As filed with the Securities and Exchange Commission on March 1,
2000
Securities Act File No. 333-88693
Investment Company Act File No. 811-09611
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
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¨ |
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Pre-Effective
Amendment No. 1
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x |
Post-Effective
Amendment No.
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¨
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and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
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AMENDMENT NO.
1
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x |
(Check appropriate box or boxes)
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Mercury QA Equity Series, Inc.
(Exact name of Registrant as specified in charter)
800 Scudders Mill Road, Plainsboro, New Jersey
08536
(Address of Principal Executive Offices)
Registrants Telephone Number, including Area Code: (609)
282-2800
TERRY K. GLENN
P.O. Box 9011
Princeton, New Jersey 08543-9011
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering:
As soon as practicable after the effective date of the Registration
Statement.
Copies to:
Counsel for
the Fund:
JOEL H. GOLDBERG, ESQ.
SWIDLER BERLIN SHEREFF FRIEDMAN, LLP
The Chrysler Building
405 Lexington Avenue
New York, New York 10174
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and
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MICHAEL J. HENNEWINKEL, ESQ.
P.O. Box 9011
Princeton, New Jersey 08543-9011
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It is proposed that this filing will become effective
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¨ immediately
upon filing pursuant to paragraph (b)
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¨ on (date)
pursuant to paragraph (b)
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¨ 60 days after
filing pursuant to paragraph (a)(1)
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¨ on (date)
pursuant to paragraph (a)(1)
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¨ 75 days after
filing pursuant to paragraph (a)(2)
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¨ on (date)
pursuant to paragraph (a)(2) of Rule 485.
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If appropriate, check the following box:
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¨ This
post-effective amendment designates a new effective date for a previously
filed post-effective amendment.
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The Registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that
this Registration Statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
The
information contained in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with
the Securities and Exchange Commission is effective. This prospectus is not
an offer to sell these securities and is not soliciting an offer to buy
these securities in any state where the offer or sale is not permitted.
PROSPECTUS March 1, 2000
Mercury QA Large Cap Core Fund
Mercury QA Large Cap Value Fund
Mercury QA Large Cap Growth Fund
Mercury QA Mid Cap Fund
Mercury QA Small Cap Fund
and Mercury QA International Fund
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OF MERCURY QA EQUITY
SERIES, INC.
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(LOGO)
A
SUBSCRIPTION PERIOD FOR SHARES OF THE FUNDS WILL END ON MAY 2, 2000, UNLESS
EXTENDED.
THIS
PROSPECTUS CONTAINS INFORMATION YOU SHOULD KNOW BEFORE INVESTING, INCLUDING
INFORMATION ABOUT RISKS. PLEASE READ IT BEFORE YOU INVEST AND KEEP IT FOR
FUTURE REFERENCE.
THE
SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
[LOGO OF MERCURY ASSET MANAGEMENT]
Table
of Contents
MERCURY QA EQUITY SERIES, INC.
[GRAPHIC] Fund Facts
In
an effort to help you better understand the many concepts involved in making
an investment decision, we have defined highlighted terms in this Prospectus
in the sidebar.
Large-capitalization Companies companies that have market
capitalizations in the range of companies included in the Standard
& Poors 500 Composite Stock Price Index (currently at
least $5.3 billion).
Standard & Poors 500 Composite Stock Price Index
a market-weighted index composed of common stocks
issued by 500 U.S. large-capitalization companies in a wide range of
businesses. The stocks included in the index collectively represent a
substantial portion of all common stocks publicly traded in the
U.S.
Common Stock units of ownership of a
corporation.
Mid-capitalization Companies companies that have market
capitalizations in the range of companies included in the Standard
& Poors MidCap 400 Index (currently between $137 million
and $3.8 billion).
Standard & Poors MidCap 400 Index
a
market-weighted index composed of common stocks issued by 400 U.S.
mid-capitalization companies in a wide range of businesses.
Small-capitalization Companies companies that have market
capitalizations in the range of companies included in the Standard
& Poors SmallCap 600 Index (currently below $382
million).
Standard & Poors SmallCap 600 Index
a
market-weighted index composed of common stocks issued by 600 U.S.
smaller-capitalization companies in a wide range of businesses.
ABOUT THE MERCURY QA EQUITY FUNDS
What
is each Funds investment objective?
Mercury QA Large Cap Core Fund
The investment objective of the Mercury QA Large Cap Core Fund (the
Large Cap Core Fund) is to provide long term growth of
capital.
Mercury QA Large Cap Value Fund
The investment objective of the Mercury QA Large Cap Value Fund (the
Large Cap Value Fund) is primarily to provide long term growth
of capital and, secondarily to provide dividend income.
Mercury QA Large Cap Growth Fund
The investment objective of the Mercury QA Large Cap Growth Fund (the
Large Cap Growth Fund) is to provide long term growth of
capital.
Mercury QA Mid Cap Fund
The investment objective of the Mercury QA Mid Cap Fund (the
Mid Cap Fund) is to provide long term growth of
capital.
Mercury QA Small Cap Fund
The investment objective of the Mercury QA Small Cap Fund (the
Small Cap Fund) is to provide long term growth of
capital.
Mercury QA International Fund
The investment objective of the Mercury QA International Fund (the
International Fund) is to provide long term growth of
capital.
We cannot guarantee that a Fund will achieve its
objectives.
What
are the Funds main investment strategies?
Each Fund (other than the International Fund) normally invests at
least 65% of its total assets in equity securities of U.S. issuers. Each of
the Large Cap Core Fund, Large Cap Value Fund and Large Cap Growth Fund
normally invests at least 65% of its total assets in equity securities of
large-capitalization companies. Each of the Mid Cap Fund and Small Cap Fund
normally invests at least 65% of its total assets in equity securities of
mid-capitalization companies and small-capitalization companies,
respectively. The International Fund normally invests at least 65% of its
total assets in equity securities of companies whose primary trading markets
are located outside of the United States.
MERCURY QA EQUITY SERIES, INC.
[GRAPHIC] Fund Facts
Quantitative Analysis focuses on quantifiable
measures as opposed to qualitative considerations such as the character of
management.
Top-down Analysis analysis in which the investment
adviser first looks at trends in the general economy, and next selects
industries and then companies that should benefit from those
trends.
Bottom-up Stock Selection Approach
searching for outstanding performance of individual stocks before
considering the impact of economic trends.
Value Strategy a strategy in which the focus is to
invest in value stocks.
Value Stocks stocks of companies that are selling
at low to modest valuations relative to general market measures, such as
earnings, book value and other fundamental accounting measures, and that are
expected to have favorable prospects for capital appreciation and/or
dividend-paying ability.
Growth Strategy a strategy in which the focus is to
invest in growth stocks.
Growth Stocks stocks of companies that are
expected to have better prospects for earnings growth than the growth rate
of the general domestic economy.
The investment adviser seeks to maximize each Funds expected return by
utilizing a disciplined approach to sector weighting, stock selection and
portfolio construction which combines quantitative analysis,
in-depth research and risk management disciplines to produce style purity
with respect to a particular market segment. The investment adviser uses
three principal strategies to select investments for each Fund. First the
investment adviser uses a top-down analysis to
identify high performing sectors. Second, the investment adviser uses a
bottom-up stock selection approach to identify
those securities within a sector that seem to be the most attractive.
Depending on the Fund, this analysis involves selection of stocks through a
value strategy, a growth
strategy, or a blend of the two. Third, the investment adviser uses
quantitative risk management techniques to produce an overall portfolio with
risk and style characteristics similar to each Funds respective market
segment.
The market segment and style investment analysis for each of the
Funds is as follows:
Fund |
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Market Segment |
|
Large Cap Core Fund |
|
stocks of large-capitalization
companies selected
through a blend of value and growth
strategies |
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Large Cap Value Fund |
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stocks of large-capitalization
companies
selected through a value strategy |
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Large Cap Growth Fund |
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stocks of large-capitalization
companies
selected through a growth strategy |
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Mid Cap Fund |
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stocks of mid-capitalization
companies selected
through a blend of value and growth
strategies |
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Small Cap Fund |
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stocks of small-capitalization
companies selected
through a blend of value and growth
strategies |
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International Fund |
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stocks of companies whose primary
trading
markets are located outside of the
United States with an emphasis on larger
capitalization companies in these markets selected
through a blend of value and growth
strategies |
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While certain sectors will be overweighted or underweighted, each
Fund seeks to invest in a broad range of stocks from its market segment, and
to include stocks from most major sectors of the U.S. economy, or, in the
case of the International Fund, markets located outside the United
States.
MERCURY QA EQUITY SERIES, INC.
[GRAPHIC] Fund Facts
Volatility the amount and frequency of price
movement of a security, commodity, or market.
What
are the main risks of investing in the Funds?
As with any mutual fund, the value of each Funds investments
and, therefore, the value of a Funds shares may fluctuate. This may
occur because a stock market is fluctuating. At other times, there are
specific factors that may affect the value of a particular investment. Each
Fund is also subject to the risk that the stocks the investment adviser
selects will underperform relative to other securities in its market segment
overall or other funds with similar investment objectives and investment
strategies. If the value of a Funds investments goes down, you may
lose money.
The Small Cap Fund and, to a lesser extent, the Mid Cap Fund are
subject to the risks associated with investment in securities of smaller
capitalization companies. Small companies securities generally trade
in lower volumes and are subject to greater, less predictable price changes
than the securities of larger, more established companies.
The International Fund invests in foreign securities, including
securities denominated in foreign currencies. Investments in foreign
securities involve special risks, including the possibility of substantial
volatility due to adverse political, economic or other developments. Foreign
securities may also be less liquid and harder to value than U.S. securities.
In addition, the foreign securities in which the International Fund invests
are subject to changes in value due to movements in exchange rates.
Generally, when a foreign currency appreciates (or depreciates) in value
against the U.S. dollar, securities denominated in that currency appreciate
(or depreciate) in U.S. dollar terms.
Each Fund will attempt to be fully invested at all times, and will
not hold a significant portion of its assets in cash. The Funds will
generally not attempt to hedge against adverse market movements. Therefore,
a Fund might go down in value more than other mutual funds in the event of a
general market decline.
The Funds anticipate that the Mercury QA Strategy Series Funds, a
group of funds managed by the investment adviser, will be significant
investors in each Fund. The Mercury QA Strategy Series Funds are asset
allocation funds, which means that they will pursue their investment
objectives by changing the allocations of their assets among the Funds based
on the investment advisers evaluation of market conditions. As a
result, at times the Mercury QA Strategy Series Funds may make large
purchases or redemptions of a Funds shares. This may increase
transaction costs and tax liability for shareholders of that Fund. The
investment adviser, as common adviser to the Funds and the Mercury QA
Strategy Series Funds, will seek to balance the interests of shareholders of
all funds.
MERCURY QA EQUITY SERIES, INC.
[GRAPHIC] Fund Facts
Who
should invest?
The Mercury QA Large Cap Core Fund may be an appropriate investment
for you if you:
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Want to invest in large
U.S. companies
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Are investing with long
term goals, such as retirement or funding a childs
education
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Are willing to accept the
risk that the value of your investment may decline in order to seek long
term growth of capital
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Are not looking for a
significant amount of current income
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Want a professionally
managed and diversified portfolio
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The Mercury QA Large Cap Value Fund may be an appropriate investment
for you if you:
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Want to invest in large
U.S. companies selected through a value strategy
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Are investing with long
term goals, such as retirement or funding a childs
education
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Are willing to accept the
risk that the value of your investment may decline in order to seek long
term growth of capital and dividend income
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Are not looking for a
significant amount of current income
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Want a professionally
managed and diversified portfolio
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The Mercury QA Large Cap Growth Fund may be an appropriate investment
for you if you:
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Want to invest in large
U.S. companies selected through a growth strategy
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Are investing with long
term goals, such as retirement or funding a childs
education
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Are willing to accept the
risk that the value of your investment may decline in order to seek long
term growth of capital
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Are not looking for a
significant amount of current income
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Want a professionally
managed and diversified portfolio
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The Mercury QA Mid Cap Fund may be an appropriate investment for you
if you:
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Want to invest in medium
sized companies and can accept the additional risk and volatility
associated with stocks of these companies
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MERCURY QA EQUITY SERIES, INC.
[GRAPHIC] Fund Facts
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Are investing with long
term goals, such as retirement or funding a childs
education
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Are willing to accept the
risk that the value of your investment may decline in order to seek long
term growth of capital
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Are not looking for a
significant amount of current income
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Want a professionally
managed and diversified portfolio
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The Mercury QA Small Cap Fund may be an appropriate investment for
you if you:
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Want to invest in smaller
capitalization U.S. companies and can accept the additional risk and
volatility associated with stocks of these companies
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Are investing with long
term goals, such as retirement or funding a childs
education
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Are willing to accept the
risk that the value of your investment may decline in order to seek long
term growth of capital
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Are not looking for a
significant amount of current income
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Want a professionally
managed and diversified portfolio
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The Mercury QA International Fund may be an appropriate investment
for you if you:
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Are looking for exposure
to a variety of foreign markets and can accept the additional risk and
volatility associated with foreign investing
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Are investing with long
term goals, such as retirement or funding a childs
education
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Are willing to accept the
risk that the value of your investment may decline in order to seek long
term growth of capital
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Are not looking for a
significant amount of current income
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Want a professionally
managed and diversified portfolio
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RISK/RETURN BAR CHART AND TABLE
Since the Funds are scheduled to begin operating on May 5, 2000,
there is no current performance information for any Fund.
MERCURY QA EQUITY SERIES, INC.
[GRAPHIC] Fund Facts
UNDERSTANDING EXPENSES
Fund
investors pay various expenses, either directly or indirectly. Listed below
are some of the main types of expenses, which all mutual funds may
charge:
Expenses paid directly by the shareholder:
Shareholder Fees these include sales charges, which
you may pay when you buy or sell shares of the Fund.
Expenses paid indirectly by the shareholder:
Annual Fund Operating Expenses
expenses
that cover the costs of operating the Fund.
Management Fee a fee paid to the investment adviser
for managing the Fund.
Distribution Fees fees used to support the Funds
marketing and distribution efforts, such as compensating financial
consultants, advertising and promotion.
Service (Account Maintenance) Fees
fees
used to compensate securities dealers for account maintenance
activities.
Each Fund offers four different classes of shares. Although your
money will be invested the same way no matter which class of shares you buy,
there are differences among the fees and expenses associated with each
class. Not everyone is eligible to buy every class. After determining which
classes you are eligible to buy, decide which class best suits your needs.
Your financial consultant can help you with this decision.
The tables show the different fees and expenses that you may pay if
you buy and hold the different classes of shares of a Fund. Future expenses
may be greater or less than those indicated below.
Mercury QA Large Cap Core Fund
Shareholder Fees (fees paid directly from
your investment)(a): |
|
Class I |
|
Class A |
|
Class B(b) |
|
Class C |
|
Maximum Sales Charge (Load)
imposed on purchases
(as a percentage of offering price) |
|
5.25%(c) |
|
5.25%(c) |
|
None |
|
None |
|
Maximum Deferred Sales Charge
(Load)
(as a percentage of original purchase price or
redemption proceeds, whichever is lower) |
|
None(d) |
|
None(d) |
|
4.00%(c) |
|
1.00%(c) |
|
Maximum Sales Charge (Load)
imposed on
dividend reinvestments |
|
None |
|
None |
|
None |
|
None |
|
Redemption Fee |
|
None |
|
None |
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None |
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None |
|
Exchange Fee |
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None |
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None |
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None |
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None |
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Annual Fund Operating Expenses
(expenses that
are deducted from Fund assets): |
|
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Management
Fee(e) |
|
.40% |
|
.40% |
|
.40% |
|
.40% |
|
Distribution and/or Service
(12b-1) Fees(f) |
|
None |
|
0.25% |
|
1.00% |
|
1.00% |
|
Other Expenses (including transfer
agency fees)(g) |
|
.41% |
|
.41% |
|
.41% |
|
.41% |
Administrative Fees |
|
.35% |
|
.35% |
|
.35% |
|
.35% |
|
|
|
|
|
|
|
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|
Total Other Expenses |
|
.76% |
|
.76% |
|
.76% |
|
.76% |
|
Total Annual Fund Operating
Expenses |
|
1.16% |
|
1.41% |
|
2.16% |
|
2.16% |
|
MERCURY QA EQUITY SERIES, INC.
[GRAPHIC] Fund Facts
Mercury QA Large Cap Value Fund
Shareholder Fees (fees paid directly from
your investment)(a): |
|
Class I |
|
Class A |
|
Class B(b) |
|
Class C |
|
Maximum Sales Charge (Load)
imposed on purchases
(as a percentage of offering price) |
|
5.25%(c) |
|
|
5.25%(c) |
|
|
None |
|
|
None |
|
|
Maximum Deferred Sales Charge
(Load)
(as a percentage of original purchase price or
redemption proceeds, whichever is lower) |
|
None |
(d) |
|
None |
(d) |
|
4.00%(c) |
|
|
1.00%(c) |
|
|
Maximum Sales Charge (Load)
imposed on
dividend reinvestments |
|
None |
|
|
None |
|
|
None |
|
|
None |
|
|
Redemption Fee |
|
None |
|
|
None |
|
|
None |
|
|
None |
|
|
Exchange Fee |
|
None |
|
|
None |
|
|
None |
|
|
None |
|
|
Annual Fund Operating Expenses
(expenses that
are deducted from Fund assets): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Management
Fee(e) |
|
.40 |
% |
|
.40 |
% |
|
.40 |
% |
|
.40 |
% |
|
Distribution and/or Service
(12b-1) Fees(f) |
|
None |
|
|
0.25% |
|
|
1.00% |
|
|
1.00% |
|
|
Other Expenses (including transfer
agency fees)(g) |
|
.41 |
% |
|
.41 |
% |
|
.41 |
% |
|
.41 |
% |
Administrative Fees |
|
.35 |
% |
|
.35 |
% |
|
.35 |
% |
|
.35 |
% |
|
|
|
|
|
|
|
|
|
|
|
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|
Total Other Expenses |
|
.76 |
% |
|
.76 |
% |
|
.76 |
% |
|
.76 |
% |
|
Total Annual Fund Operating
Expenses |
|
1.16 |
% |
|
1.41 |
% |
|
2.16 |
% |
|
2.16 |
% |
|
MERCURY QA EQUITY SERIES, INC.
[GRAPHIC] Fund Facts
Mercury QA Large Cap Growth Fund
Shareholder Fees (fees paid directly from
your investment)(a): |
|
Class I |
|
Class A |
|
Class B(b) |
|
Class C |
|
Maximum Sales Charge (Load)
imposed on purchases
(as a percentage of offering price) |
|
5.25%(c) |
|
5.25%(c) |
|
|
None |
|
None |
|
Maximum Deferred Sales Charge
(Load)
(as a percentage of original purchase price or
redemption proceeds, whichever is lower) |
|
None(d) |
|
None(d) |
|
|
4.00%(c) |
|
1.00%(c) |
|
Maximum Sales Charge (Load)
imposed on
dividend reinvestments |
|
None |
|
None |
|
|
None |
|
None |
|
Redemption Fee |
|
None |
|
None |
|
|
None |
|
None |
|
Exchange Fee |
|
None |
|
None |
|
|
None |
|
None |
|
Annual Fund Operating Expenses
(expenses that
are deducted from Fund assets): |
|
|
|
Management
Fee(e) |
|
.40% |
|
.40 |
% |
|
.40% |
|
.40% |
|
Distribution and/or Service
(12b-1) Fees(f) |
|
None |
|
0.25% |
|
|
1.00% |
|
1.00% |
|
Other Expenses (including
transfer agency fees)(g) |
|
.41% |
|
.41% |
|
|
.41% |
|
.41% |
Administrative Fees |
|
.35% |
|
.35 |
% |
|
.35% |
|
.35% |
|
|
|
|
|
|
|
|
|
|
Total Other Expenses |
|
.76% |
|
.76% |
|
|
.76% |
|
.76% |
|
Total Annual Fund Operating
Expenses |
|
1.16% |
|
1.41% |
|
|
2.16% |
|
2.16% |
|
MERCURY QA EQUITY SERIES, INC.
[GRAPHIC] Fund Facts
Mercury QA Mid Cap Fund
Shareholder Fees (fees paid directly from
your investment)(a): |
|
Class I |
|
Class A |
|
Class B(b) |
|
Class C |
|
Maximum Sales Charge (Load)
imposed on purchases
(as a percentage of offering price) |
|
5.25%(c) |
|
5.25%(c) |
|
None |
|
None |
|
Maximum Deferred Sales Charge
(Load)
(as a percentage of original purchase price or
redemption proceeds, whichever is lower) |
|
None(d) |
|
None(d) |
|
4.00%(c) |
|
1.00%(c) |
|
Maximum Sales Charge (Load)
imposed on
dividend reinvestments |
|
None |
|
None |
|
None |
|
None |
|
Redemption Fee |
|
None |
|
None |
|
None |
|
None |
|
Exchange Fee |
|
None |
|
None |
|
None |
|
None |
|
Annual Fund Operating Expenses
(expenses that
are deducted from Fund assets): |
|
|
|
Management
Fee(e) |
|
.55% |
|
.55% |
|
.55% |
|
.55% |
|
Distribution and/or Service
(12b-1) Fees(f) |
|
None |
|
0.25% |
|
1.00% |
|
1.00% |
|
Other Expenses (including
transfer agency fees)(g) |
|
.70% |
|
.70% |
|
.70% |
|
.70% |
Administrative Fees |
|
.35% |
|
.35% |
|
.35% |
|
.35% |
|
|
|
|
|
|
|
|
|
Total Other Expenses |
|
1.05% |
|
1.05% |
|
1.05% |
|
1.05% |
|
Total Annual Fund Operating
Expenses |
|
1.60% |
|
1.85% |
|
2.60% |
|
2.60% |
|
MERCURY QA EQUITY SERIES, INC.
[GRAPHIC] Fund Facts
Mercury QA Small Cap Fund
Shareholder Fees (fees paid directly from
your investment)(a): |
|
Class I |
|
Class A |
|
Class B(b) |
|
Class C |
|
Maximum Sales Charge (Load)
imposed on purchases
(as a percentage of offering price) |
|
5.25%(c) |
|
5.25%(c) |
|
None |
|
None |
|
Maximum Deferred Sales Charge
(Load)
(as a percentage of original purchase price or
redemption proceeds, whichever is lower) |
|
None(d) |
|
None(d) |
|
4.00%(c) |
|
1.00%(c) |
|
Maximum Sales Charge (Load)
imposed on
dividend reinvestments |
|
None |
|
None |
|
None |
|
None |
|
Redemption Fee |
|
None |
|
None |
|
None |
|
None |
|
Exchange Fee |
|
None |
|
None |
|
None |
|
None |
|
Annual Fund Operating Expenses
(expenses that
are deducted from Fund assets): |
|
|
|
|
|
|
|
|
|
Management Fee
(e) |
|
.55% |
|
.55% |
|
.55% |
|
.55% |
|
Distribution and/or Service
(12b-1) Fees (f) |
|
None |
|
0.25% |
|
1.00% |
|
1.00% |
|
Other Expenses (including
transfer agency fees) (g) |
|
.82% |
|
.82% |
|
.82% |
|
.82% |
Administrative Fees |
|
.35% |
|
.35% |
|
.35% |
|
.35% |
|
|
|
|
|
|
|
|
|
Total Other Expenses |
|
1.17% |
|
1.17% |
|
1.17% |
|
1.17% |
|
Total Annual Fund Operating
Expenses |
|
1.72% |
|
1.97% |
|
2.72% |
|
2.72% |
|
Fee Waiver (h) |
|
(.07)% |
|
(.07)% |
|
(.07)% |
|
(.07)% |
|
Net Total Operating Expenses
(i) |
|
1.65% |
|
1.90% |
|
2.65% |
|
2.65% |
|
MERCURY QA EQUITY SERIES, INC.
[GRAPHIC] Fund Facts
Mercury QA International Fund
Shareholder Fees (fees paid directly from
your investment)(a): |
|
Class I |
|
Class A |
|
Class B(b) |
|
Class C |
|
Maximum Sales Charge (Load)
imposed on purchases
(as a percentage of offering price) |
|
5.25%(c) |
|
5.25%(c) |
|
|
None |
|
|
None |
|
|
Maximum Deferred Sales Charge
(Load)
(as a percentage of original purchase price or
redemption proceeds, whichever is lower) |
|
None(d) |
|
None(d) |
|
|
4.00%(c) |
|
|
1.00%(c) |
|
|
Maximum Sales Charge (Load)
imposed on
dividend reinvestments |
|
None |
|
None |
|
|
None |
|
|
None |
|
|
Redemption Fee |
|
None |
|
None |
|
|
None |
|
|
None |
|
|
Exchange Fee |
|
None |
|
None |
|
|
None |
|
|
None |
|
|
Annual Fund Operating Expenses
(expenses that
are deducted from Fund assets): |
|
|
|
Management
Fee(e) |
|
.65% |
|
.65% |
|
|
.65% |
|
|
.65% |
|
|
Distribution and/or
Service (12b-1) Fees(f) |
|
None |
|
0.25 |
% |
|
1.00 |
% |
|
1.00 |
% |
|
Other Expenses (including
transfer agency fees) (g) |
|
1.16% |
|
1.16% |
|
|
1.16% |
|
|
1.16% |
|
Administrative Fees |
|
.35% |
|
.35% |
|
|
.35% |
|
|
.35% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Expenses |
|
1.51% |
|
1.51% |
|
|
1.51% |
|
|
1.51% |
|
|
Total Annual Fund Operating
Expenses |
|
2.16% |
|
2.41% |
|
|
3.16% |
|
|
3.16% |
|
|
Fee Waiver (h) |
|
(.41)% |
|
(.41)% |
|
|
(.41)% |
|
|
(.41) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Net Total Operating Expenses
(i) |
|
1.75% |
|
2.00% |
|
|
2.75% |
|
|
2.75% |
|
|
(a)
|
In
addition, certain securities dealers may charge a fee to process a
purchase or sale of shares.
|
(b)
|
Class
B shares automatically convert to Class A shares about eight years after
you buy them and will no longer be subject to distribution
fees.
|
(c)
|
Some
investors may qualify for reductions in the sales charge
(load).
|
(d)
|
You
may pay a deferred sales charge if you purchase $1 million or more and
you redeem within one year.
|
(e)
|
The
investment adviser or its affiliate provides accounting services to the
Fund at its cost.
|
(f)
|
The
Fund calls the Service Fee an Account Maintenance Fee.
Account Maintenance Fee is the term used elsewhere in this
Prospectus and in all other materials. Class B and Class C shares pay a
Distribution Fee of 0.75% and a Service (Account Maintenance) Fee of
0.25%. Class A shares pay only a Service (Account Maintenance) Fee of
0.25%.
|
(g)
|
Based
on estimated amounts for the current fiscal year. The transfer agent is
an affiliate of the investment adviser. Each Fund pays the transfer
agent a fee for each shareholder account and reimburses it for
out-of-pocket expenses. The fee ranges from $11.00 to $23.00 per account
(depending on the level of services required), but is set at 0.10% for
certain accounts that participate in certain fee-based
programs.
|
(h)
|
With
respect to each Fund, the investment adviser has entered into a
contractual arrangement with the Funds as necessary to assure that
expenses incurred (excluding Distribution and/or Service Fees) by each
class of each Fund will not exceed 1.50% for Mercury QA Large Cap Core
Fund, Mercury QA Large Cap Value Fund and Mercury QA Large Cap Growth
Fund, 1.65% for Mercury QA Mid Cap Fund and Mercury QA Small Cap Fund,
and 1.75% for Mercury QA International Fund. This arrangement has a
one-year term and is renewable.
|
(i)
|
The
net total operating expenses reflect the investment advisers
estimate of expenses that will actually be incurred during each Fund
s current fiscal year, restated to reflect the contractual fee
waiver and/or expense reimbursement currently in effect.
|
MERCURY QA EQUITY SERIES, INC.
[GRAPHIC] Fund Facts
Examples:
These examples are intended to help you compare the cost of
investing in a Fund with the cost of investing in other mutual
funds.
These examples assume that you invest $10,000 in a Fund for the
time periods indicated, that your investment has a 5% return each year,
that you pay the sales charges, if any, that apply to the particular class
and that such Funds operating expenses remain the same. This
assumption is not meant to indicate you will receive a 5% annual rate of
return. Your annual return may be more or less than the 5% used in these
examples. Although your actual costs may be higher or lower, based on
these assumptions, your costs would be:
Mercury QA Large Cap Core Fund
Expenses if you did redeem your shares:
|
|
Class I |
|
Class A |
|
Class B |
|
Class C |
|
One
Year |
|
$637 |
|
$661 |
|
$619 |
|
$319 |
|
Three
Years |
|
$874 |
|
$948 |
|
$976 |
|
$676 |
|
Expenses if you did not redeem your shares:
|
|
Class I |
|
Class A |
|
Class B |
|
Class C |
|
One
Year |
|
$637 |
|
$661 |
|
$219 |
|
$219 |
|
Three
Years |
|
$874 |
|
$948 |
|
$676 |
|
$676 |
|
MERCURY QA EQUITY SERIES, INC.
[GRAPHIC] Fund Facts
Mercury QA Large Cap Value Fund
Expenses if you did redeem your shares:
|
|
Class I |
|
Class A |
|
Class B |
|
Class C |
|
One
Year |
|
$637 |
|
$661 |
|
$619 |
|
$319 |
|
Three
Years |
|
$874 |
|
$948 |
|
$976 |
|
$676 |
|
Expenses if you did not redeem your shares:
|
|
Class I |
|
Class A |
|
Class B |
|
Class C |
|
One
Year |
|
$637 |
|
$661 |
|
$219 |
|
$219 |
|
Three
Years |
|
$874 |
|
$948 |
|
$676 |
|
$676 |
|
Mercury QA Large Cap Growth Fund
Expenses if you did redeem your shares:
|
|
Class I |
|
Class A |
|
Class B |
|
Class C |
|
One
Year |
|
$637 |
|
$661 |
|
$619 |
|
$319 |
|
Three
Years |
|
$874 |
|
$948 |
|
$976 |
|
$676 |
|
Expenses if you did not redeem your shares:
|
|
Class I |
|
Class A |
|
Class B |
|
Class C |
|
One
Year |
|
$637 |
|
$661 |
|
$219 |
|
$219 |
|
Three
Years |
|
$874 |
|
$948 |
|
$676 |
|
$676 |
|
MERCURY QA EQUITY SERIES, INC.
