<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 21, 2000
SECURITIES ACT FILE NO. 333-30940
INVESTMENT COMPANY ACT FILE NO. 811-09823
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. 1 [X]
POST-EFFECTIVE AMENDMENT NO. [ ]
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 1 [X]
(Check appropriate box or boxes)
------------------------
MERCURY PREMIER GROWTH FUND, 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 PREMIER GROWTH FUND, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
(Name and Address of Agent for Service)
Copies to:
<TABLE>
<S> <C>
Counsel for the Fund:
Frank P. Bruno, Esq. Michael J. Hennewinkel, Esq.
BROWN & WOOD LLP FUND ASSET MANAGEMENT, L.P.
One World Trade Center P.O. Box 9011
New York, New York 10048 Princeton, New Jersey 08543-9011
</TABLE>
------------------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after the effective date of the Registration Statement.
------------------------
TITLE OF SECURITIES BEING REGISTERED: Shares of Common Stock, par value $.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 Premier Growth Trust has also executed this Registration Statement.
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<PAGE> 2
Mercury Premier Growth Fund, Inc.
[ASSET MANAGEMENT GRAPHIC]
THIS PROSPECTUS CONTAINS INFORMATION YOU SHOULD
KNOW BEFORE INVESTING, INCLUDING INFORMATION
ABOUT RISKS. PLEASE READ IT BEFORE YOU INVEST
AND KEEP IT FOR FUTURE REFERENCE.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED THESE SECURITIES OR
PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PROSPECTUS - March 21, 2000
<PAGE> 3
Table of Contents
<TABLE>
<CAPTION>
PAGE
<S> <C>
[FUND FACTS ICON]
FUND FACTS
- -----------------------------------------------------------------
About Mercury Premier Growth Fund, Inc...................... 2
Risk/Return Bar Chart....................................... 3
Fees and Expenses........................................... 4
[ABOUT THE DETAILS ICON]
ABOUT THE DETAILS
- -----------------------------------------------------------------
How the Fund Invests........................................ 6
Investment Risks............................................ 7
About the Portfolio Manager................................. 12
[ACCOUNT CHOICES ICON]
ACCOUNT CHOICES
- -----------------------------------------------------------------
Pricing of Shares........................................... 14
How to Buy, Sell, Transfer and Exchange Shares.............. 19
How Shares are Priced....................................... 23
Dividends and Taxes......................................... 23
[THE MANAGEMENT TEAM ICON]
THE MANAGEMENT TEAM
- -----------------------------------------------------------------
Management of the Fund...................................... 25
Master/Feeder Structure..................................... 26
[TO LEARN MORE ICON]
TO LEARN MORE
- -----------------------------------------------------------------
Shareholder Reports....................................Back Cover
Statement of Additional Information....................Back Cover
</TABLE>
MERCURY PREMIER GROWTH FUND, INC.
<PAGE> 4
[FUND FACTS ICON] 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.
COMMON STOCK -- units of ownership of a corporation.
PREFERRED STOCK -- class of capital stock that often pays dividends at a
specified rate and has preference over common stock in dividend payments and
liquidation of assets.
CONVERTIBLE SECURITIES -- corporate securities (usually preferred stock or
bonds) that are exchangeable for a fixed number of other securities (usually
common stock) at a set price or formula.
WARRANTS -- a security that gives the right to buy a quantity of stock.
ABOUT THE MERCURY PREMIER GROWTH FUND, INC.
- --------------------------------------------------------------------------------
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is to seek long-term capital appreciation.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests primarily in COMMON STOCKS of companies that Fund management
believes have strong earnings growth and capital appreciation potential. To a
lesser extent, the Fund also may invest in PREFERRED STOCK, CONVERTIBLE
SECURITIES, WARRANTS and rights to subscribe to common stock of these companies.
We cannot guarantee that the Fund will achieve its investment objective.
Fund management focuses primarily on earnings growth in determining which
securities to buy and when to sell them for the Fund. The Fund may invest in
companies having medium ($1 billion to $5 billion) or large (greater than $5
billion) stock market capitalizations. Normally, Fund management will emphasize
common stocks of companies with large stock market capitalizations.
The Fund is a "feeder" fund that invests all of its assets in a "master"
portfolio, the Master Premier Growth Trust (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. The
Fund's investment results will correspond directly to the investment results of
the Trust. For simplicity, this Prospectus uses the term "Fund" to include the
Trust.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
As with any mutual fund, the value of the Fund's investments -- and therefore
the value of your Fund shares -- may fluctuate. 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. The Fund
is also subject to the risk that the stocks that Fund management selects will
underperform the stock markets, the relevant indices or other funds with similar
investment objectives and investment strategies. If the value of the Fund's
investments goes down, you may lose money.
2 MERCURY PREMIER GROWTH FUND, INC.
<PAGE> 5
[FUND FACTS ICON] Fund Facts
WHO SHOULD INVEST?
The 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 appreciation.
- Are not looking for a significant amount of current income.
- Are prepared to receive taxable distributions.
RISK/RETURN BAR CHART
- --------------------------------------------------------------------------------
This Prospectus does not include a Risk/Return Bar Chart because as of the date
of this Prospectus the Fund had just commenced operations.
MERCURY PREMIER GROWTH FUND, INC. 3
<PAGE> 6
Fund Facts
[GLOBE ICON]
UNDERSTANDING EXPENSES
Fund investors pay various expenses, either directly or indirectly. Listed below
are some of the main types of expenses, which all mutual funds may charge:
EXPENSES PAID DIRECTLY BY THE SHAREHOLDER:
SHAREHOLDER FEES -- these include sales charges which you may pay when you buy
or sell shares of the Fund.
EXPENSES PAID INDIRECTLY BY THE SHAREHOLDER:
ANNUAL FUND OPERATING EXPENSES -- expenses that cover the costs of operating the
Fund.
MANAGEMENT FEE -- a fee paid to the Manager for managing the Fund.
DISTRIBUTION FEES -- fees used to support the Fund's marketing and distribution
efforts, such as compensating Financial Consultants, advertising and promotion.
SERVICE (ACCOUNT MAINTENANCE) FEES -- fees used to compensate securities dealers
for account maintenance activities.
FEES AND EXPENSES
- --------------------------------------------------------------------------------
The Fund offers four different classes of shares. Although your money will be
invested the same way no matter which class of shares you buy, there are
differences among the fees and expenses associated with each class. Not everyone
is eligible to buy every class. After determining which classes you are eligible
to buy, decide which class best suits your needs. Your financial consultant can
help you with this decision.
THIS TABLE SHOWS THE DIFFERENT FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND
HOLD THE DIFFERENT CLASSES OF SHARES OF THE FUND. FUTURE EXPENSES MAY BE GREATER
OR LESS THAN THOSE INDICATED BELOW.
<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
- ---------------------------------------------------------------------------------------------
Redemption Fee None None None None
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Exchange Fee None None None None
- ---------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE
DEDUCTED FROM THE FUND'S TOTAL ASSETS)(e):
- ---------------------------------------------------------------------------------------------
MANAGEMENT FEE(f) 0.75% 0.75% 0.75% 0.75%
- ---------------------------------------------------------------------------------------------
DISTRIBUTION AND/OR SERVICE (12b-1) FEES(g) None 0.25% 1.00% 1.00%
- ---------------------------------------------------------------------------------------------
Other Expenses (including transfer agency fees)(h) 0.42% 0.42% 0.42% 0.42%
- ---------------------------------------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING EXPENSES 1.17% 1.42% 2.17% 2.17%
- ---------------------------------------------------------------------------------------------
</TABLE>
(a) Certain securities dealers may charge a fee to process a purchase or sale of
shares. See "How to Buy, Sell, Transfer and Exchange Shares."
(b) Class B shares automatically convert to Class A shares about 8 years after
you buy them and will no longer be subject to distribution fees.
(c) Some investors may qualify for reductions in the sales charge (load).
(d) You may pay a deferred sales charge if you purchase $1 million or more and
you redeem within one year.
(e) The fees and expenses include the expenses of the Fund and the Trust.
(f) Paid by the Trust. The Manager or its affiliates provides accounting
services to the Trust at its cost.
(g) The Fund calls the Service Fee an "Account Maintenance Fee." Account
Maintenance Fee is the term used elsewhere in this Prospectus and in all
other Fund materials. If you hold Class B or Class C shares for a long time,
it may cost you more in distribution (12b-1) fees than the maximum sales
charge that you would have paid if you had bought one of the other classes.
(h) Based on estimated amounts for the current fiscal year. The Fund pays the
Transfer Agent a fee for each shareholder account and reimburses it for
out-of- pocket expenses. The fee ranges from $11.00 to $23.00 per
shareholder account (depending on the level of services required). The Fund
also pays a $0.20 monthly closed account charge, which is assessed upon all
accounts that close during the calendar year. This fee begins the month
following the month the account is closed and ends at the end of the
calendar year.
4
MERCURY PREMIER GROWTH FUND, INC.
<PAGE> 7
Fund Facts
[GLOBE ICON]
EXAMPLES:
These examples are intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds.
These examples assume that you invest $10,000 in the Fund for the time periods
indicated, that your investment has a 5% return each year, that you pay the
sales charges, if any, that apply to the particular class and that the Fund's
operating expenses remain the same. This assumption is not meant to indicate you
will receive a 5% annual rate of return. Your annual return may be more or less
than the 5% used in these examples. Although your actual costs may be higher or
lower, based on these assumptions, your costs would be:
Expenses if you did redeem your shares:
<TABLE>
<CAPTION>
CLASS I CLASS A CLASS B CLASS C
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ONE YEAR $638 $662 $620 $320
- ------------------------------------------------------------------------------------------
THREE YEARS $877 $951 $979 $679
- ------------------------------------------------------------------------------------------
</TABLE>
Expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
CLASS I CLASS A CLASS B CLASS C
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ONE YEAR $638 $662 $220 $220
- ------------------------------------------------------------------------------------------
THREE YEARS $877 $951 $679 $679
- ------------------------------------------------------------------------------------------
</TABLE>
MERCURY PREMIER GROWTH FUND, INC. 5
<PAGE> 8
[ABOUT THE DETAILS ICON] About the Details
ABOUT THE PORTFOLIO MANAGER -- James D. McCall is a Senior Vice President and
the Portfolio Manager of the Fund. Mr. McCall has been a First Vice President of
Merrill Lynch Asset Management since November 1999. Prior to joining Merrill
Lynch Asset Management, Mr. McCall was a portfolio manager for the PBHG family
of mutual funds from 1994 to 1999.
ABOUT THE MANAGER -- The Fund is managed by Fund Asset Management.
HOW THE FUND INVESTS
- --------------------------------------------------------------------------------
The Fund's investment objective is to seek long-term capital appreciation. The
Fund tries to achieve its investment objective by investing primarily in common
stocks of companies that Fund management believes have strong earnings growth
and capital appreciation potential. Fund management begins its investment
process by creating a universe of rapidly growing companies that possess certain
growth characteristics. That universe is continually updated. Fund management
then ranks each company within its universe by using research models that focus
on growth characteristics such as positive earnings surprises, upward earnings
estimate revisions, and accelerating sales and earnings growth. Finally, using
its own fundamental research and a bottom-up approach to investing, Fund
management evaluates the quality of each company's earnings and tries to
determine whether the company can sustain or increase its current growth trend.
Fund management believes that this disciplined investment process enables it to
construct a portfolio of investments with strong growth characteristics.
Although the Fund emphasizes investment in common stocks, it may also invest in
other equity securities including, but not limited to, the following:
- Securities convertible into common stock
- Preferred stock
- Rights and warrants to subscribe to common stock
The Fund generally will invest at least 65% of its total assets in equity
securities. The Fund may invest in companies having medium ($1 billion to $5
billion) or large (greater than $5 billion) stock market capitalizations.
Normally, Fund management will emphasize companies with large stock market
capitalizations.
The Fund may invest without limitation in the securities of foreign companies in
the form of American Depositary Receipts ("ADRs"). In addition, the Fund may
invest up to 10% of its total assets in other forms of securities of foreign
companies, including European Depositary Receipts ("EDRs") or other securities
convertible into securities of foreign companies.
The Fund may also lend its portfolio securities.
The Fund may invest in investment grade, non-convertible debt securities and
U.S. Government securities of any maturity although it typically will not do so
to a significant extent. The Fund may invest in excess of 35% of its total
assets in cash or U.S. dollar-denominated high quality short-term debt
instruments for
6 MERCURY PREMIER GROWTH FUND, INC.
<PAGE> 9
[ABOUT THE DETAILS ICON] About the Details
temporary defensive purposes, to maintain liquidity or when economic or market
conditions are unfavorable for profitable investing. Normally, a portion of the
Fund's assets will be held in these short-term instruments in anticipation of
investment in equities or to meet redemptions. These types of investments
typically have a lower yield than other longer-term investments and lack the
capital appreciation potential of equity securities. In addition, while these
investments are generally designed to limit the Fund's losses, they can prevent
the Fund from achieving its investment objective.
INVESTMENT RISKS
- --------------------------------------------------------------------------------
This section contains a summary discussion of the general risks of investing in
the Fund. As with any mutual fund, there can be no guarantee that the Fund will
meet its objectives, or that the Fund's performance will be positive over any
period of time.
MARKET RISK AND SELECTION RISK
As an equity fund, the Fund's principal risks are market risk and selection
risk. Market risk is the risk that the U.S. or foreign equity markets will go
down in value, including the possibility that the U.S. or foreign equity markets
will go down sharply and unpredictably. In particular, the equity securities
purchased by the Fund may be particularly sensitive to changes in earnings or
interest rate increases because they typically have higher price-earnings
ratios. Selection risk is the risk that the stocks that Fund management selects
will underperform the markets or other funds with similar investment objectives
and investment strategies.
The Fund also may be subject to risks associated with the following investment
strategies.
CONVERTIBLES
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.
MERCURY PREMIER GROWTH FUND, INC. 7
<PAGE> 10
[ABOUT THE DETAILS] About the Details
WARRANTS
A warrant gives the Fund the right to buy a quantity of stock. The warrant
specifies the amount of underlying stock, the purchase (or "exercise") price,
and the date the warrant expires. The Fund has no obligation to exercise the
warrant and buy the stock.
A warrant has value only if the Fund exercises it before it expires. If the
price of the underlying stock does not rise above the exercise price before the
warrant expires, the warrant generally expires without any value and the Fund
loses any amount it paid for the warrant. Thus, investments in warrants may
involve substantially more risk than investments in common stock. Warrants may
trade in the same markets as their underlying stock; however, the price of the
warrant does not necessarily move with the price of the underlying stock.
FOREIGN MARKET RISK
Since the Fund may invest in foreign securities, they offer the potential for
more diversification than an investment only in the United States. This is
because stocks traded on foreign markets have often (though not always)
performed differently than stocks in the United States. Such investments,
however, involve special risks not present in U.S. investments that can increase
the chances that the Fund will lose money. For example, investments in foreign
markets may be adversely affected by governmental actions such as the imposition
of capital controls, nationalization of companies or industries, expropriation
of assets, diplomatic developments, the imposition of economic sanctions,
changes in international trading patterns, trade barriers, and other
protectionist or retaliatory measures. The governments of certain countries may
prohibit or impose substantial restrictions on foreign investing in their
capital markets or in certain industries. Other foreign market risks include
foreign exchange controls, difficulties in pricing securities, defaults on
foreign government securities, difficulties in enforcing favorable legal
judgments in foreign courts and political and social instability. Legal remedies
available to investors in some foreign countries may be less extensive than
those available to investors in the United States. Foreign markets may have
different clearance and settlement procedures, which may delay settlement of
transactions involving foreign securities. The Fund may miss investment
opportunities or be unable to sell an investment because of these delays. The
risks of investing in foreign securities are generally greater for investments
in emerging markets.
8 MERCURY PREMIER GROWTH FUND, INC.
<PAGE> 11
[ABOUT THE DETAILS ICON] About the Details
DEPOSITARY RECEIPTS
The Fund may invest in securities of foreign issuers in the form of Depositary
Receipts. American Depositary Receipts are receipts typically issued by an
American bank or trust company that show evidence of underlying securities
issued by a foreign corporation. European Depositary Receipts evidence a similar
ownership arrangement. The Fund may also invest in unsponsored Depositary
Receipts. The issuers of such unsponsored Depositary Receipts are not obligated
to disclose material information in the United States, and therefore, there may
be less information available regarding such issuers.
ILLIQUID SECURITIES
The Fund may invest up to 15% of its net assets in illiquid securities that it
cannot easily resell within seven days at current value or that have contractual
or legal restrictions on resale. If the Fund buys illiquid securities it may be
unable to quickly resell them or may be able to sell them only at a price below
current value.
RESTRICTED SECURITIES
Restricted securities have contractual or legal restrictions on their resale.
They may include private placement securities that the Fund buys directly from
the issuer. Private placement and other restricted securities may not be listed
on an exchange and may have no active trading market.
Restricted securities may be illiquid. The Fund may be unable to sell them on
short notice or may be able to sell them only at a price below current value.
The Fund may get only limited information about the issuer, so they may be less
able to predict a loss. In addition, if Fund management receives material
adverse nonpublic information about the issuer, the Fund will not be able to
sell the security.
RULE 144A SECURITIES
Rule 144A securities are restricted securities that can be resold to qualified
institutional buyers but not to the general public. Rule 144A securities may
have an active trading market, but carry the risk that the active trading market
may not continue.
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
MERCURY PREMIER GROWTH FUND, INC. 9
<PAGE> 12
[ABOUT THE DETAILS ICON] About the Details
of credit risk depends on the issuer's financial condition and on the terms of
the bonds. These securities are also 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.
SECURITIES LENDING
Securities lending involves the risk that the borrower to which the Fund has
loaned its securities may not return the securities in a timely manner or at
all. As a result, the Fund might suffer costs and delay in recovering the
securities it loaned. In addition, if the Fund does not get the securities it
loaned back and the value of the collateral the Fund received in return for the
loaned securities falls, the Fund could lose money.
REPURCHASE AGREEMENTS; PURCHASE AND SALE CONTRACTS
The Fund may enter into certain types of repurchase agreements or purchase and
sale contracts. Under a repurchase agreement, the seller agrees to repurchase a
security (typically a security issued or guaranteed by the U.S. Government) at a
mutually agreed upon time and price. This insulates the Fund from changes in the
market value of the security during the period, except for currency
fluctuations. A purchase and sale contract is similar to a repurchase agreement,
but purchase and sale contracts provide that the purchaser receives any interest
on the security paid during the period. If the seller fails to repurchase the
security in either situation and the market value declines, the Fund may lose
money.
DERIVATIVES
The Fund may use derivative instruments including futures, options, indexed
securities, inverse securities and swaps. Derivatives are financial instruments
whose value is derived from another security, a commodity (such as gold or oil),
or an index such as Standard & Poor's 500 Index. Derivatives allow the Fund to
increase or decrease their risk exposure more quickly and efficiently than other
types of instruments. 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 the Fund.
10 MERCURY PREMIER GROWTH FUND, INC.
<PAGE> 13
[ABOUT THE DETAILS ICON] About the Details
- 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 (such as borrowing money to
increase the amount of investment) 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.
The Fund may use derivatives for hedging purposes, including anticipatory
hedges. Hedging is a strategy in which the 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 the Fund's hedging strategy will
reduce risk or that hedging transactions will be either available or cost
effective. The Fund is not required to use hedging and may choose not to do so.
MERCURY PREMIER GROWTH FUND, INC. 11
<PAGE> 14
[ABOUT THE DETAILS ICON] About the Details
ABOUT THE PORTFOLIO MANAGER
- --------------------------------------------------------------------------------
James D. McCall, a First Vice President of Merrill Lynch Asset Management, L.P.
since 1999 and a Senior Vice President and the Portfolio Manager of the Fund, is
primarily responsible for the day-to-day management of the Trust's portfolio.
Mr. McCall, a Chartered Financial Analyst, has had 10 years experience as a
portfolio manager. He was a portfolio manager at the PBHG family of mutual funds
from 1994 to 1999. He managed a number of registered mutual funds, including the
PBHG Large Cap Growth Fund series of The PBHG Funds, Inc. from its inception on
April 5, 1995 to May 14, 1999. Mr. McCall also managed the PBHG Large Cap Growth
Portfolio of PBHG Insurance Series Fund, Inc., a variable annuity contract
portfolio, from its inception on May 1, 1997 to May 14, 1999. The investment
objective, policies and strategies of the PBHG Large Cap Growth Fund and the
PBHG Large Cap Growth Portfolio are substantially similar in all material
respects to those of the Fund.
The cumulative total return for the PBHG Large Cap Growth Fund from its
inception on April 5, 1995 through March 31, 1999 was 174.47%. At March 31,
1999, the PBHG Large Cap Growth Fund had approximately $144.2 million in net
assets. The cumulative total return for the PBHG Large Cap Growth Portfolio from
its inception on May 1, 1997 through March 31, 1999 was 61.60%. At March 31,
1999, the PBHG Large Cap Growth Portfolio had approximately $13.8 million in net
assets. As portfolio manager of the PBHG Large Cap Growth Fund and the PBHG
Large Cap Growth Portfolio for the periods indicated above, Mr. McCall had full
discretionary authority over the selection of investments for each fund and was
primarily responsible for the day-to-day management of each fund. No other
person played a significant role in managing each fund from their respective
inception dates through May 14, 1999. Average annual returns for the one-year
and three-year periods ended March 31, 1999 to the extent applicable and for the
entire period during which Mr. McCall managed the PBHG Large Cap Growth Fund and
the PBHG Large Cap Growth Portfolio compared with the performance of the
Standard & Poor's 500 Index are set forth on the next page.
12 MERCURY PREMIER GROWTH FUND, INC.
<PAGE> 15
[ABOUT THE DETAILS ICON] About the Details
<TABLE>
<CAPTION>
PBHG LARGE LIPPER
PRIOR PERFORMANCE OF SIMILAR FUNDS CAP PBHG LARGE MULTI-CAP
PREVIOUSLY MANAGED BY THE GROWTH(1) CAP GROWTH S&P 500 GROWTH
PORTFOLIO MANAGER: FUND PORTFOLIO(2) INDEX(3) FUNDS(6)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
One Year Ended March 31, 1999 15.90% 19.62% 18.46% 21.07%
- ---------------------------------------------------------------------------------------------
Three Years Ended March 31, 1999 22.33% N/A 28.08% 21.47%
- ---------------------------------------------------------------------------------------------
PBHG Large Cap Growth Fund
Inception(4) through May 14, 1999 27.25% N/A 29.17% 23.73%
- ---------------------------------------------------------------------------------------------
PBHG Large Cap Growth Portfolio
Inception(5) through May 14, 1999 N/A 25.75% 30.88% 29.82%
- ---------------------------------------------------------------------------------------------
</TABLE>
(1) Average annual total return reflects changes in share prices and
reinvestment of dividends and is net of fund expenses. From the commencement
of operations through March 31, 1996, Pilgrim Baxter & Associates, Ltd.
("Pilgrim Baxter") voluntarily waived a portion of the annual management fee
payable by the PBHG Large Cap Growth Fund. Without such a waiver, returns
would have been lower. During the periods indicated, PBHG Large Cap Growth
Fund was sold without a front-end sales charge that would reduce returns.
Although a co-manager for the PBIIG Large Cap Growth Fund was named for a
portion of the periods indicated, Mr. McCall was primarily responsible for
the day-to-day management of that fund.
(2) Average annual total return reflects changes in share prices and
reinvestment of dividends and is net of fund expenses. From the commencement
of operations through December 31, 1998, Pilgrim Baxter voluntarily waived a
portion of the annual management fee payable by the PBHG Large Cap Growth
Portfolio and agreed to pay certain expenses of the PBHG Large Cap Growth
Portfolio to the extent necessary to ensure that the total annual operating
expenses of the PBHG Large Cap Growth Portfolio did not exceed 1.10% of its
average daily net assets. Without such waivers, returns would have been
lower. Moreover, average annual total return does not reflect a deduction
for insurance account fees, which if reflected, would also reduce the
returns shown. During the periods indicated, PBHG Large Cap Growth Portfolio
was sold without a front-end sales charge that would reduce returns.
(3) The Standard & Poor's 500 Index is an unmanaged index of common stocks that
is considered to be generally representative of the United States stock
market. The index is adjusted to reflect reinvestment of dividends.
(4) The inception date for the PBHG Large Cap Growth Fund was April 5, 1995.
(5) The inception date for the PBHG Large Cap Growth Portfolio was May 1, 1997.
(6) Lipper Multi-Cap Growth Funds, as classified by Lipper Inc., are funds that,
by portfolio practice, invest in a variety of market capitalization ranges,
without concentrating 75% of their equity assets in any one market
capitalization range over an extended period of time. Multi-Cap funds will
generally have between 25% to 75% of their assets invested in companies with
market capitalization (on a three-year weighted basis) above 300% of the
dollar-weighted median market capitalization of the S&P Mid-Cap 400 Index.
Multi-Cap Growth funds normally invest in companies with long-term earnings
expected to grow significantly faster than the earnings of the stocks
represented in a major unmanaged stock index. These funds will normally have
an above-average price-to-earnings ratio, price-to-book ratio, and
three-year earnings growth figure, compared to the U.S. diversified
multi-cap equity funds universe average.
HISTORICAL PERFORMANCE IS NOT INDICATIVE OF FUTURE PERFORMANCE. THE PBHG LARGE
CAP GROWTH FUND AND THE PBHG LARGE CAP GROWTH PORTFOLIO ARE SEPARATE FUNDS AND
THEIR HISTORICAL PERFORMANCE IS NOT INDICATIVE OF THE POTENTIAL PERFORMANCE OF
THE FUND. Share prices and investment returns will fluctuate reflecting market
conditions as well as changes in company-specific fundamentals of portfolio
securities.
MERCURY PREMIER GROWTH FUND, INC. 13
<PAGE> 16
[ACCOUNT CHOICES ICON] Account Choices
PRICING OF SHARES
- --------------------------------------------------------------------------------
The Fund offers four classes of shares, each with its own sales charge and
expense structure, allowing you to invest in the way that best suits your needs.
Each share class represents an ownership interest in the same investment
portfolio. 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 the Fund's
assets on an ongoing basis, over time these fees increase the cost of your
investment and may cost you more than paying an initial sales charge. In
addition, you may be subject to a deferred sales charge when you sell Class B or
C shares.
The Fund's shares are distributed by Mercury Funds Distributor, a division of
Princeton Funds Distributor, Inc.
14 MERCURY PREMIER GROWTH FUND, INC.
<PAGE> 17
[ACCOUNT CHOICES ICON] Account Choices
To better understand the pricing of each class of the Fund's shares, we have
summarized the information below:
<TABLE>
<CAPTION>
CLASS I CLASS A CLASS B
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Availability LIMITED TO CERTAIN GENERALLY AVAILABLE GENERALLY AVAILABLE
INVESTORS INCLUDING: THROUGH SELECTED THROUGH SELECTED
- Current Class I SECURITIES DEALERS. SECURITIES DEALERS.
shareholders
- Certain affiliates or
customers of selected
securities dealers.
- ---------------------------------------------------------------------------------------------------------------
Initial Sales Charge? YES. PAYABLE AT TIME OF YES. PAYABLE AT TIME OF NO. ENTIRE PURCHASE
PURCHASE. LOWER SALES PURCHASE. LOWER SALES PRICE IS INVESTED IN
CHARGES AVAILABLE FOR CHARGES AVAILABLE FOR SHARES OF THE FUND.
LARGER INVESTMENTS. LARGER INVESTMENTS.
- ---------------------------------------------------------------------------------------------------------------
Deferred Sales NO. (MAY BE CHARGED FOR NO. (MAY BE CHARGED FOR YES. PAYABLE IF YOU
Charge? PURCHASES OVER $1 PURCHASES OVER $1 REDEEM WITHIN SIX YEARS
MILLION THAT ARE MILLION THAT ARE OF PURCHASE.
REDEEMED WITHIN ONE REDEEMED WITHIN ONE
YEAR.) YEAR.)
- ---------------------------------------------------------------------------------------------------------------
Account Maintenance NO. 0.25% ACCOUNT 0.25% ACCOUNT
and Distribution MAINTENANCE FEE NO MAINTENANCE FEE 0.75%
Fees? DISTRIBUTION FEE. DISTRIBUTION FEE.
- ---------------------------------------------------------------------------------------------------------------
Conversion to Class A NO. NO. YES, AUTOMATICALLY AFTER
shares? APPROXIMATELY EIGHT
YEARS.
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS C
- ----------------------------------------------------------
<S> <C>
Availability GENERALLY AVAILABLE
THROUGH SELECTED
SECURITIES DEALERS.
- ----------------------------------------------------------
Initial Sales Charge? NO. ENTIRE PURCHASE
PRICE IS INVESTED IN
SHARES OF THE FUND.
- ----------------------------------------------------------
Deferred Sales YES. PAYABLE IF YOU
Charge? REDEEM WITHIN ONE YEAR
OF PURCHASE.
- ----------------------------------------------------------
Account Maintenance 0.25% ACCOUNT
and Distribution MAINTENANCE FEE 0.75%
Fees? DISTRIBUTION FEE.
- ----------------------------------------------------------
Conversion to Class A NO.
shares?
- --------------------------------------------------------------------------------------------------------------
</TABLE>
MERCURY PREMIER GROWTH FUND, INC.
15
<PAGE> 18
[ACCOUNT CHOICES ICON] Account Choices
RIGHT OF ACCUMULATION -- permits you to pay the sales charge applicable to the
cost or value (whichever is higher) of all shares you own in the Mercury mutual
funds.
LETTER OF INTENT -- permits you to pay the sales charge that would be applicable
if you add up all shares of Mercury mutual funds that you agree to buy within a
13 month period. Certain restrictions apply.
CLASS I AND 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. Securities dealers' compensation will
be as shown in the last column.
<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. In that case, the manager compensates the selling
dealer from its own funds. If you redeem your shares within one year after
purchase, you may be charged a deferred sales charge. This charge is 1% of
the lesser of the original cost of the shares being redeemed or your
redemption proceeds.
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 ACCUMULATION or LETTER OF INTENT
- Certain investors, including directors or trustees of mutual funds
sponsored by the Manager or its affiliates, employees of the
Manager and its affiliates and employees or customers of selected
dealers
- Purchases through certain financial advisers that meet and adhere
to standards established by the Manager
- Purchases through certain accounts over which the Manager or an
affiliate exercises investment discretion
16 MERCURY PREMIER GROWTH FUND, INC.
<PAGE> 19
[CHECKMARK ICON] Account Choices
Only certain investors are eligible to buy Class I shares, including existing
Class I shareholders of the Fund. 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
since Class A shares are subject to 0.25% account maintenance fee, while Class I
shares are not.
If you redeem Class I or Class A shares and within 30 days buy new shares of the
same class, you will not pay a sales charge on the new purchase amount. The
amount eligible for this "Reinstatement Privilege" may not exceed the amount of
your redemption proceeds. To exercise the privilege, contact your financial
consultant or the Fund's 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 a distribution
plan that the Fund has adopted under Rule 12b-1. Because these fees are paid out
of the Fund's assets on an ongoing basis, over time these fees increase the cost
of your investment and may cost you more than paying an initial sales charge.
The Distributor uses the money that it receives from the deferred sales charge
and the distribution fees to cover the costs of marketing, advertising and
compensating the financial consultant or other dealer who assists you in
purchasing Fund shares.
MERCURY PREMIER GROWTH FUND, INC. 17
<PAGE> 20
[CHECKMARK ICON] 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 THEREAFTER 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
through reinvestment of dividends are not subject to a deferred sales charge.
Not all Mercury funds have identical deferred sales charge schedules. If you
exchange your shares for shares of another Mercury fund, the higher charge
will apply, if any would apply.
The deferred sales charge relating to Class B shares may be reduced or waived in
certain circumstances, such as:
- Certain post-retirement withdrawals from an IRA or other
retirement plan if you are over 59 1/2 years old
- Certain retirement plan rollovers
- Withdrawals resulting from shareholder death or disability as long
as the waiver request is made within one year of death or
disability or, if later, reasonably promptly following completion
of probate, or in connection with involuntary termination of an
account in which Fund shares are held
- Withdrawal through the Systematic Withdrawal Plan of up to 10% per
year of your Class B or Class C account value at the time the plan
is established
Your Class B shares convert automatically into Class A shares approximately
eight years after purchase. Any Class B shares received through reinvestment of
dividends paid on converting shares will also convert at that time. Class A
shares are subject to lower annual expenses than Class B shares. The conversion
of Class B shares to Class A shares is not a taxable event for Federal income
tax purposes.
18
MERCURY PREMIER GROWTH FUND, INC.
<PAGE> 21
[ACCOUNT CHOICES ICON] Account Choices
Different conversion schedules may apply to Class B shares of different Mercury
mutual funds. If you acquire your Class B shares in an exchange from another
fund with a shorter conversion schedule, the Fund's eight year conversion
schedule will apply. If you exchange your Class B shares in the Fund for Class B
shares of a fund with a longer conversion schedule, the other fund's conversion
schedule will apply. The length of time that you hold both 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
Fund does not issue share certificates.
MERCURY PREMIER GROWTH FUND, INC. 19
<PAGE> 22
[ACCOUNT CHOICES ICON] Account Choices
<TABLE>
<CAPTION>
IF YOU WANT TO YOUR CHOICES INFORMATION IMPORTANT FOR YOU TO KNOW
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BUY SHARES First, select the share class Refer to the pricing of shares table on page 15. Be sure to
appropriate for you read this prospectus carefully.
-------------------------------------------------------------------------------------------------
Next, determine the amount of The minimum initial investment for the Fund is $1,000 for
your investment all accounts. (The minimums for initial investments may be
waived under certain circumstances.)
-------------------------------------------------------------------------------------------------
Have your financial consultant The price of your shares is based on the next calculation of
or securities dealer submit net asset value after your order is placed. Any purchase
your purchase order 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
Fund may reject any order to buy shares and may suspend the
sale of shares at any time. Certain securities dealers may
charge a fee to process a purchase. For example, the fee
charged by Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") is currently $5.35. The fees
charged by other securities dealers may be higher or lower.
-------------------------------------------------------------------------------------------------
Or contact the Transfer Agent To purchase shares directly, call the Transfer Agent at
1-888-763-2260 and request a purchase application. Mail the
completed purchase application to the Transfer Agent at the
address on the inside back cover of this Prospectus.
- ------------------------------------------------------------------------------------------------------------------------
ADD TO YOUR Purchase additional shares The minimum investment for additional purchases is generally
INVESTMENT $50 for all accounts. (The minimums for additional purchases
may be waived under certain circumstances.)
-------------------------------------------------------------------------------------------------
Acquire additional shares All dividends are automatically reinvested without a sales
through the automatic dividend charge.
reinvestment plan
-------------------------------------------------------------------------------------------------
Participate in the automatic You may invest a specific amount on a periodic basis through
investment plan your securities dealer.
- ------------------------------------------------------------------------------------------------------------------------
TRANSFER SHARES TO Transfer to a participating You may transfer your Fund shares only to another securities
ANOTHER SECURITIES securities dealer dealer if authorized dealer agreements are in place between
DEALER 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 assets must
be dealer coordinated by the receiving securities dealer.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
20 MERCURY PREMIER GROWTH FUND, INC.
<PAGE> 23
[ACCOUNT CHOICES ICON] Account Choices
<TABLE>
<CAPTION>
IF YOU WANT TO YOUR CHOICES INFORMATION IMPORTANT FOR YOU TO KNOW
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TRANSFER SHARES TO Transfer to a non-participating You must either:
ANOTHER SECURITIES securities dealer - Transfer your shares to an account withthe Transfer
DEALER (CONTINUED) Agent; or
- Sell your shares, paying any applicable deferred
sales charge.
- ------------------------------------------------------------------------------------------------------------------------
SELL YOUR SHARES Have your financial consultant The price of your shares is based on the next calculation of
or securities dealer submit net asset value after your order is placed. For your
your sales order redemption request to be priced at the net asset value on
the day of your request, you must submit your request to
your dealer prior to that day's close of business on the New
York Stock Exchange (generally 4:00 p.m. Eastern time). Any
redemption request placed after that time will be priced at
the net asset value at the close of business on the next
business day.
Certain securities dealers may charge a fee to process a
sale of shares. For example, the fee charged by Merrill
Lynch is currently $5.35. The fees charged by other
securities dealers may be higher or lower.
The Fund may reject an order to sell shares under certain
circumstances.
-------------------------------------------------------------------------------------------------
Sell through the Transfer Agent You may sell shares held at the Transfer Agent by writing to
the Transfer Agent at the address on the inside back cover
of this prospectus. All shareholders on the account must
sign the letter. A signature guarantee will generally be
required but may be waived in certain limited circumstances.
You can obtain a signature guarantee from a bank, securities
dealer, securities broker, credit union, savings
association, national securities exchange and registered
securities association. A notary public seal will not be
acceptable. The Transfer Agent will normally mail redemption
proceeds within seven days following receipt of a properly
completed request. If you make a redemption request before
the Fund has collected payment for the purchase of shares,
the Fund or the Transfer Agent may delay mailing your
proceeds. This delay will usually not exceed ten days.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
MERCURY PREMIER GROWTH FUND, INC.
21
<PAGE> 24
[ACCOUNT CHOICES ICON] Account Choices
<TABLE>
<CAPTION>
IF YOU WANT TO YOUR CHOICES INFORMATION IMPORTANT FOR YOU TO KNOW
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SELL SHARES Participate in the Fund's You can generally arrange through your selected dealer for
SYSTEMATICALLY Systematic Withdrawal Plan systematic 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 which you You can exchange your shares of the Fund for shares of other
SHARES want to exchange. Be sure to Mercury mutual funds or for shares of the Summit Cash
read that fund's prospectus 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 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 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 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>
22 MERCURY PREMIER GROWTH FUND, INC.
<PAGE> 25
NET ASSET VALUE -- the market value in U.S. dollars of the Fund's total assets
after deducting liabilities, divided by the number of shares outstanding.
DIVIDENDS -- ordinary income and capital gains paid to shareholders. Dividends
may be reinvested in additional Fund shares as they are paid.
"BUYING A DIVIDEND"
Unless your investment is in a tax-deferred account, you may want to avoid
buying shares shortly before the Fund pays a dividend. The reason? If you buy
shares when a fund has realized but not yet distributed ordinary income or
capital gains, you will pay the full price for the shares and then receive a
portion of the price back in the form of a taxable dividend. Before investing
you may want to consult your tax advisor.
[CHECKMARK ICON] Account Choices
HOW SHARES ARE PRICED
- --------------------------------------------------------------------------------
When you buy shares, you pay the NET ASSET VALUE, plus any applicable sales
charge. This is the offering price. Shares are also redeemed at their net asset
value, minus any applicable deferred sales charge. The Fund calculates its net
asset value (generally by using market quotations) each day the New York Stock
Exchange is open as of the close of business on the Exchange based on prices at
the time of closing. The Exchange generally closes at 4:00 p.m. Eastern time.
The net asset value used in determining your price is the next one calculated
after your purchase or redemption order is placed. Foreign securities owned by
the Fund may trade on weekends or other days when the Fund does not price its
shares. As a result, the Fund's net asset value may change on days when you will
not be able to purchase or redeem the Fund's 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.
DIVIDENDS AND TAXES
- --------------------------------------------------------------------------------
The Fund will distribute at least annually any net investment income and any net
realized long- or short-term capital gains. The Fund may also pay a special
distribution at the end of the calendar year to comply with Federal tax
requirements. DIVIDENDS may be reinvested automatically in shares of the Fund at
net asset value without a sales charge or may be taken in cash. If your account
is with a securities dealer that has an agreement with the Fund, contact your
financial consultant about which option you would like. If your account is with
the Transfer Agent and you would like to receive dividends in cash, contact the
Transfer Agent. Although this cannot be predicted with any certainty, the Fund
anticipates that the majority of its dividends, if any, will consist of capital
gains. Such capital gains may be taxable to you at different rates, depending,
in part, on how long the Fund has held the assets sold.
You will pay tax on dividends from the Fund whether you receive them in cash or
additional shares. If you redeem Fund shares or exchange them for shares of
another fund, you generally will be treated as having sold your shares and any
gain on the transaction may be subject to tax. Capital gain dividends are
generally taxed at different rates than ordinary income dividends.
MERCURY PREMIER GROWTH FUND, INC. 23
<PAGE> 26
[CHECKMARK ICON] Account Choices
Dividends and interest received by the 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.
If you are neither a lawful permanent resident nor a citizen of the U.S. or if
you are a foreign entity, the Fund's ordinary income dividends (which include
distributions of net short-term capital gains) will generally be subject to a
30% U.S. withholding tax, unless a lower treaty rate applies.
By law, the Fund must withhold 31% of your 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 the Fund. It is not a substitute for personal tax advice.
Consult your personal tax advisor about the potential tax consequences of an
investment in the Fund under all applicable tax laws.
24
MERCURY PREMIER GROWTH FUND, INC.
<PAGE> 27
[THE MANAGEMENT TEAM ICON] The Management Team
MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------
Fund Asset Management, L.P., the Fund's Manager, manages the Trust's investments
under the overall supervision of the Board of Trustees of the Trust. The
management agreement between the Trust and the Manager gives the Manager the
responsibility for making all investment decisions for the Fund. The Manager has
a sub-advisory agreement with Merrill Lynch Asset Management U.K. Limited, an
affiliate, under which the Manager may pay a fee for services it receives. The
Trust pays the Manager a fee at the annual rate of 0.75% of the average daily
net assets of the Trust.
Fund Asset Management, L.P. was organized as an investment adviser in 1977 and
offers investment advisory services to more than 50 registered investment
companies. Merrill Lynch Asset Management U.K. Limited was organized as an
investment adviser in 1986 and acts as sub-adviser to more than 50 registered
investment companies. Fund Asset Management, L.P. is part of the Asset
Management Group of Merrill Lynch & Co., Inc., which had approximately $550
billion in investment company and other portfolio assets under management as of
January 2000. This amount includes assets managed for affiliates of the Manager.
MERCURY PREMIER GROWTH FUND, INC. 25
<PAGE> 28
[THE MANAGEMENT TEAM ICON] The Management Team
MASTER/FEEDER STRUCTURE
- --------------------------------------------------------------------------------
The Fund is a "feeder" fund that invests all of its assets in the Trust. (Except
where indicated, this prospectus uses the term "Fund" to mean this feeder fund
and the Trust taken together.) Investors in the Fund will acquire an indirect
interest in the Trust.
The Trust accepts investments from other feeder funds, and all the feeders of
the Trust bear the portfolio's expenses in proportion to their assets. This
structure may enable the Fund to reduce costs through economies of scale. A
larger investment portfolio may also reduce certain transaction costs to the
extent that contributions to and redemptions from the master portfolio from
different feeders may offset each other and produce a lower net cash flow.
However, each feeder fund can set its own transaction minimums, fund-specific
expenses, and other conditions. This means that one feeder fund could offer
access to the Trust on more attractive terms, or could experience better
performance, than another feeder fund. Information about other feeder funds is
available by calling 1-888-763-2260.
Whenever the Trust holds a vote of its feeder funds, the Fund 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 the Fund over the operations of the master portfolio.
The Fund may withdraw from the Trust 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.
26 MERCURY PREMIER GROWTH FUND, INC.
<PAGE> 29
<TABLE>
<S> <C>
FUND
Mercury Premier Growth Fund, Inc.
P.O. Box 9011
Princeton, New Jersey 08543-9011
(888-763-2260)
MANAGER
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
(800)-MER-FUND
SUB-ADVISER
Merrill Lynch Asset Management U.K. Limited
33 King William Street
London, England EC4 R9AS
TRANSFER AGENT
Financial Data Services, Inc.
Administrative Offices:
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
Mailing Address:
P.O. Box 44062
Jacksonville, Florida 32232-4062
(888-763-2260)
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Princeton Forrestal Village
116-300 Village Boulevard
Princeton, New Jersey 08540-6400
DISTRIBUTOR
Mercury Funds Distributor,
a division of Princeton Funds Distributor, Inc.
P.O. Box 9081
Princeton, New Jersey 08543-9081
CUSTODIAN
The Bank of New York
90 Washington Street
12th Floor
New York, New York 10286
COUNSEL
Brown & Wood LLP
One World Trade Center
New York, New York 10048-0557
</TABLE>
MERCURY PREMIER GROWTH FUND, INC.
<PAGE> 30
[TELEPHONE ICON] To Learn More
SHAREHOLDER REPORTS
Additional information about the Fund's investments will be available in the
Fund's annual and semi-annual reports to shareholders. In the Fund's annual
report you will find a discussion of the relevant market conditions and
investment strategies that significantly affected the Fund's performance during
its last fiscal year. You may obtain these reports at no cost by calling
1-888-763-2260.
If you hold your Fund shares through a brokerage account or directly at the
Transfer Agent, you may receive only one copy of each shareholder report and
certain other mailings regardless of the number of Fund accounts you have. If
you prefer to receive separate shareholder reports for each account (or if you
are receiving multiple copies and prefer to receive only one), call your
financial consultant or write to the Transfer Agent at its mailing address.
Include your name, address, tax identification number and brokerage or mutual
fund account number. If you have any questions, please call your financial
consultant or the Transfer Agent at 1-888-763-2260.
STATEMENT OF ADDITIONAL INFORMATION
The Fund's Statement of Additional Information contains further information
about the Fund and is incorporated by reference (legally considered to be part
of this Prospectus). You may request a free copy by writing or calling the Fund
at Financial Data Services, Inc., P.O. Box 44062, Jacksonville, Florida
32232-4062 or by calling 1-888-763-2260.
Contact your financial consultant or the Fund at the telephone number or address
indicated on the inside back cover of this Prospectus if you have any questions.
Information about the Fund (including the Statement of Additional Information)
can be reviewed and copied at the SEC's Public Reference Room in Washington,
D.C. Call 1-202-942-8090 for information on the operation of the public
reference room. This information is also available on the SEC's Internet Site at
http://www.sec.gov and copies may be obtained upon payment of a duplicating fee,
by electronic request at the following e-mail address: [email protected], or by
writing the Public Reference Section of the SEC, Washington, D.C. 20549-0102.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. NO ONE IS
AUTHORIZED TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM THE
INFORMATION IN THIS PROSPECTUS.
Investment Company Act File #811-09823.
CODE #
(C) Fund Asset Management, L.P.
Mercury Premier
Growth Fund, Inc.
[ASSET MANAGEMENT GRAPHIC]
PROSPECTUS - March 21, 2000
<PAGE> 31
STATEMENT OF ADDITIONAL INFORMATION
MERCURY PREMIER GROWTH FUND, INC.
P.O. Box 9011, Princeton, New Jersey 08543-9011 - Phone No. (888) 763-2260
------------------------
Mercury Premier Growth Fund, Inc. (the "Fund") is a diversified, open-end
management investment company that seeks to provide shareholders with long-term
capital appreciation. The Fund will seek to achieve its investment objective by
investing primarily in common stocks of companies that Fund management believes
have strong earnings growth and capital appreciation potential. No assurance can
be given that the investment objective of the Fund will be realized. For more
information on the Fund's investment objective and policies, see "Investment
Objective and Policies."
The Fund is a "feeder" fund that invests all of its assets in Master
Premier Growth Trust (the "Trust") which has the same investment objective as
the Fund. All investments will be made at the Trust level. The Fund's investment
results will correspond directly to the investment results of the Trust. No
assurance can be given that the Trust will achieve its investment objective.
The 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 Fund, dated March 21, 2000 (the
"Prospectus"), which has been filed with the Securities and Exchange Commission
(the "Commission") and can be obtained, without charge, by calling the Fund at
1-888-763-2260 or your financial consultant, or 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 -- MANAGER
MERCURY FUNDS DISTRIBUTOR -- DISTRIBUTOR
------------------------
The date of this Statement of Additional Information is March 21, 2000
<PAGE> 32
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objective and Policies........................... 2
European Economic and Monetary Union...................... 3
Growth Securities......................................... 4
Derivatives............................................... 4
Convertible Securities.................................... 8
Debt Securities........................................... 10
Warrants.................................................. 10
Other Investment Policies and Practices................... 11
Investment Restrictions................................... 13
Portfolio Turnover........................................ 15
Management of the Fund...................................... 16
Directors and Officers.................................... 16
Compensation of Directors/Trustees........................ 17
Management and Advisory Arrangements...................... 18
Code of Ethics............................................ 19
Purchase of Shares.......................................... 19
Initial Sales Charge Alternatives -- Class I and Class A 20
Shares.................................................
Reduced Initial Sales Charges............................. 21
Deferred Sales Charges -- Class B and Class C Shares...... 22
Distribution Plans........................................ 24
Limitations on the Payment of Deferred Sales Charges...... 25
Redemption of Shares........................................ 26
Redemption................................................ 26
Repurchase................................................ 27
Reinstatement Privilege -- Class I and Class A Shares..... 27
Pricing of Shares........................................... 28
Determination of Net Asset Value.......................... 28
Portfolio Transactions and Brokerage........................ 29
Transactions in Portfolio Securities...................... 29
Shareholder Services........................................ 31
Investment Account........................................ 31
Exchange Privilege........................................ 31
Automatic Investment Plans................................ 33
Automatic Dividend Reinvestment Plan...................... 33
Systematic Withdrawal Plans............................... 33
Dividends and Taxes......................................... 34
Dividends................................................. 34
Taxes..................................................... 35
Tax Treatment of Options, Futures and Forward Foreign 36
Exchange Transactions..................................
Special Rules for Certain Foreign Currency Transactions... 36
Performance Data............................................ 37
General Information......................................... 39
Description of Shares..................................... 39
Computation of Offering Price Per Share................... 40
Independent Auditors...................................... 40
Custodian................................................. 40
Transfer Agent............................................ 40
Legal Counsel............................................. 40
Reports to Shareholders................................... 40
Shareholder Inquiries..................................... 41
Additional Information.................................... 41
Independent Auditors' Report................................ 42
Statement of Assets and Liabilities......................... 43
</TABLE>
<PAGE> 33
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek long-term capital
appreciation. The Fund tries to achieve its investment objective by investing
primarily in common stocks of companies that Fund management believes have
strong earnings growth and capital appreciation potential. Fund management
begins its investment process by creating a universe of rapidly growing
companies that possess certain growth characteristics. That universe is
continually updated. Fund management then ranks each company within its universe
by using research models that focus on growth characteristics such as positive
earnings surprises, upward earnings estimate revisions, and accelerating sales
and earnings growth. Finally, using its own fundamental research and a bottom-up
approach to investing, Fund management evaluates the quality of each company's
earnings and tries to determine whether the company can sustain or increase its
current growth trend. Fund management believes that this disciplined investment
process enables it to construct a portfolio of investments with strong growth
characteristics. The Fund is classified as a diversified fund under the
Investment Company Act of 1940, as amended (the "Investment Company Act").
The Fund is a "feeder" fund that invests all of its assets in the Trust
which 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. The Fund's investment results will correspond directly to the
investment results of the Trust. For simplicity, however, this Statement of
Additional Information, like the Prospectus, uses the term "Fund" to include the
Trust. No assurance can be given that the investment objective of the Fund or
the investment objective of the Trust will be realized. The investment objective
of the Fund is a fundamental policy of the Fund and may not be changed without
the approval of a majority of the Fund's outstanding voting securities as
defined in the Investment Company Act. The investment objective of the Trust is
a fundamental policy of the Trust and may not be changed without the approval of
a majority of the Trust's outstanding voting securities as defined in the
Investment Company Act. Reference is made to the discussion under "How the Fund
Invests" and "Investment Risks" in the Prospectus for information with respect
to the Fund and the Trust's investment objective and policies.
Investment emphasis is placed on equities, primarily common stock and, to a
lesser extent, securities convertible into common stock, preferred stock,
warrants and rights to subscribe for common stock. The Fund generally will
invest at least 65% of its total assets in equity securities. The Fund may
invest in companies of any size but emphasizes equity securities of companies
having a medium stock market capitalization ($1 billion to $5 billion) or a
large stock market capitalization (greater than $5 billion). The Fund may invest
in non-convertible debt securities rated investment grade by a nationally
recognized statistical ratings organization and U.S. Government securities,
although it typically will not do so to a significant extent.
The 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 Fund management, prevailing market or economic conditions
warrant or for temporary defensive purposes.
The Fund may invest up to 10% of its total assets in equity securities of
foreign issuers with the foregoing characteristics. (Purchases of American
Depositary Receipts ("ADRs"), however, are not subject to this restriction.)
