAL SALES CHARGE? YES. PAYABLE AT TIME OF YES. PAYABLE AT TIME OF NO. ENTIRE PURCHASE NO. ENTIRE PURCHASE
PURCHASE. LOWER SALES PURCHASE. LOWER SALES PRICE IS INVESTED IN PRICE IS INVESTED IN
CHARGES AVAILABLE FOR CHARGES AVAILABLE FOR SHARES OF THE FUND. SHARES OF THE FUND.
CERTAIN LARGER CERTAIN LARGER
INVESTMENTS. INVESTMENTS.
- ---------------------------------------------------------------------------------------------------------------------------
DEFERRED SALES NO. (MAY BE CHARGED FOR NO. (MAY BE CHARGED FOR YES. PAYABLE IF YOU YES. PAYABLE IF YOU
CHARGE? PURCHASES OVER $1 PURCHASES OVER $1 REDEEM WITHIN SIX YEARS REDEEM WITHIN ONE YEAR
MILLION THAT ARE MILLION THAT ARE OF PURCHASE. OF PURCHASE.
REDEEMED WITHIN ONE REDEEMED WITHIN ONE
YEAR.) YEAR.)
- ---------------------------------------------------------------------------------------------------------------------------
ACCOUNT MAINTENANCE NO. 0.25% ACCOUNT 0.25% ACCOUNT 0.25% ACCOUNT
AND DISTRIBUTION MAINTENANCE FEE. NO MAINTENANCE FEE. 0.75% MAINTENANCE FEE. 0.75%
FEES? DISTRIBUTION FEE. DISTRIBUTION FEE. DISTRIBUTION FEE.
- ---------------------------------------------------------------------------------------------------------------------------
CONVERSION TO CLASS A NO. NO. YES, AUTOMATICALLY NO.
SHARES? AFTER APPROXIMATELY 8
YEARS.
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
MERCURY GOLD AND MINING FUND 21
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[ACCOUNT CHOICES LOGO]
Account Choices
RIGHT OF ACCUMULATION -- permits you to pay the sales charge applicable to the
cost or value (whichever is higher) of all shares you own in the Mercury mutual
funds.
LETTER OF INTENT -- permits you to pay the sales charge that would be applicable
if you add up all shares of Mercury mutual funds that you agree to buy within a
13 month period. Certain restrictions apply.
CLASS I AND A SHARES -- INITIAL SALES CHARGE OPTIONS
The public offering price of Class I and Class A shares during the subscription
period is $10.00 per share. If you select Class I or A shares, you will pay a
sales charge at the time of purchase (whether during or after the subscription
period) as shown in the following table. During the subscription period,
securities dealers will receive compensation equal to the entire sales charge
(and therefore, may be deemed to be underwriters). After the subscription
period, the dealer compensation will be as shown in the last column.
<TABLE>
<CAPTION>
DEALER
COMPENSATION
AS A % OF AS A % OF AS A % OF
YOUR INVESTMENT OFFERING PRICE YOUR INVESTMENT* OFFERING PRICE
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
LESS THAN $25,000 5.25% 5.54% 5.00%
- ---------------------------------------------------------------------------------------
$25,000 BUT LESS THAN
$50,000 4.75% 4.99% 4.50%
- ---------------------------------------------------------------------------------------
$50,000 BUT LESS THAN
$100,000 4.00% 4.17% 3.75%
- ---------------------------------------------------------------------------------------
$100,000 BUT LESS THAN
$250,000 3.00% 3.09% 2.75%
- ---------------------------------------------------------------------------------------
$250,000 BUT LESS THAN
$1,000,000 2.00% 2.04% 1.80%
- ---------------------------------------------------------------------------------------
$1,000,000 AND OVER** 0.00% 0.00% 0.00%
- ---------------------------------------------------------------------------------------
</TABLE>
* Rounded to the nearest one-hundredth percent.
** If you invest $1,000,000 or more in Class I or A shares, you may not pay an
initial sales charge. However, if you redeem your shares within one year
after purchase, you may be charged a deferred sales charge. This charge is 1%
of the lesser of the original cost of the shares being redeemed or your
redemption proceeds. A sales charge of 0.75% will be charged on purchases of
$1,000,000 or more of Class I and A shares by certain employer sponsored
retirement or savings plans.
No initial sales charge applies to Class I or Class A shares that you buy
through reinvestment of dividends or distributions.
A reduced or waived sales charge on a purchase of Class I or A shares may apply
for:
- Purchases under a RIGHT OF ACCUMULATION or LETTER OF INTENT.
- Certain trusts managed by banks, thrifts or trust companies
including those affiliated with Mercury or its affiliates.
- Certain employer-sponsored retirement or savings plans.
22 MERCURY GOLD AND MINING FUND
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[ACCOUNT CHOICES LOGO]
Account Choices
- Certain investors, including directors of mutual funds sponsored
by Mercury or its affiliates, employees of Mercury and its
affiliates, and employees of selected dealers.
- Certain fee-based programs managed by Mercury or its affiliates.
- Certain fee-based programs managed by selected dealers that have
an agreement with Mercury.
- Purchases through certain financial advisers that meet and adhere
to standards established by Mercury.
Only certain investors are eligible to buy Class I shares, including existing
Class I shareholders of the Fund, certain retirement plans and participants in
certain programs sponsored by Mercury or its affiliates. Your financial
consultant can help you determine whether you are eligible to buy Class I shares
or to participate in any of these programs.
If you decide to buy shares under the initial sales charge alternative and you
are eligible to buy both Class I and Class A shares, you should buy Class I
shares since Class A shares are subject to an account maintenance fee, while
Class I shares are not.
If you redeem Class I or Class A shares and within 30 days buy new shares of the
same class, you will not pay a sales charge on the new purchase amount. The
amount eligible for this "Reinstatement Privilege" may not exceed the amount of
your redemption proceeds. To exercise the privilege, contact your financial
consultant or the Fund's Transfer Agent at 1-888-763-2260.
CLASS B AND C SHARES -- DEFERRED SALES CHARGE OPTIONS
If you select Class B or Class C shares, you do not pay an initial sales charge
at the time of purchase. However, if you redeem your Class B shares within six
years after purchase or Class C shares within one year after purchase, you may
be required to pay a deferred sales charge. You will also pay distribution fees
of 0.75% and account maintenance fees of 0.25% each year. The Distributor uses
the money that it receives from the deferred sales charge and the distribution
fees to cover the costs of marketing, advertising and compensating the financial
consultant or other dealer who assists you in your decision to purchase Fund
shares. The public offering price of Class B and C shares during the
subscription period will be $10.00 per share.
MERCURY GOLD AND MINING FUND 23
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[ACCOUNT CHOICES LOGO]
Account Choices
CLASS B SHARES
If you redeem Class B shares within six years after purchase, you may be charged
a deferred sales charge. The amount of the charge gradually decreases as you
hold your shares over time, according to the following schedule:
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE Sales Charge*
- ----------------------------------------
<S> <C>
0 - 1 4.00%
- ----------------------------------------
1 - 2 4.00%
- ----------------------------------------
2 - 3 3.00%
- ----------------------------------------
3 - 4 3.00%
- ----------------------------------------
4 - 5 2.00%
- ----------------------------------------
5 - 6 1.00%
- ----------------------------------------
6 AND AFTER 0.00%
- ----------------------------------------
</TABLE>
* The percentage charge will apply to the lesser of the original cost of the
shares being redeemed or the proceeds of your redemption. Shares acquired by
dividend or capital gain reinvestment are not subject to a deferred sales
charge. Mercury funds may not all have identical deferred sales charge
schedules. In the event of an exchange for the shares of another Mercury fund,
the higher charge, if any, would apply.
The deferred sales charge relating to Class B shares will be reduced or waived
in certain circumstances, such as:
- Certain post-retirement withdrawals from an IRA or other
retirement plan if you are over 59 1/2 years old (certain legal
documentation may be required at the time of liquidation
establishing eligibility for qualified distribution).
- Redemption by certain eligible 401(a) and 401(k) plans and certain
retirement plan rollovers.
- Redemption in connection with participation in certain fee-based
programs managed by Mercury or its affiliates.
- Redemption in connection with participation in certain fee-based
programs managed by selected dealers that have agreements with
Mercury.
- Withdrawals resulting from shareholder death or disability as long
as the waiver request is made within one year after death or
disability (certain legal documentation may be required at the
time of liquidation establishing eligibility for qualified
distribution).
- Withdrawal through the Systematic Withdrawal Plan of up to 10% per
year of your account value at the time the plan is established.
24 MERCURY GOLD AND MINING FUND
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[ACCOUNT CHOICES LOGO]
Account Choices
Your Class B shares convert automatically into Class A shares approximately
eight years after purchase. Any Class B shares received through reinvestment of
dividends or distributions paid on converting shares will also convert at that
time. Class A shares are subject to lower annual expenses than Class B shares.
The conversion of Class B shares to Class A shares is not a taxable event for
federal income tax purposes.
Different conversion schedules may apply to Class B shares of different Mercury
mutual funds. If you acquire your Class B shares in an exchange from another
fund with a shorter conversion schedule, the Fund's eight year conversion
schedule will apply. If you exchange your Class B shares in the Fund for Class B
shares of a fund with a longer conversion schedule, the other fund's conversion
schedule will apply. In any event, the length of time that you hold the original
and exchanged Class B shares in both funds will count toward the conversion
schedule.
The conversion schedule may be modified in certain other cases as well.
CLASS C SHARES
If you redeem Class C shares within one year after purchase, you may be charged
a deferred sales charge of 1.00%. The charge will apply to the lesser of the
original cost of the shares being redeemed or the proceeds of your redemption.
You will not be charged a deferred sales charge when you redeem shares that you
acquire through reinvestment of Fund dividends or distributions.
Class C shares do not offer a conversion privilege.
HOW TO BUY, SELL, TRANSFER AND EXCHANGE SHARES
- --------------------------------------------------------------------------------
The chart below summarizes how to buy, sell, transfer and exchange shares
through certain securities dealers. You may also buy shares through the Transfer
Agent. To learn more about buying shares through the Transfer Agent, call
1-888-763-2260. Because the selection of a mutual fund involves many
considerations, your financial consultant may help you with this decision. The
Fund does not issue share certificates.
MERCURY GOLD AND MINING FUND 25
<PAGE> 28
[ACCOUNT CHOICES LOGO]
Account Choices
<TABLE>
<CAPTION>
IF YOU WANT TO YOUR CHOICES INFORMATION IMPORTANT FOR YOU TO KNOW
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BUY SHARES First, select the share class Please refer to the pricing of shares table on page 21. Be
appropriate for you sure to read this Prospectus carefully.
-------------------------------------------------------------------------------------------------
Next, determine the amount of The minimum initial investment for the Fund is $1,000 for
your investment all accounts except:
- $500 for certain fee-based programs
- $100 for retirement plans
(The minimums for initial investments may be waived or
reduced under certain circumstances.)
-------------------------------------------------------------------------------------------------
Have your financial consultant Any purchase orders received by a securities dealer prior to
or securities dealer submit the close of business on the New York Stock Exchange and
your purchase order received by the Distributor from the securities dealer
within thirty minutes after the close of business on the New
York Stock Exchange will be priced at the net asset value
determined that day.
Purchase orders received after that time will be priced at
the net asset value determined on the next business day. The
Fund may reject any order to buy shares and may suspend the
sale of shares at any time. Certain securities dealers may
charge a fee to process a purchase. For example, the fee
charged by Merrill Lynch, Pierce, Fenner & Smith
Incorporated is currently $5.35. The fees charged by other
securities dealers may be higher or lower.
-------------------------------------------------------------------------------------------------
Or contact the Transfer Agent Instead of purchasing through a financial consultant or
securities dealer, you can purchase shares of the Fund by
mailing a purchase order directly to the Transfer Agent at
the address on the inside back cover of this Prospectus.
- ------------------------------------------------------------------------------------------------------------------------
ADD TO YOUR Purchase additional shares The minimum investment for additional purchases is $100 for
INVESTMENT all accounts except:
- $50 for certain fee-based programs
- $1 for retirement plans
(The minimums for additional purchases may be waived under
certain circumstances.)
-------------------------------------------------------------------------------------------------
Acquire additional shares All dividends and capital gains distributions are
through the automatic dividend automatically reinvested without a sales charge.
reinvestment plan
-------------------------------------------------------------------------------------------------
Participate in the automated You may automatically invest a specific amount in the Fund
investment plan on a periodic basis through your securities dealer:
- The current minimum for such automatic investments is $50.
The minimum may be waived or revised under certain
circumstances.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
26 MERCURY GOLD AND MINING FUND
<PAGE> 29
[ACCOUNT CHOICES LOGO]
Account Choices
<TABLE>
<CAPTION>
IF YOU WANT TO YOUR CHOICES INFORMATION IMPORTANT FOR YOU TO KNOW
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<S> <C> <C>
TRANSFER SHARES TO Transfer to a participating To transfer your shares of the Fund to another securities
ANOTHER SECURITIES securities dealer dealer, authorized dealer agreements must be in place
DEALER between the Distributor and the transferring securities
dealer and the Distributor and the receiving securities
dealer. All shareholder services will be available for all
transferred shares. All future trading of these shares must
be coordinated by the receiving securities dealer.
-------------------------------------------------------------------------------------------------
Transfer to a non-participating You cannot transfer your shares of the Fund to a securities
securities dealer dealer that does not have an authorized dealer agreement
with the Distributor.
You must either:
- Transfer your shares to an account with the Transfer
Agent; or
- Sell your shares.
- ------------------------------------------------------------------------------------------------------------------------
SELL YOUR SHARES Have your financial consultant To ensure that your sales order will be priced at the net
or securities dealer submit asset value on the day of your request, you must submit your
your sales order request to your dealer before that day's close of business
on the New York Stock Exchange (generally 4:00 p.m. Eastern
time). The Fund accepts sales orders from dealers on any
business day until thirty minutes after the close of
business on the New York Stock Exchange (meaning that the
request must be received from the dealer by 4:30 p.m.
Eastern time on most days, and earlier on a few days). Any
sales order request received from a dealer after that time
will be priced at the close of business on the next business
day.
Certain securities dealers may charge a fee to process a
sale of shares. For example, the fee charged by Merrill
Lynch, Pierce, Fenner & Smith Incorporated is currently
$5.35. The fees charged by other securities dealers may be
higher or lower.
The Fund may reject an order to sell shares under certain
circumstances.
-------------------------------------------------------------------------------------------------
Sell through the Transfer Agent You may sell shares held at the Transfer Agent by writing to
the Transfer Agent at the address on the inside back cover
of this Prospectus. All shareholders on the account must
sign the letter and signatures must be guaranteed. Depending
on the type of account and/or type of distribution, certain
additional documentation may be required. The Transfer Agent
will normally mail sale proceeds within seven days following
receipt of a properly completed request. If you make a sales
order request before the Fund has collected payment for the
purchase of shares, the Fund or the Transfer Agent may delay
mailing your proceeds. This delay usually will not exceed
ten days.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
MERCURY GOLD AND MINING FUND 27
<PAGE> 30
[ACCOUNT CHOICES LOGO]
Account Choices
<TABLE>
<CAPTION>
IF YOU WANT TO YOUR CHOICES INFORMATION IMPORTANT FOR YOU TO KNOW
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SELL SHARES Participate in the Fund's You can generally arrange through your selected dealer for
SYSTEMATICALLY Systematic Redemption Program systematic sales of shares of a fixed dollar amount on a
monthly, bi-monthly, quarterly, semi-annual or annual basis,
subject to certain conditions. You must have dividends and
other distributions automatically reinvested. For Class B
and C shares your total annual withdrawals cannot be more
than 10% of the value of your shares at the time the Program
is established. The deferred sales charge is waived for
systematic sales of shares. Ask your financial consultant
for details.
- ------------------------------------------------------------------------------------------------------------------------
EXCHANGE YOUR Select the fund into which you You can exchange your shares of the Fund for shares of other
SHARES want to exchange. Be sure to Mercury mutual funds or for shares of the Summit Cash
read that fund's prospectus Reserves Fund. You must have held the shares used in the
exchange for at least 15 calendar days before you can
exchange to another fund.
Each class of Fund shares is generally exchangeable for
shares of the same class of another Mercury fund. If you own
Class I or Class A shares and wish to exchange into Summit,
you will exchange into Class A shares of Summit. Class B or
Class C shares can be exchanged for Class B shares of
Summit.
Some of the Mercury mutual funds may impose a different
initial or deferred sales charge schedule. If you exchange
Class I or Class A shares for shares of a fund with a higher
initial sales charge than you originally paid, you may be
charged the difference at the time of exchange. If you
exchange Class B or Class C shares for shares of a fund with
a different deferred sales charge schedule, the higher
schedule will apply. The time you hold Class B or Class C
shares in both funds will count when determining your
holding period for calculating a deferred sales charge at
redemption. Your time in both funds will also count when
determining the holding period for a conversion from Class B
to Class A shares.
Although there is currently no limit on the number of
exchanges that you can make, the exchange privilege may be
modified or terminated at any time in the future.
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</TABLE>
28 MERCURY GOLD AND MINING FUND
<PAGE> 31
[ACCOUNT CHOICES LOGO]
Account Choices
NET ASSET VALUE -- the market value in U.S. dollars of a Fund's total assets
after deducting liabilities, divided by the number of shares outstanding.
HOW SHARES ARE PRICED
- --------------------------------------------------------------------------------
When you buy shares, you pay the NET ASSET VALUE, plus any applicable sales
charge. This is the offering price. Shares are also redeemed at their net asset
value, minus any applicable deferred sales charge. The Fund calculates its net
asset value (generally by using market quotations) each day the New York Stock
Exchange is open, fifteen minutes after the close of business on the Exchange
(the Exchange generally closes at 4:00 p.m. Eastern time). The net asset value
used in determining your price is the one calculated after your purchase or
redemption order is received. Net asset value is generally calculated by valuing
each security or other asset at its closing price for the day. Many of the
Fund's 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 the Fund's
net asset value. Non-U.S. securities sometimes trade on days that the New York
Stock Exchange is closed. As a result, the Fund's net asset value may change on
days when you will not be able to purchase or redeem the Fund's shares. If an
event occurs after the close of a non-U.S. exchange that is likely to
significantly affect the Fund's net asset value, "fair value" pricing may be
used. This means that the Fund may value its foreign holdings at prices other
than their last closing prices, and the Fund'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.
Generally, Class I shares will have the highest net asset value, because that
class has the lowest expenses, and Class A shares will have a higher net asset
value than Class B or Class C shares. Also, dividends paid on Class I and Class
A shares will generally be higher than dividends paid on Class B and Class C
shares because Class I and Class A shares have lower expenses.
MERCURY GOLD AND MINING FUND 29
<PAGE> 32
[ACCOUNT CHOICES LOGO]
Account Choices
DIVIDENDS -- income paid to shareholders. Dividends may be reinvested in
additional Fund shares as they are paid.
DISTRIBUTIONS -- capital gains paid to shareholders. Distributions may be
reinvested in the Fund as they are paid.
FEE-BASED PROGRAMS
- --------------------------------------------------------------------------------
If you participate in certain fee-based programs offered by Mercury or an
affiliate of Mercury, or by selected dealers that have an agreement with
Mercury, you may be able to buy Class I shares at net asset value, including
through exchange from other share classes. Sales charges on the shares being
exchanged may be reduced or waived under certain circumstances.
You generally cannot transfer shares held through a fee-based program into
another account. Instead, you will have to redeem your shares held through the
program and purchase shares of another class, which may be subject to
distribution and account maintenance fees. This may be a taxable event and you
will pay any applicable sales charges.
If you leave one of these programs, your shares may be redeemed or automatically
exchanged into another class of Fund shares or into the Summit fund. The class
you receive may be the class you originally owned when you entered the program,
or in certain cases, a different class. If the exchange is into Class B shares,
the period before conversion to Class A shares may be modified. Any redemption
or exchange will be at net asset value. However, if you participate in the
program for less than a specified period, you may be charged a fee in accordance
with the terms of the program.
Details about these features and the relevant charges are included in the client
agreement for each fee-based program and are available from your financial
consultant or your selected dealer.
DIVIDENDS, CAPITAL GAINS AND TAXES
- --------------------------------------------------------------------------------
The Fund will distribute any net investment income and any net realized long or
short-term capital gains at least annually. The Fund may also pay a special
distribution at the end of the calendar year to comply with federal tax
requirements. DIVIDENDS and DISTRIBUTIONS may be reinvested automatically in
shares of the Fund at net asset value without a sales charge or taken in cash.
If your account is with a securities dealer that has an agreement with the Fund,
contact your financial consultant about which option you would like. If your
account is with the Transfer Agent, and you would like to receive dividends and
distributions in cash, contact the Transfer Agent.
30 MERCURY GOLD AND MINING FUND
<PAGE> 33
[ACCOUNT CHOICES LOGO]
Account Choices
"BUYING A DIVIDEND"
Unless your investment is in a tax-deferred account, you may want to avoid
buying shares shortly before the Fund pays a dividend or distribution. The
reason? If you buy shares when a fund has realized but not yet distributed
income or capital gains, you will pay the full price for the shares and then
receive a portion of the price back in the form of a taxable distribution.
Before investing you may want to consult your tax advisor.
You will pay tax on dividends and distributions from the Fund whether you
receive them in cash or additional shares.
If you redeem Fund shares or exchange them for shares of another fund, any gain
on the transaction may be subject to tax.
The Fund intends to make distributions that will either be taxed as ordinary
income or capital gains. Capital gains distributions may be taxable at different
rates depending on the length of time the Fund has held the assets sold.
The Fund expects to make an election that will require you to include in income
your share of foreign withholding taxes paid by the Fund. You will be entitled
to treat these taxes as taxes paid by you, and therefore, deduct such taxes in
computing your taxable income or, in some cases, to use them as foreign tax
credits against the U.S. income taxes you otherwise owe.
If you are neither a lawful permanent resident nor a citizen of the U.S. or if
you are a foreign entity, the Fund's ordinary income dividends (which include
distributions of net short-term capital gains) will generally be subject to a
30% U.S. withholding tax, unless a lower treaty rate applies.
By law, the Fund must withhold 31% of your distributions and proceeds if you
have not provided a taxpayer identification number or social security number.
This section summarizes some of the consequences under current federal tax law
of an investment in the Fund. It is not a substitute for personal tax advice.
Consult your personal tax advisor about the potential tax consequences of an
investment in the Fund under all applicable tax laws.
MERCURY GOLD AND MINING FUND 31
<PAGE> 34
[THE MANAGEMENT TEAM LOGO]
The Management Team
MASTER/FEEDER STRUCTURE
- --------------------------------------------------------------------------------
Unlike many other mutual funds, which directly buy and manage their own
portfolio securities, the Fund seeks to achieve its investment objectives by
investing all its assets in the corresponding Portfolio of the Mercury Asset
Management Master Trust. Investors in the Fund will acquire an indirect interest
in the underlying Portfolio.
Other "feeder" funds may also invest in the "master" Portfolio. This structure
may enable the Fund to reduce costs through economies of scale. A larger
investment portfolio may also reduce certain transaction costs to the extent
that contributions to and redemptions from the master from different feeders may
offset each other and produce a lower net cash flow.
The Fund may withdraw from the Portfolio at any time and may invest all of its
assets in another pooled investment vehicle or retain an investment adviser to
manage the Fund's assets directly.
Smaller feeder funds may be harmed by the actions of larger feeder funds. For
example, a larger feeder fund could have more voting power than the Fund over
the operations of the Portfolio.
Whenever the Portfolio holds a vote of its feeder funds, the Fund will pass the
vote through to its own shareholders.
MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------
Mercury Asset Management International Ltd. manages the underlying 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 the Fund.
The senior investment professionals in the group that have managed the Fund's
portfolio since the Fund started operations include:
David Baker, Director of Mercury Asset Management. He has been employed as an
investment professional by the investment adviser or its Mercury affiliates
since 1992.
Graham Birch, Managing director of Mercury Asset Management. He has been
employed as an investment professional by the investment adviser or its Mercury
affiliates since 1993. Mr. Birch is primarily responsible for the day-to-day
management of the Fund.
32 MERCURY GOLD AND MINING FUND
<PAGE> 35
[THE MANAGEMENT TEAM LOGO]
The Management Team
Geoff Campbell, Associate Director of Mercury Asset Management. He has been
employed as an investment professional by the investment adviser or its Mercury
affiliates since 1994. Mr. Campbell was employed at Ord Minnett and Fleming
Martin from 1988 to 1994. Both of these firms are divisions of Robert Fleming.
Trevor Steel, Associate Director of Mercury Asset Management. He has been
employed as an investment professional by the investment adviser or its Mercury
affiliates since 1991.
Mercury and its affiliates manage portfolios with over $474 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 and the investment adviser gives the investment
adviser the responsibility for making all investment decisions.
The investment adviser is paid at the rate of 0.75% of the Portfolio's average
daily net assets.
The investment adviser has hired Fund Asset Management, L.P., an affiliate, to
manage daily cash assets. The Fund does not pay any incremental fee for this
service, although Mercury may make payments to Fund Asset Management, L.P. See
"Fees and Expenses" under "Fund Facts" for information about the fees paid to
Mercury Asset Management and its affiliates.
The Fund does not have an investment adviser, since the Fund's assets will be
invested in its corresponding Portfolio. Fund Asset Management, L.P. provides
administrative services to the Fund.
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 Fund could be adversely
affected if the computer systems used by the investment adviser or other Fund
service providers do not properly address this problem 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.
The Fund's other service providers have told the administrator that they also
expect to resolve the Year 2000 Problem, and the administrator will continue to
monitor the situation as the year 2000 approaches. However, if the problem has
not been fully addressed, the Fund could be negatively affected. The Year 2000
Problem could also have a negative impact on the companies in which the Fund
invests, and this could hurt the Fund's investment returns.
MERCURY GOLD AND MINING FUND 33
<PAGE> 36
[THE MANAGEMENT TEAM LOGO]
The Management Team
FUND
Mercury Gold and Mining Fund
of Mercury Asset Management Funds, Inc.
P.O. Box 9011
Princeton, New Jersey 08543-9011
(888-763-2260)
INVESTMENT ADVISER
Mercury Asset Management International Ltd.
33 King William Street
London EC4R 9AS
England
ADMINISTRATOR AND SUB-ADVISER
Fund Asset Management, L.P.
800 Scudders Mill Road
Plainsboro, New Jersey 08536
TRANSFER AGENT
Financial Data Services, Inc.
P.O. Box 44062
Jacksonville, Florida 32232-4062
(888-763-2260)
INDEPENDENT AUDITORS
Deloitte & Touche LLP
117 Campus Drive
Princeton, New Jersey 08540-6400
DISTRIBUTOR
Mercury Funds Distributor,
a division of Princeton Funds Distributor, Inc.
P.O. Box 9081
Princeton, New Jersey 08543-9081
CUSTODIAN
Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109
COUNSEL
Swidler Berlin Shereff Friedman, LLP
919 Third Avenue
New York, New York 10022
MERCURY GOLD AND MINING FUND
<PAGE> 37
[TO LEARN MORE LOGO]
To Learn More
SHAREHOLDER REPORTS
Additional information about the Fund's investments is available in the Fund's
annual and semi-annual reports to shareholders. In the Fund's annual report you
will find a discussion of the relevant market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year. You may obtain these reports at no cost by calling 1-888-763-2260.
If you hold your Fund shares through a brokerage account or directly at the
Transfer Agent, you may receive only one copy of each shareholder report and
certain other mailings regardless of the number of Fund accounts you have. If
you prefer to receive separate shareholder reports for each account (or if you
are receiving multiple copies and prefer to receive only one), call your
financial consultant or, if none, write to the Transfer Agent at its mailing
address. Include your name, address, tax identification number and brokerage or
mutual fund account number. If you have any questions, please call your
financial consultant or the Transfer Agent at 1-888-763-2260.
STATEMENT OF ADDITIONAL INFORMATION
The Fund's Statement of Additional Information contains further information
about the Fund and is incorporated by reference (legally considered to be part
of this Prospectus). You may request a free copy by writing or calling the Fund
at the address and telephone number indicated above.
Contact your financial consultant or the Fund at the telephone number or address
indicated on the inside back cover of this Prospectus if you have any questions.
Information about the Fund (including the Statement of Additional Information)
can be reviewed and copied at the SEC's Public Reference Room in Washington,
D.C. Call 1-800-SEC-0330 for information on the operation of the public
reference room. This information is also available on the SEC's Internet Site at
http://www.sec.gov and copies may be obtained upon payment of a duplicating fee
by writing the Public Reference Section of the SEC, Washington, D.C. 20549-6009.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. NO ONE IS
AUTHORIZED TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT.
Investment Company Act File #811-08797.
CODE # 19038-1298
(C) Mercury Asset Management International Ltd.
Mercury Gold and
Mining Fund
OF MERCURY ASSET MANAGEMENT FUNDS, INC.
[ARTWORK TO COME]
PROSPECTUS - , 1998
[MERCURY ASSET MANAGEMENT LOGO]
<PAGE> 38
STATEMENT OF ADDITIONAL INFORMATION
MERCURY GOLD AND MINING FUND
of Mercury Asset Management Funds, Inc.
P.O. Box 9011, Princeton, New Jersey 08543-9011
Phone No. (888) 763-2260
------------------------
Mercury Gold and Mining Fund (the "Fund") is a series of Mercury Asset
Management Funds, Inc. (the "Corporation" or "Mercury"). The Fund is an open-end
diversified investment company (commonly known as a mutual fund). The investment
objective of the Fund is long-term capital growth through investments primarily
in a diversified portfolio of equity securities of gold mining companies, and to
a lesser extent of companies engaged in other mining activities, located
throughout the world. The Fund may also invest in asset-based securities that
relate to the market price of gold bullion and directly in gold bullion. The
Fund will seek to achieve its investment objective by investing all of its
assets in Mercury Master Gold and Mining Portfolio (the "Portfolio"), which is
the portfolio of Mercury Asset Management Master Trust (the "Trust") that has
the same investment objective as the Fund. The Fund's investment experience will
correspond directly to the investment experience of the Portfolio. There can be
no assurance that the investment objective of the Fund will be achieved.
The Fund offers four classes of shares, each with a different combination
of sales charges, ongoing fees and other features. This permits an investor to
choose the method of purchasing shares that the investor believes is most
beneficial given the amount of the purchase, the length of time the investor
expects to hold the shares and other relevant circumstances. The Fund's
distributor is Mercury Funds Distributor, a division of Princeton Funds
Distributor, Inc.
------------------------
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Prospectus of the Fund, dated , 1998 (the
"Prospectus"), which has been filed with the Securities and Exchange Commission
(the "Commission") and can be obtained, without charge, by calling the Fund at
888-763-2260 or your financial consultant, or by writing to the address listed
above. This Statement of Additional Information incorporates by reference the
Prospectus.
MERCURY ASSET MANAGEMENT INTERNATIONAL LTD. -- INVESTMENT ADVISER
MERCURY FUNDS DISTRIBUTOR -- DISTRIBUTOR
------------------------
The date of this Statement of Additional Information is
, 1998.
<PAGE> 39
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objectives and Policies.......................... 2
Investment Restrictions................................... 11
Management of the Fund...................................... 13
Directors and Officers.................................... 13
Compensation of Directors/Trustees........................ 14
Administration Arrangements............................... 15
Management and Advisory Arrangements...................... 15
Code of Ethics............................................ 16
Purchase of Shares.......................................... 17
Initial Sales Charge Alternatives -- Class I and Class A
Shares................................................. 17
Reduced Initial Sales Charges............................. 18
Distribution Plans........................................ 19
Limitations on the Payment of Deferred Sales Charges...... 21
Redemption of Shares........................................ 21
Redemption................................................ 21
Repurchase................................................ 22
Reinstatement Privilege -- Class I and Class A Shares..... 22
Deferred Sales Charges -- Class B and Class C Shares...... 23
Portfolio Transactions and Brokerage........................ 24
Determination of Net Asset Value............................ 25
Shareholder Services........................................ 26
Investment Account........................................ 26
Automated Investment Plan................................. 27
Automatic Dividend Reinvestment........................... 27
Systematic Redemption Program............................. 27
Retirement Plans.......................................... 28
Exchange Privilege........................................ 28
Fee-Based Programs........................................ 30
Dividends, Distributions and Taxes.......................... 30
Dividends and Distributions............................... 30
Taxes..................................................... 30
Tax Treatment of Options and Futures Transactions......... 33
Other Tax Matters......................................... 33
Performance Data............................................ 33
General Information......................................... 34
Description of Shares..................................... 34
Computation of Offering Price Per Share................... 35
Independent Auditors...................................... 35
Custodian................................................. 36
Transfer Agent............................................ 36
Legal Counsel............................................. 36
Reports to Shareholders................................... 36
Additional Information.................................... 36
Appendix A.................................................. A-1
Appendix B.................................................. B-1
</TABLE>
CODE #19039-1298
(C) Mercury Asset Management International Ltd.
<PAGE> 40
INVESTMENT OBJECTIVES AND POLICIES
The goal (that is, the investment objective) of the Fund is long-term
capital growth through investments primarily in a diversified portfolio of
equity securities of gold mining companies, and to a lesser extent of companies
engaged in other mining activities located throughout the world. The Fund may
also invest in asset-based securities that relate to the market price of gold
bullion and directly in gold bullion. This is a fundamental policy and cannot be
changed without shareholder approval. Reference is made to "How the Fund
Invests" in the Prospectus for a discussion of the investment objective and
policies of the Fund.
The Fund will seek to achieve its investment objective by investing all of
its assets in the Portfolio, which is a portfolio of the Trust that has the same
investment objective as the Fund. The Fund's investment experience and results
will correspond directly to the investment experience of the Portfolio. Thus,
all investments will be made at the level of the Portfolio. For simplicity,
however, with respect to investment objective, policies and restrictions, this
Statement of Additional Information, like the Prospectus, uses the term "Fund"
to include the underlying Portfolio in which the Fund invests. Reference is made
to the discussion under "How the Fund Invests" and "Investment Risks" in the
Prospectus for information with respect to the Fund's and the Portfolio's
investment objective and policies. There can be no guarantee that the Fund's
investment objective will be achieved.
The Fund attempts to achieve its investment objective by seeking to
identify securities of companies that, in management's opinion, are undervalued
relative to the value of the gold or other mining holdings of such companies in
light of current and anticipated economic or financial conditions. The Fund will
consider a company to have substantial gold or other mining assets when, in
management's opinion, the company's holdings of the assets are of such
magnitude, when compared to the capitalization, revenues or operating profits of
the company that changes in the economic value of the assets will affect the
market price of the equity securities of such company. Generally a company has
substantial gold or other mining assets when at least 50% of its non-current
assets, capitalization, gross revenues or operating profits of the company in
the most recent or current fiscal year are involved in or result from (directly
or indirectly through subsidiaries), exploring mining, refining processing,
fabricating, dealing in or owning gold and other mining assets. Examples of
other mining assets include other precious metals (e.g., silver and platinum),
non-ferrous metals (e.g., copper and nickel) and industrial minerals (e.g., coal
and iron ore). With the exception of gold bullion, the Fund presently does not
intend to invest directly in metals and minerals assets or contracts related
thereto.
While it is the policy of the Fund 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 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 Fund. If such restrictions should be reinstituted, it might become
necessary for the Fund to invest all or substantially all of its assets in U.S.
securities. In such event, the Fund would review its investment objective or
fundamental policies to determine whether changes are appropriate. Any changes
in the investment objective or fundamental policies set forth under "Investment
Restrictions" below would require the approval of the holders of a majority of
the Fund's outstanding voting securities.
The Fund'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 strategy, although there can be no assurance in this regard.
The Fund 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
2
<PAGE> 41
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 the Prospectus 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 tradeable both in
the United States and Europe and are designed for use throughout the world. The
Fund 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.
The Fund's investment objective and policies are described in "How the Fund
Invests" in the Prospectus. Certain types of securities in which the Fund may
invest and certain investment practices that the Fund may employ are discussed
more fully below.
Investing in Gold and Other Mining Industries. The Fund invests
principally in the equity securities of foreign and domestic companies engaged
in the exploration, mining, fabrication, processing or marketing and
distribution of gold. The Fund also invests in equity securities of foreign and
domestic companies engaged in these activities with respect to silver, platinum,
diamonds or other precious and rare metals, base metals and minerals. The Fund
may also invest up to 10% of its assets directly in gold bullion when the Fund
believes it is undervalued relative to the price of securities of gold mining
companies. However, the Fund may have internal guidelines that limit its
investments in gold bullion to considerably less than 10% of the Fund's assets.
The industry risks associated with an investment in the Fund include the sharp
price volatility of gold and other metals and of mining company shares.
Investments related to gold or other metals or minerals are considered
speculative and are affected by a host of worldwide economic, financial and
political factors. Prices of gold and other metals may fluctuate sharply over
short periods due to several factors: changes in inflation or expectations
regarding inflation in various countries; currency fluctuations; metal sales by
governments, central banks or international agencies; investment speculation;
changes in industrial and commercial demand; and government prohibitions or
restrictions on the private ownership of certain metals or minerals. Political
and economic conditions in gold-producing countries may also have a direct
effect on the mining and distribution of gold and, consequently, its price.
The Fund may invest without limit in securities of companies located in
countries with emerging capital markets including the Republic of South Africa,
The People's Republic of China, Russia, Indonesia, Uzbekistan, Peru, Brazil,
Mexico, Zimbabwe, Ghana, Mali, Tanzania, the Philippines and Papua New Guinea.
The Fund may also invest in securities of companies located in countries with
developed capital markets including the United States, Canada, Japan, United
Kingdom, Finland, France, Germany, Switzerland, Ireland, Luxemburg, Spain and
Australia.
Sales of gold by companies in Russia are largely unpredictable and often
relate to political and economic considerations rather than to market forces. In
South Africa, the activities of gold-mining companies are subject to policies
promulgated by the Ministry of Mines. The Reserve Bank of South Africa, as the
sole authorized agent for South African gold, influences the price and timing of
sales of South African gold. The South African government has also from time to
time imposed restrictions on the flow of international capital. Political and
social problems in South Africa may also pose certain risks. These include the
effect of social and political unrest on mining production and gold prices, as
well as the threat of nationalization or expropriation by the government of
South Africa.
The Fund also invests to a lesser extent in other precious metal shares,
base metal shares and other mining related shares, and may also invest directly
in gold bullion. To the extent that the Fund invests in bullion, it will be
bought from and sold only to banks (both U.S. and non-U.S.), and dealers who are
members of or affiliated with members of a regulated U.S. commodities exchange,
in accordance with applicable investment laws. Gold bullion will not be
purchased in any form that is not readily marketable. Coins will not be
purchased for their numismatic value and will not be considered for the Fund if
they cannot
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<PAGE> 42
be bought or sold in an active market. Any bullion or coins purchased by the
Fund will be delivered to and stored with a qualified custodian bank in the U.S.
Investors should be aware that bullion and coins do not generate income,
offering only the potential for capital appreciation or depreciation, and may
subject the Portfolio to higher custody and transactions costs that those
normally associated with the ownership of securities.
Asset-Based Securities. The Fund may invest in debt securities, preferred
stocks or convertible securities, the principal amount, redemption terms or
conversion terms of which are related to the market price of gold bullion or
some other natural resource asset. For the purposes of the Fund's investment
policies, these securities are referred to as "asset-based securities." The Fund
will only purchase asset-based securities which are rated, or are issued by
issuers that have outstanding debt obligations rated, investment grade (that is,
AAA, AA, A or BBB by Standard & Poor's Ratings Services ("Standard & Poor's") or
Aaa, Aa, A or Baa by Moody's Investors Service, Inc. ("Moody's") or commercial
paper rated A-1 by S&P or Prime-1 by Moody's) or in unrated securities of
issuers that the Investment Adviser has determined to be of similar
creditworthiness. Obligations ranked in the fourth highest rating category,
while considered "investment grade," may have certain speculative
characteristics and may be more likely to be downgraded than securities rated in
the three highest rating categories. If an asset-based security is backed by a
bank letter of credit or other similar facility, the Investment Adviser may take
such backing into consideration in determining the creditworthiness of the
issuer. While the market prices for an asset-based security and the related gold
bullion or other natural resource asset generally are expected to move in the
same direction, there may not be perfect correlation in the two price movements.
Asset-based securities may not be secured by a security interest in or claim on
the gold bullion or other underlying natural resource assets.
The Fund will not acquire asset-based securities for which no established
secondary trading market exists if at the time of acquisition more than 15% of
its net assets are invested in securities that are not readily marketable. The
Fund may invest in asset-based securities without limit when it has the option
to put such securities to the issuer or a stand-by bank or broker and receive
the principal amount or redemption price thereof less transaction costs on no
more than seven days' notice or when the Fund has the right to convert such
securities into a readily marketable security in which it could otherwise invest
upon not less than seven days' notice.
The asset-based securities in which the Fund may invest may bear interest
or pay preferred dividends at below market (or even relatively nominal) rates.
The Fund's holdings of such securities therefore might not generate appreciable
current income, and the return from such securities primarily will be from any
profit on the sale, maturity or conversion thereof at a time when the price of
the related asset is higher than it was when the Fund purchased such securities.
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 Fund 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 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
investment 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 Fund 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
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<PAGE> 43
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 1, 1999 and is expected to
replace the existing national currencies of all EMU participants by July 1,
2002. EMU is scheduled to take effect for the initial EMU participants as of
January 1, 1999, and will be implemented over the weekend January 1, 1999
through January 2, 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
Fund's investments in Europe generally or in specific countries participating in
EMU. Gains or losses resulting from the euro conversion may be taxable to Fund
shareholders under foreign or, in certain limited circumstances, U.S. tax laws.
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 Fund
could be adversely affected if the computer, accounting, and trading systems
used by the Investment Adviser, the Fund's service providers, or other entities
with which the Fund or its service providers do business do not properly address
this issue prior to January 4, 1999.
Most of the securities held by the Fund 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
the Fund 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 the Fund are uninvested and no return is earned
thereon and could cause the Fund to miss attractive investment opportunities.
Inability to dispose of a portfolio security due to settlement problems either
could result in losses to the Fund due to subsequent declines in value of the
portfolio security or, if the Fund has entered into a contract to sell the
security, could result in possible liability to the purchaser. Brokerage
commissions and other transaction costs on non-U.S. securities exchanges are
generally higher than
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<PAGE> 44
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"), the Fund 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 the Fund 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 the Fund acquires shares in
closed-end investment companies, shareholders would bear both their
proportionate share of expenses in the Fund (including investment advisory fees)
and, indirectly, the expenses of such closed-end investment companies. The Fund
also may seek, at its own cost, to create its own investment entities under the
laws of certain countries.
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 the Fund'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 the Fund's
investments in certain foreign banks and other financial institutions.
As described above, the Fund may invest outside the U.S. The securities and
commodities 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 and commodities markets occurs, it may reduce risk
for the Fund's portfolio as a whole. This negative correlation also may offset
unrealized gains the Fund 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 and commodities 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 and commodities markets in a particular country. As
a result, gains in a particular securities or commodities market may be affected
by changes in exchange rates.
Investment in Emerging Markets. The Fund has the ability to invest in the
securities of issuers domiciled in various countries with emerging capital
markets. Specifically, a country with an emerging capital market 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. 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. The Fund also may consider
closed-end investment companies to be located in the country or countries in
which they primarily make their portfolio investments.
Investments in the securities of issuers domiciled in countries with
emerging capital markets involve certain additional risks not involved in
investment 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 the Fund'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.
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<PAGE> 45
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 present
viable investment opportunities for the Fund. 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 the Fund 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 the
Fund'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
the Fund 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
the Fund 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. The Fund may hold convertible debt securities,
non-convertible securities and preferred securities. The Fund has established no
rating criteria for the debt securities in which it may invest. Therefore, the
Fund 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 debt issuers that are mining companies
may also experience financial stress as a result of low metal or mineral prices.
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 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 the Fund. If a call
were exercised by an issuer during a period of declining interest rates, the
Fund likely would have to replace such called security with a lower yielding
security, thus decreasing the net investment income for the Fund and dividends
to shareholders.
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<PAGE> 46
The Fund 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 Fund anticipates
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 the Fund's ability to dispose of
particular issues when necessary to meet the Fund'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 Fund to obtain accurate
market quotations for purposes of valuing the Fund's portfolio. 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 the Fund holds
high yield securities, factors adversely affecting the market value of high
yield securities are likely to adversely affect the Fund's net asset value. In
addition, the Fund 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. The Fund may borrow from banks (as defined in the Investment
Company Act) in amounts up to 33 1/3% of its total assets (including the amount
borrowed), and may borrow up to an additional 5% of its total assets for
temporary purposes. The Fund 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, the Fund may use borrowing to enable it to meet
redemptions. The purchase of securities while borrowings are outstanding will
have the effect of leveraging the Fund. Such leveraging increases the Fund's
exposure to capital risk. See "Investment Restrictions" below.
Illiquid or Restricted Securities. The Fund may invest up to 15% of its
net assets in securities that lack an established secondary trading market or
otherwise are considered illiquid. Liquidity of a security relates to the
ability to dispose easily of the security and the price to be obtained upon
disposition of the security, which may be less than would be obtained for a
comparable more liquid security. Illiquid securities may trade at a discount
from comparable, more liquid investments. Investment of the Fund's assets in
illiquid securities may restrict the ability of the Fund to dispose of 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 the Fund's operations require cash, such as
when the Fund redeems shares or pays dividends, and could result in the Fund
borrowing to meet short-term cash requirements or incurring capital losses on
the sale of illiquid investments.
The Fund may invest in securities that are "restricted securities."
Restricted securities have contractual or legal restrictions on their resale and
include "private placement" securities that the Fund may buy directly from the
issuer. Restricted securities may be 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 the Fund are required to be registered under the securities laws of one or
more jurisdictions before being resold, the Fund may be required to bear the
expenses of registration. Certain of the Fund's investments in private
placements may consist of direct investments and may include investments in
smaller, less-seasoned issuers, which may involve greater risks. These issuers
may have limited product lines, markets or financial resources, or they may be
dependent on a limited management group. In making investments in such
securities, the Fund
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<PAGE> 47
may obtain access to material nonpublic information which may restrict the
Fund's ability to conduct portfolio transactions in such securities.
Other Special Considerations. The Fund may make short-term investments,
purchase high quality bonds or buy or sell derivatives, to reduce exposure to
equity securities when the Fund 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 shares of the Fund.
Sovereign Debt. The Fund 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 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 of 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 the Fund, 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 the Fund 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, the Fund may have difficulty disposing of certain
sovereign debt obligations because there may be a thin trading market for such
securities.
Securities Lending. The Fund may lend securities with a value not
exceeding 33 1/3% of its total assets. In return, the Fund 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 the Fund, 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 Fund. Alternatively, if securities are delivered
to the Fund as collateral, the Fund and the borrower negotiate a rate for the
loan premium to be received by the Fund for lending its portfolio securities. In
either event, the total yield on the Fund's portfolio is increased by loans of
its portfolio securities. The Fund 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. The Fund may pay
reasonable finder's, administrative and custodial fees in connection with its
loans. In the event that the borrower defaults on its obligation to return
borrowed securities because of insolvency or for any other reason, the Fund
could experience delays and costs in gaining access to the collateral and could
suffer a loss to the extent the value of the collateral falls below the market
value of the borrowed securities.
Repurchase Agreements. The Fund 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 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 Fund
from fluctuations in the market value of the underlying security during such
period,
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<PAGE> 48
although, to the extent the repurchase agreement is not denominated in U.S.
dollars, the Fund's return may be affected by currency fluctuations. The Fund
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.
The Fund will require the seller to provide additional collateral if the market
value of the securities falls below the repurchase price at any time during the
term of the repurchase agreement. In the event of default by the seller under a
repurchase agreement construed to be a collateralized loan, the underlying
securities are not owned by the Fund but only constitute collateral for the
seller's obligation to pay the repurchase price. Therefore, the Fund may suffer
time delays and incur costs or possible losses in connection with the
disposition of the collateral. In the event of a default under such a repurchase
agreement, instead of the contractual fixed rate of return, the rate of return
to the Fund shall be dependent upon intervening fluctuations of the market value
of such security and the accrued interest on the security. In such event, the
Fund would have rights against the seller for breach of contract with respect to
any losses arising from market fluctuations following the failure of the seller
to perform.
Warrants. The Fund 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 the Fund a shareholder of the
underlying stock. The warrant holder has no right to dividends or votes on the
underlying stock. A warrant does not carry any right to assets of the issuer,
and for this reason investment in warrants may be more speculative than other
equity-based investments.
When-Issued Securities and Forward Commitments. The Fund may purchase or
sell securities that it is entitled to receive on a when-issued basis. The Fund
may also purchase or sell securities through a forward commitment. These
transactions involve the purchase or sale of securities by the Fund at an
established price with payment and delivery taking place in the future. The Fund
enters into these transactions to obtain what is considered an advantageous
price to the Fund at the time of entering into the transaction. The Fund has not
established any limit on the percentage of its assets that may be committed in
connection with these transactions. When the Fund is purchasing securities in
these transactions, the Fund 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 the Fund's purchase price. The Fund may bear the
risk of a decline in the value of the security in these transactions and may not
benefit from an appreciation in the value of the security during the commitment
period.
Standby Commitment Agreements. The Fund may enter into standby commitment
agreements. These agreements commit the Fund, for a stated period of time, to
purchase a stated amount of securities which may be issued and sold to the Fund
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 Fund is paid a
commitment fee, regardless of whether or not the security is ultimately issued.
The Fund 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 Fund. The Fund 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. The Fund 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, the Fund
may bear the risk
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<PAGE> 49
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 the Fund'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 Corporation has adopted the following restrictions and policies
relating to the investment of the Fund's assets and its activities. The
fundamental restrictions set forth below may not be changed with respect to the
Fund without the approval of the holders of a majority of the Fund's outstanding
voting securities (which for this purpose and under the Investment Company Act
means the lesser of (i) 67% of the shares represented at a meeting at which more
than 50% of the outstanding shares are represented or (ii) more than 50% of the
outstanding shares). Provided that none of the following restrictions shall
prevent the Fund from investing all of its assets in shares of another
registered investment company with the same investment objective (in a
master/feeder structure), the Fund may not:
1. Make any investment inconsistent with the Fund'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).
3. Make investments for the purpose of exercising control or
management. Investments by the Fund in wholly-owned investment entities
created under the laws of certain countries will not be deemed the making
of investments for the purpose of exercising control or management.
4. Purchase or sell real estate, except that, to the extent permitted
by applicable law, the Fund may invest in securities directly or indirectly
secured by real estate or interests therein or issued by companies that
invest in real estate or interests therein.
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 Fund may lend its portfolio securities, provided
that the lending of portfolio securities may be made only in accordance
with applicable law and the guidelines set forth in the Fund's Prospectus
and Statement of Additional Information, as they may be amended from time
to time.
6. Issue senior securities to the extent such issuance would violate
applicable law.
7. Borrow money, except that (i) the Fund may borrow from banks (as
defined in the Investment Company Act) in amounts up to 33 1/3% of its
total assets (including the amount borrowed), (ii) the Fund may borrow up
to an additional 5% of its total assets for temporary purposes, (iii) the
Fund may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities and (iv) the Fund
may purchase securities on margin to the extent permitted by applicable
law. The Fund may not pledge its assets other than to secure such
borrowings or, to the extent permitted by the Fund's investment policies as
set forth in its Prospectus and Statement of Additional Information, as
they may be amended from time to time, in connection with hedging
transactions, short sales, when-issued and forward commitment transactions
and similar investment strategies.
8. Underwrite securities of other issuers except insofar as the Fund
technically may be deemed an underwriter under the Securities Act of 1933,
as amended (the "Securities Act"), in selling portfolio securities.
11
<PAGE> 50
9. Purchase or sell commodities or contracts on commodities, except to
the extent that the Fund may do so in accordance with applicable law and
the Fund's Prospectus and Statement of Additional Information, as they may
be amended from time to time, and without registering as a commodity pool
operator under the Commodity Exchange Act.
The Trust has adopted investment restrictions substantially identical to
the foregoing, which are fundamental policies of the Trust and may not be
changed with respect to the Portfolio without the approval of the holders of a
majority of the interests of the Portfolio.
In addition, the Corporation has adopted non-fundamental restrictions that
may be changed by the Board of Directors without shareholder approval. Like the
fundamental restrictions, none of the non-fundamental restrictions, including
but not limited to restriction (a) below, shall prevent the Fund from investing
all of its assets in shares of another registered investment company with the
same investment objective (in a master/feeder structure). Under the
non-fundamental investment restrictions, the Fund may not:
(a) Purchase securities of other investment companies, except to the
extent such purchases are permitted by applicable law. As a matter of
policy, however, the Fund will not purchase shares of any registered
open-end investment company or registered unit investment trust, in
reliance on Section 12(d)(1)(F) or (G) (the "fund of funds" provisions) of
the Investment Company Act, at any time the Fund's shares are owned by
another investment company that is part of the same group of investment
companies as the Fund.
(b) Make short sales of securities or maintain a short position,
except to the extent permitted by applicable law. The Fund currently does
not intend to engage in short sales, except short sales "against the box."
(c) Invest in securities that cannot be readily resold because of
legal or contractual restrictions or that cannot otherwise be marketed,
redeemed or put to the issuer or a third party, if at the time of
acquisition more than 15% of its net assets would be invested in such
securities. This restriction shall not apply to securities that mature
within seven days or securities that the Directors of the Corporation 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 Directors
are not subject to the limitations set forth in this investment
restriction.
The Trust has adopted investment restrictions substantially identical to
the foregoing, which are nonfundamental policies of the Trust and may be changed
with respect to any Portfolio by the Trustees.
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 Corporation and Trust have
adopted an investment policy pursuant to which neither the Portfolio nor the
Fund will purchase or sell OTC options (including OTC options on futures
contracts) if, as a result of such transaction, the sum of the market value of
OTC options currently outstanding that are held by the Fund or Portfolio, the
market value of the underlying securities covered by OTC call options currently
outstanding that were sold by the Fund or Portfolio and margin deposits on the
Fund or Portfolio's existing OTC options on futures contracts exceeds 15% of the
net assets of the Fund or Portfolio taken at market value, together with all
other assets of the Fund or Portfolio that are illiquid or are not otherwise
readily marketable. However, if the OTC option is sold by the Fund or Portfolio
to a primary U.S. Government securities dealer recognized by the Federal Reserve
Bank of New York and if the Fund or Portfolio has the unconditional contractual
right to repurchase such OTC option from the dealer at a predetermined price,
then the Fund or 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 Fund or Portfolio and may be amended by the
12
<PAGE> 51
Trustees or the Directors without the approval of the shareholders. However, the
Directors or 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 Portfolio and the Fund 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.
Because of the affiliation of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") with the Investment Adviser and Fund Asset
Management, L.P. ("FAM" or the "Administrator"), the Fund and Portfolio are
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 the Fund and Portfolio
may purchase from an underwriting syndicate of which Merrill Lynch is a member.
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
The Directors of the Corporation consist of six individuals, four of whom
are not "interested persons" of the Corporation as defined in the Investment
Company Act. The same individuals serve as Trustees of the Trust. The Directors
are responsible for the overall supervision of the operations of the Fund and
perform the various duties imposed on the directors of investment companies by
the Investment Company Act. Information about the Directors and executive
officers of the Corporation, their ages and their principal occupations for at
least the last five years are set forth below. Unless otherwise noted, the
address of each executive officer and Director is P.O. Box 9011, Princeton, New
Jersey 08543-9011.
Jeffrey M. Peek (51) -- Director and President(1)(2) -- President of MLAM
and FAM since 1997; President and Director of Princeton Services 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) -- Director 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) -- Director -- 410 Uris Hall, Columbia University, New
York, New York 10027. Professor of Columbia University since 1991; Chairman of
Outward Bound USA since 1997; Chairman of Wave Hill, Inc. since 1980.
James T. Flynn (57) -- Director(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) -- Director(2) -- Harvard Business School, Morgan Hall
393, Soldiers Field, Boston, Massachusetts 02163. James R. Williston Professor
of Business Administration of Harvard 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) -- Director -- 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.
13
<PAGE> 52
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 Fund.
(2) Such Director or officer is a trustee, director or officer of other
investment companies for which the Investment Adviser, or the Fund's
sub-adviser and administrator, FAM, or their affiliates, acts as investment
adviser.
As of the date of this Statement of Additional Information, the officers
and Directors of the Corporation 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 the Fund.
COMPENSATION OF DIRECTORS/TRUSTEES
The Corporation 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 Fund and the Portfolio, 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 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 ending December 31, 1997.
<TABLE>
<CAPTION>
PENSION OR RETIREMENT TOTAL COMPENSATION FROM
BENEFITS ACCRUED AS FUND/PORTFOLIO AND
PART OF MERCURY AND AFFILIATES-
AGGREGATE COMPENSATION FUND/PORTFOLIO ADVISED FUNDS PAID TO
NAME OF DIRECTOR/TRUSTEE FROM FUND/PORTFOLIO EXPENSES 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).
The Directors of the Corporation and the Trustees of the Trust may be eligible
for reduced sales charges on purchases of Class I shares. See "Reduced Initial
Sales Charges -- Purchase Privileges of Certain Persons."
