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HomeMy WebLinkAbout2000-02-24 - Agendas - Final• FAYETTEVILLE THE CITY OF FAYETTEVILLE, ARKANSAS FAYETTEVILLE FIRE PENSION AGENDA 3A Y19T2bb6 FESRLIA-Ry zit z000 A meeting of the Fayetteville Fire Pension and Relief Fund will be held on February 24, 2000 at 11:00 a.m, in Room 326 of the City Administration Building located at 113 West Mountain Street, Fayetteville, Arkansas. 1. Approval of the minutes 2. Approval of the pension list III3. Investment report 4. Other business • 113 WEST MOUNTAIN 72701 501 521-7700 FAX 501 575-8257 MINUTES OF A MEETING OF THE FAYETTEVILLE FIRE PENSION AND RELIEF FUND JANUARY 27, 2000 A meeting of the Fayetteville Fire Pension and Relief Board was held on January 27, 2000 at 11:00 a.m. in Room 313 of the City Administration Building located at 113 West Mountain Street, Fayetteville, Arkansas. PRESENT: Mayor Hanna, John Maguire, Pete Reagan, Marion Doss, Darrell Judy, Ronnie Wood, and City Clerk Heather Woodruff. ABSENT: John Dill. APPROVAL OF THE PENSION LIST Ms. Woodruff stated the pension list would have to be amended if the board approved Kenneth Miller's and Thomas Warford's application for pension. Mr. Doss stated Mr. Richard Baird had passed away. The list needed to be amended, by removing his name and replacing it with his wife's name. Mr. Reagan moved to amend the pension list to include Thomas Warford and Kenneth Miller and in addition to change Richard Baird to his wife's name. Mr. Doss seconded the motion. Upon roll call the motion carried unanimously Mr. Reagan questioned Mr. Miller's application not being completed. Ms. Woodruff stated they could go ahead and approve the application even though the application was not complete, because the benefit was going to be the amount listed on the pension list, $2,129.57. Mr. Doss thought Mr. Miller would get a slight benefit because he had over thirty years of service and was over a certain age. Mr. Reagan asked a copy be sent to all the board members of Mr. Millers completed pension form. APPROVAL OF THE MINUTES Ms. Woodruff stated they needed to amend the motion Mr. Reagan had made on transferring money to Merrill Lynch. After reviewing the tape, she did not feel confident that everyone was on the same page on the amount to be transferred. She stated they could transfer the amount of the tumback money only or there was $180,000 in the account which was available for transfer. She stated she wanted to clarify the exact amount they wanted to transfer, 1 • 4 • • • Fire Pension Minutes January 27, 2000 Page 2 Mr. Reagan stated that according to Mr Maguire he thought there was enough money to meet payroll for three to four months even with the transfer of the $180,000. Mr. Doss stated $180,000 was the figure he had in mind. Mayor Hanna stated they would amend the minutes to show that Mr Reagan's motion was to transfer $180,000 to Merrill Lynch as per the memo from Mr. Maguire. The amendment passed unanimously. INVESTMENT REPORT Mr. Reagan stated Merrill Lynch had overnighted the report to him. He had not had a chance to review the packet Mr. Maguire reviewed the packet and stated in general it looked like the fund had been well managed to him. The asset allocation of 50% into income was about standard. 47% equity and 46% fixed cash. He did not have any complaints. The Ashland Management Fund had an excellent year He would ask for more detail later. Mr. Reagan stated he had asked Mr. Yada to provide year end figures for consulting fees and commissions. He hoped Mr. Yada would be at the next meeting. Mr. Maguire stated the asset allocation was what interested him. Mr. Reagan stated for Mr. Maguire's information, they had just hired Memll Lynch Private Portfolio Group last year. They had another company that was not preforming. It was a balanced account. This account was out of New York. Mr. Reagan stated they had discussed a couple of months ago the amount of money they had in the income account. Mr. Maguire stated what was happening was that the interest rates were moving up, which often bought those things to hold unto maturity. Often the fixed income account would show less return, but what they were doing was investing it for the coupon rate. They would hold those until they matured. It was one of the disadvantages of fixed income. They were not trading those things. They were the safety net. He expected short term rates to up again in February. APPROVAL OF RETIREMENT APPLICATIONS Mr. Reagan moved to approve Mr. Warford and Mr. Miller's applications. Mayor Hanna questioned the date of employment on Mr. Warford's application. Mr. Reagan Fire Pension Minutes January 27, 2000 Page 3 clarified his beginning date at 1975 and not 1995. Mr. Doss seconded the motion. Upon roll call the motion carried unanimously. • • • • • FAYETTEVILLE FIREMEN'S PENSION AND RELIEF FUND DEFERRED RETIREMENT OPTION PLAN (DROP) MEMBER ELECTION FORM (Beneficiary Designation) ) y�� oG - Se7C i /,.2- 30 — SS `/652t4,-(1 0 � �+-/C DOB Member /cel 9& to. TETLr2 ren r47 42: ?22o/ State Zip 610,4157 SSN Address City 7)6/41/41-% /{30 / S -Z,7 l Spouse SSN DOB Years of Service 7 Date of Employment i -/5r- 7'7 Witness Date DESIGNATION OF BENEFICIARY I hereby designate the following beneficiary to receive any benefits from the DROP plan if I die prior to my termination of employment: repfrkL( 2210L Signature of Member Date Please select one of the following (if spouse is not selected as beneficiary): I certify that to the best of my knowledge, the above-named member is single or that his spouse cannot be located. onezz L /ci,4gme 00lif-L:. Name Relationship Signature of Plan Representative/Notary I certify that I have agreed with my spouse above-named beneficiary or beneficiaries. I understand beneficiary, I will not be entitled to benefits under the P ignature of Spouse Date on the selection of the that if I am not named Ian. Date I certify that I have witnessed the above spouse's signature. Signature of Plan Representative/Notary 449/019 Date tr FAYETTEVILLE FIREMEN'S PENSION AND RELIEF FUND DEFERRED RETIREMENT OPTION PLAN (DROP) MEMBER Fr.FCTION FORM I hereby elect the DROP as my retirement benefit option from the pension plan in place of normal retirement benefit. I understand that in electing DROP, I have agreed to the following statements: 1. The amount of the DROP payments will be $,3336 5per month. This amount includes all service and age 60 bonuses that I have earned to this date. This amount is the same as if I retired today. 2. I understand that the monthly benefit that I will receive at the end of the DROP penod is the exact same amount stated in Item 1, regardless of any pay raises I receive or extra years of service I may work. 3. I understand that at the end of the DROP period I will have the option to receive the DROP account as a lump sum or convert the DROP account to a monthly annuity account or any other method of payment as provided for in the current Rules and Regulations of DROP. 4. I understand that the DROP account will remain in the pension fund until withdrawn in accordance with the Rules and Regulations of the DROP plan. I do not have the ability to withdraw from the DROP account until the time of my departure. 5. I have elected to begin the DROP on 1 �/ 12Cee, . DROP will end at the earlier of when I resign or : i 4 4 • , (5 years from the above date, unless authorizations to p• cipate in DROP shall be specifically extended by the Arkansas Statutes). 6. I understand that neither the pension fund nor the Department has given any tax advice concerning the way the DROP account is taxed. I have, or will consult, my own tax advisor for this information. 