Investments in securities of foreign entities and securities denominated in
foreign currencies involve risks not typically involved in domestic investment,
including fluctuations in foreign exchange rates, future foreign political and
economic developments, and the possible imposition of exchange controls or other
foreign or United States governmental laws or restrictions applicable to such
investments. Because the Fund may invest in securities denominated or quoted in
currencies other than the U.S. dollar, changes in foreign currency exchange
rates may affect the value of securities held by the Trust and the unrealized
appreciation or depreciation of investments insofar as the U.S. investors are
concerned. Changes in foreign currency exchange rates relative to the U.S.
dollar will affect the U.S. dollar value of the Fund's assets denominated in
that currency and the Fund's yield on such assets. 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.
2
<PAGE> 34
With respect to certain foreign 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. There may be less publicly available information
about a foreign financial instrument than about a United States instrument, and
foreign entities may not be subject to accounting, auditing and financial
reporting standards and requirements comparable to those of United States
entities. In addition, certain foreign investments may be subject to foreign
withholding taxes. Foreign financial markets, while growing in volume, have, for
the most part, substantially less volume than United States markets, and
securities of many foreign companies are less liquid and their prices more
volatile than securities of comparable domestic companies. The foreign markets
also have different clearance and settlement procedures, and in certain markets
there have been times when settlements have been unable to keep pace with the
volume of securities transactions, making it difficult to conduct such
transactions. Delays in settlement could result in temporary periods when assets
of the Fund are uninvested and no return is earned thereon. The ability of the
Fund to make intended security purchases due to settlement problems could cause
the Fund to miss attractive investment opportunities. Inability to dispose of
portfolio securities due to settlement problems could result either in losses to
the Fund due to subsequent declines in value of the portfolio security or, if
the Fund has entered into a contract to sell the security, could result in
possible liability to the purchaser. Costs associated with transactions in
foreign securities are generally higher than with transactions in United States
securities. There is generally less government supervision and regulation of
exchanges, financial institutions and issuers in foreign countries than there is
in the United States.
The Fund may invest in the securities of foreign issuers in the form of
ADRs, European Depositary Receipts ("EDRs") or other securities convertible into
securities of foreign issuers. These securities may not necessarily be
denominated in the same currency as the securities into which they may be
converted. ADRs are receipts typically issued by an American bank or trust
company which evidence ownership of underlying securities issued by a foreign
corporation. EDRs are receipts issued in Europe which evidence a similar
ownership arrangement. Generally, ADRs, which are issued in registered form, are
designed for use in the United States securities markets, and EDRs, which are
issued in bearer form, are designed for use in European securities markets. The
Fund may invest in unsponsored ADRs. The issuers of unsponsored ADRs are not
obligated to disclose material information in the United States and, therefore,
there may not be a correlation between such information and the market value of
such ADRs.
EUROPEAN ECONOMIC AND MONETARY UNION
For a number of years, certain European countries have been seeking
economic unification that would, among other things, reduce barriers between
countries, increase competition among companies, reduce government subsidies in
certain industries, and reduce or eliminate currency fluctuations among these
European countries. The Treaty on European Union (the "Maastricht Treaty") set
out a framework for the European Economic and Monetary Union ("EMU") among the
countries that comprise the European Union ("EU"). EMU established a single
common European currency (the "euro") that was introduced on January 1, 1999 and
is expected to replace the existing national currencies of all EMU participants
by July 1, 2002. EMU took effect for the initial EMU participants on January 1,
1999. Certain securities issued in participating EU countries (beginning with
government and corporate bonds) were redenominated in the euro, and are listed,
traded, and make dividend and other payments only in euros.
No assurance can be given that EMU will take effect, that the changes
planned for the EU can be successfully implemented, or that these changes will
result in the economic and monetary unity and stability intended. There is a
possibility that EMU will not be completed, or will be completed but then
partially or completely unwound. Because any participating country may opt out
of EMU within the first three years, it is also possible that a significant
participant could choose to abandon EMU, which could diminish its credibility
and influence. Any of these occurrences could have adverse effects on the
markets of both participating and non-participating countries, including sharp
appreciation or depreciation of participants' national currencies and a
significant increase in exchange rate volatility, a resurgence in economic
protectionism, an undermining of confidence in the European markets, an
undermining of European economic stability, the collapse or slowdown of the
drive toward European economic unity, and/or reversion of the attempts to lower
government
3
<PAGE> 35
debt and inflation rates that were introduced in anticipation of EMU. Also,
withdrawal from EMU by an initial participant could cause disruption of the
financial markets as securities redenominated in euros are transferred back into
that country's national currency, particularly if the withdrawing country is a
major economic power. Such developments could have an adverse impact on the
Fund's investments in Europe generally or in specific countries participating in
EMU. Gains or losses from euro conversion may be taxable to Fund shareholders
under foreign or, in certain limited circumstances, U.S. tax laws.
GROWTH SECURITIES
As set forth in the Prospectus and this Statement of Additional
Information, the investment objective of the Fund is to seek long-term capital
appreciation. The Fund tries to achieve its investment objective by investing
primarily in common stocks of companies that Fund management believes have
strong earnings growth and capital appreciation potential. These "growth
securities" may be particularly sensitive to changes in earnings or interest
rate increases because they typically have higher price-earnings ratios.
Moreover, the growth securities held by the Trust may never reach what Fund
management believes their full value to be and may even go down in price.
DERIVATIVES
The Fund 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 rates, such
as the Standard & Poor's 500 Index or the prime lending rate). Derivatives allow
the 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. The 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 Fund, in which case any losses on the holdings being hedged may
not be reduced. The Fund is not required to use hedging and may choose not do
so.
The Fund may use the following types of derivative instruments and trading
strategies:
Indexed Securities
The Fund may invest in securities the potential return of which is based on
an index. As an illustration, the Fund may invest in a debt security that pays
interest based on the current value of an interest rate index, such as the prime
rate. The Fund may also invest in a debt security which returns principal at
maturity based on the level of a securities index or a basket of securities, or
based on the relative changes of two indices. Indexed securities involve credit
risk, and certain indexed securities may involve leverage risk, liquidity risk,
and currency risk. The Fund may invest in indexed securities for hedging
purposes only. When used for hedging purposes, indexed securities involve
correlation risk.
Options on Securities and Securities Indices
Purchasing Put Options. The Fund may purchase put options on securities
held in its portfolio or on securities or interest rate indices which are
correlated with securities held in its portfolio. When the Fund purchases a put
option in consideration for an up front payment (the "option premium"), the Fund
acquires a right to sell to another party specified securities owned by the Fund
at a specified price (the "exercise price") on or before a specified date (the
"expiration date"), in the case of an option on securities, or to receive from
another party a payment based on the amount a specified securities index
declines below a specified level on or before the expiration date, in the case
of an option on a securities index. The purchase of a put option limits the
Fund's risk of loss in the event of a decline in the market value of the
portfolio holdings underlying the put
4
<PAGE> 36
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. The 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 the
Fund purchases a call option in consideration for the option premium, the Fund
acquires a right to purchase from another party specified securities at the
exercise price on or before the expiration date, in the case of an option on
securities, or to receive from another party a payment based on the amount a
specified securities index increases beyond a specified level on or before the
expiration date, in the case of an option on a securities index. The purchase of
a call option may protect the Fund from having to pay more for a security as a
consequence of increases in the market value for the security during a period
when the Fund is contemplating its purchase, in the case of an option on a
security, or attempting to identify specific securities in which to invest in a
market the Fund believes to be attractive, in the case of an option on an index
(an "anticipatory hedge"). In the event the Fund determines not to purchase a
security underlying a call option, however, the Fund may lose the entire option
premium. Purchasing a call option involves correlation risk, and may also
involve liquidity and credit risk.
The Fund 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. The Fund may write (i.e., sell) call options on
securities held in its portfolio or securities indices the performance of which
correlates with securities held in its portfolio. When the Fund writes a call
option, in return for an option premium, the Fund gives another party the right
to buy specified securities owned by the Fund at the exercise price on or before
the expiration date, in the case of an option on securities, or agrees to pay to
another party an amount based on any gain in a specified securities index beyond
a specified level on or before the expiration date, in the case of an option on
a securities index. The Fund may write call options to earn income, through the
receipt of option premiums. In the event the party to which the Fund has written
an option fails to exercise its rights under the option because the value of the
underlying securities is less than the exercise price, the Fund will partially
offset any decline in the value of the underlying securities through the receipt
of the option premium. By writing a call option, however, the Fund limits its
ability to sell the underlying securities and gives up the opportunity to profit
from any increase in the value of the underlying securities beyond the exercise
price, while the option remains outstanding. Writing a call option may involve
correlation risk.
The 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, the 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.
5
<PAGE> 37
Futures
The Fund may engage in transactions in futures and options thereon. Futures
are standardized, exchange-traded contracts that obligate a purchaser to take
delivery, and a seller to make delivery, of a specific amount of an asset at a
specified future date at a specified price. No price is paid upon entering into
a futures contract. Rather, upon purchasing or selling a futures contract, the
Fund is required to deposit collateral ("margin") equal to a percentage
(generally less than 10%) of the contract value. Each day thereafter until the
futures position is closed, the Fund will pay additional margin representing any
loss experienced as a result of the futures position the prior day or be
entitled to a payment representing any profit experienced as a result of the
futures position the prior day. Futures involve substantial leverage risk.
The sale of a futures contract limits the Fund's risk of loss through a
decline in the market value of portfolio holdings correlated with the futures
contract prior to the futures contract's expiration date. In the event the
market value of the portfolio holdings correlated with the futures contract
increases rather than decreases, however, the Fund will realize a loss on the
futures position and a lower return on the portfolio holdings than would have
been realized without the purchase of the futures contract.
The purchase of a futures contract may protect the Fund from having to pay
more for securities as a consequence of increases in the market value for such
securities during a period when the Fund was attempting to identify specific
securities in which to invest in a market the Fund believes to be attractive. In
the event that such securities decline in value or the Fund determines not to
complete an anticipatory hedge transaction relating to a futures contract,
however, the Fund may realize a loss relating to the futures position.
The Fund will limit transactions in futures and options on futures to
financial futures contracts (i.e., contracts for which the underlying 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.
Foreign Exchange Transactions
The Fund may engage in spot and forward foreign exchange transactions and
currency swaps, purchase and sell options on currencies and purchase and sell
currency futures and related options thereon (collectively, "Currency
Instruments") for purposes of hedging against the decline in the value of
currencies in which its portfolio holdings are denominated against the U.S.
dollar.
Forward Foreign Exchange Transactions. Forward foreign exchange
transactions are OTC contracts to purchase or sell a specified amount of a
specified currency or multinational currency unit at a price and future date set
at the time of the contract. Spot foreign exchange transactions are similar but
require current, rather than future, settlement. The Fund will enter into
foreign exchange transactions only for purposes of hedging either a specific
transaction or a position held by the Trust. The Fund may enter into a foreign
exchange transaction for purposes of hedging a specific transaction by, for
example, purchasing a currency needed to settle a security transaction or
selling a currency in which the Fund has received or anticipates receiving a
dividend or distribution. The Fund may enter into a foreign exchange transaction
for purposes of hedging a position held by the Trust by selling forward a
currency in which a position held by the Trust is denominated or by purchasing a
currency in which the Fund anticipates acquiring a position held by the Trust in
the near future. The Fund may also hedge positions held by the Trust through
currency swaps, which are transactions in which one currency is simultaneously
bought for a second currency on a spot basis and sold for the second currency on
a forward basis. Forward foreign exchange transactions involve substantial
currency risk, and also involve credit and liquidity risk.
Currency Futures. The Fund may also hedge against the decline in the value
of a currency against the U.S. dollar through use of currency futures or options
thereon. Currency futures are similar to forward foreign exchange transactions
except that futures are standardized, exchange-traded contracts. See "Futures."
Currency futures involve substantial currency risk, and also involve leverage
risk.
6
<PAGE> 38
Currency Options. The Fund may also hedge against the decline in the value
of a currency against the U.S. dollar through the use of currency options.
Currency options are similar to options on securities, but in consideration for
an option premium the writer of a currency option is obligated to sell (in the
case of a call option) or purchase (in the case of a put option) a specified
amount of a specified currency on or before the expiration date for a specified
amount of another currency. The Fund may engage in transactions in options on
currencies either on exchanges or OTC markets. See "Types of Options" above and
"Additional Risk Factors of OTC Transactions; Limitations on the Use of OTC
Derivatives" below. Currency options involve substantial currency risk, and may
also involve credit, leverage or liquidity risk.
Limitations on Currency Hedging. The Fund will not speculate in Currency
Instruments. Accordingly, the Fund will not hedge a currency in excess of the
aggregate market value of the securities which it owns (including receivables
for unsettled securities sales), or has committed to or anticipates purchasing,
which are denominated in such currency. The Fund may, however, hedge a currency
by entering into a transaction in a Currency Instrument denominated in a
currency other than the currency being hedged (a "cross-hedge"). The Fund will
only enter into a cross-hedge if Fund Asset Management, L.P. (the "Manager")
believes that (i) there is a demonstrable high correlation between the currency
in which the cross-hedge is denominated and the currency being hedged, and (ii)
executing a cross-hedge through the currency in which the cross-hedge is
denominated will be significantly more cost-effective or provide substantially
greater liquidity than executing a similar hedging transaction by means of the
currency being hedged.
Risk Factors in Hedging Foreign Currency Risks. Hedging transactions
involving Currency Instruments involve substantial risks, including correlation
risk. While the Fund's use of Currency Instruments to effect hedging strategies
is intended to reduce the volatility of the net asset value of the Fund's
shares, the net asset value of the Fund's shares will fluctuate. Moreover,
although Currency Instruments will be used with the intention of hedging against
adverse currency movements, transactions in Currency Instruments involve the
risk that anticipated currency movements will not be accurately predicted and
that the Fund's hedging strategies will be ineffective. To the extent that the
Fund hedges against anticipated currency movements which do not occur, the Fund
may realize losses, and decreases its total return, as the result of its hedging
transactions. Furthermore, the Fund will only engage in hedging activities from
time to time and may not be engaging in hedging activities when movements in
currency exchange rates occur.
It may not be possible for the Fund to hedge against currency exchange rate
movements, even if correctly anticipated, in the event that (i) the currency
exchange rate movement is so generally anticipated that the Fund is not able to
enter into a hedging transaction at an effective price, or (ii) the currency
exchange rate movement relates to a market with respect to which Currency
Instruments are not available and it is not possible to engage in effective
foreign currency hedging.
Risk Factors in Derivatives
Derivatives are volatile and involve significant risks, including:
Credit risk -- the risk that the counterparty (the party on the other
side of the transaction) on a derivative transaction will be unable to
honor its financial obligation to the Fund.
Currency risk -- the risk that changes in the exchange rate between
two currencies will adversely affect the value (in U.S. dollar terms) of an
investment.
Leverage risk -- the risk associated with certain types of investments
or trading strategies (such as borrowing money to increase the amount of
investment) 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.
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<PAGE> 39
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 will experience a gain or loss that will not be completely
offset by movements in the value of the hedged instruments.
The Fund intends to enter into transactions involving Derivatives only if
there appears to be a liquid secondary market for such instruments or, in the
case of illiquid instruments traded in OTC transactions, such instruments
satisfy the criteria set forth below under "Additional Risk Factors of OTC
Transactions; Limitations on the Use of OTC Derivatives." However, there can be
no assurance that, at any specific time, either a liquid secondary market will
exist for a Derivative or the Fund will otherwise be able to sell such
instrument at an acceptable price. It may therefore not be possible to close a
position in a Derivative without incurring substantial losses, if at all.
Certain transactions in Derivatives (such as futures transactions or sales
of put options) involve substantial leverage risk and may expose the Fund to
potential losses, which exceed the amount originally invested by the Fund. When
the Fund engages in such a transaction, the Fund will deposit in a segregated
account at its custodian liquid securities with a value at least equal to the
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 the Fund to sell such
instruments promptly at an acceptable price. The absence of liquidity may also
make it more difficult for the Fund to ascertain a market value for such
instruments. The Fund will therefore acquire illiquid OTC instruments (i) if the
agreement pursuant to which the instrument is purchased contains a formula price
at which the instrument may be terminated or sold, or (ii) for which the Manager
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 the Fund has unrealized gains in such instruments or has deposited
collateral with its counterparty, the Fund is at risk that its counterparty will
become bankrupt or otherwise fail to honor its obligations. The Fund will
attempt to minimize the risk that a counterparty will become bankrupt or
otherwise fail to honor its obligations by engaging in transactions in
Derivatives traded in OTC markets only with financial institutions which have
substantial capital or which have provided the Fund with a third-party guaranty
or other credit enhancement.
CONVERTIBLE SECURITIES
Convertible securities entitle the holder to receive interest payments paid
on corporate debt securities or the dividend preference on a preferred stock
until such time as the convertible security matures or is redeemed or until the
holder elects to exercise the conversion privilege. Synthetic convertible
securities may be either (i) a debt security or preferred stock that may be
convertible only under certain contingent circumstances or that may pay the
holder a cash amount based on the value of shares of underlying common stock
partly or wholly in lieu of a conversion right (a "Cash-Settled Convertible") or
(ii) a combination of separate securities chosen by the Manager in order to
create the economic characteristics of a convertible security, i.e., a fixed
income security paired with a security with equity conversion features, such as
an option or warrant (a "Manufactured Convertible").
The characteristics of convertible securities make them appropriate
investments for an investment company seeking a high total return from capital
appreciation and investment income. These characteristics include the potential
for capital appreciation as the value of the underlying common stock increases,
the relatively high yield received from dividend or interest payments as
compared to common stock dividends and decreased risks of decline in value
relative to the underlying common stock due to their fixed-income nature.
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As a result of the conversion feature, however, the interest rate or dividend
preference on a convertible security is generally less than would be the case if
the securities were issued in nonconvertible form.
In analyzing convertible securities, the Manager will consider both the
yield on the convertible security and the potential capital appreciation that is
offered by the underlying common stock.
Convertible securities are issued and traded in a number of securities
markets. For the past several years, the principal markets have been the United
States, the Euromarket and Japan. Issuers during this period have included major
corporations domiciled in the United States, Japan, France, Switzerland, Canada
and the United Kingdom. Even in cases where a substantial portion of the
convertible securities held by the Fund are denominated in United States
dollars, the underlying equity securities may be quoted in the currency of the
country where the issuer is domiciled. With respect to convertible securities
denominated in a currency different from that of the underlying equity
securities, the conversion price may be based on a fixed exchange rate
established at the time the security is issued. As a result, fluctuations in the
exchange rate between the currency in which the debt security is denominated and
the currency in which the share price is quoted will affect the value of the
convertible security. As described below, the Fund is authorized to enter into
foreign currency hedging transactions in which it may seek to reduce the effect
of such fluctuations.
Apart from currency considerations, the value of convertible securities is
influenced by both the yield of nonconvertible securities of comparable issuers
and by the value of the underlying common stock. The value of a convertible
security viewed without regard to its conversion feature (i.e., strictly on the
basis of its yield) is sometimes referred to as its "investment value." To the
extent interest rates change, the investment value of the convertible security
typically will fluctuate. However, at the same time, the value of the
convertible security will be influenced by its "conversion value," which is the
market value of the underlying common stock that would be obtained if the
convertible security were converted. Conversion value fluctuates directly with
the price of the underlying common stock. If, because of a low price of the
common stock the conversion value is substantially below the investment value of
the convertible security, the price of the convertible security is governed
principally by its investment value.
To the extent the conversion value of a convertible security increases to a
point that approximates or exceeds its investment value, the price of the
convertible security will be influenced principally by its conversion value. A
convertible security will sell at a premium over the conversion value to the
extent investors place value on the right to acquire the underlying common stock
while holding a fixed-income security. The yield and conversion premium of
convertible securities issued in Japan and the Euromarket are frequently
determined at levels that cause the conversion value to affect their market
value more than the securities' investment value.
Holders of convertible securities generally have a claim on the assets of
the issuer prior to the common stockholders but may be subordinated to other
debt securities of the same issuer. A convertible security may be subject to
redemption at the option of the issuer at a price established in the charter
provision, indenture or other governing instrument pursuant to which the
convertible security was issued. If a convertible security held by the Fund is
called for redemption, the Fund will be required to redeem the security, convert
it into the underlying common stock or sell it to a third party. Certain
convertible debt securities may provide a put option to the holder which
entitles the holder to cause the security to be redeemed by the issuer at a
premium over the stated principal amount of the debt security under certain
circumstances.
As indicated above, synthetic convertible securities may include either
Cash-Settled Convertibles or Manufactured Convertibles. Cash-Settled
Convertibles are instruments that are created by the issuer and have the
economic characteristics of traditional convertible securities but may not
actually permit conversion into the underlying equity securities in all
circumstances. As an example, a private company may issue a Cash-Settled
Convertible that is convertible into common stock only if the company
successfully completes a public offering of its common stock prior to maturity
and otherwise pays a cash amount to reflect any equity appreciation.
Manufactured Convertibles are created by the Manager by combining separate
securities that possess one of the two principal characteristics of a
convertible security, i.e., fixed income ("fixed income component") or a right
to acquire equity securities ("convertible component"). The fixed income
component is achieved by investing in nonconvertible fixed income securities,
such as nonconvertible bonds, preferred
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<PAGE> 41
stocks and money market instruments. The convertibility component is achieved by
investing in call options, warrants, LEAPS, or other securities with equity
conversion features ("equity features") granting the holder the right to
purchase a specified quantity of the underlying stocks within a specified period
of time at a specified price or, in the case of a stock index option, the right
to receive a cash payment based on the value of the underlying stock index.
A Manufactured Convertible differs from traditional convertible securities
in several respects. Unlike a traditional convertible security, which is a
single security having a unitary market value, a Manufactured Convertible is
comprised of two or more separate securities, each with its own market value.
Therefore, the total "market value" of such a Manufactured Convertible is the
sum of the values of its fixed-income component and its convertibility
component.
More flexibility is possible in the creation of a Manufactured Convertible
than in the purchase of a traditional convertible security. Because many
corporations have not issued convertible securities, the Manager may combine a
fixed income instrument and an equity feature with respect to the stock of the
issuer of the fixed income instrument to create a synthetic convertible security
otherwise unavailable in the market. The Manager may also combine a fixed income
instrument of an issuer with an equity feature with respect to the stock of a
different issuer when the Manager believes such a Manufactured Convertible would
better promote the Fund's objective than alternative investments. For example,
the Manager may combine an equity feature with respect to an issuer's stock with
a fixed income security of a different issuer in the same industry to diversify
the Fund's credit exposure, or with a U.S. Treasury instrument to create a
Manufactured Convertible with a higher credit profile than a traditional
convertible security issued by that issuer. A Manufactured Convertible also is a
more flexible investment in that its two components may be purchased separately
and, upon purchasing the separate securities, "combined" to create a
Manufactured Convertible. For example, the Fund may purchase a warrant for
eventual inclusion in a Manufactured Convertible while postponing the purchase
of a suitable bond to pair with the warrant pending development of more
favorable market conditions.
The value of a Manufactured Convertible may respond differently to certain
market fluctuations than would a traditional convertible security with similar
characteristics. For example, in the event the Fund created a Manufactured
Convertible by combining a short-term U.S. Treasury instrument and a call option
on a stock, the Manufactured Convertible would likely outperform a traditional
convertible of similar maturity and which is convertible into that stock during
periods when Treasury instruments outperform corporate fixed income securities
and underperform during periods when corporate fixed-income securities
outperform Treasury instruments.
DEBT SECURITIES
Debt securities, such as bonds, involve credit risk. This is the risk that
the issuer 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 reduced to the extent the 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.
WARRANTS
The Fund may invest in warrants. Warrants are securities that permit but do
not require the warrant holder to subscribe for other securities. Buying a
warrant does not make the Fund a shareholder of the underlying stock. The
warrant holder has no right to dividends or votes on the underlying stock. A
warrant does not carry any right to assets of the issuer, and for this reason
investment in warrants may be more speculative than other equity-based
investments.
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OTHER INVESTMENT POLICIES AND PRACTICES
Temporary Investments. The Fund reserves the right, as a temporary
defensive measure, and without limitation, to hold in excess of 35% of its total
assets in cash or cash equivalents and investment grade, short-term securities
including money market securities ("Temporary Investments"). Under certain
adverse investment conditions, the Fund may restrict the markets in which its
assets will be invested and may increase the proportion of assets invested in
Temporary Investments. Investments made for defensive purposes will be
maintained only during periods in which the Manager determines that economic or
financial conditions are adverse for holding or being fully invested in equity
securities. A portion of the Fund normally will be held in Temporary Investments
in anticipation of investment in equity securities or to provide for possible
redemptions.
Illiquid or Restricted Securities. The Fund may invest up to 15% of its
net assets in securities that lack an established secondary trading market or
otherwise are considered illiquid. Liquidity of a security relates to the
ability to dispose easily of the security and the price to be obtained upon
disposition of the security, which may be less than would be obtained for a
comparable more liquid security. Illiquid securities may trade at a discount
from comparable, more liquid investments. Investment of the Fund's assets in
illiquid securities may restrict the ability of the Fund to dispose of such
investments in a timely fashion and for a fair price as well as its ability to
take advantage of market opportunities. The risks associated with illiquidity
will be particularly acute where the Fund's operations require cash, such as
when the Fund redeems shares or pays dividends, and could result in the Fund
borrowing to meet short-term cash requirements or incurring capital losses on
the sale of illiquid investments.
The Fund may invest in securities that are "restricted securities."
Restricted securities have contractual or legal restrictions on their resale and
include "private placement" securities that the Fund may buy directly from the
issuer. Restricted securities may be sold in private placement transactions
between issuers and their purchasers and may be neither listed on an exchange
nor traded in other established markets. 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 less liquid and more
difficult to value than publicly traded securities. To the extent that privately
placed securities may be resold in privately negotiated transactions, the prices
realized from the sales, due to illiquidity, could be less than those originally
paid by the Fund or less than their fair market value. In addition, issuers
whose securities are not publicly traded may not be subject to the disclosure
and other investor protection requirements that may be applicable if their
securities were publicly traded. In addition, issuers whose securities are not
publicly traded may not be subject to the disclosure and other investor
protection requirements that may be applicable if their securities were publicly
traded. If any privately placed securities held by the Fund are required to be
registered under the securities laws of one or more jurisdictions before being
resold, the Fund may be required to bear the expenses of registration. Certain
of the Fund's investments in private placements may consist of direct
investments and may include investments in smaller, less seasoned issuers, which
may involve greater risks. These issuers may have limited product lines, markets
or financial resources, or they may be dependent on a limited management group.
In making investments in such securities, the Fund may obtain access to material
nonpublic information which may restrict the Fund's ability to conduct portfolio
transactions in such securities.
144A Securities. The Fund may purchase restricted securities that can be
offered and sold to "qualified institutional buyers" under Rule 144A under the
Securities Act. The Board of Directors has determined to treat as liquid Rule
144A securities that are either freely tradable in their primary markets
offshore or have been determined to be liquid in accordance with the policies
and procedures adopted by the Fund's Board of Directors. The Board of Directors
has adopted guidelines and delegated to the Manager the daily function of
determining and monitoring liquidity of restricted securities. The Board of
Directors, 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
Fund's investments in these securities. This investment practice could have the
effect of increasing the level of illiquidity in the Fund to the extent that
qualified institutional buyers become for a time uninterested in purchasing
these securities.
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When-Issued Securities and Delayed Delivery Transactions. The Fund may
purchase or sell securities on a delayed delivery basis or a when-issued basis
at fixed purchase terms. These transactions arise when securities are purchased
or sold by the Fund with payment and delivery taking place in the future. The
purchase will be recorded on the date the Fund enters into the commitment and
the value of the obligation will thereafter be reflected in the calculation of
the Fund's net asset value. The value of the obligation on the delivery date may
be more or less than its purchase price. A separate account of the Fund will be
established with its custodian consisting of liquid securities having a market
value at all times at least equal to the amount of the forward commitment.
Repurchase Agreements and Purchase and Sale Contracts. The Fund may invest
in securities pursuant to repurchase agreements or purchase and sale contracts.
Repurchase agreements and purchase and sale contracts may be entered into only
with financial institutions which (i) have, in the opinion of Fund management,
substantial capital relative to the Fund's exposure, or (ii) have provided the
Fund with a third-party guaranty or other credit enhancement. Under a repurchase
agreement or a purchase and sale contract, the seller agrees, upon entering into
the contract with the Fund, to repurchase the security at a mutually agreed upon
time and price in a specified currency, thereby determining the yield during the
term of the agreement. This results in a fixed rate of return insulated from
market fluctuations during such period although it may be affected by currency
fluctuations. In the case of repurchase agreements, the price at which the
trades are conducted do not reflect accrued interest on the underlying
obligation; whereas, in the case of purchase and sale contracts, the prices take
into account accrued interest. Such agreements usually cover short periods, such
as under one week. Repurchase agreements may be construed to be collateralized
loans by the purchaser to the seller secured by the securities transferred to
the purchaser. In the case of a repurchase agreement, as a purchaser, the Fund
will require the seller to provide additional collateral if the market value of
the securities falls below the repurchase price at any time during the term of
the repurchase agreement; the Fund does not have the right to seek additional
collateral in the case of purchase and sale contracts. In the event of default
by the seller under a repurchase agreement construed to be a collateralized
loan, the underlying securities are not owned by the Fund but only constitute
collateral for the seller's obligation to pay the repurchase price. Therefore,
the Fund may suffer time delays and incur costs or possible losses in connection
with the disposition of the collateral. A purchase and sale contract differs
from a repurchase agreement in that the contract arrangements stipulate that the
securities are owned by the Fund. In the event of a default under such a
repurchase agreement or under a purchase and sale contract, instead of the
contractual fixed rate, the rate of return to the Fund shall be dependent upon
intervening fluctuations of the market value of such securities and the accrued
interest on the securities. 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. While the substance
of purchase and sale contracts is similar to repurchase agreements, because of
the different treatment with respect to accrued interest and additional
collateral, Fund management believes that purchase and sale contracts are not
repurchase agreements as such term is understood in the banking and brokerage
community. The Fund may not invest more than 15% of its net assets in repurchase
agreements or purchase and sale contracts maturing in more than seven days
together with all other illiquid investments.
Securities Lending. Subject to the investment restrictions set forth in
the Prospectus and herein, the Fund may, from time to time, lend securities from
its portfolio to approved borrowers and receive therefor collateral in cash or
securities issued or guaranteed by the United States Government. Such collateral
will be maintained at all times in an amount equal to at least 100% of the
current market value of the loaned securities. The purpose of such loans is to
permit the borrower to use such securities for delivery to purchasers when such
borrower has sold short. If cash collateral is received by the Fund, it is
invested in short-term money market securities, and a portion of the yield
received in respect of such investment is retained by the Fund. Alternatively,
if securities are delivered to the Fund as collateral, the Fund and the borrower
negotiate a rate for the loaned premium to be received by the Fund for lending
its portfolio securities. In either event, the total yield on the Fund's
portfolio is increased by loans of its portfolio securities. The Fund will have
the right to regain record ownership of loaned securities to exercise beneficial
rights such as voting rights, subscription rights and rights to dividends,
interest or other distributions. Such loans are terminable at any time, and the
borrower, after notice, will be required to return borrowed securities within
five business days. The Fund may
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pay reasonable finder's, administrative and custodial fees in connection with
such loans. With respect to the lending of portfolio securities, there is the
risk of failure by the borrower to return the securities involved in such
transactions.
Suitability. The economic benefit of an investment in the Fund depends
upon many factors beyond the control of the Trust, the Fund, the Manager and its
affiliates. The 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 the 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 Fund has adopted the following restrictions and policies relating to
the investment of the Fund's assets and its activities. The fundamental
restrictions set forth below may not be changed without the approval of the
holders of a majority of the Fund's outstanding voting securities (which for
this purpose and under the Investment Company Act means the lesser of (i) 67% of
the shares represented at a meeting at which more than 50% of the outstanding
shares are represented or (ii) more than 50% of the outstanding shares). Unless
otherwise provided, all references to the Fund's assets below are in terms of
current market value. Provided that none of the following restrictions shall
prevent the Fund from investing all of its assets in shares of another
registered investment company with the same investment objective (in a
master/feeder structure), the Fund may not:
1. Make any investment inconsistent with the Fund's classification as
a diversified company under the Investment Company Act.
2. Invest more than 25% of its total assets, taken at market value at
the time of each investment, in the securities of issuers in any particular
industry (excluding the U.S. Government and its agencies and
instrumentalities).
3. Make investments for the purpose of exercising control or
management. Investments by the Fund in wholly-owned investment entities
created under the laws of certain countries will not be deemed the making
of investments for the purpose of exercising control or management.
4. Purchase or sell real estate, except that, to the extent permitted
by applicable law, the Fund may invest in securities directly or indirectly
secured by real estate or interests therein or issued by companies that
invest in real estate or interests therein.
5. Make loans to other persons, except that the acquisition of bonds,
debentures or other corporate debt securities and investment in
governmental obligations, commercial paper, pass-through instruments,
certificates of deposit, bankers' acceptances, repurchase agreements,
purchase and sale contracts or any similar instruments shall not be deemed
to be the making of a loan, and except further that the Fund may lend its
portfolio securities, provided that the lending of portfolio securities may
be made only in accordance with applicable law and the guidelines set forth
in the Fund's Prospectus and Statement of Additional Information, as they
may be amended from time to time.
6. Issue senior securities to the extent such issuance would violate
applicable law.
7. Borrow money, except that (i) the Fund may borrow from banks (as
defined in the Investment Company Act) in amounts up to 33 1/3% of its
total assets (including the amount borrowed), (ii) the Fund may borrow up
to an additional 5% of its total assets for temporary purposes, (iii) the
Fund may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities and (iv) the Fund
may purchase securities on margin to the extent permitted by applicable
law. The Fund may not pledge its assets other than to secure such
borrowings or, to the extent permitted by the Fund's investment policies as
set forth in its Prospectus and Statement of Additional Information, as
they may be amended from time to time, in connection with hedging
transactions, short sales, when-issued and forward commitment transactions
and similar investment strategies.
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8. Underwrite securities of other issuers except insofar as the Fund
technically may be deemed an underwriter under the Securities Act of 1933,
as amended (the "Securities Act") in selling portfolio securities.
9. Purchase or sell commodities or contracts on commodities, except to
the extent that the Fund may do so in accordance with applicable law and
the Fund's Prospectus and this Statement of Additional Information, as they
may be amended from time to time, and without registering as a commodity
pool operator under the Commodity Exchange Act.
The Trust has adopted investment restrictions substantially identical to
the foregoing, which are fundamental policies of the Trust and may not be
changed with respect to the Trust without the approval of the holders of a
majority of the interests of the Trust.
In addition, the Fund has adopted non-fundamental restrictions that may be
changed by the Board of Directors of the Fund without shareholder approval. Like
the fundamental restrictions, none of the non-fundamental restrictions,
including but not limited to restriction (a) below, shall prevent the Fund from
investing all of its assets in shares of another registered investment company
with the same investment objective (in a master/feeder structure). Under the
non-fundamental investment restrictions, the Fund may not:
a. Purchase securities of other investment companies, except to the
extent such purchases are permitted by applicable law. As a matter of
policy, however, the Fund will not purchase shares of any registered
open-end investment company or registered unit investment trust, in
reliance on Section 12(d)(1)(F) or (G) (the "fund of funds" provisions) of
the Investment Company Act, at any time its shares are owned by another
investment company that is part of the same group of investment companies
as the Fund.
b. Make short sales of securities or maintain a short position, except
to the extent permitted by applicable law. The Fund currently does not
intend to engage in short sales, except short sales "against the box."
c. Invest in securities that cannot be readily resold because of legal
or contractual restrictions or that cannot otherwise be marketed, redeemed
or put to the issuer or a third party, if at the time of acquisition more
than 15% of its net assets would be invested in such securities. This
restriction shall not apply to securities that mature within seven days or
securities that the Directors of the Fund 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 Board of Directors of the Fund
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 Fund from purchasing securities
on margin. The deposit or payment by the 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 a borrowing is outstanding will have the
effect of leveraging the Fund. Such leveraging or borrowing increases the
Fund's exposure to capital risk and borrowed funds are subject to interest
costs which will reduce net income. The 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 Fund and the Trust have adopted an investment policy
pursuant to which neither the Fund nor the Trust 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
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<PAGE> 46
OTC options currently outstanding that are held by the Fund or the Trust, the
market value of the underlying securities covered by OTC call options currently
outstanding that were sold by the Fund or the Trust and margin deposits on the
Fund's or the Trust's existing OTC options on financial futures contracts
exceeds 15% of the net assets of the Fund or the Trust, taken at market value,
together with all other assets of the Fund or the Trust that are illiquid or are
not otherwise readily marketable. However, if the OTC option is sold by the Fund
or the Trust to a primary U.S. Government securities dealer recognized by the
Federal Reserve Bank of New York and if the Fund or the Trust has the
unconditional contractual right to repurchase such OTC option from the dealer at
a predetermined price, then the Fund or the Trust will treat as illiquid such
amount of the underlying securities as is equal to the repurchase price less the
amount by which the option is "in-the-money" (i.e., current market value of the
underlying securities minus the option's strike price). The repurchase price
with the primary dealers is typically a formula price that is generally based on
a multiple of the premium received for the option, plus the amount by which the
option is "in-the-money." This policy as to OTC options is not a fundamental
policy of the Fund or the Trust and may be amended by the Board of Directors of
the Fund or the Board of Trustees of the Trust without the approval of the
Fund's shareholders. However, the Directors or the 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, the 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.
As another non-fundamental policy, the Fund will not invest in securities
that are (a) subject to material legal restrictions on repatriation of assets or
(b) cannot be readily resold because of legal or contractual restrictions or
which are not otherwise readily marketable, including repurchase agreements and
purchase and sales contracts maturing in more than seven days, if, regarding all
such securities, more than 15% of its net assets, taken at market value would be
invested in such securities.
Because of the affiliation of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") with the Manager, the Fund 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 Fund and the
Trust would be prohibited from engaging in portfolio transactions with Merrill
Lynch or any of its affiliates acting as principal.
PORTFOLIO TURNOVER
Generally, the Fund will not purchase securities for short-term trading
profits. However, the 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 Manager in light of a change in circumstances in general
market, economic or financial conditions. As a result of its investment
policies, the Fund may engage in a substantial number of portfolio transactions.
Accordingly, while the 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 the Fund's annual sales or purchases of portfolio securities
(exclusive of purchases or sales of securities whose maturities at the time of
acquisition were one year or less) by the monthly average value of the
securities in the portfolio during the year. A high portfolio turnover rate
involves certain tax consequences such as increased capital gain dividends and
correspondingly greater transaction costs in the form of dealer spreads and
brokerage commissions, which are borne by the Fund.
15
<PAGE> 47
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
The Directors of the Fund consist of seven individuals, five of whom are
not "interested persons" of the Fund 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 of the Fund
are responsible for the overall supervision of the operations of the Fund and
perform the various duties imposed on the directors of investment companies by
the Investment Company Act. Information about the Directors and executive
officers of the Fund, 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 Manager 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.
JAMES H. BODURTHA(55) -- Director (2)(3) -- Popponesset Road, Cotuit,
Massachusetts 02635. Director and Executive Vice President, The China Business
Group, Inc. since 1996; Chairman and Chief Executive Officer, China Enterprise
Management Corporation from 1993 to 1996; Chairman, Berkshire Corporation since
1980; Partner, Squire, Sanders & Dempsey from 1980 to 1993.
HERBERT I. LONDON(60) -- Director (2)(3) -- 2 Washington Square Village,
New York, New York 10012. John M. Olin Professor of Humanities, New York
University since 1993 and Professor thereof since 1980; President, Hudson
Institute since 1997 and Trustee thereof since 1980; Dean, Gallatin Division of
New York University from 1976 to 1993; Distinguished Fellow, Herman Kahn Chair,
Hudson Institute from 1984 to 1985; Director, Damon Corporation from 1991 to
1995; Overseer, Center for Naval Analyses from 1983 to 1993; Limited Partner,
Hypertech LP since 1996.
JOSEPH L. MAY(70) -- Director (2)(3) -- 424 Church Street, Suite 2000,
Nashville, Tennessee 37219. Attorney in private practice since 1984; President,
May and Athens Hosiery Mills Division, Wayne-Gossard Corporation from 1954 to
1983; Vice President, Wayne-Gossard Corporation from 1972 to 1983; Chairman, The
May Corporation (personal holding company) from 1972 to 1983; Director, Signal
Apparel Co. from 1972 to 1989.
ANDRE F. PEROLD(47) -- Director (2)(3) -- Morgan Hall, Soldiers Field,
Boston, Massachusetts 02163. Professor, Harvard Business School since 1989 and
Associate Professor from 1983 to 1989; Trustee, The Common Fund since 1989;
Director, Quantec Limited from 1991 to 1999; Director, TIBCO from 1994 to 1996;
Director, Genbel Securities Limited and Gensec Bank since 1999; Director, Gensec
Asset Management since 2000; Director, Bulldogresearch.com since 2000.
ROBERTA COOPER RAMO(57) -- Director (2)(3) -- P.O. Box 2168, 500 Fourth
Street, N.W., Albuquerque, New Mexico 87103. Shareholder, Modrall, Sperling,
Roehl, Harris & Sisk, P.A. since 1993; President, American Bar Association from
1995 to 1996 and Member of the Board of Governors thereof from 1994 to 1997;
Partner, Poole, Kelly & Ramo, Attorneys at Law, P.C. from 1977 to 1993;
Director, Coopers, Inc. since 1999; Director, United New Mexico Bank (now Wells
Fargo) from 1983 to 1988; Director, First National Bank of New Mexico (now First
Security) from 1975 to 1976.
ARTHUR ZEIKEL(67) -- Director (1)(2) -- 300 Woodland Avenue, Westfield, New
Jersey 07090. Chairman of the Manager and MLAM from 1997 to 1999 and President
thereof from 1977 to 1997; Chairman of Princeton Services from 1997 to 1999,
Director thereof from 1993 to 1999 and President thereof from 1993 to 1997;
Executive Vice President of Merrill Lynch & Co., Inc. ("ML&Co.") from 1990 to
1999.
JAMES D. MCCALL(46) -- Senior Vice President and Portfolio Manager
(1)(2) -- First Vice President of MLAM since 1999; portfolio manager for the
PBHG family of mutual funds from 1994 to 1999.
16
<PAGE> 48
ROBERT C. DOLL, JR.(45) -- Senior Vice President (1)(2) -- Senior Vice
President of the Manager and MLAM since 1999; Senior Vice President of Princeton
Services since 1999; Chief Investment Officer of Oppenheimer Funds, Inc. in 1999
and Executive Vice President thereof from 1991 to 1999.
DONALD C. BURKE(39) -- Vice President and Treasurer (1)(2) -- Senior Vice
President and Treasurer of the Manager 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.
SUSAN B. BAKER(42) -- Secretary (1)(2) -- Director (Legal Advisory) of MLAM
since 1999; Vice President of MLAM from 1993 to 1999; Attorney associated with
MLAM since 1987.
- ---------------
(1) Interested person, as defined in the Investment Company Act, of the Trust
and the Fund.
(2) Such Director or officer is a trustee, director or officer of other
investment companies for which the Manager, or one of its affiliates, acts
as investment adviser or manager.
(3) Member of the Fund'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 March 1, 2000, the officers and Directors of the Fund as a group (11
persons) owned an aggregate of less than 1% of the outstanding shares of common
stock of Merrill Lynch & Co., Inc. ("ML & Co.") and owned an aggregate of less
than 1% of the outstanding shares of the Fund.
As of March 1, 2000, the Manager owned 100% of the shares of common stock
of the Fund.
COMPENSATION OF DIRECTORS/TRUSTEES
The Trust pays fees to each non-interested Director/Trustee for service to
the Fund and the Trust. Each non-interested Director/Trustee receives an
aggregate annual retainer of $100,000 for his or her services to multiple
investment companies advised by the Manager or its affiliate MLAM
("Affiliate-Advised Funds"). The portion of the annual retainer allocated to
each Affiliate-Advised Fund is determined quarterly based on the relative net
assets of each fund. As of the date of this Statement of Additional Information,
this annual retainer applies to 43 Affiliate-Advised Funds. In addition, each
non-interested Director/Trustee receives a fee per in-person board meeting
attended and per in-person Audit and Nominating Committee meeting attended. The
annual per meeting fees paid to non-interested Directors/Trustees aggregate
$60,000 for all Affiliate-Advised Funds for which the Directors/Trustees serve
and are allocated equally among those funds. The Trust also reimburses the
non-interested Trustees for actual out-of-pocket expenses relating to attendance
at meetings. The Audit and Nominating Committee consists of all of the
non-interested Directors/Trustees of the Fund and the Trust.
The following table sets forth the estimated compensation to be earned by
the non-interested Directors/ Trustees for the fiscal year ending November 30,
2000 and the aggregate compensation paid to them from all investment companies
advised by the Manager or Affiliate-Advised Funds to the non-affiliated
Directors/ Trustees for the calendar year ended December 31, 1999.
<TABLE>
<CAPTION>
AGGREGATE
PENSION OR ESTIMATED COMPENSATION FROM
ESTIMATED RETIREMENT BENEFITS ANNUAL FUND/TRUST AND
COMPENSATION FROM ACCRUED AS PART OF BENEFITS UPON OTHER AFFILIATE
NAME FUND/TRUST FUND/TRUST EXPENSE RETIREMENT ADVISED FUNDS(1)
- ---- ----------------- ------------------- ------------- -----------------
<S> <C> <C> <C> <C>
James H. Bodurtha................ $ 3,500 None None $133,500
Herbert I. London................ $ 3,500 None None $133,500
Joseph L. May.................... $ 3,500 None None $133,500
Andre F. Perold.................. $ 3,500 None None $133,250
Roberta Cooper Ramo.............. $ 3,500 None None 0
</TABLE>
- ---------------
(1) The Directors serve on the boards of Affiliate-Advised Funds as follows: Mr.
Bodurtha (29 registered investment companies consisting of 43 portfolios);
Mr. London (29 registered investment companies consisting of 43 portfolios);
Mr. May (29 registered investment companies consisting of 43 portfolios);
Mr. Perold (29 registered investment companies consisting of 43 portfolios)
and Ms. Ramo (23 registered investment companies consisting of 19
portfolios).
The Directors of the Fund 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."
17
<PAGE> 49
MANAGEMENT AND ADVISORY ARRANGEMENTS
Management Services and Management Fee. The Fund invests all of its assets
in beneficial interests of the Trust. Accordingly, the Fund does not invest
directly in portfolio securities and does not require investment advisory
services. All portfolio management occurs at the level of the Trust. The Trust,
has entered into an investment management agreement with Fund Asset Management,
L.P., as Manager (the "Management Agreement"). As discussed in "The Management
Team -- Fund Asset Management" in the Prospectus, the Manager receives monthly
compensation at the annual rate of 0.75% of the average daily net assets of the
Trust for its services to the Trust.
The Manager has also entered into a sub-advisory agreement with Merrill
Lynch Asset Management U.K. Limited ("MLAM U.K.") pursuant to which MLAM U.K.
provides investment advisory services to the Manager with respect to the Fund.
The following entities may be considered "controlling persons" of MLAM U.K.:
Merrill Lynch Europe PLC (MLAM U.K.'s parent), a subsidiary of Merrill Lynch
International Holdings, Inc., a subsidiary of Merrill Lynch International, Inc.,
a subsidiary of ML & Co.
Payment of Trust Expenses. The Management Agreement obligates the Manager
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 and the Funds. The Manager 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 Manager or any
affiliate. The Trust pays, or causes to be paid, all other expenses incurred in
the operation of the Trust, 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 Manager or an
affiliate of the Manager, accounting and pricing costs (including the daily
calculation of net asset value), insurance, interest, litigation and other
extraordinary or non-recurring expenses, and other expenses properly payable by
the Trust. The Distributor will pay certain of the expenses of the Fund incurred
in connection with the continuous offering of the Fund's shares. Accounting
services are provided to the Trust by the Manager or an affiliate of the
Manager, and the Trust reimburses the Manager or an affiliate of the Manager for
its costs in connection with such services.
Payment of Fund Expenses. The Fund pays, or causes an affiliate to pay,
all other expenses incurred in the operation of the Fund (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 and prospectuses and statements
of additional information, charges of the custodian, any sub-custodian and the
transfer agent, 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
Manager, or of an affiliate of the Manager, accounting and pricing costs
(including the daily calculation of net asset value), insurance, interest,
litigation and other extraordinary or non-recurring expenses, and other expenses
properly payable by the Fund. The Distributor will pay certain of the
promotional expenses of the Fund incurred in connection with the offering of its
shares. Certain expenses will be financed by the Fund pursuant to distribution
plans in compliance with Rule 12b-1 under the Investment Company Act. Accounting
services are provided to the Fund by the Manager, and the Fund reimburses the
Manager for its costs in connection with such services.
Organization of the Manager. 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 Manager 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 Management Agreement will remain in effect for two years from its effective
date. Thereafter, it will remain in effect from year to year if approved
annually (a) by the Board of Trustees of the Trust or by persons or entities
holding a majority of the outstanding beneficial interests of the Trust 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
contract is
18
<PAGE> 50
not assignable and may be terminated without penalty on 60 days' written notice
at the option of either party thereto or by the vote of the shareholders of the
Trust.
Transfer Agency Services. Financial Data Services, Inc. (the "Transfer
Agent"), a subsidiary of ML & Co., acts as the Fund's Transfer Agent pursuant to
a Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing Agency
Agreement (the "Transfer Agency Agreement"). Pursuant to the Transfer Agency
Agreement, the Transfer Agent is responsible for the issuance, transfer and
redemption of shares and the opening and maintenance of shareholder accounts.
Pursuant to the Transfer Agency Agreement, the Transfer Agent receives a fee
ranging from $11.00 to $20.00 per Class I or Class A account and $14.00 to
$23.00 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 Agreement. 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 Agreement, the term "account" includes a
shareholder account maintained directly by the Transfer Agent and any other
account representing the beneficial interest of a person in the relevant share
class on a recordkeeping system, provided the recordkeeping system is maintained
by a subsidiary of ML & Co.
Distribution Expenses. The Fund has entered into separate distribution
agreements with the Distributor in connection with the continuous offering of
each class of shares of the 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 the Fund. After the
prospectuses, statements of additional information and periodic reports have
been prepared, set in type and mailed to shareholders, the Distributor pays for
the printing and distribution of copies thereof used in connection with the
offering to dealers and investors. The Distributor also pays for other
supplementary sales literature and advertising costs. The Distribution
Agreements are subject to the same renewal requirements and termination
provisions as the Management Agreement described above.
CODE OF ETHICS
The Board of Trustees of the Trust and the Board of Directors of the Fund
each have adopted a Code of Ethics under Rule 17j-1 of the Investment Company
Act that incorporates the Code of Ethics of the Manager (together, the "Codes").
The Codes significantly restrict the personal investing activities of all
employees of the Manager and, as described below, impose additional, more
onerous, restrictions on fund investment personnel.
The Codes require that all employees of the Manager 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 Manager 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 Manager.
Furthermore, the Codes provide for trading "blackout periods" that prohibit
trading by investment personnel of the Fund within periods of trading by the
Fund 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.
The Fund issues four classes of shares: shares of Class I and Class A are
sold to investors choosing the initial sales charge alternatives and shares of
Class B and Class C are sold to investors choosing the deferred sales charge
alternatives. Each Class I, Class A, Class B and Class C share of the Fund
represents an identical interest in the investment portfolio of the Fund and has
the same rights, except that Class A, Class B and Class C shares bear the
expenses of the ongoing account maintenance fees (also known as service fees)
and
19
<PAGE> 51
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 Fund 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 the 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 relating 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 the 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.
The Fund offers its shares at a public offering price equal to the next
determined net asset value per share plus any sales charge applicable to the
class of shares selected by the investor. The applicable offering price for
purchase orders is based upon the net asset value of the Fund next determined
after receipt of the purchase order by the Distributor. As to purchase orders
received by securities dealers prior to the close of business on the New York
Stock Exchange (the "NYSE") (generally 4:00 p.m., Eastern time) which includes
orders received after the determination of net asset value on the previous day,
the applicable offering price will be based on the net asset value on the day
the order is placed with the Distributor, provided that the orders are received
by the Distributor prior to 30 minutes after the close of business on the NYSE
on that day. If the purchase orders are not received prior to 30 minutes after
the close of business on the NYSE on that day, such orders shall be deemed
received on the next business day. Dealers have the responsibility of submitting
purchase orders to the Fund not later than 30 minutes after the close of
business on the NYSE in order to purchase shares at that day's offering price.
The Fund or the Distributor may suspend the continuous offering of the
Fund's shares of any class at any time in response to conditions in the
securities markets or otherwise and may thereafter resume such offering from
time to time. Any order may be rejected by the Fund or the Distributor. Neither
the Distributor nor the dealers are 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 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 the Fund in that account. 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 Fund, and to employees of
certain selected dealers. Class I shares of the Fund may be offered at net asset
value to certain accounts over which the Manager or an affiliate exercises
discretion.