14
<PAGE> 53
ADMINISTRATION ARRANGEMENTS
The Corporation on behalf of the Fund has entered into an administration
agreement with FAM as Administrator (the "Administration Agreement"). The
Administrator receives for its services to the Fund monthly compensation at the
annual rate of 0.25% of the average daily net assets of the Fund.
The Administration Agreement obligates the Administrator to provide certain
administrative services to the Corporation and the Fund 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 Corporation. The Administrator
is also obligated to pay, or cause its affiliate to pay, the fees of those
Officers, Directors, and Trustees who are affiliated persons of the
Administrator or any of its affiliates. The Corporation pays, or causes to be
paid, all other expenses incurred in the operation of the Corporation and the
Fund (except to the extent paid by Mercury Funds Distributor, a division of
Princeton Funds Distributor, Inc. ("MFD" or the "Distributor")), including,
among other things, taxes, expenses for legal and auditing services, costs of
printing proxies, shareholder reports and prospectuses and statements of
additional information, charges of the Custodian, any Sub-custodian and
Financial Data Services, Inc. (the "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 Directors who are not affiliated persons of the
Administrator, or of an affiliate of the Administrator, accounting and pricing
costs (including the daily calculation of net asset value), insurance, interest,
brokerage costs, litigation and other extraordinary or non-recurring expenses,
and other expenses properly payable by the Corporation or the Fund. The
Distributor will pay certain of the expenses of the Fund incurred in connection
with the continuous offering of its shares. Accounting services are provided to
the Corporation and the Fund by the Administrator, and the Corporation
reimburses the Administrator for its costs in connection with such services.
Duration and Termination. Unless earlier terminated as described below,
the Administration Agreement will remain in effect for two years from its
effective date. Thereafter, it will remain in effect from year to year with
respect to the Fund if approved annually (a) by the Board of Directors and (b)
by a majority of the Directors who are not parties to such contract or
interested persons (as defined in the Investment Company Act) of any such party.
Such contract is not assignable and may be terminated with respect to the Fund
without penalty on 60 days' written notice at the option of either party thereto
or by the vote of the shareholders of the Fund.
MANAGEMENT AND ADVISORY ARRANGEMENTS
The Fund invests all of its assets in shares of the Portfolio. Accordingly,
the Fund does not invest directly in portfolio securities and does not require
investment advisory services. All portfolio management occurs at the level of
the Trust. The Trust on behalf of the Portfolio has entered into an investment
advisory agreement with Mercury International as Investment Adviser (the
"Advisory Agreement"). As discussed in "The Management Team -- Management of the
Fund" in the Prospectus, the Investment Adviser receives for its services to the
Portfolio monthly compensation at the annual rate of 0.75% of the average daily
net assets of the Portfolio.
The Advisory Agreement obligates 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 Portfolio and the Trust (except to the extent paid by the Distributor),
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
15
<PAGE> 54
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 Portfolio. The Distributor will pay certain
of the expenses of the Fund incurred in connection with the continuous offering
of its shares. 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 Portfolio, 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 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 a sub-advisory agreement (the
"Sub-Advisory Agreement") with FAM with respect to the Portfolio, pursuant to
which FAM provides investment advisory services with respect to the 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 Agreement.
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 Agreement and Sub-Advisory Agreement will each remain in effect for
two years from its effective date. 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 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 contract is not assignable and
may be terminated with respect to the 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 fund 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
16
<PAGE> 55
transactions the Trust undertakes) of the Trust within periods of trading by the
Trust in the same (or equivalent) security.
PURCHASE OF SHARES
Reference is made to "Account Choices -- How to Buy, Sell, Transfer and
Exchange Shares" in the Prospectus for certain information as to the purchase of
Fund shares.
The Fund issues four classes of shares: shares of Class I and Class A are
sold to investors choosing the initial sales charge alternatives and shares of
Class B and Class C are sold to investors choosing the deferred sales charge
alternatives. Each Class I, Class A, Class B and Class C share of the Fund
represents an identical interest in the investment portfolio of the Fund, and
has the same rights, except that Class A, Class B and Class C shares bear the
expenses of the ongoing account maintenance fees (also known as service fees)
and Class B and Class C shares bear the expenses of the ongoing distribution
fees and the additional incremental transfer agency costs resulting from the
deferred sales charge arrangements. Class A, Class B and Class C shares each
have exclusive voting rights with respect to the Rule 12b-1 distribution plan
adopted with respect to such class pursuant to which the account maintenance
and/or distribution fees are paid (except that Class B shareholders may vote
upon any material changes to expenses charged under the Class A Distribution
Plan). Each class has different exchange privileges. See "Shareholder
Services -- Exchange Privilege."
MFD, an affiliate of the Investment Adviser and of Merrill Lynch, with
offices at 800 Scudders Mill Road, Plainsboro, New Jersey 08536 (mailing
address: P. O. Box 9081, Princeton, New Jersey 08543-9081) acts as Distributor
for the Fund.
The Corporation has entered into a distribution agreement with the
Distributor in connection with the offering of shares of the Fund (the
"Distribution Agreement"). The Distribution Agreement obligates the Distributor
to pay certain expenses in connection with the offering of the shares of the
Fund. After the prospectuses, statements of additional information and periodic
reports have been prepared, set in type and mailed to shareholders, the
Distributor pays for the printing and distribution of copies thereof used in
connection with the offering to dealers and investors. The Distributor also pays
for other supplementary sales literature and advertising costs. The Distribution
Agreement is subject to the same renewal requirements and termination provisions
as the Advisory Agreement described above.
The Corporation reserves the right to suspend the offering of its shares at
any time.
INITIAL SALES CHARGE ALTERNATIVES -- CLASS I AND CLASS A SHARES
Investors choosing the initial sales charge alternatives who are eligible
to purchase Class I shares should purchase Class I shares rather than Class A
shares because there is an account maintenance fee imposed on Class A shares.
Eligible Class I Investors. Class I shares are offered to a limited group
of investors and also will be issued upon reinvestment of dividends on
outstanding Class I shares. Investors that currently own Class I shares of the
Fund in a shareholder account are entitled to purchase additional Class I shares
of the Fund in that account. Certain employer sponsored retirement or savings
plans, including eligible 401(k) plans, may purchase Class I shares at net asset
value provided such plans meet the required minimum number of eligible employees
or required amount of assets advised by Mercury or any of its affiliates. Also
eligible to purchase Class I shares at net asset value are participants in
certain investment programs including certain managed accounts for which a trust
institution, thrift, or bank trust department provides discretionary trustee
services, certain collective investment trusts for which a trust institution,
thrift, or bank trust department serves as trustee, certain purchases made in
connection with certain fee-based programs and certain purchases made through
certain financial advisers that meet and adhere to standards established by
Mercury. In addition, Class I shares are offered at net asset value to ML & Co.
and its subsidiaries and their directors and employees, to members of the Boards
of Mercury and Affiliates-Advised investment companies, including the
Corporation, and to employees of certain selected dealers.
17
<PAGE> 56
The term "purchase," as used in the Prospectus and this Statement of
Additional Information in connection with an investment in Class I and Class A
shares of the Fund, refers to a single purchase by an individual or to
concurrent purchases, which in the aggregate are at least equal to the
prescribed amounts, by an individual, his or her spouse and their children under
the age of 21 years purchasing shares for his or her or their own account and to
single purchases by a trustee or other fiduciary purchasing shares for a single
trust estate or single fiduciary account although more than one beneficiary is
involved. The term "purchase" also includes purchases by any "company," as that
term is defined in the Investment Company Act, but does not include purchases by
any such company that has not been in existence for at least six months or which
has no purpose other than the purchase of shares of the Fund or shares of other
registered investment companies at a discount; provided, however, that it shall
not include purchases by any group of individuals whose sole organizational
nexus is that the participants therein are credit cardholders of a company,
policyholders of an insurance company, customers of either a bank or
broker-dealer or clients of an investment adviser.
REDUCED INITIAL SALES CHARGES
No initial sales charges are imposed upon Class I and Class A shares issued
as a result of the automatic reinvestment of dividends or capital gains
distributions.
Rights of Accumulation. Reduced sales charges are applicable through a
right of accumulation under which eligible investors are permitted to purchase
shares of the Fund subject to an initial sales charge at the offering price
applicable to the total of (a) the public offering price of the shares then
being purchased plus (b) an amount equal to the then current net asset value or
cost, whichever is higher, of the purchaser's combined holdings of all classes
of shares of the Fund and of other Mercury mutual funds. For any such right of
accumulation to be made available, the Distributor must be provided at the time
of purchase, by the purchaser or the purchaser's securities dealer, with
sufficient information to permit confirmation of qualification. Acceptance of
the purchase order is subject to such confirmation. The right of accumulation
may be amended or terminated at any time. Shares held in the name of a nominee
or custodian under pension, profit-sharing, or other employee benefit plans may
not be combined with other shares to qualify for the right of accumulation.
Letter of Intent. Reduced sales charges are applicable to purchases
aggregating $25,000 or more of Class I or Class A shares of the Fund or any
other Mercury mutual funds made within a 13-month period starting with the first
purchase pursuant to the Letter of Intent. The Letter of Intent is available
only to investors whose accounts are established and maintained at the Fund's
Transfer Agent. The Letter of Intent is not available to employee benefit plans
for which affiliates of Mercury International provide plan participant
record-keeping services. The Letter of Intent is not a binding obligation to
purchase any amount of Class I or Class A shares; however, its execution will
result in the purchaser paying a lower sales charge at the appropriate quantity
purchase level. A purchase not originally made pursuant to a Letter of Intent
may be included under a subsequent Letter of Intent executed within 90 days of
such purchase if the Distributor is informed in writing of this intent within
such 90-day period. The value of Class I and Class A shares of the Fund and of
other Mercury mutual funds presently held, at cost or maximum offering price
(whichever is higher), on the date of the first purchase under the Letter of
Intent, may be included as a credit toward the completion of such Letter, but
the reduced sales charge applicable to the amount covered by such Letter will be
applied only to new purchases. If the total amount of shares does not equal the
amount stated in the Letter of Intent (minimum of $25,000), the investor will be
notified and must pay, within 20 days of the execution of such Letter, the
difference between the sales charge on the Class I or Class A shares purchased
at the reduced rate and the sales charge applicable to the shares actually
purchased through the Letter. Class I or Class A shares equal to five percent of
the intended amount will be held in escrow during the 13-month period (while
remaining registered in the name of the purchaser) for this purpose. The first
purchase under the Letter of Intent must be at least five percent of the dollar
amount of such Letter. If a purchase during the term of such Letter would
otherwise be subject to a further reduced sales charge based on the right of
accumulation, the purchaser will be entitled on that purchase and subsequent
purchases to that further reduced percentage sales charge but there will be no
retroactive reduction of the sales charges on any previous purchase. The value
of any shares redeemed or otherwise disposed of by the purchaser prior to
termination or completion of the
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<PAGE> 57
Letter of Intent will be deducted from the total purchases made under such
Letter. An exchange from the Summit Cash Reserves Fund ("Summit") into the Fund
that creates a sales charge will count toward completing a new or existing
Letter of Intent from the Fund.
Purchase Privileges of Certain Persons. Directors of the Corporation and
Trustees of the Trust, members of the Boards of other investment companies
advised by Mercury International or its affiliates, directors and employees of
ML & Co. and its subsidiaries (the term "subsidiaries," when used herein with
respect to ML & Co., includes Mercury International, FAM and certain other
entities directly or indirectly wholly owned and controlled by ML & Co.),
employees of certain selected dealers, and any trust, pension, profit-sharing or
other benefit plan for such persons, may purchase Class I shares of the Fund at
net asset value. Under such programs, the Fund realizes economies of scale by
providing incentives to a large group of such individuals to invest.
Furthermore, the individuals who qualify for these programs are already familiar
with the Fund, and, therefore, providing these investment opportunities to such
qualified individuals does not increase the expenditures of sales-related
expenses.
Employees and directors or trustees wishing to purchase shares of the Fund
must satisfy the Fund's suitability standards.
Managed Trusts. Class I shares are offered at net asset value to certain
trusts to which trust institutions, thrifts, and bank trust departments provide
discretionary trustee services.
Acquisition of Certain Investment Companies. The public offering price of
Class A shares may be reduced to the net asset value per Class A share in
connection with the acquisition of the assets of or merger or consolidation with
a personal holding company or a public or private investment company. The value
of the assets or company acquired in a tax-free transaction may be adjusted in
appropriate cases to reduce possible adverse tax consequences to the Fund that
might result from an acquisition of assets having net unrealized appreciation
that is disproportionately higher at the time of acquisition than the realized
or unrealized appreciation of the Fund. The issuance of Class A shares for
consideration other than cash is limited to bona fide reorganizations, statutory
mergers or other acquisitions of portfolio securities that (i) meet the
investment objectives and policies of the Fund; (ii) are acquired for investment
and not for resale (subject to the understanding that the disposition of the
Fund's portfolio securities shall at all times remain within its control); and
(iii) are liquid securities, the value of which is readily ascertainable, which
are not restricted as to transfer either by law or liquidity of market (except
that the Fund may acquire through such transactions restricted or illiquid
securities to the extent the Fund does not exceed the applicable limits on
acquisition of such securities set forth under "Investment Objectives and
Policies" herein).
Reductions in or exemptions from the imposition of a sales charge are due
to the nature of the investors and/or the reduced sales efforts that will be
needed in obtaining such investments.
Employer-Sponsored Retirement or Savings Plans and Certain Other
Arrangements. Certain employer-sponsored retirement or savings plans and
certain other arrangements may purchase Class I or Class A shares at net asset
value, based on the number of employees or number of employees eligible to
participate in the plan and/or the aggregate amount invested by the plan in
specified investments. Certain other plans may purchase Class B shares with a
waiver of the CDSC upon redemption, based on similar criteria. Such Class B
shares will convert into Class A shares approximately ten years after the plan
purchases the first share of any Mercury mutual fund. Minimum purchase
requirements may be waived or varied for such plans. For additional information
regarding purchases by employer-sponsored retirement or savings plans and
certain other arrangements, call your plan administrator or your selected
dealer.
Purchases Through Certain Financial Advisers. Reduced sales charges may be
applicable for purchases of Class I or Class A shares of the Fund through
certain financial advisers that meet and adhere to standards established by
Mercury from time to time.
DISTRIBUTION PLANS
Reference is made to "Account Choices -- Pricing of Shares" in the
Prospectus for certain information with respect to separate distribution plans
for Class A, Class B, and Class C shares pursuant to Rule 12b-1
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under the Investment Company Act of the Fund (each a "Distribution Plan") with
respect to the account maintenance and/or distribution fees paid by the Fund to
the Distributor with respect to such classes.
The Distribution Plan for Class A, Class B and Class C shares each provides
that the Fund pays the Distributor an account maintenance fee relating to the
shares of the relevant class, accrued daily and paid monthly, at the annual rate
of 0.25% of the average daily net assets of the Fund attributable to shares of
the relevant class in order to compensate the Distributor and selected dealers
(pursuant to sub-agreements) in connection with account maintenance activities.
The Distribution Plan for Class B and Class C shares each provides that the
Fund also pays the Distributor a distribution fee relating to the shares of the
relevant class, accrued daily and paid monthly, at the annual rate of 0.75% of
the average daily net assets of the Fund attributable to the shares of the
relevant class in order to compensate the Distributor and selected dealers
(pursuant to sub-agreements) for providing shareholder and distribution
services, and bearing certain distribution-related expenses of the Fund,
including payments to financial consultants for selling Class B and Class C
shares of the Fund. The Distribution Plans relating to Class B and Class C
shares are designed to permit an investor to purchase Class B and Class C shares
through dealers without the assessment of an initial sales charge and at the
same time permit the dealer to compensate its financial consultants in
connection with the sale of the Class B and Class C shares. In this regard, the
purpose and function of the ongoing distribution fees and the CDSC are the same
as those of the initial sales charge with respect to the Class I and Class A
shares of the Fund in that the ongoing distribution fees and deferred sales
charges provide for the financing of the distribution of the Fund's Class B and
Class C shares.
The payments under the Distribution Plans are subject to the provisions of
Rule 12b-1 under the Investment Company Act, and are based on a percentage of
average daily net assets attributable to the shares regardless of the amount of
expenses incurred and, accordingly, distribution-related revenues from the
Distribution Plans may be more or less than distribution-related expenses.
Information with respect to the distribution-related revenues and expenses is
presented to the Directors of the Corporation for their consideration in
connection with their deliberations as to the continuance of the Class B and
Class C Distribution Plans. This information is presented annually as of
December 31 of each year on a "fully allocated accrual" basis and quarterly on a
"direct expense and revenue/cash" basis. On the fully allocated basis, revenues
consist of the account maintenance fees, the distribution fees, the CDSCs and
certain other related revenues, and expenses consist of financial consultant
compensation, branch office and regional operation center selling and
transaction processing expenses, advertising, sales promotion and marketing
expenses, corporate overhead and interest expense. On the direct expense and
revenue/cash basis, revenues consist of the account maintenance fees, the
distribution fees and CDSCs and the expenses consist of financial consultant
compensation.
The Fund has no obligation with respect to distribution and/or account
maintenance-related expenses incurred by the Distributor and selected dealers in
connection with the Class A, Class B and Class C shares, and there is no
assurance that the Directors of the Corporation will approve the continuance of
the Distribution Plans from year to year. However, the Distributor intends to
seek annual continuation of the Distribution Plans. In their review of the
Distribution Plans, the Directors will be asked to take into consideration
expenses incurred in connection with the account maintenance and/or distribution
of each class of shares separately. The initial sales charges, the account
maintenance fee, the distribution fee and/or the CDSCs received with respect to
one class will not be used to subsidize the sale of shares of another class.
Payments of the distribution fee on Class B shares will terminate upon
conversion of those Class B shares to Class A shares as set forth under "How to
Buy, Sell, Transfer and Exchange Shares" in the Prospectus.
In their consideration of each Distribution Plan, the Directors must
consider all factors they deem relevant, including information as to the
benefits of the Distribution Plan to the Fund and each related class of
shareholders. Each Distribution Plan further provides that, so long as the
Distribution Plan remains in effect, the selection and nomination of Directors
who are not "interested persons" of the Fund, as defined in the Investment
Company Act (the "Independent Directors") shall be committed to the discretion
of the Independent Directors then in office. In approving each Distribution Plan
in accordance with Rule 12b-1, the
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<PAGE> 59
Independent Directors concluded that there is reasonable likelihood that such
Distribution Plan will benefit the Fund and its related class of shareholders.
Each Distribution Plan can be terminated at any time, without penalty, by the
vote of a majority of the Independent Directors or by the vote of the holders of
a majority of the outstanding related class of voting securities of the Fund. A
Distribution Plan cannot be amended to increase materially the amount to be
spent by the Fund without the approval of the related class of shareholders, and
all material amendments are required to be approved by the vote of Directors,
including a majority of the Independent Directors who have no direct or indirect
financial interest in such Distribution Plan, cast in person at a meeting called
for that purpose. Rule 12b-1 further requires that the Fund preserve copies of
each Distribution Plan and any report made pursuant to such plan for a period of
not less than six years from the date of such Distribution Plan or such report,
the first two years in an easily accessible place.
LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES
The maximum sales charge rule in the Conduct Rules of the National
Association of Securities Dealers, Inc. ("NASD") imposes a limitation on certain
asset-based sales charges such as the distribution fee and the CDSC borne by the
Class B and Class C shares, but not the account maintenance fee. The maximum
sales charge rule is applied separately to each class. As applicable to the
Fund, the maximum sales charge rule limits the aggregate of distribution fee
payments and CDSCs payable by the Fund to (1) 6.25% of eligible gross sales of
Class B shares and Class C shares, computed separately (defined to exclude
shares issued pursuant to dividend reinvestments and exchanges), plus (2)
interest on the unpaid balance for the respective class, computed separately, at
the prime rate plus 1% (the unpaid balance being the maximum amount payable
minus amounts received from the payment of the distribution fee and the CDSC).
In connection with the Class B shares, the Distributor has voluntarily agreed to
waive interest charges on the unpaid balance in excess of 0.50% of eligible
gross sales. Consequently, the maximum amount payable to the Distributor
(referred to as the "voluntary maximum") in connection with the Class B shares
is 6.75% of eligible gross sales. The Distributor retains the right to stop
waiving the interest charges at any time. To the extent payments would exceed
the voluntary maximum, the Fund will not make further payments of the
distribution fee with respect to Class B shares, and any CDSCs will be paid to
the Fund rather than to the Distributor; however, the Fund will continue to make
payments of the account maintenance fee. In certain circumstances the amount
payable pursuant to the voluntary maximum may exceed the amount payable under
the NASD formula. In such circumstances payment in excess of the amount payable
under the NASD formula will not be made.
REDEMPTION OF SHARES
Reference is made to "Account Choices -- How to Buy, Sell, Transfer and
Exchange Shares" in the Prospectus for certain information as to the redemption
and purchase of Fund shares.
The Fund is required to redeem for cash all shares of the Fund upon receipt
of a written request in proper form. The redemption price is the net asset value
per share next determined after the initial receipt of proper notice of
redemption. Except for any CDSC that may be applicable, there will be no charge
for redemption if the redemption request is sent directly to the Transfer Agent.
Shareholders liquidating their holdings will receive upon redemption all
dividends reinvested through the date of redemption. The value of shares at the
time of redemption may be more or less than the shareholder's cost, depending on
the net asset value of the Fund's shares at such time.
REDEMPTION
A shareholder wishing to redeem shares held with the Transfer Agent may do
so by tendering the shares directly to the Fund's Transfer Agent, Financial Data
Services, Inc., P.O. Box 45289, Jacksonville, Florida 32232-5289. Proper notice
of redemption in the case of shares deposited with the Transfer Agent may be
accomplished by a written letter requesting redemption. Redemption requests
delivered other than by mail should be delivered to Financial Data Services,
Inc., 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484. Redemption
requests should not be sent to the Fund. A redemption request requires the
signature(s) of all persons in whose name(s) the shares are registered, signed
exactly as (his) (her)
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(their) name(s) appear(s) on the Transfer Agent's register. The signature(s) on
the redemption request must be guaranteed by an "eligible guarantor institution"
as such term is defined in Rule 17Ad-15 under the Securities Exchange Act of
1934, the existence and validity of which may be verified by the Transfer Agent
through the use of industry publications. Notarized signatures are not
sufficient. In certain instances, the Transfer Agent may require additional
documents such as, but not limited to, trust instruments, death certificates,
appointments as executor or administrator, or certificates of corporate
authority. For shareholders redeeming directly with the Transfer Agent, payments
will be mailed within seven days of receipt of a proper notice of redemption.
At various times the Fund may be requested to redeem shares for which it
has not yet received good payment. The Fund may delay or cause to be delayed the
mailing of a redemption check until such time as good payment (i.e., cash or
certified check drawn on a United States bank) has been collected for the
purchase of such shares. Normally, this delay will not exceed 10 days.
The right to redeem shares or to receive payment with respect to any such
redemption may be suspended for more than seven days only for periods during
which trading on the New York Stock Exchange (the "NYSE") is restricted as
determined by the Commission or during which the NYSE is closed (other than
customary weekend and holiday closings), for any period during which an
emergency exists, as defined by the Commission, as a result of which disposal of
portfolio securities or determination of the net asset value of the Fund is not
reasonably practicable, and for such other periods as the Commission may by
order permit for the protection of shareholders of the Fund.
The value of shares at the time of redemption may be more or less than the
shareholder's cost, depending in part on the net asset value of such shares at
such time.
REPURCHASE
The Fund will also repurchase shares through a shareholder's listed
securities dealer. The Fund will normally accept orders to repurchase shares by
wire or telephone from dealers for their customers at the net asset value next
computed after receipt of the order by the dealer, less any applicable CDSC,
provided that the request for repurchase is received by the dealer prior to the
close of business on the NYSE (generally 4:00 p.m., Eastern time) on the day
received and is received by the Fund from such dealer not later than 30 minutes
after the close of business on the NYSE on the same day.
Dealers have the responsibility of submitting such repurchase requests to
the Fund not later than 30 minutes after the close of business on the NYSE in
order to obtain that day's closing price. These repurchase arrangements are for
the convenience of shareholders and do not involve a charge by the Fund (other
than any applicable CDSC). Securities firms that do not have selected dealer
agreements with the Distributor, however, may impose a transaction charge on the
shareholder for transmitting the notice of repurchase to the Fund. Certain
securities dealers may charge a processing fee to confirm a repurchase of
shares. For example, the fee currently charged by Merrill Lynch is $5.35. Fees
charged by other securities dealers may be higher or lower. Repurchases directly
through the Fund's Transfer Agent, on accounts held at the Transfer Agent, are
not subject to the processing fee. The Fund reserves the right to reject any
order for repurchase, which right of rejection might adversely affect
shareholders seeking redemption through the repurchase procedure. A shareholder
whose order for repurchase is rejected by the Fund, however, may redeem shares
as set forth above.
REINSTATEMENT PRIVILEGE -- CLASS I AND CLASS A SHARES
Shareholders of the Fund who have redeemed their Class I and Class A shares
have a privilege to reinstate their accounts by purchasing Class I or Class A
shares of the Fund, as the case may be, at net asset value without a sales
charge up to the dollar amount redeemed. The reinstatement privilege may be
exercised by sending a notice of exercise along with a check for the amount to
be reinstated to the Transfer Agent within 30 days after the date the request
for redemption was accepted by the Transfer Agent or the Distributor.
Alternatively, the reinstatement privilege may be exercised through the
investor's financial consultant within 30 days after the date the request for
redemption was accepted by the Transfer Agent or the Distributor. The
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reinstatement will be made at the net asset value per share next determined
after the notice of reinstatement is received and cannot exceed the amount of
the redemption proceeds.
DEFERRED SALES CHARGES -- CLASS B AND CLASS C SHARES
Investors choosing the deferred sales charge alternatives should consider
Class B shares if they intend to hold their shares for an extended period of
time and Class C shares if they are uncertain as to the length of time they
intend to hold their assets in Mercury mutual funds.
As discussed in the Prospectus under "Account Choices -- Pricing of
Shares -- Class B and C Shares -- Deferred Sales Charge Options," while Class B
shares redeemed within six years of purchase are subject to a CDSC under most
circumstances, the charge is reduced or waived in certain instances, such as:
(a) any partial or complete redemption in connection with a distribution
following retirement under a tax-deferred retirement plan or attaining age
59 1/2 in the case of an IRA or other retirement plan, or part of a series of
equal periodic payments (not less frequently than annually) made for life (or
life expectancy) or any redemption resulting from the tax-free return of an
excess contribution to an IRA (certain legal documentation may be required at
the time of liquidation establishing eligibility for qualified distribution);
(b) redemptions by certain eligible 401(a) and 401(k) plans and certain
retirement plan rollovers; (c) redemptions in connection with participation in
certain fee-based programs managed by the Investment Adviser or its affiliates;
(d) redemptions in connection with participation in certain fee-based programs
managed by selected dealers that have agreements with Mercury; (e) any partial
or complete redemption following the death or disability (as defined in the
Internal Revenue Code of 1986, as amended (the "Code")) of a Class B shareholder
(including one who owns the Class B shares as joint tenant with his or her
spouse), provided the redemption is requested within one year of the death or
initial determination of disability (certain legal documentation may be required
at the time of liquidation establishing eligibility for qualified distribution);
or (f) withdrawals through the Systematic Withdrawal Plan of up to 10% per year
of your account value at the time the plan is established.
In determining whether a Class B CDSC is applicable to a redemption, the
calculation will be determined in the manner that results in the lowest possible
rate being charged. Therefore it will be assumed that the redemption is first of
shares held for over six years or shares acquired pursuant to reinvestment of
dividends or distributions and then of shares held longest during the six-year
period. The charge will not be applied to dollar amounts representing an
increase in the net asset value since the time of purchase. A transfer of shares
from a shareholder's account to another account will be assumed to be made in
the same order as a redemption.
Class C shares are subject only to a one-year 1% CDSC. The charge will be
assessed on an amount equal to the lesser of the proceeds of redemption or the
cost of the shares being redeemed. Accordingly, no Class C CDSC will be imposed
on increases in net asset value above the initial purchase price. In addition,
no Class C CDSC will be assessed on shares derived from reinvestment of
dividends or capital gains distributions. The Class C CDSC may be waived in
connection with certain fee-based programs.
In determining whether a Class C CDSC is applicable to a redemption, the
calculation will be determined in the manner that results in the lowest possible
rate being charged. Therefore, it will be assumed that the redemption is first
of shares held for over one year or shares acquired pursuant to reinvestment of
dividends or distributions and then of shares held longest during the one-year
period. The charge will not be applied to dollar amounts representing an
increase in the net asset value since the time of purchase. A transfer of shares
from a shareholder's account to another account will be assumed to be made in
the same order as a redemption.
Proceeds from the CDSC and the distribution fee are paid to the Distributor
and are used in whole or in part by the Distributor to defray the expenses of
selected dealers related to providing distribution-related services to the Fund
in connection with the sale of the Class B and Class C shares, such as the
payment of compensation to financial consultants for selling Class B and Class C
shares, from its own funds. The combination of the CDSC and the ongoing
distribution fee facilitates the ability of the Fund to sell the Class B and
Class C shares without a sales charge being deducted at the time of purchase.
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Conversion of Class B Shares to Class A Shares. As discussed in the
Prospectus under "Account Choices -- Pricing of Shares -- Class B and C
Shares -- Deferred Sales Charge Options," Class B shares of equity Mercury
mutual funds convert automatically to Class A shares approximately eight years
after purchase (the "Conversion Period").
The Conversion Period is modified for shareholders who purchased Class B
shares through certain retirement plans that qualified for a waiver of the CDSC
normally imposed on purchases of Class B shares ("Class B Retirement Plans").
When the first share of any Mercury mutual fund purchased by a Class B
Retirement Plan has been held for ten years (i.e., ten years from the date the
relationship between Mercury mutual funds and the Class B Retirement Plan was
established), all Class B shares of all Mercury mutual funds held in that Class
B Retirement Plan will be converted into Class A shares of the appropriate
funds. Subsequent to such conversion, that Class B Retirement Plan will be sold
Class A shares of the appropriate funds at net asset value per share.
The Conversion Period may also be modified for retirement plan investors
who participate in certain fee-based programs. See "Shareholder
Services -- Fee-Based Programs" below.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Because the Fund will invest exclusively in shares of the Portfolio, it is
expected that all transactions in portfolio securities will be entered into by
the Portfolio. The Investment Adviser is responsible for making the Portfolio's
portfolio decisions, placing the Portfolio's 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 applicable, 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. In addition, consistent with the
NASD Conduct Rules and policies established by the Trustees, the Investment
Adviser may consider sales of shares of the Fund as a factor in the selection of
brokers or dealers to execute portfolio transactions for the Trust.
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.
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 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
over-the-counter transactions conducted on an agency basis.
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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 the
Fund's annual sales or purchases of portfolio securities (exclusive of purchases
or sales of securities whose maturities at the time of acquisition were one year
or less) by the monthly average value of the securities in the portfolio during
the year. The portfolio turnover rate is generally anticipated to be under 100%.
DETERMINATION OF NET ASSET VALUE
Reference is made to "How Shares are Priced" in the Prospectus concerning
the determination of net asset value.
The net asset value of the shares of the Fund is determined once daily
Monday through Friday as of 15 minutes after the close of business on the 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. The Fund also will
determine its net asset value on any day in which there is sufficient trading in
the underlying Portfolio's portfolio securities that the net asset value might
be affected materially, but only if on any such day the Fund is required to sell
or redeem shares. Any assets or liabilities initially expressed in terms of
non-U.S. dollar currencies are translated into U.S. dollars at the prevailing
market rates as quoted by one or more banks or dealers on the day of valuation.
The NYSE is not open for trading on New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. The net asset value is computed by dividing
the value of the securities held by the Fund plus any cash or other assets
(including any futures position and gold bullion interest and dividends accrued
but not yet received) minus all liabilities (including accrued expenses) by the
total number of shares outstanding at such time. Expenses, including the fees
payable to the Administrator and the Distributor, and the advisory fees payable
indirectly by the Portfolio to the Investment Adviser, are accrued daily.
The principal assets of the Fund will normally be its interest of the
underlying Portfolio, which will be valued at its net asset value. Net asset
value is computed by dividing the value of the securities held by the Portfolio
plus any cash or other assets (including interest and dividends accrued but not
yet received) minus all liabilities (including accrued expenses) by the total
number of shares outstanding at such time. Expenses, including the management
fees and any account maintenance and/or distribution fees, are accrued daily.
The per share net asset value of Class A, Class B and Class C shares generally
will be lower than the per share net asset value of Class I shares, reflecting
the daily expense accruals of the account maintenance, distribution and higher
transfer agency fees applicable with respect to Class B and Class C shares, and
the daily expense accruals of the account maintenance fees applicable with
respect to Class A shares. It is expected, however, that the per share net asset
value of the four classes will tend to converge (although not necessarily meet)
immediately after the payment of dividends or distributions, which will differ
by approximately the amount of the expense accrual differentials between the
classes.
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
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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. Gold bullion
will be valued at the last sale price on the Commodity Exchange, Inc. 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 Fund'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 the Fund'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 the
Portfolio on each Pricing Day. The value of each investor's (including the
Fund'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 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 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
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.
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services described below that are
designed to facilitate investment in their shares. Full details as to each such
service and copies of the various plans described below can be obtained from the
Fund, the Distributor or your selected dealer.
INVESTMENT ACCOUNT
Each shareholder whose account is maintained at the Transfer Agent has an
Investment Account and will receive statements, at least quarterly, from the
Transfer Agent. These statements will serve as transaction confirmations for
automatic investment purchases and the reinvestment of income dividends and
long-term capital gains distributions. The statements will also show any other
activity in the account since the preceding statement. Shareholders will receive
separate transaction confirmations for each purchase or sale transaction
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other than automatic investment purchases and the reinvestment of ordinary
income dividends, and long-term capital gains distributions. A shareholder with
an account held at the Transfer Agent may make additions to his or her
Investment Account at any time by mailing a check directly to the Transfer
Agent.
The Fund does not issue share certificates. Shareholders considering
transferring their Class I or Class A shares from a selected dealer to another
brokerage firm or financial institution should be aware that, if the firm to
which the Class I or Class A shares are to be transferred will not take delivery
of shares of the Fund, a shareholder either must redeem the Class I or Class A
shares so that the cash proceeds can be transferred to the account at the new
firm or such shareholder must continue to maintain an Investment Account at the
Transfer Agent for those Class I or Class A shares. Shareholders interested in
transferring their Class B or Class C shares from a selected dealer and who do
not wish to have an Investment Account maintained for such shares at the
Transfer Agent may request their new brokerage firm to maintain such shares in
an account registered in the name of the brokerage firm for the benefit of the
shareholder at the Transfer Agent. Shareholders considering transferring a
tax-deferred retirement account such as an individual retirement account from a
selected dealer to another brokerage firm or financial institution should be
aware that, if the firm to which the retirement account is to be transferred
will not take delivery of shares of the Fund, a shareholder must either redeem
the shares (paying any applicable CDSC) so that the cash proceeds can be
transferred to the account at the new firm, or such shareholder must continue to
maintain a retirement account at a selected dealer for those shares.
AUTOMATED INVESTMENT PLAN
A shareholder may make additions to an Investment Account at any time by
purchasing Class I shares (if an eligible Class I investor as described in the
Prospectus) or Class A, Class B or Class C shares at the applicable public
offering price either through the shareholder's securities dealer, or by mail
directly to the Transfer Agent, acting as agent for such securities dealer. You
may also add to your account by automatically investing a specific amount in the
Fund on a periodic basis through your selected dealer. The current minimum for
such automatic additional investments is $50. This minimum may be waived or
revised under certain circumstances.
AUTOMATIC DIVIDEND REINVESTMENT PLAN
Dividends and distributions from the Fund may be taken in cash or
automatically reinvested in shares of the Fund at net asset value without a
sales charge. You should consult with your financial consultant about which
option you would like. If you choose the reinvestment option, such reinvestment
will be at the net asset value of shares of the Fund, without sales charge, as
of the close of business on the ex-dividend date of the dividend or
distribution. Shareholders may elect in writing or by telephone (1-888-763-2260)
to receive either their dividends or capital gains distributions, or both, in
cash, in which event payment will be mailed or direct deposited on or about the
payment date, except that in all circumstances dividends less than ten dollars
will be reinvested.
Shareholders may, at any time, notify their selected dealer in writing if
the shareholder's account is maintained with a selected dealer or notify the
Transfer Agent in writing or by telephone (1-888-763-2260) that they no longer
wish to have their dividend and/or capital gains distributions reinvested in
shares of the Fund or vice versa and, commencing ten days after the receipt by
the Transfer Agent of such notice, those instructions will be effected. The Fund
is not responsible for any failure of delivery to the shareholder's address of
record and no interest will accrue on amounts represented by uncashed
distribution or redemption checks.
SYSTEMATIC REDEMPTION PROGRAM
A shareholder may elect to make withdrawals from an Investment Account of
Class I, Class A, Class B or Class C shares in the form of payments by check or
through automatic payment by direct deposit to such shareholder's bank account
on either a monthly or quarterly basis as provided below. Quarterly withdrawals
are available for shareholders who have acquired shares of the Fund having a
value, based on cost or the
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<PAGE> 66
current offering price, of $5,000 or more, and monthly withdrawals are available
for shareholders with shares having a value of $10,000 or more.
At the time of each withdrawal payment, sufficient shares are redeemed from
those on deposit in the shareholder's account to provide the withdrawal payment
specified by the shareholder. The shareholder may specify the dollar amount and
class of shares to be redeemed. With respect to shareholders who hold accounts
directly at the Transfer Agent, redemptions will be made at net asset value as
determined as described herein on the 24th day of each month or the 24th day of
the last month of each quarter, whichever is applicable. With respect to
shareholders who hold accounts with their broker-dealer, redemptions will be
made at net asset value determined as described herein on the first, second,
third or fourth Monday of each month, or the first, second, third or fourth
Monday of the last month of each quarter, whichever is applicable. If the NYSE
is not open for business on such date, the shares will be redeemed at the close
of business on the following business day. The check for the withdrawal payment
will be mailed, or the direct deposit for withdrawal payment will be made, on
the next business day following redemption. When a shareholder is making
systematic withdrawals, dividends and distributions on all shares in the
Investment Account are reinvested automatically in shares of the Fund. A
shareholder's systematic withdrawal plan may be terminated at any time, without
a charge or penalty, by the shareholder, the Fund, the Fund's Transfer Agent or
the Distributor.
Withdrawal payments should not be considered as dividends, yield or income.
Each withdrawal is a taxable event. If periodic withdrawals continuously exceed
reinvested dividends, the shareholder's original investment may be reduced
correspondingly. Purchases of additional shares concurrent with withdrawals are
ordinarily disadvantageous to the shareholder because of sales charges and tax
liabilities. The Fund will not knowingly accept purchase orders for shares of
the Fund from investors who maintain a systematic withdrawal plan unless such
purchase is equal to at least one year's scheduled withdrawals or $1,200,
whichever is greater. Periodic investments may not be made into an Investment
Account in which the shareholder has elected to make systematic withdrawals.
With respect to redemptions of Class B and Class C shares pursuant to a
systematic withdrawal plan, the maximum number of Class B or Class C shares that
can be redeemed from an account annually shall not exceed 10% of the value of
shares of such class in that account at the time the election to join the
systematic withdrawal plan was made. Any CDSC that otherwise might be due on
such redemption of Class B or Class C shares will be waived. Shares redeemed
pursuant to a systematic withdrawal plan will be redeemed in the same order as
Class B or Class C shares are otherwise redeemed. See "Pricing of
Shares -- Class B and C Shares -- Deferred Sales Charge Options" in the
Prospectus. Where the systematic withdrawal plan is applied to Class B shares,
upon conversion of the last Class B shares in an account to Class A shares, a
shareholder must make a new election to join the systematic withdrawal program
with respect to the Class A shares. If an investor wishes to change the amount
being withdrawn in a systematic withdrawal plan the investor should contact his
or her financial consultant.
RETIREMENT PLANS
The minimum initial purchase to establish a retirement plan is $100.
Capital gains and income received in retirement plans are exempt from Federal
taxation until distributed from the plans. Investors considering participations
in any such plan should review specific tax laws relating thereto and should
consult their attorneys or tax advisors with respect to the establishment and
maintenance of any such plan.
EXCHANGE PRIVILEGE
U.S. shareholders of each class of shares of the Fund have an exchange
privilege with other Mercury mutual funds and Summit. The exchange privilege
does not apply to any other funds. Under the Fund's pricing system, Class I
shareholders may exchange Class I shares of the Fund for Class I shares of a
second Mercury mutual fund. Class I shares also may be exchanged for Class I
shares of a second Mercury mutual fund at any time as long as, at the time of
the exchange, the shareholder is eligible to acquire Class I shares of any
Mercury mutual fund. Class A, Class B and Class C shares are exchangeable with
shares of the same class of other Mercury mutual funds. For purposes of
computing the CDSC that may be payable upon a disposition
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<PAGE> 67
of the shares acquired in the exchange, the holding period for the previously
owned shares of the Fund is "tacked" to the holding period of the newly acquired
shares of the other fund as more fully described below. Class I, Class A, Class
B and Class C shares also are exchangeable for shares of Summit, a money market
fund specifically designated for exchange by holders of Class I, Class A, Class
B or Class C shares. Class I and Class A shares will be exchanged for Class A
shares of Summit, and Class B and Class C shares will be exchanged for Class B
shares of Summit. Summit Class A and Class B shares do not include any front-end
sales charge or CDSC; however, Summit Class B shares pay a 12b-1 distribution
fee of 0.75% and are subject to a CDSC payable as if the shareholder still held
shares of the Mercury fund used to acquire the Summit Class B shares.
Exchanges of Class I or Class A shares outstanding ("outstanding Class I or
Class A shares") for Class I or Class A shares of another Mercury mutual fund,
or for Class A shares of Summit ("new Class I or Class A shares") are transacted
on the basis of relative net asset value per Class I or Class A share,
respectively, plus an amount equal to the difference, if any, between the sales
charge previously paid on the outstanding Class I or Class A shares and the
sales charge payable at the time of the exchange on the new Class I or Class A
shares. With respect to outstanding Class I or Class A shares as to which
previous exchanges have taken place, the "sales charge previously paid" shall
include the aggregate of the sales charges paid with respect to such Class I or
Class A shares in the initial purchase and any subsequent exchange. Class I or
Class A shares issued pursuant to dividend reinvestment are sold on a no-load
basis in each of the funds offering Class I or Class A shares. For purposes of
the exchange privilege, dividend reinvestment Class I and Class A shares shall
be deemed to have been sold with a sales charge equal to the sales charge
previously paid on the Class I or Class A shares on which the dividend was paid.
Based on this formula, Class I and Class A shares of the Fund generally may be
exchanged into the Class I and Class A shares, respectively, of the other funds
with a reduced or without a sales charge.
In addition, each of the funds with Class B and Class C shares outstanding
("outstanding Class B or Class C shares") offers to exchange its Class B or
Class C shares for Class B or Class C shares, respectively (or, in the case of
Summit, Class B shares) ("new Class B or Class C shares"), of another Mercury
mutual fund or of Summit on the basis of relative net asset value per Class B or
Class C share, without the payment of any CDSC that might otherwise be due on
redemption of the outstanding shares. Class B shareholders of the Fund
exercising the exchange privilege will continue to be subject to the Fund's CDSC
schedule if such schedule is higher than the CDSC schedule relating to the new
Class B shares acquired through use of the exchange privilege. In addition,
Class B shares of the Fund acquired through use of the exchange privilege will
be subject to the Fund's CDSC schedule if such schedule is higher than the CDSC
schedule relating to the Class B shares of the fund from which the exchange has
been made. For purposes of computing the sales charge that may be payable on a
disposition of the new Class B or Class C shares, the holding period for the
outstanding Class B shares is "tacked" to the holding period of the new Class B
or Class C shares. For example, an investor may exchange Class B shares of the
Fund for those of another Mercury fund ("New Mercury Fund") after having held
the Fund's Class B shares for two-and-a-half years. The 3% CDSC that generally
would apply to a redemption would not apply to the exchange. Four years later
the investor may decide to redeem the Class B shares of New Mercury Fund and
receive cash. There will be no CDSC due on this redemption since by "tacking"
the two-and-a-half year holding period of the Fund's Class B shares to the four
year holding period for the New Mercury Fund Class B shares, the investor will
be deemed to have held the New Mercury Fund Class B shares for more than six
years.
Before effecting an exchange, shareholders should obtain a currently
effective prospectus of the fund into which the exchange is to be made. To
exercise the exchange privilege, shareholders should contact their financial
consultant, who will advise the Fund of the exchange. Shareholders of the Fund,
and shareholders of the other funds described above with shares for which
certificates have not been issued, may exercise the exchange privilege by wire
through their securities dealers. The Fund reserves the right to require a
properly completed Exchange Application. This exchange privilege may be modified
or terminated in accordance with the rules of the Commission. The Fund reserves
the right to limit the number of times an investor may exercise the exchange
privilege. Certain funds may suspend the continuous offering of their shares to
the
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general public at any time and may thereafter resume such offering from time to
time. The exchange privilege is available only to U.S. shareholders in states
where the exchange legally may be made.
FEE-BASED PROGRAMS
Certain fee-based programs, including pricing alternatives for securities
transactions (each referred to in this paragraph as a "Program"), may permit the
purchase of Class I shares at net asset value. Under specified circumstances,
participants in certain Programs may deposit other classes of shares, which will
be exchanged for Class I shares. Initial or deferred sales charges otherwise due
in connection with such exchanges may be waived or modified, as may the
Conversion Period applicable to the deposited shares. Termination of
participation in certain Programs may result in the redemption of shares held
therein or the automatic exchange thereof to another class at net asset value.
In addition, upon termination of participation in certain Programs, shares that
have been held for less than specified periods within such Program may be
subject to a fee based upon the current value of such shares. These Programs
also generally prohibit such shares from being transferred to another account,
to another broker-dealer or to the Transfer Agent. Except in limited
circumstances (which may also involve an exchange as described above), such
shares must be redeemed and another class of shares purchased (which may involve
the imposition of initial or deferred sales charges and distribution and account
maintenance fees) in order for the investment not to be subject to Program fees.
Additional information regarding certain specific Programs offered through
particular selected dealers (including charges and limitations on
transferability applicable to shares that may be held in such Program) is
available in the Program's client agreement and from the shareholder's selected
dealer.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to distribute all its net investment income, if any.
Dividends from such net investment income will be paid at least annually. All
net realized capital gains, if any, will be distributed to the Fund's
shareholders annually. From time to time, the Fund may declare a special
distribution at or about the end of the calendar year in order to comply with a
Federal income tax requirement that certain percentages of its ordinary income
and capital gains be distributed during the calendar year. See "Shareholder
Services -- Automatic Dividend Reinvestment Plan" for information concerning the
manner in which dividends and distributions may be reinvested automatically in
shares of the Fund. Shareholders may elect in writing to receive any such
dividends or distributions, or both, in cash. Dividends and distributions are
taxable to shareholders, as discussed below, whether they are reinvested in
shares of the Fund or received in cash. The per share dividends and
distributions on Class B and Class C shares will be lower than the per share
dividends and distributions on Class I and Class A shares as a result of the
account maintenance, distribution and higher transfer agency fees applicable
with respect to the Class B and Class C shares; similarly, the per share
dividends and distributions on Class A shares will be lower than the per share
dividends and distributions on Class I shares as a result of the account
maintenance fees applicable with respect to the Class A shares. See
"Determination of Net Asset Value." Within 60 days after the end of the Fund's
taxable year, each shareholder will receive notification summarizing the
dividends and distributions he or she received that year. It will also indicate
whether those distributions should be treated as ordinary income or long-term
capital gains.
TAXES
The Fund intends to continue to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Code. As long as the
Fund so qualifies, the Fund (but not its shareholders) will not be subject to
Federal income tax on the part of its net ordinary income and net realized
capital gains that it distributes to Class I, Class A, Class B and Class C
shareholders ("shareholders"). The Fund intends to distribute substantially all
of such income. To qualify for this treatment, the Fund must, among other
things, (a) derive at least 90% of its gross income (without offset for losses
from the sale or other disposition of securities or foreign currencies) from
dividends, interest, payments with respect to securities loans, gains
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<PAGE> 69
from the sale or other disposition of securities or foreign currencies and
certain financial futures, options and forward contracts (the "Income Test");
and (b) diversify its holdings so that, at the end of each quarter of the
taxable year, (i) at least 50% of the value of its assets is represented by
cash, U.S. Government securities and other securities limited in respect of any
one issuer to an amount no greater than 5% of its assets and 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its assets is invested in the securities of any one issuer (other than
U.S. Government securities).
Gains from the sale of precious metals (as well as other physical
commodities) will not constitute qualifying income for purposes of the Income
Test, described above. The Fund, therefore, may be required to hold its precious
metals or sell them at a loss, or to sell other securities at a gain, when it
would not otherwise do so for investment reasons.
Dividends paid by the Fund from its ordinary income and distributions of
the Fund's net realized short-term capital gains (together referred to hereafter
as "ordinary income dividends") are taxable to shareholders as ordinary income,
whether or not reinvested.
Any net capital gains (i.e., the excess of net capital gains from the sale
of assets held for more than 12 months over net short-term capital losses, and
including such gains from certain transactions in futures and options)
distributed to shareholders will be taxable as capital gains to the
shareholders, whether or not reinvested and regardless of the length of time a
shareholder has owned his or her shares. The maximum capital gains rate for
individuals is 20% with respect to assets held for more than 12 months. The
maximum capital gains rate for corporate shareholders currently is the same as
the maximum tax rate for ordinary income.
Not later than 60 days after the close of its taxable year, the Fund will
provide its shareholders with a written notice designating the amounts of any
dividends or capital gains distributions, and also designating the amounts of
various categories of capital gain income in capital gain dividends. A portion
of the dividends paid by the Fund out of dividends paid by certain corporations
located in the U.S. may be eligible for the dividends received deduction allowed
to corporations under the Code. Because the Fund invests a large portion of its
assets in securities of non-U.S. issuers, it is not anticipated that a
significant portion, if any, of the dividends paid by the Fund will be eligible
for the dividends received deduction. If the Fund pays a dividend in January
that was declared in the previous October, November or December to shareholders
of record on a specified date in one of such months, then such dividend or
distribution will be treated for tax purposes as being paid by the Fund and
received by its shareholders on December 31 of the year in which such dividend
was declared.
Dividends and interest received by the Fund may give rise to withholding
and other taxes imposed by non-U.S. countries. Tax conventions between certain
countries and the United States may reduce or eliminate such taxes. If more than
50% of the value of the Fund's assets at the close of a taxable year consists of
stock or securities in non-U.S. corporations, shareholders of the Fund may be
able to claim U.S. foreign tax credits with respect to foreign taxes paid by the
Fund, subject to certain provisions and limitations contained in the Code. For
example, certain retirement accounts cannot claim foreign tax credits on
investments in foreign securities held by the Fund. The Fund expects to be
eligible, and intends, to file an election with the Internal Revenue Service
pursuant to which shareholders of the Fund will be required to include their
proportionate share of such withholding taxes in their U.S. income tax returns
as gross income, treat such proportionate share as taxes paid by them, and
deduct such proportionate share in computing their taxable incomes or,
alternatively, subject to certain limitations, restrictions, and holding period
requirements use them as foreign tax credits against their U.S. income taxes. No
deductions for foreign taxes, however, may be claimed by noncorporation
shareholders who do not itemize deductions. A shareholder that is a nonresident
alien individual or a foreign corporation may be subject to U.S. withholding tax
on the income resulting from the Fund's election described in this paragraph but
may not be able to claim a credit or deduction against such U.S. tax for the
foreign taxes treated as having been paid by such shareholder. The Fund will
report annually to its shareholders the amount per share of such withholding
taxes. For this purpose, the Fund will allocate foreign taxes and foreign source
income among the Class I, Class A, Class B and Class C shareholders.
Under Code Section 988, special rules are provided for certain transactions
in a foreign currency other than the taxpayer's functional currency (i.e.,
unless certain special rules apply, currencies other than the
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United States dollar). In general, foreign currency gains or losses from certain
forward contracts, from futures contracts that are not "regulated futures
contracts" and from unlisted options will be treated as ordinary income or loss
under Code Section 988. In certain circumstances, the Fund may elect capital
gain or loss treatment for such transactions. In general, however, Code Section
988 gains or losses will increase or decrease the amount of the Fund's
investment company taxable income available to be distributed to shareholders as
ordinary income, rather than increasing or decreasing the amount of the Fund's
net capital gains. Additionally, if Code Section 988 losses exceed other
investment company taxable income during a taxable year, the Fund would not be
able to make any ordinary dividend distributions, and any distributions made
before the losses were realized but in the same taxable year would be
recharacterized as a return of capital to shareholders, thereby reducing the
basis of each shareholder's Fund shares.
Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on ordinary income dividends, capital gains distributions
and redemption payments ("backup withholding"). Generally, shareholders subject
to backup withholding will be those for whom a certified taxpayer identification
number is not on file with the Corporation or who, to the Corporation's
knowledge, have furnished an incorrect number. When establishing an account, an
investor must certify under penalty of perjury that such number is correct and
that such shareholder is not otherwise subject to backup withholding.
Ordinary income dividends paid by the Fund to shareholders who are
non-resident aliens or foreign entities generally will be subject to a 30%
United States withholding tax under existing provisions of the Code applicable
to foreign individuals and entities unless a reduced rate of withholding or a
withholding exemption is provided under applicable treaty law. Non-resident
shareholders are urged to consult their own tax advisors concerning the
applicability of the United States withholding tax.
No gain or loss will be recognized by Class B shareholders on the
conversion of their Class B shares for Class A shares. A shareholder's basis in
the Class A shares acquired will be the same as such shareholder's basis in the
Class B shares converted, and the holding period of the acquired Class A shares
will include the holding period of the converted Class B shares.
Upon a sale or exchange of its shares, a shareholder will realize a taxable
gain or loss depending on its basis in the shares. Such gain or loss will be
treated as capital gain or loss if the shares are capital assets in the
shareholder's hands. In the case of an individual, any such capital gain will be
treated as short-term capital gain, taxable at the same rates as ordinary income
if the shares were held for not more than 12 months and capital gain taxable at
the maximum rate of 20% if such shares were held for more than 12 months. In the
case of a corporation, any such capital gain will be treated as long-term
capital gain, taxable at the same rates as ordinary income, if such shares were
held for more than 12 months. Any such loss will be treated as long-term capital
loss if such shares were held for more than 12 months. A loss recognized on the
sale or exchange of shares held for six months or less, however, will be treated
as long-term capital loss to the extent of any long-term capital gains
distribution with respect to such shares.
If a shareholder exercises an exchange privilege within 90 days of
acquiring shares of the Fund, then any loss recognized on the exchange will be
reduced (or any gain increased) to the extent the sales charge paid to the Fund
reduces any sales charge that would have been owed upon the purchase of the new
shares in the absence of the exchange privilege. Instead, such sales will be
treated as an amount paid for the new shares.
Generally, any loss realized on a sale or exchange of shares of the Fund
will be disallowed if other shares of the Fund are acquired (whether through the
automatic reinvestment of dividends or otherwise) within a 61-day period
beginning 30 days before and ending 30 days after the date that the shares are
disposed of. In such a case, the basis of the shares acquired will be adjusted
to reflect the disallowed loss.
The Code requires a RIC to pay a nondeductible 4% excise tax to the extent
the RIC does not distribute, during each calendar year, 98% of its ordinary
income, determined on a calendar year basis, and 98% of its capital gains,
determined, in general, on an October 31 year end, plus certain undistributed
amounts from previous years. The Fund anticipates that it will make sufficient
timely distributions to avoid imposition of the excise tax.
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TAX TREATMENT OF OPTIONS AND FUTURES TRANSACTIONS
The Fund may purchase or sell options and futures and foreign currency
options and futures, and related options on such futures. Options and futures
contracts that are "Section 1256 contracts" will be "marked to market" for
Federal income tax purposes at the end of each taxable year, i.e., each option
or futures contract will be treated as sold for its fair market value on the
last day of the taxable year. In general, unless a special election is made,
gain or loss from transactions in Section 1256 contracts will be 60% long-term
and 40% short-term capital gain or loss.
Code Section 1092, which applies to certain "straddles," may affect the
taxation of the Fund's transactions in options, futures and forward foreign
exchange contracts. Under Section 1092, the Fund may be required to postpone
recognition for tax purposes of losses incurred in certain closing transactions
in options, futures and forward foreign exchange contracts. Similarly, Code
Section 1091, which deals with "wash sales," may cause the Fund to postpone
recognition of certain losses for tax purposes; and Code Section 1258, which
deals with "conversion transactions," may apply to recharacterize certain
capital gains as ordinary income for tax purposes. Code Section 1259, which
deals with "constructive sales" of appreciated financial positions (e.g.,
stock), may treat the Fund as having recognized income before the time that such
income is economically recognized by the Fund.
