<PAGE>
As filed with the Securities and Exchange Commission on November 18, 1999
Securities Act File No.
Investment Company Act File No.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [_]
Post-Effective Amendment No. [_]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. [_]
(Check appropriate box or boxes)
---------------
MERCURY LARGE CAP SERIES FUNDS, INC.
(Exact name of Registrant as specified in charter)
800 Scudders Mill Road, Plainsboro, New Jersey 08536
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (888) 763-2260
TERRY K. GLENN
Mercury Large Cap Series Funds, Inc.
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: MICHAEL J. HENNEWINKEL, Esq.
LAURIN BLUMENTHAL KLEIMAN, Esq. Fund Asset Management, L.P.
Brown & Wood LLP P.O. Box 9011
One World Trade Center Princeton, New Jersey 08543-9011
New York, New York 10048
---------------
Title of Securities being registered: Shares of Common Stock, par value $.10
per share.
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.
---------------
Master Large Cap Series Trust has also executed this Registration Statement.
- -------------------------------------------------------------------------------
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not use this prospectus to sell securities until the registration statement +
+containing this prospectus, which has been filed with the Securities and +
+Exchange Commission, is effective. This prospectus is not an offer to sell +
+these securities and is not soliciting an offer to buy these securities in +
+any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS . , 1999
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED NOVEMBER 18, 1999
Mercury Large Cap Growth Fund
Mercury Large Cap Value Fund
Mercury Large Cap Core Fund
OF MERCURY LARGE CAP SERIES FUNDS, INC.
(LOGO)
MERCURY ASSET MANAGEMENT
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.
<PAGE>
Table of Contents
PAGE
[GRAPHIC]
FUND FACTS
- -------------------------------------------------------------------------------
About the Mercury Large Cap Series Funds..................................... 2
Risk/Return Bar Chart........................................................ 3
Fees and Expenses............................................................ 4
[GRAPHIC]
ABOUT THE DETAILS
- -------------------------------------------------------------------------------
How the Funds Invest......................................................... 7
Investment Risks............................................................. 9
Statement of Additional Information......................................... 10
[GRAPHIC]
ACCOUNT CHOICES
- -------------------------------------------------------------------------------
Pricing of Shares........................................................... 11
How to Buy, Sell, Transfer and Exchange Shares.............................. 16
How Shares are Priced....................................................... 20
Fee-Based Programs.......................................................... 21
Dividends and Taxes......................................................... 21
[GRAPHIC]
THE MANAGEMENT TEAM
- -------------------------------------------------------------------------------
Management of the Funds..................................................... 23
Master/Feeder Structure..................................................... 23
[GRAPHIC]
TO LEARN MORE
- -------------------------------------------------------------------------------
Shareholder Reports................................................. Back Cover
Statement of Additional Information................................. Back Cover
MERCURY LARGE CAP SERIES FUNDS, INC.
<PAGE>
[GRAPHIC] Fund Facts
In an effort to help you better understand the many concepts involved in making
an investment decision, we have defined the highlighted terms in this
prospectus in the sidebar.
Equity Securities -- securities representing ownership of a corporation or
securities whose price is linked to the value of securities that represent
company ownership.
Large Cap Companies -- companies whose market capitalization is higher than the
top 5% of U.S. securities traded.
Common Stock -- units of ownership of a corporation.
Russell 1000(R) Index -- an index that measures the performance of the 1,000
largest companies in the Russell 3000(R) Index, which represents approximately
92% of the total market capitalization of the Russell 3000(R) Index. The
Russell 3000(R) Index measures the 3,000 largest U.S. companies based on total
market capitalization, which represents approximately 98% of the investable
U.S. equity market.
ABOUT THE MERCURY LARGE CAP SERIES FUNDS
- --------------------------------------------------------------------------------
What are the Funds' investment objectives?
Mercury Large Cap Series Funds, Inc. is an open end series type mutual fund
that consists of three separate Funds, each of which issues its own shares:
. Mercury Large Cap Growth Fund
. Mercury Large Cap Value Fund
. Mercury Large Cap Core Fund
The investment objective of each Fund is long term capital growth. In other
words, each Fund tries to choose investments that will increase in value.
Current income from dividends and interest will not be an important
consideration in selecting portfolio securities.
What are the Funds' main investment strategies?
Each Fund invests primarily in a diversified portfolio of equity securities of
large cap companies located in the United States. Depending on its investment
goals, each Fund will invest in equity securities that Fund management believes
are undervalued or have good prospects for earnings growth.
A company whose earnings per share grow faster than inflation and the economy
in general usually has a higher stock price over time than a company with
slower earnings growth. The Funds' evaluation of the prospects for a company's
industry or market sector is an important factor in evaluating a particular
company's earnings prospects. A company's stock is considered to be undervalued
when its price is less than what the Investment Adviser believes it is worth.
Each Fund also may invest up to 10% of its assets in equity securities of
companies located in countries other than the United States. We cannot
guarantee that any Fund will achieve its objective.
The Investment Adviser uses multi-factor quantitative models to look for
companies that, in its opinion, are consistent with the investment strategy of
each individual Fund. Each Fund seeks its objective by investing primarily in
common stocks of companies the Investment Adviser selects from among those
included in the Fund's applicable Russell 1000(R) Index, as follows:
<TABLE>
<CAPTION>
Fund Applicable Index
- -----------------------------------------------------
<S> <C>
Large Cap Growth Fund Russell 1000(R) Growth Index
Large Cap Value Fund Russell 1000(R) Value Index
- -----------------------------------------------------
Large Cap Core Fund Russell 1000(R) Index
</TABLE>
- --------------------------------------------------------------------------------
MERCURY LARGE CAP SERIES FUNDS, INC.
2
<PAGE>
[GRAPHIC] Fund Facts
Each Fund is a "feeder" fund that invests all of its assets in a corresponding
"master" portfolio (each, a "Portfolio") of the Master Large Cap Series Trust
(the "Trust") that has the same objectives as the Fund. All investments will be
made at the Trust level. This structure is sometimes called a "master/feeder"
structure. Each Fund's investment results will correspond directly to the
investment results of the Portfolio in which it invests. For simplicity, this
Prospectus uses the term "Fund" to include the Portfolio in which a Fund
invests.
What are the main risks of investing in the Funds?
As with any fund, the value of a Fund's investments--and therefore the value of
Fund shares--may go up or down. These changes may occur because a particular
stock market is rising or falling. 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
the stock markets, the relevant indices or other funds with similar investment
objectives and investment strategies. Since foreign markets may differ
significantly from U.S. markets in terms of both economic conditions and
government regulation, investment in foreign securities involves special risks.
If the value of your Fund's investments goes down, you may lose money.
Who should invest?
A Fund may be an appropriate investment for you if you:
. Are investing with long term goals
in mind, such as retirement or
funding a child"s education
. Want a professionally managed and
diversified portfolio
. Are willing to accept the risk
that the value of your investment
may decline in order to seek long
term capital growth
. Are not looking for a significant
amount of current income
RISK/RETURN BAR CHART
- --------------------------------------------------------------------------------
This Prospectus does not include a Risk/Return Bar Chart because, as of the
date of this Prospectus, the Funds have not yet commenced operations.
MERCURY LARGE CAP SERIES FUNDS, INC.
3
<PAGE>
[GRAPHIC] Fund Facts
UNDERSTANDING EXPENSES
Fund investors pay various expenses, either directly or indirectly. Listed
below are some of the main types of expenses, which all mutual funds may
charge:
Expenses paid directly by the shareholder:
Shareholder Fees -- these fees include sales charges which you may pay when you
buy or sell shares of a Fund.
Expenses paid indirectly by the shareholder:
Annual Fund Operating Expenses -- expenses that cover the costs of operating a
Fund.
Management Fee -- a fee paid to the Investment Adviser for managing a Fund.
Distribution Fees -- fees used to support a 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.
FEES AND EXPENSES
- --------------------------------------------------------------------------------
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.
This table shows 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.
<TABLE>
<CAPTION>
Shareholder Fees (Fees
paid directly from
your
investment)(a): Class I Class A Class B(b) Class C
- -------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum Sales Charge
(Load) imposed on
purchases (as a
percentage of offering
price) 5.25%(c) 5.25%(c) None None
- -------------------------------------------------------------------
Maximum Deferred Sales
Charge (Load) (as a
percentage of
original purchase
price or redemption
proceeds, whichever
is lower) None(d) None(d) 4.00%(c) 1.00%(c)
- -------------------------------------------------------------------
Maximum Sales Charge
(Load) imposed on
Dividend
Reinvestments None None None None
- -------------------------------------------------------------------
Redemption Fee None None None None
- -------------------------------------------------------------------
Exchange Fee None None None None
- -------------------------------------------------------------------
Annual Fund Operating
Expenses (Expenses
that are deducted from
the Funds' total
assets)(e):
- -------------------------------------------------------------------
Management Fee(f)
- -------------------------------------------------------------------
Distribution and/or
Service (12b-1)
Fees(g) None 0.25% 1.00% 1.00%
- -------------------------------------------------------------------
Other Expenses
(including transfer
agency fees)(h)
- -------------------------------------------------------------------
Total Annual Fund
Operating Expenses
- -------------------------------------------------------------------
Fee Waiver and/or
Expense
Reimbursement(i)
- -------------------------------------------------------------------
Net Total Operating
Expenses(j)
- -------------------------------------------------------------------
</TABLE>
(a) Certain securities dealers may charge a fee to process a purchase or sale
of shares.
(b) Class B shares automatically convert to Class A shares about eight years
after you buy them and will no longer be subject to distribution fees.
(c) Some investors may qualify for reductions in the sales charge (load).
(d) You may pay a deferred sales charge if you purchase $1 million or more and
you redeem within one year.
(e) For each Fund, the fees and expenses include the expenses of both the Fund
and the Portfolio in which it invests.
(f) Paid by each Portfolio. The Investment Adviser provides accounting services
to each Portfolio at its cost.
(g) The Funds call the "Service Fee" an "Account Maintenance Fee." Account
Maintenance Fee is the term used elsewhere in this Prospectus and in all
other materials. If you hold Class B or C shares
MERCURY LARGE CAP SERIES FUNDS, INC.
4
<PAGE>
[GRAPHIC] Fund Facts
(Footnotes continued from previous page)
for a long time, it may cost you more in distribution (12b-1) fees than the
maximum sales charge that you would have paid if you had bought one of the
other classes.
(h) Based on estimated amounts for the current fiscal year. 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. Each Fund
also pays a $0.20 monthly closed account charge, which is assessed upon all
accounts that close during the calendar year. The fee begins the month
following the month the account is closed and ends at the end of the
calendar year.
(i) With respect to each Fund, the Investment Adviser has entered into a
contractual arrangement with either the Fund or its Portfolio as necessary
to assure that expenses incurred by each class of that Fund will not exceed
the following--Class I: %; Class A: %; Class B: %; and Class C: %.
(j) The net total operating expenses reflect the Investment Adviser's 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 LARGE CAP SERIES FUNDS, INC.
5
<PAGE>
[GRAPHIC] Fund Facts
Example:
These examples are intended to help you compare the cost of investing in the
Funds 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 the Fund's
operating expenses remain the same. This assumption is not meant to indicate
you will receive a 5% annual rate of return. Your annual return may be more or
less than the 5% used in these examples. Although your actual costs may be
higher or lower, based on these assumptions, your costs would be:
Expenses if you did redeem your shares:*
<TABLE>
<CAPTION>
Class I Class A Class B Class C
- ----------------------------------------------
<S> <C> <C> <C> <C>
One year $ $ $ $
- ----------------------------------------------
Three years $ $ $ $
- ----------------------------------------------
Expenses if you did not redeem your shares:*
<CAPTION>
Class I Class A Class B Class C
- ----------------------------------------------
<S> <C> <C> <C> <C>
One year $ $ $ $
- ----------------------------------------------
Three years $ $ $ $
- ----------------------------------------------
</TABLE>
* For each Fund, the expenses include the expenses of both the Fund and the
Portfolio in which it invests.
MERCURY LARGE CAP SERIES FUNDS, INC.
6
<PAGE>
[GRAPHIC] About the Details
About the Portfolio Manager -- Robert C. Doll, Jr. is a Senior Vice President
and the Portfolio Manager of the Funds. Mr. Doll has been a Senior Vice
President of Fund Asset Management since 1999. Prior to joining the Investment
Adviser, Mr. Doll was Chief Investment Officer of OppenheimerFunds, Inc. in
1999 and an Executive Vice President thereof from 1991 to 1999.
About the Investment Adviser -- The Funds are managed by Fund Asset Management.
HOW THE FUNDS INVEST
- --------------------------------------------------------------------------------
Each Fund's objective is long term capital growth. Each Fund tries to achieve
its objective by investing primarily in a diversified portfolio of equity
securities of large cap companies located in the United States.
Each Fund seeks its investment objective by investing at least 80% of its total
assets in common stocks of companies the Investment Adviser selects from among
those included in the Fund's applicable Russell 1000(R) index. The Investment
Adviser uses a different multi-factor quantitative model to look for companies
within the applicable Russell 1000(R) index that, in its opinion, are
consistent with the investment objective of each Fund.
As a large cap fund, each Fund's common stock holdings will have a dollar-
weighted market capitalization that exceeds that of the top 5% of U.S.
securities traded.
Each Fund will seek to outperform its benchmark:
. The Large Cap Growth Fund will
seek to outperform the Russell
1000(R) Growth Index by investing
in equity securities that the
Investment Adviser believes have
above average earnings prospects.
The Russell 1000(R) Growth Index
(which consists of those Russell
1000(R) securities with a greater-
than-average growth orientation)
is a subset of the Russell 1000(R)
Index.
. The Large Cap Value Fund will seek
to outperform the Russell 1000(R)
Value Index by investing in equity
securities that the Investment
Adviser believes are selling at
below normal valuations. The
Russell 1000(R) Value Index,
another subset of the Russell
1000(R) Index, consists of those
Russell 1000(R) companies with
lower price-to-book ratios and
lower forecasted growth values.
. The Large Cap Core Fund has a
blended investment strategy that
emphasizes a mix of both growth
and value and will seek to
outperform the Russell 1000(R)
Index.
Although the Growth Fund emphasizes growth-oriented investments, the Value Fund
emphasizes value-oriented investments and the Core Fund uses a blend of growth
and value, there are equity investment strategies common to all three Funds. In
selecting securities for a Fund's portfolio from that Fund's benchmark
universe, the Investment Adviser uses a different proprietary quantitative
model for each Fund. Each model employs three filters in its initial screens:
earnings momentum, earnings surprise and valuation. For each Fund, the
Investment
MERCURY LARGE CAP SERIES FUNDS, INC.
7
<PAGE>
[GRAPHIC] About the Details
Adviser looks for strong relative earnings growth, preferring internal growth
and unit growth to growth resulting from a company's pricing structure. A
company's stock price relative to its earnings and book value is also
examined -- if the Investment Adviser believes that a company is overvalued, it
will not be considered as an investment for any Fund. After the initial
screening is done, the Investment Adviser relies on fundamental analysis, using
both internal and external research, to optimize its quantitative model to
choose companies the Investment Adviser believes have strong, sustainable
earnings growth with current momentum at attractive price valuations.
Each Fund typically will hold between 60 and 100 stocks from among those
included in its applicable Russell 1000(R) index. Because a Fund generally will
not hold all the stocks in its applicable index, and because a Fund's
investments may be allocated in amounts that vary from the proportional
weightings of the various stocks in that index, the Funds are not "index"
funds. In seeking to outperform the relevant benchmark, however, the Investment
Adviser reviews potential investments using certain criteria that are based on
the securities in the relevant index. These criteria currently include the
following:
. Relative price to earnings and
price to book ratios
. Weighted market capitalization of
the applicable Russell 1000(R)
index as compared to the portfolio
holdings of a particular Fund
. Allocation among the economic
sectors of a Fund's portfolio as
compared to the applicable index
. Weighted individual stocks within
the applicable index
These criteria are explained in detail in the Statement of Additional
Information.
Each Fund also may invest up to 10% of its total assets in securities of
companies organized under the laws of countries other than the United States
that are traded on foreign securities exchanges or in the foreign over-the-
counter markets, including securities of foreign issuers that are represented
by American Depositary Receipts, or "ADRs." Securities of foreign issuers that
are represented by ADRs or that are listed on a U.S. securities exchange or
traded in the U.S. over-the-counter markets are considered "foreign securities"
for the purpose of the Fund's investment allocations. The Fund anticipates that
it would generally limit its foreign securities investments to ADRs of issuers
in developed countries.
Each Fund may invest in convertible securities, preferred stocks and U.S.
Government debt securities (i.e., long term securities that are direct
obligations of the U.S. Government).
MERCURY LARGE CAP SERIES FUNDS, INC.
8
<PAGE>
[GRAPHIC] About the Details
As a temporary measure for defensive purposes, each Fund may invest without
limit in cash, cash equivalents or short-term U.S. Government securities. These
investments may include high quality, short-term money market instruments such
as U.S. Treasury and agency obligations, commercial paper (short-term,
unsecured, negotiable promissory notes of a domestic or foreign company),
short-term debt obligations of corporate issuers and certificates of deposit
and bankers' acceptances. These investments may hamper a Fund's ability to meet
its investment objective.
INVESTMENT RISKS
- --------------------------------------------------------------------------------
This section contains a summary discussion of the general risks of investing in
the Funds. As with any fund, there can be no guarantee that a Fund will meet
its objective, or that a Fund's performance will be positive over any period of
time.
Market Risk and Selection Risk
Market risk is the risk that the equity markets will go down in value,
including the possibility that the equity markets will go down sharply and
unpredictably. Selection risk is the risk that the stocks that the Investment
Adviser selects will underperform the markets or other funds with similar
investment objectives and investment strategies.
Derivatives
The Funds may use derivatives such as futures and options for hedging purposes,
including anticipatory hedges and cross-hedges. Hedging is a strategy in which
a Fund uses a derivative to offset the risk that other Fund holdings may
decrease in value. While hedging can reduce losses, it can also reduce or
eliminate gains if the market moves in a different manner than anticipated by
the Fund or if the cost of the derivative outweighs the benefit of the hedge.
Hedging also involves the risk that changes in the value of the derivative will
not match those of the holdings being hedged as expected by the Fund, in which
case any losses on the holdings being hedged may not be reduced. There can be
no assurance that any Fund's hedging strategy will reduce risk or that hedging
transactions will be either available or cost effective. The Funds are not
required to use hedging and may choose not to do so.
When-Issued and Delayed Delivery Securities and Forward Commitments
When-issued and delayed delivery securities and forward commitments involve the
risk that a security a Fund buys will lose value prior to its delivery. There
also is the risk that the security will not be issued or that the other party
will not meet
MERCURY LARGE CAP SERIES FUNDS, INC.
9
<PAGE>
[GRAPHIC] About the Details
its obligation. If this occurs, the Fund both loses the investment opportunity
for the assets it has set aside to pay for the security and any gain in the
security's price.
Borrowing and Leverage
Each Fund may borrow for temporary emergency purposes including to meet
redemptions. Borrowing may exaggerate changes in the net asset value of a
Fund's shares and in the yield on a Fund's portfolio. Borrowing will cost a
Fund interest expense and other fees. The costs of borrowing may reduce a
Fund's return. Certain securities that the Funds buy may create leverage
including, for example, derivatives, when-issued securities, forward
commitments and options.
Foreign Market Risks
Each Fund may invest in companies located in countries other than the United
States. This may expose each Fund to risks associated with foreign investments.
. The value of holdings traded
outside the U.S. (and any hedging
transactions in foreign
currencies) will be affected by
changes in currency exchange rates
. The costs of non-U.S. securities
transactions tend to be higher
than those of U.S. transactions
. These holdings may be adversely
affected by foreign government
action
. International trade barriers or
economic sanctions against certain
non-U.S. countries may adversely
affect these holdings
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 LARGE CAP SERIES FUNDS, INC.
10
<PAGE>
[GRAPHIC] Account Choices
PRICING OF SHARES
- --------------------------------------------------------------------------------
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 represents an ownership interest in the same investment
portfolio. When you choose your class of shares, you should consider the size
of your investment and how long you plan to hold your shares. Your financial
consultant can help you determine which share class is best suited to your
personal financial goals.
For example, if you select Class I or A shares, you generally pay a sales
charge at the time of purchase. If you buy Class A shares, 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 C shares, you will invest the full amount of your
purchase price, but you will be subject to a distribution fee of 0.75% and an
account maintenance fee of 0.25%. Because these fees are paid out of a Fund's
assets on an ongoing basis, over time these fees increase the cost of your
investment and may cost you more than paying an initial sales charge. In
addition, you may be subject to a deferred sales charge when you sell Class B
or C shares.
The Funds' shares are distributed by Mercury Funds Distributor, a division of
Princeton Funds Distributor, Inc.
MERCURY LARGE CAP SERIES FUNDS, INC.
11
<PAGE>
[GRAPHIC] Account Choices
To better understand the pricing of each Fund's shares, we have summarized the
information below:
<TABLE>
<CAPTION>
Class I Class A Class B Class C
- ------------------------------------------------------------------------------------------------------
<C> <C> <S> <C> <C>
Availability? Limited to certain Generally available Generally available Generally available
investors including: through selected through selected through selected
. Current Class I securities dealers. securities dealers. securities dealers.
shareholders
. Certain Retirement
Plans
. Participants in
certain sponsored
programs
. Certain affiliates
or customers of
selected
securities dealers
- ------------------------------------------------------------------------------------------------------
Initial Sales Yes. Payable at time Yes. Payable at time No. Entire purchase No. Entire purchase
Charge? of of purchase. Lower price is invested in price is invested in
purchase. Lower sales charges shares of the Fund. shares of the Fund.
sales available for
charges available certain larger
for certain larger investments.
investments.
- ------------------------------------------------------------------------------------------------------
Deferred Sales No. (May be charged No. (May be charged Yes. Payable if you Yes. Payable if you
Charge? for purchases over for purchases over redeem within six redeem within one
$1 million that are $1 million that are years of purchase. year of purchase.
redeemed within redeemed within
one year.) one year.)
- ------------------------------------------------------------------------------------------------------
Account No. 0.25% Account 0.25% Account 0.25% Account
Maintenance and Maintenance Fee. Maintenance Fee. Maintenance Fee.
Distribution No Distribution Fee. 0.75% Distribution 0.75% Distribution
Fees Fee. Fee.
- ------------------------------------------------------------------------------------------------------
Conversion to No. No. Yes, automatically No.
Class A Shares? after approximately
eight years.
- ------------------------------------------------------------------------------------------------------
</TABLE>
MERCURY LARGE CAP SERIES FUNDS, INC.
12
<PAGE>
[GRAPHIC] Account Choices
Right of Accumulation -- permits you to pay the sales charge that would apply
to the cost or value (whichever is higher) of all shares you own in the Mercury
mutual funds.
Letter of Intent -- permits you to pay the sales charge that would be
applicable if you add up all shares of Mercury mutual funds that you agree to
buy within a 13 month period. Certain restrictions apply.
Class I And A Shares -- Initial Sales Charge Options
If you select Class I or A shares, you will pay a sales charge at the time of
purchase as shown in the following table.
<TABLE>
<CAPTION>
Dealer
Compensation
As a % of As a % of as a % of
Your Investment Offering Price Your Investment* Offering Price
- ------------------------------------------------------------------
<S> <C> <C> <C>
Less than
$25,000 5.25% 5.54% 5.00%
- ------------------------------------------------------------------
$25,000 but less
than $50,000 4.75% 4.99% 4.50%
- ------------------------------------------------------------------
$50,000 but less
than $100,000 4.00% 4.17% 3.75%
- ------------------------------------------------------------------
$100,000 but
less
than $250,000 3.00% 3.09% 2.75%
- ------------------------------------------------------------------
$250,000 but
less
than $1,000,000 2.00% 2.04% 1.80%
- ------------------------------------------------------------------
$1,000,000 and
over** 0.00% 0.00% 0.00%
- ------------------------------------------------------------------
</TABLE>
* Rounded to the nearest one-hundredth percent.
** If you invest $1,000,000 or more in Class I or A shares, you may not pay an
initial sales charge. However, if you redeem your shares within one year
after purchase, you may be charged a deferred sales charge. This charge is
1% of the lesser of the original cost of the shares being redeemed or your
redemption proceeds. A sales charge of 0.75% will be charged on purchases of
$1,000,000 or more of Class I and A shares by certain employer sponsored
retirement or savings plans.
No initial sales charge applies to Class I or Class A shares that you buy
through reinvestment of dividends.
A reduced or waived sales charge on a purchase of Class I or A shares may apply
for:
. Purchases under a Right of Accumu-
lation or Letter of Intent
. Certain trusts managed by banks,
thrifts or trust companies includ-
ing those affiliated with the In-
vestment Adviser or its affiliates
. Certain employer-sponsored retire-
ment or savings plans
. Certain investors, including di-
rectors or trustees of mutual
funds sponsored by the Investment
Adviser or its affiliates, employ-
ees of the Investment Adviser and
its affiliates and employees or
customers of selected dealers
. Certain fee-based programs managed
by the Investment Adviser or its
affiliates
MERCURY LARGE CAP SERIES FUNDS, INC.
13
<PAGE>
[GRAPHIC] Account Choices
. Certain fee-based programs managed
by selected dealers that have an
agreement with the Distributor
. Purchases through certain finan-
cial advisers that meet and adhere
to standards established by the
Investment Adviser
. Purchases through certain accounts
over which the Investment Adviser
or an affiliate exercises invest-
ment discretion
Only certain investors are eligible to buy Class I shares, including existing
Class I shareholders of the Funds, certain retirement plans and participants in
certain programs sponsored by the Investment Adviser 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 a 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 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. 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. The Distributor uses the money that it receives from the deferred sales
charge and the distribution fees to cover the costs of marketing, advertising
and compensating the financial consultant or other dealer who assists you in
your decision in purchasing Fund shares.
MERCURY LARGE CAP SERIES FUNDS, INC.
14
<PAGE>
[GRAPHIC] Account Choices
Class B Shares
If you redeem Class B shares within six years after purchase, you may be
charged a deferred sales charge. The amount of the charge gradually decreases
as you hold your shares over time, according to the following schedule:
<TABLE>
<CAPTION>
Year Since Purchase Sales Charge*
------------------------------------
<S> <C>
0-1 4.00%
------------------------------------
1-2 4.00%
------------------------------------
2-3 3.00%
------------------------------------
3-4 3.00%
------------------------------------
4-5 2.00%
------------------------------------
5-6 1.00%
------------------------------------
6 and after 0.00%
------------------------------------
</TABLE>
* The percentage charge will apply to the lesser of the original cost of the
shares being redeemed or the proceeds of your redemption. Shares acquired by
dividend 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 withdraw-
als from an IRA or other retire-
ment plan if you are over 59 1/2
years old
. Redemption by certain eligible
401(a) and 401(k) plans and cer-
tain retirement plan rollovers
. Redemption in connection with par-
ticipation in certain fee-based
programs managed by the Investment
Adviser or its affiliates
. Redemption in connection with par-
ticipation in certain fee-based
programs managed by selected deal-
ers that have agreements with the
Distributor
. Withdrawals resulting from share-
holder death or disability as long
as the waiver request is made
within one year after death or
disability or, if later, reasona-
bly promptly following completion
of probate, or in connection with
involuntary termination of an ac-
count in which Fund shares are
held
. Withdrawal through the Systematic
Withdrawal Plan of up to 10% per
year of your Class B account value
at the time the plan is estab-
lished
MERCURY LARGE CAP SERIES FUNDS, INC.
15
<PAGE>
[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 in an exchange from another
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 a fund with a longer conversion schedule, the other fund's conversion
schedule will apply. The length of time that you hold the original and
exchanged Class B shares in both funds will count toward the conversion
schedule.
The conversion schedule may be modified in certain other cases as well.
Class C Shares
If you redeem Class C shares within one year after purchase, you may be charged
a deferred sales charge of 1.00%. The charge will apply to the lesser of the
original cost of the shares being redeemed or the proceeds of your redemption.
You will not be charged a deferred sales charge when you redeem shares that you
acquire through reinvestment of Fund dividends. The deferred sales charge
relating to Class C shares may be reduced or waived in connection with
involuntary termination of an account in which Fund shares are held and
withdrawals through the Systematic Withdrawal Plan.
