As filed with the Securities and Exchange Commission on April 14,
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
Pre-Effective
Amendment No. 2
x
Post-Effective
Amendment No.
and/or
REGISTRATION
STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO.
2
x
(Check appropriate
box or boxes)
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
|
|
and
|
|
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
|
x
immediately upon filing pursuant to paragraph (b)
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|
¨ on
(date) pursuant to paragraph (b)
|
|
¨ 60 days
after filing pursuant to paragraph (a)(1)
|
|
¨ on
(date) pursuant to paragraph (a)(1)
|
|
¨ 75 days
after filing pursuant to paragraph (a)(2)
|
|
¨ on
(date) pursuant to paragraph (a)(2) of Rule 485.
|
If appropriate, check
the following box:
|
¨ This
post-effective amendment designates a new effective date for a previously
filed post-effective amendment.
|
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.
PROSPECTUS APRIL 14,
2000
Mercury QA Equity
Series, Inc.
|
Mercury QA Large
Cap Core Fund
|
|
Mercury QA Large
Cap Value Fund
|
|
Mercury QA Large
Cap Growth Fund
|
|
Mercury QA Small
Cap Fund
|
|
Mercury QA
International Fund
|
[GRAPHIC]
A SUBSCRIPTION PERIOD FOR
SHARES OF THE FUNDS WILL END ON MAY 12, 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 in foreign countries
included in the
Morgan Stanley Capital International Europe, Asia and Far East
Capitalization Weighted Index (the EAFE Index). Country
weightings are in similar proportions to their weightings in the EAFE
Index.
The investment
adviser uses three principal strategies to select investments for each Fund.
First the investment adviser uses a top-down
analysis to identify sectors with investment results
that are aligned with the particular Funds investment objective.
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 |
|
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 |
|
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
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.
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 Fund
s 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 may be 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
|
|
|
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
|
|
|
Want a
professionally managed and diversified portfolio
|
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
|
|
|
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
|
|
|
Are not looking for
a significant amount of current income
|
|
|
Want a
professionally managed and diversified portfolio
|
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
|
|
|
Are investing with
long term goals, such as retirement or funding a childs
education
|
|
|
Are willing to
accept the risk that the value of your investment may decline in order to
seek long term growth of capital
|
|
|
Are not looking for
a significant amount of current income
|
|
|
Want a
professionally managed and diversified portfolio
|
The Mercury QA Mid
Cap Fund may be an appropriate investment for you if you:
|
|
Want to invest in
medium sized companies and can accept the additional risk and volatility
associated with stocks of these companies
|
MERCURY QA EQUITY
SERIES, INC.
[GRAPHIC] Fund
Facts
|
|
Are investing with
long term goals, such as retirement or funding a childs
education
|
|
|
Are willing to
accept the risk that the value of your investment may decline in order to
seek long term growth of capital
|
|
|
Are not looking for
a significant amount of current income
|
|
|
Want a
professionally managed and diversified portfolio
|
The Mercury QA Small
Cap Fund may be an appropriate investment for you if you:
|
|
Want to invest in
smaller capitalization U.S. companies and can accept the additional risk
and volatility associated with stocks of these companies
|
|
|
Are investing with
long term goals, such as retirement or funding a childs
education
|
|
|
Are willing to
accept the risk that the value of your investment may decline in order to
seek long term growth of capital
|
|
|
Are not looking for
a significant amount of current income
|
|
|
Want a
professionally managed and diversified portfolio
|
The Mercury QA
International Fund may be an appropriate investment for you if
you:
|
|
Are looking for
exposure to a variety of foreign markets and can accept the additional
risk and volatility associated with foreign investing
|
|
|
Are investing with
long term goals, such as retirement or funding a childs
education
|
|
|
Are willing to
accept the risk that the value of your investment may decline in order to
seek long term growth of capital
|
|
|
Are not looking for
a significant amount of current income
|
|
|
Want a
professionally managed and diversified portfolio
|
RISK/RETURN BAR CHART AND TABLE
Since the Funds are
scheduled to begin operating on May 17, 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 the 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 Fund
s 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 |
|
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 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% |
|
|
|
|
|
|
|
|
|
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% |
|
Total Net 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% |
|
Total Net Operating
Expenses (i) |
|
1.75% |
|
2.00% |
|
2.75% |
|
2.75% |
|
(footnotes appear
on next page)
MERCURY QA EQUITY
SERIES, INC.