[GRAPHIC] Funds Facts
Mercury QA Mid Cap Fund
Expenses if you did redeem your shares:
|
|
Class I |
|
Class A |
|
Class B |
|
Class C |
|
One
Year |
|
$ 679 |
|
$ 703 |
|
$ 663 |
|
$363 |
|
Three
Years |
|
$1,003 |
|
$1,076 |
|
$1,108 |
|
$808 |
|
Expenses if you did not redeem your shares:
|
|
Class I |
|
Class A |
|
Class B |
|
Class C |
|
One
Year |
|
$ 679 |
|
$ 703 |
|
$263 |
|
$263 |
|
Three
Years |
|
$1,003 |
|
$1,076 |
|
$808 |
|
$808 |
|
Mercury QA Small Cap Fund
Expenses if you did redeem your shares:
|
|
Class I |
|
Class A |
|
Class B |
|
Class C |
|
One
Year |
|
$ 684 |
|
$ 708 |
|
$ 668 |
|
$368 |
|
Three
Years |
|
$1,032 |
|
$1,105 |
|
$1,138 |
|
$838 |
|
Expenses if you did not redeem your shares:
|
|
Class I |
|
Class A |
|
Class B |
|
Class C |
|
One
Year |
|
$ 684 |
|
$ 708 |
|
$268 |
|
$268 |
|
Three
Years |
|
$1,032 |
|
$1,105 |
|
$838 |
|
$838 |
|
MERCURY QA EQUITY SERIES, INC.
[GRAPHIC] Fund Facts
Mercury QA International Fund
Expenses if you did redeem your shares:
|
|
Class I |
|
Class A |
|
Class B |
|
Class C |
|
One
Year |
|
$ 694 |
|
$ 717 |
|
$ 678 |
|
$378 |
|
Three
Years |
|
$1,130 |
|
$1,202 |
|
$1,239 |
|
$939 |
|
Expenses if you did not redeem your shares:
|
|
Class I |
|
Class A |
|
Class B |
|
Class C |
|
One
Year |
|
$ 694 |
|
$ 717 |
|
$278 |
|
$278 |
|
Three
Years |
|
$1,130 |
|
$1,202 |
|
$939 |
|
$939 |
|
|
These
expenses do not reflect the continuation of the contractual arrangement
between the investment adviser and each Fund that limits expenses
incurred by each class of that Fund (excluding Distribution and/or
Service fees) to 1.65% for Mercury QA Small Cap Fund and 1.75% for
Mercury QA International Fund beyond the first year. As stated above,
the arrangement has a one-year term and is renewable.
|
MERCURY QA EQUITY SERIES, INC.
[GRAPHIC] About the Details
About the Portfolio Manager Philip Green is a Senior
Vice President and the Portfolio Manager of the Funds. Mr Green has been a
Senior Vice President of Fund Asset Management, L.P. and certain of its
affiliates since 1999. Mr Green is primarily responsible for the
day-to-day management of the Funds.
About the Investment Adviser Mercury Asset Management
US, a division of Fund Asset Management, L.P., is the investment
adviser.
Each Fund (other than the International Fund) normally invests at
least 65% of its total assets in equity securities of U.S. issuers. Each
of the Large Cap Core Fund, Large Cap Value Fund and Large Cap Growth Fund
normally invests at least 65% of its total assets in equity securities of
large-capitalization companies. Each of the Mid Cap Fund and Small Cap
Fund normally invests at least 65% of its total assets in equity
securities of mid-capitalization companies and small-capitalization
companies, respectively. The International Fund normally invests at least
65% of its total assets in equity securities of companies whose primary
trading markets are located outside of the United States.
The investment adviser seeks to maximize each Funds expected
return by investing in securities to create a portfolio that has risk and
style characteristics similar to those of a particular market segment. The
investment adviser uses three principal strategies to select investments
for each Fund. First, the investment adviser uses objective quantitative
criteria to construct an optimal portfolio of investments that
has similar risk and style characteristics as a particular market segment,
but which will overweight sectors the investment adviser believes to be
attractive and underweight sectors the investment adviser believes to be
less attractive. Next, the investment adviser analyzes the stocks among
such sectors using technical and in-depth quantitative research to
identify those stocks that may perform well relative to the overall market
segment. This analysis is designed to identify a portfolio of investments
that the adviser believes will outperform the market segment. Depending on
the Fund, this analysis involves selection of stocks through a value
strategy, a growth strategy or a blend of the two.
Third, the investment adviser uses quantitative risk management techniques
to ensure that each Funds portfolio remains consistent with, and
within appropriate risk levels relative to, its respective market
segment.
The market segment and style of investment analysis for each of the
Funds is as follows:
Fund |
|
Market Segment |
|
Large Cap Core Fund |
|
stocks of large-capitalization
companies selected through a blend of
value and growth strategies |
|
Large Cap Value Fund |
|
stocks of large-capitalization
companies selected through a value
strategy |
|
Large Cap Growth Fund |
|
stocks of
large-capitalization companies selected through a growth
strategy |
|
Mid Cap Fund |
|
stocks of mid-capitalization
companies selected through a blend of
value and growth strategies |
|
Small Cap Fund |
|
stocks of
small-capitalization companies selected through a blend of
value and growth strategies |
|
International Fund |
|
stocks of companies whose
primary trading markets are located outside
of the United States with an emphasis on larger capitalization
companies
in these markets selected through a blend of value and
growth
strategies |
The investment adviser uses portfolio construction
techniques to structure the optimal portfolio. These
portfolio construction techniques rely on objective
formulas, and are designed to maintain a disciplined and style
controlled strategy for each Fund. The adviser then uses technical
and in-depth quantitative analysis to select individual investments
from the universe of the optimal portfolio. This
technical and in-depth quantitative analysis is the most significant
part of the investment process, and is designed to identify those
investments that the adviser believes will outperform the relevant
market segment.
The technical and in-depth quantitative analysis
focuses on a variety of measures, such as:
|
|
earnings
(surprises and analysts revisions)
|
|
|
momentum
(price and earnings)
|
|
valuation (enterprise value, price versus cash flows, and dividend
discount models)
|
For each Fund, the investment adviser emphasizes
identifying and purchasing those stocks that it believes are priced
most attractively and which appear to present good opportunities for
gain, based on the investment advisers technical and in-depth
quantitative analysis. The Large Cap Value Fund focuses on stocks of
companies that appear to be undervalued by the market or which
appear to be temporarily out of favor, but which the investment
adviser believes offer promising long term prospects. The Large Cap
Growth Fund focuses on stocks of companies that are expected to have
better prospects for earnings growth than the growth rate of the
general domestic economy. The investment adviser uses a blend of
value and growth strategies in selecting investments for the other
four Funds.
To achieve further efficiencies, and/or add value,
each Fund may also invest in futures contracts. The
investment adviser selects futures that it believes may serve as
substitutes for individual securities in an attempt to broadly
represent a particular market or market segment. Each Fund regularly
invests a small portion of its assets in futures contracts
correlated with an index representing the Funds
particular market segment. Futures allow the Funds to increase
exposure to the market segment quickly and at less cost than buying
or selling individual stocks. Each Fund invests in futures in order
to gain market exposure quickly in the event of subscriptions, to
maintain liquidity in the event of redemptions and to keep trading
costs low. Each Fund also invests in futures whenever the investment
adviser believes a futures contract presents price or return
characteristics superior to those of stocks represented in the
market segment. Furthermore, the International Fund uses futures as
an efficient and less costly way of increasing or decreasing its
exposure to stocks of companies in particular countries represented
in its market segment. The Funds consider futures that provide
exposure to equity indices or individual stocks to be equity
securities for purposes of the percentages described
above.
MERCURY QA EQUITY SERIES, INC.
[GRAPHIC] About the Details
Standard & Poors 500/Barra Value Index
consists of the common stocks in the S&P 500 that are
considered to be value stocks.
Standard & Poors 500/Barra Growth Index
consists of the common stocks in the S&P 500 that are
considered to be growth stocks.
Morgan Stanley Capital International Europe, Asia and
Far East Capitalization Weighted Index
composed of equity securities of companies from various
industrial sectors whose primary trading markets are located outside
the United States. Companies included in the EAFE Index are selected
from among the larger capitalization companies in these markets. The
weighting of the EAFE Index is based on the market capitalization of
each of the countries in the index.
Each of the market segments targeted by a Fund is
reflected in a broad-based market index. Therefore, while none of
the Funds is an index fund that seeks to replicate an index, the
portfolio construction techniques discussed above are designed with
the goal of ensuring that each Fund will have risk and style
characteristics similar to the index listed below:
Fund |
|
Index |
Large Cap Core
Fund |
|
Standard & Poors
500 Composite Stock Price Index (S&P 500
) |
|
Large Cap Value
Fund |
|
Standard & Poor
s 500/Barra Value Index |
Large Cap Growth
Fund |
|
Standard & Poor
s 500/Barra Growth Index |
|
Mid Cap Fund |
|
Standard & Poors
Mid Cap 400 Index |
Small Cap Fund |
|
Standard & Poors
Small Cap 600 Index |
|
International Fund |
|
Morgan Stanley
Capital International Europe, Asia and Far
East Capitalization Weighted Index (EAFE
Index) |
|
Each Fund may invest in short term, fixed-income
securities that are considered to be cash equivalents. These
instruments may include obligations of the U.S. Government, its
agencies or instrumentalities, highly rated bonds or comparable
unrated bonds, commercial paper, bank obligations and repurchase
agreements. The Funds will not invest in short term money market
instruments in order to lessen the Funds exposure to common
stocks as a defensive strategy, but will instead attempt to remain
fully invested at all times.
Each Funds investment objective is fundamental
and may not be changed without shareholder approval. Each Fund
s policies not specifically designated as fundamental in this
Prospectus or the Statement of Additional Information are
non-fundamental and may be changed without shareholder
approval.
This section contains a summary discussion of the
principal risks of investing in a Fund. As with any mutual fund,
there can be no guarantee that a Fund will meet its objectives or
that a Funds performance will be positive over any period of
time.
All Funds
Stock Market Risk
Stock market risk is the risk that the stock markets
in one or more countries in which a Fund invests will go down in
value, including the possibility that one or more markets will go
down sharply and unpredictably.
MERCURY QA EQUITY SERIES, INC.
[GRAPHIC] About the Details
Selection Risk
Selection risk is the risk that investments that Fund
management selects may underperform relative to other securities in
the particular market segment overall or other funds with similar
investment objectives and investment strategies.
Derivatives
Derivatives, such as futures, may allow a Fund to
increase or decrease its level of risk exposure more quickly and
efficiently than other types of instruments.
Derivatives are volatile and involve significant
risks, which may include:
|
|
Leverage risk
the risk associated with certain
types of investments or trading strategies 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.
|
|
|
Credit
risk the risk that the counterparty
(the party on the other side of the transaction) on a derivative
transaction will be unable to honor its financial obligation to a
Fund.
|
|
|
Currency
risk the risk that changes in the
exchange rate between currencies will adversely affect the value
(in U.S. dollar terms) of an investment.
|
|
|
Liquidity
risk the risk that certain securities
may be difficult or impossible to sell at the time that a Fund
would like or at the price that a Fund believes the security is
then worth.
|
A Fund may use derivatives for anticipatory hedging
and for non-hedging purposes. Anticipatory hedging is a strategy in
which a Fund uses a derivative to offset the risk that securities in
which such Fund intends to invest will increase in value before such
Fund has an opportunity to purchase the securities. A Fund will use
derivatives for anticipatory hedging in order to gain exposure
efficiently to their underlying indexes in the event such Fund
receives cash inflows. Derivatives may not always be available or
cost efficient. If a Fund invests in derivatives, the investments
may not be effective as a hedge against price movements.
Correlation Risk
Each Fund may purchase an asset and concurrently sell
that asset in a different market, or sell a related asset, in order
to capture small price discrepancies between markets or related
assets. This strategy involving related assets carries the risk that
the value of the related assets will not track or affect each other
in the manner anticipated by the investment adviser. This strategy
generally
assumes that the price of related assets will move closer to some
historical level, and that price differences from this level will
disappear. However, in the event the price differences do not
disappear or widen, a Fund could lose money on a
transaction.
Borrowing and Leverage
The Funds may borrow for temporary emergency purposes
including to meet redemptions. Borrowing may exaggerate changes in
the net asset value of Fund shares and in the yield on a Funds
portfolio. Borrowing will cost a Fund interest expense and other
fees. The costs of borrowing may reduce a Funds
return.
Certain securities that a Fund buys may create
leverage, including, for example, derivative securities. Like
borrowing, these investments may increase a Funds exposure to
risk.
Illiquid Securities
Each Fund may invest up to 15% of its net assets in
illiquid securities that it cannot easily resell within seven days
at current value or that have contractual or legal restrictions on
resale. If a Fund buys illiquid securities it may be unable to
quickly resell them or may be able to sell them only at a price
below current value.
Restricted Securities
Restricted securities have contractual or legal
restrictions on their resale. They include private placement
securities that a Fund buys directly from the issuer. Private
placement and other restricted securities may not be listed on an
exchange and may have no active trading market.
Restricted securities may be illiquid. A Fund may be
unable to sell them on short notice or may be able to sell them only
at a price below current value. A Fund may get only limited
information about the issuer, and so may be less able to predict a
loss. In addition, if Fund management or the investment adviser
receives material adverse non-public information about the issuer, a
Fund will not be able to sell the security.
Rule 144A Securities
Rule 144A securities are restricted securities that
can be resold to qualified institutional buyers but not to the
general public. Rule 144A securities may have an active trading
market but carry the risk that the active trading market may not
continue.
MERCURY QA EQUITY SERIES, INC.
[GRAPHIC] About the Details
Securities Lending
Each Fund may lend securities to financial
institutions that provide cash or government securities as
collateral. Securities lending involves the risk that the borrower
may fail to return the securities in a timely manner or at all. As a
result, a Fund may lose money and there may be a delay in recovering
the loaned securities. A Fund may also lose money if it does not
recover the securities and the value of the collateral falls. These
events could trigger adverse tax consequences to a Fund.
Risk from Large Investors
The Funds anticipate that the Mercury QA Strategy
Series Funds, a group of funds managed by the investment adviser,
will be significant investors in each Fund. The Mercury QA Strategy
Series Funds are asset allocation funds, which means that they will
pursue their investment objectives by changing the allocations of
their assets among the Funds based on their evaluation of market
conditions. As a result, at times the Mercury QA Strategy Series
Funds may make large purchases or redemptions of a Funds
shares. This may increase transaction costs and tax liability for
shareholders of that Fund. The investment adviser, as common adviser
to the Funds and the Mercury QA Strategy Series Funds, will seek to
balance the interests of shareholders of all funds.
Mercury QA Mid Cap Fund and Mercury QA Small Cap
Fund
Small Cap Risk
Small cap companies and, to a lesser extent, mid cap
companies may have limited product lines or markets. They may be
less financially secure than larger, more established companies.
They may depend on a small number of key personnel. If a product
fails, or if management changes, or there are other adverse
developments, the Funds investment in a small cap or mid cap
company may lose substantial value.
Small cap securities and, to a lesser extent, mid cap
securities generally trade in lower volumes and are subject to
greater and more unpredictable price changes than larger cap
securities or the stock market as a whole. Moreover, small cap
securities often are not income producing investments and thus, may
not cushion the Funds total return from price
changes.
When selling a large quantity of a particular stock,
the Fund may have to sell at a discount from quoted prices or may
have to make a series of small sales over an extended period of time
due to the more limited trading volume of smaller company
stocks.
MERCURY QA EQUITY SERIES, INC.
[GRAPHIC] About the Details
Volatility
Stocks of small and medium companies tend to be more
volatile than stocks of larger companies and can be particularly
sensitive to expected changes in interest rates, borrowing costs and
earnings.
Mercury QA International Fund
Foreign Market Risk
Because the International Fund may invest in foreign
securities, it offers the potential for more diversification than an
investment only in the United States. Stocks traded on foreign
markets have often (though not always) performed differently than
stocks in the United States.
However, such investments involve special risks not
present in U.S. investments that can increase the chances that the
Fund will lose money. In particular, investment in foreign
securities involves the following risks, which are generally greater
for investments in emerging markets:
|
|
The
economies of certain foreign markets often do not compare
favorably with that of the United States in areas such as growth
of gross domestic product, reinvestment of capital, resources, and
balance of payments. Some of these economies may rely heavily on
particular industries or foreign capital. They may be more
vulnerable to adverse diplomatic developments, the imposition of
economic sanctions against a particular country or countries,
changes in international trading patterns, trade barriers and
other protectionist or retaliatory measures.
|
|
|
Investments in foreign markets may be adversely affected by
governmental actions such as the imposition of capital controls,
nationalization of companies or industries, expropriation of
assets or the imposition of punitive taxes.
|
|
|
The
governments of certain countries may prohibit or impose
substantial restrictions on foreign investing in their capital
markets or in certain industries. Any of these actions could
severely affect security prices. They could also impair the Fund
s ability to purchase or sell foreign securities or transfer
its assets or income back into the United States, or otherwise
adversely affect the Funds operations.
|
|
|
Other
foreign market risks include foreign exchange controls,
difficulties in pricing securities, defaults on foreign government
securities, difficulties in enforcing favorable legal judgments in
foreign
courts, and political and social instability. Legal remedies
available to investors in some foreign countries may be less
extensive than those available to investors in the United
States.
|
|
|
Because
there are generally fewer investors on foreign exchanges and a
fewer number of shares traded each day, it may be more difficult
for the Fund to buy and sell securities on those exchanges. In
addition, prices of foreign securities may go down more than
prices of securities traded in the United States.
|
|
|
Foreign
markets may have different clearance and settlement procedures. In
certain markets, settlements may be unable to keep pace with the
volume of securities transactions. If this occurs, settlement may
be delayed and the Funds assets may be uninvested and not
earning returns. The Fund may miss investment opportunities or be
unable to sell an investment because of these delays.
|
Currency Risk and Exchange Risk
Securities in which the International Fund invests
may be denominated or quoted in currencies other than the U.S.
dollar. Changes in foreign currency exchange rates will affect the
value of the Funds portfolio. Generally, when the U.S. dollar
rises in value against a foreign currency, a security denominated in
that currency loses value because the currency is worth fewer U.S.
dollars. Conversely, when the U.S. dollar decreases in value against
a foreign currency, a security denominated in that currency gains
value because the currency is worth more U.S. dollars. This risk,
generally known as currency risk, means that a stronger
U.S. dollar will reduce returns for U.S. investors while a weak U.S.
dollar will increase those returns.
Governmental Supervision and Regulation/Accounting
Standards
Many foreign governments supervise and regulate stock
exchanges, brokers and the sale of securities less than the United
States does. Some countries may not have laws to protect investors
the way that the U.S. securities laws do. For example, some foreign
countries may have no laws or rules against insider trading. Insider
trading occurs when a person buys or sells a companys
securities based on non-public information about that company.
Accounting standards in other countries are not necessarily the same
as in the United States. If the accounting standards in another
country do not require as much detail as U.S. accounting standards,
it may be harder for the Funds portfolio manager to completely
and accurately determine a companys financial condition. Also,
brokerage commissions and other costs of buying or selling
securities often are higher in foreign countries than they are in
the United States. This reduces the amount the Fund can earn on its
investments.
MERCURY QA EQUITY SERIES, INC.
[GRAPHIC] About the Details
Certain Risks of Holding Fund Assets Outside the United
States
The International Fund generally holds the foreign
securities and cash in which it invests in foreign banks and
securities depositories. Certain of such foreign banks and
securities depositories may be recently organized or new to the
foreign custody business. In addition, there may be limited or no
regulatory oversight over their operations. Also, the laws of
certain countries may put limits on the Funds ability to
recover its assets if a foreign bank, depository or issuer of a
security, or any of its agents, goes bankrupt. In addition, it is
often more expensive for the Fund to buy, sell, and hold securities
in certain foreign markets than in the U.S. The increased expense
for investing in certain foreign markets reduces the amount the Fund
can earn on its investments and typically results in a higher
operating expense ratio for the Fund than for funds invested only in
the U.S.
Dividends or interest on, or proceeds from the sale
of, foreign securities may be subject to foreign withholding taxes,
and special U.S. tax considerations may apply.
European Economic and Monetary Union (EMU
)
A number of European countries have entered into EMU
in an effort to reduce barriers between themselves and eliminate
fluctuations in their currencies. EMU established a single European
currency (the euro), that was introduced on January 1, 1999 and is
expected to replace the existing national currencies of all EMU
participants by July 1, 2002. Certain securities (beginning with
government and corporate bonds) were redenominated in the euro.
These securities trade and make dividend and other payments only in
euros. Like other investment companies and business organizations,
including the companies in which the International Fund invests, the
International Fund could be adversely affected:
|
|
If the
transition to euro, or EMU as a whole, does not continue to
proceed as planned.
|
|
|
If a
participating country withdraws from EMU.
|
STATEMENT OF ADDITIONAL INFORMATION
If you would like further information about the
Funds, including how they invest, please see the Statement of
Additional Information.
MERCURY QA EQUITY SERIES, INC.
[GRAPHIC] Account Choices
Each Fund offers four classes of shares, each with
its own sales charge and expense structure, allowing you to invest
in the way that best suits your needs. Each share class of a Fund
represents an ownership interest in the same investment portfolio.
The class of shares you should choose will be affected by the size
of your investment and how long you plan to hold your shares. Your
financial consultant can help you determine which pricing option is
best suited to your personal financial goals.
For example, if you select Class I or Class A shares
of a Fund, you generally pay a sales charge at the time of purchase.
If you buy Class A shares of a Fund, you also pay an ongoing account
maintenance fee of 0.25%. You may be eligible for a sales charge
reduction or waiver.
If you select Class B or Class C shares of a Fund,
you will invest the full amount of your purchase price, but you will
be subject to a distribution fee of 0.75% and an account maintenance
fee of 0.25%. Because these fees are paid out of the Funds
assets on an ongoing basis, over time these fees increase the cost
of your investment and may cost you more than paying an initial
sales charge. In addition, you may be subject to a deferred sales
charge when you sell Class B or Class C shares.
Each Funds shares are distributed by Mercury
Funds Distributor, a division of Princeton Funds Distributor,
Inc.
A subscription period for the Funds shares will
end on May 2, 2000, unless extended. Subscriptions will be payable,
shares will be issued and each Fund will commence operations on the
third business day after the end of the subscription period. A Fund
or the distributor can terminate the subscription offering at any
time, in which case the Fund will not commence operations or will
commence operations with a limited number of shares.
After a Fund commences operations, its shares can be
purchased on each business day.
MERCURY QA EQUITY SERIES, INC.
[GRAPHIC] Account Choices
To better understand the pricing of each Funds
shares, we have summarized the information below:
|
|
Class I |
|
Class A |
|
Class B |
|
Class C |
|
Availability? |
|
Limited to certain
investors including: |
|
Generally available
through selected
securities dealers. |
|
Generally available
through selected
securities dealers. |
|
Generally available
through selected
securities dealers. |
|
|
Current Class I
shareholders |
|
|
|
|
|
|
|
|
Certain Retirement
Plans |
|
|
|
|
|
|
|
|
Participants of
certain sponsored
programs |
|
|
|
|
|
|
|
|
Certain affiliates
of selected securities
dealers |
|
|
|
|
|
|
|
Initial Sales
Charge? |
|
Yes. Payable at time
of purchase. Lower
sales charges
available for certain
larger investments. |
|
Yes. Payable at time
of purchase. Lower
sales charges
available for certain
larger investments. |
|
No. Entire purchase
price is invested in
shares of the Fund. |
|
No. Entire purchase
price is invested in
shares of the Fund. |
|
Deferred Sales
Charge? |
|
No. (May be charged
for purchases over
$1 million that are
redeemed within one
year). |
|
No. (May be charged
for purchases over
$1 million that are
redeemed within one
year). |
|
Yes. Payable if you
redeem within six
years of purchase. |
|
Yes. Payable if you
redeem within one
year of purchase. |
|
Account
Maintenance
and Distribution
Fees? |
|
No. |
|
0.25% Account
Maintenance Fee.
No Distribution Fee. |
|
0.25% Account
Maintenance Fee.
0.75% Distribution
Fee. |
|
0.25% Account
Maintenance Fee.
0.75% Distribution
Fee. |
|
Conversion to
Class A shares? |
|
No. |
|
No. |
|
Yes, automatically
after approximately
8 years. |
|
No. |
|
|
MERCURY QA EQUITY SERIES, INC.
[GRAPHIC] Account Choices
Right of Accumulation
permits you to pay the sales charge applicable to the
cost or value (whichever is higher) of all shares you own in the
Mercury mutual funds.
Letter of Intent permits you to pay
the sales charge that would be applicable if you add up all shares
of Mercury mutual funds that you agree to buy within a 13 month
period. Certain restrictions apply.
Class I and Class A Shares Initial Sales Charge
Options
The public offering price of Class I and Class A
shares of a Fund during the subscription period is $10.00 per share.
If you select Class I or Class A shares, you will pay a sales charge
at the time of purchase (whether during or after the subscription
period) as shown in the following table. During the subscription
period, securities dealers will receive compensation equal to the
entire sales charge (and therefore, may be deemed to be
underwriters). After the subscription period, the dealer
compensation will be as shown in the last column.
Your Investment |
|
As a % of
Offering Price |
|
As a % of
Your Investment* |
|
Dealer
Compensation
as a % of
Offering Price |
|
Less
than $25,000 |
|
5.25 |
% |
|
5.54 |
% |
|
5.00 |
% |
|
$25,000
but less than
$50,000 |
|
4.75 |
% |
|
4.99 |
% |
|
4.50 |
% |
|
$50,000
but less than
$100,000 |
|
4.00 |
% |
|
4.17 |
% |
|
3.75 |
% |
|
|
|
|
$100,000
but less than
$250,000 |
|
3.00 |
% |
|
3.09 |
% |
|
2.75 |
% |
|
$250,000
but less than
$1,000,000 |
|
2.00 |
% |
|
2.04 |
% |
|
1.80 |
% |
|
$1,000,000 and over** |
|
0.00 |
% |
|
0.00 |
% |
|
0.00 |
% |
|
*
|
Rounded to the nearest one-hundredth
percent.
|
**
|
If
you invest $1,000,000 or more in Class I or Class A shares, you
may not pay an initial sales charge. In that case, the investment
adviser compensates the selling dealer from its own funds. If you
redeem your shares within one year after purchase, you may be
charged a deferred sales charge. This charge is 1% of the lesser
of the original cost of the shares being redeemed or your
redemption proceeds. A sales charge of 0.75% will be charged on
purchases of $1,000,000 or more of Class I and Class A shares by
certain employer sponsored retirement or savings
plans.
|
No initial sales charge applies to Class I or Class A
shares that you buy through reinvestment of dividends.
A reduced or waived sales charge on a purchase of
Class I or Class A shares may apply for:
|
|
Purchases under a Right of Accumulation or Letter
of Intent
|
|
|
Certain trusts managed by banks, thrifts or trust
companies including those affiliated with Mercury or its
affiliates
|
|
|
Certain employer-sponsored retirement or savings
plans
|
|
|
Certain investors, including mutual funds sponsored
by Mercury or its affiliates, directors or trustees of mutual
funds sponsored by Mercury or its affiliates, employees of Mercury
and its affiliates, and employees of selected dealers
|
MERCURY QA EQUITY SERIES, INC.
[GRAPHIC] Account Choices
|
|
Certain fee-based programs managed by Mercury or
its affiliates
|
|
|
Certain fee-based programs managed by selected
dealers that have an agreement with Mercury
|
|
|
Purchases through certain financial advisers that
meet and adhere to standards established by Mercury
|
|
|
Purchases through certain accounts over which
Mercury or an affiliate exercises investment
discretion
|
Only certain investors are eligible to buy Class I
shares, including existing Class I shareholders of the Fund, certain
retirement plans and participants in certain programs sponsored by
Mercury or its affiliates. Your financial consultant can help you
determine whether you are eligible to buy Class I shares or to
participate in any of these programs.
If you decide to buy shares under the initial sales
charge alternative and you are eligible to buy both Class I and
Class A shares, you should buy Class I shares since Class A shares
are subject to 0.25% account maintenance fee, while Class I shares
are not.
If you redeem Class I or Class A shares and within 30
days buy new shares of the same class, you will not pay a sales
charge on the new purchase amount. The amount eligible for this
Reinstatement Privilege may not exceed the amount of
your redemption proceeds. To exercise the privilege, contact your
financial consultant or the Funds transfer agent at
1-888-763-2260.
Class B and Class C Shares Deferred Sales Charge
Options
If you select Class B or Class C shares, you do not
pay an initial sales charge at the time of purchase. However, if you
redeem your Class B shares within six years after purchase or Class
C shares within one year after purchase, you may be required to pay
a deferred sales charge. You will also pay distribution fees of
0.75% and account maintenance fees of 0.25% each year under
distribution plans that each Fund has adopted under Rule 12b-1 under
the Investment Company Act of 1940. Because these fees are paid out
of each Funds assets on an ongoing basis, over time these fees
increase the cost of your investment and may cost you more than
paying an initial sales charge. The distributor uses the money that
it receives from the deferred sales charge and the distribution fees
to cover the costs of marketing, advertising and compensating the
financial consultant or other securities dealer who assists you in
your decision to purchase the shares of such Fund.
MERCURY QA EQUITY SERIES, INC.
[GRAPHIC] Account Choices
Class B Shares
If you redeem Class B shares of a Fund within six
years after purchase, you may be charged a deferred sales charge.
The amount of the charge gradually decreases as you hold your shares
over time, according to the following schedule:
Year Since
Purchase |
|
Sales Charge* |
|
0
1 |
|
4.00% |
|
1
2 |
|
4.00% |
|
2
3 |
|
3.00% |
|
3
4 |
|
3.00% |
|
4
5 |
|
2.00% |
|
5
6 |
|
1.00% |
|
6 and after |
|
0.00% |
|
*
|
The
percentage charge will apply to the lesser of the original cost of
the shares being redeemed or the proceeds of your redemption.
Shares acquired by dividend reinvestment are not subject to a
deferred sales charge. Mercury funds may not all have identical
deferred sales charge schedules. In the event of an exchange for
the shares of another Mercury fund, the higher charge, if any,
would apply.
|
The deferred sales charge relating to Class B shares
may be reduced or waived in certain circumstances, such
as:
|
|
Certain
post-retirement withdrawals from an IRA or other retirement plan
if you are over 59 1
/2 years old
|
|
|
Redemption by certain eligible 401(a) and 401(k) plans,
certain related accounts, and certain retirement plan
rollovers
|
|
|
Redemption in connection with participation in certain
fee-based programs managed by Mercury or its
affiliates
|
|
|
Redemption in connection with participation in certain
fee-based programs managed by selected dealers that have
agreements with Mercury
|
|
|
Withdrawals resulting from shareholder death or disability
as long as the waiver request is made within one year after death
or disability or, if later, reasonably promptly following
completion of probate, or in connection with involuntary
termination of an account in which shares of a Fund are
held
|
|
|
Withdrawal through the Systematic Withdrawal Plan of up to
10% per year of your account value at the time the plan is
established
|
MERCURY QA EQUITY SERIES, INC.