OTHER TAX MATTERS
Prior to the commencement of operations, the Fund shall have received a
private letter ruling from the Internal Revenue Service ("IRS") or an opinion of
counsel, to the effect that, because each Portfolio is classified as a
partnership for tax purposes, the Fund will be entitled to look to the
underlying assets of the Portfolio in which it has invested for purposes of
satisfying various requirements of the Code applicable to RICs. If any of the
facts upon which such ruling is premised change in any material respect (e.g.,
if the Trust were required to register its interests under the Securities Act)
and the Trust is unable to obtain a private letter ruling from the IRS or an
opinion of counsel indicating that each Portfolio will continue to be classified
as a partnership, then the Board of Directors of the Corporation will determine,
in its discretion, the appropriate course of action for the Fund. One possible
course of action would be to withdraw the Fund's investments from the Portfolio
and to retain an investment adviser to manage the Fund's assets in accordance
with the investment policies applicable to the Fund. See "Investment Objectives
and Policies."
------------------------
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and the Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative or administrative action either
prospectively or retroactively.
Dividends and capital gains distributions and gains on the sale or exchange
of shares in the Fund may also be subject to state and local taxes.
Shareholders are urged to consult their own tax advisors regarding specific
questions as to Federal, state, local or foreign taxes. Foreign investors should
consider applicable foreign taxes in their evaluation of an investment in the
Fund.
PERFORMANCE DATA
From time to time the Fund may include its average annual total return and
other total return data in advertisements or information furnished to present or
prospective shareholders. Total return is based on the Fund's historical
performance and is not intended to indicate future performance. Average annual
total return is determined separately for Class I, Class A, Class B and Class C
shares in accordance with a formula specified by the Commission.
Average annual total return quotations for the specified periods are
computed by finding the average annual compounded rates of return (based on net
investment income and any realized and unrealized capital
33
<PAGE> 72
gains or losses on portfolio investments over such periods) that would equate
the initial amount invested to the redeemable value of such investment at the
end of each period. Average annual total return is computed assuming all
dividends and distributions are reinvested and taking into account all
applicable recurring and nonrecurring expenses, including the maximum sales
charge in the case of Class I and Class A shares and the CDSC that would be
applicable to a complete redemption of the investment at the end of the
specified period in the case of Class B and Class C shares.
The Fund also may quote annual, average annual and annualized total return
and aggregate total return performance data, both as a percentage and as a
dollar amount based on a hypothetical $1,000 investment, for various periods
other than those noted below. Such data will be computed as described above,
except that (1) as required by the periods of the quotations, actual annual,
annualized or aggregate data, rather than average annual data, may be quoted and
(2) the maximum applicable sales charges will not be included. 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.
In order to reflect the reduced sales charges in the case of Class I or
Class A shares or the waiver of the CDSC in the case of Class B or Class C
shares applicable to certain investors, as described under "Purchase of Shares"
and "Redemption of Shares," respectively, the total return data quoted by the
Fund in advertisements directed to such investors may take into account the
reduced, and not the maximum, sales charge or may take into account the CDSC and
therefore may reflect greater total return since, due to the reduced sales
charges or the waiver of sales charges, a lower amount of expenses is deducted.
On occasion, the Fund may compare its performance to, among other things,
the Standard & Poor's 500 Composite Stock Price Index, the Value Line Composite
Index, the Dow Jones Industrial Average, the Financial Times Gold Mines Index,
the MSCI Gold Index, the Johannesburg Stock Exchange All Gold Index, the
Australian Gold Index, Toronto Gold Index and the Philadelphia Gold and Silver
Index, the MSCI ex North America, the MSCI Europe, the MSCI Japan, TSE 1st
Section (TOPIX) or other published indices, or to data contained in publications
such as Lipper Analytical Services, Inc., Morningstar Publications, Inc.
("Morningstar"), other competing universes, Money Magazine, U.S. News & World
Report, Business Week, Forbes Magazine, Fortune Magazine and CDA Investment
Technology, Inc. From time to time, the Fund may include its Morningstar
risk-adjusted performance rating in advertisements or supplemental sales
literature. The Fund may quote in advertisement or use other applicable measures
of performance.
GENERAL INFORMATION
DESCRIPTION OF SHARES
The Corporation is a Maryland corporation incorporated on April 24, 1998.
It has an authorized capital of 2,800,000,000 shares of Common Stock, par value
$.0001 per share, divided into 100,000,000 shares of each of Class I, Class A,
Class B and Class C shares for each of its series.
Shareholders are entitled to one vote for each full share held and
fractional votes for fractional shares held in the election of Directors (to the
extent hereinafter provided) and on other matters submitted to vote of
shareholders, except that shareholders of the class bearing distribution
expenses as provided above shall have exclusive voting rights with respect to
matters relating to such distribution expenditures (except that Class B
shareholders may vote upon any material changes to expenses charged under the
Class A Distribution Plan). Voting rights are not cumulative, so that the
holders of more than 50% of the shares voting in the election of Directors can,
if they choose to do so, elect all the Directors of the Corporation, in which
event the holders of the remaining shares are unable to elect any person as a
Director. No amendment may be made to the Articles of Incorporation without the
affirmative vote of a majority of the outstanding shares of the Corporation.
There normally will be no meeting of shareholders for the purpose of
electing Directors unless and until such time as less than a majority of the
Directors holding office have been elected by the shareholders, at
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<PAGE> 73
which time the Directors then in office will call a shareholders' meeting for
the election of Directors. Shareholders may, in accordance with the terms of the
Articles of Incorporation, cause a meeting of shareholders to be held for the
purpose of voting on the removal of Directors. Also, the Corporation will be
required to call a special meeting of shareholders in accordance with the
requirements of the Investment Company Act to seek approval of new management
and advisory arrangements, of a material increase in account maintenance fees or
of a change in fundamental policies, objectives or restrictions. Except as set
forth above, the Directors shall continue to hold office and appoint successor
Directors. Each issued and outstanding share is entitled to participate equally
in dividends and distributions declared and in net assets upon liquidation or
dissolution remaining after satisfaction of outstanding liabilities, except
that, as noted above, Class A shares bear certain additional expenses. Shares
issued are fully-paid and non-assessable by the Corporation or the Fund. Voting
rights for Directors are not cumulative.
The Trust consists of seven portfolios and is organized as a Delaware
Business Trust. Whenever the Fund is requested to vote on any matter relating to
the Portfolio, the Corporation will hold a meeting of the Fund's shareholders
and will cast its vote as instructed by the Fund's shareholders.
Mercury International provided the initial capital for the Fund by
purchasing shares of the Fund, for an aggregate of $ . Such shares
were acquired for investment and can only be disposed of by redemption. To the
extent the organizational expenses of the Corporation are paid by the
Corporation they will be expensed and immediately charged to net asset value.
See "Determination of Net Asset Value."
Prior to the offering of the Fund's shares, Mercury International will be
the Fund's sole shareholder and deemed a controlling person of the Fund.
COMPUTATION OF OFFERING PRICE PER SHARE
An illustration of the computation of the offering price for Class I, Class
A, Class B and Class C shares of the Fund based on the projected value of the
Fund's estimated net assets and projected number of shares outstanding on the
date its shares are offered for sale to public investors is as follows:
<TABLE>
<CAPTION>
CLASS I CLASS A CLASS B CLASS C
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Assets............................ $6,250,000 $6,250,000 $6,250,000 $6,250,000
========== ========== ========== ==========
Number of Shares Outstanding.......... 625,000 625,000 625,000 625,000
========== ========== ========== ==========
Net Asset Value Per Share (net assets
divided by number of shares
outstanding)........................ $ 10.00 $ 10.00 $ 10.00 $ 10.00
Sales Charge (for Class I and Class A
Shares: 5.25% of Offering Price
(5.54% of net amount invested))*.... 55 55 ** **
---------- ---------- ---------- ----------
Offering Price........................ $ 10.55 $ 10.55 $ 10.00 $ 10.00
========== ========== ========== ==========
</TABLE>
- ---------------
* Rounded to the nearest one-hundredth percent; assumes maximum sales charge is
applicable.
** Class B and Class C shares are not subject to an initial sales charge but may
be subject to a CDSC on redemption. See "Account Choices -- Class B and Class
C Shares -- Deferred Sales Charge Options" in the Prospectus and "Redemption
of Shares -- Deferred Sales Charges -- Class B and Class C Shares" herein.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey 08540, have
been selected as the independent auditors of the Fund. The independent auditors
are responsible for auditing the annual financial statements of the Fund.
35
<PAGE> 74
CUSTODIAN
Brown Brothers Harriman & Co., 40 Water Street, Boston, Massachusetts
02109, acts as the custodian of the Fund's assets. Under its contract with the
Fund, the Custodian is authorized to establish separate accounts in foreign
currencies and to cause foreign securities owned by the Fund to be held in its
offices outside the United States and with certain foreign banks and securities
depositories. The custodian is responsible for safeguarding and controlling the
Fund's cash and securities, handling the receipt and delivery of securities and
collecting interest and dividends on the Fund's investments.
TRANSFER AGENT
Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville,
Florida 32246-6484, which is a wholly owned subsidiary of ML & Co., acts as the
Fund's Transfer Agent pursuant to a transfer agency, dividend disbursing agency
and shareholder servicing agency agreement (the "Transfer Agency Agreement").
The Transfer Agent is responsible for the issuance, transfer and redemption of
shares and the opening, maintenance and servicing of shareholder accounts.
LEGAL COUNSEL
Swidler Berlin Shereff Friedman, LLP, 919 Third Avenue, New York, New York
10022, is counsel for the Fund.
REPORTS TO SHAREHOLDERS
The Fund sends to its shareholders at least semi-annually reports showing
the Fund's portfolio and other information. An annual report, containing
financial statements audited by independent auditors, is sent to shareholders
each year. After the end of each year, shareholders will receive Federal income
tax information regarding dividends and capital gains distributions.
ADDITIONAL INFORMATION
The Prospectus and this Statement of Additional Information do not contain
all the information set forth in the Registration Statement and the exhibits
relating thereto, which the Corporation has filed with the Commission,
Washington, D.C., under the Securities Act and the Investment Company Act, to
which reference is hereby made.
------------------------
36
<PAGE> 75
APPENDIX A
INVESTMENT POLICIES INVOLVING THE USE OF INDEXED
SECURITIES, OPTIONS, FUTURES, SWAPS AND FOREIGN EXCHANGE
The Fund and the Portfolio 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 Fund 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 Fund will not subject the Fund
to the risks frequently associated with the speculative use of options and
futures transactions. While the Fund's use of hedging strategies is intended to
reduce the volatility of the net asset value of Fund shares, the Fund's net
asset value will fluctuate. There can be no assurance that the Fund's hedging
transactions will be effective. Furthermore, the Fund 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 Fund 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, the Fund 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, the Fund may invest in securities the potential return of which is
based inversely on the change in an index. For example, the Fund 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 the Fund 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, the Fund 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
Fund believes that indexed and inverse securities may provide portfolio
management flexibility that permits the Fund 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.
OPTIONS ON SECURITIES AND SECURITIES INDICES
Purchasing Options. The Fund 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 the
Fund purchases a put option, in consideration for an upfront payment (the
"option premium") the Fund acquires a right to sell to another party specified
securities owned by the Fund at a specified price (the "exercise price") on or
before a specified date (the "expiration date"), in the case of an option on
securities, or to receive from another party a payment based on the amount a
specified securities index declines below a specified level on or before the
expiration date, in the case of an option on a securities index. The purchase of
a put option limits the Fund's risk of loss in the event of a decline in the
market value of the portfolio holdings underlying the put option prior to the
option's expiration date. If the market value of the portfolio holdings
associated with the put option increases rather than decreases, however, the
Fund will lose the option premium and will consequently realize a lower return
on the portfolio holdings than would have been realized without the purchase of
the put.
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<PAGE> 76
The Fund 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 the Fund purchases a call option, in consideration for the option premium
the Fund acquires a right to purchase from another party specified securities at
the exercise price on or before the expiration date, in the case of an option on
securities, or to receive from another party a payment based on the amount a
specified securities index increases beyond a specified level on or before the
expiration date, in the case of an option on a securities index. The purchase of
a call option may protect the Fund from having to pay more for a security as a
consequence of increases in the market value for the security during a period
when the Fund is contemplating its purchase, in the case of an option on a
security, or attempting to identify specific securities in which to invest in a
market the Fund believes to be attractive, in the case of an option on an index
(an "anticipatory hedge"). In the event the Fund determines not to purchase a
security underlying a call option, however, the Fund may lose the entire option
premium.
The Fund is also authorized to purchase put or call options in connection
with closing out put or call options it has previously sold.
Writing Options. The Fund 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 the
Fund writes a call option, in return for an option premium the Fund is legally
obligated to sell specified securities owned by the Fund at the exercise price
on or before the expiration date, in the case of an option on securities, or 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. The Fund may write call options to earn income, through the receipt of
option premiums. In the event the party to which the Fund has written an option
fails to exercise its rights under the option because the value of the
underlying securities is less than the exercise price, the Fund will partially
offset any decline in the value of the underlying securities through the receipt
of the option premium. By writing a call option, however, the Fund limits its
ability to sell the underlying securities, and gives up the opportunity to
profit from any increase in the value of the underlying securities beyond the
exercise price, while the option remains outstanding.
The Fund may also write put options on securities or securities indices.
When the Fund writes a put option, in return for an option premium the Fund
gives another party the right to sell to the Fund a specified security at the
exercise price on or before the expiration date, in the case of an option on a
security, or agrees to pay to another party an amount based on any decline in a
specified securities index below a specified level on or before the expiration
date, in the case of an option on a securities index. The Fund may write put
options to earn income, through the receipt of option premiums. In the event the
party to which the Fund has written an option fails to exercise its right under
the option because the value of the underlying securities is greater than the
exercise price, the Fund will profit by the amount of the option premium. By
writing a put option, however, the Fund will be obligated to purchase the
underlying security at a price that may be higher than the market value of the
security at the time of exercise as long as the put option is outstanding, in
the case of an option on a security, or make a cash payment reflecting any
decline in the index, in the case of an option on an index. Accordingly, when
the Fund writes a put option it is exposed to a risk of loss in the event the
value of the underlying securities falls below the exercise price, which loss
potentially may substantially exceed the amount of option premium received by
the Fund for writing the put option. The Fund will write a put option on a
security or a securities index only if the Fund would be willing to purchase the
security at the exercise price for investment purposes (in the case of an option
on a security) or is writing the put in connection with trading strategies
involving combinations of options -- for example, the sale and purchase of
options with identical expiration dates on the same security or index but
different exercise prices (a technique called a "spread").
The Fund 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, the Fund will write only
call or put options that are "covered." A put option will be considered covered
if the Fund has segregated assets with respect to such
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<PAGE> 77
option in the manner described in "Risk Factors in Options, Futures and Currency
Instruments" below. A call option will be considered covered if the Fund owns
the securities it would be required to deliver upon exercise of the option (or,
in the case of an option on a securities index, securities 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. The Fund may engage in transactions in options on
securities or securities indices, on exchanges and in the over-the-counter
("OTC") markets. In general, exchange-traded options have standardized exercise
prices and expiration dates and require the parties to post margin against their
obligations, and the performance of the parties' obligations in connection with
such options is guaranteed by the exchange or a related clearing corporation.
OTC options have more flexible terms negotiated between the buyer and the
seller, but generally do not require the parties to post margin and are subject
to greater risk of counterparty default. See "Additional Risk Factors of OTC
Transactions; Limitations on the Use of OTC Strategic Instruments" below.
FUTURES
The Fund may engage in transactions in futures and options thereon. Futures
are standardized, exchange-traded contracts that obligate a purchaser to take
delivery, and a seller to make delivery, of a specific amount of 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
the Fund 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 Fund's exchanges or in a third-party account
with the Fund's Custodian. Each day thereafter until the futures position is
closed, the Fund will pay additional margin representing any loss experienced as
a result of the futures position the prior day or be entitled to a payment
representing any profit experienced as a result of the futures position the
prior day. 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
the Fund and its shareholders. Even if a transaction is profitable, the Fund 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 Fund'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, the Fund will realize a loss on the
futures position and a lower return on the portfolio holdings than would have
been realized without the purchase of the futures contract.
The purchase of a futures contract may protect the Fund from having to pay
more for securities as a consequence of increases in the market value for such
securities during a period when the Fund was attempting to identify specific
securities in which to invest in a market the Fund believes to be attractive. In
the event that such securities decline in value or the Fund determines not to
complete an anticipatory hedge transaction relating to a futures contract,
however, the Fund may realize a loss relating to the futures position.
The Fund will limit transactions in futures and options on futures to
financial futures contracts (i.e., contracts for which the underlying commodity
is a currency or securities or interest rate index) purchased or sold for
hedging purposes (including anticipatory hedges). The Fund will further limit
transactions in futures and options on futures to the extent necessary to
prevent the Fund from being deemed a "commodity pool" under regulations of the
Commodity Futures Trading Commission.
SWAPS
The Fund is 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.
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<PAGE> 78
Swap agreements may be used to obtain exposure to an equity or market without
owning or taking physical custody of securities.
The Fund will enter into a swap transaction only if, immediately following
the time the Fund enters into the transaction, the aggregate notional principal
amount of swap transactions to which the Fund is a party would not exceed 5% of
the Fund's net assets.
FOREIGN EXCHANGE TRANSACTIONS
The Fund may engage in spot and forward foreign exchange transactions and
currency swaps, purchase and sell options on currencies and purchase and sell
currency futures and related options thereon (collectively, "Currency
Instruments") for purposes of hedging against the decline in the value of
currencies in which its portfolio holdings are denominated against the U.S.
dollar.
Forward foreign exchange transactions are OTC contracts to purchase or sell
a specified amount of a specified currency or multinational currency unit at a
price and future date set at the time of the contract. Spot foreign exchange
transactions are similar but require current, rather than future, settlement.
The Fund will enter into foreign exchange transactions only for purposes of
hedging either a specific transaction or a portfolio position. The Fund may
enter into a foreign exchange transaction for purposes of hedging a specific
transaction by, for example, purchasing a currency needed to settle a security
transaction at a future date or selling a currency in which the Fund has
received or anticipates receiving a dividend or distribution. The Fund may enter
into a foreign exchange transaction for purposes of hedging a portfolio position
by selling forward a currency in which a portfolio position of the Fund is
denominated or by purchasing a currency in which the Fund anticipates acquiring
a portfolio position in the near future. The Fund 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 Fund may also hedge against the decline in the value of a currency
against the U.S. dollar through use of currency futures or options thereon.
Currency futures are similar to forward foreign exchange transactions except
that futures are standardized, exchange-traded contracts. See "Futures" above.
The Fund may also hedge against the decline in the value of a currency
against the U.S. dollar through the use of currency options. Currency options
are similar to options on securities, but in consideration for an option premium
the writer of a currency option is obligated to sell (in the case of a call
option) or purchase (in the case of a put option) a specified amount of a
specified currency on or before the expiration date for a specified amount of
another currency. The Fund may, however, hedge a currency by entering into a
transaction in a Currency Instrument denominated in a currency other than the
currency being hedged (a "cross-hedge"). The Fund will only enter into a
cross-hedge if 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 Fund will not speculate in Currency Instruments. Accordingly, the Fund
will not hedge a currency in excess of the aggregate market value of the
securities 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 Fund's use of
Currency Instruments to effect hedging strategies is intended to reduce the
volatility of the net asset value of the Fund's shares, the net asset value of
the Fund's shares will fluctuate. Moreover, although Currency Instruments will
be used with the intention of hedging against adverse currency movements,
transactions in Currency Instruments involve the risk that anticipated currency
movements may not be accurately predicted and the Fund's hedging strategies may
be ineffective. To the extent that the Fund hedges against anticipated currency
movements that do not occur, the Fund may realize losses, and decrease its total
return, as the result of its hedging transactions. Furthermore, the Fund will
only engage in hedging activities from time to time and may not be engaging in
hedging activities when movements in currency exchange rates occur. It may not
be possible for the Fund to
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<PAGE> 79
hedge against currency exchange rate movements, even if correctly anticipated,
in the event that (i) the currency exchange rate movement is so generally
anticipated that the Fund is not able to enter into a hedging transaction at an
effective price, or (ii) the currency exchange rate movement relates to a market
with respect to which Currency Instruments are not available 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, the
Fund will experience a gain or loss that will not be completely offset by
movements in the value of the hedged instruments.
The Fund intends 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 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 the Fund 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
the Fund to potential losses that exceed the amount originally invested by the
Fund in such instruments. When the Fund engages in such a transaction, the Fund
will deposit in a segregated account at its custodian liquid securities with a
value at least equal to the Fund's exposure, on a mark-to-market basis, to the
transaction (as calculated pursuant to requirements of the Commission). Such
segregation will ensure that the Fund has assets available to satisfy its
obligations with respect to the transactions, but will not limit the Fund'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 the Fund may invest. The absence of liquidity may make it
difficult or impossible for the Fund to sell such instruments promptly at an
acceptable price. The absence of liquidity may also make it more difficult for
the Fund to ascertain a market value for such instruments. The Fund will
therefore acquire illiquid OTC instruments (i) if the agreement pursuant to
which the instrument is purchased contains a formula price at which the
instrument may be terminated or sold, or (ii) for which the Investment Adviser
anticipates the Fund can receive on each business day at least two independent
bids or offers, unless a quotation from only one dealer is available, in which
case that dealer's quotation may be used.
The staff of the Commission has taken the position that purchased OTC
options and the assets underlying written OTC options are illiquid securities.
The Fund has therefore adopted an investment policy pursuant to which the Fund
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 Fund, the market value of
the securities underlying OTC call options currently outstanding that have been
sold by the Fund and margin deposits on the Fund's outstanding OTC options
exceeds 15% of the net assets of the Fund, taken at market value, together with
all other assets of the Fund that are deemed to be illiquid or are otherwise not
readily marketable. However, if an OTC option is sold by the Fund to a dealer in
U.S. government securities recognized as a "primary dealer" by the Federal
Reserve Bank of New York and the Fund has the unconditional contractual right to
repurchase such OTC option at a predetermined price, then the Fund 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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<PAGE> 80
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 the Fund has unrealized gains in such instruments or
has deposited collateral with its counterparty, the Fund is at risk that its
counterparty will become bankrupt or otherwise fail to honor its obligations.
The Fund will attempt to minimize the risk that a counterparty will 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
The Fund 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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<PAGE> 81
APPENDIX B
RATINGS OF FIXED INCOME SECURITIES
DESCRIPTION OF MOODY'S INVESTORS SERVICES, INC.'S CORPORATE DEBT RATINGS
<TABLE>
<S> <C>
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.
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.
</TABLE>
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
B-1
<PAGE> 82
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 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:
<TABLE>
<S> <C>
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.
</TABLE>
B-2
<PAGE> 83
<TABLE>
<S> <C>
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.
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.
</TABLE>
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.
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.
<TABLE>
<S> <C>
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.
</TABLE>
B-3
<PAGE> 84
<TABLE>
<S> <C>
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.
</TABLE>
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.
<TABLE>
<S> <C>
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 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.
</TABLE>
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.
<TABLE>
<S> <C>
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.
</TABLE>
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.
B-4
<PAGE> 85
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," 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:
<TABLE>
<S> <C>
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.
</TABLE>
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 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:
<TABLE>
<S> <C>
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.
</TABLE>
B-5
<PAGE> 86
<TABLE>
<S> <C>
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
B, balance, as predominantly speculative with respect to the
CCC issuer's capacity to pay preferred stock obligations. "BB"
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.
D A preferred stock rated "D" is a non-paying issue in default
on debt instruments.
</TABLE>
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 INVESTORS SERVICE, INC.'S ("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.
B-6
<PAGE> 87
Fitch ratings are based on information obtained from issuers, other
obligors, 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.
<TABLE>
<S> <C>
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.
</TABLE>
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.
<TABLE>
<S> <C>
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
information 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.
</TABLE>
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
B-7
<PAGE> 88
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.
<TABLE>
<S> <C>
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.
DD Such bonds are extremely speculative and should be valued on
D the basis of their ultimate recovery 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.
</TABLE>
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.
Fitch short-term ratings are as follows:
<TABLE>
<S> <C>
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.
</TABLE>
B-8
<PAGE> 89
PART C. OTHER INFORMATION
ITEM 23. EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<C> <S> <C>
1(a) -- Articles of Incorporation of Registrant.
1(b) -- Amended Articles of Incorporation of Registrant.
1(c) -- Articles of Amendment of Registrant.
2(a) -- By-Laws of Registrant.
2(b) -- Amended and Restated By-Laws of Registrant.
3 -- Instrument Defining Rights of Shareholders. Incorporated by
reference to Exhibits 1 and 2 above.
4 -- Not Applicable.
5(a) -- Class I Distribution Agreement between Registrant and
Mercury Funds Distributor, a division of Princeton Funds
Distributor, Inc.
5(b) -- Class A Distribution Agreement between Registrant and
Mercury Funds Distributor, a division of Princeton Funds
Distributor, Inc.
5(c) -- Class B Distribution Agreement between Registrant and
Mercury Funds Distributor, a division of Princeton Funds
Distributor, Inc.
5(d) -- Class C Distribution Agreement between Registrant and
Mercury Funds Distributor, a division of Princeton Funds
Distributor, Inc.
6 -- None.
7 -- Custody Agreement between Registrant and Brown Brothers
Harriman & Co.
8(a) -- Administration Agreement between Registrant and Mercury
Asset Management International Ltd.
8(b) -- Transfer Agency, Dividend Disbursing Agency and Shareholder
Servicing Agency Agreement between Registrant and Financial
Data Services, Inc.
8(c) -- 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(d) -- License Agreement relating to Use of Name among Mercury
Asset Management International Ltd., Mercury Asset
Management Group Ltd. and Registrant.
9 -- Opinion and consent of Swidler Berlin Shereff Friedman, LLP,
counsel for Registrant.
10 -- Consent of Deloitte & Touche, LLP, independent auditors for
the Registrant.(1)
11 -- None.
12 -- Certificate of Mercury Asset Management International
Ltd.(1)
13(a) -- Class A Distribution Plan and Class A Plan Sub-Agreement.
13(b) -- Class B Distribution Plan and Class B Plan Sub-Agreement.
13(c) -- Class C Distribution Plan and Class C Plan Sub-Agreement.
14 -- Not Applicable.
15 -- Rule 18f-3 Plan.
</TABLE>
- ---------------
(1) To be filed by amendment
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Prior to the effective date of this Registration Statement, the Registrant
will sell shares of each Series of Registrant to Mercury Asset Management
International Ltd. ("Mercury International"), and Mercury Asset Management
Master Trust will also sell shares of each of its Series to Registrant.
Therefore, Mercury Asset Management Master Trust will be under control by and
under common control with the Registrant.
ITEM 25. INDEMNIFICATION.
Reference is made to Article V of Registrant's Articles of Incorporation,
Article VI of Registrant's By-Laws and Section 2-418 of the Maryland General
Corporation Law.
Article VI of the By-Laws provides that each officer and Director of the
Registrant shall be indemnified by the Registrant to the full extent permitted
under the Maryland General Corporation Law, except that such
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<PAGE> 90
indemnity shall not protect any such person against any liability to the
Registrant or any stockholder thereof to which such person 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. Absent a
court determination that an officer or director seeking indemnification was not
liable on the merits or guilty of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office, the decision by the Registrant to indemnify such person must be based
upon the reasonable determination by special legal counsel in a written opinion
or the vote of a quorum of the Directors who are neither "interested persons,"
as defined in Section 2(a)(19) of the Investment Company Act of 1940, as
amended, nor parties to the proceeding ("non-party independent Directors"),
after review of the facts, that such officer or Director is not guilty of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office.
Each officer and Director of the Registrant claiming indemnification within
the scope of Article VI of the By-Laws shall be entitled to advances from the
Registrant for payment of the reasonable expenses incurred by him in connection
with proceedings to which he is a party in the manner and to the full extent
permitted under the Maryland General Corporation Law without a preliminary
determination as to his or her ultimate entitlement to indemnification (except
as set forth below); provided, however, that the person seeking indemnification
shall provide to the Registrant a written affirmation of his good faith belief
that the standard of conduct necessary for indemnification by the Registrant has
been met and a written undertaking to repay any such advance, if it should
ultimately be determined that the standard of conduct has not been met, and
provided further that at least one of the following additional conditions is
met: (a) the person seeking indemnification shall provide a security in form and
amount acceptable to the Registrant for his undertaking; (b) the Registrant is
insured against losses arising by reason of the advance; (c) a majority of a
quorum of non-party independent Directors, or independent legal counsel in a
written opinion, shall determine, based on a review of facts readily available
to the Registrant at the time the advance is proposed to be made, that there is
reason to believe that the person seeking indemnification will ultimately be
found to be entitled to indemnification.
The Registrant may purchase insurance on behalf of an officer or director
protecting such person to the full extent permitted under the General Laws of
the State of Maryland, from liability arising from his activities as officer or
Director of the Registrant. The Registrant, however, may not purchase insurance
on behalf of any officer or Director of the Registrant that protects or purports
to protect such person from liability to the Registrant or to its stockholders
to which such officer or director 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 Registrant may indemnify, make advances or purchase insurance to the
extent provided in Article VI of the By-Laws on behalf of an employee or agent
who is not an officer or Director of the Registrant.
In Section 9 of the Distribution Agreement relating to the securities being
offered hereby, the Registrant agrees to indemnify the Distributor and each
person, if any, who controls the Distributor within the meaning of the
Securities Act of 1933, as amended (the "Act"), against certain types of civil
liabilities arising in connection with the Registration Statement or Prospectus
and Statement of Additional Information.
Insofar as indemnification for liabilities arising under the Act may be
permitted to Directors, officers and controlling persons of the Registrant and
the principal underwriter pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a Director, officer, or controlling person of the Registrant
and the principal underwriter in connection with the successful defense of any
action, suit or proceeding) is asserted by such Director, officer or controlling
person or the principal underwriter in connection with the shares being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
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<PAGE> 91
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.
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
NAME POSITIONS WITH 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 Investment Advisers 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 Investment Advisers
Limited; Mercury Financial Services Ltd.; Mercury Investment Management Limited;
Mercury Investment Services Ltd.; Mercury Investment Trust Investment Advisers
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 Wimco 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 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>
OTHER SUBSTANTIAL BUSINESS,
NAME POSITIONS WITH FAM PROFESSION, 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
</TABLE>
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<PAGE> 92
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
NAME POSITIONS WITH FAM PROFESSION, VOCATION OR EMPLOYMENT
---- --------------------- ---------------------------------------
<S> <C> <C>
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;
President Executive Vice 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 and General
and General Counsel Counsel of MLAM; Senior Vice President
of Princeton Services
Philip L. Kirstein.................. Senior Vice President Senior Vice President and Secretary of
and Secretary 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.
Stephen M.M. Miller................. Senior Vice President Executive Vice President of Princeton
Administrators; Senior Vice President
of Princeton Services
</TABLE>
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<PAGE> 93
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
NAME POSITIONS WITH FAM PROFESSION, VOCATION OR EMPLOYMENT
---- --------------------- ---------------------------------------
<S> <C> <C>
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
and Treasurer MLAM; Senior 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, and Mr. Glenn is an officer of such companies.
Messrs. Giordano, Harvey, Kirstein, and Monagle are 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 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
Fund, Inc., MuniHoldings New York Fund II, Inc. MuniHoldings Florida Insured
Fund, MuniHoldings Florida Insured Fund II, MuniHoldings Florida
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<PAGE> 94
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 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 the principal underwriter for the Registrant and for each
of the following open-end investment companies:
Mercury Core U.S. Growth Fund of Mercury Asset Management Funds, Inc.;
Mercury International Fund of Mercury Asset Management Funds, Inc.; Mercury
Japan Capital 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 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 Box 9081, Princeton,
New Jersey 08543-9081, except that the address of
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<PAGE> 95
Messrs. Crook, Aldrich, Breen, Fatseas and Wasel is One Financial Center, 23rd
Floor, Boston, Massachusetts 02111-2665.
<TABLE>
<CAPTION>
(2) (3)
(1) POSITIONS AND OFFICES POSITIONS AND OFFICES
NAME WITH THE DISTRIBUTOR 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 T. 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>
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 Funds, Inc., 800 Scudders Mill
Road, Plainsboro, New Jersey 08536;
(2) the transfer agent, Financial Data Services, Inc., 4800 Deer Lake Drive
East, Jacksonville, Florida 32246-6484;
(3) the custodian, Brown Brothers Harriman & Co., 40 Water Street, Boston,
Massachusetts 02109;
(4) the investment adviser, Mercury Asset Management International Ltd., 33
King William Street, London EC4R 9AS, England; and
(5) the sub-adviser and administrator, 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 of the Fund" in the
Prospectus constituting Part A of the Registration Statement and under
"Management of the Fund -- Management and Advisory Arrangements" in the
Statement of Additional Information constituting Part B of the Registration
Statement, the Registrant is not party to any Management-related service
contract.
ITEM 30. UNDERTAKINGS.
None.
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<PAGE> 96
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and 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 21st day of October, 1998.
MERCURY GOLD AND MINING FUND OF
MERCURY ASSET MANAGEMENT FUNDS, INC.
Registrant
By: /s/ JEFFREY M. PEEK
------------------------------------
Jeffrey M. Peek, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ JEFFREY M. PEEK President and Director October 21, 1998
- ----------------------------------------------- (Principal Executive Officer)
(Jeffrey M. Peek)
/s/ TERRY K. GLENN Executive Vice President and October 21, 1998
- ----------------------------------------------- Director
(Terry K. Glenn)
/s/ GERALD M. RICHARD Treasurer (Principal Financial October 21, 1998
- ----------------------------------------------- Accounting Officer)
(Gerald M. Richard)
/s/ DAVID O. BEIM Director October 21, 1998
- -----------------------------------------------
(David O. Beim)
/s/ JAMES T. FLYNN Director October 21, 1998
- -----------------------------------------------
(James T. Flynn)
/s/ W. CARL KESTER Director October 21, 1998
- -----------------------------------------------
(W. Carl Kester)
/s/ KAREN P. ROBARDS Director October 21, 1998
- -----------------------------------------------
(Karen P. Robards)
</TABLE>
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<PAGE> 97
SIGNATURES
Mercury Asset Management Master Trust has duly caused this Registration
Statement of Mercury Gold and Mining Fund of Mercury Asset Management Funds,
Inc. to be signed on its behalf by the undersigned, thereunto duly authorized,
in the Township of Plainsboro and State of New Jersey on the 21st day of
October, 1998.
MERCURY ASSET MANAGEMENT MASTER TRUST
By: /s/ JEFFREY M. PEEK
------------------------------------
Jeffrey M. Peek, President
This Registration Statement of Mercury Gold and Mining Fund of Mercury
Asset Management Funds, Inc., has been signed below by the following persons in
the capacities and on dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ JEFFREY M. PEEK President and Trustee October 21, 1998
- ----------------------------------------------- (Principal Executive Officer)
(Jeffrey M. Peek)
/s/ TERRY K. GLENN Executive Vice President and October 21, 1998
- ----------------------------------------------- Trustee
(Terry K. Glenn)
/s/ GERALD M. RICHARD Treasurer (Principal Financial October 21, 1998
- ----------------------------------------------- Accounting Officer)
(Gerald M. Richard)
/s/ DAVID O. BEIM Trustee October 21, 1998
- -----------------------------------------------
(David O. Beim)
/s/ JAMES T. FLYNN Trustee October 21, 1998
- -----------------------------------------------
(James T. Flynn)
/s/ W. CARL KESTER Trustee October 21, 1998
- -----------------------------------------------
(W. Carl Kester)
/s/ KAREN P. ROBARDS Trustee October 21, 1998
- -----------------------------------------------
(Karen P. Robards)
</TABLE>
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<PAGE> 98
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S> <C>
1(a) Articles of Incorporation of Registrant
1(b) Amended Articles of Incorporation of Registrant
1(c) Articles of Amendment of Registrant
2(a) By-Laws of Registrant
2(b) Amended and Restated By-Laws of Registrant
5(a) Class I Distribution Agreement between Registrant and
Mercury Funds Distributor, a division of Princeton Funds
Distributor, Inc.
5(b) Class A Distribution Agreement between Registrant and
Mercury Funds Distributor, a division of Princeton Funds
Distributor, Inc.
5(c) Class B Distribution Agreement between Registrant and
Mercury Funds Distributor, a division of Princeton Funds
Distributor, Inc.
5(d) Class C Distribution Agreement between Registrant and
Mercury Funds Distributor, a division of Princeton Funds
Distributor, Inc.
7 Custody Agreement between Registrant and Brown Brothers
Harriman & Co.
8(a) Administration Agreement between Registrant and Mercury
Asset Management International Ltd.
8(b) Transfer Agency, Dividend Disbursing Agency and Shareholder
Servicing Agency Agreement between Registrant and Financial
Data Services, Inc.
8(c) 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(d) License Agreement relating to Use of Name among Mercury
Asset Management International Ltd., Mercury Asset
Management Group Ltd. and Registrant.
9 Opinion and consent of Swidler Berlin Shereff Friedman, LLP,
counsel for Registrant
13(a) Class A Distribution Plan of the Registrant and Class A Plan
Sub-Agreement
13(b) Class B Distribution Plan of the Registrant and Class B Plan
Sub-Agreement
13(c) Class C Distribution Plan of the Registrant and Class C Plan
Sub-Agreement
15 Rule 18f-3 Plan
</TABLE>
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<PAGE> 1
Exhibit 1(a)
ARTICLES OF INCORPORATION
MERCURY ALPHA FUND, INC.
THE UNDERSIGNED, Judith L. Shandling, whose post office address is
Shereff, Friedman, Hoffman & Goodman, LLP, 919 Third Avenue, New York, New York
10022, being at least eighteen years of age, does hereby act as an incorporator,
under and by virtue of the General Laws of the State of Maryland authorizing the
formation of corporations and with the intention of forming a corporation.
ARTICLE I
NAME
The name of the corporation is Mercury Alpha Fund, Inc. (the
"Corporation").
ARTICLE II
PURPOSES AND POWERS
The purpose or purposes for which the Corporation is formed, the
powers, rights and privileges that the Corporation shall be authorized to
exercise and enjoy, and the business or objects to be transacted, carried on and
promoted by it are as follows:
(1) To conduct and carry on business of an investment company of the
management type.
(2) To hold, invest and reinvest its assets in securities, and in
connection therewith to hold part or all of its assets in cash.
(3) To issue and sell shares of its own capital stock in such amounts
and on such terms and conditions, for such purposes and for such amount or kind
of consideration now or hereafter permitted by the General Laws of the State of
Maryland and by these Articles of Incorporation, as its Board of Directors may
determine; provided, however, that the value of the consideration per share to
be received by the Corporation upon the sale or other disposition of any shares
of its capital stock shall not be less than the net asset value per share of
such capital stock outstanding at the time of such event.
(4) To exchange, classify, reclassify, change the designation of,
convert, rename, redeem, purchase or otherwise acquire, hold, dispose of,
resell, transfer, reissue or cancel (all without the vote or consent of the
stockholders of the Corporation) shares of its issued or unissued capital stock
of any class or series, as its Board of Directors may determine, in any manner
and to the extent now or hereafter permitted by the General Laws of the State of
Maryland and by these Articles of Incorporation.
<PAGE> 2
(5) To do any and all such further acts or things and to exercise any
and all such further powers or rights as may be necessary, incidental, relative,
conducive, appropriate or desirable for the accomplishment, carrying out or
attainment of all or any of the foregoing purposes or objects.
(6) The Corporation shall be authorized to exercise and enjoy all of
the powers, rights and privileges granted to, or conferred upon, corporations by
the General Laws of the State of Maryland now or hereafter in force, and the
enumeration of the foregoing purposes, powers, rights and privileges, shall not
be deemed to exclude any powers, rights or privileges so granted or conferred.
ARTICLE III
PRINCIPAL OFFICE AND RESIDENT AGENT
The post office address of the principal office of the Corporation in
the State of Maryland is c/o The Corporation Trust Incorporated, 32 South
Street, Baltimore, Maryland 21202. The name of the resident agent of the
Corporation in this State is The Corporation Trust Incorporated, a corporation
of this State, and the post office address of the resident agent is 32 South
Street, Baltimore, Maryland 21202.
ARTICLE IV
CAPITAL STOCK
(1) The total number of shares of capital stock which the Corporation
shall have authority to issue is Two Billion, Eight Hundred Million
(2,800,000,000) shares, of the par value of One Hundredth of One Cent ($.0001)
per share, and of the aggregate par value of Two Hundred and Eighty Thousand
Dollars ($280,000). The capital stock initially consists of seven series, known
as Mercury European Growth Fund, Mercury International Fund, Mercury Japan Fund,
Mercury Alpha Fund 4, Mercury Alpha Fund 5, Mercury Alpha Fund 6, and Mercury
Alpha Fund 7 (collectively, the "Series", and each, a "Series"). Each Series
shall consist, until further changed, of Four Hundred Million (400,000,000)
shares. The shares of each Series shall consist, until further changed, of four
classes of shares designated Class A shares, Class B shares, Class C shares and
Class D shares (the "Classes"). Each Class of each Series shall consist, until
further changed, of One Hundred Million (100,000,000) shares.
(2) Unless otherwise expressly provided in the charter of the
Corporation, the Class A, Class B, Class C and Class D shares of each Series
shall represent an equal proportionate interest in the assets belonging to that
Series (subject to the liabilities of that Series) and each share of a
particular Series shall have identical voting, dividend, liquidation and other
rights; provided, however, that notwithstanding anything in the charter of the
Corporation to the contrary:
(i) The Class A, Class B, Class C and Class D shares may be
issued and sold subject to such different sales loads or
charges, whether initial, deferred or contingent, or any
combination thereof, as the Board of Directors may from time
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<PAGE> 3
to time establish in accordance with the Investment Company
Act of 1940, as amended, and other applicable law.
(ii) Liabilities of a Series which are determined by or under
the supervision of the Board of Directors to be attributable
to a particular Class of that Series may be charged to that
Class and appropriately reflected in the net asset value of,
or dividends payable on, the shares of that Class of the
Series.
(iii) The Class A, Class B, Class C and Class D shares of a
particular Series may have such different exchange and
conversion rights as the Board of Directors shall provide in
compliance with the Investment Company Act of 1940, as
amended.
(3) The Board of Directors may classify and reclassify any unissued
shares of capital stock, of any class or series, into one or more additional or
other classes or series as may be established from time to time by setting or
changing in any one or more respects the designations, preferences, conversion
or other rights, voting powers, restrictions, limitations as to dividends,
qualifications or terms or conditions of redemption of such shares of stock and
pursuant to such classification or reclassification to increase or decrease the
number of authorized shares of any existing class or series.
(4) Unless otherwise expressly provided in the charter of the
Corporation, including any Articles Supplementary creating any class or series
of capital stock, the holders of each class or series of capital stock shall be
entitled to dividends and distributions in such amounts and at such times as may
be determined by the Board of Directors, and the dividends and distributions
paid with respect to the various classes or series of capital stock may vary
among such classes and series. Dividends on a class or series may be declared or
paid only out of the net assets of that class or series. Expenses related to the
distribution of, and other identified expenses that should properly be allocated
to, the shares of a particular class or series of capital stock may be charged
to and borne solely by such class or series and the bearing of expenses solely
by a class or series of capital stock may be appropriately reflected (in a
manner determined by the Board of Directors) and cause differences in the net
asset value attributable to, and the dividend, redemption and liquidation rights
of, the shares of each class or series of capital stock.
(5) Unless otherwise expressly provided in the charter of the
Corporation, including those matters set forth in Article II, Sections (2) and
(4) hereof and including any Articles Supplementary creating any class or series
of capital stock, on each matter submitted to a vote of stockholders, each
holder of a share of capital stock of the Corporation shall be entitled to one
vote for each share standing in such holder's name on the books of the
Corporation, irrespective of the class or series thereof, and all shares of all
classes and series shall vote together as a single class; provided, however,
that (a) as to any matter with respect to which a separate vote of any class or
series is required by the Investment Company Act of 1940, as amended, and in
effect from time to time, or any rules, regulations or orders issued thereunder,
or by the Maryland
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General Corporation Law, such requirement as to a separate vote by that class or
series shall apply in lieu of a general vote of all classes and series as
described above, (b) in the event that the separate vote requirements referred
to in (a) above apply with respect to one or more classes or series, then,
subject to paragraph (c) below, the shares of all other classes and series not
entitled to a separate class vote shall vote as a single class, and (c) as to
any matter which does not affect the interest of a particular class or series,
such class or series shall not be entitled to any vote and only the holders of
shares of the affected classes and series, if any, shall be entitled to vote.
(6) Notwithstanding any provision of the Maryland General Corporation
Law requiring a greater proportion than a majority of the votes of all classes
or series of capital stock of the Corporation (or of any class or series
entitled to vote thereon as a separate class or series) to take or authorize any
action, the Corporation is hereby authorized (subject to the requirements of the
Investment Company Act of 1940, as amended, and in effect from time to time, and
any rules, regulations and orders issued thereunder) to take such action upon
the concurrence of a majority of the votes entitled to be cast by holders of
capital stock of the Corporation (or a majority of the votes entitled to be cast
by holders of a class or series entitled to vote thereon as a separate class or
series).
(7) Unless otherwise expressly provided in the charter of the
Corporation, including any Articles Supplementary creating any class or series
of capital stock, subject to compliance with the requirements of the Investment
Company Act of 1940, as amended, the Board of Directors shall have the authority
to provide that holders of shares of any class or series shall have the right to
convert or exchange said shares into shares of one or more other classes or
series in accordance with such requirements and procedures as may be established
by the Board of Directors.
(8) Unless otherwise expressly provided in the charter of the
Corporation, including any Articles Supplementary creating any class or series
of capital stock, in the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, the holders of each class or
series of capital stock of the Corporation shall be entitled, after payment or
provision for payment of the debts and other liabilities of the Corporation, to
share ratably in the remaining net assets of the Corporation applicable to that
class or series.
(9) Any fractional shares shall carry proportionately all the rights of
a whole share, excepting any right to receive a certificate evidencing such
fractional share, but including, without limitation, the right to vote and the
right to receive dividends; provided, however, that the Corporation shall not be
required to issue share certificates for such fractional shares.
(10) The presence in person or by proxy of the holders of shares
entitled to cast one-third of the votes entitled to be cast shall constitute a
quorum at any meeting of stockholders, except with respect to any matter which
requires approval by a separate vote of one or more classes of stock, in which
case the presence in person or by proxy of the holders of shares entitled to
cast
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<PAGE> 5
one-third of the votes entitled to be cast by each class entitled to vote as a
separate class shall constitute a quorum.
(11) All persons who shall acquire stock in the Corporation, of any
class or series, shall acquire the same subject to the provisions of the charter
and By-Laws of the Corporation. Any reference to "shares," "stock" or "shares of
stock" in these Articles of Incorporation shall be deemed to refer, unless the
context otherwise requires, to the shares of each separate class and/or series.
As used in the charter of the Corporation, the terms "charter" and "Articles of
Incorporation" shall mean and include the Articles of Incorporation of the
Corporation as amended, supplemented and restated from time to time by Articles
of Amendment, Articles Supplementary, Articles of Restatement or otherwise.
(12) The Board of Directors may classify and reclassify any issued
shares of capital stock into one or more additional or other classes or series
as may be established from time to time by setting or changing in any one or
more respects the designations, preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications or terms or
conditions of redemption of such shares of stock and pursuant to such
classification or reclassification to increase or decrease the number of
authorized shares of any existing class or series; provided, however, that any
such classification or reclassification shall not substantially adversely affect
the rights of holders of such issued shares. The Board's authority pursuant to
this paragraph shall include, but not be limited to, the power to vary among all
the holders of a particular class or series (a) the length of time shares must
be held prior to reclassification to shares of another class or series (the
"Holding Period(s)"), (b) the manner in which the time for such Holding
Period(s) is determined and (c) the class or series into which the particular
class or series is being reclassified; provided, however, that, subject to the
first sentence of this section, with respect to holders of the Corporation's
shares issued on or after the date of the Corporation's first effective
prospectus which sets forth Holding Period(s) (the "First Holding Period
Prospectus"), the Holding Period(s), the manner in which the time for such
Holding Period(s) is determined and the class or series into which the
particular class or series is being reclassified shall be disclosed in the
Corporation's prospectus or statement of additional information in effect at the
time such shares, which are the subject of the reclassification, were issued.
(13)(a) Each series of capital stock of the Corporation shall relate to
a separate portfolio of investments. All shares of stock in each series shall be
identical except that there may be variations between the different series as to
the purchase price, determination of net asset value, designations, preferences,
conversion or other rights, voting powers, restrictions, special and relative
rights and limitations as to dividends and on liquidation, qualifications or
terms or conditions of redemption of such shares of stock.
(b) Each series of stock of the Corporation shall have the following
powers, preferences and voting or other special rights, and the qualifications,
restrictions and limitations thereof shall be as follows:
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<PAGE> 6
(i) All consideration received by the Corporation for the
issue or sale of stock of each series, together with all assets in which such
consideration is invested or reinvested, all income, earnings, profits and
proceeds received thereon, including any proceeds derived from the sale,
exchange or liquidation thereof, and any assets, funds or payments derived from
any reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to the series of stock with respect to which such assets,
payments or funds were received by the Corporation for all purposes, subject
only to the rights of creditors, and shall be so handled in the books of account
of the Corporation. Such assets, funds and payments, including any proceeds
derived from the sale, exchange or liquidation thereof, and any assets, 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" such series. In the
event that there are any income, earnings, profits, and proceeds thereof,
assets, funds or payments that are not readily identifiable as belonging to any
particular series, the Board of Directors of the Corporation shall allocate them
among any one or more of the series established and designated from time to time
in such manner and on such basis as the Board of Directors, in their sole
discretion, deem fair and equitable. Each allocation by the Board of Directors
shall be conclusive and binding on the stockholders of the Corporation of all
series for all purposes.
(ii) The assets belonging to each series of stock shall be
charged with the liabilities in respect of such series, and also shall be
charged with its share of the general liabilities of the Corporation, in
proportion to the asset value of the respective series determined in accordance
with the Articles of Incorporation of the Corporation. The determination of the
Board of Directors shall be conclusive as to the amount of liabilities,
including accrued expenses and reserves, as to the allocation of the same to a
given series, and as to whether the same or general assets of the Corporation
are allocable to one or more series.
ARTICLE V
PROVISIONS FOR DEFINING, LIMITING AND
REGULATING CERTAIN POWERS OF THE CORPORATION
AND OF THE DIRECTORS AND STOCKHOLDERS
(1) The number of directors of the Corporation shall be three, which
number may be increased pursuant to the By-Laws of the Corporation but shall
never be less than three. The names of the directors who shall act until their
successors are duly elected and qualify are:
Terry K. Glenn
Philip K. Kirstein
Robert E. Putney, III
(2) The Board of Directors of the Corporation is hereby empowered to
authorize the issuance from time to time of shares of capital stock, of any
class or series, whether now or hereafter authorized, for such consideration as
the Board of Directors may deem advisable,
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subject to such limitations as may be set forth in these Articles of
Incorporation or in the By-Laws of the Corporation or in the General Laws of the
State of Maryland.
(3) No holder of stock of the Corporation shall, as such holder, have
any right to purchase or subscribe for any shares of the capital stock of the
Corporation or any other security of the Corporation which it may issue or sell
(whether out of the number of shares authorized by these Articles of
Incorporation, or out of any shares of the capital stock of the Corporation, of
any class or series, acquired by it after the issue thereof, or otherwise) other
than such right, if any, as the Board of Directors, in its discretion, may
determine.
(4) Each acting and former director and officer of the Corporation
shall be indemnified by the Corporation to the full extent permitted by the
General Laws of the State of Maryland, subject to the requirements of the
Investment Company Act of 1940, as amended. No amendment of these Articles of
Incorporation or repeal of any provision hereof shall limit or eliminate the
benefits provided to directors and officers under this provision in connection
with any act or omission that occurred prior to such amendment or repeal. The
foregoing rights of indemnification shall not be exclusive of any other rights
to which those seeking indemnification may be entitled.
(5) To the fullest extent permitted by the General Laws of the State of
Maryland, subject to the requirements of the Investment Company Act of 1940, as
amended, no director or officer of the Corporation shall be personally liable to
the Corporation or its security holders for money damages. No amendment of these
Articles of Incorporation or repeal of any provision hereof shall limit or
eliminate the benefits provided to directors and officers under this provision
in connection with any act or omission that occurred prior to such amendment or
repeal.
(6) The Board of Directors of the Corporation is vested with the sole
power, to the exclusion of the stockholders, to make, alter or repeal from time
to time any of the By-Laws of the Corporation except any particular By-Law which
is specified as not subject to alteration or repeal by the Board of Directors,
subject to the requirements of the Investment Company Act of 1940, as amended.
(7) The Board of Directors of the Corporation from time to time may
change the Corporation's name, or change the name or other designation of any
class or series of its stock, without the vote or consent of the stockholders of
the Corporation, in any manner and to the extent now or hereafter permitted by
the General Laws of the State of Maryland and by these Articles of
Incorporation.
(8) Notwithstanding any other provision of these Articles of
Incorporation or the By-Laws of the Corporation, or the General Laws of the
State of Maryland, the Board of Directors of the Corporation may, upon the
affirmative vote of the majority of the entire Board of Directors and without
the vote or consent of the stockholders, dissolve the Corporation in the manner
otherwise provided by the laws of the State of Maryland.
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ARTICLE VI
REDEMPTION
(1) Each holder of shares of capital stock of the Corporation shall be
entitled to require the Corporation to redeem all or any part of the shares of
capital stock of the Corporation standing in the name of such holder on the
books of the Corporation, and all shares of capital stock issued by the
Corporation shall be subject to redemption by the Corporation, at the redemption
price of such shares as in effect from time to time as may be determined by the
Board of Directors of the Corporation in accordance with the provisions hereof,
subject to the right of the Board of Directors of the Corporation to suspend the
right of redemption of shares of capital stock of the Corporation or postpone
the date of payment of such redemption price in accordance with provisions of
applicable law.
(2) All shares of stock of the Corporation shall be redeemable at the
option of the Corporation. The Board of Directors may by resolution from time to
time authorize the Corporation to require the redemption of all or any part of
the outstanding shares of any class or series upon such terms and conditions as
the Board of Directors, in its discretion, shall deem advisable, and upon the
sending of written notice thereof to each holder whose shares are to be
redeemed.
(3) The redemption price of shares of capital stock of the Corporation
shall be the net asset value thereof as determined by the Board of Directors of
the Corporation from time to time in accordance with the provisions of
applicable law, less such redemption fee or other charge, if any, as may be
fixed by resolution of the Board of Directors of the Corporation. Payment of the
redemption price shall be made in cash by the Corporation at such time and in
such manner as may be determined from time to time by the Board of Directors of
the Corporation.
ARTICLE VII
DETERMINATION BINDING
Any determination made in good faith, so far as accounting matters are
involved, in accordance with accepted accounting practice by or pursuant to the
direction of the Board of Directors, as to the amount of assets, obligations or
liabilities of the Corporation, as to the amount of net income of the
Corporation from dividends and interest for any period or amounts at any time
legally available for the payment of dividends, as to the amount of any reserves
or charges set up and the propriety thereof, as to the time of or purpose for
creating reserves or as to the use, alteration or cancellation of any reserves
or charges (whether or not any obligation or liability for which such reserves
or charges shall have been created, shall have been paid or discharged or shall
be then or thereafter required to be paid or discharged), as to the price of any
security owned by the Corporation or as to any other matters relating to the
issuance, sale, redemption or other acquisition or disposition of securities or
shares of capital stock of the Corporation, and any reasonable determination
made in good faith by the Board of Directors as to whether any transaction
constitutes a purchase of securities on "margin," a sale of securities
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<PAGE> 9
"short," or an underwriting or the sale of, or a participation in any
underwriting or selling group in connection with the public distribution of, any
securities, shall be final and conclusive, and shall be binding upon the
Corporation and all holders of its capital stock, past, present and future, and
shares of the capital stock of the Corporation are issued and sold on the
condition and understanding, evidenced by the purchase of shares of capital
stock or acceptance of share certificates, that any and all such determinations
shall be binding as aforesaid. No provision of these Articles of Incorporation
shall be effective to (a) require a waiver of compliance with any provision of
the Securities Act of 1933, as amended, or the Investment Company Act of 1940,
as amended, or of any valid rule, regulation or order of the Securities and
Exchange Commission thereunder or (b) protect or purport to protect any director
or officer of the Corporation against any liability to the Corporation or its
security holders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
ARTICLE VIII
PERPETUAL EXISTENCE
The duration of the Corporation shall be perpetual.
ARTICLE IX
AMENDMENT
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in these Articles of Incorporation, in any manner now or
hereafter prescribed by statute, including any amendment which alters the
contract rights, as expressly set forth in the charter, of any outstanding stock
and substantially adversely affects the stockholder's rights, and all rights
conferred upon stockholders herein are granted subject to this reservation.
IN WITNESS WHEREOF, the undersigned incorporator of Mercury Alpha Fund,
Inc. hereby executes the foregoing Articles of Incorporation and acknowledges
the same to be his act and further acknowledges that, to the best of his
knowledge, the matters and facts set forth therein are true in all material
respects under penalties for perjury.
Dated this 23rd day of April, 1998
_____________________________
Judith L. Shandling
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Exhibit 1(b)
AMENDED ARTICLES OF INCORPORATION OF
MERCURY ALPHA FUND, INC.