Class C shares do not offer a conversion privilege.
HOW TO BUY, SELL, TRANSFER AND EXCHANGE SHARES
- --------------------------------------------------------------------------------
The chart below summarizes how to buy, sell, transfer and exchange shares
through certain securities dealers. You may also buy shares through the
Transfer Agent. To learn more about buying shares through the Transfer Agent,
call 1-888-763-2260. Because the selection of a mutual fund involves many
considerations, your financial consultant may help you with this decision. The
Funds do not issue share certificates.
MERCURY LARGE CAP SERIES FUNDS, INC.
16
<PAGE>
[GRAPHIC] Account Choices
<TABLE>
<CAPTION>
Information important for you to
If you want to Your choices know
- -------------------------------------------------------------------------------
<C> <C> <S>
Buy shares First, select the share Please refer to the pricing of
class appropriate for you shares table on page 12. Be sure to
read this prospectus carefully.
--------------------------------------------------------------------
Next, determine the The minimum initial investment for
amount of your investment 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 The price of your shares is based
consultant or securities on the next calculation of net
dealer submit your asset value after your order is
purchase order 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 placed after that
time will be priced at the net
asset value determined on the next
business day. The Funds may reject
any order to buy shares and may
suspend the sale of shares at any
time. Certain securities dealers
may charge a fee to process a
purchase. For example, the fee
charged by Merrill Lynch, Pierce,
Fenner & Smith Incorporated is
currently $5.35. The fees charged
by other securities dealers may be
higher or lower.
--------------------------------------------------------------------
Or contact the Transfer To purchase shares directly, call
Agent the Transfer Agent at 1-888-763-
2260 and request a purchase
application. Mail the completed
purchase application to the
Transfer Agent at the address on
the inside back cover of this
prospectus.
- -------------------------------------------------------------------------------
Add to your Purchase additional The minimum investment for
investment shares additional purchases is $100 for
all accounts except:
.$50 for certain fee-based programs
.$1 for retirement plans
(The minimums for additional
purchases may be waived under
certain circumstances.)
--------------------------------------------------------------------
Acquire additional shares All dividends are automatically
through the automatic reinvested without a sales charge.
dividend reinvestment
plan
--------------------------------------------------------------------
Participate in the You may invest a specific amount on
automatic investment plan a periodic basis through your
securities dealer.
- -------------------------------------------------------------------------------
</TABLE>
MERCURY LARGE CAP SERIES FUNDS, INC.
17
<PAGE>
[GRAPHIC] Account Choices
<TABLE>
<CAPTION>
Information important for you to
If you want to Your choices know
- -------------------------------------------------------------------------------
<C> <C> <S>
Transfer Shares Transfer to a You may transfer your Fund shares
to Another participating securities to another securities dealer if
Securities dealer authorized dealer agreements are in
Dealer 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 all
transferred shares. All future
trading of these shares must be
coordinated by the receiving
securities dealer.
--------------------------------------------------------------------
Transfer to a non- You must either:
participating securities .Transfer your shares to an account
dealer with the Transfer Agent; or
.Sell your shares, paying any
applicable Deferred Sales Charge.
- -------------------------------------------------------------------------------
Have your financial The price of your shares is based
consultant or securities on the next calculation of net
dealer submit your sales asset value after your order is
order 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 the 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. Dealers must submit
redemption requests to the Funds
not more than thirty minutes after
the close of business on the New
York Stock Exchange on the day the
request was received.
Certain securities dealers may
charge a fee to process a sale of
shares. For example, the fee
charged by Merrill Lynch, Pierce,
Fenner & Smith Incorporated is
currently $5.35. The fees charged
by other securities dealers may be
higher or lower.
The Funds may reject an order to
sell shares under certain
circumstances.
--------------------------------------------------------------------
Sell through the Transfer You may sell shares held at the
Agent 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 generally will
be required but may be waived in
certain limited circumstances. You
can obtain a signature guarantee
from a bank, securities dealer,
securities broker, credit union,
savings association, national
securities exchange and registered
securities association. A notary
public seal will not be acceptable.
The Transfer Agent will normally
mail redemption proceeds within
seven days following receipt of a
properly completed request. If you
make a redemption request before 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.
- -------------------------------------------------------------------------------
</TABLE>
MERCURY LARGE CAP SERIES FUNDS, INC.
18
<PAGE>
[GRAPHIC] Account Choices
<TABLE>
<CAPTION>
Information important for you to
If you want to Your choices know
- -------------------------------------------------------------------------------
<C> <C> <S>
Sell shares Participate in a Fund's You can generally arrange through
systematically Systematic Withdrawal your selected dealer for systematic
Plan sales of shares of a fixed dollar
amount on a monthly, bi-monthly,
quarterly, semi-annual or annual
basis, subject to certain
conditions. Under either method,
you must have dividends
automatically reinvested. For Class
B and C shares your total annual
withdrawals cannot be more than 10%
per year of the value of your
shares at the time your plan is
established. The deferred sales
charge is waived for systematic
redemptions. Ask your financial
consultant for details.
- -------------------------------------------------------------------------------
Exchange your Select the fund into You can exchange your shares of a
shares which you want to Fund for shares of other Mercury
exchange. Be sure to read mutual funds or for shares of the
that fund's prospectus 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 Fund shares is
generally exchangeable for shares
of the same class of another
Mercury fund. If you own Class I
shares and wish to exchange into a
fund in which you have no Class I
shares (and you are not eligible to
buy Class I shares), you will
exchange into Class A shares. If
you own Class I or Class A shares
and wish to exchange into Summit,
you will exchange into Class A
shares of Summit. Class B or Class
C shares can be exchanged for Class
B shares of Summit.
Some of the Mercury mutual funds
may impose a different initial or
deferred sales charge schedule. If
you exchange Class I or Class A
shares for shares of a fund with a
higher initial sales charge than
you originally paid, you may be
charged the difference at the time
of exchange. If you exchange Class
B or Class C shares for shares of a
fund with a different deferred
sales charge schedule, the higher
schedule will apply. The time you
hold Class B or Class C shares in
both funds will count when
determining your holding period for
calculating a deferred sales charge
at redemption. Your time in both
funds will also count when
determining the holding period for
a conversion from Class B to Class
A shares.
Although there is currently no
limit on the number of exchanges
that you can make, the exchange
privilege may be modified or
terminated at any time in the
future.
- -------------------------------------------------------------------------------
</TABLE>
MERCURY LARGE CAP SERIES FUNDS, INC.
19
<PAGE>
[GRAPHIC] Account Choices
Net Asset Value -- the market value in U.S. dollars of a Fund's total assets
after deducting liabilities, divided by the number of shares outstanding.
HOW SHARES ARE PRICED
- --------------------------------------------------------------------------------
When you buy shares, you pay the net asset value, plus any applicable sales
charge. This is the offering price. Shares are also redeemed at their net asset
value, minus any applicable deferred sales charge. The Funds calculate their
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 (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. Foreign securities owned by the Funds may trade on
weekends or other days when the Funds do not price their shares. As a result,
the Funds' net asset value may change on days when you will not be able to
purchase or redeem Fund shares.
Generally, Class I shares will have the highest net asset value because that
class has the lowest expenses, and Class A shares will have a higher net asset
value than Class B or Class C shares. Also, dividends paid on Class I and Class
A shares will generally be higher than dividends paid on Class B and Class C
shares because Class I and Class A shares have lower expenses.
MERCURY LARGE CAP SERIES FUNDS, INC.
20
<PAGE>
[GRAPHIC] Account Choices
Dividends -- ordinary income and capital gains paid to shareholders. Dividends
may be reinvested in additional Fund shares as they are paid.
FEE-BASED PROGRAMS
- --------------------------------------------------------------------------------
If you participate in certain fee-based programs offered by the Investment
Adviser or an affiliate of the Investment Adviser, or by selected dealers that
have an agreement with the Distributor, you may be able to buy Class I shares
at net asset value, including by exchanges 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 a Fund's shares or into the
Summit fund. The class you receive may be the class you originally owned when
you entered the program, or in certain cases, a different class. If the
exchange is into Class B shares, the period before conversion to Class A shares
may be modified. Any redemption or exchange will be at net asset value.
However, if you participate in the program for less than a specified period,
you may be charged a fee in accordance with the terms of the program.
Details about these features and the relevant charges are included in the
client agreement for each fee-based program and are available from your
financial consultant or your selected dealer.
DIVIDENDS AND TAXES
- --------------------------------------------------------------------------------
The Funds will distribute at least annually any net investment income and any
net realized long or short-term capital gains. The Funds 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 the Funds, contact your
financial consultant about which option you would like. If your account is with
the Transfer Agent, and you would like to receive dividends in cash, contact
the Transfer Agent.
You will pay tax on dividends from a Fund whether you receive them in cash or
additional shares. If you redeem Fund shares or exchange them for shares of
MERCURY LARGE CAP SERIES FUNDS, INC.
21
<PAGE>
[GRAPHIC] Account Choices
"Buying a Dividend"
Unless your investment is in a tax-deferred account, you may want to avoid
buying shares shortly before a Fund pays a dividend. The reason? If you buy
shares when a fund has realized but not yet distributed ordinary income or
capital gains, you will pay the full price for the shares and then receive a
portion of the price back in the form of a taxable dividend. Before investing
you may want to consult your tax adviser.
another fund, any gain on the transaction may be subject to tax. Capital gain
dividends are generally taxed at different rates than ordinary income
dividends.
If you are neither a lawful permanent resident nor a citizen of the U.S. or if
you are a foreign entity, a Fund's ordinary income dividends (which include
distributions of net short-term capital gains) will generally be subject to a
30% U.S. withholding tax, unless a lower treaty rate applies.
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.
By law, a Fund must withhold 31% of your dividends 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 adviser about the potential tax consequences of an
investment in a Fund under all applicable tax laws.
MERCURY LARGE CAP SERIES FUNDS, INC.
22
<PAGE>
[GRAPHIC] The Management Team
MANAGEMENT OF THE FUNDS
- --------------------------------------------------------------------------------
Fund Asset Management, the Funds' Investment Adviser, manages each Portfolio's
investments under the overall supervision of the Board of Trustees of the
Master Large Cap Series Trust. The Investment Adviser has the responsibility
for making all investment decisions for the Funds. The Trust pays the
Investment Adviser a fee at the annual rate of % of the average daily net
assets of the Trust.
Fund Asset Management was organized as an investment adviser in 1977 and offers
investment advisory services to more than 50 registered investment companies.
Fund Asset Management is part of the Asset Management Group of ML & Co., which
had approximately $ billion in investment company and other portfolio assets
under management as of , 1999. This amount includes assets managed for
affiliates of the Investment Adviser.
MASTER/FEEDER STRUCTURE
- --------------------------------------------------------------------------------
Each Fund is a series of Mercury Large Cap Series Funds, Inc. and is a "feeder"
fund that invests in a corresponding "master" portfolio of the Master Large Cap
Series Trust. (Except where indicated, this prospectus uses the term "Fund" to
mean a feeder fund and its Portfolio taken together.) Investors in a Fund will
acquire an indirect interest in the corresponding Portfolio.
Each Portfolio accepts investments from other feeder funds, and all the feeders
of a given Portfolio bear the portfolio's expenses in proportion to their
assets. This structure may enable the Funds to reduce costs through economies
of scale. A larger investment portfolio may also reduce certain transaction
costs to the extent that contributions to and redemptions from the Portfolio
from different feeders may offset each other and produce a lower net cash flow.
However, each feeder can set its own transaction minimums, fund-specific
expenses, and other conditions. This means that one feeder could offer access
to the same Portfolio on more attractive terms, or could experience better
performance, than another feeder.
Whenever a Portfolio holds a vote of its feeder funds, the Fund investing in
that Portfolio will pass the vote through to its own shareholders. Smaller
feeder funds may be harmed by the actions of larger feeder funds. For example,
a larger feeder fund could have more voting power than a Fund over the
operations of its Portfolio.
MERCURY LARGE CAP SERIES FUNDS, INC.
23
<PAGE>
[GRAPHIC] The Management Team
A Fund may withdraw from its master portfolio at any time and may invest all of
its assets in another pooled investment vehicle or retain an investment adviser
to manage the Fund's assets directly.
A Note About Year 2000
Many computer systems were designed using only two digits to designate years.
These systems may not be able to distinguish the year 2000 from the year 1900
(commonly known as the "Year 2000 Problem"). The Funds could be adversely
affected if the computer systems used by Fund management or other service
providers of the Funds do not properly address this problem before January 1,
2000. Fund management expects to have addressed this problem before then, and
does not anticipate that the services it provides will be adversely affected.
The Funds' other service providers have told Fund management that they also
expect to resolve the Year 2000 Problem, and Fund management will continue to
monitor the situation as the year 2000 approaches. However, if the problem has
not been fully addressed, the Funds could be negatively affected. The Year 2000
Problem could also have a negative impact on the companies in which the Funds
invest. This negative impact may be greater for smaller companies and companies
in foreign markets, since they may be less prepared for the Year 2000 Problem
than domestic companies and markets. If the companies in which the Funds invest
have Year 2000 Problems, the Funds' returns could be adversely affected.
MERCURY LARGE CAP SERIES FUNDS, INC.
24
<PAGE>
Funds
Mercury Large Cap Growth Fund
Mercury Large Cap Value Fund
Mercury Large Cap Core Fund
of Mercury Large Cap Series Funds, Inc.
P.O. Box 9011
Princeton, New Jersey 08543-9011
(888-763-2260)
Investment Adviser
Administrative Offices:
Fund Asset Management, L.P.
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9011
Princeton, New Jersey 08543-9011
Transfer Agent
Financial Data Services, Inc.
P.O. Box 44062
Jacksonville, Florida 32232-4062
(888-763-2260)
Independent Auditors
Distributor
Mercury Funds Distributor,
a division of Princeton Funds Distributor, Inc.
P.O. Box 9081
Princeton, New Jersey 08543-9081
Custodian
Counsel
Brown & Wood LLP
One World Trade Center
New York, New York 10048-0557
MERCURY LARGE CAP SERIES FUNDS, INC.
<PAGE>
[GRAPHIC] TO LEARN MORE
SHAREHOLDER REPORTS
Additional information about each Fund's investments will be available in the
Funds' annual and semi-annual reports to shareholders. In the Funds' annual re-
port you will find a discussion of the market conditions and investment strate-
gies that significantly affected each Fund's performance during its last fiscal
year. You may obtain these reports at no cost by calling 1-888-763-2260.
Each Fund will send you one copy of each shareholder report and certain other
mailings, regardless of the number of Fund accounts you have. To receive sepa-
rate shareholder reports for each account, call your financial consultant or
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 or calling the
Funds at Financial Data Services, Inc., P.O. Box 44062, Jacksonville, Florida
32232-4062 or by calling 1-888-763-2260.
Contact your financial consultant or the Funds at the telephone number or ad-
dress indicated above if you have any questions.
Information about the Funds (including the Statement of Additional Information)
can be reviewed and copied at the SEC's Public Reference Room in Washington,
D.C. Call 1-800-SEC-0330 for information on the operation of the public refer-
ence room. This information is also available on the SEC's Internet Site at
http://www.sec.gov and copies may be obtained upon payment of a duplicating fee
by writing the Public Reference Section of the SEC, Washington, D.C. 20549-
6009.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. NO ONE IS
AUTHORIZED TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM THE INFORMA-
TION IN THIS PROSPECTUS.
Investment Company Act File #811-- .
Code #
(C)Fund Asset Management, L.P.
Mercury Large Cap Growth Fund
Mercury Large Cap Value Fund
Mercury Large Cap Core Fund
OF MERCURY LARGE CAP SERIES FUNDS, INC.
(LOGO)
PROSPECTUS . , 1999
[LOGO OF MERCURY ASSET MANAGEMENT]
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this statement of additional information is not complete +
+and may be changed. This statement of additional information is not an offer +
+to sell these securities and is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION
DATED NOVEMBER 18, 1999
MERCURY LARGE CAP GROWTH FUND
MERCURY LARGE CAP VALUE FUND
MERCURY LARGE CAP CORE FUND
of Mercury Large Cap Series Funds, Inc.
P.O. Box 9011, Princeton, New Jersey 08543-9011 . Phone No. (888) 763-2260
-----------
Mercury Large Cap Series Funds, Inc. (the "Corporation"), an open-end
management investment company organized as a Maryland corporation, consists of
three separate series: Mercury Large Cap Growth Fund (the "Growth Fund"),
Mercury Large Cap Value Fund (the "Value Fund") and Mercury Large Cap Core Fund
(the "Core Fund"). Each series of the corporation is herein referred to as a
"Fund."
The main objective of each Fund is long term capital growth. Each Fund seeks
to achieve this objective through investments primarily in a diversified
portfolio of equity securities of large cap companies that Fund management
selects from among those included in the Fund's applicable Russell 1000(R)
index.
Each Fund is a "feeder" fund that invests all of its assets in a
corresponding "master" portfolio (each, a "Portfolio") of the Master Large Cap
Series Trust (the "Trust") that has the same investment objective as the Fund.
All investments will be made at the Trust level. Each Fund's investment results
will correspond directly to the investment results of the Portfolio in which it
invests. There can be no assurance that any Fund will achieve its objective.
Each Fund offers four classes of shares, each with a different combination of
sales charges, ongoing fees and other features. These alternatives permit 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. See
"Purchase of Shares."
-----------
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Prospectus of the Funds, dated , 1999 (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
1-888-763-2260 or your financial consultant, or by writing to the address
listed above. The Prospectus is incorporated by reference into this Statement
of Additional Information, and this Statement of Additional Information is
incorporated by reference into the Prospectus.
-----------
Fund Asset Management -- Investment Adviser
Mercury Funds Distributor -- Distributor
-----------
The date of this Statement of Additional Information is , 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Investment Objectives and Policies......................................... 2
Foreign Securities....................................................... 3
Warrants................................................................. 4
Borrowing and Leverage................................................... 4
Convertible Securities................................................... 4
Debt Securities.......................................................... 4
Derivatives.............................................................. 4
Other Investment Policies and Practices.................................. 8
Investment Restrictions.................................................. 10
Portfolio Turnover....................................................... 13
Management of the Funds.................................................... 13
Directors and Officers................................................... 13
Compensation of Directors/Trustees....................................... 14
Management and Advisory Arrangements..................................... 14
Code of Ethics........................................................... 16
Purchase of Shares......................................................... 16
Initial Sales Charge Alternatives--Class I and Class A Shares............ 17
Reduced Initial Sales Charges............................................ 17
Deferred Sales Charges--Class B and Class C Shares....................... 19
Distribution Plans....................................................... 21
Limitations on the Payment of Deferred Sales Charges..................... 22
Redemption of Shares....................................................... 22
Redemption............................................................... 23
Repurchase............................................................... 23
Reinstatement Privilege--Class I and Class A Shares...................... 24
Pricing of Shares.......................................................... 24
Determination of Net Asset Value......................................... 24
Computation of Offering Price Per Share.................................. 25
Portfolio Transactions and Brokerage....................................... 26
Transactions in Portfolio Securities..................................... 26
Shareholder Services....................................................... 27
Investment Account....................................................... 27
Exchange Privilege....................................................... 28
Fee-Based Programs....................................................... 30
Retirement Plans......................................................... 30
Automatic Investment Plans............................................... 30
Automatic Dividend Reinvestment Plan..................................... 30
Systematic Withdrawal Plans.............................................. 31
Dividends and Taxes........................................................ 31
Dividends................................................................ 31
Taxes.................................................................... 32
Tax Treatment of Options and Futures Transactions........................ 33
Special Rules for Certain Foreign Currency Transactions.................. 33
Performance Data........................................................... 34
General Information........................................................ 35
Description of Shares.................................................... 35
Independent Auditors..................................................... 36
Custodian................................................................ 37
Transfer Agent........................................................... 37
Legal Counsel............................................................ 37
Reports to Shareholders.................................................. 37
Shareholder Inquiries.................................................... 37
Additional Information................................................... 37
</TABLE>
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INVESTMENT OBJECTIVES AND POLICIES
The investment objective of each Fund is long term capital growth. This is a
fundamental policy and cannot be changed without shareholder approval. Each
Fund seeks to achieve this objective through investments primarily in a
diversified portfolio of equity securities of large cap companies located in
the United States. Each Fund also may invest up to 10% of its assets in equity
securities of companies located in countries other than the United States.
Reference is made to "How the Funds Invest" in the Prospectus for a discussion
of the investment objective and policies of each Fund. Each Fund is classified
as a diversified fund under the Investment Company Act.
Each Fund is a "feeder" fund that invests all of its assets in a
corresponding "master" portfolio of the Trust that has the same investment
objective as the Fund. All investments will be made at the Trust level. This
structure is sometimes called a "master/feeder" structure. Each Fund's
investment results will correspond directly to the investment results of the
Portfolio in which it invests. For simplicity, however, this Statement of
Additional Information, like the Prospectus, uses the term "Fund" to include
the underlying Portfolio in which that Fund invests. Reference is made to the
discussion under "How the Funds Invest" and "Investment Risks" in the
Prospectus for information with respect to each Fund and its Trust portfolio's
investment objective and policies. There can be no guarantee that any Fund's
investment objectives will be achieved.
As described in the Prospectus, each Fund generally seeks to invest in
companies that have a dollar-weighted market capitalization greater than the
top 5% of U.S. securities traded. For each Fund, Fund Asset Management, L.P.
(the "Investment Adviser") uses a different proprietary multi-factor
quantitative model to look for companies within the applicable Russell 1000(R)
index that, in the Investment Adviser's opinion are consistent with the
investment objective of each Fund, as follows:
. The Growth Fund. The Growth Fund seeks to invest in equity securities
that the Investment Adviser believes have above average earnings
prospects; i.e., are likely to experience consistent earnings growth
over time. In seeking to outperform its benchmark, the Russell 1000(R)
Growth Index, the Fund will allocate its common stock investments among
industry sectors in a manner generally comparable to the sector
weightings in the Russell 1000(R) Growth Index, as those sectors are
defined in the Standard & Poor's 500 Index ("S&P 500"). The Fund also
anticipates that its individual holdings generally will be allocated so
that no individual security held by the Fund is overweighted in the
portfolio as compared to its weighting in the Russell 1000(R) Index by
more than 1%, and no security held by the Fund is underweighted as
compared to its weighting in the Russell 1000(R) Index by more than 2%.
. The Value Fund. The Value Fund seeks to invest in equity securities that
the Investment Adviser believes are selling at below-normal valuations;
i.e., securities with lower price-to-book ratios and lower price-to-
earnings ratios. In seeking to outperform its benchmark, the Russell
1000(R) Value Index, the Fund will allocate its common stock investments
among industry sectors in a manner generally comparable to the sector
weightings in the Russell 1000(R) Value Index, as those sectors are
defined in the S&P 500. The Fund also anticipates that its individual
holdings generally will be allocated so that no individual security is
overweighted in the portfolio as compared to its weighting in the
Russell 1000(R) Value Index by more than 1%, and no security is
underweighted as compared to its weighting in the Russell 1000(R) Value
Index by more than 2%.
. The Core Fund. The Core Fund seeks to invest in securities that the
Investment Adviser believes are undervalued or show good prospects for
earnings growth. The Core Fund seeks securities such that the sum of the
relative (to the S&P 500) price-to-earnings ratio and price-to-book
ratio for a particular security are between 1.75 and 2.25. In seeking to
outperform its benchmark, the Russell 1000(R) Index, the Fund will
allocate its common stock investments among industry sectors in a manner
generally comparable to the sector weightings in the Russell 1000(R)
Index, as those sectors are defined in the S&P 500. The Fund also
anticipates that its individual holdings generally will be allocated so
that no individual security held by the Fund is overweighted in the
portfolio as compared to its weighting in the Russell 1000(R) Index by
more than 1%, and no security held by the Fund is underweighted as
compared to its weighting in the Russell 1000(R) Index by more than 1%.
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Each Fund anticipates that its sector allocations, as a percentage of its
common stock investments, to larger capitalized industries generally will be
no more than two times that sector's weighting in the applicable Russell
1000(R) index, while its sector allocations to smaller capitalized industries
generally will be no more than three times that sector's weighting in the
Russell 1000(R) Index. "Larger" or "smaller" capitalized industries for this
purpose will be determined by the relative size of the sector within the
applicable Russell 1000(R) index, with any sector representing approximately
10% or more of the index being considered as a "larger" industry.
Notwithstanding these sector allocation guidelines, each Fund reserves the
right to invest up to 10% of its total assets in any one sector of the
applicable Russell 1000(R) index; however, the Funds are not limited to
investing only 10% of total assets in any one sector if the sector allocations
listed above permit a larger allocation. While the Investment Adviser
anticipates that each Fund generally will adhere to the targeted parameters
described for each Fund, the implementation may vary in particular cases, and
the Investment Adviser is not required to follow any or all of these
parameters in selecting securities at all times. Additionally, the Investment
Adviser is not required to sell securities if their value changes and they
then fall outside of these parameters.
Investment emphasis is on equities, primarily common stock. Each Fund
generally will invest at least 80% of its total assets in equity securities.
Each Fund also may invest in securities convertible into common stock,
preferred stock and rights and warrants to subscribe for common stock. A Fund
may invest in U.S. Government debt securities and, to a lesser extent, in non-
convertible debt securities rated investment grade by a nationally recognized
statistical ratings organization, although it typically will not invest in any
debt securities to a significant extent.
A Fund may hold assets in cash or cash equivalents and investment grade,
short term securities, including money market securities, in such proportions
as, in the opinion of the Investment Adviser, prevailing market or economic
conditions warrant or for temporary defensive purposes.
Foreign Securities
Each Fund may invest in companies located in countries other than the United
States. As a result, the Funds' investments may include companies organized,
traded or having substantial operations outside the United States. This may
expose the Funds to risks associated with foreign investments. Foreign
investments involve certain risks not typically involved in domestic
investments, including fluctuations in foreign exchange rates, future
political and economic developments, different legal systems and the existence
or possible imposition of exchange controls or other U.S. or non-U.S.
governmental laws or restrictions applicable to such investments. Securities
prices in different countries are subject to different economic, financial and
social factors. Because the Funds 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 Portfolios and the
unrealized appreciation or depreciation of investments insofar as U.S.
investors are concerned. Foreign currency exchange rates are determined by
forces of supply and demand in the foreign exchange markets. These forces are,
in turn, affected by international balance of payments and other economic and
financial conditions, government intervention, speculation and other factors.
With respect to certain countries, there may be the possibility of
expropriation of assets, confiscatory taxation, high rates of inflation,
political or social instability or diplomatic developments that could affect
investment in those countries. In addition, certain investments may be subject
to non-U.S. withholding taxes.
European Economic and Monetary Union. A number of European countries entered
into the European Economic and Monetary Union ("EMU") in an effort to reduce
trade barriers between themselves and eliminate fluctuations in their
currencies. EMU established a single European currency (the euro), which was
introduced on January 1, 1999 and is expected to replace the existing national
currencies of all initial EMU participants by July 1, 2002. Certain securities
(beginning with government and corporate bonds) were redenominated in the euro
and will trade and make dividend and other payments only in euros. Like other
investment companies and business organizations, including the companies in
which the Funds invest, the Funds could be adversely affected if the
transition to the euro, or EMU as a whole, does not proceed as planned or if a
participating country withdraws from EMU.
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Warrants
Each Fund may invest in warrants, which are securities permitting, but not
obligating, the warrant holder to subscribe for other securities. Buying a
warrant does not make a Fund a shareholder of the underlying stock. The
warrant holder has no right to dividends or votes on the underlying stock. A
warrant does not carry any right to assets of the issuer, and for this reason
investment in warrants may be more speculative than other equity-based
investments.