[GRAPHIC] Account Choices
Your Class B shares convert automatically into Class A shares
approximately eight years after purchase. Any Class B shares
received through reinvestment of dividends paid on converting shares
will also convert at that time. Class A shares are subject to lower
annual expenses than Class B shares. The conversion of Class B
shares to Class A shares is not a taxable event for Federal income
tax purposes.
Different conversion schedules may apply to Class B
shares of different Mercury mutual funds. If you acquire your Class
B shares of a Fund in an exchange from another Mercury fund with a
shorter conversion schedule, the Funds eight year conversion
schedule will apply. If you exchange your Class B shares in a Fund
for Class B shares of another Mercury fund with a longer conversion
schedule, the other funds conversion schedule will apply. In
any event, the length of time that you hold the original and
exchanged Class B shares in both funds will count toward the
conversion schedule.
The conversion schedule may be modified in certain
other cases as well.
Class C Shares
If you redeem Class C shares of a Fund within one
year after purchase, you may be charged a deferred sales charge of
1.00%. The charge will apply to the lesser of the original cost of
the shares being redeemed or the proceeds of your redemption. You
will not be charged a deferred sales charge when you redeem shares
that you acquire through reinvestment of Fund dividends. The
deferred sales charge relative to Class C shares may be reduced or
waived in connection with certain involuntary termination(s) of an
account in which Fund shares are held and withdrawals through the
Systematic Withdrawal Plan.
Class C shares do not offer a conversion
privilege.
HOW TO BUY, SELL, TRANSFER AND EXCHANGE SHARES
The chart below summarizes how to buy, sell, transfer
and exchange shares through certain securities dealers. You may also
buy shares through the transfer agent. To learn more about buying
shares through the transfer agent, call 1-888-763-2260. Because the
selection of a mutual fund involves many considerations, your
financial consultant may help you with this decision.
MERCURY QA EQUITY SERIES, INC.
[GRAPHIC] Account Choices
If you want to |
|
Your choices |
|
Information important for
you to know |
|
Buy shares |
|
First, select the share class
appropriate for you |
|
Please refer to the
pricing of shares table on page 27. Be sure to read
this Prospectus carefully. |
|
|
|
Next, determine the amount of
your investment |
|
The minimum initial
investment for each Fund is $1,000 for all accounts
except: |
|
|
|
|
$500 for certain fee-based programs |
|
|
|
|
$100 for retirement plans |
|
|
|
|
|
(The minimums for initial
investments may be waived or reduced under
certain circumstances.) |
|
|
|
Have your financial consultant
or securities dealer submit your
purchase order |
|
The price of your shares
is based on the next calculation of net asset
value after your order is placed. Any purchase orders placed prior
to the
close of business on the New York Stock Exchange (generally 4:00 p.m.
Eastern time) will be priced at the net asset value determined that
day. |
|
|
|
|
|
Purchase orders received
after that time will be priced at the net asset
value determined on the next business day. A Fund may reject any
order to buy shares and may suspend the sale of shares at any time.
Certain securities dealers may charge a fee to process a purchase.
For
example, the fee charged by Merrill Lynch, Pierce, Fenner & Smith
Incorporated is currently $5.35. The fees charged by other securities
dealers may be higher or lower. |
|
|
|
Or contact the transfer agent |
|
To purchase shares
directly, call the transfer agent to request a
purchase application. Mail the completed purchase application to the
transfer agent at the address on the inside back cover of this
Prospectus. |
|
Add to your
investment |
|
Purchase additional shares |
|
The minimum investment for
additional purchases is generally $100 for
all accounts except: |
|
|
|
|
$50 for certain fee-based programs |
|
|
|
|
$1 for retirement plans |
|
|
|
|
|
(The minimums for
additional purchases may be waived under certain
circumstances). |
|
|
|
Acquire additional shares
through the automatic dividend
reinvestment plan |
|
All dividends are
automatically reinvested without a sales charge. |
|
|
|
Participate in the automatic
investment plan |
|
You may automatically
invest a specific amount on a periodic basis
through your securities dealer: |
|
|
|
|
The current minimum for such automatic
investments is $100. The
minimum may be waived or revised under certain
circumstances. |
|
MERCURY QA EQUITY SERIES, INC.
[GRAPHIC] Account Choices
If you want to |
|
Your choices |
|
Information important for
you to know |
|
Transfer shares to
another securities
dealer |
|
Transfer to a participating
securities dealer |
|
To transfer your shares of
a Fund to another securities dealer,
authorized dealer agreements must be in place between the distributor
and the transferring securities dealer and the distributor and the
receiving securities dealer. Certain shareholder services may not be
available for the transferred shares. All future trading of these
shares
must be coordinated by the receiving securities dealer. |
|
|
|
Transfer to a non-participating
securities dealer |
|
You cannot transfer your
shares of a Fund to a securities dealer that
does not have an authorized dealer agreement with the distributor.
You
must either: |
|
|
|
|
Transfer your shares to an account with the
transfer agent; or |
|
|
|
|
Sell your shares, paying any applicable deferred
sales charge. |
|
Sell your shares |
|
Have your financial consultant
or securities dealer submit your
sales order |
|
The price of your shares
is based on the next calculation of net asset
value after your order is placed. For your redemption request to be
priced at the net asset value on the day of your request, you must
submit your request to your dealer prior to that days close of
business
on the New York Stock Exchange (generally 4:00 p.m. Eastern time).
Any redemption request placed after that time will be priced at the
net
asset value at the close of business on the next business
day. |
|
|
|
|
|
Certain securities dealers
may charge a fee to process a sale of shares.
For example, the fee charged by Merrill Lynch, Pierce, Fenner &
Smith
Incorporated is currently $5.35. The fees charged by other securities
dealers may be higher or lower. |
|
|
|
|
|
A Fund may reject an order
to sell shares under certain circumstances. |
|
|
|
Sell through the transfer agent |
|
You may sell shares held
at the transfer agent by writing to the transfer
agent at the address on the inside back cover of this Prospectus. All
shareholders on the account must sign the letter. A signature
guarantee
will generally be required but may be waived in certain limited
circumstances. You can obtain a signature guarantee from a bank,
securities dealer, securities broker, credit union, savings
association,
national securities exchange and registered securities association. A
notary public seal will not be acceptable. If you hold stock
certificates,
return the certificates with the letter. The transfer agent will
normally
mail redemption proceeds within seven days following receipt of a
properly completed request. If you make a redemption request before a
Fund has collected payment for the purchase of shares, the Fund or
the
transfer agent may delay mailing your proceeds. This delay usually
will
not exceed ten days. |
|
Sell shares
systematically |
|
Participate in a Funds
Systematic Withdrawal Plan |
|
You can generally arrange
through your selected dealer for systematic
redemptions of a fixed dollar amount on a monthly, bi-monthly,
quarterly, semi-annual or annual basis, subject to certain
conditions.
You must have dividends automatically reinvested. For Class B and
Class
C shares your total annual withdrawals cannot be more than 10% of
the value of your shares at the time the Plan is established. The
deferred sales charge is waived for systematic redemptions. Ask your
financial consultant for details. |
|
MERCURY QA EQUITY SERIES, INC.
[GRAPHIC] Account Choices
If you want to |
|
Your choices |
|
Information important for
you to know |
|
Exchange your
shares |
|
Select the fund into which you
want to exchange. Be sure to
read that funds prospectus. |
|
You can exchange your
shares of a Fund for shares of other Mercury
mutual funds or for shares of the Summit Cash Reserves Fund. You
must have held the shares used in the exchange for at least 15
calendar
days before you can exchange to another fund. |
|
|
|
|
|
Each class of shares of a
Fund is generally exchangeable for shares of
the same class of another Mercury fund. If you own Class I shares and
wish to exchange into a fund in which you have no Class I shares (and
you are not eligible to buy Class I shares), you will exchange into
Class
A shares. If you own Class I or Class A shares and wish to exchange
into Summit, you will exchange into Class A shares of Summit. Class B
or Class C shares can be exchanged for Class B shares of
Summit. |
|
|
|
|
|
Some of the Mercury mutual
funds may impose a different initial or
deferred sales charge schedule. If you exchange Class I or Class A
shares for shares of a fund with a higher initial sales charge than
you
originally paid, you may be charged the difference at the time of
exchange. If you exchange Class B or Class C shares for shares of a
fund with a different deferred sales charge schedule, the higher
schedule will apply. The time you hold Class B or Class C shares in
both
funds will count when determining your holding period for
calculating a
deferred sales charge at redemption. Your time in both funds will
also
count when determining the holding period for a conversion from Class
B to Class A shares. |
|
|
|
|
|
Although there is
currently no limit on the number of exchanges that
you can make, the exchange privilege may be modified or terminated
at any time in the future. |
|
|
Because
of the high cost of maintaining smaller shareholder accounts, the
Funds 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 Funds make 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 Funds take any action. This
involuntary redemption does not apply to retirement plans or
Uniform Gifts or Transfers to Minors Act accounts.
|
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Each Fund
also reserves the right to terminate any account engaging in
market-timing mutual funds. For purposes of this policy,
market timing involves three or more purchases and
sales of shares of mutual funds within a 90 day period to capture
short term profits resulting from market volatility.
|
MERCURY QA EQUITY SERIES, INC.
[GRAPHIC] Account Choices
When you buy shares, you pay the net asset value,
plus any applicable sales charge. This is the offering price. Shares
are also redeemed at their net asset value, minus any applicable
deferred sales charge. Each Fund calculates its net asset value
(generally by using market quotations) each day the New York Stock
Exchange is open, after the close of business on the Exchange, based
on prices at the time of closing. The Exchange generally closes at
4:00 p.m. Eastern time. The net asset value used in determining your
price is the next one calculated after your purchase or redemption
order is placed. Net asset value is generally calculated by valuing
each security or other asset at its closing price for the day. Many
of the International Funds investments are traded on foreign
securities exchanges that close many hours before the New York Stock
Exchange. Events that could affect securities prices that occur
between these times normally are not reflected in the Funds
net asset value. Foreign securities sometimes trade on days that the
New York Stock Exchange is closed. As a result, the International
Funds net asset value may change on days when you will not be
able to purchase or redeem the Funds shares. Securities and
assets for which market quotations are not readily available are
generally valued at fair value as determined in good faith by or
under the direction of the Board of Directors of the
Funds.
Generally, Class I shares will have the highest net
asset value, because that class has the lowest expenses, and Class A
shares will have a higher net asset value than Class B or Class C
shares because Class B and Class C shares have distribution fees and
higher transfer agency fees. Also, dividends paid on Class I and
Class A shares will generally be higher than dividends paid on Class
B and Class C shares because Class I and Class A shares have lower
expenses.
MERCURY QA EQUITY SERIES, INC.
[GRAPHIC] Account Choices
Dividends ordinary income and capital
gains paid to shareholders. Dividends may be reinvested in
additional Fund shares as they are paid.
If you participate in certain fee-based programs
offered by Mercury or an affiliate of Mercury, or by selected
dealers that have an agreement with Mercury, you may be able to buy
Class I shares at net asset value, including through exchange from
other share classes. Sales charges on the shares being exchanged may
be reduced or waived under certain circumstances.
You generally cannot transfer shares held through a
fee-based program into another account. Instead, you will have to
redeem your shares held through the program and purchase shares of
another class, which may be subject to distribution and account
maintenance fees. This may be a taxable event and you will pay any
applicable sales charges.
If you leave one of these programs, your shares may
be redeemed or automatically exchanged into another class of shares
of a Fund or into Summit. The class you receive may be the class you
originally owned when you entered the program, or in certain cases,
a different class. If the exchange is into Class B shares, the
period before conversion to Class A shares may be modified. Any
redemption or exchange will be at net asset value. However, if you
participate in the program for less than a specified period, you may
be charged a fee in accordance with the terms of the
program.
Details about these features and the relevant charges
are included in the client agreement for each fee-based program and
are available from your financial consultant or your selected
dealer.
Each Fund will distribute at least annually any net
investment income and any net realized long or short term capital
gains. Each Fund may also pay a special distribution at the end of
the calendar year to comply with Federal tax requirements. Dividends
may be reinvested automatically in shares of a Fund at net asset
value without a sales charge or may be taken in cash. If your
account is with a securities dealer that has an agreement with a
Fund, contact your financial consultant about which option you would
like. If your account is with the transfer agent, and you would like
to receive dividends in cash, contact the transfer agent. Although
this cannot be predicted with any certainty, the Funds anticipate
that the majority of their dividends, if any, will consist of
capital gains.
You will pay tax on dividends from a Fund whether you
receive them in cash or additional shares. If you redeem shares of a
Fund or exchange them for shares of
another fund, any gain on the transaction may be subject to tax. Each
Fund intends to pay dividends that will either be taxed as ordinary
income or capital gains. Capital gain dividends of individuals are
generally taxed at different rates than ordinary income
dividends.
Dividends and interest received by the International
Fund may give rise to withholding and other taxes imposed by foreign
countries. Tax conventions between certain countries and the United
States may reduce or eliminate such taxes. The International Fund
expects to make an election that will generally require shareholders
to include in income their share of foreign withholding taxes paid
by the Fund. Shareholders may be entitled to treat these taxes as
taxes paid by them, and therefore, deduct such taxes in computing
their taxable income or, in some cases, to use them as foreign tax
credits against the U.S. income taxes otherwise owed.
If you are neither a lawful permanent resident nor a
citizen of the U.S., or if you are a foreign entity, a Funds
ordinary income dividends (which include distributions of net
short-term capital gains) will generally be subject to a 30% U.S.
withholding tax, unless a lower treaty rate applies.
By law, a Fund must withhold 31% of your
distributions and redemption proceeds if you have not provided a
taxpayer identification number or social security number or if the
number you have provided is incorrect.
This section summarizes some of the consequences
under current Federal tax law of an investment in a Fund. It is not
a substitute for personal tax advice. Consult your personal tax
advisor about the potential tax consequences of an investment in a
Fund under all applicable tax laws.
MERCURY QA EQUITY SERIES, INC.
[GRAPHIC] The Portfolio Management
Mercury Asset Management US, a division of Fund Asset
Management, L.P., is the Funds investment adviser. The
investment adviser manages the Funds investments and their
business operations under the overall supervision of the Board of
Directors of the Funds. The investment adviser has the
responsibility for making all investment decisions for the Funds.
The investment advisers principal business address is 800
Scudders Mill Road, Plainsboro, New Jersey 08536.
Philip Green is a Senior Vice President and Portfolio
Manager of each Fund and is primarily responsible for the day-to-day
management of the Funds respective portfolios. Mr. Green has
been a Senior Vice President of Fund Asset Management, L.P. and
certain of its affiliates since 1999, a Managing Director and
Portfolio Manager of Global Institutional Services at Bankers Trust
from 1997 to 1999, a Vice President of Quantitative Equities at
Bankers Trust in 1996, a Vice President of Asset Allocations
Strategies at Bankers Trust from 1994 to 1996, a Vice President of
Foreign Exchange and Currency Overlay Strategies at Bankers Trust
from 1988 to 1999 and an Assistant Treasurer of Asset Management
Group at Bankers Trust from 1985 to 1988.
Mercury Asset Management US is a division of Fund
Asset Management, L.P. Fund Asset Management, L.P. was organized as
an investment adviser in 1977 and offers investment advisory
services to more than 50 registered investment companies. Fund Asset
Management, L.P. and its affiliated advisers had approximately
$550.07 billion in investment company and other portfolio assets
under management as of January 31, 2000. This amount includes assets
managed for affiliates.
The investment adviser is paid a fee by each Fund as
a percentage of the respective Funds average daily net assets
as follows:
Fund
|
|
Annual Fee
Rate
|
Large Cap Core
Fund |
|
0.40% |
Large Cap Value
Fund |
|
0.40% |
Large Cap Growth
Fund |
|
0.40% |
Mid Cap Fund |
|
0.55% |
Small Cap Fund |
|
0.55% |
International
Fund |
|
0.65% |
MERCURY QA EQUITY SERIES, INC.
[GRAPHIC] The Portfolio Management
The investment adviser also provides administrative services to the
Funds. As compensation for these administrative services, the
investment adviser receives an administrative fee equal to 0.35% of
each Funds average daily net assets.
The Funds have entered into a contractual arrangement
with the investment adviser which provides that the management fee
of the Funds when combined with the administrative fees of the Funds
and other expenses will not exceed specific amounts. As a result of
these contractual arrangements, the investment adviser receives
advisory fees equal to 0.40%, 0.40%, 0.40%, 0.55%, 0.48%, and 0.24%
for the Mercury QA Large Cap Core Fund, Mercury QA Large Cap Value
Fund, Mercury QA Large Cap Growth Fund, Mercury QA Mid Cap Fund,
Mercury QA Small Cap Fund and Mercury QA International Fund,
respectively, and administrative fees equal to 0.35% for each
Fund.
Each Fund may in the future invest all of its assets
in another mutual fund that has the same investment objective and
fundamental policies as the Fund. All portfolio investments would
then be made at the level of the underlying fund and each Fund
s investment results would correspond directly to the
respective funds investment results. This type of mutual fund
structure is sometimes referred to as a master/feeder
structure. If other entities also invest in the underlying fund,
this could enable the Funds to realize economies of scale by
investing through an entity with more assets (the underlying fund).
However, there are additional costs involved in operating a
master/feeder structure. If these additional costs are
not offset as a result of economies of scale, it is possible that a
Funds expenses would increase rather than decrease if it
converts to this structure. The Board of Directors of the Funds has
the authority, on behalf of each Fund, to make the change to a
master/feeder structure without first holding a vote of
the Funds shareholders if it believes it is in the best
interests of the Fund to do so.
A Note About Year 2000
As the year 2000 began, there were few problems
caused by the inability of certain computer systems to tell the
difference between the year 2000 and the year 1900 (commonly known
as the Year 2000 Problem). It is still possible that
some computer systems could malfunction in the future because of the
Year 2000 Problem or as a result of actions taken to address the
Year 2000 Problem. Fund management does not anticipate that its
services or those of the Funds other service providers will be
adversely affected, but Fund management will continue to monitor the
situation. If malfunctions related to the Year 2000 Problem do
arise, the Funds and their investments could be negatively
affected.
MERCURY QA EQUITY SERIES, INC.
[This page intentionally left blank]
Funds
Mercury QA Large Cap Core Fund
Mercury QA Large Cap Value Fund
Mercury QA Large Cap Growth Fund
Mercury QA Mid Cap Fund
Mercury QA Small Cap Fund
Mercury QA International Fund
of Mercury QA Equity Series, Inc.
P.O. Box 9011
Princeton, New Jersey 08543-9011
(1-888-763-2260)
Investment Adviser and Administrator
Mercury Asset Management US,
a division of Fund Asset Management, L.P.
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Transfer Agent
Financial Data Services, Inc.
Administrative Offices:
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
Mailing Address:
P.O. Box 45289
Jacksonville, Florida 32232-5289
(1-888-763-2260)
Independent Auditors
Deloitte & Touche LLP
Princeton Forrestal Village
116-300 Village Boulevard
Princeton, New Jersey 08540-6400
Distributor
Mercury Funds Distributor,
a division of Princeton Funds Distributor,
Inc.
P.O. Box 9081
Princeton, New Jersey 08543-9081
Custodian
The Chase Manhattan Bank
4 Chase MetroTech, 18th Floor
Brooklyn, New York 11245
Counsel
Swidler Berlin Shereff Friedman, LLP
The Chrysler Building
405 Lexington Avenue
New York, New York 10174
MERCURY QA EQUITY SERIES, INC.
[GRAPHIC] To Learn More
Additional information about the Funds
investments is available in the Funds annual and semi-annual
reports to shareholders. In the Funds annual report you will
find a discussion of the market conditions and investment strategies
that significantly affected the Funds performance during its
last fiscal year. You may obtain these reports at no cost by calling
1-888-763-2260.
If you hold your shares in a Fund through a brokerage
account or directly at the transfer agent, you may receive only one
copy of each shareholder report and certain other mailings
regardless of the number of Fund accounts you have. If you prefer to
receive separate shareholder reports for each account (or if you are
receiving multiple copies and prefer to receive only one), call your
financial consultant or, if none, write to the transfer agent at its
mailing address. Include your name, address, tax identification
number and brokerage or mutual fund account number. If you have any
questions, please call your financial consultant or the transfer
agent at 1-888-763-2260.
STATEMENT OF ADDITIONAL INFORMATION
The Funds Statement of Additional Information
contains further information about the Funds and is incorporated by
reference (legally considered to be part of this Prospectus). You
may request a free copy by writing to the Funds at Financial Data
Services, Inc., P.O. Box 45289, Jacksonville, Florida 32232-5289 or
by calling 1-888-763-2260.
Contact your financial consultant or the Funds at the
telephone number or address indicated on the inside back cover of
this Prospectus if you have any questions.
Information about the Funds (including the Statement
of Additional Information) can be reviewed and copied at the SEC
s Public Reference Room in Washington, D.C. Call
1-202-942-8090 for information on the operation of the Public
Reference Room. This information is also available on the SECs
Internet site at http://www.sec.gov and copies may be obtained upon
payment of a duplicating fee by electronic request at the following
e-mail address: [email protected], or by writing the Public
Reference Section of the SEC, Washington, D.C.
20549-0102.
You should rely only on the information contained in
this Prospectus. No one is authorized to provide you with
information that is different from the information contained in this
Prospectus.
Investment Company Act file # 811-09611
Code # 19088-0300.
©Fund Asset Management, L.P.
Mercury QA Equity
Series, Inc.
(LOGO)
PROSPECTUS · March 1,
2000
[LOGO OF MERCURY ASSET MANAGEMENT]
STATEMENT OF ADDITIONAL
INFORMATION
Mercury QA Large Cap Core Fund
Mercury QA Large Cap Value Fund
Mercury QA Large Cap Growth Fund
Mercury QA Mid Cap Fund
Mercury QA Small Cap Fund
Mercury QA International Fund
of Mercury QA Equity Series, Inc.
P.O. Box 9011, Princeton, New Jersey 08543-9011 No.
(888) 763-2260
Mercury QA Large Cap Core Fund, Mercury QA Large Cap Value
Fund, Mercury QA Large Cap Growth Fund, Mercury QA Mid Cap Fund,
Mercury QA Small Cap Fund and Mercury QA International Fund (each a
Fund, and collectively the Funds) are each
separate series of Mercury QA Equity Series, Inc. (the
Corporation). Each Fund is a separate diversified series
of an open-end investment company (commonly known as a mutual fund).
The Mercury QA Large Cap Core Fund, Mercury QA Large Cap Growth
Fund, Mercury QA Mid Cap Fund, Mercury QA Small Cap Fund and Mercury
QA International Fund each seek to provide long term growth of
capital. The Mercury QA Large Cap Value Fund seeks primarily to
provide long term growth of capital and secondarily to provide
dividend income. Each Fund seeks to maximize the expected return by
constructing a portfolio of investments that has risk and style
characteristics similar to that of a particular market segment.
There can be no assurance that the investment objective of the Funds
will be realized.
Each
Fund offers four classes of shares, each with a different
combination of sales charges, ongoing fees and other features. This
permits an investor to choose the method of purchasing shares that
the investor believes is most beneficial given the amount of the
purchase, the length of time the investor expects to hold the shares
and other relevant circumstances. The Funds distributor is
Mercury Funds Distributor, a division of Princeton Funds
Distributor, Inc. (MFD or the Distributor
).
This
Statement of Additional Information is not a prospectus and should
be read in conjunction with the Prospectus of the Corporation, dated
March 1, 2000 (the Prospectus), which has been filed
with the Securities and Exchange Commission (the Commission
) and can be obtained, without charge, by calling the Funds at
888-763-2260 or your financial consultant, or by writing to the
address listed above. The Prospectus is incorporated by reference to
this Statement of Additional Information, and this Statement of
Additional Information has been incorporated by reference to the
Prospectus.
Mercury Asset Management US, a division of
Fund
Asset Management, L.P. Investment
Adviser
Mercury Funds Distributor, a division of Princeton
Funds
Distributor, Inc.
Distributor
The date of this Statement of Additional Information
is March 1, 2000
TABLE OF CONTENTS
INVESTMENT OBJECTIVES AND POLICIES
Each
Fund is a separately managed, diversified mutual fund with its own
investment objective and policies.
The
table below lists the investment objective of each Fund:
Fund
|
|
Investment
Objective
|
Mercury QA Large Cap Core
Fund |
|
to provide long
term growth of capital |
Mercury QA Large Cap Value
Fund |
|
primarily to
provide long term growth of
capital and secondarily to provide dividend
income |
Mercury QA Large Cap Growth
Fund |
|
to provide long
term growth of capital |
Mercury QA Mid Cap Fund |
|
to provide long
term growth of capital |
Mercury QA Small Cap
Fund |
|
to provide long
term growth of capital |
Mercury QA International
Fund |
|
to provide long
term growth of capital |
Each
Fund seeks to achieve its objective by investing in securities that
have risk and style characteristics similar to those of a particular
market segment. Reference is made to the discussion under
About the DetailsHow the Funds Invest in the
Prospectus for information, with respect to each Funds
investment objectives and policies. There can be no assurance that
the investment objectives of the Funds will be realized.
The
investment objective of each Fund is a fundamental policy and may
not be changed without shareholder approval.
Each
Fund may in the future invest all of its assets in the series of
another mutual fund that has the same investment objective and
fundamental policies as the Fund. All portfolio investments would
then be made at the level of the underlying series and each Fund
s investment results would correspond directly to the
respective series investment results. This type of mutual fund
structure is sometimes referred to as a master/feeder
structure. If other entities also invest in the underlying series,
this could enable the Funds to realize economies of scale by
investing through an entity with more assets (the underlying
series). However, there are additional costs involved in operating a
master/feeder structure. If these additional costs are
not offset as a result of economies of scale, it is possible that a
Funds expenses would increase rather than decrease if it
converts to this structure. The Board of Directors of the
Corporation has the authority, on behalf of each Fund, to make the
change to a master/feeder structure without first
holding a vote of the Funds shareholders if it believes it is
in the best interests of the Fund to do so.
Other Investment Policies, Practices and Risk Factors
Cash Management. Generally, Mercury
Asset Management US, a division of Fund Asset Management, L.P., the
investment adviser of the Funds (the Investment Adviser
or Mercury), will employ futures and options on futures
to provide liquidity necessary to meet anticipated redemptions or
for day-to-day operating purposes. However, if considered
appropriate in the opinion of the Investment Adviser, a portion of
the Funds assets may be invested in certain types of
instruments with remaining maturities of 397 days or less for
liquidity purposes. Such instruments would consist of: (i)
obligations of the U.S. Government, its agencies, instrumentalities,
authorities or political subdivisions (U.S. Government
Securities); (ii) other fixed-income securities rated Aa or
higher by Moodys or AA or higher by Standard and Poors
Rating Group (S&P) or, if unrated, of comparable
quality in the opinion of the Investment Adviser; (iii) commercial
paper; (iv) bank obligations, including negotiable certificates of
deposit, time deposits and bankers acceptances; and (v)
repurchase agreements. At the time the Funds invest in commercial
paper, bank obligations or repurchase agreements, the issuer or the
issuers parent must have outstanding debt rated Aa or higher
by Moodys or AA or higher by S&P or outstanding commercial
paper, bank obligations or other short-term obligations rated
Prime-1 by Moodys or A-1 by S&P; or, if no such ratings
are available, the instrument must be of comparable quality in the
opinion of the Investment Adviser.
Short Sales.
In connection with the use of certain
instruments based upon or consisting of one or more baskets of
securities or instruments, the Investment Adviser may sell a
security a Fund does not own, or in an amount greater than the Fund
owns (i.e., make short sales), including securities or
instruments not represented in an index correlating with the Fund
s particular market segment. Such transactions will be used to
seek to achieve efficiencies in a Fund and/or add value to the Fund.
Generally, to complete a short sale transaction, a Fund will borrow
the security to make delivery to the buyer. A Fund is then obligated
to replace the security borrowed. The price at the time of
replacement may be more or less than the price at which the security
was sold by a Fund. If the price of a security sold short goes up
between the time of the short sale and the time a Fund must deliver
the security to the lender, the Fund will incur a loss; conversely
if the price declines the Fund will realize a gain. Any gain will be
decreased, and any loss increased, by transaction costs. Although a
Funds gain is limited to the price at which it sold the
security short, its potential loss is theoretically unlimited. If a
Fund makes short sales of securities that increase in value, it may
underperform similar mutual funds that do not make short sales of
securities they do not own. Until the security is replaced, the Fund
is required to pay to the lender any interest which accrues during
the period of the loan. To borrow the security, the Fund may be
required to pay a premium which would increase the cost of the
security sold. The proceeds of the short sale will be retained by
the broker to the extent necessary to meet margin requirements until
the short position is closed out. Until the Fund replaces the
borrowed security, it will (a) maintain in a segregated account with
its custodian cash or liquid securities at such a level that the
amount deposited in the account plus the amount deposited with the
broker as collateral will equal the current market value of the
security sold short or (b) otherwise cover its short
position.
Foreign Investment Risks
International Investing.
International investments involve certain risks not typically
involved in domestic investments, including fluctuations in foreign
exchange rates, future political and economic developments,
different legal systems and the existence or possible imposition of
exchange controls or other U.S. or foreign governmental laws or
restrictions applicable to such investments. Securities prices in
different countries are subject to different economic, financial and
social factors. Because the Mercury QA International Fund will (and
each other Fund may) invest in securities denominated or quoted in
currencies other than the U.S. dollar, changes in foreign currency
exchange rates may affect the value of securities in the portfolio
and the unrealized appreciation or depreciation of investments
insofar as U.S. investors are concerned. Foreign currency exchange
rates are determined by forces of supply and demand in the foreign
exchange markets. These forces are, in turn, affected by
international balance of payments and other economic and financial
conditions, government intervention, speculation and other factors.
With respect to certain countries, there may be the possibility of
expropriation of assets, confiscatory taxation, high rates of
inflation, political or social instability or diplomatic
developments that could affect investments in those countries. In
addition, certain foreign investments may be subject to foreign
withholding taxes. As a result, management of a Fund may determine
that, notwithstanding otherwise favorable investment criteria, it
may not be practicable or appropriate to invest in a particular
country.
For a
number of years, certain European countries have been seeking
economic unification that would, among other things, reduce barriers
between countries, increase competition among companies, reduce
government subsidies in certain industries, and reduce or eliminate
currency fluctuations among these European countries. The Treaty on
European Union (the Maastricht Treaty) set out a
framework for a European Economic and Monetary Union (EMU
) among the countries that comprise the European Union (
EU). EMU established a single common European currency
(the euro) that was introduced on January 1, 1999 and is
expected to replace the existing national currencies of all EMU
participants by July 1, 2002. EMU took effect for the initial EMU
participants on January 1, 1999. Certain securities issued in
participating EU countries (beginning with government and corporate
bonds) will be redenominated in the euro, and are listed, and
traded, and make dividend and other payments, only in
euros.
