Statement of Additional Information (2001)Full Document 

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                      STATEMENT OF ADDITIONAL INFORMATION

                        MERCURY HW SMALL CAP VALUE FUND

725 South Figueroa Street, Suite 4000, Los Angeles, California 90017 - Phone No.
                                  236-4479

                            ------------------------

     Mercury HW Small Cap Value Fund (the "Fund") is a fund of the Mercury HW
Funds (the "Trust"). The Trust is a diversified, open-end, management investment
company which is organized as a Massachusetts business trust. The investment
objective of the Fund is to seek capital appreciation. The Fund seeks to achieve
its investment objective by investing primarily in stocks of U.S. companies with
market capitalizations of less than $2 billion. No assurance can be given that
the investment objective of the Fund will be realized. For more information on
the Fund's investment objective and policies, see "Investment Objective and
Policies."

     The Fund offers two classes of shares, each with a different combination of
sales charges, ongoing fees and other features. Only certain investors are
eligible to buy Class I shares. See "Purchase of Shares."

                            ------------------------

     This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Prospectus of the Fund, dated October 6, 2000 (the
"Prospectus"), which has been filed with the Securities and Exchange Commission
(the "Commission") and can be obtained, without charge, by calling the Fund at
1-800-236-4479 or your financial consultant or other financial intermediary, or
by writing to the Fund at Financial Data Services, Inc., P.O. Box 41621,
Jacksonville, Florida 32232-1621. The Prospectus is incorporated by reference
into this Statement of Additional Information, and this Statement of Additional
Information is incorporated by reference into the Prospectus. The Fund's audited
financial statements are incorporated in this Statement of Additional
Information by reference to its annual report for the fiscal year ended June 30,
2000. You may request copies of the annual report at no extra charge by calling
1-800-236-4479 between 8:30 a.m. and 5:30 p.m. (Eastern time) on any business
day.

                            ------------------------

                     MERCURY ADVISORS -- INVESTMENT ADVISER
                     FAM DISTRIBUTORS, INC. -- DISTRIBUTOR

                            ------------------------

    The date of this Statement of Additional Information is October 6, 2000


                               TABLE OF CONTENTS



                                                              PAGE
                                                              ----
                                                           
Trust History...............................................    3
Investment Objective and Policies...........................    3
  Investment Restrictions...................................    3
  Repurchase Agreements.....................................    4
  Bonds.....................................................    4
  U.S. Government Securities................................    4
  Corporate Debt Securities.................................    5
  Convertible Securities....................................    5
  Derivative Instruments....................................    6
  Foreign Securities........................................    7
  Foreign Investment Risks..................................    7
  Swap Agreements...........................................    8
  Illiquid Securities.......................................    8
  Borrowing.................................................    9
  When-Issued Securities....................................   10
  Real Estate Investment Trusts.............................   10
  Shares of Other Investment Companies......................   10
  Limited Partnerships......................................   10
  Short Sales Against-the-Box...............................   10
  Corporate Loans...........................................   10
  Temporary Defensive Position..............................   11
Management of the Fund......................................   11
  Advisory Arrangements.....................................   13
  Accounting and Administrative Services....................   14
  Code of Ethics............................................   14
Purchase of Shares..........................................   15
  Class I and Class A Shares................................   15
  Reduced Initial Sales Charges.............................   16
  Distribution Plan.........................................   18
Redemption of Shares........................................   18
  Redemption................................................   19
  Repurchase................................................   20
  Reinstatement Privilege -- Class I and Class A Shares.....   20
Pricing of Shares...........................................   20
  Determination of Net Asset Value..........................   20
  Computation of Offering Price Per Share...................   22
Portfolio Transactions and Brokerage........................   22
  Transactions in Portfolio Securities......................   22
Shareholder Services........................................   24
  Investment Account........................................   24
  Exchange Privilege........................................   24
  Fee-Based Programs........................................   25
  Retirement Plans..........................................   26
  Automatic Investment Plans................................   26
  Automatic Dividend Reinvestment Plan......................   26
  Systematic Withdrawal Plans...............................   26
Dividends and Tax Status....................................   27
Performance Data............................................   28
General Information.........................................   29
  Description of Shares.....................................   29
  Issuance of Fund Shares for Securities....................   30
  Redemption in Kind........................................   31
  Independent Auditors......................................   31
  Custodian.................................................   31
  Transfer Agent............................................   31
  Legal Counsel.............................................   31
  Reports to Shareholders...................................   31
  Shareholder Inquiries.....................................   31
  Additional Information....................................   32
  Principal Holders.........................................   32


