-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CbeRFUBk+duQG5WZlAD4Yuk0EBSRtTpQ9pspnZWDy3gcu0vmQbWaAcssZ/oyS2Kc dWg5nOVPCbO6wRmsLApoww== 0000950123-98-009123.txt : 19981022 0000950123-98-009123.hdr.sgml : 19981022 ACCESSION NUMBER: 0000950123-98-009123 CONFORMED SUBMISSION TYPE: N-1A PUBLIC DOCUMENT COUNT: 20 FILED AS OF DATE: 19981021 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MERCURY ASSET MANAGEMENT FUNDS INC CENTRAL INDEX KEY: 0001062806 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-1A SEC ACT: SEC FILE NUMBER: 333-65955 FILM NUMBER: 98728620 FILING VALUES: FORM TYPE: N-1A SEC ACT: SEC FILE NUMBER: 811-08797 FILM NUMBER: 98728621 BUSINESS ADDRESS: STREET 1: MERRILL LYNCH ASSET MANAGEMENT STREET 2: P O BOX 9011 CITY: PRINCETON STATE: NJ ZIP: 08543-9011 MAIL ADDRESS: STREET 1: MERRILL LYNCH ASSET MANAGEMENT STREET 2: P O BOX 9011 CITY: PRINCETON STATE: NJ ZIP: 08543-9011 FORMER COMPANY: FORMER CONFORMED NAME: MERCURY ALPHA FUND INC DATE OF NAME CHANGE: 19980601 N-1A 1 MERCURY GOLD AND MINING FUND 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 21, 1998 SECURITIES ACT FILE NO. 333- INVESTMENT COMPANY ACT FILE NO. 811-08797 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X] PRE-EFFECTIVE AMENDMENT NO. POST-EFFECTIVE AMENDMENT NO. [ ] AND/OR REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ] AMENDMENT NO. 5 [X] (Check appropriate box or boxes) ------------------------ MERCURY GOLD AND MINING FUND of Mercury Asset Management Funds, Inc. (Exact name of Registrant as specified in charter) 800 SCUDDERS MILL ROAD, PLAINSBORO, NEW JERSEY 08536 (Address of Principal Executive Offices) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (888) 763-2260 JEFFREY M. PEEK P.O. BOX 9011 PRINCETON, NEW JERSEY 08543-9011 (Name and Address of Agent for Service) Copies to: Counsel for the Fund: JOEL H. GOLDBERG, Esq. and Swidler Berlin Shereff Friedman, LLP ROBERT E. PUTNEY, III, Esq. 919 Third Avenue P.O. Box 9011 New York, New York 10022 Princeton, New Jersey 08543-9011
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after the effective date of the Registration Statement. ------------------------ It is proposed that this filing will become effective [ ] immediately upon filing pursuant to paragraph (b) [ ] on (date) pursuant to paragraph (b) [ ] 60 days after filing pursuant to paragraph (a)(1) [ ] on (date) pursuant to paragraph (a)(1) [ ] 75 days after filing pursuant to paragraph (a)(2) [ ] on (date) pursuant to paragraph (a)(2) of Rule 485. If appropriate, check the following box: [ ] This post-effective amendment designates a new effective date for a previously filed post-effective amendment. Mercury Asset Management Master Trust has also executed this Registration Statement. 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. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 MERCURY GOLD AND MINING FUND OF MERCURY ASSET MANAGEMENT FUNDS, INC. [ARTWORK TO COME] A SUBSCRIPTION PERIOD FOR SHARES OF THE FUND WILL END ON , , UNLESS EXTENDED. THIS PROSPECTUS CONTAINS INFORMATION YOU SHOULD KNOW BEFORE INVESTING, INCLUDING INFORMATION ABOUT RISKS. PLEASE READ IT BEFORE YOU INVEST AND KEEP IT FOR FUTURE REFERENCE. THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. PROSPECTUS - , 1998 [MERCURY ASSET MANAGEMENT LOGO] 3 Table of Contents
PAGE [FUND FACTS LOGO] FUND FACTS - ----------------------------------------------------------------- About the Mercury Gold and Mining Fund...................... 2 Fees and Expenses........................................... 5 [ABOUT THE DETAILS LOGO] ABOUT THE DETAILS - ----------------------------------------------------------------- How the Fund Invests........................................ 7 Investment Risks............................................ 9 Adviser's Historical Performance Data....................... 14 [ACCOUNT CHOICES LOGO] ACCOUNT CHOICES - ----------------------------------------------------------------- Pricing of Shares........................................... 20 How to Buy, Sell, Transfer and Exchange Shares.............. 25 How Shares are Priced....................................... 29 Fee-Based Programs.......................................... 30 Dividends, Capital Gains and Taxes.......................... 30 [THE MANAGEMENT TEAM LOGO] THE MANAGEMENT TEAM - ----------------------------------------------------------------- Master/Feeder Structure..................................... 32 Management of the Fund...................................... 32 [TO LEARN MORE LOGO] TO LEARN MORE - ----------------------------------------------------------------- Shareholder Reports....................................Back Cover Statement of Additional Information....................Back Cover
MERCURY GOLD AND MINING FUND 4 [FUND FACTS LOGO] 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. ASSET-BASED SECURITIES -- debt, preferred or convertible securities, the terms of which are related to the market price of gold bullion or some other natural resource asset. ABOUT THE MERCURY GOLD AND MINING FUND - -------------------------------------------------------------------------------- WHAT ARE THE FUND'S GOALS? The Fund's main goal is long-term capital growth through investments primarily in a diversified portfolio of equity securities of gold mining companies, and to a lesser extent of companies engaged in other mining activities, located throughout the world. The Fund may also invest in asset-based securities that relate to the market price of gold bullion and directly in gold bullion. In other words, the Fund tries to choose investments in gold and other mining-related securities and gold bullion that will increase in value. Current income from dividends and interest will not be an important consideration in selecting portfolio securities. We cannot guarantee that the Fund will achieve its goals. WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES? The Fund invests primarily in stocks of gold mining companies, and to a lesser extent of companies engaged in other mining activities, that its management believes are undervalued or have good prospects for earnings growth. For simplicity, this Prospectus uses the term "mining" to include exploring, mining, refining, processing, fabricating, distributing, dealing in or owning a particular metal or mineral. A company's stock is considered to be undervalued by the Fund's management when its price is less than what the Fund believes it is worth. A company whose earnings per share grow faster than inflation and the economy in general usually has a higher stock price over time than companies with slower earnings growth. The Fund's evaluation of the type, quantity and quality of a company's ore reserves is an important factor in evaluating a particular company's value and earnings prospects. The Fund may invest up to 10% of its assets directly in gold bullion. The Fund allocates investments to companies engaged in mining activities other than gold mining when the management of the Fund believes, based on an evaluation of global economic conditions and the price of gold, that they present better prospects for growth than investments in gold mining companies. The Fund purchases COMMON STOCK, PREFERRED STOCK and CONVERTIBLE SECURITIES and in ASSET-BASED SECURITIES and other assets. Normally, the Fund expects to invest at least 80% of its assets in equity securities of gold mining companies, equity securities of companies engaged in other mining activities, asset-based securities and in gold bullion. The Fund expects that the majority of its investments will be in gold mining companies. The Fund may invest in securities issued by companies of all sizes, but will focus mainly on medium and large companies. Companies will be located throughout the world in countries with developed capital markets and countries with emerging capital markets. 2 MERCURY GOLD AND MINING FUND 5 [FUND FACTS LOGO] Fund Facts The Fund invests all of its assets in a Portfolio of Mercury Asset Management Master Trust that has the same goals as the Fund. All investments will be made at the level of the Portfolio. This structure is sometimes called a "master/ feeder" structure. The Fund's investment results will correspond directly to the investment results of the underlying Portfolio it invests in. For simplicity, this Prospectus uses the term "Fund" to include the underlying Portfolio the Fund invests in. WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND? As with any equity fund, the value of the Fund's investments, and therefore the value of your Fund's shares, may go up or down. These value changes in the Fund's investments may occur because of changes in a particular stock market or commodity market generally, as well as the gold market in particular. Unlike more broadly diversified mutual funds the Fund will invest mainly in securities of gold mining companies, and to a lesser extent in securities of companies engaged in other mining activities. This concentration in gold and other mining securities will make the Fund more vulnerable to the price fluctuations of metals and minerals generally, and of gold in particular. Historically, the prices of gold and gold mining securities have been more volatile than prices of equity securities generally. In addition, gold bullion does not generate income, and offers only the potential for capital appreciation or depreciation. If the value of the Fund's investments goes down, you may lose money. In addition, because the Fund will invest a large portion of its assets in non- U.S. securities, the Fund will be subject to additional risks. For example, the Fund's securities may go up or down in value depending on foreign exchange rates, political and economic developments and U.S. and foreign laws relating to foreign investment. Non-U.S. securities may also be less liquid, more volatile and harder to value than U.S. securities. These risks are heightened when the issuer of the securities is in an emerging capital market. MERCURY GOLD AND MINING FUND 3 6 [FUND FACTS LOGO] Fund Facts WHO SHOULD INVEST? The Fund may be an appropriate investment for you if you: - Are investing with long-term goals in mind and are not looking for current income. - Are willing to accept the risk that your investment may fluctuate over the short term in exchange for the potential of higher long- term returns. - Want to diversify your portfolio with an investment that is likely to change in value independent of trends in the stock market generally. - Can tolerate the increased price volatility and the increased risk associated with investments concentrated in one industry and investments in non-U.S. securities. - Are prepared to receive taxable short-term capital gains. 4 MERCURY GOLD AND MINING FUND 7 [FUND FACTS LOGO] Fund Facts UNDERSTANDING EXPENSES Fund investors pay various expenses, either directly or indirectly. Listed below are some of the main types of expenses, which all mutual funds may charge: EXPENSES PAID DIRECTLY BY THE SHAREHOLDER: SHAREHOLDER FEES -- fees paid directly from your investment. These include sales charges and redemption fees, which you may pay when you buy or sell shares of the Fund. EXPENSES PAID INDIRECTLY BY THE SHAREHOLDER (these costs are deducted from the Fund's total assets): ANNUAL FUND OPERATING EXPENSES -- expenses that cover the costs of operating the Fund. MANAGEMENT FEE -- a fee paid to the investment adviser for managing the Fund. DISTRIBUTION FEES -- fees used to support the Fund's marketing and distribution efforts, such as advertising and promotion. ACCOUNT MAINTENANCE FEES -- fees used to compensate 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.
SHAREHOLDER FEES: CLASS I CLASS A CLASS B(b) CLASS C - ------------------------------------------------------------------------------------------------------------ MAXIMUM SALES CHARGE (LOAD) IMPOSED ON PURCHASES (AS A PERCENTAGE OF OFFERING PRICE) 5.25%(c) 5.25%(c) NONE NONE - ------------------------------------------------------------------------------------------------------------ MAXIMUM DEFERRED SALES CHARGE (LOAD) (AS A PERCENTAGE OF ORIGINAL PURCHASE PRICE OR REDEMPTION PROCEEDS, WHICHEVER IS LOWER) NONE(d) NONE(d) 4.00%(c) 1.00%(c) - ------------------------------------------------------------------------------------------------------------ MAXIMUM SALES CHARGE (LOAD) IMPOSED ON DIVIDEND REINVESTMENTS NONE NONE NONE NONE - ------------------------------------------------------------------------------------------------------------ REDEMPTION FEE NONE NONE NONE NONE - ------------------------------------------------------------------------------------------------------------ EXCHANGE FEE NONE NONE NONE NONE - ------------------------------------------------------------------------------------------------------------ MAXIMUM ACCOUNT FEE NONE NONE NONE NONE - ------------------------------------------------------------------------------------------------------------ ANNUAL FUND OPERATING EXPENSES(a): - ------------------------------------------------------------------------------------------------------------ MANAGEMENT FEE(e) 0.75% 0.75% 0.75% 0.75% - ------------------------------------------------------------------------------------------------------------ DISTRIBUTION AND/OR ACCOUNT MAINTENANCE (12b-1) FEES(f) NONE 0.25% 1.00% 1.00% - ------------------------------------------------------------------------------------------------------------ OTHER EXPENSES (INCLUDING TRANSFER AGENCY FEES)(g) 1.81% 1.81% 1.81% 1.81% ADMINISTRATIVE FEES(h) 0.25% 0.25% 0.25% 0.25% ----- ----- ----- ----- TOTAL OTHER EXPENSES 2.06% 2.06% 2.06% 2.06% - ------------------------------------------------------------------------------------------------------------ TOTAL ANNUAL FUND OPERATING EXPENSES(i) 2.81% 3.06% 3.81% 3.81% - ------------------------------------------------------------------------------------------------------------
(a) The fees and expenses include the expenses of both the Fund and the Portfolio it invests in. (b) Class B shares automatically convert to Class A shares about eight years after you buy them and will no longer be subject to distribution fees. (c) Some investors may qualify for reductions in the sales charge (load). (d) You may pay a deferred sales charge if you purchase $1 million or more and you redeem within one year. (e) Paid by the Portfolio. The investment adviser pays the sub-adviser out of this fee. The investment adviser or its affiliate provides accounting services to the Portfolio at its cost. (f) If you hold Class B or 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. Class B and C shares pay a Distribution Fee of 0.75% and an Account Maintenance Fee of 0.25%. Class A shares pay only an Account Maintenance Fee of 0.25%. (g) Based on estimated amounts for the current fiscal year. The Transfer Agent is an affiliate of the investment adviser. 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 account (depending on the level of services required), but is set at 0.10% for certain accounts that participate in certain fee-based programs. (h) Paid by the Fund. The administrator provides accounting services to the Fund at its cost. (i) In addition, certain securities dealers may charge a fee to process a purchase or sale of shares. MERCURY GOLD AND MINING FUND 5 8 [FUND FACTS LOGO] Fund Facts EXAMPLE 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:
CLASS I CLASS A CLASS B CLASS C - ------------------------------------------------------------------------------------------ ONE YEAR $ 794 $ 818 $ 783 $ 483 - ------------------------------------------------------------------------------------------ THREE YEARS $1,350 $1,420 $1,464 $1,164 - ------------------------------------------------------------------------------------------
Expenses if you did not redeem your shares:
CLASS I CLASS A CLASS B CLASS C - ------------------------------------------------------------------------------------------ ONE YEAR $ 794 $ 818 $ 383 $ 383 - ------------------------------------------------------------------------------------------ THREE YEARS $1,350 $1,420 $1,164 $1,164 - ------------------------------------------------------------------------------------------
6 MERCURY GOLD AND MINING FUND 9 [ABOUT THE DETAILS LOGO] About the Details ABOUT THE PORTFOLIO MANAGEMENT TEAM -- The Fund is managed by members of a team of 7 investment professionals who participate in the team's research process and stock selection. The senior investment professionals in this group include David Baker, Graham Birch, Geoff Campbell, and Trevor Steel. Graham Birch is primarily responsible for the day-to-day management of the Fund. ABOUT THE INVESTMENT ADVISER -- Mercury Asset Management International Ltd. is the investment adviser. HOW THE FUND INVESTS - -------------------------------------------------------------------------------- The Fund's main goal is long-term capital growth through investments primarily in a diversified portfolio of equity securities of gold mining companies, and to a lesser extent of companies engaged in other mining activities, located throughout the world. In selecting securities, the Fund emphasizes those securities that the Fund's management believes to be undervalued or have good prospects for earnings growth. The Fund may also invest in asset-based securities and up to 10% of its assets directly in gold bullion. During normal market conditions, the Fund expects to invest at least 80% of its total assets in equity securities of gold mining companies, asset-based securities and gold bullion, and the remainder of its assets in equity securities of companies engaged in other mining activities. The Fund will invest in equity securities of gold mining companies, and to a lesser extent of companies engaged in other mining activities, located throughout the world. The Fund will invest in companies engaged in non-gold mining activities when the management of the Fund believes, based on an evaluation of global economic conditions and the price of gold, that they present better prospects for growth than investments in gold mining companies. Equity securities consist of: - Common Stock - Preferred Stock - Securities Convertible into Common Stock - Derivative securities such as options (including warrants) and futures, the value of which is based on a common stock or group of common stocks A company's stock is considered undervalued when the stock's current price is less than what the Fund's management believes a share of the company is worth. Fund management feels a company's worth can be assessed by several factors, such as: - financial resources - value of assets (including the type, quantity and quality of a company's ore reserves, and mineral exploration prospects) - sales and earnings growth - product development - quality of management - overall business prospects MERCURY GOLD AND MINING FUND 7 10 [ABOUT THE DETAILS LOGO] About the Details A company's stock may become undervalued when most investors fail to perceive the company's strengths in one or more of these areas. A company whose earnings per share grow faster than inflation and the economy in general usually has a higher stock price over time than companies with slower earnings growth. Current income from dividends and interest will not be an important consideration in selecting portfolio securities. The Fund will invest in securities of companies located throughout the world and will invest a substantial amount of its assets in securities of companies located in the Republic of South Africa. The Fund may invest without limit in securities of companies located in countries with emerging capital markets including the Republic of South Africa, The People's Republic of China, Russia, Indonesia, Uzbekistan, Peru, Brazil, Mexico, Zimbabwe, Ghana, Mali, Tanzania, the Philippines and Papua New Guinea. The Fund may also invest in securities of companies located in countries with developed capital markets including the United States, Canada, Japan, United Kingdom, Finland, France, Germany, Switzerland, Ireland, Luxemburg, Spain and Australia. The Fund may invest in debt securities that are issued together with a particular equity security. The Fund may invest in derivatives to hedge (protect against price movements) or to enable it to reallocate its investments more quickly than it could by buying and selling the underlying assets. The Fund may invest in companies of any size, but tends to focus on medium and large companies. The Fund has no stated minimum holding period for investments, and will buy or sell securities and other assets whenever the Fund's management sees an appropriate opportunity. The Fund does not consider potential tax consequences to Fund shareholders when it sells assets. The Fund may invest up to 10% of its assets in gold bullion when the Fund believes it is undervalued relative to the price of securities of gold mining companies. However, the Fund may have internal guidelines that limit its investments in gold bullion to considerably less than 10% of the Fund's assets. The Fund will normally invest almost all of its assets in the above described manner. The Fund may, however, invest in short-term instruments, such as money market securities and repurchase agreements, to meet redemptions. If the Fund anticipates significant adverse changes in the price of gold then the Fund's investment in stocks of gold mining companies and gold bullion may be temporarily reduced to below 50% of the Fund's total assets. In this case the Fund may make substantial investments, for temporary defensive purposes, in other mineral mining companies (non-gold), and may hold substantial amounts of cash. Short term investments and temporary defensive positions may limit the potential for growth in the value of your shares. 8 MERCURY GOLD AND MINING FUND 11 About the Details ABOUT THE DETAILS LOGO The Fund may use many different investment strategies in seeking its investment objectives and it has certain investment restrictions. These strategies and certain of the restrictions and policies governing the Fund's investments are explained in the Fund's Statement of Additional Information. If you would like to learn more about how the Fund may invest, request the Statement of Additional Information. 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 goals, or that the Fund's performance will be positive over any period of time. This Fund is subject to four principal risks: market risk, selection risk, sector risk and foreign investment risk. Market risk is the risk that the equity markets or commodity markets in general, or the gold market in particular, will go down in value, including the possibility that any of these markets will go down sharply and unpredictably. Selection risk is the risk that the stocks that the Fund's adviser selects will underperform the markets or other funds with similar investment objectives and investment strategies. Sector risk is the risk that the Fund's concentration in gold and other mining securities will expose the Fund more to the price fluctuations of mining securities, generally, or of gold in particular, than more broadly diversified funds. Foreign investment risk is the risk that the Fund's non-U.S. securities may go up or down in value depending on foreign exchange rates, political and economic developments and U.S. and foreign laws relating to non-U.S. investment. In addition to these risks, certain investment techniques that the Fund may use entail other risks: MINING RELATED SECURITIES AND GOLD BULLION. - Investments in or relating to gold and other metals or minerals are considered speculative. - Historically, during periods of economic or financial instability the securities of mining companies in general, and companies engaged in precious (including gold) and industrial metals mining in particular, have been subject to extreme fluctuations in market price. Gold bullion has also been subject to extreme fluctuations in market price. - The earnings and general financial condition of mining companies are highly dependent on the market prices of the MERCURY GOLD AND MINING FUND 9 12 [ABOUT THE DETAILS LOGO] About the Details underlying metals or minerals, which have historically been extremely volatile. - During periods of instability in the price of metals or minerals, the liquidity of the Fund's portfolio securities may be severely reduced; in other words, the Fund may not, during these periods, be able to sell its securities at the time and price that the Fund would like. - Actions of large producers, sellers and holders of precious metals (such as governments and central banks) may severely impact supply of, or demand for, precious metals, and their actions in general may have a significant impact on the prices of precious metals. These actions can be affected by various economic, financial, social and political factors which may be unpredictable. - The Fund will invest a substantial amount of its assets in securities of companies located in the Republic of South Africa. This investment focus could increase volatility and risk compared to a fund that invests a smaller percentage of its assets in South Africa. In addition, South African companies are generally more sensitive to movements in the price of gold than similar companies in other countries. - Gold bullion does not generate income and offers only the potential for capital appreciation or depreciation. ASSET-BASED SECURITIES RISKS - The market price of an asset-based security and the related underlying asset may not be perfectly correlated. - The asset-based security may not be protected by a direct claim on the underlying asset, in the event of an issuer default. - An asset-based security may pay interest or dividends at below market rates. Therefore, the Fund's return on these types of investments will be based on changes in their market value. LIQUIDITY, INFORMATION AND VALUATION RISKS Certain securities, including securities of companies in countries with emerging capital markets, securities of small companies, and "restricted securities", may be illiquid or volatile, making it difficult or impossible to sell them at the time and at the price that the Fund would like. Restricted securities have contractual 10 MERCURY GOLD AND MINING FUND 13 [ABOUT THE DETAILS LOGO] About the Details or legal restrictions on their resale and include "private placement" securities that the Fund may buy directly from the issuer. Also, important information about these companies, securities or the markets in which they trade, may be inaccurate or unavailable. It may be difficult to value accurately these types of securities. Certain derivatives may be subject to these risks as well. EUROPEAN ECONOMIC AND MONETARY UNION (EMU) Certain European countries have agreed to enter into EMU in an effort to, among other things, reduce barriers between countries and eliminate fluctuations in their currencies. Among other things, EMU establishes a single European currency (the euro), which will be introduced on January 1, 1999 and is expected to replace the existing national currencies of all initial EMU participants by July 1, 2002. Upon introduction of the euro, certain securities (beginning with government and corporate bonds) will be redenominated in the euro and, thereafter, will trade and make dividend and other payments only in euros. Like other investment companies and business organizations, including the companies in which the Fund invests, the Fund could be adversely affected: - If the euro, or EMU as a whole does not take effect as planned. - If a participating country withdraws from EMU. - If the computing, accounting and trading systems used by the Fund's service providers, or by other entities with which the Fund or its service providers do business, are not capable of recognizing the euro as a distinct currency at the time of, and following, euro conversion. OTHER FOREIGN SECURITY RISKS - The value of the Fund's non-U.S. holdings (and hedging transactions in foreign currencies) will be affected by changes in currency exchange rates. - The costs of non-U.S. securities transactions tend to be higher than those of U.S. transactions. - The Fund's non-U.S. securities holdings may be adversely affected by foreign government action. - International trade barriers or economic sanctions against certain non-U.S. countries may adversely affect the Fund's non-U.S. holdings. MERCURY GOLD AND MINING FUND 11 14 [ABOUT THE DETAILS LOGO] About the Details - The Fund may be able to invest in certain small non-U.S. markets only by investing in another fund that in turn invests in those markets. It may cost the Fund more to buy shares of these funds than it would to buy the non-U.S. securities directly. - The foregoing risks are heightened when the investment is made in a country that has an emerging capital market. The development of a capital market depends on a number of factors, including a country's success in making political, economic and social reforms. If a country were to discontinue its process of reform, or experience other destabilizing events, the Fund's investments could be adversely affected. In addition, because of the small size of the capital market in a country with an emerging capital market or governmental restrictions on foreign investment, there may be fewer investment opportunities available to the Fund than in more developed markets. This could limit the Fund's ability to diversify its holdings among issuers, industries and countries. - If the Fund purchases a bond issued by a foreign government, the government may be unwilling or unable to make payments when due. There may be no formal bankruptcy proceeding by which the Fund would be able to collect amounts owed by a foreign government. - Non-U.S. markets have different clearance and settlement procedures, and in certain markets settlements may be unable to keep pace with the volume of securities transactions which may cause delays. This means that the Fund's assets may be uninvested and not earning returns. The Fund may miss investment opportunities or be unable to dispose of a security because of these delays. BORROWING The use of borrowing can increase the Fund's exposure to market risk. That is, when the Fund borrows money to make more investments than it otherwise could or to meet redemptions, and the Fund's investments go down in value, the Fund's losses will be magnified. DERIVATIVES The Fund may also 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, 12 MERCURY GOLD AND MINING FUND 15 [ABOUT THE DETAILS LOGO] About the Details such as the S&P 500 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. Derivatives, however, are volatile and involve significant risks, including many of the risks described above. Other risks include: - Credit risk -- the risk that the counterparty on a derivative transaction will be unable to honor its financial obligation to the Fund. - Currency risk -- the risk that changes in the exchange rate between two currencies will adversely affect the value (in U.S. dollar terms) of an investment. - Leverage risk -- the risk associated with certain types of investments or trading strategies (such as borrowing money to increase the amount of investments) that relatively small market movements may result in large changes in the value of an investment. Certain investments or trading strategies that involve leverage can result in losses that greatly exceed the amount originally invested. - 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. - Index risk -- If the derivative is linked to the performance of an index, it will be subject to the risks associated with changes in that index. If the index changes, the Fund could receive lower interest payments or experience a reduction in the value of the derivative to below what the Fund paid. Certain indexed securities, including inverse securities (which move in an opposite direction to the index), may create leverage, to the extent that they increase or decrease in value at a rate that is a multiple of the changes in the applicable index. The Fund may use the following types of derivative instruments: - Futures -- exchange-traded contracts involving the obligation of the seller to deliver, and the buyer to receive, certain assets (or a money payment based on the change in value of certain assets or an index) at a specified time. Futures may involve leverage risk and currency risk. MERCURY GOLD AND MINING FUND 13 16 [ABOUT THE DETAILS LOGO] About the Details - Forwards -- private contracts involving the obligation of the seller to deliver, and the buyer to receive, certain assets (or a money payment based on the change in value of certain assets or an index) at a specified time. Forwards involve credit risk and leverage risk, and may involve currency risk. - Options -- exchange-traded or private contracts involving the right of a holder to deliver (a "put") or receive (a "call") certain assets (or a money payment based on the change of certain assets or an index) from another party at a specified price within a specified time period. Options may involve leverage risk. Private options also involve credit risk and liquidity risk. Options may also involve currency risk. CONVERTIBLE SECURITIES Convertible securities, including bonds and preferred stock, are convertible into common stock. As a result of the conversion feature, the interest or dividend rate on a convertible security is generally less than would be the case if the security were not convertible. The value of a convertible security will be affected both by its stated interest or dividend rate and the value of the underlying common stock. Therefore, its value will be affected by the factors that affect both debt securities (such as interest rates) and equity securities (such as stock market movements generally). Some convertible securities might require the Fund to sell the securities back to the issuer or a third party at a time that is disadvantageous to the Fund. DEBT SECURITIES Debt securities, such as bonds, involve credit risk, which is the risk that the borrower will not make timely payments of principal and interest. These securities are also subject to interest rate risk, which 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 shorter term securities. ADVISER'S HISTORICAL PERFORMANCE DATA - -------------------------------------------------------------------------------- The following tables present historical performance data for all accounts that have been managed by the investment adviser or another Mercury investment adviser and that have substantially similar (although not necessarily identical) objectives and policies to the Fund's. These accounts have been managed using investment styles and strategies substantially similar to those to be used in 14 MERCURY GOLD AND MINING FUND 17 [ABOUT THE DETAILS LOGO] About the Details managing the Fund. THESE FIGURES DO NOT REPRESENT THE PERFORMANCE OF THE FUND. The Fund is newly organized and does not yet have a performance record. The Fund's actual performance may be higher or lower, and past performance is no guarantee of future results. The composite figures shown in the tables presented below were calculated in the following manner: - Many of the accounts in the composite were managed by the investment adviser's Mercury affiliates. All personnel of the investment adviser and its Mercury affiliates are employed by a single holding company. Portfolio managers perform management services for accounts of various Mercury advisers, including the Fund's investment adviser, depending on the nature of each adviser's clients. The investment process, including the resources available to the portfolio managers and the supervisory review, is the same across advisers. As a practical matter, there is no significant distinction between the process used in determining the recommendations of the investment adviser and those of its Mercury affiliates. - The accounts included in the composite are not U.S. mutual funds, and are not subject to the same rules and regulations (for example, diversification and liquidity requirements and restrictions on transactions with affiliates) as the Fund, or to the same types of expenses that the Fund will pay. These differences might have affected the performance figures shown below. - The composite figures have been calculated by weighting the performance of each included account by the level of the account's total assets at the beginning of each monthly or quarterly period. Accounts were added to the composite as of the first full quarter under management and excluded at the end of the last full quarter under management. [Accordingly, the number of accounts included in the composite vary by quarter, from at the beginning of to in the most recent quarter.] - The performance of each of the accounts in the composite may have been influenced by the level of the account's total assets. Had an account's assets been different, its performance might have been higher or lower. MERCURY GOLD AND MINING FUND 15 18 [ABOUT THE DETAILS LOGO] About the Details - The accounts presented were accounted for in various base currencies other than U.S. dollars. The Fund will calculate its net asset value daily in U.S. dollars. For purposes of this presentation, the accounts' performance history was converted into U.S. dollars on at least a quarterly basis using exchange rate movements to approximate the equivalent U.S. dollar returns which might have been achieved. - The figures shown below represent the performance, converted to U.S. dollars, of the composite's included accounts. THEY ARE NOT THE PERFORMANCE OF THE FUND. Figures show total returns. Total return shows you how much an investment has changed in value over the stated time period and includes both capital appreciation and income. The first table reflects average annual total returns. This smooths out variations in annual performance by averaging returns over the stated period. The second table shows actual total returns for each one year period. - To provide you with additional information, these composite performance figures are presented two different ways. The "Gross of Fees and Charges" row reflects the composite's gross performance -- that is, performance before any deductions for fees or expenses. These figures are hypothetical and presented for information only; they do not reflect actual performance of the accounts because the accounts would have paid fees and expenses. The first table (average annual total returns) also includes a "Net of Fees and Charges" section, which reflects adjustments of the gross performance to reflect the deduction of all of the fees and expenses that the Fund and a shareholder is projected to pay as shown in the "Fees and Expenses" section at the beginning of the Prospectus. Like the gross figures, the net figures are hypothetical, because they do not reflect the actual fees and charges paid by the included accounts. The net figures assume the shareholder bought the shares at the beginning of the period and sold (redeemed) the shares at the end of the period. To the extent the Fund's expenses deviate from the projections, the "Net of Fees and Charges" figures will be inaccurate. The effect would be greater over longer periods due to compounding. The "Net of Fees and Charges" performance figures differ by class because the sales charges and account maintenance fees differ for each class of shares. The net figures shown -- that is, the performance results after all applicable 16 MERCURY GOLD AND MINING FUND 19 [ABOUT THE DETAILS LOGO] About the Details deductions -- are equal to or lower than the actual net results of the included accounts. - Both tables include figures for a benchmark index (Financial Times Gold Mines Index) and for the Lipper Gold Funds universe so that you can compare the composite's performance to the performance of the market as a whole. The Financial Times Gold Mines Index is an unmanaged index and does not reflect any fees or charges. The Lipper Gold Funds Average reflects advisory fees and other fees and charges, but does not reflect front-end or contingent deferred sales charges. MERCURY GOLD AND MINING FUND 17 20 [ABOUT THE DETAILS LOGO] About the Details AVERAGE ANNUAL TOTAL RETURNS - -------------------------------------------------------------------------------- THIS IS NOT THE FUND'S PERFORMANCE.
FOR FOR FOR FOR FOR ONE-YEAR TWO-YEAR THREE-YEAR FOUR-YEAR FIVE-YEAR PERIOD PERIOD PERIOD PERIOD PERIOD ENDED ENDED ENDED ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 1998 1998 1998 1998 1998(1) - --------------------------------------------------------------------------------------------------------------------------------- COMPOSITE OF SIMILAR ACCOUNTS, RECALCULATED: - --------------------------------------------------------------------------------------------------------------------------------- NET OF FEES AND CHARGES (2): - --------------------------------------------------------------------------------------------------------------------------------- CLASS I FEES AND CHARGES % % % % % - --------------------------------------------------------------------------------------------------------------------------------- CLASS A FEES AND CHARGES - --------------------------------------------------------------------------------------------------------------------------------- CLASS B FEES AND CHARGES - --------------------------------------------------------------------------------------------------------------------------------- CLASS C FEES AND CHARGES - --------------------------------------------------------------------------------------------------------------------------------- GROSS OF FEES AND CHARGES (3): - --------------------------------------------------------------------------------------------------------------------------------- FINANCIAL TIMES GOLD MINES INDEX (4): - --------------------------------------------------------------------------------------------------------------------------------- LIPPER GOLD FUNDS AVERAGE (DOES NOT INCLUDE SALES CHARGES) (5): - ---------------------------------------------------------------------------------------------------------------------------------
(1) The investment adviser and its affiliates first began managing accounts with substantially similar objectives and policies to those of the Fund on , . (2) Reflects the reinvestment of dividends and distributions, and the deduction of all fees and expenses that the Fund and a shareholder are projected to pay (including the maximum front-end sales charges paid when purchasing shares, or the maximum deferred sales charge paid upon redeeming shares at the end of each period shown). To the extent the Fund's expenses deviate from the projections, the "Net of Fees and Charges" figures will be inaccurate. The effect would be greater over longer periods due to compounding. (3) Does not reflect the deduction of any fees, charges or expenses other than certain brokerage commissions. These figures are hypothetical and presented for information only; they do not reflect actual performance of the accounts because the accounts would have paid fees and expenses. (4) An unmanaged geographically diversified index of leading gold mining companies. The minimum qualification is a production of more than 300,000 ounces of gold a year and more than 75% of the revenue from mining gold. One of the members of the Fund's portfolio management team is a member of the committee that selects the companies included in this index. The committee has more than ten other members. No sales charges, 12b-1 fees or advisory fees, and no other expenses (e.g., custody or brokerage fees) are reflected in the total returns of the Index. Index returns reflect reinvestment of net dividends and distributions. (5) An average of the performance of other U.S. investment companies that concentrate at least 65% of their equity portfolio in shares of gold mines, gold-oriented mining finance houses, gold coins, or bullion. The average does not reflect front-end or contingent deferred sales charges that might be paid by an investor in a fund included in the average, but does include 12b-1 fees, advisory fees and other expenses. The average also reflects reinvestment of dividends and distributions. 18 MERCURY GOLD AND MINING FUND 21 [ABOUT THE DETAILS LOGO] About the Details TOTAL RETURNS ON AN ANNUAL BASIS - -------------------------------------------------------------------------------- THIS IS NOT THE FUND'S PERFORMANCE.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR EACH YEAR ENDED DECEMBER 31, 1998 1997 1996 1995 1994 1993 - ----------------------------------------------------------------------------------------------- COMPOSITE OF SIMILAR ACCOUNTS, RECALCULATED: GROSS OF FEES AND CHARGES (1): % % % % % % - ----------------------------------------------------------------------------------------------- FINANCIAL TIMES GOLD MINES INDEX (2): - ----------------------------------------------------------------------------------------------- LIPPER GOLD FUNDS AVERAGE (DOES NOT INCLUDE SALES CHARGES) (3): - -----------------------------------------------------------------------------------------------
(1) Does not reflect the deduction of any fees, charges or expenses, other than certain brokerage commissions. These figures are hypothetical and presented for information only; they do not reflect actual performance of the accounts because the accounts would have paid fees and expenses. If these fees and expenses were included, the performance figures would be lower. (2) An unmanaged geographically diversified index of leading gold mining companies. The minimum qualification is a production of more than 300,000 ounces of gold a year and more than 75% of the revenue from mining gold. One of the members of the Fund's portfolio management team is a member of the committee that selects the companies included in this index. The committee has more than ten other members. No sales charges, 12b-1 fees or advisory fees, and no other expenses (e.g., custody or brokerage fees) are reflected in the total returns of the Index. Index returns reflect reinvestment of net dividends and distributions. (3) An average of the performance of other U.S. investment companies that concentrate at least 65% of their equity portfolio in shares of gold mines, gold-oriented mining finance houses, gold coins, or bullion. The average does not reflect front-end or contingent deferred sales charges that might be paid by an investor in a fund included in the average, but does include 12b-1 fees, advisory fees and other expenses. The average also reflects reinvestment of dividends and distributions. MERCURY GOLD AND MINING FUND 19 22 [ACCOUNT CHOICES LOGO] 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. The class of shares you should choose will be affected by the size of your investment and how long you plan to hold your shares. Your financial consultant can help you determine which pricing option is best suited to your personal financial goals. For example, if you select Class I or A, you will pay a sales charge at the time of purchase. If you buy Class A shares, you also will pay an ongoing account maintenance fee of 0.25%. If you select Class B or C shares, you can invest the full amount of your purchase price, but you will be subject to a distribution fee and account maintenance fee payable over time and possibly a deferred sales charge when you sell shares. You may be eligible for a sales charge waiver. See the following table. If you purchase Class B or C shares you pay a distribution fee of 0.75% and an account maintenance fee of 0.25% on an ongoing basis. 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 Fund's shares are distributed by Mercury Funds Distributor, a division of Princeton Funds Distributor, Inc. A subscription period for the shares will end on , , unless extended. Subscriptions will be payable, shares will be issued and the Fund will commence operations on the third business day after the end of the subscription period. The Fund or the Distributor can terminate the subscription offering at any time, in which case the Fund will not commence operations or will commence operations with a limited number of shares. After the Fund commences operations, shares can be purchased on each business day. 20 MERCURY GOLD AND MINING FUND 23 [ACCOUNT CHOICES LOGO] Account Choices To better understand the pricing of the Fund's shares, we have summarized the information below:
CLASS I CLASS A CLASS B CLASS C - --------------------------------------------------------------------------------------------------------------------------- AVAILABILITY? LIMITED TO CERTAIN GENERALLY AVAILABLE GENERALLY AVAILABLE GENERALLY AVAILABLE INVESTORS INCLUDING: THROUGH SELECTED THROUGH SELECTED THROUGH SELECTED - Current Class I SECURITIES DEALERS. SECURITIES DEALERS. SECURITIES DEALERS. shareholders - Certain Retirement Plans - Participants of certain sponsored programs - Certain affiliates of selected securities dealers - --------------------------------------------------------------------------------------------------------------------------- INITIAL SALES CHARGE? YES. PAYABLE AT TIME OF YES. PAYABLE AT TIME OF NO. ENTIRE PURCHASE NO. ENTIRE PURCHASE PURCHASE. LOWER SALES PURCHASE. LOWER SALES PRICE IS INVESTED IN PRICE IS INVESTED IN CHARGES AVAILABLE FOR CHARGES AVAILABLE FOR SHARES OF THE FUND. SHARES OF THE FUND. CERTAIN LARGER CERTAIN LARGER INVESTMENTS. INVESTMENTS. - --------------------------------------------------------------------------------------------------------------------------- DEFERRED SALES NO. (MAY BE CHARGED FOR NO. (MAY BE CHARGED FOR YES. PAYABLE IF YOU YES. PAYABLE IF YOU CHARGE? PURCHASES OVER $1 PURCHASES OVER $1 REDEEM WITHIN SIX YEARS REDEEM WITHIN ONE YEAR MILLION THAT ARE MILLION THAT ARE OF PURCHASE. OF PURCHASE. REDEEMED WITHIN ONE REDEEMED WITHIN ONE YEAR.) YEAR.) - --------------------------------------------------------------------------------------------------------------------------- ACCOUNT MAINTENANCE NO. 0.25% ACCOUNT 0.25% ACCOUNT 0.25% ACCOUNT AND DISTRIBUTION MAINTENANCE FEE. NO MAINTENANCE FEE. 0.75% MAINTENANCE FEE. 0.75% FEES? DISTRIBUTION FEE. DISTRIBUTION FEE. DISTRIBUTION FEE. - --------------------------------------------------------------------------------------------------------------------------- CONVERSION TO CLASS A NO. NO. YES, AUTOMATICALLY NO. SHARES? AFTER APPROXIMATELY 8 YEARS. - ---------------------------------------------------------------------------------------------------------------------------
MERCURY GOLD AND MINING FUND 21 24 [ACCOUNT CHOICES LOGO] 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 The public offering price of Class I and Class A shares during the subscription period is $10.00 per share. If you select Class I or A shares, you will pay a sales charge at the time of purchase (whether during or after the subscription period) as shown in the following table. During the subscription period, securities dealers will receive compensation equal to the entire sales charge (and therefore, may be deemed to be underwriters). After the subscription period, the dealer compensation will be as shown in the last column.