Mercury Alpha Fund, Inc. is filing these Amended Articles of
Incorporation prior to the organizational meeting of the Board of Directors. As
amended, the charter will read as follows. The stock amounts and aggregate par
value are unchanged by this document.
THE UNDERSIGNED, Judith L. Shandling, whose post office address is
Shereff, Friedman, Hoffman & Goodman, LLP, 919 Third Avenue, New York, New York
10022, being at least eighteen years of age, does hereby act as an incorporator,
under and by virtue of the General Laws of the State of Maryland authorizing the
formation of corporations and with the intention of forming a corporation.
ARTICLE I
NAME
The name of the corporation is Mercury Asset Management Funds, Inc. (the
"Corporation").
ARTICLE II
PURPOSES AND POWERS
The purpose or purposes for which the Corporation is formed, the
powers, rights and privileges that the Corporation shall be authorized to
exercise and enjoy, and the business or objects to be transacted, carried on and
promoted by it are as follows:
(1) To conduct and carry on business of an investment company of the
management type.
(2) To hold, invest and reinvest its assets in securities, and in
connection therewith to hold part or all of its assets in cash.
(3) To issue and sell shares of its own capital stock in such amounts
and on such terms and conditions, for such purposes and for such amount or kind
of consideration now or hereafter permitted by the General Laws of the State of
Maryland and by these Articles of Incorporation, as its Board of Directors may
determine; provided, however, that the value of the consideration per share to
be received by the Corporation upon the sale or other disposition of any shares
of its capital stock shall not be less than the net asset value per share of
such capital stock outstanding at the time of such event.
(4) To exchange, classify, reclassify, change the designation of,
convert, rename, redeem, purchase or otherwise acquire, hold, dispose of,
resell, transfer, reissue or cancel (all without the vote or consent of the
stockholders of the Corporation) shares of its issued or unissued capital
<PAGE> 2
stock of any class or series, as its Board of Directors may determine, in any
manner and to the extent now or hereafter permitted by the General Laws of the
State of Maryland and by these Articles of Incorporation.
(5) To do any and all such further acts or things and to exercise any
and all such further powers or rights as may be necessary, incidental, relative,
conducive, appropriate or desirable for the accomplishment, carrying out or
attainment of all or any of the foregoing purposes or objects.
(6) The Corporation shall be authorized to exercise and enjoy all of
the powers, rights and privileges granted to, or conferred upon, corporations by
the General Laws of the State of Maryland now or hereafter in force, and the
enumeration of the foregoing purposes, powers, rights and privileges, shall not
be deemed to exclude any powers, rights or privileges so granted or conferred.
ARTICLE III
PRINCIPAL OFFICE AND RESIDENT AGENT
The post office address of the principal office of the Corporation in
the State of Maryland is c/o The Corporation Service Company, 11 E. Chase
Street, Baltimore, Maryland 21202. The name of the resident agent of the
Corporation in this State is The Corporation Service Company, a corporation of
this State, and the post office address of the resident agent is 11 E. Chase
Street, Baltimore, Maryland 21202.
ARTICLE IV
CAPITAL STOCK
(1) The total number of shares of capital stock which the Corporation
shall have authority to issue is Two Billion, Eight Hundred Million
(2,800,000,000) shares, of the par value of One Hundredth of One Cent ($.0001)
per share, and of the aggregate par value of Two Hundred and Eighty Thousand
Dollars ($280,000). The capital stock initially consists of seven series, known
as Mercury Pan-European Growth Fund, Mercury International Fund, Mercury Japan
Capital Fund, Mercury Emerging Economies Fund, Mercury Gold and Mining Fund,
Mercury Core U.S. Growth Fund and Mercury Asset Management Fund 7 (collectively,
the "Series", and each, a "Series"). Each Series shall consist, until further
changed, of Four Hundred Million (400,000,000) shares. The shares of each Series
shall consist, until further changed, of four classes of shares designated Class
A shares, Class B shares, Class C shares and Class D shares (the "Classes").
Each Class of each Series shall consist, until further changed, of One Hundred
Million (100,000,000) shares.
(2) Unless otherwise expressly provided in the charter of the
Corporation, the Class A, Class B, Class C and Class D shares of each Series
shall represent an equal proportionate interest in the assets belonging to that
Series (subject to the liabilities of that Series) and each share of a
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particular Series shall have identical voting, dividend, liquidation and other
rights; provided, however, that notwithstanding anything in the charter of the
Corporation to the contrary:
(i) The Class A, Class B, Class C and Class D shares may be
issued and sold subject to such different sales loads or
charges, whether initial, deferred or contingent, or any
combination thereof, as the Board of Directors may from time
to time establish in accordance with the Investment Company
Act of 1940, as amended, and other applicable law.
(ii) Liabilities of a Series which are determined by or under
the supervision of the Board of Directors to be attributable
to a particular Class of that Series may be charged to that
Class and appropriately reflected in the net asset value of,
or dividends payable on, the shares of that Class of the
Series.
(iii) The Class A, Class B, Class C and Class D shares of a
particular Series may have such different exchange and
conversion rights as the Board of Directors shall provide in
compliance with the Investment Company Act of 1940, as
amended.
(3) The Board of Directors may classify and reclassify any unissued
shares of capital stock, of any class or series, into one or more additional or
other classes or series as may be established from time to time by setting or
changing in any one or more respects the designations, preferences, conversion
or other rights, voting powers, restrictions, limitations as to dividends,
qualifications or terms or conditions of redemption of such shares of stock and
pursuant to such classification or reclassification to increase or decrease the
number of authorized shares of any existing class or series.
(4) Unless otherwise expressly provided in the charter of the
Corporation, including any Articles Supplementary creating any class or series
of capital stock, the holders of each class or series of capital stock shall be
entitled to dividends and distributions in such amounts and at such times as may
be determined by the Board of Directors, and the dividends and distributions
paid with respect to the various classes or series of capital stock may vary
among such classes and series. Dividends on a class or series may be declared or
paid only out of the net assets of that class or series. Expenses related to the
distribution of, and other identified expenses that should properly be allocated
to, the shares of a particular class or series of capital stock may be charged
to and borne solely by such class or series and the bearing of expenses solely
by a class or series of capital stock may be appropriately reflected (in a
manner determined by the Board of Directors) and cause differences in the net
asset value attributable to, and the dividend, redemption and liquidation rights
of, the shares of each class or series of capital stock.
(5) Unless otherwise expressly provided in the charter of the
Corporation, including those matters set forth in Article II, Sections (2) and
(4) hereof and including any Articles Supplementary creating any class or series
of capital stock, on each matter submitted to a vote of
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stockholders, each holder of a share of capital stock of the Corporation shall
be entitled to one vote for each share standing in such holder's name on the
books of the Corporation, irrespective of the class or series thereof, and all
shares of all classes and series shall vote together as a single class;
provided, however, that (a) as to any matter with respect to which a separate
vote of any class or series is required by the Investment Company Act of 1940,
as amended, and in effect from time to time, or any rules, regulations or orders
issued thereunder, or by the Maryland General Corporation Law, such requirement
as to a separate vote by that class or series shall apply in lieu of a general
vote of all classes and series as described above, (b) in the event that the
separate vote requirements referred to in (a) above apply with respect to one or
more classes or series, then, subject to paragraph (c) below, the shares of all
other classes and series not entitled to a separate class vote shall vote as a
single class, and (c) as to any matter which does not affect the interest of a
particular class or series, such class or series shall not be entitled to any
vote and only the holders of shares of the affected classes and series, if any,
shall be entitled to vote.
(6) Notwithstanding any provision of the Maryland General Corporation
Law requiring a greater proportion than a majority of the votes of all classes
or series of capital stock of the Corporation (or of any class or series
entitled to vote thereon as a separate class or series) to take or authorize any
action, the Corporation is hereby authorized (subject to the requirements of the
Investment Company Act of 1940, as amended, and in effect from time to time, and
any rules, regulations and orders issued thereunder) to take such action upon
the concurrence of a majority of the votes entitled to be cast by holders of
capital stock of the Corporation (or a majority of the votes entitled to be cast
by holders of a class or series entitled to vote thereon as a separate class or
series).
(7) Unless otherwise expressly provided in the charter of the
Corporation, including any Articles Supplementary creating any class or series
of capital stock, subject to compliance with the requirements of the Investment
Company Act of 1940, as amended, the Board of Directors shall have the authority
to provide that holders of shares of any class or series shall have the right to
convert or exchange said shares into shares of one or more other classes or
series in accordance with such requirements and procedures as may be established
by the Board of Directors.
(8) Unless otherwise expressly provided in the charter of the
Corporation, including any Articles Supplementary creating any class or series
of capital stock, in the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, the holders of each class or
series of capital stock of the Corporation shall be entitled, after payment or
provision for payment of the debts and other liabilities of the Corporation, to
share ratably in the remaining net assets of the Corporation applicable to that
class or series.
(9) Any fractional shares shall carry proportionately all the rights of
a whole share, excepting any right to receive a certificate evidencing such
fractional share, but including, without limitation, the right to vote and the
right to receive dividends; provided, however, that the Corporation shall not be
required to issue share certificates for such fractional shares.
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(10) The presence in person or by proxy of the holders of shares
entitled to cast one-third of the votes entitled to be cast shall constitute a
quorum at any meeting of stockholders, except with respect to any matter which
requires approval by a separate vote of one or more classes of stock, in which
case the presence in person or by proxy of the holders of shares entitled to
cast one-third of the votes entitled to be cast by each class entitled to vote
as a separate class shall constitute a quorum.
(11) All persons who shall acquire stock in the Corporation, of any
class or series, shall acquire the same subject to the provisions of the charter
and By-Laws of the Corporation. Any reference to "shares," "stock" or "shares of
stock" in these Articles of Incorporation shall be deemed to refer, unless the
context otherwise requires, to the shares of each separate class and/or series.
As used in the charter of the Corporation, the terms "charter" and "Articles of
Incorporation" shall mean and include the Articles of Incorporation of the
Corporation as amended, supplemented and restated from time to time by Articles
of Amendment, Articles Supplementary, Articles of Restatement or otherwise.
(12) The Board of Directors may classify and reclassify any issued
shares of capital stock into one or more additional or other classes or series
as may be established from time to time by setting or changing in any one or
more respects the designations, preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications or terms or
conditions of redemption of such shares of stock and pursuant to such
classification or reclassification to increase or decrease the number of
authorized shares of any existing class or series; provided, however, that any
such classification or reclassification shall not substantially adversely affect
the rights of holders of such issued shares. The Board's authority pursuant to
this paragraph shall include, but not be limited to, the power to vary among all
the holders of a particular class or series (a) the length of time shares must
be held prior to reclassification to shares of another class or series (the
"Holding Period(s)"), (b) the manner in which the time for such Holding
Period(s) is determined and (c) the class or series into which the particular
class or series is being reclassified; provided, however, that, subject to the
first sentence of this section, with respect to holders of the Corporation's
shares issued on or after the date of the Corporation's first effective
prospectus which sets forth Holding Period(s) (the "First Holding Period
Prospectus"), the Holding Period(s), the manner in which the time for such
Holding Period(s) is determined and the class or series into which the
particular class or series is being reclassified shall be disclosed in the
Corporation's prospectus or statement of additional information in effect at the
time such shares, which are the subject of the reclassification, were issued.
(13)(a) Each series of capital stock of the Corporation shall relate to
a separate portfolio of investments. All shares of stock in each series shall be
identical except that there may be variations between the different series as to
the purchase price, determination of net asset value, designations, preferences,
conversion or other rights, voting powers, restrictions, special and relative
rights and limitations as to dividends and on liquidation, qualifications or
terms or conditions of redemption of such shares of stock.
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(b) Each series of stock of the Corporation shall have the following
powers, preferences and voting or other special rights, and the qualifications,
restrictions and limitations thereof shall be as follows:
(i) All consideration received by the Corporation for the
issue or sale of stock of each series, together with all assets in which such
consideration is invested or reinvested, all income, earnings, profits and
proceeds received thereon, including any proceeds derived from the sale,
exchange or liquidation thereof, and any assets, funds or payments derived from
any reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to the series of stock with respect to which such assets,
payments or funds were received by the Corporation for all purposes, subject
only to the rights of creditors, and shall be so handled in the books of account
of the Corporation. Such assets, funds and payments, including any proceeds
derived from the sale, exchange or liquidation thereof, and any assets, 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" such series. In the
event that there are any income, earnings, profits, and proceeds thereof,
assets, funds or payments that are not readily identifiable as belonging to any
particular series, the Board of Directors of the Corporation shall allocate them
among any one or more of the series established and designated from time to time
in such manner and on such basis as the Board of Directors, in their sole
discretion, deem fair and equitable. Each allocation by the Board of Directors
shall be conclusive and binding on the stockholders of the Corporation of all
series for all purposes.
(ii) The assets belonging to each series of stock shall be
charged with the liabilities in respect of such series, and also shall be
charged with its share of the general liabilities of the Corporation, in
proportion to the asset value of the respective series determined in accordance
with the Articles of Incorporation of the Corporation. The determination of the
Board of Directors shall be conclusive as to the amount of liabilities,
including accrued expenses and reserves, as to the allocation of the same to a
given series, and as to whether the same or general assets of the Corporation
are allocable to one or more series.
ARTICLE V
PROVISIONS FOR DEFINING, LIMITING AND
REGULATING CERTAIN POWERS OF THE CORPORATION
AND OF THE DIRECTORS AND STOCKHOLDERS
(1) The number of directors of the Corporation shall be three, which
number may be increased pursuant to the By-Laws of the Corporation but shall
never be less than three. The names of the directors who shall act until their
successors are duly elected and qualify are:
Terry K. Glenn
Philip K. Kirstein
Robert E. Putney, III
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(2) The Board of Directors of the Corporation is hereby empowered to
authorize the issuance from time to time of shares of capital stock, of any
class or series, whether now or hereafter authorized, for such consideration as
the Board of Directors may deem advisable, subject to such limitations as may be
set forth in these Articles of Incorporation or in the By-Laws of the
Corporation or in the General Laws of the State of Maryland.
(3) No holder of stock of the Corporation shall, as such holder, have
any right to purchase or subscribe for any shares of the capital stock of the
Corporation or any other security of the Corporation which it may issue or sell
(whether out of the number of shares authorized by these Articles of
Incorporation, or out of any shares of the capital stock of the Corporation, of
any class or series, acquired by it after the issue thereof, or otherwise) other
than such right, if any, as the Board of Directors, in its discretion, may
determine.
(4) Each acting and former director and officer of the Corporation
shall be indemnified by the Corporation to the full extent permitted by the
General Laws of the State of Maryland, subject to the requirements of the
Investment Company Act of 1940, as amended. No amendment of these Articles of
Incorporation or repeal of any provision hereof shall limit or eliminate the
benefits provided to directors and officers under this provision in connection
with any act or omission that occurred prior to such amendment or repeal. The
foregoing rights of indemnification shall not be exclusive of any other rights
to which those seeking indemnification may be entitled.
(5) To the fullest extent permitted by the General Laws of the State of
Maryland, subject to the requirements of the Investment Company Act of 1940, as
amended, no director or officer of the Corporation shall be personally liable to
the Corporation or its security holders for money damages. No amendment of these
Articles of Incorporation or repeal of any provision hereof shall limit or
eliminate the benefits provided to directors and officers under this provision
in connection with any act or omission that occurred prior to such amendment or
repeal.
(6) The Board of Directors of the Corporation is vested with the sole
power, to the exclusion of the stockholders, to make, alter or repeal from time
to time any of the By-Laws of the Corporation except any particular By-Law which
is specified as not subject to alteration or repeal by the Board of Directors,
subject to the requirements of the Investment Company Act of 1940, as amended.
(7) The Board of Directors of the Corporation from time to time may
change the Corporation's name, or change the name or other designation of any
class or series of its stock, without the vote or consent of the stockholders of
the Corporation, in any manner and to the extent now or hereafter permitted by
the General Laws of the State of Maryland and by these Articles of
Incorporation.
(8) Notwithstanding any other provision of these Articles of
Incorporation or the By-Laws of the Corporation, or the General Laws of the
State of Maryland, the Board of Directors of the
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Corporation may, upon the affirmative vote of the majority of the entire Board
of Directors and without the vote or consent of the stockholders, dissolve the
Corporation in the manner otherwise provided by the laws of the State of
Maryland.
ARTICLE VI
REDEMPTION
(1) Each holder of shares of capital stock of the Corporation shall be
entitled to require the Corporation to redeem all or any part of the shares of
capital stock of the Corporation standing in the name of such holder on the
books of the Corporation, and all shares of capital stock issued by the
Corporation shall be subject to redemption by the Corporation, at the redemption
price of such shares as in effect from time to time as may be determined by the
Board of Directors of the Corporation in accordance with the provisions hereof,
subject to the right of the Board of Directors of the Corporation to suspend the
right of redemption of shares of capital stock of the Corporation or postpone
the date of payment of such redemption price in accordance with provisions of
applicable law.
(2) All shares of stock of the Corporation shall be redeemable at the
option of the Corporation. The Board of Directors may by resolution from time to
time authorize the Corporation to require the redemption of all or any part of
the outstanding shares of any class or series upon such terms and conditions as
the Board of Directors, in its discretion, shall deem advisable, and upon the
sending of written notice thereof to each holder whose shares are to be
redeemed.
(3) The redemption price of shares of capital stock of the Corporation
shall be the net asset value thereof as determined by the Board of Directors of
the Corporation from time to time in accordance with the provisions of
applicable law, less such redemption fee or other charge, if any, as may be
fixed by resolution of the Board of Directors of the Corporation. Payment of the
redemption price shall be made in cash by the Corporation at such time and in
such manner as may be determined from time to time by the Board of Directors of
the Corporation.
ARTICLE VII
DETERMINATION BINDING
Any determination made in good faith, so far as accounting matters are
involved, in accordance with accepted accounting practice by or pursuant to the
direction of the Board of Directors, as to the amount of assets, obligations or
liabilities of the Corporation, as to the amount of net income of the
Corporation from dividends and interest for any period or amounts at any time
legally available for the payment of dividends, as to the amount of any reserves
or charges set up and the propriety thereof, as to the time of or purpose for
creating reserves or as to the use, alteration or cancellation of any reserves
or charges (whether or not any obligation or liability for which such reserves
or charges shall have been created, shall have been paid or discharged or shall
be then or thereafter required to be paid or discharged), as to the price of any
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security owned by the Corporation or as to any other matters relating to the
issuance, sale, redemption or other acquisition or disposition of securities or
shares of capital stock of the Corporation, and any reasonable determination
made in good faith by the Board of Directors as to whether any transaction
constitutes a purchase of securities on "margin," a sale of securities "short,"
or an underwriting or the sale of, or a participation in any underwriting or
selling group in connection with the public distribution of, any securities,
shall be final and conclusive, and shall be binding upon the Corporation and all
holders of its capital stock, past, present and future, and shares of the
capital stock of the Corporation are issued and sold on the condition and
understanding, evidenced by the purchase of shares of capital stock or
acceptance of share certificates, that any and all such determinations shall be
binding as aforesaid. No provision of these Articles of Incorporation shall be
effective to (a) require a waiver of compliance with any provision of the
Securities Act of 1933, as amended, or the Investment Company Act of 1940, as
amended, or of any valid rule, regulation or order of the Securities and
Exchange Commission thereunder or (b) protect or purport to protect any director
or officer of the Corporation against any liability to the Corporation or its
security holders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
ARTICLE VIII
PERPETUAL EXISTENCE
The duration of the Corporation shall be perpetual.
ARTICLE IX
AMENDMENT
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in these Articles of Incorporation, in any manner now or
hereafter prescribed by statute, including any amendment which alters the
contract rights, as expressly set forth in the charter, of any outstanding stock
and substantially adversely affects the stockholder's rights, and all rights
conferred upon stockholders herein are granted subject to this reservation.
IN WITNESS WHEREOF, the undersigned incorporator of Mercury Asset
Management Funds, Inc. hereby executes the foregoing Amended Articles of
Incorporation and acknowledges the same to be her act and further acknowledges
that, to the best of her knowledge, the matters and facts set forth therein are
true in all material respects under penalties for perjury.
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Dated this 8th day of July, 1998
______________________________
Judith L. Shandling
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Exhibit 1(c)
MERCURY ASSET MANAGEMENT FUNDS, INC.
ARTICLES OF AMENDMENT
Mercury Asset Management Funds, Inc. a Maryland corporation having its
principal office in Baltimore, Maryland (hereinafter called the "Corporation"),
hereby certifies to the State Department of Assessments and Taxation of Maryland
that:
FIRST: The charter of the Corporation is hereby amended by striking out
Article IV, paragraphs (1) and (2) and inserting in lieu thereof the following:
ARTICLE IV
CAPITAL STOCK
(1) The total number of shares of capital stock which the Corporation
shall have authority to issue is Two Billion, Eight Hundred Million
(2,800,000,000) shares, of the par value of One Hundredth of One Cent ($.0001)
per share, and of the aggregate par value of Two Hundred and Eighty Thousand
Dollars ($280,000). The capital stock initially consists of seven series, known
as Mercury Pan-European Growth Fund, Mercury International Fund, Mercury Japan
Capital Fund, Mercury Emerging Economies Fund, Mercury Gold and Mining Fund,
Mercury Core U.S. Growth Fund and Mercury Asset Management Fund 7 (collectively,
the "Series", and each, a "Series"). Each Series shall consist, until further
changed, of Four Hundred Million (400,000,000) shares. The shares of each Series
shall consist, until further changed, of four classes of shares designated Class
I shares, Class A shares, Class B shares and Class C shares (the "Classes").
Each Class of each Series shall consist, until further changed, of One Hundred
Million (100,000,000) shares.
(2) Unless otherwise expressly provided in the charter of the
Corporation, the Class I shares, Class A shares, Class B shares and Class C
shares of each Series shall represent an equal proportionate interest in the
assets belonging to that Series (subject to the liabilities of that Series) and
each share of a particular Series shall have identical voting, dividend,
liquidation and other rights; provided, however, that notwithstanding anything
in the charter of the Corporation to the contrary:
(i) The Class I shares, Class A shares, Class B shares and
Class C shares may be issued and sold subject to such
different sales loads or charges, whether initial, deferred or
contingent, or any combination thereof, as the Board of
Directors may from time to time establish in accordance with
the Investment Company Act of 1940, as amended, and other
applicable law.
(ii) Liabilities of a Series which are determined by or under
the supervision of the Board of Directors to be attributable
to a particular Class of that Series may be
<PAGE> 2
charged to that Class and appropriately reflected in the net
asset value of, or dividends payable on, the shares of that
Class of the Series.
(iii) The Class I shares, Class A shares, Class B shares and
Class C shares of a particular Series may have such different
exchange and conversion rights as the Board of Directors shall
provide in compliance with the Investment Company Act of 1940,
as amended.
SECOND: The amendment of the charter of the Corporation as hereinabove
set forth has been duly advised by the entire board of directors and the
amendment is limited to a change expressly permitted by Section 2-605 (4) of
Maryland General Corporation Law, to be made without action by the stockholders,
and the Corporation is registered as an open-end company under the Investment
Company Act of 1940.
IN WITNESS WHEREOF: Mercury Asset Management Funds, Inc., has caused
these presents to be signed in its name on its behalf by its President or one of
its Vice Presidents and attested by its Secretary or one of its Assistant
Secretaries on August __, 1998.
-------------------------------
ATTEST: Mercury Asset Management Funds, Inc.
- ----------------------------------
Robert E. Putney, III, Secretary
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THE UNDERSIGNED, President (or Vice President) of Mercury Asset Management
Funds, Inc., who executed on behalf of said corporation, the foregoing Articles
of Amendment, of which this certificate is made a part, hereby acknowledges, in
the name and on behalf of said corporation, the foregoing Articles of Amendment
to be the corporate act of said corporation and further certifies that, to the
best of his knowledge, information, and belief, the matters and facts set forth
therein with respect to the approval thereof are true in all material respects,
under the penalties of perjury.
-----------------------------
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Exhibit 2(a)
BY-LAWS
OF
MERCURY ALPHA FUND, INC.
ARTICLE I
Offices
Section 1. Principal Office. The principal office of Mercury Alpha
Fund, Inc. (the "Corporation") shall be in the City of Baltimore, State of
Maryland.
Section 2. Principal Executive Office. The principal executive office
of the Corporation shall be at 800 Scudders Mill Road, Plainsboro, New Jersey
08536.
Section 3. Other Offices. The Corporation may have such other offices
in such places as the Board of Directors may from time to time determine.
ARTICLE II
Meetings of Stockholders
Section 1. Annual Meeting. So long as the Corporation is registered as
an investment company under the Investment Company Act of 1940, as amended (such
term to include the rules and regulations promulgated under the Investment
Company Act of 1940, as amended, unless otherwise specified or the context
otherwise requires), annual meetings of the stockholders shall not be held,
except where required to be held by the Investment Company Act of 1940, as
amended, or by the Maryland General Corporation Law or when called by the Board
of Directors or by an officer or officers authorized to take such action by the
Board of Directors. If in any calendar year the Corporation is required or
elects to hold an annual meeting, the meeting shall be held on such day, not a
Saturday, Sunday or legal holiday, as the Board of Directors or the officer or
officers calling the meeting may prescribe. At each such annual meeting, the
stockholders shall elect a Board of Directors and transact such other business
as may properly come before the meeting. The provisions of these By-Laws which
contemplate the holding of an annual meeting of stockholders shall be suspended
during any calendar year in which no annual meeting of stockholders is held.
Section 2. Special Meetings. Special meetings of the stockholders,
unless otherwise provided by law, may be called for any purpose or purposes by a
majority of the Board of Directors, the President, or on the written request of
the holders of at least 10% of the outstanding shares of capital stock of the
Corporation entitled to vote at such meeting if they comply with the applicable
requirements of the Maryland General Corporation Law.
<PAGE> 2
Section 3. Place of Meetings. Meetings of the stockholders shall be
held at such place within the United States as the Board of Directors may from
time to time determine.
Section 4. Notice of Meetings; Waiver of Notice. Notice of the place,
date and time of the holding of each stockholders' meeting and, if the meeting
is a special meeting, the purpose or purposes of the special meeting, shall be
given personally or by mail, not less than ten nor more than ninety days before
the date of such meeting, to each stockholder entitled to vote at such meeting
and to each other stockholder entitled to notice of the meeting. Notice by mail
shall be deemed to be duly given when deposited in the United States mail
addressed to the stockholder at his address as it appears on the records of the
Corporation, with postage thereon prepaid.
Notice of any meeting of stockholders shall be deemed waived by any
stockholder who shall attend such meeting in person or by proxy, or who shall,
either before or after the meeting, submit a signed waiver of notice which is
filed with the records of the meeting. When a meeting is adjourned to another
time and place, unless the Board of Directors, after the adjournment, shall fix
a new record date for an adjourned meeting, or the adjournment is for more than
one hundred and twenty days after the original record date, notice of such
adjourned meeting need not be given if the time and place to which the meeting
shall be adjourned were announced at the meeting at which the adjournment is
taken.
Section 5. Quorum. At all meetings of the stockholders, the holders of
shares of stock of the Corporation entitled to cast one-third of the votes
entitled to be cast, present in person or by proxy, shall constitute a quorum
for the transaction of any business, except with respect to any matter which
requires approval by a separate vote of one or more series or classes of stock,
in which case the presence in person or by proxy of the holders of shares
entitled to cast one-third of the votes entitled to be cast by each class
entitled to vote as a separate series or class shall constitute a quorum. In the
absence of a quorum no business may be transacted, except that the holders of a
majority of the shares of stock present in person or by proxy and entitled to
vote may adjourn the meeting from time to time, without notice other than
announcement thereat except as otherwise required by these By-Laws, until the
holders of the requisite amount of shares of stock shall be so present. At any
such adjourned meeting at which a quorum may be present any business may be
transacted which might have been transacted at the meeting as originally called.
The absence from any meeting, in person or by proxy, of holders of the number of
shares of stock of the Corporation in excess of a majority thereof which may be
required by the laws of the State of Maryland, the Investment Company Act of
1940, as amended, or other applicable statute, the Articles of Incorporation, or
these By-Laws, for action upon any given matter shall not prevent action at such
meeting upon any other matter or matters which may properly come before the
meeting, if there shall be present thereat, in person or by proxy, holders of
the number of shares of stock of the Corporation required for action in respect
of such other matter or matters.
Section 6. Organization. At each meeting of the stockholders, the
Chairman of the Board (if one has been designated by the Board), or in his
absence or inability to act, the President, or in the absence or inability to
act of the Chairman of the Board and the President, a Vice President,
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shall act as chairman of the meeting. The Secretary, or in his absence or
inability to act, any person appointed by the chairman of the meeting, shall act
as secretary of the meeting and keep the minutes thereof.
Section 7. Order of Business. The order of business at all meetings of
the stockholders shall be as determined by the chairman of the meeting.
Section 8. Voting. Except as otherwise provided by statute or the
Articles of Incorporation, each holder of record of shares of stock of the
Corporation having voting power shall be entitled at each meeting of the
stockholders to one vote for every share of such stock standing in his name on
the record of stockholders of the Corporation as of the record date determined
pursuant to Section 9 of this Article or if such record date shall not have been
so fixed, then at the later of (i) the close of business on the day on which
notice of the meeting is mailed or (ii) the thirtieth day before the meeting.
Each stockholder entitled to vote at any meeting of stockholders may
authorize another person or persons to act for him by a proxy signed by such
stockholder or his attorney-in-fact. No proxy shall be valid after the
expiration of eleven months from the date thereof, unless otherwise provided in
the proxy. Every proxy shall be revocable at the pleasure of the stockholder
executing it, except in those cases where such proxy states that it is
irrevocable and where an irrevocable proxy is permitted by law. Except as
otherwise provided by statute, the Articles of Incorporation or these By-Laws,
any corporate action to be taken by vote of the stockholders (other than the
election of directors, which shall be by plurality vote) may be authorized by a
majority of the total votes cast at a meeting of stockholders by the holders of
shares present in person or represented by proxy and entitled to vote on such
action.
If a vote shall be taken on any question other than the election of
directors, which shall be by written ballot, then unless required by statute or
these By-Laws, or determined by the chairman of the meeting to be advisable, any
such vote need not be by ballot. On a vote by ballot, each ballot shall be
signed by the stockholder voting, or by his proxy, if there be such proxy, and
shall state the number of shares voted.
Section 9. Fixing of Record Date. The Board of Directors may set a
record date for the purpose of determining stockholders entitled to vote at any
meeting of the stockholders. The record date, which may not be prior to the
close of business on the day the record date is fixed, shall be not more than
ninety nor less than ten days before the date of the meeting of the
stockholders. All persons who were holders of record of shares at such time, and
not others, shall be entitled to vote at such meeting and any adjournment
thereof.
Section 10. Inspectors. The Board may, in advance of any meeting of
stockholders, appoint one or more inspectors to act at such meeting or any
adjournment thereof. If the inspectors shall not be so appointed or if any of
them shall fail to appear or act, the chairman of the meeting may, and on the
request of any Stockholder entitled to vote thereto shall, appoint
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inspectors. Each inspector, before entering upon the discharge of his duties,
may be required to take and sign an oath to execute faithfully the duties of
inspector at such meeting with strict impartiality and according to the best of
his ability. The inspectors may be empowered to determine the number of shares
outstanding and the voting powers of each, the number of shares represented at
the meeting, the existence of a quorum, the validity and effect of proxies, and
shall receive votes, ballots or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and tabulate all
votes, ballots or consents, determine the result, and do such acts as are proper
to conduct the election or vote with fairness to all stockholders. On request of
the chairman of the meeting or any stockholder entitled to vote thereat, the
inspectors shall make a report in writing of any challenge, request or matter
determined by them and shall execute a certificate of any fact found by them. No
director or candidate for the office of director shall act as inspector of an
election of directors. Inspectors need not be stockholders.
Section 11. Consent of Stockholders in Lieu of Meeting. Except as
otherwise provided by statute or the Articles of Incorporation, any action
required to be taken at any meeting of stockholders, or any action which may be
taken at any meeting of such stockholders, may be taken without a meeting,
without prior notice and without a vote, if the following are filed with the
records of stockholders meetings: (i) a unanimous written consent which sets
forth the action and is signed by each stockholder entitled to vote on the
matter and (ii) a written waiver of any right to dissent signed by each
stockholder entitled to notice of the meeting but not entitled to vote thereat.
ARTICLE III
Board of Directors
Section 1. General Powers. Except as otherwise provided in the Articles
of Incorporation, the business and affairs of the Corporation shall be managed
under the direction of the Board of Directors. All powers of the Corporation may
be exercised by or under authority of the Board of Directors except as conferred
on or reserved to the stockholders by law or by the Articles of Incorporation or
these By-Laws.
Section 2. Number of Directors. The number of directors shall be fixed
from time to time by resolution of the Board of Directors adopted by a majority
of the entire Board of Directors; provided, however, that the number of
directors shall in no event be less than three nor more than fifteen. Any
vacancy created by an increase in Directors may be filled in accordance with
Section 6 of this Article III. No reduction in the number of directors shall
have the effect of removing any director from office prior to the expiration of
his term unless such director is specifically removed pursuant to Section 5 of
this Article III at the time of such decrease. Directors need not be
stockholders.
Section 3. Election and Term of Directors. Directors shall be elected
annually at a
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meeting of stockholders held for that purpose; provided, however, that if no
meeting of the stockholders of the Corporation is required to be held in a
particular year pursuant to Section 1 of Article II of these By-Laws, directors
shall be elected at the next meeting held for that purpose. The term of office
of each director shall be from the time of his election and qualification until
the election of directors next succeeding his election and until his successor
shall have been elected and shall have qualified, or until his death, or until
he shall have resigned or until December 31 of the year in which he shall have
reached seventy-two years of age, or until he shall have been removed as
hereinafter provided in these By-Laws, or as otherwise provided by statute or
the Articles of Incorporation.
Section 4. Resignation. A director of the Corporation may resign at any
time by giving written notice of his resignation to the Board or the Chairman of
the Board or the President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
Section 5. Removal of Directors. Any director of the Corporation may be
removed by the stockholders by a vote of a majority of the votes entitled to be
cast for the election of directors.
Section 6. Vacancies. Any vacancies in the Board, whether arising from
death, resignation, removal, an increase in the number of directors or any other
cause, may be filled by a vote of the majority of the Board of Directors then in
office even though such majority is less than a quorum, provided that no
vacancies shall be filled by action of the remaining directors, if after the
filling of said vacancy or vacancies, less than two-thirds of the directors then
holding office shall have been elected by the stockholders of the Corporation.
In the event that at any time there is a vacancy in any office of a director
which vacancy may not be filled by the remaining directors, a special meeting of
the stockholders shall be held as promptly as possible and in any event within
sixty days, for the purpose of filling said vacancy or vacancies.
Section 7. Place of Meetings. Meetings of the Board may be held at such
place as the Board may from time to time determine or as shall be specified in
the notice of such meeting.
Section 8. Regular Meetings. Regular meetings of the Board may be held
without notice at such time and place as may be determined by the Board of
Directors.
Section 9. Special Meetings. Special meetings of the Board may be
called by two or more directors of the Corporation or by the Chairman of the
Board or the President.
Section 10. Telephone Meetings. Members of the Board of Directors or of
any committee thereof may participate in a meeting by means of a conference
telephone or similar communications equipment if all persons participating in
the meeting can hear each other at the
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same time. Subject to the provisions of the Investment Company Act of 1940, as
amended, participation in a meeting by these means constitutes presence in
person at the meeting.
Section 11. Notice of Special Meetings. Notice of each special meeting
of the Board shall be given by the Secretary as hereinafter provided, in which
notice shall be stated the time and place of the meeting. Notice of each such
meeting shall be delivered to each director, either personally or by telephone
or any standard form of telecommunication, at least twenty-four hours before the
time at which such meeting is to be held, or by first-class mail, postage
prepaid, addressed to him at his residence or usual place of business, at least
three days before the day on which such meeting is to be held.
Section 12. Waiver of Notice of Meetings. Notice of any special meeting
need not be given to any director who shall, either before or after the meeting,
sign a written waiver of notice which is filed with the records of the meeting
or who shall attend such meeting. Except as otherwise specifically required by
these By-Laws, a notice or waiver of notice of any meeting need not state the
purposes of such meeting.
Section 13. Quorum and Voting. One-third, but not less than two, of the
members of the entire Board shall be present in person at any meeting of the
Board in order to constitute a quorum for the transaction of business at such
meeting, and except as otherwise expressly required by statute, the Articles of
Incorporation, these By-Laws, the Investment Company Act of 1940, as amended, or
other applicable statute, the act of a majority of the directors present at any
meeting at which a quorum is present shall be the act of the Board. In the
absence of a quorum at any meeting of the Board, a majority of the directors
present thereat may adjourn such meeting to another time and place until a
quorum shall be present thereat. Notice of the time and place of any such
adjourned meeting shall be given to the directors who were not present at the
time of the adjournment and, unless such time and place were announced at the
meeting at which the adjournment was taken, to the other directors. At any
adjourned meeting at which a quorum is present, any business may be transacted
which might have been transacted at the meeting as originally called.
Section 14. Organization. The Board may, by resolution adopted by a
majority of the entire Board, designate a Chairman of the Board, who shall
preside at each meeting of the Board. In the absence or inability of the
Chairman of the Board to preside at a meeting, the President or, in his absence
or inability to act, another director chosen by a majority of the directors
present, shall act as chairman of the meeting and preside thereat. The Secretary
(or, in his absence or inability to act, any person appointed by the Chairman)
shall act as secretary of the meeting and keep the minutes thereof.
Section 15. Written Consent of Directors in Lieu of a Meeting. Subject
to the provisions of the Investment Company Act of 1940, as amended, any action
required or permitted to be taken at any meeting of the Board of Directors or of
any committee thereof may be taken without a meeting if all members of the Board
or committee, as the case may be, consent thereto in
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writing, and the writings or writing are filed with the minutes of the
proceedings of the Board or committee.
Section 16. Compensation. Directors may receive compensation for
services to the Corporation in their capacities as directors or otherwise in
such manner and in such amounts as may be fixed from time to time by the Board.
Section 17. Investment Policies. It shall be the duty of the Board of
Directors to direct that the purchase, sale, retention and disposal of
securities and the other investment practices of the Corporation are at all
times consistent with the investment policies and restrictions with respect to
securities investments and otherwise of the Corporation, as recited in the
current Prospectus and Statement of Additional Information of the Corporation,
as filed from time to time with the Securities and Exchange Commission and as
required by the Investment Company Act of 1940, as amended. The Board however,
may delegate the duty of management of the assets and the administration of its
day to day operations to an individual or corporate management company and/or
investment adviser pursuant to a written contract or contracts which have
obtained the requisite approvals, including the requisite approvals of renewals
thereof, of the Board of Directors and/or the stockholders of the Corporation in
accordance with the provisions of the Investment Company Act of 1940, as
amended.
ARTICLE IV
Committees
Section 1. Executive Committee. The Board may, by resolution adopted by
a majority of the entire board, designate an Executive Committee consisting of
two or more of the directors of the corporation, which committee shall have and
may exercise all the powers and authority of the Board with respect to all
matters other than:
(a) the submission to stockholders of any action requiring
authorization of stockholders pursuant to statute or the Articles of
Incorporation;
(b) the filling of vacancies on the Board of Directors;
(c) the fixing of compensation of the directors for serving on the
Board or on any committee of the Board, including the Executive Committee;
(d) the approval or termination of any contract with an investment
adviser or principal underwriter, as such terms are defined in the Investment
Company Act of 1940, as amended, or the taking of any other action required to
be taken by the Board of Directors by the Investment Company Act of 1940, as
amended;
(e) the amendment or repeal of these By-Laws or the adoption of new
By-Laws;
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(f) the amendment or repeal of any resolution of the Board which by its
terms may be amended or repealed only by the Board;
(g) the declaration of dividends and the issuance of capital stock of
the Corporation; and
(h) the approval of any merger or share exchange which does not require
stockholder approval.
The Executive Committee shall keep written minutes of its proceedings
and shall report such minutes to the Board. All such proceedings shall be
subject to revision or alteration by the Board; provided, however, that third
parties shall not be prejudiced by such revision or alteration.
Section 2. Other Committees of the Board. The Board of Directors may
from time to time, by resolution adopted by a majority of the whole Board,
designate one or more other com mittees of the Board, each such committee to
consist of two or more directors and to have such powers and duties as the Board
of Directors may, by resolution, prescribe.
Section 3. General. One-third, but not less than two, of the members of
any committee shall be present in person at any meeting of such committee in
order to constitute a quorum for the transaction of business at such meeting,
and the act of a majority present shall be the act of such committee. The Board
may designate a chairman of any committee and such chairman or any two members
of any committee may fix the time and place of its meetings unless the Board
shall otherwise provide. In the absence or disqualification of any member of any
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. The Board shall
have the power at any time to change the membership of any committee, to fill
all vacancies, to designate alternate members to replace any absent or
disqualified member, or to dissolve any such committee. Nothing herein shall be
deemed to prevent the Board from appointing one or more committees consisting in
whole or in part of persons who are not directors of the Corporation; provided,
however, that no such committee shall have or may exercise any authority or
power of the Board in the management of the business or affairs of the
Corporation, except as may be prescribed by the Board.
ARTICLE V
Officers, Agents and Employees
Section 1. Number, Qualification, Election and Tenure. The officers of
the Corporation shall be a President, a Secretary and a Treasurer, each of whom
shall be elected by the Board of Directors. The Board of Directors may elect or
appoint one or more Vice Presidents and may
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also appoint such other officers, agents and employees as it may deem necessary
or proper. Any two or more offices may be held by the same person, except the
offices of President and Vice President, but no officer shall execute,
acknowledge or verify any instrument in more than one capacity. Such officers
shall be elected by the Board of Directors each year at a meeting of the Board
of Directors, each to hold office for the ensuing year and until his successor
shall have been duly elected and shall have qualified, or until his death, or
until he shall have resigned, or have been removed, as hereinafter provided in
these By-Laws. The Board may from time to time elect, or delegate to the
President the power to appoint, such officers (including one or more Assistant
Vice Presidents, one or more Assistant Treasurers and one or more Assistant
Secretaries) and such agents, as may be necessary or desirable for the business
of the Corporation. Such officers and agents shall have such duties and shall
hold their offices for such terms as may be prescribed by the Board or by the
appointing authority.
Section 2. Resignations. Any officer of the Corporation may resign at
any time by giving written notice of resignation to the Board, the Chairman of
the Board, the President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt; and,
unless otherwise specified therein, the acceptance of such resignation shall be
necessary to make it effective.
Section 3. Removal of Officer, Agent or Employee. Any officer, agent or
employee of the Corporation may be removed by the Board of Directors with or
without cause at any time, and the Board may delegate such power of removal as
to agents and employees not elected or appointed by the Board of Directors. Such
removal shall be without prejudice to such person's contract rights, if any, but
the appointment of any person as an officer, agent or employee of the
Corporation shall not of itself create contract rights.
Section 4. Vacancies. A vacancy in any office, whether arising from
death, resignation, removal or any other cause, may be filled for the unexpired
portion of the term of the office which shall be vacant, in the manner
prescribed in these By-Laws for the regular election or appointment to such
office.
Section 5. Compensation. The compensation of the officers of the
Corporation shall be fixed by the Board of Directors, but this power may be
delegated to any officer in respect of other officers under his control.
Section 6. Bonds or Other Security. If required by the Board, any
officer, agent or employee of the Corporation shall give a bond or other
security for the faithful performance of his duties, in such amount and with
such surety or sureties as the Board may require.
Section 7. President. The President shall be the chief executive
officer of the Corporation. In the absence of the Chairman of the Board (or if
there be none), he shall preside at all meetings of the stockholders and of the
Board Directors. He shall have, subject to the
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control of the Board of Directors, general charge of the business and affairs of
the Corporation. He may employ and discharge employees and agents of the
Corporation, except such as shall be appointed by the Board, and he may delegate
these powers.
Section 8. Vice President. Each Vice President shall have such powers
and perform such duties as the Board of Directors or the President may from time
to time prescribe.
Section 9. Treasurer. The Treasurer shall
(a) have charge and custody of, and be responsible for, all the funds
and securities of the Corporation, except those which the Corporation has placed
in the custody of a bank or trust company or member of a national securities
exchange (as that term is defined in the Securities Exchange Act of 1934, as
amended) pursuant to a written agreement designating such bank or trust company
or member of a national securities exchange as custodian of the property of the
Corporation;
(b) keep full and accurate accounts of receipts and disbursements in
books belonging to the Corporation;
(c) cause all moneys and other valuables to be deposited to the credit
of the Corporation;
(d) receive, and give receipts for, moneys due and payable, to the
Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and supervise the investment
of its funds as ordered or authorized by the Board, taking proper vouchers
therefor; and
(f) in general, perform all the duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him by
the Board or the President.
Section 10. Secretary. The Secretary shall
(a) keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Board, the committees of the Board
and the stockholders;
(b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the Corporation and
affix and attest the seal to all stock certificates of the Corporation (unless
the seal of the Corporation on such certificates shall be a facsimile, as
hereinafter provided) and affix and attest the seal to all other documents to be
executed on behalf of the Corporation under its seal;
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(d) see that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed are properly kept and
filed; and
(e) in general, perform all the duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him by
the Board or the President.
Section 11. Delegation of Duties. In case of the absence of any officer
of the Corporation, or for any other reason that the Board may deem sufficient,
the Board may confer for the time being the powers or duties, or any of them, of
such officer upon any other officer or upon any director.
ARTICLE VI
Indemnification
Each officer and director of the Corporation shall be indemnified by
the Corporation to the full extent permitted under the Maryland General
Corporation Law, except that such indemnity shall not protect any such person
against any liability to the Corporation or any stockholder thereof to which
such person 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. Absent a court determination that an officer or director
seeking indemnification was not liable on the merits or guilty of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office, the decision by the Corporation to
indemnify such person must be based upon the reasonable determination by special
legal counsel in a written opinion or the vote of a majority of a quorum of the
directors who are neither "interested persons," as defined in Section 2(a)(19)
of the Investment Company Act of 1940, as amended, nor parties to the proceeding
("non-party independent directors"), after review of the facts, that such
officer or director is not guilty of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
Each officer and director of the Corporation claiming indemnification
within the scope of this Article VI shall be entitled to advances from the
Corporation for payment of the reasonable expenses incurred by him in connection
with proceedings to which he is a party in the manner and to the full extent
permitted under the Maryland General Corporation Law without a preliminary
determination as to his or her ultimate entitlement to indemnification (except
as set forth below); provided, however, that the person seeking indemnification
shall provide to the Corporation a written affirmation of his good faith belief
that the standard of conduct necessary for indemnification by the Corporation
has been met and a written undertaking to repay any such advance, if it should
ultimately be determined that the standard of conduct has not been met, and
provided further that at least one of the following additional conditions is
met: (a) the person seeking indemnification shall provide a security in form and
amount acceptable to the Corporation for his undertaking; (b) the Corporation
is insured against losses arising by reason of the advance; (c) a majority of a
quorum of non-party independent directors, or independent legal counsel in a
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written opinion, shall determine, based on a review of facts readily available
to the Corporation at the time the advance is proposed to be made, that there is
reason to believe that the person seeking indemnification will ultimately be
found to be entitled to indemnification.
The Corporation may purchase insurance on behalf of an officer or
director protecting such person to the full extent permitted under the General
Laws of the State of Maryland, from liability arising from his activities as
officer or director of the Corporation. The Corporation, however, may not
purchase insurance on behalf of any officer or director of the Corporation that
protects or purports to protect such person from liability to the Corporation or
to its stockholders to which such officer or director 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 Corporation may indemnify, make advances or purchase insurance to
the extent provided in this Article VI on behalf of an employee or agent who is
not an officer or director of the Corporation.
ARTICLE VII
Capital Stock
Section 1. Stock Certificates. Each holder of stock of the Corporation
shall be entitled upon request to have a certificate or certificates, in such
form as shall be approved by the Board, representing the number of shares of
stock of the Corporation owned by him, provided, however, that certificates for
fractional shares will not be delivered in any case. The certificates
representing shares of stock shall be signed by or in the name of the
Corporation by the Chairman, President or a Vice President and by the Secretary
or an Assistant Secretary or the Treasurer or an Assistant Treasurer and sealed
with the seal of the Corporation. Any or all of the signatures or the seal on
the certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate shall be issued, it may be issued by the Corporation
with the same effect as if such officer, transfer agent or registrar were still
in office at the date of issue.
Section 2. Books of Account and Record of Stockholders. There shall be
kept at the principal executive office of the Corporation correct and complete
books and records of account of all the business and transactions of the
Corporation. There shall be made available upon request of any stockholder, in
accordance with Maryland law, a record containing the number of shares of stock
issued during a specified period not to exceed twelve months and the
consideration received by the Corporation for each such share.
Section 3. Transfers of Shares. Transfers of shares of stock of the
Corporation shall be made on the stock records of the Corporation only by the
registered holder thereof, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary or
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with a transfer agent or transfer clerk, and on surrender of the certificate or
certificates, if issued, for such shares properly endorsed or accompanied by a
duly executed stock transfer power and the payment of all taxes thereon. Except
as otherwise provided by law, the Corporation shall be entitled to recognize the
exclusive right of a person in whose name any share or shares stand on the
record of stockholders as the owner of such share or shares for all purposes,
including, without limitation, the rights to receive dividends or other
distributions, and to vote as such owner, and the Corporation shall not be bound
to recognize any equitable or legal claim to or interest in any such share or
shares on the part of any other person.
Section 4. Regulations. The Board may make such additional rules and
regulations, not inconsistent with these By-Laws, as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
stock of the Corporation. It may appoint, or authorize any officer or officers
to appoint, one or more transfer agents or one or more transfer clerks and one
or more registrars and may require all certificates for shares of stock to bear
the signature or signatures of any of them.
Section 5. Lost, Destroyed or Mutilated Certificates. The holder of any
certificates representing shares of stock of the Corporation shall immediately
notify the Corporation of any loss, destruction or mutilation of such
certificate, and the Corporation may issue a new certificate of stock in the
place of any certificate theretofore issued by it which the owner thereof shall
allege to have been lost or destroyed or which shall have been mutilated, and
the Board may, in its discretion, require such owner or his legal
representatives to give to the Corporation a bond in such sum, limited or
unlimited, and in such form and with such surety or sureties, as the Board in
its absolute discretion shall determine, to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss or
destruction of any such certificate, or issuance of a new certificate. Anything
herein to the contrary notwithstanding, the Board, in its absolute discretion,
may refuse to issue any such new certificate, except pursuant to legal
proceedings under the laws of the State of Maryland.
Section 6. Fixing of a Record Date for Dividends and Distributions. The
Board may fix, in advance, a date not more than ninety days preceding the date
fixed for the payment of any dividend or the making of any distribution or the
allotment of rights to subscribe for securities of the Corporation, or for the
delivery of evidences of rights or evidences of interests arising out of any
change, conversion or exchange of common stock or other securities, as the
record date for the determination of the stockholders entitled to receive any
such dividend, distribution, allotment, rights or interests, and in such case
only the stockholders of record at the time so fixed shall be entitled to
receive such dividend, distribution, allotment, rights or interests.
Section 7. Information to Stockholders and Others. Any stockholder of
the Corporation or his agent may inspect and copy during usual business hours
the Corporation's By-Laws, minutes of the proceedings of its stockholders,
annual statements of its affairs, and voting trust agreements on file at its
principal office.
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ARTICLE VIII
Seal
The seal of the Corporation shall be circular in form and shall bear,
in addition to any other emblem or device approved by the Board of Directors,
the name of the Corporation, the year of its incorporation and the words
"Corporate Seal" and "Maryland." Said seal may be used by causing it or a
facsimile thereof to be impressed or affixed or in any other manner reproduced.
ARTICLE IX
Fiscal Year
Unless otherwise determined by the Board, the fiscal year of the
Corporation shall be as determined by the Board of Directors from time to time.
ARTICLE X
Depositories and Custodians
Section 1. Depositories. The funds of the Corporation shall be
deposited with such banks or other depositories as the Board of Directors of the
Corporation may from time to time determine.
Section 2. Custodians. All securities and other investments shall be
deposited in the safe keeping of such banks or other companies as the Board of
Directors of the Corporation may from time to time determine. Every arrangement
entered into with any bank or other company for the safe keeping of the
securities and investments of the Corporation shall contain provisions complying
with the Investment Company Act of 1940, as amended, and the general rules and
regulations thereunder.
ARTICLE XI
Execution of Instruments
Section 1. Checks, Notes, Drafts, etc. Checks, notes, drafts,
acceptances, bills of exchange and other orders or obligations for the payment
of money shall be signed by such officer or officers or person or persons as the
Board of Directors by resolution shall from time to time designate.
Section 2. Sale or Transfer of Securities. Stock certificates, bonds or
other securities at any time owned by the Corporation may be held on behalf of
the Corporation or sold, transferred or otherwise disposed of subject to any
limits imposed by these By-Laws and pursuant to authorization by the Board and,
when so authorized to be held on behalf of the Corporation or
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sold, transferred or otherwise disposed of, may be transferred from the name of
the Corporation by the signature of the President or a Vice President or the
Treasurer or pursuant to any procedure approved by the Board of Directors,
subject to applicable law.
ARTICLE XII
Independent Public Accountants
The firm of independent public accountants which shall sign or certify
the financial statements of the Corporation which are filed with the Securities
and Exchange Commission shall be selected annually by the Board of Directors
and, if required by the provisions of the Investment Company Act of 1940, as
amended, ratified by the stockholders.
ARTICLE XIII
Annual Statement
The books of account of the Corporation shall be examined by an
independent firm of public accountants at the close of each annual period of the
Corporation and at such other times as may be directed by the Board. A report to
the stockholders based upon each such examination shall be mailed to each
stockholder of the Corporation of record on such date with respect to each
report as may be determined by the Board, at his address as the same appears on
the books of the Corporation. Such annual statement shall also be available at
the annual meeting of stockholders, if any, and, within 20 days after the
meeting (or, in the absence of an annual meeting, within 120 days after the end
of the fiscal year), be placed on file at the Corporation's principal office.
Each such report shall show the assets and liabilities of the Corporation as of
the close of the annual or quarterly period covered by the report and the
securities in which the funds of the Corporation were then invested. Such report
shall also show the Corporation's income and expenses for the period from the
end of the Corporation's preceding fiscal year to the close of the annual or
quarterly period covered by the report and any other information required by the
Investment Company Act of 1940, as amended, and shall set forth such other
matters as the Board or such firm of independent public accountants shall
determine.
ARTICLE XIV
Amendments
These By-Laws or any of them may be amended, altered or repealed by the
Board of Directors. The stockholders shall have no power to make, amend, alter
or repeal By-Laws.
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Exhibit 2(b)
AMENDED AND RESTATED BY-LAWS
OF
MERCURY ASSET MANAGEMENT FUNDS, INC.
ARTICLE I
Offices
Section 1. Principal Office. The principal office of Mercury Asset
Management Funds, Inc. (the "Corporation") shall be in the City of Baltimore,
State of Maryland.
Section 2. Principal Executive Office. The principal executive office
of the Corporation shall be at 800 Scudders Mill Road, Plainsboro, New Jersey
08536.
Section 3. Other Offices. The Corporation may have such other offices
in such places as the Board of Directors may from time to time determine.
ARTICLE II
Meetings of Stockholders
Section 1. Annual Meeting. So long as the Corporation is registered as
an investment company under the Investment Company Act of 1940, as amended (such
term to include the rules and regulations promulgated under the Investment
Company Act of 1940, as amended, unless otherwise specified or the context
otherwise requires), annual meetings of the stockholders shall not be held,
except where required to be held by the Investment Company Act of 1940, as
amended, or by the Maryland General Corporation Law or when called by the Board
of Directors or by an officer or officers authorized to take such action by the
Board of Directors. If in any calendar year the Corporation is required or
elects to hold an annual meeting, the meeting shall be held on such day, not a
Saturday, Sunday or legal holiday, as the Board of Directors or the officer or
officers calling the meeting may prescribe. At each such annual meeting, the
stockholders shall elect a Board of Directors and transact such other business
as may properly come before the meeting. The provisions of these By-Laws which
contemplate the holding of an annual meeting of stockholders shall be suspended
during any calendar year in which no annual meeting of stockholders is held.
Section 2. Special Meetings. Special meetings of the stockholders,
unless otherwise provided by law, may be called for any purpose or purposes by a
majority of the Board of Directors, the President, or on the written request of
the holders of at least 10% of the outstanding shares of capital stock of the
Corporation entitled to vote at such meeting if they comply with the applicable
requirements of the Maryland General Corporation Law.
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Section 3. Place of Meetings. Meetings of the stockholders shall be
held at such place within the United States as the Board of Directors may from
time to time determine.
Section 4. Notice of Meetings; Waiver of Notice. Notice of the place,
date and time of the holding of each stockholders' meeting and, if the meeting
is a special meeting, the purpose or purposes of the special meeting, shall be
given personally or by mail, not less than ten nor more than ninety days before
the date of such meeting, to each stockholder entitled to vote at such meeting
and to each other stockholder entitled to notice of the meeting. Notice by mail
shall be deemed to be duly given when deposited in the United States mail
addressed to the stockholder at his address as it appears on the records of the
Corporation, with postage thereon prepaid.
