<R> cause losses if the market moves in a different
manner than anticipated by
the Fund or if the cost of the Derivative outweighs the benefit of the
hedge. Hedging also involves the risk that changes in the value of the
Derivative will not match those of the holdings being hedged as expected
by the Fund, in which case, for example, any losses on the holdings
being hedged may not be reduced and could be increased. |
The Fund
may use Derivative instruments and trading strategies including the following: |
Indexed and Inverse
Securities. The Fund may invest in securities the potential
return of which is based on an index. As an illustration, the Fund may
invest in a debt security that pays interest based on the current value
of an interest rate index, such as the prime rate. The Fund may also
invest in a debt security which returns principal at maturity based
on the level of a securities index or a basket of securities, or based
on the relative changes of two indices. In addition, the Fund may invest
in securities the potential return of which is based inversely on the
change in an index (that is, a security the value of which will move
in the opposite direction of changes to 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. Indexed and inverse
securities involve credit risk, and certain indexed and inverse securities
may involve currency risk, leverage risk and liquidity risk. The Fund
may invest in indexed and inverse securities for hedging purposes only.
When used for hedging purposes, indexed and inverse securities involve
correlation risk. 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. |
Options on Securities and Securities
Indices |
Purchasing
Put Options. The Fund may purchase put options on securities held in its
portfolio or on securities or interest rate indices which are correlated with
securities held in its portfolio. When the Fund purchases a put option, in
consideration for an upfront payment (the option premium) the Fund
acquires a right to sell to another party specified securities owned by the
Fund at a specified price (the exercise price) on or before a
specified date (the expiration date), in the case of an option on
securities, or to receive from another party a payment based on the amount a
specified securities index declines below a specified level on or before the
expiration date, in the case of an option on a securities index. The purchase
of a put option limits the Funds risk of loss in the event of a decline
in the market value of the portfolio holdings underlying the put option prior
to the options expiration date. If the market value of the portfolio
holdings associated with the put option increases rather than decreases,
however, the Fund will lose the option premium and will consequently realize a
lower return on the portfolio holdings than would have been realized without
the purchase of the put. Purchasing a put option may involve correlation risk,
and may also involve liquidity and credit risk. |
Purchasing
Call Options. The Fund may also purchase call options on securities it intends
to purchase or securities or interest rate indices, which are correlated with
the types of securities it intends to purchase. When the Fund purchases a call
option, in consideration for the option premium the Fund acquires a right to
purchase from another party specified securities at the exercise price on or
before the expiration date, in the case of an option on securities, or to
receive from another party a payment based on the amount a specified securities
index increases beyond a specified level on or before the expiration date, in
the case of an option on a securities index. The purchase of a call option may
protect the Fund from having to pay more for a security as a consequence of
increases in the market value for the security during a period when the Fund is
contemplating its purchase, in the case of an option on a security, or
attempting to identify specific securities in which to invest in a market the
Fund believes to be attractive, in the case of an option on an index (an anticipatory
hedge). In the event the Fund determines not to purchase a security
underlying a call option, however, the Fund may lose the entire option premium.
Purchasing a call option involves correlation risk and may also involve
liquidity and credit risk. |
The Fund
is also authorized to purchase put or call options in connection with closing
out put or call options it has previously sold. |
Writing Call Options.
The Fund may write (i.e., sell) call options on securities held
in its portfolio or securities indices the performance of which correlates
with securities held in its portfolio. When the Fund writes a call option,
in return for an option premium, the Fund gives another party the right
to buy specified securities owned by the Fund at the exercise price
on or before the expiration date, in the case of an option on securities,
or agrees to pay to another</R> |
<R> party an amount based on any gain in a specified
securities index beyond a specified level on or before the expiration
date, in the case of an option on a securities index. In the event the
party to which the Fund has written an option fails to exercise its
rights under the option because the value of the underlying securities
is less than the exercise price, the Fund will partially offset any
decline in the value of the underlying securities through the receipt
of the option premium. By writing a call option, however, the Fund limits
its ability to sell the underlying securities, and gives up the opportunity
to profit from any increase in the value of the underlying securities
beyond the exercise price, while the option remains outstanding. Writing
a call option may involve correlation risk. |
Writing
Put Options. The Fund may also write put options on securities or securities
indices. When the Fund writes a put option, in return for an option premium the
Fund gives another party the right to sell to the Fund a specified security at
the exercise price on or before the expiration date, in the case of an option
on a security, or agrees to pay to another party an amount based on any decline
in a specified securities index below a specified level on or before the
expiration date, in the case of an option on a securities index. 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).
Writing a put option may involve substantial leverage risk. |
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 call or put option will be considered
covered if the Fund has segregated assets with respect to such option in the
manner described in Risk Factors in Derivatives below. A call
option will also be considered covered if the Fund owns the securities it would
be required to deliver upon exercise of the option (or, in the case of an
option on a securities index, securities which substantially correlate with the
performance of such index) or owns a call option, warrant or convertible
instrument which is immediately exercisable for, or convertible into, such
security. |
Types of
Options. The Fund may engage in transactions in options on securities or
securities indices, on exchanges and in the over-the-counter (OTC)
markets. In general, exchange-traded options have standardized exercise prices
and expiration dates and require the parties to post margin against their
obligations, and the performance of the parties obligations in connection
with such options is guaranteed by the exchange or a related clearing
corporation. OTC options have more flexible terms negotiated between the buyer
and the seller, but generally do not require the parties to post margin and are
subject to greater credit risk. OTC options involve greater liquidity risk. See
Additional Risk Factors of OTC Transactions; Limitations on the Use of
OTC Derivatives below. |
The Fund may engage in
transactions in futures and options thereon. Futures are standardized,
exchange-traded contracts which obligate a purchaser to take delivery,
and a seller to make delivery, of a specific amount of an asset at a
specified future date at a specified price. No price is paid upon entering
into a futures contract. Rather, upon purchasing or selling a futures
contract, the Fund is required to deposit collateral (margin)
equal to a percentage (generally less than 10%) of the contract value.
Each day thereafter until the futures position is closed, the Fund will
pay additional margin representing any loss experienced as a result
of the futures position the prior day or be entitled to a payment representing
any profit experienced as a result of the futures position the prior
day. Futures involve substantial leverage risk.</R> |
<R> The sale of a
futures contract limits the Funds risk of loss through a decline
in the market value of portfolio holdings correlated with the futures
contract prior to the futures contracts expiration date. In the
event the market value of the portfolio holdings correlated with the
futures contract increases rather than decreases, however, the Fund
will realize a loss on the futures position and a lower return on the
portfolio holdings than would have been realized without the purchase
of the futures contract. |
The
purchase of a futures contract may protect the Fund from having to pay more for
securities as a consequence of increases in the market value for such
securities during a period when the Fund was attempting to identify specific
securities in which to invest in a market the Fund believes to be attractive.
In the event that such securities decline in value or the Fund determines not
to complete an anticipatory hedge transaction relating to a futures contract,
however, the Fund may realize a loss relating to the futures position. |
The Fund
will limit transactions in futures and options on futures to financial futures
contracts (i.e., contracts for which the underlying asset is a currency or
securities or interest rate index) purchased or sold for hedging purposes
(including anticipatory hedges). The Fund will further limit transactions in
futures and options on futures to the extent necessary to prevent the Fund from
being deemed a commodity pool under regulations of the Commodity
Futures Trading Commission. |
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 in circumstances in which direct investment is restricted by local
law or is otherwise impractical. |
The Fund
will enter into an equity swap transaction only if, immediately following the
time the Fund enters into the transaction, the aggregate notional principal
amount of equity swap transactions to which the Fund is a party would not
exceed 5% of the Funds net assets. |
Swap
agreements entail the risk that a party will default on its payment obligations
to the Fund thereunder. The Fund will seek to lessen the risk to some extent by
entering into a transaction only if the counterparty meets the current credit
requirement for OTC option counterparties. Swap agreements also bear the risk
that the Fund will not be able to meet its obligations to the counterparty. The
Fund, however, will deposit in a segregated account with its custodian, liquid
securities or cash or cash equivalents or other assets permitted to be so
segregated by the Commission in an amount equal to or greater than the market
value of the liabilities under the swap agreement or the amount it would cost
the Fund initially to make an equivalent direct investment, plus or minus any
amount the Fund is obligated to pay or is to receive under the swap agreement. |
Foreign Exchange Transactions |
The Fund
may engage in spot and forward foreign exchange transactions and currency
swaps, purchase and sell options on currencies and purchase and sell currency
futures and related options thereon (collectively, Currency Instruments)
for purposes of hedging against the decline in the value of currencies in which
its portfolio holdings are denominated against the U.S. dollar. |
Forward Foreign Exchange
Transactions. Forward foreign exchange transactions are OTC contracts
to purchase or sell a specified amount of a specified currency or multinational
currency unit at a price and future date set at the time of the contract.
Spot foreign exchange transactions are similar but require current,
rather than future, settlement. The Fund will enter into foreign exchange
transactions only for purposes of hedging either a specific transaction
or a portfolio position. The Fund may enter into a forward foreign exchange
transaction for purposes of hedging a specific transaction by, for example,
purchasing a currency needed to settle a security transaction or selling
a currency in which the Fund has received or anticipates receiving a
dividend or distribution. The Fund may enter into a foreign exchange
transaction for purposes of hedging a portfolio position by selling
forward a currency in which a portfolio position of the Fund is denominated
or by purchasing a currency in which the Fund anticipates acquiring
a portfolio position in the near future. The Fund may also hedge portfolio
positions through currency </R> |
<R>swaps, which are transactions in which one currency
is simultaneously bought for a second currency on a spot basis and sold
for the second currency on a forward basis. Forward foreign exchange
transactions involve substantial currency risk, and also involve credit
and liquidity risk. |
Currency
Futures. The Fund may also hedge against the decline in the value of a currency
against the U.S. dollar through use of currency futures or options thereon.
Currency futures are similar to forward foreign exchange transactions except
that futures are standardized, exchange-traded contracts. See Futures above.
Currency futures involve substantial currency risk, and also involve leverage
risk. |
Currency
Options. The Fund may also hedge against the decline in the value of a currency
against the U.S. dollar through the use of currency options. Currency options
are similar to options on securities, but in consideration for an option
premium the writer of a currency option is obligated to sell (in the case of a
call option) or purchase (in the case of a put option) a specified amount of a
specified currency on or before the expiration date for a specified amount of
another currency. The Fund may engage in transactions in options on currencies
either on exchanges or OTC markets. See Types of Options above and
Additional Risk Factors of OTC Transactions; Limitations on the Use of
OTC Derivatives below. Currency options involve substantial currency risk
and may also involve credit, leverage or liquidity risk. |
Limitations
on Currency Hedging. The Fund will not speculate in Currency Instruments.
Accordingly, the Fund will not hedge a currency in excess of the aggregate
market value of the securities which it owns (including receivables for
unsettled securities sales), or had committed to or anticipates purchasing,
which are denominated in such currency. The Fund may, however, hedge a currency
by entering into a transaction in a Currency Instrument denominated in a
currency other than the currency being hedged (a cross-hedge). The
Fund will only enter into a cross-hedge if the Investment Adviser believes that
(i) there is a demonstrable high correlation between the currency in which the
cross-hedge is denominated and the currency being hedged, and (ii) executing a
cross-hedge through the currency in which the cross-hedge is denominated will
be significantly more cost-effective or provide substantially greater liquidity
than executing a similar hedging transaction by means of the currency being
hedged. |
Risk
Factors in Hedging Foreign Currency. Hedging transactions involving Currency
Instruments involve substantial risks, including correlation risk. While the
Funds use of Currency Instruments to effect hedging strategies is
intended to reduce the volatility of the net asset value of the Funds
shares, the net asset value of the Funds shares will fluctuate. Moreover,
although Currency Instruments will be used with the intention of hedging
against adverse currency movements, transactions in Currency Instruments
involve the risk that anticipated currency movements will not be accurately
predicted and the Funds hedging strategies will be ineffective. To the
extent that the Fund hedges against anticipated currency movements which do not
occur, the Fund may realize losses, and decrease its total return, as the
result of its hedging transactions. Furthermore, the Fund will only engage in
hedging activities from time to time and may not be engaging in hedging
activities when movements in currency exchange rates occur. |
It may
not be possible for the Fund to hedge against currency exchange rate movements,
even if correctly anticipated, in the event that (i) the currency exchange rate
movement is so generally anticipated that the Fund is not able to enter into a
hedging transaction at an effective price, or (ii) the currency exchange rate
movement relates to a market with respect to which Currency Instruments are not
available (such as certain developing markets) and it is not possible to engage
in effective foreign currency hedging. |
Risk Factors in Derivatives |
Derivatives
are volatile and involve significant risks, including: |
|
Credit
risk the risk that the counterparty on a Derivative transaction will be
unable to honor its financial obligation to the Fund.