DEALER COMPENSATION AS A % OF AS A % OF AS A % OF YOUR INVESTMENT OFFERING PRICE YOUR INVESTMENT* OFFERING PRICE - --------------------------------------------------------------------------------------- LESS THAN $25,000 5.25% 5.54% 5.00% - --------------------------------------------------------------------------------------- $25,000 BUT LESS THAN $50,000 4.75% 4.99% 4.50% - --------------------------------------------------------------------------------------- $50,000 BUT LESS THAN $100,000 4.00% 4.17% 3.75% - --------------------------------------------------------------------------------------- $100,000 BUT LESS THAN $250,000 3.00% 3.09% 2.75% - --------------------------------------------------------------------------------------- $250,000 BUT LESS THAN $1,000,000 2.00% 2.04% 1.80% - --------------------------------------------------------------------------------------- $1,000,000 AND OVER** 0.00% 0.00% 0.00% - ---------------------------------------------------------------------------------------
* Rounded to the nearest one-hundredth percent. ** If you invest $1,000,000 or more in Class I or A shares, you may not pay an initial sales charge. However, if you redeem your shares within one year after purchase, you may be charged a deferred sales charge. This charge is 1% of the lesser of the original cost of the shares being redeemed or your redemption proceeds. A sales charge of 0.75% will be charged on purchases of $1,000,000 or more of Class I and A shares by certain employer sponsored retirement or savings plans. No initial sales charge applies to Class I or Class A shares that you buy through reinvestment of dividends or distributions. 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 trusts managed by banks, thrifts or trust companies including those affiliated with Mercury or its affiliates. - Certain employer-sponsored retirement or savings plans. 22 MERCURY GOLD AND MINING FUND 25 [ACCOUNT CHOICES LOGO] Account Choices - Certain investors, including directors of mutual funds sponsored by Mercury or its affiliates, employees of Mercury and its affiliates, and employees of selected dealers. - Certain fee-based programs managed by Mercury or its affiliates. - Certain fee-based programs managed by selected dealers that have an agreement with Mercury. - Purchases through certain financial advisers that meet and adhere to standards established by Mercury. Only certain investors are eligible to buy Class I shares, including existing Class I shareholders of the Fund, certain retirement plans and participants in certain programs sponsored by Mercury or its affiliates. Your financial consultant can help you determine whether you are eligible to buy Class I shares or to participate in any of these programs. If you decide to buy shares under the initial sales charge alternative and you are eligible to buy both Class I and Class A shares, you should buy Class I shares since Class A shares are subject to an 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. The Distributor uses the money that it receives from the deferred sales charge and the distribution fees to cover the costs of marketing, advertising and compensating the financial consultant or other dealer who assists you in your decision to purchase Fund shares. The public offering price of Class B and C shares during the subscription period will be $10.00 per share. MERCURY GOLD AND MINING FUND 23 26 [ACCOUNT CHOICES LOGO] 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:
YEAR SINCE PURCHASE Sales Charge* - ---------------------------------------- 0 - 1 4.00% - ---------------------------------------- 1 - 2 4.00% - ---------------------------------------- 2 - 3 3.00% - ---------------------------------------- 3 - 4 3.00% - ---------------------------------------- 4 - 5 2.00% - ---------------------------------------- 5 - 6 1.00% - ---------------------------------------- 6 AND AFTER 0.00% - ----------------------------------------
* The percentage charge will apply to the lesser of the original cost of the shares being redeemed or the proceeds of your redemption. Shares acquired by dividend or capital gain reinvestment are not subject to a deferred sales charge. Mercury funds may not all have identical deferred sales charge schedules. In the event of an exchange for the shares of another Mercury fund, the higher charge, if any, would apply. The deferred sales charge relating to Class B shares will 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 legal documentation may be required at the time of liquidation establishing eligibility for qualified distribution). - Redemption by certain eligible 401(a) and 401(k) plans and certain retirement plan rollovers. - Redemption in connection with participation in certain fee-based programs managed by Mercury or its affiliates. - Redemption in connection with participation in certain fee-based programs managed by selected dealers that have agreements with Mercury. - Withdrawals resulting from shareholder death or disability as long as the waiver request is made within one year after death or disability (certain legal documentation may be required at the time of liquidation establishing eligibility for qualified distribution). - Withdrawal through the Systematic Withdrawal Plan of up to 10% per year of your account value at the time the plan is established. 24 MERCURY GOLD AND MINING FUND 27 [ACCOUNT CHOICES LOGO] Account Choices Your Class B shares convert automatically into Class A shares approximately eight years after purchase. Any Class B shares received through reinvestment of dividends or distributions paid on converting shares will also convert at that time. Class A shares are subject to lower annual expenses than Class B shares. The conversion of Class B shares to Class A shares is not a taxable event for federal income tax purposes. Different conversion schedules may apply to Class B shares of different Mercury mutual funds. If you acquire your Class B shares in an exchange from another fund with a shorter conversion schedule, the 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. In any event, the length of time that you hold the original and exchanged Class B shares in both funds will count toward the conversion schedule. The conversion schedule may be modified in certain other cases as well. CLASS C SHARES If you redeem Class C shares 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 or distributions. 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 GOLD AND MINING FUND 25 28 [ACCOUNT CHOICES LOGO] Account Choices
IF YOU WANT TO YOUR CHOICES INFORMATION IMPORTANT FOR YOU TO KNOW - ------------------------------------------------------------------------------------------------------------------------ BUY SHARES First, select the share class Please refer to the pricing of shares table on page 21. Be appropriate for you sure to read this Prospectus carefully. ------------------------------------------------------------------------------------------------- Next, determine the amount of The minimum initial investment for the Fund is $1,000 for your investment all accounts except: - $500 for certain fee-based programs - $100 for retirement plans (The minimums for initial investments may be waived or reduced under certain circumstances.) ------------------------------------------------------------------------------------------------- Have your financial consultant Any purchase orders received by a securities dealer prior to or securities dealer submit the close of business on the New York Stock Exchange and your purchase order received by the Distributor from the securities dealer within thirty minutes after the close of business on the New York Stock Exchange will be priced at the net asset value determined that day. Purchase orders received after that time will be priced at the net asset value determined on the next business day. 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 is currently $5.35. The fees charged by other securities dealers may be higher or lower. ------------------------------------------------------------------------------------------------- Or contact the Transfer Agent Instead of purchasing through a financial consultant or securities dealer, you can purchase shares of the Fund by mailing a purchase order directly 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 $100 for INVESTMENT all accounts except: - $50 for certain fee-based programs - $1 for retirement plans (The minimums for additional purchases may be waived under certain circumstances.) ------------------------------------------------------------------------------------------------- Acquire additional shares All dividends and capital gains distributions are through the automatic dividend automatically reinvested without a sales charge. reinvestment plan ------------------------------------------------------------------------------------------------- Participate in the automated You may automatically invest a specific amount in the Fund investment plan on a periodic basis through your securities dealer: - The current minimum for such automatic investments is $50. The minimum may be waived or revised under certain circumstances. - ------------------------------------------------------------------------------------------------------------------------
26 MERCURY GOLD AND MINING FUND 29 [ACCOUNT CHOICES LOGO] Account Choices
IF YOU WANT TO YOUR CHOICES INFORMATION IMPORTANT FOR YOU TO KNOW - ------------------------------------------------------------------------------------------------------------------------ TRANSFER SHARES TO Transfer to a participating To transfer your shares of the Fund to another securities ANOTHER SECURITIES securities dealer dealer, authorized dealer agreements must be in place DEALER between the Distributor and the transferring securities dealer and the Distributor and the receiving securities dealer. All shareholder services will be available for all transferred shares. All future trading of these shares must be coordinated by the receiving securities dealer. ------------------------------------------------------------------------------------------------- Transfer to a non-participating You cannot transfer your shares of the Fund to a securities securities dealer dealer that does not have an authorized dealer agreement with the Distributor. You must either: - Transfer your shares to an account with the Transfer Agent; or - Sell your shares. - ------------------------------------------------------------------------------------------------------------------------ SELL YOUR SHARES Have your financial consultant To ensure that your sales order will be priced at the net or securities dealer submit asset value on the day of your request, you must submit your your sales order request to your dealer before that day's close of business on the New York Stock Exchange (generally 4:00 p.m. Eastern time). The Fund accepts sales orders from dealers on any business day until thirty minutes after the close of business on the New York Stock Exchange (meaning that the request must be received from the dealer by 4:30 p.m. Eastern time on most days, and earlier on a few days). Any sales order request received from a dealer after that time will be priced at the close of business on the next business day. Certain securities dealers may charge a fee to process a sale of shares. For example, the fee charged by Merrill Lynch, Pierce, Fenner & Smith Incorporated is currently $5.35. The fees charged by other securities dealers may be higher or lower. 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 and signatures must be guaranteed. Depending on the type of account and/or type of distribution, certain additional documentation may be required. The Transfer Agent will normally mail sale proceeds within seven days following receipt of a properly completed request. If you make a sales order 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 usually will not exceed ten days. - ------------------------------------------------------------------------------------------------------------------------
MERCURY GOLD AND MINING FUND 27 30 [ACCOUNT CHOICES LOGO] Account Choices
IF YOU WANT TO YOUR CHOICES INFORMATION IMPORTANT FOR YOU TO KNOW - ------------------------------------------------------------------------------------------------------------------------ SELL SHARES Participate in the Fund's You can generally arrange through your selected dealer for SYSTEMATICALLY Systematic Redemption Program systematic sales of shares of a fixed dollar amount on a monthly, bi-monthly, quarterly, semi-annual or annual basis, subject to certain conditions. You must have dividends and other distributions automatically reinvested. For Class B and C shares your total annual withdrawals cannot be more than 10% of the value of your shares at the time the Program is established. The deferred sales charge is waived for systematic sales of shares. 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 or Class A shares and wish to exchange into Summit, you will exchange into Class A shares of Summit. Class B or Class C shares can be exchanged for Class B shares of Summit. Some of the Mercury mutual funds may impose a different initial or deferred sales charge schedule. If you exchange Class I or Class A shares for shares of a fund with a higher initial sales charge than you originally paid, you may be charged the difference at the time of exchange. If you exchange Class B or Class C shares for shares of a fund with a different deferred sales charge schedule, the higher schedule will apply. The time you hold Class B or Class C shares in both funds will count when determining your holding period for calculating a deferred sales charge at redemption. Your time in both funds will also count when determining the holding period for a conversion from Class B to Class A shares. Although there is currently no limit on the number of exchanges that you can make, the exchange privilege may be modified or terminated at any time in the future. - ------------------------------------------------------------------------------------------------------------------------
28 MERCURY GOLD AND MINING FUND 31 [ACCOUNT CHOICES LOGO] Account Choices NET ASSET VALUE -- the market value in U.S. dollars of a Fund's total assets after deducting liabilities, divided by the number of shares outstanding. HOW SHARES ARE PRICED - -------------------------------------------------------------------------------- When you buy shares, you pay the NET ASSET VALUE, plus any applicable sales charge. This is the offering price. Shares are also redeemed at their net asset value, minus any applicable deferred sales charge. The Fund calculates its net asset value (generally by using market quotations) each day the New York Stock Exchange is open, fifteen minutes after the close of business on the Exchange (the Exchange generally closes at 4:00 p.m. Eastern time). The net asset value used in determining your price is the one calculated after your purchase or redemption order is received. Net asset value is generally calculated by valuing each security or other asset at its closing price for the day. Many of the Fund's investments are traded on non-U.S. securities exchanges that close many hours before the New York Stock Exchange. Events that could affect securities prices that occur between these times normally are not reflected in the Fund's net asset value. Non-U.S. securities sometimes trade on days that the New York Stock Exchange is closed. 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. If an event occurs after the close of a non-U.S. exchange that is likely to significantly affect the Fund's net asset value, "fair value" pricing may be used. This means that the Fund may value its foreign holdings at prices other than their last closing prices, and the Fund's net asset value will reflect this. Securities and assets for which market quotations are not readily available are also valued at fair value as determined in good faith by or under the direction of the Board of Trustees. Generally, Class I shares will have the highest net asset value, because that class has the lowest expenses, and Class A shares will have a higher net asset value than Class B or Class C shares. Also, dividends paid on Class I and Class A shares will generally be higher than dividends paid on Class B and Class C shares because Class I and Class A shares have lower expenses. MERCURY GOLD AND MINING FUND 29 32 [ACCOUNT CHOICES LOGO] Account Choices DIVIDENDS -- income paid to shareholders. Dividends may be reinvested in additional Fund shares as they are paid. DISTRIBUTIONS -- capital gains paid to shareholders. Distributions may be reinvested in the Fund as they are paid. FEE-BASED PROGRAMS - -------------------------------------------------------------------------------- If you participate in certain fee-based programs offered by Mercury or an affiliate of Mercury, or by selected dealers that have an agreement with Mercury, you may be able to buy Class I shares at net asset value, including through exchange from other share classes. Sales charges on the shares being exchanged may be reduced or waived under certain circumstances. You generally cannot transfer shares held through a fee-based program into another account. Instead, you will have to redeem your shares held through the program and purchase shares of another class, which may be subject to distribution and account maintenance fees. This may be a taxable event and you will pay any applicable sales charges. If you leave one of these programs, your shares may be redeemed or automatically exchanged into another class of Fund shares or into the Summit fund. The class you receive may be the class you originally owned when you entered the program, or in certain cases, a different class. If the exchange is into Class B shares, the period before conversion to Class A shares may be modified. Any redemption or exchange will be at net asset value. However, if you participate in the program for less than a specified period, you may be charged a fee in accordance with the terms of the program. Details about these features and the relevant charges are included in the client agreement for each fee-based program and are available from your financial consultant or your selected dealer. DIVIDENDS, CAPITAL GAINS AND TAXES - -------------------------------------------------------------------------------- The Fund will distribute any net investment income and any net realized long or short-term capital gains at least annually. The Fund may also pay a special distribution at the end of the calendar year to comply with federal tax requirements. DIVIDENDS and DISTRIBUTIONS may be reinvested automatically in shares of the Fund at net asset value without a sales charge or 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 and distributions in cash, contact the Transfer Agent. 30 MERCURY GOLD AND MINING FUND 33 [ACCOUNT CHOICES LOGO] Account Choices "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 or distribution. The reason? If you buy shares when a fund has realized but not yet distributed 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 distribution. Before investing you may want to consult your tax advisor. You will pay tax on dividends and distributions 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, any gain on the transaction may be subject to tax. The Fund intends to make distributions that will either be taxed as ordinary income or capital gains. Capital gains distributions may be taxable at different rates depending on the length of time the Fund has held the assets sold. The Fund expects to make an election that will require you to include in income your share of foreign withholding taxes paid by the Fund. You will be entitled to treat these taxes as taxes paid by you, and therefore, deduct such taxes in computing your taxable income or, in some cases, to use them as foreign tax credits against the U.S. income taxes you otherwise owe. 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 distributions and proceeds if you have not provided a taxpayer identification number or social security number. 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. MERCURY GOLD AND MINING FUND 31 34 [THE MANAGEMENT TEAM LOGO] The Management Team MASTER/FEEDER STRUCTURE - -------------------------------------------------------------------------------- Unlike many other mutual funds, which directly buy and manage their own portfolio securities, the Fund seeks to achieve its investment objectives by investing all its assets in the corresponding Portfolio of the Mercury Asset Management Master Trust. Investors in the Fund will acquire an indirect interest in the underlying Portfolio. Other "feeder" funds may also invest in the "master" Portfolio. 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 from different feeders may offset each other and produce a lower net cash flow. The Fund may withdraw from the Portfolio at any time and may invest all of its assets in another pooled investment vehicle or retain an investment adviser to manage the Fund's assets directly. 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 Portfolio. Whenever the Portfolio holds a vote of its feeder funds, the Fund will pass the vote through to its own shareholders. MANAGEMENT OF THE FUND - -------------------------------------------------------------------------------- Mercury Asset Management International Ltd. manages the underlying Portfolio's investments under the overall supervision of the Board of Trustees of the Mercury Asset Management Master Trust. The investment adviser has the responsibility for making all investment decisions for the Fund. The senior investment professionals in the group that have managed the Fund's portfolio since the Fund started operations include: David Baker, Director of Mercury Asset Management. He has been employed as an investment professional by the investment adviser or its Mercury affiliates since 1992. Graham Birch, Managing director of Mercury Asset Management. He has been employed as an investment professional by the investment adviser or its Mercury affiliates since 1993. Mr. Birch is primarily responsible for the day-to-day management of the Fund. 32 MERCURY GOLD AND MINING FUND 35 [THE MANAGEMENT TEAM LOGO] The Management Team Geoff Campbell, Associate Director of Mercury Asset Management. He has been employed as an investment professional by the investment adviser or its Mercury affiliates since 1994. Mr. Campbell was employed at Ord Minnett and Fleming Martin from 1988 to 1994. Both of these firms are divisions of Robert Fleming. Trevor Steel, Associate Director of Mercury Asset Management. He has been employed as an investment professional by the investment adviser or its Mercury affiliates since 1991. Mercury and its affiliates manage portfolios with over $474 billion in assets (as of August 1998) for individuals and institutions seeking investments worldwide. This amount includes assets managed for its affiliates. The advisory agreement between the Trust and the investment adviser gives the investment adviser the responsibility for making all investment decisions. The investment adviser is paid at the rate of 0.75% of the Portfolio's average daily net assets. The investment adviser has hired Fund Asset Management, L.P., an affiliate, to manage daily cash assets. The Fund does not pay any incremental fee for this service, although Mercury may make payments to Fund Asset Management, L.P. See "Fees and Expenses" under "Fund Facts" for information about the fees paid to Mercury Asset Management and its affiliates. The Fund does not have an investment adviser, since the Fund's assets will be invested in its corresponding Portfolio. Fund Asset Management, L.P. provides administrative services to the Fund. A NOTE ABOUT YEAR 2000 Many computer systems were designed using only two digits to designate years. These systems may not be able to distinguish the Year 2000 from the Year 1900 (commonly known as the "Year 2000 Problem"). The Fund could be adversely affected if the computer systems used by the investment adviser or other Fund service providers do not properly address this problem before January 1, 2000. The investment adviser expects to have addressed this problem before then, and does not anticipate that the services it provides will be adversely affected. The Fund's other service providers have told the administrator that they also expect to resolve the Year 2000 Problem, and the administrator will continue to monitor the situation as the year 2000 approaches. However, if the problem has not been fully addressed, the Fund could be negatively affected. The Year 2000 Problem could also have a negative impact on the companies in which the Fund invests, and this could hurt the Fund's investment returns. MERCURY GOLD AND MINING FUND 33 36 [THE MANAGEMENT TEAM LOGO] The Management Team FUND Mercury Gold and Mining Fund of Mercury Asset Management Funds, Inc. P.O. Box 9011 Princeton, New Jersey 08543-9011 (888-763-2260) INVESTMENT ADVISER Mercury Asset Management International Ltd. 33 King William Street London EC4R 9AS England ADMINISTRATOR AND SUB-ADVISER Fund Asset Management, L.P. 800 Scudders Mill Road Plainsboro, New Jersey 08536 TRANSFER AGENT Financial Data Services, Inc. P.O. Box 44062 Jacksonville, Florida 32232-4062 (888-763-2260) INDEPENDENT AUDITORS Deloitte & Touche LLP 117 Campus Drive 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 Brown Brothers Harriman & Co. 40 Water Street Boston, Massachusetts 02109 COUNSEL Swidler Berlin Shereff Friedman, LLP 919 Third Avenue New York, New York 10022 MERCURY GOLD AND MINING FUND 37 [TO LEARN MORE LOGO] To Learn More SHAREHOLDER REPORTS Additional information about the Fund's investments is 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, if none, write to the Transfer Agent at its mailing address. Include your name, address, tax identification number and brokerage or mutual fund account number. If you have any questions, please call your financial consultant or the Transfer Agent at 1-888-763-2260. STATEMENT OF ADDITIONAL INFORMATION The 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 the address and telephone number indicated above. 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 1-800-SEC-0330 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 writing the Public Reference Section of the SEC, Washington, D.C. 20549-6009. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. NO ONE IS AUTHORIZED TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. Investment Company Act File #811-08797. CODE # 19038-1298 (C) Mercury Asset Management International Ltd. Mercury Gold and Mining Fund OF MERCURY ASSET MANAGEMENT FUNDS, INC. [ARTWORK TO COME] PROSPECTUS - , 1998 [MERCURY ASSET MANAGEMENT LOGO] 38 STATEMENT OF ADDITIONAL INFORMATION MERCURY GOLD AND MINING FUND of Mercury Asset Management Funds, Inc. P.O. Box 9011, Princeton, New Jersey 08543-9011 Phone No. (888) 763-2260 ------------------------ Mercury Gold and Mining Fund (the "Fund") is a series of Mercury Asset Management Funds, Inc. (the "Corporation" or "Mercury"). The Fund is an open-end diversified investment company (commonly known as a mutual fund). The investment objective of the Fund is long-term capital growth through investments primarily in a diversified portfolio of equity securities of gold mining companies, and to a lesser extent of companies engaged in other mining activities, located throughout the world. The Fund may also invest in asset-based securities that relate to the market price of gold bullion and directly in gold bullion. The Fund will seek to achieve its investment objective by investing all of its assets in Mercury Master Gold and Mining Portfolio (the "Portfolio"), which is the portfolio of Mercury Asset Management Master Trust (the "Trust") that has the same investment objective as the Fund. The Fund's investment experience will correspond directly to the investment experience of the Portfolio. There can be no assurance that the investment objective of the Fund will be achieved. The Fund offers four classes of shares, each with a different combination of sales charges, ongoing fees and other features. This permits an investor to choose the method of purchasing shares that the investor believes is most beneficial given the amount of the purchase, the length of time the investor expects to hold the shares and other relevant circumstances. The Fund's distributor is Mercury Funds Distributor, a division of Princeton Funds Distributor, Inc. ------------------------ This Statement of Additional Information is not a prospectus and should be read in conjunction with the Prospectus of the Fund, dated , 1998 (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 888-763-2260 or your financial consultant, or by writing to the address listed above. This Statement of Additional Information incorporates by reference the Prospectus. MERCURY ASSET MANAGEMENT INTERNATIONAL LTD. -- INVESTMENT ADVISER MERCURY FUNDS DISTRIBUTOR -- DISTRIBUTOR ------------------------ The date of this Statement of Additional Information is , 1998. 39 TABLE OF CONTENTS
PAGE ---- Investment Objectives and Policies.......................... 2 Investment Restrictions................................... 11 Management of the Fund...................................... 13 Directors and Officers.................................... 13 Compensation of Directors/Trustees........................ 14 Administration Arrangements............................... 15 Management and Advisory Arrangements...................... 15 Code of Ethics............................................ 16 Purchase of Shares.......................................... 17 Initial Sales Charge Alternatives -- Class I and Class A Shares................................................. 17 Reduced Initial Sales Charges............................. 18 Distribution Plans........................................ 19 Limitations on the Payment of Deferred Sales Charges...... 21 Redemption of Shares........................................ 21 Redemption................................................ 21 Repurchase................................................ 22 Reinstatement Privilege -- Class I and Class A Shares..... 22 Deferred Sales Charges -- Class B and Class C Shares...... 23 Portfolio Transactions and Brokerage........................ 24 Determination of Net Asset Value............................ 25 Shareholder Services........................................ 26 Investment Account........................................ 26 Automated Investment Plan................................. 27 Automatic Dividend Reinvestment........................... 27 Systematic Redemption Program............................. 27 Retirement Plans.......................................... 28 Exchange Privilege........................................ 28 Fee-Based Programs........................................ 30 Dividends, Distributions and Taxes.......................... 30 Dividends and Distributions............................... 30 Taxes..................................................... 30 Tax Treatment of Options and Futures Transactions......... 33 Other Tax Matters......................................... 33 Performance Data............................................ 33 General Information......................................... 34 Description of Shares..................................... 34 Computation of Offering Price Per Share................... 35 Independent Auditors...................................... 35 Custodian................................................. 36 Transfer Agent............................................ 36 Legal Counsel............................................. 36 Reports to Shareholders................................... 36 Additional Information.................................... 36 Appendix A.................................................. A-1 Appendix B.................................................. B-1
CODE #19039-1298 (C) Mercury Asset Management International Ltd. 40 INVESTMENT OBJECTIVES AND POLICIES The goal (that is, the investment objective) of the Fund is long-term capital growth through investments primarily in a diversified portfolio of equity securities of gold mining companies, and to a lesser extent of companies engaged in other mining activities located throughout the world. The Fund may also invest in asset-based securities that relate to the market price of gold bullion and directly in gold bullion. This is a fundamental policy and cannot be changed without shareholder approval. Reference is made to "How the Fund Invests" in the Prospectus for a discussion of the investment objective and policies of the Fund. The Fund will seek to achieve its investment objective by investing all of its assets in the Portfolio, which is a portfolio of the Trust that has the same investment objective as the Fund. The Fund's investment experience and results will correspond directly to the investment experience of the Portfolio. Thus, all investments will be made at the level of the Portfolio. For simplicity, however, with respect to investment objective, policies and restrictions, this Statement of Additional Information, like the Prospectus, uses the term "Fund" to include the underlying Portfolio in which the Fund invests. Reference is made to the discussion under "How the Fund Invests" and "Investment Risks" in the Prospectus for information with respect to the Fund's and the Portfolio's investment objective and policies. There can be no guarantee that the Fund's investment objective will be achieved. The Fund attempts to achieve its investment objective by seeking to identify securities of companies that, in management's opinion, are undervalued relative to the value of the gold or other mining holdings of such companies in light of current and anticipated economic or financial conditions. The Fund will consider a company to have substantial gold or other mining assets when, in management's opinion, the company's holdings of the assets are of such magnitude, when compared to the capitalization, revenues or operating profits of the company that changes in the economic value of the assets will affect the market price of the equity securities of such company. Generally a company has substantial gold or other mining assets when at least 50% of its non-current assets, capitalization, gross revenues or operating profits of the company in the most recent or current fiscal year are involved in or result from (directly or indirectly through subsidiaries), exploring mining, refining processing, fabricating, dealing in or owning gold and other mining assets. Examples of other mining assets include other precious metals (e.g., silver and platinum), non-ferrous metals (e.g., copper and nickel) and industrial minerals (e.g., coal and iron ore). With the exception of gold bullion, the Fund presently does not intend to invest directly in metals and minerals assets or contracts related thereto. While it is the policy of the Fund generally not to engage in trading for short-term gains, Mercury Asset Management International Ltd. ("Mercury International" or the "Investment Adviser") will effect portfolio transactions without regard to holding period if, in its judgment, such transactions are advisable in light of a change in circumstances of a particular company or within a particular industry or in general market, economic or financial conditions. The U.S. Government has from time to time in the past imposed restrictions, through taxation and otherwise, on non-U.S. investments by U.S. investors such as the Fund. If such restrictions should be reinstituted, it might become necessary for the Fund to invest all or substantially all of its assets in U.S. securities. In such event, the Fund would review its investment objective or fundamental policies to determine whether changes are appropriate. Any changes in the investment objective or fundamental policies set forth under "Investment Restrictions" below would require the approval of the holders of a majority of the Fund's outstanding voting securities. The Fund's ability and decisions to purchase or sell portfolio securities may be affected by laws or regulations relating to the convertibility and repatriation of assets. Under present conditions, the Investment Adviser does not believe that these considerations will have any significant effect on its portfolio strategy, although there can be no assurance in this regard. The Fund may invest in the securities of non-U.S. issuers in the form of American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"), Global Depositary Receipts ("GDRs") or other securities convertible into securities of non-U.S. issuers. These securities may not necessarily be denominated 2 41 in the same currency as the securities into which they may be converted. However, they would generally be subject to the same risks as the securities into which they may be converted (as more fully described in the Prospectus and below). ADRs are receipts typically issued by an American bank or trust company that evidence ownership of underlying securities issued by a non-U.S. corporation. EDRs are receipts issued in Europe that evidence a similar ownership arrangement. GDRs are receipts issued throughout the world that evidence a similar ownership arrangement. Generally, ADRs, in registered form, are designed for use in the U.S. securities markets, and EDRs, in bearer form, are designed for use in European securities markets. GDRs are tradeable both in the United States and Europe and are designed for use throughout the world. The Fund may invest in unsponsored ADRs, EDRs and GDRs. The issuers of unsponsored ADRs, EDRs and GDRs are not obligated to disclose material information in the United States, and therefore, there may be no correlation between such information and the market value of such securities. The Fund's investment objective and policies are described in "How the Fund Invests" in the Prospectus. Certain types of securities in which the Fund may invest and certain investment practices that the Fund may employ are discussed more fully below. Investing in Gold and Other Mining Industries. The Fund invests principally in the equity securities of foreign and domestic companies engaged in the exploration, mining, fabrication, processing or marketing and distribution of gold. The Fund also invests in equity securities of foreign and domestic companies engaged in these activities with respect to silver, platinum, diamonds or other precious and rare metals, base metals and minerals. The Fund may also invest up to 10% of its assets directly in gold bullion when the Fund believes it is undervalued relative to the price of securities of gold mining companies. However, the Fund may have internal guidelines that limit its investments in gold bullion to considerably less than 10% of the Fund's assets. The industry risks associated with an investment in the Fund include the sharp price volatility of gold and other metals and of mining company shares. Investments related to gold or other metals or minerals are considered speculative and are affected by a host of worldwide economic, financial and political factors. Prices of gold and other metals may fluctuate sharply over short periods due to several factors: changes in inflation or expectations regarding inflation in various countries; currency fluctuations; metal sales by governments, central banks or international agencies; investment speculation; changes in industrial and commercial demand; and government prohibitions or restrictions on the private ownership of certain metals or minerals. Political and economic conditions in gold-producing countries may also have a direct effect on the mining and distribution of gold and, consequently, its price. The Fund may invest without limit in securities of companies located in countries with emerging capital markets including the Republic of South Africa, The People's Republic of China, Russia, Indonesia, Uzbekistan, Peru, Brazil, Mexico, Zimbabwe, Ghana, Mali, Tanzania, the Philippines and Papua New Guinea. The Fund may also invest in securities of companies located in countries with developed capital markets including the United States, Canada, Japan, United Kingdom, Finland, France, Germany, Switzerland, Ireland, Luxemburg, Spain and Australia. Sales of gold by companies in Russia are largely unpredictable and often relate to political and economic considerations rather than to market forces. In South Africa, the activities of gold-mining companies are subject to policies promulgated by the Ministry of Mines. The Reserve Bank of South Africa, as the sole authorized agent for South African gold, influences the price and timing of sales of South African gold. The South African government has also from time to time imposed restrictions on the flow of international capital. Political and social problems in South Africa may also pose certain risks. These include the effect of social and political unrest on mining production and gold prices, as well as the threat of nationalization or expropriation by the government of South Africa. The Fund also invests to a lesser extent in other precious metal shares, base metal shares and other mining related shares, and may also invest directly in gold bullion. To the extent that the Fund invests in bullion, it will be bought from and sold only to banks (both U.S. and non-U.S.), and dealers who are members of or affiliated with members of a regulated U.S. commodities exchange, in accordance with applicable investment laws. Gold bullion will not be purchased in any form that is not readily marketable. Coins will not be purchased for their numismatic value and will not be considered for the Fund if they cannot 3 42 be bought or sold in an active market. Any bullion or coins purchased by the Fund will be delivered to and stored with a qualified custodian bank in the U.S. Investors should be aware that bullion and coins do not generate income, offering only the potential for capital appreciation or depreciation, and may subject the Portfolio to higher custody and transactions costs that those normally associated with the ownership of securities. Asset-Based Securities. The Fund may invest in debt securities, preferred stocks or convertible securities, the principal amount, redemption terms or conversion terms of which are related to the market price of gold bullion or some other natural resource asset. For the purposes of the Fund's investment policies, these securities are referred to as "asset-based securities." The Fund will only purchase asset-based securities which are rated, or are issued by issuers that have outstanding debt obligations rated, investment grade (that is, AAA, AA, A or BBB by Standard & Poor's Ratings Services ("Standard & Poor's") or Aaa, Aa, A or Baa by Moody's Investors Service, Inc. ("Moody's") or commercial paper rated A-1 by S&P or Prime-1 by Moody's) or in unrated securities of issuers that the Investment Adviser has determined to be of similar creditworthiness. Obligations ranked in the fourth highest rating category, while considered "investment grade," may have certain speculative characteristics and may be more likely to be downgraded than securities rated in the three highest rating categories. If an asset-based security is backed by a bank letter of credit or other similar facility, the Investment Adviser may take such backing into consideration in determining the creditworthiness of the issuer. While the market prices for an asset-based security and the related gold bullion or other natural resource asset generally are expected to move in the same direction, there may not be perfect correlation in the two price movements. Asset-based securities may not be secured by a security interest in or claim on the gold bullion or other underlying natural resource assets. The Fund will not acquire asset-based securities for which no established secondary trading market exists if at the time of acquisition more than 15% of its net assets are invested in securities that are not readily marketable. The Fund may invest in asset-based securities without limit when it has the option to put such securities to the issuer or a stand-by bank or broker and receive the principal amount or redemption price thereof less transaction costs on no more than seven days' notice or when the Fund has the right to convert such securities into a readily marketable security in which it could otherwise invest upon not less than seven days' notice. The asset-based securities in which the Fund may invest may bear interest or pay preferred dividends at below market (or even relatively nominal) rates. The Fund's holdings of such securities therefore might not generate appreciable current income, and the return from such securities primarily will be from any profit on the sale, maturity or conversion thereof at a time when the price of the related asset is higher than it was when the Fund purchased such securities. International Investing. International investments involve certain risks not typically involved in domestic investments, including fluctuations in foreign exchange rates, future political and economic developments, different legal systems and the existence or possible imposition of exchange controls or other U.S. or non-U.S. governmental laws or restrictions applicable to such investments. Securities prices in different countries are subject to different economic, financial and social factors. Because the Fund will invest in securities denominated or quoted in currencies other than the U.S. dollar, changes in foreign currency exchange rates may affect the value of securities in the portfolio and the unrealized appreciation or depreciation of investments insofar as U.S. investors are concerned. Foreign currency exchange rates are determined by forces of supply and demand in the foreign exchange markets. These forces are, in turn, affected by international balance of payments and other economic and financial conditions, government intervention, speculation and other factors. With respect to certain countries, there may be the possibility of expropriation of assets, confiscatory taxation, high rates of inflation, political or social instability or diplomatic developments that could affect investment in those countries. In addition, certain non-U.S. investments may be subject to non-U.S. withholding taxes. As a result, management of the Fund may determine that, notwithstanding otherwise favorable investment criteria, it may not be practicable or appropriate to invest in a particular country. For a number of years, certain European countries have been seeking economic unification that would, among other things, reduce barriers between countries, increase competition among companies, reduce 4 43 government subsidies in certain industries, and reduce or eliminate currency fluctuations among these European countries. The Treaty on European Union (the "Maastricht Treaty") seeks to set out a framework for the European Economic and Monetary Union ("EMU") among the countries that comprise the European Union ("EU"). Among other things, EMU establishes a single common European currency (the "euro") that will be introduced on January 1, 1999 and is expected to replace the existing national currencies of all EMU participants by July 1, 2002. EMU is scheduled to take effect for the initial EMU participants as of January 1, 1999, and will be implemented over the weekend January 1, 1999 through January 2, 1999 ("conversion weekend"). Upon implementation of EMU, certain securities issued in participating EU countries (beginning with government and corporate bonds) will be redenominated in the euro, and thereafter, will be 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 implemented, will be implemented but not completed, or will be completed but then partially or completely unwound. Because any participating country may opt out of EMU within the first three years, it is also possible that a significant participant could choose to abandon EMU, which would diminish its credibility and influence. Any of these occurrences could have adverse effects on the markets of both participating and non-participating countries, including sharp appreciation or depreciation of the participants' national currencies and a significant increase in exchange rate volatility, a resurgence in economic protectionism, an undermining of confidence in the European markets, an undermining of European economic stability, the collapse or slowdown of the drive toward European economic unity, and/or reversion of the attempts to lower government debt and inflation rates that were introduced in anticipation of EMU. Also, withdrawal from EMU at any time after the conversion weekend 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 resulting from the euro conversion may be taxable to Fund shareholders under foreign or, in certain limited circumstances, U.S. tax laws. In addition, computer, accounting, and trading systems must be capable of recognizing the euro as a distinct currency immediately after the conversion weekend. Like other investment companies and business organizations, the Fund could be adversely affected if the computer, accounting, and trading systems used by the Investment Adviser, the Fund's service providers, or other entities with which the Fund or its service providers do business do not properly address this issue prior to January 4, 1999. Most of the securities held by the Fund will not be registered with the Commission nor will the issuers thereof be subject to the Commission's reporting requirements. Accordingly, there may be less publicly available information about a non-U.S. company than about a U.S. company, and non-U.S. companies may not be subject to accounting, auditing and financial reporting standards and requirements comparable to those to which U.S. companies are subject. Non-U.S. financial markets, while generally growing in trading volume, typically have substantially less volume than U.S. markets, and securities of many non-U.S. companies are less liquid and their prices more volatile than securities of comparable domestic companies. The non-U.S. markets also have different clearance and settlement procedures, and in certain markets there have been times when settlements have been unable to keep pace with the volume of securities transactions, making it difficult to conduct such transactions. Further, satisfactory custodial services for investment securities may not be available in some countries having smaller capital markets, which may result in the Fund incurring additional costs and delays in transporting and custodying such securities outside such countries. Delays in settlement could result in temporary periods when assets of the Fund are uninvested and no return is earned thereon and could cause the Fund to miss attractive investment opportunities. Inability to dispose of a portfolio security due to settlement problems either could result 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. Brokerage commissions and other transaction costs on non-U.S. securities exchanges are generally higher than 5 44 in the United States. In some non-U.S. countries there is less governmental supervision and regulation of exchanges, brokers and issuers than there is in the United States. A number of non-U.S. countries have authorized the formation of closed-end investment companies to facilitate indirect foreign investment in their capital markets. In accordance with the Investment Company Act of 1940, as amended (the "Investment Company Act"), the Fund may invest up to 10% of its total assets in securities of closed-end investment companies, not more than 5% of which may be invested in any one such company. This restriction on investments in securities of closed-end investment companies may limit opportunities for the Fund to invest indirectly in certain smaller capital markets. Shares of certain closed-end investment companies may at times be acquired only at market prices representing premiums to their net asset values. If the Fund acquires shares in closed-end investment companies, shareholders would bear both their proportionate share of expenses in the Fund (including investment advisory fees) and, indirectly, the expenses of such closed-end investment companies. The Fund also may seek, at its own cost, to create its own investment entities under the laws of certain countries. In some countries, banks or other financial institutions may constitute a substantial number of the leading companies or companies with the most actively-traded securities. The Investment Company Act limits the Fund's ability to invest in any equity security of an issuer that, in its most recent fiscal year, derived more than 15% of its revenues from "securities related activities" as defined by the rules thereunder. These provisions may restrict the Fund's investments in certain foreign banks and other financial institutions. As described above, the Fund may invest outside the U.S. The securities and commodities markets of many countries have at times in the past moved relatively independently of one another due to different economic, financial, political and social factors. When such lack of correlation or negative correlation in movements of these securities and commodities markets occurs, it may reduce risk for the Fund's portfolio as a whole. This negative correlation also may offset unrealized gains the Fund has derived from movements in a particular market. To the extent the various markets move independently, total portfolio volatility is reduced when the various markets are combined into a single portfolio. Of course, movements in the various securities and commodities markets may be offset by changes in foreign currency exchange rates, where the different markets are denominated in different currencies. Exchange rates frequently move independently of securities and commodities markets in a particular country. As a result, gains in a particular securities or commodities market may be affected by changes in exchange rates. Investment in Emerging Markets. The Fund has the ability to invest in the securities of issuers domiciled in various countries with emerging capital markets. Specifically, a country with an emerging capital market is any country that the World Bank, the International Finance Corporation, the United Nations or its authorities has determined to have a low or middle income economy. Countries with emerging markets can be found in regions such as Asia, Latin America, Eastern Europe and Africa. An issuer ordinarily will be considered to be located in the country under the laws of which it is organized or where the primary trading market of its securities is located. The Fund also may consider closed-end investment companies to be located in the country or countries in which they primarily make their portfolio investments. Investments in the securities of issuers domiciled in countries with emerging capital markets involve certain additional risks not involved in investment in securities of issuers in more developed capital markets, such as (i) low or non-existent trading volume, resulting in a lack of liquidity and increased volatility in prices for such securities, as compared to securities of comparable issuers in more developed capital markets, (ii) uncertain national policies and social, political and economic instability, increasing the potential for expropriation of assets, confiscatory taxation, high rates of inflation or unfavorable diplomatic developments, (iii) possible fluctuations in exchange rates, differing legal systems and the existence or possible imposition of exchange controls, custodial restrictions or other non-U.S. or U.S. governmental laws or restrictions applicable to such investments, (iv) national policies that may limit the Fund's investment opportunities such as restrictions on investment in issuers or industries deemed sensitive to national interests, and (v) the lack or relatively early development of legal structures governing private and foreign investments and private property. In addition to withholding taxes on investment income, some countries with emerging markets may impose differential capital gains taxes on foreign investors. 6 45 Such capital markets are emerging in a dynamic political and economic environment brought about by events over recent years that have reshaped political boundaries and traditional ideologies. In such a dynamic environment, there can be no assurance that these capital markets will continue to present viable investment opportunities for the Fund. In the past, governments of such nations have expropriated substantial amounts of private property, and most claims of the property owners have never been fully settled. There is no assurance that such expropriations will not reoccur. In such an event, it is possible that the Fund could lose the entire value of its investments in the affected markets. Also, there may be less publicly available information about issuers in emerging markets than would be available about issuers in more developed capital markets, and such issuers may not be subject to accounting, auditing and financial reporting standards and requirements comparable to those to which U.S. companies are subject. In certain countries with emerging capital markets, reporting standards vary widely. As a result, traditional investment measurements used in the U.S., such as price/earnings ratios, may not be applicable. Emerging market securities may be substantially less liquid and more volatile than those of mature markets and companies may be held by a limited number of persons. This may adversely affect the timing and pricing of the Fund's acquisition or disposal of securities. Practices in relation to settlement of securities transactions in emerging markets involve higher risks than those in developed markets, in part because the Fund will need to use brokers and counterparties that are less well capitalized and custody and registration of assets in some countries may be unreliable. In Russia, for example, registrars are not subject to effective government supervision nor are they always independent from issuers. The possibility of fraud, negligence, undue influence being exerted by the issuer or refusal to recognize ownership exists, which along with other factors could result in the registration being completely lost. Therefore, investors should be aware that the Fund would absorb any loss resulting from these registration problems and may have no successful claim for compensation. Some of these concerns may also exist in other emerging capital markets. Debt Securities. The Fund may hold convertible debt securities, non-convertible securities and preferred securities. The Fund has established no rating criteria for the debt securities in which it may invest. Therefore, the Fund may invest in debt securities either (a) rated in one of the top four rating categories by a nationally recognized statistical rating organization or unrated but, in the Investment Adviser's judgment, possess similar credit characteristics ("investment grade securities") or (b) rated below the top four rating categories or that are unrated but, in the Investment Adviser's judgment, possess similar credit characteristics ("high yield securities"). The Investment Adviser considers ratings as one of several factors in its independent credit analysis of issuers. Issuers of high yield securities may be highly leveraged and may not have available to them more traditional methods of financing. Therefore, the risks associated with acquiring the securities of such issuers generally are greater than is the case with higher rated securities. For example, during an economic downturn or a sustained period of rising interest rates, issuers of high yield securities may be more likely to experience financial stress, especially if such issuers are highly leveraged. High yield debt issuers that are mining companies may also experience financial stress as a result of low metal or mineral prices. High yield securities tend to be more volatile than higher rated fixed income securities and adverse economic events may have a greater impact on the prices of high yield securities than on higher rated fixed income securities. The issuer's ability to service its debt obligations also may be adversely affected by specific issuer developments or the issuer's inability to meet specific projected business forecasts or the unavailability of additional financing. The risk of loss due to default by the issuer is significantly greater for the holder of high yield securities because such securities may be unsecured and may be subordinated to other creditors of the issuer. High yield securities frequently have call or redemption features that would permit the issuer to repurchase such securities from the Fund. If a call were exercised by an issuer during a period of declining interest rates, the Fund likely would have to replace such called security with a lower yielding security, thus decreasing the net investment income for the Fund and dividends to shareholders. 7 46 The Fund may have difficulty disposing of certain high yield securities because there may be a thin trading market for such securities. Because not all dealers maintain markets in all high yield securities, there is no established retail secondary market for many of these securities, and the Fund anticipates that such securities could be sold only to a limited number of dealers or institutional investors. To the extent that a secondary trading market for high yield securities does exist, it is generally not as liquid as the secondary market for higher rated securities. Reduced secondary market liquidity may have an adverse impact on market price and the Fund's ability to dispose of particular issues when necessary to meet the Fund's liquidity needs or in response to a specific economic event such as a deterioration in the creditworthiness of the issuer. Reduced secondary market liquidity for certain securities also may make it more difficult for the Fund to obtain accurate market quotations for purposes of valuing the Fund's portfolio. Market quotations are generally available on many high yield securities only from a limited number of dealers and may not necessarily represent firm bids of such dealer or prices for actual sales. Adverse publicity and investor perceptions, which may not be based on fundamental analysis, also may decrease the value and liquidity of high yield securities, particularly in a thinly traded market. To the extent the Fund holds high yield securities, factors adversely affecting the market value of high yield securities are likely to adversely affect the Fund's net asset value. In addition, the Fund may incur additional expenses to the extent it is required to seek recovery upon a default on a portfolio holding or participate in the restructuring of the obligation. Borrowing. 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), and may borrow up to an additional 5% of its total assets for temporary purposes. The Fund may obtain such short-term credit as may be necessary for the clearance of purchases and sales of portfolio securities and may purchase securities on margin to the extent permitted by applicable law. Subject to these limits, the Fund may use borrowing to enable it to meet redemptions. The purchase of securities while borrowings are outstanding will have the effect of leveraging the Fund. Such leveraging increases the Fund's exposure to capital risk. See "Investment Restrictions" below. 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 its investments in a timely fashion and for a fair price as well as its ability to take advantage of market opportunities. The risks associated with illiquidity will be particularly acute where 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 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 more difficult to value than publicly traded securities and may be less liquid, or illiquid, and therefore may be subject to the risks associated with illiquid securities, as described in the preceding paragraph. Some restricted securities, however, may be liquid. 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 8 47 may obtain access to material nonpublic information which may restrict the Fund's ability to conduct portfolio transactions in such securities. Other Special Considerations. The Fund may make short-term investments, purchase high quality bonds or buy or sell derivatives, to reduce exposure to equity securities when the Fund believes it is advisable to do so (on a temporary defensive basis). Short-term investments and temporary defensive positions may limit the potential for growth in the value of shares of the Fund. Sovereign Debt. The Fund may invest more than 5% of its assets in debt obligations ("sovereign debt") issued or guaranteed by non-U.S. governments or their agencies and instrumentalities ("governmental entities"). Investment in sovereign debt may involve a high degree of risk that the governmental entity that controls the repayment of sovereign debt may not be able or willing to repay the principal and/or interest when due in accordance with the terms of such debt. A governmental entity's willingness or ability to repay principal and interest due in a timely manner may be affected by, among other factors, its cash flow situation, the extent of its foreign reserves, the availability of sufficient foreign exchange on the date a payment is due, the relative size of the debt service burden to the economy as a whole, the governmental entity's policy towards the International Monetary Fund and the political constraints to which a governmental entity may be subject. In certain countries, governmental entities may also be dependent on expected disbursements from foreign governments, multilateral agencies and others abroad to reduce principal and interest arrearages on their debt. The commitment on the part of these governments, agencies and others to make such disbursements may be conditioned on a governmental entity's implementation of economic reforms and/or economic performance and the timely service of such debtor's obligations. Failure to implement such reforms, achieve such levels of economic performance or repay principal of interest when due may result in the cancellation of such third parties' commitments to lend funds to the governmental entity, which may further impair such debtor's ability or willingness to timely service its debts. Consequently, governmental entities may default on their sovereign debt. Holders of sovereign debt, including the Fund, may be requested to participate in the rescheduling of such debt and to extend further loans to governmental entities. There is no bankruptcy proceeding by which sovereign debt on which a governmental entity has defaulted may be collected in whole or in part. The sovereign debt instruments in which the Fund may invest involve great risk and are deemed to be the equivalent in terms of quality to high yield/high risk securities discussed above and are subject to many of the same risks as such securities. Similarly, the Fund may have difficulty disposing of certain sovereign debt obligations because there may be a thin trading market for such securities. Securities Lending. The Fund may lend securities with a value not exceeding 33 1/3% of its total assets. In return, the Fund receives collateral in an amount equal to at least 100% of the current market value of the loaned securities in cash or securities issued or guaranteed by the U.S. Government. If cash collateral is received by 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 loan 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 may receive a flat fee for its loans. The loans are terminable at any time and the borrower, after notice, is required to return borrowed securities within five business days. The Fund may pay reasonable finder's, administrative and custodial fees in connection with its loans. In the event that the borrower defaults on its obligation to return borrowed securities because of insolvency or for any other reason, the Fund could experience delays and costs in gaining access to the collateral and could suffer a loss to the extent the value of the collateral falls below the market value of the borrowed securities. Repurchase Agreements. The Fund may invest in securities pursuant to repurchase agreements. Repurchase agreements may be entered into only with a member bank of the Federal Reserve System or primary dealer in U.S. Government securities or an affiliate thereof. Under such agreements, the bank or primary dealer or an affiliate thereof agrees, upon entering into the contract, to repurchase the security at a mutually agreed upon time and price, thereby determining the yield during the term of the agreement. This insulates the Fund from fluctuations in the market value of the underlying security during such period, 9 48 although, to the extent the repurchase agreement is not denominated in U.S. dollars, the Fund's return may be affected by currency fluctuations. The Fund may not invest more than 15% of its total assets in repurchase agreements maturing in more than seven days (together with other illiquid securities). Repurchase agreements may be construed to be collateralized loans by the purchaser to the seller secured by the securities transferred to the purchaser. 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. 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. In the event of a default under such a repurchase agreement, instead of the contractual fixed rate of return, the rate of return to the Fund shall be dependent upon intervening fluctuations of the market value of such security and the accrued interest on the security. In such event, the Fund would have rights against the seller for breach of contract with respect to any losses arising from market fluctuations following the failure of the seller to perform. Warrants. The Fund may invest in warrants, which are securities permitting, but not obligating, the warrant holder to subscribe for other securities. Buying a warrant does not make 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. When-Issued Securities and Forward Commitments. The Fund may purchase or sell securities that it is entitled to receive on a when-issued basis. The Fund may also purchase or sell securities through a forward commitment. These transactions involve the purchase or sale of securities by the Fund at an established price with payment and delivery taking place in the future. The Fund enters into these transactions to obtain what is considered an advantageous price to the Fund at the time of entering into the transaction. The Fund has not established any limit on the percentage of its assets that may be committed in connection with these transactions. When the Fund is purchasing securities in these transactions, the Fund maintains a segregated account with its custodian of cash, cash equivalents, U.S. Government securities or other liquid securities in an amount equal to the amount of its purchase commitments. There can be no assurance that a security purchased on a when-issued basis will be issued, or a security purchased or sold through a forward commitment will be delivered. The value of securities in these transactions on the delivery date may be more or less than the Fund's purchase price. The Fund may bear the risk of a decline in the value of the security in these transactions and may not benefit from an appreciation in the value of the security during the commitment period. Standby Commitment Agreements. The Fund may enter into standby commitment agreements. These agreements commit the Fund, for a stated period of time, to purchase a stated amount of securities which may be issued and sold to the Fund at the option of the issuer. The price of the security is fixed at the time of the commitment. At the time of entering into the agreement the Fund is paid a commitment fee, regardless of whether or not the security is ultimately issued. The Fund will enter into such agreements for the purpose of investing in the security underlying the commitment at a price that is considered advantageous to the Fund. The Fund will not enter into a standby commitment with a remaining term in excess of 45 days and will limit its investment in such commitments so that the aggregate purchase price of securities subject to such commitments, together with the value of portfolio securities subject to legal restrictions on resale that affect their marketability, will not exceed 15% of its net assets taken at the time of the commitment. The Fund will maintain a segregated account with its custodian of cash, cash equivalents, U.S. Government securities or other liquid securities in an aggregate amount equal to the purchase price of the securities underlying the commitment. There can be no assurance that the securities subject to a standby commitment will be issued, and the value of the security, if issued, on the delivery date may be more or less than its purchase price. Since the issuance of the security underlying the commitment is at the option of the issuer, the Fund may bear the risk 10 49 of a decline in the value of such security and may not benefit from an appreciation in the value of the security during the commitment period. The purchase of a security subject to a standby commitment agreement and the related commitment fee will be recorded on the date on which the security can reasonably be expected to be issued, and the value of the security thereafter will be reflected in the calculation of the Fund's net asset value. The cost basis of the security will be adjusted by the amount of the commitment fee. In the event the security is not issued, the commitment fee will be recorded as income on the expiration date of the standby commitment. INVESTMENT RESTRICTIONS The Corporation 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 with respect to the Fund without the approval of the holders of a majority of the Fund's outstanding voting securities (which for this purpose and under the Investment Company Act means the lesser of (i) 67% of the shares represented at a meeting at which more than 50% of the outstanding shares are represented or (ii) more than 50% of the outstanding shares). Provided 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 assets, taken at market value, in the securities of issuers in any particular industry (excluding the U.S. Government and its agencies and instrumentalities). 3. Make investments for the purpose of exercising control or management. Investments by the Fund in wholly-owned investment entities created under the laws of certain countries will not be deemed the making of investments for the purpose of exercising control or management. 4. Purchase or sell real estate, except that, to the extent permitted by applicable law, the Fund may invest in securities directly or indirectly secured by real estate or interests therein or issued by companies that invest in real estate or interests therein. 5. Make loans to other persons, except that the acquisition of bonds, debentures or other corporate debt securities and investment in governmental obligations, commercial paper, pass-through instruments, certificates of deposit, bankers' acceptances, repurchase agreements or any similar instruments shall not be deemed to be the making of a loan, and except further that the Fund may lend its portfolio securities, provided that the lending of portfolio securities may be made only in accordance with applicable law and the guidelines set forth in the 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. 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. 11 50 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 Statement of Additional Information, as they may be amended from time to time, and without registering as a commodity pool operator under the Commodity Exchange Act. The Trust has adopted investment restrictions substantially identical to the foregoing, which are fundamental policies of the Trust and may not be changed with respect to the Portfolio without the approval of the holders of a majority of the interests of the Portfolio. In addition, the Corporation has adopted non-fundamental restrictions that may be changed by the Board of Directors without shareholder approval. Like the fundamental restrictions, none of the non-fundamental restrictions, including but not limited to restriction (a) below, shall prevent the Fund from investing all of its assets in shares of another registered investment company with the same investment objective (in a master/feeder structure). Under the non-fundamental investment restrictions, the Fund may not: (a) Purchase securities of other investment companies, except to the extent such purchases are permitted by applicable law. As a matter of policy, however, the Fund will not purchase shares of any registered open-end investment company or registered unit investment trust, in reliance on Section 12(d)(1)(F) or (G) (the "fund of funds" provisions) of the Investment Company Act, at any time the Fund's shares are owned by another investment company that is part of the same group of investment companies as the Fund. (b) Make short sales of securities or maintain a short position, except to the extent permitted by applicable law. The Fund currently does not intend to engage in short sales, except short sales "against the box." (c) Invest in securities that cannot be readily resold because of legal or contractual restrictions or that cannot otherwise be marketed, redeemed or put to the issuer or a third party, if at the time of acquisition more than 15% of its net assets would be invested in such securities. This restriction shall not apply to securities that mature within seven days or securities that the Directors of the Corporation have otherwise determined to be liquid pursuant to applicable law. Securities purchased in accordance with Rule 144A under the Securities Act (which are restricted securities that can be resold to qualified institutional buyers, but not to the general public) and determined to be liquid by the Directors are not subject to the limitations set forth in this investment restriction. The Trust has adopted investment restrictions substantially identical to the foregoing, which are nonfundamental policies of the Trust and may be changed with respect to any Portfolio by the Trustees. The staff of the Commission has taken the position that purchased over-the-counter ("OTC") options and the assets used as cover for written OTC options are illiquid securities. Therefore, the Corporation and Trust have adopted an investment policy pursuant to which neither the Portfolio nor the Fund will purchase or sell OTC options (including OTC options on futures contracts) if, as a result of such transaction, the sum of the market value of OTC options currently outstanding that are held by the Fund or Portfolio, the market value of the underlying securities covered by OTC call options currently outstanding that were sold by the Fund or Portfolio and margin deposits on the Fund or Portfolio's existing OTC options on futures contracts exceeds 15% of the net assets of the Fund or Portfolio taken at market value, together with all other assets of the Fund or Portfolio that are illiquid or are not otherwise readily marketable. However, if the OTC option is sold by the Fund or Portfolio to a primary U.S. Government securities dealer recognized by the Federal Reserve Bank of New York and if the Fund or Portfolio has the unconditional contractual right to repurchase such OTC option from the dealer at a predetermined price, then the Fund or Portfolio will treat as illiquid such amount of the underlying securities as is equal to the repurchase price less the amount by which the option is "in-the-money" (i.e., current market value of the underlying securities minus the option's strike price). The repurchase price with the primary dealers is typically a formula price that is generally based on a multiple of the premium received for the option, plus the amount by which the option is "in-the-money." This policy as to OTC options is not a fundamental policy of the Fund or Portfolio and may be amended by the 12 51 Trustees or the Directors without the approval of the shareholders. However, the Directors or Trustees will not change or modify this policy prior to the change or modification by the Commission staff of its position. Portfolio securities of the Portfolio and the Fund generally may not be purchased from, sold or loaned to the Investment Adviser or its affiliates or any of their directors, general partners, officers or employees, acting as principal, unless pursuant to a rule or exemptive order under the Investment Company Act. Because of the affiliation of Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") with the Investment Adviser and Fund Asset Management, L.P. ("FAM" or the "Administrator"), the Fund and Portfolio are prohibited from engaging in certain transactions involving Merrill Lynch, the Investment Adviser, or any of its affiliates, except for brokerage transactions permitted under the Investment Company Act involving only usual and customary commissions or transactions pursuant to an exemptive order under the Investment Company Act. See "Portfolio Transactions and Brokerage." Rule 10f-3 under the Investment Company Act sets forth conditions under which the Fund and Portfolio may purchase from an underwriting syndicate of which Merrill Lynch is a member. MANAGEMENT OF THE FUND DIRECTORS AND OFFICERS The Directors of the Corporation consist of six individuals, four of whom are not "interested persons" of the Corporation as defined in the Investment Company Act. The same individuals serve as Trustees of the Trust. The Directors are responsible for the overall supervision of the operations of the Fund and perform the various duties imposed on the directors of investment companies by the Investment Company Act. Information about the Directors and executive officers of the Corporation, their ages and their principal occupations for at least the last five years are set forth below. Unless otherwise noted, the address of each executive officer and Director is P.O. Box 9011, Princeton, New Jersey 08543-9011. Jeffrey M. Peek (51) -- Director and President(1)(2) -- President of MLAM and FAM since 1997; President and Director of Princeton Services since 1997; Executive Vice President of Merrill Lynch & Co., Inc. ("ML&Co.") since 1997; Co-Head of Merrill Lynch Investment Banking Division from March 1997 to December 1997; director of Merrill Lynch Global Securities Research and Economics Division from 1995 to 1997; Head of Merrill Lynch Global Industries Group from 1993 to 1995. Terry K. Glenn (58) -- Director and Executive Vice President(1)(2) -- Executive Vice President of MLAM and FAM since 1983; Executive Vice President and Director of Princeton Services, Inc. since 1993; President of Princeton Funds Distributor, Inc. since 1986 and Director thereof since 1991; President of Princeton Administrators, L.P. since 1988. David O. Beim (58) -- Director -- 410 Uris Hall, Columbia University, New York, New York 10027. Professor of Columbia University since 1991; Chairman of Outward Bound USA since 1997; Chairman of Wave Hill, Inc. since 1980. James T. Flynn (57) -- Director(2) -- 340 East 72nd Street, New York, New York 10021. Chief Financial Officer of J.P. Morgan & Co. Inc. from 1990 to 1995 and an employee of J.P. Morgan in various capacities from 1967 to 1995. W. Carl Kester (45) -- Director(2) -- Harvard Business School, Morgan Hall 393, Soldiers Field, Boston, Massachusetts 02163. James R. Williston Professor of Business Administration of Harvard University Graduate School of Business since 1997; MBA Class of 1958 Professor of Business Administration of Harvard University Graduate School of Business Administration from 1981 to 1997; Independent Consultant since 1978. Karen P. Robards (48) -- Director -- Robards & Company, 173 Riverside Drive, New York, New York 10024. President of Robards & Company, a financial advisory firm, for more than five years; Director of Enable Medical Corp. since 1996; Director of Cine Muse Inc. since 1996. 13 52 Peter John Gibbs (40) -- Senior Vice President -- 33 King William Street, London, EC4R 9AS, England. Chairman of Mercury Asset Management International Ltd. since 1998; Director of Mercury Asset Management Ltd. since 1993; Director of Mercury Asset Management International Channel Islands Ltd. Gerald M. Richard (49) -- Treasurer -- Senior Vice President and Treasurer of MLAM and FAM since 1984; Senior Vice President and Treasurer of Princeton Services, Inc. 1993; Vice President of Princeton Funds Distributor, Inc. since 1981 and Treasurer thereof since 1984. Donald C. Burke (38) -- Vice President -- First Vice President of MLAM and FAM since 1997 and Director of Taxation thereof since 1990; Vice President of MLAM and FAM from 1990 to 1997. Robert E. Putney, III (38) -- Secretary -- Director (Legal Advisory) of MLAM and Princeton Administrators, L.P. since 1997; Vice President of MLAM from 1994 to 1997; Vice President of Princeton Administrators, L.P. from 1996 to 1997; Attorney with MLAM from 1991 to 1994. - --------------- (1) Interested person, as defined in the Investment Company Act, of the Fund. (2) Such Director or officer is a trustee, director or officer of other investment companies for which the Investment Adviser, or the Fund's sub-adviser and administrator, FAM, or their affiliates, acts as investment adviser. As of the date of this Statement of Additional Information, the officers and Directors of the Corporation as a group (ten persons) owned an aggregate of less than 1% of the outstanding shares of common stock of ML & Co. and owned an aggregate of less than 1% of the outstanding shares of the Fund. COMPENSATION OF DIRECTORS/TRUSTEES The Corporation and the Trust expect to pay each Director/Trustee not affiliated with the Investment Adviser or FAM or with an affiliate of the Investment Adviser or FAM (each a "non-affiliated Director/ Trustee"), for service to the Fund and the Portfolio, a fee of $2,500 per year plus $250 per in-person meeting attended, together with such individual's actual out-of-pocket expenses relating to attendance at meetings. The Corporation and the Trust also expect to compensate members of the Audit and Nominating Committee, which consists of all of the non-affiliated Directors/Trustees, at the rate of $1,000 annually. The following table sets forth the aggregate compensation the Corporation and the Trust expect to pay to the non-affiliated Directors/Trustees for their first full fiscal year and the aggregate compensation paid by all investment companies advised by Mercury International, FAM, or their affiliates ("Mercury and Affiliates-Advised Funds") to the non- affiliated Directors/Trustees for the calendar year ending December 31, 1997.