Borrowing and Leverage
Each Fund may borrow from banks (as defined in the Investment Company Act of
1940, as amended (the "Investment Company Act")) in amounts up to 33 1/3% of
its total assets (including the amount borrowed) and may borrow up to an
additional 5% of its total assets for temporary purposes. Each Fund may obtain
such short term credit as may be necessary for the clearance of purchases and
sales of portfolio securities and may purchase securities on margin to the
extent permitted by applicable law, and may use borrowing to enable it to meet
redemptions. The use of leverage by the Funds creates an opportunity for
greater total return, but, at the same time, creates special risks. For
example, leveraging may exaggerate changes in the net asset value of Fund
shares and in the yield on a Fund's portfolio. Although the principal of such
borrowings will be fixed, a Fund's assets may change in value during the time
the borrowings are outstanding. Borrowings will create interest expenses for
the Fund that 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, that Fund's 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 will be reduced. In the latter case, the Investment
Adviser in its best judgment nevertheless may determine to maintain the Fund's
leveraged position if it expects that the benefits to the Fund's shareholders
of maintaining the leveraged position will outweigh the current reduced
return.
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.
Convertible Securities
Convertibles are generally debt securities or preferred stocks that may be
converted into common stock. Convertibles typically pay current income as
either interest (debt security convertibles) or dividends (preferred stocks).
A convertible's value usually reflects both the stream of current income
payments and the value of the underlying common stock. The market value of a
convertible performs like a regular debt security, that is, if market interest
rates rise, the value of a convertible usually falls. Since it is convertible
into common stock, the convertible also has the same types of market and
issuer risk as the underlying common stock.
Debt Securities
Debt securities, such as bonds, involve credit risk. This is the risk that
the borrower will not make timely payments of principal and interest. The
degree of credit risk depends on the issuer's financial condition and on the
terms of the bonds. This risk is minimized to the extent a Fund limits its
debt investments to U.S. Government securities. All debt securities, however,
are subject to interest rate risk. This is the risk that the value of the
security may fall when interest rates rise. In general, the market price of
debt securities with longer maturities will go up or down more in response to
changes in interest rates than the market price of shorter term securities.
Derivatives
The Funds may use instruments referred to as "Derivatives." Derivatives are
financial instruments the value of which is derived from another security, a
commodity (such as gold or oil) or an index (a measure of value or
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rates, such as the Russell 1000(R) Index, the S&P 500 or the prime lending
rate). Derivatives allow each Fund to increase or decrease the level of risk
to which the Fund is exposed more quickly and efficiently than transactions in
other types of instruments.
Hedging. Each Fund may use Derivatives for hedging purposes. Hedging is a
strategy in which a Derivative is used to offset the risk that other Fund
holdings may decrease in value. Losses on the other investment may be
substantially reduced by gains on a Derivative that reacts in an opposite
manner to market movements. While hedging can reduce losses, it can also
reduce or eliminate gains if the market moves in a different manner than
anticipated by the Fund investing in the Derivative or if the cost of the
Derivative outweighs the benefit of the hedge. Hedging also involves the risk
that changes in the value of the Derivative will not match those of the
holdings being hedged as expected by the applicable Fund, in which case any
losses on the holdings being hedged may not be reduced. The Funds are not
required to use hedging and may choose not to do so.
The Funds may use the following types of derivative investments and trading
strategies:
Options on Securities and Securities Indices
Purchasing Put Options. Each Fund may purchase put options on securities
held in its portfolio or on securities or interest rate indices which are
correlated with securities held in its portfolio. When a Fund purchases a put
option in consideration for an up front payment (the "option premium"), that
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 a Fund's risk of loss in the event of a decline in the market
value of the portfolio holdings underlying the put option prior to the
option's expiration date. If the market value of the portfolio holdings
associated with the put option increases rather than decreases, however, the
Fund will lose the option premium and will consequently realize a lower return
on the portfolio holdings than would have been realized without the purchase
of the put. Purchasing a put option may involve correlation risk, and may also
involve liquidity and credit risk.
Purchasing Call Options. Each Fund also may purchase call options on
securities it intends to purchase or securities or interest rate indices,
which are correlated with the types of securities it intends to purchase. When
a Fund purchases a call option, in consideration for the option premium the
Fund acquires a right to purchase from another party specified securities at
the exercise price on or before the expiration date, in the case of an option
on securities, or to receive from another party a payment based on the amount
a specified securities index increases beyond a specified level on or before
the expiration date, in the case of an option on a securities index. The
purchase of a call option may protect the Fund from having to pay more for a
security as a consequence of increases in the market value for the security
during a period when the Fund is contemplating its purchase, in the case of an
option on a security, or attempting to identify specific securities in which
to invest in a market the Fund believes to be attractive, in the case of an
option on an index (an "anticipatory hedge"). In the event a Fund determines
not to purchase a security underlying a call option, however, the Fund may
lose the entire option premium. Purchasing a call option involves correlation
risk, and may also involve liquidity and credit risk.
Each Fund also is authorized to purchase put or call options in connection
with closing out put or call options it has previously sold.
Writing Call Options. Each Fund may write (i.e., sell) call options on
securities held in its portfolio or securities indices the performance of
which correlates with securities held in its portfolio. When 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. A Fund 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
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<PAGE>
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.
Writing a call option may involve correlation risk.
Each Fund also is 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 call or put option will be considered
covered if the Fund has segregated assets with respect to such option in the
manner described in "Risk Factors in Derivatives" below. A call option will
also be considered covered if the Fund owns the securities it would be
required to deliver upon exercise of the option (or, in the case of an option
on a securities index, securities which substantially correlate with the
performance of such index) or owns a call option, warrant or convertible
instrument which is immediately exercisable for, or convertible into, such
security.
Types of Options. The Fund may engage in transactions in options on
securities or securities indices on exchanges and in the over-the-counter
("OTC") markets. In general, exchange-traded options have standardized
exercise prices and expiration dates and require the parties to post margin
against their obligations, and the performance of the parties' obligations in
connection with such options is guaranteed by the exchange or a related
clearing corporation. OTC options have more flexible terms negotiated between
the buyer and the seller, but generally do not require the parties to post
margin and are subject to greater credit risk. OTC options also involve
greater liquidity risk. See "Additional Risk Factors of OTC Transactions;
Limitations on the Use of OTC Derivatives" 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. 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. Each day
thereafter until the futures position is closed, the Fund will pay additional
margin representing any loss experienced as a result of the futures position
the prior day or be entitled to a payment representing any profit experienced
as a result of the futures position the prior day. Futures involve substantial
leverage risk.
The sale of a futures contract limits a Fund's risk of loss through a
decline in the market value of portfolio holdings correlated with the futures
contract prior to the futures contract's expiration date. In the event the
market value of the portfolio holdings correlated with the futures contract
increases rather than decreases, however, the Fund will realize a loss on the
futures position and a lower return on the portfolio holdings than would have
been realized without the purchase of the futures contract.
The purchase of a futures contract may protect 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 a market the Fund believes to be attractive.
In the event that such securities decline in value or the Fund determines not
to complete an anticipatory hedge transaction relating to a futures contract,
however, the Fund may realize a loss relating to the futures position.
The Fund will limit transactions in futures and options on futures to
financial futures contracts (i.e., contracts for which the underlying asset is
a currency or securities or interest rate index) purchased or sold for hedging
purposes (including anticipatory hedges). The Fund will further limit
transactions in futures and options on futures to the extent necessary to
prevent the Fund from being deemed a "commodity pool" under regulations of the
Commodity Futures Trading Commission.
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Indexed Securities
Each Fund may invest in securities the potential return of which is based on
an index. As an illustration, a Fund may invest in a debt security that pays
interest based on the current value of an interest rate index, such as the
prime rate. A Fund also may invest in a debt security which returns principal
at maturity based on the level of a securities index or a basket of
securities, or based on the relative changes of two indices. Indexed
securities involve credit risk, and certain indexed securities may involve
leverage risk and liquidity risk. Each Fund may invest in indexed securities
for hedging purposes only. When used for hedging purposes, indexed securities
involve correlation risk.
Risk Factors in Derivatives
Derivatives are volatile and involve significant risks, including:
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.
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.
Liquidity risk--the risk that certain securities may be difficult or
impossible to sell at the time that the seller would like or at the price that
the seller believes the security is currently worth.
Use of Derivatives for hedging purposes involves correlation risk. If the
value of the Derivative moves more or less than the value of the hedged
instruments, the Fund using the Derivative will experience a gain or loss that
will not be completely offset by movements in the value of the hedged
instruments.
The Funds intend to enter into transactions involving Derivatives only if
there appears to be a liquid secondary market for such instruments or, in the
case of illiquid instruments traded in OTC transactions, such instruments
satisfy the criteria set forth below under "Additional Risk Factors of OTC
Transactions; Limitations on the Use of OTC Derivatives." However, there can
be no assurance that, at any specific time, either a liquid secondary market
will exist for a Derivative or the Fund will otherwise be able to sell such
instrument at an acceptable price. It may therefore not be possible to close a
position in a Derivative without incurring substantial losses, if at all.
Certain transactions in Derivatives (such as futures transactions or sales
of put options) involve substantial leverage risk and may expose a Fund to
potential losses, which exceed the amount originally invested by the Fund.
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 Fund's exposure, on a mark-to-market basis, to the transaction
(as calculated pursuant to requirements of the Securities and Exchange
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 Fund's exposure to loss.
Additional Risk Factors of OTC Transactions; Limitations on the Use of OTC
Derivatives
Certain Derivatives traded in OTC markets, including indexed securities,
swaps and OTC options, involve substantial liquidity risk. The absence of
liquidity may make it difficult or impossible for 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. The Fund will therefore acquire illiquid OTC instruments (i) if
the agreement pursuant to which the instrument is purchased contains a formula
price at which the instrument
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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. Each 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.
Other Investment Policies and Practices
Securities Lending. Each Fund may lend securities with a value not exceeding
33 1/3% of its total assets. In return, the Fund receives collateral in an
amount equal to at least 100% of the current market value of the loaned
securities in cash or securities issued or guaranteed by the U.S. Government.
If cash collateral is received by 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 that Fund. Alternatively, if securities are
delivered to a Fund as collateral, that Fund and the borrower negotiate a rate
for the loan premium to be received by that Fund for lending its portfolio
securities. In either event, the total yield on each Fund's portfolio is
increased by loans of its portfolio securities. Each 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. Each Fund may pay reasonable finder's, administrative and custodial fees
in connection with its loans. In the event that the borrower defaults on its
obligation to return borrowed securities because of insolvency or for any
other reason, 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.
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 Fund's assets in
illiquid securities may restrict the ability of the Fund to dispose of that
investment 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 a Fund redeems shares or pays dividends, and could result in a 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 the Funds may buy directly
from the issuer. Restricted securities may be sold in private placement
transactions between issuers and their purchasers and may be neither listed on
an exchange nor traded in other established markets. In many cases, privately
placed securities may or may not be freely transferable under the laws of the
applicable jurisdiction or due to contractual restrictions on resale. As a
result of the absence of a public trading market, privately placed securities
may be more difficult to value than publicly traded securities and may be less
liquid, or illiquid, and therefore may be subject to the risks associated with
illiquid securities, as described in the preceding paragraph. Some restricted
securities, however, may be liquid. 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 their fair market value. In addition,
issuers whose securities are not publicly traded may not be subject to the
disclosure and other investor protection requirements that may be applicable
if their securities were publicly traded. If any privately placed securities
held by a Fund are required to be registered under the securities laws of one
or more jurisdictions before being resold, that Fund may be required to bear
the expenses
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of registration. Certain of a Fund's investments in private placements may
consist of direct investments and may include investments in smaller, less-
seasoned issuers, which may involve greater risks. These issuers may have
limited product lines, markets or financial resources, or they may be
dependent on a limited management group. In making investments in such
securities, the Funds may obtain access to material nonpublic information
which may restrict the Funds' ability to conduct portfolio transactions in
such securities.
Repurchase Agreements. Each Fund may invest in securities pursuant to
repurchase agreements. Under such agreements, the bank or primary dealer or an
affiliate thereof agrees, upon entering into the contract, to repurchase the
security at a mutually agreed upon time and price, thereby determining the
yield during the term of the agreement. This insulates a Fund from
fluctuations in the market value of the underlying security during such
period, although, to the extent the repurchase agreement is not denominated in
U.S. dollars, that Fund's 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 with a Fund that is construed to be a
collateralized loan, the underlying securities are not owned by the Fund but
only constitute collateral for the seller's obligation to pay the repurchase
price. Therefore, the Fund may suffer time delays and incur costs or possible
losses in connection with the disposition of the collateral. In the event of a
default under such a repurchase agreement, instead of the contractual fixed
rate of return, the rate of return to a 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.
When-Issued and Delayed Delivery Securities and Forward Commitments. Each
Fund may purchase or sell securities that it is entitled to receive on a when-
issued or delayed delivery 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. A Fund enters into these transactions
to obtain what is considered an advantageous price to the Fund at the time of
entering into the transaction. The Funds have not established any limit on the
percentage of their assets that may be committed in connection with these
transactions. When a Fund is purchasing securities in these transactions, that
Fund maintains a segregated account with its custodian of cash, cash
equivalents, U.S. Government securities or other liquid securities in an
amount equal to the amount of its purchase commitments.
There can be no assurance that a security purchased on a when-issued basis
will be issued, or a security purchased or sold through a forward commitment
will be delivered. The value of securities in these transactions on the
delivery date may be more or less than a Fund's purchase price. A Fund may
bear the risk of a decline in the value of the security in these transactions
and may not benefit from an appreciation in the value of the security during
the commitment period.
Standby Commitment Agreements. Each Fund may enter into standby commitment
agreements. These agreements commit a Fund, for a stated period of time, to
purchase a stated amount of securities which may be issued and sold to that
Fund at the option of the issuer. The price of the security is fixed at the
time of the commitment. At the time of entering into the agreement a 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 price that is considered
advantageous to that Fund. A Fund will not enter into a standby commitment
with a remaining term in excess of 45 days and will limit its investment in
such commitments so that the aggregate purchase price of securities subject to
such commitments, together with the value of portfolio securities subject to
legal restrictions on resale that affect their marketability, will not exceed
15% of its net assets taken at the time of the commitment. Each 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.
9
<PAGE>
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 thereafter
will be reflected in the calculation of each Fund's net asset value. The cost
basis of the security will be adjusted by the amount of the commitment fee. In
the event the security is not issued, the commitment fee will be recorded as
income on the expiration date of the standby commitment.
144A Securities. The Funds may purchase restricted securities that can be
offered and sold to "qualified institutional buyers" under Rule 144A under the
Securities Act. The Funds' Board has determined to treat as liquid Rule 144A
securities that are either freely tradable in their primary markets offshore
or have been determined to be liquid in accordance with the policies and
procedures adopted by the Funds' Board. The Board has adopted guidelines and
delegated to the Investment Adviser the daily function of determining and
monitoring liquidity of restricted securities. The Board, 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 will carefully monitor the Funds' 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.
Other Special Considerations. The Funds may, without limit, make short-term
investments, purchase high quality bonds or buy or sell derivatives to reduce
exposure to equity securities when the Funds believe it is advisable to do so
(on a temporary defensive basis). Short-term investments and temporary
defensive positions may limit the potential for growth in the value of shares
of each Fund.
Suitability. The economic benefit of an investment in any Fund depends upon
many factors beyond the control of the Fund, the Corporation, the Trust, the
Investment Adviser and its affiliates. Each Fund should be considered a
vehicle for diversification and not as a balanced investment program. The
suitability for any particular investor of a purchase of shares in any Fund
will depend on, among other things, such investor's investment objectives and
such investor's ability to accept the risks associated with investing in
securities, including the risk of loss of principal.
Investment Restrictions
The Corporation has adopted the following restrictions and policies relating
to the investment of each Fund's 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 that 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). Unless otherwise provided, all references to the
assets of a Fund below are in terms of current market value. Provided 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), each Fund may not:
1. Make any investment inconsistent with each Fund's classification as a
diversified company under the Investment Company Act.
2. Invest more than 25% of its assets, taken at market value, in the
securities of issuers in any particular industry (excluding the U.S.
Government and its agencies and instrumentalities).
10
<PAGE>
3. Make investments for the purpose of exercising control or management.
Investments by a Fund in wholly owned investment entities created under the
laws of certain countries will not be deemed the making of investments for
the purpose of exercising control or management.
4. Purchase or sell real estate, except that, to the extent permitted by
applicable law, 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.
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 Funds' Prospectus and
Statement of Additional Information, as they may be amended from time to
time.
6. Issue senior securities to the extent such issuance would violate
applicable law.
7. Borrow money, except that (i) a 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) a Fund may borrow up to an additional
5% of its total assets for temporary purposes, (iii) a Fund may obtain such
short-term credit as may be necessary for the clearance of purchases and
sales of portfolio securities and (iv) a Fund may purchase securities on
margin to the extent permitted by applicable law. A Fund may not pledge its
assets other than to secure such borrowings or, to the extent permitted by
each Fund's investment policies as set forth in the Funds' Prospectus and
Statement of Additional Information, as they may be amended from time to
time, in connection with hedging transactions, short sales, when-issued and
forward commitment transactions and similar investment strategies.
8. Underwrite securities of other issuers except insofar as the Fund
technically may be deemed an underwriter under the Securities Act, in
selling portfolio securities.
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
Funds' Prospectus and Statement of Additional Information, as they may be
amended from time to time, and without registering as a commodity pool
operator under the Commodity Exchange Act.
The Trust has adopted investment restrictions substantially identical to the
foregoing, which are fundamental policies of the Trust and may not be changed
with respect to a Portfolio without the approval of the holders of a majority
of the interests of that Portfolio.
In addition, the Corporation has adopted non-fundamental restrictions with
respect to each Fund that may be changed by the Board of Directors without
shareholder approval. Like the fundamental restrictions, none of the non-
fundamental restrictions, including but not limited to restriction (a) below,
shall prevent 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 investment restrictions,
each Fund may not:
(a) Purchase securities of other investment companies, except to the
extent such purchases are permitted by applicable law. As a matter of
policy, however, 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 a Fund's shares are owned by another
investment company that is part of the same group of investment companies
as the Fund.
(b) Make short sales of securities or maintain a short position, except
to the extent permitted by applicable law. The Funds currently do not
intend to engage in short sales, except short sales "against the box."
11
<PAGE>
(c) Invest in securities that cannot be readily resold because of legal
or contractual restrictions or that cannot otherwise be marketed, redeemed
or put to the issuer or a third party, if at the time of acquisition more
than 15% of its net assets would be invested in such securities. This
restriction shall not apply to securities that mature within seven days or
securities that the Directors of the Corporation have otherwise determined
to be liquid pursuant to applicable law. Securities purchased in accordance
with Rule 144A under the Securities Act (which are restricted securities
that can be resold to qualified institutional buyers, but not to the
general public) and determined to be liquid by the Directors are not
subject to the limitations set forth in this investment restriction.
(d) Notwithstanding fundamental investment restriction (7) above, borrow
money or pledge its assets, except that the Fund (a) may borrow from a bank
as a temporary measure for extraordinary or emergency purposes or to meet
redemption in amounts not exceeding 33 1/3% (taken at market value) of its
total assets and pledge its assets to secure such borrowing, (b) may obtain
such short-term credit as may be necessary for the clearance of purchases
and sales of portfolio securities and (c) may purchase securities on margin
to the extent permitted by applicable law. However, at the present time,
applicable law prohibits the Funds from purchasing securities on margin.
The deposit or payment by a Fund of initial or variation margin in
connection with financial futures contracts or options transactions is not
considered to be the purchase of a security on margin. The purchase of
securities while borrowing are outstanding will have the effect of
leveraging a Fund. Such leveraging or borrowing increases a Fund's exposure
to capital risk and borrowed funds are subject to interest costs which will
reduce net income. A Fund will not purchase securities while borrowing
exceeds 5% of its total assets.
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 and Trust have adopted an investment
policy pursuant to which neither a Fund nor its Portfolio will purchase or
sell OTC options (including OTC options on futures contracts) if, as a result
of such transaction, the sum of the market value of OTC options currently
outstanding that are held by a Fund or its Portfolio, the market value of the
underlying securities covered by OTC call options currently outstanding that
were sold by a Fund or its Portfolio and margin deposits on a Fund or its
Portfolio's existing OTC options on futures contracts exceeds 15% of the net
assets of such Fund or its Portfolio taken at market value, together with all
other assets of such Fund or its Portfolio that are illiquid or are not
otherwise readily marketable. However, if the OTC option is sold by a Fund or
its Portfolio to a primary U.S. Government securities dealer recognized by the
Federal Reserve Bank of New York and if a Fund or its Portfolio has the
unconditional contractual right to repurchase such OTC option from the dealer
at a predetermined price, then that Fund or its Portfolio will treat as
illiquid such amount of the underlying securities as is equal to the
repurchase price less the amount by which the option is "in-the-money" (i.e.,
current market value of the underlying securities minus the option's strike
price). The repurchase price with the primary dealers is typically a formula
price that is generally based on a multiple of the premium received for the
option plus the amount by which the option is "in-the-money." This policy as
to OTC options is not a fundamental policy of each Fund or its Portfolio and
may be amended by the Directors or the Trustees without the approval of the
shareholders. However, the Directors or Trustees will not change or modify
this policy prior to the change or modification by the Commission staff of its
position.
In addition, as a non-fundamental policy that may be changed by the Board of
Directors and to the extent required by the Commission or its staff, each Fund
will, for purposes of fundamental investment restrictions (1) and (2), treat
securities issued or guaranteed by the government of any one foreign country
as the obligations of a single issuer.
Because of the affiliation of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") with the Investment Adviser, the Funds and the
Trust are prohibited from engaging in certain transactions involving Merrill
Lynch or its affiliates except for brokerage transactions permitted under the
Investment Company Act involving only usual and customary commissions or
transactions pursuant to an exemptive order under the Investment Company Act.
See "Portfolio Transactions and Brokerage." Without such an exemptive order,
the Funds and the Trust would be prohibited from engaging in portfolio
transactions with Merrill Lynch or any of its affiliates acting as principal.
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<PAGE>
Portfolio Turnover
Generally, the Funds will not purchase securities for short term trading
profits. However, each Fund may dispose of securities without regard to the
time they have been held when such actions, for defensive or other reasons,
appear advisable to the Investment Adviser in light of a change in
circumstances in general market, economic or financial conditions. As a result
of its investment policies, each Fund may engage in a substantial number of
portfolio transactions. Accordingly, while each Fund anticipates that its
annual portfolio turnover rate should not exceed 100% under normal conditions,
it is impossible to predict portfolio turnover rates. The portfolio turnover
rate is calculated by dividing the lesser of a Fund's annual sales or
purchases of portfolio securities (exclusive of purchases or sales of
securities whose maturities at the time of acquisition were one year or less )
by the monthly average value of the securities in the portfolio during the
year. A high portfolio turnover rate involves certain tax consequences and
correspondingly greater transaction costs in the form of dealer spreads and
brokerage commissions, which are borne by the Funds.
MANAGEMENT OF THE FUNDS
Directors and Officers
The Directors of the Corporation consist of individuals, of whom are
not "interested persons" of the Corporation as defined in the Investment
Company Act. The same individuals serve as Trustees of the Trust and are
sometimes referred to herein as the "non-interested Directors/Trustees." The
Directors are responsible for the overall supervision of the operations of the
Funds and perform the various duties imposed on the directors of investment
companies by the Investment Company Act. Information about the Directors and
executive officers of the Corporation, their ages and their principal
occupations for at least the last five years are set forth below. Unless
otherwise noted, the address of each executive officer and Director is P.O.
Box 9011, Princeton, New Jersey 08543-9011.
Terry K. Glenn (59)--President and Director(1)(2)--Executive Vice President
of the Investment Adviser and Merrill Lynch Asset Management, L.P. ("MLAM")
(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.
[To Be Completed By Amendment.]
Robert C. Doll, Jr. (45)--Senior Vice President and Portfolio
Manager(1)(2)--Senior Vice President of the Investment Adviser and MLAM since
1999; Senior Vice President of Princeton Services since 1999; Chief Investment
Officer of OppenheimerFunds, Inc. in 1999 and Executive Vice President thereof
from 1991 to 1999.
Donald C. Burke (39)--Vice President and Treasurer(1)(2)--Senior Vice
President and Treasurer of the Investment Adviser and MLAM since 1999; Senior
Vice President and Treasurer of Princeton Services since 1999; Vice President
of PFD since 1999; First Vice President of MLAM from 1997 to 1999; Vice
President of MLAM from 1990 to 1997; Director of Taxation of MLAM since 1990.
Alice A. Pellegrino (39)--Secretary(1)(2)--Vice President of MLAM since
1999; Attorney associated with MLAM since 1997; Associate with Kirkpatrick &
Lockhart, LLP from 1992 to 1997.
- ----------
(1) Interested person, as defined in the Investment Company Act, of the Trust
and the Corporation.
(2) Such Director or officer is a trustee, director or officer of other
investment companies for which the Investment Adviser, or one of its
affiliates, acts as investment adviser or manager.
(3) Member of the Corporation's 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 , 1999, the officers and Directors of the Corporation as a group
( persons) owned an aggregate of less than 1% of the outstanding shares of
common stock of Merrill Lynch & Co., Inc. ("ML & Co.") and owned an aggregate
of less than 1% of the outstanding shares of the Corporation.
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<PAGE>
Compensation of Directors/Trustees
The Corporation and the Trust pay each non-interested Director/Trustee, for
service to the Corporation and the Trust, a fee of $ per year plus $ per
in-person meeting attended, together with such individual's actual out-of-
pocket expenses relating to attendance at meetings. The Corporation and the
Trust also compensate members of the Audit and Nominating Committee, which
consists of all of the non-affiliated Directors/Trustees, at the rate of $
annually for service to the Corporation and the Trust.
The following table sets forth the estimated compensation to be earned by
the non-interested Directors/Trustees for the fiscal year ended , 2000
and the aggregate compensation paid to them from all investment companies
advised by the Investment Adviser or its affiliates ("Affiliate-Advised
Funds") to the non-affiliated Directors/Trustees for the calendar year ended
December 31, 1998.
<TABLE>
<CAPTION>
Pension or Aggregate
Retirement Benefits Compensation from
Compensation Accrued as Part of Estimated Annual Corporation/Trust
Position with from Corporation/ Benefits upon and Other Affiliate-
Name Corporation/Trust Corporation/Trust Trust Expense Retirement Advised Funds(1)
---- ----------------- ----------------- ------------------- ---------------- --------------------
<S> <C> <C> <C> <C> <C>
$ $
$ $
$ $
$ $
</TABLE>
- ----------
(1) In addition to the Corporation and the Trust, the Directors/Trustees serve
on other boards of Affiliate-Advised Funds as follows:
The Directors of the Corporation and the Trustees of the Trust may be
eligible for reduced sales charges on purchases of Class I shares. See
"Reduced Initial Sales Charges--Purchase Privileges of Certain Persons."
Management and Advisory Arrangements
Advisory Services and Advisory Fee. Each Fund invests all of its assets in
shares of the corresponding Portfolio of the Trust. Accordingly, the Funds do
not invest directly in portfolio securities and do not require investment
advisory services. All portfolio management occurs at the Trust level. The
Trust, on behalf of each Portfolio, has entered into separate investment
advisory agreements with Fund Asset Management, L.P. as Investment Adviser
(the "Advisory Agreements"). As discussed in "The Management Team" in the
Prospectus, the Investment Adviser receives for its services to each Portfolio
monthly compensation at the annual rate of % of the average daily net assets
of each Portfolio.
Payment of Trust Expenses. The Advisory Agreements obligate the Investment
Adviser to provide investment advisory services and to pay, or cause an
affiliate to pay, for maintaining its staff and personnel and to provide
office space, facilities and necessary personnel for the Trust. The Investment
Adviser is also obligated to pay, or cause an affiliate to pay, the fees of
all officers, Trustees and Directors who are affiliated persons of the
Investment Adviser or any affiliate. The Trust pays, or causes to be paid, all
other expenses incurred in the operation of each Portfolio and the Trust
(except to the extent paid by Mercury Funds Distributor, a division of PFD
(the "Distributor")), including, among other things, taxes, expenses for legal
and auditing services, costs of printing proxies, shareholder reports, copies
of the Registration Statement, charges of the custodian, any sub-custodian and
the transfer agent, expenses of portfolio transactions, expenses of redemption
of shares, Commission fees, expenses of registering the shares under federal,
state or non-U.S. laws, fees and actual out-of-pocket expenses of Trustees who
are not affiliated persons of the Investment Adviser or 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 Trust or a Portfolio. Accounting services are
provided to the Trust by the Investment Adviser or an affiliate of the
Investment Adviser, and the Trust reimburses the Investment Adviser or an
affiliate of the Investment Adviser for its costs in connection with such
services.