No
assurance can be given that EMU will continue to proceed as planned,
that the changes planned for the EU can be successfully implemented,
or that these changes will result in the economic and monetary unity
and stability intended. There is a possibility that EMU will not be
completed, or will be completed but then partially or completely
unwound. Because any participating country may opt out of EMU within
the first three years, it is also possible that a significant
participant could choose to abandon EMU, which would diminish its
credibility
and influence. Any of these occurrences could have adverse effects on
the markets of both participating and non-participating countries,
including sharp appreciation or depreciation of the participants
national currencies and a significant increase in exchange
rate volatility, a resurgence in economic protectionism, an
undermining of confidence in the European markets, an undermining of
European economic stability, the collapse or slowdown of the drive
toward European economic unity, and/or reversion of the attempts to
lower government debt and inflation rates that were introduced in
anticipation of EMU. Also, withdrawal from EMU by an initial
participant could cause disruption of the financial markets as
securities that have been redenominated in the euro are transferred
back into that countrys national currency, particularly if the
withdrawing country is a major economic power. Such developments
could have an adverse impact on a Funds investments in Europe
generally or in specific countries participating in EMU. Gains or
losses resulting from the euro conversion may be taxable to a Fund
s shareholders under foreign or, in certain limited
circumstances, U.S. tax laws.
Many
foreign governments supervise and regulate stock exchanges, brokers
and the sale of securities less than the United States does. Some
countries may not have laws to protect investors the way that the
U.S. securities laws do. For example, some foreign countries may
have no laws or rules against insider trading. Insider trading
occurs when a person buys or sells a companys securities based
on non-public information about that company. Accounting standards
in other countries are not necessarily the same as in the United
States. If the accounting standards in another country do not
require as much detail as U.S. accounting standards, it may be
harder for Fund management to completely and accurately determine a
companys financial condition. Also, brokerage commissions and
other costs of buying or selling securities often are higher in
foreign countries than they are in the United States. This reduces
the amount the Fund can earn on its investments.
Foreign financial markets, while generally growing in trading
volume, typically have substantially less volume than U.S. markets,
and securities of many foreign companies are less liquid and their
prices more volatile than securities of comparable domestic
companies. The foreign markets also have different clearance and
settlement procedures, and in certain markets there have been times
when settlements have been unable to keep pace with the volume of
securities transactions, making it difficult to conduct such
transactions. Further, satisfactory custodial services for
investment securities may not be available in some countries having
smaller capital markets, which may result in a Fund incurring
additional costs and delays in transporting and custodying such
securities outside such countries. Delays in settlement could result
in temporary periods when assets of a Fund are uninvested and no
return is earned thereon and could cause a Fund to miss attractive
investment opportunities. Inability to dispose of a portfolio
security due to settlement problems either could result in losses to
the Funds due to subsequent declines in value of the portfolio
security or, if a Fund has entered into a contract to sell the
security, could result in possible liability to the purchaser.
Brokerage commissions and other transaction costs on foreign
securities exchanges are generally higher than in the United States.
In some countries, there is less governmental supervision and
regulation of exchanges, brokers and issuers than there is in the
United States.
A
number of countries have authorized the formation of closed-end
investment companies to facilitate indirect foreign investment in
their capital markets. In accordance with the Investment Company Act
of 1940, as amended (the Investment Company Act), a Fund
may invest up to 10% of its total assets in securities of closed-end
investment companies, not more than 5% of which may be invested in
any one such company. This restriction on investments in securities
of closed-end investment companies may limit opportunities for a
Fund to invest indirectly in certain smaller capital markets. Shares
of certain closed-end investment companies may at times be acquired
only at market prices representing premiums to their net asset
values. If a Fund acquires shares in closed-end investment
companies, shareholders would bear both their proportionate share of
expenses in a Fund (including investment advisory fees) and,
indirectly, the expenses of such closed-end investment companies. A
Fund also may seek, at its own cost, to create its own investment
entities under the laws of certain countries.
In
some countries, banks or other financial institutions may constitute
a substantial number of the leading companies or companies with the
most actively-traded securities. The Investment Company Act limits a
Funds ability to invest in any equity security of an issuer
that, in its most recent fiscal year, derived more than 15% of its
revenues from securities related activities as defined
by the rules thereunder. These provisions may restrict a Funds
investments in certain foreign banks and other financial
institutions.
The
Mercury QA International Fund will invest in a diverse array of
countries. The securities markets of many countries have at times in
the past moved relatively independently of one another due to
different economic, financial, political and social factors. When
such lack of correlation or negative correlation in movements of
these
securities markets occurs, it may reduce risk for the Funds
portfolio as a whole. This negative correlation also may offset
unrealized gains the Fund has derived from movements in a particular
market. To the extent the various markets move independently, total
portfolio volatility is reduced when the various markets are
combined into a single portfolio. Of course, movements in the
various securities markets may be offset by changes in foreign
currency exchange rates, where the different markets are denominated
in different currencies. Exchange rates frequently move
independently of securities markets in a particular country. As a
result, gains in a particular securities market may be affected by
changes in exchange rates.
Investment in Emerging Markets. The
Mercury QA International Fund has the ability to invest in the
securities of issuers domiciled in various countries with emerging
capital markets. Specifically, an emerging market country
is any country that the World Bank, the International Finance
Corporation, the United Nations or its authorities has determined to
have a low or middle income economy. Countries with emerging markets
can be found in regions such as Asia, Latin America, Eastern Europe
and Africa.
Investments in the securities of issuers domiciled in
countries with emerging capital markets involve certain additional
risks not involved in investments in securities of issuers in more
developed capital markets, such as (i) low or non-existent trading
volume, resulting in a lack of liquidity and increased volatility in
prices for such securities, as compared to securities of comparable
issuers in more developed capital markets, (ii) uncertain national
policies and social, political and economic instability, increasing
the potential for expropriation of assets, confiscatory taxation,
high rates of inflation or unfavorable diplomatic developments,
(iii) possible fluctuations in exchange rates, differing legal
systems and the existence or possible imposition of exchange
controls, custodial restrictions or other foreign or U.S.
governmental laws or restrictions applicable to such investments,
(iv) national policies that may limit the Funds investment
opportunities such as restrictions on investment in issuers or
industries deemed sensitive to national interests, and (v) the lack
or relatively early development of legal structures governing
private and foreign investments and private property. In addition to
withholding taxes on investment income, some countries with emerging
markets may impose differential capital gain taxes on foreign
investors.
Such
capital markets are emerging in a dynamic political and economic
environment brought about by events over recent years that have
reshaped political boundaries and traditional ideologies. In such a
dynamic environment, there can be no assurance that these capital
markets will continue to present viable investment opportunities for
the Fund. In the past, governments of such nations have expropriated
substantial amounts of private property, and most claims of the
property owners have never been fully settled. There is no assurance
that such expropriations will not reoccur. In such event, it is
possible that the Fund could lose the entire value of its
investments in the affected markets.
Also,
there may be less publicly available information about issuers in
emerging markets than would be available about issuers in more
developed capital markets, and such issuers may not be subject to
accounting, auditing and financial reporting standards and
requirements comparable to those to which U.S. companies are
subject. In certain countries with emerging capital markets,
reporting standards vary widely. As a result, traditional investment
measurements used in the U.S., such as price/earnings ratios, may
not be applicable. Emerging market securities may be substantially
less liquid and more volatile than those of mature markets and
companies may be held by a limited number of persons. This may
adversely affect the timing and pricing of the Funds
acquisition or disposal of securities.
Practices in relation to settlement of securities transactions
in emerging markets involve higher risks than those in developed
markets, in part because the Fund will need to use brokers and
counterparties that are less well capitalized, and custody and
registration of assets in some countries may be
unrealiable.
In
Russia, for example, registrars are not subject to effective
government supervision nor are they always independent from issuers.
The possibility of fraud, negligence, undue influence being exerted
by the issuers or refusal to recognize ownership exists, which along
with other factors could result in the registration being completely
lost. Therefore, investors should be aware that the Fund would
absorb any loss resulting from these registration problems and may
have no successful claim for compensation. Some of these concerns
may also exist in other emerging capital markets.
When-Issued
Securities and Forward Commitments. The
Funds may purchase or sell securities that they are entitled to
receive on a when-issued basis. The Funds may also purchase or sell
securities through a forward commitment. These transactions involve
the purchase or sale of securities by a Fund at an established price
with payment and delivery taking place in the future. The Funds
enter into these transactions to obtain what is considered an
advantageous price at the time of entering into the transaction. The
Funds have not established any limit on the percentage of its assets
that may be committed in connection with these transactions. When a
Fund is purchasing securities in these transactions, it maintains a
segregated account with its custodian of cash, cash equivalents,
U.S. Government Securities or other liquid securities in an amount
equal to the amount of its purchase commitments.
There
can be no assurance that a security purchased on a when-issued basis
will be issued, or a security purchased or sold through a forward
commitment will be delivered. The value of securities in these
transactions on the delivery date may be more or less than the
purchase price. The Funds may bear the risk of a decline in the
value of the security in these transactions and may not benefit from
an appreciation in the value of the security during the commitment
period.
Illiquid or Restricted Securities.
Each Fund may invest up to 15% of its net assets in securities
that lack an established secondary trading market or otherwise are
considered illiquid. Liquidity of a security relates to the ability
to dispose easily of the security and the price to be obtained upon
disposition of the security, which may be less than would be
obtained for a comparable more liquid security. Illiquid securities
may trade at a discount from comparable, more liquid investments.
Investment of a Funds assets in illiquid securities may
restrict the ability of a Fund to dispose of its investments in a
timely fashion and for a fair price as well as its ability to take
advantage of market opportunities. The risks associated with
illiquidity will be particularly acute where a Funds
operations require cash, such as when the Fund redeems shares or
pays dividends, and could result in the Fund borrowing to meet
short-term cash requirements or incurring capital losses on the sale
of illiquid investments.
Each
Fund may invest in securities that are restricted securities.
Restricted securities have contractual or legal restrictions
on their resale and include private placement securities
that a Fund may buy directly from the Issuer. Restricted securities
may be sold in private placement transactions between the issuers
and their purchasers and may be neither listed on an exchange nor
traded in other established markets. In many cases, privately placed
securities may not be freely transferable under the laws of the
applicable jurisdiction or due to contractual restrictions on
resale. As a result of the absence of a public trading market,
privately placed securities may be less liquid and more difficult to
value than publicly traded securities. To the extent that privately
placed securities may be resold in privately negotiated
transactions, the prices realized from the sales, due to
illiquidity, could be less than those originally paid by a Fund or
less than fair market value.
In
addition, issuers whose securities are not publicly traded may not
be subject to the disclosure and other investor protection
requirements that may be applicable if their securities were
publicly traded. If any privately placed securities held by a Fund
are required to be registered under the securities laws of one or
more jurisdictions before being resold, the Fund may be required to
bear the expenses of registration. Certain of a Funds
investments in private placements may consist of direct investments
and may include investments in smaller, less-seasoned issuers, which
may involve greater risks. These issuers may have limited product
lines, markets or financial resources, or they may be dependent on a
limited management group. In making investments in such securities,
a Fund may obtain access to material nonpublic information which may
restrict the Funds ability to conduct portfolio transactions
in such securities.
144A Securities. Each Fund may purchase restricted
securities that can be offered and sold to qualified
institutional buyers under Rule 144A under the Securities Act
of 1933, as amended (the Securities Act). The Board of
Directors of the Corporation has determined to treat as liquid Rule
144A securities that are either freely tradeable in their primary
markets offshore or have been determined to be liquid in accordance
with the policies and procedures adopted by the Corporations
Board of Directors. The Board of Directors of the Corporation has
adopted guidelines and delegated to the Investment Adviser the daily
function of determining and monitoring liquidity of restricted
securities. The Board of Directors of the Corporation, however, will
retain sufficient oversight and be ultimately responsible for the
determinations. Since it is not possible to predict with assurance
exactly how this market for restricted securities sold and offered
under Rule 144A will continue to develop, the
Board of Directors of the Corporation will carefully monitor each Fund
s investments in these securities. This investment practice
could have the effect of increasing the level of illiquidity in each
Fund to the extent that qualified institutional buyers become for a
time uninterested in purchasing these securities.
Standby Commitment Agreements. The Funds may enter into
standby commitment agreements. These agreements commit the Funds,
for a stated period of time, to purchase a stated amount of
fixed-income securities that may be issued and sold to a Fund at the
option of the issuer. The price and coupon of the security is fixed
at the time of the commitment. At the time of entering into the
agreement the Fund is paid a commitment fee, regardless of whether
or not the security is ultimately issued. A Fund will enter into
such agreements for the purpose of investing in the security
underlying the commitment at a yield and price that is considered
advantageous to the Fund. A Fund will not enter into a standby
commitment with a remaining term in excess of 90 days and will limit
its investment in such commitments so that the aggregate purchase
price of securities subject to such commitments, together with the
value of all other illiquid securities, will not exceed 15% of its
net assets taken at the time of the commitment. The Fund will
maintain a segregated account with its custodian of cash, cash
equivalents, U.S. Government Securities or other liquid securities
in an aggregate amount equal to the purchase price of the securities
underlying the commitment.
There
can be no assurance that the securities subject to a standby
commitment will be issued and the value of the security, if issued,
on the delivery date may be more or less than its purchase price.
Since the issuance of the security underlying the commitment is at
the option of the issuer, a Fund may bear the risk of a decline in
the value of such security and may not benefit from an appreciation
in the value of the security during the commitment
period.
The
purchase of a security subject to a standby commitment agreement and
the related commitment fee will be recorded on the date on which the
security can reasonably be expected to be issued, and the value of
the security will thereafter be reflected in the calculation of a
Funds net asset value. The cost basis of the security will be
adjusted by the amount of the commitment fee. In the event the
security is not issued, the commitment fee will be recorded as
income on the expiration date of the standby commitment.
Repurchase Agreements. Each Fund may invest in securities
pursuant to repurchase agreements. Repurchase agreements may be
entered into only with a member bank of the Federal Reserve System,
primary dealers in U.S. Government Securities, or an affiliate
thereof, or with other entities which the Investment Adviser
otherwise deems to be creditworthy. Under such agreements, the
counterparty agrees, upon entering into the contract, to repurchase
the security at a mutually agreed upon time and price, thereby
determining the yield during the term of the agreement. This
insulates a Fund from fluctuations in the market value of the
underlying security during such period although, with respect to the
Mercury QA International Fund, to the extent the repurchase
agreement is not denominated in U.S. dollars, the Funds return
may be affected by currency fluctuations. A Fund may not invest more
than 15% of its net assets in repurchase agreements maturing in more
than seven days (together with other illiquid securities).
Repurchase agreements may be construed to be collateralized loans by
the purchaser to the seller secured by the securities transferred to
the purchaser. A Fund will require the seller to provide additional
collateral if the market value of the securities falls below the
repurchase price at any time during the term of the repurchase
agreement. In the event of default by the seller under a repurchase
agreement construed to be a collateralized loan, the underlying
securities are not owned by the Fund but only constitute collateral
for the sellers obligation to pay the repurchase price.
Therefore, a Fund may suffer time delays and incur costs or possible
losses in connection with the disposition of the collateral. In the
event of a default by the seller under such a repurchase agreement,
instead of the contractual fixed rate of return, the rate of return
to the Fund shall be dependent upon intervening fluctuations of the
market value of such security and the accrued interest on the
security. In such event, the Fund would have rights against the
seller for breach of contract with respect to any losses arising
from market fluctuations following the failure of the seller to
perform.
Convertible Securities. Convertible securities entitle the
holder to receive interest payments paid on corporate debt
securities or the dividend preference on a preferred stock until
such time as the convertible security matures or is redeemed or
until the holder elects to exercise the conversion
privilege.
The
characteristics of convertible securities include the potential for
capital appreciation as the value of the underlying common stock
increases, the relatively high yield received from dividend or
interest payments as compared to common stock dividends and
decreased risks of decline in value relative to the underlying
common stock due to their fixed-income nature. As a result of the
conversion feature, however, the interest rate or dividend
preference on a convertible security is generally less than would be
the case if the securities were issued in non-convertible
form.
In
analyzing convertible securities, the Investment Adviser will
consider both the yield on the convertible security and the
potential capital appreciation that is offered by the underlying
common stock.
Convertible securities are issued and traded in a number of
securities markets. Even in cases where a substantial portion of the
convertible securities held by a Fund are denominated in U.S.
dollars, the underlying equity securities may be quoted in the
currency of the country where the issuer is domiciled. With respect
to a convertible security denominated in a currency different from
that of the underlying equity security, the conversion price may be
based on a fixed exchange rate established at the time the security
is issued. As a result, fluctuations in the exchange rate between
the currency in which the debt security is denominated and the
currency in which the share price is quoted will affect the value of
the convertible security.
Apart
from currency considerations, the value of a convertible security is
influenced by both the yield of non-convertible securities of
comparable issuers and by the value of the underlying common stock.
The value of a convertible security viewed without regard to its
conversion feature (i.e., strictly on the basis of its yield)
is sometimes referred to as its investment value. To the
extent interest rates change, the investment value of the
convertible security typically will fluctuate. However, at the same
time, the value of the convertible security will be influenced by
its conversion value, which is the market value of the
underlying common stock that would be obtained if the convertible
security were converted. Conversion value fluctuates directly with
the price of the underlying common stock. If, because of a low price
of the common stock the conversion value is substantially below the
investment value of the convertible security, the price of the
convertible security is governed principally by its investment
value.
To
the extent the conversion value of a convertible security increases
to a point that approximates or exceeds its investment value, the
price of the convertible security will be influenced principally by
its conversion value. A convertible security will sell at a premium
over the conversion value to the extent investors place value on the
right to acquire the underlying common stock while holding a
fixed-income security.
Holders of convertible securities generally have a claim on
the assets of the issuer prior to the common stockholders but may be
subordinated to other debt securities of the same issuer. A
convertible security may be subject to redemption at the option of
the issuer at a price established in the charter provision,
indenture or other governing instrument pursuant to which the
convertible security was issued. If a convertible security held by a
Fund is called for redemption, the Fund will be required to redeem
the security, convert it into the underlying common stock or sell it
to a third party. Certain convertible debt securities may provide a
put option to the holder which entitles the holder to cause the
security to be redeemed by the issuer at a premium over the stated
principal amount of the debt security under certain
circumstances.
New Issues. Each Fund may seek to
purchase hot issues that is newly issued
securities, sometimes with the intent of quickly selling such
securities in the secondary market for an amount higher than the
issue price (Hot IPOs). Newly issued securities lack
established trading histories and may be issued by companies with
limited operating histories. The Fund also would bear the risk of
the security trading at a discount to the issue price. A Fund may
not be able to obtain an allocation of a Hot IPO, or in the amount
that it would like.
Securities Lending. Each Fund may
lend securities with a value not exceeding 33 1
/3% of its total assets. In return, a Fund receives
collateral in an amount equal to at least 100% of the current market
value of the loaned securities in cash or securities issued or
guaranteed by the U.S. Government. If cash collateral is received by
a Fund, it is invested in short-term money market securities, and a
portion of the yield received in respect of such investment is
retained by the Fund. Alternatively, if securities are delivered to
a Fund as collateral, the Fund and the borrower negotiate a rate for
the loan premium to be received by the Fund for lending its
portfolio securities. In either event, the total yield on a Fund
s portfolio is increased by loans of its portfolio securities.
A Fund may receive a flat fee for its loans. The loans are
terminable at any time and the borrower, after notice, is required
to return borrowed securities within five business days. A Fund may
pay reasonable finders, administrative and custodial fees in
connection with its loans. In the event that the borrower defaults
on its obligation to return borrowed securities because of
insolvency or for any other reason, a Fund could experience delays
and costs in
gaining access to the collateral and could suffer a loss to the extent
the value of the collateral falls below the market value of the
borrowed securities.
Borrowing and Leverage. The use of
leverage by a Fund creates an opportunity for greater total return,
but, at the same time, creates special risks. For example,
leveraging may exaggerate changes in the net asset value of a Fund
s shares and in the yield on a Funds portfolio. Although
the principal of such borrowings will be fixed, a Funds assets
may change in value during the time the borrowings are
outstanding.
Borrowings will create interest expenses for a Fund which can
exceed the income from the assets purchased with the borrowings. To
the extent the income or capital appreciation derived from
securities purchased with borrowed funds exceeds the interest a Fund
will have to pay on the borrowings, the Funds return will be
greater than if leverage had not been used. Conversely, if the
income or capital appreciation from the securities purchased with
such borrowed funds is not sufficient to cover the cost of
borrowing, the return to the Fund will be less than if leverage had
not been used, and therefore the amount available for distribution
to shareholders as dividends and other distributions will be
reduced. In the latter case, the Investment Adviser in its best
judgment nevertheless may determine to maintain a Funds
leveraged position if it expects that the benefits to the Fund
s shareholders of maintaining the leveraged position will
outweigh the current reduced return.
Certain types of borrowings by a Fund may result in the Fund
being subject to covenants in credit agreements relating to asset
coverage, portfolio composition requirements and other matters. It
is not anticipated that observance of such covenants would impede
the Investment Adviser from managing a Funds portfolio in
accordance with the Funds investment objectives and policies.
However, a breach of any such covenants not cured within the
specified cure period may result in acceleration of outstanding
indebtedness and require a Fund to dispose of portfolio investments
at a time when it may be disadvantageous to do so.
To
the extent allowed by law and as permitted by the Funds
investment policies as set forth in the Prospectus and herein, the
Funds at times may borrow from affiliates of the Investment Adviser,
provided that the terms of such borrowings are no less favorable
than those available from comparable sources of funds in the
marketplace.
Small Cap Companies. An investment
in the Mercury QA Small Cap Fund and, to a lesser extent, the
Mercury QA Mid Cap Fund, involves greater risk than is customarily
associated with funds that invest in more established companies. The
securities of smaller companies may be subject to more abrupt or
erratic market movements than larger, more established companies or
the market average in general. These companies may have limited
product lines, markets or financial resources, or they may be
dependent on a limited management group. Because of these factors,
these Funds believe that their shares may be suitable for investment
by persons who can invest without concern for current income and who
are in a financial position to assume above-average investment risk
in search of above-average long term reward. It is not intended as a
complete investment program but is designed for those long term
investors who are prepared to experience above-average fluctuations
in net asset value.
While
the issuers in which these Funds will primarily invest may offer
greater opportunities for capital appreciation than large cap
issuers, investments in smaller companies may involve greater risks
and thus may be considered speculative. Full development of these
companies and trends frequently takes time and, for this reason,
each such Fund should be considered as a long term investment and
not as a vehicle for seeking short term profits.
The
securities in which the Mercury QA Small Cap Fund and Mercury QA Mid
Cap Fund invest will often be traded only in the over-the-counter (
OTC) market or on a regional securities exchange and may
not be traded every day or in the volume typical of trading on a
national securities exchange. As a result, the disposition by such
Funds of portfolio securities, to meet redemptions or otherwise, may
require the Funds to sell these securities at a discount from market
prices or during periods when such disposition may not be desirable,
or to make many small sales over a lengthy period of
time.
Equity securities of specific small cap issuers may present
different opportunities for long term capital appreciation during
varying portions of economic or securities markets cycles, as well
as during varying stages of their business development. The market
valuation of small cap issuers tends to fluctuate during economic or
market cycles, presenting attractive investment opportunities at
various points during these cycles.
Smaller companies, due to the size and kinds of markets that
they serve, may be less susceptible than large companies to
intervention from the Federal government by means of price controls,
regulations or litigation.
Strategies Involving Options, Futures, Swaps,
Indexed Instruments and Foreign Exchange
Transactions
Each
Fund may also invest in derivative instruments that it believes may
serve as substitutes for individual securities in an attempt to
broadly represent a particular market or market segment. The
derivative instruments in which each Fund may invest include the
purchase and writing of options on securities indices and the
writing of covered call options on stocks or derivative instruments
correlated with an index or components of the index rather than
securities represented in that index. Each Fund will normally invest
a substantial portion of its assets in options and futures contracts
correlated with an index representing a Funds particular
market segment. Each Fund may also utilize options on futures, swaps
and other indexed instruments and convertible bonds. Derivatives may
be employed as a proxy for a direct investment in securities
underlying the relevant index. Options, futures and other derivative
instruments may also be employed to gain market exposure quickly in
the event of subscriptions, provide liquidity, to invest uncommitted
cash balances, for non-hedging purposes and in connection with short
term trading opportunities. Each Fund may also use derivatives in
connection with the investment strategy that seeks to profit from
differences in price when the same (or similar) security, currency
or commodity is traded in two or more markets.
In
addition, the Mercury QA International Fund may engage in futures
contracts on foreign currencies in connection with certain foreign
security transactions and as an efficient and less costly way of
emphasizing or de-emphasizing investment in particular countries
represented in its particular market segment.
The
Investment Adviser will choose among the foregoing instruments based
on its judgment of how best to meet each Funds goals. In
connection therewith, the Investment Adviser will assess such
factors as current and anticipated securities prices, relative
liquidity and price levels in the options, futures and swap markets
compared to the securities markets, and a Funds cash flow and
cash management needs.
Indexed Securities
The
Funds may invest in securities, the potential return of which is
based on the change in particular measurements of value or rate (an
index). As an illustration, a Fund may invest in a debt
security or total return swap that pays interest and returns
principal based on the change in the value of a securities index or
a basket of securities. If a Fund invests in such securities, it may
be subject, in the case of a debt security to reduced or eliminated
interest payments or loss of principal, or, in the case of a total
return swap, substantial payments to the counterparty in the event
of an adverse movement in the relevant index.
Options on Securities and Securities
Indices
Purchasing Options. Each Fund is
authorized to purchase put options on securities held in its
portfolio or securities indices the performance of which is
substantially correlated to securities held in its portfolio. When a
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, a 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.
Each
Fund is also authorized to purchase call options on securities it
intends to purchase or securities indices the performance of which
is substantially correlated to securities held in its portfolio.
When a Fund purchases a call option, in consideration for the option
premium the Fund acquires the 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 maintain exposure to an index prior to purchasing
the underlying securities, in the case of an option on an index (an
anticipatory hedge). In the event a Fund determines not
to purchase a security underlying a call option, however, the Fund
may lose the entire option premium.
Each
Fund is also authorized to purchase put or call options in
connection with closing out put or call options it has previously
sold.
Writing Options. Each Fund is
authorized to write (i.e., sell) call options on securities
held in its portfolio or securities indices, the performance of
which is substantially correlated to securities held in its
portfolio. When a Fund writes a call option, in return for an option
premium the Fund gives another party the right to buy specified
securities owned by the Fund at the exercise price on or before the
expiration date, in the case of an option on securities, or agrees
to pay to another party an amount based on any gain in a specified
securities index beyond a specified level on or before the
expiration date, in the case of an option on a securities index. The
Funds may write call options to earn income through the receipt of
option premiums. In the event the party to which a 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, a 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.
Each
Fund may also write put options on securities or securities indices
the performance of which is substantially correlated to securities
held in its portfolio. When a Fund writes a put option, in return
for an option premium the Fund gives another party the right to sell
to the Fund a specified security at the exercise price on or before
the expiration date, in the case of an option on a security, or
agrees to pay to another party an amount based on any decline in a
specified securities index below a specified level on or before the
expiration date, in the case of an option on a securities index. The
Funds may write put options to earn income through the receipt of
option premiums. In the event the party to which a Fund has written
an option fails to exercise its rights under the option because the
value of the underlying securities is greater than the exercise
price, the Fund will profit by the amount of the option premium. By
writing a put option, however, a 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 a 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. A 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 on the same security or index but different expiration dates
or exercise prices (a technique called a spread
).
Each
Fund is also authorized to sell call or put options in connection
with closing out call or put options it has previously
purchased.
Other
than with respect to closing transactions, a Fund will only write
call or put options that are covered. A put option will
be considered covered if a Fund has segregated assets with respect
to such option in the manner described in Risk Factors in
Derivatives below. A call option will be considered covered if
a Fund owns the securities it would be required to deliver upon
exercise of the option (or, in the case of option on a securities
index, securities which substantially replicate 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. Each Fund may
engage in transactions in options on securities or securities
indices on exchanges and in the OTC markets. In general,
exchange-traded options have standardized exercise prices and
expiration dates and require the parties to post margin
against their obligations, and the performance of the parties
obligations in connection with such options is guaranteed by the
exchange or a related clearing corporation. OTC options
have more flexible terms negotiated between the buyer and seller,
but generally do not require the parties to post margin and are
subject to greater risk of counterparty default. See
Additional Risk Factors of OTC Transactions below.
Futures
Each
Fund may engage in transactions in futures and options thereon.
Futures are standardized, exchange-traded contracts that obligate a
purchaser to take delivery, and a seller to make delivery, of a
specific amount of an asset at a specified future date at a
specified price. An index futures contract is a contract to buy or
sell units of a particular index of securities at a specified future
date at a price agreed upon when the contract is made. Index futures
contracts typically specify that no delivery of the actual
securities making up the index takes place. Instead, upon
termination of the contract, final settlement is made in cash based
on the difference between the contract price and the actual price on
the termination date of the units of the index. No price is paid
upon entering into a futures contract. Rather, upon purchasing or
selling a futures contract, a Fund is required to deposit collateral
(margin) equal to a percentage (generally less than 10%)
of the contract value with the Futures Commission Merchants (the
FCM) effecting the Funds transactions or in a
third party account with the Funds custodian. Each day
thereafter until the futures position is closed, a Fund will pay
additional margin representing any loss experienced as a result of
the futures position the prior day or be entitled to a payment
representing any profit experienced as a result of the futures
position the prior day.
Whether the margin is deposited with the FCM or with the
custodian, the margin may be deemed to be in the FCMs custody,
and, consequently, in the event of default due to the FCMs
bankruptcy, the margin may be subject to pro rata treatment as the
FCMs assets, which could result in potential losses to a Fund
and its shareholders. Even if a transaction is profitable, a Fund
may not get back the same assets which were deposited as a margin or
may receive payment in cash.
The
sale of a futures contract limits a Funds risk of loss through
a decline in the market value of portfolio holdings correlated with
the futures contract prior to the future contracts expiration
date. In the event the market value of the portfolio holdings
correlated with the futures contract increases rather than
decreases, however, a 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 a 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
the event that such securities decline in value or a 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.
A
Fund will further limit transactions in futures and options on
futures to the extent necessary to prevent the Fund from being
deemed a commodity pool under regulations of the
Commodity Futures Trading Commission.
Swaps
Each
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 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.
Foreign Exchange Transactions.
The Mercury QA International Fund may engage in futures
contracts on foreign currencies and foreign currency forward and
spot transactions in connection with transactions or anticipated
transactions in securities denominated in foreign currencies. The
Mercury QA International Fund is not required to engage in futures
contracts, and may not do so. 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 Mercury QA International Fund will enter into
foreign exchange transactions only for purposes of hedging
(including anticipatory hedges) either a specific transaction or a
portfolio position. The Fund may enter into a foreign exchange
transaction for purposes of hedging a specific transaction by, for
example, purchasing a currency needed to settle a security
transaction at a future date or selling a currency in which the Fund
has received or anticipates receiving a dividend or
distribution.