|
|
Currency
risk the risk that changes in the exchange rate between two currencies
will adversely affect the value (in U.S. dollar terms) of an investment. |
|
Leverage risk
the risk associated with certain types of investments or trading
strategies (such as borrowing money to increase the amount of investments)
that relatively small market movements may result in large changes in
the value of an investment. Certain investments or trading strategies
that involve leverage can result in losses that greatly exceed the amount
originally invested.</R> |
|
<R> Liquidity risk
the risk that certain securities may be difficult or impossible
to sell at the time that the seller would like or at the price that
the seller believes the security is currently worth. |
Use of
Derivatives for hedging purposes involves correlation risk. If the value of the
Derivatives moves more or less than the value of the hedged instruments, the
Fund will experience a gain or loss which will not be completely offset by
movements in the value of the hedged instruments. |
The Fund
intends to enter into transactions involving Derivatives only if there appears
to be a liquid secondary market for such instruments or, in the case of
illiquid instruments traded in OTC transactions, such instruments satisfy the
criteria set forth below under Additional Risk Factors of OTC
Transactions; Limitations on the Use of OTC Derivatives. However, there
can be no assurance that, at any specific time, either a liquid secondary
market will exist for a Derivative or the Fund will otherwise be able to sell
such instrument at an acceptable price. It may therefore not be possible to
close a position in a Derivative without incurring substantial losses, if at
all. |
Certain
transactions in Derivatives (such as futures transactions or sales of put
options) involve substantial leverage risk and may expose the Fund to potential
losses, which exceed the amount originally invested by the Fund. When the Fund
engages in such a transaction, the Fund will deposit in a segregated account at
its custodian liquid securities with a value at least equal to the Funds
exposure, on a marked-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
transaction, but will not limit the Funds exposure to loss. |
Additional Risk Factors
of OTC
Transactions; Limitations on the Use of OTC Derivatives |
Certain
Derivatives traded in OTC markets, including indexed securities, swaps and OTC
options, involve substantial liquidity risk. The absence of liquidity may make
it difficult or impossible for the Fund to sell such instruments promptly at an
acceptable price. The absence of liquidity may also make it more difficult for
the Fund to ascertain a market value for such instruments. The Fund will
therefore acquire illiquid OTC instruments (i) if the agreement pursuant to
which the instrument is purchased contains a formula price at which the
instrument may be terminated or sold, or (ii) for which the 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 dealers quotation may be used. |
Because
Derivatives traded in OTC markets are not guaranteed by an exchange or clearing
corporation and generally do not require payment of margin, to the extent that
the Fund has unrealized gains in such instruments or has deposited collateral
with its counterparty the Fund is at risk that its counterparty will become
bankrupt or otherwise fail to honor its obligations. The Fund will attempt to
minimize the risk that a counterparty will become bankrupt or otherwise fail to
honor its obligations by engaging in transactions in Derivatives traded in OTC
markets only with financial institutions which have substantial capital or
which have provided the Fund with a third-party guaranty or other credit
enhancement. |
Additional Limitations on the Use of
Derivatives |
The Fund may not use any
Derivative to gain exposure to an asset or class of assets that it would
be prohibited by its investment restrictions from purchasing directly.</R> |
Other
Special Considerations. The Fund may, without limit, make short-term
investments, purchase high quality bonds or buy or sell derivatives to reduce
exposure to equity securities when the Fund believes it is advisable to do so
(on a temporary defensive basis). Short-term investments and temporary
defensive positions may limit the potential for growth in the value of shares
of the Fund. The Fund may also engage in short-term trading of stocks purchased
in initial public offerings. To the extent the Fund does so, it may realize
short-term gains which are taxable as ordinary income to shareholders. |
The
Corporation has adopted the following restrictions and policies relating to the
investment of the Funds 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 Funds
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 Funds 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 Funds
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 331/3%
of its total assets (including the amount borrowed), (ii) the Fund may
borrow up to an additional 5% of its total assets for temporary purposes,
(iii) the Fund may obtain such short-term credit as may be necessary
for the clearance of purchases and sales of portfolio securities and
(iv) the Fund may purchase securities on margin to the extent permitted
by applicable law. The Fund may not pledge its assets other than to
secure such borrowings or, to the extent permitted by the Funds
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. |
|
<R> 8. Underwrite
securities of other issuers except insofar as the Fund technically may
be deemed an underwriter under the Securities Act, in selling portfolio
securities.</R> |
|
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 Funds
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 Funds
shares are owned by another investment company that is part of the same group
of investment companies as the Fund. |
|
(b)
Make short sales of securities or maintain a short position, except to the
extent permitted by applicable law. The Fund currently does not intend to
engage in short sales, except short sales against the box. |
|
(c)
Invest in securities that cannot be readily resold because of legal or
contractual restrictions or that cannot otherwise be marketed, redeemed or put
to the issuer or a third party, if at the time of acquisition more than 15% of
its net assets would be invested in such securities. This restriction shall not
apply to securities that mature within seven days or securities that the
Directors of the Corporation have otherwise determined to be liquid pursuant to
applicable law. Securities purchased in accordance with Rule 144A under the
Securities Act (which are restricted securities that can be resold to qualified
institutional buyers, but not to the general public) and determined to be
liquid by the Directors are not subject to the limitations set forth in this
investment restriction. |
<R> The Trust has
adopted investment restrictions substantially identical to the foregoing,
which are non-fundamental 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 OTC options and
the assets underlying written OTC options are illiquid securities. Therefore,
the Corporation and Trust have 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 transaction, the sum
of the market value of OTC options currently outstanding which are held by the
Fund or the market value of the securities underlying OTC call
options currently outstanding which have been sold by the Fund and
margin deposits on the Funds 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 dealer in U.S. government securities recognized as a
primary dealer by the Federal Reserve Bank of New York and the Fund
has the unconditional contractual right to repurchase such OTC
option at a predetermined price, then the Fund will treat as
illiquid such amount of the underlying securities as 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 security minus the options
exercise price). |
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. |
Portfolio
securities of the Fund generally may not be purchased from,
sold or loaned to the Investment Adviser or its affiliates or any of their
directors, general partners, officers or employees, acting as principal, unless
pursuant to a rule or exemptive order under the Investment Company Act. |
Because of the
affiliation of Merrill Lynch, Pierce, Fenner & Smith Incorporated (Merrill
Lynch) with the Investment Adviser and Merrill Lynch Investment
Managers International Limited, doing business as Mercury Advisors (Mercury
Advisors or the Sub-Adviser), the Fund is prohibited from engaging in certain transactions involving Merrill
Lynch, the Investment Adviser, or any of its affiliates, except for
brokerage transactions permitted under the Investment Company Act involving
only usual and customary commissions or transactions pursuant to an
exemptive order under the Investment Company Act. See Portfolio
Transactions and Brokerage. Without such an exemptive order, the
Fund would be prohibited from engaging in portfolio transactions
with Merrill Lynch or any of its affiliates acting as principal. |
The portfolio turnover
rate is calculated by dividing the lesser of the Funds 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. Although the Fund anticipates that its
annual portfolio turnover rate should not exceed 200%, the turnover rate may
vary greatly from year to year or during periods within a 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.</R> |
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. |
<R> JEFFREY
M. PEEK (53) Director and President(1)(2)
President of Merrill Lynch Investment Managers, L.P. (MLIM)
and FAM (which terms as used herein include their corporate predecessors)
since 1997; President and Director of Princeton Services, Inc. (Princeton
Services) since 1997; Executive Vice President of Merrill Lynch
& Co., Inc. (ML & Co.) since 1997; Co-Head of Merrill
Lynch Investment Banking Division from March 1997 to December 1997;
Director of Merrill Lynch Global Securities Research and Economics Division
from 1995 to 1997; Head of Merrill Lynch Global Industries Group from
1993 to 1995. |
TERRY
K. GLENN (59) Director and Executive
Vice President(1)(2) Executive Vice President of MLIM and
FAM since 1983; Executive Vice President and Director of Princeton Services
since 1993; President of FAM Distributors, Inc. since 1986 and Director
thereof since 1991; President of Princeton Administrators, L.P. since
1988. |
DAVID
O. BEIM (60) 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 (48) 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 (50) 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 CineMuse Inc. from 1996 to 2000; Director of the Cooke Center for
Learning and Development, a not-for-profit organization, since 1987. |
PETER
JOHN GIBBS (42) Senior
Vice President(1)(2) 33 King William Street, London, EC4R
9AS, England. Chairman and Chief Executive Officer of Mercury Advisors
since 1998; Director of Mercury Asset Management Ltd. since 1993; Director
of Mercury Asset Management International Channel Islands Ltd. since
1997. |
DONALD
C. BURKE (40) Treasurer and Vice President(1)(2)
Senior Vice President and Treasurer of MLIM and FAM since 1999;
Senior Vice President and Treasurer of Princeton Services since 1999;
Vice President of FAM Distributors, Inc. since 1999; First Vice President
of MLIM and FAM from 1997 to 1999; Director of Taxation of MLIM since
1990; Vice President of MLIM and FAM from 1990 to 1997. |
ROBERT
E. PUTNEY, III (40) Secretary(1)(2)
Director (Legal Advisory) of MLIM and Princeton Administrators,
L.P. since 1997; Vice President of MLIM from 1994 to 1997; Vice President
of Princeton Administrators, L.P. from 1996 to 1997; Attorney with MLIM
from 1991 to 1994.</R> |
(1)
| |
Interested person, as defined
in the Investment Company Act, of the Fund. |
(2) |
|
Such Director or offer is a trustee, director
or offer of other investment companies for which the Investment Adviser,
or the Funds sub-adviser and administrator, FAM, or their affiliates,
acts as investment adviser.<R> |
(3) |
|
Member of the Corporations Audit and
Nominating Committee (the 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 FAM or with an affiliate of the Investment Adviser or FAM
(each a non-interested Director/Trustee). |
As of August 15, 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.</R> |
Compensation Of Directors/Trustees |
<R> 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 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
Advisers and Affiliates-Advised Funds) to the non-interested
Directors/Trustees for the calendar year ending December 31, 1999. |
Name of Directors/Trustee
|
|
Aggregate
Compensation
from Fund/Portfolio
|
|
Pension or
Retirement
Benefits Accrued as
Part of Fund/Portfolio
Expenses
|
|
Total Compensation
from Fund/Portfolio
and Mercury and
Affiliates-Advised
Funds Paid to
Directors/Trustees(1)
|
|
David O. Beim
|
|
$6,000
|
|
None
|
|
$47,666.67
|
|
James T. Flynn
|
|
$6,000
|
|
None
|
|
$89,666.67
|
|
W. Carl Kester
|
|
$6,000
|
|
None
|
|
$89,666.67
|
|
Karen P. Robards
|
|
$6,000
|
|
None
|
|
$47,666.67
|
|
(1) |
|
The Directors/Trustees serve on the boards
of Mercury and Affiliates-Advised Funds as follows: Mr. Beim (4 registered
investment companies consisting of 16 portfolios); Mr. Flynn (6 registered
investment companies consisting of 22 portfolios); Mr. Kester (6 registered
investment companies consisting of 22 portfolios); and Ms. Robards (4
registered investment company consisting of 16 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.</R> |
Administration Arrangements |
<R> 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 0.20% of the average
daily net assets of the Fund. For the period October 29, 1999 (commencement
of operations) to May 31, 2000, the Fund paid the Administrator a fee
of $281,584. |
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 FAM Distributors,
Inc. (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</R> |
<R> 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
promotional expenses of the Fund incurred in connection with the offering
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. Accounting services are provided to the Corporation and
the Fund by the Administrator or an affiliate of the Administrator,
and the Corporation reimburses the Administrator or an affiliate of
the Administrator for its costs in connection with such services. </R> |
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
|
<R> Investment
Advisory Services and Fees. 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 FAM 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 0.70% of
the average daily net assets of the Portfolio. For the period October
29, 1999 (commencement of operations) to May 31, 2000, the Portfolio
paid the Investment Adviser a fee of $986,257. |
Payment of Trust Expenses.
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 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 and the Portfolio 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.</R> |
<R></R>
<R> 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,
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. FAM is one of several affiliated entities that
may do business under the name Mercury Advisors. (However,
when used in the prospectus and statement of additional information
of this Fund, Mercury Advisors refers exclusively to the Sub-Adviser.) |
The Investment Adviser
has entered into a sub-advisory agreement (the Sub-Advisory Agreement)
with Merrill Lynch Investment Managers International Limited, doing
business as Mercury Advisors (previously defined as Mercury Advisors
or the Sub-Adviser) with respect to the Portfolio, pursuant
to which the Sub-Adviser may provide assistance to the Investment Adviser
in managing the Portfolio or may manage all or a portion of the Portfolio
to the extent not managed by the Investment Adviser. The Investment
Adviser will pay the Sub-Adviser a fee in an amount to be determined
from time to time by the Investment Adviser and Sub-</R> |
<R>Adviser but in no event in excess of the amount that
the Investment Adviser actually receives for providing services to the
Trust pursuant to the Investment Advisory Agreement. For the period
October 29, 1999 (commencement of operations) to May 31, 2000, the Investment
Adviser paid no fees to the Sub-Adviser pursuant to this agreement. |
Organization
of the Sub-Adviser. The Sub-Adviser, is located at 33 King William Street,
London EC4R 9AS, England. The Sub-Adviser is an affiliate of Merrill Lynch
Investment Managers. The ultimate parent of Mercury Advisors is ML & Co., a
financial services holding company. ML & Co. is a controlling person of the
Sub-Adviser as defined under the Investment Company Act because of its
ownership of its voting securities or its power to exercise a controlling
influence over its management or policies. |
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 or by a majority
of the outstanding shares of the Portfolio and (b) by a majority of the
Trustees who are not parties to such contract or interested persons (as defined
in the Investment Company Act) of any such party. Such contracts are not
assignable and will automatically terminate in the event of assignment. In
addition, such contracts may be terminated with respect to the Portfolio
without penalty on 60 days written notice at the option of either party
thereto or by the vote of the shareholders of the Portfolio.
|
Transfer Agency Services.
