QUANTITATIVE MASTER SERIES TRUST, POS AMI, 1999-12-22

QUANTITATIVE MASTER SERIES TRUST
POS AMI, 1999-12-22

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As filed with the Securities and Exchange Commission on December 22, 1999

Investment Company Act File No. 811-7885
================================================================================
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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FORM N-1A

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 6 [X]
(Check appropriate box
or boxes)

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Quantitative Master Series Trust
(formerly, Index Master Series Trust)
(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) (609) 282-2800

TERRY K. GLENN
800 Scudders Mill Road,
Plainsboro, New Jersey 08536
Mailing Address: P.O. Box 9011, Princeton, New Jersey 08543-9011
(Name and Address of Agent for Service)

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

Copies to:

Counsel for the Fund: Michael J. Hennewinkel, Esq.
Joel H. Goldberg, Esq. FUND ASSET MANAGEMENT, L.P.
Swidler Berlin Shereff Friedman, LLP P.O. Box 9011
The Chrysler Building Princeton, New Jersey 08543-9011
405 Lexington Avenue
New York, NY 10174

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EXPLANATORY NOTE

This Registration Statement has been filed by the Registrant pursuant
to Section 8(b) of the Investment Company Act of 1940, as amended (the
"Investment Company Act"). However, beneficial interests in the Registrant are
not being registered under the Securities Act of 1933, as amended (the "1933
Act") because such interests will be issued solely in private placement
transactions that do not involve any "public offering" within the meaning of
Section 4(2) of the 1933 Act. Investments in the Registrant may be made only by
a limited number of institutional investors, including investment companies,
common or commingled trust funds, group trusts and certain other "accredited
investors" within the meaning of Regulation D under the 1933 Act. This
Registration Statement does not constitute an offer to sell, or the solicitation
of an offer to buy, any beneficial interests in the Registrant.

This Registration Statement has been prepared as a single document
consisting of Parts A, B, and C, none of which are to be used or distributed as
a stand alone document.

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TABLE OF CONTENTS

PART A. INFORMATION REQUIRED IN A PROSPECTUS

Item 1. Front and Back Cover Pages ........................................ *

Item 2. Risk/Return Summary: Investments, Risk and Performance ............ *

Item 3. Risk/Return Summary: Fee Table .................................... *

Item 4. Investment Objectives, Principal Investment Strategies,
and Related Risks ................................................. 3

Item 5. Management's Discussion of Fund Performance ....................... *

Item 6. Management, Organization, and Capital Structure ................... 20

Item 7. Shareholder Information ........................................... 22

Item 8. Distribution Arrangements ......................................... 24

Item 9. Financial Highlights Information .................................. *

PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION

Item 10. Cover Page and Table of Contents ................................. 1

Item 11. Trust History .................................................... 2

Item 12. Description of the Portfolio and its Investments and Risks ....... 2

Item 13. Management of the Registrant ..................................... 34

Item 14. Control Persons and Principal Holders of Securities .............. 36

Item 15. Investment Advisory and Other Services ........................... 37

Item 16. Brokerage Allocation and Other Practices ......................... 40

Item 17. Capital Stock and Other Securities ............................... 43

Item 18. Purchase, Redemption and Pricing of Securities ................... 44

Item 19. Taxation of the Trust ............................................ 46

Item 20. Underwriters ..................................................... 48

Item 21. Calculation of Performance Data .................................. 48

Item 22. Financial Statements.............................................. 49

PART C. OTHER INFORMATION

Item 23. Exhibits.......................................................... C-1

Item 24. Persons Controlled by or under Common Control with
Registrant........................................................ C-2

Item 25. Indemnification .................................................. C-3

Item 26. Business and Other Connections of Investment Adviser ............. C-5

Item 27. Principal Underwriters ........................................... C-9

Item 28. Location of Accounts and Records ................................. C-10

Item 29. Management Services .............................................. C-10

Item 30. Undertakings ..................................................... C-10

*Responses to Items 1, 2, 3, 5 and 9 have been omitted pursuant to paragraph
2(b) of Instruction B of the General Instructions to Form N-1A.

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PART A

Item 4. -- Investment Objectives, Principal Investment Strategies, and
Related Risks.

Quantitative Master Series Trust (the "Trust" or the "Registrant") is a
no-load, open-end management investment company which was organized as a
Delaware business trust on August 28, 1996. Master S&P 500 Index Series ("S&P
500 Index Series"), Master Mid Cap Index Series ("Mid Cap Index Series"), Master
Small Cap Index Series ("Small Cap Index Series"), Master Aggregate Bond Index
Series ("Aggregate Bond Index Series"), Master International (GDP Weighted)
Index Series ("International (GDP Weighted) Index Series"), Master International
(Capitalization Weighted) Index Series ("International (Capitalization Weighted)
Index Series"), Master Enhanced S&P 500 Series ("Enhanced S&P 500 Series"),
Master Enhanced International Series ("Enhanced International Series"), Master
Quantitative Large Cap Series ("Quantitative Large Cap Series"), Master
Quantitative Large Cap Value Series ("Quantitative Large Cap Value Series"),
Master Quantitative Large Cap Growth Series ("Quantitative Large Cap Growth
Series"), Master Quantitative Mid Cap Series ("Quantitative Mid Cap Series"),
Master Quantitative Small Cap Series ("Quantitative Small Cap Series") and
Master Quantitative International Series ("Quantitative International Series")
(together, the "Series" and each, a "Series") are each separate series of the
Trust. The Index Series and the Enhanced Series (as each such term is defined
below) are non-diversified investment companies and the Quantitative Series (as
defined below) are diversified investment companies, and each Series has
different investment objectives and policies. There can, of course, be no
assurance that the respective investment objectives of the Series can be
achieved.

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INVESTMENT OBJECTIVES AND PRINCIPAL INVESTMENT STRATEGIES

S&P 500 Index Series, Mid Cap Index Series, Small Cap Index Series,
Aggregate Bond Index Series, International (GDP Weighted) Index Series and
International (Capitalization Weighted) Index Series (each an "Index Series" and
collectively, the "Index Series").

The S&P 500 Index Series, Mid Cap Index Series, Small Cap Index Series,
Aggregate Bond Index Series, International (GDP Weighted) Index Series and
International (Capitalization Weighted) Index Series are Index Series. These
Series will not attempt to buy or sell securities based on the Investment
Adviser's (as defined below) economic, financial or market analysis, but will
instead employ a "passive" investment approach. This means that the Investment
Adviser will attempt to invest in a portfolio of assets whose performance is
expected to match approximately the performance of the respective index before
deduction of expenses. An Index Series will only buy or sell securities when the
Investment Adviser believes it is necessary to do so in order to match the
performance of the respective index. Accordingly, it is anticipated that an
Index Series' portfolio turnover and trading costs will be lower than that of an
"actively" managed fund. However, the Index Series have operating and other
expenses, while an index does not. Therefore, each Index Series may tend to
underperform its target index to some degree over time.

Each Index Series will be substantially invested in securities in the
applicable index, and will invest at least 80% of its assets in securities or
other financial instruments which are contained in or correlated with securities
in the applicable index. An Index Series may change its target index if the
Investment Adviser believes a different index would better enable the Index
Series to match the performance of the market segment represented by the current
index and, accordingly, the investment objective of an Index Series may be
changed without shareholder approval. In addition to the investment strategies
described below, each Series may also invest in illiquid securities and
repurchase agreements, and may engage in securities lending.

Each Index Series will also invest in short term money market
instruments as cash reserves to maintain liquidity. These instruments may
include obligations of the U.S. Government, its agencies or instrumentalities,
highly rated bonds or comparable unrated bonds, commercial paper, bank
obligations and repurchase agreements. To the extent a Series invests in short
term money market instruments, it will generally also invest in options, futures
or other derivatives in order to maintain full exposure to the index. The Series
will not invest in options, futures, other derivative instruments or short term
money market instruments in order to lessen the Series' exposure to common
stocks as a defensive strategy, but will instead attempt to remain fully
invested at all times.

Enhanced S&P 500 Series and Enhanced International Series (each an
"Enhanced Series" and collectively, the "Enhanced Series").

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The Enhanced S&P 500 Series and the Enhanced International Series seek
to provide a total return exceeding the respective index while actively seeking
to reduce downside risk as compared with the index. Each Enhanced Series invests
at least 80% of its assets in stocks of companies in its respective index, and
options, futures and other derivative instruments correlated with components of
that index. Each Enhanced Series will attempt to construct a portfolio of
securities and derivative instruments that will at least match approximately the
performance of its respective index before deduction of expenses, but will also
employ various strategies to seek to enhance performance relative to its
respective index. Such enhancement strategies may include (1) investment in
derivative instruments correlated with the index or components of the index
rather than securities represented in the index whenever the Investment Adviser
believes derivative instruments present price or return characteristics superior
to those of securities, (2) certain types of arbitrage (for example, arbitrage
between different share classes of a company or a single share class listed on
different exchanges), and (3) biasing the portfolio (relative to the index) in
order to emphasize securities which have quantitative characteristics the
Investment Adviser believes may enhance performance.

Each Enhanced Series will invest in short term money market
instruments as cash reserves to maintain liquidity. These instruments may
include obligations of the U.S. Government, its agencies or instrumentalities,
highly rated bonds or comparable unrated bonds, commercial paper, bank
obligations and repurchase agreements. To the extent an Enhanced Series
invests in short term money market instruments, it will generally also invest in
options, futures or other derivatives in order to maintain exposure to the
index.

An Enhanced Series may change its target index if the Investment
Adviser believes a different index would better enable the Enhanced Series to
match the performance of the market segment represented by the current index
and, accordingly, the investment objective of an Enhanced Series may be changed
without shareholder approval. In addition to the investment strategies described
below, each Enhanced Series may also invest in illiquid securities and
repurchase agreements, and may engage in securities lending.

Index Series

S&P 500 Index Series

The Standard & Poor's(R) 500 Composite Stock Price Index ("S&P 500") is
composed of 500 common stocks issued by large-capitalization U.S. companies in a
wide range of businesses. The stocks included in the index collectively
represent a substantial portion of all common stocks publicly traded in the U.S.
The S&P 500 is generally considered broadly representative of the performance of
publicly traded U.S. large capitalization stocks. The S&P 500 is a
market-weighted index, which means that the largest stocks

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represented in the index have the most effect on the index's performance. A
market-weighted index is an index in which the weighting of each security is
based on its market capitalization. In a market weighted index, changes in the
price of a company with a large capitalization affect the level of the index
more than changes in the price of a company with a smaller market
capitalization. Currently, the largest stocks in the S&P 500 have an effect on
the performance of the index that is many times greater than the effect of the
other stocks in the index. The stocks in the S&P 500 are chosen by the Standard
& Poor's Rating Group ("S&P"), a division of the McGraw-Hill Companies, Inc. S&P
chooses stocks for inclusion in the S&P 500 based on market capitalization,
which is the number of a company's outstanding shares multiplied by a share's
current market value and is a measure of a company's size, trading activity and
the overall mix of industries represented in the index, among other factors.
S&P's selection of a stock for the S&P 500 does not mean that S&P believes the
stock to be an attractive investment.

The Series may invest in all 500 stocks in the S&P 500 in roughly the
same proportions as their weightings in the S&P 500. For example, if 2% of the
S&P 500 is made up of the stock of a particular company, the Series may invest
approximately 2% of its assets in that company. This strategy is known as "full
replication." However, when the Investment Adviser believes it would be cost
efficient, the Series may deviate from full replication and instead invest in a
sample of the 500 stocks in the S&P 500 based on the Investment Adviser's
optimization process, a statistical sampling technique that aims to create a
portfolio which has aggregate investment characteristics, such as average market
capitalization and industry weightings, similar to the S&P 500 as a whole, but
which involves fewer transactions costs than would be incurred through full
replication. The Investment Adviser may also purchase stocks not included in the
S&P 500 when it believes that it would be a cost efficient way of approximating
the S&P 500's performance to do so. If the Investment Adviser uses these
techniques, the Series may not track the S&P 500 as closely as it would if it
were fully replicating the S&P 500.

The Series may invest in derivative instruments, and will normally
invest a substantial portion of its assets in options and futures contracts
linked to the performance of the S&P 500. Derivatives allow the Series to
increase or decrease its exposure to the S&P 500 quickly and at less cost than
buying or selling stocks. The Series will invest in options, futures and other
derivative instruments in order to gain market exposure quickly in the event of
subscriptions, to maintain liquidity in the event of redemptions and to keep
trading costs low. In connection with the use of derivative instruments, the
Series may enter into short sales in order to adjust the weightings of
particular securities represented in a derivative to more accurately reflect the
securities' weightings in the target index.

Mid Cap Index Series.

The Standard & Poor's (R) Mid Cap 400 Index ("S&P 400") is composed of
400 common stocks issued by U.S. mid-capitalization companies in a wide range of
businesses. The S&P 400 is generally considered broadly representative of the
performance of publicly traded U.S. mid-capitalization stocks. The S&P 400 is a
market-weighted index, which means that the largest stocks represented in the
index have the most effect on the index's performance. The stocks in the S&P 400
are chosen by S&P. S&P chooses stocks for inclusion in the S&P 400 based on
market capitalization, trading activity and the overall mix of industries
represented in the index, among other factors. S&P's selection of a stock for
the S&P 400 does not mean that S&P believes the stock to be an attractive
investment.

The Series may invest in all 400 stocks in the S&P 400 in roughly the
same proportions as their weightings in the S&P 400. For example, if 2% of the
S&P 400 is made up of the stock of a particular company, the Series may invest
approximately 2% of its assets in that company. This strategy is known as "full
replication." However, when the Investment Adviser believes it would be cost
efficient the Series may deviate from full replication and instead invest in a
sample of the stocks in the S&P 400 based on the Investment Adviser's
optimization process, a statistical sampling technique that aims to create a
portfolio which has aggregate investment characteristics, such as average market
capitalization and industry weightings, similar to the S&P 400 as a whole, but
which involves fewer transaction costs than would be incurred through full
replication. The Investment Adviser may also purchase stocks not included in the
S&P 400 when it believes that it would be a cost efficient way of approximating
the S&P 400's performance to do so. If the Investment Adviser uses these
techniques, the Series may not track the S&P 400 as closely as it would if it
were fully replicating the S&P 400.

The Series may invest in derivative instruments, and will normally
invest a substantial portion of its assets in options and futures contracts
linked to the performance of the S&P 400. Derivatives allow the Series to
increase or decrease its exposure to the S&P 400 quickly and at less cost than
buying or selling stocks. The Series will invest in options, futures and other
derivative instruments in order to gain market exposure quickly in the event of
subscriptions, to maintain liquidity in the event of redemptions and to keep
trading costs low. In connection with the use of derivative instruments, the
Series may enter into short sales in order to adjust the weightings of
particular securities represented in a derivative to more accurately reflect the
securities' weightings in the target index.

Small Cap Index Series

The Russell 2000(R) Index ("Russell 2000") is composed of the common
stocks of the 1,001st through 3,000th largest U.S. companies by market
capitalization, as determined by the Frank Russell Company. The stocks
represented in the index are issued by small-capitalization (generally less than
$1.5 billion) U.S. companies in a wide range of businesses. The Russell 2000 is
a market-weighted index, which means that the largest stocks represented in the
index have the most effect on the index's performance. The Russell 2000 is
generally considered broadly representative of the performance of publicly
traded U.S. smaller-capitalization stocks. Frank Russell Company's selection of
a stock for the Russell 2000 does not mean that Frank Russell Company believes
the stock to be an attractive investment.

6
<PAGE>

The Frank Russell Company updates the Russell 2000 once each year, at
which time there may be substantial changes in the composition of the index (and
consequently, significant turnover in the Series). Stocks of companies that
merge, are acquired or otherwise cease to exist during the year are not replaced
in the index.

The Series will not normally invest in all of the common stocks in the
Russell 2000, or in the same weightings as in the Russell 2000. Instead, the
Series will normally invest in a sample of the stocks included in the Russell
2000 based on the Investment Adviser's optimization process, a statistical
sampling technique that aims to create a portfolio that will match approximately
the performance of the index with fewer transaction costs than would be incurred
through full replication. The Series will choose investments so that the market
capitalizations, industry weightings and other fundamental characteristics of
the stocks and derivative instruments in its portfolio are similar to the
Russell 2000 as a whole. The Series may invest in derivative instruments, and
will normally invest a substantial portion of its assets in options and futures
contracts linked to the performance of the Russell 2000. Derivatives allow the
Series to increase or decrease its exposure to the Russell 2000 quickly and at
less cost than buying or selling stocks.

The Series will invest in options and futures and other derivative
instruments in order to gain market exposure quickly in the event of
subscriptions, to maintain liquidity in the event of redemptions and to keep
trading costs low. In connection with the use of derivative instruments, the
Series may enter into short sales in order to adjust the weightings of
particular securities represented in a derivative to more accurately reflect the
securities' weightings in the target index.

Aggregate Bond Index Series

The Lehman Brothers Aggregate Bond Index ("Aggregate Bond Index") is a
market-weighted index consisting of approximately 6,500 U.S. dollar-denominated
investment grade bonds with maturities greater than one year, as chosen by
Lehman Brothers Holdings Inc. ("Lehman Brothers"). The Lehman Brothers Aggregate
Bond Index includes:

o U.S. government and government agency securities

o securities issued by supranational entities, such as the
World Bank

o securities issued by foreign governments and U.S. and foreign
corporations

o mortgage-backed securities (securities that give their holder the
right to receive a portion of principal and/or interest payments
made on a pool of residential or commercial mortgage loans)

Lehman Brothers' selection of a bond for the Aggregate Bond Index does not mean
that Lehman Brothers believes the security to be an attractive investment.

The Series will not normally invest in all of the bonds in the
Aggregate Bond Index, or in the same weightings as in the Aggregate Bond Index.
Instead, the Series will normally invest in a sample of bonds

<PAGE>

included in the Aggregate Bond Index, or in a sample of bonds not included in
the index but closely correlated with bonds that are in the index, and in
derivative instruments correlated with the Aggregate Bond Index based on the
Investment Adviser's optimization process, a statistical sampling technique that
aims to create a portfolio that will match approximately the performance of the
index with fewer transaction costs than would be incurred through full
replication. The Series may occasionally invest in bonds not included in the
index, but which are selected to reflect characteristics such as maturity,
duration, and credit quality that are similar to bonds in the index. This may
result in somewhat different levels of interest rate, credit or other risks from
the levels of risks on the securities included in the Aggregate Bond Index. The
Aggregate Bond Index Series may trade securities to the extent necessary to
maintain the duration of certain segments of the portfolio close to the duration
of corresponding segments of the index, and, accordingly, the Aggregate Bond
Index Series may have a higher portfolio turnover rate than the other Index
Series.

Because the Aggregate Bond Index is composed of investment grade bonds,
the Series will invest in corporate bonds rated investment grade (rated at least
Baa by Moody's Investors Services, Inc. or BBB by Standard & Poor's Ratings
Group), or if unrated, of comparable quality. The Series may continue to hold a
security that is downgraded below investment grade.

The Series will usually invest a substantial portion of its assets in
mortgage-backed securities. Mortgage-backed securities may be either pass
through securities or collateralized mortgage obligations. Pass through
securities are securities that represent a right to receive principal and
interest payments collected on a pool of mortgages, which are passed through to
security holders (less servicing costs). Collateralized mortgage obligations are
mortgage-backed securities that divide the principal and interest payments
collected on a pool of mortgages into several revenue streams with different
priority rights to various portions of the underlying mortgage payments.

The Series may also purchase securities on a when-issued basis, and it
may purchase or sell securities for delayed delivery. This is when the Series
buys or sells securities with payment and delivery taking place in the future so
that the Series can lock in a favorable yield and price at the time of entering
into the transaction. The Series may also enter into dollar rolls in which the
Series sells securities for delivery in the current month and simultaneously
contracts to repurchase substantially similar securities on a future date from
the same party. During the period between the Series' sale of one security and
purchase of a similar security, the Series does not receive principal and
interest on the securities sold. The Series may also enter into standby
commitment agreements in which the Series is committed, for a stated period of
time, to buy a stated amount of a fixed income security which may be issued and
sold to the Series at the option of the issuer. The price of the security is
fixed at the time of the commitment, and the Series is paid a commitment fee
whether the security is issued or not.

The Series may invest in derivative instruments, and will normally
invest a substantial portion of its assets in options and futures contracts
correlated with the performance of the Aggregate Bond Index. Derivatives may
allow the Fund to increase or decrease its exposure to the Aggregate Bond Index
quickly and at less cost than buying or selling bonds. The Series may invest in
options and futures and other derivative instruments in order to gain market
exposure quickly in the event of subscriptions, to maintain liquidity in the
event of redemptions and to keep trading costs low. In connection with the use
of derivative instruments, the Series may

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enter into short sales in order to adjust the weightings of particular
securities represented in a derivative to more accurately reflect the
securities' weightings in the target index.

International (GDP Weighted) Index Series

The Morgan Stanley Capital International Europe, Asia and Far East GDP
Weighted Index ("EAFE (GDP Weighted) Index") is composed of equity securities of
approximately 1,000 companies from various industrial sectors whose primary
trading markets are located outside the U.S. Companies included in the EAFE (GDP
Weighted) Index are selected from among the larger capitalization companies in
these markets. The countries currently included in the EAFE (GDP Weighted) Index
are Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong,
Ireland, Italy, Japan, The Netherlands, New Zealand, Norway, Portugal,
Singapore, Spain, Sweden, Switzerland and United Kingdom. The weighting of the
EAFE (GDP Weighted) Index among these countries is based upon each country's
gross domestic product and not relative market capitalization, which means that
the index contains more companies from countries with the highest gross domestic
product and these countries have the most affect on the index's performance. The
stocks in the EAFE (GDP Weighted) Index are chosen by Morgan Stanley Capital
International, Inc. ("Morgan Stanley"). Morgan Stanley chooses stocks for
inclusion in the EAFE (GDP Weighted) Index based on market capitalization,
trading activity and the overall mix of industries represented in the index,
among other factors. The EAFE (GDP Weighted) Index is generally considered
broadly representative of the performance of stocks traded in the international
markets. Morgan Stanley's selection of a stock for the EAFE (GDP Weighted) Index
does not mean that Morgan Stanley believes the stock to be an attractive
investment.

The Series may not invest in all of the countries, or all of the
companies within a country, represented in the EAFE (GDP Weighted) Index, or in
the same weightings as the EAFE (GDP Weighted) Index. Instead, the Series may
invest in a sample of equity securities included in the EAFE (GDP Weighted)
Index and in derivative instruments correlated with components of the EAFE (GDP
Weighted) Index based on the Investment Adviser's optimization process, a
statistical sampling technique that aims to create a portfolio that will match
approximately the performance of the index with fewer transaction costs than
would be incurred through full replication.

The Series may invest in derivative instruments, and will normally
invest a substantial portion of its assets in options and futures contracts
correlated with components of the EAFE (GDP Weighted) Index. Derivatives allow
the Series to increase or decrease its exposure to the EAFE (GDP Weighted) Index
quickly and at less cost than buying or selling stocks. The Series will invest
in options and futures and other derivative instruments in order to gain market
exposure quickly in the event of subscriptions, to maintain liquidity in the
event of redemptions and to keep trading costs low. In connection with the use
of derivative instruments, the Series may enter into short sales in order to
adjust the weightings of particular securities represented in a derivative to
more accurately reflect the securities' weightings in the target index.

9
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International (Capitalization Weighted) Index Series

The Morgan Stanley Capital International Europe, Asia and Far East
Capitalization Weighted Index ("EAFE (Capitalization Weighted) Index") is
composed of equity securities of approximately 1,0000 companies from various
industrial sectors whose primary trading markets are located outside the U.S.
Companies included in the EAFE (Capitalization Weighted) Index are selected from
among the larger capitalization companies in these markets. The countries
currently included in the EAFE (Capitalization Weighted) Index are Australia,
Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy,
Japan, The Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden,
Switzerland and United Kingdom. The weighting of the EAFE (Capitalization
Weighted) Index among these countries is based upon each country's relative
market capitalizations, and not its gross domestic product, which means that the
index contains more companies from countries with the largest capital markets
(like Japan and the United Kingdom) and they have the most effect on the index's
performance. The stocks in the EAFE (Capitalization Weighted) Index are chosen
by Morgan Stanley. Morgan Stanley chooses stocks for inclusion in the EAFE
(Capitalization Weighted) Index based on market capitalization, trading activity
and the overall mix of industries represented in the index, among other factors.
The EAFE (Capitalization Weighted) Index is generally considered broadly
representative of the performance of stocks traded in the international markets.
Morgan Stanley's selection of a stock for the EAFE (Capitalization Weighted)
Index does not mean that Morgan Stanley believes the stock to be an attractive
investment.

The Series will, under normal circumstances, however, invest in all of
the countries represented in the EAFE (Capitalization Weighted) Index. The
Series may not, however, invest in all of the companies within a country,
represented in the EAFE (Capitalization Weighted) Index, or in the same
weightings as the EAFE (Capitalization Weighted) Index. Instead, the Series may
invest in a sample of equity securities included in the EAFE (Capitalization
Weighted) Index and in derivative instruments correlated with countries within
the EAFE (Capitalization Weighted) Index based on the Investment Adviser's
optimization process, a statistical sampling technique that aims to create a
portfolio that will match approximately the performance of the index with fewer
transaction costs than would be incurred through full replication.

The Series may invest in derivative instruments, and will normally
invest a substantial portion of its assets in options and futures contracts
correlated with countries within the EAFE (Capitalization Weighted) Index.
Derivatives allow the Series to increase or decrease its exposure to the EAFE
(Capitalization Weighted) Index quickly and at less cost than buying or selling
stocks. The Series will invest in options, futures and other derivative
instruments in order to gain market exposure quickly in the event of
subscriptions, to maintain liquidity in the event of redemptions and to keep
trading costs low. In connection with the use of derivative instruments, the
Series may enter into short sales in order to adjust the weightings of
particular securities represented in a derivative to more accurately reflect the
securities' weightings in the target index.

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Enhanced Series

Enhanced S&P 500 Series

The S&P 500 is composed of 500 common stocks issued by
large-capitalization U.S. companies in a wide range of businesses. The stocks
included in the index collectively represent a substantial portion of all common
stocks publicly traded in the U.S. The S&P 500 is generally considered broadly
representative of the performance of publicly traded U.S. large capitalization
stocks. The S&P 500 is a market-weighted index, which means that the largest
stocks represented in the index have the most effect on the index's performance.
Currently, the largest stocks in the S&P 500 have an effect on the performance
of the index that is many times greater than the effect of the other stocks in
the index. The stocks in the S&P 500 are chosen by S&P, a division of the
McGraw-Hill Companies, Inc. S&P chooses stocks for inclusion in the S&P 500
based on market capitalization, trading activity and the overall mix of
industries represented in the index, among other factors. S&P's selection of a
stock for the S&P 500 does not mean that S&P believes the stock to be an
attractive investment.

The Enhanced S&P 500 Series invests at least 80% of its assets in
stocks of companies in the S&P 500 and options, futures and other derivative
instruments based on that index. The Enhanced S&P 500 Series will attempt to
construct a portfolio of securities and derivative instruments that will at
least match approximately the performance of the S&P 500 before deduction of
expenses, but will also employ various strategies to seek to enhance performance
relative to the S&P 500. Such enhancement strategies may include (1) investment
in derivative instruments correlated with the index or components of the index
rather than securities represented in the index whenever the Investment Adviser
believes derivative instruments present price or return characteristics superior
to those of securities, (2) certain types of arbitrage, and (3) biasing the
portfolio (relative to the S&P 500) in order to emphasize securities which have
quantitative characteristics the Investment Adviser believes are associated with
outperformance.

The Enhanced S&P 500 Series may invest in derivative instruments,
and will normally invest a substantial portion of its assets in options and
futures contracts correlated with the S&P 500. Derivatives allow the Series to
increase exposure to the S&P 500 quickly and at less cost than buying or selling
stocks. The Series will invest in options, futures and other derivative
instruments, in order to gain market exposure quickly in the event of
subscriptions, to maintain liquidity in the event of redemptions and to keep
trading costs low. In connection with the use of derivative instruments, the
Series may enter into short sales in order to adjust the weightings of
particular securities represented in a derivative to more accurately reflect the
securities weightings in the S&P 500 or to bias the portfolio (relative to the
S&P 500) in order to seek to enhance performance. The Series will also invest in
derivatives whenever the Investment Adviser believes a derivative (including
futures, total return index swaps, options, warrants and convertible bonds)
presents price or return characteristics superior to those of stocks represented
in the index. The Series may also invest in derivatives in connection with
arbitrage transactions.

11
<PAGE>

The Series will engage in certain types of arbitrage when the
Investment Adviser sees opportunity to do so. The types of arbitrage the Series
may employ include stock index arbitrage (exploiting discrepancies between the
value of S&P 500 futures or other derivatives and the value of the index),
convertible bond arbitrage (exploiting discrepancies between the implied value
of an option embedded in a convertible bond and the actual value of the option)
and other forms of option arbitrage, and share arbitrage (exploiting
discrepancies in the value of different share classes of a company or in a
single share class listed on more than one exchange). The Series may enter into
short sales of various types of securities and financial instruments, including
securities and financial instruments not represented in the S&P 500, in
connection with arbitrage transactions.

While the Series expects the overall weighting of its investments to be
similar to the capitalization weights of the S&P 500, the Series' investments
may not exactly replicate the portfolio weights of the index at all times.
Instead, the Investment Adviser may bias the portfolio (relative to the S&P 500)
in order to emphasize securities that have quantitative characteristics (such as
above-average yield or below-average valuation) the Investment Adviser believes
may enhance performance. By using a proprietary computer model to overweight or
underweight certain companies in the portfolio relative to the index, the Series
seeks to slightly outperform or reduce somewhat its volatility relative to the
index over time.

The Series may also invest in new issues, convertible securities,
foreign securities, and foreign currency exchange contracts, and sell covered
call options. For more information on these and other investments of the Series,
see the Statement of Additional Information.

Enhanced International Series

The EAFE (Capitalization Weighted) Index is composed of equity
securities of companies from various industrial sectors whose primary trading
markets are located outside the U.S. Companies included in the EAFE
(Capitalization Weighted) Index are selected from among the larger
capitalization companies in these markets. The countries currently included in
the EAFE (Capitalization Weighted) Index are Australia, Austria, Belgium,
Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan, The
Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden,
Switzerland and United Kingdom. The weighting of the EAFE (Capitalization
Weighted) Index among these countries is based upon each country's relative
market capitalizations, rather than its gross domestic product. The stocks in
the EAFE (Capitalization Weighted) Index are chosen by Morgan Stanley. Morgan
Stanley chooses stocks for inclusion in the EAFE (Capitalization Weighted) Index
based on market capitalization, trading activity and the overall mix of
industries represented in the index, among other factors. The EAFE
(Capitalization Weighted) Index is generally considered broadly representative
of the performance of stocks traded in the international markets. Morgan
Stanley's selection of a stock for the EAFE (Capitalization Weighted) Index does
not mean that Morgan Stanley believes the stock to be an attractive investment.

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<PAGE>

The Enhanced International Series invests at least 80% of its assets in
stocks of companies in the EAFE (Capitalization Weighted) Index and options,
futures and other derivative instruments based on components of that index. The
Enhanced International Series will attempt to construct a portfolio of
securities and derivative instruments that will at least match approximately the
performance of the EAFE (Capitalization Weighted) Index before deduction of
expenses, but will also employ various strategies to seek to enhance performance
relative to the EAFE (Capitalization Weighted) Index. Such enhancement
strategies may include (1) investment in derivative instruments correlated with
the index or components of the index rather than securities represented in the
index whenever the Investment Adviser believes derivative instruments present
price or return characteristics superior to those of securities, (2) certain
types of arbitrage, and (3) biasing the portfolio (relative to the EAFE
(Capitalization Weighted) Index) in order to emphasize securities which have
quantitative characteristics the Investment Adviser believes are associated with
outperformance.

The Enhanced International Series may invest in derivative instruments,
and will normally invest a substantial portion of its assets in options and
futures contracts correlated with components of the EAFE (Capitalization
Weighted) Index. Derivatives allow the Series to increase exposure to the EAFE
(Capitalization Weighted) Index quickly and at less cost than buying or selling
stocks. The Series will invest in options, futures and other derivative
instruments, in order to gain market exposure quickly in the event of
subscriptions, to maintain liquidity in the event of redemptions and to keep
trading costs low. In connection with the use of derivative instruments, the
Series may enter into short sales in order to adjust the weightings of
particular securities represented in a derivative to more accurately reflect the
securities weightings in the EAFE (Capitalization Weighted) Index or to bias the
portfolio (relative to the EAFE (Capitalization Weighted) Index) in order to
seek to enhance performance. The Series will also invest in derivatives whenever
the Investment Adviser believes a derivative (including futures, total return
index swaps, options, warrants and convertible bonds) presents price or return
characteristics superior to those of stocks represented in the index. The Series
may also invest in derivatives in connection with arbitrage transactions.

The Series will engage in certain types of arbitrage when the
Investment Adviser sees opportunity to do so. The types of arbitrage the Series
may employ include stock index arbitrage (exploiting discrepancies between the
value of futures or other derivatives and the value of the index), convertible
bond arbitrage (exploiting discrepancies between the implied value of an option
embedded in a convertible bond and the actual value of the option) and other
forms of option arbitrage, and share arbitrage (exploiting discrepancies in the
value of different share classes of a company or in a single share class listed
on more than one exchange). The Series may enter into short sales of various
types of securities and financial instruments, including securities and
financial instruments not represented in the EAFE (Capitalization Weighted)
Index, in connection with arbitrage transactions.

<PAGE>

Adviser may bias the portfolio (relative to the EAFE (Capitalization Weighted)
Index) in order to emphasize securities which have quantitative characteristics
(such as above-average yield or below-average valuation) the Investment Adviser
believes may enhance performance. By using a proprietary computer model to
overweight or underweight certain companies in the portfolio relative to the
index, the Series seeks to slightly outperform or reduce somewhat its volatility
relative to the index over time.

Quantitative Large Cap Series, Quantitative Large Cap Value Series,
Quantitative Large Cap Growth Series, Quantitative Mid Cap Series, Quantitative
Small Cap Series and Quantitative International Series (each a "Quantitative
Series" and collectively, the "Quantitative Series").

Each Quantitative Series (other than the Quantitative International
Series) will invest, under normal circumstances, at least 65% of its total
assets in equity securities of U.S. issuers, including foreign issuers that are
traded in the United States. The Quantitative International Series will invest,
under normal circumstances, at least 65% of its total assets in equity
securities of companies whose primary trading markets are located outside of the
United States.

The Investment Adviser will seek to maximize each Series' expected
return by constructing a portfolio of investments that have risk and style
characteristics similar to those of a particular market segment. The market
segment for each of the Series is as follows:

- --------------------------------------- ----------------------------------------
Series Market Segment
- --------------------------------------- ----------------------------------------
Quantitative Large Cap Series stocks of large-capitalization companies
- --------------------------------------- ----------------------------------------
Quantitative Large Cap Value Series stocks of large-capitalization companies
selected through a "value" strategy
- --------------------------------------- ----------------------------------------
Quantitative Large Cap Growth Series stocks of large-capitalization companies
selected through a "growth" strategy
- --------------------------------------- ----------------------------------------
Quantitative Mid Cap Series stocks of mid-capitalization companies
- --------------------------------------- ----------------------------------------
Quantitative Small Cap Series stocks of small-capitalization companies
- --------------------------------------- ----------------------------------------
Quantitative International Series stocks of companies whose primary
trading markets are located outside of
the United States with an
emphasis on larger capitalization
companies in these markets
- --------------------------------------- ----------------------------------------

The Investment Adviser will principally use two strategies for
selection of investments for each Series. The first strategy involves the
evaluation and selection of stocks based on fundamental measures, such as (1)
earnings (surprises and analysts' revisions), (2) momentum (price and earnings),
and (3) valuation (enterprise value, price versus cash flows, and dividend
discount models).