7. I have read the Rules and Regulations pertaining to DROP. 'Two exceptions to these rules: Age 60 bonuses (for members with over 25 years of service when they go on to DROP) begin at age 60 whether still on DROP or not; raises given to retirees are also given to DROP participants. 020 C9c Member Signature PmL,P , TYa�2e c Date pouse Signature Date Plan Representative Date • • • 0 #69 9-/:'77 Able_esuo. az 3 4 5gffiffle6 9.T[ Ste 2 3 4 5 6 8 9 10 11 12 13 15 18 19 20 44 AA --co /titAz& iA . air 0,1, 2,64 • 1 • • i I r• ►Y/ ter,. 21 Q Yr VG ;I I; 23 21 25 1:3'26 7 .31 33 31 35 38 39 40 �a 7 • 1; C:0120 Suis* os 'atm 5006 IVORY: 5206 GREEN; 5406 WHITE 3 4 :12 1 9111NtE0 IN U.S., CA cA 1-4M V pm L7 1 I0 O W O 4r --I O CO .r1 \ Zi r-1 t: 004 M Ori N elm \ N a7-1 q• U N S0 ft ol CA 1I 0 lai- l 4N O .--i ., a • 00 ON7- M rl Orig. Investment G�1 M N_ • MERCURY ASSET MANAGEMENT ADVISORS 800 Scudders Mill Road Plainsboro, New Jersey 08536 (609) 282-2000 U.S. LARGE CAP EQUITY WRAP FEE PROGRAM GLOBAL LARGE CAP EQUITY WRAP FEE PROGRAM DISCLOSURE STATEMENT Woo • • • MERCURY ASSET MANAGEMENT ADVISORS, A Division of Merrill Lynch Asset Management, L.P. Table of Contents Item Page Advisory Services 1 Types of Clients 3 Performance Information 3 Investments and Investment Strategies 3 Education and Business 4 Affiliates and Other Financial Industry Activities 5 Participation Or Interest In Client Transactions 5 Conditions For Managing Portfolios 8 Brokerage Information 9 Additional Compensation 9 Review of Accounts 10 Fee Schedule 10 Sub -Advisory Disclosure Statement for Mercury Asset Management International, Ltd Appendix This disclosure statement is a substitute for Part II of Form ADV and provides clients with information about the Mercury Asset Management Advisors division of Merrill Lynch Asset Management, L.P. and its U.S'. Large Cap Equity and Global Large Cap Equity wrap fee programs that ought to be considered before becoming a client of any of these programs. This information has not been approved or verified by any governmental authority. i • • • • Advisory Services This disclosure document describes the operations and policies of Mercury Asset Management Advisors ("Mercury Advisors"), a division of Merrill Lynch Asset Management, L.P. ("MLAM") and provides information on its U.S. Large Cap Equity and Global Large Cap Equity wrap fee programs. Mercury Advisors provides discretionary investment advice to clients on the basis of each client's individual needs, on a "wrap fee" basis. This means that clients pay a single fee which covers both portfolio management and brokerage commissions. (Mark-ups, mark-downs or spreads paid to market makers for securities which trade on a principal basis are paid by the client as part of the total cost or proceeds of those securities.) US Large Cap Equity Mercury Advisors' U.S. Large Cap Equity wrap fee program is offered to clients who seek capital growth over the longer term. Current income from dividends and interest will not be an important consideration in selecting investments for clients' accounts. Mercury Advisors will invest client assets in a diversified portfolio of equity secunties. Most of these securities will be issued by companies located, doing substantial business, or whose securities trade, in the United States, but up to approximately 10% of a client's account may also be invested in stocks of companies located, doing substantial business, or whose securities trade in Canada. In selecting investments for client accounts, Mercury Advisors will draw heavily on the portfolio management services of its affiliate, Mercury Asset Management International, Ltd. ("Mercury International"): Mercury International will create, and continually monitor and revise, a "model portfolio" of investments. The model portfolio is created by Mercury International's U.S. equity team. The team's members research stocks within their particular market sectors and make recommendations to the team as a whole. Mercury International also has a Central Strategy Group, composed of senior management, an asset allocation strategist and an economist, which is responsible for developing macro level views on asset classes which are taken into account by the team. The team analyzes all of this information and develops a model portfolio, which outlines a recommended list of securities as well as recommended weightings for individual securities on the list. Mercury Advisors will use this model portfolio as the basis for constructing a model portfolio consisting substantially of ADRs and United States equity securities The Mercury Advisors portfolio manager assigned to a client's account is provided with any information furnished by the client. Mercury Advisors does not impose any restrictions on the ability of a client to contact and consult with the portfolio manager responsible for that client's account. In creating and revising the model portfolio, Mercury International seeks stocks of companies that it believes are undervalued or have good prospects for earnings growth. A company's stock is considered undervalued when its price is less than what Mercury International 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. 1 • • Mercury International's evaluation of the prospects for a company's industry or market sector is an important factor in evaluating a particular company's earnings prospects. For more information regarding Mercury International's process for selecting stocks, please see the Mercury International disclosure document attached as an Appendix to this statement. Global Large Cap Equity Mercury Advisors' Global Large Cap Equity wrap fee program is offered to clients who seek capital growth over the longer term. Current income from dividends and interest will not be an important consideration in selecting investments for clients' accounts. Mercury Advisors will invest in securities of companies located in the United States, in other developed countries and countries with emerging capital markets outside the United States. In selecting investments for client accounts, Mercury Advisors will draw heavily on the portfolio management services of its affiliate, Mercury Asset Management Intemational, Ltd. ("Mercury International"). Mercury International will create, and continually monitor and revise, a "model portfolio" of investments. This model will in the main comprise ordinary shares The model portfolio is created by Mercury International's Global team. The team's members research stocks within their particular market sectors and also draw on the research undertaken by regional equity teams throughout Mercury Intemational. Mercury Intemational also has a Central Strategy Group, composed of senior management, an asset allocation strategist and an economist, which is responsible for developing macro level views on asset classes which are taken into account by the team. The team analyzes all of this information and develops a model portfolio, which outlines a recommended asset allocation between regions, a recommended list of securities as well as recommended weightings for individual securities on the list. Mercury Advisors will use this model portfolio as the basis for constructing a model portfolio consisting substantially of ADRs and United States equity securities. An ADR is an American Depository Receipt which consists of one or more shares of a non -U.S. corporation which is typically issues by a U.S. bank or trust company. In so far as is practical, Mercury Advisors will seek to follow the regional allocation as set out in the model portfolio