Financial Data Services, Inc. (the Transfer Agent), a subsidiary
of ML & Co., acts as the Funds Transfer Agent pursuant to
a Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing
Agency Agreement (the Transfer Agency Agreement). Pursuant
to the Transfer Agency Agreement, the Transfer Agent is responsible
for the issuance, transfer and redemption of shares and the opening
and maintenance of shareholder accounts. Pursuant to the Transfer Agency
Agreement, the Transfer Agent receives a fee 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 $.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 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 dealers and investors. The Distributor
also pays for other supplementary sales literature and advertising costs.
The Distribution Agreement is subject to the same renewal requirements
and termination provisions as the Investment Advisory Agreement described
above.</R> |
<R> The Board of Trustees
of the Trust and the Board of Directors of the Corporation have approved
a Code of Ethics under Rule 17j-1 of the Investment Company Act that
covers the Trust, the Corporation, the Investment Adviser, the Sub-Adviser
and the Distributor. The Code of Ethics establishes procedures for personal
investing and restricts certain transactions. Employees subject to the
Code of Ethics may invest in securities for their personal investment
accounts, including securities that may be purchased or held by the
Fund.</R> |
<R> Reference is made
to Account Choices How to Buy, Sell, Transfer and Exchange
Shares in the Prospectus. </R> |
The Fund
issues four classes of shares: shares of Class I and Class A are sold to
investors choosing the initial sales charge alternatives and shares of Class B
and Class C are sold to investors choosing the deferred sales charge
alternatives. Each Class I, Class A, Class B and Class C share of the Fund
represents an identical interest in the investment portfolio of the Fund, and
has the same rights, except that Class A, Class B and Class C shares bear the
expenses of the ongoing account maintenance fees (also known as service fees)
and Class B and Class C shares bear the expenses of the ongoing distribution
fees and the additional incremental transfer agency costs resulting from the
deferred sales charge arrangements. Class A, Class B and Class C shares each
have exclusive voting rights with respect to the Rule 12b-1 distribution plan
adopted with respect to such class pursuant to which the account maintenance
and/or distribution fees are paid (except that Class B shareholders may vote
upon any material changes to expenses charged under the Class A Distribution
Plan). Each class has different exchange privileges. See Shareholder
Services Exchange Privilege. |
<R> FAM Distributors,
Inc., 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 applicable to the class of shares
selected by the investor. The applicable offering price for purchase orders is
based upon the net asset value of the Fund next determined after receipt of the
purchase order by the Distributor. As to purchase orders received by securities dealers 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, provided that the orders are received by
the Distributor prior to 30 minutes after the close of business on the NYSE on
that day. However, certain financial intermediaries may require submission of
orders prior to the time of the close of business on the NYSE. |
If the purchase orders
are not received prior to 30 minutes after the close of business on
the NYSE on that day, such orders shall be deemed received on the next
business day. Financial intermediaries have the responsibility of submitting
purchase orders to the Fund not later than 30 minutes after the close
of business on the NYSE in order to purchase shares at that days
offering price.</R> |
<R> The Fund or the
Distributor may suspend the continuous offering of the Funds 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. The
Distributor, the dealers or other financial intermediaries are not permitted
to withhold placing orders to benefit themselves by a price change.
Certain securities dealers or other financial intermediaries may charge
a fee in connection with a purchase. For example, the fee charged by
Merrill Lynch is currently $5.35. Fees charged by other securities dealers
or financial intermediaries may be higher or lower. Purchases made directly
through the Transfer Agent are not subject to the processing fee. </R> |
Initial Sales Charge Alternatives
Class I And Class A Shares |
<R> 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 is an account maintenance fee 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 account maintenance fee. Although
some investors who previously purchased Class I </R> |
<R>shares may no longer
be eligible to purchase Class I shares of other Mercury Mutual funds, those
previously purchased Class I shares, together with Class A, Class B
and Class C share holdings, will count toward a right of accumulation
which may qualify the investor for a reduced initial sales charge on
new initial sales charge purchases. In addition, the ongoing Class B
and Class C account maintenance and distribution fees will cause Class
B and Class C shares to have higher expense ratios, pay lower dividends
and have lower total returns than the initial sales charge shares. The
ongoing Class A 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, 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 who currently own Class I shares of the Fund in
a shareholder account are entitled to purchase additional Class I shares
of the Fund in that account. Certain employer-sponsored retirement or
savings plans, including eligible 401(k) plans, may purchase Class I
shares at net asset value provided such plans meet the required minimum
number of eligible employees or required amount of assets advised by
Mercury Advisors 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, selected dealers, brokers,
investment advisers, service providers and other financial intermediaries.
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 the 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 Advisors or an affiliate
exercises investment discretion. </R> |
Class I and Class A Sales Charge Information |
Class I Shares
|
For the Fiscal Period
Ended
May 31
|
Gross Sales
Charges
Collected
|
Sales Charges
Retained By
Distributor
|
Sales Charges
Paid To
Merrill Lynch
|
CDSCs Received on
Redemption of
Load-Waived Shares
|
2000* |
$ 3,039 |
$ 207 |
$ 2,832 |
$ 0 |
|
Class A Shares
|
For the Fiscal Period
Ended
May 31
|
Gross Sales
Charges
Collected
|
Sales Charges
Retained By
Distributor
|
Sales Charges
Paid To
Merrill Lynch
|
CDSCs Received on
Redemption of
Load-Waived Shares
|
2000* |
$1,190,161 |
$20,832 |
$1,169,329 |
$1,043 |
* |
|
For the period October 29, 1999 (commencement
of operations) to May 31, 2000. |
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. 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.</R>
|
Reduced Initial Sales Charges |
<R> 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 purchasers 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 purchasers
securities dealer or other financial intermediary, with sufficient information to permit confirmation
of qualification. Acceptance of the purchase order is subject to such
confirmation. The right of accumulation may be amended or terminated
at any time. Shares held in the name of a nominee or custodian under
pension, profit-sharing or other employee benefit plans may not be combined
with other shares to qualify for the right of accumulation. |
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
Funds 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 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.</R> |
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. |
<R> Purchase
Privileges of Certain Persons. Directors of the Corporation and
Trustees of the Trust, members of the Boards 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 International,
FAM and certain other entities directly or indirectly wholly owned and
controlled by ML & Co.), employees of certain selected dealers,
and any trust, pension, profit-sharing or other benefit plan for such
persons, may purchase Class I shares of the Fund at net asset value.
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 Funds suitability standards.</R> |
<R> 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 participate in the plan and/or
the aggregate amount invested by the plan in specified investments. 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 Intermediaries. Reduced sales charges may be
applicable for purchases of Class I or Class A shares of the Fund through
certain financial advisers, selected dealers, brokers, investment advisers,
service providers and other financial intermediaries. |
Deferred Sales Charge Alternatives
Class B and Class C Shares </R> |
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. |
<R> Because no initial
sales charges are deducted at the time of the purchase, Class B and
Class C shares provide the benefit of putting all of the investors
dollars to work from the time the investment is made. The deferred sales
charge alternatives may be particularly appealing to investors that
do not qualify for the reduction in initial sales charges. Both Class
B and Class C shares are subject to ongoing account maintenance fees
and distribution fees; however, the ongoing account maintenance and
distribution fees potentially may be offset to the extent any return
is realized on the additional funds initially invested in Class B or
Class C shares. In addition, Class B shares will be converted into Class
A shares of the Fund after a conversion period of approximately eight
years, and thereafter investors will be subject to lower ongoing fees.
|
The public offering price of
Class B and Class C shares for investors choosing the deferred sales
charge alternatives is the next determined net asset value per share
without the imposition of a sales charge at the time of purchase. See
Pricing of Shares Determination of Net Asset Value
below. In determining whether a CDSC is applicable to a redemption,
the calculation will be determined in the manner that results in the
lowest applicable rate being charged. The charge will be assessed on
an amount equal to the lesser of the proceeds of redemption or the cost
of shares being redeemed. Accordingly, no CDSC will be imposed on increases
in net asset value above the initial purchase price. In addition, no
CDSC will be assessed on shares derived from reinvestment of dividends.
It will be assumed that the redemption is first of shares held for over
six years or shares acquired pursuant to reinvestment of dividends and
then of shares held longest during the six-year period. A transfer of
shares from a shareholders account to another account will be
assumed to be made in the same order as a redemption. |
Contingent Deferred
Sales Charges Class B Shares |
Class B shares that are
redeemed within six years of purchase may be subject to a CDSC at the
rates set forth below charged as a percentage of the dollar amount subject
thereto. </R> |
<R> The
following table sets forth the Class B CDSC: |
|
Year Since Purchase Payment Made
|
CDSC as a Percentage
of Dollar Amount
Subject to Charge
|
|
|
0-1 |
4.0% |
|
|
1-2 |
4.0% |
|
|
2-3 |
3.0% |
|
|
3-4 |
3.0% |
|
|
4-5 |
2.0% |
|
|
5-6 |
1.0% |
|
|
6 and thereafter |
0.0% |
|
To provide an example,
assume an investor purchased 100 shares at $10 per share (at a cost
of $1,000) and in the third year after purchase, the net asset value
per share is $12 and, during such time, the investor has acquired 10
additional shares upon dividend reinvestment. If at such time the investor
makes his or her first redemption of 50 shares (proceeds of $600), 10
shares will not be subject to a CDSC because of dividend reinvestment.
With respect to the remaining 40 shares, the charge is applied only
to the original cost of $10 per share and not to the increase in net
asset value of $2 per share. Therefore, $400 of the $600 redemption
proceeds will be charged at a rate of 3.0% (the applicable rate in the
third year after purchase).</R> |
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 59½ 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). |
<R> 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 that have agreements with the Distributor
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. |
Employer-Sponsored
Retirement or Savings Plans and Certain Other Arrangements. Certain
employer-sponsored retirement or savings plans and certain other arrangements
may purchase Class B shares with a waiver of the CDSC upon redemption,
based on the number of employees or number of employees eligible to
participate in the plan and/or the aggregate amount invested by the
plan in specified investments. 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. |
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</R> |
<R>Conversion Period). Class A shares are
subject to an ongoing account maintenance fee of 0.25% of average daily
net assets but are not subject to the distribution fee that is borne
by Class B shares. Automatic conversion of Class B shares into Class
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 the Conversion Date, without the imposition of
any sales charge, fee or other charge. Conversion of Class B shares
to Class A shares will not be deemed a purchase or sale of the shares
for Federal income tax purposes. |
In addition, shares purchased
through reinvestment of dividends on Class B shares also will convert
automatically to Class A shares. The Conversion Date for dividend reinvestment
shares will be calculated taking into account the length of time the
shares underlying such dividend reinvestment shares were outstanding.
If at the Conversion Date the conversion of Class B shares to Class
A shares of the Fund in a single account will result in less than $50
worth of Class B shares being left in the account, all of the Class
B shares of the Fund held in the account on the Conversion Date will
be converted to Class A shares of the Fund.</R> |
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. |
<R> The Conversion
Period may also be modified for investors who participate in certain
fee-based programs. See Shareholder Services Fee-Based
Programs below. |
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. The Class C CDSC may be waived in 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 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 shareholders 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 intermediaries
for selling Class B and Class C shares. 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. |
Class B and Class C Sales Charge Information |
Class B Shares*
|
For the Fiscal Period
Ended May 31,
|
CDSCs Received
by Distributor
|
CDSCs Paid to
Merrill Lynch
|
2000**
|
$172,086
|
$172,086
|
|
|
|
Class C Shares
|
For the Fiscal Period
Ended May 31,
|
CDSCs Received
by Distributor
|
CDSCs Paid to
Merrill Lynch
|
2000**
|
$28,716
|
$28,716
|
* |
|
Additional Class B CDSCs payable to the Distributor
may have been waived or converted to a contingent obligation in connection
with a shareholders participation in certain fee-based programs. |
** |
|
For the period October 29, 1999
(commencement of operations) to May 31, 2000. </R> |
<R>The Distributor
compensates financial intermediaries for selling Class B and Class C
shares at the time of purchase from its own funds. Proceeds from the
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) 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 intermediaries for selling Class B and
Class C shares. 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 of Plans below.