PENSION OR RETIREMENT TOTAL COMPENSATION FROM BENEFITS ACCRUED AS FUND/PORTFOLIO AND PART OF MERCURY AND AFFILIATES- AGGREGATE COMPENSATION FUND/PORTFOLIO ADVISED FUNDS PAID TO NAME OF DIRECTOR/TRUSTEE FROM FUND/PORTFOLIO EXPENSES DIRECTORS/TRUSTEES(1) ------------------------ ---------------------- --------------------- ----------------------- David O. Beim.................... None None None James T. Flynn................... None None $36,000 W. Carl Kester................... None None $36,000 Karen P. Robards................. None None None
- --------------- (1) In addition to the Corporation and the Trust, the Directors/Trustees served on other Mercury and Affiliates-Advised Funds as follows: Mr. Beim (no registered investment companies); Mr. Flynn (2 registered investment companies consisting of 6 portfolios); Mr. Kester (2 registered investment companies consisting of 6 portfolios); and Ms. Robards (no registered investment companies). The Directors of the Corporation and the Trustees of the Trust may be eligible for reduced sales charges on purchases of Class I shares. See "Reduced Initial Sales Charges -- Purchase Privileges of Certain Persons." 14 53 ADMINISTRATION ARRANGEMENTS The Corporation on behalf of the Fund has entered into an administration agreement with FAM as Administrator (the "Administration Agreement"). The Administrator receives for its services to the Fund monthly compensation at the annual rate of 0.25% of the average daily net assets of the Fund. The Administration Agreement obligates the Administrator to provide certain administrative services to the Corporation and the Fund and to pay, or cause its affiliate to pay, for maintaining its staff and personnel and to provide office space, facilities and necessary personnel for the Corporation. The Administrator is also obligated to pay, or cause its affiliate to pay, the fees of those Officers, Directors, and Trustees who are affiliated persons of the Administrator or any of its affiliates. The Corporation pays, or causes to be paid, all other expenses incurred in the operation of the Corporation and the Fund (except to the extent paid by Mercury Funds Distributor, a division of Princeton Funds Distributor, Inc. ("MFD" or the "Distributor")), including, among other things, taxes, expenses for legal and auditing services, costs of printing proxies, shareholder reports and prospectuses and statements of additional information, charges of the Custodian, any Sub-custodian and Financial Data Services, Inc. (the "Transfer Agent"), expenses of portfolio transactions, expenses of redemption of shares, Commission fees, expenses of registering the shares under federal, state or non-U.S. laws, fees and actual out-of-pocket expenses of Directors who are not affiliated persons of the Administrator, or of an affiliate of the Administrator, accounting and pricing costs (including the daily calculation of net asset value), insurance, interest, brokerage costs, litigation and other extraordinary or non-recurring expenses, and other expenses properly payable by the Corporation or the Fund. The Distributor will pay certain of the expenses of the Fund incurred in connection with the continuous offering of its shares. Accounting services are provided to the Corporation and the Fund by the Administrator, and the Corporation reimburses the Administrator for its costs in connection with such services. Duration and Termination. Unless earlier terminated as described below, the Administration Agreement will remain in effect for two years from its effective date. Thereafter, it will remain in effect from year to year with respect to the Fund if approved annually (a) by the Board of Directors and (b) by a majority of the Directors who are not parties to such contract or interested persons (as defined in the Investment Company Act) of any such party. Such contract is not assignable and may be terminated with respect to the Fund without penalty on 60 days' written notice at the option of either party thereto or by the vote of the shareholders of the Fund. MANAGEMENT AND ADVISORY ARRANGEMENTS The Fund invests all of its assets in shares of the Portfolio. Accordingly, the Fund does not invest directly in portfolio securities and does not require investment advisory services. All portfolio management occurs at the level of the Trust. The Trust on behalf of the Portfolio has entered into an investment advisory agreement with Mercury International as Investment Adviser (the "Advisory Agreement"). As discussed in "The Management Team -- Management of the Fund" in the Prospectus, the Investment Adviser receives for its services to the Portfolio monthly compensation at the annual rate of 0.75% of the average daily net assets of the Portfolio. The Advisory Agreement obligates the Investment Adviser to provide investment advisory services and to pay, or cause its affiliate to pay, for maintaining its staff and personnel and to provide office space, facilities and necessary personnel for the Trust. The Investment Adviser is also obligated to pay, or cause its affiliate to pay, the fees of all Officers, Trustees and Directors who are affiliated persons of the Investment Adviser or any sub-adviser or of an affiliate of the Investment Adviser or any sub-adviser. The Trust pays, or causes to be paid, all other expenses incurred in the operation of the Portfolio and the Trust (except to the extent paid by the Distributor), including, among other things, taxes, expenses for legal and auditing services, costs of printing proxies, shareholder reports, copies of the Registration Statement, charges of the Custodian, any Sub-custodian and Transfer Agent, expenses of portfolio transactions, expenses of redemption of shares, Commission fees, expenses of registering the shares under federal, state or non-U.S. laws, fees and actual out-of-pocket expenses of Trustees who are not affiliated persons of the Investment Adviser or any sub-adviser, or of an affiliate of the Investment Adviser or of any sub-adviser, accounting and pricing costs (including the daily 15 54 calculation of net asset value), insurance, interest, brokerage costs, litigation and other extraordinary or non-recurring expenses, and other expenses properly payable by the Trust or the Portfolio. The Distributor will pay certain of the expenses of the Fund incurred in connection with the continuous offering of its shares. Accounting services are provided to the Trust by the Investment Adviser or an affiliate of the Investment Adviser, and the Trust reimburses the Investment Adviser or an affiliate of the Investment Adviser for its costs in connection with such services. Securities held by the Portfolio, or other portfolios of the Trust, may also be held by, or be appropriate investments for, other funds or investment advisory clients for which the Investment Adviser or its affiliates act as an adviser. Because of different objectives or other factors, a particular security may be bought for one or more clients when one or more clients are selling the same security. If purchases or sales of securities by the Investment Adviser for the Trust's portfolios or other funds for which it acts as investment adviser or for its advisory clients arise for consideration at or about the same time, transactions in such securities will be made, insofar as feasible, for the respective funds and clients in a manner deemed equitable to all. To the extent that transactions on behalf of more than one client of the Investment Adviser or its affiliates during the same period may increase the demand for securities being purchased or the supply of securities being sold, there may be an adverse effect on price. Mercury International is located at 33 King William Street, London EC4R 9AS, England. Mercury International's intermediate parent company is Mercury Asset Management Group Ltd. a London-based holding company of a group engaged in the provision of investment management and advisory services globally. The ultimate parent of Mercury Asset Management Group Ltd. is ML & Co., a financial services holding company. ML & Co. is a controlling person of Mercury International as defined under the Investment Company Act because of its power to exercise a controlling influence over its management or policies. The Investment Adviser has entered into a sub-advisory agreement (the "Sub-Advisory Agreement") with FAM with respect to the Portfolio, pursuant to which FAM provides investment advisory services with respect to the Portfolio's daily cash assets. The Investment Adviser pays FAM a fee in an amount to be determined from time to time by the Investment Adviser and FAM but in no event in excess of the amount that the Investment Adviser actually receives for providing services to the Trust pursuant to the Advisory Agreement. FAM is located at 800 Scudders Mill Road, Plainsboro, New Jersey 08536. FAM, an affiliate of Mercury International, is a wholly owned subsidiary of ML & Co., a financial services holding company and the parent of Merrill Lynch. ML & Co. and Princeton Services, Inc., the partners of FAM, are "controlling persons" of FAM as defined under the Investment Company Act because of their power to exercise a controlling influence over its management or policies. Duration and Termination. Unless earlier terminated as described below, the Advisory Agreement and Sub-Advisory Agreement will each remain in effect for two years from its effective date. Thereafter, they will remain in effect from year to year if approved annually (a) by the Board of Trustees or by a majority of the outstanding shares of the Portfolio and (b) by a majority of the Trustees who are not parties to such contract or interested persons (as defined in the Investment Company Act) of any such party. Such contract is not assignable and may be terminated with respect to the Portfolio without penalty on 60 days' written notice at the option of either party thereto or by the vote of the shareholders of the Portfolio. CODE OF ETHICS The Board of Trustees of the Trust, the Board of Directors of the Corporation, the Investment Adviser, and FAM have each adopted a Code of Ethics under Rule 17j-1 of the Investment Company Act (together the "Codes"). The Codes significantly restrict the personal investing activities of all employees of the Investment Adviser and FAM and, as described below, impose additional, more onerous, restrictions on fund investment personnel. Among other substantive restrictions, the Codes contain reporting and preclearance requirements for employees of the Investment Adviser and FAM and provide for trading "blackout periods" that prohibit trading by decision making access persons (those who recommend or determine which securities 16 55 transactions the Trust undertakes) of the Trust within periods of trading by the Trust in the same (or equivalent) security. 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 Class B and Class C shares bear the expenses of the ongoing distribution fees and the additional incremental transfer agency costs resulting from the deferred sales charge arrangements. Class A, Class B and Class C shares each have exclusive voting rights with respect to the Rule 12b-1 distribution plan adopted with respect to such class pursuant to which the account maintenance and/or distribution fees are paid (except that Class B shareholders may vote upon any material changes to expenses charged under the Class A Distribution Plan). Each class has different exchange privileges. See "Shareholder Services -- Exchange Privilege." MFD, an affiliate of the Investment Adviser and of Merrill Lynch, with offices at 800 Scudders Mill Road, Plainsboro, New Jersey 08536 (mailing address: P. O. Box 9081, Princeton, New Jersey 08543-9081) acts as Distributor for the Fund. The Corporation has entered into a distribution agreement with the Distributor in connection with the offering of shares of the Fund (the "Distribution Agreement"). The Distribution Agreement obligates the Distributor to pay certain expenses in connection with the offering of the shares of the Fund. After the prospectuses, statements of additional information and periodic reports have been prepared, set in type and mailed to shareholders, the Distributor pays for the printing and distribution of copies thereof used in connection with the offering to dealers and investors. The Distributor also pays for other supplementary sales literature and advertising costs. The Distribution Agreement is subject to the same renewal requirements and termination provisions as the Advisory Agreement described above. The Corporation reserves the right to suspend the offering of its shares at any time. 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. Eligible Class I Investors. Class I shares are offered to a limited group of investors and also will be issued upon reinvestment of dividends on outstanding Class I shares. Investors that currently own Class I shares of the Fund in a shareholder account are entitled to purchase additional Class I shares of the Fund in that account. Certain employer sponsored retirement or savings plans, including eligible 401(k) plans, may purchase Class I shares at net asset value provided such plans meet the required minimum number of eligible employees or required amount of assets advised by Mercury or any of its affiliates. Also eligible to purchase Class I shares at net asset value are participants in certain investment programs including certain managed accounts for which a trust institution, thrift, or bank trust department provides discretionary trustee services, certain collective investment trusts for which a trust institution, thrift, or bank trust department serves as trustee, certain purchases made in connection with certain fee-based programs and certain purchases made through certain financial advisers that meet and adhere to standards established by Mercury. In addition, Class I shares are offered at net asset value to ML & Co. and its subsidiaries and their directors and employees, to members of the Boards of Mercury and Affiliates-Advised investment companies, including the Corporation, and to employees of certain selected dealers. 17 56 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. REDUCED INITIAL SALES CHARGES No initial sales charges are imposed upon Class I and Class A shares issued as a result of the automatic reinvestment of dividends or capital gains distributions. 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 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 Mercury International provide plan participant record-keeping services. The Letter of Intent is not a binding obligation to purchase any amount of Class I or Class A shares; however, its execution will result in the purchaser paying a lower sales charge at the appropriate quantity purchase level. A purchase not originally made pursuant to a Letter of Intent may be included under a subsequent Letter of Intent executed within 90 days of such purchase if the Distributor is informed in writing of this intent within such 90-day period. The value of Class I and Class A shares of the Fund and of other Mercury mutual funds presently held, at cost or maximum offering price (whichever is higher), on the date of the first purchase under the Letter of Intent, may be included as a credit toward the completion of such Letter, but the reduced sales charge applicable to the amount covered by such Letter will be applied only to new purchases. If the total amount of shares does not equal the amount stated in the Letter of Intent (minimum of $25,000), the investor will be notified and must pay, within 20 days of the execution of such Letter, the difference between the sales charge on the Class I or Class A shares purchased at the reduced rate and the sales charge applicable to the shares actually purchased through the Letter. Class I or Class A shares equal to five percent of the intended amount will be held in escrow during the 13-month period (while remaining registered in the name of the purchaser) for this purpose. The first purchase under the Letter of Intent must be at least five percent of the dollar amount of such Letter. If a purchase during the term of such Letter would otherwise be subject to a further reduced sales charge based on the right of accumulation, the purchaser will be entitled on that purchase and subsequent purchases to that further reduced percentage sales charge but there will be no retroactive reduction of the sales charges on any previous purchase. The value of any shares redeemed or otherwise disposed of by the purchaser prior to termination or completion of the 18 57 Letter of Intent will be deducted from the total purchases made under such Letter. An exchange from the Summit Cash Reserves Fund ("Summit") into the Fund that creates a sales charge will count toward completing a new or existing Letter of Intent from the Fund. Purchase Privileges of Certain Persons. Directors of the Corporation and Trustees of the Trust, members of the Boards of other investment companies advised by Mercury International or its affiliates, directors and employees of ML & Co. and its subsidiaries (the term "subsidiaries," when used herein with respect to ML & Co., includes Mercury International, FAM and certain other entities directly or indirectly wholly owned and controlled by ML & Co.), employees of certain selected dealers, and any trust, pension, profit-sharing or other benefit plan for such persons, may purchase Class I shares of the Fund at net asset value. Under such programs, the Fund realizes economies of scale by providing incentives to a large group of such individuals to invest. Furthermore, the individuals who qualify for these programs are already familiar with the Fund, and, therefore, providing these investment opportunities to such qualified individuals does not increase the expenditures of sales-related expenses. Employees and directors or trustees wishing to purchase shares of the Fund must satisfy the Fund's suitability standards. Managed Trusts. Class I shares are offered at net asset value to certain trusts to which trust institutions, thrifts, and bank trust departments provide discretionary trustee services. Acquisition of Certain Investment Companies. The public offering price of Class A shares may be reduced to the net asset value per Class A share 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. The value of the assets or company acquired in a tax-free transaction may be adjusted in appropriate cases to reduce possible adverse tax consequences to the Fund that might result from an acquisition of assets having net unrealized appreciation that is disproportionately higher at the time of acquisition than the realized or unrealized appreciation of the Fund. The issuance of Class A shares for consideration other than cash is limited to bona fide reorganizations, statutory mergers or other acquisitions of portfolio securities that (i) meet the investment objectives and policies of the Fund; (ii) are acquired for investment and not for resale (subject to the understanding that the disposition of the Fund's portfolio securities shall at all times remain within its control); and (iii) are liquid securities, the value of which is readily ascertainable, which are not restricted as to transfer either by law or liquidity of market (except that the Fund may acquire through such transactions restricted or illiquid securities to the extent the Fund does not exceed the applicable limits on acquisition of such securities set forth under "Investment Objectives and Policies" herein). Reductions in or exemptions from the imposition of a sales charge are due to the nature of the investors and/or the reduced sales efforts that will be needed in obtaining such investments. Employer-Sponsored Retirement or Savings Plans and Certain Other Arrangements. Certain employer-sponsored retirement or savings plans and certain other arrangements may purchase Class I or Class A shares at net asset value, based on the number of employees or number of employees eligible to participate in the plan and/or the aggregate amount invested by the plan in specified investments. Certain other plans may purchase Class B shares with a waiver of the CDSC upon redemption, based on similar criteria. Such Class B shares will convert into Class A shares approximately ten years after the plan purchases the first share of any Mercury mutual fund. Minimum purchase requirements may be waived or varied for such plans. For additional information regarding purchases by employer-sponsored retirement or savings plans and certain other arrangements, call your plan administrator or your selected dealer. Purchases Through Certain Financial Advisers. Reduced sales charges may be applicable for purchases of Class I or Class A shares of the Fund through certain financial advisers that meet and adhere to standards established by Mercury from time to time. DISTRIBUTION PLANS Reference is made to "Account Choices -- Pricing of Shares" in the Prospectus for certain information with respect to separate distribution plans for Class A, Class B, and Class C shares pursuant to Rule 12b-1 19 58 under the Investment Company Act of the Fund (each a "Distribution Plan") with respect to the account maintenance and/or distribution fees paid by the Fund to the Distributor with respect to such classes. The Distribution Plan for Class A, Class B and Class C shares each 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 sub-agreements) in connection with account maintenance activities. The Distribution Plan for Class B and Class C shares each 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 sub-agreements) for providing shareholder and distribution services, and bearing certain distribution-related expenses of the Fund, including payments to financial consultants for selling Class B and Class C shares of the Fund. The Distribution Plans relating to Class B and Class C shares are designed to permit an investor to purchase Class B and Class C shares through dealers without the assessment of an initial sales charge and at the same time permit the dealer to compensate its financial consultants in connection with the sale of the Class B and Class C shares. In this regard, the purpose and function of the ongoing distribution fees and the CDSC are the same as those of the initial sales charge with respect to the Class I and Class A shares of 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 payments under the Distribution Plans are subject to the provisions of Rule 12b-1 under the Investment Company Act, and are based on a percentage of average daily net assets attributable to the shares regardless of the amount of expenses incurred and, accordingly, distribution-related revenues from the Distribution Plans may be more or less than distribution-related expenses. Information with respect to the distribution-related revenues and expenses is presented to the Directors of the Corporation for their consideration in connection with their deliberations as to the continuance of the Class B and Class C Distribution Plans. This information is presented annually as of December 31 of each year on a "fully allocated accrual" basis and quarterly on a "direct expense and revenue/cash" basis. On the fully allocated basis, revenues consist of the account maintenance fees, the distribution fees, the CDSCs and certain other related revenues, and expenses consist of financial consultant compensation, branch office and regional operation center selling and transaction processing expenses, advertising, sales promotion and marketing expenses, corporate overhead and interest expense. On the direct expense and revenue/cash basis, revenues consist of the account maintenance fees, the distribution fees and CDSCs and the expenses consist of financial consultant compensation. The Fund has no obligation with respect to distribution and/or account maintenance-related expenses incurred by the Distributor and selected dealers in connection with the Class A, Class B and Class C shares, and there is no assurance that the Directors of the Corporation will approve the continuance of the Distribution Plans from year to year. However, the Distributor intends to seek annual continuation of the Distribution Plans. In their review of the Distribution Plans, the Directors will be asked to take into consideration expenses incurred in connection with the account maintenance and/or distribution of each class of shares separately. The initial sales charges, the account maintenance fee, the distribution fee and/or the CDSCs received with respect to one class will not be used to subsidize the sale of shares of another class. Payments of the distribution fee on Class B shares will terminate upon conversion of those Class B shares to Class A shares as set forth under "How to Buy, Sell, Transfer and Exchange Shares" in the Prospectus. 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 each related class of shareholders. Each Distribution Plan further provides that, so long as the Distribution Plan remains in effect, the selection and nomination of Directors who are not "interested persons" of the Fund, as defined in the Investment Company Act (the "Independent Directors") shall be committed to the discretion of the Independent Directors then in office. In approving each Distribution Plan in accordance with Rule 12b-1, the 20 59 Independent Directors concluded that there is reasonable likelihood that such Distribution Plan will benefit the Fund and its related class of shareholders. Each Distribution Plan can be terminated at any time, without penalty, by the vote of a majority of the Independent 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 Independent Directors who have no direct or indirect financial interest in such Distribution Plan, cast in person at a meeting called for that purpose. Rule 12b-1 further requires that the Fund preserve copies of each Distribution Plan and any report made pursuant to such plan for a period of not less than six years from the date of such Distribution Plan or such report, the first two years in an easily accessible place. LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES The maximum sales charge rule in the Conduct Rules of the National Association of Securities Dealers, Inc. ("NASD") imposes a limitation on certain asset-based sales charges such as the distribution fee and the CDSC borne by the Class B and Class C shares, but not the account maintenance fee. The maximum sales charge rule is applied separately to each class. As applicable to the Fund, the maximum sales charge rule limits the aggregate of distribution fee payments and CDSCs payable by the Fund to (1) 6.25% of eligible gross sales of Class B shares and Class C shares, computed separately (defined to exclude shares issued pursuant to dividend reinvestments and exchanges), plus (2) interest on the unpaid balance for the respective class, computed separately, at the prime rate plus 1% (the unpaid balance being the maximum amount payable minus amounts received from the payment of the distribution fee and the CDSC). 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 circumstances payment in excess of the amount payable under the NASD formula will not be made. REDEMPTION 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 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 value of shares at the time of redemption may be more or less than the shareholder's cost, depending on the net asset value of the Fund's shares at such time. REDEMPTION A shareholder wishing to redeem shares held with the Transfer Agent may do so by tendering the shares directly to the Fund's Transfer Agent, Financial Data Services, Inc., P.O. Box 45289, Jacksonville, Florida 32232-5289. 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. Redemption requests should not be sent to the Fund. A redemption request requires the signature(s) of all persons in whose name(s) the shares are registered, signed exactly as (his) (her) 21 60 (their) name(s) appear(s) on the Transfer Agent's register. The signature(s) on the redemption request must be guaranteed by an "eligible guarantor institution" as such term is defined in Rule 17Ad-15 under the Securities Exchange Act of 1934, the existence and validity of which may be verified by the Transfer Agent through the use of industry publications. Notarized signatures are not sufficient. 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. The Fund may delay or cause to be delayed the mailing of a redemption check until such time as good payment (i.e., cash or certified check drawn on a United States bank) has been collected for the purchase of such shares. Normally, this delay will not exceed 10 days. The right to redeem shares or to receive payment with respect to any such redemption may be suspended for more than seven days only for periods during which trading on the New York Stock Exchange (the "NYSE") is restricted as determined by the Commission or during which the NYSE is closed (other than customary weekend and holiday closings), for any period during which an emergency exists, as defined by the Commission, as a result of which disposal of portfolio securities or determination of the net asset value of the 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 at the time of redemption may be more or less than the shareholder's cost, depending in part on the net asset value of such shares at such time. REPURCHASE The Fund will also repurchase shares through a shareholder's listed securities dealer. The Fund will normally accept orders to repurchase shares by wire or telephone from dealers for their customers at the net asset value next computed after receipt of the order by the dealer, less any applicable CDSC, provided that the request for repurchase is received by the dealer prior to the close of business on the NYSE (generally 4:00 p.m., Eastern time) on the day received and 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 Fund not later than 30 minutes after the close of business on the NYSE in order to obtain that day's closing price. These repurchase arrangements are for the convenience of shareholders and do not involve a charge by the Fund (other than any applicable CDSC). Securities firms that do not have 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 directly through the Fund's 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 and Class A shares have a privilege to reinstate their accounts by purchasing Class I or Class A shares of the Fund, as the case may be, at net asset value without a sales charge up to the dollar amount redeemed. The reinstatement privilege may be exercised by sending a notice of exercise along with a check for the amount to be reinstated to the Transfer Agent within 30 days after the date the request for redemption was accepted by the Transfer Agent or the Distributor. Alternatively, the reinstatement privilege may be exercised through the investor's financial consultant within 30 days after the date the request for redemption was accepted by the Transfer Agent or the Distributor. The 22 61 reinstatement will be made at the net asset value per share next determined after the notice of reinstatement is received and cannot exceed the amount of the redemption proceeds. DEFERRED SALES CHARGES -- CLASS B AND CLASS C SHARES Investors choosing the deferred sales charge alternatives should consider Class B shares if they intend to hold their shares for an extended period of time and Class C shares if they are uncertain as to the length of time they intend to hold their assets in Mercury mutual funds. 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 is reduced or waived in certain instances, such as: (a) any partial or complete redemption in connection with a distribution following retirement under a tax-deferred retirement plan or 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); (b) redemptions by certain eligible 401(a) and 401(k) plans and certain retirement plan rollovers; (c) redemptions in connection with participation in certain fee-based programs managed by the Investment Adviser or its affiliates; (d) redemptions in connection with participation in certain fee-based programs managed by selected dealers that have agreements with Mercury; (e) 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 (certain legal documentation may be required at the time of liquidation establishing eligibility for qualified distribution); or (f) withdrawals through the Systematic Withdrawal Plan of up to 10% per year of your account value at the time the plan is established. In determining whether a Class B CDSC is applicable to a redemption, the calculation will be determined in the manner that results in the lowest possible rate being charged. Therefore it will be assumed that the redemption is first of shares held for over six years or shares acquired pursuant to reinvestment of dividends or distributions and then of shares held longest during the six-year period. The charge will not be applied to dollar amounts representing an increase in the net asset value since the time of purchase. A transfer of shares from a shareholder's account to another account will be assumed to be made in the same order as a redemption. Class C shares are subject only to a one-year 1% CDSC. The charge will be assessed on an amount equal to the lesser of the proceeds of redemption or the cost of the shares being redeemed. Accordingly, no Class C CDSC will be imposed on increases in net asset value above the initial purchase price. In addition, no Class C CDSC will be assessed on shares derived from reinvestment of dividends or capital gains distributions. The Class C CDSC may be waived in connection with certain fee-based programs. In determining whether a Class C CDSC is applicable to a redemption, the calculation will be determined in the manner that results in the lowest possible rate being charged. Therefore, it will be assumed that the redemption is first of shares held for over one year or shares acquired pursuant to reinvestment of dividends or distributions and then of shares held longest during the one-year period. The charge will not be applied to dollar amounts representing an increase in the net asset value since the time of purchase. A transfer of shares from a shareholder's account to another account will be assumed to be made in the same order as a redemption. Proceeds from the CDSC and the distribution fee are paid to the Distributor and are used in whole or in part by the Distributor to defray the expenses of selected dealers related to providing distribution-related services to 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 its 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. 23 62 Conversion of Class B Shares to Class A Shares. As discussed in the Prospectus under "Account Choices -- Pricing of Shares -- Class B and C Shares -- Deferred Sales Charge Options," Class B shares of equity Mercury mutual funds convert automatically to Class A shares approximately eight years after purchase (the "Conversion Period"). The Conversion Period is modified for shareholders who purchased Class B shares through certain retirement plans that qualified for a waiver of the CDSC normally imposed on purchases of Class B shares ("Class B Retirement Plans"). When the first share of any Mercury mutual fund purchased by a Class B Retirement Plan has been held for ten years (i.e., ten years from the date the relationship between Mercury mutual funds and the Class B Retirement Plan was established), all Class B shares of all Mercury mutual funds held in that Class B Retirement Plan will be converted into Class A shares of the appropriate funds. Subsequent to such conversion, that Class B Retirement Plan will be sold Class A shares of the appropriate funds at net asset value per share. The Conversion Period may also be modified for retirement plan investors who participate in certain fee-based programs. See "Shareholder Services -- Fee-Based Programs" below. PORTFOLIO TRANSACTIONS AND BROKERAGE Because the Fund will invest exclusively in shares of the Portfolio, it is expected that all transactions in portfolio securities will be entered into by the Portfolio. The Investment Adviser is responsible for making the Portfolio's portfolio decisions, placing the Portfolio's brokerage business, evaluating the reasonableness of brokerage commissions and negotiating the amount of any commissions paid subject to a policy established by the Trust's Trustees and officers. The Trust has no obligation to deal with any broker or group of brokers in the execution of transactions in portfolio securities. Orders for transactions in portfolio securities are placed for the Trust with a number of brokers and dealers, including affiliates of the Investment Adviser. In placing orders, it is the policy of the Trust to obtain the most favorable net results, taking into account various factors, including price, commissions, if any, size of the transaction and difficulty of execution. Where applicable, the Investment Adviser surveys a number of brokers and dealers in connection with proposed portfolio transactions and selects the broker or dealer that offers the Trust the best price and execution or other services that are of benefit to the Trust. Securities firms also may receive brokerage commissions on transactions including covered call options written by the Trust and the sale of underlying securities upon the exercise of such options. In addition, consistent with the NASD Conduct Rules and policies established by the Trustees, the Investment Adviser may consider sales of shares of the Fund as a factor in the selection of brokers or dealers to execute portfolio transactions for the Trust. Brokers who provide supplemental investment research to the Investment Adviser may receive orders for transactions by the Trust. Such supplemental research services ordinarily consist of assessments and analyses of the business or prospects of a company, industry or economic sector. Information so received will be in addition to and not in lieu of the services required to be performed by the Investment Adviser under the Advisory Agreement. If in the judgment of the Investment Adviser the Trust will be benefited by supplemental research services, the Investment Adviser is authorized to pay brokerage commissions to a broker furnishing such services in excess of commissions that another broker may have charged for effecting the same transaction. The expenses of the Investment Adviser will not necessarily be reduced as a result of the receipt of such supplemental information, and the Investment Adviser may use such information in servicing its other accounts. The Trust invests in certain securities traded in the over-the-counter market and, where possible, deals directly with dealers who make a market in the securities involved, except in those circumstances in which better prices and execution are available elsewhere. Under the Investment Company Act, persons affiliated with the Trust are prohibited from dealing with the Trust as principal in purchase and sale of securities. Since transactions in the over-the-counter market usually involve transactions with dealers acting as principal for their own accounts, affiliated persons of the Trust, including Merrill Lynch, will not serve as the Trust's dealer in such transactions. However, affiliated persons of the Trust may serve as its broker in over-the-counter transactions conducted on an agency basis. 24 63 Pursuant to Section 11(a) of the Securities Exchange Act of 1934, as amended, Merrill Lynch may execute transactions for the Trust on the floor of any U.S. national securities exchange provided that prior authorization of such transactions is obtained and Merrill Lynch furnishes a statement to the Trust at least annually setting forth the compensation it has received in connection with such transactions. The Trustees of the Trust have considered the possibility of recapturing for the benefit of the Trust brokerage commissions, dealer spreads and other expenses of possible portfolio transactions, such as underwriting commissions, by conducting such portfolio transactions through affiliated entities, including Merrill Lynch. For example, brokerage commissions received by Merrill Lynch could be offset against the management fee paid by the Trust to the Investment Adviser. After considering all factors deemed relevant, the Trustees made a determination not to seek such recapture. The Trustees will reconsider this matter from time to time. 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. The portfolio turnover rate is generally anticipated to be under 100%. DETERMINATION OF NET ASSET VALUE Reference is made to "How Shares are Priced" in the Prospectus concerning the determination of net asset value. The net asset value of the shares of the Fund is determined once daily Monday through Friday as of 15 minutes after the close of business on the NYSE on each day the NYSE is open for trading (a "Pricing Day"). The close of business on the NYSE is generally 4:00 p.m., Eastern time. The Fund also will determine its net asset value on any day in which there is sufficient trading in the underlying Portfolio's portfolio securities that the net asset value might be affected materially, but only if on any such day the Fund is required to sell or redeem shares. Any assets or liabilities initially expressed in terms of non-U.S. dollar currencies are translated into U.S. dollars at the prevailing market rates as quoted by one or more banks or dealers on the day of valuation. The NYSE is not open for trading on New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The net asset value is computed by dividing the value of the securities held by the Fund plus any cash or other assets (including any futures position and gold bullion interest and dividends accrued but not yet received) minus all liabilities (including accrued expenses) by the total number of shares outstanding at such time. Expenses, including the fees payable to the Administrator and the Distributor, and the advisory fees payable indirectly by the Portfolio to the Investment Adviser, are accrued daily. The principal assets of the Fund will normally be its interest of the underlying Portfolio, which will be valued at its net asset value. Net asset value is computed by dividing the value of the securities held by the Portfolio plus any cash or other assets (including interest and dividends accrued but not yet received) minus all liabilities (including accrued expenses) by the total number of shares outstanding at such time. Expenses, including the management fees and any account maintenance and/or distribution fees, are accrued daily. The per share net asset value of Class A, Class B and Class C shares generally will be lower than the per share net asset value of Class I shares, reflecting the daily expense accruals of the account maintenance, distribution and higher transfer agency fees applicable with respect to Class B and Class C shares, and the daily expense accruals of the account maintenance fees applicable with respect to Class A shares. It is expected, however, that the per share net asset value of the four classes will tend to converge (although not necessarily meet) immediately after the payment of dividends or distributions, which will differ by approximately the amount of the expense accrual differentials between the classes. Portfolio securities, including ADRs, EDRs 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 25 64 than one exchange, the securities are valued on the exchange designated by or under the authority of the Board of Trustees as the primary market. 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 on the OTC market are valued at the last available ask price in the OTC market prior to the time of valuation. When the Portfolio writes a call option, the amount of the premium received is recorded on the books of the Portfolio as an asset and an equivalent liability. The amount of the liability is subsequently valued to reflect the current market value of the option written, based upon the last sale price in the case of exchange-traded options or, in the case of options traded in the OTC market, the last asked price. Options purchased by the Portfolio are valued at their last sale price in the case of exchange-traded options or, in the case of options traded in the OTC market, the last bid price. Gold bullion will be valued at the last sale price on the Commodity Exchange, Inc. 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. 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 such times. Foreign currency exchange rates are also generally determined prior to the close of business on the NYSE. Occasionally, events affecting the values of such securities and such exchange rates may occur between the times at which they are determined and the close of business on the NYSE that will not be reflected in the computation of the Fund's net asset value. If events materially affecting the value of such securities occur during such period, then these securities will be valued at their fair value as determined in good faith by the Trustees. Each investor in the Trust may add to or reduce its investment in the Portfolio on each Pricing Day. The value of each investor's (including the Fund's) interest in the Portfolio will be determined as of 15 minutes after the close of business on the NYSE by multiplying the net asset value of the Portfolio by the percentage, effective for that day, that represents that investor's share of the aggregate interests in the Portfolio. 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 Portfolio will then be recomputed as the percentage equal to the fraction (i) the numerator of which is the value of such investor's investment in the Portfolio as of the time of determination on such day plus or minus, as the case may be, the amount of any additions to or withdrawals from the investor's investment in the Portfolio effected on such day, and (ii) the denominator of which is the aggregate net asset value of the Portfolio as of such time on such day plus or minus, as the case may be, the amount of the net additions to or withdrawals from the aggregate investments in the Portfolio by all investors in the Portfolio. The percentage so determined will then be applied to determine the value of the investor's interest in the Portfolio as of 15 minutes after the close of business of the NYSE on the next Pricing Day of the Portfolio. SHAREHOLDER SERVICES The Fund offers a number of shareholder services described below that are designed to facilitate investment in their shares. Full details as to each such service and copies of the various plans described below can be obtained from the Fund, the Distributor or your selected dealer. 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 income dividends and long-term capital gains distributions. The statements will also show any other activity in the account since the preceding statement. Shareholders will receive separate transaction confirmations for each purchase or sale transaction 26 65 other than automatic investment purchases and the reinvestment of ordinary income dividends, and long-term capital gains distributions. 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 the 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. 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. AUTOMATED INVESTMENT PLAN A shareholder may make additions to an Investment Account at any time by purchasing Class I shares (if an eligible Class I investor as described in the Prospectus) or Class A, Class B or Class C shares at the applicable public offering price either through the shareholder's securities dealer, or by mail directly to the Transfer Agent, acting as agent for such securities dealer. You may also add to your account by automatically investing a specific amount in the Fund on a periodic basis through your selected dealer. The current minimum for such automatic additional investments is $50. This minimum may be waived or revised under certain circumstances. AUTOMATIC DIVIDEND REINVESTMENT PLAN Dividends and distributions from the Fund may be taken in cash or automatically reinvested in shares of the Fund at net asset value without a sales charge. You should consult with your financial consultant about which option you would like. If you choose the reinvestment option, such reinvestment will be at the net asset value of shares of the Fund, without sales charge, as of the close of business on the ex-dividend date of the dividend or distribution. Shareholders may elect in writing or by telephone (1-888-763-2260) to receive either their dividends or capital gains distributions, or both, in cash, in which event payment will be mailed or direct deposited on or about the payment date, except that in all circumstances dividends less than ten dollars will be reinvested. Shareholders may, at any time, notify their selected dealer in writing if the shareholder's account is maintained with a selected dealer or notify the Transfer Agent in writing or by telephone (1-888-763-2260) that they no longer wish to have their dividend and/or capital gains distributions reinvested in shares of the Fund or vice versa and, 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 distribution or redemption checks. SYSTEMATIC REDEMPTION PROGRAM A shareholder may elect to make withdrawals from an Investment Account of Class I, Class A, Class B or Class C shares in the form of payments by check or through automatic payment by direct deposit to such shareholder's 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 27 66 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. With respect to shareholders who hold accounts directly at the Transfer Agent, redemptions will be made at net asset value as determined as described herein on the 24th day of each month or the 24th day of the last month of each quarter, whichever is applicable. With respect to shareholders who hold accounts with their broker-dealer, redemptions will be made at net asset value determined as described herein on the first, second, third or fourth Monday of each month, or the first, second, third or fourth Monday of the last month of each quarter, whichever is applicable. If the NYSE is not open for business on such date, the shares will be redeemed at the 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 shares of the Fund. A shareholder's systematic withdrawal plan may be terminated at any time, without a charge or penalty, by the shareholder, the Fund, the Fund's Transfer Agent or the Distributor. Withdrawal payments should not be considered as dividends, yield or income. Each withdrawal is a taxable event. If periodic withdrawals continuously exceed reinvested dividends, the shareholder's original investment may be reduced correspondingly. Purchases of additional shares concurrent with withdrawals are ordinarily disadvantageous to the shareholder because of sales charges and tax liabilities. 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. 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 "Pricing of Shares -- Class B and C Shares -- Deferred Sales Charge Options" in the Prospectus. Where the systematic withdrawal plan is applied to Class B shares, upon conversion of the last Class B shares in an account to Class A shares, a shareholder must make a new election to join the systematic withdrawal program with respect to the Class A shares. If an investor wishes to change the amount being withdrawn in a systematic withdrawal plan the investor should contact his or her financial consultant. RETIREMENT PLANS The minimum initial purchase to establish a retirement plan is $100. Capital gains and income received in retirement plans are exempt from Federal taxation until distributed from the plans. Investors considering participations in any such plan should review specific tax laws relating thereto and should consult their attorneys or tax advisors with respect to the establishment and maintenance of any such plan. EXCHANGE PRIVILEGE U.S. shareholders of each class of shares of the Fund have an exchange privilege with other Mercury mutual funds and Summit. The exchange privilege does not apply to any other funds. Under the Fund's pricing system, Class I shareholders may exchange Class I shares of the Fund for Class I shares of a second Mercury mutual fund. Class I shares also may be exchanged for Class I shares of a second Mercury mutual fund at any time as long as, at the time of the exchange, the shareholder is eligible to acquire Class I shares of any Mercury mutual fund. Class A, Class B and Class C shares are exchangeable with shares of the same class of other Mercury mutual funds. For purposes of computing the CDSC that may be payable upon a disposition 28 67 of the shares acquired in the exchange, the holding period for the previously owned shares of the Fund is "tacked" to the holding period of the newly acquired shares of the other fund as more fully described below. Class I, Class A, Class B and Class C shares also are exchangeable for shares of Summit, a money market fund specifically designated for exchange by holders of Class I, Class A, Class B or Class C shares. Class I and Class A shares will be exchanged for Class A shares of Summit, and Class B and Class C shares will be exchanged for Class B shares of Summit. Summit Class A and Class B shares do not include any front-end sales charge or CDSC; however, Summit Class B shares pay a 12b-1 distribution fee of 0.75% and are subject to a CDSC payable as if the shareholder still held shares of the Mercury fund used to acquire the Summit Class B shares. Exchanges of Class I or Class A shares outstanding ("outstanding Class I or Class A shares") for Class I or Class A shares of another Mercury mutual fund, or for Class A shares of Summit ("new Class I or Class A shares") are transacted on the basis of relative net asset value per Class I or Class A share, respectively, plus an amount equal to the difference, if any, between the sales charge previously paid on the outstanding Class I or Class A shares and the sales charge payable at the time of the exchange on the new Class I or Class A shares. With respect to outstanding Class I or Class A shares as to which previous exchanges have taken place, the "sales charge previously paid" shall include the aggregate of the sales charges paid with respect to such Class I or Class A shares in the initial purchase and any subsequent exchange. Class I or Class A shares issued pursuant to dividend reinvestment are sold on a no-load basis in each of the funds offering Class I or Class A shares. For purposes of the exchange privilege, dividend reinvestment Class I and Class A shares shall be deemed to have been sold with a sales charge equal to the sales charge previously paid on the Class I or Class A shares on which the dividend was paid. Based on this formula, Class I and Class A shares of the Fund generally may be exchanged into the Class I and Class A shares, respectively, of the other funds with a reduced or without a sales charge. In addition, each of the funds with Class B and Class C shares outstanding ("outstanding Class B or Class C shares") offers to exchange its Class B or Class C shares for Class B or Class C shares, respectively (or, in the case of Summit, Class B shares) ("new Class B or Class C shares"), of another Mercury mutual fund or of Summit on the basis of relative net asset value per Class B or Class C share, without the payment of any CDSC that might otherwise be due on redemption of the outstanding shares. Class B shareholders of the Fund exercising the exchange privilege will continue to be subject to the 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 has been made. For purposes of computing the sales charge that may be payable on a disposition of the new Class B or Class C shares, the holding period for the outstanding Class B shares is "tacked" to the holding period of the new Class B or Class C shares. For example, an investor may exchange Class B shares of the Fund for those of another Mercury fund ("New Mercury Fund") after having held the 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's Class B shares to the four year holding period for the New Mercury Fund Class B shares, the investor will be deemed to have held the New Mercury Fund Class B shares for more than six years. Before effecting an exchange, shareholders should obtain a currently effective prospectus of the fund into which the exchange is to be made. To exercise the exchange privilege, shareholders should contact their financial consultant, who will advise the Fund of the exchange. Shareholders of 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 29 68 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. FEE-BASED PROGRAMS Certain fee-based programs, including pricing alternatives for securities transactions (each referred to in this paragraph as a "Program"), may permit the purchase of Class I shares at net asset value. Under specified circumstances, participants in certain Programs may deposit other classes of shares, which will be exchanged for Class I shares. Initial or deferred sales charges otherwise due in connection with such exchanges may be waived or modified, as may the Conversion Period applicable to the deposited shares. Termination of participation in certain Programs may result in the redemption of shares held therein or the automatic exchange thereof to another class at net asset value. In addition, upon termination of participation in certain Programs, shares that have been held for less than specified periods within such Program may be subject to a fee based upon the current value of such shares. These Programs also generally prohibit such shares from being transferred to another account, to another broker-dealer or to the Transfer Agent. Except in limited circumstances (which may also involve an exchange as described above), such shares must be redeemed and another class of shares purchased (which may involve the imposition of initial or deferred sales charges and distribution and account maintenance fees) in order for the investment not to be subject to Program fees. Additional information regarding certain specific Programs offered through particular selected dealers (including charges and limitations on transferability applicable to shares that may be held in such Program) is available in the Program's client agreement and from the shareholder's selected dealer. DIVIDENDS, DISTRIBUTIONS AND TAXES DIVIDENDS AND DISTRIBUTIONS The Fund intends to distribute all its net investment income, if any. Dividends from such net investment income will be paid at least annually. All net realized capital gains, if any, will be distributed to the Fund's shareholders 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 a Federal income tax requirement that certain percentages of its ordinary income and capital gains be distributed during the calendar year. See "Shareholder Services -- Automatic Dividend Reinvestment Plan" for information concerning the manner in which dividends and distributions may be reinvested automatically in shares of the Fund. Shareholders may elect in writing to receive any such dividends or distributions, or both, in cash. Dividends and distributions are taxable to shareholders, as discussed below, whether they are reinvested in shares of the Fund or received in cash. The per share dividends and distributions on Class B and Class C shares will be lower than the per share dividends and distributions 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 and distributions on Class A shares will be lower than the per share dividends and distributions on Class I shares as a result of the account maintenance fees applicable with respect to the Class A shares. See "Determination of Net Asset Value." Within 60 days after the end of the Fund's taxable year, each shareholder will receive notification summarizing the dividends and distributions he or she received that year. It will also indicate whether those distributions should be treated as ordinary income or long-term capital gains. TAXES The Fund intends to continue to qualify for the special tax treatment afforded regulated investment companies ("RICs") under the Code. As long as the Fund so qualifies, the Fund (but not its shareholders) will not be subject to Federal income tax on the part of its net ordinary income and net realized capital gains that it distributes to Class I, Class A, Class B and Class C shareholders ("shareholders"). The Fund intends to distribute substantially all of such income. To qualify for this treatment, the Fund must, among other things, (a) derive at least 90% of its gross income (without offset for losses from the sale or other disposition of securities or foreign currencies) from dividends, interest, payments with respect to securities loans, gains 30 69 from the sale or other disposition of securities or foreign currencies and certain financial futures, options and forward contracts (the "Income Test"); and (b) diversify its holdings so that, at the end of each quarter of the taxable year, (i) at least 50% of the value of its assets is represented by cash, U.S. Government securities and other securities limited in respect of any one issuer to an amount no greater than 5% of its assets and 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of its assets is invested in the securities of any one issuer (other than U.S. Government securities). Gains from the sale of precious metals (as well as other physical commodities) will not constitute qualifying income for purposes of the Income Test, described above. The Fund, therefore, may be required to hold its precious metals or sell them at a loss, or to sell other securities at a gain, when it would not otherwise do so for investment reasons. Dividends paid by the Fund from its ordinary income and distributions of the Fund's net realized short-term capital gains (together referred to hereafter as "ordinary income dividends") are taxable to shareholders as ordinary income, whether or not reinvested. Any net capital gains (i.e., the excess of net capital gains from the sale of assets held for more than 12 months over net short-term capital losses, and including such gains from certain transactions in futures and options) distributed to shareholders will be taxable as capital gains to the shareholders, whether or not reinvested and regardless of the length of time a shareholder has owned his or her shares. The maximum capital gains rate for individuals is 20% with respect to assets held for more than 12 months. The maximum capital gains rate for corporate shareholders currently is the same as the maximum tax rate for ordinary income. Not later than 60 days after the close of its taxable year, the Fund will provide its shareholders with a written notice designating the amounts of any dividends or capital gains distributions, and also designating the amounts of various categories of capital gain income in capital gain dividends. A portion of the dividends paid by the Fund out of dividends paid by certain corporations located in the U.S. may be eligible for the dividends received deduction allowed to corporations under the Code. Because the Fund invests a large portion of its assets in securities of non-U.S. issuers, it is not anticipated that a significant portion, if any, of the dividends paid by the Fund will be eligible for the dividends received deduction. 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 or distribution will be treated for tax purposes as being paid by the Fund and received by its shareholders on December 31 of the year in which such dividend was declared. Dividends and interest received by the Fund may give rise to withholding and other taxes imposed by non-U.S. countries. Tax conventions between certain countries and the United States may reduce or eliminate such taxes. If more than 50% of the value of the Fund's assets at the close of a taxable year consists of stock or securities in non-U.S. corporations, shareholders of the Fund may be able to claim U.S. foreign tax credits with respect to foreign taxes paid by the Fund, subject to certain provisions and limitations contained in the Code. For example, certain retirement accounts cannot claim foreign tax credits on investments in foreign securities held by the Fund. The Fund expects to be eligible, and intends, to file an election with the Internal Revenue Service pursuant to which shareholders of the Fund will be required to include their proportionate share of such withholding taxes in their U.S. income tax returns as gross income, treat such proportionate share as taxes paid by them, and deduct such proportionate share in computing their taxable incomes or, alternatively, subject to certain limitations, restrictions, and holding period requirements use them as foreign tax credits against their U.S. income taxes. No deductions for foreign taxes, however, may be claimed by noncorporation shareholders who do not itemize deductions. A shareholder that is a nonresident alien individual or a foreign corporation may be subject to U.S. withholding tax on the income resulting from the Fund's election described in this paragraph but may not be able to claim a credit or deduction against such U.S. tax for the foreign taxes treated as having been paid by such shareholder. The Fund will report annually to its shareholders the amount per share of such withholding taxes. For this purpose, the Fund will allocate foreign taxes and foreign source income among the Class I, Class A, Class B and Class C shareholders. Under Code Section 988, special rules are provided for certain transactions in a foreign currency other than the taxpayer's functional currency (i.e., unless certain special rules apply, currencies other than the 31 70 United States dollar). In general, foreign currency gains or losses from certain forward contracts, from futures contracts that are not "regulated futures contracts" and from unlisted options will be treated as ordinary income or loss under Code Section 988. In certain circumstances, the Fund may elect capital gain or loss treatment for such transactions. In general, however, Code Section 988 gains or losses will increase or decrease the amount of the Fund's investment company taxable income available to be distributed to shareholders as ordinary income, rather than increasing or decreasing the amount of the Fund's net capital gains. Additionally, if Code Section 988 losses exceed other investment company taxable income during a taxable year, the Fund would not be able to make any ordinary dividend distributions, and any distributions made before the losses were realized but in the same taxable year would be recharacterized as a return of capital to shareholders, thereby reducing the basis of each shareholder's Fund shares. Under certain provisions of the Code, some shareholders may be subject to a 31% withholding tax on ordinary income dividends, capital gains distributions and redemption payments ("backup withholding"). Generally, shareholders subject to backup withholding will be those for whom a certified taxpayer identification number is not on file with the Corporation or who, to the Corporation'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 shareholder is not otherwise subject to backup withholding. Ordinary income dividends paid by the Fund to shareholders who are non-resident aliens or foreign entities generally will be subject to a 30% United States withholding tax under existing provisions of the Code applicable to foreign individuals and entities unless a reduced rate of withholding or a withholding exemption is provided under applicable treaty law. Non-resident shareholders are urged to consult their own tax advisors concerning the applicability of the United States withholding tax. No gain or loss will be recognized by Class B shareholders on the conversion of their Class B shares for Class A shares. A 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 of the converted Class B shares. Upon a sale or exchange of its shares, a shareholder will realize a taxable gain or loss depending on its basis in the shares. Such gain or loss will be treated as capital gain or loss if the shares are capital assets in the shareholder's hands. In the case of an individual, any such capital gain will be treated as short-term capital gain, taxable at the same rates as ordinary income if the shares were held for not more than 12 months and capital gain taxable at the maximum rate of 20% if such shares were held for more than 12 months. In the case of a corporation, any such capital gain will be treated as long-term capital gain, taxable at the same rates as ordinary income, if such shares were held for more than 12 months. Any such loss will be treated as long-term capital loss if such shares were held for more than 12 months. A loss recognized on the sale or exchange of shares held for six months or less, however, will be treated as long-term capital loss to the extent of any long-term capital gains distribution with respect to such shares. If a shareholder exercises an exchange privilege within 90 days of acquiring shares of the Fund, then any loss recognized on the exchange will be reduced (or any gain increased) to the extent the sales charge paid to the Fund reduces any sales charge that would have been owed upon the purchase of the new shares in the absence of the exchange privilege. Instead, such sales will be treated as an amount paid for the new shares. Generally, any loss realized on a sale or exchange of shares of the Fund will be disallowed if other shares of the Fund are acquired (whether through the automatic reinvestment of dividends or otherwise) within a 61-day period beginning 30 days before and ending 30 days after the date that the shares are disposed of. In such a case, the basis of the shares acquired will be adjusted to reflect the disallowed loss. The Code requires a RIC to pay a nondeductible 4% excise tax to the extent the RIC does not distribute, during each calendar year, 98% of its ordinary income, determined on a calendar year basis, and 98% of its capital gains, determined, in general, on an October 31 year end, plus certain undistributed amounts from previous years. The Fund anticipates that it will make sufficient timely distributions to avoid imposition of the excise tax. 32 71 TAX TREATMENT OF OPTIONS AND FUTURES TRANSACTIONS The Fund may purchase or sell options and futures and foreign currency options and futures, and related options on such futures. Options and futures contracts that are "Section 1256 contracts" will be "marked to market" for Federal income tax purposes at the end of each taxable year, i.e., each option or futures contract will be treated as sold for its fair market value on the last day of the taxable year. In general, unless a special election is made, gain or loss from transactions in Section 1256 contracts will be 60% long-term and 40% short-term capital gain or loss. Code Section 1092, which applies to certain "straddles," may affect the taxation of the Fund's 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 closing transactions in options, futures and forward foreign exchange contracts. Similarly, Code Section 1091, which deals with "wash sales," may cause the Fund to postpone recognition of certain losses for tax purposes; and Code Section 1258, which deals with "conversion transactions," may apply to recharacterize certain capital gains as ordinary income for tax purposes. Code Section 1259, which deals with "constructive sales" of appreciated financial positions (e.g., stock), may treat the Fund as having recognized income before the time that such income is economically recognized by the Fund. OTHER TAX MATTERS Prior to the commencement of operations, the Fund shall have received a private letter ruling from the Internal Revenue Service ("IRS") or an opinion of counsel, to the effect that, because each Portfolio is classified as a partnership for tax purposes, the Fund will be entitled to look to the underlying assets of the Portfolio in which it has invested for purposes of satisfying various requirements of the Code applicable to RICs. If any of the facts upon which such ruling is premised change in any material respect (e.g., if the Trust were required to register its interests under the Securities Act) and the Trust is unable to obtain a private letter ruling from the IRS or an opinion of counsel indicating that each Portfolio will continue to be classified as a partnership, then the Board of Directors of the Corporation will determine, in its discretion, the appropriate course of action for the Fund. One possible course of action would be to withdraw the Fund's investments from the Portfolio and to retain an investment adviser to manage the Fund's assets in accordance with the investment policies applicable to the Fund. See "Investment Objectives and Policies." ------------------------ The foregoing is a general and abbreviated summary of the applicable provisions of the Code and the Treasury regulations presently in effect. For the complete provisions, reference should be made to the pertinent Code sections and the Treasury regulations promulgated thereunder. The Code and the Treasury regulations are subject to change by legislative or administrative action either prospectively or retroactively. Dividends and capital gains distributions and gains on the sale or exchange of shares in the Fund may also be subject to state and local taxes. Shareholders are urged to consult their own tax advisors regarding specific questions as to Federal, state, local or foreign taxes. Foreign investors should consider applicable foreign taxes in their evaluation of an investment in the Fund. 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 33 72 gains or losses on portfolio investments over such periods) that would equate the initial amount invested to the redeemable value of such investment at the end of each period. Average annual total return is computed assuming all dividends and distributions are reinvested and taking into account all applicable recurring and nonrecurring expenses, including the maximum sales charge in the case of Class I and Class A shares and the CDSC that would be applicable to a complete redemption of the investment at the end of the specified period in the case of Class B and Class C shares. The Fund also may quote annual, average annual and annualized total return and aggregate total return performance data, both as a percentage and as a dollar amount based on a hypothetical $1,000 investment, for various periods other than those noted below. Such data will be computed as described above, except that (1) as required by the periods of the quotations, actual annual, annualized or aggregate data, rather than average annual data, may be quoted and (2) the maximum applicable sales charges will not be included. Actual annual or annualized total return data generally will be lower than average annual total return data since the average rates of return reflect compounding of return; aggregate total return data generally will be higher than average annual total return data since the aggregate rates of return reflect compounding over a longer period of time. 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, among other things, the Standard & Poor's 500 Composite Stock Price Index, the Value Line Composite Index, the Dow Jones Industrial Average, the Financial Times Gold Mines Index, the MSCI Gold Index, the Johannesburg Stock Exchange All Gold Index, the Australian Gold Index, Toronto Gold Index and the Philadelphia Gold and Silver Index, the MSCI ex North America, the MSCI Europe, the MSCI Japan, TSE 1st Section (TOPIX) or other published indices, or to data contained in publications such as Lipper Analytical Services, Inc., Morningstar Publications, Inc. ("Morningstar"), other competing universes, Money Magazine, U.S. News & World Report, Business Week, Forbes Magazine, Fortune Magazine and CDA Investment Technology, Inc. From time to time, the Fund may include its Morningstar risk-adjusted performance rating in advertisements or supplemental sales literature. The Fund may quote in advertisement or use other applicable measures of performance. GENERAL INFORMATION DESCRIPTION OF SHARES The Corporation is a Maryland corporation incorporated on April 24, 1998. It has an authorized capital of 2,800,000,000 shares of Common Stock, par value $.0001 per share, divided into 100,000,000 shares of each of Class I, Class A, Class B and Class C shares for each of its series. 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 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 Corporation, in which event the holders of the remaining shares are unable to elect any person as a Director. No amendment may be made to the Articles of Incorporation without the affirmative vote of a majority of the outstanding shares of the Corporation. 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 34 73 which time the Directors then in office will call a shareholders' meeting for the election of Directors. Shareholders may, in accordance with the terms of the Articles of Incorporation, cause a meeting of shareholders to be held for the purpose of voting on the removal of Directors. Also, the Corporation will be required to call a special meeting of shareholders in accordance with the requirements of the Investment Company Act to seek approval of new management and advisory arrangements, of a material increase in account maintenance fees or of a change in fundamental policies, objectives or restrictions. Except as set forth above, the Directors 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 that, as noted above, Class A shares bear certain additional expenses. Shares issued are fully-paid and non-assessable by the Corporation or the Fund. Voting rights for Directors are not cumulative. The Trust consists of seven portfolios and is organized as a Delaware Business Trust. Whenever the Fund is requested to vote on any matter relating to the Portfolio, the Corporation will hold a meeting of the Fund's shareholders and will cast its vote as instructed by the Fund's shareholders. Mercury International provided the initial capital for the Fund by purchasing shares of the Fund, for an aggregate of $ . Such shares were acquired for investment and can only be disposed of by redemption. To the extent the organizational expenses of the Corporation are paid by the Corporation they will be expensed and immediately charged to net asset value. See "Determination of Net Asset Value." Prior to the offering of the Fund's shares, Mercury International will be the Fund's sole shareholder and deemed a controlling person of the Fund. COMPUTATION OF OFFERING PRICE PER SHARE An illustration of the computation of the offering price for Class I, Class A, Class B and Class C shares of the Fund based on the projected value of the Fund's estimated net assets and projected number of shares outstanding on the date its shares are offered for sale to public investors is as follows:
CLASS I CLASS A CLASS B CLASS C ------- ------- ------- ------- Net Assets............................ $6,250,000 $6,250,000 $6,250,000 $6,250,000 ========== ========== ========== ========== Number of Shares Outstanding.......... 625,000 625,000 625,000 625,000 ========== ========== ========== ========== 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 ========== ========== ========== ==========
- --------------- * 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, 117 Campus Drive, Princeton, New Jersey 08540, have been selected as the independent auditors of the Fund. The independent auditors are responsible for auditing the annual financial statements of the Fund. 35 74 CUSTODIAN Brown Brothers Harriman & Co., 40 Water Street, Boston, Massachusetts 02109, acts as the custodian of the Fund's assets. Under its contract with the Fund, the Custodian is authorized to establish separate accounts in foreign currencies and to cause foreign securities owned by the Fund to be held in its offices outside the United States and with certain foreign banks and securities depositories. The custodian is responsible for safeguarding and controlling the Fund's cash and securities, handling the receipt and delivery of securities and collecting interest and dividends on 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 Swidler Berlin Shereff Friedman, LLP, 919 Third Avenue, New York, New York 10022, is counsel for the Fund. REPORTS TO SHAREHOLDERS The Fund sends to its shareholders at least semi-annually reports showing the Fund's portfolio and other information. An annual report, containing financial statements audited by independent auditors, is sent to shareholders each year. After the end of each year, shareholders will receive Federal income tax information regarding dividends and capital gains distributions. ADDITIONAL INFORMATION The Prospectus and this Statement of Additional Information do not contain all the information set forth in the Registration Statement and the exhibits relating thereto, which the Corporation has filed with the Commission, Washington, D.C., under the Securities Act and the Investment Company Act, to which reference is hereby made. ------------------------ 36 75 APPENDIX A INVESTMENT POLICIES INVOLVING THE USE OF INDEXED SECURITIES, OPTIONS, FUTURES, SWAPS AND FOREIGN EXCHANGE The Fund and the Portfolio are authorized to use certain derivative instruments, including indexed and inverse securities, options, futures, and swaps, and to purchase and sell foreign exchange, as described below. Such instruments are referred to collectively herein as "Strategic Instruments." Although certain risks are involved in options and futures transactions (as defined below in "Risk Factors in Options, Futures and Currency Instruments"), the Investment Adviser believes that, because the Fund will generally engage in these transactions for hedging purposes, including anticipatory hedges (other than options on securities that may be used to seek increased return), the options and futures portfolio strategies of the Fund will not subject the Fund to the risks frequently associated with the speculative use of options and futures transactions. While the Fund's use of hedging strategies is intended to reduce the volatility of the net asset value of Fund shares, the Fund's net asset value will fluctuate. There can be no assurance that the Fund's hedging transactions will be effective. Furthermore, the Fund will engage in hedging activities only from time to time and may not necessarily be engaging in hedging activities when movements in the equity markets, interest rates or currency exchange rates occur. INDEXED AND INVERSE SECURITIES The Fund may invest in securities the potential return of which is based on the change in particular measurements of value or rate (an "index"). As an illustration, the Fund may invest in a debt security that pays interest and returns principal based on the change in the value of a securities index or a basket of securities, or based on the relative changes of two indices. In addition, the Fund may invest in securities the potential return of which is based inversely on the change in an index. For example, the Fund may invest in securities that pay a higher rate of interest when a particular index decreases and pay a lower rate of interest (or do not fully return principal) when the value of the index increases. If the Fund invests in such securities, it may be subject to reduced or eliminated interest payments or loss of principal in the event of an adverse movement in the relevant index or indices. Furthermore, where such a security includes a contingent liability, in the event of such an adverse movement, the Fund may be required to pay substantial additional margin to maintain the position. Certain indexed and inverse securities may have the effect of providing investment leverage because the rate of interest or amount of principal payable increases or decreases at a rate that is a multiple of the changes in the relevant index. As a consequence, the market value of such securities may be substantially more volatile than the market values of other debt securities. The Fund believes that indexed and inverse securities may provide portfolio management flexibility that permits the Fund to seek enhanced returns, hedge other portfolio positions or vary the degree of portfolio leverage with greater efficiency than would otherwise be possible under certain market conditions. OPTIONS ON SECURITIES AND SECURITIES INDICES Purchasing Options. The Fund is authorized to purchase put options on equity securities held in its portfolio or securities indices the performance of which is substantially replicated by securities held in its portfolio. When the Fund purchases a put option, in consideration for an upfront payment (the "option premium") the Fund acquires a right to sell to another party specified securities owned by the Fund at a specified price (the "exercise price") on or before a specified date (the "expiration date"), in the case of an option on securities, or to receive from another party a payment based on the amount a specified securities index declines below a specified level on or before the expiration date, in the case of an option on a securities index. The purchase of a put option limits the Fund's risk of loss in the event of a decline in the market value of the portfolio holdings underlying the put option prior to the option's expiration date. If the market value of the portfolio holdings associated with the put option increases rather than decreases, however, the Fund will lose the option premium and will consequently realize a lower return on the portfolio holdings than would have been realized without the purchase of the put. A-1 76 The Fund is also authorized to purchase call options on securities it intends to purchase or securities indices the performance of which substantially replicates the performance of 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. The Fund is also authorized to purchase put or call options in connection with closing out put or call options it has previously sold. Writing Options. The Fund is authorized to write (i.e., sell) call options on securities held in its portfolio or securities indices the performance of which is substantially replicated by securities held in its portfolio. When the Fund writes a call option, in return for an option premium the Fund is legally obligated to sell 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 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, however much the exercise price exceeds the market price. 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. The Fund may also write put options on securities or securities indices. When the Fund writes a put option, in return for an option premium the Fund gives another party the right to sell to the Fund a specified security at the exercise price on or before the expiration date, in the case of an option on a security, or agrees to pay to another party an amount based on any decline in a specified securities index below a specified level on or before the expiration date, in the case of an option on a securities index. The Fund may write put 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 right under the option because the value of the underlying securities is greater than the exercise price, the Fund will profit by the amount of the option premium. By writing a put option, however, the Fund will be obligated to purchase the underlying security at a price that may be higher than the market value of the security at the time of exercise as long as the put option is outstanding, in the case of an option on a security, or make a cash payment reflecting any decline in the index, in the case of an option on an index. Accordingly, when the Fund writes a put option it is exposed to a risk of loss in the event the value of the underlying securities falls below the exercise price, which loss potentially may substantially exceed the amount of option premium received by the Fund for writing the put option. The Fund will write a put option on a security or a securities index only if the Fund would be willing to purchase the security at the exercise price for investment purposes (in the case of an option on a security) or is writing the put in connection with trading strategies involving combinations of options -- for example, the sale and purchase of options with identical expiration dates on the same security or index but different exercise prices (a technique called a "spread"). The Fund is also authorized to sell put or call options in connection with closing out call or put options it has previously purchased. Other than with respect to closing transactions, the Fund will write only call or put options that are "covered." A put option will be considered covered if the Fund has segregated assets with respect to such A-2 77 option in the manner described in "Risk Factors in Options, Futures and Currency Instruments" below. A call option will 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 that substantially correlate with the performance of such index) or owns a call option, warrant or convertible instrument that 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 risk of counterparty default. See "Additional Risk Factors of OTC Transactions; Limitations on the Use of OTC Strategic Instruments" below. 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 a commodity 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 with the Futures Commission Merchants (the "FCM") effecting the Fund's exchanges or in a third-party account with the Fund's Custodian. 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. Whether the margin is deposited with the FCM or with the Custodian, the margin may be deemed to be in the FCM's custody, and, consequently, in the event of default due to the FCM's bankruptcy, the margin may be subject to pro rata treatment as the FCM's assets, which could result in potential losses to the Fund and its shareholders. Even if a transaction is profitable, the Fund may not get back the same assets which were deposited as margin or may receive payment in cash. 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 future's 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 commodity 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. SWAPS The Fund is authorized to enter into equity swap agreements, which are OTC contracts in which one party agrees to make periodic payments based on the change in market value of a specified equity security, basket of equity securities or equity index in return for periodic payments based on a fixed or variable interest rate or the change in market value of a different equity security, basket of equity securities or equity index. A-3 78 Swap agreements may be used to obtain exposure to an equity or market without owning or taking physical custody of securities. The Fund will enter into a swap transaction only if, immediately following the time the Fund enters into the transaction, the aggregate notional principal amount of swap transactions to which the Fund is a party would not exceed 5% of the Fund's net assets. 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 are OTC contracts to purchase or sell a specified amount of a specified currency or multinational currency unit at a price and future date set at the time of the contract. Spot foreign exchange transactions are similar but require current, rather than future, settlement. The Fund will enter into foreign exchange transactions only for purposes of hedging either a specific transaction or a portfolio position. The Fund may enter into a foreign exchange transaction for purposes of hedging a specific transaction by, for example, purchasing a currency needed to settle a security transaction at a future date or selling a currency in which the Fund has received or anticipates receiving a dividend or distribution. The Fund may enter into a foreign exchange transaction for purposes of hedging a portfolio position by selling forward a currency in which a portfolio position of the Fund is denominated or by purchasing a currency in which the Fund anticipates acquiring a portfolio position in the near future. The Fund may also hedge portfolio positions through currency 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. The Fund may also hedge against the decline in the value of a currency against the U.S. dollar through use of currency futures or options thereon. Currency futures are similar to forward foreign exchange transactions except that futures are standardized, exchange-traded contracts. See "Futures" above. 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, however, hedge a currency by entering into a transaction in a Currency Instrument denominated in a currency other than the currency being hedged (a "cross-hedge"). The Fund will only enter into a cross-hedge if the Investment Adviser believes that (i) there is a demonstrably 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. 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 that it owns (including receivables for unsettled securities sales), or has committed to or anticipates purchasing, which are denominated in such currency. Risk Factors in Hedging Foreign Currency Risks. 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 may not be accurately predicted and the Fund's hedging strategies may be ineffective. To the extent that the Fund hedges against anticipated currency movements that do not occur, the Fund may realize losses, and decrease its total return, as the result of its hedging transactions. Furthermore, the Fund will only engage in hedging activities from time to time and may not be engaging in hedging activities when movements in currency exchange rates occur. It may not be possible for the Fund to A-4 79 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 or in which their availability is limited (such as certain emerging markets) and it is not possible to engage in effective foreign currency hedging. RISK FACTORS IN OPTIONS, FUTURES, AND CURRENCY INSTRUMENTS Use of Strategic Instruments for hedging purposes involves the risk of imperfect correlation in movements in the value of the Strategic Instruments and the value of the instruments being hedged. If the value of the Strategic Instruments 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 Strategic Instruments 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 Strategic Instruments." However, there can be no assurance that, at any specific time, either a liquid secondary market will exist for a Strategic Instrument or the Fund will otherwise be able to sell such instrument at an acceptable price. Therefore, it may not be possible to close a position in a Strategic Instrument without incurring substantial losses, if at all. Certain transactions in Strategic Instruments (e.g., forward foreign exchange transactions, futures transactions, sales of put options) may expose the Fund to potential losses that exceed the amount originally invested by the Fund in such instruments. 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 Commission). Such segregation will ensure that the Fund has assets available to satisfy its obligations with respect to the transactions, but will not limit the Fund's exposure to loss. ADDITIONAL RISK FACTORS OF OTC TRANSACTIONS; LIMITATIONS ON THE USE OF OTC STRATEGIC INSTRUMENTS Certain Strategic Instruments traded in OTC markets, including indexed securities, swaps and OTC options, may be substantially less liquid than other instruments in which the Fund may invest. The absence of liquidity may make it difficult or impossible for the Fund to sell such instruments promptly at an acceptable price. The absence of liquidity may also make it more difficult for the Fund to ascertain a market value for such instruments. The Fund will therefore acquire illiquid OTC instruments (i) if the agreement pursuant to which the instrument is purchased contains a formula price at which the instrument may be terminated or sold, or (ii) for which the Investment Adviser anticipates the Fund can receive on each business day at least two independent bids or offers, unless a quotation from only one dealer is available, in which case that dealer's quotation may be used. The staff of the Commission has taken the position that purchased OTC options and the assets underlying written OTC options are illiquid securities. The Fund has therefore adopted an investment policy pursuant to which the Fund will not purchase or sell OTC options (including OTC options on futures contracts) if, as a result of such transactions, the sum of the market value of OTC options currently outstanding that are held by the Fund, the market value of the securities underlying OTC call options currently outstanding that have been sold by the Fund and margin deposits on the Fund's outstanding OTC options exceeds 15% of the net assets of the Fund, taken at market value, together with all other assets of the Fund that are deemed to be illiquid or are otherwise not readily marketable. However, if an OTC option is sold by the Fund to a dealer in U.S. government securities recognized as a "primary dealer" by the Federal Reserve Bank of New York and the Fund has the unconditional contractual right to repurchase such OTC option at a predetermined price, then the Fund will treat as illiquid such amount of the underlying securities as equal to the repurchase price less the amount by which the option is "in-the-money" (i.e., current market value of the underlying security minus the option's exercise price). A-5 80 Because Strategic Instruments 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 default by engaging in transactions in Strategic Instruments traded in OTC markets only with financial institutions that have a credit rating of AA- or better from Standard & Poor's, or Aa3 or better from Moody's, or AA or better of Fitch. ADDITIONAL LIMITATIONS ON THE USE OF STRATEGIC INSTRUMENTS The Fund may not use any Strategic Instrument to gain exposure to an asset or class of assets that it would be prohibited by its investment restrictions from purchasing directly. A-6 81 APPENDIX B RATINGS OF FIXED INCOME SECURITIES DESCRIPTION OF MOODY'S INVESTORS SERVICES, INC.'S CORPORATE DEBT RATINGS Aaa Bonds that are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa Bonds that are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present that make the long-term risks appear somewhat larger than in Aaa securities. A Bonds that are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present that suggest a susceptibility to impairment sometime in the future. Baa Bonds that are rated Baa are considered as medium grade obligations; i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba Bonds that are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate, and therefore not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B Bonds that are rated B generally lack characteristics of desirable investments. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Caa Bonds that are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Ca Bonds that are rated Ca represent obligations that are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C Bonds that are rated C are the lowest rated bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.
