As filed with the Securities and Exchange Commission on March 10, 2000
Securities Act File No. 333-
Investment Company Act File No. 811-08797
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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 [x]
Amendment No. 19
(Check appropriate box or boxes)
--------------------------
MERCURY SELECT GROWTH 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:
Counsel for the Fund:
JOEL H. GOLDBERG, Esq. ROBERT E. PUTNEY, III, Esq.
Swidler Berlin Shereff Friedman, LLP and P.O. Box 9011
The Chrysler Building Princeton, New Jersey 08543-9011
405 Lexington Avenue
New York, New York 10174
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of the Registration Statement.
--------------------------
Title of Securities
Being Registered.......... Shares of Common Stock (par value $.0001 per share)
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.
==============================================================================
<PAGE>
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities
may not be sold nor may offers to buy be accepted prior to the time the
registration statement becomes effective. This prospectus shall not
constitute an offer to sell or the solicitation of an offer to buy
nor shall there be any sale of these securities in any State in which such
offer, solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such State.
MERCURY SELECT GROWTH FUND
OF MERCURY ASSET MANAGEMENT FUNDS, INC.
Prospectus
, 2000 [GRAPHIC]
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.
MERCURY
ASSET MANAGEMENT
<PAGE>
<PAGE>
TABLE OF CONTENTS
PAGE
Fund Facts . . . . . . . . . . . . . . . . . . . . . . . . . . .2
ABOUT THE MERCURY SELECT GROWTH FUND. . . . . . . . . . . .2
FEES AND EXPENSES . . . . . . . . . . . . . . . . . . . . .4
About the Details. . . . . . . . . . . . . . . . . . . . . . . .6
HOW THE FUND INVESTS . . . . . . . . . . . . . . . . . . .6
INVESTMENT RISKS. . . . . . . . . . . . . . . . . . . . . .7
Account Choices. . . . . . . . . . . . . . . . . . . . . . . . .9
PRICING OF SHARES . . . . . . . . . . . . . . . . . . . . .9
HOW TO BUY, SELL, TRANSFER AND EXCHANGE SHARES. . . . . . 13
HOW SHARES ARE PRICED . . . . . . . . . . . . . . . . . . 17
FEE-BASED PROGRAMS. . . . . . . . . . . . . . . . . . . . 17
DIVIDENDS AND TAXES . . . . . . . . . . . . . . . . . . . 17
The Management Team. . . . . . . . . . . . . . . . . . . . . . 19
MANAGEMENT OF THE FUND. . . . . . . . . . . . . . . . . . 19
MASTER/FEEDER STRUCTURE . . . . . . . . . . . . . . . . . 20
FINANCIAL HIGHLIGHTS. . . . . . . . . . . . . . . . . . . 21
To Learn More. . . . . . . . . . . . . . . . . . . . . . . . . 23
SHAREHOLDER REPORTS . . . . . . . . . . . . . . . . . . . 23
STATEMENT OF ADDITIONAL INFORMATION . . . . . . . . . . . 23
<PAGE>
<PAGE>
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.
Very Large Cap Companies -
companies whose total market
capitalization is at least $10 billion.
Common Stock - shares 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.
Warrants - the right to buy a quantity of
stock. The warrant specifies the amount
of underlying stock, the purchase ("or
exercise") price, and the date the
warrant expires. The Fund has no
obligation to exercise the warrant and
buy the stock.
Rights to Purchase Common or
Preferred Stock - instruments giving
existing shareholders of a corporation
the right, but not the obligation, to buy
shares of the corporation at a given
price, usually below the market price,
during a specified period.
ABOUT THE MERCURY SELECT GROWTH FUND
- ------------------------------------
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The investment objective of the Fund is to seek capital appreciation. In other
words, the Fund tries to choose investments that will increase in value.
Current income from dividends and interest will not be an important
consideration in selecting portfolio securities.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests primarily in a diversified portfolio of common stocks and
other equity securities of VERY LARGE CAP COMPANIES that are traded in the
U.S. securities markets that Fund management believes have strong earnings
growth potential. The Fund may also purchase securities of smaller companies
that management believes offer growth potential. A company whose earnings per
share grow faster than inflation and the economy in general usually has a
higher stock price over time than a company with slower earnings growth. The
Fund's evaluation of the prospects for a company's industry or market sector
is an important factor in evaluating a particular company's earnings
prospects. The Fund may purchase COMMON STOCK, PREFERRED STOCK, WARRANTS,
RIGHTS TO PURCHASE COMMON OR PREFERRED STOCKS and other instruments.
The Fund's subadviser believes earnings expectations drive stock prices. The
Fund seeks to invest in companies with strong earnings dynamics, and to sell
those with deteriorating earnings prospects. The Fund's subadviser believes
forecasts for market timing and sector rotation are unreliable and introduce
an unacceptable level of risk. Therefore, the Fund attempts to keep the
portfolio fully invested under normal conditions and to maintain sector
weightings that are diversified against those of a benchmark index. This
allows the Fund management's stock selection process to be the primary
determinant of performance.
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 in which the Fund invests.
We cannot guarantee that the Fund will achieve its objective.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
As with any equity fund, the value of the Fund's investments therefore, the
value of Fund shares may go up or down. These changes in the Fund's
investments may occur because the U.S. stock market is rising or falling. At
other times, there are specific factors that may affect the value of a
particular investment. The Fund is also subject to the risk that the stocks
the Fund's subadviser selects will underperform the stock markets or other
funds with similar investment objectives and investment strategies. If the
value of the Fund's investments goes down, you may lose money. Due to its
investment
<PAGE>
<PAGE>
strategy, the Fund may buy and sell securities frequently. This may result in
higher transaction costs and additional capital gains tax liabilities.
WHO SHOULD INVEST?
The Fund may be an appropriate investment for you if you:
- - Are seeking long-term growth of capital and can withstand the share price
volatility of equity investing.
- - Want a professionally managed and diversified portfolio.
- - Are prepared to receive taxable short-term capital gains.
- - Are not looking for current income.
WHAT IS AN INDEX?
An index measures the market
price of a specific group of
securities in a particular market of
securities in a market sector. You
cannot invest directly in an index.
An index does not have an
investment adviser and does not
pay any commissions or expenses.
If an index had expenses, its
performance would be lower. The
Russell Top 200 Growth Index is a
widely-recognized, capitalization-
weighted (companies with larger
market capitalizations have more
influence than those with smaller
market capitalization) index of the
200 largest U.S. companies with
higher growth rates and price-to-
book ratios. The S&P 500 Index is
a widely-recognized, market value-
weighted index of 500 stocks
designed to mimic the overall
equity market's industry
weightings.
PERFORMANCE INFORMATION
From its inception on February 1, 1997 to _______, 2000, the Fund operated as
the Turner Large Cap Growth Equity Fund, a portfolio of the TIP Funds, whose
investment adviser is currently the Fund's subadviser.
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past
performance does not necessarily indicate how the Fund will perform in the
future.
This bar chart shows changes in the performance of the Fund's Class I shares
from year to year for its first two complete calendar years. Prior to
__________, 2000, the Class I shares were shares of the Turner Large Cap
Growth Equity Fund.
45.22% 55.71%
1998 1999*
BEST QUARTER WORST QUARTER
41.30% (8.19)%
(12/31/99) (9/30/98)
* For its services to the Fund as it was operated during fiscal year ending
May 31, 1999, the Subadviser received no advisory fees, and
waived/reimbursed expenses of [0.66]%. For fiscal year 1999, the
Subadviser earned ___% of the Fund's average daily net assets, but because
of the waiver/reimbursement arrangements, no fee was paid. If the
Subadviser had not waived its fee and reimbursed the Fund, the performance
figures shown above would have been lower.
The table below compares the average annual total returns for the Fund's Class
I shares for the periods ended December 31, 1999, to those of the Russell Top
200 Growth Index and the S&P 500 Index.
Since
Inception
1 Year (2/1/97)
------- ---------
Class I shares 55.71% 44.24%
Russell Top 200 Growth Index 29.68% 33.65%
S&P 500 Index 21.05% 25.83%
<PAGE>
<PAGE>
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 - These fees 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:
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
compensating financial consultants,
securities dealers and other financial
intermediaries, advertising and
promotion.
SERVICE (ACCOUNT MAINTENANCE) FEES -
fees used to compensate securities
dealers and other financial
intermediaries, dealers for personal
services to beneficial shareholders and
/or account maintenance activities.
FEES AND EXPENSES
- -----------------
The Fund offers four different classes of shares. Although your money will be
invested the same way no matter which class of shares you buy, there are
differences among the fees and expenses associated with each class. Not
everyone is eligible to buy every class. After determining which classes you
are eligible to buy, decide which class best suits your needs. Your 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.
Shareholder Fees
(fees paid directly from
your investment)(a): Class I Class A Class B(b) Class C
- ----------------------------------------------------------------------------
Maximum Sales Charge (Load)
imposed on purchases (as a
percentage of offering price) 5.25%(c) 5.25%(c) None None
- ----------------------------------------------------------------------------
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)
- -----------------------------------------------------------------------------
Maximum Sales Charge (Load)
imposed on Dividend
Reinvestments None None None None
- -----------------------------------------------------------------------------
Redemption Fee None None None None
- -----------------------------------------------------------------------------
Exchange Fee None None None None
- -----------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES
THAT ARE DEDUCTED FROM THE FUND'S TOTAL ASSETS)(E):
- -----------------------------------------------------------------------------
Management Fee(f) 0.50% 0.50% 0.50% 0.50%
- -----------------------------------------------------------------------------
Distribution and/or Service
(12b-1) Fees(g) None 0.35% 1.00% 1.00%
- -----------------------------------------------------------------------------
Other Expenses (including
transfer agency fees)(h) [ ] [ ] [ ] [ ]
Administrative Fees(i) 0.25% 0.25% 0.25% 0.25%
- -----------------------------------------------------------------------------
Total Other Expenses [ ] [ ] [ ] [ ]
- -----------------------------------------------------------------------------
Total Annual Fund
Operating Expenses [ ] [ ] [ ] [ ]
- -----------------------------------------------------------------------------
[Fee Waiver and/or Expense
Reimbursement(j)] [ ] [ ] [ ] [ ]
[Net Total Operating Expenses(k)][ ] [ ] [ ] [ ]
- -----------------------------------------------------------------------------
(a) In addition, certain securities dealers or other financial intermediaries
may charge a fee to process a purchase or sale of shares.
(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) The fees and expenses include the expenses of both the Fund and the
Portfolio it invests in.
(f) Paid by the Portfolio. The Investment Adviser pays the Subadviser out of
this fee. Prior to _____________, 2000, the Fund was managed solely by
the current subadviser under a contract that provided for a fee of
[___]%.. For the fiscal year ended May 31, 1999, the fee payable to the
Subadviser from the Fund was equal to [ %]. [For the fiscal year
ended May 31, 1999, the Fund reimbursed the Subadviser $_________ for
these services.]
<PAGE>
<PAGE>
(g) The Fund calls the "Service Fee" an "Account Maintenance Fee." Account
Maintenance Fee is the term used elsewhere in this Prospectus and in all
other materials. 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 a Service
(Account Maintenance) Fee of 0.25%. Class A shares are subject to
Distribution and Account Maintenance Fees of 0.35%.
(h) [Based on estimated amounts for the current fiscal year ending May 31.]
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. The Fund also pays a $0.20 monthly closed account charge,
which is assessed upon all accounts that close during the calendar year.
The fee begins the month following the month the account is closed and
ends at the end of the calendar year. The Investment Adviser or its
affiliate provides accounting services to the Portfolio at its cost.
(i) Paid by the Fund. The Administrator provides accounting services to the
Fund at its cost.
(j) The Investment Adviser and the Administrator have entered into
contractual arrangements with the Fund and the Portfolio to waive fees
and/or reimburse expenses of either the Fund or the Portfolio,
as necessary, to assure that annual net total operating expenses incurred
by each class of the Fund will not exceed the following: Class I: 1.25%;
Class A: 1.60%; Class B: 2.25%; and Class C:2.25%. These arrangements
have a one-year term and are renewable.
(k) The net total operating expenses reflect expenses actually incurred
during the Fund's fiscal year ended May 31, 1999 restated to reflect the
contractual fee waiver and/or expense reimbursement currently in effect.
EXAMPLES
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:
---
Class I Class A Class B Class C
- ------------------------------------------------------------------------------
One Year [ ] [ ] [ ] [ ]
- ------------------------------------------------------------------------------
Three Years [ ] [ ] [ ] [ ]
- -----------------------------------------------------------------------------
Five Years [ ] [ ] [ ] [ ]
- -----------------------------------------------------------------------------
Ten Years [ ] [ ] [ ] [ ]
- -----------------------------------------------------------------------------
<PAGE>
<PAGE>
Expenses if you did not redeem your shares:
Class I Class A Class B Class C
- ------------------------------------------------------------------------------
One Year [ ] [ ] [ ] [ ]
- ------------------------------------------------------------------------------
Three Years [ ] [ ] [ ] [ ]
- -----------------------------------------------------------------------------
Five Years [ ] [ ] [ ] [ ]
- -----------------------------------------------------------------------------
Ten Years [ ] [ ] [ ] [ ]
- ----------------------------------------------------------------------------
* Assumes conversion to Class A shares approximately eight years after
purchase. See note (b) to the Fees and Expenses table above.
<PAGE>
<PAGE>
ABOUT THE DETAILS
ABOUT THE PORTFOLIO MANAGEMENT TEAM -
The Fund is managed by a team of
investment professionals who participate in
the team's research process and stock
selection. The senior investment
professionals in this group include Robert
Turner, John Hammerschmidt and Mark
Turner. Robert Turner, the lead manager of
the Fund, is primarily responsible for the day-
to-day management of the Fund's portfolio.
About the Investment Adviser and the
Subadviser - Mercury Asset Management
US, a division of Fund Asset Management,
L.P., is the Fund's Investment Adviser.
Turner Investment Partners, Inc. is the Fund's
Subadviser.
American Depositary Receipts - securities
typically issued by a U.S. financial institution
called a depositary, that evidence ownership
interests in a security or pool of securities
issued by a foreign issuer and deposited with
the depositary.
HOW THE FUND INVESTS
- ----------------------------------
The Fund's objective is capital appreciation. The Fund tries to achieve its
objective by investing primarily in a diversified portfolio of common stocks
and other equity securities of companies that are traded in the U.S.
securities markets that, at the time of purchase, have market capitalizations
of at least $10 billion and that the Fund's management believes to have strong
earnings growth potential. The Fund seeks to purchase securities that are well
diversified across economic sectors. The Russell Top 200 Growth Index is the
Fund's current benchmark. Of course, there is no guarantee that the Fund will
achieve its investment goal.
The Fund will, under normal circumstances, invest at least 65% of its total
assets in equity securities of VERY LARGE CAP COMPANIES that are traded in the
U.S. securities markets, including warrants and rights to purchase common and
preferred stocks. The Fund may also invest any remaining assets in smaller
capitalization companies that Fund management believes offer strong earnings
growth potential.
The Fund generally invests no more than 2% of its assets in any single issue.