[GRAPHIC] Fund
Facts
(a)
|
In
addition, certain securities dealers may charge a fee to process a
purchase or sale of shares. See How To Buy, Sell, Transfer and
Exchange SharesIf you want toBuy shares and
Sell your 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
Total Net 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 Fund
s operating expenses remain the same. This assumption is not meant to
indicate you will receive a 5% annual rate of return. Your annual return
may be more or less than the 5% used in these examples. Although your
actual costs may be higher or lower, based on these assumptions, your costs
would be:
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 in
foreign countries included in the EAFE Index. Country weightings are in
similar proportions to their weightings in the EAFE Index.
The investment
adviser seeks to maximize each Funds growth of capital 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.
MERCURY QA EQUITY
SERIES, INC.
[GRAPHIC] About the
Details
Quantitative Analysis
focuses on quantifiable
measures such as the value of assets and profitability as opposed to
qualitative considerations such as the character of management.
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
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 Fund
s investment objective is fundamental and may not be changed
without shareholder approval. Each Funds 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
discusses the principal risks of investing in a Fund, which are
summarized under About the Mercury QA Equity FundsWhat
are the main risks of investing in the Funds above. This
section also discusses additional 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.
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.
|
MERCURY QA
EQUITY SERIES, INC.
[GRAPHIC] About the
Details
Net Asset Value
the market value in
U.S. dollars of a Funds total assets after deducting
liabilities, divided by the number of shares outstanding.
|
|
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
market segment 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.
MERCURY QA
EQUITY SERIES, INC.
[GRAPHIC] About the
Details
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.
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 Fund
s 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.
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:
MERCURY QA
EQUITY SERIES, INC.
[GRAPHIC] About the
Details
|
|
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 Funds 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 Fund
s 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.
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.
MERCURY QA
EQUITY SERIES, INC.
[GRAPHIC] About the
Details
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 Fund
s 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 12, 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
|
|
|
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 fund
s conversion schedule will apply. In any event, the length of
time that you hold the original and exchanged Class B shares in both
funds will count toward the conversion schedule.
The conversion
schedule may be modified in certain other cases as well.
Class C
Shares
If you redeem
Class C shares 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 Fund
s
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.
|
|
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 Fund
s 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.
Capital gains are generally taxed at different rates than ordinary
income depending on how long a Fund holds its
investments.
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 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.
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 Funds 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]
[This page
intentionally left blank]
[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 SECs 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 #
19088-0400.
©Fund
Asset Management, L.P.
Mercury QA
Equity Series, Inc.
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
[GRAPHIC]
PROSPECTUS
·
April 14, 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 April 14, 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 April 14,
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 Details
How 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 Funds 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 Funds 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 Fund
s operations require cash, such as when the Fund redeems shares
or pays dividends, and could result in the Fund borrowing to meet
short-term cash requirements or incurring capital losses on the sale
of illiquid investments.