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<PAGE>
Payment of Corporation Expenses. The Corporation pays, or causes an
affiliate to pay, all other expenses incurred in the operation of the
Corporation and each Fund (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 and prospectuses and
statements of additional information, charges of the custodian, any sub-
custodian and the transfer agent, expenses of portfolio transactions, expenses
of redemption of shares, Commission fees, expenses of registering the shares
under federal, state or non-U.S. laws, fees and actual out-of-pocket expenses
of Directors 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 promotional expenses of each Fund incurred in
connection with the offering of its shares. Certain expenses will be financed
by the Funds pursuant to distribution plans in compliance with Rule 12b-1
under the Investment Company Act. Accounting services are provided to the
Corporation and each Fund by the Investment Adviser, and the Corporation
reimburses the Investment Adviser for its costs in connection with such
services.
Organization of the Investment Adviser. Fund Asset Management, L.P. 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 the Investment Adviser
as defined under the Investment Company Act because of their ownership of its
voting securities and their power to exercise a controlling influence over its
management or policies.
Duration and Termination. Unless earlier terminated as described below, the
Advisory Agreements will continue in effect for two years from their effective
date. Thereafter, they will remain in effect from year to year if approved
annually (a) by the Board of Trustees or by a majority of the outstanding
shares of the applicable Portfolio and (b) by a majority of the Trustees who
are not parties to such contract or interested persons (as defined in the
Investment Company Act) of any such party. Such contracts are not assignable
and may be terminated with respect to the applicable Portfolio without penalty
on 60 days' written notice at the option of either party thereto or by the
vote of the shareholders of that Portfolio.
Transfer Agency Services. Financial Data Services, Inc. (the "Transfer
Agent"), a subsidiary of ML & Co., acts as the Corporation's Transfer Agent
with respect to each Fund pursuant to separate Transfer Agency, Dividend
Disbursing Agency and Shareholder Servicing Agency Agreements (the "Transfer
Agency Agreements"). Pursuant to the Transfer Agency Agreements, 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 Agreements, the Transfer Agent receives a fee of $11.00 per Class I or
Class A account and $14.00 per Class B or Class C account and is entitled to
reimbursement for certain transaction charges and out-of-pocket expenses
incurred by the Transfer Agent under the Transfer Agency Agreements.
Additionally, a $.20 monthly closed account charge will be assessed on all
accounts that 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 fee will be due. For purposes of the Transfer
Agency Agreements, the term "account" includes a shareholder account
maintained directly by the Transfer Agent and any other account representing
the beneficial interest of a person in the relevant share class on a
recordkeeping system, provided the recordkeeping system is maintained by a
subsidiary of ML & Co.
Distribution Expenses. The Corporation has entered into separate
distribution agreements with the Distributor in connection with the continuous
offering of each class of shares of each Fund (the "Distribution Agreements").
The Distribution Agreements obligate the Distributor to pay certain expenses
in connection with the offering of each class of shares of each Fund. After
the prospectuses, statements of additional information and periodic reports
have been prepared, set in type and mailed to shareholders, the Distributor
pays for the printing and distribution of copies thereof used in connection
with the offering to dealers and investors. The Distributor also pays for
other supplementary sales literature and advertising costs. The Distribution
Agreements are subject to the same renewal requirements and termination
provisions as the Investment Advisory Agreement described above.
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<PAGE>
Code of Ethics
The Board of Trustees of the Trust and the Board of Directors of the
Corporation each have adopted a Code of Ethics under Rule 17j-1 of the
Investment Company Act that incorporates the Code of Ethics of the Investment
Adviser (together, the "Codes"). The Codes significantly restrict the personal
investing activities of all employees of the Investment Adviser and, as
described below, impose additional, more onerous, restrictions on fund
investment personnel.
The Codes require that all employees of the Investment Adviser 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" initial public offering 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. Furthermore, the Codes provide for
trading "blackout periods" that prohibit trading by investment personnel of
the Funds within periods of trading by the Funds in the same (or equivalent)
security (15 or 30 days depending upon the transaction).
PURCHASE OF SHARES
Reference is made to "Account Choices--How to Buy, Sell, Transfer and
Exchange Shares" in the Prospectus for certain information as to the purchase
of Fund shares.
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 each 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. The contingent deferred sales charges
("CDSCs"), distribution fees and account maintenance fees that are imposed on
Class B and Class C shares, as well as the account maintenance fees that are
imposed on Class A shares, are imposed directly against those classes and not
against all assets of the Funds, and, accordingly, such charges do not affect
the net asset value of any other class or have any impact on investors
choosing another sales charge option. Dividends paid by each Fund for each
class of shares are calculated in the same manner at the same time and differ
only to the extent that account maintenance and distribution fees and any
incremental transfer agency costs relation to a particular class are borne
exclusively by that class. 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 distribution plan for
Class A Shares). Each class has different exchange privileges. See
"Shareholder Services--Exchange Privilege."
Investors should understand that the purpose and function of the initial
sales charges with respect to the Class I and Class A shares are the same as
those of the CDSCs and distribution fees with respect to the Class B and Class
C shares in that the sales charges and distribution fees applicable to each
class provide for the financing of the distribution of the shares of each
Fund. The distribution-related revenues paid with respect to a class will not
be used to finance the distribution expenditures of another class. Sales
personnel may receive different compensation for selling different classes of
shares.
A Fund or the Distributor may suspend the continuous offering of that Fund's
shares of any class at any time in response to conditions in the securities
markets or otherwise and may thereafter resume such offering from time to
time. Any order may be rejected by a Fund or the Distributor. Neither the
Distributor nor the dealers are
16
<PAGE>
permitted to withhold placing orders to benefit themselves by a price change.
Certain securities dealers may charge a processing fee to confirm a sale of
shares to such customers. For example, the fee currently charged by Merrill
Lynch is $5.35. Purchases made directly through the Transfer Agent are not
subject to the processing fee.
Initial Sales Charge Alternatives--Class I and Class A Shares
Investors choosing the initial sales charge alternatives who are eligible to
purchase Class I shares should purchase Class I shares rather than Class A
shares because there is an account maintenance fee imposed on Class A shares.
Class I shares are offered to a limited group of investors and also will be
issued upon reinvestment of dividends paid on outstanding Class I shares.
Investors who currently own Class I shares 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 ML &
Co. and its subsidiaries and their directors and employees, to members of the
Boards of Mercury and Affiliate-Advised investment companies, 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 the
Investment Adviser or an affiliate exercises investment discretion.
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.
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 a Fund will receive a concession equal to most of the sales
charge, they may be deemed to be underwriters under the Securities Act.
Reduced Initial Sales Charges
Reductions in or exemptions from the imposition of a sales load 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.
Rights of Accumulation. Reduced sales charges are applicable through a right
of accumulation under which eligible investors are permitted to purchase
shares of each Fund subject to an initial sales charge at the offering
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<PAGE>
price applicable to the total of (a) the public offering price of the shares
then being purchased plus (b) an amount equal to the then current net asset
value or cost, whichever is higher, of the purchaser's combined holdings of
all classes of shares of each Fund and of other Mercury mutual funds. For any
such right of accumulation to be made available, the Distributor must be
provided at the time of purchase, by the purchaser or the purchaser's
securities dealer, with sufficient information to permit confirmation of
qualification. Acceptance of the purchase order is subject to such
confirmation. The right of accumulation may be amended or terminated at any
time. Shares held in the name of a nominee or custodian under pension, profit-
sharing, or other employee benefit plans may not be combined with other shares
to qualify for the right of accumulation.
Letter of Intent. Reduced sales charges are applicable to purchases
aggregating $25,000 or more of Class I or Class A shares of each Fund or any
other Mercury mutual funds made within a 13-month period starting with the
first purchase pursuant to the Letter of Intent. The Letter of Intent is
available only to investors whose accounts are established and maintained at
the Fund's Transfer Agent. The Letter of Intent is not available to employee
benefit plans for which affiliates of the Investment Adviser provide plan
participant record-keeping services. The Letter of Intent is not a binding
obligation to purchase any amount of Class I or Class A shares; however, its
execution will result in the purchaser paying a lower sales charge at the
appropriate quantity purchase level. A purchase not originally made pursuant
to a Letter of Intent may be included under a subsequent Letter of Intent
executed within 90 days of such purchase if the Distributor is informed in
writing of this intent within such 90-day period. The value of Class I and
Class A shares of each Fund and of other Mercury mutual funds presently held,
at cost or maximum offering price (whichever is higher), on the date of the
first purchase under the Letter of Intent, may be included as a credit toward
the completion of such Letter, but the reduced sales charge applicable to the
amount covered by such Letter will be applied only to new purchases. If the
total amount of shares does not equal the amount stated in the Letter of
Intent (minimum of $25,000), the investor will be notified and must pay,
within 20 days of the execution of such Letter, the difference between the
sales charge on the Class I or Class A shares purchased at the reduced rate
and the sales charge applicable to the shares actually purchased through the
Letter. Class I or Class A shares equal to 5.0% of the intended amount will be
held in escrow during the 13-month period (while remaining registered in the
name of the purchaser) for this purpose. The first purchase under the Letter
of Intent must be at least 5.0% 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"), a series of Financial Institutions Series
Trust, into each Fund that creates a sales charge will count toward completing
a new or existing Letter of Intent from each Fund.
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, the aggregate amount invested by the plan in
specified investments. Certain other plans may purchase Class B shares with a
waiver of the CDSC upon redemption, based on similar criteria. Such Class B
shares will convert into Class A shares approximately ten years after the plan
purchases the first share of any Mercury mutual fund. Minimum purchase
requirements may be waived or varied for such plans. For additional
information regarding purchases by employer-sponsored retirement or savings
plans and certain other arrangements, call your plan administrator or your
selected dealer.
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.
Purchase Privileges of Certain Persons. Directors of the Corporation and
Trustees of the Trust, members of the Boards of other investment companies
advised by the Investment Adviser or its affiliates, directors and employees
of ML & Co. and its subsidiaries (the term "subsidiaries," when used herein
with respect to ML & Co., includes the Investment Adviser, MLAM, Mercury Asset
Management International, Ltd. and certain other
18
<PAGE>
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 each
Fund at net asset value. The Funds realize economies of scale and reduction of
sales-related expenses by virtue of the familiarity of these persons with the
Funds. Employees and directors or trustees wishing to purchase shares of the
Funds must satisfy the Funds' suitability standards.
Class I and Class A shares may also be offered at net asset value to certain
accounts over which the Investment Adviser or an affiliate exercises
investment discretion.
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.
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
FAM from time to time.
Deferred Sales Charges--Class B and Class C Shares
Investors choosing the deferred sales charge alternatives should consider
Class B shares if they intend to hold their shares for an extended period of
time and Class C shares if they are uncertain as to the length of time they
intend to hold their assets in Mercury mutual funds.
Because no initial sales charges are deducted at the time of the purchase,
Class B and Class C shares provide the benefit of putting all of the
investor's dollars to work from the time the investment is made. The deferred
sales charge alternatives may be particularly appealing to investors that do
not qualify for the reduction in initial sales charges. Both Class B and Class
C shares are subject to ongoing account maintenance fees and distribution
fees; however, the ongoing account maintenance and distribution fees
potentially may be offset to the extent any return is realized on the
additional funds initially invested in Class B or Class C shares. In addition,
Class B shares will be converted into Class A shares of the Fund after a
conversion period of approximately eight years, and thereafter investors will
be subject to lower ongoing fees.
The public offering price of Class B and Class C shares for investors
choosing the deferred sales charge alternatives is the next determined net
asset value per share without the imposition of a sales charge at the time of
purchase. See "Pricing of Shares--Determination of Net Asset Value" below.
Class B shares that are redeemed within six years of purchase may be subject
to a CDSC at the rates set forth below charged as a percentage of the dollar
amount subject thereto. In determining whether a CDSC is applicable to a
redemption, the calculation will be determined in the manner that results in
the lowest applicable rate being charged. The charge will be assessed on an
amount equal to the lesser of the proceeds of redemption or the cost of the
shares being redeemed. Accordingly, no CDSC will be imposed on increases in
net asset value above the initial purchase price. In addition, no CDSC will be
assessed on shares derived from reinvestment of dividends. It will be assumed
that the redemption is first of shares held for over six years or shares
acquired pursuant to reinvestment of dividends and then of shares held longest
during the six-year period. A transfer of shares from a shareholder's account
to another account will be assumed to be made in the same order as a
redemption.
The following table sets forth the Class B CDSC:
<TABLE>
<CAPTION>
CDSC as a Percentage
of Dollar amount
Year Since Purchase Payment Made Subject to Charge
-------------------------------- --------------------
<S> <C>
0-1................................................... 4.0%
1-2................................................... 4.0%
2-3................................................... 3.0%
3-4................................................... 3.0%
4-5................................................... 2.0%
5-6................................................... 1.0%
6 and thereafter...................................... None
</TABLE>
19
<PAGE>
To provide an example, assume an investor purchased 100 shares at $10 per
share (at a cost of $1,000) and in the third year after purchase, the net
asset value per share is $12 and, during such time, the investor has acquired
10 additional shares upon dividend reinvestment. If at such time the investor
makes his or her first redemption of 50 shares (proceeds of $600), 10 shares
will not be subject to a CDSC because of dividend reinvestment. With respect
to the remaining 40 shares, the charge is applied only to the original cost of
$10 per share and not to the increase in net asset value of $2 per share.
Therefore, $400 of the $600 redemption proceeds will be charged at a rate of
3.0% (the applicable rate in the third year after purchase).
As discussed in the Prospectus under "Account Choices--Pricing of Shares--
Class B and C Shares--Deferred Sales Charge Options," while Class B shares
redeemed within six years of purchase are subject to a CDSC under most
circumstances, the charge may be reduced or waived in certain instances. These
include certain post-retirement withdrawals from an individual retirement
account ("IRA") or other retirement plan or redemption of Class B shares in
certain circumstances following the death of a Class B shareholder. In the
case of such withdrawal, the reduction or waiver applies to: (a) any partial
or complete redemption in connection with a distribution following retirement
under a tax-deferred retirement plan on attaining age 59 1/2 in the case of an
IRA or other retirement plan, or part of a series of equal periodic payments
(not less frequently than annually) made for life (or life expectancy) or any
redemption resulting from the tax-free return of an excess contribution to an
IRA (certain legal documentation may be required at the time of liquidation
establishing eligibility for qualified distribution); or (b) any partial or
complete redemption following the death or disability (as defined in the
Internal Revenue Code of 1986, as amended (the "Code")) of a Class B
shareholder (including one who owns the Class B shares as joint tenant with
his or her spouse), provided the redemption is requested within one year of
the death or initial determination of disability, or if later, reasonably
promptly following completion of probate or in connection with involuntary
termination of an account in which Fund shares are held (certain legal
documentation may be required at the time of liquidation establishing
eligibility for qualified distribution).
The change may also be reduced or waived in other instances, such as: (a)
redemptions by certain eligible 401(a) and 401(k) plans and certain retirement
plan rollovers; (b) redemptions in connection with participation in certain
fee-based programs managed by the Investment Adviser or its affiliates; (c)
redemptions in connection with participation in certain fee-based programs
managed by selected dealers that have agreements with the Investment Adviser;
or (d) withdrawals through the Systematic Withdrawal Plan of up to 10% per
year of your account value at the time the plan is established. See
"Shareholder Servies--Fee-Based Programs" and "--Systematic Withdrawal Plan."
Conversion of Class B Shares to Class A Shares. After approximately eight
years (the "Conversion Period"), Class B shares of each Fund will be converted
automatically into Class A shares of that Fund. Class A shares are subject to
an ongoing account maintenance fee of 0.25% of the average daily net assets of
a Fund but are not subject to the distribution fee that is borne by Class B
shares. Automatic conversion of Class B shares into Class A shares will occur
at least once each month (on the "Conversion Date") on the basis of the
relative net asset value of the shares of the two classes on the Conversion
Date, without the imposition of any sales load, fee or other charge.
Conversion of Class B shares to Class A shares will not be deemed a purchase
or sale of the shares for Federal income tax purposes.
In addition, shares purchased through reinvestment of dividends on Class B
shares also will convert automatically to Class A shares. The Conversion Date
for dividend reinvestment shares will be calculated taking into account the
length of time the shares underlying such dividend reinvestment shares were
outstanding. If at the Conversion Date the conversion of Class B shares to
Class A shares of a Fund in a single account will result in less than $50
worth of Class B shares being left in the account, all of the Class B shares
of that Fund held in the account on the Conversion Date will be converted to
Class A shares of the Fund.
The Conversion Period may be modified for investors that participate in
certain fee-based programs. See "Shareholder Services--Fee-Based Programs."
Class B shareholders of a Fund exercising the exchange privilege described
under "Shareholder Services--Exchange Privilege" will continue to be subject
to that Fund's CDSC schedule if such schedule is higher than the CDSC schedule
relating to the Class B shares acquired as a result of the exchange.
20
<PAGE>
Class C shares that are redeemed within one year of purchase may be subject
to a 1.0% CDSC charged as a percentage of the dollar amount subject thereto.
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. 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. It will be
assumed that the redemption is first of shares held for over one year or
shares acquired pursuant to reinvestment of dividends and then of shares held
longest during the one-year period. A transfer of shares from a shareholder's
account to another account will be assumed to be made in the same order as a
redemption. The Class C CDSC may be waived in connection with involuntary
termination of an account in which Fund shares are held and withdrawals
through the Systematic Withdrawal Plans. See "Shareholder Services--Systematic
Withdrawal Plan."
Class B and Class C Sales Charge Information. 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 dealers (including Merrill Lynch)
related to providing distribution-related services to each Fund in connection
with the sale of the Class B and Class C shares, such as the payment of
compensation to financial consultants for selling Class B and Class C shares
from the dealer's own funds. The combination of the CDSC and the ongoing
distribution fee facilitates the ability of each Fund to sell the Class B and
Class C shares without a sales charge being deducted at the time of purchase.
See "Distribution Plans" below. Imposition of the CDSC and the distribution
fee on Class B and Class C shares is limited by the National Association of
Securities Dealers, Inc. (the "NASD") asset-based sales charge rule. See
"Limitations on the Payment of Deferred Sales Charges" below.
Distribution Plans
Reference is made to "Account Choices--Pricing of Shares" in the Prospectus
for certain information with respect to separate distribution plans for Class
A, Class B, and Class C shares pursuant to Rule 12b-1 under the Investment
Company Act (each a "Distribution Plan") with respect to the account
maintenance and/or distribution fees paid by the Funds 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 each 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 each 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 with respect to Class A, Class B and Class
C shares. Each of those classes has exclusive voting rights with respect to
the Distribution Plan adopted with respect to such class pursuant to which
account maintenance and/or distribution fees are paid (except that Class B
shareholders may vote on any material changes to expenses charged under the
Class A Distribution Plan).
The Distribution Plans for Class B and Class C shares provide that each 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 each 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 each Fund,
including payments to financial consultants for selling Class B and Class C
shares of each 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 each Fund in that the ongoing distribution fees and deferred
sales charges provide for the financing of the distribution of each Fund's
Class B and Class C shares.
The Funds' Distribution Plans are subject to the provisions of Rule 12b-1
under the Investment Company Act. In their consideration of each Distribution
Plan, the Directors must consider all factors they deem relevant, including
information as to the benefits of each Distribution Plan to the applicable
Fund and the related class of
21
<PAGE>
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 the affected Fund. A
Distribution Plan cannot be amended to increase materially the amount to be
spent by Fund without the approval of the related class of shareholders, and
all material amendments are required to be approved by the vote of Directors,
including a majority of the non-interested Directors who have no direct or
indirect financial interest in such Distribution Plan, cast in person at a
meeting called for that purpose. Rule 12b-1 further requires that each Fund
preserve copies of its Distribution Plans and any report made pursuant to such
plan for a period of not less than six years from the date of such
Distribution Plans or such report, the first two years in an easily accessible
place.
Among other things, each Distribution Plan provides that the Distributor
shall provide and the Directors shall review quarterly reports of the
disbursement of the account maintenance and/or distribution fees paid to the
Distributor. Payments under the Distribution Plans 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 each Distribution Plan may be more or less than distribution-related
expenses of the related class. Information with respect to the distribution-
related revenues and expenses is presented to the Directors 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.
Limitations on the Payment of Deferred Sales Charges
The maximum sales charge rule in the Conduct Rules of the 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 each Fund to (1)
6.25% of eligible gross sales of Class B shares and Class C shares, computed
separately (defined to exclude shares issued pursuant to dividend
reinvestments and exchanges), plus (2) interest on the unpaid balance for the
respective class, computed separately, at the prime rate plus 1% (the unpaid
balance being the maximum amount payable minus amounts received from the
payment of the distribution fee and the CDSC). In connection with the Class B
shares, the Distributor has voluntarily agreed to waive interest charges on
the unpaid balance in excess of 0.50% of eligible gross sales. Consequently,
the maximum amount payable to the Distributor (referred to as the "voluntary
maximum") in connection with the Class B shares is 6.75% of eligible gross
sales. The Distributor retains the right to stop waiving the interest charges
at any time. To the extent payments would exceed the voluntary maximum, the
Fund will not make further payments of the distribution fee with respect to
Class B shares and any CDSCs will be paid to the applicable Fund rather than
to the Distributor; however, the Fund will continue to make payments of the
account maintenance fee. In certain circumstances the amount payable pursuant
to the voluntary maximum may exceed the amount payable under the NASD formula.
In such circumstance payment in excess of the amount payable under the NASD
formula will not be made.
REDEMPTION OF SHARES
Reference is made to "How to Buy, Sell, Transfer and Exchange Shares" in the
Prospectus.
Each Fund is required to redeem for cash all shares of that 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
22
<PAGE>
of redemption. Except for any CDSC that may be applicable, there will be no
charge for redemption if the redemption request is sent directly to the
Transfer Agent. Shareholders liquidating their holdings will receive upon
redemption all dividends reinvested through the date of redemption.
The right to redeem shares or to receive payment with respect to any such
redemption may be suspended for more than seven days only for any period
during which trading on the New York Stock Exchange (the "NYSE") is restricted
as determined by the Commission or during which the NYSE is closed (other than
customary weekend and holiday closings), for any period during which an
emergency exists, as defined by the Commission, as a result of which disposal
of portfolio securities or determination of the net asset value of the Funds
is not reasonably practicable, and for such other periods as the Commission
may by order permit for the protection of shareholders of the Funds.
The value of shares of a Fund at the time of redemption may be more or less
than the shareholder's cost, depending in part on the market value of the
securities held by that Fund at such time.
Redemption
A shareholder wishing to redeem shares held with the Transfer Agent may do
so without charge by tendering the shares directly to the Funds' Transfer
Agent, Financial Data Services, Inc., P.O. Box 44062, Jacksonville, Florida
32232-4062. Redemption requests delivered other than by mail should be
delivered to Financial Data Services, Inc., 4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484. Proper notice of redemption in the case of
shares deposited with the Transfer Agent may be accomplished by a written
letter requesting redemption. Redemption requests should not be sent to the
Corporation, the Trust or the Funds. A redemption request in either event
requires the signature(s) of all persons in whose name(s) the shares are
registered, signed exactly as such name(s) appear(s) on the Transfer Agent's
register. The signature(s) on the redemption request may require a guarantee
by an "eligible guarantor institution" as defined in Rule 17Ad-15 under the
Securities Exchange Act of 1934 (the "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
in whose name(s) shares are recorded on the Transfer Agent's register; (ii)
all checks must be mailed to the stencil address of record on the Transfer
Agent's register and (iii) the stencil address must not have changed within 30
days. Certain rules may apply regarding certain account types such as but not
limited to UGMA/UTMA accounts, Joint Tenancies With 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). That 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 not usually exceed 10 days.
Repurchase
Each Fund also will repurchase its shares through a shareholder's listed
securities dealer. Each Fund normally will accept orders to repurchase shares
by wire or telephone from dealers for their customers at the net asset value
next computed after the order is placed. Shares will be priced at the net
asset value calculated on the day the request is received, provided that the
request for repurchase is submitted to the dealer prior to the close of
business on the NYSE (generally, the NYSE closes at 4:00 p.m., Eastern time)
and such request is received by the Fund from such dealer not later than 30
minutes after the close of business on the NYSE on the same day.
Dealers have the responsibility of submitting such repurchase requests to
the Funds not later than 30 minutes after the close of business on the NYSE in
order to obtain that day's closing price.
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<PAGE>
The foregoing 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 a 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 through the Funds'
Transfer Agent, on accounts held at the Transfer Agent, are not subject to the
processing fee. Each Fund reserves the right to reject any order for
repurchase, which right of rejection might adversely affect shareholders
seeking redemption through the repurchase procedure. A shareholder whose order
for repurchase is rejected by a Fund, however, may redeem Fund shares as set
forth above.
Reinstatement Privilege--Class I and Class A Shares
Shareholders of a Fund who have redeemed their Class I and Class A shares of
that Fund have a privilege to reinstate their accounts by purchasing Class I
or Class A shares, as the case may be, of that Fund at net asset value without
a sales charge up to the dollar amount redeemed. The reinstatement privilege
may be exercised by sending a notice of exercise along with a check for the
amount to be reinstated to the Transfer Agent within 30 days after the date
the request for redemption was accepted by the Transfer Agent or the
Distributor. Alternatively, the reinstatement privilege may be exercised
through the investor's financial consultant within 30 days after the date the
request for redemption was accepted by the Transfer Agent or the Distributor.
The reinstatement will be made at the net asset value per share next
determined after the notice of reinstatement is received and cannot exceed the
amount of the redemption proceeds.
PRICING OF SHARES
Determination of Net Asset Value
Reference is made to "How Shares are Priced" in the Prospectus.
The net asset value of the shares of all classes of each Fund is determined
once daily Monday through Friday after the close of business on the NYSE on
each day the NYSE is open for trading. The NYSE generally closes at 4:00 p.m.,
Eastern time. Each Fund also will determine its net asset value on any day in
which there is sufficient trading in the underlying Portfolio's portfolio
securities that the net asset value might be affected materially, but only if
on any such day a Fund is required to sell or redeem shares. Any assets or
liabilities initially expressed in terms of non-U.S. dollar currencies are
translated into U.S. dollars at the prevailing market rates as quoted by one
or more banks or dealers on the day of valuation. The NYSE is not open for
trading on New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
Net asset value is computed by dividing the value of the securities held by
each Portfolio on behalf of 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 of the Fund
outstanding at such time, rounded to the nearest cent. Expenses, including the
fees payable to the Investment Adviser and Distributor, are accrued daily.
The per share net asset value of Class A, Class B and Class C shares
generally will be lower than the per share net asset value of Class I shares,
reflecting the daily expense accruals of the account maintenance, distribution
and higher transfer agency fees applicable with respect to Class B and Class C
shares, and the daily expense accruals of the account maintenance fees
applicable with respect to Class A shares. Moreover, the per share net asset
value of the Class B and Class C shares of a Fund generally will be lower than
the per share net asset value of Class A shares of that Fund, reflecting the
daily expense accruals of the distribution fees and higher transfer agency
fees applicable with respect to Class B and Class C shares of that Fund. It is
expected, however, that the per share net asset value of the four classes of a
Fund will tend to converge (although not necessarily meet) immediately after
the payment of dividends or distributions, which will differ by approximately
the amount of the expense accrual differentials between the classes.
Portfolio securities, including ADRs, EDRs or GDRs, that are traded on stock
exchanges are valued at the last sale price (regular way) on the exchange on
which such securities are traded, as of the close of business on the day the
securities are being valued or, lacking any sales, at the last available bid
price for long positions, and
24
<PAGE>
at the last available ask price for short positions. In cases where securities
are traded on more than one exchange, the securities are valued on the
exchange designated by or under the authority of the Board of Trustees of the
Trust as the primary market. Long positions in securities traded in the OTC
market are valued at the last available bid price in the OTC market prior to
the time of valuation. Short positions in securities traded in the OTC market
are valued at the last available ask price in the OTC market prior to the time
of valuation. Portfolio securities that are traded both in the OTC market and
on a stock exchange are valued according to the broadest and most
representative market. When a Portfolio writes an option, the amount of the
premium received is recorded on the books of that Portfolio as an asset and an
equivalent liability. The amount of the liability is subsequently valued to
reflect the current market value of the option written, based on the last sale
price in the case of exchange-traded options or, in the case of options traded
in the OTC market, the last ask price. Options purchased by a Portfolio are
valued at their last sale price in the case of exchange-traded options or, in
the case of options traded in the OTC market, the last bid price. Other
investments, including financial futures contracts and related options, are
stated at market value. Securities and assets for which market quotations are
not readily available are stated at fair value as determined in good faith by
or under the direction of the Board of Trustees of the Trust. Such valuations
and procedures will be reviewed periodically by the Board of Trustees.