Note: Moody's may apply numerical modifiers 1, 2 and 3 in each generic classification from Aa through B in its corporate bond rating system. The modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking, and the modifier 3 indicates that the issue ranks in the lower end of its generic category. DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS The term "commercial paper" as used by Moody's means promissory obligations not having an original maturity in excess of nine months. Moody's makes no representations as to whether such commercial paper is by any other definition "commercial paper" or is exempt from registration under the Securities Act, as amended. Moody's commercial paper ratings are opinions of the ability of issuers to repay punctually promissory obligations not having an original maturity in excess of nine months. Moody's makes no representation that such obligations are exempt from registration under the Securities Act, nor does it represent that any specific B-1 82 note is a valid obligation of a rated issuer or issued in conformity with any applicable law. Moody's employs the following three designations, all judged to be investment grade, to indicate the relative repayment capacity of rated issuers: Issuers rated Prime-1 (or related supporting institutions) have a superior capacity for repayment of short-term promissory obligations. Prime-1 repayment capacity will normally be evidenced by the following characteristics: - Leading market positions in well-established industries - High rates of return on funds employed - Conservative capitalization structures with moderate reliance on debt and ample asset protection - Broad margins in earnings coverage of fixed financial charges and higher internal cash generation - Well established access to a range of financial markets and assured sources of alternate liquidity Issuers rated Prime-2 (or related supporting institutions) have a strong capacity for repayment of short-term promissory obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. Issuers rated Prime-3 (or related supporting institutions) have an acceptable capacity for repayment of short-term promissory obligations. The effect of industry characteristics and market composition may be more pronounced. Variability in earnings and profitability may result in changes in level of debt protection measurements and the requirement for relatively high financial leverage. Adequate alternative liquidity is maintained. Issuers rated Not Prime do not fall within any of the Prime rating categories. If an issuer represents to Moody's that its commercial paper obligations are supported by the credit of another entity or entities, then the name or names of such supporting entity or entities are listed within parentheses beneath the name of the issuer, or there is a footnote referring the reader to another page for the name or names of the supporting entity or entities. In assigning ratings to such issuers, Moody's evaluates the financial strength of the indicated affiliated corporations, commercial banks, insurance companies, foreign governments or other entities, but only as one factor in the total rating assessment. Moody's makes no representation and gives no opinion on the legal validity or enforceability of any support arrangement. You are cautioned to review with your counsel any questions regarding particular support arrangements. DESCRIPTION OF MOODY'S PREFERRED STOCK RATINGS Because of the fundamental differences between preferred stocks and bonds, a variation of the bond rating symbols is being used in the quality ranking of preferred stocks. The symbols, presented below, are designed to avoid comparison with bond quality in absolute terms. It should always be borne in mind that preferred stocks occupy a junior position to bonds within a particular capital structure and that these securities are rated within the universe of preferred stocks. Preferred stock rating symbols and their definitions are as follows: aaa An issue that is rated "aaa" is considered to be a top-quality preferred stock. This rating indicates good asset protection and the least risk of dividend impairment within the universe of preferred stocks. aa An issue that is rated "aa" is considered a high-grade preferred stock. This rating indicates that there is reasonable assurance that earnings and asset protection will remain relatively well maintained in the foreseeable future.
B-2 83 a An issue that is rated "a" is considered to be an upper-medium grade preferred stock. While risks are judged to be somewhat greater than in the "aaa" and "aa" classifications, earnings and asset protection are, nevertheless, expected to be maintained at adequate levels. baa An issue that is rated "baa" is considered to be medium grade, neither highly protected nor poorly secured. Earnings and asset protection appear adequate at present but may be questionable over any great length of time. ba An issue that is rated "ba" is considered to have speculative elements and its future cannot be considered well assured. Earnings and asset protection may be very moderate and not well safeguarded during adverse periods. Uncertainty of position characterizes preferred stocks in this class. b An issue that is rated "b" generally lacks the characteristics of a desirable investment. Assurance of dividend payments and maintenance of other terms of the issue over any long period of time may be small. caa An issue that is rated "caa" is likely to be in arrears on dividend payments. This rating designation does not purport to indicate the future status of payments. ca An issue that is rated "ca" is speculative in a high degree and is likely to be in arrears on dividends with little likelihood of eventual payment. c This is the lowest rated class of preferred or preference stock. Issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.
Note: Moody's may apply numerical modifiers 1, 2 and 3 in each rating classification from "aa" through "b" in its preferred stock rating system. The modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category. DESCRIPTION OF STANDARD & POOR'S CORPORATE DEBT RATINGS A Standard & Poor's corporate or municipal rating is a current assessment of the creditworthiness of an obligor with respect to a specific obligation. This assessment may take into consideration obligers such as guarantors, insurers, or lessees. The debt rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment as to market price or suitability for a particular investor. The ratings are based on current information furnished by the issuer or obtained by Standard & Poor's from other sources it considers reliable. Standard & Poor's does not perform an audit in connection with any rating and may, on occasion, rely on unaudited financial information. The ratings may be changed, suspended or withdrawn as a result of changes in, or unavailability of, such information, or for other reasons. The ratings are based, in varying degrees, on the following considerations: (1) likelihood of default-capacity and willingness of the obligor as to the timely payment of interest and repayment of principal in accordance with the terms of the obligation; (2) nature of and provisions of the obligation; and (3) protection afforded by, and relative position of, the obligation in the event of bankruptcy, reorganization or other arrangement under the laws of bankruptcy and other laws affecting creditors' rights. AAA Debt rated AAA has the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong. AA Debt rated AA has a very strong capacity to pay interest and repay principal and differs from the highest-rated issues only in small degree. A Debt rated A has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher-rated categories.
B-3 84 BBB Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than for debt in higher-rated categories.
Debt rated BB, B, CCC and C are regarded as having predominantly speculative characteristics with respect to capacity to pay interest and repay principal. BB indicates the least degree of speculation and C the highest degree of speculation. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. BB Debt rated BB has less near-term vulnerability to default than other speculative grade debt. However, it faces major ongoing uncertainties or exposure to adverse business, financial or economic conditions that could lead to inadequate capacity to meet timely interest and principal payment. The BB rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BBB- rating. B Debt rated B has a greater vulnerability to default but presently has the capacity to meet interest payments and principal repayments. Adverse business, financial or economic conditions would likely impair capacity or willingness to pay interest or repay principal. The B rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BB or BB- rating. CCC Debt rated CCC has a current identifiable vulnerability to default, and is dependent upon favorable business, financial and economic conditions to meet timely payments of interest and repayments of principal. In the event of adverse business, financial or economic conditions, it is not likely to have the capacity to pay interest and repay principal. The CCC rating category is also used for debt subordinated to senior debt that is assigned an actual or implied B or B- rating. CC The rating CC is typically applied to debt subordinated to senior debt that is assigned an actual or implied CCC rating. C The rating C is typically applied to debt subordinated to senior debt that is assigned an actual or implied CCC- debt rating. The C rating may be used to cover a situation where a bankruptcy petition has been filed but debt service payments are continued. CI The rating CI is reserved for income bonds on which no interest is being paid. D Debt rated D is in default. The D rating is assigned on the day an interest or principal payment is missed. The D rating also will be used upon the filing of a bankruptcy petition if debt service payments are jeopardized.
Plus (+) or minus (-): The ratings from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major ratings categories. Provisional ratings: The letter "p" indicates that the rating is provisional. A provisional rating assumes the successful completion of the project being financed by the debt being rated and indicates that payment of debt service requirements is largely or entirely dependent upon the successful and timely completion of the project. This rating, however, while addressing credit quality subsequent to completion of the project, makes no comment on the likelihood or risk of default upon failure of such completion. The investor should exercise judgment with respect to such likelihood and risk. L The letter "L" indicates that the rating pertains to the principal amount of those bonds to the extent that the underlying deposit collateral is insured by the Federal Savings & Loan Insurance Corp. or the Federal Deposit Insurance Corp. and interest is adequately collateralized. * Continuance of the rating is contingent upon Standard & Poor's receipt of an executed copy of the escrow agreement or closing documentation confirming investments and cash flows. NR Indicates that no rating has been requested, that there is insufficient information on which to base a rating or that Standard & Poor's does not rate a particular type of obligation as a matter of policy.
Debt obligations of issuers outside the United States and its territories are rated on the same basis as domestic corporate and municipal issues. The ratings measure the creditworthiness of the obligor but do not take into account currency exchange and related uncertainties. B-4 85 BOND INVESTMENT QUALITY STANDARDS: Under present commercial bank regulations issued by the Comptroller of the Currency, bonds rated in the top four categories ("AAA," "AA," "A," "BBB," commonly known as "investment grade" ratings) are generally regarded as eligible for bank investment. In addition, the laws of various states governing legal investments impose certain rating or other standards for obligations eligible for investment by savings banks, trust companies, insurance companies and fiduciaries generally. DESCRIPTION OF STANDARD & POOR'S COMMERCIAL PAPER RATINGS A Standard & Poor's commercial paper rating is a current assessment of the likelihood of timely payment of debt having an original maturity of no more than 365 days. Ratings are graded into four categories, ranging from "A" for the highest quality obligations to "D" for the lowest. The four categories are as follows: A Issues assigned this highest rating are regarded as having the greatest capacity for timely payment. Issues in this category are delineated with the numbers 1, 2 and 3 to indicate the relative degree of safety. A-1 This designation indicates that the degree of safety regarding timely payment is either overwhelming or very strong. Those issues determined to possess overwhelming safety characteristics are denoted with a plus (+) sign designation. A-2 Capacity for timely payment on issues with this designation is strong. However, the relative degree of safety is not as high as for issues designated "A-1." A-3 Issues carrying this designation have a satisfactory capacity for timely payment. They are, however, somewhat more vulnerable to the adverse effects of changes in circumstances than obligations carrying the higher designations. B Issues rated "B" are regarded as having only adequate capacity for timely payment. However, such capacity may be damaged by changing conditions or short-term adversities. C This rating is assigned to short-term debt obligations with a doubtful capacity for payment. D This rating indicates that the issue is either in default or is expected to be in default upon maturity.
The commercial paper rating is not a recommendation to purchase or sell a security. The ratings are based on current information furnished to Standard & Poor's by the issuer or obtained from other sources it considers reliable. The ratings may be changed, suspended, or withdrawn as a result of changes in or unavailability of such information. DESCRIPTION OF STANDARD & POOR'S PREFERRED STOCK RATINGS A Standard & Poor's preferred stock rating is an assessment of the capacity and willingness of an issuer to pay preferred stock dividends and any applicable sinking fund obligations. A preferred stock rating differs from a bond rating inasmuch as it is assigned to an equity issue, which issue is intrinsically different from, and subordinated to, a debt issue. Therefore, to reflect this difference, the preferred stock rating symbol will normally not be higher than the bond rating symbol assigned to, or that would be assigned to, the senior debt of the same issuer. The preferred stock ratings are based on the following considerations: I. Likelihood of payment-capacity and willingness of the issuer to meet the timely payment of preferred stock dividends and any applicable sinking fund requirements in accordance with the terms of the obligation. II. Nature of, and provisions of, the issue. III. Relative position of the issue in the event of bankruptcy, reorganization, or other arrangements affecting creditors' rights. AAA This is the highest rating that may be assigned by Standard & Poor's to a preferred stock issue and indicates an extremely strong capacity to pay the preferred stock obligations.
B-5 86 AA A preferred stock issue rated "AA" also qualifies as a high-quality fixed income security. The capacity to pay preferred stock obligations is very strong, although not as overwhelming as for issues rated "AAA." A An issue rated "A" is backed by a sound capacity to pay the preferred stock obligations, although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions. BBB An issue rated "BBB" is regarded as backed by an adequate capacity to pay the preferred stock obligations. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to make payments for a preferred stock in this category than for issues in the "A" category. BB, Preferred stock rated "BB," "B," and "CCC" are regarded, on B, balance, as predominantly speculative with respect to the CCC issuer's capacity to pay preferred stock obligations. "BB" indicates the lowest degree of speculation and "CCC" the highest degree of speculation. While such issues will likely have some quality and protection characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. CC The rating "CC" is reserved for a preferred stock issue in arrears on dividends or sinking fund payments but that is currently paying. C A preferred stock rated "C" is a non-paying issue. D A preferred stock rated "D" is a non-paying issue in default on debt instruments.
NR indicates that no rating has been requested, that there is insufficient information on which to base a rating, or that S&P does not rate a particular type of obligation as a matter of policy. PLUS (+) or MINUS (-): To provide more detailed indications of preferred stock quality, the ratings from "AA" to "CCC" may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. The preferred stock ratings are not a recommendation to purchase or sell a security, inasmuch as market price is not considered in arriving at the rating. Preferred stock ratings are wholly unrelated to Standard & Poor's earnings and dividend rankings for common stocks. The ratings are based on current information furnished to Standard & Poor's by the issuer, and obtained by Standard & Poor's from other sources it considers reliable. The ratings may be changed, suspended, or withdrawn as a result of changes in, or unavailability of, such information. DESCRIPTION OF FITCH INVESTORS SERVICE, INC.'S ("FITCH") INVESTMENT GRADE BOND RATINGS Fitch investment grade bond ratings provide a guide to investors in determining the credit risk associated with a particular security. The ratings represent Fitch's assessment of the issuer's ability to meet the obligations of a specific debt issue or class of debt in a timely manner. The rating takes into consideration special features of the issue, its relationship to other obligations of the issuer, the current and prospective financial condition and operating performance of the issuer and of any guarantor, as well as the economic and political environment that might affect the issuer's future financial strength and credit quality. Fitch ratings do not reflect any credit enhancement that may be provided by insurance policies or financial guaranties unless otherwise indicated. Bonds carrying the same rating are of similar but not necessarily identical credit quality since the rating categories do not fully reflect small differences in the degrees of credit risk. Fitch ratings are not recommendations to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect of any security. B-6 87 Fitch ratings are based on information obtained from issuers, other obligors, underwriters, their experts, and other sources Fitch believes to be reliable. Fitch does not audit or verify the truth or accuracy of such information. Ratings may be changed, suspended, or withdrawn as a result of changes in, or the unavailability of, information or for other reasons. AAA Bonds considered to be investment grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and repay principal, which is unlikely to be affected by reasonably foreseeable events. AA Bonds considered to be investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated "AAA." Because bonds rated in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable future developments, short-term debt of these issuers is generally rated "F-1+." A Bonds considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings. BBB Bonds considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these bonds, and therefore, impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings.
PLUS (+) or MINUS (-): Plus and minus signs are used with a rating symbol to indicate the relative position of a credit within the rating category. Plus and minus signs, however, are not used in the "AAA" category. NR Indicates that Fitch does not rate the specific issue. Conditional A conditional rating is premised on the successful completion of a project or the occurrence of a specific event. Suspended A rating is suspended when Fitch deems the amount of information available from the issuer to be inadequate for rating purposes. Withdrawn A rating will be withdrawn when an issue matures or is called or refinanced and, at Fitch's discretion, when an issuer fails to furnish proper and timely information. FitchAlert Ratings are placed on FitchAlert to notify investors of an occurrence that is likely to result in a rating change and the likely direction of such change. These are designated as "Positive" indicating a potential upgrade, "Negative," for potential downgrade, or "Evolving," where ratings may be raised or lowered. FitchAlert is relatively short-term, and should be resolved within 12 months.
Ratings Outlook: An outlook is used to describe the most likely direction of any rating change over the intermediate term. It is described as "Positive" or "Negative." The absence of a designation indicates a stable outlook. DESCRIPTION OF FITCH SPECULATIVE GRADE BOND RATINGS Fitch speculative grade bond ratings provide a guide to investors in determining the credit risk associated with a particular security. The ratings ("BB" to "C") represent Fitch's assessment of the likelihood of timely payment of principal and interest in accordance with the terms of obligation for bond issues not in default. For defaulted bonds, the rating ("DDD" to "D") is an assessment of the ultimate recovery value through reorganization or liquidation. The rating takes into consideration special features of the issue, its relationship to other obligations of the issuer, the current and prospective financial condition and operating performance of the issuer and any B-7 88 guarantor, as well as the economic and political environment that might affect the issuer's future financial strength. Bonds that have the same rating are of similar but not necessarily identical credit quality since rating categories cannot fully reflect the differences in degrees of credit risk. BB Bonds are considered speculative. The obligor's ability to pay interest and repay principal may be affected over time by adverse economic changes. However, business and financial alternatives can be identified which could assist the obligor in satisfying its debt service requirements. B Bonds are considered highly speculative. While bonds in this class are currently meeting debt service requirements, the probability of continued timely payment of principal and interest reflects the obligor's limited margin of safety and the need for reasonable business and economic activity throughout the life of the issue. CCC Bonds have certain identifiable characteristics which, if not remedied, may lead to default. The ability to meet obligations requires an advantageous business and economic environment. CC Bonds are minimally protected. Default in payment of interest and/or principal seems probable over time. C Bonds are in imminent default in payment of interest or principal. DDD Bonds are in default on interest and/or principal payments. DD Such bonds are extremely speculative and should be valued on D the basis of their ultimate recovery value in liquidation or reorganization of the obligor. "DDD" represents the highest potential for recovery on these bonds, and "D" represents the lowest potential for recovery.
PLUS (+) or MINUS (-): Plus and minus signs are used with a rating symbol to indicate the relative position of a credit within the rating category. Plus and minus signs, however, are not used in the "DDD," "DD," or "D" categories. DESCRIPTION OF FITCH INVESTMENT GRADE SHORT-TERM RATINGS Fitch's short-term ratings apply to debt obligations that are payable on demand or have original maturities of generally up to three years, including commercial paper, certificates of deposit, medium-term notes, and municipal and investment notes. The short-term rating places greater emphasis than a long-term rating on the existence of liquidity necessary to meet the issuer's obligations in a timely manner. Fitch short-term ratings are as follows: F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are regarded as having the strongest degree of assurance for timely payment. F-1 Very Strong Credit Quality. Issues assigned this rating reflect an assurance of timely payment only slightly less in degree than issues rated "F-1+." F-2 Good Credit Quality. Issues assigned this rating have a satisfactory degree of assurance for timely payment, but the margin of safety is not as great as for issues assigned "F-1+" and "F-1" ratings. F-3 Fair Credit Quality. Issues assigned this rating have characteristics suggesting that the degree of assurance for timely payment is adequate, however, near-term adverse changes could cause these securities to be rated below investment grade. F-S Weak Credit Quality. Issues assigned this rating have characteristics suggesting a minimal degree of assurance for timely payment and are vulnerable to near-term adverse changes in financial and economic conditions. D Default. Issues assigned this rating are in actual or imminent payment default. LOC The symbol "LOC" indicates that the rating is based on a letter of credit issued by a commercial bank.
B-8 89 PART C. OTHER INFORMATION ITEM 23. EXHIBITS:
EXHIBIT NUMBER - ------- 1(a) -- Articles of Incorporation of Registrant. 1(b) -- Amended Articles of Incorporation of Registrant. 1(c) -- Articles of Amendment of Registrant. 2(a) -- By-Laws of Registrant. 2(b) -- Amended and Restated By-Laws of Registrant. 3 -- Instrument Defining Rights of Shareholders. Incorporated by reference to Exhibits 1 and 2 above. 4 -- Not Applicable. 5(a) -- Class I Distribution Agreement between Registrant and Mercury Funds Distributor, a division of Princeton Funds Distributor, Inc. 5(b) -- Class A Distribution Agreement between Registrant and Mercury Funds Distributor, a division of Princeton Funds Distributor, Inc. 5(c) -- Class B Distribution Agreement between Registrant and Mercury Funds Distributor, a division of Princeton Funds Distributor, Inc. 5(d) -- Class C Distribution Agreement between Registrant and Mercury Funds Distributor, a division of Princeton Funds Distributor, Inc. 6 -- None. 7 -- Custody Agreement between Registrant and Brown Brothers Harriman & Co. 8(a) -- Administration Agreement between Registrant and Mercury Asset Management International Ltd. 8(b) -- Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing Agency Agreement between Registrant and Financial Data Services, Inc. 8(c) -- License Agreement relating to Use of Name among Mercury Asset Management International Ltd., Mercury Asset Management Group Ltd. and Mercury Funds Distributor, a division of Princeton Funds Distributor, Inc. 8(d) -- License Agreement relating to Use of Name among Mercury Asset Management International Ltd., Mercury Asset Management Group Ltd. and Registrant. 9 -- Opinion and consent of Swidler Berlin Shereff Friedman, LLP, counsel for Registrant. 10 -- Consent of Deloitte & Touche, LLP, independent auditors for the Registrant.(1) 11 -- None. 12 -- Certificate of Mercury Asset Management International Ltd.(1) 13(a) -- Class A Distribution Plan and Class A Plan Sub-Agreement. 13(b) -- Class B Distribution Plan and Class B Plan Sub-Agreement. 13(c) -- Class C Distribution Plan and Class C Plan Sub-Agreement. 14 -- Not Applicable. 15 -- Rule 18f-3 Plan.
- --------------- (1) To be filed by amendment ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT. Prior to the effective date of this Registration Statement, the Registrant will sell shares of each Series of Registrant to Mercury Asset Management International Ltd. ("Mercury International"), and Mercury Asset Management Master Trust will also sell shares of each of its Series to Registrant. Therefore, Mercury Asset Management Master Trust will be under control by and under common control with the Registrant. ITEM 25. INDEMNIFICATION. Reference is made to Article V of Registrant's Articles of Incorporation, Article VI of Registrant's By-Laws and Section 2-418 of the Maryland General Corporation Law. Article VI of the By-Laws provides that each officer and Director of the Registrant shall be indemnified by the Registrant to the full extent permitted under the Maryland General Corporation Law, except that such C-1 90 indemnity shall not protect any such person against any liability to the Registrant or any stockholder thereof to which such person would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office. Absent a court determination that an officer or director seeking indemnification was not liable on the merits or guilty of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office, the decision by the Registrant to indemnify such person must be based upon the reasonable determination by special legal counsel in a written opinion or the vote of a quorum of the Directors who are neither "interested persons," as defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended, nor parties to the proceeding ("non-party independent Directors"), after review of the facts, that such officer or Director is not guilty of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office. Each officer and Director of the Registrant claiming indemnification within the scope of Article VI of the By-Laws shall be entitled to advances from the Registrant for payment of the reasonable expenses incurred by him in connection with proceedings to which he is a party in the manner and to the full extent permitted under the Maryland General Corporation Law without a preliminary determination as to his or her ultimate entitlement to indemnification (except as set forth below); provided, however, that the person seeking indemnification shall provide to the Registrant a written affirmation of his good faith belief that the standard of conduct necessary for indemnification by the Registrant has been met and a written undertaking to repay any such advance, if it should ultimately be determined that the standard of conduct has not been met, and provided further that at least one of the following additional conditions is met: (a) the person seeking indemnification shall provide a security in form and amount acceptable to the Registrant for his undertaking; (b) the Registrant is insured against losses arising by reason of the advance; (c) a majority of a quorum of non-party independent Directors, or independent legal counsel in a written opinion, shall determine, based on a review of facts readily available to the Registrant at the time the advance is proposed to be made, that there is reason to believe that the person seeking indemnification will ultimately be found to be entitled to indemnification. The Registrant may purchase insurance on behalf of an officer or director protecting such person to the full extent permitted under the General Laws of the State of Maryland, from liability arising from his activities as officer or Director of the Registrant. The Registrant, however, may not purchase insurance on behalf of any officer or Director of the Registrant that protects or purports to protect such person from liability to the Registrant or to its stockholders to which such officer or director would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his office. The Registrant may indemnify, make advances or purchase insurance to the extent provided in Article VI of the By-Laws on behalf of an employee or agent who is not an officer or Director of the Registrant. In Section 9 of the Distribution Agreement relating to the securities being offered hereby, the Registrant agrees to indemnify the Distributor and each person, if any, who controls the Distributor within the meaning of the Securities Act of 1933, as amended (the "Act"), against certain types of civil liabilities arising in connection with the Registration Statement or Prospectus and Statement of Additional Information. Insofar as indemnification for liabilities arising under the Act may be permitted to Directors, officers and controlling persons of the Registrant and the principal underwriter pursuant to the foregoing provisions or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a Director, officer, or controlling person of the Registrant and the principal underwriter in connection with the successful defense of any action, suit or proceeding) is asserted by such Director, officer or controlling person or the principal underwriter in connection with the shares being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. C-2 91 ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER. Set forth below is a list of each executive officer and partner of the adviser indicating each business, profession, vocation or employment of a substantial nature in which each such person or entity has been engaged since September, 1996 for his own account or in the capacity of director, officer, partner or trustee.
OTHER SUBSTANTIAL BUSINESS, NAME POSITIONS WITH ADVISER PROFESSION, VOCATION OR EMPLOYMENT ---- ---------------------- ---------------------------------- Peter John Gibbs.......................... Chairman Director of Mercury Asset Management Ltd.; and Director of Mercury Asset Management International Channel Islands Ltd. Carol Consuelo Brooke..................... Deputy Chairman Director of Mercury Asset Management Ltd. David Morris Fitzgerald Scott............. Director Director of Corporation of St. Lawrence College Helen Margaret Perkins.................... Secretary None John Eric Nelson.......................... Director None Steve Warner Golann....................... Director None
Set forth below is a list of the name and principal business address of any company for which a person listed above serves in the capacity of director, officer, employee, partner or trustee. The address of each, unless otherwise stated is 33 King William Street, London, England EC4R 9AS. Mrs. Brooke also serves as director of the following companies: Munich London Investment Management Ltd.; Benenden School (Kent) Ltd., Cranbrook Kent, TN17 4AA; and Mercury Asset Management Pension Trustee Co. Ltd. Mr. Gibbs also serves as director of Mercury Asset Management Limited (Australia). Mrs. Perkins also serves as officer of the following companies: Grosvenor Alternate Partner Limited; Grosvenor General Partner Limited; Grosvenor Ventures Limited; Grosvenor Venture Investment Advisers Limited; Mercury Asset Management Finance Ltd.; Mercury Asset Management Group Ltd; Mercury Asset Management Group Services Ltd; Mercury Asset Management No. 1 Limited; Mercury Asset Management Pension Trustee Co. Ltd.; Mercury Executor & Trustee Co. Ltd.; Mercury (Finance) Ltd; Mercury Fund Investment Advisers Limited; Mercury Financial Services Ltd.; Mercury Investment Management Limited; Mercury Investment Services Ltd.; Mercury Investment Trust Investment Advisers Ltd.; Mercury Life Assurance Company Ltd; Mercury Life Limited; Mercury Life Nominees Ltd.; Mercury Private Equity Holdings Ltd; Mercury Rowan Mullens Ltd.; Munich London Investment Management Ltd.; Mercury Private Equity MUST 3 Limited; Seligman Trust Limited; Third Grosvenor Limited; and Wimco Nominees Ltd. Set forth below is a list of each executive officer and director of Fund Asset Management, L.P. ("FAM") indicating each business, profession, vocation or employment of a substantial nature in which each such person has been engaged since September, 1996 for his own account or in the capacity of director, officer, partner or trustee.
OTHER SUBSTANTIAL BUSINESS, NAME POSITIONS WITH FAM PROFESSION, VOCATION OR EMPLOYMENT ---- --------------------- --------------------------------------- ML & Co............................. Limited Partner Financial Services Holding Company; Limited Partner of Merrill Lynch Asset Management, L.P. ("MLAM") Fund Asset Management, Inc.......... Limited Partner Investment Advisory Service Princeton Services.................. General Partner General Partner of MLAM
C-3 92
OTHER SUBSTANTIAL BUSINESS, NAME POSITIONS WITH FAM PROFESSION, VOCATION OR EMPLOYMENT ---- --------------------- --------------------------------------- Arthur Zeikel....................... Chairman Chairman of MLAM; President of MLAM and FAM from 1977 to 1997; Chairman and Director of Princeton Services; President of Princeton Services from 1993 to 1997; Executive Vice President of Merrill Lynch & Co., Inc. ("ML & Co.") Jeffrey M. Peek..................... President President of MLAM; President and Director of Princeton Services; Executive Vice President of ML & Co. Terry K. Glenn...................... Executive Vice Executive Vice President of MLAM; President Executive Vice President and Director of Princeton Services; President and Director of Princeton Funds Distributor, Inc.; Director of FDS; President of Princeton Administrators, L.P. 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 Elizabeth A. Griffin................ Senior Vice President Senior Vice President of MLAM; Senior Vice President of Princeton Services Norman R. Harvey.................... Senior Vice President Senior Vice President of MLAM; Senior Vice President of Princeton Services Michael J. Hennewinkel.............. Senior Vice President Senior Vice President and General and General Counsel Counsel of MLAM; Senior Vice President of Princeton Services Philip L. Kirstein.................. Senior Vice President Senior Vice President and Secretary of and Secretary MLAM; Senior Vice President, General Counsel, Director and Secretary of Princeton Services Ronald M. Kloss..................... Senior Vice President Senior Vice President of MLAM; Senior Vice President of Princeton Services Debra W. Landsman-Yaros............. Senior Vice President Senior Vice President of MLAM; Senior Vice President of Princeton Services; Vice President of Princeton Funds Distributor, Inc. Stephen M.M. Miller................. Senior Vice President Executive Vice President of Princeton Administrators; Senior Vice President of Princeton Services
C-4 93
OTHER SUBSTANTIAL BUSINESS, NAME POSITIONS WITH FAM PROFESSION, VOCATION OR EMPLOYMENT ---- --------------------- --------------------------------------- Joseph T. Monagle, Jr. ............. Senior Vice President Senior Vice President of MLAM; Senior Vice President of Princeton Services Michael L. Quinn.................... Senior Vice President Senior Vice President of MLAM; Senior Vice President of Princeton Services; Managing Director and First Vice President of Merrill Lynch, Pierce, Fenner & Smith Incorporated from 1989 to 1995 Richard L. Reller................... Senior Vice President Senior Vice President of MLAM; Senior Vice President of Princeton Services; Director of Princeton Funds Distributor, Inc. Gerald M. Richard................... Senior Vice President Senior Vice President and Treasurer of and Treasurer MLAM; Senior Vice President and Treasurer of Princeton Services; Vice President and Treasurer of Princeton Funds Distributor, Inc. Gregory D. Upah..................... Senior Vice President Senior Vice President of MLAM; Senior Vice President of Princeton Services Ronald L. Welburn................... Senior Vice President Senior Vice President of MLAM; Senior Vice President of Princeton Services
Mr. Zeikel is President, Mr. Glenn is Executive Vice President and Mr. Richard is Treasurer of all or substantially all of the investment companies described in the following two paragraphs. Mr. Zeikel is a director of substantially all such companies, and Mr. Glenn is an officer of such companies. Messrs. Giordano, Harvey, Kirstein, and Monagle are officers of one or more of such companies. FAM, located at P.O. Box 9011, Princeton, New Jersey 08543-9011, an affiliate of the Investment Adviser, acts as the investment adviser for the following open-end registered investment companies: CBA Money Fund, CMA Government Securities Fund, CMA Money Fund, CMA Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The Corporate Fund Accumulation Program, Inc., Financial Institutions Series Trust, Merrill Lynch Basic Value Fund, Inc., Merrill Lynch California Municipal Series Trust, Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch Corporate High Yield Fund, Inc., Merrill Lynch Emerging Tigers Fund, Inc., Merrill Lynch Federal Securities Trust, Merrill Lynch Funds for Institutions Series, Merrill Lynch Multi-State Limited Maturity Municipal Series Trust, Merrill Lynch Multi-State Municipal Series Trust, Merrill Lynch Municipal Bond Fund, Inc., Merrill Lynch Phoenix Fund, Inc., Merrill Lynch Special Value Fund, Inc., Merrill Lynch World Income Fund, Inc. and The Municipal Fund Accumulation Program, Inc.; and the following closed-end investment companies: Apex Municipal Fund, Inc., Corporate High Yield Fund, Inc., Corporate High Yield Fund II, Inc., Corporate High Yield Fund III, Inc., Debt Strategies Fund, Inc., Debt Strategies Fund II, Inc., Debt Strategies Fund III, Inc., Income Opportunities Fund 1999, Inc., Income Opportunities Fund 2000, Inc., Merrill Lynch Municipal Strategy Fund, Inc., MuniAssets Fund, Inc., MuniEnhanced Fund, Inc., MuniHoldings Fund, Inc., MuniHoldings Fund II, Inc., MuniHoldings Insured Fund Inc., MuniHoldings California Insured Fund, Inc., MuniHoldings California Insured Fund II, Inc., MuniHoldings California Insured Fund III, Inc., MuniHoldings New York Insured Fund, Inc., MuniHoldings New York Fund, Inc., MuniHoldings New York Fund II, Inc. MuniHoldings Florida Insured Fund, MuniHoldings Florida Insured Fund II, MuniHoldings Florida C-5 94 Insured Fund III, MuniHoldings New Jersey Insured Fund, Inc., MuniHoldings, New Jersey Insured Fund II, Inc. MuniInsured Fund, Inc., MuniVest Fund, Inc., MuniVest Fund II, Inc., MuniVest Florida Fund, MuniVest Michigan Insured Fund, Inc., MuniVest New Jersey Fund, Inc., MuniVest Pennsylvania Insured Fund, MuniYield Arizona Fund, Inc., MuniYield California Fund, Inc., MuniYield California Insured Fund, Inc., MuniYield California Insured Fund II, Inc., MuniYield Florida Fund, MuniYield Florida Insured Fund, MuniYield Fund, Inc., MuniYield Insured Fund, Inc., MuniYield Michigan Fund, Inc., MuniYield Michigan Insured Fund, Inc., MuniYield New Jersey Fund, Inc., MuniYield New Jersey Insured Fund, Inc., MuniYield New York Insured Fund, Inc., MuniYield New York Insured Fund II, Inc., MuniYield Pennsylvania Fund, MuniYield Quality Fund, Inc., MuniYield Quality Fund II, Inc., Senior High Income Portfolio, Inc., and Worldwide DollarVest Fund, Inc. MLAM, located at P.O. Box 9011, Princeton, New Jersey 08543-9011, acts as investment adviser for the following open-end registered investment companies: Merrill Lynch Adjustable Rate Securities Fund, Inc., Merrill Lynch Americas Income Fund, Inc., Merrill Lynch Asset Builder Program, Inc., Merrill Lynch Asset Growth Fund, Inc., Merrill Lynch Asset Income Fund, Inc., Merrill Lynch Capital Fund, Inc., Merrill Lynch Convertible Fund, Inc., Merrill Lynch Developing Capital Markets Fund, Inc., Merrill Lynch Dragon Fund, Inc., Merrill Lynch EuroFund, Merrill Lynch Fundamental Growth Fund, Inc., Merrill Lynch Fund For Tomorrow, 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 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 Retirement Series Trust, Merrill Lynch Series Fund, Inc., Merrill Lynch Short-Term Global Income Fund, Inc., Merrill Lynch Strategic Dividend Fund, Merrill Lynch Technology Fund, Inc., Merrill Lynch U.S. Treasury Money Fund, Merrill Lynch U.S.A. Government Reserves, Merrill Lynch Utility Income Fund, Inc., Merrill Lynch Variable Series Funds, Inc. and Hotchkis and Wiley Funds (advised by Hotchkis and Wiley, a division of MLAM); and for the following closed-end registered investment companies: Merrill Lynch High Income Municipal Bond Fund, Inc. and Merrill Lynch Senior Floating Rate Fund, 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. ITEM 27. PRINCIPAL UNDERWRITERS. (a) Mercury Funds Distributor, a division of Princeton Funds Distributor, Inc. ("MFD") acts as the principal underwriter for the Registrant and for each of the following open-end investment companies: Mercury Core U.S. Growth Fund of Mercury Asset Management Funds, Inc.; Mercury International Fund of Mercury Asset Management Funds, Inc.; Mercury Japan Capital 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. A separate division of Princeton Funds Distributor, Inc. acts as the principal underwriter of other investment companies. (b) Set forth below is information concerning each director and officer of MFD. The principal business address of each such person is Box 9081, Princeton, New Jersey 08543-9081, except that the address of C-6 95 Messrs. Crook, Aldrich, Breen, Fatseas and Wasel is One Financial Center, 23rd Floor, Boston, Massachusetts 02111-2665.
(2) (3) (1) POSITIONS AND OFFICES POSITIONS AND OFFICES NAME WITH THE DISTRIBUTOR WITH REGISTRANT ---- --------------------- ------------------------ Terry K. Glenn........................... President and Director Executive Vice President Richard L. Reller........................ 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 Michael G. Clark......................... Vice President None James T. Fatseas......................... Vice President None Debra W. Landsman-Yaros.................. Vice President None Michelle T. Lau.......................... Vice President None Gerald M. Richard........................ Vice President and Treasurer Treasurer Salvatore Venezia........................ Vice President None William Wasel............................ Vice President None Robert Harris............................ Secretary None
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS. All accounts, books and other documents required to be maintained by Section 31(a) of the Investment Company Act of 1940, as amended, and the rules thereunder are maintained at the offices of: (1) the registrant, Mercury Asset Management Funds, Inc., 800 Scudders Mill Road, Plainsboro, New Jersey 08536; (2) the transfer agent, Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484; (3) the custodian, Brown Brothers Harriman & Co., 40 Water Street, Boston, Massachusetts 02109; (4) the investment adviser, Mercury Asset Management International Ltd., 33 King William Street, London EC4R 9AS, England; and (5) the sub-adviser and administrator, Fund Asset Management, L.P., 800 Scudders Mill Road, Plainsboro, New Jersey 08536. ITEM 29. MANAGEMENT SERVICES. Other than as set forth under the caption "Management of the Fund" in the Prospectus constituting Part A of the Registration Statement and under "Management of the Fund -- Management and Advisory Arrangements" in the Statement of Additional Information constituting Part B of the Registration Statement, the Registrant is not party to any Management-related service contract. ITEM 30. UNDERTAKINGS. None. C-7 96 SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it has duly caused this 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 October, 1998. MERCURY GOLD AND MINING FUND OF MERCURY ASSET MANAGEMENT FUNDS, INC. Registrant By: /s/ JEFFREY M. PEEK ------------------------------------ Jeffrey M. Peek, 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 dates indicated.
SIGNATURES TITLE DATE ---------- ----- ---- /s/ JEFFREY M. PEEK President and Director October 21, 1998 - ----------------------------------------------- (Principal Executive Officer) (Jeffrey M. Peek) /s/ TERRY K. GLENN Executive Vice President and October 21, 1998 - ----------------------------------------------- Director (Terry K. Glenn) /s/ GERALD M. RICHARD Treasurer (Principal Financial October 21, 1998 - ----------------------------------------------- Accounting Officer) (Gerald M. Richard) /s/ DAVID O. BEIM Director October 21, 1998 - ----------------------------------------------- (David O. Beim) /s/ JAMES T. FLYNN Director October 21, 1998 - ----------------------------------------------- (James T. Flynn) /s/ W. CARL KESTER Director October 21, 1998 - ----------------------------------------------- (W. Carl Kester) /s/ KAREN P. ROBARDS Director October 21, 1998 - ----------------------------------------------- (Karen P. Robards)
C-8 97 SIGNATURES Mercury Asset Management Master Trust has duly caused this Registration Statement of Mercury Gold and Mining Fund of Mercury Asset Management Funds, Inc. to be signed on its behalf by the undersigned, thereunto duly authorized, in the Township of Plainsboro and State of New Jersey on the 21st day of October, 1998. MERCURY ASSET MANAGEMENT MASTER TRUST By: /s/ JEFFREY M. PEEK ------------------------------------ Jeffrey M. Peek, President This Registration Statement of Mercury Gold and Mining Fund of Mercury Asset Management Funds, Inc., has been signed below by the following persons in the capacities and on dates indicated.