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 Corporation
s 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 Funds 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 Funds shares and in the yield on a Fund
s 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 Funds
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 Fund
s 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 dealer
s 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 companys 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 indexs 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 indexs
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 Fund
s outstanding voting securities (which for this purpose and
under the Investment Company Act means the lesser of (i) 67% of the
shares represented at a meeting at which more than 50% of the
outstanding shares are represented or (ii) more than 50% of the
outstanding shares); provided, 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 Fund
s 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 Fund
s 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 Fund
s tracking error when compared to its market segment. Changes
in the securities comprising a Funds 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 Fund
s 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 eight individuals, six 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
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Position(s) With
the Corporation
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Principal
Occupation(s) During Past 5
Years
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M. Colyer
Crum, 67
104 Westcliff Road
Weston, MA 02193 |
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Director(2)(3)
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Currently
James R. Williston Professor of
Investment Management Emeritus, Harvard
Business School; James R. Williston Professor of
Investment Management, Harvard Business School
from 1971 to 1996; Director of Cambridge
Bancorp |
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Laurie Simon
Hodrick, 37
809 Uris Hall
3022 Broadway
New York, NY 10027 |
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Director(2)(3) |
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Professor of
Finance and Economics, Graduate
School of Business, Columbia University since
1998; Associate Professor of Finance and
Economics, Graduate School of Business,
Columbia University from 1996 to 1998; Associate
Professor of Finance, J.L. Kellogg Graduate School
of Management, Northwestern University from
1992 to 1996 |
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Jack B.
Sunderland, 71
P.O. Box 7
West Cornwall, CT 06796 |
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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) |
|
Fred G.
Weiss, 58
16450 Maddalena Place
Delray Beach, FL 33446 |
|
Director(2)(3) |
|
Director of
Watson Pharmaceutical, Inc. since
2000; Director of Parkinsons Advocacy Network
since 1999; Managing Director of FGW Associates
since 1997; Vice President, Planning Investment
and Development of Warner Lambert Co. from
1979 to 1997 |
|
|
Arthur
Zeikel, 67 |
|
Director(1)(2) |
|
Chairman of
the Manager and FAM from 1997 to
1999 and President thereof from 1977 to 1997;
Chairman of Princeton Services from 1997 to
1999, Director thereof from 1993 to 1999 and
President thereof from 1993 to 1997; Executive
Vice President of Merrill Lynch & Co., Inc.
(ML & Co.) from 1990 to 1999 |
|
|
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 |
|
Name
and Age
|
|
Position(s) With
the Corporation
|
|
Principal
Occupation(s) During Past 5
Years
|
|
|
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 D
Onofrio, 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 |
|
|
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 |
|
|
Name
and Age
|
|
Position(s) With
the Corporation
|
|
Principal
Occupation(s) During Past 5
Years
|
|
|
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) |
|
Vice
President (Legal Advisory) of FAM and
certain of its affiliates since 2000; 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 (15 persons) owned an aggregate of less than
1% of the outstanding shares of common stock of ML & Co. and
owned an aggregate of less than 1% of the outstanding shares of any
of the 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 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)
|
M. Colyer
Crum |
|
$8,000 |
|
None |
|
$122,975 |
Laurie Simon
Hodrick |
|
$8,000 |
|
None |
|
$
53,000 |
Jack B.
Sunderland |
|
$8,000 |
|
None |
|
$143,975 |
Stephen B.
Swensrud |
|
$8,000 |
|
None |
|
$232,250 |
J. Thomas
Touchton |
|
$8,000 |
|
None |
|
$142,725 |
Fred G.
Weiss |
|
$8,000 |
|
None |
|
$122,975 |
(1)
|
The
non-interested Directors serve on the boards of Mercury and
Affiliates-Advised Funds as follows: Mr. Crum (14 registered
investment companies consisting of 14 portfolios); Ms. Hodrick (14
registered investment companies consisting of 14 portfolios); Mr.
Sunderland (20 registered investment companies consisting of 37
portfolios); Mr. Swensrud (26 registered investment companies
consisting of 64 portfolios); Mr. Touchton (20 registered
investment companies consisting of 37 portfolios); and Mr. Weiss
(14 registered investment companies consisting of 14
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 Charges
Purchase 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 as necessary to assure that
expenses incurred (excluding Distribution and/or Service Fees) of
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.
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. DOnofrio 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 ServicesExchange 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 Funds shares of any class
at any time in response to conditions in the securities markets or
otherwise and may thereafter resume such offering from time to time.
Any order may be rejected by 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 Fund
s Class B and Class C shares.