20
<PAGE> 52
The term "purchase," as used in the Prospectus and this Statement of
Additional Information in connection with an investment in Class I and Class A
shares of the Fund, refers to a single purchase by an individual or to
concurrent purchases, which in the aggregate are at least equal to the
prescribed amounts, by an individual, his or her spouse and their children under
the age of 21 years purchasing shares for his or her or their own account and to
single purchases by a trustee or other fiduciary purchasing shares for a single
trust estate or single fiduciary account although more than one beneficiary is
involved. The term "purchase" also includes purchases by any "company," as that
term is defined in the Investment Company Act, but does not include purchases by
any such company that has not been in existence for at least six months or which
has no purpose other than the purchase of shares of the Fund or shares of other
registered investment companies at a discount; provided, however, that it shall
not include purchases by any group of individuals whose sole organizational
nexus is that the participants therein are credit cardholders of a company,
policyholders of an insurance company, customers of either a bank or
broker-dealer or clients of an investment adviser.
The Distributor may reallow discounts to selected dealers and retain the
balance over such discounts. At times the Distributor may reallow the entire
sales charge to such dealers. Since securities dealers selling Class I and Class
A shares of the 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 the Fund subject to an initial sales charge at the offering price
applicable to the total of (a) the public offering price of the shares then
being purchased plus (b) an amount equal to the then current net asset value or
cost, whichever is higher, of the purchaser's combined holdings of all classes
of shares of the Fund and of any other Mercury mutual funds. For any such right
of accumulation to be made available, the Distributor must be provided at the
time of purchase, by the purchaser or the purchaser's securities dealer, with
sufficient information to permit confirmation of qualification. Acceptance of
the purchase order is subject to such confirmation. The right of accumulation
may be amended or terminated at any time. Shares held in the name of a nominee
or custodian under pension, profit-sharing or other employee benefit plans may
not be combined with other shares to qualify for the right of accumulation.
Letter of Intent. Reduced sales charges are applicable to purchases
aggregating $25,000 or more of Class I or Class A shares of the Fund or any
other Mercury mutual funds made within a 13-month period starting with the first
purchase pursuant to the Letter of Intent. The Letter of Intent is available
only to investors whose accounts are established and maintained at the Fund's
Transfer Agent. The Letter of Intent is not available to employee benefit plans
for which affiliates of the Manager provide plan participant record-keeping
services. The Letter of Intent is not a binding obligation to purchase any
amount of Class I or Class A shares; however, its execution will result in the
purchaser paying a lower sales charge at the appropriate quantity purchase
level. A purchase not originally made pursuant to a Letter of Intent may be
included under a subsequent Letter of Intent executed within 90 days of such
purchase if the Distributor is informed in writing of this intent within such
90-day period. The value of Class I and Class A shares of the Fund and 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 at least 5.0%
of the intended amount will be held in escrow during the 13-month period (while
remaining
21
<PAGE> 53
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 charge 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
the Fund that creates a sales charge will count toward completing a new or
existing Letter of Intent from the Fund.
Purchase Privileges of Certain Persons. Directors of the Fund, Trustees of
the Trust, members of the Boards of other investment companies advised by the
Manager 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 Manager, MLAM, Mercury Asset Management International, Ltd.
and certain other entities directly or indirectly wholly owned and controlled by
ML & Co.), employees of certain selected dealers, and any trust, pension,
profit-sharing or other benefit plan for such persons, may purchase Class I
shares of each Fund at net asset value. The Fund realizes economies of scale and
reduction of sales-related expenses by virtue of the familiarity of these
persons with the Fund. Employees and directors or trustees wishing to purchase
shares of the Fund must satisfy the Fund's suitability standards.
Class I and Class A shares may also be offered at net asset value to
certain accounts over which the Manager 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 the Fund through
certain financial advisers that meet and adhere to standards established by FAM
from time to time.
DEFERRED SALES CHARGE -- 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.
Contingent Deferred Sales Charges -- Class B Shares. Class B shares that
are redeemed within six years of purchase may be subject to a CDSC at the rates
set forth below charged as a percentage of the dollar amount subject thereto. 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.
22
<PAGE> 54
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>
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).
Conversion of Class B Shares to Class A Shares. After approximately eight
years (the "Conversion Period"), Class B shares will be converted automatically
into Class A shares of the Fund. Class A shares are subject to an ongoing
account maintenance fee of 0.25% of the average daily net assets but are not
subject to the distribution fee that is borne by Class B shares. Automatic
conversion of Class B shares into Class A shares will occur at least once each
month (on the "Conversion Date") on the basis of the relative net asset value of
the shares of the two classes on the Conversion Date, without the imposition of
any sales 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.
23
<PAGE> 55
In addition, shares purchased through reinvestment of dividends on Class B
shares also will convert automatically to Class A shares. The Conversion Date
for dividend reinvestment shares will be calculated taking into account the
length of time the shares underlying such dividend reinvestment shares were
outstanding. If at the Conversion Date the conversion of Class B shares to Class
A shares of the Fund in a single account will result in less than $50 worth of
Class B shares being left in the account, all of the Class B shares of the Fund
held in the account on the Conversion Date will be converted to Class A shares
of the Fund.
Class B shareholders of the Fund exercising the exchange privilege
described under "Shareholder Services -- Exchange Privilege" will continue to be
subject to the Fund's CDSC schedule if such schedule is higher than the CDSC
schedule relating to the Class B shares acquired as a result of the exchange.
Share certificates for Class B shares of the Fund to be converted must be
delivered to the Transfer Agent at least one week prior to the Conversion Date
applicable to those shares. In the event such certificates are not received by
the Transfer Agent at least one week prior to the Conversion Date, the related
Class B shares will convert to Class D shares on the next scheduled Conversion
Date after such certificates are delivered.
Contingent Deferred Sales Charges -- Class C Shares. 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 reduced or 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 the 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 the 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 the separate distribution
plans for Class A, Class B and Class C shares of the Fund pursuant to Rule 12b-1
under the Investment Company Act (each a "Distribution Plan") with respect to
the account maintenance and/or distribution fees paid by the Fund to the
Distributor with respect to such classes.
The Distribution Plan for each of the Class A, Class B and Class C shares
provides that the Fund pays the Distributor an account maintenance fee relating
to the shares of the relevant class, accrued daily and paid monthly, at the
annual rate of 0.25% of the average daily net assets of the Fund attributable to
shares of the relevant class in order to compensate the Distributor and selected
dealers (pursuant to a sub-agreement) 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
24
<PAGE> 56
class pursuant to which account maintenance and/or distribution fees are paid
(except that Class B shareholders may vote upon any material changes to expenses
charged under the Class A Distribution Plan).
The Distribution Plan for each of the Class B and Class C shares provides
that the Fund also pays the Distributor a distribution fee relating to the
shares of the relevant class, accrued daily and paid monthly, at the annual rate
of 0.75% of the average daily net assets of the Fund attributable to the shares
of the relevant class in order to compensate the Distributor and selected
dealers (pursuant to a sub-agreement) for providing shareholder and distribution
services and bearing certain distribution-related expenses of the Fund,
including payments to financial consultants for selling Class B and Class C
shares of the Fund. The Distribution Plans relating to Class B and Class C
shares are designed to permit an investor to purchase Class B and Class C shares
through dealers without the assessment of an initial sales charge and at the
same time permit the dealer to compensate its financial consultants in
connection with the sale of the Class B and Class C shares. In this regard, the
purpose and function of the ongoing distribution fees and the CDSC are the same
as those of the initial sales charge with respect to the Class I and Class A
shares of the Fund in that the ongoing distribution fees and deferred sales
charges provide for the financing of the distribution of the Fund's Class B and
Class C shares.
The Fund's 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 the Distribution Plan to the Fund and the
related class of shareholders. Each Distribution Plan further provides that, so
long as the Distribution Plan remains in effect, the selection and nomination of
non-interested Directors shall be committed to the discretion of the non-
interested Directors then in office. In approving each Distribution Plan in
accordance with Rule 12b-1, the non-interested Directors concluded that there is
reasonable likelihood that each Distribution Plan will benefit the Fund and its
related class of shareholders. Each Distribution Plan can be terminated at any
time, without penalty, by the vote of a majority of the non-interested Directors
or by the vote of the holders of a majority of the outstanding related class of
voting securities of the Fund. A Distribution Plan cannot be amended to increase
materially the amount to be spent by the Fund without the approval of the
related class of shareholders and all material amendments are required to be
approved by the vote of Directors, including a majority of the non-interested
Directors who have no direct or indirect financial interest in the Distribution
Plan, cast in person at a meeting called for that purpose. Rule 12b-1 further
requires that the Fund preserve copies of the Distribution Plan and any report
made pursuant to such plan for a period of not less than six years from the date
of the Distribution Plan 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 the
Distribution Plans 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 accrual 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
25
<PAGE> 57
applicable to the Fund, the maximum sales charge rule limits the aggregate of
distribution fee payments and CDSCs payable by the Fund to (1) 6.25% of eligible
gross sales of Class B shares and Class C shares, computed separately (defined
to exclude shares issued pursuant to dividend reinvestments and exchanges), plus
(2) interest on the unpaid balance for the respective class, computed
separately, at the prime rate plus 1% (the unpaid balance being the maximum
amount payable minus amounts received from the payment of the distribution fee
and the CDSC). 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 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 for certain information as to the redemption and purchase of Fund
shares.
The Fund is required to redeem for cash all shares of the Fund upon receipt
of a written request in proper form. The redemption price is the net asset value
per share next determined after the initial receipt of proper notice of
redemption. Except for any CDSC that may be applicable, there will be no charge
for redemption if the redemption request is sent directly to the Transfer Agent.
Shareholders liquidating their holdings will receive upon redemption all
dividends reinvested through the date of redemption.
The right to redeem shares or to receive payment with respect to any such
redemption may be suspended for more than seven days only for any period during
which trading on the NYSE is restricted as determined by the Commission or
during which the NYSE is closed (other than customary weekend and holiday
closings), for any period during which an emergency exists, as defined by the
Commission, as a result of which disposal of portfolio securities or
determination of the net asset value of the Fund is not reasonably practicable,
and for such other periods as the Commission may by order permit for the
protection of shareholders of the Fund.
The value of shares of the 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 the Trust 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 Fund's Transfer Agent,
Financial Data Services, Inc., P.O. Box 44062, Jacksonville, Florida 32232-4062.
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 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. Proper
notice of redemption in the case of shares for which certificates have been
issued may be accomplished by a written letter as noted above accompanied by
certificates for the shares to be redeemed. Redemption requests should not be
sent to the Trust or the Fund. 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
26
<PAGE> 58
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 the Fund may be requested to redeem shares for which it
has not yet received good payment (e.g., cash, Federal funds or certified check
drawn on a U.S. bank). The Fund may delay or cause to be delayed the mailing of
a redemption check until such time as good payment (e.g., cash, Federal funds or
certified check drawn on a U.S. bank) has been collected for the purchase of
such Fund shares, which will usually not exceed 10 days.
REPURCHASE
The Fund also will repurchase its shares through a shareholder's listed
securities dealer. The 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 regular 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.
The foregoing repurchase arrangements are for the convenience of
shareholders and do not involve a charge by the Fund (other than any applicable
CDSC). Securities firms that do not have selected dealer agreements with the
Distributor, however, may impose a transaction charge on the shareholder for
transmitting the notice of repurchase to the Fund. Certain securities dealers
may charge a processing fee to confirm a repurchase of shares. For example, the
fee currently charged by Merrill Lynch is $5.35. Fees charged by other
securities dealers may be higher or lower. Repurchases made directly through the
Transfer Agent, on accounts held at the Transfer Agent, are not subject to the
processing fee. The Fund reserves the right to reject any order for repurchase,
which right of rejection might adversely affect shareholders seeking redemption
through the repurchase procedure. A shareholder whose order for repurchase is
rejected by the Fund, however, may redeem shares as set forth above.
REINSTATEMENT PRIVILEGE -- CLASS I AND CLASS A SHARES
Shareholders of the Fund who have redeemed their Class I or Class A shares
have a privilege to reinstate their accounts by purchasing Class I or Class A
shares, as the case may be, of the 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.
27
<PAGE> 59
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 the Fund is determined
once daily Monday through Friday as of the close of business on the NYSE on each
day the NYSE is open for trading based on prices at the time of closing. The
NYSE generally closes at 4:00 p.m., Eastern time. Any assets or liabilities
initially expressed in terms of non-U.S. dollar currencies are translated into
U.S. dollars at the prevailing market rates as quoted by one or more banks or
dealers on the day of valuation. The NYSE is not open for trading on New 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
the Trust on behalf of the Fund plus any cash or other assets (including
interest and dividends accrued but not yet received) minus all liabilities
(including accrued expenses) by the total number of shares of the Fund
outstanding at such time, rounded to the nearest cent. Expenses, including the
fees payable to the Manager and the 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 A shares,
reflecting the daily expense accruals of the account maintenance, distribution
and higher transfer agency fees applicable with respect to Class B and Class C
shares, and the daily expense accruals of the account maintenance fees
applicable with respect to Class A shares. Moreover, the per share net asset
value of the Class B and Class C shares generally will be lower than the per
share net asset value of Class A shares reflecting the daily expense accruals of
the distribution fees and higher transfer agency fees applicable with respect to
Class B and Class C shares of the Fund. It is expected, however, that the per
share net asset value of the four classes of the Fund will tend to converge
(although not necessarily meet) immediately after the payment of dividends of
distributions, which will differ by approximately the amount of the expense
accrual differentials between the classes.
Securities that are held in the Trust, 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 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. 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. 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 the Trust writes an option, the amount of
the premium received is recorded on the books of the Trust 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 the Trust 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 valued at fair value as determined in good faith by or under the
direction of the Board of Trustees of the Trust. Such valuations and procedures
will be reviewed periodically by the Board of Trustees of the Trust.
Generally, trading in non-U.S. securities, as well as U.S. Government
securities and money market instruments, is substantially completed each day at
various times prior to the close of business on the NYSE. The values of such
securities used in computing the net asset value of the Fund's shares are
determined as of
28
<PAGE> 60
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 the Fund's net asset value.
Each investor in the Trust may add to or reduce its investment in the Trust
on each day the NYSE is open for trading. The value of each investor's
(including the Fund's) interest in the Trust will be determined after the close
of business on the NYSE by multiplying the net asset value of the Trust by the
percentage, effective for that day, that represents that investor's share of the
aggregate interests in the Trust. The close of business on the NYSE is generally
4:00 p.m., Eastern time. Any additions or withdrawals to be effected on that day
will then be effected. The investor's percentage of the aggregate beneficial
interests in the Trust 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 Trust effected on such day, and (ii) the
denominator of which is the aggregate net asset value of the Trust 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 Trust by all
investors in the Trust. The percentage so determined will then be applied to
determine the value of the investor's interest in the Trust after the close of
business of the NYSE on the next determination of net asset value of the Trust.
PORTFOLIO TRANSACTIONS AND BROKERAGE
TRANSACTIONS IN PORTFOLIO SECURITIES
Because the Fund will invest exclusively in beneficial interests in 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 Manager 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 Manager seeks
to obtain the best net results for 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 Manager 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 Manager may consider sales of shares of the Fund as a factor in
the selection of brokers or dealers to execute portfolio transactions for the
Trust; however, whether or not a particular broker or dealer sells shares of 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 Manager 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 Manager under the Management Agreement, and the
expenses of the Manager will not necessarily be reduced as a result of the
receipt of such supplemental information. If in the judgment of the Manager the
Trust will benefit from supplemental research services, the Manager 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 Manager 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
29
<PAGE> 61
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 the Fund
are redeemable on a daily basis in U.S. dollars, the Trust intends to manage its
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.
The 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 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 Manager or
its affiliates.
The Board of Trustees of the Trust has considered the possibility of
seeking to recapture for the benefit of the Fund 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 the Portfolio to the Manager. After considering all factors deemed
relevant, the Board of Trustees of the Trust made a determination not to seek
such recapture. The Board of Trustees of the Trust 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 Manager or its affiliates when one or
more clients of the Manager 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
Manager 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
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deemed equitable to all. To the extent that transactions on behalf of more than
one client of the Manager 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
The Fund offers a number of shareholder services described below that are
designed to facilitate investment in its shares. Full details as to each such
service and copies of the various plans or how to change options with respect
thereto, can be obtained from the Fund, 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 confirmations for each purchase or sale
transaction other than automatic investment purchases and the reinvestment of
dividends. A shareholder with an account held at the Transfer Agent may make
additions to his or her Investment Account at any time by mailing a check
directly to the Transfer Agent. The Fund does not issue share certificates.
Shareholders 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 the Fund, a shareholder must either redeem the shares (paying any
applicable CDSC) so that the cash proceeds can be transferred to the account at
the new firm, or such shareholder must continue to maintain a retirement account
at a selected dealer for those shares.
EXCHANGE PRIVILEGE
U.S. shareholders of each class of shares of the 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.
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Exchanges of Class I and Class A Shares. Under the 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 I shares of Summit ("new Class I or Class A shares") are transacted
on the basis of relative net asset value per Class I or Class A share,
respectively, plus an amount equal to the difference, if any, between the sales
charge previously paid on the outstanding Class I or Class A shares and the
sales charge payable at the time of the exchange on the new Class I or Class A
shares. With respect to outstanding Class I or Class A shares as to which
previous exchanges have taken place, the "sales charge previously paid" shall
include the aggregate of the sales charges paid with respect to such Class I or
Class A shares in the initial purchase and any subsequent exchange. Class I or
Class A shares issued pursuant to dividend reinvestment are sold on a no-load
basis in each of the funds offering Class I or Class A shares. For purposes of
the exchange privilege, 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 the Fund
generally may be exchanged into the Class I or Class A shares, respectively, of
the other funds with a reduced sales charge 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 funds 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 the Fund exercising the exchange privilege will continue to be subject to the
Fund's CDSC schedule if such schedule is higher than the CDSC schedule relating
to the new Class B shares acquired through use of the exchange privilege. In
addition, Class B shares of the Fund acquired through use of the exchange
privilege will be subject to the Fund's CDSC schedule if such schedule is higher
than the CDSC schedule relating to the Class B shares of the fund from which the
exchange 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
shares or Class C shares. For example, an investor may exchange Class B shares
of the Fund for those of another Mercury mutual fund ("New Mercury Fund") after
having held the Fund's Class B shares for two-and-a-half years. The 3% CDSC that
generally would apply to a redemption would not apply to the exchange. Four
years later the investor may decide to redeem the Class B shares of New Mercury
Fund and receive cash. There will be no CDSC due on this redemption since by
"tacking" the two-and-a-half year holding period of the Fund Class B shares to
the four year holding period for New Mercury Fund Class B shares, the investor
will be deemed to have held Special Value 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 I shares of Summit and Class B and Class C shares are
exchangeable for Class B shares of Summit. Class I shares of Summit have an
exchange privilege back into Class I or Class A shares of funds; Class B shares
of Summit have an exchange privilege back into Class B or Class C shares of
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. Please see your financial consultant for further
information.
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Prior to October 12, 1998, exchanges from the Fund and other
Affiliate-Advised funds into a money market fund were directed to certain
Affiliate-Advised money market funds other than Summit. Shareholders who
exchanged Affiliate-Advised funds shares for such other money market funds and
subsequently wish to exchange those money market fund shares for shares of the
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 the 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
Fund of the exchange. Shareholders of the Fund, and shareholders of the other
funds described above with shares for which certificates have not been issued,
may exercise the exchange privilege by wire through their securities dealers.
The Fund reserves the right to require a properly completed Exchange
Application. This exchange privilege may be modified or terminated in accordance
with the rules of the Commission. The Fund reserves the right to limit the
number of times an investor may exercise the exchange privilege. Certain funds
may suspend the continuous offering of their shares to the general public at any
time and may thereafter resume such offering from time to time. The exchange
privilege is available only to U.S. shareholders in states where the exchange
legally may be made. It is contemplated that the exchange privilege may be
applicable to other new mutual funds whose shares may be distributed by the
Distributor.
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. The current minimum for such automatic additional investments is $100.
This minimum may be waived or revised under certain circumstances.
AUTOMATIC DIVIDEND REINVESTMENT PLAN
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 in cash, rather than
reinvested in shares of the Fund (provided that, in the event that a payment on
an account maintained at the Transfer Agent would amount to $10.00 or less, a
shareholder will not receive such payment in cash and such payment will
automatically be reinvested in additional shares). Commencing ten days after the
receipt by the Transfer Agent of such notice, those instructions will be
effected. The Fund is not responsible for any failure of delivery to the
shareholder's address of record and no interest will accrue on amounts
represented by uncashed dividend checks. Cash payments can also be directly
deposited to the shareholder's bank account.
SYSTEMATIC WITHDRAWAL 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 the Fund having a value, based on cost or the current offering price,
of $5,000 or more, and monthly withdrawals are available for shareholders with
shares having a value of $10,000 or more.
At the time of each withdrawal payment, sufficient shares are redeemed from
those on deposit in the shareholder's account to provide the withdrawal payment
specified by the shareholder. The shareholder may specify the dollar amount and
class of shares to be redeemed. Redemptions will be made at net asset value as
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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 at 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, the 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 Class 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 D shares, a
shareholder must make a new election to join the systematic withdrawal program
with respect to the Class D shares. See "Purchase of Shares -- Deferred Sales
Charge Alternatives -- Conversion of Class B Shares to Class D 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.
The Fund will not knowingly accept purchase orders for shares of the Fund from
investors who maintain a systematic withdrawal plan unless such purchase is
equal to at least one year's scheduled withdrawals or $1,200, whichever is
greater. Periodic investments may not be made into an Investment Account in
which the shareholder has elected to make systematic withdrawals.
DIVIDENDS AND TAXES
DIVIDENDS
The 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 the
Fund's shareholders at least annually. From time to time, the Fund may declare a
special distribution at or about the end of the calendar year in order to comply
with Federal tax requirements that certain percentages of its ordinary income
and capital gains be distributed during the year. If in any fiscal year, the
Fund have net income from certain foreign currency transactions, such income
will be distributed at least annually. See "Shareholder Services -- Automatic
Dividend Reinvestment Plan" for information concerning the manner in which
dividends may be reinvested automatically in shares of the 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 the Fund or received in cash. The per
share dividends on Class B and Class C shares will be lower than the per share
dividends on Class I and Class A shares as a result of the account maintenance,
distribution and higher transfer agency fees applicable with respect to the
Class B and Class C shares; similarly, the per share dividends on Class A shares
will be lower than the per share dividends on Class I shares as a result of the
account maintenance fees applicable with respect to the Class A shares. See
"Pricing of Shares -- Determination of Net Asset Value."
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TAXES
The 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 the Fund so qualifies, the Fund
(but not its shareholders) will not be subject to Federal income tax on the part
of its net ordinary income and net realized capital gains that it distributes to
Class I, Class A, Class B and Class C shareholders (together, the
"shareholders"). The Fund intends to distribute substantially all of such
income.
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 a October 31 year end, plus certain undistributed
amounts from previous years. While the 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 the Fund's taxable
income and capital gains will be distributed to avoid entirely the imposition of
the tax. In such event, the Fund will be liable for the tax only on the amount
by which it does not meet the foregoing distribution requirements.
Dividends paid by the 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 the 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, the 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 the Fund. A portion of the 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, the Fund will
allocate dividends eligible for the dividends received deduction 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 method as the Internal Revenue Service may prescribe. If the Fund
pays a dividend in January that was declared in the previous October, November
or December to shareholders of record on a specified date in one of such months,
then such dividend will be treated for tax purposes as being paid by the Fund
and received by its shareholders on December 31 of the year in which such
dividend was declared.
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.
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A loss realized on a sale or exchange of shares of the 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.
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 United States 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 on file with the Fund or who, to the Fund's knowledge, have furnished
an incorrect number. When establishing an account, an investor must certify
under penalty of perjury that such number is correct and that such investor is
not otherwise subject to backup withholding.
Dividends and interest received by the Fund may give rise to withholding
and other taxes imposed by foreign countries. Tax conventions between certain
countries and the U.S. may reduce or eliminate such taxes.
TAX TREATMENT OF OPTIONS, FUTURES AND FORWARD FOREIGN EXCHANGE TRANSACTIONS
The Fund may write, purchase or sell options, futures and forward foreign
exchange contracts. 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. Unless
such contract is a forward foreign exchange contract, or is a non-equity option
or a regulated futures contract for a non-U.S. currency for which the Fund
elects to have gain or loss treated as ordinary gain or loss under Code Section
988 (as described below), gain or loss from Section 1256 contracts will be 60%
long-term and 40% short-term capital gain or loss. Application of these rules to
Section 1256 contracts held by the Fund may alter the timing and character of
distributions to shareholders. The mark-to-market rules outlined above, however,
will not apply to certain transactions entered into by the Fund solely to reduce
the risk of changes in price or interest or currency exchange rates with respect
to its investments.
A forward foreign exchange contract that is a Section 1256 contract will be
marked to market, as described above. However, the character of gain or loss
from such a contract will generally be ordinary under Code Section 988. In
certain instances, the Fund may, nonetheless, elect to treat the gain or loss
from certain forward foreign exchange contracts as capital. In this case, gain
or loss realized in connection with a forward foreign exchange contract that is
a Section 1256 contract will be characterized as 60% long-term and 40%
short-term capital gain or loss.
Code Section 1092, which applies to certain "straddles," may affect the
taxation of the Fund's sales of securities and transactions in options, futures
and forward foreign exchange contracts. Under Section 1092, the Fund may be
required to postpone recognition for tax purposes of losses incurred in certain
sales of securities and certain closing transactions in options, futures and
forward foreign exchange contracts.
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 the 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, futures or forward
foreign exchange contracts will be valued for purposes of the RIC
diversification requirements applicable to the Fund.
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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, the Fund may elect
capital gain or loss treatment for such transactions. Regulated futures
contracts, as described above, will be taxed under Code Section 1256 unless
application of Section 988 is elected by the Fund. In general, however, Code
Section 988 gains or losses will increase or decrease the amount of the
investment company taxable income of the Fund available to be distributed to
shareholders as ordinary income. Additionally, if Code Section 988 losses exceed
other investment company taxable income during a taxable year, the Fund would
not be able to make any ordinary 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 the Fund solely to reduce the
risk of currency fluctuations with respect to its investments.
The Trust and the Fund will apply for a private letter ruling from the IRS
to the effect that, because the Trust is classified as a partnership for tax
purposes, the Fund will be entitled to look to the underlying assets of the
Trust 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/or the Trust is unable to
obtain a private letter ruling from the IRS, the Board of Directors of the Fund
will determine, in its discretion, the appropriate course of action for the
Fund. One possible course of action would be to withdraw the Fund's investments
from the Trust and to retain an investment adviser to manage the Fund's assets
in accordance with the investment policies applicable to the Fund. See
"Investment Objective and Policies."
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and 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
Fund.
PERFORMANCE DATA
From time to time the Fund may include its average annual total return and
other total return data in advertisements or information furnished to present or
prospective shareholders. Total return is based on the Fund's historical
performance and is not intended to indicate future performance. Average annual
total return is determined separately for Class I, Class A, Class B and Class C
shares in accordance with a formula specified by the Commission.
Average annual total return quotations for the specified periods are
computed by finding the average annual compounded rates of return (based on net
investment income and any realized and unrealized capital gains or losses on
portfolio investments over such periods) that would equate the initial amount
invested to the redeemable value of such investment at the end of each period.
Average annual total return is computed
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assuming all dividends and distributions are reinvested and taking into account
all applicable recurring and nonrecurring expenses, including the maximum sales
charge in the case of Class I and Class A shares and the CDSC that would be
applicable to a complete redemption of the investment at the end of the
specified period in the case of Class B and Class C shares. Dividends paid by
the Fund with respect to all shares, to the extent any dividends are paid, will
be calculated in the same manner at the same time on the same day and will be in
the same amount, except that account maintenance and the distribution charges
and any incremental transfer agency cost relating to each class of shares will
be borne exclusively by that class. The Fund will include performance data for
all classes of shares of the Fund in any advertisement or information including
performance data of the Fund.
Yield quotations will be computed based on a 30-day period by dividing (a)
the net income based on the yield of each security earned during the period by
(b) the average daily number of shares outstanding during the period that were
entitled to receive dividends multiplied by the maximum offering price per share
on the last day of the period. Tax equivalent yield quotations will be computed
by dividing (a) the part of the Fund's yield that is tax-exempt by (b) one minus
a stated tax rate and (c) adding the result to that part, if any, of the Fund's
yield that is not tax-exempt.
The Fund also may quote annual, average annual and annualized total return
and aggregate total return performance data, both as a percentage and 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. The 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 the
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, the Fund may compare its performance to various indices,
including the Standard & Poor's 500 Index, the Value Line Composite Index, the
Dow Jones Industrial Average, or to other published indices, or to data
contained in publications published by Lipper Analytical Services, Inc.,
Morningstar Publications, Inc. ("Morningstar"), or to data contained in
publications such as Money Magazine, U.S. News & World Report, Business Week,
Forbes Magazine, Fortune Magazine and CDA Investment Technology, Inc. When
comparing its performance to a market index, the Fund may refer to various
statistical measures derived from the historic performance of the Fund and the
index, such as standard deviation and beta. As with other performance data,
performance comparisons should not be considered indicative of the Fund's
relative performance for any future period. From time to time the Fund may
include the Fund's Morningstar risk-adjusted performance ratings assigned by
Morningstar in advertising or supplemental sales literature. From time to time
the Fund may quote in advertisements or other materials other applicable
measures of performance and may also make reference to awards that may be given
to the Manager.
The Fund's total return will vary depending on market conditions, the
securities held by the Trust, the Trust's operating expenses, the Fund's
operating expenses and the amount of realized and unrealized net capital gains
or losses during the period. The value of an investment in the Fund will
fluctuate and an investor's shares, when redeemed, may be worth more or less
than their original cost.
38
<PAGE> 70
GENERAL INFORMATION
DESCRIPTION OF SHARES
The Fund is a "feeder" fund that invests in the Trust. Investors in the
Fund will acquire an indirect interest in the Trust. The Trust accepts
investments from other feeder funds, and all of the feeders of the Trust bear
the Trust's expenses in proportion to their assets. As of March 3, 2000, the net
assets of the Trust were approximately $157,880,733. This structure may enable
the Fund 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 Trust 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 Trust on more attractive
terms, or could experience better performance, than another feeder fund.
The Fund was incorporated under Maryland law on January 21, 2000. It has an
authorized capital of 400,000,000 shares of Common Stock, par value $0.10 per
share, divided into four classes, designated Class I, Class A, Class B and Class
C Common Stock, each of which consists of 100,000,000 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, 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 Fund, in which event the
holders of the remaining shares would be unable to elect any person as a
Director.
Whenever the Trust holds a vote of its feeder funds, the Fund 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 the Fund over the operations of the Trust. The Fund may
withdraw from the Trust 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 Fund will be required to call a
special meeting of shareholders in accordance with the requirements of the
Investment Company Act to seek approval of new management and advisory
arrangements, of a material increase in account maintenance fees or of a change
in fundamental policies, objectives or restrictions. Except as set forth above,
the Directors shall continue to hold office and appoint successor Directors.
Each issued and outstanding share is entitled to participate equally in
dividends and distributions declared and in net assets upon liquidation or
dissolution remaining after satisfaction of outstanding liabilities, except for
any expenses which may be attributable to only one Class. Shares issued are
fully-paid and non-assessable by the Fund. Voting rights for Directors are not
cumulative.
The Trust is organized as a Delaware Business Trust. Whenever the Fund is
requested to vote on any matter relating to the Trust, the Fund will hold a
meeting of its shareholders and will cast its vote as instructed by the Fund's
shareholders.
The Manager provided the initial capital for the Fund by purchasing 10,000
shares of common stock of the Fund for $100,000. 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 Manager owned 100% of the outstanding
common stock of the Fund. The Manager may be deemed to control the Fund until
such time as it owns less than 25% of the outstanding shares of the Fund.
39
<PAGE> 71
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 the Fund based on the value of the Fund's net
assets and number of shares outstanding on the date of this Statement of
Additional Information is as follows:
<TABLE>
<CAPTION>
CLASS I CLASS A CLASS B CLASS C
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Assets.......................................... $25,000 $25,000 $25,000 $25,000
------- ------- ------- -------
Number of Shares Outstanding........................ 2,500 2,500 2,500 2,500
------- ------- ------- -------
Net Asset Value Per Share (net assets divided by
number of shares outstanding)..................... $ 10.00 $ 10.00 $ 10.00 $ 10.00
Sales Charge (for Class I and Class A Shares: 5.25%
of Offering Price (5.54% of net amount
invested))*....................................... .55 .55 ** **
------- ------- ------- -------
Offering Price...................................... $ 10.55 $ 10.55 $ 10.00 $ 10.00
======= ======= ======= =======
</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 "Account Choices -- Class B and Class
C shares -- Deferred Sales Charge Options" in the Prospectus and "Redemption
of Shares -- Deferred Sales Charges -- Class B and Class C Shares" herein.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, Princeton Forrestal Village, 116-300 Village
Boulevard, Princeton, New Jersey 08540-6400 has been selected as the independent
auditors of the Trust and the Fund. The independent auditors are responsible for
auditing the annual financial statements of the Fund.
CUSTODIAN
The Bank of New York, 90 Washington Street, 12(th) Floor, New York, New
York 10286 (the "Custodian") acts as the custodian of the Trust's and the Fund's
assets. Under its contracts with the Trust and the Fund, the Custodian is
authorized to establish separate accounts in foreign currencies and to cause
foreign securities owned by the Trust and the Fund to be held in its offices
outside the United States and with certain foreign banks and securities
depositories. The Custodian is responsible for safeguarding and controlling the
Trust's and the Fund's cash and securities, handling the receipt and delivery of
securities and collecting interest and dividends on the Trust's and the Fund's
investments.
TRANSFER AGENT
Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville,
Florida 32246-6484, which is a wholly owned subsidiary of ML & Co., acts as the
Fund's Transfer Agent pursuant to a transfer agency, dividend disbursing agency
and shareholder servicing agency agreement (the "Transfer Agency Agreement").
The Transfer Agent is responsible for the issuance, transfer and redemption of
shares and the opening, maintenance and servicing of shareholder accounts.
LEGAL COUNSEL
Brown & Wood LLP, One World Trade Center, New York, New York 10048-0557, is
counsel for the Trust and the Fund.
REPORTS TO SHAREHOLDERS
The fiscal year of the Fund ends on November 30 of each year. The Fund
sends to its shareholders at least semi-annually reports showing information
related to the Trust 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.
40
<PAGE> 72
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to the Fund 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 Fund has filed with the Commission, Washington,
D.C., under the Securities Act and the Investment Company Act, to which
reference is hereby made.
Under a separate agreement, Mercury Asset Management International Ltd. and
Mercury Asset Management Group Ltd. ("Mercury") have granted the Fund the right
to use the "Mercury" name and has reserved the right to withdraw its consent to
the use of such name by the Fund at any time or to grant the use of such name to
any other company, and the Fund has granted Mercury under certain conditions,
the use of any other name it might assume in the future, with respect to any
corporation organized by Mercury.
As of the date of this Statement of Additional Information, the Manager
owned 100% of the outstanding common stock of the Fund. The Manager may be
deemed to control the Fund until such time as it owns less than 25% of the
outstanding shares of the Fund.
41
<PAGE> 73
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholder,
Mercury Premier Growth Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of Mercury
Premier Growth Fund, Inc. as of February 23, 2000. This financial statement is
the responsibility of the Fund's management. Our responsibility is to express an
opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such statement of assets and liabilities presents fairly, in all
material respects, the financial position of Mercury Premier Growth Fund, Inc.
as of February 23, 2000, in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Princeton, New Jersey
March 20, 2000
42
<PAGE> 74
MERCURY PREMIER GROWTH FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 23, 2000
<TABLE>
<S> <C>
ASSETS:
Cash (Note 1)............................................. $100,000
Prepaid registration fees (Note 3)........................ 3,100
Prepaid offering costs (Note 3)........................... 55,599
--------
Total assets........................................... 158,699
========
LIABILITIES:
Liabilities and accrued expenses.......................... 58,699
--------
NET ASSETS.................................................. $100,000
========
NET ASSETS CONSIST OF:
Class I Shares of Common Stock, $.10 par value,
100,000,000 shares authorized.......................... $ 250
Class A Shares of Common Stock, $.10 par value,
100,000,000 shares authorized.......................... 250
Class B Shares of Common Stock, $.10 par value,
100,000,000 shares authorized.......................... 250
Class C Shares of Common Stock, $.10 par value,
100,000,000 shares authorized.......................... 250
Paid-in Capital in excess of par.......................... 99,000
--------
NET ASSETS.................................................. $100,000
========
NET ASSET VALUE:
Class I -- Based on net assets of $25,000 and 2,500 shares
outstanding............................................ $ 10.00
========
Class A -- Based on net assets of $25,000 and 2,500 shares
outstanding............................................ $ 10.00
========
Class B -- Based on net assets of $25,000 and 2,500 shares
outstanding............................................ $ 10.00
========
Class C -- Based on net assets of $25,000 and 2,500 shares
outstanding............................................ $ 10.00
========
</TABLE>
- ---------------
Notes to Financial Statement.
(1) Mercury Premier Growth Fund, Inc. (the "Fund") was organized as a Maryland
corporation on January 21, 2000 and is registered under the Investment
Company Act of 1940, as amended, as a diversified open-end management
investment company. To date, the Fund has not had any transactions other
than those relating to organizational matters and the sale of 2,500 Class I
shares, 2,500 Class A shares, 2,500 Class B shares and 2,500 Class C shares
of Common Stock to Fund Asset Management, L.P. (the "Manager"). The Fund
will invest all of its assets in Master Premier Growth Trust (the "Trust").
(2) The Trust has entered into an investment management agreement with the
Manager. The Fund will enter into distribution agreements with Mercury Funds
Distributor, a division of Princeton Funds, Distributor, Inc. (the
"Distributor"). (See "Management of the Fund -- Management and Advisory
Arrangements" in the Statement of Additional Information.) Certain officers
and/or trustees of the Trust and certain officers and/or directors of the
Fund are officers and/or directors of the Manager and the Distributor.
(3) Prepaid registration fees are charged to income as the related shares are
issued. Prepaid offering costs consist of legal and printing fees related to
preparing the initial registration statement, and will be amortized over a
12 month period beginning with the commencement of operations of the Fund.
The Manager, on behalf of the Fund, will incur organization costs estimated
at $11,000.
43
<PAGE> 75
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Investors,
Master Premier Growth Trust:
We have audited the accompanying statement of assets and liabilities of Master
Premier Growth Trust as of December 20, 1999. This financial statement is the
responsibility of the Trust's management. Our responsibility is to express an
opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such statement of assets and liabilities presents fairly, in all
material respects, the financial position of Master Premier Growth Trust as of
December 20, 1999, in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
December 20, 1999
44
<PAGE> 76
MASTER PREMIER GROWTH TRUST
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 20, 1999
<TABLE>
<S> <C>
ASSETS:
Cash...................................................... $100,100
Prepaid offering costs (Note 3)........................... 7,500
--------
Total assets........................................... 107,600
Less liabilities and accrued expenses....................... 7,500
--------
Net Assets applicable to investors' interest in the Fund.
(Note 1).................................................. $100,100
--------
</TABLE>
- ------------------
NOTES TO FINANCIAL STATEMENTS.
(1) Master Premier Growth Trust (the "Trust") was organized as a Delaware
business trust on October 25, 1999. Merrill Lynch Premier Growth Fund, Inc.
(the "Fund") invests all of its assets in the Trust. To date, the Trust has
not had any transactions other than those relating to organizational
matters, an indirect $100,000 capital contribution to the Trust by Fund
Asset Management L.P. (the "Manager") through the Fund and a $100
partnership contribution to the Fund by Princeton Funds Distributor, Inc.
(the "Placement Agent").
(2) The Trust will enter into a management agreement (the "Management
Agreement") with the Manager. (See "Investment Advisory and Other Services"
in Part B of this Registration Statement.) Certain officers and/or Trustees
of the Trust are officers and/or directors of the Manager and the Placement
Agent.
(3) Prepaid offering costs consist of legal fees related to preparing the
initial registration statement, and will be amortized over a 12 month period
beginning with the commencement of operations of the Trust. The Manager, on
behalf of the Trust, will incur organization costs estimated at $10,000.
45
<PAGE> 77
CODE #: 19083-1299
<PAGE> 78
PART C. OTHER INFORMATION
ITEM 23. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<C> <S> <C>
1 -- Articles of Incorporation, dated January 21, 2000.(a)
2 -- By-Laws of the Registrant.(a)
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.(b)
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) -- Form of Class A Distribution Agreement between the
Registrant and the Distributor.
(c) -- Form of Class B Distribution Agreement between the
Registrant and the Distributor.
(d) -- Form of Class C Distribution Agreement between the
Registrant and the Distributor.
6 -- None.
7 -- Custody Agreement between the Registrant and The Bank of New
York.
8(a) -- Form of Transfer Agency, Dividend Disbursing Agency and
Shareholder Servicing Agency Agreement between the
Registrant and Financial Data Services, Inc.
(b) -- Form of License Agreement relating to use of name among
Mercury Asset Management International, Ltd., Mercury Asset
Management Group Ltd. and the Registrant.
9 -- Opinion of Brown & Wood LLP, counsel for the Registrant.
10 -- Consent of Deloitte & Touche LLP, independent auditors for
the Registrant.
11 -- None.
12 -- Certificate of Fund Asset Management, L.P.
13(a) -- Form of Class A Distribution Plan of the Registrant and
Class B Distribution Plan Sub-Agreement.
(b) -- Form of Class B Distribution Plan of the Registrant and
Class C Distribution Plan Sub-Agreement.
(c) -- Form of Class C Distribution Plan of the Registrant and
Class D Distribution Plan Sub-Agreement.
14 -- None.
15 -- Rule 18f-3 Plan.
</TABLE>
- ---------------
(a) Filed on February 23, 2000 as an Exhibit to the Registrant's Registration
Statement on Form N-1A (File No. 333-30940) under the Securities Act of
1933, as amended.
(b) 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, and Article XIV of the Registrant's
By-Laws filed as Exhibit (2) to this Registration Statement.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Fund Asset Management, L.P. (the "Manager" or "FAM") owns 100% of the
shares of common stock of the Registrant.
C-1
<PAGE> 79
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.
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. 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, Master Focus Twenty Trust,
Master Internet Strategies Trust, Master Large Cap Series Trust, Master Premier
Growth 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 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 II, Inc.,
MuniHoldings California Insured Fund V, Inc., MuniHoldings Florida Insured Fund,
MuniHoldings Florida Insured Fund V,
C-2
<PAGE> 80
MuniHoldings Insured Fund, Inc., MuniHoldings Insured Fund II, Inc.,
MuniHoldings Insured Fund III, Inc., MuniHoldings Insured Fund IV, Inc.,
MuniHoldings Michigan Insured Fund II, Inc., MuniHoldings New Jersey Insured
Fund, Inc., MuniHoldings New Jersey Insured Fund IV, Inc., MuniHoldings New York
Fund, Inc., MuniHoldings New York Insured Fund, Inc., MuniHoldings New York
Insured Fund IV, Inc., MuniInsured Fund, Inc., MuniVest Fund, Inc., MuniVest
Fund II, Inc., MuniYield Arizona Fund, Inc., MuniYield California Fund, Inc.,
MuniYield California Insured Fund, Inc., MuniYield California Insured Fund II,
Inc., MuniYield Florida Fund, MuniYield Florida Insured Fund, MuniYield Fund,
Inc., MuniYield Insured Fund, Inc., MuniYield Michigan Fund, Inc., MuniYield
Michigan Insured Fund, Inc., MuniYield New Jersey Fund, Inc., MuniYield New
Jersey Insured Fund, Inc., MuniYield New York Insured Fund, Inc., MuniYield
Pennsylvania 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: Master
Global Financial Services Trust, 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 Fund, 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 Fund's transfer agent, Financial Data Services, Inc. ("FDS"), is
4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484.
Set forth below is a list of each executive officer and partner of the
Manager indicating each business, profession, vocation or employment of a
substantial nature in which each such person or entity has been engaged since
June 1, 1998 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
C-3
<PAGE> 81
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,
NAME POSITION(S) WITH THE MANAGER PROFESSION, VOCATION OR EMPLOYMENT
---- ---------------------------- ------------------------------------------
<S> <C> <C>
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 and Chief Operating Officer and Managing
Managing Director 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 and
Treasurer 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, Jr............. Senior Vice President Senior Vice President of MLAM; Senior Vice
President of Princeton Services; Chief
Investment Officer of Oppenheimer Funds,
Inc. in 1999 and Executive Vice President
thereof from 1991 to 1999
Linda L. Federici.............. Senior Vice President Senior Vice President of MLAM; Senior Vice
President of Princeton Services
Vincent R. Giordano............ Senior Vice President Senior Vice President of MLAM; Senior Vice
President of Princeton Services
Michael J. Hennewinkel......... Senior Vice President, Senior Vice President, Secretary and
Secretary and General General Counsel of MLAM; Senior Vice
Counsel President of Princeton Services
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
</TABLE>
C-4
<PAGE> 82
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
NAME POSITION(S) WITH THE MANAGER PROFESSION, VOCATION OR EMPLOYMENT
---- ---------------------------- ------------------------------------------
<S> <C> <C>
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
Gregory D. Upah................ Senior Vice President Senior Vice President of MLAM; Senior Vice
President of Princeton Services
</TABLE>
Merrill Lynch Asset Management U.K. Limited ("MLAM U.K.") acts as
sub-adviser for the following registered investment companies: The Corporate
Fund Accumulation Program, Inc., Corporate High Yield Fund, Inc., Corporate High
Yield Fund II, Inc., Corporate High Yield Fund III, Inc., Debt Strategies Fund,
Inc., Debt Strategies Fund II, Inc., Debt Strategies Fund III, Inc., Income
Opportunities Fund 2000, Inc., Master Focus Twenty Trust, Master Internet
Strategies Trust, Master Large Cap Series Trust, Master Premier Growth Trust,
Merrill Lynch Americas Income Fund, Inc., Merrill Lynch Assets Builder Program,
Inc., Merrill Lynch Asset Growth Fund, Inc., Merrill Lynch Asset Income Fund,
Inc., Merrill Lynch Basic Value Fund, Inc., Merrill Lynch Capital Fund, Inc.,
Merrill Lynch Convertible Fund, Inc., Merrill Lynch Corporate Bond Fund, Inc.,
Merrill Lynch Corporate High Yield Fund, Inc., Merrill Lynch Developing Capital
Markets Fund, Inc., Merrill Lynch Disciplined Equity Fund, Inc., Merrill Lynch
Dragon Fund, Inc., Merrill Lynch Emerging Tigers Fund, Inc., Merrill Lynch
EuroFund, Merrill Lynch Fundamental Growth Fund, Inc., Merrill Lynch Global
Allocation Fund, Inc., Merrill Lynch Global Bond Fund for Investment and
Retirement, Merrill Lynch Global Growth Fund, Inc., Merrill Lynch Global
Holdings, Inc., Merrill Lynch Global Resources Trust, Merrill Lynch Global
SmallCap Fund, Inc., Merrill Lynch Global Technology Fund, Inc., Merrill Lynch
Global Utility Fund, Inc., Merrill Lynch Global Value Fund, Inc., Merrill Lynch
Growth Fund, Merrill Lynch Healthcare Fund, Inc., Merrill Lynch International
Equity Fund, Merrill Lynch Latin America Fund, Inc., Merrill Lynch Middle
East/Africa Fund, Inc., Merrill Lynch Pacific Fund, Inc., Merrill Lynch Phoenix
Fund, Inc., Merrill Lynch Real Estate Fund, Inc., Merrill Lynch Series Fund,
Inc, Merrill Lynch Senior Floating Rate Fund, Inc., Merrill Lynch Senior
Floating Rate Fund II, Inc., Merrill Lynch Short-Term Global Income Fund, Inc.,
Merrill Lynch Special Value Fund, Inc., Merrill Lynch Strategic Dividend Fund,
Merrill Lynch Utility Income Fund, Inc., Merrill Lynch Variable Series Funds,
Inc., Merrill Lynch World Income Fund, Inc., The Municipal Fund Accumulation
Program, Inc. and Worldwide DollarVest Fund, Inc. The address of each of the
registered investment companies is P.O. Box 9011, Princeton, New Jersey
08543-9011. The address of MLAM U.K. is 33 King William Street, London EC4R 9AS,
England.
Set forth below is a list of each executive officer and director of MLAM
U.K. indicating each business, profession, vocation or employment of a
substantial nature in which each such person has been engaged since July 1,
1998, for his or her own account or in the capacity of director, officer,
partner or trustee. In addition,
C-5
<PAGE> 83
Messrs. Glenn and Burke are officers of one or more of the registered investment
companies listed in the first two paragraphs of this Item 26.
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
NAME POSITIONS WITH MLAM U.K. PROFESSION, VOCATION OR EMPLOYMENT
---- ------------------------- ------------------------------------
<S> <C> <C>
Terry K. Glenn................. Director and Chairman Executive Vice President of MLAM and
FAM; Executive Vice President and
Director of Princeton Services;
President and Director of PFD;
President of Princeton
Administrators
Nicholas C.D. Hall............. Director Director of Mercury Asset Management
Ltd. and the Institutional Liquidity
Fund plc; First Vice President and
General Counsel for Merrill Lynch
Mercury Asset Management
James T. Stratford............. Alternate Director Director of Mercury Asset Management
Group Ltd.; Head of Compliance,
Merrill Lynch Mercury Asset
Management
Donald C. Burke................ Treasurer Senior Vice President and Treasurer
of MLAM and FAM; 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
Carol Ann Langham.............. Company Secretary None
Debra Anne Searle.............. Assistant Company None
Secretary
</TABLE>
ITEM 27. PRINCIPAL UNDERWRITERS.
MFD, a division of PFD, acts as the principal underwriter for the
Registrant and for each of the following open-end investment companies: Mercury
Focus Twenty Fund, Inc., 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 Large Cap Series Funds, Inc.; Mercury Internet Strategies Fund, 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 OFFICE(S) POSITION(S) AND OFFICE(S)
NAME 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
</TABLE>
C-6
<PAGE> 84
<TABLE>
<CAPTION>
POSITION(S) AND OFFICE(S) POSITION(S) AND OFFICE(S)
NAME WITH PFD WITH REGISTRANT
---- ------------------------- -------------------------
<S> <C> <C>
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.
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 Fund" in the
Prospectus constituting Part A of the Registration Statement and under
"Management of the Fund -- Management and Advisory Arrangements" in the
Statement of Additional Information constituting Part B of the Registration
Statement, the Registrant is not a party to any management-related service
contract.
ITEM 30. UNDERTAKINGS.
Not applicable.
C-7
<PAGE> 85
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 21st
day of March, 2000.
MERCURY PREMIER GROWTH
FUND, INC. (Registrant)
By: /s/ TERRY K. GLENN
------------------------------------
(Terry K. Glenn, President)
Each person whose signature appears below hereby authorizes Terry K. Glenn,
Donald C. Burke and Robert C. Doll, Jr., or any of them, as attorney-in-fact, to
sign on his or her behalf, individually and in each capacity stated below, any
amendment to this 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 below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ TERRY K. GLENN President (Principal Executive March 21, 2000
- ----------------------------------------------------- Officer) and Director
(Terry K. Glenn)
/s/ DONALD C. BURKE Vice President and Treasurer March 21, 2000
- ----------------------------------------------------- (Principal Financial and
(Donald C. Burke) Accounting Officer)
/s/ JAMES H. BODURTHA Director March 21, 2000
- -----------------------------------------------------
(James H. Bodurtha)
/s/ HERBERT I. LONDON Director March 21, 2000
- -----------------------------------------------------
(Herbert I. London)
/s/ JOSEPH L. MAY Director March 21, 2000
- -----------------------------------------------------
(Joseph L. May)
/s/ ANDRE F. PEROLD Director March 21, 2000
- -----------------------------------------------------
(Andre F. Perold)
/s/ ROBERTA COOPER RAMO Director March 21, 2000
- -----------------------------------------------------
(Roberta Cooper Ramo)
Director
- -----------------------------------------------------
(Arthur Zeikel)
</TABLE>
C-8
<PAGE> 86
Master Premier Growth Trust has duly caused this Registration Statement of
Mercury Premier Growth Fund, 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 21st day of March, 2000.