Other Investment Policies the Funds May
Use
The
Funds may also seek to profit from differences in price when the
same (or a similar) security, currency or commodity is traded in two
or more markets. For example, the Funds may seek to earn a profit
from differences between (i) the value of a derivative and the value
of a particular index, (ii) the implied value of an option to
convert a convertible bond and the actual value of such option,
(iii) the value of a companys shares listed on more than one
exchange, and (iv) the value of the stock of a company subject to an
announced, but not yet completed, merger, takeover or other
significant corporate event and the expected value of the stock upon
completion of such event.
Risk Factors in Derivatives
Each
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 below.
However, there can be no assurance that, at any specific time,
either a liquid secondary market will exist for a derivative or that
a 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 (e.g., futures
transactions, sales of put options) may expose a Fund to potential
losses which exceed the amount originally invested by the Fund in
such instruments. When a 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
Certain derivatives traded in OTC markets, including indexed
securities, swaps and OTC options may be substantially less liquid
than other instruments in which a Fund may invest. The absence of
liquidity may make it difficult or impossible for a Fund to sell
such instruments promptly at an acceptable price. The absence of
liquidity may also make it more difficult for a Fund to ascertain a
market value for such instruments. A 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 a 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. A 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.
Merger Transaction Risk
A
Fund may buy stock of the target company in an announced merger
transaction prior to the consummation of such transaction. In that
circumstance, a Fund would expect to receive an amount (whether in
cash, stock of the acquiring company or a combination of both) in
excess of the purchase price paid by the Fund for the target company
s stock. This strategy is subject to the risk that the merger
transaction may be canceled, delayed or restructured, in which case
a Funds holding of the target companys stock may not
result in any profit for the Fund and may lose significant
value.
Additional Limitations on the Use of
Derivatives
The
Funds 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.
Additional Information Concerning Market Segments
Each
of the market segments targeted by a Fund is reflected in a
broad-based market index. None of the Funds is an index fund; that
is, none of the Funds seeks to replicate the performance of a
particular index. However, each Fund generally will invest in its
targeted equity market segment with risk and style characteristics
similar to those of the respective index that is described
below:
Standard and Poors 500 Composite Stock Price
Index (Mercury QA Large Cap Core Fund)
The
Standard and Poors 500 Composite Stock Price Index (S
&P 500) is composed of 500 common stocks issued by U.S.
large-capitalization companies in a wide range of businesses. The
stocks included in the index collectively represent a substantial
portion of all common stocks publicly traded in the United States.
The S&P 500 is generally considered broadly representative of
the performance of publicly traded U.S. large capitalization stocks.
The S&P 500 is a market-weighted index, which means that the
largest stocks represented in the index have the most effect on the
indexs performance. Currently, the largest stocks in the S
&P 500 have an effect on the performance of the index that is
many times greater than the effect of the other stocks in the index.
The stocks in the S&P 500 are chosen by the S&P, a division
of the McGraw-Hill Companies, Inc. S&P chooses stocks for
inclusion in the S&P 500 based on market capitalization, trading
activity and the overall mix of industries represented in the index,
among other factors.
Standard and Poors 500/Barra Value Index
(Mercury QA Large Cap Value Fund)
The
Standard and Poors 500/Barra Value Index (S&P
500/Barra Value Index) includes approximately one-half of the
companies in the S&P 500, which are considered value
stocks, based on their price-to-book ratios. This is determined by
dividing the book value per share of common stock of each company in
the S&P 500 by the price per share of the company. Each company
in the S&P 500 is then assigned to either the S&P 500/Barra
Value Index or the Standard and Poors 500/Barra Growth Index (
S&P 500/Barra Growth Index). The S&P 500/Barra
Value Index contains companies with lower price-to-book ratios while
the S&P 500/Barra Growth Index contains companies with higher
price-to-book ratios. The S&P 500/Barra Value and Growth Indexes
are designed so that the combined capitalization of the S&P 500
is approximately equally divided between the S&P 500/Barra Value
and Growth Indexes. Over time, the relative capitalization
weightings in the S&P 500/Barra Value and Growth Indexes will
vary due to capitalization changes of the companies in the
respective index. Accordingly, every six months, the S&P
500/Barra Value and Growth Indexes are rebalanced so that the
combined index capitalization of the S&P 500 is once again
approximately equally split between the S&P 500/Barra Value and
Growth Indexes. Each time the S&P 500/Barra Value and Growth
Indexes are rebalanced, a cutoff value is determined based on the
price-to-book ratio of the company in the S&P 500/Barra Value
Index with the highest price-to-book ratio. This cutoff value is
used to determine whether to place a company into the S&P
500/Barra Value Index or the S&P 500/Barra Growth Index. If a
companys price-to-book ratio is above the cutoff value, it is
placed in the S&P 500/Barra Growth Index; otherwise, it is added
to the S&P 500/Barra Value Index. When companies are deleted
from the S&P 500, they are also deleted from the S&P
500/Barra Value or Growth Indexes, as applicable. Accordingly, the S
&P 500/Barra Value and Growth Indexes are adjusted monthly to
reflect additions and deletions of companies in the S&P 500. The
weighting of the S&P 500/Barra Value Index is based upon the
market capitalization of each company in the index.
Standard & Poors 500/Barra Growth Index (Mercury QA Large
Cap Growth Fund)
The
Standard & Poors 500/Barra Growth Index (S&P
500/Barra Growth Index) includes approximately one-half of the
companies in the S&P 500, which are considered growth
stocks, based on their price-to-book ratios. This is
determined by dividing the book value per share of common stock of
each company in the S&P 500 by the price per share of the
company. Each company in the S&P 500 is then assigned to either
the S&P 500/Barra Value Index or the S&P 500/Barra Growth
Index. The S&P 500/Barra Value Index contains companies with
lower price-to-book ratios while the S&P 500/Barra Growth Index
contains companies with higher price-to-book ratios. The S&P
500/Barra Value and Growth Indexes are designed so that the combined
capitalization of the S&P 500 is approximately equally divided
between the S&P 500/Barra Value and Growth Indexes. Over time,
the relative capitalization weightings in the S&P 500/Barra
Value and Growth Indexes will vary due to capitalization changes of
the companies in the respective index. Accordingly, every six
months, the S&P 500/Barra Value and Growth Indexes are
rebalanced so that the combined index capitalization of the S&P
500 is once again approximately equally split between the S&P
500/Barra Value and Growth Indexes. Each time the S&P 500/Barra
Value and Growth Indexes are rebalanced, a cutoff value is
determined based on the price-to-book ratio of the company in the S
&P 500/Barra Value Index with the highest price-to-book ratio.
This cutoff value is used to determine whether to place a company
into the S&P 500/Barra Value Index or the S&P 500/Barra
Growth Index. If a companys price-to-book ratio is above the
cutoff value, it is placed in the S&P 500/Barra Growth Index;
otherwise, it is added to the S&P 500/Barra Value Index. When
companies are deleted from the S&P 500, they are also deleted
from the S&P 500/Barra Value or Growth Indexes, as applicable.
Accordingly, the S&P 500/Barra Value and Growth Indexes are
adjusted monthly to reflect additions and deletions of companies in
the S&P 500. The weighting of the S&P 500/Barra Growth Index
is based upon the market capitalization of each company in the
index.
Standard & Poors Mid Cap 400 Index
(Mercury QA Mid Cap Fund)
The
Standard & Poors Mid Cap 400 Index (S&P 400
) is composed of 400 common stocks issued by U.S.
mid-capitalization companies in a wide range of businesses. The S
&P 400 is generally considered broadly representative of the
performance of publicly traded U.S. mid-capitalization stocks. The S
&P 400 is a market-weighted index, which means that the largest
stocks represented in the index have the most effect on the index
s performance. The stocks in the S&P 400 are chosen by S
&P. S&P chooses stocks for inclusion in the S&P 400
based on market capitalization, trading activity and the overall mix
of industries represented in the index, among other
factors.
Standard & Poors SmallCap 600 Index
(Mercury QA Small Cap Fund)
The
Standard & Poors SmallCap 600 Index (S&P 600
) is composed of 600 domestic stocks issued by U.S.
small-capitalization companies in a wide range of businesses. The S
&P 600 is generally considered broadly representative of the
performance of publicly traded U.S. smaller-capitalization stocks.
The S&P 600 is a market-weighted index, which means that the
largest stocks represented in the index have the most effect on the
indexs performance. The stocks in the S&P 600 are chosen
by S&P. S&P chooses stocks for inclusion in the S&P 600
based on market capitalization, market size, liquidity, (bid-asked
spread, ownership, share turnover and number of no trade days) and
industry group representation.
Morgan Stanley Capital International Europe, Asia
and Far East Capitalization Weighted Index
(Mercury QA International Fund)
The
Morgan Stanley Capital International Europe, Asia and Far East
Capitalization Weighted Index (EAFE Index) is composed
of equity securities of approximately 1,000 companies from various
industrial sectors whose primary trading markets are located outside
the United States. Companies included in the EAFE Index are selected
from among the larger capitalization companies in these markets. The
countries currently included in the EAFE Index are Australia,
Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong,
Ireland, Italy, Japan, The Netherlands, New Zealand, Norway,
Portugal, Singapore, Spain, Sweden, Switzerland and the United
Kingdom. The weighting of the EAFE Index among these countries is
based upon each countrys relative market capitalizations, and
not its gross domestic product, which means that the index contains
more companies from
countries with the largest capital markets (like Japan and the United
Kingdom) and these countries have the most effect on the index
s performance. The stocks in the EAFE Index are chosen by
Morgan Stanley & Co., Incorporated (MSCI). MSCI
chooses stocks for inclusion in the EAFE Index based on market
capitalization, trading activity and the overall mix of industries
represented in the index, among other factors. The EAFE Index is
generally considered broadly representative of the performance of
stocks traded in the international markets. MSCIs selection of
a stock for the EAFE Index does not mean that MSCI believes the
stock to be an attractive investment.
The
Corporation has adopted the following restrictions and policies
relating to the investment of each Funds assets and its
activities. The fundamental restrictions set forth below may not be
changed with respect to a 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, however,
that none of the following restrictions shall prevent a Fund from
investing all of its assets in shares of another registered
investment company with the same investment objective (in a
master/feeder structure). A Fund may not:
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1. Make any investment
inconsistent with the Funds classification as a diversified
company under the Investment Company Act.
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2. Invest
more than 25% of its total assets, taken at market value, in the
securities of issuers in any particular industry (excluding the
U.S. Government and its agencies and
instrumentalities).
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3. Make
investments for the purpose of exercising control or management.
Investments by the 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.
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4. Purchase
or sell real estate, except that, to the extent permitted by
applicable law, a 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.
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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 a 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 Corporations Registration
Statement, as it may be amended from time to time.
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6. Issue
senior securities to the extent such issuance would violate
applicable law.
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7. Borrow
money, except that (i) each Fund may borrow from banks (as defined
in the Investment Company Act) in amounts up to 33
1
/3% of its total assets (including the amount
borrowed), (ii) each Fund may borrow up to an additional 5% of its
total assets for temporary purposes, (iii) each Fund may obtain
such short-term credit as may be necessary for the clearance of
purchases and sales of portfolio securities and (iv) each Fund may
purchase securities on margin to the extent permitted by
applicable law. No Fund may pledge its assets other than to secure
such borrowings or, to the extent permitted by a Funds
investment policies as set forth in its Registration Statement, as
it may be amended from time to time, in connection with hedging
transactions, short sales, forward commitment transactions and
similar investment strategies.
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8. Underwrite
securities of other issuers except insofar as a Fund technically
may be deemed an underwriter under the Securities Act, in selling
portfolio securities.
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9. Purchase
or sell commodities or contracts on commodities, except to the
extent that a Fund may do so in accordance with applicable law and
the Corporations Registration Statement, as it may be
amended from time to time, and without registering as a commodity
pool operator under the Commodity Exchange Act.
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In
addition, each Fund is required to comply with certain requirements
under the Internal Revenue Code of 1986, as amended (the Code
). To ensure that the Funds satisfy these requirements, each
Fund will be managed in compliance with the Code requirements as
though such requirements were applicable to the Fund. These
requirements include limiting a Funds investments so that at
the close of each quarter of the taxable year (i) not more than 25%
of the market value of the Funds total assets are invested in
the securities of a single issuer, or any two or more issuers which
are controlled by the Fund and engaged in the same, similar or
related businesses, and (ii) with respect to 50% of the market value
of its total assets, not more than 5% of the market value of its
total assets are invested in securities of a single issuer, and the
Fund does not own more than 10% of the outstanding voting securities
of a single issuer. The U.S. Government, its agencies and
instrumentalities and other regulated investment companies are not
included within the definition of issuer for purposes of
the diversification requirements of the Code.
In
addition, the Corporation has adopted non-fundamental restrictions
that may be changed by the its 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 a 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 restrictions, a Fund may not:
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(a) Purchase
securities of other investment companies, except to the extent
such purchases are permitted by applicable law. As a matter of
policy, however, a 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.
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(b) Make
short sales of securities or maintain a short position, except to
the extent permitted by applicable law and otherwise permitted by
the Corporations Registration Statement.
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(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 Board of
Directors of the Corporation has otherwise determined to be liquid
pursuant to applicable law. Securities purchased in accordance
with Rule 144A under the Securities Act (which are restricted
securities that can be resold to qualified institutional buyers,
but not to the general public) and determined to be liquid by the
Board of Directors of the Corporation are not subject to the
limitations set forth in this investment restriction.
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(d) Make any
additional investments if the amount of its borrowings exceeds 5%
of its total assets. Borrowings do not include the use of
investment techniques that may be deemed to create leverage,
including, but not limited to, such techniques as dollar rolls,
when-issued securities, options and futures.
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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 Funds 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.
The
staff of the Commission has taken the position that purchased OTC
options and the assets used as cover for written OTC options are
illiquid securities. Therefore, the Corporation has adopted an
investment policy pursuant to which no Fund will purchase or sell
OTC options if, as a result of such transactions, the sum of the
market value of OTC options currently outstanding which are held by
such Fund, the market value of the underlying securities covered by
OTC call options currently outstanding which were sold by the Fund
and margin deposits on the Funds existing OTC options on
futures contracts exceed 15% of the net assets of the Fund taken at
market value, together with all other assets of such Fund which are
illiquid are not otherwise readily marketable. However, if an OTC
option is sold by a Fund to a primary U.S. Government securities
dealer recognized by the Federal Reserve Bank of New York and if a
Fund has the unconditional contractual right to repurchase such OTC
option from the dealer 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 securities minus the options strike price). The
repurchase price with the primary dealers is typically a formula
price which is generally based on a multiple of the premium received
for the option plus the amount by which the option is
in-the-money. This policy as to OTC options is not a
fundamental policy of any Fund and may be amended by the Board of
Directors of the Corporation without the approval of the
shareholders. However, the Board of Directors of the Corporation
will not change or modify this policy prior to the change or
modification by the Commission staff of its position.
Because of the affiliation of Merrill Lynch, Pierce, Fenner
& Smith Incorporated (Merrill Lynch) with the
Investment Adviser, the Funds are prohibited from engaging in
certain transactions involving Merrill Lynch 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 below. Rule 10f-3 under the Investment Company Act
sets forth conditions under which the Funds may purchase from an
underwriting syndicate of which Merrill Lynch is a member.
Otherwise, a Fund is prohibited from engaging in portfolio
transactions with Merrill Lynch or its affiliates acting as
principal without an exemptive order.
Each
Fund uses a quantitative approach to investing and seeks to maintain
exposure to its market segment and therefore may engage in a
substantial number of portfolio transactions. The rate of portfolio
turnover will be a limiting factor when the Investment Adviser
considers whether to purchase or sell securities for a Fund only to
the extent that the Investment Adviser will consider the impact of
transaction costs on a Funds tracking error when compared to
its market segment. Changes in the securities comprising a Fund
s market segment will tend to increase that Funds
portfolio turnover rate, as the Investment Adviser restructures the
Funds holdings to reflect the changes in the market segment.
The portfolio turnover rate is, in summary, the percentage computed
by dividing the lesser of a Funds purchases or sales of
securities by the average net asset value of the Fund. High
portfolio turnover involves correspondingly greater brokerage
commissions for a Fund investing in equity securities and other
transaction costs which are borne directly by a Fund. A high
portfolio turnover rate may also result in the realization of
taxable capital gains, including short-term capital gains taxable at
ordinary income rates.
The
Board of Directors of the Corporation consists of four individuals,
three of whom are not interested persons of the
Corporation as defined in the Investment Company Act (
non-interested Directors). The Board of Directors of the
Corporation is responsible for the overall supervision of the
operations of the Funds and performs the various duties imposed on
the directors of investment companies by the Investment Company Act.
Information about the members of the Board of Directors of the
Corporation 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.
Name and
Age
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Position(s)
With
the Corporation
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Principal
Occupation(s) During Past 5
Years
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Terry K. Glenn, 59 |
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President and
Director(1)(2) |
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Executive Vice
President of Fund Asset
Management, L.P. (FAM) and certain of its
affiliates (which terms as used herein include their
corporate predecessors) since 1983; Executive Vice
President and Director of Princeton Services, Inc.
(Princeton Services) since 1993; President of
Princeton Funds Distributor, Inc. (PFD) since
1986 and Director thereof since 1991; President of
Princeton Administrators, L.P. since 1988 |
Name and
Age
|
|
Position(s)
With
the Corporation
|
|
Principal
Occupation(s) During Past 5
Years
|
|
|
Jack B. Sunderland, 71
P.O. Box 7
West Cornwall, CT 06796 |
|
Director(2)(3) |
|
President and
Director of American Independent
Oil Company, Inc. (energy company) since 1987;
Member of Council on Foreign Relations since
1971 |
|
Stephen B. Swensrud, 66
24 Federal Street, Suite 400
Boston, MA 02110 |
|
Director(2)(3) |
|
Chairman of
Fernwood Advisors (investment
adviser) since 1996; Principal of Fernwood
Associates (financial consultant) since 1975 |
|
|
J. Thomas Touchton, 61
Suite 3405
One Tampa City Center
201 North Franklin Street
Tampa, FL 33062 |
|
Director(2)(3) |
|
Managing Partner
of the Witt-Touchton Company
and its predecessor, The Witt Co. (private
investment partnership) since 1972; Trustee
Emeritus of Washington and Lee University;
Director of TECO Energy Inc. (electric utility
holding company) |
|
Robert C. Doll, 45 |
|
Senior Vice
President(1)(2) |
|
Senior Vice
President of FAM and certain of its
affiliates since 1999; Senior Vice President of
Princeton Services since 1999; Chief Investment
Officer of Oppenheimer Funds, Inc. in 1999 and
Executive Vice President thereof from 1991 to
1999 |
|
Philip Green, 36 |
|
Senior Vice
President(1)(2) |
|
Senior Vice
President of FAM and certain of its
affiliates since 1999; Managing Director and
Portfolio Manager of Global Institutional Services
at Bankers Trust from 1997 to 1999; Vice
President of Quantitative Equities at Bankers Trust
in 1996; Vice President of Asset Allocations
Strategies at Bankers Trust from 1994 to 1996;
Vice President of Foreign Exchange and Currency
Overlay Strategies at Bankers Trust from 1988 to
1999; Assistant Treasurer of Asset Management
Group at Bankers Trust from 1985 to 1988 |
|
|
Dean DOnofrio, 41 |
|
Senior Vice
President(1)(2) |
|
Managing Director
and Head of Quantitative
Advisors since 1999; Managing Director in
Corporate Institutional Client Group from 1997
through 1999; Managing Director of Bankers Trust
Company from 1981 to 1996; Analyst of
Quantitative Investments Group of Bankers Trust
Company from 1981 to 1982; Portfolio Manager of
Quantitative Investments Group of Bankers Trust
Company from 1983 to 1984; Head of Quantitative
Investments Group of Bankers Trust Company
from 1985 to 1989; Head of U.S. Equity
Derivatives Marketing Group of Bankers Trust
Company from 1990 to 1993; Head of Hedge
Funds and Arbitrage Trading Group of Bankers
Trust Company from 1994 to 1996 |
|
|
Name and
Age
|
|
Position(s)
With
the Corporation
|
|
Principal
Occupation(s) During Past 5
Years
|
|
|
Frank Salerno, 40 |
|
Senior Vice
President(1)(2) |
|
First Vice
President of FAM and certain of its
affiliates since 1999; Managing Director and Chief
Investment Officer of Structured Investments at
Bankers Trust from 1995 to 1999; Managing
Director and Head of Structured Investments at
Bankers Trust from 1993 to 1995; Domestic Head
of Structured Investments at Bankers Trust from
1991 to 1993; Assistant Vice President of
Structured Investments at Bankers Trust from 1985
to 1991 |
|
|
Donald C. Burke, 39 |
|
Vice President and
Treasurer(1)(2) |
|
Senior Vice
President and Treasurer of FAM and
certain of its affiliates since 1999; Senior Vice
President and Treasurer of Princeton Services since
1999; Vice President of PFD since 1999; First
Vice President of FAM and certain of its affiliates
from 1997 to 1999; Director of Taxation of FAM
and certain of its affiliates since 1990; Vice
President of FAM and certain of its affiliates from
1990 to 1997 |
|
|
Sidney Hoots, 39 |
|
Senior Vice
President(1)(2) |
|
Senior Vice
President of FAM and certain of its
affiliates since 1999; Managing Director of Global
Institutional Services at Bankers Trust from 1992
to 1999; Manager of Quantitative U.S. Equities
Group at Bankers Trust from 1991 to 1992;
Manager of Bond Index Funds at Bankers Trust
from 1986 to 1991; Quantitative Analyst of Index
Funds at Bankers Trust from 1984 to 1986 |
|
|
Allan J. Oster, 36 |
|
Secretary(1)(2) |
|
Consultant (Legal
Advisory) of FAM and certain
of its affiliates since 1999; Associate of Drinker
Biddle & Reath LLP from 1996 to 1999; Senior
Counsel of U.S. Securities and Exchange
Commission from 1991 to 1996 |
(1)
|
Interested person, as defined in the Investment Company
Act, of the Corporation.
|
(2)
|
Such
director or officer is a trustee, director or officer of other
investment companies for which FAM or certain of its affiliates
acts as investment adviser.
|
(3)
|
Member of
the Corporations Audit and Nominating Committee, which is
responsible for the selection of the independent auditors and the
selection and nomination of non-interested Directors.
|
As of
the date of this Statement of Additional Information, the officers
and directors of the Corporation as a group (11 persons) owned an
aggregate of less than 1% of the outstanding shares of common stock
of Merrill Lynch & Co., Inc. (ML & Co.) and
owned an aggregate of less than 1% of the outstanding shares of any
of the Funds.
Compensation of Directors
The
Corporation expects to pay each non-interested Director for service
to all Funds a fee of $5,000 per year plus $500 per Board meeting
attended. The Corporation also expects to compensate each member of
the Audit and Nominating Committee (the Committee),
which consists of the non-interested Directors, with a fee of $1,000
per year for services to all Funds. The Corporation expects to
reimburse each non-interested Director 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 expects to
pay to the non-interested Directors for their first full fiscal year
and the aggregate compensation paid by all investment companies
advised by FAM or its affiliates (Mercury and
Affiliates-Advised Funds) to the non-interested Directors for
the calendar year ended December 31, 1999.
Name of
Director
|
|
Aggregate
Compensation
from the
Corporation
|
|
Pension or
Retirement
Benefits Accrued
as Part of
the Corporation
Expenses
|
|
Total
Compensation From
the Corporation and
Mercury and Affiliates-
Advised Funds Paid to
Directors(1)
|
Jack B.
Sunderland |
|
$8,000 |
|
None |
|
$143,975 |
Stephen B.
Swensrud |
|
$8,000 |
|
None |
|
$232,250 |
J. Thomas
Touchton |
|
$8,000 |
|
None |
|
$142,725 |
(1)
|
The
non-interested Directors serve on the boards of Mercury and
Affiliates-Advised Funds as follows: Mr. Sunderland (20 registered
investment companies consisting of 37 portfolios); Mr. Swensrud
(26 registered investment companies consisting of 64 portfolios);
and Mr. Touchton (20 registered investment companies consisting of
37 portfolios).
|
The
Board of Directors of the Corporation may purchase Class I shares of
a Fund at net asset value. See Purchase of SharesReduced
Initial Sales ChargesPurchase Privileges of Certain Persons.
Administration Arrangements
The
Corporation has entered into an administration agreement with the
Investment Adviser (the Administration Agreement). As
discussed in the Prospectus, the Investment Adviser receives for its
services to the Funds under the Administration Agreement monthly
compensation at the annual rate of 0.35% of the average daily net
assets of each Fund. The Corporation on behalf of the Funds has
entered into a contractual arrangement with the investment adviser
which provides that the management fee of the Funds when combined
with the administrative fees of the Funds and other expenses will
not exceed specific amounts. As a result of these contractual
arrangements, the investment adviser receives administrative fees
equal to 0.40%, 0.40%, 0.40%, 0.55%, 0.48%, and 0.24% for the
Mercury QA Large Cap Core Fund, Mercury QA Large Cap Value Fund,
Mercury QA Large Cap Growth Fund, Mercury QA Mid Cap Fund, Mercury
QA Small Cap Fund and Mercury QA International Fund,
respectively.
The
Administration Agreement obligates the Investment Adviser to provide
certain management and administrative services to the Corporation
and the Funds and to pay , or cause its affiliate to pay, for
maintaining its staff and personnel necessary to perform its
obligations under the Administration Agreement and to provide office
space, facilities and necessary personnel for the Corporation. Under
the Administration Agreement, the Investment Adviser is also
obligated to pay, or cause its affiliate to pay, the compensation of
those officers and directors of the Corporation who are affiliated
persons of the Investment Adviser 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 Funds (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, prospectuses and statements of
additional information, charges of the custodian, any sub-custodian
and transfer agent, expenses of portfolio transactions, expenses of
redemption of shares, Commission fees, expenses of registering the
shares under Federal, state or foreign laws, fees and actual
out-of-pocket expenses of unaffiliated directors of the Corporation
who are not affiliated persons of the Investment Adviser or of an
affiliate of the Investment Adviser, accounting and pricing costs
(including the daily calculation of net asset value), insurance,
interest, brokerage costs, litigation and other extraordinary or
non-recurring expenses, and other expenses properly payable by the
Corporation or a Fund. The Distributor will pay certain of the
expenses of the Funds incurred in connection with the continuous
offering of their shares. Accounting services are provided to the
Corporation and the Funds by the Investment Adviser and the
Corporation reimburses the Investment Adviser for its costs in
connection with such services.
Duration and Termination. Unless
earlier terminated as described below, the Administration Agreement
will remain in effect for two years from its effective date.
Thereafter, it will remain in effect from year to year with respect
to each Fund if approved annually (a) by the Board of Directors of
the Corporation and (b) by a
majority of the Board of Directors of the Corporation who are not
parties to such contract or interested persons (as defined in the
Investment Company Act) of any such party. The Administration
Agreement is not assignable and will automatically terminate in the
event of its assignment. In addition, such contract may be
terminated with respect to one or more Funds by the Board of
Directors of the Corporation or with respect to a Fund by the vote
of a majority of the outstanding voting securities of such Fund, or
by the Investment Adviser, without penalty, on 60 days written
notice to the other party.
Management and Advisory Arrangements
Management Services. The
Corporation has entered into a management agreement with the
Investment Adviser (the Management Agreement). The
Investment Adviser provides the Corporation with investment advisory
and management services. Subject to the supervision of the Board of
Directors of the Corporation, the Investment Adviser is responsible
for the actual management of each Funds portfolio and
constantly reviews the Funds holdings in light of its own
research analysis and that from other relevant sources. The
responsibility for making decisions to buy, sell or hold a
particular security rests with the Investment Adviser. The
Investment Adviser performs certain of the other administrative
services and provides all the office space, facilities, equipment
and necessary personnel for management of the Funds.
Securities held by the Funds may also be held by, or be
appropriate investments for, other funds or investment advisory
clients for which the Investment Adviser or its affiliates act as an
adviser. Because of different objectives or other factors, a
particular security may be bought for one or more clients of the
Investment Adviser or an affiliate when one or more clients of the
Investment Adviser or an affiliate are selling the same security. If
purchases or sales of securities arise for consideration at or about
the same time that would involve the Funds 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 of securities being sold there may be an adverse effect on
price.
As
discussed in the Prospectus, the Investment Adviser receives for its
services to the Funds monthly compensation at the annual rate of the
average daily net assets of each Fund as follows:
Fund
|
|
Annual Fee
Rate*
|
QA Large Cap Core
Fund |
|
0.40 |
% |
QA Large Cap Value
Fund |
|
0.40 |
% |
QA Large Cap
Growth Fund |
|
0.40 |
% |
QA Mid Cap
Fund |
|
0.55 |
% |
QA Small Cap
Fund |
|
0.55 |
% |
QA International
Fund |
|
0.65 |
% |
*
|
The
Corporation on behalf of the Funds has entered into a contractual
arrangement with the investment adviser which provides that the
management fee of the Funds when combined with the administrative
fees of the Funds and other expenses will not exceed specific
amounts.
|
Payment of Fund Expenses. The
Management Agreement obligates the Investment Adviser to provide
investment advisory services and to pay all compensation of and
furnish office space for officers and employees of the Corporation
connected with investment and economic research, trading and
investment management of the Funds, as well as the fees of all
directors of the Corporation who are affiliated persons of the
Investment Adviser or any of its affiliates. Each Fund 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 the
Distributor), including, among other things, taxes; expenses for
legal and auditing services; costs of printing proxies; stock
certificates (if any); shareholder reports; copies of the
Registration Statements; charges of the custodian and sub-custodian
and transfer agent; expenses of portfolio transactions; expenses of
redemption of shares; Commission fees; expenses of registering the
shares under Federal, state or foreign laws; fees and expenses of
non-interested Directors; 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 Funds. Accounting services are provided to the
Corporation and the Funds by the Investment Adviser, and the
Corporation reimburses the Investment Adviser for its costs in
connection with such services. The Distributor will pay certain
promotional expenses of the Corporation incurred in connection with
the continuous offering of shares of each of the Funds. Certain
expenses will be financed by a Fund pursuant to distribution plans
in compliance with Rule 12b-1 under the Investment Company Act. See
Purchase of SharesDistribution Plans.
Organization of the Investment Adviser.
Mercury Asset Management US, a division of FAM, has an
address at P.O. Box 9011, Princeton, New Jersey 08543-9011. FAM is a
limited partnership, the partners of which are ML & Co., a
financial services holding company and the parent of Merrill Lynch,
and Princeton Services. ML & Co. and Princeton Services are
controlling persons of 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.
Below
is certain information regarding the Portfolio Manager of the Funds
and certain other employees of the Investment Adviser.