Generally, trading in non-U.S. securities, as well as U.S. Government
securities and money market instruments, is substantially completed each day
at various times prior to the close of business on the NYSE. The values of
such securities used in computing the net asset value of each Fund's shares
are determined as of such times. Foreign currency exchange rates also are
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 each Fund's net
asset value.
Each investor in the Trust may add to or reduce its investment in the
Portfolio on each day the NYSE is open for trading. The value of each
investor's (including each Fund's) interest in the Portfolio will be
determined after the close of business on the NYSE by multiplying the net
asset value of the Portfolio by the percentage, effective for that day, that
represents that investor's share of the aggregate interests in the Portfolio.
Any additions or withdrawals to be effected on that day will then be effected.
The investor's percentage of the aggregate beneficial interests in the
Portfolio will then be recomputed as the percentage equal to the fraction (i)
the numerator of which is the value of such investor's investment in the
Portfolio as of the time of determination on such day plus or minus, as the
case may be, the amount of any additions to or withdrawals from the investor's
investment in the Portfolio effected on such day, and (ii) the denominator of
which is the aggregate net asset value of the Portfolio as of such time on
such day plus or minus, as the case may be, the amount of the net additions to
or withdrawals from the aggregate investments in the Portfolio by all
investors in the Portfolio. The percentage so determined will then be applied
to determine the value of the investor's interest in the Portfolio after the
close of business of the NYSE on the next determination of net asset value of
the Portfolio.
Computation of Offering Price Per Share
An illustration of the computation of the offering price for Class I, Class
A, Class B and Class C shares of each Fund based on the projected value of
each Fund's estimated net assets and projected number of shares outstanding on
the date its shares are offered for sale to public investors is as follows:
<TABLE>
<CAPTION>
Class I Class A Class B Class C
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Assets.................................. $ $ $ $
==== ==== ==== ====
Number of Shares Outstanding................
==== ==== ==== ====
Net Asset Value Per Share (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))*..................... ** **
---- ---- ---- ----
Offering Price.............................. $ $ $ $
==== ==== ==== ====
</TABLE>
- ----------
* Rounded to the nearest one-hundredth percent; assumes maximum sales charge
is applicable.
** Class B and Class C shares are not subject to an initial sales charge but
may be subject to a CDSC on redemption. See "Purchase of Shares--Deferred
Sales Charges--Class B and Class C Shares" herein.
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<PAGE>
PORTFOLIO TRANSACTIONS AND BROKERAGE
Transactions in Portfolio Securities
Because each Fund will invest exclusively in shares of its corresponding
Portfolio of the Trust, it is expected that all transactions in portfolio
securities will be entered into by the Trust. Subject to policies established
by the Board of Trustees of the Trust, the Investment Adviser is primarily
responsible for the execution of the Trust's portfolio transactions and the
allocation of brokerage. The Trust has no obligation to deal with any broker
or group of brokers in the execution of transactions in portfolio securities
and does not use any particular broker or dealer. In executing transactions
with brokers and dealers, the Investment Adviser seeks to obtain the best net
results for each Portfolio of the Trust, taking into account such factors as
price (including the applicable brokerage commission or dealer spread), size
of order, difficulty of execution and operational facilities of the firm and
the firm's risk in positioning a block of securities. While the Investment
Adviser generally seeks reasonably competitive commission rates, the Trust
does not necessarily pay the lowest spread or commission available. In
addition, consistent with the Conduct Rules of the NASD and policies
established by the Board of Trustees of the Trust, 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 Trust; however, whether or
not a particular broker or dealer sells shares of the Fund neither qualifies
nor disqualifies such broker or dealer to execute transactions for the Trust.
Subject to obtaining the best net results, brokers who provide supplemental
investment research to the Investment Adviser may receive orders for
transactions by the Trust. Such supplemental research services ordinarily
consist of assessments and analyses of the business or prospects of a company,
industry or economic sector. Information so received will be in addition to
and not in lieu of the services required to be performed by the Investment
Adviser under the Investment Advisory Agreements, and the expenses of the
Investment Adviser will not necessarily be reduced as a result of the receipt
of such supplemental information. If in the judgment of the Investment Adviser
the Trust will benefit from supplemental research services, the Investment
Adviser is authorized to pay brokerage commissions to a broker furnishing such
services that are in excess of commission that another broker may have charged
for effecting the same transactions. Certain supplemental research services
may primarily benefit one or more other investment companies or other accounts
for which the Investment Adviser exercises investment discretion. Conversely,
the Trust may be the primary beneficiary of the supplemental research services
received as a result of portfolio transactions effected for such other
accounts or investment companies.
The Trust anticipates that its brokerage transactions involving securities
of issuers domiciled in countries other than the United States generally will
be conducted primarily on the principal stock exchanges of such countries.
Brokerage commissions and other transaction costs on foreign stock exchange
transactions generally are higher than in the United States, although the
Trust will endeavor to achieve the best net results in effecting its portfolio
transactions. There generally is less governmental supervision and regulation
of foreign stock exchanges and brokers than in the United States.
Foreign equity securities may be held by the Trust in the form of ADRs,
EDRs, GDRs or other securities convertible into foreign equity securities.
ADRs, EDRs and GDRs may be listed on stock exchanges, or traded in over-the-
counter markets in the United States or Europe, as the case may be. ADRs, like
other securities traded in the United States, will be subject to negotiated
commission rates. The Trust's ability and decisions to purchase or sell
portfolio securities of foreign issuers may be affected by laws or regulations
relating to the convertibility and repatriation of assets. Because the shares
of each Fund are redeemable on a daily basis in U.S. dollars, the Trust
intends to manage each Portfolio so as to give reasonable assurance that it
will be able to obtain U.S. dollars to the extent necessary to meet
anticipated redemptions. Under present conditions, it is not believed that
these considerations will have significant effect on the Trust's portfolio
strategies.
Each Fund may invest in certain securities traded in the OTC market and
intends to deal directly with the dealers who make a market in securities
involved, except in those circumstances in which better prices and execution
are available elsewhere. Under the Investment Company Act, persons affiliated
with the Trust and persons who are affiliated with such affiliated persons are
prohibited from dealing with the Trust as principal in the purchase and sale
of securities unless a permissive order allowing such transactions is obtained
from the Commission. Since transactions in the OTC market usually involve
transactions with the dealers acting as principal
26
<PAGE>
for their own accounts, the Trust will not deal with affiliated persons,
including Merrill Lynch and its affiliates, in connection with such
transactions. However, an affiliated person of the Trust may serve as its
broker in OTC transactions conducted on an agency basis provided that, among
other things, the fee or commission received by such affiliated broker is
reasonable and fair compared to the fee or commission received by non-
affiliated brokers in connection with comparable transactions. In addition,
the Trust may not purchase securities during the existence of any underwriting
syndicate for such securities of which Merrill Lynch is a member or in a
private placement in which Merrill Lynch serves as placement agent except
pursuant to procedures approved by the Board of Trustees of the Trust that
either comply with rules adopted by the Commission or with interpretations of
the Commission staff. See "Investment Objective and Policies--Investment
Restrictions."
Section 11(a) of the Exchange Act generally prohibits members of the U.S.
national securities exchanges from executing exchange transactions for their
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 a statement
setting forth the aggregate compensation received by the member in effecting
such transactions, and (iii) complies with any rules the Commission has
prescribed with respect to the requirements of clauses (i) and (ii). To the
extent Section 11(a) would apply to Merrill Lynch acting as a broker for the
Trust in any of its portfolio transactions executed on any such securities
exchange of which it is a member, appropriate consents have been obtained from
the Trust and annual statements as to aggregate compensation will be provided
to the Trust. Securities may be held by, or be appropriate investments for,
the Trust as well as other funds or investment advisory clients of the
Investment Adviser or its affiliates.
The Board of Trustees of the Trust 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 Trust on behalf of a portfolio to the Investment Adviser. After
considering all factors deemed relevant, the Board of Trustees made a
determination not to seek such recapture. The Board will reconsider this
matter from time to time.
Because of different objectives or other factors, a particular security may
be bought for one or more clients of the Investment Adviser or its affiliates
when one or more clients of the Investment Adviser or its affiliates are
selling the same security. If purchases or sales of securities arise for
consideration at or about the same time that would involve the Trust or other
clients or funds for which the Investment Adviser or an affiliate act as
investment adviser, transactions in such securities will be made, insofar as
feasible, for the respective funds and clients in a manner deemed equitable to
all. To the extent that transactions on behalf of more than one client of the
Investment Adviser or its affiliates during the same period may increase the
demand for securities being purchased or the supply of securities being sold,
there may be an adverse effect on price.
SHAREHOLDER SERVICES
Each Fund offers a number of shareholder services described below that are
designed to facilitate investment in its shares. Full details as to each such
service and copies of the various plans or how to change options with respect
thereto, can be obtained from the Funds by calling the telephone number on the
cover page hereof, or from the Distributor or your selected dealer. Certain of
these services are available only to U.S. investors.
Investment Account
Each shareholder whose account is maintained at the Transfer Agent has an
Investment Account and will receive statements, at least quarterly, from the
Transfer Agent. These statements will serve as transaction confirmations for
automatic investment purchases and the reinvestment of dividends. The
statements also will show any other activity in the account since the
preceding statement. Shareholders also will receive separate
27
<PAGE>
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 considering transferring their Class I or Class A shares from a
selected dealer to another brokerage firm or financial institution should be
aware that, if the firm to which the Class I or Class A shares are to be
transferred will not take delivery of shares of a Fund, a shareholder either
must redeem the Class I or Class A shares so that the cash proceeds can be
transferred to the account at the new firm or such shareholder must continue
to maintain an Investment Account at the Transfer Agent for those Class I or
Class A shares.
Shareholders interested in transferring their Class B or Class C shares from
a selected dealer and who do not wish to have an Investment Account maintained
for such shares at the Transfer Agent may request their new brokerage firm to
maintain such shares in an account registered in the name of the brokerage
firm for the benefit of the shareholder at the Transfer Agent.
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.
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 each 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.
Exchange Privilege
U.S. shareholders of each class of shares of each Fund have an exchange
privilege with certain other Mercury mutual funds and Summit, a series of
Financial Institutions Series Trust, which is a Merrill Lynch-sponsored money
market fund specifically designated as available for exchange by holders of
Class I, Class A, Class B and Class C shares. Shares with a net asset value of
at least $100 are required to qualify for the exchange privilege and any
shares used in an exchange must have been held by the shareholder for at least
15 days. Before effecting an exchange, shareholders should obtain a currently
effective prospectus of the fund into which the exchange is to be made.
Exercise of the exchange privilege is treated as a sale of the exchanged
shares and a purchase of the acquired shares for Federal income tax purposes.
Exchanges of Class I and Class A Shares. Under each Fund's 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 Mercury mutual fund, but does not hold
Class I shares of the second fund in his or her account at the time of
exchange and is not otherwise eligible to acquire Class I shares of the second
fund, the shareholder will receive Class A shares of the second fund as a
result of the exchange. Class A shares also may be exchanged for Class I
shares of a second Mercury mutual fund at any time as long as, at the time of
the exchange, the shareholder is eligible to acquire Class I shares of any
Mercury mutual fund.
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
28
<PAGE>
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, Class I and Class A
shares acquired through dividend reinvestment 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 each 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.
Exchanges of Class B and Class C Shares. 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, of another Mercury mutual fund or for Class B shares
of Summit ("new Class B or Class C shares") 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
that Fund's CDSC schedule if such schedule is higher than the CDSC schedule
relating to the new Class B shares acquired through use of the exchange
privilege. In addition, Class B shares of a Fund acquired through use of the
exchange privilege will be subject to that Fund's CDSC schedule if such
schedule is higher than the CDSC schedule relating to the Class B shares of
the fund from which the exchange was made. For purposes of computing the CDSC
that may be payable on a disposition of the new Class B or Class C shares, the
holding period for the outstanding Class B shares is "tacked" to the holding
period of the new Class B or Class C shares. For example, an investor may
exchange Class B shares of a Fund for those of another Mercury fund ("new
Mercury Fund") after having held that Fund's Class B shares for two-and-a-half
years. The 3% CDSC that generally would apply to a redemption would not apply
to the exchange. Four years later the investor may decide to redeem the Class
B shares of new Mercury Fund and receive cash. There will be no CDSC due on
this redemption since by "tacking" the two-and-a-half year holding period of a
Fund's Class B shares to the four year holding period for the new Mercury Fund
Class B shares, the investor will be deemed to have held the new Mercury Fund
Class B shares for more than six years.
Exchanges for Shares of a Money Market Fund. Class I and Class A shares are
exchangeable for Class A shares of Summit and Class B and Class C shares are
exchangeable for Class B shares of Summit. Class A shares of Summit have an
exchange privilege back into Class I or Class A shares of Affiliate-Advised
Funds; Class B shares of Summit have an exchange privilege back into Class B
or Class C shares of Affiliate-Advised Funds and, in the event of such an
exchange, the period of time that Class B shares of Summit are held will count
toward satisfaction of the holding period requirement for purposes of reducing
any CDSC and toward satisfaction of any Conversion Period with respect to
Class B shares. Class B shares of Summit will be subject to a distribution fee
at an annual rate of 0.75% of average daily net assets of such Class B shares.
This exchange privilege does not apply with respect to certain fee-based
programs for which alternative exchange arrangements may exist. Please see
your financial consultant for further information.
Prior to October 12, 1998, exchanges from the Funds and other Affiliated-
Advised Funds into a money market fund were directed to certain Affiliate-
Advised money market funds other than Summit. Shareholders who exchanged
Affiliate-Advised Fund shares for such other money market funds and
subsequently wish to exchange those money market fund shares for shares of a
Fund will be subject to the CDSC schedule applicable to such Fund shares, if
any. The holding period for those money market fund shares will not count
toward satisfaction of the holding period requirement for reduction of the
CDSC imposed on such shares, if any, and, with respect to Class B shares,
toward satisfaction of the Conversion Period. However, the holding period for
Class B or Class C shares of a Fund received in exchange for such money market
fund shares will be aggregated with the holding period for the fund shares
originally exchanged for such money market fund shares for purposes of
reducing the CDSC or satisfying the Conversion Period.
Exercise of the Exchange Privilege. To exercise the exchange privilege, a
shareholder should contact his or her financial consultant, who will advise
the relevant Fund of the exchange. Shareholders of each 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. Each Fund reserves the right to require a properly
completed Exchange Application. This exchange privilege may be modified or
terminated in accordance with the rules of the Commission. Each Fund reserves
the right to limit the number of times an investor may exercise the exchange
privilege. Certain funds may suspend the continuous offering of their shares
to the general
29
<PAGE>
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. It is contemplated that the exchange
privilege may be applicable to other new mutual funds whose shares may be
distributed by the Distributor.
Fee-Based Programs
Certain fee-based programs, including pricing alternatives for securities
transactions (each referred to in this paragraph as a "Program"), may permit
the purchase of Class I shares at net asset value. Under specified
circumstances, participants in certain Programs may deposit other classes of
shares, which will be exchanged for Class I shares. Initial or deferred sales
charges otherwise due in connection with such exchanges may be waived or
modified, as may the Conversion Period applicable to the deposited shares.
Termination of participation in certain Programs may result in the redemption
of shares held therein or the automatic exchange thereof to another class at
net asset value. In addition, upon termination of participation in a Program,
shares that have been held for less than specified periods within such Program
may be subject to a fee based on 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 Programs) is
available in each such Program's client agreement and from the Transfer Agent
at 1-888-763-2260.
Retirement Plans
The minimum initial purchase to establish a retirement plan is $100.
Dividends received in retirement plans are exempt from Federal taxation until
distributed from the plans. Different tax rules apply to Roth IRA plans and
educational savings plans. Investors considering participation in any
retirement or education savings plan should review specific tax laws relating
thereto and should consult their attorneys or tax advisers with respect to the
establishment and maintenance of any such plan.
Automatic Investment Plans
A shareholder may make additions to an Investment Account at any time by
purchasing Class I shares (if he or she is an eligible Class I investor) or
Class A, Class B or Class C shares at the applicable public offering price.
These purchases may be made either through the shareholder's securities dealer
or by mail directly to the Transfer Agent, acting as agent for such securities
dealer. You may also add to your account by automatically investing a specific
amount in each 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
Dividends paid by the Funds may be taken in cash or automatically reinvested
in shares of the Fund at net asset value without a sales charge. You should
consult with your financial consultant about which option you would like. If
you choose the reinvestment option, dividends paid with respect to a Fund's
shares will be automatically reinvested, without sales charge, in additional
full and fractional shares of that Fund. Such reinvestment will be at the net
asset value of shares of the Fund as determined after the close of business on
the NYSE on the monthly payment date for such dividends. No CDSC will be
imposed upon redemption of shares issued as a result of the automatic
reinvestment of dividends.
Shareholders may, at any time, by written notification to their selected
dealer if their account is maintained with a selected dealer, or by written
notification or by telephone (1-888-763-2260) to the Transfer Agent, if their
account is maintained with the Transfer Agent, elect to have subsequent
dividends of ordinary income and/or capital gains paid with respect to shares
of a Fund in cash, rather than reinvested in shares of that Fund (provided
30
<PAGE>
that, in the event that a payment on an account maintained at the Transfer
Agent would amount to $10.00 or less, a shareholder will not receive such
payment in cash and such payment will automatically be reinvested in
additional shares). Commencing ten days after the receipt by the Transfer
Agent of such notice, those instructions will be effected. The Funds are not
responsible for any failure of delivery to the shareholder's address of
records and no interest will accrue on amounts represented by uncashed
dividend checks. Cash payments can also be directly deposited to the
shareholder's bank account.
Systematic Withdrawal Plans
A shareholder may elect to receive systematic withdrawals from his or her
Investment Account by check or through automatic payment by direct deposit to
his or her 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 shareholder's account to provide the withdrawal
payment specified by the shareholder. The shareholder may specify the dollar
amount and class of shares to be redeemed. Redemptions will be made at net
asset value as determined after the close of business on the NYSE (generally,
the NYSE closes at 4:00 p.m., Eastern time) on the 24th day of each month or
the 24th day of the last month of each quarter, whichever is applicable. If
the NYSE is not open for business on such date, the shares will be redeemed at
the net asset value determined after the close of business on the following
business day. The check for the withdrawal payment will be mailed, or the
direct deposit for withdrawal payment will be made on the next business day
following redemption. When a shareholder is making systematic withdrawals,
dividends and distributions on all shares in the Investment Account are
reinvested automatically in Fund shares. A shareholder's systematic withdrawal
plan may be terminated at any time, without a charge or penalty, by the
shareholder, each Fund, the Transfer Agent or the Distributor.
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 "Purchase of
Shares--Deferred Sales Charge Alternatives--Class B and C Shares." 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.
Withdrawal payments should not be considered as dividends. Each withdrawal
is a taxable event. If periodic withdrawals continuously exceed reinvested
dividends, the shareholder's original investment may be reduced
correspondingly. Purchases of additional shares concurrent with withdrawals
are ordinarily disadvantageous to the shareholder because of sales charges and
tax liabilities. A Fund will not knowingly accept purchase orders for shares
of that Fund from investors who maintain a systematic withdrawal plan unless
such purchase is equal to at least one year's scheduled withdrawals or $1,200,
whichever is greater. Periodic investments may not be made into an Investment
Account in which the shareholder has elected to make systematic withdrawals.
DIVIDENDS AND TAXES
Dividends
Each Fund intends to distribute substantially all of 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
each Fund's shareholders at least annually. From time to time, each Fund may
declare a special distribution at or about the end of the calendar year in
order to comply with Federal tax requirements that certain percentages of its
ordinary income and capital gains be distributed during the year. If in any
fiscal year, the Funds have net income from certain foreign currency
transactions, such income will be distributed at least annually.
31
<PAGE>
See "Shareholder Services--Automatic Dividend Reinvestment Plan" for
information concerning the manner in which dividends may be reinvested
automatically in shares of a Fund. A shareholder whose account is maintained
at the Transfer Agent or whose account is maintained through his or her
selected dealer 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 each Fund or received in cash. The per share dividends
on Class B and Class C shares will be lower than the per share dividends on
Class I and Class A shares as a result of the account maintenance,
distribution and higher transfer agency fees applicable with respect to the
Class B and Class C shares; similarly, the per share dividends on Class A
shares will be lower than the per share dividends on Class I shares as a
result of the account maintenance fees applicable with respect to the Class A
shares. See "Pricing of Shares--Determination of Net Asset Value."
Taxes
Each Fund intends to elect and to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Internal Revenue
Code of 1986, as amended (the "Code"). As long as each Fund so qualifies, such
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 (together,
the "shareholders"). Each Fund intends to distribute substantially all of such
income.
Dividends paid by each Fund from its ordinary income or from an excess of
net 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. 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) ("capital
gain dividends") are taxable to shareholders as long term capital gains,
regardless of the length of time the shareholder has owned Fund shares. Any
loss upon the sale or exchange of Fund shares held for six months or less will
be treated as long term capital loss to the extent of any capital gain
dividends received by the shareholder. Distributions in excess of each Fund's
earnings and profits will first reduce the adjusted tax basis of a holder's
shares and, after such adjusted tax basis is reduced to zero, will constitute
capital gains to such holder (assuming the shares are held as a capital
asset). Certain categories of capital gains are taxable at different rates.
Generally not later than 60 days after the close of its taxable year, each
Fund will provide its shareholders with a written notice designating the
amount of any capital gain dividends as well as any amount of capital gain
dividends in the different categories of capital gain referred to above.
Dividends are taxable to shareholders even though they are reinvested in
additional shares of a Fund. A portion of each Fund's ordinary income
dividends may be eligible for the dividends received deduction allowed to
corporations under the Code, if certain requirements are met. For this
purpose, each Fund will allocate dividends eligible for the dividends received
deductions among the Class I, Class A, Class B and Class C shareholders
according to a method (which it believes is consistent with the Commission
rule permitting the issuance and sale of multiple classes of stock) that is
based on the gross income allocable to Class I, Class A, Class B and Class C
shareholders during the taxable year, or such other methods as the Internal
Revenue Service ("IRS") may prescribe. 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 each Fund and
received by its shareholders on December 31 of the year in which such dividend
was declared.
Ordinary income dividends paid to shareholders who are non-resident aliens
or foreign entities will be subject to a 30% U.S. 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. Nonresident shareholders are urged to consult
their own tax advisers concerning the applicability of the U.S. withholding
tax.
Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on ordinary income dividends, capital gain dividends and
redemption payments ("backup withholding"). Generally, shareholders subject to
backup withholding will be those for whom no certified taxpayer identification
number is
32
<PAGE>
on file with a Fund or who, to such Fund's knowledge, have furnished an
incorrect number. When establishing an account, an investor must certify under
penalty of perjury that such number is correct and that such investor is not
otherwise subject to backup withholding.
Dividends and interest received by each 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.
No gain or loss will be recognized by Class B shareholders on the conversion
of their Class B shares into Class A shares. A shareholder's basis in the
Class A shares acquired will be the same as such shareholder's basis in the
Class B shares converted, and the holding period of the acquired Class A
shares will include the holding period for the converted Class B shares.
If a shareholder exercises an exchange privilege within 90 days of acquiring
the shares, then the loss the shareholder can recognize on the exchange will
be reduced (or the gain increased) to the extent any sales charge paid on the
exchanged shares reduces any sales charge the shareholder would have 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.
A loss realized on a sale or exchange of shares of a Fund will be disallowed
if such shares 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. While each Fund intends to distribute its income
and capital gains in the manner necessary to minimize imposition of the 4%
excise tax, there can be no assurance that sufficient amounts of each Fund's
taxable income and capital gains will be distributed to avoid entirely the
imposition of the tax. In such event, a Fund will be liable for the tax only
on the amount by which it does not meet the foregoing distribution
requirements.
Tax Treatment of Options and Futures Transactions
The Funds may write, purchase or sell options and futures. In general,
unless an election is available to the Fund or an exception applies, 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 such option or futures contract will be treated as sold for its fair
market value on the last day of the taxable year, and any gain or loss
attributable to Section 1256 contracts will be 60% long-term and 40% short-
term capital gain or loss. Application of these rules to Section 1256
contracts held by a Fund may alter the timing and character of distributions
to shareholders. The mark-to-market rules outlined above, however, will not
apply to certain transactions entered into by a Fund solely to reduce the risk
of changes in price or interest or currency exchange rates with respect to its
investments.
Code Section 1092, which applies to certain "straddles," may affect the
taxation of a Fund's sales of securities and transactions in options and
futures. Under Section 1092, each Fund may be required to postpone recognition
for tax purposes of losses incurred in certain sales of securities and certain
closing transactions in options and futures.
Special Rules for Certain Foreign Currency Transactions
In general, gains from "foreign currencies" and from foreign currency
options, foreign currency futures and forward foreign exchange contracts
relating to investments in stocks, securities or foreign currencies will be
qualifying income for purposes of determining whether each Fund qualifies as a
RIC. It is currently unclear, however, who will be treated as the issuer of a
foreign currency instrument or how foreign currency options or futures will be
valued for purposes of the RIC diversification requirements applicable to each
Fund.
33
<PAGE>
Under Code Section 988, special rules are provided for certain transactions
in a foreign currency other than the taxpayer's functional currency (i.e.,
unless certain special rules apply, currencies other than the U.S. dollar). In
general, foreign currency gains or losses from certain debt instruments, 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, each 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 each Fund's investment company taxable income available to be distributed
to shareholders as ordinary income. Additionally, if Code Section 988 losses
exceed other investment company taxable income of a Fund during a taxable
year, such Fund would not be able to make any ordinary income dividend
distributions, and all or a portion of distributions made before the losses
were realized but in the same taxable year would be recharacterized as a
return of capital to shareholders, thereby reducing the basis of each
shareholder's Fund shares and resulting in a capital gain for any shareholder
who received a distribution greater than such shareholder's basis in Fund
shares (assuming the shares were held as a capital asset). These rules and the
mark-to-market rules described above, however, will not apply to certain
transactions entered into by each Fund solely to reduce the risk of currency
fluctuations with respect to its investments.
Prior to the commencement of operations, the Funds shall have received a
private letter ruling from the IRS or an opinion of counsel, to the effect
that, because each Portfolio is classified as a partnership for tax purposes,
each Fund will be entitled to look to the underlying assets of the Portfolio
in which it has invested for purposes of satisfying various requirements of
the Code applicable to RICs. If any of the facts upon which such ruling is
premised change in any material respect (e.g., if the Trust were required to
register its interests under the Securities Act) and the Trust is unable to
obtain a private letter ruling from the IRS or an opinion of counsel
indicating that each Portfolio will continue to be classified as a
partnership, then the Board of Directors of the Corporation will determine, in
its discretion, the appropriate course of action for the Funds. One possible
course of action would be to withdraw a Fund's investments from its Portfolio
and to retain an investment adviser to manage the Fund's assets in accordance
with the investment policies applicable to the Fund. See "Investment
Objectives and Policies."
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and 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, judicial or administrative
action either prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state and
local taxes.
Certain states exempt from state income taxation dividends paid by RICs that
are derived from interest on U.S. Government obligations. State law varies as
to whether dividend income attributable to U.S. Government obligations is
exempt from state income tax.
Shareholders are urged to consult their tax advisers regarding specific
questions as to Federal, foreign, state or local taxes. Foreign investors
should consider applicable foreign taxes in their evaluation of an investment
in the Funds.
PERFORMANCE DATA
From time to time each 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 each Fund's historical
performance and is not intended to indicate future performance. Average annual
total return is determined separately for Class I, Class A, Class B and Class
C shares in accordance with a formula specified by the Commission.