MASTER PREMIER GROWTH TRUST
By: /s/ TERRY K. GLENN
------------------------------------
(Terry K. Glenn, President)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
TERRY K. GLENN* President (Principal Executive
- ----------------------------------------------------- Officer) and Trustee
(Terry K. Glenn)
DONALD C. BURKE* Vice President and Treasurer
- ----------------------------------------------------- (Principal Financial and
(Donald C. Burke) Accounting Officer)
JAMES H. BODURTHA* Trustee
- -----------------------------------------------------
(James H. Bodurtha)
HERBERT I. LONDON* Trustee
- -----------------------------------------------------
(Herbert I. London)
JOSEPH L. MAY* Trustee
- -----------------------------------------------------
(Joseph L. May)
ANDRE F. PEROLD* Trustee
- -----------------------------------------------------
(Andre F. Perold)
ROBERTA COOPER RAMO* Trustee
- -----------------------------------------------------
(Roberta Cooper Ramo)
ARTHUR ZEIKEL* Trustee
- -----------------------------------------------------
(Arthur Zeikel)
*By: /s/ TERRY K. GLENN March 21, 2000
------------------------------------------------
(Terry K. Glenn, Attorney-in-Fact)
</TABLE>
C-9
<PAGE> 87
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<C> <S> <C> <C>
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) -- Form of Class A Distribution Agreement between the
Registrant and the Distributor.
(c) -- Form of Class B Distribution Agreement between the
Registrant and the Distributor.
(d) -- Form of Class C Distribution Agreement between the
Registrant and the Distributor.
7 -- Form of Custody Agreement between the Registrant and The
Bank of New York.
8 (a) -- Form of Transfer Agency, Dividend Disbursing Agency and
Shareholder Servicing Agency Agreement between the
Registrant and Financial Data Services, Inc.
(b) -- Form of License Agreement relating to use of name among
Mercury Asset Management International, Ltd., Mercury Asset
Management Group Ltd. and the Registrant.
9 -- Opinion of Brown & Wood LLP, counsel for the Registrant.
10 -- Consent of Deloitte & Touche LLP, independent auditors for
the Registrant.
12 -- Certificate of Fund Asset Management, L.P.
13 (a) -- Form of Class A Distribution Plan of the Registrant and
Class B Distribution Plan Sub-Agreement.
(b) -- Form of Class B Distribution Plan of the Registrant and
Class C Distribution Plan Sub-Agreement.
(c) -- Form of Class C Distribution Plan of the Registrant and
Class D Distribution Plan Sub-Agreement.
15 -- Rule 18f-3 Plan.
</TABLE>
C-10
<PAGE> 1
CLASS I SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the day of 2000, between MERCURY PREMIER
GROWTH FUND, INC., a Maryland corporation (the "Fund"), and PRINCETON FUNDS
DISTRIBUTOR, INC., a Delaware corporation (the "Distributor").
W I T N E S S E T H :
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the "Investment Company Act"), as an open-end investment
company, and it is affirmatively in the interest of the Fund to offer its shares
for sale continuously; and
WHEREAS, the Fund is a "feeder" fund that invests all of its assets in
Master Premier Growth Trust which has the same investment objective and policies
as the Fund; and
WHEREAS, the Distributor is a securities firm engaged in the business
of selling shares of investment companies either directly to purchasers or
through other securities dealers; and
WHEREAS, the Fund and the Distributor wish to enter into an agreement
with each other with respect to the continuous offering of the Class I shares of
common stock of the Fund.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor. The Fund hereby appoints the
Distributor as the principal underwriter and distributor of the Fund to sell
Class I shares of common stock in the Fund (sometimes herein referred to as
"Class I shares") to eligible investors (as defined
<PAGE> 2
below) and hereby agrees during the term of this Agreement to sell Class I
shares to the Distributor upon the terms and conditions herein set forth.
Section 2. Exclusive Nature of Duties. The Distributor shall be the
exclusive representative of the Fund to act as principal underwriter and
distributor of Class I shares, except that:
(a) The Fund may, upon written notice to the Distributor, from time to
time designate other principal underwriters and distributors of Class I shares
with respect to areas other than the United States as to which the Distributor
may have expressly waived in writing its right to act as such. If such
designation is deemed exclusive, the right of the Distributor under this
Agreement to sell Class I shares in the areas so designated shall terminate, but
this Agreement shall remain otherwise in full effect until terminated in
accordance with the other provisions hereof.
(b) The exclusive right granted to the Distributor to purchase Class I
shares from the Fund shall not apply to Class I shares issued in connection with
the merger or consolidation of any other investment company or personal holding
company with the Fund or the acquisition by purchase or otherwise of all (or
substantially all) the assets or the outstanding Class I shares of any such
company by the Fund.
(c) Such exclusive right also shall not apply to Class I shares issued
by the Fund pursuant to reinvestment of dividends or capital gains
distributions.
(d) Such exclusive right also shall not apply to Class I shares issued
by the Fund pursuant to any conversion, exchange or reinstatement privilege
afforded redeeming
2
<PAGE> 3
shareholders or to any other Class I shares as shall be agreed between the Fund
and the Distributor from time to time.
Section 3. Purchase of Class I Shares from the Fund.
(a) During the continuous offering of Class I shares, the Distributor
shall have the right to buy from the Fund the Class I shares needed, but not
more than the Class I shares needed (except for clerical errors in transmission)
to fill unconditional orders for Class I shares of the Fund placed with the
Distributor by eligible investors or securities dealers. Investors eligible to
purchase Class I shares shall be those persons so identified in the currently
effective prospectus and statement of additional information relating to the
Fund (the "prospectus" and "statement of additional information," respectively)
under the Securities Act of 1933, as amended (the "Securities Act"), relating to
such Class I shares ("eligible investors"). The price which the Distributor
shall pay for the Class I shares so purchased from the Fund shall be the net
asset value of such shares, determined as set forth in Section 3(d) hereof, used
in determining the public offering price on which such orders were based.
(b) The Class I shares are to be resold by the Distributor to eligible
investors at the public offering price, as set forth in Section 3(c) hereof, or
to securities dealers having agreements with the Distributor upon the terms and
conditions set forth in Section 7 hereof.
(c) The public offering price(s) of the Class I shares, i.e., the price
per share at which the Distributor or selected dealers may sell Class I shares
to eligible investors, shall be the public offering price as set forth in the
prospectus and statement of additional information relating to such Class I
shares, but not to exceed the net asset value at which the Distributor is to
purchase the Class I shares, plus a sales charge not to exceed 5.25% of the
public offering price (5.54% of
3
<PAGE> 4
the net amount invested), subject to reductions for volume purchases. Class I
shares may be sold to certain Directors, officers and employees of the Fund,
directors and employees of Merrill Lynch & Co., Inc. and its subsidiaries, and
to certain other persons described in the prospectus and statement of additional
information, without a sales charge or at a reduced sales charge, upon terms and
conditions set forth in the prospectus and statement of additional information.
If the public offering price does not equal an even cent, the public offering
price may be adjusted to the nearest cent. All payments to the Fund hereunder
shall be made in the manner set forth in Section 3(f) hereof.
(d) The net asset value of Class I shares shall be determined by the
Fund or any agent of the Fund in accordance with the method set forth in the
prospectus and statement of additional information of the Fund and the
guidelines established by the Board of Directors of the Fund.
(e) The Fund shall have the right to suspend the sale of the Class I
shares at times when redemption of Class I shares is suspended pursuant to the
conditions set forth in Section 4(b) hereof. The Fund shall also have the right
to suspend the sale of Class I shares if trading on the New York Stock Exchange
shall have been suspended, if a banking moratorium shall have been declared by
Federal or New York authorities, or if there shall have been some other event,
which, in the judgment of the Fund, makes it impracticable or inadvisable to
sell the Class I shares.
(f) The Fund, or any agent of the Fund designated in writing by the
Fund, shall be promptly advised of all purchase orders for Class I shares
received by the Distributor. Any order may be rejected by the Fund; provided,
however, that the Fund will not arbitrarily or without reasonable cause refuse
to accept or confirm orders for the purchase of Class I shares from
4
<PAGE> 5
eligible investors. The Fund (or its agent) will confirm orders upon their
receipt, will make appropriate book entries and, upon receipt by the Fund (or
its agent) of payment therefor, will deliver deposit receipts or certificates
for such Class I shares pursuant to the instructions of the Distributor. Payment
shall be made to the Fund by wire transfer of immediately available funds. The
Distributor agrees to cause such payment and such instructions to be delivered
promptly to the Fund (or its agent).
Section 4. Repurchase or Redemption of Class I Shares by the Fund.
(a) Any of the outstanding Class I shares may be tendered for
redemption at any time, and the Fund agrees to repurchase or redeem the Class I
shares so tendered in accordance with its obligations as set forth in Article VI
of its Articles of Incorporation, as amended from time to time, and in
accordance with the applicable provisions set forth in the prospectus and
statement of additional information. The price to be paid to redeem or
repurchase the Class I shares shall be equal to the net asset value calculated
in accordance with the provisions of Section 3(d) hereof, less any contingent
deferred sales charge ("CDSC"), redemption fee or other charge(s), if any, set
forth in the prospectus and statement of additional information. All payments by
the Fund hereunder shall be made in the manner set forth below. The redemption
or repurchase by the Fund of any of the Class I shares purchased by or through
the Distributor will not affect the sales charge secured by the Distributor or
any selected dealer in the course of the original sale, except that if any Class
I shares are tendered for redemption or repurchase within seven business days
after the date of the confirmation of the original purchase, the right to the
sales charge shall be forfeited by the Distributor and the selected dealer which
sold such Class I shares.
The Fund shall pay the total amount of the redemption price as defined
in the above
5
<PAGE> 6
paragraph pursuant to the instructions of the Distributor on or before the
seventh business day subsequent to its having received the notice of redemption
in proper form. The proceeds of any redemption of shares shall be paid by the
Fund as follows: (i) any applicable CDSC shall be paid to the Distributor, and
(ii) the balance shall be paid to or for the account of the shareholder, in each
case in accordance with the applicable provisions of the prospectus and
statement of additional information.
(b) Redemption of Class I shares or payment may be suspended at times
when the New York Stock Exchange is closed, when trading on said Exchange is
suspended, when trading on said Exchange is restricted, when an emergency exists
as a result of which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the Fund fairly
to determine the value of the net assets of the Fund, or during any other period
when the Securities and Exchange Commission, by order, so permits.
Section 5. Duties of the Fund.
(a) The Fund shall furnish to the Distributor copies of all
information, financial statements and other papers which the Distributor may
reasonably request for use in connection with the distribution of Class I
shares, and this shall include, upon request by the Distributor, one certified
copy of all financial statements prepared for the Fund by independent public
accountants. The Fund shall make available to the Distributor such number of
copies of the prospectus and statement of additional information as the
Distributor shall reasonably request.
(b) The Fund shall take, from time to time, but subject to the
necessary approval of the Class I shareholders, all necessary action to fix the
number of authorized Class I shares and such steps as may be necessary to
register the same under the Securities Act, so that there will be
6
<PAGE> 7
available for sale such number of Class I shares as the Distributor may
reasonably be expected to sell.
(c) The Fund shall use its best efforts to qualify and maintain the
qualification of an appropriate number of its Class I shares for sale under the
securities laws of such states as the Distributor and the Fund may approve. Any
such qualification may be withheld, terminated or withdrawn by the Fund at any
time in its discretion. As provided in Section 8(c) hereof, the expense of
qualification of Class I shares and maintenance of qualification of Class I
shares shall be borne by the Fund. The Distributor shall furnish such
information and other material relating to its affairs and activities as may be
required by the Fund in connection with such qualification.
(d) The Fund will furnish, in reasonable quantities upon request by the
Distributor, copies of annual and interim reports relating to the Fund.
Section 6. Duties of the Distributor.
(a) The Distributor shall devote reasonable time and effort to effect
sales of Class I shares of the Fund but shall not be obligated to sell any
specific number of Class I shares. The services of the Distributor to the Fund
hereunder are not to be deemed exclusive and nothing herein contained shall
prevent the Distributor from entering into like arrangements with other
investment companies so long as the performance of its obligations hereunder is
not impaired thereby.
(b) In selling the Class I shares of the Fund, the Distributor shall
use its best efforts in all respects duly to conform with the requirements of
all Federal and state laws relating to the sale of such securities. Neither the
Distributor nor any selected dealer, as defined in Section 7
7
<PAGE> 8
hereof, nor any other person is authorized by the Fund to give any information
or to make any representations, other than those contained in the registration
statement or related prospectus and statement of additional information and any
sales literature specifically approved by the Fund.
(c) The Distributor shall adopt and follow procedures, as approved by
the officers of the Fund, for the confirmation of sales to eligible investors
and selected dealers, the collection of amounts payable by eligible investors
and selected dealers on such sales, and the cancellation of unsettled
transactions, as may be necessary to comply with the requirements of the
National Association of Securities Dealers, Inc. (the "NASD"), as such
requirements may from time to time exist.
Section 7. Selected Dealers Agreements.
(a) The Distributor shall have the right to enter into selected dealers
agreements with securities dealers of its choice ("selected dealers") for the
sale of Class I shares and fix therein the portion of the sales charge which may
be allocated to the selected dealers; provided that the Fund shall approve the
forms of agreements with such selected dealers and the dealer compensation set
forth therein. Class I shares sold to selected dealers shall be resold by such
dealers only at the public offering price(s) set forth in the prospectus and
statement of additional information. The form of agreement with selected dealers
to be used in connection with the continuous offering of Class I shares is
attached hereto as Exhibit A.
(b) Within the United States, the Distributor shall offer and sell
Class I shares only to such selected dealers as are members in good standing of
the NASD.
Section 8. Payment of Expenses.
8
<PAGE> 9
(a) The Fund shall bear all costs and expenses of the Fund, including
fees and disbursements of its counsel and auditors, in connection with the
preparation and filing of any required registration statements and/or
prospectuses and statements of additional information under the Investment
Company Act, the Securities Act, and all amendments and supplements thereto, and
preparing and mailing annual and interim reports and proxy materials to Class I
shareholders (including but not limited to the expense of setting in type any
such registration statements, prospectuses, statements of additional
information, annual or interim reports or proxy materials).
(b) The Distributor shall be responsible for any payments made to
selected dealers as reimbursement for their expenses associated with payments of
sales commissions to financial consultants. In addition, after the prospectuses,
statements of additional information and annual and interim reports have been
prepared and set in type, the Distributor shall bear the costs and expenses of
printing and distributing any copies thereof which are to be used in connection
with the offering of Class I shares to selected dealers or eligible investors
pursuant to this Agreement. The Distributor shall bear the costs and expenses of
preparing, printing and distributing any other literature used by the
Distributor or furnished by it for use by selected dealers in connection with
the offering of the Class I shares for sale to eligible investors and any
expenses of advertising incurred by the Distributor in connection with such
offering.
(c) The Fund shall bear the cost and expenses of qualification of the
Class I shares for sale pursuant to this Agreement and, if necessary or
advisable in connection therewith, of qualifying the Fund as a broker or dealer
in such states of the United States or other jurisdictions as shall be selected
by the Fund and the Distributor pursuant to Section 5(c) hereof and the cost and
expenses payable to each such state for continuing qualification therein until
the Fund
9
<PAGE> 10
decides to discontinue such qualification pursuant to Section 5(c) hereof.
Section 9. Indemnification.
(a) The Fund shall indemnify and hold harmless the Distributor and each
person, if any, who controls the Distributor against any loss, liability, claim,
damage or expense (including the reasonable cost of investigating or defending
any alleged loss, liability, claim, damage or expense and reasonable counsel
fees incurred in connection therewith), as incurred, arising by reason of any
person acquiring any Class I shares, which may be based upon the Securities Act,
or on any other statute or at common law, on the ground that the registration
statement or related prospectus and statement of additional information, as from
time to time amended and supplemented, or an annual or interim report to
shareholders of the Fund, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading, unless such statement or
omission was made in reliance upon, and in conformity with, information
furnished to the Fund in connection therewith by or on behalf of the
Distributor; provided, however, that in no case (i) is the indemnity of the Fund
in favor of the Distributor and any such controlling persons to be deemed to
protect such Distributor or any such controlling persons thereof against any
liability to the Fund or its security holders to which the Distributor or any
such controlling persons would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of their duties or
by reason of the reckless disregard of their obligations and duties under this
Agreement; or (ii) is the Fund to be liable under its indemnity agreement
contained in this paragraph with respect to any claim made against the
Distributor or any such controlling persons, unless the Distributor or such
controlling persons, as the case may be, shall have notified the Fund in writing
within a reasonable time after the summons or other first legal
10
<PAGE> 11
process giving information of the nature of the claim shall have been served
upon the Distributor or such controlling persons (or after the Distributor or
such controlling persons shall have received notice of such service on any
designated agent), but failure to notify the Fund of any such claim shall not
relieve it from any liability which it may have to the person against whom such
action is brought otherwise than on account of its indemnity agreement contained
in this paragraph. The Fund will be entitled to participate at its own expense
in the defense or, if it so elects, to assume the defense of any suit brought to
enforce any such liability, but if the Fund elects to assume the defense, such
defense shall be conducted by counsel chosen by it and satisfactory to the
Distributor or such controlling person or persons, defendant or defendants in
the suit. In the event the Fund elects to assume the defense of any such suit
and retain such counsel, the Distributor or such controlling person or persons,
defendant or defendants in the suit shall bear the fees and expenses of any
additional counsel retained by them, but in case the Fund does not elect to
assume the defense of any such suit, it will reimburse the Distributor or such
controlling person or persons, defendant or defendants in the suit, for the
reasonable fees and expenses of any counsel retained by them. The Fund shall
promptly notify the Distributor of the commencement of any litigation or
proceedings against it or any of its officers or Directors in connection with
the issuance or sale of any of the Class I shares.
(b) The Distributor shall indemnify and hold harmless the Fund and each
of its Directors and officers and each person, if any, who controls the Fund
against any loss, liability, claim, damage or expense described in the foregoing
indemnity contained in subsection (a) of this Section, but only with respect to
statements or omissions made in reliance upon, and in conformity with,
information furnished to the Fund in writing by or on behalf of the Distributor
for use in connection with the registration statement or related prospectus and
statement of
11
<PAGE> 12
additional information, as from time to time amended, or the annual or interim
reports to Class I shareholders. In case any action shall be brought against the
Fund or any person so indemnified, in respect of which indemnity may be sought
against the Distributor, the Distributor shall have the rights and duties given
to the Fund, and the Fund and each person so indemnified shall have the rights
and duties given to the Distributor by the provisions of subsection (a) of this
Section 9.
Section 10. Duration and Termination of this Agreement. This Agreement
shall become effective as of the date first above written and shall remain in
force until two years after the date first above written, and thereafter, but
only for so long as such continuance is specifically approved at least annually
by (i) the Directors or by the vote of a majority of the outstanding Class I
voting securities of the Fund and (ii) by the vote of a majority of those
Directors who are not parties to this Agreement or interested persons of any
such party cast in person at a meeting called for the purpose of voting on such
approval.
This Agreement may be terminated at any time, without the payment of
any penalty, by the Directors or by vote of a majority of the outstanding voting
Class I voting securities of the Fund, or by the Distributor, on sixty days'
written notice to the other party. This Agreement shall automatically terminate
in the event of its assignment.
The terms "vote of a majority of the outstanding voting securities",
"assignment", "affiliated person" and "interested person", when used in this
Agreement, shall have the respective meanings given to them in the Investment
Company Act.
Section 11. Amendments of this Agreement. This Agreement may be amended
by the parties only if such amendment is specifically approved by (i) the
Directors or by the vote of a majority of outstanding Class I voting securities
of the Fund and (ii) by the vote of a majority of
12
<PAGE> 13
those Directors of the Fund who are not parties to this Agreement or interested
persons of any such party cast in person at a meeting called for the purpose of
voting on such approval.
Section 12. Governing Law. The provisions of this Agreement shall be
construed and interpreted in accordance with the laws of the State of New York
as at the time in effect and the applicable provisions of the Investment Company
Act. To the extent that the applicable law of the State of New York, or any of
the provisions herein, conflict with the applicable provisions of the Investment
Company Act, the latter shall control.
13
<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
MERCURY PREMIER GROWTH FUND, INC.
By
--------------------------------------
Name:
Title:
PRINCETON FUNDS DISTRIBUTOR, INC.
By
--------------------------------------
Name:
Title:
14
<PAGE> 15
EXHIBIT A
MERCURY PREMIER GROWTH FUND, INC.
CLASS I SHARES OF COMMON STOCK
SELECTED DEALERS AGREEMENT
Ladies and Gentlemen:
Princeton Funds Distributor, Inc. (the "Distributor"), has an agreement
with Mercury Premier Growth Fund, Inc., a Maryland Corporation (the "Fund"),
pursuant to which it acts as the distributor for the sale of Class I shares of
common stock, par value $0.10 per share (herein referred to as "Class I
shares"), of the Fund and as such has the right to distribute Class I shares of
the Fund for resale. The Fund is an open-end investment company registered under
the Investment Company Act of 1940, as amended (the "Investment Company Act"),
and its Class I shares are registered under the Securities Act of 1933, as
amended (the "Securities Act"). You have received a copy of the Class I Shares
Distribution Agreement (the "Distribution Agreement") between ourselves and the
Fund and reference is made herein to certain provisions of such Distribution
Agreement. The terms "prospectus" and "statement of additional information" used
herein refer to the prospectus of the Fund and statement of additional
information of the Fund, respectively, on file with the Securities and Exchange
Commission (the "Commission") which is part of the most recent effective
registration statement of the Fund under the Securities Act. We offer to sell to
you, as a member of the Selected Dealers Group, Class I shares of the Fund for
resale to investors identified in the prospectus and statement of additional
information as eligible to purchase Class I shares ("eligible investors") upon
the following terms and conditions:
1. In all sales of these Class I shares to eligible investors, you
shall act as dealer for your own account and in no transaction shall you have
any authority to act as agent for the Fund, for us or for any other member of
the Selected Dealers Group, except in connection with such special programs as
we from time to time agree, in which case you shall have authority to offer and
sell shares, as agent for the Fund, to participants in such programs.
2. Orders received from you will be accepted through us only at the
public offering price applicable to each order, as set forth in the current
prospectus and statement of additional information subject in each case to the
delivery prior to or at the time of such sales of the then current prospectus.
The procedure relating to the handling of orders shall be subject to Section 5
hereof and instructions which we or the Fund shall forward from time to time to
you. All orders are subject to acceptance or rejection by the Distributor or the
Fund in the sole discretion of either and become effective only upon
confirmation by the Distributor. The minimum initial and subsequent purchase
requirements are as set forth in the current prospectus and statement of
additional information and no order for less than such amounts will be accepted
unless such
A-1
<PAGE> 16
purchase shall be expressly approved by the Fund in accordance with the then
current Prospectus. No conditional order will be accepted on any basis other
than a definitive one.
3. The sales charges for sales to eligible investors, computed as
percentages of the public offering price and the amount invested, and the
related discount to Selected Dealers are as follows:
<TABLE>
<CAPTION>
Discount to
Selected
Sales Charge Dealers as
Sales Charge as Percentage* Percentage
As Percentage of the Net of the
of the Amount Offering
Amount of Purchase Offering Price Invested 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.
** Initial sales charges may be waived for certain classes of offerees as set
forth in the current prospectus and statement of additional information relating
to the Fund. Such purchases may be subject to a contingent deferred sales charge
as set forth in the current prospectus and statement of additional information.
The term "purchase" 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 spouse and their children under the
age of 21 years purchasing Class I shares for his or their own account and to
single purchases by a trustee or other fiduciary purchasing Class I 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 which has not been in existence for at
least six months or which has no purpose other than the
A-2
<PAGE> 17
purchase of Class I shares of the Fund or Class I 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 reduced sales charges are applicable through a right of
accumulation under which certain eligible investors are permitted to purchase
Class I shares of the Fund at the offering price applicable to the total of (a)
the dollar amount 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 Class I, Class A, Class B and Class C shares of the Fund
and of any other open-end investment company advised by Fund Asset Management,
L.P. or an affiliate thereof (together "FAM-advised 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 you, with sufficient information to
permit confirmation of qualification, and acceptance of the purchase order is
subject to such confirmation.
The reduced sales charges are applicable to purchases aggregating
$25,000 or more of Class I shares or of Class A shares of any other FAM-advised
mutual fund made through you within a thirteen-month period starting with the
first purchase pursuant to a Letter of Intent in the form provided in the
prospectus. A purchase not originally made pursuant to a Letter of Intent may be
included under a subsequent letter executed within 90 days of such purchase if
the Distributor is informed in writing of this intent within such 90-day period.
If the intended amount of shares is not purchased within the thirteen-month
period, an appropriate price adjustment will be made pursuant to the terms of
the Letter of Intent.
You agree to advise us promptly at our request as to amounts of any
sales made by you to eligible investors qualifying for reduced sales charges.
Further information as to the reduced sales charges pursuant to the right of
accumulation or a Letter of Intent is set forth in the prospectus and statement
of additional information.
4. As an authorized agent to sell shares of the Fund, you agree to
purchase shares of the Fund only through us or from your customers. You shall
not place orders for any of the Class I shares except for your own investment
purposes or unless you have already received purchase orders for such Class I
shares at the applicable public offering prices, and subject to the terms hereof
and of the Distribution Agreement. We agree that we will not place orders for
the purchase of shares from the Fund except to cover purchase orders already
received by us. You agree that you will not offer or sell any of the Class I
shares except under circumstances that will result in compliance with the
applicable Federal and state securities laws and that in connection with sales
and offers to sell Class I shares you will furnish to each person to whom any
such sale or offer is made a copy of the prospectus and, if requested, the
statement of additional information (as then amended or supplemented) and will
not furnish to any person any information relating to the Class I shares of the
Fund which is inconsistent in any respect with the information contained in the
prospectus and statement of additional information (as then amended or
supplemented) or cause any advertisement to be published in any newspaper or
posted in any public place without our consent and the consent of the Fund.
A-3
<PAGE> 18
5. As a selected dealer, you are hereby authorized (i) to place orders
directly with the Fund for Class I shares of the Fund to be resold by us to you
subject to the applicable terms and conditions governing the placement of orders
by us set forth in Section 3 of the Distribution Agreement and subject to the
compensation provisions of Section 3 hereof and (ii) to tender Class I shares
directly to the Fund or its agent for redemption subject to the applicable terms
and conditions set forth in Section 4 of the Distribution Agreement.
6. You agree to place orders received from your customers as soon as
practicable after your receipt of such orders. You further agree that you shall
not withhold placing orders received from your customers so as to profit
yourself as a result of such withholding, e.g., by a change in the "net asset
value" from that used in determining the offering price to your customers.
7. Settlement shall be made promptly, but in no case later than the
time customary for such payments after our acceptance of the order or, if so
specified by you, we will make delivery by draft on you, the amount of which
draft you agree to pay on presentation to you. If payment is not so received or
made, the right is reserved forthwith to cancel the sale or at our option to
resell the shares to the Fund at the then prevailing net asset value in which
latter case you agree to be responsible for any loss resulting to the Fund or to
us from your failure to make payment as aforesaid.
8. If any Class I shares sold to you under the terms of this Agreement
are repurchased by the Fund or by us for the account of the Fund or are tendered
for redemption within seven business days after the date of the confirmation of
the original purchase by you, it is agreed that you shall forfeit your right to,
and refund to us, any discount received by you on such Class I shares.
9. No person is authorized to make any representations concerning Class
I shares of the Fund except those contained in the current prospectus and
statement of additional information and in such printed information subsequently
issued by us or the Fund as information supplemental to such prospectus and
statement of additional information. In purchasing Class I shares through us,
you shall rely solely on the representations contained in the prospectus and
statement of additional information and supplemental information mentioned
above. Any printed information that we furnish you other than the prospectus,
statement of additional information, periodic reports and proxy solicitation
material relating to the Fund is our sole responsibility and not the
responsibility of the Fund with respect to the Fund, and you agree that the Fund
shall have no liability or responsibility to you in these respects unless
expressly assumed in connection therewith.
10. You agree to deliver to each of the purchasers making purchases
from you a copy of the then current prospectus and, if requested, the statement
of additional information at or prior to the time of offering or sale and you
agree thereafter to deliver to such purchasers copies of the annual and interim
reports and proxy solicitation materials relating to the Fund. You further agree
to endeavor to obtain proxies from such purchasers. Additional copies of the
prospectus and statement of additional information, annual or interim reports
and proxy solicitation materials relating to the Fund will be supplied to you in
reasonable quantities upon request.
A-4
<PAGE> 19
11. All sales will be subject to receipt of shares by us from the Fund.
We reserve the right in our discretion, without notice, to suspend sales or
withdraw the offering of Class I shares entirely or to certain persons or
entities in a class or classes specified by us or to modify or cancel this
Agreement.
12. We, our affiliates, the Fund (and its officers and directors), and
the Trust (and its officers and trustees) shall not be liable for any loss,
expenses, damages, costs or other claims arising out of any redemption or
exchange pursuant to telephone instructions from any person, or our refusal to
execute such instructions for any reason.
13. You and we understand and agree that you are solely responsible for
the recommendation by your sales personnel to your customers of the purchase or
sale of Class I shares of the Fund and the suitability of such purchase or sale
for the customer involved.
14. We shall have full authority to take such action as we may deem
advisable relating to the continuous offering of Class I shares of the Fund. We
shall be under no liability to you except for lack of good faith and for
obligations expressly assumed by us herein. Nothing contained in this paragraph
is intended to operate as, and the provisions of this paragraph shall not in any
way whatsoever constitute, a waiver by you of compliance with any provision of
the Securities Act of 1933, as amended, or of the rules and regulations of the
Commission issued thereunder.
15. By accepting this Agreement, you represent that you are registered
as a broker-dealer under the Securities Exchange Act of 1934, as amended, are
qualified to act as a broker or dealer in the states or other jurisdictions
where you transact business, and are a member in good standing of the National
Association of Securities Dealers, Inc. the ("NASD"), and you agree that you
will maintain such registrations, qualifications, and membership in good
standing and in full force and effect throughout the term of this Agreement. You
further agree to comply with all applicable Federal laws, the laws of the states
or other jurisdictions concerned, and the rules and regulations promulgated
thereunder and with the Constitution, By-Laws and Conduct Rules of the NASD, and
that you will not offer or sell shares of the Fund in any state or jurisdiction
where they may not lawfully be offered and/or sold.
If you are offering and selling shares of the Fund in any jurisdiction
outside the several states, territories, and possessions of the United States
and are not otherwise required to be registered, qualified, or a member of the
NASD, as set forth above, you nevertheless agree to observe the applicable laws
of the jurisdiction in which such offer and/or sale is made, to comply with the
full disclosure requirements of the Securities Act and the regulations
promulgated thereunder, to conduct your business in accordance with the spirit
of the Conduct Rules of the NASD. You agree to indemnify and hold the Fund, its
investment adviser, and us harmless from loss or damage resulting from any
failure on your part to comply with applicable laws.
16. Upon application to us, we will inform you concerning the states in
which we believe the Class I shares have been qualified for sale under, or are
exempt from the requirements of, the respective securities laws of such states,
but we assume no responsibility or obligation as to your right to sell Class I
shares in any jurisdiction. We will file with the
A-5
<PAGE> 20
Department of State in New York a Further State Notice with respect to the Class
I shares, if necessary.
17. All communications to us should be sent to the address below. Any
notice to you shall be duly given if mailed or telegraphed to you at the address
specified by you below.
18. You agree to maintain records of all sales of shares made through
you and to furnish us with copies of each record on request.
19. You and we understand and agree that, except as expressly provided
in this Agreement, in no transaction will you have any authority to take any
action or make any representation binding upon the Fund, us or any other member
of the Selected Dealers Group.
20. This Agreement may be amended by us from time to time by the
following procedure. We will mail a copy of the amendment to you at your address
as specified below. If you do not object to the amendment within fifteen (15)
days after its receipt, the amendment will become a part of the Agreement. Your
objection must be in writing and be received by us within such fifteen days.
21. This Agreement may be terminated upon its attempted assignment by
you, whether by operation of law or otherwise, or by us otherwise than by
operation of law.
A-6
<PAGE> 21
22. Your first order placed pursuant to this Agreement or any amendment
therefor for the purchase of Class I shares of the Fund will represent your
acceptance of this Agreement or any such amendment.
PRINCETON FUNDS DISTRIBUTOR, INC.
By
--------------------------------------
(Authorized Signature)
Please return one signed copy of this agreement to:
PRINCETON FUNDS DISTRIBUTOR, INC.
P.O. Box 9081
Princeton, New Jersey 08543-9081
Accepted:
Firm Name:
--------------------------------------
By:
--------------------------------------
Address:
--------------------------------------
--------------------------------------
Date:
--------------------------------------
A-7
<PAGE> 1
CLASS A SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the ______ day of __________ 2000, between MERCURY
PREMIER GROWTH FUND, INC., a Maryland corporation (the "Fund"), and PRINCETON
FUNDS DISTRIBUTOR, INC., a Delaware corporation (the "Distributor").
W I T N E S S E T H :
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the "Investment Company Act"), as an open-end investment
company, and it is affirmatively in the interest of the Fund to offer its shares
for sale continuously; and
WHEREAS, the Fund is a "feeder" fund that invests all of its assets in
Master Premier Growth Trust which has the same investment objective and policies
as the Fund; and
WHEREAS, the Distributor is a securities firm engaged in the business
of selling shares of investment companies either directly to purchasers or
through other securities dealers; and
WHEREAS, the Fund and the Distributor wish to enter into an agreement
with each other with respect to the continuous offering of the Class A shares of
common stock of the Fund.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor. The Fund hereby appoints the
Distributor as the principal underwriter and distributor of the Fund to sell
Class A shares of common stock in the Fund (sometimes herein referred to as
"Class A shares") to eligible investors (as defined
<PAGE> 2
below) and hereby agrees during the term of this Agreement to sell Class A
shares to the Distributor upon the terms and conditions herein set forth.
Section 2. Exclusive Nature of Duties. The Distributor shall be the
exclusive representative of the Fund to act as principal underwriter and
distributor of Class A shares except that:
(a) The Fund may, upon written notice to the Distributor, from time to
time designate other principal underwriters and distributors of Class A shares
with respect to areas other than the United States as to which the Distributor
may have expressly waived in writing its right to act as such. If such
designation is deemed exclusive, the right of the Distributor under this
Agreement to sell Class A shares in the areas so designated shall terminate, but
this Agreement shall remain otherwise in full effect until terminated in
accordance with the other provisions hereof.
(b) The exclusive right granted to the Distributor to purchase Class A
shares from the Fund shall not apply to Class A shares issued in connection with
the merger or consolidation of any other investment company or personal holding
company with the Fund or the acquisition by purchase or otherwise of all (or
substantially all) the assets or the outstanding Class A shares of any such
company by the Fund.
(c) Such exclusive right also shall not apply to Class A shares issued
by the Fund pursuant to reinvestment of dividends or capital gains
distributions.
(d) Such exclusive right also shall not apply to Class A shares issued
by the Fund pursuant to any conversion, exchange or reinstatement privilege
afforded redeeming
2
<PAGE> 3
shareholders or to any other Class A shares as shall be agreed between the Fund
and the Distributor from time to time.
Section 3. Purchase of Class A Shares from the Fund.
(a) During the continuous offering of Class A shares, the Distributor
shall have the right to buy from the Fund the Class A shares needed, but not
more than the Class A shares needed (except for clerical errors in transmission)
to fill unconditional orders for Class A shares of the Fund placed with the
Distributor by eligible investors or securities dealers. Investors eligible to
purchase Class A shares shall be those persons so identified in the currently
effective prospectus and statement of additional information relating to the
Fund (the "prospectus" and "statement of additional information," respectively)
under the Securities Act of 1933, as amended (the "Securities Act"), relating to
such Class A shares ("eligible investors"). The price which the Distributor
shall pay for the Class A shares so purchased from the Fund shall be the net
asset value of such shares, determined as set forth in Section 3(d) hereof, used
in determining the public offering price on which such orders were based.
(b) The Class A shares are to be resold by the Distributor to eligible
investors at the public offering price, as set forth in Section 3(c) hereof, or
to securities dealers having agreements with the Distributor upon the terms and
conditions set forth in Section 7 hereof.
(c) The public offering price(s) of the Class A shares, i.e., the price
per share at which the Distributor or selected dealers may sell Class A shares
to eligible investors, shall be the public offering price as set forth in the
prospectus and statement of additional information relating to such Class A
shares, but not to exceed the net asset value at which the Distributor is to
purchase the Class A shares, plus a sales charge not to exceed 5.25% of the
public offering price
3
<PAGE> 4
(5.54% of the net amount invested), subject to reductions for volume purchases.
Class A shares may be sold to certain Directors, officers and employees of the
Fund, directors and employees of Merrill Lynch & Co., Inc. and its subsidiaries,
and to certain other persons described in the prospectus and statement of
additional information, without a sales charge or at a reduced sales charge,
upon terms and conditions set forth in the prospectus and statement of
additional information. If the public offering price does not equal an even
cent, the public offering price may be adjusted to the nearest cent. All
payments to the Fund hereunder shall be made in the manner set forth in Section
3(f) hereof.
(d) The net asset value of Class A shares shall be determined by the
Fund or any agent of the Fund in accordance with the method set forth in the
prospectus and statement of additional information of the Fund and the
guidelines established by the Board of Directors of the Fund.
(e) The Fund shall have the right to suspend the sale of the Class A
shares at times when redemption of Class I shares is suspended pursuant to the
conditions set forth in Section 4(b) hereof. The Fund shall also have the right
to suspend the sale of Class A shares if trading on the New York Stock Exchange
shall have been suspended, if a banking moratorium shall have been declared by
Federal or New York authorities, or if there shall have been some other event,
which, in the judgment of the Fund, makes it impracticable or inadvisable to
sell the Class A shares.
(f) The Fund, or any agent of the Fund designated in writing by the
Fund, shall be promptly advised of all purchase orders for Class A shares
received by the Distributor. Any order may be rejected by the Fund; provided,
however, that the Fund will not arbitrarily or
4
<PAGE> 5
without reasonable cause refuse to accept or confirm orders for the purchase of
Class A shares from eligible investors. The Fund (or its agent) will confirm
orders upon their receipt, will make appropriate book entries and, upon receipt
by the Fund (or its agent) of payment therefor, will deliver deposit receipts or
certificates for such Class A shares pursuant to the instructions of the
Distributor. Payment shall be made to the Fund by wire transfer of immediately
available funds. The Distributor agrees to cause such payment and such
instructions to be delivered promptly to the Fund (or its agent).
Section 4. Repurchase or Redemption of Class A Shares by the Fund.
(a) Any of the outstanding Class A shares may be tendered for
redemption at any time, and the Fund agrees to repurchase or redeem the Class A
shares so tendered in accordance with its obligations as set forth in Article VI
of its Articles of Incorporation, as amended from time to time, and in
accordance with the applicable provisions set forth in the prospectus and
statement of additional information. The price to be paid to redeem or
repurchase the Class A shares shall be equal to the net asset value calculated
in accordance with the provisions of Section 3(d) hereof less any contingent
deferred sales charge ("CDSC"), redemption fee(s) or other hereof charge(s), if
any, set forth in the prospectus and statement of additional information. All
payments by the Fund hereunder shall be made in the manner set forth below. The
redemption or repurchase by the Fund of any of the Class A shares purchased by
or through the Distributor will not affect the sales charge secured by the
Distributor or any selected dealer in the course of the original sale, except
that if any Class A shares are tendered for redemption or repurchase within
seven business days after the date of the confirmation of the original purchase,
the right to the sales charge shall be forfeited by the Distributor and the
selected dealer which sold such Class A shares.
5
<PAGE> 6
The Fund shall pay the total amount of the redemption price as defined
in the above paragraph pursuant to the instructions of the Distributor on or
before the seventh business day subsequent to its having received the notice of
redemption in proper form. The proceeds of any redemption of shares shall be
paid by the Fund as follows: (i) any applicable CDSC shall be paid to the
Distributor, and (ii) the balance shall be paid to or for the account of the
shareholder, in each case in accordance with the applicable provisions of the
prospectus and statement of additional information.
(b) Redemption of Class A shares or payment may be suspended at times
when the New York Stock Exchange is closed, when trading on said Exchange is
suspended, when trading on said Exchange is restricted, when an emergency exists
as a result of which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the Fund fairly
to determine the value of the net assets of the Fund, or during any other period
when the Securities and Exchange Commission, by order, so permits.
Section 5. Duties of the Fund.
(a) The Fund shall furnish to the Distributor copies of all
information, financial statements and other papers which the Distributor may
reasonably request for use in connection with the distribution of Class A
shares, and this shall include, upon request by the Distributor, one certified
copy of all financial statements prepared for the Fund by independent public
accountants. The Fund shall make available to the Distributor such number of
copies of the prospectus and statement of additional information as the
Distributor shall reasonably request.
(b) The Fund shall take, from time to time, but subject to the
necessary approval of the Class A shareholders, all necessary action to fix the
number of authorized Class A shares and
6
<PAGE> 7
such steps as may be necessary to register the same under the Securities Act, so
that there will be available for sale such number of Class A shares as the
Distributor may reasonably be expected to sell.
(c) The Fund shall use its best efforts to qualify and maintain the
qualification of an appropriate number of its Class A shares for sale under the
securities laws of such states as the Distributor and the Fund may approve. Any
such qualification may be withheld, terminated or withdrawn by the Fund at any
time in its discretion. As provided in Section 8(c) hereof, the expense of
qualification of class A shares and maintenance of qualification of Class A
shares shall be borne by the Fund. The Distributor shall furnish such
information and other material relating to its affairs and activities as may be
required by the Fund in connection with such qualification.
(d) The Fund will furnish, in reasonable quantities upon request by the
Distributor, copies of annual and interim reports relating to the Fund.
Section 6. Duties of the Distributor.
(a) The Distributor shall devote reasonable time and effort to effect
sales of Class A shares of the Fund but shall not be obligated to sell any
specific number of Class A shares. The services of the Distributor to the Fund
hereunder are not to be deemed exclusive and nothing herein contained shall
prevent the Distributor from entering into like arrangements with other
investment companies so long as the performance of its obligations hereunder is
not impaired thereby.
7
<PAGE> 8
(b) In selling the Class A shares of the Fund, the Distributor shall
use its best efforts in all respects duly to conform with the requirements of
all Federal and state laws relating to the sale of such securities. Neither the
Distributor nor any selected dealer, as defined in Section 7 hereof, nor any
other person is authorized by the Fund to give any information or to make any
representations, other than those contained in the registration statement or
related prospectus and statement of additional information and any sales
literature specifically approved by the Fund.
(c) The Distributor shall adopt and follow procedures, as approved by
the officers of the Fund, for the confirmation of sales to eligible investors
and selected dealers, the collection of amounts payable by eligible investors
and selected dealers on such sales, and the cancellation of unsettled
transactions, as may be necessary to comply with the requirements of the
National Association of Securities Dealers, Inc. (the "NASD"), as such
requirements may from time to time exist.
Section 7. Selected Dealers Agreements.
(a) The Distributor shall have the right to enter into selected dealers
agreements with securities dealers of its choice ("selected dealers") for the
sale of Class A shares and fix therein the portion of the sales charge which may
be allocated to the selected dealers; provided that the Fund shall approve the
forms of agreements with such selected dealers and the dealer compensation set
forth therein. Class A shares sold to selected dealers shall be resold by such
dealers only at the public offering price(s) set forth in the prospectus and
statement of additional information. The form of agreement with selected dealers
to be used in connection with the continuous offering of the Class A shares is
attached hereto as Exhibit A.
8
<PAGE> 9
(b) Within the United States, the Distributor shall offer and sell
Class A shares only to such selected dealers as are members in good standing of
the NASD.
Section 8. Payment of Expenses.
(a) The Fund shall bear all costs and expenses of the Fund, including
fees and disbursements of its counsel and auditors, in connection with the
preparation and filing of any required registration statements and/or
prospectuses and statements of additional information under the Investment
Company Act, the Securities Act, and all amendments and supplements thereto, and
preparing and mailing annual and interim reports and proxy materials to Class A
shareholders (including but not limited to the expense of setting in type any
such registration statements, prospectuses, statements of additional
information, annual or interim reports or proxy materials).
(b) The Distributor shall be responsible for any payments made to
selected dealers as reimbursement for their expenses associated with payments of
sales commissions to financial consultants. In addition, after the prospectuses,
statements of additional information and annual and interim reports have been
prepared and set in type, the Distributor shall bear the costs and expenses of
printing and distributing any copies thereof which are to be used in connection
with the offering of Class A shares to selected dealers or investors pursuant to
this Agreement. The Distributor shall bear the costs and expenses of preparing,
printing and distributing any other literature used by the Distributor or
furnished by it for use by selected dealers in connection with the offering of
the Class A shares for sale to eligible investors and any expenses of
advertising incurred by the Distributor in connection with such offering. It is
understood and agreed that so long as the Fund's Class A Shares Distribution
Plan pursuant to Rule 12b-1 under the Investment
9
<PAGE> 10
Company Act remains in effect, any expenses incurred by the Distributor
hereunder in connection with account maintenance activities may be paid from
amounts recovered by it from the Fund under such plan.
(c) The Fund shall bear the cost and expenses of qualification of the
Class A shares for sale pursuant to this Agreement and, if necessary or
advisable in connection therewith, of qualifying the Fund as a broker or dealer
in such states of the United States or other jurisdictions as shall be selected
by the Fund and the Distributor pursuant to Section 5(c) hereof and the cost and
expenses payable to each such state for continuing qualification therein until
the Fund decides to discontinue such qualification pursuant to Section 5(c)
hereof.
Section 9. Indemnification.
(a) The Fund shall indemnify and hold harmless the Distributor and each
person, if any, who controls the Distributor against any loss, liability, claim,
damage or expense (including the reasonable cost of investigating or defending
any alleged loss, liability, claim, damage or expense and reasonable counsel
fees incurred in connection therewith), as incurred, arising by reason of any
person acquiring any Class A shares, which may be based upon the Securities Act,
or on any other statute or at common law, on the ground that the registration
statement or related prospectus and statement of additional information, as from
time to time amended and supplemented, or an annual or interim report to
shareholders of the Fund, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading, unless such statement or
omission was made in reliance upon, and in conformity with, information
furnished to the Fund in connection therewith by or on behalf of the
Distributor; provided, however, that in no case (i)
10
<PAGE> 11
is the indemnity of the Fund in favor of the Distributor and any such
controlling persons to be deemed to protect such Distributor or any such
controlling persons thereof against any liability to the Fund or its security
holders to which the Distributor or any such controlling persons would otherwise
be subject by reason of willful misfeasance, bad faith or gross negligence in
the performance of their duties or by reason of the reckless disregard of their
obligations and duties under this Agreement; or (ii) is the Fund to be liable
under its indemnity agreement contained in this paragraph with respect to any
claim made against the Distributor or any such controlling persons, unless the
Distributor or such controlling persons, as the case may be, shall have notified
the Fund in writing within a reasonable time after the summons or other first
legal process giving information of the nature of the claim shall have been
served upon the Distributor or such controlling persons (or after the
Distributor or such controlling persons shall have received notice of such
service on any designated agent), but failure to notify the Fund of any such
claim shall not relieve it from any liability which it may have to the person
against whom such action is brought otherwise than on account of its indemnity
agreement contained in this paragraph. The Fund will be entitled to participate
at its own expense in the defense or, if it so elects, to assume the defense of
any suit brought to enforce any such liability, but if the Fund elects to assume
the defense, such defense shall be conducted by counsel chosen by it and
satisfactory to the Distributor or such controlling person or persons, defendant
or defendants in the suit. In the event the Fund elects to assume the defense of
any such suit and retain such counsel, the Distributor or such controlling
person or persons, defendant or defendants in the suit shall bear the fees and
expenses of any additional counsel retained by them, but in case the Fund does
not elect to assume the defense of any such suit, it will reimburse the
Distributor or such controlling person or persons, defendant or defendants in
the suit, for the reasonable fees and
11
<PAGE> 12
expenses of any counsel retained by them. The Fund shall promptly notify the
Distributor of the commencement of any litigation or proceedings against it or
any of its officers or Directors in connection with the issuance or sale of any
of the Class A shares.
(b) The Distributor shall indemnify and hold harmless the Fund and each
of its Directors and officers and each person, if any, who controls the Fund
against any loss, liability, claim, damage or expense described in the foregoing
indemnity contained in subsection (a) of this Section, but only with respect to
statements or omissions made in reliance upon, and in conformity with,
information furnished to the Fund in writing by or on behalf of the Distributor
for use in connection with the registration statement or related prospectus and
statement of additional information, as from time to time amended, or the annual
or interim reports to Class A shareholders. In case any action shall be brought
against the Fund or any person so indemnified, in respect of which indemnity may
be sought against the Distributor, the Distributor shall have the rights and
duties given to the Fund, and the Fund and each person so indemnified shall have
the rights and duties given to the Distributor by the provisions of subsection
(a) of this Section 9.
12
<PAGE> 13
Section 10. Duration and Termination of this Agreement. This Agreement
shall become effective as of the date first above written and shall remain in
force until two years after the date first above written, and thereafter, but
only for so long as such continuance is specifically approved at least annually
by (i) the Directors or by the vote of a majority of the outstanding Class A
voting securities of the Fund and (ii) by the vote of a majority of those
Directors who are not parties to this Agreement or interested persons of any
such party cast in person at a meeting called for the purpose of voting on such
approval.
This Agreement may be terminated at any time, without the payment of
any penalty, by the Directors or by vote of a majority of the outstanding Class
A voting securities of the Fund, or by the Distributor, on sixty days' written
notice to the other party. This Agreement shall automatically terminate in the
event of its assignment.
The terms "vote of a majority of the outstanding voting securities,"
"assignment," "affiliated person" and "interested person," when used in this
Agreement, shall have the respective meanings given to them in the Investment
Company Act.
Section 11. Amendments of this Agreement. This Agreement may be amended
by the parties only if such amendment is specifically approved by (i) the
Directors or by the vote of a majority of outstanding Class A voting securities
of the Fund and (ii) by the vote of a majority of those Directors of the Fund
who are not parties to this Agreement or interested persons of any such party
cast in person at a meeting called for the purpose of voting on such approval.
Section 12. Governing Law. The provisions of this Agreement shall be
construed and interpreted in accordance with the laws of the State of New York
as at the time in effect and the applicable provisions of the Investment Company
Act. To the extent that the applicable law of
13
<PAGE> 14
the State of New York, or any of the provisions herein, conflict with the
applicable provisions of the Investment Company Act, the latter shall control.
14
<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
MERCURY PREMIER GROWTH FUND, INC.
By
--------------------------------------
Name:
Title:
PRINCETON FUNDS DISTRIBUTOR, INC.
By
--------------------------------------
Name:
Title:
15
<PAGE> 16
EXHIBIT A
MERCURY PREMIER GROWTH FUND, INC.
CLASS A SHARES OF COMMON STOCK
SELECTED DEALERS AGREEMENT
Ladies and Gentlemen:
Princeton Funds Distributor, Inc. (the "Distributor"), has an agreement
with Mercury Premier Growth Fund, Inc., a Maryland corporation (the "Fund"),
pursuant to which it acts as the distributor for the sale of Class A shares of
common stock, par value $0.10 per share (herein referred to as "Class A
shares"), of the Fund and as such has the right to distribute Class A shares of
the Fund for resale. The Fund is an open-end investment company registered under
the Investment Company Act of 1940, as amended (the "Investment Company Act"),
and its Class A shares are registered under the Securities Act of 1933, as
amended (the "Securities Act"). You have received a copy of the Class A Shares
Distribution Agreement (the "Distribution Agreement") between ourselves and the
Fund and reference is made herein to certain provisions of such Distribution
Agreement. The terms "prospectus" and "statement of additional information" used
herein refer to the prospectus of the Fund and statement of additional
information of the Fund, respectively, on file with the Securities and Exchange
Commission (the "Commission"), which is part of the most recent effective
registration statement of the Fund under the Securities Act. We offer to sell to
you, as a member of the Selected Dealers Group, Class A shares of the Fund upon
the following terms and conditions:
1. In all sales of these Class A shares to eligible investors, you
shall act as dealer for your own account and in no transaction shall you have
any authority to act as agent for the Fund, for us or for any other member of
the Selected Dealers Group, except in connection with such special programs as
we from time to time agree, in which case you shall have authority to offer and
sell shares, as agent for the Fund, to participants in such programs.
2. Orders received from you will be accepted through us only at the
public offering price applicable to each order, as set forth in the current
prospectus and statement of additional information subject in each case to the
delivery prior to or at the time of such sales of the then current prospectus.