Notice of any meeting of stockholders shall be deemed waived by any
stockholder who shall attend such meeting in person or by proxy, or who shall,
either before or after the meeting, submit a signed waiver of notice which is
filed with the records of the meeting. When a meeting is adjourned to another
time and place, unless the Board of Directors, after the adjournment, shall fix
a new record date for an adjourned meeting, or the adjournment is for more than
one hundred and twenty days after the original record date, notice of such
adjourned meeting need not be given if the time and place to which the meeting
shall be adjourned were announced at the meeting at which the adjournment is
taken.
Section 5. Quorum. At all meetings of the stockholders, the holders of
shares of stock of the Corporation entitled to cast one-third of the votes
entitled to be cast, present in person or by proxy, shall constitute a quorum
for the transaction of any business, except with respect to any matter which
requires approval by a separate vote of one or more series or classes of stock,
in which case the presence in person or by proxy of the holders of shares
entitled to cast one-third of the votes entitled to be cast by each class
entitled to vote as a separate series or class shall constitute a quorum. In the
absence of a quorum no business may be transacted, except that the holders of a
majority of the shares of stock present in person or by proxy and entitled to
vote may adjourn the meeting from time to time, without notice other than
announcement thereat except as otherwise required by these By-Laws, until the
holders of the requisite amount of shares of stock shall be so present. At any
such adjourned meeting at which a quorum may be present any business may be
transacted which might have been transacted at the meeting as originally called.
The absence from any meeting, in person or by proxy, of holders of the number of
shares of stock of the Corporation in excess of a majority thereof which may be
required by the laws of the State of Maryland, the Investment Company Act of
1940, as amended, or other applicable statute, the Articles of Incorporation, or
these By-Laws, for action upon any given matter shall not prevent action at such
meeting upon any other matter or matters which may properly come before the
meeting, if there shall be present thereat, in person or by proxy, holders of
the number of shares of stock of the Corporation required for action in respect
of such other matter or matters.
Section 6. Organization. At each meeting of the stockholders, the
Chairman of the Board (if one has been designated by the Board), or in his
absence or inability to act, the President, or in the absence or inability to
act of the Chairman of the Board and the President, a Vice President,
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shall act as chairman of the meeting. The Secretary, or in his absence or
inability to act, any person appointed by the chairman of the meeting, shall act
as secretary of the meeting and keep the minutes thereof.
Section 7. Order of Business. The order of business at all meetings of
the stockholders shall be as determined by the chairman of the meeting.
Section 8. Voting. Except as otherwise provided by statute or the
Articles of Incorporation, each holder of record of shares of stock of the
Corporation having voting power shall be entitled at each meeting of the
stockholders to one vote for every share of such stock standing in his name on
the record of stockholders of the Corporation as of the record date determined
pursuant to Section 9 of this Article or if such record date shall not have been
so fixed, then at the later of (i) the close of business on the day on which
notice of the meeting is mailed or (ii) the thirtieth day before the meeting.
Each stockholder entitled to vote at any meeting of stockholders may
authorize another person or persons to act for him by a proxy signed by such
stockholder or his attorney-in-fact. No proxy shall be valid after the
expiration of eleven months from the date thereof, unless otherwise provided in
the proxy. Every proxy shall be revocable at the pleasure of the stockholder
executing it, except in those cases where such proxy states that it is
irrevocable and where an irrevocable proxy is permitted by law. Except as
otherwise provided by statute, the Articles of Incorporation or these By-Laws,
any corporate action to be taken by vote of the stockholders (other than the
election of directors, which shall be by plurality vote) may be authorized by a
majority of the total votes cast at a meeting of stockholders by the holders of
shares present in person or represented by proxy and entitled to vote on such
action.
If a vote shall be taken on any question other than the election of
directors, which shall be by written ballot, then unless required by statute or
these By-Laws, or determined by the chairman of the meeting to be advisable, any
such vote need not be by ballot. On a vote by ballot, each ballot shall be
signed by the stockholder voting, or by his proxy, if there be such proxy, and
shall state the number of shares voted.
Section 9. Fixing of Record Date. The Board of Directors may set a
record date for the purpose of determining stockholders entitled to vote at any
meeting of the stockholders. The record date, which may not be prior to the
close of business on the day the record date is fixed, shall be not more than
ninety nor less than ten days before the date of the meeting of the
stockholders. All persons who were holders of record of shares at such time, and
not others, shall be entitled to vote at such meeting and any adjournment
thereof.
Section 10. Inspectors. The Board may, in advance of any meeting of
stockholders, appoint one or more inspectors to act at such meeting or any
adjournment thereof. If the inspectors shall not be so appointed or if any of
them shall fail to appear or act, the chairman of the meeting may, and on the
request of any Stockholder entitled to vote thereto shall, appoint
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inspectors. Each inspector, before entering upon the discharge of his duties,
may be required to take and sign an oath to execute faithfully the duties of
inspector at such meeting with strict impartiality and according to the best of
his ability. The inspectors may be empowered to determine the number of shares
outstanding and the voting powers of each, the number of shares represented at
the meeting, the existence of a quorum, the validity and effect of proxies, and
shall receive votes, ballots or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and tabulate all
votes, ballots or consents, determine the result, and do such acts as are proper
to conduct the election or vote with fairness to all stockholders. On request of
the chairman of the meeting or any stockholder entitled to vote thereat, the
inspectors shall make a report in writing of any challenge, request or matter
determined by them and shall execute a certificate of any fact found by them. No
director or candidate for the office of director shall act as inspector of an
election of directors. Inspectors need not be stockholders.
Section 11. Consent of Stockholders in Lieu of Meeting. Except as
otherwise provided by statute or the Articles of Incorporation, any action
required to be taken at any meeting of stockholders, or any action which may be
taken at any meeting of such stockholders, may be taken without a meeting,
without prior notice and without a vote, if the following are filed with the
records of stockholders meetings: (i) a unanimous written consent which sets
forth the action and is signed by each stockholder entitled to vote on the
matter and (ii) a written waiver of any right to dissent signed by each
stockholder entitled to notice of the meeting but not entitled to vote thereat.
ARTICLE III
Board of Directors
Section 1. General Powers. Except as otherwise provided in the Articles
of Incorporation, the business and affairs of the Corporation shall be managed
under the direction of the Board of Directors. All powers of the Corporation may
be exercised by or under authority of the Board of Directors except as conferred
on or reserved to the stockholders by law or by the Articles of Incorporation or
these By-Laws.
Section 2. Number of Directors. The number of directors shall be fixed
from time to time by resolution of the Board of Directors adopted by a majority
of the entire Board of Directors; provided, however, that the number of
directors shall in no event be less than three nor more than fifteen. Any
vacancy created by an increase in Directors may be filled in accordance with
Section 6 of this Article III. No reduction in the number of directors shall
have the effect of removing any director from office prior to the expiration of
his term unless such director is specifically removed pursuant to Section 5 of
this Article III at the time of such decrease. Directors need not be
stockholders.
Section 3. Election and Term of Directors. Directors shall be elected
annually at a
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meeting of stockholders held for that purpose; provided, however, that if no
meeting of the stockholders of the Corporation is required to be held in a
particular year pursuant to Section 1 of Article II of these By-Laws, directors
shall be elected at the next meeting held for that purpose. The term of office
of each director shall be from the time of his election and qualification until
the election of directors next succeeding his election and until his successor
shall have been elected and shall have qualified, or until his death, or until
he shall have resigned or until December 31 of the year in which he shall have
reached seventy-two years of age, or until he shall have been removed as
hereinafter provided in these By-Laws, or as otherwise provided by statute or
the Articles of Incorporation.
Section 4. Resignation. A director of the Corporation may resign at any
time by giving written notice of his resignation to the Board or the Chairman of
the Board or the President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
Section 5. Removal of Directors. Any director of the Corporation may be
removed by the stockholders by a vote of a majority of the votes entitled to be
cast for the election of directors.
Section 6. Vacancies. Any vacancies in the Board, whether arising from
death, resignation, removal, an increase in the number of directors or any other
cause, may be filled by a vote of the majority of the Board of Directors then in
office even though such majority is less than a quorum, provided that no
vacancies shall be filled by action of the remaining directors, if after the
filling of said vacancy or vacancies, less than two-thirds of the directors then
holding office shall have been elected by the stockholders of the Corporation.
In the event that at any time there is a vacancy in any office of a director
which vacancy may not be filled by the remaining directors, a special meeting of
the stockholders shall be held as promptly as possible and in any event within
sixty days, for the purpose of filling said vacancy or vacancies.
Section 7. Place of Meetings. Meetings of the Board may be held at such
place as the Board may from time to time determine or as shall be specified in
the notice of such meeting.
Section 8. Regular Meetings. Regular meetings of the Board may be held
without notice at such time and place as may be determined by the Board of
Directors.
Section 9. Special Meetings. Special meetings of the Board may be
called by two or more directors of the Corporation or by the Chairman of the
Board or the President.
Section 10. Telephone Meetings. Members of the Board of Directors or of
any committee thereof may participate in a meeting by means of a conference
telephone or similar communications equipment if all persons participating in
the meeting can hear each other at the
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same time. Subject to the provisions of the Investment Company Act of 1940, as
amended, participation in a meeting by these means constitutes presence in
person at the meeting.
Section 11. Notice of Special Meetings. Notice of each special meeting
of the Board shall be given by the Secretary as hereinafter provided, in which
notice shall be stated the time and place of the meeting. Notice of each such
meeting shall be delivered to each director, either personally or by telephone
or any standard form of telecommunication, at least twenty-four hours before the
time at which such meeting is to be held, or by first-class mail, postage
prepaid, addressed to him at his residence or usual place of business, at least
three days before the day on which such meeting is to be held.
Section 12. Waiver of Notice of Meetings. Notice of any special meeting
need not be given to any director who shall, either before or after the meeting,
sign a written waiver of notice which is filed with the records of the meeting
or who shall attend such meeting. Except as otherwise specifically required by
these By-Laws, a notice or waiver of notice of any meeting need not state the
purposes of such meeting.
Section 13. Quorum and Voting. One-third, but not less than two, of the
members of the entire Board shall be present in person at any meeting of the
Board in order to constitute a quorum for the transaction of business at such
meeting, and except as otherwise expressly required by statute, the Articles of
Incorporation, these By-Laws, the Investment Company Act of 1940, as amended, or
other applicable statute, the act of a majority of the directors present at any
meeting at which a quorum is present shall be the act of the Board. In the
absence of a quorum at any meeting of the Board, a majority of the directors
present thereat may adjourn such meeting to another time and place until a
quorum shall be present thereat. Notice of the time and place of any such
adjourned meeting shall be given to the directors who were not present at the
time of the adjournment and, unless such time and place were announced at the
meeting at which the adjournment was taken, to the other directors. At any
adjourned meeting at which a quorum is present, any business may be transacted
which might have been transacted at the meeting as originally called.
Section 14. Organization. The Board may, by resolution adopted by a
majority of the entire Board, designate a Chairman of the Board, who shall
preside at each meeting of the Board. In the absence or inability of the
Chairman of the Board to preside at a meeting, the President or, in his absence
or inability to act, another director chosen by a majority of the directors
present, shall act as chairman of the meeting and preside thereat. The Secretary
(or, in his absence or inability to act, any person appointed by the Chairman)
shall act as secretary of the meeting and keep the minutes thereof.
Section 15. Written Consent of Directors in Lieu of a Meeting. Subject
to the provisions of the Investment Company Act of 1940, as amended, any action
required or permitted to be taken at any meeting of the Board of Directors or of
any committee thereof may be taken without a meeting if all members of the Board
or committee, as the case may be, consent thereto in
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writing, and the writings or writing are filed with the minutes of the
proceedings of the Board or committee.
Section 16. Compensation. Directors may receive compensation for
services to the Corporation in their capacities as directors or otherwise in
such manner and in such amounts as may be fixed from time to time by the Board.
Section 17. Investment Policies. It shall be the duty of the Board of
Directors to direct that the purchase, sale, retention and disposal of
securities and the other investment practices of the Corporation are at all
times consistent with the investment policies and restrictions with respect to
securities investments and otherwise of the Corporation, as recited in the
current Prospectus and Statement of Additional Information of the Corporation,
as filed from time to time with the Securities and Exchange Commission and as
required by the Investment Company Act of 1940, as amended. The Board however,
may delegate the duty of management of the assets and the administration of its
day to day operations to an individual or corporate management company and/or
investment adviser pursuant to a written contract or contracts which have
obtained the requisite approvals, including the requisite approvals of renewals
thereof, of the Board of Directors and/or the stockholders of the Corporation in
accordance with the provisions of the Investment Company Act of 1940, as
amended.
ARTICLE IV
Committees
Section 1. Executive Committee. The Board may, by resolution adopted by
a majority of the entire board, designate an Executive Committee consisting of
two or more of the directors of the corporation, which committee shall have and
may exercise all the powers and authority of the Board with respect to all
matters other than:
(a) the submission to stockholders of any action requiring
authorization of stockholders pursuant to statute or the Articles of
Incorporation;
(b) the filling of vacancies on the Board of Directors;
(c) the fixing of compensation of the directors for serving on the
Board or on any committee of the Board, including the Executive Committee;
(d) the approval or termination of any contract with an investment
adviser or principal underwriter, as such terms are defined in the Investment
Company Act of 1940, as amended, or the taking of any other action required to
be taken by the Board of Directors by the Investment Company Act of 1940, as
amended;
(e) the amendment or repeal of these By-Laws or the adoption of new
By-Laws;
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(f) the amendment or repeal of any resolution of the Board which by its
terms may be amended or repealed only by the Board;
(g) the declaration of dividends and the issuance of capital stock of
the Corporation; and
(h) the approval of any merger or share exchange which does not require
stockholder approval.
The Executive Committee shall keep written minutes of its proceedings
and shall report such minutes to the Board. All such proceedings shall be
subject to revision or alteration by the Board; provided, however, that third
parties shall not be prejudiced by such revision or alteration.
Section 2. Other Committees of the Board. The Board of Directors may
from time to time, by resolution adopted by a majority of the whole Board,
designate one or more other committees of the Board, each such committee to
consist of two or more directors and to have such powers and duties as the Board
of Directors may, by resolution, prescribe.
Section 3. General. One-third, but not less than two, of the members of
any committee shall be present in person at any meeting of such committee in
order to constitute a quorum for the transaction of business at such meeting,
and the act of a majority present shall be the act of such committee. The Board
may designate a chairman of any committee and such chairman or any two members
of any committee may fix the time and place of its meetings unless the Board
shall otherwise provide. In the absence or disqualification of any member of any
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. The Board shall
have the power at any time to change the membership of any committee, to fill
all vacancies, to designate alternate members to replace any absent or
disqualified member, or to dissolve any such committee. Nothing herein shall be
deemed to prevent the Board from appointing one or more committees consisting in
whole or in part of persons who are not directors of the Corporation; provided,
however, that no such committee shall have or may exercise any authority or
power of the Board in the management of the business or affairs of the
Corporation, except as may be prescribed by the Board.
ARTICLE V
Officers, Agents and Employees
Section 1. Number, Qualification, Election and Tenure. The officers of
the Corporation shall be a President, a Secretary and a Treasurer, each of whom
shall be elected by the Board of Directors. The Board of Directors may elect or
appoint one or more Vice Presidents and may
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also appoint such other officers, agents and employees as it may deem necessary
or proper. Any two or more offices may be held by the same person, except the
offices of President and Vice President, but no officer shall execute,
acknowledge or verify any instrument in more than one capacity. Such officers
shall be elected by the Board of Directors each year at a meeting of the Board
of Directors, each to hold office for the ensuing year and until his successor
shall have been duly elected and shall have qualified, or until his death, or
until he shall have resigned, or have been removed, as hereinafter provided in
these By-Laws. The Board may from time to time elect, or delegate to the
President the power to appoint, such officers (including one or more Assistant
Vice Presidents, one or more Assistant Treasurers and one or more Assistant
Secretaries) and such agents, as may be necessary or desirable for the business
of the Corporation. Such officers and agents shall have such duties and shall
hold their offices for such terms as may be prescribed by the Board or by the
appointing authority.
Section 2. Resignations. Any officer of the Corporation may resign at
any time by giving written notice of resignation to the Board, the Chairman of
the Board, the President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt; and,
unless otherwise specified therein, the acceptance of such resignation shall be
necessary to make it effective.
Section 3. Removal of Officer, Agent or Employee. Any officer, agent or
employee of the Corporation may be removed by the Board of Directors with or
without cause at any time, and the Board may delegate such power of removal as
to agents and employees not elected or appointed by the Board of Directors. Such
removal shall be without prejudice to such person's contract rights, if any, but
the appointment of any person as an officer, agent or employee of the
Corporation shall not of itself create contract rights.
Section 4. Vacancies. A vacancy in any office, whether arising from
death, resignation, removal or any other cause, may be filled for the unexpired
portion of the term of the office which shall be vacant, in the manner
prescribed in these By-Laws for the regular election or appointment to such
office.
Section 5. Compensation. The compensation of the officers of the
Corporation shall be fixed by the Board of Directors, but this power may be
delegated to any officer in respect of other officers under his control.
Section 6. Bonds or Other Security. If required by the Board, any
officer, agent or employee of the Corporation shall give a bond or other
security for the faithful performance of his duties, in such amount and with
such surety or sureties as the Board may require.
Section 7. President. The President shall be the chief executive
officer of the Corporation. In the absence of the Chairman of the Board (or if
there be none), he shall preside at all meetings of the stockholders and of the
Board Directors. He shall have, subject to the
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control of the Board of Directors, general charge of the business and affairs of
the Corporation. He may employ and discharge employees and agents of the
Corporation, except such as shall be appointed by the Board, and he may delegate
these powers.
Section 8. Vice President. Each Vice President shall have such powers
and perform such duties as the Board of Directors or the President may from time
to time prescribe.
Section 9. Treasurer. The Treasurer shall
(a) have charge and custody of, and be responsible for, all the funds
and securities of the Corporation, except those which the Corporation has placed
in the custody of a bank or trust company or member of a national securities
exchange (as that term is defined in the Securities Exchange Act of 1934, as
amended) pursuant to a written agreement designating such bank or trust company
or member of a national securities exchange as custodian of the property of the
Corporation;
(b) keep full and accurate accounts of receipts and disbursements in
books belonging to the Corporation;
(c) cause all moneys and other valuables to be deposited to the credit
of the Corporation;
(d) receive, and give receipts for, moneys due and payable, to the
Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and supervise the investment
of its funds as ordered or authorized by the Board, taking proper vouchers
therefor; and
(f) in general, perform all the duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him by
the Board or the President.
Section 10. Secretary. The Secretary shall
(a) keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Board, the committees of the Board
and the stockholders;
(b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the Corporation and
affix and attest the seal to all stock certificates of the Corporation (unless
the seal of the Corporation on such certificates shall be a facsimile, as
hereinafter provided) and affix and attest the seal to all other documents to be
executed on behalf of the Corporation under its seal;
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(d) see that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed are properly kept and
filed; and
(e) in general, perform all the duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him by
the Board or the President.
Section 11. Delegation of Duties. In case of the absence of any officer
of the Corporation, or for any other reason that the Board may deem sufficient,
the Board may confer for the time being the powers or duties, or any of them, of
such officer upon any other officer or upon any director.
ARTICLE VI
Indemnification
Each officer and director of the Corporation shall be indemnified by
the Corporation to the full extent permitted under the Maryland General
Corporation Law, except that such indemnity shall not protect any such person
against any liability to the Corporation or any stockholder thereof to which
such person 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. Absent a court determination that an officer or director
seeking indemnification was not liable on the merits or guilty of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office, the decision by the Corporation to
indemnify such person must be based upon the reasonable determination by special
legal counsel in a written opinion or the vote of a majority of a quorum of the
directors who are neither "interested persons," as defined in Section 2(a)(19)
of the Investment Company Act of 1940, as amended, nor parties to the proceeding
("non-party independent directors"), after review of the facts, that such
officer or director is not guilty of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
Each officer and director of the Corporation claiming indemnification
within the scope of this Article VI shall be entitled to advances from the
Corporation for payment of the reasonable expenses incurred by him in connection
with proceedings to which he is a party in the manner and to the full extent
permitted under the Maryland General Corporation Law without a preliminary
determination as to his or her ultimate entitlement to indemnification (except
as set forth below); provided, however, that the person seeking indemnification
shall provide to the Corporation a written affirmation of his good faith belief
that the standard of conduct necessary for indemnification by the Corporation
has been met and a written undertaking to repay any such advance, if it should
ultimately be determined that the standard of conduct has not been met, and
provided further that at least one of the following additional conditions is
met: (a) the person seeking indemnification shall provide a security in form and
amount acceptable to the Corporation for his undertaking; (b) the Corporation
is insured against losses arising by reason of the advance; (c) a majority of a
quorum of non-party independent directors, or independent legal counsel in a
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written opinion, shall determine, based on a review of facts readily available
to the Corporation at the time the advance is proposed to be made, that there is
reason to believe that the person seeking indemnification will ultimately be
found to be entitled to indemnification.
The Corporation may purchase insurance on behalf of an officer or
director protecting such person to the full extent permitted under the General
Laws of the State of Maryland, from liability arising from his activities as
officer or director of the Corporation. The Corporation, however, may not
purchase insurance on behalf of any officer or director of the Corporation that
protects or purports to protect such person from liability to the Corporation or
to its stockholders to which such officer or director 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 Corporation may indemnify, make advances or purchase insurance to
the extent provided in this Article VI on behalf of an employee or agent who is
not an officer or director of the Corporation.
ARTICLE VII
Capital Stock
Section 1. Stock Certificates. The Corporation shall not issue stock
certificates.
Section 2. Books of Account and Record of Stockholders. There shall be
kept at the principal executive office of the Corporation correct and complete
books and records of account of all the business and transactions of the
Corporation. There shall be made available upon request of any stockholder, in
accordance with Maryland law, a record containing the number of shares of stock
issued during a specified period not to exceed twelve months and the
consideration received by the Corporation for each such share.
Section 3. Transfers of Shares. Transfers of shares of stock of the
Corporation shall be made on the stock records of the Corporation only by the
registered holder thereof, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary or with a transfer agent or
transfer clerk, and on surrender of the certificate or certificates, if issued,
for such shares properly endorsed or accompanied by a duly executed stock
transfer power and the payment of all taxes thereon. Except as otherwise
provided by law, the Corporation shall be entitled to recognize the exclusive
right of a person in whose name any share or shares stand on the record of
stockholders as the owner of such share or shares for all purposes, including,
without limitation, the rights to receive dividends or other distributions, and
to vote as such owner, and the Corporation shall not be bound to recognize any
equitable or legal claim to or interest in any such share or shares on the part
of any other person.
Section 4. Regulations. The Board may make such additional rules and
regulations, not inconsistent with these By-Laws, as it may deem expedient
concerning the issue, transfer and
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registration of certificates for shares of stock of the Corporation. It may
appoint, or authorize any officer or officers to appoint, one or more transfer
agents or one or more transfer clerks and one or more registrars and may require
all certificates for shares of stock to bear the signature or signatures of any
of them.
Section 5. Lost, Destroyed or Mutilated Certificates. The holder of any
certificates representing shares of stock of the Corporation shall immediately
notify the Corporation of any loss, destruction or mutilation of such
certificate, and the Corporation may issue a new certificate of stock in the
place of any certificate theretofore issued by it which the owner thereof shall
allege to have been lost or destroyed or which shall have been mutilated, and
the Board may, in its discretion, require such owner or his legal
representatives to give to the Corporation a bond in such sum, limited or
unlimited, and in such form and with such surety or sureties, as the Board in
its absolute discretion shall determine, to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss or
destruction of any such certificate, or issuance of a new certificate. Anything
herein to the contrary notwithstanding, the Board, in its absolute discretion,
may refuse to issue any such new certificate, except pursuant to legal
proceedings under the laws of the State of Maryland.
Section 6. Fixing of a Record Date for Dividends and Distributions. The
Board may fix, in advance, a date not more than ninety days preceding the date
fixed for the payment of any dividend or the making of any distribution or the
allotment of rights to subscribe for securities of the Corporation, or for the
delivery of evidences of rights or evidences of interests arising out of any
change, conversion or exchange of common stock or other securities, as the
record date for the determination of the stockholders entitled to receive any
such dividend, distribution, allotment, rights or interests, and in such case
only the stockholders of record at the time so fixed shall be entitled to
receive such dividend, distribution, allotment, rights or interests.
Section 7. Information to Stockholders and Others. Any stockholder of
the Corporation or his agent may inspect and copy during usual business hours
the Corporation's By-Laws, minutes of the proceedings of its stockholders,
annual statements of its affairs, and voting trust agreements on file at its
principal office.
ARTICLE VIII
Seal
The seal of the Corporation shall be circular in form and shall bear,
in addition to any other emblem or device approved by the Board of Directors,
the name of the Corporation, the year of its incorporation and the words
"Corporate Seal" and "Maryland." Said seal may be used by causing it or a
facsimile thereof to be impressed or affixed or in any other manner reproduced.
ARTICLE IX
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Fiscal Year
Unless otherwise determined by the Board, the fiscal year of the
Corporation shall be as determined by the Board of Directors from time to time.
ARTICLE X
Depositories and Custodians
Section 1. Depositories. The funds of the Corporation shall be
deposited with such banks or other depositories as the Board of Directors of the
Corporation may from time to time determine.
Section 2. Custodians. All securities and other investments shall be
deposited in the safe keeping of such banks or other companies as the Board of
Directors of the Corporation may from time to time determine. Every arrangement
entered into with any bank or other company for the safe keeping of the
securities and investments of the Corporation shall contain provisions complying
with the Investment Company Act of 1940, as amended, and the general rules and
regulations thereunder.
ARTICLE XI
Execution of Instruments
Section 1. Checks, Notes, Drafts, etc. Checks, notes, drafts,
acceptances, bills of exchange and other orders or obligations for the payment
of money shall be signed by such officer or officers or person or persons as the
Board of Directors by resolution shall from time to time designate.
Section 2. Sale or Transfer of Securities. Stock certificates, bonds or
other securities at any time owned by the Corporation may be held on behalf of
the Corporation or sold, transferred or otherwise disposed of subject to any
limits imposed by these By-Laws and pursuant to authorization by the Board and,
when so authorized to be held on behalf of the Corporation or sold, transferred
or otherwise disposed of, may be transferred from the name of the Corporation by
the signature of the President or a Vice President or the Treasurer or pursuant
to any procedure approved by the Board of Directors, subject to applicable law.
ARTICLE XII
Independent Public Accountants
The firm of independent public accountants which shall sign or certify
the financial statements of the Corporation which are filed with the Securities
and Exchange Commission shall
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be selected annually by the Board of Directors and, if required by the
provisions of the Investment Company Act of 1940, as amended, ratified by the
stockholders.
ARTICLE XIII
Annual Statement
The books of account of the Corporation shall be examined by an
independent firm of public accountants at the close of each annual period of the
Corporation and at such other times as may be directed by the Board. A report to
the stockholders based upon each such examination shall be mailed to each
stockholder of the Corporation of record on such date with respect to each
report as may be determined by the Board, at his address as the same appears on
the books of the Corporation. Such annual statement shall also be available at
the annual meeting of stockholders, if any, and, within 20 days after the
meeting (or, in the absence of an annual meeting, within 120 days after the end
of the fiscal year), be placed on file at the Corporation's principal office.
Each such report shall show the assets and liabilities of the Corporation as of
the close of the annual or quarterly period covered by the report and the
securities in which the funds of the Corporation were then invested. Such report
shall also show the Corporation's income and expenses for the period from the
end of the Corporation's preceding fiscal year to the close of the annual or
quarterly period covered by the report and any other information required by the
Investment Company Act of 1940, as amended, and shall set forth such other
matters as the Board or such firm of independent public accountants shall
determine.
ARTICLE XIV
Amendments
These By-Laws or any of them may be amended, altered or repealed by the
Board of Directors. The stockholders shall have no power to make, amend, alter
or repeal By-Laws.
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EXHIBIT 5(a)
CLASS I SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of _______________, 1998 between MERCURY ASSET
MANAGEMENT FUNDS, INC., a Maryland corporation (the "Corporation"), on behalf of
its series Mercury Gold and Mining Fund (the "Fund") and MERCURY FUNDS
DISTRIBUTOR, a division of PRINCETON FUNDS DISTRIBUTOR, INC., a Delaware
corporation (the "Distributor").
W I T N E S S E T H :
WHEREAS, the Directors of the Corporation (the "Directors") are
authorized to establish separate series relating to separate portfolios of
securities, each of which may offer separate classes of shares of common stock,
par value $0.0001 per share; and
WHEREAS, the Directors have established and designated the Fund as a
series of the Corporation, offering separate classes of shares of common stock,
as described above; and
WHEREAS, the Corporation is registered under the Investment Company Act
of 1940, as amended (the "Investment Company Act"), as an open-end investment
company, and it is affirmatively in the interest of the Fund to offer its shares
for sale continuously; and
WHEREAS, the Distributor is a securities firm engaged in the business
of selling shares of investment companies either directly to purchasers or
through other securities dealers; and
WHEREAS, the Corporation and the Distributor wish to enter into an
agreement with each other with respect to the continuous offering of Class I
shares of common stock in the Fund;
<PAGE> 2
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor. The Corporation hereby
appoints the Distributor as the Fund's principal underwriter and distributor to
sell the Class I shares of common stock in the Fund (sometimes herein referred
to as "Class I Shares") to eligible investors (as defined below) and hereby
agrees during the term of this Agreement to sell the Class I Shares to the
Distributor upon the terms and conditions herein set forth.
Section 2. Exclusive Nature of Duties. The Distributor shall be the
Fund's exclusive representative to act as principal underwriter and distributor
of the Class I Shares, except that:
a. The Corporation may, upon written notice to the Distributor, from
time to time designate other principal underwriters and distributors of the
Class I Shares with respect to areas other than the United States as to which
the Distributor may have expressly waived in writing its right to act as such.
If such designation is deemed exclusive, the right of the Distributor under this
Agreement to sell the Class I Shares in the 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 rights granted to the Distributor to purchase Class I
Shares from the Fund shall not apply to Class I Shares issued in connection with
the merger or consolidation of any other investment company or personal holding
company with the Fund or the Fund's acquisition by purchase or otherwise of all
(or substantially all) the assets or the outstanding Class I shares of any such
company.
c. Such exclusive rights also shall not apply to Class I Shares issued
by the Fund pursuant to reinvestment of dividends or capital gains
distributions.
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<PAGE> 3
d. Such exclusive rights also shall not apply to Class I Shares issued
by the Fund pursuant to any conversion, exchange or reinstatement privilege
afforded redeeming shareholders or to any other Class I Shares as shall be
agreed between the Corporation and the Distributor from time to time.
Section 3. Purchase of Class I Shares from the Corporation.
a. Prior to the continuous offering of the Class I Shares, commencing
on a date agreed upon by the Corporation and the Distributor, it is contemplated
that the Distributor will solicit subscriptions for Class I Shares during a
subscription period which shall last for such period as may be agreed upon by
the parties hereto. The subscriptions will be payable within three business days
after the termination of the subscription period, at which time the Fund will
commence operations.
b. After the Fund commences operations, the Fund will commence an
offering of Class I Shares and thereafter the Distributor shall have the right
to buy from the Corporation the Class I Shares needed, but not more than the
Class I Shares needed (except for clerical errors in transmission) to fill
unconditional orders for Class I Shares placed with the Distributor by eligible
investors or securities dealers. Investors eligible to purchase Class I Shares
shall be those persons so identified in the currently effective prospectus and
statement of additional information of the Fund (the "prospectus" and "statement
of additional information," respectively) under the Securities Act of 1933, as
amended (the "Securities Act"), relating to the Class I Shares ("eligible
investors"). The price that the Distributor shall pay for the Class I Shares so
purchased from the Fund shall be the net asset value, determined as set forth in
Section 3(e) hereof, used in determining the public offering price on which such
orders were based.
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<PAGE> 4
c. The Class I Shares are to be resold by the Distributor to eligible
investors at the public offering price, as set forth in Section 3(d) hereof, or
to securities dealers having agreements with the Distributor upon the terms and
conditions set forth in Section 7 hereof.
d. The public offering price(s) of the Class I Shares, i.e., the price
per share at which the Distributor or selected dealers may sell Class I Shares
to eligible investors, shall be the public offering price as set forth in the
prospectus and statement of additional information relating to such Class I
Shares, but not to exceed the net asset value at which the Distributor is to
purchase the Class I Shares, plus a sales charge not to exceed 5.25% of the
public offering price (5.54% of the net amount invested), subject to reductions
for volume purchases. Class I Shares may be sold to certain Directors, officers
and employees of the Corporation, directors and employees of Merrill Lynch &
Co., Inc. and its subsidiaries, and to certain other persons described in the
prospectus and statement of additional information, without a sales charge or at
a reduced sales charge, upon terms and conditions set forth in the prospectus
and statement of additional information. If the public offering price does not
equal an even cent, the public offering price may be adjusted to the nearest
cent. All payments to the Fund hereunder shall be made in the manner set forth
in Section 3(g).
e. The net asset value of the Class I Shares shall be determined by the
Corporation or any agent of the Corporation in accordance with the method set
forth in the Fund's prospectus and statement of additional information and
guidelines established by the Directors.
f. The Corporation shall have the right to suspend the sale of Class I
Shares at times when redemption is suspended pursuant to the conditions set
forth in Section 4(b) hereof. The Corporation shall also have the right to
suspend the sale of Class I Shares if trading on the New
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<PAGE> 5
York Stock Exchange shall have been suspended, if a banking moratorium shall
have been declared by Federal or New York authorities, or if there shall have
been some other event that, in the judgment of the Corporation, makes it
impracticable or inadvisable to sell the Class I Shares.
g. The Corporation, or any agent of the Corporation designated in
writing by the Corporation, shall be promptly advised of all purchase orders for
Class I Shares received by the Distributor. Any order may be rejected by the
Corporation; provided, however, that the Corporation will not arbitrarily or
without reasonable cause refuse to accept or confirm orders for the purchase of
Class I Shares from eligible investors. The Corporation (or its agent) will
confirm orders upon their receipt, will make appropriate book entries and, upon
receipt by the Corporation (or its agent) of payment therefor, will deliver
deposit receipts or certificates for such Class I Shares pursuant to the
instructions of the Distributor. Payment shall be made to the Corporation in New
York Clearing House funds. The Distributor agrees to cause such payment and such
instructions to be delivered promptly to the Corporation (or its agent).
Section 4. Repurchase or Redemption of Class I Shares by the
Corporation.
a. Any of the outstanding Class I Shares may be tendered for redemption
at any time, and the Fund agrees to repurchase or redeem the Class I Shares so
tendered in accordance with its obligations as set forth in Article VI of the
Corporation's Articles of Incorporation, as amended from time to time, and in
accordance with the applicable provisions set forth in the prospectus and
statement of additional information relating to the Fund. The price to be paid
to redeem or repurchase the Class I Shares shall be equal to the net asset value
calculated in accordance with the provisions of Section 3(e) hereof, less any
contingent deferred sales charge ("CDSC"), redemption fee or other charge(s), if
any, set forth in the prospectus and statement of additional
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<PAGE> 6
information relating to the Fund. All payments by the Fund hereunder shall be
made in the manner set forth below. The redemption or repurchase by the Fund of
any of the Class I Shares purchased by or through the Distributor will not
affect the sales charge secured by the Distributor or any selected dealer in the
course of the original sale, except that if any Class I Shares are tendered for
redemption or repurchase within seven business days after the date of the
confirmation of the original purchase, the right to the sales charge shall be
forfeited by the Distributor and the selected dealer that sold such Class I
Shares.
The Fund shall pay the total amount of the redemption price as defined
in the above paragraph pursuant to the instructions of the Distributor in New
York Clearing House funds on or before the seventh business day subsequent to
its having received the notice of redemption in proper form. The proceeds of any
redemption of Class I Shares shall be paid by the Fund as follows: (i) any
applicable CDSC shall be paid to the Distributor, and (ii) the balance shall be
paid to or for the account of the shareholder, in each case in accordance with
the applicable provisions of the prospectus and statement of additional
information.
b. Redemption of Class I Shares or payment may be suspended at times
when the New York Stock Exchange is closed, when trading on said Exchange is
closed, when trading on said Exchange is suspended, when trading on said
Exchange is restricted, when an emergency exists as a result of which disposal
by the Fund of securities owned by it is not reasonably practicable or it is not
reasonably practicable for the Corporation fairly to determine the value of the
net assets of the Fund, or during any other period when the Securities and
Exchange Commission, by order, so permits.
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<PAGE> 7
Section 5. Duties of the Corporation.
a. The Corporation shall furnish to the Distributor copies of all
information, financial statements and other papers that the Distributor may
reasonably request for use in connection with the distribution of Class I
Shares, and this shall include, upon request by the Distributor, one certified
copy of all financial statements prepared for the Corporation by independent
public accountants. The Corporation shall make available to the Distributor such
number of copies of the Fund's prospectus and statement of additional
information as the Distributor shall reasonably request.
b. The Corporation shall take, from time to time, but subject to any
necessary approval of the Fund's Class I shareholders, all necessary action to
fix the number of authorized Class I Shares and such steps as may be necessary
to register the same under the Securities Act to the end that there will be
available for sale such number of Class I Shares as the Distributor reasonably
may be expected to sell.
c. The Corporation shall use its best efforts to qualify and maintain
the qualification of an appropriate number of the Class I Shares for sale under
the securities laws of such states as the Distributor and the Corporation may
approve. Any such qualification may be withheld, terminated or withdrawn by the
Corporation at any time in its discretion. As provided in Section 8(c) hereof,
the expense of qualification and maintenance of qualification shall be borne by
the Fund. The Distributor shall furnish such information and other material
relating to its affairs and activities as may be required by the Corporation in
connection with such qualification.
d. The Corporation will furnish, in reasonable quantities upon request
by the Distributor, copies of the Fund's annual and interim reports.
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<PAGE> 8
Section 6. Duties of the Distributor.
a. The Distributor shall devote reasonable time and effort to effect
sales of Class I Shares but shall not be obligated to sell any specific number
of Class I Shares. The services of the Distributor to the Corporation hereunder
are not to be deemed exclusive and nothing herein contained shall prevent the
Distributor from entering into like arrangements with other investment companies
so long as the performance of its obligations hereunder is not impaired thereby.
b. In selling the Class I Shares, the Distributor shall use its best
efforts in all respects duly to conform with the requirements of all Federal and
state laws relating to the sale of such securities. Neither the Distributor nor
any selected dealer, as defined in Section 7 hereof, nor any other person is
authorized by Corporation to give any information or to make any
representations, other than those contained in the registration statement or
related prospectus and statement of additional information and any sales
literature specifically approved by the Corporation.
c. The Distributor shall adopt and follow procedures, as approved by
the officers of the Corporation, for the confirmation of sales to eligible
investors and selected dealers, the collection of amounts payable by eligible
investors and selected dealers on such sales, and the cancellation of unsettled
transactions, as may be necessary to comply with the requirements of the
National Association of Securities Dealers, Inc. (the "NASD"), as such
requirements may from time to time exist.
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<PAGE> 9
Section 7. Selected Dealer Agreements.
a. The Distributor shall have the right to enter into selected dealer
agreements with securities dealers of its choice ("selected dealers") for the
sale of Class I Shares and fix therein the portion of the sales charge that may
be allocated to the selected dealers; provided, that the Corporation shall
approve the forms of agreements with dealers and the dealer compensation set
forth therein. Class I Shares sold to selected dealers shall be for resale by
such dealers only at the public offering price(s) set forth in the prospectus
and statement of additional information. The form of agreement with selected
dealers to be used during the subscription period described in Section 3(a) is
attached hereto as Exhibit A and the form of agreement with selected dealers to
be used in the continuous offering of the Class I Shares is attached hereto as
Exhibit B.
b. Within the United States, the Distributor shall offer and sell Class
I Shares only to such selected dealers as are members in good standing of the
NASD.
Section 8. Payment of Expenses.
a. The Fund shall bear all costs and expenses of the Fund, as incurred,
including fees and disbursements of its counsel and auditors, in connection with
the preparation and filing of any required registration statements and/or
prospectuses and statements of additional information under the Investment
Company Act, the Securities Act, and all amendments and supplements thereto, and
preparing and mailing annual and interim reports and proxy materials to Class I
shareholders (including but not limited to the expense of setting in type any
such registration statements, prospectuses, statements of additional
information, annual or interim reports or proxy materials).
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<PAGE> 10
b. The Distributor shall be responsible for any payments made to
selected dealers as reimbursement for their expenses associated with payments of
sales commissions to financial consultants. In addition, after the prospectuses,
statements of additional information and annual and interim reports have been
prepared and set in type, the Distributor shall bear the costs and expenses of
printing and distributing any copies thereof to be used in connection with the
offering of Class I Shares to selected dealers or eligible investors pursuant to
this Agreement. The Distributor shall bear the costs and expenses of preparing,
printing and distributing any other literature used by the Distributor or
furnished by it for use by selected dealers in connection with the offering of
the Class I Shares for sale to eligible investors and any expenses of
advertising incurred by the Distributor in connection with such offering.
c. The Fund shall bear the cost and expenses of qualification of the
Class I Shares for sale pursuant to this Agreement and, if necessary or
advisable in connection therewith, of qualifying the Corporation as a broker or
dealer in such states of the United States or other jurisdictions as shall be
selected by the Corporation and the Distributor pursuant to Section 5(c) hereof
and the cost and expenses payable to each such state for continuing
qualification therein until the Fund decides to discontinue such qualification
pursuant to Section 5(c) hereof.
Section 9. Indemnification.
a. The Fund shall indemnify and hold harmless the Distributor and each
person, if any, who controls the Distributor 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 Class I Shares, which may be based upon the Securities Act,
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<PAGE> 11
or on any other statute or at common law, on the ground that the registration
statement or related prospectus and statement of additional information, as from
time to time amended and supplemented, or an annual or interim report to the
Fund's Class I shareholders, 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 Fund in connection therewith by or on behalf of the
Distributor; provided, however, that in no case (i) is the indemnity of the Fund
in favor of the Distributor and any such controlling persons to be deemed to
protect such Distributor or any such controlling persons thereof against any
liability to the Fund or its security holders to which the Distributor or any
such controlling persons would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of their duties or
by reason of the reckless disregard of their obligations and duties under this
Agreement; or (ii) is the Fund to be liable under its indemnity agreement
contained in this paragraph with respect to any claim made against the
Distributor or any such controlling persons, unless the Distributor or such
controlling persons, as the case may be, shall have notified the Fund 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
Distributor or such controlling persons (or after the Distributor or such
controlling persons shall have received notice of such service on any designated
agent), but failure to notify the Fund of any such claim shall not relieve it
from any liability that it may have to the person against whom such action is
brought otherwise than on account of its indemnity agreement contained in this
paragraph. The Fund will be entitled to participate at its own expense in the
defense or, if it so
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<PAGE> 12
elects, to assume the defense of any suit brought to enforce any such liability,
but if the Fund elects to assume the defense, such defense shall be conducted by
counsel chosen by it and satisfactory to the Distributor or such controlling
person or persons, defendant or defendants in the suit. In the event the Fund
elects to assume the defense of any such suit and retain such counsel, the
Distributor or such controlling person or persons, defendant or defendants in
the suit shall bear the fees and expenses, as incurred, of any additional
counsel retained by them, but in case the Fund does not elect to assume the
defense of any such suit, it will reimburse the Distributor or such controlling
person or persons, defendant or defendants in the suit, for the reasonable fees
and expenses, as incurred, of any counsel retained by them. The Fund shall
promptly notify the Distributor of the commencement of any litigation or
proceedings against it or any of its officers or Directors in connection with
the issuance or sale of any of the Class I Shares.
b. The Distributor shall indemnify and hold harmless the Corporation
and each of its Directors and officers, the Fund, and each person, if any, who
controls the Corporation 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 Fund in writing by or
on behalf of the Distributor for use in connection with the registration
statement or related prospectus and statement of additional information, as from
time to time amended, or the annual or interim reports to Class I shareholders.
In case any action shall be brought against the Corporation or any person so
indemnified, in respect of which indemnity may be sought against the
Distributor, the Distributor shall have the rights and duties given to the
Corporation, and the
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<PAGE> 13
Corporation and each person so indemnified shall have the rights and duties
given to the Distributor by the provisions of subsection (a) of this Section 9.
Section 10. Fee-Based Programs Offered by the Fund's Investment Adviser
or Its Affiliates. In connection with certain fee-based programs offered by the
Fund's investment adviser or its affiliates, the Distributor and its affiliates
are authorized to offer and sell shares of the Fund, as agent for the
Corporation, to participants in such program. The terms of this Agreement shall
apply to such sales, including terms as to the offering price of Class I Shares,
the proceeds to be paid to the Fund, the duties of the Distributor, the payment
of expenses and indemnification obligations of the Fund and the Distributor.
Section 11. 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 and thereafter, but only for so long as such continuance is
specifically approved at least annually by (i) the Directors or by the vote of a
majority of the outstanding Class I voting securities of the Fund and (ii) by
the vote of a majority of those Directors who are not parties to this Agreement
or interested persons of any such party cast in person at a meeting called for
the purpose of voting on such approval.
This Agreement may be terminated at any time, without the payment of
any penalty, by the Directors or by vote of a majority of the outstanding Class
I voting securities of the Fund, or by the Distributor, on sixty days' written
notice to the other party. This Agreement shall automatically terminate in the
event of its assignment.
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<PAGE> 14
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 12. Amendments of this Agreement. This Agreement may be amended
by the parties only if such amendment is specifically approved by (i) the
Directors or by the vote of a majority of outstanding Class I voting securities
of the Fund and (ii) by the vote of a majority of those Directors who are not
parties to this Agreement or interested persons of any such party cast in person
at a meeting called for the purpose of voting on such approval.
Section 13. 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.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
MERCURY ASSET MANAGEMENT FUNDS, INC.
on behalf of its series,
MERCURY GOLD AND MINING FUND
By ___________________________________
Title:
MERCURY FUNDS DISTRIBUTOR, a division of
PRINCETON FUNDS DISTRIBUTOR, INC.
By ___________________________________
Title:
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<PAGE> 16
EXHIBIT A
MERCURY ASSET MANAGEMENT FUNDS, INC.
ON BEHALF OF ITS SERIES,
MERCURY GOLD AND MINING FUND
CLASS I SHARES OF COMMON STOCK
SELECTED DEALER AGREEMENT
FOR SUBSCRIPTION PERIOD
Ladies and Gentlemen:
Mercury Funds Distributor, a division of Princeton Funds Distributor,
Inc. (the "Distributor") has an agreement with Mercury Asset Management Funds,
Inc., a Maryland corporation (the "Corporation"), on behalf of its series,
Mercury Gold and Mining Fund (the "Fund"), pursuant to which it acts as the
distributor for the sale of Class I shares of common stock of the Fund, par
value $0.0001 per share (herein referred to as "Class I Shares") and as such has
the right to distribute Class I Shares for resale. The Corporation is an
open-end investment company registered under the Investment Company Act of 1940,
as amended (the "Investment Company Act"), and the Class I Shares are registered
under the Securities Act of 1933, as amended (the "Securities Act"). The Class I
Shares and certain of the terms on which they are being offered are more fully
described in the enclosed Prospectus and Statement of Additional Information.
You, Merrill Lynch, Pierce, Fenner & Smith Incorporated, have received a copy of
the Class I Shares Distribution Agreement (the "Distribution Agreement") between
ourself and the Corporation and reference is made herein to certain provisions
of such Distribution Agreement. This Agreement relates solely to the
subscription period described in Section 3(a) of such Distribution Agreement.
Subject to the foregoing, as principal, we offer to sell to you, as a member of
the Selected Dealers Group, Class I Shares for resale to investors identified in
the Prospectus and Statement of Additional Information as eligible to purchase
Class I Shares ("eligible investors") upon the following terms and conditions:
1. The subscription period referred to in Section 3(a) of the
Distribution Agreement will continue through ___________ 199_. The subscription
period may be extended upon agreement between the Fund and the Distributor.
Subject to the provisions of such Section and the conditions contained herein,
we will sell to you on the third business day following the termination of the
subscription period, or such other date as we may advise (the "Closing Date"),
such number of Class I Shares as to which you have placed orders with us not
later than 5:00 P.M. on the second full business day preceding the Closing Date.
2. In all sales of these Class I Shares to eligible investors, you
shall act as dealer for your own account, and in no transaction shall you have
any authority to act as agent for the Corporation, the Fund, for us or for any
other member of the Selected Dealers Group, except in connection with the
Merrill Lynch Mutual Fund Adviser program and such other special
<PAGE> 17
programs as we from time to time agree, in which case you shall have authority
to offer and sell Class I Shares, as agent for the Corporation, to participants
in such program.
3. Except as provided in Paragraph 4, below, the public offering
prices, sales charges and the related Selected Dealers' concession are as
follows:
<TABLE>
<CAPTION>
Subscription Period
-------------------
Securities Dealers'
Sales Charge Concession
------------ ----------
Percentage* Percentage*
Public of Public of Public
Offering Dollar Offering Dollar Offering
Price Amount Price Amount Price
----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
Less than $25,000 $10.554 $ .554 5.25% $ .554 5.25%
$25,000 but less than $50,000 10.499 .499 4.75 .499 4.75
$50,000 but less than $100,000 10.417 .417 4.00 .417 4.00
$100,000 but less than $250,000 10.309 .309 3.00 .309 3.00
$250,000 but less than $1,000,000 10.204 .204 2.00 .204 2.00
$1,000,000 and over** 10.000 .000 0.00 .000 0.00
</TABLE>
- ------------------
* Rounded to the nearest one-hundredth percent.
** Initial sales charges may be waived for certain classes of offers as set
forth in the Prospectus and Statement of Additional Information of the Fund.
Such purchases may be subject to a contingent deferred sales charge as set forth
in the Prospectus and Statement of Additional Information.
The proceeds per Class I Share to the Fund from the sale of all shares sold
during the subscription period will be $10.00.
The term "purchase" refers to a single purchase by an individual, or to
concurrent purchases, which in the aggregate are at least equal to the
prescribed amounts, by an individual, his spouse and their children under the
age of 21 years purchasing Class I Shares for his or their own account and to
single purchases by a trustee or other fiduciary purchasing Class I Shares for a
single trust estate or single fiduciary account although more than one
beneficiary is involved. The term "purchase" also includes purchases by any
"company" as that term is defined in the Investment Company Act, but does not
include purchases by any such company that has not been in existence for at
least six months or has no purpose other than the purchase of Class I Shares or
shares of the registered investment companies at a discount; provided, however,
that it shall not include purchases by any group of individuals whose sole
organizational nexus is that the participants therein are credit cardholders of
a company, policyholders of an insurance company, customers of either a bank or
broker-dealer or clients of an investment adviser.
The reduced sales charges are applicable through a right of
accumulation under which certain eligible investors are permitted to purchase
Class I Shares at the offering price applicable to the total of (a) the dollar
amount then being purchased plus (b) an amount equal to the then current net
asset value or cost, whichever is higher, of the purchaser's combined holdings
of the
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<PAGE> 18
Class I, Class A, Class B and Class C shares of the Fund and of any other
open-end investment company advised by Mercury Asset Management International,
Ltd., or an affiliate thereof (together, "Mercury-advised mutual funds"). For
any such right of accumulation to be made available, the Distributor must be
provided at the time of purchase, by the purchaser or you, with sufficient
information to permit confirmation of qualification, and acceptance of the
purchase order is subject to such confirmation.
The reduced sales charges are applicable to purchases aggregating
$25,000 or more of Class I shares or of Class A shares or of shares of any other
Mercury-advised mutual fund made through you within a thirteen-month period
starting with the first purchase pursuant to a Letter of Intent in the form
provided in the Prospectus. A purchase not originally made pursuant to a Letter
of Intent may be included under a subsequent letter executed within 90 days of
such purchase if the Distributor is informed in writing of this intent within
such 90-day period. If the intended amount of shares is not purchased within the
thirteen-month period, an appropriate price adjustment will be made pursuant to
the terms of the Letter of Intent.
You agree to advise us promptly at our request as to amounts of any
sales made by you to eligible investors qualifying for reduced sales charges.
Further information as to the reduced sales charges pursuant to the right of
accumulation or a Letter of Intent is set forth in the Prospectus and Statement
of Additional Information.
4. You shall not place orders for any of the Class I Shares unless you
have already received purchase orders for such Class I Shares at the applicable
public offering prices and subject to the terms hereof and of the Distribution
Agreement. All orders are subject to acceptance by the Distributor or the
Corporation in the sole discretion of either. The minimum initial and subsequent
purchase requirements are as set forth in the Prospectus, as amended from time
to time. You agree that you will not offer or sell any of the Class I Shares
except under circumstances that will result in compliance with the applicable
Federal and state securities laws and that in connection with sales and offers
to sell Class I Shares you will furnish to each person to whom any such sale or
offer is made a copy of the Prospectus and, if requested, the Statement of
Additional Information (as then amended or supplemented) within three business
days of receipt of request and will not furnish to any person any information
relating to the Class I Shares that is inconsistent in any respect with the
information contained in the Prospectus and Statement of Additional Information
(as then amended or supplemented) or cause any advertisement to be published in
any newspaper or posted in any public place without our consent and the consent
of the Corporation.
5. All Class I Shares purchased by Selected Dealers will be delivered
in the first instance at a settlement price computed on the basis of all sales
having been made in a purchase (as such term is defined above) involving a
public offering price of less than $25,000. All sales to you will be deemed to
have been made in such a transaction unless within 30 days after the Closing
Date you furnish to us, on forms supplied by us for the purpose, a statement
acceptable to us setting forth sales in purchases involving a public offering
price of $25,000 or more, in
3
<PAGE> 19
which case we will compute such Selected Dealers' concessions on the basis of
the information set forth in such statement.
6. Payment for Class I Shares purchased by you is to be made by
certified or official bank check at the office of Mercury Funds Distributor, a
division of Princeton Funds Distributor, Inc., P.O. Box 9081, Princeton, New
Jersey 08543-9081, on such date as we may advise, in New York Clearing House
funds payable to the order of Mercury Funds Distributor, a division of Princeton
Funds Distributor, Inc., or by federal funds wire transfer, against delivery by
us of non-negotiable share deposit receipts ("Receipts") issued by Financial
Data Services, Inc., as shareholder servicing agent, acknowledging the deposit
with it of the Class I Shares so purchased by you. You agree that as promptly as
practicable after the delivery of such Class I Shares you will issue appropriate
written transfer instructions to the Corporation or to the shareholder servicing
agent as to the purchasers to whom you sold the Class I Shares.
7. If any Class I Shares sold to you under the terms of this Agreement
are repurchased by the Corporation or by us for the account of the Corporation
or are tendered for redemption within seven business days after the Closing
Date, it is agreed that you shall forfeit your right to, and refund to us, any
discount received by you on such Class I Shares.
8. No person is authorized to make any representations concerning Class
I Shares except those contained in the current Prospectus and Statement of
Additional Information of the Fund and in such printed information subsequently
issued by us or the Fund as information supplemental to such Prospectus and
Statement of Additional Information. In purchasing Class I Shares through us you
shall rely solely on the representations contained in the Prospectus and
Statement of Additional Information and supplemental information above
mentioned. Any printed information that we furnish you other than the Fund's
Prospectus and Statement of Additional Information, periodic reports and proxy
solicitation material are our sole responsibility and not the responsibility of
the Corporation or the Fund, and you agree that the Corporation and the Fund
shall have no liability or responsibility to you in these respects unless
expressly assumed in connection therewith.
9. You agree to deliver to each of the purchasers making purchases from
you a copy of the then current Prospectus at or prior to the time of offering or
sale and, if requested, the Statement of Additional Information within three
business days of receipt of request, and you agree thereafter to deliver to such
purchasers copies of the annual and interim reports and proxy solicitation
materials of the Fund. You further agree to endeavor to obtain proxies from such
purchasers. Additional copies of the Prospectus and Statement of Additional
Information, annual or interim reports and proxy solicitation materials of the
Fund will be supplied to you in reasonable quantities upon request.
10. We reserve the right in our discretion, without notice, to suspend
sales or withdraw the offering of Class I Shares entirely. Each party hereto has
the right to cancel this Agreement upon notice to the other party.
4
<PAGE> 20
11. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the subscription offering. We
shall be under no liability to you except for lack of good faith and for
obligations expressly assumed by us herein. Nothing contained in this paragraph
is intended to operate as, and the provisions of this paragraph shall not in any
way whatsoever constitute, a waiver by you of compliance with any provision of
the Securities Act, or of the rules and regulations of the Securities and
Exchange Commission issued thereunder.
12. You represent that you are a member of the National Association of
Securities Dealers, Inc. and, with respect to any sales in the United States, we
both hereby agree to abide by the Conduct Rules of such Association.
13. Upon application to us, we will inform you as to the states in
which we believe the Class I Shares have been qualified for sale under, or are
exempt from the requirements of, the respective securities laws of such states,
but we assume no responsibility or obligation as to your right to sell Class I
Shares in any jurisdiction. We will file with the Department of State in New
York a Further State Notice with respect to the Class I Shares, if necessary.
14. All communications to us should be sent to the address below. Any
notice to you shall be duly given if mailed or telegraphed to you at the address
specified by you below.