For each Series, the Investment Adviser will emphasize identifying and
purchasing those stocks that it believes are priced most attractively and which
appear to present good opportunities for gain, based on its fundamental
research. The Quantitative Large Cap Value Series will focus on stock of
companies that appear to be undervalued by the market or which appear to be
temporarily out of favor, but which the Investment Adviser believes offer
promising long-term prospects. The Quantitative Large Cap Growth Series will
focus on stocks of companies that are expected to have better prospects for
earnings growth than the growth rate of the general domestic economy.

Secondarily, the Investment Adviser will use portfolio construction
techniques that seek to maintain a disciplined and style controlled strategy for
each Series. This means that the Investment Adviser will seek to identify and
purchase stocks that help to build a portfolio that is representative of each
Series' respective market segment. The Investment Adviser will employ
fundamental research and portfolio construction techniques together in order to
seek Series performance that exceeds that of the particular market segment.

In addition, to achieve further efficiencies in, and/or add value to, a
Series, each Series will also invest in derivative instruments that it believes
may serve as substitutes for individual securities in an attempt to broadly
represent a particular market or market segment. The derivative instruments in
which each Series may invest include the purchase and writing of options on
securities indices and the writing of covered call options on stocks or
derivative instruments correlated with an index or components of the index
rather than securities represented in the index. Each Series will normally
invest a substantial portion of its assets in options and futures contracts
correlated with an index representing the Series' particular market segment.
Derivatives allow the Series to increase exposure to the index quickly and at
less cost than buying or selling stocks. Each Series will invest in options,
futures and other derivative instruments in order to gain market exposure
quickly in the event of subscriptions, to maintain liquidity in the event of
redemptions and to keep trading costs low. Each Series will also invest in
derivatives whenever the Investment Adviser believes a derivative (including
futures, total return index swaps, options, warrants and convertible bonds)
presents price or return characteristics superior to those of stocks represented
in the index. The Quantitative International Series will use futures as an
efficient and less costly way of emphasizing or de-emphasizing investment in
particular countries represented in its market segment. The Series will consider
derivatives that provide exposure to equity indices or individual stocks to be
equity securities for purposes of the percentages described above.

Each Series may engage in certain types of investment transactions,
including short-term trading opportunities, that seek to profit from differences
in price when the same (or a similar) security, currency or commodity is traded
in two or more markets. For example, the Series may attempt to exploit
discrepancies between (i) the value of a futures contract (such as an S&P 500
futures contract) or other derivatives and the value of a particular index, (ii)
the implied value of an option embedded in a convertible bond and the actual
value of the option, (iii) the value of different share classes of a company or
in a single share class listed on more than one exchange, and (iv) the value of
the stock of a company subject to an announced but not yet completed merger,
takeover or other significant corporate event and the expected value of the
stock upon completion of such event. Each Series may also enter into short sales
of various types of securities and financial instruments, including securities
and financial instruments not represented in an index correlating with the
Series' particular market segment, in connection with such transactions.

Each of the market segments targeted by a Series is reflected in a
broad-based market index. Therefore, while none of the Series is an Index Series
that seeks to replicate an index, it is expected that each Series will have risk
and style characteristics similar to the index listed below:

- --------------------------------------- ----------------------------------------
Series Index
- --------------------------------------- ----------------------------------------
Quantitative Large Cap Series S&P 500
- --------------------------------------- ----------------------------------------
Quantitative Large Cap Value Series Standard & Poor's 500/Barra Value Index
- --------------------------------------- ----------------------------------------
Quantitative Large Cap Growth Series Standard & Poor's 500/Barra Growth Index
- --------------------------------------- ----------------------------------------
Quantitative Mid Cap Series S&P 400
- --------------------------------------- ----------------------------------------
Quantitative Small Cap Series Russell 2000
- --------------------------------------- ----------------------------------------
Quantitative International Series EAFE (Capitalization Weighted) Index
- --------------------------------------- ----------------------------------------

In addition to the investment strategies described above, each Series
may also invest in illiquid securities and repurchase agreements, and may engage
in securities lending. Furthermore, each Series may invest in new issues,
convertible securities, foreign securities, and foreign currency exchange
contracts, and sell covered call options. For more information on these and
other investments of the Series, see Part B.

Each Series may invest in short-term, fixed-income securities that are
considered to be cash equivalents. These instruments may include obligations of
the U.S. Government, its agencies or instrumentalities, highly rated bonds or
comparable unrated bonds, commercial paper, bank obligations and repurchase
agreements. To the extent a Series invests in short term money market
instruments, it will generally also invest in options, futures or other
derivatives in order to maintain full exposure to the particular market segment.
The Series will not invest in options, futures, other derivative instruments or
short term money market instruments in order to lessen the Series' exposure to
common stocks as a defensive strategy, but will instead attempt to remain fully
invested at all times.

INVESTMENT RISKS

This section contains a summary discussion of the general risks of
investing in a Series. As with any mutual fund, there can be no guarantee that a
Series will meet its goals or that a Series' performance will be positive over
any period of time.

S&P 500 Index Series, Mid Cap Index, Small Cap Index Series,
International (GDP Weighted) Index Series, International
(Capitalization Weighted) Index Series, Enhanced Series and
Quantitative Series.

Stock Market Risk -- Stock market risk is the risk that the stock
markets will go down in value, including the possibility that the markets will
go down sharply and unpredictably.

Aggregate Bond Index Series

Interest Rate Risk -- Interest rate risk is the risk that prices of
bonds generally increase when interest rates decline and decrease when interest
rates increase. Prices of longer term securities generally change more in
response to interest rate changes than prices of shorter term securities.

Credit Risk -- Credit risk is the risk that the issuer will be unable
to pay the interest or principal when due. The degree of credit risk depends on
both the financial condition of the issuer and the terms of the obligation.

Event Risk -- Event risk is the risk that corporate issuers may undergo
restructurings, such as mergers, leveraged buyouts, takeovers, or similar
events, which may be financed by increased debt. As a result of the added debt,
the credit quality and market value of a company's bonds may decline
significantly.

Mortgage-Backed Securities -- When interest rates fall, borrowers may
refinance or otherwise repay principal on their mortgages earlier than
scheduled. When this happens, certain types of mortgage-backed securities will
be paid off more quickly than originally anticipated and the Series has

<PAGE>

to invest the proceeds in securities with lower yields. This risk is known as
"prepayment risk." When interest rates rise, certain types of mortgage-backed
securities are paid off more slowly than originally anticipated and the value of
these securities will fall. This risk is known as "extension risk." Because of
prepayment risk and extension risk, mortgage-backed securities react differently
to changes in interest rates than other debt securities. Small movements in
interest rates (both increases and decreases) may quickly and significantly
reduce the value of certain mortgage-backed securities.

Dollar Rolls -- Dollar rolls involve the risk that the market value of
the securities that the Series is committed to buy may decline below the price
of the securities the Series has sold. These transactions may involve leverage.
The Series will engage in dollar rolls to enhance return and not for the purpose
of borrowing.

Standby Commitment Agreements -- Standby commitment agreements involve
the risk that the value of the security on the delivery date may be less than
its purchase price.

When Issued Securities, Delayed Delivery Securities and Forward
Commitments -- When issued and delayed delivery securities and forward
commitments involve the risk that the security the Series buys will lose value
prior to its delivery. There also is the risk that the security will not be
issued or that the other party will not meet its obligation. If this occurs, the
Series loses both the investment opportunity for the assets it has set aside to
pay for the security and any gain in the security's price.

Foreign Government Debt -- The Aggregate Bond Index Series may invest
in debt securities issued or guaranteed by foreign governments or their
agencies. Investments in these securities subject the Series to the risk that a
government entity may delay or refuse to pay interest or repay principal on its
debt for various reasons, including cash flow problems, insufficient foreign
currency reserves, political considerations, or the relative size of its debt
position to its economy. If a government entity defaults, it may ask for more
time in which to pay or for further loans. There may be no bankruptcy proceeding
by which all or part of debt securities that a government entity has not repaid
may be collected.

Aggregate Bond Index Series, International (GDP Weighted) Index Series,
International (Capitalization Weighted) Index Series, Enhanced
International Series and Quantitative International Series

Foreign Market Risk -- Since a Series may invest in foreign securities,
it offers the potential for more diversification than an investment only in the
United States. This is because stocks traded on foreign markets have often
(though not always) performed differently than stocks in the United States.
However, such investments involve special risks not present in U.S. investments
that can increase the chances that the Series will lose money. In particular,
investment in foreign securities involves the following risks, which are
generally greater for investments in emerging markets.

o The economies of certain foreign markets often do not compare
favorably with that of the United States in areas such as
growth of gross domestic product,

15
<PAGE>

reinvestment of capital, resources, and balance of payments. Some of these
economies may rely heavily on particular industries or foreign capital. They may
be more vulnerable to adverse diplomatic developments, the imposition of
economic sanctions against a particular country or countries, changes in
international trading patterns, trade barriers, and other protectionist or
retaliatory measures.

o Investments in foreign markets may be adversely affected by
governmental actions such as the imposition of capital
controls, nationalization of companies or industries,
expropriation of assets, or the imposition of punitive taxes.

o The governments of certain countries may prohibit or impose
substantial restrictions on foreign investing in their capital
markets or in certain industries. Any of these actions could
severely affect security prices. They could also impair a
Series' ability to purchase or sell foreign securities or
transfer its assets or income back into the United States, or
otherwise adversely affect a Series' operations.

o Other foreign market risks include foreign exchange controls,
difficulties in pricing securities, defaults on foreign
government securities, difficulties in enforcing favorable
legal judgments in foreign courts, and political and social
instability. Legal remedies available to investors in some
foreign countries may be less extensive than those available
to investors in the United States.

o Because there are generally fewer investors on foreign
exchanges and a smaller number of shares traded each day, it
may be difficult for a Series to buy and sell securities on
those exchanges. In addition, prices of foreign securities may
go up and down more than prices of securities traded in the
United States.

o Foreign markets may have different clearance and settlement
procedures. In certain markets, settlements may be unable to
keep pace with the volume of securities transactions. If this
occurs, settlement may be delayed and a Series' assets may be
uninvested and not earning returns. A Series may miss
investment opportunities or be unable to sell an investment
because of these delays.

Governmental Supervision and Regulation/Accounting Standards -- Many
foreign governments supervise and regulate stock exchanges, brokers and the sale
of securities less than the United States does. Some countries may not have laws
to protect investors the way that the U.S. securities laws do. For example, some
foreign countries may have no laws or rules against insider trading. Insider
trading occurs when a person buys or sells a company's securities based on
non-public information about that company. Accounting standards in other
countries are not necessarily the same as the United States. If the accounting
standards in another country do not require as much, also, brokerage commissions
and other costs of buying or selling securities often are higher in foreign
countries than they are in the United States. This reduces the amount a Series
can earn on its investments.

Currency Risk and Exchange Risk -- Securities in which the Aggregate
Bond Index Series, International (GDP Weighted) Index Series, International
(Capitalization Weighted) Index Series, Enhanced International Series and
Quantitative International Series invest may be denominated or quoted in
currencies other than the U.S. dollar. Changes in foreign currency exchange
rates will affect the value of the Series' portfolio. Generally, when the U.S.
dollar rises in value against a foreign currency, a security denominated in that
currency loses value because the currency is worth fewer U.S. dollars.
Conversely, when the U.S. dollar decreases in value against a foreign currency,
a security denominated in that currency gains value because the currency is
worth more U.S. dollars. This risk, generally known as "currency risk", means
that a stronger U.S. dollar will reduce returns for U.S. investors while a weak
U.S. dollar will increase those returns.

16
<PAGE>

Certain Risks of Holding Series Assets Outside the United States -- The
Aggregate Bond Index Series, International (GDP Weighted) Index Series,
International (Capitalization Weighted) Index Series, Enhanced International
Series and Quantitative International Series generally hold the foreign
securities and cash in which they invest in foreign banks and securities
depositories. Some foreign banks and securities depositories may be recently
organized or new to the foreign custody business. In addition, there may be
limited or no regulatory oversight over their operations. Also, the laws of
certain countries may put limits on a Series' ability to recover its assets if a
foreign bank, depository or issuer of a security, or any of their agents goes
bankrupt. In addition, it is often more expensive for a Series to buy, sell, and
hold securities in certain foreign markets than in the U.S. The increased
expense to invest in foreign markets reduces the amount a Series can earn on its
investments and typically results in a higher operating expense ratio for the
Series than investment companies invested only in the U.S.

Dividends or interest on, or proceeds from the sale of, foreign
securities may be subject to foreign withholding taxes, and special U.S. tax
considerations may apply.

European Economic and Monetary Union -- A number of European countries
have entered into EMU in an effort to reduce trade barriers between themselves
and eliminate fluctuations in their currencies. EMU establishes a single
European currency (the euro), that was introduced on January 1, 1999 and is
expected to replace the existing national currencies of all initial EMU
participants by July 1, 2002. Certain securities (beginning with government and
corporate bonds) were redenominated in the euro. These securities trade and make
dividend and other payments only in euros. Like other investment companies and
business organizations, including the companies in which a Series invest, the
Series could be adversely affected:

o If the transition to euro, or EMU as a whole, does not continue to
proceed as planned.

o If a participating country withdraws from EMU.

17
<PAGE>

o If the computing, accounting and trading systems used by a Series'
service providers, or by other entities with which the Series or its
service providers do business, are not capable of recognizing the
euro as a distinct currency.

Mid Cap Index Series, Small Cap Index Series, Quantitative Mid Cap
Series and Quantitative Small Cap Series.

Volatility -- Stocks of small and medium companies tend to be more
volatile than stocks of larger companies and can be particularly sensitive to
expected changes in interest rates, borrowing costs and earnings.

Small Cap Index Series and Quantitative Small Cap Series

Small Cap Risk -- Small cap companies may have limited product lines or
markets. They may be less financially secure than larger, more established
companies. They may depend on a small number of key personnel. If a product
fails, or if management changes, or there are other adverse developments, the
Series' investment in a small cap company may lose substantial value.

Small cap securities generally trade in lower volumes and are subject
to greater and more unpredictable price changes than larger cap securities or
the stock market as a whole. Moreover, small cap securities generally are not
income producing investments and thus, do not cushion a Series' total return
from price changes.

When selling a large quantity of a particular stock, the Series may
have to sell at a discount from quoted prices or may have to make a series of
small sales over an extended period of time due to the more limited trading
volume of smaller company stocks.

Index Series and Enhanced Series

Selection Risk -- Selection risk is the risk that a Series'
investments, which may not fully mirror its target index, may underperform the
securities in the target index. This risk is greater for the Enhanced Series,
because of their strategy of overweighting or underweighting companies relative
to their respective index.

Arbitrage/Correlation Risk -- Each Series may engage in index
arbitrage, and the Enhanced Series may engage in other types of arbitrage.
Arbitrage involves the purchase of an asset and the concurrent sale of that
asset in a different market, or the sale of a related asset, in order to capture
small price discrepancies between markets or related assets. Arbitrage
strategies involving related assets carry the risk that the value of the related
assets will not track or affect each other in the manner anticipated by the
Investment Adviser. Arbitrage strategies generally assume the price of related
assets will converge to some historic or quantitative relationship, and that
price discrepancies from this relationship will disappear. In the event the
price discrepancies do not disappear or widen, however, a Series could lose
money on an arbitrage trade.

Quantitative Series

Selection Risk -- Selection risk is the risk that a Series' investments
may underperform the securities in the particular market segment overall.

Correlation Risk -- Each Series may purchase an asset and concurrently
sell that asset in a different market, or sell a related asset, in order to
capture small price discrepancies between markets or related assets. This
strategy involving related assets carries the risk that the value of the related
assets will not track or affect each other in the manner anticipated by the
Investment Adviser. This strategy generally assumes that the price of related
assets will converge to some historic or quantitative relationship, and that
price discrepancies from this relationship will disappear. In the event the
price discrepancies do not disappear or widen, however, a Series could lose
money on a transaction.

Merger Transaction Risk -- A Series may buy stock of the target company
in an announced merger transaction prior to the consummation of such
transaction. In that circumstance, the Series would expect to receive an amount
(whether in cash, stock of the acquiring company or a combination of both) in
excess of the purchase price paid by the Series for the target company's stock.
This strategy is subject to the risk that the merger transaction may be
canceled, delayed or restructured in which case the Series' holding of the
target company's stock may not result in any profit for the Series and may lose
significant value.

All Series

Derivatives -- Derivatives may allow a Series to increase or decrease
its level of risk exposure more quickly and efficiently than other types of
instruments. A Series may use the following types of derivative instruments:
futures, forwards and options, options on futures, swaps and indexed securities.
Futures are 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. Forwards
are 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. Options are
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 in value of certain assets or an index) from another party at a specified
price within a specified time period. Options on futures are options in which
the underlying asset is a futures contract. Swaps are private contracts
involving the obligation of each party to exchange specified payments, which may
be based on the value of an index or asset, with the other party at specified
times. Indexed securities are debt obligations that return a variable amount of
principal or interest based on the value of an index at a specified time.

Derivatives are volatile and involve significant risks, which may
include:

o Leverage risk -- the risk associated with certain types of
investments or trading strategies that relatively small market
movements may result in large changes in the value of an
investment. Certain investments or trading strategies that involve
leverage can result in losses that greatly exceed the amount
originally invested.

o Credit risk -- the risk that the counterparty (the party on
the other side of the transaction) on a derivative transaction
will be unable to honor its financial obligation to a Series.

o Currency risk -- the risk that changes in the exchange rate
between currencies will adversely affect the value (in U.S.
dollar terms) of an investment.

<PAGE>

o Liquidity risk -- the risk that certain securities may be difficult
or impossible to sell at the time that a Series would like or at
the price that a Series believes the security is currently worth.

A Series may use derivatives for anticipatory hedging and for
non-hedging purposes. Anticipatory hedging is a strategy in which a Series uses
a derivative to offset the risk that securities in which the Series intends to
invest will increase in value before the Series has an opportunity to purchase
the securities. The Series will use derivatives for anticipatory hedging in
order to gain exposure efficiently to their underlying indexes in the event the
Series receive cash inflows. Each Series, in particular the Enhanced Series, may
also use derivatives in connection with index arbitrage and other arbitrage
strategies. Each Quantitative Series may also use derivatives in connection with
the investment strategy that seeks to profit from differences in price when the
same (or similar) security, currency or commodity is traded in two or more
markets.

Borrowing and Leverage -- The Series may borrow for temporary emergency
purposes including to meet redemptions. Borrowing may exaggerate changes in the
net asset value of Series shares and in the yield on a Series' portfolio.
Borrowing will cost a Series interest expense and other fees. The costs of
borrowing may reduce a Series' return.

Certain securities that a Series buys may create leverage, including,
for example, derivative securities. Like borrowing, these investments may
increase a Series' exposure to risks.

Illiquid Securities -- Each Series may invest up to 15% of its net
assets in illiquid securities that it cannot easily resell within seven days at
current value or that have contractual or legal restrictions on resale. If a
Series buys illiquid securities it may be unable to quickly resell them or may
be able to sell them only at a price below current value.

Restricted Securities -- Restricted securities have contractual or
legal restrictions on their resale. They include private placement securities
that a Series buys directly from the issuer. Private placement and other
restricted securities may not be listed on an exchange and may have no active
trading market.

Restricted securities may be illiquid. A Series may be unable to sell
them on short notice or may be able to sell them only at a price below current
value. A Series may get only limited information about the issuer, so may be
less able to predict a loss. In addition, if Series management or the Investment

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<PAGE>

Adviser receives material adverse non-public information about the issuer, a
Series will not be able to sell the security.

Rule 144A Securities -- Rule 144A securities are restricted securities
that can be resold to qualified institutional buyers but not to the general
public. Rule 144A securities may have an active trading market but carry the
risk that the active trading market may not continue.

Securities Lending -- Each Series may lend securities to financial
institutions that provide cash or government securities as collateral.
Securities lending involves the risk that the borrower may fail to return the
securities in a timely manner or at all. As a result, a Series may lose money
and there may be a delay in recovering the loaned securities. A Series may also
lose money if it does not recover the securities and the value of the collateral
falls. These events could trigger adverse tax consequences to a Series.

Short Sales -- A Series may borrow the security sold short to make
delivery to the buyer. The Series must then replace the security it has
borrowed. If the price of a security sold short goes up between the time of the
short sale and the time the Series must deliver the security to the lender, the
Series will incur a loss. The Series must also pay the lender any interest
accrued during the period of the loan.

If you would like further information about the Series, including how
they invest, please see Part B.

Investment Adviser

Item 6. Management, Organization, and Capital Structure.

Fund Asset Management L.P., either directly or through its division,
Mercury Asset Management US (the "Investment Adviser" or "FAM"), is the
Investment Adviser and manages the Series' investments and their business
operations under the overall supervision of the Board of Trustees (the
"Trustees") of the Trust. The Investment Adviser has the responsibility for
making all investment decisions for the Series. The principal business address
of the Investment Adviser is 800 Scudders Mill Road, Plainsboro, New Jersey
08536.

The table below shows the fee earned by the Investment Adviser at the
annual rates of the average daily net assets of each of the Series listed below
as follows:

Series Contractual Fee Actual Fee Rate for the Fiscal Year Ended
Rate Current Fee December 31, 1998 (reflects voluntary
Rate* waiver where applicable)

<S> <C> <C> <C>
S&P 500 Index Series 0.05% 0.005% 0.05%

Small Cap Index Series 0.08% 0.01% 0.0%

Aggregate Bond Index
Series 0.06% 0.01% 0.06%

International (GDP
Weighted) Index Series 0.11% 0.01% 0.04%

</TABLE>

- ----------

* Effective August 2, 1999, the Investment Adviser has entered into contractual
arrangements with the Trust on behalf of each Series designated above and
certain corresponding "feeder" funds that are registered investment companies
(each a "Feeder Fund") to provide that the aggregate administrative and
management fees charged to each Series and such corresponding Feeder Fund will
not result in the Feeder Fund paying directly and indirectly in excess of the
following amounts for such services: Merrill Lynch S&P 500 Index Feeder Fund:
0.25%; Merrill Lynch Small Cap Index Feeder Fund: 0.30%; Merrill Lynch Aggregate
Bond Index Feeder Fund: 0.20%; Merrill Lynch International (GDP Weighted) Index
Feeder Fund: 0.35%. As a result of this contractual arrangement, the current fee
rate payable to the Investment Adviser is: S&P 500 Index Series: 0.005%; Small
Cap Index Series: 0.01%; Aggregate Bond Index Series: 0.01%, International (GDP
Weighted) Index Series: 0.01%, as shown above.

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<PAGE>

The Investment Adviser earns or will earn fees at the annual rates of
the average daily net assets of each of the Series listed below, none of which
has been in operation for a full year, as follows:

Contractual Fee
Fee Rate
Series
Mid Cap Index Series 0.01%
International (Capitalization Weighted)
Index Series 0.01%
Enhanced S&P 500 Series 0.01%
Enhanced International Series 0.01%
Quantitative Large Cap Series 0.40%
Quantitative Large Cap Value Series 0.40%
Quantitative Large Cap Growth Series 0.40%
Quantitative Mid Cap Series 0.55%
Quantitative Small Cap Series 0.55%
Quantitative International Series 0.65%

FAM was organized as an investment adviser in 1977 and offers
investment advisory services to more than fifty registered investment companies.
FAM is part of the Asset Management Group of ML & Co., which had approximately
$520 billion in investment company and other portfolio assets under management
as of August 1999. This amount includes assets managed for FAM affiliates.

Richard Vella is the Portfolio Manager of the Enhanced International
Series. Mr. Vella joined the Investment Adviser and its affiliates in 1999.
Prior to joining the Investment Adviser and its affiliates, Mr. Vella held
various positions with Bankers Trust, the most recent of which was Managing
Director, Global Index Funds and International Index Funds of Bankers Trust. He
joined Bankers Trust in 1985.

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<PAGE>

Frank Salerno is the Portfolio Manager of the Enhanced S&P 500 Series.
Mr. Salerno joined the Investment Adviser and its affiliates in 1999. Prior to
joining the Investment Adviser and its affiliates, Mr. Salerno held various
positions with Bankers Trust, the most recent of which was Managing Director and
Chief Investment Officer of Structured Investments at Bankers Trust. He joined
Bankers Trust in 1981.

Each Quantitative Series is managed by a committee of the Investment Adviser.

Capital Stock.

Investors in the Trust have no preemptive or conversion rights and
beneficial interests in the Trust are fully paid and non-assessable. The Trust
has no current intention to hold annual meetings of investors, except to the
extent required by the Investment Company Act, but will hold special meetings of
investors when in the judgment of the Trustees it is necessary or desirable to
submit matters for an investor vote. Upon liquidation of the Trust or any
Series, investors would be entitled to share, in proportion to their investment
in the Trust or Series (as the case may be), in the assets of the Trust or
Series available for distribution to investors.

The Trust is organized as a Delaware business trust and currently
consists of fourteen Series. Each investor is entitled to a vote in proportion
to its investment in the Trust or the Series (as the case may be). Investors in
any Series will participate equally in accordance with their pro rata interests
in the earnings, dividends and assets of the particular Series. The Trust
reserves the right to create and issue interests in additional Series.

Except as set forth below, investments in the Trust may not be
transferred except with the prior written consent of all of the Trustees, but an
investor may withdraw all or any portion of its investment in any Series on any
day on which the New York Stock Exchange is open at net asset value.
Additionally, an investor may transfer any or all of its investment to another
current shareholder without the express prior written consent of the Trustees.

Item 7. Shareholder Information.

Pricing.

Each Series calculates its net asset value (generally by using market
quotations) each day the New York Stock Exchange is open ("Pricing Day"), 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 the price of an
interest in the Series is the next one calculated after the purchase or
redemption order is placed. The net asset value is determined by deducting the
amount of the Series' total liabilities from the value of its total assets. Net
asset value is generally calculated by valuing each security at its closing
price for the day. Many of the International (GDP Weighted) Index Series',
International (Capitalization Weighted) Index Series', Aggregate Bond Index
Series', Enhanced International Series' and Quantitative International Series'
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 a Series' net asset
value. Non-U.S. securities sometimes trade on days that the

22
<PAGE>

New York Stock Exchange is closed. As a result, a Series' net asset value may
change on days when an investor will not be able to purchase or redeem the
Series' shares.

Each investor in the Trust may add to or reduce its investment in a
Series on each Pricing Day. The value of each investor's beneficial interest in
a Series will be determined by multiplying the net asset value of the Series by
the percentage, effective for that day, that represents that investor's share of
the aggregate beneficial interests in such Series. Any additions or withdrawals,
which are to be effected on that day, will then be effected. The investor's
percentage of the aggregate beneficial interests in a Series will then be
re-computed as the percentage equal to the fraction (i) the numerator of which
is the value of such investor's investment in the Series 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 Series
effected on such day, and (ii) the denominator of which is the aggregate net
asset value of the Series 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 Series by all investors in the Portfolio. The percentage so
determined will then be applied to determine the value of the investor's
interest in such Series as of 15 minutes after the close of business of the New
York Stock Exchange on the next Pricing Day of the Series.

Purchase of Securities.

Beneficial interests in the Trust are issued solely in private
placement transactions that do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. Investments in each Series of the Trust
may only be made by a limited number of institutional investors including
investment companies, common or commingled trust funds, group trusts, and
certain other "accredited investors" within the meaning of Regulation D under
the 1933 Act. This Registration Statement does not constitute an offer to sell,
or the solicitation of an offer to buy, any "security" within the meaning of the
1933 Act.

There is no minimum initial or subsequent investment in each Series.
However, because each Series intends to be as fully invested at all times as is
reasonably consistent with its investment objectives and policies in order to
enhance the yield on its assets, investments must be made in federal funds
(i.e., monies credited to the account of the respective Series' custodian bank
by a Federal Reserve Bank) or in marketable securities acceptable to the
Investment Adviser and consistent with the investment objective, policies and
restrictions of the respective Series.

Each Series reserves the right to cease accepting investments at any
time or to reject any investment order.

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<PAGE>

Redemption.

An investor in the Trust may withdraw all or a portion of its
investment in any Series on any Pricing Day at the net asset value next
determined after a withdrawal request in proper form is furnished by the
investor to the Series. The proceeds of the withdrawal will be paid by the
Series normally on the business day on which the withdrawal is effected, but in
any event within seven days. Redemptions generally will be paid in cash. If,
however, a Series and/or the Investment Adviser determines that it would be
detrimental to the best interests of the remaining shareholders of the Series to
make payments in whole or in part in cash, the Series may pay the redemption
price to a shareholder in whole or in part by an in-kind distribution of
securities held by the Series. Such securities would be distributed in lieu of
cash, on a pro-rata basis, and would be monitored by the Investment Adviser and
valued in the same manner as they would be valued for purposes of computing net
asset value of the Series. Investments in any Series of the Trust may not be
transferred without the prior written consent of all of the Trustees except that
an investor may transfer any or all of its investment to another current
shareholder without such consent.

Distributions; Tax Consequences.

Under the anticipated method of operation of the Series, each Series
will be treated as a separate entity for federal income tax purposes which will
have the status of partnership pursuant to Treasury Regulation Section
301.7701-3(b)(1). Thus, each Series will not be subject to any income tax. Based
upon the status of each Series as a partnership, each investor in a Series will
include in gross income its share (as determined in accordance with the
governing instruments of the Series) of such Series' ordinary income and capital
gain in determining its income tax liability. The determination of such share
will be made in accordance with the Internal Revenue Code of 1986, as amended
(the "Code"), and Treasury Regulations promulgated thereunder.

It is the policy of the Series to make distributions to investors only
pursuant to specific requests for redemption of shares of the Series. It is
intended that each Series' assets, income and distributions will be managed in
such a way that an investor in any Series will be able to satisfy the
requirements of Subchapter M of the Code assuming that the investor invested all
of its assets in the Series.

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 Series could be adversely
affected if the computer systems used by the Investment Adviser or other Series
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 Series' other service providers have told the Investment Adviser that they
also expect to resolve the year 2000 Problem, and the Investment Adviser will
continue to monitor the situation as the year 2000 approaches. However, if the
problem has not been fully addressed, the Series could be negatively affected.
The Year 2000 Problem could also have a negative impact on the issuers of
securities in which the Series invest. This negative impact may be greater for
smaller companies and companies in foreign markets, particularly emerging
markets, since they may be less prepared for the Year 2000 Problem than larger
domestic companies and markets. If the companies in which the Series invest have
Year 2000 Problems, the Series' returns could be adversely affected.

Item 8.--Distribution Arrangements.

Investments in a Series will be made without a sales load. All
investments are made at net asset value next determined after an order is
received by the Series. The net asset value of each Series is determined on each
Pricing Day. The Trust's placement agent is Princeton Funds Distributor,
Inc. ("PFD").

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<PAGE>

PART B

Except as otherwise indicated herein, all capitalized terms shall have
the meaning assigned to them in Part A hereof.

Item 10.

Quantitative Master Series Trust (previously defined as the "Trust")
currently consists of fourteen series: Master S&P 500 Index Series ("S&P 500
Index Series"), Master Mid Cap Index Series ("Mid Cap Index Series"), Master
Small Cap Index Series ("Small Cap Index Series"), Master Aggregate Bond Index
Series ("Aggregate Bond Index Series"), Master International (GDP Weighted)
Index Series ("International (GDP Weighted) Index Series"), Master International
(Capitalization Weighted) Index Series ("International (Capitalization Weighted)
Index Series"), Master Enhanced S&P 500 Series ("Enhanced S&P 500 Series"),
Master Enhanced International Series ("Enhanced International Series"), Master
Quantitative Large Cap Series ("Quantitative Large Cap Series"), Master
Quantitative Large Cap Value Series ("Quantitative Large Cap Value Series"),
Master Quantitative Large Cap Growth Series ("Quantitative Large Cap Growth
Series"), Master Quantitative Mid Cap Series ("Quantitative Mid Cap Series"),
Master Quantitative Small Cap Series ("Quantitative Small Cap Series") and
Master Quantitative International Series ("Quantitative International Series"),
(each, a "Series" and together, the "Series").

This Registration Statement has been prepared as a single document
consisting of parts A, B, and C, none of which are to be used or distributed as
a stand alone document. This Registration Statement has been filed with the
Securities and Exchange Commission (the "Commission") and copies can be
obtained, without charge, by calling the Trust at (800) MER-FUND, or by writing
to Quantitative Master Series Trust, P.O. Box 9011, Princeton, New Jersey
08543-9011.

A consolidated table of contents for this Registration Statement is included on
page 2 of Part A.

1
<PAGE>

Item 11. Trust History

The Trust is a Delaware business trust organized on August 28, 1996.
S&P 500 Index Series, Mid Cap Index Series, Small Cap Index Series, Aggregate
Bond Index Series, International (GDP Weighted) Index Series, International
(Capitalization Weighted) Index Series, Enhanced S&P 500 Series, Enhanced
International Series, Quantitative Large Cap Series, Quantitative Large Cap
Value Series, Quantitative Large Cap Growth Series, Quantitative Mid Cap Series,
Quantitative Small Cap Series, and Quantitative International Series are each
separate series of the Trust. Prior to August 2, 1999, the Trust was named
Merrill Lynch Index Trust and the International (GDP Weighted) Index Series was
named the International Index Series. From August 2, 1999 through December 21,
1999, the Trust was named Index Master Series Trust, at which time, the Trust's
name was changed to Quantitative Master Series Trust.

Item 12. Description of the Series and Their Investments and Risks

S&P 500 Index Series.

The investment objective of the S&P 500 Index Series is to match the
performance of the Standard & Poor's(R) 500 Composite Stock Price Index (the
"S&P 500") as closely as possible before the deduction of Series expenses. There
can be no assurance that the investment objective of the Series will be
achieved.

In seeking to replicate the total return of the S&P 500, Fund Asset
Management, L.P. either directly or through its division, Mercury Asset
Management US (previously defined as the "Investment Adviser" or "FAM"), may
allocate the S&P 500 Index Series' investments among common stocks in
approximately the same weightings as the S&P 500. In addition, the Investment
Adviser may use options and futures contracts and other types of financial
instruments relating to all or a portion of the S&P 500. At times the Series may
not invest in all of the common stocks in the S&P 500, or in the same weightings
as in the S&P 500. At those times, the Series chooses investments so that the
market capitalizations, industry weighting and other fundamental characteristics
of the stocks and derivative instruments chosen are similar to the S&P 500 as a
whole. The S&P 500 Index Series may also engage in securities lending. See
"Other Investment Policies, Practices and Risk Factors."

The S&P 500 is composed of the common stocks of 500 large
capitalization companies from various industrial sectors, most of which are
listed on the New York Stock Exchange Inc. A company's stock market
capitalization is the total market value of its outstanding shares. The
S&P 500 represents a significant portion of the market value of all common
stocks publicly traded in the United States.

Mid Cap Index Series.

The investment objective of the Mid Cap Index Series is to match the
performance of the Standard & Poor's (R) Mid Cap 400 Index (the "S&P 400") as
closely as possible before the deduction of Series expenses. There can be no
assurance that the investment objective of the Series will be achieved.

In seeking to replicate the total return of the S&P 400, the Investment
Adviser may allocate the Mid Cap Index Series' investments among common stocks
in approximately the same weightings as the S&P 400. In addition, the Investment
Adviser may use options and futures contracts and other types of financial
instruments relating to all or a portion of the S&P 400. At times the Series may
not invest in all of the common stocks in the S&P 400, or in the same weightings
as in the S&P 400. At those times, the Series chooses investments so that the
market capitalizations, industry weighting and other fundamental characteristics
of the stocks and derivative instruments chosen are similar to the S&P 400 as a
whole. The Mid Cap Index Series may also engage in securities lending. See
"Other Investment Policies, Practices and Risk Factors."