The procedure relating to the handling of orders shall be subject to Section 5
hereof and instructions which we or the Fund shall forward from time to time to
you. All orders are subject to acceptance or rejection by the Distributor or the
Fund in the sole discretion of either and become effective only upon
confirmation by the Distributor. The minimum initial and subsequent purchase
requirements are as set forth in the current prospectus and statement of
additional information relating to the Fund and no order for less than such
amounts will be accepted unless such purchase shall be expressly approved by the
Fund in accordance with the
A-1
<PAGE> 17
then current Prospectus. No conditional order will be accepted on any basis
other than a definitive one.
3. The sales charges for sales to eligible investors, computed as
percentages of the public offering price and the amount invested, and the
related discount to Selected Dealers are as follows:
<TABLE>
<CAPTION>
Discount to
Selected
Sales Charge Dealers as
Sales Charge as Percentage* Percentage
As Percentage of the Net of the
of the Amount Offering
Amount of Purchase Offering Price Invested 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.
** Initial sales charges may be waived for certain classes of offerees as set
forth in the current prospectus and statement of additional information relating
to the Fund. Such purchases may be subject to a contingent deferred sales charge
as set forth in the current prospectus and statement of additional information.
The term "purchase" 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 spouse and their children under the
age of 21 years purchasing Class A shares for his or their own account and to
single purchases by a trustee or other fiduciary purchasing Class A shares for a
single trust estate or single fiduciary account although more than one
beneficiary is involved.
A-2
<PAGE> 18
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 which has not been in existence for at least six months or which has no
purpose other than the purchase of Class A shares of the Fund or Class A 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 reduced sales charges are applicable through a right of
accumulation under which certain eligible investors are permitted to purchase
Class A shares of the Fund at the offering price applicable to the total of (a)
the dollar amount 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 Class I, Class A, Class B and Class C shares of the Fund
and of any other open-end investment company advised by Fund Asset Management,
L.P. or an affiliate thereof (together "FAM-advised 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 you, with sufficient information to
permit confirmation of qualification, and acceptance of the purchase order is
subject to such confirmation.
The reduced sales charges are applicable to purchases aggregating
$25,000 or more of Class I shares or of Class A shares of any other FAM-advised
mutual fund made through you within a thirteen-month period starting with the
first purchase pursuant to a Letter of Intent in the form provided in the
prospectus. A purchase not originally made pursuant to a Letter of Intent may be
included under a subsequent letter executed within 90 days of such purchase if
the Distributor is informed in writing of this intent within such 90-day period.
If the intended amount of shares is not purchased within the thirteen-month
period, an appropriate price adjustment will be made pursuant to the terms of
the Letter of Intent.
You agree to advise us promptly at our request as to amounts of any
sales made by you to eligible investors qualifying for reduced sales charges.
Further information as to the reduced sales charges pursuant to the right of
accumulation or a Letter of Intent is set forth in the prospectus and statement
of additional information.
4. As an authorized agent to sell shares of the Fund, you agree to
purchase shares of the Fund only through us or from your customers. You shall
not place orders for any of the Class A shares except for your own investment
purposes or unless you have already received purchase orders for such Class A
shares at the applicable public offering prices, and subject to the terms hereof
and of the Distribution Agreement. We agree that we will not place orders for
the purchase of shares from the Fund except to cover purchase orders already
received by us. You agree that you will not offer or sell any of the Class A
shares except under circumstances that will result in compliance with the
applicable Federal and state securities laws and that in connection with sales
and offers to sell Class A shares you will furnish to each person to whom any
such sale or offer is made a copy of the prospectus and, if requested, the
statement of additional information (as then
A-3
<PAGE> 19
amended or supplemented) and will not furnish to any person any information
relating to the Class A shares of the Fund which is inconsistent in any respect
with the information contained in the prospectus and statement of additional
information (as then amended or supplemented) or cause any advertisement to be
published in any newspaper or posted in any public place without our consent and
the consent of the Fund.
5. As a selected dealer, you are hereby authorized (i) to place orders
directly with the Fund for Class A shares of the Fund to be resold by us to you
subject to the applicable terms and conditions governing the placement of orders
by us set forth in Section 3 of the Distribution Agreement and subject to the
compensation provisions of Section 3 hereof and (ii) to tender Class A shares
directly to the Fund or its agent for redemption subject to the applicable terms
and conditions set forth in Section 4 of the Distribution Agreement.
6. You agree to place orders received from your customers as soon as
practicable after your receipt of such orders. You further agree that you shall
not withhold placing orders received from your customers so as to profit
yourself as a result of such withholding, e.g., by a change in the "net asset
value" from that used in determining the offering price to your customers.
7. Settlement shall be made promptly, but in no case later than the
time customary for such payments after our acceptance of the order or, if so
specified by you, we will make delivery by draft on you, the amount of which
draft you agree to pay on presentation to you. If payment is not so received or
made, the right is reserved forthwith to cancel the sale or at our option to
resell the shares to the Fund at the then prevailing net asset value in which
latter case you agree to be responsible for any loss resulting to the Fund or to
us from your failure to make payment as aforesaid.
8. If any Class A shares sold to you under the terms of this Agreement
are repurchased by the Fund or by us for the account of the Fund or are tendered
for redemption within seven business days after the date of the confirmation of
the original purchase by you, it is agreed that you shall forfeit your right to,
and refund to us, any discount received by you on such Class A shares.
9. No person is authorized to make any representations concerning Class
A shares of the Fund except those contained in the current prospectus and
statement of additional information and in such printed information subsequently
issued by us or the Fund as information supplemental to such prospectus and
statement of additional information. In purchasing Class A shares through us you
shall rely solely on the representations contained in the prospectus and
statement of additional information and supplemental information mentioned
above. Any printed information that we furnish you other than the prospectus,
statement of additional information, periodic reports and proxy solicitation
material relating to the Fund is our sole responsibility and not the
responsibility of the Fund, and you agree that the Fund shall have no liability
or responsibility to you in these respects unless expressly assumed in
connection therewith.
10. You agree to deliver to each of the purchasers making purchases
from you a copy of the then current prospectus and, if requested, the statement
of additional information at or prior
A-4
<PAGE> 20
to the time of offering or sale and you agree thereafter to deliver to such
purchasers copies of the annual and interim reports and proxy solicitation
materials relating to the Fund. You further agree to endeavor to obtain proxies
from such purchasers. Additional copies of the prospectus and statement of
additional information, annual or interim reports and proxy solicitation
materials of the Fund will be supplied to you in reasonable quantities upon
request.
11. All sales will be subject to receipt of shares by us from the Fund.
We reserve the right in our discretion, without notice, to suspend sales or
withdraw the offering of Class A shares entirely or to certain persons or
entities in a class or classes specified by us or to modify or cancel this
Agreement.
12. We, our affiliates, the Fund (and its officers and directors), and
the Trust (and its officers and trustees) shall not be liable for any loss,
expenses, damages, costs or other claims arising out of any redemption or
exchange pursuant to telephone instructions from any person, or our refusal to
execute such instructions for any reason.
13. You and we understand and agree that you are solely responsible for
the recommendation by your sales personnel to your customers of the purchase or
sale of Class A Shares of the Fund and the suitability of such purchase or sale
for the customer involved.
14. We shall have full authority to take such action as we may deem
advisable relating to the continuous offering of Class A shares of the Fund. We
shall be under no liability to you except for lack of good faith and for
obligations expressly assumed by us herein. Nothing contained in this paragraph
is intended to operate as, and the provisions of this paragraph shall not in any
way whatsoever constitute, a waiver by you of compliance with any provision of
the Securities Act of 1933, as amended, or of the rules and regulations of the
Commission issued thereunder.
15. By accepting this Agreement, you represent that you are registered
as a broker-dealer under the Securities Exchange Act of 1934, as amended, are
qualified to act as a broker or dealer in the states or other jurisdictions
where you transact business, and are a member in good standing of the National
Association of Securities Dealers, Inc. (the "NASD"), and you agree that you
will maintain such registrations, qualifications, and membership in good
standing and in full force and effect throughout the term of this Agreement. You
further agree to comply with all applicable Federal laws, the laws of the states
or other jurisdictions concerned, and the rules and regulations promulgated
thereunder and with the Constitution, By-Laws and Conduct Rules of the NASD, and
that you will not offer or sell shares of the Fund in any state or jurisdiction
where they may not lawfully be offered and/or sold.
If you are offering and selling shares of the Fund in any jurisdiction
outside the several states, territories, and possessions of the United States
and are not otherwise required to be registered, qualified, or a member of the
NASD, as set forth above you, you nevertheless agree to observe the applicable
laws of the jurisdiction in which such offer and/or sale is made, to comply with
the full disclosure requirements of the Securities Act and the regulations
promulgated thereunder, to conduct your business in accordance with the spirit
of the Conduct Rules of the
A-5
<PAGE> 21
NASD. You agree to indemnify and hold the Fund, its investment adviser, and us
harmless from loss or damage resulting from any failure on your part to comply
with applicable laws.
16. Upon application to us, we will inform you concerning the states in
which we believe the Class A shares have been qualified for sale under, or are
exempt from the requirements of, the respective securities laws of such states,
but we assume no responsibility or obligation as to your right to sell Class A
shares in any jurisdiction. We will file with the Department of State in New
York a Further State Notice with respect to the Class A shares, if necessary.
17. All communications to us should be sent to the address below. Any
notice to you shall be duly given if mailed or telegraphed to you at the address
specified by you below.
18. You agree to maintain records of all sales of shares made through
you and to furnish us with copies of each record on request.
19. You and we understand and agree that, except as expressly provided
in this Agreement, in no transaction will you have any authority to take any
action or make any representation binding upon the Fund, us or any other member
of the Selected Dealers Group.
20. This Agreement may be amended by us from time to time by the
following procedure. We will mail a copy of the amendment to you at your address
as specified below. If you do not object to the amendment within fifteen (15)
days after its receipt, the amendment will become a part of the Agreement. Your
objection must be in writing and be received by us within such fifteen days.
21. This Agreement may be terminated upon its attempted assignment by
you, whether by operation of law or otherwise, or by us otherwise than by
operation of law.
A-6
<PAGE> 22
22. Your first order placed pursuant to this Agreement or any amendment
therefor for the purchase of Class A shares of the Fund will represent your
acceptance of this Agreement or any such amendment.
PRINCETON FUNDS DISTRIBUTOR, INC.
By
-----------------------------------------
(Authorized Signature)
Please return one signed copy of this agreement to:
PRINCETON FUNDS DISTRIBUTOR, INC.
P.O. Box 9081
Princeton, New Jersey 08543-9081
Accepted:
Firm Name:
----------------------------------------------------
By:
-----------------------------------------------------------
Address:
------------------------------------------------------
------------------------------------------------------
Date:
---------------------------------------------------------
A-7
<PAGE> 1
CLASS B SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the __ day of _________ 2000, between MERCURY
PREMIER GROWTH FUND, INC., a Maryland corporation (the "Fund"), and PRINCETON
FUNDS DISTRIBUTOR, INC., a Delaware corporation (the "Distributor").
W I T N E S S E T H :
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the "Investment Company Act"), as an open-end investment
company, and it is affirmatively in the interest of the Fund to offer its shares
for sale continuously; and
WHEREAS, the Fund is a "feeder" fund that invests all of its assets in
Master Premier Growth Trust which has the same investment objective and policies
as the Fund; and
WHEREAS, the Distributor is a securities firm engaged in the business
of selling shares of investment companies either directly to purchasers or
through other securities dealers; and
WHEREAS, the Fund and the Distributor wish to enter into an agreement
with each other with respect to the continuous offering of the Class B shares of
common stock of the Fund.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor. The Fund hereby appoints the
Distributor as the principal underwriter and distributor of the Fund to sell
Class B shares of common stock in the Fund (sometimes herein referred to as
"Class B shares") to eligible investors (as defined
<PAGE> 2
below) and hereby agrees during the term of this Agreement to sell Class B
shares to the Distributor upon the terms and conditions herein set forth.
Section 2. Exclusive Nature of Duties. The Distributor shall be the
exclusive representative of the Fund to act as principal underwriter and
distributor of Class B shares, except that:
(a) The Fund may, upon written notice to the Distributor, from time to
time designate other principal underwriters and distributors of Class B shares
with respect to areas other than the United States as to which the Distributor
may have expressly waived in writing its right to act as such. If such
designation is deemed exclusive, the right of the Distributor under this
Agreement to sell Class B shares in the areas so designated shall terminate, but
this Agreement shall remain otherwise in full effect until terminated in
accordance with the other provisions hereof.
(b) The exclusive right granted to the Distributor to purchase Class B
shares from the Fund shall not apply to Class B shares issued in connection with
the merger or consolidation of any other investment company or personal holding
company with the Fund or the acquisition by purchase or otherwise of all (or
substantially all) the assets or the outstanding Class B shares of any such
company by the Fund.
(c) Such exclusive right also shall not apply to Class B shares issued
by the Fund pursuant to reinvestment of dividends or capital gains
distributions.
(d) Such exclusive right also shall not apply to Class B shares issued
by the Fund pursuant to any conversion, exchange or reinstatement privilege
afforded redeeming
2
<PAGE> 3
shareholders or to any other Class B shares as shall be agreed between the Fund
and the Distributor from time to time.
Section 3. Purchase of Class B Shares from the Fund.
(a) During the continuous offering of Class B shares, the Distributor
shall have the right to buy from the Fund the Class B shares needed, but not
more than the Class B shares needed (except for clerical errors in transmission)
to fill unconditional orders for Class B shares of the Fund placed with the
Distributor by eligible investors or securities dealers. Investors eligible to
purchase Class B shares shall be those persons so identified in the currently
effective prospectus and statement of additional information relating to the
Fund (the "prospectus" and "statement of additional information," respectively)
under the Securities Act of 1933, as amended (the "Securities Act"), relating to
such Class B shares. The price which the Distributor shall pay for the Class B
shares so purchased from the Fund shall be the net asset value of such shares,
determined as set forth in Section 3(c) hereof.
(b) The Class B shares are to be resold by the Distributor to eligible
investors at net asset value, as set forth in Section 3(c) hereof, or to
securities dealers having agreements with the Distributor upon the terms and
conditions set forth in Section 7 hereof.
(c) The net asset value of Class B shares shall be determined by the
Fund or any agent of the Fund in accordance with the method set forth in the
prospectus and statement of additional information and the guidelines
established by the Board of Directors of the Fund.
(d) The Fund shall have the right to suspend the sale of Class B shares
at times when redemption of Class B shares is suspended pursuant to the
conditions set forth in Section 4(b)
3
<PAGE> 4
hereof. The Fund shall also have the right to suspend the sale of Class B shares
if trading on the New York Stock Exchange shall have been suspended, if a
banking moratorium shall have been declared by Federal or New York authorities,
or if there shall have been some other event, which, in the judgment of the
Fund, makes it impracticable or inadvisable to sell Class B shares.
(e) The Fund, or any agent of the Fund designated in writing by the
Fund, shall be promptly advised of all purchase orders for Class B shares
received by the Distributor. Any order may be rejected by the Fund; provided,
however, that the Fund will not arbitrarily or without reasonable cause refuse
to accept or confirm orders for the purchase of Class B shares from investors.
The Fund (or its agent) will confirm orders upon their receipt, will make
appropriate book entries and, upon receipt by the Fund (or its agent) of payment
therefor, will deliver deposit receipts or certificates for such Class B shares
pursuant to the instructions of the Distributor. Payment shall be made to the
Fund by wire transfer of immediately available funds. The Distributor agrees to
cause such payment and such instructions to be delivered promptly to the Fund
(or its agent).
Section 4. Repurchase or Redemption of Class B Shares by the Fund.
(a) Any of the outstanding Class B shares may be tendered for
redemption at any time, and the Fund agrees to repurchase or redeem the Class B
shares so tendered in accordance with its obligations as set forth in Article VI
of its Articles of Incorporation, as amended from time to time, and in
accordance with the applicable provisions set forth in the prospectus and
statement of additional information. The price to be paid to redeem or
repurchase the Class B shares shall be equal to the net asset value calculated
in accordance with the provisions of Section 3(c) hereof, less any contingent
deferred sales charge ("CDSC"), redemption fee or other
4
<PAGE> 5
charge(s), if any, set forth in the prospectus and statement of additional
information. All payments by the Fund hereunder shall be made in the manner set
forth below.
The Fund shall pay the total amount of the redemption price as defined
in the above paragraph pursuant to the instructions of the Distributor on or
before the seventh business day subsequent to its having received the notice of
redemption in proper form. The proceeds of any redemption of shares shall be
paid by the Fund as follows: (i) any applicable CDSC shall be paid to the
Distributor, and (ii) the balance shall be paid to or for the account of the
shareholder, in each case in accordance with the applicable provisions of the
prospectus and statement of additional information.
(b) Redemption of Class B shares or payment may be suspended at times
when the New York Stock Exchange is closed, when trading on said Exchange is
suspended, when trading on said Exchange is restricted, when an emergency exists
as a result of which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the Fund fairly
to determine the value of the net assets of the Fund, or during any other period
when the Securities and Exchange Commission, by order, so permits.
Section 5. Duties of the Fund.
(a) The Fund shall furnish to the Distributor copies of all
information, financial statements and other papers which the Distributor may
reasonably request for use in connection with the distribution of Class B
shares, and this shall include, upon request by the Distributor, one certified
copy of all financial statements prepared for the Fund by independent public
accountants. The Fund shall make available to the Distributor such number of
copies of the prospectus and statement of additional information as the
Distributor shall reasonably request.
5
<PAGE> 6
(b) The Fund shall take, from time to time, but subject to the
necessary approval of the shareholders, all necessary action to fix the number
of authorized shares and such steps as may be necessary to register the same
under the Securities Act, so that there will be available for sale such number
of Class B shares as the Distributor reasonably may be expected to sell.
(c) The Fund shall use its best efforts to qualify and maintain the
qualification of an appropriate number of Class B shares for sale under the
securities laws of such states as the Distributor and the Fund may approve. Any
such qualification may be withheld, terminated or withdrawn by the Fund at any
time in its discretion. As provided in Section 8(c) hereof, the expense of
qualification of Class B shares and maintenance of qualification of Class B
Shares shall be borne by the Fund. The Distributor shall furnish such
information and other material relating to its affairs and activities as may be
required by the Fund in connection with such qualification.
(d) The Fund will furnish, in reasonable quantities upon request by the
Distributor, copies of annual and interim reports relating to the Fund.
Section 6. Duties of the Distributor.
(a) The Distributor shall devote reasonable time and effort to effect
sales of Class B shares of the Fund but shall not be obligated to sell any
specific number of Class B shares. The services of the Distributor to the Fund
hereunder are not to be deemed exclusive and nothing herein contained shall
prevent the Distributor from entering into like arrangements with other
investment companies so long as the performance of its obligations hereunder is
not impaired thereby.
6
<PAGE> 7
(b) In selling the Class B shares of the Fund, the Distributor shall
use its best efforts in all respects duly to conform with the requirements of
all Federal and state laws relating to the sale of such securities. Neither the
Distributor nor any selected dealer, as defined in Section 7 hereof, nor any
other person is authorized by the Fund to give any information or to make any
representations, other than those contained in the registration statement or
related prospectus and statement of additional information and any sales
literature specifically approved by the Fund.
(c) The Distributor shall adopt and follow procedures, as approved by
the officers of the Fund, for the confirmation of sales to eligible investors
and selected dealers, the collection of amounts payable by eligible investors
and selected dealers on such sales, and the cancellation of unsettled
transactions, as may be necessary to comply with the requirements of the
National Association of Securities Dealers, Inc. (the "NASD"), as such
requirements may from time to time exist.
Section 7. Selected Dealers Agreements.
(a) The Distributor shall have the right to enter into selected dealers
agreements with securities dealers of its choice ("selected dealers") for the
sale of Class B shares; provided that the Fund shall approve the forms of
agreements with such selected dealers. Class B shares sold to selected dealers
shall be for resale by such dealers only at the net asset value determined as
set forth in Section 3(b) hereof. The form of agreement with selected dealers to
be used in connection with the continuous offering of Class B shares is attached
hereto as Exhibit A.
(b) Within the United States, the Distributor shall offer and sell
Class B shares only to such selected dealers that are members in good standing
of the NASD.
7
<PAGE> 8
Section 8. Payment of Expenses.
(a) The Fund shall bear all costs and expenses of the Fund, including
fees and disbursements of counsel and auditors, in connection with the
preparation and filing of any required registration statements and/or
prospectuses and statements of additional information under the Investment
Company Act, the Securities Act, and all amendments and supplements thereto, and
preparing and mailing annual and interim reports and proxy materials to Class B
shareholders (including but not limited to the expense of setting in type any
such registration statements, prospectuses, statements of additional
information, annual or interim reports or proxy materials).
(b) The Distributor shall be responsible for any payments made to
selected dealers as reimbursement for their expenses associated with payments of
sales commissions to financial consultants. In addition, after the prospectuses,
statements of additional information and annual and interim reports have been
prepared and set in type, the Distributor shall bear the costs and expenses of
printing and distributing any copies thereof which are to be used in connection
with the offering of Class B shares to selected dealers or eligible investors
pursuant to this Agreement. The Distributor shall bear the costs and expenses of
preparing, printing and distributing any other literature used by the
Distributor or furnished by it for use by selected dealers in connection with
the offering of the Class B shares for sale to the public and any expenses of
advertising incurred by the Distributor in connection with such offering. It is
understood and agreed that, so long as the Fund's Class B Shares Distribution
Plan pursuant to Rule 12b-1 under the Investment Company Act remains in effect,
any expenses incurred by the Distributor hereunder may be paid from amounts
recovered by it from the Fund under such Plan.
8
<PAGE> 9
(c) The Fund shall bear the cost and expenses of qualification of the
Class B shares for sale pursuant to this Agreement, and, if necessary or
advisable in connection therewith, of qualifying the Fund as a broker or dealer
in such states of the United States or other jurisdictions as shall be selected
by the Fund and the Distributor pursuant to Section 5(c) hereof and the cost and
expenses payable to each such state for continuing qualification therein until
the Fund decides to discontinue such qualification pursuant to Section 5(c)
hereof.
Section 9. Indemnification.
(a) The Fund shall indemnify and hold harmless the Distributor and each
person, if any, who controls the Distributor against any loss, liability, claim,
damage or expense (including the reasonable cost of investigating or defending
any alleged loss, liability, claim, damage or expense and reasonable counsel
fees incurred in connection therewith), as incurred, arising by reason of any
person acquiring any Class B shares, which may be based upon the Securities Act,
or on any other statute or at common law, on the ground that the registration
statement or related prospectus and statement of additional information, as from
time to time amended and supplemented, or an annual or interim report to
shareholders of the Fund, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading, unless such statement or
omission was made in reliance upon, and in conformity with, information
furnished to the Fund in connection therewith by or on behalf of the
Distributor; provided, however, that in no case (i) is the indemnity of the Fund
in favor of the Distributor and any such controlling persons to be deemed to
protect such Distributor or any such controlling persons thereof against any
liability to the Fund or its security holders to which the Distributor or any
such controlling persons would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the
9
<PAGE> 10
performance of their duties or by reason of the reckless disregard of their
obligations and duties under this Agreement; or (ii) is the Fund to be liable
under its indemnity agreement contained in this paragraph with respect to any
claim made against the Distributor or any such controlling persons, unless the
Distributor or such controlling persons, as the case may be, shall have notified
the Fund in writing within a reasonable time after the summons or other first
legal process giving information of the nature of the claim shall have been
served upon the Distributor or such controlling persons (or after the
Distributor or such controlling persons shall have received notice of such
service on any designated agent), but failure to notify the Fund of any such
claim shall not relieve it from any liability which it may have to the person
against whom such action is brought otherwise than on account of its indemnity
agreement contained in this paragraph. The Fund will be entitled to participate
at its own expense in the defense or, if it so elects, to assume the defense of
any suit brought to enforce any such liability, but if the Fund elects to assume
the defense, such defense shall be conducted by counsel chosen by it and
satisfactory to the Distributor or such controlling person or persons, defendant
or defendants in the suit. In the event the Fund elects to assume the defense of
any such suit and retain such counsel, the Distributor or such controlling
person or persons, defendant or defendants in the suit, shall bear the fees and
expenses of any additional counsel retained by them, but, in case the Fund does
not elect to assume the defense of any such suit, it will reimburse the
Distributor or such controlling person or persons, defendant or defendants in
the suit, for the reasonable fees and expenses of any counsel retained by them.
The Fund shall promptly notify the Distributor of the commencement of any
litigation or proceedings against it or any of its officers or Directors in
connection with the issuance or sale of any of the Class B shares.
10
<PAGE> 11
(b) The Distributor shall indemnify and hold harmless the Fund and each
of its Directors and officers and each person, if any, who controls the Fund
against any loss, liability, claim, damage or expense described in the foregoing
indemnity contained in subsection (a) of this Section, but only with respect to
statements or omissions made in reliance upon, and in conformity with,
information furnished to the Fund in writing by or on behalf of the Distributor
for use in connection with the registration statement or related prospectus and
statement of additional information, as from time to time amended, or the annual
or interim reports to Class B shareholders. In case any action shall be brought
against the Fund or any person so indemnified, in respect of which indemnity may
be sought against the Distributor, the Distributor shall have the rights and
duties given to the Fund, and the Fund and each person so indemnified shall have
the rights and duties given to the Distributor by the provisions of subsection
(a) of this Section 9.
Section 10. Duration and Termination of this Agreement. This Agreement
shall become effective as of the date first above written and shall remain in
force until two years after the date first above written, and thereafter, but
only so long as such continuance is specifically approved at least annually by
(i) the Directors, or by the vote of a majority of the outstanding Class B
voting securities of the Fund, and (ii) by the vote of a majority of those
Directors who are not parties to this Agreement or interested persons of any
such party cast in person at a meeting called for the purpose of voting on such
approval.
This Agreement may be terminated at any time, without the payment of
any penalty, by the Directors or by vote of a majority of the outstanding Class
B voting securities of the Fund, or by the Distributor, on sixty days' written
notice to the other party. This Agreement shall automatically terminate in the
event of its assignment.
11
<PAGE> 12
The terms "vote of a majority of the outstanding voting securities,"
"assignment," "affiliated person" and "interested person," when used in this
Agreement, shall have the respective meanings given to them in the Investment
Company Act.
Section 11. Amendments of this Agreement. This Agreement may be amended
by the parties only if such amendment is specifically approved by (i) the
Directors or by the vote of a majority of outstanding Class B voting securities
of the Fund and (ii) by the vote of a majority of those Directors of the Fund
who are not parties to this Agreement or interested persons of any such party
cast in person at a meeting called for the purpose of voting on such approval.
Governing Law. The provisions of this Agreement shall be construed and
interpreted in accordance with the laws of the State of New York as at the time
in effect and the applicable provisions of the Investment Company Act. To the
extent that the applicable law of the State of New York, or any of the
provisions herein, conflict with the applicable provisions of the Investment
Company Act, the latter shall control.
12
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
MERCURY PREMIER GROWTH FUND, INC.
By -------------------------------
Name:
Title:
PRINCETON FUNDS DISTRIBUTOR, INC.
By -------------------------------
Name:
Title:
13
<PAGE> 14
EXHIBIT A
MERCURY PREMIER GROWTH FUND, INC.
CLASS B SHARES OF COMMON STOCK
SELECTED DEALERS AGREEMENT
Ladies and Gentlemen:
Princeton Funds Distributor, Inc. (the "Distributor"), has an agreement
with Mercury Premier Growth Fund, Inc., a Maryland corporation (the "Fund"),
pursuant to which it acts as the distributor for the sale of Class B shares of
common stock, par value $0.10 per share (herein referred to as "Class B
shares"), of the Fund and as such has the right to distribute Class B shares of
the Fund for resale. The Fund is an open-end investment company registered under
the Investment Company Act of 1940, as amended (the "Investment Company Act"),
and its Class B shares being offered to the public are registered under the
Securities Act of 1933, as amended (the "Securities Act"). You have received a
copy of the Class B Shares Distribution Agreement (the "Distribution Agreement")
between ourselves and the Fund and reference is made herein to certain
provisions of such Distribution Agreement. The terms "prospectus" and "statement
of additional information" used herein refer to the prospectus of the Fund and
statement of additional information of the Fund, respectively, on file with the
Securities and Exchange Commission (the "Commission") which is part of the most
recent effective registration statement of the Fund under to the Securities Act.
We offer to sell to you, as a member of the Selected Dealers Group, Class B
shares of the Fund upon the following terms and conditions:
1. In all sales of these Class B shares to the public, you shall act as
dealer for your own account and in no transaction shall you have any authority
to act as agent for the Fund, for us or for any other member of the Selected
Dealers Group, except in connection with such special programs as we from time
to time agree, in which case you shall have authority to offer and sell shares,
as agent for the Fund, to participants in such programs.
2. Orders received from you will be accepted through us only at the
public offering price applicable to each order, as set forth in the current
prospectus and statement of additional information, subject in each case to the
delivery prior to or at the time of such sales to the then current prospectus.
The procedure relating to the handling of orders shall be subject to Section 4
hereof and instructions which we or the Fund shall forward from time to time to
you. All orders are subject to acceptance or rejection by the Distributor or the
Fund in the sole discretion of either. The minimum initial and subsequent
purchase requirements are as set forth in the current prospectus and statement
of additional information and no order for less than such amounts will be
accepted unless such purchase shall be expressly approved by the Fund in
accordance with the then current prospectus. No conditional order will be
accepted on any basis other than a definite price.
A-1
<PAGE> 15
3. As an authorized agent to sell shares of the Fund, you agree to
purchase shares of the Fund only through us or from your customers. You shall
not place orders for any Class B shares except for your own investment purposes
or unless you have already received purchase orders for such Class B shares at
the applicable public offering prices and subject to the terms hereof and of the
Distribution Agreement. You agree that you will not offer or sell any of the
Class B shares except under circumstances that will result in compliance with
the applicable Federal and state securities laws and that in connection with
sales and offers to sell Class B shares you will furnish to each person to whom
any such sale or offer is made a copy of the prospectus and, if requested, the
statement of additional information (as then amended or supplemented) and will
not furnish to any person any information relating to the Class B shares of the
Fund, which is inconsistent in any respect with the information contained in the
prospectus and statement of additional information (as then amended or
supplemented) or cause any advertisement to be published in any newspaper or
posted in any public place without our consent and the consent of the Fund.
4. As a selected dealer, you are hereby authorized (i) to place orders
directly with the Fund for Class B shares of the Fund to be resold by us to you
subject to the applicable terms and conditions governing the placement of orders
by us set forth in Section 3 of the Distribution Agreement and (ii) to tender
Class B shares directly to the Fund or its agent for redemption subject to the
applicable terms and conditions set forth in Section 4 of the Distribution
Agreement.
5. You agree to place orders received from your customers as soon as
practicable after your receipt of such orders. You further agree that you shall
not withhold placing orders received from your customers so as to profit
yourself as a result of such withholding, e.g., by a change in the "net asset
value" from that used in determining the offering price to your customers.
6. Settlement shall be made promptly, but in no case later than the
time customary for such payments after our acceptance of the order or, if so
specified by you, we will make delivery by draft on you, the amount of which
draft you agree to pay on presentation to you. If payment is not so received or
made, the right is reserved forthwith to cancel the sale or at our option to
resell the shares to the Fund at the then prevailing net asset value in which
latter case you agree to be responsible for any loss resulting to the Fund or to
us from your failure to make payment as aforesaid.
7. No person is authorized to make any representations concerning Class
B shares of the Fund except those contained in the current prospectus and
statement of additional information and in such printed information subsequently
issued by us or the Fund as information supplemental to such prospectus and
statement of additional information. In purchasing Class B shares through us,
you shall rely solely on the representations contained in the prospectus and
statement of additional information and supplemental information mentioned
above. Any printed information that we furnish you other than the prospectus,
statement of additional information, periodic reports and proxy solicitation
material relating to the Fund is our sole responsibility and not the
responsibility of the Fund with respect to the Fund, and you agree that the Fund
shall have no liability or responsibility to you in these respects unless
expressly assumed in connection therewith.
A-2
<PAGE> 16
8. You agree to deliver to each of the purchasers making purchases from
you a copy of the then current prospectus and, if requested, the statement of
additional information at or prior to the time of offering or sale and you agree
thereafter to deliver to such purchasers copies of the annual and interim
reports and proxy solicitation materials of the Fund. You further agree to
endeavor to obtain proxies from such purchasers. Additional copies of the
prospectus and statement of additional information, annual or interim reports
and proxy solicitation materials relating to the Fund will be supplied to you in
reasonable quantities upon request.
9. All sales will be subject to receipt of shares by us from the Fund.
We reserve the right in our discretion, without notice, to suspend sales or
withdraw the offering of Class B shares entirely or to certain persons or
entities in a class or classes specified by us. Each party hereto has the right
to cancel this Agreement upon notice to the other party.
10. We, our affiliates, the Fund (and its officers and directors), and
the Trust (and its officers and trustees) shall not be liable for any loss,
expenses, damages, costs or other claims arising out of any redemption or
exchange pursuant to telephone instructions from any person, or our refusal to
execute such instructions for any reason.
11. You and we understand and agree that you are solely responsible for
the recommendation by your sales personnel to your customers of the purchase or
sale of Class B Shares of the Fund and the suitability of such purchase or sale
for the customer involved.
12. We shall have full authority to take such action as we may deem
advisable relating to the continuous offering of Class B Shares of the Fund. We
shall be under no liability to you except for lack of good faith and for
obligations expressly assumed by us herein. Nothing contained in this paragraph
is intended to operate as, and the provisions of this paragraph shall not in any
way whatsoever constitute, a waiver by you of compliance with any provision of
the Securities Act, or of the rules and regulations of the Commission issued
thereunder.
13. By accepting this Agreement, you represent that you are registered
as a broker-dealer under the Securities Exchange Act of 1934, as amended, are
qualified to act as a broker or dealer in the states or other jurisdictions
where you transact business, and are a member in good standing of the National
Association of Securities Dealers, Inc. (the "NASD"), and you agree that you
will maintain such registrations, qualifications, and membership in good
standing and in full force and effect throughout the term of this Agreement. You
further agree to comply with all applicable Federal laws, the laws of the states
or other jurisdictions concerned, and the rules and regulations promulgated
thereunder and with the Constitution, By-Laws and Conduct Rules of the NASD, and
that you will not offer or sell shares of the Fund in any state or jurisdiction
where they may not lawfully be offered and/or sold.
If you are offering and selling shares of the Fund in any jurisdiction
outside the several states, territories, and possessions of the United States
and are not otherwise required to be registered, qualified, or a member of the
NASD, as set forth above you, you nevertheless agree to observe the applicable
laws of the jurisdiction in which such offer and/or sale is made, to comply with
the full disclosure requirements of the Securities Act and the regulations
promulgated thereunder, to conduct your business in accordance with the spirit
of the Conduct Rules of the
A-3
<PAGE> 17
NASD. You agree to indemnify and hold the Fund, its investment adviser, and us
harmless from loss or damage resulting from any failure on your part to comply
with applicable laws.
14. Upon application to us, we will inform you concerning the states in
which we believe the Class B shares have been qualified for sale under, or are
exempt from the requirements of, the respective securities laws of such states,
but we assume no responsibility or obligation as to your right to sell Class B
shares in any jurisdiction. We will file with the Department of State in New
York a Further State Notice with respect to the Class B shares, if necessary.
15. All communications to us should be sent to the address below. Any
notice to you shall be duly given if mailed or telegraphed to you at the address
specified by you below.
16. You agree to maintain records of all sales of shares made through
you and to furnish us with copies of each record on request.
17. You and we understand that, except as expressly provided in this
Agreement, in no transaction will you have any authority to take any action or
make any representation binding upon the Fund, us or any other member of the
Selected Dealers Group.
18. This Agreement may be amended by us from time to time by the
following procedure. We will mail a copy of the amendment to you at your address
as specified below. If you do not object to the amendment within fifteen (15)
days after its receipt, the amendment will become a part of the Agreement. Your
objection must be in writing and be received by us within such fifteen days.
19. This Agreement may be terminated upon written notice by either
party at any time, and shall automatically terminate upon its attempted
assignment by you, whether by operation of law or otherwise, or by us otherwise
than by operation of law.
A-4
<PAGE> 18
20. Your first order placed pursuant to this Agreement for the purchase
of Class B shares of the Fund will represent your acceptance of this Agreement.
PRINCETON FUNDS DISTRIBUTOR, INC.
By
------------------------------------------
(Authorized Signature)
Please return one signed copy of this agreement to:
PRINCETON FUNDS DISTRIBUTOR, INC.
P.O. Box 9081
Princeton, New Jersey 08543-9081
Accepted:
Firm Name:
----------------------------------------------------
By:
-----------------------------------------------------------
Address:
------------------------------------------------------
------------------------------------------------------
Date:
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A-5
<PAGE> 1
CLASS C SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the __ day of _______ 2000, between MERCURY
PREMIER GROWTH FUND, INC., a Maryland corporation (the "Fund"), and PRINCETON
FUNDS DISTRIBUTOR, INC., a Delaware corporation (the "Distributor").
W I T N E S S E T H :
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the "Investment Company Act"), as an open-end investment
company, and it is affirmatively in the interest of the Fund to offer its shares
for sale continuously; and
WHEREAS, the Fund is a "feeder" fund that invests all of its assets in
Master Premier Growth Trust which has the same investment objective and policies
as the Fund; and
WHEREAS, the Distributor is a securities firm engaged in the business
of selling shares of investment companies either directly to purchasers or
through other securities dealers; and
WHEREAS, the Fund and the Distributor wish to enter into an agreement
with each other with respect to the continuous offering of the Class C shares of
common stock of the Fund.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor. The Fund hereby appoints the
Distributor as the principal underwriter and distributor of the Fund to sell
Class C shares of common stock in the Fund (sometimes herein referred to as
"Class C shares") to eligible investors (as defined
<PAGE> 2
below) and hereby agrees during the term of this Agreement to sell Class C
shares of the Fund to the Distributor upon the terms and conditions herein set
forth.
Section 2. Exclusive Nature of Duties. The Distributor shall be the
exclusive representative of the Fund to act as principal underwriter and
distributor of Class B shares, except that:
(a) The Fund may, upon written notice to the Distributor, from time to
time designate other principal underwriters and distributors of Class C shares
with respect to areas other than the United States as to which the Distributor
may have expressly waived in writing its right to act as such. If such
designation is deemed exclusive, the right of the Distributor under this
Agreement to sell Class C shares in the areas so designated shall terminate, but
this Agreement shall remain otherwise in full effect until terminated in
accordance with the other provisions hereof.
The exclusive right granted to the Distributor to purchase Class C
shares from the Fund shall not apply to Class C shares issued in connection with
the merger or consolidation of any other investment company or personal holding
company with the Fund or the acquisition by purchase or otherwise of all (or
substantially all) the assets or the outstanding Class C shares of any such
company by the Fund.
Such exclusive right also shall not apply to Class C shares issued by
the Fund pursuant to reinvestment of dividends or capital gains distributions.
2
<PAGE> 3
Such exclusive right also shall not apply to Class C shares issued by
the Fund pursuant to any conversion, exchange or reinstatement privilege
afforded redeeming shareholders or to any other Class C shares as shall be
agreed between the Fund and the Distributor from time to time.
Section 3. Purchase of Class C Shares from the Fund.
(a) During the continuous offering of Class C shares and thereafter the
Distributor shall have the right to buy from the Fund the Class C shares needed,
but not more than the Class C shares needed (except for clerical errors in
transmission) to fill unconditional orders for Class C shares of the Fund placed
with the Distributor by eligible investors or securities dealers. Investors
eligible to purchase Class C shares shall be those persons so identified in the
currently effective prospectus and statement of additional information relating
to the Fund (the "prospectus" and "statement of additional information,"
respectively) under the Securities Act of 1933, as amended (the "Securities
Act"), relating to such Class C shares. The price which the Distributor shall
pay for the Class C shares so purchased from the Fund shall be the net asset
value of such shares, determined as set forth in Section 3(c) hereof.
(b) The Class C shares are to be resold by the Distributor to eligible
investors at net asset value, as set forth in Section 3(c) hereof, or to
securities dealers having agreements with the Distributor upon the terms and
conditions set forth in Section 7 hereof.
(c) The net asset value of Class C shares shall be determined by the
Fund or any agent of the Fund in accordance with the method set forth in the
prospectus and statement of additional information of the Fund and the
guidelines established by the Board of Directors of the Fund.
3
<PAGE> 4
(d) The Fund shall have the right to suspend the sale of Class C shares
at times when redemption of Class B shares is suspended pursuant to the
conditions set forth in Section 4(b) hereof. The Fund shall also have the right
to suspend the sale of Class C shares if trading on the New York Stock Exchange
shall have been suspended, if a banking moratorium shall have been declared by
Federal or New York authorities, or if there shall have been some other event,
which, in the judgment of the Fund, makes it impracticable or inadvisable to
sell Class C shares.
(e) The Fund, or any agent of the Fund designated in writing by the
Fund, shall be promptly advised of all purchase orders for Class C shares
received by the Distributor. Any order may be rejected by the Fund; provided,
however, that the Fund will not arbitrarily or without reasonable cause refuse
to accept or confirm orders for the purchase of Class C shares from investors.
The Fund (or its agent) will confirm orders upon their receipt, will make
appropriate book entries and, upon receipt by the Fund (or its agent) of payment
therefor, will deliver deposit receipts or certificates for such Class C shares
pursuant to the instructions of the Distributor. Payment shall be made to the
Fund by wire transfer of immediately available funds. The Distributor agrees to
cause such payment and such instructions to be delivered promptly to the Fund
(or its agent).
Section 4. Repurchase or Redemption of Class C Shares by the Fund.
(a) Any of the outstanding Class C shares may be tendered for
redemption at any time, and the Fund agrees to repurchase or redeem the Class C
shares so tendered in accordance with its obligations as set forth in Article VI
of its Articles of Incorporation, as amended from time to time, and in
accordance with the applicable provisions set forth in the prospectus and
statement of additional information. The price to be paid to redeem or
repurchase the Class C shares shall
4
<PAGE> 5
be equal to the net asset value calculated in accordance with the provisions of
Section 3(c) hereof, less any contingent deferred sales charge ("CDSC"),
redemption fee or other charge(s), if any, set forth in the prospectus and
statement of additional information. All payments by the Fund hereunder shall be
made in the manner set forth below.
The Fund shall pay the total amount of the redemption price as defined
in the above paragraph pursuant to the instructions of the Distributor on or
before the seventh business day subsequent to its having received the notice of
redemption in proper form. The proceeds of any redemption of shares shall be
paid by the Fund as follows: (i) any applicable CDSC shall be paid to the
Distributor, and (ii) the balance shall be paid to or for the account of the
shareholder, in each case in accordance with the applicable provisions of the
prospectus and statement of additional information.
(b) Redemption of Class C shares or payment may be suspended at times
when the New York Stock Exchange is closed, when trading on said Exchange is
suspended, when trading on said Exchange is restricted, when an emergency exists
as a result of which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the Fund fairly
to determine the value of the net assets of the Fund, or during any other period
when the Securities and Exchange Commission, by order, so permits.
Section 5. Duties of the Fund.
(a) The Fund shall furnish to the Distributor copies of all
information, financial statements and other papers which the Distributor may
reasonably request for use in connection with the distribution of Class C
shares, and this shall include, upon request by the Distributor, one certified
copy of all financial statements prepared for the Fund by independent public
5
<PAGE> 6
accountants. The Fund shall make available to the Distributor such number of
copies of the prospectus and statement of additional information as the
Distributor shall reasonably request.
(b) The Fund shall take, from time to time, but subject to the
necessary approval of the shareholders, all necessary action to fix the number
of authorized shares and such steps as may be necessary to register the same
under the Securities Act, so that there will be available for sale such number
of Class C shares as the Distributor reasonably may be expected to sell.
(c) The Fund shall use its best efforts to qualify and maintain the
qualification of an appropriate number of Class C shares for sale under the
securities laws of such states as the Distributor and the Fund may approve. Any
such qualification may be withheld, terminated or withdrawn by the Fund at any
time in its discretion. As provided in Section 8(c) hereof, the expense of
qualification of Class B shares and maintenance of qualification of Class B
shares shall be borne by the Fund. The Distributor shall furnish such
information and other material relating to its affairs and activities as may be
required by the Fund in connection with such qualification.
(d) The Fund will furnish, in reasonable quantities upon request by the
Distributor, copies of annual and interim reports relating to the Fund.
Section 6. Duties of the Distributor.
(a) The Distributor shall devote reasonable time and effort to effect
sales of Class C shares of the Fund but shall not be obligated to sell any
specific number of Class C shares. The services of the Distributor to the Fund
hereunder are not to be deemed exclusive and nothing herein contained shall
prevent the Distributor from entering into like arrangements with other
6
<PAGE> 7
investment companies so long as the performance of its obligations hereunder is
not impaired thereby.
(b) In selling the Class C shares of the Fund, the Distributor shall
use its best efforts in all respects duly to conform with the requirements of
all Federal and state laws relating to the sale of such securities. Neither the
Distributor nor any selected dealer, as defined in Section 7 hereof, nor any
other person is authorized by the Fund to give any information or to make any
representations, other than those contained in the registration statement or
related prospectus and statement of additional information and any sales
literature specifically approved by the Fund.
(c) The Distributor shall adopt and follow procedures, as approved by
the officers of the Fund, for the confirmation of sales to eligible investors
and selected dealers, the collection of amounts payable by eligible investors
and selected dealers on such sales, and the cancellation of unsettled
transactions, as may be necessary to comply with the requirements of the
National Association of Securities Dealers, Inc. (the "NASD"), as such
requirements may from time to time exist.
Section 7. Selected Dealers Agreements.
(a) The Distributor shall have the right to enter into selected dealers
agreements with securities dealers of its choice ("selected dealers") for the
sale of Class C shares; provided that the Fund shall approve the forms of
agreements with such selected dealers. Class C shares sold to selected dealers
shall be resold by such dealers only at the net asset value determined as set
forth in Section 3(b) hereof. The initial form of agreement with selected
dealers to be used in connection with the continuous offering of Class B shares
is attached hereto as Exhibit A.
7
<PAGE> 8
(b) Within the United States, the Distributor shall offer and sell
Class C shares only to such selected dealers that are members in good standing
of the NASD.
Section 8. Payment of Expenses.
(a) The Fund shall bear all costs and expenses of the Fund, including
fees and disbursements of counsel and auditors, in connection with the
preparation and filing of any required registration statements and/or
prospectuses and statements of additional information under the Investment
Company Act, the Securities Act, and all amendments and supplements thereto, and
preparing and mailing annual and interim reports and proxy materials to Class C
shareholders (including but not limited to the expense of setting in type any
such registration statements, prospectuses, statements of additional
information, annual or interim reports or proxy materials).
(b) The Distributor shall be responsible for any payments made to
selected dealers as reimbursement for their expenses associated with payments of
sales commissions to financial consultants. In addition, after the prospectuses,
statements of additional information and annual and interim reports have been
prepared and set in type, the Distributor shall bear the costs and expenses of
printing and distributing any copies thereof which are to be used in connection
with the offering of Class C shares to selected dealers or eligible investors
pursuant to this Agreement. The Distributor shall bear the costs and expenses of
preparing, printing and distributing any other literature used by the
Distributor or furnished by it for use by selected dealers in connection with
the offering of the Class C shares for sale to and any expenses of advertising
incurred by the Distributor in connection with such offering. It is understood
and agreed that, so long as the Fund's Class C Shares Distribution Plan pursuant
to Rule 12b-1 under the Investment Company
8
<PAGE> 9
Act remains in effect, any expenses incurred by the Distributor hereunder may be
paid from amounts recovered by it from the Fund under such Plan.
(c) The Fund shall bear the cost and expenses of qualification of the
Class C shares for sale pursuant to this Agreement, and, if necessary or
advisable in connection therewith, of qualifying the Fund as a broker or dealer
in such states of the United States or other jurisdictions as shall be selected
by the Fund and the Distributor pursuant to Section 5(c) hereof and the cost and
expenses payable to each such state for continuing qualification therein until
the Fund decides to discontinue such qualification pursuant to Section 5(c)
hereof.
Section 9. Indemnification.
(a) The Fund shall indemnify and hold harmless the Distributor and each
person, if any, who controls the Distributor against any loss, liability, claim,
damage or expense (including the reasonable cost of investigating or defending
any alleged loss, liability, claim, damage or expense and reasonable counsel
fees incurred in connection therewith), as incurred, arising by reason of any
person acquiring any Class C shares, which may be based upon the Securities Act,
or on any other statute or at common law, on the ground that the registration
statement or related prospectus and statement of additional information, as from
time to time amended and supplemented, or an annual or interim report to
shareholders of the Fund, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading, unless such statement or
omission was made in reliance upon, and in conformity with, information
furnished to the Fund in connection therewith by or on behalf of the
Distributor; provided, however, that in no case (i) is the indemnity of the Fund
in favor of the Distributor and any such controlling persons to be
9
<PAGE> 10
deemed to protect such Distributor or any such controlling persons thereof
against any liability to the Fund or its security holders to which the
Distributor or any such controlling persons would otherwise be subject by reason
of willful misfeasance, bad faith or gross negligence in the performance of
their duties or by reason of the reckless disregard of their obligations and
duties under this Agreement; or (ii) is the Fund to be liable under its
indemnity agreement contained in this paragraph with respect to any claim made
against the Distributor or any such controlling persons, unless the Distributor
or such controlling persons, as the case may be, shall have notified the Fund in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon the
Distributor or such controlling persons (or after the Distributor or such
controlling persons shall have received notice of such service on any designated
agent), but failure to notify the Fund of any such claim shall not relieve it
from any liability which it may have to the person against whom such action is
brought otherwise than on account of its indemnity agreement contained in this
paragraph. The Fund will be entitled to participate at its own expense in the
defense or, if it so elects, to assume the defense of any suit brought to
enforce any such liability, but if the Fund elects to assume the defense, such
defense shall be conducted by counsel chosen by it and satisfactory to the
Distributor or such controlling person or persons, defendant or defendants in
the suit. In the event the Fund elects to assume the defense of any such suit
and retain such counsel, the Distributor or such controlling person or persons,
defendant or defendants in the suit, shall bear the fees and expenses of any
additional counsel retained by them, but, in case the Fund does not elect to
assume the defense of any such suit, it will reimburse the Distributor or such
controlling person or persons, defendant or defendants in the suit, for the
reasonable fees and expenses of any counsel retained by them. The Fund shall
promptly notify the Distributor of
10
<PAGE> 11
the commencement of any litigation or proceedings against it or any of its
officers or Directors in connection with the issuance or sale of any of the
Class C shares.
(b) The Distributor shall indemnify and hold harmless the Fund and each
of its Directors and officers and each person, if any, who controls the Fund
against any loss, liability, claim, damage or expense described in the foregoing
indemnity contained in subsection (a) of this Section, but only with respect to
statements or omissions made in reliance upon, and in conformity with,
information furnished to the Fund in writing by or on behalf of the Distributor
for use in connection with the registration statement or related prospectus and
statement of additional information, as from time to time amended, or the annual
or interim reports to Class C shareholders. In case any action shall be brought
against the Fund or any person so indemnified, in respect of which indemnity may
be sought against the Distributor, the Distributor shall have the rights and
duties given to the Fund, and the Fund and each person so indemnified shall have
the rights and duties given to the Distributor by the provisions of subsection
(a) of this Section 9.
Section 10. Duration and Termination of this Agreement. This Agreement
shall become effective as of the date first above written and shall remain in
force until two years after the date first above written, and thereafter, but
only so long as such continuance is specifically approved at least annually by
(i) the Directors, or by the vote of a majority of the outstanding Class B
voting securities of the Fund, and (ii) by the vote of a majority of those
Directors who are not parties to this Agreement or interested persons of any
such party cast in person at a meeting called for the purpose of voting on such
approval.
This Agreement may be terminated at any time, without the payment of
any penalty, by the Directors or by vote of a majority of the outstanding Class
B voting securities of the Fund, or
11
<PAGE> 12
by the Distributor, on sixty days' written notice to the other party. This
Agreement shall automatically terminate in the event of its assignment.
The terms "vote of a majority of the outstanding voting securities,"
"assignment", "affiliated person" and "interested person," when used in this
Agreement, shall have the respective meanings given to them in the Investment
Company Act.
Section 11. Amendments of this Agreement. This Agreement may be amended
by the parties only if such amendment is specifically approved by (i) the
Directors or by the vote of a majority of outstanding Class B voting securities
of the Fund and (ii) by the vote of a majority of those Directors of the Fund
who are not parties to this Agreement or interested persons of any such party
cast in person at a meeting called for the purpose of voting on such approval.
Governing Law. The provisions of this Agreement shall be construed and
interpreted in accordance with the laws of the State of New York as at the time
in effect and the applicable provisions of the Investment Company Act. To the
extent that the applicable law of the State of New York, or any of the
provisions herein, conflict with the applicable provisions of the Investment
Company Act, the latter shall control.