Average annual total return quotations for the specified periods are
computed by finding the average annual compounded rates of return (based on
net investment income and any realized and unrealized capital gains or losses
on portfolio investments over such periods) that would equate the initial
amount invested to the redeemable value of such investment at the end of each
period. Average annual total return is computed assuming all dividends
34
<PAGE>
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 as in
the case of Class B and Class C shares and the maximum sales charge in the
case of Class I and 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 the distribution charges and any incremental
transfer agency cost relating to each class of shares will be borne
exclusively by that class. The Funds will include performance data for all
classes of shares of the Funds in any advertisement or information including
performance data of the Funds.
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 with respect
to annual or annualized rates of return calculations. Aside from the impact on
the performance data calculations of including or excluding the maximum
applicable sales charges, 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.
Each Fund's total return may be expressed either as a percentage or as a
dollar amount in order to illustrate such total return on a hypothetical
$1,000 investment in the Fund at the beginning of each specified period.
In order to reflect the reduced sales charges in the case of Class I or
Class A shares or the waiver of the CDSC in the case of Class B or Class C
shares applicable to certain investors, as described under "Purchase of
Shares" and "Redemption of Shares," respectively, the total return data quoted
by each Fund in advertisements directed to such investors may take into
account the reduced, and not the maximum, sales charge or may take into
account the CDSC and therefore may reflect greater total return since, due to
the reduced sales charges or the waiver of sales charges, a lower amount of
expenses is deducted.
On occasion, each Fund may compare its performance to various indices
including, among other things, its applicable Russell 1000(R) Index, the
Standard & Poor's 500 Index, the Value Line Composite Index, the Dow Jones
Industrial Average, or other published indices, or to data contained in
publications such as Lipper Analytical Services, Inc., 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
historic performance of that Fund and the index, such as standard deviation
and beta. As with other performance data, performance comparisons should not
be considered indicative of a Fund's relative performance for any future
period. From time to time, each Fund may include its Morningstar risk-adjusted
performance rating in advertisements or supplemental sales literature. Each
Fund may from time to time quote in advertisements or other materials other
applicable measures of performance and may also make reference to awards that
may be given to the Investment Adviser.
GENERAL INFORMATION
Description of Shares
Each Fund is a series of the Corporation and is a "feeder" fund that invests
in a corresponding Portfolio. Investors in a Fund will acquire an indirect
interest in the corresponding Portfolio. Each Portfolio accepts investments
from other feeder funds, and all of the feeders of a given Portfolio bear the
Portfolio's expenses in proportion to their assets. This structure may enable
the Funds to reduce costs through economies of scale. A larger investment
portfolio also may reduce certain transaction costs to the extent that
contributions to and redemptions from the Portfolio from different feeders may
offset each other and produce a lower net cash flow. However, each feeder can
set its own transaction minimums, fund-specific expenses, and other
conditions. This means that one
35
<PAGE>
feeder could offer access to the same Portfolio on more attractive terms, or
could experience better performance, than another feeder.
The Corporation is a Maryland corporation incorporated on October 29, 1999.
It has an authorized capital of 3,000,000,000 shares of Common Stock, par
value $.10 per share, divided into three series known as Mercury Large Cap
Growth Fund, Mercury Large Cap Core Fund and Mercury Large Cap Value Fund
(collectively, the "Series" and each a "Series"). Each Series consists of
500,000,000 shares. Each of the Series is divided into four classes. Class I,
Class A and Class C shares of each Series consist of 100,000,000 shares and
Class B shares of each Series consist of 200,000,000 shares.
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. All classes and Series vote together as a single class, except
that shareholders of the class bearing distribution expenses as provided above
shall have exclusive voting rights with respect to matters relating to such
distribution expenditures (except that Class B shareholders may vote upon any
material changes to expenses charged under the Class A Distribution Plan).
Voting rights are not cumulative, so that the holders of more than 50% of the
shares voting in the election of Directors can, if they choose to do so, elect
all the Directors of the Corporation, in which event the holders of the
remaining shares would be unable to elect any person as a Director.
Whenever a Portfolio holds a vote of its feeder funds, the Fund investing in
that Portfolio will pass the vote through to its own shareholders. Smaller
feeder funds may be harmed by the actions of larger feeder funds. For example,
a larger feeder fund could have more voting power than a Fund over the
operations of its Portfolio. A Fund may withdraw from its Portfolio at any
time and may invest all of its assets in another pooled investment vehicle or
retain an investment adviser to manage the Fund's assets directly.
There normally will be no meeting of shareholders for the purpose of
electing Directors unless and until such time as less than a majority of the
Directors holding office have been elected by the shareholders, at which time
the Directors then in office will call a shareholders' meeting for the
election of Directors. Shareholders may, in accordance with the terms of the
Articles of Incorporation, cause a meeting of shareholders to be held for the
purpose of voting on the removal of Directors. Also, the Corporation will be
required to call a special meeting of shareholders in accordance with the
requirements of the Investment Company Act to seek approval of new management
and advisory arrangements, of a material increase in account maintenance fees
or of a change in fundamental policies, objectives or restrictions. Except as
set forth above, the Directors of a Series shall continue to hold office and
appoint successor Directors. Each issued and outstanding share of a Series is
entitled to participate equally with other shares of that Series 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 that are issued
will be fully-paid and non-assessable by the Corporation or a Fund.
The Trust consists of three Portfolios and is organized as a Delaware
Business Trust. Whenever a Fund is requested to vote on any matter relating to
its Portfolio, the Corporation will hold a meeting of that Fund's shareholders
and will cast its vote as instructed by that Fund's shareholders.
The Investment Adviser provided the initial capital for the Corporation by
purchasing shares of common stock of the Corporation for $ . Such shares
were acquired for investment and can only be disposed of by redemption. As of
the date of this Statement of Additional Information, the Investment Adviser
owned 100% of the outstanding common stock of the Corporation. The Investment
Adviser may be deemed to control the Corporation until such time as it owns
less than 25% of the outstanding shares of the Investment Adviser.
Independent Auditors
, has been selected as the independent auditors of the
Corporation and the Trust. The independent auditors are responsible for
auditing the annual financial statements of the Funds.
36
<PAGE>
Custodian
(the "Custodian"), acts as the custodian of the Trust's assets. Under
its contract with the Trust, the Custodian is authorized to establish separate
accounts in foreign currencies and to cause foreign securities owned by the
Trust to be held in its offices outside the United States and with certain
foreign banks and securities depositories. The custodian is responsible for
safeguarding and controlling the Trust's cash and securities, handling the
receipt and delivery of securities and collecting interest and dividends on
the Funds' investments.
Transfer Agent
Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville,
Florida 32246-6484, which is a wholly owned subsidiary of ML & Co., acts as
the 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.
Legal Counsel
Brown & Wood LLP, One World Trade Center, New York, New York 10048-0557, is
counsel for the Trust and the Corporation.
Reports to Shareholders
The Funds send to their shareholders at least semi-annually reports showing
each Fund's portfolio and other information. An annual report, containing
financial statements audited by independent auditors, is sent to shareholders
each year. After the end of each year, shareholders will receive Federal
income tax information regarding dividends and capital gains distributions.
Shareholder Inquiries
Shareholder inquiries may be addressed to the Funds at the address or
telephone number set forth on the cover page of this Statement of Additional
Information.
Additional Information
The Prospectus and this Statement of Additional Information do not contain
all the information set forth in the Registration Statement and the exhibits
relating thereto, which the Corporation has filed with the Commission,
Washington, D.C., under the Securities Act and the Investment Company Act, to
which reference is hereby made.
To the knowledge of the Corporation, no person or entity owned beneficially
5% or more of a class of a Fund's shares on , 1999.
37
<PAGE>
PART C. OTHER INFORMATION
Item 23. Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number
-------
<C> <S>
1 --Articles of Incorporation of the Registrant, dated October 28, 1999.
2 --By-Laws of the Registrant.
3(a) --Portions of the Articles of Incorporation and By-Laws of the
Registrant defining the rights of holders of shares of common stock
of the Registrant.(a)
4 --Not Applicable.
5(a) --Form of Class I Distribution Agreement between the Registrant and
Mercury Funds Distributor, a division of Princeton Funds Distributor,
Inc. (the "Distributor") (including Form of Selected Dealers
Agreement).(b)
(b) --Form of Class A Distribution Agreement between the Registrant and
the Distributor.(b)
(c) --Form of Class B Distribution Agreement between the Registrant and
the Distributor.(b)
(d) --Form of Class C Distribution Agreement between the Registrant and
the Distributor.(b)
6 --None.
7 --Custody Agreement between the Registrant and .(b)
8(a) --Transfer Agency, Dividend Disbursing Agency and Shareholder
Servicing Agency Agreement between the Registrant and Financial Data
Services, Inc.(b)
(b) --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.(b)
(c) --Agreement relating to use of name among Mercury Asset Management
International Ltd., Mercury Asset Management Group Ltd. and the
Registrant.(b)
9 --Opinion of Brown & Wood LLP, counsel for the Registrant.(b)
10 --Consent of , independent auditors for the Registrant.(b)
11 --None.
12 --Certificate of Fund Asset Management, L.P.(b)
13(a) --Form of Class A Distribution Plan of the Registrant and Class A
Distribution Plan Sub-Agreement.(b)
(b) --Form of Class B Distribution Plan of the Registrant and Class B
Distribution Plan Sub-Agreement.(b)
(c) --Form of Class C Distribution Plan of the Registrant and Class C
Distribution Plan Sub-Agreement.(b)
14 --None.
15 --Rule 18f-3 Plan.(b)
</TABLE>
- ----------
(a) Reference is made to Article II, Article IV, Article V (sections 2, 3, 4,
6, 7 and 8), Article VI, Article VII and Article IX of the Registrant's
Articles of Incorporation, filed as Exhibit (1), to this Registration
Statement, and to Article II, Article III (sections 1, 3, 5, 6 and 17),
Article VI, Article VII, Article XII, Article XIII and Article XIV of the
Registrant's By-Laws filed as Exhibit (2) to this Registration Statement.
(b) To be filed by amendment.
Item 24. Persons Controlled By Or Under Common Control With Registrant.
Master Large Cap Series Trust has sold interests of its three series, Master
Large Cap Growth Portfolio, Master Large Cap Value Portfolio and Master Large
Cap Core Portfolio, to the Registrant. Therefore, the Master Large Cap Growth
Portfolio, Master Large Cap Value Portfolio and Master Large Cap Core
Portfolio of Master Large Cap Series Trust are controlled by the Registrant.
Item 25. Indemnification.
Reference is made to Article VI of the Registrant's Articles of
Incorporation, Article VI of the Registrant's 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.
C-1
<PAGE>
Insofar as the conditional advancing of indemnification moneys for actions
based on the Investment Company Act of 1940, as amended (the "1940 Act") may
be concerned, Article VI of the Registrant's By-Laws provides that such
payments will be made only on the following conditions: (i) advances may be
made only on receipt of a written affirmation of such person's good faith
belief that the standard of conduct necessary for indemnification has been met
and a written undertaking to repay any such advance if it is ultimately
determined that the standard of conduct has not been met; and (ii) (a) such
promise must be secured by a security for the undertaking in form and amount
acceptable to the Registrant, (b) the Registrant is insured against losses
arising by receipt by the advance, or (c) a majority of a quorum of the
Registrant's disinterested non-party Directors, or an independent legal
counsel in a written opinion, shall determine, based upon a review of readily
available facts, that at the time the advance is proposed to be made, there is
reason to believe that the person seeking indemnification will ultimately be
found to be entitled to indemnification.
In Section 9 of the Class I, Class A, Class B and Class C Shares
Distribution Agreements relating to the securities being offered hereby, the
Registrant agrees to indemnify the Distributor and each person, if any, who
controls the Distributor within the meaning of the Securities Act of 1933, as
amended (the "1933 Act"), against certain types of civil liabilities arising
in connection with the Registration Statement or Prospectus and Statement of
Additional Information.
Insofar as indemnification for liabilities arising under the 1933 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 1933 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 1933
Act and will be governed by the final adjudication of such issue.
Item 26. Business And Other Connections Of The Investment Adviser.
Fund Asset Management, L.P. (the "Investment Adviser" or "FAM") acts as the
investment adviser for the following open-end registered investment companies:
CBA Money Fund, CMA Government Securities Fund, CMA Money Fund, CMA Multi-
State Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The
Corporate Fund Accumulation Program, Inc., Financial Institutions Series
Trust, Merrill Lynch Basic Value Fund, Inc., Merrill Lynch California
Municipal Series Trust, Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch
Corporate High Yield Fund, Inc., Merrill Lynch Emerging Tigers Fund, Inc.,
Merrill Lynch Federal Securities Trust, Merrill Lynch Funds for Institutions
Series, Merrill Lynch Multi-State Limited Maturity Municipal Series Trust,
Merrill Lynch Multi-State Municipal Series Trust, Merrill Lynch Municipal Bond
Fund, Inc., Merrill Lynch Phoenix Fund, Inc., Merrill Lynch Special Value
Fund, Inc., Merrill Lynch World Income Fund, Inc., and The Municipal Fund
Accumulation Program, Inc.; and for the following closed-end registered
investment companies: Apex Municipal Fund, Inc., Corporate High Yield Fund,
Inc., Corporate High Yield Fund II, Inc., Corporate High Yield Fund III, Inc.,
Debt Strategies Fund, Inc., Debt Strategies Fund II, Inc., Debt Strategies
Fund III, Inc., Income Opportunities Fund 1999, Inc., Income Opportunities
Fund 2000, Inc., Merrill Lynch Municipal Strategy Fund, Inc., MuniAssets Fund,
Inc., MuniEnhanced Fund, Inc., MuniHoldings Fund, Inc., MuniHoldings Fund II,
Inc., MuniHoldings 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.,
C-2
<PAGE>
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 New York Insured Fund IV, Inc., MuniHoldings
Pennsylvania Insured Fund, MuniInsured Fund, Inc., MuniVest Fund, Inc.,
MuniVest Fund II, Inc., MuniVest Florida Fund, MuniVest Michigan Insured Fund,
Inc., MuniVest New Jersey Fund, Inc., MuniVest Pennsylvania Insured Fund,
MuniYield Arizona Fund, Inc., MuniYield California Fund, Inc., MuniYield
California Insured Fund, Inc., MuniYield California Insured Fund II, Inc.,
MuniYield Florida Fund, MuniYield Florida Insured Fund, MuniYield Fund, Inc.,
MuniYield Insured Fund, Inc., MuniYield Michigan Fund, Inc., MuniYield
Michigan Insured Fund, Inc., MuniYield New Jersey Fund, Inc., MuniYield New
Jersey Insured Fund, Inc., MuniYield New York Insured Fund, Inc., MuniYield
New York Insured Fund II, Inc., MuniYield Pennsylvania Fund, MuniYield Quality
Fund, Inc., MuniYield Quality Fund II, Inc., Senior High Income Portfolio,
Inc. and Worldwide DollarVest Fund, Inc.
Merrill Lynch Asset Management, L.P. ("MLAM"), acts as the 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 Euro Fund, 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 Small Cap Fund, Inc., Merrill
Lynch Global Technology Fund, Inc., Merrill Lynch Global Utility Fund, Inc.,
Merrill Lynch Global Value Fund, Inc., Merrill Lynch Growth Fund, Merrill
Lynch Healthcare Fund, Inc., Merrill Lynch Index Funds, Inc., Merrill Lynch
Intermediate Government Bond Fund, Merrill Lynch International Equity Fund,
Merrill Lynch Latin America Fund, Inc., Merrill Lynch 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. and Merrill Lynch
Variable Series Funds, Inc. and Hotchkis and Wiley funds (advised by Hotchkis
and Wiley, a division of MLAM); and for the following closed-end registered
investment companies: Merrill Lynch High Income Municipal Bond Fund, Inc. and
Merrill Lynch Senior Floating Rate Fund, Inc., 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.
The address of each of these registered investment companies is P.O. Box
9011, Princeton, New Jersey 08543-9011, except that the address of Merrill
Lynch Funds for Institutions Series and Merrill Lynch Intermediate Government
Bond Fund is One Financial Center, 23rd Floor, Boston, Massachusetts 02111-
2665. The address of FAM, MLAM, Princeton Services, Inc. ("Princeton
Services") and Princeton Administrators, L.P. ("Princeton Administrators") is
also P.O. Box 9011, Princeton, New Jersey 08543-9011. The address of Princeton
Funds Distributor, Inc. ("PFD"), of Mercury Funds Distributor ("MFD") and of
Merrill Lynch Funds Distributor ("MLFD") is P.O. Box 9081, Princeton, New
Jersey 08543-9081. The address of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") and Merrill Lynch & Co., Inc. ("ML & Co.") is
World Financial Center, North Tower, 250 Vesey Street, New York, New York
10281-1201. The address of the Funds' transfer agent, Financial Data Services,
Inc. ("FDS"), is 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484.
C-3
<PAGE>
Set forth below is a list of each executive officer and partner of the
Investment Adviser indicating each business, profession, vocation or
employment of a substantial nature in which each such person or entity has
been engaged since June 1, 1997 for his, her or its own account or in the
capacity of director, officer, partner or trustee. In addition Mr. Glenn is
President and Mr. Burke is Vice President and Treasurer of all or
substantially all of the investment companies described in the first two
paragraphs of this Item 26, and Messrs. Doll, Giordano and Monagle are
officers of one or more of such companies.
<TABLE>
<CAPTION>
Other Substantial
Business,
Position(s) with the Profession, Vocation or
Name Investment Adviser Employment
---- -------------------- -----------------------
<C> <C> <S>
ML & Co................. Limited Partner Financial Services
Holding Company; Limited
Partner of 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 PFD; Director of FDS;
President of Princeton
Administrators
Gregory A. Bundy........ Chief Operating Officer Chief Operating Officer
and Managing Director 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 and Senior Vice President,
Treasurer Treasurer and Director
of Taxation of MLAM;
Senior Vice President
and Treasurer of
Princeton Services; Vice
President of PFD; First
Vice President of MLAM
from 1997 to 1999; Vice
President of MLAM from
1990 to 1997
Michael G. Clark........ Senior Vice President Senior Vice President of
MLAM; Senior Vice
President of Princeton
Services; Treasurer and
Director of PFD; First
Vice President of MLAM
from 1997 to 1999; Vice
President of MLAM from
1996 to 1997
Robert C. Doll.......... 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
Michael J. Hennewinkel.. Senior Vice President, Senior Vice President,
Secretary and General Secretary and General
Counsel Counsel of MLAM; Senior
Counsel Vice President
of Princeton Services
</TABLE>
C-4
<PAGE>
<TABLE>
<CAPTION>
Other Substantial
Business,
Position(s) with the Profession, Vocation or
Name Investment Adviser Employment
---- -------------------- -----------------------
<C> <C> <S>
Philip L. Kirstein....... Senior Vice President Senior Vice President of
MLAM; Senior Vice
President, Secretary,
General Counsel and
Director of Princeton
Services
Debra W. 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; Senior Vice
President of Princeton
Services
</TABLE>
Item 27. Principal Underwriters.
(a) MFD, a division of PFD, acts as the principal underwriter for the
Registrant and for each of the following open-end investment companies:
Mercury Global Balanced Fund of Mercury Asset Management Funds, Inc.; Mercury
Gold and Mining Fund of Mercury Asset Management Funds, Inc.; Mercury
International 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 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 PFD acts as
the principal underwriter of other investment companies.
(b) Set forth below is information concerning each director and officer of
PFD. 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.
<TABLE>
<CAPTION>
Position(s) and Position(s) and Office(s)
Name Office(s) with PFD with Registrant
- ---- ------------------ -------------------------
<S> <C> <C>
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
</TABLE>
(c) Not applicable.
C-5
<PAGE>
Item 28. Location Of Accounts And Records.
All accounts, books and other documents required to be maintained by Section
31(a) of the 1940 Act and the rules thereunder are maintained at the offices
of the Registrant (800 Scudders Mill Road, Plainsboro, New Jersey 08536), and
its transfer agent, Financial Data Services, Inc. (4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484).
Item 29. Management Services.
Other than as set forth under the caption "Management of the Funds" in the
Prospectus constituting Part A of the Registration Statement and under
"Management of the Fund--Management and Advisory Arrangements" in the
Statement of Additional Information constituting Part B of the Registration
Statement, the Registrant is not a party to any management-related service
contract.
Item 30. Undertakings.
Not applicable.
C-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the Township of Plainsboro, and State of New
Jersey, on the 18th day of November, 1999.
Mercury Large Cap Series Funds, Inc.
(Registrant)
/s/ William E. Zitelli, Jr.
By: __________________________________
(William E. Zitelli, Jr.,
President and Director)
Each person whose signature appears below hereby authorizes William E.
Zitelli, Jr., Alice A. Pellegrino, or Bradley J. Lucido, or any of them, as
attorney-in-fact, to sign on his or her behalf, individually and in each
capacity stated below, any amendments to the Registration Statement (including
post-effective amendments) and to file the same, with all exhibits thereto,
with the Securities and Exchange Commission. Pursuant to the requirements of
the Securities Act of 1933, this Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ William E. Zitelli, Jr. President and Director November 18, 1999
______________________________________ (Principal Executive
(William E. Zitelli, Jr.) Officer)
/s/ Alice A. Pellegrino Treasurer and Director November 18, 1999
______________________________________ (Principal Financial and
(Alice A. Pellegrino) Accounting Officer)
/s/ Bradley J. Lucido Director November 18, 1999
______________________________________
(Bradley J. Lucido)
</TABLE>
C-7
<PAGE>
SIGNATURES
Master Large Cap Series Trust has duly caused this Registration Statement of
Mercury Large Cap Series Funds, Inc. to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Township of Plainsboro, and
State of New Jersey, on the 18th day of November, 1999.
Master Large Cap Series Trust
/s/ William E. Zitelli, Jr.
By:___________________________________
(William E. Zitelli, Jr.,
President and Trustee)
This Registration Statement of Mercury Large Cap Series Funds, Inc. has been
signed by the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ William E. Zitelli, Jr. President and Trustee November 18, 1999
______________________________________ (Principal Executive
(William E. Zitelli, Jr.) Officer)
/s/ Alice A. Pellegrino Treasurer and Trustee November 18, 1999
______________________________________ (Principal Financial and
(Alice A. Pellegrino) Accounting Officer)
/s/ Bradley J. Lucido Trustee November 18, 1999
______________________________________
(Bradley J. Lucido)
</TABLE>
C-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1 --Articles of Incorporation of the Registrant, dated October 28, 1999
2 --By-Laws of the Registrant
</TABLE>
<PAGE>
ARTICLES OF INCORPORATION Exhibit 1
OF
MERCURY LARGE CAP SERIES FUNDS, INC.
THE UNDERSIGNED, SUSAN MATTISINKO, whose post office address is One
World Trade Center, New York, New York 10048-0557, being at least eighteen years
of age, does hereby act as an incorporator, under and by virtue of the General
Laws of the State of Maryland authorizing the formation of corporations and with
the intention of forming a corporation.
ARTICLE I.
NAME
----
The name of the corporation is MERCURY LARGE CAP SERIES FUNDS, INC.
(the "Corporation").
ARTICLE II.
PURPOSES AND POWERS
-------------------
The purpose or purposes for which the Corporation is formed, the
powers, rights and privileges that the Corporation shall be authorized to
exercise and enjoy, and the business or objects to be transacted, carried on and
promoted by it are as follows:
(1) To conduct and carry on the business of an investment company of
the management type.
(2) To hold, invest and reinvest its assets in securities, and in
connection therewith, without limiting the foregoing, to hold part or all of its
assets (a) in cash and/or (b) in shares of another corporation known in the
investment company industry as a master fund in a master/feeder structure, which
corporation holds securities and other assets for investment purposes (the
"Master Fund").
(3) To issue and sell shares of its own capital stock in such amounts
and on such terms and conditions, for such purposes and for such amount or kind
of consideration now or hereafter permitted by the General Laws of the State of
Maryland and by these Articles of Incorporation, as its Board of Directors may
determine.
(4) To exchange, classify, reclassify, change the designation of,
convert, rename, redeem, purchase or otherwise acquire, hold, dispose of,
resell, transfer, reissue or cancel (all without the vote or consent of the
stockholders of the Corporation) shares of its issued or unissued capital stock
of any class or series, as its Board of Directors may determine, in any
<PAGE>
manner and to the extent now or hereafter permitted by the General Laws of the
State of Maryland and by these Articles of Incorporation.
(5) To transfer all or substantially all the assets of the Corporation
(or the assets of any series thereof) to the Master Fund, in exchange for shares
in the Master Fund or for such other consideration as permitted by the General
Laws of the State of Maryland and the Investment Company Act of 1940, as amended
(all without the vote or consent of the stockholders of the Corporation), and
all such actions, regardless of the frequency with which they are pursued, shall
be deemed in furtherance of the ordinary, usual and customary business of the
Corporation.
(6) To do any and all such further acts or things and to exercise any
and all such further powers or rights as may be necessary, incidental, relative,
conducive, appropriate or desirable for the accomplishment, carrying out or
attainment of all or any of the foregoing purposes or objects.
The Corporation shall be authorized to exercise and enjoy all of the
powers, rights and privileges granted to, or conferred upon, corporations by the
General Laws of the State of Maryland now or hereafter in force, and the
enumeration of the foregoing shall not be deemed to exclude any powers, rights
or privileges so granted or conferred.
ARTICLE III.
PRINCIPAL OFFICE AND RESIDENT AGENT
-----------------------------------
The post office address of the principal office of the Corporation in
the State of Maryland is c/o The Corporation Trust Incorporated, 300 East
Lombard Street, Baltimore, Maryland 21202. The name of the resident agent of the
Corporation in this State is The Corporation Trust Incorporated, a corporation
of this State, and the post office address of the resident agent is 300 East
Lombard Street, Baltimore, Maryland 21202.
ARTICLE IV.
CAPITAL STOCK
-------------
(1) The total number of shares of capital stock which the Corporation
shall have authority to issue is Three Billion (3,000,000,000) shares, of the
par value of Ten Cents ($.10) per share, and of the aggregate par value of Three
Hundred Million Dollars ($300,000,000). The capital stock initially consists of
three series, known as Mercury Large Cap Growth Fund, Mercury Large Cap Core
Fund, and Mercury Large Cap Value Fund (collectively, the "Series", and each, a
"Series"). Each Series shall consist, until further changed, of Five Hundred
Million (500,000,000) shares. The shares of each Series shall consist, until
further changed, of four classes of shares designated Class I shares, Class A
shares, Class B shares and Class C shares (the "Classes"). Class I shares, Class
A shares and Class C shares of each Series shall consist, until further changed,
of One Hundred Million (100,000,000) shares and Class B shares of each Series
shall consist, until further changed, of Two Hundred Million (200,000,000)
shares.
(2) Unless otherwise expressly provided in the charter of the
Corporation, the Class I, Class A, Class B and Class C shares of each Series
shall represent an equal proportionate interest
2
<PAGE>
in the assets belonging to that particular Series (subject to the liabilities of
that Series) and each share of a particular Series shall have identical voting,
dividend, liquidation and other rights; provided, however, that notwithstanding
anything in the charter of the Corporation to the contrary:
(i) The Class I, Class A, Class B and Class C shares may be
issued and sold subject to such different sales loads or
charges, whether initial, deferred or contingent, or any
combination thereof, as the Board of Directors may from tine
to time establish in accordance with the Investment Company
Act of 1940, as amended, and other applicable law.
(ii) Liabilities of a Series which are determined by or under
the Supervision of the Board of Directors to be attributable
to a particular Class of that Series may be charged to that
Class and appropriately reflected in the net asset value of,
or dividends payable on, the shares of that Class of the
Series.
(iii) The Class I, Class A, Class B and Class C shares of a
particular Series may have such different exchange and
conversion rights as the Board of Directors shall provide in
compliance with the Investment Company Act of 1940, as
amended.
(3) The Board of Directors may classify and reclassify any unissued
shares of capital stock of any class or series into one or more additional or
other classes or series as may be established from time to time by setting or
changing in any one or more respects the designations, preferences, conversion
or other rights, voting powers, restrictions, limitations as to dividends,
qualifications or terms or conditions of redemption of such shares of stock and
pursuant to such classification or reclassification to increase or decrease the
number of authorized shares of any existing class or series.