constructed by Mercury International although there is no guarantee that this will be the case. Mercury Advisors will then tailor this ADR and ordinary equity model portfolio on the basis of each client's individual needs, financial situation and the applicable blue sky requirements of the state in which the relevant client resides, as notified to Mercury Advisors. The Mercury Advisors portfolio manager assigned to a client's account is provided with any information furnished by the client. Mercury Advisors does not impose any restrictions on the ability of a client to contact and consult with the portfolio manager responsible for that client's account. In creating and revising the model portfolio, Mercury International seeks stocks of companies that it believes are undervalued or have good prospects for earnings growth. A company's stock is considered undervalued when its price is less than what Mercury International 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. Mercury International's evaluation of the prospects for a company's industry or market sector is 2 • an important factor in evaluating4 particular company's earnings prospects. For more information regarding Mercury International's process for selecting stocks, please see the Mercury International disclosure document attached as an Appendix to this statement. Compensation Compensation is generally based on a percentage of assets under management. Mercury Advisors' fee schedules are set forth on pages 11-12. Fees are normally payable quarterly prior to the rendering of services and are refundable on a pro rata basis upon the termination of the client's contract. Multiple accounts for one client can have total assets combined for fee billing purposes. Lower fees for comparable services may be available from other sources. Mercury Advisors compensates Mercury International for providing subadvisory services at the rate of 50% of total fees paid to Mercury Advisors by participants in this program. Types of Clients Mercury Advisors clients may include, but are not limited to: individuals, banks and thrift institutions, pension and profit sharing plans, charitable organizations, estates, trusts, and corporation or business entities other than those listed above. Performance Information Mercury Advisors may present composite performance of Mercury Advisors' U.S. Large Cap Equity wrap fee program and Global Large Cap Equity wrap fee program and/or accounts managed by Mercury International or its affiliates to clients and potential clients of the Mercury U.S. Large Cap Equity wrap fee program and the Global Large Cap Equity program. Mercury Advisors uses the Modified Dietz time -weighted internal rate of return formula to calculate performance. Mercury International also uses the Modified Dietz time -weighted rate of return formula to calculate its composite performance. The current rates of return may not be indicative of future rates of return; other methods may produce different results. Additional information regarding the composites is included with the performance presentation. Investments and Investment Strategies US Large Cap Equity As described above, individual client portfolios (which will be based on Mercury International's model portfolio) will normally be invested in equity securities of large cap companies located in the United States. Investments may also include equity securities of companies of any market cap located in Canada and of small or medium cap companies located in the United States. Client portfolios may include common stock, preferred stock and securities convertible into common stock, and in the case of Canadian securities, American Depositary Receipts. Mercury Advisors may invest client assets in short-term instruments, high-quality bonds and cash when 3 Mercury Advisors deems it is appropriate to do so to reduce exposure to equity securities on a temporary basis. Global Large Cap Equity As described above, individual client portfolios (which will be based on Mercury International's model portfolio) will normally be invested in securities of large cap companies located in developed countries including the United States and in countries with emerging capital markets outside the United States. Investments may also include equity securities of companies of any market cap located in developed countries and of countries with emerging capital markets. Client portfolios may include common stock, preferred stock, securities convertible into common stock and American Depositary Receipts. Mercury Advisors may invest client assets in short-term instruments, high-quality bonds and cash when Mercury Advisors deems it is appropriate to do so to reduce exposure to equity secunties on a temporary basis. Education and Business Background Mercury Advisors does not maintain rigid educational or background requirements for employees but all professional personnel must have a minimum of a bachelor's degree or equivalent business experience. Portfolio managers and associated professionals have a wide range of investment experience. Listed below are the biographies of the senior investment supervisory personnel of Mercury Advisors who determine the advice given to clients of the U.S. Large Cap Equity wrap fee program and Global Large Cap Equity wrap fee program. Jeffrey M. Peek Princeton University, Princeton, NJ, B.A. 1969 DOB: February 25, 1947 Harvard Business School, Boston, MA, M.B.A. 1972 President of MLAM and Fund Asset Management since December 1997. Prior to joining MLAM, Mr. Peek was Managing Director and Co -Head of the Investment Banking Division from April 1997. Mr. Peek Joined Merrill Lynch in July 1983 as Managing Director in the Investment Banking Division. From 1984 through 1995, he was head of the Financial Institutions Group. In May 1995, Mr. Peek was appointed Senior Vice President and Director of the Global Securities Research and Economics Division. Prior to his affiliation with Merrill Lynch, he was a Managing Director at A.G. Becker Paribas where he was the head of the Financial Services Group. Brian A. Murdock Cornell University, Ithaca, NY - B.S. 1978 DOB: March 14, 1956 Senior Vice President of the Private Portfolio Group of Merrill Lynch Asset Management since October 1998. Mr. Murdock is also a Senior Vice President of Fund Asset Management. Mr. Murdock was previously Vice President of MLAM from 1986 to 1998. 4 • • Affiliates and Other Financial Industry Activities Mercury Advisors is a division of MLAM. MLAM is ultimately owned and controlled by Merrill Lynch. Merrill Lynch, through its subsidiaries, is a global firm providing a wide range of financial services to corporations, governments, financial institutions and individuals. Merrill Lynch's businesses include, among others, securities underwriting, distribution and trading; merger, acquisition, restructuring, real estate, project finance and other corporate finance advisory activities; merchant banking and other principal investment activities, brokerage and research services; asset management; the trading of foreign exchange and commodities as well as structured financial products on a broad range of asset categories; and global custody, securities clearance services and secunties lending. MLAM is part of the Asset Management Group of Merrill Lynch, the parent holding company, and conducts business under the name Merrill Lynch Asset Management. Mercury Advisors has arrangements with related persons which, like Mercury Advisors, are directly or indirectly owned subsidiaries of Merrill Lynch. Certain such arrangements are described below. Merrill Lynch, Pierce, Fenner & Smith Incorporated, a full-service broker and dealer, and various other directly or indirectly owned subsidiaries of Merrill Lynch (collectively "MLPF&S") will act as selected dealer, agent or broker with respect to portfolio transactions (including securities, commodities, currencies and other financial transactions) for client accounts. In addition MLPF&S may provide Mercury Advisors with investment research services and may serve as custodian for assets held in Mercury Advisors investment advisory accounts. Merrill Lynch Securities Pricing Services ("MLSPS") may be used to price the portfolio holdings of individual and institutional clients. MLSPS provides Mercury Advisors with the same quotes it provides to unrelated third parties using its pricing service. MLAM has entered into a Master Agreement with MLPF&S under which it serves as adviser to some Merrill Lynch Consults Service (the "Program") clients. The Program is described more fully in Part II of Form ADV of MLPF&S or its substitute Disclosure Statement. Affiliated banks of MLAM may, as permitted under applicable law, extend credit to, or act as broker for, investment advisory clients. Participation Or Interest In Client Transactions Mercury Advisors does not act as principal in the purchase or sale of securities to any client. Merrill Lynch Government Securities, Inc. and Merrill Lynch Money Markets, Inc., indirect wholly-owned subsidiaries of Merrill Lynch, buy and sell money market instruments to and from Mercury Advisors' clients for compensation. 5 • • Merrill Lynch Portfolio Services, Inc. may act as securities lending agent for certain of Mercury Advisors' clients for compensation. MLPF&S may effect securities transactions as principal on behalf of its wrap fee clients with the client's prior consent at such rates as are determined by the client and MLPF&S. All discretionary institutional accounts are advised annually by Mercury Advisors of the amount of brokerage retained by MLPF&S and the percentage paid to other brokers. MLPF&S may use the closing credit balance in any client account custodied at MLPF&S in its business subject to the limitations of Rule 15c3-3 of the Secunties Exchange Act of 1934. From time to time in the ordinary course of business, a buy or sell order placed by Mercury Advisors with MLPF&S on behalf of a client may be matched without Mercury Advisors' knowledge with an order from MLPF&S for its own account or that of a•brokerage customer. These transactions do not give rise to a conflict of interest, however, because Mercury Advisors and MLPF&S are totally separate entities. Mercury Advisors, as a division of MLAM, and MLPF&S each have a separate Board of Directors, a separate legal and compliance staff, separate internal compliance procedures, separate offices and order placement facilities, separate market personnel and separate account and internal auditing staffs. Each corporation is separately audited by outside auditors. MLPF&S may provide brokerage services to institutional and individual customers. Mercury Advisors does not participate in MLPF&S trading or other activities. Mercury Advisors operates on a completely independent basis, formulating its own policies, designing its own strategies and implementing its own tactics in accordance with its own assessment of market developments and the objectives and needs of its clients. It is not dependent upon the specific approval of MLPF&S for the execution of transactions either in the placement of orders or the selection of portfolio brokers. Mercury Advisors and its affiliates will provide a variety of services for, and advice to, various clients, including issuers of securities that Mercury Advisors may recommend for purchase or sale by clients. In the course of providing these services, Mercury Advisors and its affiliates may come into possession of material, nonpublic information which might affect Mercury Advisors' ability to buy, sell or hold a secunty for a client account. Investment research materials disclose that related persons of Mercury Advisors may own, and may effect transactions in, securities of companies mentioned in such materials and also may perform or seek to perforin investment banking services for those companies. Mercury Advisors believes that the nature and range of clients to whom it and its affiliates render investment banking services is such that it would be inadvisable to exclude these companies from a client's portfolio. Accordingly, unless a client advises Mercury Advisors to the contrary, it is likely that client holdings will include the securities of corporations for whom Mercury Advisors and its affiliates perform investment banking services. Moreover, client portfolios may include the securities of companies in which affiliates of Mercury Advisors make a market or in which Mercury Advisors and its affiliates, their officers or employees have positions. 6 • • To meet applicable regulatory requirements, there are period when Mercury Advisors will not initiate or recommend certain types of transactions in the securities of companies for which it or its affiliates is performing investment banking services. Clients will not be advised of the fact. In particular, when Mercury Advisors or its affiliates is engaged.in an underwriting or other distribution of securities of a company, Mercury Advisors may be prohibited from purchasing or recommending the purchase of certain securities of that company for its clients. Notwithstanding the circumstances described above, a client on its own initiative, may direct Mercury Advisors to place orders for specific securities transactions in a client account. Mercury Advisors' portfolio managers are responsible for their own clients and place buy or sell orders directly on behalf of their respective clients. In general, they transact business independently of one another. In the execution of orders received from Mercury Advisors, MLPF&S treats Mercury Advisors as it would any other customer. Mercury International may place buy or sell orders on behalf of its advisory clients in the same securities as Mercury Advisors' trades in on behalf of its clients. These orders are placed by Mercury International and are independent of orders placed by Mercury Advisors. Mercury Advisors may recommend to clients that they purchase shares of money market funds advised or sponsored by MLAM or an affiliate pending investment of their assets. Clients, along with other fund shareholders, may bear a proportionate share of the expenses of such fund, including the management fee paid to Mercury Advisors or its affiliate, any distribution fees, to the extent permitted by law, paid to Merrill Lynch Funds Distributor or Mercury Funds Distributor, each a division of Princeton Funds Distributor, Inc. or MLPF&S and any transfer agency fees paid to Financial Data Services, Inc. Mercury Advisors may use client lists when soliciting new clients provided that the existing clients included on such lists have not expressly requested confidentiality, whether in a contract, by letter or by oral request. Mercury Advisors has adopted conflicts -of -interest procedures for all its personnel, which include guidelines respecting transaction in securities recommend to its clients. The following paragraph summarizes such guidelines. With respect to the personal trading activity of Mercury Advisors' employees, transfers of funds or securities between clients' accounts and employees' accounts are prohibited. Activity should not be excessive in terms of the employee's financial resources or in terms of time spent on his or her own investments. Transactions