12
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
MERCURY PREMIER GROWTH FUND, INC.
By___________________________________________
Name:
Title:
PRINCETON FUNDS DISTRIBUTOR, INC.
By___________________________________________
Name:
Title:
13
<PAGE> 14
EXHIBIT A
MERCURY PREMIER GROWTH FUND, INC.
CLASS C SHARES OF COMMON STOCK
SELECTED DEALERS AGREEMENT
Ladies and Gentlemen:
Princeton Funds Distributor, Inc. (the "Distributor"), has an agreement
with Mercury Premier Growth Fund, Inc., a Maryland Corporation (the "Fund"),
pursuant to which it acts as the distributor for the sale of Class C shares of
common stock, par value $0.10 per share (herein referred to as "Class C
shares"), of the Fund and as such has the right to distribute Class C shares of
the Fund for resale. The Fund is an open-end investment company registered under
the Investment Company Act of 1940, as amended (the "Investment Company Act"),
and its Class C shares being offered to the public are registered under the
Securities Act of 1933, as amended (the "Securities Act"). You have received a
copy of the Class C Shares Distribution Agreement (the "Distribution Agreement")
between ourselves and the Fund and reference is made herein to certain
provisions of such Distribution Agreement. The terms "prospectus" and "statement
of additional information" used herein refer to the prospectus of the Fund and
statement of additional information of the Fund, respectively, on file with the
Securities and Exchange Commission (the "Commission") which is part of the most
recent effective registration statement of the Fund under the Securities Act. We
offer to sell to you, as a member of the Selected Dealers Group, Class C shares
of the Fund upon the following terms and conditions:
1. In all sales of these Class C shares to the public, you shall act as
dealer for your own account and in no transaction shall you have any authority
to act as agent for the Fund, for us or for any other member of the Selected
Dealers Group, except in connection with such special programs as we from time
to time agree, in which case you shall have authority to offer and sell shares,
as agent for the Fund, to participants in such programs.
2. Orders received from you will be accepted through us only at the
public offering price applicable to each order, as set forth in the current
prospectus and statement of additional information, subject in each case to the
delivery prior to or at the time of such sales to the then current prospectus.
The procedure relating to the handling of orders shall be subject to Section 4
hereof and instructions which we or the Fund shall forward from time to time to
you. All orders are subject to acceptance or rejection by the Distributor or the
Fund in the sole discretion of either. The minimum initial and subsequent
purchase requirements are as set forth in the current prospectus and statement
of additional information and no order for less than such amounts will be
accepted unless such purchase shall be expressly approved by the Fund in
accordance with the
A-1
<PAGE> 15
then current prospectus. No conditional order will be accepted on any basis
other than a definite price.
3. As an authorized agent to sell shares of the Fund, you agree to
purchase shares of the Fund only through us or from your customers. You shall
not place orders for any Class C shares except for your own investment purposes
or unless you have already received purchase orders for such Class C shares at
the applicable public offering prices and subject to the terms hereof and of the
Distribution Agreement. You agree that you will not offer or sell any of the
Class C shares except under circumstances that will result in compliance with
the applicable Federal and state securities laws and that in connection with
sales and offers to sell Class C shares you will furnish to each person to whom
any such sale or offer is made a copy of the prospectus and, if requested, the
statement of additional information (as then amended or supplemented) and will
not furnish to any person any information relating to the Class C shares of the
Fund, which is inconsistent in any respect with the information contained in the
prospectus and statement of additional information (as then amended or
supplemented) or cause any advertisement to be published in any newspaper or
posted in any public place without our consent and the consent of the Fund.
4. As a selected dealer, you are hereby authorized (i) to place orders
directly with the Fund for Class C shares of the Fund to be resold by us to you
subject to the applicable terms and conditions governing the placement of orders
by us set forth in Section 3 of the Distribution Agreement and (ii) to tender
Class C shares directly to the Fund or its agent for redemption subject to the
applicable terms and conditions set forth in Section 4 of the Distribution
Agreement.
5. You agree to place orders received from your customers as soon as
practicable after your receipt of such orders. You further agree that you shall
not withhold placing orders received from your customers so as to profit
yourself as a result of such withholding, e.g., by a change in the "net asset
value" from that used in determining the offering price to your customers.
6. Settlement shall be made promptly, but in no case later than the
time customary for such payments after our acceptance of the order or, if so
specified by you, we will make delivery by draft on you, the amount of which
draft you agree to pay on presentation to you. If payment is not so received or
made, the right is reserved forthwith to cancel the sale or at our option to
resell the shares to the Fund at the then prevailing net asset value in which
latter case you agree to be responsible for any loss resulting to the Fund or to
us from your failure to make payment as aforesaid.
7. No person is authorized to make any representations concerning Class
C shares of the Fund except those contained in the current prospectus and
statement of additional information and in such printed information subsequently
issued by us or the Fund as information supplemental to such prospectus and
statement of additional information. In purchasing Class C shares through us,
you shall rely solely on the representations contained in the prospectus and
statement of additional information and supplemental information mentioned
above. Any printed information that we furnish you other than the prospectus,
statement of additional information, periodic reports and
A-2
<PAGE> 16
proxy solicitation material is our sole responsibility and not the
responsibility of the Fund with respect to the Fund, and you agree that the Fund
shall have no liability or responsibility to you in these respects unless
expressly assumed in connection therewith.
8. You agree to deliver to each of the purchasers making purchases from
you a copy of the then current prospectus and, if requested, the statement of
additional information at or prior to the time of offering or sale and you agree
thereafter to deliver to such purchasers copies of the annual and interim
reports and proxy solicitation materials of the Fund. You further agree to
endeavor to obtain proxies from such purchasers. Additional copies of the
prospectus and statement of additional information, annual or interim reports
and proxy solicitation materials relating to the Fund will be supplied to you in
reasonable quantities upon request.
9. All sales will be subject to receipt of shares by us from the Fund.
We reserve the right in our discretion, without notice, to suspend sales or
withdraw the offering of Class C shares entirely or to certain persons or
entities in a class or classes specified by us. Each party hereto has the right
to cancel this Agreement upon notice to the other party.
10. We, our affiliates, the Fund (and its officers and directors), and
the Trust (and its officers and trustees) shall not be liable for any loss,
expenses, damages, costs or other claims arising out of any redemption or
exchange pursuant to telephone instructions from any person, or our refusal to
execute such instructions for any reason.
11. You and we understand and agree that you are solely responsible for
the recommendation by your sales personnel to your customers of the purchase or
sale of Class C Shares of the Fund and the suitability of such purchase or sale
for the customer involved.
12. We shall have full authority to take such action as we may deem
advisable relating to the continuous offering of Class B shares of the Fund. We
shall be under no liability to you except for lack of good faith and for
obligations expressly assumed by us herein. Nothing contained in this paragraph
is intended to operate as, and the provisions of this paragraph shall not in any
way whatsoever constitute, a waiver by you of compliance with any provision of
the Securities Act, or of the rules and regulations of the Commission issued
thereunder.
13. By accepting this Agreement, you represent that you are registered
as a broker-dealer under the Securities Exchange Act of 1934, as amended, are
qualified to act as a broker or dealer in the states or other jurisdictions
where you transact business, and are a member in good standing of the National
Association of Securities Dealers, Inc. ("NASD"), and you agree that you will
maintain such registrations, qualifications, and membership in good standing and
in full force and effect throughout the term of this Agreement. You further
agree to comply with all applicable Federal laws, the laws of the states or
other jurisdictions concerned, and the rules and regulations promulgated
thereunder and with the Constitution, By-Laws and Conduct Rules of the NASD, and
that you will not offer or sell shares of the Fund in any state or jurisdiction
where they may not lawfully be offered and/or sold.
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<PAGE> 17
If you are offering and selling shares of the Fund in any jurisdiction
outside the several states, territories, and possessions of the United States
and are not otherwise required to be registered, qualified, or a member of the
NASD, as set forth above you, you nevertheless agree to observe the applicable
laws of the jurisdiction in which such offer and/or sale is made, to comply with
the full disclosure requirements of the Securities Act and the regulations
promulgated thereunder, to conduct your business in accordance with the spirit
of the Conduct Rules of the NASD. You agree to indemnify and hold the Fund, its
investment adviser, and us harmless from loss or damage resulting from any
failure on your part to comply with applicable laws.
14. Upon application to us, we will inform you concerning to the states
in which we believe the Class C shares have been qualified for sale under, or
are exempt from the requirements of, the respective securities laws of such
states, but we assume no responsibility or obligation as to your right to sell
Class C shares in any jurisdiction. We will file with the Department of State in
New York a Further State Notice with respect to the Class C shares, if
necessary.
15. All communications to us should be sent to the address below. Any
notice to you shall be duly given if mailed or telegraphed to you at the address
specified by you below.
16. You agree to maintain records of all sales of shares made through
you and to furnish us with copies of each record on request.
17. You and we understand that, except as expressly provided in this
Agreement, in no transaction will you have any authority to take any action or
make any representation binding upon the Fund, us or any other member of the
Selected Dealers Group.
18. This Agreement may be amended by us from time to time by the
following procedure. We will mail a copy of the amendment to you at your address
as specified below. If you do not object to the amendment within fifteen (15)
days after its receipt, the amendment will become a part of the Agreement. Your
objection must be in writing and be received by us within such fifteen days.
19. This Agreement may be terminated upon written notice by either
party at any time, and shall automatically terminate upon its attempted
assignment by you, whether by operation of law or otherwise, or by us otherwise
than by operation of law.
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<PAGE> 18
20. Your first order placed pursuant to this Agreement for the purchase
of Class C shares of the Fund will represent your acceptance of this Agreement.
PRINCETON FUNDS DISTRIBUTOR, INC.
By _____________________________________
(Authorized Signature)
Please return one signed copy
of this agreement to:
PRINCETON FUNDS DISTRIBUTOR, INC.
P.O. Box 9081
Princeton, New Jersey 08543-9081
Accepted:
Firm Name:_____________________________________
By:____________________________________________
Address:_______________________________________
_______________________________________________
Date:__________________________________________
A-5
<PAGE> 1
CUSTODY AGREEMENT
Agreement made as of this day of December, 1999, between
MERRILL LYNCH FOCUS TWENTY FUND, INC., a Maryland corporation organized and
existing under the laws of the State of Maryland, having its principal office
and place of business at 800 Scudders Mill Road, Plainsboro, New Jersey 08536
(hereinafter called the "Fund"), and THE BANK OF NEW YORK, a New York
corporation authorized to do a banking business, having its principal office and
place of business at One Wall Street, New York, New York 10286 (hereinafter
called the "Custodian").
W I T N E S S E T H:
that for and in consideration of the mutual promises hereinafter set forth, the
Fund and the Custodian agree as follows:
ARTICLE I.
DEFINITIONS
Whenever used in this Agreement, the following words and
phrases, unless the context otherwise requires, shall have the following
meanings:
1. "Authorized Persons" shall be deemed to include any person, whether
or not such person is an officer or employee of the Fund, duly authorized by the
Board of Directors of the Fund to execute any Certificate, instruction, notice
or other instrument on behalf of the Fund and listed in the Certificate annexed
hereto as Appendix A or such other Certificate as may be received by the
Custodian from time to time.
2. "Book-Entry System" shall mean the Federal Reserve/Treasury
book-entry system for United States and federal agency securities, its successor
or successors and its nominee or nominees.
3. "Call Option" shall mean an exchange traded option with respect to
Securities other than Stock Index Options, Futures Contracts, and Futures
Contract Options entitling the holder, upon timely exercise and payment of the
exercise price, as specified therein, to purchase from the writer thereof the
specified underlying Securities.
4. "Certificate" shall mean any notice, instruction, or other
instrument in writing, authorized or required by this Agreement to be given to
the Custodian which is actually received by the Custodian and signed on behalf
of the Fund by any two Authorized Persons, and the term Certificate shall also
include Instructions.
<PAGE> 2
5. "Clearing Member" shall mean a registered broker-dealer which is a
clearing member under the rules of O.C.C. and a member of a national securities
exchange qualified to act as a custodian for an investment company, or any
broker-dealer reasonably believed by the Custodian to be such a clearing member.
6. "Collateral Account" shall mean a segregated account so denominated
which is specifically allocated to a Series and pledged to the Custodian as
security for, and in consideration of, the Custodian's issuance of (a) any Put
Option guarantee letter or similar document described in paragraph 8 of Article
V herein, or (b) any receipt described in Article V or VIII herein.
7. "Composite Currency Unit" shall mean the European Currency Unit or
any other composite unit consisting of the aggregate of specified amounts of
specified Currencies as such unit may be constituted from time to time.
8. "Covered Call Option" shall mean an exchange traded option entitling
the holder, upon timely exercise and payment of the exercise price, as specified
therein, to purchase from the writer thereof the specified underlying Securities
(excluding Futures Contracts) which are owned by the writer thereof and subject
to appropriate restrictions.
9. "Currency" shall mean money denominated in a lawful currency of any
country or the European Currency Unit.
10. "Depository" shall mean The Depository Trust Company ("DTC"), a
clearing agency registered with the Securities and Exchange Commission, its
successor or successors and its nominee or nominees. The term "Depository" shall
further mean and include any other person authorized to act as a depository
under the Investment Company Act of 1940, its successor or successors and its
nominee or nominees, specifically identified in a certified copy of a resolution
of the Fund's Board of Directors specifically approving deposits therein by the
Custodian.
11. "Financial Futures Contract" shall mean the firm commitment to buy
or sell fixed income securities including, without limitation, U.S. Treasury
Bills, U.S. Treasury Notes, U.S. Treasury Bonds, domestic bank certificates of
deposit, and Eurodollar certificates of deposit, during a specified month at an
agreed upon price.
12. "Futures Contract" shall mean a Financial Futures Contract and/or
Stock Index Futures Contracts.
13. "Futures Contract Option" shall mean an option with respect to a
Futures Contract.
14. "FX Transaction" shall mean any transaction for the purchase by one
party of an agreed amount in one Currency against the sale by it to the other
party of an agreed amount in another Currency.
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<PAGE> 3
15. "Instructions" shall mean instructions communications transmitted
by electronic or telecommunications media including S.W.I.F.T.,
computer-to-computer interface, dedicated transmission line, facsimile
transmission signed by an Authorized Person and tested telex.
16. "Margin Account" shall mean a segregated account in the name of a
broker, dealer, futures commission merchant, or a Clearing Member, or in the
name of the Fund for the benefit of a broker, dealer, futures commission
merchant, or Clearing Member, or otherwise, in accordance with an agreement
between the Fund, the Custodian and a broker, dealer, futures commission
merchant or a Clearing Member (a "Margin Account Agreement"), separate and
distinct from the custody account, in which certain Securities and/or money of
the Fund shall be deposited and withdrawn from time to time in connection with
such transactions as the Fund may from time to time determine. Securities held
in the Book-Entry System or the Depository shall be deemed to have been
deposited in, or withdrawn from, a Margin Account upon the Custodian's effecting
an appropriate entry in its books and records.
17. "Money Market Security" shall be deemed to include, without
limitation, certain Reverse Repurchase Agreements, debt obligations issued or
guaranteed as to interest and principal by the government of the United States
or agencies or instrumentalities thereof, any tax, bond or revenue anticipation
note issued by any state or municipal government or public authority, commercial
paper, certificates of deposit and bankers' acceptances, repurchase agreements
with respect to the same and bank time deposits, where the purchase and sale of
such securities normally requires settlement in federal funds on the same day as
such purchase or sale.
18. "O.C.C." shall mean the Options Clearing Corporation, a clearing
agency registered under Section 17A of the Securities Exchange Act of 1934, its
successor or successors, and its nominee or nominees.
19. "Option" shall mean a Call Option, Covered Call Option, Stock Index
Option and/or a Put Option.
20. "Oral Instructions" shall mean verbal instructions actually
received by the Custodian from an Authorized Person or from a person reasonably
believed by the Custodian to be an Authorized Person.
21. "Put Option" shall mean an exchange traded option with respect to
Securities other than Stock Index Options, Futures Contracts, and Futures
Contract Options entitling the holder, upon timely exercise and tender of the
specified underlying Securities, to sell such Securities to the writer thereof
for the exercise price.
22. "Reverse Repurchase Agreement" shall mean an agreement pursuant to
which the Fund sells Securities and agrees to repurchase such Securities at a
described or specified date and price.
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23. "Security" shall be deemed to include, without limitation, Money
Market Securities, Call Options, Put Options, Stock Index Options, Stock Index
Futures Contracts, Stock Index Futures Contract Options, Financial Futures
Contracts, Financial Futures Contract Options, Reverse Repurchase Agreements,
common stocks and other securities having characteristics similar to common
stocks, preferred stocks, debt obligations issued by state or municipal
governments and by public authorities, (including, without limitation, general
obligation bonds, revenue bonds, industrial bonds and industrial development
bonds), bonds, debentures, notes, mortgages or other obligations, and any
certificates, receipts, warrants or other instruments representing rights to
receive, purchase, sell or subscribe for the same, or evidencing or representing
any other rights or interest therein, or any property or assets, and agreements
representing corporate loans and interests therein as defined form time to time
in the Fund's prospectus or statement of additional information.
24. "Senior Security Account" shall mean an account maintained and
specifically allocated to a Series under the terms of this Agreement as a
segregated account, by recordation or otherwise, within the custody account in
which certain Securities and/or other assets of the Fund specifically allocated
to such Series shall be deposited and withdrawn from time to time in accordance
with Certificates received by the Custodian in connection with such transactions
as the Fund may from time to time determine.
25. "Series" shall mean the various portfolios, if any, of the Fund
listed on Appendix B hereto as amended from time to time.
26. "Shares" shall mean the shares of capital stock of the Fund, each
of which is, in the case of a Fund having Series, allocated to a particular
Series.
27. "Stock Index Futures Contract" shall mean a bilateral agreement
pursuant to which the parties agree to take or make delivery of an amount of
cash equal to a specified dollar amount times the difference between the value
of a particular stock index at the close of the last business day of the
contract and the price at which the futures contract is originally struck.
28. "Stock Index Option" shall mean an exchange traded option entitling
the holder, upon timely exercise, to receive an amount of cash determined by
reference to the difference between the exercise price and the value of the
index on the date of exercise.
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ARTICLE II.
APPOINTMENT OF CUSTODIAN
1. The Fund hereby constitutes and appoints the Custodian as custodian
of the Securities and money at any time owned by the Fund during the period of
this Agreement.
2. The Custodian hereby accepts appointment as such custodian and
agrees to perform the duties thereof as hereinafter set forth.
ARTICLE III.
CUSTODY OF CASH AND SECURITIES
1. Except as otherwise provided in paragraph 7 of this Article and in
Article VIII, the Fund will deliver or cause to be delivered to the Custodian
all Securities and all money owned by it, at any time during the period of this
Agreement, and shall specify with respect to such Securities and money the
Series to which the same are specifically allocated. The Custodian shall
segregate, keep and maintain the assets of the Series separate and apart. The
Custodian will not be responsible for any Securities and money not actually
received by it. The Custodian will be entitled to reverse any credits made on
the Fund's behalf where such credits have been previously made and money is not
finally collected. The Fund shall deliver to the Custodian a certified
resolution of the Board of Directors of the Fund, substantially in the form of
Exhibit A hereto, approving, authorizing and instructing the Custodian on a
continuous and on-going basis to deposit in the Book-Entry System all Securities
eligible for deposit therein, regardless of the Series to which the same are
specifically allocated and to utilize the Book-Entry System to the extent
possible in connection with its performance hereunder, including, without
limitation, in connection with settlements of purchases and sales of Securities,
loans of Securities and deliveries and returns of Securities collateral. Prior
to a deposit of Securities specifically allocated to a Series in the Depository,
the Fund shall deliver to the Custodian a certified resolution of the Board of
Directors of the Fund, substantially in the form of Exhibit B hereto, approving,
authorizing and instructing the Custodian on a continuous and ongoing basis
until instructed to the contrary by a Certificate actually received by the
Custodian to deposit in the Depository all Securities specifically allocated to
such Series eligible for deposit therein, and to utilize the Depository to the
extent possible with respect to such Securities in connection with its
performance hereunder, including, without limitation, in connection with
settlements of purchases and sales of Securities, loans of Securities, and
deliveries and returns of Securities collateral. Securities and money deposited
in either the Book-Entry System or the Depository will be represented in
accounts which include only assets held by the Custodian for customers,
including, but not limited to, accounts in which the Custodian acts in a
fiduciary or representative capacity and will be specifically allocated on the
Custodian's
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<PAGE> 6
books to the separate account for the applicable Series. Prior to
the Custodian's accepting, utilizing and acting with respect to Clearing Member
confirmations for Options and transactions in Options for a Series as provided
in this Agreement, the Custodian shall have received a certified resolution of
the Fund's Board of Directors, substantially in the form of Exhibit C hereto,
approving, authorizing and instructing the Custodian on a continuous and
on-going basis, until instructed to the contrary by a Certificate actually
received by the Custodian, to accept, utilize and act in accordance with such
confirmations as provided in this Agreement with respect to such Series.
2. The Custodian shall establish and maintain separate accounts, in the
name of each Series, and shall credit to the separate account for each Series
all money received by it for the account of the Fund with respect to such
Series. Money credited to a separate account for a Series shall be disbursed by
the Custodian only:
(a) As hereinafter provided;
(b) Pursuant to Certificates setting forth the name and
address of the person to whom the payment is to be made, the Series
account from which payment is to be made and the purpose for which
payment is to be made; or
(c) In payment of the fees and in reimbursement of the
expenses and liabilities of the Custodian attributable to such Series.
3. Promptly after the close of business on each day, the Custodian
shall furnish the Fund with confirmations and a summary, on a per Series basis,
of all transfers to or from the account of the Fund for a Series, either
hereunder or with any co-custodian or sub-custodian appointed in accordance with
this Agreement during said day. Where Securities are transferred to the account
of the Fund for a Series, the Custodian shall also by book-entry or otherwise
identify as belonging to such Series a quantity of Securities in a fungible bulk
of Securities registered in the name of the Custodian (or its nominee) or shown
on the Custodian's account on the books of the Book-Entry System or the
Depository. At least monthly and from time to time, the Custodian shall furnish
the Fund with a detailed statement, on a per Series basis, of the Securities and
money held by the Custodian for the Fund.
4. Except as otherwise provided in paragraph 7 of this Article and in
Article VIII, all Securities held by the Custodian hereunder, which are issued
or issuable only in bearer form, except such Securities as are held in the
Book-Entry System, shall be held by the Custodian in that form; all other
Securities held hereunder may be registered in the name of the Fund, in the name
of any duly appointed registered nominee of the Custodian as the Custodian may
from time to time determine, or in the name of the Book-Entry System or the
Depository or their successor or successors, or their nominee or nominees. The
Fund agrees to furnish to the Custodian appropriate instruments to enable the
Custodian to hold or deliver in proper form for transfer, or to register in the
name of its registered nominee or in the name of the Book-Entry System or the
Depository any
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<PAGE> 7
Securities which it may hold hereunder and which may from time to time be
registered in the name of the Fund. The Custodian shall hold all such Securities
specifically allocated to a Series which are not held in the Book-Entry System
or in the Depository in a separate account in the name of such Series physically
segregated at all times from those of any other person or persons.
5. Except as otherwise provided in this Agreement and unless otherwise
instructed to the contrary by a Certificate, the Custodian by itself, or through
the use of the Book-Entry System or the Depository with respect to Securities
held hereunder and therein deposited, shall with respect to all Securities held
for the Fund hereunder in accordance with preceding paragraph 4:
(a) Collect all income, dividends and distributions due or
payable;
(b) Give notice to the Fund and present payment and collect
the amount payable upon such Securities which are called, but only if
either (i) the Custodian receives a written notice of such call, or
(ii) notice of such call appears in one or more of the publications
listed in Appendix C annexed hereto, which may be amended at any time
by the Custodian without the prior notification or consent of the Fund;
(c) Present for payment and collect the amount payable upon
all Securities which mature;
(d) Surrender Securities in temporary form for definitive
Securities;
(e) Execute, as custodian, any necessary declarations or
certificates of ownership under the Federal Income Tax Laws or the laws
or regulations of any other taxing authority now or hereafter in
effect;
(f) Hold directly, or through the Book-Entry System or the
Depository with respect to Securities therein deposited, for the
account of a Series, all rights and similar securities issued with
respect to any Securities held by the Custodian for such Series
hereunder; and
(g) Deliver to the Fund all notices, proxies, proxy soliciting
materials, consents and other written information (including, without
limitation, notices of tender offers and exchange offers, pendency of
calls, maturities of Securities and expiration of rights) relating to
Securities held pursuant to this Agreement which are actually received
by the Custodian, such proxies and other similar materials to be
executed by the registered owner (if Securities are registered
otherwise than in the name of the Fund), but without indicating the
manner in which proxies or consents are to be voted.
6. Upon receipt of a Certificate and not otherwise, the Custodian,
directly or through the use of the Book-Entry System or the Depository, shall:
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<PAGE> 8
(a) Execute and deliver to such persons as may be designated
in such Certificate proxies, consents, authorizations, and any other instruments
whereby the authority of the Fund as owner of any Securities held by the
Custodian hereunder for the Series specified in such Certificate may be
exercised;
(b) Deliver any Securities held by the Custodian hereunder for
the Series specified in such Certificate in exchange for other Securities or
cash issued or paid in connection with the liquidation, reorganization,
refinancing, merger, consolidation or recapitalization of any corporation, or
the exercise of any conversion privilege and receive and hold hereunder
specifically allocated to such Series any cash or other Securities received in
exchange;
(c) Deliver any Securities held by the Custodian hereunder for
the Series specified in such Certificate to any protective committee,
reorganization committee or other person in connection with the reorganization,
refinancing, merger, consolidation, recapitalization or sale of assets of any
corporation, and receive and hold hereunder specifically allocated to such
Series such certificates of deposit, interim receipts or other instruments or
documents as may be issued to it to evidence such delivery;
(d) Make such transfers or exchanges of the assets of the
Series specified in such Certificate, and take such other steps as shall be
stated in such Certificate to be for the purpose of effectuating any duly
authorized plan of liquidation, reorganization, merger, consolidation or
recapitalization of the Fund; and
(e) Present for payment and collect the amount payable upon
Securities not described in preceding paragraph 5(b) of this Article which may
be called as specified in the Certificate.
7. Notwithstanding any provision elsewhere contained herein, the
Custodian shall not be required to obtain possession of any instrument or
certificate representing any Futures Contract, any Option, or any Futures
Contract Option until after it shall have determined, or shall have received a
Certificate from the Fund stating, that any such instruments or certificates are
available. The Fund shall deliver to the Custodian such a Certificate no later
than the business day preceding the availability of any such instrument or
certificate. Prior to such availability, the Custodian shall comply with Section
17(f) of the Investment Company Act of 1940, as amended, in connection with the
purchase, sale, settlement, closing-out or writing of Futures Contracts,
Options, or Futures Contract Options by making payments or deliveries specified
in Certificates received by the Custodian in connection with any such purchase,
sale, writing, settlement or closing-out upon its receipt from a broker, dealer,
or futures commission merchant of a statement or confirmation reasonably
believed by the Custodian to be in the form customarily used by brokers,
dealers, or futures commission merchants with respect to such Futures Contracts,
Options, or Futures Contract Options, as the case may be, confirming that such
Security is held by such broker, dealer or futures commission
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<PAGE> 9
merchant, in book-entry form or otherwise, in the name of the Custodian (or any
nominee of the Custodian) as custodian for the Fund, provided, however, that
notwithstanding the foregoing, payments to or deliveries from the Margin
Account, and payments with respect to Securities to which a Margin Account
relates, shall be made in accordance with the terms and conditions of the Margin
Account Agreement. Whenever any such instruments or certificates are available,
the Custodian shall, notwithstanding any provision in this Agreement to the
contrary, make payment for any Futures Contract, Option, or Futures Contract
Option for which such instruments or such certificates are available only
against the delivery to the Custodian of such instrument or such certificate,
and deliver any Futures Contract, Option or Futures Contract Option for which
such instruments or such certificates are available only against receipt by the
Custodian of payment therefor. Any such instrument or certificate delivered to
the Custodian shall be held by the Custodian hereunder in accordance with, and
subject to, the provisions of this Agreement.
ARTICLE IV.
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
OTHER THAN OPTIONS, FUTURES CONTRACTS AND
FUTURES CONTRACT OPTIONS
1. Promptly after each purchase of Securities by the Fund, other than a
purchase of an Option, a Futures Contract, or a Futures Contract Option, the
Fund shall deliver to the Custodian (i) with respect to each purchase of
Securities which are not Money Market Securities, a Certificate, and (ii) with
respect to each purchase of Money Market Securities, a Certificate or Oral
Instructions, specifying with respect to each such purchase: (a) the Series to
which such Securities are to be specifically allocated; (b) the name of the
issuer and the title of the Securities; (c) the number of shares or the
principal amount purchased and accrued interest, if any; (d) the date of
purchase and settlement; (e) the purchase price per unit; (f) the total amount
payable upon such purchase; (g) the name of the person from whom or the broker
through whom the purchase was made, and the name of the clearing broker, if any;
and (h) the name of the broker to whom payment is to be made. The Custodian
shall, upon receipt of Securities purchased by or for the Fund, pay to the
broker specified in the Certificate out of the money held for the account of
such Series the total amount payable upon such purchase, provided that the same
conforms to the total amount payable as set forth in such Certificate or Oral
Instructions.
2. Promptly after each sale of Securities by the Fund, other than a
sale of any Option, Futures Contract, Futures Contract Option, or any Reverse
Repurchase Agreement, the Fund shall deliver to the Custodian (i) with respect
to each sale of Securities which are not Money Market Securities, a Certificate,
and (ii) with respect to each sale of Money Market Securities, a Certificate or
Oral Instructions, specifying with respect to each such sale: (a) the Series to
which such Securities were specifically
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allocated; (b) the name of the issuer and the title of the Security; (c) the
number of shares or principal amount sold, and accrued interest, if any; (d) the
date of sale; (e) the sale price per unit; (f) the total amount payable to the
Fund upon such sale; (g) the name of the broker through whom or the person to
whom the sale was made, and the name of the clearing broker, if any; and (h) the
name of the broker to whom the Securities are to be delivered. The Custodian
shall deliver the Securities specifically allocated to such Series to the broker
specified in the Certificate against payment of the total amount payable to the
Fund upon such sale, provided that the same conforms to the total amount payable
as set forth in such Certificate or Oral Instructions.
ARTICLE V.
OPTIONS
1. Promptly after the purchase of any Option by the Fund, the Fund
shall deliver to the Custodian a Certificate specifying with respect to each
Option purchased: (a) the Series to which such Option is specifically allocated;
(b) the type of Option (put or call); (c) the name of the issuer and the title
and number of shares subject to such Option or, in the case of a Stock Index
Option, the stock index to which such Option relates and the number of Stock
Index Options purchased; (d) the expiration date; (e) the exercise price; (f)
the dates of purchase and settlement; (g) the total amount payable by the Fund
in connection with such purchase; (h) the name of the Clearing Member through
whom such Option was purchased; and (i) the name of the broker to whom payment
is to be made. The Custodian shall pay, upon receipt of a Clearing Member's
statement confirming the purchase of such Option held by such Clearing Member
for the account of the Custodian (or any duly appointed and registered nominee
of the Custodian) as custodian for the Fund, out of money held for the account
of the Series to which such Option is to be specifically allocated, the total
amount payable upon such purchase to the Clearing Member through whom the
purchase was made, provided that the same conforms to the total amount payable
as set forth in such Certificate.
2. Promptly after the sale of any Option purchased by the Fund pursuant
to paragraph 1 hereof, the Fund shall deliver to the Custodian a Certificate
specifying with respect to each such sale: (a) the Series to which such Option
was specifically allocated; (b) the type of Option (put or call); (c) the name
of the issuer and the title and number of shares subject to such Option or, in
the case of a Stock Index Option, the stock index to which such Option relates
and the number of Stock Index Options sold; (d) the date of sale; (e) the sale
price; (f) the date of settlement; (g) the total amount payable to the Fund upon
such sale; and (h) the name of the Clearing Member through whom the sale was
made. The Custodian shall consent to the delivery of the Option sold by the
Clearing Member which previously supplied the confirmation described in
preceding paragraph 1 of this Article with respect to such Option against
payment to the Custodian of the total
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<PAGE> 11
amount payable to the Fund, provided that the same conforms to the total amount
payable as set forth in such Certificate.
3. Promptly after the exercise by the Fund of any Call Option purchased
by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to the
Custodian a Certificate specifying with respect to such Call Option: (a) the
Series to which such Call Option was specifically allocated; (b) the name of the
issuer and the title and number of shares subject to the Call Option; (c) the
expiration date; (d) the date of exercise and settlement; (e) the exercise price
per share; (f) the total amount to be paid by the Fund upon such exercise; and
(g) the name of the Clearing Member through whom such Call Option was exercised.
The Custodian shall, upon receipt of the Securities underlying the Call Option
which was exercised, pay out of the money held for the account of the Series to
which such Call Option was specifically allocated the total amount payable to
the Clearing Member through whom the Call Option was exercised, provided that
the same conforms to the total amount payable as set forth in such Certificate.
4. Promptly after the exercise by the Fund of any Put Option purchased
by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to the
Custodian a Certificate specifying with respect to such Put Option: (a) the
Series to which such Put Option was specifically allocated; (b) the name of the
issuer and the title and number of shares subject to the Put Option; (c) the
expiration date; (d) the date of exercise and settlement; (e) the exercise price
per share; (f) the total amount to be paid to the Fund upon such exercise; and
(g) the name of the Clearing Member through whom such Put Option was exercised.
The Custodian shall, upon receipt of the amount payable upon the exercise of the
Put Option, deliver or direct the Depository to deliver the Securities
specifically allocated to such Series, provided the same conforms to the amount
payable to the Fund as set forth in such Certificate.
5. Promptly after the exercise by the Fund of any Stock Index Option
purchased by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to
the Custodian a Certificate specifying with respect to such Stock Index Option:
(a) the Series to which such Stock Index Option was specifically allocated; (b)
the type of Stock Index Option (put or call); (c) the number of Options being
exercised; (d) the stock index to which such Option relates; (e) the expiration
date; (f) the exercise price; (g) the total amount to be received by the Fund in
connection with such exercise; and (h) the Clearing Member from whom such
payment is to be received.
6. Whenever the Fund writes a Covered Call Option, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to such
Covered Call Option: (a) the Series for which such Covered Call Option was
written; (b) the name of the issuer and the title and number of shares for which
the Covered Call Option was written and which underlie the same; (c) the
expiration date; (d) the exercise price; (e) the premium to be received by the
Fund; (f) the date such Covered Call Option was written; and (g) the name of the
Clearing Member through whom the premium is to be received.
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<PAGE> 12
The Custodian shall deliver or cause to be delivered, in exchange for receipt of
the premium specified in the Certificate with respect to such Covered Call
Option, such receipts as are required in accordance with the customs prevailing
among Clearing Members dealing in Covered Call Options and shall impose, or
direct the Depository to impose, upon the underlying Securities specified in the
Certificate specifically allocated to such Series such restrictions as may be
required by such receipts. Notwithstanding the foregoing, the Custodian has the
right, upon prior written notification to the Fund, at any time to refuse to
issue any receipts for Securities in the possession of the Custodian and not
deposited with the Depository underlying a Covered Call Option.
7. Whenever a Covered Call Option written by the Fund and described in
the preceding paragraph of this Article is exercised, the Fund shall promptly
deliver to the Custodian a Certificate instructing the Custodian to deliver, or
to direct the Depository to deliver, the Securities subject to such Covered Call
Option and specifying: (a) the Series for which such Covered Call Option was
written; (b) the name of the issuer and the title and number of shares subject
to the Covered Call Option; (c) the Clearing Member to whom the underlying
Securities are to be delivered; and (d) the total amount payable to the Fund
upon such delivery. Upon the return and/or cancellation of any receipts
delivered pursuant to paragraph 6 of this Article, the Custodian shall deliver,
or direct the Depository to deliver, the underlying Securities as specified in
the Certificate against payment of the amount to be received as set forth in
such Certificate.
8. Whenever the Fund writes a Put Option, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to such Put
Option: (a) the Series for which such Put Option was written; (b) the name of
the issuer and the title and number of shares for which the Put Option is
written and which underlie the same; (c) the expiration date; (d) the exercise
price; (e) the premium to be received by the Fund; (f) the date such Put Option
is written; (g) the name of the Clearing Member through whom the premium is to
be received and to whom a Put Option guarantee letter is to be delivered; (h)
the amount of cash, and/or the amount and kind of Securities, if any,
specifically allocated to such Series to be deposited in the Senior Security
Account for such Series; and (i) the amount of cash and/or the amount and kind
of Securities specifically allocated to such Series to be deposited into the
Collateral Account for such Series. The Custodian shall, after making the
deposits into the Collateral Account specified in the Certificate, issue a Put
Option guarantee letter substantially in the form utilized by the Custodian on
the date hereof, and deliver the same to the Clearing Member specified in the
Certificate against receipt of the premium specified in said Certificate.
Notwithstanding the foregoing, the Custodian shall be under no obligation to
issue any Put Option guarantee letter or similar document if it is unable to
make any of the representations contained therein.
9. Whenever a Put Option written by the Fund and described in the
preceding paragraph is exercised, the Fund shall promptly deliver to the
Custodian a Certificate specifying: (a) the Series to which such Put Option was
written; (b) the name of the
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<PAGE> 13
issuer and title and number of shares subject to the Put Option; (c) the
Clearing Member from whom the underlying Securities are to be received; (d) the
total amount payable by the Fund upon such delivery; (e) the amount of cash
and/or the amount and kind of Securities specifically allocated to such Series
to be withdrawn from the Collateral Account for such Series and (f) the amount
of cash and/or the amount and kind of Securities, specifically allocated to such
Series, if any, to be withdrawn from the Senior Security Account. Upon the
return and/or cancellation of any Put Option guarantee letter or similar
document issued by the Custodian in connection with such Put Option, the
Custodian shall pay out of the money held for the account of the Series to which
such Put Option was specifically allocated the total amount payable to the
Clearing Member specified in the Certificate as set forth in such Certificate
against delivery of such Securities, and shall make the withdrawals specified in
such Certificate.
10. Whenever the Fund writes a Stock Index Option, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to such
Stock Index Option: (a) the Series for which such Stock Index Option was
written; (b) whether such Stock Index Option is a put or a call; (c) the number
of options written; (d) the stock index to which such Option relates; (e) the
expiration date; (f) the exercise price; (g) the Clearing Member through whom
such Option was written; (h) the premium to be received by the Fund; (i) the
amount of cash and/or the amount and kind of Securities, if any, specifically
allocated to such Series to be deposited in the Senior Security Account for such
Series; (j) the amount of cash and/or the amount and kind of Securities, if any,
specifically allocated to such Series to be deposited in the Collateral Account
for such Series; and (k) the amount of cash and/or the amount and kind of
Securities, if any, specifically allocated to such Series to be deposited in a
Margin Account, and the name in which such account is to be or has been
established. The Custodian shall, upon receipt of the premium specified in the
Certificate, make the deposits, if any, into the Senior Security Account
specified in the Certificate, and either (1) deliver such receipts, if any,
which the Custodian has specifically agreed to issue, which are in accordance
with the customs prevailing among Clearing Members in Stock Index Options and
make the deposits into the Collateral Account specified in the Certificate, or
(2) make the deposits into the Margin Account specified in the Certificate.
11. Whenever a Stock Index Option written by the Fund and described in
the preceding paragraph of this Article is exercised, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to such Stock
Index Option: (a) the Series for which such Stock Index Option was written; (b)
such information as may be necessary to identify the Stock Index Option being
exercised; (c) the Clearing Member through whom such Stock Index Option is being
exercised; (d) the total amount payable upon such exercise, and whether such
amount is to be paid by or to the Fund; (e) the amount of cash and/or amount and
kind of Securities, if any, to be withdrawn from the Margin Account; and (f) the
amount of cash and/or amount and kind of Securities, if any, to be withdrawn
from the Senior Security Account for such Series; and the amount of cash and/or
the amount and kind of Securities, if any, to be withdrawn from the Collateral
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<PAGE> 14
Account for such Series. Upon the return and/or cancellation of the receipt, if
any, delivered pursuant to the preceding paragraph of this Article, the
Custodian shall pay out of the money held for the account of the Series to which
such Stock Index Option was specifically allocated to the Clearing Member
specified in the Certificate the total amount payable, if any, as specified
therein.
12. Whenever the Fund purchases any Option identical to a previously
written Option described in paragraphs, 6, 8 or 10 of this Article in a
transaction expressly designated as a "Closing Purchase Transaction" in order to
liquidate its position as a writer of an Option, the Fund shall promptly deliver
to the Custodian a Certificate specifying with respect to the Option being
purchased: (a) that the transaction is a Closing Purchase Transaction; (b) the
Series for which the Option was written; (c) the name of the issuer and the
title and number of shares subject to the Option, or, in the case of a Stock
Index Option, the stock index to which such Option relates and the number of
Options held; (d) the exercise price; (e) the premium to be paid by the Fund;
(f) the expiration date; (g) the type of Option (put or call); (h) the date of
such purchase; (i) the name of the Clearing Member to whom the premium is to be
paid; and (j) the amount of cash and/or the amount and kind of Securities, if
any, to be withdrawn from the Collateral Account, a specified Margin Account, or
the Senior Security Account for such Series. Upon the Custodian's payment of the
premium and the return and/or cancellation of any receipt issued pursuant to
paragraphs 6, 8 or 10 of this Article with respect to the Option being
liquidated through the Closing Purchase Transaction, the Custodian shall remove,
or direct the Depository to remove, the previously imposed restrictions on the
Securities underlying the Call Option.
13. Upon the expiration, exercise or consummation of a Closing Purchase
Transaction with respect to any Option purchased or written by the Fund and
described in this Article, the Custodian shall delete such Option from the
statements delivered to the Fund pursuant to paragraph 3 of Article III herein,
and upon the return and/or cancellation of any receipts issued by the Custodian,
shall make such withdrawals from the Collateral Account, and the Margin Account
and/or the Senior Security Account as may be specified in a Certificate received
in connection with such expiration, exercise, or consummation.
ARTICLE VI.
FUTURES CONTRACTS
1. Whenever the Fund shall enter into a Futures Contract, the Fund
shall deliver to the Custodian a Certificate specifying with respect to such
Futures Contract, (or with respect to any number of identical Futures
Contract(s)): (a) the Series for which the Futures Contract is being entered;
(b) the category of Futures Contract (the name of the underlying stock index or
financial instrument); (c) the number of identical Futures Contracts entered
into; (d) the delivery or settlement date of the Futures Contract(s); (e)
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<PAGE> 15
the date the Futures Contract(s) was (were) entered into and the maturity date;
(f) whether the Fund is buying (going long) or selling (going short) on such
Futures Contract(s); (g) the amount of cash and/or the amount and kind of
Securities, if any, to be deposited in the Senior Security Account for such
Series; (h) the name of the broker, dealer, or futures commission merchant
through whom the Futures Contract was entered into; and (i) the amount of fee or
commission, if any, to be paid and the name of the broker, dealer, or futures
commission merchant to whom such amount is to be paid. The Custodian shall make
the deposits, if any, to the Margin Account in accordance with the terms and
conditions of the Margin Account Agreement. The Custodian shall make payment out
of the money specifically allocated to such Series of the fee or commission, if
any, specified in the Certificate and deposit in the Senior Security Account for
such Series the amount of cash and/or the amount and kind of Securities
specified in said Certificate.
2. (a) Any variation margin payment or similar payment required to be
made by the Fund to a broker, dealer, or futures commission merchant with
respect to an outstanding Futures Contract, shall be made by the Custodian in
accordance with the terms and conditions of the Margin Account Agreement.
(b) Any variation margin payment or similar payment from a broker,
dealer, or futures commission merchant to the Fund with respect to an
outstanding Futures Contract, shall be received and dealt with by the Custodian
in accordance with the terms and conditions of the Margin Account Agreement.
3. Whenever a Futures Contract held by the Custodian hereunder is
retained by the Fund until delivery or settlement is made on such Futures
Contract, the Fund shall deliver to the Custodian a Certificate specifying: (a)
the Futures Contract and the Series to which the same relates; (b) with respect
to a Stock Index Futures Contract, the total cash settlement amount to be paid
or received, and with respect to a Financial Futures Contract, the Securities
and/or amount of cash to be delivered or received; (c) the broker, dealer, or
futures commission merchant to or from whom payment or delivery is to be made or
received; and (d) the amount of cash and/or Securities to be withdrawn from the
Senior Security Account for such Series. The Custodian shall make the payment or
delivery specified in the Certificate, and delete such Futures Contract from the
statements delivered to the Fund pursuant to paragraph 3 of Article III herein.
4. Whenever the Fund shall enter into a Futures Contract to offset a
Futures Contract held by the Custodian hereunder, the Fund shall deliver to the
Custodian a Certificate specifying: (a) the items of information required in a
Certificate described in paragraph 1 of this Article, and (b) the Futures
Contract being offset. The Custodian shall make payment out of the money
specifically allocated to such Series of the fee or commission, if any,
specified in the Certificate and delete the Futures Contract being offset from
the statements delivered to the Fund pursuant to paragraph 3 of Article III
herein, and make such withdrawals from the Senior Security Account for such
Series as may be specified in such Certificate. The withdrawals, if any, to be
made from the
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<PAGE> 16
Margin Account shall be made by the Custodian in accordance with the terms and
conditions of the Margin Account Agreement.
5. Notwithstanding any other provision in this Agreement to the
contrary, the Custodian shall deliver cash and Securities to a futures
commission merchant upon receipt of a Certificate from the Fund specifying: (a)
the name of the futures commission merchant; (b) the specific cash and
Securities to be delivered; (c) the date of such delivery; and (d) the date of
the agreement between the Fund and such futures commission merchant entered
pursuant to Rule 17f-6 under the Investment Company Act 1940, as amended. Each
delivery of such a Certificate by the Fund shall constitute (x) a representation
and warranty by the Fund that the Rule 17f-6 agreement has been duly authorized,
executed and delivered by the Fund and the futures commission merchant and
complies with Rule 17f-6, and (y) an agreement by the Fund that the Custodian
shall not be liable for the acts or omissions of any such futures commission
merchant.
ARTICLE VII.
FUTURES CONTRACT OPTIONS
1. Promptly after the purchase of any Futures Contract Option by the
Fund, the Fund shall promptly deliver to the Custodian a Certificate specifying
with respect to such Futures Contract Option: (a) the Series to which such
Option is specifically allocated; (b) the type of Futures Contract Option (put
or call); (c) the type of Futures Contract and such other information as may be
necessary to identify the Futures Contract underlying the Futures Contract
Option purchased; (d) the expiration date; (e) the exercise price; (f) the dates
of purchase and settlement; (g) the amount of premium to be paid by the Fund
upon such purchase; (h) the name of the broker or futures commission merchant
through whom such option was purchased; and (i) the name of the broker, or
futures commission merchant, to whom payment is to be made. The Custodian shall
pay out of the money specifically allocated to such Series, the total amount to
be paid upon such purchase to the broker or futures commissions merchant through
whom the purchase was made, provided that the same conforms to the amount set
forth in such Certificate.
2. Promptly after the sale of any Futures Contract Option purchased by
the Fund pursuant to paragraph 1 hereof, the Fund shall promptly deliver to the
Custodian a Certificate specifying with respect to each such sale: (a) the
Series to which such Futures Contract Option was specifically allocated; (b) the
type of Futures Contract Option (put or call); (c) the type of Futures Contract
and such other information as may be necessary to identify the Futures Contract
underlying the Futures Contract Option; (d) the date of sale; (e) the sale
price; (f) the date of settlement; (g) the total amount payable to the Fund upon
such sale; and (h) the name of the broker or futures commission merchant through
whom the sale was made. The Custodian shall consent to the cancellation of the
Futures Contract Option being closed against payment to the Custodian of the
total amount
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<PAGE> 17
payable to the Fund, provided the same conforms to the total amount payable as
set forth in such Certificate.
3. Whenever a Futures Contract Option purchased by the Fund pursuant to
paragraph 1 is exercised by the Fund, the Fund shall promptly deliver to the
Custodian a Certificate specifying: (a) the Series to which such Futures
Contract Option was specifically allocated; (b) the particular Futures Contract
Option (put or call) being exercised; (c) the type of Futures Contract
underlying the Futures Contract Option; (d) the date of exercise; (e)the name of
the broker or futures commission merchant through whom the Futures Contract
Option is exercised; (f) the net total amount, if any, payable by the Fund; (g)
the amount, if any, to be received by the Fund; and (h) the amount of cash
and/or the amount and kind of Securities to be deposited in the Senior Security
Account for such Series. The Custodian shall make, out of the money and
Securities specifically allocated to such Series, the payments, if any, and the
deposits, if any, into the Senior Security Account as specified in the
Certificate. The deposits, if any, to be made to the Margin Account shall be
made by the Custodian in accordance with the terms and conditions of the Margin
Account Agreement.
4. Whenever the Fund writes a Futures Contract Option, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to such
Futures Contract Option: (a) the Series for which such Futures Contract Option
was written; (b) the type of Futures Contract Option (put or call); (c) the type
of Futures Contract and such other information as may be necessary to identify
the Futures Contract underlying the Futures Contract Option; (d) the expiration
date; (e) the exercise price; (f) the premium to be received by the Fund; (g)
the name of the broker or futures commission merchant through whom the premium
is to be received; and (h) the amount of cash and/or the amount and kind of
Securities, if any, to be deposited in the Senior Security Account for such
Series. The Custodian shall, upon receipt of the premium specified in the
Certificate, make out of the money and Securities specifically allocated to such
Series the deposits into the Senior Security Account, if any, as specified in
the Certificate. The deposits, if any, to be made to the Margin Account shall be
made by the Custodian in accordance with the terms and conditions of the Margin
Account Agreement.
5. Whenever a Futures Contract Option written by the Fund which is a
call is exercised, the Fund shall promptly deliver to the Custodian a
Certificate specifying: (a) the Series to which such Futures Contract Option was
specifically allocated; (b) the particular Futures Contract Option exercised;
(c) the type of Futures Contract underlying the Futures Contract Option; (d) the
name of the broker or futures commission merchant through whom such Futures
Contract Option was exercised; (e) the net total amount, if any, payable to the
Fund upon such exercise; (f) the net total amount, if any, payable by the Fund
upon such exercise; and (g) the amount of cash and/or the amount and kind of
Securities to be deposited in the Senior Security Account for such Series. The
Custodian shall, upon its receipt of the net total amount payable to the Fund,
if any, specified in such Certificate make the payments, if any, and the
deposits, if any, into the Senior
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<PAGE> 18
Security Account as specified in the Certificate. The deposits, if any, to be
made to the Margin Account shall be made by the Custodian in accordance with the
terms and conditions of the Margin Account Agreement.
6. Whenever a Futures Contract Option which is written by the Fund and
which is a put is exercised, the Fund shall promptly deliver to the Custodian a
Certificate specifying: (a) the Series to which such Option was specifically
allocated; (b) the particular Futures Contract Option exercised; (c) the type of
Futures Contract underlying such Futures Contract Option; (d) the name of the
broker or futures commission merchant through whom such Futures Contract Option
is exercised; (e) the net total amount, if any, payable to the Fund upon such
exercise; (f) the net total amount, if any, payable by the Fund upon such
exercise; and (g) the amount and kind of Securities and/or cash to be withdrawn
from or deposited in, the Senior Security Account for such Series, if any. The
Custodian shall, upon its receipt of the net total amount payable to the Fund,
if any, specified in the Certificate, make out of the money and Securities
specifically allocated to such Series, the payments, if any, and the deposits,
if any, into the Senior Security Account as specified in the Certificate. The
deposits to and/or withdrawals from the Margin Account, if any, shall be made by
the Custodian in accordance with the terms and conditions of the Margin Account
Agreement.
7. Whenever the Fund purchases any Futures Contract Option identical to
a previously written Futures Contract Option described in this Article in order
to liquidate its position as a writer of such Futures Contract Option, the Fund
shall promptly deliver to the Custodian a Certificate specifying with respect to
the Futures Contract Option being purchased: (a) the Series to which such Option
is specifically allocated; (b) that the transaction is a closing transaction;
(c) the type of Futures Contract and such other information as may be necessary
to identify the Futures Contract underlying the Futures Option Contract; (d) the
exercise price; (e) the premium to be paid by the Fund; (f) the expiration date;
(g) the name of the broker or futures commission merchant to whom the premium is
to be paid; and (h) the amount of cash and/or the amount and kind of Securities,
if any, to be withdrawn from the Senior Security Account for such Series. The
Custodian shall effect the withdrawals from the Senior Security Account
specified in the Certificate. The withdrawals, if any, to be made from the
Margin Account shall be made by the Custodian in accordance with the terms and
conditions of the Margin Account Agreement.