However, if a security comprises between 1% and 5% of the Russell Top 200
Growth Index, the Fund may devote a percentage of its assets to that security
up to two times its weighting in the Index, and for any security that comprise
more than 5% of the Index, up to 1 1/2 times its Index weighting.
The Fund will only purchase securities that are traded on registered exchanges
or the over-the-counter market in the United States. However, the Fund may
invest up to 10% of its total assets in AMERICAN DEPOSITARY RECEIPTS, or
"ADRs".
A company whose earnings per share grow faster than inflation and the economy
in general usually has a higher stock price over time than a company with
slower earnings growth. The Fund's evaluation of the prospects for a
company's industry or market sector is an important factor in evaluating a
particular company's earnings prospects. Current income from dividends and
interest will not be an important consideration in selecting portfolio
securities. 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
securities. The Fund is not required to hedge and may choose not to do so.
The Fund has no stated minimum holding period for investments, and will buy or
sell securities whenever Fund management sees an appropriate opportunity. The
Fund does not consider potential tax consequences to Fund shareholders when it
sells securities. Because the Fund has the flexibility to take advantage of
short term investment opportunities, it may experience relatively high
portfolio turnover during certain periods. High turnover increases the Fund's
brokerage expenses and may affect the shareholders' taxes by possibly
increasing short term capital gains or losses.
The investments and strategies described throughout this prospectus are those
that the Fund uses under normal conditions. During unusual economic or market
conditions, or for temporary defensive or liquidity purposes, the Fund may
invest up to 100% of its
<PAGE>
<PAGE>
assets in short-term obligations (such as money market instruments, including
U.S. Government securities, bank obligations, high quality commercial paper
and repurchase agreements involving the foregoing securities), cash and shares
of money market investment companies, that would not ordinarily be consistent
with the Fund's objectives. The Fund will do so only if management believes
that the risk of loss from its usual investments outweighs the opportunity for
gains. Short-term investments and temporary defensive positions may limit the
potential for growth in the value of your shares. Therefore, the Fund may not
achieve its investment objective while taking a defensive position as
described here.
The Fund may use different investment strategies in seeking its investment
objectives and it has certain investment restrictions. These strategies and
certain of the restrictions and polices governing the Fund's investments are
explained in the Fund's Statement of Additional Information. If you would
like to learn more about the Fund, request the Statement of Additional
Information.
INVESTMENT RISKS
- -------------------------------
This section contains a summary discussion of the general risks of investing
in the Fund. As with any mutual fund, there can be no guarantee that the Fund
will meet its goal, or that the Fund's performance will be positive over any
period of time.
STOCK MARKET RISK
Stock market risk is the risk that the U.S. stock market in which the Fund
invests will go down in value, including the possibility that the U.S. stock
market will go down sharply and unpredictably.
SELECTION RISK
Selection risk is the risk that the investments that Fund management selects
will underperform the stock markets or other funds with similar investment
objectives and investment strategies. The Fund is subject to the risk that its
principal market segment, very large capitalization growth stocks, may
underperform compared to other market segments or to the equity markets as a
whole.
LIQUIDITY, INFORMATION AND VALUATION RISKS
Certain securities, including 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 or legal restrictions on their resale and include
"private placement" securities that the Fund may buy directly from the issuer.
Also, important information about certain 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.
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
DERIVATIVES
The Fund may also use instruments referred to as "Derivatives." Derivatives
are financial instruments whose value is derived from another security, a
commodity (such as gold or oil) or an index (a measure of value or rates, such
as the S&P 500 or the prime lending rate). Derivatives are volatile and
involve risks, including many of the risks described above. Derivatives may
not always be available or cost efficient. If the Fund invests in derivatives,
the investments may not be effective as a hedge against price movements and
can limit potential for growth in Fund share value.
STATEMENT OF ADDITIONAL INFORMATION
- -----------------------------------
If you would like further information about the Fund, including how it
invests, please see the Statement of Additional Information.
<PAGE>
<PAGE>
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 Class A shares, you generally pay a
sales charge at the time of purchase. You may be eligible for a sales charge
reduction or waiver. If you buy Class A shares, you also pay ongoing
distribution and account maintenance fees of 0.35%, [up to 0.25% of which may
be for account maintenance fees.]
If you select Class B or Class C shares, you will invest the full amount of
your purchase price, but you will be subject to a distribution fee of 0.75%
and an account maintenance fee of 0.25%. Because these fees are paid out of
the Fund's assets on an ongoing basis, over time these fees increase the cost
of your investment and may cost you more than paying an initial sales charge.
In addition, you may be subject to a deferred sales charge when you sell Class
B or Class C shares.
The Fund's shares are distributed by Mercury Funds Distributor, a division of
Princeton Funds Distributor, Inc.
<PAGE>
<PAGE>
To better understand the pricing of the Fund's shares, we have summarized the
information below:
Class I Class A Class B Class C
- ------------------------------------------------------------------------------
Availability? Limited to certain Generally Generally Generally
investors including: available available available
-Current Class I through through through
shareholders selected selected selected
-Certain Retirement securities securities securities
Plans dealers or dealers dealers
-Participants in other financial or other or other
certain sponsored intermediaries financial financial
programs inter- inter-
-Certain affiliates of mediaries mediaries
selected securities
dealers
- -----------------------------------------------------------------------------
Initial Sales Yes. Payable at Yes. Payable No. Entire No. Entire
Charge? time of purchase. at time of purchase price purchase
Lower sales charges purchase. is invested price is
available for Lower sales in shares of invested
certain larger charges avail- the Fund. in shares
investments. able for of the
certain larger Fund.
investments.
Deferred Sales No.(May be charged No.(May be Yes. Payable Yes.Payable
Charge? for purchases over charged for if you redeem if you
$1 million that are purchases over within six redeem
redeemed within one $1 million that years of within one
year.) are redeemed purchase. year of
within one purchase.
year.)
- ------------------------------------------------------------------------------
Account No. 0.35% Distri- 0.25% Account 0.25% Account
Maintenance and bution and Maintenance Maintenance
Distribution Account Maint- Fee. 0.75% Fee. 0.75%
Fees? enance Fees. Distribution Distribution
Fee. Fee.
- -----------------------------------------------------------------------------
Conversion to No. No. Yes, auto- No.
Class A shares? matically
after approx-
imately 8
years.
- ------------------------------------------------------------------------------
<PAGE>
<PAGE>
CLASS I AND CLASS A SHARES INITIAL SALES CHARGE OPTIONS
If you select Class I or A shares, you will pay a sales charge at the time of
purchase as shown in the following table.
Dealer
As a % of As a % of Compensation
Offering Your as a % of
Your Investment Price Investment* Offering Price
- -----------------------------------------------------------------------------
Less than $25,000 5.25% 5.54% 5.00%
- -----------------------------------------------------------------------------
$25,000 but less than
$50,000 4.75% 4.99% 4.50%
- ------------------------------------------------------------------------------
$50,000 but less than
$100,000 4.00% 4.17% 3.75%
- -----------------------------------------------------------------------------
$100,000 but less than
$250,000 3.00% 3.09% 2.75%
- -----------------------------------------------------------------------------
$250,000 but less than
$1,000,000 2.00% 2.04% 1.80%
- ------------------------------------------------------------------------------
$1,000,000 and over** 0.00% 0.00% 0.00%
- ------------------------------------------------------------------------------
* 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. In that case, the Investment Adviser compensates the
selling dealer or other financial intermediary from its own funds. 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 Class 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.
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.
A reduced or waived sales charge on a purchase of Class I or Class 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
- Certain investors, including directors or trustees of mutual funds
sponsored by Mercury or its affiliates, employees of Mercury and its
affiliates and employees or customers 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
- Purchases through certain accounts over which Mercury or an affiliate
exercises investment discretion
<PAGE>
<PAGE>
In addition, a waived sales charge on a purchase of Class I shares will apply
to current shareholders who were also shareholders of the Fund on [closing
date].
Only certain investors are eligible to buy Class I shares. 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 distribution and account
maintenance fees of 0.35%, 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 CLASS 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
under distribution plans that the Fund has adopted under Rule 12b-1. Because
these fees are paid out of the Fund's assets on an ongoing basis, over time
these fees increase the cost of your investment and may cost you more than
paying an initial sales charge. 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,
dealer or other financial intermediary who assists you in your decision to
purchase Fund shares.
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:
Year Since Purchase Sales Charge*
--------------------------------------------------
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%
--------------------------------------------------
<PAGE>
<PAGE>
* The percentage charge will apply to the lesser of the original cost of the
shares being redeemed or the proceeds of your redemption. Shares acquired
through reinvestment of dividends are not subject to a deferred sales
charge. 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 may be reduced or waived
in certain circumstances, such as:
- Certain post-retirement withdrawals from an IRA or other retirement
plan if you are over 59 1/2 years old
- Redemption by certain eligible 401(a) and 401(k) plans, certain
related accounts and certain retirement plan rollovers
- 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
or, if later, reasonably promptly following completion of probate, or
in connection with involuntary termination of an account in which Fund
shares are held
- Withdrawal through the Systematic Withdrawal Plan of up to 10% per
year of your account value at the time the plan is established
Your Class B shares convert automatically into Class A shares approximately
eight years after purchase. Any Class B shares received through reinvestment
of dividends paid on converting shares will also convert at that time. Class 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. The deferred
sales charge relating to Class C shares may be reduced or waived in connection
with involuntary termination of an account in which Fund shares are held and
withdrawals through the Systematic Withdrawal Plan.
Class C shares do not offer a conversion privilege.
<PAGE>
<PAGE>
HOW TO BUY, SELL, TRANSFER AND EXCHANGE SHARES
- ----------------------------------------------------
The chart on the following pages 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.
Information important
If you want to Your choices for you to know
- ----------------------------------------------------------------------------
Buy shares First, select the Refer to the pricing of shares
share class appropriate table on page 9. Be sure to
for you read this Prospectus carefully
--------------------------------------------------------
Next, determine the The minimum initial investment
amount of your in- for the Fund is $1,000 for all
vestment 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 The price of your shares is
consultant, securities based on the next calculation
dealer, or financial of net asset value after your
intermediary submit your order is placed. Generally,
purchase order any purchase orders placed
prior to the close of business on
the New York Stock Exchange
(generally, 4:00 p.m. Eastern
time) will be priced at the
net asset value determined that
day. However, certain financial
intermediaries may require
submission of orders prior to
that time.
Purchase orders placed after that
time will be priced at the net
asset value determined on the
next business day. The Fund may
reject any order to buy shares
and may suspend the sale of
shares at any time. 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 To purchase shares directly, call
Agent the Transfer Agent at 1-888-763-
2260 and request a purchase
application. Mail the completed
purchase application to the
Transfer Agent at the address on
the inside back cover of this
Prospectus.
- ------------------------------------------------------------------------------
Add to your Purchase additional shares The minimum investment for
investment additional purchases is generally
$100 for 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 are automatically
through the automatic reinvested without a sales
dividend reinvestment plan charge
-------------------------------------------------------------
Participate in the automatic You may invest a specific amount
investment plan on a periodic basis through your
securities dealer or other
financial intermediary:
- The current minimum for such
automatic investments is
$100. The minimum may be
waived or revised under
certain circumstances.
- ------------------------------------------------------------------------------
<PAGE>
Information important
If you want to Your choices for you to know
- ----------------------------------------------------------------------------
Transfer shares to Transfer to a participating To transfer your shares of
another securities securities dealer or finan- the Fund to another securi-
dealer or financial cial intermediary ties dealer or financial
intermediary intermediary, an authorized
dealer agreement must be in
place between the
Distributor and that entity,
the transferring securities
dealer and the Distributor
and the receiving securities
dealer. Certain shareholder
services may not be
available for the
transferred shares. You may
only purchase additional
shares of funds previously
owned before the transfer.
All future trading of
these assets must be
coordinated by the receiving
firm.
----------------------------------------------------------
Transfer to a non- You must either:
participating - Transfer your shares
securities dealer or to an account with the
financial intermediary Transfer Agent; or
- Sell your shares,
paying any applicable
deferred sales charge.
- ------------------------------------------------------------------------------
Sell your shares Have your financial con- The price of your shares is
sultant, securities dealer, based on the next calculation
or financial intermediary of net asset value after your
submit your sales order order is placed. Generally,
for your redemption request
to be priced at the net asset
value on the day of your
request, you must submit your
request to your financial
intermediary prior to
that day's close of business
on the New York Stock
Exchange (generally, 4:00
p.m. Eastern time). However,
certain financial inter-
mediaries may require
submission of orders prior to
that time. Any redemption
request placed after that
time will be priced at the
net asset value at the close
of business on the next
business day.
Certain financial inter-
mediaries 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. No processing
fee is charged if you redeem
the shares directly through
the Transfer Agent. The fees
charged by other financial
intermediaries may be
higher or lower.
The Fund may reject an order
to sell shares under certain
circumstances.
-----------------------------------------------------------
Sell through the Transfer You may sell shares held at
Agent the Transfer Agent by writing
to the Transfer Agent at the
address on the inside back
cover of this Prospectus. All
shareholders on the account
must sign the letter. A
signature guarantee will
generally be required but may
be waived in certain limited
circumstances. You can obtain
a signature guarantee from a
bank, securities dealer,
securities broker, credit
union, savings association,
national securities exchange
and registered securities
association. A notary public
seal will not be acceptable.
The Transfer Agent will
normally mail redemption
proceeds within seven days
following receipt of a
properly completed request. If
you make a redemption request
before the Fund has collected
payment for the purchase of
shares, the Fund or the
Transfer Agent may delay
mailing your proceeds. This
delay usually will not exceed
ten days.
- ------------------------------------------------------------------------------
<PAGE>
<PAGE>
Information important
If you want to Your choices for you to know
- ------------------------------------------------------------------------------
Sell shares Participate in the Fund's You can choose to receive
systematically Systematic Withdrawal Plan systematic payments from your
Fund account either by check
or through direct deposit to
your bank account on a monthly
or quarterly basis. You can
generally arrange through your
selected dealer or other
financial intermediary for
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 automatically
reinvested. For Class B and C
shares your total annual
withdrawals cannot be more
than 10% per year of the value
of your shares at the time the
Plan is established. The
deferred sales charge is
waived for systematic sales
of shares. Ask your financial
consultant for details.
- ------------------------------------------------------------------------------
Exchange your shares Select the fund into You can exchange your shares
which you want to of the Fund for shares of
exchange. Be sure to other Mercury mutual funds
read that fund's pros- or for shares of the Summit
pectus Cash 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 shares and wish to
exchange into a fund in which
you have no Class I shares and
you are not eligible to buy
Class I shares, you will
exchange into Class A shares.
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.
Because of the high cost of
maintaining smaller
shareholder accounts, the Fund
may redeem the shares in your
account (without charging any
deferred sales charge) if the
net asset value of your
account falls below $500 due
to redemptions you have made.
You will be notified that the
value of your account is less
than $500 before the Fund
makes an involuntary
redemption. You will then
have 60 days to make an
additional investment to bring
the value of your account to
at least $500 before the Fund
takes any action. This
involuntary redemption does
not apply to retirement plans
or Uniform Gifts or Transfers
to Minors Act accounts.