SIGNATURES TITLE DATE ---------- ----- ---- /s/ JEFFREY M. PEEK President and Trustee October 21, 1998 - ----------------------------------------------- (Principal Executive Officer) (Jeffrey M. Peek) /s/ TERRY K. GLENN Executive Vice President and October 21, 1998 - ----------------------------------------------- Trustee (Terry K. Glenn) /s/ GERALD M. RICHARD Treasurer (Principal Financial October 21, 1998 - ----------------------------------------------- Accounting Officer) (Gerald M. Richard) /s/ DAVID O. BEIM Trustee October 21, 1998 - ----------------------------------------------- (David O. Beim) /s/ JAMES T. FLYNN Trustee October 21, 1998 - ----------------------------------------------- (James T. Flynn) /s/ W. CARL KESTER Trustee October 21, 1998 - ----------------------------------------------- (W. Carl Kester) /s/ KAREN P. ROBARDS Trustee October 21, 1998 - ----------------------------------------------- (Karen P. Robards)
C-9 98 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 1(a) Articles of Incorporation of Registrant 1(b) Amended Articles of Incorporation of Registrant 1(c) Articles of Amendment of Registrant 2(a) By-Laws of Registrant 2(b) Amended and Restated By-Laws of Registrant 5(a) Class I Distribution Agreement between Registrant and Mercury Funds Distributor, a division of Princeton Funds Distributor, Inc. 5(b) Class A Distribution Agreement between Registrant and Mercury Funds Distributor, a division of Princeton Funds Distributor, Inc. 5(c) Class B Distribution Agreement between Registrant and Mercury Funds Distributor, a division of Princeton Funds Distributor, Inc. 5(d) Class C Distribution Agreement between Registrant and Mercury Funds Distributor, a division of Princeton Funds Distributor, Inc. 7 Custody Agreement between Registrant and Brown Brothers Harriman & Co. 8(a) Administration Agreement between Registrant and Mercury Asset Management International Ltd. 8(b) Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing Agency Agreement between Registrant and Financial Data Services, Inc. 8(c) License Agreement relating to Use of Name among Mercury Asset Management International Ltd., Mercury Asset Management Group Ltd. and Mercury Funds Distributor, a division of Princeton Funds Distributor, Inc. 8(d) License Agreement relating to Use of Name among Mercury Asset Management International Ltd., Mercury Asset Management Group Ltd. and Registrant. 9 Opinion and consent of Swidler Berlin Shereff Friedman, LLP, counsel for Registrant 13(a) Class A Distribution Plan of the Registrant and Class A Plan Sub-Agreement 13(b) Class B Distribution Plan of the Registrant and Class B Plan Sub-Agreement 13(c) Class C Distribution Plan of the Registrant and Class C Plan Sub-Agreement 15 Rule 18f-3 Plan
C-10 EX-99.1.A 2 ARTICLES OF INCORPORATION 1 Exhibit 1(a) ARTICLES OF INCORPORATION MERCURY ALPHA FUND, INC. THE UNDERSIGNED, Judith L. Shandling, whose post office address is Shereff, Friedman, Hoffman & Goodman, LLP, 919 Third Avenue, New York, New York 10022, being at least eighteen years of age, does hereby act as an incorporator, under and by virtue of the General Laws of the State of Maryland authorizing the formation of corporations and with the intention of forming a corporation. ARTICLE I NAME The name of the corporation is Mercury Alpha Fund, Inc. (the "Corporation"). ARTICLE II PURPOSES AND POWERS The purpose or purposes for which the Corporation is formed, the powers, rights and privileges that the Corporation shall be authorized to exercise and enjoy, and the business or objects to be transacted, carried on and promoted by it are as follows: (1) To conduct and carry on business of an investment company of the management type. (2) To hold, invest and reinvest its assets in securities, and in connection therewith to hold part or all of its assets in cash. (3) To issue and sell shares of its own capital stock in such amounts and on such terms and conditions, for such purposes and for such amount or kind of consideration now or hereafter permitted by the General Laws of the State of Maryland and by these Articles of Incorporation, as its Board of Directors may determine; provided, however, that the value of the consideration per share to be received by the Corporation upon the sale or other disposition of any shares of its capital stock shall not be less than the net asset value per share of such capital stock outstanding at the time of such event. (4) To exchange, classify, reclassify, change the designation of, convert, rename, redeem, purchase or otherwise acquire, hold, dispose of, resell, transfer, reissue or cancel (all without the vote or consent of the stockholders of the Corporation) shares of its issued or unissued capital stock of any class or series, as its Board of Directors may determine, in any manner and to the extent now or hereafter permitted by the General Laws of the State of Maryland and by these Articles of Incorporation. 2 (5) To do any and all such further acts or things and to exercise any and all such further powers or rights as may be necessary, incidental, relative, conducive, appropriate or desirable for the accomplishment, carrying out or attainment of all or any of the foregoing purposes or objects. (6) The Corporation shall be authorized to exercise and enjoy all of the powers, rights and privileges granted to, or conferred upon, corporations by the General Laws of the State of Maryland now or hereafter in force, and the enumeration of the foregoing purposes, powers, rights and privileges, shall not be deemed to exclude any powers, rights or privileges so granted or conferred. ARTICLE III PRINCIPAL OFFICE AND RESIDENT AGENT The post office address of the principal office of the Corporation in the State of Maryland is c/o The Corporation Trust Incorporated, 32 South Street, Baltimore, Maryland 21202. The name of the resident agent of the Corporation in this State is The Corporation Trust Incorporated, a corporation of this State, and the post office address of the resident agent is 32 South Street, Baltimore, Maryland 21202. ARTICLE IV CAPITAL STOCK (1) The total number of shares of capital stock which the Corporation shall have authority to issue is Two Billion, Eight Hundred Million (2,800,000,000) shares, of the par value of One Hundredth of One Cent ($.0001) per share, and of the aggregate par value of Two Hundred and Eighty Thousand Dollars ($280,000). The capital stock initially consists of seven series, known as Mercury European Growth Fund, Mercury International Fund, Mercury Japan Fund, Mercury Alpha Fund 4, Mercury Alpha Fund 5, Mercury Alpha Fund 6, and Mercury Alpha Fund 7 (collectively, the "Series", and each, a "Series"). Each Series shall consist, until further changed, of Four Hundred Million (400,000,000) shares. The shares of each Series shall consist, until further changed, of four classes of shares designated Class A shares, Class B shares, Class C shares and Class D shares (the "Classes"). Each Class of each Series shall consist, until further changed, of One Hundred Million (100,000,000) shares. (2) Unless otherwise expressly provided in the charter of the Corporation, the Class A, Class B, Class C and Class D shares of each Series shall represent an equal proportionate interest in the assets belonging to that Series (subject to the liabilities of that Series) and each share of a particular Series shall have identical voting, dividend, liquidation and other rights; provided, however, that notwithstanding anything in the charter of the Corporation to the contrary: (i) The Class A, Class B, Class C and Class D shares may be issued and sold subject to such different sales loads or charges, whether initial, deferred or contingent, or any combination thereof, as the Board of Directors may from time 2 3 to time establish in accordance with the Investment Company Act of 1940, as amended, and other applicable law. (ii) Liabilities of a Series which are determined by or under the supervision of the Board of Directors to be attributable to a particular Class of that Series may be charged to that Class and appropriately reflected in the net asset value of, or dividends payable on, the shares of that Class of the Series. (iii) The Class A, Class B, Class C and Class D shares of a particular Series may have such different exchange and conversion rights as the Board of Directors shall provide in compliance with the Investment Company Act of 1940, as amended. (3) The Board of Directors may classify and reclassify any unissued shares of capital stock, of any class or series, into one or more additional or other classes or series as may be established from time to time by setting or changing in any one or more respects the designations, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications or terms or conditions of redemption of such shares of stock and pursuant to such classification or reclassification to increase or decrease the number of authorized shares of any existing class or series. (4) Unless otherwise expressly provided in the charter of the Corporation, including any Articles Supplementary creating any class or series of capital stock, the holders of each class or series of capital stock shall be entitled to dividends and distributions in such amounts and at such times as may be determined by the Board of Directors, and the dividends and distributions paid with respect to the various classes or series of capital stock may vary among such classes and series. Dividends on a class or series may be declared or paid only out of the net assets of that class or series. Expenses related to the distribution of, and other identified expenses that should properly be allocated to, the shares of a particular class or series of capital stock may be charged to and borne solely by such class or series and the bearing of expenses solely by a class or series of capital stock may be appropriately reflected (in a manner determined by the Board of Directors) and cause differences in the net asset value attributable to, and the dividend, redemption and liquidation rights of, the shares of each class or series of capital stock. (5) Unless otherwise expressly provided in the charter of the Corporation, including those matters set forth in Article II, Sections (2) and (4) hereof and including any Articles Supplementary creating any class or series of capital stock, on each matter submitted to a vote of stockholders, each holder of a share of capital stock of the Corporation shall be entitled to one vote for each share standing in such holder's name on the books of the Corporation, irrespective of the class or series thereof, and all shares of all classes and series shall vote together as a single class; provided, however, that (a) as to any matter with respect to which a separate vote of any class or series is required by the Investment Company Act of 1940, as amended, and in effect from time to time, or any rules, regulations or orders issued thereunder, or by the Maryland 3 4 General Corporation Law, such requirement as to a separate vote by that class or series shall apply in lieu of a general vote of all classes and series as described above, (b) in the event that the separate vote requirements referred to in (a) above apply with respect to one or more classes or series, then, subject to paragraph (c) below, the shares of all other classes and series not entitled to a separate class vote shall vote as a single class, and (c) as to any matter which does not affect the interest of a particular class or series, such class or series shall not be entitled to any vote and only the holders of shares of the affected classes and series, if any, shall be entitled to vote. (6) Notwithstanding any provision of the Maryland General Corporation Law requiring a greater proportion than a majority of the votes of all classes or series of capital stock of the Corporation (or of any class or series entitled to vote thereon as a separate class or series) to take or authorize any action, the Corporation is hereby authorized (subject to the requirements of the Investment Company Act of 1940, as amended, and in effect from time to time, and any rules, regulations and orders issued thereunder) to take such action upon the concurrence of a majority of the votes entitled to be cast by holders of capital stock of the Corporation (or a majority of the votes entitled to be cast by holders of a class or series entitled to vote thereon as a separate class or series). (7) Unless otherwise expressly provided in the charter of the Corporation, including any Articles Supplementary creating any class or series of capital stock, subject to compliance with the requirements of the Investment Company Act of 1940, as amended, the Board of Directors shall have the authority to provide that holders of shares of any class or series shall have the right to convert or exchange said shares into shares of one or more other classes or series in accordance with such requirements and procedures as may be established by the Board of Directors. (8) Unless otherwise expressly provided in the charter of the Corporation, including any Articles Supplementary creating any class or series of capital stock, in the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of each class or series of capital stock of the Corporation shall be entitled, after payment or provision for payment of the debts and other liabilities of the Corporation, to share ratably in the remaining net assets of the Corporation applicable to that class or series. (9) Any fractional shares shall carry proportionately all the rights of a whole share, excepting any right to receive a certificate evidencing such fractional share, but including, without limitation, the right to vote and the right to receive dividends; provided, however, that the Corporation shall not be required to issue share certificates for such fractional shares. (10) The presence in person or by proxy of the holders of shares entitled to cast one-third of the votes entitled to be cast shall constitute a quorum at any meeting of stockholders, except with respect to any matter which requires approval by a separate vote of one or more classes of stock, in which case the presence in person or by proxy of the holders of shares entitled to cast 4 5 one-third of the votes entitled to be cast by each class entitled to vote as a separate class shall constitute a quorum. (11) All persons who shall acquire stock in the Corporation, of any class or series, shall acquire the same subject to the provisions of the charter and By-Laws of the Corporation. Any reference to "shares," "stock" or "shares of stock" in these Articles of Incorporation shall be deemed to refer, unless the context otherwise requires, to the shares of each separate class and/or series. As used in the charter of the Corporation, the terms "charter" and "Articles of Incorporation" shall mean and include the Articles of Incorporation of the Corporation as amended, supplemented and restated from time to time by Articles of Amendment, Articles Supplementary, Articles of Restatement or otherwise. (12) The Board of Directors may classify and reclassify any issued shares of capital stock into one or more additional or other classes or series as may be established from time to time by setting or changing in any one or more respects the designations, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications or terms or conditions of redemption of such shares of stock and pursuant to such classification or reclassification to increase or decrease the number of authorized shares of any existing class or series; provided, however, that any such classification or reclassification shall not substantially adversely affect the rights of holders of such issued shares. The Board's authority pursuant to this paragraph shall include, but not be limited to, the power to vary among all the holders of a particular class or series (a) the length of time shares must be held prior to reclassification to shares of another class or series (the "Holding Period(s)"), (b) the manner in which the time for such Holding Period(s) is determined and (c) the class or series into which the particular class or series is being reclassified; provided, however, that, subject to the first sentence of this section, with respect to holders of the Corporation's shares issued on or after the date of the Corporation's first effective prospectus which sets forth Holding Period(s) (the "First Holding Period Prospectus"), the Holding Period(s), the manner in which the time for such Holding Period(s) is determined and the class or series into which the particular class or series is being reclassified shall be disclosed in the Corporation's prospectus or statement of additional information in effect at the time such shares, which are the subject of the reclassification, were issued. (13)(a) Each series of capital stock of the Corporation shall relate to a separate portfolio of investments. All shares of stock in each series shall be identical except that there may be variations between the different series as to the purchase price, determination of net asset value, designations, preferences, conversion or other rights, voting powers, restrictions, special and relative rights and limitations as to dividends and on liquidation, qualifications or terms or conditions of redemption of such shares of stock. (b) Each series of stock of the Corporation shall have the following powers, preferences and voting or other special rights, and the qualifications, restrictions and limitations thereof shall be as follows: 5 6 (i) All consideration received by the Corporation for the issue or sale of stock of each series, together with all assets in which such consideration is invested or reinvested, all income, earnings, profits and proceeds received thereon, including any proceeds derived from the sale, exchange or liquidation thereof, and any assets, funds or payments derived from any reinvestment of such proceeds in whatever form the same may be, shall irrevocably belong to the series of stock with respect to which such assets, payments or funds were received by the Corporation for all purposes, subject only to the rights of creditors, and shall be so handled in the books of account of the Corporation. Such assets, funds and payments, including any proceeds derived from the sale, exchange or liquidation thereof, and any assets, funds or payments derived from any reinvestment of such proceeds in whatever form the same may be, are herein referred to as "assets belonging to" such series. In the event that there are any income, earnings, profits, and proceeds thereof, assets, funds or payments that are not readily identifiable as belonging to any particular series, the Board of Directors of the Corporation shall allocate them among any one or more of the series established and designated from time to time in such manner and on such basis as the Board of Directors, in their sole discretion, deem fair and equitable. Each allocation by the Board of Directors shall be conclusive and binding on the stockholders of the Corporation of all series for all purposes. (ii) The assets belonging to each series of stock shall be charged with the liabilities in respect of such series, and also shall be charged with its share of the general liabilities of the Corporation, in proportion to the asset value of the respective series determined in accordance with the Articles of Incorporation of the Corporation. The determination of the Board of Directors shall be conclusive as to the amount of liabilities, including accrued expenses and reserves, as to the allocation of the same to a given series, and as to whether the same or general assets of the Corporation are allocable to one or more series. ARTICLE V PROVISIONS FOR DEFINING, LIMITING AND REGULATING CERTAIN POWERS OF THE CORPORATION AND OF THE DIRECTORS AND STOCKHOLDERS (1) The number of directors of the Corporation shall be three, which number may be increased pursuant to the By-Laws of the Corporation but shall never be less than three. The names of the directors who shall act until their successors are duly elected and qualify are: Terry K. Glenn Philip K. Kirstein Robert E. Putney, III (2) The Board of Directors of the Corporation is hereby empowered to authorize the issuance from time to time of shares of capital stock, of any class or series, whether now or hereafter authorized, for such consideration as the Board of Directors may deem advisable, 6 7 subject to such limitations as may be set forth in these Articles of Incorporation or in the By-Laws of the Corporation or in the General Laws of the State of Maryland. (3) No holder of stock of the Corporation shall, as such holder, have any right to purchase or subscribe for any shares of the capital stock of the Corporation or any other security of the Corporation which it may issue or sell (whether out of the number of shares authorized by these Articles of Incorporation, or out of any shares of the capital stock of the Corporation, of any class or series, acquired by it after the issue thereof, or otherwise) other than such right, if any, as the Board of Directors, in its discretion, may determine. (4) Each acting and former director and officer of the Corporation shall be indemnified by the Corporation to the full extent permitted by the General Laws of the State of Maryland, subject to the requirements of the Investment Company Act of 1940, as amended. No amendment of these Articles of Incorporation or repeal of any provision hereof shall limit or eliminate the benefits provided to directors and officers under this provision in connection with any act or omission that occurred prior to such amendment or repeal. The foregoing rights of indemnification shall not be exclusive of any other rights to which those seeking indemnification may be entitled. (5) To the fullest extent permitted by the General Laws of the State of Maryland, subject to the requirements of the Investment Company Act of 1940, as amended, no director or officer of the Corporation shall be personally liable to the Corporation or its security holders for money damages. No amendment of these Articles of Incorporation or repeal of any provision hereof shall limit or eliminate the benefits provided to directors and officers under this provision in connection with any act or omission that occurred prior to such amendment or repeal. (6) The Board of Directors of the Corporation is vested with the sole power, to the exclusion of the stockholders, to make, alter or repeal from time to time any of the By-Laws of the Corporation except any particular By-Law which is specified as not subject to alteration or repeal by the Board of Directors, subject to the requirements of the Investment Company Act of 1940, as amended. (7) The Board of Directors of the Corporation from time to time may change the Corporation's name, or change the name or other designation of any class or series of its stock, without the vote or consent of the stockholders of the Corporation, in any manner and to the extent now or hereafter permitted by the General Laws of the State of Maryland and by these Articles of Incorporation. (8) Notwithstanding any other provision of these Articles of Incorporation or the By-Laws of the Corporation, or the General Laws of the State of Maryland, the Board of Directors of the Corporation may, upon the affirmative vote of the majority of the entire Board of Directors and without the vote or consent of the stockholders, dissolve the Corporation in the manner otherwise provided by the laws of the State of Maryland. 7 8 ARTICLE VI REDEMPTION (1) Each holder of shares of capital stock of the Corporation shall be entitled to require the Corporation to redeem all or any part of the shares of capital stock of the Corporation standing in the name of such holder on the books of the Corporation, and all shares of capital stock issued by the Corporation shall be subject to redemption by the Corporation, at the redemption price of such shares as in effect from time to time as may be determined by the Board of Directors of the Corporation in accordance with the provisions hereof, subject to the right of the Board of Directors of the Corporation to suspend the right of redemption of shares of capital stock of the Corporation or postpone the date of payment of such redemption price in accordance with provisions of applicable law. (2) All shares of stock of the Corporation shall be redeemable at the option of the Corporation. The Board of Directors may by resolution from time to time authorize the Corporation to require the redemption of all or any part of the outstanding shares of any class or series upon such terms and conditions as the Board of Directors, in its discretion, shall deem advisable, and upon the sending of written notice thereof to each holder whose shares are to be redeemed. (3) The redemption price of shares of capital stock of the Corporation shall be the net asset value thereof as determined by the Board of Directors of the Corporation from time to time in accordance with the provisions of applicable law, less such redemption fee or other charge, if any, as may be fixed by resolution of the Board of Directors of the Corporation. Payment of the redemption price shall be made in cash by the Corporation at such time and in such manner as may be determined from time to time by the Board of Directors of the Corporation. ARTICLE VII DETERMINATION BINDING Any determination made in good faith, so far as accounting matters are involved, in accordance with accepted accounting practice by or pursuant to the direction of the Board of Directors, as to the amount of assets, obligations or liabilities of the Corporation, as to the amount of net income of the Corporation from dividends and interest for any period or amounts at any time legally available for the payment of dividends, as to the amount of any reserves or charges set up and the propriety thereof, as to the time of or purpose for creating reserves or as to the use, alteration or cancellation of any reserves or charges (whether or not any obligation or liability for which such reserves or charges shall have been created, shall have been paid or discharged or shall be then or thereafter required to be paid or discharged), as to the price of any security owned by the Corporation or as to any other matters relating to the issuance, sale, redemption or other acquisition or disposition of securities or shares of capital stock of the Corporation, and any reasonable determination made in good faith by the Board of Directors as to whether any transaction constitutes a purchase of securities on "margin," a sale of securities 8 9 "short," or an underwriting or the sale of, or a participation in any underwriting or selling group in connection with the public distribution of, any securities, shall be final and conclusive, and shall be binding upon the Corporation and all holders of its capital stock, past, present and future, and shares of the capital stock of the Corporation are issued and sold on the condition and understanding, evidenced by the purchase of shares of capital stock or acceptance of share certificates, that any and all such determinations shall be binding as aforesaid. No provision of these Articles of Incorporation shall be effective to (a) require a waiver of compliance with any provision of the Securities Act of 1933, as amended, or the Investment Company Act of 1940, as amended, or of any valid rule, regulation or order of the Securities and Exchange Commission thereunder or (b) protect or purport to protect any director or officer of the Corporation against any liability to the Corporation or its security holders to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office. ARTICLE VIII PERPETUAL EXISTENCE The duration of the Corporation shall be perpetual. ARTICLE IX AMENDMENT The Corporation reserves the right to amend, alter, change or repeal any provision contained in these Articles of Incorporation, in any manner now or hereafter prescribed by statute, including any amendment which alters the contract rights, as expressly set forth in the charter, of any outstanding stock and substantially adversely affects the stockholder's rights, and all rights conferred upon stockholders herein are granted subject to this reservation. IN WITNESS WHEREOF, the undersigned incorporator of Mercury Alpha Fund, Inc. hereby executes the foregoing Articles of Incorporation and acknowledges the same to be his act and further acknowledges that, to the best of his knowledge, the matters and facts set forth therein are true in all material respects under penalties for perjury. Dated this 23rd day of April, 1998 _____________________________ Judith L. Shandling 9 EX-99.1.B 3 AMENDED ARTICLES OF INCORPORATION 1 Exhibit 1(b) AMENDED ARTICLES OF INCORPORATION OF MERCURY ALPHA FUND, INC. Mercury Alpha Fund, Inc. is filing these Amended Articles of Incorporation prior to the organizational meeting of the Board of Directors. As amended, the charter will read as follows. The stock amounts and aggregate par value are unchanged by this document. THE UNDERSIGNED, Judith L. Shandling, whose post office address is Shereff, Friedman, Hoffman & Goodman, LLP, 919 Third Avenue, New York, New York 10022, being at least eighteen years of age, does hereby act as an incorporator, under and by virtue of the General Laws of the State of Maryland authorizing the formation of corporations and with the intention of forming a corporation. ARTICLE I NAME The name of the corporation is Mercury Asset Management Funds, Inc. (the "Corporation"). ARTICLE II PURPOSES AND POWERS The purpose or purposes for which the Corporation is formed, the powers, rights and privileges that the Corporation shall be authorized to exercise and enjoy, and the business or objects to be transacted, carried on and promoted by it are as follows: (1) To conduct and carry on business of an investment company of the management type. (2) To hold, invest and reinvest its assets in securities, and in connection therewith to hold part or all of its assets in cash. (3) To issue and sell shares of its own capital stock in such amounts and on such terms and conditions, for such purposes and for such amount or kind of consideration now or hereafter permitted by the General Laws of the State of Maryland and by these Articles of Incorporation, as its Board of Directors may determine; provided, however, that the value of the consideration per share to be received by the Corporation upon the sale or other disposition of any shares of its capital stock shall not be less than the net asset value per share of such capital stock outstanding at the time of such event. (4) To exchange, classify, reclassify, change the designation of, convert, rename, redeem, purchase or otherwise acquire, hold, dispose of, resell, transfer, reissue or cancel (all without the vote or consent of the stockholders of the Corporation) shares of its issued or unissued capital 2 stock of any class or series, as its Board of Directors may determine, in any manner and to the extent now or hereafter permitted by the General Laws of the State of Maryland and by these Articles of Incorporation. (5) To do any and all such further acts or things and to exercise any and all such further powers or rights as may be necessary, incidental, relative, conducive, appropriate or desirable for the accomplishment, carrying out or attainment of all or any of the foregoing purposes or objects. (6) The Corporation shall be authorized to exercise and enjoy all of the powers, rights and privileges granted to, or conferred upon, corporations by the General Laws of the State of Maryland now or hereafter in force, and the enumeration of the foregoing purposes, powers, rights and privileges, shall not be deemed to exclude any powers, rights or privileges so granted or conferred. ARTICLE III PRINCIPAL OFFICE AND RESIDENT AGENT The post office address of the principal office of the Corporation in the State of Maryland is c/o The Corporation Service Company, 11 E. Chase Street, Baltimore, Maryland 21202. The name of the resident agent of the Corporation in this State is The Corporation Service Company, a corporation of this State, and the post office address of the resident agent is 11 E. Chase Street, Baltimore, Maryland 21202. ARTICLE IV CAPITAL STOCK (1) The total number of shares of capital stock which the Corporation shall have authority to issue is Two Billion, Eight Hundred Million (2,800,000,000) shares, of the par value of One Hundredth of One Cent ($.0001) per share, and of the aggregate par value of Two Hundred and Eighty Thousand Dollars ($280,000). The capital stock initially consists of seven series, known as Mercury Pan-European Growth Fund, Mercury International Fund, Mercury Japan Capital Fund, Mercury Emerging Economies Fund, Mercury Gold and Mining Fund, Mercury Core U.S. Growth Fund and Mercury Asset Management Fund 7 (collectively, the "Series", and each, a "Series"). Each Series shall consist, until further changed, of Four Hundred Million (400,000,000) shares. The shares of each Series shall consist, until further changed, of four classes of shares designated Class A shares, Class B shares, Class C shares and Class D shares (the "Classes"). Each Class of each Series shall consist, until further changed, of One Hundred Million (100,000,000) shares. (2) Unless otherwise expressly provided in the charter of the Corporation, the Class A, Class B, Class C and Class D shares of each Series shall represent an equal proportionate interest in the assets belonging to that Series (subject to the liabilities of that Series) and each share of a 2 3 particular Series shall have identical voting, dividend, liquidation and other rights; provided, however, that notwithstanding anything in the charter of the Corporation to the contrary: (i) The Class A, Class B, Class C and Class D shares may be issued and sold subject to such different sales loads or charges, whether initial, deferred or contingent, or any combination thereof, as the Board of Directors may from time to time establish in accordance with the Investment Company Act of 1940, as amended, and other applicable law. (ii) Liabilities of a Series which are determined by or under the supervision of the Board of Directors to be attributable to a particular Class of that Series may be charged to that Class and appropriately reflected in the net asset value of, or dividends payable on, the shares of that Class of the Series. (iii) The Class A, Class B, Class C and Class D shares of a particular Series may have such different exchange and conversion rights as the Board of Directors shall provide in compliance with the Investment Company Act of 1940, as amended. (3) The Board of Directors may classify and reclassify any unissued shares of capital stock, of any class or series, into one or more additional or other classes or series as may be established from time to time by setting or changing in any one or more respects the designations, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications or terms or conditions of redemption of such shares of stock and pursuant to such classification or reclassification to increase or decrease the number of authorized shares of any existing class or series. (4) Unless otherwise expressly provided in the charter of the Corporation, including any Articles Supplementary creating any class or series of capital stock, the holders of each class or series of capital stock shall be entitled to dividends and distributions in such amounts and at such times as may be determined by the Board of Directors, and the dividends and distributions paid with respect to the various classes or series of capital stock may vary among such classes and series. Dividends on a class or series may be declared or paid only out of the net assets of that class or series. Expenses related to the distribution of, and other identified expenses that should properly be allocated to, the shares of a particular class or series of capital stock may be charged to and borne solely by such class or series and the bearing of expenses solely by a class or series of capital stock may be appropriately reflected (in a manner determined by the Board of Directors) and cause differences in the net asset value attributable to, and the dividend, redemption and liquidation rights of, the shares of each class or series of capital stock. (5) Unless otherwise expressly provided in the charter of the Corporation, including those matters set forth in Article II, Sections (2) and (4) hereof and including any Articles Supplementary creating any class or series of capital stock, on each matter submitted to a vote of 3 4 stockholders, each holder of a share of capital stock of the Corporation shall be entitled to one vote for each share standing in such holder's name on the books of the Corporation, irrespective of the class or series thereof, and all shares of all classes and series shall vote together as a single class; provided, however, that (a) as to any matter with respect to which a separate vote of any class or series is required by the Investment Company Act of 1940, as amended, and in effect from time to time, or any rules, regulations or orders issued thereunder, or by the Maryland General Corporation Law, such requirement as to a separate vote by that class or series shall apply in lieu of a general vote of all classes and series as described above, (b) in the event that the separate vote requirements referred to in (a) above apply with respect to one or more classes or series, then, subject to paragraph (c) below, the shares of all other classes and series not entitled to a separate class vote shall vote as a single class, and (c) as to any matter which does not affect the interest of a particular class or series, such class or series shall not be entitled to any vote and only the holders of shares of the affected classes and series, if any, shall be entitled to vote. (6) Notwithstanding any provision of the Maryland General Corporation Law requiring a greater proportion than a majority of the votes of all classes or series of capital stock of the Corporation (or of any class or series entitled to vote thereon as a separate class or series) to take or authorize any action, the Corporation is hereby authorized (subject to the requirements of the Investment Company Act of 1940, as amended, and in effect from time to time, and any rules, regulations and orders issued thereunder) to take such action upon the concurrence of a majority of the votes entitled to be cast by holders of capital stock of the Corporation (or a majority of the votes entitled to be cast by holders of a class or series entitled to vote thereon as a separate class or series). (7) Unless otherwise expressly provided in the charter of the Corporation, including any Articles Supplementary creating any class or series of capital stock, subject to compliance with the requirements of the Investment Company Act of 1940, as amended, the Board of Directors shall have the authority to provide that holders of shares of any class or series shall have the right to convert or exchange said shares into shares of one or more other classes or series in accordance with such requirements and procedures as may be established by the Board of Directors. (8) Unless otherwise expressly provided in the charter of the Corporation, including any Articles Supplementary creating any class or series of capital stock, in the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of each class or series of capital stock of the Corporation shall be entitled, after payment or provision for payment of the debts and other liabilities of the Corporation, to share ratably in the remaining net assets of the Corporation applicable to that class or series. (9) Any fractional shares shall carry proportionately all the rights of a whole share, excepting any right to receive a certificate evidencing such fractional share, but including, without limitation, the right to vote and the right to receive dividends; provided, however, that the Corporation shall not be required to issue share certificates for such fractional shares. 4 5 (10) The presence in person or by proxy of the holders of shares entitled to cast one-third of the votes entitled to be cast shall constitute a quorum at any meeting of stockholders, except with respect to any matter which requires approval by a separate vote of one or more classes of stock, in which case the presence in person or by proxy of the holders of shares entitled to cast one-third of the votes entitled to be cast by each class entitled to vote as a separate class shall constitute a quorum. (11) All persons who shall acquire stock in the Corporation, of any class or series, shall acquire the same subject to the provisions of the charter and By-Laws of the Corporation. Any reference to "shares," "stock" or "shares of stock" in these Articles of Incorporation shall be deemed to refer, unless the context otherwise requires, to the shares of each separate class and/or series. As used in the charter of the Corporation, the terms "charter" and "Articles of Incorporation" shall mean and include the Articles of Incorporation of the Corporation as amended, supplemented and restated from time to time by Articles of Amendment, Articles Supplementary, Articles of Restatement or otherwise. (12) The Board of Directors may classify and reclassify any issued shares of capital stock into one or more additional or other classes or series as may be established from time to time by setting or changing in any one or more respects the designations, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications or terms or conditions of redemption of such shares of stock and pursuant to such classification or reclassification to increase or decrease the number of authorized shares of any existing class or series; provided, however, that any such classification or reclassification shall not substantially adversely affect the rights of holders of such issued shares. The Board's authority pursuant to this paragraph shall include, but not be limited to, the power to vary among all the holders of a particular class or series (a) the length of time shares must be held prior to reclassification to shares of another class or series (the "Holding Period(s)"), (b) the manner in which the time for such Holding Period(s) is determined and (c) the class or series into which the particular class or series is being reclassified; provided, however, that, subject to the first sentence of this section, with respect to holders of the Corporation's shares issued on or after the date of the Corporation's first effective prospectus which sets forth Holding Period(s) (the "First Holding Period Prospectus"), the Holding Period(s), the manner in which the time for such Holding Period(s) is determined and the class or series into which the particular class or series is being reclassified shall be disclosed in the Corporation's prospectus or statement of additional information in effect at the time such shares, which are the subject of the reclassification, were issued. (13)(a) Each series of capital stock of the Corporation shall relate to a separate portfolio of investments. All shares of stock in each series shall be identical except that there may be variations between the different series as to the purchase price, determination of net asset value, designations, preferences, conversion or other rights, voting powers, restrictions, special and relative rights and limitations as to dividends and on liquidation, qualifications or terms or conditions of redemption of such shares of stock. 5 6 (b) Each series of stock of the Corporation shall have the following powers, preferences and voting or other special rights, and the qualifications, restrictions and limitations thereof shall be as follows: (i) All consideration received by the Corporation for the issue or sale of stock of each series, together with all assets in which such consideration is invested or reinvested, all income, earnings, profits and proceeds received thereon, including any proceeds derived from the sale, exchange or liquidation thereof, and any assets, funds or payments derived from any reinvestment of such proceeds in whatever form the same may be, shall irrevocably belong to the series of stock with respect to which such assets, payments or funds were received by the Corporation for all purposes, subject only to the rights of creditors, and shall be so handled in the books of account of the Corporation. Such assets, funds and payments, including any proceeds derived from the sale, exchange or liquidation thereof, and any assets, funds or payments derived from any reinvestment of such proceeds in whatever form the same may be, are herein referred to as "assets belonging to" such series. In the event that there are any income, earnings, profits, and proceeds thereof, assets, funds or payments that are not readily identifiable as belonging to any particular series, the Board of Directors of the Corporation shall allocate them among any one or more of the series established and designated from time to time in such manner and on such basis as the Board of Directors, in their sole discretion, deem fair and equitable. Each allocation by the Board of Directors shall be conclusive and binding on the stockholders of the Corporation of all series for all purposes. (ii) The assets belonging to each series of stock shall be charged with the liabilities in respect of such series, and also shall be charged with its share of the general liabilities of the Corporation, in proportion to the asset value of the respective series determined in accordance with the Articles of Incorporation of the Corporation. The determination of the Board of Directors shall be conclusive as to the amount of liabilities, including accrued expenses and reserves, as to the allocation of the same to a given series, and as to whether the same or general assets of the Corporation are allocable to one or more series. ARTICLE V PROVISIONS FOR DEFINING, LIMITING AND REGULATING CERTAIN POWERS OF THE CORPORATION AND OF THE DIRECTORS AND STOCKHOLDERS (1) The number of directors of the Corporation shall be three, which number may be increased pursuant to the By-Laws of the Corporation but shall never be less than three. The names of the directors who shall act until their successors are duly elected and qualify are: Terry K. Glenn Philip K. Kirstein Robert E. Putney, III 6 7 (2) The Board of Directors of the Corporation is hereby empowered to authorize the issuance from time to time of shares of capital stock, of any class or series, whether now or hereafter authorized, for such consideration as the Board of Directors may deem advisable, subject to such limitations as may be set forth in these Articles of Incorporation or in the By-Laws of the Corporation or in the General Laws of the State of Maryland. (3) No holder of stock of the Corporation shall, as such holder, have any right to purchase or subscribe for any shares of the capital stock of the Corporation or any other security of the Corporation which it may issue or sell (whether out of the number of shares authorized by these Articles of Incorporation, or out of any shares of the capital stock of the Corporation, of any class or series, acquired by it after the issue thereof, or otherwise) other than such right, if any, as the Board of Directors, in its discretion, may determine. (4) Each acting and former director and officer of the Corporation shall be indemnified by the Corporation to the full extent permitted by the General Laws of the State of Maryland, subject to the requirements of the Investment Company Act of 1940, as amended. No amendment of these Articles of Incorporation or repeal of any provision hereof shall limit or eliminate the benefits provided to directors and officers under this provision in connection with any act or omission that occurred prior to such amendment or repeal. The foregoing rights of indemnification shall not be exclusive of any other rights to which those seeking indemnification may be entitled. (5) To the fullest extent permitted by the General Laws of the State of Maryland, subject to the requirements of the Investment Company Act of 1940, as amended, no director or officer of the Corporation shall be personally liable to the Corporation or its security holders for money damages. No amendment of these Articles of Incorporation or repeal of any provision hereof shall limit or eliminate the benefits provided to directors and officers under this provision in connection with any act or omission that occurred prior to such amendment or repeal. (6) The Board of Directors of the Corporation is vested with the sole power, to the exclusion of the stockholders, to make, alter or repeal from time to time any of the By-Laws of the Corporation except any particular By-Law which is specified as not subject to alteration or repeal by the Board of Directors, subject to the requirements of the Investment Company Act of 1940, as amended. (7) The Board of Directors of the Corporation from time to time may change the Corporation's name, or change the name or other designation of any class or series of its stock, without the vote or consent of the stockholders of the Corporation, in any manner and to the extent now or hereafter permitted by the General Laws of the State of Maryland and by these Articles of Incorporation. (8) Notwithstanding any other provision of these Articles of Incorporation or the By-Laws of the Corporation, or the General Laws of the State of Maryland, the Board of Directors of the 7 8 Corporation may, upon the affirmative vote of the majority of the entire Board of Directors and without the vote or consent of the stockholders, dissolve the Corporation in the manner otherwise provided by the laws of the State of Maryland. ARTICLE VI REDEMPTION (1) Each holder of shares of capital stock of the Corporation shall be entitled to require the Corporation to redeem all or any part of the shares of capital stock of the Corporation standing in the name of such holder on the books of the Corporation, and all shares of capital stock issued by the Corporation shall be subject to redemption by the Corporation, at the redemption price of such shares as in effect from time to time as may be determined by the Board of Directors of the Corporation in accordance with the provisions hereof, subject to the right of the Board of Directors of the Corporation to suspend the right of redemption of shares of capital stock of the Corporation or postpone the date of payment of such redemption price in accordance with provisions of applicable law. (2) All shares of stock of the Corporation shall be redeemable at the option of the Corporation. The Board of Directors may by resolution from time to time authorize the Corporation to require the redemption of all or any part of the outstanding shares of any class or series upon such terms and conditions as the Board of Directors, in its discretion, shall deem advisable, and upon the sending of written notice thereof to each holder whose shares are to be redeemed. (3) The redemption price of shares of capital stock of the Corporation shall be the net asset value thereof as determined by the Board of Directors of the Corporation from time to time in accordance with the provisions of applicable law, less such redemption fee or other charge, if any, as may be fixed by resolution of the Board of Directors of the Corporation. Payment of the redemption price shall be made in cash by the Corporation at such time and in such manner as may be determined from time to time by the Board of Directors of the Corporation. ARTICLE VII DETERMINATION BINDING Any determination made in good faith, so far as accounting matters are involved, in accordance with accepted accounting practice by or pursuant to the direction of the Board of Directors, as to the amount of assets, obligations or liabilities of the Corporation, as to the amount of net income of the Corporation from dividends and interest for any period or amounts at any time legally available for the payment of dividends, as to the amount of any reserves or charges set up and the propriety thereof, as to the time of or purpose for creating reserves or as to the use, alteration or cancellation of any reserves or charges (whether or not any obligation or liability for which such reserves or charges shall have been created, shall have been paid or discharged or shall be then or thereafter required to be paid or discharged), as to the price of any 8 9 security owned by the Corporation or as to any other matters relating to the issuance, sale, redemption or other acquisition or disposition of securities or shares of capital stock of the Corporation, and any reasonable determination made in good faith by the Board of Directors as to whether any transaction constitutes a purchase of securities on "margin," a sale of securities "short," or an underwriting or the sale of, or a participation in any underwriting or selling group in connection with the public distribution of, any securities, shall be final and conclusive, and shall be binding upon the Corporation and all holders of its capital stock, past, present and future, and shares of the capital stock of the Corporation are issued and sold on the condition and understanding, evidenced by the purchase of shares of capital stock or acceptance of share certificates, that any and all such determinations shall be binding as aforesaid. No provision of these Articles of Incorporation shall be effective to (a) require a waiver of compliance with any provision of the Securities Act of 1933, as amended, or the Investment Company Act of 1940, as amended, or of any valid rule, regulation or order of the Securities and Exchange Commission thereunder or (b) protect or purport to protect any director or officer of the Corporation against any liability to the Corporation or its security holders to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office. ARTICLE VIII PERPETUAL EXISTENCE The duration of the Corporation shall be perpetual. ARTICLE IX AMENDMENT The Corporation reserves the right to amend, alter, change or repeal any provision contained in these Articles of Incorporation, in any manner now or hereafter prescribed by statute, including any amendment which alters the contract rights, as expressly set forth in the charter, of any outstanding stock and substantially adversely affects the stockholder's rights, and all rights conferred upon stockholders herein are granted subject to this reservation. IN WITNESS WHEREOF, the undersigned incorporator of Mercury Asset Management Funds, Inc. hereby executes the foregoing Amended Articles of Incorporation and acknowledges the same to be her act and further acknowledges that, to the best of her knowledge, the matters and facts set forth therein are true in all material respects under penalties for perjury. 9 10 Dated this 8th day of July, 1998 ______________________________ Judith L. Shandling 10 EX-99.1.C 4 ARTICLES OF AMENDMENT 1 Exhibit 1(c) MERCURY ASSET MANAGEMENT FUNDS, INC. ARTICLES OF AMENDMENT Mercury Asset Management Funds, Inc. a Maryland corporation having its principal office in Baltimore, Maryland (hereinafter called the "Corporation"), hereby certifies to the State Department of Assessments and Taxation of Maryland that: FIRST: The charter of the Corporation is hereby amended by striking out Article IV, paragraphs (1) and (2) and inserting in lieu thereof the following: ARTICLE IV CAPITAL STOCK (1) The total number of shares of capital stock which the Corporation shall have authority to issue is Two Billion, Eight Hundred Million (2,800,000,000) shares, of the par value of One Hundredth of One Cent ($.0001) per share, and of the aggregate par value of Two Hundred and Eighty Thousand Dollars ($280,000). The capital stock initially consists of seven series, known as Mercury Pan-European Growth Fund, Mercury International Fund, Mercury Japan Capital Fund, Mercury Emerging Economies Fund, Mercury Gold and Mining Fund, Mercury Core U.S. Growth Fund and Mercury Asset Management Fund 7 (collectively, the "Series", and each, a "Series"). Each Series shall consist, until further changed, of Four Hundred Million (400,000,000) shares. The shares of each Series shall consist, until further changed, of four classes of shares designated Class I shares, Class A shares, Class B shares and Class C shares (the "Classes"). Each Class of each Series shall consist, until further changed, of One Hundred Million (100,000,000) shares. (2) Unless otherwise expressly provided in the charter of the Corporation, the Class I shares, Class A shares, Class B shares and Class C shares of each Series shall represent an equal proportionate interest in the assets belonging to that Series (subject to the liabilities of that Series) and each share of a particular Series shall have identical voting, dividend, liquidation and other rights; provided, however, that notwithstanding anything in the charter of the Corporation to the contrary: (i) The Class I shares, Class A shares, Class B shares and Class C shares may be issued and sold subject to such different sales loads or charges, whether initial, deferred or contingent, or any combination thereof, as the Board of Directors may from time to time establish in accordance with the Investment Company Act of 1940, as amended, and other applicable law. (ii) Liabilities of a Series which are determined by or under the supervision of the Board of Directors to be attributable to a particular Class of that Series may be 2 charged to that Class and appropriately reflected in the net asset value of, or dividends payable on, the shares of that Class of the Series. (iii) The Class I shares, Class A shares, Class B shares and Class C shares of a particular Series may have such different exchange and conversion rights as the Board of Directors shall provide in compliance with the Investment Company Act of 1940, as amended. SECOND: The amendment of the charter of the Corporation as hereinabove set forth has been duly advised by the entire board of directors and the amendment is limited to a change expressly permitted by Section 2-605 (4) of Maryland General Corporation Law, to be made without action by the stockholders, and the Corporation is registered as an open-end company under the Investment Company Act of 1940. IN WITNESS WHEREOF: Mercury Asset Management Funds, Inc., has caused these presents to be signed in its name on its behalf by its President or one of its Vice Presidents and attested by its Secretary or one of its Assistant Secretaries on August __, 1998. ------------------------------- ATTEST: Mercury Asset Management Funds, Inc. - ---------------------------------- Robert E. Putney, III, Secretary 2 3 THE UNDERSIGNED, President (or Vice President) of Mercury Asset Management Funds, Inc., who executed on behalf of said corporation, the foregoing Articles of Amendment, of which this certificate is made a part, hereby acknowledges, in the name and on behalf of said corporation, the foregoing Articles of Amendment to be the corporate act of said corporation and further certifies that, to the best of his knowledge, information, and belief, the matters and facts set forth therein with respect to the approval thereof are true in all material respects, under the penalties of perjury. ----------------------------- 3 EX-99.2.A 5 BY-LAWS 1 Exhibit 2(a) BY-LAWS OF MERCURY ALPHA FUND, INC. ARTICLE I Offices Section 1. Principal Office. The principal office of Mercury Alpha Fund, Inc. (the "Corporation") shall be in the City of Baltimore, State of Maryland. Section 2. Principal Executive Office. The principal executive office of the Corporation shall be at 800 Scudders Mill Road, Plainsboro, New Jersey 08536. Section 3. Other Offices. The Corporation may have such other offices in such places as the Board of Directors may from time to time determine. ARTICLE II Meetings of Stockholders Section 1. Annual Meeting. So long as the Corporation is registered as an investment company under the Investment Company Act of 1940, as amended (such term to include the rules and regulations promulgated under the Investment Company Act of 1940, as amended, unless otherwise specified or the context otherwise requires), annual meetings of the stockholders shall not be held, except where required to be held by the Investment Company Act of 1940, as amended, or by the Maryland General Corporation Law or when called by the Board of Directors or by an officer or officers authorized to take such action by the Board of Directors. If in any calendar year the Corporation is required or elects to hold an annual meeting, the meeting shall be held on such day, not a Saturday, Sunday or legal holiday, as the Board of Directors or the officer or officers calling the meeting may prescribe. At each such annual meeting, the stockholders shall elect a Board of Directors and transact such other business as may properly come before the meeting. The provisions of these By-Laws which contemplate the holding of an annual meeting of stockholders shall be suspended during any calendar year in which no annual meeting of stockholders is held. Section 2. Special Meetings. Special meetings of the stockholders, unless otherwise provided by law, may be called for any purpose or purposes by a majority of the Board of Directors, the President, or on the written request of the holders of at least 10% of the outstanding shares of capital stock of the Corporation entitled to vote at such meeting if they comply with the applicable requirements of the Maryland General Corporation Law. 2 Section 3. Place of Meetings. Meetings of the stockholders shall be held at such place within the United States as the Board of Directors may from time to time determine. Section 4. Notice of Meetings; Waiver of Notice. Notice of the place, date and time of the holding of each stockholders' meeting and, if the meeting is a special meeting, the purpose or purposes of the special meeting, shall be given personally or by mail, not less than ten nor more than ninety days before the date of such meeting, to each stockholder entitled to vote at such meeting and to each other stockholder entitled to notice of the meeting. Notice by mail shall be deemed to be duly given when deposited in the United States mail addressed to the stockholder at his address as it appears on the records of the Corporation, with postage thereon prepaid. Notice of any meeting of stockholders shall be deemed waived by any stockholder who shall attend such meeting in person or by proxy, or who shall, either before or after the meeting, submit a signed waiver of notice which is filed with the records of the meeting. When a meeting is adjourned to another time and place, unless the Board of Directors, after the adjournment, shall fix a new record date for an adjourned meeting, or the adjournment is for more than one hundred and twenty days after the original record date, notice of such adjourned meeting need not be given if the time and place to which the meeting shall be adjourned were announced at the meeting at which the adjournment is taken. Section 5. Quorum. At all meetings of the stockholders, the holders of shares of stock of the Corporation entitled to cast one-third of the votes entitled to be cast, present in person or by proxy, shall constitute a quorum for the transaction of any business, except with respect to any matter which requires approval by a separate vote of one or more series or classes of stock, in which case the presence in person or by proxy of the holders of shares entitled to cast one-third of the votes entitled to be cast by each class entitled to vote as a separate series or class shall constitute a quorum. In the absence of a quorum no business may be transacted, except that the holders of a majority of the shares of stock present in person or by proxy and entitled to vote may adjourn the meeting from time to time, without notice other than announcement thereat except as otherwise required by these By-Laws, until the holders of the requisite amount of shares of stock shall be so present. At any such adjourned meeting at which a quorum may be present any business may be transacted which might have been transacted at the meeting as originally called. The absence from any meeting, in person or by proxy, of holders of the number of shares of stock of the Corporation in excess of a majority thereof which may be required by the laws of the State of Maryland, the Investment Company Act of 1940, as amended, or other applicable statute, the Articles of Incorporation, or these By-Laws, for action upon any given matter shall not prevent action at such meeting upon any other matter or matters which may properly come before the meeting, if there shall be present thereat, in person or by proxy, holders of the number of shares of stock of the Corporation required for action in respect of such other matter or matters. Section 6. Organization. At each meeting of the stockholders, the Chairman of the Board (if one has been designated by the Board), or in his absence or inability to act, the President, or in the absence or inability to act of the Chairman of the Board and the President, a Vice President, 2 3 shall act as chairman of the meeting. The Secretary, or in his absence or inability to act, any person appointed by the chairman of the meeting, shall act as secretary of the meeting and keep the minutes thereof. Section 7. Order of Business. The order of business at all meetings of the stockholders shall be as determined by the chairman of the meeting. Section 8. Voting. Except as otherwise provided by statute or the Articles of Incorporation, each holder of record of shares of stock of the Corporation having voting power shall be entitled at each meeting of the stockholders to one vote for every share of such stock standing in his name on the record of stockholders of the Corporation as of the record date determined pursuant to Section 9 of this Article or if such record date shall not have been so fixed, then at the later of (i) the close of business on the day on which notice of the meeting is mailed or (ii) the thirtieth day before the meeting. Each stockholder entitled to vote at any meeting of stockholders may authorize another person or persons to act for him by a proxy signed by such stockholder or his attorney-in-fact. No proxy shall be valid after the expiration of eleven months from the date thereof, unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the stockholder executing it, except in those cases where such proxy states that it is irrevocable and where an irrevocable proxy is permitted by law. Except as otherwise provided by statute, the Articles of Incorporation or these By-Laws, any corporate action to be taken by vote of the stockholders (other than the election of directors, which shall be by plurality vote) may be authorized by a majority of the total votes cast at a meeting of stockholders by the holders of shares present in person or represented by proxy and entitled to vote on such action. If a vote shall be taken on any question other than the election of directors, which shall be by written ballot, then unless required by statute or these By-Laws, or determined by the chairman of the meeting to be advisable, any such vote need not be by ballot. On a vote by ballot, each ballot shall be signed by the stockholder voting, or by his proxy, if there be such proxy, and shall state the number of shares voted. Section 9. Fixing of Record Date. The Board of Directors may set a record date for the purpose of determining stockholders entitled to vote at any meeting of the stockholders. The record date, which may not be prior to the close of business on the day the record date is fixed, shall be not more than ninety nor less than ten days before the date of the meeting of the stockholders. All persons who were holders of record of shares at such time, and not others, shall be entitled to vote at such meeting and any adjournment thereof. Section 10. Inspectors. The Board may, in advance of any meeting of stockholders, appoint one or more inspectors to act at such meeting or any adjournment thereof. If the inspectors shall not be so appointed or if any of them shall fail to appear or act, the chairman of the meeting may, and on the request of any Stockholder entitled to vote thereto shall, appoint 3 4 inspectors. Each inspector, before entering upon the discharge of his duties, may be required to take and sign an oath to execute faithfully the duties of inspector at such meeting with strict impartiality and according to the best of his ability. The inspectors may be empowered to determine the number of shares outstanding and the voting powers of each, the number of shares represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the chairman of the meeting or any stockholder entitled to vote thereat, the inspectors shall make a report in writing of any challenge, request or matter determined by them and shall execute a certificate of any fact found by them. No director or candidate for the office of director shall act as inspector of an election of directors. Inspectors need not be stockholders. Section 11. Consent of Stockholders in Lieu of Meeting. Except as otherwise provided by statute or the Articles of Incorporation, any action required to be taken at any meeting of stockholders, or any action which may be taken at any meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if the following are filed with the records of stockholders meetings: (i) a unanimous written consent which sets forth the action and is signed by each stockholder entitled to vote on the matter and (ii) a written waiver of any right to dissent signed by each stockholder entitled to notice of the meeting but not entitled to vote thereat. ARTICLE III Board of Directors Section 1. General Powers. Except as otherwise provided in the Articles of Incorporation, the business and affairs of the Corporation shall be managed under the direction of the Board of Directors. All powers of the Corporation may be exercised by or under authority of the Board of Directors except as conferred on or reserved to the stockholders by law or by the Articles of Incorporation or these By-Laws. Section 2. Number of Directors. The number of directors shall be fixed from time to time by resolution of the Board of Directors adopted by a majority of the entire Board of Directors; provided, however, that the number of directors shall in no event be less than three nor more than fifteen. Any vacancy created by an increase in Directors may be filled in accordance with Section 6 of this Article III. No reduction in the number of directors shall have the effect of removing any director from office prior to the expiration of his term unless such director is specifically removed pursuant to Section 5 of this Article III at the time of such decrease. Directors need not be stockholders. Section 3. Election and Term of Directors. Directors shall be elected annually at a 4 5 meeting of stockholders held for that purpose; provided, however, that if no meeting of the stockholders of the Corporation is required to be held in a particular year pursuant to Section 1 of Article II of these By-Laws, directors shall be elected at the next meeting held for that purpose. The term of office of each director shall be from the time of his election and qualification until the election of directors next succeeding his election and until his successor shall have been elected and shall have qualified, or until his death, or until he shall have resigned or until December 31 of the year in which he shall have reached seventy-two years of age, or until he shall have been removed as hereinafter provided in these By-Laws, or as otherwise provided by statute or the Articles of Incorporation. Section 4. Resignation. A director of the Corporation may resign at any time by giving written notice of his resignation to the Board or the Chairman of the Board or the President or the Secretary. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 5. Removal of Directors. Any director of the Corporation may be removed by the stockholders by a vote of a majority of the votes entitled to be cast for the election of directors. Section 6. Vacancies. Any vacancies in the Board, whether arising from death, resignation, removal, an increase in the number of directors or any other cause, may be filled by a vote of the majority of the Board of Directors then in office even though such majority is less than a quorum, provided that no vacancies shall be filled by action of the remaining directors, if after the filling of said vacancy or vacancies, less than two-thirds of the directors then holding office shall have been elected by the stockholders of the Corporation. In the event that at any time there is a vacancy in any office of a director which vacancy may not be filled by the remaining directors, a special meeting of the stockholders shall be held as promptly as possible and in any event within sixty days, for the purpose of filling said vacancy or vacancies. Section 7. Place of Meetings. Meetings of the Board may be held at such place as the Board may from time to time determine or as shall be specified in the notice of such meeting. Section 8. Regular Meetings. Regular meetings of the Board may be held without notice at such time and place as may be determined by the Board of Directors. Section 9. Special Meetings. Special meetings of the Board may be called by two or more directors of the Corporation or by the Chairman of the Board or the President. Section 10. Telephone Meetings. Members of the Board of Directors or of any committee thereof may participate in a meeting by means of a conference telephone or similar communications equipment if all persons participating in the meeting can hear each other at the 5 6 same time. Subject to the provisions of the Investment Company Act of 1940, as amended, participation in a meeting by these means constitutes presence in person at the meeting. Section 11. Notice of Special Meetings. Notice of each special meeting of the Board shall be given by the Secretary as hereinafter provided, in which notice shall be stated the time and place of the meeting. Notice of each such meeting shall be delivered to each director, either personally or by telephone or any standard form of telecommunication, at least twenty-four hours before the time at which such meeting is to be held, or by first-class mail, postage prepaid, addressed to him at his residence or usual place of business, at least three days before the day on which such meeting is to be held. Section 12. Waiver of Notice of Meetings. Notice of any special meeting need not be given to any director who shall, either before or after the meeting, sign a written waiver of notice which is filed with the records of the meeting or who shall attend such meeting. Except as otherwise specifically required by these By-Laws, a notice or waiver of notice of any meeting need not state the purposes of such meeting. Section 13. Quorum and Voting. One-third, but not less than two, of the members of the entire Board shall be present in person at any meeting of the Board in order to constitute a quorum for the transaction of business at such meeting, and except as otherwise expressly required by statute, the Articles of Incorporation, these By-Laws, the Investment Company Act of 1940, as amended, or other applicable statute, the act of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board. In the absence of a quorum at any meeting of the Board, a majority of the directors present thereat may adjourn such meeting to another time and place until a quorum shall be present thereat. Notice of the time and place of any such adjourned meeting shall be given to the directors who were not present at the time of the adjournment and, unless such time and place were announced at the meeting at which the adjournment was taken, to the other directors. At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called. Section 14. Organization. The Board may, by resolution adopted by a majority of the entire Board, designate a Chairman of the Board, who shall preside at each meeting of the Board. In the absence or inability of the Chairman of the Board to preside at a meeting, the President or, in his absence or inability to act, another director chosen by a majority of the directors present, shall act as chairman of the meeting and preside thereat. The Secretary (or, in his absence or inability to act, any person appointed by the Chairman) shall act as secretary of the meeting and keep the minutes thereof. Section 15. Written Consent of Directors in Lieu of a Meeting. Subject to the provisions of the Investment Company Act of 1940, as amended, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in 6 7 writing, and the writings or writing are filed with the minutes of the proceedings of the Board or committee. Section 16. Compensation. Directors may receive compensation for services to the Corporation in their capacities as directors or otherwise in such manner and in such amounts as may be fixed from time to time by the Board. Section 17. Investment Policies. It shall be the duty of the Board of Directors to direct that the purchase, sale, retention and disposal of securities and the other investment practices of the Corporation are at all times consistent with the investment policies and restrictions with respect to securities investments and otherwise of the Corporation, as recited in the current Prospectus and Statement of Additional Information of the Corporation, as filed from time to time with the Securities and Exchange Commission and as required by the Investment Company Act of 1940, as amended. The Board however, may delegate the duty of management of the assets and the administration of its day to day operations to an individual or corporate management company and/or investment adviser pursuant to a written contract or contracts which have obtained the requisite approvals, including the requisite approvals of renewals thereof, of the Board of Directors and/or the stockholders of the Corporation in accordance with the provisions of the Investment Company Act of 1940, as amended. ARTICLE IV Committees Section 1. Executive Committee. The Board may, by resolution adopted by a majority of the entire board, designate an Executive Committee consisting of two or more of the directors of the corporation, which committee shall have and may exercise all the powers and authority of the Board with respect to all matters other than: (a) the submission to stockholders of any action requiring authorization of stockholders pursuant to statute or the Articles of Incorporation; (b) the filling of vacancies on the Board of Directors; (c) the fixing of compensation of the directors for serving on the Board or on any committee of the Board, including the Executive Committee; (d) the approval or termination of any contract with an investment adviser or principal underwriter, as such terms are defined in the Investment Company Act of 1940, as amended, or the taking of any other action required to be taken by the Board of Directors by the Investment Company Act of 1940, as amended; (e) the amendment or repeal of these By-Laws or the adoption of new By-Laws; 7 8 (f) the amendment or repeal of any resolution of the Board which by its terms may be amended or repealed only by the Board; (g) the declaration of dividends and the issuance of capital stock of the Corporation; and (h) the approval of any merger or share exchange which does not require stockholder approval. The Executive Committee shall keep written minutes of its proceedings and shall report such minutes to the Board. All such proceedings shall be subject to revision or alteration by the Board; provided, however, that third parties shall not be prejudiced by such revision or alteration. Section 2. Other Committees of the Board. The Board of Directors may from time to time, by resolution adopted by a majority of the whole Board, designate one or more other com mittees of the Board, each such committee to consist of two or more directors and to have such powers and duties as the Board of Directors may, by resolution, prescribe. Section 3. General. One-third, but not less than two, of the members of any committee shall be present in person at any meeting of such committee in order to constitute a quorum for the transaction of business at such meeting, and the act of a majority present shall be the act of such committee. The Board may designate a chairman of any committee and such chairman or any two members of any committee may fix the time and place of its meetings unless the Board shall otherwise provide. In the absence or disqualification of any member of any committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. The Board shall have the power at any time to change the membership of any committee, to fill all vacancies, to designate alternate members to replace any absent or disqualified member, or to dissolve any such committee. Nothing herein shall be deemed to prevent the Board from appointing one or more committees consisting in whole or in part of persons who are not directors of the Corporation; provided, however, that no such committee shall have or may exercise any authority or power of the Board in the management of the business or affairs of the Corporation, except as may be prescribed by the Board. ARTICLE V Officers, Agents and Employees Section 1. Number, Qualification, Election and Tenure. The officers of the Corporation shall be a President, a Secretary and a Treasurer, each of whom shall be elected by the Board of Directors. The Board of Directors may elect or appoint one or more Vice Presidents and may 8 9 also appoint such other officers, agents and employees as it may deem necessary or proper. Any two or more offices may be held by the same person, except the offices of President and Vice President, but no officer shall execute, acknowledge or verify any instrument in more than one capacity. Such officers shall be elected by the Board of Directors each year at a meeting of the Board of Directors, each to hold office for the ensuing year and until his successor shall have been duly elected and shall have qualified, or until his death, or until he shall have resigned, or have been removed, as hereinafter provided in these By-Laws. The Board may from time to time elect, or delegate to the President the power to appoint, such officers (including one or more Assistant Vice Presidents, one or more Assistant Treasurers and one or more Assistant Secretaries) and such agents, as may be necessary or desirable for the business of the Corporation. Such officers and agents shall have such duties and shall hold their offices for such terms as may be prescribed by the Board or by the appointing authority. Section 2. Resignations. Any officer of the Corporation may resign at any time by giving written notice of resignation to the Board, the Chairman of the Board, the President or the Secretary. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt; and, unless otherwise specified therein, the acceptance of such resignation shall be necessary to make it effective. Section 3. Removal of Officer, Agent or Employee. Any officer, agent or employee of the Corporation may be removed by the Board of Directors with or without cause at any time, and the Board may delegate such power of removal as to agents and employees not elected or appointed by the Board of Directors. Such removal shall be without prejudice to such person's contract rights, if any, but the appointment of any person as an officer, agent or employee of the Corporation shall not of itself create contract rights. Section 4. Vacancies. A vacancy in any office, whether arising from death, resignation, removal or any other cause, may be filled for the unexpired portion of the term of the office which shall be vacant, in the manner prescribed in these By-Laws for the regular election or appointment to such office. Section 5. Compensation. The compensation of the officers of the Corporation shall be fixed by the Board of Directors, but this power may be delegated to any officer in respect of other officers under his control. Section 6. Bonds or Other Security. If required by the Board, any officer, agent or employee of the Corporation shall give a bond or other security for the faithful performance of his duties, in such amount and with such surety or sureties as the Board may require. Section 7. President. The President shall be the chief executive officer of the Corporation. In the absence of the Chairman of the Board (or if there be none), he shall preside at all meetings of the stockholders and of the Board Directors. He shall have, subject to the 9 10 control of the Board of Directors, general charge of the business and affairs of the Corporation. He may employ and discharge employees and agents of the Corporation, except such as shall be appointed by the Board, and he may delegate these powers. Section 8. Vice President. Each Vice President shall have such powers and perform such duties as the Board of Directors or the President may from time to time prescribe. Section 9. Treasurer. The Treasurer shall (a) have charge and custody of, and be responsible for, all the funds and securities of the Corporation, except those which the Corporation has placed in the custody of a bank or trust company or member of a national securities exchange (as that term is defined in the Securities Exchange Act of 1934, as amended) pursuant to a written agreement designating such bank or trust company or member of a national securities exchange as custodian of the property of the Corporation; (b) keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation; (c) cause all moneys and other valuables to be deposited to the credit of the Corporation; (d) receive, and give receipts for, moneys due and payable, to the Corporation from any source whatsoever; (e) disburse the funds of the Corporation and supervise the investment of its funds as ordered or authorized by the Board, taking proper vouchers therefor; and (f) in general, perform all the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the Board or the President. Section 10. Secretary. The Secretary shall (a) keep or cause to be kept in one or more books provided for the purpose, the minutes of all meetings of the Board, the committees of the Board and the stockholders; (b) see that all notices are duly given in accordance with the provisions of these By-Laws and as required by law; (c) be custodian of the records and the seal of the Corporation and affix and attest the seal to all stock certificates of the Corporation (unless the seal of the Corporation on such certificates shall be a facsimile, as hereinafter provided) and affix and attest the seal to all other documents to be executed on behalf of the Corporation under its seal; 10 11 (d) see that the books, reports, statements, certificates and other documents and records required by law to be kept and filed are properly kept and filed; and (e) in general, perform all the duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by the Board or the President. Section 11. Delegation of Duties. In case of the absence of any officer of the Corporation, or for any other reason that the Board may deem sufficient, the Board may confer for the time being the powers or duties, or any of them, of such officer upon any other officer or upon any director. ARTICLE VI Indemnification Each officer and director of the Corporation shall be indemnified by the Corporation to the full extent permitted under the Maryland General Corporation Law, except that such indemnity shall not protect any such person against any liability to the Corporation or any stockholder thereof to which such person would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office. Absent a court determination that an officer or director seeking indemnification was not liable on the merits or guilty of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office, the decision by the Corporation to indemnify such person must be based upon the reasonable determination by special legal counsel in a written opinion or the vote of a majority of a quorum of the directors who are neither "interested persons," as defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended, nor parties to the proceeding ("non-party independent directors"), after review of the facts, that such officer or director is not guilty of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office. Each officer and director of the Corporation claiming indemnification within the scope of this Article VI shall be entitled to advances from the Corporation for payment of the reasonable expenses incurred by him in connection with proceedings to which he is a party in the manner and to the full extent permitted under the Maryland General Corporation Law without a preliminary determination as to his or her ultimate entitlement to indemnification (except as set forth below); provided, however, that the person seeking indemnification shall provide to the Corporation a written affirmation of his good faith belief that the standard of conduct necessary for indemnification by the Corporation has been met and a written undertaking to repay any such advance, if it should ultimately be determined that the standard of conduct has not been met, and provided further that at least one of the following additional conditions is met: (a) the person seeking indemnification shall provide a security in form and amount acceptable to the Corporation for his undertaking; (b) the Corporation is insured against losses arising by reason of the advance; (c) a majority of a quorum of non-party independent directors, or independent legal counsel in a 11 12 written opinion, shall determine, based on a review of facts readily available to the Corporation at the time the advance is proposed to be made, that there is reason to believe that the person seeking indemnification will ultimately be found to be entitled to indemnification. The Corporation may purchase insurance on behalf of an officer or director protecting such person to the full extent permitted under the General Laws of the State of Maryland, from liability arising from his activities as officer or director of the Corporation. The Corporation, however, may not purchase insurance on behalf of any officer or director of the Corporation that protects or purports to protect such person from liability to the Corporation or to its stockholders to which such officer or director would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his office. The Corporation may indemnify, make advances or purchase insurance to the extent provided in this Article VI on behalf of an employee or agent who is not an officer or director of the Corporation. ARTICLE VII Capital Stock Section 1. Stock Certificates. Each holder of stock of the Corporation shall be entitled upon request to have a certificate or certificates, in such form as shall be approved by the Board, representing the number of shares of stock of the Corporation owned by him, provided, however, that certificates for fractional shares will not be delivered in any case. The certificates representing shares of stock shall be signed by or in the name of the Corporation by the Chairman, President or a Vice President and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer and sealed with the seal of the Corporation. Any or all of the signatures or the seal on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate shall be issued, it may be issued by the Corporation with the same effect as if such officer, transfer agent or registrar were still in office at the date of issue. Section 2. Books of Account and Record of Stockholders. There shall be kept at the principal executive office of the Corporation correct and complete books and records of account of all the business and transactions of the Corporation. There shall be made available upon request of any stockholder, in accordance with Maryland law, a record containing the number of shares of stock issued during a specified period not to exceed twelve months and the consideration received by the Corporation for each such share. Section 3. Transfers of Shares. Transfers of shares of stock of the Corporation shall be made on the stock records of the Corporation only by the registered holder thereof, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary or 12 13 with a transfer agent or transfer clerk, and on surrender of the certificate or certificates, if issued, for such shares properly endorsed or accompanied by a duly executed stock transfer power and the payment of all taxes thereon. Except as otherwise provided by law, the Corporation shall be entitled to recognize the exclusive right of a person in whose name any share or shares stand on the record of stockholders as the owner of such share or shares for all purposes, including, without limitation, the rights to receive dividends or other distributions, and to vote as such owner, and the Corporation shall not be bound to recognize any equitable or legal claim to or interest in any such share or shares on the part of any other person. Section 4. Regulations. The Board may make such additional rules and regulations, not inconsistent with these By-Laws, as it may deem expedient concerning the issue, transfer and registration of certificates for shares of stock of the Corporation. It may appoint, or authorize any officer or officers to appoint, one or more transfer agents or one or more transfer clerks and one or more registrars and may require all certificates for shares of stock to bear the signature or signatures of any of them. Section 5. Lost, Destroyed or Mutilated Certificates. The holder of any certificates representing shares of stock of the Corporation shall immediately notify the Corporation of any loss, destruction or mutilation of such certificate, and the Corporation may issue a new certificate of stock in the place of any certificate theretofore issued by it which the owner thereof shall allege to have been lost or destroyed or which shall have been mutilated, and the Board may, in its discretion, require such owner or his legal representatives to give to the Corporation a bond in such sum, limited or unlimited, and in such form and with such surety or sureties, as the Board in its absolute discretion shall determine, to indemnify the Corporation against any claim that may be made against it on account of the alleged loss or destruction of any such certificate, or issuance of a new certificate. Anything herein to the contrary notwithstanding, the Board, in its absolute discretion, may refuse to issue any such new certificate, except pursuant to legal proceedings under the laws of the State of Maryland. Section 6. Fixing of a Record Date for Dividends and Distributions. The Board may fix, in advance, a date not more than ninety days preceding the date fixed for the payment of any dividend or the making of any distribution or the allotment of rights to subscribe for securities of the Corporation, or for the delivery of evidences of rights or evidences of interests arising out of any change, conversion or exchange of common stock or other securities, as the record date for the determination of the stockholders entitled to receive any such dividend, distribution, allotment, rights or interests, and in such case only the stockholders of record at the time so fixed shall be entitled to receive such dividend, distribution, allotment, rights or interests. Section 7. Information to Stockholders and Others. Any stockholder of the Corporation or his agent may inspect and copy during usual business hours the Corporation's By-Laws, minutes of the proceedings of its stockholders, annual statements of its affairs, and voting trust agreements on file at its principal office. 13 14 ARTICLE VIII Seal The seal of the Corporation shall be circular in form and shall bear, in addition to any other emblem or device approved by the Board of Directors, the name of the Corporation, the year of its incorporation and the words "Corporate Seal" and "Maryland." Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced. ARTICLE IX Fiscal Year Unless otherwise determined by the Board, the fiscal year of the Corporation shall be as determined by the Board of Directors from time to time. ARTICLE X Depositories and Custodians Section 1. Depositories. The funds of the Corporation shall be deposited with such banks or other depositories as the Board of Directors of the Corporation may from time to time determine. Section 2. Custodians. All securities and other investments shall be deposited in the safe keeping of such banks or other companies as the Board of Directors of the Corporation may from time to time determine. Every arrangement entered into with any bank or other company for the safe keeping of the securities and investments of the Corporation shall contain provisions complying with the Investment Company Act of 1940, as amended, and the general rules and regulations thereunder. ARTICLE XI Execution of Instruments Section 1. Checks, Notes, Drafts, etc. Checks, notes, drafts, acceptances, bills of exchange and other orders or obligations for the payment of money shall be signed by such officer or officers or person or persons as the Board of Directors by resolution shall from time to time designate. Section 2. Sale or Transfer of Securities. Stock certificates, bonds or other securities at any time owned by the Corporation may be held on behalf of the Corporation or sold, transferred or otherwise disposed of subject to any limits imposed by these By-Laws and pursuant to authorization by the Board and, when so authorized to be held on behalf of the Corporation or 14 15 sold, transferred or otherwise disposed of, may be transferred from the name of the Corporation by the signature of the President or a Vice President or the Treasurer or pursuant to any procedure approved by the Board of Directors, subject to applicable law. ARTICLE XII Independent Public Accountants The firm of independent public accountants which shall sign or certify the financial statements of the Corporation which are filed with the Securities and Exchange Commission shall be selected annually by the Board of Directors and, if required by the provisions of the Investment Company Act of 1940, as amended, ratified by the stockholders. ARTICLE XIII Annual Statement The books of account of the Corporation shall be examined by an independent firm of public accountants at the close of each annual period of the Corporation and at such other times as may be directed by the Board. A report to the stockholders based upon each such examination shall be mailed to each stockholder of the Corporation of record on such date with respect to each report as may be determined by the Board, at his address as the same appears on the books of the Corporation. Such annual statement shall also be available at the annual meeting of stockholders, if any, and, within 20 days after the meeting (or, in the absence of an annual meeting, within 120 days after the end of the fiscal year), be placed on file at the Corporation's principal office. Each such report shall show the assets and liabilities of the Corporation as of the close of the annual or quarterly period covered by the report and the securities in which the funds of the Corporation were then invested. Such report shall also show the Corporation's income and expenses for the period from the end of the Corporation's preceding fiscal year to the close of the annual or quarterly period covered by the report and any other information required by the Investment Company Act of 1940, as amended, and shall set forth such other matters as the Board or such firm of independent public accountants shall determine. ARTICLE XIV Amendments These By-Laws or any of them may be amended, altered or repealed by the Board of Directors. The stockholders shall have no power to make, amend, alter or repeal By-Laws. 15 EX-99.2.B 6 AMENDED AND RESTATED BY-LAWS 1 Exhibit 2(b) AMENDED AND RESTATED BY-LAWS OF MERCURY ASSET MANAGEMENT FUNDS, INC. ARTICLE I Offices Section 1. Principal Office. The principal office of Mercury Asset Management Funds, Inc. (the "Corporation") shall be in the City of Baltimore, State of Maryland. Section 2. Principal Executive Office. The principal executive office of the Corporation shall be at 800 Scudders Mill Road, Plainsboro, New Jersey 08536. Section 3. Other Offices. The Corporation may have such other offices in such places as the Board of Directors may from time to time determine. ARTICLE II Meetings of Stockholders Section 1. Annual Meeting. So long as the Corporation is registered as an investment company under the Investment Company Act of 1940, as amended (such term to include the rules and regulations promulgated under the Investment Company Act of 1940, as amended, unless otherwise specified or the context otherwise requires), annual meetings of the stockholders shall not be held, except where required to be held by the Investment Company Act of 1940, as amended, or by the Maryland General Corporation Law or when called by the Board of Directors or by an officer or officers authorized to take such action by the Board of Directors. If in any calendar year the Corporation is required or elects to hold an annual meeting, the meeting shall be held on such day, not a Saturday, Sunday or legal holiday, as the Board of Directors or the officer or officers calling the meeting may prescribe. At each such annual meeting, the stockholders shall elect a Board of Directors and transact such other business as may properly come before the meeting. The provisions of these By-Laws which contemplate the holding of an annual meeting of stockholders shall be suspended during any calendar year in which no annual meeting of stockholders is held. Section 2. Special Meetings. Special meetings of the stockholders, unless otherwise provided by law, may be called for any purpose or purposes by a majority of the Board of Directors, the President, or on the written request of the holders of at least 10% of the outstanding shares of capital stock of the Corporation entitled to vote at such meeting if they comply with the applicable requirements of the Maryland General Corporation Law. 1 2 Section 3. Place of Meetings. Meetings of the stockholders shall be held at such place within the United States as the Board of Directors may from time to time determine. Section 4. Notice of Meetings; Waiver of Notice. Notice of the place, date and time of the holding of each stockholders' meeting and, if the meeting is a special meeting, the purpose or purposes of the special meeting, shall be given personally or by mail, not less than ten nor more than ninety days before the date of such meeting, to each stockholder entitled to vote at such meeting and to each other stockholder entitled to notice of the meeting. Notice by mail shall be deemed to be duly given when deposited in the United States mail addressed to the stockholder at his address as it appears on the records of the Corporation, with postage thereon prepaid. Notice of any meeting of stockholders shall be deemed waived by any stockholder who shall attend such meeting in person or by proxy, or who shall, either before or after the meeting, submit a signed waiver of notice which is filed with the records of the meeting. When a meeting is adjourned to another time and place, unless the Board of Directors, after the adjournment, shall fix a new record date for an adjourned meeting, or the adjournment is for more than one hundred and twenty days after the original record date, notice of such adjourned meeting need not be given if the time and place to which the meeting shall be adjourned were announced at the meeting at which the adjournment is taken. Section 5. Quorum. At all meetings of the stockholders, the holders of shares of stock of the Corporation entitled to cast one-third of the votes entitled to be cast, present in person or by proxy, shall constitute a quorum for the transaction of any business, except with respect to any matter which requires approval by a separate vote of one or more series or classes of stock, in which case the presence in person or by proxy of the holders of shares entitled to cast one-third of the votes entitled to be cast by each class entitled to vote as a separate series or class shall constitute a quorum. In the absence of a quorum no business may be transacted, except that the holders of a majority of the shares of stock present in person or by proxy and entitled to vote may adjourn the meeting from time to time, without notice other than announcement thereat except as otherwise required by these By-Laws, until the holders of the requisite amount of shares of stock shall be so present. At any such adjourned meeting at which a quorum may be present any business may be transacted which might have been transacted at the meeting as originally called. The absence from any meeting, in person or by proxy, of holders of the number of shares of stock of the Corporation in excess of a majority thereof which may be required by the laws of the State of Maryland, the Investment Company Act of 1940, as amended, or other applicable statute, the Articles of Incorporation, or these By-Laws, for action upon any given matter shall not prevent action at such meeting upon any other matter or matters which may properly come before the meeting, if there shall be present thereat, in person or by proxy, holders of the number of shares of stock of the Corporation required for action in respect of such other matter or matters. Section 6. Organization. At each meeting of the stockholders, the Chairman of the Board (if one has been designated by the Board), or in his absence or inability to act, the President, or in the absence or inability to act of the Chairman of the Board and the President, a Vice President, 2 3 shall act as chairman of the meeting. The Secretary, or in his absence or inability to act, any person appointed by the chairman of the meeting, shall act as secretary of the meeting and keep the minutes thereof. Section 7. Order of Business. The order of business at all meetings of the stockholders shall be as determined by the chairman of the meeting. Section 8. Voting. Except as otherwise provided by statute or the Articles of Incorporation, each holder of record of shares of stock of the Corporation having voting power shall be entitled at each meeting of the stockholders to one vote for every share of such stock standing in his name on the record of stockholders of the Corporation as of the record date determined pursuant to Section 9 of this Article or if such record date shall not have been so fixed, then at the later of (i) the close of business on the day on which notice of the meeting is mailed or (ii) the thirtieth day before the meeting. Each stockholder entitled to vote at any meeting of stockholders may authorize another person or persons to act for him by a proxy signed by such stockholder or his attorney-in-fact. No proxy shall be valid after the expiration of eleven months from the date thereof, unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the stockholder executing it, except in those cases where such proxy states that it is irrevocable and where an irrevocable proxy is permitted by law. Except as otherwise provided by statute, the Articles of Incorporation or these By-Laws, any corporate action to be taken by vote of the stockholders (other than the election of directors, which shall be by plurality vote) may be authorized by a majority of the total votes cast at a meeting of stockholders by the holders of shares present in person or represented by proxy and entitled to vote on such action. If a vote shall be taken on any question other than the election of directors, which shall be by written ballot, then unless required by statute or these By-Laws, or determined by the chairman of the meeting to be advisable, any such vote need not be by ballot. On a vote by ballot, each ballot shall be signed by the stockholder voting, or by his proxy, if there be such proxy, and shall state the number of shares voted. Section 9. Fixing of Record Date. The Board of Directors may set a record date for the purpose of determining stockholders entitled to vote at any meeting of the stockholders. The record date, which may not be prior to the close of business on the day the record date is fixed, shall be not more than ninety nor less than ten days before the date of the meeting of the stockholders. All persons who were holders of record of shares at such time, and not others, shall be entitled to vote at such meeting and any adjournment thereof. Section 10. Inspectors. The Board may, in advance of any meeting of stockholders, appoint one or more inspectors to act at such meeting or any adjournment thereof. If the inspectors shall not be so appointed or if any of them shall fail to appear or act, the chairman of the meeting may, and on the request of any Stockholder entitled to vote thereto shall, appoint 3 4 inspectors. Each inspector, before entering upon the discharge of his duties, may be required to take and sign an oath to execute faithfully the duties of inspector at such meeting with strict impartiality and according to the best of his ability. The inspectors may be empowered to determine the number of shares outstanding and the voting powers of each, the number of shares represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the chairman of the meeting or any stockholder entitled to vote thereat, the inspectors shall make a report in writing of any challenge, request or matter determined by them and shall execute a certificate of any fact found by them. No director or candidate for the office of director shall act as inspector of an election of directors. Inspectors need not be stockholders. Section 11. Consent of Stockholders in Lieu of Meeting. Except as otherwise provided by statute or the Articles of Incorporation, any action required to be taken at any meeting of stockholders, or any action which may be taken at any meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if the following are filed with the records of stockholders meetings: (i) a unanimous written consent which sets forth the action and is signed by each stockholder entitled to vote on the matter and (ii) a written waiver of any right to dissent signed by each stockholder entitled to notice of the meeting but not entitled to vote thereat. ARTICLE III Board of Directors Section 1. General Powers. Except as otherwise provided in the Articles of Incorporation, the business and affairs of the Corporation shall be managed under the direction of the Board of Directors. All powers of the Corporation may be exercised by or under authority of the Board of Directors except as conferred on or reserved to the stockholders by law or by the Articles of Incorporation or these By-Laws. Section 2. Number of Directors. The number of directors shall be fixed from time to time by resolution of the Board of Directors adopted by a majority of the entire Board of Directors; provided, however, that the number of directors shall in no event be less than three nor more than fifteen. Any vacancy created by an increase in Directors may be filled in accordance with Section 6 of this Article III. No reduction in the number of directors shall have the effect of removing any director from office prior to the expiration of his term unless such director is specifically removed pursuant to Section 5 of this Article III at the time of such decrease. Directors need not be stockholders. Section 3. Election and Term of Directors. Directors shall be elected annually at a 4 5 meeting of stockholders held for that purpose; provided, however, that if no meeting of the stockholders of the Corporation is required to be held in a particular year pursuant to Section 1 of Article II of these By-Laws, directors shall be elected at the next meeting held for that purpose. The term of office of each director shall be from the time of his election and qualification until the election of directors next succeeding his election and until his successor shall have been elected and shall have qualified, or until his death, or until he shall have resigned or until December 31 of the year in which he shall have reached seventy-two years of age, or until he shall have been removed as hereinafter provided in these By-Laws, or as otherwise provided by statute or the Articles of Incorporation. Section 4. Resignation. A director of the Corporation may resign at any time by giving written notice of his resignation to the Board or the Chairman of the Board or the President or the Secretary. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 5. Removal of Directors. Any director of the Corporation may be removed by the stockholders by a vote of a majority of the votes entitled to be cast for the election of directors. Section 6. Vacancies. Any vacancies in the Board, whether arising from death, resignation, removal, an increase in the number of directors or any other cause, may be filled by a vote of the majority of the Board of Directors then in office even though such majority is less than a quorum, provided that no vacancies shall be filled by action of the remaining directors, if after the filling of said vacancy or vacancies, less than two-thirds of the directors then holding office shall have been elected by the stockholders of the Corporation. In the event that at any time there is a vacancy in any office of a director which vacancy may not be filled by the remaining directors, a special meeting of the stockholders shall be held as promptly as possible and in any event within sixty days, for the purpose of filling said vacancy or vacancies. Section 7. Place of Meetings. Meetings of the Board may be held at such place as the Board may from time to time determine or as shall be specified in the notice of such meeting. Section 8. Regular Meetings. Regular meetings of the Board may be held without notice at such time and place as may be determined by the Board of Directors. Section 9. Special Meetings. Special meetings of the Board may be called by two or more directors of the Corporation or by the Chairman of the Board or the President. Section 10. Telephone Meetings. Members of the Board of Directors or of any committee thereof may participate in a meeting by means of a conference telephone or similar communications equipment if all persons participating in the meeting can hear each other at the 5 6 same time. Subject to the provisions of the Investment Company Act of 1940, as amended, participation in a meeting by these means constitutes presence in person at the meeting. Section 11. Notice of Special Meetings. Notice of each special meeting of the Board shall be given by the Secretary as hereinafter provided, in which notice shall be stated the time and place of the meeting. Notice of each such meeting shall be delivered to each director, either personally or by telephone or any standard form of telecommunication, at least twenty-four hours before the time at which such meeting is to be held, or by first-class mail, postage prepaid, addressed to him at his residence or usual place of business, at least three days before the day on which such meeting is to be held. Section 12. Waiver of Notice of Meetings. Notice of any special meeting need not be given to any director who shall, either before or after the meeting, sign a written waiver of notice which is filed with the records of the meeting or who shall attend such meeting. Except as otherwise specifically required by these By-Laws, a notice or waiver of notice of any meeting need not state the purposes of such meeting. Section 13. Quorum and Voting. One-third, but not less than two, of the members of the entire Board shall be present in person at any meeting of the Board in order to constitute a quorum for the transaction of business at such meeting, and except as otherwise expressly required by statute, the Articles of Incorporation, these By-Laws, the Investment Company Act of 1940, as amended, or other applicable statute, the act of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board. In the absence of a quorum at any meeting of the Board, a majority of the directors present thereat may adjourn such meeting to another time and place until a quorum shall be present thereat. Notice of the time and place of any such adjourned meeting shall be given to the directors who were not present at the time of the adjournment and, unless such time and place were announced at the meeting at which the adjournment was taken, to the other directors. At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called. Section 14. Organization. The Board may, by resolution adopted by a majority of the entire Board, designate a Chairman of the Board, who shall preside at each meeting of the Board. In the absence or inability of the Chairman of the Board to preside at a meeting, the President or, in his absence or inability to act, another director chosen by a majority of the directors present, shall act as chairman of the meeting and preside thereat. The Secretary (or, in his absence or inability to act, any person appointed by the Chairman) shall act as secretary of the meeting and keep the minutes thereof. Section 15. Written Consent of Directors in Lieu of a Meeting. Subject to the provisions of the Investment Company Act of 1940, as amended, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in 6 7 writing, and the writings or writing are filed with the minutes of the proceedings of the Board or committee. Section 16. Compensation. Directors may receive compensation for services to the Corporation in their capacities as directors or otherwise in such manner and in such amounts as may be fixed from time to time by the Board. Section 17. Investment Policies. It shall be the duty of the Board of Directors to direct that the purchase, sale, retention and disposal of securities and the other investment practices of the Corporation are at all times consistent with the investment policies and restrictions with respect to securities investments and otherwise of the Corporation, as recited in the current Prospectus and Statement of Additional Information of the Corporation, as filed from time to time with the Securities and Exchange Commission and as required by the Investment Company Act of 1940, as amended. The Board however, may delegate the duty of management of the assets and the administration of its day to day operations to an individual or corporate management company and/or investment adviser pursuant to a written contract or contracts which have obtained the requisite approvals, including the requisite approvals of renewals thereof, of the Board of Directors and/or the stockholders of the Corporation in accordance with the provisions of the Investment Company Act of 1940, as amended. ARTICLE IV Committees Section 1. Executive Committee. The Board may, by resolution adopted by a majority of the entire board, designate an Executive Committee consisting of two or more of the directors of the corporation, which committee shall have and may exercise all the powers and authority of the Board with respect to all matters other than: (a) the submission to stockholders of any action requiring authorization of stockholders pursuant to statute or the Articles of Incorporation; (b) the filling of vacancies on the Board of Directors; (c) the fixing of compensation of the directors for serving on the Board or on any committee of the Board, including the Executive Committee; (d) the approval or termination of any contract with an investment adviser or principal underwriter, as such terms are defined in the Investment Company Act of 1940, as amended, or the taking of any other action required to be taken by the Board of Directors by the Investment Company Act of 1940, as amended; (e) the amendment or repeal of these By-Laws or the adoption of new By-Laws; 7 8 (f) the amendment or repeal of any resolution of the Board which by its terms may be amended or repealed only by the Board; (g) the declaration of dividends and the issuance of capital stock of the Corporation; and (h) the approval of any merger or share exchange which does not require stockholder approval. The Executive Committee shall keep written minutes of its proceedings and shall report such minutes to the Board. All such proceedings shall be subject to revision or alteration by the Board; provided, however, that third parties shall not be prejudiced by such revision or alteration. Section 2. Other Committees of the Board. The Board of Directors may from time to time, by resolution adopted by a majority of the whole Board, designate one or more other committees of the Board, each such committee to consist of two or more directors and to have such powers and duties as the Board of Directors may, by resolution, prescribe. Section 3. General. One-third, but not less than two, of the members of any committee shall be present in person at any meeting of such committee in order to constitute a quorum for the transaction of business at such meeting, and the act of a majority present shall be the act of such committee. The Board may designate a chairman of any committee and such chairman or any two members of any committee may fix the time and place of its meetings unless the Board shall otherwise provide. In the absence or disqualification of any member of any committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. The Board shall have the power at any time to change the membership of any committee, to fill all vacancies, to designate alternate members to replace any absent or disqualified member, or to dissolve any such committee. Nothing herein shall be deemed to prevent the Board from appointing one or more committees consisting in whole or in part of persons who are not directors of the Corporation; provided, however, that no such committee shall have or may exercise any authority or power of the Board in the management of the business or affairs of the Corporation, except as may be prescribed by the Board. ARTICLE V Officers, Agents and Employees Section 1. Number, Qualification, Election and Tenure. The officers of the Corporation shall be a President, a Secretary and a Treasurer, each of whom shall be elected by the Board of Directors. The Board of Directors may elect or appoint one or more Vice Presidents and may 8 9 also appoint such other officers, agents and employees as it may deem necessary or proper. Any two or more offices may be held by the same person, except the offices of President and Vice President, but no officer shall execute, acknowledge or verify any instrument in more than one capacity. Such officers shall be elected by the Board of Directors each year at a meeting of the Board of Directors, each to hold office for the ensuing year and until his successor shall have been duly elected and shall have qualified, or until his death, or until he shall have resigned, or have been removed, as hereinafter provided in these By-Laws. The Board may from time to time elect, or delegate to the President the power to appoint, such officers (including one or more Assistant Vice Presidents, one or more Assistant Treasurers and one or more Assistant Secretaries) and such agents, as may be necessary or desirable for the business of the Corporation. Such officers and agents shall have such duties and shall hold their offices for such terms as may be prescribed by the Board or by the appointing authority. Section 2. Resignations. Any officer of the Corporation may resign at any time by giving written notice of resignation to the Board, the Chairman of the Board, the President or the Secretary. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt; and, unless otherwise specified therein, the acceptance of such resignation shall be necessary to make it effective. Section 3. Removal of Officer, Agent or Employee. Any officer, agent or employee of the Corporation may be removed by the Board of Directors with or without cause at any time, and the Board may delegate such power of removal as to agents and employees not elected or appointed by the Board of Directors. Such removal shall be without prejudice to such person's contract rights, if any, but the appointment of any person as an officer, agent or employee of the Corporation shall not of itself create contract rights. Section 4. Vacancies. A vacancy in any office, whether arising from death, resignation, removal or any other cause, may be filled for the unexpired portion of the term of the office which shall be vacant, in the manner prescribed in these By-Laws for the regular election or appointment to such office. Section 5. Compensation. The compensation of the officers of the Corporation shall be fixed by the Board of Directors, but this power may be delegated to any officer in respect of other officers under his control. Section 6. Bonds or Other Security. If required by the Board, any officer, agent or employee of the Corporation shall give a bond or other security for the faithful performance of his duties, in such amount and with such surety or sureties as the Board may require. Section 7. President. The President shall be the chief executive officer of the Corporation. In the absence of the Chairman of the Board (or if there be none), he shall preside at all meetings of the stockholders and of the Board Directors. He shall have, subject to the 9 10 control of the Board of Directors, general charge of the business and affairs of the Corporation. He may employ and discharge employees and agents of the Corporation, except such as shall be appointed by the Board, and he may delegate these powers. Section 8. Vice President. Each Vice President shall have such powers and perform such duties as the Board of Directors or the President may from time to time prescribe. Section 9. Treasurer. The Treasurer shall (a) have charge and custody of, and be responsible for, all the funds and securities of the Corporation, except those which the Corporation has placed in the custody of a bank or trust company or member of a national securities exchange (as that term is defined in the Securities Exchange Act of 1934, as amended) pursuant to a written agreement designating such bank or trust company or member of a national securities exchange as custodian of the property of the Corporation; (b) keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation; (c) cause all moneys and other valuables to be deposited to the credit of the Corporation; (d) receive, and give receipts for, moneys due and payable, to the Corporation from any source whatsoever; (e) disburse the funds of the Corporation and supervise the investment of its funds as ordered or authorized by the Board, taking proper vouchers therefor; and (f) in general, perform all the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the Board or the President. Section 10. Secretary. The Secretary shall (a) keep or cause to be kept in one or more books provided for the purpose, the minutes of all meetings of the Board, the committees of the Board and the stockholders; (b) see that all notices are duly given in accordance with the provisions of these By-Laws and as required by law; (c) be custodian of the records and the seal of the Corporation and affix and attest the seal to all stock certificates of the Corporation (unless the seal of the Corporation on such certificates shall be a facsimile, as hereinafter provided) and affix and attest the seal to all other documents to be executed on behalf of the Corporation under its seal; 10 11 (d) see that the books, reports, statements, certificates and other documents and records required by law to be kept and filed are properly kept and filed; and (e) in general, perform all the duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by the Board or the President. Section 11. Delegation of Duties. In case of the absence of any officer of the Corporation, or for any other reason that the Board may deem sufficient, the Board may confer for the time being the powers or duties, or any of them, of such officer upon any other officer or upon any director. ARTICLE VI Indemnification Each officer and director of the Corporation shall be indemnified by the Corporation to the full extent permitted under the Maryland General Corporation Law, except that such indemnity shall not protect any such person against any liability to the Corporation or any stockholder thereof to which such person would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office. Absent a court determination that an officer or director seeking indemnification was not liable on the merits or guilty of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office, the decision by the Corporation to indemnify such person must be based upon the reasonable determination by special legal counsel in a written opinion or the vote of a majority of a quorum of the directors who are neither "interested persons," as defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended, nor parties to the proceeding ("non-party independent directors"), after review of the facts, that such officer or director is not guilty of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office. Each officer and director of the Corporation claiming indemnification within the scope of this Article VI shall be entitled to advances from the Corporation for payment of the reasonable expenses incurred by him in connection with proceedings to which he is a party in the manner and to the full extent permitted under the Maryland General Corporation Law without a preliminary determination as to his or her ultimate entitlement to indemnification (except as set forth below); provided, however, that the person seeking indemnification shall provide to the Corporation a written affirmation of his good faith belief that the standard of conduct necessary for indemnification by the Corporation has been met and a written undertaking to repay any such advance, if it should ultimately be determined that the standard of conduct has not been met, and provided further that at least one of the following additional conditions is met: (a) the person seeking indemnification shall provide a security in form and amount acceptable to the Corporation for his undertaking; (b) the Corporation is insured against losses arising by reason of the advance; (c) a majority of a quorum of non-party independent directors, or independent legal counsel in a 11 12 written opinion, shall determine, based on a review of facts readily available to the Corporation at the time the advance is proposed to be made, that there is reason to believe that the person seeking indemnification will ultimately be found to be entitled to indemnification. The Corporation may purchase insurance on behalf of an officer or director protecting such person to the full extent permitted under the General Laws of the State of Maryland, from liability arising from his activities as officer or director of the Corporation. The Corporation, however, may not purchase insurance on behalf of any officer or director of the Corporation that protects or purports to protect such person from liability to the Corporation or to its stockholders to which such officer or director would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his office. The Corporation may indemnify, make advances or purchase insurance to the extent provided in this Article VI on behalf of an employee or agent who is not an officer or director of the Corporation. ARTICLE VII Capital Stock Section 1. Stock Certificates. The Corporation shall not issue stock certificates. Section 2. Books of Account and Record of Stockholders. There shall be kept at the principal executive office of the Corporation correct and complete books and records of account of all the business and transactions of the Corporation. There shall be made available upon request of any stockholder, in accordance with Maryland law, a record containing the number of shares of stock issued during a specified period not to exceed twelve months and the consideration received by the Corporation for each such share. Section 3. Transfers of Shares. Transfers of shares of stock of the Corporation shall be made on the stock records of the Corporation only by the registered holder thereof, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary or with a transfer agent or transfer clerk, and on surrender of the certificate or certificates, if issued, for such shares properly endorsed or accompanied by a duly executed stock transfer power and the payment of all taxes thereon. Except as otherwise provided by law, the Corporation shall be entitled to recognize the exclusive right of a person in whose name any share or shares stand on the record of stockholders as the owner of such share or shares for all purposes, including, without limitation, the rights to receive dividends or other distributions, and to vote as such owner, and the Corporation shall not be bound to recognize any equitable or legal claim to or interest in any such share or shares on the part of any other person. Section 4. Regulations. The Board may make such additional rules and regulations, not inconsistent with these By-Laws, as it may deem expedient concerning the issue, transfer and 12 13 registration of certificates for shares of stock of the Corporation. It may appoint, or authorize any officer or officers to appoint, one or more transfer agents or one or more transfer clerks and one or more registrars and may require all certificates for shares of stock to bear the signature or signatures of any of them. Section 5. Lost, Destroyed or Mutilated Certificates. The holder of any certificates representing shares of stock of the Corporation shall immediately notify the Corporation of any loss, destruction or mutilation of such certificate, and the Corporation may issue a new certificate of stock in the place of any certificate theretofore issued by it which the owner thereof shall allege to have been lost or destroyed or which shall have been mutilated, and the Board may, in its discretion, require such owner or his legal representatives to give to the Corporation a bond in such sum, limited or unlimited, and in such form and with such surety or sureties, as the Board in its absolute discretion shall determine, to indemnify the Corporation against any claim that may be made against it on account of the alleged loss or destruction of any such certificate, or issuance of a new certificate. Anything herein to the contrary notwithstanding, the Board, in its absolute discretion, may refuse to issue any such new certificate, except pursuant to legal proceedings under the laws of the State of Maryland. Section 6. Fixing of a Record Date for Dividends and Distributions. The Board may fix, in advance, a date not more than ninety days preceding the date fixed for the payment of any dividend or the making of any distribution or the allotment of rights to subscribe for securities of the Corporation, or for the delivery of evidences of rights or evidences of interests arising out of any change, conversion or exchange of common stock or other securities, as the record date for the determination of the stockholders entitled to receive any such dividend, distribution, allotment, rights or interests, and in such case only the stockholders of record at the time so fixed shall be entitled to receive such dividend, distribution, allotment, rights or interests. Section 7. Information to Stockholders and Others. Any stockholder of the Corporation or his agent may inspect and copy during usual business hours the Corporation's By-Laws, minutes of the proceedings of its stockholders, annual statements of its affairs, and voting trust agreements on file at its principal office. ARTICLE VIII Seal The seal of the Corporation shall be circular in form and shall bear, in addition to any other emblem or device approved by the Board of Directors, the name of the Corporation, the year of its incorporation and the words "Corporate Seal" and "Maryland." Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced. ARTICLE IX 13 14 Fiscal Year Unless otherwise determined by the Board, the fiscal year of the Corporation shall be as determined by the Board of Directors from time to time. ARTICLE X Depositories and Custodians Section 1. Depositories. The funds of the Corporation shall be deposited with such banks or other depositories as the Board of Directors of the Corporation may from time to time determine. Section 2. Custodians. All securities and other investments shall be deposited in the safe keeping of such banks or other companies as the Board of Directors of the Corporation may from time to time determine. Every arrangement entered into with any bank or other company for the safe keeping of the securities and investments of the Corporation shall contain provisions complying with the Investment Company Act of 1940, as amended, and the general rules and regulations thereunder. ARTICLE XI Execution of Instruments Section 1. Checks, Notes, Drafts, etc. Checks, notes, drafts, acceptances, bills of exchange and other orders or obligations for the payment of money shall be signed by such officer or officers or person or persons as the Board of Directors by resolution shall from time to time designate. Section 2. Sale or Transfer of Securities. Stock certificates, bonds or other securities at any time owned by the Corporation may be held on behalf of the Corporation or sold, transferred or otherwise disposed of subject to any limits imposed by these By-Laws and pursuant to authorization by the Board and, when so authorized to be held on behalf of the Corporation or sold, transferred or otherwise disposed of, may be transferred from the name of the Corporation by the signature of the President or a Vice President or the Treasurer or pursuant to any procedure approved by the Board of Directors, subject to applicable law. ARTICLE XII Independent Public Accountants The firm of independent public accountants which shall sign or certify the financial statements of the Corporation which are filed with the Securities and Exchange Commission shall 14 15 be selected annually by the Board of Directors and, if required by the provisions of the Investment Company Act of 1940, as amended, ratified by the stockholders. ARTICLE XIII Annual Statement The books of account of the Corporation shall be examined by an independent firm of public accountants at the close of each annual period of the Corporation and at such other times as may be directed by the Board. A report to the stockholders based upon each such examination shall be mailed to each stockholder of the Corporation of record on such date with respect to each report as may be determined by the Board, at his address as the same appears on the books of the Corporation. Such annual statement shall also be available at the annual meeting of stockholders, if any, and, within 20 days after the meeting (or, in the absence of an annual meeting, within 120 days after the end of the fiscal year), be placed on file at the Corporation's principal office. Each such report shall show the assets and liabilities of the Corporation as of the close of the annual or quarterly period covered by the report and the securities in which the funds of the Corporation were then invested. Such report shall also show the Corporation's income and expenses for the period from the end of the Corporation's preceding fiscal year to the close of the annual or quarterly period covered by the report and any other information required by the Investment Company Act of 1940, as amended, and shall set forth such other matters as the Board or such firm of independent public accountants shall determine. ARTICLE XIV Amendments These By-Laws or any of them may be amended, altered or repealed by the Board of Directors. The stockholders shall have no power to make, amend, alter or repeal By-Laws. 15 EX-99.5.A 7 CLASS I DISTRIBUTION AGREEMENT 1 EXHIBIT 5(a) CLASS I SHARES DISTRIBUTION AGREEMENT AGREEMENT made as of _______________, 1998 between MERCURY ASSET MANAGEMENT FUNDS, INC., a Maryland corporation (the "Corporation"), on behalf of its series Mercury Gold and Mining Fund (the "Fund") and MERCURY FUNDS DISTRIBUTOR, a division of PRINCETON FUNDS DISTRIBUTOR, INC., a Delaware corporation (the "Distributor"). W I T N E S S E T H : WHEREAS, the Directors of the Corporation (the "Directors") are authorized to establish separate series relating to separate portfolios of securities, each of which may offer separate classes of shares of common stock, par value $0.0001 per share; and WHEREAS, the Directors have established and designated the Fund as a series of the Corporation, offering separate classes of shares of common stock, as described above; and WHEREAS, the Corporation 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 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 Corporation and the Distributor wish to enter into an agreement with each other with respect to the continuous offering of Class I shares of common stock in the Fund; 2 NOW, THEREFORE, the parties agree as follows: Section 1. Appointment of the Distributor. The Corporation hereby appoints the Distributor as the Fund's principal underwriter and distributor to sell the Class I shares of common stock in the Fund (sometimes herein referred to as "Class I Shares") to eligible investors (as defined below) and hereby agrees during the term of this Agreement to sell the 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 Fund's exclusive representative to act as principal underwriter and distributor of the Class I Shares, except that: a. The Corporation may, upon written notice to the Distributor, from time to time designate other principal underwriters and distributors of the 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 the 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 rights 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 Fund's acquisition by purchase or otherwise of all (or substantially all) the assets or the outstanding Class I shares of any such company. c. Such exclusive rights also shall not apply to Class I Shares issued by the Fund pursuant to reinvestment of dividends or capital gains distributions. 2 3 d. Such exclusive rights also shall not apply to Class I Shares issued by the Fund pursuant to any conversion, exchange or reinstatement privilege afforded redeeming shareholders or to any other Class I Shares as shall be agreed between the Corporation and the Distributor from time to time. Section 3. Purchase of Class I Shares from the Corporation. a. Prior to the continuous offering of the Class I Shares, commencing on a date agreed upon by the Corporation and the Distributor, it is contemplated that the Distributor will solicit subscriptions for Class I Shares during a subscription period which shall last for such period as may be agreed upon by the parties hereto. The subscriptions will be payable within three business days after the termination of the subscription period, at which time the Fund will commence operations. b. After the Fund commences operations, the Fund will commence an offering of Class I Shares and thereafter the Distributor shall have the right to buy from the Corporation 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 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 of the Fund (the "prospectus" and "statement of additional information," respectively) under the Securities Act of 1933, as amended (the "Securities Act"), relating to the Class I Shares ("eligible investors"). The price that the Distributor shall pay for the Class I Shares so purchased from the Fund shall be the net asset value, determined as set forth in Section 3(e) hereof, used in determining the public offering price on which such orders were based. 3 4 c. 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(d) hereof, or to securities dealers having agreements with the Distributor upon the terms and conditions set forth in Section 7 hereof. d. 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 the net amount invested), subject to reductions for volume purchases. Class I Shares may be sold to certain Directors, officers and employees of the Corporation, 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(g). e. The net asset value of the Class I Shares shall be determined by the Corporation or any agent of the Corporation in accordance with the method set forth in the Fund's prospectus and statement of additional information and guidelines established by the Directors. f. The Corporation shall have the right to suspend the sale of Class I Shares at times when redemption is suspended pursuant to the conditions set forth in Section 4(b) hereof. The Corporation shall also have the right to suspend the sale of Class I Shares if trading on the New 4 5 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 that, in the judgment of the Corporation, makes it impracticable or inadvisable to sell the Class I Shares. g. The Corporation, or any agent of the Corporation designated in writing by the Corporation, shall be promptly advised of all purchase orders for Class I Shares received by the Distributor. Any order may be rejected by the Corporation; provided, however, that the Corporation will not arbitrarily or without reasonable cause refuse to accept or confirm orders for the purchase of Class I Shares from eligible investors. The Corporation (or its agent) will confirm orders upon their receipt, will make appropriate book entries and, upon receipt by the Corporation (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 Corporation in New York Clearing House funds. The Distributor agrees to cause such payment and such instructions to be delivered promptly to the Corporation (or its agent). Section 4. Repurchase or Redemption of Class I Shares by the Corporation. 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 the Corporation's 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 relating to the Fund. 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(e) 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 5 6 information relating to the Fund. 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 that sold such Class I Shares. The Fund shall pay the total amount of the redemption price as defined in the above paragraph pursuant to the instructions of the Distributor in New York Clearing House funds 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 Class I 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 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 Corporation 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. 6 7 Section 5. Duties of the Corporation. a. The Corporation shall furnish to the Distributor copies of all information, financial statements and other papers that 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 Corporation by independent public accountants. The Corporation shall make available to the Distributor such number of copies of the Fund's prospectus and statement of additional information as the Distributor shall reasonably request. b. The Corporation shall take, from time to time, but subject to any necessary approval of the Fund's 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 to the end that there will be available for sale such number of Class I Shares as the Distributor reasonably may be expected to sell. c. The Corporation shall use its best efforts to qualify and maintain the qualification of an appropriate number of the Class I Shares for sale under the securities laws of such states as the Distributor and the Corporation may approve. Any such qualification may be withheld, terminated or withdrawn by the Corporation at any time in its discretion. As provided in Section 8(c) hereof, the expense of qualification and maintenance of qualification 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 Corporation in connection with such qualification. d. The Corporation will furnish, in reasonable quantities upon request by the Distributor, copies of the Fund's annual and interim reports. 7 8 Section 6. Duties of the Distributor. a. The Distributor shall devote reasonable time and effort to effect sales of Class I Shares but shall not be obligated to sell any specific number of Class I Shares. The services of the Distributor to the Corporation 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, 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 Corporation 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 Corporation. c. The Distributor shall adopt and follow procedures, as approved by the officers of the Corporation, 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. 8 9 Section 7. Selected Dealer Agreements. a. The Distributor shall have the right to enter into selected dealer 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 that may be allocated to the selected dealers; provided, that the Corporation shall approve the forms of agreements with dealers and the dealer compensation set forth therein. Class I Shares sold to selected dealers shall be for resale 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 during the subscription period described in Section 3(a) is attached hereto as Exhibit A and the form of agreement with selected dealers to be used in the continuous offering of the Class I Shares is attached hereto as Exhibit B. 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. a. The Fund shall bear all costs and expenses of the Fund, as incurred, 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). 9 10 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 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 Corporation as a broker or dealer in such states of the United States or other jurisdictions as shall be selected by the Corporation 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 I Shares, which may be based upon the Securities Act, 10 11 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 the Fund's Class I shareholders, 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 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 that 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 11 12 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, as incurred, 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, as incurred, 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 Corporation and each of its Directors and officers, the Fund, and each person, if any, who controls the Corporation against any loss, liability, claim, damage or expense, as incurred, 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 I shareholders. In case any action shall be brought against the Corporation 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 Corporation, and the 12 13 Corporation 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. Fee-Based Programs Offered by the Fund's Investment Adviser or Its Affiliates. In connection with certain fee-based programs offered by the Fund's investment adviser or its affiliates, the Distributor and its affiliates are authorized to offer and sell shares of the Fund, as agent for the Corporation, to participants in such program. The terms of this Agreement shall apply to such sales, including terms as to the offering price of Class I Shares, the proceeds to be paid to the Fund, the duties of the Distributor, the payment of expenses and indemnification obligations of the Fund and the Distributor. Section 11. Duration and Termination of this Agreement. This Agreement shall become effective as of the date first above written and shall remain in force for two years 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 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. 13 14 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 specified in the Investment Company Act. Section 12. 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 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. Section 13. 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. 14 15 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. MERCURY ASSET MANAGEMENT FUNDS, INC. on behalf of its series, MERCURY GOLD AND MINING FUND By ___________________________________ Title: MERCURY FUNDS DISTRIBUTOR, a division of PRINCETON FUNDS DISTRIBUTOR, INC. By ___________________________________ Title: 15 16 EXHIBIT A MERCURY ASSET MANAGEMENT FUNDS, INC. ON BEHALF OF ITS SERIES, MERCURY GOLD AND MINING FUND CLASS I SHARES OF COMMON STOCK SELECTED DEALER AGREEMENT FOR SUBSCRIPTION PERIOD Ladies and Gentlemen: Mercury Funds Distributor, a division of Princeton Funds Distributor, Inc. (the "Distributor") has an agreement with Mercury Asset Management Funds, Inc., a Maryland corporation (the "Corporation"), on behalf of its series, Mercury Gold and Mining Fund (the "Fund"), pursuant to which it acts as the distributor for the sale of Class I shares of common stock of the Fund, par value $0.0001 per share (herein referred to as "Class I Shares") and as such has the right to distribute Class I Shares for resale. The Corporation is an open-end investment company registered under the Investment Company Act of 1940, as amended (the "Investment Company Act"), and the Class I Shares are registered under the Securities Act of 1933, as amended (the "Securities Act"). The Class I Shares and certain of the terms on which they are being offered are more fully described in the enclosed Prospectus and Statement of Additional Information. You, Merrill Lynch, Pierce, Fenner & Smith Incorporated, have received a copy of the Class I Shares Distribution Agreement (the "Distribution Agreement") between ourself and the Corporation and reference is made herein to certain provisions of such Distribution Agreement. This Agreement relates solely to the subscription period described in Section 3(a) of such Distribution Agreement. Subject to the foregoing, as principal, we offer to sell to you, as a member of the Selected Dealers Group, Class I Shares 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. The subscription period referred to in Section 3(a) of the Distribution Agreement will continue through ___________ 199_. The subscription period may be extended upon agreement between the Fund and the Distributor. Subject to the provisions of such Section and the conditions contained herein, we will sell to you on the third business day following the termination of the subscription period, or such other date as we may advise (the "Closing Date"), such number of Class I Shares as to which you have placed orders with us not later than 5:00 P.M. on the second full business day preceding the Closing Date. 2. 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 Corporation, the Fund, for us or for any other member of the Selected Dealers Group, except in connection with the Merrill Lynch Mutual Fund Adviser program and such other special 17 programs as we from time to time agree, in which case you shall have authority to offer and sell Class I Shares, as agent for the Corporation, to participants in such program. 3. Except as provided in Paragraph 4, below, the public offering prices, sales charges and the related Selected Dealers' concession are as follows:
Subscription Period ------------------- Securities Dealers' Sales Charge Concession ------------ ---------- Percentage* Percentage* Public of Public of Public Offering Dollar Offering Dollar Offering Price Amount Price Amount Price ----- ------ ----- ------ ----- Less than $25,000 $10.554 $ .554 5.25% $ .554 5.25% $25,000 but less than $50,000 10.499 .499 4.75 .499 4.75 $50,000 but less than $100,000 10.417 .417 4.00 .417 4.00 $100,000 but less than $250,000 10.309 .309 3.00 .309 3.00 $250,000 but less than $1,000,000 10.204 .204 2.00 .204 2.00 $1,000,000 and over** 10.000 .000 0.00 .000 0.00
- ------------------ * Rounded to the nearest one-hundredth percent. ** Initial sales charges may be waived for certain classes of offers as set forth in the Prospectus and Statement of Additional Information of the Fund. Such purchases may be subject to a contingent deferred sales charge as set forth in the Prospectus and Statement of Additional Information. The proceeds per Class I Share to the Fund from the sale of all shares sold during the subscription period will be $10.00. 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 that has not been in existence for at least six months or has no purpose other than the purchase of Class I Shares or shares of the 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 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 the 2 18 Class I, Class A, Class B and Class C shares of the Fund and of any other open-end investment company advised by Mercury Asset Management International, Ltd., or an affiliate thereof (together, "Mercury-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 or of shares of any other Mercury-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. You shall not place orders for any of the Class I Shares 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. All orders are subject to acceptance by the Distributor or the Corporation in the sole discretion of either. The minimum initial and subsequent purchase requirements are as set forth in the Prospectus, as amended from time to time. 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) within three business days of receipt of request and will not furnish to any person any information relating to the Class I Shares that 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 Corporation. 5. All Class I Shares purchased by Selected Dealers will be delivered in the first instance at a settlement price computed on the basis of all sales having been made in a purchase (as such term is defined above) involving a public offering price of less than $25,000. All sales to you will be deemed to have been made in such a transaction unless within 30 days after the Closing Date you furnish to us, on forms supplied by us for the purpose, a statement acceptable to us setting forth sales in purchases involving a public offering price of $25,000 or more, in 3 19 which case we will compute such Selected Dealers' concessions on the basis of the information set forth in such statement. 6. Payment for Class I Shares purchased by you is to be made by certified or official bank check at the office of Mercury Funds Distributor, a division of Princeton Funds Distributor, Inc., P.O. Box 9081, Princeton, New Jersey 08543-9081, on such date as we may advise, in New York Clearing House funds payable to the order of Mercury Funds Distributor, a division of Princeton Funds Distributor, Inc., or by federal funds wire transfer, against delivery by us of non-negotiable share deposit receipts ("Receipts") issued by Financial Data Services, Inc., as shareholder servicing agent, acknowledging the deposit with it of the Class I Shares so purchased by you. You agree that as promptly as practicable after the delivery of such Class I Shares you will issue appropriate written transfer instructions to the Corporation or to the shareholder servicing agent as to the purchasers to whom you sold the Class I Shares. 7. If any Class I Shares sold to you under the terms of this Agreement are repurchased by the Corporation or by us for the account of the Corporation or are tendered for redemption within seven business days after the Closing Date, it is agreed that you shall forfeit your right to, and refund to us, any discount received by you on such Class I Shares. 8. No person is authorized to make any representations concerning Class I Shares except those contained in the current Prospectus and Statement of Additional Information of the Fund 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 above mentioned. Any printed information that we furnish you other than the Fund's Prospectus and Statement of Additional Information, periodic reports and proxy solicitation material are our sole responsibility and not the responsibility of the Corporation or the Fund, and you agree that the Corporation and the Fund shall have no liability or responsibility to you in these respects unless expressly assumed in connection therewith. 9. You agree to deliver to each of the purchasers making purchases from you a copy of the then current Prospectus at or prior to the time of offering or sale and, if requested, the Statement of Additional Information within three business days of receipt of request, 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 of the Fund will be supplied to you in reasonable quantities upon request. 10. We reserve the right in our discretion, without notice, to suspend sales or withdraw the offering of Class I Shares entirely. Each party hereto has the right to cancel this Agreement upon notice to the other party. 4 20 11. We shall have full authority to take such action as we may deem advisable in respect of all matters pertaining to the subscription offering. 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 Securities and Exchange Commission issued thereunder. 12. You represent that you are a member of the National Association of Securities Dealers, Inc. and, with respect to any sales in the United States, we both hereby agree to abide by the Conduct Rules of such Association. 13. Upon application to us, we will inform you as to 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 Department of State in New York a Further State Notice with respect to the Class I Shares, if necessary. 14. 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. 15. You agree that you will not sell any Class I Shares to any account over which you exercise discretionary authority. 5 21 16. This Agreement shall terminate at the close of business on the Closing Date, unless earlier terminated, provided, however, this Agreement shall continue after termination for the purpose of Section 7 hereof and for the purpose of settlement of accounts hereunder. MERCURY FUNDS DISTRIBUTOR, a division of PRINCETON FUNDS DISTRIBUTOR, INC. By _______________________________________ Title: Please return one signed copy of this Agreement to: MERCURY FUNDS DISTRIBUTOR, a division of PRINCETON FUNDS DISTRIBUTOR, INC. P.O. Box 9081 Princeton, New Jersey 08543-9081 Accepted: __________________________________ (Authorized Signature) Firm Name:________________________ By:_______________________________ Title:____________________________ Address:__________________________ __________________________________ Date:_____________________________ 6 22 EXHIBIT B MERCURY ASSET MANAGEMENT FUNDS, INC. ON BEHALF OF ITS SERIES, MERCURY GOLD AND MINING FUND CLASS I SHARES OF COMMON STOCK SELECTED DEALER AGREEMENT Ladies and Gentlemen: Mercury Funds Distributor, a division of Princeton Funds Distributor, Inc. (the "Distributor") has an agreement with Mercury Asset Management Funds, Inc., a Maryland corporation (the "Corporation"), on behalf of its series, Mercury Gold and Mining Fund (the "Fund"), pursuant to which it acts as the distributor for the sale of Class I shares of common stock of the Fund, par value $0.0001 per share (herein referred to as "Class I Shares"), and as such has the right to distribute Class I Shares for resale. The Corporation is an open-end investment company registered under the Investment Company Act of 1940, as amended (the "Investment Company Act"), and the 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 ourself and the Corporation 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 and statement of additional information, respectively, on file with the Securities and Exchange Commission (the "Commission") which is part of the most recent effective registration statement pursuant to the Securities Act. We offer to sell to you, as a member of the Selected Dealers Group, Class I Shares 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 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 Corporation, the Fund, for us or for any other member of the Selected Dealers Group, except in connection with the Merrill Lynch Mutual Fund Adviser program and such other special programs as we from time to time agree, in which case you shall have authority to offer and sell Class I Shares, as agent for the Corporation, to participants in such program. 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 of the Fund. The procedure relating to the handling of orders shall be subject to Section 5 hereof and instructions that we or the Corporation shall forward from time to time to you. All orders are subject to acceptance or rejection by the Distributor or the Corporation 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 of the Fund. 23 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:
Sales Charge as Discount to Sales Charge As Percentage* of the Selected Dealers as Percentage of the Net Amount Percentage of the Amount of Purchase Offering Price Invested Offering Price Less than $25,000 ............... 5.25% 5.54% 5.00% $25,000 but less than $50,000 ... 4.75 4.99 4.50 $50,000 but less than $100,000 .. 4.00 4.17 3.75 $100,000 but less than $250,000 . 3.00 3.09 2.75 $250,000 but less than $1,000,000 2.00 2.04 1.80 $1,000,000 and over** ........... 0.00 0.00 0.00