The S&P 400 is composed of 400 common stocks issued by U.S.
mid-capitalization companies in a wide range of businesses. A company's stock
market capitalization is the total market value of its outstanding shares. The
S&P 400 is generally considered broadly representative of the performance of
publicly traded U.S. mid-capitalization stocks.

Small Cap Index Series.

The investment objective of the Small Cap Index Series is to match the
performance of the Russell 2000(R) Index (the "Russell 2000") as closely as
possible before the deduction of Series expenses. There can be no assurance that
the investment objective of the Series will be achieved.

In seeking to replicate the total return of the Russell 2000, the
Investment Adviser will not normally allocate the Small Cap Index Series'
investments among all of the common stocks in the

2
<PAGE>

Russell 2000, or in the same weightings as the Russell 2000. Instead, the Small
Cap Index Series will normally invest in a sample of the stocks included in the
Russell 2000 and other types of financial instruments based on the Investment
Adviser's optimization process, a statistical sampling technique that aims to
create a portfolio that will match approximately the performance of the index
with less transaction costs than would be incurred through full replication. The
Investment Adviser may use options and futures contracts and other types of
financial instruments relating to all or a portion of the Russell 2000. The
investments to be included in the Small Cap Index Series will be selected so
that the market capitalizations, industry weightings and other fundamental
characteristics of the stocks, and of the stocks underlying or otherwise related
to the foregoing financial instruments, closely approximate those same factors
in the Russell 2000, with the objective of reducing the selected investment
portfolio's deviation from the performance of the Russell 2000 (this deviation
is referred to as "tracking error"). The Small Cap Index Series may also engage
in securities lending. See "Other Investment Policies, Practices and Risk
Factors."

The Russell 2000 is composed of approximately 2,000
smaller-capitalization common stocks from various industrial sectors. A
company's stock market capitalization is the total market value of its
outstanding shares.

Aggregate Bond Index Series.

The investment objective of the Aggregate Bond Index Series is to match
the performance of the Lehman Brothers Aggregate Bond Index (the "Aggregate Bond
Index") as closely as possible before the deduction of Series expenses. There
can be no assurance that the investment objective of the Series will be
achieved.

In seeking to replicate the total return of the Aggregate Bond Index,
the Investment Adviser will not normally allocate the Aggregate Bond Index
Series' investments among all of the bonds in the Aggregate Bond Index, or in
the same weightings as the Aggregate Bond Index. Instead, the Aggregate Bond
Index Series will normally invest in a statistically selected sample of the
bonds included in the Aggregate Bond Index, or in a statistically selected
sample of bonds not included in the Aggregate Bond Index but correlated with
bonds that are in the Aggregate Bond Index, and in derivative instruments linked
to the Aggregate Bond Index. The Investment Adviser may use options and futures
contracts and other types of financial instruments relating to all or a portion
of the Aggregate Bond Index. The Series may invest in bonds not included in the
Aggregate Bond Index, but which are selected to reflect characteristics such as
maturity, duration or credit quality similar to bonds in the Aggregate Bond
Index. The investments to be included in the Aggregate Bond Index Series will be
selected with the objective of reducing the selected investment portfolio's
deviation from the performance of the Aggregate Bond Index (tracking error).
Selection of bonds other than those included in the Aggregate Bond Index, or in
different weightings from the Index, may result in levels of interest rate,
credit or prepayment risks that differ from the levels of risks on the
securities composing the Aggregate Bond Index. See "Other Investments Policies,
Practices and Risk

3
<PAGE>

Factors -- Investment in Fixed-Income Securities." The Aggregate Bond Index
Series may also engage in securities lending. See "Other Investment Policies,
Practices and Risk Factors."

The Aggregate Bond Index is composed primarily of dollar-denominated
investment grade bonds in the following classes: U.S. Treasury and agency
securities, U.S. corporate bonds, foreign corporate bonds, foreign sovereign
debt (debt securities issued or guaranteed by foreign governments and
governmental agencies), supranational debt (debt securities issued by entities,
such as the World Bank, constituted by the governments of several countries to
promote economic development) and mortgage-backed securities with maturities
greater than one year. Corporate bonds contained in the Aggregate Bond Index
represent issuers from various industrial sectors.

The Aggregate Bond Index Series may invest in U.S. Treasury bills,
notes and bonds and other "full faith and credit" obligations of the U.S.
Government. The Aggregate Bond Index Series may also invest in U.S. Government
agency securities, which are debt obligations issued or guaranteed by agencies
or instrumentalities of the U.S. Government. "Agency" securities may not be
backed by the "full faith and credit" of the U.S. Government. U.S. Government
agencies may include the Federal Farm Credit Bank, the Resolution Trust
Corporation and the Government National Mortgage Association. "Agency"
obligations are not explicitly guaranteed by the U.S. Government and so are
perceived as somewhat riskier than comparable Treasury bonds.

Because the Aggregate Bond Index is composed of investment grade bonds,
the Aggregate Bond Index Series will invest in corporate bonds rated investment
grade -- i.e., those rated at least Baa by Moody's Investors Service, Inc.
("Moody's") or BBB -- by Standard & Poor's Ratings Group ("S&P"), the equivalent
by another nationally recognized statistical rating organization ("NRSRO") or,
if unrated, of equal quality in the opinion of the Investment Adviser. Corporate
bonds ranked in the fourth highest rating category, while considered "investment
grade," have more speculative characteristics and are more likely to be
downgraded than securities rated in the three highest ratings categories. In the
event that the rating of a security in the Aggregate Bond Index Series is
lowered below Baa or BBB, the Aggregate Bond Index Series may continue to hold
the security. Such securities rated below investment grade are considered to be
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligation. Descriptions of the
ratings of bonds are contained in the Appendix.

The Aggregate Bond Index Series may also invest in other instruments
that "pass through" payments on such obligations, such as collateralized
mortgage obligations ("CMOs").

International (GDP Weighted) Index Series

The investment objective of the International (GDP Weighted) Index
Series is to match the performance of the MSCI GDP - Weighted Europe,
Australasia and Far East Index (the "EAFE (GDP Weighted) Index") as closely as
possible before the deduction of Series expenses. There can be no assurance that
the investment objective of the Series will be achieved. In seeking to

4
<PAGE>

mirror the total return of the EAFE (GDP Weighted) Index, the Investment Adviser
may not allocate the Series' investments among all of the countries, or all of
the companies within a country, represented in the EAFE (GDP Weighted) Index, or
in the same weightings as the EAFE (GDP Weighted) Index. Instead, the Series may
invest in a statistically selected sample of the equity securities included in
the EAFE (GDP Weighted) Index and other types of financial instruments based on
the Investment Adviser's optimization process, a statistical sampling technique
that aims to create a portfolio that will match approximately the performance of
the index with less transaction costs than would be incurred through full
replication. In addition, the Investment Adviser may use options and futures
contracts and other types of financial instruments relating to all or a portion
of the EAFE (GDP Weighted) Index. The investments to be included in the Series
will be selected so that the market capitalizations, industry weightings and
other fundamental characteristics of the stocks, and of the stocks underlying or
otherwise related to the foregoing financial instruments, closely approximate
those same factors in the EAFE (GDP Weighted) Index, with the objective of
reducing the selected investment portfolio's deviation from the performance of
the EAFE (GDP Weighted) Index (tracking error). The Series may also engage in
securities lending. See "Other Investment Policies, Practices and Risk Factors."

The EAFE (GDP Weighted) Index is composed of equity securities of
approximately 1,000 companies from various industrial sectors whose primary
trading markets are located outside the United States and which are selected
from among the larger capitalization companies in such markets. A company's
stock market capitalization is the total market value of its outstanding shares.
The countries currently included in the EAFE (GDP Weighted) Index are Australia,
Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy,
Japan, The Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden,
Switzerland and United Kingdom. The weighting of the EAFE (GDP Weighted) Index
among these countries is based upon gross domestic product (GDP). Relative
market capitalization is the basis for country weightings in the EAFA
(Capitalization Weighted) Index. Using the GDP weighting tends to decrease the
relative weighting of Japan and the United Kingdom while increasing the
weighting of certain European countries, generally resulting in a more
diversified index.

International (Capitalization Weighted) Index Series

The investment objective of the International (Capitalization Weighted)
Index Series is to match the performance of the MSCI Capitalization - Weighted
Europe, Australasia and Far East Index (the "EAFE (Capitalization Weighted)
Index") as closely as possible before the deduction of Series expenses. There
can be no assurance that the investment objective of the Series will be
achieved. In seeking to mirror the total return of the EAFE (Capitalization
Weighted) Index, the International (Capitalization Weighted) Index Series will,
under normal circumstances, invest in all of the countries in the EAFE
(Capitalization Weighted) Index, but the Investment Adviser may not allocate the
Series' investments among all of the companies within a country, represented in
the EAFE (Capitalization Weighted) Index, or in the same weightings as the EAFE
(Capitalization Weighted) Index. Instead, the Series may invest in a
statistically selected sample of the equity securities included in the EAFE
(Capitalization Weighted) Index and in derivative instruments correlated with
components of the EAFE (Capitalization Weighted) Index based on the Investment
Adviser's optimization process, a statistical sampling technique that aims to
create a portfolio that will match approximately the performance of the index
with

5
<PAGE>

less transaction costs than would be incurred through full replication. In
addition, the Investment Adviser may use options and futures contracts and other
types of financial instruments relating to all or a portion of the EAFE
(Capitalization Weighted) Index. The investments to be included in the
International (Capitalization Weighted) Index Series will be selected so that
the market capitalizations, industry weightings and other fundamental
characteristics of the stocks, and of the stocks underlying or otherwise related
to the foregoing financial instruments, closely approximate those same factors
in the EAFE (Capitalization Weighted) Index, with the objective of reducing the
selected investment portfolio's deviation from the performance of the EAFE
(Capitalization Weighted) Index (tracking error). The Series may also engage in
securities lending. See "Other Investment Policies, Practices and Risk Factors."

The EAFE (Capitalization Weighted) Index is composed of equity
securities of companies from various industrial sectors whose primary trading
markets are located outside the United States and which are selected from among
the larger capitalization companies in such markets. A company's stock market
capitalization is the total market value of its outstanding shares. The
countries currently included in the EAFE (Capitalization Weighted) Index are
Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong,
Ireland, Italy, Japan, The Netherlands, New Zealand, Norway, Portugal,
Singapore, Spain, Sweden, Switzerland and United Kingdom. The weighting of the
EAFE (Capitalization Weighted) Index among these countries is based upon each
country's relative market capitalization. Gross domestic product is the basis
for country weightings in the EAFA (GDP Weighted) Index. Using the market
capitalization weighting tends to increase the relative weighting of Japan and
the United Kingdom while decreasing the weighting of certain European countries,
generally resulting in a less diversified index.

Enhanced S&P 500 Series.

The investment objective of the Enhanced S&P 500 Series is to
provide a total return exceeding the performance of the S&P 500 while actively
seeking to reduce downside risk as compared with the index. There can be no
assurance that the investment objective of the Series will be achieved.

In seeking to provide a total return exceeding the performance of the
S&P 500, under normal circumstances, the Series will invest at least 80% of its
assets in stocks of companies in the S&P 500 and options, futures and other
derivative instruments based on that index. The Enhanced S&P 500 Series
will attempt to construct a portfolio of securities and derivative instruments
that will at least match approximately the performance of the S&P 500 before
deduction of expenses, but will also employ various strategies to seek to
enhance performance relative to the S&P 500. Such enhancement strategies may
include (1) investment in derivative instruments correlated with the index or
components of the index rather than securities represented in the index whenever
the Investment Adviser believes derivative instruments present price or return
characteristics superior to those of securities, (2) certain types of arbitrage,
and (3) biasing the portfolio (relative to the S&P 500) in order to emphasize
securities which have quantitative characteristics the Investment Adviser
believes are associated with outperformance.

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<PAGE>

The Enhanced S&P 500 Series may invest in derivative instruments, and
will normally invest a substantial portion of its assets in options and futures
contracts correlated with the S&P 500. Derivatives allow the Series to increase
exposure to the S&P 500 quickly and at less cost than buying or selling stocks.
The Series will invest in options, futures and other derivative instruments, in
order to gain market exposure quickly in the event of subscriptions, to maintain
liquidity in the event of redemptions and to keep trading costs low. In
connection with the use of derivative instruments, the Series may enter into
short sales in order to adjust the weightings of particular securities
represented in a derivative to more accurately reflect the securities weightings
in the S&P 500 or to bias the portfolio (relative to the S&P 500) in order to
seek to enhance performance. The Series will also invest in derivatives whenever
the Investment Adviser believes a derivative (including futures, total return
index swaps, options, warrants and convertible bonds) presents price or return
characteristics superior to those of stocks represented in the index. The Series
may also invest in derivatives in connection with arbitrage transactions.

While the Series expects the overall weighting of its investments to be
close to the capitalization weights of the S&P 500, the Series' investments may
not exactly replicate the portfolio weights of the index at all times. Instead,
the Investment Adviser may bias the portfolio (relative to the S&P 500) in order
to emphasize securities which have quantitative characteristics (such as
above-average yield or below-average valuation) the Investment Adviser believes
may enhance performance. By using a proprietary computer model to overweight or
underweight certain companies in the portfolio relative to the index, the Series
seeks to slightly outperform, or reduce somewhat its volatility relative to, the
index over time.

The Series may also invest in new issues, convertible securities,
foreign securities, foreign currency exchange contracts and sell covered call
options. For more information on these and other investments of the Series, see
"Other Investment Policies, Practices and Risk Factors."

The S&P 500 is composed of the common stocks of 500 large
capitalization companies from various industrial sectors, most of which are
listed on the New York Stock Exchange Inc. A company's stock market
capitalization is the total market value of its outstanding shares. The S&P 500
represents a significant portion of the market value of all common stocks
publicly traded in the United States.

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<PAGE>

Enhanced International Series

The investment objective of the Enhanced International Series is
to provide a total return exceeding the performance of the EAFE (Capitalization
Weighted) Index while actively seeking to reduce downside risk as compared with
the index. There can be no assurance that the investment objective of the Series
will be achieved.

In seeking to provide a total return exceeding the performance of the
EAFE (Capitalization Weighted) Index, under normal circumstances, the Series
will invest at least 80% of its assets in stocks of companies in the EAFE
(Capitalization Weighted) Index and options, futures and other derivative
instruments based on that index. The Enhanced International Series will attempt
to construct a portfolio of securities and derivative instruments that will at
least match approximately the performance of the EAFE (Capitalization Weighted)
Index before deduction of expenses, but will also employ various strategies to
seek to enhance performance relative to the EAFE (Capitalization Weighted)
Index. Such enhancement strategies may include (1) investment in derivative
instruments correlated with the index or components of the index rather than
securities represented in the index whenever the Investment Adviser believes
derivative instruments present price or return characteristics superior to those
of securities, (2) certain types of arbitrage, and (3) biasing the portfolio
(relative to the EAFE (Capitalization Weighted) Index) in order to emphasize
securities which have quantitative characteristics the Investment Adviser
believes are associated with outperformance.

The Enhanced International Series may invest in derivative
instruments, and will normally invest a substantial portion of its assets in
options and futures contracts correlated with components of the EAFE
(Capitalization Weighted) Index. Derivatives allow the Series to increase
exposure to the EAFE (Capitalization Weighted) Index quickly and at less cost
than buying or selling stocks. The Series will invest in options, futures and
other derivative instruments, in order to gain market exposure quickly in the
event of subscriptions, to maintain liquidity in the event of redemptions and to
keep trading costs low. In connection with the use of derivative instruments,
the Series may enter into short sales in order to adjust the weightings of
particular securities represented in a derivative to more accurately reflect the
securities weightings in the EAFE (Capitalization Weighted) Index or to bias the
portfolio (relative to the EAFE (Capitalization Weighted) Index) in order to
seek to enhance performance. The Series will also invest in derivatives whenever
the Investment Adviser believes a derivative (including futures, total return
index swaps, options, warrants and convertible bonds) presents price or return
characteristics superior to those of stocks represented in the index. The Series
may also invest in derivatives in connection with arbitrage transactions.

8
<PAGE>

classes of a company or in a single share class listed on more than one
exchange). The Series may enter into short sales of various types of securities
and financial instruments, including securities and financial instruments not
represented in the EAFE (Capitalization Weighted) Index, in connection with
arbitrage transactions.

While the Series expects the overall weighting of its investments to be
close to the capitalization weights of the EAFE (Capitalization Weighted) Index,
the Series' investments may not exactly replicate the portfolio weights of the
index at all times. Instead, the Investment Adviser may bias the portfolio
(relative to the EAFE (Capitalization Weighted) Index) in order to emphasize
securities which have quantitative characteristics (such as above-average yield
or below-average valuation) the Investment Adviser believes may enhance
performance. By using a proprietary computer model to overweight or underweight
certain companies in the portfolio relative to the index, the Series seeks to
slightly outperform, or reduce somewhat its volatility relative to, the index
over time.

The Series may also invest in new issues, convertible securities and
sell covered call options. For more information on these and other investments
of the Series, see "Other Investment Policies, Practices and Risk Factors."

The EAFE (Capitalization Weighted) Index is composed of equity
securities of companies from various industrial sectors whose primary trading
markets are located outside the United States and which are selected from among
the larger capitalization companies in such markets. A company's stock market
capitalization is the total market value of its outstanding shares. The
countries currently included in the EAFE (Capitalization Weighted) Index are
Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong,
Ireland, Italy, Japan, The Netherlands, New Zealand, Norway, Portugal,
Singapore, Spain, Sweden, Switzerland and United Kingdom. The weighting of the
EAFE (Capitalization Weighted) Index among these countries is based upon market
capitalization, rather than its gross domestic product. Using the capitalization
weighting tends to increase the relative weighting of Japan and the United
Kingdom while decreasing the weighting of certain European countries, generally
resulting in an index composed of securities of fewer issuers.

Quantitative Series

Each Quantitative Series is a separately managed, diversified mutual
fund with its own investment objective and policies.

The table below lists the investment objective of each Quantitative
Series.

- --------------------------------------- ----------------------------------------
Series Investment Objective
- --------------------------------------- ----------------------------------------
Quantitative Large Cap Series primarily to provide long-term growth of
capital, and secondarily to provide
dividend income
- --------------------------------------- ----------------------------------------
Quantitative Large Cap Value Series primarily to provide long-term growth of
capital, and secondarily to provide
dividend income
- --------------------------------------- ----------------------------------------
Quantitative Large Cap Growth Series to provide long-term growth of capital
- --------------------------------------- ----------------------------------------
Quantitative Mid Cap Series to provide long-term growth of capital
- --------------------------------------- ----------------------------------------
Quantitative Small Cap Series to provide long-term growth of capital
- --------------------------------------- ----------------------------------------
Quantitative International Series primarily to provide long-term growth of
capital, and secondarily to provide
dividend income
- --------------------------------------- ----------------------------------------

There can be no assurance that the investment objectives of the Series
will be achieved.

The investment objective of each Series is not a fundamental policy and
may be changed without shareholder approval.

About Indexing and Management of the Index Series

About Indexing. The Index Series are not "actively" managed, which
would involve the buying and selling of securities based upon economic,
financial, and market analyses and investment judgment. Instead, each Index
Series, utilizing essentially a "passive" or "indexing" investment approach,
seeks to replicate, before each Series' expenses (which can be expected to
reduce the total return of the Series), the total return of its respective
index.

Indexing and Managing the Series. Each Index Series will be
substantially invested in securities in the applicable index, and will invest at
least 80% of its assets in securities or other financial instruments which are
contained in or correlate with securities in the applicable index (equity
securities, in the case of the S&P 500 Index Series, Mid Cap Index Series, Small
Cap Index Series, International

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<PAGE>

(GDP Weighted) Index Series, International (Capitalization Weighted) Index
Series and fixed-income securities, in the case of the Aggregate Bond Index
Series.

Because each Series seeks to mirror the total return of its respective
index, generally the Investment Adviser will not attempt to judge the merits of
any particular security as an investment but will seek only to mirror the total
return of the securities in the relevant index. However, the Investment Adviser
may omit or remove a security which is included in an index from the portfolio
of a Series if, following objective criteria, the Investment Adviser judges the
security to be insufficiently liquid or believes the merit of the investment has
been substantially impaired by extraordinary events or financial conditions.

The Investment Adviser may acquire certain financial instruments based
upon individual securities or based upon or consisting of one or more baskets of
securities (which basket may be based upon a target index). Certain of these
instruments may represent an indirect ownership interest in such securities or
baskets. Others may provide for the payment to a Series or by a Series of
amounts based upon the performance (positive, negative or both) of a particular
security or basket. The Investment Adviser will select such instruments when it
believes that the use of the instrument will correlate substantially with the
expected total return of a target security or index. In connection with the use
of such instruments, the Investment Adviser may enter into short sales in an
effort to adjust the weightings of particular securities represented in the
basket to more accurately reflect such securities' weightings in the target
index.

Each Series' ability to mirror the total return of its respective index
may be affected by, among other things, transaction costs, administration and
other expenses incurred by the Series, taxes (including foreign withholding
taxes, which will affect the International (GDP Weighted) Index Series,
International (Capitalization Weighted) Index Series and the Aggregate Bond
Index Series due to foreign tax withholding practices), changes in either the
composition of the index or the assets of a Series, and the timing and amount of
Series investors' contributions and withdrawals, if any. Under normal
circumstances, it is anticipated that each Series' total return over periods of
one year and longer will, on a gross basis and before taking into account
expenses (incurred at either the Series or the Series level) be within 10 basis
points (a basis point is one one-hundredth of one percent (0.01%)) for the S&P
500 Index Series, 50 basis points for the Mid Cap Index Series, 100 basis points
for the Small Cap Index Series, 75 basis points for the International (GDP
Weighted) Index Series and 50 basis points for the International (Capitalization
Weighted) Index Series, and 50 basis points for the Aggregate Bond Index Series,
of the total return of the applicable indices. There can be no assurance,
however, that these levels of correlation will be achieved. In the event that
this correlation is not achieved over time, the Trustees will consider
alternative strategies for the Series. Information regarding correlation of a
Series' performance to that of a target index may be found in the Series' annual
report.

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<PAGE>

About Enhanced Indexing and Management of the Enhanced Series

About Enhanced Indexing. In seeking to provide a total return exceeding
the respective index, the Enhanced Series utilize essentially a "passive" or
"indexing" investment approach which for the most part does not involve the
buying and selling of securities based upon economic, financial, and market
analyses and investment judgment. However, each Enhanced Series does perform
some analysis by screening the companies in its index to identify those that, on
an overall basis, exhibit statistical characteristics the Investment Adviser
believes are associated with outperformance over time.

Each Series' ability to exceed the total return of its respective index
may be affected by, among other things, transaction costs, administration and
other expenses incurred by the Series, taxes (including foreign withholding
taxes, which will affect the Enhanced International Series due to foreign tax
withholding practices), changes in either the composition of the index or the
assets of a Series, and the timing and amount of Series investor contributions
and withdrawals, if any. There can be no assurance that a Series will exceed
the total return of its respective index. In the event that a Series, over
time, does not exceed the total return of its index, the Trustees will consider
alternative strategies for the Series. Information regarding a Series'
performance relative to that of a target index may be found in the Series'
annual report.

Each Series' investment objectives and policies are described in Part
A. Certain types of securities in which a Series may invest and certain
investment practices that the Series may employ are discussed more fully below.

Other Investment Policies, Practices and Risk Factors

Cash Management. Generally, the Investment Adviser will employ futures
and options on futures to provide liquidity necessary to meet anticipated
redemptions or for day-to-day operating purposes. However, if considered
appropriate in the opinion of the Investment Adviser, a portion of a Series'
assets may be invested in certain types of instruments with remaining maturities
of 397 days or less for liquidity purposes. Such instruments would consist of:
(i) obligations of the U.S. Government, its agencies, instrumentalities,
authorities or political subdivisions ("U.S. Government Securities"); (ii) other
fixed-income securities rated Aa or higher by Moody's or AA or higher by S&P or,
if unrated, of comparable quality in the opinion of the Investment Adviser;
(iii) commercial paper; (iv) bank obligations, including negotiable certificates
of deposit, time deposits and bankers' acceptances; and (v) repurchase
agreements. At the time the Series invest in commercial paper, bank obligations
or repurchase agreements, the issuer or the issuer's parent must have
outstanding debt rated Aa or higher by Moody's or AA or higher by S&P or
outstanding commercial paper, bank obligations or other short-term obligations
rated Prime-1 by Moody's or A-1 by S&P ; or, if no such ratings are available,
the instrument must be of comparable quality in the opinion of the Investment
Adviser.

Dollar Rolls. The Aggregate Bond Index Series may enter into dollar
rolls, in which the Aggregate Bond Index Series will sell securities for
delivery in the current month and simultaneously contract to repurchase
substantially similar (the same type and coupon) securities on a specified
future date from the same party. During the roll period, the Aggregate Bond
Index

11
<PAGE>

Series forgoes principal and interest paid on the securities sold. The Aggregate
Bond Index Series is compensated by the difference between the current sales
price and the forward price for the future purchase (often referred to as the
"drop") as well as by the interest earned on the cash proceeds of the initial
sale.

Dollar rolls involve the risk that the market value of the securities
subject to the Aggregate Bond Index Series' forward purchase commitment may
decline below the price of the securities the Aggregate Bond Index Series has
sold. In the event the buyer of the securities files for bankruptcy or becomes
insolvent, the Aggregate Bond Index Series' use of the proceeds of the current
sale portion of the transaction may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Aggregate Bond
Index Series' obligation to purchase the similar securities in the forward
transaction. Dollar rolls are speculative techniques which can be deemed to
involve leverage. The Aggregate Bond Index Series will establish a segregated
account with its custodian in which it will maintain liquid securities in an
aggregate amount equal to the amount of the forward commitment. The Aggregate
Bond Index Series will engage in dollar roll transactions to enhance return and
not for the purpose of borrowing. Each dollar roll transaction is accounted for
as a sale of a portfolio security and a subsequent purchase of a substantially
similar security in the forward market.

Short Sales. In connection with the use of certain instruments based
upon or consisting of one or more baskets of securities, the Investment Adviser
may sell a security a Series does not own, or in an amount greater than the
Series owns (i.e., make short sales). With respect to the Quantitative Series,
such transactions will be used to seek to achieve efficiencies in a Series
and/or add value to the Series. With respect to the Index Series and the
Enhanced Series, such transactions will be used only in an effort to adjust the
weightings of particular securities represented in the basket to reflect such
securities' weightings in the target index. Additionally, the Enhanced Series
may use short sales to bias the portfolio to enhance performance or in
connection with arbitrage transactions. Generally, to complete a short sale
transaction, a Series will borrow the security to make delivery to the buyer.
The Series is then obligated to replace the security borrowed. The price at the
time of replacement may be more or less than the price at which the security was
sold by the Series. Until the security is replaced, the Series is required to
pay to the lender any interest which accrues during the period of the loan. To
borrow the security, the Series may be required to pay a premium which would
increase the cost of the security sold. The proceeds of the short sale will be
retained by the broker to the extent necessary to meet margin requirements until
the short position is closed out. Until the Series replaces the borrowed
security, it will (a) maintain in a segregated account with its custodian cash
or liquid securities at such a level that the amount deposited in the account
plus the amount deposited with the broker as collateral will equal the current
market value of the security sold short or (b) otherwise cover its short
position.

Cash Flows; Expenses. The ability of the Index Series and the Enhanced
Series to satisfy their respective investment objectives depends to some extent
on the Investment Adviser's ability to manage cash flow (primarily from
purchases and redemptions and distributions from the Series' investments). The
Investment Adviser will make investment changes to a Series' portfolio to
accommodate cash flow while continuing to seek to mirror or exceed, as the case
may be, the total return of the Series' target index. Investors should also be
aware that the investment performance of each index is a hypothetical number
which does not take into account brokerage commissions and other

12
<PAGE>

transaction costs, custody and other costs of investing, and any incremental
operating costs (e.g., transfer agency and accounting costs) that will be borne
by the Series. Finally, each Index Series seeks to mirror the total return of
its target index, the Investment Adviser generally will not attempt to judge the
merits of any particular security as an investment. With respect to the Enhanced
Series, the Investment Adviser does perform some analysis by screening the
companies in its index to identify those that exhibit statistical
characteristics the Investment Advisor believes are associated with
outperformance over time.

Investment in Fixed-Income Securities. Because the Aggregate Bond Index
Series will invest in fixed-income securities, it will be subject to the general
risks inherent in such securities, primarily interest rate risk, credit risk and
prepayment risk.

Interest rate risk is the potential for fluctuations in bond prices due
to changing interest rates. As a rule bond prices vary inversely with interest
rates. If interest rates rise, bond prices generally decline; if interest rates
fall, bond prices generally rise. In addition, for a given change in interest
rates, longer-maturity bonds generally fluctuate more in price than
shorter-maturity bonds. To compensate investors for these larger fluctuations,
longer-maturity bonds usually offer higher yields than shorter-maturity bonds,
other factors, including credit quality, being equal. These basic principles of
bond prices also apply to U.S. Government Securities. A security backed by the
"full faith and credit" of the U.S. Government is guaranteed only as to its
stated interest rate and face value at maturity, not its current market price.
Just like other fixed-income securities, government-guaranteed securities will
fluctuate in value when interest rates change.

Credit risk is the possibility that an issuer of securities held by the
Aggregate Bond Index Series will be unable to make payments of either interest
or principal when due or will be perceived to have a diminished capacity to make
such payments in the future. The credit risk of the Aggregate Bond Index Series
is a function of the diversification and credit quality of its underlying
securities.

The Aggregate Bond Index Series may also be exposed to event risk,
which includes the possibility that fixed-income securities held by the
Aggregate Bond Index Series may suffer a substantial decline in credit quality
and market value due to issuer restructurings. Certain restructurings such as
mergers, leveraged buyouts, takeovers or similar events, are often financed by a
significant expansion of corporate debt. As a result of the added debt burden,
the credit quality and market value of a firm's existing debt securities may
decline significantly. Other types of restructurings (such as corporate spinoffs
or privatizations of governmental or agency borrowers or the termination of
express or implied governmental credit support) may also result in decreased
credit quality of a particular issuer.

Prepayment risk is the possibility that the principal of the mortgage
loans underlying mortgage-backed securities may be prepaid at any time. As a
general rule, prepayments increase during a period of falling interest rates and
decrease during a period of rising interest rates. As a result of prepayments,
in periods of declining interest rates the Aggregate Bond Index Series may be
required to reinvest its assets in securities with lower interest rates. In
periods of increasing

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<PAGE>

interest rates, certain types of mortgage-backed securities may be paid off
more slowly, with the effect that the mortgage-backed securities held by the
Aggregate Bond Index Series may exhibit price characteristics of longer-term
debt securities.

Extension risk is the possibility that the principal of the mortgage
loans underlying mortgage-backed securities may be repaid more slowly than
anticipated. As a general rule, extensions increase during a period of rising
interest rates, and decrease during a period of falling interest rates. As a
result, during periods of rising interest rates the average maturity of the
Aggregate Bond Index Series' portfolio may increase, thus increasing the Series'
exposure to interest rate risk.

The corporate substitution strategy used by the Aggregate Bond Index
Series (discussed above) may increase or decrease the Aggregate Bond Index
Series' exposure to the foregoing risks relative to those of the Aggregate Bond
Index.

Foreign Investment Risks

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 International (GDP weighted)
Index Series, International (Capitalization Weighted) Index Series, Enhanced
International Series, and Quantitative International Series will (and each other
Series may) invest in securities denominated or quoted in currencies other than
the U.S. dollar, changes in foreign currency exchange rates may affect the value
of securities in the 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 investments in those countries. In addition,
certain non-U.S. investments may be subject to non-U.S. withholding taxes. As a
result, management of a Series may determine that, notwithstanding otherwise
favorable investment criteria, it may not be practicable or appropriate to
invest in a particular country.

Settlement and clearance procedures in certain foreign markets differ
significantly from those in the U.S. Foreign settlement procedures and trade
regulations also may involve certain risks (such as delays in payment for or
delivery of securities) not typically generated by the settlement of U.S.
investments. Communications between the United States and other countries may be
unreliable, increasing the risk of delayed settlements or losses of security
certificates. Settlements in certain foreign countries at times have not kept
pace with the number of securities transactions; these problems may make it
difficult for the Series to carry out transactions. If a Series cannot settle or
is delayed in settling a purchase of securities, it may miss attractive
investment opportunities and certain of its assets may be uninvested with no
return earned thereon for some period. If the Series cannot settle or is delayed
in settling a sale of securities, it may lose money if the value of the security
then declines or, if it has contracted to sell the security to another party,
the Series could be liable to that party for any losses incurred.

The Aggregate Bond Index Series may invest a significant portion of its
assets in debt obligations ("sovereign debt") issued or guaranteed by foreign
governments (including foreign states, provinces and municipalities) of
developed countries or their agencies and instrumentalities ("governmental
entities"). Investment in sovereign debt involves 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.

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<PAGE>

Holders of sovereign debt, including the Aggregate Bond Index Series,
may be requested to participate in the rescheduling of such debt and to extend
further loans to governmental entities. There may be no bankruptcy proceeding by
which sovereign debt on which a governmental entity has defaulted may be
collected in whole or in part.

For a number of years, certain European countries have been seeking
economic unification that would, among other things, reduce barriers between
countries, increase competition among companies, reduce government subsidies in
certain industries, and reduce or eliminate currency fluctuations among these
European countries. The Treaty on European Union (the "Maastricht Treaty") seeks
to set out a framework for a 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 was introduced
on January 1, 1999 and has replaced the existing national currencies of all EMU
participants. The use of notes and coins of the relevant national currencies
will be phased out by July 1, 2002. Upon introduction of the euro, certain
securities issued in participating EU countries (beginning with government and
corporate bonds) were or are being redenominated in the euro. These securities
trade and make dividend and other payments only in euros.

No assurance can be given that EMU will continue to proceed as planned,
that the changes planned for the EU can be successfully implemented, or that
these changes will result in the economic and monetary unity and stability
intended. There is a possibility that EMU will not be completed, or will be
completed but then partially or completely unwound. Because any participating
country may opt out of EMU within the first three years, it is also possible
that a significant participant could choose to abandon EMU, which 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 by an initial participant could cause disruption of
the financial markets as securities that have been 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 a Series' investments in Europe generally or in specific
countries participating in EMU. Gains or losses resulting from the euro
conversion may be taxable to the Series' shareholders under foreign or, in
certain limited circumstances, U.S. tax laws.

Many of the securities held by a Series will not be registered in the
U.S. 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 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
a Series 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 Series are uninvested and no return is
earned thereon and could cause the Series to miss attractive investment
opportunities. Inability to dispose of a portfolio security due to settlement
problems either could result in losses the Series due to subsequent declines in
value of the portfolio security or, if a Series 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 in the United States. In some countries,
there is less governmental supervision and regulation of exchanges, brokers and
issuers than there is in the United States.

A number of 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"), a Series 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 a Series 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 a Series acquires shares in
closed-end investment companies, shareholders would bear both their
proportionate share of expenses in the Series (including investment advisory
fees) and, indirectly, the expenses of such closed-end investment companies. A
Series 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 a Series' ability
to invest in any equity security of an issuer that, in its most recent fiscal
year, derived mom than 15% of its revenues from "securities related activities"
as defined by the rules thereunder. These provisions may restrict the Series'
investments in certain foreign banks and other financial institutions.

The International (GDP weighted) Index Series, International
(Capitalization Weighted) Index Series, Enhanced International Series and
Quantitative International Series will invest in a diverse array of countries.
The securities markets of many countries have at times in the past moved
relative 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 markets occurs, it may reduce risk
for the Series' portfolio as a whole. This negative correlation also may offset
unrealized gains the Series 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 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
markets in a particular country. As a result, gains in a particular securities
market may be affected by changes in exchange rates.