- ------------------------------------------------------------------------------
Certain financial intermediaries may charge additional fees in connection with
transactions in Fund shares. The Fund may accept orders from certain
authorized financial intermediaries or their designees. The Fund will be
deemed to receive an order when accepted by the intermediary or designee and
the order will receive the NAV next computed by the Fund after such
acceptance. If the payment for a purchase order is not made by a designated
later time, the order will be canceled and the financial intermediary could
be held liable for any losses.
The Investment Adviser, the Distributor or their affiliates may make payments
out of their own resources to securities dealers and
other financial intermediaries for providing services intended to result in
the sale of Fund shares or for shareholder servicing
activities.
<PAGE>
<PAGE>
NET ASSET VALUE -- the market value in
U.S. dollars of the Fund's total assets
after deducting liabilities, divided by
the number of shares outstanding.
DIVIDENDS -- ordinary income and
capital gains paid to shareholders.
Dividends may be reinvested in
additional Fund shares as they are
paid.
HOW SHARES ARE PRICED
- ------------------------------------------------------------------------------
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 after the close of business on the Exchange, based
on prices at the time of closing. The Exchange generally closes at 4:00 p.m.
Eastern time. The net asset value used in determining your price is the one
calculated after your purchase or redemption order is placed. Net asset value
is generally calculated by valuing each security at its closing price for the
day. Securities and assets for which market quotations are not readily
available are generally 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 because Class B and Class C shares have
higher distribution and transfer agency fees. 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.
FEE-BASED PROGRAMS
- ------------------------------------------------------------------------------
If you participate in certain fee-based programs offered by Mercury or an
affiliate of Mercury, or by selected dealers or other financial intermediaries
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 Summit. 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.
<PAGE>
<PAGE>
"BUYING A DIVIDEND" Unless your
investment is in a tax-deferred
account, you may want to avoid
buying shares shortly before the Fund
pays a dividend. The reason? If you
buy shares when a fund has realized
but not yet distributed ordinary
income or capital gains, you will pay
the full price for the shares and then
receive a portion of the price back in
the form of a taxable dividend. Before
investing you may want to consult
your tax advisor.
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 financial intermediary.
DIVIDENDS AND TAXES
- ------------------------------------------------------------------------------
The Fund will distribute at least annually any net investment income and any
net realized long or short-term capital gains. The Fund may also pay a special
distribution at the end of the calendar year to comply with Federal tax
requirements. DIVIDENDS may be reinvested automatically in shares of the Fund
at net asset value without a sales charge or may be taken in cash. If 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 in
cash, contact the Transfer Agent.
You will pay tax on dividends from the Fund whether you receive them in cash
or additional shares. If you redeem Fund shares or exchange them for shares of
another fund, any gain on the transaction may be subject to tax. Capital gain
dividends are generally taxed at different rates than ordinary income
dividends.
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 redemption
proceeds if you have not provided a taxpayer identification number or social
security number or if the number you have provided is incorrect.
This section summarizes some of the consequences under current Federal tax law
of an investment in the Fund. It is not a substitute for personal tax advice.
Consult your personal tax advisor about the potential tax consequences of an
investment in the Fund under all applicable tax laws.
<PAGE>
<PAGE>
THE MANAGEMENT TEAM
MANAGEMENT OF THE FUND
- ------------------------------------------------------------------------------
Mercury Asset Management US, a division of Fund Asset Management, L.P.
("Mercury" or the "Investment Adviser") is the investment adviser to the Fund.
Mercury has been the manager of the underlying Portfolio's investments under
the overall supervision of the Board of Trustees of the Mercury Asset
Management Master Trust since _________, 2000. Mercury and its affiliates
manage portfolios with over $___ billion in assets (as of _______ 2000) for
individuals and institutions seeking investments worldwide. This amount
includes assets managed for its affiliates.
The Investment Adviser is paid at the rate of 0.50% of the Portfolio's average
daily net assets.
From February 1, 1997 to _________, 2000, the Fund operated as a portfolio of
the TIP Funds. During that period, Turner Investment Partners, Inc. was the
investment adviser to the Fund. For fiscal year ending September 30, 1999,
Turner
Investment Partners, Inc. was paid at the rate of ___% of the Fund's average
daily net assets. Pursuant to a sub-advisory agreement with the Investment
Adviser, Turner Investment Partners, Inc. (the "Subadviser") is currently the
Portfolio's subadviser. The Subadviser makes investment decisions for the
Fund and continuously reviews, supervises and administers the Fund's
investment programs. The Subadviser also ensures compliance with the Fund's
investment policies and guidelines. As of December 31, 1999, the Subadviser
had approximately $5.6 billion in assets under management.
The Subadviser manages the Portfolio's underlying investments through a
committee of investment professionals comprised of Robert Turner, John
Hammerschmidt and Mark Turner. The background of each committee member is set
forth below.
Robert E. Turner, CFA, Chairman and Chief Investment Officer of the
Subadviser, is lead manager of the Fund. Mr. Turner also manages other
investment funds and accounts. Mr. Turner founded Turner Investment Partners,
Inc. in 1990. Prior to 1990, he was Senior Investment Manager with Meridian
Investment Company. He has 19 years of investment experience.
John Hammerschmidt, Senior Equity Portfolio Manager of the Subadviser, is co-
manager of the Fund. Mr. Hammerschmidt also manages other investment funds and
accounts. Mr. Hammerschmidt joined the Subadviser in 1992. Prior to 1992, he
was Vice President in Government Securities Trading at S.G. Warburg. He has 17
years of investment experience.
Mark Turner, Vice Chairman of the Subadviser, is co-manager of the Fund. Mr.
Turner also manages other investment funds and accounts. Mr. Turner co-
founded Turner Investment Partners, Inc. in 1990. Prior to 1990, he was Vice
President and Senior Portfolio Manager with First Maryland Asset Management.
He has 18 years of investment experience.
The Fund does not have an investment adviser, since the Fund's assets will be
invested in the Portfolio. Fund Asset Management, L.P. provides
administrative services to the Fund.
<PAGE>
<PAGE>
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.
A NOTE ABOUT YEAR 2000
As the year 2000 began, there were few problems caused by the inability of
certain computer systems to tell the difference between the year 2000 and the
year 1900 (commonly known as the "Year 2000 Problem"). It is still possible
that some computer systems could malfunction in the future because of the Year
2000 Problem or as a result of actions taken to address the Year 2000 Problem.
Fund management does not anticipate that its services or those of the Fund's
other service providers will be adversely affected, but Fund management will
continue to monitor the situation. If malfunctions related to the Year 2000
Problem do arise, the Fund and its investments could be negatively affected.
<PAGE>
<PAGE>
FINANCIAL HIGHLIGHTS
The Financial Highlights table is intended to help you understand the Fund's
performance for the period February 1, 1997 (commencement of operations) to
[September 30, 1999]. Certain information reflects financial results for a
single Fund share. The total returns in the table represent the rate that an
investor would have earned on an investment in the Fund (assuming reinvestment
of all dividends). The financial highlights for the fiscal years ended
September 30,] were audited by Ernst & Young LLP, independent auditors, whose
report was unqualified. The report of Ernst & Young LLP, along with the
Fund's financial statements, is included in the Fund's 1999 annual report to
shareholders, which is available upon request.
- ------------------------------------------------------------------------------
For The Periods Ended [September 30]: 1999 1998 1997(1)
- ------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $13.22 $12.28 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.08) (0.01) 0.01
Net Gains or Losses on Securities
(both realized and unrealized) 5.76 1.98 2.27
Total From Investment Operations 5.68 [ ] [ ]
LESS DISTRIBUTIONS
Dividends (from net investment income) ---- (0.01) ----
Distributions (from capital gains) ---- (1.02) ----
Returns of Capital ---- ---- ----
Total Distributions ---- [ ] [ ]
Net Asset Value, End of Period $18.90 $13.22 $12.28
TOTAL RETURN+ 42.97% 17.26% 22.8%
RATIOS SUPPLEMENTAL DATA
Net Assets, End of Period (000) $8,459 $4,328 $701
Ratio of Expenses to Average Net Assets
(including directed brokerage arrangements) 1.00% 1.00% 1.00%*
Ratio of Expenses to Average Net Assets
(including waivers and reimbursements) 1.00% 1.00% 1.00%*
Ratio of Net Income (Loss) to
Average Net Assets (0.47)% (0.10)% 0.20%*
Ratio of Expenses to Average Net Assets
(excluding waivers and reimbursements) 2.41% 7.70% 26.45%*
Ratio of Investment Income (Loss) to
Average Net Assets (exclude waivers
and reimbursements) (1.88)% (6.80)% (25.25)%*
Portfolio Turner Rate 370.71% 234.93% 346.47%*
* Annualized
+ Returns are for the period indicated and have not been annualized.
(1) Commenced operations on February 1, 1997.
<PAGE>
<PAGE>
FUND
Mercury Select Growth Fund
of Mercury Asset Management Funds, Inc.
P.O. Box 9011
Princeton, New Jersey 08543-9011
(888-763-2260)
INVESTMENT ADVISER
Mercury Asset Management US,
a division of Fund Asset Management, L.P.
800 Scudders Mill Road
Plainsboro, New Jersey 08536
SUBADVISER
Turner Investment Partners, Inc.
1235 Westlakes Drive, Suite 350
Berwyn, PA 19312
ADMINISTRATOR
Fund Asset Management, L.P.
800 Scudders Mill Road
Plainsboro, New Jersey 08536
TRANSFER AGENT
Financial Data Services, Inc.
Administrative Offices
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(888-763-2260)
Mailing Address:
P.O. Box 45289
Jacksonville, Florida 32232-5289
INDEPENDENT AUDITORS
[to be added]
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
The Chrysler Building
405 Lexington Avenue
New York, New York 10174
<PAGE>
<PAGE>
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 Financial Data Services, Inc., P.O. Box 45289, Jacksonville, Florida
32232- 5289 or by calling 1-888-763-2260.
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 1-202- 942-8090 for information on the operation of the Public
Reference Room. This information is also available on the SEC's Internet Site
at http://www.sec.gov and copies may be obtained upon payment of a duplicating
fee by electronic request at the following e-mail address: [email protected],
or writing the Public Reference Section of the SEC, Washington, D.C.
20549-0102.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. NO ONE
IS AUTHORIZED TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM THE
INFORMATION IN THIS PROSPECTUS.
Investment Company Act File #811-08797.
CODE #___________
Mercury Asset Management US
MERCURY SELECT
GROWTH FUND
OF MERCURY ASSET
MANAGEMENT FUNDS, INC.
[PICTURE]
PROSPECTUS - ___________, 2000
MERCURY
ASSET MANAGEMENT
<PAGE>
<PAGE>
PART B.
STATEMENT OF ADDITIONAL INFORMATION
MERCURY SELECT GROWTH FUND
OF MERCURY ASSET MANAGEMENT FUNDS, INC.
P.O. Box 9011, Princeton, New Jersey 08543-9011 Phone No. (888) 763-2260
-----------------------
Mercury Select Growth 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 capital appreciation. The Fund seeks to
achieve this objective through investments primarily in a diversified
portfolio of common stocks and other equity securities of very large cap
companies that are traded in the U.S. securities markets that Fund management
believes have strong earnings growth potential. The Fund will seek to achieve
its investment objective by investing all of its assets in Mercury Master
Select Growth 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 realized.
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 ____________ __,
2000 (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 1-888-763-2260 or your financial consultant or other financial
intermediary, or by writing to the address listed above. This Statement of
Additional Information incorporates by reference the Prospectus. The Fund's
and Portfolio's audited financial statements are incorporated in this
Statement of Additional Information by reference to its 1999 annual report to
shareholders. You may request a copy of the annual report at no charge by
calling 1-888-763-2260 between 8:00 a.m. and 8:00 p.m. on any business day.
MERCURY ASSET MANAGEMENT US INVESTMENT ADVISER
MERCURY FUNDS DISTRIBUTOR DISTRIBUTOR
The date of this Statement of Additional Information is _________ __, 2000
<PAGE>
<PAGE>
TABLE OF CONTENTS
INVESTMENT OBJECTIVES AND POLICIES.................................2
Investment Restrictions.......................................7
Portfolio Turnover............................................9
MANAGEMENT OF THE FUND............................................10
Directors and Officers.......................................10
Compensation of Directors/Trustees...........................11
Administration Arrangements..................................12
Management and Advisory Arrangements.........................12
Code of Ethics...............................................14
PURCHASE OF SHARES................................................14
Reduced Initial Sales Charges................................17
Distribution Plans...........................................18
Limitations on the Payment of Deferred Sales Charges.........20
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..............................25
PRICING OF SHARES.................................................27
Determination of Net Asset Value.............................27
SHAREHOLDER SERVICES..............................................28
Investment Account...........................................28
Automatic Investment Plan....................................29
Automatic Dividend Reinvestment Plan.........................29
Systematic Withdrawal Plan...................................29
Retirement and Education Savings Plans.......................30
Exchange Privilege...........................................30
Fee-Based Programs...........................................32
DIVIDENDS AND TAXES...............................................32
Dividends....................................................32
Taxes........................................................32
Tax Treatment of Options Transactions........................34
Special Rules for Certain Foreign Currency Transactions......35
Other Tax Matters............................................35
PERFORMANCE DATA..................................................35
GENERAL INFORMATION...............................................38
Description of Shares........................................38
Computation of Offering Price Per Share......................38
Independent Auditors.........................................39
Custodian....................................................39
Transfer Agent...............................................39
Legal Counse................................................l39
Reports to Shareholders......................................39
Additional Information.......................................39
FINANCIAL STATEMENTS..............................................40
APPENDIX A.......................................................A-1
APPENDIX B.......................................................B-1
<PAGE>
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of the Fund is capital appreciation. This is a
fundamental policy and cannot be changed without shareholder approval. The
Fund tries to achieve its goal by investing primarily (and, under normal
conditions, at least 65% of its total assets) in a diversified portfolio of
common stocks and other equity securities of companies whose total market
capitalization is at least $10 billion that are traded in the U.S. securities
markets that Fund management believes have strong earnings growth potential.
The Fund seeks to purchase securities that are well diversified across
economic sectors. The Russell 200 Growth Index is the Fund's current
benchmark. The Fund may invest its remaining assets in securities issued by
smaller capitalization companies that management believes offer growth
potential, as well as warrants and rights to purchase common stocks. The Fund
will only purchase securities that are traded on registered exchanges or the
over-the-counter market in the United States. The Fund may also purchase
shares of other investment companies and foreign securities. 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 is classified as a
diversified Fund under the Investment Company Act of 1940, as amended (the
"Investment Company Act").
The Fund seeks 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 are 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. In addition, for simplicity, although Mercury Asset Management US
(the "Investment Adviser" or "Mercury US"), a division of Fund Asset
Management, L.P. ("FAM" or the "Administrator") is the Fund's investment
adviser, this Statement of Additional Information[, like the Prospectus,] uses
the term "Investment Adviser" to include both Mercury US and the Subadviser,
unless the context requires otherwise. 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 realized.