Imposition 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 below. </R> |
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. |
<R> The Distribution
Plan for each of the Class A, 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 for providing, or arranging for the provision of, 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 for providing,
or arranging the provision of, shareholder and distribution services,
and bearing certain distribution-related expenses of the Fund, including
payments to financial intermediaries for selling Class B and Class C
shares of the Fund. The Distribution Plans relating to Class B and Class
C shares are designed to permit an investor to purchase Class B and
Class C shares through selected securities dealers and other financial intermediaries without the assessment
of an initial sales charge and at the same time permit the Distributor
to compensate 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 Funds
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 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 will be </R> |
<R>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 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 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. |
As of
May 31, 2000, direct cash expenses for the period since the commencement of
operations of Class B shares exceeded direct cash revenues by $822,126 (.64% of
Class B net assets at that date). As of December 31, 1999, fully allocated
accrual expenses exceeded fully allocated accrual revenues by $2,142,00 (2.00%)
of Class B net assets at that date. As of December 31, 1999, fully allocated
accrual expenses exceeded fully allocated accrual revenues by $550,000 (1.10%)
of Class C net assets at that date. As of May 31, 2000, direct cash revenues
for the period since the commencement of operations of Class C shares exceeded
direct cash expenses by $167,762 (.24% of Class C net assets at that date).
|
For the period October
29, 1999 (commencement of operations) to May 31, 2000, the Fund paid
the Distributor $45,340 pursuant to the Class A Distribution Plan (based
on average daily net assets subject to such Class A Distribution Plan
of approximately $30.7 million), all of which was paid to Merrill Lynch
for providing account maintenance activities in connection with Class
A shares. For the period October 29, 1999 (commencement of operations)
to May 31, 2000 the Fund paid the Distributor $722,002 pursuant to the
Class B Distribution Plan (based on average daily net assets subject
to such Class B Distribution Plan of approximately $122.3 million),
all of which was paid to Merrill Lynch for providing account maintenance
and distribution-related activities and services in connection with
Class B shares. For the period October 29, 1999 (commencement of operations)
to May 31, 2000, the Fund paid the Distributor $368,035 pursuant to
the Class C Distribution Plan (based on average daily net assets subject
to such Class C Distribution Plan of approximately $62.4 million), all
of which was paid to Merrill Lynch for providing account maintenance
and distribution-related activities and services in connection with
Class C shares. </R> |
Limitations on the Payment of Deferred
Sales Charges |
The maximum sales charge
rule in the Conduct Rules of the National Association of Securities
Dealers, Inc. (NASD) imposes a limitation on certain asset-based
sales charges such as the distribution fee and the CDSC borne by the
Class B and Class C shares, but not the account maintenance fee. The
maximum sales charge rule is applied separately to each class. As applicable
to the Fund, the maximum sales charge rule limits the aggregate of distribution
fee payments and CDSCs payable by the Fund to (1) 6.25% of eligible
gross sales of Class B shares and Class C shares, computed separately
(defined to exclude shares issued pursuant to dividend reinvestments
and exchanges), plus (2) interest on the unpaid balance for the respective
class, computed separately, at the prime rate plus 1% (the unpaid balance
being the maximum amount payable minus amounts received from the payment
of the distribution fee and the CDSC). |
<R> The following
table sets forth comparative information as of May 31, 2000 with respect
to the Class B and Class C shares of the Fund indicating the maximum
allowable payments that can be made under the NASD maximum sales charge
rule. |
|
|
|
|
Data Calculated as of
May 31, 2000
(in thousands) |
|
|
|
|
Eligible
Gross
Sales(1)
|
Allowable
Aggregate
Sales
Charges(2)
|
Allowable
Interest on
Unpaid
Balances(3)
|
Maximum
Amount
Payable
|
Amounts
Previously
Paid to
Distributor(4)
|
Aggregate
Unpaid
Balance
|
Annual
Distribution
Fee at
Current Net
Asset
Level(5)
|
|
|
|
Class B Shares for the period
October 29, 1999
(commencement of
operations) to May 31, 2000 |
$116,587 |
$7,445 |
$320 |
$7,765 |
$714 |
$7,051 |
$964 |
|
|
|
Class C Shares for the period
October 29, 1999
(commencement of
operations) to May 31, 2000 |
$ 70,021 |
$4,395 |
$173 |
$4,568 |
$305 |
$4,263 |
$531 |
(1) |
|
Purchase price of all eligible Class B and
Class C shares sold during the period indicated other than shares acquired
through dividend reinvestment and the exchange privilege. |
(2) |
|
Includes amounts attributable to exchanges
from Summit which are not reflected in Eligible Gross Sales. Shares
of Summit can only be purchased by exchange from another fund (the redeemed
fund). Upon such an exchange, the maximum allowable sales charge
payment to the redeemed fund is reduced in accordance with the amount
of the redemption. This amount is then added to the maximum allowable
sales charge payment with respect to Summit. Upon an exchange out of
Summit, the remaining balance of this amount is deducted from the maximum
allowable sales charge payment to Summit and added to the maximum allowable
sales charge payment to the fund into which the exchange is made. |
(3) |
|
Interest is computed on a monthly basis based
upon the prime rate, as reported in The Wall Street Journal, plus 1.0%
as permitted under the NASD Rule |
(4) |
|
Consists of CDSC payments, distribution fee
payments and accruals. See Fund Facts Fees and Expenses
in the Prospectus. This figure may include CDSCs that were deferred
when a shareholder redeemed shares prior to the expiration of the applicable
CDSC period and invested the proceeds, without the imposition of a sales
charge, in Class I shares in conjunction with the shareholders
participation in certain fee-based programs managed by Mercury Advisors or its
affiliates. The CDSC is booked as a contingent obligation that may be
payable if the shareholder terminates participation in certain fee-based
programs managed by Mercury Advisors or its affiliates. |
(5) |
|
Provided to illustrate the extent to which
the current level of distribution fee payments (not including any CDSC
payments) is amortizing the unpaid balance. No assurance can be given
that payments of the distribution fee will reach the NASD maximum (with
respect to Class B and Class C Shares).</R> |
<R> 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 value of shares at the time of
redemption may be more or less than the shareholders cost, depending
in part on the market value of the securities held by the Fund at such
time. |
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. |
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).</R> |
<R> A shareholder
wishing to redeem shares held with the Transfer Agent may do so without
charge by tendering the shares directly to the Transfer Agent at Financial
Data Services, Inc., P.O. Box 44062, Jacksonville, Florida 32232-4062.
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 requests should not be sent to the
Fund. The redemption request 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 Agents 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 Agents register; (ii) all
checks must be mailed to the stencil address of record on the Transfer
Agents 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. |
A shareholder may also redeem shares held with the Transfer
Agent by telephone request. To request a redemption from your account,
call the Transfer Agent at 1-888-763-2260. The request must be made by the shareholder of record and be for an
amount less than $50,000. Before
telephone requests will be honored, signature approval from all shareholders
of record on the account must be obtained. |
The shares being redeemed must have been held for at least 15
days. Telephone
redemption requests will not be honored in the following situations: the
accountholder is deceased, the proceeds are to be sent to someone other than
the shareholders of record, funds are to be wired to the clients bank
account, a systematic withdrawal plan is in effect, request is by an individual
other than the accountholder of record, the account is held by joint tenants who are divorced, the address
on the account has changed within the last 30 days or share certificates have been issued on
the account. |
Since
this account feature involves a risk of loss from unauthorized or fraudulent
transactions, the Transfer Agent will take certain precautions to protect your
account from fraud. Telephone redemptions may be refused if the caller is
unable to provide: the account number, the name and address registered on the
account and the social security number registered on the account. The Fund or
the Transfer Agent may temporarily suspend telephone transactions at any time. |
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 it has assured itself that
good payment (e.g., cash, Federal funds or certified check drawn
on a U.S. bank) has been collected for the purchase of such Fund shares,
which will usually not exceed 10 days. |
In the event that a single
fractional share remains in any shareholder account held directly with
the Transfer Agent, such fractional share may be automatically redeemed
by the Fund.</R> |
<R> The Fund will
also repurchase shares through a shareholders listed securities
dealer or other financial intermediary. 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.
Generally, shares will be priced at the net asset value calculated on
the day the request is received, provided that the request for repurchase
is submitted to the selected securities dealer or other financial intermediary prior to the
close of business on the NYSE (generally the NYSE closes at 4:00 p.m.,
Eastern time) and such request is received by the Fund from such selected securities dealer
or other financial intermediary not later than 30 minutes after the
close of business on </R> |
<R>the NYSE on the same day. However, certain financial intermediaries may
require submission of orders prior to that time. Dealers and other financial
intermediaries 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 days 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 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 fee in connection with a repurchase of shares. For example,
the fee currently charged by Merrill Lynch is $5.35. Fees charged by
other securities dealers or financial intermediaries may be higher
or lower. Repurchases directly through the Funds 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.</R> |
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 investors 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. |
PORTFOLIO TRANSACTIONS
AND BROKERAGE |
<R> 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 Portfolios 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 firms 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 NASD
Conduct Rules of the NASD and policies established by the Board of Trustees,
the Investment Adviser may consider sales of shares of the Fund as a
factor in the selection of brokers or dealers to execute portfolio transactions
for the Trust; however, whether or not a particular broker or dealer
sells shares of a Fund neither qualifies nor disqualifies such broker
or dealer to execute transactions for the Trust. |
Subject to obtaining the
best net results, brokers who provide supplemental investment research
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 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 portfolio transactions effected for such other accounts or investment
companies.</R> |
<R> The Trust anticipates
that its brokerage transactions involving securities of issuers domiciled
in countries other than the United States generally will be conducted
primarily on the principal stock exchanges of such countries. Brokerage
commissions and other transaction costs on foreign stock exchange transactions
generally may be higher than in the United States, although the Trust
will endeavor to achieve the best net results in effecting its portfolio
transactions. There also may be less government supervision and regulation
of foreign stock exchanges and brokers than in the United States. The
Trusts ability and decisions to purchase and sell portfolio securities
may be affected by non-U.S. laws and regulations relating to the convertibility
and repatriation of assets. |
Information
about the brokerage commissions paid by the Portfolio, including commissions
paid to Merrill Lynch, if any, is set forth in the following table:
|
|
Period
|
Brokerage
Commissions
Paid
|
Brokerage
Commissions Paid
to Merrill Lynch
|
|
|
October 29, 1999 (commencement of operations)
to May 31, 2000 |
$268,464 |
$0 |
|
The
Portfolio may invest in certain securities traded in the OTC market and intends
to deal directly with dealers who make a market in the securities involved,
except in those circumstances in which better prices and execution are
available elsewhere. Under the Investment Company Act, persons affiliated with
the Trust 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 on an agency
basis provided that, among other things, the fee or commission received by such
affiliated broker is reasonable and fair compared to the fee or commission
received by non-affiliated brokers in connection with comparable transactions. |
In
addition, the Portfolio 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 exchange
from executing exchange transactions for their affiliates and institutional
accounts that they manage unless the member (i) has obtained prior express
authorization from the account to effect such transactions, (ii) at
least annually furnishes the account with 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 Trust brokerage commissions 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 Trust to
the Investment Adviser. After considering all factors deemed relevant,
the Trustees made a determination not to seek such recapture. The Board
of 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 Portfolio 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. </R> |
Determination of Net Asset Value |
<R> 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 as of the close of business on the NYSE on each day the
NYSE is open for trading based on prices at the time of closing. The
NYSE generally closes at 4:00 p.m., Eastern time. Any assets or liabilities
initially expressed in terms of non-U.S. dollar currencies are translated
into U.S. dollars at the prevailing market rates as quoted by one or
more banks or dealers on the day of valuation. The NYSE is not open
for trading on New Years Day, Martin Luther King, Jr. Day, Presidents
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving
Day and Christmas Day.</R> |
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 rounded to the nearest cent.
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.
|
<R> The per share
net asset value of Class A, Class B and Class C shares generally will
be lower than the per share net asset value of Class I shares, reflecting
the daily expense accruals of the account maintenance, distribution
and higher transfer agency fees applicable with respect to Class B and
Class C shares, and the daily expense accruals of the account maintenance
fees applicable with respect to Class A shares. Moreover, the per share
net asset value of the Class B and Class C shares generally will be
lower than the per share net asset value of Class A shares reflecting
the daily expense accruals of the distribution fees and higher transfer
agency fees applicable with respect to Class B and Class C shares of
the Fund. It is expected, however, that the per share net asset value
of the four classes will tend to converge (although not necessarily
meet) immediately after the payment of dividends or distributions, which
will differ by approximately the amount of the expense accrual differentials
between the classes. |
Portfolio securities including ADRs, EDRs and GDRs that are held
by the Trust 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 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.
</R> |
<R> 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. </R> |
Generally,
trading in non-U.S. securities, as well as U.S. Government securities and money
market instruments, is substantially completed each day at various times prior
to the close of business on the NYSE. |
<R> The values of
such securities used in computing the net asset value of the Funds
shares are determined as of such times. Foreign currency exchange rates
are also generally determined prior to the close of business on the
NYSE. Occasionally, events affecting the values of such securities and
such exchange rates may occur between the times at which they are determined
and the close of business on the NYSE that may not be reflected in the
computation of the Funds net asset value. |
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 investors
(including the Funds) 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 investors 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 investors percentage of the aggregate
beneficial interests in the Portfolio will then be recomputed as the
percentage equal to the fraction (i) the numerator of which is the value
of such investors 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 investors 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 investors interest in
the Portfolio after the close of business of the NYSE on the next determination
of net asset value of the Portfolio. |
Computation of Offering Price Per
Share |
The offering price for
Class I, Class A, Class B and Class C shares of the Fund based on the
value of the Funds net assets and number of shares outstanding
as of May 31, 2000 is calculated as set forth below. |
|
|
Class
I
|
Class A
|
Class
B
|
Class
C
|
Net Assets
|
|
$27,417,116
|
$28,396,234
|
$128,607,272
|
$70,770,551
|
|
|
|
|
|
|
Number of Shares Outstanding |
|
2,086,987 |
2,165,091 |
9,850,145 |
5,420,540 |
|
|
|
|
|
|
Net Asset Value Per Share (net assets
divided by number of shares
outstanding) |
|
$
13.14
|
$
13.12
|
$
13.06
|
$
13.06
|
|
|
|
|
|
|
Sales Charge (for Class I and Class A
Shares: 5.25% of Offering Price
(5.54% of net amount invested))*
|
|
.73
|
.73
|
**
|
**
|
|
|
|
|
|
|
Offering Price
|
|
$
13.87
|
$
13.85
|
$
13.06
|
$
13.06
|
|
|
|
|
|
|
* |
|
Rounded to the nearest one-hundredth
percent; assumes maximum sales charge is applicable. |
* * |
|
Class B and Class C shares are not subject
to an initial sales charge but may be subject to a CDSC on redemption.