15. You agree that you will not sell any Class I Shares to any account
over which you exercise discretionary authority.
5
<PAGE> 21
16. This Agreement shall terminate at the close of business on the
Closing Date, unless earlier terminated, provided, however, this Agreement shall
continue after termination for the purpose of Section 7 hereof and for the
purpose of settlement of accounts hereunder.
MERCURY FUNDS DISTRIBUTOR, a division of
PRINCETON FUNDS DISTRIBUTOR, INC.
By _______________________________________
Title:
Please return one signed copy of this Agreement to:
MERCURY FUNDS DISTRIBUTOR, a division of
PRINCETON FUNDS DISTRIBUTOR, INC.
P.O. Box 9081
Princeton, New Jersey 08543-9081
Accepted:
__________________________________
(Authorized Signature)
Firm Name:________________________
By:_______________________________
Title:____________________________
Address:__________________________
__________________________________
Date:_____________________________
6
<PAGE> 22
EXHIBIT B
MERCURY ASSET MANAGEMENT FUNDS, INC.
ON BEHALF OF ITS SERIES,
MERCURY GOLD AND MINING FUND
CLASS I SHARES OF COMMON STOCK
SELECTED DEALER AGREEMENT
Ladies and Gentlemen:
Mercury Funds Distributor, a division of Princeton Funds Distributor,
Inc. (the "Distributor") has an agreement with Mercury Asset Management Funds,
Inc., a Maryland corporation (the "Corporation"), on behalf of its series,
Mercury Gold and Mining Fund (the "Fund"), pursuant to which it acts as the
distributor for the sale of Class I shares of common stock of the Fund, par
value $0.0001 per share (herein referred to as "Class I Shares"), and as such
has the right to distribute Class I Shares for resale. The Corporation is an
open-end investment company registered under the Investment Company Act of 1940,
as amended (the "Investment Company Act"), and the Class I Shares are registered
under the Securities Act of 1933, as amended (the "Securities Act"). You,
_____________, have received a copy of the Class I Shares Distribution Agreement
(the "Distribution Agreement") between ourself and the Corporation and reference
is made herein to certain provisions of such Distribution Agreement. The terms
"Prospectus" and "Statement of Additional Information" used herein refer to the
prospectus and statement of additional information, respectively, on file with
the Securities and Exchange Commission (the "Commission") which is part of the
most recent effective registration statement pursuant to the Securities Act. We
offer to sell to you, as a member of the Selected Dealers Group, Class I Shares
for resale to investors identified in the Prospectus and Statement of Additional
Information as eligible to purchase Class I Shares ("eligible investors") upon
the following terms and conditions:
1. In all sales of Class I Shares to eligible investors, you shall act
as dealer for your own account and in no transaction shall you have any
authority to act as agent for the Corporation, the Fund, for us or for any other
member of the Selected Dealers Group, except in connection with the Merrill
Lynch Mutual Fund Adviser program and such other special programs as we from
time to time agree, in which case you shall have authority to offer and sell
Class I Shares, as agent for the Corporation, to participants in such program.
2. Orders received from you will be accepted through us only at the
public offering price applicable to each order, as set forth in the current
Prospectus and Statement of Additional Information of the Fund. The procedure
relating to the handling of orders shall be subject to Section 5 hereof and
instructions that we or the Corporation shall forward from time to time to you.
All orders are subject to acceptance or rejection by the Distributor or the
Corporation in the sole discretion of either. The minimum initial and subsequent
purchase requirements are as set forth in the current Prospectus and Statement
of Additional Information of the Fund.
<PAGE> 23
3. The sales charges for sales to eligible investors, computed as
percentages of the public offering price and the amount invested, and the
related discount to Selected Dealers are as follows:
<TABLE>
<CAPTION>
Sales Charge as Discount to
Sales Charge As Percentage* of the Selected Dealers as
Percentage of the Net Amount Percentage of the
Amount of Purchase Offering Price Invested Offering Price
<S> <C> <C> <C>
Less than $25,000 ............... 5.25% 5.54% 5.00%
$25,000 but less than $50,000 ... 4.75 4.99 4.50
$50,000 but less than $100,000 .. 4.00 4.17 3.75
$100,000 but less than $250,000 . 3.00 3.09 2.75
$250,000 but less than $1,000,000 2.00 2.04 1.80
$1,000,000 and over** ........... 0.00 0.00 0.00
</TABLE>
- ----------
* Rounded to the nearest one-hundredth percent.
** Initial sales charges may be waived for certain classes of offerees as
set forth in the current Prospectus and Statement of Additional
Information of the Fund. Such purchases may be subject to a contingent
deferred sales charge as set forth in the current Prospectus and
Statement of Additional Information.
The term "purchase" refers to a single purchase by an individual, or to
concurrent purchases, which in the aggregate are at least equal to the
prescribed amounts, by an individual, his spouse and their children under the
age of 21 years purchasing Class I Shares for his or their own account and to
single purchases by a trustee or other fiduciary purchasing Class I Shares for a
single trust estate or single fiduciary account although more than one
beneficiary is involved. The term "purchase" also includes purchases by any
"company" as that term is defined in the Investment Company Act but does not
include purchases by any such company that has not been in existence for at
least six months or which has no purpose other than the purchase of Class I
Shares of the Fund or Class I shares of other registered investment companies at
a discount; provided, however, that it shall not include purchases by any group
of individuals whose sole organizational nexus is that the participants therein
are credit cardholders of a company, policyholders of an insurance company,
customers of either a bank or broker-dealer or clients of an investment adviser.
The reduced sales charges are applicable through a right of
accumulation under which certain eligible investors are permitted to purchase
Class I Shares at the offering price applicable to the total of (a) the dollar
amount then being purchased plus (b) an amount equal to the then current net
asset value or cost, whichever is higher, of the purchaser's combined holdings
of Class I, Class A, Class B and Class C shares of the Fund and of any other
series of the Corporation (each, a "Mercury Fund"). For any such right of
accumulation to be made available, the Distributor must be provided at the time
of purchase, by the purchaser or you, with sufficient information to permit
confirmation of qualification, and acceptance of the purchase order is subject
to such confirmation.
2
<PAGE> 24
The reduced sales charges are applicable to purchases aggregating
$25,000 or more of Class I shares or of Class A shares of any other Mercury Fund
made through you within a thirteen-month period starting with the first purchase
pursuant to a Letter of Intent in the form provided in the Prospectus. A
purchase not originally made pursuant to a Letter of Intent may be included
under a subsequent letter executed within 90 days of such purchase if the
Distributor is informed in writing of this intent within such 90-day period. If
the intended amount of shares is not purchased within the thirteen-month period,
an appropriate price adjustment will be made pursuant to the terms of the Letter
of Intent.
You agree to advise us promptly at our request as to amounts of any
sales made by you to eligible investors qualifying for reduced sales charges.
Further information as to the reduced sales charges pursuant to the right of
accumulation or a Letter of Intent is set forth in the Prospectus and Statement
of Additional Information.
4. You shall not place orders for any of the Class I Shares unless you
have already received purchase orders for such Class I Shares at the applicable
public offering prices and subject to the terms hereof and of the Distribution
Agreement. You agree that you will not offer or sell any of the Class I Shares
except under circumstances that will result in compliance with the applicable
Federal and state securities laws and that in connection with sales and offers
to sell Class I Shares you will furnish to each person to whom any such sale or
offer is made a copy of the Prospectus and, if requested, the Statement of
Additional Information (as then amended or supplemented) within three business
days of receipt of request and will not furnish to any person any information
relating to the Class I Shares that is inconsistent in any respect with the
information contained in the Prospectus and Statement of Additional Information
(as then amended or supplemented) or cause any advertisement to be published in
any newspaper or posted in any public place without our consent and the consent
of the Corporation.
5. As a selected dealer, you are hereby authorized (i) to place orders
directly with the Corporation for Class I Shares to be resold by us to you
subject to the applicable terms and conditions governing the placement of orders
by us set forth in Section 3 of the Distribution Agreement and subject to the
compensation provisions of Section 3 hereof and (ii) to tender Class I Shares
directly to the Corporation or its agent for redemption subject to the
applicable terms and conditions set forth in Section 4 of the Distribution
Agreement.
6. You shall not withhold placing orders received from your customers
so as to profit yourself as a result of such withholding, e.g., by a change in
the "net asset value" from that used in determining the offering price to your
customers.
7. If any Class I Shares sold to you under the terms of this Agreement
are repurchased by the Corporation or by us for the account of the Corporation
or are tendered for redemption within seven business days after the date of the
confirmation of the original purchase by you, it is agreed that you shall
forfeit your right to, and refund to us, any discount received by you on such
Class I Shares.
3
<PAGE> 25
8. No person is authorized to make any representations concerning Class
I Shares except those contained in the current Prospectus and Statement of
Additional Information of the Fund and in such printed information subsequently
issued by us or the Fund as information supplemental to such Prospectus and
Statement of Additional Information. In purchasing Class I Shares through us you
shall rely solely on the representations contained in the Prospectus and
Statement of Additional Information and supplemental information above
mentioned. Any printed information that we furnish you other than the Fund's
Prospectus, Statement of Additional Information, periodic reports and proxy
solicitation material is our sole responsibility and not the responsibility of
the Corporation or the Fund, and you agree that the Corporation and the Fund
shall have no liability or responsibility to you in these respects unless
expressly assumed in connection therewith.
9. You agree to deliver to each of the purchasers making purchases from
you a copy of the then current Prospectus at or prior to the time of offering or
sale and, if requested, the Statement of Additional Information within three
business days of receipt of request, and you agree thereafter to deliver to such
purchasers copies of the annual and interim reports and proxy solicitation
materials of the Fund. You further agree to endeavor to obtain proxies from such
purchasers. Additional copies of the Prospectus and Statement of Additional
Information, annual or interim reports and proxy solicitation materials of the
Fund will be supplied to you in reasonable quantities upon request.
10. We reserve the right in our discretion, without notice, to suspend
sales or withdraw the offering of Class I Shares entirely or to certain persons
or entities in a class or classes specified by us. Each party hereto has the
right to cancel this agreement upon notice to the other party.
11. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the continuous offering. We
shall be under no liability to you except for lack of good faith and for
obligations expressly assumed by us herein. Nothing contained in this paragraph
is intended to operate as, and the provisions of this paragraph shall not in any
way whatsoever constitute, a waiver by you of compliance with any provision of
the Securities Act of 1933, as amended, or of the rules and regulations of the
Commission issued thereunder.
12. You represent that you are a member of the National Association of
Securities Dealers, Inc. and, with respect to any sales in the United States, we
both hereby agree to abide by the Conduct Rules of such Association.
13. Upon application to us, we will inform you as to the states in
which we believe the Class I Shares have been qualified for sale under, or are
exempt from the requirements of, the respective securities laws of such states,
but we assume no responsibility or obligation as to your right to sell Class I
Shares in any jurisdiction. We will file with the Department of State in New
York a Further State Notice with respect to the Class I Shares, if necessary.
4
<PAGE> 26
14. All communications to us should be sent to the address below. Any
notice to you shall be duly given if mailed or telegraphed to you at the address
specified by you below.
15. Your first order placed pursuant to this Agreement for the purchase
of Class I Shares will represent your acceptance of this Agreement.
MERCURY FUNDS DISTRIBUTOR, a division of
PRINCETON FUNDS DISTRIBUTOR, INC.
By:_____________________________________
Title:__________________________________
(Authorized Signature)
Please return one signed copy of this agreement to:
MERCURY FUNDS DISTRIBUTOR, a division of
PRINCETON FUNDS DISTRIBUTOR, INC.
P.O. Box 9081
Princeton, New Jersey 08543-9081
Accepted:
______________________________
(Authorized Signature)
Firm Name:____________________
By:___________________________
Title:________________________
Address:______________________
______________________________
Date:_________________________
5
<PAGE> 1
Exhibit 5(b)
CLASS A SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of ________________, 1998 between MERCURY ASSET
MANAGEMENT FUNDS, INC., a Maryland corporation (the "Corporation"), on behalf of
its series Mercury Gold and Mining Fund (the "Fund") and MERCURY FUNDS
DISTRIBUTOR, a division of PRINCETON FUNDS DISTRIBUTOR, INC., a Delaware
corporation (the "Distributor").
W I T N E S S E T H :
WHEREAS, the Directors of the Corporation (the "Directors") are authorized
to establish separate series relating to separate portfolios of securities, each
of which may offer separate classes of shares of common stock, par value $0.0001
per share; and
WHEREAS, the Directors have established and designated the Fund as a
series of the Corporation, offering separate classes of shares of common stock,
as described above; and
WHEREAS, the Corporation is registered under the Investment Company Act of
1940, as amended (the "Investment Company Act"), as an open-end investment
company, and it is affirmatively in the interest of the Fund to offer its shares
for sale continuously; and
WHEREAS, the Distributor is a securities firm engaged in the business of
selling shares of investment companies either directly to purchasers or through
other securities dealers; and
WHEREAS, the Corporation and the Distributor wish to enter into an
agreement with each other with respect to the continuous offering of Class A
shares of common stock in the Fund;
<PAGE> 2
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor. The Corporation hereby appoints
the Distributor as the Fund's principal underwriter and distributor to sell the
Class A shares of common stock in the Fund (sometimes herein referred to as
"Class A Shares") to the public and hereby agrees during the term of this
Agreement to sell the Class A Shares to the Distributor upon the terms and
conditions herein set forth.
Section 2. Exclusive Nature of Duties. The Distributor shall be the Fund's
exclusive representative to act as principal underwriter and distributor of the
Class A Shares, except that:
a. The Corporation may, upon written notice to the Distributor, from time
to time designate other principal underwriters and distributors of the Class A
Shares with respect to areas other than the United States as to which the
Distributor may have expressly waived in writing its right to act as such. If
such designation is deemed exclusive, the right of the Distributor under this
Agreement to sell the Class A Shares in the 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 rights granted to the Distributor to purchase Class A
Shares from the Fund shall not apply to Class A Shares issued in connection with
the merger or consolidation of any other investment company or personal holding
company with the Fund or the Fund's acquisition by purchase or otherwise of all
(or substantially all) the assets or the outstanding Class A shares of any such
company.
c. Such exclusive rights also shall not apply to Class A Shares issued by
the Fund pursuant to reinvestment of dividends or capital gains distributions.
2
<PAGE> 3
d. Such exclusive rights also shall not apply to Class A Shares issued by
the Fund pursuant to any conversion, exchange or reinstatement privilege
afforded redeeming shareholders or to any other Class A Shares as shall be
agreed between the Corporation and the Distributor from time to time.
Section 3. Purchase of Class A Shares from the Corporation.
a. Prior to the continuous offering of the Class A Shares, commencing on a
date agreed upon by the Corporation and the Distributor, it is contemplated that
the Distributor will solicit subscriptions for Class A Shares during a
subscription period which shall last for such period as may be agreed upon by
the parties hereto. The subscriptions will be payable within three business days
after the termination of the subscription period, at which time the Fund will
commence operations.
b. After the Fund commences operations, the Fund will commence an offering
of Class A Shares and thereafter the Distributor shall have the right to buy
from the Corporation the Class A Shares needed, but not more than the Class A
Shares needed (except for clerical errors in transmission) to fill unconditional
orders for Class A Shares placed with the Distributor by eligible investors or
securities dealers. Investors eligible to purchase Class A Shares shall be those
persons so identified in the currently effective prospectus and statement of
additional information of the Fund (the "prospectus" and "statement of
additional information," respectively) under the Securities Act of 1933, as
amended (the "Securities Act"), relating to such Class A Shares. The price that
the Distributor shall pay for the Class A Shares so purchased from the Fund
shall be the net asset value, determined as set forth in Section 3(e) hereof,
used in determining the public offering price on which such orders were based.
3
<PAGE> 4
c. The Class A Shares are to be resold by the Distributor to investors at
the public offering price, as set forth in Section 3(d) hereof, or to securities
dealers having agreements with the Distributor upon the terms and conditions set
forth in Section 7 hereof.
d. The public offering price(s) of the Class A Shares, i.e., the price per
share at which the Distributor or selected dealers may sell Class A Shares to
the public shall be the public offering price as set forth in the prospectus and
statement of additional information relating to such Class A Shares, but not to
exceed the net asset value at which the Distributor is to purchase the Class A
Shares, plus a sales charge not to exceed 5.25% of the public offering price
(5.54% of the net amount invested), subject to reductions for volume purchases.
Class A Shares may be sold to certain Directors, officers and employees of the
Corporation, directors and employees of Merrill Lynch & Co., Inc. and its
subsidiaries, and to certain other persons described in the prospectus and
statement of additional information, without a sales charge or at a reduced
sales charge, upon terms and conditions set forth in the prospectus and
statement of additional information. If the public offering price does not equal
an even cent, the public offering price may be adjusted to the nearest cent. All
payments to the Fund hereunder shall be made in the manner set forth in Section
3(g).
e. The net asset value of the Class A Shares shall be determined by the
Corporation or any agent of the Corporation in accordance with the method set
forth in the Fund's prospectus and statement of additional information and
guidelines established by the Directors.
f. The Corporation shall have the right to suspend the sale of Class A
Shares at times when redemption is suspended pursuant to the conditions set
forth in Section 4(b) hereof. The Corporation shall also have the right to
suspend the sale of Class A Shares if trading on the New
4
<PAGE> 5
York Stock Exchange shall have been suspended, if a banking moratorium shall
have been declared by Federal or New York authorities, or if there shall have
been some other event that, in the judgment of the Corporation, makes it
impracticable or inadvisable to sell the Class A Shares.
g. The Corporation, or any agent of the Corporation designated in writing
by the Corporation, shall be promptly advised of all purchase orders for Class A
Shares received by the Distributor. Any order may be rejected by the
Corporation; provided, however, that the Corporation will not arbitrarily or
without reasonable cause refuse to accept or confirm orders for the purchase of
Class A Shares. The Corporation (or its agent) will confirm orders upon their
receipt, will make appropriate book entries and, upon receipt by the Corporation
(or its agent) of payment therefor, will deliver deposit receipts or
certificates for such Class A Shares pursuant to the instructions of the
Distributor. Payment shall be made to the Corporation in New York Clearing House
funds. The Distributor agrees to cause such payment and such instructions to be
delivered promptly to the Corporation (or its agent).
Section 4. Repurchase or Redemption of Class A Shares by the Corporation.
a. Any of the outstanding Class A Shares may be tendered for redemption at
any time, and the Fund agrees to repurchase or redeem the Class A Shares so
tendered in accordance with its obligations as set forth in Article VI of the
Corporation's Articles of Incorporation, as amended from time to time, and in
accordance with the applicable provisions set forth in the prospectus and
statement of additional information relating to the Fund. The price to be paid
to redeem or repurchase the Class A Shares shall be equal to the net asset value
calculated in accordance with the provisions of Section 3(e) hereof, less any
contingent deferred sales charge ("CDSC"), redemption fee or other charge(s), if
any, set forth in the prospectus and statement of
5
<PAGE> 6
additional information relating to the Fund. All payments by the Fund hereunder
shall be made in the manner set forth below. The redemption or repurchase by the
Fund of any of the Class A Shares purchased by or through the Distributor will
not affect the sales charge secured by the Distributor or any selected dealer in
the course of the original sale, except that if any Class A Shares are tendered
for redemption or repurchase within seven business days after the date of the
confirmation of the original purchase, the right to the sales charge shall be
forfeited by the Distributor and the selected dealer that sold such Class A
Shares.
The Fund shall pay the total amount of the redemption price as defined in
the above paragraph pursuant to the instructions of the Distributor in New York
Clearing House funds on or before the seventh business day subsequent to its
having received the notice of redemption in proper form. The proceeds of any
redemption of Class A Shares shall be paid by the Fund as follows: (i) any
applicable CDSC shall be paid to the Distributor, and (ii) the balance shall be
paid to or for the account of the shareholder, in each case in accordance with
the applicable provisions of the prospectus and statement of additional
information.
b. Redemption of Class A Shares or payment may be suspended at times when
the New York Stock Exchange is closed, when trading on said Exchange is closed,
when trading on said Exchange is suspended, when trading on said Exchange is
restricted, when an emergency exists as a result of which disposal by the Fund
of securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Corporation fairly to determine the value of the net assets
of the Fund, or during any other period when the Securities and Exchange
Commission, by order, so permits.
6
<PAGE> 7
Section 5. Duties of the Corporation.
a. The Corporation shall furnish to the Distributor copies of all
information, financial statements and other papers that the Distributor may
reasonably request for use in connection with the distribution of Class A
Shares, and this shall include, upon request by the Distributor, one certified
copy of all financial statements prepared for the Corporation by independent
public accountants. The Corporation shall make available to the Distributor such
number of copies of the Fund's prospectus and statement of additional
information as the Distributor shall reasonably request.
b. The Corporation shall take, from time to time, but subject to any
necessary approval of the Fund's Class A shareholders, all necessary action to
fix the number of authorized Class A Shares and such steps as may be necessary
to register the same under the Securities Act to the end that there will be
available for sale such number of Class A Shares as the Distributor reasonably
may be expected to sell.
c. The Corporation shall use its best efforts to qualify and maintain the
qualification of an appropriate number of the Class A Shares for sale under the
securities laws of such states as the Distributor and the Corporation may
approve. Any such qualification may be withheld, terminated or withdrawn by the
Corporation at any time in its discretion. As provided in Section 8(c) hereof,
the expense of qualification and maintenance of qualification shall be borne by
the Fund. The Distributor shall furnish such information and other material
relating to its affairs and activities as may be required by the Corporation in
connection with such qualification.
d. The Corporation will furnish, in reasonable quantities upon request by
the Distributor, copies of the Fund's annual and interim reports.
7
<PAGE> 8
Section 6. Duties of the Distributor.
a. The Distributor shall devote reasonable time and effort to effect sales
of Class A Shares but shall not be obligated to sell any specific number of
Class A Shares. The services of the Distributor to the Corporation hereunder are
not to be deemed exclusive and nothing herein contained shall prevent the
Distributor from entering into like arrangements with other investment companies
so long as the performance of its obligations hereunder is not impaired thereby.
b. In selling the Class A Shares, the Distributor shall use its best
efforts in all respects duly to conform with the requirements of all Federal and
state laws relating to the sale of such securities. Neither the Distributor nor
any selected dealer, as defined in Section 7 hereof, nor any other person is
authorized by Corporation to give any information or to make any
representations, other than those contained in the registration statement or
related prospectus and statement of additional information and any sales
literature specifically approved by the Corporation.
c. The Distributor shall adopt and follow procedures, as approved by the
officers of the Corporation, for the confirmation of sales to investors and
selected dealers, the collection of amounts payable by investors and selected
dealers on such sales, and the cancellation of unsettled transactions, as may be
necessary to comply with the requirements of the National Association of
Securities Dealers, Inc. (the "NASD"), as such requirements may from time to
time exist.
8
<PAGE> 9
Section 7. Selected Dealer Agreements.
a. The Distributor shall have the right to enter into selected dealer
agreements with securities dealers of its choice ("selected dealers") for the
sale of Class A Shares and fix therein the portion of the sales charge that may
be allocated to the selected dealers; provided, that the Corporation shall
approve the forms of agreements with dealers and the dealer compensation set
forth therein. Class A Shares sold to selected dealers shall be for resale by
such dealers only at the public offering price(s) set forth in the prospectus
and statement of additional information. The form of agreement with selected
dealers to be used during the subscription period described in Section 3(a) is
attached hereto as Exhibit A and the form of agreement with selected dealers to
be used in the continuous offering of the Class A Shares is attached hereto as
Exhibit B.
b. Within the United States, the Distributor shall offer and sell Class A
Shares only to such selected dealers as are members in good standing of the
NASD.
Section 8. Payment of Expenses.
a. The Fund shall bear all costs and expenses of the Fund, as incurred,
including fees and disbursements of its counsel and auditors, in connection with
the preparation and filing of any required registration statements and/or
prospectuses and statements of additional information under the Investment
Company Act, the Securities Act, and all amendments and supplements thereto, and
preparing and mailing annual and interim reports and proxy materials to Class A
shareholders (including but not limited to the expense of setting in type any
such registration statements, prospectuses, statements of additional
information, annual or interim reports or proxy materials).
9
<PAGE> 10
b. The Distributor shall be responsible for any payments made to selected
dealers as reimbursement for their expenses associated with payments of sales
commissions to financial consultants. In addition, after the prospectuses,
statements of additional information and annual and interim reports have been
prepared and set in type, the Distributor shall bear the costs and expenses of
printing and distributing any copies thereof to be used in connection with the
offering of Class A Shares to selected dealers or investors pursuant to this
Agreement. The Distributor shall bear the costs and expenses of preparing,
printing and distributing any other literature used by the Distributor or
furnished by it for use by selected dealers in connection with the offering of
the Class A Shares for sale to the public and any expenses of advertising
incurred by the Distributor in connection with such offering. It is understood
and agreed that so long as the Class A Shares Distribution Plan pursuant to Rule
12b-1 under the Investment Company Act remains in effect, any expenses incurred
by the Distributor hereunder in connection with account maintenance activities
may be paid from amounts recovered by it from the Fund under such plan.
c. The Fund shall bear the cost and expenses of qualification of the Class
A Shares for sale pursuant to this Agreement and, if necessary or advisable in
connection therewith, of qualifying the Corporation as a broker or dealer in
such states of the United States or other jurisdictions as shall be selected by
the Corporation and the Distributor pursuant to Section 5(c) hereof and the cost
and expenses payable to each such state for continuing qualification therein
until the Fund decides to discontinue such qualification pursuant to Section
5(c) hereof.
Section 9. Indemnification.
a. The Fund shall indemnify and hold harmless the Distributor and each
person, if any, who controls the Distributor against any loss, liability, claim,
damage or expense (including the
10
<PAGE> 11
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 Class A
Shares, which may be based upon the Securities Act, or on any other statute or
at common law, on the ground that the registration statement or related
prospectus and statement of additional information, as from time to time amended
and supplemented, or an annual or interim report to the Fund's Class A
shareholders, 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 Fund in
connection therewith by or on behalf of the Distributor; provided, however, that
in no case (i) is the indemnity of the Fund in favor of the Distributor and any
such controlling persons to be deemed to protect such Distributor or any such
controlling persons thereof against any liability to the Fund or its security
holders to which the Distributor or any such controlling persons would otherwise
be subject by reason of willful misfeasance, bad faith or gross negligence in
the performance of their duties or by reason of the reckless disregard of their
obligations and duties under this Agreement; or (ii) is the Fund to be liable
under its indemnity agreement contained in this paragraph with respect to any
claim made against the Distributor or any such controlling persons, unless the
Distributor or such controlling persons, as the case may be, shall have notified
the Fund 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 Distributor or such controlling persons (or after the
Distributor or such controlling persons shall have received notice of such
service on any designated agent), but failure to notify the Fund of any
11
<PAGE> 12
such claim shall not relieve it from any liability that it may have to the
person against whom such action is brought otherwise than on account of its
indemnity agreement contained in this paragraph. The Fund will be entitled to
participate at its own expense in the defense or, if it so elects, to assume the
defense of any suit brought to enforce any such liability, but if the Fund
elects to assume the defense, such defense shall be conducted by counsel chosen
by it and satisfactory to the Distributor or such controlling person or persons,
defendant or defendants in the suit. In the event the Fund elects to assume the
defense of any such suit and retain such counsel, the Distributor or such
controlling person or persons, defendant or defendants in the suit shall bear
the fees and expenses, as incurred, of any additional counsel retained by them,
but in case the Fund does not elect to assume the defense of any such suit, it
will reimburse the Distributor or such controlling person or persons, defendant
or defendants in the suit, for the reasonable fees and expenses, as incurred, of
any counsel retained by them. The Fund shall promptly notify the Distributor of
the commencement of any litigation or proceedings against it or any of its
officers or Directors in connection with the issuance or sale of any of the
Class A Shares.
b. The Distributor shall indemnify and hold harmless the Corporation and
each of its Directors and officers, the Fund, and each person, if any, who
controls the Corporation 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 Fund in writing by or
on behalf of the Distributor for use in connection with the registration
statement or related prospectus and statement of additional information, as from
time to time amended, or the annual
12
<PAGE> 13
or interim reports to Class A shareholders. In case any action shall be brought
against the Corporation or any person so indemnified, in respect of which
indemnity may be sought against the Distributor, the Distributor shall have the
rights and duties given to the Corporation, and the Corporation and each person
so indemnified shall have the rights and duties given to the Distributor by the
provisions of subsection (a) of this Section 9.
Section 10. Fee-Based Programs Offered by the Fund's Investment
Adviser or Its Affiliates. In connection with certain fee-based programs offered
by the Fund's investment adviser or its affiliates, the Distributor and its
affiliates are authorized to offer and sell shares of the Fund, as agent for the
Corporation, to participants in such program. The terms of this Agreement shall
apply to such sales, including terms as to the offering price of Class I Shares,
the proceeds to be paid to the Fund, the duties of the Distributor, the payment
of expenses and indemnification obligations of the Fund and the Distributor.
Section 11. 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 and thereafter, but only for so long as such continuance is
specifically approved at least annually by (i) the Directors or by the vote of a
majority of the outstanding Class A voting securities of the Fund and (ii) by
the vote of a majority of those Directors who are not parties to this Agreement
or interested persons of any such party cast in person at a meeting called for
the purpose of voting on such approval.
This Agreement may be terminated at any time, without the payment of any
penalty, by the Directors or by vote of a majority of the outstanding Class A
voting securities of the Fund, or
13
<PAGE> 14
by the Distributor, 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 12. Amendments of this Agreement. This Agreement may be amended by
the parties only if such amendment is specifically approved by (i) the Directors
or by the vote of a majority of outstanding Class A voting securities of the
Fund and (ii) by the vote of a majority of those Directors who are not parties
to this Agreement or interested persons of any such party cast in person at a
meeting called for the purpose of voting on such approval.
Section 13. 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.
14
<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
MERCURY ASSET MANAGEMENT FUNDS, INC.
on behalf of its series,
MERCURY GOLD AND MINING FUND
By________________________________________
Title:
MERCURY FUNDS DISTRIBUTOR, a division of
PRINCETON FUNDS DISTRIBUTOR, INC.
By________________________________________
Title:
15
<PAGE> 16
Exhibit A
MERCURY ASSET MANAGEMENT FUNDS, INC.
ON BEHALF OF ITS SERIES,
MERCURY GOLD AND MINING FUND
CLASS A SHARES OF COMMON STOCK
SELECTED DEALER AGREEMENT
FOR SUBSCRIPTION PERIOD
Ladies and Gentlemen:
Mercury Funds Distributor, a division of Princeton Funds
Distributor, Inc. (the "Distributor") has an agreement with Mercury Asset
Management Funds, Inc., a Maryland corporation (the "Corporation"), on behalf of
its series, Mercury Gold and Mining Fund (the "Fund"), pursuant to which it acts
as the distributor for the sale of Class A shares of common stock of the Fund,
par value $0.0001 per share (herein referred to as "Class A Shares"), and as
such has the right to distribute Class A Shares for resale. The Corporation is
an open-end investment company registered under the Investment Company Act of
1940, as amended (the "Investment Company Act"), and its Class A Shares being
offered to the public are registered under the Securities Act of 1933, as
amended (the "Securities Act"). Such Class A Shares and certain of the terms on
which they are being offered are more fully described in the enclosed Prospectus
and Statement of Additional Information. You, Merrill Lynch, Pierce, Fenner &
Smith Incorporated, have received a copy of the Class A Shares Distribution
Agreement (the "Distribution Agreement") between ourself and the Corporation and
reference is made herein to certain provisions of such Distribution Agreement.
This Agreement relates solely to the subscription period described in Section
3(a) of such Distribution Agreement. Subject to the foregoing, as principal, we
offer to sell to you, as a member of the Selected Dealers Group, Class A Shares
upon the following terms and conditions:
1. The subscription period referred to in Section 3(a) of the
Distribution Agreement will continue through ________ __, 19__. The subscription
period may be extended upon agreement between the Fund and the Distributor.
Subject to the provisions of such Section and the conditions contained herein,
we will sell to you on the third business day following the termination of the
subscription period, or such other date as we may advise (the "Closing Date"),
such number of Class A Shares as to which you have placed orders with us not
later than 5:00 P.M. on the second full business day preceding the Closing Date.
2. In all sales of these Class A Shares to the public you shall act as
dealer for your own account, and in no transaction shall you have any authority
to act as agent for the Corporation, the Fund, for us or for any other member of
the Selected Dealers Group, except in connection with the Merrill Lynch Mutual
Fund Adviser program and such other special
<PAGE> 17
programs as we from time to time agree in which case you shall have authority to
offer and sell Class A Shares, as agent for the Corporation, to participants in
such program.
3. Except as provided in Paragraph 4, below, the public offering prices,
sales charges and the related Selected Dealers' concession are as follows:
<TABLE>
<CAPTION>
Subscription Period
-------------------
Securities Dealers'
Sales Charge Concession
------------ ----------
Percentage* Percentage*
Public of Public of Public
Offering Dollar Offering Dollar Offering
Price Amount Price Amount Price
----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
Less than $25,000 ...................... $10.554 $ .554 5.25% $ .554 5.25%
$25,000 but less than $50,000 .......... 10.499 .499 4.75 .499 4.75
$50,000 but less than $100,000 ........ 10.417 .417 4.00 .417 4.00
$100,000 but less than $250,000 ........ 10.309 .309 3.00 .309 3.00
$250,000 but less than $1,000,000 10.204 10.204 .204 2.00 .204 2.00
$1,000,000 and over** .................. 10.000 .000 0.00 .000 0.00
</TABLE>
- ------------------
* Rounded to the nearest one-hundredth percent.
** Initial sales charges may be waived for certain classes of offers as set
forth in the Prospectus and Statement of Additional Information of the Fund.
Such purchases may be subject to a contingent deferred sales charge as set forth
in the Prospectus and Statement of Additional Information.
The proceeds per Class A Share to the Fund from the sale of all shares sold
during the subscription period will be $10.00.
The term "purchase" refers to a single purchase by an individual, or to
concurrent purchases, which in the aggregate are at least equal to the
prescribed amounts, by an individual, his spouse and their children under the
age of 21 years purchasing Class A Shares for his or their own account and to
single purchases by a trustee or other fiduciary purchasing Class A Shares for a
single trust estate or single fiduciary account although more than one
beneficiary is involved. The term "purchase" also includes purchases by any
"company" as that term is defined in the Investment Company Act, but does not
include purchases by any such company that has not been in existence for at
least six months or has no purpose other than the purchase of Class A Shares or
shares of the registered investment companies at a discount; provided, however,
that it shall not include purchases by any group of individuals whose sole
organizational nexus is that the participants therein are credit cardholders of
a company, policyholders of an insurance company, customers of either a bank or
broker-dealer or clients of an investment adviser.
The reduced sales charges are applicable through a right of accumulation
under which certain eligible investors are permitted to purchase Class A Shares
at the offering price applicable to the total of (a) the dollar amount then
being purchased plus (b) an amount equal to the then current net asset value or
cost, whichever is higher, of the purchaser's combined holdings of the Class I,
Class A, Class B and Class C shares of the Fund and of any other series of the
2
<PAGE> 18
Corporation (each, a "Mercury Fund"). For any such right of accumulation to be
made available, the Distributor must be provided at the time of purchase, by the
purchaser or you, with sufficient information to permit confirmation of
qualification, and acceptance of the purchase order is subject to such
confirmation.
The reduced sales charges are applicable to purchases aggregating $25,000
or more of Class I shares or of Class A shares or of shares of any other Mercury
Fund made through you within a thirteen-month period starting with the first
purchase pursuant to a Letter of Intent in the form provided in the Prospectus.
A purchase not originally made pursuant to a Letter of Intent may be included
under a subsequent letter executed within 90 days of such purchase if the
Distributor is informed in writing of this intent within such 90-day period. If
the intended amount of shares is not purchased within the thirteen-month period,
an appropriate price adjustment will be made pursuant to the terms of the Letter
of Intent.
You agree to advise us promptly at our request as to amounts of any sales
made by you to eligible investors qualifying for reduced sales charges. Further
information as to the reduced sales charges pursuant to the right of
accumulation or a Letter of Intent is set forth in the Prospectus and Statement
of Additional Information.
4. You shall not place orders for any of the Class A Shares unless you
have already received purchase orders for such Class A Shares at the applicable
public offering prices and subject to the terms hereof and of the Distribution
Agreement. All orders are subject to acceptance by the Distributor or the
Corporation in the sole discretion of either. The minimum initial and subsequent
purchase requirements are as set forth in the Prospectus, as amended from time
to time. You agree that you will not offer or sell any of the Class A Shares
except under circumstances that will result in compliance with the applicable
Federal and state securities laws and that in connection with sales and offers
to sell Class A Shares you will furnish to each person to whom any such sale or
offer is made a copy of the Prospectus and, if requested, the Statement of
Additional Information (as then amended or supplemented) within three business
days of receipt of request and will not furnish to any person any information
relating to the Class A Shares that is inconsistent in any respect with the
information contained in the Prospectus and Statement of Additional Information
(as then amended or supplemented) or cause any advertisement to be published in
any newspaper or posted in any public place without our consent and the consent
of the Corporation.
5. All Class A Shares purchased by Selected Dealers will be delivered in
the first instance at a settlement price computed on the basis of all sales
having been made in a purchase (as such term is defined above) involving a
public offering price of less than $25,000. All sales to you will be deemed to
have been made in such a transaction unless within 30 days after the Closing
Date you furnish to us, on forms supplied by us for the purpose, a statement
acceptable to us setting forth sales in purchases involving a public offering
price of $25,000 or more, in which case we will compute such Selected Dealers'
concessions on the basis of the information set forth in such statement.
3
<PAGE> 19
6. Payment for Class A Shares purchased by you is to be made by certified
or official bank check at the office of Mercury Funds Distributor, a division of
Princeton Funds Distributor, Inc., P.O. Box 9081, Princeton, New Jersey
08543-9081, on such date as we may advise, in New York Clearing House funds
payable to the order of Mercury Funds Distributor, a division of Princeton Funds
Distributor, Inc., or by federal funds wire transfer, against delivery by us of
non-negotiable share deposit receipts ("Receipts") issued by Financial Data
Services, Inc., as shareholder servicing agent, acknowledging the deposit with
it of the Class A Shares so purchased by you. You agree that as promptly as
practicable after the delivery of such Class A Shares you will issue appropriate
written transfer instructions to the Corporation or to the shareholder servicing
agent as to the purchasers to whom you sold the Class A Shares.
7. If any Class A Shares sold to you under the terms of this Agreement are
repurchased by the Corporation or by us for the account of the Corporation or
are tendered for redemption within seven business days after the Closing Date,
it is agreed that you shall forfeit your right to, and refund to us, any
discount received by you on such Class A Shares.
8. No person is authorized to make any representations concerning Class A
Shares except those contained in the current Prospectus and Statement of
Additional Information of the Fund and in such printed information subsequently
issued by us or the Fund as information supplemental to such Prospectus and
Statement of Additional Information. In purchasing Class A Shares through us you
shall rely solely on the representations contained in the Prospectus and
Statement of Additional Information and supplemental information above
mentioned. Any printed information that we furnish you other than the Fund's
Prospectus and Statement of Additional Information, periodic reports and proxy
solicitation material are our sole responsibility and not the responsibility of
the Corporation or the Fund, and you agree that the Corporation and the Fund
shall have no liability or responsibility to you in these respects unless
expressly assumed in connection therewith.
9. You agree to deliver to each of the purchasers making purchases from
you a copy of the then current Prospectus at or prior to the time of offering or
sale and, if requested, the Statement of Additional Information within three
business days of receipt of request, and you agree thereafter to deliver to such
purchasers copies of the annual and interim reports and proxy solicitation
materials of the Fund. You further agree to endeavor to obtain proxies from such
purchasers. Additional copies of the Prospectus and Statement of Additional
Information, annual or interim reports and proxy solicitation materials of the
Fund will be supplied to you in reasonable quantities upon request.
10. We reserve the right in our discretion, without notice, to suspend
sales or withdraw the offering of Class A Shares entirely. Each party hereto has
the right to cancel this Agreement upon notice to the other party.
11. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the subscription offering. We
shall be under no liability to
4
<PAGE> 20
you except for lack of good faith and for obligations expressly assumed by us
herein. Nothing contained in this paragraph is intended to operate as, and the
provisions of this paragraph shall not in any way whatsoever constitute, a
waiver by you of compliance with any provision of the Securities Act, or of the
rules and regulations of the Securities and Exchange Commission issued
thereunder.
12. You represent that you are a member of the National Association of
Securities Dealers, Inc. and, with respect to any sales in the United States, we
both hereby agree to abide by the Conduct Rules of such Association.
13. Upon application to us, we will inform you as to the states in which
we believe the Class A Shares have been qualified for sale under, or are exempt
from the requirements of, the respective securities laws of such states, but we
assume no responsibility or obligation as to your right to sell Class A Shares
in any jurisdiction. We will file with the Department of State in New York a
Further State Notice with respect to the Class A Shares, if necessary.
14. All communications to us should be sent to the address below. Any
notice to you shall be duly given if mailed or telegraphed to you at the address
specified by you below.
15. You agree that you will not sell any Class A Shares to any account
over which you exercise discretionary authority.
5
<PAGE> 21
16. This Agreement shall terminate at the close of business on the Closing
Date, unless earlier terminated, provided, however, this Agreement shall
continue after termination for the purpose of Section 7 hereof and for the
purpose of settlement of accounts hereunder.
MERCURY FUNDS DISTRIBUTOR, a division of
PRINCETON FUNDS DISTRIBUTOR, INC.
By _______________________________________
Title:
Please return one signed copy of this Agreement to:
MERCURY FUNDS DISTRIBUTOR, a division of
PRINCETON FUNDS DISTRIBUTOR, INC.
P.O. Box 9081
Princeton, New Jersey 08543-9081
Accepted:
_________________________________________
(Authorized Signature)
Firm Name:_______________________________
By:______________________________________
Title:___________________________________
Address:_________________________________
_________________________________________
Date:____________________________________
6
<PAGE> 22
Exhibit B
MERCURY ASSET MANAGEMENT FUNDS, INC.
ON BEHALF OF ITS SERIES,
MERCURY GOLD AND MINING FUND
CLASS A SHARES OF COMMON STOCK
SELECTED DEALER AGREEMENT
Ladies and Gentlemen:
Mercury Funds Distributor, a division of Princeton Funds
Distributor, Inc. (the "Distributor") has an agreement with Mercury Asset
Management Funds, Inc., a Maryland corporation (the "Corporation"), on behalf of
its series, Mercury Gold and Mining Fund (the "Fund"), pursuant to which it acts
as the distributor for the sale of Class A shares of common stock of the Fund,
par value $0.0001 per share (herein referred to as "Class A Shares") and as such
has the right to distribute Class A Shares for resale. The Corporation is an
open-end investment company registered under the Investment Company Act of 1940,
as amended (the "Investment Company Act"), and the Class A Shares are registered
under the Securities Act of 1933, as amended (the "Securities Act"). You,
______________, have received a copy of the Class A Shares Distribution
Agreement (the "Distribution Agreement") between ourself and the Corporation and
reference is made herein to certain provisions of such Distribution Agreement.
The terms "Prospectus" and "Statement of Additional Information" used herein
refer to the prospectus and statement of additional information, respectively,
on file with the Securities and Exchange Commission (the "Commission") which is
part of the most recent effective registration statement pursuant to the
Securities Act. We offer to sell to you, as a member of the Selected Dealers
Group, Class A Shares upon the following terms and conditions:
1. In all sales of Class A Shares to the public, you shall act as dealer
for your own account and in no transaction shall you have any authority to act
as agent for the Corporation, the Fund, for us or for any other member of the
Selected Dealers Group, except in connection with the Merrill Lynch Mutual Fund
Adviser program and such other special programs as we from time to time agree,
in which case you shall have authority to offer and sell Class A Shares, as
agent for the Corporation, to participants in such program.
2. Orders received from you will be accepted through us only at the public
offering price applicable to each order, as set forth in the current Prospectus
and Statement of Additional Information of the Fund. The procedure relating to
the handling of orders shall be subject to Section 5 hereof and instructions
that we or the Corporation shall forward from time to time to you. All orders
are subject to acceptance or rejection by the Distributor or the Corporation in
the sole discretion of either. The minimum initial and subsequent purchase
requirements are as set forth in the current Prospectus and Statement of
Additional Information of the Fund.
<PAGE> 23
3. The sales charges for sales to eligible investors, computed as
percentages of the public offering price and the amount invested, and the
related discount to Selected Dealers are as follows:
<TABLE>
<CAPTION>
Discount to
Sales Charge as Sales Charge as Selected Dealers as
Percentage* of Percentage* of the Percentage of the
Amount of Purchase the Offering Price Net Amount Invested Offering Price
- ------------------ ------------------ ------------------- --------------
<S> <C> <C> <C>
Less than $25,000 ............... 5.25% 5.54% 5.00%
$25,000 but less than $50,000 .. 4.75 4.99 4.50
$50,000 but less than $100,000 .. 4.00 4.17 3.75
$100,000 but less than $250,000 . 3.00 3.09 2.75
$250,000 but less than $1,000,000 2.00 2.04 1.80
$1,000,000 and over** ........... 0.00 0.00 0.00
</TABLE>
- -------------------
* Rounded to the nearest one-hundredth percent.
** Initial sales charges will be waived for certain classes of offerees as set
forth in the current Prospectus and Statement of Additional Information of
the Fund. Such purchases may be subject to a contingent deferred sales charge
as set forth in the current Prospectus and Statement of Additional
Information.
The term "purchase" refers to a single purchase by an individual, or to
concurrent purchases, that in the aggregate are at least equal to the prescribed
amounts, by an individual, his spouse and their children under the age of 21
years purchasing Class A Shares for his or their own account and to single
purchases by a trustee or other fiduciary purchasing Class A Shares for a single
trust estate or single fiduciary account although more than one beneficiary is
involved. The term "purchase" also includes purchases by any "company" as that
term is defined in the Investment Company Act but does not include purchases by
any such company that has not been in existence for at least six months or has
no purpose other than the purchase of Class A Shares of the Fund or Class A
shares of other registered investment companies at a discount; provided,
however, that it shall not include purchases by any group of individuals whose
sole organizational nexus is that the participants therein are credit
cardholders of a company, policyholders of an insurance company, customers of
either a bank or broker-dealer or clients of an investment adviser.
The reduced sales charges are applicable through a right of accumulation
under which certain eligible investors are permitted to purchase Class A Shares
at the offering price applicable to the total of (a) the dollar amount then
being purchased plus (b) an amount equal to the then current net asset value or
cost, whichever is higher, of the purchaser's combined holdings of Class I,
Class A, Class B and Class C shares of the Fund and of any other series of the
Corporation (each, a "Mercury Fund"). For any such right of accumulation to be
made available, the Distributor must be provided at the time of purchase, by the
purchaser or you, with sufficient information to permit confirmation of
qualification, and acceptance of the purchase order is subject to such
confirmation.
The reduced sales charges are applicable to purchases aggregating $25,000
or more of Class I shares or of Class A shares of any other Mercury Fund made
through you within a thirteen-month
2
<PAGE> 24
period starting with the first purchase pursuant to a Letter of Intent in the
form provided in the Prospectus. A purchase not originally made pursuant to a
Letter of Intent may be included under a subsequent letter executed within 90
days of such purchase if the Distributor is informed in writing of this intent
within such 90-day period. If the intended amount of shares is not purchased
within the thirteen-month period, an appropriate price adjustment will be made
pursuant to the terms of the Letter of Intent.
You agree to advise us promptly at our request as to amounts of any sales
made by you to eligible investors qualifying for reduced sales charges. Further
information as to the reduced sales charges pursuant to the right of
accumulation or a Letter of Intent is set forth in the Prospectus and Statement
of Additional Information.
4. You shall not place orders for any of the Class A Shares unless you
have already received purchase orders for such Class A Shares at the applicable
public offering prices and subject to the terms hereof and of the Distribution
Agreement. You agree that you will not offer or sell any of the Class A Shares
except under circumstances that will result in compliance with the applicable
Federal and state securities laws and that in connection with sales and offers
to sell Class A Shares you will furnish to each person to whom any such sale or
offer is made a copy of the Prospectus and, if requested, the Statement of
Additional Information (as then amended or supplemented) within three business
days of receipt of request and will not furnish to any person any information
relating to the Class A Shares that is inconsistent in any respect with the
information contained in the Prospectus and Statement of Additional Information
(as then amended or supplemented) or cause any advertisement to be published in
any newspaper or posted in any public place without our consent and the consent
of the Corporation.
5. As a selected dealer, you are hereby authorized (i) to place orders
directly with the Corporation for Class A Shares to be resold by us to you
subject to the applicable terms and conditions governing the placement of orders
by us set forth in Section 3 of the Distribution Agreement and subject to the
compensation provisions of Section 3 hereof and (ii) to tender Class A Shares
directly to the Corporation or its agent for redemption subject to the
applicable terms and conditions set forth in Section 4 of the Distribution
Agreement.
6. You shall not withhold placing orders received from your customers so
as to profit yourself as a result of such withholding, e.g., by a change in the
"net asset value" from that used in determining the offering price to your
customers.
7. If any Class A Shares sold to you under the terms of this Agreement are
repurchased by the Corporation or by us for the account of the Corporation or
are tendered for redemption within seven business days after the date of the
confirmation of the original purchase by you, it is agreed that you shall
forfeit your right to, and refund to us, any discount received by you on such
Class A Shares.
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<PAGE> 25
8. No person is authorized to make any representations concerning Class A
Shares except those contained in the current Prospectus and Statement of
Additional Information of the Fund and in such printed information subsequently
issued by us or the Fund as information supplemental to such Prospectus and
Statement of Additional Information. In purchasing Class A Shares through us you
shall rely solely on the representations contained in the Prospectus and
Statement of Additional Information and supplemental information above
mentioned. Any printed information that we furnish you other than the Fund's
Prospectus, Statement of Additional Information, periodic reports and proxy
solicitation material is our sole responsibility and not the responsibility of
the Corporation or the Fund, and you agree that the Corporation and the Fund
shall have no liability or responsibility to you in these respects unless
expressly assumed in connection therewith.
9. You agree to deliver to each of the purchasers making purchases from
you a copy of the then current Prospectus at or prior to the time of offering or
sale and, if requested, the Statement of Additional Information within three
business days of receipt of request, and you agree thereafter to deliver to such
purchasers copies of the annual and interim reports and proxy solicitation
materials of the Fund. You further agree to endeavor to obtain proxies from such
purchasers. Additional copies of the Prospectus and Statement of Additional
Information, annual or interim reports and proxy solicitation materials of the
Fund will be supplied to you in reasonable quantities upon request.
10. We reserve the right in our discretion, without notice, to suspend
sales or withdraw the offering of Class A Shares entirely or to certain persons
or entities in a class or classes specified by us. Each party hereto has the
right to cancel this agreement upon notice to the other party.
11. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the continuous offering. We
shall be under no liability to you except for lack of good faith and for
obligations expressly assumed by us herein. Nothing contained in this paragraph
is intended to operate as, and the provisions of this paragraph shall not in any
way whatsoever constitute, a waiver by you of compliance with any provision of
the Securities Act, or of the rules and regulations of the Commission issued
thereunder.
12. You represent that you are a member of the National Association of
Securities Dealers, Inc. and, with respect to any sales in the United States, we
both hereby agree to abide by the Conduct Rules of such Association.
13. Upon application to us, we will inform you as to the states in which
we believe the Class A Shares have been qualified for sale under, or are exempt
from the requirements of, the respective securities laws of such states, but we
assume no responsibility or obligation as to your right to sell Class A Shares
in any jurisdiction. We will file with the Department of State in New York a
Further State Notice with respect to the Class A Shares, if necessary.
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<PAGE> 26
14. All communications to us should be sent to the address below. Any
notice to you shall be duly given if mailed or telegraphed to you at the address
specified by you below.
15. Your first order placed pursuant to this Agreement for the purchase of
Class A Shares will represent your acceptance of this Agreement.
MERCURY FUNDS DISTRIBUTOR, a division of
PRINCETON FUNDS DISTRIBUTOR, INC.
By: _______________________________________
Title:______________________________________
Please return one signed copy of this agreement to:
MERCURY FUNDS DISTRIBUTOR, a division of
PRINCETON FUNDS DISTRIBUTOR, INC.
P.O. Box 9081
Princeton, New Jersey 08543-9081
Accepted:
____________________________________________
(Authorized Signature)
Firm Name: _______________________________________
By: _______________________________________
Title: _______________________________________
Address: _______________________________________
_______________________________________
Date: _______________________________________
5
<PAGE> 1
Exhibit 5(c)
CLASS B SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of ______________, 1998 between MERCURY ASSET MANAGEMENT
FUNDS, INC., a Maryland corporation (the "Corporation"), on behalf of its series
Mercury Gold and Mining Fund (the "Fund") and MERCURY FUNDS DISTRIBUTOR, a
division of PRINCETON FUNDS DISTRIBUTOR, INC., a Delaware corporation (the
"Distributor").
W I T N E S S E T H :
WHEREAS, the Directors of the Corporation (the "Directors") are authorized
to establish separate series relating to separate portfolios of securities, each
of which may offer separate classes of shares of common stock, par value $0.0001
per share; and
WHEREAS, the Directors have established and designated the Fund as a
series of the Corporation, offering separate classes of shares of common stock,
as described above; and
WHEREAS, the Corporation is registered under the Investment Company Act of
1940, as amended (the "Investment Company Act"), as an open-end investment
company, and it is affirmatively in the interest of the Fund to offer its shares
for sale continuously; and
WHEREAS, the Distributor is a securities firm engaged in the business of
selling shares of investment companies either directly to purchasers or through
other securities dealers; and
WHEREAS, the Corporation and the Distributor wish to enter into an
agreement with each other with respect to the continuous offering of Class B
shares common stock in the Fund;
<PAGE> 2
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor. The Corporation hereby appoints
the Distributor as the Fund's principal underwriter and distributor to sell the
Class B shares of common stock in the Fund (sometimes herein referred to as
"Class B Shares") to the public and hereby agrees during the term of this
Agreement to sell the Class B Shares to the Distributor upon the terms and
conditions herein set forth.
Section 2. Exclusive Nature of Duties. The Distributor shall be the Fund's
exclusive representative to act as principal underwriter and distributor of the
Class B Shares, except that:
a. The Corporation may, upon written notice to the Distributor, from time
to time designate other principal underwriters and distributors of the Class B
Shares with respect to areas other than the United States as to which the
Distributor may have expressly waived in writing its right to act as such. If
such designation is deemed exclusive, the right of the Distributor under this
Agreement to sell the Class B Shares in the 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 rights granted to the Distributor to purchase Class B
Shares from the Fund shall not apply to Class B Shares issued in connection with
the merger or consolidation of any other investment company or personal holding
company with the Fund or the Fund's acquisition by purchase or otherwise of all
(or substantially all) the assets or the outstanding Class B shares of any such
company.
c. Such exclusive rights also shall not apply to Class B Shares issued by
the Fund pursuant to reinvestment of dividends or capital gains distributions.
2
<PAGE> 3
d. Such exclusive rights also shall not apply to Class B Shares issued by
the Fund pursuant to any conversion, exchange or reinstatement privilege
afforded redeeming shareholders or to any other Class B Shares as shall be
agreed between the Corporation and the Distributor from time to time.
Section 3. Purchase of Class B Shares from the Corporation.
a. Prior to the continuous offering of the Class B Shares, commencing on a
date agreed upon by the Corporation and the Distributor, it is contemplated that
the Distributor will solicit subscriptions for Class B Shares during a
subscription period which shall last for such period as may be agreed upon by
the parties hereto. The subscriptions will be payable within three business days
after the termination of the subscription period, at which time the Fund will
commence operations.
b. After the Fund commences operations, the Fund will commence an offering
of Class B Shares and thereafter the Distributor shall have the right to buy
from the Corporation the Class B Shares needed, but not more than the Class B
Shares needed (except for clerical errors in transmission) to fill unconditional
orders for Class B Shares placed with the Distributor by eligible investors or
securities dealers. Investors eligible to purchase Class B Shares shall be those
persons so identified in the currently effective prospectus and statement of
additional information of the Fund (the "prospectus" and "statement of
additional information," respectively) under the Securities Act of 1933, as
amended (the "Securities Act"), relating to the Class B Shares. The price that
the Distributor shall pay for the Class B Shares so purchased from the Fund
shall be the net asset value, determined as set forth in Section 3(d) hereof.