Due to its investment strategy, the Fund may engage in trading for
short-term gains. The Fund 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 Fund may invest up to 10% of its total assets in the securities of
non-U.S. issuers in the form of American Depositary Receipts ("ADRs"). ADRs
are receipts typically issued by a U.S. bank or trust company that evidence
ownership of underlying securities issued by a non-U.S. corporation.
Generally, ADRs, in registered form, are designed for use in the U.S.
securities markets. The Fund may invest in unsponsored ADRs. The issuers of
unsponsored ADRs are not obligated to disclose material information in the
United States, and therefore, there may 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
<PAGE>
<PAGE>
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.
Mid Cap Companies. The Fund may invest in common stocks and other equity
securities of U.S. companies with medium market capitalizes (i.e., between $1
billion and $10 billion) that Fund management believes have strong earnings
growth potential. Medium capitalization companies may be more vulnerable to
adverse business or economic events than larger, more established companies.
In particular, these mid-size companies may have limited product lines,
markets and financial resources, and may depend upon a relatively small
management group.
Foreign Security Risks. The Fund may invest in securities of foreign
issuers with a strong U.S. trading presence, as well as in sponsored and
unsponsored ADRs. As a result, the Fund's investments may include companies
organized, traded or having substantial operations outside the U.S. This may
expose the Fund to risks associated with foreign investments. Foreign
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 may invest in companies that issue 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 investments
may be subject to non-U.S. withholding taxes. Although the Fund may invest in
securities denominated in currencies other than the U.S. dollar, it has no
present intention to do so.
Convertible Securities. Although the Fund may invest in convertible
securities, it has no present intention to do so. Convertible securities
entitle the holder to receive interest payments paid on corporate debt
securities or the dividend preference on a preferred stock until such time as
the convertible security matures or is redeemed or until the holder elects to
exercise the conversion privilege.
The characteristics of convertible securities include the potential for
capital appreciation as the value of the underlying common stock increases,
the relatively high yield received from dividend or interest payments as
compared to common stock dividends and decreased risks of decline in value
relative to the underlying common stock due to their fixed-income nature. As a
result of the conversion feature, however, the interest rate or dividend
preference on a convertible security is generally less than would be the case
if the securities were issued in non-convertible form.
In analyzing convertible securities, the Investment Adviser will consider
both the yield on the convertible security and the potential capital
appreciation that is offered by the underlying common stock.
<PAGE>
<PAGE>
Convertible securities are issued and traded in a number of securities
markets. Even in cases where a substantial portion of the convertible
securities held by the Fund are denominated in U.S. dollars, the underlying
equity securities may be quoted in the currency of the country where the
issuer is domiciled. With respect to a convertible security denominated in a
currency different from that of the underlying equity security, the conversion
price may be based on a fixed exchange rate established at the time the
security is issued. As a result, fluctuations in the exchange rate between the
currency in which the debt security is denominated and the currency in which
the share price is quoted will affect the value of the convertible security.
Apart from currency considerations, the value of a convertible security
is influenced by both the yield of non-convertible securities of comparable
issuers and by the value of the underlying common stock. The value of a
convertible security viewed without regard to its conversion feature (i.e.,
strictly on the basis of its yield) is sometimes referred to as its
``investment value.'' To the extent interest rates change, the investment
value of the convertible security typically will fluctuate. However, at the
same time, the value of the convertible security will be influenced by its
``conversion value,'' which is the market value of the underlying common stock
that would be obtained if the convertible security were converted. Conversion
value fluctuates directly with the price of the underlying common stock. If,
because of a low price of the common stock the conversion value is
substantially below the investment value of the convertible security, the
price of the convertible security is governed principally by its investment
value.
To the extent the conversion value of a convertible security increases to
a point that approximates or exceeds its investment value, the price of the
convertible security will be influenced principally by its conversion value. A
convertible security will sell at a premium over the conversion value to the
extent investors place value on the right to acquire the underlying common
stock while holding a fixed-income security.
Debt Securities. The Fund may hold convertible and non-convertible debt
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 that are 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 unrated but, in the Investment Adviser's judgment,
possess similar credit characteristics ("high yield securities"). The
Investment Adviser considers ratings as one of several factors in its
independent credit analysis of issuers.
Issuers of high yield securities may be highly leveraged and may not have
available to them more traditional methods of financing. Therefore, the risks
associated with acquiring the securities of such issuers generally are greater
than is the case with higher rated securities. For example, during an economic
downturn or a sustained period of rising interest rates, issuers of high yield
securities may be more likely to experience financial stress, especially if
such issuers are highly leveraged. High yield securities tend to be more
volatile than higher rated fixed income securities and adverse economic events
may have a greater impact on the prices of high yield securities than on
higher rated fixed 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
<PAGE>
<PAGE>
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.
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 and Leverage. 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, and may use borrowing to enable it to meet
redemptions. The Fund will not purchase securities while its borrowings
exceed 5% of its assets.
Although the Fund may use leverage for purposes other than for clearance
of securities transactions and to provide initial and variation margin
payments in connection with transactions involving futures contracts and
options on futures, it has no present intention to do so. The use of leverage
by the Fund creates an opportunity for greater total return, but, at the same
time, creates special risks. For example, leveraging may exaggerate changes in
the net asset value of Fund shares and in the yield on the Fund's portfolio.
Although the principal of such borrowings will be fixed, the Fund's assets may
change in value during the time the borrowings are outstanding. Borrowings
will create interest expenses for the Fund which can exceed the income from
the assets purchased with the borrowings. To the extent the income or capital
appreciation derived from securities purchased with borrowed funds exceeds the
interest the Fund will have to pay on the borrowings, the Fund's return will
<PAGE>
<PAGE>
be greater than if leverage had not been used. Conversely, if the income or
capital appreciation from the securities purchased with such borrowed funds is
not sufficient to cover the cost of borrowing, the return to the Fund will be
less than if leverage had not been used, and therefore the amount available
for distribution to shareholders as dividends and other distributions will be
reduced. In the latter case, the Investment Adviser in its best judgment
nevertheless may determine to maintain the Fund's leveraged position if it
expects that the benefits to the Fund's shareholders of maintaining the
leveraged position will outweigh the current reduced return.
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 sold in private placement
transactions between issuers and their purchasers and may be neither listed on
an exchange nor traded in other established markets. In many cases, privately
placed securities may be less liquid and more difficult to value than publicly
traded securities. To the extent that privately placed securities may be
resold in privately negotiated transactions, the prices realized from the
sales, due to illiquidity, could be less than those originally paid by the
Fund or less than their fair market value. In addition, issuers whose
securities are not publicly traded may not be subject to the disclosure and
other investor protection requirements that may be applicable if their
securities were publicly traded. If any privately placed securities held by
the Fund are required to be registered under the securities laws of one or
more jurisdictions before being resold, the Fund may be required to bear the
expenses of registration. Certain of the Fund's investments in private
placements may consist of direct investments and may include investments in
smaller, less-seasoned issuers, which may involve greater risks. These issuers
may have limited product lines, markets or financial resources, or they may be
dependent on a limited management group. In making investments in such
securities, the Fund may obtain access to material nonpublic information which
may restrict the Fund's ability to conduct portfolio transactions in such
securities.
144A Securities. The Fund may purchase restricted securities that can be
offered and sold to "qualified institutional buyers" under Rule 144A under the
Securities Act. The Board of Directors has determined to treat as liquid Rule
144A securities that are either (i) freely tradable in their primary markets
offshore or (ii) non-investment grade debt securities which the Fund's
management determines are as liquid as publicly registered non-investment
grade debt securities. The Board of Directors has adopted guidelines and
delegated to the Fund's management the daily function of determining and
monitoring liquidity of restricted securities. The Board of Directors,
<PAGE>
<PAGE>
however, will retain sufficient oversight and be ultimately responsible for
the determinations. Since it is not possible to predict with assurance exactly
how this market for restricted securities sold and offered under Rule 144A
will develop, the Board of Directors will carefully monitor investments in
these securities. This investment practice could have the effect of increasing
the level of illiquidity in the Fund to the extent that qualified
institutional buyers become for a time uninterested in purchasing these
securities.
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, 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.
<PAGE>
<PAGE>
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, Delayed Delivery Securities and Forward
Commitments. The Fund may purchase or sell securities that it is entitled to
receive on a when issued basis. The Fund may also purchase or sell securities
on a delayed delivery basis. 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 that a security purchased or sold through a forward
commitment will be delivered. The value of securities in these transactions on
the delivery date may be more or less than the Fund's purchase price. The Fund
may bear the risk of a decline in the value of the security in these
transactions and may not benefit from an appreciation in the value of the
security during the commitment period.
Other Special Considerations. The Fund may invest without limit in cash,
repurchase agreements and short-term obligations 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.
<PAGE>
<PAGE>
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
<PAGE>
<PAGE>
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.
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
<PAGE>
<PAGE>
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 Fund's Board of Directors are not subject
to the limitations set forth in this investment restriction.
[(d) The Fund may not purchase additional securities while its
borrowings exceed 5% of its total assets.]
If a percentage restriction on the investment or use of assets set forth
above is adhered to at the time a transaction is effected, later changes in
percentages resulting from changing values will not be considered a violation.
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 transactions, the sum of the market value
of OTC options currently outstanding which are held by the Fund or Portfolio,
the market value of the underlying securities covered by OTC call options
currently outstanding which were sold by the Fund or Portfolio and margin
deposits on the Fund or Portfolio's existing OTC options on futures contracts
exceed 15% of the net assets of the Fund or Portfolio, taken at market value,
together with all other assets of the Fund or Portfolio which are illiquid or
are not otherwise readily marketable. However, if an 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
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, the Fund and
Portfolio are prohibited from engaging in certain transactions involving
Merrill Lynch, the Investment Adviser, or any of its affiliates, except for
<PAGE>
<PAGE>
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.
PORTFOLIO TURNOVER
The portfolio turnover rate is calculated by dividing the lesser of the
Fund's annual sales or purchases of portfolio securities (exclusive of
purchases or sales of securities whose maturities at the time of acquisition
were one year or less) by the monthly average value of the securities in the
portfolio during the year. A high rate of portfolio turnover results in
correspondingly higher brokerage commission expenses and may also result in
negative tax consequences, such as an increase in capital gains dividends or
in ordinary income dividends.
For the fiscal years ended [September 30,] 1997, 1998, and 1999 the
Fund's portfolio turnover rates were as follows: 346.47%, 234.93% and
370.71%.
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 (52) --Director and President(1)(2) -- President of MLAM
----------------------
and FAM since 1997; President and Director of Princeton Services, Inc. since
1997; Executive Vice President of Merrill Lynch & Co., Inc. ("ML & Co.") since
1997; Co-Head of Merrill Lynch Investment Banking Division from March 1997 to
December 1997; Director of Merrill Lynch Global Securities Research and
Economics Division from 1995 to 1997; Head of Merrill Lynch Global Industries
Group from 1993 to 1995.
Terry K. Glenn (58) -- 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.
<PAGE>
<PAGE>
David O. Beim (59) -- Director(2)(3) -- 410 Uris Hall, Columbia
--------
University, New York, New York 10027. Professor of Finance and Economics at
the Columbia University Graduate School of Business since 1991; Chairman of
Outward Bound USA since 1997; Chairman of Wave Hill, Inc. since 1980.
James T. Flynn (60) -- Director(2)(3) -- 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 (47) -- Director(2)(3) -- Harvard Business School, Morgan
--------
Hall 393, Soldiers Field, Boston, Massachusetts 02163. Industrial Bank of
Japan Professor of Finance, Senior Associate Dean and Chairman of the MBA
Program of Harvard University Graduate School of Business Administration since
1999; James R. Williston Professor of Business Administration of Harvard
University Graduate School of Business from 1997 to 1999; 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 (49)-- Director(2)(3)-- 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; Director of the Cooke
Center for Learning and Development, a not-for-profit organization, since
1987.
Peter John Gibbs (41) -- Senior Vice President(1)(2) -- 33 King William
---------------------
Street, London, EC4R 9AS, England. Chairman and Chief Executive Officer 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. since 1997.
Donald C. Burke (39) -- Treasurer and Vice President(1)(2) -- Senior Vice
----------------------------
President and Treasurer of MLAM and FAM since 1999; Senior Vice President and
Treasurer of Princeton Services, Inc. since 1999; Vice President of Princeton
Funds Distributor, Inc. since 1999; First Vice President of MLAM and FAM from
1997 to 1999; Director of Taxation of MLAM since 1990; Vice President of MLAM
and FAM from 1990 to 1997.
Robert E. Putney, III (39) -- Secretary(1)(2) -- 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 and administrator, FAM,
or their affiliates, acts as investment adviser.
(3) Member of the Corporation's and Trust's Audit and Nominating Committee,
which is responsible for the selection of the independent auditors and the
selection and nomination of Directors and Trustees not affiliated with the
Investment Adviser or with an affiliate of the Investment Adviser (each a
"non-interested Director/Trustee").
<PAGE>
<PAGE>
As of February 1, 2000 the officers and Directors of the Corporation as a
group (nine 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 pay each non-interested Director/Trustee,
for service to the Fund and the Portfolio, a fee of $3,000 per year plus $500
per Board meeting attended. The Corporation and the Trust also compensate
each member of the Audit and Nominating Committee (the "Committee"), which
consists of all of the non-interested Directors/Trustees, at a rate of $1,000
per year. The Corporation and the Trust reimburse each non-interested
Director/Trustee for his out-of-pocket expenses relating to attendance at
Board and Committee meetings.
The following table sets forth the aggregate compensation the Corporation
and the Trust expect to pay to the non-interested Directors/Trustees for their
first full fiscal year and the aggregate compensation paid by all investment
companies advised by the Investment Adviser or its affiliates ("Mercury US and
Affiliates-Advised Funds") to the non-interested Directors/Trustees for the
calendar year ending [December 31, 1999].
Total Compensation
from Fund/Port-
Pension or folio and Mercury
Retirement Benefits and Affiliates
Aggregate Compen- Accrued as Part Advised Funds
Name of sation from Fund/ of Fund/Portfolio Paid to Directors/
Director/Trustee Portfolio Expenses Trustees (1)
- ------------------ ------------------ ------------------ ----------------
David O. Beim [$5,500] None $35,667
James T. Flynn [$5,500] None $67,500
W. Carl Kester [$5,000] None $67,167
Karen P. Robards [$5,500] None $35,667
- -------------------
(1)In addition to the Corporation and the Trust, the Directors/Trustees served
on other Mercury and Affiliates-Advised Funds as follows: Mr. Beim (1
registered investment company consisting of 2 portfolios); Mr. Flynn (3
registered investment companies consisting of 8 portfolios); Mr. Kester (3
registered investment companies consisting of 8 portfolios); and Ms. Robards
(1 registered investment company consisting of 2 portfolios).
The Directors of the Corporation and the Trustees of the Trust may purchase
Class I shares of the Fund at net asset value. See "Purchase of Shares --
Reduced Initial Sales Charges -- Purchase Privileges of Certain Persons."
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. For the
fiscal years ended [September 30, 1997, 1998, and 1999] the Fund paid SEI
Investments Mutual Funds Services (the predecessor Fund's administrator) the
following administrative fees (net of waivers): $ 3,057, $ 31,129 and $
65,307.