- ---------- * Rounded to the nearest one-hundredth percent. ** Initial sales charges may be waived for certain classes of offerees as set forth in the current Prospectus and Statement of Additional Information of 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 that has not been in existence for at least six months or which has no purpose other than the 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 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 series of the Corporation (each, a "Mercury Fund"). 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. 2 24 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 Mercury 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. You shall not place orders for any of the Class I Shares 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. 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) within three business days of receipt of request and will not furnish to any person any information relating to the Class I Shares that 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 Corporation. 5. As a selected dealer, you are hereby authorized (i) to place orders directly with the Corporation for Class I Shares 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 Corporation or its agent for redemption subject to the applicable terms and conditions set forth in Section 4 of the Distribution Agreement. 6. 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. If any Class I Shares sold to you under the terms of this Agreement are repurchased by the Corporation or by us for the account of the Corporation 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. 3 25 8. No person is authorized to make any representations concerning Class I Shares except those contained in the current Prospectus and Statement of Additional Information of the Fund 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 above mentioned. Any printed information that we furnish you other than the Fund's Prospectus, Statement of Additional Information, periodic reports and proxy solicitation material is our sole responsibility and not the responsibility of the Corporation or the Fund, and you agree that the Corporation and the Fund shall have no liability or responsibility to you in these respects unless expressly assumed in connection therewith. 9. You agree to deliver to each of the purchasers making purchases from you a copy of the then current Prospectus at or prior to the time of offering or sale and, if requested, the Statement of Additional Information within three business days of receipt of request, 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 of the Fund will be supplied to you in reasonable quantities upon request. 10. 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. Each party hereto has the right to cancel this agreement upon notice to the other party. 11. We shall have full authority to take such action as we may deem advisable in respect of all matters pertaining to the continuous offering. 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. 12. You represent that you are a member of the National Association of Securities Dealers, Inc. and, with respect to any sales in the United States, we both hereby agree to abide by the Conduct Rules of such Association. 13. Upon application to us, we will inform you as to 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 Department of State in New York a Further State Notice with respect to the Class I Shares, if necessary. 4 26 14. 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. 15. Your first order placed pursuant to this Agreement for the purchase of Class I Shares will represent your acceptance of this Agreement. MERCURY FUNDS DISTRIBUTOR, a division of PRINCETON FUNDS DISTRIBUTOR, INC. By:_____________________________________ Title:__________________________________ (Authorized Signature) Please return one signed copy of this agreement to: MERCURY FUNDS DISTRIBUTOR, a division of PRINCETON FUNDS DISTRIBUTOR, INC. P.O. Box 9081 Princeton, New Jersey 08543-9081 Accepted: ______________________________ (Authorized Signature) Firm Name:____________________ By:___________________________ Title:________________________ Address:______________________ ______________________________ Date:_________________________ 5 EX-99.5.B 8 CLASS A DISTRIBUTION AGREEMENT 1 Exhibit 5(b) CLASS A SHARES DISTRIBUTION AGREEMENT AGREEMENT made as of ________________, 1998 between MERCURY ASSET MANAGEMENT FUNDS, INC., a Maryland corporation (the "Corporation"), on behalf of its series Mercury Gold and Mining Fund (the "Fund") and MERCURY FUNDS DISTRIBUTOR, a division of PRINCETON FUNDS DISTRIBUTOR, INC., a Delaware corporation (the "Distributor"). W I T N E S S E T H : WHEREAS, the Directors of the Corporation (the "Directors") are authorized to establish separate series relating to separate portfolios of securities, each of which may offer separate classes of shares of common stock, par value $0.0001 per share; and WHEREAS, the Directors have established and designated the Fund as a series of the Corporation, offering separate classes of shares of common stock, as described above; and WHEREAS, the Corporation 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 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 Corporation and the Distributor wish to enter into an agreement with each other with respect to the continuous offering of Class A shares of common stock in the Fund; 2 NOW, THEREFORE, the parties agree as follows: Section 1. Appointment of the Distributor. The Corporation hereby appoints the Distributor as the Fund's principal underwriter and distributor to sell the Class A shares of common stock in the Fund (sometimes herein referred to as "Class A Shares") to the public and hereby agrees during the term of this Agreement to sell the 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 Fund's exclusive representative to act as principal underwriter and distributor of the Class A Shares, except that: a. The Corporation may, upon written notice to the Distributor, from time to time designate other principal underwriters and distributors of the 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 the 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 rights 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 Fund's acquisition by purchase or otherwise of all (or substantially all) the assets or the outstanding Class A shares of any such company. c. Such exclusive rights also shall not apply to Class A Shares issued by the Fund pursuant to reinvestment of dividends or capital gains distributions. 2 3 d. Such exclusive rights also shall not apply to Class A Shares issued by the Fund pursuant to any conversion, exchange or reinstatement privilege afforded redeeming shareholders or to any other Class A Shares as shall be agreed between the Corporation and the Distributor from time to time. Section 3. Purchase of Class A Shares from the Corporation. a. Prior to the continuous offering of the Class A Shares, commencing on a date agreed upon by the Corporation and the Distributor, it is contemplated that the Distributor will solicit subscriptions for Class A Shares during a subscription period which shall last for such period as may be agreed upon by the parties hereto. The subscriptions will be payable within three business days after the termination of the subscription period, at which time the Fund will commence operations. b. After the Fund commences operations, the Fund will commence an offering of Class A Shares and thereafter the Distributor shall have the right to buy from the Corporation 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 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 of 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. The price that the Distributor shall pay for the Class A Shares so purchased from the Fund shall be the net asset value, determined as set forth in Section 3(e) hereof, used in determining the public offering price on which such orders were based. 3 4 c. The Class A Shares are to be resold by the Distributor to investors at the public offering price, as set forth in Section 3(d) hereof, or to securities dealers having agreements with the Distributor upon the terms and conditions set forth in Section 7 hereof. d. 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 the public 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 (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 Corporation, 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(g). e. The net asset value of the Class A Shares shall be determined by the Corporation or any agent of the Corporation in accordance with the method set forth in the Fund's prospectus and statement of additional information and guidelines established by the Directors. f. The Corporation shall have the right to suspend the sale of Class A Shares at times when redemption is suspended pursuant to the conditions set forth in Section 4(b) hereof. The Corporation shall also have the right to suspend the sale of Class A Shares if trading on the New 4 5 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 that, in the judgment of the Corporation, makes it impracticable or inadvisable to sell the Class A Shares. g. The Corporation, or any agent of the Corporation designated in writing by the Corporation, shall be promptly advised of all purchase orders for Class A Shares received by the Distributor. Any order may be rejected by the Corporation; provided, however, that the Corporation will not arbitrarily or without reasonable cause refuse to accept or confirm orders for the purchase of Class A Shares. The Corporation (or its agent) will confirm orders upon their receipt, will make appropriate book entries and, upon receipt by the Corporation (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 Corporation in New York Clearing House funds. The Distributor agrees to cause such payment and such instructions to be delivered promptly to the Corporation (or its agent). Section 4. Repurchase or Redemption of Class A Shares by the Corporation. 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 the Corporation's 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 relating to the Fund. 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(e) hereof, less any contingent deferred sales charge ("CDSC"), redemption fee or other charge(s), if any, set forth in the prospectus and statement of 5 6 additional information relating to the Fund. 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 that sold such Class A Shares. The Fund shall pay the total amount of the redemption price as defined in the above paragraph pursuant to the instructions of the Distributor in New York Clearing House funds 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 Class A 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 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 Corporation 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. 6 7 Section 5. Duties of the Corporation. a. The Corporation shall furnish to the Distributor copies of all information, financial statements and other papers that 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 Corporation by independent public accountants. The Corporation shall make available to the Distributor such number of copies of the Fund's prospectus and statement of additional information as the Distributor shall reasonably request. b. The Corporation shall take, from time to time, but subject to any necessary approval of the Fund's Class A shareholders, all necessary action to fix the number of authorized Class A Shares and such steps as may be necessary to register the same under the Securities Act to the end that there will be available for sale such number of Class A Shares as the Distributor reasonably may be expected to sell. c. The Corporation shall use its best efforts to qualify and maintain the qualification of an appropriate number of the Class A Shares for sale under the securities laws of such states as the Distributor and the Corporation may approve. Any such qualification may be withheld, terminated or withdrawn by the Corporation at any time in its discretion. As provided in Section 8(c) hereof, the expense of qualification and maintenance of qualification 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 Corporation in connection with such qualification. d. The Corporation will furnish, in reasonable quantities upon request by the Distributor, copies of the Fund's annual and interim reports. 7 8 Section 6. Duties of the Distributor. a. The Distributor shall devote reasonable time and effort to effect sales of Class A Shares but shall not be obligated to sell any specific number of Class A Shares. The services of the Distributor to the Corporation 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 A Shares, 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 Corporation 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 Corporation. c. The Distributor shall adopt and follow procedures, as approved by the officers of the Corporation, for the confirmation of sales to investors and selected dealers, the collection of amounts payable by 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. 8 9 Section 7. Selected Dealer Agreements. a. The Distributor shall have the right to enter into selected dealer 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 that may be allocated to the selected dealers; provided, that the Corporation shall approve the forms of agreements with dealers and the dealer compensation set forth therein. Class A Shares sold to selected dealers shall be for resale 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 during the subscription period described in Section 3(a) is attached hereto as Exhibit A and the form of agreement with selected dealers to be used in the continuous offering of the Class A Shares is attached hereto as Exhibit B. 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, as incurred, 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). 9 10 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 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 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 Class A Shares Distribution Plan pursuant to Rule 12b-1 under the Investment 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 Corporation as a broker or dealer in such states of the United States or other jurisdictions as shall be selected by the Corporation 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 10 11 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 the Fund's Class A shareholders, 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 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 11 12 such claim shall not relieve it from any liability that 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, as incurred, 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, as incurred, 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 Corporation and each of its Directors and officers, the Fund, and each person, if any, who controls the Corporation against any loss, liability, claim, damage or expense, as incurred, 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 12 13 or interim reports to Class A shareholders. In case any action shall be brought against the Corporation 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 Corporation, and the Corporation 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. Fee-Based Programs Offered by the Fund's Investment Adviser or Its Affiliates. In connection with certain fee-based programs offered by the Fund's investment adviser or its affiliates, the Distributor and its affiliates are authorized to offer and sell shares of the Fund, as agent for the Corporation, to participants in such program. The terms of this Agreement shall apply to such sales, including terms as to the offering price of Class I Shares, the proceeds to be paid to the Fund, the duties of the Distributor, the payment of expenses and indemnification obligations of the Fund and the Distributor. Section 11. Duration and Termination of this Agreement. This Agreement shall become effective as of the date first above written and shall remain in force for two years 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 13 14 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 specified in the Investment Company Act. Section 12. 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 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 13. 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. 14 15 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. MERCURY ASSET MANAGEMENT FUNDS, INC. on behalf of its series, MERCURY GOLD AND MINING FUND By________________________________________ Title: MERCURY FUNDS DISTRIBUTOR, a division of PRINCETON FUNDS DISTRIBUTOR, INC. By________________________________________ Title: 15 16 Exhibit A MERCURY ASSET MANAGEMENT FUNDS, INC. ON BEHALF OF ITS SERIES, MERCURY GOLD AND MINING FUND CLASS A SHARES OF COMMON STOCK SELECTED DEALER AGREEMENT FOR SUBSCRIPTION PERIOD Ladies and Gentlemen: Mercury Funds Distributor, a division of Princeton Funds Distributor, Inc. (the "Distributor") has an agreement with Mercury Asset Management Funds, Inc., a Maryland corporation (the "Corporation"), on behalf of its series, Mercury Gold and Mining Fund (the "Fund"), pursuant to which it acts as the distributor for the sale of Class A shares of common stock of the Fund, par value $0.0001 per share (herein referred to as "Class A Shares"), and as such has the right to distribute Class A Shares for resale. The Corporation 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 being offered to the public are registered under the Securities Act of 1933, as amended (the "Securities Act"). Such Class A Shares and certain of the terms on which they are being offered are more fully described in the enclosed Prospectus and Statement of Additional Information. You, Merrill Lynch, Pierce, Fenner & Smith Incorporated, have received a copy of the Class A Shares Distribution Agreement (the "Distribution Agreement") between ourself and the Corporation and reference is made herein to certain provisions of such Distribution Agreement. This Agreement relates solely to the subscription period described in Section 3(a) of such Distribution Agreement. Subject to the foregoing, as principal, we offer to sell to you, as a member of the Selected Dealers Group, Class A Shares upon the following terms and conditions: 1. The subscription period referred to in Section 3(a) of the Distribution Agreement will continue through ________ __, 19__. The subscription period may be extended upon agreement between the Fund and the Distributor. Subject to the provisions of such Section and the conditions contained herein, we will sell to you on the third business day following the termination of the subscription period, or such other date as we may advise (the "Closing Date"), such number of Class A Shares as to which you have placed orders with us not later than 5:00 P.M. on the second full business day preceding the Closing Date. 2. In all sales of these Class A 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 Corporation, the Fund, for us or for any other member of the Selected Dealers Group, except in connection with the Merrill Lynch Mutual Fund Adviser program and such other special 17 programs as we from time to time agree in which case you shall have authority to offer and sell Class A Shares, as agent for the Corporation, to participants in such program. 3. Except as provided in Paragraph 4, below, the public offering prices, sales charges and the related Selected Dealers' concession are as follows:
Subscription Period ------------------- Securities Dealers' Sales Charge Concession ------------ ---------- Percentage* Percentage* Public of Public of Public Offering Dollar Offering Dollar Offering Price Amount Price Amount Price ----- ------ ----- ------ ----- Less than $25,000 ...................... $10.554 $ .554 5.25% $ .554 5.25% $25,000 but less than $50,000 .......... 10.499 .499 4.75 .499 4.75 $50,000 but less than $100,000 ........ 10.417 .417 4.00 .417 4.00 $100,000 but less than $250,000 ........ 10.309 .309 3.00 .309 3.00 $250,000 but less than $1,000,000 10.204 10.204 .204 2.00 .204 2.00 $1,000,000 and over** .................. 10.000 .000 0.00 .000 0.00
- ------------------ * Rounded to the nearest one-hundredth percent. ** Initial sales charges may be waived for certain classes of offers as set forth in the Prospectus and Statement of Additional Information of the Fund. Such purchases may be subject to a contingent deferred sales charge as set forth in the Prospectus and Statement of Additional Information. The proceeds per Class A Share to the Fund from the sale of all shares sold during the subscription period will be $10.00. 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. 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 has no purpose other than the purchase of Class A Shares or shares of the 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 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 the Class I, Class A, Class B and Class C shares of the Fund and of any other series of the 2 18 Corporation (each, a "Mercury Fund"). 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 or of shares of any other Mercury 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. You shall not place orders for any of the Class A Shares 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. All orders are subject to acceptance by the Distributor or the Corporation in the sole discretion of either. The minimum initial and subsequent purchase requirements are as set forth in the Prospectus, as amended from time to time. 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 amended or supplemented) within three business days of receipt of request and will not furnish to any person any information relating to the Class A Shares that 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 Corporation. 5. All Class A Shares purchased by Selected Dealers will be delivered in the first instance at a settlement price computed on the basis of all sales having been made in a purchase (as such term is defined above) involving a public offering price of less than $25,000. All sales to you will be deemed to have been made in such a transaction unless within 30 days after the Closing Date you furnish to us, on forms supplied by us for the purpose, a statement acceptable to us setting forth sales in purchases involving a public offering price of $25,000 or more, in which case we will compute such Selected Dealers' concessions on the basis of the information set forth in such statement. 3 19 6. Payment for Class A Shares purchased by you is to be made by certified or official bank check at the office of Mercury Funds Distributor, a division of Princeton Funds Distributor, Inc., P.O. Box 9081, Princeton, New Jersey 08543-9081, on such date as we may advise, in New York Clearing House funds payable to the order of Mercury Funds Distributor, a division of Princeton Funds Distributor, Inc., or by federal funds wire transfer, against delivery by us of non-negotiable share deposit receipts ("Receipts") issued by Financial Data Services, Inc., as shareholder servicing agent, acknowledging the deposit with it of the Class A Shares so purchased by you. You agree that as promptly as practicable after the delivery of such Class A Shares you will issue appropriate written transfer instructions to the Corporation or to the shareholder servicing agent as to the purchasers to whom you sold the Class A Shares. 7. If any Class A Shares sold to you under the terms of this Agreement are repurchased by the Corporation or by us for the account of the Corporation or are tendered for redemption within seven business days after the Closing Date, it is agreed that you shall forfeit your right to, and refund to us, any discount received by you on such Class A Shares. 8. No person is authorized to make any representations concerning Class A Shares except those contained in the current Prospectus and Statement of Additional Information of the Fund 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 above mentioned. Any printed information that we furnish you other than the Fund's Prospectus and Statement of Additional Information, periodic reports and proxy solicitation material are our sole responsibility and not the responsibility of the Corporation or the Fund, and you agree that the Corporation and the Fund shall have no liability or responsibility to you in these respects unless expressly assumed in connection therewith. 9. You agree to deliver to each of the purchasers making purchases from you a copy of the then current Prospectus at or prior to the time of offering or sale and, if requested, the Statement of Additional Information within three business days of receipt of request, 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 of the Fund will be supplied to you in reasonable quantities upon request. 10. We reserve the right in our discretion, without notice, to suspend sales or withdraw the offering of Class A Shares entirely. Each party hereto has the right to cancel this Agreement upon notice to the other party. 11. We shall have full authority to take such action as we may deem advisable in respect of all matters pertaining to the subscription offering. We shall be under no liability to 4 20 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 Securities and Exchange Commission issued thereunder. 12. You represent that you are a member of the National Association of Securities Dealers, Inc. and, with respect to any sales in the United States, we both hereby agree to abide by the Conduct Rules of such Association. 13. Upon application to us, we will inform you as to 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. 14. 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. 15. You agree that you will not sell any Class A Shares to any account over which you exercise discretionary authority. 5 21 16. This Agreement shall terminate at the close of business on the Closing Date, unless earlier terminated, provided, however, this Agreement shall continue after termination for the purpose of Section 7 hereof and for the purpose of settlement of accounts hereunder. MERCURY FUNDS DISTRIBUTOR, a division of PRINCETON FUNDS DISTRIBUTOR, INC. By _______________________________________ Title: Please return one signed copy of this Agreement to: MERCURY FUNDS DISTRIBUTOR, a division of PRINCETON FUNDS DISTRIBUTOR, INC. P.O. Box 9081 Princeton, New Jersey 08543-9081 Accepted: _________________________________________ (Authorized Signature) Firm Name:_______________________________ By:______________________________________ Title:___________________________________ Address:_________________________________ _________________________________________ Date:____________________________________ 6 22 Exhibit B MERCURY ASSET MANAGEMENT FUNDS, INC. ON BEHALF OF ITS SERIES, MERCURY GOLD AND MINING FUND CLASS A SHARES OF COMMON STOCK SELECTED DEALER AGREEMENT Ladies and Gentlemen: Mercury Funds Distributor, a division of Princeton Funds Distributor, Inc. (the "Distributor") has an agreement with Mercury Asset Management Funds, Inc., a Maryland corporation (the "Corporation"), on behalf of its series, Mercury Gold and Mining Fund (the "Fund"), pursuant to which it acts as the distributor for the sale of Class A shares of common stock of the Fund, par value $0.0001 per share (herein referred to as "Class A Shares") and as such has the right to distribute Class A Shares for resale. The Corporation is an open-end investment company registered under the Investment Company Act of 1940, as amended (the "Investment Company Act"), and the 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 ourself and the Corporation 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 and statement of additional information, respectively, on file with the Securities and Exchange Commission (the "Commission") which is part of the most recent effective registration statement pursuant to the Securities Act. We offer to sell to you, as a member of the Selected Dealers Group, Class A Shares upon the following terms and conditions: 1. In all sales of Class A 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 Corporation, the Fund, for us or for any other member of the Selected Dealers Group, except in connection with the Merrill Lynch Mutual Fund Adviser program and such other special programs as we from time to time agree, in which case you shall have authority to offer and sell Class A Shares, as agent for the Corporation, to participants in such program. 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 of the Fund. The procedure relating to the handling of orders shall be subject to Section 5 hereof and instructions that we or the Corporation shall forward from time to time to you. All orders are subject to acceptance or rejection by the Distributor or the Corporation 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 of the Fund. 23 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:
Discount to Sales Charge as Sales Charge as Selected Dealers as Percentage* of Percentage* of the Percentage of the Amount of Purchase the Offering Price Net Amount Invested Offering Price - ------------------ ------------------ ------------------- -------------- Less than $25,000 ............... 5.25% 5.54% 5.00% $25,000 but less than $50,000 .. 4.75 4.99 4.50 $50,000 but less than $100,000 .. 4.00 4.17 3.75 $100,000 but less than $250,000 . 3.00 3.09 2.75 $250,000 but less than $1,000,000 2.00 2.04 1.80 $1,000,000 and over** ........... 0.00 0.00 0.00
- ------------------- * Rounded to the nearest one-hundredth percent. ** Initial sales charges will be waived for certain classes of offerees as set forth in the current Prospectus and Statement of Additional Information of 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, that 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. 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 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 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 series of the Corporation (each, a "Mercury Fund"). 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 Mercury Fund made through you within a thirteen-month 2 24 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. You shall not place orders for any of the Class A Shares 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. 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 amended or supplemented) within three business days of receipt of request and will not furnish to any person any information relating to the Class A Shares that 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 Corporation. 5. As a selected dealer, you are hereby authorized (i) to place orders directly with the Corporation for Class A Shares 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 Corporation or its agent for redemption subject to the applicable terms and conditions set forth in Section 4 of the Distribution Agreement. 6. 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. If any Class A Shares sold to you under the terms of this Agreement are repurchased by the Corporation or by us for the account of the Corporation 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. 3 25 8. No person is authorized to make any representations concerning Class A Shares except those contained in the current Prospectus and Statement of Additional Information of the Fund 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 above mentioned. Any printed information that we furnish you other than the Fund's Prospectus, Statement of Additional Information, periodic reports and proxy solicitation material is our sole responsibility and not the responsibility of the Corporation or the Fund, and you agree that the Corporation and the Fund shall have no liability or responsibility to you in these respects unless expressly assumed in connection therewith. 9. You agree to deliver to each of the purchasers making purchases from you a copy of the then current Prospectus at or prior to the time of offering or sale and, if requested, the Statement of Additional Information within three business days of receipt of request, 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 of the Fund will be supplied to you in reasonable quantities upon request. 10. 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. Each party hereto has the right to cancel this agreement upon notice to the other party. 11. We shall have full authority to take such action as we may deem advisable in respect of all matters pertaining to the continuous offering. 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. 12. You represent that you are a member of the National Association of Securities Dealers, Inc. and, with respect to any sales in the United States, we both hereby agree to abide by the Conduct Rules of such Association. 13. Upon application to us, we will inform you as to 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. 4 26 14. 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. 15. Your first order placed pursuant to this Agreement for the purchase of Class A Shares will represent your acceptance of this Agreement. MERCURY FUNDS DISTRIBUTOR, a division of PRINCETON FUNDS DISTRIBUTOR, INC. By: _______________________________________ Title:______________________________________ Please return one signed copy of this agreement to: MERCURY FUNDS DISTRIBUTOR, a division of PRINCETON FUNDS DISTRIBUTOR, INC. P.O. Box 9081 Princeton, New Jersey 08543-9081 Accepted: ____________________________________________ (Authorized Signature) Firm Name: _______________________________________ By: _______________________________________ Title: _______________________________________ Address: _______________________________________ _______________________________________ Date: _______________________________________ 5 EX-99.5.C 9 CLASS B DISTRIBUTION AGREEMENT 1 Exhibit 5(c) CLASS B SHARES DISTRIBUTION AGREEMENT AGREEMENT made as of ______________, 1998 between MERCURY ASSET MANAGEMENT FUNDS, INC., a Maryland corporation (the "Corporation"), on behalf of its series Mercury Gold and Mining Fund (the "Fund") and MERCURY FUNDS DISTRIBUTOR, a division of PRINCETON FUNDS DISTRIBUTOR, INC., a Delaware corporation (the "Distributor"). W I T N E S S E T H : WHEREAS, the Directors of the Corporation (the "Directors") are authorized to establish separate series relating to separate portfolios of securities, each of which may offer separate classes of shares of common stock, par value $0.0001 per share; and WHEREAS, the Directors have established and designated the Fund as a series of the Corporation, offering separate classes of shares of common stock, as described above; and WHEREAS, the Corporation 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 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 Corporation and the Distributor wish to enter into an agreement with each other with respect to the continuous offering of Class B shares common stock in the Fund; 2 NOW, THEREFORE, the parties agree as follows: Section 1. Appointment of the Distributor. The Corporation hereby appoints the Distributor as the Fund's principal underwriter and distributor to sell the Class B shares of common stock in the Fund (sometimes herein referred to as "Class B Shares") to the public and hereby agrees during the term of this Agreement to sell the 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 Fund's exclusive representative to act as principal underwriter and distributor of the Class B Shares, except that: a. The Corporation may, upon written notice to the Distributor, from time to time designate other principal underwriters and distributors of the 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 the 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 rights 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 Fund's acquisition by purchase or otherwise of all (or substantially all) the assets or the outstanding Class B shares of any such company. c. Such exclusive rights also shall not apply to Class B Shares issued by the Fund pursuant to reinvestment of dividends or capital gains distributions. 2 3 d. Such exclusive rights also shall not apply to Class B Shares issued by the Fund pursuant to any conversion, exchange or reinstatement privilege afforded redeeming shareholders or to any other Class B Shares as shall be agreed between the Corporation and the Distributor from time to time. Section 3. Purchase of Class B Shares from the Corporation. a. Prior to the continuous offering of the Class B Shares, commencing on a date agreed upon by the Corporation and the Distributor, it is contemplated that the Distributor will solicit subscriptions for Class B Shares during a subscription period which shall last for such period as may be agreed upon by the parties hereto. The subscriptions will be payable within three business days after the termination of the subscription period, at which time the Fund will commence operations. b. After the Fund commences operations, the Fund will commence an offering of Class B Shares and thereafter the Distributor shall have the right to buy from the Corporation 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 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 of the Fund (the "prospectus" and "statement of additional information," respectively) under the Securities Act of 1933, as amended (the "Securities Act"), relating to the Class B Shares. The price that the Distributor shall pay for the Class B Shares so purchased from the Fund shall be the net asset value, determined as set forth in Section 3(d) hereof. 3 4 c. The Class B Shares are to be resold by the Distributor to investors at net asset value, as set forth in Section 3(d) hereof, or to securities dealers having agreements with the Distributor upon the terms and conditions set forth in Section 7 hereof. d. The net asset value of the Class B Shares shall be determined by the Corporation or any agent of the Corporation in accordance with the method set forth in the Fund's prospectus and statement of additional information and guidelines established by the Directors. e. The Corporation shall have the right to suspend the sale of Class B Shares at times when redemption is suspended pursuant to the conditions set forth in Section 4(b) hereof. The Corporation 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 that, in the judgment of the Corporation, makes it impracticable or inadvisable to sell the Class B Shares. f. The Corporation, or any agent of the Corporation designated in writing by the Corporation, shall be promptly advised of all purchase orders for Class B Shares received by the Distributor. Any order may be rejected by the Corporation; provided, however, that the Corporation will not arbitrarily or without reasonable cause refuse to accept or confirm orders for the purchase of Class B Shares. The Corporation (or its agent) will confirm orders upon their receipt, will make appropriate book entries and, upon receipt by the Corporation (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 Corporation in New York Clearing House funds. The Distributor agrees to cause such payment and such instructions to be delivered promptly to the Corporation (or its agent). 4 5 Section 4. Repurchase or Redemption of Class B Shares by the Corporation. 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 the Corporation's 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 relating to the Fund. 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(d) hereof, less any contingent deferred sales charge ("CDSC"), redemption fee(s) or other charge(s), if any, set forth in the prospectus and statement of additional information relating to the Fund. 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 in New York Clearing House funds 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 Class B 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 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 5 6 or it is not reasonably practicable for the Corporation 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 Corporation. a. The Corporation shall furnish to the Distributor copies of all information, financial statements and other papers that 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 Corporation by independent public accountants. The Corporation shall make available to the Distributor such number of copies of the Fund's prospectus and statement of additional information as the Distributor shall reasonably request. b. The Corporation shall take, from time to time, but subject to any necessary approval of the Fund's Class B shareholders, all necessary action to fix the number of authorized Class B Shares and such steps as may be necessary to register the same under the Securities Act to the end that there will be available for sale such number of Class B Shares as the Distributor reasonably may be expected to sell. c. The Corporation 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 Corporation may approve. Any such qualification may be withheld, terminated or withdrawn by the Corporation at any time in its discretion. As provided in Section 8(c) hereof, the expense of qualification and maintenance of qualification shall be borne by the 6 7 Fund. The Distributor shall furnish such information and other material relating to its affairs and activities as may be required by the Corporation in connection with such qualification. d. The Corporation will furnish, in reasonable quantities upon request by the Distributor, copies of the Fund's annual and interim reports. Section 6. Duties of the Distributor. a. The Distributor shall devote reasonable time and effort to effect sales of Class B Shares but shall not be obligated to sell any specific number of Class B Shares. The services of the Distributor to the Corporation 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 B Shares, 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 Corporation 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 Corporation. c. The Distributor shall adopt and follow procedures, as approved by the officers of the Corporation, for the confirmation of sales to investors and selected dealers, the collection of amounts payable by 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 7 8 Association of Securities Dealers, Inc. (the "NASD"), as such requirements may from time to time exist. Section 7. Selected Dealer Agreements. a. The Distributor shall have the right to enter into selected dealer agreements with securities dealers of its choice ("selected dealers") for the sale of Class B Shares; provided, that the Corporation shall approve the forms of agreements with dealers. Class B Shares sold to selected dealers shall be for resale by such dealers only at net asset value determined as set forth in Section 3(d) hereof. The form of agreement with selected dealers to be used during the subscription period described in Section 3(a) is attached hereto as Exhibit A and the form of agreement with selected dealers to be used in the continuous offering of the Class B Shares is attached hereto as Exhibit B. b. Within the United States, the Distributor shall offer and sell Class B 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, as incurred, including fees and disbursements of the Fund's 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). 8 9 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 to be used in connection with the offering of Class B 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 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. 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 Corporation as a broker or dealer in such states of the United States or other jurisdictions as shall be selected by the Corporation 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 9 10 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 the Fund's Class B shareholders, 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 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 10 11 such claim shall not relieve it from any liability that 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, as incurred, 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, as incurred, 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. b. The Distributor shall indemnify and hold harmless the Corporation and each of its Directors and officers, the Fund, and each person, if any, who controls the Corporation against any loss, liability, claim, damage or expense, as incurred, 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 11 12 or interim reports to Class B shareholders. In case any action shall be brought against the Corporation 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 Corporation, and the Corporation 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. Fee-Based Programs Offered by the Fund's Investment Adviser or Its Affiliates. In connection with certain fee-based programs offered by the Fund's investment adviser or its affiliates, the Distributor and its affiliates are authorized to offer and sell shares of the Fund, as agent for the Corporation, to participants in such program. The terms of this Agreement shall apply to such sales, including terms as to the offering price of Class A Shares, the proceeds to be paid to the Fund, the duties of the Distributor, the payment of expenses and indemnification obligations of the Fund and the Distributor. Section 11. Duration and Termination of this Agreement. This Agreement shall become effective as of the date first above written and shall remain in force for two years 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 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 12 13 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 specified in the Investment Company Act. Section 12. 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 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 13. 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 14 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. MERCURY ASSET MANAGEMENT FUNDS, INC. on behalf of its series, MERCURY GOLD AND MINING FUND By_________________________________________ Title: MERCURY FUNDS DISTRIBUTOR, a division of PRINCETON FUNDS DISTRIBUTOR, INC. By_________________________________________ Title: 14 15 Exhibit A MERCURY ASSET MANAGEMENT FUNDS, INC. ON BEHALF OF ITS SERIES, MERCURY GOLD AND MINING FUND CLASS B SHARES OF COMMON STOCK SELECTED DEALER AGREEMENT FOR SUBSCRIPTION PERIOD Ladies and Gentlemen: Mercury Funds Distributor, a division of Princeton Funds Distributor, Inc. (the "Distributor") has an agreement with Mercury Asset Management Funds, Inc., a Maryland corporation (the "Corporation"), on behalf of its series, Mercury Gold and Mining Fund (the "Fund") pursuant to which it acts as the distributor for the sale of Class B shares of common stock of the Fund, par value $0.0001 per share (herein referred to as "Class B Shares") and as such has the right to distribute Class B Shares for resale. The Corporation is an open-end investment company registered under the Investment Company Act of 1940, as amended, and its Class B Shares being offered to the public are registered under the Securities Act of 1933, as amended (the "Securities Act"). Class B Shares and certain of the terms on which they are being offered are more fully described in the enclosed Prospectus and Statement of Additional Information. You, Merrill Lynch, Pierce, Fenner & Smith Incorporated, have received a copy of the Class B Shares Distribution Agreement (the "Distribution Agreement") between ourself and the Corporation and reference is made herein to certain provisions of such Distribution Agreement. This Agreement relates solely to the subscription period described in Section 3(a) of such Distribution Agreement. Subject to the foregoing, as principal, we offer to sell to you, as a member of the Selected Dealers Group, Class B Shares upon the following terms and conditions: 1. The subscription period referred to in Section 3(a) of the Distribution Agreement will continue through ___________, 19__. The subscription period may be extended upon agreement between the Fund and the Distributor. Subject to the provisions of such Section and the conditions contained herein, we will sell to you on the third business day following the termination of the subscription period, or such other date as we may advise (the "Closing Date"), such number of Class B Shares as to which you have placed orders with us not later than 5:00 P.M. on the second full business day preceding the Closing Date. 2. In all sales of 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 Corporation, the Fund, for us or for any other member of the Selected Dealers Group, except in connection with the Merrill Lynch Mutual Fund Adviser program and such other special programs as we 16 from time to time agree, in which case you shall have authority to offer and sell Class B Shares, as agent for the Corporation to participants in such program. 3. You shall not place orders for any of the Class B Shares 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. All orders are subject to acceptance by the Distributor or the Corporation in the sole discretion of either. The minimum initial and subsequent purchase requirements are as set forth in the Prospectus, as amended from time to time. 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) within three business days of receipt of request and will not furnish to any person any information relating to the Class B Shares that 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 Corporation. 4. Payment for Class B Shares purchased by you is to be made by certified or official bank check at the office of Mercury Funds Distributor, a division of Princeton Funds Distributor, Inc., P.O. Box 9081, Princeton, New Jersey 08543-9081, on such date as we may advise, in New York Clearing House funds payable to the order of Mercury Funds Distributor, a division of Princeton Funds Distributor, Inc., or by federal funds wire transfer, against delivery by us of non-negotiable share deposit receipts ("Receipts") issued by Financial Data Services, Inc., as shareholder servicing agent, acknowledging the deposit with it of the Class B Shares so purchased by you. You agree that as promptly as practicable after the delivery of such Class B Shares you will issue appropriate written transfer instructions to the Corporation or to the shareholder servicing agent as to the purchasers to whom you sold the Class B Shares. 5. No person is authorized to make any representations concerning Class B Shares except those contained in the current Prospectus and Statement of Additional Information of the Fund 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 above mentioned. Any printed information that we furnish you other than the Fund's Prospectus and Statement of Additional Information, periodic reports and proxy solicitation material are our sole responsibility and not the responsibility of the Corporation or the Fund, and you agree that the Corporation and the Fund shall have no liability or responsibility to you in these respects unless expressly assumed in connection therewith. 2 17 6. You agree to deliver to each of the purchasers making purchases from you a copy of the then current Prospectus at or prior to the time of offering or sale and, if requested, the Statement of Additional Information within three business days of receipt of request, 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 of the Fund will be supplied to you in reasonable quantities upon request. 7. We reserve the right in our discretion, without notice, to suspend sales or withdraw the offering of Class B Shares entirely. Each party hereto has the right to cancel this Agreement upon notice to the other party. 8. We shall have full authority to take such action as we may deem advisable in respect of all matters pertaining to the subscription offering. 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 Securities and Exchange Commission issued thereunder. 9. You represent that you are a member of the National Association of Securities Dealers, Inc. and, with respect to any sales in the United States, we both hereby agree to abide by the Conduct Rules of such Association. 10. Upon application to us, we will inform you as to 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. 11. 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. 12. You agree that you will not sell any Class B Shares to any account over which you exercise discretionary authority. 3 18 13. This Agreement shall terminate at the close of business on the Closing Date, unless earlier terminated, provided, however, this Agreement shall continue after termination for the purpose of settlement of accounts hereunder. MERCURY FUNDS DISTRIBUTOR, a division of PRINCETON FUNDS DISTRIBUTOR, INC. By _______________________________________ Title: Please return one signed copy of this Agreement to: MERCURY FUNDS DISTRIBUTOR, a division of PRINCETON FUNDS DISTRIBUTOR, INC. P.O. Box 9081 Princeton New Jersey 08543-9081 Accepted: _____________________________________________ (Authorized Signature) Firm Name:___________________________________ By:__________________________________________ Title:_______________________________________ Address:_____________________________________ _____________________________________________ Date:________________________________________ 4 19 Exhibit B MERCURY ASSET MANAGEMENT FUNDS, INC. ON BEHALF OF ITS SERIES, THE MERCURY GOLD AND MINING FUND CLASS B SHARES OF COMMON STOCK SELECTED DEALER AGREEMENT Ladies and Gentlemen: Mercury Funds Distributor, a division of Princeton Funds Distributor, Inc. (the "Distributor") has an agreement with Mercury Asset Management Funds, Inc., a Maryland corporation (the "Corporation"), on behalf of its series, Mercury Gold and Mining Fund (the "Fund"), pursuant to which it acts as the distributor for the sale of Class B shares of common stock of the Fund, par value $0.0001 per share (herein referred to as "Class B Shares") and as such has the right to distribute Class B Shares for resale. The Corporation is an open-end investment company registered under the Investment Company Act of 1940, as amended, and the Class B Shares 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 ourself and the Corporation and reference is made herein to certain provisions of such Distribution Agreement. The terms "Prospectus" and "Statement of Additional Information" as used herein refer to the prospectus and statement of additional information, respectively, on file with the Securities and Exchange Commission (the "Commission") which is part of the most recent effective registration statement pursuant to the Securities Act. We offer to sell to you, as a member of the Selected Dealers Group, Class B Shares upon the following terms and conditions: 1. In all sales of 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 Corporation, the Fund, for us or for any other member of the Selected Dealers Group, except in connection with the Merrill Lynch Mutual Fund Adviser program and such other special programs as we from time to time agree, in which case you shall have authority to offer and sell Class B Shares, as agent for the Corporation, to participants in such program. 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 of the Fund. The procedure relating to the handling of orders shall be subject to Section 4 hereof and instructions that we or the Corporation shall forward from time to time to you. All orders are subject to acceptance or rejection by the Distributor or the Corporation 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 of the Fund. 20 3. You shall not place orders for any of the Class B Shares 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) within three business days of receipt of request and will not furnish to any person any information relating to the Class B Shares that 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 Corporation. 4. As a selected dealer, you are hereby authorized (i) to place orders directly with the Corporation for Class B Shares 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 Corporation or its agent for redemption subject to the applicable terms and conditions set forth in Section 4 of the Distribution Agreement. 5. 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. No person is authorized to make any representations concerning Class B Shares except those contained in the current Prospectus and Statement of Additional Information of the Fund 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 above mentioned. Any printed information that we furnish you other than the Fund's Prospectus, Statement of Additional Information, periodic reports and proxy solicitation material are our sole responsibility and not the responsibility of the Corporation or the Fund, and you agree that the Corporation and the Fund shall have no liability or responsibility to you in these respects unless expressly assumed in connection therewith. 7. You agree to deliver to each of the purchasers making purchases from you a copy of the then current Prospectus at or prior to the time of offering or sale and, if requested, the Statement of Additional Information within three business days of receipt of request, 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 2 21 or interim reports and proxy solicitation materials of the Fund will be supplied to you in reasonable quantities upon request. 8. 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. 9. We shall have full authority to take such action as we may deem advisable in respect of all matters pertaining to the continuous offering. 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. 10. You represent that you are a member of the National Association of Securities Dealers, Inc. and, with respect to any sales in the United States, we both hereby agree to abide by the Conduct Rules of such Association. 11. Upon application to us, we will inform you as to 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. 12. 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. 3 22 13. Your first order placed pursuant to this Agreement for the purchase of Class B Shares will represent your acceptance of this Agreement. MERCURY FUNDS DISTRIBUTOR, a division of PRINCETON FUNDS DISTRIBUTOR, INC. By:_______________________________________ Title:____________________________________ Please return one signed copy of this Agreement to: MERCURY FUNDS DISTRIBUTOR, a division of PRINCETON FUNDS DISTRIBUTOR, INC. P.O. Box 9081 Princeton, New Jersey 08543-9081 Accepted: ______________________________________ (Authorized Signature) Firm Name:______________________________________ By:_____________________________________________ Title:__________________________________________ Address:________________________________________ ________________________________________________ Date:___________________________________________ 4 EX-99.5.D 10 CLASS C DISTRIBUTION AGREEMENT 1 Exhibit 5(d) CLASS C SHARES DISTRIBUTION AGREEMENT AGREEMENT made as of ________________, 1998 between MERCURY ASSET MANAGEMENT FUNDS, INC., a Maryland corporation (the "Corporation"), on behalf of its series Mercury Gold and Mining Fund (the "Fund") and MERCURY FUNDS DISTRIBUTOR, a division of PRINCETON FUNDS DISTRIBUTOR, INC., a Delaware corporation (the "Distributor"). W I T N E S S E T H : WHEREAS, the Directors of the Corporation (the "Directors") are authorized to establish separate series relating to separate portfolios of securities, each of which may offer separate classes of shares of common stock, par value $0.0001 per share; and WHEREAS, the Directors have established and designated the Fund as a series of the Corporation, offering separate classes of shares of common stock, as described above; and WHEREAS, the Corporation 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 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 Corporation and the Distributor wish to enter into an agreement with each other with respect to the continuous offering of Class C shares of common stock in the Fund; 2 NOW, THEREFORE, the parties agree as follows: Section 1. Appointment of the Distributor. The Corporation hereby appoints the Distributor as the Fund's principal underwriter and distributor to sell the Class C shares of common stock in the Fund (sometimes herein referred to as "Class C Shares") to the public and hereby agrees during the term of this Agreement to sell Class C Shares to the Distributor upon the terms and conditions herein set forth. Section 2. Exclusive Nature of Duties. The Distributor shall be the Fund's exclusive representative to act as principal underwriter and distributor of the Class C Shares, except that: a. The Corporation may, upon written notice to the Distributor, from time to time designate other principal underwriters and distributors of the 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 the 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. b. The exclusive rights 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 Fund's acquisition by purchase or otherwise of all (or substantially all) the assets or the outstanding Class C shares of any such company. c. Such exclusive rights also shall not apply to Class C Shares issued by the Fund pursuant to reinvestment of dividends or capital gains distributions. 2 3 d. Such exclusive rights 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 Corporation and the Distributor from time to time. Section 3. Purchase of Class C Shares from the Corporation. a. Prior to the continuous offering of the Class C Shares, commencing on a date agreed upon by the Corporation and the Distributor, it is contemplated that the Distributor will solicit subscriptions for Class C Shares during a subscription period which shall last for such period as may be agreed upon by the parties hereto. The subscriptions will be payable within three business days after the termination of the subscription period, at which time the Fund will commence operations. b. After the Fund commences operations, the Fund will commence an offering of Class C Shares and thereafter the Distributor shall have the right to buy from the Corporation 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 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 of the Fund (the "prospectus" and "statement of additional information," respectively) under the Securities Act of 1933, as amended (the "Securities Act"), relating to the Class C Shares. The price that the Distributor shall pay for the Class C Shares so purchased from the Fund shall be the net asset value, determined as set forth in Section 3(d) hereof. 3 4 c. The Class C Shares are to be resold by the Distributor to investors at net asset value, as set forth in Section 3(d) hereof, or to securities dealers having agreements with the Distributor upon the terms and conditions set forth in Section 7 hereof. d. The net asset value of the Class C Shares shall be determined by the Corporation or any agent of the Corporation in accordance with the method set forth in the Fund's prospectus and statement of additional information and guidelines established by the Directors. e. The Corporation shall have the right to suspend the sale of Class C Shares at times when redemption is suspended pursuant to the conditions set forth in Section 4(b) hereof. The Corporation 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 that, in the judgment of the Corporation, makes it impracticable or inadvisable to sell the Class C Shares. f. The Corporation, or any agent of the Corporation designated in writing by the Corporation, shall be promptly advised of all purchase orders for Class C Shares received by the Distributor. Any order may be rejected by the Corporation; provided, however, that the Corporation will not arbitrarily or without reasonable cause refuse to accept or confirm orders for the purchase of Class C Shares. The Corporation (or its agent) will confirm orders upon their receipt, will make appropriate book entries and, upon receipt by the Corporation (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 Corporation in New York Clearing House funds. The Distributor agrees to cause such payment and such instructions to be delivered promptly to the Corporation (or its agent). 4 5 Section 4. Repurchase or Redemption of Class C Shares by the Corporation. 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 the Corporation's 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 relating to the Fund. The price to be paid to redeem or repurchase the Class C 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 relating to the Fund. 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 in New York Clearing House funds 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 Class C 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 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 5 6 or it is not reasonably practicable for the Corporation 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 Corporation. a. The Corporation shall furnish to the Distributor copies of all information, financial statements and other papers that 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 Corporation by independent public accountants. The Corporation shall make available to the Distributor such number of copies of the Fund's prospectus and statement of additional information as the Distributor shall reasonably request. b. The Corporation shall take, from time to time, but subject to any necessary approval of the Fund's Class C shareholders, all necessary action to fix the number of authorized Class C Shares and such steps as may be necessary to register the same under the Securities Act to the end that there will be available for sale such number of Class C Shares as the Distributor reasonably may be expected to sell. c. The Corporation shall use its best efforts to qualify and maintain the qualification of an appropriate number of the Class C Shares for sale under the securities laws of such states as the Distributor and the Corporation may approve. Any such qualification may be withheld, terminated or withdrawn by the Corporation at any time in its discretion. As provided in Section 8(c) hereof, the expense of qualification and maintenance of qualification shall be borne by the 6 7 Fund. The Distributor shall furnish such information and other material relating to its affairs and activities as may be required by the Corporation in connection with such qualification. d. The Corporation will furnish, in reasonable quantities upon request by the Distributor, copies of the Fund's annual and interim reports. Section 6. Duties of the Distributor. a. The Distributor shall devote reasonable time and effort to effect sales of Class C Shares but shall not be obligated to sell any specific number of Class C Shares. The services of the Distributor to the Corporation 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 C Shares, 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 Corporation 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 Corporation. c. The Distributor shall adopt and follow procedures, as approved by the officers of the Corporation, for the confirmation of sales to investors and selected dealers, the collection of amounts payable by 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 7 8 Association of Securities Dealers, Inc. (the "NASD"), as such requirements may from time to time exist. Section 7. Selected Dealer Agreements. a. The Distributor shall have the right to enter into selected dealer agreements with securities dealers of its choice ("selected dealers") for the sale of Class C Shares; provided, that the Corporation shall approve the forms of agreements with dealers. Class C Shares sold to selected dealers shall be for resale by such dealers only at net asset value determined as set forth in Section 3(d) hereof. The form of agreement with selected dealers to be used during the subscription period described in Section 3(a) is attached hereto as Exhibit A and the form of agreement with selected dealers to be used in the continuous offering of the Class C Shares is attached hereto as Exhibit B. b. Within the United States, the Distributor shall offer and sell Class C 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, as incurred, 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 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). 8 9 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 to be used in connection with the offering of Class C 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 C 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 C 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. 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 Corporation as a broker or dealer in such states of the United States or other jurisdictions as shall be selected by the Corporation 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 9 10 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 the Fund's Class C shareholders, 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 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 10 11 such claim shall not relieve it from any liability that 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, as incurred, 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, as incurred, 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 C Shares. b. The Distributor shall indemnify and hold harmless the Corporation and each of its Directors and officers, the Fund, and each person, if any, who controls the Corporation against any loss, liability, claim, damage or expense, as incurred, 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 11 12 or interim reports to Class C shareholders. In case any action shall be brought against the Corporation 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 Corporation, and the Corporation 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. Fee-Based Programs Offered by the Fund's Investment Adviser or Its Affiliates. In connection with certain fee-based programs offered by the Fund's investment adviser or its affiliates, the Distributor and its affiliates are authorized to offer and sell shares of the Fund, as agent for the Corporation, to participants in such program. The terms of this Agreement shall apply to such sales, including terms as to the offering price of Class A Shares, the proceeds to be paid to the Fund, the duties of the Distributor, the payment of expenses and indemnification obligations of the Fund and the Distributor. Section 11. Duration and Termination of this Agreement.This Agreement shall become effective as of the date first above written and shall remain in force for two years 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 C 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 C voting securities of the Fund , or 12 13 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 specified in the Investment Company Act. Section 12. 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 C 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. Section 13. 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 14 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. MERCURY ASSET MANAGEMENT FUNDS, INC. on behalf of its series, MERCURY GOLD AND MINING FUND By________________________________________ Title: MERCURY FUNDS DISTRIBUTOR, a division of PRINCETON FUNDS DISTRIBUTOR, INC. By________________________________________ Title: 14 15 Exhibit A MERCURY ASSET MANAGEMENT FUNDS, INC. ON BEHALF OF ITS SERIES, MERCURY GOLD AND MINING FUND CLASS C SHARES OF COMMON STOCK SELECTED DEALER AGREEMENT FOR SUBSCRIPTION PERIOD Ladies and Gentlemen: Mercury Funds Distributor, a division of Princeton Funds Distributor, Inc. (the "Distributor") has an agreement with Mercury Asset Management Funds, Inc., a Maryland corporation (the "Corporation"), on behalf of its series, Mercury Gold and Mining Fund (the "Fund"), pursuant to which it acts as the distributor for the sale of Class C shares of common stock of the Fund, par value $0.0001 per share (herein referred to as "Class C Shares"), and as such has the right to distribute Class C Shares for resale. The Corporation is an open-end investment company registered under the Investment Company Act of 1940, as amended, and its Class C Shares being offered to the public are registered under the Securities Act of 1933, as amended (the "Securities Act"). Such Class C Shares and certain of the terms on which they are being offered are more fully described in the enclosed Prospectus and Statement of Additional Information. You, Merrill Lynch, Pierce, Fenner & Smith Incorporated, have received a copy of the Class C Shares Distribution Agreement (the "Distribution Agreement") between ourself and the Corporation and reference is made herein to certain provisions of such Distribution Agreement. This Agreement relates solely to the subscription period described in Section 3(a) of such Distribution Agreement. Subject to the foregoing, as principal, we offer to sell to you, as a member of the Selected Dealers Group, Class C Shares upon the following terms and conditions: 1. The subscription period referred to in Section 3(a) of the Distribution Agreement will continue through __________ __, 19__. The subscription period may be extended upon agreement between the Fund and the Distributor. Subject to the provisions of such Section and the conditions contained herein, we will sell to you on the third business day following the termination of the subscription period, or such other date as we may advise (the "Closing Date"), such number of Class C Shares as to which you have placed orders with us not later than 5:00 P.M. on the second full business day preceding the Closing Date. 2. 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 Corporation, the Fund, for us or for any other member of the Selected Dealers Group, except in connection with the Merrill Lynch Mutual Fund Adviser program and such other special 16 programs as we from time to time agree, in which case you shall have authority to offer and sell Class A Shares, as agent for the Corporation, to participants in such program. 3. You shall not place orders for any of the Class C Shares 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. All orders are subject to acceptance by the Distributor or the Corporation in the sole discretion of either. The minimum initial and subsequent purchase requirements are as set forth in the Prospectus, as amended from time to time. 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) within three business days of receipt of request, and will not furnish to any person any information relating to the Class C Shares that 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 Corporation. 4. Payment for Class C Shares purchased by you is to be made by certified or official bank check at the office of Mercury Funds Distributor, a division of Princeton Funds Distributor, Inc., P.O. Box 9081, Princeton, New Jersey 08543-9081, on such date as we may advise, in New York Clearing House funds payable to the order of Mercury Funds Distributor, a division of Princeton Funds Distributor, Inc., or by federal funds wire transfer, against delivery by us of non-negotiable share deposit receipts ("Receipts") issued by Financial Data Services, Inc., as shareholder servicing agent, acknowledging the deposit with it of the Class C Shares so purchased by you. You agree that as promptly as practicable after the delivery of such Class C Shares you will issue appropriate written transfer instructions to the Corporation or to the shareholder servicing agent as to the purchasers to whom you sold the Class C Shares. 5. No person is authorized to make any representations concerning Class C Shares except those contained in the current Prospectus and Statement of Additional Information of the Fund 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 above mentioned. Any printed information that we furnish you other than the Fund's Prospectus and Statement of Additional Information, periodic reports and proxy solicitation material are our sole responsibility and not the responsibility of the Corporation or the Fund, and you agree that the Corporation and the Fund shall have no liability or responsibility to you in these respects unless expressly assumed in connection therewith. 2 17 6. You agree to deliver to each of the purchasers making purchases from you a copy of the then current Prospectus at or prior to the time of offering or sale and, if requested, the Statement of Additional Information within three business days of receipt of request, 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 of the Fund will be supplied to you in reasonable quantities upon request. 7. We reserve the right in our discretion, without notice, to suspend sales or withdraw the offering of Class C Shares entirely. Each party hereto has the right to cancel this Agreement upon notice to the other party. 8. We shall have full authority to take such action as we may deem advisable in respect of all matters pertaining to the subscription offering. 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 Securities and Exchange Commission issued thereunder. 9. You represent that you are a member of the National Association of Securities Dealers, Inc. and, with respect to any sales in the United States, we both hereby agree to abide by the Conduct Rules of such Association. 10. Upon application to us, we will inform you as 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. 11. 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. 12. You agree that you will not sell any Class C Shares to any account over which you exercise discretionary authority. 3 18 13. This Agreement shall terminate at the close of business on the Closing Date, unless earlier terminated, provided, however, this Agreement shall continue after termination for the purpose of settlement of accounts hereunder. MERCURY FUNDS DISTRIBUTOR, a division of PRINCETON FUNDS DISTRIBUTOR, INC. By ______________________________________ Title: Please return one signed copy of this Agreement to: MERCURY FUNDS DISTRIBUTOR, a division of PRINCETON FUNDS DISTRIBUTOR, INC. P.O. Box 9081 Princeton, New Jersey 08543-9081 Accepted: __________________________________ (Authorized Signature) Firm Name:________________________ By:_______________________________ Title:____________________________ Address:__________________________ __________________________________ Date:_____________________________ 4 19 Exhibit B MERCURY ASSET MANAGEMENT FUNDS, INC. ON BEHALF OF ITS SERIES, MERCURY GOLD AND MINING FUND CLASS C SHARES OF COMMON STOCK SELECTED DEALER AGREEMENT Ladies and Gentlemen: Mercury Funds Distributor, a division of Princeton Funds Distributor, Inc. (the "Distributor") has an agreement with Mercury Asset Management Funds, Inc., a Maryland corporation (the "Corporation"), on behalf of its series, Mercury Gold and Mining Fund (the "Fund"), pursuant to which it acts as the distributor for the sale of Class C shares of common stock of the Fund, par value $0.0001 per share (herein referred to as the "Class C Shares"), and as such has the right to distribute Class C Shares for resale. The Corporation is an open-end investment company registered under the Investment Company Act of 1940, as amended, 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 ourself and the Corporation and reference is made herein to certain provisions of such Distribution Agreement. The terms "Prospectus" and "Statement of Additional Information" as used herein refer to the prospectus and statement of additional information, respectively, on file with the Securities and Exchange Commission (the "Commission") which is part of the most recent effective registration statement pursuant to the Securities Act. We offer to sell to you, as a member of the Selected Dealers Group, Class C Shares upon the following terms and conditions: 1. In all sales of the 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 Corporation, the Fund, for us or for any other member of the Selected Dealers Group, except in connection with the Merrill Lynch Mutual Fund Adviser program and such other special programs as we from time to time agree, in which case you shall have authority to offer and sell Class C Shares, as agent for the Corporation, to participants in such program. 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 of the Fund. The procedure relating to the handling of orders shall be subject to Section 4 hereof and instructions that we or the Corporation shall forward from time to time to you. All orders are subject to acceptance or rejection by the Distributor or the Corporation 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 of the Fund. 20 3. You shall not place orders for any of the Class C Shares 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) within three business days of receipt of request and will not furnish to any person any information relating to the Class C Shares that 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 Corporation. 4. As a selected dealer, you are hereby authorized (i) to place orders directly with the Corporation for Class C Shares 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 Corporation or its agent for redemption subject to the applicable terms and conditions set forth in Section 4 of the Distribution Agreement. 5. 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. No person is authorized to make any representations concerning Class C Shares except those contained in the current Prospectus and Statement of Additional Information of the Fund 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 above mentioned. Any printed information which we furnish you other than the Fund's Prospectus, Statement of Additional Information, periodic reports and proxy solicitation material is our sole responsibility and not the responsibility of the Corporation or the Fund, and you agree that the Corporation and the Fund shall have no liability or responsibility to you in these respects unless expressly assumed in connection therewith. 7. You agree to deliver to each of the purchasers making purchases from you a copy of the then current Prospectus at or prior to the time of offering or sale and, if requested, the Statement of Additional Information within three business days of receipt of request, 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 2 21 or interim reports and proxy solicitation materials of the Fund will be supplied to you in reasonable quantities upon request. 8. 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. 9. We shall have full authority to take such action as we may deem advisable in respect of all matters pertaining to the continuous offering. 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. 10. You represent that you are a member of the National Association of Securities Dealers, Inc. and, with respect to any sales in the United States, we both hereby agree to abide by the Conduct Rules of such Association. 11. Upon application to us, we will inform you as 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. 12. 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. 3 22 13. Your first order placed pursuant to this Agreement for the purchase of Class C Shares will represent your acceptance of this Agreement. MERCURY FUNDS DISTRIBUTOR, a division of PRINCETON FUNDS DISTRIBUTOR, INC. By: ______________________________________ Title: ___________________________________ Please return one signed copy of this Agreement to: MERCURY FUNDS DISTRIBUTOR, a division of PRINCETON FUNDS DISTRIBUTOR, INC. P.O. Box 9081 Princeton, New Jersey 08543-9081 Accepted: _______________________________ (Authorized Signature) Firm Name:_____________________ By:____________________________ Title:_________________________ Address:_______________________ _______________________________ Date:__________________________ 4 EX-99.7 11 CUSTODY AGREEMENT 1 Exhibit 7 AGREEMENT BETWEEN BROWN BROTHERS HARRIMAN & CO. AND MERCURY ASSET MANAGEMENT FUNDS, INC. CUSTODIAN AGREEMENT 2 AGREEMENT made this _______ day of _____________, 1996, between MERCURY ASSET MANAGEMENT FUNDS, INC. (the "Fund") and Brown Brothers Harriman & Co. (the "Custodian"). WITNESSETH: That in consideration of the mutual covenants and agreements herein contained, the parties hereto agree as follows: 1. The Fund hereby employs and appoints the Custodian as a custodian for the term and subject to the provisions of this Agreement. The Custodian shall not be under any duty or obligation to require the Fund to deliver to it any securities or funds owned by the Fund and shall have no responsibility or liability for or on account of securities or funds not so delivered. The Fund will deposit with the Custodian copies of the Certificate of Incorporation and By-Laws (or comparable documents) of the Fund and all amendments thereto, and copies of such votes and other proceedings of the Fund as may be necessary for or convenient to the Custodian in the performance of its duties. 