See Account Choices Class B and Class C Shares Deferred
Sales Charge Options in the Prospectus and Purchase of Shares
Deferred Sales Charge Alternatives Class B and Class C
Shares herein. |
The Fund offers a number
of shareholder services described below that are designed to facilitate
investment in their shares. Full details as to each such service and
copies of the various plans described below can be obtained from the
Fund, the Distributor or your selected dealer or other financial intermediary.
Certain of these services are available only to U.S. investors. </R> |
<R> 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 an
authorized agreement with the Distributor. Certain shareholder services may not
be available for the transferred shares. After the transfer, the shareholder
may purchase additional shares of funds owned before the transfer and all
future trading of these assets must be coordinated by the new firm. If a
shareholder wishes to transfer his or her shares to a securities dealer or
other financial intermediary that has not entered into an authorized agreement
with the Distributor, the shareholder must either (i) redeem his or her shares,
paying any applicable CDSC or (ii) continue to maintain an Investment Account
at the Transfer Agent for those shares. The shareholder 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
an authorized 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 should be aware that, if the firm to which
the retirement account is to be transferred will not take delivery of
shares of the Fund, a shareholder must either redeem the shares, paying
any applicable CDSC, so that the cash proceeds can be transferred to
the account at the new firm, or such shareholder must continue to maintain
a retirement account at a selected dealer for those shares.</R> |
Automatic Investment Plan |
<R> 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 shareholders 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.</R> |
Automatic Dividend Reinvestment
Plan |
<R> Unless specific
instructions are given as to the method of payment, dividends will be
automatically reinvested, without sales charge, in additional full and
fractional shares of the Fund. Such reinvestment will be at the net
asset value of shares of the Fund as determined after the close of business
on the NYSE on the monthly payment date for such dividends. No CDSC
will be imposed upon redemption of shares issued as a result of the
automatic reinvestment of dividends. |
Shareholders may, at any
time, 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 is maintained at the Transfer Agent
would amount to $10.00 or less, a shareholder will not receive such
payment in cash and such payment will automatically be reinvested in
additional shares). If the shareholders account is maintained
with the Transfer Agent, he or she may contact the Transfer Agent in
writing or by telephone (1-888-763-2260). For other accounts, the shareholder
should contact his or her financial consultant, selected securities
dealer or other financial intermediary. Commencing ten days after the
receipt by the Transfer Agent of such notice, those </R> |
<R>instructions will be effected. The Fund
is not responsible for any failure of delivery to the shareholders
address of record and no interest will accrue on amounts represented
by uncashed dividend checks. Cash payments can also be directly deposited
to the shareholders bank account.</R> |
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 shareholders bank
account on either a monthly or quarterly basis as provided below. Quarterly
withdrawals are available for shareholders who have acquired shares of the Fund
having a value, based on cost or the current offering price, of $5,000 or more,
and monthly withdrawals are available for shareholders with shares having a
value of $10,000 or more. |
<R> At the time of
each withdrawal payment, sufficient shares are redeemed from those on
deposit in the shareholders account to provide the withdrawal
payment specified by the shareholder. The shareholder may specify the
dollar amount and class of shares to be redeemed. Redemptions will be
made at net asset value as determined as of the close of business on the NYSE (generally, the NYSE closes at 4:00 p.m., Eastern time) on the 24th
day of each month or the 24th day of the last month of each quarter,
whichever is applicable. 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 as of the close of business on the NYSE on the following
business day. The check for the withdrawal payment will be mailed, or
the direct deposit will be made on the next business
day following redemption. When a shareholder is making systematic withdrawals,
dividends on all shares in the Investment Account are reinvested automatically
in shares of the Fund. A shareholders systematic withdrawal plan
may be terminated at any time, without a charge or penalty, by the shareholder,
the Fund, the Funds Transfer Agent or the Distributor.</R> |
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 shareholders 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 years 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. |
<R> 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 intermediary. |
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 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.
</R> |
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 Funds 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 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. |
<R> 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 Funds
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 Funds 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 Funds 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 the 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 Funds 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.</R> |
<R> 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 intermediary,
who will advise the Fund of the exchange. Shareholders of the Fund and
shareholders of the other funds described above with shares for which
certificates have not been issued may exercise the exchange privilege
by wire through their securities dealers. The Fund reserves the right
to require a properly completed Exchange Application. |
Telephone
exchange requests are also available in accounts held with the Transfer Agent
for amounts up to $50,000. To request an exchange from your account, call the
Transfer Agent at 1-888-763-2260. The request must be from the shareholder of
record. Before telephone requests will be honored, signature approval from all
shareholders of record must be obtained. |
The shares being exchanged
must have been held for at least 15 days. Telephone requests for an
exchange will not be honored in the following situations: the accountholder
is deceased, request is by an individual other than the accountholder
of record, the account is held by joint tenants who are divorced or
the address on the account has changed within the last 30 days. Telephone
exchanges may be refused if the caller is unable to provide: the account
number, the name and address registered on the account and the social
security number registered on the account. The Fund or the Transfer
Agent may temporarily suspend telephone transactions at any time.</R> |
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. |
<R> Certain
fee-based programs, including pricing alternatives for securities transactions
(each referred to in this paragraph as a Program), may permit
the purchase of Class I shares at net asset value. Under specified circumstances,
participants in certain Programs may deposit other classes of shares,
which will be exchanged for Class I shares. Initial or deferred sales
charges otherwise due in connection with such exchanges may be waived
or modified, as may the Conversion Period applicable to the deposited
shares. Termination of participation in certain Programs may result
in the redemption of shares held therein or the automatic exchange thereof
to another class at net asset value. In addition, upon termination of
participation in certain Programs, shares that have been held for less
than specified periods within such Program may be subject to a fee based
upon the current value of such shares. These Programs also generally
prohibit such shares from being transferred to another account, to another
financial intermediary, 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 Programs client agreement
and from the shareholders selected dealer.</R> |
<R> The Fund intends
to distribute substantially all its net investment income, if any. Dividends
from such net investment income will be paid semi-annually. All net
realized capital gains, if any, will be distributed to the Funds
shareholders semi-annually. From time to time, the Fund may declare
a special dividend 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. </R> |
<R> 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
Determination of Net Asset Value. Within 60 days after the
end of the Funds 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.</R> |
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 and distributions of the Funds
net realized short-term capital gains (together referred to hereafter as ordinary
income dividends) are taxable to shareholders as ordinary income, whether
or not reinvested. |
Distributions made from
net capital gains (i.e., the excess of net capital gains from
the sale of assets held for more than 12 months over net short-term
capital losses, and including such gains from certain transactions in
futures and options) (capital gain dividends) to shareholders
will be taxable as capital gains to the shareholders, whether or not
reinvested and regardless of the length of time a shareholder has owned
his or her shares. The maximum capital gains rate for individuals is
20% with respect to assets held for more than 12 months. The maximum
capital gains rate for corporate shareholders currently is the same
as the maximum 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 ordinary income
and capital gain dividends. A portion of the dividends paid by the Fund
out of dividends paid by certain corporations located in the U.S. may
be eligible for the dividends received deduction allowed to corporations
under the Code. 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 countries other than the U.S. 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 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 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 Funds 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 shareholders basis in the Class A
shares acquired will be the same as such shareholders 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 shareholders
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 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 61-day period
beginning 30 days before and ending 30 days after the date that the shares are
disposed of. In such a case, the basis of the shares acquired will be adjusted
to reflect the disallowed loss. |
The Code requires a RIC
to pay a nondeductible 4% excise tax to the extent the RIC does not
distribute, during each calendar year, 98% of its ordinary income, determined
on a calendar year basis, and 98% of 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, Futures
and Forward Foreign Exchange Transactions |
The Fund may write, 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. Unless such contract
is a forward foreign exchange contract, or is a non-equity option or
a regulated futures contract for a non-U.S. currency for which the Fund
elects to have gain or loss treated as ordinary gain or loss under Code
Section 988 (as described below), gain or loss from transactions in
Section 1256 contracts will be 60% long-term and 40% short-term capital
gain or loss. Application of these rules to Section 1256 contracts held
by the Fund may alter the timing and character of dividends to shareholders.
The mark-to-market rules outlined above, however, will not apply to
certain transactions entered into by the Fund solely to reduce the risk
of changes in price or interest or currency exchange rates with respect
to its investments. |
A forward foreign exchange
contract that is a Section 1256 contract will be marked to market, as
described above. However, the character of gain or loss from such a
contract will generally be ordinary under Code Section 988. The Fund
may, nonetheless, elect to treat the gain or loss from such contracts
as capital. In this case, gain or loss realized in connection with a
forward foreign exchange contract that is a Section 1256 contract will
be characterized as 60% long-term and 40% short-term capital gain or
loss. |
Code
Section 1092, which applies to certain straddles, may affect the
taxation of the Funds sales of securities and transactions in options,
futures and forward foreign exchange contracts. Under Section 1092, the Fund
may 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. |
Special Rules For Certain Foreign
Currency Transactions |
Under
Code Section 988, special rules are provided for certain transactions in a
foreign currency other than the taxpayers functional currency (i.e.,
unless certain special rules apply, currencies other than the United States
dollar). In general, foreign currency gains or losses from certain forward
contracts, from futures contracts that are not regulated futures contracts and
from unlisted options will be treated as ordinary income or loss under Code
Section 988. In certain circumstances, the Fund may elect capital gain or loss
treatment for such transactions. In general, however, Code Section 988 gains or
losses will increase or decrease the amount of the Funds investment
company taxable income available to be distributed to shareholders as ordinary
income. Additionally, if Code Section 988 losses exceed other investment
company taxable income during a taxable year, the Fund would not be able to
make any ordinary dividend distributions, and any distributions made before the
losses were realized but in the same taxable year would be recharacterized as a
return of capital to shareholders, thereby reducing the basis of each
shareholders Fund shares. |
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 Funds investment from the Portfolio and to retain an investment
adviser to manage the Funds assets in accordance with the investment
policies applicable to the Fund. See Investment Objective and
Policies. |
The foregoing is a general
and abbreviated summary of the applicable provisions of the Code and
the Treasury regulations presently in effect. For the complete provisions,
reference should be made to the pertinent Code sections and the Treasury
regulations promulgated thereunder. The Code and the Treasury regulations
are subject to change by legislative or administrative action either
prospectively or retroactively. |
Dividends and capital gains
distributions and gains on the sale or exchange of shares in the Fund
may also be subject to state and local taxes. |
Shareholders
are urged to consult their own tax advisors regarding specific questions
as to Federal, state, local or foreign taxes. Foreign investors should
consider applicable foreign taxes in their evaluation of an investment
in the Fund. |
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 Funds 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. |
<R> 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.
Dividends paid by the Fund with respect to all 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 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. The Funds total return may be expressed either
as a percentage or as a dollar amount in order to illustrate such total
return on a hypothetical $1,000 investment in the Fund at the beginning
of each specified period. |
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
Russell 2000 Growth Index, the Russell 2000 Index, the Value Line Composite
Index, the Dow Jones Industrial Average, or other published indices,
or to data contained in publications such as Lipper Analytical Services,
Inc., including the Lipper Small Cap Growth Funds Average, 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 historic performance of the Fund
and the index, such as standard deviation and beta. In addition, from
time to time, the Fund may include the Funds 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 Funds relative performance for any future period. |
Total return figures are
based on the Funds historical performance and are not intended
to indicate future performance. The Funds total return will vary
depending on market conditions, the securities comprising the Funds
portfolio, the Funds 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 investors
shares, when redeemed, may be worth more or less than their original
cost. |
</R>
<R>
The Fund may provide information
designed to help investors understand how the Fund is seeking to achieve
its investment objective. This may include information about past, current
or possible economic, market, political, or other conditions, descriptive
information on general principles of investing such as asset allocation,
diversification and risk tolerance, discussion of the Funds portfolio
composition, investment philosophy, strategy or investment techniques,
comparisons of the Funds performance or portfolio composition
to that of other funds or types of investments, indices relevant to
the comparison being made, or to a hypothetical or model portfolio.