should not be timed to precede orders solicited from clients nor under normal circumstances should an employee trade be contrary to advice he or she is offering to clients. No employee may purchase a security in an initial public offering if such offering is considered "hot" under the rules of the National Association of Securities Dealers, Inc. Mercury Advisors takes the position that employees should avoid entangling financial alliances with clients in order to preclude potential conflict of interest problems. Specifically, no employee shall make personal loans to or accept such loans from clients. This does not preclude employees from borrowing funds for personal reasons from banks which happen to be clients. Neither shall employees deposit their personal funds or securities in clients' accounts nor permit clients' funds or securities to be deposited in employees' accounts. The same prohibition applies 7 • • to withdrawals of either funds or securities. Similarly, there `shall be no `teaming up' between clients and employees in either commodity or securities accounts, whether informally or under any form of agreement. Mercury Advisors has also adopted a compliance manual (the "Code") establishing procedures for secunties transactions by its employees. Such procedures prohibit, inter alia, the purchase or sale by any employee of any security which at the time is being purchased or sold (as the case may be) or to the knowledge of the employee is being considered for purchase or sale (as the case may be) by any fund or private account advised by Mercury Advisors. In addition, decision-making persons of Mercury Advisors (that is, a person who recommends or determines which secunties transactions a fund or private account advised by Mercury Advisors will undertake) are subject to personal trading "blackout" periods preceding or following trades made by such persons or behalf of such clients. The Code also establishes reporting procedures and provides sanctions if its requirements are not followed Conditions For Managing Portfolios Mercury Advisors generally requires a minimum dollar amount of assets of $250,000. Merrill Lynch Consults Service client accounts managed by Mercury Advisors pursuant to the Master Investment Management Agreement between Mercury Advisors and MLPF&S must have a minimum of $100,000 in the client's account. Mercury Advisors retains the ability to withdraw from managing an account with proper notification. The initial term of the advisory contracts for individuals (unless specified otherwise) generally begins, and the client's first billing period commences, upon Mercury Advisors' acceptance of the contract. For new clients with pre-existing securities portfolios that may require certain liquidation before management commences, the client's first billing period may commence after that liquidation. The term of advisory contracts for clients extends until termination. Portfoliosseeking the Global Large Cap Equity wrap fee program may include securities which are not listed on a major US stock exchange. As a result, these portfolios may be subject to state registration requirements. IF A SECURITY THE PORTFOLIO MANAGER WISHES TO PURCHASE FOR ACCOUNTS WITH THE SPECIFIED OBJECTIVES IS NOT REGISTERED IN A PARTICULAR STATE, OR EXEMPT FROM REGISTRATION, IT MAY NOT BE POSSIBLE TO PURCHASE THAT SECURITY FOR RESIDENTS OF THAT STATE OR TERRITORY, IN THE CASE OF PUERTO RICO. The timing of purchase of individual securities by the portfolio manager may also be affected by blue sky requirements. There may be a related reduction in investment performance and/or diversification due to these factors. The Mercury Global Large Cap Equity wrap fee program cannot be offered to clients whose home address is in any of the following states: PUERTO RICO NEW HAMPSHIRE VERMONT WEST VIRGINIA NORTH DAKOTA VIRGINIA KENTUCKY SOUTH DAKOTA 8 A change in account address to any of the, above states or territories for existing clients will affect the continuing availability of discretionary investment management services for such clients. Clients will have the option in this circumstance of continuing to maintain their account subject to a more restricted investment universe, or of terminating their account. Brokerage Information For wrap fee accounts, Mercury Advisors has discretionary authority to make the following determinations without obtaming the consent of the client before a transactions is effected: (I) which secunties are to be bought or sold; and (II) the total amount of the securities to be bought or sold. Mercury Advisors may group orders to obtain the efficiencies that may be available on larger transactions when it detemunes that investment decisions are appropriate for each participating account. Moreover, Mercury Advisors will not aggregate transactions unless it believes that aggregation is consistent with its duty to seek best execution for its clients. When aggregating orders, no client is favored over any other client; each client participating in the aggregated order will participate at the average share price for all transactions in that security on a given business day. Securities purchased or sold in a batched transaction are allocated pro -rata, when possible, to the participating client accounts in proportion to the size of the order placed for each account. Mercury Advisors may, however, increase or decrease the amount of secunties allocated to each account if necessary to avoid holding odd-lot or small numbers of shares for particular clients. Additionally, if Mercury Advisors is unable to fully execute a batched transaction and Mercury Advisors determines that it would be impractical to allocate a small number of securities among the accounts participating in the transaction on a pro -rata basis. Mercury Advisors may allocate such securities in a manner determined in good faith to be a fair allocation. Clients use MLPF&S to serve as custodian for their account by opening one or more accounts with MLPF&S. MLPF&S may charge fees in connection with the maintenance of those accounts as well as a processing fee for confirming purchases and sales. MLPF&S may use the closing credit balance in any client's account custodied at MLPF&S in its business subject to the limitations of Rule 15c3-3. Additional Compensation During the last fiscal year, Mercury Advisors had no arrangement, oral or in writing, whereby it or any of its directors, officers or employees was paid cash or received some economic benefit from a non -client for giving advice to clients. Employees of MLPF&S receive compensation based on Mercury Advisors' advisory fee and may also receive other fees and considerations 9 • • based on any assets of such employee's clients who participate in Mercury Advisors' U.S. Large Cap Equity and Global Large Cap Equity wrap fee programs. The amount of compensation paid to employees recommending clients who select Mercury Advisors' wrap fee program may be more than what the employees would receive if the client participated in other programs of MLPF&S or if the client had paid separately for Mercury Advisors' advice and MLPF&S' brokerage and other services. The employees may therefore have a financial incentive to recommend Mercury Advisors' U.S. Large Cap Equity and Global Large Cap Equity wrap fee programs over other services or programs Such compensation may be greater for clients who are not receiving a discount on Mercury Advisors' standard fee or on commissions paid to MLPF&S. From time to time, Mercury Advisors may also compensate certain unaffiliated entities for client referrals. These compensation arrangements