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<PAGE> 4
c. The Class B Shares are to be resold by the Distributor to investors at
net asset value, as set forth in Section 3(d) hereof, or to securities dealers
having agreements with the Distributor upon the terms and conditions set forth
in Section 7 hereof.
d. The net asset value of the Class B Shares shall be determined by the
Corporation or any agent of the Corporation in accordance with the method set
forth in the Fund's prospectus and statement of additional information and
guidelines established by the Directors.
e. The Corporation shall have the right to suspend the sale of Class B
Shares at times when redemption is suspended pursuant to the conditions set
forth in Section 4(b) hereof. The Corporation shall also have the right to
suspend the sale of Class B Shares if trading on the New York Stock Exchange
shall have been suspended, if a banking moratorium shall have been declared by
Federal or New York authorities, or if there shall have been some other event
that, in the judgment of the Corporation, makes it impracticable or inadvisable
to sell the Class B Shares.
f. The Corporation, or any agent of the Corporation designated in writing
by the Corporation, shall be promptly advised of all purchase orders for Class B
Shares received by the Distributor. Any order may be rejected by the
Corporation; provided, however, that the Corporation will not arbitrarily or
without reasonable cause refuse to accept or confirm orders for the purchase of
Class B Shares. The Corporation (or its agent) will confirm orders upon their
receipt, will make appropriate book entries and, upon receipt by the Corporation
(or its agent) of payment therefor, will deliver deposit receipts or
certificates for such Class B Shares pursuant to the instructions of the
Distributor. Payment shall be made to the Corporation in New York Clearing House
funds. The Distributor agrees to cause such payment and such instructions to be
delivered promptly to the Corporation (or its agent).
4
<PAGE> 5
Section 4. Repurchase or Redemption of Class B Shares by the Corporation.
a. Any of the outstanding Class B Shares may be tendered for redemption at
any time, and the Fund agrees to repurchase or redeem the Class B Shares so
tendered in accordance with its obligations as set forth in Article VI of the
Corporation's Articles of Incorporation, as amended from time to time, and in
accordance with the applicable provisions set forth in the prospectus and
statement of additional information relating to the Fund. The price to be paid
to redeem or repurchase the Class B Shares shall be equal to the net asset value
calculated in accordance with the provisions of Section 3(d) hereof, less any
contingent deferred sales charge ("CDSC"), redemption fee(s) or other charge(s),
if any, set forth in the prospectus and statement of additional information
relating to the Fund. All payments by the Fund hereunder shall be made in the
manner set forth below.
The Fund shall pay the total amount of the redemption price as defined in
the above paragraph pursuant to the instructions of the Distributor in New York
Clearing House funds on or before the seventh business day subsequent to its
having received the notice of redemption in proper form. The proceeds of any
redemption of Class B Shares shall be paid by the Fund as follows: (i) any
applicable CDSC shall be paid to the Distributor, and (ii) the balance shall be
paid to or for the account of the shareholder, in each case in accordance with
the applicable provisions of the prospectus and statement of additional
information.
b. Redemption of Class B Shares or payment may be suspended at times when
the New York Stock Exchange is closed, when trading on said Exchange is closed,
when trading on said Exchange is suspended, when trading on said Exchange is
restricted, when an emergency exists as a result of which disposal by the Fund
of securities owned by it is not reasonably practicable
5
<PAGE> 6
or it is not reasonably practicable for the Corporation fairly to determine the
value of the net assets of the Fund, or during any other period when the
Securities and Exchange Commission, by order, so permits.
Section 5. Duties of the Corporation.
a. The Corporation shall furnish to the Distributor copies of all
information, financial statements and other papers that the Distributor may
reasonably request for use in connection with the distribution of Class B
Shares, and this shall include, upon request by the Distributor, one certified
copy of all financial statements prepared for the Corporation by independent
public accountants. The Corporation shall make available to the Distributor such
number of copies of the Fund's prospectus and statement of additional
information as the Distributor shall reasonably request.
b. The Corporation shall take, from time to time, but subject to any
necessary approval of the Fund's Class B shareholders, all necessary action to
fix the number of authorized Class B Shares and such steps as may be necessary
to register the same under the Securities Act to the end that there will be
available for sale such number of Class B Shares as the Distributor reasonably
may be expected to sell.
c. The Corporation shall use its best efforts to qualify and maintain the
qualification of an appropriate number of Class B Shares for sale under the
securities laws of such states as the Distributor and the Corporation may
approve. Any such qualification may be withheld, terminated or withdrawn by the
Corporation at any time in its discretion. As provided in Section 8(c) hereof,
the expense of qualification and maintenance of qualification shall be borne by
the
6
<PAGE> 7
Fund. The Distributor shall furnish such information and other material relating
to its affairs and activities as may be required by the Corporation in
connection with such qualification.
d. The Corporation will furnish, in reasonable quantities upon request by
the Distributor, copies of the Fund's annual and interim reports.
Section 6. Duties of the Distributor.
a. The Distributor shall devote reasonable time and effort to effect sales
of Class B Shares but shall not be obligated to sell any specific number of
Class B Shares. The services of the Distributor to the Corporation hereunder are
not to be deemed exclusive and nothing herein contained shall prevent the
Distributor from entering into like arrangements with other investment companies
so long as the performance of its obligations hereunder is not impaired thereby.
b. In selling the Class B Shares, the Distributor shall use its best
efforts in all respects duly to conform with the requirements of all Federal and
state laws relating to the sale of such securities. Neither the Distributor nor
any selected dealer, as defined in Section 7 hereof, nor any other person is
authorized by Corporation to give any information or to make any
representations, other than those contained in the registration statement or
related prospectus and statement of additional information and any sales
literature specifically approved by the Corporation.
c. The Distributor shall adopt and follow procedures, as approved by the
officers of the Corporation, for the confirmation of sales to investors and
selected dealers, the collection of amounts payable by investors and selected
dealers on such sales, and the cancellation of unsettled transactions, as may be
necessary to comply with the requirements of the National
7
<PAGE> 8
Association of Securities Dealers, Inc. (the "NASD"), as such requirements may
from time to time exist.
Section 7. Selected Dealer Agreements.
a. The Distributor shall have the right to enter into selected dealer
agreements with securities dealers of its choice ("selected dealers") for the
sale of Class B Shares; provided, that the Corporation shall approve the forms
of agreements with dealers. Class B Shares sold to selected dealers shall be for
resale by such dealers only at net asset value determined as set forth in
Section 3(d) hereof. The form of agreement with selected dealers to be used
during the subscription period described in Section 3(a) is attached hereto as
Exhibit A and the form of agreement with selected dealers to be used in the
continuous offering of the Class B Shares is attached hereto as Exhibit B.
b. Within the United States, the Distributor shall offer and sell Class B
Shares only to such selected dealers as are members in good standing of the
NASD.
Section 8. Payment of Expenses.
a. The Fund shall bear all costs and expenses of the Fund, as incurred,
including fees and disbursements of the Fund's counsel and auditors, in
connection with the preparation and filing of any required registration
statements and/or prospectuses and statements of additional information under
the Investment Company Act, the Securities Act, and all amendments and
supplements thereto, and preparing and mailing annual and interim reports and
proxy materials to Class B shareholders (including but not limited to the
expense of setting in type any such registration statements, prospectuses,
statements of additional information, annual or interim reports or proxy
materials).
8
<PAGE> 9
b. The Distributor shall be responsible for any payments made to selected
dealers as reimbursement for their expenses associated with payments of sales
commissions to financial consultants. In addition, after the prospectuses,
statements of additional information and annual and interim reports have been
prepared and set in type, the Distributor shall bear the costs and expenses of
printing and distributing any copies thereof to be used in connection with the
offering of Class B Shares to selected dealers or investors pursuant to this
Agreement. The Distributor shall bear the costs and expenses of preparing,
printing and distributing any other literature used by the Distributor or
furnished by it for use by selected dealers in connection with the offering of
the Class B Shares for sale to the public and any expenses of advertising
incurred by the Distributor in connection with such offering. It is understood
and agreed that so long as the Fund's Class B Shares Distribution Plan pursuant
to Rule 12b-1 under the Investment Company Act remains in effect, any expenses
incurred by the Distributor hereunder may be paid from amounts recovered by it
from the Fund under such Plan.
c. The Fund shall bear the cost and expenses of qualification of the Class
B Shares for sale pursuant to this Agreement and, if necessary or advisable in
connection therewith, of qualifying the Corporation as a broker or dealer in
such states of the United States or other jurisdictions as shall be selected by
the Corporation and the Distributor pursuant to Section 5(c) hereof and the cost
and expenses payable to each such state for continuing qualification therein
until the Fund decides to discontinue such qualification pursuant to Section
5(c) hereof.
Section 9. Indemnification.
a. The Fund shall indemnify and hold harmless the Distributor and each
person, if any, who controls the Distributor against any loss, liability, claim,
damage or expense (including the
9
<PAGE> 10
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 Class B
Shares, which may be based upon the Securities Act, or on any other statute or
at common law, on the ground that the registration statement or related
prospectus and statement of additional information, as from time to time amended
and supplemented, or an annual or interim report to the Fund's Class B
shareholders, 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 Fund in
connection therewith by or on behalf of the Distributor; provided, however, that
in no case (i) is the indemnity of the Fund in favor of the Distributor and any
such controlling persons to be deemed to protect such Distributor or any such
controlling persons thereof against any liability to the Fund or its security
holders to which the Distributor or any such controlling persons would otherwise
be subject by reason of willful misfeasance, bad faith or gross negligence in
the performance of their duties or by reason of the reckless disregard of their
obligations and duties under this Agreement; or (ii) is the Fund to be liable
under its indemnity agreement contained in this paragraph with respect to any
claim made against the Distributor or any such controlling persons, unless the
Distributor or such controlling persons, as the case may be, shall have notified
the Fund 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 Distributor or such controlling persons (or after the
Distributor or such controlling persons shall have received notice of such
service on any designated agent), but failure to notify the Fund of any
10
<PAGE> 11
such claim shall not relieve it from any liability that it may have to the
person against whom such action is brought otherwise than on account of its
indemnity agreement contained in this paragraph. The Fund will be entitled to
participate at its own expense in the defense or, if it so elects, to assume the
defense of any suit brought to enforce any such liability, but if the Fund
elects to assume the defense, such defense shall be conducted by counsel chosen
by it and satisfactory to the Distributor or such controlling person or persons,
defendant or defendants in the suit. In the event the Fund elects to assume the
defense of any such suit and retain such counsel, the Distributor or such
controlling person or persons, defendant or defendants in the suit shall bear
the fees and expenses, as incurred, of any additional counsel retained by them,
but in case the Fund does not elect to assume the defense of any such suit, it
will reimburse the Distributor or such controlling person or persons, defendant
or defendants in the suit, for the reasonable fees and expenses, as incurred, of
any counsel retained by them. The Fund shall promptly notify the Distributor of
the commencement of any litigation or proceedings against it or any of its
officers or Directors in connection with the issuance or sale of any of the
Class B Shares.
b. The Distributor shall indemnify and hold harmless the Corporation and
each of its Directors and officers, the Fund, and each person, if any, who
controls the Corporation 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 Fund in writing by or
on behalf of the Distributor for use in connection with the registration
statement or related prospectus and statement of additional information, as from
time to time amended, or the annual
11
<PAGE> 12
or interim reports to Class B shareholders. In case any action shall be brought
against the Corporation or any person so indemnified, in respect of which
indemnity may be sought against the Distributor, the Distributor shall have the
rights and duties given to the Corporation, and the Corporation and each person
so indemnified shall have the rights and duties given to the Distributor by the
provisions of subsection (a) of this Section 9.
Section 10. Fee-Based Programs Offered by the Fund's Investment
Adviser or Its Affiliates. In connection with certain fee-based programs offered
by the Fund's investment adviser or its affiliates, the Distributor and its
affiliates are authorized to offer and sell shares of the Fund, as agent for the
Corporation, to participants in such program. The terms of this Agreement shall
apply to such sales, including terms as to the offering price of Class A Shares,
the proceeds to be paid to the Fund, the duties of the Distributor, the payment
of expenses and indemnification obligations of the Fund and the Distributor.
Section 11. 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 and thereafter, but only for so long as such continuance is
specifically approved at least annually by (i) the Directors or by the vote of a
majority of the outstanding Class B voting securities of the Fund and (ii) by
the vote of a majority of those Directors who are not parties to this Agreement
or interested persons of any such party cast in person at a meeting called for
the purpose of voting on such approval.
This Agreement may be terminated at any time, without the payment of any
penalty, by the Directors or by vote of a majority of the outstanding Class B
voting securities of the Fund, or
12
<PAGE> 13
by the Distributor, 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 12. Amendments of this Agreement. This Agreement may be amended by
the parties only if such amendment is specifically approved by (i) the Directors
or by the vote of a majority of outstanding Class B voting securities of the
Fund and (ii) by the vote of a majority of those Directors who are not parties
to this Agreement or interested persons of any such party cast in person at a
meeting called for the purpose of voting on such approval.
Section 13. 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.
13
<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
MERCURY ASSET MANAGEMENT FUNDS, INC.
on behalf of its series,
MERCURY GOLD AND MINING FUND
By_________________________________________
Title:
MERCURY FUNDS DISTRIBUTOR, a division of
PRINCETON FUNDS DISTRIBUTOR, INC.
By_________________________________________
Title:
14
<PAGE> 15
Exhibit A
MERCURY ASSET MANAGEMENT FUNDS, INC.
ON BEHALF OF ITS SERIES,
MERCURY GOLD AND MINING FUND
CLASS B SHARES OF COMMON STOCK
SELECTED DEALER AGREEMENT
FOR SUBSCRIPTION PERIOD
Ladies and Gentlemen:
Mercury Funds Distributor, a division of Princeton Funds
Distributor, Inc. (the "Distributor") has an agreement with Mercury Asset
Management Funds, Inc., a Maryland corporation (the "Corporation"), on behalf of
its series, Mercury Gold and Mining Fund (the "Fund") pursuant to which it acts
as the distributor for the sale of Class B shares of common stock of the Fund,
par value $0.0001 per share (herein referred to as "Class B Shares") and as such
has the right to distribute Class B Shares for resale. The Corporation is an
open-end investment company registered under the Investment Company Act of 1940,
as amended, and its Class B Shares being offered to the public are registered
under the Securities Act of 1933, as amended (the "Securities Act"). Class B
Shares and certain of the terms on which they are being offered are more fully
described in the enclosed Prospectus and Statement of Additional Information.
You, Merrill Lynch, Pierce, Fenner & Smith Incorporated, have received a copy of
the Class B Shares Distribution Agreement (the "Distribution Agreement") between
ourself and the Corporation and reference is made herein to certain provisions
of such Distribution Agreement. This Agreement relates solely to the
subscription period described in Section 3(a) of such Distribution Agreement.
Subject to the foregoing, as principal, we offer to sell to you, as a member of
the Selected Dealers Group, Class B Shares upon the following terms and
conditions:
1. The subscription period referred to in Section 3(a) of the Distribution
Agreement will continue through ___________, 19__. The subscription period may
be extended upon agreement between the Fund and the Distributor. Subject to the
provisions of such Section and the conditions contained herein, we will sell to
you on the third business day following the termination of the subscription
period, or such other date as we may advise (the "Closing Date"), such number of
Class B Shares as to which you have placed orders with us not later than 5:00
P.M. on the second full business day preceding the Closing Date.
2. In all sales of Class B Shares to the public you shall act as dealer
for your own account, and in no transaction shall you have any authority to act
as agent for the Corporation, the Fund, for us or for any other member of the
Selected Dealers Group, except in connection with the Merrill Lynch Mutual Fund
Adviser program and such other special programs as we
<PAGE> 16
from time to time agree, in which case you shall have authority to offer and
sell Class B Shares, as agent for the Corporation to participants in such
program.
3. You shall not place orders for any of the Class B Shares unless you
have already received purchase orders for such Class B Shares at the applicable
public offering prices and subject to the terms hereof and of the Distribution
Agreement. All orders are subject to acceptance by the Distributor or the
Corporation in the sole discretion of either. The minimum initial and subsequent
purchase requirements are as set forth in the Prospectus, as amended from time
to time. You agree that you will not offer or sell any of the Class B Shares
except under circumstances that will result in compliance with the applicable
Federal and state securities laws and that in connection with sales and offers
to sell Class B Shares you will furnish to each person to whom any such sale or
offer is made a copy of the Prospectus and, if requested, the Statement of
Additional Information (as then amended or supplemented) within three business
days of receipt of request and will not furnish to any person any information
relating to the Class B Shares that is inconsistent in any respect with the
information contained in the Prospectus and Statement of Additional Information
(as then amended or supplemented) or cause any advertisement to be published in
any newspaper or posted in any public place without our consent and the consent
of the Corporation.
4. Payment for Class B Shares purchased by you is to be made by certified
or official bank check at the office of Mercury Funds Distributor, a division of
Princeton Funds Distributor, Inc., P.O. Box 9081, Princeton, New Jersey
08543-9081, on such date as we may advise, in New York Clearing House funds
payable to the order of Mercury Funds Distributor, a division of Princeton Funds
Distributor, Inc., or by federal funds wire transfer, against delivery by us of
non-negotiable share deposit receipts ("Receipts") issued by Financial Data
Services, Inc., as shareholder servicing agent, acknowledging the deposit with
it of the Class B Shares so purchased by you. You agree that as promptly as
practicable after the delivery of such Class B Shares you will issue appropriate
written transfer instructions to the Corporation or to the shareholder servicing
agent as to the purchasers to whom you sold the Class B Shares.
5. No person is authorized to make any representations concerning Class B
Shares except those contained in the current Prospectus and Statement of
Additional Information of the Fund and in such printed information subsequently
issued by us or the Fund as information supplemental to such Prospectus and
Statement of Additional Information. In purchasing Class B Shares through us you
shall rely solely on the representations contained in the Prospectus and
Statement of Additional Information and supplemental information above
mentioned. Any printed information that we furnish you other than the Fund's
Prospectus and Statement of Additional Information, periodic reports and proxy
solicitation material are our sole responsibility and not the responsibility of
the Corporation or the Fund, and you agree that the Corporation and the Fund
shall have no liability or responsibility to you in these respects unless
expressly assumed in connection therewith.
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<PAGE> 17
6. You agree to deliver to each of the purchasers making purchases from
you a copy of the then current Prospectus at or prior to the time of offering or
sale and, if requested, the Statement of Additional Information within three
business days of receipt of request, and you agree thereafter to deliver to such
purchasers copies of the annual and interim reports and proxy solicitation
materials of the Fund. You further agree to endeavor to obtain proxies from such
purchasers. Additional copies of the Prospectus and Statement of Additional
Information, annual or interim reports and proxy solicitation materials of the
Fund will be supplied to you in reasonable quantities upon request.
7. We reserve the right in our discretion, without notice, to suspend
sales or withdraw the offering of Class B Shares entirely. Each party hereto has
the right to cancel this Agreement upon notice to the other party.
8. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the subscription offering. We
shall be under no liability to you except for lack of good faith and for
obligations expressly assumed by us herein. Nothing contained in this paragraph
is intended to operate as, and the provisions of this paragraph shall not in any
way whatsoever constitute, a waiver by you of compliance with any provision of
the Securities Act, or of the rules and regulations of the Securities and
Exchange Commission issued thereunder.
9. You represent that you are a member of the National Association of
Securities Dealers, Inc. and, with respect to any sales in the United States, we
both hereby agree to abide by the Conduct Rules of such Association.
10. Upon application to us, we will inform you as to the states in which
we believe the Class B Shares have been qualified for sale under, or are exempt
from the requirements of, the respective securities laws of such states, but we
assume no responsibility or obligation as to your right to sell Class B Shares
in any jurisdiction. We will file with the Department of State in New York a
Further State Notice with respect to the Class B Shares, if necessary.
11. All communications to us should be sent to the address below. Any
notice to you shall be duly given if mailed or telegraphed to you at the address
specified by you below.
12. You agree that you will not sell any Class B Shares to any account
over which you exercise discretionary authority.
3
<PAGE> 18
13. This Agreement shall terminate at the close of business on the Closing
Date, unless earlier terminated, provided, however, this Agreement shall
continue after termination for the purpose of settlement of accounts hereunder.
MERCURY FUNDS DISTRIBUTOR, a division of
PRINCETON FUNDS DISTRIBUTOR, INC.
By _______________________________________
Title:
Please return one signed copy of this Agreement to:
MERCURY FUNDS DISTRIBUTOR, a division of
PRINCETON FUNDS DISTRIBUTOR, INC.
P.O. Box 9081
Princeton New Jersey 08543-9081
Accepted:
_____________________________________________
(Authorized Signature)
Firm Name:___________________________________
By:__________________________________________
Title:_______________________________________
Address:_____________________________________
_____________________________________________
Date:________________________________________
4
<PAGE> 19
Exhibit B
MERCURY ASSET MANAGEMENT FUNDS, INC.
ON BEHALF OF ITS SERIES,
THE MERCURY GOLD AND MINING FUND
CLASS B SHARES OF COMMON STOCK
SELECTED DEALER AGREEMENT
Ladies and Gentlemen:
Mercury Funds Distributor, a division of Princeton Funds
Distributor, Inc. (the "Distributor") has an agreement with Mercury Asset
Management Funds, Inc., a Maryland corporation (the "Corporation"), on behalf of
its series, Mercury Gold and Mining Fund (the "Fund"), pursuant to which it acts
as the distributor for the sale of Class B shares of common stock of the Fund,
par value $0.0001 per share (herein referred to as "Class B Shares") and as such
has the right to distribute Class B Shares for resale. The Corporation is an
open-end investment company registered under the Investment Company Act of 1940,
as amended, and the Class B Shares are registered under the Securities Act of
1933, as amended (the "Securities Act"). You,____________________________, have
received a copy of the Class B Shares Distribution Agreement (the "Distribution
Agreement") between ourself and the Corporation and reference is made herein to
certain provisions of such Distribution Agreement. The terms "Prospectus" and
"Statement of Additional Information" as used herein refer to the prospectus and
statement of additional information, respectively, on file with the Securities
and Exchange Commission (the "Commission") which is part of the most recent
effective registration statement pursuant to the Securities Act. We offer to
sell to you, as a member of the Selected Dealers Group, Class B Shares upon the
following terms and conditions:
1. In all sales of Class B Shares to the public you shall act as dealer
for your own account, and in no transaction shall you have any authority to act
as agent for the Corporation, the Fund, for us or for any other member of the
Selected Dealers Group, except in connection with the Merrill Lynch Mutual Fund
Adviser program and such other special programs as we from time to time agree,
in which case you shall have authority to offer and sell Class B Shares, as
agent for the Corporation, to participants in such program.
2. Orders received from you will be accepted through us only at the public
offering price applicable to each order, as set forth in the current Prospectus
and Statement of Additional Information of the Fund. The procedure relating to
the handling of orders shall be subject to Section 4 hereof and instructions
that we or the Corporation shall forward from time to time to you. All orders
are subject to acceptance or rejection by the Distributor or the Corporation in
the sole discretion of either. The minimum initial and subsequent purchase
requirements are as set forth in the current Prospectus and Statement of
Additional Information of the Fund.
<PAGE> 20
3. You shall not place orders for any of the Class B Shares unless you
have already received purchase orders for such Class B Shares at the applicable
public offering prices and subject to the terms hereof and of the Distribution
Agreement. You agree that you will not offer or sell any of the Class B Shares
except under circumstances that will result in compliance with the applicable
Federal and state securities laws and that in connection with sales and offers
to sell Class B Shares you will furnish to each person to whom any such sale or
offer is made a copy of the Prospectus and, if requested, the Statement of
Additional Information (as then amended or supplemented) within three business
days of receipt of request and will not furnish to any person any information
relating to the Class B Shares that is inconsistent in any respect with the
information contained in the Prospectus and Statement of Additional Information
(as then amended or supplemented) or cause any advertisement to be published in
any newspaper or posted in any public place without our consent and the consent
of the Corporation.
4. As a selected dealer, you are hereby authorized (i) to place orders
directly with the Corporation for Class B Shares to be resold by us to you
subject to the applicable terms and conditions governing the placement of orders
by us set forth in Section 3 of the Distribution Agreement, and (ii) to tender
Class B Shares directly to the Corporation or its agent for redemption subject
to the applicable terms and conditions set forth in Section 4 of the
Distribution Agreement.
5. You shall not withhold placing orders received from your customers so
as to profit yourself as a result of such withholding, e.g., by a change in the
"net asset value" from that used in determining the offering price to your
customers.
6. No person is authorized to make any representations concerning Class B
Shares except those contained in the current Prospectus and Statement of
Additional Information of the Fund and in such printed information subsequently
issued by us or the Fund as information supplemental to such Prospectus and
Statement of Additional Information. In purchasing Class B Shares through us you
shall rely solely on the representations contained in the Prospectus and
Statement of Additional Information and supplemental information above
mentioned. Any printed information that we furnish you other than the Fund's
Prospectus, Statement of Additional Information, periodic reports and proxy
solicitation material are our sole responsibility and not the responsibility of
the Corporation or the Fund, and you agree that the Corporation and the Fund
shall have no liability or responsibility to you in these respects unless
expressly assumed in connection therewith.
7. You agree to deliver to each of the purchasers making purchases from
you a copy of the then current Prospectus at or prior to the time of offering or
sale and, if requested, the Statement of Additional Information within three
business days of receipt of request, and you agree thereafter to deliver to such
purchasers copies of the annual and interim reports and proxy solicitation
materials of the Fund. You further agree to endeavor to obtain proxies from such
purchasers. Additional copies of the Prospectus and Statement of Additional
Information, annual
2
<PAGE> 21
or interim reports and proxy solicitation materials of the Fund will be supplied
to you in reasonable quantities upon request.
8. We reserve the right in our discretion, without notice, to suspend
sales or withdraw the offering of Class B Shares entirely or to certain persons
or entities in a class or classes specified by us. Each party hereto has the
right to cancel this Agreement upon notice to the other party.
9. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the continuous offering. We
shall be under no liability to you except for lack of good faith and for
obligations expressly assumed by us herein. Nothing contained in this paragraph
is intended to operate as, and the provisions of this paragraph shall not in any
way whatsoever constitute, a waiver by you of compliance with any provision of
the Securities Act, or of the rules and regulations of the Commission issued
thereunder.
10. You represent that you are a member of the National Association of
Securities Dealers, Inc. and, with respect to any sales in the United States, we
both hereby agree to abide by the Conduct Rules of such Association.
11. Upon application to us, we will inform you as to the states in which
we believe the Class B Shares have been qualified for sale under, or are exempt
from the requirements of, the respective securities laws of such states, but we
assume no responsibility or obligation as to your right to sell Class B Shares
in any jurisdiction. We will file with the Department of State in New York a
Further State Notice with respect to the Class B Shares, if necessary.
12. All communications to us should be sent to the address below. Any
notice to you shall be duly given if mailed or telegraphed to you at the address
specified by you below.
3
<PAGE> 22
13. Your first order placed pursuant to this Agreement for the purchase of
Class B Shares will represent your acceptance of this Agreement.
MERCURY FUNDS DISTRIBUTOR, a division of
PRINCETON FUNDS DISTRIBUTOR, INC.
By:_______________________________________
Title:____________________________________
Please return one signed copy of this Agreement to:
MERCURY FUNDS DISTRIBUTOR, a division of
PRINCETON FUNDS DISTRIBUTOR, INC.
P.O. Box 9081
Princeton, New Jersey 08543-9081
Accepted:
______________________________________
(Authorized Signature)
Firm Name:______________________________________
By:_____________________________________________
Title:__________________________________________
Address:________________________________________
________________________________________________
Date:___________________________________________
4
<PAGE> 1
Exhibit 5(d)
CLASS C SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of ________________, 1998 between MERCURY ASSET
MANAGEMENT FUNDS, INC., a Maryland corporation (the "Corporation"), on behalf of
its series Mercury Gold and Mining Fund (the "Fund") and MERCURY FUNDS
DISTRIBUTOR, a division of PRINCETON FUNDS DISTRIBUTOR, INC., a Delaware
corporation (the "Distributor").
W I T N E S S E T H :
WHEREAS, the Directors of the Corporation (the "Directors") are authorized
to establish separate series relating to separate portfolios of securities, each
of which may offer separate classes of shares of common stock, par value $0.0001
per share; and
WHEREAS, the Directors have established and designated the Fund as a
series of the Corporation, offering separate classes of shares of common stock,
as described above; and
WHEREAS, the Corporation is registered under the Investment Company Act of
1940, as amended (the "Investment Company Act"), as an open-end investment
company, and it is affirmatively in the interest of the Fund to offer its shares
for sale continuously; and
WHEREAS, the Distributor is a securities firm engaged in the business of
selling shares of investment companies either directly to purchasers or through
other securities dealers; and
WHEREAS, the Corporation and the Distributor wish to enter into an
agreement with each other with respect to the continuous offering of Class C
shares of common stock in the Fund;
<PAGE> 2
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor. The Corporation hereby appoints
the Distributor as the Fund's principal underwriter and distributor to sell the
Class C shares of common stock in the Fund (sometimes herein referred to as
"Class C Shares") to the public and hereby agrees during the term of this
Agreement to sell Class C Shares to the Distributor upon the terms and
conditions herein set forth.
Section 2. Exclusive Nature of Duties. The Distributor shall be the Fund's
exclusive representative to act as principal underwriter and distributor of the
Class C Shares, except that:
a. The Corporation may, upon written notice to the Distributor, from time
to time designate other principal underwriters and distributors of the Class C
Shares with respect to areas other than the United States as to which the
Distributor may have expressly waived in writing its right to act as such. If
such designation is deemed exclusive, the right of the Distributor under this
Agreement to sell the Class C Shares in the 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 rights granted to the Distributor to purchase Class C
Shares from the Fund shall not apply to Class C Shares issued in connection with
the merger or consolidation of any other investment company or personal holding
company with the Fund or the Fund's acquisition by purchase or otherwise of all
(or substantially all) the assets or the outstanding Class C shares of any such
company.
c. Such exclusive rights also shall not apply to Class C Shares issued by
the Fund pursuant to reinvestment of dividends or capital gains distributions.
2
<PAGE> 3
d. Such exclusive rights also shall not apply to Class C Shares issued by
the Fund pursuant to any conversion, exchange or reinstatement privilege
afforded redeeming shareholders or to any other Class C Shares as shall be
agreed between the Corporation and the Distributor from time to time.
Section 3. Purchase of Class C Shares from the Corporation.
a. Prior to the continuous offering of the Class C Shares, commencing on a
date agreed upon by the Corporation and the Distributor, it is contemplated that
the Distributor will solicit subscriptions for Class C Shares during a
subscription period which shall last for such period as may be agreed upon by
the parties hereto. The subscriptions will be payable within three business days
after the termination of the subscription period, at which time the Fund will
commence operations.
b. After the Fund commences operations, the Fund will commence an offering
of Class C Shares and thereafter the Distributor shall have the right to buy
from the Corporation the Class C Shares needed, but not more than the Class C
Shares needed (except for clerical errors in transmission) to fill unconditional
orders for Class C Shares placed with the Distributor by eligible investors or
securities dealers. Investors eligible to purchase Class C Shares shall be those
persons so identified in the currently effective prospectus and statement of
additional information of the Fund (the "prospectus" and "statement of
additional information," respectively) under the Securities Act of 1933, as
amended (the "Securities Act"), relating to the Class C Shares. The price that
the Distributor shall pay for the Class C Shares so purchased from the Fund
shall be the net asset value, determined as set forth in Section 3(d) hereof.
3
<PAGE> 4
c. The Class C Shares are to be resold by the Distributor to investors at
net asset value, as set forth in Section 3(d) hereof, or to securities dealers
having agreements with the Distributor upon the terms and conditions set forth
in Section 7 hereof.
d. The net asset value of the Class C Shares shall be determined by the
Corporation or any agent of the Corporation in accordance with the method set
forth in the Fund's prospectus and statement of additional information and
guidelines established by the Directors.
e. The Corporation shall have the right to suspend the sale of Class C
Shares at times when redemption is suspended pursuant to the conditions set
forth in Section 4(b) hereof. The Corporation shall also have the right to
suspend the sale of Class C Shares if trading on the New York Stock Exchange
shall have been suspended, if a banking moratorium shall have been declared by
Federal or New York authorities, or if there shall have been some other event
that, in the judgment of the Corporation, makes it impracticable or inadvisable
to sell the Class C Shares.
f. The Corporation, or any agent of the Corporation designated in writing
by the Corporation, shall be promptly advised of all purchase orders for Class C
Shares received by the Distributor. Any order may be rejected by the
Corporation; provided, however, that the Corporation will not arbitrarily or
without reasonable cause refuse to accept or confirm orders for the purchase of
Class C Shares. The Corporation (or its agent) will confirm orders upon their
receipt, will make appropriate book entries and, upon receipt by the Corporation
(or its agent) of payment therefor, will deliver deposit receipts or
certificates for such Class C Shares pursuant to the instructions of the
Distributor. Payment shall be made to the Corporation in New York Clearing House
funds. The Distributor agrees to cause such payment and such instructions to be
delivered promptly to the Corporation (or its agent).
4
<PAGE> 5
Section 4. Repurchase or Redemption of Class C Shares by the Corporation.
a. Any of the outstanding Class C Shares may be tendered for redemption at
any time, and the Fund agrees to repurchase or redeem the Class C Shares so
tendered in accordance with its obligations as set forth in Article VI of the
Corporation's Articles of Incorporation, as amended from time to time, and in
accordance with the applicable provisions set forth in the prospectus and
statement of additional information relating to the Fund. The price to be paid
to redeem or repurchase the Class C Shares shall be equal to the net asset value
calculated in accordance with the provisions of Section 3(d) hereof, less any
contingent deferred sales charge ("CDSC"), redemption fee or other charge(s), if
any, set forth in the prospectus and statement of additional information
relating to the Fund. All payments by the Fund hereunder shall be made in the
manner set forth below.
The Fund shall pay the total amount of the redemption price as defined in
the above paragraph pursuant to the instructions of the Distributor in New York
Clearing House funds on or before the seventh business day subsequent to its
having received the notice of redemption in proper form. The proceeds of any
redemption of Class C Shares shall be paid by the Fund as follows: (i) any
applicable CDSC shall be paid to the Distributor, and (ii) the balance shall be
paid to or for the account of the shareholder, in each case in accordance with
the applicable provisions of the prospectus and statement of additional
information.
b. Redemption of Class C Shares or payment may be suspended at times when
the New York Stock Exchange is closed, when trading on said Exchange is closed,
when trading on said Exchange is suspended, when trading on said Exchange is
restricted, when an emergency exists as a result of which disposal by the Fund
of securities owned by it is not reasonably practicable
5
<PAGE> 6
or it is not reasonably practicable for the Corporation fairly to determine the
value of the net assets of the Fund, or during any other period when the
Securities and Exchange Commission, by order, so permits.
Section 5. Duties of the Corporation.
a. The Corporation shall furnish to the Distributor copies of all
information, financial statements and other papers that the Distributor may
reasonably request for use in connection with the distribution of Class C
Shares, and this shall include, upon request by the Distributor, one certified
copy of all financial statements prepared for the Corporation by independent
public accountants. The Corporation shall make available to the Distributor such
number of copies of the Fund's prospectus and statement of additional
information as the Distributor shall reasonably request.
b. The Corporation shall take, from time to time, but subject to any
necessary approval of the Fund's Class C shareholders, all necessary action to
fix the number of authorized Class C Shares and such steps as may be necessary
to register the same under the Securities Act to the end that there will be
available for sale such number of Class C Shares as the Distributor reasonably
may be expected to sell.
c. The Corporation shall use its best efforts to qualify and maintain the
qualification of an appropriate number of the Class C Shares for sale under the
securities laws of such states as the Distributor and the Corporation may
approve. Any such qualification may be withheld, terminated or withdrawn by the
Corporation at any time in its discretion. As provided in Section 8(c) hereof,
the expense of qualification and maintenance of qualification shall be borne by
the
6
<PAGE> 7
Fund. The Distributor shall furnish such information and other material relating
to its affairs and activities as may be required by the Corporation in
connection with such qualification.
d. The Corporation will furnish, in reasonable quantities upon request by
the Distributor, copies of the Fund's annual and interim reports.
Section 6. Duties of the Distributor.
a. The Distributor shall devote reasonable time and effort to effect sales
of Class C Shares but shall not be obligated to sell any specific number of
Class C Shares. The services of the Distributor to the Corporation hereunder are
not to be deemed exclusive and nothing herein contained shall prevent the
Distributor from entering into like arrangements with other investment companies
so long as the performance of its obligations hereunder is not impaired thereby.
b. In selling the Class C Shares, the Distributor shall use its best
efforts in all respects duly to conform with the requirements of all Federal and
state laws relating to the sale of such securities. Neither the Distributor nor
any selected dealer, as defined in Section 7 hereof, nor any other person is
authorized by Corporation to give any information or to make any
representations, other than those contained in the registration statement or
related prospectus and statement of additional information and any sales
literature specifically approved by the Corporation.
c. The Distributor shall adopt and follow procedures, as approved by the
officers of the Corporation, for the confirmation of sales to investors and
selected dealers, the collection of amounts payable by investors and selected
dealers on such sales, and the cancellation of unsettled transactions, as may be
necessary to comply with the requirements of the National
7
<PAGE> 8
Association of Securities Dealers, Inc. (the "NASD"), as such requirements may
from time to time exist.
Section 7. Selected Dealer Agreements.
a. The Distributor shall have the right to enter into selected dealer
agreements with securities dealers of its choice ("selected dealers") for the
sale of Class C Shares; provided, that the Corporation shall approve the forms
of agreements with dealers. Class C Shares sold to selected dealers shall be for
resale by such dealers only at net asset value determined as set forth in
Section 3(d) hereof. The form of agreement with selected dealers to be used
during the subscription period described in Section 3(a) is attached hereto as
Exhibit A and the form of agreement with selected dealers to be used in the
continuous offering of the Class C Shares is attached hereto as Exhibit B.
b. Within the United States, the Distributor shall offer and sell Class C
Shares only to such selected dealers as are members in good standing of the
NASD.
Section 8. Payment of Expenses.
a. The Fund shall bear all costs and expenses of the Fund, as incurred,
including fees and disbursements of its counsel and auditors, in connection with
the preparation and filing of any required registration statements and/or
prospectuses and statements of additional information under the Investment
Company Act, the Securities Act, and all amendments and supplements thereto, and
preparing and mailing annual and interim reports and proxy materials to Class C
shareholders (including but not limited to the expense of setting in type any
such registration statements, prospectuses, statements of additional
information, annual or interim reports or proxy materials).
8
<PAGE> 9
b. The Distributor shall be responsible for any payments made to selected
dealers as reimbursement for their expenses associated with payments of sales
commissions to financial consultants. In addition, after the prospectuses,
statements of additional information and annual and interim reports have been
prepared and set in type, the Distributor shall bear the costs and expenses of
printing and distributing any copies thereof to be used in connection with the
offering of Class C Shares to selected dealers or investors pursuant to this
Agreement. The Distributor shall bear the costs and expenses of preparing,
printing and distributing any other literature used by the Distributor or
furnished by it for use by selected dealers in connection with the offering of
the Class C Shares for sale to the public and any expenses of advertising
incurred by the Distributor in connection with such offering. It is understood
and agreed that so long as the Fund's Class C Shares Distribution Plan pursuant
to Rule 12b-1 under the Investment Company Act remains in effect, any expenses
incurred by the Distributor hereunder may be paid from amounts recovered by it
from the Fund under such Plan.
c. The Fund shall bear the cost and expenses of qualification of the Class
C Shares for sale pursuant to this Agreement and, if necessary or advisable in
connection therewith, of qualifying the Corporation as a broker or dealer in
such states of the United States or other jurisdictions as shall be selected by
the Corporation and the Distributor pursuant to Section 5(c) hereof and the cost
and expenses payable to each such state for continuing qualification therein
until the Fund decides to discontinue such qualification pursuant to Section
5(c) hereof.
Section 9. Indemnification.
a. The Fund shall indemnify and hold harmless the Distributor and each
person, if any, who controls the Distributor against any loss, liability, claim,
damage or expense (including the
9
<PAGE> 10
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 Class C
Shares, which may be based upon the Securities Act, or on any other statute or
at common law, on the ground that the registration statement or related
prospectus and statement of additional information, as from time to time amended
and supplemented, or an annual or interim report to the Fund's Class C
shareholders, 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 Fund in
connection therewith by or on behalf of the Distributor; provided, however, that
in no case (i) is the indemnity of the Fund in favor of the Distributor and any
such controlling persons to be deemed to protect such Distributor or any such
controlling persons thereof against any liability to the Fund or its security
holders to which the Distributor or any such controlling persons would otherwise
be subject by reason of willful misfeasance, bad faith or gross negligence in
the performance of their duties or by reason of the reckless disregard of their
obligations and duties under this Agreement; or (ii) is the Fund to be liable
under its indemnity agreement contained in this paragraph with respect to any
claim made against the Distributor or any such controlling persons, unless the
Distributor or such controlling persons, as the case may be, shall have notified
the Fund 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 Distributor or such controlling persons (or after the
Distributor or such controlling persons shall have received notice of such
service on any designated agent), but failure to notify the Fund of any
10
<PAGE> 11
such claim shall not relieve it from any liability that it may have to the
person against whom such action is brought otherwise than on account of its
indemnity agreement contained in this paragraph. The Fund will be entitled to
participate at its own expense in the defense or, if it so elects, to assume the
defense of any suit brought to enforce any such liability, but if the Fund
elects to assume the defense, such defense shall be conducted by counsel chosen
by it and satisfactory to the Distributor or such controlling person or persons,
defendant or defendants in the suit. In the event the Fund elects to assume the
defense of any such suit and retain such counsel, the Distributor or such
controlling person or persons, defendant or defendants in the suit shall bear
the fees and expenses, as incurred, of any additional counsel retained by them,
but in case the Fund does not elect to assume the defense of any such suit, it
will reimburse the Distributor or such controlling person or persons, defendant
or defendants in the suit, for the reasonable fees and expenses, as incurred, of
any counsel retained by them. The Fund shall promptly notify the Distributor of
the commencement of any litigation or proceedings against it or any of its
officers or Directors in connection with the issuance or sale of any of the
Class C Shares.
b. The Distributor shall indemnify and hold harmless the Corporation and
each of its Directors and officers, the Fund, and each person, if any, who
controls the Corporation 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 Fund in writing by or
on behalf of the Distributor for use in connection with the registration
statement or related prospectus and statement of additional information, as from
time to time amended, or the annual
11
<PAGE> 12
or interim reports to Class C shareholders. In case any action shall be brought
against the Corporation or any person so indemnified, in respect of which
indemnity may be sought against the Distributor, the Distributor shall have the
rights and duties given to the Corporation, and the Corporation and each person
so indemnified shall have the rights and duties given to the Distributor by the
provisions of subsection (a) of this Section 9.
Section 10. Fee-Based Programs Offered by the Fund's Investment Adviser
or Its Affiliates. In connection with certain fee-based programs offered by the
Fund's investment adviser or its affiliates, the Distributor and its affiliates
are authorized to offer and sell shares of the Fund, as agent for the
Corporation, to participants in such program. The terms of this Agreement shall
apply to such sales, including terms as to the offering price of Class A
Shares, the proceeds to be paid to the Fund, the duties of the Distributor, the
payment of expenses and indemnification obligations of the Fund and the
Distributor.
Section 11. 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 and thereafter, but only for so long as such continuance is
specifically approved at least annually by (i) the Directors or by the vote of a
majority of the outstanding Class C voting securities of the Fund and (ii) by
the vote of a majority of those Directors who are not parties to this Agreement
or interested persons of any such party cast in person at a meeting called for
the purpose of voting on such approval.
This Agreement may be terminated at any time, without the payment of any
penalty, by the Directors or by vote of a majority of the outstanding Class C
voting securities of the Fund , or
12
<PAGE> 13
by the Distributor, 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 12. Amendments of this Agreement. This Agreement may be amended by
the parties only if such amendment is specifically approved by (i) the Directors
or by the vote of a majority of outstanding Class C voting securities of the
Fund and (ii) by the vote of a majority of those Directors who are not parties
to this Agreement or interested persons of any such party cast in person at a
meeting called for the purpose of voting on such approval.
Section 13. 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.
13
<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
MERCURY ASSET MANAGEMENT FUNDS, INC.
on behalf of its series,
MERCURY GOLD AND MINING FUND
By________________________________________
Title:
MERCURY FUNDS DISTRIBUTOR, a division of
PRINCETON FUNDS DISTRIBUTOR, INC.
By________________________________________
Title:
14
<PAGE> 15
Exhibit A
MERCURY ASSET MANAGEMENT FUNDS, INC.
ON BEHALF OF ITS SERIES,
MERCURY GOLD AND MINING FUND
CLASS C SHARES OF COMMON STOCK
SELECTED DEALER AGREEMENT
FOR SUBSCRIPTION PERIOD
Ladies and Gentlemen:
Mercury Funds Distributor, a division of Princeton Funds
Distributor, Inc. (the "Distributor") has an agreement with Mercury Asset
Management Funds, Inc., a Maryland corporation (the "Corporation"), on behalf of
its series, Mercury Gold and Mining Fund (the "Fund"), pursuant to which it acts
as the distributor for the sale of Class C shares of common stock of the Fund,
par value $0.0001 per share (herein referred to as "Class C Shares"), and as
such has the right to distribute Class C Shares for resale. The Corporation is
an open-end investment company registered under the Investment Company Act of
1940, as amended, and its Class C Shares being offered to the public are
registered under the Securities Act of 1933, as amended (the "Securities Act").
Such Class C Shares and certain of the terms on which they are being offered are
more fully described in the enclosed Prospectus and Statement of Additional
Information. You, Merrill Lynch, Pierce, Fenner & Smith Incorporated, have
received a copy of the Class C Shares Distribution Agreement (the "Distribution
Agreement") between ourself and the Corporation and reference is made herein to
certain provisions of such Distribution Agreement. This Agreement relates solely
to the subscription period described in Section 3(a) of such Distribution
Agreement. Subject to the foregoing, as principal, we offer to sell to you, as a
member of the Selected Dealers Group, Class C Shares upon the following terms
and conditions:
1. The subscription period referred to in Section 3(a) of the
Distribution Agreement will continue through __________ __, 19__. The
subscription period may be extended upon agreement between the Fund and the
Distributor. Subject to the provisions of such Section and the conditions
contained herein, we will sell to you on the third business day following the
termination of the subscription period, or such other date as we may advise (the
"Closing Date"), such number of Class C Shares as to which you have placed
orders with us not later than 5:00 P.M. on the second full business day
preceding the Closing Date.
2. In all sales of these Class C Shares to the public you shall act as
dealer for your own account, and in no transaction shall you have any authority
to act as agent for the Corporation, the Fund, for us or for any other member of
the Selected Dealers Group, except in connection with the Merrill Lynch Mutual
Fund Adviser program and such other special
<PAGE> 16
programs as we from time to time agree, in which case you shall have authority
to offer and sell Class A Shares, as agent for the Corporation, to participants
in such program.
3. You shall not place orders for any of the Class C Shares unless you
have already received purchase orders for such Class C Shares at the applicable
public offering prices and subject to the terms hereof and of the Distribution
Agreement. All orders are subject to acceptance by the Distributor or the
Corporation in the sole discretion of either. The minimum initial and subsequent
purchase requirements are as set forth in the Prospectus, as amended from time
to time. You agree that you will not offer or sell any of the Class C Shares
except under circumstances that will result in compliance with the applicable
Federal and state securities laws and that in connection with sales and offers
to sell Class C Shares you will furnish to each person to whom any such sale or
offer is made a copy of the Prospectus and, if requested, the Statement of
Additional Information (as then amended or supplemented) within three business
days of receipt of request, and will not furnish to any person any information
relating to the Class C Shares that is inconsistent in any respect with the
information contained in the Prospectus and Statement of Additional Information
(as then amended or supplemented) or cause any advertisement to be published in
any newspaper or posted in any public place without our consent and the consent
of the Corporation.
4. Payment for Class C Shares purchased by you is to be made by
certified or official bank check at the office of Mercury Funds Distributor, a
division of Princeton Funds Distributor, Inc., P.O. Box 9081, Princeton, New
Jersey 08543-9081, on such date as we may advise, in New York Clearing House
funds payable to the order of Mercury Funds Distributor, a division of Princeton
Funds Distributor, Inc., or by federal funds wire transfer, against delivery by
us of non-negotiable share deposit receipts ("Receipts") issued by Financial
Data Services, Inc., as shareholder servicing agent, acknowledging the deposit
with it of the Class C Shares so purchased by you. You agree that as promptly as
practicable after the delivery of such Class C Shares you will issue appropriate
written transfer instructions to the Corporation or to the shareholder servicing
agent as to the purchasers to whom you sold the Class C Shares.
5. No person is authorized to make any representations concerning Class
C Shares except those contained in the current Prospectus and Statement of
Additional Information of the Fund and in such printed information subsequently
issued by us or the Fund as information supplemental to such Prospectus and
Statement of Additional Information. In purchasing Class C Shares through us you
shall rely solely on the representations contained in the Prospectus and
Statement of Additional Information and supplemental information above
mentioned. Any printed information that we furnish you other than the Fund's
Prospectus and Statement of Additional Information, periodic reports and proxy
solicitation material are our sole responsibility and not the responsibility of
the Corporation or the Fund, and you agree that the Corporation and the Fund
shall have no liability or responsibility to you in these respects unless
expressly assumed in connection therewith.
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<PAGE> 17
6. You agree to deliver to each of the purchasers making purchases from
you a copy of the then current Prospectus at or prior to the time of offering or
sale and, if requested, the Statement of Additional Information within three
business days of receipt of request, and you agree thereafter to deliver to such
purchasers copies of the annual and interim reports and proxy solicitation
materials of the Fund. You further agree to endeavor to obtain proxies from such
purchasers. Additional copies of the Prospectus and Statement of Additional
Information, annual or interim reports and proxy solicitation materials of the
Fund will be supplied to you in reasonable quantities upon request.
7. We reserve the right in our discretion, without notice, to suspend
sales or withdraw the offering of Class C Shares entirely. Each party hereto has
the right to cancel this Agreement upon notice to the other party.
8. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the subscription offering. We
shall be under no liability to you except for lack of good faith and for
obligations expressly assumed by us herein. Nothing contained in this paragraph
is intended to operate as, and the provisions of this paragraph shall not in any
way whatsoever constitute, a waiver by you of compliance with any provision of
the Securities Act, or of the rules and regulations of the Securities and
Exchange Commission issued thereunder.
9. You represent that you are a member of the National Association of
Securities Dealers, Inc. and, with respect to any sales in the United States, we
both hereby agree to abide by the Conduct Rules of such Association.
10. Upon application to us, we will inform you as to the states in
which we believe the Class C Shares have been qualified for sale under, or are
exempt from the requirements of, the respective securities laws of such states,
but we assume no responsibility or obligation as to your right to sell Class C
Shares in any jurisdiction. We will file with the Department of State in New
York a Further State Notice with respect to the Class C Shares, if necessary.
11. All communications to us should be sent to the address below. Any
notice to you shall be duly given if mailed or telegraphed to you at the address
specified by you below.
12. You agree that you will not sell any Class C Shares to any account
over which you exercise discretionary authority.
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<PAGE> 18
13. This Agreement shall terminate at the close of business on the
Closing Date, unless earlier terminated, provided, however, this Agreement shall
continue after termination for the purpose of settlement of accounts hereunder.
MERCURY FUNDS DISTRIBUTOR, a division of
PRINCETON FUNDS DISTRIBUTOR, INC.
By ______________________________________
Title:
Please return one signed copy of this Agreement to:
MERCURY FUNDS DISTRIBUTOR, a division of
PRINCETON FUNDS DISTRIBUTOR, INC.
P.O. Box 9081
Princeton, New Jersey 08543-9081
Accepted:
__________________________________
(Authorized Signature)
Firm Name:________________________
By:_______________________________
Title:____________________________
Address:__________________________
__________________________________
Date:_____________________________
4
<PAGE> 19
Exhibit B
MERCURY ASSET MANAGEMENT FUNDS, INC.
ON BEHALF OF ITS SERIES,
MERCURY GOLD AND MINING FUND
CLASS C SHARES OF COMMON STOCK
SELECTED DEALER AGREEMENT
Ladies and Gentlemen:
Mercury Funds Distributor, a division of Princeton Funds
Distributor, Inc. (the "Distributor") has an agreement with Mercury Asset
Management Funds, Inc., a Maryland corporation (the "Corporation"), on behalf of
its series, Mercury Gold and Mining Fund (the "Fund"), pursuant to which it acts
as the distributor for the sale of Class C shares of common stock of the Fund,
par value $0.0001 per share (herein referred to as the "Class C Shares"), and as
such has the right to distribute Class C Shares for resale. The Corporation is
an open-end investment company registered under the Investment Company Act of
1940, as amended, and its Class C Shares being offered to the public are
registered under the Securities Act of 1933, as amended (the "Securities Act").
You, _______________________, have received a copy of the Class C Shares
Distribution Agreement (the "Distribution Agreement") between ourself and the
Corporation and reference is made herein to certain provisions of such
Distribution Agreement. The terms "Prospectus" and "Statement of Additional
Information" as used herein refer to the prospectus and statement of additional
information, respectively, on file with the Securities and Exchange Commission
(the "Commission") which is part of the most recent effective registration
statement pursuant to the Securities Act. We offer to sell to you, as a member
of the Selected Dealers Group, Class C Shares upon the following terms and
conditions:
1. In all sales of the Class C Shares to the public, you shall act as
dealer for your own account and in no transaction shall you have any authority
to act as agent for the Corporation, the Fund, for us or for any other member of
the Selected Dealers Group, except in connection with the Merrill Lynch Mutual
Fund Adviser program and such other special programs as we from time to time
agree, in which case you shall have authority to offer and sell Class C Shares,
as agent for the Corporation, to participants in such program.
2. Orders received from you will be accepted through us only at the
public offering price applicable to each order, as set forth in the current
Prospectus and Statement of Additional Information of the Fund. The procedure
relating to the handling of orders shall be subject to Section 4 hereof and
instructions that we or the Corporation shall forward from time to time to you.
All orders are subject to acceptance or rejection by the Distributor or the
Corporation in the sole discretion of either. The minimum initial and subsequent
purchase requirements are as set forth in the current Prospectus and Statement
of Additional Information of the Fund.
<PAGE> 20
3. You shall not place orders for any of the Class C Shares unless you
have already received purchase orders for such Class C Shares at the applicable
public offering prices and subject to the terms hereof and of the Distribution
Agreement. You agree that you will not offer or sell any of the Class C Shares
except under circumstances that will result in compliance with the applicable
Federal and state securities laws and that in connection with sales and offers
to sell Class C Shares you will furnish to each person to whom any such sale or
offer is made a copy of the Prospectus and, if requested, the Statement of
Additional Information (as then amended or supplemented) within three business
days of receipt of request and will not furnish to any person any information
relating to the Class C Shares that is inconsistent in any respect with the
information contained in the Prospectus and Statement of Additional Information
(as then amended or supplemented) or cause any advertisement to be published in
any newspaper or posted in any public place without our consent and the consent
of the Corporation.
4. As a selected dealer, you are hereby authorized (i) to place orders
directly with the Corporation for Class C Shares to be resold by us to you
subject to the applicable terms and conditions governing the placement of orders
by us set forth in Section 3 of the Distribution Agreement and (ii) to tender
Class C Shares directly to the Corporation or its agent for redemption subject
to the applicable terms and conditions set forth in Section 4 of the
Distribution Agreement.
5. You shall not withhold placing orders received from your customers
so as to profit yourself as a result of such withholding, e.g., by a change in
the "net asset value" from that used in determining the offering price to your
customers.
6. No person is authorized to make any representations concerning Class
C Shares except those contained in the current Prospectus and Statement of
Additional Information of the Fund and in such printed information subsequently
issued by us or the Fund as information supplemental to such Prospectus and
Statement of Additional Information. In purchasing Class C Shares through us you
shall rely solely on the representations contained in the Prospectus and
Statement of Additional Information and supplemental information above
mentioned. Any printed information which we furnish you other than the Fund's
Prospectus, Statement of Additional Information, periodic reports and proxy
solicitation material is our sole responsibility and not the responsibility of
the Corporation or the Fund, and you agree that the Corporation and the Fund
shall have no liability or responsibility to you in these respects unless
expressly assumed in connection therewith.
7. You agree to deliver to each of the purchasers making purchases from
you a copy of the then current Prospectus at or prior to the time of offering or
sale and, if requested, the Statement of Additional Information within three
business days of receipt of request, and you agree thereafter to deliver to such
purchasers copies of the annual and interim reports and proxy solicitation
materials of the Fund. You further agree to endeavor to obtain proxies from such
purchasers. Additional copies of the Prospectus and Statement of Additional
Information, annual
2
<PAGE> 21
or interim reports and proxy solicitation materials of the Fund will be supplied
to you in reasonable quantities upon request.
8. We reserve the right in our discretion, without notice, to suspend
sales or withdraw the offering of Class C Shares entirely or to certain persons
or entities in a class or classes specified by us. Each party hereto has the
right to cancel this Agreement upon notice to the other party.
9. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the continuous offering. We
shall be under no liability to you except for lack of good faith and for
obligations expressly assumed by us herein. Nothing contained in this paragraph
is intended to operate as, and the provisions of this paragraph shall not in any
way whatsoever constitute, a waiver by you of compliance with any provision of
the Securities Act or of the rules and regulations of the Commission issued
thereunder.
10. You represent that you are a member of the National Association of
Securities Dealers, Inc. and, with respect to any sales in the United States, we
both hereby agree to abide by the Conduct Rules of such Association.
11. Upon application to us, we will inform you as to the states in
which we believe the Class C Shares have been qualified for sale under, or are
exempt from the requirements of, the respective securities laws of such states,
but we assume no responsibility or obligation as to your right to sell Class C
Shares in any jurisdiction. We will file with the Department of State in New
York a Further State Notice with respect to the Class C Shares, if necessary.