2. Except for securities and funds held by subcustodians appointed pursuant to the provisions of Section 3 hereof, the Custodian shall have and perform the following powers and duties: A. Safekeeping - To keep safely the securities of the Fund that have been delivered to the Custodian and from time to time to receive delivery of securities for safekeeping. B. Manner of Holding Securities - To hold securities of the Fund (1) by physical possession of the share certificates or other instruments representing such securities in registered or bearer form, or (2) in book-entry form by a Securities System (as said term is defined in Section 2S). C. Registered Name; Nominee - To hold registered securities of the Fund (1) in the name or any nominee name of the Custodian or the Fund, or in the name or any nominee name of any agent appointed pursuant to Section 5E, or (2) in street certificate form, so-called, and in any case with or without any indication of fiduciary capacity. D. Purchases - Upon receipt of Proper Instructions, as defined in Section V on Page 14, insofar as funds are available for the purpose, to pay for and receive securities purchased for 2 3 the account of the Fund, payment being made only upon receipt of the securities (1) by the Custodian, or (2) by a clearing corporation of a national securities exchange of which the Custodian is a member, or (3) by a Securities System. However, (i) in the case of repurchase agreements entered into by the Fund, the Custodian may release funds to a Securities System or to a Subcustodian prior to the receipt of advice from the Securities System or Subcustodian that the securities underlying such repurchase agreement have been transferred by book entry into the Account (as defined in Section 2S) of the Custodian maintained with such Securities System or Subcustodian, so long as such payment instructions to Securities System or Subcustodian include a requirement that delivery is only against payment of securities, and (ii) in the case of time deposits, call account deposits, currency deposits, and other deposits, contracts or options pursuant to Sections 2K, 2L and 2M, the Custodian may make payment therefor without receiving an instrument evidencing said deposit so long as such payment instructions detail specific securities to be acquired. E. Exchanges - Upon receipt of proper instructions, to exchange securities held by it for the account of the Fund for other securities in connection with any reorganization, recapitalization, split-up of shares, change of par value, conversion or other event, and to deposit any such securities in accordance with the terms of any reorganization or protective plan. Without such instructions, the Custodian may surrender securities in temporary form for definitive securities, may surrender securities for transfer into a name or nominee name as permitted in Section 2C, and may surrender securities for a different number of certificates or instruments representing the same number of shares or same principal amount of indebtedness, provided the securities to be issued are to be delivered to the Custodian and further provided custodian shall at the time of surrendering securities or instruments receive a receipt or other evidence of ownership thereof. F. Sales of Securities - Upon receipt of proper instructions, to make delivery of securities which have been sold for the account of the Fund, but only against payment therefor (1) in cash, by a certified check, bank cashier's check, bank credit, or bank wire transfer, or (2) by credit to the account of the Custodian with a clearing corporation of a 3 4 national securities exchange of which the Custodian is a member, or (3) by credit to the account of the Custodian or an Agent of the Custodian with a Securities System. G. Depositary Receipts - Upon receipt of proper instructions, to instruct a subcustodian appointed pursuant to Section 3 hereof (a "Subcustodian") or an agent of the Custodian appointed pursuant to Section 5E hereof (an "Agent") to surrender securities to the depositary used by an issuer of American Depositary Receipts or International Depositary Receipts (hereinafter collectively referred to as "ADRs") for such securities against a written receipt therefor adequately describing such securities and written evidence satisfactory to the Subcustodian or Agent that the depositary has acknowledged receipt of instructions to issue with respect to such securities ADRs in the name of the Custodian, or a nominee of the Custodian, for delivery to the Custodian in Boston, Massachusetts, or at such other place as the Custodian may from time to time designate. Upon receipt of proper instructions, to surrender ADRs to the issuer thereof against a written receipt therefor adequately describing the ADRs surrendered and written evidence satisfactory to the Custodian that the issuer of the ADRs has acknowledged receipt of instructions to cause its depositary to deliver the securities underlying such ADRs to a Subcustodian or an Agent. H. Exercise of Rights; Tender Offers - Upon timely receipt of proper instructions, to deliver to the issuer or trustee thereof, or to the agent of either, warrants, puts, calls, rights or similar securities for the purpose of being exercised or sold, provided that the new securities and cash, if any, acquired by such action are to be delivered to the Custodian, and, upon receipt of proper instructions, to deposit securities upon invitations for tenders of securities, provided that the consideration is to be paid or delivered or the tendered securities are to be returned to the Custodian. I. Stock Dividends, Rights, Etc. - To receive and collect all stock dividends, rights and other items of like nature; and to deal with the same pursuant to proper instructions relative thereto. J. Borrowings - Upon receipt of proper instructions, to deliver securities of the Fund to lenders or their agents as collateral for borrowings effected by the Fund, provided that such borrowed money is payable to or upon the Custodian's order as Custodian for the Fund. K. Demand Deposit Bank Accounts - To open and operate an account or accounts in the 4 5 name of the Fund on the Custodian's books subject only to draft or order by the Custodian. All funds received by the Custodian from or for the account of the Fund shall be deposited in said account(s). The responsibilities of the Custodian to the Fund for deposits accepted on the Custodian's books shall be that of a U. S. bank for a similar deposit. If and when authorized by proper instructions, the Custodian may open and operate an additional account(s) in such other banks or trust companies as may be designated by the Fund in such instructions (any such bank or trust company so designated by the Fund being referred to hereafter as a "Banking Institution"), provided that such account(s) shall be in the name of the Custodian for account of the Fund and subject only to the Custodian's draft or order. Such accounts may be opened with Banking Institutions in the United States and in other countries and may be denominated in either U. S. Dollars or other currencies as the Fund may determine. All such deposits shall be deemed to be portfolio securities of the Fund and accordingly the responsibility of the Custodian therefore shall be the same as and neither lesser nor greater than the Custodian's responsibility in respect of other portfolio securities of the Fund. L. Interest Bearing Call or Time Deposits - To place interest bearing fixed term and call deposits with such banks and in such amounts as the Fund may authorize pursuant to proper instructions. Such deposits may be placed with the Custodian or with Subcustodians or other Banking Institutions as the Fund may determine. Deposits may be denominated in U. S. Dollars or other currencies and need not be evidenced by the issuance or delivery of a certificate to the Custodian, provided that the Custodian shall include in its records with respect to the assets of the Fund, appropriate notation as to the amount and currency of each such deposit, the accepting Banking Institution, and other appropriate details. Such deposits, other than those placed with the Custodian, shall be deemed portfolio securities of the Fund and the responsibilities of the Custodian therefor shall be the same as those for demand deposit bank accounts placed with other banks, as described in Section K of this agreement. The responsibility of the Custodian for such deposits accepted on the Custodian's books shall be that of a U. S. bank for a similar deposit. M. Foreign Exchange Transactions and Futures Contracts - Pursuant to proper instructions, to 5 6 enter into foreign exchange contracts or options to purchase and sell foreign currencies for spot and future delivery on behalf and for the account of the Fund. Such transactions may be undertaken by the Custodian with such Banking Institutions, including the Custodian and Subcustodian(s) as principals, as approved and authorized by the Fund. Foreign exchange contracts and options other than those executed with the Custodian, shall be deemed to be portfolio securities of the Fund and the responsibilities of the Custodian therefor shall be the same as those for demand deposit bank accounts placed with other banks as described in Section 2-K of this agreement. Upon receipt of proper instructions, to receive and retain confirmations evidencing the purchase or sale of a futures contract or an option on a futures contract by the Fund; to deposit and maintain in a segregated account, for the benefit of any futures commission merchant or to pay to such futures commission merchant, assets designated by the fund as initial, maintenance or variation "margin" deposits intended to secure the Fund's performance of its obligations under any futures contracts purchased or sold or any options on futures contracts written by the Fund, in accordance with the provisions of any agreement or agreements among any of the Fund, the Custodian and such futures commission merchant, designated to comply with the rules of the Commodity Futures Trading Commission and/or any contract market, or any similar organization or organizations, regarding such margin deposits; and to release and/or transfer assets in such margin accounts only in accordance with any such agreements or rules. N. Stock Loans - Upon receipt of proper instructions to deliver securities of the Fund, in connection with loans of securities by the Fund, to the borrower thereof upon the receipt of the cash collateral, if any, for such borrowing. In the event U.S. Government securities are to be used as collateral, the Custodian will not release the securities to be loaned until it has received confirmation that such collateral has been delivered to the Custodian. The Custodian and Fund understand that the timing of receipt of such confirmation will normally require that the delivery of securities to be loaned will be made one day after receipt of the U. S. Government collateral. O. Collections - To collect, receive and deposit in said account or accounts all income and other payments with respect to the securities held hereunder, and to execute ownership and other 6 7 certificates and affidavits for all federal and state tax purposes in connection with receipt of income or other payments with respect to securities of the Fund or in connection with transfer of securities, and pursuant to proper instructions to take such other actions with respect to collection or receipt of funds or transfer of securities which involve an investment decision. P. Dividends, Distributions and Redemptions - Upon receipt of proper instructions from the Fund, or upon receipt of instructions from the Fund's shareholder servicing agent or agent with comparable duties (the "Shareholder Servicing Agent") (given by such person or persons and in such manner on behalf of the Shareholder Servicing Agent as the Fund shall have authorized), the Custodian shall release funds or securities to the Shareholder Servicing Agent or otherwise apply funds or securities, insofar as available, for the payment of dividends or other distributions to Fund shareholders. Upon receipt of proper instructions from the Fund, or upon receipt of instructions from the Shareholder Servicing Agent (given by such person or persons and in such manner on behalf of the Shareholder Servicing Agent as the Fund shall have authorized), the Custodian shall release funds or securities, insofar as available, to the Shareholder Servicing Agent or as such Agent shall otherwise instruct for payment to Fund shareholders who have delivered to such Agent a request for repurchase or redemption of their shares of capital stock of the Fund. Q. Proxies, Notices, Etc. - Promptly to deliver or mail to the Fund all forms of proxies and all notices of meetings and any other notices or announcements affecting or relating to securities owned by the Fund that are received by the Custodian, and upon receipt of proper instructions, to execute and deliver or cause its nominee to execute and deliver such proxies or other authorizations as may be required. Neither the Custodian nor its nominee shall vote upon any of such securities or execute any proxy to vote thereon or give any consent or take any other action with respect thereto (except as otherwise herein provided) unless ordered to do so by proper instructions. R. Bills - Upon receipt of proper instructions from the Administrator, to pay or cause to be paid, insofar as funds are available for the purpose, bills, statements, or other obligations of the Fund. S. Deposit of Fund Assets in Securities Systems - The Custodian may deposit and/or 7 8 maintain securities owned by the Fund in (i) The Depository Trust Company, (ii) any book-entry system as provided in Subpart O of Treasury Circular No. 300, 31 CFR 306, Subpart B of 31 CFR Part 350, or the book-entry regulations of federal agencies substantially in the form of Subpart O. or (iii) any other domestic clearing agency registered with the Securities and Exchange Commission under Section 17A of the Securities Exchange Act of 1934 which acts as a securities depository and whose use the Fund has previously approved in writing (each of the foregoing being referred to in this Agreement as a "Securities System"). Utilization of a Securities System shall be in accordance with applicable Federal Reserve Board and Securities and Exchange Commission rules and regulations, if any, and subject to the following provisions: 1) The Custodian may deposit and/or maintain Fund securities, either directly or through one or more Agents appointed by the Custodian (provided that any such agent shall be qualified to act as a custodian of the Fund pursuant to the Investment Company Act of 1940 and the rules and regulations thereunder), in a Securities System provided that such securities are represented in an account ("Account") of the Custodian or such Agent in the Securities System which shall not include any assets of the Custodian or Agent other than assets held as a fiduciary, custodian, or otherwise for customers; 2) The records of the Custodian with respect to securities of the Fund which are maintained in a Securities System shall identify by book-entry those securities belonging to the Fund; 3) The Custodian shall pay for securities purchased for the account of the Fund upon (i) receipt of advice from the Securities System that such securities have been transferred to the Account, and (ii) the making of an entry on the records of the Custodian to reflect such payment and transfer for the account of the Fund. The Custodian shall Transfer securities sold for the account of the Fund upon (i) receipt of advice from the Securities System that payment for such securities has been transferred to the Account, and (ii) the making of an entry on the records of the Custodian to reflect such transfer and payment for the account of the Fund. Copies of all advices from the Securities System of transfers of securities for the account of the Fund shall identify the Fund, be maintained for the Fund by the Custodian or an Agent as referred to above, and be provided to the 8 9 Fund at its request. The Custodian shall furnish the Fund confirmation of each transfer to or from the account of the Fund in the form of a written advice or notice and shall furnish to the Fund copies of daily transaction sheets reflecting each day's transactions in the Securities System for the account of the Fund on the next business day; 4) The Custodian shall provide the Fund with any report obtained by the Custodian or any Agent as referred to above on the Securities System's accounting system, internal accounting control and procedures for safeguarding securities deposited in the Securities System; and the Custodian and such Agents shall send to the Fund such reports on their own systems of internal accounting control as the Fund may reasonably request from time to time. 5) At the written request of the Fund, the Custodian will terminate the use of any such Securities System on behalf of the Fund as promptly as practicable. T. Other Transfers - Upon receipt of Proper Instructions, to deliver securities, funds and other property of the Fund to a Subcustodian or another custodian of the Fund; and, upon receipt of proper instructions, to make such other disposition of securities, funds or other property of the Fund in a manner other than or for purposes other than as enumerated elsewhere in this Agreement, provided that the instructions relating to such disposition shall include a statement of the purpose for which the delivery is to be made, the amount of securities to be delivered and the name of the person or persons to whom delivery is to be made. U. Investment Limitations - In performing its duties generally, and more particularly in connection with the purchase, sale and exchange of securities made by or for the Fund, the Custodian may assume unless and until notified in writing to the contrary that proper instructions received by it are not in conflict with or in any way contrary to any provisions of the Fund's Certificate of Incorporation or By-Laws (or comparable documents) or votes or proceedings of the shareholders or Directors of the Fund. The Custodian shall in no event be liable to the Fund and shall be indemnified by the Fund for any violation which occurs in the course of carrying out instructions given by the Fund of any investment limitations to which the Fund is subject or other limitations with respect to the Fund's powers to make expenditures, encumber securities, borrow or 9 10 take similar actions affecting its portfolio. V. Proper Instructions - Proper instructions shall mean a tested telex from the Fund or a written request, direction, instruction or certification signed or initialed on behalf of the Fund by two or more persons as the Board of Directors of the Fund shall have from time to time authorized, provided, however, that no such instructions directing the delivery of securities or the payment of funds to an authorized signatory of the Fund shall be signed by such person. Those persons authorized to give proper instructions may be identified by the Board of Directors by name, title or position and will include at least one officer empowered by the Board to name other individuals who are authorized to give proper instructions on behalf of the Fund. Telephonic or other oral instructions given by any one of the above persons will be considered proper instructions if the Custodian reasonably believes them to have been given by a person authorized to give such instructions with respect to the transaction involved. Oral instructions will be confirmed by tested telex or in writing in the manner set forth above but the lack of such confirmation shall in no way affect any action taken by the Custodian in reliance upon such oral instructions. The Fund authorizes the Custodian to tape record any and all telephonic or other oral instructions given to the Custodian by or on behalf of the Fund (including any of its officers, Directors, employees or agents) and will deliver to the Custodian a similar authorization from any investment manager or adviser or person or entity with similar responsibilities which is authorized to give proper instructions on behalf of the Fund to the Custodian. Proper instructions may relate to specific transactions or to types or classes of transactions, and may be in the form of standing instructions. Proper instructions may include communications effected directly between electro-mechanical or electronic devices or systems, in addition to tested telex, provided that the Fund and the Custodian agree to the use of such device or system. 3. Securities, funds and other property of the Fund may be held by subcustodians appointed pursuant to the provisions of this Section 3 (a "Subcustodian"). The Custodian may, at any time and from time to time, appoint any bank or trust company (meeting the requirements of a custodian 10 11 or a foreign custodian under the Investment Company Act of 1940 and the rules and regulations thereunder) to act as a Subcustodian for the Fund, provided that the Fund shall have approved in writing (1) any such bank or trust company and the subcustodian agreement to be entered into between such bank or trust company and the Custodian, and (2) if the subcustodian is a bank organized under the laws of a country other than the United States, the holding of securities, cash and other property of the Fund in the country in which it is proposed to utilize the services of such subcustodian. Upon such approval by the Fund, the Custodian is authorized on behalf of the Fund to notify each Subcustodian of its appointment as such. The Custodian may, at any time in its discretion, remove any bank or trust company that has been appointed as a Subcustodian but will promptly notify the Fund of any such action. Those Subcustodians, their offices or branches which the Fund has approved to date are set forth on Appendix A hereto. Such Appendix shall be amended from time to time as Subcustodians, branches or offices are changed, added or deleted. The Fund shall be responsible for informing the Custodian sufficiently in advance of a proposed investment which is to be held at a location not listed on Appendix A, in order that there shall be sufficient time for the Fund to give the approval required by the preceding paragraph and for the Custodian to put the appropriate arrangements in place with such Subcustodian pursuant to such subcustodian agreement. Although the Fund does not intend to invest in a country before the foregoing procedures have been completed, in the event that an investment is made prior to approval, if practical, such security shall be removed to an approved location or if not practical such security shall be held by such agent as the Custodian may appoint. In such event, the Custodian shall be liable to the Fund for the actions of such agent if and only to the extent the Custodian shall have recovered from such agent for any damages caused the Fund by such agent and provided that the Custodian shall pursue its rights against such agent. In the event that any Subcustodian appointed pursuant to the provisions of this Section 3 fails to perform any of its obligations under the terms and conditions of the applicable subcustodian 11 12 agreement, the Custodian shall use its best efforts to cause such Subcustodian to perform such obligations. In the event that the Custodian is unable to cause such Subcustodian to perform fully its obligations thereunder, the Custodian shall forthwith upon the Fund's request terminate such Subcustodian and, if necessary or desirable, appoint another subcustodian in accordance with the provisions of this Section 3. At the election of the Fund, it shall have the right to enforce, to the extent permitted by the subcustodian agreement and applicable law, the Custodian's rights against any such Subcustodian for loss or damage caused the Fund by such Subcustodian. At the written request of the Fund, the Custodian will terminate any subcustodian Appointed pursuant to the provisions of this Section 3 in accordance with the termination provisions under the applicable subcustodian agreement. The Custodian will not amend any subcustodian agreement or agree to change or permit any changes thereunder except upon the prior written approval of the Fund. In the event the Custodian receives a claim from a Subcustodian under the indemnification provisions of any subcustodian agreement, the Custodian shall promptly give written notice to the Fund of such claim. No more than thirty days after written notice to the Fund of the Custodian's intention to make such payment, the Fund will reimburse the Custodian the amount of such payment except in respect of any negligence or misconduct of the Custodian. 4. The Custodian may assist generally in the preparation of reports to Fund shareholders and others, audits of accounts, and other ministerial matters of like nature. 5. A. The Custodian shall not be liable for any action taken or omitted in reliance upon proper instructions believed by it to be genuine or upon any other written notice, request, direction, instruction, certificate or other instrument believed by it to be genuine and signed by the proper party or parties. The Chairman of the Board of the Fund shall certify to the Custodian the names, signatures and scope of authority of all persons authorized to give proper instructions or any other such notice, request, direction, instruction, certificate or instrument on behalf of the Fund, the names and signatures of the officers of the Fund, the name and address of the Shareholder Servicing Agent, 12 13 and any resolutions, votes, instructions or directions of the Fund's Board of Directors or shareholders. Such certificate may be accepted and relied upon by the Custodian as conclusive evidence of the facts set forth therein and may be considered in full force and effect until receipt of a similar certificate to the contrary. So long as and to the extent that it is in the exercise of reasonable care, the Custodian shall not be responsible for the title, validity or genuineness of any property or evidence of title thereto received by it or delivered by it pursuant to this Agreement. The Custodian shall be entitled, at the expense of the Fund, (but only to the extent such expenses are reasonable) to receive and act upon advice of counsel (who may be counsel for the Fund) on all matters, and the Custodian shall be without liability for any action reasonably taken or omitted pursuant to such advice. B. With respect to the portfolio securities, cash and other property of the Fund held by a Securities System, the Custodian shall be liable to the Fund only for any loss or damage to the Fund resulting from use of the Securities System if caused by any negligence, misfeasance or misconduct of the Custodian or any of its agents or of any of its or their employees or from any failure of the Custodian or any such agent to enforce effectively such rights as it may have against the Securities System. C. The Custodian shall be liable to the Fund for any loss or damage to the Fund caused by or resulting from the acts or omissions of any Subcustodian if such acts or omissions would be deemed to be negligence, gross negligence or willful misconduct hereunder if such acts or omissions were those of the Custodian taken or omitted by the Custodian in the country in which the Subcustodian is operating. The Custodian shall also be liable to the Fund for its own negligence in transmitting any instructions received by it from the Fund and for its own negligence in connection with the delivery of any securities or funds held by it to any Subcustodian. D. Except as may otherwise be set forth in this Agreement with respect to particular matters, the Custodian shall be held only to the exercise of reasonable care and diligence in carrying out the provisions of this Agreement, provided that the Custodian shall not thereby be required to 13 14 take any action which is in contravention of any applicable law. However, nothing herein shall exempt the Custodian from liability due to its own negligence or willful misconduct. The Fund agrees to indemnify and hold harmless the Custodian and its nominees from all claims and liabilities (including reasonable counsel fees) incurred or assessed against it or its nominees in connection with the performance of this Agreement, except such as may arise from its or its nominee's breach of the relevant standard of conduct set forth in this Agreement. Without limiting the foregoing indemnification obligation of the Fund, the Fund agrees to indemnify the Custodian and its nominees against any liability the Custodian or such nominee may incur by reason of taxes assessed to the Custodian or such nominee or other costs, liability or expense incurred by the Custodian or such nominee resulting directly or indirectly from the fact that portfolio securities or other property of the Fund is registered in the name of the Custodian or such nominee. In order that the indemnification provisions contained in this Paragraph 5-C shall apply, however, it is understood that if in any case the Fund may be asked to indemnify or hold the Custodian harmless, the Fund shall be fully and promptly advised of all pertinent facts concerning the situation in question, and it is further understood that the Custodian will use all reasonable care to identify and notify the Fund promptly concerning any situation which presents or appears likely to present the probability of such a claim for indemnification against the Fund. The Fund shall have the option to defend the Custodian against any claim which may be the subject of this indemnification, and in the event that the Fund so elects it will so notify the Custodian, and thereupon the Fund shall take over complete defense of the claim, and the Custodian shall in such situation initiate no further legal or other expenses for which it shall seek indemnification under this Paragraph 5-C. The Custodian shall in no case confess any claim or make any compromise in any case in which the Fund will be asked to indemnify the Custodian except with the Fund's prior written consent. It is also understood that the Custodian shall not be liable for any loss involving any securities, currencies, deposits or other property of the Fund, whether maintained by it, a 14 15 Subcustodian, an agent of the Custodian or a Subcustodian, a Securities System, or a Banking Institution, or a loss arising from a foreign currency transaction or contract, resulting from a Sovereign Risk. A "Sovereign Risk" shall mean nationalization, expropriation, devaluation, revaluation, confiscation, seizure, cancellation, destruction or similar action by any governmental authority, de facto or de jure; or enactment, promulgation, imposition or enforcement by any such governmental authority of currency restrictions, exchange controls, taxes, levies or other charges affecting the Fund's property; or acts of war, terrorism, insurrection or revolution; or any other similar act or event beyond the Custodian's control. E. The Custodian shall be entitled to receive reimbursement from the Fund on demand, in the manner provided in Section 6, for its cash disbursements, expenses and charges (including the fees and expenses of any Subcustodian or any Agent) in connection with this Agreement, but excluding salaries and usual overhead expenses. F. The Custodian may at any time or times in its discretion appoint (and may at any time remove) any other bank or trust company as its agent (an "Agent") to carry out such of the provisions of this Agreement as the Custodian may from time to time direct, provided, however, that the appointment of such Agent (other than an Agent appointed pursuant to the third paragraph of Section 3) shall not relieve the Custodian of any of its responsibilities under this agreement. G. Upon request, the Fund shall deliver to the Custodian such proxies, powers of attorney or other instruments as may be reasonable and necessary or desirable in connection with the performance by the Custodian or any Subcustodian of their respective obligations under this Agreement or any applicable subcustodian agreement. 6. The Fund shall pay the Custodian a custody fee based on such fee schedule as may from time to time be agreed upon in writing by the Custodian and the Fund. Such fee, together with all amounts for which the Custodian is to be reimbursed in accordance with Section 5D, shall be billed to the Fund in such a manner as to permit payment by a direct cash payment to the Custodian. 7. This Agreement shall continue in full force and effect until terminated by either party by an instrument in writing delivered or mailed, postage prepaid, to the other party, such termination to 15 16 take effect not sooner than seventy five (75) days after the date of such delivery or mailing. In the event of termination the Custodian shall be entitled to receive prior to delivery of the securities, funds and other property held by it all accrued fees and unreimbursed expenses the payment of which is contemplated by Sections 5D and 6, upon receipt by the Fund of a statement setting forth such fees and expenses. In the event of the appointment of a successor custodian, it is agreed that the funds and securities owned by the Fund and held by the Custodian or any Subcustodian shall be delivered to the successor custodian, and the Custodian agrees to cooperate with the Fund in execution of documents and performance of other actions necessary or desirable in order to substitute the successor custodian for the Custodian under this Agreement. 8. This Agreement constitutes the entire understanding and agreement of the parties hereto with respect to the subject matter hereof. No provision of this Agreement may be amended or terminated except by a statement in writing signed by the party against which enforcement of the amendment or termination is sought. In connection with the operation of this Agreement, the Custodian and the Fund may agree in writing from time to time on such provisions interpretative of or in addition to the provisions of this Agreement as may in their joint opinion be consistent with the general tenor of this Agreement. No interpretative or additional provisions made as provided in the preceding sentence shall be deemed to be an amendment of this Agreement. 9. This instrument is executed and delivered in The Commonwealth of Massachusetts and shall be governed by and construed according to the laws of said Commonwealth. 10. Notices and other writings delivered or mailed postage prepaid to the Fund addressed to the Fund in care of Merrill Lynch Asset Management, Inc., 800 Scudders Mill Road, Plainsboro, New Jersey 08536, Mailing address: Post Office Box 9011, Princeton, New Jersey 08543, Attention: Mr. Gerald M. Richard, Senior Vice President/Treasurer, or to such other address as the Fund may have designated to the Custodian in writing, or to the Custodian at 40 Water Street, Boston, Massachusetts 02109, Attention: Manager, Securities Department, or to such other address 16 17 as the Custodian may have designated to the Fund in writing, shall be deemed to have been properly delivered or given hereunder to the respective addressee. 11. This Agreement shall be binding on and shall inure to the benefit of the Fund and the Custodian and their respective successors and assigns, provided that neither party hereto may assign this Agreement or any of its rights or obligations hereunder without the prior written consent of the other party. 12. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original. This Agreement shall become effective when one or more counterparts have been signed and delivered by each of the parties. IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed in its name and behalf on the day and year first above written. BROWN BROTHERS HARRIMAN & CO. By:____________________________________ MERCURY ASSET MANAGEMENT FUNDS, INC. By:____________________________________ 17 EX-99.8.A 12 ADMINISTRATION AGREEMENT 1 Exhibit 8(a) ADMINISTRATION AGREEMENT AGREEMENT made as of _______________, 1998, by and between MERCURY ASSET MANAGEMENT FUNDS, INC., a Maryland corporation (hereinafter referred to as the "Corporation") on behalf of its series, MERCURY GOLD AND MINING FUND (hereinafter referred to as the "Fund"), and FUND ASSET MANAGEMENT, L.P., a Delaware limited partnership, (hereinafter referred to as the "Administrator"). W I T N E S S E T H: WHEREAS, the Corporation is engaged in business as an open-end management investment company registered under the Investment Company Act of 1940, as amended (hereinafter referred to as the "Investment Company Act"); and WHEREAS, the Board of Directors of the Corporation (the "Directors") are authorized to establish separate series relating to separate portfolios of securities, each of which may offer separate classes of shares; and WHEREAS, the Directors have established and designated the Fund as a series of the Corporation; and WHEREAS, the Corporation desires to retain the Administrator to provide management and administrative services to the Fund in the manner and on the terms hereinafter set forth; and WHEREAS, the Administrator is willing to provide management and administrative services to the Fund on the terms and conditions hereafter set forth; 2 NOW, THEREFORE, in consideration of the premises and the covenants hereinafter contained, the Corporation and the Administrator hereby agree as follows: ARTICLE I DUTIES OF THE ADMINISTRATOR The Corporation hereby employs the Administrator to act as a manager and administrator of the Fund, and to furnish, or arrange for affiliates to furnish, the management and administrative services described below, subject to review by and the overall control of the Directors, for the period and on the terms and conditions set forth in this Agreement. The Administrator hereby accepts such employment and agrees during such period, at its own expense, to render, or arrange for the rendering of, such services and to assume the obligations herein set forth for the compensation provided for herein. The Administrator and its affiliates shall for all purposes herein be deemed to be independent contractors and shall, unless otherwise expressly provided or authorized, have no authority to act for or represent the Corporation or the Fund in any way or otherwise be deemed agents of the Corporation or the Fund. Management Services. The Administrator shall perform (or arrange for the performance by affiliates of) the management and administrative services necessary for the operation of the Corporation and the Fund including administering shareholder accounts and handling shareholder relations. The Administrator shall provide the Corporation and the Fund with office space, facilities, equipment and necessary personnel and such other services as the Administrator, subject to review by the Directors, shall from time to time determine to be necessary or useful to perform its obligations under this Agreement. The Administrator shall also, on behalf of the Corporation and the Fund, conduct relations with custodians, depositories, transfer agents, dividend 2 3 disbursing agents, other shareholder servicing agents, accountants, attorneys, underwriters, brokers and dealers, corporate fiduciaries, insurers, banks and such other persons in any such other capacity deemed to be necessary or desirable. The Administrator shall make reports to the Directors of its performance of obligations hereunder and furnish advice and recommendations with respect to such other aspects of the business and affairs of the Fund as it shall determine to be desirable. ARTICLE II ALLOCATION OF CHARGES AND EXPENSES (a) The Administrator. The Administrator assumes and shall pay, or cause its affiliate to pay, for maintaining the staff and personnel necessary to perform its obligations under this Agreement, and shall, at its own expense, provide the office space, facilities and necessary personnel which it is obligated to provided under Article I hereof. The Administrator shall pay, or cause its affiliate to pay, compensation of all Officers of the Corporation and all Directors of the Corporation who are affiliated persons of the Administrator or of an affiliate of the Administrator. (b) The Corporation. The Corporation assumes and shall pay or cause to be paid all other expenses of the Corporation and the Fund (except for the expenses paid by the Mercury Funds Distributor division of Princeton Funds Distributor, Inc. (the "Distributor")), including, without limitation: taxes, expenses for legal and auditing services, costs of printing proxies, shareholder reports, prospectuses and statements of additional information, charges of the custodian, any sub-custodian and transfer agent, expenses of portfolio transactions, expenses of redemption of shares, Securities and Exchange Commission fees, expenses of registering the shares under Federal, state and foreign laws, fees and actual out-of-pocket expenses of Directors who are not affiliated persons of the Administrator, or of an affiliate of the Administrator, accounting and pricing costs (including 3 4 the daily calculation of the net asset value), insurance, interest, brokerage costs, litigation and other extraordinary or non-recurring expenses, and other expenses properly payable by the Corporation or the Fund. It is also understood that the Corporation shall reimburse the Administrator for its costs in providing accounting services to the Corporation and the Fund. The Distributor will pay certain of the expenses of the Fund incurred in connection with the continuous offering of shares of common stock in the Fund. ARTICLE III COMPENSATION OF THE ADMINISTRATOR Administrative Fees. For the services rendered, the facilities furnished and expenses assumed by the Administrator, the Fund shall pay to the Administrator at the end of each calendar month a fee based upon the average daily value of the net assets of the Fund, as determined and computed in accordance with the description of the determination of net asset value contained in the prospectus and statement of additional information, at the annual rate of 0.25% of the average daily net assets of the Fund, commencing on the day following effectiveness hereof. If this Agreement becomes effective subsequent to the first day of a month or shall terminate before the last day of a month, compensation for that part of the month this Agreement is in effect shall be prorated in a manner consistent with the calculation of the fee as set forth above. Payment of the Administrator's compensation for the preceding month shall be made as promptly as possible after completion of the computations contemplated above. During any period when the determination of net asset value is suspended by the Directors, the net asset value of a share as of the last business day prior to such suspension shall for this purpose be deemed to be the net asset value at the close of each succeeding business day until it is again determined. 4 5 ARTICLE IV LIMITATION OF LIABILITY OF THE ADMINISTRATOR The Administrator shall not be liable for any error of judgment or mistake of law or for any loss arising out of any act or omission in the management and administration of the Corporation and the Fund, except for willful misfeasance, bad faith or gross negligence in the performance of its duties, or by reason of reckless disregard of its obligations and duties hereunder. As used in this Article IV, the term "Administrator" shall include any affiliates of the Administrator performing services for the Corporation or the Fund contemplated hereby and partners, shareholders, directors, officers and employees of the Administrator and such affiliates. ARTICLE V ACTIVITIES OF THE ADMINISTRATOR The services of the Administrator to the Corporation and the Fund are not to be deemed to be exclusive, and the Administrator and each affiliate is free to render services to others. It is understood that Directors, officers, employees and shareholders of the Corporation and the Fund are or may become interested in the Administrator and its affiliates, as directors, officers, employees, partners and shareholders or otherwise, and that the Administrator and directors, officers, employees, partners and shareholders of the Administrator and its affiliates are or may become similarly interested in the Corporation or the Fund as shareholders or otherwise. ARTICLE VI DURATION AND TERMINATION OF THIS AGREEMENT This Agreement shall become effective as of the date first above written and shall remain in force for two years thereafter and thereafter continue from year to year, but only so long as such continuance is specifically approved at least annually by (i) the Directors, and (ii) a majority of those 5 6 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 the vote of a majority of the outstanding voting securities of the Corporation, or by the Administrator, on sixty days' written notice to the other party. This Agreement shall automatically terminate in the event of its assignment. ARTICLE VII AMENDMENTS OF THIS AGREEMENT This Agreement may be amended by the parties only if such amendment is specifically approved by 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. ARTICLE VIII DEFINITIONS OF CERTAIN TERMS The terms "vote of majority of the outstanding voting securities," "assignment," "affiliated person" and "interested person," when used in this Agreement, shall have the respective meanings specified in the Investment Company Act and the Rules and Regulations thereunder, subject, however, to such exemptions as may be granted by the Securities and Exchange Commission under said Act. ARTICLE IX GOVERNING LAW This Agreement shall be construed in accordance with laws of the State of New York and the applicable provisions of the Investment Company Act. To the extent that the applicable laws of 6 7 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. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date first above written. MERCURY ASSET MANAGEMENT FUNDS, INC. on behalf of its series, MERCURY GOLD AND MINING FUND By:_________________________________ Title: FUND ASSET MANAGEMENT, L.P. By: PRINCETON SERVICES, INC., GENERAL PARTNER By:_________________________________ Title: 7 EX-99.8.B 13 TRANSFER AGENCY AGREEMENT 1 Exhibit 8(b) TRANSFER AGENCY, DIVIDEND DISBURSING AGENCY AND SHAREHOLDER SERVICING AGENCY AGREEMENT THIS AGREEMENT, made as of ______ by and between MERCURY ASSET MANAGEMENT FUNDS, INC., a Maryland corporation (the "Corporation"), on behalf of itself and each of its series listed on Exhibit A (each, a "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 Funds 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 Funds upon, and subject to, the terms and provisions of this Agreement. -1- 2 (b) FDS hereby accepts the appointment as Transfer Agent, Dividend Disbursing Agent and Shareholder Servicing Agent for the Funds, 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, or, if the shares are held in an account in the name of a Broker-Dealer, as defined below, for benefit of an identified customer, 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 plan (by whatever name referred to in the Prospectus) in conjunction with Section 401 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; (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 Funds 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 Funds to FDS, and signed on behalf of the Funds by the President, any Vice President, the Secretary or the Treasurer of the Corporation; -2- 3 (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 relevant 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 Funds; (I) Issuing, transferring and redeeming Shares; (II) Opening, maintaining, servicing and closing Accounts; (III) Acting as agent for the Funds' 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 Funds and/or a Broker-Dealer, maintaining such records as may permit the imposition of such contingent deferred sales charges as may be -3- 4 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 account of that Broker-Dealer. Sales charges imposed upon any other Shares shall be paid by FDS to MFD; (VI) Exchanging the investment of an investor 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 investor. (VII) Processing redemptions; (VIII) Examining and approving legal transfers; (IX) Replacing lost, stolen or destroyed certificates representing Shares, in accordance with, and subject to, procedures and conditions adopted by the Funds; (X) Furnishing such confirmations of transactions relating to their Shares as required by applicable law; (XI) Acting as agent for the Corporation and/or a Broker-Dealer, furnishing 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; -4- 5 (XII) Acting as agent for the Corporation and/or a Broker-Dealer, mailing annual, semi-annual and quarterly reports prepared by or on behalf of the Funds, and mailing new Prospectuses upon their issue to Shareholders as required by applicable law; (XIII) Furnishing such periodic statements of transactions effected by FDS, reconciliations, balances and summaries as the Funds may reasonably request; (XIV) 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; (XV) 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 (XVI) Reinvesting dividends for full and fractional Shares and disbursing cash dividends, as applicable. (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 -5- 6 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 Funds 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 Funds to reconcile the number of outstanding Shares between FDS's 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 contained in an Officer's Instruction. 4. COMPENSATION. The charges for services described in this Agreement, including "out-of-pocket" expenses, will be set forth in the Schedule of Fees attached hereto. -6- 7 5. RIGHT OF INSPECTION. 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. 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. 7. INDEMNIFICATION. 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 -7- 8 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 may be reasonably determined by the Corporation to be 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. -8- 9 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. (b) Upon termination of this Agreement, FDS shall deliver all unissued and canceled stock certificates, if any, representing Shares remaining in its possession, and 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. -9- 10 10. AMENDMENT. 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. This Agreement shall be governed by the laws of the State of New York. 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 ASSET MANAGEMENT FUNDS, INC. By:_________________________________ Title: FINANCIAL DATA SERVICES, INC. By:_________________________________ Title: -10- 11 MERCURY FUND PRICING SCHEDULE
DISTRIBUTION CHANNEL CDSC CDSC CLOSED CLASS I & A CLASS B & C ACCOUNT MLPF&S $11.00 $14.00 $0.20 per month FDS $20.00 $23.00 $0.20 per month MFA ERISA 0.10% 0.10% N/A Defined Contribution Administrators - GES (plus $1 per ticket) $11.00 $14.00 N/A
Note 1: Excludes out of pocket costs which are also charged to the funds. Note 2: All charges are annual position basis. -11- 12 Exhibit A Individual Series of MERCURY ASSET MANAGEMENT FUNDS, INC. MERCURY CORE U.S. GROWTH FUND MERCURY EMERGING ECONOMIES FUND MERCURY GOLD AND MINING FUND MERCURY JAPAN CAPITAL FUND MERCURY INTERNATIONAL FUND MERCURY PAN-EUROPEAN GROWTH FUND -12- EX-99.8.C 14 LICENSE AGREEMENT 1 Exhibit 8(c) LICENSE AGREEMENT RELATING TO USE OF NAME AGREEMENT made as of 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 FUNDS DISTRIBUTOR (the "division") a division of PRINCETON FUNDS DISTRIBUTOR, INC., a Delaware corporation ("MFD"). 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 names at all times thereafter; WHEREAS, Princeton Funds Distributor, Inc. was originally incorporated under the laws of the State of Delaware on February 28, 1969 and changed its name to Princeton Funds Distributor, Inc. on July 21, 1998; and 2 WHEREAS, MFD has requested Mercury to give its consent to the use of the word "Mercury" or the words "Mercury Asset Management" in the name of the division; NOW, THEREFORE, in consideration of the premises and of the covenants hereinafter contained, Mercury and MFD hereby agree as follows: 1. Mercury hereby grants MFD a non-exclusive license to use the word "Mercury" or the words "Mercury Asset Management" in the name of the division; 2. 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 names of the division; and, as soon as practicable after receipt by MFD of written notice of the withdrawal of such non-exclusive license, and in no event later than ninety days thereafter, MFD will change the name of the division so that such name will not thereafter include the word "Mercury," the words "Mercury Asset Management" or any variation thereof. 3. 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 MFD shall be necessary; but, if required by an applicable law of any state, MFD will forthwith grant all requisite consents. 4. MFD will not grant to any other company the right to use a name similar to that of MFD or the Funds or Mercury without the written consent of Mercury. 5. Regardless of whether MFD should hereafter change the name of the division and eliminate the word "Mercury," the words "Mercury Asset Management" or any variation thereof from such name, MFD hereby grants to Mercury the right to cause the incorporation of other 2 3 corporations or the organization of voluntary associations which may have names similar to that of MFD or to that to which MFD 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 each 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 MFD agrees to give and execute such formal consents or agreements as may be necessary in connection therewith. 6. 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. 3 4 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:_____________________________________ Title: MERCURY ASSET MANAGEMENT GROUP LTD. By:_____________________________________ Title: MERCURY FUNDS DISTRIBUTOR, a division of PRINCETON FUNDS DISTRIBUTOR, INC. By:_____________________________________ Title: 4 EX-99.8.D 15 LICENSE AGREEMENT 1 Exhibit 8(d) LICENSE AGREEMENT RELATING TO USE OF NAME AGREEMENT made as of ___________________ 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 ASSET MANAGEMENT FUNDS, INC., a Maryland corporation (the "Corporation"), on its own behalf and on behalf of its currently existing series, and on behalf of each series of the Corporation that may be formed in the future (the "Funds"). 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 names at all times thereafter; WHEREAS, the Corporation was incorporated under the laws of the State of Maryland on April 24, 1998; and 2 WHEREAS, the Corporation 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 and in the name of each Fund; NOW, THEREFORE, in consideration of the premises and of the covenants hereinafter contained, Mercury and the Corporation hereby agree as follows: 1. Mercury hereby grants the Corporation a non-exclusive license to use the word "Mercury" or the words "Mercury Asset Management" in its corporate name and in the name of the Funds. 2. Mercury hereby consents to the qualification of the Corporation 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 in the name of the Funds and agrees to execute such formal consents as may be necessary in connection with such filing. 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 names of the Corporation and of the Funds; and, as soon as practicable after receipt by the Corporation of written notice of the withdrawal of such non-exclusive license, and in no event later than ninety days thereafter, the Corporation will change its name and the name of the Funds so that such names 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 2 3 Corporation shall be necessary; but, if required by an applicable law of any state, the Corporation will forthwith grant all requisite consents. 5. The Corporation will not grant to any other company the right to use a name similar to that of the Corporation or the Funds or Mercury without the written consent of Mercury. 6. Regardless of whether the Corporation and/or the Funds should hereafter change their names and eliminate the word "Mercury," the words "Mercury Asset Management" or any variation thereof from such names, the Corporation 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 Corporation and/or the Funds or to that to which the Corporation and/or the Funds may change their names 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 each 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 Corporation 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. 3 4 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:___________________________________ Title: MERCURY ASSET MANAGEMENT GROUP LTD. By:___________________________________ Title: MERCURY ASSET MANAGEMENT FUNDS, INC. By:___________________________________ Title: 4 EX-99.9 16 OPINION AND CONSENT OF SWIDLER BERLIN SHEREFF 1 Exhibit 9 SWIDLER BERLIN SHEREFF FRIEDMAN, LLP 919 THIRD AVENUE NEW YORK, NY 10022-9998 October 20, 1998 VIA FACSIMILE AND FIRST CLASS MAIL Mercury Asset Management Funds, Inc. P.O. Box 9011 Princeton, New Jersey 08543-9011 Ladies and Gentlemen: Mercury Asset Management Funds, Inc. (the "Corporation"), is authorized to issue and sell 2,800,000,000 shares of common stock (the "Shares"), par value $0.0001 per share, of which 400,000,000 Shares are designated as Shares of the Mercury Gold and Mining Fund series ("the Fund"), in the manner and on the terms set forth in the Fund's Registration Statement on Form N-1A filed with the Securities and Exchange Commission (File No. 811-08797) (the "Registration Statement"). We have, as counsel, participated in various proceedings relating to the Corporation and to the Shares. We have examined copies, either certified or otherwise proved to our satisfaction to be genuine, of its Articles of Incorporation, as amended to date, and By-Laws, as currently in effect, and other documents relating to its organization and operation. In addition, we have received a certificate dated October 19, 1998 of the Maryland State Department of Assessments and Taxation that the Corporation is in good standing under the laws of the State of Maryland. We have also reviewed the Registration Statement filed as of the date of this opinion and the documents filed as exhibits thereto. We are generally familiar with the business affairs of the Corporation. Based upon the foregoing, it is our opinion that: 1. The Corporation has been duly incorporated and is validly existing under the laws of the State of Maryland. 2. The Corporation is authorized to issue up to two billion, eight hundred million (2,800,000,000) Shares, of which 400,000,000 Shares are 2 Mercury Asset Management Funds, Inc. October 20, 1998 Page 2 designated as Shares of the Fund. Under Maryland law, (a) the number of Shares may be increased or decreased by action of the Board of Directors, and (b) Shares which are issued and subsequently redeemed by the Corporation are, by virtue of such redemption, restored to the status of authorized and unissued Shares. 3. Subject to the effectiveness of the Registration Statement and in compliance with applicable state securities laws, upon the issuance of the Shares for a consideration not less than the par value thereof as required by Maryland law, and for the net asset value thereof as required by the Investment Company Act of 1940, as amended, and in accordance with the terms of the Registration Statement, such Shares will be legally issued and outstanding and fully paid and non-assessable. We hereby consent to the filing of this opinion with the Securities and Exchange Commission as a part of the Registration Statement and with any state securities commission where such filing is required. We also consent to the reference to our firm as counsel in the prospectus and statement of additional information filed as a part thereof. In giving this consent we do not admit that we come within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended. We are members of the Bar of the State of New York and do not hold ourselves out as being conversant with the laws of any jurisdiction other than those of the United States of America and the State of New York. We note that we are not licensed to practice law in the State of Maryland, and to the extent that any opinion expressed herein involves the law of Maryland, such opinion should be understood to be based solely upon our review of the published statutes of that State and, where applicable, published cases, rules or regulations of regulatory bodies of that State. Very truly yours, /s/ Swidler Berlin Shereff Friedman, LLP Swidler Berlin Shereff Friedman, LLP SBSF:JHG:MKN:JLS:JHY EX-99.13.A 17 CLASS A DISTRIBUTION PLAN 1 Exhibit 13(a) CLASS A DISTRIBUTION PLAN OF MERCURY GOLD AND MINING FUND OF MERCURY ASSET MANAGEMENT FUNDS, INC. PURSUANT TO RULE 12b-1 DISTRIBUTION PLAN made as of the ___ day of ___________, 1998, by and between Mercury Asset Management Funds, Inc., a Maryland corporation (the "Corporation"), on behalf of its series, Mercury Gold and Mining Fund (the "Fund"), and Mercury Funds Distributor, a division of Princeton Funds Distributor, Inc., a Delaware corporation (the "Distributor"). W I T N E S S E T H: WHEREAS, the Corporation 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, the Directors of the Corporation (the "Directors") are authorized to establish separate series relating to separate portfolios of securities, each of which may offer separate classes of shares, and WHEREAS, the Directors have established the Fund as a series of the Corporation; 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 Corporation on behalf of the Fund proposes to enter into a Class A Shares Distribution Agreement with the Distributor, pursuant to which the Distributor 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 $0.0001 per share (the "Class A Shares"), of the Fund to the public; and WHEREAS, the Corporation on behalf of the Fund desires to adopt this Class A Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Investment Company Act pursuant to which the Fund will pay an account maintenance fee to the Distributor with respect to the Fund's Class A Shares; and WHEREAS, the Directors of the Corporation have determined that there is a reasonable likelihood that adoption of the Plan will benefit the Fund and its Class A shareholders. 2 NOW, THEREFORE, the Corporation on behalf of the Fund hereby adopts, and the Distributor hereby agrees to the terms of, the Plan in accordance with Rule 12b-1 under the Investment Company Act on the following terms and conditions: 1. The Corporation shall pay the Distributor with respect to the Class A Shares 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 the Class A Shares to compensate the Distributor and securities firms with which the Distributor enters into related agreements pursuant to Paragraph 2 hereof ("Sub-Agreements") for providing account maintenance activities with respect to Class A shareholders of the Fund. Expenditures under the Plan may consist of payments to financial consultants for maintaining accounts in connection with Class A Shares and payment of expenses incurred in connection with such account maintenance activities including the costs of making services available to shareholders including assistance in connection with inquiries related to shareholder accounts. 2. The Corporation hereby authorizes the Distributor to enter into Sub-Agreements with certain securities firms ("Securities Firms"), including Merrill Lynch, Pierce, Fenner & Smith Incorporated, to provide compensation to such Securities Firms for activities and services of the type referred to in Paragraph 1 hereof. the Distributor may reallocate all or a portion of its account maintenance fee to such Securities Firms as compensation for the above-mentioned activities. Such Sub-Agreement shall provide that the Securities Firms shall provide the Distributor with such information as is reasonably necessary to permit the Distributor to comply with the reporting requirements set forth in Paragraph 3 hereof. 3. The Distributor shall provide the Corporation for review by the Board of Directors, 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. This 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 of the Corporation and (b) those Directors of the Corporation who are not "interested persons" of the Corporation, 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. 5. 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 4. 6. 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. 2 3 7. 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 Corporation in the manner provided for in Paragraph 4 hereof, and no material amendment to the Plan shall be made unless approved in the manner provided for approval and annual renewal in Paragraph 4 hereof. 8. 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 Corporation shall be committed to the discretion of the Directors who are not interested persons. 9. The Corporation 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 date of such agreement or report, as the case may be, the first two years in an easily accessible place. IN WITNESS WHEREOF, the parties hereto have executed this Plan as of the date first above written. MERCURY ASSET MANAGEMENT FUNDS, INC. on behalf of its series, MERCURY GOLD AND MINING FUND By_______________________________________ Title: MERCURY FUNDS DISTRIBUTOR, a division of PRINCETON FUNDS DISTRIBUTOR, INC. By_______________________________________ Title: 3 4 Exhibit 13(a) CLASS A SHARES DISTRIBUTION PLAN SUB-AGREEMENT AGREEMENT made as of the ____ day of __________, 1998, by and between Mercury Funds Distributor, a division of Princeton Funds Distributor, Inc., a Delaware corporation (the "Distributor"), and Merrill Lynch, Pierce, Fenner & Smith Incorporated, a Delaware corporation ("Securities Firm"). W I T N E S S E T H : WHEREAS, the Distributor has entered into an agreement with Mercury Asset Management Funds, Inc., a Maryland corporation (the "Corporation"), on behalf of its series, Mercury Gold and Mining Fund (the "Fund"), pursuant to which it acts as the exclusive distributor for the sale of Class A shares of common stock of the Fund, par value $0.0001 per share (the "Class A Shares"); and WHEREAS, the Distributor and the Corporation 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 the Distributor 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; and WHEREAS, the Distributor 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 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 its services performed under this Agreement, the Distributor shall pay the Securities Firm a fee at the end of each calendar month in an amount agreed upon by the parties hereto. 3. The Securities Firm shall provide the Distributor, at least quarterly, such information as reasonably requested by the Distributor to enable the Distributor to comply 1 5 with the reporting requirements of Rule 12b-1 regarding the disbursement of the 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 Corporation and (b) those Directors of the Fund who are not "interested persons" of the Corporation, as defined in the Act, and have no direct or indirect financial interest in the operation of the Plan, this Agreement or any agreements related to the Plan or this Agreement (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 4. 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 WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date first above written. MERCURY FUNDS DISTRIBUTOR, a division of PRINCETON FUNDS DISTRIBUTOR, INC. By ______________________________________ Name: Title: MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By ______________________________________ Name: Title: 2 EX-99.13.B 18 CLASS B DISTRIBUTION PLAN 1 Exhibit 13(b) CLASS B DISTRIBUTION PLAN OF MERCURY GOLD AND MINING FUND OF MERCURY ASSET MANAGEMENT FUNDS, INC. PURSUANT TO RULE 12b-1 DISTRIBUTION PLAN made as of the ___ day of ___________, 1998, by and between Mercury Asset Management Funds, Inc., a Maryland corporation (the "Corporation"), on behalf of its series, Mercury Gold and Mining Fund (the "Fund"), and Mercury Funds Distributor, a division of Princeton Funds Distributor, Inc., a Delaware corporation (the "Distributor"). W I T N E S S E T H: WHEREAS, the Corporation 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, the Directors of the Corporation (the "Directors") are authorized to establish separate series relating to separate portfolios of securities, each of which may offer separate classes of shares, and WHEREAS, the Directors have established the Fund as a series of the Corporation; 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 Corporation on behalf of the Fund proposes to enter into a Class B Shares Distribution Agreement with the Distributor, pursuant to which the Distributor 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 $0.0001 per share (the "Class B Shares"), of the Fund to the public; and WHEREAS, the Corporation on behalf of the Fund desires to adopt this Class B Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Investment Company Act pursuant to which the Fund will pay an account maintenance fee and a distribution fee to the Distributor with respect to the Fund's Class B Shares; and WHEREAS, the Directors of the Corporation have determined that there is a reasonable likelihood that adoption of the Plan will benefit the Fund and its Class B shareholders. 2 NOW, THEREFORE, the Corporation on behalf of the Fund hereby adopts, and the Distributor hereby agrees to the terms of, the Plan in accordance with Rule 12b-1 under the Investment Company Act on the following terms and conditions: 1. The Corporation shall pay the Distributor with respect to the Class B Shares 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 the Class B Shares to compensate the Distributor and securities firms with which the Distributor enters into related agreements pursuant to Paragraph 3 hereof ("Sub-Agreements") for providing account maintenance activities with respect to Class B shareholders of the Fund. Expenditures under the Plan may consist of payments to financial consultants for maintaining accounts in connection with Class B Shares and payment of expenses incurred in connection with such account maintenance activities including the costs of making services available to shareholders including assistance in connection with inquiries related to shareholder accounts. 2. The Corporation shall pay the Distributor 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 to compensate the Distributor and the securities firms with which the Distributor 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. Such expenditures may consist of sales commissions to financial consultants for selling Class B Shares, 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 Corporation hereby authorizes the Distributor to enter into Sub-Agreements with certain securities firms ("Securities Firms"), including Merrill Lynch, Pierce, Fenner & Smith Incorporated, to provide compensation to such Securities Firms for activities and services of the type referred to in Paragraphs 1 and 2 hereof. the Distributor 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 the Distributor with such information as is reasonably necessary to permit the Distributor to comply with the reporting requirements set forth in Paragraph 4 hereof. 4. The Distributor shall provide the Corporation for review by the Board of Directors, 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. 2 3 5. This 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 of the Corporation and (b) those Directors of the Corporation who are not "interested persons" of the Corporation, 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. 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 B voting securities of the Fund. 8. 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 B voting securities of the Fund, and by the Directors of the Corporation 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 Corporation shall be committed to the discretion of the Directors who are not interested persons. 3 4 10. The Corporation 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 date of such agreement or report, as the case may be, the first two years in an easily accessible place. IN WITNESS WHEREOF, the parties hereto have executed this Plan as of the date first above written. MERCURY ASSET MANAGEMENT FUNDS, INC. on behalf of its series, MERCURY GOLD AND MINING FUND By ________________________________________ Title: MERCURY FUNDS DISTRIBUTOR, a division of PRINCETON FUNDS DISTRIBUTOR, INC. By ________________________________________ Title: 4 5 Exhibit 13(b) CLASS B SHARES DISTRIBUTION PLAN SUB-AGREEMENT AGREEMENT made as of the ____ day of ___________, 1998 by and between Mercury Funds Distributor, a division of Princeton Funds Distributor, Inc., a Delaware corporation (the "Distributor"), and Merrill Lynch, Pierce, Fenner & Smith Incorporated, a Delaware corporation ("Securities Firm"). W I T N E S S E T H : WHEREAS, the Distributor has entered into an agreement with Mercury Asset Management Funds, Inc. a Maryland corporation (the "Corporation") on behalf of its series, Mercury Gold and Mining Fund (the "Fund") pursuant to which it acts as the exclusive distributor for the sale of Class B shares of common stock of the Fund, par value $0.0001 per share (the "Class B Shares"); and WHEREAS, the Distributor and the Corporation 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 the Distributor 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 account maintenance activities related to the Class B Shares 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 related to the distribution of Class B Shares; and WHEREAS, the Distributor 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 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 B Shares 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 B Shares 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, the Distributor 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. 6 4. The Securities Firm shall provide the Distributor, at least quarterly, such information as reasonably requested by the Distributor to enable the Distributor 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 Corporation and (b) those Directors of the Corporation who are not "interested persons" of the Corporation, as defined in the 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 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 5. 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 WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date first above written. MERCURY FUNDS DISTRIBUTOR, a division of PRINCETON FUNDS DISTRIBUTOR, INC. By _____________________________________ Name: Title: MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By _____________________________________ Name: Title: 2 EX-99.13.C 19 CLASS C DISTRIBUTION PLAN 1 Exhibit 13(c) CLASS C DISTRIBUTION PLAN OF MERCURY GOLD AND MINING FUND OF MERCURY ASSET MANAGEMENT FUNDS, INC. PURSUANT TO RULE 12b-1 DISTRIBUTION PLAN made as of the ___ day of ___________, 1998, by and between Mercury Asset Management Funds, Inc., a Maryland corporation (the "Corporation"), on behalf of its series, Mercury Gold and Mining Fund (the "Fund"), and Mercury Funds Distributor, a division of Princeton Funds Distributor, Inc., a Delaware corporation (the "Distributor"). W I T N E S S E T H: WHEREAS, the Corporation 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, the Directors of the Corporation (the "Directors") are authorized to establish separate series relating to separate portfolios of securities, each of which may offer separate classes of shares, and WHEREAS, the Directors have established the Fund as a series of the Corporation; 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 Corporation on behalf of the Fund proposes to enter into a Class C Shares Distribution Agreement with the Distributor, pursuant to which the Distributor 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 $0.0001 per share (the "Class C Shares"), of the Fund to the public; and WHEREAS, the Corporation on behalf of the Fund desires to adopt this Class C Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Investment Company Act pursuant to which the Fund will pay an account maintenance fee and a distribution fee to the Distributor with respect to the Fund's Class C Shares; and WHEREAS, the Directors of the Corporation have determined that there is a reasonable likelihood that adoption of the Plan will benefit the Fund and its Class C shareholders. 2 NOW, THEREFORE, the Corporation on behalf of the Fund hereby adopts, and the Distributor hereby agrees to the terms of, the Plan in accordance with Rule 12b-1 under the Investment Company Act on the following terms and conditions: 1. The Corporation shall pay the Distributor with respect to the Class C Shares 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 the Class C Shares to compensate the Distributor and securities firms with which the Distributor enters into related agreements pursuant to Paragraph 3 hereof ("Sub-Agreements") for providing account maintenance activities with respect to Class C shareholders of the Fund. Expenditures under the Plan may consist of payments to financial consultants for maintaining accounts in connection with Class C Shares and payment of expenses incurred in connection with such account maintenance activities including the costs of making services available to shareholders including assistance in connection with inquiries related to shareholder accounts. 2. The Corporation shall pay the Distributor 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 the Distributor and the securities firms with which the Distributor 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. Such expenditures may consist of sales commissions to financial consultants for selling Class C Shares, 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 Corporation hereby authorizes the Distributor to enter into Sub-Agreements with certain securities firms ("Securities Firms"), including Merrill Lynch, Pierce, Fenner & Smith Incorporated, to provide compensation to such Securities Firms for activities and services of the type referred to in Paragraphs 1 and 2 hereof. The Distributor 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 the Distributor with such information as is reasonably necessary to permit the Distributor to comply with the reporting requirements set forth in Paragraph 4 hereof. 4. The Distributor shall provide the Corporation for review by the Board of Directors, 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. 2 3 5. This 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 of the Corporation and (b) those Directors of the Corporation who are not "interested persons" of the Corporation, 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. 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 C voting securities of the Fund. 8. 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 of the Corporation 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 Corporation shall be committed to the discretion of the Directors who are not interested persons. 10. The Corporation 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 date of such agreement or report, as the case may be, the first two years in an easily accessible place. 3 4 IN WITNESS WHEREOF, the parties hereto have executed this Plan as of the date first above written. MERCURY ASSET MANAGEMENT FUNDS, INC. on behalf of its series, MERCURY GOLD AND MINING FUND By ______________________________________ Title: MERCURY FUNDS DISTRIBUTOR, a division of PRINCETON FUNDS DISTRIBUTOR, INC. By ______________________________________ Title: 4 5 Exhibit 13(c) CLASS C SHARES DISTRIBUTION PLAN SUB-AGREEMENT AGREEMENT made as of the ____ day of ____________, 1998, by and between Mercury Funds Distributor, a division of Princeton Funds Distributor, Inc., a Delaware corporation (the "Distributor"), and Merrill Lynch, Pierce, Fenner & Smith Incorporated, a Delaware corporation ("Securities Firm"). W I T N E S S E T H : WHEREAS, the Distributor has entered into an agreement with Mercury Asset Management Funds, Inc., a Maryland corporation (the "Corporation"), on behalf of its series, Mercury Gold and Mining Fund (the "Fund"), pursuant to which it acts as the exclusive distributor for the sale of Class C shares of common stock of the Fund, par value $0.0001 per share (the "Class C Shares"); and WHEREAS, the Distributor and the Corporation 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 the Distributor 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 account maintenance activities related to Class C Shares 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 related to the distribution of Class C Shares; and WHEREAS, the Distributor 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 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 and incur distribution expenditures, of the types referred to in Paragraph 2 of the Plan. 6 3. As compensation for its activities and services performed under this Agreement, the Distributor 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. 4. The Securities Firm shall provide the Distributor, at least quarterly, such information as reasonably requested by the Distributor to enable the Distributor 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 Corporation and (b) those Directors of the Corporation who are not "interested persons" of the Corporation, as defined in the Act, and have no direct or indirect financial interest in the operation of the Plan, this Agreement or any agreements related to the Plan or this Agreement (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 5. 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 WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date first above written. MERCURY FUNDS DISTRIBUTOR, a division of PRINCETON FUNDS DISTRIBUTOR, INC. By _______________________________________ Name: Title: MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By _______________________________________ Name: Title: 2 EX-99.15 20 RULE 18F-3 PLAN 1 Exhibit 15 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. Exchange Privileges 2 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. 2 -----END PRIVACY-ENHANCED MESSAGE-----