Investment in Emerging Markets. The Quantitative International Series
has the ability to invest in the securities of issuers domiciled in various
countries with emerging capital markets. Specifically, an "emerging market
country" 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.

Investments in the securities of issuers domiciled in countries with
emerging capital markets involve certain additional risks not involved in
investments 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 Series' 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 gain taxes on foreign investors.

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 Series. 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 event, it is
possible that the Series 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
Series' acquisition or disposal of securities.

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Practices in relation to settlement of securities transactions in
emerging markets involve higher risks than those in developed markets, in part
because the Series 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 issuers
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 Series 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.

When-issued Securities and Forward Commitments. The Aggregate Bond
Index Series and the Quantitative Series may purchase or sell securities that
they are entitled to receive on a when-issued basis. The Aggregate Bond Index
Series and the Quantitative Series may also purchase or sell securities through
a forward commitment. These transactions involve the purchase or sale of
securities by a Series at an established price with payment and delivery taking
place in the future. The Aggregate Bond Index Series and the Quantitative Series
enter into these transactions to obtain what is considered an advantageous price
to the Series at the time of entering into the transaction. The Aggregate Bond
Index Series and the Quantitative Series have not established any limit on the
percentage of its assets that may be committed in connection with these
transactions. When the Aggregate Bond Index Series and the Quantitative Series
are purchasing securities in these transactions, the Series maintain 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 Series'

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purchase price. The Aggregate Bond Index Series and the Quantitative Series 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.

Illiquid or Restricted Securities. Each Series may invest up to 15% of
its net assets in securities that lack an established secondary trading market
or otherwise are considered illiquid. Liquidity of a security relates to the
ability to dispose easily of the security and the price to be obtained upon
disposition of the security, which may be less than would be obtained for a
comparable more liquid security. Illiquid securities may trade at a discount
from comparable, more liquid investments. Investment of a Series' assets in
illiquid securities may restrict the ability of a Series 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 a Series' operations require cash, such as when
the Series redeems shares or pays dividends, and could result in the Series
borrowing to meet short-term cash requirements or incurring capital losses on
the sale of illiquid investments.

Each Series may invest in securities that are "restricted securities."
Restricted securities have contractual or legal restrictions on their resale and
include "private placement" securities that a Series may buy directly from the
issuer. Restricted securities may be sold in private placement transactions
between issuers and their purchasers and may be neither listed on an exchange
nor traded in other established markets. In many cases, privately placed
securities may not be freely transferable under the laws of the applicable
jurisdiction or due to contractual restrictions on resale. As a result of the
absence of a public trading market, privately placed securities may be less
liquid and more difficult to value than publicly traded securities. To the
extent that privately placed securities may be resold in privately negotiated
transactions, the prices realized from the sales, due to illiquidity, could be
less than those originally paid by a Series or less than fair market value.

In addition, issuers whose securities are not publicly traded may not
be subject to the disclosure and other investor protection requirements that may
be applicable if their securities were publicly traded. If any privately placed
securities held by a Series are required to be registered under the securities
laws of one or more jurisdictions before being resold, the Series may be
required to bear the expenses of registration. Certain of a Series' 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, a Series may obtain access to material nonpublic information
which may restrict the Series' ability to conduct portfolio transactions in such
securities.

144A Securities. Each Series may purchase restricted securities that
can be offered and sold to "qualified institutional buyers" under Rule 144A
under the Securities Act of 1933, as amended (the "Securities Act"). The Board
of Trustees has determined to treat as liquid Rule 144A securities that are
either freely tradable in their primary markets offshore or have been determined
to be liquid in accordance with the policies and procedures adopted by the Board
of Trustees. The

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Board of Trustees has adopted guidelines and delegated to the Investment Adviser
the daily function of determining and monitoring liquidity of restricted
securities. The Board of Trustees, however, will retain sufficient oversight and
be ultimately responsible for the determinations. Since it is not possible to
predict with assurance exactly how this market for restricted securities sold
and offered under Rule 144A will continue to develop, the Board of Trustees will
carefully monitor the Series' investments in these securities. This investment
practice could have the effect of increasing the level of illiquidity in the
Series to the extent that qualified institutional buyers become for a time
uninterested in purchasing these securities.

Standby Commitment Agreements. The Aggregate Bond Index Series and the
Quantitative Series may enter into standby commitment agreements. These
agreements commit the Aggregate Bond Index Series or a Quantitative Series, as
the case may be, for a stated period of time, to purchase a stated amount of
fixed-income securities that may be issued and sold to that Series at the option
of the issuer. The price and coupon of the security is fixed at the time of the
commitment. At the time of entering into the agreement the Aggregate Bond Index
Series or a Quantitative Series, as the case may be, is paid a commitment fee,
regardless of whether or not the security is ultimately issued. The Aggregate
Bond Index Series and the Quantitative Series will enter into such agreements
for the purpose of investing in the security underlying the commitment at a
yield and price that is considered advantageous to the Series. The Aggregate
Bond Index Series and the Quantitative Series will not enter into a standby
commitment with a remaining term in excess of 90 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 all other
illiquid securities, will not exceed 15% of its net assets taken at the time of
the commitment. The Aggregate Bond Index Series and the Quantitative Series 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
Aggregate Bond Index Series and the Quantitative Series may bear the risk of a
decline in the value of such security and may not benefit from an appreciation
in the value of the security during the commitment period.

The purchase of a security subject to a standby commitment agreement
and the related commitment fee will be recorded on the date on which the
security can reasonably be expected to be issued, and the value of the security
will thereafter be reflected in the calculation of the Aggregate Bond Index
Series' or a Quantitative Series' net asset value, as the case may be. 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.

Repurchase Agreements. Each Series may invest in securities pursuant to
repurchase agreements. Repurchase agreements may be entered into only with a
member bank of the Federal Reserve System, primary dealers in U.S. Government
securities, or an affiliate thereof, or with other entities which the Investment
Adviser otherwise deems to be creditworthy. Under

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such agreements, the counterparty 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
Series from fluctuations in the market value of the underlying security during
such period although, with respect to the International (GDP Weighted) Index
Series, International (Capitalization Weighted) Index Series, Enhanced
International Series and Quantitative International Series, to the extent the
repurchase agreement is not denominated in U.S. dollars, the Series' return may
be affected by currency fluctuations. A Series may not invest more than 15% of
its net assets in repurchase agreements maturing in more than seven days
(together with other illiquid securities). Repurchase agreements may be
construed to be collateralized loans by the purchaser to the seller secured by
the securities transferred to the purchaser. A Series 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 a Series but
only constitute collateral for the seller's obligation to pay the repurchase
price. Therefore, a Series may suffer time delays and incur costs or possible
losses in connection with the disposition of the collateral. In the event of a
default by the seller under such a repurchase agreement, instead of the
contractual fixed rate of return, the rate of return to a Series shall be
dependent upon intervening fluctuations of the market value of such security and
the accrued interest on the security. In such event, the Series 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.

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Convertible Securities. The Index Series, the Enhanced Series and the
Quantitative Series each may invest in convertible securities. Convertible
securities include convertible bonds, notes and debentures, convertible
preferred stocks, and other securities that give the holder the right to
exchange the security for a specific number of shares of common stock.
Convertible securities entail less credit risk than the issuer's common stock
because they are considered to be "senior" to common stock. Convertible
securities generally offer lower interest or dividend yields than
non-convertible debt securities of similar quality. They may also reflect
changes in value of the underlying common stock.

Convertible securities entitle the holder to receive interest payments
paid on corporate debt securities or the dividend preference on a preferred
stock until such time as the convertible security matures or is redeemed or
until the holder elects to exercise the conversion privilege.

The characteristics of convertible securities include the potential for
capital appreciation as the value of the underlying common stock increases, the
relatively high yield received from dividend or interest payments as compared to
common stock dividends and decreased risks of decline in value relative to the
underlying common stock due to their fixed-income nature. As a result of the
conversion feature, however, the interest rate or dividend preference on a
convertible security is generally less than would be the case if the securities
were issued in non-convertible form.

In analyzing convertible securities, the investment adviser will
consider both the yield on the convertible security and the potential capital
appreciation that is offered by the underlying common stock.

Convertible securities are issued and traded in a number of securities
markets. Even in cases where a substantial portion of the convertible securities
held by a Series are denominated in U.S. dollars, the underlying equity
securities may be quoted in the currency of the country where the issuer is
domiciled. With respect to a convertible security denominated in a currency
different from that of the underlying equity security, the conversion price may
be based on a fixed exchange rate between the currency in which the debt
security is denominated and the currency in which the share price is quoted will
affect the value of the convertible security.

Apart from currency considerations, the value of a convertible security
is influenced by both the yield of non-convertible securities of comparable
issuers and by the value of the underlying common stock. The value of a
convertible security viewed without regard to its conversion feature (i.e.,
strictly on the basis of its yield) is sometimes referred to as its "investment
value." To the extent interest rates change, the investment value of the
convertible security typically will fluctuate. However, at the same time, the
value of the convertible security will be influenced by its "conversion value,"
which is the market value of the underlying common stock that would be obtained
if the convertible security were converted. Conversion value fluctuates directly
with the price of the underlying common stock. If, because of a low price of the
common stock the conversion value is substantially below the investment value of
the convertible security, the price of the convertible security is governed
principally by its investment value.

To the extent the conversion value of a convertible security increases
to a point that approximates or exceeds its investment value, the price of the
convertible security will be influenced principally by its conversion value. A
convertible security will sell at a premium over the conversion value to the
extent investors place value on the right to acquire the underlying common stock
while holding a fixed-income security.

Holders of convertible securities generally have a claim on the assets
of the issuer prior to the common stockholders but may be subordinated to other
debt securities of the same issuer. A convertible security may be subject to
redemption at the option of the issuer at a price established in the charter
provision, indenture or other governing instrument pursuant to which the
convertible security was issued. If a convertible security held by a Series is
called for redemption, the Series will be required to redeem the security,
convert it into the underlying common stock or sell it to a third party. Certain
convertible debt securities may provide a put option to the holder which
entitles the holder to cause the security to be redeemed by the issuer at a
premium over the stated principal amount of the debt security under certain
circumstances.

Warrants. A warrant gives a Series the right to buy a quantity of
stock. The warrant specifies the amount of underlying stock, the purchase (or
"exercise") price, and the date the warrant expires. A Series has no obligation
to exercise the warrant and buy the stock.

A warrant has value only if the Series exercises it before it expires.
If the price of the underlying stock does not rise above the exercise price
before the warrant expires, the warrant generally expires without any value and
the Series loses any amount it paid for the warrant. Thus, investments in
warrants may involve substantially more risk than investments in common stock.
Warrants may trade in the same markets as their underlying stock; however, the
price of the warrant does not necessarily move with the price of the underlying
stock.

Buying a warrant does not make the Series 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 investments in warrants may be more speculative than other
equity-based investments.

New Issues. Each Series may purchase newly issued securities. Newly
issued securities lack established trading histories and may be issued by
companies with limited operating histories. The Enhanced Series and the
Quantitative Series may each seek to purchase "hot issues" - that is, newly
issued securities for which demand is high and that are expected to trade at a
premium to the offering price when secondary market trading commences. There can
be no assurance that such Series will be able to obtain hot issues or that such
Series will be able to sell hot issues at a premium to the offering price.

Securities Lending. Each Series may lend securities with a value not
exceeding 33 1/3% of its total assets. In return, a Series receives collateral
in an amount equal to at least 100% of the current market value of the loaned
securities in cash or securities issued or guaranteed by the U.S. Government. If
cash collateral is received by a Series, 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 Series. Alternatively, if securities are delivered
to a Series as collateral, the Series and the borrower negotiate a rate for the
loan premium to be received by the Series for lending its portfolio securities.
In either event, the total yield on a Series' portfolio is increased by loans of
its portfolio securities. A Series 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. A Series 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

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borrowed securities because of insolvency or for any other reason, a Series
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.

Borrowing and Leverage. The use of leverage by a Series creates an
opportunity for greater total return, but, at the same time, creates special
risks. For example, leveraging may exaggerate changes in the net asset value of
Series shares and in the yield on the Series' portfolio. Although the principal
of such borrowings will be fixed, a Series' assets may change in value during
the time the borrowings are outstanding. Borrowings will create interest
expenses for a Series which can exceed the income from the assets purchased with
the borrowings. To the extent the income or capital appreciation derived from
securities purchased with borrowed funds exceeds the interest a Series will have
to pay on the borrowings, the Series' return will be greater than if leverage
had not been used. Conversely, if the income or capital appreciation from the
securities purchased with such borrowed funds is not sufficient to cover the
cost of borrowing, the return to a Series will be less than if leverage had not
been used, and therefore the amount available for distribution to shareholders
as dividends and other distributions will be reduced. In the latter case, the
Investment Adviser in its best judgment nevertheless may determine to maintain a
Series' leveraged position if it expects that the benefits to the Series'
shareholders of maintaining the leveraged position will outweigh the current
reduced return.

Certain types of borrowings by a Series may result in the Series being
subject to covenants in credit agreements relating to asset coverage, portfolio
composition requirements and other matters. It is not anticipated that
observance of such covenants would impede the Investment Adviser from managing a
Series' portfolio in accordance with the Series' investment objectives and
policies. However, a breach of any such covenants not cured within the specified
cure period may result in acceleration of outstanding indebtedness and require a
Series to dispose of portfolio investments at a time when it may be
disadvantageous to do so.

A Series at times may borrow from affiliates of the Investment Adviser,
provided that the terms of such borrowings are no less favorable than those
available from comparable sources of funds in the marketplace.

Small Cap Companies. An investment in the Small Cap Index Series, the
Quantitative Small Cap Series and, to a lesser extent, the Mid Cap Index Series
and the Quantitative Mid Cap Series involves greater risk than is customarily
associated with Series that invest in more established companies. The securities
of smaller companies may be subject to more abrupt or erratic market movements
than larger, more established companies or the market average in general. These
companies may have limited product lines, markets or financial resources, or
they may be dependent on a limited management group. Because of these factors,
the Small Cap Index Series, the Quantitative Small Cap Series, the Mid Cap Index
Series and the Quantitative Mid Cap Series believe that their shares may be
suitable for investment by persons who can invest without concern for current
income and who are in a financial position to assume above-average investment
risk in search of above-average long-term reward. It is not intended as a
complete investment program but is designed for those long-term investors who
are prepared to experience above-average fluctuations in net asset value.

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While the issuers in which the Small Cap Index Series, the Quantitative
Small Cap Series, and to a lesser extent the Mid Cap Index Series and the
Quantitative Mid Cap Series will primarily invest may offer greater
opportunities for capital appreciation than large cap issuers, investments in
smaller companies may involve greater risks and thus may be considered
speculative. Full development of these companies and trends frequently takes
time and, for this reason, the Small Cap Index Series, the Quantitative Small
Cap Series, and to a lesser extent the Mid Cap Index Series and the Quantitative
Mid Cap Series should be considered as a long-term investment and not as a
vehicle for seeking short-term profits.

The securities in which the Small Cap Index Series, the Quantitative
Small Cap Series, and to a lesser extent the Mid Cap Index Series and the
Quantitative Mid Cap Series invest will often be traded only in the
over-the-counter market or on a regional securities exchange and may not be
traded every day or in the volume typical of trading on a national securities
exchange. As a result, the disposition by the Small Cap Index Series, the
Quantitative Small Cap Series, the Mid Cap Index Series or the Quantitative Mid
Cap Series, as the case may be, of portfolio securities, to meet redemptions or
otherwise, may require that Series to sell these securities at a discount from
market prices or during periods when such disposition may not be desirable or to
make many small sales over a lengthy period of time.

Equity securities of specific small cap issuers may present different
opportunities for long-term capital appreciation during varying portions of
economic or securities markets cycles, as well as during varying stages of their
business development. The market valuation of small cap issuers tends to
fluctuate during economic or market cycles, presenting attractive investment
opportunities at various points during these cycles.

Smaller companies, due to the size and kinds of markets that they
serve, may be less susceptible than large companies to intervention from the
Federal government by means of price controls, regulations or litigation.

Mortgage-Backed Securities. The Aggregate Bond Index Series may invest
in mortgage-backed securities. Mortgage-backed securities are "pass-through"
securities, meaning that principal and interest payments made by the borrower on
the underlying mortgages are passed through to the Aggregate Bond Index Series.
The value of mortgage-backed securities, like that of traditional fixed income
securities, typically increases when interest rates fall and decreases when
interest rates rise. However, mortgage-backed securities differ from traditional
fixed income securities because of their potential for prepayment without
penalty. The price paid by the Aggregate Bond Index Series for its
mortgage-backed securities, the yield the Aggregate Bond Index Series expects to
receive from such securities and the average life of the securities are based on
a number of factors, including the anticipated rate of prepayment of the
underlying mortgages. In a period of declining interest rates, borrowers may
prepay the underlying mortgages more quickly than anticipated, thereby reducing
the yield to maturity and the average life of the mortgage-backed securities.
Moreover, when the Aggregate Bond Index Series reinvests the proceeds of a
prepayment in these circumstances, it will likely receive a rate of interest
that is lower than the rate on the security that was prepaid. To the extent that
the Aggregate Bond Index Series purchases mortgage-backed securities at a
premium, mortgage foreclosures and principal prepayments may result in a loss to
the extent of the premium paid. If the Aggregate Bond Index Series buys such
securities at a discount, both scheduled payments of principal and unscheduled
prepayments will increase current and total returns and will accelerate the
recognition of income which, when distributed to shareholders, will be taxable
as ordinary income. In a period of rising interest rates, prepayments of the
underlying mortgages may occur at a slower than expected rate, creating maturity
extension risk. This particular risk may effectively change a security that was
considered short or intermediate term at the time of purchase into a long term
security. Since

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long-term securities generally fluctuate more widely in response to changes in
interest rates than shorter-term securities, maturity extension risk could
increase the inherent volatility of the Aggregate Bond Index Series. See
"Investment in Fixed-Income Securities" and "Illiquid or Restricted Securities"
above.

Series Strategies Involving Options, Futures, Swaps, Indexed
Instruments and Foreign Exchange Transactions.

Each Series will also invest in derivative instruments that it believes
may serve as substitutes for individual securities in an attempt to broadly
represent a particular market, market segment or index, as the case may be. The
derivative instruments in which each Series may invest include the purchase and
writing of options on securities indices and the writing of covered call options
on stocks or derivative instruments correlated with an index or components of
the index rather than securities represented in that index. Each Series will
normally invest a substantial portion of its assets in options and futures
contracts correlated with an index representing a Series' particular market
segment or index. Each Series may also utilize options on futures, swaps and
other indexed instruments. Derivatives may be employed as a proxy for a direct
investment in securities underlying the relevant index. Options, futures and
other derivative instruments may also be employed to gain market exposure
quickly in the event of subscriptions, provide liquidity, to invest uncommitted
cash balances, for non-hedging purposes and in connection with short-term
trading opportunities.

In addition, the International (GDP Weighted) Index Series,
International (Capitalization Weighted) Index Series, Enhanced International
Series and Quantitative International Series may engage in futures contracts on
foreign currencies in connection with certain foreign security transactions and
as an efficient and less costly way of emphasizing or de-emphasizing investment
in particular countries represented in the particular market segment or index.

The Investment Adviser will choose among the foregoing instruments
based on its judgment of how best to meet each Series' goal. In connection
therewith, the Investment Adviser will assess such factors as current and
anticipated securities prices, relative liquidity and price levels in the
options, futures and swap markets compared to the securities markets, and the
Series' cash flow and cash management needs.

Indexed Securities

The Series 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, a Series may invest in a debt security or total return swap
that pays interest and returns principal based on the change in the value of a
securities index or a basket of securities. If a Series invests in such
securities, it may be subject, in the case of a debt security to reduced or
eliminated interest payments or loss of principal, or, in the case of a total
return swap, substantial payments to the counterparty in the event of an adverse
movement in the relevant index.

Options on Securities and Securities Indices.

Purchasing Options. Each Series is authorized to purchase put options
on securities held in its portfolio or securities indices the performance of
which is substantially replicated by securities held in its portfolio or, in the
case of the Quantitative Series, representing a Series' particular market
segment. When a Series purchases a put option, in consideration for an upfront
payment (the "option premium") the Series acquires a right to sell to another
party specified securities owned by the Series 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

23
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of a put option limits the Series' 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
Series 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.

Each Series is also authorized to purchase call options on securities
it intends to purchase or securities indices the performance of which is
substantially replicated by securities held in its portfolio, or, in the case of
the Quantitative Series, the performance of which is substantially correlated to
a Series' particular market segment. When a Series purchases a call option, in
consideration for the option premium the Series acquires the 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 Series 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 Series is
contemplating its purchase, in the case of an option on a security, or
attempting to maintain exposure to an index prior to purchasing the underlying
securities, in the case of an option on an index (an "anticipatory hedge"). In
the event a Series determines not to purchase a security underlying a call
option, however, the Series may lose the entire option premium.

Each Series is also authorized to purchase put or call options in
connection with closing out put or call options it has previously sold.

Writing Options. Each Series 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, or, in the case of the Quantitative Series, the performance of which
is substantially correlated to a Series' particular market segment. When a
Series writes a call option, in return for an option premium the Series gives
another party the right to buy specified securities owned by the Series at the
exercise price on or before the expiration date, in the case of an option on
securities, or agrees to pay to another party an amount based on any gain in a
specified securities index beyond a specified level on or before the expiration
date, in the case of an option on a securities index. The Quantitative Series
may write call options to earn income through the receipt of option premiums. In
the event the party to which a Series 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 Series will partially offset any decline in
the value of the underlying securities through the receipt of the option
premium. By writing a call option, however, a Series 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.

Each Series may also write put options on securities or securities
indices the performance of which is substantially replicated by securities held
in its portfolio, or, in the case of the Quantitative Series, the performance of
which is substantially correlated to a Series' particular market segment. When a
Series writes a put option, in return for an option premium the Series gives
another party the right to sell to the Series 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 Quantitative Series
may write put options to earn income through the receipt of option premiums. In
the event the party to which the Series has written an option fails to exercise
its rights under the option because the value of the underlying securities is

24
<PAGE>

greater than the exercise price, the Series will profit by the amount of the
option premium. By writing a put option, however, a Series 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 Series 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 Series for writing the put option. A Series will write a
put option on a security or a securities index only if the Series 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 on the same security or index but different
expiration dates or exercise prices (a technique called a "spread").

Each Series is also authorized to sell call or put options in
connection with closing out call or put options it has previously purchased.

Other than with respect to closing transactions, a Series will only
write call or put options that are "covered." A put option will be considered
covered if a Series has segregated assets with respect to such option in the
manner described in "Risk Factors in Derivatives" below. A call option will be
considered covered if a Series owns the securities it would be required to
deliver upon exercise of the option (or, in the case of option on a securities
index, securities which substantially replicate the performance of such index)
or owns a call option, warrant or convertible instrument which is immediately
exercisable for, or convertible into, such security.

Types of Options. Each Series 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 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 Derivatives" below.

Futures

Each Series may engage in transactions in futures and options thereon.
Futures are standardized, exchange-traded contracts that obligate a purchaser to
take delivery, and a seller to make delivery, of a specific amount of an asset
at a specified future date at a specified price. An index futures contract is a
contract to buy or sell units of a particular index of securities at a specified
future date at a price agreed upon when the contract is made. Index futures
contracts typically specify that no delivery of the actual securities making up
the index takes place. Instead, upon termination of the contract, final
settlement is made in cash based on the difference

<PAGE>

between the contract price and the actual price on the termination date of the
units of the index. No price is paid upon entering into a futures contract.
Rather, upon purchasing or selling a futures contract the Series 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 a
Series' transactions or in a third party account with a Series' custodian. Each
day thereafter until the futures position is closed, the Series 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 a 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 a
Series and its interestholders. Even if a transaction is profitable, a Series
may not get back the same assets which were deposited as a margin or may receive
payment in cash.

The sale of a futures contract limits a Series' risk of loss through a
decline in the market value of portfolio holdings correlated with the futures
contract prior to the futures contract's expiration date. In the event the
market value of the portfolio holdings correlated with the futures contract
increases rather than decreases, however, a Series will realize a loss on the
futures position and a lower return on the portfolio holdings than would have
been realized without the purchase of the futures contract.

The purchase of a futures contract may protect a Series from having to
pay more for securities as a consequence of increases in the market value for
such securities during a period when the Series was attempting to identify
specific securities in which to invest. In the event that such securities
decline in value or the series determines not to complete an anticipatory hedge
transaction relating to a futures contract, however, a Series may realize a loss
relating to the futures position.

Each of the Index Series and Enhanced Series 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).
Each Series also will limit transactions in futures and options on futures to
the extent necessary to prevent the Series from being deemed a "commodity pool"
under regulations of the Commodity Futures Trading Commission. Each of the Index
Series and Enhanced Series will only engage in futures and options transactions
from time to time. No Series is under any obligation to use such transactions
and may not do so.

Swaps.

The Series are 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 fixed or
variable interest rate or the change in market value of a different equity
security, basket of equity securities or equity index. Swap agreements may be
used to obtain exposure to an equity or market without owning or taking physical
custody of securities in circumstances in which a swap has more attractive risk
or return characteristics than direct investment or in which direct investment
is restricted by local law or is otherwise impractical.

Foreign Exchange Transactions. The International (GDP Weighted) Index
Series, International (Capitalization Weighted) Index Series, Enhanced
International Series and Quantitative International Series may engage in futures
contracts on foreign currencies and foreign currency forward and spot
transactions in connection with transactions or anticipated transactions in
securities denominated in foreign currencies. The International (GDP Weighted)
Index Series, International (Capitalization Weighted) Index Series, Enhanced
International Series and Quantitative International Series are not required to
engage in futures contracts, and may not do so. 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 International (GDP
Weighted) Index Series, International (Capitalization Weighted) Index Series
and Enhanced International Series will enter into foreign exchange transactions
only for purposes of hedging either a specific transaction or a portfolio
position. Such Series 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 Series has received or anticipates receiving a dividend or distribution.

Risk Factors in Derivatives

All Series may invest in derivatives, however, the Index Series and
Enhanced Series may use derivatives for hedging purposes only. Use of
derivatives for hedging purposes involves the risk of imperfect correlation in
movements in the value of the derivatives and the value of the instruments being
hedged. If the value of the derivatives moves more or less than the value of the
hedged instruments, such Series will experience a gain or loss that will not be
completely offset by movements in the value of the hedged instruments.

The Series intend to enter into transactions involving derivatives only
if there appears to be a liquid secondary market for such instruments or, in the
case of illiquid instruments traded in OTC transactions, such instruments
satisfy the criteria set forth below under "Additional Risk Factors of OTC
Transactions; Limitations on the Use of OTC Derivatives," below. However, there
can be no assurance that, at any specific time, either a liquid secondary market
will exist for a derivative or a Series will otherwise be able to sell such
instrument at an acceptable price. It may therefore not be possible to close a
position in a derivative without incurring substantial losses, if at all.

Certain transactions in derivatives (e.g., futures transactions, sales
of put options) may expose a Series to potential losses which exceed the amount
originally invested by the Series in

<PAGE>

such instruments. When a Series engages in such a transaction, the Series will
deposit in a segregated account at its custodian liquid securities with a value
at least equal to the Series' exposure, on a market-to-market basis, to the
transaction (as calculated pursuant to requirements of the Securities and
Exchange Commission). Such segregation will ensure that the Series has assets
available to satisfy its obligations with respect to the transaction, but will
not limit the Series' exposure to loss.

Additional Risk Factors of OTC Transactions.

Certain derivatives traded in OTC markets, including indexed
securities, swaps and OTC options may be substantially less liquid than other
instruments in which a Series may invest. The absence of liquidity may make it
difficult or impossible for a Series to sell such instruments promptly at an
acceptable price. The absence of liquidity may also make it more difficult for a
Series to ascertain a market value for such instruments. A Series will therefore
acquire illiquid OTC instruments (i) if the agreement pursuant to which the
instrument is purchased contains a formula price at which the instrument may be
terminated or sold, or (ii) for which the Manager anticipates the Series can
receive on each business day at least two independent bids or offers, unless a
quotation from only one dealer is available, in which case that dealer's
quotation may be used.

Because derivatives traded in OTC markets are not guaranteed by an
exchange or clearing corporation and generally do not require payment of margin,
to the extent that a Series has unrealized gains in such instruments or has
deposited collateral with its counterparty, the Series is at risk that its
counterparty will become bankrupt or otherwise fail to honor its obligations.
The Series will attempt to minimize the risk that a counterparty will become
bankrupt or otherwise fail to honor its obligations by engaging in transactions
in derivatives traded in OTC

27
<PAGE>

markets only with financial institutions which have substantial capital or which
have provided the Series with a third-party guaranty or other credit
enhancement.

Additional Limitations on the Use of Derivatives

The Series may not use any derivative to gain exposure to an asset or
class of assets that it would be prohibited by its investment restrictions from
purchasing directly, except that the Enhanced Series may use derivatives
relating to assets not included in the relevant index in connection with
arbitrage transactions or other permitted enhancement strategies.

Additional Information Concerning the Indices

S&P 500 and S&P 400. "Standard & Poor's(R)," "S&P(R)," "S&P 500(R),"
"S&P MidCap 400 Index(R)," "Standard & Poor's 500," "Standard & Poor's MidCap
400 Index," "500" and "400" are trademarks of The McGraw-Hill Companies, Inc.
and have been licensed for use by Merrill Lynch Index Funds, Inc., Mercury Index
Funds, Inc., Mercury Quantitative Series Fund, Inc., Mercury Life Strategy
Series Fund, Inc. and the Trust. The S&P 500 Index Series, Enhanced S&P 500
Index Series, Quantitative Large Cap Series, Quantitative Mid Cap Series and the
Mid Cap Index Series are not sponsored, endorsed, sold or promoted by Standard &
Poor's, a division of the McGraw Hill Companies, Inc. ("Standard & Poor's" or
"S&P"). Standard & Poor's makes no representation regarding the advisability of
investing in the Series. Standard & Poor's makes no representation or warranty,
express or implied, to the owners of shares of the Series or any member of the
public regarding the advisability of investing in securities generally or in the
Series particularly or the ability of the S&P 500 and the S&P 400 to track
general stock market performance. Standard & Poor's only relationship to the
Series is the licensing of certain trademarks and trade names of Standard &
Poor's and of the S&P 500 and the S&P 400 which is determined, composed and
calculated by Standard & Poor's without regard to the Series. Standard & Poor's
has no obligation to take the needs of the Series or the owners of shares of the
Series into consideration in determining, composing or calculating the S&P 500
and the S&P 400. Standard & Poor's is not responsible for and has not
participated in the determination of the prices and amount of the Series or the
timing of the issuance or sale of shares of the Series and the Series or in the
determination or calculation of the equation by which the Series is to be
converted into cash. Standard & Poor's has no obligation or liability in
connection with the administration, marketing or trading of the Series.

Standard & Poor's does not guarantee the accuracy and/or the
completeness of the S&P 500 Index and the S&P 400 Index or any data included
therein and Standard & Poor's shall have no liability for any errors,
omissions, or interruptions therein. Standard & Poor's makes no warranty,
express or implied, as to results to be obtained by the Series, owners of shares
of the Series, or any other person or entity from the use of the S&P 500 Index
and the S&P 400 Index or any data included therein. Standard & Poor's makes no
express or implied warranties and expressly disclaims all warranties of
merchantability of fitness for a particular purpose or use with respect to the
S&P 500 Index and the S&P 400 Index or any data included therein. Without
limiting any of the foregoing, in no event shall Standard & Poor's have any
liability for any special, punitive, indirect, or consequential damages
(including lost profits), even if notified of the possibility of such damages.

Russell 2000. The Small Cap Index Series is not promoted, sponsored or
endorsed by, nor in any way affiliated with Frank Russell Company. Frank Russell
Company is not

28
<PAGE>

responsible for and has not reviewed the Small Cap Index Series nor any
associated literature or publications and Frank Russell Company makes no
representation or warranty, express or implied, as to their accuracy, or
completeness, or otherwise.

Frank Russell Company reserves the right, at any time and without
notice, to alter, amend, terminate or in any way change the Russell 2000(R)
Index. Frank Russell Company has no obligation to take the needs of any
particular Series or its participants or any other product or person into
consideration in determining, composing or calculating the Index.

Frank Russell Company's publication of the Russell 2000(R) Index in no
way suggests or implies an opinion by Frank Russell Company as to the
attractiveness or appropriateness of investment in any or all securities upon
which the Russell 2000 is based. Frank Russell Company makes no representation,
warranty, or guarantee as to the accuracy, completeness, reliability, or
otherwise of the Russell 2000 or any data included in the Russell 2000. Frank
Russell Company makes no representation or warranty regarding the use, or the
results of use, of the Russell 2000 or any data included therein, or any
security (or combination thereof) comprising the Russell 2000. Frank Russell
Company makes no other express or implied warranty, and expressly disclaims any
warranty, of any kind, including, without means of limitation, any warranty of
merchantability or fitness for a particular purpose with respect to the Russell
2000 or any data or any security (or combination thereof) included therein.

EAFE Indices. Both the EAFE (GDP Weighted) Index and the EAFE
(Capitalization Weighted) Index (the "EAFE Indices") are the exclusive property
of Morgan Stanley Capital International, Inc. ("Morgan Stanley"). The EAFE
Indices are service marks of Morgan Stanley Group Inc. and have been licensed
for use by the Investment Adviser and its affiliates.

None of Series are sponsored, endorsed, sold or promoted by Morgan
Stanley. Morgan Stanley makes no representation or warranty, express or implied,
to the owners of shares of any Series or any member of the public regarding the
advisability of investing in securities generally or in any Series particularly
or the ability of the EAFE Indices to track general stock market performance.
Morgan Stanley is the licensor of certain trademarks, service marks and trade
names of Morgan Stanley and of the EAFE Indices. Morgan Stanley has no
obligation to take the needs of any Series or the owners of shares of any Series
into consideration in determining, composing or calculating the respective EAFE
Index. Morgan Stanley is not responsible for and has not participated in the
determination of the timing of, prices at, or quantities of shares of any Series
to be issued or in the determination or calculation of the equation by which the
shares of any Series are redeemable for cash. Morgan Stanley has no obligation
or liability to owners of shares of any Series in connection with the
administration, marketing or trading of any Series.

Although Morgan Stanley shall obtain information for inclusion in or
for use in the calculation of the EAFE Indices from sources which Morgan Stanley
considers reliable, Morgan Stanley does not guarantee the accuracy and/or the
completeness of the EAFE Indices or any data included therein. Morgan Stanley
makes no warranty, express or implied, as to results to be

<PAGE>

obtained by licensee, licensee's customers and counterparties, owners of shares
of any Series, or any other person or entity from the use of the EAFE Indices or
any data included therein in connection with the rights licensed hereunder or
for any other use. Morgan Stanley makes no express or implied warranties, and
hereby expressly disclaims all warranties of merchantability or fitness for a
particular purpose with respect to the EAFE Indices or any data included
therein. Without limiting any of the foregoing, in no event shall Morgan Stanley
have any liability for any direct, indirect, special, punitive, consequential or
any other damages (including lost profits) even if notified of the possibility
of such damages.

Additional Information Concerning Market Segments

None of the Quantitative Series is an index series; that is, none of
the Series seeks to replicate the performance of a particular index. However,
each Series generally will invest in the equity market segment with risk and
style characteristics similar to those of the respective index that is described
below:

Standard and Poor's 500 Composite Stock Price Index (Quantitative Large Cap
Series)

The S&P 500 is composed of 500 common stocks issued by U.S.
large-capitalization companies in a wide range of businesses. The stocks
included in the index collectively represent a substantial portion of all common
stocks publicly traded U.S. large capitalization stocks. The S&P 500 is a
market-weighted index, which means that the largest stocks represented in the
index have the most effect on the index's performance. Currently, the largest
stocks in the S&P 500 have an effect on the performance of the index that is
many times greater than the effect of the other stocks in the index. The stocks
in the S&P 500 are chosen by the Standard & Poor's Rating Group (previously
defined as "S&P"), a division of the McGraw-Hill Companies, Inc. S&P chooses
stocks for inclusion in the S&P 500 based on market capitalization, trading
activity and the overall mix of industries represented in the index, among other
factors.