<PAGE>
<PAGE>
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 US as Investment Adviser
(the "Investment 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 0.50%
of the average daily net assets of the Portfolio. For the fiscal years ended
[September 30, 1997, 1998 and 1999], the Fund paid (had reimbursed) the
following advisory fees to Turner Investment Partners: $0, $(79,930) and
$(49,999). For the fiscal years ended [September 30, 1997, 1998 and 1999],
Turner Investment Partners had waived advisory fees of $2,281, $15,530 and
$56,778, respectively.
The Investment Advisory Agreement obligates the Investment Adviser to
provide investment advisory services and to pay, or cause an affiliate to pay,
for maintaining its staff and personnel and to provide office space,
facilities and necessary personnel for the Trust. The Investment Adviser is
<PAGE>
<PAGE>
also obligated to pay, or cause an 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
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 non-
interested Trustees, accounting and pricing costs (including the daily
calculation of net asset value), insurance, interest, brokerage costs,
litigation and other extraordinary or non-recurring expenses, and other
expenses properly payable by the Trust or the Portfolio. 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. The Distributor will pay certain promotional expenses of the Fund
incurred in connection with the offering of shares of the Fund. Certain
expenses will be financed by the Fund pursuant to distribution plans in
compliance with Rule 12b-1 under the Investment Company Act. See "Purchase of
Shares Distribution Plans."
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 of the Investment Adviser or an
affiliate when one or more clients of the Investment Adviser or an affiliate
are selling the same security. If purchases or sales of securities arise for
consideration at or about the same time that would involve the Fund or other
clients or funds for which the Investment Adviser or an affiliate act as
manager, 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 an affiliate 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 US, a division of FAM, is located at 800 Scudders Mill Road,
Plainsboro, New Jersey 08536. FAM 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 ownership
of its voting securities or their power to exercise a controlling influence
over its management or policies.
Mercury US has entered into a sub-advisory agreement (the "Sub-Advisory
Agreement") with Turner Investment Partners with respect to the Portfolio,
pursuant to which Turner Investment Partners manages the Portfolio to the
extent not managed by Mercury US. Mercury US will pay Turner Investment
Partners a fee in an amount to be determined from time to time by Mercury US
and Turner Investment Partners but in no event in excess of the amount that
Mercury US actually receives for providing services to the Trust pursuant to
the Investment Advisory Agreement.
Turner Investment Partners, 1235 Westlakes Drive, Suite 350, Berwyn, PA
19312, is a professional investment management firm founded in March 1990.
<PAGE>
<PAGE>
Robert E. Turner is the Chairman and controlling shareholder of Turner
Investment Partners. As of December 31, 1999, the Turner Investment Partners
had discretionary management authority with respect to approximately $5.61
billion of assets. Turner Investment Partners has provided investment
advisory services to investment companies since 1992.
Duration and Termination. Unless earlier terminated as described below,
-------------------------
the Investment Advisory Agreement and Sub-Advisory Agreement will each
continue 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 of the Trust or by a majority of the outstanding shares of the
Portfolio and (b) by a majority of the Trustees of the Trust who are not
parties to the Investment Advisory Agreement or Sub-Advisory Agreement or
interested persons (as defined in the Investment Company Act) of any such
party. The Investment Advisory Agreement and Sub-Advisory Agreement are not
assignable and will automatically terminate in the event of its assignment.
In addition, such contracts may be terminated with respect to the Portfolio by
the vote of a majority of the outstanding voting securities of such Portfolio,
or by the Investment Adviser without penalty on 60 days written notice to the
other party.
Transfer Agency Services. Financial Data Services, inc. (the "Transfer
------------------------
Agent"), a subsidiary of ML & Co., acts as the Fund's Transfer Agent pursuant
to a Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing
Agency Agreement (the "Transfer Agency Agreement"). Pursuant to the Transfer
Agency Agreement, the Transfer Agent is responsible for the issuance, transfer
and redemption of shares and the opening and maintenance of shareholder
accounts. Pursuant to the Transfer Agency Agreement, the Transfer Agent
receives annual fee ranging 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. The Transfer Agent is entitled to
reimbursement for certain transaction charges and out-of-pocket expenses
incurred by the Transfer Agent under the Transfer Agency Agreement.
Additionally, a $0.20 monthly closed account charge will be assessed on all
accounts which close during the calendar year. Application of this fee will
commence the month following the month the account is closed. At the end of
the calendar year, no further fees will be due. For purposes of the Transfer
<PAGE>
<PAGE>
Agency Agreement, the term "account" includes a shareholder account maintained
directly by the Transfer Agent and any other account representing the
beneficial interest of a person in the relevant share class on a recordkeeping
system, provided the recordkeeping system is maintained by a subsidiary of ML
& Co.
Distribution Expenses. The Corporation has entered into a distribution
----------------------
agreement with the Distributor with respect to each class of Fund shares in
connection with the continuous 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 financial intermediaries and
potential 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 Investment
Advisory Agreement described above.
CODE OF ETHICS
The Board of Trustees of the Trust, the Board of Directors of the
Corporation, the Investment Adviser, and the Subadviser 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 the Subadviser 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 the Subadviser and provide for trading "blackout periods" that
prohibit trading by decision making access persons (those who recommend or
determine which securities transactions the Trust undertakes) of the Trust
within periods of trading by the Trust in the same (or equivalent) security.
PURCHASE OF SHARES
Reference is made to "Account Choices -- How to Buy, Sell, Transfer and
Exchange Shares" in the Prospectus.
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 bears the expenses of the ongoing
distribution and the account maintenance fees and 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,
as applicable, 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
<PAGE>
<PAGE>
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 Fund offers its shares at a public offering price equal to the next
determined net asset value per share plus any sales charge application to the
class of shares selected by the investor. The applicable offering price for
purchase orders is based upon the net asset value of the Fund next determined
after receipt of the purchase order by the Distributor. As to purchase orders
received by securities dealers or other financial intermediaries prior to the
close of business on the New York Stock Exchange (the "NYSE") (generally 4:00
p.m., Eastern time) which includes orders received after the determination of
net asset value on the previous day, the applicable offering price will be
based on the net asset value on the day the order is placed with the
Distributor.
The Fund or the Distributor may suspend the continuous offering of the
Fund's shares of any class at any time in response to conditions in the
securities markets or otherwise and may thereafter resume such offering from
time to time. Any order may be rejected by the Fund or the Distributor.
Neither the Distributor nor the dealers or other financial intermediaries are
permitted to withhold placing orders to benefit themselves by a price change.
Certain securities dealers or other financial intermediaries may charge a fee
to process a sale of shares. For example, the fee charged by Merrill Lynch is
currently $5.35. Purchase made directly through the Transfer Agent are not
subject to the processing fee.
Initial Sales Charge Alternatives -- Class I and Class A Shares
Investors who prefer an initial sales charge alternative may elect to
purchase Class A shares or, if an eligible investor, Class I shares.
Investors choosing the initial sales charge alternative who are eligible to
purchase Class I shares should purchase Class I shares rather than Class A
shares, because there are distribution and account maintenance fees imposed on
Class A shares. Investors qualifying for significantly reduced initial sales
charges may find the initial sales charge alternative particularly attractive,
because similar sales charge reductions are not available with respect to the
deferred sales charges imposed in connection with purchases of Class B or
Class C shares. Investors not qualifying for reduced initial sales charges
who expect to maintain their investment for an extended period of time also
may elect to purchase Class I or Class A shares, because over time the
accumulated ongoing account maintenance and distribution fees on Class B or
Class C shares may exceed the initial sales charges, and, in the case of Class
A shares, the distribution and account maintenance fees. Although some
investors who previously purchased Class I shares may no longer be eligible to
purchase Class I shares of other Mercury Funds, those previously purchased
Class I shares, together with Class A, Class B and Class C share holdings,
<PAGE>
<PAGE>
will count toward a right of accumulation which may qualify the investor for a
reduced initial sales charge on new initial sales charge purchases. In
addition, the ongoing Class B and Class C account maintenance and distribution
fees will cause Class B and Class C shares to have higher expense ratios, pay
lower dividends and have lower total returns than the initial sales charge
shares. The ongoing Class A distribution and account maintenance fees will
cause Class A shares to have a higher expense ratio, pay lower dividends and
have a lower total return than Class I shares.
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.
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 the Investment
Adviser 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 Funds, including the Corporation, and to
employees of certain selected dealers or other financial intermediaries. Class
I shares may also be offered at net asset value to certain accounts over which
Mercury or an affiliate exercises investment discretion.
The Distributor may reallow discounts to selected dealers or other
financial intermediaries and retain the balance over such discounts. At times
the Distributor may reallow the entire sales charge to such dealers or other
<PAGE>
<PAGE>
financial intermediaries. Since securities dealers or other financial
intermediaries selling Class I and Class A shares of the Fund will receive a
concession equal to most of the sales charge, they may be deemed to be
underwriters under the Securities Act.
REDUCED INITIAL SALES CHARGES
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 to obtain such investments.
Reinvested Dividends. No initial sales charges are imposed upon Class I
--------------------
and Class A shares issued as a result of the automatic reinvestment of
dividends.
Right 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 the Investment Adviser 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
<PAGE>
<PAGE>
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 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. Members of the Board of
--------------------------------------
Directors of the Corporation and Trustees of the Trust and of other investment
companies advised by the Investment Adviser 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 US, FAM and certain other
entities directly or indirectly wholly owned and controlled by ML & Co.),
employees of certain selected dealers or other financial intermediaries, 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. The Fund realizes
economies of scale and reduction of sales-related expenses by virtue of the
familiarity of these persons with the Fund. Employees and directors or
trustees wishing to purchase shares of the Fund must satisfy the Fund's
suitability standards.
Class I and Class A shares are also offered at net asset value to certain
accounts over which Mercury or an affiliate exercises investment discretion.
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. Class A shares may be
-------------------------------------------
offered at net asset value in connection with the acquisition of the assets of
or merger or consolidation with a personal holding company or a public or
private investment company.
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
<PAGE>
<PAGE>
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 contingent deferred sales charge ("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 or other financial
intermediary.
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
the Mercury from time to time.
A waived sales charge on a purchase of Class I shares will apply to
current shareholders who were also shareholders of the Fund on [closing date].
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 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 the Class A shares provides that the Fund pays
the Distributor distribution and account maintenance fees relating to the
shares of the relevant class, accrued daily and paid monthly, at the annual
rate of 0.35% 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 or other financial intermediaries (pursuant to
sub-agreements) in connection with distribution and account maintenance
activities. The Distribution Plan for each of the Class B and Class C shares
provides that the Fund pays the Distributor an account maintenance fee
relating to the shares of the relevant class, accrued daily and paid monthly,
at the annual rate of 0.25% of the average daily net assets of the Fund
attributable to shares of the relevant class in order to compensate the
Distributor and selected dealers or other financial intermediaries (pursuant
to sub-agreements) in connection with account maintenance activities.
The Distribution Plan for each of the Class B and Class C shares provides
that the Fund also pays the Distributor a distribution fee relating to the
shares of the relevant class, accrued daily and paid monthly, at the annual
rate of 0.75% of the average daily net assets of the Fund attributable to the
shares of the relevant class in order to compensate the Distributor and
selected dealers or other financial intermediaries (pursuant to
sub-agreements) for providing shareholder and distribution services, and
bearing certain distribution-related expenses of the Fund, including payments
to financial consultants or other financial intermediaries for selling Class B
and Class C shares of the Fund. The Distribution Plans relating to Class B and
<PAGE>
<PAGE>
Class C shares are designed to permit an investor to purchase Class B and
Class C shares through dealers or other financial intermediaries without the
assessment of an initial sales charge and at the same time permit the dealer
or other financial intermediary to compensate its financial consultants or
other financial intermediaries in connection with the sale of the Class B and
Class C shares. In this regard, the purpose and function of the ongoing
distribution fees and the CDSC are the same as those of the initial sales
charge with respect to the Class 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 Board of Directors of the Corporation for their
consideration in connection with their deliberations as to the continuance of
the Class A, 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
or other financial intermediaries in connection with the Class A, Class B and
Class C shares, and there is no assurance that the Board of 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 Board of
Directors of the Corporation 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
"Account Choices -- How to Buy, Sell, Transfer and Exchange Shares" in the
Prospectus.
In their consideration of each Distribution Plan, the Board of Directors
of the Corporation 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 non-interested Directors shall be committed to the discretion of
the non-interested Directors then in office. In approving each Distribution
<PAGE>
<PAGE>
Plan in accordance with Rule 12b-1, the non-interested 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 non-
interested Directors or by the vote of the holders of a majority of the
outstanding related class of voting securities of the Fund. A Distribution
Plan cannot be amended to increase materially the amount to be spent by the
Fund without the approval of the related class of shareholders, and all
material amendments are required to be approved by the vote of Directors,
including a majority of the non-interested Directors who have no direct or
indirect financial interest in 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 or the CDSC
borne by the Class A, 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 A, 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).
REDEMPTION OF SHARES
Reference is made to "Account Choices -- How to Buy, Sell, Transfer and
Exchange Shares" in the Prospectus.
The Fund is required to redeem for cash all shares of the Fund upon
receipt of a written request in proper form. The redemption price is the net
asset value per share next determined after the initial receipt of proper
notice of redemption. Except for any CDSC that may be applicable, there will
be no charge for redemption if the redemption request is sent directly to the
Transfer Agent. Shareholders liquidating their holdings will receive upon
redemption all dividends reinvested through the date of redemption.
The right to redeem shares or to receive payment with respect to any such
redemption may be suspended for more than seven days only for periods during
which trading on the NYSE is restricted as determined by the Commission or
during which the NYSE is closed (other than customary weekend and holiday
closings), for any period during which an emergency exists, as defined by the
Commission, as a result of which disposal of portfolio securities or
determination of the net asset value of the Fund is not reasonably
practicable, and for such other periods as the Commission may by order permit
for the protection of shareholders of the Fund.
<PAGE>
<PAGE>
The value of shares at the time of redemption may be more or less than
the shareholder's cost, depending in part on the market value of the
securities held by the Fund at such time.
Because of the high cost of maintaining smaller shareholder accounts, the
Fund may redeem the shares in your account (without charging any deferred
sales charge) if the net asset value of your account falls below $500 due to
redemptions you have made. You will be notified that the value of your
account is less than $500 before the Fund makes an involuntary redemption.
You will then have 60 days to make an additional investment to bring the value
of your account to at least $500 before the Fund takes any action. This
involuntary redemption does not apply to retirement plans or Uniform Gifts or
Transfers to Minors Act accounts ("UGMA/UTMA accounts").
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.