The payments under the
Distribution Plans are subject to the provisions of Rule 12b-1 under
the Investment Company Act, and are based on a percentage of average
daily net assets attributable to the shares regardless of the amount
of expenses incurred and, accordingly, distribution-related revenues
from the Distribution Plans may be more or less than
distribution-related expenses. Information with respect to the
distribution-related revenues and expenses is presented to the Board
of Directors of the Corporation for their consideration in connection
with their deliberations as to the continuance of the Class 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 Agent
s register and (iii) the stencil address must not have changed
within 30 days. Certain rules may apply regarding certain account
types such as, but not limited to, UGMA/UTMA accounts, Joint
Tenancies with 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 Shares
Class B and Class C SharesDeferred 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 investor
s 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 investors 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 shareholders 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 shareholder
s 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 shareholders original investment may be reduced
correspondingly. Purchases of additional shares concurrent with
withdrawals are ordinarily disadvantageous to the shareholder because
of sales charges and tax liabilities. 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 Services
Automatic 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 Fund
s investment company taxable income available to be distributed
to shareholders as ordinary income, rather than increasing or
decreasing the amount of the Funds 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 shareholders basis in the Class A
shares acquired will be the same as such shareholders basis in
the Class B shares converted, and the holding period of the acquired
Class A shares will include the holding period of the converted Class
B shares.
Upon a sale or exchange of its
shares, a shareholder will realize a taxable gain or loss depending
on its basis in the shares. Such gain or loss will be treated as
capital gain or loss if the shares are capital assets in the
shareholders hands. In the case of an individual, any such
capital gain will be treated as short-term capital gain, taxable at
the same rates as ordinary income if the shares were held for not
more than 12 months and capital gain taxable at the maximum rate of
20% if such shares were held for more than 12 months. In the case of
a corporation, any such capital gain will be treated as long term
capital gain, taxable at the same rates as ordinary income, if such
shares were held for more than 12 months. Any such loss will be
treated as long term capital loss if such shares were held for more
than 12 months. A loss recognized on the sale or exchange 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 Fund
s 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.
A Fund may provide information
designed to help investors understand how the Fund is seeking to
achieve its investment objectives. This may include information about
past, current or possible economic, market, political, or other
conditions, descriptive information on general principles of
investing such as asset allocation, diversification and risk
tolerance, discussion of a Funds portfolio composition,
investment philosophy, strategy or investment techniques, comparisons
of the Funds performance or portfolio composition to that of
other funds or types of investments, indices relevant to the
comparison being made, or to a hypothetical or model portfolio. A
Fund may also quote various measures of volatility and benchmark
correlation in advertising and other materials, and may compare these
measures to those of other funds or types of investments.
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 10,000 shares of each Fund, for an aggregate
of $600,000.00. 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 SharesDetermination of Net Asset Value
above.
Prior to the offering of each Fund
s 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. 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.
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 Moodys means
promissory obligations not having an original maturity in excess
of nine months. Moodys makes no representations as to
whether such commercial paper is by any other definition
commercial paper or is exempt from registration under
the Securities Act of 1933, as amended (the Securities Act
).
Moodys commercial
paper ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity
in excess of nine months. Moodys makes no representation
that such obligations are exempt from registration under the
Securities Act, nor does it represent that any specific note is a
valid obligation of a rated issuer or issued in conformity with any
applicable law. Moodys employs the following three
designations, all judged to be investment grade, to indicate the
relative repayment capacity of rated issuers:
Issuers rated
Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory
obligations. Prime-1 repayment capacity will normally be
evidenced by the following characteristics:
|
Leading market positions in well-established
industries
|
|
High rates of return on funds employed
|
|
Conservative capitalization structures with moderate
reliance on debt and ample asset protection
|
|
Broad margins in earnings coverage of fixed financial
charges and higher internal cash generation
|
|
Well established access to a range of financial markets
and assured sources of alternate liquidity
|
Issuers rated
Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics cited
above but to a lesser degree. Earnings trends and coverage
ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity
is maintained.