Standard and Poor's 500/Barra Value Index (Quantitative Large Cap Value
Series)

The Standard and Poor's 500/Barra Value Index ("S&P" 500/Barra Value
Index") includes approximately one-half of the companies in the S&P 500, which
are considered "value" stocks, based on their price-to-book ratios. This is
determined by dividing the book value per share of common stock of each company
in the S&P 500 by the price per share of the company. Each company in the S&P
500 is then assigned to either the S&P 500/Barra Value Index or the Standard and
Poor's 500/Barra Growth Index ("S&P 500/Barra Growth Index"). The S&P 500/Barra
Value Index contains companies with lower price-to-book ratios while the S&P
500/Barra Growth Index contains companies with higher price-to-book ratios. The
S&P 500/Barra Value and Growth Indexes are designed so that the combined
capitalization of the S&P 500 is approximately equally divided between the S&P
5OO/Barra Value and Growth Indexes. Over time, the relative capitalization
weightings in the S&P 500/Barra Value and Growth Indexes will vary due to
capitalization changes of the companies in the respective index. Accordingly,
every six months, the S&P 500/Barra Value and Growth Indexes are rebalanced so
that the combined index capitalization of the S&P 500 is once again
approximately equally split between the S&P 5OO/Barra Value and Growth Indexes.
Each time the S&P 5OO/Barra Value and Growth Indexes are rebalanced, a cutoff
value is determined based on the price-to-book ratio of the company in the S&P
500/Barra Value Index with the highest price-to-book ratio. This cutoff value is
used to determine whether to place a company into the S&P 500/Barra Value Index
or the S&P 5OO/Barra Growth Index. If a company's price-to-book ratio is above
the cutoff value, it is placed in the S&P 500/Barra Growth Index; otherwise, it
is added to the S&P 500/Barra Value Index. When companies are deleted from the
S&P 500, they are also deleted from the S&P 500/Barra Value or Growth Indexes,
as applicable. Accordingly, the S&P 500/Barra Value and Growth Indexes are
adjusted monthly to reflect additions and deletions of companies in the S&P 500.
The weighting of the S&P 500/Barra Value Index is based upon the market
capitalization of each company in the index.

Standard and Poor's 500/Barra Growth Index (Quantitative Large Cap Growth
Series)

The S&P 500/Barra Growth Index includes approximately one-half of the
companies in the S&P 500, which are considered "growth" stocks, based on their
price-to-book ratios. This is determined by dividing the book value per share of
common stock of each company in the S&P 500 by the price per share of the
company. Each company in the S&P 500 is then assigned to either the S&P
500/Barra Value Index or the S&P 500/Barra Growth Index. The S&P 5OO/Barra Value
Index contains companies with lower price-to-book ratios while the S&P 500/Barra
Growth Index contains companies with higher price-to-book ratios. The S&P
500/Barra Value and Growth Indexes are designed so that the combined
capitalization of the S&P 500 is approximately equally divided between the S&P
500/Barra Value and Growth Indexes. Over time, the relative capitalization
weightings in the S&P 500/Barra Value and Growth Indexes will vary due to
capitalization changes of the companies in the respective index. Accordingly,
every six months, the S&P 500/Barra Value and Growth Indexes are rebalanced so
that the combined index capitalization of the S&P 500 is once again
approximately equally split between the S&P 5OO/Barra Value and Growth Indexes.
Each time the S&P 500/Barra Value and Growth Indexes are rebalanced, a cutoff
value is determined based on the price-to-book ratio of the company in the S&P
50O/Barra Value Index with the highest price-to-book ratio. This cutoff value is
used to determine whether to place a company into the S&P 500/Barra Value Index
or the S&P 500/Barra Growth Index. If a company's price-to-book ratio is above
the cutoff value, it is placed in the S&P 500/Barra Growth Index; otherwise, it
is added to the S&P 500/Barra Value Index. When companies are deleted from the
S&P 500, they are also deleted from the S&P 500/Barra Value or Growth Indexes,
as applicable. Accordingly, the S&P 500/Barra Value and Growth Indexes are
adjusted monthly to reflect additions and deletions of companies in the S&P 500.
The weighting of the S&P 500/Barra Growth Index is based upon the market
capitalization of each company in the index.

Standard & Poor's Mid Cap 400 Index (Quantitative Mid Cap Series)

The S&P 400 is composed of 400 common stocks issued by U.S.
mid-capitalization companies in a wide range of businesses. The S&P 400 is
generally considered broadly representative of the performance of publicly
traded U.S. mid-capitalization stocks. The S&P 400 is a market-weighted index,
which means that the largest stocks represented in the index have the most
effect on the index's performance. The stocks in the S&P 400 are chosen by S&P.
S&P chooses stocks for inclusion in the S&P 400 based on market capitalization,
(trading activity and the overall mix of industries represented in the index),
among other factors.

Russell 2000 Index (Quantitative Small Cap Series)

The Russell 2000 is composed of the common stocks of the 1001st through
the 3000th largest U.S. companies by market capitalization, as determined by the
Frank Russell Company. The stocks represented in the index are issued by U.S.
small-capitalization companies in a wide range of businesses. The Russell 2000
is generally considered broadly representative of the performance of publicly
traded U.S. smaller-capitalization stocks. The Russell 2000 is a market-weighted
index, which means that the largest stocks represented in the index have the
most effect on the index's performance.

The Frank Russell Company updates the Russell 2000 once each year, at
which time there may be substantial changes in the composition of the index (and
consequently, significant turnover in the Small Cap Index Series and
Quantitative Small Cap Series). Stocks of companies that merge, are acquired or
otherwise cease to exist during the year are not replaced in the index.

Morgan Stanley Capital International Europe, Asia and Far East Capitalization
Weighted Index (Quantitative International Series)

The EAFE (Capitalization Weighted) Index is composed of equity
securities of companies from various industrial sectors whose primary trading
markets are located outside the United States. Companies included in the EAFE
(Capitalization Weighted) Index are selected from among the larger
capitalization companies in these markets. The countries currently included in
the EAFE (Capitalization Weighted) Index are Australia, Austria, Belgium,
Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan, The
Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden,
Switzerland and United Kingdom. The weighting of the EAFE (Capitalization
Weighted) Index among these countries is based upon each country's relative
market capitalizations, rather than its gross domestic product. The stocks in
the EAFE (Capitalization Weighted) Index are chosen by Morgan Stanley. Morgan
Stanley chooses stocks for inclusion in the EAFE (Capitalization Weighted) Index
based on market capitalization, trading activity and the overall mix of
industries represented in the index, among other factors. The EAFE
(Capitalization Weighted) Index is generally considered broadly representative
of the performance of stocks traded in the international markets.

Investment Restrictions

The Trust has adopted the following restrictions and policies relating
to the investment of each Series' assets and activities, which are fundamental
policies and may not be changed with respect to a Series without the approval of
the holders of a majority of the Series' 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). Each may not:

1. Make any investment inconsistent with the Index Series' and
Enhanced Series' classification as a non-diversified company
under the Investment Company Act, and the Quantitative Series'
classification as a diversified company under the Investment
Company Act.

2. Invest more than 25% of its total assets, taken at market value,
in the securities of issuers in any particular industry
(excluding the U.S. Government and its agencies and
instrumentalities); provided, that in replicating the weighting
of a particular industry in the Index Series' and the Enhanced
Series' target index, a Series may invest more than 25% of its
total assets in securities of issuers in that industry.

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

4. Purchase or sell real estate, except that, to the extent
permitted by law, a Series may invest in securities directly
or indirectly secured by real estate or interests therein or
issued by companies which 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 government obligations, commercial paper,
pass-through instruments, certificates of deposit, bankers'
acceptances, repurchase agreements or any similar instruments
shall not be deemed to be the making of a loan, and except
further that a Series 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 Series'

<PAGE>

Registration Statement, as they may be amended from time to
time.

6. Issue senior securities to the extent such issuance would
violate applicable law.

7. Borrow money, except that (i) a Series may borrow from banks
(as defined in the Investment Company Act) in amounts up to 33
1/3% of its total assets (including the amount borrowed), (ii)
a Series may borrow up to an additional 5% of its total assets
for temporary purposes, (iii) a Series may obtain such short
term credit as may be necessary for the clearance of purchases
and sales of portfolio securities and (iv) a Series may
purchase securities on margin to the extent permitted by
applicable law. A Series may not pledge its assets other than
to secure such borrowings or, to the extent permitted by the
Series' 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 a
Series technically may be deemed an underwriter under the
Securities Act in selling portfolio securities.

9. Purchase or sell commodities or contracts on commodities,
except to the extent that a Series may do so in accordance
with applicable law and the Series' 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.

In addition, each Series, including the Index Series and the Enhanced
Series which are classified as a non-diversified Series under the Investment
Company Act and are not subject to the diversification requirements of the
Investment Company Act, is required to comply with certain requirements under
the Code. To ensure that the Series satisfy these requirements, the Declaration
of Trust requires that each Series be managed in compliance with the Code
requirements as though such requirements were applicable to the Series. These
requirements include limiting its investments so that at the close of each
quarter of the taxable year (i) not more than 25% of the market value of a
Series' total assets are invested in the securities of a single issuer, or any
two or more issuers which are controlled by the Series and engaged in the same,
similar or related businesses, and (ii) with respect to 50% of the market value
of its total assets, not more that 5% of the market value of its total assets
are invested in securities of a single issuer, and the Series does not own more
than 10% of the outstanding voting securities of a single issuer. The U.S.
Government, its agencies and instrumentalities are not included within the
definition of "issuer" for purposes of the diversification requirements of the
Code.

31
<PAGE>

In addition, the Trust has adopted non-fundamental restrictions that
may be changed by the Trustees without shareholder approval. Like the
fundamental restrictions, none of the non-fundamental restrictions, including
but not limited to restriction (a) below, shall prevent a Series 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 restrictions, a Series may not:

(a) Purchase securities of other investment companies, except to the
extent such purchases are permitted by applicable law. As a matter of
policy, however, a Series 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 Series' shares are owned
by another investment company that is part of the same group of
investment companies as the Series.

(b) Make short sales of securities or maintain a short position, except
to the extent permitted by applicable law and otherwise permitted by
the Trust's Registration Statement.

(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 Trustees of the Trust have
otherwise determined to be liquid pursuant to applicable law.
Securities purchased in accordance with Rule 144A under the Securities
Act (which are restricted securities that can be resold to qualified
institutional buyers, but not to the general public) and determined to
be liquid by the Directors are not subject to the limitations set forth
in this investment restriction.

(d) Make any additional investments if the amount of its borrowings
exceeds 5% of its total assets. Borrowings do not include the use of
investment techniques that may be deemed to create leverage, including,
but not limited to, such techniques as dollar rolls, when-issued
securities, options and futures.

If a percentage restriction on the investment use of assets set forth
above is adhered to at the time a transaction is effected, later changes in
percentages resulting from changing values will not be considered a violation.

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 Trust has adopted an investment
policy pursuant to which no Series 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 such
Series, the market value of the underlying securities covered by OTC call
options currently outstanding that were sold by the Series and margin deposits
on the Series' existing OTC options on futures contracts exceeds 15% of the net
assets of the Series taken at market value, together with all other assets of
such Series that are illiquid are not otherwise readily marketable. However, if
the OTC options are sold by a Series to a primary U.S. Government securities
dealer recognized by the Federal Reserve Bank of New York and if a Series has
the unconditional contractual right to repurchase such OTC option from the
dealer at a predetermined price, then the Series 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 any Series and may be amended by the Trustees without the approval of
the shareholders. However, the Trustees will not change or modify this policy
prior to the change or modification by the Commission staff of its position.

Portfolio securities of a Series generally may not be purchased from,
sold or loaned to the Investment Adviser or its affiliates or any of their
directors, trustees, 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, a Series is
prohibited from engaging in certain transactions involving Merrill Lynch, or its
affiliates except for brokerage transactions permitted under the Investment
Company Act involving only usual and customary commissions or transactions
pursuant to an exemptive order under the Investment Company Act. See "Brokerage
Allocation and Other Practices." Rule 10f-3 under the Investment Company Act
sets forth conditions under which a Series may purchase from an underwriting
syndicate of which Merrill Lynch is a member. Otherwise, a Series is prohibited
from engaging in portfolio transactions with Merrill Lynch or its affiliates
acting as principal without an exemptive order.

Portfolio Turnover

Although the Index Series and the Enhanced Series will use an approach
to investing that is largely a passive, indexing approach, each such Series may
engage in a substantial number of portfolio transactions. The rate of portfolio
turnover will be a limiting factor when the Investment Adviser considers whether
to purchase or sell securities for any Series only to the extent that the
Investment Adviser will consider the impact of transaction costs on any Series'
tracking error. Changes in the securities comprising such Series' index will
tend to increase that Series' portfolio turnover rate, as the Investment Adviser
restructures the Series' holdings to reflect the changes in the index. The
portfolio turnover rate is, in summary, the percentage computed by dividing the
lesser of a Series' purchases or sales of securities by the average net asset
value of the Series. High portfolio turnover involves correspondingly greater
brokerage commissions for a Series investing in equity securities and other
transaction costs which are borne directly by a Series. A high portfolio
turnover rate may also result in the realization of taxable capital gains,
including short-term capital gains taxable at ordinary income rates.

Item 13. Management of the Registrant

Trustees and Officers

The Trustees consist of four individuals, three of whom are not
"interested persons" of the Trust as defined in the Investment Company Act. The
Trustees are responsible for the overall supervision of the operations of each
Series and perform the various duties imposed on the directors of investment
companies by the Investment Company Act. Information about the Trustees and
executive officers of the Trust 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 Trustee is P.O. Box 9011, Princeton, New Jersey
08543-9011.

32
<PAGE>

Terry K. Glenn (59) - President and Trustee(1)(2) - Executive Vice
President of the Investment Adviser and certain of its affiliates (which terms
as used herein include their corporate predecessors) since 1983; Executive Vice
President and Director of Princeton Services, Inc. ("Princeton Services") since
1993; President of Princeton Funds Distributor, Inc. (previously defined as
"PFD") since 1986 and Director thereof since 1991; President of Princeton
Administrators, L.P. since 1988.

Jack B. Sunderland (71) - Trustee(2) - P.O. Box 7, West Cornwall,
Connecticut 06796. President and Director of American Independent Oil Company,
Inc. (energy company) since 1987; Member of Council on Foreign Relations since
1971.

Stephen B. Swensrud (66) - Trustee(2) - 24 Federal Street, Suite 400,
Boston, Massachusetts 02110. Chairman, Fernwood Advisors (investment adviser)
since 1996; Principal, Fernwood Associates (financial consultant) since 1975.

J. Thomas Touchton (61) - Trustee(2) - Suite 3405, One Tampa City
Center, 201 North Franklin Street, Tampa, Florida, 33602. Managing Partner of
The Witt-Touchton Company and its predecessor, The Witt Co. (private investment
partnership) since 1972; Trustee Emeritus of Washington and Lee University;
Director of TECO Energy Inc. (electric utility holding company).

Joseph T. Monagle, Jr. (51) - Senior Vice President(1)(2) - Senior Vice
President of the Investment Adviser and certain of its affiliates since 1990;
Department Head of the Global Fixed Income Division of the Investment Adviser
and certain of its affiliates since 1997; Senior Vice President of Princeton
Services since 1993.

Gregory Mark Maunz (47) - Senior Vice President(1)(2) - First Vice
President of the Investment Adviser and certain of its affiliates since 1997;
Vice President of the Investment Adviser and certain of its affiliates from 1985
to 1997; Portfolio Manager of the Investment Adviser and certain of its
affiliates since 1984.

Jeffrey B. Hewson (48) - Senior Vice President (1)(2) Director (Global
Fixed Income) of the Investment Adviser and certain of its affiliates since
1998; Vice President of the Investment Adviser and certain of its affiliates
from 1989 to 1998; Portfolio Manager of the Investment Adviser and certain of
its affiliates since 1985.

Eric S. Mitofsky (45) - Senior Vice President (1)(2) - First Vice
President of the Investment Adviser and certain of its affiliates since 1997;
Vice President of the Investment Adviser and certain of its affiliates from 1992
to 1997.

Christopher G. Ayoub (44) - Senior Vice President (1)(2) - First Vice
President of the Investment Adviser and certain of its affiliates since 1998;
Vice President of the Investment Adviser and certain of its affiliates from 1985
to 1998.

33
<PAGE>

Richard Vella (42) - Senior Vice President(1)(2) - First Vice President
of the Investment Adviser and certain of its affiliates since 1999; Managing
Director, Global Index Funds of Bankers Trust from 1997 to 1999; Managing
Director, International Index Funds of Bankers Trust from 1995 to 1999; Vice
President, International Index Funds of Bankers Trust from 1990 to 1995;
Assistant Vice President, International Index Funds of Bankers Trust from
1987-1990; Assistant Treasurer of Bankers Trust from 1985-1986.

Frank Salerno (40) - Senior Vice President(1)(2) - First Vice President
of the Investment Adviser and certain of its affiliates since 1999; Managing
Director and Chief Investment Officer of Structured Investments at Bankers Trust
from 1995 to 1999; Managing Director and head of Structured Investments at
Bankers Trust from 1993 to 1995; Domestic Head of Structured Investments at
Bankers Trust from 1991 to 1993; Assistant Vice President of Structured
Investments at Bankers Trust from 1985 to 1991.

Dean D'Onofrio (41) Senior Vice President(1)(2) - Managing Director
and Head of Quantitative Advisors since 1999; Managing Director in Corporate
Institutional Client Group from 1997 through 1999; Managing Director of Bankers
Trust Company from 1981 to 1996; Analyst, Quantitative Investments group of
Bankers Trust Company from 1981 to 1982, Portfolio Manager of Quantitative
Investments group of Bankers Trust Company from 1983 to 1984, Head of
Quantitative Investments group of Bankers Trust Company from 1985 to 1989, Head
of U.S. Equity Derivatives Marketing group of Bankers Trust Company from 1990 to
1993, Head of Hedge Funds and Arbitrage Trading Group of Bankers Trust Company
from 1994 to 1996.

Donald C. Burke (39) - Vice President and Treasurer(1)(2) - Senior Vice
President and Treasurer of the Investment Adviser and certain of its affiliates
since 1999; Senior Vice President and Treasurer of Princeton Services since
1999; Vice President of PFD since 1999; First Vice President of the Investment
Adviser and certain of its affiliates from 1997 to 1999; Director of Taxation of
the Investment Adviser since 1990; Vice President of the Investment Adviser and
MLAM from 1990 to 1997.

Robert C. Doll (45) - Senior Vice President(1)(2) - Senior Vice
President of the Investment Adviser and certain of its affiliates since 1999;
Senior Vice President of Princeton Services since 1999; Chief Investment Officer
of Oppenheimer Funds, Inc. in 1999 and Executive Vice President thereof from
1991 to 1999.

Ira P. Shapiro (36) - Secretary(1)(2) - First Vice President of the
Investment Adviser and certain of its affiliates since 1998; Director (Legal
Advisory) of the Investment Adviser and certain of its affiliates from 1997 to
1998; Vice President of the Investment Adviser and certain of its affiliates
from 1996 to 1997. Attorney with the Investment Adviser and certain of its
affiliates from 1993 to 1997.

Phil Green (36) - Senior Vice President(1)(2) - Senior Vice President
of the Investment Adviser and certain of its affiliates since 1999; Managing
Director and Portfolio Manager, Global Institutional Services at Bankers Trust
from 1997 to 1999; Vice President, Quantitative Equities at Bankers Trust in
1996; Vice President, Asset Allocations Strategies at Bankers Trust from 1994 to
1996; Vice President, Foreign Exchange and Currency Overlay Strategies at
Bankers Trust from 1988 to 1999; Assistant Treasurer of Asset Management Group
at Bankers Trust from 1985 to 1988.

Sidney Hoots (39) - Senior Vice President(1)(2) - Senior Vice President
of the Investment Adviser and certain of its affiliates since 1999; Managing
Director, Global Institutional Services at Bankers Trust from 1992 to 1999;
Manager, Quantitative U.S. Equities Group at Bankers Trust from 1991 to 1992;
Manager, Bond Index Funds at Bankers Trust from 1986 to 1991. Quantitative
Analyst, Index Funds at Bankers Trust from 1984-1986.

(1) Interested person, as defined in the Investment Company Act, of the
Trust.

(2) Such Trustee or officer is a director, trustee or officer of other
investment companies for which the Investment Adviser or its affiliate acts as
investment adviser.

Compensation of Directors/Trustees.

The Trust pays each individual who serves as a Trustee not affiliated
with the Investment Adviser or with an affiliate of the Investment Adviser (each
a "non-affiliated Trustee") for service to all Series a fee of $5,000 per year
plus $500 per Board meeting attended. The Trust also compensates each member of
the Audit and Nominating Committee (the "Committee"), which consists of the
non-affiliated Trustees at a rate of $1,000 per year for service to all Series.
The Trust reimburses each non-interested Trustee for his out-of-pocket expenses
relating to attendance at Board and Committee meetings.

34
<PAGE>

The following table sets forth the aggregate compensation earned by the
non-affiliated Trustees from the Trust for the fiscal year ended December 31,
1998 and the total compensation paid to non-affiliated Trustees from all
registered investment companies advised by the Investment Adviser and its
affiliates ("FAM/MLAM-Advised Funds") for the calendar year ended December 31,
1998.

Name of Trustee Aggregate Compensation Pension or Retirement Benefits Estimated Annual Total Compensation From
From Trust Accrued as Part of Benefits Upon Trust and
Trust Expenses Retirement FAM/MLAM Advised Funds Paid
to Directors/Trustees(1)
<S> <C> <C> <C> <C>
Jack B. Sunderland $4,500 None None $133,600
Stephen B. Swensrud $4,500 None None $195,583
J. Thomas Touchton $4,500 None None $133,600

</TABLE>

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

(1) The Trustees serve on the boards of FAM/MLAM-Advised Funds as follows:
Mr. Sunderland (21 registered investment companies consisting of 46
portfolios); Mr. Swensrud (26 registered investment companies
consisting of 72 portfolios); Mr. Touchton (21 registered investment
companies consisting of 40 portfolios).

Code of Ethics

The Board of Trustees of the Trust have adopted a Code of Ethics under
Rule 17j-1 of the Investment Company Act which incorporates the Code of Ethics
of the Trust and of the Investment Adviser (together, the "Codes"). The Codes
significantly restrict the personal investing activities of all employees of the
Investment Adviser and, as described below, impose additional, more onerous,
restrictions on fund investment personnel.

The Codes require, among other things, that all employees of the
Investment Adviser pre-clear any personal securities investment (with limited
exceptions, such as government securities). The pre-clearance requirement and
associated procedures are designed to identify any substantive prohibition or
limitation applicable to the proposed investment. The substantive restrictions
applicable to all employees of the Investment Adviser include a ban on acquiring
any securities in a "hot" initial public offering and a prohibition from
profiting on short-term trading in securities. In addition, no employee may
purchase or sell any security that at the time is being purchased or sold (as
the case may be), or to the knowledge of the employee is being considered for
purchase or sale, by any fund advised by the Investment Adviser. Furthermore,
the Codes provide for trading "blackout periods" which prohibit trading by
investment personnel of the Trust within periods of trading by the Series in the
same (or equivalent) security (15 or 30 days depending upon the transaction).

35
<PAGE>

Item 14. Control Persons and Principal Holders of Securities.

The following table sets forth control persons and principal holders of
beneficial interests of the Series as of the date of this Part B.
<TABLE>
<CAPTION>
- ----------------------------- ---------------------------- ----------------------- ----------------------- -----------------
Name and Address of Percentage of Ownership Percentage of Ownership Type of Ownership
Name of Series Control Person of the Series(1) of the Trust (Of Record/
Beneficial)
- ----------------------------- ---------------------------- ----------------------- ----------------------- -----------------
<S> <C> <C>
S&P 500 Index Series Merrill Lynch S&P 500 Index
Fund of Merrill Lynch Index
Funds, Inc. ("MLIF"), P.O.
Box 9011, Princeton, New
Jersey 08543-9011 100%(2) 58% Of Record
- ----------------------------- ---------------------------- ----------------------- ----------------------- -----------------
Small Cap Index Series Merrill Lynch Small Cap 66%(2) 1.98%
Index Fund of MLIF, P.O.
Box 9011, Princeton, New
Jersey 08543-9011

Merrill Lynch Small Cap
Index Trust, P.O. Box 9011,
Princeton, New Jersey
08543-9011 34%(2) 1.02% Of Record
- ----------------------------- ---------------------------- ----------------------- ----------------------- -----------------
Aggregate Merrill Lynch Aggregate Bond 99%(2) 14.85%
Bond Index Series Index Fund of MLIF, P.O.
Box 9011, Princeton, New
Jersey 08543-9011

Merrill Lynch Aggregate
Bond Index Trust, P.O. Box
9011, Princeton, New Jersey
08543-9011 1%(2) .15% Of Record
- ----------------------------- ---------------------------- ----------------------- ----------------------- -----------------
International (GDP Weighted) Merrill Lynch International 79%(2) 4.74%
Index Series Index Fund of MLIF, P.O. Box
9011, Princeton, New Jersey
08543-9011

Merrill Lynch International
(GDP Weighted) Index Trust,
P.O. Box 9011, Princeton,
New Jersey 08543-9011 21%(2) 1.26% Of Record
- ----------------------------- ---------------------------- ----------------------- ----------------------- -----------------
International Princeton Funds
(Capitalization Weighted) Distributor, Inc. ("PFD"),
Index Series a wholly-owned indirect
subsidiary of Merrill Lynch
& Co., Inc. ("ML & Co."),
P.O. Box 9081, Princeton,
New Jersey 08543 100%(2) N/A Of Record
- ----------------------------- ---------------------------- ----------------------- ----------------------- -----------------
Enhanced S&P 500 Series PFD, a wholly-owned
subsidiary of ML & Co., P.O.
Box 9081, Princeton, New
Jersey 08543 100%(2) N/A Of Record
- ----------------------------- ---------------------------- ----------------------- ----------------------- -----------------
Enhanced International Series Merrill Lynch Enhanced
International Index Trust,
P.O. Box 9011, Princeton,
New Jersey 08543-9011 100%(2) 18% Of Record
- ----------------------------- ---------------------------- ----------------------- ----------------------- -----------------
Quantitative Large Cap Series None N/A N/A N/A
- ----------------------------- ---------------------------- ----------------------- ----------------------- -----------------
Quantitative Large Cap None
Value Series N/A N/A N/A
- ----------------------------- ---------------------------- ----------------------- ----------------------- -----------------
Quantitative Large Cap None
Growth Series N/A N/A N/A
- ----------------------------- ---------------------------- ----------------------- ----------------------- -----------------
Quantitative Mid Cap Series None N/A N/A N/A
- ----------------------------- ---------------------------- ----------------------- ----------------------- -----------------
Quantitative Small Cap Series None N/A N/A N/A
- ----------------------------- ---------------------------- ----------------------- ----------------------- -----------------
Quantitative International None
Series N/A N/A N/A
- ----------------------------- ---------------------------- ----------------------- ----------------------- -----------------
Mid Cap Index Series None N/A N/A N/A
- ----------------------------- ---------------------------- ----------------------- ----------------------- -----------------
</TABLE>

- ----------

1 Reflects either direct ownership of the Series, or indirect ownership
through one of a Series' beneficial owners.

2 Ownership of beneficial interests of the Series is direct.

Except as set forth in the table above, no entity or individual owns
between 5% and 25% of the outstanding beneficial interests of any Series.

The jurisdiction of organization of the following persons are as set
forth below:

Entity Jurisdiction
- ------ ------------
MLIF Maryland
PFD Delaware
Merrill Lynch Small Cap Index Trust New Jersey
Merrill Lynch Enhanced International Index Trust New Jersey

36
<PAGE>

As of December 15, 1999, the Officers and Trustees of the Trust
as a group (17 persons) owned an aggregate of less than 1% of the outstanding
shares of any Series.

All holders of beneficial interests ("Holders") are entitled to vote in
proportion to the amount of their interest in a Series or in the Trust, as the
case may be. There is no cumulative voting. Accordingly, the Holder or Holders
of more than 50% of the aggregate beneficial interests of the Trust would be
able to elect all the Trustees. With respect to the election of Trustees and
ratification of accountants, the shareholders of separate Series vote together;
they generally vote separately by Series on other matters.

Item 15. Investment Advisory And Other Services.

The Trust has entered into an investment advisory agreement with the
Investment Adviser (the "Investment Advisory Agreement"). The Investment Adviser
provides the Trust with investment advisory and management services. Subject to
the supervision of the Board of Trustees, the Investment Adviser is responsible
for the actual management of each Series' portfolio and constantly reviews the
Series' holdings in light of its own research analysis and that from other
relevant sources. The responsibility for making decisions to buy, sell or hold a
particular security rests with the Investment Adviser. The Investment Adviser
performs certain of the other administrative services and provides all the
office space, facilities, equipment and necessary personnel for management of
the Series.

Securities held by the Series 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 Series 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.

37
<PAGE>

As discussed in Part A, the Investment Adviser receives for its
services to the Series monthly compensation at the annual rates of the average
daily net assets of each Series as follows:

<TABLE>
<CAPTION>
Fee Rate for the Fiscal Year Ended
Actual Current Contractual December 31, 1998 (reflects voluntary
Name of Series Fee Rate* Fee Rate waiver where applicable)
- -------------- -------------- ------------- -------------------------------------

<S> <C> <C> <C>
S&P 500 Index Series .......................... 0.005% 0.05% 0.05%
Small Cap Index Series ........................ 0.01% 0.08% 0.0%
Aggregate Bond Index Series ................... 0.01% 0.06% 0.06%
International (GDP Weighted) Index Series ..... 0.01% 0.11% 0.04%
International (Capitalization Weighted)
Index Series ................................. 0.01% 0.01%
Enhanced S&P 500 Series ....................... 0.01% 0.01%
Enhanced International Series ................. 0.01% 0.01%
Quantitative Large Cap Series ................. 0.40%
Quantitative Large Cap Value Series ........... 0.40%
Quantitative Large Cap Growth Series .......... 0.40%
Quantitative Mid Cap Series ................... 0.55%
Quantitative Small Cap Series ................. 0.55%
Quantitative International Series ............. 0.65%
Mid Cap Index Series .......................... 0.01%
</TABLE>
- ----------
* Effective August 2, 1999, the Investment Adviser has entered into contractual
arrangements with the Trust on behalf of each Series and the corresponding
Feeder Fund to provide that the aggregate administrative and management fees
charged to each Series and such corresponding Feeder Fund will not result in the
Feeder Fund paying directly and indirectly in excess of the following amounts
for such services: Merrill Lynch S&P 500 Index Feeder Fund: 0.25%; Merrill Lynch
Small Cap Index Feeder Fund: 0.30%; Merrill Lynch Aggregate Bond Index Feeder
Fund: 0.20%; Merrill Lynch International (GDP Weighted) Index Feeder Fund:
0.35%. As a result of this contractual arrangement, the current fee rate payable
to the Investment Adviser is: S&P 500 Index Series: 0.005%; Small Cap Index
Series: 0.01%; Aggregate Bond Index Series: 0.01%, International (GDP Weighted)
Index Series: 0.01%, as shown above.

The table below sets forth information about the total investment
advisory fees paid by the Series indicated below to the Investment Adviser, and
any amount voluntarily waived by the Investment Adviser.* The Mid Cap Index
Series and each of the Enhanced Series and Quantitative Series either commenced
operating subsequent to December 31, 1998 or has not commenced operating as of
the slate of this Registration Statement and, therefore, has not paid any
investment advisory fees to the Investment Adviser for the periods set forth
below.

Aggregate International
S&P 500 Index Small Cap Bond Index (GDP Weighted)
Period Ending Series Index Series Series Index Series
- ------------- ------------- ------------ ---------- --------------
<S> <C> <C> <C> <C>
December 31, 1997** ............................................ $148,645 $36,425 $88,609 $100,102
Contractual amount

Amount Waived (if applicable) .................................. $148,645 $36,425 $37,562 $ 35,546

December 31, 1998 .............................................. $454,138 $61,476 $238,378 $142,489
Contractual Amount

Amount Waived (if applicable) .................................. $ 0 $61,476 $ 2,537 $ 87,182

</TABLE>

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

* Until August 2, 1999, Merrill Lynch Asset Management, L.P., an affiliate of
the Investment Adviser ("MLAM"), served as investment adviser to the Index
Series and the Enhanced Series, when the management responsibilities were
assumed by the Investment Adviser on the same terms and conditions.

** Period is from commencement of operations (April 3,1997 for the S&P 500 Index
Series and the Aggregate Bond Index Series, and April 9, 1997 for the Small Cap
Index Series and the International (GDP Weighted) Index Series).

Payment of Series Expenses. The Investment Advisory Agreement obligates
the Investment Adviser to provide investment advisory services and to pay all
compensation of and furnish office space for officers and employees of the Trust
connected with investment and economic research, trading and investment
management of the Trust, as well as the fees of all Trustees who are affiliated
persons of the Investment Adviser. Each Series pays all other expenses incurred
in the operation of the Series (except to the extent paid by the Placement
Agent), including, among other things, taxes, expenses for legal and auditing
services, costs of

38
<PAGE>

printing proxies, stock certificates (if any), shareholder reports, copies of
the Registration Statements, 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 or foreign laws, fees and out-of-pocket expenses of
unaffiliated Trustees, accounting and pricing costs (including the daily
calculation of net asset value), insurance, interest, brokerage costs,
litigation and other extraordinary or non-recurring expenses, and other expenses
properly payable by the Trust or the Series. The Placement Agent will pay
certain of the expenses of the Trust incurred in connection with the offering of
its shares of beneficial interest of each of the Series. 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.

Organization of the Investment Adviser. Fund Asset Management L.P.,
including its division, Mercury Asset Management US, (the "Investment Adviser"
or "FAM") has an address at P.O. Box 9011, Princeton, New Jersey 08543-9011. The
Investment Adviser is a limited partnership, the partners of which are ML & Co.,
a financial services holding company and the parent of Merrill Lynch and
Princeton Services. ML & Co. and Princeton Services are "controlling persons" of
the Investment Adviser as defined under the Investment Company Act because of
their ownership of its voting securities or their power to exercise a
controlling influence over its management or policies.

Duration and Termination. Unless earlier terminated as described below,
the Investment Advisory Agreement will remain in effect for two years from the
date of its commencement. Thereafter, it will remain in effect from year to year
with respect to each Series if approved annually (a) by the Board of Trustees or
with respect to any Series, by the vote of a majority of the outstanding voting
securities of such Series and (b) by a majority of those Trustees who are not
parties to the Investment Advisory Agreement or interested persons (as defined
in the Investment Company Act) of any such party cast in person at a meeting
called for the purpose of voting on such approval. Such contract is not
assignable and may be terminated without penalty on 60 days' written notice at
the option of either party thereto or by the vote of the shareholders of the
Series.

39
<PAGE>

Independent Auditors.

Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey 08540
has been selected as the independent auditors of the Trust. The independent
auditors are responsible for auditing the annual financial statements of the
Series.

Custodian.