(4) The Board of Directors may vary among all of the holders of a
particular class or series (a) the length of time shares must be held prior to
conversion into shares of another class or series (the "Holding Period(s)"), (b)
the manner in which the time for such Holding Period(s) is determined and (c)
the class or series into which the particular class or series is being
converted; provided, however, that with respect to holders of the Corporation's
shares issued on or after the date of the Corporation's first effective
prospectus which sets forth Holding Period(s), the Holding Period(s), the
manner in which the time for such Holding Period(s) is determined and the class
or series into which the particular class or series is being converted shall be
disclosed in the Corporation's prospectus or statement of additional information
in effect at the time such shares, which are the subject of the conversion, were
issued.
(5) Unless otherwise expressly provided in the charter of the
Corporation, including those matters set forth in Article II, Sections (2), (4)
and (5) hereof and including any Articles Supplementary creating any class or
series of capital stock, on each matter submitted to a vote of stockholders,
each holder of a share of capital stock of the Corporation shall be entitled to
one vote for each share standing in such holder's name on the books of the
Corporation, irrespective of the class or series thereof, and all shares of all
classes and series shall vote together as a single class; provided, however,
that (a) as to any matter with respect to which a separate vote of any class or
series is required by the Investment Company Act of 1940, as amended, and in
effect
3
<PAGE>
from time to time, or any rules, regulations or orders issued thereunder, or by
the Maryland General Corporation Law, such requirement as to a separate vote by
that class or series shall apply in lieu of a general vote of all classes and
series as described above, (b) in the event that the separate vote requirements
referred to in (a) above apply with respect to one or more classes or series,
then, subject to (c) below, the shares of all other classes and series not
entitled to a separate class vote shall vote as a single class, (c) as to any
matter which does not affect the interest of a particular class or series, such
class or series shall not be entitled to any vote and only the holders of shares
of the affected classes and series, if any, shall be entitled to vote and (d)
the shares of capital stock of the Corporation shall have no voting rights in
connection with the transfer of all or substantially all the assets of the
Corporation (or the assets of any series thereof) to the Master Fund in exchange
for shares in such Master Fund or for such other consideration as permitted by
Maryland General Corporation Law and the Investment Company Act of 1940, as
amended.
(6) Notwithstanding any provision of the Maryland General Corporation
Law requiring a greater proportion than a majority of the votes of all classes
or series of capital stock of the Corporation (or of any class or series
entitled to vote thereon as a separate class or series) to take or authorize any
action, the Corporation is hereby authorized (subject to the requirements of the
Investment Company Act of 1940, as amended, and in effect from time to time, and
any rules, regulations and orders issued thereunder) to take such action upon
the concurrence of a majority of the votes entitled to be cast by holders of
capital stock of the Corporation (or a majority of the votes entitled to be cast
by holders of a class or series entitled to vote thereon as a separate class or
series), unless a greater proportion is specified in the charter of the
Corporation.
(7) Unless otherwise expressly provided in the charter of the
Corporation, including any Articles Supplementary creating any class or series
of capital stock, subject to compliance with the requirements of the Investment
Company Act of 1940, as amended, the Board of Directors shall have the authority
to provide that holders of shares of any class or series shall have the right to
convert or exchange said shares into shares of one or more other classes or
series in accordance with such requirements and procedures as may be established
by the Board of Directors.
(8) Unless otherwise expressly provided in the charter of the
Corporation, including any Articles Supplementary creating any class or series
of capital stock, in the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, the holders of each class or
series of capital stock of the Corporation shall be entitled, after payment or
provision for payment of the debts and other liabilities of the Corporation, to
share ratably in the remaining net assets of the Corporation applicable to that
class or series.
(9) Any fractional shares shall carry proportionately all of the rights
of a whole share, excepting any right to receive a certificate evidencing such
fractional share, but including, without limitation, the right to vote and the
right to receive dividends.
(10) The presence in person or by proxy of the holders of shares
entitled to cast one-third of the votes entitled to be cast shall constitute a
quorum at any meeting of stockholders, except with respect to any matter which
requires approval by a separate vote of one or more classes or series of stock,
in which case the presence in person or by proxy of the holders of shares
entitled
4
<PAGE>
to cast one-third of the votes entitled to be cast by each class or series
entitled to vote as a separate class shall constitute a quorum.
(11) All persons who shall acquire stock in the Corporation of any
class or series shall acquire the same subject to the provisions of the charter
and the By-Laws of the Corporation. Any reference to "shares," "stock," or
"shares of stock" in these Articles of Incorporation shall be deemed to refer,
unless the context otherwise requires, to the shares of each separate class
and/or series. As used in the charter of the Corporation, the terms "charter"
and "Articles of Incorporation" shall mean and include the Articles of
Incorporation of the Corporation as amended, supplemented and restated from time
to time by Articles of Amendment, Articles Supplementary, Articles of
Restatement or otherwise.
(12) (a) Each series of capital stock of the Corporation shall relate
to a separate portfolio of investments. All shares of stock in each series shall
be identical except that there may be variations between the different series as
to the purchase price, determination of net asset value, designations,
preferences, conversion or other rights, voting powers, restrictions, special
and relative rights and limitations as to dividends and on liquidation,
qualifications or terms or conditions of redemption of such shares of stock.
(b) Each series of stock of the Corporation shall have the
following powers, preferences and voting or other special rights, and the
qualifications, restrictions and limitations thereof shall be as follows:
(i) All consideration received by the Corporation for
the issue or sale of stock of each series, together
with all assets in which such consideration is
invested or reinvested, all income, earnings, profits
and proceeds received thereon, including any proceeds
derived from the sale, exchange or liquidation
thereof, and any assets, funds, or payments derived
from any reinvestment of such proceeds in whatever
form the same may be, shall irrevocably belong to the
series of stock with respect to which such assets,
payments or funds were received by the Corporation
for all purposes, subject only to the rights of
creditors, and shall be so handled in the books of
account of the Corporation. Such assets, funds, and
payments, including any proceeds derived from the
sale, exchange or liquidation thereof, and any
assets, funds or payments derived from any
reinvestment of such proceeds in whatever form the
same may be, are herein referred to as "assets
belonging to" such series. In the event that there
are any income, earnings, profits, and proceeds
thereof, assets, funds or payments that are not
readily identifiable as belonging to any particular
series, the Board of Directors of the Corporation
shall allocate them among any one or more of the
series established and designated from time to time
in such manner and on such basis as the Board of
Directors, in their sole discretion, deem fair and
equitable. Each allocation by the Board of Directors
shall be conclusive and binding on the stockholders
of the Corporation of all series for all purposes.
5
<PAGE>
(ii) The assets belonging to each series of stock
shall be charged with the liabilities in respect of
such series, and also shall be charged with its share
of the general liabilities of the Corporation, in
proportion to the asset value of the respective
series determined in accordance with the Articles of
Incorporation of the Corporation. The determination
of the Board of Directors shall be conclusive as to
the amount of liabilities, including accrued expenses
and reserves, as to the allocation of the same to a
given series, and as to whether the same or general
assets of the Corporation are allocable to one or
more series.
ARTICLE V.
PROVISIONS FOR DEFINING, LIMITING AND
REGULATING CERTAIN POWERS OF THE CORPORATION
AND OF THE DIRECTORS AND STOCKHOLDERS
-------------------------------------
(1) The initial number of directors of the Corporation shall be three,
which number may be increased or decreased pursuant to the By-Laws of the
Corporation but shall never be less than the minimum number permitted by the
General Laws of the State of Maryland. The names of the directors who shall act
until the first annual meeting or until their successors are duly elected and
qualify are:
Alice A. Pellegrino
Bradley J. Lucido
William E. Zitelli, Jr.
(2) The Board of Directors of the Corporation is hereby empowered to
authorize the issuance from time to time of shares of capital stock of any class
or series, whether now or hereafter authorized, for such consideration as the
Board of Directors may deem advisable, subject to such limitations as may be set
forth in these Articles of Incorporation or in the By-Laws of the Corporation or
in the General Laws of the State of Maryland.
(3) No holder of stock of the Corporation shall, as such holder, have
any right to purchase or subscribe for any shares of the capital stock of the
Corporation or any other security of the Corporation which it may issue or sell
(whether out of the number of shares authorized by these Articles of
Incorporation, or out of any shares of the capital stock of the Corporation, of
any class or series, acquired by it after the issue thereof, or otherwise) other
than such right, if any, as the Board of Directors, in its discretion, may
determine.
(4) Each director and each officer of the Corporation shall be
indemnified and advanced expenses by the Corporation to the full extent
permitted by the General Laws of the State of Maryland, subject to the
requirements of the Investment Company Act of 1940, as amended. The foregoing
rights of indemnification shall not be exclusive of any other rights to which
those seeking indemnification are or may be entitled. No amendment of these
Articles of Incorporation or repeal of any provision hereof shall limit or
eliminate the benefits provided to
6
<PAGE>
directors and officers under this provision in connection with any act or
omission that occurred prior to such amendment or repeal.
(5) To the fullest extent permitted by the General Laws of the State of
Maryland, subject to the requirements of the Investment Company Act of 1940, as
amended, no director or officer of the Corporation shall be personally liable to
the Corporation or its security holders for money damages. No amendment of these
Articles of Incorporation or repeal of any provision hereof shall limit or
eliminate the benefits provided to directors and officers under this provision
in connection with any act or omission that occurred prior to such amendment or
repeal.
(6) The Board of Directors of the Corporation is vested with the sole
power, to the exclusion of the stockholders, to make, alter or repeal from time
to time any of the By-Laws of the Corporation except any particular By-Law which
is specified as not subject to alteration or repeal by the Board of Directors,
subject to the requirements of the Investment Company Act of 1940, as amended.
(7) The Board of Directors of the Corporation from time to time may
change the Corporation's name, or change the name or other designation of any
class or series of its stock, without the vote or consent of the stockholders of
the Corporation, in any manner and to the extent now or hereafter permitted by
the General Laws of the State of Maryland and by these Articles of
Incorporation.
(8) Notwithstanding any other provision of these Articles of
Incorporation or the By-Laws of the Corporation, or the General Laws of the
State of Maryland, the transfer of all or substantially all of the assets of the
Corporation (or the assets of any series thereof) to the Master Fund shall be
deemed to be in the ordinary course of business of the Corporation, and the
Board of Directors of the Corporation is vested with the sole power, to the
exclusion of the stockholders, upon the affirmative vote of the majority of the
entire Board of Directors, to transfer all or substantially all the assets of
the Corporation (or the assets of any series thereof) to the Master Fund in
exchange for shares in such Master Fund or for such other consideration as
permitted by the General Laws of the State of Maryland and the Investment
Company Act of 1940, as amended.
ARTICLE VI.
REDEMPTION
----------
(1) Each holder of shares of capital stock of the Corporation shall be
entitled to require the Corporation to redeem all or any part of the shares of
capital stock of the Corporation standing in the name of such holder on the
books of the Corporation, and all shares of capital stock issued by the
Corporation shall be subject to redemption by the Corporation, at the redemption
price of such shares as in effect from time to time as may be determined by the
Board of Directors of the Corporation in accordance with the provisions hereof,
subject to the right of the Board of Directors of the Corporation to suspend the
right of redemption of shares of capital stock of the Corporation or postpone
the date of payment of such redemption price in accordance with provisions of
applicable law. The redemption price of shares of capital stock of the
Corporation shall be the net asset value thereof as determined by the Board of
Directors of
7
<PAGE>
the Corporation from time to time in accordance with the provisions of
applicable law, less such redemption fee or liquidation fee, contingent deferred
sales charge or other charge or fee (which fees and charges may vary within and
among the classes and series of capital stock), if any, as may be approved by
the Board of Directors of the Corporation. Payment of the redemption price shall
be made by the Corporation at such time and in such manner as may be determined
from time to time by the Board of Directors of the Corporation.
(2) The Corporation shall, to the extent permitted by applicable law,
have the right at any time to redeem the shares owned by any holder of capital
stock of the Corporation (i) if the redemption is, in the opinion of the Board
of Directors, desirable in order to prevent the Corporation from being deemed a
"personal holding company" within the meaning of the Internal Revenue Code of
1986, as amended, or (ii) if the value of the shares in the account maintained
by the Corporation or its transfer agent for any class of stock for the
stockholder is below an amount determined from time to time by the Board of
Directors (the "Minimum Account Balance") and the stockholder has been given
written notice of the redemption as required by the General Laws of the State of
Maryland and has failed to make additional purchases of shares in an amount
sufficient to bring the value in his account to at least the Minimum Account
Balance before the redemption is effected by the Corporation.
(3) Payment of the redemption price by the Corporation may be made
either in cash or in securities or other assets at the time owned by the
Corporation or partly in cash and partly in securities or other assets at the
time owned by the Corporation.
ARTICLE VII.
DETERMINATION BINDING
---------------------
Any determination made in good faith, so far as accounting matters are
involved, in accordance with accepted accounting practice by or pursuant to the
direction of the Board of Directors, as to the amount of assets, obligations or
liabilities of the Corporation, as to the amount of net income of the
Corporation from dividends and interest for any period or amounts at any time
legally available for the payment of dividends, as to the amount of any reserves
or charges set up and the propriety thereof, as to the time of or purpose for
creating reserves or as to the use, alteration or cancellation of any reserves
or charges (whether or not any obligation or liability for which such reserves
or charges shall have been created, shall have been paid or discharged or shall
be then or thereafter required to be paid or discharged), as to the price of any
security owned by the Corporation or as to any other matters relating to the
issuance, sale, redemption or other acquisition or disposition of securities or
shares of capital stock of the Corporation, and any reasonable determination
made in good faith by the Board of Directors as to whether any transaction
constitutes a purchase of securities on "margin," a sale of securities "short,"
or an underwriting or the sale of, or a participation in any underwriting or
selling group in connection with the public distribution of, any securities,
shall be final and conclusive, and shall be binding upon the Corporation and all
holders of its capital stock, past, present and future, and shares of the
capital stock of the Corporation are issued and sold on the condition and
understanding, evidenced by the purchase of shares of capital stock or
acceptance of share certificates, that any and all such determinations shall be
binding as aforesaid. No provision of these Articles of Incorporation shall be
effective to (a) require a waiver of compliance with any
8
<PAGE>
provision of the Securities Act of 1933, as amended, or the Investment Company
Act of 1940, as amended, or of any valid rule, regulation or order of the
Securities and Exchange Commission thereunder or (b) protect or purport to
protect any director or officer of the Corporation against any liability to the
Corporation or its security holders to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office.
ARTICLE VIII.
PERPETUAL EXISTENCE
-------------------
The duration of the Corporation shall be perpetual.
ARTICLE IX.
AMENDMENT
---------
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in these Articles of Incorporation, in any manner now or
hereafter prescribed by statute, including any amendment which alters the
contract rights, as expressly set forth in the charter, of any outstanding stock
and substantially adversely affects the stockholders' rights, and all rights
conferred upon stockholders herein are granted subject to this reservation.
9
<PAGE>
IN WITNESS WHEREOF, the undersigned incorporator of Mercury Large Cap
Series Funds, Inc. hereby executes these Articles of Incorporation and
acknowledges the same to be her act.
Dated this 28th day of October, 1999.
/s/ Susan Mattisinko
-----------------------------
Susan Mattisinko
10
<PAGE>
Exhibit 2
BY-LAWS
OF
MERCURY LARGE CAP SERIES FUNDS, INC.
Article I
---------
Offices
-------
Section 1.01. Principal Office. The principal office of Mercury Large
----------------
Cap Series Funds, Inc. (the "Corporation") shall be in the City of Baltimore,
State of Maryland.
Section 1.02. Principal Executive Office. The principal executive
--------------------------
office of the Corporation shall be at 800 Scudders Mill Road, Plainsboro, New
Jersey 08536.
Section 1.03. Other Offices. The Corporation may have such other
-------------
offices in such places as the Board of Directors from time to time may
determine.
Article II
----------
Meetings of Stockholders
------------------------
Section 2.01. Annual Meeting. The Corporation shall not be required to
--------------
hold an annual meeting of its stockholders in any year in which the election of
directors is not required to be acted upon under the Investment Company Act of
1940, as amended (the "Investment Company Act"). In the event that the
Corporation shall be required to hold an annual meeting of stockholders to elect
directors by the Investment Company Act, such meeting shall be held no later
than 120 days after the occurrence of the event requiring the meeting. Any
stockholders' meeting held in accordance with this Section for all purposes
shall constitute the annual meeting of stockholders for the year in which the
meeting is held.
Section 2.02. Special Meetings. Special meetings of the stockholders,
----------------
unless otherwise provided by law, may be called for any purpose or purposes by a
majority of the Board of Directors, the President, or upon the written request
of the holders of at least a majority of the outstanding shares of capital stock
of the Corporation entitled to vote at such meeting if they comply with Section
2-502(b) or (c) of the Maryland General Corporation Law.
Section 2.03. Place of Meetings. Meetings of the stockholders shall be
-----------------
held at such places as the Board of Directors from time to time may determine.
Section 2.04. Notice of Meetings; Waiver of Notice. Notice of the
------------------------------------
place, date and time of the holding of each stockholders' meeting and, if the
meeting is a special meeting, the purpose or purposes of the special meeting,
shall be given personally or by mail or transmitted to the stockholder by
electronic mail to any electronic mail address of the stockholder or by any
other electronic means, not less than 10 nor more than 90 days before the date
of such meeting, to each
<PAGE>
stockholder entitled to vote at such meeting and to each other stockholder
entitled to notice of the meeting. Notice by mail shall be deemed to be duly
given when deposited in the United States mail addressed to the stockholder at
his or her address as it appears on the records of the Corporation, with postage
thereon prepaid.
Notice of any meeting of stockholders shall be deemed waived by any
stockholder who shall attend such meeting in person or by proxy, or who, either
before or after the meeting, shall submit a signed waiver of notice which is
filed with the records of the meeting. When a meeting is adjourned to another
time and place, unless the Board of Directors, after the adjournment, shall fix
a new record date for an adjourned meeting, or unless the adjournment is for
more than 120 days after the original record date, notice of such adjourned
meeting need not be given if the time and place to which the meeting shall be
adjourned were announced at the meeting at which the adjournment is taken.
Section 2.05. Quorum. The presence in person or by proxy of the holders
------
of shares entitled to cast one-third of the votes entitled to be cast shall
constitute a quorum at any meeting of stockholders, except with respect to any
matter which requires approval by a separate vote of one or more classes or
series of stock, in which case the presence in person or by proxy of the holders
of shares entitled to cast one-third of the votes entitled to be cast by each
class or series entitled to vote as a separate class or series shall constitute
a quorum. In the absence of a quorum no business may be transacted, except that
the holders of a majority of the shares of stock present in person or by proxy
and entitled to vote may adjourn the meeting from time to time, without notice
other than announcement thereat except as otherwise required by these By-Laws,
until the holders of the requisite amount of shares of stock shall be so
present. At any such adjourned meeting at which a quorum may be present any
business may be transacted which might have been transacted at the meeting as
originally called. The absence from any meeting, in person or by proxy, of
holders of the number of shares of stock of the Corporation in excess of a
majority thereof which may be required by the laws of the State of Maryland, the
Investment Company Act, or other applicable statute, the Articles of
Incorporation, as amended (the "Charter"), or these By-Laws, for action upon any
given matter shall not prevent action at such meeting upon any other matter or
matters which properly may come before the meeting, if there shall be present
thereat, in person or by proxy, holders of the number of shares of stock of the
Corporation required for action in respect of such other matter or matters.
Section 2.06. Organization. At each meeting of the stockholders, the
------------
Chairman of the Board (if one has been designated by the Board), or in his or
her absence or inability to act, the President, or in the absence or inability
to act of the Chairman of the Board and the President, a Vice President, shall
act as chairman of the meeting. The Secretary, or in his or her absence or
inability to act, any person appointed by the chairman of the meeting, shall act
as secretary of the meeting and keep the minutes thereof.
Section 2.07. Order of Business. The order of business at all meetings
-----------------
of the stockholders shall be as determined by the chairman of the meeting.
Section 2.08. Business at Annual Meeting. No business may be transacted
--------------------------
at any meeting of stockholders, other than business that is either (a) specified
in the notice of meeting (or any supplement thereto) given by or at the
direction of the Board of Directors (or any duly
2
<PAGE>
authorized committee thereof), (b) otherwise properly brought before the meeting
by or at the direction of the Board of Directors (or any duly authorized
committee thereof) or (c) otherwise properly brought before any meeting by any
stockholder of the Corporation (i) who is a stockholder of record on the date of
the giving of the notice provided for in Article II, Section 2.04 of these
By-Laws and on the record date for the determination of stockholders entitled to
vote at any such meeting of stockholders as determined in accordance with
Article II, Section 2.11 hereof and (ii) who complies with the notice procedures
set forth in this Section 2.08.
In addition to any other applicable requirements, for business to be
properly brought before a meeting by a stockholder, such stockholder must have
given timely notice thereof in proper written form to the Secretary of the
Corporation.
To be timely, a stockholder's notice to the Secretary must be delivered
to or mailed and received at the principal executive offices of the Corporation
(a) with respect to the Corporation's first annual meeting of stockholders, not
later than the close of business on the tenth (10th) calendar day following the
day on which public disclosure of the date on which the first annual meeting
shall be held is first made (provided that such annual meeting shall be held
within ninety (90) calendar days of such public disclosure of the date); and (b)
thereafter, not less than sixty (60) calendar days nor more than ninety (90)
calendar days prior to the anniversary date of the immediately preceding annual
meeting of stockholders; provided, however, that in the event that the annual
meeting is called for a date that is not within thirty (30) calendar days before
or sixty (60) calendar days after such anniversary date, notice by the
stockholder in order to be timely must be so received not later than the close
of business on the later of the sixtieth (60th) calendar day prior to such
annual meeting or the fifteenth (15th) calendar day following the day on which
notice of the date of the annual meeting was mailed or public disclosure of the
date of the annual meeting was made, whichever first occurs. For purposes of
this Section 2.08, the date of a public disclosure shall include, but not be
limited to, the date on which such disclosure is made in a press release
reported by the Dow Jones News Services, the Associated Press or any comparable
national news service or in a document publicly filed by the Corporation with
the Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d) (or
the rules and regulations thereunder) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or pursuant to Section 30 (or the rules and
regulations thereunder) of the Investment Company Act.
To be in proper written form, a stockholder's notice to the Secretary
must set forth as to each matter such stockholder proposes to bring before the
annual meeting (i) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting such business at the
annual meeting, (ii) the name and record address of such stockholder, (iii) the
class or series and number of shares of capital stock of the Corporation which
are owned beneficially or of record by such stockholder, (iv) a description of
all arrangements or understandings between such stockholder and any other person
or persons (including their names) in connection with the proposal of such
business by such stockholder and any material interest of such stockholder in
such business and (v) a representation that such stockholder intends to appear
in person or by proxy at the annual meeting to bring such business before the
meeting.
No business shall be conducted at the annual meeting of stockholders
except business brought before the annual meeting in accordance with the
procedures set forth in this Section
3
<PAGE>
2.08, provided, however, that, once business has been properly brought before
the annual meeting in accordance with such procedures, nothing in this Section
2.08 shall be deemed to preclude discussion by any stockholder of any such
business. If the chairman of a meeting determines that business was not properly
brought before the meeting in accordance with the foregoing procedures, the
chairman shall declare to the meeting that the business was not properly brought
before the meeting and such business shall not be transacted.
Section 2.09. Nomination of Directors. Only persons who are nominated
-----------------------
in accordance with the following procedures shall be eligible for election as
directors of the Corporation, except as may be otherwise provided in the Charter
with respect to the right, if any, of holders of preferred stock of the
Corporation to nominate and elect a specified number of directors in certain
circumstances. Nominations of persons for election to the Board of Directors may
be made at any annual meeting of stockholders, or at any special meeting of
stockholders called for the purpose of electing directors, (a) by or at the
direction of the Board of Directors (or any duly authorized committee thereof)
or (b) by any stockholder of the Corporation (i) who is a stockholder of record
on the date of the giving of the notice provided for in this Section 2.09 and on
the record date for the determination of stockholders entitled to vote at such
meeting and (ii) who complies with the notice procedures set forth in this
Section 2.09.
In addition to any other applicable requirements, for a nomination to
be made by a stockholder, such stockholder must have given timely notice thereof
in proper written form to the Secretary of the Corporation.
To be timely, a stockholder's notice to the Secretary must be delivered
to or mailed and received at the principal executive offices of the Corporation
(a) with respect to the Corporation's first annual meeting of stockholders, not
later than the close of business on the tenth (10th) calendar day following the
day on which public disclosure of the date on which the first annual meeting
shall be held is first made (provided that such annual meeting shall be held
within ninety (90) calendar days of such public disclosure of the date); (b)
thereafter, in the case of an annual meeting, not less than sixty (60) calendar
days nor more than ninety (90) calendar days prior to the anniversary date of
the immediately preceding annual meeting of stockholders; provided, however,
that in the event that the annual meeting is called for a date that is not
within thirty (30) calendar days before or sixty (60) calendar days after such
anniversary date, notice by the stockholder in order to be timely must be so
received not later than the close of business on the later of the sixtieth
(60th) calendar day prior to such annual meeting or the fifteenth (15th)
calendar day following the day on which notice of the date of the annual meeting
was mailed or public disclosure of the date of the annual meeting was made,
whichever first occurs; and (c) in the case of a special meeting of stockholders
called for the purpose of electing directors, not later than the close of
business on the fifteenth (15th) day following the day on which notice of the
date of the special meeting was mailed or public disclosure of the date of the
special meeting was made, whichever first occurs. For purposes of this Section
2.09, the date of a public disclosure shall include, but not be limited to, the
date on which such disclosure is made in a press release reported by the Dow
Jones News Services, the Associated Press or any comparable national news
service or in a document publicly filed by the Corporation with the Securities
and Exchange Commission pursuant to Sections 13, 14 or 15(d) (or the rules and
regulations thereunder) of the Exchange Act or pursuant to Section 30 (or the
rules and regulations thereunder) of the Investment Company Act.
4
<PAGE>
To be in proper written form, a stockholder's notice to the Secretary
must set forth (a) as to each person whom the stockholder proposes to nominate
for election as a director (i) the name, age, business address and residence
address of the person, (ii) the principal occupation or employment of the
person, (iii) the class or series and number of shares of capital stock of the
Corporation which are owned beneficially or of record by the person and (iv) any
other information relating to the person that would be required to be disclosed
in a proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Exchange Act and the rules and regulations promulgated thereunder; and (b) as to
the stockholder giving the notice (i) the name and record address of such
stockholder, (ii) the class or series and number of shares of capital stock of
the Corporation which are owned beneficially or of record by such stockholder,
(iii) a description of all arrangements or understandings between such
stockholder and each proposed nominee and any other person or persons (including
their names) pursuant to which the nomination(s) are to be made by such
stockholder, (iv) a representation that such stockholder intends to appear in
person or by proxy at the meeting to nominate the persons named in its notice
and (v) any other information relating to such stockholder that would be
required to be disclosed in a proxy statement or other filings required to be
made in connection with solicitations of proxies for election of directors
pursuant to Section 14 of the Exchange Act and the rules and regulations
promulgated thereunder. Such notice must be accompanied by a written consent of
each proposed nominee to being named as a nominee and to serve as a director if
elected.
No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section 2.09. If the chairman of the meeting determines that a nomination was
not made in accordance with the foregoing procedures, the chairman shall declare
to the meeting that the nomination was defective and such defective nomination
shall be disregarded.
Section 2.10. Voting. Except as otherwise provided by statute or by the
------
Charter, as amended (the "Charter"), each holder of record of shares of stock of
the Corporation having voting power shall be entitled at each meeting of the
stockholders to one vote for every share of such stock standing in his or her
name on the record of stockholders of the Corporation as of the record date
determined pursuant to Section 2.11 of this Article or if such record date shall
not have been so fixed, then at the later of (i) the close of business on the
day on which notice of the meeting is mailed or (ii) the thirtieth day before
the meeting.