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                                 TRUST HISTORY

     The Trust was organized on August 22, 1984 as a Massachusetts business
trust. Before October 7, 1994, the Trust was called "Olympic Trust," and before
October 6, 2000, the Trust was called "Hotchkis and Wiley Funds." The Trust is a
diversified, open-end, management investment company currently consisting of ten
separate funds. Prior to October 6, 2000, the Fund was called the Small Cap
Fund.

                       INVESTMENT OBJECTIVE AND POLICIES

     The investment objective of the Fund is to seek capital appreciation.
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 investment
objective and policies.

     Mercury Advisors (the "Investment Adviser"), the Fund's investment adviser,
is responsible for the management of the Fund's portfolio.

INVESTMENT RESTRICTIONS

     The Fund has adopted the following restrictions (in addition to its
investment objective) as fundamental policies, which may not be changed without
the favorable vote of the holders of a "majority" of the Fund's outstanding
voting securities, as defined in the Investment Company Act of 1940, as amended
(the "1940 Act"). Under the 1940 Act, the vote of the holders of a "majority" of
the Fund's outstanding voting securities means the vote of the holders of the
lesser of (1) 67% of the shares of the Fund represented at a meeting at which
the holders of more than 50% of its outstanding shares are represented or (2)
more than 50% of the outstanding shares.

     Except as noted, the Fund may not:

      1. Purchase any security, other than obligations of the U.S. government,
         its agencies, or instrumentalities ("U.S. government securities"), if
         as a result: (i) with respect to 75% of its total assets, more than 5%
         of the Fund's total assets (determined at the time of investment) would
         then be invested in securities of a single issuer; or (ii) more than
         25% of the Fund's total assets (determined at the time of investment)
         would be invested in one or more issuers having their principal
         business activities in a single industry.

      2. Purchase securities on margin (but the Fund may obtain such short-term
         credits as may be necessary for the clearance of transactions),
         provided that the deposit or payment by the Fund of initial or
         maintenance margin in connection with futures or options is not
         considered the purchase of a security on margin.

      3. Make short sales of securities or maintain a short position, unless at
         all times when a short position is open it owns an equal amount of such
         securities or securities convertible into or exchangeable, without
         payment of any further consideration, for securities of the same issue
         as, and equal in amount to, the securities sold short (short sale
         against-the-box), and unless not more than 25% of the Fund's net assets
         (taken at current value) is held as collateral for such sales at any
         one time.

      4. Issue senior securities, borrow money or pledge its assets except that
         the Fund may borrow from a bank for temporary or emergency purposes in
         amounts not exceeding 10% (taken at the lower of cost or current value)
         of its total assets (not including the amount borrowed) and pledge its
         assets to secure such borrowings; the Fund will not purchase any
         additional portfolio securities while such borrowings are outstanding.

      5. Purchase any security (other than U.S. government securities) if as a
         result, with respect to 75% of the Fund's total assets, the Fund would
         then hold more than 10% of the outstanding voting securities of an
         issuer.

      6. Buy or sell commodities or commodity contracts or real estate or
         interests in real estate, although it may purchase and sell securities
         which are secured by real estate and securities of companies which
                                        3


         invest or deal in real estate. (For the purposes of this restriction,
         forward foreign currency exchange contracts are not deemed to be
         commodities or commodity contracts.)

      7. Act as underwriter except to the extent that, in connection with the
         disposition of portfolio securities, it may be deemed to be an
         underwriter under certain federal securities laws.

      8. Make investments for the purpose of exercising control or management.

      9. Participate on a joint or joint and several basis in any trading
         account in securities.

     10. Make loans, except through repurchase agreements.

     11. Purchase or sell foreign currencies.

Any percentage limitation on the Fund's investments is determined when the
investment is made, unless otherwise noted.