8. Upon the expiration, exercise, or consummation of a closing
transaction with respect to, any Futures Contract Option written or purchased by
the Fund and described in this Article, the Custodian shall (a) delete such
Futures Contract Option from the statements delivered to the Fund pursuant to
paragraph 3 of Article III herein and, (b) make such withdrawals from and/or in
the case of an exercise such deposits into the Senior Security Account as may be
specified in a Certificate. The deposits to and/or withdrawals from the Margin
Account, if any, shall be made by the Custodian in accordance with the terms and
conditions of the Margin Account Agreement.
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<PAGE> 19
9. Futures Contracts acquired by the Fund through the exercise of a
Futures Contract Option described in this Article shall be subject to Article VI
hereof.
10. Notwithstanding any other provision in this Agreement to the
contrary, the Custodian shall deliver cash and Securities to a futures
commission merchant upon receipt of a Certificate from the Fund specifying: (a)
the name of the futures commission merchant; (b) the specific cash and
Securities to be delivered; (c) the date of such delivery; and (d) the date of
the agreement between the Fund and such futures commission merchant entered
pursuant to Rule 17f-6 under the Investment Company Act 1940, as amended. Each
delivery of such a Certificate by the Fund shall constitute (x) a representation
and warranty by the Fund that the Rule 17f-6 agreement has been duly authorized,
executed and delivered by the Fund and the futures commission merchant and
complies with Rule 17f-6, and (y) an agreement by the Fund that the Custodian
shall not be liable for the acts or omissions of any such futures commission
merchant.
ARTICLE VIII.
SHORT SALES
1. Promptly after any short sales by any Series of the Fund, the Fund
shall promptly deliver to the Custodian a Certificate specifying: (a) the Series
for which such short sale was made; (b) the name of the issuer and the title of
the Security; (c) the number of shares or principal amount sold, and accrued
interest or dividends, if any; (d) the dates of the sale and settlement; (e) the
sale price per unit; (f) the total amount credited to the Fund upon such sale,
if any, (g) the amount of cash and/or the amount and kind of Securities, if any,
which are to be deposited in a Margin Account and the name in which such Margin
Account has been or is to be established; (h) the amount of cash and/or the
amount and kind of Securities, if any, to be deposited in a Senior Security
Account, and (i) the name of the broker through whom such short sale was made.
The Custodian shall upon its receipt of a statement from such broker confirming
such sale and that the total amount credited to the Fund upon such sale, if any,
as specified in the Certificate is held by such broker for the account of the
Custodian (or any nominee of the Custodian) as custodian of the Fund, issue a
receipt or make the deposits into the Margin Account and the Senior Security
Account specified in the Certificate.
2. In connection with the closing-out of any short sale, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to each
such closing-out: (a) the Series for which such transaction is being made; (b)
the name of the issuer and the title of the Security; (c) the number of shares
or the principal amount, and accrued interest or dividends, if any, required to
effect such closing-out to be delivered to the broker; (d) the dates of
closing-out and settlement; (e) the purchase price per unit; (f) the net total
amount payable to the Fund upon such closing-out; (g) the net total amount
payable to the broker upon such closing-out; (h) the amount of cash and the
amount and kind of Securities to be withdrawn, if any, from the Margin Account;
(i) the amount of
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<PAGE> 20
cash and/or the amount and kind of Securities, if any, to be withdrawn from the
Senior Security Account; and (j) the name of the broker through whom the Fund is
effecting such closing-out. The Custodian shall, upon receipt of the net total
amount payable to the Fund upon such closing-out, and the return and/or
cancellation of the receipts, if any, issued by the Custodian with respect to
the short sale being closed-out, pay out of the money held for the account of
the Fund to the broker the net total amount payable to the broker, and make the
withdrawals from the Margin Account and the Senior Security Account, as the same
are specified in the Certificate.
ARTICLE IX.
REVERSE REPURCHASE AGREEMENTS
1. Promptly after the Fund enters into a Reverse Repurchase Agreement
with respect to Securities and money held by the Custodian hereunder, the Fund
shall deliver to the Custodian a Certificate, or in the event such Reverse
Repurchase Agreement is a Money Market Security, a Certificate or Oral
Instructions specifying: (a) the Series for which the Reverse Repurchase
Agreement is entered; (b) the total amount payable to the Fund in connection
with such Reverse Repurchase Agreement and specifically allocated to such
Series; (c) the broker or dealer through or with whom the Reverse Repurchase
Agreement is entered; (d) the amount and kind of Securities to be delivered by
the Fund to such broker or dealer; (e) the date of such Reverse Repurchase
Agreement; and (f) the amount of cash and/or the amount and kind of Securities,
if any, specifically allocated to such Series to be deposited in a Senior
Security Account for such Series in connection with such Reverse Repurchase
Agreement. The Custodian shall, upon receipt of the total amount payable to the
Fund specified in the Certificate or Oral Instructions make the delivery to the
broker or dealer, and the deposits, if any, to the Senior Security Account,
specified in such Certificate or Oral Instructions.
2. Upon the termination of a Reverse Repurchase Agreement described in
preceding paragraph 1 of this Article, the Fund shall promptly deliver a
Certificate or, in the event such Reverse Repurchase Agreement is a Money Market
Security, a Certificate or Oral Instructions to the Custodian specifying: (a)
the Reverse Repurchase Agreement being terminated and the Series for which same
was entered; (b) the total amount payable by the Fund in connection with such
termination; (c) the amount and kind of Securities to be received by the Fund
and specifically allocated to such Series in connection with such termination;
(d) the date of termination; (e) the name of the broker or dealer with or
through whom the Reverse Repurchase Agreement is to be terminated; and (f) the
amount of cash and/or the amount and kind of Securities to be withdrawn from the
Senior Securities Account for such Series. The Custodian shall, upon receipt of
the amount and kind of Securities to be received by the Fund specified in the
Certificate or Oral Instructions, make the payment to the broker or dealer, and
the withdrawals, if any, from the Senior Security Account, specified in such
Certificate or Oral Instructions.
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<PAGE> 21
ARTICLE X.
LOAN OF PORTFOLIO SECURITIES OF THE FUND
1. Promptly after each loan of portfolio Securities specifically
allocated to a Series held by the Custodian hereunder, the Fund shall deliver or
cause to be delivered to the Custodian a Certificate specifying with respect to
each such loan: (a) the Series to which the loaned Securities are specifically
allocated; (b) the name of the issuer and the title of the Securities, (c) the
number of shares or the principal amount loaned, (d) the date of loan and
delivery, (e) the total amount to be delivered to the Custodian against the loan
of the Securities, including the amount of cash collateral and the premium, if
any, separately identified, and (f) the name of the broker, dealer, or financial
institution to which the loan was made. The Custodian shall deliver the
Securities thus designated to the broker, dealer or financial institution to
which the loan was made upon receipt of the total amount designated as to be
delivered against the loan of Securities. The Custodian may accept payment in
connection with a delivery otherwise than through the Book-Entry System or
Depository only in the form of a certified or bank cashier's check payable to
the order of the Fund or the Custodian drawn on New York Clearing House funds
and may deliver Securities in accordance with the customs prevailing among
dealers in securities.
2. Promptly after each termination of the loan of Securities by the
Fund, the Fund shall deliver or cause to be delivered to the Custodian a
Certificate specifying with respect to each such loan termination and return of
Securities: (a) the Series to which the loaned Securities are specifically
allocated; (b) the name of the issuer and the title of the Securities to be
returned, (c) the number of shares or the principal amount to be returned, (d)
the date of termination, (e) the total amount to be delivered by the Custodian
(including the cash collateral for such Securities minus any offsetting credits
as described in said Certificate), and (f) the name of the broker, dealer, or
financial institution from which the Securities will be returned. The Custodian
shall receive all Securities returned from the broker, dealer, or financial
institution to which such Securities were loaned and upon receipt thereof shall
pay, out of the money held for the account of the Fund, the total amount payable
upon such return of Securities as set forth in the Certificate.
ARTICLE XI.
CONCERNING MARGIN ACCOUNTS, SENIOR SECURITY
ACCOUNTS, AND COLLATERAL ACCOUNTS
1. The Custodian shall, from time to time, make such deposits to, or
withdrawals from, a Senior Security Account as specified in a Certificate
received by the Custodian. Such Certificate shall specify the Series for which
such deposit or withdrawal is to be made and the amount of cash and/or the
amount and kind of Securities specifically allocated to such Series to be
deposited in, or withdrawn from, such Senior
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<PAGE> 22
Security Account for such Series. In the event that the Fund fails to specify in
a Certificate the Series, the name of the issuer, the title and the number of
shares or the principal amount of any particular Securities to be deposited by
the Custodian into, or withdrawn from, a Senior Securities Account, the
Custodian shall be under no obligation to make any such deposit or withdrawal
and shall so notify the Fund.
2. The Custodian shall make deliveries or payments from a Margin
Account to the broker, dealer, futures commission merchant or Clearing Member in
whose name, or for whose benefit, the account was established as specified in
the Margin Account Agreement.
3. Amounts received by the Custodian as payments or distributions with
respect to Securities deposited in any Margin Account shall be dealt with in
accordance with the terms and conditions of the Margin Account Agreement.
4. The Custodian shall have a continuing lien and security interest in
and to any property at any time held by the Custodian in any Collateral Account
described herein. In accordance with applicable law the Custodian may enforce
its lien and realize on any such property whenever the Custodian has made
payment or delivery pursuant to any Put Option guarantee letter or similar
document or any receipt issued hereunder by the Custodian. In the event the
Custodian should realize on any such property net proceeds which are less than
the Custodian's obligations under any Put Option guarantee letter or similar
document or any receipt, such deficiency shall be a debt owed the Custodian by
the Fund within the scope of Article XIV herein.
5. On each business day the Custodian shall furnish the Fund with a
statement with respect to each Margin Account in which money or Securities are
held specifying as of the close of business on the previous business day: (a)
the name of the Margin Account; (b) the amount and kind of Securities held
therein; and (c) the amount of money held therein. The Custodian shall make
available upon request to any broker, dealer, or futures commission merchant
specified in the name of a Margin Account a copy of the statement furnished the
Fund with respect to such Margin Account.
6. Promptly after the close of business on each business day in which
cash and/or Securities are maintained in a Collateral Account for any Series,
the Custodian shall furnish the Fund with a statement with respect to such
Collateral Account specifying the amount of cash and/or the amount and kind of
Securities held therein. No later than the close of business next succeeding the
delivery to the Fund of such statement, the Fund shall furnish to the Custodian
a Certificate specifying the then market value of the Securities described in
such statement. In the event such then market value is indicated to be less than
the Custodian's obligation with respect to any outstanding Put Option guarantee
letter or similar document, the Fund shall promptly specify in a Certificate the
additional cash and/or Securities to be deposited in such Collateral Account to
eliminate such deficiency.
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<PAGE> 23
ARTICLE XII.
PAYMENT OF DIVIDENDS OR DISTRIBUTIONS
1. The Fund shall furnish to the Custodian a copy of the resolution of
the Board of Directors of the Fund, certified by the Secretary or any Assistant
Secretary, either (i) setting forth with respect to the Series specified therein
the date of the declaration of a dividend or distribution, the date of payment
thereof, the record date as of which shareholders entitled to payment shall be
determined, the amount payable per Share of such Series to the shareholders of
record as of that date and the total amount payable to the Dividend Agent and
any sub-dividend agent or co-dividend agent of the Fund on the payment date, or
(ii) authorizing with respect to the Series specified therein the declaration of
dividends and distributions on a daily basis and authorizing the Custodian to
rely on Oral Instructions or a Certificate setting forth the date of the
declaration of such dividend or distribution, the date of payment thereof, the
record date as of which shareholders entitled to payment shall be determined,
the amount payable per Share of such Series to the shareholders of record as of
that date and the total amount payable to the Dividend Agent on the payment
date.
2. Upon the payment date specified in such resolution, Oral
Instructions or Certificate, as the case may be, the Custodian shall pay out of
the money held for the account of each Series the total amount payable to the
Dividend Agent and any sub-dividend agent or co-dividend agent of the Fund with
respect to such Series. ARTICLE XIII.
SALE AND REDEMPTION OF SHARES
1. Whenever the Fund shall sell any Shares, it shall deliver to the
Custodian a Certificate duly specifying:
(a) the Series, the number of Shares sold, trade date, and
price; and
(b) the amount of money to be received by the Custodian for
the sale of such Shares and specifically allocated to the separate
account in the name of such Series.
2. Upon receipt of such money from the Transfer Agent, the Custodian
shall credit such money to the separate account in the name of the Series for
which such money was received.
3. Upon issuance of any Shares of any Series described in the foregoing
provisions of this Article, the Custodian shall pay, out of the money held for
the account of such Series, all original issue or other taxes required to be
paid by the Fund in
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<PAGE> 24
connection with such issuance upon the receipt of a Certificate specifying the
amount to be paid.
4. Except as provided hereinafter, whenever the Fund desires the
Custodian to make payment out of the money held by the Custodian hereunder in
connection with a redemption of any Shares, it shall furnish to the Custodian a
Certificate specifying:
(a) the number and Series of Shares redeemed; and
(b) the amount to be paid for such Shares.
5. Upon receipt from the Transfer Agent of an advice setting forth the
Series and number of Shares received by the Transfer Agent for redemption and
that such Shares are in good form for redemption, the Custodian shall make
payment to the Transfer Agent out of the money held in the separate account in
the name of the Series the total amount specified in the Certificate issued
pursuant to the foregoing paragraph 4 of this Article.
6. Notwithstanding the above provisions regarding the redemption of any
Shares, whenever any Shares are redeemed pursuant to any check redemption
privilege which may from time to time be offered by the Fund, the Custodian,
unless otherwise instructed by a Certificate, shall, upon receipt of an advice
from the Fund or its agent setting forth that the redemption is in good form for
redemption in accordance with the check redemption procedure, honor the check
presented as part of such check redemption privilege out of the money held in
the separate account of the Series of the Shares being redeemed.
ARTICLE XIV.
OVERDRAFTS OR INDEBTEDNESS
1. If the Custodian should in its sole discretion advance funds on
behalf of any Series which results in an overdraft because the money held by the
Custodian in the separate account for such Series shall be insufficient to pay
the total amount payable upon a purchase of Securities specifically allocated to
such Series, as set forth in a Certificate or Oral Instructions, or which
results in an overdraft in the separate account of such Series for some other
reason, or if the Fund is for any other reason indebted to the Custodian with
respect to a Series, including any indebtedness to The Bank of New York under
the Fund's Cash Management and Related Services Agreement (except a borrowing
for investment or for temporary or emergency purposes using Securities as
collateral pursuant to a separate agreement and subject to the provisions of
paragraph 2 of this Article), such overdraft or indebtedness shall be deemed to
be a loan made by the Custodian to the Fund for such Series payable on demand
and shall bear interest from the date incurred at a rate per annum (based on a
360-day year for the actual number of days
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involved) equal to 1/2% over Custodian's prime commercial lending rate in effect
from time to time, such rate to be adjusted on the effective date of any change
in such prime commercial lending rate but in no event to be less than 6% per
annum. In addition, the Fund hereby agrees that the Custodian shall have a
continuing lien, security interest, and security entitlement in and to any
property including any investment property or any financial asset specifically
allocated to such Series at any time held by it for the benefit of such Series
or in which the Fund may have an interest which is then in the Custodian's
possession or control or in possession or control of any third party acting in
the Custodian's behalf. The Fund authorizes the Custodian, in its sole
discretion, at any time to charge any such overdraft or indebtedness together
with interest due thereon against any balance of account standing to such
Series' credit on the Custodian's books. In addition, the Fund hereby covenants
that on each Business Day on which either it intends to enter a Reverse
Repurchase Agreement and/or otherwise borrow from a third party, or which next
succeeds a Business Day on which at the close of business the Fund had
outstanding a Reverse Repurchase Agreement or such a borrowing, it shall prior
to 9 a.m., New York City time, advise the Custodian, in writing, of each such
borrowing, shall specify the Series to which the same relates, and shall not
incur any indebtedness not so specified other than from the Custodian.
2. The Fund will cause to be delivered to the Custodian by any bank
(including, if the borrowing is pursuant to a separate agreement, the Custodian)
from which it borrows money for investment or for temporary or emergency
purposes using Securities held by the Custodian hereunder as collateral for such
borrowings, a notice or undertaking in the form currently employed by any such
bank setting forth the amount which such bank will loan to the Fund against
delivery of a stated amount of collateral. The Fund shall promptly deliver to
the Custodian a Certificate specifying with respect to each such borrowing: (a)
the Series to which such borrowing relates; (b) the name of the bank, (c) the
amount and terms of the borrowing, which may be set forth by incorporating by
reference an attached promissory note, duly endorsed by the Fund, or other loan
agreement,(d) the time and date, if known, on which the loan is to be entered
into, (e) the date on which the loan becomes due and payable, (f) the total
amount payable to the Fund on the borrowing date, (g) the market value of
Securities to be delivered as collateral for such loan, including the name of
the issuer, the title and the number of shares or the principal amount of any
particular Securities, and (h) a statement specifying whether such loan is for
investment purposes or for temporary or emergency purposes and that such loan is
in conformance with the Investment Company Act of 1940 and the Fund's
prospectus. The Custodian shall deliver on the borrowing date specified in a
Certificate the specified collateral and the executed promissory note, if any,
against delivery by the lending bank of the total amount of the loan payable,
provided that the same conforms to the total amount payable as set forth in the
Certificate. The Custodian may, at the option of the lending bank, keep such
collateral in its possession, but such collateral shall be subject to all rights
therein given the lending bank by virtue of any promissory note or loan
agreement. The Custodian shall deliver such Securities as additional collateral
as may be specified in a Certificate to collateralize further any transaction
described in this
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paragraph. The Fund shall cause all Securities released from collateral status
to be returned directly to the Custodian, and the Custodian shall receive from
time to time such return of collateral as may be tendered to it. In the event
that the Fund fails to specify in a Certificate the Series, the name of the
issuer, the title and number of shares or the principal amount of any particular
Securities to be delivered as collateral by the Custodian, the Custodian shall
not be under any obligation to deliver any Securities.
ARTICLE XV.
INSTRUCTIONS
1. With respect to any software provided by the Custodian to a Fund in
order for the Fund to transmit Instructions to the Custodian (the "Software"),
the Custodian grants to such Fund a personal, nontransferable and nonexclusive
license to use the Software solely for the purpose of transmitting Instructions
to, and receiving communications from, the Custodian in connection with its
account(s). The Fund shall use the Software solely for its own internal and
proper business purposes, and not in the operation of a service bureau, and
agrees not to sell, reproduce, lease or otherwise provide, directly or
indirectly, the Software or any portion thereof to any third party without the
prior written consent of the Custodian. The Fund acknowledges that the Custodian
and its suppliers have title and exclusive proprietary rights to the Software,
including any trade secrets or other ideas, concepts, know how, methodologies,
or information incorporated therein and the exclusive rights to any copyrights,
trademarks and patents (including registrations and applications for
registration of either) or statutory or legal protections available with respect
thereof. The Fund further acknowledges that all or a part of the Software may be
copyrighted or trademarked (or a registration or claim made therefor) by the
Custodian or its suppliers. The Fund shall not take any action with respect to
the Software inconsistent with the foregoing acknowledgments, nor shall the Fund
attempt to decompile, reverse engineer or modify the Software. The Fund may not
copy, sell, lease or provide, directly or indirectly, any of the Software or any
portion thereof to any other person or entity without the Custodian's prior
written consent. The Fund may not remove any statutory copyright notice, or
other notice including the software or on any media containing the Software. The
Fund shall reproduce any such notice on any reproduction of the Software and
shall add statutory copyright notice or other notice to the Software or media
upon the Bank's request. Custodian agrees to provide reasonable training,
instruction manuals and access to Custodian's "help desk" in connection with the
Fund's user support necessary to use of the Software. At the Fund's request,
Custodian agrees to permit reasonable testing of the Software by the Fund.
2. The Fund shall obtain and maintain at its own cost and expense all
equipment and services, including but not limited to communications services,
necessary for it to utilize the Software and transmit Instructions to the
Custodian. The Custodian shall not be responsible for the reliability,
compatibility with the Software or availability
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<PAGE> 27
of any such equipment or services or the performance or nonperformance by any
nonparty to this Custody Agreement.
3. The Fund acknowledges that the Software, all data bases made
available to the Fund by utilizing the Software (other than data bases relating
solely to the assets of the Fund and transactions with respect thereto), and any
proprietary data, processes, information and documentation (other than which are
or become part of the public domain or are legally required to be made available
to the public) (collectively, the "Information"), are the exclusive and
confidential property of the Custodian. The Fund shall keep the Information
confidential by using the same care and discretion that the Fund uses with
respect to its own confidential property and trade secrets and shall neither
make nor permit any disclosure without the prior written consent of the
Custodian. Upon termination of this Agreement or the Software license granted
hereunder for any reason, the Fund shall return to the Custodian all copies of
the Information which are in its possession or under its control or which the
Fund distributed to third parties. The provisions of this Article shall not
affect the copyright status of any of the Information which may be copyrighted
and shall apply to all Information whether or not copyrighted.
4. The Custodian reserves the right to modify, at its own expense, the
Software from time to time without prior notice and the Fund shall install new
releases of the Software as the Custodian may direct. The Fund agrees not to
modify or attempt to modify the Software without the Custodian's prior written
consent. The Fund acknowledges that any modifications to the Software, whether
by the Fund or the Custodian and whether with or without the Custodian's
consent, shall become the property of the Custodian.
5. THE CUSTODIAN AND ITS MANUFACTURERS AND SUPPLIERS MAKE NO WARRANTIES
OR REPRESENTATIONS OF ANY KIND WITH REGARD TO THE SOFTWARE OR THE METHOD(S) BY
WHICH THE FUND MAY TRANSMIT INSTRUCTIONS TO THE CUSTODIAN, EXPRESS OR IMPLIED,
INCLUDING BUT NOT LIMITED TO ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE.
6. EXPORT RESTRICTIONS. EXPORT OF THE SOFTWARE IS PROHIBITED BY UNITED
STATES LAW. THE FUND AGREES THAT IT WILL NOT UNDER ANY CIRCUMSTANCES RESELL,
DIVERT, TRANSFER, TRANSSHIP OR OTHERWISE DISPOSE OF THE SOFTWARE (IN ANY FORM)
IN OR TO ANY OTHER COUNTRY. IF THE CUSTODIAN DELIVERS THE SOFTWARE TO THE FUND
OUTSIDE THE UNITED STATES, THE SOFTWARE WAS EXPORTED FROM THE UNITED STATES IN
ACCORDANCE WITH EXPORT ADMINISTRATIVE REGULATIONS. DIVERSION CONTRARY TO U.S.
LAWS PROHIBITED. The Fund hereby authorizes Custodian to report its name and
address to government agencies to which Custodian is required to provide such
information by law.
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7. Where the method for transmitting Instructions by the Fund involves
an automatic systems acknowledgment by the Custodian of its receipt of such
Instructions, then in the absence of such acknowledgment the Custodian shall not
be liable for any failure to act pursuant to such Instructions, the Fund may not
claim that such Instructions were received by the Custodian, and the Fund shall
deliver a Certificate by some other means.
8. (a) The Fund agrees that where it delivers to the Custodian
Instructions hereunder, it shall be the Fund's sole responsibility to ensure
that only persons duly authorized by the Fund transmit such Instructions to the
Custodian. The Fund will cause all persons transmitting Instructions to the
Custodian to treat applicable user and authorization codes, passwords and
authentication keys with extreme care, and irrevocably authorizes the Custodian
to act in accordance with and rely upon Instructions received by it pursuant
hereto.
(b) The Fund hereby represents, acknowledges and agrees that it is
fully informed of the protections and risks associated with the various methods
of transmitting Instructions to the Custodian and that there may be more secure
methods of transmitting instructions to the Custodian than the method(s)
selected by the Fund. The Fund hereby agrees that the security procedures (if
any) to be followed in connection with the Fund's transmission of Instructions
provide to it a commercially reasonable degree of protection in light of its
particular needs and circumstances.
9. The Fund hereby represents, warrants and covenants to the Custodian
that this Agreement has been duly approved by a resolution of its Board of
Directors, and that its transmission of Instructions pursuant hereto shall at
all times comply with the Investment Company Act.
10. The Fund shall notify the Custodian of any errors, omissions or
interruptions in, or delay or unavailability of, its ability to send
Instructions as promptly as practicable, and in any event within 24 hours after
the earliest of (i) discovery thereof, (ii) the Business Day on which discovery
should have occurred through the exercise of reasonable care and (iii) in the
case of any error, the date of actual receipt of the earliest notice which
reflects such error, it being agreed that discovery and receipt of notice may
only occur on a business day. The Custodian shall promptly advise the Fund
whenever the Custodian learns of any errors, omissions or interruption in, or
delay or unavailability of, the Fund's ability to send Instructions.
11. Custodian will indemnify and hold harmless the Fund with respect to
any liability, damages, loss or claim incurred by or brought against Fund by
reason any claim or infringement against any patent, copyright, license or other
property right arising out or by reason of the Fund's use of the Software in the
form provided under this Section. Custodian at its own expense will defend such
action or claim brought against Fund to the extent that it is based on a claim
that the Software in the form provided by Custodian infringes any patents,
copyrights, license or other property right, provided that Custodian
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<PAGE> 29
is provided with reasonable written notice of such claim, provided that the Fund
has not settled, compromised or confessed any such claim without the Custodian's
written consent, in which event Custodian shall have no liability or obligation
hereunder, and provided Fund cooperates with and assists Custodian in the
defense of such claim. Custodian shall have the right to control the defense of
all such claims, lawsuits and other proceedings. If, as a result of any claim of
infringement against any patent, copyright, license or other property right,
Custodian is enjoined from using the Software, or if Custodian believes that the
System is likely to become the subject of a claim of infringement, Custodian at
its option may in its sole discretion either (a) at its expenses procure the
right for the Fund to continue to use the Software, or (b), replace or modify
the Software so as to make it non-infringing, or (c) may discontinue the license
granted herein upon written notice to Fund.
ARTICLE XVI.
DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY
OF ANY SERIES HELD OUTSIDE OF THE UNITED STATES
1. The Custodian is authorized and instructed to employ, as
sub-custodian for each Series' Securities for which the primary market is
outside the United States ("Foreign Securities") and other assets, the foreign
banking institutions and foreign securities depositories and clearing agencies
designated on Schedule I hereto ("Foreign Sub-Custodians"). The Fund may
designate any additional foreign sub-custodian with which the Custodian has an
agreement for such entity to act as the Custodian's agent, as its sub-custodian
and any such additional foreign sub-custodian shall be deemed added to Schedule
I. Upon receipt of a Certificate from the Fund, the Custodian shall cease the
employment of any one or more Foreign Sub-Custodians for maintaining custody of
the Fund's assets and such Foreign Sub-Custodian shall be deemed deleted from
Schedule I.
2. Each delivery of a Certificate to the Custodian in connection with a
transaction involving the use of a Foreign Sub-Custodian shall constitute a
representation and warranty by the Fund that its Board of Directors, or its
third party foreign custody manager as defined in Rule 17f-5 under the
Investment Company Act of 1940, as amended, if any, has determined that use of
such Foreign Sub-Custodian satisfies the requirements of such Investment Company
Act of 1940 and such Rule 17f-5 thereunder.
3. The Custodian shall identify on its books as belonging to each
Series of the Fund the Foreign Securities of such Series held by each Foreign
Sub-Custodian. At the election of the Fund, it shall be entitled to be
subrogated to the rights of the Custodian with respect to any claims by the Fund
or any Series against a Foreign Sub-Custodian as a consequence of any loss,
damage, cost, expense, liability or claim sustained or incurred by the Fund or
any Series if and to the extent that the Fund or such Series has not been made
whole for any such loss, damage, cost, expense, liability or claim.
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4. Upon request of the Fund, the Custodian will, consistent with the
terms of the applicable Foreign Sub-Custodian agreement, use reasonable efforts
to arrange for the independent accountants of the Fund to be afforded access to
the books and records of any Foreign Sub-Custodian insofar as such books and
records relate to the performance of such Foreign Sub-Custodian under its
agreement with the Custodian on behalf of the Fund.
5. The Custodian will supply to the Fund from time to time, as mutually
agreed upon, statements in respect of the securities and other assets of each
Series held by Foreign Sub-Custodians, including but not limited to an
identification of entities having possession of each Series' Foreign Securities
and other assets, and advices or notifications of any transfers of Foreign
Securities to or from each custodial account maintained by a Foreign
Sub-Custodian for the Custodian on behalf of the Series.
6. The Custodian shall transmit promptly to the Fund all notices,
reports or other written information received pertaining to the Fund's Foreign
Securities, including without limitation, notices of corporate action, proxies
and proxy solicitation materials.
7. Notwithstanding any provision of this Agreement to the contrary,
settlement and payment for securities received for the account of any Series and
delivery of securities maintained for the account of such Series may be effected
in accordance with the customary or established securities trading or securities
processing practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivery of securities to the
purchaser thereof or to a dealer therefor (or an agent for such purchaser or
dealer) against a receipt with the expectation of receiving later payment for
such securities from such purchaser or dealer.
8. Notwithstanding any other provision in this Agreement to the
contrary, with respect to any losses or damages arising out of or relating to
any actions or omissions of any Foreign Sub-Custodian the sole responsibility
and liability of the Custodian shall be to take appropriate action at the Fund's
expense to recover such loss or damage from the Foreign Sub-Custodian. It is
expressly understood and agreed that the Custodian's sole responsibility and
liability shall be limited to amounts so recovered from the Foreign
Sub-Custodian.
ARTICLE XVII.
FX TRANSACTIONS
1. Whenever the Fund shall enter into an FX Transaction, the Fund shall
promptly deliver to the Custodian a Certificate or Oral Instructions specifying
with respect to such FX Transaction: (a) the Series to which such FX Transaction
is specifically allocated; (b) the type and amount of Currency to be purchased
by the Fund; (c) the type and amount of Currency to be sold by the Fund; (d) the
date on which the
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<PAGE> 31
Currency to be purchased is to be delivered; (e) the date on which the Currency
to be sold is to be delivered; and (f) the name of the person from whom or
through whom such currencies are to be purchased and sold. Unless otherwise
instructed by a Certificate or Oral Instructions, the Custodian shall deliver,
or shall instruct a Foreign Sub-Custodian to deliver, the Currency to be sold on
the date on which such delivery is to be made, as set forth in the Certificate,
and shall receive, or instruct a Foreign Sub-Custodian to receive, the Currency
to be purchased on the date as set forth in the Certificate.
2. Where the Currency to be sold is to be delivered on the same day as
the Currency to be purchased, as specified in the Certificate or Oral
Instructions, the Custodian or a Foreign Sub-Custodian may arrange for such
deliveries and receipts to be made in accordance with the customs prevailing
from time to time among brokers or dealers in Currencies, and such receipt and
delivery may not be completed simultaneously. The Fund assumes all
responsibility and liability for all credit risks involved in connection with
such receipts and deliveries, which responsibility and liability shall continue
until the Currency to be received by the Fund has been received in full.
3. Any FX Transaction effected by the Custodian in connection with this
Agreement may be entered with the Custodian, any office, branch or subsidiary of
The Bank of New York Company, Inc., or any Foreign Sub-Custodian acting as
principal or otherwise through customary banking channels. The Fund may issue a
standing Certificate with respect to FX Transaction but the Custodian may
establish rules or limitations concerning any foreign exchange facility made
available to the Fund. The Fund shall bear all risks of investing in Securities
or holding Currency. Without limiting the foregoing, the Fund shall bear the
risks that rules or procedures imposed by a Foreign Sub-Custodian or foreign
depositories, exchange controls, asset freezes or other laws, rules, regulations
or orders shall prohibit or impose burdens or costs on the transfer to, by or
for the account of the Fund of Securities or any cash held outside the Fund's
jurisdiction or denominated in Currency other than its home jurisdiction or the
conversion of cash from one Currency into another currency. The Custodian shall
not be obligated to substitute another Currency for a Currency (including a
Currency that is a component of a Composite Currency Unit) whose
transferability, convertibility or availability has been affected by such law,
regulation, rule or procedure. Neither the Custodian nor any Foreign
Sub-Custodian shall be liable to the Fund for any loss resulting from any of the
foregoing events.
ARTICLE XVIII.
CONCERNING THE CUSTODIAN
1. Except as hereinafter provided, or as provided in Article XVI,
neither the Custodian nor its nominee shall be liable for any loss or damage,
including counsel fees, resulting from its action or omission to act or
otherwise, either hereunder or under any
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<PAGE> 32
Margin Account Agreement, except for any such loss or damage arising out of its
own negligence or willful misconduct. In no event shall the Custodian be liable
to the Fund or any third party for special, indirect or consequential damages or
lost profits or loss of business, arising under or in connection with this
Agreement, even if previously informed of the possibility of such damages and
regardless of the form of action. The Custodian may, with respect to questions
of law arising hereunder or under any Margin Account Agreement, apply for and
obtain the advice and opinion of counsel to the Fund, or of its own counsel, at
the expense of the Fund, and shall be fully protected with respect to anything
done or omitted by it in good faith in conformity with such advice or opinion.
The Custodian shall be liable to the Fund for any loss or damage resulting from
the use of the Book-Entry System or any Depository arising by reason of any
negligence or willful misconduct on the part of the Custodian or any of its
employees or agents.
2. Without limiting the generality of the foregoing, the Custodian
shall be under no obligation to inquire into, and shall not be liable for:
(a) The validity of the issue of any Securities purchased, sold, or
written by or for the Fund, the legality of the purchase, sale or writing
thereof, or the propriety of the amount paid or received therefor;
(b) The legality of the sale or redemption of any Shares, or the
propriety of the amount to be received or paid therefor;
(c) The legality of the declaration or payment of any dividend by the
Fund;
(d) The legality of any borrowing by the Fund using Securities as
collateral;
(e) The legality of any loan of portfolio Securities, nor shall the
Custodian be under any duty or obligation to see to it that any cash collateral
delivered to it by a broker, dealer, or financial institution or held by it at
any time as a result of such loan of portfolio Securities of the Fund is
adequate collateral for the Fund against any loss it might sustain as a result
of such loan. The Custodian specifically, but not by way of limitation, shall
not be under any duty or obligation periodically to check or notify the Fund
that the amount of such cash collateral held by it for the Fund is sufficient
collateral for the Fund, but such duty or obligation shall be the sole
responsibility of the Fund. In addition, the Custodian shall be under no duty or
obligation to see that any broker, dealer or financial institution to which
portfolio Securities of the Fund are lent pursuant to Article X of this
Agreement makes payment to it of any dividends or interest which are payable to
or for the account of the Fund during the period of such loan or at the
termination of such loan, provided, however, that the Custodian shall promptly
notify the Fund in the event that such dividends or interest are not paid and
received when due; or
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<PAGE> 33
(f) The sufficiency or value of any amounts of money and/or Securities
held in any Margin Account, Senior Security Account or Collateral Account in
connection with transactions by the Fund. In addition, the Custodian shall be
under no duty or obligation to see that any broker, dealer, futures commission
merchant or Clearing Member makes payment to the Fund of any variation margin
payment or similar payment which the Fund may be entitled to receive from such
broker, dealer, futures commission merchant or Clearing Member, to see that any
payment received by the Custodian from any broker, dealer, futures commission
merchant or Clearing Member is the amount the Fund is entitled to receive, or to
notify the Fund of the Custodian's receipt or non-receipt of any such payment.
3. The Custodian shall not be liable for, or considered to be the
Custodian of, any money, whether or not represented by any check, draft, or
other instrument for the payment of money, received by it on behalf of the Fund
until the Custodian actually receives and collects such money directly or by the
final crediting of the account representing the Fund's interest at the
Book-Entry System or the Depository.
4. The Custodian shall have no responsibility and shall not be liable
for ascertaining or acting upon any calls, conversions, exchange offers,
tenders, interest rate changes or similar matters relating to Securities held in
the Depository, unless the Custodian shall have actually received timely notice
from the Depository. In no event shall the Custodian have any responsibility or
liability for the failure of the Depository to collect, or for the late
collection or late crediting by the Depository of any amount payable upon
Securities deposited in the Depository which may mature or be redeemed, retired,
called or otherwise become payable. However, upon receipt of a Certificate from
the Fund of an overdue amount on Securities held in the Depository the Custodian
shall make a claim against the Depository on behalf of the Fund, except that the
Custodian shall not be under any obligation to appear in, prosecute or defend
any action, suit or proceeding in respect to any Securities held by the
Depository which in its opinion may involve it in expense or liability, unless
indemnity satisfactory to it against all expense and liability be furnished as
often as may be required.
5. The Custodian shall not be under any duty or obligation to take
action to effect collection of any amount due to the Fund from the Transfer
Agent of the Fund nor to take any action to effect payment or distribution by
the Transfer Agent of the Fund of any amount paid by the Custodian to the
Transfer Agent of the Fund in accordance with this Agreement.
6. The Custodian shall not be under any duty or obligation to take
action to effect collection of any amount if the Securities upon which such
amount is payable are in default, or if payment is refused after due demand or
presentation, unless and until (i) it shall be directed to take such action by a
Certificate and (ii) it shall be assured to its satisfaction of reimbursement of
its costs and expenses in connection with any such action.
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7. The Custodian may in addition to the employment of Foreign
Sub-Custodians pursuant to Article XVI appoint one or more banking institutions
as Depository or Depositories, as Sub-Custodian or Sub-Custodians, or as
Co-Custodian or Co-Custodians including, but not limited to, banking
institutions located in foreign countries, of Securities and money at any time
owned by the Fund, upon such terms and conditions as may be approved in a
Certificate or contained in an agreement executed by the Custodian, the Fund and
the appointed institution.
8. The Custodian shall not be under any duty or obligation (a) to
ascertain whether any Securities at any time delivered to, or held by it or by
any Foreign Sub-Custodian, for the account of the Fund and specifically
allocated to a Series are such as properly may be held by the Fund or such
Series under the provisions of its then current prospectus, or (b) to ascertain
whether any transactions by the Fund, whether or not involving the Custodian,
are such transactions as may properly be engaged in by the Fund.
9. The Custodian shall be entitled to receive and the Fund agrees to
pay to the Custodian all out-of-pocket expenses and such compensation as may be
agreed upon from time to time between the Custodian and the Fund. The Custodian
may charge such compensation and any expenses with respect to a Series incurred
by the Custodian in the performance of its duties pursuant to such agreement
against any money specifically allocated to such Series. Unless and until the
Fund instructs the Custodian by a Certificate to apportion any loss, damage,
liability or expense among the Series in a specified manner, the Custodian shall
also be entitled to charge against any money held by it for the account of a
Series such Series' pro rata share (based on such Series, net asset value at the
time of the charge to the aggregate net asset value of all Series at that time)
of the amount of any loss, damage, liability or expense, including counsel fees,
for which it shall be entitled to reimbursement under the provisions of this
Agreement. The expenses for which the Custodian shall be entitled to
reimbursement hereunder shall include, but are not limited to, the expenses of
sub-custodians and foreign branches of the Custodian incurred in settling
outside of New York City transactions involving the purchase and sale of
Securities of the Fund.
10. The Custodian shall be entitled to rely upon any Certificate,
notice or other instrument in writing received by the Custodian and reasonably
believed by the Custodian to be a Certificate. The Custodian shall be entitled
to rely upon any Oral Instructions actually received by the Custodian
hereinabove provided for. The Fund agrees to forward to the Custodian a
Certificate or facsimile thereof confirming such Oral Instructions in such
manner so that such Certificate or facsimile thereof is received by the
Custodian, whether by hand delivery, telecopier or other similar device, or
otherwise, by the close of business of the same day that such Oral Instructions
are given to the Custodian. The Fund agrees that the fact that such confirming
instructions are not received, or that contrary instructions are received, by
the Custodian shall in no way affect the validity of the transactions or
enforceability of the transactions hereby
-34-
<PAGE> 35
authorized by the Fund. The Fund agrees that the Custodian shall incur no
liability to the Fund in acting upon Oral Instructions given to the Custodian
hereunder concerning such transactions provided such instructions reasonably
appear to have been received from an Authorized Person.
11. The Custodian shall be entitled to rely upon any instrument,
instruction or notice received by the Custodian and reasonably believed by the
Custodian to be given in accordance with the terms and conditions of any Margin
Account Agreement. Without limiting the generality of the foregoing, the
Custodian shall be under no duty to inquire into, and shall not be liable for,
the accuracy of any statements or representations contained in any such
instrument or other notice including, without limitation, any specification of
any amount to be paid to a broker, dealer, futures commission merchant or
Clearing Member.
12. The books and records pertaining to the Fund which are in the
possession of the Custodian shall be the property of the Fund. Such books and
records shall be prepared and maintained as required by the Investment Company
Act of 1940, as amended, and other applicable securities laws and rules and
regulations. The Fund, or the Fund's authorized representatives, shall have
access to such books and records during the Custodian's normal business hours.
Upon the reasonable request of the Fund, copies of any such books and records
shall be provided by the Custodian to the Fund or the Fund's authorized
representative, and the Fund shall reimburse the Custodian its expenses of
providing such copies. Upon reasonable request of the Fund, the Custodian shall
provide in hard copy or on micro-film, whichever the Custodian elects, any
records included in any such delivery which are maintained by the Custodian on a
computer disc, or are similarly maintained, and the Fund shall reimburse the
Custodian for its expenses of providing such hard copy or micro-film.
13. The Custodian shall provide the Fund with any report obtained by
the Custodian on the system of internal accounting control of the Book-Entry
System, the Depository or O.C.C., and with such reports on its own systems of
internal accounting control as the Fund may reasonably request from time to
time.
14. The Fund agrees to indemnify the Custodian against and save the
Custodian harmless from all liability, claims, losses and demands whatsoever,
including attorney's fees, howsoever arising or incurred because of or in
connection with this Agreement, including the Custodian's payment or non-payment
of checks pursuant to paragraph 6 of Article XIII as part of any check
redemption privilege program of the Fund, except for any such liability, claim,
loss and demand arising out of the Custodian's own negligence or willful
misconduct.
15. Subject to the foregoing provisions of this Agreement, including,
without limitation, those contained in Article XVI and XVII the Custodian may
deliver and receive Securities, and receipts with respect to such Securities,
and arrange for payments to be made and received by the Custodian in accordance
with the customs prevailing
-35-
<PAGE> 36
from time to time among brokers or dealers in such Securities. When the
Custodian is instructed to deliver Securities against payment, delivery of such
Securities and receipt of payment therefor may not be completed simultaneously.
The Fund assumes all responsibility and liability for all credit risks involved
in connection with the Custodian's delivery of Securities pursuant to
instructions of the Fund, which responsibility and liability shall continue
until final payment in full has been received by the Custodian.
16. The Custodian shall have no duties or responsibilities whatsoever
except such duties and responsibilities as are specifically set forth in this
Agreement, and no covenant or obligation shall be implied in this Agreement
against the Custodian.
ARTICLE XIX.
TERMINATION
1. Either of the parties hereto may terminate this Agreement by giving
to the other party a notice in writing specifying the date of such termination,
which shall be not less than ninety (90) days after the date of giving of such
notice. In the event such notice is given by the Fund, it shall be accompanied
by a copy of a resolution of the Board of Directors of the Fund, certified by
the Secretary or any Assistant Secretary, electing to terminate this Agreement
and designating a successor custodian or custodians, each of which shall be a
bank or trust company having not less than $2,000,000 aggregate capital, surplus
and undivided profits. In the event such notice is given by the Custodian, the
Fund shall, on or before the termination date, deliver to the Custodian a copy
of a resolution of the Board of Directors of the Fund, certified by the
Secretary or any Assistant Secretary, designating a successor custodian or
custodians. In the absence of such designation by the Fund, the Custodian may
designate a successor custodian which shall be a bank or trust company having
not less than $2,000,000 aggregate capital, surplus and undivided profits. Upon
the date set forth in such notice this Agreement shall terminate, and the
Custodian shall upon receipt of a notice of acceptance by the successor
custodian on that date deliver directly to the successor custodian all
Securities and money then owned by the Fund and held by it as Custodian, after
deducting all fees, expenses and other amounts for the payment or reimbursement
of which it shall then be entitled.
2. If a successor custodian is not designated by the Fund or the
Custodian in accordance with the preceding paragraph, the Fund shall upon the
date specified in the notice of termination of this Agreement and upon the
delivery by the Custodian of all Securities (other than Securities held in the
Book-Entry System which cannot be delivered to the Fund) and money then owned by
the Fund be deemed to be its own custodian and the Custodian shall thereby be
relieved of all duties and responsibilities pursuant to this Agreement, other
than the duty with respect to Securities held in the Book Entry System which
cannot be delivered to the Fund to hold such Securities hereunder in accordance
with this Agreement.
-36-
<PAGE> 37
ARTICLE XX.
MISCELLANEOUS
1. Annexed hereto as Appendix A is a Certificate signed by two of the
present Authorized Persons of the Fund under its seal, setting forth the names
and the signatures of the present Authorized Persons of the Fund. The Fund
agrees to furnish to the Custodian a new Certificate in similar form in the
event that any such present Authorized Person ceases to be an Authorized Person
of the Fund, or in the event that other or additional Authorized Persons are
elected or appointed. Until such new Certificate shall be received, the
Custodian shall be fully protected in acting under the provisions of this
Agreement or Oral Instructions upon the signatures of the Authorized Persons as
set forth in the last delivered Certificate.
2. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Custodian, shall be sufficiently given if
addressed to the Custodian and mailed or delivered to it at its offices at 90
Washington Street, New York, New York 10286, or at such other place as the
Custodian may from time to time designate in writing.
3. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Fund shall be sufficiently given if addressed
to the Fund and mailed or delivered to it at its office at the address for the
Fund first above written, or at such other place as the Fund may from time to
time designate in writing.
4. This Agreement may not be amended or modified in any manner except
by a written agreement executed by both parties with the same formality as this
Agreement and approved by a resolution of the Board of Directors of the Fund.
5. This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successors and assigns; provided, however, that
this Agreement shall not be assignable by the Fund without the written consent
of the Custodian, or by the Custodian without the written consent of the Fund,
authorized or approved by a resolution of the Fund's Board of Directors.
6. This Agreement shall be construed in accordance with the laws of the
State of New York without giving effect to conflict of laws principles thereof.
Each party hereby consents to the jurisdiction of a state or federal court
situated in New York City, New York in connection with any dispute arising
hereunder and hereby waives its right to trial by jury.
7. This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original, but such counterparts shall,
together, constitute only one instrument.
-37-
<PAGE> 38
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers, thereunto duly authorized
and their respective seals to be hereunto affixed, as of the day and year first
above written.
MERRILL LYNCH FOCUS TWENTY
FUND, INC.
[SEAL] By:
----------------------------------------
Attest:
- -----------------------
THE BANK OF NEW YORK
[SEAL] By:
----------------------------------------
Name:
Title:
Attest:
- -----------------------
<PAGE> 39
APPENDIX A
I, , and I, , of MERRILL LYNCH FOCUS TWENTY FUND, INC., a Maryland
corporation (the "Fund"), do hereby certify that:
The following persons have been duly authorized in conformity
with the Fund's Articles of Incorporation and By-Laws to execute any
Certificate, instruction, notice or other instrument on behalf of the Fund and
the signatures set forth opposite their respective names are their true and
correct signatures:
<TABLE>
<CAPTION>
Name Position Signature
<S> <C> <C>
-------------------- -------------------- --------------------
</TABLE>
<PAGE> 40
APPENDIX B
SERIES
<PAGE> 41
APPENDIX C
I, Jorge E. Ramos, a Vice President with THE BANK OF NEW YORK
do hereby designate the following publications:
The Bond Buyer
Depository Trust Company Notices
Financial Daily Card Service
JJ Kenney Municipal Bond Service
London Financial Times
New York Times
Standard & Poor's Called Bond Record
Wall Street Journal
<PAGE> 42
EXHIBIT A
CERTIFICATION
The undersigned, , hereby certifies that he or she is the
duly elected and acting of MERRILL LYNCH FOCUS TWENTY FUND, INC., a
Maryland corporation (the "Fund"), and further certifies that the following
resolution was adopted by the Board of Directors of the Fund at a meeting duly
held on , 1999, at which a quorum was at all times present and that
such resolution has not been modified or rescinded and is in full force and
effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to a Custody
Agreement between The Bank of New York and the Fund dated as of ,
1999, (the "Custody Agreement") is authorized and instructed on a continuous and
ongoing basis to deposit in the Book-Entry System, as defined in the Custody
Agreement, all securities eligible for deposit therein, regardless of the Series
to which the same are specifically allocated, and to utilize the Book-Entry
System to the extent possible in connection with its performance thereunder,
including, without limitation, in connection with settlements of purchases and
sales of securities, loans of securities, and deliveries and returns of
securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of MERRILL
LYNCH FOCUS TWENTY FUND, INC., as of the day of , 1999.
----------------------------------------
[SEAL]
<PAGE> 43
EXHIBIT B
CERTIFICATION
The undersigned, , hereby certifies that he or she
is the duly elected and acting of MERRILL LYNCH FOCUS TWENTY FUND, INC., a
Maryland corporation (the "Fund"), and further certifies that the following
resolution was adopted by the Board of Directors of the Fund at a meeting duly
held on , 1999, at which a quorum was at all times present and that
such resolution has not been modified or rescinded and is in full force and
effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to
a Custody Agreement between The Bank of New York and the Fund dated as of
, 1999, (the "Custody Agreement") is authorized and instructed on a continuous
and ongoing basis until such time as it receives a Certificate, as defined in
the Custody Agreement, to the contrary to deposit in the Depository, as defined
in the Custody Agreement, all securities eligible for deposit therein,
regardless of the Series to which the same are specifically allocated, and to
utilize the Depository to the extent possible in connection with its performance
thereunder, including, without limitation, in connection with settlements of
purchases and sales of securities, loans of securities, and deliveries and
returns of securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal
of MERRILL LYNCH FOCUS TWENTY FUND, INC., as of the day of , 1999.
----------------------------------------
[SEAL]
<PAGE> 44
EXHIBIT B-1
CERTIFICATION
The undersigned, , hereby certifies that he or she
is the duly elected and acting of MERRILL LYNCH FOCUS TWENTY FUND,
INC., a Maryland corporation (the "Fund"), and further certifies that the
following resolution was adopted by the Board of Directors of the Fund at a
meeting duly held on , 1999, at which a quorum was at all times
present and that such resolution has not been modified or rescinded and is in
full force and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to
a Custody Agreement between The Bank of New York and the Fund dated as
of , 1999, (the "Custody Agreement") is authorized and instructed
on a continuous and ongoing basis until such time as it receives a Certificate,
as defined in the Custody Agreement, to the contrary to deposit in the
Participants Trust Company as Depository, as defined in the Custody Agreement,
all securities eligible for deposit therein, regardless of the Series to which
the same are specifically allocated, and to utilize the Participants Trust
Company to the extent possible in connection with its performance thereunder,
including, without limitation, in connection with settlements of purchases and
sales of securities, loans of securities, and deliveries and returns of
securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal
of MERRILL LYNCH FOCUS TWENTY FUND, INC., as of the day of , 1999.
----------------------------------------
[SEAL]
<PAGE> 45
EXHIBIT C
CERTIFICATION
The undersigned, , hereby certifies that he
or she is the duly elected and acting of MERRILL LYNCH FOCUS
TWENTY FUND, INC., a Maryland corporation (the "Fund"), and further certifies
that the following resolution was adopted by the Board of Directors of the Fund
at a meeting duly held on , 1999, at which a quorum was at all
times present and that such resolution has not been modified or rescinded and is
in full force and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to
a Custody Agreement between The Bank of New York and the Fund dated as
of , 1999, (the "Custody Agreement") is authorized and instructed on
a continuous and ongoing basis until such time as it receives a Certificate, as
defined in the Custody Agreement, to the contrary, to accept, utilize and act
with respect to Clearing Member confirmations for Options and transaction in
Options, regardless of the Series to which the same are specifically allocated,
as such terms are defined in the Custody Agreement, as provided in the Custody
Agreement.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of
MERRILL LYNCH FOCUS TWENTY FUND, INC., as of the day of , 1999.