Redemption requests delivered other than by mail should be delivered to
Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville,
Florida 32246-6484. Proper notice of redemption in the case of shares
deposited with the Transfer Agent may be accomplished by a written letter
requesting redemption. Redemption request should not be sent to the Fund. The
redemption request in either event requires the signature(s) of all persons in
whose name(s) the shares are registered, signed exactly as such name(s)
appear(s) on the Transfer Agent's register. The signature(s) on the redemption
request may require a guarantee by an "eligible guarantor institution" as
defined in Rule 17Ad-15 under the Securities Exchange Act of 1934, the
existence and validity of which may be verified by the Transfer Agent through
the use of industry publications. In the event a signature guarantee is
required, notarized signatures are not sufficient. In general, signature
guarantees are waived on redemptions of less than $50,000 as long as the
following requirements are met: (i) all requests require the signature(s) of
all persons whose name(s) shares are recorded on the Transfer Agent's
register; (ii) all checks must be mailed to the stencil address of record on
the Transfer Agent's register and (iii) the stencil address must not have
changed within 30 days. Certain rules may apply regarding certain account
types such as, but not limited to UGMA/UTMA accounts, Joint Tenancies with
Right of Survivorship, contra broker transactions, and institutional accounts.
In certain instances, the Transfer Agent may require additional documents such
as, but not limited to, trust instruments, death certificates, appointments as
executor or administrator, or certificates of corporate authority. 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 (e.g., cash, Federal Funds or certified
check drawn on a U.S. bank). The Fund may delay or cause to be delayed the
mailing of a redemption check until such time as good payment (e.g., cash,
Federal Funds or certified check drawn on a U.S. bank) has been collected for
the purchase of such Fund shares, which will usually not exceed 10 days.
<PAGE>
<PAGE>
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 the order is placed. Shares will be priced at the net
asset value calculated on the day the request is received, provided that the
request for repurchase is submitted to the dealer prior to the close of
business on the NYSE (generally the NYSE closes at 4:00 p.m., Eastern time)
and such request is received by the Fund from such 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
or other financial intermediaries 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 or other financial
intermediaries 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
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.
<PAGE>
<PAGE>
As discussed in the Prospectus under "Account Choices -- Pricing of
Shares -- Class B and Class 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 may be reduced or waived in certain
instances. These include certain post-retirement withdrawals from an IRA or
other retirement plan or redemption of Class B shares in certain circumstances
following the death of a Class B shareholder. In the case of such withdrawal,
the reduction or waiver applies to: (a) any partial or complete redemption in
connection with a distribution following retirement under a tax-deferred
retirement plan on 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); or (b) 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 or, if later, reasonably
promptly following completion of probate or in connection with involuntary
termination of an account in which fund shares are held (certain legal
documentation may be required at the time of liquidation establishing
eligibility for qualified distribution).
The charge may also be reduced or waived in other instances such as: (c)
redemptions by certain eligible 401(a) and 401(k) plans and certain retirement
plan rollovers; (d) redemptions in connection with participation in certain
fee-based programs managed by the Investment Adviser or its affiliates; (e)
redemptions in connection with participation in certain fee-based programs
managed by selected dealers or other financial intermediaries that have
agreements with Mercury or its affiliates; 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 be assessed on an amount equal to
the lesser of the proceeds of redemption or the cost of shares being redeemed
and 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
<PAGE>
<PAGE>
connection with participation in certain fee-based programs, involuntary
termination of an account in which Fund shares are held, and withdrawals
through the Systematic Withdrawal Plan.
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 or other financial intermediaries 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 or financial intermediaries 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.
Conversion of Class B Shares to Class A Shares. As discussed in the
-----------------------------------------------
Prospectus under "Account Choices -- Pricing of Shares -- Class B and Class 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"). Automatic conversion of Class B
shares into Class A shares will occur at least once each month (on the
"Conversion Date") on the basis of the relative net asset value of the shares
of the two classes on Conversion Date, without the imposition of any sales
charge, fee or other charge.
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.
Merrill Lynch compensates its financial consultants or other financial
intermediaries for selling Class B and Class C shares at the time of purchase
<PAGE>
<PAGE>
from its own funds. Proceeds from CDSC and the ongoing distribution fee are
paid to the Distributor and are used in whole or in part by the Distributor to
defray the expenses of dealers (including Merrill Lynch) related to providing
distribution-related services to the Fund in connection with the sale of the
Class B and Class C shares, such as the payment of compensation to financial
consultants or other financial intermediaries for selling Class B and Class C
shares from the dealers' own funds. The combination of the CDSC and the
ongoing distribution fee facilitates the ability of the Fund to sell the Class
B and Class C shares without a sales charge being deducted at the time of
purchase. See "Purchase of Shares -- Distribution Plans" above. Impositions
of the CDSC and the distribution fee on Class B and Class C shares is limited
by the NASD asset-based sales charge rule. See "Purchase of Shares --
Limitations on the Payment of Deferred Sales Charges" above.
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. Subject to policies established by the Board of Trustees,
the Investment Adviser is primarily responsible for the execution of the
Portfolio's portfolio transactions and the allocation of brokerage. The Trust
has no obligation to deal with any broker or group of brokers in the execution
of transactions in portfolio securities and does not use any particular broker
or dealer. In executing transactions with brokers and dealers, the Investment
Adviser seeks to obtain the best net results for the Portfolio, taking into
account such factors as price (including the applicable brokerage commission
or dealer spread), size of order, difficulty of execution and operational
facilities of the firm and the firm's risk in positioning a block of
securities. While the Investment Adviser generally seeks reasonable
competitive commission rates, the Portfolio does not necessarily pay the
lowest spread or commission available. In addition, consistent with the
Conduct Rules of the NASD and policies established by the Board of Trustees,
the Investment Adviser may consider sales of shares of the Portfolio as a
factor in the selection of brokers or dealers to execute portfolio
transactions for the Trust; however, whether or not a particular broker or
dealer sells shares of a Portfolio neither qualifies nor disqualifies such
broker or dealer to execute transactions for the Trust.
Subject to obtaining the best net results, brokers who provide
supplemental investment research services 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 its Investment Advisory Agreement
and the expenses of the Investment Adviser will not necessarily be reduced as
a result of the receipt of such supplemental information. If in the judgment
of the Investment Adviser the Trust will benefit from supplemental research
services, the Investment Adviser is authorized to pay brokerage commissions to
a broker furnishing such services that are in excess of commissions that
another broker may have charged for effecting the same transaction. Certain
supplemental research services may primarily benefit one or more other
investment companies or other accounts for which the Investment Adviser
exercises investment discretion. Conversely, the Trust may be the primary
beneficiary of the supplemental research services received as a result of
<PAGE>
<PAGE>
portfolio transactions effected for such other accounts or investment
companies.
The Trust anticipates that its brokerage transactions involving
securities of issues domiciled in countries other than the United States
generally will be conducted primarily on the principal stock exchanges of such
countries. Brokerage commissions and other transactions costs on foreign
stock exchange transactions generally are higher than in the United States,
although the Trust will endeavor to achieve the best net results in effecting
its portfolio transactions. There generally is less government supervision
and regulation of foreign stock exchanges and brokers than in the United
States.
For the period [ ] to [ ], Merrill Lynch was
not an affiliate of the Fund.
The Trust may invest in certain securities traded in the OTC market and
intends to deal directly with the dealers who make a market in securities
involved, except in those circumstances in which better prices and execution
are available elsewhere. Under the Investment Company Act, persons affiliated
with the Trust and persons who are affiliated with such affiliated persons are
prohibited from dealing with the Trust as principal in the purchase and sale
of securities unless a permissive order allowing such transactions is obtained
from the Commission. Since transactions in the OTC market usually involve
transactions with dealers acting as principal for their own accounts, the
Trust will not deal with affiliated persons, including Merrill Lynch and its
affiliates, in connection with such transactions. However, an affiliated
person of the Trust may serve as its broker in OTC transactions conducted by
an agency basis provided that, among other things, the fee or commission
received by such affiliated broker is reasonable and fair compared to the fee
or commission received by non-affiliated brokers in connection with comparable
transactions. In addition, the Trust may not purchase securities during the
existence of any underwriting syndicate for such securities of which Merrill
Lynch is a member or in a private placement in which Merrill Lynch serves as
placement agent except pursuant to procedures approved by the Board of
Trustees of the Trust that either comply with rules adopted by the Commission
or with interpretations of the Commission staff. See "Investment Objectives
and Policies -- Investment Restrictions."
Section 11(a) of the Exchange Act generally prohibits members of the U.S.
national securities exchanges from executing exchange transactions for their
affiliate and institutional accounts that they manage unless the member (i)
has obtained prior express authorization from the account to effect such
transactions, (ii) at least annually furnishes the account with the aggregate
compensation received by the member in effecting such transactions, and (iii)
complies with any rules the Commission has prescribed with respect to the
requirements of clauses (i) and (ii). To the extent Section 11(a) would apply
to Merrill Lynch acting as a broker for the Trust in any of its portfolio
transactions executed on any such securities exchange of which it is a member,
appropriate consents have been obtained from the Trust and annual statements
as to aggregate compensation will be provided to the Trust.
The Board of Trustees of the Trust has considered the possibility of
seeking to recapture for the benefit of the Portfolio brokerage commissions
<PAGE>
<PAGE>
and other expenses of portfolio transactions by conducting portfolio
transactions through affiliated entities. For example, brokerage commissions
received by affiliated brokers could be offset against the advisory fee paid
by the Portfolio to the Investment Adviser. After considering all factors
deemed relevant, the Board of Trustees made a determination not to seek such
recapture. The Trustees will reconsider this matter from time to time.
Because of different objectives or other factors, a particular security
may be bought for one or more clients of the Investment Adviser or an
affiliate when one or more clients of the Investment Adviser or an affiliate
are selling the same security. If purchases or sales of securities arise for
consideration at or about the same time that would involve the Trust or other
clients or funds for which the Investment Adviser or an affiliate acts as
manager, 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 an affiliate during the same period may increase the
demand for securities being purchased or the supply or securities being sold,
there may be an adverse effect on price.
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
Reference is made to "Account Choices -- How Shares are Priced" in the
Prospectus.
The net asset value of the shares of all classes of the Fund is
determined once daily Monday through Friday after the close of business on the
NYSE on each day the NYSE is open for trading based on prices at the time of
closing. The NYSE generally closes at 4:00 p.m., Eastern time. Any assets or
liabilities 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 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 in 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.
<PAGE>
<PAGE>
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 and
distribution and higher transfer agency fees applicable with respect to Class
B and Class C shares, and the daily expense accruals of the distribution and
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 that are traded on stock exchanges are valued at the
last sale price on the exchange on which such securities are traded as of the
close of business on the day the securities are being valued or, lacking any
sales, at the last available bid price for long positions, and at the last
available ask price for short positions. In cases where securities are traded
on more than one exchange, the securities are valued on the exchange
designated by or under the authority of the Board of Trustees as the primary
market. Long positions in securities traded in the OTC market are valued at
the last available bid price or yield equivalent obtained from one or more
dealers or pricing services approved by the Board of Trustees of the Trust.
Short positions in securities traded in the OTC market are valued at the last
available ask price. Portfolio securities that are traded both in the OTC
market and on a stock exchange are valued according to the broadest and most
representative market. When the Portfolio writes an 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 ask 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. The value of swaps, including interest rate swaps, caps, and floors,
will be determined by obtaining dealer quotations. Other investments,
including financial futures contracts and related options, are stated at
market value. Obligations with remaining maturities of 60 days or less are
valued at amortized cost unless the Investment Adviser believes that this
method no longer produces fair valuations. Repurchase agreements will be
valued at cost plus accrued interest. Securities and assets for which market
quotations are not readily available are valued at fair value as determined in
good faith by or under the direction of the Board of Trustees of the Trust.
Such valuations and procedures will be reviewed periodically by the Board of
Trustees of the Trust.
Each investor in the Trust may add to or reduce its investment in the
Portfolio on each day the NYSE is open for trading. The value of each
investor's (including the Fund's) interest in the Portfolio will be determined
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
<PAGE>
<PAGE>
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 after the close of business of the NYSE
on the next determination of net asset value of the Portfolio.
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services described below that are
designed to facilitate investment in its shares. Full details as to each such
service and copies of the various plans described below can be obtained from
the Fund, the Distributor or your selected dealer or other financial
intermediary.
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 dividends. 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 other than automatic
investment purchases and the reinvestment of dividends. A shareholder with an
account held at the Transfer Agent may make additions to his or her Investment
Account at any time by mailing a check directly to the Transfer Agent.
The Fund does not issue share certificates. Shareholders may transfer
their Fund shares to another securities dealer or other financial intermediary
that has entered into a selected dealer agreement with the Distributor.
Certain shareholder services may not be available for the transferred shares.
After the transfer, the shareholder may purchase additional shares of funds
owned before the transfer and all future trading of these assets must be
coordinated by the new firm. If a shareholder wishes to transfer his or her
shares to a securities dealer or other financial intermediary that has not
entered into a selected dealer agreement with the Distributor, the shareholder
must either (i) redeem his or her shares, paying any applicable CDSC or (ii)
continue to maintain an Investment Account at the Transfer Agreement for those
shares. The shareholder may also request the new securities dealer or other
financial intermediary to maintain the shares in an account at the Transfer
Agent registered in the name of the securities dealer or other financial
intermediary for the benefit of the shareholder whether the securities dealer
or other financial intermediary has entered into a selected dealer agreement
or not.
Shareholders considering transferring a tax-deferred retirement account
such as an individual retirement account from a selected dealer or other
financial intermediary to another brokerage firm or financial institution
<PAGE>
<PAGE>
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 or other financial intermediary for those shares.
AUTOMATIC 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) or Class A, Class
B or Class C shares at the applicable public offering price. These purchases
may be made either through the shareholder's securities dealer or other
financial intermediary or by mail directly to the Transfer Agent, acting as
agent for such securities dealer or other financial intermediary. You may also
add to your account by automatically investing a specific amount in the Fund
on a periodic basis through your selected dealer or other financial
intermediary. The current minimum for such automatic additional investments is
$100. This minimum may be waived or revised under certain circumstances.
AUTOMATIC DIVIDEND REINVESTMENT PLAN
Unless specific instructions are given as to the method of payment,
dividends will be automatically reinvested, without sales charge, in
additional full and fractional shares of the Fund. Such reinvestment will be
at the net asset value of shares of the Fund as determined after the close of
business on the NYSE on the payment date for such dividends. No CDSC will be
imposed upon redemption of shares issued as a result of the automatic
reinvestment of dividends.
Shareholders may, at any time, by written notification to their selected
dealer or other financial intermediary the shareholder's account is maintained
with a selected dealer or other financial intermediary or by written
notification or by telephone (1-888-763-2260) to the Transfer Agent, if the
account is maintained with the Transfer Agent, elect to have subsequent
dividends, paid in cash, rather than reinvested in shares of the Fund or vice
versa (provided that, in the event that a payment on an account maintained at
the Transfer Agent would amount to $10.00 or less, a shareholder will not
receive such payment in cash and such payment will automatically be reinvested
in additional shares). Commencing ten days after the receipt by the Transfer
Agent of such notice, those instructions will be effected. The Fund is not
responsible for any failure of delivery to the shareholder's address of record
and no interest will accrue on amounts represented by uncashed dividend
checks. Cash payments can also be directly deposited to the shareholder's
bank account.