Omar Aguilar, Ph.D. Mr. Aguilar
is Director of Research for Quantitive Advisors. He is responsible
for developing, enhancing and maintaining econometric forecasting
models and researching and implementing quantitative strategies.
Previously, Mr. Aguilar worked with CDC Investment Management and
Bankers Trust. Mr. Aguilar received his Ph.D. in 1998 and his MS in
1996 from the Institute of Statistics and Decision Sciences at Duke
University. He also received a BS in Actuarial Sciences in 1992 and
a graduate degree in Applied Statistics in 1993 from the Mexican
Autonomous Institute of Technology (ITAM). Mr. Aguilar has written
for several journals, including Journal of Business Statistics,
Proceedings from the American Statistical Association and Applied
Bayesian Statistics Books.
Dean DOnofrio, CFA. Mr. D
Onofrio is Managing Director and the Head of Quantitative
Advisors. Prior to his role with Merrill Lynch Quantitative Advisors
team, he held the position of Managing Director, Head of U.S. Equity
Linked Origination and Head of U.S. Global Equity Linked Products
Marketing. Prior to his tenure at Merrill Lynch, Mr. DOnofrio
was Managing Director at Bankers Trust. During his fifteen years at
Bankers Trust, Mr. DOnofrio held several positions including
head of Quantitative Investments and Head of Banker Trusts
Equity Derivatives business in the United States. Mr. DOnofrio
is Chartered Financial Analyst and received a BA in Mathematics and
Economics from Colgate University.
Philip Green. Mr. Green is
Managing Director and Head of Asset Allocation for Quantitative
Advisors. He manages portfolios that employ a quantitative
investment process. He has 14 years of investment experience. Prior
to joining Merrill Lynch, Mr. Green was a Managing Director and
Portfolio Manager with Bankers Trust where he managed the Bankers
Trust Institutional Asset Management Fund (BTAMX) and the Bankers
Trust Lifecycle Long Fund (BTILX). He has published several articles
in money management journals, including Financial Analysts Journal,
Journal of Foreign Exchange & Money Markets, Journal of
Investing, Handbook of Quantitative International Investing. Mr.
Green received his BS in Economics from the Wharton School and his
MBA from New York University. He is a member of the American Finance
Association.
Sidney Hoots. Mr. Hoots is
Managing Director and Head of Research for Quantitative Advisors. He
develops quantitative stock selection techniques for the group. He
has 17 years of investment experience. Previously, Mr. Hoots worked
at Bankers Trust where he was responsible for the development of
their proprietary quantitative systems. He received his BS from Duke
University and his MBA from the University of Chicago. He is also a
Member of the American Finance Association.
Vinay Mendiratta. Mr. Mendiratta
is a Director for Quantitative Advisors. He is responsible for the
development investment products for institutional and retail
clients. Previously, Mr. Mendiratta was a product specialist at
Bankers Trust where he structured a variety of quantitatively
managed investment products for investors. In addition, he was an
analyst with Chase Manhattan Bank. Mr. Mendiratta received his BA in
Economics from Duke University and his MBA in Finance from Columbia
University.
Frank Salerno.
Mr. Salerno is Managing Director and Chief
Investment Officer for Quantitative Advisors. He has 17 years
investment experience. Previously, Mr. Salerno worked at Bankers
Trust as the Chief Investment Officer of their Quantitative
Investment Management Team. He has a BA from Syracuse University and
an MBA from New York University.
Duration and Termination. Unless
earlier terminated as described below, the Management Agreement will
continue in effect for two years from its effective date.
Thereafter, it will remain in effect from year to year with respect
to each Fund if approved annually (a) by the Board of Directors of
the Corporation or with respect to any Fund by the vote of a
majority of the outstanding voting securities of such Fund and (b)
by a majority of the directors of the Corporation who are not
parties to the Management Agreement or interested persons (as
defined in the Investment Company Act) of any such party. The
Management Agreement is not assignable and will automatically
terminate in the event of its assignment. In addition, such contract
may be terminated with respect to a Fund by the vote of a majority
of the outstanding voting securities of such Fund, or by the
Investment Adviser without penalty on 60 days written notice
to the other party.
Transfer Agency Services.
Financial Data Services, Inc. (the Transfer Agent
), an affiliate of FAM, acts as the Corporations
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 for each shareholder
account and is entitled to reimbursement for out-of-pocket expenses.
The fee ranges from $11.00 to $23.00 per account (depending on the
level of services required) but is set at 0.10% for certain accounts
that participate in certain fee-based programs. Additionally, a
$0.20 monthly closed account charge will be assessed on all accounts
which close during the calendar year. Application of this fee will
commence the month following the month the account is closed. At the
end of the calendar year, no further fees will be due. For purposes
of the Transfer Agency Agreement, the term account
includes any shareholder account.
Distribution Expenses. The
Corporation, on behalf of each Fund, has entered into a distribution
agreement with the Distributor with respect to each class of Fund
shares in connection with the continuous offering of such class of
shares (each, a Distribution Agreement). Each
Distribution Agreement obligates the Distributor to pay certain
expenses in connection with the offering of the applicable class of
shares of the Funds. 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. Each
Distribution Agreement is subject to the same renewal requirements
and termination provisions as the Management Agreement described
above.
The
Board of Directors of the Corporation, the Investment Adviser and
the Distributor have adopted a Code of Ethics under Rule 17j-1 of
the Investment Company Act (the Code). The Code
significantly restricts the personal investing activities of all
employees of the Corporation, the Investment Adviser and the
Distributor and, as described below, impose additional, more
onerous, restrictions on fund investment personnel.
The
Code requires, among other things, that all employees of the
Corporation, the Investment Adviser and the Distributor pre-clear
any personal securities investment (with limited exceptions, such as
government securities). The pre-clearance requirement and associated
procedures are designed to identify any substantive prohibition or
limitation applicable to the proposed investment. The substantive
restrictions applicable to all employees of the Investment Adviser
include a ban on acquiring any securities in a Hot IPO and a
prohibition from profiting on short-term trading in securities. In
addition, no employee may purchase or sell any security that at the
time is being purchased or sold (as the case may be), or to the
knowledge of the employee is being considered for purchase or sale,
by any Fund advised by the Investment Adviser or its affiliated
advisers. Furthermore, the Code provides for trading blackout
periods that prohibit trading by investment personnel of the
Trust within periods of trading by the Series in the same (or
equivalent) security.
Shares. Reference is made to
Account ChoicesHow to Buy, Sell, Transfer and Exchange
Shares in the Prospectus. Each 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 a
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 below.
Distribution Services. MFD, an
affiliate of the Investment Adviser and of Merrill Lynch, with
offices at 800 Scudders Mill Road, Plainsboro, New Jersey 08536
(mailing address: P.O. Box 9081, Princeton, New Jersey 08543-9081)
acts as Distributor for each Fund.
Each
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 a Fund next determined after receipt of the purchase
order by the Distributor. As to purchase orders received by
securities dealers prior to the close of business on the New York
Stock Exchange (the NYSE) (generally 4:00 p.m., Eastern
time) which includes orders received after the determination of net
asset value on the previous day, the applicable offering price will
be based on the net asset value on the day the order is placed with
the Distributor, provided that the orders are received by the
Distributor prior to 30 minutes after the close of business on the
NYSE on that day. If the purchase orders are not received prior to
30 minutes after the close of business on the NYSE on that day, such
orders shall be deemed received on the next business day. Dealers
have the responsibility of submitting purchase orders to the Fund
not later than 30 minutes after the close of business on the NYSE in
order to purchase shares at that days offering
price.
Each
Fund or the Distributor may suspend the continuous offering of a Fund
s shares of any class at any time in response to conditions in
the securities markets or otherwise and may thereafter resume such
offering from time to time. Any order may be rejected by a Fund or
the Distributor. Neither the Distributor nor the dealers are
permitted to withhold placing orders to benefit themselves by a
price change. Certain securities dealers may charge a fee to process
a sale of shares. For example, the fee charged by Merrill Lynch is
currently $5.35. Purchases made directly through the Transfer Agent
are not subject to a processing fee.
Initial Sales Charge AlternativesClass I and Class A
Shares
Investors who prefer an initial sales charge alternative may
elect to purchase Class A shares or, if an eligible investor, Class
I shares. Investors choosing the initial sales charge alternative
who are eligible to purchase Class I shares should purchase Class I
shares rather than Class A shares because there 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 charge 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 shares may no longer be eligible to purchase Class
I shares of other Mercury funds, those previously purchased Class I
shares, together with Class A, Class B and Class C share holdings,
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 a Fund, refers to a single purchase
by an individual or to concurrent purchases, which in the aggregate
are at least equal to the prescribed amounts, by an individual, his
or her spouse and their children under the age of 21 years
purchasing shares for his or her or their own account and to single
purchases by a trustee or other fiduciary purchasing shares for a
single trust estate or single fiduciary account although more than
one beneficiary is involved. The term purchase also
includes purchases by any company, as that term is
defined in the Investment Company Act, but does not include
purchases by any such company that has not been in existence for at
least six months or which has no purpose other than the purchase of
shares of a Fund or shares of other registered investment companies
at a discount; provided, however, that it shall not include
purchases by any group of individuals whose sole organizational
nexus is that the participants therein are credit cardholders of a
company, policyholders of an insurance company, customers of either
a bank or broker-dealer or clients of an investment
adviser.
Eligible Class I Investors. Class I
shares are offered to a limited group of investors and also will be
issued upon reinvestment of dividends on outstanding Class I shares.
Investors that currently own Class I shares of a Fund in a
shareholder account are entitled to purchase additional Class I
shares of a Fund in that account. Certain employer sponsored
retirement or savings plans, including eligible 401(k) plans, may
purchase Class I shares at net asset value provided such plans meet
the required minimum number of eligible employees or required amount
of assets advised by Mercury or any of its affiliates. Also eligible
to purchase Class I shares at net asset value are participants in
certain investment programs including certain managed accounts for
which a trust institution, thrift, or bank trust department provides
discretionary trustee services, certain collective investment trusts
for which a trust institution, thrift, or bank trust department
serves as trustee, certain purchases made in connection with certain
fee-based programs and certain purchases made through certain
financial advisers that meet and adhere to standards established by
Mercury. In addition, Class I shares are offered at net asset value
to mutual funds sponsored by Mercury or its affiliates to ML &
Co. and its subsidiaries and their directors and employees, to
members of the Boards of Directors of Mercury and Affiliates-Advised
Funds, including the Corporation, and to employees of certain
selected dealers. Class I shares may also be offered at net asset
value to certain accounts over which Mercury or an affiliate
exercises investment discretion.
The
Distributor may reallow discounts to selected dealers and retain the
balance over such discounts. At times the Distributor may reallow
the entire sales charge to such dealers. Since securities dealers
selling Class I and Class A shares of the Funds will receive a
concession equal to most of the sales charge, they may be deemed to
be underwriters under the Securities Act.
Reduced Initial Sales Charges
Reductions in or exemptions from the imposition of a sales
charge are due to the nature of the investors and/or the reduced
sales efforts that will be needed to obtain such
investments.
Reinvested Dividends. No initial
sales charges are imposed upon Class I and Class A shares issued as
a result of the automatic reinvestment of dividends.
Right of Accumulation. Reduced
sales charges are applicable through a right of accumulation under
which eligible investors are permitted to purchase shares of a 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, 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 a Fund or any other Mercury mutual funds made
within a 13-month period starting with the first purchase pursuant
to a Letter of Intent. A Letter of Intent is available only to
investors whose accounts are established and maintained at the Funds
Transfer Agent. A Letter of Intent is not available to
employee benefit plans for which affiliates of Mercury provide plan
participant record-keeping services. A 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 a 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 a 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 a 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 a 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 a Letter of
Intent must be at least five percent of the dollar amount of such
Letter. If a purchase during the term of such Letter would otherwise
be subject to a further reduced sales charge based on the right of
accumulation, the purchaser will be entitled on that purchase and
subsequent purchases to that further reduced percentage sales charge
but there will be no retroactive reduction of the sales charges on
any previous purchase.
The
value of any shares redeemed or otherwise disposed of by the
purchaser prior to termination or completion of the Letter of Intent
will be deducted from the total purchases made under such Letter. An
exchange from the Summit Cash Reserves Fund (Summit)
into the Fund that creates a sales charge will count toward
completing a new or existing Letter of Intent from the
Fund.
Purchase Privileges of Certain Persons.
Mutual funds sponsored by Mercury or its affiliates, members
of the Boards of Directors of the Corporation and of other
investment companies advised by Mercury or its affiliates, directors
and employees of ML & Co. and its subsidiaries (the term
subsidiaries, when used herein with respect to ML &
Co., includes 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 a Fund
at net asset value. Each Fund realizes economies of scale and
reduction of sales-related expenses by virtue of the familiarity of
these persons with the Funds. Employee and directors or trustees
wishing to purchase shares of a Fund must satisfy each Funds
suitability standards.
Class
I and Class A shares may also be 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. Certain other plans
may purchase Class B shares with a waiver of the contingent deferred
sales charge (CDSC) upon redemption, based on similar
criteria. Such Class B shares will convert into Class A shares
approximately ten years after the plan purchases the first share of
any Mercury mutual fund. Minimum purchase requirements may be waived
or varied for such plans. For additional information regarding
purchases by employer-sponsored retirement or savings plans and
certain other arrangements, call your plan administrator or your
selected dealer.
Purchases Through
Certain Financial Advisers. Reduced sales
charges may be applicable for purchases of Class I or Class A shares
of a Fund through certain financial advisers that meet and adhere to
standards established by Mercury from time to time.
Reference is made to Account ChoicesPricing of
Shares in the Prospectus for certain information with respect
to separate distribution plans for Class A, Class B, and Class C
shares of each Fund pursuant to Rule 12b-1 under the Investment
Company Act (each a Distribution Plan) with respect to
the account maintenance and/or distribution fees paid by a Fund to
the Distributor with respect to such classes.
The
Distribution Plan for each of the Class A, Class B and Class C
shares provides that a Fund pays the Distributor an account
maintenance fee relating to the shares of the relevant class,
accrued daily and paid monthly, at the annual rate of 0.25% of the
average daily net assets of the Fund attributable to shares of the
relevant class in order to compensate the Distributor and selected
dealers (pursuant to sub-agreements) in connection with account
maintenance activities.
The
Distribution Plan for each of the Class B and Class C shares
provides that a Fund also pays the Distributor a distribution fee
relating to the shares of the relevant class, accrued daily and paid
monthly, at the annual rate of 0.75% of the average daily net assets
of the Fund attributable to the shares of the relevant class in
order to compensate the Distributor and selected dealers (pursuant
to sub-agreements) for providing shareholder and distribution
services, and bearing certain distribution-related expenses of the
Fund, including payments to financial consultants for selling Class
B and Class C shares of the Fund. The Distribution Plans relating to
Class B and Class C shares are designed to permit an investor to
purchase Class B and Class C shares through dealers without the
assessment of an initial sales charge and at the same time permit
the dealer to compensate its financial consultants in connection
with the sale of the Class B and Class C shares. In this regard, the
purpose and function of the ongoing distribution fees and the CDSC
are the same as those of the initial sales charge with respect to
the Class I and Class A shares of a 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
Funds have no obligation with respect to distribution and/or account
maintenance-related expenses incurred by the Distributor and
selected dealers in connection with the Class A, Class B and Class C
shares, and there is no assurance that the Board of Directors of the
Corporation will approve the continuance of the Distribution Plans
from year to year. However, the Distributor intends to seek annual
continuation of the Distribution Plans. In their review of the
Distribution Plans, the Board of Directors of the Corporation will
be asked to take into consideration expenses incurred in connection
with the account maintenance and/or distribution of each class of
shares separately. The initial sales charges, the account
maintenance fee, the distribution fee and/or the CDSCs received with
respect to one class will not be used to subsidize the sale of
shares of another class. Payments of the distribution fee on Class B
shares will terminate upon conversion of those Class B shares to
Class A shares as set forth under Account ChoicesHow to
Buy, Sell, Transfer and Exchange Shares in the
Prospectus.
In their consideration
of each Distribution Plan, the Board of Directors of the Corporation
must consider all factors they deem relevant, including information
as to the benefits of the Distribution Plan to each 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 each
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 a Fund. A Distribution Plan cannot be amended to
increase materially the amount to be spent by a Fund without the
approval of the related class of shareholders, and all material
amendments are required to be approved by the vote of the Board of
Directors of the Corporation, 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 a Fund
preserve copies of each Distribution Plan and any report made
pursuant to such plan for a period of not less than six years from
the date of such Distribution Plan or such report, the first two
years in an easily accessible place.
Limitations on the Payment of Deferred Sales Charges
The
maximum sales charge rule in the Conduct Rules of the National
Association of Securities Dealers, Inc. (NASD) imposes a
limitation on certain asset-based sales charges such as the
distribution fee and the CDSC borne by the Class B and Class C
shares, but not the account maintenance fee. The maximum sales
charge rule is applied separately to each class. As applicable to
each Fund, the maximum sales charge rule limits the aggregate of
distribution fee payments and CDSCs payable by a 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).
Reference is made to Account ChoicesHow to Buy,
Sell, Transfer and Exchange Shares in the
Prospectus.
Each
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
Corporation will generally pay redemptions in cash; however, at the
discretion of the Investment Adviser, the Corporation may pay a
redemption or repurchase of shares in an amount of $10,000,000 or
more (which amount may be decreased or increased by the Investment
Adviser from time to time) with portfolio securities.
Shares are redeemable at the option of the Corporation, if in
the opinion of the Corporation, ownership of the shares has or may
become concentrated to the extent that would cause the Corporation
or a Fund to be deemed a personal holding company within the meaning
of the Code. Each Fund reserves the right to terminate any account
engaging in market-timing mutual funds. For the purposes of this
policy, market-timing involves the purchase and sale of
shares of mutual funds within short periods of time (i.e.
three or more purchases and/or sales within a 90 day period) with
the intention of capturing short-term profits resulting from market
volatility.
Because of the high cost of maintaining smaller shareholder
accounts, the Funds 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 Funds make 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 Funds take any action. This involuntary
redemption does not apply to retirement plans or Uniform Gifts or
Transfers to Minors Act accounts (UGMA/UTMA accounts
).
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 a
Fund is not reasonably practicable, and for such other periods as
the Commission may by order permit for the protection of
shareholders of a Fund.
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 a Fund at such time.
The
Corporation on behalf of the Funds has entered into a joint
committed line of credit with other investment companies advised by
the Investment Adviser and its affiliates and a syndicate of banks
that is intended to provide the Funds with a temporary source of
cash to be used to meet redemption requests from Fund shareholders
in extraordinary or emergency circumstances.
A
shareholder wishing to redeem shares held with the Transfer Agent
may do so by tendering the shares directly to the Transfer Agent,
Financial Data Services, Inc., P.O. Box 45289, Jacksonville, Florida
32232-5289. Redemption requests delivered other than by mail should
be delivered to Financial Data Services, Inc., 4800 Deer Lake Drive
East, Jacksonville, Florida 32246-6484. Proper notice of redemption
in the case of shares deposited with the Transfer Agent may be
accomplished by a written letter requesting redemption. Redemption
requests should not be sent to the Corporation. The redemption
request in either event requires the signature(s) of all persons in
whose name(s) the shares are registered, signed exactly as such
name(s) appear(s) on the Transfer 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, as amended (the
Exchange Act) the existence and validity of which may be
verified by the Transfer Agent through the use of industry
publications. In the event a signature guarantee is required,
notarized signatures are not sufficient. In general, signature
guarantees are waived on redemptions of less than $50,000 as long as
the following requirements are met: (i) all requests require the
signature(s) of all persons 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 Rights of
Survivorship, contra broker transactions and institutional accounts.
In certain instances, the Transfer Agent may require additional
documents such as, but not limited to, trust instruments, death
certificates, appointments as executor or administrator, or
certificates of corporate authority. 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 a Fund may be requested to redeem shares for which it
has not yet received good payment (e.g. cash, Federal funds
or certified check drawn on a U.S. bank). The Fund may delay or
cause to be delayed the mailing of a redemption check until such
time as good payment (e.g. cash, Federal funds or certified
check drawn on a U.S. bank) has been collected for the purchase of
such Fund shares, which will usually not exceed 10 days.
Each
Fund will also repurchase shares through a shareholders listed
securities dealer. The Funds will normally accept orders to
repurchase shares by wire or telephone from dealers for their
customers at the net asset value next computed after the order is
placed. Shares will be priced at the net asset value calculated on
the day the request is received, provided that the request for
repurchase is submitted to the dealer prior to the close of business
on the NYSE (generally, the NYSE closes at 4:00 p.m., Eastern time)
and such request is received by a Fund from such dealer not later
than 30 minutes after the close of business on the NYSE on the same
day. Dealers have the responsibility of submitting such repurchase
requests to the Fund not later than 30 minutes after the close of
business on the NYSE in order to obtain that days closing
price.
These repurchase arrangements are for the convenience of
shareholders and do not involve a charge by a Fund (other than any
applicable CDSC). Securities firms that do not have selected dealer
agreements with the Distributor, however, may impose a transaction
charge on the shareholder for transmitting the notice of repurchase
to the Fund. Certain securities dealers may charge a processing fee
to confirm a repurchase of shares. For example, the fee currently
charged by Merrill Lynch is $5.35. Fees charged by other securities
dealers may be higher or lower. Repurchases made directly through
the Transfer Agent, on accounts held at the Transfer Agent are not
subject to the processing fee. The Corporation 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 a Fund, however, may redeem shares as set forth
above.
Reinstatement PrivilegeClass I and Class A
Shares
Shareholders of a 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 such 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.
Deferred Sales ChargesClass B and Class C Shares
Investors choosing the deferred sales charge alternatives
should consider Class B shares if they intend to hold their shares
for an extended period of time and Class C shares if they are
uncertain as to the length of time they intend to hold their assets
in Mercury mutual funds.
As
discussed in the Prospectus under Account ChoicesPricing
of SharesClass B and Class C SharesDeferred Sales Charge
Options, while Class B shares redeemed within six years of
purchase are subject to a CDSC under most circumstances, the charge
may be reduced or waived in certain instances. These include certain
post-retirement withdrawals from an IRA or other retirement plan or
redemption of Class B shares in certain circumstances following the
death of a Class B shareholder. In the case of such withdrawal, the
reduction or waiver applies to: (a) any partial or complete
redemption in connection with a distribution following retirement
under a tax-deferred retirement plan on attaining age 59
1
/2 in the case of an IRA or other retirement plan,
or part of a series of equal periodic payments (not less frequently
than annually) made for life (or life expectancy) or any redemption
resulting from the tax-free return of an excess contribution to an
IRA (certain legal documentation may be required at the time of
liquidation establishing eligibility for qualified distribution); or
(b) any partial or complete redemption following the death or
disability (as defined in the 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 a Funds
shares are held (certain legal documentation may be required at the
time of liquidation establishing eligibility for qualified
distribution).
The
charge may also be reduced or waived in other instances, such as:
(c) redemptions by certain eligible 401(a) and 401(k) plans and
certain retirement plan rollovers; (d) redemptions in connection
with participation in certain fee-based programs managed by the
Investment Adviser or its affiliates; (e) redemptions in connection
with participation in certain fee-based programs managed by selected
dealers that have agreements with Mercury; 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; or (g)
involuntary termination of an account in which Fund shares are held
or for withdrawals through the Systematic Withdrawal
Plan.
In
determining whether a Class B CDSC is applicable to a redemption,
the calculation will be determined in the manner that results in the
lowest possible rate being charged. Therefore it will be assumed
that the redemption
is first of shares held for over six years or shares acquired pursuant
to reinvestment of dividends or distributions and then of shares
held longest during the six-year period. The charge will be assessed
on an amount equal to the lesser of the proceeds of redemption or
the cost of shares being redeemed and will not be applied to dollar
amounts representing an increase in the net asset value since the
time of purchase. A transfer of shares from a shareholders
account to another account will be assumed to be made in the same
order as a redemption.
Class
C shares are subject only to a one-year 1% CDSC.
The charge will be assessed on an amount equal to the lesser
of the proceeds of redemption or the cost of the shares being
redeemed. Accordingly, no Class C CDSC will be imposed on increases
in net asset value above the initial purchase price. In addition, no
Class C CDSC will be assessed on shares derived from reinvestment of
dividends. 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 or
distributions and then of shares held longest during the one-year
period. The charge will not be applied to dollar amounts
representing an increase in the net asset value since the time of
purchase. A transfer of shares from a 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 related to providing
distribution-related services to a Fund in connection with the sale
of Class B and Class C shares, such as the payment of compensation
to financial consultants for selling Class B and Class C shares,
from its own funds. The combination of the CDSC and the ongoing
distribution fee facilitates the ability of a Fund to sell Class B
and Class C shares without a sales charge being deducted at the time
of purchase.
Conversion of Class B Shares to Class A Shares.
As discussed in the Prospectus under Account
ChoicesPricing of SharesClass B and Class C Shares
Deferred Sales Charge Options, Class B shares of equity
Mercury mutual funds convert automatically to Class A shares
approximately eight years after purchase (the Conversion Period
). Automatic conversion of Class B shares 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.
The
Conversion Period is modified for shareholders who purchased Class B
shares through certain retirement plans that qualified for a waiver
of the CDSC normally imposed on purchases of Class B shares (
Class B Retirement Plans). When the first share of any
Mercury mutual fund purchased by a Class B Retirement Plan has been
held for ten years (i.e., ten years from the date the
relationship between Mercury mutual funds and the Class B Retirement
Plan was established), all Class B shares of all Mercury mutual
funds held in that Class B Retirement Plan will be converted into
Class A shares of the appropriate funds. Subsequent to such
conversion, that Class B Retirement Plan will be sold Class A shares
of the appropriate funds at net asset value per share.
The
Conversion Period may also be modified for retirement plan investors
who participate in certain fee-based programs. See Shareholder
ServicesFee-Based Programs below.
Merrill Lynch compensates its financial consultants for
selling Class B and Class C shares at the time of purchase from its
own funds. Proceeds from the CDSC and the ongoing distribution fee
are paid to the Distributor and are used in whole or in part by the
Distributor to defray the expenses of dealers (including Merrill
Lynch) related to providing distribution-related services to the
Funds in connection with the sale of the Class B and Class C shares,
such as the payment of compensation to financial consultants for
selling Class B and Class C shares, from the dealers own
funds. The combination of the CDSC and the ongoing distribution fee
facilitates the ability of the Funds to sell the Class B and Class C
shares without a sales charge being deducted at the time of
purchase. See Purchase of SharesDistribution Plans
above. 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 SharesLimitations on the Payment
of Deferred Sales Charges above.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to policies established by the Board of Directors of
the Corporation, the Investment Adviser is primarily responsible for
the execution of the Funds portfolio transactions and the
allocation of brokerage. The Funds have 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
Funds, 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 reasonably competitive commission
rates, the Funds do not necessarily pay the lowest spread or
commission available. In addition, consistent with the Conduct Rules
of the NASD and policies established by the Board of Directors of
the Corporation, the Investment Adviser may consider sales of shares
of a Fund as a factor in the selection of brokers or dealers to
execute portfolio transactions for the Fund; however, whether or not
a particular broker or dealer sells shares of a series neither
qualifies nor disqualifies such broker or dealer to execute
transactions for the Fund.
Subject to obtaining the best net results, brokers who provide
supplemental investment research to the Investment Adviser may
receive orders for transactions by a Fund. Such supplemental
research services ordinarily consist of assessments and analyses of
the business or prospects of a company, industry or economic sector.
Information so received will be in addition to and not in lieu of
the services required to be performed by the Investment Adviser
under the Management Agreement, and the expense 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, a Fund will benefit from supplemental research
services, the Investment Adviser is authorized to pay brokerage
commissions to a broker furnishing such services that are in excess
of commissions that another broker may have charged for effecting
the same transaction. Certain supplemental research services may
primarily benefit one or more other investment companies or other
accounts for which the Investment Adviser exercises investment
discretion. Conversely, a Fund 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.
The
Funds anticipate that their respective brokerage transactions
involving securities of issuers domiciled in countries other than
the United States generally will be conducted primarily on the
principal stock exchanges of such countries. Brokerage commissions
and other transaction costs on foreign stock exchange transactions
generally are higher than in the United States, although a Fund will
endeavor to achieve the best net results in effecting its portfolio
transactions. There generally is less government supervision and
regulation of foreign stock exchanges and brokers than in the United
States.
The
Funds may invest in certain securities traded in the OTC market and
intends to deal directly with the 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 a Fund and persons who are
affiliated with such affiliated persons are prohibited from dealing
with the Fund 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, a Fund will not deal with affiliated persons, including
Merrill Lynch and its affiliates, in connection with such
transactions. However, an affiliated person of a Fund 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, a Fund 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 adopted by the Board of Directors of the
Corporation that either comply with rules adopted by the Commission
or with interpretations of the Commission staff. See
Investment Objectives and PoliciesInvestment
Restrictions.
Section 11(a) of the Exchange Act generally prohibits members
of the United States national securities exchanges from executing
exchange transactions for their affiliates and institutional
accounts that they manage unless the member (i) has obtained prior
express authorization from the account to effect such transactions,
(ii) at
least annually furnishes the account with 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 a Fund 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 Funds and annual statements as to aggregate
compensation will be provided to the Funds.
The
Board of Directors of the Corporation has considered the possibility
of seeking to recapture for the benefit of the Funds brokerage
commissions and other expenses of possible portfolio transactions by
conducting portfolio transactions through affiliated entities. For
example, brokerage commissions received by affiliated brokers could
be offset against the advisory fee paid by the Funds to the
Investment Adviser. After considering all factors deemed relevant,
the Board of Directors of the Corporation made a determination not
to seek such recapture. The Board of Directors of the Corporation
will consider 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 Funds, 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 of securities being sold, there may be an adverse effect on
price.
Determination of Net Asset Value
Reference is made to Account ChoicesHow Shares are
Priced in the Prospectus.
The
net asset value of the shares of all classes of the Funds is
determined once daily Monday through Friday after the close of
business on the NYSE on each day the NYSE is open for trading, based
on prices at the time of closing. The NYSE generally closes at 4:00
p.m., Eastern time. Any assets or liabilities 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.
The
net asset value is computed by dividing the value of the securities
held by a Fund plus any cash or other assets (including interest and
dividends accrued but not yet received) minus all liabilities
(including accrued expenses) by the total number of shares
outstanding at such time. Expenses, including the fees payable to
the Investment Adviser and the Distributor, are accrued
daily.
The
value of each investors interest in a Fund will be determined
as of the close of business on the NYSE by multiplying the net asset
value of the Fund by the percentage, effective for that day, that
represents that investors share of the aggregate interests in
such Fund. Any additions or withdrawals to be effected on that day
will then be effected. The investors percentage of the
aggregate beneficial interests in a Fund 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 Fund as of the
time of determination on such day plus or minus, as the case may be,
the amount of any additions to or withdrawals from the investor
s investment in the Fund effected on such day, and (ii) the
denominator of which is the aggregate net asset value of the Fund 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 Fund by all investors in the Fund. The percentage
so determined will then be applied to determine the value of the
investors interest in such Fund after the close of business of
the NYSE, based on prices at the time of closing.