Merrill Lynch Trust Company, 800 Scudders Mill Road, Plainsboro, New
Jersey 08536, acts as the custodian of the assets of the S&P 500 Index Series,
Small Cap Index Series and Aggregate Bond Index Series. State Street Bank and
Trust Company ("State Street"), One Heritage Drive P2N, North Quincy,
Massachusetts 02171, acts as the custodian of the assets of International (GDP
Weighted) Index Series. The Chase Manhattan Bank, 4 Chase MetroTech, 18th floor,
Brooklyn, New York 11245, acts as the custodian of the assets of the Mid Cap
Index Series, International (Capitalization Weighted) Index Series, Enhanced
Series and Quantitative Series. Under the respective contracts with the Trust,
State Street and The Chase Manhattan Bank are authorized to establish separate
accounts in foreign currencies and to cause foreign securities owned by the
Series to be held in their respective offices outside the United States and with
certain foreign banks and securities depositors. Each Custodian is responsible
for safeguarding and controlling the Series' cash and securities, handling the
receipt and delivery of securities and collecting interests and dividends on the
Series' investments.

Legal Counsel.

Swidler Berlin Shereff Friedman, LLP, The Chrysler Building, 405
Lexington Avenue, New York, New York 10174, is counsel for the Trust.

Item 16. Brokerage Allocation and Other Practices.

Subject to policies established by the Board of Trustees, the
Investment Adviser is primarily responsible for the execution of the Series'
portfolio transactions and the allocation of brokerage. The Trust has no
obligation to deal with any broker or group of brokers in the execution of
transactions in portfolio securities and does not use any particular broker or
dealer. In executing transactions with brokers and dealers, the Investment
Adviser seeks to obtain the best net results for the Series, taking into account
such factors as price (including the applicable brokerage commission or dealer
spread), size of order, difficulty of execution and operational facilities of
the firm and the firm's risk in positioning a block of securities. While the
Investment Adviser generally seeks reasonably competitive commission rates, the
Series do not necessarily pay the lowest spread or commission available. In
addition, consistent with the Conduct Rules of the NASD and policies established
by the Board of Trustees, the Investment Adviser may consider sales of shares of
the Series as a factor in the selection of brokers or dealers to execute
portfolio transactions for the Trust; however, whether or not a particular
broker or dealer sells shares of a Series neither qualifies nor disqualifies
such broker or dealer to execute transactions for the Trust.

<PAGE>

Subject to obtaining the best net results, brokers who provide
supplemental investment research services to the Investment Adviser may receive
orders for transactions by the Trust. Such supplemental research services
ordinarily consist of assessments and analysis 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 its Management Agreement and the expense of the
Investment Adviser will not necessarily be reduced as a result of the receipt of
such supplemental information. If in the judgment of the Investment Adviser the
Trust will benefit from supplemental research services, the Investment Adviser
is authorized to pay brokerage commissions to a broker furnishing such services
that are in excess of commissions that another broker may have charged for
effecting the same transaction. Certain supplemental research services may
primarily benefit one or more other investment companies or other accounts for
which the Investment Adviser exercises investment discretion. Conversely, the
Trust may be the primary beneficiary of the supplemental research services
received as a result of portfolio transactions effected for such other accounts
or investment companies.

The Trust anticipates that its brokerage transactions involving
securities of issuers domiciled in countries other than the United States
generally will be conducted primarily on the principal stock exchanges of such
countries. Brokerage commissions and other transaction costs on foreign stock
exchange transactions generally are higher than in the United States, although
the Trust will endeavor to achieve the best net results in effecting its
portfolio transactions. There generally is less government supervision and
regulation of foreign stock exchanges and brokers than in the United States.

For the fiscal period April 3, 1997 (commencement of operations) to
December 31, 1997, the Series paid brokerage commissions of $118,903 and $0 for
the S&P 500 Index Series and the Aggregate Bond Index Series, respectively. For
the fiscal period April 9, 1997 (commencement of operations) to December 31,
1997, the Series paid brokerage commissions of $60,361 and $146,336 for the
Small Cap Index Series and the International (GDP Weighted) Index Series,
respectively. The Series paid no commissions to Merrill Lynch. For the fiscal
year ended December 31, 1998, the following table shows the amount of brokerage
commissions paid by each Series to Merrill Lynch, the percentage of each Series'
brokerage commissions paid to Merrill Lynch, the percentage of each Series'
aggregate dollar amount of transactions involving the payment of commissions
effected through Merrill Lynch and aggregate brokerage commissions paid by each
Series. The Mid Cap Index Series and each Enhanced Series and Quantitative
Series either commenced operating subsequent to December 31, 1998 or has not
commenced operating as of the date of this Registration Statement and,
therefore, paid no brokerage commissions for the period ended December 31, 1998.

Aggregate International
S&P 500 Index Small Cap Bond Index (GDP Weighted)
Series Index Series Series Index Series
------------- ------------ ---------- -------------
<S> <C> <C> <C> <C>
Aggregate brokerage commissions ............................... $ 0 $ 0 $ 0 $ 1,299
paid to Merrill Lynch

% of Series' aggregate brokerage commissions .................. 0.00% 0.00% 0.00% 1.75%
paid to Merrill Lynch

% of Series' aggregate dollar amount of ....................... 0.00% 0.00% 1.11% 0.20%
transactions effected through the broker

Aggregate brokerage commissions paid .......................... $105,046 $50,264 $ 0 $74,373

</TABLE>

41
<PAGE>

The Trust may invest in certain securities traded in the OTC market and
intends to deal directly with the dealers who make a market in securities
involved, except in those circumstances in which better prices and execution are
available elsewhere. Under the Investment Company Act, persons affiliated with
the Trust and persons who are affiliated with such affiliated persons are
prohibited from dealing with the Trust as principal in the purchase and sale of
securities unless a permissive order allowing such transactions is obtained from
the Securities and Exchange Commission. Since transactions in the OTC market
usually involve transactions with dealers acting as principal for their own
accounts, the Trust will not deal with affiliated persons, including Merrill
Lynch and its affiliates, in connection with such transactions. However, an
affiliated person of the Trust may serve as its broker in OTC transactions
conducted on an agency basis provided that, among other things, the fee or
commission received by such affiliated broker is reasonable and fair compared to
the fee or commission received by non-affiliated brokers in connection with
comparable transactions. In addition, the Trust may not purchase securities
during the existence of any underwriting syndicate for such securities of which
Merrill Lynch is a member or in a private placement in which Merrill Lynch
serves as placement agent except pursuant to procedures adopted by the Board of
Trustees of the Trust that either comply with rules adopted by the Securities
and Exchange Commission or with interpretations of the Securities and Exchange
Commission staff. See "Investment Objectives and Policies -- Investment
Restrictions."

Section 11(a) of the Exchange Act generally prohibits members of the
U.S. national securities exchanges from executing exchange transactions for
their affiliates and institutional accounts that they manage unless the member
(i) has obtained prior express authorization from the account to effect such
transactions, (ii) at least annually furnishes the account with the aggregate
compensation received by the member in effecting such transactions, and (iii)
complies with any rules the Commission has prescribed with respect to the
requirements of clauses (i) and (ii). To the extent Section 11(a) would apply to
Merrill Lynch acting as a broker for the Trust in any of its portfolio
transactions executed on any such securities exchange of which it is a member,
appropriate consents have been obtained from the Trust and annual statements as
to aggregate compensation will be provided to the Trust.

The Board of Trustees of the Trust has considered the possibility of
seeking to recapture for the benefit of the Series brokerage commissions and
other expenses of possible portfolio transactions by conducting portfolio
transactions through affiliated entities. For example, brokerage commissions
received by affiliated brokers could be offset against the advisory fee paid by
the Series to the Investment Adviser. After considering all factors deemed
relevant, the Board of Trustees made a determination not to seek such recapture.
The Trustees will reconsider this matter from time to time.

42
<PAGE>

Item 17. Capital Stock and Other Securities.

Under the Declaration of Trust that establishes the Trust, a Delaware
business trust, the Trustees are authorized to issue beneficial interests in
each Series of the Trust. Investors are entitled to participate, in proportion
to their investment, in distributions of taxable income, loss, gain and
deduction with respect to the Series in which they have invested. Upon
liquidation or dissolution of a Series, investors are entitled to share in
proportion to their investment in such Series' net assets available for
distribution to its investors. Interests in a Series have no preference,
preemptive, conversion or similar rights and are fully paid and nonassessable,
except as set forth below. Investments in a Series generally may not be
transferred.

Each investor is entitled to a vote in proportion to the amount of its
interest in a Series or in the Trust, as the case may be. Investors in the
Trust, or in any Series, do not have cumulative voting rights, and investors
holding more than 50% of the aggregate beneficial interests in the Trust may
elect all of the Trustees of the Trust if they choose to do so and in such event
the other investors in the Trust would not be able to elect any Trustee. The
Trust is not required and has no current intention to hold annual meetings of
investors but the Trust will hold special meetings of investors when in the
judgment of the Trustees it is necessary or desirable to submit matters for an
investor vote.

A Series shall be dissolved (i) by the affirmative vote of the Holders
holding not less than two-thirds of the beneficial interests in the Series, at
any meeting of such Holders or by an instrument in writing, without a meeting
signed by a majority of the Trustees and consented to by the Holders holding not
less than two-thirds of the beneficial interests in such Series, or (ii) by
unanimous consent of the Trustees by written notice of such dissolution to the
Holders in such Series. The Trust shall be dissolved upon the dissolution of the
last remaining Series.

The Declaration of Trust provides that obligations of the Trust and the
Series are not binding upon the Trustees individually but only upon the property
of the Series and that the Trustees will not be liable for any action or failure
to act, but nothing in the Declaration of Trust

<PAGE>

protects a Trustee against any liability 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. The Declaration
of Trust provides that the Trust may maintain appropriate insurance (for
example, fidelity bond and errors and omissions insurance) for the protection of
the Series, their Holders, Trustees, officers, employees and agents covering
possible tort and other liabilities. Pursuant to Section 3804 of the Delaware
Business Trust Act, the debts, liabilities, obligations and expenses incurred,
contracted for or otherwise existing with respect to a particular Series of the
Trust shall be enforceable against the assets of such Series only and not
against the assets of the Trust generally or any other Series thereof, and none
of the debts, liabilities, obligations and expenses incurred, contracted for or
otherwise existing with respect to the Trust generally or any other Series
thereof shall be enforceable against the assets of such Series.

The Trust currently consists of fourteen Series. The Trust reserves the
right to create and issue interests in a number of additional Series. As
indicated above, Holders of each Series participate equally in the earnings and
assets of the particular series. Holders of each series are entitled to vote
separately to approve advisory agreements or changes in investment policy, but
Holders of all Series vote together in the election or selection of Trustees and
accountants for the Trust. Upon liquidation or dissolution of a Series, the
Holders of such Series are entitled to share in proportion to their investment
in the net assets of such Series available for distribution to Holders.

Item 18. Purchase, Redemption and Pricing of Securities.

Beneficial interests in the Trust are not offered to the public and are
issued solely in private placement transactions that do not involve any "public
offering" within the meaning of Section 4(2) of the 1933 Act. Investments in the
Trust may be made only by a limited number of institutional investors, including
investment companies, common or commingled trust funds, group trusts and certain
other entities that are "accredited investors" within the meaning of Regulation
D under the 1933 Act. The number of Holders of any Series shall be limited to
fewer than 100. This Registration Statement does not constitute an offer to
sell, or the solicitation of an offer to buy, any "security" within the meaning
of the 1933 Act.

The net asset value of the shares of each Series is determined once
daily Monday through Friday after the close of business on the New York Stock
Exchange on each day the Exchange is open for trading (a "Pricing Day"). The New
York Stock Exchange generally closes at 4:00 p.m., Eastern time. Any assets or
liabilities initially expressed in terms of non-U.S. dollar currencies are
translated into U.S. dollars at the prevailing market rates as quoted by one or
more banks or dealers on the day of valuation. The New York Stock Exchange 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 deducting the amount of the Series'
total liabilities from the value of its total assets, dividing the market value
of the securities held by a Series 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, rounded to the nearest cent. Expenses, including the fees payable to the
Investment Adviser, are accrued daily.

44
<PAGE>

A Series' securities which are traded on stock exchanges are valued at
the last sale price (regular way) on the exchange on which such securities are
traded as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price for long positions and at
the last available ask price for short positions. In cases where securities are
traded on more than one exchange, the securities are valued on the exchange
designated by or under the authority of the Trustees as the primary market. Long
positions in securities traded in the OTC market are valued at the last
available bid price in the OTC market prior to the time of valuation. Portfolio
securities that are traded both in the OTC market and on a stock exchange are
valued according to the broadest and most representative market. Short positions
in securities traded in the OTC market are valued at the last available ask
price in the OTC market prior to the time of valuation. When the Series writes
an option, the amount of the premium received is recorded on the books of the
Series 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 Series are valued at their last sale price in the case of
exchange-traded options or, in the case of options traded in the OTC market, the
last bid price. Other investments, including financial futures contracts and
related options, are stated at market value. Securities and assets for which
market quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Trustees of the Trust,
including valuations furnished by a pricing service retained by the Trust. Such
valuations and procedures will be reviewed periodically by the 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 New York Stock Exchange. The
values of such securities used in computing the net asset value of a Series'
shares are determined as of such times. Foreign currency exchange rates are also
generally determined prior to the close of business on the New York Stock
Exchange.

Each investor in the Trust may add to or reduce its investment in any
Series on each Pricing Day. The value of each investor's interest in a Series
will be determined after the close of business on the NYSE (generally 4:00 p.m.,
New York Time) by multiplying the net asset value of the Series by the
percentage, effective for that day, that represents that investor's share of the
aggregate interests in such Series. Any additions or withdrawals, which are to
be effected on that day, will then be effected. The investor's percentage of the
aggregate beneficial interests in a Series 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 Series as of the time or 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 Series effected on such day, and (ii) the

45
<PAGE>

denominator of which is the aggregate net asset value of the Series 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 Series by all
investors in the Series. The percentage so determined will then be applied to
determine the value of the investor's interest in such Series as of 15 minutes
after the close of business of the New York Stock Exchange on the next Pricing
Day of the Series. For further information concerning the Series' net asset
value, and the valuation of the Series' assets, see Part A.

Redemptions.

Item 19. Taxation of the Trust

The Trust is organized as a Delaware business trust. Under the
anticipated method of operation of the Series, each Series will be treated
treated as a separate entity for federal income tax purposes which will have the
status of partnership pursuant to Treasury Regulation Section 301.7701-3(b)(1).
Thus, each Series will not be subject to any income tax. Based upon the status
of each Series as a partnership, each investor in a Series will include in gross
income its share (as determined in accordance with the governing instruments of
the Series) of such Series' ordinary income and capital gain in determining its
income tax liability. The determination of such share will be made in accordance
with the Code and Treasury regulations promulgated thereunder.

Although, as described above, the Series will not be subject to federal
income tax, they will file appropriate income tax returns. Each prospective
Investor Fund which is a regulated investment company ("RIC") will be required
to agree, in its subscription agreement, that, for purposes of determining its
required distribution under Code Section 4982(a), it will account for its share
of its items of income, gain, loss and deduction of a Series as they are taken
into account by the Series.

All of the Series may invest in futures contracts or options, certain
options, futures contracts and options on futures contracts are "section 1256
contracts." Any gains or losses on section 1256 contracts are generally
considered 60% long-term and 40% short-term capital gains or losses ("60/40").
Also, section 1256 contracts held by a Series at the end of each taxable year
are treated for federal income tax purposes as being sold on such date for their
fair market value. The resultant paper gains or losses are also treated as 60/40
gains or losses. When the section 1256 contract is subsequently disposed of, the
actual gain or loss will be adjusted by the amount of any preceding year-end
gain or loss.

46
<PAGE>

Foreign currency gains or losses on non-U.S. dollar denominated bonds
and other similar debt instruments and on any non-U.S. dollar denominated
futures contracts, options and forward contracts that are not Section 1256
contracts generally will be treated as ordinary income or loss.

Certain hedging transactions undertaken by a Series may result in
"straddles" for federal income tax purposes. The straddle rules may affect the
character of gains (or losses) realized by the Series. In addition, losses
realized by the Series on positions that are part of a straddle may be deferred,
rather than being taken into account in calculating taxable income for the
taxable year in which such losses are realized. The Series may make one or more
of the elections available under the Code which are applicable to straddles. If
the Series makes any of the elections, the amount, character and timing of the
recognition of gains or losses from the affected straddle positions will be
determined under rules that vary according to the elections made. The rules
applicable under certain of the elections operate to accelerate the recognition
of gains or losses from the affected straddle positions. Additionally, the
conversion transaction or constructive sale rules may apply to certain
transactions (including straddles) to change the character of capital gains to
ordinary income or require the recognition of income prior to the economic
recognition of such income.

The Series may be subject to a tax on dividend or interest income
received from securities of a non-U.S. issuer withheld by a foreign country at
the source. The United States has entered into tax treaties with many foreign
countries which entitle the Series to a reduced rate of tax or exemption from
tax on such income. It is impossible to determine the effective rate of foreign
tax in advance since the amount of each Series' assets to be invested within
various countries is not known.

The Series may make investments that produce income that is not matched
by a corresponding cash receipt by the Series, such as investments in
obligations having original issue discount or market discount (if a Series
elects to accrue the market discount on a current basis with respect to such
instruments). Because such income may not be matched by a corresponding cash
receipt, the Series may be required to borrow money or dispose of other
securities to be able to make distributions to investors.

Each Series' taxable income will in most cases be determined on the
basis of reports made to such Series by the issuers of the securities in which
such Series invests. The tax treatment of certain securities in which a Series
may invest is not free from doubt, and it is possible that an Internal Revenue
Service examination of the issuers of such securities or of such Series could
result in adjustments to the income of the Series.

Under the Trust, each Series is to be managed in compliance with the
provisions of the Code applicable to RICs as though such requirements were
applied at the Series level. Thus, consistent with its investment objectives,
each Series will meet the income and diversification of assets tests of the Code
applicable to RICs. Before accepting investments by RICs, the Series will have
received rulings from the Internal Revenue Service that Holders of interests in
the Series that are RICs will be treated as owners of their proportionate shares
of the Series' assets and income for purposes of the Code's requirements
applicable thereto.

47
<PAGE>

Item 20. Underwriters.

The exclusive placement agent for each Series of the Trust is Princeton
Funds Distributor, Inc., which receives no compensation for serving in this
capacity. The Placement Agent is located at P.O. Box 9081, Princeton, New Jersey
08543-9081. Investment companies, common and commingled trust funds and similar
organizations and entities may continuously invest in the Series.

Item 21. Calculation of Performance Data.

Beneficial interests in the Trust are not offered to the public and are
issued solely in private placement transactions that do not involve any "public
offering" within the meaning of Section 4(2) of the 1933 Act. Accordingly, the
Trust will not advertise the Series' performance. However, certain of the
Trust's Holders may from time to time advertise their performance, which will be
based upon the Trust's performance.

Total return figures are based on historical performance and are not
intended to indicate future performance. Average annual total return is
determined in accordance with a formula specified by the Securities and Exchange
Commission.

Average annual total return quotations for the specified periods are
computed by finding the average annual compounded rates of return (based on net
investment income and any realized and unrealized capital gains or losses on
portfolio investments over such periods) that would equate the initial amount
invested to the redeemable value of such investment at the end of each period.
Average annual total return is computed assuming all dividends and distributions
are reinvested and taking into account all applicable recurring and nonrecurring
expenses.

Annual, average annual and annualized total return and aggregate total
return performance data, both as a percentage and as a dollar amount, are based
on a hypothetical $1,000 investment and computed as described above, except that
as required by the periods of the quotations, actual annual, annualized or
aggregate data, rather than average annual data, may be quoted. 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.

Yield quotations will be computed based on a 30-day period by dividing
(a) the net income based on the yield of each security earned during the period
by (b) the average number of shares outstanding during the period that were
entitled to receive dividends multiplied by the maximum offering price per share
on the last day of the period.

48
<PAGE>

Item 22. Financial Statements.

The Series' audited financial statements are incorporated in this Part B by
reference to their annual reports to shareholders for the year ended December
31, 1998. The Series' unaudited financial statements are incorporated in this
Part B by reference to their annual reports to shareholders for the six months
ended June 30, 1999. You may request a copy of the annual reports at no charge
by calling (800) 456-4587 Ext. 789 between 8:00 a.m. and 8:00 p.m. on any
business day.

49
<PAGE>

APPENDIX
RATINGS OF FIXED INCOME SECURITIES

Description of Moody's Investors Service Inc.'s ("Moody's") Corporate 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 issue.

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 which 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 which 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 which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.

A-1
<PAGE>

C Bonds that are rated C are the lowest rated class of 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
rating classification from Aa through B in its corporate bond rating system. The
modifier I 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 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 of 1933, as amended ("Securities Act"). 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 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
high 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.

A-2
<PAGE>

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 alternate 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.

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.

A-3
<PAGE>

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 obligors 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

A-4
<PAGE>

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.

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, CC and C is 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 which
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 and 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
which is assigned an actual or implied CCC rating.

A-5
<PAGE>

C The rating C is typically applied to debt subordinated to senior debt
which 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.

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.

A-6
<PAGE>

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-l 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-l."

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

A-7
<PAGE>

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.

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 balance, as
B, predominantly speculative with respect to the issuer's capacity to pay
CCC 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 with the issuer in
default on debt instruments.

A-8
<PAGE>

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 IBCA, 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.

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.

A-9
<PAGE>

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-I+."

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.

Fitch Alert Ratings are placed on Fitch Alert 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.
Fitch Alert is relatively short-term, and should be resolved within
12 months.

Ratings Outlook: Au 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.

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<PAGE>

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 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 default in payment of interest or principal.

DDD, Bonds are in default on interest and/or principal payments. Such bonds
DD,D are extremely speculative and should be valued on 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.

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<PAGE>

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-I+."

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-I+" and "F-I" 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.

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<PAGE>

PART C. OTHER INFORMATION

Item 23. Exhibits

Exhibit Description
Number
<S> <C>
1(a) Declaration of Trust of Registrant.(1)

1(b) Certificate of Trust.(1)

1(c) Amendment to Declaration of Trust.(2)

1(d) Amendment No. 2 to Declaration of Trust.(4)

1(e) Certificate of Amendment to Certificate of Trust.(4)

1(f) Amendment No. 3 to Declaration of Trust.

1(g) Certificate of Amendment to Certificate of Trust.

2 By-Laws of Registrant.(1)

3 Instrument of defining Rights of shareholders. Incorporated by reference to Exhibits 1 and 2
above.(3)

4 Amended and Restated Management Agreement between Registrant and Fund Asset Management, L.P.

5 Second Amended and Restated Placement Agent Agreement with Princeton Funds Distributor, Inc.

6 Not applicable.

7(a) Form of Custody Agreement with Merrill Lynch Trust Company.(3)

7(b) Form of Custody Agreement with State Street Bank and Trust.(3)

7(c) Form of Custody Agreement with The Chase Manhattan Bank.(4)

7(d) Form of Custody Agreement with The Chase Manhattan Bank.

8 Licensing Agreement.(3)

9 Not applicable.

10(a) Accountant's consent.

10(b) Consent of Swidler Berlin Shereff Friedman, LLP, Counsel for Registrant.

11 Not applicable.

12 Not applicable.

13 Not applicable.

14 Not applicable.

15(a) Code of Ethics of Registrant.(5)

15(b) Code of Ethics of Fund Asset Management, L.P.(5)

16 Power of Attorneys.(3)

</TABLE>

(1) Incorporated by reference to identically numbered Exhibit to
Registrant's initial Registration Statement on Form N-1A (File No.
811-7885).

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<PAGE>

(2) Incorporated by reference to identically numbered Exhibit to Amendment
No. 1 to Registrant's Registration Statement on Form N-1A (File No.
811-7885).

(3) Incorporated by reference to the corresponding exhibit number in
Amendment No.1 to Registrant's Registration Statement on Form N-1A
(File No. 811-7885) as set forth below:

Exhibit Number Incorporated by Reference to Exhibit Number
- -------------- -------------------------------------------
3 4

5 6
7(a) 8(a)
7(b) 8(b)
8 9
16 17(b)

(4) Incorporated by reference to identically numbered Exhibit to Amendment
No. 4 to Registrant's Registration Statement on Form N-1A (File No.
811-7885).

(5) To be filed by amendment.

Item 24. Persons Controlled by or under Common Control with Registrant.

None

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<PAGE>

Item 25. Indemnification.

As permitted by Section 17(h) and (i) of the Investment Company Act of
1940, as amended (previously defined as the "Investment Company Act"), and
pursuant to Sections 8.2, 8.3 and 8.4, of Article VIII of the Registrant's
Declaration of Trust (Exhibit 1 to this Registrant Statement), Trustees,
officers, employees and agents of the Trust will be indemnified to the maximum
extent permitted by Delaware law and the Investment Company Act.

Article VIII, Section 8.2 of the Registrant's Declaration of Trust
provides, inter alia, that no Trustee, officer, employee or agent of the
Registrant shall be liable to the Registrant, its holders, or to any other
Trustee, officer, employee or agent for any action or omission except for his
own bad faith, willful misfeasance, gross negligence or reckless disregard of
his duties.

Article VIII, Section 8.3 of the Registrant's Declaration of Trust
provides:

Section 8.3 Indemnification. The Trust shall indemnify each of its
Trustees, officers, employees, and agents (including persons who serve
at its request as directors, officers or trustees of another
organization in which it has any interest, as a shareholder, creditor
or otherwise) against all liabilities and expenses (including amounts
paid in satisfaction of judgments, in compromise, as fines and
penalties, and as counsel fees) reasonably incurred by him in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, in which he may be involved or
with which he may be threatened, while in office or thereafter, by
reason of his being or having been such a Trustee, officer, employee or
agent, except with respect to any matter as to which he shall have been
adjudicated to have acted in bad faith, willful misfeasance, gross
negligence or reckless disregard of his duties, such liabilities and
expenses being liabilities belonging to the Series out of which such
claim for indemnification arises; provided, however, that as to any
matter disposed of by a compromise payment by such Person, pursuant to
a consent decree or otherwise, no indemnification either for said

C-3
<PAGE>

payment or for any other expenses shall be provided unless there has
been a determination that such Person did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office by the court or other body
approving the settlement or other disposition or, in the absence of a
judicial determination, by a reasonable determination, based upon a
review of readily available facts (as opposed to a full trial-type
inquiry), that he did not engage in such conduct, which determination
shall be made by a majority of a quorum of Trustees who are neither
interested persons of the Registrant (within the meaning of the
Investment Company Act) nor parties to the action, suit or proceeding,
or by written opinion from independent legal counsel approved by the
Trustees. The rights accruing to any Person under these provisions
shall not exclude any other right to which he may be lawfully entitled;
provided that no Person may satisfy any right of indemnity or
reimbursement granted herein or to which he may be otherwise entitled
except out of the Trust Property. The Trustees may make advance
payments in connection with indemnification under this Section 8.3;
provided that any advance payment of expenses by the Trust to any
Trustee, officer, employee or agent shall be made only upon the
undertaking by such Trustee, officer, employee or agent to repay the
advance unless it is ultimately determined that he is entitled to
indemnification as above provided, and only if one of the following
conditions is met:

(a) the Trustee, officer, employee or agent to be
indemnified provided a security for an undertaking; or

(b) the Trust shall be insured against losses arising by
reason of any lawful advances; or

(c) there is a determination, based on a review of readily
available facts, that there is reasons to believe that the Trustee,
officer, employee or agent to be indemnified ultimately will be
entitled to indemnification, which determination shall be made by:

(i) a majority of a quorum of Trustees who are
neither Interested Persons of the Trust nor parties to the
Proceedings; or

(ii) an independent legal counsel in a written
opinion.

Article VIII, Section 8.4 of the Registrants Declaration of Trust
further provides:

Section 8.4 No Protection Against Certain Investment Company Act
Liabilities. Nothing contained in Sections 8.1, 8.2 or 8.3 hereof shall protect
any Trustee or officer of the Trust from any liability to the Trust or its
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. Nothing contained in Sections 8.1, 8.2 or 8.3 hereof or
in any agreement of the character described in Section 4.1 or 4.2 hereof shall
protect any Investment Manager or Asset Manager to the Trust or any Series
against any liability to the Trust or any Series to which

C-4
<PAGE>

he would otherwise be subject by reason of willful misfeasance, bad faith, or
gross negligence in the performance of his or its duties to the Trust or Series,
or by reason of his or its reckless disregard to his or its obligations and
duties under the agreement pursuant to which he serves as Investment Manager or
Asset Manager to the Trust or any Series.

As permitted by Article VIII, Section 8.7 of the Registrant's
Declaration of Trust, the Registrant may insure its Trustees and officers
against certain liabilities, and certain costs of defending claims against such
Trustees and officers, to the extent such Trustees and officers are not found to
have committed conduct constituting conflict of interest, intentional
non-compliance with statutes or regulations or dishonest, fraudulent or criminal
acts or omissions. The Registrant will purchase an insurance policy to cover
such indemnification obligation. The insurance policy also will insure the
Registrant against the cost of indemnification payments to Trustees and officers
under certain circumstances. Insurance will not be purchased that protects, or
purports to protect, any Trustee or officer from liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of duty.

The Registrant hereby undertakes that it will apply the indemnification
provisions of its Declaration of Trust and Bylaws in a manner consistent with
Release No. 11330 of the Securities and Exchange Commission under the Investment
Company Act so long as the interpretation of Section 17(h) and 17(i) of such Act
remain in effect and are consistently applied.

Item 26. Business and Other Connections of Investment Adviser.

Fund Asset Management, L.P. or its division, Mercury Asset Management
US (previously defined as the "Investment Adviser" or "FAM"), also acts as the
investment adviser for the following open-end registered investment companies:
CBA Money Fund, CMA Government Securities Fund, CMA Money Fund, CMA Multi-State
Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The Corporate
Fund Accumulation Program, Inc., Financial Institutions Series Trust, Merrill
Lynch Basic Value Fund, Inc., Merrill Lynch California Municipal Series Trust,
Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch Corporate High Yield
Fund, Inc., Merrill Lynch Emerging Tigers Fund, Inc., Merrill Lynch Federal
Securities Trust, Merrill Lynch Funds for Institutions Series, Merrill Lynch
Multi-State Limited Maturity Municipal Series Trust, Merrill Lynch Multi-State
Municipal Series Trust, Merrill Lynch Municipal Bond Fund, Inc., Merrill Lynch
Phoenix Fund, Inc., Merrill Lynch Special Value Fund, Inc., Merrill Lynch World
Income Fund, Inc. and The Municipal Fund Accumulation Program, Inc.; and for the
following closed-end registered investment companies: Apex Municipal Fund, Inc.,
Corporate High Yield Fund, Inc., Corporate High Yield Fund II, Inc., Corporate
High Yield Fund III, Inc., Debt Strategies Fund, Inc., Debt Strategies Fund II,
Inc., Debt Strategies Fund III, Inc., Income Opportunities Fund 1999, Inc.,
Income Opportunities Fund 2000, Inc., Merrill Lynch Municipal Strategy Fund,
Inc., MuniAssets Funds, Inc., MuniEnhanced Fund, Inc., MuniHoldings Fund, Inc.,
MuniHoldings Fund II, Inc., MuniHoldings California Insured Fund, Inc.,
MuniHoldings California Insured Fund II, Inc., MuniHoldings California Insured
Fund III, Inc., MuniHoldings California Insured Fund IV, Inc., MuniHoldings
California Insured Fund V, Inc., MuniHoldings Florida Insured Fund, MuniHoldings
Florida Insured Fund II, MuniHoldings Florida Insured Fund III, MuniHoldings
Florida Insured Fund IV, MuniHoldings Florida Insured Fund V, MuniHoldings
Insured Fund, Inc., MuniHoldings Insured Fund II, Inc., MuniHoldings Insured
Fund III, Inc., MuniHoldings Michigan Insured Fund, Inc., MuniHoldings Michigan
Fund II, Inc.,

C-5
<PAGE>

MuniHoldings New Jersey Insured Fund, Inc., MuniHoldings New Jersey Insured Fund
II, Inc., MuniHoldings New Jersey Insured Fund III, Inc., MuniHoldings New
Jersey Insured Fund IV, Inc., MuniHoldings New York Fund, Inc., MuniHoldings New
York Insured Fund, Inc., MuniHoldings New York Insured Fund II, Inc.,
MuniHoldings New York Insured Fund III, Inc., MuniHoldings New York Insured Fund
IV, Inc., MuniHoldings Pennsylvania Insured Fund, MuniInsured Fund, Inc.,
MuniVest Fund, Inc., MuniVest Fund II, Inc., MuniVest Florida Fund, MuniVest
Michigan Insured Fund, Inc., MuniVest New Jersey Fund, Inc., MuniVest
Pennsylvania Insured Fund, MuniYield Arizona Fund, Inc., MuniYield California
Fund, Inc., MuniYield California Insured Fund, Inc., MuniYield California
Insured Fund II, Inc., MuniYield Florida Fund, MuniYield Florida Insured Fund,
MuniYield Fund, Inc., MuniYield Insured Fund, Inc., MuniYield Michigan Fund,
Inc., MuniYield Michigan Insured Fund, Inc., MuniYield New Jersey Fund, Inc.,
MuniYield New Jersey Insured Fund, Inc., MuniYield New York Insured Fund, Inc.,
MuniYield New York Insured Fund II, Inc., MuniYield Pennsylvania Fund, MuniYield
Quality Fund, Inc., MuniYield Quality Fund II, Inc., Mercury U.S. Small Cap
Growth Fund of Mercury Asset Management Funds, Inc., Senior High Income
Portfolio, Inc., and Worldwide DollarVest Fund, Inc.

Merrill Lynch Asset Management, L.P. (previously defined as "MLAM"), an
affiliate of FAM, acts as the investment adviser for the following open-end
registered investment companies: Merrill Lynch Adjustable Rate Securities Fund,
Inc., Merrill Lynch Americas Income Fund, Inc., Merrill Lynch Asset Builder
Program, Inc., Merrill Lynch Asset Growth Fund, Inc., Merrill Lynch Asset Income
Fund, Inc., Merrill Lynch Capital Fund, Inc., Merrill Lynch Convertible Fund,
Inc., Merrill Lynch Developing Capital Markets Fund, Inc., Merrill Lynch
Disciplined Equity Fund, Inc., Merrill Lynch Dragon Fund, Inc., Merrill Lynch
EuroFund, Merrill Lynch Fundamental Growth Fund, Inc., Merrill Lynch Global
Allocation Fund, Inc., Merrill Lynch Global Bond Fund for Investment and
Retirement, Merrill Lynch Global Growth Fund, Inc., Merrill Lynch Global
Holdings, Inc., Merrill Lynch Global Resources Trust, Merrill Lynch Global
SmallCap Fund, Inc., Merrill Lynch Global Technology Fund, Inc., Merrill Lynch
Global Utility Fund, Inc., Merrill Lynch Global Value, 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 Real Estate Fund, Inc., Merrill Lynch
Retirement Series Trust, Merrill Lynch Series Fund, Inc., Merrill Lynch
Short-Term Global Income Fund, Inc., Merrill Lynch Strategic Dividend Fund,
Merrill Lynch U.S. Treasury Money Fund, Merrill Lynch U.S.A. Government
Reserves, Merrill Lynch Utility Income Fund, Inc., 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., Merrill Lynch
Senior Floating Rate Fund, Inc. and Merrill Lynch Senior Floating Rate Fund II,
Inc. MLAM also acts as a sub-adviser to Merrill Lynch World Strategy Portfolio
and Merrill Lynch Basic Value Equity Portfolio, two investment portfolios of EQ
Advisors Trust.

Mercury Asset Management International Ltd., an affiliate of MLAM, acts
as the investment adviser or sub-adviser for the following open-end registered
investment companies: Mercury Master Global Balanced Portfolio of Mercury Asset
Management Master Trust (the "MAMMT"); Mercury Master Gold and Mining Portfolio
of the MMAMT; Mercury Master International Portfolio of the MMAMT; Mercury
Master Pan-European Growth Portfolio of the MMAMT; Mercury Master U.S. Large Cap
Portfolio of the MMAMT; Mercury Master U.S. Small Cap Growth Portfolio of the
MMAMT and Mercury V.I. U.S. Large Cap Fund of Mercury Asset Management V.I.
Funds, Inc.