are structured to comply with Rule 206(4)-3 and to be consistent with applicable state securities laws. Mercury Advisors receives certain research services from MLPF&S and from Mercury International. Such research services may be paid by Mercury Advisors with commission dollars generated by client accounts, or with fees paid through the U.S. Large Cap Equity and Global Large Cap Equity wrap fee programs. Review of Accounts Advisory accounts are reviewed on a continuous basis by the assigned portfolio manager(s). Reviews are conducted on an account -by -account basis and, with the help of computer support systems, on security -holding and performance -exception basis The account load will average 500 clients per portfolio manager. Reviews are conducted by personnel of Mercury Advisors to determine if client holdings are consistent with Mercury International's model portfolio and with client needs and objectives. Reviews of individual securities are conducted by Mercury International's U.S Equity team. Clients generally receive reports concerning their investment advisory accounts on a quarterly basis. Some clients receive these reports monthly on request. The reports include a portfolio summary and appraisal. Where appropriate, clients may also receive a monthly newsletter which details Mercury Advisors' current views. Fee Schedule U.S. Large Cap Equity Global Large Cap Equity Assessed on the market value at the appraisal date of all assets under management. 10 • • • Wrap Fee (No commissions will be charged)* (available only when all equity transactions are effected through MLPF&S) Charge First $500,000 2.50% Next $500,000 2.00% Next $2,000,000 1.50% Next $7,000,000 1.00% Next $40,000,000 .50% Value in excess of $50,000,000 Negotiable Minimum Fee: $6,250 Minimum Portfolio Size: $250,000 * Fees cover investment advisory services rendered by Mercury Advisors (including model portfolio services provided by Mercury International) as well as any brokerage commissions on agency trades. Clients will pay mark-ups or mark-downs payable to dealers (including MLPF&S) responsible for effecting any principal transactions. Clients also will pay the public offering price on securities purchased from the underwriter or dealer in a distribution. Fees do not cover any securities exchange fees, taxes, electronic fund and wire transfer fees or other fees required by law or otherwise agreed to by the client. The choice of a wrap fee may cost a client more or less than purchasing services separately under a schedule that does not include commissions depending on the level of trading in the client's account, the brokerage fees the client would have paid MLPF&S in the absence of the selection of the wrap fee and the amount of the advisory fee the client would have paid under a standard, non -wrap fee program. The fee schedule previously set forth above is the normal basis of compensation. Compensation is based on a percentage of assets under management on the appraisal date. Fees can vary from the schedule above based on the amount of assets involved, the type or complexity of services provided, the performance of the portfolio or for employee accounts. Fees are normally payable quarterly prior to the rendering of services and are refundable on a pro rata basis upon the termination of the client's contract. A client addition of assets or withdrawal during a billing period may, as provided in the contract, trigger an interim additional fee or interim fee refund if that addition or withdrawal exceeds $1,000,000 or, if less, 40% of the market value on the most recent prior appraisal date. Where an advisory fee is automatically deducted from a client's account, the client's custodian will not verify the accuracy of fee calculations, as certification is the responsibility of the client. Multiple accounts for one client can have total assets combined for fee billing purposes. The fee schedule set forth above reflects the fee that the client will pay to Mercury Advisors. In turn, Mercury Advisors pays one-half of such fees to Mercury International for providing subadvisory services. 11 • • Merrill Lynch ConsultsTM Service The Mercury Advisors advisory fee for client accounts managed by Mercury Advisors pursuant to the Master Investment Management Agreement between Mercury Advisors and MLPF&S is 0.50%, annualized.* All fees are assessed on the aggregate market value at the appraisal date of all client accounts managed by Mercury Advisors. Fees are calculated quarterly based upon the market appraisal by MLPF&S of the total value of the client account as of the last business day of the preceding calendar quarter. Fees payable to MLPF&S by clients are payable quarterly in advance. MLPF&S will pay Mercury Advisors compensation determined as described above promptly after receipt of compensation from the client. The fee set forth above reflects the fee that the client will pay to Mercury Advisors. In turn, Mercury Advisors pays one-half of such fees to Mercury International for providing sub -advisory services. In the event a client account is established after the first day of a calendar quarter, the fee for such quarter will be calculated proportionately with respect to the number of days remaining in such quarter and based on the market appraisal by MLPF&S of the client account on the effective date of the appointment of Mercury Advisors. In the event a client account is terminated prior to the last day of a calendar quarter, Mercury Advisors will refund to MLPF&S, for payment to the client, a pro rata portion, based upon the days remaining in such quarter, of the quarterly fee paid in advance with respect to the client account. Wrap fees payable by Merrill Lynch Consults"' Service Clients to MLPF&S are described in the Disclosure Statement of Merrill Lynch ConsultsTM Service which is available from a Merrill Lynch Financial Consultant. 12 • APPENDIX SUB -ADVISORY DISCLOSURE STATEMENT FOR MERCURY ASSET MANAGEMENT INTERNATIONAL, LTD. 1 • • Advisory Services The following materials describe those operations and policies of Mercury Asset Management International Ltd. (Mercury International)' that relate to the subadvisory services provided to its affiliate, Mercury Asset Management Advisors (Mercury Advisors) division of Merrill Lynch Asset Management, L.P. (MLAM), and are designed to convey in narrative form the information contained in relevant portions of its Form ADV as filed with the Securities and Exchange Commission. These materials are provided to clients and prospective clients of Mercury Advisors. If they raise any questions or do not provide answers to any other questions you might have, please do not hesitate to call Mercury Advisors to discuss such matters. Detailed information about other advisory and subadvisory services provided by Mercury International are included in Part II of Mercury International's Form ADV. Mercury International furnishes subadvisory services for Mercury Advisors. In particular, Mercury International uses the resources, research, investment policy and objectives of a number of teams of Mercury Group investment professionals to formulate model investment portfolios which Mercury Advisors tailors to meet individual client portfolio requirements. For the subadvisory services Mercury International provides, Mercury Advisors will apportion to Mercury International one half of the fees it receives Other Business Activities Mercury International does not engage in any business activities other than provision of investment advisory and supervisory services. Types of Clients Mercury International's clients may include, but are