----------------------------------------
[SEAL]
<PAGE> 46
EXHIBIT D
The undersigned, , hereby certifies that he
or she is the duly elected and acting of MERRILL LYNCH FOCUS TWENTY
FUND, INC., a Maryland corporation (the "Fund"), further certifies that the
following resolutions were adopted by the Board of Directors of the Fund at a
meeting duly held on , 1999, at which a quorum was at all
times present and that such resolutions have not been modified or rescinded and
are in full force and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to
the Custody Agreement between The Bank of New York and the Fund dated as of
December , 1999 (the "Custody Agreement") is authorized and instructed on a
continuous and ongoing basis to act in accordance with, and to rely on
Instructions (as defined in the Custody Agreement).
RESOLVED, that the Fund shall establish access codes and grant
use of such access codes only to Authorized Persons of the Fund as defined in
the Custody Agreement, shall establish internal safekeeping procedures to
safeguard and protect the confidentiality and availability of user and access
codes, passwords and authentication keys, and shall use Instructions only in a
manner that does not contravene the Investment Company Act of 1940, as amended,
or the rules and regulations thereunder.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of
MERRILL LYNCH FOCUS TWENTY FUND, INC., as of the day of December, 1999.
----------------------------------------
[SEAL]
<PAGE> 1
TRANSFER AGENCY, DIVIDEND DISBURSING AGENCY AND
SHAREHOLDER SERVICING AGENCY AGREEMENT
THIS AGREEMENT, made as of , 2000 by and
between MERCURY PREMIER GROWTH FUND, INC., a Maryland corporation (the
"Corporation"), on behalf of itself and the MERCURY PREMIER GROWTH FUND (the
"Fund"), and FINANCIAL DATA SERVICES, INC., a Florida corporation ("FDS").
WITNESSETH:
WHEREAS, the Corporation wishes to appoint FDS to be the
Transfer Agent, Dividend Disbursing Agent and Shareholder Servicing Agent for
the Fund upon, and subject to, the terms and provisions of this Agreement, and
FDS is desirous of accepting such appointment upon, and subject to, such terms
and provisions;
NOW, THEREFORE, in consideration of mutual covenants contained
in this Agreement, the Corporation and FDS agree as follows:
1. APPOINTMENT OF FDS AS TRANSFER AGENT, DIVIDEND DISBURSING
AGENT AND SHAREHOLDER SERVICING AGENT.
(a) The Corporation hereby appoints FDS to act as Transfer
Agent, Dividend Disbursing Agent and Shareholder Servicing Agent for the Fund
upon, and subject to, the terms and provisions of this Agreement.
(b) FDS hereby accepts the appointment as Transfer Agent,
Dividend Disbursing Agent and Shareholder Servicing Agent for the Fund, and
agrees to act as such upon, and subject to, the terms and provisions of this
Agreement.
2. DEFINITIONS.
(a) In this Agreement:
(I) The term "Act" means the Investment Company Act
of 1940 as amended from time to time and any rule or regulation thereunder;
(II) The term "Account" means any account of a
Shareholder, as defined below, or, if the shares are held in an account in the
name of a Broker-Dealer, as defined below, for the benefit of an identified
person, such account, including a Plan Account, any account under a plan (by
whatever name referred to in the Prospectus) pursuant to the Self-Employed
Individuals Retirement Act of 1962 ("Keogh Act Plan") and any account under a
plan (by whatever name referred to in the Prospectus) pursuant to Section 401(k)
of the Internal Revenue Code ("Corporation Master Plan");
(III) The term "application" means an application
made by a Shareholder or prospective Shareholder respecting the opening of an
Account;
<PAGE> 2
(IV) The term "MFD" means Mercury Funds Distributor,
a division of Princeton Funds Distributor, Inc., a Delaware corporation;
(V) The term "Broker-Dealer" means a registered
broker-dealer that sells shares of the Fund pursuant to a selected dealers
agreement with the Corporation;
(VI) The term "Officer's Instruction" means an
instruction in writing given on behalf of the Fund to FDS, and signed on behalf
of the Fund by the President, any Vice President, the Secretary or the Treasurer
of the Corporation;
(VII) The term "Plan Account" means an account opened
by a Shareholder or prospective Shareholder in respect to an open account,
monthly payment or withdrawal plan (in each case by whatever name referred to in
the Prospectus), and may also include an account relating to any other plan if
and when provision is made for such plan in the Prospectus;
(VIII) The term "Prospectus" means the Prospectus and
the Statement of Additional Information of the Fund as from time to time in
effect;
(IX) The term "Shareholder" means a holder of record
of Shares;
(X) The term "Shares" means shares of stock of the
Corporation irrespective of class or series.
3. DUTIES OF FDS AS TRANSFER AGENT, DIVIDEND DISBURSING AGENT
AND SHAREHOLDER SERVICING AGENT.
(a) Subject to the succeeding provisions of the Agreement, FDS
hereby agrees to perform the following functions as Transfer Agent, Dividend
Disbursing Agent and Shareholder Servicing Agent for the Fund:
(I) Issuing, transferring and redeeming Shares;
(II) Opening, maintaining, servicing and closing
Accounts;
(III) Acting as agent for the Fund's Shareholders
and/or customers of a Broker-Dealer in connection with Plan Accounts, upon the
terms and subject to the conditions contained in the Prospectus and application
relating to the specific Plan Account;
(IV) Acting as agent of the Fund and/or a
Broker-Dealer, maintaining such records as may permit the imposition of such
contingent deferred sales charges as may be described in the Prospectus,
including such reports as may be reasonably requested by the Corporation with
respect to such Shares as may be subject to a contingent deferred sales charge;
(V) Upon the redemption of Shares subject to such a
contingent deferred sales charge, calculating and deducting from the redemption
proceeds thereof the amount of such charge in the manner set forth in the
Prospectus. FDS shall pay, on behalf of MFD, to a Broker-Dealer such deducted
contingent deferred sales charges imposed upon all Shares maintained in the name
of that Broker-Dealer, or maintained in the name of an account identified as a
customer
<PAGE> 3
account of that Broker-Dealer. Sales charges imposed upon any other Shares shall
be paid by FDS to MFD;
(VI) Exchanging the investment of a Shareholder into,
or from, the shares of other open-end investment companies or other series
portfolios of the Corporation, if any, if and to the extent permitted by the
Prospectus at the direction of such Shareholder;
(VII) Processing redemptions;
(VIII) Examining and approving legal transfers;
(IX) Furnishing such confirmations of transactions
relating to their Shares as required by applicable law;
(X) Acting as agent for the Corporation with respect
to furnishing each Shareholder such appropriate periodic statements relating to
Accounts, together with additional enclosures, including appropriate income tax
information and income tax forms duly completed, as required by applicable law,
as well as furnishing such information to each Broker-Dealer to enable the
Broker-Dealer to provide such information to its customers;
(XI) Acting as agent for the Corporation with respect
to mailing annual and semi-annual reports prepared by or on behalf of the Fund,
and mailing new Prospectuses upon their issue to each Shareholder as required by
applicable law as well as causing such materials to be mailed to each
Broker-Dealer to enable the Broker-Dealer to deliver such materials to its
customers;
(XII) Furnishing such periodic statements of
transactions effected by FDS, reconciliations, balances and summaries as the
Fund may reasonably request;
(XIII) Maintaining such books and records relating to
transactions effected by FDS as are required by the Act, or by any other
applicable provision of law, rule or regulation, to be maintained by the
Corporation or its transfer agent with respect to such transactions, and
preserving, or causing to be preserved, any such books and records for such
periods as may be required by any such law, rule or regulation and as may be
agreed upon from time to time between FDS and the Corporation. In addition, FDS
agrees to maintain and preserve master files and historical computer tapes on a
daily basis in multiple separate locations a sufficient distance apart to ensure
preservation of at least one copy of such information;
(XIV) Withholding taxes on non-resident alien
Accounts, preparing and filing U.S. Treasury Department Form 1099 and other
appropriate forms as required by applicable law with respect to dividends and
distributions; and
(XV) Reinvesting dividends for full and fractional
Shares and disbursing cash dividends, as applicable, pursuant to instructions
received from the Shareholder at the time an Account is established.
<PAGE> 4
(b) FDS agrees to act as proxy agent in connection with the
holding of annual, if any, and special meetings of Shareholders, mailing such
notices, proxies and proxy statements in connection with the holding of such
meetings as may be required by applicable law, receiving and tabulating votes
cast by proxy and communicating to the Corporation the results of such
tabulation accompanied by appropriate certificates, and preparing and furnishing
to the Corporation certified lists of Shareholders as of such date, in such form
and containing such information as may be required by the Corporation.
(c) FDS agrees to deal with, and answer in a timely manner,
all correspondence and inquiries relating to the functions of FDS under this
Agreement with respect to Accounts.
(d) FDS agrees to furnish to the Corporation such information
and at such intervals as is necessary for the Fund to comply with the
registration and/or the reporting requirements (including applicable escheat
laws) of the Securities and Exchange Commission, Blue Sky authorities or other
governmental authorities.
(e) FDS agrees to provide to the Corporation such information
as may reasonably be required to enable the Fund to reconcile the number of
outstanding Shares between FDS' records and the account books of the
Corporation.
(f) Notwithstanding anything in the foregoing provisions of
this paragraph, FDS agrees to perform its functions thereunder subject to such
modification (whether in respect of particular cases or in any particular class
of cases) as may from time to time be agreed in a writing signed by both
parties.
4. COMPENSATION.
(a) The Corporation agrees to pay FDS the fees and charges, as
well as FDS' out of pocket costs, for services described in this Agreement as
set forth in the Schedule of Fees attached hereto.
5. RIGHT OF INSPECTION.
(a) FDS agrees that it will, in a timely manner, make
available to, and permit, any officer, accountant, attorney or authorized agent
of the Corporation to examine and make transcripts and copies (including
photocopies and computer or other electronical information storage media and
print-outs) of any and all of its books and records which relate to any
transaction or function performed by FDS under or pursuant to this Agreement.
6. CONFIDENTIAL RELATIONSHIP.
(a) FDS agrees that it will, on behalf of itself and its
officers and employees, treat all transactions contemplated by this Agreement,
and all information germane thereto, as confidential and not to be disclosed to
any person (other than the Shareholder concerned, or the Corporation, or as may
be disclosed in the examination of any books or records by any person lawfully
entitled to examine the same) except as may be authorized by the Corporation by
way of an Officer's Instruction.
<PAGE> 5
7. INDEMNIFICATION.
(a) The Corporation shall indemnify and hold FDS harmless from
any loss, costs, damage and reasonable expenses, including reasonable attorney's
fees (provided that such attorney is appointed with the Corporation's consent,
which consent shall not be unreasonably withheld) incurred by it resulting from
any claim, demand, action or suit in connection with the performance of its
duties hereunder, provided that this indemnification shall not apply to actions
or omissions of FDS in cases of willful misconduct, failure to act in good faith
or negligence by FDS, its officers, employees or agents, and further provided
that prior to confessing any claim against it which may be subject to this
indemnification, FDS shall give the Corporation reasonable opportunity to defend
against said claim in its own name or in the name of FDS. An action taken by FDS
upon any Officer's Instruction reasonably believed by it to have been properly
executed shall not constitute willful misconduct, failure to act in good faith
or negligence under this Agreement.
8. REGARDING FDS.
(a) FDS hereby agrees to hire, purchase, develop and maintain
such dedicated personnel, facilities, equipment, software, resources and
capabilities as both parties may mutually determine to be reasonably necessary
for the satisfactory performance of the duties and responsibilities of FDS. FDS
warrants and represents that its officers and supervisory personnel charged with
carrying out its functions as Transfer Agent, Dividend Disbursing Agent and
Shareholder Servicing Agent for the Corporation possess the special skill and
technical knowledge appropriate for that purpose. FDS shall at all times
exercise due care and diligence in the performance of its functions as Transfer
Agent, Dividend Disbursing Agent and Shareholder Servicing Agent for the
Corporation. FDS agrees that, in determining whether it has exercised due care
and diligence, its conduct shall be measured by the standard applicable to
persons possessing such special skill and technical knowledge.
(b) FDS warrants and represents that it is duly authorized and
permitted to act as Transfer Agent, Dividend Disbursing Agent and Shareholder
Servicing Agent under all applicable laws and that it will immediately notify
the Corporation of any revocation of such authority or permission or of the
commencement of any proceeding or other action which may lead to such
revocation.
9. TERMINATION.
(a) This Agreement shall become effective as of the date first
above written and shall remain in force for two years thereafter and shall
thereafter continue from year to year. This Agreement may be terminated by the
Corporation or FDS (without penalty to the Corporation or FDS) provided that the
terminating party gives the other party written notice of such termination at
least sixty (60) days in advance, except that the Corporation may terminate this
Agreement immediately upon written notice to FDS if the authority or permission
of FDS to act as Transfer Agent, Dividend Disbursing Agent and Shareholder
Servicing Agent has been revoked or if any proceeding or other action which the
Corporation reasonably believes will lead to such revocation has been commenced.
<PAGE> 6
(b) Upon termination of this Agreement, FDS shall deliver all
Shareholder records, books, stock ledgers, instruments and other documents
(including computerized or other electronically stored information) made or
accumulated in the performance of its duties as Transfer Agent, Disbursing Agent
and Shareholder Servicing Agent for the Corporation along with a certified
locator document clearly indicating the complete contents therein, to such
successor as may be specified in a notice of termination or Officer's
Instruction; and the Corporation assumes all responsibility for failure
thereafter to produce any paper, record or document so delivered and identified
in the locator document, if and when required to be produced.
10. AMENDMENT.
(a) Except to the extent that the performance by FDS or its
functions under this Agreement may from time to time be modified by an Officer's
Instruction, this Agreement may be amended or modified only by further written
agreement between the parties.
11. GOVERNING LAW.
(a) This Agreement shall be governed by the laws of the State
of New York.
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be signed by their respective duly authorized officers and their
respective corporate seals hereunto duly affixed and attested, as of the day and
year above written.
MERCURY PREMIER GROWTH FUND, INC.
By: _________________________________
Name:
Title:
FINANCIAL DATA SERVICES, INC.
By: _________________________________
Name: William A. Bridy
Title: President
<PAGE> 1
LICENSE AGREEMENT RELATING TO USE OF NAME
AGREEMENT made as of March ___, 2000 by and between MERCURY ASSET
MANAGEMENT INTERNATIONAL LTD., a corporation organized under the laws of England
and Wales ("Mercury International") and MERCURY ASSET MANAGEMENT GROUP LTD., a
corporation organized under the laws of England and Wales ("Mercury Group")
(Mercury International and Mercury Group are hereinafter together referred to as
"Mercury") and MERCURY PREMIER GROWTH FUND, INC., a Maryland corporation (the
"Fund").
W I T N E S S E T H :
WHEREAS, Mercury International was originally incorporated under the
laws of England and Wales on March 12, 1981 under the name "Eighty-Ninth Shelf
Trading Company Limited", changed on May 20, 1981 to "Aetna Warburg Investment
Management Limited," which changed on October 1, 1981 to "Warburg Investment
Management International Ltd." and on July 27, 1995 it changed to "Mercury Asset
Management International Ltd." and Mercury Group was incorporated under the laws
of England and Wales on March 12, 1981 under the corporate name "Warburg
Investment Management Ltd." which was changed on April 14, 1986 to "Mercury
Warburg Investment Management Ltd.," changed on October 1, 1986 to "Mercury
Asset Management Holdings Ltd." on March 3, 1987 to Mercury Asset Management
plc" and was reregistered as a private limited company under the name "Mercury
Asset Management Group Ltd." on March 9, 1998, and have used such name at all
times thereafter;
WHEREAS, the Fund was incorporated under the laws of the State of
Maryland on January 21, 2000; and
WHEREAS, the Fund desires to qualify as a foreign corporation under the
laws of the State of New York and has requested Mercury to give its consent to
the use of the word "Mercury" or the words "Mercury Asset Management" in its
name;
NOW, THEREFORE, in consideration of the premises and of the covenants
hereinafter contained, Mercury and the Fund hereby agree as follows:
1. Mercury hereby grants the Fund a non-exclusive license to use the
word "Mercury" or the words "Mercury Asset Management" in its corporate name.
2. Mercury hereby consents to the qualification of the Fund as a
foreign corporation under the laws of the State of New York with the word
"Mercury" or the words "Mercury Asset Management" in its corporate name and
agrees to execute such formal consents as may be necessary in connection with
such filing.
<PAGE> 2
3. The non-exclusive license hereinabove referred to has been given and
is given by Mercury on the condition that it may at any time, in its sole and
absolute discretion, withdraw the non-exclusive license to the use of the word
"Mercury" or the words "Mercury Asset Management" in the name of the Fund; and,
as soon as practicable after receipt by the Fund of written notice of the
withdrawal of such non-exclusive license, and in no event later than ninety days
thereafter, the Fund will change its name so that such name will not thereafter
include the word "Mercury," the words "Mercury Asset Management" or any
variation thereof.
4. Mercury reserves and shall have the right to grant to any other
company, including without limitation any other investment company, the right to
use the word "Mercury," the words "Mercury Asset Management" or variations
thereof in its name and no consent or permission of the Fund shall be necessary;
but, if required by an applicable law of any state, the Fund will forthwith
grant all requisite consents.
5. The Fund will not grant to any other company the right to use a name
similar to that of the Fund or Mercury without the written consent of Mercury.
6. Regardless of whether the Fund should hereafter change its name and
eliminate the word "Mercury," the words "Mercury Asset Management" or any
variation thereof from such name, the Fund hereby grants to Mercury the right to
cause the incorporation of other corporations or the organization of voluntary
associations which may have names similar to that of the Fund or to that to
which the Fund may change its name and own all or any portion of the shares of
such other corporations or associations and to enter into contractual
relationships with such other corporations or associations, subject to any
requisite approval of a majority of the Fund's shareholders and the Securities
and Exchange Commission and subject to the payment of a reasonable amount to be
determined at the time of use, and the Fund agrees to give and execute such
formal consents or agreements as may be necessary in connection therewith.
7. This Agreement may be amended at any time by a writing signed by the
parties hereto. This Agreement constitutes the entire agreement of the parties
with respect to the subject matter hereof and supersedes all prior agreements,
arrangements and understandings, whether written or oral, with respect thereto.
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written. This Agreement may be executed by the
parties hereto on any number of counterparts, all of which together shall
constitute one and the same instrument.
MERCURY ASSET MANAGEMENT
INTERNATIONAL LTD.
By: _____________________________
Name:
Title:
MERCURY ASSET MANAGEMENT GROUP LTD.
By: _____________________________
Name:
Title:
MERCURY PREMIER GROWTH FUND, INC.
By: _____________________________
Name:
Title:
3
<PAGE> 1
Exhibit 9
BROWN & WOOD LLP
ONE WORLD TRADE CENTER
NEW YORK, NY 10048-0057
TELEPHONE: 212-839-5300
FACSIMILE: 212-839-5599
March 21, 2000
Mercury Premier Growth Fund, Inc.
800 Scudders Mill Road
Plainsboro, NJ 08536
Ladies and Gentlemen:
We have acted as counsel for Mercury Premier Growth Fund, Inc., a
corporation organized under the laws of the State of Maryland (the "Fund"), in
connection with the organization of the Fund and its registration as an open-end
investment company under the Investment Company Act of 1940, as amended. This
opinion is being furnished in connection with the registration of an indefinite
number of shares of common stock, designated Class A, Class B, Class C and Class
D, par value $0.10 per share, of the Fund (the "Shares") under the Securities
Act of 1933, as amended, which registration is being effected pursuant to a
registration statement on Form N-1A (File No. 333-30940), as amended (the
"Registration Statement").
As counsel for the Fund, we are familiar with the proceedings taken by it
in connection with the authorization, issuance and sale of the Shares. In
addition, we have examined and are familiar with the Articles of Incorporation
of the Fund, the By-Laws of the Fund and such other documents as we have deemed
relevant to the matters referred to in this opinion.
Based upon the foregoing, we are of the opinion that the Shares, upon
issuance and sale in the manner referred to in the Registration Statement for
consideration not less than the par value thereof, will be legally issued, fully
paid and non-assessable shares of the common stock of the Fund.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name in the prospectus and
statement of additional information constituting parts thereof.
Very truly yours,
/S/ Brown & Wood LLP
--------------------------
Brown & Wood LLP
<PAGE> 1
Exhibit 10
INDEPENDENT AUDITORS' CONSENT
Mercury Premier Growth Fund, Inc.:
We consent to the use in this Pre-Effective Amendment No. 1 to Registration
Statement No. 333-30940 on Form N-1A of our report dated February 23, 2000, to
the Board of Directors and Shareholder of Mercury Premier Growth Fund, Inc., and
our report dated December 20, 1999 to the Board of Trustees and Investors of
Master Premier Growth Trust and to the reference to us under the caption
"Independent Auditors", each of which appear in the Statement of Additional
Information, which is a part of such Registration Statement.
DELOITTE & TOUCHE LLP
Princeton, New Jersey
March 20, 2000
<PAGE> 1
Exhibit 12
CERTIFICATE OF THE SOLE STOCKHOLDER OF
MERCURY PREMIER GROWTH FUND, INC.
Fund Asset Management, L.P., the holder of shares of common stock, par
value $0.10 per share, indicated below, of Mercury Premier Growth Fund, Inc., a
Maryland corporation (the "Fund"), does hereby confirm to the Fund its
representation that it purchased such shares for investment purposes, with no
present intention of redeeming or reselling any portion thereof.
<TABLE>
<CAPTION>
Number of Class A Number of Class B Number of Class C Number of Class D
Shares Shares Shares Shares
------ ------ ------ ------
<S> <C> <C> <C>
2,500 2,500 2,500 2,500
</TABLE>
FUND ASSET MANAGEMENT, L.P.
By: /s/ Terry K. Glenn
--------------------------------
Authorized Officer
Dated: March 21, 2000
<PAGE> 1
CLASS A DISTRIBUTION PLAN
OF
MERCURY PREMIER GROWTH FUND, INC.
PURSUANT TO RULE 12b-1
DISTRIBUTION PLAN made as of the ________ day of __________ 2000, by
and between Mercury Premier Growth Fund, Inc., a Maryland corporation (the
"Fund"), and Princeton Funds Distributor, Inc., a Delaware corporation ("PFD").
W I T N E S S E T H :
WHEREAS, the Fund intends to engage in business as an open-end
investment company registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"); and
WHEREAS, PFD is a securities firm engaged in the business of selling
shares of investment companies either directly to purchasers or through other
securities dealers; and
WHEREAS, the Fund proposes to enter into a Class A Shares Distribution
Agreement with PFD, pursuant to which PFD will act as the exclusive distributor
and representative of the Fund in the offer and sale of Class A shares of common
stock, par value $0.10 per share (the "Class A shares"), of the Fund to the
public; and
WHEREAS, the Fund desires to adopt this Class A Shares Distribution
Plan (the "Plan") pursuant to Rule 12b-1 under the Investment Company Act ("Rule
12b-1"), pursuant to which the Fund will pay an account maintenance fee to PFD
with respect to the Fund's Class A shares; and
WHEREAS, the Directors of the Fund have determined that there is a
reasonable likelihood that adoption of the Plan will benefit the Fund and its
shareholders.
WHEREAS, the Fund is a "feeder" fund that invests all of its assets in
Master Premier Growth Trust which has the same investment objective and policies
as the Fund. All investments will be made at the Trust level. This structure is
sometimes called a "master/feeder" structure. The Fund's investment results will
correspond directly to the investment results of the Trust. For simplicity, this
Distribution Plan uses the term "Fund" to include the Trust.
NOW, THEREFORE, the Fund hereby adopts, and PFD hereby agrees to the
terms of the Plan in accordance with Rule 12b-1 on the following terms and
conditions:
1. The Fund shall pay PFD an account maintenance fee under the Plan at
the end of each month at the annual rate of 0.25% of average daily net assets of
the Fund relating to Class A shares of the Fund to compensate PFD and securities
firms with which PFD enters into related agreements pursuant to Paragraph 2
hereof (collectively, the "Sub-Agreements") for providing account maintenance
activities and services with respect to Class A shareholders of the Fund.
<PAGE> 2
Expenditures under the Plan may consist of payments to financial consultants for
maintaining accounts in connection with Class A shares of the Fund and payment
of expenses incurred in connection with such account maintenance activities and
services including the costs of making services available to shareholders such
as assistance in connection with inquiries related to shareholder accounts.
2. The Fund hereby authorizes PFD to enter into Sub-Agreements with
certain securities firms (collectively, the "Securities Firms"), to provide
compensation to such Securities Firms for activities and services of the type
referred to in Paragraph 1 hereof. PFD may reallocate all or a portion of its
account maintenance fee to such Securities Firms as compensation for the
above-mentioned activities and services. Such Sub-Agreement shall provide that
the Securities Firms shall provide PFD with such information as is reasonably
necessary to permit PFD to comply with the reporting requirements set forth in
Paragraph 3 hereof.
3. PFD shall provide the Fund for review by the Board of Directors of
the Fund, and the Directors shall review, at least quarterly, a written report
complying with the requirements of Rule 12b-1 regarding the disbursement of the
account maintenance fee during such period.
4. The Plan shall not take effect until it has been approved by a vote
of at least a majority, as defined in the Investment Company Act, of the
outstanding Class A voting securities of the Fund.
5. The Plan shall not take effect until it has been approved, together
with any related agreements, by votes of a majority of both (a) the Directors
and (b) those Directors who are not "interested persons" of the Fund, as defined
in the Investment Company Act, and have no direct or indirect financial interest
in the operation of this Plan or any agreements related to it (the "Rule 12b-1
Directors"), cast in person at a meeting or meetings called for the purpose of
voting on the Plan and such related agreements.
6. The Plan shall continue in effect for so long as such continuance is
specifically approved at least annually in the manner provided for approval of
the Plan in Paragraph 5 hereof.
7. The Plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Directors, or by vote of a majority of the outstanding Class A voting
securities of the Fund.
8. The Plan may not be amended to increase materially the rate of
payments provided for in Paragraph 1 hereof unless such amendment is approved by
at least a majority, as defined in the Investment Company Act, of the
outstanding Class A voting securities of the Fund, and by the Directors of the
Fund in the manner provided for in Paragraph 5 hereof, and no material amendment
to the Plan shall be made unless approved in the manner provided for approval
and annual renewal in Paragraph 5 hereof.
9. While the Plan is in effect, the selection and nomination of
Directors who are not interested persons, as defined in the Investment Company
Act, of the Fund shall be committed to the discretion of the Directors who are
not interested persons.
2
<PAGE> 3
10. The Fund shall preserve copies of the Plan and any related
agreements and all reports made pursuant to Paragraph 3 hereof, for a period of
not less than six years from the date of the Plan, or the agreements or such
report, as the case may be, the first two years in an easily accessible place.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have executed this Distribution
Plan as of the date first above written.
MERCURY PREMIER GROWTH FUND, INC.
By: ________________________________________
Name: __________________________________
Title: _________________________________
PRINCETON FUNDS DISTRIBUTOR, INC.
By: ________________________________________
Name: __________________________________
Title: _________________________________
4
<PAGE> 5
CLASS A SHARES DISTRIBUTION PLAN SUB-AGREEMENT
AGREEMENT made as of the _________ day of __________ 2000, by and
between Princeton Funds Distributor, Inc., a Delaware corporation ("PFD"), and
__________________, a ________________ corporation (the "Securities Firm").
W I T N E S S E T H :
WHEREAS, PFD has entered into an agreement with Mercury Premier Growth
Fund, Inc., a Maryland corporation (the "Fund"), pursuant to which it acts as
the exclusive distributor for the sale of Class A shares of common stock, par
value $0.10 per share (the "Class A shares"), of the Fund; and
WHEREAS, PFD and the Fund have entered into a Class A Shares
Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Investment
Company Act of 1940, as amended (the "Act"), pursuant to which PFD receives an
account maintenance fee from the Fund at the annual rate of 0.25% of average
daily net assets of the Fund relating to Class A shares for providing account
maintenance activities and services with respect to Class A shares of the Fund;
and
WHEREAS, PFD desires the Securities Firm to perform certain account
maintenance activities and services, including assistance in connection with
inquiries related to shareholder accounts, for the Fund's Class A shareholders
and the Securities Firm is willing to perform such services;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereby agree as follows:
1. The Securities Firm shall provide account maintenance activities and
services with respect to the Class A shares of the Fund and incur expenditures
in connection with such activities and services of the types referred to in
Paragraph 1 of the Plan.
2. As compensation for the account maintenance activities and services
performed by the Securities Firm under this Agreement, PFD shall pay the
Securities Firm an account maintenance fee at the end of each calendar month in
an amount agreed upon by the parties hereto, but in any event not in excess of
the amount permitted by the Plan. Such amounts will be based on the dollar
amount of shares which are owned of record by the Securities Firm as nominee for
its customers or which are owned by those customers of the Securities Firm whose
records, as maintained by the Fund or its agents, designate the Securities Firm
as the customer's dealer of record. Any such payments shall be in addition to
the selling concession, if any, allowed to the Securities Firm pursuant to a
separate agreement with PFD. No such fee will be paid to the Securities Firm
with respect to shares purchased by the Securities Firm and redeemed by the Fund
or by us as agent within seven business days after the dates of confirmation of
such purchase. PFD has no obligation to make such payments and the Securities
Firm hereby waives such payments until PFD receives monies therefor from the
Fund
<PAGE> 6
3. The Securities Firm shall provide PFD, at least quarterly, such
information as reasonably requested by PFD to enable PFD to comply with the
reporting requirements of Rule 12b-1 regarding the disbursement of the account
maintenance fee during such period referred to in Paragraph 3 of the Plan.
4. This Agreement shall not take effect until it has been approved by
votes of a majority of both (a) the Directors of the Fund and (b) those
Directors of the Fund who are not "interested persons" of the Fund, as defined
in the Act, and have no direct or indirect financial interest in the operation
of the Plan or any agreements related to it (the "Rule 12b-1 Directors"), cast
in person at a meeting or meetings called for the purpose of voting on this
Agreement.
5. This Agreement shall continue in effect for as long as such
continuance is specifically approved at least annually in the manner provided
for approval of the Plan in Paragraph 5 hereof.
6. This Agreement shall automatically terminate in the event of its
assignment or in the event of the termination of the Plan or any amendment to
the Plan that requires such termination. In addition, this Agreement may be
terminated at any time, without penalty, with respect to the Plan on not more
than 60 days' nor less than 30 days' written notice delivered or mailed by
registered mail, postage prepaid, to the other party.
2
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
PRINCETON FUNDS DISTRIBUTOR, INC.
By: ________________________________________
Name: __________________________________
Title: _________________________________
____________________________________________
By: ________________________________________
Name: __________________________________
Title: _________________________________
3
<PAGE> 1
CLASS B DISTRIBUTION PLAN
OF
MERCURY PREMIER GROWTH FUND, INC.
PURSUANT TO RULE 12b-1
DISTRIBUTION PLAN made as of the ________ day of __________ 2000, by
and between Mercury Premier Growth Fund, Inc., a Maryland corporation (the
"Fund"), and Princeton Funds Distributor, Inc., a Delaware corporation ("PFD").
W I T N E S S E T H :
WHEREAS, the Fund intends to engage in business as an open-end
investment company registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"); and
WHEREAS, PFD is a securities firm engaged in the business of selling
shares of investment companies either directly to purchasers or through other
securities dealers; and
WHEREAS, the Fund proposes to enter into a Class B Shares Distribution
Agreement with PFD, pursuant to which PFD will act as the exclusive distributor
and representative of the Fund in the offer and sale of Class B shares of common
stock, par value $0.10 per share (the "Class B shares"), of the Fund to the
public; and
WHEREAS, the Fund desires to adopt this Class B Shares Distribution
Plan (the "Plan") pursuant to Rule 12b-1 under the Investment Company Act ("Rule
12b-1"), pursuant to which the Fund will pay an account maintenance fee and a
distribution fee to PFD with respect to the Fund's Class B shares; and
WHEREAS, the Directors of the Fund (the "Directors") have determined
that there is a reasonable likelihood that adoption of the Plan will benefit the
Fund and its shareholders.
WHEREAS, the Fund is a "feeder" fund that invests all of its assets in
Master Premier Growth Trust which has the same investment objective and policies
as the Fund. All investments will be made at the Trust level. This structure is
sometimes called a "master/feeder" structure. The Fund's investment results will
correspond directly to the investment results of the Trust. For simplicity, this
Distribution Plan uses the term "Fund" to include the Trust.
NOW, THEREFORE, the Fund hereby adopts, and PFD hereby agrees to the
terms of the Plan in accordance with Rule 12b-1 on the following terms and
conditions:
1. The Fund shall pay PFD an account maintenance fee under the Plan at
the end of each month at the annual rate of 0.25% of average daily net assets of
the Fund relating to Class B shares of the Fund to compensate PFD and securities
firms with which PFD enters into related agreements pursuant to Paragraph 3
hereof (collectively, the "Sub-Agreements") for providing account maintenance
activities and services with respect to Class B shareholders of the Fund.
<PAGE> 2
Expenditures under the Plan may consist of payments to financial consultants for
maintaining accounts in connection with Class B shares of the Fund and payment
of expenses incurred in connection with such account maintenance activities and
services including the costs of making services available to shareholders such
as assistance in connection with inquiries related to shareholder accounts.
2. The Fund shall pay PFD a distribution fee under the Plan at the end
of each month at the annual rate of 0.75% of average daily net assets of the
Fund relating to Class B shares of the Fund to compensate PFD and securities
firms with which PFD enters into related Sub-Agreements for providing sales and
promotional activities and services. Such activities and services will relate to
the sale, promotion and marketing of the Class B shares of the Fund. Such
expenditures may consist of sales commissions to financial consultants for
selling Class B shares of the Fund, compensation, sales incentives and payments
to sales and marketing personnel, and the payment of expenses incurred in its
sales and promotional activities, including advertising expenditures related to
the Fund and the costs of preparing and distributing promotional materials. The
distribution fee may also be used to pay the financing costs of carrying the
unreimbursed expenditures described in this Paragraph 2. Payment of the
distribution fee described in this Paragraph 2 shall be subject to any
limitations set forth in any applicable regulation of the National Association
of Securities Dealers, Inc.
3. The Fund hereby authorizes PFD to enter into Sub-Agreements with
certain securities firms (collectively, the "Securities Firms") to provide
compensation to such Securities Firms for activities and services of the type
referred to in Paragraphs 1 and 2 hereof. PFD may reallocate all or a portion of
its account maintenance fee or distribution fee to such Securities Firms as
compensation for the above-mentioned activities and services. Such Sub-Agreement
shall provide that the Securities Firms shall provide PFD with such information
as is reasonably necessary to permit PFD to comply with the reporting
requirements set forth in Paragraph 4 hereof.
4. PFD shall provide the Fund for review by the Board of Directors of
the Fund, and the Directors shall review, at least quarterly, a written report
complying with the requirements of Rule 12b-1 regarding the disbursement of the
account maintenance fee and the distribution fee during such period.
5. The Plan shall not take effect until it has been approved by a vote
of at least a majority, as defined in the Investment Company Act, of the
outstanding Class B voting securities of the Fund.
6. The Plan shall not take effect until it has been approved, together
with any related agreements, by votes of a majority of both (a) the Directors
and (b) those Directors who are not "interested persons" of the Fund, as defined
in the Investment Company Act, and have no direct or indirect financial interest
in the operation of this Plan or any agreements related to it (the "Rule 12b-1
Directors"), cast in person at a meeting or meetings called for the purpose of
voting on this Plan and such related agreements.
7. This Plan shall continue in effect for so long as such continuance
is specifically approved at least annually in the manner provided for approval
of the Plan in Paragraph 6 hereof.
2
<PAGE> 3
8. This Plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Directors, or by vote of a majority of the outstanding Class B voting
securities of the Fund.
9. This Plan may not be amended to increase materially the rate of
payments provided for herein unless such amendment is approved by at least a
majority, as defined in the Investment Company Act, of the outstanding Class B
voting securities of the Fund, and by the Directors in the manner provided for
in Paragraph 6 hereof, and no material amendment to the Plan shall be made
unless approved in the manner provided for approval and annual renewal in
Paragraph 6 hereof.
10. While this Plan is in effect, the selection and nomination of
Directors who are not interested persons, as defined in the Investment Company
Act, of the Fund shall be committed to the discretion of the Directors who are
not interested persons.
11. The Fund shall preserve copies of this Plan and any related
agreements and all reports made pursuant to Paragraph 4 hereof, for a period of
not less than six years from the date of this Plan, or the agreements or such
report, as the case may be, the first two years in an easily accessible place.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have executed this Distribution
Plan as of the date first above written.
MERCURY PREMIER GROWTH FUND, INC.
By: ________________________________________
Name: __________________________________
Title: _________________________________
PRINCETON FUNDS DISTRIBUTOR, INC.
By: ________________________________________
Name: __________________________________
Title: _________________________________
4
<PAGE> 5
CLASS B SHARES DISTRIBUTION PLAN SUB-AGREEMENT
AGREEMENT made as of the ________ day of __________ 2000, by and
between Princeton Funds Distributor, Inc., a Delaware corporation ("PFD"), and
___________________________, a _____________ corporation (the "Securities
Firm").
W I T N E S S E T H :
WHEREAS, PFD has entered into an agreement with Mercury Premier Growth
Fund, Inc., a Maryland corporation (the "Fund"), pursuant to which it acts as
the exclusive distributor for the sale of Class B shares of common stock, par
value $0.10 per share (the "Class B shares"), of the Fund; and
WHEREAS, PFD and the Fund have entered into a Class B Shares
Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Investment
Company Act of 1940, as amended (the "Act"), pursuant to which PFD receives an
account maintenance fee from the Fund at the annual rate of 0.25% of average
daily net assets of the Fund relating to Class B shares for providing account
maintenance activities and services with respect to the Class B shares of the
Fund and a distribution fee from the Fund at the annual rate of 0.75% of average
daily net assets of the Fund relating to Class B shares for providing sales and
promotional activities and services with respect to the distribution of Class B
shares of the Fund; and
WHEREAS, PFD desires the Securities Firm to perform certain account
maintenance activities and sales and promotional activities and services for the
Fund's Class B shareholders and the Securities Firm is willing to perform such
services;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereby agree as follows:
1. The Securities Firm shall provide account maintenance activities and
services with respect to the Class B shares of the Fund and incur expenditures
in connection with such activities and services of the types referred to in
Paragraph 1 of the Plan.
2. The Securities Firm shall provide sales and promotional activities
with respect to the sale of the Class B shares of the Fund and incur
distribution expenditures of the types referred to in Paragraph 2 of the Plan.
3. As compensation for its activities and services performed under this
Agreement, PFD shall pay the Securities Firm an account maintenance fee and a
distribution fee at the end of each calendar month in an amount agreed upon by
the parties hereto, and as set forth in a schedule attached hereto, but in any
event not in excess of the amount permitted by the Plan. Such amounts will be
based on the dollar amount of Fund shares which are owned of record by the
Securities Firm as nominee for its customers or which are owned by those
customers of the Securities Firm whose records, as maintained by the Fund or its
agents, designate the Securities Firm as the customer's dealer of record. Any
such payments shall be in addition to the selling
<PAGE> 6
concession, if any, allowed to the Securities Firm pursuant to a separate
agreement with PFD. No such fee will be paid to the Securities Firm with respect
to shares purchased by the Securities Firm and redeemed by the Fund or by us as
agent within seven days after the dates of confirmation of such purchase. PFD
has no obligation to make such payments and the Securities Firm hereby waives
such payments until PFD receives monies therefor from the Fund.
4. The Securities Firm shall provide PFD, at least quarterly, such
information as reasonably requested by PFD to enable PFD to comply with the
reporting requirements of Rule 12b-1 regarding the disbursement of the account
maintenance fee and the distribution fee during such period referred to in
Paragraph 4 of the Plan.
5. This Agreement shall not take effect until it has been approved by
votes of a majority of both (a) the Directors of the Fund and (b) those
Directors of the Fund who are not "interested persons" of the Fund, as defined
in the Act, and have no direct or indirect financial interest in the operation
of the Plan or any agreements related to it (the "Rule 12b-1 Directors"), cast
in person at a meeting or meetings called for the purpose of voting on this
Agreement.
6. This Agreement shall continue in effect for as long as such
continuance is specifically approved at least annually in the manner provided
for approval of the Plan in Paragraph 6 of the Plan.
7. This Agreement shall automatically terminate in the event of its
assignment or in the event of the termination of the Plan or any amendment to
the Plan that requires such termination. In addition, this Agreement may be
terminated at any time, without penalty, with respect to the Plan on not more
than 60 days nor less than 30 days written notice delivered or mailed by
registered mail, postage prepaid, to the other party.
2
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
PRINCETON FUNDS DISTRIBUTOR, INC.
By: ________________________________________
Name: __________________________________
Title: _________________________________
____________________________________________
By: ________________________________________
Name: __________________________________
Title: _________________________________
3
<PAGE> 1
CLASS C DISTRIBUTION PLAN
OF
MERCURY PREMIER GROWTH FUND, INC.
PURSUANT TO RULE 12B-1
DISTRIBUTION PLAN made as of the _____ day of _________ 2000, by and
between Mercury Premier Growth Fund, Inc., a Maryland corporation (the "Fund"),
and Princeton Funds Distributor, Inc., a Delaware corporation ("PFD").
W I T N E S S E T H :
WHEREAS, the Fund intends to engage in business as an open-end
investment company registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"); and
WHEREAS, PFD is a securities firm engaged in the business of selling
shares of investment companies either directly to purchasers or through other
securities dealers; and
WHEREAS, the Fund proposes to enter into a Class C Shares Distribution
Agreement with PFD, pursuant to which PFD will act as the exclusive distributor
and representative of the Fund in the offer and sale of Class C shares of common
stock, par value $0.10 per share (the "Class C shares"), of the Fund to the
public; and
WHEREAS, the Fund desires to adopt this Class C Shares Distribution
Plan (the "Plan") pursuant to Rule 12b-1 under the Investment Company Act ("Rule
12b-1"), pursuant to which the Fund will pay an account maintenance fee and a
distribution fee to PFD with respect to the Fund's Class C shares; and
WHEREAS, the Directors of the Fund (the "Directors") have determined
that there is a reasonable likelihood that adoption of the Plan will benefit the
Fund and its shareholders.
WHEREAS, the Fund is a "feeder" fund that invests all of its assets in
Master Premier Growth Trust which has the same investment objective and policies
as the Fund. All investments will be made at the Trust level. This structure is
sometimes called a "master/feeder" structure. The Fund's investment results will
correspond directly to the investment results of the Trust. For simplicity, this
Distribution Plan uses the term "Fund" to include the Trust.
NOW, THEREFORE, the Fund hereby adopts, and PFD hereby agrees to the
terms of the Plan in accordance with Rule 12b-1 on the following terms and
conditions:
1. The Fund shall pay PFD an account maintenance fee under the Plan at
the end of each month at the annual rate of 0.25% of average daily net assets of
the Fund relating to Class C shares of the Fund to compensate PFD and securities
firms with which PFD enters into related agreements pursuant to Paragraph 3
hereof (collectively, the "Sub-Agreements") for providing account maintenance
activities and services with respect to Class C shareholders of the Fund.
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Expenditures under the Plan may consist of payments to financial consultants for
maintaining accounts in connection with Class C shares of the Fund and payment
of expenses incurred in connection with such account maintenance activities and
services including the costs of making services available to shareholders such
as assistance in connection with inquiries related to shareholder accounts.
2. The Fund shall pay PFD a distribution fee under the Plan at the end
of each month at the annual rate of 0.75% of average daily net assets of the
Fund relating to Class C shares to compensate PFD and securities firms with
which PFD enters into related Sub-Agreements for providing sales and promotional
activities and services. Such activities and services will relate to the sale,
promotion and marketing of the Class C shares of the Fund. Such expenditures may
consist of sales commissions to financial consultants for selling Class C shares
of the Fund, compensation, sales incentives and payments to sales and marketing
personnel, and the payment of expenses incurred in its sales and promotional
activities, including advertising expenditures related to the Fund and the costs
of preparing and distributing promotional materials. The distribution fee may
also be used to pay the financing costs of carrying the unreimbursed
expenditures described in this Paragraph 2. Payment of the distribution fee
described in this Paragraph 2 shall be subject to any limitations set forth in
any applicable regulation of the National Association of Securities Dealers,
Inc.
3. The Fund hereby authorizes PFD to enter into Sub-Agreements with
certain securities firms (collectively, the "Securities Firms") to provide
compensation to such Securities Firms for activities and services of the type
referred to in Paragraphs 1 and 2 hereof. PFD may reallocate all or a portion of
its account maintenance fee or distribution fee to such Securities Firms as
compensation for the above-mentioned activities and services. Such Sub-Agreement
shall provide that the Securities Firms shall provide PFD with such information
as is reasonably necessary to permit PFD to comply with the reporting
requirements set forth in Paragraph 4 hereof.
4. PFD shall provide the Fund for review by the Board of Directors of
the Fund, and the Directors shall review, at least quarterly, a written report
complying with the requirements of Rule 12b-1 regarding the disbursement of the
account maintenance fee and the distribution fee during such period.
5. The Plan shall not take effect until it has been approved by a vote
of at least a majority, as defined in the Investment Company Act, of the
outstanding Class C voting securities of the Fund.
6. The Plan shall not take effect until it has been approved, together
with any related agreements, by votes of a majority of both (a) the Directors
and (b) those Directors who are not "interested persons" of the Fund, as defined
in the Investment Company Act, and have no direct or indirect financial interest
in the operation of this Plan or any agreements related to it (the "Rule 12b-1
Directors"), cast in person at a meeting or meetings called for the purpose of
voting on the Plan and such related agreements.
7. The Plan shall continue in effect for so long as such continuance is
specifically approved at least annually in the manner provided for approval of
the Plan in Paragraph 6 hereof.
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8. The Plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Directors, or by vote of a majority of the outstanding Class C voting
securities of the Fund.
9. The Plan may not be amended to increase materially the rate of
payments provided for herein unless such amendment is approved by at least a
majority, as defined in the Investment Company Act, of the outstanding Class C
voting securities of the Fund, and by the Directors in the manner provided for
in Paragraph 6 hereof, and no material amendment to the Plan shall be made
unless approved in the manner provided for approval and annual renewal in
Paragraph 6 hereof.
10. While the Plan is in effect, the selection and nomination of
Directors who are not interested persons, as defined in the Investment Company
Act, of the Fund shall be committed to the discretion of the Directors who are
not interested persons.
11. The Fund shall preserve copies of the Plan and any related
agreements and all reports made pursuant to Paragraph 4 hereof, for a period of
not less than six years from the date of the Plan, or the agreements or such
report, as the case may be, the first two years in an easily accessible place.
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<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have executed this Distribution
Plan as of the date first above written.
MERCURY PREMIER GROWTH FUND, INC.
By:
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Name:
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Title:
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PRINCETON FUNDS DISTRIBUTOR, INC.
By:
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Name:
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Title:
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<PAGE> 5
CLASS C SHARES DISTRIBUTION PLAN SUB-AGREEMENT
AGREEMENT made as of the _____ day of ____________2000, by and between
Princeton Funds Distributor, Inc., a Delaware corporation ("PFD"), and
_________________________, a _______ corporation (the "Securities Firm").
W I T N E S S E T H :
WHEREAS, PFD has entered into an agreement with Mercury Premier Growth
Fund, Inc., a Maryland corporation (the "Fund"), pursuant to which it acts as
the exclusive distributor for the sale of Class C shares of common stock, par
value $0.10 per share (the "Class C shares"), of the Fund; and
WHEREAS, PFD and the Fund have entered into a Class C Shares
Distribution Plan (the "Plan"), pursuant to Rule 12b-1 under the Investment
Company Act of 1940, as amended (the "Act") pursuant to which PFD receives an
account maintenance fee from the Fund at the annual rate of 0.25% of average
daily net assets of the Fund relating to Class C shares for providing account
maintenance activities and services with respect to the Class C shares of the
Fund and a distribution fee from the Fund at the annual rate of 0.75% of average
daily net assets of the Fund relating to Class C shares for providing sales and
promotional activities and services with respect to the distribution of Class C
shares; and
WHEREAS, PFD desires the Securities Firm to perform certain account
maintenance activities and sales and promotional activities and services for the
Fund's Class C shareholders and the Securities Firm is willing to perform such
activities and services;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereby agree as follows:
1. The Securities Firm shall provide account maintenance activities and
services with respect to the Class C shares of the Fund and incur expenditures
in connection with such activities and services of the types referred to in
Paragraph 1 of the Plan.
2. The Securities Firm shall provide sales and promotional activities
and services with respect to the sale of the Class C shares of the Fund, and
incur distribution expenditures of the types referred to in Paragraph 2 of the
Plan.
3. As compensation for its activities and services performed under this
Agreement, PFD shall pay the Securities Firm an account maintenance fee and a
distribution fee at the end of each calendar month in an amount agreed upon by
the parties hereto, and as set forth in a schedule attached hereto, but in any
event not in excess of the amount permitted by the Plan. Such amounts will be
based on the dollar amount of Fund shares which are owned of record by the
Securities Firm as nominee for its customers or which are owned by those
customers of the Securities Firm whose records, as maintained by the Fund or its
agents, designate the Securities Firm as the customer's dealer of record. Any
such payments shall be in addition to the selling
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concession, if any, allowed to the Securities Firm pursuant to a separate
agreement with PFD. No such fee will be paid to the Securities Firm with respect
to shares purchased by the Securities Firm and redeemed by the Fund or by us as
agent within seven days after the dates of confirmation of such purchase. PFD
has no obligation to make such payments and the Securities Firm hereby waives
such payments until PFD receives monies therefor from the Fund.
4. The Securities Firm shall provide PFD, at least quarterly, such
information as reasonably requested by PFD to enable PFD to comply with the
reporting requirements of Rule 12b-1 regarding the disbursement of the account
maintenance fee and the distribution fee during such period referred to in
Paragraph 4 of the Plan.
5. This Agreement shall not take effect until it has been approved by
votes of a majority of both (a) the Directors of the Fund and (b) those
Directors of the Fund who are not "interested persons" of the Fund, as defined
in the Act, and have no direct or indirect financial interest in the operation
of the Plan, or any agreements related to it (the "Rule 12b-1 Directors"), cast
in person at a meeting or meetings called for the purpose of voting on this
Agreement.
6. This Agreement shall continue in effect for as long as such
continuance is specifically approved at least annually in the manner provided
for approval of the Plan in Paragraph 6 of the Plan.
7. This Agreement shall automatically terminate in the event of its
assignment or in the event of the termination of the Plan or any amendment to
the Plan that requires such termination. In addition, this Agreement may be
terminated at any time, without penalty, with respect to the Plan on not more
than 60 days nor less than 30 days written notice delivered or mailed by
registered mail, postage prepaid, to the other party.
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IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
PRINCETON FUNDS DISTRIBUTOR, INC.
By:
--------------------------------------
Name:
------------------------------
Title:
------------------------------
By:
--------------------------------------
Name:
------------------------------
Title:
------------------------------
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<PAGE> 1
MERCURY PREMIER GROWTH FUND, INC.
PLAN PURSUANT TO RULE 18f-3 UNDER THE INVESTMENT COMPANY ACT
The mutual funds operating pursuant to this Plan (individually a "Fund"
and, collectively, the "Funds") offer Class I Shares, Class A Shares, Class B
Shares and Class C Shares as follows:
Account Maintenance and Distribution Fees
Class A Shares, Class B Shares and Class C Shares bear the expenses of
the ongoing account maintenance fees applicable to the particular Class. Class B
Shares and Class C Shares bear the expenses of the ongoing distribution fees
applicable to the particular Class. Specific shareholders within a Class may be
subject to initial or contingent deferred sales charges as set forth in each
Fund's current prospectus and statement of additional information (together, the
"prospectus").
Transfer Agency Expenses
Each Class shall bear any incremental transfer agency cost applicable
to the particular Class.
Voting Rights
Each Class has exclusive voting rights on any matter submitted to
shareholders that relates solely to its account maintenance fees or ongoing
distribution fees, as may be applicable. Each Class shall have separate voting
rights on any matter submitted to shareholders in which the interests of one
Class differ from the interests of any other Class.
Dividends
Dividends paid on each Class will be calculated in the same manner at
the same time and will differ only to the extent that any account maintenance
fee, any distribution fee and any incremental transfer agency cost relates to a
particular Class.
Conversion Features
Holders of Class B Shares will have such conversion features to Class A
Shares as set forth in each Fund's current prospectus. Conversion features may
vary among holders of Class B Shares.
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Exchange Privileges
Holders of Class I Shares, Class A Shares, Class B Shares and Class C
Shares shall have such exchange privileges as set forth in each Fund's current
prospectus. Exchange privileges may vary among Classes and among holders of a
Class.
Other Rights and Obligations
Except as otherwise described above, in all respects, each Class shall
have the same rights and obligations as each other Class.
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