Issuers rated
Prime-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory
obligations. The effect of industry characteristics and market
composition may be more pronounced. Variability in earnings and
profitability may result in changes in level of debt protection
measurements and the requirement for relatively high financial
leverage. Adequate alternative liquidity is
maintained.
Issuers rated Not
Prime do not fall within any of the Prime rating
categories.
If an issuer represents
to Moodys that its commercial paper obligations are
supported by the credit of another entity or entities, then the
name or names of such supporting entity or entities are listed
within parentheses beneath the name of the issuer, or there is a
footnote referring the reader to another page for the name or
names of the supporting entity or entities. In assigning ratings
to such issuers, Moodys evaluates the financial strength of
the indicated affiliated corporations, commercial banks,
insurance companies, foreign governments or other entities, but
only as one factor in the total rating assessment. Moodys
makes no representation and gives no opinion on the legal
validity or enforceability of any support arrangement. You are
cautioned to review with your counsel any questions regarding
particular support arrangements.
Description of Moodys Preferred Stock
Ratings
Because of the
fundamental differences between preferred stocks and bonds, a
variation of the bond rating symbols is being used in the quality
ranking of preferred stocks. The symbols, presented below, are
designed to avoid comparison with bond quality in absolute terms.
It should always be borne in mind that preferred stocks occupy a
junior position to bonds within a particular capital structure
and that these securities are rated within the universe of
preferred stocks.
Preferred stock rating
symbols and their definitions are as follows:
aaa
|
|
An issue
that is rated aaa is considered to be a top-quality
preferred stock. This rating indicates good asset protection
and the least risk of dividend impairment within the universe
of preferred stocks.
|
|
aa
|
|
An issue
that is rated aa is considered a high-grade
preferred stock. This rating indicates that there is reasonable
assurance that earnings and asset protection will remain
relatively well maintained in the foreseeable
future.
|
|
a
|
|
An issue
that is rated a is considered to be an upper-medium
grade preferred stock. While risks are judged to be somewhat
greater than in the aaa and aa
classifications, earnings and asset protection are,
nevertheless, expected to be maintained at adequate
levels.
|
|
baa
|
|
An issue
that is rated baa is considered to be medium grade,
neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable
over any great length of time.
|
|
ba
|
|
An issue
that is rated ba is considered to have speculative
elements and its future cannot be considered well assured.
Earnings and asset protection may be very moderate and not well
safeguarded during adverse periods. Uncertainty of position
characterizes preferred stocks in this class.
|
|
b
|
|
An issue
that is rated b generally lacks the characteristics
of a desirable investment. Assurance of dividend payments and
maintenance of other terms of the issue over any long period of
time may be small.
|
|
caa
|
|
An issue
that is rated caa is likely to be in arrears on
dividend payments. This rating designation does not purport to
indicate the future status of payments.
|
|
ca
|
|
An issue
that is rated ca is speculative in a high degree
and is likely to be in arrears on dividends with little
likelihood of eventual payment.
|
|
c
|
|
This is
the lowest rated class of preferred or preference stock. Issues
so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
|
|
Note: Moodys
may apply numerical modifiers 1, 2 and 3 in each rating
classification from aa through b in its
preferred stock rating system. The modifier 1 indicates that the
security ranks in the higher end of its generic rating category;
the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic
rating category.