The address of FAM, MLAM and each of these registered investment companies is
P.O. Box 9011, Princeton, New Jersey 08543-9011, except that the address of
Merrill Lynch Funds for

C-6
<PAGE>

Institutions Series and Merrill Lynch Intermediate Government Bond Fund is One
Financial Center, 23rd Floor, Boston, Massachusetts 02111- 2665. The address of
the Investment Adviser, MLAM, Princeton Services, Inc. ("Princeton Services")
and Princeton Administrators, L.P. ("Princeton Administrators") is also P.O. Box
9011, Princeton, New Jersey 08543-9011. The address of Princeton Funds
Distributor, Inc. ("PFD") is P.O. Box 9081, Princeton, New Jersey 08543-9081.
The address of Merrill Lynch and Merrill Lynch & Co., Inc. ("ML & Co.") is World
Financial Center, North Tower, 250 Vesey Street, New York, New York 10281-1201.
The address of the Fund's transfer agent Financial Data Services, Inc. ("FDS")
is 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484.

Set forth below is a list of each executive officer and Director of the
Investment Adviser indicating each business, profession, vocation or employment
of a substantial nature in which each such person has been engaged since
December 31, 1996 for his or her or its own account or in the capacity of
director, officer, employee, partner or trustee. In addition, Mr. Glenn is
President and Mr. Burke is Vice President and Treasurer of all or substantially
all of the investment companies described in the first two paragraphs of this
item 26, and Messrs. Doll, Giordano and Monagle are officers of one or more of
such companies.

Officers and partners of FAM are set forth as follows:

Position with the Investment Other Substantial Business, Profession,
Name Adviser Vocation or Employment
- ---- ---------------------------- ----------------------------------------
<S> <C> <C>
ML & Co. Limited Partner Financial Services Holding Company; Limited
Partner of MLAM

Princeton Services General Partner General Partner of MLAM

Jeffrey M. Peek President President of MLAM; President and Director of
Princeton Services, Executive Vice President
of ML & Co.; Managing Director and Co-Head
of the Investment Banking Division of
Merrill Lynch in 1997

Terry K. Glenn Executive Vice President Executive Vice President of MLAM; Executive
Vice President and Director of Princeton
Services; President and Director of PFD;
Director of FDS; President of Princeton
Administrators, L.P.

Gregory A. Bundy Chief Operating Officer Chief Operating Officer and Managing Director
and Managing Director of MLAM; Chief Operating Officer and Managing
Director of Princeton Services; Co-CEO of
Merrill Lynch Australia from 1997 to 1999

</TABLE>

C-7
<PAGE>

Donald C. Burke Senior Vice President, Senior Vice President and Treasurer of MLAM;
Treasurer and Director of Senior Vice President and Treasurer of Princeton
Taxation Services; Vice President and Treasurer of PFD;
First Vice President of MLAM from 1997 to 1999;
Vice President of MLAM from 1990 to 1997

Michael G. Clark Senior Vice President Senior Vice President of MLAM; Senior Vice
President of Princeton Services; Treasurer
and Director of PFD; First Vice President
of MLAM from 1997 to 1999; Vice President
of MLAM from 1996 to 1997

Robert C. Doll Senior Vice President Senior Vice President of MLAM; Senior Vice
President of Princeton Services; Chief
Investment Officer of Oppenheimer Funds,
Inc. in 1999 and Executive Vice President
thereof from 1991 to 1999

Linda L. Federici Senior Vice President Senior Vice President of MLAM; Senior Vice
President of Princeton Services

Vincent R. Giordano Senior Vice President Senior Vice President of MLAM; Senior Vice
President of Princeton Services

Michael J. Hennewinkel Senior Vice President Senior Vice President and General Counsel of
and General Counsel MLAM; Senior Vice President of Princeton Services

Philip L. Kirstein Senior Vice President Senior Vice President and Secretary of MLAM;
Senior Vice President, Director and Secretary
of Princeton Services

</TABLE>

C-8

<PAGE>

Position with the Investment Other Substantial Business, Profession,
Name Adviser Vocation or Employment
- ---- ---------------------------- ----------------------------------------
<S> <C> <C>

Debra Landsman-Yaros Senior Vice President Senior Vice President of MLAM; Senior Vice
President of Princeton Services; Vice
President of PFD

Stephen M.M. Miller Senior Vice President Executive Vice President of Princeton
Administrators, L.P.; Senior Vice President of
Princeton Services

Joseph T. Monagle, Jr. Senior Vice President Senior Vice President of MLAM; Senior Vice
President of Princeton Services

Brian A. Murdock Senior Vice President Senior Vice President of MLAM; Senior Vice
President of Princeton Services

Gregory D. Upah Senior Vice President Senior Vice President of MLAM; Senior Vice
President of Princeton Services

</TABLE>

Item 27. Principal Underwriters.

(a) Princeton Funds Distributor, Inc. ("PFD"), acts as the placement
agent for the Registrant, principal underwriter for Merrill Lynch Index Funds,
Inc. and its affiliates act as principal underwriter for each of the open-end
registered investment companies referred to in the first two paragraphs of Item
26 except 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., and The Municipal Fund Accumulation
Program, Inc. PFD or its affiliates also act as principal underwriter for the
following closed-end registered investment companies: Merrill Lynch High Income
Municipal Bond Fund, Inc., Merrill Lynch Municipal Strategy Fund, Inc., Merrill
Lynch Senior Floating Rate Fund, Inc. and Merrill Lynch Senior Floating Rate
Fund II, Inc. Affiliates of PFD also act as the principal underwriter of a
number of other investment companies.

Mercury Funds Distributor, a division of PFD, acts as the principal
underwriter for Mercury Index Funds, Inc., Mercury Quantitative Series Fund,
Inc., Mercury Life Strategy Series Fund, Inc. and Mercury Asset Management
Funds, Inc., for Summit Cash Reserves Fund of Financial Institutions Series
Trust, and for Mercury Asset Management V.I. Funds, Inc.

(b) Set forth below is information concerning each director and officer
of PFD. The principal business address of each such person is P.O. Box 9011,
Princeton, New Jersey 08543-9011, except that the address of Messrs. Breen,
Crook, Fatseas and Wasel is One Financial Center, 23rd Floor, Boston,
Massachusetts 02111-2665.

C-9

<PAGE>

<TABLE>
<CAPTION>
Positions and Office Positions and Offices
Name with PFD with Registrant
- ---- --------- ---------------
<S> <C> <C>

Terry K. Glenn President and Director President and Director
Michael G. Clark Director and Treasurer 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
James T. Fatseas Vice President None
Debra W. Landsman-Yaros Vice President None
Michelle T. Lau Vice President None
Donald C. Burke Vice President Vice President and Treasurer
Salvatore Venezia Vice President None
William Wasel Vice President None
Robert Harris Secretary None

</TABLE>

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 and the rules thereunder are
maintained at the offices of the Registrant, 800 Scudders Mill Road, Plainsboro,
New Jersey 08536, and its transfer agent, Financial Data Services, Inc., 4800
Deer Lake Drive East, Jacksonville, Florida 32246-6484.

Item 29. Management Services.

Other than as set forth under the caption "Management of the Trust" in
Parts A and B of the Registration Statement, the Registrant is not a party to
any management-related service contract.

Item 30. Undertakings.

None.

C-10

<PAGE>

SIGNATURES

Pursuant to the requirements of the Investment Company Act of 1940, the
Registrant certifies that it has duly caused this Amendment to the 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 December, 1999.

Quantitative Master Series Trust

(Registrant)

By: /s/ Terry K. Glenn
------------------
(Terry K. Glenn, President)

C-11

<PAGE>

EXHIBIT INDEX

Exhibits Description
- -------- -----------

1(f) Amendment No. 3 to Declaration of Trust
1(g) Certificate of Amendment to Certificate of Trust

4 Amended and Restated Management Agreement between Registrant and
Fund Asset Management, L.P.

5(b) Second Amended and Restated Placement Agent Agreement with
Princeton Funds Distributor, Inc.

7(d) Form of Custody Agreement with Chase Manhattan Bank

10(a) Accountant's consent
10(b) Consent of Swidler Berlin Shereff Friedman, LLP, Counsel for
Registrant

C-12

Exhibit 1(f)

AMENDMENT NO. 3 TO DECLARATION OF TRUST
OF QUANTITATIVE MASTER SERIES TRUST
(formerly Index Master Series Trust and formerly Merrill Lynch Index Trust)

The undersigned Secretary of Quantitative Master Series Trust
(the "Trust"), a Delaware business trust, DOES HEREBY CERTIFY, pursuant to the
authority conferred on the Secretary of the Trust by Section 10.4(c) of the
Trust's Declaration of Trust dated August 28, 1996 (the "Declaration of Trust"),
as amended from time to time, that the following amendments were duly adopted by
the unanimous vote of the Trustees on November 3, 1999.

1. The Declaration of Trust is hereby amended to change
the name of the Trust from Index Master Series Trust
to Quantitative Master Series Trust in each place
where such name appears.

2. Section 5.2 of the Declaration of Trust is hereby
amended to add the names of the following series of
the Trust: Master Quantitative Large Cap Series,
Master Quantitative Large Cap Value Series, Master
Quantitative Large Cap Growth Series, Master
Quantitative Mid Cap Series, Master Quantitative
Small Cap Series, Master Quantitative International
Series and Master Mid Cap Index Series.

IN WITNESS WHEREOF, the undersigned has executed this
Amendment to the Declaration of Trust on December 21, 1999.

/s/ Ira P. Shapiro
-------------------------
Ira P. Shapiro
Secretary

Exhibit 1 (g)

CERTIFICATE OF AMENDMENT

CERTIFICATE OF TRUST

INDEX MASTER SERIES TRUST

INDEX MASTER SERIES TRUST, a business trust organized and existing
under the Delaware Business Trust Act (12 Del. C. ss. 3801, et seq.), does
hereby certify that:

1. Name of Trust. The name of the business trust (hereinafter called
the "Trust") is changed to QUANTITATIVE MASTER SERIES TRUST.

2. Effective Date. This Certificate of Amendment shall be
effective on December 21, 1999.

IN WITNESS WHEREOF, the undersigned, being a trustee of the Trust, has
executed this Certificate of Amendment on December 21, 1999.

/s/ Terry K. Glenn
----------------------------------
Terry K. Glenn, Trustee, as
Trustee and not individually

EXHIBIT 4

AMENDED AND RESTATED MANAGEMENT AGREEMENT

AGREEMENT made as of December ____, 1999, by and between QUANTITATIVE
MASTER SERIES TRUST, a Delaware business trust (hereinafter referred to as the
"Trust") on behalf of each of its series named in one or more Addenda hereto, as
it may be amended from time to time (each, a "Series") and FUND ASSET
MANAGEMENT, L.P., a Delaware limited partnership (hereinafter referred to as the
"Manager"). This Agreement and the Addendum or Addenda pertaining to a Series
shall constitute the "investment advisory contract" for such Series for purposes
of Section 15(a) of the Investment Company Act of 1940, as amended (hereinafter
referred to as the "Investment Company Act").

WITNESSETH:

WHEREAS, the Trust 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 Trustees of the Trust (the "Trustees") are authorized to
establish separate series relating to separate portfolios of securities, each of
which may offer separate classes of shares; and

WHEREAS, the Trustees have established and designated the Series as
series of the Trust; and

WHEREAS, the Manager is engaged principally in rendering management and
investment advisory services and is registered as an investment adviser under
the Investment Advisers Act of 1940; and

WHEREAS, the Trust desires to retain the Manager to provide management
and investment advisory services to each Series in the manner and on the terms
hereinafter set forth; and

WHEREAS, the Manager is willing to provide management and investment
advisory services to each Series on the terms and conditions hereafter set
forth;

NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Trust and the Manager hereby agree as follows:

<PAGE>

ARTICLE I
Duties of the Manager

The Trust hereby employs the Manager to act as a manager and investment
adviser of each Series and to furnish, or arrange for affiliates to furnish, the
management and investment advisory services described below, subject to the
policies of, review by and overall control of the Trustees, for the period and
on the terms and conditions set forth in this Agreement. The Manager 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
Manager 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 Trust or any Series in
any way or otherwise be deemed agents of the Trust or any Series.

(a) Management Services. The Manager shall perform (or arrange for the
performance by affiliates of) the management and administrative services
necessary for the operation of the Trust and each Series including administering
shareholder accounts and handling shareholder relations. The Manager shall
provide the Trust and each Series with office space, facilities, equipment and
necessary personnel and such other services as the Manager, subject to review by
the Trustees, shall from time to time determine to be necessary or useful to
perform its obligations under this Agreement. The Manager shall also, on behalf
of the Trust and each Series, conduct relations with custodians, depositories,
transfer agents, dividend 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 Manager shall generally monitor the
Trust's and each Series' compliance with investment policies and restrictions as
set forth in the Registration Statement of the Trust filed with the Securities
and Exchange Commission under the Investment Company Act, as amended from time
to time (the "Registration Statement"). The Manager shall make reports to the
Trustees of its performance of obligations hereunder and furnish advice and
recommendations with respect to such other aspects of the business and affairs
of each Series as it shall determine to be desirable.

(b) Investment Advisory Services. The Manager shall provide (or arrange
for affiliates to provide) the Trust with such investment research, advice and
supervision as the latter may from time to time consider necessary for the
proper supervision of the assets of each Series, shall furnish continuously an
investment program for each Series and shall determine from time to time which
securities shall be purchased, sold or exchanged and what portion of the assets
of each Series shall be held in the various securities and other financial
instruments in which such Series invests or cash, subject always to the
restrictions of the Declaration of Trust and By-Laws of the Trust, as amended
from time to time, the provisions of the Investment Company Act and the
statements relating to the applicable Series' investment objectives, investment
policies and investment restrictions as the same are set forth in the Trust's
current Registration Statement. The Manager shall make decisions for the Trust
as to the manner in which voting rights, rights to

2
<PAGE>

consent to corporate action and any other rights pertaining to a Series'
portfolio securities shall be exercised. Should the Trustees at any time,
however, make any definite determination as to investment policy and notify the
Manager thereof in writing, the Manager shall be bound by such determination for
the period, if any, specified in such notice or until similarly notified that
such determination has been revoked. The Manager shall take, on behalf of each
Series, all actions which it deems necessary to implement the investment
policies determined as provided above, and in particular to place all orders for
the purchase or sale of portfolio securities for each Series' account with
brokers or dealers selected by it, and to that end, the Manager is authorized as
the agent of the Trust to give instructions to the custodian of the Series as to
deliveries of securities and payments of cash for the account of the applicable
Series. In connection with the selection of such brokers or dealers and the
placing of such orders with respect to assets of a Series, the Manager is
directed at all times to seek to obtain execution and price within the policy
guidelines determined by the Trustees and set forth in the then current
Registration Statement. Subject to this requirement and the provisions of the
Investment Company Act, the Securities Exchange Act of 1934, as amended, and
other applicable provisions of law, the Manager may select brokers or dealers
with which it or the Trust is affiliated.

ARTICLE II
Allocation of Charges and Expenses

(a) The Manager. The Manager assumes and shall 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 provide under Article I hereof, and
shall pay compensation of all Officers of the Trust and all Trustees of the
Trust who are affiliated persons of the Manager.

(b) The Trust. The Trust assumes and shall pay or cause to be paid all
other expenses of the Trust and each Series (except for the expenses paid by
Mercury Funds Distributor, a division of Princeton Funds Distributor, Inc. (the
"Distributor")), including, without limitation: taxes, expenses for legal and
auditing services, costs of printing proxies, stock certificates (if any),
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, Securities and Exchange
Commission fees, expenses of registering the shares under Federal, state and
foreign laws, fees and actual out-of-pocket expenses of Trustees who are not
affiliated persons of the Manager, accounting and pricing costs (including 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 Trust or a Series. It is also understood that the Trust
shall reimburse the Manager for its costs in providing accounting services to
the Trust and each Series. The Distributor will pay certain of the expenses of
the Series incurred in connection with the continuous offering of shares of
beneficial interest of each Series.

3
<PAGE>

ARTICLE III
Compensation of the Manager

(a) Management and Investment Advisory Fee. For the services rendered,
the facilities furnished and expenses assumed by the Manager, each Series shall
pay to the Manager at the end of each calendar month a fee based upon the
average daily value of the net assets of such Series, as determined and computed
in accordance with the description of the determination of net asset value
contained in the Registration Statement, at the annual rate set forth on the
Addendum or Addenda pertaining to such Series, 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 Manager'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 Trustees, 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.

ARTICLE IV
Limitation of Liability of the Manager

The Manager shall not be liable for any error of judgment or mistake of
law or for any loss arising out of any investment or for any act or omission in
the management of the Trust and any Series, 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 "Manager" shall include any affiliates of the Manager
performing services for the Trust or a Series contemplated hereby and partners,
shareholders, directors, officers and employees of the Manager and such
affiliates.

ARTICLE V
Activities of the Manager

The services of the Manager to the Trust and the Series are not to be
deemed to be exclusive, and the Manager and each affiliate is free to render
services to others. It is understood that Trustees, officers, employees and
shareholders of the Trust and any Series are or may become interested in the
Manager and its affiliates, as directors, officers, employees, partners,
shareholders or otherwise, and that the Manager and directors, officers,
employees, partners and shareholders of the Manager and its affiliates are or
may become similarly interested in the Trust or a Series as shareholders or
otherwise.

4
<PAGE>

ARTICLE VI
Duration and Termination of this Agreement

This Agreement shall become effective with respect to a Series as of
the date such Series commences investment operations, and shall remain in force
with respect to such Series for two years thereafter or, if sooner, until such
date as may be set forth in the Addendum pertaining to such Series, and
thereafter continue from year to year, but only so long as such continuance is
specifically approved at least annually by (i) the Trustees, or with respect to
any Series by the vote of a majority of the outstanding voting securities of
such Series, and (ii) a majority of those Trustees 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 Trustees or with respect to a Series by the vote of a
majority of the outstanding voting securities of such Series, or by the Manager,
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 (i) (a) with respect to all Series, by the vote of a
majority of outstanding voting securities of each Series, and (b) with respect
to any one Series, by the vote of a majority of outstanding voting securities of
such Series; and (ii) a majority of those Trustees 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.

5
<PAGE>

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 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.

ARTICLE X
Limitation of Obligations of the Series

The obligations of each Series hereunder shall be limited to the assets
of that Series, shall be separate from the obligations of each other series of
the Trust, and no Series shall be liable for the obligations of any other series
of the Trust.

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<PAGE>

IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written. This Agreement may be executed by
the parties hereto on any number of counterparts, all of which shall constitute
one and the same instrument.

QUANTITATIVE MASTER SERIES TRUST,
on behalf of each Series

By: _________________________
Name:
Title:

FUND ASSET MANAGEMENT, L.P.

By: PRINCETON SERVICES, INC.,
ITS GENERAL PARTNER

By: _________________________
Name:
Title:

7
<PAGE>

ADDENDUM A TO MANAGEMENT AGREEMENT

Fund Asset Management, L.P. provides investment advisory services to certain of
these Series through its division, Mercury Asset Management US.

Name of Series Management Fee
-------------- --------------

Master S&P 500 Index Series............................................0.05%
Master Small Cap Index Series..........................................0.08%
Master Aggregate Bond Index Series.....................................0.06%
Master International (GDP Weighted) Index Series.......................0.11%
Master International (Capitalization Weighted) Index Series............0.01%
Master Enhanced S&P 500 Series ..................................... 0.01%
Master Enhanced International Series ..................................0.01%
Master Quantitative Large Cap Series...................................0.40%
Master Quantitative Large Cap Value Series.............................0.40%
Master Quantitative Large Cap Growth Series............................0.40%
Master Quantitative Mid Cap Series.....................................0.55%
Master Quantitative Small Cap Series...................................0.55%
Master Quantitative International Series ............................. 0.65%
Master Mid Cap Index Series ...........................................0.01%

EXHIBIT 5(b)

SECOND AMENDED AND RESTATED PLACEMENT AGENT AGREEMENT

AGREEMENT made as of December __, 1999, between QUANTITATIVE MASTER
SERIES TRUST, a Delaware business trust (the "Trust"), on behalf of its series
listed on Appendix A attached hereto, as such Appendix may be amended from time
to time, (the "Series"), and PRINCETON FUNDS DISTRIBUTOR, INC., a Delaware
corporation (the "Placement Agent"). The obligations of each Series hereunder
shall be limited to the assets of that Series, shall be separate from the
obligations of each other Series, and no Series shall be liable for the
obligations of any other Series.

W I T N E S S E T H :

WHEREAS, the Trust has filed a registration statement (the
"Registration Statement") pursuant to Section 8(b) of the Investment Company Act
of 1940, as amended (the "Investment Company Act"); and

WHEREAS, the Trustees of the Trust (the "Trustees") are authorized to
establish separate series relating to separate portfolios of securities, each of
which may offer beneficial interests in the Series ("Interests"); and

WHEREAS, the Trustees have established and designated the Series as
series of the Trust; and

WHEREAS, the Trust and the Placement Agent wish to enter into an
agreement with each other with respect to the distribution of Interests in the
Series.

NOW, THEREFORE, the parties agree as follows:

Section 1. Appointment of the Placement Agent; Private Offering.

(a) The Trust hereby appoints the Placement Agent as placement agent in
connection with the distribution of the Interests.

(b) The Placement Agent understands that: (i) The Interests are not
being registered under the Securities Act of 1933, as amended (the "Securities
Act"); (ii) Such Interests are to be issued solely in private placement
transactions that do not involve any "public offering" within the meaning of
Section 4(2) of the Securities Act; (iii) Investments in the Series may be made
only by a limited number of institutional investors, including investment
companies, common or commingled trust funds, group trusts and certain other
"accredited investors" within the meaning of Regulation D under the Securities
Act; and (iv) The Registration Statement is not intended to constitute an offer
to sell, or the solicitation of an offer to buy, any beneficial interests in the
Series.

<PAGE>

(c) In carrying out its duties hereunder, the Placement Agent agrees
that it will act in a manner consistent with the foregoing and, unless otherwise
instructed by the Trust in writing, will not take any actions which would cause
the Trust to make a "public offering" within the meaning of Section 4(2) of the
Securities Act.

Section 2. Exclusive Nature of Duties. The Placement Agent shall be the
exclusive representative of the Series to act as placement agent in respect of
the distribution of the Interests, except that:

(a) The Trust may, with respect to any Series, upon written notice to
the Placement Agent, from time to time designate other placement agents with
respect to areas other than the United States as to which the Placement Agent
may have expressly waived in writing its right to act as such. If such
designation is deemed exclusive, the right of the Placement Agent under this
Agreement in respect of such areas so designated shall terminate, but this
Agreement shall remain otherwise in full effect until terminated in accordance
with the other provisions hereof.

(b) The exclusive right granted to the Placement Agent hereunder shall
not apply to Interests issued in connection with the merger or consolidation of
any other investment company or personal holding company with a Series or the
acquisition by purchase or otherwise of all (or substantially all) the assets or
the outstanding shares of any such company by a Series.

(c) Such exclusive right also shall not apply to Interests issued by a
Series pursuant to reinvestment of dividends or capital gains distributions.

(d) Such exclusive right also shall not apply to Interests issued by a
Series pursuant to any conversion, exchange or reinstatement privilege afforded
redeeming shareholders or to any other Interests as shall be agreed between the
Trust and the Placement Agent from time to time.

Section 3. Duties of the Trust.

(a) The Trust shall furnish to the Placement Agent copies of all
information, financial statements and other papers which the Placement Agent may
reasonably request for use in connection with its duties hereunder, and this
shall include, upon request by the Placement Agent, one certified copy of all
financial statements prepared for the Trust by independent public accountants.

(b) Consistent with Section 1 hereof, the Trust shall use its best
efforts to qualify and maintain the qualification of the Interests for sale
under the securities laws of such jurisdictions as the Placement Agent and the
Trust may approve. Any such qualification may be withheld, terminated or
withdrawn by the Trust at any time in its discretion. The expense of
qualification and maintenance of qualification shall be borne by the Trust. The
Placement Agent shall furnish such information and other material relating to
its affairs and activities as may be required by the Trust in connection with
such qualification.

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<PAGE>

(c) The Trust will furnish, in reasonable quantities upon request by
the Placement Agent, copies of annual and interim reports of each Series.

Section 4. Duties of the Placement Agent.

(a) The Placement Agent shall devote reasonable time and effort to its
duties hereunder. The services of the Placement Agent to the Trust hereunder are
not to be deemed exclusive and nothing herein contained shall prevent the
Placement Agent from entering into like arrangements with other investment
companies so long as the performance of its obligations hereunder is not
impaired thereby.

(b) In performing its duties hereunder, the Placement Agent shall use
its best efforts in all respects to duly conform with the requirements of all
applicable laws relating to the sale of securities. Neither the Placement Agent
nor any other person is authorized by the Trust to give any information or to
make any representations, other than those contained in the Trust's registration
statement or any supplemental literature specifically approved by the Trust.

Section 5. Payment of Expenses.

(a) The Trust shall bear all costs and expenses of the Series,
including fees and disbursements of its counsel and auditors, in connection with
the preparation and filing of any required registration statements under the
Investment Company Act, and all amendments and supplements thereto, and
preparing and mailing annual and interim reports and proxy materials to
shareholders (including but not limited to the expense of setting in type any
such registration statements, or interim reports or proxy materials).

(b) The Trust shall bear any cost and expenses of qualification of the
Interests for sale pursuant to this Agreement and, if necessary or advisable in
connection therewith, of qualifying the Trust as a broker or dealer in such
states of the United States or other jurisdictions as shall be selected by the
Trust and the Placement Agent pursuant to Section 3 hereof and the cost and
expenses payable to each such state for continuing qualification therein until
the Trust decides to discontinue such qualification pursuant to Section 3
hereof.

Section 6. Indemnification.

(a) The Trust shall indemnify and hold harmless the Placement Agent and
each person, if any, who controls the Placement Agent 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 Interests, which may be based upon
the Securities

3
<PAGE>

Act, or on any other statute or at common law, on the ground that any
registration statement or other offering materials, as from time to time amended
and supplemented, or an annual or interim report to interestholders of the
Series, 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 Trust in
connection therewith by or on behalf of the Placement Agent; provided, however,
that in no case (i) is the indemnity of the Trust in favor of the Placement
Agent and any such controlling persons to be deemed to protect such Placement
Agent or any such controlling persons thereof against any liability to the Trust
or its interestholders to which the Placement Agent 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 Trust to be liable under its indemnity agreement contained in this
paragraph with respect to any claim made against the Placement Agent or any such
controlling persons, unless the Placement Agent or such controlling persons, as
the case may be, shall have notified the Trust 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 Placement Agent or such
controlling persons (or after the Placement Agent or such controlling persons
shall have received notice of such service on any designated agent), but failure
to notify the Trust of any such claim shall not relieve it from any liability
which it may have to the person against whom such action is brought otherwise
than on account of its indemnity agreement contained in this paragraph. The
Trust 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 Trust elects to assume the defense, such defense shall be
conducted by counsel chosen by it and satisfactory to the Placement Agent or
such controlling person or persons, defendant or defendants in the suit. In the
event the Trust elects to assume the defense of any such suit and retain such
counsel, the Placement Agent 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 Trust does not elect to
assume the defense of any such suit, it will reimburse the Placement Agent 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
Trust shall promptly notify the Placement Agent 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 Interests.

(b) The Placement Agent shall indemnify and hold harmless the Trust and
each of its Trustees and officers and each person, if any, who controls the
Trust 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 Trust in writing by or on
behalf of the Placement Agent for use in connection with the registration
statement or other offering materials, as from time to time amended, or the
annual or interim reports to shareholders. In case any action shall be brought
against the Trust or any person so indemnified, in respect of which

4
<PAGE>

indemnity may be sought against the Placement Agent, the Placement Agent shall
have the rights and duties given to the Trust, and the Trust and each person so
indemnified shall have the rights and duties given to the Placement Agent by the
provisions of subsection (a) of this Section 6.

Section 7. 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 (i)
with respect to one or more of the Series, by the Trustees or with respect to a
Series, by the vote of a majority of the outstanding voting securities of such
Series and (ii) by the vote of a majority of those Trustees 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 with respect to one or more of the Series, by the Trustees or with
respect to a Series, by vote of a majority of the outstanding voting securities
of such Series, or by the Placement Agent, 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 8. Amendments of this Agreement. This Agreement may be amended
by the parties only if such amendment is specifically approved (i) (a) with
respect to all Series, by the Trustees or by the vote of a majority of
outstanding voting securities of each Series, or (b) with respect to any one
Series, by the Trustees or the vote of a majority of outstanding voting
securities of such Series, and (ii) by the vote of a majority of those Trustees
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 9. 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.

5
<PAGE>

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 in any number of counterparts, all of which shall
constitute one and the same instrument.

QUANTITATIVE MASTER SERIES TRUST,
on behalf of each Series

By ----------------------------------
Name:
Title:

PRINCETON FUNDS DISTRIBUTOR, INC.

By ----------------------------------
Name:
Title:

6
<PAGE>

Appendix A

Series of Quantitative Master Series Trust

Master S&P 500 Index Series
Master Small Cap Index Series
Master Aggregate Bond Index Series
Master International (GDP Weighted) Index Series
Master Enhanced International Series
Master Enhanced S&P 500 Series
Master International (Capitalization Weighted) Index Series
Master Quantitative Large Cap Series
Master Quantitative Large Cap Value Series
Master Quantitative Large Cap Growth Series
Master Quantitative Mid Cap Series
Master Quantitative Small Cap Series
Master Quantitative International Series
Master Mid Cap Index Series

As of December __, 1999

[LOGO] CHASE

GLOBAL CUSTODY AGREEMENT

This AGREEMENT is effective ___________________, 1999, and is between
THE CHASE MANHATTAN BANK ("Bank") and ___________________________ ("Customer").

1. Customer Accounts.

Bank, acting as "Securities Intermediary" (as defined in Section 15(g)
hereof) shall establish and maintain the following accounts ("Accounts"): (a) a
Custody Account (as defined in Section 15(b) hereof) in the name of Customer for
Financial Assets, which shall, except as modified by Section 15(d) hereof, mean
stocks, shares, bonds, debentures, notes, mortgages or other obligations for the
payment of money, bullion, coin and any certificates, receipts, warrants or
other instruments representing rights to receive, purchase or subscribe for the
same or evidencing or representing any other rights or interests therein and
other similar property whether certificated or uncertificated as may be received
by Bank or its Subcustodian (as defined in Section 3 hereof) for the account of
Customer, including as an "Entitlement Holder" as defined in Section 15(c)
hereof); and

(b) an account in the name of Customer ("Deposit Account") for any and
all cash in any currency received by Bank or its Subcustodian for the account of
Customer, which cash shall not be subject to withdrawal by draft or check.

Customer warrants its authority to: 1) deposit the cash and Financial
Assets (collectively "Assets") received in the Accounts and 2) give Instructions
(as defined in Section 11 hereof) concerning the Accounts. Bank may deliver
Financial Assets of the same class in place of those deposited in the Custody
Account.

Upon written agreement between Bank and Customer, additional Accounts
may be established and separately accounted for as additional Accounts
hereunder.

2. Maintenance of Financial Assets and Cash at Bank and Subcustodian
Locations.

Unless Instructions specifically require another location acceptable to
Bank:

(a) Financial Assets shall be held in the country or other jurisdiction
in which the principal trading market for such Financial Assets is located,
where such Financial Assets are to be presented for payment or where such
Financial Assets are acquired; and

(b) Cash shall be credited to an account in a country or other
jurisdiction in which such cash may be legally deposited or is the legal
currency for the payment of public or private debts.

Cash may be held pursuant to Instructions in either interest or
non-interest bearing accounts as may be available for the particular currency.
To the extent Instructions are issued and Bank can comply with such

<PAGE>

Instructions, Bank is authorized to maintain cash balances on deposit for
Customer with itself or one of its "Affiliates" at such reasonable rates of
interest as may from time to time be paid on such accounts, or in non-interest
bearing accounts as Customer may direct, if acceptable to Bank. For purposes
hereof, the term "Affiliate" shall mean an entity controlling, controlled by, or
under common control with, Bank.

If Customer wishes to have any of its Assets held in the custody of an
institution other than the established Subcustodians as defined in Section 3 (or
their securities depositories), such arrangement must be authorized by a written
agreement, signed by Bank and Customer.

3. Subcustodians and Securities Depositories.

Bank may act hereunder through the subcustodians listed in Schedule A
hereof with which Bank has entered into subcustodial agreements
("Subcustodians"). Customer authorizes Bank to hold Assets in the Accounts in
accounts which Bank has established with one or more of its branches or
Subcustodians. Bank and Subcustodians are authorized to hold any of Financial
Assets in their account with any securities depository in which they
participate.

Bank reserves the right to add new, replace or remove Subcustodians.
Customer shall be given reasonable notice by Bank of any amendment to Schedule
A. Upon request by Customer, Bank shall identify the name, address and principal
place of business of any Subcustodian of Customer's Assets and the name and
address of the governmental agency or other regulatory authority that supervises
or regulates such Subcustodian.

4. Use of Subcustodian.

(a) Bank shall identify the Assets on its books as belonging to
Customer.

(b) A Subcustodian shall hold such Assets together with assets
belonging to other customers of Bank in accounts identified on such
Subcustodian's books as custody accounts for the exclusive benefit of customers
of Bank.

(c) Any Assets in the Accounts held by a Subcustodian shall be subject
only to the instructions of Bank or its agent. Any Financial Assets held in a
securities depository for the account of a Subcustodian shall be subject only to
the instructions of such Subcustodian.

(d) Any agreement Bank enters into with a Subcustodian for holding
Bank's customers' assets shall provide that such assets shall not be subject to
any right, charge, security interest, lien or claim of any kind in favor of such
Subcustodian except for safe custody or administration, and that the beneficial
ownership of such assets shall be freely transferable without the payment of
money or value other than for safe custody or administration, or, in the case of
cash deposits, except for liens or rights in favor of creditors of the
Subcustodian arising under bankruptcy, insolvency or similar laws. Where
Securities are deposited by a Subcustodian with a securities depository, Bank
shall cause the Subcustodian to identify on its books as belonging to Bank, as
agent, the Securities shown on the Subcustodian's account on the books of such
securities depository. The foregoing shall not apply to the extent of any
special agreement or arrangement made by Customer with any particular
Subcustodian.

5. Deposit Account Transactions.

(a) Bank or its Subcustodians shall make payments from the Deposit
Account upon receipt of Instructions which include all information required by
Bank.

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<PAGE>

(b) In the event that any payment to be made under this Section 5
exceeds the funds available in the Deposit Account, Bank, in its discretion, may
advance Customer such excess amount which shall be deemed a loan payable on
demand, bearing interest at the rate customarily charged by Bank on similar
loans.

(c) If Bank credits the Deposit Account on a payable date, or at any
time prior to actual collection and reconciliation to the Deposit Account, with
interest, dividends, redemptions or any other amount due, Customer shall
promptly return any such amount upon oral or written notification: (i) that such
amount has not been received in the ordinary course of business or (ii) that
such amount was incorrectly credited. If Customer does not promptly return any
amount upon such notification, Bank shall be entitled, upon oral or written
notification to Customer, to reverse such credit by debiting the Deposit Account
for the amount previously credited. Bank or its Subcustodian shall have no duty
or obligation to institute legal proceedings, file a claim or a proof of claim
in any insolvency proceeding or take any other action with respect to the
collection of such amount, but may act for Customer upon Instructions after
consultation with Customer.