The Fund may also quote various measures of volatility and benchmark
correlation in advertising and other materials, and may compare these
measures to those of other funds or types of investments. |
Set
forth below is total return information for the Class I, Class A, Class B and
Class C shares of the Fund for the period indicated. |
|
|
Class I Shares
|
ClassA Shares
|
Class BShare
|
Class C Shares
|
Period
|
|
Expressed as
a percentage
based on a
hypothetical
$1,000 investment
|
Expressed as
a percentage
based on a
hypothetical
$1,000 investment
|
Expressed as
a percentage
based on a
hypothetical
$1,000 investment
|
Expressed as
a percentage
based on a
hypothetical
$1,000 investment
|
|
|
Aggregate Total Return
(including maximum applicable sales charges)
|
Inception (October 29, 1999) to May 31, 2000
|
|
24.50%
|
24.31%
|
26.60%
|
29.60% |
|
</R>
<R> The Corporation
is a Maryland corporation incorporated on April 24, 1998. On September
8, 2000 the Corporation changed its name from Mercury Asset Management
Funds, Inc. to Mercury Funds, Inc. 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 on 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. |
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
By-Laws, 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 or Trust, the Corporation
will hold a meeting of the Funds shareholders and will cast its
vote as instructed by the Funds shareholders or the Fund will
vote its interests in the Portfolio or Trust in the same proportion
as the vote of all other holders of interests in the Portfolio or Trust. |
</R>
<R>
Deloitte & Touche LLP,
Princeton Forrestal Village, 116-300 Village Boulevard, Princeton, New
Jersey 08540-6400, has been selected as the independent auditors of
the Fund and the Portfolio. The independent auditors are responsible for auditing the
annual financial statements of the Fund and the Portfolio.</R> |
<R> Brown Brothers
Harriman & Co., (the Custodian) 40 Water Street, Boston,
Massachusetts 02109, acts as the custodian of the Funds 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 Funds cash
and securities, handling the receipt and delivery of securities and
collecting interest and dividends on the Funds investments. </R> |
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 Funds
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.
|
<R> Swidler Berlin
Shereff Friedman, LLP, The Chrysler Building,
405 Lexington Avenue, New York, New York 10174, is counsel for the Fund.</R> |
The Fund
sends to its shareholders at least semi-annually reports showing the Funds
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. |
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. |
<R> To the knowledge
of the Fund, the following persons or entities owned beneficially 5%
or more of a class of the Funds shares as of August 15, 2000: |
|
Name/Address
|
Percentage of Class
|
|
|
|
Class A |
|
|
Mr. Walter J. Buzzini III EXEC
|
6.18%
|
|
|
Ms. Barbara J Buzzini EXEC
|
|
|
|
EST of Walter J. Buzzini, Jr.
|
|
|
|
8700 Crownhill Blvd. # 404
|
|
|
|
San Antonio, Texas 78209
|
|
|
The Funds and Portfolios
audited financial statements are incorporated in this Statement of Additional
Information by reference to their 2000 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. Eastern time on any business day.</R> |
Ratings of Fixed
Income Securities |
Description of Moodys
Investors Services, Inc.s Corporate Debt Ratings |
Aaa
| Bonds that are rated Aaa
are judged to be of the best quality. They carry the smallest degree of
investment risk and are generally referred to as gilt edge. Interest
payments are protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues. |
Aa |
Bonds that are rated Aa
are judged to be of high quality by all standards. Together with the Aaa group
they comprise what are generally known as high grade bonds. They are rated
lower than the best bonds because margins of protection may not be as large as
in Aaa securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present that make the long-term risks
appear somewhat larger than in Aaa securities. |
A
| Bonds that are rated A
possess many favorable investment attributes and are to be considered as upper
medium grade obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present that suggest a susceptibility
to impairment sometime in the future. |
Baa
| Bonds that are rated Baa
are considered as medium grade obligations; i.e., they are neither highly
protected nor poorly secured. Interest payments and principal security appear
adequate for the present but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. |
Ba
| Bonds that are rated Ba
are judged to have speculative elements; their future cannot be considered as
well assured. Often the protection of interest and principal payments may be
very moderate, and therefore not well safeguarded during both good and bad
times over the future. Uncertainty of position characterizes bonds in this
class. |
B
| Bonds that are rated B
generally lack characteristics of desirable investments. Assurance of interest
and principal payments or of maintenance of other terms of the contract over
any long period of time may be small. |
Caa
| Bonds that are rated Caa
are of poor standing. Such issues may be in default or there may be present
elements of danger with respect to principal or interest. |
Ca
| Bonds that are rated Ca
represent obligations that are speculative in a high degree. Such issues are
often in default or have other marked shortcomings. |
C
| Bonds that are rated C
are the lowest rated bonds, and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment standing. |
Note:
Moodys 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 Moodys
Commercial Paper Ratings |
The term
commercial paper as used by Moodys means promissory
obligations not having an original maturity in excess of nine months. Moodys
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 of 1933, as amended (the Securities Act). |
Moodys
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. Moodys makes no representation that such obligations are
exempt from registration under the Securities Act, nor does it represent that
any specific note is a |
valid obligation of a rated issuer or
issued in conformity with any applicable law. Moodys 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 Moodys 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, Moodys 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. Moodys 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 Moodys
Preferred Stock Ratings |
Because of the fundamental
differences between preferred stocks and bonds, a variation of the bond
rating symbols is being used in the quality ranking of preferred stocks.
The symbols, presented below, are designed to avoid comparison with bond
quality in absolute terms. It should always be borne in mind that preferred
stocks occupy a junior position to bonds within a particular capital structure
and that these securities are rated within the universe of preferred stocks.
Preferred stock rating symbols and their definitions
are as follows: |
aaa
| An issue that is rated
aaa is considered to be a top-quality preferred stock. This rating
indicates good asset protection and the least risk of dividend impairment
within the universe of preferred stocks. |
aa
| An issue that is rated
aa is considered a high-grade preferred stock. This rating
indicates that there is reasonable assurance that earnings and asset protection
will remain relatively well maintained in the foreseeable future. |
a
| An issue that is rated
a is considered to be an upper-medium grade preferred stock. While
risks are judged to be somewhat greater than in the aaa and aa classifications,
earnings and asset protection are, nevertheless, expected to be maintained at
adequate levels. |
baa
| An issue that is rated
baa is considered to be medium grade, neither highly protected nor
poorly secured. Earnings and asset protection appear adequate at present but
may be questionable over any great length of time. |
ba
| An issue that is rated
ba is considered to have speculative elements and its future cannot
be considered well assured. Earnings and asset protection may be very moderate
and not well safeguarded during adverse periods. Uncertainty of position
characterizes preferred stocks in this class. |
b
| An issue that is rated
b generally lacks the characteristics of a desirable investment.
Assurance of dividend payments and maintenance of other terms of the issue over
any long period of time may be small. |
caa
| An issue that is rated
caa is likely to be in arrears on dividend payments. This rating
designation does not purport to indicate the future status of payments. |
ca
| An issue that is rated
ca is speculative in a high degree and is likely to be in arrears
on dividends with little likelihood of eventual payment. |
c
| This is the lowest rated
class of preferred or preference stock. Issues so rated can be regarded as
having extremely poor prospects of ever attaining any real investment standing. |
Note:
Moodys 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 & Poors
Corporate Debt Ratings |
A
Standard & Poors 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 & Poors from other sources it considers reliable. Standard
& Poors 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. |
AAA |
Debt rated AAA has the highest rating
assigned by Standard & Poors. Capacity to pay interest and repay
principal is extremely strong. |
AA |
Debt rated AA has a very strong capacity
to pay interest and repay principal and differs from the highest-rated issues
only in small degree. |
A |
Debt rated A has a strong capacity
to pay interest and repay principal although it is somewhat more susceptible
to the adverse effects of changes in circumstances and economic conditions
than debt in higher-rated categories. |
BBB |
Debt rated BBB is regarded as having
an adequate capacity to pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to
pay interest and repay principal for debt in this category than for debt
in higher-rated categories. |
Debt
rated BB, B, CCC and C is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal.
BB indicates the least degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions. |
BB
| Debt rated BB has less
near-term vulnerability to default than other speculative grade debt. However,
it faces major ongoing uncertainties or exposure to adverse business, financial
or economic conditions that could lead to inadequate capacity to meet timely
interest and principal payment. The BB rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BBB- rating. |
B
| Debt rated B has a
greater vulnerability to default but presently has the capacity to meet
interest payments and principal repayments. Adverse business, financial or
economic conditions would likely impair capacity or willingness to pay interest
or repay principal. The B rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied BB or BB- rating. |
CCC
| Debt rated CCC has a
current identifiable vulnerability to default, and is dependent upon favorable
business, financial and economic conditions to meet timely payments of interest
and repayments of principal. In the event of adverse business, financial or
economic conditions, it is not likely to have the capacity to pay interest and
repay principal. The CCC rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied B or B- rating. |
CC
| The rating CC is
typically applied to debt subordinated to senior debt that is assigned an
actual or implied CCC rating. |
C
| The rating C is typically
applied to debt subordinated to senior debt that is assigned an actual or
implied CCC- debt rating. The C rating may be used to cover a situation where a
bankruptcy petition has been filed but debt service payments are continued. |
CI
| The rating CI is reserved
for income bonds on which no interest is being paid. |
D
| Debt rated D is in
default. The D rating is assigned on the day an interest or principal payment
is missed. The D rating also will be used upon the filing of a bankruptcy
petition if debt service payments are jeopardized. |
Plus (+) or Minus
(): The ratings from AA to CCC may be modified by the addition of a plus
or minus sign to show relative standing within the major ratings categories. |
Provisional
Ratings: The letter p indicates that the rating is provisional. A
provisional rating assumes the successful completion of the project being
financed by the debt being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, while addressing credit
quality subsequent to completion of the project, makes no comment on the
likelihood or risk of default upon failure of such completion. The investor
should exercise judgment with respect to such likelihood and risk. |
L
| The letter L indicates
that the rating pertains to the principal amount of those bonds to the extent
that the underlying deposit collateral is insured by the Federal Savings & Loan
Insurance Corp. or the Federal Deposit Insurance Corp. and interest is
adequately collateralized. |
*
| Continuance of the rating
is contingent upon Standard & Poors 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 & Poors does not rate a particular type of
obligation as a matter of policy. |
Debt
obligations of issuers outside the United States and its territories are rated
on the same basis as domestic corporate and municipal issues. The ratings
measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties. |
Bond
Investment Quality Standards: Under present commercial bank regulations issued
by the Comptroller of the Currency, bonds rated in the top four categories (AAA,
AA, A, BBB, 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 & Poors
Commercial Paper Ratings |
A
Standard & Poors commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more
than 365 days. Ratings are graded into four categories, ranging from A
for the highest quality obligations to D for the lowest. The four
categories are as follows: |
A
| Issues assigned this
highest rating are regarded as having the greatest capacity for timely payment.
Issues in this category are delineated with the numbers 1, 2 and 3 to indicate
the relative degree of safety. |
A-1
| This designation
indicates that the degree of safety regarding timely payment is either
overwhelming or very strong. Those issues determined to possess overwhelming
safety characteristics are denoted with a plus (+) sign designation. |
A-2
| Capacity for timely
payment on issues with this designation is strong. However, the relative degree
of safety is not as high as for issues designated A-1. |
A-3
| Issues carrying this
designation have a satisfactory capacity for timely payment. They are, however,
somewhat more vulnerable to the adverse effects of changes in circumstances
than obligations carrying the higher designations. |
B
| Issues rated B are
regarded as having only adequate capacity for timely payment. However, such
capacity may be damaged by changing conditions or short-term adversities. |
C
| This rating is assigned
to short-term debt obligations with a doubtful capacity for payment. |
D
| This rating indicates
that the issue is either in default or is expected to be in default upon
maturity. |
The
commercial paper rating is not a recommendation to purchase or sell a security.
The ratings are based on current information furnished to Standard & Poors
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 & Poors
Preferred Stock Ratings |
A
Standard & Poors 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: |
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 & Poors to a preferred stock issue
and indicates an extremely strong capacity to pay the preferred stock
obligations. |
AA
| A preferred stock issue
rated AA also qualifies as a high-quality fixed income security. The
capacity to pay preferred stock obligations is very strong, although not as
overwhelming as for issues rated AAA. |
A
| An issue rated A
is backed by a sound capacity to pay the preferred stock obligations, although
it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions. |
BBB
| An issue rated BBB is
regarded as backed by an adequate capacity to pay the preferred stock
obligations. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to make payments for a preferred stock in this category
than for issues in the A category. |
BB,
B,
CCC |
Preferred stock rated BB,
B, and CCC are regarded, on balance, as predominantly
speculative with respect to the issuers 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. |
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 & Poors earnings and
dividend rankings for common stocks. |
The
ratings are based on current information furnished to Standard & Poors
by the issuer, and obtained by Standard & Poors 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
Fitchs assessment of the issuers 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 issuers future
financial strength and credit quality. |
Fitch
ratings do not reflect any credit enhancement that may be provided by insurance
policies or financial guaranties unless otherwise indicated. |
Bonds
carrying the same rating are of similar but not necessarily identical credit
quality since the rating categories do not fully reflect small differences in
the degrees of credit risk. |
Fitch ratings are not recommendations
to buy, sell, or hold any security. Ratings do not comment on the adequacy
of market price, the suitability of any security for a particular investor,
or the tax-exempt nature or taxability of payments made in respect of any
security. |
Fitch
ratings are based on information obtained from issuers, other 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. |
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 obligors 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 obligors 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 obligors ability to
pay interest and repay principal is considered to be adequate. Adverse changes
in economic conditions and circumstances, however, are more likely to have
adverse impact on these bonds, and therefore, impair timely payment. The
likelihood that the ratings of these bonds will fall below investment grade is
higher than for bonds with higher ratings. |
Plus (+) or minus
(): Plus and minus signs are used with a rating symbol to indicate
the relative position of a credit within the rating category. Plus and minus
signs, however, are not used in the AAA category. |
NR |
Indicates that Fitch does not rate
the specific issue. |
Conditional |
A conditional rating is premised on
the successful completion of a project or the occurrence of a specific event. |
Suspended |
A rating is suspended when Fitch deems
the amount of 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 Fitchs 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.
|
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 toC)
represent Fitchs assessment of the likelihood of timely payment of principal
and interest in accordance with the terms of obligation for bond issues not in
default. For defaulted bonds, the rating (DDD to D) is an
assessment of the ultimate recovery value through reorganization or liquidation. |
The
rating takes into consideration special features of the issue, its relationship
to other obligations of the issuer, the current and prospective financial
condition and operating performance of the issuer and any guarantor, as well as
the economic and political environment that might affect the issuers future
financial strength. |
Bonds
that have the same rating are of similar but not necessarily identical credit
quality since rating categories cannot fully reflect the differences in degrees
of credit risk. |
BB
| Bonds are considered
speculative. The obligors 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 obligors 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 DD D
| Bonds are in default on
interest and/or principal payments. Such bonds are extremely speculative and should be valued on 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. |
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 |
Fitchs
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 issuers obligations in a timely
manner. |
Fitch
short-term ratings are as follows: |
F-1+
| Exceptionally Strong
Credit Quality. Issues assigned this rating are regarded as having the
strongest degree of assurance for timely payment. |
F-1
| Very Strong Credit
Quality. Issues assigned this rating reflect an assurance of timely payment
only slightly less in degree than issues rated F-1+. |
F-2
| Good Credit Quality.