12. All communications to us should be sent to the address below. Any
notice to you shall be duly given if mailed or telegraphed to you at the address
specified by you below.
3
<PAGE> 22
13. Your first order placed pursuant to this Agreement for the purchase
of Class C Shares will represent your acceptance of this Agreement.
MERCURY FUNDS DISTRIBUTOR, a division of
PRINCETON FUNDS DISTRIBUTOR, INC.
By: ______________________________________
Title: ___________________________________
Please return one signed copy of this Agreement to:
MERCURY FUNDS DISTRIBUTOR, a division of
PRINCETON FUNDS DISTRIBUTOR, INC.
P.O. Box 9081
Princeton, New Jersey 08543-9081
Accepted:
_______________________________
(Authorized Signature)
Firm Name:_____________________
By:____________________________
Title:_________________________
Address:_______________________
_______________________________
Date:__________________________
4
<PAGE> 1
Exhibit 7
AGREEMENT BETWEEN
BROWN BROTHERS HARRIMAN & CO.
AND
MERCURY ASSET MANAGEMENT FUNDS, INC.
CUSTODIAN AGREEMENT
<PAGE> 2
AGREEMENT made this _______ day of _____________, 1996, between MERCURY ASSET
MANAGEMENT FUNDS, INC. (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
2
<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
3
<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
4
<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
5
<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
6
<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
7
<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
8
<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
9
<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
10
<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,
12
<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
13
<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 FUNDS, INC.
By:____________________________________
17
<PAGE> 1
Exhibit 8(a)
ADMINISTRATION AGREEMENT
AGREEMENT made as of _______________, 1998, by and between MERCURY ASSET
MANAGEMENT FUNDS, INC., a Maryland corporation (hereinafter referred to as the
"Corporation") on behalf of its series, MERCURY GOLD AND MINING FUND
(hereinafter referred to as the "Fund"), and FUND ASSET MANAGEMENT, L.P., a
Delaware limited partnership, (hereinafter referred to as the "Administrator").
W I T N E S S E T H:
WHEREAS, the Corporation 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 Board of Directors of the Corporation (the "Directors")
are authorized to establish separate series relating to separate portfolios of
securities, each of which may offer separate classes of shares; and
WHEREAS, the Directors have established and designated the Fund as a
series of the Corporation; and
WHEREAS, the Corporation desires to retain the Administrator to provide
management and administrative services to the Fund in the manner and on the
terms hereinafter set forth; and
WHEREAS, the Administrator is willing to provide management and
administrative services to the Fund on the terms and conditions hereafter set
forth;
<PAGE> 2
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Corporation and the Administrator hereby agree as
follows:
ARTICLE I
DUTIES OF THE ADMINISTRATOR
The Corporation hereby employs the Administrator to act as a manager
and administrator of the Fund, and to furnish, or arrange for affiliates to
furnish, the management and administrative services described below, subject to
review by and the overall control of the Directors, for the period and on the
terms and conditions set forth in this Agreement. The Administrator hereby
accepts such employment and agrees during such period, at its own expense, to
render, or arrange for the rendering of, such services and to assume the
obligations herein set forth for the compensation provided for herein. The
Administrator and its affiliates shall for all purposes herein be deemed to be
independent contractors and shall, unless otherwise expressly provided or
authorized, have no authority to act for or represent the Corporation or the
Fund in any way or otherwise be deemed agents of the Corporation or the Fund.
Management Services. The Administrator shall perform (or
arrange for the performance by affiliates of) the management and administrative
services necessary for the operation of the Corporation and the Fund including
administering shareholder accounts and handling shareholder relations. The
Administrator shall provide the Corporation and the Fund with office space,
facilities, equipment and necessary personnel and such other services as the
Administrator, subject to review by the Directors, shall from time to time
determine to be necessary or useful to perform its obligations under this
Agreement. The Administrator shall also, on behalf of the Corporation and the
Fund, conduct relations with custodians, depositories, transfer agents, dividend
2
<PAGE> 3
disbursing agents, other shareholder servicing agents, accountants, attorneys,
underwriters, brokers and dealers, corporate fiduciaries, insurers, banks and
such other persons in any such other capacity deemed to be necessary or
desirable. The Administrator shall make reports to the Directors of its
performance of obligations hereunder and furnish advice and recommendations with
respect to such other aspects of the business and affairs of the Fund as it
shall determine to be desirable.
ARTICLE II
ALLOCATION OF CHARGES AND EXPENSES
(a) The Administrator. The Administrator assumes and shall pay, or
cause its 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 provided under Article I hereof. The Administrator shall pay, or
cause its affiliate to pay, compensation of all Officers of the Corporation and
all Directors of the Corporation who are affiliated persons of the Administrator
or of an affiliate of the Administrator.
(b) The Corporation. The Corporation assumes and shall pay or cause to
be paid all other expenses of the Corporation and the Fund (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, prospectuses and statements of additional information, charges of the
custodian, any sub-custodian and transfer agent, expenses of portfolio
transactions, expenses of redemption of shares, Securities and Exchange
Commission fees, expenses of registering the shares under Federal, state and
foreign laws, fees and actual out-of-pocket expenses of Directors who are not
affiliated persons of the Administrator, or of an affiliate of the
Administrator, accounting and pricing costs (including
3
<PAGE> 4
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 Corporation or the Fund. It is also understood
that the Corporation shall reimburse the Administrator for its costs in
providing accounting services to the Corporation and the Fund. The Distributor
will pay certain of the expenses of the Fund incurred in connection with the
continuous offering of shares of common stock in the Fund.
ARTICLE III
COMPENSATION OF THE ADMINISTRATOR
Administrative Fees. For the services rendered, the facilities
furnished and expenses assumed by the Administrator, the Fund shall pay to the
Administrator at the end of each calendar month a fee based upon the average
daily value of the net assets of the Fund, as determined and computed in
accordance with the description of the determination of net asset value
contained in the prospectus and statement of additional information, at the
annual rate of 0.25% of the average daily net assets of the Fund, commencing on
the day following effectiveness hereof. If this Agreement becomes effective
subsequent to the first day of a month or shall terminate before the last day of
a month, compensation for that part of the month this Agreement is in effect
shall be prorated in a manner consistent with the calculation of the fee as set
forth above. Payment of the Administrator's compensation for the preceding month
shall be made as promptly as possible after completion of the computations
contemplated above. During any period when the determination of net asset value
is suspended by the Directors, the net asset value of a share as of the last
business day prior to such suspension shall for this purpose be deemed to be the
net asset value at the close of each succeeding business day until it is again
determined.
4
<PAGE> 5
ARTICLE IV
LIMITATION OF LIABILITY OF THE ADMINISTRATOR
The Administrator shall not be liable for any error of judgment or
mistake of law or for any loss arising out of any act or omission in the
management and administration of the Corporation and the Fund, except for
willful misfeasance, bad faith or gross negligence in the performance of its
duties, or by reason of reckless disregard of its obligations and duties
hereunder. As used in this Article IV, the term "Administrator" shall include
any affiliates of the Administrator performing services for the Corporation or
the Fund contemplated hereby and partners, shareholders, directors, officers and
employees of the Administrator and such affiliates.
ARTICLE V
ACTIVITIES OF THE ADMINISTRATOR
The services of the Administrator to the Corporation and the Fund are
not to be deemed to be exclusive, and the Administrator and each affiliate is
free to render services to others. It is understood that Directors, officers,
employees and shareholders of the Corporation and the Fund are or may become
interested in the Administrator and its affiliates, as directors, officers,
employees, partners and shareholders or otherwise, and that the Administrator
and directors, officers, employees, partners and shareholders of the
Administrator and its affiliates are or may become similarly interested in the
Corporation or the Fund as shareholders or otherwise.
ARTICLE VI
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
continue from year to year, but only so long as such continuance is specifically
approved at least annually by (i) the Directors, and (ii) a majority of those
5
<PAGE> 6
Directors who are not parties to this Agreement or interested persons of any
such party cast in person at a meeting called for the purpose of voting on such
approval.
This Agreement may be terminated at any time, without the payment of
any penalty, by the Directors or by the vote of a majority of the outstanding
voting securities of the Corporation, or by the Administrator, on sixty days'
written notice to the other party. This Agreement shall automatically terminate
in the event of its assignment.
ARTICLE VII
AMENDMENTS OF THIS AGREEMENT
This Agreement may be amended by the parties only if such amendment is
specifically approved by a majority of those Directors who are not parties to
this Agreement or interested persons of any such party cast in person at a
meeting called for the purpose of voting on such approval.
ARTICLE VIII
DEFINITIONS OF CERTAIN TERMS
The terms "vote of majority of the outstanding voting securities,"
"assignment," "affiliated person" and "interested person," when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act and the Rules and Regulations thereunder, subject, however, to such
exemptions as may be granted by the Securities and Exchange Commission under
said Act.
ARTICLE IX
GOVERNING LAW
This Agreement shall be construed in accordance with laws of the State
of New York and the applicable provisions of the Investment Company Act. To the
extent that the applicable laws of
6
<PAGE> 7
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.
MERCURY ASSET MANAGEMENT FUNDS, INC.
on behalf of its series,
MERCURY GOLD AND MINING FUND
By:_________________________________
Title:
FUND ASSET MANAGEMENT, L.P.
By: PRINCETON SERVICES, INC.,
GENERAL PARTNER
By:_________________________________
Title:
7
<PAGE> 1
Exhibit 8(b)
TRANSFER AGENCY, DIVIDEND DISBURSING AGENCY AND
SHAREHOLDER SERVICING AGENCY AGREEMENT
THIS AGREEMENT, made as of ______ by and between MERCURY ASSET
MANAGEMENT FUNDS, INC., a Maryland corporation (the "Corporation"), on behalf of
itself and each of its series listed on Exhibit A (each, a "Fund") and FINANCIAL
DATA SERVICES, INC., a Florida corporation ("FDS").
WITNESSETH:
WHEREAS, the Corporation wishes to appoint FDS to be the Transfer Agent,
Dividend Disbursing Agent and Shareholder Servicing Agent for the Funds upon,
and subject to, the terms and provisions of this Agreement, and FDS is desirous
of accepting such appointment upon, and subject to, such terms and provisions;
NOW, THEREFORE, in consideration of mutual covenants contained in this
Agreement, the Corporation and FDS agree as follows:
1. APPOINTMENT OF FDS AS TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND
SHAREHOLDER SERVICING AGENT.
(a) The Corporation hereby appoints FDS to act as Transfer
Agent, Dividend Disbursing Agent and Shareholder Servicing Agent for the Funds
upon, and subject to, the terms and provisions of this Agreement.
-1-
<PAGE> 2
(b) FDS hereby accepts the appointment as Transfer Agent,
Dividend Disbursing Agent and Shareholder Servicing Agent for the Funds, and
agrees to act as such upon, and subject to, the terms and provisions of this
Agreement.
2. DEFINITIONS.
(a) In this Agreement:
(I) The term "Act" means the Investment Company Act of
1940 as amended from time to time and any rule or regulation thereunder;
(II) The term "Account" means any account of a
Shareholder, or, if the shares are held in an account in the name of a
Broker-Dealer, as defined below, for benefit of an identified customer, such
account, including a Plan Account, any account under a plan (by whatever name
referred to in the Prospectus) pursuant to the Self-Employed Individuals
Retirement Act of 1962 ("Keogh Act Plan") and any plan (by whatever name
referred to in the Prospectus) in conjunction with Section 401 of the Internal
Revenue Code ("Corporation Master Plan");
(III) The term "application" means an application made
by a shareholder or prospective shareholder respecting the opening of an
Account;
(IV) The term "MFD" means Mercury Funds Distributor, a
division of Princeton Funds Distributor, Inc., a Delaware corporation;
(V) The term "Broker-Dealer" means a registered
broker-dealer that sells shares of the Funds pursuant to a selected dealers
agreement with the Corporation;
(VI) The term "Officer's Instruction" means an
instruction in writing given on behalf of the Funds to FDS, and signed on behalf
of the Funds by the President, any Vice President, the Secretary or the
Treasurer of the Corporation;
-2-
<PAGE> 3
(VII) The term "Plan Account" means an account opened by
a Shareholder or prospective Shareholder in respect to an open account, monthly
payment or withdrawal plan (in each case by whatever name referred to in the
Prospectus), and may also include an account relating to any other plan if and
when provision is made for such plan in the Prospectus;
(VIII) The term "Prospectus" means the Prospectus and
the Statement of Additional Information of the relevant Fund as from time to
time in effect;
(IX) The term "Shareholder" means a holder of record of
Shares;
(X) The term "Shares" means shares of stock of the
Corporation irrespective of class or series.
3. DUTIES OF FDS AS TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND
SHAREHOLDER SERVICING AGENT.
(a) Subject to the succeeding provisions of the Agreement, FDS
hereby agrees to perform the following functions as Transfer Agent, Dividend
Disbursing Agent and Shareholder Servicing Agent for the Funds;
(I) Issuing, transferring and redeeming Shares;
(II) Opening, maintaining, servicing and closing
Accounts;
(III) Acting as agent for the Funds' Shareholders and/or
customers of a Broker-Dealer in connection with Plan Accounts, upon the terms
and subject to the conditions contained in the Prospectus and application
relating to the specific Plan Account;
(IV) Acting as agent of the Funds and/or a
Broker-Dealer, maintaining such records as may permit the imposition of such
contingent deferred sales charges as may be
-3-
<PAGE> 4
described in the Prospectus, including such reports as may be reasonably
requested by the Corporation with respect to such Shares as may be subject to a
contingent deferred sales charge;
(V) Upon the redemption of Shares subject to such a
contingent deferred sales charge, calculating and deducting from the redemption
proceeds thereof the amount of such charge in the manner set forth in the
Prospectus. FDS shall pay, on behalf of MFD, to a Broker-Dealer such deducted
contingent deferred sales charges imposed upon all Shares maintained in the name
of that Broker-Dealer, or maintained in the name of an account identified as a
customer account of that Broker-Dealer. Sales charges imposed upon any other
Shares shall be paid by FDS to MFD;
(VI) Exchanging the investment of an investor into, or
from, the shares of other open-end investment companies or other series
portfolios of the Corporation, if any, if and to the extent permitted by the
Prospectus at the direction of such investor.
(VII) Processing redemptions;
(VIII) Examining and approving legal transfers;
(IX) Replacing lost, stolen or destroyed certificates
representing Shares, in accordance with, and subject to, procedures and
conditions adopted by the Funds;
(X) Furnishing such confirmations of transactions
relating to their Shares as required by applicable law;
(XI) Acting as agent for the Corporation and/or a
Broker-Dealer, furnishing such appropriate periodic statements relating to
Accounts, together with additional enclosures, including appropriate income tax
information and income tax forms duly completed, as required by applicable law;
-4-
<PAGE> 5
(XII) Acting as agent for the Corporation and/or a
Broker-Dealer, mailing annual, semi-annual and quarterly reports prepared by or
on behalf of the Funds, and mailing new Prospectuses upon their issue to
Shareholders as required by applicable law;
(XIII) Furnishing such periodic statements of
transactions effected by FDS, reconciliations, balances and summaries as the
Funds may reasonably request;
(XIV) Maintaining such books and records relating to
transactions effected by FDS as are required by the Act, or by any other
applicable provision of law, rule or regulation, to be maintained by the
Corporation or its transfer agent with respect to such transactions, and
preserving, or causing to be preserved, any such books and records for such
periods as may be required by any such law, rule or regulation and as may be
agreed upon from time to time between FDS and the Corporation. In addition, FDS
agrees to maintain and preserve master files and historical computer tapes on a
daily basis in multiple separate locations a sufficient distance apart to ensure
preservation of at least one copy of such information;
(XV) Withholding taxes on non-resident alien Accounts,
preparing and filing U.S. Treasury Department Form 1099 and other appropriate
forms as required by applicable law with respect to dividends and distributions;
and
(XVI) Reinvesting dividends for full and fractional
Shares and disbursing cash dividends, as applicable.
(b) FDS agrees to act as proxy agent in connection with the
holding of annual, if any, and special meetings of Shareholders, mailing such
notices, proxies and proxy statements in connection with the holding of such
meetings as may be required by applicable law, receiving and tabulating votes
cast by proxy and communicating to the Corporation the results of such
tabulation
-5-
<PAGE> 6
accompanied by appropriate certificates, and preparing and furnishing to the
Corporation certified lists of Shareholders as of such date, in such form and
containing such information as may be required by the Corporation.
(c) FDS agrees to deal with, and answer in a timely manner,
all correspondence and inquiries relating to the functions of FDS under this
Agreement with respect to Accounts.
(d) FDS agrees to furnish to the Corporation such information
and at such intervals as is necessary for the Funds to comply with the
registration and/or the reporting requirements (including applicable escheat
laws) of the Securities and Exchange Commission, Blue Sky authorities or other
governmental authorities.
(e) FDS agrees to provide to the Corporation such information
as may reasonably be required to enable the Funds to reconcile the number of
outstanding Shares between FDS's records and the account books of the
Corporation.
(f) Notwithstanding anything in the foregoing provisions of
this paragraph, FDS agrees to perform its functions thereunder subject to such
modification (whether in respect of particular cases or in any particular class
of cases) as may from time to time be contained in an Officer's Instruction.
4. COMPENSATION.
The charges for services described in this Agreement, including
"out-of-pocket" expenses, will be set forth in the Schedule of Fees attached
hereto.
-6-
<PAGE> 7
5. RIGHT OF INSPECTION.
FDS agrees that it will, in a timely manner, make available to, and
permit, any officer, accountant, attorney or authorized agent of the Corporation
to examine and make transcripts and copies (including photocopies and computer
or other electronical information storage media and print-outs) of any and all
of its books and records which relate to any transaction or function performed
by FDS under or pursuant to this Agreement.
6. CONFIDENTIAL RELATIONSHIP.
FDS agrees that it will, on behalf of itself and its officers and
employees, treat all transactions contemplated by this Agreement, and all
information germane thereto, as confidential and not to be disclosed to any
person (other than the Shareholder concerned, or the Corporation, or as may be
disclosed in the examination of any books or records by any person lawfully
entitled to examine the same) except as may be authorized by the Corporation by
way of an Officer's Instruction.
7. INDEMNIFICATION.
The Corporation shall indemnify and hold FDS harmless from any loss,
costs, damage and reasonable expenses, including reasonable attorney's fees
(provided that such attorney is appointed with the Corporation's consent, which
consent shall not be unreasonably withheld) incurred by it resulting from any
claim, demand, action or suit in connection with the performance of its duties
hereunder, provided that this indemnification shall not apply to actions or
omissions of FDS in cases of willful misconduct, failure to act in good faith or
negligence by FDS, its officers, employees or agents, and further provided that
prior to confessing any claim against it which may be subject to this
indemnification, FDS shall give the Corporation reasonable opportunity to defend
-7-
<PAGE> 8
against said claim in its own name or in the name of FDS. An action taken by FDS
upon any Officer's Instruction reasonably believed by it to have been properly
executed shall not constitute willful misconduct, failure to act in good faith
or negligence under this Agreement.
8. REGARDING FDS.
(a) FDS hereby agrees to hire, purchase, develop and maintain
such dedicated personnel, facilities, equipment, software, resources and
capabilities as may be reasonably determined by the Corporation to be necessary
for the satisfactory performance of the duties and responsibilities of FDS. FDS
warrants and represents that its officers and supervisory personnel charged with
carrying out its functions as Transfer Agent, Dividend Disbursing Agent and
Shareholder Servicing Agent for the Corporation possess the special skill and
technical knowledge appropriate for that purpose. FDS shall at all times
exercise due care and diligence in the performance of its functions as Transfer
Agent, Dividend Disbursing Agent and Shareholder Servicing Agent for the
Corporation. FDS agrees that, in determining whether it has exercised due care
and diligence, its conduct shall be measured by the standard applicable to
persons possessing such special skill and technical knowledge.
(b) FDS warrants and represents that it is duly authorized and
permitted to act as Transfer Agent, Dividend Disbursing Agent and Shareholder
Servicing Agent under all applicable laws and that it will immediately notify
the Corporation of any revocation of such authority or permission or of the
commencement of any proceeding or other action which may lead to such
revocation.
-8-
<PAGE> 9
9. TERMINATION.
(a) This Agreement shall become effective as of the date first
above written and shall remain in force for two years thereafter and shall
thereafter continue from year to year. This Agreement may be terminated by the
Corporation or FDS (without penalty to the Corporation or FDS) provided that the
terminating party gives the other party written notice of such termination at
least sixty (60) days in advance, except that the Corporation may terminate this
Agreement immediately upon written notice to FDS if the authority or permission
of FDS to act as Transfer Agent, Dividend Disbursing Agent and Shareholder
Servicing Agent has been revoked or if any proceeding or other action which the
Corporation reasonably believes will lead to such revocation has been commenced.
(b) Upon termination of this Agreement, FDS shall deliver all
unissued and canceled stock certificates, if any, representing Shares remaining
in its possession, and all Shareholder records, books, stock ledgers,
instruments and other documents (including computerized or other electronically
stored information) made or accumulated in the performance of its duties as
Transfer Agent, Disbursing Agent and Shareholder Servicing Agent for the
Corporation along with a certified locator document clearly indicating the
complete contents therein, to such successor as may be specified in a notice of
termination or Officer's Instruction; and the Corporation assumes all
responsibility for failure thereafter to produce any paper, record or document
so delivered and identified in the locator document, if and when required to be
produced.
-9-
<PAGE> 10
10. AMENDMENT.
Except to the extent that the performance by FDS or its functions under
this Agreement may from time to time be modified by an Officer's Instruction,
this Agreement may be amended or modified only by further written agreement
between the parties.
11. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective duly authorized officers and their respective
corporate seals hereunto duly affixed and attested, as of the day and year above
written.
MERCURY ASSET MANAGEMENT FUNDS, INC.
By:_________________________________
Title:
FINANCIAL DATA SERVICES, INC.
By:_________________________________
Title:
-10-
<PAGE> 11
MERCURY FUND PRICING SCHEDULE
<TABLE>
<CAPTION>
DISTRIBUTION CHANNEL CDSC CDSC CLOSED
CLASS I & A CLASS B & C ACCOUNT
<S> <C> <C> <C>
MLPF&S $11.00 $14.00 $0.20 per
month
FDS $20.00 $23.00 $0.20 per
month
MFA ERISA 0.10% 0.10% N/A
Defined Contribution Administrators - GES
(plus $1 per ticket) $11.00 $14.00 N/A
</TABLE>
Note 1: Excludes out of pocket costs which are also charged to the funds.
Note 2: All charges are annual position basis.
-11-
<PAGE> 12
Exhibit A
Individual Series of MERCURY ASSET MANAGEMENT FUNDS, INC.
MERCURY CORE U.S. GROWTH FUND
MERCURY EMERGING ECONOMIES FUND
MERCURY GOLD AND MINING FUND
MERCURY JAPAN CAPITAL FUND
MERCURY INTERNATIONAL FUND
MERCURY PAN-EUROPEAN GROWTH FUND
-12-
<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 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(d)
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 FUNDS, INC., a Maryland corporation (the
"Corporation"), on its own behalf and on behalf of its currently existing
series, and on behalf of each series of the Corporation that may be formed in
the future (the "Funds").
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 Corporation was incorporated under the laws of the State of
Maryland on April 24, 1998; and
<PAGE> 2
WHEREAS, the Corporation desires to qualify as a foreign corporation
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 Fund;
NOW, THEREFORE, in consideration of the premises and of the covenants
hereinafter contained, Mercury and the Corporation hereby agree as follows:
1. Mercury hereby grants the Corporation a non-exclusive license to use
the word "Mercury" or the words "Mercury Asset Management" in its corporate name
and in the name of the Funds.
2. Mercury hereby consents to the qualification of the Corporation as a
foreign corporation under the laws of the State of New York with the word
"Mercury" or the words "Mercury Asset Management" in its corporate name and in
the name of the Funds 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
Corporation and of the Funds; and, as soon as practicable after receipt by the
Corporation of written notice of the withdrawal of such non-exclusive license,
and in no event later than ninety days thereafter, the Corporation will change
its name and the name of the Funds 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
Corporation shall be necessary; but, if required by an applicable law of any
state, the Corporation will forthwith grant all requisite consents.
5. The Corporation will not grant to any other company the right to use
a name similar to that of the Corporation or the Funds or Mercury without the
written consent of Mercury.
6. Regardless of whether the Corporation and/or the Funds should
hereafter change their names and eliminate the word "Mercury," the words
"Mercury Asset Management" or any variation thereof from such names, the
Corporation 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 Corporation and/or the Funds or to that to which
the Corporation and/or the Funds 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 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 the Corporation
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 FUNDS, INC.
By:___________________________________
Title:
4
<PAGE> 1
Exhibit 9
SWIDLER BERLIN SHEREFF FRIEDMAN, LLP
919 THIRD AVENUE
NEW YORK, NY 10022-9998
October 20, 1998
VIA FACSIMILE AND FIRST CLASS MAIL
Mercury Asset Management Funds, Inc.
P.O. Box 9011
Princeton, New Jersey 08543-9011
Ladies and Gentlemen:
Mercury Asset Management Funds, Inc. (the "Corporation"), is
authorized to issue and sell 2,800,000,000 shares of common stock (the
"Shares"), par value $0.0001 per share, of which 400,000,000 Shares are
designated as Shares of the Mercury Gold and Mining Fund series ("the Fund"), in
the manner and on the terms set forth in the Fund's Registration Statement on
Form N-1A filed with the Securities and Exchange Commission (File No. 811-08797)
(the "Registration Statement").
We have, as counsel, participated in various proceedings
relating to the Corporation and to the Shares. We have examined copies, either
certified or otherwise proved to our satisfaction to be genuine, of its Articles
of Incorporation, as amended to date, and By-Laws, as currently in effect, and
other documents relating to its organization and operation. In addition, we have
received a certificate dated October 19, 1998 of the Maryland State Department
of Assessments and Taxation that the Corporation is in good standing under the
laws of the State of Maryland. We have also reviewed the Registration Statement
filed as of the date of this opinion and the documents filed as exhibits
thereto. We are generally familiar with the business affairs of the Corporation.
Based upon the foregoing, it is our opinion that:
1. The Corporation has been duly incorporated and is
validly existing under the laws of the State of
Maryland.
2. The Corporation is authorized to issue up to two
billion, eight hundred million (2,800,000,000)
Shares, of which 400,000,000 Shares are
<PAGE> 2
Mercury Asset Management Funds, Inc.
October 20, 1998
Page 2
designated as Shares of the Fund. Under Maryland law,
(a) the number of Shares may be increased or
decreased by action of the Board of Directors, and
(b) Shares which are issued and subsequently redeemed
by the Corporation are, by virtue of such redemption,
restored to the status of authorized and unissued
Shares.
3. Subject to the effectiveness of the Registration
Statement and in compliance with applicable state
securities laws, upon the issuance of the Shares for
a consideration not less than the par value thereof
as required by Maryland law, and for the net asset
value thereof as required by the Investment Company
Act of 1940, as amended, and in accordance with the
terms of the Registration Statement, such Shares will
be legally issued and outstanding and fully paid and
non-assessable.
We hereby consent to the filing of this opinion with the
Securities and Exchange Commission as a part of the Registration Statement and
with any state securities commission where such filing is required. We also
consent to the reference to our firm as counsel in the prospectus and statement
of additional information filed as a part thereof. In giving this consent we do
not admit that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended.
We are members of the Bar of the State of New York and do not
hold ourselves out as being conversant with the laws of any jurisdiction other
than those of the United States of America and the State of New York. We note
that we are not licensed to practice law in the State of Maryland, and to the
extent that any opinion expressed herein involves the law of Maryland, such
opinion should be understood to be based solely upon our review of the published
statutes of that State and, where applicable, published cases, rules or
regulations of regulatory bodies of that State.
Very truly yours,
/s/ Swidler Berlin Shereff Friedman, LLP
Swidler Berlin Shereff Friedman, LLP
SBSF:JHG:MKN:JLS:JHY
<PAGE> 1
Exhibit 13(a)
CLASS A DISTRIBUTION PLAN OF
MERCURY GOLD AND MINING FUND OF
MERCURY ASSET MANAGEMENT FUNDS, INC.
PURSUANT TO RULE 12b-1
DISTRIBUTION PLAN made as of the ___ day of ___________, 1998, by and
between Mercury Asset Management Funds, Inc., a Maryland corporation (the
"Corporation"), on behalf of its series, Mercury Gold and Mining Fund (the
"Fund"), and Mercury Funds Distributor, a division of Princeton Funds
Distributor, Inc., a Delaware corporation (the "Distributor").
W I T N E S S E T H:
WHEREAS, the Corporation intends to engage in business as an open-end
investment company registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"); and
WHEREAS, the Directors of the Corporation (the "Directors") are
authorized to establish separate series relating to separate portfolios of
securities, each of which may offer separate classes of shares, and
WHEREAS, the Directors have established the Fund as a series of the
Corporation;
WHEREAS, the Distributor is a securities firm engaged in the business
of selling shares of investment companies either directly to purchasers or
through other securities dealers; and
WHEREAS, the Corporation on behalf of the Fund proposes to enter into a
Class A Shares Distribution Agreement with the Distributor, pursuant to which
the Distributor will act as the exclusive distributor and representative of the
Fund in the offer and sale of Class A shares of common stock, par value $0.0001
per share (the "Class A Shares"), of the Fund to the public; and
WHEREAS, the Corporation on behalf of the Fund desires to adopt this
Class A Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the
Investment Company Act pursuant to which the Fund will pay an account
maintenance fee to the Distributor with respect to the Fund's Class A Shares;
and
WHEREAS, the Directors of the Corporation have determined that there is
a reasonable likelihood that adoption of the Plan will benefit the Fund and its
Class A shareholders.
<PAGE> 2
NOW, THEREFORE, the Corporation on behalf of the Fund hereby adopts,
and the Distributor hereby agrees to the terms of, the Plan in accordance with
Rule 12b-1 under the Investment Company Act on the following terms and
conditions:
1. The Corporation shall pay the Distributor with respect to the Class
A Shares an account maintenance fee under the Plan at the end of each month at
the annual rate of 0.25% of average daily net assets of the Fund relating to the
Class A Shares to compensate the Distributor and securities firms with which the
Distributor enters into related agreements pursuant to Paragraph 2 hereof
("Sub-Agreements") for providing account maintenance activities with respect to
Class A shareholders of the Fund. Expenditures under the Plan may consist of
payments to financial consultants for maintaining accounts in connection with
Class A Shares and payment of expenses incurred in connection with such account
maintenance activities including the costs of making services available to
shareholders including assistance in connection with inquiries related to
shareholder accounts.
2. The Corporation hereby authorizes the Distributor to enter into
Sub-Agreements with certain securities firms ("Securities Firms"), including
Merrill Lynch, Pierce, Fenner & Smith Incorporated, to provide compensation to
such Securities Firms for activities and services of the type referred to in
Paragraph 1 hereof. the Distributor may reallocate all or a portion of its
account maintenance fee to such Securities Firms as compensation for the
above-mentioned activities. Such Sub-Agreement shall provide that the Securities
Firms shall provide the Distributor with such information as is reasonably
necessary to permit the Distributor to comply with the reporting requirements
set forth in Paragraph 3 hereof.
3. The Distributor shall provide the Corporation for review by the
Board of Directors, and the Directors shall review at least quarterly, a written
report complying with the requirements of Rule 12b-1 regarding the disbursement
of the account maintenance fee during such period.
4. This Plan shall not take effect until it has been approved, together
with any related agreements, by votes of a majority of both (a) the Directors of
the Corporation and (b) those Directors of the Corporation who are not
"interested persons" of the Corporation, as defined in the Investment Company
Act, and have no direct or indirect financial interest in the operation of this
Plan or any agreements related to it (the "Rule 12b-1 Directors"), cast in
person at a meeting or meetings called for the purpose of voting on the Plan and
such related agreements.
5. The Plan shall continue in effect for so long as such continuance is
specifically approved at least annually in the manner provided for approval of
the Plan in Paragraph 4.
6. The Plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Directors, or by vote of a majority of the outstanding Class A voting
securities of the Fund.
2
<PAGE> 3
7. The Plan may not be amended to increase materially the rate of
payments provided for in Paragraph 1 hereof unless such amendment is approved by
at least a majority, as defined in the Investment Company Act, of the
outstanding Class A voting securities of the Fund, and by the Directors of the
Corporation in the manner provided for in Paragraph 4 hereof, and no material
amendment to the Plan shall be made unless approved in the manner provided for
approval and annual renewal in Paragraph 4 hereof.
8. While the Plan is in effect, the selection and nomination of
Directors who are not interested persons, as defined in the Investment Company
Act, of the Corporation shall be committed to the discretion of the Directors
who are not interested persons.
9. The Corporation shall preserve copies of the Plan and any related
agreements and all reports made pursuant to Paragraph 3 hereof, for a period of
not less than six years from the date of the Plan, or the date of such agreement
or report, as the case may be, the first two years in an easily accessible
place.
IN WITNESS WHEREOF, the parties hereto have executed this Plan as of
the date first above written.
MERCURY ASSET MANAGEMENT FUNDS, INC.
on behalf of its series,
MERCURY GOLD AND MINING FUND
By_______________________________________
Title:
MERCURY FUNDS DISTRIBUTOR, a division of
PRINCETON FUNDS DISTRIBUTOR, INC.
By_______________________________________
Title:
3
<PAGE> 4
Exhibit 13(a)
CLASS A SHARES DISTRIBUTION PLAN SUB-AGREEMENT
AGREEMENT made as of the ____ day of __________, 1998, by and between
Mercury Funds Distributor, a division of Princeton Funds Distributor, Inc., a
Delaware corporation (the "Distributor"), and Merrill Lynch, Pierce, Fenner &
Smith Incorporated, a Delaware corporation ("Securities Firm").
W I T N E S S E T H :
WHEREAS, the Distributor has entered into an agreement with Mercury
Asset Management Funds, Inc., a Maryland corporation (the "Corporation"), on
behalf of its series, Mercury Gold and Mining Fund (the "Fund"), pursuant to
which it acts as the exclusive distributor for the sale of Class A shares of
common stock of the Fund, par value $0.0001 per share (the "Class A Shares");
and
WHEREAS, the Distributor and the Corporation have entered into a Class
A Shares Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended (the "Act"), pursuant to which the
Distributor receives an account maintenance fee from the Fund at the annual rate
of 0.25% of average daily net assets of the Fund relating to Class A Shares for
providing account maintenance activities and services with respect to Class A
Shares; and
WHEREAS, the Distributor desires the Securities Firm to perform certain
account maintenance activities and services, including assistance in connection
with inquiries related to shareholder accounts, for the Fund's Class A
shareholders and the Securities Firm is willing to perform such services;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereby agree as follows:
1. The Securities Firm shall provide account maintenance activities and
services with respect to the Class A Shares and incur expenditures in connection
with such activities and services, of the types referred to in Paragraph 1 of
the Plan.
2. As compensation for its services performed under this Agreement, the
Distributor shall pay the Securities Firm a fee at the end of each calendar
month in an amount agreed upon by the parties hereto.
3. The Securities Firm shall provide the Distributor, at least
quarterly, such information as reasonably requested by the Distributor to enable
the Distributor to comply
1
<PAGE> 5
with the reporting requirements of Rule 12b-1 regarding the disbursement of the
fee during such period referred to in Paragraph 3 of the Plan.
4. This Agreement shall not take effect until it has been approved by
votes of a majority of both (a) the Directors of the Corporation and (b) those
Directors of the Fund who are not "interested persons" of the Corporation, as
defined in the Act, and have no direct or indirect financial interest in the
operation of the Plan, this Agreement or any agreements related to the Plan or
this Agreement (the "Rule 12b-1 Directors"), cast in person at a meeting or
meetings called for the purpose of voting on this Agreement.
5. This Agreement shall continue in effect for as long as such
continuance is specifically approved at least annually in the manner provided
for approval of the Plan in Paragraph 4.
6. This Agreement shall automatically terminate in the event of its
assignment or in the event of the termination of the Plan or any amendment to
the Plan that requires such termination.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
MERCURY FUNDS DISTRIBUTOR, a division of
PRINCETON FUNDS DISTRIBUTOR, INC.
By ______________________________________
Name:
Title:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By ______________________________________
Name:
Title:
2
<PAGE> 1
Exhibit 13(b)
CLASS B DISTRIBUTION PLAN OF
MERCURY GOLD AND MINING FUND OF
MERCURY ASSET MANAGEMENT FUNDS, INC.
PURSUANT TO RULE 12b-1
DISTRIBUTION PLAN made as of the ___ day of ___________, 1998, by and
between Mercury Asset Management Funds, Inc., a Maryland corporation (the
"Corporation"), on behalf of its series, Mercury Gold and Mining Fund (the
"Fund"), and Mercury Funds Distributor, a division of Princeton Funds
Distributor, Inc., a Delaware corporation (the "Distributor").
W I T N E S S E T H:
WHEREAS, the Corporation intends to engage in business as an open-end
investment company registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"); and
WHEREAS, the Directors of the Corporation (the "Directors") are
authorized to establish separate series relating to separate portfolios of
securities, each of which may offer separate classes of shares, and
WHEREAS, the Directors have established the Fund as a series of the
Corporation;
WHEREAS, the Distributor is a securities firm engaged in the business
of selling shares of investment companies either directly to purchasers or
through other securities dealers; and
WHEREAS, the Corporation on behalf of the Fund proposes to enter into a
Class B Shares Distribution Agreement with the Distributor, pursuant to which
the Distributor will act as the exclusive distributor and representative of the
Fund in the offer and sale of Class B shares of common stock, par value $0.0001
per share (the "Class B Shares"), of the Fund to the public; and
WHEREAS, the Corporation on behalf of the Fund desires to adopt this
Class B Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the
Investment Company Act pursuant to which the Fund will pay an account
maintenance fee and a distribution fee to the Distributor with respect to the
Fund's Class B Shares; and
WHEREAS, the Directors of the Corporation have determined that there is
a reasonable likelihood that adoption of the Plan will benefit the Fund and its
Class B shareholders.
<PAGE> 2
NOW, THEREFORE, the Corporation on behalf of the Fund hereby adopts,
and the Distributor hereby agrees to the terms of, the Plan in accordance with
Rule 12b-1 under the Investment Company Act on the following terms and
conditions:
1. The Corporation shall pay the Distributor with respect to the Class
B Shares an account maintenance fee under the Plan at the end of each month at
the annual rate of 0.25% of average daily net assets of the Fund relating to the
Class B Shares to compensate the Distributor and securities firms with which the
Distributor enters into related agreements pursuant to Paragraph 3 hereof
("Sub-Agreements") for providing account maintenance activities with respect to
Class B shareholders of the Fund. Expenditures under the Plan may consist of
payments to financial consultants for maintaining accounts in connection with
Class B Shares and payment of expenses incurred in connection with such account
maintenance activities including the costs of making services available to
shareholders including assistance in connection with inquiries related to
shareholder accounts.
2. The Corporation shall pay the Distributor a distribution fee under
the Plan at the end of each month at the annual rate of 0.75% of average daily
net assets of the Fund relating to Class B Shares to compensate the Distributor
and the securities firms with which the Distributor enters into related
Sub-Agreements for providing sales and promotional activities and services. Such
activities and services will relate to the sale, promotion and marketing of the
Class B Shares. Such expenditures may consist of sales commissions to financial
consultants for selling Class B Shares, compensation, sales incentives and
payments to sales and marketing personnel, and the payment of expenses incurred
in its sales and promotional activities, including advertising expenditures
related to the Fund and the costs of preparing and distributing promotional
materials. The distribution fee may also be used to pay the financing costs of
carrying the unreimbursed expenditures described in this paragraph 2. Payment of
the distribution fee described in this Paragraph 2 shall be subject to any
limitations set forth in any applicable regulation of the National Association
of Securities Dealers, Inc.
3. The Corporation hereby authorizes the Distributor to enter into
Sub-Agreements with certain securities firms ("Securities Firms"), including
Merrill Lynch, Pierce, Fenner & Smith Incorporated, to provide compensation to
such Securities Firms for activities and services of the type referred to in
Paragraphs 1 and 2 hereof. the Distributor may reallocate all or a portion of
its account maintenance fee or distribution fee to such Securities Firms as
compensation for the above-mentioned activities and services. Such Sub-Agreement
shall provide that the Securities Firms shall provide the Distributor with such
information as is reasonably necessary to permit the Distributor to comply with
the reporting requirements set forth in Paragraph 4 hereof.
4. The Distributor shall provide the Corporation for review by the
Board of Directors, and the Directors shall review at least quarterly, a written
report complying with the requirements of Rule 12b-1 regarding the disbursement
of the account maintenance fee and the distribution fee during such period.
2
<PAGE> 3
5. This Plan shall not take effect until it has been approved, together
with any related agreements, by votes of a majority of both (a) the Directors of
the Corporation and (b) those Directors of the Corporation who are not
"interested persons" of the Corporation, as defined in the Investment Company
Act, and have no direct or indirect financial interest in the operation of this
Plan or any agreements related to it (the "Rule 12b-1 Directors"), cast in
person at a meeting or meetings called for the purpose of voting on the Plan and
such related agreements.
6. The Plan shall continue in effect for so long as such continuance is
specifically approved at least annually in the manner provided for approval of
the Plan in Paragraph 5.
7. The Plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Directors, or by vote of a majority of the outstanding Class B voting
securities of the Fund.
8. The Plan may not be amended to increase materially the rate of
payments provided for herein unless such amendment is approved by at least a
majority, as defined in the Investment Company Act, of the outstanding Class B
voting securities of the Fund, and by the Directors of the Corporation in the
manner provided for in Paragraph 5 hereof, and no material amendment to the Plan
shall be made unless approved in the manner provided for approval and annual
renewal in Paragraph 5 hereof.
9. While the Plan is in effect, the selection and nomination of
Directors who are not interested persons, as defined in the Investment Company
Act, of the Corporation shall be committed to the discretion of the Directors
who are not interested persons.
3
<PAGE> 4
10. The Corporation shall preserve copies of the Plan and any related
agreements and all reports made pursuant to Paragraph 4 hereof, for a period of
not less than six years from the date of the Plan, or the date of such agreement
or report, as the case may be, the first two years in an easily accessible
place.
IN WITNESS WHEREOF, the parties hereto have executed this Plan as of
the date first above written.
MERCURY ASSET MANAGEMENT FUNDS, INC.
on behalf of its series,
MERCURY GOLD AND MINING FUND
By ________________________________________
Title:
MERCURY FUNDS DISTRIBUTOR, a division of
PRINCETON FUNDS DISTRIBUTOR, INC.
By ________________________________________
Title:
4
<PAGE> 5
Exhibit 13(b)
CLASS B SHARES DISTRIBUTION PLAN SUB-AGREEMENT
AGREEMENT made as of the ____ day of ___________, 1998 by and between
Mercury Funds Distributor, a division of Princeton Funds Distributor, Inc., a
Delaware corporation (the "Distributor"), and Merrill Lynch, Pierce, Fenner &
Smith Incorporated, a Delaware corporation ("Securities Firm").
W I T N E S S E T H :
WHEREAS, the Distributor has entered into an agreement with Mercury
Asset Management Funds, Inc. a Maryland corporation (the "Corporation") on
behalf of its series, Mercury Gold and Mining Fund (the "Fund") pursuant to
which it acts as the exclusive distributor for the sale of Class B shares of
common stock of the Fund, par value $0.0001 per share (the "Class B Shares");
and
WHEREAS, the Distributor and the Corporation have entered into a Class
B Shares Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended (the "Act") pursuant to which the
Distributor receives an account maintenance fee from the Fund at the annual rate
of 0.25% of average daily net assets of the Fund relating to Class B Shares for
account maintenance activities related to the Class B Shares and a distribution
fee from the Fund at the annual rate of 0.75% of average daily net assets of the
Fund relating to Class B Shares for providing sales and promotional activities
and services related to the distribution of Class B Shares; and
WHEREAS, the Distributor desires the Securities Firm to perform certain
account maintenance activities and sales and promotional activities and services
for the Fund's Class B shareholders and the Securities Firm is willing to
perform such activities and services;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereby agree as follows:
1. The Securities Firm shall provide account maintenance activities and
services with respect to the Class B Shares of the types referred to in
Paragraph 1 of the Plan.
2. The Securities Firm shall provide sales and promotional activities
and services with respect to the sale of the Class B Shares and incur
distribution expenditures of the types referred to in paragraph 2 of the Plan.
3. As compensation for its activities and services performed under this
Agreement, the Distributor shall pay the Securities Firm an account maintenance
fee and a distribution fee at the end of each calendar month in an amount agreed
upon by the parties hereto.
<PAGE> 6
4. The Securities Firm shall provide the Distributor, at least
quarterly, such information as reasonably requested by the Distributor to enable
the Distributor to comply with the reporting requirements of Rule 12b-1
regarding the disbursement of the account maintenance fee and the distribution
fee during such period referred to in Paragraph 4 of the Plan.
5. This Agreement shall not take effect until it has been approved by
votes of a majority of both (a) the Directors of the Corporation and (b) those
Directors of the Corporation who are not "interested persons" of the
Corporation, as defined in the Act, and have no direct or indirect financial
interest in the operation of this Plan or any agreements related to it (the
"Rule 12b-1 Directors"), cast in person at a meeting or meetings called for the
purpose of voting on this Agreement.
6. This Agreement shall continue in effect for as long as such
continuance is specifically approved at least annually in the manner provided
for approval of the Plan in Paragraph 5.
7. This Agreement shall automatically terminate in the event of its
assignment or in the event of the termination of the Plan or any amendment to
the Plan that requires such termination.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
MERCURY FUNDS DISTRIBUTOR, a division of
PRINCETON FUNDS DISTRIBUTOR, INC.
By _____________________________________
Name:
Title:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By _____________________________________
Name:
Title:
2
<PAGE> 1
Exhibit 13(c)
CLASS C DISTRIBUTION PLAN OF
MERCURY GOLD AND MINING FUND OF
MERCURY ASSET MANAGEMENT FUNDS, INC.
PURSUANT TO RULE 12b-1
DISTRIBUTION PLAN made as of the ___ day of ___________, 1998, by and
between Mercury Asset Management Funds, Inc., a Maryland corporation (the
"Corporation"), on behalf of its series, Mercury Gold and Mining Fund (the
"Fund"), and Mercury Funds Distributor, a division of Princeton Funds
Distributor, Inc., a Delaware corporation (the "Distributor").
W I T N E S S E T H:
WHEREAS, the Corporation intends to engage in business as an open-end
investment company registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"); and
WHEREAS, the Directors of the Corporation (the "Directors") are
authorized to establish separate series relating to separate portfolios of
securities, each of which may offer separate classes of shares, and
WHEREAS, the Directors have established the Fund as a series of the
Corporation;
WHEREAS, the Distributor is a securities firm engaged in the business
of selling shares of investment companies either directly to purchasers or
through other securities dealers; and
WHEREAS, the Corporation on behalf of the Fund proposes to enter into a
Class C Shares Distribution Agreement with the Distributor, pursuant to which
the Distributor will act as the exclusive distributor and representative of the
Fund in the offer and sale of Class C shares of common stock, par value $0.0001
per share (the "Class C Shares"), of the Fund to the public; and
WHEREAS, the Corporation on behalf of the Fund desires to adopt this
Class C Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the
Investment Company Act pursuant to which the Fund will pay an account
maintenance fee and a distribution fee to the Distributor with respect to the
Fund's Class C Shares; and
WHEREAS, the Directors of the Corporation have determined that there is
a reasonable likelihood that adoption of the Plan will benefit the Fund and its
Class C shareholders.
<PAGE> 2
NOW, THEREFORE, the Corporation on behalf of the Fund hereby adopts,
and the Distributor hereby agrees to the terms of, the Plan in accordance with
Rule 12b-1 under the Investment Company Act on the following terms and
conditions:
1. The Corporation shall pay the Distributor with respect to the Class
C Shares an account maintenance fee under the Plan at the end of each month at
the annual rate of 0.25% of average daily net assets of the Fund relating to the
Class C Shares to compensate the Distributor and securities firms with which the
Distributor enters into related agreements pursuant to Paragraph 3 hereof
("Sub-Agreements") for providing account maintenance activities with respect to
Class C shareholders of the Fund. Expenditures under the Plan may consist of
payments to financial consultants for maintaining accounts in connection with
Class C Shares and payment of expenses incurred in connection with such account
maintenance activities including the costs of making services available to
shareholders including assistance in connection with inquiries related to
shareholder accounts.
2. The Corporation shall pay the Distributor a distribution fee under
the Plan at the end of each month at the annual rate of 0.75% of average daily
net assets of the Fund relating to Class C Shares to compensate the Distributor
and the securities firms with which the Distributor enters into related
Sub-Agreements for providing sales and promotional activities and services. Such
activities and services will relate to the sale, promotion and marketing of the
Class C Shares. Such expenditures may consist of sales commissions to financial
consultants for selling Class C Shares, compensation, sales incentives and
payments to sales and marketing personnel, and the payment of expenses incurred
in its sales and promotional activities, including advertising expenditures
related to the Fund and the costs of preparing and distributing promotional
materials. The distribution fee may also be used to pay the financing costs of
carrying the unreimbursed expenditures described in this paragraph 2. Payment of
the distribution fee described in this Paragraph 2 shall be subject to any
limitations set forth in any applicable regulation of the National Association
of Securities Dealers, Inc.
3. The Corporation hereby authorizes the Distributor to enter into
Sub-Agreements with certain securities firms ("Securities Firms"), including
Merrill Lynch, Pierce, Fenner & Smith Incorporated, to provide compensation to
such Securities Firms for activities and services of the type referred to in
Paragraphs 1 and 2 hereof. The Distributor may reallocate all or a portion of
its account maintenance fee or distribution fee to such Securities Firms as
compensation for the above-mentioned activities and services. Such Sub-Agreement
shall provide that the Securities Firms shall provide the Distributor with such
information as is reasonably necessary to permit the Distributor to comply with
the reporting requirements set forth in Paragraph 4 hereof.
4. The Distributor shall provide the Corporation for review by the
Board of Directors, and the Directors shall review at least quarterly, a written
report complying with the requirements of Rule 12b-1 regarding the disbursement
of the account maintenance fee and the distribution fee during such period.
2
<PAGE> 3
5. This Plan shall not take effect until it has been approved, together
with any related agreements, by votes of a majority of both (a) the Directors of
the Corporation and (b) those Directors of the Corporation who are not
"interested persons" of the Corporation, as defined in the Investment Company
Act, and have no direct or indirect financial interest in the operation of this
Plan or any agreements related to it (the "Rule 12b-1 Directors"), cast in
person at a meeting or meetings called for the purpose of voting on the Plan and
such related agreements.
6. The Plan shall continue in effect for so long as such continuance is
specifically approved at least annually in the manner provided for approval of
the Plan in Paragraph 5.
7. The Plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Directors, or by vote of a majority of the outstanding Class C voting
securities of the Fund.
8. The Plan may not be amended to increase materially the rate of
payments provided for herein unless such amendment is approved by at least a
majority, as defined in the Investment Company Act, of the outstanding Class C
voting securities of the Fund, and by the Directors of the Corporation in the
manner provided for in Paragraph 5 hereof, and no material amendment to the Plan
shall be made unless approved in the manner provided for approval and annual
renewal in Paragraph 5 hereof.
9. While the Plan is in effect, the selection and nomination of
Directors who are not interested persons, as defined in the Investment Company
Act, of the Corporation shall be committed to the discretion of the Directors
who are not interested persons.
10. The Corporation shall preserve copies of the Plan and any related
agreements and all reports made pursuant to Paragraph 4 hereof, for a period of
not less than six years from the date of the Plan, or the date of such agreement
or report, as the case may be, the first two years in an easily accessible
place.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have executed this Plan as of
the date first above written.
MERCURY ASSET MANAGEMENT FUNDS, INC.
on behalf of its series,
MERCURY GOLD AND MINING FUND
By ______________________________________
Title:
MERCURY FUNDS DISTRIBUTOR, a division of
PRINCETON FUNDS DISTRIBUTOR, INC.
By ______________________________________
Title:
4
<PAGE> 5
Exhibit 13(c)
CLASS C SHARES DISTRIBUTION PLAN SUB-AGREEMENT
AGREEMENT made as of the ____ day of ____________, 1998, by and between
Mercury Funds Distributor, a division of Princeton Funds Distributor, Inc., a
Delaware corporation (the "Distributor"), and Merrill Lynch, Pierce, Fenner &
Smith Incorporated, a Delaware corporation ("Securities Firm").
W I T N E S S E T H :
WHEREAS, the Distributor has entered into an agreement with Mercury
Asset Management Funds, Inc., a Maryland corporation (the "Corporation"), on
behalf of its series, Mercury Gold and Mining Fund (the "Fund"), pursuant to
which it acts as the exclusive distributor for the sale of Class C shares of
common stock of the Fund, par value $0.0001 per share (the "Class C Shares");
and
WHEREAS, the Distributor and the Corporation have entered into a Class
C Shares Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended (the "Act"), pursuant to which the
Distributor receives an account maintenance fee from the Fund at the annual rate
of 0.25% of average daily net assets of the Fund relating to Class C Shares for
account maintenance activities related to Class C Shares and a distribution fee
from the Fund at the annual rate of 0.75% of average daily net assets of the
Fund relating to Class C Shares for providing sales and promotional activities
and services related to the distribution of Class C Shares; and
WHEREAS, the Distributor desires the Securities Firm to perform certain
account maintenance activities and sales and promotional activities and services
for the Fund's Class C shareholders and the Securities Firm is willing to
perform such activities and services;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereby agree as follows:
1. The Securities Firm shall provide account maintenance activities and
services with respect to the Class C Shares and incur expenditures in connection
with such activities and services of the types referred to in Paragraph 1 of the
Plan.
2. The Securities Firm shall provide sales and promotional activities
and services with respect to the sale of the Class C Shares and incur
distribution expenditures, of the types referred to in Paragraph 2 of the Plan.
<PAGE> 6
3. As compensation for its activities and services performed under this
Agreement, the Distributor shall pay the Securities Firm an account maintenance
fee and a distribution fee at the end of each calendar month in an amount agreed
upon by the parties hereto.
4. The Securities Firm shall provide the Distributor, at least
quarterly, such information as reasonably requested by the Distributor to enable
the Distributor to comply with the reporting requirements of Rule 12b-1
regarding the disbursement of the account maintenance fee and the distribution
fee during such period referred to in Paragraph 4 of the Plan.
5. This Agreement shall not take effect until it has been approved by
votes of a majority of both (a) the Directors of the Corporation and (b) those
Directors of the Corporation who are not "interested persons" of the
Corporation, as defined in the Act, and have no direct or indirect financial
interest in the operation of the Plan, this Agreement or any agreements related
to the Plan or this Agreement (the "Rule 12b-1 Directors"), cast in person at a
meeting or meetings called for the purpose of voting on this Agreement.
6. This Agreement shall continue in effect for as long as such
continuance is specifically approved at least annually in the manner provided
for approval of the Plan in Paragraph 5.
7. This Agreement shall automatically terminate in the event of its
assignment or in the event of the termination of the Plan or any amendment to
the Plan that requires such termination.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
MERCURY FUNDS DISTRIBUTOR, a division of
PRINCETON FUNDS DISTRIBUTOR, INC.
By _______________________________________
Name:
Title:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By _______________________________________
Name:
Title:
2
<PAGE> 1
Exhibit 15
PLAN PURSUANT TO RULE 18f-3 UNDER THE INVESTMENT COMPANY ACT
The mutual funds operating pursuant to this Plan (individually a "Fund"
and, collectively, the "Funds") offer Class I Shares, Class A Shares, Class B
Shares and Class C Shares as follows:
Account Maintenance and Distribution Fees
Class A Shares, Class B Shares and Class C Shares bear the expenses of
the ongoing account maintenance fees applicable to the particular Class. Class B
Shares and Class C Shares bear the expenses of the ongoing distribution fees
applicable to the particular Class. Specific shareholders within a Class may be
subject to initial or contingent deferred sales charges as set forth in each
Fund's current prospectus and statement of additional information (together, the
"prospectus").
Transfer Agency Expenses
Each Class shall bear any incremental transfer agency cost applicable
to the particular Class.
Voting Rights
Each Class has exclusive voting rights on any matter submitted to
shareholders that relates solely to its account maintenance fees or ongoing
distribution fees, as may be applicable. Each Class shall have separate voting
rights on any matter submitted to shareholders in which the interests of one
Class differ from the interests of any other Class.
Dividends
Dividends paid on each Class will be calculated in the same manner at
the same time and will differ only to the extent that any account maintenance
fee, any distribution fee and any incremental transfer agency cost relates to a
particular Class.
Conversion Features
Holders of Class B Shares will have such conversion features to Class A
Shares as set forth in each Fund's current prospectus. Conversion features may
vary among holders of Class B Shares.
Exchange Privileges
<PAGE> 2
Holders of Class I Shares, Class A Shares, Class B Shares and Class C
Shares shall have such exchange privileges as set forth in each Fund's current
prospectus. Exchange privileges may vary among Classes and among holders of a
Class.
Other Rights and Obligations
Except as otherwise described above, in all respects, each Class shall
have the same rights and obligations as each other Class.
2