6. Custody Account Transactions.

(a) Financial Assets shall be transferred, exchanged or delivered by
Bank or its Subcustodian upon receipt by Bank of Instructions which include all
information required by Bank. Settlement and payment for Financial Assets
received for, and delivery of Financial Assets out of, the Custody Account may
be made in accordance with the customary or established securities trading or
securities processing practices and procedures in the jurisdiction or market in
which the transaction occurs, including, without limitation, delivery of
Financial Assets to a purchaser, dealer or their agents against a receipt with
the expectation of receiving later payment and free delivery. Delivery of
Financial Assets out of the Custody Account may also be made in any manner
specifically required by Instructions acceptable to Bank.

(b) Bank, in its discretion, may credit or debit the Accounts on a
contractual settlement date with cash or Financial Assets with respect to any
sale, exchange or purchase of Financial Assets. Otherwise, such transactions
shall be credited or debited to the Accounts on the date cash or Financial
Assets are actually received by Bank and reconciled to the Account.

(i) Bank may reverse credits or debits made to the Accounts in
its discretion if the related transaction fails to settle within a
reasonable period, determined by Bank in its discretion, after the
contractual settlement date for the related transaction.

(ii) If any Financial Assets delivered pursuant to this
Section 6 are returned by the recipient thereof, Bank may reverse the
credits and debits of the particular transaction at any time.

7. Actions of Bank.

Bank shall follow Instructions received regarding Assets held in the
Accounts. However, until it receives Instructions to the contrary, Bank shall:

(a) Present for payment any Financial Assets which are called, redeemed
or retired or otherwise become payable and all coupons and other income items
which call for payment upon presentation, to the extent that Bank or
Subcustodian is actually aware of such opportunities.

(b) Execute in the name of Customer such ownership and other
certificates as may be required to obtain payments in respect of Financial
Assets.

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<PAGE>

(d) Appoint brokers and agents for any transaction involving the
Financial Assets, including, without limitation, Affiliates of Bank or any
Subcustodian.

(e) Issue statements to Customer, at times mutually agreed upon,
identifying the Assets in the Accounts.

Bank shall send Customer an advice or notification of any transfers of
Assets to or from the Accounts. Such statements, advices or notifications shall
indicate the identity of the entity having custody of the Assets. Unless
Customer sends Bank a written exception or objection to any Bank statement
within sixty (60) days of receipt, Customer shall be deemed to have approved
such statement. In such event, or where Customer has otherwise approved any such
statement, Bank shall, to the extent permitted by law, be released, relieved and
discharged with respect to all matters set forth in such statement or reasonably
implied therefrom as though it had been settled by the decree of a court of
competent jurisdiction in an action where Customer and all persons having or
claiming an interest in Customer or Customer's Accounts were parties.

All collections of funds or other property paid or distributed in
respect of Financial Assets in the Custody Account shall be made at the risk of
Customer. Bank shall have no liability for any loss occasioned by delay in the
actual receipt of notice by Bank or by its Subcustodians of any payment,
redemption or other transaction regarding Financial Assets in the Custody
Account in respect of which Bank has agreed to take any action hereunder.

8. Corporate Actions; Proxies; Tax Reclaims.

(a) Corporate Actions. Whenever Bank receives information concerning
the Financial Assets which requires discretionary action by the beneficial owner
of the Financial Assets (other than a proxy), such as subscription rights, bonus
issues, stock repurchase plans and rights offerings, or legal notices or other
material intended to be transmitted to securities holders ("Corporate Actions"),
Bank shall give Customer notice of such Corporate Actions to the extent that
Bank's central corporate actions department has actual knowledge of a Corporate
Action in time to notify its customers.

When a rights entitlement or a fractional interest resulting from a
rights issue, stock dividend, stock split or similar Corporate Action is
received which bears an expiration date, Bank shall endeavor to obtain
Instructions from Customer or its Authorized Person (as defined in Section 10
hereof), but if Instructions are not received in time for Bank to take timely
action, or actual notice of such Corporate Action was received too late to seek
Instructions, Bank is authorized to sell such rights entitlement or fractional
interest and to credit the Deposit Account with the proceeds or take any other
action it deems, in good faith, to be appropriate in which case it shall be held
harmless for any such action.

(b) Proxy Voting. Bank shall provide proxy voting services, if elected
by Customer, in accordance with the terms of the proxy voting services rider
hereto. Proxy voting services may be provided by Bank or, in whole or in part,
by one or more third parties appointed by Bank (which may be Affiliates of
Bank).

(i) Subject to the provisions hereof, Bank shall apply for a
reduction of withholding tax and any refund of any tax paid or tax
credits which apply in each applicable market in respect of income
payments on Financial Assets for the benefit of Customer which Bank
believes may be available to such Customer.

4
<PAGE>

(ii) The provision of tax reclaim services by Bank is
conditional upon Bank receiving from the beneficial owner of Financial
Assets (A) a declaration of its identity and place of residence and (B)
certain other documentation (pro forma copies of which are available
from Bank). Customer acknowledges that, if Bank does not receive such
declarations, documentation and information, additional United Kingdom
taxation shall be deducted from all income received in respect of
Financial Assets issued outside the United Kingdom and that U.S.
non-resident alien tax or U.S. backup withholding tax shall be deducted
from U.S. source income. Customer shall provide to Bank such
documentation and information as it may require in connection with
taxation, and warrants that, when given, this information shall be true
and correct in every respect, not misleading in any way, and contain
all material information. Customer undertakes to notify Bank
immediately if any such information requires updating or amendment.

(iii) Bank shall not be liable to Customer or any third party
for any taxes, fines or penalties payable by Bank or Customer, and
shall be indemnified accordingly, whether these result from the
inaccurate completion of documents by Customer or any third party
acting as agent for Customer, or as a result of the provision to Bank
or any third party of inaccurate or misleading information or the
withholding of material information by Customer or any other third
party, or as a result of any delay of any revenue authority or any
other matter beyond the control of Bank.

(iv) Customer confirms that Bank is authorized to deduct from
any cash received or credited to the Deposit Account any taxes or
levies required by any revenue or governmental authority for whatever
reason in respect of the Securities or Cash Accounts.

(v) Bank shall perform tax reclaim services only with respect
to taxation levied by the revenue authorities of the countries notified
to Customer from time to time and Bank may, by notification in writing,
at its absolute discretion, supplement or amend the markets in which
the tax reclaim services are offered. Other than as expressly provided
in this sub-clause, Bank shall have no responsibility with regard to
Customer's tax position or status in any jurisdiction.

(vi) Customer confirms that Bank is authorized to disclose any
information requested by any revenue authority or any governmental body
in relation to Customer or the Financial Assets and/or Cash held for
Customer.

(vii) Tax reclaim services may be provided by Bank or, in
whole or in part, by one or more third parties appointed by Bank (which
may be Affiliates of Bank); provided that Bank shall be liable for the
performance of any such third party to the same extent as Bank would
have been if it performed such services itself.

9. Nominees.

Financial Assets which are ordinarily held in registered form may be
registered in a nominee name of Bank, Subcustodian or securities depository, as
the case may be. Bank may without notice to Customer cause any such Financial
Assets to cease to be registered in the name of any such nominee and to be
registered in the name of Customer. In the event that any Financial Assets
registered in a nominee name are called for partial redemption by the issuer,
Bank may allot the called portion to the respective beneficial holders of such
class of security in any manner Bank deems to be fair and equitable. Customer
shall hold Bank, Subcustodians, and their respective nominees harmless from any
liability arising directly or indirectly from their status as a mere record
holder of Financial Assets in the Custody Account.

10. Authorized Persons.

5
<PAGE>

As used herein, the term "Authorized Person" means employees or agents
including investment managers as have been designated by written notice from
Customer or its designated agent to act on behalf of Customer hereunder. Such
persons shall continue to be Authorized Persons until such time as Bank receives
Instructions from Customer or its designated agent that any such employee or
agent is no longer an Authorized Person.

11. Instructions.

The term "Instructions" means instructions of any Authorized Person
received by Bank, via telephone, telex, facsimile transmission, bank wire or
other teleprocess or electronic instruction or trade information system
acceptable to Bank which Bank believes in good faith to have been given by
Authorized Persons or which are transmitted with proper testing or
authentication pursuant to terms and conditions which Bank may specify. Unless
otherwise expressly provided, all Instructions shall continue in full force and
effect until canceled or superseded. The term "Instructions" includes, without
limitation, instructions to sell, assign, transfer, deliver, purchase or receive
for the Custody Account, any and all stocks, bonds and other Financial Assets or
to transfer funds in the Cash Account.)

Any Instructions delivered to Bank by telephone shall promptly
thereafter be confirmed in writing by an Authorized Person (which confirmation
may bear the facsimile signature of such Person), but Customer shall hold Bank
harmless for the failure of an Authorized Person to send such confirmation in
writing, the failure of such confirmation to conform to the telephone
instructions received or Bank's failure to produce such confirmation at any
subsequent time. Bank may electronically record any Instructions given by
telephone, and any other telephone discussions with respect to the Custody
Account. Customer shall be responsible for safeguarding any testkeys,
identification codes or other security devices which Bank shall make available
to Customer or its Authorized Persons.

12. Standard of Care; Liabilities.

(a) Bank shall be responsible for the performance of only such duties
as are set forth herein or expressly contained in Instructions which are
consistent with the provisions hereof as follows:

(i) Bank shall use reasonable care with respect to its
obligations hereunder and the safekeeping of Assets. The Bank shall be
liable to the Customer for any loss which shall occur as the result of
the failure of a Subcustodian to exercise reasonable care with respect
to the safekeeping of such Assets to the same extent that the Bank
would be liable to the Customer if the Bank were holding such Assets in
New York. In the event of any loss to Customer by reason of the failure
of Bank or its Subcustodian to utilize reasonable care, Bank shall be
liable to Customer only to the extent of Customer's direct damages, to
be determined based on the market value of the property which is the
subject of the loss at the date of discovery of such loss and without
reference to any special conditions or circumstances. Bank shall have
no liability whatsoever for any consequential, special, indirect or
speculative loss or damages (including, but not limited to, lost
profits) suffered by Customer in connection with the transactions
contemplated hereby and the relationship established hereby even if
Bank has been advised as to the possibility of the same and regardless
of the form of the action.

(ii) Bank shall not be responsible for the insolvency of any
Subcustodian which is not a branch or Affiliate of Bank. Bank shall not
be responsible for any act, omission, default or the solvency of any
broker or agent which it or a Subcustodian appoints unless such
appointment was made negligently or in bad faith.

6
<PAGE>

(iii) Bank shall be indemnified by, and without liability to
Customer for any action taken or omitted by Bank whether pursuant to
Instructions or otherwise within the scope hereof if such act or
omission was in good faith, without negligence. In performing its
obligations hereunder, Bank may rely on the genuineness of any document
which it believes in good faith to have been validly executed.

(iv) Customer shall pay for and hold Bank harmless from any
liability or loss resulting from the imposition or assessment of any
taxes or other governmental charges, and any related expenses with
respect to income from or Assets in the Accounts.

(v) Bank shall be entitled to rely, and may act, upon the
advice of counsel (who may be counsel for Customer) on all matters and
shall be without liability for any action reasonably taken or omitted
pursuant to such advice.

(vi) Bank need not maintain any insurance for the benefit of
Customer.

(vii) Without limiting the foregoing, Bank shall not be liable
for any loss which results from: 1) the general risk of investing, or
2) investing or holding Assets in a particular country including, but
not limited to, losses resulting from malfunction, interruption of or
error in the transmission of information caused by any machines or
system or interruption of communication facilities, abnormal operating
conditions, nationalization, expropriation or other governmental
actions; regulation of the banking or securities industry; currency
restrictions, devaluations or fluctuations; and market conditions which
prevent the orderly execution of securities transactions or affect the
value of Assets.

(viii) Neither party shall be liable to the other for any loss
due to forces beyond their control including, but not limited to
strikes or work stoppages, acts of war (whether declared or undeclared)
or terrorism, insurrection, revolution, nuclear fusion, fission or
radiation, or acts of God.

(b) Consistent with and without limiting the first paragraph of this
Section 12, it is specifically acknowledged that Bank shall have no duty or
responsibility to:

(i) question Instructions or make any suggestions to
Customer or an Authorized Person regarding such Instructions;

(ii) supervise or make recommendations with respect to
investments or the retention of Financial Assets;

(iii) advise Customer or an Authorized Person regarding any
default in the payment of principal or income of any security other
than as provided in Section 5(c) hereof;

(iv) evaluate or report to Customer or an Authorized Person
regarding the financial condition of any broker, agent or other party
to which Financial Assets are delivered or payments are made pursuant
hereto; and

(v) review or reconcile trade confirmations received from
brokers. Customer or its Authorized Persons issuing Instructions shall
bear any responsibility to review such confirmations against
Instructions issued to and statements issued by Bank.

(c) Customer authorizes Bank to act hereunder notwithstanding that Bank
or any of its divisions or Affiliates may have a material interest in a
transaction, or circumstances are such that Bank may have a potential conflict
of duty or interest including the fact that Bank or any of its Affiliates may
provide brokerage services to

7
<PAGE>

other customers, act as financial advisor to the issuer of Financial Assets, act
as a lender to the issuer of Financial Assets, act in the same transaction as
agent for more than one customer, have a material interest in the issue of
Financial Assets, or earn profits from any of the activities listed herein.

13. Fees and Expenses.

Customer shall pay Bank for its services hereunder the fees set forth
in Schedule B hereto or such other amounts as may be agreed upon in writing,
together with Bank's reasonable out-of-pocket or incidental expenses, including,
but not limited to, legal fees. Bank shall have a lien on and is authorized to
charge any Accounts of Customer for any amount owing to Bank under any provision
hereof.

14. Miscellaneous.

(a) Foreign Exchange Transactions. To facilitate the administration of
Customer's trading and investment activity, Bank is authorized to enter into
spot or forward foreign exchange contracts with Customer or an Authorized Person
for Customer and may also provide foreign exchange through its subsidiaries,
Affiliates or Subcustodians. Instructions, including standing instructions, may
be issued with respect to such contracts but Bank may establish rules or
limitations concerning any foreign exchange facility made available. In all
cases where Bank, its subsidiaries, Affiliates or Subcustodians enter into a
foreign exchange contract related to Accounts, the terms and conditions of the
then current foreign exchange contract of Bank, its subsidiary, Affiliate or
Subcustodian and, to the extent not inconsistent, this Agreement shall apply to
such transaction.

(b) Certification of Residency, etc. Customer certifies that it is a
resident of the United States and shall notify Bank of any changes in residency.
Bank may rely upon this certification or the certification of such other facts
as may be required to administer Bank's obligations hereunder. Customer shall
indemnify Bank against all losses, liability, claims or demands arising directly
or indirectly from any such certifications.

(c) Access to Records. Bank shall allow Customer's independent public
accountant reasonable access to the records of Bank relating to the Assets as is
required in connection with their examination of books and records pertaining to
Customer's affairs. Subject to restrictions under applicable law, Bank shall
also obtain an undertaking to permit Customer's independent public accountants
reasonable access to the records of any Subcustodian which has physical
possession of any Assets as may be required in connection with the examination
of Customer's books and records.

(d) Governing Law; Successors and Assigns, Captions. THIS AGREEMENT
SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS
MADE AND TO BE PERFORMED IN NEW YORK and shall not be assignable by either
party, but shall bind the successors in interest of Customer and Bank. The
captions given to the sections and subsections of this Agreement are for
convenience of reference only and are not to be used to interpret this
Agreement.

(e) Entire Agreement; Applicable Riders. Customer represents that the
Assets deposited in the Accounts are (Check one):

__Investment Company assets subject to certain U.S. Securities and
Exchange Commission rules and regulations;

__Other (specify)

8
<PAGE>

This Agreement consists exclusively of this document together with
Schedules A and B, Exhibits I - _______ and the following Rider(s)
[Check applicable rider(s)]:

__INVESTMENT COMPANY

__PROXY VOTING

__SPECIAL TERMS AND CONDITIONS

There are no other provisions hereof and this Agreement supersedes any
other agreements, whether written or oral, between the parties. Any amendment
hereto must be in writing, executed by both parties.

(f) Severability. In the event that one or more provisions hereof are
held invalid, illegal or unenforceable in any respect on the basis of any
particular circumstances or in any jurisdiction, the validity, legality and
enforceability of such provision or provisions under other circumstances or in
other jurisdictions and of the remaining provisions shall not in any way be
affected or impaired.

(g) Waiver. Except as otherwise provided herein, no failure or delay on
the part of either party in exercising any power or right hereunder operates as
a waiver, nor does any single or partial exercise of any power or right preclude
any other or further exercise, or the exercise of any other power or right. No
waiver by a party of any provision hereof, or waiver of any breach or default,
is effective unless in writing and signed by the party against whom the waiver
is to be enforced.

(h) Representations and Warranties. (i) Customer hereby represents and
warrants to Bank that: (A) it has full authority and power to deposit and
control the Financial Assets and cash deposited in the Accounts; (B) it has all
necessary authority to use Bank as its custodian; (C) this Agreement constitutes
its legal, valid and binding obligation, enforceable in accordance with its
terms; (D) it shall have full authority and power to borrow moneys and enter
into foreign exchange transactions; and (E) it has not relied on any oral or
written representation made by Bank or any person on its behalf, and
acknowledges that this Agreement sets out to the fullest extent the duties of
Bank. (ii) Bank hereby represents and warrants to Customer that: (A) it has the
full power and authority to perform its obligations hereunder, (B) this
Agreement constitutes its legal, valid and binding obligation; enforceable in
accordance with its terms; and (C) that it has taken all necessary action to
authorize the execution and delivery hereof.

(i) Notices. All notices hereunder shall be effective when actually
received. Any notices or other communications which may be required hereunder
are to be sent to the parties at the following addresses or such other addresses
as may subsequently be given to the other party in writing: (a) Bank: The Chase
Manhattan Bank, 4 Chase MetroTech Center, Brooklyn, N.Y. 11245, Attention:
Global Investor Services, Investment Management Group; and (b) Customer: ______.

(j) Termination. This Agreement may be terminated by Customer or Bank
by giving sixty (60) days written notice to the other, provided that such notice
to Bank shall specify the names of the persons to whom Bank shall deliver the
Assets in the Accounts. If notice of termination is given by Bank, Customer
shall, within sixty (60) days following receipt of the notice, deliver to Bank
Instructions specifying the names of the persons to whom Bank shall deliver the
Assets. In either case Bank shall deliver the Assets to the persons so
specified, after deducting any amounts which Bank determines in good faith to be
owed to it under Section 13. If within sixty (60) days following receipt of a
notice of termination by Bank, Bank does not receive Instructions from Customer
specifying the names of the persons to whom Bank shall deliver the Assets, Bank,
at its election, may deliver the Assets to a bank or trust company doing
business in the State of New York to be held and disposed of pursuant to

9
<PAGE>

the provisions hereof, or to Authorized Persons, or may continue to hold the
Assets until Instructions are provided to Bank.

(k) Money Laundering. Customer warrants and undertakes to Bank for
itself and its agents that all Customer's customers are properly identified in
accordance with U.S. Money Laundering Regulations as in effect from time to
time.

(l) Imputation of certain information. Bank shall not be held
responsible for and shall not be required to have regard to information held by
any person by imputation or information of which Bank is not aware by virtue of
a "Chinese Wall" arrangement. If Bank becomes aware of confidential information
which in good faith it feels inhibits it from effecting a transaction hereunder
Bank may refrain from effecting it.

15. Definitions.

As used herein, the following terms shall have the meaning hereinafter
stated:

a) "Certificated Security" shall mean a security that is represented by a
certificate.

b) "Custody Account" means each Securities custody account on Bank's
records to which Financial Assets are or may be credited pursuant hereto.

c) "Entitlement Holder" shall mean the person on the records of a
Securities Intermediary as the person having a Securities Entitlement
against the Securities Intermediary.

d) "Financial Asset" shall mean, as the context requires, either the asset
itself or the means by which a person's claim to it is evidenced, including
a Certificated Security or Uncertificated Security, a security certificate,
or a Securities Entitlement.

e) "Securities" means stocks, bonds, rights, warrants and other negotiable and
non-negotiable paper whether issued as Certificated Securities or
Uncertificated Securities and commonly traded or dealt in on securities
exchanges or financial markets, and other obligations of an issuer, or
shares, participations and interests in an issuer recognized in an area in
which it is issued or dealt in as a medium for investment and any other
property as shall be acceptable to Bank for the Custody Account.

f) "Securities Entitlement" shall mean the rights and property interest of an
Entitlement Holder with respect to a Financial Asset as set forth in Part 5
of the Uniform Commercial Code.

g) "Securities Intermediary" shall mean Bank, a Subcustodian, a securities
depository, and any other financial institution which in the ordinary
course of business maintains custody accounts for others and acts in that
capacity.

h) "Uncertificated Security" shall mean a security that is not represented by
a certificate.

i) "Uniform Commercial Code" means Article 8 of the Uniform Commercial Code of
the State of New York, as the same may be amended from time to time.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first-above written.

10
<PAGE>

CUSTOMER

By:----------------------------------------
Title:
Date:

THE CHASE MANHATTAN BANK

By:----------------------------------------
Title:
Date:

11
<PAGE>

STATE OF )
: ss.
COUNTY OF )

On this ______ day of , ________ 199__, before me personally came _________
, to me known, who being by me duly sworn, did depose and say that he/she
resides in _________at __________ , that he/she is of , the entity described in
and which executed the foregoing instrument; that he/she knows the seal of said
entity, that the seal affixed to said instrument is such seal, that it was so
affixed by order of said entity, and that he/she signed his/her name thereto by
like order.

Sworn to before me this_______

day of ___________, 199__.

Notary

<PAGE>

STATE OF NEW YORK )

: ss.

COUNTY OF NEW YORK )

On this __________ day of __________ , 199__ , before me personally came
__________ , to me known, who being by me duly sworn, did depose and say that
he/she resides in _________ at __________ ; that he/she is a Vice President of
THE CHASE MANHATTAN BANK, the corporation described in and which executed the
foregoing instrument; that he/she knows the seal of said corporation, that the
seal affixed to said instrument is such corporate seal, that it was so affixed
by order of the Board of Directors of said corporation, and that he/she signed
his/her name thereto by like order.

Sworn to before me this______

day of , 199__.

Notary

<PAGE>

Investment Company Rider to Global Custody Agreement
Between The Chase Manhattan Bank and

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

effective -------------------

The following modifications are made to the Agreement:

A. Add a new Section 16 to the Agreement as follows:

"16. Compliance with SEC rule 17f-5.

(a) Customer's board of directors (or equivalent body) (hereinafter
`Board') hereby delegates to Bank, and, except as to the country or countries as
to which Bank may, from time to time, advise Customer that it does not accept
such delegation, Bank hereby accepts the delegation to it, of the obligation to
perform as Customer's `Foreign Custody Manager' (as that term is defined in SEC
rule 17f-5(a)(2) s promulgated under the Investment Company Act of 1940, as
amended ("1940 Act")), both for the purpose of selecting Eligible Foreign
Custodians (as that term is defined in SEC rule 17f-5(a)(1), and as the same may
be amended from time to time, or that have otherwise been made exempt pursuant
to an SEC exemptive order) to hold Financial Assets and Cash and of evaluating
the contractual arrangements with such Eligible Foreign Custodians (as set forth
in SEC rule 17f-5(c)(2)); provided that, the term Eligible Foreign Custodian
shall not include any `Eligible Securities Depository.' An Eligible Securities
Depository for purposes hereof shall have the same meaning as in SEC rule 17f-7
as proposed on April 29, 1999. (Eligible Securities Depositories used by Bank as
of the date hereof are set forth in Appendix 1-A hereto, and as the same may be
amended on notice to Customer from time to time.)

(b) In connection with the foregoing, Bank shall:

(i) provide written reports notifying Customer's Board of the placement
of Financial Assets and Cash with particular Eligible Foreign
Custodians and of any material change in the arrangements with such
Eligible Foreign Custodians, with such reports to be provided to
Customer's Board at such times as the Board deems reasonable and
appropriate based on the circumstances of Customer's foreign custody
arrangements (and until further notice from Customer such reports shall
be provided not less than quarterly with respect to the placement of
Financial Assets and Cash with particular Eligible Foreign Custodians
and with reasonable promptness upon the occurrence of any material
change in the arrangements with such Eligible Foreign Custodians);

(ii) exercise such reasonable care, prudence and diligence in
performing as Customer's Foreign Custody Manager as a person having
responsibility for the safekeeping of Financial Assets and Cash would
exercise;

(iii) in selecting an Eligible Foreign Custodian, first have determined
that Financial Assets and Cash placed and maintained in the safekeeping
of such Eligible Foreign Custodian shall be subject to reasonable care,
based on the standards applicable to custodians in the relevant market,
after having considered all factors relevant to the safekeeping of such
Financial Assets and Cash, including, without limitation, those factors
set forth in SEC rule 17f-5(c)(1)(i)-(iv);

<PAGE>

(iv) determine that the written contract with the Eligible Foreign
Custodian requires that the Eligible Foreign Custodian will provide
reasonable care for Financial Assets and Cash based on the standards
applicable to custodians in the relevant market.

(v) have established a system to monitor the continued appropriateness
of maintaining Financial Assets and Cash with particular Eligible
Foreign Custodians and of the governing contractual arrangements; it
being understood, however, that in the event that Bank shall have
determined that the existing Eligible Foreign Custodian in a given
country would no longer afford Financial Assets and Cash reasonable
care and that no other Eligible Foreign Custodian in that country would
afford reasonable care, Bank shall promptly so advise Customer and
shall then act in accordance with the Instructions of Customer with
respect to the disposition of the affected Financial Assets and Cash.

Subject to (b)(i)-(v) above, Bank is hereby authorized to place and maintain
Financial Assets and Cash on behalf of Customer with Eligible Foreign Custodians
pursuant to a written contract deemed appropriate by Bank.

(c) Except as expressly provided herein, Customer shall be solely
responsible to assure that the maintenance of Financial Assets and Cash
hereunder complies with the rules, regulations, interpretations and exemptive
orders promulgated by or under the authority of the SEC.

(d) Bank represents to Customer that it is a U.S. Bank as defined in
Rule 17f-5(a)(7). Customer represents to Bank that: (1) the Financial Assets and
Cash being placed and maintained in Bank's custody are subject to the 1940 Act,
as the same may be amended from time to time; (2) its Board: (i) has determined
that it is reasonable to rely on Bank to perform as Customer's Foreign Custody
Manager (ii) or its investment adviser shall have determined that Customer may
maintain Financial Assets and Cash in each country in which Customer's Financial
Assets and Cash shall be held hereunder and determined to accept the risks
arising therefrom (including, but not limited to, a country's financial
infrastructure), prevailing custody and settlement practices, laws applicable to
the safekeeping and recovery of Financial Assets and Cash held in custody, and
the likelihood of nationalization, currency controls and the like) (collectively
("Country Risk")). Nothing contained herein shall require Bank to make any
selection or to engage in any monitoring on behalf of Customer that would entail
consideration of Country Risk.

(e) Bank shall provide to Customer such information relating to Country
Risk as is specified in Appendix 1-B hereto. Customer hereby acknowledges that:
(i) such information is solely designed to inform Customer of market conditions
and procedures and is not intended as a recommendation to invest or not invest
in particular markets; and (ii) Bank has gathered the information from sources
it considers reliable, but that Bank shall have no responsibility for
inaccuracies or incomplete information.

B. Add the following after the first sentence of Section 3 of the
Agreement: "At the request of Customer, Bank may, but need not, add to Schedule
A an Eligible Foreign Custodian where Bank has not acted as Foreign Custody
Manager with respect to the selection thereof. Bank shall notify Customer in the
event that it elects to add any such entity."

C. Add the following language to the end of Section 3 of the Agreement:

"The term Subcustodian as used herein shall mean the following:

(a) a 'U.S. Bank,' which shall mean a U.S. bank as defined in SEC rule
17f-5(a)(7);

2
<PAGE>

(b) an 'Eligible Foreign Custodian,' which shall mean (i) a banking
institution or trust company, incorporated or organized under the laws
of a country other than the United States, that is regulated as such by
that country's government or an agency thereof, (ii) a majority-owned
direct or indirect subsidiary of a U.S. bank or bank holding company
which subsidiary is incorporated or organized under the laws of a
country other than the United States; and (iii) any other entity (other
than an Eligible Securities Depository) that shall have been so
qualified by exemptive order, rule or other appropriate action of the
SEC.

For purposes of clarity, it is agreed that as used in Section 12(a)(i), the term
Subcustodian shall not include any Eligible Foreign Custodian as to which Bank
has not acted as Foreign Custody Manager or any Eligible Securities Depository."

3
<PAGE>

Appendix 1-A

ELIGIBLE SECURITIES DEPOSITORIES

<PAGE>

Appendix 1-B

Information Regarding Country Risk

1. To aid Customer in its determinations regarding Country Risk, Bank
shall furnish annually and upon the initial placing of Financial Assets and Cash
into a country the following information (check items applicable):

A Opinions of local counsel concerning:

___ i. Whether applicable foreign law would restrict the access afforded
Customer's independent public accountants to books and records
kept by an eligible foreign custodian located in that country.

ii. Whether applicable foreign law would restrict the Customer's
ability to recover its Financial Assets and Cash in the event of
the bankruptcy of an Eligible Foreign Custodian located in that
country.

___ iii. Whether applicable foreign law would restrict the Customer's
ability to recover Financial Assets that are lost while under the
control of an Eligible Foreign Custodian located in the country.

B. Written information concerning:

___ i. The foreseeability of expropriation, nationalization, freezes, or
confiscation of Customer's Financial Assets and Cash.

___ ii. Whether difficulties in converting Customer's cash and cash
equivalents to U.S. dollars are reasonably foreseeable.]

C. A market report with respect to the following topics:

(i) securities regulatory environment, (ii) foreign ownership
restrictions, (iii) foreign exchange, (iv) securities settlement and
registration, (v) taxation, and (vi) compulsory depositories (including
depository evaluation).

2. To aid Customer in monitoring Country Risk, Bank shall furnish board
the following additional information:

Market flashes, including with respect to changes in the information in
market reports.

<PAGE>

GLOBAL PROXY SERVICE RIDER

To Global Custody Agreement

Between

THE CHASE MANHATTAN BANK

AND

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

dated ________ 199_.

1. Global Proxy Services ("Proxy Services") shall be provided for the
countries listed in the procedures and guidelines ("Procedures")
furnished to Customer, as the same may be amended by Bank from time to
time on prior notice to Customer. The Procedures are incorporated by
reference herein and form a part of this Rider.

2. Proxy Services shall consist of those elements as set forth in the
Procedures, and shall include (a) notifications ("Notifications") by
Bank to Customer of the dates of pending shareholder meetings,
resolutions to be voted upon and the return dates as may be received
by Bank or provided to Bank by its Subcustodians or third parties, and
(b) voting by Bank of proxies based on Customer Instructions. Original
proxy materials or copies thereof shall not be provided. Notifications
shall generally be in English and, where necessary, shall be
summarized and translated from such non-English materials as have been
made available to Bank or its Subcustodian. In this respect Bank's
only obligation is to provide information from sources it believes to
be reliable and/or to provide materials summarized and/or translated
in good faith. Bank reserves the right to provide Notifications, or
parts thereof, in the language received. Upon reasonable advance
request by Customer, backup information relative to Notifications,
such as annual reports, explanatory material concerning resolutions,
management recommendations or other material relevant to the exercise
of proxy voting rights shall be provided as available, but without
translation.

3. While Bank shall attempt to provide accurate and complete
Notifications, whether or not translated, Bank shall not be liable for
any losses or other consequences that may result from reliance by
Customer upon Notifications where Bank prepared the same in good faith.

4 Notwithstanding the fact that Bank may act in a fiduciary capacity with
respect to Customer under other agreements or otherwise under the
Agreement, in performing Proxy Services Bank shall be acting solely as
the agent of Customer, and shall not exercise any discretion with
regard to such Proxy Services.

5. Proxy voting may be precluded or restricted in a variety of
circumstances, including, without limitation, where the relevant
Financial Assets are: (i) on loan; (ii) at registrar for registration
or reregistration; (iii) the subject of a conversion or other corporate
action; (iv) not held in a name subject to the control of Bank or its
Subcustodian or are otherwise held in a manner which precludes voting;
(v) not capable of being voted on account of local market regulations
or practices or restrictions by the issuer; or (vi) held in a margin or
collateral account.

6 Customer acknowledges that in certain countries Bank may be unable to
vote individual proxies but shall only be able to vote proxies on a net
basis (e.g., a net yes or no vote given the voting instructions
received from all customers).

<PAGE>

7. Customer shall not make any use of the information provided hereunder,
except in connection with the funds or plans covered hereby, and shall
in no event sell, license, give or otherwise make the information
provided hereunder available, to any third party, and shall not
directly or indirectly compete with Bank or diminish the market for
Proxy Services by provision of such information, in whole or in part,
for compensation or otherwise, to any third party.

8. The names of Authorized Persons for Proxy Services shall be furnished
to Bank in accordance with ss.10 of the Agreement. Proxy Services fees
shall be as set forth in ss.13 of the Agreement or as separately
agreed.

2
<PAGE>

SPECIAL TERMS AND CONDITIONS RIDER

GLOBAL CUSTODY AGREEMENT

WITH ----------------------------------------

DATE ----------------------------------------

<PAGE>

DOMESTIC ONLY

SPECIAL TERMS AND CONDITIONS RIDER

Domestic Corporate Actions and Proxies

With respect to domestic U.S. and Canadian Financial Assets (the latter if held
in DTC), the following provisions shall apply rather than the provisions of
Section 8 of the Agreement and the Global Proxy Service rider:

Bank shall send to Customer or the Authorized Person for a Custody
Account, such proxies (signed in blank, if issued in the name of Bank's
nominee or the nominee of a central depository) and communications with
respect to Financial Assets in the Custody Account as call for voting
or relate to legal proceedings within a reasonable time after
sufficient copies are received by Bank for forwarding to its customers.
In addition, Bank shall follow coupon payments, redemptions, exchanges
or similar matters with respect to Financial Assets in the Custody
Account and advise Customer or the Authorized Person for such Account
of rights issued, tender offers or any other discretionary rights with
respect to such Financial Assets, in each case, of which Bank has
received notice from the issuer of the Financial Assets, or as to which
notice is published in publications routinely utilized by Bank for this
purpose.

Fees

The fees referenced in Section 13 hereof cover only domestic and euro-dollar
holdings. There shall be no Schedule A hereto, as there are no foreign assets in
the Accounts.

<PAGE>

DOMESTIC AND GLOBAL

SPECIAL TERMS AND CONDITIONS RIDER

Domestic Corporate Actions and Proxies

With respect to domestic U.S. and Canadian Financial Assets (the latter if held
in DTC), the following provisions shall apply rather than the pertinent
provisions of Section 8 of the Agreement and the Global Proxy Service rider:

Exhibit 10(a)

INDEPENDENT AUDITORS' CONSENT

Quantitative Master Series Trust
(formerly Index Master Series Trust)

We consent to the incorporation by reference in this Amendment No. 6 to
Registration Statement No. 811-7885 of our reports dated as follows:

February 16, 1999 S&P 500 Index Series
February 17, 1999 Aggregate Bond Index Series
February 18, 1999 Small Cap Index Series
February 18, 1999 International Index Series

appearing in their respective annual reports to shareholders for the year ended
December 31, 1998.

/s/ Deloitte & Touche LLP
- -------------------------
Deloitte & Touche LLP
Princeton, New Jersey
December 20, 1999

Exhibit 10(b)

CONSENT OF SWIDLER BERLIN SHEREFF FRIEDMAN, LLP

We hereby consent to the reference to our firm included in Part A and Part B of
Amendment No. 6 to Registration Statement on Form N-1A (No. 811-7885) of
Quantitative Master Series Trust.

/s/Swidler Berlin Shereff Friedman, LLP
- ---------------------------------------
Swidler Berlin Shereff Friedman, LLP
New York, New York
December 21, 1999