Issues assigned this rating have a satisfactory degree of assurance for timely
payment, but the margin of safety is not as great as for issues assigned F-1+
and F-1 ratings. |
F-3
| Fair Credit Quality.
Issues assigned this rating have characteristics suggesting that the degree of
assurance for timely payment is adequate, however, near-term adverse changes
could cause these securities to be rated below investment grade. |
F-S
| Weak Credit Quality.
Issues assigned this rating have characteristics suggesting a minimal degree of
assurance for timely payment and are vulnerable to near-term adverse changes in
financial and economic conditions. |
D
| Default. Issues assigned
this rating are in actual or imminent payment default. |
LOC
| The symbol LOC
indicates that the rating is based on a letter of credit issued by a commercial
bank. |
<R>
© Fund Asset Management, L.P.</R> |
PART C. OTHER INFORMATION |
<R>
|
Exhibit
Number
|
|
Description
|
|
1
|
|
|
Third Articles of Amendment and Restatement of
Registrant.(3)
|
|
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
|
|
|
Amended and Restated Distribution Agreement
between Registrant and FAM Distributors,
Inc.(4)
|
|
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 Advisors, Mercury Asset Management Group Ltd. and Registrant.(1)
|
|
9
|
|
|
Opinion of counsel for Registrant.(2)
|
|
10
|
(a)
|
|
Consent of Deloitte & Touche LLP, independent
auditors for the Registrant.(6)
|
|
10
|
(b)
|
|
Consent of Swidler Berlin Shereff Friedman,
LLP, counsel for Registrant.(6)
|
|
11
|
|
|
None.
|
|
12
|
|
|
Certificate of Fund Asset Management, L.P.(2)
|
|
13
|
(a)
|
|
Amended and Restated Class A Distribution
Plan.(3)
|
|
13
|
(b)
|
|
Amended and Restated Class B Distribution
Plan.(4)
|
|
13
|
(c)
|
|
Amended and Restated Class C Distribution
Plan.(4)
|
|
14
|
(a)
|
|
Rule 18f-3 Plan.(1)
|
|
14
|
(b)
|
|
Power of Attorney for Officers, Directors and Trustees.(5)
|
|
15
|
|
|
Not Applicable.
|
|
16
|
|
|
Code of Ethics.(3)
|
(1) |
|
Incorporated by reference to identically numbered
exhibit to Mercury Global Balanced Fund of Mercury Funds,
Inc.s initial Registration Statement on Form N-1A (File No. 333-72239). |
(2) |
|
Incorporated by reference to identically numbered
exhibit to Pre-Effective Amendment No. 2 to Registrants Registration
Statement on Form N-1A. (File No. 333-85731). |
(3) |
|
Incorporated by reference to identically numbered
exhibit to Post-Effective Amendment No. 2 to Mercury International Fund
of Mercury Funds, Inc.s Registration Statement on
Form N-1A (File No. 333-56203). |
(4) |
|
Incorporated by reference to identically numbered
exhibit to Pre-Effective Amendment No. 1 to Mercury Select Growth Fund of
Mercury Funds, Inc.s Registration Statement on Form
N-1A (File No. 333-32242). |
(5) |
|
Incorporated by reference to exhibit number 14(c)
to Pre-Effective Amendment No. 1 to Mercury Select Growth Fund of Mercury
Funds, Inc.s Registration Statement on Form N-1A
(File No. 333-32242). |
Item 24. Persons Controlled by or Under Common Control
with Registrant. |
<R> Mercury Master Trust has sold interests of its series, Mercury Master U.S. Small
Cap Growth Portfolio to the Registrant. Therefore, the Mercury Master U.S.
Small Cap Growth Portfolio of Mercury Master Trust is controlled
by the Registrant.</R> |
Item 25. Indemnification. |
Reference
is made to Article V of Registrants Articles of Incorporation, Article VI of
Registrants By-Laws and Section 2-418 of the Maryland General Corporation Law. |
Article
VI of the By-Laws provides that each officer and Director of the Registrant
shall be indemnified by the Registrant to the full extent permitted under the
Maryland General Corporation Law, except that such indemnity shall not protect
any such person against any liability to the Registrant or any stockholder
thereof to which such person would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office. Absent a court determination that an
officer or director seeking indemnification was not liable on the merits or
guilty of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office, the decision by
the Registrant to indemnify such person must be based upon the reasonable
determination by special legal counsel in a written opinion or the vote of a
quorum of the Directors who are neither interested persons, as defined in
Section 2(a)(19) of the Investment Company Act of 1940, as amended, nor parties
to the proceeding (non-party independent Directors), after review of the
facts, that such officer or Director is not guilty of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office. |
Each
officer and Director of the Registrant claiming indemnification within the
scope of Article VI of the By-Laws shall be entitled to advances from the
Registrant for payment of the reasonable expenses incurred by him in connection
with proceedings to which he is a party in the manner and to the full extent
permitted under the Maryland General Corporation Law without a preliminary
determination as to his or her ultimate entitlement to indemnification (except
as set forth below); provided, however, that the person seeking indemnification
shall provide to the Registrant a written affirmation of his good faith belief
that the standard of conduct necessary for indemnification by the Registrant
has been met and a written undertaking to repay any such advance, if it should
ultimately be determined that the standard of conduct has not been met, and
provided further that at least one of the following additional conditions is
met: (a) the person seeking indemnification shall provide a security in form
and amount acceptable to the Registrant for his undertaking; (b) the Registrant
is insured against losses arising by reason of the advance; (c) a majority of a
quorum of non-party independent Directors, or independent legal counsel in a
written opinion, shall determine, based on a review of facts readily available
to the Registrant at the time the advance is proposed to be made, that there is
reason to believe that the person seeking indemnification will ultimately be
found to be entitled to indemnification. |
The
Registrant may purchase insurance on behalf of an officer or director
protecting such person to the full extent permitted under the General Laws of
the State of Maryland, from liability arising from his activities as officer or
Director of the Registrant. The Registrant, however, may not purchase insurance
on behalf of any officer or Director of the Registrant that protects or
purports to protect such person from liability to the Registrant or to its
stockholders to which such officer or director would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office. |
The
Registrant may indemnify, make advances or purchase insurance to the extent
provided in Article VI of the By-Laws on behalf of an employee or agent who is
not an officer or Director of the Registrant. |
In
Section 9 of the Distribution Agreement relating to the securities being
offered hereby, the Registrant agrees to indemnify the Distributor and each
person, if any, who controls the Distributor within the meaning of the
Securities Act of 1933, as amended (the Act), against certain types of civil
liabilities arising in connection with the Registration Statement or Prospectus
and Statement of Additional Information. |
Insofar
as indemnification for liabilities arising under the Act may be permitted to
Directors, officers and controlling persons of the Registrant and the principal
underwriter pursuant to the foregoing provisions or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a Director, officer, or controlling person of the Registrant and the
principal underwriter in connection with the successful defense of any action,
suit or proceeding) is asserted by such Director, officer or controlling person
or the principal underwriter in connection with the shares being registered,
the Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue. |
Item 26. Business and Other Connections of the Investment
Adviser. |
<R> Set forth
below is a list of each executive officer and director of Fund Asset Management,
L.P. (FAM), indicating
each business, profession, vocation or employment of a substantial nature
in which each such person has been engaged since May 1998 for his, her or
its own account or in the capacity of director, officer, partner or trustee. |
Name
|
|
Position(s)
with FAM
|
|
Other Substantial
Business,
Profession, Vocation or Employment
|
ML & Co. |
|
Limited Partner |
|
Financial Services Holding Company;
Limited Partner of Merrill Lynch Investment Managers, L.P. (MLIM) |
|
|
|
|
|
Princeton Services |
|
General Partner |
|
General Partner of MLIM |
|
|
|
|
|
Jeffrey M. Peek |
|
President |
|
President of MLIM; 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; Senior Vice President and Director of the Global
Securities in Economics Division of Merrill Lynch from 1995 to 1997 |
|
|
|
|
|
Terry K. Glenn |
|
Executive Vice President |
|
Executive Vice President of MLIM;
Executive Vice President and Director of Princeton Services; President and
Director of FAM Distributors, Inc.; Director of Financial Data Services,
Inc.; President of Princeton Administrators, L.P. |
|
|
|
|
|
Gregory A. Bundy |
|
Chief Operating Officer and Managing
Director |
|
Chief Operating Officer and Managing
Director of MLIM; Chief Operating Officer and Managing Director of Princeton
Services; Co-CEO of Merrill Lynch Australia from 1997 to 1999 |
|
|
|
|
|
Donald C. Burke |
|
Senior Vice President, Treasurer
and Director of Taxation |
|
Senior Vice President and Treasurer
of and MLIM; Senior Vice President and Treasurer of Princeton Services;
Vice President of FAM; First Vice President of MLIM from 1997 to 1999; Vice
President of MLIM from 1990 to 1997 |
|
|
|
|
|
Michael G. Clark |
|
Senior Vice President |
|
Senior Vice President of MLIM;
Senior Vice President of Princeton Services; Treasurer and Director of FAM
Distributors, Inc.; First Vice President of MLIM from 1997 to 1999; Vice
President of MLIM from 1996 to 1997 |
|
|
|
|
|
Robert C. Doll, Jr. |
|
Senior Vice President |
|
Senior Vice President of MLIM;
Senior Vice President of Princeton Services; Chief Investment Officer of
Oppenheimer Funds, Inc. in 1999 and Executive Vice President thereof from
1991 to 1999 |
|
|
|
|
|
Vincent R. Giordano |
|
Senior Vice President |
|
Senior Vice President of MLIM;
Senior Vice President of Princeton Services |
|
|
|
|
|
Michael J. Hennewinkel |
|
Senior Vice President, Secretary
and General Counsel |
|
Senior Vice President, Secretary
and General Counsel of MLIM; Senior Vice President of Princeton Services |
|
|
|
|
|
Philip L. Kirstein |
|
Senior Vice President |
|
Senior Vice President of MLIM;
Senior Vice President, General Counsel and Director of Princeton Services |
|
|
|
|
|
Debra W. Landsman-Yaros |
|
Senior Vice President |
|
Senior Vice President of MLIM;
Senior Vice President of Princeton Services; Vice President of FAM Distributors,
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 MLIM;
Senior Vice President of Princeton Services |
|
|
|
|
|
Gregory D. Upah |
|
Senior Vice President |
|
Senior Vice President of MLIM;
Senior Vice President of Princeton Services |
</R>
<R> 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 three paragraphs
and Messrs. Doll, Giordano and Monagle are officers of one or more of such
companies. |
FAM acts
as the investment adviser for the following open-end registered investment
companies: CBA Money Fund, CMA Government Securities Fund, CMA Money Fund, CMA
MultiState Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The
Corporate Fund Accumulation Program, Inc., Financial Institutions Series Trust,
Master Focus Twenty Trust, Master Internet Strategies Trust, Master Large Cap Series Trust, Master Premier Growth
Trust, Mercury Global Holdings Fund, Inc., Mercury Index Funds, Inc., Mercury QA
Equity Series, Inc., Mercury QA Strategy Series, Inc. Merrill Lynch Basic Value
Fund, Inc., Merrill Lynch California Municipal Series Trust, Merrill Lynch
Corporate Bond Fund, Inc., Merrill Lynch U.S. High Yield Fund, Inc.,
Merrill Lynch Funds for Institutions Series, Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, Merrill Lynch Multi-State Municipal
Series Trust, Merrill Lynch Municipal Bond Fund, Inc., Merrill Lynch Phoenix
Fund, Inc., Merrill Lynch Small Cap Value Fund, Inc., Merrill Lynch U.S. Government Mortgage Fund, Inc., Merrill Lynch World Income
Fund, Inc., The Asset Program, Inc. and The Municipal Fund Accumulation
Program, Inc.; and the following closed-end registered investment companies:
Apex Municipal Fund, Inc., Corporate High Yield Fund, Inc., Corporate High
Yield Fund II, Inc., Corporate High Yield Fund III, Inc., Debt Strategies Fund,
Inc., 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 V, Inc., MuniHoldings Florida Insured
Fund, MuniHoldings Florida Insured Fund V, MuniHoldings Insured Fund, Inc.,
MuniHoldings Insured Fund II, Inc., MuniHoldings Insured Fund III, Inc.,
MuniHoldings Insured Fund IV, Inc., MuniHoldings Michigan Insured Fund II,
Inc., MuniHoldings New Jersey Insured Fund, Inc., MuniHoldings New Jersey
Insured Fund IV, Inc., MuniHoldings New York Insured Fund, Inc., MuniHoldings
New York Insured Fund IV, Inc., MuniInsured Fund, Inc., MuniVest Fund, Inc.,
MuniVest Fund II, Inc., MuniYield Arizona Fund, Inc., MuniYield California
Fund, Inc., MuniYield California Insured Fund, Inc., MuniYield California
Insured Fund II, Inc., MuniYield Florida Fund, MuniYield Florida Insured Fund,
MuniYield Fund, Inc., MuniYield Insured Fund, Inc., MuniYield Michigan Fund,
Inc., MuniYield Michigan Insured Fund, Inc., MuniYield New Jersey Fund, Inc.,
MuniYield New Jersey Insured Fund, Inc., MuniYield New York Insured Fund, Inc.,
MuniYield Pennsylvania Insured Fund, MuniYield Quality Fund, Inc., MuniYield Quality
Fund II, Inc., Senior High Income Portfolio, Inc., and Worldwide DollarVest
Fund, Inc. |
MLIM, acts as investment adviser
for the following open-end registered investment companies: Master Global
Financial Services Trust, Mercury Global Holdings, Inc., Merrill Lynch Adjustable
Rate Securities Fund, Inc., Merrill Lynch Americas Income Fund, Inc., Merrill
Lynch Asset Growth Fund, Inc., Merrill Lynch Asset Income Fund, Inc., Merrill
Lynch Balanced 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 Financial Services Fund, Inc., Merrill
Lynch Global Growth Fund, Inc., Merrill Lynch Global Resources Trust, Merrill
Lynch Global Small Cap Fund, Inc., Merrill Lynch Global Technology Fund,
Inc., Merrill Lynch Global Utility Fund, Inc., Merrill Lynch Global Value
Fund, Inc., Merrill Lynch Growth Fund, Merrill Lynch Healthcare Fund, Inc.,
Merrill Lynch Index Funds, Inc., Merrill Lynch Intermediate Government Bond
Fund, Merrill Lynch International Equity Fund, Merrill Lynch Latin America
Fund, Inc., Merrill Lynch 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 Variable Series Funds, Inc.,
The Asset Program, Inc. and Hotchkis and Wiley Funds (advised by Hotchkis
and Wiley, a division of MLIM); 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. MLIM also acts as sub-adviser to Merrill Lynch World
Strategy Portfolio and Merrill Lynch Basic Value Equity Portfolio, two investment
portfolios of EQ Advisors Trust. </R> |
<R> Merrill Lynch Investment
Managers International Limited, doing business as Mercury Advisors (Mercury
Advisors), acts as the investment adviser for the following open-end
registered investment companies: Mercury Master Global Balanced Portfolio
of Mercury Master Trust (the Trust); Mercury
Master Gold and Mining Portfolio of the Trust; Mercury Master International
Portfolio of the Trust; Mercury Master Pan-European Growth Portfolio of
the Trust; Mercury Master U.S. Large Cap Portfolio of the Trust; Mercury
Master U.S. Small Cap Growth Portfolio of the Trust; Mercury Master Select
Growth Portfolio of the Trust; and Mercury V.I. U.S. Large Cap Fund of Mercury
Asset Management V.I. Funds, Inc. |
The address of each of these
registered investment companies is P.O. Box 9011, Princeton, New Jersey
08543-9011, except that the address of Merrill Lynch Funds for Institutions
Series and Merrill Lynch Intermediate Government Bond Fund is One Financial
Center, 23rd Floor, Boston, Massachusetts 02111-2665. The address of FAM,
MLIM, Princeton Services, and Princeton Administrators, L.P. (Princeton
Administrators) is also P.O. Box 9011, Princeton, New Jersey 08543-9011.