     Because of the affiliation of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") with the Investment Adviser, the Fund is
prohibited from engaging in certain transactions involving Merrill Lynch or its
affiliates except for brokerage transactions permitted under the 1940 Act
involving only usual and customary commissions or transactions pursuant to an
exemptive order under the 1940 Act. See "Portfolio Transactions and Brokerage."
Without such an exemptive order the Fund would be prohibited from engaging in
portfolio transactions with Merrill Lynch or any of its affiliates acting as
principal.

REPURCHASE AGREEMENTS

     The Fund may purchase debt securities maturing more than one year from the
date of purchase only if they are purchased subject to repurchase agreements. A
repurchase agreement is an agreement where the seller agrees to repurchase a
security from the Fund at a mutually agreed-upon time and price. The period of
maturity is usually quite short, possibly overnight or a few days, although it
may extend over a number of months. The resale price is more than the purchase
price, reflecting an agreed-upon rate of return effective for the period of time
the Fund's money is invested in the repurchase agreement. The Fund's repurchase
agreements will at all times be fully collateralized in an amount at least equal
to the resale price. The instruments held as collateral are valued daily, and if
the value of those instruments declines, the Fund will require additional
collateral. In the event of a default, insolvency or bankruptcy by a seller, the
Fund will promptly seek to liquidate the collateral. In such circumstances, the
Fund could experience a delay or be prevented from disposing of the collateral.
To the extent that the proceeds from any sale of such collateral upon a default
in the obligation to repurchase are less than the repurchase price, the Fund
will suffer a loss.

BONDS

     The term "bond" or "bonds" are used in the Prospectus and this Statement of
Additional Information is intended to include all manner of fixed-income
securities, debt securities and other debt obligations unless specifically
defined or the context requires otherwise.

U.S. GOVERNMENT SECURITIES

     U.S. government agencies or instrumentalities which issue or guarantee
securities include the Federal National Mortgage Association, Government
National Mortgage Association, Federal Home Loan Banks, Federal Home Loan
Mortgage Corporation, Federal Intermediate Credit Banks, Federal Land Banks,
Tennessee Valley Authority, Inter-American Development Bank, Asian Development
Bank, Student Loan Marketing Association and the International Bank for
Reconstruction and Development.

     Except for U.S. Treasury securities, obligations of U.S. government
agencies and instrumentalities may or may not be supported by the full faith and
credit of the United States. Some are backed by the right of the issuer to
borrow from the Treasury; others by discretionary authority of the U.S.
government to purchase the agencies' obligations; while still others, such as
the Student Loan Marketing Association, are supported only by the credit of the
instrumentality. In the case of securities not backed by the full faith and
credit of the

                                        4


United States, the investor must look principally to the agency or
instrumentality issuing or guaranteeing the obligation for ultimate repayment,
and may not be able to assert a claim against the United States itself in the
event the agency or instrumentality does not meet its commitment. The Fund will
invest in securities of such instrumentality only when the Investment Adviser is
satisfied that the credit risk with respect to any instrumentality is
acceptable.

     The Fund may invest in component parts of U.S. Treasury notes or bonds,
namely, either the corpus (principal) of such Treasury obligations or one of the
interest payments scheduled to be paid on such obligations. These obligations
may take the form of (1) Treasury obligations from which the interest coupons
have been stripped; (2) the interest coupons that are stripped; (3) book-entries
at a Federal Reserve member bank representing ownership of Treasury obligation
components; or (4) receipts evidencing the component parts (corpus or coupons)
of Treasury obligations that have not actually been stripped. Such receipts
evidence ownership of component parts of Treasury obligations (corpus or
coupons) purchased by a third party (typically an investment banking firm) and
held on behalf of the third party in physical or book-entry form by a major
commercial bank or trust company pursuant to a custody agreement with the third
party. These custodial receipts are known by various names, including "Treasury
Receipts," "Treasury Investment Growth Receipts" ("TIGRs") and "Certificates of
Accrual on Treasury Securities" ("CATS"), and are not issued by the U.S.
Treasury; therefore they are not U.S. government securities, although the
underlying bonds represented by these receipts are debt obligations of the U.S.
Treasury.

CORPORATE DEBT SECURITIES

     The Fund's investments in U.S. dollar corporate debt securities of domestic
or foreign issuers are limited to corporate debt securities (corporate bonds,
debentures, notes and other similar corporate debt instruments) which meet the
minimum ratings criteria set forth for the Fund, or, if unrated, are in the

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