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 Class B and Class C
shares generally will be lower than the per share net asset value of
Class A shares reflecting the distribution and higher transfer
agency fees applicable with respect to Class B and Class C shares.
It is expected, however, that the per share net asset value of the
four classes will tend to converge (although not necessarily meet)
immediately after the payment of dividends, which will differ by
approximately the amount of the expense accrual differentials
between the classes.
Portfolio securities of the Fund 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 Trustees as the primary
market. Long positions in securities traded on 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 Directors of the Corporation. 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 Fund writes an option, the amount of
the premium received is recorded on the books of the Fund as an
asset and an equivalent liability. The amount of the liability is
subsequently valued to reflect the current market value of the
option written, based upon the last sale price in the case of
exchange-traded options or, in the case of options traded in the OTC
market, the last asked price. Options purchased by a Fund are valued
at their last sale price in the case of exchange-traded options or,
in the case of options traded in the OTC market, the last bid price.
The value of swaps, including interest rate swaps, caps and floors,
will be determined by obtaining dealer quotations. Other
investments, including financial futures contracts and related
options, are stated at market value. Obligations with remaining
maturities of 60 days or less are valued at amortized cost unless
the Investment Adviser believes that this method no longer produces
fair valuations. Repurchase agreements will be valued at cost plus
accrued interest. Securities and assets for which market quotations
are not readily available are generally valued at fair value as
determined in good faith by or under the direction of the Board of
Directors of the Corporation. Such valuations and procedures will be
reviewed periodically by the Board of Directors of the
Corporation.
Generally, trading in non-U.S. securities, as well as U.S.
Government securities and money market instruments, is substantially
completed each day at various times prior to the close of business
on the NYSE. The values of such securities used in computing the net
asset value of the 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 a Funds net asset value. If events materially affecting the
value of such securities occur during such period, then these
securities will be valued at their fair value as determined in good
faith by the Board of Directors of the Corporation.
The
Funds offer 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 Funds, the Distributor or your
selected dealer.
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 Funds do not issue
share certificates. Shareholders may transfer
their Fund shares to another securities dealer that has entered into
a selected dealer agreement with the Distributor. Certain
shareholder services may not be available for the transferred
shares. After the transfer, the shareholder may purchase additional
shares of funds owned before the transfer and all future trading of
these assets must be coordinated by the new firm. If a shareholder
wishes to transfer his or her shares to a securities dealer that has
not entered into a selected dealer agreement with the Distributor,
the shareholder must either (i) redeem his or her shares, paying any
applicable CDSC or (ii) continue to maintain an Investment Account
at the Transfer Agent for those shares. The shareholder may also
request the new securities dealer to maintain the shares in an
account at the Transfer Agent registered in the name of the
securities dealer for the benefit of the shareholder whether the
securities dealer has entered into a selected dealer agreement or
not.
Shareholders considering transferring a tax-deferred
retirement account such as an individual retirement account from a
selected dealer 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 a 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.
Automatic Investment Plan
A
shareholder may make additions to an Investment Account at any time
by purchasing Class I shares (if an eligible Class I investor) or
Class A, Class B or Class C shares at the applicable public offering
price. These purchases may be made either through the shareholder
s securities dealer or by mail directly to the Transfer Agent,
acting as agent for such securities dealer. You may also add to your
account by automatically investing a specific amount in a Fund on a
periodic basis through your selected dealer. The current minimum for
such automatic additional investments is $100. This minimum may be
waived or revised under certain circumstances.
Automatic Dividend Reinvestment Plan
Unless specific instructions are given as to the method of
payment, dividends will be automatically reinvested, without sales
charge, in additional full and fractional shares of a Fund. Such
reinvestment will be at the net asset value of shares of a Fund as
determined after the close of business on the NYSE on the payment
date for such dividends. No CDSC will be imposed upon redemption of
shares issued as a result of the automatic reinvestment of
dividends.
Shareholders may, at any time, by written notification to
their selected dealer if the shareholders account is
maintained with a selected dealer or by written notification or by
telephone (1-888-763-2260) to the Transfer Agent if the account is
maintained with the Transfer Agent, elect to have subsequent
dividends, paid in cash, rather than reinvested in shares of a Fund
or vice versa (provided that, in the event that a payment on a
account maintained at the Transfer Agent would amount to $10.00 or
less, a shareholder will not receive such payment in cash and such
payment will automatically be reinvested in additional shares).
Commencing ten days after the receipt by the Transfer Agent of such
notice, those instructions will be effected. A 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.
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 a Fund having
a value, based on cost or the current offering price, of $5,000 or
more, and monthly withdrawals are available for shareholders with
shares having a value of $10,000 or more.
At the time of each
withdrawal payment, sufficient shares are redeemed from those on
deposit in the 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. With respect
to shareholders who hold accounts directly at the Transfer Agent,
redemptions will be made at net asset value as determined as
described herein on the 24th day of each month or the 24th day of
the last month of each quarter, whichever is applicable. With
respect to shareholders who hold accounts with their broker-dealer,
redemptions will be made at net asset value determined as described
herein on the first, second, third or fourth Monday of each month,
or the first, second, third or fourth Monday of the last month of
each quarter, whichever is applicable. If the NYSE is not open for
business on such date, the shares will be redeemed at the net asset
value determined as of the close of business on the following
business day. The check for the withdrawal payment will be mailed,
or the direct deposit for withdrawal payment will be made on the
next business day following redemption. When a shareholder is making
systematic withdrawals, dividends on all shares in the Investment
Account are reinvested automatically in shares of the Funds. A
shareholders systematic withdrawal plan may be terminated at
any time, without a charge or penalty, by the shareholder, a Fund,
the Transfer Agent or the Distributor.
Withdrawal payments should not be considered as dividends,
yield or income. Each withdrawal is a taxable event. If periodic
withdrawals continuously exceed reinvested dividends, the shareholder
s original investment may be reduced correspondingly.
Purchases of additional shares concurrent with withdrawals are
ordinarily disadvantageous to the shareholder because of sales
charges and tax liabilities. A 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.
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 ChoicesPricing of SharesClass B and Class
C SharesDeferred Sales Charge Options in the Prospectus.
Where the systematic withdrawal plan is applied to Class B shares,
upon conversion of the last Class B shares in an account to Class A
shares, a shareholder must make a new election to join the
systematic withdrawal program with respect to the Class A shares. If
an investor wishes to change the amount being withdrawn in a
systematic withdrawal plan the investor should contact his or her
financial consultant.
Retirement 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 such 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.
U.S.
shareholders of each class of shares of a 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
a 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 the 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 the second 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 a Fund generally may be exchanged into the Class I and Class A
shares, respectively, of the other funds with a reduced or without a
sales charge.
In
addition, each of the Funds with Class B and Class C shares
outstanding (outstanding Class B or Class C shares)
offers to exchange its Class B or Class C shares for Class B or
Class C shares, respectively (or, in the case of Summit, Class B
shares) (new Class B or Class C shares), of another
Mercury mutual fund or of Summit on the basis of relative net asset
value per Class B or Class C share, without the payment of any CDSC
that might otherwise be due on redemption of the outstanding shares.
Class B shareholders of a Fund exercising the exchange privilege
will continue to be subject to a 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 a Fund acquired through use of the
exchange privilege will be subject to such 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 or Class C 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 a Fund for those
of another Mercury fund (new Mercury Fund) after having
held such 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 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.
Before effecting an exchange, shareholders should obtain a
currently effective prospectus of the fund into which the exchange
is to be made. To exercise the exchange privilege, shareholders
should contact their financial consultant, who will advise the Fund
of the exchange. Shareholders of a 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 Funds reserve the right to require a
properly completed Exchange Application. This exchange privilege may
be modified or terminated in accordance with the rules of the
Commission. The Funds reserve 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.
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 of a
Fund at net asset value. Under specified circumstances, participants
in certain Programs may deposit other classes of shares, which will
be exchanged for Class I shares. Initial or deferred sales charges
otherwise due in connection with such exchanges may be waived or
modified, as may the Conversion Period applicable to the deposited
shares. Termination of participation in certain Programs may result
in the redemption of shares held therein or the automatic exchange
thereof to another class at net asset value. In addition, upon
termination of participation in certain Programs, shares that have
been held for less than specified periods within such Program may be
subject to a fee based upon the current value of such shares. These
Programs also generally prohibit such shares from being transferred
to another account, to another broker-dealer or to the Transfer
Agent. Except in limited circumstances (which may also involve an
exchange as described above), such shares must be redeemed and
another class of shares purchased (which may involve the imposition
of initial or deferred sales charges and distribution and account
maintenance fees) in order for the investment not to be subject to
Program fees. Additional information regarding certain specific
Programs offered through particular selected dealers (including
charges and limitations on transferability applicable to shares that
may be held in such Program) is available in the Programs
client agreement and from the shareholders selected
dealer.
The
Corporation intends to distribute substantially all its net
investment income, if any. Dividends from such net investment income
will be paid at least annually. All net realized capital gains, if
any, will be distributed to Fund shareholders annually. From time to
time, a 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.
See
Shareholder ServicesAutomatic Dividend Reinvestment Plan
above for information concerning the manner in which
dividends may be reinvested automatically in shares of the Funds.
Shareholders may elect in writing to receive any such dividends in
cash. Dividends are taxable to shareholders, as discussed below,
whether they are reinvested in shares of the Fund or received in
cash. The per share dividends on Class B and Class C shares will be
lower than the per share dividends on Class I and Class A shares as
a result of the account maintenance, distribution and higher
transfer agency fees applicable with respect to the Class B and
Class C shares; similarly, the per share dividends on Class A shares
will be lower than the per share dividends on Class I shares as a
result of the account maintenance fees applicable with respect to
the Class A shares. See Pricing of SharesDetermination
of Net Asset Value above. Within 60 days after the end of a
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.
The
Funds intend to continue to qualify for the special tax treatment
afforded regulated investment companies (RICs) under the
Code. As long as a 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 Funds intend to distribute
substantially all of such income. To qualify for this treatment, a
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; 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 a
Fund from its ordinary income or from an excess of net realized
short term capital gains over net long-term capital losses (together
referred to hereafter as ordinary income dividends) are
taxable to shareholders as ordinary income, whether or not
reinvested. Distributions made from an excess of net long term
capital gains over net short term capital losses (including gains or
losses from certain transactions in warrants, futures and options)
are taxable to shareholders as long-term capital gains, regardless
of the length of time the shareholder has owned Fund shares. The
maximum long-term capital gains rate for individuals is 20%. The
maximum capital gains rate for corporate shareholders is currently
the same as the maximum corporate rate for ordinary
income.
Not
later than 60 days after the close of its taxable year, the Funds
will provide its shareholders with a written notice designating the
amounts of any capital gain or ordinary income dividends. A portion
of the dividends paid by a Fund out of dividends paid by certain
corporations located in the U.S. may be eligible for the dividends
received deduction allowed to corporations under the Code. Because
the Mercury QA International Fund invests a large portion of its
assets in securities of foreign issuers, it is not anticipated that
a significant portion, if any, of the dividends paid by the Mercury
QA International Fund will be eligible for the dividends received
deduction. If a 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 Funds may give rise to
withholding and other taxes imposed by foreign countries. Tax
conventions between certain countries and the United States may
reduce or eliminate such taxes. If more than 50% of the value of a
Funds assets at the close of a taxable year consists of stock
or securities in foreign corporations, shareholders of the Fund may
be able to claim U.S. foreign tax credits with respect to foreign
taxes paid by the Fund, subject to certain provisions and
limitations contained in the Code. For example, certain retirement
accounts cannot claim foreign tax credits on investments in foreign
securities held by a Fund. During each taxable year that the Fund is
eligible the Fund intends to file an election with the IRS pursuant
to which shareholders of the Fund will include their proportionate
share of such withholding taxes as gross income for U.S. income tax
purposes, treat such proportionate share as taxes paid by them, and
deduct such proportionate share in computing their taxable incomes
or, alternatively, subject to certain limitations, restrictions, and
holding period requirements, use them as foreign tax credits against
their U.S. income taxes. No deductions for foreign taxes, however,
may be claimed by noncorporate shareholders who do not itemize
deductions. A shareholder that is a nonresident alien individual or
a foreign corporation may be subject to U.S. withholding tax on the
income resulting from the Funds election described in this
paragraph but may not be able to claim a credit or deduction against
such U.S. tax for the foreign taxes treated as having been paid by
such shareholder. The Fund will report annually to its shareholders
the amount per share of such withholding taxes. For this purpose,
the Fund will allocate foreign taxes and foreign source income among
the Class I, Class A, Class B and Class C shareholders.
Under
Code Section 988, special rules are provided for certain
transactions in a foreign currency other than the 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, a 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 a Funds investment company taxable
income available to be distributed to shareholders as ordinary
income, rather than increasing or decreasing the amount of the Fund
s net capital gains. Additionally, if Code Section 988 losses
exceed other investment company taxable income during a taxable
year, the Fund would not be able to make any ordinary dividend
distributions, and any distributions made before the losses were
realized but in the same taxable year would be recharacterized as a
return of capital to shareholders, thereby reducing the basis of
each shareholders Fund shares.
Under
certain provisions of the Code, some shareholders may be subject to
a 31% withholding tax on ordinary income dividends, capital gains
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 Corporation or who, to the Corporations 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 Funds to shareholders
who are non-resident aliens or foreign entities generally will be
subject to a 30% United States withholding tax under existing
provisions of the Code applicable to foreign individuals and
entities unless a reduced rate of withholding or a withholding
exemption is provided under applicable treaty law. Non-resident
shareholders are urged to consult their own tax advisors concerning
the applicability of the United States withholding tax.
No
gain or loss will be recognized by Class B shareholders on the
conversion of their Class B shares for Class A shares. A shareholder
s basis in the Class A shares acquired will be the same as
such 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 of shares held for six months or less, however,
will be treated as long term capital loss to the extent of any long
term capital gains distribution with respect to such
shares.
If a
shareholder exercises an exchange privilege within 90 days of
acquiring shares of a Fund, then any loss recognized on the exchange
will be reduced (or any gain increased) to the extent the sales
charge paid to the Fund reduces any sales charge that would have
been owed upon the purchase of the new shares in the absence of the
exchange privilege. Instead, such sales charge will be treated as an
amount paid for the new shares.
Generally, any loss realized on a sale or exchange of shares
of a Fund will be disallowed if other shares of the Fund are
acquired (whether through the automatic reinvestment of dividends or
otherwise) within a 61-day period beginning 30 days before and
ending 30 days after the date that the shares are disposed of. In
such a case, the basis of the shares acquired will be adjusted to
reflect the disallowed loss.
The
Code requires a RIC to pay a nondeductible 4% excise tax to the
extent the RIC does not distribute, during each calendar year, 98%
of its ordinary income, determined on a calendar year basis, and 98%
of its capital gains, determined, in general, on an October 31 year
end, plus certain undistributed amounts from previous years. Each
Fund anticipates that it will make sufficient timely distributions
to avoid imposition of the excise tax.
Tax Treatment of Options and Futures Transactions
Each
Fund may purchase or sell options and futures and foreign currency
options and futures, and related options on such futures. Options
and futures contracts that are Section 1256 contracts
will be marked to market for Federal income tax purposes
at the end of each taxable year, i.e., each option or futures
contract will be treated as sold for its fair market value on the
last day of the taxable year. In general, unless a special election
is made, gain or loss from transactions in Section 1256 contracts
will be 60% long-term and 40% short-term capital gain or
loss.
A
Fund may recognize taxable income or gain prior to the receipt of
cash payments under various provisions of the Code, including those
dealing with zero coupon securities, deferred interest securities,
market discount securities and certain options, futures and forward
contracts that are required to be marked to market. In any such
case, the Fund may be required to liquidate portfolio securities
that it might otherwise have elected to hold in order to enable it
to have sufficient cash to meet the distribution requirements, the
satisfaction of which are a condition of continuing qualification of
the Fund as a regulated investment company.
Code Section 1092,
which applies to certain straddles, may affect the
taxation of each Funds transactions in options, futures and
forward foreign exchange contracts. Under Section 1092, a Fund may
be required to postpone recognition for tax purposes of losses
incurred in certain closing transactions in options, futures and
forward foreign exchange contracts. Similarly, Code Section 1091,
which deals with wash sales, may cause a 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 a Fund as having recognized income
before the time that such income is economically recognized by the
Fund.
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.
Ordinary income and capital gain dividends may also be subject
to state and local taxes.
Shareholders are urged to consult their own tax advisors
regarding specific questions as to Federal, state, local or foreign
taxes. Foreign investors should consider applicable foreign taxes in
their evaluation of an investment in the Fund.
From
time to time a 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 a
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 of each
Fund in accordance with a formula specified by the
Commission.
Average annual total return quotations for the specified
periods are computed by finding the average annual compounded rates
of return (based on net investment income and any realized and
unrealized capital gains or losses on portfolio investments over
such periods) that would equate the initial amount invested to the
redeemable value of such investment at the end of each period.
Average annual total return is computed assuming all dividends and
distributions are reinvested and taking into account all applicable
recurring and nonrecurring expenses, including the maximum sales
charge in the case of Class I and Class A shares and the CDSC that
would be applicable to a complete redemption of the investment at
the end of the specified period in the case of Class B and Class C
shares and the maximum sales charge in the case of Class I and Class
A shares. Dividends paid by a 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. Each Fund will
include performance data for all classes of shares of each Fund in
any advertisement or information including performance data of each
Fund.
Each
Fund also may quote annual, average annual and annualized total
return and aggregate total return performance data, both as a
percentage and as a dollar amount based on a hypothetical $1,000
investment, for various periods other than those noted below. Such
data will be computed as described above, except that (1) as
required by the periods of the quotations, actual annual, annualized
or aggregate data, rather than average annual data, may be quoted
and (2) the maximum applicable sales charges will not be included.
Actual annual or annualized total return data generally will be
lower than average annual total return data since the average rates
of return reflect compounding of return; aggregate total return data
generally will be higher than average annual total return data since
the aggregate rates of return reflect compounding over a longer
period of time.
In
order to reflect the reduced sales charges in the case of Class I or
Class A shares or the waiver of the CDSC in the case of Class B or
Class C shares applicable to certain investors, as described under
Purchase of
Shares and Redemption of Shares, respectively, the
total return data quoted by a Fund in advertisements directed to
such investors may take into account the reduced, and not the
maximum, sales charge or may take into account the CDSC and
therefore may reflect greater total return since, due to the reduced
sales charges or the waiver of sales charges, a lower amount of
expenses may be deducted.
A
Fund may compare its performance to various indices, including the S
&P 500, the S&P 500/Barra Value Index, the S&P 500/Barra
Growth Index, the S&P 400, the S&P 600, the Standard &
Poors 1500 Composite Stock Price Index, the Russell 2000, the
EAFE Index, the Value Line Composite Index, the Dow Jones Industrial
Average, the MSCI Europe, the MSCI World Index, Salomon Smith Barney
World Government Bond Index, TSE 1st Section (TOPIX) or other
published indices, or to data contained in publications such as
Lipper Analytical Services, Inc., Morningstar Publications, Inc. (
Morningstar), other competing universes, Money
Magazine, U.S. News & World Report, Business
Week, Forbes Magazine, Fortune Magazine and CDA
Investment Technology, Inc. When comparing its performance to a
market index, a Fund may refer to various statistical measures
derived from the historical performance of the Fund and the index,
such as standard deviation and beta. In addition, from time to time,
a Fund may include its Morningstar risk-adjusted performance ratings
in advertisements or supplemental sales literature. A Fund may from
time to time quote in advertisement or other materials other
applicable measures of performance and may also make references 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.
The
Corporation is a Maryland corporation incorporated on August 13,
1999. It has an authorized capital of 3,000,000,000 shares of Common
Stock, par value $.0001 per share, of which the Corporation is
authorized to issue 125,000,000 shares each of Class I, Class A,
Class B and Class C for each of the six Funds: Mercury QA Large Cap
Core Fund, Mercury QA Large Cap Value Fund, Mercury QA Large Cap
Growth Fund, Mercury QA Mid Cap Fund, Mercury QA Small Cap Fund and
Mercury QA International Fund.
Shareholders are entitled to one vote for each full share held
and fractional votes for fractional shares held in the election of
directors (to the extent hereinafter provided) and on other matters
submitted to the vote of shareholders, except that shareholders of
the class bearing distribution expenses as provided above shall have
exclusive voting rights with respect to matters relating to such
distribution expenditures (except that Class B shareholders may vote
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 of the
Corporation, 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 share of Class I, Class A, Class B and
Class C Common Stock is entitled to participate equally in dividends
and distributions declared and in net assets upon liquidation or
dissolution remaining after satisfaction of outstanding liabilities,
except for any expenses which may be attributable to only one class.
Shares issued are fully-paid and non-assessable by the
Fund.
Mercury Asset Management US, a division of FAM, provided the
initial capital for each Fund by purchasing approximately 1,665
shares of each Fund, for an aggregate of $100,000.00. Such shares
were acquired for investment and can only be disposed of by
redemption. To the extent the organizational expenses of the
Corporation are paid by the Corporation they will be expensed and
immediately charged to net asset value. See Pricing of Shares
Determination of Net Asset Value above.
Prior
to the offering of each Funds shares, Mercury Asset Management
US, a division of FAM, will be each Funds sole shareholder and
deemed a controlling person of each Fund.
Computation of Offering Price Per Share
An
illustration of the computation of the offering price for Class I,
Class A, Class B and Class C shares of each of the Funds based on
the projected value of each Funds estimated net assets and
projected number of shares outstanding on the date its shares are
offered for sale to public investors is as follows:
Mercury QA Large Cap Core Fund
|
|
Class
I
|
|
Class
A
|
|
Class
B
|
|
Class
C
|
Net
Assets |
|
25,000 |
|
25,000 |
|
25,000 |
|
25,000 |
Number of Shares
Outstanding |
|
2,500 |
|
2,500 |
|
2,500 |
|
2,500 |
Net Asset Value
Per Share |
|
$
10.00 |
|
$
10.00 |
|
$
10.00 |
|
$
10.00 |
(net assets divided by number of shares
outstanding) |
|
|
|
|
|
|
|
|
Sales Charge (for
Class I and Class A Shares: 5.25% of Offering Price
(5.54% of net amount
invested))* |
|
0.55 |
|
0.55 |
|
** |
|
** |
Offering
Price |
|
$
10.55 |
|
$
10.55 |
|
$
10.00 |
|
$
10.00 |
|
Mercury QA Large Cap Value
Fund |
|
|
|
Class
I
|
|
Class
A
|
|
Class
B
|
|
Class
C
|
Net
Assets |
|
25,000 |
|
25,000 |
|
25,000 |
|
25,000 |
Number of Shares
Outstanding |
|
2,500 |
|
2,500 |
|
2,500 |
|
2,500 |
Net Asset Value
Per Share |
|
$
10.00 |
|
$
10.00 |
|
$
10.00 |
|
$
10.00 |
(net assets divided by number of shares
outstanding) |
|
|
|
|
|
|
|
|
Sales Charge (for
Class I and Class A Shares: 5.25% of Offering Price
(5.54% of net amount
invested))* |
|
0.55 |
|
0.55 |
|
** |
|
** |
Offering
Price |
|
$
10.55 |
|
$
10.55 |
|
$
10.00 |
|
$
10.00 |
|
Mercury QA Large Cap Growth
Fund |
|
|
|
Class
I
|
|
Class
A
|
|
Class
B
|
|
Class
C
|
Net
Assets |
|
25,000 |
|
25,000 |
|
25,000 |
|
25,000 |
Number of Shares
Outstanding |
|
2,500 |
|
2,500 |
|
2,500 |
|
2,500 |
Net Asset Value
Per Share |
|
$
10.00 |
|
$
10.00 |
|
$
10.00 |
|
$
10.00 |
(net assets divided by number of shares
outstanding) |
|
|
|
|
|
|
|
|
Sales Charge
(for Class I and Class A Shares: 5.25% of Offering Price
(5.54% of net amount
invested))* |
|
0.55 |
|
0.55 |
|
** |
|
** |
Offering
Price |
|
$
10.55 |
|
$
10.55 |
|
$
10.00 |
|
$
10.00 |
|
Mercury QA Mid Cap
Fund |
|
|
|
Class
I
|
|
Class
A
|
|
Class
B
|
|
Class
C
|
Net
Assets |
|
25,000 |
|
25,000 |
|
25,000 |
|
25,000 |
Number
of Shares Outstanding |
|
2,500 |
|
2,500 |
|
2,500 |
|
2,500 |
Net
Asset Value Per Share |
|
$
10.00 |
|
$
10.00 |
|
$
10.00 |
|
$
10.00 |
(net assets divided by number of shares
outstanding) |
|
|
|
|
|
|
|
|
Sales
Charge (for Class I and Class A Shares: 5.25% of Offering Price
(5.54% of net amount
invested))* |
|
0.55 |
|
0.55 |
|
** |
|
** |
Offering Price |
|
$
10.55 |
|
$
10.55 |
|
$
10.00 |
|
$
10.00 |
Mercury QA Small Cap Fund
|
|
Class
I
|
|
Class
A
|
|
Class
B
|
|
Class
C
|
Net
Assets |
|
25,000 |
|
25,000 |
|
25,000 |
|
25,000 |
Number
of Shares Outstanding |
|
2,500 |
|
2,500 |
|
2,500 |
|
2,500 |
Net
Asset Value Per Share |
|
$
10.00 |
|
$
10.00 |
|
$
10.00 |
|
$
10.00 |
(net assets divided by number of shares
outstanding) |
|
|
|
|
|
|
|
|
Sales
Charge (for Class I and Class A Shares: 5.25% of Offering Price
(5.54% of net amount
invested))* |
|
0.55 |
|
0.55 |
|
** |
|
** |
Offering Price |
|
$
10.55 |
|
$
10.55 |
|
$
10.00 |
|
$
10.00 |
|
Mercury QA International
Fund |
|
|
|
Class
I
|
|
Class
A
|
|
Class
B
|
|
Class
C
|
Net
Assets |
|
25,000 |
|
25,000 |
|
25,000 |
|
25,000 |
Number of Shares Outstanding |
|
2,500 |
|
2,500 |
|
2,500 |
|
2,500 |
Net
Asset Value Per Share |
|
$
10.00 |
|
$
10.00 |
|
$
10.00 |
|
$
10.00 |
(net assets divided by number of
shares outstanding) |
|
|
|
|
|
|
|
|
Sales
Charge (for Class I and Class A Shares: 5.25% of Offering Price
(5.54% of net amount
invested))/*/ |
|
0.55 |
|
0.55 |
|
** |
|
** |
Offering Price |
|
$
10.55 |
|
$
10.55 |
|
$
10.00 |
|
$
10.00 |
*
|
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
Pricing of Shares Class B and Class C
Shares Deferred Sales Charge Options in
the Prospectus and Redemption of Shares
Deferred Sales Charges Class B and
Class C Shares herein.
|
Deloitte & Touche LLP,
Princeton Forrestal Village, 116-300 Village Boulevard,
Princeton, New Jersey 08540-6400, has been selected as the
independent auditors of the Corporation and the Trust. The
independent auditors are responsible for auditing the annual
financial statements of the Funds.
The Chase Manhattan Bank, 4 Chase MetroTech, 18th Floor,
Brooklyn, New York 11245, acts as the custodian of the assets of
each Fund. Under its contract with the Corporation, The Chase
Manhattan Bank is authorized to establish separate accounts in
foreign currencies and to cause foreign securities owned by the
Mercury QA International 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 cash and securities, handling the receipt and
delivery of securities and collecting interest and dividends on
investments.
Financial Data Services, Inc., 4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484, which is a wholly owned
subsidiary of ML & Co., acts as each 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.
Swidler Berlin Shereff Friedman, LLP, The Chrysler
Building, 405 Lexington Avenue, New York, New York 10174, is
counsel for the Corporation and the Trust.
The Corporation 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.
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 under the
Securities Act and the Investment Company Act, to which
reference is hereby made.
INDEPENDENT AUDITORS REPORT
The Board of Directors and
Shareholder,
Mercury QA Equity Series, Inc.:
We have audited the accompanying statements of assets and
liabilities of Mercury QA Large Cap Core Fund, Mercury QA Large
Cap Value Fund, Mercury QA Large Cap Growth Fund, Mercury QA Mid
Cap Fund, Mercury QA Small Cap Fund and Mercury QA International
Fund of Mercury QA Equity Series, Inc. as of February 25, 2000.
These financial statements are the responsibility of the Series
management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such statements of assets and liabilities
present fairly, in all material respects, the financial position
of Mercury QA Large Cap Core Fund, Mercury QA Large Cap Value
Fund, Mercury QA Large Cap Growth Fund, Mercury QA Mid Cap Fund,
Mercury QA Small Cap Fund and Mercury QA International Fund of
Mercury QA Equity Series, Inc. as of February 25, 2000, in
conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Princeton, New Jersey
March 1, 2000
MERCURY QA EQUITY SERIES, INC.