The address of FAM Distributors, Inc. is P.O. Box 9081, Princeton, New Jersey
08543-9081. The address of Merrill Lynch, Pierce, Fenner & Smith Incorporated
(Merrill Lynch) and ML & Co. is World Financial Center, North
Tower, 250 Vesey Street, New York, New York 10281-1201. The address of the
Funds transfer agent, Financial Data Services, Inc. (FDS),
is 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484.</R> |
Set
forth below is a list of each executive officer and partner of Mercury Advisors, the sub-adviser to the Mercury U.S. Small Cap
Growth Fund indicating each business, profession, vocation or employment of a
substantial nature in which each such person or entity has been engaged since
May 1997 for his own account or in the capacity of director, officer, partner
or trustee. |
<R>
Name
|
|
Position(s) with
Sub-Adviser
|
|
Other Substantial
Business,
Profession, Vocation or Employment
|
Peter John Gibbs |
|
Chairman and Chief Executive Officer |
|
Director of Mercury Asset Management Ltd.;
Director
of Mercury Asset Management International Channel Islands Ltd.; Director and Joint Chairman of Munich London Investment Management Ltd. |
|
|
|
|
|
Carol Consuelo Brooke |
|
Deputy Chairman |
|
Director of Merrill Lynch (UK) Pension Plan
Trustees Limited; Director of Munich London Investment Management Ltd.;
Director of Benenden School (Kent) Ltd., Cranbrook Kent, TN17 4AA; Director
of Mercury Asset Management Pension Trustee Co. Ltd.
|
|
|
|
|
|
Simon G.B. Miles |
|
Director |
|
None |
|
|
|
|
|
Debra Anne Searle |
|
Secretary |
|
Secretary of Mercury Asset Management Ltd.;
Secretary of Mercury Asset Management Group, Ltd.
|
|
|
|
|
|
John Eric Nelson |
|
Director |
|
None
|
|
|
|
|
|
Steve Warner Golann |
|
Director |
|
None</R> |
Set
forth below is a list of the name and principal business address of any company
for which a person listed above serves in the capacity of director, officer,
employee, partner or trustee. The address of each, unless otherwise stated, is
33 King William Street, London, England EC4R 9AS. |
Ms.
Searle also serves as officer of the following companies: |
Forum
House Limited; Grosvenor Alternate Partner Limited; Grosvenor General Partner
Limited; Grosvenor Ventures Limited; Grosvenor Venture Managers Limited; 33
King William Street Ltd.; Mercury Asset Management Employee Trust Co. Ltd.;
Mercury Asset Management Finance Ltd.; Mercury Asset Management Group Services
Ltd.; Mercury Asset Management Holdings Ltd.; Mercury Asset Management No. 1
Limited; Mercury Asset Management No. 2 Limited; Mercury Asset Management
Pension Trustee Co. Ltd.; Mercury Executor & Trustee Co. Ltd.; Mercury (Finance)
Ltd.; Mercury Fund Managers Limited; Mercury Financial Services Ltd.; Mercury
Investment Management Limited; Mercury Investment Services Ltd.; Mercury Life Assurance Company Ltd.; Mercury
Life Limited; Mercury Life Nominees Ltd.; Mercury Private Equity Holdings Ltd.;
Mercury Rowan Mullens Ltd.; Munich London Investment Management Ltd.; Mercury
Private Equity MUST 3 Limited; Seligman Trust Limited; and Third Grosvenor
Limited; Wimco Nominees Ltd.</R> |
The
address of each of the following is 25 Ropemaker Place, London, England EC4R
9AS. |
Ms.
Searle also serves as officer of the following companies: |
<R> SNC International (Holdings) Limited; SNC Securities Limited;
SNCS Limited; Storey Saver Limited; Merrill Lynch Private Capital Limited;
Merrill Lynch, Pierce, Fenner & Smith (Brokers & Dealers) Limited; Merrill Lynch,
Pierce, Fenner & Smith Limited; Mership Nominees Limited; ML Europe Property
Ltd; ML Invest Holdings Limited; ML Invest Limited; N.Y. Nominees Limited;
Paramount Nominees Limited; Prismbond Limited; RNML Limited; S.N.C. Nominees
Limited; Sealion Nominees Limited; Smith Bros (Services & Leasing) Limited;
Smith Bros Nominees Limited; Smith Bros Participations Limited; Smith Bros PLC;
SNC Corporate Finance Limited; SNC Financial Services; Merrill Lynch (UK)
Pension Plan Trustees Limited; Merrill Lynch Capital Markets Bank Limited;
Merrill Lynch Equities Limited; Merrill Lynch Europe Funding; Merrill Lynch
Europe Holdings Limited; Merrill Lynch Europe PLC; Merrill Lynch Financial
Services Limited; Merrill Lynch Gilts (Nominees) Limited; Merrill Lynch Gilts
Holdings Limited; Merrill Lynch Gilts Investments Limited; Merrill Lynch Gilts
Limited; Merrill Lynch Group Holdings Limited; Merrill Lynch International;
Merrill Lynch International Bank Limited; Merrill Lynch Investment Services
Limited; Merrill Lynch Limited; Merrill
Lynch Nominees Limited; Benson Nominees Limited; C.P.W. Limited; Capital
Markets; Chetwynd Nominees Limited; Citygate Nominees Limited; and CLO Funding
Limited, Fiduciary Services (UK) Limited.</R> |
Item 27. Principal Underwriters. |
<R> (a) FAM Distributors,
Inc. (the Distributor), acts as the principal underwriter for
the Registrant and for each of the open-end registered investment companies
referred to in the last three paragraphs of Item 26 except CBA Money Fund,
CMA Government Securities Fund, CMA Money Fund, CMA Multi-State Municipal
Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The Corporate Fund
Accumulation Program, Inc. and The Municipal Fund Accumulation Program,
Inc. The Distributor also acts as the principal underwriter for the following
closed-end registered investment companies: Merrill Lynch High Income Municipal
Bond Fund, Inc., Merrill Lynch Municipal Strategy Fund, Inc., Merrill Lynch
Senior Floating Rate Fund, Inc. and Merrill Lynch Senior Floating Rate Fund
II, Inc. |
(b) Set forth below is information
concerning each director and officer of 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)
Name
|
|
(2)
Position(s) and Office(s)
with the Distributor
|
|
(3)
Position(s) and Office(s)
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
|
William Wasel
|
Vice President
|
None
|
Robert Harris
|
Secretary
|
None
|
</R>
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 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 <R> |
(5) the sub-adviser,
Mercury Advisors, 33 King William Street, London EC4R 9AS, England; and
</R> |
(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. |
<R> Pursuant to the
requirements of the Securities Act of 1933 and the Investment Company Act
of 1940, the Registrant certifies that it meets all of the requirements
for effectiveness of this Registration Statement under Rule 485(b) under
the Securities Act and has duly caused this Registration Statement to be
signed on its behalf by the undersigned, duly authorized, in the Township
of Plainsboro, and State of New Jersey, on the 12th day of September, 2000. |
|
MERCURY U.S.
SMALL CAP GROWTH
FUND OF
MERCURY FUNDS, INC.
(Registrant)
|
|
|
|
|
|
|
|
By:
|
/s/ DONALD C. BURKE |
|
Donald C. Burke
(Vice President and Treasurer) |
|
|
Pursuant to the requirements
of the Securities Act of 1933, this Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated.</R> |
|
<R>Signature
|
Title
|
Date
|
|
|
|
|
|
*
(Jeffrey M. Peek) |
President and Director
(Principal Executive Officer)
|
|
|
|
|
|
|
*
(Terry K. Glenn) |
Executive Vice President
and
Director
|
|
|
|
|
|
|
*
(Donald C. Burke) |
Vice President and Treasurer (Principal
Financial and
Accounting Officer)
|
|
|
|
|
|
|
*
(David O. Beim) |
Director |
|
|
|
|
|
|
*
(James T. Flynn) |
Director |
|
|
|
|
|
|
*
(W. Carl Kester) |
Director |
|
|
|
|
|
|
*
(Karen P. Robards) |
Director |
|
|
|
|
|
|
*By:
|
/s/ DONALD C. BURKE |
|
September 12, 2000
|
|
|
(Donald C. Burke, Attorney-in-Fact) |
|
|
|
</R> |
|
|
|
|
|
|
<R> Mercury Master
Trust has duly caused this Registration Statement of Mercury U.S. Small
Cap Growth Fund of Mercury Funds, Inc. to be signed on its behalf by the
undersigned, duly authorized, in the Township of Plainsboro and State of
New Jersey on the 12th day of September, 2000. |
|
MERCURY MASTER
TRUST
|
|
|
|
|
|
|
|
By:
|
|
|
/s/
DONALD C. BURKE
Donald C. Burke
(Vice President and Treasurer) |
|
|
This Registration Statement
of Mercury U.S. Small Cap Growth Fund of Mercury Funds,
Inc., has been signed below by the following persons in the capacities and
on dates indicated.</R> |
|
<R>Signature
|
Title
|
Date
|
|
|
|
|
|
*
(Jeffrey M. Peek) |
President and Director
(Principal Executive Officer)
|
|
|
|
|
|
|
*
(Terry K. Glenn) |
Executive Vice President
and
Director
|
|
|
|
|
|
|
*
(Donald C. Burke) |
Vice President and Treasurer (Principal
Financial and
Accounting Officer)
|
|
|
|
|
|
|
*
(David O. Beim) |
Director |
|
|
|
|
|
|
*
(James T. Flynn) |
Director |
|
|
|
|
|
|
*
(W. Carl Kester) |
Director |
|
|
|
|
|
|
*
(Karen P. Robards) |
Director |
|
|
|
|
|
|
*By:
|
|
|
|
|
|
/s/
DONALD C. BURKE
(Donald C. Burke, Attorney-in-Fact) |
|
September
12, 2000 |
|
</R> |
|
|
|
|
|
|
<R>
Exhibit
Number
|
|
Description
|
10(a) |
|
|
Consent of Deloitte & Touche LLP,
independent auditors for the Registrant.
|
10(b) |
|
|
Consent of Swidler Berlin Shereff
Friedman, LLP, counsel for Registrant. |
</R>
|
|
|
|
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