SYSTEMATIC WITHDRAWAL PLAN
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
<PAGE>
<PAGE>
withdrawals are available for shareholders who have acquired shares of the
Fund having a value, based on cost or the current offering price, of $5,000 or
more, and monthly withdrawals are available for shareholders with shares
having a value of $10,000 or more.
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 net asset value determined after 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 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 "Account
Choices -- Pricing of Shares -- Class B and Class 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.
<PAGE>
<PAGE>
RETIREMENT AND EDUCATION SAVINGS PLANS
The minimum initial purchase to establish a retirement or an education
savings plan is $100. Dividends received in each of the retirement plans are
exempt from Federal taxation until distributed from the plans. Different tax
rules apply to Roth IRA plans and education savings plans. Investors
considering participation in any retirement or education savings 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. If the Class I shareholder wants to exchange Class
I shares for shares of a second fund, but does not hold Class I shares of the
second fund in his or her account at the time of exchange and is not otherwise
eligible to acquire Class I shares of the second fund, the shareholder will
receive Class A shares of the second fund as a result of the exchange. Class A
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 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
<PAGE>
<PAGE>
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 or other financial intermediaries. 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 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
<PAGE>
<PAGE>
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 or other
financial intermediaries (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 or other
financial intermediary.
DIVIDENDS AND TAXES
DIVIDENDS
The Fund intends to distribute substantially 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 may be reinvested
automatically in shares of the Fund. Shareholders may elect in writing to
receive any such dividends in cash. Dividends are taxable to shareholders, as
discussed below, whether they are reinvested in shares of the Fund or received
in cash. The per share dividends on Class B and Class C shares will be lower
than the per share dividends on Class 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 on Class A shares will be lower than the per share dividends on
Class I shares as a result of the account maintenance fees applicable with
respect to the Class A shares. See "Pricing of Shares -- 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 he or she
received that year. This notification will also indicate whether those
dividends should be treated as ordinary income or long-term capital gains.
<PAGE>
<PAGE>
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 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).
Dividends paid by the Fund from its ordinary income or from an excess of
net realized short-term capital gains over net long-term capital losses
(together referred to hereafter as "ordinary income dividends") are taxable to
shareholders as ordinary income, whether or not reinvested.
Distributions made from an excess of net long-term capital gains over net
short-term capital losses (including gains from certain transactions in
warrants, futures and options) ("capital gain dividends") are taxable to
shareholders as capital gains regardless of the length of time a shareholder
has owned shares. The maximum long-term capital gains rate for individuals is
20%. The maximum capital gains rate for corporate shareholders currently is
the same as the maximum corporate 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
capital gain or ordinary income 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. If the Fund pays a dividend in January that was declared in the
previous October, November or December to shareholders of record on a
specified date in one of such months, then such dividend will be treated for
tax purposes as being paid by the Fund and received by its shareholders on
December 31 of the year in which such dividend was declared.
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. It
is impossible to determine in advance the effective rate of foreign tax to
which the Fund will be subject, since the amount of Fund assets to be invested
in any particular non-U.S. country is not known. Because the Fund limits its
investments in non-U.S. securities, it is anticipated that Fund shareholders
<PAGE>
<PAGE>
will not be entitled to claim U.S. foreign tax credits with respect to foreign
taxes paid by the Fund.
Under certain provisions of the Code, some shareholders may be subject to
a 31% withholding tax on ordinary income dividends 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 Fund or who, to the Fund's knowledge, have furnished an
incorrect number. When establishing an account, an investor must certify under
penalty of perjury that such number is correct and that such 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 shares held for six months
or less, however, will be treated as long-term capital loss to the extent of
any long term capital gain dividends 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
charge 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.
<PAGE>
<PAGE>
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.
TAX TREATMENT OF OPTIONS 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
The Fund has received a private letter ruling from the Internal Revenue
Service ("IRS") 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 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 investment
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
<PAGE>
<PAGE>
action either prospectively or retroactively.
Ordinary income and capital gains dividends 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 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 and the maximum sales charge in the case of Class I
and Class A shares. Dividends paid by the Fund with respect to al shares, to
the extent any dividends are paid, will be calculated in the same manner at
the same time on the same day and will be in the same amount, except that
account maintenance and distribution charges [(and, in the case of Class A,
distribution and account maintenance fees)] and any incremental transfer
agency costs relating to each class of shares will be borne exclusively by
that class. The Fund will include performance data for all classes of shares
of the Fund in any advertisement or information including performance data of
the Fund.
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.
<PAGE>
<PAGE>
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 not 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 various indices
including the Standard & Poor's 500 Index, the Value Line Composite Index, the
Dow Jones Industrial Average, the MSCI Europe, the MSCI World Index, Salomon
Smith Barney World Government Bond index, 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.
- ---- --------------- ---------------- -------------------------------
When comparing its performance to a market index, the Fund may refer to
various statistical measures derived from the historical performance of the
Fund and the index, such as standard deviation and beta. In addition, from
time to time, the Fund may include the Fund's Morningstar risk-adjusted
performance rating in advertisements or supplemental sales literature. The
Fund may from time to time quote in advertisements or other materials other
applicable measures of performance and may also make reference to awards that
may be given to the Investment Adviser. As with other performance data,
performance comparisons should not be considered indicative of the Fund's
relative performance for any future period.
Total return figures are based on the Fund's historical performance and
are not intended to indicate future performance. The Fund's total return will
vary depending on market conditions, the securities comprising the Fund's
portfolio, the Fund's operating expenses and the amount of realized and
unrealized net capital gains or losses during the period. The value of an
investment in the Fund will fluctuate and an investor's shares, when redeemed,
may be worth more or less than their original cost.
<PAGE>
<PAGE>
Set forth below is total return information for Class I shares of the
Fund for the periods indicated.
Class I Shares Class A Shares
---------------------- ---------------------
Redeemable Redeemable
Expressed as Value of a Expressed as Value of a
a percentage hypothetical a percentage hypothetical
based on a $1,000 inv- based on a $1,000 inv-
hypothetical estment at hypothetical estment at
$1,000 the end of $1,000 the end of
Period investment the period investment the period
- -------------------- ------------- ----------- --------------- ------------
Average Annual Total Return
(including maximum applicable sales charges)
[ ] to [ ] [ ] [ ] [ ] [ ]
Annual Total Return
(excluding maximum applicable sales charges)
[ ] to [ ] [ ] [ ] [ ] [ ]
Aggregate Total Return
(including maximum applicable sales charges)
[ ] to [ ] [ ] [ ] [ ] [ ]
Class B Shares Class C Shares
---------------------- ---------------------
Redeemable Redeemable
Expressed as Value of a Expressed as Value of a
a percentage hypothetical a percentage hypothetical
based on a $1,000 inv- based on a $1,000 inv-
hypothetical estment at hypothetical estment at
$1,000 the end of $1,000 the end of
Period investment the period investment the period
- -------------------- ------------- ----------- --------------- ------------
Average Annual Total Return
(including maximum applicable sales charges)
[ ] to [ ] [ ] [ ] [ ] [ ]
Annual Total Return
(excluding maximum applicable sales charges)
[ ] to [ ] [ ] [ ] [ ] [ ]
Aggregate Total Return
(including maximum applicable sales charges)
[ ] to [ ] [ ] [ ] [ ] [ ]
<PAGE>
<PAGE>
GENERAL INFORMATION
DESCRIPTION OF SHARES
The Fund operated as the Turner Large Cap Growth Equity Fund, a portfolio
of the TIP Funds, from February 1, 1997 (commencement of operations) until it
was reorganized on , 2000. Since the reorganization, the Fund has
operated as the Mercury Select Growth Fund, a series of the Corporation.
The Corporation is a Maryland corporation incorporated on April 24, 1998.
It has an authorized capital of 11,000,000,000 shares of Common Stock, par
value $.0001 per share, of which the Fund is authorized to issue 100,000,000
shares of each of Class I, Class A, Class B and Class C shares.
Shareholders are entitled to one vote for each full share held and
fractional votes for fractional shares held in the election of directors of
the Corporation (to the extent hereinafter provided) and on other matters
submitted to the vote of shareholders, except that shareholders of the class
bearing distribution expenses as provided above shall have exclusive voting
rights with respect to matters relating to such distribution expenditures
(except that Class B shareholders may vote upon any material changes to
expenses charged under the Class 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 would be
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 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 for any expenses which may be attributable to only one
class. Shares issued are fully-paid and non-assessable by the Corporation or
the Fund.
The Trust 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.
<PAGE>
<PAGE>
COMPUTATION OF OFFERING PRICE PER SHARE
The offering price for Class I shares of the Fund based on the Fund's net
assets and number of shares outstanding as of September 30, 1999 is
calculated as set forth below:
Class I
-------
Net Assets......................
Number of Shares Outstanding....
Net Assets Value Per Share
(net assets divided by number of
shares outstanding).............
Sales Charge (for Class I: [5.25%]
of Offering Price; ([5.54%] of net
amount invested))................
Offering Price....................
INDEPENDENT AUDITORS
[ ] has been selected as the independent auditors of the Fund.
The independent auditors are responsible for auditing the annual financial
statements of the Fund.
CUSTODIAN
Brown Brothers Harriman & Co. (the "Custodian"), 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.
<PAGE>
<PAGE>
LEGAL COUNSEL
Swidler Berlin Shereff Friedman, LLP, The Chrysler Building, 405
Lexington Avenue, New York, New York 10174, 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.
[As of January 3, 2000, the following persons were the only persons who
were record owners (or to the Fund's knowledge, beneficial owners) of 5% or
more of the shares of the Turner Large Cap Growth Equity Fund. The Fund
believes that most of the shares referred to below were held by the persons
indicated in accounts for their fiduciary, agency, or custodial customers.
Name and Address of Number of Shares Percentage of
Beneficial Owner Fund's Shares
------------------- ----------------- --------------
Charles Schwab & Co. Inc. 326,965.2330 23.50%
Attn: Mutual Funds/Team
S 4500 Cherry Creek Dr. S Fl 3
Denver, CO 80209
Connecticut General Life 897,202.2430 64.49%
Insurance Co.
Attn: Carmen Rivera - H19B
280 Trumbull Street
Hartford, CT 06103-3509]
FINANCIAL STATEMENTS
The Turner Large Cap Growth Equity Fund's audited financial statements
are incorporated in this Statement of Additional Information by reference to
its 1999 annual report to shareholders. You may request a copy of the annual
report at no charge by calling 1-888-763-2260 between 8:00 a.m. and 8:00 p.m.
on any business day. On February 25, 2000, the Board of Trustees of TIP
Funds approved a plan to reorganize the Turner Large Cap Growth Equity
Fund into a similar fund that is being created by Mercury Asset Management
Funds, Inc. called the Mercury Select Growth Fund, subject to shareholder and
regulatory approval.
<PAGE>
<PAGE>
APPENDIX A
Investment Policies Involving the Use of
Indexed Securities, Options, Futures and Swaps
The Fund and the Portfolio are authorized to use certain derivative
instruments, including indexed and inverse securities, options, futures, swaps
and foreign exchange transactions, as described below and in the Statement of
Additional Information. 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, if at all, 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, if at all, 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. The Fund is not required to enter into hedging transactions and may
choose not to do so.
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, including interest
rates (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 interest rate 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
<PAGE>
<PAGE>
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
------------------
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 up-front payment (the
"option premium") the Fund acquires a right to sell to another party specified
securities owned by the Fund at a specified price (the "exercise price") on or
before a specified date (the "expiration date"), in the case of an option on
securities, or to receive from another party a payment based on the amount a
specified securities index declines below a specified level on or before the
expiration date, in the case of an option on a securities index. The purchase
of a put option limits the Fund's risk of loss in the event of a decline in
the market value of the portfolio holdings underlying the put option prior to
the option's expiration date. If the market value of the portfolio holdings
associated with the put option increases rather than decreases, however, the
Fund will lose the option premium and will consequently realize a lower return
on the portfolio holdings than would have been realized without the purchase
of the put.
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
<PAGE>
<PAGE>
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 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.
<PAGE>
<PAGE>
Types of Options. The Fund may engage in transactions in options on
----------------
securities or securities indices, on exchanges and in the 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 futures contract's expiration date. In the event the
market value of the portfolio holdings correlated with the futures contract
increases rather than decreases, however, the Fund will realize a loss on the
futures position and a lower return on the portfolio holdings than would have
been realized without the purchase of the futures contract.
The purchase of a futures contract may protect the Fund from having to
pay more for securities as a consequence of increases in the market value for
such securities during a period when the Fund was attempting to identify
specific securities in which to invest in a market the Fund believes to be
attractive. In the event that such securities decline in value or the Fund
determines not to complete an anticipatory hedge transaction relating to a
futures contract, however, the Fund may realize a loss relating to the futures
position.
The Fund will limit transactions in futures and options on futures to
financial futures contracts (i.e., contracts for which the underlying
commodity is a currency or securities or interest rate index) purchased or
<PAGE>
<PAGE>
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 operator"
under regulations of the Commodity Futures Trading Commission. The Fund will
only engage in futures and options transactions from time to time. The Fund is
under no obligation to use such transactions and may choose not to do so.
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. 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.
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.
<PAGE>
<PAGE>
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 which are held by the Fund, the market
value of the underlying securities covered by OTC call options currently
outstanding which have been sold by the Fund and margin deposits on the Fund's
outstanding OTC options exceed 15% of the net assets of the Fund taken at
market value, together with all other assets of the Fund which are deemed to
be illiquid or are not otherwise readily marketable. However, if an OTC option
is sold by the Fund to a primary U.S. Government securities dealer 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).
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.
<PAGE>
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>
<PAGE>
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>
<PAGE>
<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>
<PAGE>
<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>
<PAGE>
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>
<PAGE>
<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 IBCA, 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>
<PAGE>
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>
<PAGE>
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>
<PAGE>
PART C. OTHER INFORMATION
Item 23. Exhibits:
Exhibit
Number
- --------
1 Articles of Restatement of Registrant. (4)
2 Amended and Restated By-Laws of Registrant. (1)
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. (2)
5(b) Class A Distribution Agreement between Registrant and Mercury
Funds Distributor, a division of Princeton Funds Distributor,
Inc. (2)
5(c) Class B Distribution Agreement between Registrant and Mercury
Funds Distributor, a division of Princeton Funds Distributor,
Inc. (2)
5(d) Class C Distribution Agreement between Registrant and Mercury
Funds Distributor, a division of Princeton Funds Distributor,
Inc. (2)
6 None.
7 Custody Agreement between Registrant and Brown Brothers
Harriman & Co. (1)
8(a) Administration Agreement between Registrant and Fund Asset
Management L.P. (2)
8(b) Transfer Agency, Dividend Disbursing Agency and Shareholder
Servicing Agency Agreement between Registrant and Financial
Data Services, Inc. (1)
8(c) License Agreement relating to Use of Name among Mercury Asset
US, Mercury Asset Management Group Ltd. and Mercury Funds
Distributor, a division of Princeton Funds Distributor, Inc. (2)
8(d) License Agreement relating to Use of Name among Mercury Asset
Management US, Mercury Asset Management Group
Ltd. and Registrant (2)
9 Opinion and consent of Swidler Berlin Shereff Friedman, LLP
counsel for Registrant. (2)
10(a) Consent of independent auditors for the Registrant. (2)
10(b) Consent of Swidler Berlin Shereff Friedman, LLP, counsel for
Registrant.(2)
11 None.
12 Certificate of Fund Asset Management, L.P. (2)
13(a) Class A Distribution Plan and Class A Plan Sub-Agreement. (2)
13(b) Class B Distribution Plan and Class B Plan Sub-Agreement.(2)
13(c) Class C Distribution Plan and Class C Plan Sub-Agreement. (2)
14(a) Rule 18f-3 Plan. (1)
14(b) Powers of Attorney for Officers, Directors and Trustees. (1)
14(c) Powers of Attorney for Donald C. Burke. (3)
15 Not applicable
16 Code of Ethics
- -------------------------------
(1) Incorporated by reference to identically numbered exhibit to
the initial Registration Statement on Form N-1A of the Mercury
Global Balanced Fund filed on February 12, 1999 (File No. 333-72239).