not limited to: individuals, registered investment companies, banks and thrift institutions, pension and profit sharmg plans, trusts, estates or charitable organizations, corporations or business entities other than those listed above. Mercury Asset Management International Ltd. is a direct subsidiary of Mercury Asset Management Ltd., an English company which conducts an investment advisory business outside the U.S. Mercury Asset Management Ltd. is the principal operating company of the Mercury Asset Management Group (Mercury Group), comprised of the members of the holding company Mercury Asset Management Group Ltd. 2 • Methods of Analysis, Investment Strategies, and Types of Investment Methods of Analysis and Investment Strategies Mercury International will create, and continually monitor and revise, a "model portfolio" of investments. In the case of the US Large Cap Equity wrap fee program the model portfolio is created by Mercury International's U.S. equity team. In the case of the Global Large Cap Equity wrap fee program the model portfolio is created by Mercury International's Global team. The members of the relevant team research stocks within their particular market sectors, draw on the research undertaken by regional equity teams throughout Mercury International and make recommendations to the team as a whole. Mercury International also has a Central Strategy Group, composed of senior management, an asset allocation strategist and an economist, which is responsible for making macro level asset allocation recommendations that are taken into account by the team. The team analyzes all of this information and develops a model portfolio, which outlines a recommended list of securities as well as recommended weightings for individual securities on the list. In the case of the Global Large Cap Equity wrap fee program this will include regional asset allocation. In creating and revising the model portfolio, Mercury International seeks stocks of companies that it believes are undervalued or have good prospects for earnings growth. A company's stock is considered undervalued when its price is less than what Mercury International 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. Mercury International's evaluation of the prospects for a company's industry or market sector is an important factor in evaluating a particular company's earnings prospects. There is no significant distinction between the process used in determining the recommendations to .Mercury Advisors, to other Mercury affiliates or to Mercury International's discretionary advisory clients. Types oflnvestments Mercury International offers advice to Mercury Advisors on investments in common stock, preferred stock and securities convertible into common stock, and also, in the case of non -US securities, American Depositary Receipts. Sources of Information In addition to actual model portfolios, Mercury International provides Mercury Advisors with research. The US Equity Team dedicates extensive effort to utilizing outside research, reviewing SEC Filings (such as 10Q's and 10K's) and organizing meetings with company executives. The Team uses a proprietary database to analyze companies' income statements, cash flow statements and balance sheets. In addition to the extensive proprietary research undertaken by the 3 sill Global team and by regional teams within Mercury International, the Global team .also makes extensive use of outside research as well as meeting with company executives. Mercury International has use of a comprehensive library, which contains current and historical written material covering individual companies and economic data. Third party stockbrokering firms following the US and other countries provide much of the material, including economic statistics, charts and information in addition to notes on companies, which is used in formulating investment strategy and sector weightings. Mercury International also uses the information services of Extel, AP -Dow Jones, Bloomberg, Morgan Stanley Capital International, Datastream, First Call, Reuters, Bridge, William O'Neill, Value Line, and S & P Stock Research. In addition, the Team has access to financial newspapers and business magazines for further information on economic and corporate developments. Education and Business Background Potential employees undergo a ngorous review process and are required to have attained a reasonable level of education usually culminating in a university degree or professional qualification. Listed below are biographies of the senior investment supervisory personnel for operations relating to the private client US Equity, International Equity and Global Equity. programs: • Peter John Gibbs DOB: February 13, 1958 City of London Polytechnic, London 1980 • Chairman of Mercury International since July 1998 and Director since September 1997. Mr. Gibbs joined Mercury Asset Management Ltd. (MAM) as a Fund Manager in 1989, has been a Managing Director of Europe Middle East and Africa (EMEA) since November 1999 and Director of MAM since May 1993. David Rosier DOB: April 10, 1951 Winchester College, 1969 Keble College, Oxford, 1973 Law Chairman of the Private Investors Division, Mr. Rosier has been a fund manager with Mercury Asset Management since 1978. Financial Industry Relationships Mercury International is a direct subsidiary of Mercury Asset Management Ltd ("MAM"), an English company which conducts an investment advisory business outside the U.S. Research concerning trends in interest rates, exchange rates, national economies and industry sectors and particular securities is exchanged between Mercury International and MAM. In addition, 4 4 Mercury International draws upon a variety of commercial sources of information and makes investment decisions based on all of these sources. All personnel of Mercury International and its Mercury affiliates are employed by a single holding company, Mercury Asset Management Group Ltd (Mercury Group). Portfolio managers perform management services for accounts of various Mercury Group advisers, including Mercury International, . 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. The members of Mercury Group employ a team -based approach to managing all client portfolios. A team typically includes members from a variety of Mercury entities, including both Mercury International and its Mercury affiliates. An individual team member may be primarily responsible for more than one portfolio, with each portfolio a different Mercury affiliate's. All of Mercury International's fund managers, including such personnel, are under the overall supervision of Mercury International's Board of Directors in respect of their work for Mercury International and its clients. Mercury International provides investment advice to its wholly owned subsidiary, Mercury Asset Management International Channel Islands Ltd., a registered investment adviser, which advises, among other clients, some U.S. registered investment companies. MAM, Merrill Lynch Mercury Asset Management Japan Ltd and Mercury Asset Management • Pte Ltd are "Participating Affiliates" of Mercury International within the meaning of the. Letter Ref. No. 92 -212 -CC issued by the Division of Investment Management at the SEC on 16th April, 1993 by providing investment advice through Mercury International to Mercury International's clients. The Participating Affiliates are not registered with the SEC. • Mercury International's parent, Mercury Asset Management Group Ltd, is a wholly-owned subsidiary of Merrill Lynch and Co., Inc. ("Merrill Lynch"). Memll Lynch, through its subsidianes, is a global