Description of Standard & Poors Corporate
Debt Ratings
A Standard & Poor
s corporate or municipal rating is a current assessment of
the creditworthiness of an obligor with respect to a specific
obligation. This assessment may take into consideration 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 & Poor
s. Capacity to pay interest and repay principal is
extremely strong.
|
|
AA
|
|
Debt
rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest-rated issues only in
small degree.
|
|
A
|
|
Debt
rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher-rated categories.
|
|
BBB
|
|
Debt
rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this
category than for debt in higher-rated categories.
|
|
Debt rated BB, B, CCC
and C 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 & Poor
s commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity
of no more than 365 days. Ratings are graded into four
categories, ranging from A for the highest quality
obligations to D for the lowest. The four categories
are as follows:
A |
|
Issues
assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues
in this category are delineated with the numbers 1, 2 and 3 to
indicate the relative degree of safety. |
|
A-1 |
|
This
designation indicates that the degree of safety regarding
timely payment is either overwhelming or
very strong. Those issues determined to possess overwhelming
safety characteristics are denoted with a
plus (+) sign designation. |
|
A-2 |
|
Capacity
for timely payment on issues with this designation is strong.
However, the relative degree of
safety is not as high as for issues designated A-1.
|
|
A-3 |
|
Issues
carrying this designation have a satisfactory capacity for
timely payment. They are, however,
somewhat more vulnerable to the adverse effects of changes in
circumstances than obligations carrying
the higher designations. |
|
B |
|
Issues
rated B are regarded as having only adequate
capacity for timely payment. However, such
capacity may be damaged by changing conditions or short-term
adversities. |
|
C |
|
This
rating is assigned to short-term debt obligations with a
doubtful capacity for payment. |
|
D |
|
This
rating indicates that the issue is either in default or is
expected to be in default upon maturity. |
The commercial paper
rating is not a recommendation to purchase or sell a security.
The ratings are based on current information furnished to
Standard & 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 & Poor
s preferred stock rating is an assessment of the capacity
and willingness of an issuer to pay preferred stock dividends and
any applicable sinking fund obligations. A preferred stock rating
differs from a bond rating inasmuch as it is assigned to an
equity issue, which issue is intrinsically different from, and
subordinated to, a debt issue. Therefore, to reflect this
difference, the preferred stock rating symbol will normally not
be higher than the bond rating symbol assigned to, or that would
be assigned to, the senior debt of the same issuer.
The preferred stock
ratings are based on the following considerations:
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 issuers future financial
strength and credit quality.
Fitch ratings do not
reflect any credit enhancement that may be provided by insurance
policies or financial guaranties unless otherwise
indicated.
Bonds carrying the same
rating are of similar but not necessarily identical credit
quality since the rating categories do not fully reflect small
differences in the degrees of credit risk.
Fitch ratings are not
recommendations to buy, sell, or hold any security. Ratings do
not comment on the adequacy of market price, the suitability of
any security for a particular investor, or the tax-exempt nature
or taxability of payments made in respect of any
security.
Fitch ratings are based
on information obtained from issuers, other obligors,
underwriters, their experts, and other sources Fitch believes to
be reliable. Fitch does not audit or verify the truth or accuracy
of such information. Ratings may be changed, suspended, or
withdrawn as a result of changes in, or the unavailability of,
information or for other reasons.
AAA
|
|
Bonds
considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected
by reasonably foreseeable events.
|
|
AA |
|
Bonds
considered to be investment grade and of very high credit
quality. The obligors ability to pay
interest and repay principal is very strong, although not quite
as strong as bonds rated AAA. Because
bonds rated in the AAA and AA categories
are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated
F-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 issuers future financial
strength.
Bonds that have the
same rating are of similar but not necessarily identical credit
quality since rating categories cannot fully reflect the
differences in degrees of credit risk.