(2) To be filed by amendment.
(3) Incorporated by reference to identically numbered exhibit to Pre-
Effective Amendment No. 2 to the Registration Statement on Form
N-1A of the Mercury Global Balanced Fund filed on April 27, 1999
(File No. 333-72239).
(4) Incorporated by reference to identically numbered exhibit to
Pre-Effective Amendment No. 2 to Mercury U.S. Small Cap Growth Fund of
Mercury Asset Management Funds, Inc.'s Registration Statement on Form
N-1A (File No. 333-85731).
<PAGE>
<PAGE>
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Mercury Asset Management Master Trust has sold interests of its series,
Mercury Master Select Growth Portfolio to the Registrant. Therefore, the
Mercury Master Select Growth Portfolio of Mercury Asset Management Master
Trust is controlled by 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.
Articles V of the Registrant's Articles of Incorporation provides that
each acting and former director and officer of the Corporation shall be
indemnified by the Corporation to the full extent permitted by Maryland
General Corporation Law, subject to the requirements of the Investment Company
Act of 1940.
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 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.
<PAGE>
<PAGE>
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.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Set forth below is a list of each executive officer and director of Fund
Asset Management, L.P. ("FAM"), of which the investment adviser is a division,
indicating each business, profession, vocation or employment of a substantial
nature in which each such person has been engaged since [November 1997] for
his, her or its own account or in the capacity of director, officer, partner
or trustee.
Name Positions with FAM Other Substantial Business,
Profession, Vocation or Employment
- ------------------ -------------------- -----------------------------------
ML & Co............ Limited Partner Financial Services Holding
Company; Limited Partner of
Merrill Lynch Asset Management,
L.P. ("MLAM")
Princeton Services. General Partner General Partner of MLAM
<PAGE>
<PAGE>
Name Positions with FAM Other Substantial Business,
Profession, Vocation or Employment
- ------------------ -------------------- -----------------------------------
Jeffrey M. Peek.... President President of MLAM; President and
Director of Princeton Services;
Executive Vice President of ML &
Co.; Managing Director and Co-
Head of the Investment Banking
Division of Merrill Lynch in 1997
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.
("PFD"); Director of Financial
Data Services, Inc.; President of
Princeton Administrators
Gregory A. Bundy....Chief Operating Chief Operating Officer and
Officer and Managing Managing Director of MLAM; Chief
Director Operating Officer and Director of
Princeton Services; Co-CEO of
Merrill Lynch Australia from 1997
to 1999
Donald C. Burke.....Senior Vice President, Senior Vice President and
Treasurer and Director Treasurer of MLAM; Senior Vice
of Taxation President and Treasurer of
Princeton Services; Vice
President of PFD; First Vice
President of MLAM from 1997 to
1999; Vice President of MLAM from
1990 to 1997
Michael G. Clark.. Senior Vice President Senior Vice President of MLAM;
Senior Vice President of
Princeton Services; Treasurer and
Director of PFD; First Vice
President of MLAM from 1997 to
1999; Vice President of MLAM from
1996 to 1997
Robert C. Doll, Jr..Senior Vice President Senior Vice President of MLAM;
Senior Vice President of
Princeton Services; Chief
Investment Officer of Oppenheimer
Funds, Inc. in 1999 and Executive
Vice President thereof from 1991
to 1999
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
<PAGE>
<PAGE>
Name Positions with FAM Other Substantial Business,
Profession, Vocation or Employment
- ------------------ -------------------- -----------------------------------
Michael J.
Hennewinkel........ Senior Vice President, Senior Vice President, Secretary
Secretary and General and General Counsel of MLAM;
Counsel Senior Vice President of
Princeton Services
Philip L. Kirstein Senior Vice President Senior Vice President of MLAM;
Senior Vice President, General
Counsel, Director and Secretary
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
Joseph T. Monagle,
Jr. Senior Vice President Senior Vice President of MLAM;
Senior Vice President of
Princeton Services
Brian A. Murdock Senior Vice President Senior Vice President of MLAM;
Senior Vice President of
Princeton Services; Director of
Princeton Funds Distributor, Inc.
Gregory D. Upah Senior Vice President Senior Vice President of MLAM;
Senior Vice President of
Princeton Services
Mr. Glenn is President and Mr. Burke is Vice President and Treasurer of
all or substantially all of the investment companies described in the
following two paragraphs, and Messrs. Doll, Giordano, and Monagle are
officers of one or more of such companies.
FAM, located at P.O. Box 9011, Princeton, New Jersey 08543-9011, 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, [Global Financial Services Master 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 Focus Twenty Fund, Inc., Merrill Lynch Funds for
Institutions Series, Merrill Lynch Large Cap Series Funds, 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 Premier Growth Fund, Inc., Merrill Lynch
<PAGE>
<PAGE>
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 2000, Inc., Merrill Lynch Municipal
Strategy Fund, Inc., MuniAssets Fund, Inc., MuniEnhanced Fund, Inc.,
MuniHoldings Fund, Inc., MuniHoldings Fund II, Inc., MuniHoldings California
Insured Fund, Inc., MuniHoldings California Insured Fund II, Inc.,
MuniHoldings California Insured Fund III, Inc., MuniHoldings California
Insured Fund IV, Inc., MuniHoldings California Insured Fund V, Inc.,
MuniHoldings Florida Insured Fund, MuniHoldings Florida Insured Fund II,
MuniHoldings Florida Insured Fund III, MuniHoldings Florida Insured Fund IV,
MuniHoldings Florida Insured Fund V, Inc., MuniHoldings Insured Fund, Inc.,
MuniHoldings Insured Fund II, Inc., MuniHoldings Insured Fund III, Inc.,
MuniHoldings Insured Fund IV, Inc., MuniHoldings Michigan Insured Fund, Inc.,
MuniHoldings Michigan Insured Fund II, Inc., MuniHoldings New Jersey Insured
Fund, Inc., MuniHoldings New Jersey Insured Fund II, Inc., MuniHoldings New
Jersey Insured Fund III, Inc., MuniHoldings New Jersey Insured Fund IV, Inc.,
Doll, MuniHoldings New York Insured Fund, Inc., MuniHoldings New York Insured
Fund II, Inc., MuniHoldings New York Insured Fund III, Inc., MuniHoldings New
York Insured Fund IV, Inc., MuniHoldings Pennsylvania Insured Fund,
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 Disciplined Equity Fund,
Inc., Merrill Lynch Dragon Fund, Inc., Merrill Lynch EuroFund, Merrill Lynch
Fundamental Growth Fund, Inc., Merrill Lynch Global Allocation Fund, Inc.,
Merrill Lynch Global Bond Fund for Investment and Retirement, Merrill Lynch
Global Growth Fund, Inc., Merrill Lynch Global Holdings, Inc., Merrill Lynch
Global Resources Trust, Merrill Lynch Global 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 Index Funds, Inc., Merrill Lynch
Intermediate Government Bond Fund, Merrill Lynch International Equity Fund,
Merrill Lynch Latin America Fund, Inc., Merrill Lynch Middle East/Africa Fund,
Inc., Merrill Lynch Municipal Series Trust, Merrill Lynch Pacific Fund, Inc.,
Merrill Lynch Ready Assets Trust, Merrill Lynch Real Estate Fund, Inc.,
Merrill Lynch Retirement Series Trust, Merrill Lynch Series Fund, Inc.,
Merrill Lynch Short-Term Global Income Fund, Inc., Merrill Lynch Strategic
Dividend Fund, Merrill Lynch U.S. Treasury Money Fund, Merrill Lynch U.S.A.
Government Reserves, Merrill Lynch Utility Income Fund, Inc., Merrill Lynch
Variable Series Funds, Inc. and Hotchkis and Wiley Funds (advised by Hotchkis
<PAGE>
<PAGE>
and Wiley, a division of MLAM); and for the following closed-end registered
investment companies: Merrill Lynch High Income Municipal Bond Fund, Inc.,
Merrill Lynch Senior Floating Rate Fund, Inc. and Merrill Lynch Senior
Floating Rate Fund II, Inc. MLAM also acts as sub-adviser to Merrill Lynch
World Strategy Portfolio and Merrill Lynch Basic Value Equity Portfolio, two
investment portfolios of EQ Advisors Trust.
Set forth below is a list of each executive officer and director of
Turner Investment Partners, Inc., the sub-adviser to the Mercury Select Growth
Fund, indicating each business, profession, vocation or employment of a
substantial nature in which each such person or entity has been engaged since
[___________ 1998] for his own account or in the capacity of director,
officer, partner or trustee.
Other Substantial Business,
Positions with Profession, Vocation or
Name Sub-Advisor Employment
- ------------------ ---------------------- -----------------------------
Stephen J. Kneeley Chief Operating Officer, Registered Representative,
Secretary, President SEI Investments Distribution
Co.
Janet Rader Rote Director of Compliance Registered Representative,
SEI Investments Distribution
Co.
Thomas R. Trala CFO, Treasurer --
Mark D. Turner Vice Chairman, Director
of Fixed Income --
Robert E. Turner,
Jr. Chairman, CIO -
[Turner Investment Partners, Inc. ("Turner"), located at 1235 Westlakes
Drive, Suite 350, Berwyn, PA 19312, acts as investment adviser for the
following open-end registered investment companies: Turner Large Cap Growth
Equity, Turner Growth Equity, Turner Mid Cap Growth, Turner Small Cap Growth,
Turner Micro Cap Growth, Turner Top 20, Turner Technology, Turner Large Cap
Focused, Turner International Growth, Turner Short Duration Government Funds -
One Year Portfolio, Turner Short Duration Government Funds - Three Year
Portfolio, Turner Core High Quality Fixed Income and TIP Target Select Equity
Funds.]
<PAGE>
<PAGE>
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 Gold and Mining Fund of Mercury Asset Management Funds, Inc.;
Mercury U.S. Large Cap Fund of Mercury Asset Management Funds, Inc.; Mercury
U.S. Small Cap Growth Fund of Mercury Asset Management Funds, Inc.; Mercury
International Fund of Mercury Asset Management Funds, Inc.; Mercury
Pan-European Growth Fund of Mercury Asset Management Funds, Inc.; Summit Cash
Reserves Fund of Financial Institutions Series Trust; Mercury V.I. U.S. Large
Cap Fund of Mercury Asset Management V.I. Funds, Inc.
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 the Distributor. The principal business address of each such person is Box
9081, Princeton, New Jersey 08543-9081, except that the address of Messrs.
Crook, Breen, Fatseas and Wasel is One Financial Center, 23rd Floor, Boston,
Massachusetts 02111-2665.
(1) (2) (3)
Positions and Offices Positions and Offices
Name with the Distributor with Registrant
- ---------------------- ------------------------ ---------------------------
Terry K. Glenn President and Director President and Director
Michael G. Clark Treasurer and Director None
Thomas J. Verage Director None
Robert W. Crook Senior Vice President None
Michael J. Brady Vice President None
William M. Breen Vice President None
Donald C. Burke Vice President Vice President and
Treasurer
James T. Fatseas Vice President None
Debra W. Landsman-
Yaros Vice President None
Michelle T. Lau Vice President None
Salvatore Venezia Vice President None
William Wasel Vice President None
Robert Harris Secretary None
<PAGE>
<PAGE>
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 US, a division of
Fund Asset Management, L.P., 800 Scudders Mill Road, Plainsboro, New Jersey
08536 or 225 Liberty Street, New York, New York 10080; and
(5) the sub-adviser, Turner Investment Partners, 1235 Westlakes Drive,
Suite 350, Berwyn, PA 19312; and
(6) the 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.
<PAGE>
<PAGE>
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 6th day of March, 2000.
MERCURY SELECT GROWTH FUND OF
MERCURY ASSET MANAGEMENT FUNDS, INC.
(Registrant)
By: /s/ Donald C. Burke
--------------------------------------
(Donald C. Burke, Treasurer and Vice
President)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement of Mercury Select Growth Fund of Mercury Asset
Management Funds, Inc. has been signed below by the following persons in the
capacities and on dates indicated.
Signatures Title Date
---------- ----- ----
*
- -------------------------- President and Director
(Jeffrey M. Peek) (Principal Executive Officer)
*
- -------------------------- Executive Vice President and
(Terry K. Glenn) Director
/s/ Donald C. Burke
- --------------------------- Treasurer (Principal Financial March 6, 2000
(Donald C. Burke) Accounting Officer) and Vice
President
*
- ---------------------------- Director
(David O. Beim)
*
- ----------------------------- Director
(James T. Flynn)
* Director
- ------------------------------
(W. Carl Kester)
* Director
- ------------------------------
(Karen P. Robards)
*By: /s/ Donald C. Burke
---------------------------
(Donald C. Burke, Attorney-in-Fact) March 6, 2000
*This amendment has been signed by each of the persons so indicated by the
undersigned as Attorney-in-Fact.
<PAGE>
<PAGE>
SIGNATURES
Mercury Asset Management Master Trust has duly caused this Registration
Statement of Mercury Select Growth 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 6th day of March,
2000.
MERCURY ASSET MANAGEMENT MASTER TRUST
By: /s/ Donald C. Burke
-------------------------------------
(Donald C. Burke, Treasurer and Vice
President)
This Registration Statement of Mercury Select Growth Fund of Mercury
Asset Management Funds, Inc. has been signed below by the following persons in
the capacities and on dates indicated.
Signatures Title Date
---------- ----- ----
*
- -------------------------- President and Trustee
(Jeffrey M. Peek) (Principal Executive Officer)
*
- -------------------------- Executive Vice President and
(Terry K. Glenn) Trustee
/s/ Donald C. Burke
- --------------------------- Treasurer (Principal Financial March 6, 2000
(Donald C. Burke) Accounting Officer) and Vice
President
*
- ---------------------------- Trustee
(David O. Beim)
*
- ----------------------------- Trustee
(James T. Flynn)
* Trustee
- ------------------------------
(W. Carl Kester)
* Trustee
- ------------------------------
(Karen P. Robards)
*By: /s/ Donald C. Burke
---------------------------
(Donald C. Burke, Attorney-in-Fact) March 6, 2000
*This amendment has been signed by each of the persons so indicated by the
undersigned as Attorney-in-Fact.
<PAGE>
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -------------