firm providing a wide range of financial services to corporations, governments, financial institutions and individuals. Merrill Lynch's businesses include among others: securities underwriting, distribution and trading; merger, acquisition, restructuring, real estate, project finance and other corporate finance advisory activities; merchant banking and other principal investment activities; brokerage and research services; asset management; the trading of foreign exchange and commodities as well as structured financial products on a broad range of asset categories; and global custody, securities clearance services and securities lending. Mercury International may also use its affiliated broker, Merrill Lynch Pierce Fenner & Smith, as a source of commercial information alongside other brokers and resources. Participation or Interest in Client Transactions Mercury International and its affiliates provide a variety of investment banking and other related services for, .and advice to, various clients, including issuers of securities that Mercury 5 • International may recommend for purchase or sale by clients. In the course of providing these services, Mercury International and its affiliates may come into possession of material, nonpublic information which might affect Mercury International's ability to buy, sell or hold a security for a client account. Investment research materials disclose that related persons of Mercury International may own, and may effect transactions in, securities of companies mentioned in such materials and also may perform or seek to perform investment banking services for those companies. Mercury International believes that the nature and range of clients to whom affiliates of Mercury International render investment banking services is such that it would be inadvisable to exclude these companies from a client's portfolio. Accordingly, unless a client advises Mercury International to the contrary, it is likely that client holdings will include the securities of corporations for whom affiliates of Mercury International perform investment banking services. Moreover, client portfolios may include the secunties of companies in which affiliates of Mercury International make a market or in which Mercury International, its officers, employees and affiliates have positions. To meet applicable regulatory requirements, there are periods when Mercury International will not recommendcertain types of transactions in the securities of companies for which affiliates of Mercury International are performing investment banking services. Clients will not be advised of the fact. In particular, when affiliates are engaged in an underwriting or other distribution of securities of a company, Mercury International may be prohibited from recommending the purchase of certain securities of that company for its clients. Mercury International may, to the extent permitted by relevant legislation, recommend for clients from time to time securities in which an affiliate of Mercury International may have a position. Investment recommendations made by Mercury International are (unless disclosure is required by law or regulations applicable to Mercury International and its affiliates) kept confidential from non -advisory affiliates of Mercury International. Mercury Group dealers implement transactions solely for Mercury International and its investment advisory affiliates. Mercury International, its affiliates and their respective employees may, from time to time, buy or sell in public or private transactions securities that it also recommends to Mercury Advisors. With limited exceptions all executive employees of Mercury International (whether full or part- time) and all other employees of the Mercury Group are required to maintain their personal investment portfolios (including those in which they have a beneficial interest) with The Bank of New York Europe Limited, the ultimate holding company of which is the Bank of New York Company, Inc. All such employees have undertaken that they will refrain from effecting transactions in such manner as to take advantage of inside information or market movements which might result from the implementation of recommendations to clients. In addition, transactions to be effected by employees of Mercury International maintaining their personal accounts are subject to prior approval by the Head Dealer responsible for the transaction. 6 • Personal account transactions are. subject to review by M rcury International's Compliance Officer (who reports to Mercury International's Board of Directors). Employees are required to ensure that clients are never disadvantaged as a result of their own or their colleagues' dealings and they must not take advantage of their knowledge of transactions or intended transactions for clients. Employees must follow specific procedures and are instructed to consult their Divisional Compliance Officer or the Group Compliance Officer if they are in any way concemed about an actual or potential conflict of interest or any sequence of transactions which, if completed, might raise questions. The Compliance Department continually monitors employee personal trading in comparison with trading in client accounts. Mercury International has also adopted a Code of Ethics establishing procedures for securities transactions by its employees. Such procedures prohibit, inter alia, the purchase or sale by any employee of any security which at the time is being purchased or sold (as the case may be) or to the knowledge of the employee is being considered for purchase or sale (as the case may be) by any fund or private account advised by Mercury International. In addition, decision-making persons of Mercury. International (that is, a person who recommends or determines which securities transactions a fund or private account advised by Mercury International will undertake) are subject to personal trading "blackout" periods preceding or following trades made by such persons on behalf of such clients. The Code also establishes reporting procedures and provides sanctions if its requirements are not followed. Where purchases or sales of a security are to be made for clients as well as for the account of Mercury International or any person associated with it or its affiliates, clients' interests will take prionty. Mercury International may also recommend on behalf of Mercury Advisors the following: securities owned, directly or indirectly, by Mercury International, its affiliates or their respective employees, or securities with respect to which it may otherwise have a conflicting interest or duty, including, but not limited to, circumstances in which (a) Mercury International or a connected company undertakes investment business for another client or clients with interests in such securities; (b) any of Mercury International's directors or employees or those of a connected company is a director or officer of the issuer of, or holds or deals in, such securities or is otherwise interested in any company whose securities are held or dealt in on a client's behalf. (c) the securities are issued by a connected company; or (d) the securities are issued by the client of a connected company including a company for which a connected company may have underwritten, managed or arranged an issue of securities. 7 The services and transactions referred to above will be provided and effected on terms that are not materially less favorable to the client than would have been obtained had the potential conflict not existed, and best execution of securities transactions will be sought. Rev. 12/99 legal/mama disclosure