STATEMENTS OF ASSETS AND
LIABILITIES
February 25, 2000
|
|
Mercury
QA
Large
Cap Core
Fund
|
|
Mercury
QA
Large
Cap
Value
Fund
|
|
Mercury
QA
Large
Cap
Growth
Fund
|
|
Mercury
QA Mid
Cap
Fund
|
|
Mercury
QA Small
Cap
Fund
|
|
Mercury QA
International
Fund
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
Cash in Bank (Note
1) |
|
$100,000 |
|
$100,000 |
|
$100,000 |
|
$100,000 |
|
$100,000 |
|
$100,000 |
Prepaid registration
fees and offering costs (Note 3) |
|
205,834 |
|
205,834 |
|
205,834 |
|
205,834 |
|
205,834 |
|
205,834 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
305,834 |
|
305,834 |
|
305,834 |
|
305,834 |
|
305,834 |
|
305,834 |
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and
accrued expenses |
|
205,834 |
|
205,834 |
|
205,834 |
|
205,834 |
|
205,834 |
|
205,834 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Assets (2,500 Class I shares of Common Stock per Fund, 2,500
Class A shares of
Common Stock per Fund, 2,500 Class B
shares of Common Stock per Fund, 2,500
Class C shares of Common Stock per Fund
(all classes par value $0.0001)
outstanding with 3,000,000,000 shares
authorized) (Note 1) |
|
$100,000 |
|
$100,000 |
|
$100,000 |
|
$100,000 |
|
$100,000 |
|
$100,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
ASSETS CONSIST OF: |
|
|
|
|
|
|
|
|
|
|
|
|
Class I shares of
Common Stock, $0.0001 par value, 125,000,000 shares
authorized per Fund |
|
$
1 |
|
$
1 |
|
$
1 |
|
$
1 |
|
$
1 |
|
$
1 |
Class A shares of
Common Stock, $0.0001 par value, 125,000,000 shares
authorized per Fund |
|
$
1 |
|
$
1 |
|
$
1 |
|
$
1 |
|
$
1 |
|
$
1 |
Class B shares of
Common Stock, $0.0001 par value, 125,000,000 shares
authorized per Fund |
|
$
1 |
|
$
1 |
|
$
1 |
|
$
1 |
|
$
1 |
|
$
1 |
Class C shares of
Common Stock, $0.0001 par value, 125,000,000 shares
authorized per Fund |
|
$
1 |
|
$
1 |
|
$
1 |
|
$
1 |
|
$
1 |
|
$
1 |
Paid-in Capital in
excess of par |
|
99,996 |
|
99,996 |
|
99,996 |
|
99,996 |
|
99,996 |
|
99,996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
ASSETS |
|
$100,000 |
|
$100,000 |
|
$100,000 |
|
$100,000 |
|
$100,000 |
|
$100,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
ASSET VALUE: |
|
|
|
|
|
|
|
|
|
|
|
|
Class IBased
on net assets of $25,000 and 2,500 shares
outstanding |
|
$
10.00 |
|
$
10.00 |
|
$
10.00 |
|
$
10.00 |
|
$
10.00 |
|
$
10.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Class ABased
on net assets of $25,000 and 2,500 shares
outstanding |
|
$
10.00 |
|
$
10.00 |
|
$
10.00 |
|
$
10.00 |
|
$
10.00 |
|
$
10.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Class BBased
on net assets of $25,000 and 2,500 shares
outstanding |
|
$
10.00 |
|
$
10.00 |
|
$
10.00 |
|
$
10.00 |
|
$
10.00 |
|
$
10.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Class CBased
on net assets of $25,000 and 2,500 shares
outstanding |
|
$
10.00 |
|
$
10.00 |
|
$
10.00 |
|
$
10.00 |
|
$
10.00 |
|
$
10.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes to Financial Statements
(1)
|
Mercury QA Equity Series, Inc. (the
Corporation) was organized as a Maryland
corporation on August 13, 1999 and consists of six series:
Mercury QA Large Cap Core Fund, Mercury QA Large Cap Value
Fund, Mercury QA Large Cap Growth Fund, Mercury QA Mid Cap
Fund, Mercury QA Small Cap Fund and Mercury QA International
Fund. The Corporation is registered under the Investment
Company Act of 1940 as a diversified mutual fund. To date, the
Corporation has not had any transactions other than those
relating to organizational matters and the sale of 15,000
Class I shares, 15,000 Class A shares, 15,000 Class B shares
and 15,000 Class C shares of Common Stock (2,500 shares of
each class of each Fund) to Mercury Asset Management US, a
division of Fund Asset Management L.P. (the Investment
Adviser).
|
(2)
|
The Corporation has entered into an
administration agreement (the Administration Agreement
) with the Investment Adviser and a distribution
agreement (the Distribution Agreement) with
Mercury Funds Distributor, a division of Princeton Funds
Distributor, Inc. (the Distributor). (See
Management of the FundAdministration Arrangements
in the Statement of Additional Information.) Certain
officers and/or directors of the Corporation are officers
and/or directors of the Investment Adviser and the
Distributor.
|
(3)
|
Prepaid registration fees are charged to income
as the related shares are issued. Prepaid offering costs
consist of legal and printing fees related to preparing the
initial registration statement, and will be amortized over a
12 month period beginning with the commencement of operations
of the Fund. The Investment Adviser, on behalf of the Funds,
will incur organization costs estimated at
$90,000.
|
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 Moody
s 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. Moody
s makes no representation that such obligations are exempt
from registration under the Securities Act, nor does it
represent that any specific note is a
valid obligation of a rated issuer or issued in conformity with
any applicable law. 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 obligors 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 & Poor
s to a preferred stock issue and
indicates an extremely strong capacity to pay the preferred
stock obligations. |
|
AA |
|
A preferred
stock issue rated AA also qualifies as a
high-quality fixed income security. The capacity
to pay preferred stock obligations is very strong, although not
as overwhelming as for issues rated
AAA. |
|
A |
|
An issue rated
A is backed by a sound capacity to pay the
preferred stock obligations, although it is
somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions. |
|
BBB |
|
An issue rated
BBB is regarded as backed by an adequate capacity
to pay the preferred stock
obligations. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions
or changing circumstances are more likely to lead to a weakened
capacity to make payments for a
preferred stock in this category than for issues in the A
category. |
BB, B
|
|
Preferred stock rated BB, B,
and CCC are regarded, on balance, as
predominantly
|
|
CCC
|
|
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 issuer
s future financial strength and credit
quality.
Fitch ratings do not reflect any credit enhancement that
may be provided by insurance policies or financial guaranties
unless otherwise indicated.
Bonds carrying the same rating are of similar but not
necessarily identical credit quality since the rating categories
do not fully reflect small differences in the degrees of credit
risk.
Fitch ratings are not recommendations to buy, sell, or
hold any security. Ratings do not comment on the adequacy of
market price, the suitability of any security for a particular
investor, or the tax-exempt nature or taxability of payments
made in respect of any security.
Fitch ratings are based on information obtained from
issuers, other 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-I+. |
|
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. |
|
Fitch
Alert |
|
Ratings are
placed on Fitch Alert 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. Fitch Alert 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 to C
) 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 issuer
s future financial strength.
Bonds that have the same rating are of similar but not
necessarily identical credit quality since rating categories
cannot fully reflect the differences in degrees of credit
risk.
BB |
|
Bonds are
considered speculative. The 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
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. |
Code #19089-0300
PART C. OTHER INFORMATION
Item 23.
Exhibits:
Exhibit
Number
|
|
|
1 |
|
|
|
|
|
Amended and
Restated Articles of Incorporation of Registrant. |
2 |
|
|
|
|
|
By-Laws of
Registrant.(1) |
3 |
|
|
|
|
|
Instrument
Defining Rights of Shareholders. Incorporated by reference to
Exhibits 1 and 2 above. |
4 |
|
|
|
|
|
Form of
Management Agreement between Registrant and Mercury Asset
Management US, a division
of Fund Asset Management, L.P. |
5 |
|
(a) |
|
|
|
Form of Class
I Shares Distribution Agreement between Registrant and Mercury
Funds Distributor, a
division of Princeton Funds Distributor, Inc. (including
Selected Dealer Agreements). |
5 |
|
(b) |
|
|
|
Form of Class
A Shares Distribution Agreement between Registrant and Mercury
Funds Distributor, a
division of Princeton Funds Distributor, Inc. (including
Selected Dealer Agreements). |
5 |
|
(c) |
|
|
|
Form of Class
B Shares Distribution Agreement between Registrant and Mercury
Funds Distributor, a
division of Princeton Funds Distributor, Inc. (including
Selected Dealer Agreements). |
5 |
|
(d) |
|
|
|
Form of Class
C Shares Distribution Agreement between Registrant and Mercury
Funds Distributor, a
division of Princeton Funds Distributor, Inc. (including
Selected Dealer Agreements). |
6 |
|
|
|
|
|
None. |
7 |
|
|
|
|
|
Form of
Custody Agreement. |
8 |
|
(a) |
|
|
|
Form of
Administration Agreement between Registrant and Mercury Asset
Management US, a
division of Fund Asset Management, L.P. |
8 |
|
(b) |
|
|
|
Form of
Transfer Agency, Dividend Disbursing Agency and Shareholder
Servicing Agency
Agreement between Registrant and Financial Data Services,
Inc. |
8 |
|
(c) |
|
|
|
License
Agreement relating to Use of Name among Mercury Asset
Management International Ltd.,
Mercury Asset Management Group Ltd. and Mercury Funds
Distributor, a division of Princeton Funds
Distributor, Inc.(2) |
8 |
|
(d) |
|
|
|
Form of
License Agreement relating to Use of Name between Fund Asset
Management, L.P. and
Registrant. |
8 |
|
(e) |
|
|
|
Credit
Agreement between Registrant and a syndicate of
banks.(3) |
8 |
|
(f) |
|
|
|
Form of Fee
Waiver/Expense Reimbursement Agreement between Registrant and
Mercury Asset
Management US, a division of Fund Asset Management,
L.P. |
9 |
|
|
|
|
|
Opinion and
consent of Swidler Berlin Shereff Friedman, LLP, counsel for
Registrant. |
10 |
|
|
|
|
|
Consent of
Deloitte & Touche LLP, independent auditors for
Registrant. |
11 |
|
|
|
|
|
None. |
12 |
|
|
|
|
|
Form of
Certificate of Fund Asset Management, L.P. |
13 |
|
(a) |
|
|
|
Form of Class
A Shares Distribution Plan and Class A Plan
Sub-Agreement. |
13 |
|
(b) |
|
|
|
Form of Class
B Shares Distribution Plan and Class B Shares Plan
Sub-Agreement. |
13 |
|
(c) |
|
|
|
Form of Class
C Shares Distribution Plan and Class C Shares Plan
Sub-Agreement. |
14 |
|
(a) |
|
|
|
Rule 18f-3
Plan. |
14 |
|
(b) |
|
|
|
Powers of
Attorney for Officers, Directors and Trustees. |
15 |
|
|
|
|
|
Not
applicable. |
16 |
|
|
|
|
|
Code of
Ethics. |
(1)
|
Incorporated by reference to identically
numbered exhibit to Registrants initial Registration
Statement on Form N-1A (File Nos. 333-88193 and
811-09611).
|
(2)
|
Incorporated by reference to Exhibit No. 8(c)
to Pre-Effective Amendment No. 1 of Mercury Pan-European
Growth Fund of Mercury Asset management Funds, Inc.s
Registration Statement on Form N-1A (File Nos. 333-56205 and
811-08797).
|
(3)
|
Incorporated by reference to Exhibit 8(b) to
the Registration Statement on Form N-1A of Master Premier
Growth Trust (File No. 811-09733), filed December 21,
1999.
|
Item 24. Persons
Controlled By or Under Common Control with
Registrant.
Prior to the effective date of this Registration
Statement, Mercury QA Equity Series, Inc. (the Registrant
) will sell shares of each Fund of the Registrant to
Mercury Asset Management US (the Investment Adviser
), a division of Fund Asset Management, L.P. (FAM
). Accordingly, prior to the offering of each Funds
shares, the Investment Adviser will be each Funds sole
shareholder and deemed to be a controlling person of each
Fund.
FAM is a Delaware limited partnership and an indirect
wholly-owned subsidiary of Merrill Lynch & Co. Inc. (
ML & Co.) and Princeton Services. Therefore,
prior to the offering of each Funds shares, the Registrant
and FAM will be under common control.
Item 25.
Indemnification.
Reference is made to Article V of the Registrants
Articles of Incorporation, Article VI of the Registrants
By-Laws, Section 2-418 of the Maryland General Corporation Law
and Section 9 of the Class I, Class A, Class B and Class C
Distribution Agreements.
Article V of the Registrants Articles of
Incorporation provides that each acting and former director and
officer of the Corporation shall be indemnified by the
Corporation to the full extent permitted by the Maryland General
Corporation Law, subject to the requirements of the Investment
Company Act of 1940.
Article VI of the By-Laws provides that each officer and
director of the Registrant shall be indemnified by the
Corporation to the full extent permitted under the Maryland
General Corporation Law, except that such indemnity shall not
protect any such person against any liability to the 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 majority of a quorum of the directors who are
neither interested persons, as defined in Section
2(a)(19) of the Investment Company Act, 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 Maryland General Corporation Law, 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 Class I, Class A, Class B and Class C
Distribution Agreements relating to the securities being offered
hereby, the Registrant agrees to indemnify and hold harmless 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 the related Prospectus and Statement of Additional
Information or an annual or interim report of the
Registrant.
Insofar as indemnification for liabilities arising under
the Act may be permitted to directors, officers and controlling
persons of the Registrant and the principal underwriter pursuant
to the foregoing provisions or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred
or paid by a director, officer, or controlling person of the
Registrant and the principal underwriter in connection with the
successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person or the
principal underwriter in connection with the shares being
registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
Item 26. Business
and Other Connections of Investment Adviser.
The address of the Investment Adviser, a division of FAM,
is P.O. Box 9011, Princeton, New Jersey 08543-9011. FAM, doing
business as FAM or Mercury Asset Management US, acts, or has
acted since December 31, 1997, as the investment adviser for the
following open-end registered investment companies: Mercury
Master U.S. Small Cap Growth Portfolio of Mercury Asset
Management Master Trust, CBA Money Fund, CMA Government
Securities Fund, CMA Money Fund, CMA Multi-State Municipal
Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The
Corporate Fund Accumulation Program, Inc., Financial
Institutions Series Trust, Merrill Lynch Basic Value Fund, Inc.,
Merrill Lynch California Municipal Series Trust, Merrill Lynch
Corporate Bond Fund, Inc., Merrill Lynch Corporate High Yield
Fund, Inc., Merrill Lynch Emerging Tigers Fund, Inc., Merrill
Lynch Federal Securities Trust, Merrill Lynch Focus Twenty Fund,
Inc., Merrill Lynch Funds for Institutions Series, Merrill Lynch
Large Cap Series Funds, Merrill Lynch Multi-State Limited
Maturity Municipal Series Trust, Merrill Lynch Multi-State
Municipal Series Trust, Merrill Lynch Municipal Bond Fund, Inc.,
Merrill Lynch Phoenix Fund, Inc., Merrill Lynch Premier Growth
Fund, Inc., Merrill Lynch Special Value Fund, Inc., Merrill
Lynch World Income Fund, Inc. and The Municipal Fund
Accumulation Program, Inc.; and for the following closed-end
investment companies: Apex Municipal Fund, Inc., Corporate High
Yield Fund, Inc., Corporate High Yield Fund II, Inc., Corporate
High Yield Fund III, Inc., Debt Strategies Fund, Inc., Debt
Strategies Fund II, Inc., Debt Strategies Fund III, Inc., Income
Opportunities Fund 2000, Inc., Merrill Lynch Municipal Strategy
Fund, Inc., MuniAssets Fund, Inc., MuniEnhanced Fund, Inc.,
MuniHoldings Fund, Inc., MuniHoldings Fund II, Inc.,
MuniHoldings California Insured Fund, Inc., MuniHoldings
California Insured Fund II, Inc., MuniHoldings California
Insured Fund III, Inc., MuniHoldings California Insured Fund IV,
Inc., MuniHoldings California Insured Fund V, Inc., MuniHoldings
Florida Insured Fund, MuniHoldings Florida Insured Fund II,
MuniHoldings Florida Insured Fund III, MuniHoldings Florida
Insured Fund IV, MuniHoldings Florida Insured Fund V,
MuniHoldings Insured Fund, Inc., MuniHoldings Insured Fund II,
Inc., MuniHoldings Insured Fund III, Inc., MuniHoldings Insured
Fund IV, Inc., MuniHoldings Michigan Insured Fund, Inc.,
MuniHoldings Michigan Insured Fund II, Inc., MuniHoldings New
Jersey Insured Fund, Inc., MuniHoldings New Jersey Insured Fund
II, Inc., MuniHoldings New Jersey Insured Fund III, Inc.,
MuniHoldings New Jersey Insured Fund IV, Inc., MuniHoldings New
York Fund, Inc., MuniHoldings New York Insured Fund, Inc.,
MuniHoldings New York Insured Fund II, Inc., MuniHoldings New
York Insured Fund III, Inc., MuniHoldings Pennsylvania Insured
Fund, MuniInsured Fund, Inc., MuniVest Fund, Inc., MuniVest Fund
II, Inc., MuniVest Florida Fund, MuniVest Michigan Insured Fund,
Inc., MuniVest New Jersey Fund, Inc., MuniVest Pennsylvania
Insured Fund, MuniYield Arizona Fund, Inc., MuniYield California
Fund, Inc., MuniYield California Insured Fund, Inc., MuniYield
California Insured Fund II, Inc., MuniYield Florida Fund,
MuniYield Florida Insured Fund, MuniYield Fund, Inc.,
MuniYield Insured Fund, Inc., MuniYield Michigan Fund, Inc.,
MuniYield Michigan Insured Fund, Inc., MuniYield New Jersey
Fund, Inc., MuniYield New Jersey Insured Fund, Inc., MuniYield
New York Insured Fund, Inc., MuniYield New York Insured Fund II,
Inc., MuniYield Pennsylvania Fund, MuniYield Quality Fund, Inc.,
MuniYield Quality Fund II, Inc., Senior High Income Portfolio,
Inc., and Worldwide DollarVest Fund, Inc.
Set forth below is a list of each executive officer and
partner of FAM indicating each business, profession, vocation or
employment of a substantial nature in which each such person or
entity has been engaged since December 31, 1997 for his or her
own account or in the capacity of director, officer, employer,
partner or trustee.
Name
|
|
Positions
with the
Investment Adviser
|
|
Other
Substantial Business,
Profession, Vocation or
Employment
|
ML & Co.,
Inc |
|
Limited
Partner |
|
Financial
Services Holding Company;
Limited Partner of Merrill Lynch Asset
Management, L.P. (MLAM) |
|
|
Princeton
Services |
|
General
Partner |
|
General
Partner of MLAM |
|
|
Jeffrey M.
Peek |
|
President |
|
President of
MLAM; President and Director
of Princeton Services; Executive Vice
President of ML & Co.; Managing Director
and Co-Head of the Investment Banking
Division of Merrill Lynch in 1997 |
|
|
Terry K.
Glenn |
|
Executive Vice
President |
|
Executive Vice
President of MLAM;
Executive Vice President and Director of
Princeton Services; President and Director of
Princeton Funds Distributor, Inc. (PFD);
Director of Financial Data Services, Inc.;
President of Princeton Administrators |
|
|
Gregory A.
Bundy |
|
Chief
Operating Officer and
Managing Director |
|
Chief
Operating Officer and Managing
Director of MLAM; 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
MLAM; Senior Vice President and Treasurer
of Princeton Services; Vice President and
Treasurer of PFD; First Vice President of
MLAM from 1997 to 1999; Vice President
of MLAM from 1990 to 1997 |
|
|
Michael G.
Clark |
|
Senior Vice
President |
|
Senior Vice
President of MLAM; Senior
Vice President of Princeton Services;
Treasurer and Director of PFD; First Vice
President of MLAM from 1997 to 1999;
Vice President of MLAM from 1996 to 1997 |
|
|
Robert C.
Doll |
|
Senior Vice
President |
|
Senior Vice
President of MLAM; Senior
Vice President of Princeton Services; Chief
Investment Officer of Oppenheimer Funds,
Inc. in 1999 and Executive Vice President
thereof from 1991 to 1999 |
|
|
Linda L.
Federici |
|
Senior Vice
President |
|
Senior Vice
President of MLAM; Senior
Vice President of Princeton Services |
|
|
Vincent R.
Giordano |
|
Senior Vice
President |
|
Senior Vice
President of MLAM; Senior
Vice President of Princeton Services |
Name
|
|
Positions
with the
Investment Adviser
|
|
Other
Substantial Business,
Profession, Vocation or
Employment
|
|
|
Michael J.
Hennewinkel |
|
Senior Vice
President and
General Counsel |
|
Senior Vice
President and General Counsel
of MLAM; Senior Vice President of
Princeton Services |
|
|
Philip L.
Kirstein |
|
Senior Vice
President and
Secretary |
|
Senior Vice
President and Secretary of
MLAM; Senior Vice President, Director and
Secretary of Princeton Services |
|
|
Debra
Landsman-Yaros |
|
Senior Vice
President |
|
Senior Vice
President of MLAM; Senior
Vice President of Princeton Services; Vice
President of PFD |
|
|
Stephen M. M.
Miller |
|
Senior Vice
President |
|
Executive Vice
President of Princeton
Administrators; Senior Vice President of
Princeton Services |
|
|
Joseph T.
Monagle, Jr. |
|
Senior Vice
President |
|
Senior Vice
President of MLAM; Senior
Vice President of Princeton Services |
|
|
Brian A.
Murdock |
|
Senior Vice
President |
|
Senior Vice
President of MLAM; Senior
Vice President of Princeton Services |
|
|
Gregory D.
Upah |
|
Senior Vice
President |
|
Senior Vice
President of MLAM |
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 paragraph. Mr. Glenn is
director of such companies. Messrs. Doll, Giordano, and Monagle
are directors or officers of one or more of such
companies.
MLAM, with an address at P.O. Box 9011, Princeton, New
Jersey 08543-9011, an affiliate of the Investment Adviser, also
acts, or has acted, as investment adviser for the following
open-end registered investment companies: Merrill Lynch
Adjustable Rate Securities Fund, Inc., Merrill Lynch Americas
Income Fund, Inc., Merrill Lynch Asset Builder Program, Inc.,
Merrill Lynch Asset Growth Fund, Inc., Merrill Lynch Asset
Income Fund, Inc., Merrill Lynch Capital Fund, Inc., Merrill
Lynch Convertible Fund, Inc., Merrill Lynch Developing Capital
Markets Fund, Inc., Merrill Lynch Disciplined Equity Fund, Inc.,
Merrill Lynch Dragon Fund, Inc., Merrill Lynch EuroFund, Merrill
Lynch Fundamental Growth Fund, Inc., Merrill Lynch Global
Allocation Fund, Inc., Merrill Lynch Global Bond Fund for
Investment and Retirement, Merrill Lynch Global Growth Fund,
Inc., Merrill Lynch Global Holdings, Inc., Merrill Lynch Global
Resources Trust, Merrill Lynch Global SmallCap Fund, Inc.,
Merrill Lynch Global Technology Fund, Inc., Merrill Lynch Global
Utility Fund, Inc., Merrill Lynch Global Value Fund, Inc.,
Merrill Lynch Growth Fund, Merrill Lynch Healthcare Fund, Inc.,
Merrill Lynch Index Funds, Inc., Merrill Lynch Intermediate
Government Bond Fund, Merrill Lynch International Equity Fund,
Merrill Lynch Latin America Fund, Inc., Merrill Lynch Middle
East/Africa Fund, Inc., Merrill Lynch Municipal Series Trust,
Merrill Lynch Pacific Fund, Inc., Merrill Lynch Ready Assets
Trust, Merrill Lynch Real Estate Fund, Inc., Merrill Lynch
Retirement Series Trust, Merrill Lynch Series Fund, Inc.,
Merrill Lynch Short-Term Global Income Fund, Inc., Merrill Lynch
Strategic Dividend Fund, Merrill Lynch U.S. Treasury Money Fund,
Merrill Lynch U.S.A. Government Reserves, Merrill Lynch Utility
Income Fund, Inc., Merrill Lynch Variable Series Funds, Inc. and
Hotchkis and Wiley Funds (advised by Hotchkis and Wiley, a
division of MLAM); and for the following closed-end registered
investment companies: Merrill Lynch High Income Municipal Bond
Fund, Inc., Merrill Lynch Senior Floating Rate Fund, Inc. and
Merrill Lynch Senior Floating Rate Fund II, Inc. MLAM also acts
as sub-adviser to Merrill Lynch World Strategy Portfolio and
Merrill Lynch Basic Value Equity Portfolio, two investment
portfolios of EQ Advisors Trust.
Mercury Asset Management International Ltd., an affiliate
of MLAM, acts as the investment adviser or sub-adviser for the
following open-end registered investment companies: Mercury
Master Global Balanced Portfolio of Mercury Asset Management
Master Trust (the MAMMT); Mercury Master Gold and
Mining Portfolio of the MAMMT; Mercury Master International
Portfolio of the MAMMT; Mercury Master Pan-European Growth
Portfolio of the MAMMT; Mercury Master U.S. Large Cap Portfolio of
the MAMMT; Mercury Master U.S. Small Cap Growth Portfolio of the
MAMMT and Mercury V.I. U.S. Large Cap Fund of Mercury Asset
Management V.I. Funds, Inc.
Item 27. Principal
Underwriters.
(a) Mercury Funds Distributor, a division of
Princeton Funds Distributor, Inc. (MFD or the
Distributor) acts as the principal underwriter for
the Registrant and for each of the following open-end investment
companies:
|
Mercury Gold and Mining Fund of Mercury Asset Management
Funds, Inc.; Mercury Global Balanced Fund of Mercury Asset
Management Funds, Inc.; Mercury U.S. Large Cap Fund of Mercury
Asset Management Funds, Inc.; Mercury U.S. Small Cap Growth
Fund of Mercury Asset Management Funds, Inc.; Mercury
International Fund of Mercury Asset Management Funds, Inc.;
Mercury Pan-European Growth Fund of Mercury Asset Management
Funds, Inc.; Summit Cash Reserves Fund of Financial
Institutions Series Trust; Mercury V.I. U.S. Large Cap Fund of
Mercury Asset Management V.I. Funds, Inc.
|
A
separate division of Princeton Funds Distributor, Inc. acts as
the principal underwriter of other investment
companies.
(b) Set forth below is information concerning
each director and officer of the Distributor. The principal
business address of each such person is P.O. Box 9081,
Princeton, New Jersey 08543-9081, except that the address of
Messrs. Breen, Crook, Fatseas and Wasel is One Financial Center,
23rd Floor, Boston, Massachusetts 02111-2665.
(1)
Name
|
|
(2)
Positions and Offices
with Distributor
|
|
(3)
Positions and Offices
with Registrant
|
Terry K.
Glenn |
|
President and
Director |
|
President and
Director |
Michael G.
Clark |
|
Treasurer and
Director |
|
None |
Thomas J.
Verage |
|
Director |
|
None |
Robert W.
Crook |
|
Senior Vice
President |
|
None |
Michael J.
Brady |
|
Vice
President |
|
None |
William M.
Breen |
|
Vice
President |
|
None |
Donald C.
Burke |
|
Vice
President |
|
Vice President
and Treasurer |
James T.
Fatseas |
|
Vice
President |
|
None |
Debra W.
Landsman-Yaros |
|
Vice
President |
|
None |
Michelle T.
Lau |
|
Vice
President |
|
None |
Salvatore
Venezia |
|
Vice
President |
|
None |
William
Wasel |
|
Vice
President |
|
None |
Robert
Harris |
|
Secretary |
|
None |
(c) Not Applicable.
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 and the rules thereunder are maintained at the offices
of:
|
(1) the Registrant, Mercury QA Equity Series,
Inc., 800 Scudders Mill Road, Plainsboro, New Jersey
08536;
|
|
(2) the transfer agent, Financial Data
Services, Inc., P.O. Box 44062, Jacksonville, Florida
32232-4062;
|
|
(3) the custodian, The Chase Manhattan Bank,
4 Chase MetroTech, 18th Floor, Brooklyn, New York, 11245;
and
|
|
(4) the investment adviser and administrator,
Mercury Asset Management US, a division of 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 Funds in the Prospectus constituting Part A of the
Registration Statement and under Management of the Fund
Management and Advisory Arrangements in the
Statement of Additional Information constituting Part B of the
Registration Statement, the Registrant is not party to any
Management-related service contract.
Item 30.
Undertakings.
None.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, the Registrant certifies
that it has duly caused this Pre-Effective Amendment No. 1 to
the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Township of
Plainsboro, and State of New Jersey, on the 1
st
day of March, 2000.
|
MERCURY
QA EQUITY
SERIES
, INC
.
(Registrant)
|
|
(Terry K. Glenn, President and
Director)
|
Pursuant to the requirements of the Securities Act of
1933, this Pre-Effective Amendment No. 1 to the Registration
Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signatures
|
|
Title
|
|
Date
|
|
|
/s/
TERRY
K. GLENN
(Terry K. Glenn) |
|
President and
Director
(Principal Executive Officer) |
|
March 1,
2000 |
|
|
*
(Donald C. Burke) |
|
Vice President
and Treasurer
(Principal Financial Officer and
Principal Accounting Officer) |
|
|
|
|
*
(Jack B. Sunderland) |
|
Director |
|
|
|
|
*
(Stephen B. Swensrud) |
|
Director |
|
|
|
|
*
(J. Thomas Touchton) |
|
Director |
|
|
|
|
/s/
TERRY
K. GLENN
*By:
(Terry K. Glenn, Attorney-in-Fact) |
|
|
|
March 1,
2000 |
INDEX TO EXHIBITS
Exhibit
Number
|
|
Description
|
1 |
|
|
|
Amended and
Restated Articles of Incorporation. |
4 |
|
|
|
Form of
Management Agreement between Registrant and Mercury Asset
Management US, a division of
Fund Asset Management, L.P. |
5 |
|
(a) |
|
Form of Class
I Shares Distribution Agreement between Registrant and Mercury
Funds Distributor, a
division of Princeton Funds Distributor, Inc. (including
Selected Dealer Agreements). |
5 |
|
(b) |
|
Form of Class
A Shares Distribution Agreement between Registrant and Mercury
Funds Distributor, Inc.,
a division of Princeton Funds Distributor, Inc. (including
Selected Dealer Agreements). |
5 |
|
(c) |
|
Form of Class
B Shares Distribution Agreement between Registrant and Mercury
Funds Distributor, Inc.,
a division of Princeton Funds Distributor, Inc. (including
Selected Dealer Agreements). |
5 |
|
(d) |
|
Form of Class
C Shares Distribution Agreement between Registrant and Mercury
Funds Distributor, Inc.,
a division of Princeton Funds Distributor, Inc. (including
Selected Dealer Agreements). |
7 |
|
|
|
Form of
Custody Agreement. |
8 |
|
(a) |
|
Form of
Administration Agreement between Registrant and Mercury Asset
Management US, a division
of Fund Asset Management, L.P. |
8 |
|
(b) |
|
Form of
Transfer Agency, Dividend Disbursing Agency and Shareholder
Servicing Agency Agreement
between Registrant and Financial Data Services, Inc. |
8 |
|
(d) |
|
Form of
License Agreement relating to Use of Name between Fund Asset
Management, L.P. and
Registrant. |
8 |
|
(f) |
|
Fee
Waiver/Expense Reimbursement Agreement between Registrant and
Mercury Asset Management
US, a division of Fund Asset Management, L.P. |
9 |
|
|
|
Opinion and
consent of Swidler Berlin Shereff Friedman, LLP, counsel for
Registrant. |
10 |
|
|
|
Consent of
Deloitte & Touche LLP, independent auditors for
Registrant. |
12 |
|
|
|
Form of
Certificate of Fund Asset Management, L.P. |
13 |
|
(a) |
|
Form of Class
A Shares Distribution Plan and Class A Shares Plan
Sub-Agreement. |
13 |
|
(b) |
|
Form of Class
B Shares Distribution Plan and Class B Shares Plan
Sub-Agreement. |
13 |
|
(c) |
|
Form of Class
C Shares Distribution Plan and Class C Shares Plan
Sub-Agreement. |
14 |
|
(a) |
|
Rule 18f-3
Plan. |
14 |
|
(b) |
|
Powers of
Attorney for Officers, Directors and Trustees. |
16 |
|
|
|
Code of
Ethics. |