BB |
|
Bonds
are considered speculative. The obligors ability to pay
interest and repay principal may be affected
over time by adverse economic changes. However, business and
financial alternatives can be identified
which could assist the obligor in satisfying its debt service
requirements. |
B |
|
Bonds
are considered highly speculative. While bonds in this class
are currently meeting debt
service requirements, the probability of continued timely payment
of principal and interest
reflects the obligors limited margin of safety and the need
for reasonable business and
economic activity throughout the life of the issue. |
|
CCC |
|
Bonds
have certain identifiable characteristics which, if not
remedied may lead to default. The
ability to meet obligations requires an advantageous business and
economic environment. |
|
CC |
|
Bonds
are minimally protected. Default in payment of interest and/or
principal seems probable
over time. |
|
C |
|
Bonds
are in 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. |
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Code #19089-0400
PART
C. OTHER INFORMATION
Item
23. Exhibits:
Exhibit
Number
|
|
|
1 |
|
|
|
|
|
Amended
and Restated Articles of Incorporation of
Registrant.(4) |
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.(4) |
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).(4) |
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).(4) |
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).(4) |
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).(4) |
6 |
|
|
|
|
|
None. |
7 |
|
|
|
|
|
Form of
Custody Agreement.(4) |
8 |
|
(a) |
|
|
|
Form of
Administration Agreement between Registrant and Mercury Asset
Management US, a
division of Fund Asset Management, L.P.(4) |
8 |
|
(b) |
|
|
|
Form of
Transfer Agency, Dividend Disbursing Agency and Shareholder
Servicing Agency
Agreement between Registrant and Financial Data Services,
Inc.(4) |
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.(4) |
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.(4) |
9 |
|
|
|
|
|
Opinion
and consent of Swidler Berlin Shereff Friedman, LLP, counsel
for Registrant.(4) |
10 |
|
(a) |
|
|
|
Consent
of Deloitte & Touche LLP, independent auditors for
Registrant. |
10 |
|
(b) |
|
|
|
Consent
of Swidler Berlin Shereff Friedman, LLP, counsel 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.(4) |
13 |
|
(b) |
|
|
|
Form of
Class B Shares Distribution Plan and Class B Shares Plan
Sub-Agreement.(4) |
13 |
|
(c) |
|
|
|
Form of
Class C Shares Distribution Plan and Class C Shares Plan
Sub-Agreement.(4) |
14 |
|
(a) |
|
|
|
Rule
18f-3 Plan.(4) |
14 |
|
(b) |
|
|
|
Power
of Attorney for Officers, Directors and
Trustees.(4) |
14 |
|
(c) |
|
|
|
Power
of Attorney for Officers, Directors and Trustees. |
15 |
|
|
|
|
|
Not
applicable. |
16 |
|
|
|
|
|
Code of
Ethics.(4) |
(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.
|
(4)
|
Incorporated by reference to identically numbered
exhibit to Pre-Effective Amendment No. 1 to Registrants
Registration Statement on Form N-1A (File Nos. 333-88849 and
811-09617).
|
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 Fund
s 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 The Portfolio Management
Management of the Funds in the Prospectus
constituting Part A of the Registration Statement and under
Management of the FundManagement 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 Amendment 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 14th
day of April, 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. 2 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) |
|
April
14, 2000 |
|
|
*
(Donald C. Burke) |
|
Vice
President and Treasurer
(Principal Financial Officer and
Principal Accounting Officer) |
|
|
|
|
*
(M.
Colyer Crum) |
|
Director |
|
|
|
*
(Laurie Simon Hodrick) |
|
Director |
|
|
|
*
(Jack B. Sunderland) |
|
Director |
|
|
|
|
*
(Stephen B. Swensrud) |
|
Director |
|
|
|
|
*
(J.
Thomas Touchton) |
|
Director |
|
|
|
|
*
(Fred G. Weiss) |
|
Director |
|
|
|
*
(Arthur Zeikel) |
|
Director |
|
|
|
/S
/ TERRY
K. GLENN
*By:
(Terry K. Glenn, Attorney-in-Fact) |
|
|
|
April
14, 2000 |
INDEX
TO EXHIBITS
Exhibit
Number
|
|
Description
|
10 |
|
(a) |
|
Consent
of Deloitte & Touche LLP, independent auditors for
Registrant. |
10 |
|
(b) |
|
Consent
of Swidler Berlin Shereff Friedman, LLP, counsel for
Registrant. |
12 |
|
|
|
Form of
Certificate of Fund Asset Management L.P. |
14 |
|
(c) |
|
Power
of Attorney for Officers, Directors and Trustees. |