Each stockholder entitled to vote at any meeting of stockholders may
authorize another person or persons to act for him or her as proxy by signing a
writing authorizing another person to act as proxy. Such signing may be
accomplished by the stockholder or the stockholder's authorized agent signing
the writing or causing the stockholder's signature to be affixed to the writing
by any reasonable means, including facsimile signature. A stockholder may
authorize another person to act as proxy by transmitting, or authorizing the
transmission of, an authorization for the person to act as proxy to (i) the
person authorized to act as proxy or (ii) any other person authorized to receive
the proxy authorization on behalf of the person authorized to act as the proxy,
including a proxy solicitation firm or proxy support service organization. The
authorization referred to in the preceding sentences may be transmitted by U.S.
mail, courier service, personal delivery, a telegram, cablegram, datagram,
electronic mail, or any other electronic or telephonic means and a copy,
facsimile telecommunication, or other reliable
5
<PAGE>
reproduction of the writing or transmission authorized in this paragraph may be
substituted for the original writing or transmission for any purpose for which
the original writing or transmission could be used.
No proxy shall be valid after the expiration of eleven months from the
date thereof, unless otherwise provided in the proxy. Every proxy shall be
revocable at the pleasure of the stockholder executing it, except in those cases
where such proxy states that it is irrevocable and where an irrevocable proxy is
permitted by law. Except as otherwise provided by statute, the Charter or these
By-Laws, any corporate action to be taken by vote of the stockholders (other
than the election of directors, which shall be by a plurality of votes cast)
shall be authorized by a majority of the total votes cast at a meeting of
stockholders by the holders of shares present in person or represented by proxy
and entitled to vote on such action.
If a vote shall be taken on any question other than the election of
directors, which shall be by written ballot, then unless required by statute or
by these By-Laws, or determined by the chairman of the meeting to be advisable,
any such vote need not be by ballot. On a vote by ballot, each ballot shall be
signed by the stockholder voting, or by his or her proxy, if there be such
proxy, and shall state the number of shares voted.
Section 2.11. Fixing of Record Date. The Board of Directors may set a
---------------------
record date for the purpose of determining stockholders entitled to vote at any
meeting of the stockholders. The record date, which may not be prior to the
close of business on the day the record date is fixed, shall be not more than 90
days nor less than 10 days before the date of the meeting of the stockholders.
All persons who were holders of record of shares at such time, and not others,
shall be entitled to vote at such meeting and any adjournment thereof.
Section 2.12. Inspectors. The Board, in advance of any meeting of
----------
stockholders, may appoint one or more inspectors to act at such meeting or any
adjournment thereof. If the inspectors shall not be so appointed or if any of
them shall fail to appear or act, the chairman of the meeting may appoint
inspectors. Each inspector, before entering upon the discharge of his or her
duties, may be required to take and sign an oath to execute faithfully the
duties of inspector at such meeting with strict impartiality and according to
the best of his or her ability. The inspectors may be empowered to determine the
number of shares outstanding and the voting powers of each, the number of shares
represented at the meeting, the existence of a quorum, the validity and effect
of proxies, and shall receive votes, ballots or consents, hear and determine all
challenges and questions arising in connection with the right to vote, count and
tabulate all votes, ballots or consents, determine the result, and do such acts
as are proper to conduct the election or vote with fairness to all stockholders.
On request of the chairman of the meeting or any stockholder entitled to vote
thereat, the inspectors shall make a report in writing of any challenge, request
or matter determined by them and shall execute a certificate of any fact found
by them. No director or candidate for the office of director shall act as
inspector of an election of directors. Inspectors need not be stockholders.
Section 2.13. Consent of Stockholders in Lieu of Meeting. Except as
------------------------------------------
otherwise provided by statute or by the Charter, any action required to be taken
at any meeting of stockholders, or any action which may be taken at any meeting
of such stockholders, may be taken without a meeting, without prior notice and
without a vote, if the following are filed with the records of
6
<PAGE>
stockholders meetings: (i) a unanimous written consent which sets forth the
action and is signed by each stockholder entitled to vote on the matter and (ii)
a written waiver of any right to dissent signed by each stockholder entitled to
notice of the meeting but not entitled to vote thereat.
Article III
-----------
Board of Directors
------------------
Section 3.01. General Powers. Except as otherwise provided in the
--------------
Charter, the business and affairs of the Corporation shall be managed under the
direction of the Board of Directors. All powers of the Corporation may be
exercised by or under authority of the Board of Directors except as conferred on
or reserved to the stockholders by law or by the Charter or these By-Laws.
Section 3.02. Number of Directors. The number of directors shall be
-------------------
fixed from time to time by resolution of the Board of Directors adopted by a
majority of the entire Board of Directors; provided, however, that in no event
shall the number of directors be less than the minimum permitted by the General
Law of the State of Maryland nor more than fifteen. Any vacancy created by an
increase in Directors may be filled in accordance with Section 6 of this Article
III. No reduction in the number of directors shall have the effect of removing
any director from office prior to the expiration of his or her term unless such
director is specifically removed pursuant to Section 5 of this Article III at
the time of such decrease. Directors need not be stockholders.
Section 3.03. Election and Term of Directors. Directors shall be
------------------------------
elected annually at a meeting of stockholders held for that purpose; provided,
however, that if no meeting of the stockholders of the Corporation is required
to be held in a particular year pursuant to Section 1 of Article II of these
By-Laws, directors shall be elected at the next meeting held. The term of office
of each director shall be from the time of his or her election and qualification
until the election of directors next succeeding his or her election and until
his or her successor shall have been elected and shall have qualified, or until
his or her death, or until he or she shall have resigned or until December 31 of
the year in which he or she shall have reached 72 years of age, or until he or
she shall have been removed as hereinafter provided in these By-Laws, or as
otherwise provided by statute or by the Charter.
Section 3.04. Resignation. A director of the Corporation may resign at
-----------
any time by giving written notice of his or her resignation to the Board or the
Chairman of the Board or the President or the Secretary. Any such resignation
shall take effect at the time specified therein or, if the time when it shall
become effective shall not be specified therein, immediately upon its receipt;
and, unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
Section 3.05. Removal of Directors. Any director of the Corporation may
--------------------
be removed (with or without cause) by the stockholders by a vote of a majority
of the votes entitled to be cast for the election of directors.
7
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Section 3.06. Vacancies. Any vacancies in the Board, whether arising
---------
from death, resignation, removal, an increase in the number of directors or any
other cause, may be filled by a vote of the majority of the Board of Directors
then in office even though such majority is less than a quorum, provided that no
vacancies shall be filled by action of the remaining directors, if after the
filling of said vacancy or vacancies, less than two-thirds of the directors then
holding office shall have been elected by the stockholders of the Corporation.
In the event that at any time there is a vacancy in any office of a director
which vacancy may not be filled by the remaining directors, a special meeting of
the stockholders shall be held as promptly as possible and in any event within
60 days, for the purpose of filling said vacancy or vacancies.
Section 3.07. Place of Meetings. Meetings of the Board may be held at
-----------------
such place as the Board from time to time may determine or as shall be specified
in the notice of such meeting.
Section 3.08. Regular Meetings. Regular meetings of the Board may be
----------------
held without notice at such time and place as may be determined by the Board of
Directors.
Section 3.09. Special Meetings. Special meetings of the Board may be
----------------
called by two or more directors of the Corporation or by the Chairman of the
Board or the President.
Section 3.10. Telephone Meetings. Members of the Board of Directors or
------------------
of any committee thereof may participate in a meeting by means of a conference
telephone or similar communications equipment if all persons participating in
the meeting can hear each other at the same time. Subject to the provisions of
the Investment Company Act participation in a meeting by these means constitutes
presence in person at the meeting.
Section 3.11. Notice of Special Meetings. Notice of each special
--------------------------
meeting of the Board shall be given by the Secretary as hereinafter provided, in
which notice shall be stated the time and place of the meeting. Notice of each
such meeting shall be delivered to each director, either personally or by
telephone or any standard form of telecommunication, at least 24 hours before
the time at which such meeting is to be held, or by first-class mail, postage
prepaid, addressed to him or her at his or her residence or usual place of
business, at least three days before the day on which such meeting is to be
held.
Section 3.12. Waiver of Notice of Meetings. Notice of any special
----------------------------
meeting need not be given to any director who, either before or after the
meeting, shall sign a written waiver of notice which is filed with the records
of the meeting or who shall attend such meeting. Except as otherwise
specifically required by these By-Laws, a notice or waiver or notice of any
meeting need not state the purposes of such meeting.
Section 3.13. Quorum and Voting. One-third, but not less than two
-----------------
(unless there is only one Director), of the members of the entire Board shall be
present in person at any meeting of the Board in order to constitute a quorum
for the transaction of business at such meeting, and except as otherwise
expressly required by statute, the Charter, these By-Laws, the Investment
Company Act, or other applicable statute, the act of a majority of the directors
present at any meeting at which a quorum is present shall be the act of the
Board. In the absence of a quorum at any meeting of the Board, a majority of the
directors present thereat may adjourn such meeting to another time and place
until a quorum shall be present thereat. Notice of the time and place of
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any such adjourned meeting shall be given to the directors who were not present
at the time of the adjournment and, unless such time and place were announced at
the meeting at which the adjournment was taken, to the other directors. At any
adjourned meeting at which a quorum is present, any business may be transacted
which might have been transacted at the meeting as originally called.
Section 3.14. Organization. The Board, by resolution adopted by a
------------
majority of the entire Board, may designate a Chairman of the Board, who shall
preside at each meeting of the Board. In the absence or inability of the
Chairman of the Board to preside at a meeting, the President or, in his or her
absence or inability to act, another director chosen by a majority of the
directors present, shall act as chairman of the meeting and preside thereat. The
Secretary (or, in his or her absence or inability to act, any person appointed
by the Chairman) shall act as secretary of the meeting and keep the minutes
thereof.
Section 3.15. Written Consent of Directors in Lieu of a Meeting.
-------------------------------------------------
Subject to the provisions of the Investment Company Act, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writings or
writing are filed with the minutes of the proceedings of the Board or committee.
Section 3.16. Compensation. Directors may receive compensation for
------------
services to the Corporation in their capacities as directors or otherwise in
such manner and in such amounts as may be fixed from time to time by the Board.
Section 3.17. Investment Policies. It shall be the duty of the Board of
-------------------
Directors to direct that the purchase, sale, retention and disposal of portfolio
securities and the other investment practices of the Corporation at all times
are consistent with the investment policies and restrictions with respect to
securities investments and otherwise of the Corporation, as recited in the
Prospectus of the Corporation included in the Registration Statement of the
Corporation, as recited in the current Prospectus and Statement of Additional
Information of the Corporation, as filed from time to time with the Securities
and Exchange Commission, and as required by the Investment Company Act. The
Board, however, may delegate the duty of management of the assets and the
administration of its day-to-day operations to an individual or corporate
management company and/or investment adviser pursuant to a written contract or
contracts which have obtained the requisite approvals, including the requisite
approvals of renewals thereof, of the Board of Directors and/or the stockholders
of the Corporation in accordance with the provisions of the Investment Company
Act.
Article IV
----------
Committees
----------
Section 4.01. Executive Committee. The Board, by resolution adopted by
-------------------
a majority of the entire board, may designate an Executive Committee consisting
of two or more of the directors of the Corporation, which committee shall have
and may exercise all of the powers and authority of the Board with respect to
all matters other than:
9
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(a) the submission to stockholders of any action requiring
authorization of stockholders pursuant to statute or the Charter;
(b) the filling of vacancies on the Board of Directors;
(c) the fixing of compensation of the directors for serving on the
Board or on any committee of the Board, including the Executive Committee;
(d) the approval or termination of any contract with an investment
adviser or principal underwriter, as such terms are defined in the Investment
Company Act, or the taking of any other action required to be taken by the Board
of Directors by the Investment Company Act;
(e) the amendment or repeal of these By-Laws or the adoption of new
By-Laws;
(f) the amendment or repeal of any resolution of the Board which by
its terms may be amended or repealed only by the Board;
(g) the declaration of dividends and, except to the extent permitted
by law, the issuance of capital stock of the Corporation; and
(h) the approval of any merger or share exchange which does not
require stockholder approval.
The Executive Committee shall keep written minutes of its proceedings
and shall report such minutes to the Board. All such proceedings shall be
subject to revision or alteration by the Board; provided, however, that third
parties shall not be prejudiced by such revision or alteration.
Section 4.02. Other Committees of the Board. The Board of Directors
-----------------------------
from time to time, by resolution adopted by a majority of the whole Board, may
designate one or more other committees of the Board, each such committee to
consist of one or more directors and to have such powers and duties as the Board
of Directors, by resolution, may prescribe.
Section 4.03. General. One-third, but not less than two (unless there
-------
is only one member), of the members of any committee shall be present in person
at any meeting of such committee in order to constitute a quorum for the
transaction of business at such meeting, and the act of a majority present shall
be the act of such committee. The Board may designate a chairman of any
committee and such chairman or any two members of any committee may fix the time
and place of its meetings unless the Board shall otherwise provide. In the
absence or disqualification of any member of any committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he or she or they constitute a quorum, unanimously may appoint another
member of the Board of Directors to act at the meeting in the place of any such
absent or disqualified member. The Board shall have the power at any time to
change the membership of any committee, to fill all vacancies, to designate
alternate members to replace any absent or disqualified member, or to dissolve
any such committee. Nothing herein shall be deemed to prevent the Board from
appointing one or more committees consisting in whole or in part of persons who
are not directors of the Corporation; provided, however, that no such committee
shall have or may exercise any authority or power of
10
<PAGE>
the Board in the management of the business or affairs of the Corporation,
except as may be prescribed by the Board.
Article V
---------
Officers, Agents and Employees
------------------------------
Section 5.01. Number and Qualifications. The officers of the
-------------------------
Corporation shall be a President, a Secretary and a Treasurer, each of whom
shall be elected by the Board of Directors. The Board of Directors may elect or
appoint one or more Vice Presidents and also may appoint such other officers,
agents and employees as it may deem necessary or proper. Any two or more offices
may be held by the same person, except the offices of President and Vice
President, but no officer shall execute, acknowledge or verify any instrument in
more than one capacity. Such officers shall be elected by the Board of Directors
each year at a meeting of the Board of Directors, each to hold office for the
ensuing year and until his or her successor shall have been duly elected and
shall have qualified, or until his or her death, or until he or she shall have
resigned, or have been removed, as hereinafter provided in these By-Laws. The
Board from time to time may elect such officers (including one or more Assistant
Vice Presidents, one or more Assistant Treasurers and one or more Assistant
Secretaries) and such agents, as may be necessary or desirable for the business
of the Corporation. The President also shall have the power to appoint such
assistant officers (including one or more Assistant Vice Presidents, one or more
Assistant Treasurers and one or more Assistant Secretaries) as may be necessary
or appropriate to facilitate the management of the Corporation's affairs. Such
officers and agents shall have such duties and shall hold their offices for such
terms as may be prescribed by the Board or by the appointing authority.
Section 5.02. Resignations. Any officer of the Corporation may resign
------------
at any time by giving written notice of resignation to the Board, the Chairman
of the Board, President or the Secretary. Any such resignation shall take effect
at the time specified therein or, if the time when it shall become effective
shall not be specified therein, immediately upon its receipt; and, unless
otherwise specified therein, the acceptance of such resignation shall be
necessary to make it effective.
Section 5.03. Removal of Officer, Agent or Employee. Any officer, agent
-------------------------------------
or employee of the Corporation may be removed by the Board of Directors with or
without cause at any time, and the Board may delegate such power of removal as
to agents and employees not elected or appointed by the Board of Directors. Such
removal shall be without prejudice to such person's contract rights, if any, but
the appointment of any person as an officer, agent or employee of the
Corporation shall not of itself create contract rights.
Section 5.04. Vacancies. A vacancy in any office, whether arising from
---------
death, resignation, removal or any other cause, may be filled for the unexpired
portion of the term of the office which shall be vacant, in the manner
prescribed in these By-Laws for the regular election or appointment to such
office.
11
<PAGE>
Section 5.05. Compensation. The compensation of the officers of the
------------
Corporation shall be fixed by the Board of Directors, but this power may be
delegated to any officer in respect of other officers under his or her control.
Section 5.06. Bonds or Other Security. If required by the Board, any
-----------------------
officer, agent or employee of the Corporation shall give a bond or other
security for the faithful performance of his or her duties, in such amount and
with such surety or sureties as the Board may require.
Section 5.07. President. The President shall be the chief executive
---------
officer of the Corporation. In the absence of the Chairman of the Board (or if
there be none), he or she shall preside at all meetings of the stockholders and
of the Board of Directors. He or she shall have, subject to the control of the
Board of Directors, general charge of the business and affairs of the
Corporation. He or she may employ and discharge employees and agents of the
Corporation, except such as shall be appointed by the Board, and he or she may
delegate these powers.
Section 5.08. Vice President. Each Vice President shall have such
--------------
powers and perform such duties as the Board of Directors or the President from
time to time may prescribe.
Section 5.09. Treasurer. The Treasurer shall:
---------
(a) have charge and custody of, and be responsible for, all of the
funds and securities of the Corporation, except those which the Corporation has
placed in the custody of a bank or trust company or member of a national
securities exchange (as that term is defined in the Securities Exchange Act of
1934, as amended) pursuant to a written agreement designating such bank or trust
company or member of a national securities exchange as custodian of the property
of the Corporation;
(b) keep full and accurate accounts of receipts and disbursements in
books belonging to the Corporation;
(c) cause all moneys and other valuables to be deposited to the
credit of the Corporation;
(d) receive, and give receipts for, moneys due and payable, to the
Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and supervise the
investment of its funds as ordered or authorized by the Board, taking proper
vouchers therefor; and
(f) in general, perform all of the duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him or
her by the Board or the President.
Section 5.10. Secretary. The Secretary shall:
---------
(a) keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Board, the committees of the Board
and the stockholders;
12
<PAGE>
(b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the Corporation and
affix and attest the seal to all stock certificates of the Corporation (unless
the seal of the Corporation on such certificates shall be a facsimile, as
hereinafter provided) and affix and attest the seal to all other documents to be
executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed are properly kept and
filed; and
(e) in general, perform all of the duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him or
her by the Board or the President.
Section 5.11. Delegation of Duties. In case of the absence of any
--------------------
officer of the Corporation, or for any other reason that the Board may deem
sufficient, the Board may confer for the time being the powers or duties, or any
of them, of such officer upon any other officer or upon any director.
Article VI
----------
Indemnification
---------------
Section 6.01. General Indemnification. Each officer and director of the
-----------------------
Corporation shall be indemnified by the Corporation to the full extent permitted
under the Maryland General Corporation Law, except that such indemnity shall not
protect any such person against any liability to the Corporation or any
stockholder thereof to which such person would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his or her 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 or her office,
the decision by the Corporation to indemnify such person must be based upon the
reasonable determination of independent legal counsel 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 or
her office.
Each officer and director of the Corporation claiming indemnification
within the scope of this Article VI shall be entitled to advances from the
Corporation for payment of the reasonable expenses incurred by him or her in
connection with proceedings to which he or she is a party in the manner and to
the full extent permitted under the Maryland General Corporation Law without a
preliminary determination as to his or her ultimate entitlement to
indemnification (except as set forth below); provided, however, that the person
seeking indemnification shall provide to the Corporation a written affirmation
of his or her good faith belief that the standard of conduct necessary for
indemnification by the Corporation has been met and a written
13
<PAGE>
undertaking to repay any such advance, if it should ultimately be determined
that the standard of conduct has not been met, and provided further that at
least one of the following additional conditions is met: (a) the person seeking
indemnification shall provide a security in form and amount acceptable to the
Corporation for his or her undertaking; (b) the Corporation is insured against
losses arising by reason of the advance; (c) a majority of a quorum of non-party
independent directors, or independent legal counsel in a written opinion, shall
determine, based on a review of facts readily available to the Corporation at
the time the advance is proposed to be made, that there is reason to believe
that the person seeking indemnification will ultimately be found to be entitled
to indemnification.
The Corporation may purchase insurance on behalf of an officer or
director protecting such person to the full extent permitted under the General
Laws of the State of Maryland, from liability arising from his or her activities
as officer or director of the Corporation. The Corporation, however, may not
purchase insurance on behalf of any officer or director of the Corporation that
protects or purports to protect such person from liability to the Corporation or
to its stockholders to which such officer or director would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her office.
The Corporation may indemnify, make advances or purchase insurance to
the extent provided in this Article VI on behalf of an employee or agent who is
not an officer or director of the Corporation.
Section 6.02. Other Rights. The indemnification provided by this
------------
Article VI shall not be deemed exclusive of any other right, in respect of
indemnification or otherwise, to which those seeking such indemnification may be
entitled under any insurance or other agreement, vote of stockholders or
disinterested directors or otherwise, both as to action by a director or officer
of the Corporation in his or her official capacity and as to action by such
person in another capacity while holding such office or position, and shall
continue as to a person who has ceased to be a director or officer and shall
inure to the benefit of the heirs, executors and administrators of such person.
Article VII
-----------
Capital Stock
-------------
Section 7.01. Stock Certificates. Each holder of stock of the
------------------
Corporation shall be entitled upon request to have a certificate or
certificates, in such form as shall be approved by the Board, representing the
number of shares of stock of the Corporation owned by him or her, provided,
however, that certificates for fractional shares will not be delivered in any
case. The certificates representing shares of stock shall be signed by or in the
name of the Corporation by the Chairman, President or a Vice President and by
the Secretary or an Assistant Secretary or the Treasurer or an Assistant
Treasurer and sealed with the seal of the Corporation. Any or all of the
signatures or the seal on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate shall be issued, it
14
<PAGE>
may be issued by the Corporation with the same effect as if such officer,
transfer agent or registrar were still in office at the date of issue.
Section 7.02. Books of Account and Record of Stockholders. There shall
-------------------------------------------
be kept at the principal executive office of the Corporation correct and
complete books and records of account of all of the business and transactions of
the Corporation.
Section 7.03. Transfers of Shares. Transfers of shares of stock of the
-------------------
Corporation shall be made on the stock records of the Corporation only by the
registered holder thereof, or by his or her attorney thereunto authorized by
power of attorney duly executed and filed with the Secretary or with a transfer
agent or transfer clerk, and on surrender of the certificate or certificates, if
issued, for such shares properly endorsed or accompanied by a duly executed
stock transfer power and the payment of all taxes thereon. Except as otherwise
provided by law, the Corporation shall be entitled to recognize the exclusive
right of a person in whose name any share or shares stand on the record of
stockholders as the owner of such share or shares for all purposes, including,
without limitation, the rights to receive dividends or other distributions, and
to vote as such owner, and the Corporation shall not be bound to recognize any
equitable or legal claim to or interest in any such share or shares on the part
of any other person.
Section 7.04. Regulations. The Board may make such additional rules and
-----------
regulations, not inconsistent with these By-Laws, as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
stock of the Corporation. It may appoint, or authorize any officer or officers
to appoint, one or more transfer agents or one or more transfer clerks and one
or more registrars and may require all certificates for shares of stock to bear
the signature or signatures of any of them.
Section 7.05. Lost, Destroyed or Mutilated Certificates. The holder of
-----------------------------------------
any certificates representing shares of stock of the Corporation shall
immediately notify the Corporation of any loss, destruction or mutilation of
such certificate, and the Corporation may issue a new certificate of stock in
the place of any certificate theretofore issued by it which the owner thereof
shall allege to have been lost or destroyed or which shall have been mutilated,
and the Board, in its discretion, may require such owner or his or her legal
representatives to give to the Corporation a bond in such sum, limited or
unlimited, and in such form and with such surety or sureties, as the Board in
its absolute discretion shall determine, to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss or
destruction of any such certificate, or issuance of a new certificate. Anything
herein to the contrary notwithstanding, the Board, in its absolute discretion,
may refuse to issue any such new certificate, except pursuant to legal
proceedings under the laws of the State of Maryland.
Section 7.06. Fixing of a Record Date for Dividends and Distributions.
-------------------------------------------------------
The Board may fix, in advance, a date not more than 90 days preceding the date
fixed for the payment of any dividend or the making of any distribution or the
allotment of rights to subscribe for securities of the Corporation, or for the
delivery of evidences of rights or evidences of interests arising out of any
change, conversion or exchange of common stock or other securities, as the
record date for the determination of the stockholders entitled to receive any
such dividend, distribution, allotment, rights or interests, and in such case
only the stockholders of record at the time so fixed shall be entitled to
receive such dividend, distribution, allotment, rights or interests.
15
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Section 7.07. Information to Stockholders and Others. Any stockholder
--------------------------------------
of the Corporation or his or her agent may inspect and copy during usual
business hours the Corporation's By-Laws, minutes of the proceedings of its
stockholders, annual statements of its affairs, and voting trust agreements on
file at its principal office.
Article VIII
------------
Seal
----
The seal of the Corporation shall be circular in form and shall bear,
in addition to any other emblem or device approved by the Board of Directors,
the name of the Corporation, the year of its incorporation and the words
"Corporate Seal" and "Maryland." Said seal may be used by causing it or a
facsimile thereof to be impressed or affixed or in any other manner reproduced.
Article IX
----------
Fiscal Year
-----------
The Board of Directors shall have the power from time to time to fix
the fiscal year of the Corporation by a duly adopted resolution.
Article X
---------
Depositories and Custodians
---------------------------
Section 10.01. Depositories. The funds of the Corporation shall be
------------
deposited with such banks or other depositories as the Board of Directors of the
Corporation from time to time may determine.
Section 10.02. Custodians. All securities and other investments shall
----------
be deposited in the safekeeping of such banks or other companies as the Board of
Directors of the Corporation may from time to time determine. Every arrangement
entered into with any bank or other company for the safekeeping of the
securities and investments of the Corporation shall contain provisions complying
with the Investment Company Act, and the general rules and regulations
thereunder.
Article XI
----------
Execution of Instruments
------------------------
Section 11.01. Checks, Notes, Drafts, etc. Checks, notes, drafts,
--------------------------
acceptances, bills of exchange and other orders or obligations for the payment
of money shall be signed by such officer or officers or person or persons as the
Board of Directors from time to time shall designate by resolution.
Section 11.02. Sale or Transfer of Securities. Stock certificates,
------------------------------
bonds or other securities at any time owned by the Corporation may be held on
behalf of the Corporation or sold, transferred or otherwise disposed of subject
to any limits imposed by these By-Laws and pursuant to authorization by the
Board and, when so authorized to be held on behalf of the
16
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Corporation or sold, transferred or otherwise disposed of, may be transferred
from the name of the Corporation by the signature of the President or a Vice
President or the Treasurer or pursuant to any procedure approved by the Board of
Directors, subject to applicable law.
Article XII
-----------
Independent Public Accountants
------------------------------
The firm of independent public accountants which shall sign or certify
the financial statements of the Corporation which are filed with the Securities
and Exchange Commission shall be selected annually by the Board of Directors
and, if required by the provisions of the Investment Company Act, ratified by
the stockholders.
Article XIII
------------
Annual Statement
----------------
The books of account of the Corporation shall be examined by an
independent firm of public accountants at the close of each annual period of the
Corporation and at such other times as may be directed by the Board. A report to
the stockholders based upon each such examination shall be mailed to each
stockholder of the Corporation of record on such date with respect to each
report as may be determined by the Board, at his or her address as the same
appears on the books of the Corporation. Such annual statement shall also be
available at any annual meeting of stockholders and shall be placed on file at
the Corporation's principal office in the State of Maryland, and if no annual
meeting is held pursuant to Article II, Section 1, such annual statement of
affairs shall be placed on file at the Corporation's principal office within 120
days after the end of the Corporation's fiscal year. Each such report shall show
the assets and liabilities of the Corporation as of the close of the annual or
quarterly period covered by the report and the securities in which the funds of
the Corporation were then invested. Such report also shall show the
Corporation's income and expenses for the period from the end of the
Corporation's preceding fiscal year to the close of the annual or quarterly
period covered by the report and any other information required by the
Investment Company Act, and shall set forth such other matters as the Board or
such firm of independent public accountants shall determine.
Article XIV
-----------
Amendments
----------
These By-Laws or any of them may be amended, altered or repealed by the
affirmative vote of a majority of the Board of Directors. The stockholders shall
have no power to make, amend, alter or repeal By-Laws.
17
